Corporations Act 2001 (Cth) - Application to set aside statutory demand - Demand based on judgment determined after adjudication under Construction Contracts Act 2004 (WA) - Whether 'genuine dispute' or off­setting claim

1 MASTER SANDERSON: This was the plaintiff's originating process seeking to set aside a statutory demand. The application raised an important question as to the interaction between the Construction Contracts Act 2004 (WA) and the statutory demand procedure. At the conclusion of the hearing I indicated to the parties I would dismiss the plaintiff's application. These are my reasons for that decision.

2 A copy of the statutory demand appears as annexure NDD1 to the affidavit of Nicola Domenico Di Latte sworn 28 August 2013 and filed in support of the application. Appearing in the schedule to the demand there is the following:

The following debts comprise the total outstanding amount the subject of the creditor's statutory demand for payment of debt:

1. The creditor's invoice number 5195 dated 20 November 2012 issued by the creditor to the debtor company.

1. The creditor's invoice number 5201 dated 18 December 2012 issued by the creditor to the debtor company.

1. Judgment of the District Court of Western Australia proceeding CIVO 87 of 2013 dated 4 July 2013 that the debtor company pay to the creditor:

(a) the amount of $136,145.70 together with interest of at 6% per annum from 23 December 2012 until 4 July 2013, and

(b) the amount of $368,399.59 together with interest of at 6% per annum from 1 May 2013 until 4 July 2013.

3 In his written submissions counsel for the defendant indicated the defendant accepted there was a genuine dispute as to items 1 and 2 in the schedule. He further indicated at the hearing an application would be made to amend the amount of the debt to reflect this concession. It was the plaintiff's position there was a genuine dispute as to the remaining sum. It was further submitted the plaintiff had an offsetting claim against the defendant and that there was 'some other reason' why the debt ought be set aside under the provisions of s 459J(1)(b) of the Corporations Act 2001 (Cth).

4 The judgment referred to in the schedule arose in this way. The defendant was the architect and lead design consultant for the redevelopment of a project known as the Kwinana Hub Shopping Centre Redevelopment. Originally there was a consultancy service agreement dated 2 November 2010 between Fabcot Pty Ltd and the defendant. On or about 23 March 2012 Fabcot, the plaintiff and the defendant entered into a novation agreement whereby the consultancy agreement was novated to the plaintiff as principal with effect from 20 January 2012.

5 On or about 1 November 2011 in contemplation of entering into the novation agreement the plaintiff and the defendant agreed the breakdown of the fee to be claimed on a monthly basis according to a payment schedule. During the course of the novation agreement the defendant issued progress claims in accordance with the progress claim schedule and the plaintiff paid all of these progress claims.

6 On or about 12 December 2012 the defendant removed all of its workers from the project database, ceased performing the contract and has not completed the contract. During the course of the contract an issue arose with respect to the works that had been performed by the defendant under the contract. On 8 February 2013 the plaintiff commenced proceedings against the defendant in the District Court of Western Australia with respect to what it alleged were unsatisfactory works.

7 It is the defendant's position the plaintiff was required to pay the defendant certain sums. First, a payment claim dated 20 October 2012 comprising seven invoices and four variation advices totalling $134,636.66. There were also two invoices dated November and December 2012 totalling $45,000.00. There was a further payment claim dated 18 January 2013 comprising 73 invoices totalling $529,968.73. The defendant failed to make payment of any of these invoices.

8 The defendant decided to make use of s 26 of the Construction Contracts Act. There were two separate adjudications by Mr McGill, the appointed adjudicator. In respect of the October claim, the adjudicator determined the plaintiff should pay the defendant $136,145.70. On 1 May 2013 the same adjudicator determined that with respect to the January payment, the plaintiff should pay the defendant $368,399.59. The plaintiff did not pay either sum.

9 The defendant then applied to have the awards made by the adjudicator registered as a judgment of the District Court. Registration was opposed by the plaintiff. The matter came on for hearing on 25 June 2013 before Deputy Registrar Hewitt. The learned deputy registrar dismissed the plaintiff's objections to the registration of the judgment and on 4 July 2013 the judgment in the sum of $504,545.29 was registered. That is how the third item in the schedule arises.

10 Insofar as the plaintiff claims there is a genuine dispute as to the debt and its argument there is an offsetting claim, the position can be summarised in this way. Section 43 of the Construction Contracts Act anticipates an adjudication. Section 45 of the Act anticipates a party to an adjudication can take the matter to a court for final determination. In other words, although there has been an adjudication in favour of the defendant the plaintiff is not shut out from arguing it is not indebted to the other party. So although a judgment can be entered based upon an adjudication this is not a 'final' judgment in the conventional sense but rather is of an interim nature. As the evidence in this case made it plain, there was an underlying genuine dispute as to the debt and the plaintiff submitted the demand ought be set aside even though it was based on a judgment.

11 The consequences of this argument are significant. As counsel for the plaintiff acknowledged armed with a judgment the defendant could take steps to enforce that judgment under the Civil Judgments Enforcement Act 2004 (WA). However, it was argued the statutory demand procedure was not available when there existed an underlying dispute which was genuine and which could only be resolved by court action.

12 The complete answer to the plaintiff's submission is provided by the High Court decision in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41. The facts in the case were relatively straightforward. The Deputy Commission of Taxation had issued default assessments against the respondents in relation to certain allegedly unpaid taxes. The respondents lodged objections which were rejected by the Deputy Commissioner. The respondents then sought a review of the Deputy Commissioner's decision from the Administrative Appeals Tribunal under pt IVC of the Taxation Administration Act 1953 (Cth). Prior to the Tribunal reviewing the Deputy Commissioner's decision the Deputy Commissioner issued statutory demands for the allegedly unpaid taxes.

13 It is unnecessary for present purposes to go through the detailed provisions of the various taxing statutes. Two features of these statutes are important. First, if an assessment is made by the Commissioner the amounts of tax assessed and all particulars of the assessments leading to the debts are deemed to be correct. Second, the Commissioner has an immediate right to recover those debts whether or not objection is taken to the assessment and whether or not the assessment is under review. Indeed, it is frequently the case the Commissioner will move in this court for summary judgment against a taxpayer who has failed to make payment after an assessment even in a situation where an objection is pending or a review has been sought. Judgment is invariably entered against the taxpayer - there is no defence to the Commissioner's claim.

14 In the Broadbeach Properties case at first instance a single judge of the Queensland Supreme Court determined in a situation where a review was pending there was a genuine dispute and the demand ought be set aside. That decision was upheld by the Queensland Court of Appeal. In the course of his judgment in the Court of Appeal, Keane JA (as his Honour then was) said:

It is clearly a strong thing to say that when a court is made aware that the lawful processes whereby a tax debt may be disputed have been engaged, and it is accepted that there is an arguable basis for that challenge, nevertheless, for the purposes of s 459H of the Corporations Act, the court cannot regard the debt as being subject to a genuine dispute, and is obliged to conclude, contrary to the evident truth of the matter, that there is not a genuine dispute as to the existence of the debt. If an intention to bring about such a fictional state of affairs is to be attributed to the legislature, that intention would need to be expressed clearly. There are good reasons to conclude that the legislature has not sought to make the court a slave to such a fiction [45].

15 The High Court determined the statutory demand procedure could be invoked and there was no basis for concluding the demand could be set aside under s 459G. Their Honours said:

Nothing turns upon the attribution to a s 459G application of the character of a proceeding in which, as Keane JA said, a tax debt may be disputed by the applicant taxpayer. Section 459G applications by taxpayers are not Pt IVC proceedings and production by the Commissioner of the notices of assessment and of the GST declarations conclusively demonstrates that the amounts and particulars in the assessments and declarations are correct. That being so, the operation of the provisions in the taxation laws creating the debts and providing for their recovery by the Commissioner cannot be sidestepped in an application by a taxpayer under s 459G of the Corporations Act to set aside a statutory demand by the Commissioner [57].

16 That is exactly the position here. What the Construction Contracts Act seeks to do is ensure subcontractors are paid by head contractors. It allows for adjudications and once the adjudication is made the contractor is statutorily bound to make payment. The Act allows for any adjudication to be registered as a judgment. That would appear to be a mechanism to provide a subcontractor with the enforcement rights available under the Civil Judgments Enforcement Act. But the obtaining of the registration of the judgment would not be a necessary precursor to a subcontractor issuing a statutory demand. In the Broadbeach Properties case the Commissioner had not taken the step of obtaining a court judgment before issuing the demand. But nonetheless in both Broadbeach Properties and in this case the statutory requirements necessary to establish the existence of the debt had been met. That being so the operation of the genuine dispute provisions in the statutory demand procedure were not available.

17 That is enough to dispose of this application. However, to avoid doubt I should also say the same reasoning applies to any offsetting claim. What is important here is the adjudication. Both parties are entitled to put before the adjudicator all relevant material. But once the adjudication is made payment is due and any other matters, although they may be relevant in the District Court proceeding, cannot affect the defendant's entitlement to be paid and its entitlement to use the statutory demand procedure.

18 In the Broadbeach Properties decision the respondent argued there was 'some other reason' why the demand ought be set aside. This argument was accepted both at first instance and on appeal. It was rejected by the High Court. Their Honours referred to the need to respect legislative policy respecting the recovery of tax debts notwithstanding the pending review (see [61]). Here the underlying policy of the Construction Contracts Act is crystal clear. A subcontractor should be paid once an adjudication has been made. To conclude, as a matter of discretion, there was a reason why the procedure ought not be available would be to subvert that clear legislative intent.

19 There is one further matter which requires attention. It was submitted the demand was defective because the way it was framed did not allow the plaintiff to calculate with certainty what amount had to be paid to satisfy the demand. This argument is not entirely devoid of merit. When the two amounts referred to in paragraphs 3(a) and 3(b) of the schedule are added together they make $504,545.29. There would appear then to be an error of some $3.00 which is neither here nor there. The difficulty is the reference to 'plus interest'. Those issuing statutory demands would be well advised to actually calculate interest up to the date of the demand and clearly express the amount claimed under the heading 'Amount of Debt'. However, what has been done in this case is to state the rate of interest and the dates between which it was claimed. The plaintiff could, with some ease, have calculated what the amount of that interest was. While the demand may not have been entirely clear it was not so defective as to warrant it being set aside.

20 For these reasons I adjusted the amount of the demand, extended the time for complying with the demand to 14 days from the date of the hearing and ordered the plaintiff to pay the defendant's costs of the application including the reserved costs.