Executive summary

The NSW Court of Appeal in Black Label Developments Pty Ltd v McMenemy [2025] NSWCA 114 (Black Label) has found that even though the policy of the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) is ‘pay now argue later‘ the Court still has a broad discretion to order a stay of enforcement.

When considering an application for a stay, the Court found in Black Label:

1. the policies of the Act are material considerations but not determinative;
2. these policies may be outweighed by issues affecting the validity of the contract;
3. other factors, such as the financial position of the builder, may influence the outcome; and
4. when the contract concerned is for residential building work, different considerations apply.¹

While a series of earlier judgments suggest that stays will only be granted in very limited circumstances, Black Label affirms that the Court always has discretion to order a stay in the right situation.

Background

Black Label Developments Pty Ltd (Builder) received an adjudication determination under the Act in its favour for residential building contract and had a judgment debt entered in the NSW District Court against the owners, Mr and Mrs McMenemy (Owners).

The District Court granted a stay of the enforcement of the judgment debt to the Owners subject to deposit of judgment debt into Court and pending the resolution of separate proceedings concerning allegations of unconscionable conduct under the Australian Consumer Law against the Builder.²

The Builder challenged the stay in the Court of Appeal on grounds including that a stay would be contrary to the policies of the Act as was observed in A-Civil Aust Pty Ltd v Ceerose Pty Ltd [2023] NSWCA 144) (Ceerose) in the following terms:

“In both cases a stay or interlocutory injunction will impinge on the two statutory policies, namely, (i) to maintain the flow of money to the subcontractor, and (ii) as an interim measure, to place the risk of insolvency on the principal.”

Relevantly for this article, the Builder said that the Court of Appeal should set aside the stay because:

1. the District Court was required to make its decision in line with the policies of the Act namely:
   1. to maintain the flow of money to contractors; and
   2. as an interim measure, to place the risk of insolvency on the principal;³
2. the District Court wrongly considered that the Builder did not need the cash;⁴ and
3. the District Court wrongly found that different criteria apply to residential building work.⁵

Court’s findings

The Court rejected the Builder’s arguments and found that the policies of the Act were not paramount and the Court will always retain a discretion to exercise a stay.

Policy of the Act

The Court refused to apply Ceerose.⁶

The Court said that the statement in Ceerose relied upon by the Builder should not be read as an absolute rule.⁷ Further, the Court held that the discretion to grant a stay must be exercised in the specific context of each dispute and distinguished the facts in Ceerose from the present case on the basis that:

1. the validity of the contract was brought into question by the Owners allegations of unconscionable conduct and duress, but those allegations did not exist in Ceerose;
2. the adjudicator in this case could not consider the allegations of duress and unconscionable conduct but in Ceerose the adjudicator could consider all of the facts; and
3. Ceerose concerned a contract between commercial parties and not consumers of residential building work.⁸

Builder’s cash

The Court of Appeal rejected this ground and held that the District Court’s consideration of the absence of evidence showing that the Builder had a “particular level of practical need for cashflow” was consistent with the policies of the Act.⁹ The District Court had balanced the need of the Builder for cash and the need to protect the Owners.

Application to residential projects

The Court of Appeal agreed with the observations made by the District Court that until March 2021 the Act did not apply to contracts for residential building work. The District Court found this exclusion was repealed following the 2017 Murray Review, which recommended standardising the Act across all types of construction work.¹⁰ The Court of Appeal observed that the Murray review recognised that the relationship between the parties to a residential construction contract is different to that of a commercial contract and that residential contracts are inherently different due to:

1. the principal’s lack of sophistication and bargaining power;
2. the risk to the principal’s livelihood if forced to pay judgment debts and seek recovery later, which is more than a mere business risk; and
3. the emotional and financial significance of the project in question being the principal’s family home.¹¹

The Court of Appeal agreed with the District Court that while the Act now applies to residential building contracts, the weight given to the policies of the Act may be different in the context of stay applications when the dispute is between a homeowner and a builder.¹²

Key takeaways

The decision highlights that:

1. the statutory policies of the Act are material considerations in exercise of the discretion to grant a stay but are not determinative;¹³
2. the strength of any proceedings against the company making the payment claim may well be a significant matter in the exercise of the discretion to grant a stay;¹⁴
3. factors that bring the validity of the contract into question may erode the benefits given to claimants under the Act;
4. claimants under the Act face challenges when dealing with a stay application because:
   1. if they are insolvent, the Court will grant a stay; and
   2. if they do not have a particular level of practical need for cashflow, the Court may also grant a stay;
5. in the context of residential building contracts, a different approach may be adopted by the Court when considering the underlying policies of the Act.

For builders, it’s important to understand that the support provided by the Act may be diluted by a number of factors. Ultimately, to achieve the strongest position possible builders should prioritise maintaining adequate records and high standards of professionalism during contract formation and performance.

For principals, this decision affirms that the Court still has a broad discretion to grant a stay and the circumstances that are taken into account are not limited to those set out in Ceerose.

For homeowners, the decision shifts the balance slightly in their favour, requiring courts to weigh justice and fairness requirements together with the policies of the Act.

HWLE’s construction law team is well placed to provide clients with the required assistance with respect to cases of this nature – whether it be through assisting with contract formation and execution, providing advice and/or entering proceedings concerning stay applications.

This article is written by David Jury, Partner, Sannan Tariq, Special Counsel and Christian Nehme, Solicitor.

¹ Black Label Developments Pty Ltd v McMenemy [2025] NSWCA 114 (‘BLD v McMenemy’).

² Ibid, [33]-[40].

³ Ibid, [134].

⁴ Ibid, [144].

⁵ Ibid, [151].

⁶ Ibid, [139].

⁷ Ibid, [140].

⁸ Ibid, [141]-[142].

⁹ Ibid, [147]-[149].

¹⁰ Ibid, [155].

¹¹ Ibid, [102]-[103].

¹² Ibid, [153]-[154].

¹³ Ibid, [63].

¹⁴ Ibid, [117].