Australian Courts have generally been unwilling to order a stay preventing enforcement of an adjudicated amount because it would be contrary to the public policy objectives of the security of payment legislation.

However, the Supreme Court of Queensland has departed from the ordinary course in finding the balance of convenience favoured granting a stay in circumstances where a contractor was in significant financial peril, in the decision of Taringa Property Group Pty Ltd v Kenik Pty Ltd [2024] QSC 327. The decision affirms there is a high threshold for granting a stay and courts will exercise considerable caution when weighing legislative policy against the risk of irreparable prejudice to one of the parties.

Taringa Property Group Pty Ltd (TPG) engaged Kenik Pty Ltd under a contract to design and construct a retail complex. Disputes arose during construction and Kenik commenced an adjudication under the Building Industry Fairness (Security of Payment) Act 2017 (Qld). Kenik was successful in obtaining an adjudicated amount of $4.2m and subsequent judgment in the Supreme Court for the debt. TPG paid the amount of the debt into Court.

TPG also commenced Supreme Court proceedings against Kenik seeking final relief relating to the contractual dispute. It then made an application for a stay pursuant to the Uniform Civil Procedure Rules 1999 (Qld) preventing enforcement and payment of the judgment debt, pending the outcome of the substantive proceedings.

The TPG application was successful with the Court granting a stay subject to usual conditions. In the judgment, the Court accepted the prima facie position of the ‘pay now, argue later’ objectives of SOPA and that stays should not be granted. SOPA is intended to improve cash flow on a construction project by allocating the risk of payment and non-recovery to the principal or superior contractor.

The Court also confirmed the scenarios where the prima facie position against granting a stay may be displaced:

• where the contractor has taken deliberate steps to restructure its financial affairs to make the task of recovering SOPA payment more difficult, as identified in RJ Neller Building Pty Ltd v Ainsworth [2009] 1 Qd R 390 (RJ Neller);
• if the contractor seeks to delay the resolution of the substantive proceedings, as also identified in RJ Neller; and
• as relevant in the current case, when the contractor is in liquidation or external administration at the time the SOPA payment is to be made.

Assessing the evidence as to the financial position of the parties, the Court engaged in a balancing exercise weighing the risk of non-recovery by TPG of the interim payment against the consequences to Kenik if the SOPA payment was not received in a timely manner. A distinguishing feature of this case was the Court’s acceptance of undisputed evidence that granting the stay would result in Kenik being insolvent with the obvious risk that TPG would be unable to recover the payment if it succeeded in the substantive proceedings.

The Court observed that Kenik had financial issues beyond the payment by TPG, with significant other liabilities, the company was not trading and had no further income or assets. In these circumstances, if Kenik received the adjudicated funds it was likely the money would be retained for reducing current liabilities and used in other ways apart from defending the TPG litigation. Accordingly, the Court concluded that there was a very high risk that payment out of court of the adjudicated amount would be a final payment due to the perilous financial position of Kenik.

This decision sets a precedent in Queensland; that a party is not required to demonstrate the other party is already in liquidation to be granted a stay, rather it is only necessary to establish that there is a high risk of payment of the adjudicated amount becoming a final payment due to the other party’s inability to repay.

This position reflects the legal findings of the NSW Supreme Court in Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 2) [2024] NSWSC 1223 reported on by MolinoCahill (available here), albeit in Martinus the evidence presented fell short of demonstrating that insolvency was inevitable or at least highly probable and a stay was not granted.

The judgement can be found here.