EJV GRN No.1 Pty Ltd v Geocon Aspen JV Pty Ltd
[2023] ACTSC 104
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | EJV GRN No.1 Pty Ltd v Geocon Aspen JV Pty Ltd |
Citation: | [2023] ACTSC 104 |
Hearing Date: | 5 May 2023 |
DecisionDate: | 5 May 2023 |
Before: | Mossop J |
Decision: | See [54] |
Catchwords: | CIVIL LAW – BUILDING AND CONSTRUCTION – Security of payment – application for appointment of a receiver – dispute between directors resulting in deadlock of joint-venture companies – payment claims made by builder – validity of payment schedules disputed – adjudication applications made – urgent adjudication response required – interim relief sought to protect interests of joint-venture companies – receiver appointed |
Legislation Cited: | Building and Construction Industry (Security of Payment) Act 2009 (ACT), ss 15, 16, 17, 19, 22 Corporations Act 2001 (Cth), ss 232, 233, 236 Court Procedures Rules 2006 (ACT), r 773 |
Cases Cited: | Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd (No 3) [2018] FCA 1411 Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd [2017] FCA 1124 University of Western Sydney v Gray (No 6) [2006] FCA 1825 |
Parties: | EJV GRN No.1 Pty Ltd (First Plaintiff) Tomislav Simunic (Second Plaintiff) EJV GUNG No.2 Pty Ltd (Third Plaintiff) Geocon Aspen JV Pty Ltd (First Defendant) Nikolaos Georgalis (Second Defendant) Geocon Establishment JV Pty Ltd (Third Defendant) GE Developments Aspen Pty Ltd (Fourth Defendant) GE Developments Establishment Pty Ltd (Fifth Defendant) |
Representation: | Counsel P Walker SC with J Larkings (Plaintiffs) B Buckland (First, Second and Third Defendants) |
| Solicitors Trinity Law (Plaintiffs) MinterEllison (First, Second and Third Defendants) | |
File Number: | SC 168 of 2023 |
MOSSOP J:
Introduction
These proceedings arise out of two real estate developments. Each development is being conducted by a joint-venture company which involves entities controlled by Mr Simunic on the one hand and Mr Georgalis on the other. The joint-venture companies have contracted with a building company controlled by Mr Georgalis. The building company has made payment claims on the joint-venture companies which are now the subject of adjudications under the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (SOP Act). The Simunic interests seek to contest those claims. Mr Georgalis does not wish that those claims be contested. Because of the structure of the management of the joint-venture companies the position in relation to the response to the payment claims and the subsequent adjudication is deadlocked. Time is running for the filing of an adjudication response for the purposes of those adjudication proceedings. There are also further payment claims where the filling of a payment schedule is outstanding.
The proceedings were commenced yesterday. What is presently before the court is an application which was brought on urgently before me sitting as duty judge. In the Originating Application, interim relief is sought so as to protect the interests of the joint‑venture company in the adjudication proceedings even though the management is deadlocked.
The final relief sought in the proceedings is pursuant to ss 233 or 236 of the Corporations Act 2001 (Cth). Section 233 is the provision empowering the making of orders to remedy oppressive conduct of a company’s affairs. Section 236 is a provision which permits the bringing of proceedings by a person who has been granted leave to bring proceedings on behalf of a company.
The interlocutory relief sought is the appointment of a receiver under s 63 of the Court Procedures Act 2004 (ACT) with the power to take steps to advance the interests of the joint-venture companies in relation to payment claims and adjudiciation applications under the SOP Act or other proceedings which arise out of them.
Entities
Within the two joint ventures the subject of these proceedings there are large number of different entities. Those entities and their roles will be described in the tables below. However, the essential structure for each of the joint ventures is the same. The two sides of each joint venture have representatives of the interests of Mr Simunic and Mr Georgalis. For each side there is an entity created for the purposes of the joint venture. There is then a joint-venture company, the shareholders of which are the entities created by each side. The two directors of the joint-venture company are Mr Simunic and Mr Georgalis. The joint-venture company has contracted with one of Mr Georgalis’ companies to build each development. Because there are only two directors of the joint‑venture company there is potential for a deadlock to arise where there is a dispute between the two directors. While there is a dispute resolution procedure within the joint‑venture agreement, the timeframes for that procedure are inconsistent with the strict time frames available under the SOP Act.
The relationship between the various entities appears to be uncontroversial. The defendants did not, for the purposes of the application, indicate that there was any inaccuracy in the description of the parties in the Originating Application. The summary below is based upon the allegations in the Originating Application.
Table 1 – Principal entities in the Aspen dispute
Name
Description
Comment
Tomislav Simunic
Second Plaintiff
EJV GRN No.1 Pty Ltd
First Plaintiff
Company created for the purposes of the project by the Simunic interests.
Shareholder in the Aspen JV company.
Nikolaos Georgalis
Second Defendant
Director of the Aspen JV Company.
Director of Geocon Aspen JV Pty Ltd.
Geocon Aspen JV Pty Ltd
First Defendant
Company created for the purposes of the Aspen development by the Georgalis interests.
Shareholder in the Aspen JV Company.
GE Developments Aspen Pty Ltd
Fourth Defendant
(Aspen JV Company)
The joint-venture entity created for the purposes of the Aspen development.
Its shareholders are Geocon Aspen JV Pty Ltd representing the Georgalis interests and EJV GRN No.1 Pty Ltd representing the Simunic interests.
Geocon Constructors (ACT) Pty Ltd
(Builder)
The builder and project manager for the development.
The company is controlled by Mr Georgalis.
Table 2 – Principal entities in the Establishment dispute
Name
Description
Comment
Tomislav Simunic
Second Plaintiff
Director of the Establishment JV Company.
EJV GUNG No.2 Pty Ltd
Third Plaintiff
Company created for the purposes of the project by the Simunic interests.
Shareholder in the Establishment JV Company.
Nikolaos Georgalis
Second Defendant
Director of the Establishment JV Company.
Director of Geocon Establishment JV Pty Ltd.
Geocon Establishment JV Pty Ltd
Third Defendant
Company created for the purposes of the Establishment project by the Georgalis interests. A shareholder in the Establishment JV Company.
Mr Georgalis is a director of the company and ultimate shareholder through his interests in other companies.
GE Developments Establishment Pty Ltd
Fifth Defendant
(Establishment JV Company)
The joint-venture entity created for the purposes of the development.
Its shareholders are Geocon Establishment JV Pty Ltd representing the Georgalis interests and EJV GUNG No.2 Pty Ltd representing the Simunic interests.
Geocon Constructors (ACT) Pty Ltd
(Builder)
The builder and project manager for the development. The company is controlled by Mr Georgalis.
SOP Act
The operation of SOP Act is significant because it is the reason for the urgency of the present application. That urgency arises from the inflexible timeframes in the Act and the consequences that flow from actions taken or not taken within those timeframes.
It is not necessary for the purposes of this application to recite the whole scheme of the SOP Act. It is sufficient to note the following features.
Where a payment claim under s 15 is given then, if it is to be contested, it is important for a payment schedule under s 16 to be given. The payment schedule has to identify the respondent’s reasons for failing to pay the full amount of the claim. The respondent becomes liable to pay the claimed amount if it does not provide a payment schedule in the time required under the construction contract or 10 business days after the payment claim is given, whichever is the earlier.
If no payment schedule is given, then the claimant may, under s 17, either bring proceedings to recover the unpaid portion of the claimed amount or alternatively make an adjudication application under s 19. It also has the capacity to suspend work under the contract. Similarly, where a payment schedule is given and states that an amount is payable but is not paid by the respondent then, under s 18, the same consequences flow.
Under s 19 a claimant may apply for adjudication of a payment claim where either a payment schedule is given and the scheduled amount is less than the claimed amount or any amount shown as payable under this schedule is not paid. An adjudication application can also be made if the respondent has failed to provide a payment schedule and not paid the whole of the claimed amount. However, where no payment schedule has been provided then, under s 19(2), notice must be given of the claimant’s intention to apply for adjudication and the respondent may provide a payment schedule within five business days of that notice.
Where an adjudication is initiated, s 22 provides for the respondent to provide a response. Any such response must be given within seven business days after the respondent receives a copy of the application or five business days after receiving notice of the adjudicator’s acceptance of the application, whichever is the later. The central importance of the payment schedule in the adjudication arises because s 22(4) provides that a respondent must not include in an adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.
Chronology
Aspen development
The Aspen development involves the construction of residential and commercial units on land in Greenway, a suburb in southern Canberra.
The Aspen joint venture was entered into on 19 December 2018.
Under the building contract for the Aspen development, Stage I of the development was due for practical completion on 30 April 2022. Stage II was due for completion on 30 June 2022. These are the dates by which the plaintiffs contend that the stages of the development should have been reached.
Practical completion was reached on 23 February 2023.
The plaintiffs contend that the Aspen JV Company disputes liability to pay payment claims from the Builder because components of the claims arise from the Builder’s delay and there is an offsetting claim in the form of liquidated damages which are payable.
On 20 March 2023 the Builder made a claim under the SOP Act for work up to the 1 March 2023 reference date.
On 6 April 2023 the Builder gave notice under s 19(2) of the SOP Act of its intention to make an adjudication application.
On 17 April 2023 the Aspen JV Company provided a payment schedule in relation to that payment claim.
On 19 April 2023 Geocon Aspen JV Pty Ltd, Mr Georgalis and the Builder each disputed the validity of the Aspen payment schedule.
On 19 and 26 April 2023 there was correspondence which indicated that the first defendant and the second defendant contended that the Aspen JV Company had no authority to issue the payment schedule.
On 26 April 2023 the first plaintiff invited the first defendant and the second defendant to reconsider their position and to urgently meet. There was no response to this invitation. However, the Builder made an adjudication application as had been foreshadowed.
On 1 May 2023 Adjudicate Today notified GE Developments Aspen Pty Ltd that the Builder had made an adjudication application.
The first plaintiff calculates that 10 May 2023 is the last day on which an adjudication response may be given. Today is Friday 5 May 2023. The 10th is next Wednesday.
Further payment claims have been made for work up to the end of March 2023. A payment schedule was prepared and sent in relation to that. A further payment claim for work up to the end of April was received on 2 May 2023. A payment schedule is outstanding in relation to this claim and is due no later than 16 May 2023.
Establishment development
The Establishment development involved construction of residential and commercial units in Gungahlin, a suburb in the north of Canberra.
The chronology in relation to this development is similar to that in relation to the Aspen development.
On 19 December 2018 a joint-venture agreement was entered into between EJV GUNG No.2 Pty Ltd, Mr Simunic, Geocon Aspen JV Pty Ltd, Mr Georgalis, Establishment JV Company and another entity.
Subsequently the Establishment JV company contracted with the Builder to undertake construction and project management work on the development. Under the building contract the date for practical completion was 15 August 2022. There was a liquidated damages clause if the contracted date for practical completion was not reached. Practical completion was reached on 28 March 2023. The plaintiffs allege that the Builder is liable for liquidated damages in the sum of approximately $3.3 million.
The Builder made a claim on 20 March 2023 under the SOP Act for work up to 1 March 2023.
On 6 April 2023 the Builder issued a notice under s 19(2) of the SOP Act of its intention to make an adjudication application.
On 17 April 2023 the Establishment JV Company provided a payment schedule.
On 19 April 2023 Mr Georgalis and the Builder disputed the validity of that schedule. There was then correspondence on 19 and 26 April 2023 which indicated that Geocon Establishment JV Pty Ltd and Mr Georgalis disputed the authority of the Establishment JV Company to issue the payment schedule.
On 26 April 2023 EJV GUNG No.2 Pty Ltd invited Mr Georgalis and Geocon Establishment JV Pty Ltd to urgently meet. No response was received.
On 1 May 2023 Adjudicate Today notified the joint-venture company that the Builder had made an adjudication application. On the calculation of EJV GUNG No.2 Pty Ltd the adjudication response must be given by 10 May 2023.
A further payment claim has been made for work up to the end of March 2023. A payment schedule was prepared in relation to that. A further payment claim for work up to the end of April was received on 2 May 2023. A payment schedule is outstanding in relation to this claim and is due no later than 16 May 2023.
In relation to both developments the amounts now in dispute are approximately as follows:
(a)Aspen February payment claim: $567,000;
(b)Aspen March payment claim: $773,000;
(c)Establishment February payment claim: $512,000;
(d)Establishment March payment claim: $1,531,000;
(e)Aspen May payment claim: $1,419,000; and
(f)Establishment May payment claim: $1,917,000.
The two March payment claims are unlikely to proceed to adjudication in the same way as the February payment claims have.
Submissions
The plaintiffs contend that Mr Georgalis, in disputing the payment schedules and in failing to authorise the filing of an adjudication response in relation to each of the pending adjudications, is in a position of material conflict in the discharge of his functions as a member of both the Aspen JV Company and the Establishment JV Company as well as in the discharge of his functions under the two joint-venture agreements. They contend that in relation to the joint-venture companies, the conduct of Mr Georgalis is contrary to the interests of the members of those companies as a whole or is oppressive, unfairly prejudicial to or unfairly discriminatory against a member or members, whether in that capacity or in any other capacity. That picks up the language of s 232 of the Corporations Act. So far as the Aspen dispute is concerned, the plaintiffs assert that the Builder is liable for liquidated damages in the sum of approximately $9.6 million. In the Establishment dispute, the plaintiffs allege that the Builder is liable for approximately $3.3 million.
The interlocutory relief sought by the plaintiffs is designed to protect the position of each of the joint-venture companies in relation to the impending adjudications. They seek the appointment of Mr Zelko Mandic as a receiver of each of the joint-venture companies for the purpose of prosecuting proceedings arising from the SOP Act claims, including the ratification of the payment schedule lodged on behalf of each of the joint‑venture companies. By this means the plaintiffs seek, on an interlocutory basis, to avoid the consequences of the deadlock that exists in the management of the joint‑venture companies as a result of the position adopted by Mr Georgalis.
Defendant submissions
The defendants submitted that interlocutory relief should not be granted. Counsel submitted that an adjudication response would be filed in relation to the pending adjudications. In order to clarify this, he indicated that the Georgalis interests would not oppose the giving of such an adjudication response. However, he made it clear that the validity of the payment schedules would remain in dispute. The effect of that would be that if the validity of those payment schedules was successfully attacked in the adjudications, then each of the joint‑venture companies would be precluded from making any argument in opposition to the adjudication application by operation of s 19(4) of the SOP Act. He made it clear that the Georgalis interests wished to contend that the adjudicator had power, at the instigation of the Builder, to make a determination in relation to the internal operations of each joint-venture company about the extent of the authority to file the adjudication application.
Counsel submitted that even without ratification of the payment schedules the adjudicator may reach a conclusion which all parties could live with or, alternatively, that the processes available under the joint‑venture agreements for dispute resolution may achieve that outcome and for that reason it was not appropriate for the court to make orders at this stage.
On the issue of liquidated damages, which is the most significant aspect of the response to the payment claim which is in issue, counsel for the Georgalis interests submitted that the position adopted by the Georgalis interests was a reasoned one and referred to a letter dated 28 April 2023, which outlined the reasons why liquidated damages would not be recoverable. Those arguments reflected the arguments run by the Builder in the adjudication applications. Although counsel for the Georgalis interests initially invited the inference that the reason for not wishing to pursue the company’s arguments on liquidated damages was the additional cost that it would impose upon the joint‑venture companies in preparing their response, he appeared to accept that the arguments would need to be prepared in any event in order to address the situation in which the Builder’s arguments about a lack of authority had not yet been accepted.
He also contended that conflicts of interest were inevitably built into the operation of the joint‑venture agreements because each side of the joint venture had its own interests. The Georgalis interests were in construction. The Simunic interests arose from ownership of the land. In the past, when there was a dispute over an aspect of the transaction relating to the land, the dispute resolution provisions in one or other of the joint‑venture agreements were invoked and used to resolve the dispute. He invited the same approach to be adopted in this case.
The parties also made submissions about how, as a practical matter, the receiver would make a decision about how to ratify the payment schedule and the content of the adjudication response. After some considerable uncertainty, the position appeared to be that the majority of the work would be done by the lawyers for the parties and the role of the receiver would be in choosing what arguments were put in the adjudication responses. Plainly enough it would be the plaintiffs with the motivation to properly prepare an adjudication response that might be in whole or in part adopted by the receiver.
Decision
The appointment of a receiver pursuant to s 63 of the Court Procedures Act is, under the Court Procedures Rules 2006 (ACT) (the Rules), stated to be the appointment of a receiver and manager: r 773. I accept the submission of the plaintiffs that a receiver can be an appropriate way of dealing with a deadlock between parties to an agreement such as a joint‑venture agreement: see University of Western Sydney v Gray (No 6) [2006] FCA 1825 at [71]-[74]; Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd [2017] FCA 1124 at [56]; Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd (No 3) [2018] FCA 1411 at [44]. Those authorities also support the submission that the scope of a receiver’s powers may be broad and extend to the defence of proceedings.
The adjudication applications contain comprehensive submissions which address the possibility that it is open to the relevant joint-venture company to contend that liquidated damages should be payable. It is very clear from the material in the adjudication applications that there is a serious contest over whether or not liquidated damages are payable in the circumstances that have occurred.
Refusing to ratify and contesting the validity of the payment schedules would, if successful, be to preclude the joint‑venture companies from contesting the adjudication on the basis of, amongst other things, the existence of the offsetting claims for liquidated damages. Further, if the joint‑venture companies are unable to lodge an adjudication response within the time required by the statute, then that opportunity will be lost forever, at least so far as the process under the SOP Act is concerned. The consequences of an adjudication decision, although interim and not affecting the final determination of the rights of the parties under the contract, are significant because of the requirement to make payment, the capacity to move money away from the claimant entity, the shift in the risk of insolvency and the difficulty of recovering money subsequently through the legal process.
In taking a position which is aligned with the interests of the Builder, it is certainly reasonably arguable that Mr Georgalis is not acting in the best interests of the members of the joint-venture company as a whole and acting in a way that would fall within the scope of s 232. I take into account the apparent strength of the plaintiff’s case in reaching the conclusion that follows.
In my view, this is a case in which the position of the parties should be preserved pending ultimate resolution of the dispute. Because of the consequences of a relevantly uncontested adjudication, the requirement to pay and the potential for funds to be transferred away from the receiving entity, it is not a case in which damages would be an appropriate remedy.
The Georgalis interests invited me to adopt an approach which would defer any interim relief and allow the dispute resolution provisions of the contract to have effect. That submission had considerable attraction. That is because of the real prospect that the adjudicator would not entertain the challenge by the Builder to the validity of the payment schedule based upon questions which were internal to the operation of the joint‑venture companies. That would allow resolution, at least on an interim basis, of the issues about liquidated damages. In the event that the adjudicator upheld the challenge to the validity of the payment schedule, then there is at least the prospect that some interim relief may be able to be given to the plaintiff in this court so as to restrain enforcement of the judgment so arising pending determination of their application for final relief. However, whether or not that would be possible is an issue which was not the subject of any proper submissions, and it cannot be said, in the urgent circumstances that exist, that there would not be statutory impediments under the SOP Act to the grant of such relief.
Notwithstanding the current deadlock, it is unlikely to be the case that the substantive merits of the disputes with the Builder will never be ventilated. Rather, one way or another, the likelihood is that the substance of the building dispute will ultimately need to be determined. Having regard to that likelihood, it appears to me to be appropriate to allow the interim process provided by the SOP Act to proceed in a manner in which all relevant issues are ventilated. In that way, the interim outcome is more likely to reflect the final civil rights of the parties and this is more likely to mean that the ultimate financial position of the parties is consistent with their legal obligations, rather than being the artefact of their manoeuvrings at the interim SOP Act stage.
For those reasons and subject to any further submissions about costs and the form of the orders, I propose to make orders in the following terms.
[Orders 1 – 5 were made. The plaintiffs then sought liberty to apply and order 6 was added.]
1.Pursuant to section 63 of the Court Procedures Act 2004 (ACT), until further Order of the Court, Mr Zelko Mandic is appointed as a receiver of GE Developments Aspen Pty Ltd for the purposes of instituting, prosecuting, defending or discontinuing any proceedings (including any related proceedings or appeal arising therefrom) in the name of the that company with respect to:
(a)the adjudication application notified to the company on 1 May 2023, including, for the avoidance of doubt, the ratification of the payment schedule lodged on behalf of the company; and
(b)the payment claim served by Geocon Constructors (ACT) Pty Ltd on 2 May 2023.
2.Pursuant to section 63 of the Court Procedures Act 2004 (ACT), until further Order of the Court, Zelko Mandic is appointed as a receiver of the GE Developments Establishment Pty Ltd for the purposes of instituting, prosecuting, defending or discontinuing any proceedings (including any related proceedings or appeal arising therefrom) in the name of the that company with respect to:
(a)the adjudication application notified to the company on 1 May 2023, including, for the avoidance of doubt, the ratification of the payment schedule lodged on behalf of that company; and
(b)the payment claim served by Geocon Constructors (ACT) Pty Ltd on 2 May 2023.
3.Subject to any further order of the Court, the total aggregate fees that may be charged by the receiver appointed pursuant to orders 1 and 2, including any disbursements may not exceed $30,000.
4.Pending further order of the Court, the fees of the receiver are to be paid by EJV GRN No.1 Pty Ltd and EJV Gung No.2 Pty Ltd.
5.The costs of the application for interim relief heard on 5 May 2023 are reserved.
6.Each party has liberty to apply in relation to orders 1 to 5.
| I certify that the preceding fifty-four [54] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop Associate: Date: 31 May 2023 |
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