FAL Management Group Pty Limited as Trustee for TF Investment Trust v Denham... [2017] NSWSC 150 | Case summary

FAL Management Group Pty Limited as Trustee for TF Investment Trust v Denham... [2017] NSWSC 150 | Case summary | Zoe

Background

On 16 October 2013, FAL entered into a contract with Denham to design and construct a residential development at Hornsby for the sum of $35,398,000 including GST (the Construction Contract).
On 14 July 2014, Denham made Payment Claim 8 in the sum of $1,643,110.67 (including GST).
On or about 15 September 2014, Denham obtained an adjudication certificate consequent upon an adjudication determination in respect of Payment Claim 8 and registered that certificate as a judgment in the District Court of New South Wales in the sum of $511,229.94.
Shortly thereafter, FAL was served with a notice of claim under the Contractors Debts Act 1997 (NSW) by N Moits & Sons (NSW) Pty Ltd (Moits) for the sum of $365,000.10 that was claimed to be payable to Moits by Denham Constructions Project 960 Pty Ltd (Denham 960).
An issue arose concerning Moits's entitlement to the amount that it claimed because Moits's contract was with Denham 960 whereas FAL's contract was with Denham. As a consequence, the District Court made orders staying the judgment which Denham had obtained against FAL in the amount of $365,000.10 on two conditions. One was that the amount be paid into the District Court. The other was that FAL commence proceedings seeking a declaration concerning the validity of the Notice of Claim. FAL paid Denham the balance of the judgment sum.
On 3 November 2014, FAL commenced these proceedings in accordance with the orders of the District Court.
On 2 October 2015, Hammerschlag J ordered that the $365,000.10 paid into the District Court be transferred to this court and dismissed these proceedings. However, his Honour continued the stay of the District Court judgment pending the determination of Supreme Court proceedings between Moits, Denham and Denham 960 (the Moits Proceedings) in which Moits, among other things, sought rectification of the contract between it and Denham 960 to substitute Denham as the contracting party.
In the meantime, on 16 June 2014, FAL terminated the Construction Contract. On 20 June 2014, Denham commenced proceedings in this court against FAL (the Denham Proceedings) seeking the return of an unconditional undertaking in the sum of $1,609,000 issued by Vero Insurance to secure Denham's performance under the Construction Contract. FAL consented to an injunction restraining it from calling on the unconditional undertaking until further order.
On 30 July 2014, FAL filed a cross claim against Denham in the Denham Proceedings in which FAL sought to recover, among other things, overpayments made to Denham under the Construction Contract and damages. The total amount claimed by FAL is in excess of $10 million. FAL has filed a substantial amount of evidence in support of its claim which demonstrates that it has a strong claim against Denham for an amount well in excess of $365,000. In particular, there is evidence from a quantity surveyor, unanswered by Denham, that FAL has overpaid Denham $2,243,961.05. There is also evidence that FAL has incurred significant damages in engaging another contractor (Parkview) to complete the works.
The injunction in Denham's favour was dissolved and, on 30 August 2016, FAL received the sum of $1,609,000 after calling upon the unconditional undertaking.
On about 17 August 2016, Denham was placed into administration. It was subsequently placed into liquidation. The liquidator's preliminary report dated 19 October 2016 estimated Denham's liabilities at almost $52 million and records the value of its total realisable assets as unknown.
Moits makes no claim to the $365,000.10 and neither consented to nor opposed the motions filed by Denham and FAL. Having regard to Denham's liquidation, it may be assumed that the Moits Proceedings will never be heard.
Denham Constructions contended that the payment into court of $365,000.10 was in the nature of a payment into court in interpleader proceedings. At the time the payment into court was made, FAL made no claim to the $365,000.10 and the issue before the court was whether that amount should be paid to Denham or Moits. Moreover, Hammerschlag J continued the stay of the judgment Denham obtained in the District Court pending the resolution of the Moits Proceedings. In circumstances where the parties accept that those proceedings will not continue and Moits makes no claim to the money, Denham submitted that the stay should be lifted and the money held in court should be paid to it.
I did not accept Denham's submissions.

[3]

Reasons for decision

In my opinion, the starting point was whether the stay of the judgment obtained by Denham should be lifted. FAL was entitled to be heard on that question, since the judgment was against it. Contrary to Denham's submissions, these were not interpleader proceedings in which FAL disclaimed any interest in the money. Rather, it is to be assumed that Denham seeks to recover an amount equivalent to the amount it paid into court (and more) as part of its cross-claim in the Denham Proceedings. Denham retained an interest in the money paid into court if it could no longer recover that money as part of its cross-claim because of Denham's financial position.
In addition, I considered that the question whether the stay should continue should be determined having regard to the facts as they existed at the time the question was to be determined, not by reference to the facts as they existed at some previous time. The court was entitled to consider any reason advanced for a continuation of the stay. It was not confined to asking whether the reasons the stay was originally granted continued to exist. The question whether the stay should be continued was one that involved the court exercising a discretion. There was no reason to confine the exercise of that discretion in the way contended for by Denham.
The judgment obtained by Denham was obtained under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act). A judgment under the SOP Act has two features. First, like any judgment it is enforceable immediately. Second, unlike other judgments, it does not affect the parties' rights under the relevant construction contract. Notwithstanding the judgment, a party is free to sue to recover the amount the subject of the judgment if the party maintains that the relevant amount is not properly payable under the contract. For that reason, courts are sometimes prepared to stay a judgment obtained under the SOP Act if a stay is necessary to preserve those rights. The matters that the court will take into account in considering whether to grant a stay were set out by me in Hakea Holdings Pty Limited v Denham Constructions Pty Ltd [2016] NSWSC 1120 at [6]. Those matters included the strength of the contractual claim, the likelihood that the contractor will be unable to repay the amount the subject of the determination and the risk that the contractor will become insolvent if a stay is granted.
I concluded that those matters strongly favoured a continuation of the stay. The fact that Moits may also have had a claim to the amount paid into court cannot alter the fact that the payment was not intended to affect FAL's right to recover the payment if it was not due under the Construction Contract. Denham is in liquidation. It is plain that any amount paid to it now will not be recoverable. Consequently, the effect of lifting the stay would be to make any payment to it permanent. The evidence suggested that, at the time the payment into court was made, FAL had a strongly arguable claim to recover the payment (and more) under the Construction Contract and that consequently Denham was never entitled to the payment under the contract.
Given that Denham was in liquidation with what appears to be a large deficiency, there was no reason to think that circumstances would change. Consequently, there was no reason not to make the stay permanent.
On the other hand, if the amount held in court was paid to FAL, there would be nothing to stop Denham from seeking to recover the amount of the adjudication determination in court proceedings. It was not suggested, for example, that FAL itself would be unable to meet any judgment that was obtained against it.
It was for these reasons that I made the following orders: 1. To the extent necessary, leave be granted to the plaintiff pursuant to section 471B of the Corporations Act 2001 (Cth). 2. Judgment in District Court of New South Wales case number 2014/271622 entered on 16 September 2014 be permanently stayed. 3. The sum of $365,000.10 held by the Court and any interest accrued thereon be paid to the plaintiff. 4. Order 3 be stayed for 28 days. 5. The first defendant pay the plaintiff's costs of the notice of motion filed on 10 February 2017. 6. Leave is given to the plaintiff to make an application within 42 days of today's date for some other or additional order in relation to costs. 7. The first defendant's notice of motion filed on 15 December 2016 be dismissed with costs.

FAL Management Group Pty Limited as Trustee for TF Investment Trust v Denham Constructions Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (4 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (1)