Constructpro Pty Ltd v Maicome Pty Ltd

[2015] VCC 894

IN THE COUNTY COURT OF VICTORIA Revised
Not Restricted

AT MELBOURNE

COMMERCIAL DIVISION
BUILDING CASES LIST

Case No. CI-14-04210

CONSTRUCTPRO PTY LTD	Plaintiff
v.
MAICOME PTY LTD	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	24 June 2015
DATE OF JUDGMENT:	24 June 2015 (revised 29 June 2015)
CASE MAY BE CITED AS:	Constructpro Pty Ltd v. Maicome Pty Ltd
MEDIUM NEUTRAL CITATION:	[2015] VCC 894

REASONS FOR JUDGMENT

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Catchwords:              Practice and procedure – Stay of execution – Consent judgment obtained under the Building and Construction Industry Security of Payments Act 2002 (Vic) – Proceeding commenced by the judgment debtor at VCAT to finally determine the rights of the parties – Whether judgment creditor’s financial position “precarious” – Whether “reputational damage” to judgment debtor and its sole director relevant – Stay refused.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. Andrew of Counsel	Noble Lawyers
For the Defendant	Mr M. Robins, QC and Mr L. Hawas of Counsel	Rigby Cooke

HIS HONOUR:

1The defendant, by summons filed 22 June 2015, seeks a stay of execution on the judgment entered by consent of the parties on 27 October 2014. The preliminary issue that requires determination is whether, before the defendant’s application proceeds, the plaintiff should be required to respond to a notice to produce dated 19 June 2015 seeking financial details relating to the plaintiff company.

2The stay application is made primarily on the basis that the defendant is pursuing litigation at VCAT with a view to determining whether the plaintiff’s entitlement, under its building contract with the defendant, is consistent with the judgment which was entered pursuant to the Building and Construction Industry Security of Payments Act 2002 (Vic).

3The defendant submits that until the VCAT proceeding is determined, the judgment is not conclusive of the parties’ disputes. It further asserts that, because of the defendant’s “precarious financial position”, it is appropriate that a stay be granted, as otherwise, if the defendant were to be successful in the VCAT proceeding, it is likely the plaintiff would not have the financial means to repay monies paid to the plaintiff pursuant to the judgment.

4The defendant relies upon the following evidence to support its contention that the financial position of the plaintiff is precarious:

a.an ASIC search shows that the plaintiff’s paid up capital is $5,000;

b.land title searches suggest the plaintiff does own any real estate in Victoria; and

c.in February 2014, when the plaintiff rendered an invoice to the plaintiff for $871,000, the covering email concluded, “PS I have run out/ and extremely low on money and cash flow. It would be appreciated if we can get this resolved urgently”.

5Defendant’s senior counsel Mr Robins QC, at the conclusion of his submissions, also referred to recent searches of personal property securities which appeared to reveal that there are six registered charges in favour of the plaintiff’s banker and trade suppliers. I assume that this search was undertaken this morning, after discussions between Mr Robins and the bench, when I suggested that there were other avenues of investigation open to a party in his client’s position, apart from undertaking an ASIC search and a search for real property.

6It is appropriate for the Court to take account of the particular facts of the case before it and the conduct of the applicant as matters relevant to determining the question of whether a party should be able to serve a notice to produce, and have it answered, before an application for a stay in respect of a judgment can proceed.

7I consider that this was the approach taken by Beach J in Equuscorp Pty Ltd v Malcolm [2001] VSCA 66, in particular at paragraphs 12 and 13. At paragraph 13, Beach J said that he considered that he was following “a similar course … pursued by the Full Court of the Federal Court in Bailey”.

8In Baileyv Beagle Management Pty Ltd [2001] FCA 60, the Full Court of the Federal Court considered an appeal relating to the service of a notice to produce in a security for costs application. At paragraph 28, the Full Court discussed whether it was a pre-condition to the service of a notice, that “a party must already be in possession of some evidence before issuing a notice to produce”.

9It is apparent from the judgment that there had in fact been substantial material before the primary judge concerning the financial position of the company whose financial position was being considered. At paragraphs 35 and 36, the Full Court examined some of that material, and there appeared little doubt that there were grounds for suspicion in relation to the financial viability of the company, particularly, as the Full Court pointed out, the company had itself “put its financial position in issue” by asserting “ownership of substantial assets” and “liquid funds in excess of $800,000”.

10In the present case, the plaintiff commenced work in relation to the building project in June 2013. The plaintiff was chosen as the builder in circumstances where the defendant asserted its existing builder had not carried out work appropriately and where there appeared to be substantial work which was incomplete and/or required rectification. The parties signed a contract on 7 August 2013, fixing the sum of $270,000 for the completion works. Later, substantial rectification works were carried out. Before those works were completed, the parties agreed on a variation to their contract to recognise that the plaintiff should be compensated for the rectification works.

11The plaintiff was paid the sum of $270,000 for the completion of the contracts works, and part of a smaller invoice for other works. The rectification works were included in the progress claim made by invoice dated 19 February 2014, seeking a total of $871,560. It was in the context of the service of this invoice, and the works having proceeded over a period of some eight months, that the post script to the email (that I have previously referred to) was included.

12There was no evidence before me that the plaintiff, and in particular the individuals behind that company, carried on business through a number of different entities, or that the plaintiff itself does not continue to carry on business some sixteen months after provision of the invoice dated 19 February 2014 for $871,000, which was the subject of the judgment enter on 27 October 2014 and which still remains unpaid.

13In my view, it cannot be said, as the defendant’s counsels’ submissions and its sole director’s affidavit assert, that “on the available evidence, Constructpro’s financial position is precarious”. In fact there is no evidence at all that the plaintiff’s financial position is unstable.

14A notice to produce, dated 19 June 2015, was apparently served on 20 June 2015. The defendant’s summons was filed on 22 June 2015, although it was foreshadowed in an email dated ­­­­11 June 2015. The summons is supported by a very substantial affidavit sworn by George Iliov on 21 June 2015, but apparently was not served until at least the following day. The plaintiff sought to anticipate the material to be filed by the defendant and relied upon an affidavit by Claudio Salvatore, sworn 16 June 2015.

15I consider, having regard to the state of the evidence relating to the financial position of the plaintiff, that it is inappropriate to delay proceeding with the application until the plaintiff is required to respond to the notice to produce, or even to parts of it. The onus in relation to a stay application is a high one; ordinarily, an applicant is required to show special circumstances, and particularly where the judgment has been outstanding since 27 October 2014 and was entered by consent.

16I consider that it is incumbent on an applicant, such as the defendant, to come to court with more than is apparent from the evidence at present, rather than seeking to rely upon what may or may not emerge after disclosure by the plaintiff in compliance with the notice to produce. In those circumstances, I will not require the plaintiff to respond to the notice to produce and the defendant should proceed forthwith with its application.

17I have now heard argument in relation to the substance of the defendant’s application for a stay of execution on the judgment entered against it on 27 October 2014. In view of the comments I made as to the evidence of the financial position of the plaintiff, Mr Robins, without conceding the matter, did not pursue further argument in support of the defendant’s summons on the basis that, if the judgment were not stayed, it was likely the defendant would not recover the fruits of any success in the VCAT proceeding.

18I consider in relation to that ground that:

a.firstly, there is no evidence to support a finding that the plaintiff lacks the financial ability to meet any adverse judgment in the VCAT proceeding, particularly if in the meantime the defendant is paid the outstanding judgment;

b.there is little basis for me to assess the defendant’s prospects of success in the VCAT proceeding. I have read both Mr Iliaov’s and Mr Salvatore’s affidavits and I am not presently persuaded that it is more likely the defendant will succeed in the VCAT proceeding.

19The ground argued before me was that the defendant company and its director, Mr Iliov, are suffering and are likely to suffer further “reputational damage”, if execution is permitted to proceed in respect of the judgment.

20I was referred to the decisions of the Court of Appeal in Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 195, Li v Herald & Weekly Times Pty Ltd [2008] VSCA 201 and Saville v Hallmarc Constructions Pty Ltd [2015] VSCA 144.

21In Narain, Ashley JA, with whom Maxwell P agreed, stated that special circumstances justifying a stay of execution might be constituted by the possibility of an appellant being made bankrupt in advance of the conclusion of the appeal, and the effect that this would have on the reputation of the appellant (paragraph 21). This principle was followed in the later cases referred to.

22The three cases involved an individual (rather than a corporate) appellant and were determined in the context of an application for a stay pending appeal in circumstances where the Court was satisfied that the appeal had some prospect of success. I was not referred to any case where the possible reputational damage to a corporate appellant was referred to or, as Mr Robins described it, to the “collateral reputation of the director” of a corporate appellant.

23The evidence of the likely reputational damage to the defendant and to Mr Iliov is general rather than specific. Reputational damage would be more obvious in the case of sequestration of an individual. It is not as obvious in the case of the defendant, where the only development it has pursued has apparently been the development leading to the present litigation. It is not clear either whether there has been, or is likely to be, any specific loss of reputation with respect to Mr Iliov, despite the responsible position he holds and, which apparently has considerable involvement with the construction industry.

24Notwithstanding these matters, I consider that the defendant’s application should be refused, primarily for the following reasons:

a.the application is brought some 8 months after judgment was entered by consent of the parties. The judgment has not been appealed;

b.judgment was entered pursuant to the Building and Construction Industry Security of Payments Act 2002 (Vic) in circumstances where the accepted purpose and philosophy of the Act is “pay now, argue later”. It is anticipated, in such cases, that there may be substantial disputes arising under the contract between the parties, which may need to be litigated, even though judgment pursuant to the Act has been entered;

c.even if a successful plaintiff who has obtained a judgment under the Act is impecunious, a stay will not automatically be granted. There is no evidence of a risk that the defendant, if successful in the VCAT proceeding, might not recover the fruits of that litigation. Ordinarily a stay would only be granted if there were a real risk that the plaintiff would not be able to repay the present judgment in circumstances where the judgment was later effectively reversed in the VCAT proceeding;

d.the defendant has an unqualifiable prospect of success in the proceeding at VCAT. It is not an equivalent position to a party considered by an appeal court to have real prospects of success upon appeal and who, if successful, would be denied the consequences of a successful appeal, or would suffer reputational damage, if a stay were not granted;

e.it is suggested in the defendant’s affidavit material that there are few options for the defendant, other than the prospect of its liquidation and/or the forced sale of properties by the sheriff. There is however no compelling evidence that the defendant is not in a position to meet the judgment from its available resources, or to obtain the necessary funds in order for it to do so. If it were to meet the judgment debt, it could pursue the VCAT litigation, hopefully to a reasonably speedy conclusion;

f.the defendant admits that, even if it were successful in the VCAT proceeding, there would be a sum estimated by it of $280,000 to which the plaintiff would be entitled. The defendant has offered to provide security for this sum. It has not offered to pay the sum. It has not provided, in my view, persuasive evidence that the sum of $280,000 is a realistic estimate of the likely entitlement of the plaintiff. Certain items in the progress claim made by the plaintiff, which form part of the judgment, are discounted entirety in circumstances where this does not, in my view as presently informed, appear appropriate.

25    Accordingly, the defendant’s summons filed 20 June 2015 is dismissed.

26    I will further order that the defendant must pay the plaintiff’s costs of the summons filed 20 June 2015, including the costs of the hearing today and the costs associated with the filing of the affidavit of Claudio Salvatore sworn 16 June 2015, to be assessed by the Costs Court on a standard basis in default of agreement.

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Certificate

I certify that these proceeding 6 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 24 June 2015 and revised on 29 June 2015.

Dated: 29 June 2015

Mi-Lin Chen Yi Mei   

Associate to His Honour Judge Anderson