NEW SOUTH WALES SUPREME COURT

CITATION:

Paul Michael Pty Ltd (subject to deed of company arrangement) v Urban Traders Pty Limited [2010] NSWSC 1246

JURISDICTION:

Equity

FILE NUMBER(S):

2009/297276

HEARING DATE(S):

10 and 11 May 2010

JUDGMENT DATE:

29 October 2010

PARTIES:

Plaintiff: Paul Michael Pty Ltd (subject to deed of company arrangement)

1st Defendant: Urban Traders Pty Limited

2nd Defendant: J A Westaway & Son Limited

JUDGMENT OF:

White J

LOWER COURT JURISDICTION:

Not Applicable

LOWER COURT FILE NUMBER(S):

Not Applicable

LOWER COURT JUDICIAL OFFICER:

Not Applicable

COUNSEL:

Plaintiff: P Taylor SC with S Goldstein

Defendants: T Alexis SC with A Greinke

SOLICITORS:

Plaintiff: CCS Legal Pty Ltd

Defendants: Cara Marasco & Co

CATCHWORDS:

BUILDING AND CONSTRUCTION – application for stay of execution of judgments obtained pursuant to adjudications made under Building and Construction Industry Security of Payment Act 1999 and consequential orders – defendant owned land and engaged plaintiff as builder under construction agreement – both parties alleged breaches of construction agreement – plaintiff obtained judgments pursuant to adjudications and consequential orders – plaintiff subsequently subject to deed of company arrangement – defendant lodged proof of debt with deed administrator – proof of debt pending determination

BUILDING AND CONSTRUCTION – whether adjudications would operate practically as final determination of parties’ rights if judgments not stayed – effect of builder’s insolvency on operation of Act – where defendants may be prejudiced by inability to recover money paid under judgments if not stayed – whether serious question that defendant not indebted to plaintiff or debt discharged by set-off on ultimate determination of proof of debt – where defendant elected to take work out of plaintiff’s hands instead of terminating contract for plaintiff’s breach – where defendants subsequently repudiated contract – whether serious questions that defendants entitled to damages claimed in proof of debt – where no security proffered by defendants for outstanding judgments – plaintiff’s entitlement to enforce judgments in absence of security – moneys to be held on trust until proof of debt ultimately determined

PROCEDURE – where plaintiff obtained charging order under Civil Procedure Act 2005, s 106 against defendant’s land – whether charging order over land valid – whether Registrar-General empowered to register restraining order against land – orders to be discharged

LEGISLATION CITED:

Civil Procedure Act 2005 (NSW)

Building and Construction Industry Security of Payment Act 1999 (NSW) Corporations Act 2001 (Cth)

Judgment Creditors’ Remedies Act 1901 (NSW)

Real Property Act 1900 (NSW)

CATEGORY:

Principal judgment

CASES CITED:

Brodin Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230

Veolia Water Solutions v Kruger Engineering (No 3) [2007] NSWSC 459

Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421

Quint v Robertson (1985) 3 NSWLR 398; DM & BP Wiskich Pty Ltd v Saadi (New South Wales Supreme Court, 16 February 1996, Bryson J, unreported)

Wentworth v Rogers [2004] NSWSC 1176

TEXTS CITED:

DECISION:

Refer to paras 77-79 of reasons.

JUDGMENT:

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

WHITE J

Friday, 29 October 2010

2009/297276 Paul Michael Pty Ltd (subject to deed of company arrangement) v Urban Traders Pty Limited & Anor

JUDGMENT

1 HIS HONOUR : This is an application by the defendants for the stay of execution of two judgments and consequential orders. The defendants also challenge the validity of a charging order purportedly made by the Registrar under s 106(1)(c) of the Civil Procedure Act 2005 (NSW) in relation to the defendants’ land.

2 The defendants are the owners of land in Pittwater Road, Bayview on which they have constructed 32 residential apartments. The plaintiff was a builder engaged by the defendants. It is now subject to a deed of company arrangement. The plaintiff obtained judgments against the defendants for $380,555.40 and $1,514,981.25 pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act ”). The defendants have lodged a proof of debt with the deed administrator of the plaintiff for $7,492,505.15. That proof has not been determined.

3 The defendants submit that execution of the judgments should be stayed pending determination by the deed administrator of the proof of debt and any appeal therefrom. The judgments obtained pursuant to adjudications made under the Security of Payment Act are not determinative of the parties’ contractual rights and obligations. The defendants submit that when the parties’ contractual rights and obligations are ultimately determined it will be found that rather than the defendants being liable to the plaintiff, it will be found that the plaintiff is liable to them for breaches of the building contract between them. Any payments to be made by the defendants pursuant to the judgments, or any amounts recovered by the plaintiff by execution of the judgments, would be interim payments only. The defendants submit that as the plaintiff is insolvent they would suffer real prejudice if execution of the judgments were not stayed as they would be unable to recover amounts paid to the plaintiff (which would be held by the deed administrator to be applied in accordance with the deed of company arrangement) if it were ultimately determined that the defendants were not truly indebted to the plaintiff, but rather the plaintiff was indebted to them. The defendants submit that if execution of the judgments were not stayed the adjudications may operate practically as a final determination of the parties’ rights rather than as interim determinations.

4 The defendants submit that the legislative purpose of the Security of Payment Act is to protect builders’ cash flow by providing a fast track procedure for interim determinations of builders’ rights to progress payments which may provide rough and ready justice. Where the builder is insolvent and has gone into voluntary administration or liquidation, the same considerations do not apply as apply to a builder which is a going concern. In the latter case a builder who has obtained an adjudication in its favour has a real interest in enforcing the judgment so as to preserve cash flow, even though the parties’ position might be later adjusted. Where the builder is no longer carrying on business, but is subject to a deed of company arrangement, the legislative purpose underlying the Security of Payment Act has a diminished operation and this should be reflected in the court’s preparedness to stay execution of the judgment. In Brodin Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230, Young CJ in Eq (as his Honour then was) said that the Security of Payment Act is only intended to operate when the head contractor and subcontractor are going concerns. Where the builder no longer needs cash flow the mischief to be covered by the Act is not present (at [87]).

5 The defendants accepted that they needed to show that there was at least a serious question to be tried that on an ultimate determination of their proof of debt it would be found that the defendants were not indebted in the amounts the subject of the adjudication certificates, or that they had valid claims against the plaintiff which operate as a set-off to discharge the judgment debts. The defendants submitted that if they establish such a serious question then the balance of convenience overwhelmingly favours the stay of execution of the judgments, as the only inconvenience to the plaintiff from staying the judgments is a delay in obtaining payment, whereas if execution of the judgments is not stayed, the defendants will be irreparably prejudiced by being unable to recover moneys paid under the judgments.

Background

6 On 22 March 2007 the defendants entered into an agreement with the plaintiff for the construction of 32 residential apartments on the land for a price of $18,543,000 excluding GST. Clause 45 of the construction agreement provided:

“ 45 CONSTRUCTION MILESTONES

45.1 The Contractor shall comply with the Milestone Dates set out below:

(i) Commence construction 1 March 2007

(ii) Complete bulk excavation end May 2007

(iii) Complete basement transfer slab end December 2007

(iv) Complete structure end January 2008

(v) Complete roof coverings end March 2008

(vi) Complete lock up end June 2008

(vii) Project completion 3 October 2008

45.2 If a Milestone Date is not achieved the Contractor is to provide to the Superintendent, within 7 days of the Milestone Date, a written program to be agreed with the Superintendent as to how the Contractor will achieve the next Milestone Date.

45.3 The Contractor and the Supervisor can agree to change the Milestone Dates.

45.4 If two consecutive Milestone Dates are not achieved the Contractor will have committed a substantial breach of the contract and Clause 39 shall apply. ”

7 Clause 39 provided:

“ 39 Default or insolvency

39.1 Preservation of other rights

If a party breaches (including repudiates) the Contract , nothing in this clause shall prejudice the right of any other party to recover damages or exercise any other right or remedy.

39.2 Contractor’s default

If the Contractor commits a substantial breach of the Contract , the Principal may, by hand or by certified post, give the Contractor a written notice to show cause.

Substantial breaches include, but are not limited to:

(a) failing to:

i) provide security ;

ii) provide evidence of insurance;

iii) comply with a direction of the Superintendent pursuant to subclause 29.3; or

iv) use the materials or standards of work required by the Contract ;

b) wrongful suspension of work ;

c) substantial departure from a construction program without reasonable cause or the Superintendent’s approval;

d where there is no construction program , failing to proceed with due expedition and without delay; and

e) in respect of clause 38, knowingly providing documentary evidence containing an untrue statement.

39.3 Principal’s notice to show cause

A notice under subclause 39.2 shall state:

a) that it is a notice under clause 39 of these General Conditions of Contract;

b) the alleged substantial breach;

c) that the Contractor is required to show cause in writing why the Principal should not exercise a right referred to in subclause 39.4;

d) the date and time by which the Contractor must show cause (which shall not be less than 7 clear days after the notice is received by the Contractor ); and

e) the place at which cause must be shown.

39.4 Principal’s rights

If the Contractor fails to show reasonable cause by the stated date and time, the Principal may by written notice to the Contractor :

a) take out of the Contractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.6; or

b) terminate the Contract.

39.5 Take out

The Principal shall complete work taken out of the Contractor’s hands and may:

a) use materials, equipment and other things intended for WUC ; and

b) without payment of compensation to the Contractor :

i) take possession of, and use such of the construction plant and other things on or in the vicinity of the site as were used by the Contractor ; and

ii) contract with such of the Contractor’s subcontractors and consultants

as are reasonably required by the Principal to facilitate completion of WUC.

If the Principal takes possession of construction plant or other things, the Principal shall maintain them and, subject to subclause 39.6, on completion of the work , shall return such of them as are surplus.

The Superintendent shall keep records of the cost of completing the work.

39.6 Adjustment on completion of work taken out

When work taken out of the Contractor’s hands has been completed, the Superintendent shall assess the cost thereby incurred and shall certify as moneys due and payable accordingly the difference between that cost (showing the calculations therefor) and the amount which would otherwise have been paid to the Contractor if the work had been completed by the Contractor.

If the Contractor is indebted to the Principal , the Principal may retain construction plant or other things taken under subclause 39.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the construction plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.

39.7 Principal’s default

If the Principal commits a substantial breach of the Contract , the Contractor may, by hand or by certified post, give the Principal a written notice to show cause.

Substantial breaches include, but are not limited to:

a) failing to:

i) provide security ;

ii) produce evidence of insurance;

iii) rectify inadequate Contractor’s possession of the site if that failure continues for longer than the time stated in Item 31; or

iv) make a payment due and payable pursuant to the Contract ; and

b) the Superintendent not giving a certificate of practical completion or reasons as referred to in subclause 34.6.

39.8 Contractor’s notice to show cause

A notice given under subclause 39.7 shall state:

a) that it is a notice under clause 39 of these General Conditions of Contract;

b) the alleged substantial breach;

c) that the Principal is required to show cause in writing why the Contractor should not exercise a right referred to in subclause 39.9;

d) the date and time by which the Principal must show cause (which shall not be less than 7 clear days after the notice is received by the Principal ); and

e) the place at which cause must be shown.

39.9 Contractor’s rights

If the Principal fails to show reasonable cause by the stated date and time, the Contractor may, by written notice to the Principal , suspend the whole or any part of the WUC.

The Contractor shall remove the suspension if the Principal remedies the breach.

The Contractor may, by written notice to the Principal , terminate the Contract , if within 28 days of the date of suspension under this subclause, the Principal fails:

a) to remedy the breach; or

b) if the breach is not capable of remedy, to make other arrangements to the reasonable satisfaction of the Contractor.

Damages suffered by the Contractor by reason of the suspension shall be assessed by the Superintendent , who shall certify them as moneys due and payable to the Contractor.

39.10 Termination

If the Contract is terminated pursuant to subclause 39.4(b) or 39.9, the parties’ remedies, rights and liabilities shall be the same as they would have been under the law governing the Contract had the defaulting party repudiated the Contract and the other party elected to treat the Contract as at an end and recover damages.”

8 It is common ground that on or about 6 November 2007 Mr Charles Michael of the plaintiff and the Superintendent discussed revised milestone dates. The plaintiff contended that it was delayed in carrying out the works for a number of reasons which entitled it to extensions of time including, so it contended, variations in the scope of works and delays by the defendants in provision of necessary design details. According to the Superintendent at a meeting on 6 November 2007 between Mr Michael of the plaintiff and the Superintendent new milestones were agreed on. Those dates included completion of roof covering stage 1, 30 January 2008; lock up stage 1, 30 March 2008; completion of installation of lifts stage 1, 15 June 2008; lock up stage 2, 30 August 2008. Mr Michael says that the plaintiff’s agreement to the amended dates was conditional upon being provided with co-ordinated detailed drawings and all documentation required to ensure delivery of materials was not delayed. There is a dispute as to whether a letter to that effect, which Mr Michael says was sent, was in fact sent. The Superintendent denies receipt and says that agreement to the revised milestones was unconditional.

9 The defendants paid the first 17 progress claims submitted by the plaintiff. On 24 June 2008 the plaintiffs submitted progress claim number 18 for $1,172,706. The claim was a payment claim under the Security of Payment Act . The Superintendent issued a progress certificate stating that no amount was payable pursuant to progress claim 18, and stating that the plaintiff had been overpaid to that point an amount of $281,903.

10 On 4 July 2008 the plaintiff issued a Contractor’s Notice to Show Cause under clause 39.7 charging that the defendants had failed to provide it with required documents and directions in a timely and efficient manner, which entitled the plaintiff to extensions of time and other remedies including delay damages under clause 34. It required the defendants to show cause why it should not exercise a right under clause 39.9 of the construction agreement to suspend work for the defendants’ alleged breaches, and thereafter terminate the contract if the breaches were not remedied.

11 On 14 July 2008 the defendants served a response to the Contractor’s Notice to Show Cause and served a Principal’s Notice to Show Cause under clause 39.2.

12 The defendants contended that the plaintiff was in substantial breach of contract. In the Principal’s Notice to Show Cause, the defendants required the plaintiff to show cause as to why the defendants should not take out of the plaintiff’s hands the remaining work to be completed under the contract under clause 39.4 of the construction agreement. The Principal’s Notice to Show Cause charged the plaintiff with having committed substantial breaches of the contract by, amongst other things, substantially departing from the construction program without reasonable cause and without the Superintendent’s approval, failing to perform the work with due expedition and without delay, and failing to comply with two consecutive milestone dates. The notice charged that the plaintiff had failed to achieve either the original milestones set out in the contract or the first three revised milestones, and gave particulars of various alleged defects.

13 On 23 July 2008 the plaintiff responded to the Principal’s Notice to Show Cause. Amongst other things the plaintiff asserted that the revised construction program attached to the Principal’s notice was not the program agreed upon in November 2007. The plaintiff also set out reasons why it was unable to achieve the milestones either as contained in the original contract or as amended. These included allegedly late provision of design details.

14 The defendants served a payment schedule in response to the plaintiff’s payment claim and that claim was referred to adjudication.

15 On 7 August 2008 the adjudicator, Mr I H Bailey SC, determined that the adjudicated amount payable by the defendants to the plaintiff was $357,925.59 inclusive of GST. The adjudicator rejected the plaintiff’s claim for damages for delay. He said that whilst it appeared the plaintiff had probably been delayed, it was impossible on the information provided in the adjudication application to assess the period of any individual delay and consequent entitlement to damages for delay pursuant to clause 34.9. He concluded that he was unable to assess any amount for delay costs or delay damages. He allowed some variation claims but not others. The adjudicator noted that it was uncontroversial that an oral agreement had been made between the parties to adopt a different schedule of trade allowances for the calculation of progress claims and progress certificates from that contained in the contract schedule which was an annexure to the contract. He recorded that the oral agreement had been made so as to ensure that the plaintiff had adequate cash flow in the early stages of the project to permit site and administrative establishment. The revised schedule was “front loaded”. The adjudicator accepted the plaintiff’s contention that a revised schedule for the calculation of progress claims and progress certificates was binding and could not be departed from unilaterally by the defendants. He found that once the revised schedule was used and cash flow for the initial items provided, such an arrangement could not be terminated unilaterally.

16 On the present application the defendants did not impugn this reasoning. Counsel for the defendants placed considerable emphasis on the report of a quantity surveyor, Davis Langdon, of 29 July 2008 in support of their submission that the defendants have a strong claim to set off against the judgment debts their contractual claim the subject of their proof of debt. Davis Langdon estimated that at 29 July 2008 the percentage of works completed by the plaintiff was 37.5 per cent, representing a value of $7,050,994 before GST, which was less than the amount paid. In the second adjudication (delivered on 27 November 2009) the adjudicator, Mr T Sullivan, commented on the opinion of Davis Langdon as follows:

“ On 29 July 2008 Davis Langdon, at the request of the Superintendent, expressed their opinion that works were 37.5% complete against the Contract Sum Trade breakdown. This value of this opinion is diminished for the purpose of this adjudication because the comparative assessments are measured against the amended schedule rather than against the original schedule which it appears Davis Langdon used. The opinion does not disclose whether the Contract, plans and specifications were provided to Davis Langdon but it appears that all Davis Langdon had was the Contract Sum Trade breakdown and the results of a single visit to the site. Davis Langdon qualified their report in respect of not having an ongoing engagement and having a one-off site view. The opinion is also based on the assumption that the trade breakdown is an accurate reflection of the trade-based value of the works. That assumption is not necessarily correct. The schedule is the agreed schedule against which valuations of progress payments were to be made and did not necessarily reflect the value of work to be carried out by individual trades. The Contract was varied to amend the original schedule to provide for better cash flow at the beginning but the same total price. Davis Langdon did not identify the percentage complete against preliminaries or against the various trades but only expressed an opinion as to the percentage complete against the whole of the project. Given the variations which had occurred and that many millions of dollars worth of work carried out and work to be completed needed to be assessed, it is doubtful than [sic] any reliable opinion could be expressed based on only a one day site visit and a two page, albeit incorrect, schedule. I take it therefore that Davis Langdon had considerably more documents and instructions which have not been disclosed. I have not been influenced by the opinion in determining this matter. ”

17 These observations have prima facie force. They were not challenged on this application.

18 Under clause 39.4 the defendants had an election between two remedies if the plaintiff failed to show reasonable cause why they should not exercise their rights under that clause. They could either take the whole or part of the work out of the plaintiff’s hands and suspend payment until payment became due and payable pursuant to clause 39.6, or they could terminate the contract. The defendants took the view that they were required to obtain the written consent of the mortgagee, Australia and New Zealand Banking Group Limited (“the ANZ Bank”), before exercising rights under that clause. The defendants, the plaintiff and the ANZ Bank had entered into a deed dated 29 May 2007. Clause 5.3 of the deed provides that “ the Borrower [viz the defendants] shall not be entitled to terminate or rescind the Building Contract or suspend or purport to suspend the performance of the Project or the Building Contract without the prior written consent of the Mortgagee. ” On 1 August 2008 the solicitors for the defendants wrote to the ANZ Bank advising that the defendants were considering taking out of the builder’s hands the whole of the work remaining to be completed on the project and sought the bank’s written consent on that course. That consent was given on 21 October 2008.

19 On 14 October 2008 the adjudication certificate was registered as a judgment in the District Court in the sum of $380,555.40.

20 Meanwhile, on 25 August 2008 the plaintiff gave to the defendants a notice dated 22 August 2008 under s 24(1) of the Security of Payment Act that after two business days it would suspend the carrying out of construction work on the Bayview project as it had not received payment of the adjudicated amount. By 29 August 2008, payment still had not been made, and on that day the plaintiff suspended construction work, as it was entitled to do, under s 27 of the Security of Payment Act .

21 Section 27 of the Security of Payment Act provides:

“ 27 Claimant may suspend work

(1) A claimant may suspend the carrying out of construction work (or the supply of related goods and services) under a construction contract if at least 2 business days have passed since the claimant has caused notice of intention to do so to be given to the respondent under section 15, 16 or 24.

(2) The right conferred by subsection (1) exists until the end of the period of 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15 (1), 16 (1) or 23 (2).

(2A) If the claimant, in exercising the right to suspend the carrying out of construction work or the supply of related goods and services, incurs any loss or expenses as a result of the removal by the respondent from the contract of any part of the work or supply, the respondent is liable to pay the claimant the amount of any such loss or expenses.

(3) A claimant who suspends construction work (or the supply of related goods and services) in accordance with the right conferred by subsection (1) is not liable for any loss or damage suffered by the respondent, or by any person claiming through the respondent, as a consequence of the claimant not carrying out that work (or not supplying those goods and services) during the period of suspension. ”

22 The defendants did not dispute that the plaintiff was entitled to suspend work pursuant to s 27. The defendants submitted that s 27 did not preclude their exercising their asserted contractual right under clause 39 to take the work out of the plaintiff’s hands where the grounds for acting under clause 39 had arisen before the plaintiff suspended work. Subsection 32(1) of the Security of Payment Act (which is found in the same Part as s 27) provides:

“ 32 Effect of Part on civil proceedings

(1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract:

(a) may have under the contract, or

(b) may have under Part 2 in respect of the contract, or

23 Section 34 provides:

“ 34 No contracting out

(1) The provisions of this Act have effect despite any provision to the contrary in any contract.

(2) A provision of any agreement (whether in writing or not):

(a) under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act), or

(b) that may reasonably be construed as an attempt to deter a person from taking action under this Act, is void. ”

24 On 21 November 2008 the defendants gave notice to the plaintiff pursuant to clause 39.4(a) of the contract that they took the whole of the work remaining to be completed on the project out of the plaintiff’s hands, and gave notice that they would be suspending payment. No payment had been made since May 2008.

25 The defendants did not take physical possession of the site until 23 March 2009. Some of the delays from 23 July 2008 were attributable to “without prejudice” negotiations between the parties.

26 On 30 April 2009 a voluntary administrator, Mr Peter Ngan, was appointed to the plaintiff. On 15 June 2009 the plaintiff entered into a deed of company arrangement. Mr Ngan was appointed deed administrator. The deed required that the director of the company, Mr Charles Michael, commence legal proceedings against the defendants.

27 The deed of company arrangement provides that the deed administrator is to create a “Deed Fund” which is to include debts realised by the company during the period of operation of the deed and amounts that may be recovered as a result of proceedings to be commenced by Mr Michael on behalf of the company against disclosed debtors of the company. Clause 8.8 provides:

“ 8.8 In the event funds are recovered by the Company following successful litigation from debtors of the Company, these funds will be paid directly to the Deed Fund and will be distributed in accordance with the provision of this Deed and the Corporations Act. ”

28 Clauses 10.5 to 10.7 of the deed provide:

“ 10.5 The Deed Fund shall be administered by the Deed Administrator in accordance with the provisions of this Deed.

10.6 The Deed Administrator shall hold the Deed Fund for its benefit and for those Approved Creditors.

10.7 The parties to this Deed and the Creditors acknowledge and agree that this Deed does not, and is not intended to, create a Creditor’s trust. ”

29 “ Approved Creditors ” are those creditors whose claims are admitted by the deed administrator after the deed administrator has determined proofs of debt. To be admissible, a creditor’s claim must arise from circumstances existing before the company entered into voluntary administration.

30 It is clear from clause 10.7 that until the Deed Fund is distributed, moneys collected from debtors of the plaintiff do not become immediately held on trust for the creditors. Prima facie , such moneys would become property of the plaintiff. If the plaintiff were to collect payment of the judgment debts and those moneys were held by the deed administrator as part of the Deed Fund, but if it were ultimately held that the defendants were not indebted to the plaintiff, the deed of company arrangement does not necessarily preclude the moneys so received being returned to the defendants if they have not been distributed.

31 The plaintiff offered to pay any moneys collected into court. However, whilst that would ensure the moneys were kept separate, it would not by itself create a trust or charge in favour of the defendants if it were ultimately determined that the defendants are not contractually liable for the amounts for which judgment has been given, or that the judgments are discharged by set-off. If that were the ultimate determination, in the absence of such a trust or charge, the defendants’ right to restitution of moneys collected through enforcement of the judgments would be a personal right against an insolvent company. It would not be a debt provable pari passu with deed creditors as it would not be a claim, even a prospective or contingent claim, existing at the time the plaintiff went into voluntary administration. However there is no reason that the plaintiff, through the deed administrator, could not declare a trust in favour of the defendants in respect of moneys collected through enforcement of the judgments to ensure that moneys so received could be returned to the defendants if it were ultimately determined that the defendants are not indebted to the plaintiff.

32 It may be that such a declaration of trust would be vulnerable under s 468 of the Corporations Act 2001 (Cth) if the plaintiff were wound up in insolvency by the court, as the winding-up would be taken to commence from the date the plaintiff went into voluntary administration. It is not likely that any application would be made for a winding-up order as the claims of creditors are barred by the deed of company arrangement and the deed provides that the plaintiff is not to trade. But if the stay of execution were discharged after such a declaration of trust was executed, and such an application for winding-up were filed, then an application could be made to adjust the terms on which the stay of execution had been discharged.

33 On 28 August 2009 the plaintiff served a further payment claim under the Security of Payment Act . It claimed payment in the amount of $9,258,726 including GST. The defendants served a payment schedule in response asserting that no moneys were payable. The matter proceeded to adjudication. Mr Sullivan determined that the defendants pay an adjudicated amount of $1,452,602.06. Mr Sullivan found that the plaintiff was entitled to $123,156.55 excluding GST as loss and expenses incurred in exercising its right to suspend work (paragraph 147). He allowed $154,700 for claimed variations (not being variation claims the subject of the previous determination). He also found that the amount payable against the contract sum for the work done (independently of variations and suspension costs) was $8,187,846 and that the amount already paid totalled $7,328,796. He found that interest was payable on the overdue payment of $183,640.78. The result was that (including GST) the defendants were found liable to pay $1,452,602.06.

34 In the course of his reasons Mr Sullivan considered whether the defendants were entitled to exercise rights under clause 39.4(a) of the contract to take the whole of the remaining work to be completed on the project out of the plaintiff’s hands and to suspend payment pursuant to clause 39.6. He concluded:

“ On the information available I cannot conclude one way or the other as to whether or not the Claimant [the plaintiff] showed reasonable cause in response to the notice to show cause but the response did raise significant factual matters, including the failure to certify and pay progress payments, that required the Respondent [the defendants] to consider reasonably and in good faith whether the Respondent had the right under clause 39.4 which it purported to exercise.

Based on the limited information available, I cannot conclude that the Respondent had properly considered the show cause notice in the context of other factors which were also present at the time or had a right as at 24 November 2008 to take over the remaining work pursuant to clause 39.4 of the Contract. I have proceeded on the basis that, in early December 2008, Mulally Mylott Solicitors then acting for the Claimant, properly rejected the notice under clause 39.4 of the Contract. This left the Contract on foot and left the work suspended pursuant to the Act at least until the next significant event on 23 March 2009. ”

35 It may ultimately be found that the defendants did validly exercise rights under clause 39.4(a). On this application it is not possible to assess the strength of the plaintiff’s contention (or the defendants’ denial) that the reasons the revised construction milestones were not met was the defendants’ delay in providing design details and changes to the scope of works. I accept that there is a serious question to be tried, that is to say, a plausible contention requiring investigation, that the defendants were entitled to exercise rights under clause 39.4(a) as they purported to do. But I do not conclude that the claim is a strong one. It was not accepted by the adjudicator.

36 On 1 December 2009 the defendants served notice of termination of the construction agreement. The plaintiff disputed the validity of the notice and treated it as a repudiation and itself purported to terminate the contract.

37 The termination notice served by the defendants was expressed to be based upon breaches of the same description as those upon which the defendants served notice under clause 39.2 on 14 July 2008. It is at least seriously doubtful that the defendants were entitled to terminate the contract on 1 December 2009. On 21 November 2008 they had elected to keep the contract on foot by purportedly exercising rights under clause 39.4(a), rather than terminating the contract under clause 39.4(b), for the plaintiff’s alleged breaches. The plaintiff could not have committed a breach of the contract after the defendants made that election because its obligation to do work had been suspended both by operation of s 27 of the Act and, (if the defendants were entitled to act under clause 39.4) by the defendants’ notice of 21 November 2008. Prima facie the defendants repudiated the contract by serving the notice of purported termination.

38 On 3 December 2009 the defendants lodged a proof of debt with the deed administrator of the plaintiff.

The proof of debt claims that the plaintiff is indebted to the defendants in the sum of $7,492,505.15. The amount claimed was described as damages for breach of the construction contract and restitution of overpayment of moneys. The amounts claimed were as follows:

(a) interest from 28 November 2008 up to the date of anticipated completion of the works using a new contractor and additional costs arising from the need to renegotiate the finance facility with the ANZ Bank - $3,360,092.47

(b) alleged rectification of defects identified and charged by the new contractor - $350,000

(c) cost of new or additional consultants required for delivery of the works being costs incurred from 19 December 2008 - $576,724.03

(d) other subcontracted charges following removal of the plaintiff - $185,249.50

(e) stamp duty on the revised loan facility, land tax from 21 November 2008 and rates from 21 November 2008 - $118,439.15;

(f) the claimed cost of the difference between having the new contractor complete the works and the price that would have been payable to the plaintiff. This was stated to be $2,902,000.

39 Two alternative calculations were proffered. A schedule setting out the calculations which was lodged in support of the proof of debt also noted that on 7 July 2008 the superintendent had certified an overpayment of $281,903 and it was said that that amount might need to be considered in the calculation of costs relating to the proof of debt.

40 Counsel for the plaintiff submitted that all of the alleged loss and damage the subject of the proof of debt was incurred after the works were suspended by the plaintiff. He submitted that such amounts could not be recovered by reason of s 27(3) of the Act. However, the defendants are prima facie correct in contending that s 27(3) protects a contractor from the consequences of failing to carry out work during the period of suspension, but does not confer immunity on a contractor for past breaches of contract or their consequences. Prima facie , I agree with the defendants’ submission that the timing of expenditure by the defendants is not determinative. Rather the issue under s 27(3) is whether the loss and damage claimed is a consequence of the defendants’ not carrying out works during the period of suspension. Prima facie the defendants are correct in their submission that liability for defects for work done prior to the suspension is unaffected by s 27(3).

41 The plaintiff also submitted that as the project was not complete when the proof of debt was lodged, and no certificate under clause 39.6 had been or could have been issued by the Superintendent at that time, any claimed difference in cost lodged by the defendants with the administrator was premature. However, the claims for which creditors can prove in the deed of company arrangement include prospective and contingent claims against the company prior to 30 April 2009, being the date on which a voluntary administrator was appointed. The quantification of such claims can take into account subsequent events.

42 Nonetheless, I do not see how the defendants could be entitled to recover as a debt due under clause 39.6 an amount certified by the Superintendent as the difference between the cost of completion of the work and the amount which would otherwise have been paid to the contractor if the work had been completed by the contractor.

43 On any view the contract was terminated before any debt could become due under that provision. Either the contract was terminated by the purported notice of termination given by the defendants on 1 December 2009, or that notice was a repudiation of the contract which was accepted by the plaintiff. In either case the contract was terminated before a debt could become payable under clause 39.6.

44 The difference between the cost to the defendants of completing the work and the price that would have been payable under the contract with the plaintiff would be recoverable as loss of bargain damages if the contract were terminated on 1 December 2009 by the defendants for fundamental breach by the plaintiff. But the defendants elected not to terminate the contract for the breaches alleged in their notice to show cause. As they took the work out of the contractor’s hands and as the contractor was in any event entitled to suspend work under s 27 of the Security of Payment Act , there could have been no subsequent substantial breach by the plaintiff which could have justified the defendants’ terminating the contract for fundamental breach.

45 However, repudiation of the contract by the defendants by service of the notice of purported termination, and the acceptance of the repudiation by the plaintiff, would not preclude the defendants from recovering damages for prior breaches of contract by the plaintiff. If, as the defendants allege, the plaintiff had committed substantial breaches of the construction agreement, then at least arguably the defendants could recover as damages additional financing costs attributable to the delay occasioned by the breaches if such damages were the natural and probable consequence of the breach that the parties would have had in mind when the contract was entered into. Similarly, if the defendants were entitled to take the work out of the plaintiff’s hands under clause 39.4 by reason of the earlier breaches, prima facie the defendants would be entitled to damages for the costs of the new contractor in remedying the alleged defects in the plaintiff’s work.

46 The plaintiff submitted that if it were liable for any of the amounts claimed by the defendants in their proof of debt it would be entitled under s 27(2A) of the Security of Payment Act to recover from the defendants any amount which it was liable to pay to them. Counsel for the plaintiff submitted that any amount the plaintiff was liable to pay as claimed in the defendants’ proof of debt would be a loss or expense that was the result of the removal by the defendants from the contract of the work which the defendants would be liable to pay the plaintiff.

47 I do not accept that submission. First, some of the losses claimed in the proof of debt would not be, or would not necessarily be, the result of the removal by the defendants of the work from the plaintiff. For example, claims for additional financing expenses resulting from delays allegedly due to prior breaches by the plaintiff would not be the result of the removal by the defendants of the work from the plaintiff. More fundamentally, a contractor (claimant) is only entitled to recover loss or expense under s 27(2A) if the loss or expense is incurred “ in exercising the right to suspend the carrying out of construction work or the supply of related goods and services ”. If the plaintiff incurs loss by reason of a claim being made against it by the defendants, which claim by the defendants is the result of the defendants’ having removed construction work from the contract, that loss does not arise from the exercise by the plaintiff of its right to suspend the carrying out of construction work pursuant to s 27(1). The defendants’ claim to be entitled to remove the plaintiff from the construction contract is independent of the plaintiff’s having suspended the carrying out of construction work pursuant to s 27(1). It arises from asserted prior breaches which are claimed to trigger an entitlement to invoke clause 39.4.

48 I therefore conclude that there is a serious question to be tried that the defendants are entitled to damages from the plaintiff for additional financing costs arising from delays occasioned by alleged breaches of the contract by the plaintiff and the costs of rectifying allegedly defective work carried out by the plaintiff. I do not think there is a serious question to be tried that the plaintiff is liable to the defendants for the difference between the cost of having the work completed by a new contractor and the cost that would have been payable under the contract with the plaintiff.

49 There is a serious question to be tried that the defendants are entitled to some damages the subject of their proof of debt. Moreover because the adjudicator’s determinations are interim and not final, the defendants are entitled to re-ventilate the issues which led to the adjudicator’s determinations.

50 On 11 December 2009 the plaintiff filed the adjudication certificate of Mr Sullivan to obtain judgment. At the same time it filed a notice of motion seeking a charging order over the land at Bayview of the defendants and sought an order that:

“ The chargee [sic] be restrained from dealing with the security interests otherwise than in accordance with the directions of the judgment creditor until further order of the court or until the judgment debt against the judgment debtor[s] is satisfied in full .”

51 On 12 January 2010 judgment was entered in the Supreme Court against the defendants for $1,514,981.25. On the same day the Registrar made what was called a charging order in the following terms:

“ CHARGING ORDER

...

CHARGING ORDER

Name of charge Urban Traders Pty Limited First Defendant

J A Westaway & Son Pty Limited Second Defendant

Judgment creditor Paul Michael Pty Limited Plaintiff

Judgment debtor J A Westaway & Son Pty Limited Second Defendant

Amount outstanding $1,514,981.25

under judgment

Details of security The property described as:

interest[s] Folio: 666/1098043

Lot 666 in Deposited Plan 1098043

At Bayview

Local Government Area Pittwater

Parish of Narrabeen

County of Cumberland

1 The security interests listed above are charged in favour of the judgment creditor to the extent necessary to satisfy the judgment in these proceedings.

2 The chargee [sic] is restrained from dealing with the security interests otherwise than in accordance with the directions of the judgment creditor, until further order of the court or until the judgment against the judgment debtor is satisfied in full. ”

52 The plaintiff sought to register the charging order against the title to the land. The Registrar-General took the view that real property was not property of a kind that could be subject to a charging order, but that the restraining order in paragraph 2 quoted above could be registered against the title to the land. Accordingly, the Registrar-General caused to be registered against the title to the land the following:

“ The registered proprietors are restrained from dealing with the property described as Lot 666 of Deposited Plan 1098043 otherwise than in accordance with the directions of the Applicant, until further order of the Court or until the judgment against the registered proprietors, being $1,514,981.25 and accruing interest at 9% per annum, is satisfied in full. ”

53 The defendants submit that as real property is not a “security interest” within the meaning of s 126 of the Civil Procedure Act there was no basis to register either a charging order or a restraining order against title to the property, as both orders must be founded on s 126.

54 The plaintiff also filed a notice of motion for a writ for the levy of property and a writ was issued. A garnishee order was also made and served on the Commonwealth Bank. Pursuant to that order the Commonwealth Bank deducted $43,779.97 from an account of the second defendant.

55 In March 2010, CB Richard Ellis, real estate agents, estimated that if the property in its then uncompleted state was sold on a forced sale basis, it would achieve in the vicinity of $16 million to $17 million, but that on a completed basis, the gross proceeds from the sale of completed apartments would be in excess of $50 million. A director of the first defendant, Mr Jamieson, deposed that if the development were completed and the apartments sold there would be more than sufficient surplus to pay the amounts claimed by the plaintiff to be presently owing. However, the defendants have not proffered security for the outstanding judgments.

56 The defendants’ position is that the amounts payable pursuant to the judgments are interim debts and in any event are satisfied by set-off under s 553C of the Corporations Act which is said to be applicable to the plaintiff ( Veolia Water Solutions v Kruger Engineering (No 3) [2007] NSWSC 459 at [24]-[25]).

57 On 26 February 2010 Bryson AJ ordered that execution of the judgments be stayed until further order. That stay has continued. I am told that the development has been completed. Orders were made by consent to permit registration of the strata plan and completion of the sale of the units which had been presold.

58 It was in no party’s interest that execution of the judgments prevent completion of the development. Had the plaintiff sought to execute the judgments against the land prior to registration of the strata plan by recording a writ in the Register pursuant to s 105 of the Real Property Act there would have been a serious risk that the mortgagee would enforce its security. That could have caused the defendants substantial loss, and would not appear to have been in the interests of the plaintiff.

59 Now that the strata plan is registered the position is different. Prima facie the stay should only be continued if not to do so would have the practical effect of making permanent the judgments which are intended only to be interim ( Veolia Water Solutions v Kruger Engineering (No 3) at [75]). For the reasons above, that would not come about if moneys received through execution of the judgments were not distributed by the deed administrator, but were held on trust for the defendants if, and to the extent, it might ultimately be held that the defendants were entitled to restitution of moneys so received.

60 The prima facie position is not displaced. Whilst I have found there is a serious question to be tried as to whether the plaintiff is liable in damages to the defendants, and whilst the defendants may be able to establish that they are not liable for the amounts found by the adjudicators, I have not formed a view as to the strength of that case. Consistently with the reasons of McDougall J in Veolia I see no reason the plaintiff should not be entitled to enforce the judgments if it does not obtain security for the judgment debts, provided that does not have the practical effect of making the judgments final.

61 One of the grounds on which the plaintiff resisted a stay of execution was that it contended that the defendants’ failure to pay the adjudicated amounts is the cause of its insolvency ( Brodyn Pty Ltd v Davenport [2004] NSWCA 394; (2004) 61 NSWLR 421 at [87]). For their part, the defendants referred to the plaintiff’s certification when progress claims were submitted that subcontractors and suppliers had been paid. It is unnecessary to explore the causes of the plaintiff’s insolvency. As Hodgson JA put it in Brodyn , there is at least a possibility that the plaintiff’s financial difficulties have been caused by the defendants’ failure to pay the adjudicated amounts. Although the administrator’s report to creditors and the directors’ report as to affairs state that the amount owing to unsecured creditors was $3,804,413, so that the company may have ceased trading even if the adjudicated amounts had been paid, the failure to pay the adjudicated amounts is likely to have been at least a contributing factor to the plaintiff’s insolvency. But whatever the causes of the plaintiff’s insolvency, I am of the view that the plaintiff should be entitled to enforce its judgments if adequate security is not furnished, provided this did not have the practical effect of making the judgments final.

62 In the absence of satisfactory security for the judgments, the plaintiff should be entitled to execute the judgments if the plaintiff undertakes to hold moneys so collected on trust for the defendants if it is ultimately determined that the defendants are not liable.

Charging Order

63 The charging order was made pursuant to s 106 of the Civil Procedure Act . That section relevantly provides:

“ 106 Judgments for payment of money

(cf Act No 9 1973, section 109; Act No 8 1901, sections 4 and 5)

(1) A judgment debt may be enforced by means of any one or more of the following:

(a) a writ for the levy of property,

(b) a garnishee order,

(2) Subject to the uniform rules, a writ for the levy of property is sufficient authority for the Sheriff:

(a) to seize and to sell goods of or to which the judgment debtor is or may be possessed or entitled or which the judgment debtor may, at law or in equity, assign or dispose of, and

(b) to seize money belonging to the judgment debtor, and

(c) to seize and to realise cheques, bills of exchange, promissory notes, bonds, specialties or other securities for money belonging to the judgment debtor, and

(d) to enter into possession of, and to sell, land of or to which the judgment debtor is seized or entitled, or which the judgment debtor may, at law or in equity, assign or dispose of, and

(e) to take and to sell choses in action or equitable interests in goods or land held by the judgment debtor.

(3) The power conferred on the Sheriff by subsection (2) (a) may not be exercised in relation to:

(a) any clothing, or

(b) any bedroom or kitchen furniture, or

(c) any tools of trade (including vehicles, plant, equipment and reference books) not exceeding, in aggregate value, the sum prescribed by the uniform rules, if the clothing, furniture or tools are used by the judgment debtor or by any member of his or her family.

(4) For the purposes of subsection (2) (d), the Sheriff is taken to have entered into possession of land when notice of the proposed sale of the land is published in accordance with the uniform rules.

(5) The power conferred on the Sheriff by subsection (2) (d) may not be exercised in relation to land if the amount outstanding under the judgment is less than the jurisdictional limit of the Local Court when sitting in its Small Claims Division.

(6) A garnishee order or charging order addressed to the Crown binds the Crown as garnishee or chargee, as the case requires. ”

64 Section 106 does not itself specify the nature of the property against which a charging order can be made or the effect of such an order.

65 Subsections (2)–(5) of s 106 describe the extent of the authority conferred on a sheriff by a writ for the levy of property.

66 Division 2 of Part 8 deals with the effect of writs of execution on goods and writs of execution against land and matters incidental to the execution of such writs.

67 Division 3 of Part 8 describes the operation and effect of garnishee orders.

68 Division 4 is headed “ Charging Orders ”. It provides:

“ 126 Operation of charging order in relation to specified security interests

(cf Act No 8 1901, section 27)

(1) This section applies to the following kinds of property in relation to a judgment debtor (referred to in this Division as security interests):

(a) stock and shares in a public company,

(b) money on deposit in a financial institution, being:

(i) money held in the judgment debtor’s name in the judgment debtor’s own right, or

(ii) money held in the name of some other person in trust for the judgment debtor,

(2) Subject to the uniform rules, a charging order operates, in relation to each security interest specified in the order:

(a) to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment, and

(b) to restrain the chargee from dealing with the security interest otherwise than in accordance with the directions of the judgment creditor.

(3) A charging order takes effect when it is made.

(4) Despite subsection (3), the judgment creditor may not commence proceedings to take the benefit of a charge arising under a charging order until after the expiration of 3 months from the date of the order.

(5) A charging order entitles the judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor’s favour by the judgment debtor.

127 Unauthorised transfer or disposal of security interest under charging order

(cf Act No 8 1901, section 29)

(1) A chargee or other person who, having notice of a charging order, deals with any security interest charged by the order otherwise than in accordance with the directions of the judgment creditor is liable to the judgment creditor for such amount (not exceeding the value of the security interest) as may be necessary to satisfy the judgment.

(2) This section does not prevent the court from granting the judgment creditor, as a consequence of the chargee or other person having dealt with the security interest, any relief that is available apart from this section.

128 Disposal of security interest by judgment debtor invalid

(cf Act No 8 1901, section 30)

While a charging order is in force, any purported transfer or disposal by the judgment debtor of a security interest charged by the order, being a transfer or disposal effected otherwise than in accordance with the directions of the judgment creditor, is of no effect as against the judgment creditor. ”

69 The structure of Part 8 of the Act is that s 106 describes the types of orders that may be made for the enforcement of a judgment debt, and Divisions 2, 3 and 4 make specific provision in relation to each type of order. In the case of charging orders, s 126 prescribes the kinds of property in relation to which such orders can be made. The section is derived from s 27 of the Judgment Creditors’ Remedies Act 1901 (NSW). That section provided:

“ 27 Order charging stock shares and equities

(1) If a judgment debtor under a judgment of the Supreme Court or a District Court:

(a) has any stock or shares of or in any public company (whether incorporated or not), or any deposit in any bank, building society or credit union in New South Wales, standing in the judgment debtor’s name in the judgment debtor’s own right, or in the name of any person in trust for the judgment debtor, or

(b) has or is entitled to any equity of redemption or other equitable interest, the Supreme Court or a Judge of the District Court, as the case may be, on the application of any judgment creditor may order that such stock shares or deposit, or such equity of redemption or equitable interest, or such of them or such part thereof respectively as the Supreme Court or the Judge of the District Court, as the case may be, thinks fit, shall stand charged with the payment of the amount for which judgment has been so recovered and interest thereon.

(2) Such order shall entitle the judgment creditor to all such remedies as the judgment creditor would have been entitled to if such charge had been made in the judgment creditor’s favour by the judgment debtor.

(3) Provided that no proceedings shall be taken to have the benefit of such charge until after the expiration of three months from the date of such order .”

70 It was held in relation to that section that the power to make a charging order over an “ equity of redemption or other equitable interest ” to which a judgment debtor was entitled did not extend to making an order to charge land of the judgment debtor held under the Real Property Act 1900 (NSW) ( Quint v Robertson (1985) 3 NSWLR 398; DM & BP Wiskich Pty Ltd v Saadi (New South Wales Supreme Court, 16 February 1996, Bryson J, unreported); Wentworth v Rogers [2004] NSWSC 1176). The defendants are the registered proprietors and therefore the legal owners of the land. As the legal owners of the land they do not also hold an equitable interest in the land. An equitable interest is something imposed on the legal title, not carved out of it. A legal owner does not hold the property on trust for himself or herself. The defendants’ interest as owners of the land is not an “ equitable interest in property ”.

71 Counsel for the plaintiff submitted that ss 126-126 were not directly relevant. They submitted, correctly, that none of those sections empowers the court to make a charging order. They also submitted that the sections did not restrict the operation of a charging order made under s 106 to the security interests referred to in Division 4.

72 The fact that ss 126-128 do not empower the court to make a charging order is important. It shows that s 106 and ss 126-128 are to be read together, so that ss 126-128 describe the operation and effect of charging orders made under s 106. Those sections also limit the kinds of property in respect of which a charging order under s 106 can be made.

73 The Registrar did not have the power to make a charging order in respect of the defendants’ land. The restraining order was ancillary to the charging order and reflected s 128. The Registrar had no power to make a restraining order independently of the making of a charging order.

74 The charging order and the restraining order will be set aside. The plaintiff will be enjoined to take all steps that are necessary to have the record of the restraining order removed from the register of titles maintained by the Registrar-General under the Real Property Act .

75 However, unless satisfactory security is provided for the judgment debts, the plaintiff will be entitled to seek to enforce the judgments through a writ of execution against the land.

76 In exercising his powers and carrying out his duties as deed administrator, Mr Ngan acts as agent for and on behalf of the company. Clause 6.1 of the deed of company arrangement expressly so provides. The same provision is contained in clause 1 of schedule 8A of the Corporations Regulations 2001 which is also incorporated into the deed. It follows that he is the appropriate person to give the necessary undertakings on behalf of the plaintiff to provide the basis for discharging the current stay of execution of the judgments if adequate security is not forthcoming.

Conclusion and orders

77 For these reasons I propose the following orders:

1. Order that orders 1 and 2 described as a “Charging Order” made in this court on 12 January 2010 be set aside.

2. Order that the plaintiff promptly do all things necessary on its part to be done to cause the removal of the restraining order referred to in Request AF259632M from the register of titles maintained by the Registrar-General under the Real Property Act of the land described in folio identifier 666/1098043 and in respect of the lots in strata plan SP 83997.

3. Upon the plaintiff by its deed administrator Mr Peter Ngan executing and filing with the court an instrument whereby the plaintiff:

(a) declares that it will hold any moneys received by it, its servants or agents through execution of the judgments referred to in (e) and (g) below (including the sum of $43,779.97 paid by the Commonwealth Bank of Australia pursuant to a garnishee order and interest thereon) upon trust for the defendants, if and to the extent it is ultimately determined that the defendants were not contractually liable to the plaintiff for the amounts of the judgment debts so received, or that the judgment debts have been discharged by set-off, or that for any other reason the defendants are entitled to restitution of any moneys so received by the plaintiff in execution of the judgments or either of them;

(b) undertakes to the court that until further order, except with the written consent of the defendants, it will not (by itself, its servants or agents) pay any moneys received through execution of the said judgments or either of them to any third party, otherwise than by way of being invested by Mr Ngan as deed administrator, and will keep such moneys in a separate account;

(c) undertakes to the court promptly to notify the defendants of any application or proposal for the winding-up of the plaintiff, or any proposal to terminate or vary the deed of company arrangement to which the plaintiff is subject; and

(d) undertakes to the court to deal with any moneys so received prior to any such ultimate determination as the court might direct, including, if so directed, by returning such moneys to the defendants,

order that after 21 days the stay of:

(e) execution of the judgment for $1,514,981.25 entered in this Court on 12 January 2010;

(f) the Writ for Levy of Property made in this Court on 4 February 2010;

(g) execution of the judgment for $380,555.40 entered in the District Court proceeding no. 4818 of 2008 (“the District Court proceeding”) on 14 October 2008;

(h) the Writ for Levy of Property made in the District Court proceeding on 11 February 2010;

(i) the garnishee order made in the District Court proceeding against Peter McLafferty and Stephanie McLafferty on 11 February 2010; and

(j) the garnishee order made in the District Court proceeding against the Commonwealth Bank of Australia on 11 February 2010,

be discharged.

In this order “ultimately determined” means:

(i) a determination of the defendants’ proof of debt by the deed administrator from which no appeal is brought within the prescribed time for appeal; or

(ii) the final determination of any appeal from the deed administrator’s determination, from which no further appeal is brought within the prescribed time; or

(iii) the final determination of any further appeal from which no application for special leave to appeal is brought within the prescribed time; or

(iv) the final determination of any application for special leave to appeal and of any appeal for which leave is given.

4. Liberty to apply on reasonable notice by arrangement with my Associate.

5. Exhibits may be returned after 28 days.

78 I have provided a period of 21 days before discharging the stay of execution of the judgments to give the defendants the further opportunity to proffer security for the judgment debts. If adequate security is provided, the liberty to apply can be exercised and I will then extend the stay of execution.

79 I will stand the matter over for the plaintiff to consider the proposed undertaking. I will hear the parties on costs.

******

LAST UPDATED:

29 October 2010