Catchwords

Building and Construction Industry Security of Payment Act 1999 (NSW) – stay of proceedings – release of payment made into court

Significance

Claimants who have a strongly arguable case that a judgment obtained by a company under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) is not payable under the relevant construction contract may be entitled to a permanent stay on those judgments in circumstances where the claimant was insolvent. The court is entitled to consider any reason advanced for the continuation of a stay of proceedings; consideration is not confined to the circumstances that existed at the time a stay is initially granted.

Facts

In October 2013, FAL Management Group Pty Limited (FAL) entered into a design and construct contract (Contract) with Denham Constructions Pty Ltd (Denham).

After submitting a payment claim in July 2014, Denham obtained an adjudication certificate consequent upon an adjudication determination in respect of that claim and registered it as a judgment debt in the District Court of New South Wales (District Court judgment).

Shortly after, FAL was served with a notice of claim (Notice of Claim) by a subcontractor, N Moits & Sons (NSW) Pty Ltd (Moits), claiming amounts payable by Denham Constructions Project 960 Pty Ltd (Denham 960).

An issue arose concerning Moits' entitlement to the amount claimed because of the identity of the entity, Denham 960, with which Moits was contracting. As a consequence, the District Court made orders staying the judgment which Denham had obtained against FAL on two conditions:

  • that the amount paid by FAL be paid into the District Court; and
  • that FAL commence proceedings seeking a declaration concerning the validity of the Notice of Claim.

FAL duly commenced proceedings. Hammerschlag J subsequently made orders transferring the moneys to the Supreme Court of New South Wales, dismissing the proceedings and continuing the stay on that part of the District Court judgment pending the outcome of the separate proceedings commenced by Moits.

In June 2014, FAL terminated the Contract. Later in June 2014 Denham commenced separate proceedings against FAL in the Supreme Court seeking, among other things, the return of security provided under the Contract (Denham proceedings). FAL filed a cross-claim against Denham seeking to recover overpayments made to Denham and filed a substantial amount of evidence which demonstrated the strength of its claim.

Denham was placed in to liquidation in August 2016. Moits has made no claim for the moneys held by the District Court, and, having regard to Denham's liquidation, it may be assumed that the Moits proceedings will never be heard. FAL and Denham both filed applications seeking payment of the moneys held by the court.

Decision

The court rejected Denham's application and made orders for the money to be paid to FAL and for the District Court judgment to be permanently stayed.

In considering the decision to stay proceedings, Ball J held that the court was not confined to consider the reasons under which the stay was originally granted but instead was entitled to consider any reasons advanced.

His Honour considered the judgment obtained by Denham under the SOPA. First, it is enforceable immediately. Secondly, unlike other judgments, it does not affect a party's rights under the relevant contract, as a party is free to sue to recover amounts the subject of the judgment if the party maintains that the relevant amount is not properly payable under that contract.

When considering whether to stay proceedings, the court will take in to account the following matters, including the:

  • strength of the contractual claim;
  • likelihood that the contractor will be unable to repay the amount; and
  • risk that the contractor will become insolvent if a stay is granted.

Ball J reached the decision to permanently stay proceedings on the following:

  • Denham had gone in to liquidation and the lifting of the stay would have the effect of making any payment to Denham permanent.
  • FAL had a strongly arguable claim to recover the payment (and more) under the Contract and that consequently Denham was never entitled to the payment under the Contract.
  • Payment of the moneys by FAL into court was not intended to affect its rights to recover under the Contract.
  • There was nothing preventing Denham's liquidator from suing FAL to recover the moneys if paid out.