Silver Star Construction Pty Limited t/as Genesis Construction Australia v... [2011] NSWDC 254 | Case summary

The SOP Act 12A fundamental feature of the SOP Act is that it makes statutory provision for the enforcement of interim payments only, leaving the parties to resolve their respective entitlements under the relevant contract separately. 13The objects of the Act are set out in s.3: 3 Object of Act (1) The object of this Act is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services. (2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments. (3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: (a) the making of a payment claim by the person claiming payment, and (b) the provision of a payment schedule by the person by whom the payment is payable, and (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment of the progress payment so determined. (4) It is intended that this Act does not limit: (a) any other entitlement that a claimant may have under a construction contract, or (b) any other remedy that a claimant may have for recovering any such other entitlement. 14s.15 provides:- 15 Consequences of not paying claimant where no payment schedule (1) This section applies if the respondent: (a) becomes liable to pay the claimed amount to the claimant under section 14 (4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section, and (b) fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates. (2) In those circumstances, the claimant: (a) may: (i) recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or (ii) make an adjudication application under section 17 (1) (b) in relation to the payment claim, and (b) may serve notice on the respondent of the claimant's intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract. (3) A notice referred to in subsection (2) (b) must state that it is made under this Act. (4) If the claimant commences proceedings under subsection (2) (a) (i) to recover the unpaid portion of the claimed amount from the respondent as a debt: (a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1), and (b) the respondent is not, in those proceedings, entitled: (i) to bring any cross-claim against the claimant, or (ii) to raise any defence in relation to matters arising under the construction contract. 15Silver Star elected to recover the unpaid portions of the claimed amounts as a debt, rather than making an application for adjudication. This means that there has not, as yet, been any consideration of the merits of the payment claims. 16The rights of the parties under their contract are expressly preserved by s.32 of the Act. S.32 provides:- 32 Effect of Part on civil proceedings (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract: (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal: (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings. 17It follows that any judgment given under s. 15 of the Act must be accounted for in the determination of the final rights of the parties under the contract. 18Denham disputed Silver Star's right to claim payment in the amounts claimed but failed to do so within the time prescribed by the Act. 19The authorities make it clear that the underlying intention of the SOP legislation was for a claimant to receive a prompt interim decision on a disputed payment and to either be paid that payment or have it secured and set aside. 20It is understandable that the term 'interim' was used because the adjudication process does not affect rights to bring civil proceedings and the Act contemplates that orders for restitution of the adjudicated amount may be made (s.32): Paynter Dixon Constructions Pty Ltd v JF and CG Tilston Pty Ltd [2003] NSWSC 869 at [39] per Bergin J. 21"What the legislature has provided for is no less than an interim quick solution to progress payment disputes which solution critically does not determine the parties rights inter se. Those rights may be determined by curial proceedings, the court then having available to it the usual range of relief, most importantly including the right to a proprietor to claw back progress payments which it had been forced to make through the adjudication determination procedures": Brodyn Pty Ltd t/as Time Cost and Quality v Davenport [2003] NSWSC 1019 per Einstein J at [14]. 22The same principles apply to judgments obtained in default of a payment schedule where the claimant elects not to have the matter adjudicated but to seek to enforce the claim as a debt under s.15. 23It will be seen then that the general principles relating to a stay of enforcement of a payment claim have to be considered against this background. 24The overriding consideration is whether a stay is necessary in order to "prevent injustice". In Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico and Ors [2004] NSWSC 344 Einstein J considered just this matter. One factor of paramount importance in considering the necessity for a stay is the impecuniosity of the claimant and therefore, the ability of the respondent to claw back the payment in the event that it succeeds in the resolution of the contractual dispute. 25In Herschel Engineering Ltd v Breen Property Ltd [2000] BLR 272 Dyson J said, in dealing with the analogous UK legislation: "To keep the claimant out of his money for several months would be contrary to the plain intent of the 1996 Act. I should add that there is no evidence that, if the defendant is successful in defending the county court proceedings, the claimant will be unable to repay the sum awarded by the adjudicator. Had the position been otherwise, and there was a real doubt as to the claimant's ability to repay if it loses in the county court, I would probably have granted a stay of execution pending the final determination of the county court proceedings." 26Keating on Building Contracts (7th edition, First Supplement) at p98 says: "Where the successful claimant in enforcement proceedings is impecunious to the extent that, on the evidence, there are serious concerns that the claimant will not be able to repay sums claimed if the adjudicator's decision is later overturned in arbitral or court proceedings, then the court may, in the exercise of its discretion, stay the proceedings on such terms as it thinks fit, on the basis that ..there are special circumstances which render it inexpedient to enforce the judgment or order.." 27Put shortly, if there is credible evidence that the claimant is insolvent, that is a matter that is highly relevant for the court to consider in relation to an application for a stay. I should add that if the claimant were already insolvent, failing to receive the disputed payment would not have the same impact that it might have had on a business that continues to trade. 28In Grosvenor, at [30-36], Einstein J said: "..there is no reason, why, in appropriate cases, a stay cannot be ordered in circumstances such as the present. Clearly the analogy with appeals is not a perfect one. Whilst payments under the Act are interim, it nonetheless is the policy of the Act that successful claimants be paid. For that reason, there is a sound reason for making stays less readily available in relation to debts arising under the Act, in contrast to the position in relation to appeals arising from curial proceedings. For example, in cases such as the present, the court might require more than a "real risk that [the respondent] will suffer prejudice or damage, if a stay is not granted".... However I accept that in a case such as the present, where there is a certainty that the defendants' rights will be otherwise rendered nugatory, and that it will suffer irreparable prejudice, the proper and principled exercise of the courts discretion is to grant a stay......In the present case, if no stay is granted, an interim arrangement would be in practice converted into a final order. The effect of not granting a stay would be that the defendant's rights to recoup the adjudicated amount in the 'appeal' pursuant to s.32 of the Act would be rendered nugatory and the defendants would thus suffer irreparable prejudice.." 29McDougall J said, in Veolia Water Solutions v Kruger Engineering [No. 3] [2007] NSWSC 459 at [p73]: "In assessing whether the refusal of a stay will cause irreparable prejudice, it is open to the court to have regard to the strength of the cross claim, to ascertain whether there is at least a real risk that prejudice will follow if a stay is not granted." 30However, the NSW Court of Appeal has indicated forcefully that payments under the Act should not be delayed by way of a stay based on allegations made in separate proceedings. In Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9, Basten J said: "However reliance on separate proceedings in this way is so clearly inconsistent with the purpose and intention of the legislation that, even if the power to stay the summary proceedings existed, it is doubtful whether the grant of the stay in such circumstances would be the proper exercise of the discretionary power". 31Later, at [42], His Honour said: " The very purpose of the prohibition is to prevent a right to judgment on a payment claim being delayed by a cross claim...It is quite likely that a court would refuse a discretionary stay in those circumstances, on the basis that the respondent was trying to achieve indirectly the very result which the Parliament had prohibited it from obtaining directly. That could be seen as an abuse of process, rather than a legitimate basis for a stay." 32The Court went further in Chase Oyster Bar v Hamo Industries [2010] NSWCA 190 when it said: "The [SOP Act] operates to alter, in a fundamental way, the incidence of the risk of insolvency during the life of a construction contract. As Keane JA said, of the not dissimilar Queensland statute, the Building and Construction Industry Payments Act 2004 (Qld) in RJ Neller Building P/L v Ainsworth [2008] QCA 397 at [40], the statute "seeks to preserve the cash flow to a builder 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." It followed, his Honour said, that the risk of inability to repay, in the event of successful action by the other party, must be regarded as one that the legislature has assigned to that other party. The same is true of the regime established by the SOP Act." 33I note that in both Veolia and Grosvenor, the claimant was in administration and there was no question that any monies paid would be put beyond the reach of a creditor (except to the extent to which the respondent could prove as a creditor).

The Evidence 34Silver Star is not in administration. The evidence shows that it is currently trading, that it is in the process of completing jobs and has some projects on which it is the successful tenderer but which are yet to be started. 35Silver Star's financial statements are incomplete. Such as they are, they reveal a company which has little by way of tangible assets and whose main source of cash flow is an overdraft facility loaned to it by Mr Dymtruk and secured by a mortgage on his family home. The agreement by which he continues to make that facility available to Silver Star has not, in any meaningful sense, been reduced to writing. There is no reason to think that the loan is anything but repayable at call. 36Mr Dymtruk was quite candid in his evidence when he said that the payment of the claims under present consideration would be applied to the reduction of that overdraft facility. There is no obligation on him to make that facility available to the company in the future. If it were not made available to the company, the company would face a real concern of insolvency. 37However, there is nothing irregular in the application of any monies received to the reduction of the overdraft account. Indeed, whatever suspicions one might harbour, given the manner in which Silver Star trades and has traded, it could only be seen as a payment made in the ordinary course of its business: there is a history of monies being paid into the overdraft account by Silver Star or (presumably) at its direction in reduction of the liability. 38The financial statements of Silver Star tendered in evidence leave much to be desired but they disclose a company that is solvent, trading and undertaking work. It remains entitled to payment of a costs order by Denham. It expects payment for jobs that have recently been completed. It has paid its tax liabilities including a significant amount for GST which indicates a reasonably high volume of taxable sales of the company. 39Mr Feng, the principal of Silver Star, has been the director of a number of companies which have been deregistered. Whatever one might suspect, there is no evidence that they owed any money to creditors. He was the principal of Genesis Constructions Pty Ltd which did go into liquidation owing money but one instance does not amount to a pattern of behaviour. 40Denham contended that it had good prospects of success on the substantive claim. That may be so - certainly there would appear to be a sound basis for predicting that the outcome with respect to the application of liquidated damages would strongly favour Denham - but the strength of the case alone, whilst a factor, cannot, in the light of the dicta of the Court of Appeal in Bitannia and Chase be determinative of the present application. 41Given the policy of the Act and the very strong dicta of the Court of Appeal in particular those comments which observe that the effect of the SOP Act is to shift the risk of insolvency from a subcontractor to a contractor, I decline to exercise the court's discretion to grant a stay. It follows that the Notice of Motion for a stay must be dismissed and I so order. 42The Applicant on the Motion will pay the Respondent's costs. 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: 08 May 2013

Silver Star Construction Pty Limited t/as Genesis Construction Australia v Denham Constructions Pty Limited

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