Coal Projects Pty Ltd v Maicome Pty Ltd
[2018] VCC 1730
•30 October 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-13-05864
| COAL PROJECTS PTY LTD (ACN 153 272 612) (in liq) | Plaintiff |
| V | |
| MAICOME PTY LTD (ACN 111 961 712) | Defendant |
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JUDGE: | HER HONOUR JUDGE A RYAN | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 12 September 2018 | |
DATE OF RULING: | 30 October 2018 | |
CASE MAY BE CITED AS: | Coal Projects Pty Ltd v Maicome Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1730 | |
REASONS FOR RULING
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Subject: PRACTICE AND PROCEDURE
Catchwords: JUDGMENT – whether ex parte judgment entered irregularly under the Building and Construction Industry Security of Payment Act 2002 (Vic) Act because the plaintiff was not a “claimant”
STAY – whether stay should be granted where set-off claimed - application of s47 of the Building and Construction Industry Security of Payment Act 2002 (Vic) and s553C of the Corporations Act 2001 (Cth) – whether stay should be ordered subject to provision of further security
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic), Building Act 1993 (Vic), Corporations Act 2001 (Cth), County Court Act 1958 (Vic), County Court Civil Procedure Rules 2008
Cases Cited:Brodyn v Dasein [2004] NSWSC 1230
Façade Treating Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247
Jackson v Goldsmith (1950) 81 CLR 446
Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq) [2018] NSWSC 412
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A T Schlicht | Vadarlis & Associates |
| For the Defendant | Mr S D Hay | Rigby Cooke Lawyers |
HER HONOUR:
1 On 28 November 2013, an ex parte judgment was entered in favour of the plaintiff (“Coal”) against the defendant (“Maicome”) in the amount of $305,737.77, being the claim of $291,545.80 together with interest and costs (“the judgment”). Maicome subsequently filed an application seeking to set the judgment aside. On 21 February 2014, Judge Anderson made orders staying the judgment subject to Maicome providing security (“the stay”).
2 Some four years later, Coal and Maicome have filed summonses which bring into question the enforceability of the judgment and the continued operation of the stay.
3 Coal seeks orders in its summons dated 31 July 2018 that the stay be lifted, alternatively, Maicome comply with Order 1 of the orders made on 21 February 2014. Coal wishes to restore the status quo provided for by the stay in circumstances where a performance bond given by Maicome by way of security has lapsed. Coal argues it should be at liberty to take steps to enforce the judgment unless Maicome provides further security as a condition of any stay being granted.
4 The primary relief sought by Maicome in its summons dated 8 August 2018 is that the judgment be set aside. The basis for this application is that the judgment was entered irregularly and consequently, is a nullity. Alternatively, Maicome seeks an order the judgment be stayed.
5 The parties rely on materials filed in respect of the earlier application to set aside the judgment together with affidavits sworn more recently. Coal relies upon:
· three affidavits sworn by Travis James Connors, the sole director of Coal, on 11 November 2013, 4 December 2013, and 20 February 2014;
· two affidavits sworn by Eric Vadarlis, solicitor, sworn on 31 July and 21 August 2018.
6 The affidavits relied upon by Maicome are:
· five affidavits sworn by Mr George Iliov, a director of Maicome, on 11 February, 17 February and 20 February 2014 and 7 August and 11 September 2018;
· two affidavits affirmed by Demian Walton, solicitor, on 17 August and 20 August 2018.
7 Both parties filed written submissions.
Background
8 On 7 February 2012, Coal and Maicome entered into a domestic building contract for the construction of 12 units at 39-41 Ferguson Road, Leopold (“the contract”). Coal entered into the contract as builder and Maicome as owner and developer. The construction price was $1,100,000 which was subsequently increased to $1,235,000 pursuant to a contract addendum dated 1 April 2012.
9 Coal commenced work on the development in about April 2012.
10 By January 2013, Coal had submitted progress payment claims totalling $861,031.70 which were paid by Maicome.
11 Between 18 October 2012 and 18 June 2013, Coal submitted 7 invoices totalling $291,545.80.
12 On 25 April 2013, a preliminary report setting out 66 items of defective work in respect of the development was provided by Mr James Campbell of Building and Construction Management.
13 On 22 May 2013, the Victorian Building Authority (“VBA”) cancelled the builder’s practitioner’s registration of Travis Connors, the sole director of Coal.[1]
[1]See Exhibit DW1 to the affidavit of Mr Walton sworn 17 August 2018
14 Maicome terminated the contract on 31 May 2013 as a result of the cancellation of Mr Connors’ registration as a building practitioner.
15 A winding up action was commenced in the Supreme Court against Coal by IC Hire Pty Ltd, an unrelated creditor, on 5 June 2013.
16 As at June 2013, the development was approximately 80% completed.
17 On 11 June 2013, Coal served a payment claim on Maicome for $291,545. Maicome did not provide a payment schedule in response to the payment claim.
18 Coal subsequently lodged an adjudication application on 12 July 2013. On 29 July 2013, the adjudicator appointed provided a determination in the sum of $291,545.80 in Coal’s favour.
19 On 7 August 2013, Maicome engaged Construct Pro Pty Ltd to rectify and complete the works. The amount agreed to complete the works was $270,000 and to rectify defects on a costs basis. The contract was formulated in that way because the defects could not be quantified at that time.
20 On 23 October 2013, the adjudicator wrote to Coal and Maicome enclosing her determination. An adjudication certificate was issued on 4 November 2013.
21 On 11 November 2013, Mr Connors swore an affidavit to the effect that the adjudication certificate had been issued and the amount in question had not been paid.
22 An originating motion was filed on behalf of Coal on 13 November 2013. Judgment was entered ex parte in the amount of $305,737.77 in favour of Coal on 28 November 2013 pursuant to the adjudication certificate issued on 4 November 2013.
23 A warrant of seizure and sale was filed on 3 December 2013. Mr Connors swore an affidavit in support of the warrant on 3 December 2013.
24 On 20 December 2013, Coal was wound up by order of the Supreme Court. Mr Clyde Peter White and Mr Phillip Newman of PCI Partners were appointed liquidators.
25 On 11 February 2014, Maicome filed a summons seeking to set aside the judgment under r22.15 of the County Court Civil Procedure Rules 2008 (Vic).
26 Mr Iliov swore an affidavit on 21 February 2014 in support of the application to set aside the ex parte judgment.
27 Mr Connors swore an affidavit on 20 February 2014. Maicome’s counsel points out that Mr Connors’ affidavit made no mention of the fact that he had lost his builder’s registration.
28 The application to set aside the judgment was ultimately not dealt with on the merits but instead proceeded by way of an application for a stay. The reasons for this are set out in the correspondence between the parties’ lawyers and in the submissions filed by counsel retained on behalf of Maicome dated 21 February 2014.[2]
[2]See Exhibit GI-1 to the Iliov affidavit sworn 20 February 2014 and Exhibit GI-5 to the Iliov affidavit sworn 11 September 2018
29 The relevant orders of Judge Anderson made on 21 February 2014 are as follows:
“1. The judgment entered 28 November 2013 against the defendant is stayed on condition that the defendant either:
a.pay into Court the sum of $305,737.73 by 14 March 2014; or
b.provide security for the said sum in a form which has been agreed between the parties or is the subject of a further successful application to the Court by the defendant, both of which steps are required to be completed prior to the date referred to in paragraph (1)(a).
2. The defendant has leave to make a further application to the Court to reduce the amount of the security if it appears that security has been provided by the defendant during the course of the construction contract.
3. The plaintiff may make application to terminate the stay even though the security has been provided, if the defendant fails within 14 days to lodge its proof of debt with the liquidator of the plaintiff, or if the proof of debt is rejected by the liquidator to seek leave of the Federal Court or Supreme Court to bring a proceeding against the plaintiff, and to pursue that proceeding to resolution.”
30 Agreement was reached between the parties regarding the form of security to be given in Order 1(b). A performance bond was provided for 12 months.
31 Maicome lodged a proof of debt with the liquidators’ solicitors on 26 February 2014. A second proof of debt was served on 11 February 2016. The amount Maicome now claims it is owed by Coal is $1,033,237.[3] The liquidators have not yet determined whether to accept the proof of debt. A stalemate appears to have arisen whereby the liquidators sought further information from Maicome as recently as May 2017, which they say has not been adequately provided. This is disputed by Maicome for the reasons set out in paragraph 37 of the defendant’s outline of submissions dated 11 September 2018.
[3] Paragraph 46, Iliov affidavit sworn 7 August 2018.
32 In June 2014, Maicome made a claim upon its insurer, Victorian Managed Insurance Agency (‘VMIA”) for the costs claimed from Coal. The insured under the policy is Maicome although the premium is paid by Coal as builder. The insurer accepted the claim but not for the full amount claimed. VMIA agreed to pay the sum of $560,000.
33 The performance bond provided by Maicome pursuant to Order 1(b) of the judgment expired on 31 March 2015.
34 In August 2015, Maicome resolved its dispute with the subsequent builder, Construct Pro Pty Ltd, after proceedings had been commenced by Maicome.
35 As at 30 July 2018, the amount of the judgment has increased to $448,959.19 with the addition of interest.
Plaintiff’s submissions
36 Coal seeks to enforce the judgment or alternatively, Maicome be ordered to renew the performance bond thereby maintaining the status quo of the earlier orders. Maicome did provide security in the form of a performance bond issued by CBL Insurance Limited for the sum of $305,757.73. The bond expired after 12 months. Coal contends Maicome is in breach of Judge Anderson’s orders because Maicome did not renew the performance bond thereafter. Coal argues the stay should be lifted unless Maicome reinstates the security. Coal seeks an order that a performance bond be given by Maicome in the sum of $448,959.19, being the current level of indebtedness, as a condition of any stay being granted.
37 Coal says the judgment was properly obtained under the Building and Construction Security of Payments Act 2002 (Vic) (“SOP Act”) due to Maicome’s failure to serve a payment schedule. Therefore, in those circumstances, the judgment cannot be set aside.
38 Coal argues it is an abuse of process for Maicome to seek to re-agitate its summons filed on 11 February 2014 on the basis that this has already been determined and as such is res judicata. Further, in any event, the relief sought by the defendant relating to the set-off claimed is inappropriate to be determined in a summary application which is why Judge Anderson made the orders he did in February 2014.
39 Coal argues the insurance proceeds of $560,000 received by Maicome from VMIA needs to be brought into account in assessing any set-off claimed by Maicome against Coal for incomplete and defective works. Further, Maicome has assigned away any offsetting claim against the plaintiff to VMIA by reason of the terms of each release and authority Maicome signed as a condition of receiving the insurance payout from VMIA. To the extent that Maicome will wish to argue the insurance proceeds should not be taken into account because the payment was a collateral benefit, Coal submits this doctrine does not apply.
Defendant’s submissions
40 The primary submission put forward by Maicome is that Coal was not a “claimant” as defined by the SOP Act and therefore was not entitled to serve a payment claim on Maicome or seek judgment pursuant to the SOP Act.
Plaintiff was not a claimant pursuant to the SOP Act
41 Mr Connor’s building practitioner registration was cancelled by the VBA on 22 May 2013, after he was found guilty of 21 allegations of misconduct.[4] Maicome submits the consequence of this was that Coal was expressly prohibited pursuant to s169F of the Building Act 1993 (Vic) (“Building Act”) from carrying out any building works on a major domestic building contract. Under this section, it is an offence for a person to carry out major domestic building work unless the person is a registered builder.
[4]See Exhibit DW-1 to the affidavit of Walton sworn 17 August 2018 and Exhibit G1-1 of the affidavit of George Iliov sworn 7 August 2013.
42 Maicome terminated the contract following the cancellation of Mr Connor’s building practitioner’s registration on 31 May 2013.[5] The argument put forward by Maicome is that when Coal served its payment claim on 11 June 2013, Coal was not a claimant as defined in the SOP Act. The reason being that Coal did not then have a registered building practitioner as a director and therefore, could not continue to carry out construction work. The judgment was obtained before liquidation but after Mr Connors had lost his licence. Consequently, Coal was not entitled to a progress payment and had no standing to serve a valid progress claim on Maicome for a progress payment under s14(1) of the SOP Act.
[5]Affidavit of George Iliov sworn 7 August 2013 at paragraph 9
43 In respect of this submission, Maicome relies upon the decision of the Court of Appeal in Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd.[6] This decision was given some three years after the judgment was entered in 2013. The Court of Appeal considered the entitlement of persons to progress payments where a company had gone into liquidation. In that case, a sub-contractor, Façade, had served a progress claim on a contractor, Brookfield. Brookfield did not serve a payment schedule or pay the sums claimed. Façade was wound up on 6 February 2013. On 26 September 2014, Façade commenced proceedings seeking recovery of the unpaid payment claims. The Court of Appeal held that Part 3 of the SOP Act was not available to persons in liquidation.
[6][2016] VSCA 247
44 Their Honours noted at paragraph 84:
“In our view … s 9(1) creates an entitlement to progress payments only for persons who have undertaken to, and continue to, carry out construction work or supply related goods and services. The term ‘the claimant’ used throughout Pt 3 is commensurately limited. Consequently, the payment regime in Pt 3 of the BCISP Act [SOP Act] is not available to companies in liquidation, since such companies cannot carry out construction work or supply goods and services, and thus do not satisfy the requirements for ‘a claimant’.”
45 Section 4 of the SOP Act defines a claimant as:
“‘claimant’ means a person who serves a payment claim under section 14;”
46 Section 14(1) of the SOP Act specifies a person referred to in s9(1) who is or claims to be entitled to a progress payment (“the claimant”) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment. Section 9(1) of the SOP Act refers to claimants and provides as follows:
“(1) On and from each reference date under a construction contract, a person—
(a) who has undertaken to carry out construction work under the contract; or
(b) who has undertaken to supply related goods and services under the contract—
is entitled to a progress payment under this Act, calculated by reference to that date.”
47 Maicome contends Coal ceased to be a permissible claimant pursuant to the SOP Act and therefore was precluded from serving the progress payment claim on Maicome under s14(1) of the SOP Act and from then on undertaking all the subsequent steps leading up to the entry of judgment.
48 In these circumstances, Maicome submits the County Court has unknowingly acted ultra vires in entering judgment against Maicome and the judgment is therefore void. Maicome asks the Court to exercise its powers under s49 of the County Court Act 1958 (Vic) and set aside the judgment on the grounds it was entered irregularly and/or is a nullity.
Stay by reason of set-off claimed
49 Alternatively, Maicome seeks a stay on the judgment as a result of the claims it makes against Coal by way of set-off against the judgment sum.
50 Maicome submits that any debt which may have been owing by it to Coal, which is denied, has been set-off against the debt owing by Coal to Maicome pursuant to:
(i)clause 20.4 of the contract;
(ii)s47(1) of the SOP Act; and
(iii) s553C of the Corporations Act 2001 (Cth) (“Corporations Act”)
51 Maicome relies upon clause 20.4 of the contract which provides that:
“(a)Upon termination if the reasonable costs to complete the works exceeds the unpaid balance of the contract price, then the excess amount should be a debt due and payable by the builder to the owner; or
(b)If the reasonable costs to complete the works is less than the unpaid balance of the contract price, then the remaining amount of the unpaid balance should be a debt due and payable by the owner to the builder.”
52 Maicome contends that at the date of termination of the contract, being 31 May 2013, the unpaid balance of the contract price was $373,968.30, being $1,235,000 less payments made by Maicome of $861,031.70 to Coal and its contractors.[7] The actual cost to complete the works of the development was $1,160,034; being $270,000 for completion works plus $890,034.20 for rectification works undertaken by Construct Pro Pty Ltd. The result is that clause 20.4 operates to create a debt owing by Coal to Maicome under the contract.
[7]Affidavit of Iliov sworn 11 September 2018, paragraph 7(a)
53 The fact that the costs were reasonable, Maicome says is supported by VMIA’s independent assessment of the rectification works in the sum of $532,404.48 (not including the cost of completion works).[8] The effect then, the submissions continue, is that the termination of the contract resulted in a debt owing by Coal to Maicome and not a debt owing by Maicome to Coal in accordance with clause 20.4.
[8]Affidavit of Iliov sworn 7 August, paragraph 38
54 Maicome submitted clause 20.4 came into effect upon termination of the contract and before the VMIA process commenced. It argued that Coal had not grappled with the effect of clause 20.4 in its submissions or affidavits.
55 Maicome says that if the amount of the judgment were now to be paid by Maicome to Coal, such amount would be added to the debt owing by Coal to Maicome by a court or tribunal determining the parties’ rights under the contract. This would occur either by operation of:
(a)clause 20.4 itself by reducing the unpaid balance of the purchase price; or
(b)s47(3) of the SOP Act, which would require any court or tribunal to take the interim judgment into account in determining the ultimate entitlements and liabilities of Maicome and Coal under the contract.
Section 553C – automatic set-off
56 Maicome argues its liability to Coal under the judgment has been extinguished as a result of an automatic set-off pursuant to s553C.
57 Section 553C of the Corporations Act provides as follows:
“Insolvent companies--mutual credit and set-off
(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a)an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b)the sum due from the one party is to be set-off against any sum due from the other party; and
(c)only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
(2) A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.”
58 If Maicome were to pay the amount of the judgment to the plaintiff, it would not be protected by clause 20.4 or s47(3) because in proving its debt in the winding up of Coal, it would receive back only a fraction of its debt as opposed to Coal, which would receive 100 cents in the dollar in respect of the payment of the judgment by Maicome.
59 It was put the effect of s553C of the Corporations Act is to prevent the unjustness which would result if Coal could now recover its judgment debt. It was said that upon the winding up of Coal, Maicome’s liability to Coal under the judgment was automatically set-off under s553C by its corresponding entitlement to receive back from the plaintiff the same amount, if it were to pay under clause 20.4 of the contract or under s47(3) of the SOP Act.
60 Consequently, these matters demonstrate the reasons why a stay ought to be granted, being the alternative relief sought by Maicome, either permanently or pending a taking of accounts between the parties.
61 Additionally, Maicome says the Court should grant a stay exercising its unfettered discretion under r66.16 of the Rules.
62 Arising from these submissions, the following questions arise for determination:
(1) was the judgment entered irregularly and should it be set aside as a nullity;
(2) is Maicome precluded from arguing the nullity point because the issue is res judicata;
(3) assuming the default judgment was entered regularly, should a further stay be ordered;
(4) if a stay is ordered, should Maicome provide further security as a condition of any stay being granted?
(1) Irregular judgment
63 Maicome’s contention is that the judgment was entered irregularly because Coal was not a “claimant” under the SOP Act. Because Mr Connors lost his registration as a builder, Coal could not continue to carry on the works and therefore was ineligible, applying the reasoning in the Façade case.[9] The facts of the Façade case are somewhat different in that the Court of Appeal held that where judgment was sought to be entered after Façade had gone into liquidation, Façade was not properly a claimant because it could no longer continue to carry out the works. By contrast, Coal was not in liquidation when the ex parte judgment was entered in November 2013.
[9]Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247
64 As counsel for Coal points out, Maicome terminated the construction contract in May 2013. Consequently, it was impossible for Coal to continue to carry on the works in circumstances where its services had been terminated.
65 Additionally, Coal says the issue of the lack of a director who was registered could have been overcome and another director who was a registered builder, could have been appointed to Coal. If that occurred, then notionally Coal could have continued to carry on the construction work assuming its services had not been terminated.
66 There is no suggestion nor was it put that Coal carried on any works whilst Mr Connors was deregistered. The evidence shows that the invoices rendered in support of the payment claim were issued prior to his deregistration, with the exception of the last invoice which is dated 11 June 2013. This invoice claims the additional sum payable of $135,000 referable to the addendum to the contract varying the agreed contract price.[10] Accordingly, the payment claim related to work done by Coal at a time when Mr Connors was a registered builder. Subject to any later adjustment to be made under s47 of the SOP Act, Coal had a prima facie entitlement to be paid under the interim scheme permitted under the SOP Act.
[10]See Exhibit GI-1 to the Iliov affidavit sworn 7 August 2018 at pp 90 – 90.
67 All of these factors, in my view, take this case sufficiently away from the facts considered in Façade so as to be materially different and therefore distinguishable. Accordingly, I am of the view that Coal was properly a claimant when the ex parte judgment was entered.
68 Consequently, the judgment was regular and is not a nullity.
(2) Res judicata
69 Maicome submits the res judicata point raised by the plaintiff is without merit because the matter was not heard and determined on 21 February 2014. Instead, Maicome only sought a stay of execution of the judgment which is reflected in the correspondence passing between the parties’ lawyers prior to the hearing and by the outline of submissions which were filed that day.
70 The nullity point now raised by Maicome regarding the lack of Coal’s status to enter judgment because it was not a claimant within the SOP Act is new. It was not raised in the earlier affidavits nor in the written submissions filed by Maicome in 2014. That being so, the nullity issue was not determined by Judge Anderson.
71 The res judicata rule provides that where an action has been brought and judgment entered, no other proceeding can be maintained on the same cause of action.[11] Had the nullity point been raised and determined by Judge Anderson, then the res judicata rule would clearly have applied. Given the matter proceeded before him by way of an application for a stay of the judgment, I do not consider the principle of res judicata prevents Maicome from making its present application.
[11]Per Fullagar J in Jackson v Goldsmith (1950) 81 CLR 446, at 466
(3) Should a further stay be ordered?
72 Coal’s position was that the stay had in effect lapsed because of the expiry of the performance bond and that Maicome was in default of the orders made by Judge Anderson. It is clear an agreement was reached regarding the provision of the performance bond which was to run for 12 months. One can readily assume the reason why 12 months was agreed upon as being the term of the performance bond was that the parties expected their differences to have been resolved within that time frame. The fact this period then lapsed before the resolution of the set-off claim does not, in my view, mean Maicome breached the order. Coal could have sought to have the performance bond renewed before it expired but took no steps to do so. The fact that the bond lapsed does not mean the stay granted ceased to be operative. The stay was conditional upon security being given in the form agreed which is what occurred. The precondition for the granting of the stay did come into effect and the stay remained operative until such time as a further order was made lifting the stay.
73 Regrettably, the question of the amounts, if any, that Maicome is entitled to claim by way of set-off have not progressed to any considerable degree since the orders were made by Judge Anderson in February 2014.
74 In any event, whether the stay expired or not, both parties are in agreement that the Court should, in this application, consider whether a further stay should be ordered ― in other words, a fresh stay. Maicome seeks a stay on the basis that this happens automatically as a result of the operation of s553C of the Corporations Act. This position is confirmed by the decisions of Façade and also Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (in liq).[12] In circumstances where there are mutual debts, as is the case here, I am of the view that the procedures prescribed in s553C do come into effect and this section operates to provide an automatic stay. The winding up attracts s553C and there is no need for a formal proof of debt to be filed before that section applies.[13] If leave was given to enforce the judgment where Coal is insolvent this would defeat the purpose and object of s553C.[14]
[12] [2018] NSWSC 412
[13] Supra at [138],[164] to [166]
[14] See Façade at [162]
75 Further, as contemplated by s47 of the SOP Act, a judgment such as the judgment obtained by Coal is an interim judgment and not a final one. As such, the parties’ rights can subsequently be readjusted pursuant to that section at a later date.[15] The effect of not granting a stay would result in Coal’s interim judgment becoming a final one and would cause Maicome prejudice in that if that sum is paid to Coal, it may not be recouped by Maicome given Coal’s insolvency.[16]
[15] Per Young CJ in Eq in Brodyn v Dasein [2004] NSWSC 1230 at [15]
[16] Supra at [152]
76 Additionally, the decision in Façade precludes companies in liquidation from relying upon the scheme prescribed for interim payment under Part 3 of the SOP Act. To permit Coal to lift the stay and have leave to enforce the judgment would be contrary to that decision, given Coal is now in liquidation.
77 For all these reasons, I am of the view that a stay is warranted until the parties’ rights are finally determined by the accounting required under s553C.
78 Subject to hearing from the parties, I consider the appropriate order for a stay should be:
“There be a stay on execution of the judgment entered on 28 November 2013, pending resolution by legal proceedings or by agreement of the amount payable by Coal to Maicome or payable to Coal by Maicome in accordance with s553C of the Corporations Act.”
(4)Should further security be ordered as a condition of a stay being granted?
79 Coal argues that if a further stay is ordered, it should be on the basis that Maicome provide further security for the amount of the judgment debt claimed as at 30 July 2018.
80 Section 553C came into effect once the winding up order was made. If a further order is made for the provision of security, it would defeat the purposes of s553, which provides the original debt has effectively gone and the only amount to be determined is the balance between the amount claimed and any cross-claim.
81 These matters will be worked out when a decision is made by the liquidators regarding the validity or otherwise of the cross-claim made by Maicome in its proof of debt. There were, as outlined above, considerable arguments made about the validity of the cross-claim. These included whether the amounts had been extinguished by reason of the insurance payment by VMIA. Issues arose about whose benefit the policy was taken out for, whether it be Coal or Maicome, depending upon the construction of the policy and who is the insured. Other arguments related to the question of assignment of any rights to recovery to VMIA and whether the insurance pay out should be disregarded as it was a collateral benefit. The parties were in agreement that these arguments could not be resolved in the application before me and will fall to be considered elsewhere in the absence of agreement.
82 Given the judgment has in effect fallen away by the operation of s553C, it is not appropriate that Maicome now be ordered to provide further security for the current level of the judgment debt as sought by Coal, which is $448,959.19. Until such time as the parties’ rights are finally determined in the accounting that must be undertaken under s553C, it remains unknown what amount will be payable and by whom. Further, I do not consider Maicome should be ordered to provide security as a condition of the stay being granted because of the prejudice it might cause Maicome in circumstances where its claim for a set-off may well exceed the amount of the interim judgment entered by Coal.
83 I will hear from the parties on the proposed form of the stay to be ordered and on the question of costs.
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