Smith v Impero Pacific Group Pty Ltd t/as Impero Constructions (No 2)

The background of this matter is set out in my judgment of 26 September 2024. [1]

As I set out in that judgment, the plaintiff, Ms Smith, seeks to challenge an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) on 23 July 2024 that she pay the defendant $419,183.13. On 16 August 2024, the defendant obtained judgment in the District Court against Ms Smith in relation to that determination. The judgment is in the sum of $459,448.95.

Ms Smith has not and, for the reasons I have set out in my earlier judgment, cannot pay into the Court the adjudicated amount.

Accordingly, on 26 September 2024, I acceded to the defendant's application that the proceedings be stayed until Ms Smith paid the adjudicated amount into Court. I concluded by saying:

A factor related to those conclusions was my earlier conclusion that an order staying the proceedings would not likely stultify the proceedings. [2]

The defendant has now served a bankruptcy notice on Ms Smith. This occurred on 4 October 2024.

The defendant was of course entitled to take that course, although bearing in mind Ms Smith's financial position it is hard to see what benefit the defendant thought might enure to it by taking this course.

However that may be, Ms Smith now contends that the service of the bankruptcy notice represents a change in circumstances since my judgment of 26 September 2024 sufficient to warrant my orders made that day being reconsidered.

Thus, by Notice of Motion filed on 11 October 2024, Ms Smith seeks an order that the stay be lifted or discharged.

The bankruptcy notice calls for payment by 25 October 2024. Ms Smith is not able to pay. Unless she is able to obtain from the relevant Federal Court an extension of time, she will commit to an act of bankruptcy on 25 October 2024, Friday of next week, enabling the defendant to present a petition for the making of a sequestration order. If such an order were made, Ms Smith's estate would vest in the trustee in bankruptcy.

As the defendant has chosen to serve a bankruptcy notice, there is no reason to think it would hesitate to serve a petition if an act of bankruptcy were to occur. If Ms Smith becomes bankrupt it is likely that these proceedings for all practical purposes will be stultified, as the proceedings could only then be continued if the trustee elected to continue the proceedings. [3] There is of course no direct evidence of how likely this would be. However, the decision would no longer be Ms Smith's. And bearing in mind the probability that, once Ms Smith's mortgagee, Aura Loan Management Pty Ltd, exercises its power of sale over Ms Smith's Northbridge and Wildes Meadow properties, [4] Ms Smith will have a significant surplus of assets over liabilities, [5] it is hard to see why the trustee would have any interest in electing to continue these proceedings.

Ms Smith's solicitor, Mr James Clancy, has deposed that he has instructions to apply to the relevant Federal Court to seek an extension of the time by which Ms Smith must comply with the bankruptcy notice. If such an application were made prior to 25 October 2024, the time to comply would automatically be extended to the time when the Federal Court determined that application. [6] It is, however, hard to see what basis Ms Smith would have to seek an extension of time to comply with the bankruptcy notice unless she could establish that she has a basis to challenge the judgment underlying the bankruptcy notice, and thus the adjudication determination itself, and within a reasonably foreseeable period of time. Ms Smith could not do it if the stay remains in place.

I see these matters as a material change in the circumstances that, when considered in relation to the other matters to which I referred in my 26 September 2024 judgment, warrant the stay being lifted.

It is true, as Mr Klooster who appears for the defendant has submitted, that lifting the stay leaves the defendant exposed to the prospect of succeeding in these proceedings and obtaining an order for costs but being unable to recover its costs. That is a matter I took into account in my earlier judgment. [7] It is certainly a relevant factor, but in this finely balanced matter it is outweighed by the circumstances to which I have referred.

In any event, Ms Smith has now proffered an undertaking to the Court in these terms:

Thus, Ms Smith undertakes that on the sale of her properties she will pay into Court an amount sufficient to meet the judgment sum but also an amount of $200,000 on account of the costs of these proceedings. That undertaking provides significant comfort to the defendant in relation to the matters to which I have just referred.

I propose to lift the stay, fix this matter for hearing, and make directions to ready the matter for hearing. The only order I will make for the moment is that the stay ordered on 26 September 2024 is lifted.