Roberts Construction Group Pty Ltd v Drummond Carpentry Services Pty Ltd (No 2)

[2024] VSC 271

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST

S ECI 2023 03935

ROBERTS CONSTRUCTION GROUP PTY LTD (ACN 641 105 580)	Plaintiff
v
DRUMMOND CARPENTRY SERVICES PTY LTD as trustee for the Drummond Family Trust (ACN 618 422 549)	First Defendant
and
NICK AHERN (in his capacity as adjudicator appointed under section 20(1) of the Building and Construction Industry Security of Payment Act 2002 (Vic))	Second Defendant

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JUDGE:	NIALL JA
WHERE HELD:	Melbourne
DATE OF HEARING:	23 May 2024
DATE OF JUDGMENT:	23 May 2024 (published on 24 May 2024)
CASE MAY BE CITED AS:	Roberts Construction Group Pty Ltd v Drummond Carpentry Services Pty Ltd (No 2)
MEDIUM NEUTRAL CITATION:	[2024] VSC 271

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PRACTICE AND PROCEDURE – Costs – Application for indemnity costs – Whether plaintiff’s rejection of Calderbank offer reasonable – Rejection reasonable where offer modest and scope uncertain – Application refused – Costs awarded to first defendant on standard basis.

PRACTICE AND PROCEDURE – Stay – Application for stay of order requiring funds in Court to be paid out pending appeal – Whether special or exceptional circumstances exist – Evidence that first defendant conducts ongoing trading business – No real risk that successful appeal rendered nugatory absent stay – Proposed grounds of appeal not of sufficient strength or cogency to favour grant of stay – Application dismissed. 

ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122; Edelbrand Pty Ltd v HM Australia Holdings Pty Ltd (No 2) [2012] NSWCA 217; Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2020] VSCA 269, considered.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr N Cozens	Eidelweisz Lawyers Pty Ltd
For the First Defendant	Dr K Weston-Scheuber	Merton Lawyers

HIS HONOUR:

1. On 16 May 2024, I dismissed an application brought by the plaintiff (‘Roberts’) by way of judicial review to challenge an adjudication determination made under the Building and Construction Industry Security of Payment Act2002 (‘the Act’). By that determination, an adjudicator appointed under the Act found that Roberts was liable to make a payment on a payment claim made by the first defendant (‘Drummond’) in the sum of $207,754.93. Consequent upon that determination, Drummond obtained judgment in that sum, together with some interest and costs, from the County Court and later obtained a debt certificate under the Act.

1. Although no application has yet been made to set aside the judgment obtained in the County Court, Roberts commenced this proceeding in order to invalidate the determination as a preliminary step in setting aside the judgment. Although the focus of the proceeding was on the validity of the determination, the substance of the dispute between the parties is whether Drummond was entitled to the amount claimed by it in relation to the provision of labour services on a construction project having regard to the provisions of the Act.

Drummond’s application for indemnity costs

1. Following my dismissal of the proceeding, Drummond now applies for a special costs order on the basis of a Calderbank offer, which it made on 2 January 2024 and which was open to be accepted up until 16 January 2024.[1]

   [1]Calderbank v Calderbank (1975) 3 All ER 333 (‘Calderbank’).

1. Before sending the letter of 2 January 2024, on 6 October 2023 Drummond’s solicitor sent a letter to Roberts seeking to resolve all of the disputes between the two parties on the basis that Roberts would pay Drummond $180,000 and retain $30,795.54.  That offer was not accepted.

1. On 2 January 2024, Drummond sent a letter to Roberts, expressly referring to the principles in Calderbank and the judgment of the Court of Appeal in Hazeldene’s Chicken Farm Pty Ltd v Victorian WorkCover Authority (No 2)[2] and offering to settle the proceeding on the basis that the parties would consent to orders:

   [2](2005) 13 VR 435; [2005] VSCA 298 (‘Hazeldene’s Chicken Farm’).

(a)   dismissing the proceeding;

(b)  releasing $180,000 of the $210,795.54 held in Court to Drummond; and

(c)   that there be no order as to costs.

1. The letter dated 2 January 2024 relevantly included the following:

We continue to act for Drummond Carpentry Services Pty Ltd, being the First Defendant in Supreme Court of Victoria proceeding S ECI 2023/03935 (Proceeding).

Correspondence

In our correspondence dated 6 October 2023, under the heading ‘Final Resolution — Offer 2’, our client made a proposal to resolve all present disputes with RCG and LHG4, inclusive of the Proceeding, if your client made payment to our client in the sum of $180,000.00 (Offer).  In your correspondence dated 27 October 2023, your client rejected the Offer.

To the extend [sic] that it is required, this correspondence is written to further formalise and restate the Offer for the purpose of costs in the Proceeding.

Offer

For commercial reasons and to avoid the expense of continued litigation, we are instructed our client offers to resolve the Proceeding as follows:

a.        If the Plaintiff:

i.         enters into consent orders:

A.       dismissing the Proceeding;

B.releasing $180,000.00 from the funds held in the Supreme Court of Victoria to the First Defendant; and

C.        with no orders as to costs;

ii.releases the First Defendant from all claims, the subject of the Proceeding;

b.        then the First Defendant will:

i.agree to enter into the abovementioned consent orders; and

ii.release the Plaintiff from all claims, the subject of the Proceeding.

1. In explaining why the offer should be accepted, the letter stated that it represented a better outcome for Roberts than continuing with unpredictable litigation and would prevent the parties from incurring significant legal expenses preparing for and appearing at a final hearing.  That offer was not accepted.

1. Drummond contends that, as a result of the non-acceptance of that offer, it should be entitled to indemnity costs from the time the offer closed.

1. The principles that apply to a Calderbank offer are not controversial.  Although costs remain in the discretion of the Court, where an offer is made and not accepted and the recipient does not beat the offer, the critical question becomes whether the failure to accept the offer was unreasonable in the circumstances.[3] In looking at that question, the Court will generally have regard to:

   [3]Hazeldene’s Chicken Farm (2005) 13 VR 435, 441 [23] (Warren CJ, Maxwell P and Harper AJA); [2005] VSCA 298; Marriner v Australian Super Developments Pty Ltd [2016] VSCA 141, [234] (Tate ACJ, Kyrou and Ferguson JJA).

(a)   the stage of the proceeding at which the offer was received;

(b)  the time allowed to the offeree to consider the offer;

(c)   the extent of the compromise offered;

(d)  the offeree’s prospects of success, assessed as at the date of the offer;

(e)   the clarity with which the terms of the offer were expressed; and

(f)    whether the offer foreshadowed an application for indemnity costs in the event of rejection.[4]

[4]Ibid.

1. In Edelbrand Pty Ltd v HM Australia Holdings Pty Ltd (No 2), the New South Wales Court of Appeal considered a similar application in the context of a proceeding brought under the Building and Construction Industry Security of Payment Act 1999 (NSW).[5] Chief Justice Bathurst, with whom the other members of the Court agreed, stated:

In the present case, in my view, it is appropriate that an order for indemnity costs in respect of the proceedings at first instance be made in respect of costs incurred from the date the offer was made, namely, 2 March 2011. Whilst it is true that the offer was close to the amount awarded by the adjudicator, in circumstances where the offer was not contended to be other than genuine, the respondent's failure to accept the offer was, in my view, unreasonable. The object of the service of payment claims under the Act is to ensure prompt (and full) payment for building works. The fact that the litigation raised some questions of statutory interpretation of a little complexity does not alter the position. Such complexity makes it all the more desirable in the interests of litigants that settlement be encouraged.[6]

[5][2012] NSWCA 217.

[6]Ibid [10].

1. It follows from that decision that, although the context of the proceeding as a whole is important, there is no reason in principle why an offer which addresses the payment of the claimed amount ought not to be capable of supporting an order for indemnity costs in relation to a judicial review proceeding challenging an adjudicator’s determination. 

1. In support of its application, Drummond submits that the offer was made at an early stage, 14 days was sufficient time to enable the offer to be considered, the compromise fairly reflected the strength of the case, the offer was clearly expressed, it referred to the intention to make an application for indemnity costs in the event the offer was rejected and it was a genuine compromise.

1. In answer to the application for indemnity costs, Roberts contends that the initial offer was informal and conditional and that neither the October 2023 nor the January 2024 offer was a genuine attempt to compromise the claims but in effect required Roberts to capitulate.

1. Roberts submits that the offer went further than the issues in dispute because it would have entailed a final release of any broader claims that Roberts might have against Drummond, including in respect of defects and incomplete works. In the context of a statutory scheme which is of an interim nature and under which it is intended that contractual rights are to be preserved, Roberts submits that it was not unreasonable for it to reject an offer that would have required Roberts to relinquish the very rights the Act intends ought to be preserved.

1. Having regard to those principles, in my view given the relatively modest compromise embodied in the offer (although I do not accept the argument that it was an invitation to capitulate), and the uncertainty in the relationship between the scope of ‘all disputes’ between Roberts, related companies and Drummond and the particular issues arising in the proceeding, and the uncertainty which I accept reasonably arises as to whether any ongoing rights would be preserved by Roberts, I am not persuaded that rejecting the offer was unreasonable having regard to the circumstances that existed at the time the offer was made. 

1. There is some ambiguity in the letter of 2 January 2024: the earlier part of the letter says that it is restating the offer of 6 October 2023 and that it expressly relates to all present disputes with Roberts and related companies inclusive of the proceeding, whereas the later part of the letter refers to an offer to resolve the proceeding.  The proposed offer sought mutual release from all claims the subject of the proceeding.  In the context of the offer read as a whole, the identification of what claims were the subject of the proceeding is not free from some doubt.  In the circumstances, I am not persuaded that it is appropriate to order indemnity costs.

1. Accordingly, I propose to order that the usual costs order be made in favour of Drummond and I reject the application by Drummond for indemnity costs.

Roberts’ application for a stay of the order requiring funds in Court to be paid out to Drummond

1. I turn then to the summons dated 17 May 2024, by which Roberts seeks a stay of order 4 of the orders made on 16 May 2024 by which I ordered that the money paid into court by Roberts be paid out to Drummond.[7]

   [7]The money was paid into Court by the plaintiff pursuant to paragraph C of the other matters in the orders made by Stynes J on 3 November 2023.

1. In support of the summons, Roberts relies on two affidavits of its instructing solicitor, Annette Weisz, affirmed on 17 May 2024 and 22 May 2024 respectively.  The application for a stay was opposed and, in opposition, the solicitor for Drummond, Daniel Bycroft, affirmed an affidavit on 21 May 2024.  I have read and had regard to that evidence.  In addition, pursuant to a notice to produce served by Roberts on Drummond on 22 May 2024, some invoices and bank statements were supplied by Drummond, although Roberts submits that the answer to the call was incomplete. 

1. Roberts contends that a stay of the order is justified because, in the event that the money paid into court is paid over to Drummond, there is a real possibility that the money would be dissipated and would not be available to be returned to Roberts in the event that it is successful in its proposed application for leave to appeal.  That is, Roberts contends that there is a serious risk that the proposed application for leave to appeal would be rendered nugatory owing to the dissipation of those funds.

1. In support of that submission, Roberts relies on evidence which it says demonstrates that Drummond does not appear to have any real assets or capital. Further, it relies on an email dated 22 May 2023, in the context of communication between the parties about the claims made under the Act, which Roberts submits ‘indicated solvency problems’ on the part of Drummond because Drummond said that, unless its invoices were paid, it would not supply any more labour as it ‘can’t pay [its] employees’. Roberts also points to correspondence that suggests that Drummond sought to be able to use part of the adjudicated amount to fund its ordinary business expenses and reasonable legal fees, which in Roberts’s submission suggests that Drummond lacked sufficient funds on its own account to continue to trade. Roberts also contends that it and a related entity, Timberworks (Vic) Pty Ltd, seek to maintain a claim against Drummond for defective works and other offsetting claims, although I note that no process in that respect has yet been commenced. Roberts also relies on the without prejudice letter dated 6 October 2023, which it says indicated solvency problems.

1. Roberts also relies on some hearsay evidence that it says shows that Drummond illegitimately sought payment from Roberts by having someone attend on its behalf at the home of the director of Roberts.  Having regard to the hearsay nature of that evidence, and the ambiguity as to what may be drawn from it, I do not propose to draw the inference from that evidence that it shows a desperation on the part of Drummond or a willingness and ability to act illegitimately.

1. Roberts also contends that Drummond’s instructions about its business statements and asset position are vague, that the Court should draw inferences from any non-production by Drummond, that Drummond does not appear to operate from permanent commercial premises and that, although the trust deed has not been produced, the trustee presumably has an unfettered discretion to make distributions of assets to any beneficiary. 

1. In terms of the prospects of success of any application for leave to appeal, in the affidavit of Ms Weisz dated 17 May 2024, it was said that the proposed appeal would seek to challenge my conclusions on Grounds 2 and 3 in the proceeding, which related to the questions whether a payment schedule had been provided (so that Drummond’s application for adjudication was not served in accordance with s 18(3)(c) of the Act), whether Drummond gave notice of its intention to apply for adjudication and whether Roberts was given an opportunity to file a payment schedule. In her affidavit of 24 May 2024, Ms Weisz says that Roberts was still taking advice about the formulation of the proposed grounds of appeal and counsel submitted that there are arguable grounds — at least that each of the grounds presented in this Court was arguable and, therefore, it follows that there are, at least for present purposes, sufficiently arguable grounds for a proposed appeal.

1. In answer to the factual issues, Mr Bycroft deposes that, on his instructions, Drummond operates as the trustee for the Drummond Family Trust (‘the Trust’), that it presently has two employees and approximately ten tradesmen and tradeswomen who contract to it, it provides ongoing carpentry and labour hire services for 12 different builder customers in Victoria, and it is presently engaged to provide labour hire each weekday and often on weekends on a childcare centre, a large townhouse development site in Carnegie and on regular insurance repair projects around Melbourne.

1. Mr Bycroft says that, on his instructions, for the financial year ending 30 June 2023, the Trust reported a business income of $1,380,160, made payments to contractor employees in the sum of $815,054 and has $415,935 in assets.  He says that, in business activity statements lodged with the Australian Taxation Office, Drummond has reported approximately $1.5 million in total sales or revenue.  Drummond also seeks to put in issue the solvency of Roberts on the question whether Roberts would be in a position to satisfy any undertaking as to damages given on the stay.  However, that issue does not need to be attended to given the confinement of the application for a stay to the first order sought in the summons.

1. The principles that apply to an application for a stay are not controversial.  As a general principle, a successful party is entitled to obtain and retain the benefit of the judgment.[8] The Court has the power to stay an order but the onus rests upon the moving party to demonstrate that a stay should be granted.[9] It is often said that the power to grant a stay should only be exercised in special or exceptional circumstances,[10] and this serves to highlight the hurdle which an applicant for a stay must overcome.

   [8]ASEA 1 Pty Ltd v Rudyard Pty Ltd [2020] VSCA 122, [12] (Kaye and McLeish JJA) (‘ASEA 1’); Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2020] VSCA 269, [24] (McLeish, Niall and Sifris JJA) (‘Yuanda’), citing Maher v Commonwealth Bank of Australia [2008] VSCA 122, [19]–[27] (Dodds-Streeton JA, Redlich JA agreeing).

   [9]Ibid.

   [10]ASEA 1 [2020] VSCA 122, [13] (Kaye and McLeish JJA); Yuanda [2020] VSCA 269, [23] (McLeish, Niall and Sifris JJA).

1. There are a number of cases where a court has ordered a stay because the benefit of any proposed appeal would be rendered nugatory where a judgment sum, if paid over, would not be recovered due to the financial position or creditworthiness of the recipient.  [11]

   [11]See, eg, Yuanda [2020] VSCA 269; Cellante and Ors v G Kallis Industries Pty Ltd [1991] 2 VR 653.

1. Having regard to the evidence, I am not satisfied that Roberts has established a real risk beyond ordinary commercial conditions that the proposed appeal would be rendered nugatory because Drummond would be unable to repay.  The evidence shows an ongoing trading business that has been in operation for a number of years.  It shows a turnover.  Drummond is not a large enterprise and I accept, as Roberts submits, that it does not appear to have much in the way of assets.  Nevertheless, the bank statements for the first quarter showed receipts of some $244,000 and debits of some $270,000 with a closing balance of approximately $15,000.  What this tends to suggest is that Drummond is an ongoing trading company that continues in operation and is of a size and structure consistent with the description given by Mr Bycroft in his affidavit.  But ultimately I am not satisfied that there is a real risk that the funds, if paid over, would be dissipated in a way that would prevent recovery in the event that Roberts commences an application for leave to appeal and the appeal is successful.

1. I am persuaded there is some risk of that occurring but I do not consider that the risk is of such magnitude as to justify a stay. I have also had regard to the nature of the proceeding. The purpose of the Act in respect of which the proceeding has been brought is to allow prompt payment to enable working capital to be provided to persons who provide building services during the life of a construction contract. The Act does not finally determine the rights under the contract but clearly evinces an intention that payments should be made, in effect on an interim basis, to preserve the cash flow of those who provide labour and materials pursuant to a building contract.[12] An obvious purpose is to enable the parties supplying labour or materials to be able to pay its suppliers during the life of the contract, rather than having to wait until its completion.  In one sense, the risk of non-payment is shifted in favour of the claimant.[13]

   [12]See Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd (2009) 26 VR 112, 121 [43]–[44] (Vickery J); [2009] VSC 156.

   [13]Ibid 114–15 [2].

1. It is not necessary to consider whether this factor is additional to the requirement to show special or exceptional circumstances justifying a stay.[14] Rather, it seems to be part of the matrix of circumstances which are relevant to assessing where the justice of the case lies.  And that is how I will treat it on the present application.

   [14]See Yuanda [2020] VSCA 269, [42] (McLeish, Niall and Sifris JJA).

1. I also note that, in respect of the underlying claim which was for labour hire, invoices of a similar kind to those in dispute were paid and that, in communications between the parties, Roberts had sought a ‘realistic’ figure to be provided by Drummond in lieu of the claimed amount. That is, the evidence suggests the acceptance by Roberts that labour was provided and one may reasonably infer that Drummond incurred liabilities in respect of the labour services provided by it. The issue of the potential set-off or cross-claim based on some form of defects claim is part of the overall matrix in terms of whether there will, at the end of the day, be an amount owing by Roberts to Drummond. But, again, the scheme of the Act is that those issues are not relevant to the payment claim and, in my view, the particular circumstances of this case — in which there was an acceptance of earlier invoices by Roberts and a willingness by it to negotiate a ‘realistic’ figure — are relevant to the assessment of whether Drummond should continue to be held out of the claimed amount.

1. In this case, Drummond has been successful in an adjudication under the Act and I have dismissed Roberts’ proceeding by way of judicial review. The residual risk that Drummond would not be in a position to repay the amount has to be seen in the context of the Act, which requires prompt payment while preserving the parties’ contractual rights.

1. I am also of the view that the proposed grounds of appeal, which have not yet been articulated with any precision, are not of sufficient strength to tip the balance in favour of granting a stay.

1. I am prepared to accept that the three grounds advanced before me were arguable but there has been no attempt by Roberts to show error in my conclusions or reasoning.  Even if I allow the conclusion that the grounds were arguable, they are not of such strength or cogency as to favour to any significant degree the grant of a stay.

1. For these reasons, I am not satisfied that Roberts has established grounds for a stay and the summons dated 17 May 2024 is therefore dismissed.

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