Aqua­land North Syd­ney Laven­der Devel­op­ment Pty Ltd v The Own­ers — Stra­ta Plan No 102091 [2025] NSW­CA 143

A recent NSW Court of Appeal deci­sion gives Own­ers Cor­po­ra­tions greater con­fi­dence in defect lit­i­ga­tion, ensur­ing devel­op­ers using SPV struc­tures can­not eas­i­ly avoid liability.

An impor­tant deci­sion hand­ed by the NSW Court of Appeal in July has giv­en Own­ers Cor­po­ra­tions engag­ing in defect lit­i­ga­tion against devel­op­ers util­is­ing a typ­i­cal spe­cial pur­pose vehi­cle cor­po­rate struc­ture, a degree of con­fi­dence that the Courts will not sit idly by while a devel­op­er divests itself of assets leav­ing the Own­ers Cor­po­ra­tion with the prospect of obtain­ing a judg­ment with no recovery.

Typ­i­cal­ly, devel­op­ers utilise a spe­cial pur­pose cor­po­rate vehi­cle struc­ture. This means that a com­pa­ny will be incor­po­rat­ed for the sole pur­pose of own­ing and devel­op­ing a par­tic­u­lar prop­er­ty. Once the project is com­plet­ed and the prop­er­ties are sold the funds are dis­trib­uted out of the com­pa­ny for exam­ple, by issu­ing div­i­dends to share­hold­ers. Such a struc­ture seeks to mit­i­gate lia­bil­i­ty by quar­an­ti­ning the risks of the par­tic­u­lar devel­op­ment to the spe­cial pur­pose vehi­cle company.

In this case, the appli­cant, Aqua­land North Syd­ney Laven­der Devel­op­ments Pty Ltd (Aqua­land), was a spe­cial pur­pose vehi­cle (SPV) used to devel­op a mixed-use build­ing in Mil­sons Point, Syd­ney, con­tain­ing 125 res­i­den­tial lots and 2 com­mer­cial lots. Aqua­land is one of a group of com­pa­nies trad­ing under the ​‘Aqua­land Group’.

The Own­ers Cor­po­ra­tion sued Aqua­land and a relat­ed enti­ty in the Supreme Court for dam­ages aris­ing out of alleged build­ing defects. By the time the Own­ers Cor­po­ra­tion had pre­pared and served its evi­dence Aqua­land North had sold all but 4 of the res­i­den­tial lots in the development. 

Con­cerned the devel­op­er was divest­ing its only assets, the Own­ers Cor­po­ra­tion made an appli­ca­tion to the NSW Supreme Court for a freez­ing order to pre­vent Aqua­land from ​‘dis­pos­ing of its assets up to a val­ue of $10.6 mil­lion,” being the sum of the Own­ers Cor­po­ra­tion’s claim. 

Aqua­land resist­ed the order.

At first instance, Steven­son J agreed to grant freez­ing orders find­ing that there was a suf­fi­cient­ly seri­ous risk that in the absence of the order the devel­op­er would con­tin­ue to sell the four remain­ing assets and would dis­trib­ute the sale pro­ceeds. Rel­e­vant­ly, His Hon­our relied, ​“albeit per­haps faint­ly” on the fact that the devel­op­er had refused a request to give an under­tak­ing not to dis­pose of the pro­ceeds of sale as evi­dence con­sis­tent with Aqua­land’s inten­tion to do just that.

Aqua­land sought leave to appeal this deci­sion on the basis that the pri­ma­ry judge mis­ap­plied the ​“test” for freez­ing orders as set out in rule 25.11 of the Uni­form Civ­il Pro­ce­dure Rules 2005 (NSW) (UCPR) and/​or the Court’s inher­ent juris­dic­tion requir­ing the Court be sat­is­fied that there was a ​“dan­ger” that any prospec­tive judg­ment would not be sat­is­fied unless Aqua­land was restrained from sell­ing its remain­ing assets.

Aqua­land’s main con­tention was that the pri­ma­ry judge erred in grant­i­ng a freez­ing order where his Hon­our had found that Aqua­land sold units ​“in the ordi­nary course” of its busi­ness and that its con­duct in dis­trib­ut­ing prof­its by way of div­i­dend or loan was ​“nor­mal” and ​“com­mer­cial­ly ratio­nal”. Aqua­land argued that although there is no require­ment that a par­ty hold a ​‘pos­i­tive inten­tion’ to frus­trate a judg­ment, nonethe­less, there had to be ​“some­thing about the con­duct to jus­ti­fy the rem­e­dy” when all Aqua­land was doing was act­ing in the ordi­nary course of its busi­ness irre­spec­tive of the court proceedings.

The Court of Appeal did not agree. In dis­miss­ing the appli­ca­tion, the Court held that:

1. Aqua­land’s empha­sis on the need for a find­ing of ​“some­thing more” in the con­duct of Aqua­land put an ​“unnec­es­sary gloss” on the test set out in r 25.11 UCPR.
2. It was rea­son­able for His Hon­our Steven­son J to:
   • find that notwith­stand­ing the sale of the units occurred in the ordi­nary course of busi­ness, that the dis­tri­b­u­tion of the pro­ceeds of sale ​“were not ordi­nary course trans­ac­tions” such as the pay­ment of wages, which may have pro­tect­ed them from any order.
   • infer based on past con­duct in the sale of 121 of the 125 units that absent restraint Aqua­land would pro­ceed to sell and dis­trib­ute the sale of pro­ceeds with the risk that any judg­ment would be frustrated.
   • made the freez­ing order in cir­cum­stances in which Aqua­land had not iden­ti­fied any prej­u­dice to it. 

For His Hon­our Jus­tice Ball (with whom Act­ing Jus­tice Free agreed), the dis­cus­sion as to whether the dis­tri­b­u­tion of the sale pro­ceeds was with­in the ​“ordi­nary” course of busi­ness or not was irrel­e­vant to the ques­tion of whether the juris­dic­tion to grant an order was enlivened. As observed by Ball J, giv­en the struc­ture and pur­pose of an SPV, once Aqua­land had sold the remain­ing units and dis­trib­uted the pro­ceeds of sale it had served its pur­pose. There­fore the ​“clear con­se­quence of per­mit­ting it to dis­trib­ute its remain­ing prof­its before the defects claim were resolved” would be to deprive the Own­ers Cor­po­ra­tion of a rem­e­dy if its claim succeeded.

The rejec­tion by the Court that an appli­cant must demon­strate that ​“some­thing more” in the con­duct of the respon­dent before relief in the form of freez­ing orders will be ordered is an impor­tant step to over­com­ing dif­fi­cul­ties faced by Own­ers Cor­po­ra­tions seek­ing rem­e­dy against SPVs in Court. Unfor­tu­nate­ly, the lit­i­ga­tion process is often an unavoid­ably lengthy one with any delays inad­ver­tent­ly facil­i­tat­ing an SPV in sell­ing the last few units it con­tin­ues to hold in a devel­op­ment fol­low­ing com­mence­ment of proceedings.

It is impor­tant for Own­ers Cor­po­ra­tions who have com­menced or are con­tem­plat­ing pro­ceed­ings for build­ing defects against a devel­op­er who has retained lots in the devel­op­ment, to be vig­i­lant in gath­er­ing infor­ma­tion as to reten­tion or sale of those units and to seek legal advice ear­ly with a view to request­ing an under­tak­ing from the devel­op­er, and if that under­tak­ing is refused to apply for a freez­ing order. 

In bring­ing such an appli­ca­tion, the Own­ers Cor­po­ra­tion will need:

1. to con­sid­er the nature of and cor­po­rate struc­ture of the devel­op­er and any relat­ed hold­ing com­pa­ny, the his­to­ry of deal­ings by SPVs with­in that cor­po­rate group and the con­sid­er­able cost in obtain­ing expert evi­dence required.
2. to demon­strate an arguable defects claim, includ­ing pro­vid­ing evi­dence as to quan­tum of the claim required on an appli­ca­tion not a final hear­ing basis.
3. to pro­vide an under­tak­ing as to dam­ages (and to under­stand the impli­ca­tions of giv­ing such an under­tak­ing hav­ing regard to the pecu­liar cir­cum­stances of the devel­op­er not­ing how­ev­er that if the devel­op­er is an SPV any issue of dam­age or prej­u­dice is like­ly to be limited).