Total Process Services v Nepean Engineering Pty Limited

Blair v Curran (1939) 62 CLR 465 Brodyn Pty Ltd v Davenport [2004] NSWCA 394 Re FAI General Insurance Co Ltd [2002] NSWSC 262 Grosvenor Constructions NSW Pty Ltd (in administration) v Musico [2004] NSWSC 344 Hershco v Expile Pty Ltd [2004] NSWCA 468 CASES CITED: Kalifair Pty Ltd v Digi-Tech (Australia) Ltd; McLean Tecnic Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737 Re Middle Harbour Investments [1997] ACLD 008 National Mutual v Macquarie Bank (1996) 40 NSWLR 543 Ogilvie-Grant v East (1983) 7 ACLR 669 Taylor Projects Group Pty Limited v Brick Department Pty Limited [2005] NSWSC 571 Transgrid v Siemens [2004] NSWCA 395

PARTIES: Total Process Services (Respondent) Nepean Engineering Pty Limited (Applicant)

COUNSEL: Mr J Young (Applicant) Mr Merity, solicitor (Respondent)

SOLICITORS: Marsdens (Applicant) Peter Merity (Respondent)

1 HIS HONOUR: The applicant, for whom Mr J Young of counsel appears in these proceedings (and to which I shall refer as Nepean), is a building contractor. The respondent, for whom Mr Merity, solicitor, appears, is a plumbing and welding contractor. I shall refer to the respondent to the motion as "TPS".

2 Nepean entered into a contract with a company GRD Minproc Limited ("GRD") for construction of a Water Treatment Project.

3 TPS served a claim on Nepean under the Building and Construction Industry Security of Payment Act 1999 NSW (the Act). Nepean did not in accordance with the Act's provisions respond. TPS then issued a statement of claim against Nepean. Nepean put on a defence following which, as I understand it, TPS sought summary judgment. That application for summary judgment was acceded to by Garling DCJ and judgment was entered by this Court against Nepean on the basis of the claim made under the Act for $268,048.93 on 29 July 2005.

4 TPS had at some stage had gone into liquidation and Nepean sought a stay of proceedings on the basis that it has claims against TPS in excess of those made by TPS against it. In relation to the entry of judgment against Nepean, Nepean has filed a summons for leave to appeal (at the moment it is a holding appeal) in the Court of Appeal. That appeal has not as yet been heard and I was informed that the transcript of the reasons for summary judgment has not yet become available to Nepean.

5 On 12 August a number of orders were made by consent in this Court. The orders that were made are to be found in paragraphs 1 to 9 of Exhibit 4 with orders 10, 11 and 12 being noted by the Court. Although it is not relevant to the present application, I note that order 8 was by consent amended before me. By those orders it was contemplated that Nepean would commence proceedings on its claims in the Supreme Court for leave to proceed against TPS, leave being required because TPS was in liquidation: see s 500(2) of the Corporations Act 2001 (Cth). TPS having been notified of the application for leave indicated by letter that it neither opposed nor consented to the leave being granted. I was informed that Associate Judge McLaughlin had heard the application and granted leave to Nepean.

6 The consent orders, to which I have referred, also required Nepean to provide to TPS a bank guarantee in the full amount of the judgment obtained, that is $260,048.93. That guarantee was in fact provided within the requisite time.

7 Nepean by its motion filed on 16 August 2005 seeks a stay of the judgment of Garling DCJ entered on 29 July 2005 "[p]ending the determination of the statement of claim which the defendant shall file against the plaintiff in the District Court of New South Wales upon leave being granted by the Supreme Court of New South Wales in proceedings number 4081 of 2005". As mentioned, leave has been sought, - although I have been informed that the proceedings have not as yet been filed in the District Court. Nothing turns on the fact that those proceedings have not yet been filed in court. A draft statement of claim in this Court was filed as part of the application for leave in the Supreme Court.

8 There was a divergence of approach of the parties as to the appropriate test to be applied in such circumstances. Mr Young relied on two decisions of Einstein J, one in Grosvenor Constructions NSW Pty Ltd (in administration) v Musico & Ors [2004] NSWSC 344 and another of Einstein J in Taylor Projects Group Pty Limited v Brick Department Pty Limited & Ors [2005] NSWSC 571.

9 Mr Merity submitted that a fair and appropriate test in such circumstances would be that enunciated, albeit in a different context, by s 198L of the Legal Profession Act 1987 (NSW) namely whether the applicant has reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim has reasonable prospects of success.

10 In Grosvenor the Court was concerned with a similar situation to that here, both being cases in which the subcontractor was utilising the claim provisions of the Act and had gone into liquidation. His Honour regarded it as significant that if the party that has obtained a judgment under the Act is insolvent or in liquidation, what is intended by the Act to be an interim payment is converted in to a final payment, see in particular paragraphs 32 to 36 and also paragraphs 31 to 36 of Grosvenor. His Honour acknowledged the clear policy in the Act, that claims that have not been opposed by the appropriate steps or, if they have been opposed, have nevertheless been adjudicated upon adversely to that party in the manner described by the Act, should be paid, see Brodyn Pty Ltd v Davenport [2004] NSWCA 394 and Transgrid v Siemens [2004] NSWCA 395, but saw that as needing modification in circumstances where a successful claimant will not be able to disgorge any monies so obtained.

11 Mr Merity frankly conceded that if TPS was able to call on the bank guarantee now, Nepean would, in all likelihood, recover nothing or next to nothing from the liquidation should Nepean be successful in any of its claims against TPS. This concession and the fact of liquidation obviated the need to consider the question of the degree of risk involved in recovery of money: see in that context Hershco v Expile Pty Ltd [2004] NSWCA 468.

12 In Taylor at paragraph 27 Einstein J said, after reviewing the evidence before him in that case: "In those circumstances the Court can only accept for present purposes that the District Court proceedings will be strenuously litigated, each party having prospects of success. The claims for relief the subject of this judgment cannot be determined upon the assumption that either party is shown to be more likely than the other, of ultimate success in the District Court proceedings".

13 His Honour also said this at paragraphs 52 to 55: "The principle to be derived from Grosvenor is that where there is certainty that the defendants' rights will be otherwise rendered nugatory, and that it will suffer irreparable prejudice, because moneys paid would be irrecoverable as a result of the claimant's insolvency or liquidation, then the proper and principled exercise of the Court's discretion (under Pt 44 r 5) is to grant a stay (at [15] and [32]). Such a stay is to "prevent injustice" (at [17]). As earlier observed, the Court is involved in the exercise of balancing the risk that a respondent's payment may be irrecoverable because of a claimant's insolvency, in the event the final rights are determined in the respondent's favour, against the policy of the Act that successful claimants be paid ( Grosvenor at [31]). Stays in relation to debts under the Act ought be less readily available than stays in relation to appeals from curial proceedings ( Grosvenor at [31]; Herscho v Expile Pty Ltd [2004] NSWCA 468 at [3]). In Herscho Hodgson JA suggested the risk of prejudice must be "a very high risk" and certainly more than merely a real risk to justify a stay" (at [3] and [9]).

14 In Grosvenor Einstein J saw an analogy between stays on the basis of actual or threatened insolvency and the situation relevant to an appeal and he cited the judgment of the Court of Appeal in Kalifair Pty Ltd v Digi-Tech (Australia) Ltd; McLean Tecnic Pty Ltd v Digi-Tech (Australia) Ltd (2002) 55 NSWLR 737 at 741 to 742 in which the Court of Appeal said: "Thus the relevant principles are analogous to those which govern the grant of interlocutory relief before trial to protect the status quo. The appellant must show that the appeal raises serious issues for the determination of the appellate court , and that there is a real risk that he will suffer prejudice or damage, if a stay is not granted, which will not be redressed by a successful appeal. This requirement will be satisfied if the appeal will be rendered abortive or nugatory unless a stay is granted. If these pre-conditions are established the Court will then consider the balance of convenience" (my emphasis).

15 Einstein J noted that because of the policy considerations pertinent to the Act the Court might apply a more stringent test in relation to risk. He said this at paragraph 31: "Similarly, 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"... (emphasis added)..."

Those latter words coming from the Digi-Tech case to which I have referred earlier. Just in relation to that last point about risk, as I have noted in this case, risk is not an issue.

16 Mr Merity also referred to the case of Re Middle Harbour Investments [1997] ACLD 008 which is a decision of the Court of Appeal per Mahoney JA, with whom Moffat P and Glass JA agreed. It was a case dealing with an application for a stay of proceedings and his Honour said: "Where an application is made for a stay of proceedings, it is necessary that the applicant demonstrate an appropriate case. Prima facie a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party".

He went on to say: "In some cases, it will be apparent that, unless a stay is granted, a successful appeal will be rendered nugatory... this will be a substantial factor in favour of a grant of a stay. But the Court will also look to the position of the respondent and is entitled to take into account such detriment to him as may be caused by the stay."

17 I accept that it is not appropriate to determine disputed questions of fact on an application such as this, nor is it appropriate to run to ground any issue of law that is ventilated by a dispute. In my view "serious issue for determination" is not different to "reasonable prospects of success" and both of these are to be contrasted with "speculation and mere argument". When Einstein J in Taylor referred to both sides having prospects of success, he was not in my view departing from the view expressed by him in Grosvenor that the test of "serious issue for determination" was, on analogy with the test used for a stay were there is an appeal, an appropriate test.

18 The pleading upon which Nepean presently proceeds against TPS and for which it obtained leave, was admitted by Mr Young to be in need of amendment. However, for present purposes there are, it was agreed, three heads of claim by Nepean against TPS, namely:

(1) A claim based on the alleged failure of TPS to itself complete all of the work required with the consequence that two other organisations or individuals were required to carry out work, Kirkfields and a Mr Krantz, an engineer. Nepean claims that GRD, its principal, claimed back money from it for these extra expenses and hence it is entitled to recover those from TPS. The amount claimed is apparently $200,000, and it is described by some as a "back charge" or "claw back".

(2) A claim based on the undisputed fact that Nepean was required to provide GRD with an MDR (that is a materials data record), pursuant to the relevant Australian Standard. Nepean claims that TPS failed to provide Nepean with information or material sufficient to enable Nepean to provide GRD with the MDR. This is a claim of a value of approximately $75,000.

(3) A claim which has been described as being in the order of $308,000 for work which was claimed by TPS and for which it is said TPS is not entitled to payment.

19 In support of the motion Nepean relied on the affidavits of Mr Grant Patrick Butterfield, solicitor, of 9 August 2005 and which deals with the application of the Supreme Court and the holding appeal, and Mohammad Amjad Uppal of 18 August 2005, Nepean's project engineer on the contract between GRD and Nepean. TPS relies on an affidavit of Mr Peter Molloy of 26 August 2005, general manager of TPS until it went into liquidation.

20 Mr Young's first point was that it was not appropriate for this Court to consider the question of whether there is or is not an arguable case or serious question, because the Supreme Court gave leave to Nepean to issue proceedings against TPS a few weeks ago. He submits that since the liquidator did not oppose (or consent to) the application for leave, the Supreme Court must be taken to have considered whether Nepean's case was an appropriate case for leave. He submitted that although s 500(2) does not expressly set out what is required for leave to be granted, two cases - Ogilvie-Grant & Anor v East (1983) 7 ACLR 669, which is a decision of the Queensland Court of Appeal, and Re FAI General Insurance Co Ltd [2002] NSWSC 262, a decision of Barrett J, in which Ogilvie-Grant was followed, point to what is considered. FAI was a case in which a liquidator of FAI had written indicating that he neither consented nor opposed the grant of leave. Barrett J said: "9. This is, I think, another way of acknowledging the general desirability of having a known source of possible liability dealt with in proceedings which will provide an authoritative resolution once and for all".

21 FAI did not concern the question of the degree to which the Court will consider the validity of a claim against a company in liquidation (leave to appeal had been granted by the High Court) but Ogilvie-Grant did advert to the considerations which, although largely focused on which procedure was more appropriate, include other factors such as "the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed": see p672, also see p674.

22 In correspondence in connection with the orders which came to be made on 12 August and which are found as Exhibit 1 on this application, the liquidator's solicitor, Mr Merity, made two points. First that the liquidator, although not opposing the grant of leave, would be seeking to ventilate in this Court the issue of release of the funds, the subject of the guarantee.

23 It is not disputed by Nepean that the consent orders in the District Court made on 12 August reflect that anticipation. The letter also made the point that Mr Merity regarded the material filed in support of the application for leave as deficient. That was a reference to the statement by Mr Butterfield, the solicitor, in the Supreme Court application in which he said: "I am instructed by the plaintiff and verily believe that it has as valid claim to make against the defendant for breach of contract and other causes of action that will exceed the amount claimed in the SOLC" ([ie TPS's statement of claim in the District Court for $260,000 approximately]. (See paragraph 8 of Mr Butterfield's affidavit of 22 July 2005 which is appended to his affidavit in this Court of 9 August 2005.)

24 I initially was surprised that this Court should be required to consider whether or not there was a serious question to be tried, given that the Supreme Court had given leave pursuant to s 500(2), but the correspondence, Exhibit 1, taken together with the orders made, make it clear that TPS was maintaining an entitlement to call on the bank guarantee, or at least its right to do so when it saw what the basis of the Nepean case was. Whilst Mr Merity accepted that he was aware that there would be a significant contest over whether the judgment should be stayed and hence access to the bank guarantee, he did not appreciate that it would be asserted that TPS was precluded from so doing on the basis of its failure to contest the grant of leave.

25 I think it is clear that if the Supreme Court were persuaded that Nepean's case was hopeless, it would have declined leave pursuant to s 500(2). But no such argument was advanced in the circumstances before the Supreme Court and on the basis of the material presented without contest the Court may well have not seen it as necessary to go behind the bald statement of belief of Mr Butterfield, particularly where it is clear from Ogilvie-Grant and FAI that the Court is concerned to filter multiple claims where proofs of debt are likely to suffice and the need for litigation is not certain, and seriousness of the litigation is only one factor. No reasons for judgment on the leave application were provided to me in this application. The fact that TPS was in liquidation with very little funds, and the existence of District Court proceedings already on foot by TPI may have made it a compelling case for a grant of leave absent a positive case to the contrary.

26 Whilst I accept that there may be overlap in the considerations relevant to leave being granted and those pertinent here, the question which I have to decide is not whether leave should be granted pursuant to s 500(2) of the Corporations Act but whether, in the exercise of this Court's discretion, a stay should be granted of enforcement of the judgment and hence the calling up of the bank guarantee in circumstances where judgment has been obtained in reliance upon the Act. The Act was not relevant to the Supreme Court's consideration, so any policy considerations behind the Act could not have been relevant either.

27 No authority was cited to me by either party on this issue of estoppel and I am not persuaded that there would be an issue estoppel which requires a judicial determination directly involving an issue of fact or law which "disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies", being an issue indispensable to the judicial determination: see Blair v Curran (1939) 62 CLR 465, 531 to 532 per Dixon J, and see National Mutual v Macquarie Bank 40 NSWLR 543, 558. No other estoppel was asserted.

28 In any event even if it otherwise might be a case suitable for an issue estoppel, in my view it could not be so regarded in circumstances where it was envisaged that the issues were to be ventilated in this Court at a future date, being the very matters which are the subject of the affidavit material filed in this case.

29 I turn then to deal with the issues that have been raised by Nepean against TPS. So far as the first issue of the claim for failure of TPS to carry out work on time, there is in my view insufficient material to support such a claim. It is asserted that TPS failed to complete the work specified in the contract. The contract is found at MU4 dated 27 April 2004. There is no dispute that additional work was requested of TPS, and a great deal of it. There is simply no evidence that TPS agreed to complete the additional work within any timeframe. There is evidence that Nepean wanted it completed by October 2004, no doubt because of its contractual obligations to GRD, and there is evidence that TPS knew that that was what Nepean wanted, but it does not equate to a contractual obligation upon TPS, particularly in the circumstances deposed to by Mr Malloy in his affidavit, which include a very extensive increase in the quantity of work needed over that which had been the subject of the original contract. Nor is there any evidence that TPS were required to hire anybody fitting the role of Mr Kranz. I should note in this connection that no affidavit in reply to Mr Malloy's was served or relied on by Nepean. Nor was any attempt made to call Mr Uppal in response to Mr Malloy's affidavit; and there are a number of explanations given by Mr Malloy that are not rebutted by Nepean. In my view, on the material presented, there is not established a serious question to be tried, and that is even without considering Mr Merity's further point that, as a matter of contract law, changes in quantities must be within the scope of the contract and a 300 percent change could not meet that description: see pages 3-4 of Mr Merity's helpful submissions.

30 Secondly - the claim for failure of TPS to provide material which was required by Nepean to prepare an MDR which MDR Nepean was contractually obliged to provide to GRD. Mr Uppal details what he says were the items required from TPS: see paragraph 39 of his affidavit. But the only items which were expressly the subject of the written agreement were (c), (d) and (g). The only item which was not provided, according to Mr Uppal's affidavit is (c), the inspection and testing reports. Mr Uppal points to the fact that the certificates provided were defective because they referred to the wrong Australian Standard. Mr Malloy accepts that the certificates provided and annexed to Mr Uppal's affidavit were wrong in this respect but he deposes to the fact that ten days later when the matter was investigated he was able to forward new reports which referred to the correct Australian Standard: see paragraph 22 of his affidavit. He annexes the new certificates as sent. Again Mr Uppal has not asserted that they were not sent or not received. This highlights, in my view, how flimsy Nepean's case on this point was and is. There was an argument advanced that I should read one page of that annexure (a fax of 9 July 2004) as casting doubt on Mr Malloy's assertions. I do not agree that it does, and Mr Malloy was not required for cross-examination. I do not regard the second point as having any substance.

31 Thirdly, the claim for $308,000. There is no dispute that TPS's claim was for approximately $771,000 worth of welding work and that it has been paid approximately $511,000, Nepean claims that if the bank guarantee amount of $260,000 odd is taken into account, Nepean will have paid TPS $308,000 more than it should have. It justifies this argument on the following bases:

(1) That GRD told Mr Uppal that the GRD representative was concerned that TPS had not done as much as they claimed to have done and that GRD was going to bring in an independent quantity surveyor.

(2) That Mr Williams of Evans & Peck, an independent quantity surveyor, came to the site to "work out how much piping work had been done".

(3) That Evans & Peck prepared a report which recorded what the plaintiff had done and;

(4) That Nepean claimed that GRD certified only $519,116.88 leaving a shortfall of $308,448.55.

(5) GRD wrote to Nepean. See MU7 to Mr Uppal's affidavit.

(6) That GRD refused to pay the $308,448.55 because Evans & Peck's view was that the work had not been done.

32 There are a number of problems with this claim. First, Nepean relied on MU7 which as presented was largely blanked out. Following a call for a full copy, it was in fact produced and it is now exhibit 3. It gives a figure of $308,448.55 as the amount in dispute as between GRD and Nepean, but that section of the report is introduced with the following words: "The valuation of additional works above the piping MTO [materials take off] remain in dispute. Review of the respective valuations by Nepean and GRDM show that the rates for supply of fittings are the major source of disagreement".

On its face "the rates for supply of fittings" is what divides GRD and Nepean, or at least as to the majority of the differential. There is nothing to suggest that the "rates" between Nepean and TPRS are in issue. Whatever rates Nepean charge GRD are a matter for it and that is a contractual issue between GRD and Nepean, not between TPS and Nepean.

33 Secondly, Mr Uppal has exhibited, as MU6 to his affidavit, what he describes as a copy of the MTO (Materials Take Off) prepared by Evans & Peck dated October 2004. The Evans & Peck report itself was not exhibited and it is not at all clear to what the portion of the document exhibited refers. There was discussion on Friday, 2 September, about the provision of the full report and it was, I thought, clear that Mr Merity wished to see the full report. I then commented that the report might resolve one way or another what was meant by MU7 and what it was that Evans & Peck were saying.

34 After it was revealed this morning that Nepean had not provided a copy of the Evans & Peck report, Mr Merity called for it and was met with the response "not produced". Mr Young explained that this had been as a result of a misunderstanding on his part and that of his solicitor and the failure to produce the document was not a deliberate evasion. Mr Young accepted that it was understood by both Mr Merity and the Court that the full Evans & Peck report would be produced today. No application for an adjournment to enable production was sought by Mr Young. In my view, the failure to produce the report is a deficiency in Nepean's proof that it has any case concerning an over-claim. Mr Uppal does not assert that he himself had determined an over-claim by TPS. He relies in his evidence on Evans & Peck and both he and his solicitors have chosen not to produce in support of their case the report which might make good their claim against TPS.

35 The material as presented, in my view, is at most mere speculation and insufficient to establish that there is any substantial case against TPS on this head, and that TPS is not entitled to the amount of $260,000 that it has obtained judgment for by a service of a claim on Nepean and to which Nepean did not respond with any competing schedule, as it was entitled to do under the Act.

36 Thirdly, there is nothing to indicate what amount of work was done by TPS and what done by others. The contract between TPS and Nepean (see MU4) seems to have been only the supply of labour, not to provide materials of any one kind.

37 There is one further general matter to which I should refer which is relevant to all three claims. Mr Young pointed to the fact that Einstein J in Grosvenor was prepared to accept the evidence of a solicitor as to the nature of the contractor's case. He submitted that this court did not need to dwell at all on the material presented by Nepean, particularly given the fact that the solicitor had deposed in the Supreme Court as to his belief that his clients had a valid claim and in a context where a bank guarantee had been provided and would not be withdrawn pending the outcome of the case. Indeed he seemed to express some surprise at my examination of the grounds which had been advanced urging me rather to take the approach that he asserted Einstein J had taken in Taylor: [26]. I do not read Einstein J in Grosvenor or Taylor as simply accepting the solicitor's word that his client had a good case. Rather, what his Honour was doing was accepting that the solicitor had instructions that were pertinent to his client's claim and then proceeding to consider whether there was a serious question to be determined based on the assumption that evidence would be led in accordance with those instructions. If there was a basis for the claims being made I would regard the provision of the bank guarantee as a very relevant matter in favour of the stay, as Einstein J did in Grosvenor: see [33].

38 Finally I should note that at one stage early in the proceedings before me Mr Young indicated a faint assertion of a right to a stay based upon the fact that an appeal had been lodged against a decision of Garling J. However this was objected to by Mr Merity on the grounds that no such reference was made in the notice of motion and so far as I can recall, nothing further was said about that aspect and no submissions were made on it.

39 Accordingly, I dismiss the motion of Nepean and I will hear each party on the issue of costs.

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