Piety Constructions Pty Ltd v Megacrane Holdings Pty Ltd

Background

1. The background is largely contained at [3]-[17] of the Judgment. The facts relevant to this application are set out below.
2. On 30 June 2020, Piety entered into a sub-contract with Megacrane for the supply of tower cranes and associated labour in connection with a project situated at 93 Forest Road, Hurstville (the Contract).
3. On 9 March 2022, Mr Liam Bailey was appointed as administrator of Megacrane pursuant to s 436A of the Corporations Act 2001 (Cth) (Administrator).
4. On 14 March 2022, the Administrator sent a letter to Piety stating that he was assessing the viability of engaging a third party to provide the labour services required for Megacrane to perform its obligations under the Contract and, in the absence of such arrangement being entered into, he would have no alternative but to cease to supply labour services under the Contract.
5. On 15 March 2022, Piety issued a notice to Megacrane pursuant to cl 39.4(a) of the Contract, taking the works remaining to be completed under the Contract out of Megacrane's hands. Piety's entitlement to issue this notice arose pursuant to cl 39.11 of the Contract because of the appointment of an administrator to Megacrane.
6. On 11 May 2022, the Administrator sent Piety an email with 3 PDF file attachments (the Payment Claim).
7. On 14 June 2022, the Administrator provided a report to creditors in which he stated that Megacrane was insolvent, with assets of $648 and liabilities of $2,189,328. The Administrator recommended that unless the Federal Court granted an extension of time for holding the second meeting of creditors of the company, the company should be wound up in the absence of a DOCA proposal.
8. On 15 June 2022, the Administrator applied for and was granted an extension of time for holding the second meeting of creditors of the company by Yates J in the Federal Court: Bailey, in the matter of Megacrane Holdings Pty Ltd (Administrator Appointed) [2022] FCA 733.
9. On 16 June 2022, the Administrator lodged an ASIC Form 530 estimating liabilities to be $2,016,981 and estimating assets to be between $648 and $876,219.
10. On 28 June 2022, the second defendant issued his adjudication determination in which he determined the Payment Claim was valid under the Act and the adjudicated amount under s 22(1) of the Act was $108,828.05 (Determination).
11. On 14 July 2022, Megacrane obtained an adjudication certificate in respect of the Determination under s 24(1)(c) of the Act and on the same day registered a judgment debt in the District Court in the amount of $121,321.50 (including the second defendant's costs).
12. On 20 September 2022, Piety commenced proceedings in this Court and, on paying into Court the amount of the judgment debt, obtained an interim stay in the following terms: … until the determination of these proceedings or earlier order, the First Defendant be restrained from: c. enforcing the Judgment Debt; and d. taking any further action to enforce the Adjudication Determination issued by the Second Defendant on 28 June 2022 with number 2022ADJT174 (Determination), including taking any further action to register the Adjudication Certificate issued by the Second Defendant in relation to the Determination on 14 July 2022 in any other court.
13. On 8 March 2023, Megacrane made another application to the Federal Court seeking to extend the deadline for the holding of the second meeting of creditors, which was granted by Markovic J on 24 March 2023 (along with various other orders) up to no later than 30 June 2023. The Administrator acknowledges in his submissions to the Court in response to Piety's application for a stay that, given there is no DOCA proposal, Megacrane will be in liquidation by no later than 30 June 2023.
14. On 30 March 2023, I delivered the Judgment, concluding at [52] that the Determination was not affected by jurisdictional error and so was not void, and should not be quashed.
15. On 8 May 2023, Megacrane's solicitors gave notice that the Administrator would give undertakings to the Court on behalf of Megacrane that Megacrane would declare a trust of the monies paid out of Court in full satisfaction of the Judgment. The monies will be held on trust for Piety to the extent that Piety was not liable to pay these monies to Megacrane (because of a set-off of any claim Piety has against Megacrane). The trust will continue notwithstanding the appointment of a liquidator to, and winding up of, Megacrane.
16. The proposed terms of the Administrator's undertaking are contained in the proposed orders provided by the Administrator at the hearing, as follows: 1. The plaintiff's application for a stay be refused. 2. The summons be dismissed. 3. The first defendant by its Counsel undertakes and declares that: (a) it will hold the monies paid out of Court, in full satisfaction of the judgment registered on 14 July 2022 in the District Court of New South Wales in proceeding 2022/00205890, as trustee upon trust for the plaintiff, to the extent it is ultimately determined that the plaintiff was not contractually liable to the first defendant for those monies, or that the judgment debt has been discharged by set-off, or that for any other reason pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) or otherwise, the plaintiff is entitled to restitution of the moneys so received by the first defendant paid out of Court, and otherwise to be held in trust for the first defendant; (b) such trust will continue notwithstanding the appointment of a liquidator and will continue during any winding up of the first defendant; (c) until further order, except with the written consent of the plaintiff, the first defendant will not pay any part of the monies paid out of Court to any third party, including any creditor of the first defendant, whether secured or not, and will keep such moneys in a separate trust account (which may be an interest-bearing investment account); (d) the first defendant will promptly notify the plaintiff, by its solicitors, of the termination of the administration, any application or proposal for the winding-up of the first defendant, or any proposal for execution of a deed of company arrangement in respect of the first defendant; (e) the first defendant will deal with the monies paid out of Court prior to any such ultimate determination as the Court might direct, including, if so directed by the Court, returning such moneys to the plaintiff; (f) within 7 days, the first defendant will file with the Court an instrument executed by the Administrator and the Company with these undertakings; (g) for the purposes of this undertaking, "ultimately determined" means: (i) the plaintiff fails to lodge a proof a debt within the times permitted by the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth), in which event the monies shall become the property of the first defendant; or (ii) the adjudication of a proof of debt in the winding up of the first defendant, if such adjudication is not appealed; or (iii) the determination of any appeal from the adjudication of such proof of debt, from which no further appeal is brought; or (iv) the final orders in any proceedings for final relief brought by the plaintiff, if such orders are not appealed; or (v) the determination of any appeal from such proceedings; or (vi) the determination of any further appeals from the above, including application for special leave to appeal and any appeal to the High Court of Australia; (h) the Administrator (as administrator and liquidator) undertakes to be personally liable for any adverse costs order made in an appeal from a proof of debt adjudication and any further appeal therefrom. 4. Upon the filing with the Court of the instrument in paragraph 3(f), the moneys paid into Court by the plaintiff and any accretions thereon be paid out of Court to the first defendant, by payment to the Chamberlains Law Firm Trust Account. 5. The cross-summons otherwise be dismissed.

Piety's cl 39.6 adjustment

1. Important to this stay application is that Piety claims it has a right under cl 39.6 of the Contract for an adjustment upon completion of the works taken out of the hands of Megacrane on 15 March 2022. Clause 39.6 provides: 39.6 Adjustment on completion of work taken out When work taken out of the Subcontractor's hands has been completed, the Subcontract Superintendent shall assess the cost thereby incurred and shall certify as moneys due and payable accordingly the difference between that cost (showing the calculations therefor) and the amount which would otherwise have been paid to the Subcontractor if the work had been completed by the Subcontractor. If the Subcontractor is indebted to the Main Contractor, the Main Contractor may retain construction plant or other things taken under subclause 39.5 until the debt is satisfied. If after reasonable notice, the Subcontractor fails to pay the debt, the Main Contractor may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Subcontractor.
2. Piety submitted that it paid numerous hire fees to Crane Contractors who owned the two tower cranes on site from 18 March 2022, it also engaged Alpha Cranes in mid-March 2022 to provide labour services which Megacrane had provided, and Piety incurred other costs such as of power supply which Megacrane had previously provided.
3. The Subcontract Superintendent under the Contract, Mr Gasseling, gave evidence that he conducted an adjustment under cl 39.6 and certified that the adjusted contract sum is $1,219,828.67 and, if the works had not been taken out of Megacrane's hands, they would have been paid a further $330,662.66 (given they had already been paid $889,166.01); that Piety incurred costs of $1,541,063.99 completing the works taken out of Megacrane's hands; and accordingly $1,210,401.33 is due and payable by Megacrane to Piety.
4. Piety submit that Megacrane therefore owe an amount of $1,210,401.33 to Piety under cl 39.6 of the Contract.
5. Megacrane disputes the contractual adjustment but accept that Piety have an arguable case for a clause 39.6 adjustment in its favour for the purposes of the stay application. Specifically, Megacrane contends that: 1. the Contract provided for the dry hire of cranes, not the supply of labour or generators - such supply being variations; 2. Piety incurred no additional cost hiring the cranes from the owner of the cranes, being Crane Contractors, as opposed to hiring them from Megacrane - because Crane Contractors charged the same price; 3. the Subcontract Superintendent failed to adjust various provisional sums under the Contract which affected the adjusted contract sum - for example, one crane was on site for 68 weeks longer than anticipated by the provisional sum in the Contract.
6. Piety submits that the Court has inherent power to stay execution of a judgment or order where the requirements of justice demand it, citing Tringali v Stewardson Stubbs & Collett Pty Ltd [1966] 1 NSWR 354 at 360. Section 64 of the Civil Procedure Act 1967 (NSW) also confers a general power on the Court to stay proceedings. The Court's discretion should be exercised by weighing considerations such as the balance of convenience and the competing rights of the parties. Relevant considerations may include the existence of a set-off and the ability of the parties to pay, citing Grosvenor Constructions (NSW) Pty Ltd (in admin) v Musico [2004] NSWSC 344. Piety also relies upon the principles set out in the Judgment at [49]-[51] as well as the submissions made by the plaintiff in Ceerose Pty Ltd v A-Civil (Aust) Pty Ltd [2022] NSWSC 1487 at [34].
7. Piety submits that the balance of convenience favours the grant of a stay of enforcement of the Judgment because it will suffer irreparable prejudice if a stay of enforcement of the Judgment is not granted, and the monies paid into court are released to Megacrane. Megacrane is hopelessly insolvent and will inevitably be wound up and Piety will be an unsecured creditor and at best receive a nominal amount of cents in the dollar by way of a dividend assuming Piety's proof of debt is admitted. Even if Megacrane is not wound up (which is highly unlikely), the result will substantially be the same.
8. Piety also submits that it should not, as a condition of a stay, be compelled to commence proceedings for its claim for contractual adjustment referred to above, because the cost of those proceedings (assuming success) will be irrecoverable and that in and of itself is substantial irreparable prejudice. This is because it will be likely to incur costs of some $100,000 seeking to pursue that claim but, due to Megacrane's insolvency, the total amount it could recover would not exceed the amount paid into Court (being $121,321.50 plus interest).
9. However, Piety accepts that the position will be different, and such a condition would be appropriate, if the Administrator is willing to undertake to be personally liable for any adverse costs order made against Megacrane (less any dividend received by Piety) or to provide some other security for Piety's costs of proceedings.

Administrator's undertaking

1. Megacrane submits that the Administrator's undertaking to hold the monies paid out of Court on trust for Piety according to the terms proposed would avoid prejudice to Piety. The undertakings were modelled on the undertakings accepted by White J in Paul Michael Pty Ltd v Urban Traders Pty Ltd [2010] NSWSC 1246 at [77], as a basis for ensuring that the lifting of a stay would not have the practical effect of making permanent judgments under the Act which are only intended to be interim, having been satisfied there were serious questions to be tried as to the defendants' asserted cross-claim for damages.
2. Urban Traders applied a decision of McDougall J in Veolia Water Solutions v Kruger Engineering (No 3) [2007] NSWSC 459, where his Honour reasoned at [10] that a stay should be granted "only where the failure to do so would have the practical effect of making permanent that which, clearly enough, the legislature intended to be only interim". In Urban Traders, White J held at [59] that: Prima facie the stay should only be continued if not to do so would have the practical affect of making permanent the judgments which are intended only to be interim (Veolia Water Solutions v Kruger Engineering (No. 3) at [75]). For the reasons above, that would not come about if moneys received through execution of the judgments were not distributed by the deed administrator, but were held on trust for the defendants if, and to the extent, it might ultimately be held that the defendants were entitled to restitution of the moneys so received.
3. Urban Traders and Veolia were approved by the Court of Appeal in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 at [254]. Megacrane submits that, applying the reasoning in Urban Traders and Veolia, the Administrator's undertaking would avoid prejudice to Piety. Furthermore, the recent decision of Ball J in Kennedy Civil Contracting Pty Ltd (Administrators Appointed) v Richard Crookes Construction Pty Ltd [2023] NSWSC 99 upheld the terms of a DOCA containing a provision establishing a similar trust, reasoning at [35] that: As to Richard Crookes's second point, it is difficult to see how it could be said that the DOCA was designed to avoid the operation of the SOP Act. It would be more accurate to say that it was designed to take advantage of the limited operation of s 32B. The evident purpose of s 32B is to prevent a situation from arising where an interim payment made under the Act becomes permanent because, on liquidation, the payment is no longer available to be returned to the payer if the payer is successful in its claim under the construction contract. But the DOCA in this case specifically preserves Richard Crookes's rights to recover the amount it pays under the construction contract.
4. Similarly, Megacrane submits that Piety will not suffer prejudice because monies would not fall into the general pool, and its position would be secured by the trust undertaking. As such, Piety can lodge a proof of debt once a liquidator is appointed (which could be appealed pursuant to s 1321 of the Corporations Act 2001 (Cth)) to maintain its cross-claim.
5. By way of response to Piety's submission recorded at [25] above, the Administrator's proposed orders set out at [17] above include at paragraph 3(h) an undertaking by the Administrator to be personally liable for Piety's costs of a proof of debt adjudication.

Consideration

1. I set out in the Judgment at [50] the relevant principles for determining whether to grant a stay, by reference to what was said by Ball J in Hakea Holdings Pty Ltd v Denham Constructions Pty Ltd [2016] NSWSC 1120. In summary, the Court needs to balance the two competing policies of the Act which are, on the one hand, that contractors should be paid promptly for work done and, on the other, that payment under the Act is not intended to affect the rights of the parties under the construction contract, which is recognised by s 32 of the Act. In balancing these two policies, the Court will take into account such matters as the strength and basis of the applicant's cross-claim which it seeks to vindicate under s 32 and the likelihood that the contractor will be unable to repay the amount the subject of the determination if the applicant is successful in its cross-claim, due to the contractor's insolvency, thereby causing irreparable damage to the applicant.
2. It is not in dispute that Piety has an arguable case under its cross-claim. Nor is it in dispute that, given the insolvency of Megacrane and its impending liquidation, it is likely that the only benefit to Piety in bringing the cross-claim is that it will allow Piety, if successful, to recover some or all of the judgment debt through the operation of the statutory set-off under s 553C of the Corporations Act should the stay be granted.
3. Absent the proposal by the administrator set out at [17] above, there would be a risk that Piety would suffer irreparable prejudice if a stay was not granted. However, in my opinion, the proposal by the Administrator overcomes this risk because it allows Piety to bring its cross-claim by lodging a proof of debt, and through the trust declared by the Administer over the funds released from Court, preserves those funds until final determination of the proof of debt. The undertaking by the Administrator in paragraph 3(h) (at [17] above) both as administrator and liquidator to bear personal liability for Piety's costs in relation to the adjudication of the proof of debt overcomes the potential prejudice concerning costs referred to at [25] above.
4. Piety raised two concerns with the Administrator's proposal. First, it said that the declaration of trust is vulnerable to attack, on the liquidation of Megacrane, under s 468(1) of the Corporations Act. However, this risk does not arise due to s 468(2)(aa) which exempts from the operation of s 468(1) "a disposition made in good faith by, or with the consent of, an administrator of the Company". The declaration of trust here is within s 468(2)(aa).
5. Second, Piety said that the appropriate forum for pursuing its cross-claim would be an action in the District Court because, in practical terms, the damages it sought to recover were limited to the judgment debt of $121,321.50. It was said to be inappropriate that Piety is, in effect, forced to pursue its cross-claim through a proof of debt. I do not regard this as a relevant matter to the question whether a stay should be granted. Assuming that the proof of debt is refused, Piety can bring its appeal in either the Supreme Court or the Federal Court and, if successful, it will be protected for its costs through the personal undertaking given by the Administrator (both as administrator and liquidator) in paragraph 3(h) at [17] above.
6. Accordingly, I propose to make orders in accordance with the Administrator's proposal set out at [17] above.

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: 21 June 2023