On 9 November 2017, the plaintiff, SRG Civil Pty Ltd ("SRG") filed a statement of claim against the defendant, Brolton Group Pty Ltd ("Brolton") bringing a claim in the amount of $1,986,822.53. On 13 December 2017, SRG filed a notice of motion seeking default judgment which was entered on that day.
On 20 December 2017, Brolton applied to this Court seeking orders that the judgment debt be paid by way of instalments pursuant to s 107(1)(b) of the Civil Procedure Act 2005 (NSW). That same day, Assistant Deputy Registrar Gerristen ordered that Brolton be permitted to pay the judgment debt in instalment payments of $150,000 per month in accordance with Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 37.3(1)(a).
By notice of motion filed on 2 January 2018, SRG objects to the instalment order under UCPR r 37.3(3). The question for this Court is whether the instalment order should be set aside. The effect of such an order would be that the remainder of the default judgment debt would be immediately enforceable against Brolton.
[2]
Background
Brolton was contracted by Hanson Construction Materials Pty Ltd ("Hanson") to complete part of a major upgrade to its processing plant at Bass Point ("the head-contract"). Brolton sub-contracted the performance of some of this work to SRG. The contract between Brolton and SRG is dated 27 June 2016 ("the sub-contract").
The sub-contract is a "construction contract" within the meaning of the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the Act"). Under s 8(1) of the Act, a person who has undertaken construction work under a construction contract is entitled to progress payments, the amounts of which are generally determined in accordance with the terms of the contract (s 9(a) of the Act). Under s 13(1) of the Act, a person entitled to a progress payment may serve a "payment claim" on the person liable to make the payment under the construction contract. Section 14(1) provides that a person served with a payment claim is entitled to respond by serving a "payment schedule". A payment schedule can indicate that the amount owed is less than the claimed amount. If this transpires, the claimant may apply for adjudication of the payment claim in accordance with Part 3, Div 2 of the Act.
Section 14(4) of the Act provides that, in the event that a claimant serves a payment claim and the respondent does not provide a payment schedule to the claimant within 10 business days from when the payment claim is served (or by the time required by the relevant contract, whichever is earlier), then the respondent becomes liable to pay the claimed amount. If the respondent then fails to make such a payment, the claimant may recover the unpaid amount as a debt in any court of competent jurisdiction (s 15(2)(a)(i) of the Act). In such court proceedings, the respondent is not entitled to bring any cross-claim against the claimant or raise any defence in relation to matters arising under the construction contract (s 15(4) of the Act). This means that, 28 days following service of the relevant statement of claim, the claimant is at liberty to seek and obtain default judgment in accordance with UCPR Part 16.
In summary, in circumstances where a payment claim is issued and no payment schedule is provided within the relevant time period, the Act creates a "pay now, argue later" regime. The amount owed is payable at that time and the final determination of the party's rights and obligations is to be determined through litigation: s 32 of the Act.
On 23 September 2017, SRG served a payment claim on Brolton in the amount of $1,979,797.88. In accordance with the sub-contract, the due date for payment was 30 October 2017 and the due date for service of the payment schedule was 21 days after receiving the payment claim, that being, 14 October 2017. On 13 October 2017, Brolton issued a payment schedule to SRG asserting that the outstanding amount was significantly less what was claimed and that the amount payable was in fact $221,817.05. Unfortunately for Brolton, s 14(4) of the Act requires payment schedules to be served by the earlier of two dates: either the time provided in the contract or 10 business days after service of the payment claim. The requirements in the Act cannot be contracted out of (s 34 of the Act). Accordingly, although the payment schedule was not due until 14 October 2017 under the sub-contract, it was in fact due on 6 October 2017 under the Act. As a result of Brolton serving the payment schedule four business days late, it gave SRG an entitlement to seek payment of the full amount of $1,979,797.88 as a judgment debt, with Brolton disentitled to any adjudication of that amount under the Act.
When Brolton did not pay the amount claimed by 30 October 2017, SRG filed the statement of claim against Brolton seeking payment of $1,986,822.53, comprising the payment claim, interest and legal fees. Following default judgment being entered for that amount, SRG now claims that Brolton should not be permitted to pay this amount in instalments in accordance with the 20 December 2017 order.
[3]
Relevant Legislation
The power to grant an order for payment of a judgment debt by instalments is vested in the Court via s 107(1)(b) of the Civil Procedure Act 2005 (NSW). Section 107(1)(b) provides:
"(1) A court in which judgment has been entered may, subject to and in accordance with the uniform rules, make an order allowing for:
…
(b) payment of the judgment debt by instalments, payable in such amounts and at such times as are specified in the order."
UCPR r 37.3(1) empowers registrars of this Court to deal with applications for instalment orders by making the order or refusing the application. UCPR r 37.3(3) permits either party subject to an order under UCPR 37.3(1) to file an objection within 14 days of the order having been made. Those provisions provide as follows:
"(1) The registrar may deal with an application for an instalment order:
(a) by making an instalment order in relation to the amount owing under the judgment debt, or
(b) by making an order refusing the application.
…
(3) Either party may file an objection to an order made under subrule (1) (a) or (b) at any time within 14 days after the order is made."
UCPR r 37.4(4) provides that a Court determining an objection against an instalment order is able to vary or rescind the instalment order or otherwise dismiss the objection.
[4]
The evidence relied upon
Before turning to summarise the evidence before me on this application it is pertinent to first note the basis of SRG's objections to an instalment order being made in this matter.
Initially, SRG asserted that Brolton had provided insufficient evidence to establish that it lacked the means to pay the full amount. Following the provision of further affidavit material by Brolton, SRG retreated from this position somewhat and instead relied on the argument that Brolton's means were sufficient to satisfy the judgment debt because they could claim the amount owed from Hanson under the head-contract. SRG submitted in the alternative that, if the Court accepted Brolton's evidence as to its financial position, an instalment order would be futile as Brolton would be unable to make the instalment payments. SRG further submitted that the instalment order imposed an unreasonable hardship on it and that there was a public interest in enforcing court orders efficiently and expeditiously.
The breadth of these objections means that it was necessary for both parties to rely upon a significant amount of affidavit material directed at the financial situation of both Brolton and SRG as well as the contractual relationship between Brolton and Hanson.
SRG relied upon the following evidence:
1. Affidavit of Roger Chun Hing Lee (CFO of SRG) affirmed on 23 February 2018, together with exhibits RL-1 to RL-11;
2. Affidavit of Roger Chun Hing Lee affirmed on 23 March 2018, together with exhibits RL-12 to RL-19; and
3. Affidavit of Thomas Colin Wand (solicitor for SRG) affirmed on 23 March 2018, together with exhibits TCW-1 to TCW-6.
Brolton relied upon the following evidence:
1. Affidavit of Ben Lynch (managing director of Brolton) affirmed on 16 March 2018, together with exhibits BL-1 to BL-2;
2. Affidavit of Ben Lynch affirmed on 10 April 2018, together with Annexures A to D;
3. Affidavit of Rahat Shahriar (external accountant of Brolton) affirmed on 4 April 2018, together with annexures A to E;
4. Affidavit of Javier Juchnewicz (commercial manager of Brolton) affirmed on 16 March 2018, together with annexures A and B; and
5. Affidavit of Javier Juchnewicz affirmed on 6 April 2018, together with exhibits JJ-1 to JJ-4.
[5]
Mr Lee's evidence of 23 February 2018
Mr Lee is the CFO of SRG. He stated that, as a result of the instalment order, the final instalment will be due on 28 February 2019, a total of 16 months after the date the debt accrued.
As to Brolton's "means" to pay the judgment debt, Mr Lee exhibited a "Payment Risk Report" on Brolton, dated 2 January 2018. The report is produced by Dun and Bradstreet, a credit reporting, debt collection and risk management agency. Using a statistical model derived from the Dun and Bradstreet database to predict the likelihood that a business will pay in a "severely delinquent manner" (that being payments made 90 days or more past the due date during the next 12 months), Brolton was placed at slightly above the low-range of risk, with a 7.74% probability of such. Mr Lee observed that this was below the industry average of 9.66%. Furthermore, this report lists Brolton's shareholders as Brolton Industries Pty Ltd (63.01%) Kramer Holdings Pty Ltd (27%) and JL and SA Holdings Pty Ltd (9.99%).
Mr Lee deposed of the hardship that SRG will endure if payment is not made in full, exhibiting SRG's unaudited statement of financial position, statement of profit or loss and statement of cash flows. Mr Lee stated that, in the event that SRG does not receive the judgment debt in full before 30 June 2018, there will be a significant impact on SRG's financial position and cash flow.
Mr Lee further stated that, if SRG was not a wholly owned subsidiary of SRG Ltd and part of the SRG company group and its banking arrangements, SRG would be under financial duress and experience difficulty paying both employees and suppliers. SRG Limited is said not to be a large company. Mr Lee's view is that, if payment of the judgment debt is not made in full before the end of the financial year, it will directly and adversely impact the accounts of SRG Ltd, a publicly listed company, and will restrict the execution of SRG Ltd's growth plan. He stated that the judgment debt due by Brolton Group comprises a proportion of approximately 66.23% of SRG Limited's bank overdraft facility available in the 2016/17 financial year.
[6]
Mr Lee's evidence of 23 March 2018
In Mr Lee's affidavit of 23 March 2018 and accompanying exhibits, he supplemented his earlier evidence by providing updated financial reports of SRG and SRG Ltd that relate to the period 1 July 2017 to 31 December 2017. Mr Lee discussed a substantial net cash outflow from operating activities, which he stated is due to a number of expenses concerning key projects. He further said that, during this period, the cash account of SRG Ltd decreased by a significant amount, which could have been mitigated had the judgment debt been paid in full.
Mr Lee confirmed that SRG is one of the main subsidiaries of the larger parent company, SRG Ltd and that all of the Australian entities within the SRG group (with the exception of one company) share a single bank account. He also stated that, pursuant to a deed executed on 15 October 2013, SRG Ltd guarantees any deficiency in the event of winding up its subsidiary companies, including SRG.
[7]
Mr Ward's evidence of 23 March 2018
In his affidavit dated 23 March 2018, Mr Ward, solicitor for SRG, referenced a number of correspondences made between his firm and Brolton's solicitors, most of which were not directly relevant to the issues at hand. He exhibited a copy of the "Deed of Novation and Variation - Bass Point Quarry Processing Plant" (which constitutes the amended head-contract between Hanson and Brolton) and Schedule 3 to this Deed. These documents will be considered below.
[8]
Mr Lynch's evidence of 16 March 2018
Mr Lynch is the managing director of Brolton. In terms of Brolton's capacity to pay the judgment debt, he confirmed that, in accordance with the financial statement annexed to Mr Juchnewicz's affidavit affirmed on 16 March 2018, Brolton's cash balance was $675,094.29. He said that those funds are required by Brolton to pay its ongoing operating costs. He also stated that, as the default judgment debt is $2,003,470.42, Brolton does not have the means to pay the costs in full.
As to Brolton's future capacity to pay the judgment debt, Mr Lynch stated that Brolton derives the majority of its income from its two largest construction projects: the Bass Point Quarry project ("the BPQ project") (to which this dispute relates) and the Cotton Seed Distributors project ("the CSD project"), in addition to a number of smaller projects. With respect to the BPQ project, he stated that the head-contract between Brolton and Hanson caps the amount Brolton is entitled to be paid to a "Guaranteed Maximum Price" ("GMP") of $85,000,000 and that costs that exceed this amount will be entirely borne by Brolton.
Mr Lynch exhibited the head-contract. The contract was amended on 13 September 2017 by a "Deed of Novation and Variation - Bass Point Quarry Processing Plant" ("the Deed"). Schedule 1 to that Deed sets out the amended contract (the head-contract) which comprises an appendix and general conditions. The GMP of $85,000,000 is set out in the appendix to the head-contract with cl 11.1 providing that Brolton is not entitled to payments from Hanson in excess of this. Clause 11.1 is in these terms:
"The Contractor [Brolton] shall execute and complete the Work under the Contract.
The Principal [Hanson] shall pay the Contractor:
(a) for work for which the Principal accepted a lump sum, the lump sum;
(b) for work for which the Principal accepted rates, the sum ascertained by multiplying the measured quantity of each section or item of work actually carried out under the Contract by the rate accepted by the Principal for the section or item;
(c) for the Remaining Works for which the Parties have agreed the Reimbursable Costs calculated in accordance with Appendix 12;
provided that the amount payable by the Principal does not exceed the GMP as adjusted by any additions or deletions made pursuant to the Contract."
Schedule 3 to the Deed is entitled "GMP and Reimbursable Costs" and it was accepted that this Schedule was Appendix 12 for the purposes of cl 11.1 (hereafter referred to as "Appendix 12 of the head-contract"). The following relevant terms are found at cl 2 of this Appendix:
"(a) The GMP for the Works is $85,000,000 (excluding GST).
(b) The GMP is the maximum price payable by the Principal to complete the Works under the Contract in accordance with the Contract;
(c) The Contractor warrants that the Principal will not pay any greater amount than the GMP, as varied in accordance with the Contract, for the whole of the Works under the Contract.
(d) The Contractor must meet, pay and discharge to the satisfaction of the Principal all moneys, payments, obligations and liabilities whatsoever over and above the GMP. Any such excesses and the payment of it is at all times and remains the sole and absolute liability of the Contractor.
(e) The Contractor releases the Principal from all Claims for any amount in aggregate greater than the GMP other than claims for breach of Contract by the Principal for which the GMP is not adjusted under the Contract."
Mr Lynch stated that the present project cost forecast indicates that the total costs to complete the project will amount to $88,383,216.98 and that Brolton will be required to bear the difference in the sum of $3,383,216.98 which significantly affects the funds available to satisfy the judgment debt.
In relation to the CSD project, Mr Lynch stated that the contract value has been reduced to about $15,000,000, that Brolton is running behind and that the project is nearly 50% completed.
Mr Lynch referred to the projected cash flow statement annexed to the affidavit of Mr Juchnewicz dated 16 March 2018 (considered below) and said that Brolton is anticipated to operate at a loss for the remainder of the financial year with a net cash position of negative $294,945.42.
While Mr Lynch stated that Brolton does not have the capacity to pay the entirety of the judgment debt immediately, he deposed that it has the capacity to pay SRG the amount of $150,000 per month pursuant to the instalment order. He noted that such payments were made on or about 31 January 2018 and 28 February 2018.
In terms of the effect of rescinding the instalment order, Mr Lynch noted that Brolton is a small company that employs around 100 employees. He said that, in the event the judgment debt would become due and payable in full, Brolton would be unable to continue paying its suppliers and would most likely cease operating and be placed into receivership.
[9]
Mr Lynch's evidence of 10 April 2018
Mr Lynch further deposed that, in addition to being the managing director of Brolton, he is also the sole director and secretary of Brolton Industries Pty Ltd ("Brolton Industries"). Brolton Industries is a major shareholder of Brolton. In the period between 2005 and 2010, Brolton Industries and Brolton operated independently and on separate projects. However, in around 2010 he decided that the business should only be carried on by one of the companies, so thereafter the work was allocated to Brolton.
Mr Lynch said that Brolton Industries has not traded since 2010, has not received any income since then and has not received any dividends from Brolton. In terms of Brolton Industries' assets, Mr Lynch referred to the company's bank account which has a negative balance of $10.87 as at 29 March 2018.
[10]
Mr Juchnewicz's evidence of 16 March 2018
Mr Juchnewicz is the commercial manager of Brolton. He annexed an updated financial statement concerning Brolton which details its assets, liabilities, income and expenses. The layout of this financial information takes its form from prescribed Form 47 (version 4) which is used in making applications under UCPR r 37.2. He stated that, in preparing the statement, he generated a profit and loss report on the company's accounting system and copied the relevant figures across.
The financial statement provides that, as at 16 March 2018, the funds that Brolton held in financial institutions amounted to $675,084.29 with total assets amounting to marginally less than total liabilities.
Mr Juchnewicz also annexed a projected cash flow statement for the six month period ending 30 June 2018, prepared on 12 March 2018. The figures pertaining to January and February 2018 are said to be actual figures (with some income and costs yet to be recorded). The figures between March and June 2018 are projections. These figures indicate that, over the period between January and June 2018, Brolton is anticipated to have a negative cash flow of $294,945.42. This is the same figure referred to by Mr Lynch above at [31].
[11]
Mr Juchnewicz's evidence of 6 April 2018
In Mr Juchnewicz's second affidavit, he referred to cl 11 of the head-contract which limits payments by Hanson to Brolton to the GMP of $85,000,000 (as discussed above). He stated that Hanson and Brolton adopted a particular process to manage claims for payment under the head-contract. The companies are said to work off a budget and forecast document (exhibited to the affidavit). This document sets out actual past costs for July 2017 to February 2018 and projected costs from March 2018 to September 2018 (anticipated completion) for the BPQ Project. The document shows individual cost categories, including "civil concrete", which is said to be the category allocated to Brolton's sub-contract with SRG.
Mr Juchnewicz referred to $3,415,451 as being the budgeted cost to complete the civil concrete works. He stated that, because the GMP is $85,000,000 and Brolton's budgeting and forecasting predict a cost overrun of $4,480,260, due to his prior dealings with Hanson, he is aware it will only approve payment for civil concrete works up to the budgeted amount of $3,415,451. He stated that, as the projected cost to complete the civil concrete aspect of the works is $4,838,982.71, Brolton will bear the cost of about $1,423,531.71 which will not be recoverable from Hanson.
Furthermore, Mr Juchnewicz referred to cl 11.1(c) of the head-contract which, as quoted above at [27], provides:
"…
The Principal shall pay the Contractor:
…
(c) for the Remaining Works for which the Parties have agreed the Reimbursable Costs calculated in accordance with Appendix 12
…"
Mr Juchnewicz referred to cl 3(d) of Appendix 12 of the head-contract which provides:
"Reimbursable Costs means the following costs actually and properly incurred by the Contractor solely and exclusively in connection with the Remaining Works excluding Disallowed Costs:
…
(d) Subcontractors
The net costs of payments properly due to subcontractors under the relevant subcontracts.
The net costs properly due to subcontractors for all material and plant purchased for the Works and for delivery to the site, including packaging, samples and tests."
(emphasis added)
Mr Juchnewicz stated that Brolton's position is that a significant portion of the amounts claimed by SRG under the sub-contract are not "properly due" to SRG and are therefore not "Reimbursable Costs" which Brolton can recover from Hanson under the head-contract. He said that the amount of $1,979,797.88 nominated in SRG's payment claim was not within its entitlement under the sub-contract and that upon his determination SRG was only entitled to $221,817.05 for reasons set out in the payment schedule dated 13 October 2017 (referred to above at [8]). He summarised these reasons as follows:
"(a) SRG claimed significant delay damages in the sum of approximately $712,632.00 for various extensions of time claims in circumstances where the respective delays were not caused by Brolton Group but were caused by SRG itself;
(b) SRG claimed significant variations in the sum of approximately $301,032.39 for various items in circumstances where the items were not directed or proposed by Brolton Group; and
(c) Brolton Group is entitled to liquidated damages in the sum of $584,500.00.00 on the basis that the date for practical completion under the Subcontract was 15 April 2017 and SRG achieved practical completion some 167 days later on 29 September 2017."
He then referred to cl 4(b) of Appendix 12 of the head-contract which pertains to "Disallowed Costs" and stated that payment by Brolton in satisfaction of the payment claim falls into this category and would thus not be recoverable from Hanson. Clause 4(b) is extracted below but I have extracted two additional terms that have relevance to this determination which I shall address in my consideration:
"Disallowed Cost means any cost which the Principal determines:
…
(b) should not have been paid to a subcontractor or supplier in accordance with the terms of the relevant subcontract or supply contract;
…
(f) is a cost incurred as a consequence of a failure by the Contractor to comply with any applicable law;
(g) any cost incurred as a consequence of a negligent act or omission or wilful misconduct of Contractor or its personnel or subcontractors;
…"
Mr Juchnewicz stated that he has kept Hanson informed of the matter with SRG and has been advised that Hanson agrees with the approach Brolton has taken. He referred to a discussion he had with Scott Whittaker on 6 November 2017, Hanson's project manager, where he was told words to the following effect:
"I agree with the certified amount [in the Payment Schedule]. But I also question some of the variations that you have conceded because I don't believe that they should be paid."
Mr Juchnewicz then referred to another conversation that took place on 27 November 2017 where Mr Whittaker said words to the effect of: "Why do you need to pay $1.9m to SRG when they aren't entitled to it?"
He ultimately stated that Brolton has not sought payment from Hanson for the full amount contained in SRG's payment claim because there is insufficient capacity within the overall budget or the civil concrete budget to recover the amount and because Brolton is not entitled to the money from Hanson as the claims are not Reimbursable Costs or are otherwise Disallowed Costs.
[12]
Mr Shahriar's evidence of 4 April 2018
Mr Shahriar is Brolton's external accountant and works at its office around two days each week. He provided the most detail as to Brolton's financial situation. Annexed to his affidavit of 4 April 2018 is a statement of financial position as at the end of January 2018, a statement of income and expenses for the period ending January 2018, a projected cash flow statement prepared on 27 March 2018 for the period 1 January 2018 to 31 October 2018, a spreadsheet showing Brolton's bank facilities, and a spreadsheet showing Brolton's past and anticipated instalment payments to SRG.
Mr Shahriar noted that the statement of financial position was prepared in accordance with accounting standards. Relevantly, the statement shows a cash and cash equivalents account balance of $420,149.67 as at the end of January 2018.
With respect to the projected cash flow statement, Mr Shahriar has prepared the document from scratch and arrived at each figure through his own enquiries of Brolton's accounting system which is not otherwise programmed to automatically generate such reports. He has relied on, inter alia, invoices, receipts, timesheets, bank statements, and cost forecast information from each of Brolton's project managers (which is updated each month). He stated that, in preparing the figures, he has made an allowance for each month's $150,000 instalment payment to SRG in satisfaction of the judgment debt. The figures used for January, February and March are actual figures. The figures show that there will be a considerable negative cash flow for the period January to October 2018.
Mr Shahriar noted that the cash flow statement annexed to Mr Juchnewicz's affidavit of 16 March 2018 is different to this cash flow statement as it relied on the accrual accounting system, whereas Mr Shariar has used cash-based accounting "to portray the most accurate position."
In terms of Brolton's capacity to pay the full judgment debt, Mr Shahriar stated that, if Brolton were to convert all of its current assets into cash and satisfy all of its current liabilities, it would have a net current position of $600,000.
Mr Shahriar also stated that Brolton has limited capacity to borrow funds and that Brolton is close to the limit of its current facilities. He said that he has reviewed the relevant banking facilities of Brolton's bank accounts. He has produced a document that indicates that Brolton's remaining available borrowing capacity on its current facilities is $783,753.
Finally, Mr Shahriar produced a document showing that payments towards the judgment debt have been made in January, February and March 2018, which are due to continue at the end of each month until final payment is made on 28 February 2019.
[13]
SRG's submissions
SRG's written submissions focussed on the contention that this court could not be satisfied that Brolton's means are insufficient to satisfy the judgment debt if paid all at once. That is, it was submitted that the evidence as to Brolton's financial position was not sincere and should be given little weight. Alternatively, if weight is given to the evidence, the submission is that the order should be set aside as it shows that Brolton is unable to keep meeting the instalment plan as it stands. The decision in In the Matter of Australian Institute of Fitness (Vic & Tas) [2016] NSWSC 1143 (at [6]) ("Australian Institute of Fitness"), referring to Hellier Capital Pty Ltd v Albarran [2009] NSWSC 403 ("Hellier Capital"), was relied upon in this regard. SRG's written submissions were filed before Mr Shahriar's affidavit of 4 April 2018 became available.
Although it was initially submitted on behalf of SRG that the affidavits of Mr Lynch and Mr Juchnewicz (of 16 March 2018) consisted of mere assertions of the financial position, it was accepted that the affidavit of Mr Shahriar met this complaint.
It followed that the thrust of SRG's complaint was that Brolton has access to funds from Hanson. Reliance was placed on the observations of Barrett AJA in Australian Institute of Fitness at [29] where his Honour stated that a relevant factor as to the ability of the judgment debtor to pay is that it can draw from external sources, particularly related companies, which might reasonably be expected to provide financial assistance to it.
Reliance was placed on the fact that Brolton has a contractual right to forward general payment claims to Hanson to be compensated for such costs. Clause 11.1 of the head-contract (referred to above at [27]) entitles Brolton to "reimbursable costs" in accordance with Appendix 12 of the head-contract. Clause 3(d) of Appendix 12, headed "subcontractors", allows for "[t]he net costs of payments properly due to subcontractors under the relevant subcontracts." The plaintiff argues that the payment claim and subsequent judgment debt are a "reimbursable cost", being a "net cost properly due to subcontractors".
SRG relied upon the evidence as to SRG's financial situation summarised above.
It was initially submitted that Brolton could get the funds from its parent company, Brolton Industries, but this submission was not pressed once the second affidavit of Mr Lynch was made available. Similarly, SRG initially argued that Brolton could access funds from its other smaller projects. This was not pressed at the hearing either.
Finally, emphasis was placed on the relevant principles and, in particular, to the fact that the Court could not be satisfied that an instalment order would be more conducive to SRG obtaining full satisfaction of the judgment debt in a reasonable time.
[14]
Brolton's submissions
Brolton argued that the instalment order should not be set aside as it cannot afford to pay the entirety of the judgment debt and cannot borrow money. It relied upon the evidence which discloses that an order for lump-sum payment runs a "very real risk" of Brolton being placed into external administration. Brolton submitted that it does not have the capacity to pay more than $150,000 per month.
In response to the assertion by SRG that Brolton has access to funds from an external source, that being Hanson, Brolton relied upon the terms of the head-contract and the affidavit evidence of Mr Juchnewicz to submit that this was not the case. The specific arguments put on behalf of Brolton in this regard are addressed in more detail below.
[15]
Consideration
The relevant legal principles surrounding this dispute are well settled and were not a matter of contention between the parties. An objection against an instalment order takes the form of a hearing de novo: Australian Institute of Fitness at [6] (verify). As McDougall J stated in Hellier Capital (at [18]), "[i]t is thus for me to consider all the evidence afresh, and to exercise the discretion anew, not guided by any presumption in favour of the correctness of the order made by the Registrar."
Although Brolton is the defendant in these proceedings, it bears the onus of establishing that an instalment order should be made in this matter: Australian Institute of Fitness (at [25]).
In Australian Institute of Fitness, Barrett AJA considered the principles relevant to determining whether an instalment order should be granted in circumstances where the objection was made under UCPR r 37.4(3). His Honour stated (at [7]-[11]):
"The rules do not prescribe matters to which the court is to have regard in cases where an instalment order is sought. In Hellier Capital Pty Ltd v Albarran [2009] NSWSC 403, however, McDougall J identified a number of criteria as relevant to the case before him. He drew these in part from comparable legislation elsewhere and in part from his own assessment of the nature of the case.
The criteria thus identified by McDougall J (at [7]) included the following: (a) whether the judgment debtor is employed; (b) the means the judgment debtor has to satisfy the judgment; (c) whether the instalments sought will see the judgment debt paid within a reasonable time; (d) the necessary living expenses of the judgment debtor and dependants; (e) other liabilities of the judgment debtor; (f) whether, having regard to the availability of other enforcement means, making the order would be consistent with the public interest in enforcing money orders efficiently and expeditiously; and (g) whether the order will impose unreasonable hardship on the judgment creditor.
In addition, McDougall J pointed out (at [8]) that an instalment order ought not to be made if the judgment debtor's means are sufficient to allow payment of the judgment immediately and in full; or conversely (at [9]), if the means are so deficient that the instalments could not be met and the making of the order would be futile."
"An important point made by Mukhtar AsJ in Davidson v Greedy [2012] VSC 202 is that provisions of this kind exist to enable judgment creditors to obtain the fruits of their judgments. The purpose is not to curtail the rights available at law to obtain satisfaction of a judgment but, rather, to add a method that may be more suited to the particular circumstances than levying of execution and other processes by which the whole sum is sought to be recouped at once.
While an instalment order obviously mitigates the severity of the situation in which the judgment debtor is placed, that is not the real issue. The principal concern, as I say, is to discover whether an instalment arrangement will be more conducive to the judgment creditor's achieving payment in full in a reasonable time. The issue is thus not one of indulgence to the judgment debtor because the judgment debtor somehow deserves an indulgence. The issue is whether indulgence to the judgment debtor will enhance the prospects of full recovery by the judgment creditor."
(emphasis added)
His Honour went on to observe (at [29]):
"A relevant factor in a matter such as this is the ability of the judgment debtor to pay, not only from its own internal resources but also from external sources, particularly related companies on which it might reasonably be expected to draw and which might reasonably be expected to provide financial assistance to it."
It was noted by Einstein J in Chint Australisa Pty Limited v Socmoluce Pty Ltd [2008] NSWSC 1054 ("Chint") (at [15]) that:
"Prima facie a party having succeeded in obtaining substantial success in major commercial litigation is obviously entitled to the fruits of its success…"
On this point, McDougall J stated in Hellier Capital (at [19]):
"There is one more factor to which regard must be paid. That was hinted at by Einstein J in Chint, when his Honour referred to the proposition that a successful party is entitled to the fruits of its success, and to enforce the court's orders. I accept that. Although his Honour framed the proposition in terms of "major commercial litigation" I do not think that the principle is so limited. There is a real public interest in enabling parties who have litigated their disputes to enforce the victory that they have achieved. That public interest arises, at least in part, because the system of adjudication through courts depends firstly on acceptance of the outcome (if necessary, after exhausting all available avenues of appeal) and, secondly, the ability to enforce the outcome. If the process of adjudication is to survive, so that people do not resort to self-help, the courts should be slow to interfere in the normal processes of enforcement."
It is clear that, whilst a number of factors are relevant to determining whether an instalment order should be made, the primary issue for the Court is whether such an order will be more conducive to SRG obtaining full satisfaction of its judgment debt in a reasonable time.
Although a number of issues were relied upon by SRG in written submissions, at the hearing of the application, the central argument was that Brolton had the capacity to pay the judgment debt in full because it could obtain the funds from Hanson. It was also argued that an instalment order would cause prejudice to SRG.
I turn first to the question of whether SRG has established that Brolton has sufficient means to pay the debt because it could make a claim for the outstanding amount from an "external source." In Australian Institute of Fitness, the external source was a related company which might reasonably be expected to provide assistance to it. In Chint, the debtor had the benefit of an undertaking from two persons to meet any shortfall in its ability to meet its judgment debt. In the present matter the question is whether, consistent with the principles derived from those decisions, I would find that the contractual relationship between Brolton and Hanson is such that Brolton has access to available funds to pay the amount of the judgment debt in full.
It was common ground that Brolton was entitled to be compensated by Hanson for sums claimed in accordance with cl 11.1(c) of the head-contract. The key words of that provision are whether the amount of the judgment debt is "actually and properly incurred by the contractors solely and exclusively in connection with the remaining works excluding disallowed costs." SRG submits that the question is not whether the amount sought in the payment claim is a reimbursable cost but whether the judgment debt is. On behalf of Brolton it was submitted that the amount "properly due" to SRG under the sub-contract was $221,870.05, not the figure claimed by SRG. Therefore, the amount is not a "reimbursable cost" which Brolton can recover from Hanson. As discussed at [43] above, this was so for three reasons: SRG has claimed "significant delay damages" for approximately $712,632 that are not due; SRG claimed $301,032.39 for variations that were not due; and Brolton is entitled to offset $584,000 in liquidated damages against SRG for lateness in completion of the sub-contract works.
The alternate question of construction under the head-contract is whether, even if it could be established that the amount of the judgment debt was a reimbursable amount, it was a "disallowed cost" given that the definition of "reimbursable costs" excludes "disallowed costs" (cl 3 of Appendix 12 of the head-contract). Brolton claimed that this judgment debt was such a disallowed cost.
Whereas it was conceded on behalf of SRG that the construction of the head-contact involved complex questions, it was submitted that the Court would not need to delve into them to determine this matter because no claim was ever made by Brolton to Hanson under the head-contract. That is, SRG's argument was that I would not even consider whether this judgment debt was either a reimbursable cost or a disallowed cost under the head-contract because Brolton should have at least tried to obtain the funds from Hanson before making an application for an instalment order.
Brolton accepted that it had not approached Hanson to pay the judgment debt. Four reasons were advanced by way of explanation for this. First, that as a matter of construction it was not a reimbursable cost and if it was, it was a disallowed cost in any event. Second, Hanson had already indicated at an earlier time (when the payment schedule was being submitted and prior to the litigation) that it would not pay the amount. Third, in circumstances where the business relationship between Hanson and Brolton was somewhat delicate (given the blow-out in the cost of the operation) it was understandable that they did not wish to raise the matter further. Fourth, there were not enough funds left to do so in any event. Although I am not persuaded by all of these reasons, I am persuaded by two of them.
First, I am satisfied that the terms of the head-contract are such that Brolton had reasonable grounds to proceed on the basis that it would be futile to ask Hanson to pay the amount of the judgment debt. The amount of the debt is clearly disputed as evidenced by the (late) service of the payment schedule. In this way I am unable to accept SRG's argument that the disputed amount is "properly due" under the head contract. Even if I am wrong about that conclusion, I am satisfied that the amount of the judgment debt was a disallowed cost under the head-contract.
Clause 4 of Appendix 12 of the head-contract sets out what constitutes a "disallowed cost". There were three bases upon which the judgment debt could be considered to be a "disallowed cost" under the head-contract: under (b) because it should not have been paid to SRG in accordance with the terms of the relevant sub-contract; under (f) because it was a cost incurred as a consequence of a failure by Brolton to comply with any applicable law; and under (g) because it was a cost incurred as a consequence of an omission by Brolton.
During the hearing, counsel for SRG accepted that it was a possible construction of the head-contract that the judgment debt fell within (f) above but adhered to the position that this was irrelevant because Brolton never approached Hanson to obtain the funds. I am not satisfied that this is the case. The reason that this matter is before the Court is that Brolton failed to comply with the law by providing its payment schedule late under the Act (even though it was within time under the sub-contract). Similarly, it was an omission by Brolton to not submit the payment schedule in time under (g). I am satisfied that an available construction of the relevant clause is that Brolton's failure to provide the payment schedule within time under the Act disentitled Brolton from claiming the full amount of the judgment debt from Hanson.
Second, I am also satisfied that if Hanson (through Mr Whittaker) indicated in November 2017 that it would not pay the amount of $1 979 797.88, then there is no reason for Brolton to believe it would change its mind. The relationship between Hanson and Brolton was very different to that between the judgment debtor and the external source in Chint and Australian Institute of Fitness. There was no obligation for Hanson to pay the amount unless it was contractually obliged to do so. Unlike the other cases, there was no other basis for Hanson to assist Brolton. Hanson's contractual obligations under the head-contract do not rise to the status of an external source on the facts of these cases because there is no clear obligation for Hanson to pay the judgment debt due for the reasons stated. To put this in another way, I am not persuaded that Hanson was in an analogous position to the external sources in those other decisions.
A more difficult aspect of Brolton's claim arises from Mr Juchnewicz's evidence that SRG's work was put into the "concreting component" and the amount allocated to that component was $3,415,451 as at February 2018. His evidence is that he was "aware from my dealings with Hanson as part of the project that [it] will only approve payment for civil concrete works up to the budgeted amount of $3,415,451.00". He further states that, having already claimed $2,800,000 for this, that only $611,171.20 is left. The difficulty with this submission is that it is not clear from the head-contract why this had to be so. Rather, the only relevant metric in the head-contract is the GMP and no evidence was put before the court that the GMP had been exhausted. As counsel for SRG noted, Mr Juchnewicz's evidence that he was aware that Hanson would only approve payment for civil concrete works up to the budgeted amount was hearsay from an unnamed source. Similarly, I did not find the submission that an approach would not have been made for commercial reasons advanced Brolton's position any further.
Overall, although I have not accepted all of Brolton's submissions on this issue, I am satisfied that it would have been futile for Brolton to have approached Hanson for the amount given the terms of the head-contract and the attitude of Hanson at the time immediately after the payment schedule was submitted. Accordingly, not only am I satisfied that Brolton was not required to try and persuade Hanson to pay the amount prior to making this application for instalment payments, I am satisfied that Hanson is not an "external source" to which Brolton has access in order to obtain funds sufficient to satisfy the judgment debt.
In reaching this conclusion, I have not gone behind the default judgment in any way. Under the Act, the full judgment debt is owed by Brolton unless and until it is successfully challenged in separate litigation. The fact remains, however, that in opposing the making of any instalment order, SRG relied heavily on the contractual relationship between Hanson and Brolton to assert the availability of an external source of funds. In order to respond to that argument, Brolton raised matters relevant to the underlying dispute. Any references to those factual matters in my determination are limited to addressing Brolton's response.
No other external sources were ultimately relied upon by SRG (see [60] above).
As stated above, the onus is on Brolton to persuade the court that an instalment order would be more conducive to SRG obtaining full satisfaction of its judgment debt in a reasonable time than if Brolton was required to pay the amount in full. I am satisfied that Brolton presently has insufficient funds to pay the amount in full but, before I finally determine the matter, it is necessary to consider SRG's remaining arguments in opposition to the orders sought.
SRG accepted during the hearing that the evidence from Mr Shahriar was sufficient to establish that Brolton had insufficient funds but relied upon the observations of McDougall J in Hellier Capital that an instalment order should not be made if it would be futile because the judgment debtor could not meet its obligations under it. I have had regard to Mr Shahriar's evidence and, in particular, the statement of financial position and anticipated cash flow. It shows that even when there is a negative cash position, the $150,000 instalment payments could still be made and are accommodated into the future. Although it is to be accepted that the projections can only realistically be made for about six months, the entire amount will be paid by early next year. I also note that the instalment payments are directed to both the principal and the interest. I am not satisfied that Brolton will be unable to pay the judgment debt if an instalment order is made.
As for the prejudice caused to SRG, I have had regard to SRG's contention that, if it does not get the full amount owed by the end of this financial year, it will impact adversely on SRG's parent company which is a publicly listed company. The fact remains that SRG will have received nearly half of that amount by the end of the financial year if an instalment order is made in the same terms as is currently in place. I accept, having regard to the evidence of Mr Lee, that if SRG was not part of that group, it would be under financial duress. However, this assertion gives rise to the inference that SRG is not in fact presently under any such duress. That is, SRG forms part of a larger profitable group which historically trades well. It was also asserted that the delay in receipt of the full debt may "hamper its ability to successfully pursue overseas opportunities". I am not persuaded that this possibility is sufficient to establish any significant prejudice to SRG.
It is to be accepted that SRG is entitled to be paid the full amount of the judgment debt. It was successful in proceedings brought to this Court and is entitled to "the fruits of its success." But there is no point denying Brolton the opportunity to pay by instalment order if that means that SRG may not get the full amount owed. Although there is clearly always some prejudice when a party does not receive the full amount owed in one lump sum, I am not satisfied that the prejudice to SRG in this matter is such that it outweighs the relevance of Brolton's capacity to pay the amount in full.
The remaining factor relevant to my determination, as identified by McDougall J in Hellier Capital, is the particular public interest in the full debt being paid other than by instalment. I have given consideration to the fact that an object of the Act is to "entitle certain persons who carry out construction work….to timely payment for the work they carry out." Although it was submitted on behalf of SRG that an instalment order frustrates this purpose, it was not contended that it would never be appropriate, as a matter of principle, to make an instalment order for a debt arising under the Act. Having regard to all of the particular circumstances of this case, I do not consider it to be inconsistent with the public interest to make an instalment order as sought by Brolton.
Overall, I am satisfied that Brolton has established that it presently has insufficient funds to pay the amount in full and that in those circumstances an instalment order would be more conducive to SRG obtaining full satisfaction of its judgment debt in a reasonable time. Having so found, I propose to make orders in similar terms to those made by Assistant Deputy Registrar Gerristen on 20 December 2017.
At the conclusion of the hearing, I raised with counsel whether there was any reason why the appropriate costs order in this matter would not be that the unsuccessful party pay the costs of the successful party. By agreement between counsel, I was requested to make such an order but to grant leave to the parties to make and file submissions within 14 days should a different order be sought after the parties have had the opportunity to read my reasons. I propose to follow that course.
[16]
Orders
In consideration of the above, I make the following orders:
1. Pursuant to UCPR r 37.4(4)(b), the plaintiff's application to rescind the instalment order made by Assistant Deputy Registrar Gerristen on 20 December 2017 (that the defendant pay the plaintiff the outstanding judgment sum by monthly instalments of $150,000 plus any GST payable) is dismissed.
2. The plaintiff is to pay the defendant's costs on the ordinary basis.
3. The parties have leave to file submissions seeking a different costs order within 14 days of this judgment.
[17]
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Decision last updated: 18 May 2018