Diamond Builders Pty Ltd v Gilridge Investments Pty Ltd (Ruling)
[2023] VCC 2418
•22 December 2023
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-23-02167
| Diamond Builders Pty Ltd (ACN 143 972 016) | Plaintiff |
| v | |
| Gilridge Investments Pty Ltd (ACN 159 213 948) | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 November 2023 and 15 December 2023, written submissions 17 and 18 December 2023 | |
DATE OF RULING: | 22 December 2023 | |
CASE MAY BE CITED AS: | Diamond Builders Pty Ltd v Gilridge Investments Pty Ltd (Ruling) | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 2418 | |
RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Stay – Application for stay of execution of judgment pending appeal – Whether exceptional circumstances justify stay – Application dismissed
Legislation Cited: County Court Civil Procedure Rules 2018 r66.16; Building and Construction Industry Security of Payment Act2002 s16(2); Building Act 1993 (Vic) s171E(fa)
Cases Cited:Talston Pty Ltd v Daisley [2004] VSC 23; Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2020] VSCA 269; Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico [2004] NSWSC 344; Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653; Herscho v Expile Pty Ltd [2004] NSWCA 468; Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459; R J Neller Building Pty Ltd v Ainsworth [2008] QCA 397; Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124; Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 571; 1155 Nepean Hwy v Promax Buildings (Final Orders) [2020] VSC 471; ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122 at [19]; Maher v Commonwealth Bank of Australia [2008] VSCA 122; Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; Milburn Lake Pty Ltd (t/as Irwin Stockfeeds) v Andritz Pty Ltd [2016] VSC 3; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106; Diamond Builders Pty Ltd v Gilridge Investments Pty Ltd [2023] VCC 1527
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | M Robbins KC with A R Morrison | Ward & Co |
| For the Defendant | R Andrew KC with J A Silver | Moray & Agnew Lawyers |
HER HONOUR:
Introduction
1By summons dated 2 November 2023, the defendant (“Gilridge”) sought orders of the Court pursuant to r66.16 of the County Court Civil Procedure Rules 2018 (“the Rules”) that my orders made in this proceeding be stayed pending the appeal the subject of the Court of Appeal Proceeding Case No. S EAPCI 2023 0106 and that the warrant of seizure and sale issued by this Court on 12 September 2023 be cancelled forthwith.
2The application follows on from the judgment I gave on 12 September 2023 in favour of the plaintiff (“Diamond”) against Gilridge pursuant to s16(2) of the Building and Construction Industry Security of Payment Act2002 (Vic) (“SOP Act”). The proceeding arises out of works that Diamond completed for the construction of a residential apartment building known as EON Apartments. I found that Diamond satisfied the preconditions to judgment under s16(2) of the SOP Act and ordered that there be judgment for Diamond in the sum of $285,577.00, together with interest and costs.
3On 11 October 2023, Gilridge filed an appeal of the Court’s decision in this proceeding. Gilridge consented to an order that it pay the awarded amount against it into Court (being the sum of $301,303.29), to remain in Court pending the appeal.
4Diamond opposes the application and seeks orders that Gilridge’s summons be dismissed.
5Gilridge relies on the following affidavits in support of its application:
(a) the affidavit of Phillip George Vassiliadis, sworn 30 October 2023;
(b) the further affidavit of Phillip George Vassiliadis, sworn 15 November 2023;
(c) the affidavit of Leon Joseph Kochen, sworn 29 November 2023;
(d) the affidavit of Hedley James Braham, sworn 29 November 2023;
(e) the affidavit of Tony Douglas, sworn 29 November 2023;
(f) the affidavit of Marcello Salvatore Arbaci, sworn 29 November 2023;
(a) the affidavit of James Andrews Lalios, sworn 7 December 2023.
6Diamond relies on the following affidavits in opposition:
(a) the affidavit of Waleed Abu Khumra, sworn 16 November 2023;
(b) the supplementary affidavit of Waleed Abu Khumra, sworn 17 November 2023;
(c) the affidavit of Waleed Abu Khumra, sworn 5 December 2023.
7Mr Marcello Salvatore Arbaci and Mr Waleed Abu Khumra were cross-examined on their affidavits at the hearing of the application. Although a notice for cross-examination was issued for Mr Tony Douglas, he was unavailable to appear on the adjourned hearing date as he was in transit to Thailand. Limited cross examination was granted in relation to Mr Khumra in respect of Diamond’s contested financial issues and the disputed sub-contractor invoices going to the central issue as to the solvency of Diamond.
8In my view, Gilridge is unable to satisfy the burden of proof required for a stay. My reasons are set out below. Accordingly, I will order that the defendant’s summons filed on 2 November 2023 is dismissed and the defendant pay the plaintiff’s costs of and incidental to the summons filed on 2 November 2023 on a standard basis to be taxed in default of agreement.
Legal Framework
9Rule 66.16 of the Rules states that the court may stay execution of judgment.
10In Talston Pty Ltd v Daisley,[1] Kaye J states:
“Rule 66.16 of the Rules of the Supreme Court is general in its expression and simply states that the court may stay execution of judgment. The authorities recognise that under that rule the court has a wide discretion: see, for example, Joskovitz v Bonnick. It is well recognised that the circumstances which relate to the issue of whether or not a stay should go must be matters relating to the enforcement of the order and must not be matters that go to the correctness of the order: see, for example State Bank v Parry (citation omitted)”.
(Emphasis added.)
[1] [2004] VSC 23 at [10].
11His Honour also states (at [17]):
“It is well established that prima facie a plaintiff who obtains successfully a judgment from this court is entitled to enforce it. Otherwise the process of this court would be irrelevant to the citizens of this State which came before it. The onus does lie on the defendant to satisfy the court, by proper material, that the defendant ought to be granted the indulgence of the stay to enable her to satisfy the rights of the plaintiff without prejudice to the plaintiff and without undue delay”.
(Emphasis added.)
Gilridge’s submissions
12Gilridge relies on the principles set out by the Court of Appeal in Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd[2] as follows:
“…an applicant for a stay must demonstrate the existence of special or exceptional circumstances. Special circumstances may exist where there is a real risk that an appeal, if successful, would be rendered nugatory in the absence of the grant of a stay. In such a case, the Court will be required to balance the prospect that an appeal may be rendered nugatory in the absence of a stay, against the principle that the successful party in the proceeding should be entitled to the fruits of the judgment. Further, a stay should not be granted unless the applicant has demonstrated at least an arguable ground of appeal”.
(Emphasis added.)
[2] [2020] VSCA 269 at [23]–[26].
13Gilridge submits that the circumstances of the present case support the conclusion that, if the judgment sum is paid to Diamond, it will not be able to repay the judgment sum, should Gilridge be successful in its appeal application.
14Gilridge relied on the following eight factors in support of its contention that the appeal would be rendered nugatory unless a stay on the judgment pending the outcome of the appeal was granted:
(a) there are subcontractors involved with the project that have not been paid;
(b) Diamond has not paid the following subcontractors and consultants the following sums of money that are due:
(i)$5,000.00 (ex GST) to Omnii Pty Ltd (see Arbaci Affidavit)
(ii)$13,636.36 (ex GST) to Schindler Lifts Australia Pty Ltd (see Exhibits to Braham Affidavit)
(iii)$16,500.00 (ex GST) to Façade Industries Pty Ltd (see Douglas Affidavit)
(iv)$80,000.00 (ex GST) to Piling Australia Pty Ltd (see Exhibits to Braham Affidavit)
(v)$200,000.00 to Ironside Roofing and Cladding (see Braham Affidavit, para 21)
(vi)$120,000.00 to All Round Fire Protection (see Braham Affidavit, para 25)
(vii)$50,000.00 (ex GST) to Greenzone Building Design & Thermal Assessment (see Braham Affidavit, para 31 and Exhibits),
the total of which (not adding GST) is $485,136.36.
(c) Issues relating to Diamond’s financial records and details of payments made by Diamond from funds paid by Gilridge.
(d) Diamond’s construction work includes extensive defects and incomplete works. An indicative pricing for rectification and completion is $1,579,000.00 excluding GST (among other things, this is the subject of County Court Proceeding CI-23-02840).
(e) Diamond does not appear to have maintained professional indemnity insurance, leaving the works uninsured.
(f) Diamond required additional money to complete its design and construct obligations under the building contract, resulting in the Deed of Settlement and Release. Despite this, Diamond was still unable to complete its design and construct obligations.
(g) Diamond is related, to varying degrees, to a number of corporations which have been in the control of, or related to, Mr Khumra. These corporations which are identified in the Affidavit of Mr Vassiliadis are either in administration or have been deregistered.
(h) Diamond’s website no longer exists and presents an error message when access is attempted.
(i) Diamond’s previous registered office was vacated at or around the same time as this application was made.
15Gilridge asserts that the conclusion that Diamond has been in financial difficulty for a long period of time is irresistible.
16Gilridge further contends that its grounds of appeal are at least arguable.
Diamond’s submissions
17It was common ground between the parties that the starting presumption is that successful litigant is entitled to the fruits of judgment in the absence of “special or exceptional circumstances”.[3]
[3] Cellante v G Kallis Industries Pty Ltd [1991] 2 VR 653 at 657.
18Diamond submits that the threshold for a stay under the SOP Act is higher than an ordinary judgment and relies on the New South Wales Supreme Court decision of Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico[4] (“Grosvenor”) where Justice Einstein held that there must be “more than a ‘real risk” (as opposed to the ordinary standard of a “real risk”) that rights to recover amounts paid under the NSW Act would be rendered nugatory before a stay would be ordered.
[4] [2004] NSWSC 344 at [31]–[32].
19Given the “pay now, fight later” policy behind the SOP Act, Diamond contends that legislature has imposed on Gilridge the risk that Diamond might not be able to refund money which is paid under the SOP Act. What Gilridge seeks to do is to reverse the allocation of risk. Diamond submits that the Court ought not do that lightly.
20The Grosvenor stay analysis was approved in Herscho[5] and Veolia[6].
[5] Herscho v Expile Pty Ltd [2004] NSWCA 468 at [3].
[6] Veolia Water Solutions v Kruger Engineering [No 3] [2007] NSWSC 459 at [75].
21Diamond cites the Queensland Court of Appeal decision in Neller[7] in support of its contention that the public policy rationale is that the SOP Act seeks to preserve the cash flow of the builder. This is notwithstanding the risk that the builder might ultimately be required to refund the case and there is a risk that a builder might not be able to refund the monies. The SOP Act has assigned the risk as a matter of policy in a commercial context to the owner.
[7] R J Neller Building Pty Ltd v Ainsworth [2008] QCA 397; (2009) 1 Qd R 390 at [40].
22Diamond further relies on the Full Court of the Supreme Court of South Australia decision in Romaldi.[8] It notes that subsequent cases have raised the bar even higher, such as in Taylor Projects,[9] where Einstein J said “[t]he principle in Grosvenor is only applicable where the claimant is either actually, or very close to, insolvent”.
[8] Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124 at [103].
[9] Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 571 at [59].
23Diamond submits that the Victorian courts are yet to directly apply or reject the Grosvenor principle. In 1155NH,[10] Digby J said that there was “some substance” to a submission that an applicant needs to establish “more than a real risk”.
[10] 1155 Nepean Hwy v Promax Buildings (Final Orders) [2020] VSC 471 at [70].
24Diamond further cited ASEA,[11] where the Court of Appeal held that the underlying purpose of the Act “added weight” to the usual presumption in favour of the judgment creditor but without making reference to the Grosvenor line of cases. The Court of Appeal in Yuanda[12] did not express a view as to the applicable test.
[11] ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122 at [19].
[12] Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2020] VSCA 269 at [42].
25Diamond submits that a stay ought not be granted unless Gilridge has demonstrated that it has at least an arguable ground of appeal.[13] It contends that Gilridge’s case on appeal has no real prospects of success as the first issues seeks to make new arguments that were not put before me at first instance, and the second issue involved matters that were in part conceded.
[13] Maher v Commonwealth Bank of Australia [2008] VSCA 122 at [27].
26In relation to the factors relied upon by Gilridge in support of its stay application, Diamond contends that:
(a) The first three issues are in heated dispute between the parties and are the subject of claims for final relief in the other County Court proceeding CI-23-02840. Diamond will be filing a counterclaim in that proceeding.
(b) Diamond disputes the allegations as to the failure to pay certain contractors.
(c) Mr Khumra’s involvement in other companies that have been deregistered or are under external administration are not relevant to the solvency of Diamond.
(d) The credit report raises no court action or tax defaults.
(e) Diamond recently relocated to a larger office.
27Diamond argues it has a successful construction business with a healthy balance sheet and a strong pipeline of work. Its balance sheets record total assets of $4,212,893.00 against liabilities of $2,291,795.00 as at 31 October 2023. Its prepared tax return for 2022-2023 records income of $3,555,360.00 and expenses of $3,450,565.00. The net profit of $104,795.00 may seem low, but it has been impacted by the defendant’s failure to pay the judgment sum of $285,577.00 and retention of $243,434.00 and the application of depreciation on the plaintiff’s assets.
28Diamond claims that it has an existing $12m pipeline of existing work (a $7m project in Camberwell and a $5m project in Glenroy) plus a $14m contract in Brighton which has been signed but has not yet commenced.
29Diamond contends that Mr Khumra would face personal liability under guarantees given to the VMIA to procure warranty insurance and under the plaintiff’s new 3-year office lease, and would also face difficulty renewing his building registration because of s171E(fa) of the Building Act 1993 (Vic).
Analysis
The relevant test
30In my view, there is no basis to distinguish Grosvenor on the ground that the present case does not seek a stay pending a damages claim against the plaintiff in a civil proceeding. The case of Herscho involved a stay pending appeal of the NSW version of the SOP Act. Therefore, the relevant principles do not relate just to stays pending a final balance of damages. They also relate to applications for a stay pending the hearing and determination of an appeal. As such, the principles remain applicable in circumstances where a stay is sought pending an appeal of a proceeding involving a SOP Act judgment.
31I accept that, given the public policy of the SOP Act and following the NSW lines of authority, Gilridge is required to establish that there is more than a real risk that Diamond might not be able to refund moneys such that Gilridge’s rights would be rendered nugatory in the absence of a stay.
Ground 1: subcontracts have not been paid
32Diamond contends that the only supposed contractor/supplier debt on which there is admissible evidence of any weight is that of Omnii Pty Ltd. Mr Arbaci provided an affidavit and was cross-examined at the hearing.
33In the limited cross-examination of Mr Arbaci in relation to the existence of the alleged outstanding debts owed by Diamond to subcontractors, Mr Arbaci conceded that he had not deposed to any recovery attempts by him in his affidavit in support. He had no explanation in relation to Diamond’s position that there was an agreement that Gilridge would pay Omnii Pty Ltd as it has taken over the works or Mr Kochen’s evidence that Gilridge had paid this debt directly. Mr Khumra was not challenged on Diamond’s seven alleged contractor/supplier debts at the hearing. In any event, I accept Mr Kochen’s evidence that he has paid Omnii Pty Ltd the sum of $5,000.00.
34Mr Douglas was not available for cross-examination so no weight can be given to his affidavit. In any event, his claimed outstanding invoice of $16,500.00 is contested by Diamond. Mr Kochen’s affidavit deposes that Gilridge had paid this debt directly. I accept Mr Kochen’s evidence that he has paid Fascade Industries the sum of $16,500.00.
35The remaining alleged debts owing to contractors and consultants have not been the subject of direct evidence but rather are the subject of hearsay evidence through the affidavit of Hedley Braham, Gilridge’s senior project manager. The Schindler Lifts Australia Pty Ltd amount of $13,626.00, Piling Australia (Vic) Pty Ltd sum of $80,000.00 and the Green Zone amount of $60,000.00 are all the subject of Mr Kochen’s evidence that he has agreed to pay these amounts as Gilridge took over the works.
36In relation to the Ironside Roofing amount of $200,000.00 and All Round Fire Protection in the sum of $120,000.00, these claims were not the subject of affidavit by the alleged creditors. The debts were deposed to by Mr Braham as hearsay evidence on information and belief. I give little weight to this evidence. These matters are heavily contested, contained suspiciously round numbers, there are no invoices in evidence and there are no contemporaneous demands made to Diamond.
37Finally, even if the full amount of $485,136.36 was accepted as debts owed by Diamond to subcontractors and consultants, based on Diamond’s financial information, discussed further below, this evidence does not discharge Gilridge’s onus of proof that there is more than a real risk that the appeal would be rendered nugatory.
Ground 2: financial records of Diamond had not been provided
38Gilridge requested assurances from Diamond that it is and will remain solvent and for the provision of financial documents by letter dated 19 October 2023. Diamond produced its:
(a) 2022-2023 company tax return and balance sheet as at 31 October 2023 as an exhibit to Mr Khumra’s affidavit sworn on 16 November 2023;
(b) 2021-2023 company tax return, profit and loss statements and balance sheets and its 2022-2023 profit and loss statement by Court order made on 20 November 2023 on 24 November 2023; and
(c) Unredacted copies of its three current building contracts and new lease referred to in Mr Khumra’s affidavit sworn on 16 November 2023 by Court order made on 20 November 2023 on 29 November 2023 (under protest).
39Mr Khumra was not cross examined on his tax returns and balance sheets.
40Mr Khumra gave evidence in respect of Diamond’s new contracts as follows:
“Diamond has signed contracts for, and recently commenced, a project for the construction of 11 luxury apartments in Camberwell worth approximately $7million and a project for the construction of 16 townhouses in Glenroy worth approximately $5million. Diamond has also signed a contract for the construction of 8 luxury townhouses with a basement in Brighton for approximately $14million which is to start sometime in the first quarter of next year (16 November 2023, para 12).
….
for the projects in Glenroy and Camberwell, upon completion of the works in or around April 2024, Diamond is to receive a combined sum of $916,260.00 for works previously completed. These projects are in line to be completed on or before April 2024. Roughly 67% of this amount, being roughly $613,896.88, is purely profit for Diamond as the works underlying the payments have already been paid for by Diamond (5 December 2023, para 68)”.
41Gilridge noted that:
(a) In the year ending 30 June 2022, the plaintiff intends to report "Accounts Receivable" (Trade Debtors) of $2,558,956.86, a total director's loan of $667,374.68, and no sum payable for wages and salaries.
(b) In the year ending 30 June 2023, the plaintiff intends to report "Accounts Receivable" (Trade Debtors) of $3,380,702, and a total director's loan of $1,570,441.11, and $5,767.23 payable for wages and salaries.
(c) The financial records show that Diamond has suffered a significant diminution in trading income over recent years, in the order of some 72% (i.e. down from $12,654,330.99 in 2021–2022 to 3,555,360.28 in 2022–2023).
(d) At the same time, the amounts receivable has increased significantly (from $2,558,956.84 in 2021–2022 to $3,380,702.00 in 2022–2023), indicating that Diamond is having trouble getting accounts paid, probably due to the disputes it is having with various of its customers.
(e) Mr Khumra has increased his director's loan from $667,374.68 in 2021–2022 to $1,570,441.11 in 2022–2023 (or $903,066.43 in total).
(f) Accounts receivable (trade debtors) are 90.6% of Diamond's total current assets.
(g) The tax returns for years ending 30 June 202214 and 30 June 202315 have not been lodged. They record an estimated tax liability of $532,971.00.
42Gilridge concludes that it is clear Diamond cannot pay its debts without Mr Khumra’s assistance.
43Diamond submitted that Mr Khumra was not cross-examined on the health of Diamond’s balance sheet and tax return or the new construction contracts at the hearing. Gilridge did not put to Mr Khumra that Diamond was insolvent or would be likely to fail six months before the Court of Appeal deals with Gilridge’s application for leave to appeal.
44Diamond submits that, had Gilridge paid the Deed sum and the $500,000.00 plus interest owed to the amounts due under the SOP Act judgment, then Diamond’s net profit would be higher than that set out in the financial records showing a 72% decrease in trading income from 2021–2022 to 2022–2023.
45In my view, there is no basis to challenge Diamond’s balance sheet and tax return. Mr Vassiliadis’ affidavit sworn on 30 October 2023 deposes to a “strong likelihood” of an inability to pay. However, this does not meet the required threshold on a Yuanda or Grovesnor basis. On the financial material before the Court, it has not been established that Diamond is actually or very close to insolvency.
Ground 3: construction work includes extensive defects and incomplete works
46The SOP Act manifests a “pay now argue later policy”. In other words, the courts are fairly forgiving of builders who seek payment – and will usually give them that payment – provided basic formal requirements of their claim are met.
47The rationale is that the Act seeks to facilitate the timely resolution of payment disputes. Indeed, cash-flow is the lifeblood of the construction industry. This is supported by the authorities set out below.
48The Court notes the observations of Justice Vickery in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor[14] in relation to the general approach of the SOP Act as follows:
“The Act has had a substantial effect in shifting the power balance between principals and subcontractors in construction contracts in Victoria and in other States and Territories where legislation in similar terms and with the same objects has been enacted. Subcontractors are now in a position to promptly secure payments of progress claims with the aid of a statutory mechanism which compliments the provisions of the construction contract. Outstanding claims of the principal under the contract, arising for example from poor workmanship or delay, are preserved as future enforceable claims, but cannot stand in the way of prompt payment of a progress claim found to be due under the expeditious process provided for in the Act".
(Emphasis added.)
[14] [2009] VSC 156 (“Hickory”) per Vickery J at [2].
49Further in Forrest J stated in Milburn Lake Pty Ltd (t/as Irwin Stockfeeds) v Andritz Pty Ltd[15] that:
“It can be seen that the Act is based on a philosophy of preserving the cash flow of contractors in the construction industry. It provides a mechanism for contractors such as Andritz to obtain progress payments and, to use the terminology employed in Hickory Developments, to ‘pay now and argue later’”.
[15] [2016] VSC 3, per Forrest J at [6].
50Similarly, Vickery J in Gantley Pty Ltd v Phoenix International Group Pty Ltd[16] stated that:
“Subcontractors are now in a position to promptly secure payments of progress claims with the aid of a statutory mechanism which compliments the provisions of the construction contract. Outstanding claims of the principal under the contract, arising for example from poor workmanship or delay, are preserved as future enforceable claims, but cannot stand in the way of prompt payment of a progress claim found to be due under the expeditious process provided for in the Act".
(Emphasis added.)
[16] [2010] VSC 106 (“Gantley”) per Vickery J at [19].
51I accept Diamond’s contention that the broader dispute between the parties in County Court proceeding CI-23-02840 are not matters that go to Diamond’s insolvency or the merits of the issues on the appeal. The merits of the arguments in proceeding CI-23-02840 in relation to alleged defects and incomplete works are not relevant to the application for a stay. For this reason, I also give no weight to the affidavit of Leon Joseph Kochen sworn on 29 November 2023 as it deposes to matters in respect of the separate defects case initiated in this Court and does not give admissible evidence in relation to the current stay application in the present proceeding.
Ground 4: Diamond does not appear to have maintained professional indemnity insurance
52The VMIA documents were produced to the Court by the VMIA in answer to a subpoena issued by Gilridge on 6 December 2023. Diamond initially objected to the inspection of the VMIA subpoenaed documents which resulted in the adjournment of the hearing fixed for 8 December 2023.
53Gilridge submits that the records produced by the VMIA establish that from July 2021, and continuing into late 2023, the VMIA has been reviewing the financial stability of the company. It relies on Mr Khumra’s email of 30 August 2023 as evidence that he was aware that the company was under financial review, that he understood that the “past 3 years have been challenging”, that there had been disputes involving termination of contracts with various projects, and the potential that his problems with the VMIA could cause two of the recent projects referred to in his 16 November 2023 affidavit to be lost.
54Gilridge argues that the VMIA’s decision to limit Diamond’s maximum contract value for new multi-dwelling construction to $7.5m means it cannot purchase domestic building insurance for its Brighton contract (value $12,851,885.60 ex GST), as required by the RBS, meaning the contract will not proceed. It concludes that evidence that Diamond has healthy future cash flow cannot be accepted.
55Mr Khumra gave evidence in his affidavits in relation to the status of his domestic building insurance as follows:
“I have signed a personal guarantee with the VMIA for the purposes of obtaining Diamond’s warranty insurance which will be called upon should Diamond be liquidated. Accordingly, and given I will be personally liable, I have no intention to liquidate Diamond (16 November 2023, para 10)”.
56Mr Khumra was cross-examined on this matter and gave evidence that he had not obtained VMIA insurance coverage yet because the developer had yet to secure funding approval and no building permit had been issued yet because the project was still at design stage. Mr Khumra referred to correspondence with the VMIA. At 2.56pm on 18 December 2023, he answered a call for production. None of the documents perfectly reflect the call.
57The VMIA documents disclose that there is no VMIA coverage for the new construction contracts at the present time. There is a dispute as to the reasons why the projects have not been registered yet. The correspondence indicates that there are continuing negotiations between Diamond and the VMIA which have not been resolved at present. This is not evidence of a failure to maintain professional indemnity insurance. It is also not evidence of an unacceptable risk of insolvency or the frustration of Gilridge’s appeal.
Ground 5: Diamond required additional money to complete its design and construct obligations under the contract
58Gilridge submitted that despite the Deed of Settlement and Release (“Deed”) entered between the parties, Diamond was still unable to complete its design and construct obligations.
59Mr Khumra deposed that there is a dispute between the parties in relation to the Deed. He claims that the sum of $357,000.000 is for previous variation works in addition to the judgment amount the subject of the present proceeding.
60In my view, the issue in relation to the Deed is not relevant to the application for a stay of the judgment pending the determination of the appeal and I do not take this matter into account in the exercise of my discretion.
Ground 6: a number of corporations which have been in the control of, or related to, Mr Khumra are either in administration or deregistered
61Mr Khumra presented as opinionated and argumentative, and he was reluctant to give any concessions or qualifications. At one point, he refused to answer questions as he did not “see the relevance” or objected to them on the grounds that they were “personal”.
62Gilridge cross-examined Mr Khumra at length on this matter and made written submissions after the hearing.
63Gilridge contended that Mr Khumra directly or indirectly controls various construction-related companies. The companies are not at arms-length: they operate as a group, sharing premises, providing employees to each other (e.g. “Green Civil Constructions” employs Diamond Builder's “employees”), and with inter-company loans.
64Gilridge argued that the participants in the group of companies included Mr Khumra’s wife, 67-year-old mother, 70-year-old father and his aunt. These relationships were not disclosed until cross-examination.
65Gilridge noted that three entities in the group had been liquidated in the past five years:
(a) Grand Engineering and Construction Pty Ltd (of which Mr Khumra remained its only shareholder) was liquidated on 28 June 2018, owing $94,000.00 to the Australian Tax Office, and $100,000.00 to Diamond. This was the second company of that name, being registered on 16 October 2015, after the previous company was deregistered on 4 October 2015. The “Grandec” name was then registered to a new company, Structegrity Pty Ltd.
(b) Mr Khumra's mother was placed in control of Helixagon (a design company) and Structegrity (a steel company) before liquidation owing over $200,000.00 to individuals and the Australian Tax Office, against $51,302.04 owed to Diamond, $45,900.00 to Green Civil Construction, $72,300.00 to WA2 Pty Ltd, and $258,007.95 to Mr Khumra's mother, Sanaa Abdulkareem Ahmed. Two weeks later, Mr Khumra's father established a new company, Helixagon Design Pty Ltd, with the same registered office as Diamond.
66Gilridge concludes that the liquidations show Mr Khumra’s practice of structuring his affairs to defeat liabilities (i.e. phoenixing): the inter-company debts show he had an active role in his corporate group (i.e. the companies are not separate concerns), and that after his removal from the ASIC records, Mr Khumra's email was his mother's point of contact in the liquidation.
67Diamond submits that the fact that Mr Khumra’s mother failed in her business of Helixagon is not a fair basis to criticise Mr Khumra. Further, Diamond itself was owed $100,000.00 when Grand Engineering and Construction Pty Ltd failed in 2018.
68Diamond argues that there is no evidence that Mr Khumra was involved in the management of either of these companies. Or any of the companies in the alleged corporate group, at the time they failed. In addition, there was no evidence to support the submission made by Gilridge that Mr Khumra was the architect of the supposed phoenixing arrangement.
69I accept Diamond’s submissions that, even if the Court accepts Mr Khumra’s previous involvement in other companies that have been deregistered or are under external administration:
(a) there is evidence that Mr Khmura’s family members are educated professionals e.g. civil engineers, consultant civil engineers, and developers and some of their companies have failed;
(b) an allegation of phoenixing activity by Mr Khumra’s father that was put to Mr Khumra and answered with a denial;
(c) this does not impact upon the solvency of the present entity, Diamond; and
(d) impermissibly asks the Court to pierce the corporate veil in circumstance where there is no evidence that Mr Khumra was the controlling mind of these companies at the time of their liquidation.
Ground 7: Diamond’s website no longer exists
70Mr Vassiliadis deposed to Diamond’s inactive website. This ground was not developed further in submissions by the parties. Mr Khumra was not cross-examined on the inactive website at the hearing.
71I do not take this matter into account in determining whether Diamond has more than a real risk of insolvency.
Ground 8: Diamond’s registered office was vacated
72I accept Diamond’s evidence that it has recently relocated to another office at Suite 1, 38 Gilby Road, Mount Waverley and has signed a lease for the next 3 years with a further option of 3 years. Mr Khumra has provided a personal guarantee for the lease.
73Mr Khumra was not challenged at the hearing in relation to the new lease.
74I accept Mr Khumra’s evidence that Diamond has relocated to another office and this is not evidence of its actual or imminent insolvency.
Other factors: prospects of success on appeal
75The circumstances that will justify a stay are special circumstances that go to the enforcement of the judgment and not to the validity or correctness of the judgment.[17] However, in balancing whether an appeal may be rendered nugatory against the successful party being entitled to the fruits of its judgment, a stay should not be granted unless there is an arguable ground of appeal.[18]
[17] Reading Entertainment Australia v Burstone Victoria (No 2) [2005] VSC 137.
[18] Maher at [27].
76Gilridge submitted that it has an arguable ground of appeal, and it will obtain leave to appeal.[19]
[19] Maher v CBA [2008] VSCA 122 at [27].
77Diamond contends that Gilridge’s case on appeal has no real prospects of success as each of the grounds seeks to make new arguments that were either not put to the trial judge or involved issues that were in part conceded.
78In my view, the grounds of appeal are weak but arguable.
79The first ground in relation to the level of detail in the payment claim was not argued before me, however, I made a finding on Diamond’s submissions that the payment claim adequately identified the construction work to which it relates.[20]
[20] Diamond Builders Pty Ltd v Gilridge Investments Pty Ltd [2023] VCC 1527 at [128].
80In my view, the Court is fairly forgiving on this issue. If a payment claim provides a fair breakdown of the works, this will suffice, as the test is not overly strict; the Court must not adopt an unduly technical approach.[21]
[21] Ibid; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 [51].
81Only in rare cases will a payment claim fail to adequately identify the construction work.
82The second ground involves an interpretation of the contract. In my view, a contest in relation to construction of a contract is at least arguable as differing judicial minds may differ in relation to interpretation of terms.
83However, given my anterior finding that Gilridge has failed to establish at least more than a real risk of insolvency, the weakness of the appeal is not a factor to be taken into account in the exercise of my discretion in the present application.
Conclusion
84In my view, for the foregoing reasons, the matters relied on by Gilridge do not establish a near certainty of Diamond’s insolvency. Gilridge may have had some speculation about Diamond’s solvency, however, once the financial material was provided to it by Diamond between 16 and 29 November 203 disclosing a profit, Gilridge was unable to satisfy either test of more than a real risk in Grovesnor or a real risk in Yuanda that the rights to recover the amounts paid under the SOP Act would be rendered nugatory unless a stay is ordered. There are no special or exceptional circumstances in the present case that warrant the grant of a stay.
85Accordingly, the application for a stay should be dismissed.
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Certificate
I certify that these 20 pages are a true copy of the judgment of her Honour Judge Burchell delivered on 22 December 2023.
Dated: 22 December 2023
Gideon Lipinski
Associate to her Honour Judge Burchell
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