KELLOGG BROWN & ROOT PTY LTD -v- DORIC CONTRACTORS PTY LTD [2014] WASC 206 (10 June 2014)

4 On 4 February 2014 Kellogg filed an application in the Supreme Court seeking judicial review of the Determinations. On 1 April 2014 Justice Chaney made directions listing Kellogg's application for hearing 'as soon as possible after 4 June 2014'.

5 On 18 February 2014 Doric served a statutory demand on Kellogg for an amount of $1,010,508.50 (Statutory Demand). Two debts were identified:

The Creditor's claim for payment to the Company dated 25 October 2013 for amounts incurred as a result of the poor performance and non‑performances in relation to the In‑situ Central Precinct Buildings under the contract between the Creditor and the Company dated 21 December 2011 for the Jimblebar Project

$509,820.40 (being $463,473.09 plus 10% GST in the amount of $46,6347.31 [sic])

The Creditor's claim for payment to the Company dated 25 October 2013 for amounts incurred as a result of the Company's poor performance and non‑performances in relation to the Hub Administration Building under the contract between the Creditor and the Company dated 21 December 2011 for the Jimblebar Project

$500,688.10 (being $455,171.00 plus 10% GST in the amount of $45,517.10)

6 The affidavit accompanying the Statutory Demand confirms that the debts arise out of the Determinations.

7 By application dated 11 March 2014 Kellogg applied to set aside the Statutory Demand.

8 The statutory demand process relied on by Doric has its foundation in Corporations Act 2001 (Cth) (CA) s 459E(1):

Creditor may serve statutory demand on company

(1) A person may serve on a company a demand relating to:

(a) a single debt that the company owes to the person, that is due and payable and whose amount is at least the statutory minimum; or

(b) 2 or more debts that the company owes to the person, that are due and payable and whose amounts total at least the statutory minimum.

9 A recipient of a statutory demand may apply to have it set aside: CA s 459G. Kellogg's application to set aside the Statutory Demand was made within 21 days of the date of its service as required by CA s 459G, and otherwise complies with the formal requirements of that section.

10 CA s 459H(1)(a) grants the court jurisdiction to set aside or adjust a statutory demand:

Determination of application where there is a dispute or offsetting claim

(1) This section applies where, on an application under section 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.

11 The court may also set aside a statutory demand on two other grounds pursuant to CA s 459J:

Setting aside demand on other grounds

(1) 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.

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

12 The onus is on Kellogg as the recipient of the demand to establish a genuine dispute, offsetting claim, defect or other reason to set aside the statutory demand: Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5 [15] (Murphy JA, with whom Buss JA agreed).

13 The present application involves the interaction of the statutory demand regime and the regime for the payment of contractors in the CCA. By CCA s 39(1), a 'party that is liable to pay an amount under a determination must do so on or before the date specified in the determination'. However, the debt is not immediately enforceable. Rather, by CCA s 43, the leave of the Court is required:

Determinations may be enforced as judgments

(1) In this section -

court of competent jurisdiction, in relation to a determination, means a court with jurisdiction to deal with a claim for the recovery of a debt of the same amount as the amount that is payable under the determination.

(2) 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, and if such leave is given, judgment may be entered in terms of the determination.

14 It is common ground that Doric did not obtain the leave of a court pursuant to CCA s 43(2) to enforce the Determinations the subject of the Statutory Demand.

15 On the basis of what was argued before me, six issues arise for determination:

• Can a determination under the CCA be enforced by way of statutory demand without the party issuing the demand first being granted leave to enforce the determination under CCA s 43(2)?
• Is there a 'genuine dispute' pursuant to CA s 459H(1)(a) as to the existence of the debt because of Kellogg's contention that the claims giving rise to the Determinations creating the debt have no merit?
• Is there a 'genuine dispute' as to the existence of the debt because of Kellogg's contention that the Determinations creating the debt are invalid?
• Is there 'some other reason' to set aside the statutory demand pursuant to CA s 459J(1)(b)?
• Should Doric be restrained from relying on the statutory demand process on the ground that it is abusing this process?
• What final orders are appropriate?

Is leave required to enforce a determination by way of statutory demand? Leave to enforce - position of the parties

16 Kellogg asserts that Doric was required to obtain the leave of the Court pursuant to CCA s 43(2) before issuing a statutory demand. It says that the consequence of Doric's failure to do so is that the statutory demand should be set aside as being defective as Kellogg will suffer substantial injustice unless this occurs: CA s 459J(1)(a). It also relies on the failure to obtain leave as constituting part of the basis for the Court to conclude that Doric has abused the statutory demand process.

17 Doric submits that no leave is required. In essence, its submission is that a determination under the CCA creates a debt that is immediately due and payable, which, like any other debt which is immediately due and payable, may be the subject of a statutory demand without first being made the subject of a judgment of the court.

Leave to enforce - decision in Diploma Constructions

18 The course of obtaining leave pursuant to CCA s 43(2) was undertaken by the party who issued the statutory demand the subject of the recent decision of the Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91. Given the extent of the overlap of the issues with the present case, it is appropriate for me to review that decision in some detail.

19 KPA was engaged to provide architectural services to Diploma (there was a novation from an earlier client to Diploma which I need not consider). KPA issued a series of invoices to Diploma which were not paid, giving rise to a payment dispute under the CCA. In December 2012 an adjudicator made a determination that Diploma pay KPA the sum of $136,145.70. In January 2013 KPA issued a further series of invoices to Diploma, which again were not paid. This payment dispute was also referred to an adjudicator, who in May 2013 made a determination that Diploma was required to pay some, but not all, of the invoices, in an amount totalling $368,399.59. KPA applied for, and in July 2013 was granted, leave by the District Court to enforce the two determinations, totalling $504,545.29. Diploma did not pay this amount. In August 2013 KPA issued a statutory demand in respect of the judgment amount for which leave was granted in the District Court. On 28 August 2013 Diploma applied to set aside the statutory demand.

20 Whilst the CCA process was in train, in February 2013 Diploma had issued a District Court writ against KPA claiming damages for negligence in the performance of its architectural services. On 28 August 2013 (that is, the date on which it applied to set aside the statutory demand) Diploma filed a substituted statement of claim in this action. Among other causes of action, Diploma pleaded that KPA was negligent in performing architectural services and had failed to perform the architectural services to the reasonable satisfaction of Diploma. The only particularised and quantified loss was in the amount of $287,905, with the reservation that full particulars would be provided prior to trial. In the statement of claim, Diploma also challenged the entitlement of KPA to rely on the two CCA determinations.

21 The affidavit filed on behalf of Diploma with its application to set aside the statutory demand identified four grounds:

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

(b) that Diploma had an 'offsetting claim' in the District Court, totalling an amount in excess of $1 million;

(c) that the statutory demand contained defects; and

(d) that KPA 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.

22 The master dismissed Diploma's application to set aside the statutory demand on the basis that the 'genuine dispute' and 'offsetting claim' provisions in the statutory demand regime were not available in relation to a debt arising from an adjudication under the CCA: Diploma Construction (WA) v KPA Architects Pty Ltd [2013] WASC 407 [16] ‑ [17]. The master observed that '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' [17].

23 Diploma's appeal to the Court of Appeal was dismissed. Justice Pullin (with whom Newnes & Murphy JJA agreed) found that the master did not err in finding that there was no genuine dispute [66], nor in finding that there was no genuine offsetting claim [81]. Justice Pullin also held that there was no 'other reason' to set aside the statutory demand pursuant to CA s 459J(1)(b)[84].

24 On the issue of whether Doric was required to obtain the leave of the Court pursuant to CCA s 43(2) before issuing a statutory demand, in oral argument before me, counsel disagreed over the interpretation to be placed on certain comments made by Pullin JA. In order to resolve the issue, it is appropriate that I quote the relevant passage in full [55] ‑ [59]:

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].

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).

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).

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 ... 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.

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]. (emphasis added)

25 Counsel for Kellogg argued that the passages which I have underlined ought to be read conjunctively, requiring a determination to be the subject of a judgment pursuant to leave being given under CCA s 43(2) before giving rise to a debt which may be enforced using the statutory demand regime. Counsel for Doric submitted that the passages ought to be read disjunctively, permitting the beneficiary of the determination to enforce either the determination or the judgment. On this interpretation, CCA s 43(2) is viewed as an enabling provision which empowers the beneficiary of the determination to access the enforcement regime available to enforce judgments of a court, primarily the Civil Judgments Enforcement Act 2004 (WA) (CJEA).

26 In my view, there is no ambiguity in the passages quote from Pullin JA. In particular, the use of inverted commas around the word 'enforce' in Diploma Constructions [57] clearly conveys the meaning that the use of a statutory demand is a means to 'enforce' a determination pursuant to CCA s 43(2). The reference by his Honour to the decision in Georgiou Building Pty Ltd v Perrinepod Pty Ltd [2012] WASC 72 confirms this view:

There are several cases where a creditor has issued a statutory demand on the basis of a judgment following adjudication under the Act. On the basis of those authorities, there does not appear to be any doubt that a person who has entered judgment pursuant to the Act has standing to bring an application as a creditor: Plus 55 Village Management Pty Ltd v Parisi Homes Pty Ltd [2005] NSWSC 559 [11] - [12]; Reed Construction (Qld) Pty Ltd v Dellsun Pty Ltd [2009] QSC 263; [2010] 2 Qd R 481; Property Builders Pty Ltd v Carlamax Properties Pty Ltd [2011] NSWSC 1068. In my opinion, that conclusion must follow from the structure of the Act - in particular, from the limited right of review of an adjudicator's determination, and the ability enforce the determination as a judgment of the court. The judgment may be provisional in the sense described above, but there is a debt, and payment of it is due. Further, the judgment creditor is not a contingent creditor (see the explanation of that term in Community Development Pty Ltd v Engwirda Construction Co [1969] HCA 47; (1969) 120 CLR 455). And it is not a prospective creditor, as the judgment debt is presently due and liable to be enforced.

In my opinion, the plaintiff is a creditor for the purposes of s 475P ... [32] ‑ [33].

27 Counsel for Doric did not direct me to a case in which a determination under the CCA, which was not the subject of leave to enforce, was able to be enforced by way of a statutory demand.

28 I am thus of the view that the decision in Diploma Constructions establishes that a determination under the CCA may not be enforced by way of the issue of a statutory demand unless the party seeking to enforce the determination has first obtained the leave of a court pursuant to CCA s 43(2).

Leave to enforce - relevance of judicial review proceedings

29 The conclusion in [28] is reinforced by the approach taken by the court to the application of CCA s 43(2) where the party seeking to resist payment has applied for judicial review of the determination. The exercise of powers by an adjudicator under the CCA is amenable to judicial review: Perrinepod Pty Ltd v Georgiou Building Pty Ltd [2011] WASCA 217; (2011) 43 WAR 319 [1] (Martin CJ), [7] ‑ [8] (McLure P); [92], [95] (Murphy JA); Re Graham Anstee‑Brook; Ex parte Karaka Mining Ltd [No 2] [2013] WASC 59 [5] (Le Miere J).

30 In determining whether to grant leave to enforce a determination pursuant to CCA s 43(2), the Court may consider whether the adjudicator's decision would be open to successful judicial review. In Perrinepod, Murphy JA observed:

On the other hand, if the adjudicator proceeds to make a determination, he or she must give reasons for the determination (s 36). That determination can then be challenged by judicial review on the ground of jurisdictional error, or at the point at which application is made to enforce the determination by a court of competent jurisdiction, under s 43, again on the basis that the determination exceeded the jurisdiction of the adjudicator and therefore was not a 'determination' at all [92].

The Chief Justice agreed with Murphy JA [1]. President McLure agreed in the outcome, but did not address the issue of CCA s 43.

31 In a number of decisions, the court has considered whether an adjudicator's decision would be open to successful judicial review in the context of determining whether to grant leave to enforce a determination: Thiess Pty Ltd v MCC Mining (Western Australia) Pty Ltd [2011] WASC 80 [27] ‑ [29] (Corboy J); Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd [2012] WASC 304 [47] ‑ [49] (Pritchard J); RNR Contracting Pty Ltd v Highway Constructions Pty Ltd [2013] WASC 423 [15] (Master Sanderson); Witham v Raminea Pty Ltd [2012] WADC 1 [8], [25] ‑ [26], [50], [69] ‑ [70] (Commissioner Gething); State Side Electrical Services Pty Ltd v WA Commercial Constructions Pty Ltd [No 2] [2012] WADC 60 [10] (Commissioner Gething); Michael Ebbott t/as South Coast Scaffolding and Rigging Services v Hire Access Pty Ltd [2012] WADC 66 [17] ‑ [18] (Commissioner Gething). The principles which emerge from these cases are that:

(a) in the context of the CCA, prima facie a party who has the benefit of a determination is entitled to enforce it;

(b) the existence of an arguable case that a determination is invalid and liable to be declared to be so, or to be set aside in the exercise of prerogative relief, would be a reason for refusing the grant of leave to enforce a determination;

(c) the reason in (b) is not necessarily the only reason why leave might be refused; and

(d) what will be a sufficient reason for refusing leave to enforce a determination will depend on a consideration of all of the relevant circumstances, and must be assessed bearing in mind the scheme and policy of the CCA.

32 In Thiess, Corboy J stated that 'it is not possible to further refine the approach to an application under s 43 by defining more precisely the kind of reason that would justify refusing to grant leave' [29]. His Honour went on to say:

There is a risk of distorting the intended application of s 43 CC Act if an unduly adjectival description of the quality of the reason required to refuse leave is adopted. I think that the most that can be said at a general level is that:

(a) With a limited exception, the determination is final on the question of the liability of a party to immediately pay the amount that is the subject of the payment dispute. Section 39 CC Act requires a party to pay an amount determined by the adjudicator. A party will seek leave under s 43 where the party liable under the determination has failed to discharge the statutory obligation imposed by s 39. Consequently, the scheme of the CC Act [is] ... that prima facie, a party who has the benefit of a determination is entitled to enforce it. That is particularly so under the CC Act, given its policy of maintaining cash flow to the parties during the performance of a construction contract.

(b) Nevertheless, the Act requires the court to oversee the entry of judgment by imposing the requirement for leave. The grant of leave gives the plaintiff access to the court's processes for enforcing its orders. Further, judgment may have significant effects on the commercial interests of the defendant within the construction industry and in many instances, the reason advanced by the defendant as to why leave should not be granted will be directed to the validity of the determination.

(c) Consequently, there must be a sufficient reason for declining to grant leave under s 43 having regard to the scheme and policy of the CC Act. What will be a sufficient reason will, of course, depend on a consideration of all of the relevant circumstances [29].

33 It follows that in the present case, had Doric sought the leave of a court to enforce the Determinations, Kellogg could have raised the concerns set out in its judicial review application (see [65] below), and the court could have had regard to them in considering whether to grant leave to enforce.

34 As I observed in State Side Electrical [24], where the CCA s 43(2) application is brought separately from the judicial review application there is a risk that:

(a) the judicial officer hearing the CCA s 43(2) application forms the view that the jurisdictional error issues have no basis, and grants leave to enforce the determination;

(b) pursuant to (a) the amount of the determination is paid out (under threat of statutory demand or enforcement action); and

(c) subsequently, the judicial officer hearing the judicial review application forms the view that the jurisdictional error issues were made out, and that the determination was therefore not a 'determination' for the purposes of CCA s 43(2).

35 Perhaps in response to this risk, in a number of recent cases the issue of whether leave to enforce should be granted pursuant to CCA s 43(2) has been dealt with at the same time as the judicial review determination: Cape Range; Zurich Bay Holdings Pty Ltd v Brookfield Multiplex Engineering and Infrastructure Pty Ltd [2014] WASC 39; Zurich Bay Holdings Pty Ltd v Brookfield Multiplex Engineering and Infrastructure Pty Ltd [2014] WASC 40.

36 In relation to the impact of the judicial review process on the purposes of the CCA, in Red Ink Homes Pty Ltd v Court [2014] WASC 52, Kenneth Martin J observed:

The three adjudication determinations are seriously flawed by jurisdictional errors in respects now identified.

Notwithstanding the acknowledged policy of the CC Act to keep money flowing to contractors and subcontractors and the acknowledged informality and triage character of the protective processes as set down by the CC Act, there is ultimately a line that must not be crossed. What transpired here by three determinations is simply not capable of being brushed over - no matter how low a threshold for curial review and intervention is set. The errors as identified are simply too grave and fundamental not to require this court's intervention to quash.

Moreover, there is no basis to refuse certiorari on a discretionary basis. To turn a blind eye to such serious underlying jurisdictional errors as are now identified would be an abrogation of judicial responsibility towards upholding a society governed by laws rather than by arbitrary inclinations. ... Parliament would not have intended an adjudicator to express himself or herself with the same degree of legal precision as a court when examining the terms of a contract or applying the requirements of the CC Act. But that was not an invitation towards an acceptance of arbitrary or irrational decisions. There presents a point where demonstrated jurisdictional error is so manifest a court simply must intervene to quash [142] - [144].

37 Justice Corboy's comments in Thiess about the role of the 'court to oversee the entry of judgment by imposing the requirement for leave' (quoted above [32]) are to like effect. These observations support the view that the ability of the beneficiary of a determination under the CCA to access the statutory demand regime ought to be subject to the oversight of the court in the grant of leave to enforce in the same manner as access to the regime in the CJEA.

38 The issue then becomes what consequences flow from a failure to obtain leave pursuant to CCA s 43(2) prior to issuing a statutory demand. There are three potential findings which could be made in the statutory demand regime:

(a) a finding that the statutory demand is defective, coupled with an order setting it aside pursuant to CA s 459J(1)(a); or

(b) a finding that there is 'some other reason' not to enforce the statutory demand pursuant to CA s 459J(1)(b); and/or

(c) an order restraining Doric from using the statutory demand procedure on the ground of an abuse of process.

39 I do not consider that a finding that the statutory demand is defective is the appropriate means. The Statutory Demand is valid on its face. The reason for not enforcing it comes from a source external to the Statutory Demand, namely non‑compliance with CCA s 43(2).

40 CA s 459J(1)(b) empowers the court to set aside a statutory demand if there is 'some other reason' why it should be set aside. The reference in s 459J(1)(b) to 'some other reason' is a reference to a reason not otherwise indicated by the CA (for example in CA s 459H) as a ground to set aside a demand: Kisimul Holdings Pty Ltd v Clear Position Pty Ltd [2014] NSWSC 338 [98] (Stevenson J); Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392 [27] (Barrett J). It creates a remedial jurisdiction: Saferack [28]. It will be 'rarely employed, but when employed, it will be for the purpose of meeting the demand of justice': Diploma Constructions [83]; Durkan v Sandbank Holdings Pty Ltd [2008] WASCA 249 [11] ‑ [12]; Eumina Investments Pty Ltd v Westpac Banking Corp [1998] FCA 824; (1998) 84 FCR 454, 458 ‑ 459 (Emmett J). It contemplates 'a discretion of broad compass which extends to conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice': Saferack [28]; Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3; (2005) 157 ACTR 22 [27] (Crispin P, Gray & Marshall JJ). The discretion in CA s 459J(1)(b), unlike that in s 459J(1)(a), may be exercised in favour of the recipient of the demand even without showing that substantial injustice would otherwise be caused: Eumina (459).

41 There is authority to the effect that the discretion in s 459J(1)(b) is limited to issues linked to the policy behind CA pt 5.4. In Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd [1996] NSWSC 199; (1996) 20 ACSR 746, 757, Bryson J stated that the discretionary power under CA s 459J(1)(b) should not be activated 'unless the decision to do so is supported by some sound or positive ground or good reason which is relevant to the purposes for which the power exists'. This formulation has been adopted in subsequent cases, for example: Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229 [59] (Young CJ in Eq); Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531 [162] (Ward J). Put slightly differently, there will be 'some other reason' to set aside a statutory demand 'whenever there is a need to counter some attempted subversion of the statutory scheme': Saferack [33]; Kisimul Holdings [99]. The 'essence' of the legislative intent of CA pt 5.4 'is to be found in the proposition that a winding‑up application is not to be used for the improper purpose of compelling a solvent company to pay a disputed debt': Meehan [47] (Santow J, with whom Tobias J agreed & Young CJ in Eq generally agreed); Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] Vic Rp 61; [1994] 2 VR 290, 294 ‑ 295. In Meehan, Young CJ in Eq commented that 'it is not possible to set out fully the cases that might fall within s 459J(1)(b) nor if it were possible would it be wise to do so' [60].

42 Counsel for Doric referred to a line of authority expressing the test under CA s 459J(1)(b) in slightly narrower terms, limiting it to defects 'relating to, but not in, the demand': Meehan [58]; Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11, 17 (Austin J); Food Channel Network Pty Ltd v Television Food Network GP [2010] FCA 403 [23] (Logan J); Fitness First Australia [162] (Ward J). However, this is narrower than the formulation adopted by Pullin JA in Diploma Constructions, which it is appropriate that I adopt.

43 In my view, in the particular context of the CCA, the failure of the party serving the statutory demand to comply with the process in CCA s 43(2) and obtain leave to enforce the determination the subject of the demand constitutes 'some other reason' for setting aside the statutory demand. This is a reason not otherwise indicated by the CA. It is not in the interests of justice for Doric to be able to enforce a determination by way of statutory demand in breach of CCA s 43(2). Kellogg is a demonstrably solvent company (see [85] below). The failure to comply with CCA s 43(2) means that the statutory demand procedure is being improperly used for the purpose of compelling a solvent company to pay a disputed debt.

44 The court retains the residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of abuse of process: David Grant & Co Pty Ltd v Westpac Banking Corp [1995] HCA 43; (1995) 184 CLR 265, 279 (Gummow J, with whom Brennan CJ, Dawson, Gaudron & McHugh JJ agreed); Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [49] (Martin CJ, Owen & Miller JJA agreeing).

45 I am satisfied that Doric has abused the statutory demand process by using it to enforce a determination under the CCA without first having the leave of the court to do so pursuant to CCA s 43(2).

Is there a 'genuine dispute' pursuant to CA s 459H(1)(a) as to the existence of the debt because of Kellogg's contention that the claims giving rise to the Determination creating the debt have no merit?

46 In case I am wrong in concluding that a determination pursuant to the CCA may only be enforced by way of statutory demand with the leave of a court pursuant to CCA s 43(2), it is appropriate that I consider the alternate arguments raised by Kellogg.

47 It is important at the outset to identify the two levels of dispute between Kellogg and Doric. What I will term the 'primary dispute' is whether or not Doric incurred expenses which it paid as a result of the poor performance or non-performance by Kellogg of the Contract, and if so, what amount of expense has been incurred (I have deliberately phrased this dispute based on the Statutory Demand extracted at [5], and so as not to use the words 'loss and damage' which presupposes a particular outcome). The primary dispute was the subject of the Determinations.

48 What I will term the 'secondary dispute' is whether or not the Determination creating the debt the subject of the statutory demand is invalid because it was made by the adjudicator acting in jurisdictional error.

49 Kellogg submits that there is a genuine dispute about the existence of the debt relied on as the basis of the statutory demand because:

(a) the claims giving rise to the Determination have no merit; and

(b) there is a genuine dispute about the amount of the alleged debt.

50 Using my terminology, Kellogg asserts that the primary dispute constitutes a 'genuine dispute' for the purposes of CA s 459H(1)(a).

51 The principles which the court must apply in determining whether to set aside a statutory demand on the basis of a genuine dispute were conveniently summarised by Murphy JA, with whom Buss JA agreed, in Central City [9] ‑ [14]:

The expression 'genuine dispute', within the meaning of s 459H(1)(a) of the Act, connotes a plausible contention requiring investigation: Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 [44]. The demand will be set aside if there is a bona fide disputed issue of fact or law, which is not based on spurious, hypothetical, illusory or misconceived grounds: Createc v Design Signs [45]; Asian Century Holdings Inc v Fleuris Pty Ltd [2000] WASCA 59 [35]. Once such a dispute is raised, it is not necessary for a company to satisfy the court as to where the merits of the dispute lie: Turner Corporation (WA) Pty Ltd v Blackburne & Dixon Pty Ltd [1999] WASCA 294 [30]. The court will not attempt to weigh or examine the merits of any dispute: Createc v Design Signs [46]; Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] Vic Rp 61; [1994] 2 VR 290, 295.

Any claim by the company in dispute of the debt must be one which is 'genuinely believed [by the company] to exist': John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250, 253.

This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit, however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent or inherently improbable in itself: Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785, 787; Createc v Design Signs [4]. Nor does it require the acceptance of a 'patently feeble legal argument' or 'matters of fact unsupported by evidence': Eyota v Hanave (787); Jarpab Pty Ltd v Winter t/as Boldon Haulage (1994) 14 ACSR 255, 261.

In that context, Lockhart J said, in Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37, 39:

'The notion of a "genuine dispute" ... suggests to me that the Court must be satisfied that there is a dispute that is not plainly vexatious or frivolous. It must be satisfied that there is a claim that may have some substance. On the other hand the Court must be careful, because if all an applicant has to do is to assert both a claim and some basis for it, without more, it would mean in almost every case that the court would set aside statutory demands where application is made to that effect. Plainly that is not what the legislature intended by introducing this new regime.'

Similarly, in Rohalo Pharmaceutical Pty Ltd v R P Scherer SpA & Pharmagel SpA [1994] FCA 875; (1994) 15 ACSR 347, 353, Lindgren J said:

'Paragraph (a) of subs 459H (1) and the definition of "admitted amount" in subs 459H (5) both refer to the existence of a "genuine dispute", and the definition of "offsetting claim" in subs 459H (5) refers to the existence of a "genuine claim". Plainly, the intention is to refer to something more than the mere "raising" of a dispute and the mere "making" of a claim. The provisions assume that the dispute and offsetting claim have an "objective" existence the genuineness of which is capable of being assessed. The word "genuine" is included to sound a note of warning that the propounding of spurious disputes and claims is to be expected but must be excluded from consideration.'

The dispute must exist at the time of the hearing of the application to set aside a statutory demand, and not at some other time: Mibor Investments Pty Ltd v Commonwealth Bank of Australia (293). Likewise, the amount of any offsetting claim is to be considered as at the time the court is determining an application under s 459G, not as at the date of demand: Equuscorp Pty Ltd v Perpetual Trustees WA Ltd[1997] FCA 1366; (1997) 25 ACSR 675, 697.

52 In summary terms, for a dispute to be genuine, it must be bona fide, and not spurious, hypothetical, illusory or misconceived: Diploma Constructions [52].

53 In Diploma Constructions Diploma asserted that a genuine dispute arose because it disputed the debt the subject of the statutory demand as being due and payable, as detailed in the statement of claim in the District Court action. Justice Pullin rejected this argument.

54 Justice Pullin followed the decision of the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473. In that case, the Deputy Commissioner of Taxation had issued default assessments against the respondent taxpayers 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 Taxation Administration Act 1953 (Cth) pt IVC. Prior to the Tribunal reviewing the Deputy Commissioner's decision, the Deputy Commissioner issued statutory demands for the allegedly unpaid taxes. The respondents sought to set aside the statutory demands on the ground that there was either a genuine dispute pursuant to CA s 459H(1)(a) or some other reason to do so pursuant to CA s 459J(1)(b). They were successful at first instance and on appeal to the Queensland Court of Appeal. The High Court (Gummow ACJ, Heydon, Crennan & Kiefel JJ, with whom Kirby J agreed) held that that the existence of proceedings under Taxation Administration Act pt IVC did not give rise to a 'genuine dispute' as to the amount or existence of a debt for the purposes of CA s 459H(1)(a) [22], [49]. Nor was it a ground that could be relied upon to set aside the statutory demand for some other reason pursuant to CA s 459J(1)(b) [62].

55 The position adopted by the Deputy Commissioner was that:

[F]or the purposes of par (a) of s 459H(1), the existence of a proceeding for review by the AAT or an 'appeal' to the Federal Court under Pt IVC of the Administration Act respecting the disallowance of an objection, even one in which the taxpayer has a reasonably arguable case, does not give rise to a 'genuine dispute' as to the existence or amount of a debt, the subject of a statutory demand, where a notice attracting the conclusive evidence provisions of the taxation legislation is tendered by the Commissioner in the s 459G proceeding to set aside the statutory demand [22].

56 The plurality referred to two key aspects of the taxation legislation (it is sufficient for present purposes to only refer to the relevant provisions for income tax). The first was Income Tax Assessment Act 1936 (Cth) s 177(1) which provides that, with respect to income tax, the production of a notice of assessment shall be conclusive evidence of the due making of the assessment and, except in pt IVC proceedings, shall be conclusive evidence 'that the amount and all the particulars of the assessment are correct' [26]. The second is the pendency of the AAT proceedings under Taxation Administration Act pt IVC does not impede recovery in the meantime [29]. In particular, Taxation Administration Act s 14ZZM provides:

The fact that a review [by the AAT] is pending in relation to a taxation decision does not in the meantime interfere with, or affect, the decision and any tax, additional tax or other amount may be recovered as if no review were pending.

A 'taxation decision' is 'the assessment, determination, notice or decision against which a taxation objection may be, or has been, made' (s 14ZQ). There was also a provision with corresponding operation with respect to pending Federal Court appeals (s 14ZZR).

It is true that s 459G provides for curial decisions to set aside statutory demands and that grants of jurisdiction to superior courts such as the Federal Court and the Supreme Courts are not to be construed with limitations without sufficient reason to do so ... But the provisions of the taxation legislation, with an eye to which the statutory demand provisions clearly were drawn ... and, in particular ... s 14ZZM (as to pending AAT reviews) and s 14ZZR (as to pending Federal Court 'appeals'), supply sufficient reason for construing the statutory demand provisions as the Commissioner contends [49].

58 In Diploma Constructions, Pullin JA observed of the decision in Broadbeach Properties:

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'.

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'.

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 ... [60] ‑ [62].

59 Applying this principle to the present case, it is clear that the primary dispute cannot be the subject of a 'genuine dispute' for the purposes of CA s 459H(1)(a). As with the taxation context considered in Broadbeach Properties, the CCA makes it clear that a determination is binding and must be paid, notwithstanding that the parties are engaged in, or propose to engage in, other proceedings in relation to the primary dispute: CCA s 38, s39(1). In particular, CCA s 38 provides:

1. Determinations have effect despite other proceedings

An appointed adjudicator's determination is binding on the parties to the construction contract under which the payment dispute concerned arose even though other proceedings relating to the payment dispute have been commenced before an arbitrator or other person or a court or other body.

60 If required in the subsequent proceedings in relation to the primary dispute, CCA s 45 provides that the court or arbitrator may make adjustments based on the amounts paid in a determination:

(1) This Part does not prevent a party to a construction contract 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.

(2) If other such proceedings are instituted in relation to a payment dispute that is being adjudicated under this Part, the adjudication is to proceed despite those proceedings unless all of the parties, in writing, require the appointed adjudicator to discontinue the adjudication.

(3) Evidence of anything said or done in an adjudication is not admissible before an arbitrator or other person or a court or other body, except for the purposes of an application made under section 29(3) or an appeal made under section 46.

(4) An arbitrator or other person or a court or other body dealing with a matter arising under a construction contract -

(a) must, in making any award, judgment or order, allow for any amount that has been or is to be paid to a party under a determination of a payment dispute arising under the contract; and

(b) may make orders for the restitution of any amount so paid, and any other appropriate orders as to such a determination.

61 Accordingly, I find that the primary dispute between Doric and Kellogg is not capable of amounting to a 'genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates' for the purposes of CA s 459H(1)(a). This is because the statutory debt created by the CCA remains due and payable notwithstanding the existence of the primary dispute. I do not therefore need to consider the merits of Kellogg's position in relation to the primary dispute.

Is there a 'genuine dispute' as to the existence of the debt because of Kellogg's contention that the Determination creating the debt is invalid?

62 This issue relates to what I have termed the secondary dispute. As I have set out above, the exercise of powers by an adjudicator under the CCA is amenable to judicial review: Perrinepod [1], [7] ‑ [8], [92], [95]; Re Graham Anstee‑Brook [5]. The effect of a finding on a judicial review application that the adjudicator acted beyond his or her powers is to render the determination invalid: Cape Range [30] ‑ [31]. It would follow that the statutory debt created by a determination, the subject of the statutory demand, would also be invalid.

63 As I have set out above, it is only necessary for me to consider this argument if I am wrong in concluding that a determination pursuant to the CCA may only be enforced by way of statutory demand with the leave of the court pursuant to CCA s 43(2). The position I am considering is thus where a statutory demand is based on a debt created by way of a determination under the CCA without the beneficiary of the determination having obtained leave to enforce pursuant to CCA s 43(2).

64 The interaction of the statutory demand regime and the CCA regime in relation to a secondary dispute was only touched on by Pullin JA in Diploma Constructions. It arose because Diploma sought a declaration in the District Court proceedings on the primary dispute in that case that the amounts the subject of the determinations were not due and payable [27] ‑ [28]. Justice Pullin concluded:

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 [62].

His Honour did not consider the position in which the determination was challenged by way of judicial review.

65 In the present case, Kellogg's application for judicial review is in evidence before me. The grounds of review are as follows:

The grounds for the above application are these -

The Respondent acted outside the scope of the jurisdiction conferred on him by the Construction Contracts Act 2004 (WA) (the Act), in purporting to make the Determination by:

1. determining that the claims purportedly referred to him were payment disputes arising under a construction contract, within the meaning of s.25 of the Act; in that the claims were not of an amount claimed in payment claims that were due to be paid under the contract by the Applicant, within the meaning of s.6 of the Act.

1. The amounts claimed were not due to be paid under the contract in that the Applicant had and has no obligation arising from any term of the contract to make such payments.

1. determining that the claims purportedly referred to him were payment disputes arising under a construction contract, within the meaning of s.25 of the Act; in that the claims were not of an amount claimed in payment claims that were due to be paid under the contract by the Applicant, by reason of a term implied in the contract by operation of the Act, within the meaning of s.6 of the Act.

1. The amounts claimed were not due to be paid under the contract in that the Applicant had and has no obligation arising from any term implied in the contract by operation of the Act to make such payments.

1. determining that the claims purportedly referred to him were payment disputes arising under a construction contract, within the meaning of s.25 of the Act; in that, in terms of s.3 (which defines payment claim) the claims were not made under a construction contract.

1. The claims was not made under the contract in that amounts claimed were not due to be paid under the contract in that the Applicant had and has no obligation arising from any term of the contract to make such payments.

1. determining that the claims purportedly referred to him were payment disputes arising under a construction contract, within the meaning of s.25 of the Act; in that, in terms of s.16, the claims were not payment claims, within the meaning of s.6 of the Act.

1. The claims were not payment claims within the meaning of the Act as they did not describe the basis for the claims in sufficient detail for the Applicant to assess the claims as required by Schedule 1 Division 4, clause 5(2)(g) of the Act.

1. determining that the claims purportedly referred to him were able to be determined by reason of s.31(2) of the Act; in that the matter was too complex to be fairly determined

1. The applications were too complex to be fairly determined having regard to the matters set out in the Applicant's Adjudication Response.

66 I am of the view that this application is bona fide, and is not spurious, hypothetical, illusory or misconceived. Given that the substantive hearing of Kellogg's judicial review application is imminent, it is both appropriate and sufficient for me to refer only to two reasons for coming to this conclusion. The first is that Doric's use of the CCA procedure does not fit comfortably with the broad purpose of the CCA. In Diploma Constructions, Pullin JA stated that 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' [55]. Here it is Doric, the principal under the Contract, who is seeking payment from Kellogg, the contractor. Moreover, it is arguable that Doric's claim is a claim in damages for non‑performance or defective performance of the Contract, rather than 'payment dispute' under the CCA. This term is defined in CCA s 6(a) to arise (so far as is relevant) if 'by the time the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed' (emphasis added). Only a 'payment dispute' may be referred to an adjudicator: CCA s 25. Second, CCA s 25 goes on to provide that it is only a payment dispute which 'arises under a construction contract' that may be referred to an adjudicator. The CCA does not envisage adjudication of a claim 'under a construction contract' where the relevant contract is at an end: K & J Burns Electrical Pty Ltd v GRD Group (NT) Pty Ltd [2011] NTCA 1 [57] (Southwood J); DPD Pty Ltd v McHenry [2012] WASC 140 [45] (McKechnie J). It is at least arguable that the claims the subject of the Determinations arose after the Contract came to an end. On the evidence before me, construction of the buildings the subject of the Contract was completed in July 2013. The final invoice under the Contract was issued on 24 July 2013 and was paid in full. The claims the subject of the Determinations were not issued until October 2013.

67 The issue in the present case is whether the statutory debt created by the CCA can be the subject of a 'genuine dispute' within CA s 459H(1)(a) by reason of the secondary dispute. More specifically, the issue is whether the reasoning in Broadbeach Properties is applicable by way of analogy. Justice Pullin held that the reasoning in Broadbeach Properties was analogous in relation to the primary dispute and the statutory debt created by the CCA. The question for present purposes is whether the reasoning continues to be analogous to the secondary dispute or whether the statutory regime in the CCA, and how it has been applied, imposes a limit on the applicability of the reasoning in Broadbeach Properties.

68 There are four factors suggesting that the reasoning in Broadbeach Properties does not apply to the secondary dispute. The first is that, as Pullin JA acknowledged, the decision in Broadbeach Properties was in part based on the special character given to tax debts [61]. The relevant point of analogy was between the statutory consequences given to an assessment under the Taxation Administration Act and the statutory debt created by CCA. The primary dispute in each case is subsumed into the statutory debt. However, the secondary dispute is a challenge to the existence of the statutory debt itself, a point not considered in Broadbeach Properties.

69 The second is the regime in the CCA. As I have set out above, the regime in the CCA makes it clear that the beneficiary of a determination is entitled to prompt payment of the determination, notwithstanding both the existence of the primary dispute and the potential for, or actual, litigation involving the primary dispute. However, the case law that I have summarised above at [29] ‑ [37] provides a different consequence for the existence of a secondary dispute. In considering whether to grant leave to enforce pursuant to CCA s 43(2), the court will consider the existence of, and prima facie merits of, a secondary dispute by way of judicial review. By parity of reasoning, a court in considering whether to enforce, or set aside, a statutory demand should also consider the existence, and prima facie merits, of a secondary dispute by way of judicial review.

70 The third is that if I am wrong in concluding that the beneficiary of a determination must obtain leave pursuant to CCA s 43(2) before enforcing a determination by way of statutory demand, then there is no opportunity for the court to perform the oversight role referred to by Corboy J in Thiess and Kenneth Martin J in Red Ink Homes discussed above at [32], [36], [37]. The oversight role would then fall to be exercised in the context of the wide discretions in CA s 459H and s 459J.

71 The fourth is the impact of judicial review on the determination. As I have observed, the effect of a finding on a judicial review application that the adjudicator acted beyond his or her powers is to render the determination invalid and thus also the debt the subject of the statutory demand. In contrast, successful litigation involving the primary dispute does not render the determination and the debt the subject of the statutory demand invalid; it continues to be valid, due and payable, but subject to adjustment following determination of the primary dispute.

72 For these reasons, I am of the view that the reasoning in Broadbeach Properties does not extend to a secondary dispute. Put differently, there is nothing in the regime in the CCA which prevents a court from considering whether the existence of an arguable judicial review application in relation to the CCA determination creating the debt gives rise to a 'genuine dispute' for the purposes of CA s 459H(1)(a).

73 As I have already found at [66], I consider the judicial review application being made by Kellogg to be bona fide, and not spurious, hypothetical, illusory or misconceived. It is sufficient to constitute a 'genuine dispute' for the purposes of CA s 459H(1)(a). Were it necessary to do so, I would have set aside Doric's statutory demand on this basis.

74 The issue that will need to await another occasion is whether the existence of arguable judicial review proceedings constitutes a 'genuine dispute' as to a debt created by a determination for which leave to enforce has been given. In this scenario, if the determination is converted to a judgment, following a leave application at which the court could take into account the existence of a secondary dispute by way of judicial review, then different considerations may apply.

Is there 'some other reason' to set aside the statutory demand?

75 Again, it is only necessary for me to consider this argument if I am wrong in concluding that a determination pursuant to the CCA may only be enforced by way of statutory demand with the leave of a court pursuant to CCA s 43(2).

76 As I have already observed, the power in CA s 459J(1)(b) to set aside a statutory demand if there is 'some other reason', will be 'rarely employed, but when employed, it will be for the purpose of meeting the demand of justice': Diploma Constructions [83]; Durkan [11] ‑ [12]; Eumina (458 ‑ 459).

77 In Broadbeach Properties, the High Court rejected the position taken by the Court of Appeal in that case that the existence of a 'genuine dispute' as to the underlying tax liability may be taken into account as one factor in exercising the discretionary power to set aside a demand under CA s 459J(1): [21], [62]. It saw no need to re-exercise the discretion conferred in CA s 459J(1)(b): [62]. However, consistent with the approach I have set out above, the reasoning of the High Court only applies to a primary dispute under the CCA.

78 Counsel for Doric referred to the decision in Food Channel Network in which Logan J refused to set aside a statutory demand pursuant to CA s 459J(1)(b) on the ground that there was an appeal on foot against the first instance court decision which formed the basis of the debt the subject of the statutory ground. His Honour observed that different considerations may apply if the creditor chose to bring a winding up application:

There is a difference between a refusal to set aside a statutory demand and whether or not the Court would in the event that the creditor was so disposed to bring a winding up application, refuse in the exercise of discretion to make a winding up order. A winding up order involves a change of status for a corporation in the sense that it removes control of the corporation from its directors and hands it to a liquidator for the purpose of winding up the corporation. A statutory demand has a particular deeming effect but does not, in itself, result in a change of status. All it does is equip a creditor, if so disposed, with a ground upon which prima facie it is entitled to a winding up order [20].

79 In my view, these observations would apply to an appeal from what I have described as the primary dispute. For the reasons I have set out above, different considerations apply to a judicial review of a determination under CCA, which is in the nature of a secondary dispute.

80 Consistent with the approach I have taken in relation to the existence of a 'genuine dispute', in my view, the existence of arguable judicial review proceedings in relation to Determinations the subject of the Statutory Demand constitutes 'some other reason' to set aside the Statutory Demand.

81 In the event that I am wrong in concluding that the existence of arguable judicial review proceedings enlivens the discretion in CA s 459J(1)(b), there is yet another basis upon which it may be appropriate to exercise this discretion. In Durkan, a statutory demand issued by the appellant had been set aside at first instance on the basis that the respondent had an offsetting claim. Both the claim and the offsetting claim were the subject of a District Court action. The District Court action was listed for trial less than a month after the date on which the appeal was heard. The court dismissed the appeal on the day on which it was heard on the basis that it was not in the interests of justice for the appeal court to undertake the exercise of determining whether the offsetting claim was genuine so close to the trial of the action. The relevant passage of the reasons of the Court (Pullin, Buss & Miller JJA) is as follows:

For the purpose of determining the appeal, we make the assumption that the appellants' grounds of appeal could be made out. However, if the grounds were made out, this court would have to reconsider the matter and make the decision which should have been made by the acting master. Because this is an appeal by way of rehearing, the court makes that decision based on the situation as it now is. That raises the question as to whether this court should so close to trial, decide whether it was satisfied that the offsetting claim was genuine. It is not in the interests of justice to undertake that exercise when in less than a month (in early December 2008) the District Court is scheduled to hear the District Court Action and determine not merely whether the respondent's claim is genuine but whether the respondent can prove it to the civil standard of proof, after hearing all the evidence the parties wish to lead.

Section 459J(1)(b) of the Corporations Act provides that the court may, by order, set aside the statutory demand if there is some 'other reason' why the demand should be set aside. There is an 'other reason' why this court should set aside the demand. It is the reason already given, namely that it 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 [11] ‑ [12].

82 In Diploma Constructions Pullin JA referred to the decision in Durkan by way of an example of the application of the power in CA s 459J(1)(b), but did not consider it appropriate to exercise that power on the facts then before the Court of Appeal [84].

83 In the present case, in Kellogg's application for judicial review, Justice Chaney made directions on 1 April 2014 listing the application for hearing 'as soon as possible after 4 June 2014'. Were it necessary to do so, I would have also set aside Doric's statutory demand for this 'other reason', adopting the same approach as the Court of Appeal in Durkin.

Should Doric be restrained from relying on the statutory demand process on the ground that it is abusing this process?

84 As I have already stated, the court retains the residual jurisdiction to restrain reliance on the statutory demand procedure on the ground of abuse of process: David Grant (279); Createc [49]. I have already dealt with the argument that Doric should be restrained from relying on the statutory demand on the ground that it is abusing this process by seeking to enforce the Determinations without first having obtained the leave of the court pursuant to CCA s 43(2) (see [45] above).

85 Kellogg further asserts that Doric should be restrained from relying on the statutory demand process on the ground that it is abusing this process on more general grounds. The factual basis for this assertion is set out in Mr Howie's affidavit, and is that:

(a) from the correspondence passing between the parties Doric was aware of the existence of a dispute in relation to the alleged debt to which the Statutory Demand relates and the Determinations relied upon as giving a basis for the alleged debt;

(b) Kellogg has significant cash at bank which is more than sufficient to satisfy the Statutory Demand;

(c) Kellogg is wholly owned by KBR Inc, which is a public company listed on the New York Stock Exchange; and

(d) the publicly available financial information for KBR shows that as at 31 December 2013 KBR held cash and cash equivalents of $1.1 billon.

86 Kellogg submits that the court should infer that Doric cannot genuinely believe that Kellogg has not paid the claim the subject of the Statutory Demand because Kellogg is, or even might be, unable to pay its undisputed debts as and when they fall due. Rather, the court should infer that Doric's purpose in serving the Statutory Demand was not a purpose for which statutory demands are supposed to be used.

87 In Createc, the Chief Justice opined that 'there will be an abuse of process if the purpose of the party issuing the statutory demand is not the purpose of pursuing the statutory demand to wind up the company on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers - such as the application of pressure to compel payment of the disputed debt' [50], relying on Williams v Spautz [1992] HCA 34; (1992) 174 CLR 509 and David Grant (279).

88 The Chief Justice was of the view that Createc had abused the statutory demand process:

There is a further reason why this appeal should be dismissed. That is because the issue of the statutory demand is, and any winding-up application proposed to be brought pursuant to the demand would be, an abuse of process.

There is no suggestion in the evidence that Design Signs is insolvent, or lacked the financial capacity to pay the debt if the debt had not been disputed. To the contrary, the evidence established that finance was available from a bank, which would have provided Design Signs with the capacity to pay the debt had it not disputed its obligation to do so.

The evidence to which I have referred, including in particular the terms of the email from Mr Page to the CEO of Createc on 15 January 2008, compel the conclusion that Createc was at all times aware that there were legal issues which required resolution. The email specifically refers to 'a legal fight'. That knowledge was reinforced by the terms of the letter dated 7 February 2008 from the solicitors for Design Signs. There is a clear and compelling inference that notwithstanding that knowledge, instead of bringing proceedings in a court of competent jurisdiction for recovery of the debt it claimed, Createc issued a statutory demand for the purpose of attempting to avoid that legal dispute, by putting pressure upon Design Signs to pay the debt. It is of course possible that Createc was induced to take this course as a result of flawed legal advice, but even if that were so, it would not be to the point, as Createc must take responsibility for its actions. Createc issued the statutory demand for an improper and collateral purpose of the kind described in Williams v Spautz, giving rise to an abuse of process.

The irony of this conclusion is that, as this case demonstrates, the use of the statutory demand process can be a singularly ineffective way of recovering a disputed debt. The statutory demand was issued by Createc more than a year ago. No doubt Createc has incurred significant legal costs issuing the demand, opposing the application to set aside the demand, and pursuing an appeal from the decision to set aside the demand. It has been ordered to pay Design Sign's costs of the application to set aside the statutory demand, and is likely to be ordered to pay Design Sign's costs of this appeal. It has made no progress whatever in recovery of its debt, and the UVX printer, for which it has not been paid, has remained at Design Sign's premises. If, instead of issuing a statutory demand, it had commenced proceedings against Design Signs in a court of competent jurisdiction, it is likely that those proceedings would either have been resolved, or at least well advanced to resolution by now. This case provides a stark example of the folly involved in attempting to subvert the purpose of the statutory demand process in order to recover a disputed debt [56] ‑ [59].

89 Likewise, in the present case, I am of the view that Doric has sought to abuse the statutory demand process in order to recover a disputed debt. In coming to this conclusion I do not place any weight on the existence of the primary dispute, as this would be contrary to the 'pay now, argue later' system in the CCA: Diploma Constructions [55]; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140 [96] (Palmer J); Peekhurst Pty Ltd v Wallace [2007] QSC 159 [20]. Rather the disputed debt is the statutory debt and the dispute is the secondary dispute. The abuse of process arises because:

(a) prior to serving the Statutory Demand, Kellogg had commenced its judicial review proceeding, which if successful will render the Determinations giving rise to the debt the subject of the Statutory Demand invalid;

(b) Kellogg communicated the reasons for considering that the application was not validly brought under the CCA in some detail to Doric (see pages 195 ‑ 199 of Mr Howie's affidavit);

(c) Doric did not seek the leave of the court to enforce the Determinations, thereby giving Kellogg the opportunity to have the court consider the impact of its judicial review proceeding on any enforcement action (see the authorities at [29] ‑ [37]);

(d) there can be no doubt about Kellogg's ability to pay the amount of the debt;

(e) the inference from (a) to (d) is that Doric did not issue the Statutory Demand for the purpose of pursuing the Statutory Demand to wind up Kellogg on the ground of insolvency, but rather to use the process as a means of obtaining an advantage for which the process is not designed or to obtain some collateral advantage beyond what the law offers, namely the application of pressure to compel payment of the disputed debt; and

(f) Doric has not put on any evidence to counter the inference in (e).

90 Given my finding above at [45] in relation to the failure to seek leave pursuant to CCA s 43(2), these observations lead me to the preliminary view that the appropriate operative order is in the inherent jurisdiction of the court to restrain Doric from enforcing the statutory demand as to do so would constitute an abuse of the processes of the court.

91 I will hear from counsel as to the appropriate orders to give effect to the reasons I have set out above.

92 In its application dated 11 March 2014, Kellogg has sought an order that Doric pay its costs on an indemnity basis. As the Chief Justice observed in Createc [60], in a number of cases in which courts have set aside a statutory demand, the award of indemnity costs has been foreshadowed. His Honour referred to the decisions in Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529, 536 and Drewniak v Air Rubber Pty Ltd [2002] SASC 319 [16]. In Drewniak, Debelle J (with whom Williams J [17] and Duggan J [18] agreed) stated:

In Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529 at 536, Santow J referred to the number of cases in which plaintiffs have successfully applied to set aside a defendant's statutory demand. Noting that insufficient appreciation was evidently being paid to the fundamental and well settled principles that a demand cannot be made on a debt which is genuinely disputed, he noted:

'Sooner or later, courts will have to consider whether indemnity costs should be awarded against the unsuccessful user of a statutory notice to force payment of a genuinely contested debt, simply because those taking out such statutory demands are disregarding that basic principle.'

This case raises the question whether the appellant should pay indemnity or solicitor and client costs. The Master held that there was a genuine dispute. The evidence is quite clear that there was. Costs may be awarded on an indemnity or solicitor and client basis where a party, properly advised, should have known that it had no chance of success: Fountain Selected Meat (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397, a decision which has been consistently followed in this Court. The court therefore warns parties that in the future they may be at risk of an order to pay costs on an indemnity basis or on a solicitor and client basis for pressing statutory demands where a genuine dispute exists. I would not, however, in the particular circumstances of this case, make an order for solicitor and client costs or indemnity costs [16].

93 These observations need to be placed in the context of the general principles governing the award of indemnity costs, as summarised in Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [16] ‑ [32]; and Yara Australia Pty Ltd v Oswal [2012] WASCA 264 [33] (Murphy JA). In Yara Australia, Murphy JA summarised the general principles as follows [33]:

There must be some special or unusual feature of the case to warrant an award of indemnity costs: Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225, 233. The categories of cases in which an indemnity costs order may be made are not closed: Colgate‑Palmolive Co v Cussons (233). In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd [1988] FCA 202; (1988) 81 ALR 397, 401, Woodward J said that indemnity costs were appropriate where the action 'has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success'. As Pullin J observed in Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [25], an order for indemnity costs may be seen as a 'mark of disapproval on the part of the court about the improper or unreasonable conduct of litigation'. It is sufficient to enliven the discretion to award indemnity costs that, for whatever reasons, a party persists in what should on a proper consideration seem to be a hopeless case: Quancorp Pty Ltd v MacDonald [1999] WASCA 101 [6].

94 I will hear from counsel as to how these principles should be applied in the present case given the substantive orders I propose to make.