McDonald v MAK Constructions and Building Services Pty Ltd [2024] NSWCA 63

Andrew Hales  |  Karen Hanigan  |  William Vu

Key takeouts

• The Court of Appeal has confirmed that the NSW SOP Act expressly preserves a party’s right to bring a claim for common law damages, even where there is an outstanding judgment debt against that party.
• Where a party has successfully obtained a judgment debt, a court will look unfavourably on that party where it seeks to stay proceedings against it instead of enforcing the judgment.

Facts

The dispute arose from a contract for residential building work between the homeowner, Ms McDonald (owner), and the builder, MAK Constructions (builder). The owner terminated the contract due to an alleged breach. In December 2022, the owner commenced NSW Civil and Administrative Tribunal proceedings seeking damages for defect rectification costs and costs to complete the work (which were later moved to the District Court by consent) (DC Proceedings).

In February 2023, the builder obtained a judgment debt against the owner by filing an adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). The builder sought to enforce the judgment debt by obtaining various garnishee orders against the owner, which only recovered a small amount. In April 2023, the builder sought to stay the DC Proceedings until the owner paid the judgment debt. In July 2023, the primary judge granted the stay on the basis that section 32 of the SOP Act endorsed a right to bring a claim at common law only after the judgment debt is satisfied. Six months after the DC Proceedings were stayed, the builder took further steps to enforce the judgment debt by seeking a writ for levy of property.

The owner sought to appeal the primary judgment.

Decision  

The Court of Appeal granted leave to the owner to appeal.

The court found there was no basis in the SOP Act to justify the primary judge’s interpretation that section 32(3) of the SOP Act allowed for a stay of the proceedings until judgment debt was paid, and found that the primary judge erred in staying the DC Proceedings. It was held that the owner’s right to claim damages was expressly preserved by section 32(2) of the SOP Act.

The court emphasised that the SOP Act is designed to ensure prompt payment to builders, but it does not extinguish a party’s common law rights to claim damages for breach of contract. The court observed there was nothing stopping the builder from seeking to enforce the judgment debt, however it had not done so until many months after the stay was granted. When a party seeks relief to prevent the normal operation of processes authorised by the SOP Act, the court echoed previous judgments that a court would be cautious to intervene if it detracted from the primary purpose of the SOP Act.

The primary judge was also found to have erred in the exercise of discretion in granting the stay.

1. Her Honour did not properly consider the strength of the owner’s case.
2.  Her Honour mis-characterised the statement of claim as a cross-claim, thereby appearing to distract the primary judge from the significance of section 32 and wrongly claiming the statement of claim was prohibited. The SOP Act only prohibits a cross-claim where the owner has not provided a payment schedule (section 15(4)(b)) or the owner has not paid a scheduled amount (section 16(4)(b)).  
3. The builder failed to take ‘expeditious’ steps to enforce judgment, which the court said sat ‘uncomfortably’ with the purpose of the SOP Act to facilitate prompt payment to builders.

In reconsidering the merits of the case, the court declined to stay the DC Proceedings for four reasons.

1. A stay would be inconsistent with the rights preserved by section 32.
2. There was sufficient equity in the owner’s home if the builder sought to enforce the judgment debt (which it had not done).
3. Financial hardship on the respective parties was a neutral factor, as both parties would suffer some degree of hardship if unsuccessful in their motion.
4. There was no basis to find that the case is hopeless or lacking in reasonable prospects.