Core Building Group Pty Ltd v Dickson Developments; Precinct 1 Pty Ltd (No 2)

[2023] ACTSC 221

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:

Core Building Group Pty Ltd v Dickson Developments Precinct 1 Pty Ltd (No 2)

Citation: 

[2023] ACTSC 221

Hearing Date: 

11 August 2023

Decision Date: 

11 August 2023

Before:

Mossop J

Decision: 

See [56].

Catchwords: 

FREEZING ORDERS – Freezing orders sought against two companies – where each company is a special purpose vehicle for a construction project – where each company called upon security bonds provided by builder – plaintiff fears dissipation of assets in order to frustrate potential judgment – freezing orders granted on an interim basis at prior hearing – whether freezing orders should continue against each of the companies – where each company has put on evidence as to what steps have been taken with the money from the bonds called upon – evidence less than forthcoming – whether there exists a good arguable claim against each company – freezing order continued against second plaintiff – freezing order discontinued against first plaintiff

Legislation Cited: 

Building and Construction Industry (Security of Payment) Act 2009 (ACT)

Court Procedures Rules 2006 (ACT), r 743

Parties: 

Core Building Group Pty Ltd (Plaintiff)

Dickson Developments Precinct 1 Pty Ltd (First Defendant)

Dickson Developments Precinct 5 Pty Ltd (Second Defendant)

Representation: 

Counsel

D Cook SC with W Chan (Plaintiff)

B Buckland (First and Second Defendant)

Solicitors

Crisp Law (Plaintiff)

HFW Australia (First and Second Defendant)

File Number:

SC 309 of 2023

MOSSOP J:  

Introduction

1․Shortly before 5pm on 28 July 2023 I made freezing orders in relation to the assets of two companies, Dickson Developments Precinct 5 Pty Ltd (DDP5) and Dickson Developments Precinct 1 Pty Ltd (DDP1).

2․DDP5 is a special purpose development company responsible for a development known as Mulberry.

3․DDP1 is a special purpose development company responsible for a development known as Kashmir.

4․Both companies are members of what is referred to in the evidence as the Art Group of companies. Both companies have contracts with the plaintiff, Core Building Group Pty Ltd (Core).

5․Those contracts are substantial. The Mulberry Project involves construction of 370 apartments with a contract headline figure of $89,995,922.

6․The Kashmir project involves the construction of 141 apartments with a headline figure of $37,200,000.

7․Both developers are, through a chain of $1 or $2 companies, controlled by Johnny Roso and Elisa Roso. The director of each of DDP5 and DDP1 is Johnny Roso.

8․The construction projects have, unfortunately, reached the stage where both parties are expanding the scope of their disputes and the prospect is that multiple disputes will have to be resolved in accordance with the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOP Act), the dispute resolution provisions of the contract, or by a court.

9․The freezing orders made on 28 July 2023 were made on an ex parte basis. Although the defendant parties appeared and counsel made some limited submissions on that occasion, orders were made for a limited time only in order to permit the defendants the opportunity to put on evidence in reply to the evidence of Core.

Outline of the evidence

10․The evidence put on by Core was principally focused upon the conduct of the director of DDP1 and DDP5, Mr Roso, who caused those companies to make a call upon the security which had been provided pursuant to each of the building contracts.

11․So far as the Mulberry project is concerned, that had been certified as reaching practical completion on 2 May 2022. At that point, the superintendent of the project, Mr Vukoja, determined that practical completion was reached 175 days after the adjusted date for practical completion under the contract.

12․The evidence of Mr Cappello, the director of Core, was that he was concerned about the potential for liquidated damages arising from the 175-day certification. He says he called the superintendent Mr Vukoja and asked whether he needed to worry about the “days over” or whether he just needed to sort out the defects in order to get his bonds back. His evidence was that Mr Vukoja said that he would ask Mr Roso. Mr Cappello’s evidence was that later that evening he spoke to Mr Vukoja again and Mr Vukoja was very clear that if Core got the defects sorted then the bonds would be returned. As a consequence, Mr Cappello says that he did not issue any notice of dispute in the 10-day period that was available under the contract to do so. Consistent with the representation that Mr Cappello says was made, no claim for liquidated damages was made in the following year. Some defect rectification work has continued during that period.

13․On 5 July 2023, without notice to Core, the security bonds in relation to both the Mulberry and the Kashmir project were called upon. The amount thereby obtained was:

(a)Mulberry project $4,499,796; and

(b)Kashmir project $1,860,000.

14․Notice was only given of this having occurred on 10 July 2023, the same day that the money was transferred out of each of DDP5 and DDP1 to other entities in the Art Group. Formal notice of the call upon the security which, contrary to usual practice, had been sent by ordinary mail, was received on 12 July 2023.

15․Core also places reliance upon representations made by Mr Vukoja in the presence of Mr Roso at a meeting on 7 July 2023 (two days after the call had been made) that once completion had occurred one of two bonds on the Kashmir project would be returned.

16․I accepted when granting the interim freezing orders that the evidence disclosed a course of deception relating to the making of the claims on the security bonds and that this was indicative of a potential that the funds so obtained would be removed from DDP5 and DDP1 so as to avoid or impede the potential for their recovery from those companies.

17․The evidence that has now been filed includes three affidavits, one from Mr Roso, one from the superintendent, Mr Vukoja, and one from Mr Huszar, the chief financial officer of the Art Group.

18․Mr Vukoja and Mr Roso both indicate that they do not recall any conversation with Mr Vukoja about liquidated damages as deposed to by Mr Cappello. Mr Vukoja does however say that if asked he would have told Mr Cappello to speak to Mr Roso about the issue.

19․So far as the Kashmir project is concerned, that is a development which is still ongoing. Core asserts that completion of the contract was reached on 30 June 2023. DDP1 asserts that it has not yet been reached and that liquidated damages are payable from 11 November 2022. DDP1 put on evidence of uncooperative and inconsistent conduct on the part of officers of Core in relation to inspection of the site. It is not necessary or possible to make findings as to whether or not Core’s conduct involves a breach of its contractual obligations. The evidence does, however, indicate a degree of hostility and a lack of cooperation arising from the disputes between the parties.

What happened to the money?

20․Although both Mr Roso and the chief financial officer Mr Huszar gave evidence by affidavit, the explanation of what happened to the money remains obscure in some respects.

21․So far as the $1,860,000 received by DDP1 was concerned, this money was transferred out of DDP1. It was used:

(a)to pay a $400,000 Australian Taxation Office instalment for another company within the Art Group; and

(b)to pay $200,000 for “invoices and other financial commitments” for other companies in the Art Group “as part of ordinary end of month payment processes”.

22․The balance of $1,260,000 was held in a bank account of another entity, Macarthur Development ACT Pty Ltd. Pending the court’s decision on the present application, undertakings were given to the court that this amount would be paid back to DDP1.

23․It must be observed that the description of how the $600,000 was spent can be characterised as being deliberately obscure. It is not clear which entity’s liabilities were paid. Further, there is no explicit statement as to how the money was transferred from DDP1 to another entity. It might be inferred that there was a loan but it is not clear how that loan was created or which entity was the debtor for any such loan.

24․So far as the $4,499,796 received by DDP5 is concerned, the position is the same. What happened to that money is described in the affidavit of Mr Huszar in a manner which is deliberately obscure. The money was transferred into “a line of credit facility controlled by Art Group’s Directors”. Who these are is not disclosed, although Mr Roso is likely to be one of them. Of this money, $1,230,000 has been utilised for:

(a)“the acquisition of a commercial asset”;

(b)“addressing tax obligations arising from business transactions”; and

(c)“covering various continuing expenses”.

25․Once again, these descriptions do not disclose, in any useful way, what the money was actually spent on or who spent it. Further, they do not disclose how the money so transferred was treated in the books of DDP5, the books of any borrowing entity or whether there was any loan or other agreement relating to the transfer. The affidavit does not even disclose what entity held the “line of credit facility” into which the payment was made.

26․The affidavit indicates that the balance of $3,270,000 remained in the line of credit facility. It too was subject to an undertaking that it would be paid back into the account of DDP5 pending a decision by the court on the continuation of the freezing orders.

27․Adding to the difficulties of understanding what is really going on are two factors:

(a)The affidavits required to be filed as a result of the operation of the interim freezing order have not yet been provided to the court and are only due to be filed by today.

(b)Further, the relationship between DDP5, DDP1 and the owner of the land or other entities in the Art Group related to these projects is not clear. It is not clear what entitlement to indemnity DDP5 and DDP1 have from any entity within the group.

28․The failure to make clear disclosures of what has happened to the money and the relationship between the entities involved in the Art Group side of the building project and the failure to clearly explain the transactions between them, tends to reinforce the impression that arises from the evidence as to the circumstances in which the claim upon the security bond was made, that the intention is to deny to Core any information that would make it easier to enforce any judgment in the future.

Rule 743

29․Rule 743 of the Court Procedures Rules 2006 (ACT) allows the court to make a freezing or ancillary order or both against a prospective enforcement debtor if the applicant has a good arguable case on an accrued or prospective cause of action, there is a sufficient prospect that an order will be enforced by the court and, having regard to all the circumstances, there is a danger that an order or prospective order will be completely or partly unsatisfied because the assets of the prospective enforcement debtor are disposed of or dealt with or diminished in value.

Summary of current claims

30․As I have indicated earlier, the circumstances of the developments and the relationship between the parties are such that their disputes are at the stage of strategic multiplication and escalation rather than having matured to the point where there is some prospect of resolution.

31․It is, however, relevant to assess the current position of each project as disclosed by the evidence.

Mulberry project

32․So far as liquidated damages are concerned, DDP5 claims that the completion was 175 days late. That would lead to an entitlement to liquidated damages of $4,200,000. This is the amount that Core says that DDP5 is estopped from claiming as a result of communications between Mr Cappello and Mr Vukoja on 6 May 2022. Core has indicated that it will commence proceedings in relation to its claims of unconscionability or estoppel by 25 August 2023.

33․Mr Vukoja also says that Core has been overpaid for certain off-site works not yet completed and the value of those works is $575,000.

34․Core made a payment claim for March 2023. The amount claimed was $106,163.17 (inclusive of GST). No payment schedule was received and as a consequence, under the SOP Act, the amount is a debt due.

35․On 26 July 2023 Core served a payment claim for June 2023. That makes a claim for variations and stormwater works and a claim for the return of the security bond monies. The amount claimed is $5,262,578.97 plus GST, being $4,499,796 for the moneys claimed on the security bond plus $227,566.16 for variations, giving a total inclusive of GST of $5,788,836.87.

36․It is apparent from the above that the principal issue in dispute in relation to the Mulberry project is that of liquidated damages and the claim alleging unconscionable conduct relating to the claim on the security. That is to be the subject of the anticipated proceedings.

Kashmir project

37․Core asserts that the works had been brought to completion as at 30 June 2023. That is not accepted by DDP1.

38․The June Payment Claim was served by Core on 24 July 2023. It makes a total claim of $7,854,361.76. The ex-GST amounts claimed are as follows:

(a)remaining Contract Value including management fee: $1,192,030.98;

(b)variation claims: $1,288,266.87;

(c)unpaid May payment claim: $1,080,641.43;

(d)delay costs pursuant to clause 43.1 of the contract: $2,649,399.60; and

(e)return of 50 percent of the security pursuant to clause 16.4 of the contract.

39․Kashmir asserts that the contractual date for completion was 11 November 2022 and as at 8 August 2023 Core is over 260 days late. In fact, it would be 270 days. Based upon the dates just referred to, the quantum of liquidated damages would be $4,860,000. In the event that the completion date was 30 June 2023 and the project was 231 days late, that would result in a liquidated damages liability of $4,158,000.

40․It is clear that in relation to this project, one of the principal issues will be the date of completion and the extent to which that is beyond the adjusted contractual completion date. That appears to be related also to the claim for delay costs. It is clear that there are significant unresolved claims on both sides of this contract.

Decision on continuation of freezing orders

41․In my view the freezing orders should be maintained in relation to DDP5 but discharged in relation to DDP1.

42․In relation to DDP5, the factual circumstances indicate a good arguable claim that the calling upon the security in reliance upon a claim for liquidated damages is subject to an estoppel or not available because it would be unconscionable.

43․The core of the claim is a factual issue as to what was said between Mr Cappello and Mr Vukoja. That is contested. There is no corroboration of Mr Cappello’s version of events by any contemporaneous correspondence. There is not, at this stage, any corroboration by telephone records. On the other hand, consistently with there having been such a conversation, there was no claim for liquidated damages in the year following the alleged conversation up until the point where the security bond was called upon. There is certainly a serious question to be resolved at a trial as to what occurred and its consequences for the capacity of DDP5 to call upon the security.

44․The quantum of that claim is subject to a contest. One aspect of any monetary remedy will be proportional to the extent to which the assessed delay of 175 days might have been reduced. The claim articulated by Mr Cappello is that it would have been reduced to zero. That will be a matter of contest at trial. Obviously if it is reduced to zero then that will have significant monetary consequences. Further, there will be a claim made for consequential losses. Once again, the evidence does not disclose the quantum of the claim. However, having regard to the sums in question, while such a claim is likely to be more difficult to prove, there is at least the potential for it to be significant.

45․It is clear that the money was immediately moved away from DDP5 and used for the purposes of other entities in the corporate group even if those entities were not identified in the evidence. The evidence as to how that transfer was treated in the books and records of DDP5 and the receiving entity is not clear. It is therefore not possible to say that DDP5 would have a secure claim for the money or that the receiving entity is one from which the money may readily be recovered in order to meet an order or by a liquidator. There is no evidence that DDP5 has any assets other than the potential claim to repayment of the funds paid out. There is no evidence of any entitlement to indemnity from any other entity within the Art Group for liabilities incurred in carrying out the project.

46․The evidence is consistent with DDP5 having no relevant assets by which it might be in a position to satisfy a judgment requiring repayment of part of the security sum and damages as a result of a wrongful claim upon the security sum.

47․The apparently routine course of business of the Art Group has involved DDP5 disposing of the only valuable asset that has been identified, the proceeds of the security bond. In the absence of information as to how this disposal has been achieved (by loan or otherwise) and any information as to the financial security of the receiving entity, there is a significant danger that a prospective order will be completely or partly unsatisfied. That is reinforced by the fact that $1.23 million has already been spent in ways that have been described with deliberate obscurity.

48․Significantly for the purposes of the exercise of discretion as to whether or not to make an order, there is no evidence of any practical or financial difficulty that would arise for DDP5 or any other entity in the Art Group from any continuation of the freezing order. There is no evidence of an existing liability required to be discharged arising from the project that exists and would not be payable in accordance with the terms of the order sought to be extended.

49․I have taken into account the submission that Core has voluntarily entered into a contract with an entity which it must have assumed was a special purpose vehicle with limited assets and that the making of such an order will be an interference with the rights of DDP5 under clause 16.7 of the contract. The fact that a sophisticated commercial party knowingly entered into a contract with an entity with apparently negligible assets is certainly a factor which tells against the grant of any relief. The capacity to rely upon clause 16.7 of the contract between the parties is affected by the good arguable case that has been demonstrated. If DDP5 is estopped from calling upon the security bond, then it is difficult to see how it would then be entitled to rely upon a contractual clause operating following an unconscionable call protecting its use of the funds from interference.

50․For these reasons the freezing order will be continued in relation to DDP5.

51․In relation to DDP1, the good arguable claim is one which is said to arise within the four walls of the building contract. There are claims made by both sides. They are substantial. If DDP1 is correct in its contention as to liquidated damages, then there is a proper basis for a claim on the security. Core and its employees appear to be adopting what counsel for DDP5 described as an “obstructionist and combative approach to their obligations under the agreement”. There is no vitiating factor such as is alleged to be present in relation to DDP5 outside the usual operation of the contract. There are however the inevitable counterclaims of variations and delay.

52․The circumstances fall within the scope of the existing contractual arrangements and the dispute resolution provisions contemplated by the contract. The fact that DDP1 is a $2 company which is not shown to have any other assets is a fact which was known to Core at the point where it entered into the contract which required it to provide security. It is a factor which tells against the appropriateness of granting relief.

53․Given the impossibility, at this stage, of assessing the respective merits of the respective positions of the parties, I do not consider that this is an appropriate case in which the court should intervene so as to alter the allocation of risk which the parties contemplated at the point where the relevant contract was entered into.

54․For these reasons the freezing order will not be continued in relation to DDP1.

55․For the purposes of the freezing order in relation to DDP5, given that the “Return Date” was not properly specified in the orders made on 28 July 2023, and although it may have been inferred that it was 10 August 2023, the date which the proceedings were adjourned, in order to avoid any contest over non-compliance with order 8 in the freezing order, I will order that the return date for the purposes of the freezing order was 10 August 2023 but order that the time for compliance by DDP5 with order 8(a) of the freezing order made on 28 July 2023 is extended until 11 August 2023.

Orders

56․The orders of the Court are as follows:

1.The freezing order made in relation to Dickson Developments Precinct 1 Pty Ltd on 28 July 2023 is discharged as is the undertaking given to the court on 10 August 2023 by the fifth defendant in relation to funds held by the fifth defendant.

2.Order that the return date for the purposes of the freezing order made in relation to Dickson Developments Precinct 5 Pty Ltd on 28 July 2023 was 10 August 2023 but order that the time for compliance by Dickson Developments Precinct 5 Pty Ltd with order 8(a) of that freezing order is extended until 11 August 2023.

3.The freezing order made in relation to Dickson Developments Precinct 5 Pty Ltd on 28 July 2023 is continued until further order of the court but the freezing order is discharged if by 4pm on 25 August 2023 the plaintiff has not commenced proceedings seeking final relief against Dickson Developments Precinct 5 Pty Ltd or sought leave to amend these proceedings so as to seek such relief.

4.The parties are granted liberty to apply in relation to any variation of the freezing order in relation to Dickson Developments Precinct 5 Pty Ltd on 24 hours’ notice.

5.All questions of costs are reserved.

6.The proceedings are listed before a registrar on 4 September 2023 at 9.30am.

7.I order that Johnny Roso, Elisa Rosso and Macarthur Developments ACT Pty Ltd be joined as parties to the proceedings.

8.First access is granted to the defendants to the documents produced on subpoena by AAI Limited and to the documents produced by Bendigo and Adelaide Bank Limited (except those which are in an envelope marked “NO ACCESS GRANTED”) until 4pm 14 August 2023 and thereafter to both parties, with leave to uplift on condition that a scanned copy of all documents over which there is no objection to access, along with a description of any objection to access be provided, to the plaintiff no later than 4pm on 14 August 2023.

I certify that the preceding fifty-six [56] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop

Associate:

Date: