Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd

Lewence Construction Pty Ltd v Southern Han Breakfast Point Pty Ltd - [2015] NSWCA 150 - NSWCA 2015 case summary — Zoe

EX tempore Judgment

LEEMING JA: Before me is an application for a stay of orders made by Ball J on 15 May 2015 requiring the payment of some $1.3 million presently in Court to the respondent (Southern Han). An existing stay of that order expires in just under two hours' time.
The moneys were paid into Court by consent shortly after the proceedings were commenced in the Construction and Technology List within the Equity Division of this Court. The terms upon which the moneys were paid into Court are not precisely clear, however, it has not been asserted on behalf of the appellant (Lewence), which is the applicant for an extension of the stay, that the agreement extended to the moneys being held in Court pending the determination of any appeal. In light of s 25(4)(b) of the Building and Construction Industry Security of Payments Act 1999 (NSW) (Act), were that so such a term would need to have been express. This application falls therefore to be determined on conventional principles.
In around January 2013, Southern Han and Lewence entered into a contract substantially in the form of AS4000 1997 General Conditions of Contract, for the construction by Lewence of an apartment block known as "Augusta Apartments" in Breakfast Point. The building, as constructed, was to be five storeys high and contain some 60 apartments. The contract price was some $14.2 million excluding GST.
The immediate history preceding the commencement of litigation is described in the reasons of the primary judge at [6]-[10]: see Southern Han Breakfast Point Pty Ltd v Lewence Construction Pty Ltd [2015] NSWSC 502. An abbreviated summary is sufficient for present purposes.
On 10 October 2014 Southern Han issued a show cause notice under the contract. On 27 October 2014 Southern Han purported to exercise its rights to take out of the builder's hands the remaining part of the work. On 4 December 2014, Lewence purported to serve a payment claim for in excess of $3.2 million.
Skipping over the correspondence between the parties and various attempts to obtain an adjudication that took place in December and January, Southern Han ultimately lodged an adjudication response to Lewence's application on 26 February 2015 and, importantly for present purposes, on 30 March 2015 an adjudicator determined Lewence's claim in the amount of $1,221,051.08.
On 2 April 2015 Southern Han commenced proceedings in this Court. The amount the subject of the adjudicator's determination was, shortly thereafter, paid into Court. There was a final hearing of the application on 27 April 2015 before the primary judge, who gave judgment shortly thereafter, favourably to Southern Han, and declared the determination to be void.
A notice of appeal was filed on 18 May 2015. The appeal lies as of right. It contains three grounds of appeal which, as I read them, and, as was put by Mr Robertson on behalf of the applicant without opposition by Mr Christie who appears for Southern Han, they are independent of each other. By that I mean success on any of those bases will lead to the orders made by the primary judge being set aside.
It will be noted that this application for a stay falls to be determined in circumstances where a final hearing was provided by this Court within some three and a half weeks of commencing proceedings and a final determination at first instance was provided within around five weeks of commencing proceedings. It has been common ground at the bar table before me that the appeal should be determined very promptly, not least having regard to that background and the nature of contested claims in this industry. Mr Robertson for the applicant and appellant embraced either 15 June or 2 July. Over the luncheon adjournment I discovered that another day, 29 June, would also be available for the determination of the appeal.
The principles which I must apply are generally regarded as well established, although it is necessary for me to determine one threshold proposition advanced by Mr Christie. Those principles are generally regarded as having been reformulated by the decision of the Court of Appeal in Alexander v Cambridge Credit Corporation Ltd (1985) 2 NSWLR 685 at 693-695. A successful party is prima facie entitled to the fruits of his, her or its judgment. Campbell JA explained in Vaughan v Dawson [2008] NSWCA 169 at [16] that that "prima facie entitlement" means, speaking practically, that the onus is on the applicant for a stay to make out a case that is suitable for the granting of a stay. It is for the applicant to demonstrate a proper basis for a stay that is fair as between the respective interests of the parties. Those principles have been applied more recently in Adeels Palace Pty Ltd v Moubarak [2009] NSWCA 130, Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2014] NSWCA 231 at [7] and in Bobolas v Waverley Council [2014] NSWCA 78 at [61]. An application for review of the latter decision was dismissed: see Bobolas v Waverley Council [2014] NSWCA 131.
It is well established that in approaching an application for a stay a court will not generally speculate about the applicant's prospects of success. That does not stand in the way of a preliminary assessment as to whether the applicant has an arguable case at all. However that was not the case before me. Nevertheless, I was invited to proceed on the basis that the applicant's case when its appeal is ultimately heard was "weak", "down the weak end of the spectrum" and, on one occasion, "not hopeless" but "very weak".
Alexander v Cambridge Credit at 695E, Mushroom Composters at [7] and [9] and Bobolas at first instance before Ward JA at [61] all support the proposition that a judge hearing a stay application will not generally speculate about the strengths or otherwise of the appeal in the event that it is accepted that it is arguable. There is good reason for taking that course. First, as in the present case, the judge hearing the stay application will not usually have the benefit of full written submissions either by the appellant or by the respondent articulating the reasons why the grounds of appeal ought succeed. Secondly, the judge hearing the application for a stay will not usually have the underlying materials. (In the present case I do not even have the contact which is the subject matter of two of the three grounds of appeal.) A third reason is that ordinarily, as in the present case, the application is made in a referrals list in which time is at a premium. It is no criticism to either party to observe that neither has been able fully to develop the submissions they would wish to make either in favour of or against an appeal.
For that reason, no differently from Gleeson JA in Mushroom Composters [9], I do not propose to address in any way the underlying merits of each of the grounds of appeal, although I have heard some submissions in relation to the first and second of those grounds. I shall proceed on the basis that the appeal is arguable but not necessarily strong.
I turn now to the submission made by Mr Christie that, in the context of a stay application arising under the Act, "[a] stay will only be ordered in exceptional circumstances". I have had the benefit or written and oral submissions from Mr Christie, including on this issue. He has drawn my attention to Herscho v Expile Pty Ltd [2004] NSWCA 468 at [3] and McLaughlin's Family Restaurant v Cordukes Ltd [2004] NSWCA 447 at [9] [10]. Those decisions, respectively, by Hodgson and Giles JJA, do not support Mr Christie's proposition that it is necessary for exceptional circumstances to be established. Rather, both decisions refer to an approach whereby a stay is "less readily available" in a case arising under the Act. To that extent, the approach is consistent with what may be seen as the general policy of the Act.
It was common ground before me that there was only one decision on all fours with the application before me. That decision was Facade Innovations Pty Ltd v Timwin Constructions Pty Ltd [2005] NSWCA 197. That, like here, was a case where money had been paid into Court and an order had been made by the primary judge that it be paid out to the successful litigant at first instance. In fact, Hodgson JA did order a stay of that order. However, reliance is placed upon what his Honour said at [15], in answer to a submission advanced by the respondent (coincidentally Mr Christie appeared in that case as well as before me today) that it was only in exceptional circumstances that security would be ordered for a judgment. Hodgson JA said at [15]: "My impression is that the appeal is a reasonable appeal, but that its success is far from assured. Apart from considerations associated with the policy of the Act in general and s 25 in particular, I do not think a case is made out for a stay simply on the basis that there is a reasonable appeal and there might be problems in enforcing the judgment if the money is not retained in court. I am not inclined to the view that considerations associated with the policy of the Act in general and s 25 in particular would justify a stay by reason of the existence of a reasonable appeal but, in saying that, I do not wish to preclude that matter being further considered on the application to set aside the judgment."
It is, therefore, necessary for me to turn to the evidence establishing what the applicant contends is an absence of any prejudice to Southern Han, coupled with a real risk of the payment of money presently in Court to Southern Han, leading to prejudice to it in the event that its appeal is successful.
All the evidence before me has come from the affidavit of the solicitor for Lewence and the exhibit to that affidavit. Southern Han is a private company with limited share capital and two directors. It appears to be associated with a company trading under the name of SH International. Extracts from the website of SH International record that at least two of its shareholders and one of its two directors are office holders in SH International. The website discloses this about Mr Rustom Kudinar-Kwee, who is one of three ordinary shareholders of Southern Han Breakfast Point Pty Ltd: "Rustom Kudinar-Kwee is the founder and managing director of SH International. As one of Sydney's most acclaimed architects and project managers, Rustom is best known for his ability to create value for his investors in ways others can only dream of achieving. In 2014, Rustom and his team brought immense impact to the Sydney property market, with a stream of 6 popular projects, totalling around 1200 units."
In evidence before me is an ASIC print out of a series of companies whose names commence with the words "Southern Han". Thus there is Southern Han Botany Pty Ltd, Southern Han Parramatta Pty Ltd, Southern Han Waterloo Pty Ltd, Southern Han Rouse Garden Pty Ltd, Southern Han Rouse Hill Pty Ltd, Southern Han Wolli Creek Pty Ltd, as well as Southern Han Breakfast Point Pty Ltd, the respondent to this application and to the underlying appeal. The materials before me, taken from SH International's website, disclose medium or high density residential developments at places including Wolli Creek, Botany and Rouse Hill.
I was invited to draw the inference that Southern Han Breakfast Point Pty Ltd, no differently from the other companies I have mentioned, is a special purpose vehicle which is the owner of the land on which a residential development is being undertaken, and which exists for no other purpose. No differently from most other developers, having caused the construction to be completed, Southern Han Breakfast Point Pty Ltd appears to be in the process of causing the apartments on its land to be sold. The evidence before me is that as at 15 April 2015 all save four of the apartments at Breakfast Point had been sold, and as at 11 May 2015, all save three had been sold. There is also evidence, again taken from SH International's website, that all of the apartments in the Augusta building at Breakfast Point had been sold "off the plan".
Also before me is first registered mortgage granted by Southern Han Breakfast Point Pty Ltd dealing AH746229C. That mortgage I would infer is one that has been given over the land at Breakfast Point owned by the company on which the development has been erected. That inference may be drawn from two title searches on lots in community plan DP270347, which is otherwise connected with the development. Those title searches record a registered mortgage with the same dealing number on the search.
Consistently with this, argument proceeded on the basis that the mortgage exhibited to Mr Stulic's affidavit was the mortgage over the Breakfast Point land. The annexure to the registered mortgage records that the Commonwealth Bank of Australia had agreed to lend $19.3 million to Southern Han Breakfast Point Pty Ltd. But that is all that is known about the financial position of the respondent to this appeal. It may be that the development has been extremely successful, such that all loan funds have been repaid and a significant surplus is available for distribution to the owners of the company and any other investors. The converse may also be true, such that the indebtedness to the bank substantially exceeds the proceeds of sale. That is just simply not something that is disclosed by the evidence before me.
I turn therefore to apply to a consideration of the balance of convenience. In the present circumstances, Lewence submits that there is no evidence of any prejudice to Southern Han if the formerly agreed status quo is preserved pending the determination of the appeal. It also submits that there is a risk that it will be prejudiced in the enforcement of its claim (a claim which had been upheld by the adjudicator but set aside by the primary judge) if the funds are paid out of Court. It points to the large original indebtedness incurred by Southern Han and the unknown state of its balance sheet and what it says is the ordinary proposition that once it be inferred that Southern Han is a special purpose vehicle, in the usual course any surplus would be returned to shareholders after the repayment of debt. In particular it submits that the position would be very different if a holding company had been party to the litigation or if Southern Han had disclosed its balance sheet or made even some partial representations as to its present asset position.
I propose to proceed on the basis consistently with what was said by Hodgson and Giles JJA in Herscho and McLaughlin's Family Restaurant that a stay will be less readily available in a dispute arising out of the area delineated by the Act. I am not sure that that is correct in the present circumstances. It seems to me to be at least reasonably arguable that the Act is designed to protect and, indeed, give pecuniary advantages to contractors in the position of the appellant: see, for example, the object in s 3(1) and (2) and the rights conferred under Parts 2 and 3 of the Act. It seems to me to be not a small step to extrapolate from decisions tending against the availability of a stay at the incidence of a developer to conclude that a different or more restrained principle applies in the case of a contractor. But that has not been fully argued before me and I do not decide the case on that basis. I, as I have said, apply the more restrained approach as referred to by Hodgson and Giles JJA. As noted above, however, I do not regard it, contrary to the submissions of Southern Han, as necessary for Lewence to show exceptional circumstances in order to make out a case for a stay.
Broadly speaking I accept the inferences which Lewence invites me to draw from the uncontroverted evidence that is before me on this occasion. What singles out Lewence's application today as one that is highly unusual is the fact that a stay is being sought for a period of time measured in only weeks (the dates which I have earlier mentioned would involve a stay for a period of either three and a half or five weeks, plus whatever time is required, if any, for orders to be made by the Court of Appeal). To put this in context, if what was in question was a money judgment, an appellant who was unsuccessful at trial and who enjoyed a right of appeal would have 28 days to pay before even interest commenced to run: see s 101(3) of the Supreme Court Act 1970 (NSW). That is approximately the same period of time that is the subject of the present application.
There is, as I have stated, no evidence of any prejudice to Southern Han at all, and I do conclude that there is the possibility of prejudice to Lewence. It is not, on the evidence before me, possible meaningfully to measure the magnitude of the risk that Lewence would face in the event that it succeeds but the moneys have been paid out of Court, but in my view it is real and non-negligible. I infer the existence of the risk from the ordinary process that assets presently constituting real property are being converted into liquid assets, in a way that is utterly unremarkable in the context of a residential property development, coupled with the fact that it is completely unknown what is proposed to be done with the liquid assets or what indeed is the present state of financial circumstances of the respondent.
During the course of submissions, the applicant made it perfectly clear that there was no suggestion of any impropriety, let alone unlawful conduct, that was sought to be inferred against Southern Han, and nothing that I have said should be taken for a moment as suggesting any such inference has been drawn by me. That, however, does not stand in the way of the conclusion which I have been invited to draw and which I do draw, that there is a real and non-negligible chance of prejudice to Lewence in the event that the appeal is allowed and the present status quo is altered. That takes this application outside the circumstances to which Hodgson JA referred, namely, a mere speculation that there might be problems in enforcement, and discharges the onus Lewence bears. However, it is most unlikely that any future case will involve such a short period of time, such a state of uncertainty about the financial circumstances of the successful judgment creditor at first instance and a complete absence of any evidence of prejudice in the event that the present status quo of moneys paid into Court is maintained for a limited period pending the determination of the appeal.
For those reasons, I propose therefore to extend the existing stay until seven days after the determination of the appeal, on terms that Lewence undertake to prosecute its appeal with reasonable diligence. Lewence has already indicated that it is willing and able to have its appeal set down for hearing on either 15 June or 2 July (that is approximately three or five weeks from today). Over the luncheon adjournment I have made inquiries and determined that 29 June is also available for the determination of an appeal. The duration of the stay will be determined by Southern Han's preference as to the date on which the appeal is heard. [Discussion about dates and consequential orders].
The formal orders I make are as follows. 1. Order 2 made on 15 May 2015 is stayed until seven days after the determination of the appeal. 2. I note the appellant's undertaking to prosecute the appeal with reasonable expedition and diligence. 3. I direct that the appellant file and serve its written submissions and the red book on or before 5 June 2015. 4. I direct the respondent to file and serve its submissions on or before 19 June 2015. 5. The appellant to file and serve the blue, black and orange books on or before 24 June 2015. 6. The appeal be listed for hearing on 29 June 2015 with an estimate of one day. 7. I order that the costs of the notice of motion filed 18 May 2015 be costs in the appeal.

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