Shade Systems Pty Ltd v Probuild Constructions

Stay of costs order

The appellant drew attention to the approach adopted and the principles stated by this Court in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd. [2] The stay with respect to the costs order is sought on the basis that the appellant is subject to winding up proceedings on the ground of presumed insolvency due to its failure to comply with a creditor's statutory demand for payment of a debt. Although the winding up proceedings were not commenced by Probuild, on 19 August 2016 Probuild filed a notice in the Equity Division stating that it intended to appear at a hearing on 22 August 2016 to support the application. Although it does not appear from the notice, it could be assumed that Probuild's claim is based primarily on the costs order made in these proceedings. However, in the course of the hearing, Probuild asserted an entitlement to rely upon a liquidated debt under the contract in an amount of something over $1 million payable by the appellant on the basis of delay in completing the work done under the contract. It has no judgment for any such amount and, given the nature of the proceedings before the adjudicator, I am prepared to assume that that amount will be disputed. Accordingly, I would approach the matter, as presently advised, on the basis that Probuild's primary claim is based on the costs order for which it has commenced proceedings by way of assessments of costs.
The adjudicator's determination made on 15 February 2016, required that Probuild pay the appellant an amount of $277,755. The order made in the Equity Division quashed that decision and remitted the matter to the adjudicator for further consideration and determination according to law. A claim based on procedural unfairness was dismissed. The quashing order was made on the basis that the reasons given by the adjudicator for his determination revealed two errors in dealing with the defence relied on by Probuild, by way of a payment schedule asserting its entitlement to a setoff based on liquidated damages for delay. The adjudicator rejected the claim on the basis that Probuild was not entitled to liquidated damages prior to the date of practical completion, or the termination of the subcontract, and on the basis that Probuild was required to demonstrate fault on the part of the appellant giving rise to the delay. The primary judge upheld the allegations as to both errors and concluded that non-jurisdictional errors of law on the face of the record could be relied on to set aside the adjudicator's determination.
The notice of appeal relies upon two grounds. The first states that the primary judge was in error in holding that he had power, in exercise of the supervisory jurisdiction of the Court, to quash a determination of an adjudicator under the Security of Payment Act on the basis of a non-jurisdictional error of law on the face of the record. A second ground alleges that the adjudicator was, in any event, not entitled to reduce the amount of the claim for a progress payment by reference to a claim for liquidated damages. It is not necessary to address the second ground in order to dispose of the present application.
In holding that he was entitled to act on the basis of non-jurisdictional error of law the primary judge declined to follow dicta in the decision of this Court in Brodyn Pty Ltd v Davenport. [3] The primary judge noted that there was no authority binding on him which determined the issue. He concluded that the jurisdiction of the Supreme Court under s 69 of the Supreme Court Act 1970 (NSW), which could undoubtedly be limited to consideration of jurisdictional error on the part of a statutory authority, would only be read down so as to exclude non-jurisdictional error of law on the face of the record in circumstances where the statute used express language or there was "a clear and unambiguous implication." [4]
There was, as the primary judge noted, further consideration of this issue in Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd. [5] Nevertheless, McDougall J (who wrote the primary judgment) stated at [146] that the reasoning in Brodyn established that relief in the nature of certiorari is not available for non-jurisdictional error of law on the face of the record. Although it is true that the point was not determined in Chase Oyster Bar and did not constitute the ratio of earlier decisions, it is also true that the line of authority in this Court has consistently assumed that the Court's supervisory jurisdiction is limited to setting aside decisions infected by jurisdictional error. (See also the discussion in Coordinated Construction Co Pty Ltd v JM Hargreaves (NSW) Pty Ltd. [6] )
A similar assumption has underlain the approach adopted in Western Australia under the equivalent legislation, being the Construction Contracts Act 2004 (WA). In Laing O'Rourke Australia Construction Pty Ltd v Samsung C&T Corporation, [7] Martin CJ (with the agreement of McLure P and Newnes JA) noted that one alleged error was no more than an "error in the construction or application of the construction contract" and that Samsung "accepts, quite properly, that errors of that kind do not take an adjudicator beyond the jurisdiction conferred by the Act."
Although there is an absence of binding authority against the proposition accepted by the primary judge, it also appears that both this Court and judges in the Equity Division have, in the past, acted on the basis that a party seeking to set aside a determination of an adjudicator must establish a want of jurisdiction on the part of the adjudicator, whether the absence of a factual precondition to the assertion of jurisdiction or a jurisdictional error of law. There is at least a lively question as to the correctness of the approach adopted by the primary judge; the issue is one of considerable general significance.
In these circumstances, there is an important issue raised by the appeal as to which the appellant has reasonable prospects of success; it would be unfortunate if the appeal were precluded or delayed because the appellant is presently liable to an immediately enforceable liability to pay the respondent's costs in the Equity Division, which could lead to the appointment of a liquidator. There may be other outstanding amounts which might also lead to the appointment of a liquidator, but regarding which there is insufficient information before the Court to place any weight upon them. Otherwise, the amount the subject of the claim is a significant amount. It would appear, and as will be noted presently, it is part of the respondent's case, that should the appellant succeed on the appeal the amount which will be recoverable pursuant to the adjudication will be sufficient to pay the outstanding liabilities of the company and allow the company to continue to operate.
In all the circumstances the order for payment of costs should be stayed pending the appeal.

Security for costs of appeal

The third question relates to security for costs of the appeal. On 23 August 2016 the first respondent, Probuild, sought an order staying the hearing of the appeal until the appellant provided security in an amount of $50,000 for Probuild's costs of the appeal. The application is brought pursuant to s 1335 of the Corporations Act 2001 (Cth).
Probuild relied upon the affidavit filed by the appellant's solicitor in support of the stay of the costs order to demonstrate that the appellant did not have funds available to meet an adverse costs order in the event that it failed on the appeal. That issue was not in dispute between the parties, the appellant conceding as much both in evidence and in its submissions.
For the reasons outlined above, the appellant has reasonable prospects of success and the appeal relates to a matter of some general importance in the administration of the Security of Payment Act and therefore for the construction industry generally. Nor is this a case in which the benefit to the respondent in upholding its judgment will be substantially diminished by the need to expend costs which may prove to be unrecoverable in the event of its success. The issue raised by the appeal is a straightforward question of law (although the answer may not be straightforward). It is unlikely that party and party costs in this Court, despite the expectations of solicitors, and disregarding the preliminary skirmishes, should properly exceed some 10%-15% of the amount in issue. It is also important that the underlying issue be determined and determined in a timely fashion.
However, counsel for the respondent rightly notes that it would be unusual to refuse an application for security in circumstances where a corporation is not able to meet an adverse costs order in the event that it is unsuccessful, unless the order would be likely to stultify the appeal or at least cause a significant delay. Stultification depends not only on the financial position of the company but also on the position of those who stand behind the company and may stand to benefit from its success in the appeal. Security will not be refused unless the Court is satisfied that there is no-one standing behind the company who is able to provide the financial resources to allow the appeal to succeed and therefore to provide appropriate security. The principles in this regard were established in Bell Wholesale Co Ltd v Gates Export Corporation. [8]
There has been an issue as to the evidence available in relation to the question of stultification. Before the hearing commenced this morning (Monday, 29 August) it was not possible to determine the issue because the appellant had not sought to identify evidence in support of its argument that the appeal would be stultified, nor had the respondent provided evidence to suggest that it might not be. The affidavit of the appellant's solicitor, sworn last Saturday, 27 August, supported the appellant's case that there would be stultification in the event that security for costs, even in the relatively small amount proposed by the respondent, were to be awarded. The respondent, however, says that it has had insufficient notice of the material relied upon by the appellant and, in particular, has not had an opportunity to consider and, if necessary, test, assertions made by the solicitor for the company as to the assets and resources available to the directors and shareholders of the company. The respondent sought an adjournment of its motion for security in order to obtain documents to allow it to test the statements made in the appellant's solicitor's affidavit.
On the basis that the application for security would be refused if the Court were satisfied that it was likely to stultify the appeal, it is nevertheless necessary to give the respondent an opportunity to demonstrate that stultification would not be a necessary consequence of the order it seeks. The Court should adjourn the first respondent's motion for security for costs of the appeal to allow that step to be taken. That will not cause unwarranted delay.
For that purpose the respondent seeks an order that it be granted leave to issue subpoenas for the production of documents addressed to three individuals who I understand are directors or shareholders of the appellant company and one company which is related to it. All four are identified in the appellant's solicitor's affidavit. I have heard no opposition to an order for subpoenas to be issued in those terms, subject to the possibility of achieving the outcome consensually, and I will therefore give the directions in accordance with the respondent's proposal.
There is another issue as to the possible timetable to allow these steps to be taken and I will hear the parties further on that in a moment. My present view is that the cost of both motions should be costs in the appeal. [Discussion with counsel ensued.]
The Court makes the following orders: 1. Grant leave to the appellant to amend its notice of motion filed on 17 August 2016. 2. Stay order (4) made in the Equity Division on 15 June 2016 (relating to the costs in the Division) pending the outcome of the appeal. 3. Adjourn the first respondent's motion seeking security for its costs of the appeal to the Registrar's list on Monday 12 September 2016. 4. To the extent that the issue of subpoenas is necessary, grant leave to the first respondent to issue subpoenas for production of documents to Michael Jolly, Jillian Jolly, Trent Jolly and MPJ Investments Pty Ltd, such subpoenas to be returnable before the Registrar on 8 September 2016. 5. Any subpoenas issued pursuant to order (4) may be served by providing a copy thereof to the appellant's solicitor, Mr Kaluski, electronically. 6. Grant leave to the parties to approach the Registrar to obtain a date for hearing on or after the matter is returned to the Registrar's list on 12 September 2016. 7. The costs of each motion are to be costs in the appeal.

At a glance

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Judgment (8 paragraphs)

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Legislation Cited (4)

Cases Cited (14)

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