Maxcon Constructions P/L v Vadasz

Case [2016] SASC 148

SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Application)

MAXCON CONSTRUCTIONS P/L v VADASZ & ORS

[2016] SASC 148

Judgment of The Honourable Justice Stanley

9 September 2016

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS

ADMINISTRATIVE LAW - JUDICIAL REVIEW - POWERS OF COURTS UNDER JUDICIAL REVIEW LEGISLATION - STAY OF PROCEEDINGS AND INTERLOCUTORY RELIEF

BANKRUPTCY - SCOPE AND POLICY OF LEGISLATION - GENERALLY

In this matter there are two applications before the Court.  The applications arise out of a dispute over progress payments for building work.

The first defendant is a piling contractor and at all relevant times an undischarged bankrupt.  The plaintiff is a builder and head contractor for a development known as Bohem Apartments in Wright Street, Adelaide.  On or about 15 December 2015 the plaintiff and the first defendant entered into a written contract for the first defendant to supply and install piling for the Bohem Apartments development.  The contract price was the sum of $782,100 (inclusive of GST).

There is an issue between the parties as to whether the first defendant disclosed to the plaintiff prior to entering into the contract that he was an undischarged bankrupt. 

The first defendant completed the piling works in about mid-February 2016.  On 25 February 2016 the first defendant served on the plaintiff a payment claim seeking payment of $204,864.55 (inclusive of GST) pursuant to the contract. On 8 March 2016 the plaintiff issued a payment schedule for the amount of $141,163.55 (inclusive of GST). On 18 March 2016 the first defendant made an application for adjudication in respect of the payment claim. 

On 6 April 2016 the third defendant made a decision on the adjudication in the amount of $214,614.35.  The plaintiff failed to pay the first defendant this amount. On 8 July 2016 Kourakis CJ made an order that the plaintiff was to pay into this Court the sum of $215,030.85.  The plaintiff paid that sum into court.

The first defendant seeks orders that he be granted leave to register judgment against the plaintiff in accordance with an adjudication certificate issued pursuant to s 22 of the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) in the sum of $215,030.85 and an order for payment to him out of the Supreme Court Suitor’s Fund in the sum of $141,163.55. There is no opposition to the application for leave to register the judgment pursuant to the adjudication certificate in the sum of $215,030.85. The plaintiff has brought an application for judicial review seeking to have the adjudication set aside and, in the meantime, seeks an interlocutory order for a stay of the adjudicator’s decision made pursuant to s 22 of the Act.

Held:

1. The plaintiff has demonstrated an arguable case on the application for judicial review. It is arguable on the material before the court that the adjudicator lacked the jurisdiction to make a determination pursuant to…

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Maxcon Constructions P/L v Vadasz [2016] SASC 148
Case
[2016] SASC 148
Decision Date

CaseChat Overview and Summary

In the matter of Maxcon Constructions P/L v Vadasz, the plaintiff, a builder and head contractor, and the first defendant, a piling contractor and undischarged bankrupt, were engaged in a dispute over progress payments related to the Bohem Apartments development in Adelaide. The first defendant completed the piling works in mid-February 2016 and subsequently served a payment claim for $204,864.55. The plaintiff issued a payment schedule for $141,163.55, which the first defendant contested through adjudication. The adjudicator decided in the first defendant's favour for $214,614.35, leading to the plaintiff's application for judicial review and a subsequent stay on garnishee proceedings. The first defendant sought payment from the Suitor’s Fund for the amount in the payment schedule, which the plaintiff opposed.

The primary legal issues addressed by the court included whether the plaintiff had a genuine set-off claim against the first defendant exceeding $165,583.18, and whether the first defendant had disclosed his status as an undischarged bankrupt before entering into the contract. The court considered evidence from both parties, including affidavits and contract amendments, to assess these issues. The court examined the statutory framework under which the adjudication occurred, focusing on the purpose of the Act to ensure progress payments are made and recovered effectively.

The court reasoned that while the plaintiff had claims against the first defendant, the risk of the plaintiff not recovering some of the amount in its payment schedule, coupled with the policy of the Act, necessitated a refusal of the stay and an order for payment to the first defendant. The court found no merit in the plaintiff's argument regarding the first defendant's failure to disclose his bankruptcy status and determined that the adjudication decision should be enforced.

The court ordered the dismissal of the plaintiff's application for a stay, granted the first defendant leave to register judgment in the sum of $215,030.85, and ordered payment out of the Supreme Court Suitor’s Fund to the first defendant in the sum of $141,163.55. The court also directed the parties to address the issue of costs.

Orders

Orders of the court

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Background

Background to the litigation

The applications arise out of a dispute over progress payments for building work.Factual background The first defendant is a piling contractor and at all relevant times an undischarged bankrupt. The plaintiff is a builder and head contractor for a development known as Bohem Apartments in Wright Street, Adelaide. On or about 15 December 2015 the plaintiff and the first defendant entered into a written contract for the first defendant to supply and install piling for the Bohem Apartments development. The contract price was the sum of $711,000 (exclusive of GST) or $782,100 (inclusive of GST). There is an issue between the parties as to whether the first defendant disclosed to the plaintiff prior to entering into the contract that he was an undischarged bankrupt. The first defendant completed the piling works in about mid-February 2016. On 25 February 2016 the first defendant served on the plaintiff a payment claim seeking payment of $204,864.55 (inclusive of GST) pursuant to the contract. On 8 March 2016 the plaintiff issued a payment schedule for the amount of $141,163.55 (inclusive of GST) or $128,330.50 (exclusive of GST). On 18 March 2016 the first defendant made an application for adjudication in respect of the payment claim in accordance with the provisions of s 17 of the Act. On 23 March 2016 the third defendant was appointed as the adjudicator. On 6 April 2016 the third defendant made a decision on the adjudication pursuant to s 22 of the Act. The adjudication was in the amount of $214,614.35. The plaintiff failed to pay the first defendant this amount. The first defendant sought to garnishee the plaintiff’s bank account for this sum. The plaintiff applied to the District Court of New South Wales seeking an order for a stay on the garnishee and issued proceedings in this Court for judicial review. A Judge of the District Court of New South Wales granted a stay on the garnishee on condition of a payment into that court in the sum of $215,030.85 pending the outcome of the plaintiff’s application for judicial review in this Court. On 8 July 2016 Kourakis CJ made an order that the plaintiff was to pay into this Court the sum of $215,030.85. The plaintiff paid that sum into court. The first defendant seeks payment from the Suitor’s Fund of $141,163.55 representing the sum identified in the payment schedule issued by the plaintiff pursuant to s 14 of the Act. The plaintiff opposes the making of that order. There is no opposition to the application for leave to register the judgment pursuant to the adjudication certificate in the sum of $215,030.85 but the plaintiff seeks an order staying the execution of any payment out of court.Scheme of the Act The scheme of the Act was considered by the Full Court in Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No. 2).[1]The operation of the Act is summarised in s 3. It provides:[1] [2013] SASCFC 124 at [31] – [39]. (1) The object of this Act is to ensure that a person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.(2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.(3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves—(a) the making of a payment claim by the person claiming payment; and(b) the provision of a payment schedule by the person by whom the payment is payable; and(c) the referral of any disputed claim to an adjudicator for determination; and(d) the payment of the progress payment so determined.(4) It is intended that this Act does not limit—(a) any other entitlement that a claimant may have under a construction contract; or(b) any other remedy that a claimant may have for recovering any such other entitlement.

Evidence

Evidence Before The Court

In these circumstances the first defendant submits the court should order payment out, otherwise the purpose and intention of the Act would be frustrated. Evidence before the court There were two issues in contention before me concerning the facts of the matter. They are whether the plaintiff has a genuine set-off claim against the first defendant pursuant to the subcontract in a sum exceeding $165,583.18. The second is whether the first defendant notified the plaintiff of his status as an undischarged bankrupt prior to entry into the subcontract. In relation to the first issue the plaintiff relies upon an affidavit sworn by Vlad Gorsovski on 1 August 2016 and an affidavit of Dimitrious Diakou sworn on 1 August 2016. Mr Gorsovski is a senior project manager with the plaintiff. Mr Diakou is the plaintiff’s solicitor. Both deponents allege that in addition to the claims which have been made by the plaintiff in the judicial review proceedings, the plaintiff has further claims against the first defendant pursuant to the subcontract. They are a claim for a sum of $59,550 which is said to be the cost incurred by the plaintiff as a result of advice it received from its engineers that the pads and footings for the Bohem project needed to be strengthened as the design that the first defendant had intended to utilise was not adequate. The costs involved using additional reinforcing steel and adding an additional 53 cubic metres of concrete. There is also a claim for the sum of $3,577.28 which is said to be the cost incurred by the plaintiff to hire equipment required for these rectification works. There is also a claim for the sum of $2,455.90 which is said to be the cost incurred by the plaintiff to hire labour and equipment to remove the pile caps and undertake the rectification works. In addition, there is a claim for legal costs estimated to exceed $100,000 said to be incurred by the plaintiff in New South Wales and Victoria in relation to the subcontract. Mr Diakou in his affidavit deposes to having briefed counsel in Melbourne to draw a statement of claim in relation to these matters but as at the date of swearing his affidavit that statement of claim had not been finalised. Exhibited to Mr Diakou’s affidavit is a contract amendment document relating to the first defendant which particularises certain contract amendments including those three claims and a copy of an email from Brooke Dodd to Robert Miceli of Maxcon dated 17 March 2016 which refers to changes to the pads and footings at a cost of $59,550 excluding GST. It appears Brooke Dodd is a contracts administrator with Mitolo Corporation. In relation to the second issue, the first defendant has sworn an affidavit dated 29 July 2016 in which he deposes to a telephone conversation with Mr Gorsovski during which there was a discussion about the fact of the first defendant’s bankruptcy after which discussions turned to safety issues during which the first defendant assured Mr Gorsovski that if he was the successful party the job would proceed without any safety issues and the job would be done within time. I infer from that context that the discussion occurred before entry into the subcontract. In his affidavit Mr Gorsovski denies the fact of this conversation occurring. Are there grounds for a stay?

Decision

Reasons for decision

In my view, weighing all the circumstances, including the risk that the plaintiff may not be able to recover some of the amount in its payment schedule, the prejudice to the first defendant if the stay is granted and the underlying policy of the Act, I consider the application for a stay should be refused and an order made for payment to the first defendant out of the Suitor’s Fund in the sum of $141,163.55. Conclusion I would dismiss the plaintiff’s application for a stay. I would grant leave to the first defendant to register judgment against the plaintiff pursuant to the adjudication certificate dated 19 April 2016 in the sum of $215,030.85. I would order payment out from the Supreme Court Suitor’s Fund to the first defendant in the sum of $141,163.55. I would hear the parties as to the question of costs.

Ratio Decidendi

Legal Principle Established

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