Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd; In the matter of Kennedy Civil Contracting Pty Ltd

Supreme Court of NSW|2023-03-21|Before: Ball J, Dr AJ

Introduction

On 17 February 2023, I delivered a judgment in these matters (see 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) in which I concluded that an insolvent company the subject of a deed of company arrangement (DOCA) was entitled to pursue a claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) notwithstanding s 32B(1) of that Act (which prevents a company in liquidation from pursuing a claim under the Act). In reaching that conclusion, I rejected an argument that the DOCA should be terminated under s 445D(1) of the Corporations Act 2001 (Cth) because it was entered into for a wrongful purpose - that is, to circumvent the operation of s 32B of the SOP Act. I also rejected an argument that the claim should be stayed as an abuse of process for the same reason.
As a result of my judgment, the parties accept that the claimant (Kennedy Civil Contracting Pty Ltd (Administrators Appointed)) (KCC) is entitled to judgment in the sum of $683,928.49 plus interest and that a number of ancillary orders should be made. Two issues remain. One is the costs of both proceedings. The other is whether the judgment in the Technology & Construction List proceeding (the T&C Proceeding) and any order for costs in the Corporations List proceeding (the Corporations Proceeding) should be stayed pending an appeal.
This judgment assumes familiarity of my earlier judgment. It uses the same abbreviations as used in that judgment.

Costs

It is common ground that a notice of motion filed on 9 November 2022 by Richard Crookes in the T&C Proceeding seeking security for its costs should be dismissed with no order as to costs. Two issues relating to costs remain. First, in the T&C Proceeding, KCC originally claimed $1,724,967.84 and by a notice of motion filed on 29 September 2022 sought summary judgment for that amount. Richard Crookes submits that the case was not an appropriate case for summary judgment (since it had an arguable defence) and that the motion therefore should be dismissed. It claims that it was put to considerable expense in defending the application for summary judgment. It also points out that ultimately KCC has recovered substantially less than the amount it originally claimed. For those reasons, it submits that each party should bear its own costs of the T&C Proceeding except to the extent that those costs relate to Richard Crookes' application (made by notice of motion filed on 21 November 2022) for a stay. It accepts that it should bear those costs on the ordinary basis.
Second, in both proceedings, KCC made a formal offer of compromise pursuant to r 20.26 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). In the T&C Proceeding it offered to compromise the proceeding for $650,000 inclusive of interest (but exclusive of costs). In the Corporations Proceeding it offered to settle the proceeding on the basis that there be judgment in its favour with no order as to costs. It submits that it did better (or no less favourably) in both proceedings and that consequently it is entitled under UCPR rr 42.14 (dealing with offers of compromise made by a plaintiff) and 42.15A (dealing with offers of compromise made by a defendant) to costs on an indemnity basis in both proceedings from the day after the two offers were made (that is, 29 November 2022). Under both rules, KCC is entitled to an order for indemnity costs unless the Court orders otherwise. Generally, the Court will only order otherwise in exceptional circumstances: see South Eastern Sydney Area Health Service v King [2006] NSWCA 2 at [83] per Hunt AJA (with whom Mason P and McColl JA agreed). Exceptional circumstances exist where the offer could not be characterised as a genuine offer of compromise: see Fairall v Hobbs (No 2) [2017] NSWCA 133; (2017) 347 ALR 151 at 156 [25] per Payne JA (with whom McColl A/P and Leeming JA agreed).
In my opinion, the summary judgment application in the T&C Proceeding does not justify a special costs order. That motion was subsumed in the final hearing. In substance, KCC was successful in the final hearing. Consequently, it should have its costs. The fact that ultimately it recovered less than the full amount of its claim is not a reason for departing from the usual rule stated in UCPR r 42.1 that costs follow the event.
On the other hand, I accept Richard Crookes' submission that neither offer was a genuine offer of compromise. In substance, both offers invited Richard Crookes to capitulate in relation to arguable points of law.
It follows that there should be a costs order in KCC's favour in both proceedings. There should be no order for indemnity costs.

Stay

KCC accepts that there should be a temporary stay of the judgment in the T&C Proceeding and any order for costs in the Corporations Proceeding. Its principal point is that the question whether the judgment should be stayed pending the outcome of an appeal should be resolved by the Court of Appeal rather than this Court. On that basis, it did not make submissions on the substantive question whether a stay should be granted or not.
In my opinion, this is an appropriate case in which to grant a stay. KCC is in administration and is insolvent. There is no simple mechanism by which any payment made by Richard Crookes to satisfy the judgment will be returned to it if it is successful on appeal. A mechanism has been put in place so that any judgment amount paid by Richard Crookes will be returned to it if it ultimately succeeds in its contractual claim. However, that mechanism is different from the position that would exist if it succeeded on appeal. As things stand, Richard Crookes must pay the judgment sum and lodge a proof of debt in respect of its contractual claim. If the proof of debt is rejected, it will have to lodge an appeal to the Court against its rejection. On the other hand, if it is successful on appeal (and no payment has been made), it will be entitled to retain the amount in dispute and it will be necessary for KCC to commence proceedings based on the contract to recover the amount it claims. It may be difficult to undo steps which have been taken in accordance with the mechanism available to Richard Crookes to recover the amount it pays if no stay is granted. On the other hand, KCC points to no particular prejudice it will suffer if a stay is granted. The only obvious prejudice it suffers is a delay in receiving the judgment amount. But that prejudice can largely be cured by an award of interest. The stay proposed by Richard Crookes requires it to file a notice of appeal within 14 days. There is no reason to think that Richard Crookes will fail to prosecute the appeal expeditiously. Moreover, it will always be open to KCC to make an application to the Court of Appeal to have the stay lifted.

Orders

Accordingly, the orders of the Court are: In Proceeding 2022/00288266 1. The notice of motion filed on 9 November 2022 be dismissed; 2. The notice of motion filed on 21 November 2022 be dismissed; 3. Judgment for the plaintiff for $719,519.82 including $35,591.33 interest; 4. There be no order as to costs of the notice of motion filed on 9 November 2022; 5. The defendant otherwise pay the plaintiff's costs of the proceedings to be assessed on the ordinary basis; 6. On the condition that the defendant file a Notice of Appeal within 14 days of the making of these orders, order that orders (3) and (5) of these orders are stayed until further order of this Court or the Court of Appeal. In Proceeding 2022/0000353631 (1) To the extent necessary, the plaintiff is granted leave to begin and proceed with this proceeding, nunc pro tunc, pursuant to section 444E(3) of the Corporations Act 2001 (Cth); (2) The originating process is dismissed; (3) The plaintiff pay the defendants' costs of the proceedings on the ordinary basis; (4) On the condition that the plaintiff file a notice of appeal within 14 days of the making of these orders, order that order (3) of these orders is stayed until further order of this Court or the Court of Appeal.

Amend current paragraph 11(3) and coversheet by inserting the amounts "$719,519.82 including $35,591.33 interest" 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: 23 March 2023

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