Taringa Property Group Pty Ltd v Kenik Pty Ltd [2024] QSC 327

Andrew Orford  |  Laura Berry  |  Jazmin Sherrington

Key takeouts

• The decision to grant a stay to enforcement proceedings is a discretionary power that courts exercise judiciously, taking into account all relevant considerations.
  
• Courts exercise considerable caution in granting a stay, as it detracts from the primary purpose of the Building Industry Fairness (Security of Payment) Act (BIF Act), which is designed to improve cash flow for contractors. There is a high threshold for granting a stay, and courts must carefully balance legislative policy against the risk of irreparable harm to one of the parties
  
• In this case, the Supreme Court of Queensland found that the balance of convenience favoured granting a stay preventing enforcement of a judgment debt arising from an adjudication decision due to the contractor’s significant financial distress. This decision involved weighing the risk of non-recovery by the payer against the consequences to the recipient of the BIF payment if it is not received in a timely manner.
  

Significance

This case establishes a precedent in Queensland that in order to be granted a stay it is not necessary for an applicant to establish a counter party is insolvent or subject to external administration. Instead, it is sufficient to establish there is a high risk that an adjudicated sum will effectively become a final payment due to the counter party’s inability to repay any amount subsequently determined not to be genuinely owed to it.

Facts

Taringa Property Group Pty Ltd (TPG) and Kenik Pty Ltd (Kenik) were parties to a contract to design and construct of a retail complex. During construction, Kenik initiated an adjudication application against TPG under the BIF Act and was successful in obtaining an adjudicated amount of $4,218,787 followed by judgment in the Supreme Court for the debt.

TPG applied to have the adjudication decision in favour of Kenik declared void in whole or in part due to alleged jurisdictional error. The court rejected TPG’s arguments and found the decision valid. We covered this decision in Adjudicators don’t have to get it right – Construction Law Made Easy

TPG paid the amount of the debt into court and sought a stay to prevent enforcement of the judgment debt obtained by Kenik based on the adjudication decision, pending the outcome of the substantive proceeding proceedings between the parties. TPG’s aim with the stay of enforcement was to avoid paying the adjudicated amount to Kenik until the court had fully resolved the dispute.

Decision

The court granted TPG’s application for a stay.

Justice Hindman discussed the competing interests of the parties, acknowledging that the ‘pay now, argue later’ objectives of the BIF Act generally discourage the granting of a stay. The BIF Act aims to improve cash flow on construction projects by allocating the risk of payment and non-recovery to the principal or superior contractor. However, the court also acknowledged that if the financial position of the recipient of a BIF payment is such that a BIF payment which is intended to be interim in nature becomes a final payment due to the inability of the recipient to repay money that was not genuinely owing to it, that too would be inconsistent with the purpose of the BIF Act.

The court is required to undertake a balancing exercise whereby the risk of non-recovery by the payer is balanced with the consequences to the recipient of the BIF payment if that payment is not received in a timely manner as contemplated by the BIF Act.

In undertaking the balancing exercise, the court took into account the following factors:

• decision of the independent adjudicator;
• overlap of issues between the adjudication and the substantive proceeding;
• purpose and object of the BIF Act;
• length of time Kenik was held out from payment;
• impact that non-payment has had on Kenik’s financial position;
• likely length of the stay and the effect of the stay on other creditors including subcontractors.  

The court considered Kenik’s financial position more broadly, concluding that the company was not in a strong financial position, exacerbated by the fact that Kenik had surrendered its building licence in Queensland and was no longer trading, meaning there was no obvious source of further income or assets. The granting of a stay might lead to Kenik’s financial failure, given its apparent inability to manage cash flow without the immediate payment, which could have adverse impacts beyond the company itself. Although at the time of the decision Kenik was not in liquidation or administration, the court concluded that on the evidence before it was difficult to see a path for Kenik that did not result in external administration, even if it received the funds that TPG paid into court.

The court held that while a high threshold is required to displace the presumption against granting a stay, actual insolvency or being under external administration is not necessary. The court considered the solvency risks for both TPG and Kenik, evaluating the potential for TPG’s non-recovery of payments under the BIF Act against the implications for Kenik’s cash flow if the payment was delayed. The court identified that there was a very high risk that Kenik would be unable to repay the adjudicated amount of approximately $4 million if the stay was not granted and it was later found that Kenik was not entitled to it.

Accordingly, the court granted the stay on the condition that TPG made an additional payment into court by the end of January 2025, reflecting the interest that will accrue on the entire adjudicated amount until 30 June 2026, and TPG providing the usual undertaking as to damages.