Pheonix Builders Pty Ltd v Deca Australia Pty Ltd

Supreme Court of NSW|2021-05-18|Before: Rees J, Paul J

Solicitors: HWL Ebsworth (Plaintiff) Vincent Young (First Defendant) File Number(s): 2021/139530

EX TEMPORE Judgment

HER HONOUR: This is an application by the plaintiff, Pheonix Builders Pty Ltd, for an interim order restraining the first defendant, Deca Australia Pty Ltd, from: 1. requesting an adjudication certificate pursuant to section 24(1)(a) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), 2. serving a notice on the plaintiff pursuant to section 24(1)(b) of the Act, and 3. filing an adjudication certificate as a judgment for a debt pursuant to section 25 of the Act, in connection with the adjudication determination issued by the second defendant, Australian Solutions Centre, on 11 May 2021 with number 2021-TASC-026 (the Determination), together with an order restraining Australian Solutions Centre from issuing an adjudication certificate in relation to the Determination.
In support of the application for interim relief, the plaintiff relied on an affidavit by its solicitor, David Jury, and accompanying documents in relation to the adjudication.

Facts

In July 2019, Deca submitted a quotation to the plaintiff and, in November 2019, a further quotation. The plaintiff says that, in January 2020, Deca's quotation was accepted, leading to a construction contract to undertake demolition and excavation works in Blakehurst. The contract price was $696,000 plus GST. The plaintiff advanced the same contention to the adjudicator, which was accepted: Determination at [24]. Assuming that the construction contract came into existence as pleaded, the relevant version of the Act is the current version.
As pleaded in the Technology and Construction List Statement, supported by Mr Jury's affidavit on information and belief, the plaintiff contends that, on 25 September 2020, a site meeting took place between representatives of the plaintiff and Deca, at which it was agreed (the Agreement): 1. Deca would be paid 65% of the contract price for all works completed to date under the contract on a final basis; 2. the contract would immediately come to an end; and 3. any further construction work would be undertaken on the basis of a new construction contract.
On 19 October 2020, pursuant to the Agreement, the plaintiff paid 65% of the contract price to Deca and, on 20 October 2020, an email was sent by Deca to the plaintiff which is said to evidence the new construction contract. The email, entitled "removal of imported fill", is equivocal in this regard.
On 17 March 2021, Deca issued a payment claim, which included invoices issued after the site meeting of 25 September 2020. The plaintiff contends this was not a valid payment claim by reason of the accord and satisfaction arising from the Agreement and the plaintiff's payment. By reason of the accord and satisfaction, the construction contract no longer existed, nor Deca's entitlement to make the progress claim.
On 31 March 2021, the plaintiff provided a payment schedule which, in part at least, set out the Agreement as follows: (emphasis added) An on-site meeting took place on 25 September 2020 … where it was agreed that the Claimant would be paid 65% of the Contract price for excavation works completed to date. It was agreed that the claimant was entitled to the sum of $250,000 plus GST for further work completed to date. It was not suggested in the payment schedule, however, that the meeting led to an agreement that 65% of the contract claim would be paid on a final basis. Nor is the Agreement necessarily consistent with other parts of the payment schedule in which the plaintiff did not object to invoices issued by Deca for work done after the site meeting.
On 16 April 2021 Deca filed an adjudication application. On 26 April 2021, the plaintiff provided an adjudication response, which included: 5.1 The Respondent does not take any issue with any compliance or jurisdictional issues in relation to the Payment claim. … 5.5 The Respondent seeks the adjudication of the payment claim in accordance with this Response and attachments. That is, the plaintiff did not press any jurisdictional challenge suggested in the payment response.
As part of the adjudication response, the plaintiff also submitted a statutory declaration by the plaintiff's site foreman, who described the meeting on 25 September 2020 in the following terms: 4. The only agreement reached by Pheonix and Deca at the late September meeting was that: i. Deca would be paid 65% of the Contract Price for excavation works; and ii. that Pheonix would withhold payment for the additional agreed work in relation to the construction of the berm and other remediation works as security until Deca returned to the Site to complete the contract works. … 6. After the piling wall failed on 17 September 2020, Deca performed some additional work from time-to-time under my direction. Deca were required to submit dockets (for machinery, plant and labour) confirming work had taken place for my approval and signature. … 7. Each time Deca's excavator was used for the Site, a docket was signed by me. 8. I informed Forge from Deca and his workers on at least 3 occasions that they needed signed dockets to be paid for any additional work. This was the agreed practice in which that any additional works would be authorised by Pheonix. It is noteworthy that the site manager did not suggest that the discussion at the site meeting of 25 September 2020 led to the consequences now sought to be advanced in these proceedings.
On 11 May 2021, the Determination was issued. The adjudicator noted at [30] and [33]: (footnotes omitted) 30. In the Response, the Respondent does not press their jurisdictional challenges and seeks for the adjudication to proceed. … 33. Notwithstanding the Respondent does not press its jurisdictional challenges, I have considered the Payment Claim and the Application in the context of the Act and the basic and essential requirements identified in Brodyn and for the reasons discussed below under the headings Construction Contract, Payment Claim, Payment Schedule and Adjudication Application, I am satisfied that all of those basic and essential requirements have been met and I am authorised by the Act to undertake the adjudication of the Application and determine the matters required by s22(1) of the Act. The adjudicator determined that the plaintiff was obliged to pay Deca the amount of $240,806.50.
On 13 May 2021, the plaintiff's solicitor requested details of Deca's financial position, noting that an application to wind up Deca had been filed in this Court by another creditor, and various defaults in payment were noted on a company search. On 14 May 2021, Deca's solicitor advised that Deca had discharged most of the debts referred to and entered into agreements in relation to other outstanding amounts, including with the petitioning creditor.
On 17 May 2021, the plaintiff commenced these proceedings ex parte seeking orders for short service. It was not drawn to the attention of the Court, either in Mr Jury's affidavit or the plaintiff's written submissions, that the jurisdictional challenge now sought to be advanced had been put before the adjudicator, albeit in a somewhat different form, and withdrawn. Mr Jury deposed, on information and belief, that the plaintiff raised the Agreement in its payment schedule, including challenges to the validity of Deca's payment claim and jurisdictional challenges, and the Determination "did not property consider the nature and effect of the Agreement". Unless the plaintiff brought the additional fact that the plaintiff withdrew its challenge to the adjudicator's jurisdiction to the Court's attention, the Court may well have proceeded on an incorrect understanding of the facts.

Interlocutory injunction

The question is whether the interim relief should be granted.
This Court can only quash an adjudicator's determination for jurisdictional error: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; [2018] HCA 4 at [35]. An essential prerequisite to the exercise of an adjudicator's powers, and thus jurisdiction, is the existence of a construction contract: Brodyn Pty Ltd v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [53]-[54] per Hodgson JA; IWD No 2 Pty Ltd v Level Orange Pty Ltd [2012] NSWSC 1439 at [9]-[11] per Stevenson J. Having regard to the Technology and Construction List Statement and Mr Jury's affidavit, there is a serious issue to be tried as to whether there was a construction contract at the time when the progress claim was issued. If the plaintiff succeeds in establishing the Agreement in these proceedings, then the Determination may be quashed for jurisdictional error.
In considering whether to grant an interlocutory injunction, the Court is entitled to take into account the apparent strength of the parties' substantive cases, as noted by Dowsett, Foster and Yates JJ in Samsung Electronics Co Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 at [67]: … when considering whether to grant an interlocutory injunction, the issue of whether the plaintiff has made out a prima facie case and whether the balance of convenience and justice favours the grant of an injunction are related inquiries. The question of whether there is a serious question or a prima facie case should not be considered in isolation from the balance of convenience. The apparent strength of the parties' substantive cases will often be an important consideration to be weighed in the balance … [citations omitted]
Here, the strength of the plaintiff's case is undermined by the manner in which that issue was put to the adjudicator - being inconsistent with the manner in which it is now put - and then withdrawn. It may undermine the operation of the Act - which is to ensure prompt payment to contractors through clear, quick procedures - for a party to an adjudication to challenge jurisdiction, withdraw the challenge, only to contend in this Court that the adjudicator has made a jurisdictional error by reason of the same issue abandoned before the adjudicator.
In addition, according to the Technology and Construction List Statement, the plaintiff has a claim against Deca for breach of contract, including abandonment of the site and seawall collapse in excess of $250,000. The suggested counterclaim is put in wide and general terms.
As to the balance of convenience, the relevant principles are explained in Hakea Holdings Pty Limited v Denham Constructions Pty Ltd [2016] NSWSC 1120 by Ball J at [4]-[6], and particularly at [6]: The factors that the court will take into account in balancing the competing policies include the following: (a) the strength of the applicant's claim: see Veolia Water Solutions v Kruger Engineering Australia Pty Ltd (No 3) [2007] NSWSC 459 at [73]; Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124 at [95] (where Blue J (with whom Sulan and Stanley JJ agreed) described the factor as "an important criterion"); RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397 at [19], [36] per Keane JA (with whom Fraser JA and Fryberg J agreed); (b) the basis of the applicant's claim. Obviously, an important factor is whether the applicant challenges the adjudicator's determination. Another important factor is whether the applicant challenges the debt the subject of the adjudication determination. The absence of a challenge to the debt is a powerful factor against the grant of a stay: Romaldi at [110]; (c) the likelihood that the contractor will be unable to repay the amount the subject of the determination. It is accepted in this context that the policy of the Act is generally to place the risk of insolvency on the applicant: R J Neller at [40]. However, where there are strong reasons for believing that the applicant will be unable to recover any amount paid, that fact favours granting a stay: Veolia at [36]-[39]; (d) the risk that the contractor will become insolvent if a stay is granted: Romaldi at [101].
Here the plaintiff points to the fact that Deca appears to have been experiencing cash flow difficulties. In particular, a default payment was notified in June 2020 by the petitioning creditor in the winding-up application to which I have already referred, in the amount of some $53,000. In November 2020, another creditor notified default payments totalling some $100,000. In February 2021, default judgment was entered against Deca in the amount of some $9,000. A further default judgment was entered against Deca in April 2021 in the amount of some $15,000. Thus, it is said that, if the moneys are paid to Deca - as they will have to be in the event that the interim relief is not granted - then the moneys may not be recoverable.
Accepting that, I note that the policy underlying the Act is that contractors such as Deca should have their bills paid promptly as cash flow is the life blood of the industry: Shell Refining (Australia) Pty Ltd v AJ Mayr Engineering Pty Ltd [2006] NSWSC 94 at [14] per Bergin J. The moneys which Deca is prima facie entitled to be paid, being some $240,000, is in a sum which seems likely to be able to address the cash flow problems identified by the plaintiff.
Having regard to the issue to be tried, the strength of the plaintiff's claim and the balance of convenience, as set out at [14] to [20], I decline to make the orders sought.

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: 24 May 2021

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