In Yuanda Vic Pty Ltd v Facade Designs International Pty Ltd [2020] VSCA 269 the Court of Appeal granted a stay of payment pending hearing of an appeal.  It is an interesting and valuable decision because it is a comprehensive analysis of the principles associated with making a stay application.  It is also notable because the application was successful, a difficult result to achieve normally. 

FACTS

Under a supply and installation agreement dated 13 April 2018 (‘the Contract’), the respondent, (“Facade Designs”) agreed to  instal  façade elements manufactured and supplied by the applicant (“Yuanda”) as part of the construction of commercial and residential towers at 447 Collins Street known as ‘the Arch on Collins’ (‘the Project’) for the price of $14.5 million [5]. Facade Designs provided works from September 2018 until November 2019 when the Contract was terminated [6]. 

On 30 September 2019, Facade Designs provided a payment claim under s 14 of the Building and Construction Industry Security of Payment Act 2002 (‘the Act’) for $4,584,820.68 (inclusive of GST) (‘the Payment Claim’) [7].  Yuanda paid Facade Designs paid  $1,115,455 (inclusive of GST) on 2 October 2019, reducing the amount claimed to $3,469,365.58 [8].

Yuanda failed to provide a payment schedule to the respondent within 10 business days of receiving the Payment Claim, as contemplated by s 15 of the Act [9]. Pursuant to s 15(4) Yuanda became liable to pay Facade Designs the amount claimed on 30 October 2019  [10].  The applicant failed to pay the amount claimed [11]. Facade Designs conceded some reductions and  sought judgment pursuant to s 16(2)(a) of the Act [12].

The Court rejected Yuanda’s  contention that:

(a) the Payment Claim was invalid because it did not sufficiently identify the construction work or related goods and services to which the progress payments related within the meaning of s 14(2)(c) of the Act and as a consequence it was not liable to pay the amount under s 15(4) of the Act (‘the Adequacy of the Payment Claim’); and

(b) the Payment Claim included excluded amounts within the meaning of s 14(3)(b) and pursuant to s 16(4)(a)(ii) of the Act .

In relation to the excluded amounts issue the court held that, in determining whether any part of a claim included an excluded amount it was:

• sufficient to examine the face of the payment claim, including any supporting documents.
• not a requirement to conduct a full investigation of the facts and circumstances [20].
• not fatal that there was inclusion of an excluded amount in a payment claim and it does not prevent it from giving judgment for the appropriate amount under s 16 of the Act [21].

On 16 September 2020, Justice Riordan at first instance entered judgment in favour of Façade Designs  against Yuanda in the sum of $3,357,664.67 plus interest in the sum of $296,210.42 (‘Judgment Debt’) pursuant to s 12(2) of the Building and Construction Industry Security of Payment Act 2002 (‘the Act’) (‘the Order’). There was a stay of the Order until 6:00 pm on 9 October 2020 [1].

Yuanda appealed the judgment. The proposed grounds of appeal relate only to the Excluded Amounts Claim [14].

In support of the stay application Yuanda averred in affidavits:

• since Facade Designs walked off the Project site on 15 November 2019 it is unaware of any other substantial work it has been awarded since March 2020
• Facade Designs do not presently have any other live projects;
• Facade Designs did not have any other substantial projects lined up as at November 2019,
• Facade Designs does not have any significant assets and is not carrying on business [28];
•  ‘there is a real financial risk that — any money paid to [the respondent] will not be able to be recovered by [the applicant]’; and
• Yuanda is prepared to give security or pay into Court the Judgment Debt if required.
• Facade Design has ‘dismantled the complete workforces on 447 Collins Street’ [28]
• ex-employees of Facade Designs said that there was no more work, and that it has not paid their annual leave or sick leave entitlements;
• Facade Designs also dismantled its workforce on another project at 80 Collins Street at around the same time it walked off the Project site in November 2019 [28(c)];
• another company  hired and continued to pay Facade Designs unpaid employees ;
• as at 18 November 2019, the total amount of unpaid annual and sick leave entitlements owed by Facade Designs was $349,847.62;
• Facade Designs does not have a permanent office and its registered office is a residential property; and
• there has been a severe decline in the construction industry in 2020, thereby affecting the prospect of further work [29].

Facade Designs in opposing the application for a stay averred:

• that Yuanda failed to provide any payment schedule in response to the Payment Claim and defended this proceeding at substantial cost, expense and delay;
• Facade Designs did not walk off the Project site but was excluded from the site a day after it had suspended work due to non-payment of the Payment Claim;
• that on or about 15 November 2019, Multiplex agreed with Facade Design to take over the employee entitlements its roughly 55 employees were transferred to the new installation contractor, Colab Façade.
• neither Multiplex nor Colab Façade have approached the respondent for payment for the employee entitlements;
• that it has assets exceeding the Judgment Debt, including cash, equipment and properties;
• that it has not ceased trading
• its current work includes:
  • issuing tenders and performing works for Built Pty Ltd ;
  • securing two upcoming fire re-cladding projects in Melbourne valued at $12 million and $1.5 million respectively;
  • receiving Built’s confirmation that it is a preferred façade and cladding installer to be engaged on future re-cladding projects.
  • doing ongoing work with Fairlite Glass Walls on the ‘West Side Place’ project with work having recommenced on 28 September 2020 following the lifting of Stage 4 Covid-19 restrictions;
• although it scaled down the number of its employees since November 2019 in response to the termination of the Contract and the impact of Covid-19, it will be in a position to rapidly scale up the number of employees to work on large projects it expects to be awarded following the further lifting of Covid-19 restrictions; and
• in the four years prior to November 2019, it did work exclusively for Yuanda which is its sole significant trade debtor. In addition to the Judgment Debt, Facade Designs has a separate claim against Yuanda of about $3.5m to $4m which it intends to pursue [31].

Yuanda contended that Facade Design’s evidence is general, vague and unsupported because, at [34]:

(a) there are no financial statements or management accounts;

(b) the unpaid employee entitlements were not paid when due and represent a significant potential liability;

(c) there are no bank statements disclosing any credit balances;

(d) there are no valuations of the respondent’s interests in the properties;

(e) there are no valuations of any of the other assets;

(f) the current work in the pipeline was not work in hand but an expectation;

(g) the statement of accounts payable and accounts receivable, which reflect minimal activity, are not consistent with and do not evidence any ongoing business;

(h) the project with Fairlite Glass Walls is a small project; and

(i) the overall picture is of a moribund company.

Yuanda also  took the court to  parts of the transcript and the evidence which it submitted that a settlement agreement, on which a not insubstantial amount of the Payment Claim was based ($724,260.76), was an unauthorised and back-dated forgery and that ‘fraud unravels everything’ [41].

DECISION

Legal Principles

The court stated that an applicant for a stay must demonstrate:

1. the existence of special or exceptional circumstances and
2. at least an arguable ground of appeal [23].

Special circumstances may exist where there is a real risk that an appeal, if successful, would be rendered nugatory in the absence of the grant of a stay. In that event the Court will balance the prospect that an appeal may be rendered nugatory absent a stay, against the principle that the successful party in the proceeding should be entitled to the fruits of the judgment.

The court summarised the principles from authorities stating:

• Prima facie, a successful party is entitled to the benefit of the judgment obtained below and the presumption that the judgment is correct [24].
• The applicant for a stay  bears the onus of demonstrating that a stay is justified [24].
• the court has a wide discretion, which is not circumscribed by rigid rules. It should take into account all the circumstances of the case [24].
• special circumstances might exist where:
  • a successful appellant would be deprived of the fruits of the appeal if a stay of execution were not granted. In such a case, the appeal might be rendered nugatory [24].

  • for whatever reason, there is a real risk that it will not be possible for a successful appellant to be restored substantially to his former position if the judgment against him is executed’.

  • a defendant appeals and there is a real risk that the plaintiff would remove the proceeds of the judgment from the jurisdiction.

  • although the respondent is solvent, the subject matter of the appeal is, in substance, irreplaceable [24]

• while it is necessary to have an arguable ground of appeal ordinarily, the court does not have before it sufficient materials to consider, in detail, the merits of the grounds of appeal relied upon it will confine itself to a preliminary assessment
• the court ordinarily will focus on matters relevant to the enforcement of the judgment, rather than matters that are relevant to its validity or correctness
• each case must be considered according to its own facts and circumstances and that the Court retains a wide discretion [42]
• one of the relevant considerations will be the likely period for which a stay will deprive the successful party of the fruits of its judgment. The longer that period is, the greater the extent to which a stay may undermine the policy of the Act that payments be prompt [42]

The Court found that the evidence of Facade Design’s financial position and its ongoing operations was:

• general,
• vague and
• not supported

to the extent required to displace Yuanda’s evidence [35].

The Court also found that Facade Designs’s evidence tended to raise doubts about its viability as a going concern and considered  there was a real risk, beyond the usual commercial risk, that:

• Facade Design will be unable to restore the applicant substantially to its former position if Yuanda was successful, and
• that the appeal will be rendered nugatory [35]

While the court refrained from undertaking a proper consideration of the Reasons and the proposed grounds of appeal  it had heard enough to be satisfied that the case raises questions of difficulty and importance and that one or more of the proposed grounds of appeal is arguable [43].

The court found that the critical consideration was to balance the interests of the parties and in that regard on the evidence it found that:

• there a real risk that a successful appeal will be rendered nugatory;
• the existence of an allegation of fraud, which was articulated in some detail, also weighs in the balance.

The Court required that the Judgment Debt must be paid into Court and that it granted an expedited hearing of the application for leave to appeal which will be heard together with the appeal [45].

ISSUE

Stay applications are usually quite difficult to successfully make.  There are very strong public policy reasons against denying successful litigants the fruits of their success. 

Yuanda was able to both paint a comprehensive picture of Facade Design’s current reduced work load and it’s reduction in staff as well as highlighting the weakness in Facade Design’s affidavit material.  In establishing special circumstances involving a company it can be important to focus on its lack of activity to submit that payment of the judgment would be used to support its activities and therefore difficult to recover if the appeal was successful.  Similarly it is important to carefully analyse the financials that a respondent may feel compelled to provide.  The more general and vague they are the better for an applicant.  That was the case here. 

In this case while the court was minded to grant the stay, Yuanda was required to to pay the Judgment Debt into court and be prepared for an expedited hearing.