Maxcon Constructions Pty Ltd v Vadasz - [2016] SASCFC 119

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
MAXCON CONSTRUCTIONS PTY LTD v VADASZ
[2016] SASCFC 119
Judgment of The Full Court
(The Honourable Justice Peek, The Honourable Justice Blue and The Honourable Justice Lovell)
25 October 2016
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - WHEN APPEAL LIES - FROM SUPREME COURT - BY LEAVE OF COURT - INTERLOCUTORY ORDERS AND JUDGMENTS
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - STAY OF PROCEEDINGS
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS
Appeal and applications for permission to appeal against refusals of applications for stays of execution of a judgment founded on an adjudication determination under the Building and Construction Industry Security of Payment Act 2009 (SA).
On 25 February 2016, the first respondent served on the appellant a payment claim for $204,864.55 (inclusive of GST) plus adjudication costs. On 8 March 2016, the appellant served on the first respondent a payment schedule showing the scheduled amount it proposed to pay as $141,163.55. The appellant deducted $38,999.40 as a 5% retention and $24,750 for administration charges.
On 15 March 2016, the first respondent applied pursuant to section 17 of the Act to the second respondent for adjudication of the shortfall. The second respondent appointed the third respondent as adjudicator.
On 11 April 2016, the adjudicator made a determination in favour of the first respondent that $204,864.55 was payable. The adjudicator concluded that the contractual provisions for the retention sum were “pay when paid” provisions rendered void by section 12 of the Act. The adjudicator concluded that the appellant was not contractually entitled to the administration charges.
On 26 May 2016, the appellant instituted this action by way of judicial review seeking the setting aside of the adjudication determination because the adjudicator made errors of law vitiating his decision on the retention sum and the administration charges. After the appellant became aware that the first respondent was an undischarged bankrupt, it added an additional ground that the adjudicator lacked jurisdiction because the contract was rendered void by section 269 of the Bankruptcy Act 1966 (Cth) as a result of non-disclosure by the first respondent of his bankrupt status.
In the meantime, the first respondent had obtained judgment in the District Court of New South Wales for $214,614.35 based on the adjudication certificate pursuant to section 25 of the Act. The appellant had paid $215,030.85 into the District Court. A consent order had been made that this sum be transferred to this Court and the District Court action be dismissed with no order as to costs.
In July 2016, the first respondent sought an order for payment out of $141,163.55 being the scheduled amount. The appellant sought a stay of execution pending hearing and determination of the action. The appellant argued that it had additional claims against the first respondent of $72,141.50 (inclusive of GST) for rectification costs and approximately $100,000 for costs of the New South Wales District Court action and a prospective Victorian Magistrates Court action for the administration charges.
On 9 September 2016, a Judge ordered payment out of $141,163.55 and refused the appellant’s stay application. The appellant appeals against those orders pursuant to permission granted by the Judge.
On 16 September 2016, the Judge refused the appellant’s application for a stay pending the appeal but on 21 September 2016 the Judge granted an interim stay pending application to the Full Court for permission to appeal. The appellant seeks permission to appeal against the 16 September order.
On 30 September 2016, the Judge dismissed the action and ordered payment out to the first respondent of $215,030.85. The Judge refused the appellant’s application for a stay pending appeal. The appellant seeks permission to appeal against the refusal of the stay application.
On 4 October 2016, the appellant made a further stay application, which was heard by the chamber list Judge on 7 October 2016 and dismissed. The appellant seeks permission to appeal against that refusal.
Held by the Court:
1. The Judge did not err in refusing the first stay application on 9 September 2016. Appeal against that refusal dismissed (at [92]).
2. Permission to appeal against the refusal of the second stay application on 16 September 2016 refused (at [97]).
3. Permission to appeal against the refusal of the fifth stay application on 7 October 2016 refused (at [102]).
4. The Judge erred in refusing the fourth stay application on 30 September 2016 on the ground that the appellant had not established that there was a real risk that it would suffer prejudice if a stay were not granted. The exercise of the discretion by the Judge was vitiated by that error (at [115]).
5. Permission to appeal against the 30 September refusal of the fourth stay application granted, the appeal allowed and a stay ordered in respect of payment out of the monies in court in excess of $105,000. The sum of $105,000 to be paid out to the first respondent (at [137]).
Bankruptcy Act 1966 (Cth) s 116, s 139K, s 139L, s 139P, s 139S, s 139W, s 139ZG, s 269; Building and Construction Industry Security of Payment Act 2009 (SA) s 12, s 13, s 14, s 15, s 16, s 17, s 19, s 22, s 23, s 24, s 25, s 33; Social Security Act 1991 (Cth) s 1064, referred to.
House v The King (1936) 55 CLR 499; Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2) [2013] SASCFC 124, discussed.
RJ Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390; Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510, considered.

MAXCON CONSTRUCTIONS PTY LTD v VADASZ
[2016] SASCFC 119
Full Court: Peek, Blue and Lovell JJ
THE COURT:

This is an appeal and applications for permission to appeal against interlocutory orders made by single Judges of this Court refusing successive applications for a stay of execution of a judgment founded on an adjudication determination pursuant to the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) and ordering payment out to the first respondent of money paid into Court by the appellant.
Background
The appellant/applicant Maxcon Constructions Pty Ltd is a building contractor. Maxcon entered into a contract with the owner of 150 Wright Street Adelaide to construct a multi-storey apartment building to be known as Bohem Apartments.
The first respondent Michael Christopher Vadasz is a piling subcontractor who carries on business under the business name Australasian Piling Contractors (APC). Mr Vadasz is an undischarged bankrupt, having been made bankrupt on 7 December 2010.
In about July 2015, Maxcon advertised for tenders in respect of the Bohem project. APC tendered for the piling works.
On 15 December 2015, Maxcon entered into a contract with APC to design and construct piling for the construction of the Bohem Apartments for a Contract Sum of $711,000 (plus GST).[1] The contract provided for variations to the Contract Sum.[2] The contract provided for progress claims.[3]
[1]    All dollar figures quoted herein are exclusive of GST, unless otherwise specified.
[2]    Principally clauses 10.1 and 12.1.
[3]    Principally clauses 1(b) and 10(a) to (m).
The contract provided for security to be given by the subcontractor in the form of the retention by the contractor of 5 per cent of the adjusted Contract Sum (exclusive of GST).[4] Subject to deductions the contractor was entitled under the contract to make, the retention sum was to be released to the subcontractor as to 50% thereof 90 days after the issue of a certificate of occupancy and any other regulatory approvals required for occupancy (CFO) and as to the balance thereof 365 days after achievement of CFO.[5] For ease of reference, we use the expression “certificate of occupancy” to encompass all regulatory approvals required for occupancy.
[4] Clause 11 and Schedule E item 7. The retention sum was to be built up progressively by deducting 10% of progress claims until a total retention of 5% of the contract sum was reached.
[5] Clause 11 and Schedule E item 8.
The contract provided by Special Conditions B27 to B30 for the concrete supplier, nominated to be Hanson (Hanson Construction Materials Pty Ltd), and the steel reinforcement supplier, nominated to be Bianco (Bianco Reinforcing Pty Ltd), to invoice Maxcon directly and be paid on 30 day payment terms. The contract provided by clause 7.5(d) that, if the contractor agreed to assist the subcontractor in administration of its business which is not part of the contract, the contractor could charge the subcontractor at the rate of $80 per hour (plus GST) subject to rise and fall. The contract provided by clause 10(l) that if the contractor was required to manage the subcontractor’s accounts more than what should be normally required, the contractor was entitled to charge the subcontractor a reasonable sum.
Between December 2015 and February 2016, Mr Vadasz undertook the piling works.
During the course of the works, Mr Vadasz served on Maxcon a first progress claim. Ultimately, he was paid $282,263 as a first progress payment.
On 21 January 2016, Vlad Gorsovski, Maxcon’s senior project manager, sent an email to Mr Vadasz saying that Hanson and Bianco were invoicing Maxcon on a daily basis, whereas Mr Vadasz had promised that Maxcon would only receive one invoice per company per month. Mr Gorsovski said that he had told Mr Vadasz that if Maxcon received more than one invoice per company per month he would be charged accordingly, to which Mr Vadasz had agreed. Mr Gorsovski said that Maxcon would issue to Mr Vadasz administration costs in due course.
On 22 January 2016, Mr Vadasz sent a responding email to Mr Gorsovski. The email included the following passage:
… respectfully, following our discussion last year, and my email to you of the 6th august 2015, I believe that I asked you to only refer to the statement of the two suppliers, and deduct that total from my progress payment. You don’t have to look look [sic] at the invoices, they would be meaningless to anyone other than my firm. I didn’t want Maxcon to be embroiled in any issues between APC and the supplier.
No, I don’t recall any admin charges being discussed, BUT, I understand you need something for your inconvenience. That’s fair enough…
On 22 January 2016, Mr Gorsovski sent a responding email reiterating his position, to which Mr Vadasz responded in kind.
In February 2016, Mr Vadasz raised a variation claim to Maxcon for $12,382.50, which Maxcon accepted. Maxcon raised a backcharge to Mr Vadasz of $1,920 for additional piling design calculations (the calculations charge claim). Maxcon raised backcharges totaling $252,915 for payments made to Hanson and Bianco.
On 25 February 2016, Mr Vadasz served on Maxcon a second progress claim in the form of a payment claim under section 13 of the Act. He claimed $186,240.50 being the balance of the Contract Sum subject to the adjustments and the first progress payment summarised above.[6]
[6] $711,000 plus $12,338.50 (a transposition error of $44 from the correct figure of $12,382.50) minus $1,920 minus $251,795 minus $283,383.
On 8 March 2016, Maxcon served on Mr Vadasz a payment schedule under section 14 of the Act showing the amount Maxcon proposed to pay (the scheduled amount) as $128,330.50. This represented the amount claimed by Mr Vadasz adjusted to correct his transposition error to $186,284.50 less:
1a retention of $35,454 being five per cent of the adjusted Contract Sum[7] (the retention sum claim);
2a backcharge of $22,500 for administration charges (the administration charges claim);
3a backcharge of $1,120 for repairs and sweeping.
[7] $711,000 minus $1,920.
Pursuant to section 16 of the Act, by reason of Maxcon’s acceptance of the claim to the extent of $128,330.50, that amount (with GST $141,163.55) became due and payable by Maxcon to Mr Vadasz by 17 March 2016 (within 15 business days of the payment claim).
On 10 March 2016, Mr Vadasz sent a response to the payment schedule, taking issue with the retention sum claim and the administration charges claim as well as the backcharge for $1,920 provisionally accepted in his progress claim. Mr Vadasz did not challenge the repairs and sweeping backcharge.
On 15 March 2016, Mr Vadasz applied pursuant to section 17(1)(a)(i) of the Act to the second respondent Adjudicate Today Pty Ltd, for adjudication of the shortfall between the claimed amount of $186,240.50 and the scheduled amount of $128,330.50. Mr Vadasz attached a submission taking issue with the calculation charges claim of $1,920, the administration charges claim of $22,500 and the retention sum claim of $35,454. In respect of the last claim, he contended that the provisions for retention in the contract were “pay when paid” provisions rendered void by section 12 of the Act.
On 23 March 2016, the third respondent Callum Campbell accepted appointment by Adjudicate Today as adjudicator pursuant to section 19 of the Act.
On 29 March 2016, Maxcon’s solicitors sent to the adjudicator a submission in response to the adjudication application. The submission took issue with the three contentions advanced by Mr Vadasz in his submission. It also attached a calculation of administration charges totalling $22,760. The calculation included charges for work relating to invoices at $80 per hour and for senior personnel reviewing that work at $150 per hour. It also included a charge of $1,200 for calculating and reviewing the backcharge; $5,950 for a director’s review of the total process charged at $350 per hour, and $5,000 for carrying the risk of having the invoices in the name of Maxcon. The submission relied on clauses 7.5(d) and 10(l) as the contractual basis for the claim and contended that by the exchange of emails between the parties on 21 and 22 January 2016 Mr Vadasz was fully aware that there should be administration charges and why.
On 11 April 2016, Mr Campbell issued a determination pursuant to section 22 of the Act (the adjudication determination) determining the adjudicated amount at $186,240.50 (with GST $204,864.55), and that Mr Vadasz was entitled to interest thereon at the rate prescribed in respect of judgment debts of this Court and that Maxcon was required to pay the adjudication application fee of $7,590 (with GST $8,349). Mr Campbell accepted Maxcon’s submissions concerning the calculation charges claim.
In relation to the administration charges claim, Mr Campbell said:
Clause 7.5(d) of the contract provides as follows:
If the builder agrees to assist the subcontractor in the administration of the business and which is not part of this subcontract agreement, the builder shall charge the subcontractor rate of $80 per hour subject to rise and fall.
Clause 10(l) of the contract provides as follows:
If the builder is required to manage the subcontractor’s accounts more than what should be normally required, the builder shall be entitled to charge the subcontractor without prior notice, a reasonable sum from that months progress claim and of which shall be deducted as required.
…
Schedule B – special conditions of the contract, clauses B27 to B30 record the parties’ agreement for Hanson and Bianco, respectively, to invoice the respondent directly for the cost of steel and reinforcement, with invoice amounts to be deducted from the amounts otherwise due to the claimant…
There is no evidence before me, apart from an assertion made by the respondent in an email, that the claimant agreed to be back charged should more than one invoice per month be issued to the respondent by Hansen and Bianco…
There is evidence before me that in accordance with the contract’s special conditions B28 to B31, the respondent agreed that the concrete and steel suppliers were to invoice the respondent directly. I fail to see how the administration of such invoices cannot be considered a part of the contract, as per the respondent’s contention…
Therefore I am not satisfied that the work predominantly charged at the hourly rate of $80.00, with higher rates being charged for a review of the administration, by senior personnel of the respondent, is justified.
The respondent contractually agreed to be invoiced directly by Hansen and Bianco.
In relation to the retention sum claim, Mr Campbell said:
The ‘pay when paid’ provision is defined in section 12(2) of the Act, to mean a provision of the contract:
(a)that makes the liability of one party (the first party) to pay money owing to another party (the second party) contingent on payment to the first party by a further party (the third-party) of the whole or a part of that money; or
(b)that makes the due date for payment of money owing by the first party to the second party dependent on the date on which the payment of the whole or a part of that money is made to the first party by the third party; or
(c)that otherwise makes the liability to pay money owing, more the due date for payment of money owing, contingent or dependent on the operation of another contract.
…
The release of the retention amounts revolves around the achievement of a certificate of occupancy (CFO). CFO means under the contract, the certificate of occupancy and any other approval(s) required under building legislation which are required to enable the works willfully [sic] to be used for the respective purposes in accordance with the Principal’s Project requirements…
Reference to and reliance upon contingencies (namely CFO) based upon the principle’s [sic] contractual project requirements under the head contract, certainly does makes the liability to pay retention money owing under the parties contract, contingent and dependent on the operation of another contract.
The retention provision makes the payment of retention monies subject to the respondent’s performance under the head contract; specifically its procurement of a certificate of occupation upon its achievement of practical completion. The due date for the release of such retention monies is tied to such an event and is unable to be determined, as a third-party event (the granting of CFO) must occur under the head contract, in order for a due date of the retention release to be calculated, under the parties’ contract.
I am satisfied that clause 11 and schedule E, whereby the release of retention is contingent upon conditions contained in the head contract in relation to respondent’s performance, namely procurement of a CFO, is a ‘pay when paid’ provision, and therefore in breach of section 12(2)(c) of the Act.
Pursuant to section 23 of the Act, Maxcon was required to pay the adjudicated amount by 18 April 2016 (within five business days).
On 19 April 2016, Mr Campbell issued an adjudication certificate pursuant to section 24 of the Act for $214,614.35 (inclusive of GST, adjudication costs and interest) (the adjudication certificate).
On 21 April 2016, Mr Vadasz obtained judgment in the District Court of New South Wales for $214,614.35 pursuant to section 25 of the Act based on the adjudication certificate. On 17 May 2016, the District Court of New South Wales issued a garnishee order against Maxcon’s bank account with Westpac.
The proceedings
On 26 May 2016, Maxcon instituted this judicial review action seeking a declaration that the adjudication determination was a nullity and an order setting it aside because:
1.as to the retention sum:
(a)     the adjudicator misconstrued the provisions of the contract relating to retentions;
(b)    the evidence before the adjudicator required a conclusion that those provisions did not make payment contingent or dependent on the operation of another contract;
(c) therefore, the adjudicator erred in law by finding that they were rendered void by sections 12 and 33 of the Act;
(d)    alternatively, the decision was manifestly irrational and unreasonable; and
2.     as to the administration charges:
(a)     the adjudicator misconstrued clauses 7.5(d) and 10(l) and special conditions B27 to B30 of the contract in concluding, in respect of invoices from the steel and concrete suppliers, that it was a “term of the contract that the respondent would manage all such invoices” implicitly without charging the claimant for doing so;
(b)    the adjudicator erred in finding that there was no evidence of any agreement or arrangement for Maxcon to charge Mr Vadasz if more than one invoice per month was issued by the suppliers given Mr Vadasz’s email dated 22 January 2016; and
(c)    the evidence of the volume of invoices managed by Maxcon required the conclusion that the administrative work fell within the phrase “if the builder is required to manage the subcontractor’s accounts more than what should be normally required in clause 10(l)”.

On or shortly before 27 May 2016, Maxcon retained a solicitor in New South Wales in relation to the District Court action and the solicitor undertook a search and became aware that Mr Vadasz was an undischarged bankrupt.
On 27 May 2016, Maxcon filed in the District Court of New South Wales an application to stay the garnishee order. The Court ordered a stay on condition that Maxcon pay into court $215,030.85 to abide the result of this judicial review action, which was paid into Court by Maxcon on 1 June 2016.
On 23 June 2016, Maxcon’s solicitor sent to Mr Vadasz’s solicitor an email attaching a contract amendment issued by Maxcon to Mr Vadasz making the following claims against Mr Vadasz totalling $65,583.18 (the rectification costs claim):
1$59,550 for costs of additional steel and concrete and increasing concrete strength due to inadequate design by Mr Vadasz which claim was said to be dated 8 April 2016;
2$3,577.28 for costs of equipment hire to rectify works of Mr Vadasz which claim was said to be dated 9 May 2016;
3$2,455.90 for costs of labour and equipment hire to remove pile caps and rectify works of Mr Vadasz which claim was said to be dated 10 June 2016.
On 8 July 2016, a Judge of this Court ordered that Maxcon pay into Court $215,030.85 within 14 days or within two days of release of the money from the District Court of New South Wales.
On 14 July 2016, Maxcon filed a second statement of grounds in which it added a third ground for setting aside the adjudication determination. Maxcon pleaded that the adjudicator lacked jurisdiction because the contract was rendered void as a result of breach by Mr Vadasz of section 269(b) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act) by failing to disclose before entering into the contract under the name APC that he was an undischarged bankrupt. Maxcon pleaded that the adjudicator lacked jurisdiction because Mr Vadasz failed to disclose to him that he was an undischarged bankrupt.
On 25 July 2016, Judge Montgomery in the District Court of New South Wales made orders by consent that $215,030.85 be transferred to this Court and that the action otherwise be dismissed. There was no order as to the costs of action. The sum of $215,030.85 was subsequently transferred by the District Court to this Court and credited to this action.
On 21 July 2016, Mr Vadasz filed an interlocutory application seeking leave pursuant to subsection 25(1) of the Act seeking leave to register judgment for $215,030.85 based on the adjudication certificate and an order for payment out of Court of $141,163.55 (being the scheduled amount accepted in Maxcon’s 8 March 2016 payment schedule). These applications, together with Maxcon’s foreshadowed stay application, were listed for hearing on 28 July 2016.
On 27 July 2016, Maxcon filed an interlocutory application seeking a stay of execution of the judgment and payment out order sought by Mr Vadasz (the first stay application).
On 28 July 2016, the intended trial Judge heard argument on the parties’ interlocutory applications. It was common ground that the issue whether a stay ought to be granted should be decided first and the application for payment out would abide that event.
At the hearing on 28 July 2016, Maxcon accepted that, in order to justify grant of a stay, it needed to establish not only that there were real prospects that its liability to pay the progress payment under the Act would be quashed in the judicial review action but also that there were real prospects that it would have no ultimate liability to pay Mr Vadasz for the piling work completed; and that absent a stay there was a real risk that it would be prejudiced as to the interim position under the progress payment regime and on the ultimate accounting between the parties. Thus, in its outline of submissions, Maxcon said:
12. On both applications, the builder has to demonstrate 3 things, namely:
12.1. The builder is at risk of not being able to recover the money going to the bankrupt subcontractor. That must be axiomatic lease so.
12.2. That the judicial review has real prospects of success.
12.3. That the builder’s set-off claim is genuine (which will be addressed at the hearing on Monday).
The hearing was adjourned to 1 August 2016 to enable Maxcon to file affidavits in support of its set off claim, which contained four components: the retention sum claim, the administration charges claim, the rectification costs claim and a legal costs claim. Maxcon contended that the total of these four components eclipsed the second progress claim.
On 29 July 2016, an affidavit by Mr Vadasz was sworn in which he deposed to a telephone conversation with Mr Gorsovski during which he told Mr Gorsovski that he was put into bankruptcy in December 2010, he had a builder’s licence from the Government of South Australia who were aware of his bankruptcy, and his trustee was aware that he continued to run his business. Mr Vadasz also deposed to his understanding that he was entitled to retain the first $70,000 approximately of net income and that any net income over that amount was divisible in equal portions between him and his bankruptcy trustee.
On 1 August 2016, an affidavit by Mr Gorsovski was sworn in which he denied the conversation about bankruptcy to which Mr Vadasz had deposed and said that until May 2006 he was unaware that Mr Vadasz was an undischarged bankrupt. He exhibited the email and contract amendment dated 23 June 2016 referred to above and exhibited documents showing a breakdown of each of the three backcharges shown therein. He provided a very brief description of each backcharge which is extracted in full at [72] below. He estimated legal costs incurred or to be incurred by Maxcon in New South Wales and Victoria to be in excess of $100,000. He expressed the opinion that certain clauses of the contract provided an arguable legal basis for Maxcon to claim the backcharges and legal costs, which expression of opinion is extracted in full at [79] below.
On 1 August 2016, an affidavit by Benjamin Dibden, Maxcon’s New South Wales solicitor, was sworn in which he exhibited an affidavit sworn by him on 14 June 2016 in the New South Wales District Court action. In his June affidavit, he estimated that in the District Court action Maxcon would incur legal costs with a mean of $39,920.38 and, if Maxcon were successful and a costs order were made in its favour, Mr Vadasz would be liable for $27,944.62 on a party/party basis. He also referred to estimates based on information from Mr Diakou that in a proposed action in the Victorian Magistrates Court for the rectification costs claim, Maxcon would incur legal costs with a mean of $34,758 and if Maxcon were successful and a costs order were made in its favour, Mr Vadasz would be liable for $24,330.60 party/party basis.
On 1 August 2016, the hearing of the interlocutory applications was completed. Maxcon relied for the set off referred to in item 3 of [37] above upon:
1the retention sum claim ($35,454);
2the administration charges claim ($22,500);
3the rectification costs claim ($65,583.18); and
4legal costs incurred or to be incurred totalling approximately $100,000 comprising costs in the District Court of New South Wales action and costs of the foreshadowed rectification costs claim action in the Magistrates Court of Victoria (the legal costs claim).
On 25 August 2016, the trial Judge heard the substantive application for judicial review. Mr Gorsovski and Mr Vadasz gave evidence on the question whether Mr Vadasz had told Mr Gorsovski that he was an undischarged bankrupt. The parties made closing addresses and the Judge reserved judgment.
On 9 September 2016, the trial Judge delivered reasons for judgment on the interlocutory applications.[8] The Judge granted leave to register the judgment, dismissed Maxcon’s application for a stay of execution of the judgment, ordered payment out of $141,163.55 (inclusive of GST) to Mr Vadasz and ordered that Maxcon pay Mr Vadasz’s costs of the applications.
[8] Maxcon Constructions Pty Ltd v Vadasz[2016] SASC 148.
On 13 September 2016, Maxcon filed an interlocutory application for permission to appeal against the 9 September orders including refusal of the first stay application and sought a stay of the payment out order pending further order (the second stay application).
On 16 September 2016, the trial Judge heard Maxcon’s application. The Judge granted permission to appeal against the 9 September orders but refused the second stay application.
On 20 September 2016, Maxcon filed a notice of appeal against the 9 September orders.
On 20 September 2016, Maxcon filed a second interlocutory application for a stay of the execution of any judgment including the payment out order pending appeal to the Full Court against the refusals of the first and second stay applications (the third stay application).
On 21 September 2016, the trial Judge referred to the Full Court the question whether permission to appeal should be granted against refusal of the second stay application. The Judge stayed the refusal of the second stay application pending hearing and determination by the Full Court of the application for permission to appeal. This order was treated by both parties as having the effect of staying payment out pending the hearing and determination by the Full Court of the application for permission to appeal against the refusal of the second stay application.
On 29 September 2016, the trial Judge delivered reasons for judgment on the substantive judicial review application.[9] The Judge concluded that the application for judicial review should be dismissed. The Judge adjourned the matter to the following day to hear submissions on orders to be made.
[9] Maxcon Constructions Pty Ltd v Vadasz (No 2) [2016] SASC 156.
On 30 September 2016, the trial Judge made final orders dismissing the application for judicial review and ordering that Maxcon pay Mr Vadasz’s costs of action on a party/party basis. Mr Vadasz sought an order that the funds in Court be paid out to him. Maxcon applied for a stay of the order pending a substantive appeal to the Full Court against dismissal of the judicial review application (the fourth stay application).
On 30 September 2016, the Judge made an order for payment out and refused the fourth stay application. The Judge gave ex tempore reasons for the refusal.
On 4 October 2016, Maxcon filed an interlocutory application seeking permission to appeal against the trial Judge’s 30 September refusal of the fourth stay application and a stay pending hearing and determination of an appeal against the 30 September judgment (the fifth stay application).
On 7 October 2016, the fifth stay application came before the chamber list Judge for that day. The chamber list Judge refused the application and ordered that Maxcon pay Mr Vadasz’s costs of the application.
On 10 October 2016, Maxcon filed an interlocutory application seeking permission to appeal from the chamber list Judge’s 7 October order and a stay of payment out pending hearing and determination of an appeal against the 30 September judgment (the sixth stay application).
On 12 October 2016, the sixth stay application came before a different chamber list Judge. Maxcon foreshadowed an intention to amend its notice of appeal so as to appeal against the 30 September judgment and to seek permission to appeal against the interlocutory 30 September orders and possibly also against the 16 September and 7 October orders. The chamber list Judge listed all issues with respect to the question whether there should be a stay of the payment out order pending the substantive appeal for urgent hearing before a Full Court on 13 October 2013.
On 13 October 2013, Maxcon filed a second notice of appeal adding an appeal against the 30 September judgment and applications for permission to appeal against the trial Judge’s interlocutory 16 and 30 September orders and the chamber list Judge’s 7 October orders.
On 13 October 2016, this Court heard Maxcon’s appeal and applications for permission to appeal the subject of its second notice of appeal, with the exception of its appeal against the trial Judge’s 30 September final judgment.
On 19 October 2016, this Court made orders disposing of the appeal and applications for permission to appeal. These are our reasons for making those orders.
Appeal against refusal of first stay application
Maxcon appeals pursuant to permission granted by the trial Judge against the 9 September orders refusing a stay and for payment out of $141,163.55 (inclusive of GST).
The reasons of the trial Judge
The Judge was satisfied that Maxcon had demonstrated an arguable case on the application for judicial review that the adjudicator lacked jurisdiction because Mr Vadasz did not disclose his bankruptcy (which turned on contested evidence) and section 269 of the Bankruptcy Act rendered the contract void on breach of that section (which turned on contested construction).
The Judge was not satisfied that Maxcon had demonstrated an arguable case on the set off claim in respect of the rectification costs claim ($65,583.18) or the legal costs claim ($100,000). The Judge said:
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.
The Judge was satisfied that Maxcon had demonstrated that there was a real risk that, absent a stay, Mr Vadasz would be unable to repay the sum of $141,163.55 if Maxcon should ultimately be successful.
The Judge was satisfied that the discretion to grant a stay was enlivened and turned to the exercise of that discretion. The Judge considered the strength of Maxcon’s contract invalidity claim based on section 269 of the Bankruptcy Act and assessed it as arguable because it depended on implication from the statute rather than any express provision.
In relation to prejudice suffered by the parties, the Judge accepted that there was a real risk of prejudice to Maxcon if a stay were not granted but considered that there was a countervailing risk of prejudice to Mr Vadasz if a stay were granted. The Judge said:
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.
The Judge took into account the policy of the Act that prima facie the financial risk that one party will ultimately be unable to pay an unpaid progress payment or refund a paid progress payment (as the case may be) on the final determination of the rights of the parties is assigned to the head contractor rather than the subcontractor. In so doing, the Judge took into account the fact that the Act only applies where there is a valid construction contract, which was in issue in the action, but the Judge also took into account Maxcon’s failure to establish as arguable the set off claims. The Judge said:
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.
The Judge decided not to exercise the discretion to grant a stay. The Judge said:
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.
Contentions on appeal
Maxcon directs its principal submissions on appeal to complaints concerning the Judge’s reasons of 30 September 2016 for refusing the fourth stay application.
On appeal Maxcon does not challenge the Judge’s conclusion referred to at [62] above that it had failed to establish an arguable case on the rectification costs claim and the legal costs claim.
Some of Maxcon’s submissions concerning the Judge’s 30 September 2016 reasons are capable of applying to the Judge’s 9 September 2016 reasons and are addressed at this point.
Maxcon implicitly accepts that the decision by the Judge involved the exercise of a discretion (the Judge having concluded that the discretion was enlivened) and to overturn the exercise of that discretion it needs to establish that the Judge took into account an irrelevant factor, ignored a mandatory relevant factor, proceeded on a wrong principle, mistook the facts or arrived at an unreasonable or plainly unjust result in accordance with the principle articulated by the High Court in House v The King.[10]
[10] (1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ.
Analysis
In respect of the rectification costs claim, the Judge said that there was a paucity of evidence to substantiate the claim. That was a fair characterisation of the evidence, which as to liability was confined to the following statements by Mr Gorsovski in his 1 August 2016 affidavit:
15.Claim No. 10 is a claim for the sum of $59,550.00 which is the cost incurred by the plaintiff as a result of advice it received from its engineers that the pads and footings for the project needed to be strengthened as the design Mr Vadasz had intended to utilise was not adequate. The costs involve increasing concrete strength from 32 MPa to 40 MPa and 50 MPa, adding additional reinforcing steel and adding an additional 53 cubic metres of concrete.
16.Claim No. 11 is a claim for the sum of $3,577.28 which is the cost incurred by the plaintiff to hire equipment which was required to be used to complete and rectify the works of Mr Vadasz.
17.Claim No. 12 is a claim for the sum of $2,455.90 which is the cost incurred by the plaintiff to hire labour and equipment which was required to remove pile caps and rectify the works of Mr Vadasz.
Mr Gorsovski did not explicitly allege that the design or the works undertaken by Mr Vadasz were in breach of a term of the contract. In paragraph 15 of his affidavit, Mr Gorsovski did not identify what was meant by “the design Mr Vadasz had intended to utilise” or what part of the design that was in fact utilised (if any) was inadequate or (if so) why and how it was inadequate. Mr Gorsovski did not identify the advice that Maxcon had received from its engineers in relation to the adequacy of Mr Vadasz’s design. Mr Gorsovski did not identify which pads and footings needed strengthening or why this was caused by any inadequacy of Mr Vadasz’s design.

Mr Gorsovski did not explain in his affidavit whether Maxcon was aware before serving its payment schedule on 8 March 2016 of the need to change the pads and footings and, if so, why Maxcon did not address it in its payment schedule.
In paragraph 16 of his affidavit, Mr Gorsovski did not identify what allegedly Mr Vadasz did or did not do that was in breach of contract, what work was undertaken by the use of the equipment, or how and why the work undertaken was caused by any breach of contract by Mr Vadasz. Mr Gorsovski did not explain whether this matter was related to the matter addressed in paragraph 15 of his affidavit.
In paragraph 17 of his affidavit, Mr Gorsovski did not identify what allegedly Mr Vadasz did or did not do that was in breach of contract, what work was undertaken by the use of the equipment or labour, or how and why the work undertaken was caused by any breach of contract by Mr Vadasz. Mr Gorsovski did not explain whether this matter was related to the matter addressed in paragraphs 15 and/or 16 of his affidavit.
During the hearing of the interlocutory applications of 1 August 2016, the following exchange occurred between the Judge and counsel for Maxcon:
HIS HONOUR: That’s a detailed estimate of costs, it doesn’t tell me anything about the actual claim or the strengths or weaknesses of the claim. I mean at the moment I know nothing more about this claim than that there are claims that total about $65,000 that relate to back charges for soil removal, for strengthening of pile caps and footings and for labour and equipment hire.
MR ROSS SMITH: I can’t contradict that description your Honour.
The evidence adduced by Maxcon was insufficient to permit the Judge to conclude that Maxcon had an arguable case against Mr Vadasz for breach of contract. The Judge’s conclusion that Maxcon had not demonstrated an arguable case on the set off claim in respect of the rectification costs claim was well open on the evidence.
In respect of the legal costs claim, the Judge said that there was a paucity of evidence to substantiate the claim. That was a fair characterisation of the evidence. In his affidavit, Mr Gorsovski said:
18.The legal costs incurred by the plaintiff in New South Wales and Victoria in relation to the subcontract are substantial and I estimate these currently to be in excess of $100,000.00.
19.In my opinion, the subcontract provides an arguable legal basis for the plaintiff to claim the costs outlined in paragraph 15, 16, 17 and 18 of this affidavit pursuant to, amongst others, clause 4 (in particular clauses 4(a), and 4(d)), 5, 7.4, 11 (in particular clauses 11(a) and 11(d)), 12, 17.4 and Special Condition B3.
It is to be observed that, in identifying the arguable contractual basis for the legal costs claim, Mr Gorsovski conflated the rectification and legal costs claims and did not identify which contractual provisions were relied upon for each. The provisions relied upon all related to the substantive obligations of Mr Vadasz under the contract and were capable of providing a contractual foundation for the rectification costs claim if the matters summarised above had been identified. However, contrary to the implication contained in paragraph 19 of Mr Gorsovski’s affidavit, none of the provisions to which he referred related to legal costs. None of those provisions required Mr Vadasz to indemnify Maxcon specifically for legal costs. This is not to say that Maxcon would not have an expectation of an award of costs of action in the discretion of a court in which it might bring successful proceedings for breach of contract; but that is quite a different matter to a specific contractual indemnity for legal costs.
In relation to the costs incurred by Maxcon in the New South Wales District Court action, on 25 July 2016 that action had been dismissed with no order as to costs. There was no arguable basis for Maxcon to claim a set off for costs in the circumstances. In relation to the prospective future costs that might be incurred by Maxcon if it instituted an action in the Magistrates Court of Victoria for the rectification costs claim, the arguability of that claim was consequential upon the rectification costs claim being arguable and the Judge concluded that it was not arguable.
On appeal, there is no challenge by Maxcon to the Judge’s conclusion that it failed to establish an arguable case on the set off claims by way of the rectification costs claim and the legal costs claim. Maxcon did not make submissions on appeal in support of either claim.
On appeal, Maxcon advances a new submission that, if its liability to pay any part of the adjudication amount is vitiated because Mr Vadasz’s nondisclosure of his bankrupt status rendered the contract void, Mr Vadasz would be relegated to a claim in restitution which would be quantified on a non-contractual basis and he adduced no evidence of the quantum of a claim in restitution.
It may be accepted that, if Mr Vadasz brought an action in restitution, the quantum of that claim would be the value of the work undertaken (assessed retrospectively) rather than the contractual price (which was fixed prospectively).[11] Upon assessment of the value of the work, the cost incurred by Mr Vadasz in undertaking the work (including an allowance for overheads and profit) would be relevant although not necessarily conclusive.[12] The tenders received by Maxcon from other tenderers would also be relevant to the value of the work, subject to a comparison between the scope of the work the subject of the tenders and the scope of the work undertaken by Mr Vadasz.
[11] Sopov v Kane Constructions Pty Ltd (No 2)[2009] VSCA 141, (2009) 24 VR 510 at [24]–[30] per Maxwell P, Kellam JA and Whelan AJA.
[12] Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510 at [24]–[30] per Maxwell P, Kellam JA and Whelan AJA.
However, Maxcon should not be permitted on appeal to depart from its position before the trial Judge that, for the purpose of assessing prejudice to the respective parties on the grant or refusal of a stay, the quantum was to be determined by starting with the contract price and deducting the various set offs claimed by Maxcon established as arguable. Mr Vadasz has been deprived of the opportunity to adduce evidence of the value of the works undertaken by him on a cost basis.
Moreover, for the purpose of assessing prejudice, a different and much more limited approach must necessarily be taken compared to a full assessment of quantum in a substantive action. For the limited purpose and in the limited context of assessing prejudice, in the absence of either party adducing any other evidence, it would have been appropriate to estimate the value of the work undertaken by Mr Vadasz by reference to the contract price less any set off claims established by Maxcon as reasonably arguable for the following reasons. First, there was no evidence adduced that the scope of the work undertaken by Mr Vadasz differed in any material respect from the scope of the works the subject of the contract. Secondly, Maxcon embarked upon a competitive tender process which tends to suggest that the contract price represented the market value of the work undertaken. Thirdly, leaving aside its set off claims, no suggestion was made by Maxcon that the value of the work undertaken was less than the contract price.
The second argument advanced on appeal by Maxcon is that the Judge erred in taking into account the policy of the Act in weighing factors impacting on the exercise of the discretion whether to grant a stay. The policy of the Act is that prima facie the risk that a party will be unable ultimately to pay an unpaid progress payment or refund a paid progress payment (as the case may be) on the final determination of the rights of the parties is assigned to the head contractor rather than the subcontractor. In many cases, it has been recognised that this policy is a factor to be taken into account on an application for a stay of a judgment based on an adjudication determination (under section 25) or a payment claim insofar as it is admitted in a payment schedule (under section 16) or insofar as no response is provided within the requisite time (under section 15).[13]
[13] See for example RJ Neller Building Pty Ltd v Ainsworth[2008] QCA 397, [2009] 1 Qd R 390 at [39]- [41] per Keane JA (with whom Fraser JA and Fryberg J agreed); Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2)[2013] SASCFC 124 at [103] and [108] per Blue J (with whom Sulan and Stanley JJ agreed).
The grounds of an application for a stay of a judgment founded on the Act and circumstances in which it is made can vary greatly. Where, as in Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2),[14]the application is based on the applicant having instituted a substantive action in relation to the ultimate rights of the parties which if successful will be rendered nugatory if the judgment under the Act is not stayed, ordinarily the policy of the Act will weigh very heavily in the exercise of the discretion. Where, as in the present case, the application is based on the applicant having instituted a judicial review action which if successful will remove the payment claim or adjudication on which the judgment is founded, the policy of the Act will have less weight in the exercise of the discretion. Nevertheless, in the latter case, the policy of the Act remains a factor to be taken into account and still has some weight in the exercise of the discretion. If the applicant for a stay proves successful in challenging the validity of the payment claim or adjudication on which the judgment is founded, the Act will not apply; if the applicant proves unsuccessful, the Act will apply. When the application for a stay is determined, the Court does not know whether the challenge will ultimately prove successful and therefore must have some regard to the policy of the Act.
[14] [2013] SASCFC 124.
In the present case, while the Judge took into account the policy of the Act, the Judge did not give undue weight to that factor. A more decisive factor was that, on the Judge’s assessment, Maxcon had failed to demonstrate an arguable case on the rectification costs claim or the legal costs claim, leaving only the retention sum and administration charge claims as offsets against the second progress claim. The Judge did not order the payment out of the monies in Court insofar as they represented the amount of the retention sum and administration charge claims.
The third argument advanced on appeal by Maxcon is that the Judge erred in finding that Mr Vadasz would suffer prejudice if a stay were granted in the absence of evidence adduced by him of his financial position. In this respect, the Judge said:
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.
Maxcon has not demonstrated error. Regardless of specific hardship, if a stay is granted Mr Vadasz will suffer the obvious prejudice of being kept out of the payment of the monies to which he would have been entitled if he proves ultimately successful. It was self-evident that non-payment of a progress payment of the order of $150,000 out of a contract sum of $700,000 would have an important adverse cash flow effect on a piling business being conducted by a bankrupt. The very bankrupt status of Mr Vadasz that gave rise to the inference that there was a real risk that he would be unable to repay Maxcon if he were ultimately found on an accounting between the parties not to be entitled to retain the sum equally gave rise to an inference that non-receipt of the sum by him would cause a degree of financial hardship.
Maxcon has failed to demonstrate any error by the Judge in the exercise of his Honour’s discretion. The appeal against the Judge’s 9 September orders is dismissed.
Application for permission to appeal against refusal of second stay application
Maxcon seeks permission to appeal against the trial Judge’s 16 September order refusing a stay of payment out of $141,163.55 (inclusive of GST).
On 13 September 2016, Maxcon made the second stay application for a stay of payment out pending hearing and determination of an appeal against the 9 September refusal of the first stay application. On 16 September 2016, the trial Judge refused the second stay application.
On 21 September 2016, the Judge made an order on Maxcon’s third stay application that had the effect of staying the order for payment out pending hearing and determination by the Full Court of a foreshadowed application to the Full Court for permission to appeal against refusal of the second stay application.
Maxcon took no steps to seek an urgent hearing by the Full Court of its application for permission to appeal against refusal of the second stay application or an urgent hearing of its appeal against the refusal of the first stay application. Maxcon did not lodge an application for permission to appeal to the Full Court against the second refusal until 13 October 2016 after it had made the fourth, fifth and sixth stay applications and being the day on which its appeal against the refusal of the first stay application was listed for hearing.
In the circumstances, permission to appeal against the 16 September order is refused.
Application for permission to appeal against refusal of fifth stay application
Maxcon seeks permission to appeal against the chamber list Judge’s 7 October order refusing a stay of payment out of $215,030.85 (inclusive of GST).
On 4 October 2016, Maxcon made the fifth stay application for a stay pending hearing and determination of an appeal against the 30 September judgment including the refusal of the fourth stay application. Maxcon asked that its application be listed for hearing before a single Judge.
On 7 October 2016, the fifth stay application came before the chamber list Judge for that day. Maxcon had taken no steps to seek an urgent referral to the Full Court of an application for permission to appeal against the trial Judge’s 30 September refusal of the fourth stay application. Maxcon had not filed a notice of appeal against the 30 September judgment. Nothing material had occurred or changed between 30 September when the trial Judge refused a stay pending appeal and 7 October when Maxcon asked another single Judge for what was in substance the same stay on identical grounds and identical material.
When the fifth stay application came on before the chamber list Judge, the chamber list Judge expressed the view that the application could only be dealt with by the Full Court given the refusal by the trial Judge of a stay pending appeal. Nevertheless, Maxcon pressed its application before the chamber list Judge and it was inevitably unsuccessful.
In the circumstances, permission to appeal against the 7 October order is refused.
Application for permission to appeal against refusal of fourth stay application
Maxcon seeks permission to appeal against the trial Judge’s 30 September order refusing a stay of payment out of $215,030.85 (inclusive of GST).
On 29 September 2016, the trial Judge delivered reasons for judgment on the substantive judicial review application.The Judge concluded that the application for judicial review should be dismissed.
On 30 September 2016, the Judge made final orders dismissing the application for judicial review. Mr Vadasz sought an order that the funds in Court be paid out to him. Maxcon made the fourth stay application for a stay of payment out pending an appeal to the Full Court against the dismissal of the judicial review application.
On 30 September 2016, the Judge made an order for payment out and refused the fourth stay application. The Judge gave ex tempore reasons for the refusal.
The Judge said:
It is necessary for the plaintiff to satisfy me of three things: firstly that the proposed appeal - there not having been any appeal yet filed - would raise a serious issue for determination by an appellate court. Secondly, that there is a real risk that the plaintiff will suffer prejudice or damage of some significance if the stay is not granted, which prejudice or damage could not be redressed by successful appeal. Thirdly, assuming the first two conditions are satisfied, that the balance of convenience favours the granting of an order for payment out, in the sense that the potential detriment to the plaintiff if the order is made and the appeal is successful, will outweigh the potential detriment to the first defendant if the stay is granted and the appeal is dismissed.
As I have indicated there is, as yet, unsurprisingly, no appeal given the time but I accept that if an appeal is instituted it is likely that it would raise serious issues for determination by an appellate court.
However, I am not satisfied that the plaintiff can establish either of the second or third grounds. Certainly if it could not satisfy the second ground I do not consider that it can satisfy the third ground upon which a stay would be granted or, more importantly, the Court should decline to order payment out as sought by the first defendant.
I do so really for the same reasons that I gave on the application for the stay sought on the application for permission to appeal from the interlocutory judgments in this matter, and I do not stay to repeat those reasons other than to say that those considerations are stronger now that there has been a determination of the application for judicial review.
Error by trial Judge
Maxcon contends that the Judge erred in concluding that it had not demonstrated that there was a real risk that it would suffer prejudice or damage of some significance if the stay was not granted, which prejudice or damage could not be addressed by successful appeal. Maxcon submits that, because as an undischarged bankrupt Mr Vadasz could be expected to have no substantial assets, there was a real risk that monies paid to him would not be available if he were required to repay the monies paid out. Maxcon submits that, because Mr Vadasz was an undischarged bankrupt, half of the monies paid out (at least in excess of $70,000) would be paid to his bankruptcy trustee for distribution to the creditors of his bankruptcy and would not be available if he were required to repay the monies paid out. Maxcon submits that the Judge’s reasoning on 30 September 2016 was inconsistent with the Judge’s conclusion on 9 September 2016 that there was a real risk that Mr Vadasz would be unable to repay all of the sum of $141,163.55 if the order for payment out were made.
Maxcon’s overall contention should be accepted. As an undischarged bankrupt, subject to exceptions for limited items such as prescribed household property, prescribed property of sentimental value, prescribed property used to earn income by personal exertion and prescribed property for personal transport, any property acquired by Mr Vadasz vests in his bankruptcy trustee pursuant to subsection 116(1) of the Bankruptcy Act. An inference is open that at the very least there is a real risk that Mr Vadasz does not own assets of sufficient value to be available to meet a liability to repay monies paid out of Court. That inference may more readily be drawn because Mr Vadasz has not adduced evidence of his assets.
The position in respect of bankruptcy contributions is more complex. Sections 139P and 139S of the Bankruptcy Act require a bankrupt to contribute to his or her bankruptcy trustee half of his or her “assessed income” in excess of his or her “actual income threshold amount” in respect of each year of bankruptcy. In Mr Vadasz’s case, the relevant year of bankruptcy is the year ending 7 December 2016. His “actual income threshold amount” is an amount assessed by his trustee and represents 3.5 times the current annual maximum basic rate of the partnered age pension[15] uplifted by a percentage by reference to his number of dependants.[16] In his affidavit sworn on 29 July 2016, Mr Vadasz said that his actual income threshold rate was approximately $70,000.
[15] Social Security Act 1991 (Cth) section 1064 table B item 2 column 3 ($6,767.80) adjusted under Part 3.16 biannually since 1 July 1991 by reference to the Australian Bureau of Statistics’ Pensioner and Beneficiary Living Cost Index.
[16] Bankruptcy Act 1966 (Cth) section 139K.

A bankrupt’s “assessed income” is assessed by his or her trustee annually around the beginning of the bankruptcy year as his or her prospective “income” to be derived during that year but can be reassessed from time to time during the bankruptcy year.[17] “Income” essentially (subject to additions and exemptions) has its ordinary meaning[18] and in the case of a business means the income (revenue less expenses) earned by the business.
[17] Bankruptcy Act 1966 (Cth) sections 139S and 139W.
[18] Bankruptcy Act 1966 (Cth) section 139L.
A bankrupt is required to make a single contribution in respect of a bankruptcy year at a time determined by his or her trustee or, at the option of the trustee, by instalments at times determined by the trustee.[19]
[19] Bankruptcy Act 1966 (Cth) section 139ZG.
It is not possible to determine at this point whether or to what extent Mr Vadasz will be required to make an additional contribution to his trustee if he were to receive payment now of the amount paid into Court or part thereof.[20] Any additional contribution would not be required to be paid from the monies paid out of Court because the right of the trustee to receive the contribution is in the nature of indebtedness rather than a proprietary interest in the monies received by Mr Vadasz as such. Ultimately, if Mr Vadasz were to pay to his trustee part of the monies received from the monies in Court (absent a stay), those monies would not be available to repay Maxcon if Mr Vadasz were ultimately obliged to do so. Conversely, for the reasons set out above, if Mr Vadasz were not to pay any of the monies to his trustee, there is still a real risk that he will be unable to repay those monies to Maxcon out of his own assets if he is ultimately obliged to do so.
[20] This would depend upon multiple unknown factors including the amount of the most recent assessment of his income by his trustee; whether he and his trustee use an accrual or cash based method of accounting; whether his trustee in the exercise of his discretion chooses to reassess that income again in respect of the bankruptcy year ending 7 December 2016; the income (revenue minus expenses) (if any) derived by Mr Vadasz from the Bohem Apartments piling job; the income derived by Mr Vadasz from his APC business throughout the year ending 7 December 2016; and the other income (if any) earned by Mr Vadasz throughout the year ending 7 December 2016.
On the present appeal, Maxcon contends that it has an arguable case on the substantive appeal that the Judge erred in construing section 269 of the Bankruptcy Act as not rendering void a contract entered into by a bankrupt without disclosing his or her bankruptcy and that the Judge erred in concluding that the adjudicator’s decision in respect of the retention sum claim was not vitiated under judicial review principles. On the present appeal, as opposed to the substantive appeal, Maxcon does not rely on a contention that the adjudicator’s decision in respect of the administration charges claim was vitiated under judicial review principles. Mr Vadasz does not take issue with Maxcon’s contentions as to an arguable case on the substantive appeal.
As Maxcon has established an important error by the Judge, and the discretion to grant a stay was enlivened, it is necessary for this Court itself to exercise the discretion whether or to what extent a stay should have been granted.
Exercise of discretion
On an application for a stay of execution of a judgment founded on the Act, it is a relevant factor to consider the applicant’s prospects of success on the substantive appeal.[21] In some cases, a court is able to assess the result of the appeal as being almost inevitable success or failure, in which case this factor will be very powerful and usually decisive. In other cases, given the limited ability to assess prospects of success on a stay application, all that can be said is that the appeal is reasonably arguable. In the present case, neither party contends that the position is otherwise.
[21] RJ Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390 at [19], [36] and [42] per Keane JA (with whom Fraser JA and Fryberg J agreed); Romaldi Constructions Pty Ltd v Adelaide Interior Linings Pty Ltd (No 2)[2013] SASCFC 124 at [95] per Blue J (with whom Sulan and Stanley JJ agreed). Prospects of success on appeal are of course a relevant factor on applications for stays of execution of judgments generally.
Next, it is necessary to assess the potential prospective prejudice that will or might be suffered by Maxcon if a stay is not granted and by Mr Vadasz if a stay is granted and to determine the balance of convenience. It is important to remember that the assessment of potential prejudice involves a weighing process, and the assessment of potential prejudice to one party may be affected by the assessment of potential prejudice to the other.
We first consider the potential prejudice to Maxcon if a stay is not granted. For this purpose, for the reasons explained above, it is necessary to have regard to the ultimate rights of the parties in respect of payment by Maxcon to Mr Vadasz for undertaking the works and not just the interim position as to progress payments under the Act.
In respect of the retention sum claim, it is not in dispute that the commercial arrangement and the legal contract between the parties included the retention by Maxcon of five per cent of the adjusted contract sum ($35,454) as security pending completion of the building and issue of a certificate of occupancy. Mr Vadasz’s submission to the adjudicator accepted that this was the position but contended that the contractual provision for the retention sum was rendered void by section 12 of the Act. It is reasonably arguable that, regardless of whether it vitiated the adjudicator’s decision on a judicial review, the adjudicator erred in accepting that submission. We are satisfied that there is a real risk of prejudice to Maxcon if no stay is granted to the extent that Maxcon may ultimately succeed in establishing its legal entitlement to retain the sum of $35,454 under the terms of the contract but be unable to recover that sum from Mr Vadasz.
The position in respect of the administration costs claim stands in stark contrast to the retention sum claim. Maxcon’s claim as articulated in the combination of Mr Gorsovski’s 21 and 22 January 2016 emails and Maxcon’s schedule attached to its submission to the adjudicator is that it is entitled to be paid by Mr Vadasz at the rate of $80 per hour for the incremental work undertaken in processing the payment of invoices from Hanson and Bianco over and above the work that would have been undertaken if they each had issued a single invoice per month. Leaving aside the underlying liability issues that were addressed by the adjudicator, Maxcon has not explained how this would result in a quantum of $22,500.
Maxcon included in its schedule charges totalling $5,960 based on 74.5 hours completing credit applications, entering invoices, matching invoices to purchase orders, reconciling monthly statements to invoices, processing payments and sending out remittances. In respect of this amount, Maxcon on the face of the schedule has not deducted time that would have been spent if the suppliers had issued monthly invoices (particularly taking into account that they would still have issued cartnotes for each delivery of concrete or steel during the month). Maxcon included in its schedule charges totalling $4,650 based on 31 hours spent by senior personnel reviewing the work referred to in the previous paragraph. Maxcon has not explained why a review was required given that amounts paid were to be deducted from monies otherwise payable to Mr Vadasz rather than at the cost of Maxcon.
In respect of work undertaken by senior personnel, Maxcon has not explained how it could be entitled to charge at $150 per hour when clause 7.5(d) of the contract specifies $80 per hour upon which it has relied to calculate work undertaken by junior personnel.
Maxcon included in the schedule charges totalling $12,150 for calculating and reviewing the backcharge ($1,200 charged at $80 and $150 per hour), reviewing the total process ($5,950 charged at $350 per hour) and carrying the risk of having the invoices in its name ($5,000). Maxcon has not explained how these amounts could be recovered on the premise that it was entitled to charge at $80 per hour for the incremental work undertaken in processing the payment of invoices from Hanson and Bianco over and above the work that would have been undertaken if they each had issued a single invoice per month.
During the hearing of the appeal, attention was drawn to matters of quantum but Maxcon did not seek to justify the quantum of its administration costs claim, relying instead on its restitution contention addressed below.
In respect of the rectification and legal costs claims, Maxcon did not adduce evidence of any breach of contract by Mr Vadasz relevant to its rectification costs claim or of any such breach having caused it to incur the costs the subject of that claim. The Judge concluded on 9 September 2016 that Maxcon had failed to satisfy its onus of showing an arguable rectification costs or legal costs claim and that conclusion is not challenged on appeal. On appeal, Maxcon does not advance any submission in support of its rectification costs or legal costs claim and relies instead on its restitution contention addressed below.
Maxcon contends that, if it is successful on the substantive appeal in establishing that the contract was rendered void by section 269 of the Bankruptcy Act, Mr Vadasz will not be entitled to payment of the contract price less any offsetting claims by Maxcon but will only be entitled to the fair value of the work undertaken by way of restitution and the measure thereof would not be undertaken by reference to the contract price. Maxcon contends that, on the application for a stay, the onus is upon Mr Vadasz to establish the quantum to which he would be entitled on a claim in restitution and absent such evidence the assessment of prospective prejudice should proceed on the basis that he would not be entitled to more than the monies that he was paid by the first progress payment.
Maxcon’s first contention may be accepted but its second contention must be rejected for several reasons. On an application for a stay, the onus of proof is on the applicant to demonstrate prejudice and in the present case this included demonstration by Maxcon that there was a reasonable prospect that, on the ultimate taking of accounts between the parties, Mr Vadasz would not be entitled to some or all (as the case may be) of the second progress claim. If Maxcon had advanced an argument before the trial Judge that for this purpose the assessment should be made not by reference to the contract price but exclusively by reference to the cost of undertaking the work together with a reasonable margin for overheads and profit, and had demonstrated that all relevant evidence lay exclusively in the hands of Mr Vadasz, it would have been arguable that there was an evidentiary onus on Mr Vadasz to adduce evidence of that cost. However, at the hearing before the trial Judge on 9 September 2016, Maxcon proceeded on the basis that the contract price was to be used as the prima facie measure of Mr Vadasz’s entitlements and was to be reduced only by offsets by Maxcon that were reasonably arguable. In the subsequent hearings on 16 and 30 September 2016, Maxcon did not depart from this approach. It was only during the hearing of the appeal on 13 October 2016 that Maxcon put the contention summarised in the previous paragraph. Mr Vadasz has been deprived of the opportunity of adducing evidence concerning his costs, overhead and profit and Maxcon should not be permitted to raise this argument at the eleventh hour.
In any event, Maxcon has not demonstrated that it does not have in its own possession evidence relevant to the fair value of the work undertaken by Mr Vadasz. Mr Vadasz was awarded the job as a result of advertisements for tenders and Maxcon has not demonstrated that it does not have tenders by other subcontractors that would give an indication of the fair value of the work undertaken.
Moreover, for the reasons given above, in the limited context of assessing prejudice, in the absence of either party adducing any other evidence, it is appropriate to estimate the value of the works undertaken by Mr Vadasz by reference to the contract price less any reasonably arguable set off claims, particularly in circumstances in which Maxcon did not put Mr Vadasz on notice that the value should be assessed on any other basis.
We turn to consider the potential prejudice to Mr Vadasz if a stay is granted and he succeeds on Maxcon’s substantive appeal against the dismissal of its judicial review summons. In that event, Mr Vadasz will suffer the obvious prejudice of being kept out of payment of the monies to which he would have been entitled. In addition, for the reasons given above, the very bankrupt status of Mr Vadasz that gives rise to the inference that there is a real risk that he would be unable to repay Maxcon if he is not entitled ultimately to retain the monies paid out gives rise to an inference that non-receipt of those monies by Mr Vadasz would cause a degree of financial hardship. However, in the absence of evidence adduced by Mr Vadasz, it is not appropriate to infer that non-payment would have catastrophic consequences for Mr Vadasz’s business or personal life.
In addition, for the reasons given above, it is relevant to take into account to a degree the policy of the Act that prima facie the risk that a party will be unable to pay an unpaid progress payment or refund a paid progress payment (as the case may be) on the final determination of the rights of the parties is assigned to the head contractor rather than the subcontractor and on the premise that Mr Vadasz is successful on the substantive appeal he will have been kept out of his statutory entitlements under the Act since May 2016. In this respect, it is relevant to note that on 17 March 2016 he became entitled under section 16 of the Act to payment of $141,163.55 (inclusive of GST) by virtue of Maxcon’s issue of the payment schedule accepting liability to pay that amount and Maxcon has not explained why it did not pay that amount before late May 2016 when it learnt that he was an undischarged bankrupt.
Ultimately, in the exercise of the overall discretion, the weight to be given to potential prejudice to Mr Vadasz if a stay is granted and to the policy of the Act depends to some degree on the assessment of the potential prejudice to Maxcon if a stay is not granted.
It would be open to this Court to exercise the discretion in the same manner as the trial Judge did on 9 September 2016 and grant a stay in respect of the payment out of the excess of the monies in Court above $141,163.55 (inclusive of GST). However, we prefer to be more conservative and conclude that a stay should be granted in respect of the payment out of the excess of the monies in Court above $105,000. This represents a broad axe assessment, but the following considerations are relevant.
First, Maxcon has not adduced satisfactory evidence on liability to support its rectification costs claim. However, retention of more than $100,000 of the monies in Court will leave sufficient monies to cover the retention sum of $38,999.40 (inclusive of GST) plus the full quantum of the administration costs claim of $24,750 (inclusive of GST) plus the excess of the full quantum of the rectification costs claim over the retention sum being $34,242.10 (inclusive of GST). While under the terms of the contract the retention sum is not due to be paid to Mr Vadasz until after issue of a certificate of occupancy, in practical terms the building has obviously progressed a long way past the piling stage and Maxcon did not adduce any evidence that it is reasonably arguable that any other claims against it will be advanced before it is due to be paid out. More importantly, it would have been open to make no allowance at all for the rectification costs claim.
Secondly, Maxcon has not adequately established the quantum of its administration costs claim for the reasons given above and it would have been open to make a substantial reduction of the quantum of that claim.
Thirdly, when assessing the balance of convenience, staying payment of half of the monies in Court allocates the risks between the parties on an equal basis. While the wisdom of Solomon is only appropriate in limited circumstances, it is appropriate in all of the circumstances of this case.
Proceeding conservatively for these reasons, we conclude that there should be a stay of payment out of the monies in Court in excess of $105,000 and an order for payment out of $105,000 to Mr Vadasz.
Conclusion
For the reasons given above, the Court made the following orders:
1The appeal against the orders made on 9 September 2016 is dismissed.
2Permission to appeal against order 2 made on 16 September 2016 is refused.
3Permission to appeal against the orders made on 7 October 2016 is refused.
4Permission to appeal against order 2 made on 30 September 2016 is granted.
5The appeal against order 2 made on 30 September 2016 is allowed and that order is set aside and in lieu thereof it is ordered that the sum of $105,000 be paid out of the monies in court standing to the credit of this action to the defendant Michael Christopher Vadasz and that the balance be held until the determination of the appellant’s appeal against order 1 of the orders made on 30 September 2016.
6Costs of the applications for permission to appeal and of the appeals the subject of the first and second notices of appeal insofar as they have been determined and of the application for a stay made on 10 October 2016 are reserved.