Smith v Achieve Homes Pty Ltd

Case [2024] FCA 327

FEDERAL COURT OF AUSTRALIA

Smith v Achieve Homes Pty Ltd [2024] FCA 327

File number(s): ACD 3 of 2024
Judgment of: THAWLEY J
Date of judgment: 4 April 2024
Catchwords:

PRACTICE AND PROCEDURE – review of Registrar’s decision under s 35A(5) of the Federal Court of Australia Act 1976 (Cth) – Registrar dismissed proceeding, in part, due to non-appearance of applicant – applicant has now appeared – hearing de novo conducted

BANKRUPTCY – application to set aside bankruptcy notice under s 40(1)(g) Bankruptcy Act 1966 (Cth) – whether adjudication decision under Building and Construction Industry Security of Payment Act 1999 (NSW) is a proceeding for the purposes of s 40(1)(g) – whether applicant could set up a counter-claim, set-off or cross demand in the adjudication proceeding – applicant could not set up a cross-claim, set-off or cross demand – bankruptcy notice set aside

Legislation:

Bankruptcy Act 1966 (Cth)

Federal Court of Australia Act 1976 (Cth)

Federal Court (Bankruptcy) Rules 2016 (Cth)

Building and Construction Industry Security of Payment Act 1999 (NSW)

Civil Procedure Act 2005 (NSW)

Building and Construction Industry Security of Payment Regulation 2020 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)
Cases cited:

Axarlis v Pets Paradise Franchising (SA) Pty Ltd [2010] FCA 319; 183 FCR 521

Bobos v Deputy Commissioner of Taxation [2019] FCA 1910

Chen v Bannerman [2001] FCA 160

Dekkan v Macquarie Leasing Pty Ltd [2008] FCA 1235

Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553

Glew v Harrowell [2003] FCA 373; 198 ALR 331

Grave v Blazevich Holdings Pty Ltd [2010] FMCA 386

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; 261 CLR 1

Brodyn Pty Ltd t/as Time Cost and Quality v Phillip Davenport & Ors [2003] NSWSC 1019

Re A Debtor (1914) 3 KB 726

Re Brink [1980] FCA 78; 44 FLR 135

Re Dalco [1986] FCA 357; 67 ALR 605

Re Jocumsen (1929) 1 ABC 82

Re Stokvis (1934) 7 ABC 53

Re Vicini; Ex parte EA Sealey & Co [1982] FCA 156; 64 FLR 323

Re Willats [1991] FCA 541; 31 FCR 206

Wren v Mahony [1972] HCA 47; 126 CLR 212
Division: General Division
Registry: Australian Capital Territory
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 99
Date of last submission: 3 April 2024
Date of hearing: 2 April 2024
Solicitor for the Applicant:  Mr Z McBride of Bevan & Co Lawyers
Counsel for the Respondent:  Mr D Robens
Solicitor for the Respondent:  Harrington Hall

ORDERS

ACD 3 of 2024
BETWEEN:

REBECCA SMITH

Applicant
AND:

ACHIEVE HOMES PTY LTD

Respondent

ORDER MADE BY:

THAWLEY J

DATE OF ORDER:

4 APRIL 2024

THE COURT ORDERS THAT:

1.The orders made by the Registrar on 23 February 2024 are set aside.

2.The Bankruptcy Notice Number 262757 issued on 12 December 2023 is set aside.

3.Unless either party applies by 4:00pm on 11 April 2024 for a different order for costs:

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Details
AGLC
Smith v Achieve Homes Pty Ltd [2024] FCA 327
Case
[2024] FCA 327
Decision Date

CaseChat Overview and Summary

In the matter of Smith v Achieve Homes Pty Ltd, the Federal Court was tasked with reviewing a decision made by a Registrar under section 35A(5) of the Federal Court of Australia Act 1976. The applicant, Ms Smith, sought to set aside a bankruptcy notice issued by the respondent, Achieve Homes, following a dispute over a building contract. The key legal issues revolved around whether the adjudication decision under the Building and Construction Industry Security of Payment Act 1999 (NSW) qualified as a proceeding for the purposes of section 40(1)(g) of the Bankruptcy Act 1966 (Cth), and whether Ms Smith could set up a counter-claim, set-off, or cross demand in the adjudication proceeding. The court concluded that the adjudication decision did not constitute a proceeding for the purposes of setting aside a bankruptcy notice and that Ms Smith could not set up a cross-claim, set-off, or cross demand in the adjudication proceeding. Consequently, the bankruptcy notice was set aside.

The court began by considering the nature of the adjudication process under the Security of Payment Act. It noted that while the adjudicator must consider the owner’s payment schedule and submissions, the Act does not permit the bringing of a cross-claim against the builder claiming the progress payment. This aligns with the Act's objectives, which are to ensure timely payments to builders. The court further examined the application of section 40(1)(g) of the Bankruptcy Act, finding that the adjudication decision did not meet the criteria for being a proceeding that could ground a bankruptcy notice. The court also addressed the issue of whether Ms Smith could assert a cross-claim, set-off, or cross demand in the adjudication proceeding, concluding that such claims were not permissible under the Act. Based on these findings, the court set aside the bankruptcy notice issued against Ms Smith.

Orders

Orders of the court

1. The orders made by the Registrar on 23 February 2024 are set aside.

2. The Bankruptcy Notice Number 262757 issued on 12 December 2023 is set aside.

3. Unless either party applies by 4:00pm on 11 April 2024 for a different order for costs:

(a) The respondent pay the applicant’s costs as agreed or fixed by the Registrar.

(b) The applicant pay the respondent’s costs thrown away in relation to the hearing on 23 February 2024 as agreed or fixed by the Registrar.

(c) If no agreement as to costs is reached by 4:00pm on 11 April 2024:

(i) each party file and serve by 4:00pm on 12 April 2024 a submission of no more than 2 pages on costs;

(ii) the question of costs be referred to a Registrar to fix costs in a lump sum.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Whilst s 22(2)(d) requires the adjudicator to consider an owner’s payment schedule and any submissions made as one of the five mandatory considerations relevant to determining the builder’s claim, the SOP Act does not expressly or implicitly permit the bringing of a cross-claim against the builder who claims the progress payment. Indeed, that would be directly antithetical to the objects sought to be achieved by the SOP Act.THE FACTS On 19 September 2021, Ms Smith signed a building contract with the respondent (Achieve Homes) to build a home in Googong, New South Wales. On 16 March 2023, Achieve Homes claimed to have reached practical completion of the build and issued what has been referred to as the “practical completion invoice” in an amount of $35,136.58. On 12 April 2023, a pre-handover inspection was conducted. Ms Smith alleged that there were significant defects in the build and that the defects were not rectified. On 19 September 2023, Ms Smith issued a termination notice for breach of contract. Achieve Homes contended it terminated the contract on 25 September 2023. On 10 October 2023, Achieve Homes issued a payment claim under the SOP Act for $35,136.58, being the amount in the practical completion invoice. The applicant served a payment schedule in response, providing a scheduled amount of $0.00. On 31 October 2023, Achieve Homes made an adjudication application under the SOP Act claiming the sum of $35,136.58. On 8 November 2023, Ms Smith served on Achieve Homes her adjudication response. Ms Smith’s adjudication response included detailed submissions and annexures setting out alleged breaches of contract by Achieve Homes, including defects in the build. On 22 November 2023, the adjudication determination was issued. It determined in favour of Achieve Homes that the amount of $35,136.58, plus interest and the adjudicator’s fees, was due and owing by Ms Smith. On 28 November 2023, Ms Smith lodged a “Home building application” in the consumer and commercial division of the NSW Civil and Administrative Tribunal (NCAT). On 30 November 2023, an adjudication certificate under the SOP Act was issued. On 5 December 2023, Achieve Homes filed a registration of certificate of judgment/order with the New South Wales Local Court in the sum of $41,197.19. On 6 December 2023, the Local Court issued a judgment in favour of Achieve Homes against Ms Smith in the amount of $41,197.19. On 12 December 2023, Achieve Homes obtained Bankruptcy Notice Number 262757 from the Australian Financial Security Authority. The bankruptcy notice was served on 4 January 2024. There was no dispute that it was validly served. On 8 January 2024, the parties attended a directions hearing before NCAT and orders were made for Ms Smith to file an amended claim and points of claim. These were lodged on about 22 January 2024. The points of claim may be summarised as follows. Ms Smith alleged that:·practical completion of building works under the contract have not occurred, by reason of defects, such that the 16 March 2023 invoice is invalid: [4] to [18]; ·there were several outstanding defects which have not been rectified: [19] and [20]; and ·the hot water system and oven which Ms Smith had paid for in earlier invoices were “stolen” from the property by Achieve Homes: [21] to [25].

Evidence

Evidence Before The Court

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Decision

Reasons for decision

There is no substantial reason to doubt the judgment debt. Ground 3 is not made out.CONCLUSION The application for review of the Registrar’s decision should be allowed. During the course of the hearing, Ms Smith’s solicitor quite properly acknowledged that it would not be appropriate to visit any costs consequences in relation to the hearing before the Registrar on 23 February 2024 on Ms Smith given that the non-attendance on that day was due to oversight on the part of the solicitors.

Ratio Decidendi

Legal Principle Established

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