Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd
[2021] ACTSC 81
SUPREME COURT OF THE AUSTRALIAN CAPITOL TERRITORY
| Case Title: | Bloc (ACT) Pty Ltd v Crafted Capitol Pty Ltd |
| Citation: | [2021] ACTSC 81 |
| Hearing Dates: | 23 and 27 April 2021 |
| Decision Date: | 29 April 2021 |
| Before: | Mossop J |
| Decision: | See [74] and [76] – [77] |
Catchwords: | CORPORATIONS – WINDING UP – Application to wind up the first defendant in insolvency – where a stay on the winding up had previously been imposed – where the plaintiff has an unpaid |
| judgment debt under the Building and Construction Industry | |
| (Security of Payment) Act 2009 (ACT) – presumption of insolvency arises from unpaid judgment debt – no evidence of solvency – discretionary reason to avoid winding up not established – winding up order made | |
| BUILDING AND CONSTRUCTION – SECURITY OF PAYMENT | |
| Building and Construction Industry (Security of Payment) Act | |
| 2009 (ACT) – adjudication award filed with court – adjudication award enforceable as judgment debt – existence of continuing | |
| dispute about the expert determination process provides no basis | |
| for failing to pay judgment debt – policy of the legislation requires | |
| payment prior to final determination of rights | |
| Legislation Cited: | Building and Construction Industry (Security of Payment) Act |
| 2009 (ACT), ss 27, 38 Corporations Act 2001 (Cth), ss 459C(2)(b), 465C, 530 Court Procedures Rules 2006 (ACT), Schedule 6 r 2.9 Uniform Civil Procedure Rules 2005 (NSW), r 25.11 | |
| Cases Cited: | Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282 Cardile v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380 Empire Global Pty Ltd v SA Expert Designs Pty Ltd [2019] ACTSC 244 In the matter of HPack Investments Pty Ltd [2020] NSWSC 1638 Jackson v Stirling Industries Ltd (1987) 162 CLR 612 Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; 95 NSWLR 82 Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 Walton Construction Pty Ltd v Pines Living Pty Ltd [2013] ACTSC 114; 8 ACTLR 57 |
| Parties: | SC 79 of 2021 |
| Bloc (ACT) Pty Ltd (Plaintiff) Crafted Capitol Pty Ltd (First Defendant) | |
| Crafted Central Pty Ltd (Second Defendant) | |
| SC 88 of 2021 | |
| Bloc (ACT) Pty Ltd (Plaintiff) Malcolm Gracie (First Defendant) Crafted Capitol Pty Ltd (Second Defendant) | |
| ES 9 of 2020 | |
| Bloc (ACT) Pty Ltd (Enforcement Creditor) | |
| Crafted Capitol Pty Ltd (Enforcement Debtor) | |
| Representation: | Counsel |
| A Greinke (Plaintiff/ Enforcement Creditor) | |
| P Walker SC with B Buckland (Defendants in SC 79 of 2021/ Second Defendant in SC 88 of 2021/ Enforcement Debtor) | |
| Solicitors | |
| Mills Oakley (Plaintiff/ Enforcement Creditor) in SC 88 of 2021/ Enforcement Debtor) | |
| File Numbers: | SC 79 of 2021 |
| SC 88 of 2021 ES 9 of 2020 | |
| MOSSOP J: | |
| Introduction |
1. In proceedings SC 79 of 2021 the plaintiff, Bloc (ACT) Pty Ltd (Bloc), has sought orders for the winding up of the defendant, Crafted Capitol Pty Ltd (Capitol), in insolvency. Bloc also seeks orders to preserve the assets of Crafted Central Pty Ltd (Central) for a future claim against it to be brought by the liquidator of Capitol.
2. In summary my conclusion is that Capitol should be wound up in insolvency and an interim freezing order should be made against Central. The last-minute proposal of undertakings by Central, to which I will refer later in these reasons, does not provide a sufficient discretionary reason to decline to make the order winding up Capitol.
Factual background
3. Bloc is a builder. On 18 September 2018 Bloc entered into a Design and Construct
Contract (the Contract) with Capitol to carry out construction works for the “Capitol
Residences” development project on London Circuit.4. On 27 March 2020 the construction reached practical completion, which was certified by the superintendent, Robert Speight, on 1 April 2020.
5. On 3 July 2020 Bloc served a payment claim pursuant to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the SOP Act) for a progress payment of $2,681,165.10 inclusive of GST.
6. On 15 July 2020 Capitol issued a payment schedule under the SOP Act, which was certified by Mr Speight as the superintendent of the Contract, scheduling a progress payment of $1,595,157.19 inclusive of GST. Capitol did not pay the amount certified in this payment schedule.
7. On 30 July 2020 Bloc lodged an adjudication application under the SOP Act with Adjudicate Today. On 28 August 2020 the adjudicator, Max Tonkin, issued a determination of a progress payment of $2,298,478.59 inclusive of GST. He also ordered that Capitol pay an amount of interest and fees bringing the total adjudicated amount to $2,350,612.05.
8. Capitol did not pay the adjudicated amount. Capitol has not sought to appeal from the adjudication decision or sought prerogative relief in relation to it.
9. Bloc obtained an adjudication certificate. Section 27(1) of the SOP Act provides: “an
adjudication certificate may be filed as a judgment for a debt, and may be enforced, in
any court of competent jurisdiction.”
10. On 23 October 2020 the adjudication certificate was filed with the Court. That entitled Bloc to enforce it as a judgment of the court for a debt of the amount stated in the adjudication certificate. The filing of the adjudication certificate commenced enforcement proceedings ES 9 of 2020.
11. This judgment remains unpaid except for a small amount recovered pursuant to a debt redirection order which is referred to below. Interest has continued to accrue on the total adjudicated amount.
12. On 16 October 2020 the superintendent purported to revoke his previous certificate of practical completion issued on 1 April 2020 and to retrospectively certify practical completion to have occurred on 20 August 2020. If valid, that step would have significant consequences for Bloc under the contract, substantially increasing its liability to pay liquidated damages.
13. The relationship between Mr Speight and Capitol is not clear. He had identified himself as being employed as the development manager of Capitol. However, a director of Capitol denied on oath that he knew who employed Mr Speight. That same director identified Mr Speight as being a friend of his.
14. On 28 October 2020 Bloc’s solicitors, Mills Oakley, responded to the purported
revocation of the certificate of practical completion, giving notice to the superintendent
disputing his purported revocation of the certificate of practical completion.
On 9 November 2020 Capitol’s solicitors, Terracon Legal, issued a notice of dispute
under the Contract, which was received on 12 November 2020. Amongst other claims, this notice of dispute claimed that Bloc was liable for $1.65 million liquidated damages, as a result of the new date of practical completion.
16. On 3 December 2020 Mills Oakley wrote to Terracon Legal asserting that an agreement had been reached between the directors of Bloc and Capitol on 4 August 2020 to the effect that the agreed dispute resolution process would be by adjudication.
Despite Bloc’s objections, Capitol sought expert determination of its notice of dispute
and on 11 December 2020 applied to the Resolution Institute to make a nomination of an expert referee. On 15 January 2021 Mills Oakley formally notified the Resolution Institute of its objection to the expert determination.
18. Because the judgment registered with the court remained unpaid, Bloc took steps to enforce the judgment, including holding an enforcement hearing before Registrar Kennealy on 3 February 2021, which was adjourned part heard.
19. The court required the directors of Capitol to provide statements of the Enforcement
Debtor’s financial position. These statements disclosed that Capitol’s only asset was an
account with the Commonwealth Bank of $3,446.97.
20. At the enforcement hearing, the directors of Capitol indicated that it held no other bank accounts or any other assets.
21. On 2 February 2021 the Resolution Institute nominated Malcolm Gracie as the expert referee. Following a preliminary conference with Mr Gracie on 19 February 2021,
disputes arose between Bloc and Capitol as to the terms of Mr Gracie’s appointment.
Bloc sought, as part of the agreement to appoint the expert, that Capitol provide security for any judgment arising from the expert determination but Capitol was not prepared to provide it.
22. On 4 February 2021 the court issued a debt redirection order in ES 9 of 2020 directed to the Commonwealth Bank of Australia. This debt redirection order was returned partially unsatisfied, with an amount of $3,432.09 paid by the bank to Bloc in answer to the order.
23. On 22 February 2021 Bloc sought and obtained an ex parte injunction restraining Capitol from calling upon a bank guarantee under the Contract.
Following a further conference held only with Capitol’s representatives on 26 February
2021, Mr Gracie dismissed Bloc’s objections to jurisdiction. Under the Contract the
expert was required to make a determination in 20 business days.
25. On 1 March 2021 Bloc filed an Originating Process commencing proceedings SC 79 of 2021 which sought orders winding up Capitol on the grounds that it was presumed to be insolvent or was in fact insolvent.
26. On 2 March 2021 the court issued a debt redirection order against the monies transferred from Capitol to Terracon Legal. That was an amount of $100,000 which had earlier been
transferred from Capitol’s bank account to the trust account of Terracon Legal.
27. On 5 March 2021 Bloc commenced proceedings in SC 88 of 2021 and on that day applied for an interlocutory order staying the expert determination. Also on that day Capitol applied to stay the further enforcement of the registered judgment in ES 9 of 2020.
28. The two applications were dealt with by Elkaim J, who made orders with the intention of expediting the determination of the expert determination dispute. The orders made included that there be a stay of enforcement proceedings and a stay of any further steps in the expert determination by Mr Gracie. The matter was to be listed before the
Registrar “for the allocation of an expedited hearing date not before 26 March 2021”. His
Honour noted that evidence could be completed in the three week period prior to 26 March 2021. However, when the matter came before the Registrar on 9 March 2021 it was only able to be allocated a hearing date on 1 and 2 June 2021.
29. On 10 March 2021 Capitol filed and served a notice of appearance in proceedings SC 79 of 2021. The stated grounds of the opposition to the winding up were:
1. The defendant is not insolvent.
2. The enforcement of the plaintiff’s interim judgment, registered on 23 October 2020, has
been stayed by order of the Court, dated 5 March 2021.
3. The debt on which the interim judgment is based is disputed by the defendant.
30. Section 465C of the Corporations Act 2001 (Cth) prevents a person, without leave of the court, from opposing an application for the winding up of a company unless both notice of the grounds upon which the person opposes the application and an affidavit verifying the matters stated in the notice is served within the period prescribed by the rules. Rule 2.9 of the Corporations Rules in Schedule 6 of the Court Procedures Rules 2006 (ACT) required the notice of appearance and any affidavit to be filed three days prior to the date set for the hearing. The date for the hearing set in the Originating Process was 16 March 2021. Capitol did not file any affidavit evidence in support of its grounds of opposition, arguing now that it took the view that it was not required to do so having regard to the stay on the proceedings. That approach is not obviously justified by the terms of the orders made by Elkaim J.
31. On 16 March 2021 the winding up application came before the Court. It was referred by the Registrar to Elkaim J. Elkaim J listed the matter before me on 26 March 2021 but also noted that Bloc was seeking a decision to allow it to proceed with the winding up and ordered that it provide a draft application in relation to the winding up of Capitol and an application in relation to the expert proceedings by Friday, 19 March 2021.
32. When the matter was before me on 26 March 2021 I directed the Registrar to accept for filing applications in proceedings or interlocutory processes in each of the proceedings. I then made directions for the hearing of the interlocutory applications in SC 79 of 2021, SC 88 of 2021 and ES 9 of 2020 and fixed a return date for subpoenas of 14 April 2021.
33. The application in proceeding filed by Bloc in ES 9 of 2020 (the enforcement proceedings) sought that the court itself determine the matters involved in the notice of dispute dated 9 November 2020 on a final basis and that this be heard on 1 and 2 June 2021. That would have the effect that, instead of merely determining the validity of the expert determination process, the court itself would determine the matters the subject of that expert determination process.
34. The interlocutory process filed in SC 79 of 2021 (the application to wind up Capitol) sought an order that Bloc may proceed with the winding up of Capitol, that it be woundup in insolvency and that Henry Kazar be appointed liquidator of the company. It also sought, in the alternative, a freezing order restraining Central from encumbering its remaining units in the development. Further or alternatively, it sought that the application that Capitol be wound-up be adjourned for final hearing and provided that if the adjudicated amount was paid into court then the application could be dismissed.
35. In proceeding SC 88 of 2021 (the challenge to the expert determination) the application in proceedings sought that the directions made on 9 March 2021 be set aside, that the hearing to commence on 1 June 2021 be vacated and that the proceedings be adjourned to a date to be fixed.
36. On 6 April 2021, in correspondence between the parties, Bloc sought security for the amount owing under any expert determination pursuant to the contract between Bloc and Capitol. On 7 April 2021 Central undertook to hold $2.3 million unencumbered as security for Bloc. The offer was rejected by Bloc on 16 April 2021.
37. On 15 April 2021 Capitol and Central applied to set aside the subpoenas directed to them. That application was listed for hearing on 21 April 2021. The contest over the scope of the subpoenas was resolved by consent orders on that day.
38. The latest evidence concerning the assets of Central is provided in the affidavit of Harry Kay dated 9 April 2021. It is that Central it owns four apartments which have not been contracted to be sold and the estimated net realisable value is approximately $3.938 million. It has $1,744,522.82 in its bank account. It also owns a number of apartments that are subject to contracts for sale which have not yet been completed but are expected to generate $1.35 million in net proceeds upon completion.
39. At the hearing before me on Friday, 23 April 2021, Bloc sought to amend its interlocutory process so as to delete the alternative order which would have permitted Capitol to avoid winding up by paying money into court. That left only the application for winding up of Capitol and the freezing order directed to Central (which was now sought as additional as well as alternative relief).
The positions of the parties
Bloc’s position
40. Bloc submitted that it was a creditor entitled to apply for winding up as a result of the judgment registered in ES 9 of 2020. As a result of the fact that the debt redirection order given to the Commonwealth Bank was partially unsatisfied, it submitted that Capitol is presumed to be insolvent under s 459C(2)(b) of the Corporations Act. Further, the evidence is that Capitol is actually insolvent. That is because its only other tangible asset was the fund of $100,000 that had been transferred into the trust account of Terracon
Legal. Bloc pointed to the absence of any evidence supporting Capitol’s grounds of
opposition to winding up, supporting any substantial grounds upon which the judgment debt is disputed or going to an assertion of solvency. It pointed to apparently unsatisfactory answers given by directors of the company (who are the same as the directors of Central) about whether or not Central would pay the judgment debt. It submitted that because Capitol was not trading there was no risk of irreparable harm from a winding up.
41. Bloc accepted that it needed an order to permit it to proceed to wind up Capitol because of the order made by Elkaim J on 5 March 2021. It submitted that the orders staying the various enforcement proceedings were made in circumstances where the intention was that there would be an expedited hearing of the dispute about the expert determination and where the grounds of opposition to the winding up had not yet been identified. Contrary to the expectation of an early hearing, the earliest available date for a hearing was 1 June 2021. Further, the grounds of opposition to the winding up did not have substance and were not supported by evidence. Bloc submitted that the order made by
Elkaim J did not stay the winding up application but rather only governed the plaintiff’s
action in relation to it. Therefore, it submitted that the order did not have the effect of relieving Capitol from complying with its obligations under the Corporations Act to file affidavit evidence in support of its grounds of opposition. It submitted that as a result of the operation of s 465C of the Corporations Act, Capitol was not entitled to oppose the winding up without leave.
42. In relation to the exercise of discretion as to whether or not to wind up the company it submitted that the amount in issue was significant and the non-payment was the very kind of financial pressure that the SOP Act was intended to avoid. It submitted that Capitol was no more than a bank account controlled by Central, used to pass through funds for the development and shield the remaining assets in the development from Bloc. It also submitted that the expert determination of the dispute between Bloc and Capitol
would not result in any final resolution because the recovery of Bloc’s claim would require
money to be extracted from Central. It submitted that it would inevitably require the appointment of a liquidator. Further, it submitted that Central would not be bound by a determination of the expert or the judicial determination of equivalent issues because it is not a party to the contract. It submitted that Bloc should not be required to litigate against an empty company. It also submitted that there is a public interest in investigating the conduct of the directors of Capitol who, it submitted, had intentionally
arranged Capitol’s affairs to avoid its obligations to contractors under the SOP Act.
43. Finally, it submitted that orders should be made against Central to freeze its assets so as to avoid those assets being disposed of before a liquidator could bring proceedings to secure them. It relied on the summary of the relevant principles relating to such a freezing order against a third party in In the matter of HPack Investments Pty Ltd [2020] NSWSC 1638 at [37]-[49].
Capitol’s position
44. Capitol’s written submissions were directed to the following matters:
(a) there was no basis to lift the stay imposed by Elkaim J because there was no material change in circumstances, the stay was justified because Capitol had engaged in the dispute resolution process under clause 47 of the Contract and the only reason that had not proceeded was because of the position adopted by Bloc; (b) Bloc had commenced the proceedings to challenge the expert determination process and then filed interlocutory applications to convert the hearing listed on 1 - 2 June in relation to the expert determination process into a final determination of the matters before the expert and then decided not to proceed with the attempt to alter the nature of the hearing listed on 1 - 2 June; and (c) the offer of security for judgment made by Central.
45. It submitted that there was a discretion as to whether or not to wind up Capitol even if insolvency was proved. It submitted that Capitol was not insolvent, having an entitlement to claim against Central under the contract in circumstances where Central has unencumbered assets in excess of $7 million with $1,744,522.82 in the bank and a further contract worth $1.35 million to settle shortly. In those circumstances, either the offer by Central to maintain its unencumbered assets at not less than $2.35 million or alternatively an offer to pay into court the amount of $2.41 million to be paid out when a final and binding determination of the liabilities by expert determination or any court proceedings arising therefrom have been completed was sufficient.
46. It submitted that there is no evidence that Bloc is facing any liquidity difficulties. It also
submitted that the court should not allow Bloc’s withdrawal from the expert determination
process and Bloc’s challenge to that process to stymie the expert determination process.
47. In oral submissions senior counsel for Capitol and Central placed significant emphasis upon whether or not the court should exercise its discretion to make a winding up order. He accepted that there was a judgment enforceable under the SOP Act and the policy reflected in that Act. His approach was to attack the merits of the substantive position of Bloc under the building contract and point to what might be characterised as its obstructive conduct in relation to the determination of the substantive dispute by an expert pursuant to the building contract. He pointed, in particular, to evidence of attempts by Bloc to impose conditions about security for judgment upon the agreement to engage in expert determination. He pointed to the terms of the contract relating to payment claims, the date of practical completion and the obligation to pay liquidated damages. He submitted that the substantive position which existed under the contract was either:
(a) the date for practical completion was 27 March 2020 or 1 April 2020 in which case there were only modest liquidated damages payable but the whole of the claim made by Bloc which was the subject of the adjudication was made too late and hence unrecoverable; or (b) the revised practical completion date was the appropriate one in which case, although it was open to have made the payment claim the subject of the adjudication, very substantial liquidated damages were payable because of the delay in reaching practical completion. 48. He pointed to the very substantial payments (approximately $61 million) that had been made under the contract as indicating that it was not a case of Capitol being unwilling to make payments. He submitted that the process was in train to resolve the substantive disputes and that was a more efficient and appropriate way in which to resolve the matter in light of the undertaking that was prepared to be given by Central. He submitted that that course was more favourable than involving the very significant expense arising from the appointment of a liquidator.
Central’s last-minute offer
49. The submissions in the proceedings were heard last Friday, 23 April 2021, concluding at about lunchtime. The court adjourned until 3.45pm at which point I was in a position to give my decision and reasons. However, when the hearing resumed Mr Walker SC, who appeared with Mr Buckland for Capitol and Central, conveyed to me in general terms an undertaking that that Central was prepared to give if a winding up order was not made. That undertaking was, in general terms, for Central to pay on behalf of Capitol to Bloc the amount that had been undisputed on 15 July 2020 ($1,595,157.19) and pay the balance of the judgment amount into court. It soon emerged that this proposal needed to be more precisely documented in order that Bloc have an opportunity to consider its position in relation to it. I therefore adjourned the proceedings until Tuesday morning (a long weekend intervening) at which time the proposed undertaking had been documented and Bloc had had an opportunity to consider that proposal.
50. The proposed undertaking was recorded on a document which I will mark for identification as MFI A. The proposed undertaking was, in summary:
(a) Central would pay the amount of $1,595,157.19 to Bloc in partial satisfaction of Capitol’s liability under the registered judgment;
(b) Central would pay the sum of $820,000 into court to be paid out upon the final and binding determination of the liabilities of Capitol and Bloc; (c) the money paid into court would remain the property of Central; and (d) Central would undertake that the monies paid into court were to be paid out in satisfaction of any liability of Capitol where that liability exceeded the $1,595,157.19 already paid. 51. Bloc made a number of submissions directed to the detailed language of the proposed undertaking, concern about the quantum proposed and whether the language of the undertaking was designed to obscure some forensic advantage sought to be obtained by Capitol in relation to the processes for the resolution of the dispute.
52. Counsel for Capitol and Central submitted that any difficulties with quantum or language could be resolved and that the expert determination process incorporated within it a
capacity to obtain from the expert an order requiring Capitol to provide security for Bloc’s
costs of that process. He orally applied for leave to permit Central to oppose the winding
up on the basis of the proposed undertaking.53. Counsel for Bloc ultimately submitted that even though in the short term the undertaking may be one which was favourable to Bloc it did not avoid the difficulties in the long-term associated with the necessity to litigate against an empty shell. Counsel submitted that the position remained that Capitol was presumed to be insolvent and nothing involved in the undertaking displaced that presumption or provided an appropriate reason not to order the winding up of an insolvent company.
Capitol should be wound up
54. In my view it is clearly appropriate to discharge the order made by Elkaim J preventing Bloc from pursuing the winding up. That order was made in the context where a hearing would be able to be conducted within a very short period of time. Instead of a prompt hearing of those issues, the earliest available date for the two day hearing was 1 and 2 June 2021. The order was made at a time when the grounds of opposition and evidence in support of that opposition were unknown. Further, his Honour expressly contemplated when he listed the matter before me that further applications would be filed, including the application that was in fact filed to permit Bloc to proceed with the winding up and I do not consider that the stay order was intended to preclude subsequent variation of the order in response to those applications.
55. As will be apparent from the summary of the submissions set out above, Bloc relies upon the judgment arising from the registration of the adjudication certificate. That and the partially unsatisfied debt redirection order provides the basis for the contention of insolvency. On the other hand, while acknowledging the effect and policy of the SOP Act, the submissions of Capitol and Central make no real attempt to explain how the position adopted is consistent with the Act. They seek to focus on the potential for early resolution of the substantive disputes between the parties as a discretionary reason why the company should not be wound up. By adopting that approach, they seek to frame the dispute as one where the provision of security or partial payment pending the resolution of the contractual processes would be sufficient to deflect the application for the winding up of Capitol.
56. In my view, the approach taken by the defendants fails to have regard to the significance of the judgment which is being enforced against Capitol. It is very well established that the point of the SOP Act is to shift the risk of insolvency from the builder to the owner or from the subcontractor to the head contractor as the case may be. The philosophy of
the SOP Act is therefore accurately encapsulated in the expression “pay now argue later”: Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140 at [96];
Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 at [7]; Walton Construction Pty Ltd v Pines Living Pty Ltd [2013] ACTSC 114; 8 ACTLR 57 at [20]; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd [2017] NSWCA 151; 95 NSWLR 82 at [102]; Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282 at [42]; Empire Global Pty Ltd v SA Expert Designs Pty Ltd [2019] ACTSC 244 at [61]. That shift of risk and the requirement to pay first and argue later is reflected in the provisions allowing
adjudicator’s determinations to be enforced as judgments of the court even though that
statutory entitlement does not affect the substantive rights of parties in civil proceedings:
see ss 27 and 38 of the SOP Act.57. The recognition of the fundamental object of the SOP Act as discerned from the terms of the Act goes a long way towards resolving any discretionary issues in this case. In summary, the position is as follows:
(a) Capitol is an empty shell with an entitlement to reimbursement of certain of its liabilities by Central. (b) The directors of Capitol and Central are the same. (c) Central currently has plenty of assets. (d) The directors of Central and Capitol have chosen not to allow or cause Capitol to pay the judgment debt arising from the adjudication certificate. (e) Instead, they have sought to pursue claims said to arise in the contract, the determination of which is likely to take many months and, pending that determination, not pay anything, although that position was altered when Central made its last-minute offer. 58. Prior to the last-minute offer, the only concession towards the policy behind the SOP Act was the proposal to have Central provide security for an amount equivalent to that which it is currently required to pay pursuant to the judgment of the court. In my view, this provides no basis for avoiding the making of a winding up order. There is a very substantial judgment against a company with no assets. Its directors have declined to seek reimbursement from the company, Central (which they also control), which has the capacity to pay the judgment debt. By reason of the fact that the garnishee order was returned partially unsatisfied, the company is presumed to be insolvent. Having regard to the evidence, I am not satisfied that that presumption has been displaced.
59. Further, I do not consider that there is any discretionary reason to not make a winding up order. It is not necessary for the present purposes to reach any final conclusions about the merits of the positions adopted by the parties in relation to the appropriate date for practical completion or liability for liquidated damages. The position adopted by Bloc in relation to the terms of the agreement to engage the expert is not one with obvious merit but that must be seen in the context of the blanket refusal by Capitol to pay anything pursuant to the judgment arising from the adjudication certificate. It is not surprising, in a substantial building contract, that there is potential for arguable claims to be made on both sides. However, the existence of such claims provides no basis for failing to give effect to the unquestionable policy of the SOP Act.
60. Undoubtedly the winding up will be expensive. The very substantial fees which liquidators (and their legal advisers) are able to generate are an unattractive reality of the corporate landscape. However, the necessity for a winding up arises from the position adopted by the directors of Capitol. In that capacity and in their capacities as directors of Central, they appear to have made a calculated decision to attempt to avoid paying the debt which is owed by the company until the final rights of the parties have been determined. To permit them to follow such an approach would be inconsistent with the clear policy of the SOP Act.
61. The last-minute offer represents a departure from that position. It gives rise to the possibility of avoiding the expense involved in the appointment of a liquidator. That has its attractions. However, in my view it is still appropriate to order the winding up of Capitol. Fundamentally the position has not changed. Capitol is presumed to be insolvent by reason of its failure to pay the judgment that has been registered. Nothing in the evidence is sufficient to establish its solvency. Requiring Bloc to litigate against an empty shell of a company has its benefits so far as Central and its owners are concerned. However, those benefits do not provide a proper discretionary reason to avoid winding up Capitol. Capitol has had every opportunity to pay the judgment amount in a manner consistent with the SOP Act or otherwise demonstrate that it is solvent. It has failed to demonstrate solvency. The registered judgment remains unpaid. In those circumstances, notwithstanding the last-minute offer, it is appropriate that Capitol be wound up
62. Bloc has complied with all of the procedural requirements for the winding up application, including as to filing, advertising, notice to ASIC and service. There was no contention that these requirements were not met.
63. The liquidators’ consent that was filed is that of Henry Joseph Kazar and Lachlan
Macarthur Abbott who consent to be appointed as joint and several liquidators of Capitol. Counsel for the defendants submitted that two liquidators ought not be appointed as that would increase the cost of the liquidation. Having regard to the terms of the consent and the absence of any consent from a single liquidator to be appointed, I consider that it is appropriate to appoint the liquidators on the basis upon which they have consented to be appointed. It is not obvious that this will involve duplication on their part rather than providing flexibility in the supervision of staff undertaking the work of liquidation. Having regard to the terms of s 530 of the Corporations Act, it does not appear to me to be necessary to expressly state that they are joint and several liquidators if both of them are appointed and there is no qualification in the order requiring them to act jointly.
Orders against Central
64. Bloc has also sought orders freezing assets of Central so as to prevent the dissipation pending action by the liquidator. The Court has jurisdiction to freeze the assets of a third party, such as Central, in order to preserve those assets for a claim by a liquidator, as
an aspect of the Court’s inherent jurisdiction to prevent frustration of its processes, under
the principles in Cardile v LED Builders Pty Ltd [1999] HCA 18; 198 CLR 380.
65. The principles applicable in a case like this are usefully summarised in In the matter of HPack Investments Pty Ltd [2020] NSWSC 1638 at [36]-[49]. Rule 741 of the Court Procedures Rules 2006 (ACT) is the equivalent of r 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) in New South Wales which was applied in that case. As explained in that case, the freezing order process is available in circumstances where a two-step
process is involved requiring the winding up of the company followed by the liquidator’s
claim. In order to warrant the making of a freezing order, it is necessary to establish a prima facie cause of action and the danger that assets will be disposed of so that any proceedings brought upon the cause of action will be frustrated by the conduct of the third party: see Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321- 322.
66. Here the claim would be under the Development Deed for Central to meet the costs incurred by Capitol including the adjudication decision and registered judgment of the
court. Item 18 of the Development Deed defines “Project Costs” in broad terms as
including:
… all costs, expenses, outgoings (including construction costs, consultants, contractors,
application and approval fees and interest and finance charges) …
67. Clause 5.1 of the Development Deed provides:
The Land Owner agrees to promptly pay as, and when due, all of the Land Owner's Costs and will indemnify the Developer from and against these amounts.
68. Clause 5.3 of the Development Deed provides:
The Land Owner must reimburse all Project Costs to the Developer as part of the Developer's
Fee at the times and in the manner set out in this Deed.69. Capitol is prima facie entitled to indemnity from Central in respect of its building costs. The payment of a judgment arising from an adjudicated payment claim falls within the scope of Project Costs. For these reasons, a liquidator has a strong prima facie case against Central.
70. Central is currently selling the remaining lots in the Capitol development. The most recent position disclosed by the evidence is that there are four apartments which have not yet been sold or have not been the subject of contracts for sale. The estimated net realisable value is approximately $3.938 million. There are further uncompleted contracts on a number of units and Central anticipates receipt of approximately $1.35 million in net proceeds upon completion of those contracts.
71. I accept that the making of a freezing order against a third party would not be appropriate if the only purpose is to provide security for a judgment which might ultimately be obtained in proceedings. What is required is a real prospect that a defendant will dispose of actual assets so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action: see Jackson v Stirling Industries Ltd (1987) 162 CLR 612 at 625.
72. I am satisfied in the present case that there is such a risk. The conduct of the two directors, who are directors of both Capitol and Central, illustrates a course of conduct designed to delay or minimise the prospect of recovery of amounts by Bloc, notwithstanding the existence of a judgment against Capitol. The deliberate decision of the directors to fail to pay the judgment arising from the adjudication certificate and to leave the assetless Capitol without any means of satisfying the judgment in my view represents a course of conduct which gives rise to a real risk that unless restrained, the same directors of Central will deal with its assets in order to attempt to put them beyond reach of a liquidator and hence delay or avoid the payment of amounts ultimately found to be due.
73. However, I consider that the relief granted ought to be the minimum relief necessary in order to protect the position of the liquidator. Therefore, I will only make an order that operates for a period of 28 days. That will allow the liquidator, upon appointment, to assess the position of Capitol in relation to the contract with Central and, if no other resolution can be worked out, commence proceedings sufficient to protect the position of the company. Although the requirement for such rapid action is likely to increase the costs of the liquidation, I consider that this model reflects the appropriate balance between the entitlements of Bloc to a freezing order and the interests of Central to deal with its assets as it sees fit.
Orders
74. In proceedings SC 79 of 2021, the orders of the Court are:
1. Crafted Capitol Pty Ltd has leave to oppose the application for winding up on the grounds set out in the notice of appearance dated 10 March 2021.
2. Crafted Central Pty Ltd is joined as a party to the proceedings and has leave to oppose the application for winding up on the ground that an order for the winding up should not be made having regard to the undertakings proposed to be
provided by it to the court which are recorded in the document “Undertakings to
the Court ”, which is MFI A.3. Bloc (ACT) Pty Ltd may proceed to wind up Crafted Capitol Pty Ltd.
4. Crafted Capitol Pty Ltd be wound up in insolvency and Henry Joseph Kazar and Lachlan Macarthur Abbott are appointed as liquidators.
5. Upon Bloc (ACT) Pty Ltd by its counsel giving the usual undertaking as to damages, for a period of 28 days after the date of this order, Crafted Central Pty Ltd is restrained, whether by itself, by its servants or agents or otherwise:
(a) from further mortgaging, charging or otherwise encumbering lots in the Capitol Development being the property the subject of units plan 4862; and (b) dealing with the proceeds of sale of lots in the Capitol Development, save as to pay the net proceeds of sale into court. 6. Liberty is granted to the parties to provide to the chambers of Mossop J proposed consent orders varying the scope of order 5 to be made in chambers.
7. Liberty to apply on two days’ notice.
8. Crafted Capitol Pty Ltd and Crafted Central Pty Ltd are to pay Bloc (ACT) Pty
Ltd’s costs of the interlocutory process filed 25 March 2021 and the amended
interlocutory process filed in court on 23 April 2021 and otherwise Bloc (ACT)
Pty Ltd’s costs are costs in the winding up.
9. Orders 3 and 4 are stayed until 4:00pm on 30 April 2021.
[Bloc (ACT) Pty Ltd by its counsel gave the usual undertaking as to damages].
75. The intention behind the grant of liberty to provide consent orders and one of the intentions behind the grant of liberty generally is to permit any issues about the appropriate scope of the freezing order to be resolved by consent or alternatively by having the matter listed for argument.
76. In proceedings ES 9 of 2020 the orders of the Court are:
1. The proceedings are adjourned to the registrar’s directions list at 9:30am on
Tuesday, 11 May 2021, with costs reserved.
77. In proceedings SC 88 of 2021 the orders of the Court are:
1. The proceedings are adjourned to the registrar’s directions list at 9:30am on
Tuesday, 11 May 2021, with costs reserved.
2. Until further directions are made in relation to the proceedings no further compliance with the orders made by the registrar on 9 March 2021 is required.
78. I note that if the hearing listed on 1 and 2 June 2021 has not been vacated, the Registrar should consider that issue on 11 May 2021.
I certify that the preceding seventy-eight [78] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop.
Associate:
Date: 26 May 2021
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