A-Civil Aust Pty Ltd v Ceerose Pty Ltd

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

HEADNOTE [This headnote is not to be read as part of the judgment] The applicant, A-Civil Aust Pty Ltd (A-Civil), was a subcontractor of the first respondent, Ceerose Pty Ltd (Ceerose), in relation to two developments. On 25 and 30 May 2022, A-Civil served Ceerose with separate payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act). Both payment claims were disputed by Ceerose. An adjudicator was appointed and issued two separate determinations that Ceerose pay moneys to A-Civil. Ceerose challenged the determinations in the Technology and Construction List. The amounts the subject of the determinations were paid into Court. On 20 March 2023, Darke J found that each determination was affected in part by jurisdictional error, and on 20 April 2023, set each Determination aside in part. Appeal proceedings in this Court are listed for hearing shortly. Ceerose has sought a stay of any payment out to A-Civil of funds paid into Court by Ceerose on two bases; first, that payment out be stayed until completion of yet to be commenced contract proceedings contemplated by s 32 of the Security of Payment Act and, secondly, pending determination of the appeal from Darke J's decision. A-Civil produced various documents in response to interlocutory orders made on 5 December 2022. On 20 April 2023, Ceerose served a notice to produce, which A-Civil sought to set aside. On 15 May 2023, the primary judge held that A-Civil should produce, subject to a confidentiality regime, the entirety of A-Civil's electronic financial records. A-Civil applied for leave to appeal from that order. The Court, granting leave to appeal and allowing the appeal, held: 1 The policy of the Security of Payment Act is to ensure that a contractor who carries out construction work for a principal receives progress payments for carrying out that work. The risk that the contractor might not be able to refund moneys ultimately found to be due to the principal after a successful action under the contract is a risk which is assigned to the principal: [19]-[20]. This policy is underlined by s 32B of the Act, which denies the benefits of the legislation only to companies in liquidation. Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4; R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390; [2008] QCA 397 at [40] applied. 2 Where money is paid into court at the commencement of a case seeking to set aside an adjudicator's determination, the court has power to stay the payment out of that money pending resolution of proceedings seeking judicial review of that determination. The court also has power to grant an injunction or stay pending final resolution of related contractual proceedings. However, in exercising either of these powers, the principles governing the grant of interlocutory relief will be constrained by the need to give effect to the statutory policies of the Security of Payment Act: [21]-[22], [31]. Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4; Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459; TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118; Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33; Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99; Colbran, in the matter of PBS Building Pty Limited (Administrators Appointed) [2023] FCA 276 applied. 3 The application of the principles set out above is a matter of general importance warranting the granting of leave to appeal. The effect of the order for production of financial records by the party not bearing the onus of proof in relation to solvency is, or should be, unusual: [32]-[33]. Australian Securities and Investments Commission v Schlaepfer [2017] NSWCA 247: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284; Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 applied. 4 The notice to produce sought production of documents referred to in an earlier affidavit which A-Civil did not rely on. Ceerose was not entitled to investigate any doubt or question about those documents by conducting an enquiry into the solvency of A-Civil. The primary judge fell into error by failing to address the fact that A-Civil did not rely on those documents: [37]-[38]. Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353; [1949] HCA 26 applied. 5 Further or fresh evidence which fails to assist in establishing the insolvency or risk of insolvency of a sub-contractor should not be admitted on appeal. The additional affidavit evidence which Ceerose sought to rely on would not achieve a different outcome on the re-exercise of the relevant discretion. Whether or not s 75A(7) of the Supreme Court Act 1970 (NSW) applies to an application for leave to appeal, to withhold evidence to the day of the hearing is not to be condoned: [41]-[45]. 6 In re-exercising the discretion, no order should be made ordering the production of the entirety of the financial records of A-Civil. Ceerose did not establish an entitlement to the extensive documents sought in its notice to produce. To make out its claims for injunctive relief against the making of any payment to A-Civil pending the determination of other proceedings, Ceerose was required to establish a basis for finding that there was a real likelihood that it would not be able to recover from A-Civil any amount which ultimately proved to be an over-payment: it did not do so: [51]-[52].

Judgment

1. THE COURT: The respondent, Ceerose Pty Ltd (Ceerose) is a building contractor. The applicant, A-Civil Aust Pty Ltd (A-Civil), was a subcontractor of Ceerose in relation to a development in York Street, Sydney and a separate development in Greenknowe Avenue, Elizabeth Bay. The present application for leave to appeal relates to an interlocutory judgment requiring A-Civil to produce extensive financial records to establish its solvency, failing which Ceerose seeks to prevent payment to A-Civil of moneys to which it is entitled, at least on an interim basis, under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("Security of Payment Act").

Contractual and procedural background

1. The contract between the parties in relation to York Street was entered into on about 6 October 2021. On 30 May 2022, A-Civil served Ceerose with a payment claim under the Security of Payment Act. The payment claim was disputed by Ceerose. The second respondent, Mr Tuhtan, was appointed as adjudicator. On 2 August 2022, Mr Tuhtan issued a Determination that Ceerose pay A-Civil $2,045,453.97. Proceedings were commenced in the Technology and Construction List of the Court seeking to set aside the Determination for jurisdictional error. Interlocutory and final injunctions were sought seeking to prevent A-Civil from taking any steps to enforce the Determination, pending resolution of contractual proceedings contemplated by s 32 of the Security of Payment Act which have yet to be commenced. Pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, $2,045,453.97 was paid into Court by Ceerose.
2. The contract between the parties in relation to Greenknowe Ave was entered into on about 2 December 2021. On 25 May 2022 A-Civil served Ceerose with a payment claim under the Security of Payment Act. The payment claim was disputed by Ceerose. The second respondent, Mr Tuhtan, was appointed as adjudicator. On about 11 July 2022, Mr Tuhtan issued a Determination that Ceerose pay A-Civil $349,324.36. Proceedings were commenced in the Technology and Construction List of the Court seeking to set aside the Determination for jurisdictional error. Interlocutory and final injunctions were sought seeking to prevent A-Civil from taking any steps to enforce the Determination, pending resolution of proceedings contemplated by s 32 of the Security of Payment Act which have yet to be commenced. Pursuant to s 25(4) of the Security of Payment Act, as a statutory condition of commencing the challenge to the validity of the Determination, $349,324.36 was paid into court by Ceerose.
3. On 20 March 2023, Darke J found that each Determination was affected by jurisdictional error: Ceerose Pty Ltd v A-Civil Aust Pty Ltd [2023] NSWSC 239. On 20 April 2023, Darke J set aside each Determination, but only in part: Ceerose Pty Ltd v A-Civil Aust Pty Ltd (No 2) [2023] NSWSC 401. An appeal and cross-appeal from Darke J's orders are listed to be heard in this Court commencing on 19 July 2023.
4. Following the decision of Darke J there has been a significant number of interlocutory disputes. Two are presently relevant: Ceerose has sought (i) interlocutory and final injunctions to prevent A-Civil taking steps to enforce the Determination, pending resolution of foreshadowed but uncommenced contractual proceedings, and (ii) a stay of any payment out to A-Civil of funds paid into Court by Ceerose relating to those parts of the Determination not found to be affected by jurisdictional error, pending determination of the appeal and cross-appeal from Darke J's decision.
5. Two days, originally listed in May 2023, were set aside in the Equity Division to deal with the interlocutory disputes, including the stay applications just described. In preparation for that interlocutory hearing, on 5 December 2022 Richmond J made the following orders by consent: 1. By 31 January 2023 the Plaintiff [Ceerose] provide to the First Defendant [A-Civil] further and better particulars of paragraph 47 of the Amended Technology and Construction List Statement. 2. The time for service of the First Defendant's lay evidence be extended to 9 December 2022. 3. By 16 December 2022, the First Defendant informally produce to the Plaintiff the documents responding to the Notice to Produce to Court of 26 October 2022 at annexure A to this Order, save and except: (a) where any such document is annexed as part of the First Defendant's witness evidence; and/or (b) so as to redact any tax file number. 4. Vacate the listing of the Notice to Produce to Court in the Return of Subpoena List on 5 December 2022. ... 7. The matter be listed for directions on 10 February 2023. ANNEXURE A You are required to produce the following documents or things to the Court: 1. Financial accounts for A-Civil Aust Pty Ltd (A-Civil) for the financial years ending 30 June 2022, 30 June 2021. 2. Any current balance sheet for A-Civil and, if there be no current balance sheet, the most recent balance sheet prepared by A-Civil. 3. Profit and loss statements for A-Civil covering the current financial year and the financial years ending 30 June 2022, 30 June 2021. 4. Notice of Assessment for A-Civil for the financial years ending 30 June 2022, 30 June 2021. 5. Business Activity Statements lodged by A-Civil in 2022 and 2021.
6. Documents were produced by A-Civil in response to those orders.
7. On 20 April 2023 Ceerose served a wide-ranging Notice to Produce, which, by a notice of motion dated 2 May 2023, A-Civil sought to set aside. That motion was heard by Stevenson J on 5 May and 15 May 2023, with reasons given on 15 May 2023 together with a Redfern Schedule containing rulings about documents sought by the Notice to Produce.
8. This application for leave to appeal arises from one part of that decision. The effect of that part of the decision is that, in pursuing the stays described above, Ceerose was entitled to require A-Civil to produce, subject to a confidentiality regime, the entirety of its electronic financial records, which if printed out would comprise 68 lever arch folders of documents.
9. Critically, paragraph 22 of Ceerose' Notice to Produce sought "raw financial and other data" underlying certain documents produced by A-Civil in response to Richmond J's orders. A-Civil did not rely on those documents before the primary judge and undertook not to tender or deploy them in the stay hearings. The impugned order of Stevenson J (which on 22 May 2023 was stayed by the Registrar of this Court until further order) was in the following terms: That [A-Civil] produce to [Ceerose's] solicitors a copy of the whole of [A-Civil's] current MYOB file in the form of a .myox file.
10. For the reasons that follow, there should be a grant of leave to appeal, the appeal against the making of this order should be allowed and the order set aside. In re-exercising the discretion, par 22 of Ceerose' Notice to Produce of 20 April 2023 should be struck out. The effect is that A-Civil is not required to produce its MYOB financial records.
11. To explain why this is so it is first necessary to outline the statutory background to Ceerose' stay applications and documentary requests about those stay applications.

The Security of Payment Act

1. Given the limited scope of this appeal, it is not necessary to address the statutory scheme by which the Security of Payment Act provides for the making of a payment claims by a contractor (s 13), the provision of a payment schedule in response (s 14), the immediate liability to pay the claim in the absence of a timely payment schedule (s 15), the referral by the claimant of any dispute to an adjudicator (s 17) or the truncated procedure to be followed by the adjudicator (ss 20, 21 and 22). The post-adjudication provisions are, however, significant.
2. The respondent to a claim is required to pay the adjudicated amount within five days of being served with the adjudicator's determination: s 23. If the respondent fails to make the payment, the claimant may request an adjudication certificate (s 24(1)(a)) and file it as a judgment, pursuant to s 25, which provides: 25 Filing of adjudication certificate as judgment debt (1) An adjudication certificate may be filed as a judgment for a debt in any court of competent jurisdiction and is enforceable accordingly. …. (4) If the respondent commences proceedings to have the judgment set aside, the respondent - (a) is not, in those proceedings, entitled - (i) to bring any cross-claim against the claimant, or (ii) to raise any defence in relation to matters arising under the construction contract, or (iii) to challenge the adjudicator's determination, and (b) is required to pay into the court as security the unpaid portion of the adjudicated amount pending the final determination of those proceedings.
3. Three aspects of s 25 are presently material. First, although the section contemplates proceedings to have the judgment set aside, it does not contemplate pre-filing injunctive relief, as occurred in the present case. Nevertheless, the respondent accepted, in accordance with established practice, that the constraints in s 25(4) apply to proceedings designed to forestall the filing of an adjudication certificate; hence the payment into court in compliance with s 25(4)(b).
4. Secondly, the respondent accepted that the prohibition on challenging the adjudicator's determination, in s 25(4)(a)(iii), limits the grounds of challenge to jurisdictional error vitiating the determination.
5. Thirdly, no claim based on the construction contract, which might be raised in separate proceedings, can be relied on to set aside the interim rights which accrue under the adjudicator's determination: s 25(4)(a)(i), (ii).
6. To the extent that the respondent's interlocutory relief relies on foreshadowed contractual proceedings, it is convenient to note the terms of s 32 which recognises the availability of such proceedings: 32 Effect of Part on civil proceedings (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract - (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal - (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.
7. As the High Court explained in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4, the policy of the Security of Payment Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments for carrying out that work and supplying those goods and services. The Act is intended to provide a speedy and effective means of ensuring cash flow to builders and trade subcontractors from the parties with whom they contract. The Security of Payment Act creates an entitlement that is to be determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can be determined in due course.
8. The risk that a contractor might not be able to refund moneys ultimately found to be due to a developer after a successful civil action by the developer under the contract is a risk which, as a matter of policy in the Security of Payment Act's commercial context, has, prima facie, been assigned to the developer: R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390; [2008] QCA 397 at [40], a judgment of Keane JA in the Queensland Court of Appeal (Fraser JJA and Fryberg J agreeing) approved in Shade Systems and followed on numerous occasions in this Court. As the High Court further explained in Shade Systems at [51] (Kiefel CJ, Bell, Keane, Nettle and Gordon JJ) about circumstances where contractual proceedings contemplated by s 32 of the Act conclude that a payment made pursuant to the Act should, on the correct construction of the contract, not have been made: If necessary, a restitutionary order can be sought. The risk that the party placed at an advantage by an underpayment or overpayment may later become incapable of meeting such an order is a risk that is assigned to the other party.

Principles regarding interlocutory relief

1. Where money is paid into Court under s 25(4) at the commencement of a case seeking to set aside a determination for jurisdictional error, the court has power to stay the payment out of money to the claimant under the determination pending resolution of the respondent's judicial review proceedings. There is also power to grant an injunction or stay pending final resolution of contractual proceedings contemplated by s 32. However, in both cases the power must be exercised in accordance with the policy of the Security of Payment Act. In both cases a stay or interlocutory injunction will impinge on the two statutory policies, namely, (i) to maintain the flow of money to the subcontractor, and (ii) as an interim measure, to place the risk of insolvency on the principal.
2. The application of the general principles governing the grant of interlocutory relief, including determining whether there is a serious question to be tried and where the balance of convenience lies, will be constrained by the need to give effect to these statutory policies. Further, the principles will require separate application in each case. For example, with respect to a judicial review challenge to the validity of an adjudicator's determination, the risk of the principal's insolvency is met by the payment into court. The interruption to the money flow is likely to be for a relatively brief period, given the limited scope of the available judicial review proceeding and the ability of the Court to dispose of such proceedings expeditiously. In contrast, contract proceedings will entail greater costs, greater delay, and may not confront the risk of the principal's insolvency by a payment into court. If such proceedings have not been commenced, the court has no means of judging whether they raise a serious question or questions.
3. A practice has developed, adopted by the parties in the present case, of referring to a stay in aid of possible restitutionary recovery following contract proceedings contemplated by s 32 as a "Grosvenor" or "Brodyn" stay. Labels may tend to obscure the extraordinary nature of the relief being sought. It is appropriate, therefore, to address the implications which the labels carry, by reference to the cases themselves and the circumstances in which they have been applied.
4. Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico [2004] NSWSC 344 (Grosvenor) was a case under an earlier version of the Act in which Einstein J found, in relation to a contractor company in administration, that a stay should be granted where there was a certainty that the principal's rights would be rendered nugatory in the absence of a stay. Brodyn Pty Ltd t/as Time Cost & Quality v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 294 was a relatively early consideration by this Court of the Security of Payment Act. At [85], Hodgson JA identified the existence of the discretion to grant a stay and noted that "the policy of the Act that progress payments be made would be a discretionary factor weighing against such relief".
5. In Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 (Veolia), approved by this Court in TFM Epping Land Pty Ltd v Decon Australia Pty Ltd [2020] NSWCA 118 (TFM Epping Land) at [72], McDougall J said: [36] At paras [29] to [31] [of Grosvenor], Einstein J referred to decisions staying execution on judgments pending an appeal where there was a risk that the appellant might not recover its money if it succeeded on the appeal. In para [31], his Honour noted that "the analogy with appeals is not a perfect one", because it did not take into account the evident policy of the Act requiring prompt payment of progress claims. Thus, his Honour said, "there is a sound reason for making stays less readily available in relation to debts arising under the [Security of Payment] Act, in contrast to the position in relation to appeals arising from curial proceedings." His Honour said that one way in which this might be recognised was by requiring "more than a 'real risk that [the respondent] will suffer prejudice or damage, if a stay is not granted.'" (The internal quotation comes from the decision of the Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd and Others (2002) 55 NSWLR 737 at 741-742 [18]; the emphasis comes from Einstein J.) [37] Thus, his Honour concluded at para [32], "in a case … where there is a certainty that the defendants' rights will be otherwise rendered nugatory, and that it will suffer irreparable prejudice, the proper and principled exercise of the Court's discretion is to grant a stay." At para [33], his Honour drew comfort from the fact that the plaintiff's entitlement under the judgment recovered by it was fully secured. [38] At para [35], his Honour observed that "if no stay is granted, an interim arrangement would be in practice converted into a final order." He repeated that the effect of refusing the stay would be to render nugatory Musico's rights, and thereby cause "irreparable prejudice". [39] I adopt his Honour's statement of the principles as being those that, in general, should be considered when deciding an application such as that before his Honour, or that before me. However, in any particular case, the application of those principles, and the balancing of the various considerations, will require careful attention. For example, each case will require close analysis of the extent or certainty of the risk of prejudice or damage, if a stay is not granted (I refer to the question posed but not answered by his Honour in para [31]).
6. Where it is certain that the principal will suffer irreparable prejudice, it would generally be a proper exercise of the Court's discretion to grant a stay. It is also correct that the extent or certainty of the risk of prejudice must be closely examined in each case and will depend in part on the merit of the principal's claim under the contract. It does not follow, however, that the policy of the Security of Payment Act is to encourage a searching examination into the solvency of those who receive payments made pursuant to the Act when contractual proceedings are contemplated or pending.
7. When dealing with Shade Systems upon remitter from the High Court, Payne JA found that even in a case where the developer established a significant risk that the contractor might not be able to refund moneys paid under the Act held to be repayable in subsequent contract proceedings, that was not enough to grant a stay: Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33 at [36]. This was because the policy of the Security of Payment Act imposed the risk of insolvency on the principal.
8. The caution which the power to grant interlocutory relief should properly attract was recently emphasised by this Court in TFM Epping Land: [87] 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: "A stay will generally be less readily available in relation to judgments entered following an adjudication under the SOP Act than in relation to appeals arising from curial proceedings." [88] 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. [89] 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. [90] 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.
9. The conclusion that the policy of the Act is to place the risk of insolvency on the developer/principal contractor is further underlined by s 32B which was introduced in 2018: 32B Application of Part to a claimant in liquidation (1) A corporation in liquidation cannot serve a payment claim on a person under this Part or take action under this Part to enforce a payment claim (including by making an application for adjudication of the claim) or an adjudication determination. (2) If a corporation in liquidation has made an adjudication application that is not finally determined immediately before the day on which it commenced to be in liquidation, the application is taken to have been withdrawn on that day.
10. In Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd [2023] NSWSC 99 at [34] Ball J said, with respect correctly, that the purpose of s 32B is to deny the benefits of the legislation to companies in liquidation and not otherwise. In Colbran, in the matter of PBS Building Pty Limited (Administrators Appointed) [2023] FCA 276, Halley J said, again with respect correctly, dealing with a claimant subject to a deed of company arrangement (DOCA): [96] The stated prime objective of keeping cash flowing in the contracting chain by enforcing timely payments cannot be construed as supporting any construction of the SOP Act that limits or qualifies its operation more generally to companies under external administration or that are the subject of a DOCA. Further, any weight that might be given to that prime objective in exercising a discretion to extend convening periods for the second creditors' meetings must necessarily have regard to the text and operation of the SOP Act. The text of s 32B makes clear that the legislature has chosen the liquidation of a corporation as the relevant event for excluding a person from taking any action under the SOP Act to enforce a payment claim, not the appointment of external administrators or entry into a DOCA.
11. These matters lend weight to the conclusion that there is a heavy burden on a party who seeks injunctive relief or a stay pending the outcome of proceedings contemplated by s 32 on the basis that a payment may become unrecoverable due to the possible or even likely insolvency of the payee at a later date. Considerable caution should attend the grant of such an injunction or a stay, as to do so may detract from the primary purpose of the Act.

Leave to appeal

1. The applicant requires leave to appeal as there is no appeal as of right against the interlocutory orders of the primary judge. Leave will only be granted where there are substantial reasons to allow appellate review: Australian Securities and Investments Commission v Schlaepfer [2017] NSWCA 247 at [40]. The party seeking leave will usually be required to demonstrate that there is an issue of principle, question of public importance or reasonably clear injustice going beyond something that is merely arguable: Jaycar Pty Ltd v Lombardo [2011] NSWCA 284 at [46]; Be Financial Pty Ltd as trustee for Be Financial Operations Trust v Das [2012] NSWCA 164 at [33].
2. The application of the principles set out above is a matter of general importance. On its face, not only does the degree of the time and expense created by the interlocutory regime under consideration warrant the attention of the Court, but the production of the records raises the likelihood of further interlocutory disputation. In particular, the effect of the order for production of a swathe of financial records by the party not bearing the onus of proof in relation to solvency is, or should be, unusual. The production ordered here was of a vast amount of material that could have no possible application to the purpose for which it was sought, including private information about A-Civil's employees. There are thus substantial reasons to allow an appellate review and therefore leave should be granted.

Error on part of primary judge

1. Paragraph 22 of Ceerose' Notice to Produce dated 20 April 2023 sought production of: The current version of the raw financial and other data on MYOB file (in the form of a .myox file) including from which A-Civil generated the balance sheet, profit/loss statement and financial statement referred to at paragraph 9(a),(b) and (c) of the Affidavit of Rosyln [sic] Anderson dated 23 December 2022
2. Paragraphs 9(a)-(c) of Ms Anderson's affidavit read: 9 Exhibited at pages 1 to 38 of Exhibit RA-1 are copies of the following documents with respect to A-Civil's financial position: (a) Latest balance sheet for A-Civil as of June 2022 (dated 10 October 2022) (exhibited at pages 1 to 2 of Exhibit RA-1). This document was generated using the MYOB accounting and software system. Although this document is marked Draft, it is in final form. It will remain marked Draft until such time as the 2022 financials are ready to be submitted to the Australian Taxation Office ("ATO") in about 31 March 2023; (b) Latest profit/loss statement for A-Civil for the period between July 2021 to June 2022 (exhibited at pages 3 to 6 of Exhibit RA-1). This document is also generated using the MYOB accounting and software system. It is marked Draft for the same reason as the above balance sheet; that is, it is in final form. The profit/loss will be submitted to the ATO in about 31 March 2023; (c) Financial statement for A-Civil for the year ending 30 June 2021, dated 23 March 2022 (exhibited at pages 7 to 13 of Exhibit RA-1). This is the latest financial statement for the company. The financial statement for the year ending 30 June 2022 is not due until 28 February 2023 and as such has not been prepared.
3. A critical matter in the present application was that A-Civil made clear that it did not read Ms Anderson's affidavit or tender the documents referred to in it. A notice to produce, provided it identifies a particular document or thing, may be appropriate where an opposing party relies on evidence and the document or thing sought is referred to, or is necessary to understand or test an assertion, in that evidence. Paragraph 22 of this Notice to Produce was framed as seeking documents to test or investigate the basis of financial information contained in documents referred to in pars 9(a)-(c) of Ms Anderson's affidavit. Where, as here, A-Civil did not rely on the relevant documents and bore no onus of proof to establish its solvency, Ceerose was not entitled to investigate any doubt or question about the documents referred to in pars 9(a)-(c) of Ms Anderson's affidavit, without pointing to more than a mere risk of financial difficulties. The fact that A-Civil did not rely on any of the documents Ceerose sought to interrogate was a consideration in addressing the application. This conclusion applies to both bases on which Ceerose sought a stay, that is, a stay pending the outcome of contractual proceedings contemplated by s 32 of the Act and a stay pending determination of the appeal in this Court.
4. In these circumstances, the compulsory processes of the Court are not to be used by a developer/principal contractor in Security of Payment cases to conduct wide-ranging enquiries into the solvency of their sub-contractors. As A-Civil was not relying on those documents, Ceerose was not entitled to "raw data" to investigate whether these documents, which all showed A-Civil to be solvent, were somehow incorrect.
5. Did the primary judge take into account the fact that A-Civil did not rely on those documents and undertook not to tender them? The fact that A-Civil did not rely on the documents is not referred to in the judgment or the Redfern Schedule. The conclusion in the Redfern Schedule that the information sought "appears to be relevant" does not demonstrate that this matter was properly considered. The fact that there was no explanation of how the order was justified in circumstances which seemed to require its refusal is sufficient to infer that the fundamental consideration was not addressed, as in Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360 (Dixon J); [1949] HCA 26. This is the essence of A-Civil's grounds 1(b) [1] and 2(f) [2] of its notice of appeal: the appeal should be allowed on this basis.
6. It is strictly unnecessary to consider the remaining grounds of appeal. Grounds 1(a) [3] and 2(a) [4] raise a difficult issue. There is much to be said for the proposition that item 22 of the Notice to Produce did not require the production of a "specified document or thing" pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 34.1. It may be correct that requiring production of the .myox record of the MYOB file was akin to requiring production of a box or filing cabinet containing numerous unidentified documents. No doubt it was true as affirmed by the computer expert, Mr Campey, that the MYOB file was a single "file". It is also true, as A-Civil submitted, that the primary judge's order was vastly different from that sought in the Notice to Produce. Ceerose submitted, correctly, that the order ultimately made by the primary judge was not one under r 34.1 but could be supported under either s 61 or s 68 of the Civil Procedure Act 2005 (NSW), or both.
7. The argument about the breadth of the phrase "any specified document or thing" in the context of electronic evidence should await a case where an order is actually made pursuant to UCPR r 34.1. For essentially the same reasons, this is not an appropriate case to determine whether that which was sought under par 22 of the Notice to Produce was a "record of information": Ground 2(b) [5] . Grounds 1(e), 1(f), 1(g), 1(h), 2(c), 2(d) and 2(g) are variations on the same theme that if the MYOB file were to be produced it should have been after a request for discovery made in accordance with Practice Note SC Eq 11. Given the reasoning set out above, it is unnecessary to consider those grounds of appeal. Further, to do so would raise an unexplored implication that discovery could be available in such proceedings.

Application to rely on further evidence

1. In relation to leave to appeal and in relation to the re-exercise of discretion (should it arise), Ceerose sought to rely on further or fresh evidence, contained in the affidavit of Ms Stephanie Saad sworn on 9 June 2023. The admission of that affidavit was opposed by A-Civil.
2. The evidence may be summarised as follows: 1. The first document at was the final version of A-Civil's financial statements for the year ending 30 June 2021: Ex STS-1, pp 1-8. That document shows a gross profit on trading in the millions of dollars, a net operating profit after tax of a significant amount and retained profits at year end of millions of dollars. The document is inconsistent with the suggestion of financial difficulties or insolvency. 2. The second document was the final version of A-Civil's financial statements for the year ending 30 June 2022: Ex STS-1, pp 9-16. That document shows a gross profit on trading in the millions of dollars (and over a million dollars more than the previous year), a net operating profit after tax of a considerable sum and retained profits at year end of millions of dollars. The document is inconsistent with the suggestion of financial difficulties or insolvency. 3. The next set of documents were insurance records and tax records containing no suggestion of financial difficulties: Ex STS-1, pp 17-42. 4. There followed unredacted bank statements showing credit entries throughout: Ex STS-1, pp 43-63. To the extent that the bank statements show payments to a related company, A-Civil Contracting Pty Ltd, they cast no doubt on the strength of A-Civil's financial position. 5. There were also a company search and a credit report relating to A-Civil Contracting Pty Ltd: Ex STS-1 pp 64-82. A-Civil Contracting Pty Ltd, a labour hire company, apparently experienced financial difficulty during the COVID-19 pandemic and entered a DOCA on 21 November 2021. The administration ended on 18 December 2022. 6. There were copies of a report and a Notice of Second Meeting of Creditors of A-Civil Contracting Pty Ltd: Ex STS-1, pp 83-162. At their highest, and making assumptions favourable to Ceerose, those documents contain some expressions of opinion about A-Civil given by the administrators of A-Civil Contracting Pty Ltd and show that A-Civil Contracting allegedly had a claim of $884,717 against A-Civil and A-Civil had a counter-claim of approximately $2.1 million. Although a DOCA was entered into, the administrators have now been discharged. Nothing in these documents raises a concern that A-Civil may be in financial difficulties, let alone that it is insolvent. 7. The remaining document, Ex A on this application, was relied upon by A-Civil in the event that the Saad affidavit was admitted. That document, dated 9 June 2023, provides support for the conclusion that A-Civil is not in financial difficulty and describes A-Civil as at "low risk" of credit default.
3. From Ceerose' point of view, the most significant matters were some inadmissible expressions of opinion (Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36) made by administrators of the related company, A-Civil Contracting. It is clear, however, that the administration of that company is at an end.
4. It may be accepted that most of the documents sought to be relied upon were not in the possession of Ceerose prior to 15 May 2023. However, as the documents do not assist Ceerose in establishing insolvency, or even the risk of insolvency, of A-Civil, they should not be admitted. No different outcome on the re-exercise of discretion would be achieved by the admission of those documents. The defensive tender of Ex A should also be rejected.
5. As a matter of procedure, it may be observed that Ceerose produced the affidavit and sought to read it in the course of the hearing in this Court. It was relied on in part in support of its opposition to a grant of leave. This course did not significantly disadvantage the applicant because the affidavit had been prepared and served more than a month before the hearing. Nevertheless, where further evidence is sought to be adduced in this Court the procedure set out in UCPR, r 51.51 should be followed. Whether or not s 75A(7) of the Supreme Court Act 1970 (NSW) (dealing with further evidence on appeal) applies to an application for leave, and even if limited notice was given of the determination that there would be a concurrent hearing of the leave application and the appeal, to withhold evidence to the day of the hearing is not to be condoned. The possibility that its reception could cause a hearing to be aborted is self-evident and would usually lead to its summary rejection.

Power to order production

1. In principle it is necessary to identify the powers relied on to support the application for production of documents identified in the following terms in par 22 of Ceerose' Notice to Produce: The current version of the raw financial and other data on MYOB file (in the form of a .myox file) including from which A-Civil generated the balance sheet, profit/loss statement and financial statement referred to at paragraph 9(a),(b) and (c) of the Affidavit of Rosyln [sic] Anderson dated 23 December 2022
2. As appears from the grounds of appeal identified above, A-Civil assumed that production was sought under UCPR r 34.1, which relevantly provides that "[a] party may, by notice served on another party, require the other party to produce to the court, … any specified document or thing." There is a large question as to whether the description in par 22 of the Notice to Produce could satisfy the constraints of that provision.
3. Against the possibility that the Court did not accept that the scope of that rule extended to the material contained on the USB stick created by Mr Campey, Ceerose called in aid two provisions of the Civil Procedure Act 2005 (NSW). The first, s 68, provides: 68 Attendance at court and production of documents and things to court Subject to rules of court, the court may, by subpoena or otherwise, order any person to do either or both of the following - (a) to attend court to be examined as a witness, (b) to produce any document or thing to the court. It may be doubted that this provision applies (or could apply, given the opening words of the chapeau) to a "document or thing" not covered by r 34.1.
4. The second, s 61, is more broadly expressed: 61 Directions as to practice and procedure generally (1) The court may, by order, give such directions as it thinks fit (whether or not inconsistent with rules of court) for the speedy determination of the real issues between the parties to the proceedings. (2) In particular, the court may, by order, do any one or more of the following - (a) it may direct any party to proceedings to take specified steps in relation to the proceedings, (b) it may direct the parties to proceedings as to the time within which specified steps in the proceedings must be completed, (c) it may give such other directions with respect to the conduct of proceedings as it considers appropriate. The scope of this power is defined by its purpose, identified in subs (1). The power to give such directions as a court "thinks fit … for the speedy determination of the real issues between the parties to the proceedings" is not "an open-ended power to make any directions the court considers appropriate": McGuirk v University of New South Wales [2010] NSWCA 104 at [139] per Sackville AJA (with whom Young JA agreed); approved in Haselhurst v Toyota Motor Corporation Australia Ltd (2020) 101 NSWLR 890 at [5] per Bell P with whom Macfarlan, Leeming and Payne JJA and Emmett AJA agreed. There is undoubtedly power to dispense with requirements of the rules in particular circumstances (Civil Procedure Act, s 14) but not to simply disregard them.
5. It is sufficient to assume, favourably to Ceerose, that par 22 could engage one of these powers, because the order should not in any event be made having regard to the statutory and forensic contexts, the scope of the disclosure required and the dictates of Pt 6 of the Civil Procedure Act to facilitate the speedy determination of the real issues in dispute.

Burden of proof

1. The claims for injunctive relief against the making of any payment to A-Civil, pending determination of the two sets of proceedings, depended on Ceerose establishing a basis for a finding that there was a real likelihood that it would not be able to recover from A-Civil any amount which ultimately proved to be an over-payment. The evidence in this regard was speculative. The financial information disclosed by A-Civil did not demonstrate insolvency. The Notice to Produce was designed to obtain some basis for casting doubt on the available financials. Absent some affirmative case suggesting insolvency, a successful payment claimant should not be required to disclose every financial record for a two-year period, nor anything approaching that exercise.

Basis of application not established

1. Ceerose failed to articulate or substantiate any basis for the contention that there was a sufficient likelihood that the applicant was, or might become, insolvent to require production of the documents sought. In the statutory context explained above, it was not sufficient for Ceerose merely to point to questions it wished to investigate about a possible risk of insolvency. The Security of Payment Act deliberately allocated the risk of insolvency to Ceerose. The nature of this jurisdiction, in the context of Ceerose's List Statements and evidence, should have resulted in the primary judge concluding that Ceerose had not established an entitlement to the extensive documents sought by par 22 of the Notice to Produce in support of a stay pending determination of contemplated civil proceedings, or a stay pending appeal. Ceerose was engaged in a fishing expedition; its contentions and evidence failed to identify, articulate or substantiate any reasonable basis for finding it sufficiently likely that the applicant was insolvent or even that it was in financial difficulty.

Stay pending determination of contract case

1. Dealing with the stay in aid of yet-to-be-commenced proceedings in contract, it bears emphasising that the power sought to be exercised is an extraordinary one. The statutory background tends strongly against permitting any wide-ranging inquiry into the solvency of recipients of payments made pursuant to the Act.
2. This application assumes that Ceerose will fail to have the whole of the adjudication set aside on appeal from the judicial review decision of Darke J. In that sense it is premature, but it should now be disposed of on the basis of the assumption.
3. To keep a payment claimant out of the interim entitlement conferred by the statute, not for the very brief period allowed for the adjudication to take place, but for months and possibly years after that process is concluded must be difficult to justify where the circumstance provided for by s 32B is not engaged. As has been noted, no real likelihood of imminent insolvency has been established.
4. Even if the rejection of the further evidence were erroneous, consideration of that material does not assist Ceerose: 1. The three sub-paragraphs of the Anderson affidavit are responsive to the earlier notice to produce the subject of Richmond J's orders. Ms Anderson made no assertions about solvency. The draft documents attached to her affidavit as part of Ex RA-1 are the basis of par 22 of the Notice to Produce and were before the primary judge. 2. The document the subject of paragraph 9(a) (Ex RA-1, pp 1-2) is a draft balance sheet as at June 2022. This draft balance sheet shows positive total equity in the millions of dollars. A-Civil was not seeking to rely on the document and the document, on its face, is inconsistent with any suggestion of financial difficulty, let alone insolvency. 3. The document the subject of par 9(b) (Ex RA-1, pp 3-6) is a draft profit and loss statement for 2021-2022 showing profit in the millions of dollars. The document on its face is inconsistent with any suggestion of financial difficulty, let alone insolvency, 4. The documents the subject of par 9(c) (Ex RA-1, pp 7-13) are draft financial statements for 2021-2022 showing profit in the millions of dollars. Again, the document on its face is inconsistent with any suggestion of financial difficulty, let alone insolvency,
5. The remaining documents before the primary judge were equally remote from any possible issue of solvency. For example, Ex RA-1, pp 14-26 were records of dealings with the tax office which showed regular payments of company tax, again inconsistent with any suggestion of financial difficulty. Ex RA-1, pp 27-38 are redacted bank statements all showing positive cash balances. The suggestion made at the hearing that a relatively small cash balance is somehow indicative of insolvency should be rejected.
6. Finally, because no contractual proceedings have been commenced it is impossible to assess the strength of any such case.
7. No order for production of the material sought in par 22 should be made in support of an application for injunctive relief pending determination of the foreshadowed claim in contract.

Stay pending determination of judicial review appeal

1. Dealing with the application for a stay pending resolution of the appeal to this Court, it cannot be right that a party in possession of such flimsy material as Ceerose can use the compulsory processes of the Court to obtain the entire accounting records of its opponent to establish an entitlement to a stay pending appeal. Real questions about the application of Pt 6 of the Civil Procedure Act would arise if a wide-ranging inquiry into the solvency of litigants in Security of Payment jurisdictional error cases, pending appeal, were to be permitted. The same considerations as those applicable to production in relation to the contract case are relevant in this regard.
2. No basis has been shown for the production of the MYOB file the subject of par 22 of the Notice to Produce. The Court therefore refuses to order the production of that file and sets aside par 22 of the Notice to Produce.

Orders

1. For the foregoing reasons the Court makes the following orders: 1. Grant the applicant leave to appeal. 2. Direct that the applicant file within 7 days a notice of appeal in the form of the draft amended notice of appeal dated 18 June 2023. 3. Refuse leave to rely on the affidavit of Ms Saad sworn 9 June 2023. 4. Allow the appeal and: 1. Set aside the order made by the primary judge on 15 May 2023 that "the first defendant produce to the plaintiff's solicitors a copy of the whole of the first defendant's current MYOB file in the form of a .myox file". 2. Set aside par 22 of the Notice to Produce dated 20 April 2023. 1. Order that the respondent pay the applicant's costs of the summons for leave to appeal and the appeal.

Endnotes

1. The primary judge erred in failing to sider or address the affidavit evidence relied upon by the appellant as to the detail and content of the documents comprising its MYOB accounts software and business records which were sought by item 22 of the Notice to Produce.
2. The primary judge ought to have concluded that item 22 of the Notice to Produce was irrelevant as the appellant had stated that it was not reading those parts of the affidavit referred to in item 22 and was not tendering the documents referred to.
3. The primary judge erred in finding that item 22 of the notice to produce to court issued by the first respondent on 20 April 2023 (The Notice to Produce) , which required: (i) production of the whole of the appellant's financial, trading and company accounts and records, including all employment, business and trading agreements and invoices and receipts on remote accounting software known as MYOB; and (ii) further that production be provided in the form of a ".myox file" was the production of a specified document or thing pursuant to and for the purposes of R34.1 of the UCPR.
4. The primary judge ought to have concluded that item 22 of the Notice to Produce was not a specified document or thing pursuant to r34.1 of the UCPR.
5. The primary judge ought to have concluded that item 22 of the Notice to Produce was not a record of information and, therefore, not a specified document or thing pursuant to and for the purposes of r 34.1 of the UCPR. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 June 2023