Grosvenor Constructions v Musico [2004] NSWSC 344

What the court decided

Grosvenor obtained an adjudication certificate under section 24 of the Building and Construction Industry Security of Payment Act 1999 (NSW) and filed it as a judgment for debt under section 25 [1]. The defendants' notice of motion sought a stay of execution of the judgment debt, entered for $486,324.77 [1]. Grosvenor had been placed under external administration, and the report to creditors put unsecured creditors' claims at $4,791,504 against $528,294 available to them [2].

An earlier determination of 18 July 2003 that the defendants pay $712,757 had been quashed by McDougall J in Musico v Davenport for jurisdictional error and denial of natural justice [6]. On 2 September 2003 the defendants had provided an unconditional bank guarantee to the court securing that sum [8]. A second determination on the same subject matter, made on 5 December 2003, fixed the adjudicated amount at $486,324.77 [9]. Bergin J stayed execution on 19 December 2003, and the court later extended the stay by consent [10]. The defendants denied any indebtedness and claimed damages of $550,839 plus GST [11].

Several judgments of the court treat provision for interim payments only as a fundamental feature of the Act [12]. The court's power to stay execution under Pt 44 r 5 of the Supreme Court Rules is exercisable whenever the requirements of justice so demand [14]. This was apparently the first case on staying judgments arising from the filing of an adjudication certificate where moneys paid would be irrecoverable through the claimant's insolvency [15]. His Honour generally adopted the defendants' submissions [16]. Although care is needed in applying decisions on a different legislative scheme, both the Act and the UK legislation provide for interim payments following adjudications [18]. In Herschel Engineering Ltd v Breen Property Ltd Dyson J refused a stay but said he would probably have granted one had there been real doubt about repayment [21]. In Baldwins Industrial Services PLC v Barr Limited a stay was granted on terms, with Barr offering to undertake to commence proceedings within a month [22]. His Honour approved a passage in Keating that a court is unlikely to grant a stay on "limited or flimsy evidence of impecuniosity" [25].

Einstein J reasoned by analogy with a stay pending appeal, noting that recouping an adjudicated amount requires fresh proceedings rather than a true appeal [27], [28], [29]. A successful claimant under the Act is entitled to the adjudicated amount, even though any payment is of an interim nature [28]. The Kalifair principles for a stay pending appeal include a real risk of prejudice not redressed by a successful appeal [29]. Because the policy of the Act is that successful claimants be paid, his Honour saw a sound reason for making stays less readily available for debts under the Act [31]. In cases such as the present the court might require more than a real risk of prejudice [31].

It was "quite plain" that without a stay the defendants, if successful in final proceedings, would suffer irreparable prejudice because payment could never be recouped [4]. Where it was certain that the defendants' rights would otherwise be rendered nugatory, the proper exercise of the discretion was to grant a stay [32]. That was especially so because the guarantee of $712,757 apparently fully protected Grosvenor's entitlement to the adjudicated amount [33]. Without a stay, the defendants' right to recoup the adjudicated amount in the "appeal" under section 32 of the Act would be rendered nugatory [35].

His Honour held that the stay should be ordered on terms [36]. Discussions were on foot about the security to remain and the parties' endeavours to arbitrate the dispute [37]. He stood the matter down so that the parties could try to agree the terms [38]. Absent consensus, and unless the parties agreed a way forward on the basis of curial proceedings, the court would give directions on the terms [39]. Those terms would require "that the plaintiff commence final proceedings within a limited period of time" and deal with how much security should remain [39].

Why it matters

This first instance decision shows that a respondent may obtain a stay of a judgment on an adjudication certificate where the claimant's insolvency would turn an interim payment into a final one. Einstein J found certainty of irreparable prejudice and apparently full security here, and left open whether anything less than certainty but more than a real risk would do. In Brodyn Pty Ltd v Davenport (2004) NSWCA 394 at paragraph 85 the Court of Appeal, without referring to this decision, said obiter that a judgment under section 25 could be stayed where the debtor had a greater claim on which it would shortly obtain judgment and money paid would be irrecoverable, though "the policy of the Act that progress payments be made" weighs against a stay. At paragraph 87 it added that the legislative intention of minimal delay and court involvement, and the possibility that the claimant's financial difficulties had been caused by the non-payment, could militate strongly against a stay in that case. In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) HCA 4 at paragraph 51 the joint reasons of Kiefel CJ, Bell, Keane, Nettle and Gordon JJ observed, in explaining why review for non-jurisdictional error is excluded, that the risk of the advantaged party later being unable to meet a restitution order is assigned to the other party, but it did not consider stays of execution. A respondent which has already secured more than the adjudicated amount, as these defendants had, is best placed; readers should check the current text of the Act.

Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.