Aqualand North Sydney Lavender Development Pty Ltd v The Owners – Strata Plan No. 102081 [2025] NSWCA 143

Andrew Hales | Tom Ward | Caitlin Bromage

Key takeout

This appellate decision confirms the willingness of courts to make and uphold freezing orders against a special purpose vehicle (SPV) developer to reduce the barriers that owners may face when seeking damages for building defects.

If the SPV developer has not sold all lots in a development when proceedings are commenced, it is at risk of a freezing order being made against the proceeds of sale up to the amount of damages claimed by the owners.

Facts

Background
The applicant, Aqualand North Sydney Lavender Development Pty Ltd (developer) was a SPV established for the exclusive purpose of developing a mixed residential and commercial building located in Milsons Point, NSW which comprises 125 residential lots and 2 commercial lots. The development was completed in July 2021 and from August 2021 the developer began selling the residential units. The respondent, The Owners – Strata Plan No. 102081 (owners), prepared and served evidence claiming damages for alleged building defects, at which time there were only 4 units remaining unsold.

The developer’s financial records indicated that the proceeds obtained from the sale of 121 units had not been retained but distributed to other entities within the corporate group. The owners had previously requested an undertaking from the developer that it would not dissipate the proceeds generated from the remaining units pending resolution of the defects claim, which was refused. The owners subsequently made an application under rule 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to prevent the developer from disposing of its assets up to the value of the owners’ $10.6 million claim.

Supreme Court

The primary judge, Stevenson J granted the freezing order on the basis that there was a real risk that any judgment obtained by the owners may remain unsatisfied if the developer was not precluded from disposing of the sale proceeds. As the developer presented no evidence to suggest it would not sell and dispose of the proceeds in the same way it had previously, Stevenson J held that the requisite danger to support a freezing order was established.

Court of Appeal

The developer sought leave to appeal the freezing order on the basis that the primary judge had incorrectly applied rule 25.11 of the UCPR and argued that a finding of something extraordinary, beyond the ordinary commercial conduct expected of a SPV was necessary to establish the requisite danger. The developer contended that the sale of the units and distribution of the profits amongst the group companies occurred in the ordinary course of business. As such, it argued there was insufficient evidence to demonstrate that, without restraint, it would frustrate the court’s process and prevent the administration of justice.

Decision

The Court of Appeal dismissed the developer’s application to appeal the freezing order.

The Court agreed with the primary judge that relying on an unjustifiable disposition of assets as a prerequisite to granting a freezing order put an unnecessary gloss on the language of rule 25.11 of the UCPR. The Court also found that although the sale of the units was within the ordinary course of business, this was not comparable to paying wages or satisfying trading liabilities.

The Court considered the developer’s past conduct in which it had sold and distributed the proceeds from 121 of the 125 units and noted that it had subsequently refused to provide an undertaking that it would act differently. From this, the Court inferred that without a freezing order there was a real risk that the owners would be deprived of a remedy should their claim be successful. Ball JA emphasised the sole objective of a SPV was to minimise the financial risks associated with the development and it was clear that, unless inhibited, the SPV would continue to distribute the profits from the remaining units, thus preventing the owners from successfully obtaining a remedy.