Kingston Building (Australia) v Dial D

Supreme Court of NSW|2013-12-13|Before: McDougall J, Stevenson J

Judgment 1HIS HONOUR: The plaintiff (Kingston) and the defendant (Dial D) made a contract under which Kingston undertook to construct a building at Charlestown for Dial D. There has been dispute as to the parties' entitlements under that contract. That dispute has given rise to considerable litigation.

Procedural history 2So far, the position appears to be that Kingston has recovered judgment pursuant to a payment claim, number 25, made on 21 December 2012 and a further judgment pursuant to a further payment claim, described as a final claim, made on 2 August 2013. 3The first judgment was given because the superintendent under the contract did not issue a certificate in response to the progress claim and hence the progress claim became a deemed certificate. Stevenson J held accordingly. Judgment for the amount of the deemed certificate, in an amount exceeding $1,170,000, was entered on 5 March 2013. That judgment has been stayed until further order of the Court. 4In respect of the final payment claim, the superintendent did issue a certificate. The difference between the amount claimed and the amount certified is very substantial. Kingston had claimed to be owed in excess of $1.34 million. The superintendent certified that Dial D was owed in excess of $992,000. The differences between the parties are the subject of arbitration. 5After the superintendent had issued his final certificate, Kingston (as undoubtedly it was entitled to do) submitted the dispute to adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). The adjudicator concluded that Kingston was entitled to an amount in excess of $761,000, and determined an adjudicated amount accordingly. 6Kingston obtained an adjudication certificate in respect of that amount and filed it to procure a judgment for debt in this Court. That judgment has been entered.

Application for stay 7I am concerned today with Dial D's application to stay the judgment for what I will refer to as $761,000, that judgment having been recovered as a consequence of the determination in favour of Kingston. 8It is necessary to note that in related proceedings in which Dial D was the plaintiff and Kingston was the defendant, I gave judgment this morning dealing, amongst other things, with the validity of the superintendent's final certificate. I concluded that the final certificate was defective because it included an amount of about $850,000 relating to a "deemed variation" that the superintendent had directed. I said that the superintendent had no power to issue that deemed direction, and hence that the inclusion of the amount of it in the certificate, in the process of calculating the balance in favour of Dial D to which I have referred, was erroneous.

No abuse of process 9The application for a stay is pressed on various grounds. First, Mr Kalyk of counsel (for Dial D) submitted, it was an abuse of process for Kingston to obtain a judgment in this Court pursuant to the adjudication determination when it had already obtained a judgment in this Court for a progress payment in respect of essentially the same work. 10Mr Kalyk referred to a schedule which contrasted the items that were included in the final payment claim, being the payment claim with which the adjudicator dealt with claims made in progress claim 25. It is, I think, fair to say that of the adjudicated amount, in excess of $713,000 appears to relate to items (variations) for which a claim was already made in progress claim 25. 11On that analysis it would appear to be correct to say, and I proceed on the basis that, at least to the extent of $713,000, Kingston has obtained two judgments for the same underlying entitlements. 12The submissions on abuse of process appeared to fluctuate between suggesting abuse of process of the Security of Payment Act, abuse of the processes of this Court, and abuse of process both of the Security of Payment Act and of this Court. 13There is no doubt that the doctrine of abuse of process in relation to the Security of Payment Act is alive and well. It was suggested by the Court of Appeal in Dualcorp Pty Limited v Remo Constructions Pty Limited (2009) 74 NSWLR 190, and has been picked up in a number of first instance authorities since that time. If I may be immodest, I will do no more than refer to my own decision in Watpac Constructions v Austin Corp [2010] NSWSC 168 where, reviewing a number of first instance decisions, I concluded that the doctrine of abuse of the processes of the Security of Payment Act was available, in a case where it was properly raised, to empower the Court to restrain proceedings upon an adjudicator's determination. That was so, I said, because repetitious re-agitation of payment claims could be seen to use the processes of the Security of Payment Act other than for the purposes for which the legislature enacted them. 14It is important to note, as I said in Urban Traders v Paul Michael [2009] NSWSC 1072, that what is prohibited is abuse of the processes established by the Security of Payment Act to ensure that its statutory object, of enabling those who perform construction work or provide related goods and services to recover prompt interim payment on account of their final entitlements. The doctrine operates to prevent those processes from being used other than for the purposes for which they were given. It is not concerned with abuse of process at large (see Urban Traders at [41]). 15In this case, Mr Kalyk did not submit that there was a repetitious reagitation of claims from one payment claim to another, so as to engage the principles to which Allsop P adverted in Dualcorp at [13] to [16]. 16There has only been one relevant payment claim. That was the payment claim, described as a final payment claim, that was submitted to adjudication. And that was the payment claim upon which the adjudicator gave a determination that led to the judgment in respect of which the stay is sought. 17I do not think that it is possible to proceed from what was said in Dualcorp and the cases that have applied it to some more general principle of abuse of the process established by the Security of Payment Act. 18In this context it should be noted that there is a series of cases that establish that simply to pursue concurrent rights at law, for example, under the construction contract, and under the Security of Payment Act is not of itself an abuse of process. That is taken to have been established by the decision of the Court of Appeal in Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited (2005) 62 NSWLR 385. There are first instance decisions to the same effect, including my decision in Rubana Holdings Pty Limited v 3D Commercial Interiors Pty Limited [2008] NSWSC 1405 and the decision of Ball J in Siemens Limited v Origin Energy Uranquinty Power Pty Ltd (2011) 80 NSWLR 398. 19Thus, if the doctrine of abuse of process is to be engaged, it does not seem to me that the mere use of provisions of the Security of Payment Act in respect of the final payment claim can be sufficient. 20Firstly, as I have sought to indicate, there has been no repetitious re-agitation of the claims, of the kind that has been held to constitute abuse of the processes established by the Security of Payment Act. 21Secondly, the decisions to which I have just referred seem to make it clear that pursuit of concurrent rights of law and under the statute is not of itself abusive. To my mind one would only get to the situation of abuse of process if Kingston, having obtained judgments at law and pursuant to the determination of an adjudicator for claims that to some extent overlap, sought to enforce both judgments, each to its full amount. That would result in Kingston's obtaining, to the extent that it was successful in enforcing them, double satisfaction of the overlapping claims.

No set-off available 22I am prepared to accept the proposition that this is not something that the law should contemplate or that the Court should permit. But that is not the situation in the present case, if only because the first judgment has been stayed. Thus, I conclude, there is no relevant abuse of process. 23The next ground of stay relied upon picked up on something said by Keane JA in Martinek Holdings Pty Limited v Reed Construction (Qld) Pty Limited [2009] QCA 329 at [16]. That was a case of, in effect, an apparent conflict between a determination under the Queensland equivalent of the Security of Payment Act and a purported final certificate of a superintendent under a contract not materially distinguishable from the present contract. 24In Martinek, the builder had obtained a judgment of the Supreme Court of Queensland in respect of the adjudicated amount. The principal sought to have it set aside or stayed. White J at first instance, and the Court of Appeal, refused the application. Keane J suggested at [16] that, because the terms of the certificate had not come into effect to entitle the proprietor to refuse payment, there should be no stay. His Honour did note, as a qualification, "save insofar as the sum of $72,027.27 may properly be set off against the adjudication amount". 25That qualification appeared to refer to the fact that the superintendent had certified this as the amount finally payable to the principal. It was asserted to be a contractual right only and not, on the reasoning of the Court of Appeal, a final settlement of account. The basis on which that certification might be set off against the adjudicated amount was not explored by Keane JA. Nor do I read his Honour's reasons as saying that it should properly be set off. I think, reading his Honour's reasons as a whole, that he was doing no more than raising that as a possibility. 26In the present case, the superintendent's final certificate has not come into effect as a final settlement of account. Further, it is flawed, at least in my view, by reason of my decision in the related proceedings, to a very substantial extent. I do not think that anything said in Martinek gives Dial D in this case any comfort.

No basis to exercise inherent jurisdiction to stay 27In the third place, Dial D relied on the Court's inherent jurisdiction. It did not suggest that Kingston could not afford to repay the amount, if ultimately an arbitrator or the Court determined that it was not entitled to it. This is not a case of a stay on the basis that has been examined in cases such as Grosvenor Constructions (NSW) Pty Limited (in admin) v Musico [2004] NSWSC 344 and Veolia Water Solutions & Technologies (Australia) Pty Ltd v Kruger Engineering Pty Ltd (No 3) [2007] NSWSC 459, where it has been held that the stay may be granted if the risk of insolvency is so apparent as to make it at least strongly likely that, if not granted, the failure to grant a stay would render any success on the appeal (or analogous proceedings) fruitless. 28On the contrary, what was submitted was that not to grant this stay would render either the prosecution of the arbitration (and potential success for Dial D therein) fruitless, because the effect of being required to pay the judgment would be that Dial D could not continue to pursue its rights in the arbitration. 29For this purpose, Dial D relied on the affidavit of a director, Ms Longbottom, sworn 9 October 2013. However, she did not say that Dial D could not pay the judgment debt. The most that she was prepared to say was that it could not pay it unless it proceeds to sell its only remaining assets. 30Her affidavit shows that the company's assets were valued at $3.9 million and mortgaged to the extent of $2.925 million. There is thus a little under $1 million of equity in the assets, to the extent that those figures are correct. 31The first point I make is, as Mr Rudge of Senior Counsel for Kingston submitted, that the affidavit does not disclose inability to pay. It discloses that there is inability to pay unless assets are sold. As Mr Rudge submitted, what it really discloses is an unwillingness to pay. 32The next point is that Dial D, which is a trustee of the unit trust, has produced its special purpose financial report for the year ended 30 June 2013. That report shows a significant deficit in total equity, in an amount exceeding $1.4 million. It shows, also, that (as Ms Longbottom had said) the unit holders, who I think are also directors of the company, had pumped in some money to keep the company afloat. It shows further that over the year in question, the debts owed to those directors had been reduced by about $760,000. 33I accept, as Mr Kalyk submitted, that this might reflect in part the refinancing that took place during the year, as a result of which the secured indebtedness to which I referred was undertaken. But even if that be correct, it would suggest that the directors have used funds available to the company to pay down the loans owed to them, rather than to pay the not dissimilar amount owed to Kingston under the judgment recovered in pursuance of the adjudicator's determination. 34I accept, further, that as Mr Kalyk again submitted, the financial statements of the three months ending 30 September 2013 showed that the loans from directors have increased by about $114,000. That is still a long way short of the $760,000 reduction in loans which, apparently, those directors awarded themselves in the course of the financial year last past. 35Even if this were a case of potential insolvency on the part of Kingston (and I stress that the application has not been made on that basis), one would need to bear in mind the operation of the Security of Payment Act, as succinctly explained by Keane JA in R J Neller Building Pty Limited v Ainsworth [2009] 1 Qd R 390 at [40]. His Honour observed that, as a matter of policy, the legislature has assigned the risk of insolvency to the principal, rather than to the builder, in the first instance. 36I mention that observation because it draws attention to what seems to me to be a most important consideration: the policy of the Security of Payment Act that those who undertake construction work or supply related goods and services be paid promptly. 37In effect, the application for a stay asks the Court to subjugate the clear policy of the Act to the interest of the proprietor, in circumstances where it is not suggested that giving effect to the policy of the Act would create in effect a very dangerous interim loan to the builder. 38In circumstances where I am not satisfied that the dire consequences that Mr Kalyk spoke of will necessarily follow (if only because it appears the directors have already recouped more than enough money to enable the company, for the time being at least, to continue to fund the arbitration), I am not satisfied that the third basis upon which the stay is pressed has been made good. 39In short, it seems to me, when one balances the commercial interests of the proprietor, the lack of explanation as to the circumstances in which the directors paid down the loans advanced by them, and the policy underlying the legislation, the circumstances do not justify the grant of a stay of the judgment with which I am concerned.

Conclusion and orders 40The result is that the application for a stay is dismissed with costs and that the exhibits tendered on the application are to be handed back.

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 January 2014

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