IN THE COUNTY COURT OF VICTORIA Revised (Not) Restricted
AT MELBOURNE
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-13-02938
SOUTHON CONSTRUCTIONS PTY LTD Plaintiff
v.
FORSTAR PTY LTD Defendant
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JUDGE: His Honour Judge Anderson
WHERE HELD: Melbourne
DATE OF HEARING: 21 March 2014
DATE OF JUDGMENT: 21 March 2014
CASE MAY BE CITED AS: Southon Constructions Pty Ltd v. Forstar Pty Ltd
MEDIUM NEUTRAL CITATION: [2014] VCC 306
REASONS FOR JUDGMENT
Catchwords: Practice and procedure - Building and Construction Industry Security of Payment Act 2002 (Vic) – Defendant’s application for stay of execution on judgment – Inadequate financial material provided by plaintiff – Application adjourned – Interim stay granted.
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APPEARANCES: Counsel Solicitors
For the Plaintiff Mr A. McKellar (Solicitor) Moores Legal
For the Defendant Mr D. Triaca E M McDonald & Co
HIS HONOUR:
1 Judgment was entered on 5 July 2013 for $301,963. The defendant, by summons filed 6 March 2014, seeks a stay of execution “ pending the resolution of VCAT proceeding D881/2013 ”.
2 The defendant (“ Forstar ”) was the developer of a property in Huntingdale Road, Chadstone. In 2010, it entered into a building contract with the plaintiff (“ Southon ”) for Southon to construct 40 residential apartments on the property.
3 In about March 2013, Southon made a payment claim pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (“ the Act ”). Forstar failed to respond and ultimately Southon became entitled to enter judgment upon an adjudication certificate it had obtained.
4 In about July 2013, Forstar commenced a proceeding at the Victorian Civil and Administrative Tribunal (“ VCAT ”) claiming damages arising from alleged breaches by Southon of the building contract. The claims were for rectifying defects at a cost in excess of $1 million and for delay costs exceeding $500,000.
5 Since July 2013, Southon has been attempting to execute upon its judgment. Southon issued a warrant of seizure and sale and garnishee proceedings and attempted to wind up Forstar (“ the enforcement proceedings ”). Forstar apparently also owed money to the Australia Taxation Office.
6 On 12 February 2014, the parties entered into a deed by which they agreed “ on the method of dealing with the judgment debt and the enforcement proceedings ”. This included:
a. payment of $300,000 into trust by Forstar;
b. the initiation of the present application by Forstar;
c. termination by Southon of the enforcement proceedings;
d. dealing with the $300,000 in trust in accordance with the decision made on the present application.
7 The basis of Forstar’s application for a stay of execution of the judgment is that:
a. Forstar has a substantial claim against Southon with good prospects of success for a sum greater than Southon’s judgment;
b. if successful on its claim, Forstar may not recover the amount of the judgment, if it were forced to pay it to Southon, because of the parlous financial position of Southon.
8 In relation to the VCAT claim:
a. the claim was struck out in January 2014 because of the lack of action on the claim. Forstar has not taken steps to reinstate the proceeding although it says it proposes to do so;
b. the defects claim relies upon reports by Mr Stephen Schake of Houseright Property Inspections. The only report put before the Court was a listing of defects with attached photographs. Only after I requested the documents, was I supplied with “ one line ” estimates for the repair costs of each grouping of defects;
c. it is not clear what is Mr Schake’s expertise and experience;
d. Forstar do not appear to have made the claims for defective works during the defective liability period, although some matters apparently arose subsequently;
e. Forstar has continued to market the apartments without disclosing to potential purchasers the alleged defects or the liability that may be incurred by the Owners Corporation;
f. the delay claim apparently ignores the fact that extensions of time were granted past the date of practical completion;
g. Forstar retained $171,610.92 from Southon’s progress claims which it has not paid to Southon.
9 Southon’s financial position is not clear. Forstar have raised certain matters which it is said cast doubts on its ability to repay the judgment if Forstar were to succeed in a reinstated VCAT proceeding:
a. in about August 2013, an application was made in the Supreme Court to wind up Southon. Southon says that the claim by the applicant and “ a claim by another contractor ” were settled;
b. proceedings have been issued against Southon in the Magistrates’ Court and VCAT. The Magistrates’ Court claim is for $15,000 and “ Southon has been seeking to negotiate a settlement of that claim ”. The claim at VCAT is for $55,000. Southon says it has a “ counterclaim of approximately $25,000 ”. Southon says there are “ other creditors ” in respect of the Forstar project who are “ each for less than $5,000 ”;
c. in a further affidavit filed during the hearing of the application, two further creditors of Southon refer in emails to claims of $30,335 and $57,183.85 in respect of the Chadstone property;
d. there is a charge in favour of the ANZ Bank over Southon’s assets secured against property owned by Southon.
10 The parties have referred to a number of authorities on the principles to be applied when a stay is considered, particularly if judgment has been entered pursuant to the Act, or its interstate equivalents.
11 Generally, the matters put forward by Forstar in the present application would not be sufficient to justify an order for a stay. I refer specifically to:
a. R.J. Neller Building Pty Ltd v Ainsworth [2008] QCA 397, Queensland Court of Appeal, particularly the judgment of Keane JA at paragraphs 39-41, quoted with approval by Vickery J in As ian Pacific Building Corporation Pty Ltd v Aircon Duct Fabrication Pty Ltd [2010] VSC 340 at paragraph 39;
b. Veolia Water Solutions v Kruger Engineering [No. 3] [2007] NSWSC 459 per McDougall J at paragraph 80.
12 I do not consider that it would be appropriate to conclude that Forstar’s claim in respect of defects or delays has an overwhelming prospect of success. It would not be appropriate to make an order which effectively provided security for the relief sought by Forstar at VCAT unless there were compelling reasons to do so.
13 On the other hand, the material filed in relation to Southon’s financial position is limited. It is apparent that Southon has creditors, including a number arising from its performance of the building contract. This is perhaps not surprising, and it is the fundamental reason for the legislative provisions; to ensure that progress payments are made without deduction for any setoffs or counterclaims.
14 However, in view of the generally inadequate material filed by Southon as to its financial position, I propose the following:
1. By 4pm on 26 March 2014, the plaintiff must file and serve an affidavit deposing to its financial position, including a listing of all creditors, identifying those relating to its performance of the building contract with Forstar for the Chadstone project.
2. The plaintiff’s affidavit filed and served pursuant to paragraph 1 must not be used by the defendant for any purpose not related directly to this proceeding, without the leave of the Court or the Supreme Court fist being obtained.
3. The defendant’s summons dated 6 March 2014 is adjourned to 28 March 2014 at 9.30am.
4. Execution on the judgment dated 5 July 2013 is stayed until 28 March 2014 at 4.30pm.
5. At the adjourned hearing of the defendant’s summons on 28 March 2014, the Court will consider:
a. whether the stay should be further extended;
b. whether notice of the existence of the money held in trust should be required to be given by Southon to its creditors;
c. whether the money held in trust should be forthwith released to Southon, either conditionally or otherwise.
6. Reserve costs.
7. Reserve liberty to apply.
15 I will hear further from the parties in relation to these proposed orders.
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Certificate
I certify that the preceding 4 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 21 March 2014.
Dated: 21 March 2014
Catherine Kusiak
Associate to His Honour Judge Anderson