Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA

Citation : DIPLOMA CONSTRUCTION (WA) PTY LTD -v- KPA ARCHITECTS PTY LTD [2013] WASC 407

Corporations law - Statutory demand - Application to set aside demand pursuant to s 459H(1)(a) ('genuine dispute'), s 459H(1)(b) ('offsetting claim'), s 459J(1)(a) ('defect in the demand') and s 459J(1)(b) ('some other reason') under the Corporations Act 2001 (Cth)

Debt arising as a result of determination and subsequent judgment under the Construction Contracts Act 2004(WA) (the Act)

Whether a statutory demand can be used to enforce a determination - Whether a determination gives rise to a debt that is due and payable - Whether a debtor's claim for a declaration that there was no contractual entitlement to amount of debt awarded in a determination under the Act gives rise to a 'genuine dispute', an 'offsetting claim' or 'some other reason' to set the demand aside

Whether any defect caused substantial injustice - Whether sufficient evidence to support an offsetting claim under s 459H(1)(b) of the Corporations Act.

Building and Construction Industry Security of Payment Act 1999 (NSW)

Building and Construction Industry Security of Payment Act 2002 (VIC)

Building and Construction Industry Security of Payment Act 2004 (QLD)

Civil Judgments Enforcement Act 2004 (WA)

Construction Contracts (Security of Payments) Act 2004 (NT)

Construction Contracts Act 2004 (WA), s 31(2)(b), s 39(1)

Corporations Act 2001 (Cth), s 459E(1), s 459H, s459J

Supreme Court Act 1935 (WA), s 58(1)(a)

Taxation Administration Act 1953 (Cth)

96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146

Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284

BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982

Bluehaven Transport Pty Ltd v Commissioner of Taxation [2000] QSC 268

BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd [2009] FCA 404

Canpoint International Pty Ltd v Anar International [2008] FCA 4

CCD Group Pty Ltd v Premier Drywall Pty Ltd [2006] NSWSC 1012

Central City Pty Ltd v Montebento Holdings Pty Ltd [2011] WASCA 5

Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd [1995] FCA 1208; (1995) 17 ACSR 128

Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85

Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553

Deputy Commissioner of Taxation v Broadbeach Properties [2008] HCA 41; (2008) 237 CLR 473

Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249

Edge Technology Pty Ltd v Lite-On Technology Corporation [2000] NSWSC 471; (2000) 34 ACSR 301

Ettamogah Pub (Rouse Hill) Pty Ltd v Consolidated Constructions Pty Ltd (in liq) [2006] NSWSC 1450

Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; (1998) 84 FCR 454

Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49

Georgiou Building v Perrinepod [2012] WASC 72

Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186

ICM Agriculture Pty Ltd v Young [2009] FCA 109

Innovision Developments Pty Ltd v Martorella [2012] VSC 390

MacLeay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743

Max Cooper & Sons Pty Ltd v M & E Booth & Sons Pty Ltd [2003] NSWSC 929; (2003) 202 ALR 680

Multiplex Constructions Pty Ltd v Lui Kans [2003] NSWSC 1140

Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 68 ATR 886

Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91

Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319

Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559

Prime City Investments Pty Ltd v Paul Jones & Associates Pty Ltd [2013] NSWSC 2

Project Venture Development No 11 Pty Ltd v TQM Design and Construct Pty Ltd [2009] NSWSC 699

Reed Construction (QLD) Pty Ltd v Dellsun Pty Ltd [2010] 2 Qd R 481

XSRE Pty Ltd v Lighting Electrical Group Pty Ltd [2011] NSWSC 1147

1 PULLIN JA: On 7 August 2013, the respondent served upon the appellant a statutory demand pursuant to s 459E(1) of the Corporations Act 2001 (Cth). It demanded payment of three debts totalling $554,048.29. The appellant applied for an order pursuant to s 459H and s 459J to set aside the demand.

1. The statutory demand served on the Plaintiff by the Defendant on 7 August 2013 be amended to $504,548.29.
2. The time for complying with the statutory demand be extended pursuant to s 459F of the Corporations Act 2001 (Cth) for 14 days from the date of the hearing until 21 November 2013.
3. The application to set aside the statutory demand made under section 459G of the Corporations Act 2001 (Cth) be otherwise dismissed.
4. The Plaintiff pay the Defendant's costs, including reserved costs of the application.

4 (There is an insignificant error in the first paragraph. The master noted that an error of addition meant that the demand should be amended to reduce it by $3 to $504,545.29. However, the higher figure was referred to in par 1.)

5 On 2 November 2010, the respondent and Fabcot Pty Ltd (Fabcot) entered into an agreement whereby the respondent was to provide architectural services for Fabcot which was carrying out redevelopment at the Kwinana Hub Shopping Centre (consultancy agreement).

6 On 1 November 2011, pursuant to the consultancy agreement, Fabcot issued a payment schedule showing the amounts and the times when the respondent was to claim for fees due under the consultancy agreement.

7 On 23 March 2012, the appellant took over the redevelopment work. The appellant, Fabcot and the respondent entered into a novation agreement whereby Fabcot and the respondent terminated the consultancy agreement as between them, and the respondent and the appellant entered into a new agreement on the same terms and conditions as the consultancy agreement.

8 During the time the new consultancy agreement applied, claims were submitted by the respondent, some in accordance with the payment schedule and (according to the appellant) some not. Some of the claims were paid by the appellant. Some were not.

9 On 20 October 2012, seven invoices and four variation advices were rendered by the respondent to the appellant and were not paid. This gave rise to a 'payment dispute' within the meaning of the Construction Contracts Act 2004 (WA) (the Act).

10 The payment dispute was referred to an adjudicator and, on 23 December 2012, the adjudicator made a determination pursuant to s 31(2)(b) of the Act that the appellant must pay the respondent $136,145.70. Section 39(1) of the Act obliged the appellant to pay the amount specified in the determination.

12 On 18 January 2013, the respondent issued 73 invoices to the appellant, claiming a total of $529,968.73. Those invoices were not paid. The failure of the appellant to pay the 73 invoices created a second 'payment dispute' within the meaning of the Act and it was referred to the adjudicator.

13 On 8 February 2013, the appellant issued a District Court writ against the respondent claiming damages, inter alia, for negligence in the performance of architectural services which were alleged to cause delay and alleged to cause loss and damage totalling $287,905.40.

14 On 1 May 2013, a second determination was made by the adjudicator. The adjudicator did not allow all of the amounts claimed in the 73 invoices, but did determine that the appellant had to pay the respondent $368,399.59. The appellant did not make payment.

Judgment entered based on the two determinations

15 The respondent then, as permitted under s 43 of the Act, applied for leave of the District Court to enter judgment in terms of the two determinations.

16 On 25 June 2013, Deputy Registrar Hewitt heard the application for leave and, on 4 July 2013, leave was granted to enter judgment and judgment was entered in the following terms:

PURSUANT to the adjudication determinations of Kevan James McGill herein dated the 23rd day of December 2012 and 1 May 2013 whereby it was determined that:

(1) The Respondent do pay to the Applicant $136,145.70 and $368,399.59 respectively.

AND the Applicant having by the order of Registrar Hewitt dated the 4th day of July 2013 obtained leave to enter and enforce the determinations in the same manner as a judgment to the same effect IT IS THIS DAY ADJUDGED THAT:

(1) The Respondent do pay to the Applicant the amount of $136,145.70 together with interest at 6% per annum from 23 December 2012 until 4 July 2013 and the amount of $368,399.59 together with interest at 6% per annum from 1 May 2013 until 4 July 2013.

(2) The Respondent do pay the Applicant's costs of the application, including reserved costs, and the costs of signing judgment to be taxed.

17 The total of the two adjudications and the two amounts referred to in the judgment was $504,545.29.

19 On 6 August 2013, the respondent issued a statutory demand pursuant to s 459E of the Corporations Act demanding payment of three 'debts'. Two of the debts are no longer relied on by the respondent. However, the third debt was the amount of $504,548.29 pursuant to the judgment. There was a typographical or addition error which meant there was a difference of $3 between the demand and the judgment amount. The third debt set out in the schedule to the statutory demand read as follows:

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 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.

20 The two amounts are correct. It is the total which reveals the $3 error.

Appellant applies to set aside the statutory demand

21 On 28 August 2013, the appellant made an application under s 459G of the Corporations Act to set aside the statutory demand.

22 Also on 28 August 2013, the appellant filed a 'Substituted Statement of Claim' in the District Court proceedings it had commenced on 8 February 2013. It is not a document which is easy to read, but it pleads out the terms of the consultancy agreement and pleaded, in pars 10 and 11, that, on the proper construction of the novation agreement, it provided for payment to be claimed on the 20th day of each month and after completion of services and that, in the alternative, 'payment being made on a monthly basis was an implied term in the contract'. If that was supposed to be the plea of some kind of contractual obligation imposed on the respondent (as counsel for the appellant contended) then it did not achieve that purpose. It pleaded an obligation to make payment. That was an obligation imposed on the appellant, not an obligation imposed on the respondent.

23 It pleaded that the respondent was 'not entitled' (par 34) to the sum of $22,000 referred to in a named invoice and was not entitled to $27,500 referred to in another invoice (par 38). Those two amounts were the first and second debts set out in the schedule to the statutory demand and upon which the respondent no longer relies. Those amounts may therefore be ignored.

24 The substituted statement of claim pleaded certain breaches of the 'contract' (the consultancy agreement and the novation agreement). The breaches were pleaded as:

(a) a failure to 'comply with all reasonable directions' given by an unspecified person to maintain drawings on the database and that, on 12 December 2012, the respondent removed its drawings, which were reinstated by the appellant the next day (par 12(a));

(b) negligence in performing architectural services (par 12(b));

(c) a failure to carry out and perform architectural services to the appellant's reasonable satisfaction resulting in 'Design Dimension Discrepancies' (par 12(c)); and

(d) issuing the 73 invoices totalling $529,968.73 which were 'not conforming Payment Claims' (par 12(d)).

25 Paragraph 19 stated that 'full particulars' of the par 12(a) damages would be provided 'prior to trial'. The loss was not quantified subsequently. The loss pleaded as having been caused by the breach in par 12(b) was not quantified in the statement of claim (see par 16) and was not quantified subsequently. The loss allegedly caused by the Design Dimension Discrepancies referred to in 12(c) was quantified at $297,905.40 (see par 16 (particulars)). Thus, apart from the two amounts referred to in pars 34 and 36 which can be ignored for present purposes, the only particularised and quantified loss was $287,905.40.

26 It was pleaded that if the October 2012 invoices and the January 2013 invoices had to be paid, the appellant would suffer loss and damage (pars 24, 37).

27 The statement of claim then pleaded that with respect to the two adjudication determinations, the respondent was 'not entitled' to $136,145.70 (par 40) and 'disputes the [respondent] is entitled' (par 42) to the amounts claimed in the 73 invoices and that the amount awarded on the second adjudicator's determination was 'not due and payable' (pars 45, 46).

(c) a declaration that 'the sum of $136,145.70 and the sum of $368,399.59, alternatively $529,968.73 [the subject of the two determinations and the amount of the District Court judgment] is not due and payable to the defendant, alternatively, a declaration that the sum of $136,145.70 and the sum of $368,399.59, alternatively $529,968.73 is to be repaid by the defendant to the plaintiff';

(d) a declaration that 'all and any interest on the sum of $136,145.70 and the sum of $368,399.59, alternatively $529,968.73 is not due and payable to the defendant, alternatively, a declaration that any interest paid on the sum of $136,145.70 and the sum of $368,399.59, alternatively $529,968.73 is to be repaid by the defendant to the plaintiff'.

The affidavits in support of the application to set aside the statutory demand

29 Two affidavits were filed by the appellant in support of the application to set aside the statutory demand. The deponent was Nicola Domenico Di Latte, the managing director and chief executive officer of the appellant. In the first affidavit, he deposed that the contents of the affidavit were true to his own knowledge, and where a fact was true, to the best of his information and belief, the fact was stated and the source of the information and belief identified. The affidavit then referred to the statutory demand. It referred to background, namely the consultancy agreement, the novation agreement and the commencement of proceedings by the appellant on 8 February 2013 in the District Court and he attached a copy of the 'Current Substituted Statement of Claim' filed on 28 August 2013 which was described in the affidavit as the 'Claim'.

30 There were two paragraphs dealing with the two amounts that are not now relied upon by the respondent. Those paragraphs may be ignored.

31 Mr Di Latte's affidavit then referred to the two determinations and asserted that the invoices the subject of those claims were 'not issued in accordance with the Novation Agreement' and that, on 12 December 2012, the respondent removed all its drawings and ceased performing the novation agreement.

32 The affidavit stated that the grounds for setting aside the statutory demand were:

(a) the existence of a 'genuine dispute' because the appellant disputed the debt the subject of the statutory demand as being due and payable;

(b) that the appellant had an 'offsetting claim' in the District Court;

(d) that the respondent failed to comply with the dispute resolution clause in the consultancy agreement before issuing the statutory demand and that this constituted an 'other reason' for setting aside the statutory demand.

33 The affidavit said that the genuine dispute was the dispute about the existence of the amount which had to be paid pursuant to the two adjudications.

34 As to the offsetting claim, Mr Di Latte said in par 24:

The amount of the offsetting claim is to be calculated as set out in the Claim including:

(a) $287,905.40 as pleaded at paragraph [16] of the Claim;

(b) $134,636.66 as pleaded at paragraphs [24] - [26] of the Claim;

(c) $22,000.00 as pleaded at paragraph [33] of the Claim;

(d) $27,500.00 as pleaded at paragraphs [37] and [38] of the Claim;

(e) $529,968.73 as pleaded at paragraph [44] - [46] of the Claim;

(f) The sum of costs incurred in arranging to complete stage 5 as pleaded at paragraph [37] of the Claim; and

(g) damages to be assessed as a result of breaches as pleaded at paragraph [12] of the Claim.

35 As to the defect in the demand, this was said to be an error in the addition of debts resulting in a discrepancy of $3, and the fact that the amount of interest due was not stated.

36 As to the 'other reason' why the statutory demand should be set aside, Mr Di Latte said that there was a dispute resolution clause in the consultancy agreement that was not adhered to and that was the 'other reason' for setting aside the statutory demand. An affidavit was sworn by Todd Jonathan Paterson on behalf of the respondent. It is not necessary to detail its contents. In the second affidavit, Mr Di Latte referred to Mr Paterson's affidavit but did not add anything further in relation to the matters referred to in his first affidavit. The second affidavit concluded with a paragraph which read:

I have taken the opportunity to review the records of the Plaintiff's District Court Proceedings and the matters pleaded in the substituted statement of claim as filed on 28 August 2013. I genuinely believe, to the best of my knowledge that the matters and allegations pleaded therein are true and have [sic] correct.

37 The application to set aside the statutory demand was heard by Master Sanderson on 7 November 2013. The master dismissed the application. In his reasons, the master set out the terms of the statutory demand and recited a little of the history. The master then said:

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.

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.

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 [10] - [12].

38 The master said that, just as the statutory demand procedure could be invoked by the Commissioner of Taxation to recover a tax debt even though an objection was on foot, the same position applied under the Act. The master stated that there was 'an underlying genuine dispute as to the debt', but applied Deputy Commissioner of Taxation v Broadbeach Properties [2008] HCA 41; (2008) 237 CLR 473 by analogy and concluded that the 'genuine dispute provisions in the statutory demand procedure were not available' [16]. The master said that was enough to dispose of the application, but, to avoid doubt, he said that the same reasoning applied to any offsetting claim. The master also said that there was not 'some other reason' why the demand ought to be set aside, once again based on the reasoning in the Broadbeach decision.

39 As to the alleged defect, the master said that the appellant's argument regarding the error of $3 was 'neither here nor there', meaning, in effect, that no substantial injustice arose by reason of that defect. As to the failure to state the amount of interest due, the master said that the rate of interest and the dates between which it was claimed were stated. The master said that the appellant could, with some ease, have calculated what the amount of that interest was and that it was not so defective as to warrant the statutory demand being set aside. The master then made the orders set out earlier.

40 The appellant appealed and an order has been made extending the time for compliance with the statutory demand until the final determination of this appeal.

41 There are four grounds of appeal. They are, in essence:

(a) Ground 1 - the master erred in finding there was no genuine dispute about the amount payable as a result of the two determinations and the District Court judgment.

(b) Ground 2 - the master erred in concluding that there was no offsetting claim within the meaning of s 459H(1)(b) of the Corporations Act.

(c) Ground 3 - the master erred in finding there was not 'some other reason' to set aside the statutory demand.

(d) Ground 4 - the master erred in law in finding that, although there were errors in the statutory demand, the defects were not so serious as to warrant it being set aside pursuant to s 459J(1)(a) of the Corporations Act.

The respondent's notice of contention and cross-appeal

42 The respondent, in the notice of contention, contended that the trial judge erred in finding that there was 'an underlying genuine dispute as to the debt' and that this was a reason for upholding the master's decision to dismiss the application to set aside the statutory demand. The notice of contention contended that the trial judge erred on the basis that:

(a) there was no admissible evidence to support the contentions raised in the draft statement of claim and therefore the statement of claim cannot be relied upon; and

(b) alternatively, if (a) is incorrect, then, in any event, the statement of claim does not provide any detail as to why the 73 invoices the subject of the second adjudication determination were not payable and therefore does not raise any admissible evidence as to a genuine dispute, offsetting claim or some other reason.

43 The respondent also filed a cross-appeal, not against the judgment, but against the master's finding that there was an 'underlying genuine dispute'.

The Corporations Act

44 Section 459E(1) authorises a person to serve on a company a demand relating to a single debt that is due and payable and whose amount is at least the statutory minimum or two or more debts that the company owes to the person that are due and payable and whose amounts total at least the statutory minimum. As indicated above, the determinations created debts due and payable and the judgment created a single debt which was due and payable. Thus the respondent had the right to serve the statutory demand. It did so and it filed an affidavit which complied with the requirements of s 459E(3).

45 Section 459G(1) of the Corporations Act permits a company to apply to the court for an order setting aside a statutory demand served on the company.

46 Section 459H(1) provides that:

This section applies where, on an application under s 459G, the Court is satisfied of either or both of the following:

(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;

(b) that the company has an offsetting claim.

47 Section 459J(1) provides that:

On an application under section 459G, the Court may by order set aside the demand if it is satisfied that:

(a) because of a defect in the demand, substantial injustice will be caused unless the demand is set aside; or

(b) there is some other reason why the demand should be set aside.

48 Section 459J(2) provides that:

Except as provided in subsection (1), the Court must not set aside a statutory demand merely because of a defect.

49 The important questions which arose in the hearing before the master and rehearsed again before this court are whether the appellant's contention that claiming the declarations, set out in par [28] above, gives rise to a genuine dispute or an offsetting claim within the meaning of s 459H(1)(a) or (b) or provides 'some other reason' for setting aside the statutory demand pursuant to s 459J(1)(b). There is a separate question about whether there was a defect in the demand which would create substantial injustice unless the demand was set aside.

50 The appellant also raised an offsetting claim sounding in money. It was the claim for damages of $287,905.40 for negligent performance of work. There is no doubt that a statutory demand may be set aside if the recipient can show that it has 'a genuine' cross-claim sounding in money of sufficient value. See BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982. However, the offsetting claim sounding in money totalling $287,905.40, if it is 'genuine' does not exceed the amount of the adjusted debt referred to in the master's order and nor does it result in a reduction of the debt to a figure below the 'statutory minimum'. If the offsetting claim totalling $287,905.40 gives rise to a 'genuine' offsetting claim, then the amount of the statutory demand would have to be varied pursuant to s 459H(4) of the Corporations Act, but the demand would still stand as to the balance.

51 As a result, the appellant has to succeed in its argument that the claim for the two declarations referred to in [28] gives rise to a genuine dispute or an offsetting claim or provides 'some other reason' why the statutory demand should be set aside.

52 A dispute must be genuine and an offsetting claim must also be genuine. To be genuine they must be bona fide. They must not be 'spurious, hypothetical, illusory or misconceived': Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249; Edge Technology Pty Ltd v Lite-On Technology Corporation [2000] NSWSC 471; (2000) 34 ACSR 301, 307; Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [45]; Central City Pty Ltd v Montebento Holdings Pty Ltd [2011] WASCA 5 [9] - [15].

53 A question about the genuineness of the appellant's claimed dispute and offsetting claim for damages in the sum of $287,905.40, is raised in the respondent's notice of contention. That will be considered later in these reasons.

Disposition The Construction Contracts Act

54 The Act has some similarities to certain aspects of legislation in New South Wales, Queensland, Victoria and the Northern Territory: see Building and Construction Industry Security of Payment Act 1999 (NSW); Building and Construction Industry Payments Act 2004 (QLD); Building and Construction Industry Security of Payment Act 2002 (VIC); Construction Contracts (Security of Payments) Act 2004 (NT). Not all aspects of the legislation are common. Furthermore, while there is some commonality, the language sometimes differs. However, each of the different State or Territory Acts, in general terms, provides for a summary adjudication of disputed payment claims and allows for the registration of a determination or a certificate of determination as a judgment. Thus, cases referring to the legislation in the other States will have relevance if they relate to that aspect of the legislation. The following observations refer to the Western Australian Act.

55 The broad purpose of the Act, insofar as it relates to payment disputes, is to ensure that, in construction contracts, progress claims are paid on time and that principals obliged to pay do not act as their own judge and jury and hold up payment on their own assertion that they have a defence warranting refusal to pay. It is a 'pay now, argue later' system: Multiplex Constructions Pty Ltd v Lui Kans [2003] NSWSC 1140 [96] (Palmer J), with the primary aim of keeping the money flowing by enforcing timely payment: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319 [87]. If a payment dispute arises, then the Act provides for a system of rapid and summary adjudication which is conducted without any oral hearing. If the adjudicator, having received written submissions, makes a determination that the payment has to be made, then that determination gives rise to a debt 'presently due' and payable by the principal: see Georgiou Building v Perrinepod [2012] WASC 72 [32].

56 The contractor may, with the leave of the court, register the determination as a judgment. Section 43(2) of the Act states that '[a] determination may, with the leave of a court of competent jurisdiction, be enforced in the same manner as a judgment or order of the court to the same effect'. The contractor may therefore 'enforce' a determination or a consequential judgment by employing the relevant provisions of the Civil Judgments Enforcement Act 2004 (WA).

57 The contractor may also 'enforce' the judgment by serving a statutory demand pursuant to s 459E(1) of the Corporations Act and by subsequently applying to wind up a company which does not make payment in response to the demand. In the latter application, it may rely on the non-compliance with the statutory demand as proof of insolvency. This is so despite the view expressed by Palmer J in Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284 [8] that a proceeding to wind up a company for non-compliance with a statutory demand is not a proceeding to 'recover' the amount claimed in the statutory demand as a debt. That reasoning is no longer correct as a result of the High Court's decision in Broadbeach which approved what was decided by Williams J in Bluehaven Transport Pty Ltd v Commissioner of Taxation [2000] QSC 268 and which, by analogy, applies by parity of reasoning and with equal force to the provisions in the Act (and the New South Wales equivalent).

58 In Bluehaven, the Commissioner of Taxation served a statutory demand in relation to unpaid tax. The company contended that the Commissioner was wrongly using the statutory demand as a 'debt collection device'. Section 209 of the Income Tax Assessment Act 1936 (WA) then provided that any tax unpaid may be sued for and 'recovered' in a court of competent jurisdiction. Williams J held that the term 'recover' should be given a wide meaning; that the power to 'recover' unpaid tax entitled the Commissioner to obtain satisfaction of the debt through any available legal proceedings; and that payment consequent upon winding up proceedings was the obtaining satisfaction in a permissible legal manner. Those observations were approved in Broadbeach [58]. The High Court in Broadbeach held that the phrase 'may be recovered' in the Taxation Administration Act 1953 (Cth) applies to the statutory demand procedure, and placed the existence and amounts of the 'tax debts' outside the area for a 'genuine dispute' for the purposes of s 459H(1) of the Corporations Act.

59 By analogy, s 43(2) of the Act which states that a determination may be 'enforced' in the same manner as a judgment likewise should be given wide meaning and, likewise, read as allowing a person with the benefit of a determination or judgment to seek to enforce payment via winding up proceedings. A determination or judgment entered pursuant to s 43(2) may be enforced notwithstanding that the Act provides that the provisions in pt 3 of the Act (which includes s 43(2)) do not prevent a party from instituting proceedings before an arbitrator or other person or a court or other body in relation to a dispute or other matter arising under the contract (s 45(1)). Evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body (s 45(3)). An arbitrator or other person or a court or other body may make orders for the restitution of any amount which has been paid pursuant to a determination and, if there are claims and cross-claims, then there must be an allowance made for any amount that has been, or is to be, paid by a party under the determination (s 45(4)). The effect of a determination has been described as providing for an 'interim' determination and it does not give rise to any res judicata in later civil proceedings: Max Cooper & Sons Pty Ltd v M & E Booth & Sons Pty Ltd [2003] NSWSC 929; (2003) 202 ALR 680 [34]. However, that does not mean that the determination (or a judgment based on it) does not give rise to a debt which is due and payable and which is enforceable. On the contrary, the determination and the judgment do give rise to a debt due and payable. See Perrinepod [32].

60 The question is whether the appellant's claim for declarations that the respondent was 'not entitled' to the total of the two determinations, in effect, that the amounts adjudicated to be due and payable and the subject of the consequent judgment were not, in truth, due and payable, can give rise to a genuine dispute. The argument which the appellant presents is an argument redolent of the sentiments expressed by Keane JA in Neutral Bay Pty Ltd v Deputy Commissioner of Taxation (2007) 68 ATR 886 [67] - [68], which was the name of the case which was reviewed by the High Court under the name Broadbeach. Keane JA said in the Queensland Court of Appeal that it was 'a strong thing to say' that when a court is made aware that a debt is disputed, 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', and that such an argument would give rise to a 'fictional state of affairs'.

61 The High Court in Broadbeach rejected that reasoning for two reasons. One was the special character given to tax debts. That is a reason not applicable here. However, the other reason was that there was no requirement that the court 'observe a fictional state of affairs' because the source of the debt was to be located in the 'statutory consequences given to an assessment' in the Taxation Administration Act. Likewise in this case, the source of the debt is located in the statutory consequences given to a determination in the Act. The fact that the source of the debt is State legislation, whereas in the case of the tax debt the source of the debt was Commonwealth legislation, does not make any difference. There is no question of any conflict arising between the Act and the Corporations Act. The question is whether there is a debt. If there is a debt which is due and payable by reason of the State legislation, then there is no 'fictional state of affairs'.

62 The fact is that there is no dispute about the determinations or the judgment in this case. The determinations and the judgment do give rise to debts which are due and payable. The claim for a declaration that the two amounts referred to in the two determinations and the judgment are not 'due and payable' is spurious. It is an assertion without legal merit and contrary to the Act. It cannot succeed. The appellant in written submissions stated that:

[I]n respect to the New South Wales Security for Payments legislation an adjudication or even judgment arising from the registration of an adjudication certificate does not prevent the raising of a genuine dispute as to the debt, within the meaning of section 459H(1)(a) of the Act ...

63 The appellant then cites the following cases as authority for that proposition: Prime City Investments Pty Ltd v Paul Jones & Associates Pty Ltd [2013] NSWSC 2; Falgat Constructions Pty Ltd v Equity Australia Corporation Pty Ltd [2005] NSWCA 49 [35]; BBB Constructions; Project Venture Development No 11 Pty Ltd v TQM Design and Construct Pty Ltd [2009] NSWSC 699; Aldoga [7].

64 Prime City does not stand for that proposition. In that case, the contention was that the dispute about the debt gave rise to an offsetting claim, not about whether there was a genuine dispute about the determination debt. Falgat does not contain a paragraph [35] and nothing else within the judgment supports the statement which precedes the citing of that case. BBB Constructions was about whether there was an offsetting claim, as was Project Venture. Aldoga was not concerned with a situation where there had been an adjudicator's determination. Further, as already stated, the view of Palmer J in Aldoga that 'proceedings to wind up a company do not involve recovery' is not, with respect, correct in light of the High Court's reasoning in Broadbeach.

65 The second part of the claim for a declaration is for a declaration that the two sums or the total of $529,968.73 'is to be repaid' which is also spurious. A declaration that those amounts 'be repaid' could not be made unless the appellant had paid the amounts of the determinations or the amount of the judgment. They have not. In fact, if the appellant had made payment then there would have been no need for the service of the statutory demand and the appellant would instead have claimed restitution in the District Court proceedings. The right to claim restitution would not and does not arise until payment has been made. No genuine dispute has been shown to exist.

66 The master did not err in applying the reasoning in Broadbeach and, in effect, determining that there was no genuine dispute about the debt justifying an order to set aside the demand.

68 There is no doubt that the recipient of a statutory notice may successfully apply to set aside a statutory demand based on an adjudicator's determination or a consequent judgment if it has offsetting claims arising from transactions separate from those that give rise to a judgment debt based upon an adjudication under the Act: Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553 [17] (Campbell J).

69 In BBB Constructions, Brereton J said at [2]:

Although in the past it was contentious, it is now well established that the circumstance that a creditor's statutory demand is founded upon a debt arising from an adjudication under the Building and Construction Industry Security of Payment Act does not preclude the setting up of an offsetting claim pursuant to s 459H on an application to set aside such a demand: [Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186; Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553, [18] - [20]; and, in particular, in respect of an offsetting claim Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284].

70 Thus, for example, in Max Cooper, the defendant served the statutory demand for payment of $51,341 due as a result of an adjudication. The plaintiff sought and obtained a variation of the amount of the statutory demand on the basis that it had an offsetting claim for damages for defective work and for delay totalling $27,231.

71 Similarly, in Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186 there was a statutory demand for $97,640 pursuant to a judgment falling under the NSW Construction legislation. The offsetting claim was for $102,597 which the plaintiff claimed had been overpaid on certain invoices rendered earlier and had already been paid by the plaintiff.

72 Likewise, in this case, if the appellant's cross-claim for damages for defective work totalling $287,905.40 is a 'genuine' offsetting claim, it should result in the reduction of the amount of the demand. As already mentioned, whether there is evidence sufficient to establish the genuineness of the alleged offsetting claim is an issue which will be considered later when dealing with the respondent's notice of contention.

73 Putting that latter issue aside, it is then necessary to consider the appellant's submission that it can establish the existence of a genuine offsetting claim by contending that, despite the adjudication determination and despite its registration as a judgement, the appellant may successfully contend that it is not, 'in truth', indebted for the amount certified and by doing so maintain that that constitutes an offsetting claim under s 459H(1)(b). There are a number of cases involving single judge decisions that hold that such a contention may constitute an 'offsetting claim'. One of the earliest of those cases is Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559. This was a judgment of White J and at [12] the following proposition is stated:

It follows that whilst a party against whom a certificate requiring it to pay money has been issued, and against whom a judgment is entered in accordance with Pt 3 of that Act, is undoubtedly indebted to the other party to the contract who has obtained the certificate, nonetheless, if such a person has a genuine claim that is it is not, in truth, indebted for the amount certified, it can maintain that claim as an offsetting claim.

74 White J then cited Max Cooper, Demir, Greenaways, and Aldoga in support of the proposition. In my opinion, those cases do not support the proposition. The first three of those cases did not involve any claim that the plaintiff was not 'in truth' indebted for the amount certified as due and payable in the determination. Each of those three cases involved cross-claims arising out of separate transactions and giving rise to claims for damages quantified in money. Aldoga does not provide support because as already mentioned Palmer J held in that case that a proceeding to wind up a company could not properly be regarded in law as a proceeding to 'recover' the amount claimed as a debt which reasoning cannot stand in view of the High Court's affirmation in Broadbeach of what was said by Williams J in Bluehaven.

75 In Ettamogah Pub (Rouse Hill) Pty Ltd v Consolidated Constructions Pty Ltd (in liq) [2006] NSWSC 1450, White J again said:

Whilst there can be no dispute that the plaintiff is indebted to the defendant for the amount claimed in the statutory demand, the plaintiff will nonetheless have an offsetting claim equal to the amount of that debt if there is a genuine dispute that the defendant was not contractually entitled to the amount claimed in the payment claims made under s 13 of the Security of Payment Act [12].

76 White J again quoted Max Cooper, Demir, Greenaways and Aldoga, and added to those authorities his own decision in Plus 55 along with another case, namely, CCD Group Pty Ltd v Premier Drywall Pty Ltd [2006] NSWSC 1012. CCD is a decision of Macready AJ applying what White J had said in Plus 55 at [12]. Martin J in Reed Construction (QLD) Pty Ltd v Dellsun Pty Ltd [2010] 2 Qd R 481 also applied Plus 55.

77 All of the cases referred to above under the last heading (save for Reed) were decided before Broadbeach. In my respectful opinion, Plus 55 and Ettamogah and the cases depending on them are plainly wrong and should not be followed insofar as they stand for the proposition that the person who owes a debt which is due and payable by reason of an adjudicator's determination and subsequent judgement, can raise a genuine offsetting claim merely by contending that it is not 'in truth, indebted for the amount' determined as due and payable or that, despite the determination, the contractor was not 'contractually entitled' to the amount determined or certified to be due by the adjudicator.

78 There is another reason why the decisions are, with respect, wrong. In Plus 55, White J stated that the company was litigating to determine 'whether it was liable to pay the amount the adjudicator determined was payable' [10]. That is not a cross-claim for a money sum which will exceed or reduce the amount of the demand. The cross-claim must be capable of being quantified in money terms before it can qualify as a genuine offsetting claim: Chase Manhattan Bank Australia Ltd v Oscty Pty Ltd [1995] FCA 1208; (1995) 17 ACSR 128, 135 (Lindgren J); Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91 [45] (Debelle, Besanko & Layton JJ agreeing); Innovision Developments Pty Ltd v Martorella [2012] VSC 390 [20] and [21]. In 96 Factory Bargains Pty Ltd v Kershel Pty Ltd [2003] NSWSC 146 [27], Barrett J said that an offsetting claim:

[M]ust be one capable of being quantified in money terms. It need not be a liquidated claim but it must be one to which a monetary liability can be attached. This is because of the directive in s 459H(2) that the court determine, among other things, 'the amount of that claim' or, where there are several claims, 'the total of the amounts of those claims'. It follows that only claims sounding in debt or damages or other monetary consequences ... may be taken into account for the purposes of s 459H.

79 See also BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd [2009] FCA 404 [82]; Canpoint International Pty Ltd v Anar International [2008] FCA 4 [42]. The appellant's claims for declarations are not quantified in money. The plea is that 'if' the October 2012 invoices and the January 2013 invoices had to be paid, the appellant would suffer loss (see pars 24 and 37 of the statement of claim).

80 If the appellant paid the amount of the judgment (which it has not) then it would be entitled to an order for restitution pursuant to s 45(4)(b) of the Act, and that claim for restitution would be for a claim quantified as an amount of money. Of course, if the amount of the judgment had been paid there would be no need for a statutory demand and no need for an application to set aside the statutory demand.

81 The master did not err in rejecting the appellant's submission that the sums due under the October 2012 invoice and the January 2013 invoices were not due and payable. The master was correct in concluding that there was no genuine offsetting claim.

83 Section 459J(1)(b) of the Corporations Act is a catchall provision which authorises the court to set aside a statutory demand if there is 'some other reason' why it should be set aside. This is a provision which will rarely be employed, but when employed, it will be for the purpose of meeting the demands of justice: Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; (1998) 84 FCR 454, 458 - 459. So for example in Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249, the appellant appealed against an order setting aside a statutory demand on the basis that the company had an offsetting claim. No application was made for expedition of the appeal and by the time it came on for hearing, the District Court was due to hear a trial of issues between the parties about the matter which the appellant said should have persuaded the court that there was a genuine offsetting claim. The court said:

[I]t is not in the interests of justice for this court to analyse the genuineness of the respondent's claim so close to the time the District Court Action is to be decided on the merits, and in circumstances where the appellants did not seek to expedite the hearing of the appeal, did not apply for summary judgment in the District Court Action and did not obtain an order striking out the statement of claim.

84 In this case, the demands of justice do not require the court to employ s 459J(1)(b). The appellant merely advanced and relied upon the same submission it made in relation to grounds 1 and 2. The master did not err.

86 Section 459J(1)(a) of the Corporations Act authorises the court to set aside a demand if it is satisfied that because of a defect in the demand, substantial injustice will be caused unless the demand is set aside. Therefore s 459J(1)(a) confers a discretion on the court to determine whether a defect in the statutory demand would result in a substantial injustice.

87 There was no error in the exercise of that discretion. The $3 addition error is a defect, but counsel for the appellant abandoned any suggestion that that defect could give rise to any substantial injustice. The failure to calculate the amount of interest did not render the amount of debt 3 ambiguous so as to cause the appellant any substantial injustice or uncertainty as to the debt. The schedule and the statutory demand specified the rate and time period within which interest was to be paid which mirrored the terms of the District Court judgment. The master did not err in the exercise of his discretion in determining that the statutory demand should not be set aside by reason of a defect.

89 The respondent contended in the notice of contention and the notice of cross-appeal that the master erred in stating at [10] of his reasons for decision that there was an 'underlying genuine dispute' as to the debt. The respondent alleges this was an error of law in that there was no evidence to support the finding that there was any underlying genuine dispute because the appellant had led no admissible evidence with respect to the contentions raised in the draft statement of claim. This contention has already been dealt with insofar as it deals with the appellant's submission that a genuine dispute, or genuine offsetting claim, arose based on the assertion that the amounts determined by the adjudicator to be due, were not 'in truth' due or that the respondent was not 'entitled' to the amounts in the two determinations. However, there is still a question about whether the $287,905.40 is a 'genuine' offsetting claim.

90 The threshold presented by the test to set aside a statutory demand does not require of a plaintiff a rigorous and in depth examination of the evidence relating to the plaintiff's claim dispute or offsetting claim: Edge Technology [45] (Santow J). However, in the case of an offsetting claim, the affidavit in support will be insufficient if it does not contain material from which a court can make an estimate of the amount of an offsetting claim. The mere production of a statement of claim will not support an offsetting claim even if verified by affidavits: XSRE Pty Ltd v Lighting Electrical Group Pty Ltd [2011] NSWSC 1147 [34] (Ward J). See also MacLeay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 [17] - [18] and Royal Premier Pty Ltd v Taleski [2001] WASCA 48 [57]. Mr Di Latte's affidavits go no further than revealing that there is a statement of claim which raises a claim for damages of $287,905.40. The mere production of a statement of claim is 'no evidence of anything': Bhagat v Global Custodians Ltd [2002] FCA 223 [53]; see also ICM Agriculture Pty Ltd v Young [2009] FCA 109 [76].

91 The notice of contention should be upheld. This supports the master's conclusion that there was no genuine cross-claim.

92 It is not necessary to consider whether the respondent's 'cross-appeal' which amounts to a contention that the statement that there was an 'underlying genuine dispute' which might amount to a 'finding', should be set aside. Usually, this court is concerned with the question about whether a judgment or order should be set aside. The effect of the provision in s 58(1)(a) of the Supreme Court Act 1935 (WA) which confers jurisdiction on the Court of Appeal to set aside a 'finding', can be left for consideration to another case.

93 The appellant applied for leave to appeal. The respondent was prepared to accept that leave was necessary. Leave should be granted but the appeal should be dismissed.