Tincknell v Duthy Homes Pty Ltd - [2018] SASC 44

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
TINCKNELL & ANOR v DUTHY HOMES PTY LTD & ANOR
[2018] SASC 44
Judgment of The Honourable Justice Nicholson
6 April 2018
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - STAY OF PROCEEDINGS
PROCEDURE - JUDGMENTS AND ORDERS - ENFORCEMENT OF JUDGMENTS AND ORDERS
The appellants are the owners of residential land and engaged the first respondent, a building company, to construct improvements to their land. A dispute between the parties resulted in a trial in the District Court which saw the first respondent succeed in obtaining a balance judgment in its favour for $173,049.41. The Judge also ordered that a bank guarantee for $115,000 provided by the first respondent, intended to secure proper performance of the contract on its part, be returned. The appellants have lodged an appeal. The appellants have also applied for a stay of the order requiring the return of the bank guarantee to the first respondent pending the determination of the appeal.
Held:
1. The order made by the Judge on 26 February 2018 that the bank guarantee be returned to the first respondent (order 2) is stayed until further order.
Supreme Court Civil Rules 2006 r 131, referred to.
Bartley v Myers [2001] SASC 212; Ryan v Urban Construct (SA) Pty Ltd (No 2) (2012) SASR 410, [2012] SASC 193; Essential Beauty Franchising (WA) Pty Ltd & Ors v Pilton Holdings Pty Ltd & Ors (No 3) [2014] SASC 148; Rickard & Ors v Testel Australia Pty Ltd [2017] SASC 144; Hall v Nominal Defendant [1966] HCA 36, (1966) 117 CLR 423, considered.

TINCKNELL & ANOR v DUTHY HOMES PTY LTD & ANOR
[2018] SASC 44
Civil: Application
NICHOLSON J.
Introduction

The appellants (defendants at trial) are the owners of residential land. The first respondent (plaintiff and defendant by counterclaim at trial) is a building company who constructed improvements on the appellants’ land. The parties went to trial in the District Court over a lengthy and complex building dispute. The first respondent succeeded in obtaining a balance judgment in its favour for $173,049.41. The appellants have appealed on numerous grounds particularising a very large number of asserted building defects and failures by the first respondent to observe its contractual responsibilities with respect to all of which they maintain the trial Judge erred. If wholly successful, the appellants expect to receive in their favour a very substantial balance judgment, according to their counsel, in the order of $1.6 million.
Under the building contract, the appellants were entitled to retain a bank guarantee provided by the first respondent in the amount of $115,000. The bank guarantee was intended to secure the first respondent’s proper performance of the contract. One consequence of the trial judgment in favour of the first respondent, if undisturbed, is that the contractual obligation to provide the bank guarantee has come to an end and the appellants are no longer entitled to retain the one they presently hold. In short, according to the contract, the bank guarantee was to remain in place for the 12 month defects period following the date for practical completion, as defined in the contract. The trial Judge found the building works to have been practically complete as at 26 February 2013. As such (and with hindsight), the bank guarantee should have been returned 12 months after that date.
A hearing was held before the trial Judge on 26 February 2018, for the purpose of her Honour making appropriate orders, including as to interest and costs, following the delivery of her Honour’s reasons for judgment on 1 December 2017. Included in the orders made that day was an order directing the bank guarantee to be returned. Her Honour also entertained an application by the appellants for a stay of her orders, including the bank guarantee order, pending resolution of their extant appeal against her Honour’s trial judgment. The Judge refused to stay any of her orders.
The appellants have now brought a fresh application in this Court for a stay pending the determination of the appeal but only of the Judge’s order requiring them to return the bank guarantee.
The appellants contend that if they were to succeed on appeal, their contractual entitlement to possess and retain the bank guarantee would be revived. They contend that if they were to return the bank guarantee prior to a successful resolution of the appeal, the contractually intended benefit otherwise available to them of having a part security for the costs of the first respondent’s defaults would be rendered nugatory.
The principles governing the granting of a stay of a judgment or order pending an appeal are well settled.[1] It is sufficient for present purposes to restate some of those general principles as summarised by me in an earlier decision.[2]
The starting point is that the filing of a notice of appeal does not operate to stay execution of the judgment subject to the appeal. Ordinarily, a judgment creditor is entitled to the benefit of a judgment properly obtained and notwithstanding a pending appeal.
The norm is no stay. If there is to be a stay, cause must be shown. The onus is on the person seeking a stay and the onus is not lightly discharged. … It is, of course, a judicial discretion and not to be fettered by adjectives such as “special” or “exceptional”. It is necessary to show appropriate reasons for a stay and to show that the appeal machinery has not been used as an instrument of oppression or merely as a delaying tactic.
[T]he fundamental task before the court is to do what is just in the circumstances of the case. A stay will be warranted where the justice of the case so requires. Ordinarily, in exercising the discretion to do what the justice of the case requires a court will balance the interests of the parties and have regard ultimately to the balance of convenience.
Typically, an applicant for a stay will need to show that the appeal raises serious issues for determination and that there is a real risk that the applicant will suffer prejudice or damage of some significance if a stay were not to be granted which prejudice or damage could not be redressed by a successful appeal.
[footnotes omitted]
[1] See, for example, Bartley v Myers [2001] SASC 212, Ryan v Urban Construct (SA) Pty Ltd (No 2) [2012] SASC 193; (2012) 114 SASR 410, Essential Beauty Franchising (WA) Pty Ltd & Ors v Pilton Holdings Pty Ltd & Ors (No 3) [2014] SASC 148 and Rickard & Ors v Testel Australia Pty Ltd [2017] SASC 144.
[2] Ryan v Urban Construct (SA) Pty Ltd (No 2) [2012] SASC 193; (2012) 114 SASR 410 at [16]-[18].
The parties’ contentions
The first respondent raised a number of contentions in opposition to the granting of a stay in this case. A number of preliminary matters were raised as going to the competency of the appellants’ application.
The first respondent’s first contention is that the application is incompetent on the basis that the only relief properly available to the appellants is an appeal from the Judge’s order refusing the stay. I disagree. The appellants’ application before the Judge was interlocutory. It is open to a party, in appropriate circumstances, to bring a subsequent interlocutory application seeking the same order notwithstanding a previous refusal.[3] A party is not necessarily confined to an appeal.
[3] See, for example, Hall v Nominal Defendant [1966] HCA 36; (1966) 117 CLR 423 at 429, 440-1 and see generally rule 131 of the Supreme Court Civil Rules 2006.
Allied to this first contention is the submission that the appellants should not be permitted, in the circumstances of this case, to bring a second such application on the basis that no new material, different from that before the Judge, is relied on. It is unclear precisely what was relied on before the Judge. In any event and on my reading of the transcript, the matter was dealt with by the Judge in a summary and ex tempore fashion. There was little, if any, presentation of and consideration of the merits of an application for a stay of the bank guarantee, independently of the appellants’ application before the Judge for a stay generally of her Honour’s orders. In my view, the application for a stay of the order to return the bank guarantee, in isolation, does deserve separate consideration. It is appropriate to permit the bringing of a second application in this Court for this purpose.
The first respondent also submitted that the application for the stay should be refused because there is no ground of appeal challenging the Judge’s finding of the date of practical completion. Without such a successful challenge, there would be no warrant to vary the contractual conclusion that the bank guarantee fell due for return 12 months after the date of practical completion and the Judge’s consequential order that the appellants must now return the bank guarantee.
Whilst the appeal grounds might have been more explicit in this respect, I am satisfied that ground 13 sufficiently raises the issue. If the appellants were to succeed with appeal ground 13, it likely, if not necessarily, would follow that the date for practical completion has not yet been reached. If so, a contractual obligation to provide a bank guarantee would still be in force.
None of the preliminary contentions raised in opposition to the application are such as should, in my view, operate in limine to prevent this Court from determining the application on the merits. The first respondent submitted in the alternative that, if the application were found to be competent, it should be dismissed on discretionary grounds following an application of the general principles governing such applications as earlier summarised.
I am satisfied that there is a real issue to be determined (on the appeal) as to the status of the appellants’ contractual right to the bank guarantee and that in this respect there are arguable prospects of success. A significant aspect of the appeal is the appellants’ complaint concerning the Judge’s findings as to the adequacy of the hot water system and service constructed and supplied to the residence. In this respect, it needs to be understood that this was not just any hot water service. It was a very expensive and complex system intended to service a number of areas of the house with computerised temperature controlled hot water. The appellants maintain that the system has not been installed in accordance with contractual obligations such that significant and expensive repair or replacement works need to be undertaken. The appellants, at all times, have contended that they are unable to reside in the house because of this problem. The appellants contend that, if they were to succeed on this issue, not only would it give rise to a substantial monetary claim but it would necessarily lead to the conclusion that practical completion in accordance with its contractual definition has not been achieved. The issues to be decided turn on quite complex technical factual and expert evidence.
It is not possible on the information available and in proceedings such as these to form a concluded view as to prospects of success with respect to this aspect of the appeal. However, having heard from the parties on the matter and reviewed the Judge’s reasons, I am satisfied that there is a real and reasonably arguable issue to be determined as to the adequacy of the hot water system and, as a consequence, as to her Honour’s finding that practical completion had taken place.
If, contrary to her Honour’s findings, practical completion has not yet been achieved and such is found to be so on appeal, the appellants will retain a contractual right to the bank guarantee. In these circumstances, I am satisfied that if compelled to hand over the bank guarantee prior to the resolution of the appeal, a significant aspect of the appeal might be rendered nugatory.
In my view, whether or not a stay of the obligation to return the bank guarantee is to be granted should turn on balance of convenience factors.
On the appellants’ part, the following considerations arise.
(i)The appeal has not yet been listed for hearing and it will be lengthy and complex. Nevertheless, it is likely to be resolved by some time during the second half of this year.
(ii)The sum of $115,000, to which the appellants’ would have immediate access, in the event of a successful (on this point) appeal, is a substantial amount in the context of the dispute.
(iii)If the appeal were to be successful and in the absence of the bank guarantee, the appellants’ contractual protections might well be rendered nugatory at least to the extent of being deprived of the intended security for the sum of $115,000.
(iv)Without the bank guarantee, and if successful on appeal, the appellants may be confronted with a costly and time consuming task of recovering any appeal judgment, at least to the extent of $115,000.
Factors relevant to the balance of convenience concerning the first respondent include the following.
(i)On the evidence, the costs of the first respondent maintaining the bank guarantee would appear to be minimal or, at least, on the evidence proffered, have not been shown to be significant.
(ii)The primary disadvantage to the first respondent appears to be its bank’s requirement that the first respondent lodge with the bank sufficient “security” to cover the bank guarantee in the event that it were to be called upon. The affidavit evidence read and relied upon by the first respondent does not identify the nature of this security other than to assert that it is such as to reduce the respondent’s working capital available to it by $115,000 whilst the bank guarantee remains in place.
Resolution
An inference open, on the first respondent’s affidavit evidence and not challenged by its counsel, is that the first respondent is obliged to its bank to retain either credit funds or an uncalled on portion of a bank overdraft facility, in the amount of $115,000. The first respondent is a building company with apparently substantial operations. According to the evidence, it has had a turnover in excess of $4 million in each of a number of recent years. However, the bare statement of turnover proffered says nothing about the fact of or extent of solvency of the enterprise.
The first respondent conducts a number of building projects at any given time and from time to time is expected to provide bank guarantees. Accordingly, it is submitted, that the bank’s requirement that the present bank guarantee remain secured in the manner described above operates in practical terms to limit the first respondent’s working capital to that extent.
It is to be inferred from the evidence proffered by the first respondent that the provision of a bank guarantee in the amount of $115,000, for a substantial enterprise such as the respondent, ought not be a particularly expensive exercise. Further, it is not possible, on the evidence proffered, to form a view as to the extent to which, if at all, the first respondent’s business operations are being impeded by having to maintain the bank guarantee in question. On one view of the matter, it may well be that the first respondent is merely obliged to maintain an overdraft facility greater by $115,000 than it otherwise would have and uncalled on to that extent. In the current low interest rate environment, and given the relatively short period between now and when the appeal is likely to be determined, any service cost to the first respondent is likely to be relatively small.
In the absence of more fulsome evidence from the first respondent as to the actual cost to it in providing the (as yet uncalled upon) bank guarantee, I am not satisfied that the real cost to it is of particular significance to my decision as to whether I am to grant a stay.
It is a matter of concern that, were the Judge ultimately found to be correct with respect to the date for practical completion, the bank guarantee will have been in place for a number of years beyond its proper term. However, albeit unfortunately for the first respondent, any prejudice thereby resulting will have been suffered by the first respondent in any event. It is not such as would result from a stay of the Judge’s order made on 26 February 2018.
Conclusion
I am satisfied that the risk of prejudice to the appellants in the event that a stay were not to be granted sufficiently outweighs the prejudice to the first respondent were a stay to be granted so as to justify the granting of a stay of the Judge’s order. Ordinarily, I would consider imposing on the appellants an obligation to compensate the first respondent for the prejudice it would suffer in the event that a stay proved not to be warranted, that is, in the event that the appeal as to the question of the date for practical completion were to fail. For example, had the first respondent been put to an interest expense or a monthly charge by the bank for maintaining the bank guarantee I would have considered imposing an obligation to reimburse that charge as the price for obtaining the stay. However, the evidence provided by the first respondent as to the true or effective cost to it of maintaining the bank guarantee is quite unsatisfactory. In the circumstances, I propose to grant the stay unconditionally.
I order that the Judge’s order 2 made on 26 February 2018 that the bank guarantee is to be returned to the first respondent is stayed until further order.