Queensland court’s rare denial of adjudication payment balanced multiple factors

In this case, Taringa Property Group was granted a stay on paying a A$4 million (approx. USD$2,544,800) adjudication award because the claiming party, Kenik Pty Ltd, was in a “perilous financial position”.

Tom Heading, a construction law expert at Pinsent Masons, said: “Payment of amounts in security of payment are interim pending any decision, be that by an expert determiner, court or arbitral tribunal, on a final basis.”

“If an amount paid on an interim basis is not able to be repaid following final proceedings because, for example, those ‘interim funds’ have been paid out to creditors, then the interim payment has been, in effect, converted to a final payment,” he said.

“There is a tension therefore between on the one hand, allowing the claimant to have the benefit of interim funds consistent with the ‘pay now and argue later’ rationale purpose of security of payment legislation, but on the other protecting the respondent’s right to have entitlement to those funds determined on a final basis.”

After the court dismissed an application by Taringa to set aside the adjudicator’s decision on jurisdictional grounds, a stay on the A$4 million payment was obtained by Taringa to stop the money being paid to Kenik.

In its decision, the court said that it had discretionary power to grant a stay and it must consider all relevant circumstances, but emphasised that caution should be given to granting a stay because of the purpose of security payment legislation and the general assumption that stays are not granted.

“On a very simple analysis, it is difficult to see a path through by Kenik that does not result in it in external administration, even if it receives the $4 million out of court and another $400,000 approximately in accrued interest from TPG in the short term,” the court said.

“Receipt of those amounts seems highly unlikely to be sufficient to compromise or finalise outstanding trade creditor debts, to pay any tax and superannuation liabilities, to have sufficient funds to progress the various litigations, to improve its financial position in order to get its building licence back, and to actually commence trade to create an income source.”

The court referred to six factors it had considered before granting the stay, including whether the adjudicator had considered the merits and awarded for the claimant, the merits of the underlying claim, the legislative intent of security of payment legislation, if non-payment had contributed to the claimant’s financial position, if a proceeding to determine relief on final basis wouldn’t be resolved for about 18 months and if the payments from the adjudicated amount would be passed down to subcontractors.

Heading said: “Although several factors seemed to tilt in favour of not granting a stay, the court granted the stay having regard to the evidence of the claimant’s financial position.”

“The stay was granted by the court on the basis of Kenik’s net current assets of $286,000, $9000 in cash, liabilities of $7 million from projects completed years previously, the fact the company was no longer trading and the suspension of its building licence in August 2023 after a failure to meet financial requirements,” he said.

“The court rejected that certainty of non-payment by the claimant was the relevant threshold.”