Project v TQM

COUNSEL : Mr S Colledge for plaintiff Miss V Culkoff for defendant

SOLICITORS : Colin Biggers & Paisley for plaintiff Julie Orsini for defendant

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

6027/2008 Project Venture Development No 11 Pty Limited v TQM Design & Construct Pty Limited

JUDGMENT 1 His Honour: This is an application to set aside a statutory demand served on the plaintiff by the defendant. The statutory demand is dated 4 November 2008 and seeks an amount of $43,258.95. In the schedule to the demand the description of the debt showed that it arose from a judgment entered in the Local Court Downing Centre on 18 August 2008. 2 The parties were involved in a construction contract and the defendant was the builder for the plaintiff developer. 3 The judgment to which the demand relates was one which was obtained in the District Court following an adjudication determination under the Building and Construction Industry Security of Payment Act 1999 (the Act). The adjudication was issued on 1 August 2008 for an amount of $43,114.95. The adjudication was in respect of progress claims and not a final payment. 4 The application is made on the basis that the plaintiff has an offsetting claim substantially exceeding the amount of the judgment. The offsetting claim is based upon a claim for liquidated damages as a result of delayed completion and a claim for rectification costs for works on the property. 5 The liquidated damages claim is a substantial claim that was included in the adjudication application by the plaintiff for an amount of $380,279. The amount liquidated damages for $2,333.50 per day for 163 days. 6 The defendant's answer to the claim was to make an extension of time claim through the superintendent appointed under the construction contract. Extensions of time claims are allowed in the contract for delays resulting from issues such as variations or bad weather. The superintendent's allowed date for practical completion was 12 December 2007. 7 The defendant relied on a report saying it was entitled to further extensions of time extending the date for practical completion to 10 April 2008. In fact completion was obtained on 23 May 2008 and the adjudicator accepted the defendant's application and extended the time to 10 April 2008. He did not vary the date for practical completion. He found liquidated damages for an amount of $100,319. 8 After disputes arose about the work and the plaintiff engaged another company, Intek, to carry out the works necessary to rectify the defective and incomplete work. For example, there are accounts for some of the rectification work for an amount of $140,921.31. The question of defects was raised before the adjudicator and because there was a defect's liability to provide for the rectification of faults or omissions this meant that those matters should be dealt within the defects and liability period and should not be subtracted from the progress claims then made. 9 The material before me demonstrates that in respect of each of these areas of claims the plaintiff has an offsetting claim that is not fictitious or illusory in an amount exceeding the amount of the statutory demand. The defendant does not seriously debate that conclusion. 10 Instead the defendant raises a fundamental objection as to whether these claims, which would normally be resolved in proceedings under the contract pursuant to s 32 of the Act, can be offsetting claims for the purposes of s 459H of the Corporations Act. A claim concerning a defect in an affidavit was abandoned. 11 There is a well-established first instance line of authority that has permitted the setting aside of a statutory demand in the context of the Act where a plaintiff can demonstrate whether a genuine dispute or an offsetting claim under the Corporations Act 2001 (Cth). See Max Cooper & Sons (Builders Pty Ltd v M & E Booth & Sons Pty Ltd [2003] NSWSC 929; Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553 per Campbell J; Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186 per Barrett J; Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284 per Palmer J; and Falgat Construction Pty Ltd v Masterform Pty Ltd [2005] NSWSC 525 per Macready AsJ. 12 Recently in BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982, Brereton J spoke of the current state of the law in these terms: "[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 553at [18]-[20]; and, in particular, in respect of an offsetting claim Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284." 13 The defendant submitted that there is a body of law which is authority for the proposition that where Parliament has evinced a clear intention for the payment of statutory sums of money "forthwith" - under an express statutory regime - the provisions of the Corporations Act relating to offsetting claims cannot operate to circumvent those payments. The "pay now, argue later" philosophy of the Act, which has been echoed in numerous cases, was said to be at the heart of the legislation. The defendants referred to the well known object of the Act set out in s 3 which are (emphasis added): "3 Object of Act (1) The object of this Act is to ensure that any person who undertakes to carry out construction … is entitled to receive, and is able to recover, progress payments ... (2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement … (3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves: … (c) the referral of any disputed claim to an adjudicator for determination, and (d) the payment … so determined." 14 Their submissions continued that consistent with the 'pay now and argue later' philosophy of the Act, sections 15(4), 16(4) and 25(4) prohibit a respondent from bringing a cross claim or raising any defence when the claimant seeks to enforce payment under the Act. The only rights a claimant has once there has been a 'final' adjudication determination and subsequent judgment (as in this case) - are rights preserved under s 32 of the Act. Put another way, the defendant submitted that there is a body of law which is authority for the proposition that rights expressly preserved by s 32 of the Act - which remain in contemplation when the statutory debt is created by the adjudication determination and judgment - require payment 'forthwith' under the Act and thereby cannot operate as an offsetting claim. 15 The cases to which they referred were several first instance decisions and a recent decision of the New South Wales Court of Appeal. The first of these was Blue Hills Village Management (Liverpool) Pty Ltd v Babcock & Brown International Pty Ltd [2009] NSWSC 87, concerning an interim costs order made by the Court, which was payable forthwith. Barrett J held at [20]: "[20] I am of the opinion that, in the particular circumstances of this case, there is no right to set-off the principal claims in the Commercial List proceedings against the separate and immediate obligation to pay the $70,000 payable forthwith. The plaintiff has not made out its case of offsetting claim within s 459H(1)(b)." 16 The case concerned an application under s 459G of the Corporations Act for an order setting aside a statutory demand with respect to an order made by the Court for indemnity costs, which the parties agreed to be in the minimum sum of $70,000. The same parties were involved in significant proceedings in the Supreme Court giving rise to a dispute of more than $15m. It was not in dispute that the plaintiffs' $15m claims were not arguable. 17 The order for interim costs thrown away was made in favour of the defendants and against the plaintiffs, due to the vacation of hearing dates. The order was that such costs were to be payable "forthwith." Following correspondence between the parties, a figure of $70,000 was agreed as a sum owing, due and payable at the time the statutory demand was issued (at [10], see also [7] to [9]). 18 Barrett J rejected the plaintiff's argument that the above was enough to give rise to an offsetting claim and thus an entitlement to an order setting aside the statutory demand pursuant to s 459H of the Corporations Act. His Honour noted the following submission put by the defendant in that case: " [10] On the hearing before me, the present plaintiff conceded that, before the issue of the statutory demand, an agreement had been reached for the payment of $70,000 and that that sum was owing, due and payable at the time the statutory demand was issued and served. The present plaintiff does not accept, however, that, as the present defendants contend, the circumstances in which the agreed sum of $70,000 became so owing, due and payable are such as to put the admittedly genuine and arguable claim in the sum of more than $15 million in the Commercial List proceedings outside the definition of "offsetting claim" in s 459H(5) as it applies in this case. … [15] It must follow, so the submission runs, that the clear indication involving payment of $70,000 "forthwith" and acceptance of the "payment forthwith" proposition precludes, by necessary implication, resort to the principal claims in the Commercial List proceedings by way of set-off." 19 His Honour accepted the above submissions and at [17] held: "I accept Ms Richardson's submissions. The context leaves no room for doubt, in my view, that the $70,000 was to be paid before adjudication of the principal claims in the Commercial List proceedings and regardless of the pendency of those claims and the outcome in those proceedings. That was the reason for separation out of the $70,000 and the requirement for payment forthwith. If the plaintiff's contention about a right of set-off were correct, the $70,000 would not be payable until the determination of the Commercial List proceedings. That would entirely defeat the purpose of both the court's direction as to costs and the parties' agreement based on it." 20 The defendant submitted that the above reasoning is of equal if not greater force to judgments under the Act for the following reasons:

(a) a right to set-off would, as in the above case, "entirely defeat the purpose" of the Act;

(b) just as a determination of the final proceedings in Blue Hills was not intended to undermine the interlocutory order of the court for payment "forthwith" of costs thrown away, it follows that an interim payment of the judgment amount under the Act is also payable forthwith, subject only to the plaintiff's final rights under s 32 of the Act. 21 His Honour's reasoning seems to be predicated on the ability of the parties to agree on the restriction of rights of a set off which normally would apply. He referred for authority to a decision of Austin J in Jem Developments Pty Ltd v Hansen Yuncken Pty Ltd [2006] NSWSC 1308; (2006) 205 FL 432 where his Honour referred to the right and ability of contracting parties to extinguish, curtail or enlarge the ordinary rights of set-off as long as they do so expressly or by clear implication. Unfortunately Barrett J was not referred to the line of authority to which I have referred to above. 22 Reference was made to MRL (Palm Gardens) Pty Ltd v PGRV Pty Ltd [2009] SASC 5 where the South Australian Supreme Court considered the operation of a contractual provision which stated that a determination by an independent expert was "absolute and final and will bind" the parties. The Court held that but for the operation of clause 13 there was no doubt that there would have been a 'genuine dispute' and/or an 'offsetting claim' for the purposes of s 459H of the Corporations Act which would have required any statutory demand based on the debt to be set aside (at [10]). It was not however a case that had to grapple with the Act with which I am concerned. It seems to confirm Austin J's view that parties can contract out of the ability to agree not to allow the offset of a claim. 23 A Queensland decision of Peekhrst Pty Ltd v Wallace & Anor [2007] QSC 159 is more on point. The Court dealt with an application to set aside a statutory demand for debts based on a judgment obtained pursuant to the Building and Construction Industry Payments Act 2004 (Qld). It did so in circumstances where there was no application to set aside the judgment and where there were no proceedings for final relief as permitted under the equivalent s 32 provision under the Queensland Act. The Court also considered a second application for a judicial review of the determination. The plaintiff was unsuccessful on both applications. 24 In dealing with the statutory demand application, the Court noted the following:

"[16] The Act provides what has been described as a "fast track interim progress payment adjudication vehicle"…

[17] … What the legislature has provided for is no more or no less than an interim quick solution to progress payment disputes which solution critically does not determine the parties' rights inter se. Those rights may be determined by curial proceedings, the court then having available to it the usual range of relief, most importantly including the right to a proprietor to claw back progress payments which it had been forced to make through the adjudication determination procedures. That claw back route expressly includes the making of restitution orders.

[18] In the interim, however, an adjudicator's certificate may be filed as a judgment for a debt and may be enforced in a court of competent jurisdiction. Mackenzie J went on to say at [18]: 'Section 31(4) refers to 'proceedings to have the judgment set aside' and what is within the scope of such an application. In particular, no counterclaim can be brought against the claimant; no defence in relation to matters arising under the contract can be raised; and the adjudicator's decision cannot be challenged. The reference to setting the judgment aside and the limitation on what can be raised in such proceedings makes the challenge dependent on the existence of grounds for setting aside a judgment other than those enumerated.' " 25 Having considered the above, his Honour held: "[19] It is against this background that one needs to consider the arguments by Peekhrst that the statutory demand based on the judgment debt Glenzeil obtained should be set aside on the ground that it is an abuse of process. The argument relies upon assertions that there are defects…

[20] If there is validity in such a submission, however, it is my view that it is a topic which can be raised by Peekhrst in subsequent proceedings. It does not seem to me to constitute an abuse of process for Glenzeil to pursue its judgment debt with a statutory demand when it has adopted the procedure available to it under the Act which is designed to achieve swift and early progress payments.

[21] In this case the defects on which Peekhrst relies were not notified until the process was instituted before Mr Wallace. He dealt with them in his reasons. There has been no application to set aside the judgment obtained by Glenzeil, a course available under s 31(4) of the Act, nor had Peekhrst commenced civil proceedings available to it pursuant to s 100 where allowance might be made for any amount paid by it as a consequence of the filing of an adjudication certificate under the Act.

[22] Although recourse to the use of a statutory demand may be oppressive, for example, in the pursuit of a tax debt which is disputed by a tax payer who has objected and is seeking a review of the assessment, it does not seem to me that this regime should necessarily apply to an attempt to rely upon a statutory demand in circumstances such as these. The intention of the Act is clear in seeking to "fast track" progress payments even where it is likely that the parties will continue to dispute the decision made by an adjudicator. Where the party against whom judgment has been given has not sought to set it aside nor commenced civil proceedings pursuant to its rights under s 100 and where, as here, has delayed in identifying and quantifying the alleged defects, it does not seem to me to be an oppressive use of a statutory demand made in reliance upon the judgment obtained under the Act. In my view, it is a different situation from that which applies when the demand is used in support of a tax debt clearly still the subject of a genuine dispute; cf. Re Softex Industries Pty Ltd [2001] QSC 377 and KW & KM Quinn Investments Pty Ltd v DCT [2003] QSC 336 at [4]." 26 Clearly his Honour was not referred to the New South Wales line of authority and the arguments contained therein. 27 This brings me to the New South Wales Court of Appeal decision of Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWSC 69. The case concerned multiple applications to adjudicators raising the same point. McFarland JA (with whom Allsop P and Handley AJA agreed) considered at some length the question of "finality" under the Act. His Honour held at [60]: "[60] These various provisions in my view indicate a legislative intent to render adjudication determinations relevantly conclusive. Such determinations do not conclude contractual rights. Section 32 expressly so provides. The Act however creates special statutory rights to progress payments. When a claim is made, a dispute arises and an adjudication determination resolves that dispute. I consider that determination to be final and binding between the parties as to the issues determined, except to the extent that the Act allows the determination to be revisited. It would in my view be quite contrary to the scheme of the Act to permit claimants simply to resubmit the already adjudicated claims if they were dissatisfied with the adjudication." 28 The defendant submitted that in exactly the same way as a contractual provision can render a "bonus" or an expert decision as final or ranking in priority, or a costs order payable "forthwith" - the Court of Appeal has held that the special statutory rights are "to be final and binding between the parties as to the issues determined, except to the extent that the Act allows the determination to be revisited," under s 32 and on a final basis. The defendant further states that the statutory provisions "indicate a legislative intent to render adjudication determinations relevantly conclusive." 29 Plainly the decision does not expressly deal with the question before me as it concerned the operation of s 22(4) of the Act. The question is whether the approach should be extended into the present situation. What is to be noticed however is the fact that the Corporations Act is a Commonwealth Act. As was stated by Palmer J in Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284: "[10] The decisions are referred to and summarised by Barrett J in Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186. His Honour quotes with approval from the judgment of Campbell J in Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553 as follows: 'It was submitted that, if it were possible to set aside a statutory demand founded on a judgment debt arising from a notice of determination under the BACISOP Act, then that Act would be rendered toothless.

As a first step in the submission, I was reminded that the purpose of Parliament in introducing that legislation was to ensure that, once a quick, and possibly rough, adjudication by a neutral person had taken place, a progress payment in the amount found by the adjudicator should be made to a builder, and that the ultimate correctness of the progress payment being made should be argued afterwards. I was reminded that the BACISOP Act was concerned with maintaining a builder's cashflow, not determining its ultimate rights. I accept, in broad terms, that first step.

Next, it was submitted that, if it were possible to rely upon an offsetting claim to set aside a statutory demand, the object of the BACISOP Act would not be achieved. I do not accept that this is so. There are means of enforcement, short of a winding up action, which are open to a judgment creditor. When a judgment has been obtained pursuant to the BACISOP Act , if the judgment debtor does not pay it voluntarily, then the judgment creditor can use the range of remedies open to a judgment creditor. It is not possible, however, for the terms of a Commonwealth Act, the Corporations Act 2001 (NSW), to be construed, or limited, by reference to the intention implicit in a State Act. The provisions of Div 3 of Pt 5.4 of the Corporations Act 2001 (NSW) set out a regime whereby a statutory demand is set aside whenever there is an offsetting claim, as defined.' [11] As I have observed, in my opinion the rationale underlying those observations is not affected by the circumstance that the ground for setting aside a statutory demand is said to be an offsetting claim rather than a dispute as to whether the debt has been contracted in the first place. It seems to me, with respect, that both Campbell and Barrett JJ are correct in their conclusion that it is not possible for the provisions of the Corporations Act , a Commonwealth statute, to be limited by reference to the provisions of the BACISOP Act , a State Act, and that the question for the Court in an application under s 459G is simply whether, as a matter of fact, a genuine dispute exists.

[12] For those reasons, I am of the opinion that the Plaintiff is not precluded by the provisions of s 15(4) of the BACISOP Act from endeavouring to prove a genuine dispute in order to set aside the Defendant's statutory demand under the provisions of s 459G." 30 These are powerful reasons which have not been considered in the other first instance cases which have gone the other way. In my view they are to be given great weight. In these circumstances I do not think that comity has a place to play and I decline to depart from the views which I expressed in my most recent decision of Falgat Constructions v Masterform [2005] NSWSC 525. 31 I make order 1 in the originating process. 32 I order the defendant to pay the plaintiff's costs. **********

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