Belmadar Constructions Pty Ltd v Environmental Solutions International Ltd - [2005] VSC 24

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

PRACTICE COURT

No. 9211 of 2004

BELMADAR CONSTRUCTIONS PTY LIMITED (ABN 22 000 817 505)	Plaintiff
v
ENVIRONMENTAL SOLUTIONS INTERNATIONAL LIMITED (ABN 28 009 120 405) (Receivers and Managers Appointed) (Subject to Deed of Company Arrangement)	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	7 February 2005
DATE OF JUDGMENT:	18 February 2005
CASE MAY BE CITED AS:	Belmadar Constructions Pty Ltd v Environmental Solutions International Ltd
MEDIUM NEUTRAL CITATION:	[2005] VSC 24

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Corporations – external administration – leave to proceed against company – proposed proceeding by unsecured creditor in order to obtain recovery from debtor of company – whether consistent with scheme of distribution of company assets.

Building contract – claim by subcontractor for progress payment – contractor under external administration – judgment against contractor sought to enable recovery from principal.

Corporations Act 2001 s. 444E
Building and Construction Industries Security of Payment Act 2002 (Vic) Part 4

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J.A.F. Twigg	Norton White
For the Defendant	Mr C. Sievers	Freehills

HIS HONOUR:

The defendant, Environmental Solutions International Ltd (“ESI”), is apparently a contractor which carries out major engineering works. One such project was a new water treatment plant at Mildura West. By an agreement in writing, ESI agreed with Lower Murray Regional Water Authority (“the Authority”) to design, construct, maintain and operate the plant for a consideration of about $11.5M plus GST.

In July 2003, the plaintiff, Belmadar Constructions Pty Ltd (“Belmadar”), entered into a subcontract with ESI to carry out the earth works and to construct civil, structural and building work for the Mildura West project for a consideration of about $4.5M. In mid-October 2004, Belmadar asserted that its works had been brought to “technical completion” and on 29 September 2004 it had submitted its progress claim number 15 to ESI on that basis, seeking approximately $2.5M. The response of ESI by letter of 13 October 2004 was to approve a payment of only about $280,000. There seems to have been a difference as to the value of variations claimed.

Claims by subcontractors of this kind fall within the scheme of the Building and Construction Industry Security of Payment Act 2002 (“the Act”). This statute, which is based upon the Building and Construction Industry Security of Payment Act 1999 (NSW), is part of a scheme within the States to establish a more or less uniform regime to protect subcontractors from the risk that unscrupulous and/or undercapitalised contractors will withhold or delay progress payments so that the subcontractor in effect is funding the project[1]. In Part 3 of the Act, procedure is established whereby a subcontractor whose progress claim is not satisfied may refer the matter for a quick and interim determination by applying to an adjudicator for an adjudication of the progress claim[2]. The procedure is quick because the contractor must respond to this application within five business days[3] and the adjudication is…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2005] VSC 24
Decision Date: 18 February 2005

CaseChat Overview and Summary

The case of Belmadar Constructions Pty Ltd v Environmental Solutions International Ltd involved a dispute between a subcontractor, Belmadar Constructions, and a principal contractor, Environmental Solutions International. Belmadar Constructions sought to recover progress payments from Environmental Solutions International, which was under external administration, by obtaining judgment against the latter. The case was heard in the Supreme Court of Victoria, where the primary issue was whether a proposed proceeding by an unsecured creditor to recover from a debtor was consistent with the scheme of distribution of the company's assets.

The legal issues in the case revolved around the interpretation of the relevant provisions of the Corporations Act 2001 and the Building and Construction Industries Security of Payment Act 2002 (Vic). Specifically, the court had to determine whether Belmadar Constructions' proposed proceeding was permissible under s. 444E of the Corporations Act, which sets out the conditions for proceedings by creditors against companies in external administration. Additionally, the court needed to consider the implications of Part 4 of the Building and Construction Industries Security of Payment Act, which provides for adjudication and adjudication-related proceedings.

The court held that the proposed proceeding by Belmadar Constructions was not consistent with the scheme of distribution of the company's assets, as outlined in the Corporations Act. The court found that the principal purpose of the proceeding was to obtain a judgment against the company's contractor, which would enable recovery from the principal, rather than to pursue a legitimate claim against the company. The court emphasised that the scheme of distribution in the Corporations Act was designed to ensure that all creditors were treated fairly, and that the proposed proceeding would undermine this principle by allowing a creditor to potentially receive a greater recovery than others. Accordingly, the court dismissed Belmadar Constructions' application for leave to proceed against the company.

Orders