NSW Court of Appeal upholds rare stay of SOPA judgment

A recent court of appeal decision upholding a rare stay of a judgment debt obtained under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) has explored when a stay may be granted despite impinging on the statutory policies underlying the legislation.

In Black Label Developments Pty Ltd v McMenemy¹,  the New South Wales Court of Appeal dismissed an appeal from a decision of the District Court in which a stay of a judgment debt obtained under s 25 of the Act pending determination of the parties’ rights in substantive proceedings.

The decision is significant as it is one of only a handful of cases in which a stay of execution of a judgment obtained under s 25 (or equivalent provisions in the security of payment legislation of other states) has been granted, and a rare case in which the basis for granting the stay was not the risk that payment may become unrecoverable due to the insolvency of the contractor.

The Court clarified that the touchstone when exercising the power to grant a stay of a s 25 judgment is the dictates of justice in the particular case, and that the statutory policy of the Act is a relevant consideration, but not the only relevant consideration, in determining whether to grant a stay.

Background facts and allegations

The Respondent, Mr McMenemy, contracted with the appellant (the Builder) to renovate his family home.

McMenemy's wife, Ms Webster, had allegedly informed the Builder of the date their family needed to move back into their home on 22 September 2023 and that "there is no slack to push that back".  Mr McMenemy alleged that, on 22 September 2023, with all of their belongings in removal vehicles waiting outside the family home, the Builder informed him that he must sign a "deed of variation" (Deed) or he would not be moving in. Among other things, the Deed, substantially increased the contract price and introduced a charge over the property in favour of the Builder to secure its entitlements under the amended contract.  

On or about 26 March 2024, the Builder issued a payment claim under the Act, claiming amounts which the Builder asserted were owed under the contract as amended by the Deed. Mr McMenemy submitted a payment schedule which included allegations of duress and unconscionability.

The Builder applied for adjudication; the adjudicator made a determination in favour of the Builder.  In making his decision, the adjudicator relied upon the Deed and stated, in relation to the allegations of duress and unconscionability, that "[i]n respect of the reasons provided by the respondent, for example, duress and unconscionability, these are not the type of matters that I can make a determination on".

The Builder obtained an adjudication certificate which it filed in the District Court pursuant to s 25(1) of the Act, resulting in a judgment in favour of the Builder.

Mr McMenemy commenced proceedings against the Builder in the District Court (Substantive Proceeding) alleging, among other things, that he executed the Deed under duress and undue influence and by reason of the Builder's misleading and deceptive and unconscionable conduct.  The relief sought included declarations that the Deed was void or unenforceable.  

Mr McMenemy also filed a motion in the District Court seeking orders staying execution of the s 25 judgment obtained by the Builder, pending resolution of the parties' rights in the Substantive Proceeding.  The primary judge granted the stay on the condition that Mr McMenemy pay the judgment sum into court.  

The Builder sought leave to appeal on 6 grounds, all of which relied heavily on the statement from the decision in A-Civil Aust Pty Ltd v Ceerose Pty Ltd to the effect that the power to stay must be exercised in accordance with the policy of the Act.²

Decision

The Court granted leave to appeal in respect of some of the Builder’s proposed grounds on the basis that they raised questions of importance beyond the instant case, but ultimately dismissed the appeal.

In considering the Builder’s arguments, the Court gave a detailed exposition of the principles governing the exercise of the Court’s discretionary power to grant a stay under s 135 of the Civil Procedure Act 2005 (NSW) in the context of a s 25 judgment.  The Court held that:

• The overriding principle to be applied when exercising the power to grant a stay is what the interests of justice require in the particular case.  The matters bearing on what justice demands will vary depending on the nature and circumstances of the case and the factors which can be taken into account are unconfined.³  
• Where a stay is sought of a s 25 judgment, the policy of the Act, as articulated in Ceerose – being: (i) to maintain the flow of money to the contractor, and (ii) as an interim measure, to place the risk of insolvency on the principal – will be highly material in assessing the dictates of justice and will often be determinative.⁴  
• However, the weight to be given to the statutory policies may differ depending on the demands of justice in a particular case⁵ and the Court is not prevented from granting a stay merely because the stay would impinge on the policies of the Act.⁶
• The power to grant a stay is not limited to cases where there would otherwise be irreparable harm rendering the party’s rights nugatory. It is exercisable for the purpose of avoiding injustice in the particular case.⁷

The Court distinguished the leading cases relied on by the Builder, including Ceerose Pty Ltd and TFM Epping Land Pty Ltd v Decon Australia Pty Ltd⁸, on the basis that the significance given to the policies of the Act in those cases was predicated on several assumptions which did not apply in the present case⁹, namely:

• that the work was done pursuant to a contract or arrangement. In the present case, this assumption would be destroyed if Mr McMenemy’s unconscionability case succeeded and the Deed were found to be void (the primary judge having found that there was a strong prima facie case in that regard)¹⁰;
• that the adjudication itself has given interim consideration to the merits of the principal’s answer to the progress claim.  In the present case, the adjudicator had not considered Mr McMenemy’s arguments concerning the enforceability of the Deed, having determined they were outside his remit¹¹; and
• that the contract is between commercial parties.  The dictates of justice are more complex in cases such as the present involving consumers of residential building services.

Having regard to these matters, the Court ultimately upheld the primary’s judge’s decision that the circumstances of the case warranted the grant of a stay.  The strength of Mr McMenemy’s prima facie case challenging the validity of the Deed – being the contract upon which the adjudicated entitlement was premised – and the fact that Mr McMenemy was a consumer not a commercial party, were key factors in the Court's reasoning.  

Key Takeaways

The Court did not depart from the well-established position that the statutory policies underlying the Act will ordinarily weigh strongly against the granting of a stay of a judgment obtained under s 25 of the Act.  However, it clarified that the overriding consideration is what the dictates of justice require and that this may affect the significance to be given to these policies when determining whether to grant a stay in the circumstances of a particular case.

The Court identified several factors capable of bearing on the significance to be given to the statutory policies, including: a history of egregious conduct by the claimant¹²;  the principal being a consumer rather than a commercial party¹³; and serious doubt as to the existence or validity of the contract on which the adjudication, and the operation of the Act, is based.¹⁴

Together with the Court’s confirmation that the power to grant a stay is not confined to cases involving the insolvency of a contractor, the decision may pave the way for stays in circumstances where the adjudicated entitlement sought to be enforced hinges on egregious conduct by the claimant or where the validity or existence of the underlying contract is in serious dispute.

Parties should, however, be mindful that the threshold remains high and the strength of the prima facie case will be a critical factor.

For more information or assistance, please contact our Construction and Infrastructure team.

Notes

¹ Black Label Developments Pty Ltd v McMenemy [2025] NSWCA 114.
‍² A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144, [21] (Ceerose).
‍³ [46]-[52].
‍⁴ [57],[68].
‍⁵ [52]-[53],[57], [154]-[155].
‍⁶ [60]-[74],[139].
‍⁷ [105]-[106].
‍⁸ [2020]NSWCA 118.
‍⁹ [141]-[142].
‍¹⁰ [80],[142].
‍¹¹ [80]-[85].
‍¹² [122].
‍¹³ [155].
‍¹⁴ [125].

Authors

Jack Fan | Partner | +61 2 8248 3407 | jfan@tglaw.com.au

Kaitlin Duff | Senior Associate | +61 2 8248 5817 | kduff@tglaw.com.au

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