The New South Wales Court of Appeal in Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd [2017] NSWCA 53 has found that a claimant enforcing a determination by an adjudicator of a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“S of P Act”) was not required to notify the respondent that a judgment had been obtained before taking steps to enforce the judgment. The Court of Appeal further found that the claimant, when applying ex parte for a garnishee order with respect to the judgment debt, was not required to notify the court that the respondent had commenced its own proceedings to review the underlying adjudication determination.
The background to the case was that a builder had been engaged by a property developer to design and construct a major development project. The builder had served a final payment claim on the developer pursuant to the S of P Act but the developer had served a payment schedule asserting that no money was owing to the builder. The dispute went to adjudication and the adjudicator determined that the builder was entitled to be paid the payment claim in full.
The developer did not pay the adjudicated amount within the time required by the S of P Act but instead commenced proceedings in the Supreme Court of New South Wales in its supervisory jurisdiction under s 69 of the Supreme Court Act 1970 (NSW) seeking to challenge the legal validity of the determination. A copy of the s 69 summons was sent electronically to the builder on the same day that the summons was filed in the Court. The developer, however, did not seek an undertaking from the builder not to take steps to enforce its rights under the determination nor did it seek interlocutory relief by way of a stay.
A few days later, the builder relied on the developer’s failure to pay the adjudicated amount to obtain an adjudication certificate under s 24 of the S & P Act. Then, pursuant to s 25(1) of the S & P Act, the builder filed the certificate in the Supreme Court of New South Wales together with an affidavit affirming that the adjudicated amount had not been paid. The result was a judgment for the adjudicated amount. The builder also applied ex parte for a garnishee order, the application being supported by an affidavit recording that the judgment had not been stayed. The garnishee order was subsequently issued and served on the developer’s bank which paid the judgment debt from the developer’s account.
The developer became aware of the payment from its bank account on the return date of the s 69 summons and applied to the Supreme Court for orders that the garnishee order be set aside and the money repaid. The application was dismissed and the developer appealed to the Court of Appeal.
The Court of Appeal (Beazley ACJ, Basten JA and Leeming JA) unanimously dismissed the appeal.
Was notification needed to be given to the developer that judgment had been obtained?
The developer submitted that the builder was required to notify the developer that a judgment had been obtained before taking any steps to enforce the judgment (including by way of garnishee order). The submission relied on the terms of s 25(4) of the S of P Act which, amongst other things, provides that, if the respondent commences proceedings to have a judgment based on an adjudication certificate set aside, the respondent must pay into court the unpaid portion of the adjudicated amount pending the final determination of the proceedings. The developer argued that reasonable notice of the judgment would have allowed it to apply to have the judgment set aside and to pay the adjudicated amount into court and so obtain a “statutory stay” by reason of s 25(4). Accordingly, it was said that the failure to give the notice effectively deprived the developer of the benefit of this right.
Basten JA rejected this submission. His Honour’s reasoning was, in summary, as follows:
- The proposition that a judgment could not be enforced without serving a copy of it on the party affected or otherwise bringing it to the attention of the party affected and providing a reasonable opportunity for the party affected to take steps to set the judgment aside or seek a stay of execution had no support in authority, or as a matter of principle (at [38]).
- Section 25(4) of the S of P Act did not put a respondent in any better position than an unsuccessful respondent against whom a judgment debt had been obtained in civil proceedings in a court (at [40]).
- The scheme for judgments under the S & P Act did not differ from judgments generally. To suggest that the scheme required notice of the existence of a judgment was not consistent with authority, the context in which s 25(1) appeared, the objects of the S of P Act or anything in the legislative history of the S & P Act (at [45]).
Leeming JA agreed with Basten JA’s reasons but went into further detail as to why there was no substance to the developer’s submission (at [89]-[98]). Beazley JA agreed with the reasoning of both Basten and Leeming JJA (at [2]).
Was notification needed to be given to the court of the developer’s proceedings?
The developer also submitted, in substance, that, when applying ex parte for a garnishee order with respect to the judgment debt, the builder was subject to a duty of candour which required it to notify the court that the developer had commenced its own proceedings to review the underlying adjudication determination.
Basten JA said that there could be no doubt that an ex parte applicant was required to inform the judicial officer of circumstances which would disentitle it from the relief sought and gave examples as follows:
- the fact that the applicant was a company which had been deregistered and that there was a stay in place precluding enforcement of a judgment;
- even if some interlocutory relief in the nature of a stay was not in place, the fact that it had been sought and the motion not determined; and
- the fact that there had been discussions between the parties although no agreement had been reached, at least where an undertaking not to enforce had been sought, though not given, and an application for a stay had been foreshadowed (at [55]- [57]).
His Honour further said that the rules applicable to garnishee orders were quite detailed but that, nevertheless, there were circumstances in which a garnishee order should not issue for reasons which were not expressly identified in the rules and that these circumstances could form the basis for a discretionary refusal to make a garnishee order or could engage the power to set aside a garnishee order (at [70]-[72]).
However, his Honour indicated that the circumstances of the case did not warrant disclosure for reasons which, in substance, were as follows:
- The requirement for disclosure was not consistent with the scheme of the S & P Act.
- The developer had failed to take the steps available to it, namely, to seek an undertaking from the builder not to take steps to enforce its entitlements under the determination, or to seek interim relief by way of a stay.
- If a mere application for judicial review was a “material fact” relevant to making a garnishee order, then a judicial officer would be required to, in effect, grant a stay in circumstances where no stay had been sought and where the developer had not proved its entitlement to a stay. This was an unattractive basis on which to set aside the garnishee order (at [75]-[82]).
His Honour went on to say that, in any event, it was not necessary to dispose of the case on the basis that there was no duty to disclose the existence of the judicial review proceedings because the above considerations were relevant to the exercise of the discretionary power to grant the equitable relief being sought by the developer and the approach taken by the judge at first instance had, in that respect, been correct (at [83]). The judge at first instance had dealt with the application by refusing relief on discretionary grounds, those grounds being that the developer had failed to seek an undertaking or interlocutory relief and had provided no evidence of the builder’s inability to repay the money, if called upon to do so.
Basten JA said that the conclusion of the judge at first instance was supported by a further consideration that the relief now sought by the developer assumed that a stay would have been granted, in circumstances where the developer had not presented the evidential basis for obtaining a stay or demonstrated why it should have been granted if sought by a timely application (at [85]). His Honour further said that, assuming that there were grounds to set the order aside, the Court had not been referred to any authority which involved a grant of equitable relief to mandate repayment of a sum acquired pursuant to an executed garnishee order (at [86]). Accordingly, his Honour concluded that no error of principle had been identified which warranted interference with the refusal by the judge at first instance to exercise a discretionary power on equitable grounds.
Leeming JA generally agreed with Basten JA (at [105]) but also gave further detailed reasons for rejecting the submission (at [107]-[126]). In particular, Leeming JA traced the history of the rules applicable to garnishee orders and said that the rules, as they now stood, contained no provisions dealing with a contested hearing in which the onus lay on the judgment creditor to justify execution or requiring the notification of the judgment debtor.
Beazley ACJ generally agreed with the reasons of both Basten and Leeming JJA (at [2]-[3]).
Final note
The developer’s proceedings continue. The developer claims that the adjudicator’s determination was void because the adjudicator lacked the jurisdiction to make the determination and that, accordingly, the judgment based on the adjudication certificate should be set aside and the amount paid out to the builder repaid to the developer (see Fitz Jersey v Atlas Construction Group [2017] NSWSC 340).
