Taylor Projects v Brick Dept [2005] NSWSC 571
In the Equity Division of the Supreme Court of New South Wales, after an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) had been held valid, Einstein J held that funds paid into court by the head contractor were to be released to the subcontractor under an enforceable agreement, and that the Grosvenor principle, applicable only where the claimant is actually or very close to insolvent, did not prevent release [1], [3], [20], [22], [59], [61], [69].
What the court decided
Taylor, the head contractor, sued Brick, its subcontractor, to impugn an adjudication determination made under the Act [1], [2]. In an earlier judgment delivered on 5 May 2005 the court decided that the determination was valid [3]. Brick's summons in second proceedings sought a declaration of an agreement and its specific performance [6].
On 10 March 2005 Brick obtained an adjudication certificate for the adjudicated amount plus interest and fees of $109,897.90 [12]. On 11 March 2005 consent orders restrained Brick from filing the certificate, on the basis that Taylor pay $109,897.90 into court [12]. Elsewhere the judgment gives the sum paid into court as $109,897.80 [7], [69].
Einstein J held that the payment in was made under an agreement between the parties reached through their solicitors between 8 and 11 March 2005 [13]. His Honour found an agreement in the terms Brick contended for, its critical term being release to Brick if Taylor's application failed [14], [20]. Although "not a matter of particular moment", the agreement probably also provided for release forthwith upon Brick filing the certificate as a judgment [15]. If necessary, he also accepted Brick's contention that the consent order, which imposed no condition based on Brick's "capacity to repay", indicated an implied agreement to pay Brick [21].
Relying on Grosvenor Constructions (NSW) Pty Ltd (in administration) v Musico (2004) NSWSC 344, Taylor contended that payment out would cause it irreparable prejudice because the payment could never be recouped [9]. His Honour framed the question as the probabilities that Taylor would ultimately succeed in the District Court and that Brick would then be unable to repay [23]. Given the pleaded dispute over Taylor's termination of the contract, he could only accept for present purposes that each party had prospects of success [25], [27].
His Honour could not be satisfied with any certainty that Brick was or would soon be insolvent, and the evidence was insufficient to warrant withholding the funds [49]. Including the funds held by the court, the evidence permitted a finding that Brick had net assets of at least $50,000 [58].
Grosvenor concerned a stay of execution of a judgment after the certificate had been filed, under Part 44 rule 5 of the Supreme Court Rules [52], [66]. Restating Grosvenor, his Honour said the court balances the risk of irrecoverability through the claimant's insolvency against the policy that successful claimants be paid [53]. In Herscho v Expile Pty Limited Hodgson JA suggested the risk of prejudice must be "a very high risk" [54]. Since Grosvenor the Court of Appeal in Brodyn had emphasised that the policy of the Act militates against the grant of stays [55]. His Honour held that the Grosvenor principle is only applicable where the claimant is either actually, or very close to, insolvent [59]. Otherwise the stay itself might drive the claimant into the insolvency the interim payment regime is designed to prevent [59]. Brick was not under administration or being wound up, and Taylor had not shown certainty or a very high risk of non-repayment, so there was no basis to apply Grosvenor by analogy [61].
His Honour said the court should be wary of eschewing the need to take Grosvenor into consideration presently [68]. He proposed a declaration that the parties had made an enforceable agreement for the payment in of $109,897.80 [69]. He also proposed orders for specific performance of the agreement and releasing Brick from the restraint made on 11 March 2005 [69]. The funds, with any accrued interest, were to be paid out forthwith upon Brick filing the adjudication certificate as a judgment in this Court [69]. The parties were required to bring in short minutes of order [70].
Why it matters
A respondent paying an adjudicated amount into court to hold off enforcement may find the solicitors' letters and consent order read as a bargain to release the funds if its challenge fails. A respondent seeking to stop release of funds in court needed to show "certainty", in the language of Grosvenor, or "a very high risk", in Hodgson JA's language in Herscho, that it would not be repaid [56], [61]. In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) HCA 4 at paragraph 51 the joint reasons of Kiefel CJ, Bell, Keane, Nettle and Gordon JJ said, in explaining why review for non-jurisdictional error is excluded, that the risk of the advantaged party being unable to meet a restitution order is assigned to the other party; those reasons did not consider stays or funds held in court. Readers should check the current text of the Act.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.