Metro Partitions Pty Ltd v Konig Constructions Pty Ltd

[2012] VCC 15

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
BUILDING CASES DIVISION

Case No. CI-11-04908

METRO PARTITIONS PTY LTD	Plaintiff
v.
KONIG CONSTRUCTIONS PTY LTD	Defendant

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	25 January 2012
DATE OF JUDGMENT:	25 January 2012 (revised 2 February 2012)
CASE MAY BE CITED AS:	Metro Partitions Pty Ltd v. Konig Constructions Pty Ltd
MEDIUM NEUTRAL CITATION:	[2012] VCC 15

REASONS FOR JUDGMENT

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Catchwords:             Practice and procedure – Garnishee Summons – Judgment debt arising from adjudication pursuant to the Building and Construction Industry Security of Payment Act 2002 – Adjournment sought to enable instalment application to be made – Lengthy delays not adequately explained – Adjournment refused – Garnishee order made.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr R. Frahamer (by leave)
For the Defendant	Ms F. Bentley	WMB Lawyers

HIS HONOUR:

1The judgment creditor has issued a garnishee summons, filed 2 December 2011, seeking to recover from a bank account held by the garnishee, Australia and New Zealand Banking Group Ltd, the sum of $116,811.02, being the sum necessary to satisfy the amount unpaid pursuant to a judgment entered by the Court on 25 October 2011.

2The judgment debtor, through its counsel, Ms Bentley, has made application for the adjournment of the garnishee summons to allow time for the judgment debtor to make application for an instalments order. I have refused the application for the adjournment after hearing evidence called by Ms Bentley from Mr Frank Koenigsmann, a director of the plaintiff. I have determined that the application for a garnishee order should be granted.

3The judgment debtor is a building contractor. It is presently engaged on two projects, including a project at 42 Porter Street, Prahran for the erection of an eight level building which would serve as accommodation for 141 students. The value of the contract is approximately $10.5m. In addition, the judgment debtor has a smaller contract at Port Melbourne, that contract being for approximately $4m. The judgment creditor was a sub-contractor at the Prahran project, for the supply of plasterboard, door frames and painting, with a contract value of approximately $1.7m.

4The judgment creditor commenced work with the supply of materials in April 2011. A dispute later arose between the sub-contractor and contractor resulting in the termination of the sub-contract. The sub-contractor made a claim pursuant to the Building and Construction Industry Security of Payment Act 2002. It appears that Mr Koenigsmann was not familiar with the procedures under the Act and failed to file the payment schedule required and as a consequence was effectively unable to dispute the liability of the plaintiff to pay the amount claimed. The matter was referred to an adjudicator, pursuant to the Act, who determined that the contractor was liable to pay the sub-contractor the total sum of $115,228.06. The adjudication certificate is dated 5 October 2011, although the date of adjudication was 7 September 2011.

5The sub-contractor made application to register the adjudication certificate as a judgment in this Court. On 25 October 2011, His Honour Judge Shelton entered judgment in favour of the judgment creditor in the sum of $115,228.06, being the sum certified by the adjudicator.

6The judgment debtor apparently made application to the Supreme Court to set aside the adjudication, but upon advice, withdrew the application. It has not been submitted before me that there is any basis for the judgment debtor to dispute the judgment, although I was informed that the judgment debtor had explored the possibility of issuing a claim against the judgment creditor arising from the circumstances leading to the termination of the judgment creditor’s sub-contract. At this stage, however, the judgment debtor has a judgment outstanding to the judgment creditor arising from the supply of materials and the performance of works in about April and May 2011, which led to an adjudication being made in favour of the judgment creditor in September 2011 and the entry of judgment against the judgment debtor on 25 October 2011.

7The basis of the application for the adjournment was that:

a.the judgment debtor had only one operating bank account from which it received moneys and paid all accounts in respect of the two projects;

b.the current balance of the account was approximately $124,000;

c.the judgment debtor had current debts in respect of the project, quite apart from the judgment debt to the judgment creditor, of approximately $700,000.

d.although the judgment debtor had recently submitted a progress claim for about that amount, it was likely that the quantity surveyor considering the claim would assess the payment due to the judgment debtor at a lesser amount and perhaps for only $500,000.

e.of the $10.5m due in respect of the project upon completion, $8m had been paid, $500,000 was held as retention, half to be released in April 2012 and half in April 2013. Works were currently about 85% complete.

f.if the judgment debt and the additional amounts of interest and costs referred to in the garnishee summons were paid from the bank account, there would not be sufficient funds for the judgment debtor to continue to finance the two projects.

g.it was likely, therefore that the judgment debtor would go into liquidation;

h.if the judgment debtor was liquidated, pursuant to s.569 of the Corporations Act, any payment made by a garnishee within the six months preceding the liquidation of the company could be recovered by the liquidator;

i.the judgment debtor wished to have the opportunity to file an application for the payment of the judgment debt by instalments. The judgment debtor could pay a substantial sum immediately and regular payments before the balance was paid upon receipt of the retention moneys in April 2012.

8The evidence by Mr Koenigsmann did not entirely support the submission made by Ms Bentley on behalf of the company in support of the application before she called the evidence from Mr Koenigsmann. I dealt with the application upon the completion of evidence in chief without requiring Mr Frahamer, whom I allowed to represent the company as its sole director and shareholder, to cross-examine the witness.

9I considered that on the basis of the evidence I had heard from Mr Koenigsmann that it was not appropriate to adjourn the present application to permit an application for the payment of the judgment debt by instalments to be made. The evidence called by Ms Bentley initially concentrated on the background to the dispute between the judgment creditor and the judgment debtor. In the circumstances of this case, I do not consider that this has much significance to the issue of whether the garnishee summons should be adjourned, particularly as the application by the judgment debtor to the Supreme Court challenging the adjudication was withdrawn and there are currently no proceedings that have been instituted in relation to the broader dispute. In any event, under the relevant legislation, the issues which may be raised by way of set off or counterclaim in respect of the matters which now form the judgment debt were initially limited and as a result of what has happened, may not be able to be pursued at all.

10Mr Koenigsmann obviously runs a substantial and successful construction company. He gave evidence that the company had operated since 2006. The statement from the ANZ Bank which was tendered on the application on his behalf shows that in the period between 5 December 2011 and 24 January 2012, the balance in the account fluctuated from $261,318 on the first date to a balance on 14 December 2011 of $42,466 to a balance on 20 December 2011 of $905,389. It is very difficult, from this evidence alone to appreciate the financial position of the company.

11I am not satisfied that Mr Koenigsmann is in a position to give the evidence that would be necessary to establish the financial position of the judgment debtor. He said that the registered office of his company and effectively the office where he, himself, conducted the administration of the company was the residence of his accountant. It is likely that his accountant would be the only person who would have the necessary knowledge to give evidence of the financial position of the company and therefore what the effect would be of requiring the bank to pay the judgment debt to the judgment creditor from the company’s bank account.

12Although the adjudicator made its decision some months ago and steps have been taken by the judgment debtor to challenge that adjudication, it appears that no steps have been taken by the judgment debtor to determine what the company should do to either make provision for repayment of the judgment debt or to determine how it can continue to operate in the event that it was required to pay that sum.

13The purpose of the relevant legislation is to ensure that contractors involved in the building industry, both head contractors and sub-contractors, are not kept out of progress payments, except in the circumstances which are provided for by the legislation itself. In the circumstances, it would not be appropriate for the Court, except in circumstances where the judgment debtor has taken the necessary steps required by the legislation, or even basic practical steps, it having the knowledge that an adjudication had been made against it.

14I was informed by Ms Bentley that the garnishee summons was only received by the judgment debtor last Friday. The garnishee summons was required to be served at least seven days before today, the return date. Mr Frahamer informed the Court that he had served the documents by posting the documents by registered post to the registered office of the company on 16 January 2012. Ms Bentley informed me that her instructions were that the notification from the postal authorities was not received until last Friday. Mr Koenigsmann‘s evidence was, however, that it was only last Friday that his secretary returned from holidays and found the notification waiting. He conceded that it may have been there for some days.

15The documents were collected by his secretary last Friday. She informed Mr Koenigsmann at 5pm that she had collected the documents and the general nature of those documents. Mr Koenigsmann was away for the weekend and only collected the documents on Monday 23 January and spoke to his solicitors the following day. Mr Koenigsmann said that although, Ms Bentley had referred to the possibility of an instalment arrangement being made with an initial payment today of $30,000, his view was that if the company were permitted to make application for the payment of instalments, it would commence with an initial payment of $5,000 to $10,000 and regular instalment payments of $5,000 to $7,000 per month, until the debt was paid.

16In the circumstances, I do not consider it is appropriate to adjourn the garnishee summons to permit an application to be made to pay the debt by instalments. Any such application would, on the basis of the evidence given by Mr Koenigsmann, need to be prepared by his accountant and would be likely to take at least some days, probably weeks to prepare.

17Because of the time which has elapsed since the work was carried out by the judgment creditor for the judgment debtor, the making of the statutory claim and the adjudication upon that claim, in my view, no further delay is appropriate. I have therefore refused the application for an adjournment and proceeded to make the order on the garnishee summons.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 25 January 2012 and revised on 2 February 2012.

Dated: 2 February 2012

Caroline Dawes

Associate to His Honour Judge Anderson