Maxcon Constructions P/L v Vadasz - [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 the Act on the basis that a construction contract did not exist at ([34] - [35]).
2. There is a real risk that the first defendant would be unable to repay all of the $141,163.55 if the plaintiff was successful on its application for judicial review. The discretion to grant a stay is enlivened at ([38] - [39]).
3. It is not necessary finally to decide the question of whether the contract is void for illegality if the first defendant failed to make the disclosure required by s 269(1)(b) of the Bankruptcy Act 1966 (Cth), it is merely necessary to assess the strength of the plaintiff’s claim founded on this proposition. It is far from clear that the plaintiff will succeed in its attack on the existence of the necessary jurisdictional fact that enlivened the adjudicator’s determination at ([50] - [51]).
4. Dismiss the plaintiff’s application for a stay at ([61]).
5. Leave is granted 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 at ([61]).
6. Order payment out from the Supreme Court Suitor’s Fund to the first defendant in the sum of $141,163.55 at ([61]).
Building and Construction Industry Security of Payment Act 2009 (SA) s 3, s 4, s 5, s 8, s 9, s 10, s 11, s 12, s 13, s 14, s 16, s 17, s 18, s 19, s 20, s 21, s 22; Bankruptcy Act 1966 (Cth) s 269(1), referred to.
Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No. 2) [2013] SASCFC 124; Grosvenor Constructions (NSW) Pty Ltd (In admin) v Musico [2004] NSWSC 344; R J Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390; Brodyn Pty Ltd t/a Time Cost and Quality v Philip Davenport & Ors [2003] NSWSC 1019; Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393; Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd (1978) 139 CLR 410; Nelson v Nelson (1995) 184 CLR 538; Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215; Gnych & Anor v Polish Club Ltd (2015) 255 CLR 414, considered.

MAXCON CONSTRUCTIONS P/L v VADASZ & ORS
[2016] SASC 148
Interlocutory Application
STANLEY J:
Introduction

In this matter there are two applications before the Court. There is an application by the first defendant who 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. 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.
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.
The Act defines a construction contract to mean a contract or other arrangement under which a party undertakes to carry out construction work or to supply related goods and services for another party. Construction work is defined in s 5 of the Act.
The Act creates a statutory right to progress payments and defines the value of construction work carried out and the amount and date for payment of the progress payment due.[2] The Act renders ineffective so called “pay when paid” provisions in construction contracts.[3] The frequency, method of calculation and other terms relevant to an entitlement to progress claims are left to the provisions of the contract unless the contract is silent, in which case the Act creates the entitlement and makes default provision for those matters. A claimant contractor can make a payment claim against a respondent that may be liable to make the payment.[4] The respondent may reply to the claim by providing a payment schedule indicating the amount (if any) of any claim the respondent proposes to make.[5] If the scheduled amount is less than claimed, or a payment schedule is not provided, or the respondent fails to pay the whole or part of the scheduled amount by the due date prescribed pursuant to s 16, the claimant can apply for an adjudication.[6] The Act provides for the appointment of an adjudicator and a determination of the amount of the progress payment (if any) to be paid by the respondent to the claimant (the adjudicated amount).[7]   The Act imposes a statutory obligation upon the respondent to pay to the claimant the adjudicated amount.[8] If the respondent fails to pay, the claimant is entitled to request an adjudication certificate from the authorised nominating authority[9] and file the adjudication certificate as a judgment for debt in a court of competent jurisdiction.[10] The judgment is enforceable accordingly.[11] Once judgment has been entered, it may be subject to a stay of execution in accordance with the ordinary principles relevant to the grant of such a stay.[12] The Act prohibits the parties from contracting out of its provisions and renders void any provision which purports to do so.[13]
[2] Sections 8 – 11.
[3] Section 12.
[4] Section 13.
[5] Section 14.
[6] Section 17.
[7] Sections 17 – 22.
[8]    Section 23(2).
[9]    Section 24(1)(a).
[10] Section 25(1).
[11] Section 25(1).
[12] Grosvenor Constructions (NSW) Pty Ltd (In admin) v Musico [2004] NSWSC 344 at [14]; R J Neller Building Pty Ltd v Ainsworth [2008] QCA 397, [2009] 1 Qd R 390 at [7] – [8].
[13] Section 33.
The Act treats progress payments in the same way as the common law. A progress payment is a payment by the principal to the contractor (or contractor to subcontractor) on account of the final contract price.[14] The parties are free to dispute the final contract price independently of progress claims and progress payments.
[14] Brodyn Pty Ltd t/a Time Cost and Quality v Philip Davenport & Ors [2003] NSWSC 1019 at [18] and on appeal (2004) NSWLR 421 at 440 – 441.
It can be seen that the Act is concerned with the distribution of risk between principal and contractor in favour of the contractor on the principle of pay now, argue later. This was explained by Keane JA (as he then was) in R J Neller Building Pty Ltd v Ainsworth[15] as follows:[16]
It is evidently the intention of the BCIP Act, … that the process of adjudication established under that Act should provide a speedy and effective means of ensuring cash flow to builders from the parties with whom they contract, where those parties operate in a commercial, as opposed to a domestic, context. This intention reflects an appreciation on the part of the legislature that an assured cash flow is essential to the commercial survival of builders, and that if a payment the subject of an adjudication is withheld pending the final resolution of the builder's entitlement to the payment, the builder may be ruined.
The BCIP Act proceeds on the assumption that the interruption of a builder's cash flow may cause the financial failure of the builder before the rights and wrongs of claim and counterclaim between builder and owner can be finally determined by the courts. On that assumption, the BCIP Act seeks to preserve the cash flow to a builder notwithstanding the risk that the builder might ultimately be required to refund the cash in circumstances where the builder's financial failure, and inability to repay, could be expected to eventuate. Accordingly, the risk that a builder might not be able to refund moneys ultimately found to be due to a non-residential owner after a successful action by the owner must, I think, be regarded as a risk which, as a matter of policy in the commercial context in which the BCIP Act applies, the legislature has, prima facie at least, assigned to the owner.
The mere existence of the very kind of risk on which the provisions of the BCIP Act in favour of the builder are predicated would not ordinarily be sufficient of itself to justify a stay of an execution warrant based on the registration of a certificate of adjudication. There may, of course, be other circumstances, which, together with this risk, justify the staying of a warrant of execution based on the registration of an adjudication certificate. For example, the builder may have engaged in tactics calculated to delay the ultimate determination of the rights and liabilities of the parties so as unfairly to increase the owner's exposure to the risk of the builder's insolvency. Or the builder may have restructured its financial affairs after the making of the building contract so as to increase the risk to the owner of the possible inability of the builder to meet its liabilities to the owner when they are ultimately declared by the courts. …
[15] [2009] 1 Qd R 390.
[16] [2009] 1 Qd R 390 at [39] – [41].
The Act grants a statutory entitlement to progress payments for the carrying out of work and the supplying of goods and services regardless of what is contained in the contract regarding progress payments. The Act is not intended to limit any other entitlement a claimant may have under a construction contract or any other remedy a claimant may have for recovering such entitlements. Accordingly, as the Full Court held in Romaldi,[17] an adjudication determination is subject to judicial review and, if an adjudicator acts beyond jurisdiction or the determination is otherwise vitiated under judicial review principles, the relevant court has jurisdiction to declare the adjudication void.[18]
[17] [2013] SASCFC 124 at [36].
[18] See also Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd [2010] NSWCA 190 at [36] – [45], [96] – [101] and [226] – [228], (2010) 78 NSWLR 393 at 403 – 405, 416 – 417 and 441.
Submissions of the parties
The first defendant submits that the purpose of the Act is to ensure the cash flow of those that undertake construction work is maintained. He submits that he entered into a construction contract with the plaintiff on or about 15 December 2015. Work was performed pursuant to the contract. He submits he is entitled to a progress payment. He contends that the plaintiff issued a payment schedule which provides for a payment to him in the sum of $141,163.55 inclusive of GST. He submits that in accordance with the Act, this sum is not in dispute and is due and payable by the plaintiff. He submits payment out of court of this sum will not prejudice the plaintiff’s claims on the application for judicial review. The plaintiff can pursue the issues contained in its second statement of grounds, namely, the first defendant’s status as an undischarged bankrupt, the retention amount and administrative charges. He says these matters are irrelevant to the sum of $141,163.55. I will refer further to these matters shortly. In accordance with the statutory principle of pay now argue later the sum acknowledged not to be in dispute on the payment schedule should be paid.
The plaintiff submits that the court should decide the first defendant’s application for payment out of court and the plaintiff’s application for the stay consistently. It submits that it has a genuine set-off claim against the first defendant in excess of $165,583.18 pursuant to the subcontract agreement between them. In these circumstances, where the first defendant is an undischarged bankrupt if the application for payment out of court is granted, the plaintiff is at risk of not being able to recover the money going to the first defendant because the money paid will be distributed to the first defendant’s creditors by his trustee in bankruptcy. Accordingly, there is a real risk the setoff claim will be rendered nugatory in circumstances where the claim is genuine. It further submits that there is a real prospect of success on its application for judicial review. There was a want of jurisdiction on the part of the adjudicator. The plaintiff submits that before entering into the subcontract the first defendant did not disclose to it that he was an undischarged bankrupt. As a result, the first defendant contravened s 269(1)(b) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). Section 269(1)(b) provides:
(1) An undischarged bankrupt or a debtor who is a party to a debt agreement shall not:
…
(b) carry on business under an assumed name, in the name of another person or, either alone or in partnership, under a firm name without disclosing to every person with whom he or she or, if he or she is carrying on business in partnership under a firm name, the partnership deals, his or her true name and the fact that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires).
…

It submits that accordingly the subcontract was void for illegality. Accordingly, the adjudicator lacked jurisdiction because a construction contract was not in existence.
Further, the plaintiff submits the adjudicator erred in the approach he took to the issues of administration charges and payment of the retention amount under the construction contract. The plaintiff charged the first defendant with administration charges of $22,500 for administering the invoice claims of suppliers to the first defendant. The adjudicator found there was no contractual entitlement for this charge. The plaintiff withheld a retention amount of $35,454 pursuant to a clause in the subcontract which provided that the retention amount was payable to the first defendant at specified times after the issue of the CFO certificate of occupancy. The adjudicator held that this provision of the contract was invalid as contravening the prohibition of pay when paid provisions in s 12 of the Act. The plaintiff submits the adjudicator’s interpretation of the contract and the Act is plainly wrong.
The first defendant submits in response that the adjudicator has made no error, that the court cannot be satisfied that the set-off claim is genuine given the failure to prosecute it before now, and the evidentiary foundation for the submission that a construction contract did not exist, cannot be made out given the evidence of the first defendant that he disclosed his status as an undischarged bankrupt to Mr Gorsovski, a senior project manager of the plaintiff, prior to entry into the subcontract.
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?
In Romaldi Blue J, with whom Sulan J and I agreed, considered the various categories of claim that might be made by a party in the position of the plaintiff applying for a stay. In the context of an application for a stay of the statutory debt resulting from the adjudication determination, he identified three relevant categories of claim. The first and third are applicable to this matter. Blue J said that where there is a claim that the adjudication determination is invalid, success in the claim would remove the foundation for a judgment founded on the adjudication certificate. He described this as a paradigm case in which a court will grant a stay provided that there are sufficient prospects of success in establishing invalidity and sufficient prospects that the moneys the subject of the adjudication certificate will be dissipated and the defendant will not have sufficient means to repay the adjudication amount. He recognised that this is the nature of the claims in some of the cases in which an interlocutory injunction or stay has been sought in respect of an adjudication determination.[19] The other relevant category is where there is a claim that the applicant for the stay is entitled to set off a liquidated or an unliquidated claim for breach of contract which does not directly impact the entitlement of the claimant to the progress payment.[20]
[19] See, for example, Brodyn Pty Ltd t/as Time Cost and Quality v Davenport & Ors [2003] NSWSC 1019; Taylor Projects Group Pty Ltd v Brick Dept Pty Ltd [2005] NSWSC 571; Over Fifty Mutual Friendly Society Ltd v Smithies [2007] NSWSC 291; RJ Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390.
[20] [2013] SASCFC 124 at [77] – [79].
The issue to be decided by the court involves the exercise of a discretion. It is an evaluative exercise. I accept the submission of the plaintiff that the decision on each application should be consistent. In other words, I would only order payment out if I was not prepared to order a stay of execution as sought by the plaintiff. That proposition is subject to the one qualification that the first defendant seeks an order to register judgment in its favour against the plaintiff pursuant to the adjudication certificate in the sum of $215,030.85. As I have indicated, there was no opposition to this application. In my view, there is no prejudice to the plaintiff in making that order. None was identified in argument. The issue was not addressed by the plaintiff. In the circumstances I would grant leave to the first defendant to register the judgment pursuant to the adjudication certificate in the sum of $215,030.85.
I proceed on the basis that the plaintiff is applying for a stay of execution of part of a judgment founded on the adjudication certificate.
It is convenient to address the question of a stay first as I consider the first defendant has otherwise established an entitlement to a payment out in accordance with the provisions of the Act subject to the issue of whether there was a construction contract in existence. That is the question of whether the subcontract is void for illegality.
If there was a construction contract in existence, the evidence establishes that there was work performed by the first defendant for the plaintiff pursuant to the subcontract, that the first defendant made a progress claim in accordance with the Act and the plaintiff has issued a payment schedule not disputing an entitlement on the part of the first defendant to a progress payment of $141,163.55 inclusive of GST. That follows from the outcome of the adjudication, which was the subject of a determination made by a duly appointed adjudicator.
In order to establish that a proper ground or grounds exist for the grant of a stay it is necessary for the plaintiff to establish that, if a stay was not granted, there is a prospect that it would succeed either in the judicial review application or in its set-off claim, and that such success would be rendered nugatory due to the dissipation of the money sought to be paid out of court with the result that the first defendant would not have the means to meet any judgment in favour of the plaintiff.
In order to enliven the discretion whether to grant a stay, the plaintiff must first satisfy the court that it has an arguable prospect of success on its application for judicial review or its asserted set-off claim for a sum exceeding $165,583.18.
In my view, the plaintiff has demonstrated an arguable case on the application for judicial review.
I accept that it is arguable on the material before the court that the adjudicator lacked the jurisdiction to make a determination pursuant to the Act on the basis that a construction contract did not exist. The plaintiff has adduced evidence that there was no disclosure of the fact that the first defendant was an undischarged bankrupt prior to entry into the contract. That evidence is contradicted by evidence of the first defendant. However, the fact that the issue of disclosure is contested does not preclude the court being satisfied that it is arguable disclosure, in accordance with the requirements of s 269(1)(b) of the Bankruptcy Act, was not made. That is the foundation for the argument that the contract was void for illegality.
This conclusion renders it unnecessary for the purposes of the stay to consider whether there is an arguable case on the set-off claim. However, in my view, the evidence before the court does not discharge the plaintiff’s onus. There is a paucity of evidence on the material before the court that substantiates any claim for the sums of $59,550, $3,577.28 and $2,455.90 which are alleged to have been incurred in order to rectify work undertaken by the first defendant. In addition, notwithstanding that the plaintiff has been threatening to issue proceedings for these sums since March 2016, it has failed to do so. Further, there is little if any evidence of any liability on the part of the first defendant to the plaintiff for legal costs.
Accordingly, it is necessary to turn to the issue of whether the plaintiff has demonstrated that there is a relevant risk that the first defendant would be unable to repay the sum of $141,163.55 if the plaintiff established that the adjudication was invalid. As Blue J observed in Romaldi, that risk is to be characterised as a “real risk” or a “not insubstantial risk”.[21] Because it is part of establishing that, absent the grant of a stay, there is a risk that the action will be rendered nugatory if the plaintiff is successful, it is not necessary that there be a high level of likelihood of inability to pay in the postulated circumstances.
[21] [2013] SASCFC 124 at [85].
The evidence the plaintiff relies upon is simply that the first defendant is an undischarged bankrupt. I accept that while the first defendant is an undischarged bankrupt, any payment made to him in respect of the construction work performed pursuant to the subcontract will be subject to the provisions of the Bankruptcy Act and, as a result, some of those moneys will be distributed to his creditors. In these circumstances, I am satisfied that there is a real risk that the first defendant would be unable to repay all of the $141,163.55 if the plaintiff was successful on its application for judicial review.
These conclusions enliven the discretion to grant a stay.
Exercise of discretion
In exercising the discretion the court will have regard to the following factors:
1.     the strength of the plaintiff’s claim;
2.     the likelihood of an inability to repay;
3.     the potential prejudice to the first defendant if a stay is granted;
4.     the prima facie effect of the Act; and
5.     the entitlement of the first defendant to the progress payment.[22]
[22] Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No. 2) [2013] SASCFC 124 at [94] – [111].
Once a ground for a grant of a stay has been established, the exercise of the discretion involves balancing all the relevant considerations, giving each consideration the weight which it deserves. If a plaintiff has a very strong case and a defendant will suffer very little prejudice if a stay is granted, the risk of inability to pay might be relatively low and yet the discretion exercised in favour of a grant of a stay. Conversely, if a plaintiff has a very weak case and the defendant will suffer substantial prejudice if a stay is granted, a relatively high likelihood of inability to pay may be required for a grant of a stay or may not even suffice to justify a grant of a stay.[23]
[23] Romaldi Constructions Pty Ltd v Adelaide Interior Linings (No. 2) [2013] SASCFC 124 at [100].
On an application for a stay of execution of a judgment founded on an adjudication certificate an important criterion is the strength of the plaintiff’s claim. Necessarily the court’s ability to assess the strength of a party’s case on an interlocutory application must be limited. However, for the purposes of the evaluative exercise the court is required to undertake it is necessary for the court, doing the best it can, to form a view as to the strength of the plaintiff’s claim.
While the plaintiff has established an arguable case on its application for judicial review, that arguable case is founded upon its denial of the first defendant’s evidence that in the course of a telephone conversation with Mr Gorsovski he disclosed the fact of his bankruptcy. At the trial, it will be the plaintiff who bears the onus of proving the failure to make the disclosure required by s 269 of the Bankruptcy Act. The first defendant has sworn an affidavit that in the course of a conversation with Mr Gorsovski he made the relevant disclosure. In any event, even if the disclosure was not made it does not follow that by reason of the operation of s 269(1)(b) of the Bankruptcy Act that the subcontract is rendered void and unenforceable. Any contravention of the obligation imposed by s 269(1)(b) is to be considered against the principles applicable to the issue of whether a contract is void for illegality as discussed by the High Court in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd,[24] Nelson v Nelson,[25] Fitzgerald v F J Leonhardt Pty Ltd[26] and Gnych & Anor v Polish Club Ltd.[27]
[24] [1978] HCA 42, (1978) 139 CLR 410.
[25] [1995] HCA 25, (1995) 184 CLR 538.
[26] [1997] HCA 17, (1997) 189 CLR 215.
[27] [2015] HCA 23, (2015) 255 CLR 414.
In Gnych French CJ, Kieffel, Keane and Nettle JJ considered the principles of statutory illegality as follows:[28]
[28] [2015] HCA 23 at [35], [37] – [38], (2015) 255 CLR 414 at 424 – 425.
In Equuscorp Pty Ltd v Haxton, French CJ, Crennan and Kiefel JJ explained that an agreement may be unenforceable for statutory illegality in three categories of case, where:
“(i) the making of the agreement or the doing of an act essential to its formation is expressly prohibited absolutely or conditionally by the statute;
(ii) the making of the agreement is impliedly prohibited by statute. A particular case of an implied prohibition arises where the agreement is to do an act the doing of which is prohibited by the statute;
(iii) the agreement is not expressly or impliedly prohibited by a statute but is treated by the courts as unenforceable because it is a ‘contract associated with or in the furtherance of illegal purposes’.
In the third category of case, the court acts to uphold the policy of the law, which may make the agreement unenforceable. That policy does not impose the sanction of unenforceability on every agreement associated with or made in furtherance of illegal purposes. The court must discern from the scope and purpose of the relevant statute ‘whether the legislative purpose will be fulfilled without regarding the contract or the trust as void and unenforceable’.”
(Footnotes omitted.)
…
In this regard, in Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd, Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ cited with approval the observation by Mason J in Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd that:
“the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction.”
Their Honours went on to state that whether a statute which:
“contains a unilateral prohibition on entry into a contract … is void … depends upon the mischief which the statute is designed to prevent, its language, scope and purpose, the consequences for the innocent party, and any other relevant considerations. Ultimately, the question is one of statutory construction.”
(Footnotes omitted).
Their Honours went on to consider where legislation provides a statutory penalty for an offence, whether the contravention of that provision should result in the avoidance of a contract. They cited with approval the statement of Mason J in Yango:[29]
“There is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished.”
[29] [2015] HCA 23 at [47], (2015) 255 CLR 414 at 427.
Gageler J approved the reasoning of Ipp JA in Tonkin v Cooma-Monaro Shire Council[30] that there is no universal rule that can be applied to the construction of statutes to determine whether the effect of a failure to comply with a provision of a statute is to render a contract to which that provision applied invalid or unenforceable. Each statute has to be considered as a whole and as a separate entity.[31] He said that where a statute expressly or impliedly denies legal operation to a contract it is the statute itself which operates to render that contract incapable of enforcement at common law. A contract which is not denied legal operation by statutory force may still be unenforceable at the insistence of one or both parties by operation of the common law by reference to considerations of public policy. The cases in which that might occur, however, must be closely confined.[32] In this context he said:[33]
The consideration of public policy that a person ought not to be permitted by law to found a cause of action on an immoral or illegal act is the product of an earlier age. The broader consideration of public policy is now rarely recognised by the common law to have application in relation to illegality which arises under a modern regulatory statute. … It is not the function of the common law to seek to improve on a regulatory scheme by supplementing the statutory sanctions for its breach. If a statute itself does not operate to deny legal operation to an agreement made in breach of one of its prohibitions, or to render that agreement unenforceable by reason of that breach, the coherence of the law is best served by a court respecting and enforcing that legislative choice.
[30] (2006) 145 LGERA 48 at [59].
[31] [2015] HCA 23 at [66], (2015) 255 CLR 414 at 432.
[32] [2015] HCA 23 at [70], (2015) 255 CLR 414 at 433.
[33] [2015] HCA 23 at [73], (2015) 255 CLR 414 at 434 – 435.

On the other hand, Gageler J, citing Nelson and Fitzgerald, considered that public policy considerations might warrant withholding a common law remedy from a person who has deliberately flouted the law but only if the consequence of doing so would be both proportionate to the seriousness of the illegality and not incongruous with the statutory scheme.[34]
[34] [2015] HCA 23 at [75], (2015) 255 CLR 414 at 435.
In this case s 269(1)(b) prohibits an undischarged bankrupt from carrying on business inter alia under a firm name without disclosing to every person with whom he deals the fact that he is an undischarged bankrupt.
Section 269(1)(b) does not proscribe an undischarged bankrupt from entering into a contract. The provision imposes an obligation to make disclosure on the part of an undischarged bankrupt. The Bankruptcy Act does not expressly provide that any contract made in contravention of the obligation to make disclosure is void and unenforceable. It merely imposes a penalty for failure to comply with the obligation. The contract, while lawful according to its own terms, was entered into in circumstances where there was a failure to comply with an antecedent obligation, namely, disclosure. In Fitzgerald Dawson and Toohey JJ observed that it has sometimes been said that a contract is illegal if its performance involves breach of a statute passed for the protection of the public; but such a proposition is, they considered, too broad. It may be that the purpose of the statute will be served by the imposition of a penalty, notwithstanding it is for the protection of the public.[35] Section 269(1)(b) is not concerned with the performance of the contract. The subject matter of the subsection is the circumstances in which the contract is made. Where the contract was capable of lawful performance, had disclosure been made, the issue is one of public policy. As the court in Fitzgerald held, regard must be had, primarily, to the scope and purpose of the statute, to determine whether the relevant legislative purpose can be fulfilled without regarding the contract as void and unenforceable. In Fitzgerald where the contract was for the performance of drilling which required a permit, the court held that the penalty provisions prescribed for drilling without a permit adequately fulfilled the purpose of the legislation without rendering the contract void and unenforceable. There is a real question as to whether in this case rendering the contract unenforceable would be disproportionate to the seriousness of the unlawful conduct when the Bankruptcy Act does not expressly require that result and it expressly imposes a different sanction for the protection of the Bankruptcy Act’s objects and purposes.[36]
[35] (1997) 189 CLR 215 at 220.
[36] Nelson v Nelson (1995) 184 CLR 538 at 613.
Of course at this stage it is not necessary finally to decide the question of whether the contract is void for illegality if the first defendant failed to make the disclosure required by s 269(1)(b), it is merely necessary to assess the strength of the plaintiff’s claim founded on this proposition.
It is enough for the purposes of this exercise for me to conclude that it is far from clear that the plaintiff will succeed in its attack on the existence of the necessary jurisdictional fact that enlivened the adjudicator’s determination.
In reaching this conclusion I do not overlook the other grounds upon which the plaintiff propounds the application for judicial review. They are grounds that turn on the construction of the subcontract and the application of the provisions of s 12 of the Act. While I am satisfied that the plaintiff has an arguable case in relation to the issues of the retention amount and the administrative charges, I consider it is far from clear that the adjudicator erred in the approach that he took to those issues. Even if the plaintiff is successful in relation to its challenge to the adjudicator’s determination in relation to each of these matters, that would not affect the first defendant’s entitlement to the sum of $141,163.55 in the payment schedule unless the plaintiff also succeeds in its challenge to the validity and enforceability of the construction contract. That is because if the adjudication determination was reduced by the sums involved, the resulting amount would be more than $141,163.55.
In these circumstances, while I am satisfied that the plaintiff’s claim for judicial review is arguable, I would not characterise it as strong, having regard to the nature of the assessment that the court is required to undertake for the purposes of weighing discretionary considerations in deciding the application for a stay. None of that is to suggest that the plaintiff will not ultimately succeed, but for the purposes of the evaluative exercise presently being undertaken, I consider the grounds of the plaintiff’s application for judicial review are no more than arguable.
For the reasons set out above, I am satisfied there is a real risk that the first defendant will be unable to repay all of the sum of $141,163.55 if the order for payment out is made. That is a relevant factor to be weighed in the overall exercise of the discretion to grant or refuse the stay.
A countervailing factor is the prejudice to the first defendant if the stay is granted given that he has been kept out of the sum of $141,163.55 which is not in dispute on the plaintiff’s own payment schedule, for nearly five months. I accept that this represents a not insignificant sum for the first defendant’s business.
A further consideration to be weighed is the policy of the Act. The Act is premised on the proposition that, prima facie, the risk that a subcontractor will be unable to refund progress payments upon the final determination of the respective rights of the parties is assigned to the head contractor. This is a cogent factor to be taken into account in the evaluative exercise of the discretion to grant or refuse the stay.
In this matter there is no dispute that the first defendant performed work to the value of $141,163.55. The only challenge to the first defendant’s entitlement to be paid this sum is the challenge to the validity and enforceability of the construction contract and the set-off claim. As I have indicated, the former I consider to be arguable, the latter I consider not to be arguable on the material before the court. While the plaintiff seeks to challenge the adjudicator’s findings in relation to the retention amount and the administration charges on the application for judicial review, even if it was successful on these issues the first defendant would still be entitled to payment of $141,163.55 subject to the question of whether the subcontract is void for illegality. While I am satisfied there is a real risk that if an order for payment out of this sum is made and the plaintiff succeeds on its application for judicial review in impugning the validity of the contract, some of that money will not be repaid, that is far from certain. On the other hand, the challenge to the validity of the subcontract is merely arguable. The Act requires the payment of progress payments. Its purpose is to provide an expeditious and effective means of ensuring cash flow to subcontractors from the parties with whom they contract. The Act proceeds on the assumption that the interruption of a subcontractor’s cash flow may cause the financial failure of the subcontractor before the rights and wrongs of claim and counterclaim between a subcontractor and a head contractor or owner can be finally determined by the court. On that assumption the Act seeks to preserve the cash flow to the subcontractor notwithstanding a risk that the subcontractor might ultimately be required to refund the money in circumstances where the subcontractor’s financial failure, and inability to repay, could be expected to eventuate. The risk that a subcontractor might not be able to refund moneys ultimately found to be due to the head contractor after a successful action by the head contractor is a risk which has been assigned by the Parliament to the head contractor. As Keane JA (as he then was) in R J Neller Building Pty Ltd v Ainsworth[37] said the mere existence of the very kind of risk on which the provisions of the Act are predicated would not ordinarily be sufficient to justify a stay.[38]
[37] [2009] 1 Qd R 390.
[38] [2009] 1 Qd R 390 at [41].
While there could be circumstances which, together with this risk, justify the grant of a stay, in this case I consider that those circumstances do not exist.
While in Romaldi Blue J described the circumstances where there is a claim that the adjudication determination is invalid, as a paradigm case in which a court will grant a stay, that is subject to the proviso that there are sufficient prospects of success in establishing invalidity and sufficient prospects that the moneys the subject of the adjudicated certificate will be dissipated and the defendant will not have sufficient means to repay the adjudication amount. That is not this case.
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.