- Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd

Supreme Court of NSW|2024-05-13|Before: Black J

Solicitors: Badame Lawyers (Plaintiff/Respondent) ANB Lawyers (Defendant/Applicant) File Number(s): 2024/94626

Nature of Buildlux's application

By Originating Process filed on 12 March 2024, the Plaintiff, Buildlux Pty Ltd ("Buildlux"), seeks orders under ss 459G and 459J of the Corporations Act 2001 (Cth) ("Act") to set aside a creditor's statutory demand dated 23 February 2024 ("Demand") issued by the Defendant, Profix NSW Pty Ltd ("Profix"). Plainly, it may ultimately prove difficult for Buildlux to establish a genuine dispute as to a judgment debt arising from an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) ("SOPA"), but that is a matter for the final hearing: Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91; Re Douglas Aerospace Pty Ltd [2015] NSWSC 167.
Buildlux also sought an injunction under s 66 of the Supreme Court Act 1970 (NSW) or in the Court's inherent jurisdiction seeking to restrain Profix from using the adjudication certificate to recover any amount from it as a judgment. I have today struck out the application for that relief, and Buildlux did not oppose my doing so, applying the well-established principle that substantive relief should not be joined with a summary application to set aside a creditor's statutory demand: Gujarat NRE Australia Pty Limited v Williams [2006] NSWSC 211 at [3]; Re Tetbury Pty Limited [2022] NSWSC 1670 at [1]; Re Benjamin & Khoury Pty Ltd [2023] NSWSC 756 at [48].

Profix's Interlocutory Process

Given the relatively narrow scope of Buildlux's application to set aside the Demand, it should have been possible to proceed promptly to a substantive hearing of the application, but that has not occurred. Instead, by Interlocutory Process dated 8 April 2024, Profix sought orders seeking to require Buildlux to pay an amount into Court pending final determination of Buildlux's application to set aside the Demand and, in default of its doing so, an order that the proceedings be stayed. I will return to the difficulties with Profix's application below. The parties in turn would have relied on several affidavits in respect of that application, with the consequence that this application to set aside a creditor's statutory demand would have taken on the appearance of a construction case, involving a virtual appeal against the adjudicator's determination under the SOPA. None of those affidavits have been read in respect of the question of summary dismissal of the Interlocutory Process, to which I now turn.
Before the hearing as to Profix's Interlocutory Process, I indicated that I would hear Profix as to whether that Interlocutory Process should be dismissed under r 13.4 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), on the basis that no reasonable cause of action is disclosed. In response, Profix then sought to file an Amended Interlocutory Process, which sought an order, apparently on a final basis, that Buildlux pay the amount into Court, deleting its earlier application for that to occur pending final determination of the proceedings and that, in default of that occurring, for the proceeding be stayed.
Mr Sonmez, who appears for Profix, submitted that, in an appeal from an adjudication determination under SOPA, a party will or may be required to pay moneys into Court. Assuming without deciding the correctness of that proposition, these proceedings are not an appeal from an adjudication determination, but an application to set aside the Demand on the basis that there is a genuine dispute or that there is some other reason to set aside the Demand. Mr Sonmez also submitted that, unless Profix was permitted to bring an interlocutory application of this kind, there would be a rush of applications to set aside creditors' statutory demands, brought by contractors or subcontractors in order to delay the payments required by adjudication certificates. The difficulty with that proposition is that both SOPA and the Court's jurisdiction to deal with creditors' statutory demands have long existed. There has been no such rush of applications by contractors who are the subject of adverse adjudications for that purpose, not least because it is well-established that there are limits to the circumstances in which a creditor's statutory demand relying on a judgment debt arising from an adjudication may be set aside by reason of a dispute as to the underlying adjudication.
Mr Sonmez also submitted that, if the Court were not to accede to the Interlocutory Process brought by Profix, applications of this kind would be brought as a delaying tactic. I also do not accept that submission where the Court can determine an application to set aside a creditor's statutory demand promptly. Indeed, but for Profix's Interlocutory Process filed in these proceedings, they could well already have been determined at a final hearing, which has been delayed by Profix's interlocutory application.

Determination

It seems to me that, here, no reasonable cause of action is disclosed by the Interlocutory Process filed by Profix, and no reasonable cause of action would be disclosed by the Amended Interlocutory Process, and therefore I should summarily dismiss the former under r 13.4 of the UCPR and should not grant leave to file the latter. There are two substantive reasons for that conclusion, and a third reason of policy which supports that conclusion.
The first is that the Interlocutory Process, in its original form, did not disclose any arguable basis for interlocutory relief, so far as it sought the payment of the amount into Court pending final determination of the application to set aside the Demand. It did not do so, because the Court had no power, in an application to set aside a creditor's statutory demand, on a final basis, to order the payment into Court, other than, possibly, as a condition of setting aside a creditor's statutory demand on the merits; and Profix, obviously enough, seeks to uphold rather than to set aside its own Demand. Moreover, an application to set aside a creditor's statutory demand determines, relevantly, whether there is a genuine dispute, offsetting claim or some other reason to set aside the demand and is not an occasion for the issuer of the demand to seek substantive relief, by way of debt collection. The creditor's statutory demand regime is itself inconsistent with a debt collection mechanism, so far as the recipient of a demand is put to the choice whether to pay the amount claimed by the demand if no genuine dispute or offsetting claim or other reason to set aside the demand is established, or to seek to establish its solvency in a winding up application, if a presumption of insolvency arises from its not doing so. In those circumstances, the interlocutory relief in the form originally sought by Profix could not be granted, because final relief could not be granted in that form: Lenah Game Meats (2001) 208 CLR 199 [2001] HCA 63; Webuildem Pty Ltd v Arab Bank Australia Ltd [2012] NSWCA 242.
It might also be asked, rhetorically, why a party that sought to establish a genuine dispute, offsetting claim or some other reason to set aside a statutory demand should be required to make a payment into Court, as a condition of its doing so, without any determination of the merits of the application to set aside the demand? That would have the perverse result that a creditor which served a statutory demand in respect of genuinely disputed debt could force a payment into Court as the price of the recipient setting aside that improperly based demand. Why, also, should the party who has served a creditor's statutory demand in respect of an arguably disputed debt obtain a potential priority over other creditors of the recipient by way of payment into Court, as a condition of the recipient seeking to set it aside.
There was also no basis for the second order sought by Profix, that the proceeding be stayed if the monies were not paid into Court, because there was no basis for an order for payment into Court.
Profix's proposed Amended Interlocutory Process does not improve the position, although it seeks to recharacterise the relief sought in the Interlocutory Process as final relief. It does not improve the position, because the Court has no basis to make the order sought, as final relief, prior to the determination of the substantive application.
As a matter of policy, the result that I have reached is an appropriate one, in respect of applications to set aside creditors' statutory demands generally, and such applications so far as they turn on adjudications under the SOPA specifically. The process of the summary determination of an application to set aside a creditor's statutory demand in a quick and summary way would be significantly undermined if, in each such application to set aside a creditor's statutory demand, the Court first had to determine an overlapping factual dispute, involving much the same evidence, as to the question whether a payment should be made into Court, prior to the hearing of the summary application to set aside the creditor's statutory demand. Permitting that course on a regular basis would likely have the consequence that, as has occurred here, the determination of the substantive application would be delayed by the steps taken in respect of the interlocutory application seeking payment into Court.
For all these reasons, I dismiss Profix's Interlocutory Process filed 8 April 2024 pursuant to UCPR r 13.14 and I decline leave to Profix to file the Amended Interlocutory Process. I will shortly make orders to bring this matter to hearing, which I expect will occur within the next two to three weeks, notwithstanding the delays brought about by this application.

Costs

I invited the parties to address the question whether costs should follow the event, in respect of each of the two orders that I have made, or whether they wished to adopt the possibly sensible process of setting off the costs that each would be ordered to pay to the other, to avoid the wasted costs of an assessment. Buildlux opposed the latter course and, in those circumstances, the proper order is that costs follow the event of the respective orders I have made.
Buildlux sought an order that these costs be paid forthwith. The requirements for a forthwith costs order are not satisfied, where there is no reason to think that the substantive proceedings will not be determined promptly, and there is every reason to think that they will be determined in the next two to three weeks, and a forthwith costs order has the well-recognised risk that it will exhaust the other party's financial capacity to bring the matter to a final hearing. For that reason, I will not make a forthwith costs order in respect of the two costs orders I have made.
Accordingly, I make further orders that:
The Plaintiff pay the Defendant's costs thrown away by reason of the strike-out of paragraph 3 of the Originating Process, as agreed or as assessed.
The Defendant pay the Plaintiff's costs of and incidental to the dismissal of the Interlocutory Process filed 8 April 2024 and its application to amend that Interlocutory Process, as agreed or as assessed.
The documents provided to the Court, but not tendered, be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 May 2024

Corporations Act 2001(Cth)ss 459G, 459J

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