The Estate of Sikos v TBPL1 Pty Ltd [2021] NSWSC 1523

Andrew Hales  |  Sophie Wallwork |  Tom Lawler

Key takeouts

• A court will restrain a builder from becoming unjustly enriched by collecting an adjudicated amount awarded where the court has since found the structural engineer’s design defective
•  It is important to note that the action in these proceedings were commenced more than 11 years after work ceased on site and more than 10 years after the builder terminated the contract

Facts

In 2009, Mistrina Pty Ltd (in liquidation since 2017) and the late Mr E Sikos (developers) contracted TBPL1 Pty Ltd, formerly Jabbcorp Pty Ltd (builder) to design and construct a development on land in Brighton-Le-Sands, Sydney (contract). 

Background of adjudication

In 2010, the builder served a payment claim on the developers for $749,603. The builder pursued this claim at adjudication, was successful and the developers were ordered to pay the builder the full amount claimed. Shortly thereafter, the builder obtained an adjudication certificate under section 25(1) of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) which stated an amount of $776,855. The builder filed this certificate under s25(1) of the Act as a judgment (2010 judgment). The 2010 judgment was entered for $782,227, being $5,372 more than amount stated in the adjudication certificate.

Background of related court proceedings

In 2014, the developers commenced proceedings against the builder for alleged breaches of the contract, including defective design of the foundations and the use of an unsuitable raft slab, which were discontinued four months later (2014 proceedings).  In early 2015, the builder demanded payment of its costs in the 2014 proceedings, but at that time the developers did not have the financial capacity to pay.

In 2016, the developers commenced proceedings against Australian Consulting Engineers Pty Ltd (ACE), the structural engineers who designed the allegedly defective slab. The builder was not a party to those proceedings.

In 2020, the Court of Appeal found in favour of the developers and ordered ACE to pay the developers $5,297,307 (judgment sum). The builder served on ACE a garnishee order in an attempt to recover the 2010 judgment. 

The Court of Appeal ordered that the judgement sum be paid into court until a further order was made directing payment of the judgment sum out of court. Following the High Court’s refusal to grant ACE special leave to appeal against the Court of Appeal’s decision, ACE filed a notice of motion seeking orders concerning payment out of court of the judgment sum.  In May 2021, the court ordered that a portion of the judgment sum be paid out of court to the developer’s solicitors in partial satisfaction of the Court of Appeal’s judgment and ACE’s costs liabilities in the Court of Appeal. The balance of the judgment sum ($1,511,454) remained in court.

The claims made in these proceedings

The developers sought:

• a final injunction restraining the builder from enforcing the 2010 judgment as (amongst other reasons) for jurisdictional error, due to the fact that the judgment certificate was for more than the adjudicated amount and the builder was not entitled to payment of the 2010 judgment because the slab design was defective and constructed in breach of the builder’s quality and performance obligations;
• a final injunction restraining the builder from enforcing any rights under section 23 of the Act to require payment of the adjudicated amount;
• an order that the builder’s garnishee order to be set aside because the 2010 judgement on which it was based was invalid and should not be enforced and had already been discharged; and
• a declaration that no amounts were owed from the developers to the builder in respect of works carried out by the builder under the contract.

The builder sought:

• a stay of the proceedings on the basis that the developers sought to agitate the ‘same or substantially the same cause of action’ as the 2014 proceedings which were discontinued, claiming that it would face obvious difficulties to defend an action brought more than a decade since the parties had commercial dealings because many records will have been destroyed, corrupted or lost and the action was founded on contract and could not be brought because it was outside the limitation period; and
• security for costs.

In response to the builder’s submissions, the developers relied upon an equitable right to injunctive relief to prevent the builder from becoming unjustly enriched by enforcing the 2010 judgment, which:

• was not founded on contract because damages were not being sought for breach of contract; and
• was founded in restitution. This is even though there is no previous case dealing with the character of a claim for restitution of amounts enforced via the procedure for recovering progress payments under Part 3 of the Act which later turn out to have been wrongly paid on a final basis.

Decision

Stay of proceedings

The court did not stay the proceedings. It held that the cause of action of an equitable right to injunctive relief to prevent unjust enrichment of the builder is, at least arguably, not the same as that brought in the 2014 proceedings for damages under the contract. 

Security for costs

The court saw no basis to refuse the builder’s request for an order for security of costs against the developers and fixed the amount that should be provided as security for costs at $450,000.