In a recent unreported judgement of the New South Wales District Court, it was confirmed that a Principal that owes money to a Contractor arising under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the SOP Act) can not attempt to defeat the purposes of the Act and delay payment of the monies owed by requesting a stay of execution because of the commencement of a cross claim.

In Silver Star Construction Pty Limited t/as Genesis Construction Australia v Denham Constructions Pty Limited (unreported, District Court of NSW, Olsson SC DCJ, 25 November 2011), Silver Star (the Contractor) made four payment claims for work carried out at two projects in NSW. Denham (the Principal) either did not serve, or did not serve in time the payment schedules required by the SOP Act. A statutory debt arose and Denham became liable to Silver Star for the whole amount claimed, being a total of $295,811.69 which was awarded at previous judgement.

Denham then commenced proceedings in the NSW District Court against Silver Star, alleging breaches and defaults in the performance of work for each project. Silver Star defended the proceedings. Denham sought a stay of the previous judgements pending determination of the principal proceedings.

In deciding whether to exercise the power and general discretion of the Court to grant a stay of the proceedings, the Judge looked at several issues, particularly:

  • the intention of the SOP Act to ensure prompt payment of payment claims;
  • the ability of the Principal to ‘claw back’ payment claims from the Contractor in subsequent proceedings; and
  • the effect of non-payment of the payment claims on the Contractor’s solvency.

Intention of the SOP Act

The Court re-iterated that the underlying intention of the SOP Act is 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. It was held that seeking a stay of execution to prevent this process would not be available except in instances where it was most likely the contractor would be unable to repay any of these payments because of insolvency.

‘Claw back’ of progress payments

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 a contractual dispute. This was a necessary consideration to “prevent injustice” because of the inability to ‘claw back’ these amounts.

The effect on the Contractor of non-payment

The Court discussed Silver Star’s financial statements to determine the effect that non-payment would have on the business. Whilst Silver Star had little in the way of tangible assets, it had secured preferred tenderer status on several projects that were yet to begin. The Court found that by granting a stay of execution in the enforcement of its statutory debt for the progress claims, it would place Silver Star in a precarious financial position. Further, Silver Star was not deemed to be at sufficient risk of insolvency to warrant the grant of the stay.

The Court dismissed the application for the stay of execution, making it clear that a Court will not grant a stay where it interferes with the intention of the SOP Act (or similar inter-state legislation). Similarly, where a contractor relies on the payment claims to remain in business, and where there is no pending insolvency, the Court will refuse to grant a stay of execution.