Archonstruct Pty Ltd v Carn Byrne & Associates Pty Ltd - [2007] SADC 133

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
ARCHONSTRUCT PTY LTD v CARN BYRNE & ASSOCIATES PTY LTD AND ORS
[2007] SADC 133
Judgment of His Honour Judge Barrett
17 December 2007
PROCEDURE - JUDGMENTS AND ORDERS - ENFORCEMENT OF JUDGMENTS AND ORDERS
STAY OF EXECUTION OF JUDGMENT - Principles to be applied - onus on applicant to demonstrate that there are proper grounds for a stay. No different criteria as between old and new rules. Held: Application granted in respect of builder, refused in respect of architect.
District Court Act 1991 s 38; Enforcement of Judgments Act 1991 s 17; District Court Civil Rule 97.11; Supreme Court and District Civil Rules 300(2), referred to.
Hackney Tavern Nominees Pty Ltd v McLeaond (1983) 33 SASR 590; Bartley v Myers [2001] SASC 212; Osborne v Drive Park Pty Ltd [2005] SASC 252; Beasley v Marshall (No 2) (1985) 41 SASR 299, considered.

ARCHONSTRUCT PTY LTD v CARN BYRNE & ASSOCIATES PTY LTD AND ORS
[2007] SADC 133
Introduction

This is an application for a stay of execution of a judgment arising from a building dispute. The applicants are the owners of the house the subject of the proceedings. The respondents are the architect and the builder. The architect, Mr Raymond Carn, is the principal of the builder, Archonstruct Pty Ltd. The owners are appealing from two decisions by a judge of this court. The first is what I might describe as the substantive judgment delivered on 30 March 2007, and the second is a decision for which reasons were published on 24 October 2007.
The proceedings have been protracted. The builder worked on the house in 1999. Relations between it and the owners deteriorated in the end of that year and the owners refused to pay the last four of seven progress payments. Forensically the dispute has been aired in three parts. The first was a hearing before Judge Bright. That part of the dispute concerned the failure of the builder to apply a dampcourse. On the eighth day of that hearing the parties reached an agreement and pursuant to the agreement rectification works were carried out, albeit later than had been agreed. The owners are to receive a set off for the resolution of that issue. The final figure has not been agreed but it is estimated to be in the vicinity of $130,000.
The second part of the dispute concerned legal questions relating to the contractual relations between the parties and the substantive factual matters. Judge Bright had retired by the time this part of the proceedings was to be heard and it was heard by Judge Kitchen. His Honour’s judgment of 30 March 2007 and reasons of 24 October 2007 are the subject of the appeal lodged on 6 November 2007.
The third part of the dispute is the subject of determination by arbitrators. It relates to non-structural defects. That determination has not been made. Judge Kitchen was told that the quantum of that claim might be of the order of $50,000.
Judgment in favour of the builder
The substantive judgment of Judge Kitchen is by way of an interim order pursuant to section 38 of the District Court Act. The determination of the balance owing as a result of the dispute is adjourned to await the final determination of the two other parts of the proceedings, ie the quantum of the owners’ entitlement pursuant to the order made by Judge Bright in November 2004 and the award of the arbitrator (see para [54] subpara 3 Reasons of 24 October 2007).
The interim judgment for the builder is for $35,000. For reasons that will become clear it is pertinent to recite how that figure was arrived at. In His Honour’s judgment of 30 March 2007, His Honour found the builder was entitled to recover from the owners the sum of $242,828 (para [161]). His Honour arrived at the final interim order of $35,000 by setting off three amounts as follows.
1)$130,000, being the estimate of the order of Judge Bright made in November 2004.
2)$8,000 for disturbance and inconvenience suffered by the owners related to the dampcourse.
3)$20,000 for the diminution in value of the house as a result of the failure to apply the dampcourse.
It is that last figure of $20,000 which is the subject of one of the grounds of appeal by the owners. Put briefly, it is alleged that His Honour made an arithmetic error. There may be other aspects of that ground, and it is disputed by the builder, but the owners’ first challenge is that there appears to be an arithmetic error. I recite that challenge. Mr Heywood-Smith QC for the owners asserted that a valuer had given evidence that the value of the house at the relevant time was between $900,000 and $950,000, and that the diminution in value was between 5 and 10 percent. Mr Heywood-Smith submitted that His Honour purported to start his calculation of the diminution in value from the mid point of those ranges. By that, he argued, His Honour must be taken to have meant 7.5 percent of $925,000, which is $70,000. On that reasoning, he argued, His Honour is in error to have allowed only $20,000 for diminution in value. Mr Heywood-Smith submits that the arguability of a ground of an appeal is a relevant consideration on an application to stay execution of a judgment, and in this case, if that particular ground were to succeed, it would substantially change the position of the parties, more than wiping out the judgment debt.
Judgment in favour of the architect
In his Reasons delivered on 24 October 2007 Judge Kitchen gave judgment for the architect against the owners for $44,027.45 including interest, plus costs (see para [54] subpara 2).
The Law
I refer briefly to the law applicable to applications for a stay. There was some discussion about whether the issue is to be decided according to the Rules of Court applicable before 4 June 2006 (the “old rules”) or those in force after that date (the “new rules”). Rule 97.11 of the old rules empowered the court to direct a stay in proceedings but no criteria for the exercise of the discretion to stay were provided. Under the terms of s 17 of the Enforcement of Judgments Act 1991 the court would grant a stay if there was “proper reason” for doing so. The new rule 300(2) adopts the wording of s 17 of the Enforcement of Judgments Act. In my view, there is then no difference in the criteria for considering a stay application as between the new and the old rules. In the end no counsel suggested otherwise.
The following propositions can be gleaned from the authorities.
1) The norm is that there should not be any stay, but there is a judicial discretion (see Lunn, Civil Procedure South Australia Civil Procedure Volume 1 page 6326, citing Hackney Tavern Nominees Pty Ltd v McLeod (1983) 33 SASR 590).
2)Whereas once an applicant had to demonstrate special or exceptional circumstances to justify a stay, that is no longer the case. It is sufficient to show that the justice of the case requires a stay (Lunn ibid citing Bartley v Myers [2001] SASC 212).
3)The applicant bears the onus of demonstrating that there is proper reason for granting a stay (Osborne v Drive Park Pty Ltd [2005] SASC 252.
4)Relevant, though not in themselves determinative, considerations include an applicant’s delay in bringing an application to stay, the risk of the respondent being unable to “repay” money in the event of a successful appeal and an appellant’s own financial embarrassment in meeting the judgment debt appealed from.
Submissions by the builder
On behalf of the builder Mr Coppola stressed the proposition that it is the norm that there should not be a stay. Duggan J in Osborne v Drive Park Pty Ltd (supra) at para [17] said:
… the starting point for the consideration of an application to stay the execution of a judgment debt is that the judgment creditor is entitled to proceed to execution without delay.
Mr Coppola submitted that there had been delay in the owner’s initiating their stay proceedings. Judge Kitchen’s reasons were delivered on 24 October 2007. The appeal was launched on 5 November 2007. The stay proceedings were not commenced until 30 November. As it transpired, 30 November was only a few days short of the expiry of a bankruptcy notice issued by the builder. In fact, it expired the day after the first day on which this application was argued. Mr Coppola referred to the lengthy nature of the proceedings which began in 1999. He said that there were delays by the owners in providing an updated Scott schedule in the Arbitrator’s proceedings. Mr Heywood-Smith did not dispute that delay is a relevant consideration, but he pointed to countervailing considerations.
Submissions by the owners
For the owners, Mr Heywood-Smith submitted that there were several grounds which, if taken cumulatively, should result in the grant of the application. First he referred to the matters set out in the affidavit of the male owner that suggested that the builder owned no real estate and had only a modest $5,000 share capital in his business. That raised, he argued, the risk of the builder being unable to repay the owner in the event of a successful appeal. In reply Mr Coppola submitted that he had never been asked by the owners to divulge his client’s financial position and he had been given almost no opportunity to put material before the court. He did not seek an adjournment to provide that material.
Second, the male owner disposed in his affidavit to financial embarrassment if he is required to meet the judgment debt. Mr Coppola submitted that there was evidence in the trial of the owners having reasonably substantial means. He submitted that there is authority for the proposition that the respondent’s financial embarrassment is not usually a sufficient special circumstance to grant a stay (see Beasley v Marshall (No 2) (1985) 41 SASR 299). While that is undoubtedly so, the financial embarrassment of a respondent is not an irrelevant matter. Nevertheless in this case I do not think it assumes a great deal of importance. The judgment itself is relatively modest.
The third submission is that several of the grounds of appeal are plainly arguable. In particular, Mr Heywood-Smith drew attention to what he said was an apparent arithmetic error by the learned judge which, if made out, would virtually reverse the positions of the parties (see ibid paragraph[7])
Finally, Mr Heywood-Smith drew attention to a worker’s lien which the builder has over the owner’s property. It was registered in 1999. He argued that the lien provided an adequate security for the builder for his judgment debt. He conceded that the equity in the owners’ house was not great. It might be said that while the lien grants some security for the builder, it does not help the builder in the short term.
Consideration of arguments relating to the builder
The issue for consideration is really whether the matters favouring the owners’ application demonstrate that there should be a departure from the usual course of declining to grant a stay. Against the owners is a degree of delay. On the other hand this is an interim order against the owners for the relatively modest sum of $35,000. Without in any way expressing a view about the merits of the alleged arithmetic error by the learned trial judge, the success, or even partial success, of that argument would substantially reduce or extinguish the judgment debt. The builder’s longer term security rests in the lien he possesses. On the face of it there does appear to be some small risk of the builder being unable to repay the owner in the event of the appeal succeeding. I give less weight to the owners’ own financial embarrassment in meeting the judgment debt.
Overall however, I think that the owners have demonstrated that there is proper reason for granting a stay of the builders judgment against them.
Consideration of arguments relating to the architect
The situation is not quite the same with the architect. I appreciate that there is a degree of artificiality in treating the architect separately from the builder. The architect is the principal of the builder. Nevertheless, the position is legally different. Mr Heywood-Smith submits that there are arguable grounds of appeal against the architect. Mr O’Sullivan, for the architect, draws attention to clear findings of fact by the learned trial judge in favour of the architect. Mr Heywood-Smith submits that if the legal arguments to be put on the appeal are successful then the findings of fact will not sustain the architect’s judgment. Like the builder the architect calls in aid the onus the owners bear in persuading the court of a proper reason for granting a stay, and he too relies on the owners’ delay. In reality the architect has the longer term security of the builders lien. Although the architect does not himself possess the lien he will of course be aware immediately of any attempt of the owners to sell the house because he is the principal of the builder who does possess the lien. He can then make application to this court to secure his position. The owners have said nothing to suggest any lack of financial viability on the part of the architect. They allege only a risk in respect of the builder. The owners point to arguable grounds of appeal but the allegation of the arithmetic error applies only to the builder. In that way the success of the owners in the appeal would not so clearly change the position of the respective parties. The owners’ alleged financial embarrassment is common to the arguments relating to both the builder and the architect.
Overall then the arguments for the owners are weaker in the case of the architect. I am not persuaded that there is proper reason for granting the stay in the case of the judgment in favour of the architect. Accordingly I dismiss that part of the application. I should say that in the written application the owners do not apply separately for stays of the judgment against the builder and the architect, but Mr O’Sullivan for the architect accepts that the owners should be permitted to proceed on an oral application for the stay of that part of the judgment.
Conclusions
1. I grant the application for the stay of execution of the judgment of the learned trial judge delivered on 30 March 2007 and the reasons of His Honour dated 24 October 2007 as they apply to the builder.
2. I decline to grant a stay of execution of the judgement of the learned trial judge delivered on 30 March 2007 and the reasons of His Honour dated 24 October 2007 as they apply to the architect.
3. I reserve the question of costs.