TFM Epping Land Pty Ltd v Decon Australia Pty Ltd

THE COURT: The applicants, TFM Epping Land Pty Ltd and Katoomba Residence Investment Pty Ltd (the Developers), are judgment debtors of their builder, the respondent Decon Australia Pty Ltd (the Builder). The judgment is in the amount of $6,355,352.46. It is based on the service of a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) by the Builder, and the failure by the Developers to serve a payment schedule in response. It was entered as long ago as 11 October 2019: Vanella Pty Ltd atf Capitalist Family Trust v TFM Epping Land Pty Ltd [2019] NSWSC 1379, and an appeal from it has been dismissed: TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93. There are pending proceedings in the Technology and Construction List between the same parties relating to the same contract as was the subject of the Builder’s payment claim.

Last month, the Developers sought a stay of execution of the judgment, an earlier stay pending appeal having expired. They say they cannot pay the judgment debt, that they are insolvent if the judgment is not stayed, and they have a cross-claim in an amount exceeding the judgment debt.

Just over three weeks ago, the primary judge (Stevenson J) heard the application for a stay of execution, and dismissed it, for reasons delivered very promptly two days after the hearing: Vanella Pty Ltd atf Capitalist Family Trust v TFM Epping Land Pty Ltd [2020] NSWSC 659.

The Developers sought leave to appeal. Their application was heard concurrently with the appeal, and with a high level of expedition. Nonetheless, the Court had the benefit of full written submissions, in chief and in reply, from the Developers, and oral submissions from Mr Christie SC occupying the entirety of the morning of 16 June 2020. All that could have been said on behalf of the Developers was said. Shortly after those submissions were completed, the Court, after conferral, ordered that leave to appeal be refused with costs. These are our reasons for making those orders.

Not least because of the importance placed by the primary judge on the timing of events in the dispute, it will be necessary to attend to the details of the procedural history, which includes one judgment of this Court and two judgments of the Equity Division.

The Developers and the Builder entered into a building contract in late 2016 or early 2017 for the design and construction of a residential development in Epping. The payment claim at the heart of this dispute, which is dated 3 June 2019, records that the contract was for a fixed lump sum of $28,215,000.

The primary judge recorded that an interim occupation certificate was issued on 23 August 2018, the strata plan was registered on 11 September 2018 and the Developers have sold 46 of the 98 residential units.

The judgment debt arose because the Builder served a payment claim pursuant to s 13 of the Act claiming $6,355,352.46. The primary judge recorded that the claim comprised $3,648,208.39 for contracted works (including recovery of a retention of $1,551,825), $1,512,526.40 for variations and interest of $1,193,617.67 (there may be a minor error in one of those amounts, but if so nothing turns on it). The Developers failed to serve a payment schedule within the time required by the Act. They therefore became liable to pay the Builder the $6,355,352.46 referred to in the payment claim, and the Builder was entitled to enforce the rights conferred upon it by the Act.

As is well established, the Act makes provision for payment, if necessary enforceable by judgment, of a builder’s or sub-contractor’s relevantly uncontested claim for claimed but unpaid moneys in order to ensure continuity of cashflow, whilst not precluding the principal from seeking to reverse the effect of such a judgment in later substantive proceedings (see further at [22]ff below).

The Builder commenced two proceedings against the Developers, which may be called (adopting the language of the primary judge) the Construction List proceeding and the SOP proceeding. Another company, Vanella Pty Ltd, was a second plaintiff in the Construction List proceeding, but nothing turns on that for present purposes and we shall not make further reference to it.

The Construction List proceeding was commenced on 27 May 2019. It included claims for the same amounts as the payment claim.

On 12 July 2019, and by consent, the Developers were directed to file and serve a response and any cross-claim by 2 August 2019. The Developers filed a response on 13 September 2019. Nothing turns on that delay. However, the primary judge regarded it as significant that the cross-claim was not filed until 18 May 2020 – 9½ months late, and only after the Developers’ appeal in the SOP proceeding had been dismissed.

His Honour said that nothing of substance occurred in the Construction List proceeding until May 2020. So far as is disclosed by the materials made available in this Court, that was an accurate statement.

The SOP proceeding was commenced on 3 July 2019 following the Developers’ failure to serve a payment schedule in response to the payment claim. Relying on its rights under the Act, the Builder sought judgment for the $6,355,352.46 and moved for summary judgment. It is unclear why the Builder moved for summary judgment, and indeed Henry J noted at [155] that there was little difference between a summary and final determination of the issues which arise following the failure to provide a payment schedule.

A hearing took place on 18 September 2019. In her reasons delivered on 11 October 2019, her Honour rejected the claim that a document relied on by the Developers was a payment schedule: [2019] NSWSC 1379 at [134]. She ordered judgment in the amount of the payment claim on 11 October 2019: Vanella Pty Ltd atf Capitalist Family Trust v TFM Epping Land Pty Ltd [2019] NSWSC 1379.

The Developers appealed. In the interim, a stay of execution was put in place, on terms which included undertakings given by the Developers concerning their assets: Decon Australia Pty Ltd v TFM Epping Land Pty Ltd (No 2) [2020] NSWSC 312. The appeal was heard on 21 April 2020, and dismissed on 14 May 2020: TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 93.

There was a question arising on the earlier appeal, having regard to the entitlement under the Act to move for final judgment, whether the judgment was final or interlocutory for the purpose of leave. This Court granted leave to the extent necessary and dealt with the Developers’ points substantively. The only issues were whether the payment claim was invalid, because the claim was not made under the contract, or had not been made in respect of an available reference date, or had not been validly served (no challenge was made to the finding that no payment schedule had been provided). The Court noted at [17] that two of the three points advanced had not been raised at first instance. All of the Developers’ points were rejected by judgment delivered on 14 May 2020.

Four days after their appeal was dismissed (and the interlocutory stay pending appeal discharged), on 18 May 2020, the Developers filed a cross-claim in the Construction List proceeding, alleging that the Builder was not entitled to the retention or the variation claims, and was additionally liable for defects in an estimated amount of $4,787,810.50 and general damages in an unquantified amount.

On the strength of that cross-claim, the Developers sought a stay of execution of the judgment, once again offering undertakings concerning their assets.

It is convenient to note an important difference between the application for a stay of execution that the Developers obtained pending resolution of their earlier appeal to this Court and that which they subsequently sought from Stevenson J. It is one thing to apply for a stay of execution of a judgment when that judgment is itself the subject of an appeal. It is another thing to accept, as the Developers must, that they can no longer directly challenge the judgment obtained in the SOP proceeding, and now can only hope following a final hearing of the claims in the Construction List proceeding to achieve a result which has the practical effect of reversing the presently established entitlement of the Builder to the judgment debt of $6,355,253.46.

The principal basis of the stay of execution sought from Stevenson J and now from this Court in the event that leave is granted was and is that the Developers cannot pay the $6,355,352.46 now due under the judgment, and they have defences to the claims giving rise to the judgment debt and a cross-claim exceeding that judgment debt. This was advanced as an instance of, or analogous to, a “Grosvenor stay”, by reference to Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico [2004] NSWSC 344. The Developers’ position was encapsulated in their written submissions:

In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [72]-[74], Sackville AJA (with whom the other four members of the Court agreed) summarised the Act as follows (omitting citations):

In Style Timber Floor Pty Ltd v Krivosudsky (2019) 100 NSWLR 133; [2019] NSWCA 171 at [25] it was said:

In particular, and focussing on the provisions applicable in the present case, if a claimant serves a payment claim and the respondent does not provide a timely payment schedule, then “the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates”: s 14(4). If the respondent which is liable to pay the claimed amount under s 14(4) fails to do so, then the claimant is entitled to the rights under s 15(2), one of which is an entitlement to recover the unpaid portion of the claimed amount as a debt in any court of competent jurisdiction (s 15(2)(a)(i)) while the respondent becomes subject to the disabilities in s 15(4)(b), namely, that it is not entitled to bring any cross-claim or to raise any defence in relation to matters arising under the construction contract.

Thus the Act provides for a speedy but interim determination and enforcement of disputes arising out of construction contracts through the service of payment claims and payment schedules and adjudications, leading to an entitlement to payment, enforcement of the parties’ entitlements by way of judgment, and ultimately if necessary by way of execution, but without affecting the parties’ contractual rights as determined in the ordinary way in litigation.

It is not uncommon for a developer to be found liable under the Act to pay a large amount to a builder, and for there to be a well-founded concern that, in the event that the litigation produces a different result from the payments made pursuant to the Act, the builder will be unable to repay the money. In such circumstances, a stay of execution of the judgment pursuant to the rights created by the Act may be ordered, often on terms that the developer pay the money which is the subject of the liability under the Act into Court. That is the approach which the Developers sought to invoke.

But in the present litigation, the Developers do not suggest that there is any risk that the Builder will be unable to repay the judgment debt. Nor is it proposed that the Developers will pay anything into Court. The Developers say that they cannot pay, and for that reason there should be a stay.

The primary judge rejected any analogy with a “Grosvenor stay”.

The primary judge framed the question, in accordance with the Developers’ submission, as being whether the requirements of justice warranted a stay of execution: at [35]-[36]. His Honour proceeded on the basis that whether what was in effect injunctive relief would be granted turned upon whether there was a serious question to be tried that the Developers would succeed on their cross-claim, and whether the balance of convenience favoured granting relief. His Honour accepted there was a serious question to be tried that the Developers would achieve some measure of success, but regarded it as a matter of speculation whether they would recover more than the judgment. He also accepted that, considered in isolation, the balance of convenience leaned in favour of granting a stay: at [40].

However, his Honour said at [42] that “there are anterior matters, each of which tends against granting the stay sought”. Paragraphs [43]-[59] fall under the heading “Anterior matters”, and conclude with a statement to the effect that they were dispositive, notwithstanding certain matters subsequently addressed which tended in favour of a stay.

Accordingly, it is important to consider separately the matters which his Honour regarded as dispositive, and those which had non-dispositive weight.

The first “anterior matter” was the Developers’ delay. His Honour noted at [43] that, as long ago as 11 October 2018, the Developers had acknowledged the indebtedness, but had contested every step taken by the Builder to enforce it. His Honour said at [45] that:

Moreover, and contrary to directions for the Developers to file any cross-claim some 9 months earlier, none was filed until after the Developers had failed to resist the Builder’s claims in the proceedings brought under the Act, where the same issues arose. The primary judge noted at [49] that the Developers’ failure was not explained by evidence before him, and at [51] that the consequence was that, had the cross-claim been pursued earlier, “that would have provided a basis on which they could have sought from Henry J a stay of the Judgment pending prosecution of that cross-claim on the basis now agitated before me”.

His Honour said at [52]-[55] that:

The primary judge then turned to the statutory context, saying that:

His Honour concluded that for those reasons, and “notwithstanding ... my conclusions about serious question and balance of convenience set out below”, the requirements of justice did not in this case warrant the granting of the stay sought by the Developers: at [59].

His Honour thereafter addressed serious question and balance of convenience at [60]-[95]. His Honour commenced by noting that while he accepted that there was a serious question to be tried that the Developers would establish that the Builder had some liability under the cross-claim, he considered that “on the basis of the evidence before me it is no means clear to what extent the Developers will be successful”, or whether that amount would exceed the judgment debt: at [62].

His Honour then observed that oral submissions had focussed upon four matters.

The first concerned the retention. His Honour noted that the contract provided that the Developers were entitled to retain 50% of the retention until a certificate of practical completion was issued and the balance of retention until a “final certificate” was issued. His Honour said that there was no evidence that the final certificate had issued, and unchallenged evidence from the Developers’ Financial Controller that the Developers had not been told that practical completion had been reached. However, his Honour said that work on the project was “evidently complete”, since 46 of the 98 units in the development had been sold. His Honour concluded at [70]:

The second concerned the claimed variations. His Honour observed that, while the Developers’ Financial Controller said she was unaware of any variation, there was no evidence from the Developers’ sole director (Mr Zhang) nor from the Builder. There was also no evidence of whether the Builder had in fact performed work entitling it to be paid as a variation, and his Honour noted that the Developers did not submit that no work in the nature of a variation had in fact been performed.

The third concerned the claimed defects. There was evidence that the Builder had used a product for cladding which the Commissioner of Fair Trading had declared to be a “banned product”. The banning order was made 13 days before an interim occupation certificate was issued, leading to the inference that the work done by the Builder had predated the product being banned. There was evidence that the removal of some of the cladding would cost some $1.5 million, although the primary judge stated that the evidence did not reveal whether this represented all of the facade, and that his attention had not been drawn to any evidence that all of the facade had to be replaced: at [82]. The primary judge also noted that the Developers had served an expert report which “simply asserts, without explanation, that costs of investigation and repair of defects in the development will be between $2.4 and $3.7 million”: at [84]. His Honour concluded that there was a serious question concerning defects which required attention, but was not satisfied that there was “any basis upon which any conclusion could now confidently be made as to what the costs of repairing those defects might be”.

The fourth concerned delay. The primary judge reproduced a submission concerning the claim of delay:

His Honour concluded that there might well be a serious question to be tried as to whether there had been delay in the works which might entitle the Developers to general damages, but that his attention had not been drawn to any evidence that would allow him to come to any conclusion as to what amount the Developers might recover.

Finally, on the balance of convenience, his Honour summarised the Developers’ case thus:

His Honour referred to a statutory demand which the Builder had issued, an application to set aside which was to be determined by the Federal Court of Australia on Monday 1 June 2020. His Honour stated that, in the absence of a stay, there appeared to be at least a prospect that the Developers would be forced into liquidation and, if that were that to happen, the cross-claim could not proceed unless the liquidator were funded to, and agreed to, prosecute it. His Honour accepted that that was a matter in favour of a stay being granted, and considered that it was unnecessary to deal with the value of the undertakings offered by the Developers as the price of a stay save to say that his Honour accepted they had some value and, again, taken in isolation, favoured the granting of a stay.

However, his Honour did not consider that those six matters outweighed the points earlier relied upon, giving a reference to paragraphs [43]-[59] (the paragraphs under the heading “Anterior matters”).

The parties included, helpfully, the transcript of the hearings in the Federal Court on 1 and 2 June 2020. The Federal Court was told that this appeal could be heard on 16 June, and adjourned the hearing of the application to set aside the statutory demand to 24 June 2020.

The Developers acknowledged that they needed to establish House v The King (1936) 55 CLR 499; [1936] HCA 40 error, and that there was a threshold question of the grant of leave, the orders made by the primary judge being interlocutory.

In this Court, the Developers maintained that the principles in the Grosvenor line of authority apply, either directly or by way of analogy. While acknowledging that the central purpose of the Act was to ensure that builders were not denied cashflow, they added that another purpose was to ensure that the interim rights created by the Act do not by default become final.

The Developers contended that there were many instances in which a “Grosvenor” jurisdiction had been exercised, whether or not the judgment obtained pursuant to the rights created by the Act followed an adjudication or the failure to serve a payment schedule. In their written submissions they relied on what was said in Bellerive Homes Pty Ltd v FW Projects Pty Ltd [2018] NSWSC 1435 at [61]:

They acknowledged that all the decided cases involve stays sought by a principal in respect of a judgment obtained by a contractor based on the apprehended insolvency of the contractor. But they submitted:

The Developers placed considerable reliance on s 32 of the Act:

The Developers made three points about s 32.

Section 32 was central to the submission developed orally that the primary judge erred in stating that the granting of a stay was inconsistent with the scheme of the Act. The Developers submitted that s 32 permitted a court to “undo” the effect of a judgment under the Act, and preserved all of the parties’ rights at common law, relying on what Handley JA had said in Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd (2005) 62 NSWLR 385; [2005] NSWCA 49 at [22]:

Insofar as the refusal of a stay would have the practical effect of stultifying their cross-claim, being a right expressly preserved under s 32, the Developers submitted that granting a stay was wholly consistent with the statutory purpose of not permitting interim rights to become final rights.

In that context, the Developers contended that there was error by the primary judge in regarding the application as inconsistent with the Act. They submitted:

Relying upon Kalifair Pty Ltd v Digi-Tech (Australia) Pty Ltd (2002) 55 NSWLR 737; [2002] NSWCA 383 at [21]-[25], the Developers submitted that if they were forced into liquidation, that would inevitably prejudice their ability to pursue their final rights against the Builder, and this, so they said, is contrary to s 32 of the Act.

The Developers placed considerable emphasis on Kalifair in oral submissions. It was said that that appeal proceeded on the basis that the winding up of an appellant was itself sufficient prejudice to warrant the grant of a stay. Mr Christie conceded that Kalifair was merely analogous to the present case, and that concession was properly made. The issue in Kalifair was whether there should be a stay of execution of judgment pending an appeal from that very judgment. But there can be no appeal from the judgment which is the subject of the Developers’ application (there has already been an appeal, which has been dismissed and there was no suggestion that special leave to appeal had been sought, there being no right of appeal to the High Court). Rather, the Developers contend that the principle in Kalifair applies where the rights flowing from the judgment are qualified by s 32, and there has not yet been a determination on the merits of the issues presented in the Builder’s Construction List Statement or the Developers’ Cross-Claim.

Mr Christie’s point was that Kalifair stood for the proposition that the appointment of a liquidator was of itself irreparable prejudice, sufficient to warrant a stay of execution as a matter of principle.

The Developers also invoked what had been said by Sackville AJA, with the agreement of the other members of the Court, in Seymour Whyte Constructions at [254]:

The Developers emphasised the first limb of that formulation, to the effect that they had a seriously arguable claim, which, at least in part, had been recognised by the primary judge. The Court drew attention to the second limb of that formulation, which turns upon establishing that the failure to grant relief would, at least ordinarily, have the practical effect of making the rights created by the Act permanent.

This led to the following exchange:

Ultimately, we understood Mr Christie to accept that he bore the onus of demonstrating such a practical effect. He did so by contending that the appointment of a liquidator would be the probable consequence of the refusal of a stay, and that a liquidator might not pursue the cross-claim, and would certainly not do so unless funded.

Mr Christie was confronted with difficulties in the Developers’ evidence, including the following.

The Developers’ written submissions attacked what they said might be an implied criticism of their failure to file and prosecute their cross-claim months ago. In their written submissions, they contended that there was in fact no criticism, that the course taken was consistent with Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 and Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd (2018) 98 NSWLR 712; [2018] NSWCA 276, and that “it is most difficult to see how [the Developers] could be criticised for waiting until after their unsuccessful appeal”. They say that it was prudent not to plead out a cross-claim until after the appeal from the Security of Payments Act judgment was determined, and that they had the benefit of a stay pending appeal.

It was pointed out that the portion of his Honour’s judgment dealing with unexplained delay was a significant aspect of his rejection of the application for a stay. In response it was contended that that there should be no criticism of the delay in bringing the cross-claim, in circumstances where the Developers’ primary objective had been to set aside the judgment in the SOP proceeding, and where, once that appeal had failed, they had moved promptly. However, Mr Christie accepted, very properly, that it had been erroneous not to comply with the Court’s direction to file any cross-claim by 2 August 2019, and that there had been a non-compliance with s 56 of the Civil Procedure Act 2005 (NSW).

The Developers confirmed that there was no evidence explaining the delay in filing the cross-claim until shortly after they had lost their appeal.

It is not necessary to summarise the Builder’s written submissions.

We start with the threshold question of leave, the decision of the primary judge to dismiss an application for a stay being interlocutory, and concerning a point of practice and procedure. Generally it is appropriate only to grant leave to appeal in cases that involve issues of principle, or questions of public importance, or where it is reasonably clear that an error has been made, going beyond what is merely arguable, that occasions an injustice: Be Financial Pty Ltd as Trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [32]-[38]; The Age Co Ltd v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26 at [13].

It was not said that there was any reasonably clear error occasioning injustice. The only point of principle or public importance was said to be the applicability of a “Grosvenor stay” to the present case. The applicability of an established point of principle to the facts of a given case is very different from a case which raises a point of principle that is contested or uncertain or still evolving. Further, the primary judge rejected the Developers’ submission based on the application of Grosvenor to the facts of this case. His Honour was correct to take that course.

The primary judge was asked to give a highly expeditious determination, in light of the proceedings commenced by the Developers in the Federal Court. His Honour evidently regarded it as self-evident that the application before him for a stay was inconsistent with the regime established by the Act. We agree. In light of the Developers’ submissions, it is as well to explain more fully why that is so.

Grosvenor concerned a stay of execution of the judgment debt created pursuant to the Act in circumstances where there was a countervailing claim against the builder and the builder might be unable to repay the amount in the event the claim succeeded. The reasoning in Grosvenor has not been accepted without qualification. In particular, it was the subject of what Payne JA stated (in Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33 at [31]) was an “important qualification” in McDougall J’s judgment in Veolia Water Solutions & Technologies (Australia) Pty Ltd v Kruger Engineering Australia Pty Ltd (No 3) [2007] NSWSC 459 (Veolia). McDougall J gave a careful account of the principles applicable in the exercise of a discretion in this category of case at [72]-[75]:

Those paragraphs were cited, with evident approval, in Seymour Whyte Constructions at [69], and part of the last sentence of paragraph [75] was quoted in the passage from Seymour Whyte Constructions which we have extracted at [60] above.

There is nothing in that analysis to suggest that the same principles should apply when a judgment debtor cannot pay a judgment ordered pursuant to the rights created by the Act, whether following an adjudication or the failure to supply a payment schedule.

Mr Christie invoked what was said about avoiding the position whereby a cross-claim would become “worthless”. But the reasoning underlying the Grosvenor line of authority is inapt to extend to the present facts. McDougall J was referring to a principal’s cross-claim becoming worthless because a cross-defendant, which had received a payment pursuant to rights obtained under the Act, would be unable to meet the judgment following a curial determination of the cross-claim. That bears no comparison to what is propounded by the Developers, namely, that because they will become insolvent, their cross-claim may never be litigated.

It is also to be borne in mind that there has been no suggestion of any solvency risk on the part of the Builder, another factor which strongly distinguishes the present proceedings from Grosvenor and other decisions which have applied it.

Nor is there anything supportive of the Developers’ position in terms of principle. To the contrary, the principles and policy underlying the Act point in the opposite direction.

The basal purpose of the Act is to create a speedy determination pro tem to ensure that progress claims are dealt with and paid promptly. An essential aspect of that regime is that the rights created under it are enforceable as if there had been a final determination by a court, save only for the fact that they do not create a res judicata or any issue estoppels.

The Act creates liabilities which may be claimed as a debt in a court of competent jurisdiction if they are not promptly paid. The Act provides that if there is a hearing in the court in which the debts created by the Act are sued for, the party which has not paid is severely limited in what can be advanced by way of defence or cross-claim. The evident and intended statutory consequence is that in some cases the statutory entitlement will lead to a judgment debt.

There is nothing in the Act to suggest that a judgment thereby obtained is somehow any less enforceable – in the sense that the ordinary options available to a judgment creditor by way of execution are diminished or unavailable – than any other judgment. To the contrary, all of the provisions are directed to permitting progress claims to be paid, including if necessary by execution of the judgment.

To this there is the possible exception of s 32, and the general proposition that the Court will intervene, albeit cautiously, in order to prevent the interim rights created by the Act from being made permanent. We deal with each of these points below.

True it is, as the Developers submitted, that s 32 of the Act alters the quality of a judgment obtained pursuant to the regime established by the Act in important ways. In particular, s 32 makes it clear that the judgment gives rise to no res judicata or issue estoppels. But we do not agree that s 32 itself applies at the level of practical effect on which the Developers’ submissions turned, and in the sense described in Seymour Whyte Constructions and Veolia (see [60] and [72] above).

The Developers said that s 32 confirmed that a judgment obtained pursuant to the regime established by the Act would not detract from a party’s rights at law. They went on to submit that the practical effect of execution of the judgment would be to stultify the Developers’ ability to vindicate their contractual rights, and thus the failure to grant a stay was contrary to s 32.

But s 32 speaks only to the legal rights of the parties. It does not speak to the practical effect upon them. It cannot be the case that the operation of s 32 depends upon whether, say, a developer is in a liquidity crisis or alternatively has deep reserves of liquid assets; that would be to introduce uncertainty and contestability and to mean that the qualifications in s 32 had a varied operation depending upon the financial circumstances of the parties (which might not be known to each other).

Putting the matter another way, if as the Developers fear, a liquidator is appointed to them, the Developers will still enjoy precisely the same rights to prosecute their cross-claim as they presently enjoy. True it is that the decision to pursue the cross-claim will become that of the liquidator, rather than that of the Developers’ sole director, but s 32 is only expressed not to affect the rights of parties.

In short, s 32 does not mean that the primary judge was wrong to regard the application as inconsistent with the Act. To the contrary, the focus on the Act of ensuring the progress payments are paid tells against a stay of execution by a developer who has failed to pay a progress claim or raise a payment schedule and thereby become (a) liable to the pay the debt created by s 14 of the Act and (b) liable for the judgment which is readily obtainable under s 15 of the Act.

None of the foregoing detracts from the principles applied by the primary judge that permit a stay of execution to be granted, no differently from the fact that a stay of execution may in an appropriate case be granted in respect of any other judgment. We respectfully agree with N Adams J, in a sentence immediately preceding a passage from her judgment in Bellerive Homes Pty Ltd v FW Projects Pty Ltd reproduced in the Developers’ written submissions:

That must, with respect, be so. It is a consequence of the legislative purpose of giving cashflow to builders and subcontractors in advance of a final hearing in a court, which is absent in, say, a judgment arising on a debt owed to a bank or following an action for personal injury.

As McDougall J said in Veolia at [75], a court may nonetheless intervene where there is the likelihood of irreparable prejudice. In such a case a Court will be cautious, in light of the policy of the statute, but it may do so where the practical effect is to make permanent that which the legislature intended to be merely interim.

True it is that in such a case the Court will have regard to the practical effect upon the parties. But the onus must rest on the party who seeks relief which will prevent the ordinary operation of the processes authorised by the Act, and it is to be borne in mind that a Court will be cautious when intervening, not least because to do so detracts from the primary purpose of the Act in enabling a builder to be paid.

The Developers acknowledged that their financial position showed a surplus of assets over liabilities, if one included provision for the cross-claim, but maintained that they were unable to pay their debts as they fell due because of a deficiency of liquid assets, unless there was a stay of execution. But here the evidentiary gap was identified during the hearing:

But the Builder made it plain in its written submissions that it did not accept that the Developers could not, having regard to the support they were apparently receiving from their owner, pay their debts as they fell due. The Builder submitted in writing that the evidence established that the Developers were subsidiaries of Tasman Development Holdings Pty Ltd, that there was no evidence of that company’s financial position, that the Developers had been represented by senior and junior counsel in repeated applications despite admissions that they were insolvent, that they were evidently not self-funded, and concluded:

In response to this, the Developers put that the fact that a related party might be funding the litigation was not a relevant consideration (“We would respectfully submit that the mere fact that a related party may be financing the litigation is not a relevant consideration, with great respect”). We disagree.

The judgment debtors seek a stay of execution, on the basis that otherwise they are insolvent, but they wish to sue the judgment creditor and to do so while being funded by others. The consequence is that the judgment creditor is not only denied its rights, but will be obliged to spend further funds against litigants against which it may not ever be able to enforce a costs order. We accept that there may nonetheless be occasions where a stay of execution is appropriate (quite possibly on terms), but reject the submission that funding by a related party is irrelevant to the discretion to deny a judgment creditor any or all of its rights of execution. After all, the Developers invoke a jurisdiction to be exercised having regard to the interests of justice. There is no reason to approach the exercise of that discretion narrowly. It is far from irrelevant to have regard to the fact that third parties are funding and hoping to benefit from the litigation, while seeking to prevent the execution of a judgment debt.

Further, the Developers’ reliance upon statements that statutory demands are not to be used merely to recover debts was misplaced. There is nothing wrong with a creditor issuing a statutory demand for an undisputed debt which the debtor refuses to pay. As Austin J said in Moutere v Deputy Commissioner of Taxation [2000] NSWSC 379; 34 ACSR 533 at [54]:

The same point was made in In the matter of Pages Sales Pty Ltd [2016] NSWSC 616 at [28] and In the matter of Tesrol Holdings Pty Ltd [2013] NSWSC 1534 at [64]. In the latter case, Black J said:

In order to establish that the practical effect of failing to obtain a stay of execution was the winding up of the Developers, it was necessary for the Developers to show that those standing behind them, and who have evidently been prepared to fund proceedings before Henry J, Stevenson J and this Court on two occasions and who are prepared to litigate the cross-claim in the Construction List, are unwilling or unable to permit the Developers to meet the judgment debt. The evidence falls well short of establishing that.

As was pointed out during the hearing, in the analogous case of a defence to an application for security for costs that the order of security would stultify the litigation, it is incumbent upon the party opposing the order for security to show that those standing behind it are unable to provide security. In Live Board Holdings Ltd v Cody Live Pty Ltd [2017] NSWCA 302 at [90] this Court said:

The position is a fortiori in the case of seeking a stay of execution of a final judgment, as distinct from opposing an application for security for costs.

Next, let it be assumed that liquidators are appointed to the Developers. It is to be presumed that they would consider the merits of the litigation, and in particular the cross-claim, and make a rational decision whether to pursue it. If the claim is strong enough to warrant it being litigated, there is nothing to suggest that it will not be litigated; indeed, as was pointed out during the hearing, the liquidators would be subject to a duty to prosecute it in the interests of creditors, if funding was available. It has not been shown that the funding to pursue the cross-claim apparently presently available would not equally be available to a liquidator, in which case there would be no practical stultification of the Developers’ rights to pursue the cross-claim.

Assuming the cross-claim is worth pursuing, there is in any event a ready market of litigation funding which a liquidator could prima facie avail himself or herself of, if the Developers’ creditors or shareholders are unwilling to provide funding. Once again there is nothing in the evidence to suggest that winding up or any other form of external management would stultify the Developer’s cross-claim.

It follows that the Developers have failed to show that the practical effect of the failure to obtain a stay would prevent the litigation of the cross-claim and that the interests of justice require a stay of execution of the judgment. Such a stay, moreover, would be until determination of the Construction List proceeding. That matter is at a very early stage with pleadings apparently not closed. The likely length of the stay sought would greatly be to the prejudice of the Builder.

We should also note that we do not accept the Developers’ submissions that there was no express criticism of their delay in filing a cross-claim. The criticism by the primary judge of the Developers’ delay is palpable, and occupies [44]-[55] of the dispositive paragraphs of the judgment. That criticism was amply justified.

The Developers have been in breach, by many months, of a direction to file and serve any cross-claim. There is no explanation by way of evidence as to why they delayed. If, as the Developers contend, the cross-claim is soundly based, then what has occurred over the year during which the proceedings have been on foot prior to 18 May 2020 when the cross-claim was filed is, to our minds, difficult to reconcile with the obligations imposed by s 56 of the Civil Procedure Act to facilitate the just, quick and cheap resolution of the real issues. Those obligations are, by s 56(3) and (4), imposed on both the parties and their legal representatives. The consequence of the Developers’ delay is that there has not even been an exchange of pleadings, let alone an exchange of evidence, on the issues presented on the cross-claim.

The Developers sought urgent interlocutory relief staying the execution of a judgment which was obtained in October 2019. They did so on the basis of a cross-claim which was filed more than 9 months after they had been directed to do so. They provided no explanation for their delay. It was entirely appropriate for the primary judge to have regard to these matters.

The only question of principle or general importance identified by the Developers is not made out. Further, what has been said above (which goes beyond the reasons given by the primary judge) concerning the failure on the part of the Developers to make out a case that the practical effect of failing to obtain a stay would stultify the litigation of the cross-claim is another reason telling against the grant of leave.

The Developers also raised complaints, at the level of detail, concerning some aspects of the assessment of the strength of the cross-claim. None of this was dispositive in the reasons of the primary judge. None alters the position that this is not a case which warrants a grant of leave. In light of the fact that the issues arising on the cross-claim may go to trial in the future, it is inappropriate to enter into their detail.