Dickson Developments Precinct 1 Pty Ltd v Core Building Group Pty Ltd

1. The interlocutory application dated 29 November 2023 be dismissed.
2. The applicant pay the first respondent's costs of the interlocutory application.
3. In relation to the order made on 27 November 2023, the amount of money held by the Court as a result of the applicant's payment into Court pursuant to paragraph 1 of the orders of 3 November 2023 be released to the first respondent forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BURLEY J: 1 The applicant, Dickson Developments Precinct 1 Pty Ltd, seeks an order in accordance with Federal Court Rules 2011 (Cth) (FCR) r 36.08(2) for a stay of execution of orders made by the Court on 27 November 2023 until such time as the applicant's Notice of Appeal dated 29 November 2023 is heard and determined by the Full Court. It relies on an affidavit affirmed by Johnny Roso, the applicant's sole director, dated 29 November 2023. 2 FCR r 36.08 provides: Stay of execution or proceedings under judgment appealed from (1) An appeal does not: (a) operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or (b) invalidate any proceedings already taken. (2) However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. (3) An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind. 3 The decision the subject of the appeal is Dickson Developments Precinct 1 Pty Ltd v Core Building Group Pty Ltd [2023] FCA 1473 (judgment). In it, the Court dismissed an application brought by Dickson seeking judicial review of an adjudication by the second respondent (adjudicator) of a claim for payment made on 17 August 2023 by the first respondent, Core Building Group Pty Ltd, for money owning for work undertaken pursuant to the terms of a construction contract entered into between Dickson and Core on or about 19 January 2021. The contract is subject to the terms of the Building and Construction Industry (Security of Payments) Act 2009 (ACT). 4 The judgment at [2] explains the basis upon which the Federal Court had jurisdiction to hear and determine the matter. 5 On 3 November 2023, the Court made an order that Dickson pay into Court the full adjudication determination amount found by the adjudicator to be due arising out of the adjudication, being $5,255,532.82 (adjudication amount). On 27 November 2023, the Court ordered that the Court release the adjudication amount to Core forthwith. An oral application for a stay of the order for release was made before the primary judge, who declined to grant it on the basis that there was no evidence before the Court pertaining to the solvency of Core and no basis upon which he could conclude that the release of the monies paid into Court into the hands of Core would cause any prejudice to Dickson; Dickson Developments Precinct 1 Pty Ltd v Core Building Group Pty Ltd (No 2) [2023] FCA 1482 (stay judgment). 6 On the same day an application was made to me as duty judge for an interim stay pending the lodgement of a Notice of Appeal and interlocutory application, the latter of which is the subject of this decision. At that point, the stay judgment, which had been delivered ex tempore, had not been published. Absent further information, an ex parte order was made staying the operation of the order allowing the release of funds from Court until 4pm on Thursday 30 November 2023, to maintain the status quo pending a formal application being made. The application was listed for hearing on 29 November 2023. By that time, Dickson had filed its interlocutory application and Notice of Appeal from the judgment. Core has since filed two affidavits affirmed by Kirk Staniland, its construction manager, in response. 7 The affidavit in support of the interlocutory application raises three bases upon which Dickson contends Mr Roso has "serious concerns" that Core lacks financial capacity, each of which was relied upon by Dickson in argument. 8 Firstly, on 6 July 2023, Dickson issued letters calling on the surety of performance bonds held by Dickson in respect of the work under the contract for two amounts of $930,000 (Security). Clause 16.1(b) of the contract provides that if the Developer (Dickson) calls on the Security, then the Builder (Core) must within 10 business days provide the Developer additional security so that the total Security held equals the Security Amount (being 5% of the contract sum). Core had not reinstated the Security Amount and on 10 August 2023 Dickson issued a dispute notice under the contract for Core's failure to do so. Mr Roso contends that Core does not intend to comply with its obligations in this respect under the contract. 9 Secondly, Core has failed to produce its books and records in response to requests. Mr Roso has written to Core requesting copies of financial records relating to payments made to consultants and subcontractors in accordance with cl 17.17 of the contract but has not received any response. On 27 July 2023, Dickson sent a Notice of Breach under cl 52.1 of the contract, which Core has disputed. Mr Roso gives evidence that Core has failed to engage with the process under the contract concerning this dispute and by letter of 25 October 2023, disputed that there has been any breach and contended that the process implemented was invalid. 10 Thirdly, based on a conversation that Mr Roso reports having with Mr Cappello, Director of Core, in January 2021, in which Mr Capello is said to have indicated that the project the subject of the contract is the last one that Core would be conducting as the building company. Mr Roso fears that Core may dissipate any money paid to it. He is aware that another entity, Core Building Group (ACT) Pty Ltd may now be undertaking building work within the Core group and that any funds paid out of court will be paid to related entities to fund their development activities or as a return of capital to shareholders, thereby dissipating the funds. 11 Where an application is made for a stay of proceedings in accordance with FCR r 36.08, it is necessary for the applicant to demonstrate an appropriate case. Prima facie, a successful party is entitled to the benefit of the judgment obtained and is entitled to commence with the presumption that the judgment is correct; Esco Corp v Packaging Logo Mining Pty Ltd [2008] FCA 1018 at [19], citing Powerflex Services Pty Ltd v Data Access Corporation [1996] FCA 460; (1996) 67 FCR 65 at [66]; Re Middle Harbour Investment Ltd (In liq) (unreported, New South Wales Court of Appeal, 15 December 1976). 12 It is material, in considering whether there is an appropriate case to grant a stay pending appeal, to have regard to the statutory scheme pursuant to which the decision below was made. 13 In A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144 (Payne JA, Simpson AJA and Basten AJA) the New South Wales Court of Appeal considered the New South Wales equivalent of the Act. It observed that where, as here, money is paid into court pursuant to s 27(4) of the Act (s 25(4) of the New South Wales equivalent), the court has power to stay payment out of money to the claimant under the determination pending resolution of the judicial review proceedings. However, that power must be exercised having regard to the two statutory policies evident from the Act, first to maintain the flow of money to the subcontractor, and second, as an interim measure to place risk of insolvency on the principal (at [21]). The application of 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. The court said at [26]: 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. 14 Dickson contended in argument that it was only necessary for the applicant seeking a stay to establish a likelihood of dissipation of the funds or prejudice as a result of not granting a stay. It submitted that it was not necessary to establish a likelihood of insolvency and sought to distinguish A-Civil as a case that was not concerned with payments into court under s 27(4) of the Act. That submission is not supported by the authorities. In A-Civil, the court observed at [21], in relation to payments made pursuant to s 25(4) (the New South Wales equivalent of s 27 of the Act) and s 32 (the equivalent of s 38 in the Act), that even in a case where the developer has established a significant risk that the contractor might not be able to refund moneys paid, that was not enough to grant a stay, because the policy of the Act imposed the risk of insolvency on the principal (at [27]). The Court concluded that there is a heavy burden on a party who seeks injunctive relief or a stay pending the outcome of proceedings 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 (at [31]). 15 In my view, the evidence adduced by Dickson falls far short of the standard necessary to establish entitlement to a stay. Indeed, it falls short of the standard required even if one were to consider the question on the basis of the balance of convenience only. By his first concern, Mr Roso does little more than ask for an inference to be drawn that because some Security has not been replenished, Core may be in financial difficulties. This falls far short of demonstrating the greater than 'significant risk' required by the authorities. Furthermore, Mr Roso's affidavit fails to reveal (but Mr Staniland's affidavit evidence does) that there is an on-going dispute between the parties about the appropriateness of Dickson's call on the Security and that in any event Core has substantially replenished the Security. In his second concern, Mr Roso asserts, without basis, that there has been a failure on the part of Core to produce its books and records. In the third, he contends that there may be a dissipation of assets based on a conversation in 2021 where Mr Cappello is said to have referred to Core Building Group (ACT) Pty Ltd. In his affidavit evidence, Mr Staniland, on information and belief, disputes the conversation and observes that Core Building Group (ACT) Pty Ltd was established in January 2020, a year before the alleged conversation, and that it had been trading since then in the conduct of Core's own projects in the Australian Capital Territory. 16 Furthermore, the evidence of Mr Staniland, no doubt for abundant caution, gives evidence of the financial position of Core, which indicates that it has net assets of $4,682,938.56, a positive cashflow forecast, and no outstanding tax liabilities. He annexes a sound credit rating report for Core. Given the heavy burden lying on Dickson in this application, it was not strictly necessary for Core to adduce such evidence. 17 Having regard to these matters, even assuming in its favour, as I do, that there is an arguable basis for its appeal, I am not satisfied that Dickson has established an appropriate basis for a stay pending appeal. 18 The interlocutory application must be dismissed with costs. 19 The orders I make are: (1) The interlocutory application dated 29 November 2023 be dismissed. (2) The applicant pay the first respondent's costs of the interlocutory application. (3) In relation to the order made on 27 November 2023, the amount of money held by the Court as a result of the applicant's payment into Court pursuant to paragraph 1 of the orders of 3 November 2023 be released to the first respondent forthwith. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Burley.