- Posted by Doyles Construction Lawyers
- On November 21, 2018
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NEW SOUTH WALES
GOODWIN STREET DEVELOPMENTS PTY LTD V DSD BUILDERS PTY LTD  NSWSC 1791
HEARING DATE: 20 November 2018
DECISION DATE: 21 November 2018
JURISDICTION: Equity – Technology and Construction List
BEFORE: Stevenson J
DECISION: Plaintiff’s Notice of Motion of 20 November 2018 be dismissed with costs
CATCHWORDS: BUILDING AND CONSTRUCTION – application by owner to quash adjudicator’s determination in favour of builder dismissed by judge of the division and confirmed by Court of Appeal – whether funds paid into court by owner pending challenge to the determination should be retained in court pending determination of underlying building dispute – where judge hearing application to quash determination had rejected such an application – where Court of Appeal refused to entertain application – whether factors of inability of builder to repay established – whether any factors beyond those available to owner when making original application established
LEGISLATION CITED: Building and Construction Industry Security of Payment Act 1999 (NSW)
- Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393;  NSWCA 190
- Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd  NSWSC 1229
- Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd  NSWCA 276
- Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  HCA 4
- RJ Neller Building Pty Ltd v Ainsworth  1 Qd R 390;  QCA 397
- Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd  NSWCA 33
CATEGORY: Procedural and other rulings
- Goodwin Street Developments Pty Ltd as trustee for Jesmond Unit Trust (Plaintiff/Applicant)
- DSD Builders Pty Ltd (Defendant/Respondent)
FILE NUMBER: SC 2018/260981
- Goodwin Street Developments Pty Ltd and DSD Builders Pty Ltd were parties to a construction contract. DSD agreed to construct a number of boarding houses on property owned by Goodwin in Jesmond, a suburb of Newcastle.
- Goodwin purported to terminate the contract on 19 March 2018. The work was not complete.
- On 14 May 2018 the contract administrator under the contract issued a certificate that the cost of completion of the work was $976,497.91.
- On 24 August 2018 Goodwin commenced these proceedings seeking judgment for that sum.
- The proceedings have progressed in a dilatory fashion. Pleadings are not yet closed. Goodwin filed an Amended Summons and Amended Technology & Construction List Statement on 2 November 2018. On 2 November 2018 Ball J directed that DSD serve its List Response and any Cross-Claim by 30 November 2018.
- On 30 April 2013 DSD served on Goodwin a payment claim pursuant to s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) claiming $727,256.
- On 15 June 2018 an adjudicator determined that claim pursuant to s 22 of the Act and awarded DSD $265,510.
- On 6 August 2018 McDougall J dismissed a challenge to that determination: Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd  NSWSC 1229.
- Yesterday the Court of Appeal dismissed an appeal from that judgment: Goodwin Street Developments Pty Ltd v DSD Builders Pty Ltd  NSWCA 276.
- Nonetheless, by Notice of Motion filed in Court before me as Commercial and Technology & Construct List Duty Judge, Goodwin seeks an order that the $265,510 it paid into Court pending its challenge to the adjudication determination be retained in Court pending the outcome of these proceedings.
- Mr Hicks SC, who appeared for Goodwin, accepted that Goodwin must show that there is more than a risk that DSD would be unable to repay that sum were Goodwin to be successful in the proceedings. Mr Hicks accepted that those financial risks are assigned to Goodwin by the Act.
- Mr Hicks submitted that in this case there is “something more”. He submitted that the justifications for retaining funds in Court contemplated by Keane JA (as his Honour then was) in RJ Neller Building Pty Ltd v Ainsworth  1 Qd R 390;  QCA 397 exist here.
- In Neller Keane JA (with whom Fraser JA and Fryberg J agreed) said at  and :
“The BCIP Act proceeds on the assumption that the interruption of a builder’s cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the BCIP Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder’s financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.
The mere existence of the very kind of risk on which the provisions of the BCIP Act in favour of the builder are predicated would not ordinarily be sufficient of itself to justify a stay of an execution warrant based on the registration of a certificate of adjudication. There may, of course, be other circumstances, which, together with this risk, justify the staying of a warrant of execution based on the registration of an adjudication certificate. For example, the builder may have engaged in tactics calculated to delay the ultimate determination of the rights and liabilities of the parties so as unfairly to increase the owner’s exposure to the risk of the builder’s insolvency. Or the builder may have restructured its financial affairs after the making of the building contract so as to increase the risk to the owner of the possible inability of the builder to meet its liabilities to the owner when they are ultimately declared by the courts…” (Emphasis added.)
- Those observations have been approved in numerous authorities: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd  HCA 4 at ; Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd  NSWCA 33 at  (Payne JA) and Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393;  NSWCA 190 at .
- This is the third application that Goodwin has made for the $265,510 to remain in Court.
- The first application was made to McDougall J. He rejected it for the reasons set out at  to  of his Honour’s 6 August 2018 judgment.
- Goodwin did not appeal against that refusal.
- However during the hearing before the Court of Appeal on 17 October 2018, senior counsel then appearing for Goodwin foreshadowed that, were the appeal dismissed, Goodwin would apply to stay any order that the monies in Court be paid out to DSD.
- The Court of Appeal indicated that it was not prepared to entertain that application (see  and ).
- The third application came before me as Duty Judge yesterday, immediately following delivery of the Court of Appeal’s judgment.
- The application was supported by seven affidavits, and a number of exhibits served after close of business on 19 November 2018; evidently in anticipation of the possibility that, as happened, the Court of Appeal would on the next day dismiss the appeal.
- Mr Hume, who appeared for DSD, submitted that taking this evidence served by Goodwin at its highest, it did not justify further retention of the funds in Court and that, accordingly, the application should be dismissed.
- I agree.
- Mr Hicks submitted that retention of the funds in Court was justified because:
- Goodwin’s claims in these proceedings are prima facie strong;
- DSD, and its officers, “have engaged in conduct to avoid paying subcontractors for works and have restructured their financial affairs to substantially increase the risk to [Goodwin] of being unable to recover amounts due upon the final and substantive determination of rights and liabilities”;
- DSD has apparently involved itself with “unregulated money lenders” to whom it is indebted for uncertain amounts; and
- DSD and its officers have engaged “in conduct in scant regard” for the provisions of the Act which conduct has now been reported to the proper authorities.
Strong prima facie case
- Mr Hicks submitted that Goodwin’s case in these proceedings has strong prima facie prospects of success as DSD is not now entitled to dispute the amount in the contract administrator’s certificate as it did not give written notice of any dispute about that certificate within the time specified in the contract.
- Mr Hume submitted that DSD’s case would be that Goodwin’s purported determination was not lawful and that those contractual provisions did not in those circumstances apply.
- I am not in a position to determine those matters.
- Mr Hume accepted that Goodwin had a prima facie case, rather than a “strong” prima facie case. I proceed on that basis.
Restructure of financial affairs
- Mr Hicks pointed to the fact that DSD had subcontracted all of the work to a related company, BH Australia Pty Ltd, and that at least two subcontractors on the site had been engaged by a third related company, Blissful Developments Pty Ltd.
- Mr Hicks also pointed to changes made in the shareholding and boards of each of those companies, to the fact Blissful Developments was placed into liquidation on 16 April 2018 and that the two subcontractors have not been paid by Blissful Developments.
- The difficulty I see is that these matters were all known, or available to be known, to Goodwin at the time it made its unsuccessful application to McDougall J.
- DSD disclosed that it had subcontracted with BH Australia in a Supported Statement made on 30 April 2018.
- Mr Hicks called his instructing solicitor, Mr Green, to give evidence of what matters had come to light since the application made to McDougall J.
- Mr Green gave careful and candid evidence about that matter.
- Mr Green said that at the time the application was made before McDougall J Goodwin had caused ASIC searches to be carried out in relation to the companies to which I have referred.
- He also said that he was aware that:
- the two subcontractors identified by Mr Hicks contended that they had not yet been paid by Blissful Developments; and
- a representative Goodwin may have made contact with a representative of one of the subcontractors.
- Mr Green said that there had been “insufficient time” to prepare statements from those subcontractors prior to the proceedings before McDougall J.
- The only evidence adduced before me that appears to be truly “new” is an affidavit sworn on 25 October 2018 by a former employee of DSD, Mr Stuart Johnstone. Mr Johnstone deposed that Mr Daniel Roberts, whose wife is the sole director and secretary of DSD said, while driving to an unrelated project:
“Our intention on most projects is to take all the profit out of the project at the start and let the remainder of the monies proceed without anything behind them. If the company falls over I will just start another one and contract for other projects”.
- Mr Hicks submitted that that evidence bespoke a “policy and practice” of “phoenixing” on the part of Mr Roberts.
- Whether or not that is a fair description of what Mr Roberts is alleged to have said, and assuming that it can be attributed to DSD, the fact remains that the “restructure” of DSD and its related companies is on the public record and was available to Goodwin at the time it made its application to McDougall J.
Involvement with “unregulated money lenders”
- Such involvement as DSD has with “unregulated money lenders” (by which Mr Hicks said he meant “bikies, or those who style themselves bikies”) emerges from a transcript made of a site meeting said to have taken place on 2 March 2018 between three representatives of Goodwin, Mr Roberts and three unidentified “money lenders”. That evidence was plainly available at the time the application was made to McDougall J.
“Report to the proper authorities”
- This is a “Breach Reporting Form” submitted by Goodwin on 8 November 2018 to SecurityofPayment@finance.nsw.gov.au.
- The document comprises a complaint made by Goodwin about DSD’s conduct. Mr Green accepted that the matters complained of were all known at the time of the application before McDougall J.
- I am not in these circumstances persuaded that I should order that the $265,510 should remain in Court.
- Goodwin has failed in its challenge to the adjudication determination both before McDougall J and in the Court of Appeal.
- At the time it applied to McDougall J for an order that the funds remain in Court it knew, or was reasonably able to ascertain, all of the matters that it now contends justifies the order it seeks, apart from the evidence of Mr Johnstone. I do not think that revelation of the evidence of Mr Johnstone itself provides a sound basis to hold the funds in Court; especially when viewed in light of the relatively leisurely manner in which Goodwin has progressed these proceedings to date.
- I order that Goodwin’s Notice of Motion of 20 November 2018 be dismissed with costs.