In a recent unreported judgement of the New South Wales District
Court, it was confirmed that a Principal that owes money to a
Contractor arising under the Building and Construction Industry
Security of Payment Act 1999 (NSW) (the SOP Act) can not attempt to
defeat the purposes of the Act and delay payment of the monies owed
by requesting a stay of execution because of the commencement of a
In Silver Star Construction Pty Limited t/as Genesis
Construction Australia v Denham Constructions Pty Limited
(unreported, District Court of NSW, Olsson SC DCJ, 25 November
2011), Silver Star (the Contractor) made four payment claims for
work carried out at two projects in NSW. Denham (the Principal)
either did not serve, or did not serve in time the payment
schedules required by the SOP Act. A statutory debt arose and
Denham became liable to Silver Star for the whole amount claimed,
being a total of $295,811.69 which was awarded at previous
Denham then commenced proceedings in the NSW District Court
against Silver Star, alleging breaches and defaults in the
performance of work for each project. Silver Star defended the
proceedings. Denham sought a stay of the previous judgements
pending determination of the principal proceedings.
In deciding whether to exercise the power and general discretion
of the Court to grant a stay of the proceedings, the Judge looked
at several issues, particularly:
the intention of the SOP Act to ensure prompt payment of
the ability of the Principal to 'claw back' payment
claims from the Contractor in subsequent proceedings; and
the effect of non-payment of the payment claims on the
Intention of the SOP Act
The Court re-iterated that the underlying intention of the SOP
Act is for a claimant to receive a prompt interim decision on a
disputed payment and to either be paid that payment or have it
secured and set aside. It was held that seeking a stay of execution
to prevent this process would not be available except in instances
where it was most likely the contractor would be unable to repay
any of these payments because of insolvency.
'Claw back' of progress payments
Of paramount importance in considering the necessity for a stay
is the impecuniosity of the claimant, and therefore, the ability of
the respondent to 'claw back' the payment in the event that
it succeeds in the resolution of a contractual dispute. This was a
necessary consideration to "prevent injustice" because of
the inability to 'claw back' these amounts.
The effect on the Contractor of non-payment
The Court discussed Silver Star's financial statements to
determine the effect that non-payment would have on the business.
Whilst Silver Star had little in the way of tangible assets, it had
secured preferred tenderer status on several projects that were yet
to begin. The Court found that by granting a stay of execution in
the enforcement of its statutory debt for the progress claims, it
would place Silver Star in a precarious financial position.
Further, Silver Star was not deemed to be at sufficient risk of
insolvency to warrant the grant of the stay.
The Court dismissed the application for the stay of execution,
making it clear that a Court will not grant a stay where it
interferes with the intention of the SOP Act (or similar
inter-state legislation). Similarly, where a contractor relies on
the payment claims to remain in business, and where there is no
pending insolvency, the Court will refuse to grant a stay of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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