PPK Willoughby v Eighty Eight Construction

Judgment (ex tempore - revised 4 july 2014) 1HIS HONOUR: The particular dispute between the parties in these proceedings related to the determination of an adjudicator made under the Building and Construction Industry Security of Payment Act 1999 (NSW). In reasons given on 11 June 2014, I concluded that the challenge to the determination should fail. I stood the matter over to 25 June 2014 for the parties to bring in orders to give effect to my reasons. 2As the price of obtaining an interlocutory stay of enforcement of the determination, the plaintiff (PPK) had paid into court the adjudicated amount. It followed, from my conclusion on PPK's challenge, that the adjudicated amount should be paid out to the first defendant (Eighty Eight). However, PPK resisted this on the basis that it feared that, if ultimately its claims were vindicated and (as it contended) Eighty Eight owed it a very large sum of money, it might not be able to recover, to the extent of the money paid into court and to be paid out to Eighty Eight, in partial satisfaction of its hypothetical rights. 3The matter was stood over until today so that the issues raised by that notice of motion could be dealt with. In my reasons given on 25 June 2014 ([2014] NSWSC 839), I commented at [10]-[12] on the possible consequences of the failure to raise insolvency as an alternative and discretionary basis for refusing the stay. [10] The basis upon which that order is sought is that there are fears the first defendant would not be able to repay the amount in question if, ultimately, it turns out that the plaintiff's position is vindicated and in fact the first defendant owes the plaintiff money. [11] The ground of insolvency could have been raised as an alternative ground for seeking to restrain enforcement of the rights under the adjudicator's determination. That is established by first instance decisions in this Court, including the decision of Einstein J in Grosvenor Constructions (NSW) Pty Ltd (in Administration) v Musico & Ors [2004] NSWSC 344 and my own decision in Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 49. [12] It was not so raised. There may be discretionary issues as to whether the plaintiff should now be able to rely upon it, but I will not go into that possibly fascinating argument at this point. 4The position today is that PPK does not press its notice of motion and accepts that it should be dismissed. It does, however, say that it should not have to pay Eighty Eight's costs, which would ordinarily follow the event of dismissal (UCPR r 42.1). 5It is apparent that the reason why PPK does not press its notice of motion is that documents produced to it, pursuant to a notice to produce, by Eighty Eight show that the financial position of Eighty Eight is sufficiently healthy, to the point that the discretionary basis for a stay (in the context of determinations under the Security of Payment Act) identified by the cases that are referred to in my earlier reasons could not be made out. I need do no more than observe that I agree entirely with what I perceive to be the analysis underlying PPK's position today. 6Eighty Eight seeks its costs. It says that they should follow the event of dismissal of the stay application. It relies on two separate strands of reasoning. One is that the application was brought too late. In that regard, Eighty Eight submits, in effect, that what I said in my earlier reasons, in the paragraph set out above, represents the course that PPK should have followed. 7The second ground is that there was never any financial basis for a stay; at least, on the material before me, there was nothing that could have led PPK to entertain a belief that the position was as bad as needs to be shown to get a stay on this basis. 8Eighty Eight relied on the well-known observations of Keane JA in RJ Neller Building Pty Limited v Ainsworth [2009] 1 Qd R 390 at [40]. His Honour there observed that one of the consequences of the Queensland legislation, which in this respect is not materially different to the Security of Payment Act of this State, was that a builder's cash flow should be preserved "notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder's ... inability to repay could be expected to eventuate". 9Eighty Eight also relies on what I said, on the same point (and with the concurrence of Spigelman CJ) in Chase Oyster Bar Pty Limited v Hamo Industries Pty Limited (2010) 78 NSWLR 393 at [207]. Both modesty and brevity dictate that I should not set out what I said. 10The decisions on stays to which I referred in my earlier reasons suggest that the risk of prejudice must be likely to be characterised as "irreparable", particularly taking into account the policy of the Security of Payment Act. See, for example, what Einstein J said in Grosvenor Constructions (NSW) Pty Limited (in Administration) v Musico [2004] NSWSC 344 at [31], and what I said in Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 at [72] to [75]. In the last of those paragraphs, and putting modesty aside, I said that a stay on this ground would ordinarily be granted "only where the failure to [stay] would have the practical effect of making that permanent that which, clearly enough, the legislature intended to be only interim". 11When the notice of motion for a stay was filed in court on 25 June 2014, there were filed with it two affidavits. One was sworn by the solicitor for PPK. Another was sworn by a director of another contractor in the construction industry, Mr Allam. The effect of Mr Allam's affidavit was that his company, Ace Demolition and Excavation Pty Limited, had been owed for some time a significant sum of money by Eighty Eight. That could be taken to suggest that Eighty Eight's financial position was precarious. It could be taken to suggest, alternatively, that Eighty Eight is not particularly interested in paying its bills until it has no option. 12Mr Low's affidavit (he is the solicitor for PPK) identified a number of judgments that had been recovered against Eighty Eight, and a number of securities that it had given over personal property. It could be inferred from the material contained in Mr Low's affidavit, and its exhibit, that Eighty Eight had had difficulty in paying its debts, and that it was significantly reliant on secured loans to carry on its business, and that all its assets were encumbered. 13Also before 25 June 2014, PPK's solicitors sent a letter to Eighty Eight's solicitors. That letter, dated 13 June 2014, foreshadowed the request for a stay that was in fact made when the notice of motion was filed on 25 June 2014. By reference to an earlier letter seeking financial information, the letter of 13 June 2014 repeated that request "in the context that our client requires such information for the purposes of its foreshadowed... application for a stay". A reply was requested by 17 June 2014. 14On 18 June 2014, a reply was given. It referred to the request and the indicated purpose and stated: "To enable our client to consider this request, we would be grateful if you would identify the legal basis on which your client asserts that it is entitled to the very wide categories of information sought in order to decide whether to... seek a stay". 15I do not agree that the categories of information sought were wide, let alone "very wide". On the contrary, they were precisely targeted and, in my view, precisely relevant to the question of Eighty Eight's solvency, in particular with reference to its likely ability to repay an amount of about $500,000 if called upon to do so. 16Further, in my view, taking into account the dictates of s 56 of the Civil Procedure Act 2005 (NSW), a reply seeking identification of the legal basis for the documents was, at best, inappropriate. It must have been obvious to any practitioner of any experience that the legal basis could be established quickly enough by service of a notice to produce. The forensic purpose had been identified. Contrary to some submissions that were flagged, it was a legitimate forensic purpose. In those circumstances, in my view, attention to the just, quick and cheap resolution of the real issues in dispute required that the documents be produced, or that a timetable be given for their production. 17A reply such as the one that I have indicated is unfortunately all too often something done by people who wish to withhold information for as long as possible. In those circumstances, there may be an available inference that the stalling tactics are undertaken because the person does not wish to produce the information, and that this is because the information is likely to be detrimental to its interests. 18I am not prepared to draw that inference in the present case. However, I can understand that the circumstances of suspicion might have hardened PPK in the decision that it took, based upon the material that I have summarised, to seek a stay. 19As the evidence can now be seen, this is an application that should not have been brought. 20Mr Hicks of Counsel, for PPK, in effect acknowledges that. However, what Mr Hicks submits is that if the information sought in the letter of 13 June 2014 had been produced when requested, it is likely that the notice of motion would not have been filed, and it is equally likely that the parties would not have been put to the expense that, no doubt, they have incurred in dealing with it. 21Mr Christie of Senior Counsel, who appears with Mr Shipway of Counsel for Eighty Eight, submitted that there was never apparent any appropriate basis for making the request for a stay, bearing in mind the high standard referred to in the decisions that I have commented upon above. For the reasons that I have just given, I do not agree with that. I think that the combined effect, viewed objectively, of the material that was available to PPK as at 25 June 2014 (as it appears from the affidavits) and the temporising (as it might have seemed) and delaying tactics (as one might have thought) engaged in by Eighty Eight in answer to the request for production, formed a sound basis for seeking the application. 22It is appropriate that recognition be given to this. It is equally appropriate to accept that, the documents having been finally produced today, pursuant to further notices to produce, PPK acted responsibly in announcing that it would not press its request for a stay. 23As I have said, the starting point is that costs should follow the event. However, in my view, this was an event that should never have been necessary. That is to say, the notice of motion should never have been filed. I am satisfied, for the reasons that I have given, firstly, that there was an appropriate basis for filing the notice of motion when it was filed and, secondly, that if the response belatedly made to the notices to produce had been made on or around 17 June 2014, the notice of motion would never have been filed. [Counsel addressed.] 24I return to the first of the grounds identified, namely, that the application should not have been brought when it was because it was a ground that could have been relied on in the substantive proceedings. 25That is correct. However, without determining the issue, it is unnecessary to do more than say that it is by no means certain that, as a matter of discretion, a stay would have been refused on that ground had the matter proceeded and had PPK otherwise shown, taking into account the test to which I have referred, that a stay was justified. 26To deal with the costs application on that ground seems to me to require the Court to decide the merits of the substantive argument and that is not something that I propose to do. 27I add in any event that the considerations to which I have referred, as to the temporising (as it might have seemed) response to the initial request for documents, apply equally to this ground, because if the documents had been produced it is likely, on the view to which I have come, that the notice of motion would never have been filed. 28Balancing all those matters with the prima facie position stated in r 42.1, I have come to the view that the appropriate way to deal with costs is to make no order as to costs of the notice of motion filed on 25 June 2014, to the intent that each party pay its own costs. I direct that the exhibits on the application be returned. 29In proceedings 2014/78684, I make orders and give directions in accordance with paragraphs 1 to 8 of the short minutes of order initialled by me and dated today's date. 30I note that the matter is listed for directions on 11 July 2014. 31I note further that the parties are at liberty (as always) to ask either the Court or, in the circumstances of this case, the Referee, to vary the directions if appropriate, in particular to accommodate the circumstance that the experts are working to reduce as much as possible the areas of disagreement between them, and to produce an agreed joint report. 32The stay granted on 25 June 2014 in the other matter is discharged and that order should be entered forthwith.