The Supreme Court of New South Wales has confirmed that Building and Construction Industry Security of Payment Act 1999 (NSW) s 32 does not itself permit any party from appealing from or challenging the finding of an adjudicator making a decision under the Building and Construction Industry Security of Payment Act 1999 (NSW).
Facts
The plaintiff, Linmas Holdings Pty Ltd (Linmas), entered into a contract with the defendant, Infigo II Pty Ltd (Infigo), for renovation works at a property. Linmas had served a payment schedule on Infigo under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) s 13, claiming payment for some works.
Linmas later served a payment claim on Infigo pursuant to SOP Act s 14, claiming that some of Infigo’s work was incomplete and/or defective. An adjudicator eventually determined that Linmas in fact owed Infigo $406,990 under the SOP Act. The adjudicator heard evidence from Linmas’ building consultant Mr Winton.
Judgment was entered in the District Court of New South Wales in favour of Infigo against Linmas for $453,934 pursuant to the SOP Act. Infigo served a statutory demand for $ $453,605 and Linmas commenced proceedings to set aside the statutory demand. Mr Chedid, Linmas’ solicitor, provided the only affidavit in support of the statutory demand that was filed and served within the 21-day statutory period (Chedid’s First Affidavit). However, Mr Chedid did swear another affidavit but the Court held that this could not support the application to set aside the statutory demand as it was made after the statutory 21-day period.
Submissions
Linmas did not dispute the existence of the judgment debt but argued that the statutory demand should be set aside as it had an offsetting claim against Infigo for an amount greater than the amount of judgment debt. Linmas’ alleged offsetting claim against Infigo was for defective and incomplete work (Rectification Claim) and the ‘differential’ between the variations allowed by the adjudicator and the variations quantified by their building consultant (Variations Differential Claim).
Infigo argued that Chedid’s First Affidavit did not support an application to set aside the statutory demand on either of the bases advanced by Linmas and so the Court lacks jurisdiction to set aside the statutory demand. Infigo also submitted that the variations differential was not an offsetting claim within the meaning of the Corporations Act 2001 (Cth) (Corporations Act) s 459H and the rectification claim was not a genuine offsetting claim.
Variations Differential Claim
The Court held that Chedid’s First Affidavit did not mention the Variations Differential Claim. This meant that the affidavit did not support an application to set aside the statutory demand on the basis of the variations differential claim and so the Court lacked jurisdiction to set aside the statutory demand on the basis of the variations differential claim.
However, even if Chedid’s First Affidavit supported the application to set aside of the statutory demand, the Court held that the Variations Differential Claim was, itself, not an offsetting claim within the meaning of the Corporations Act s 459H.
Linmas argued that seeking declarations that Infigo were not entitled to payment for variations, which were determined by the adjudicator, was permitted under SOP Act s 32 as it is not an appeal from or “direct attack on” the adjudication. Linmas argued that these declarations would only concern the parties’ rights under the building contract and would not even refer to the adjudication.
The Court rejected these submissions, stating that an arguable claim that the adjudication does not reflect the true legal rights of the parties does not amount to an offsetting claim providing a ‘complete answer’ to the claim for the purpose of Corporations Act s 459H(1)(b) where there is no cross-demand for damages, and where there has been no payment and therefore no complete claim for restitution.
The Court held that the claim was essentially one disputing the existence of the debt, and approved comments by Brereton J in Re Douglas Aerospace Pty Ltd (2015) 294 FLR 186, who explained:
‘[A] a declaration that an adjudicated amount is not truly due and payable is in a position closely analogous to one who applies to set aside a judgment, or to appeal from a judgment … A contention that a debt does not exist is not a ‘counterclaim, set-off or cross-demand’. Such a contention denies the debt, whereas a counterclaim, set-off or cross-demand admits it, but asserts that there is a countervailing liability’
The fact that the submissions do not refer to the adjudication does not provide an answer to this.
Despite the fact that SOP Act s 32 provides parties the right to contend for a different result in curial proceedings and such proceedings can lead to an adjustment in the adjudication, ‘a judgment debt is indisputable so long as the judgment stands’.
Rectification Claim
The Court held that it had jurisdiction to determine Linmas’ application to set aside the statutory demand on the basis of the Rectification Claim.
Infigo argued that the claim in Chedid’s First Affidavit was a claim for the actual costs incurred in the past and to be incurred in the future to complete the works and rectify defects while the claim articulated at the hearing was a different claim for damages equivalent to the cost of making the building work conform to the contractual specification.
The Court rejected this submission, holding that both elaborate the same claim for damages for alleged breaches of contract, measured as the cost of undertaking work that Linmas contends is necessary to rectify the alleged defects. The Court confirmed that a claim for damages for rectification works is not precluded merely because of the possibility that such works will not be carried out.
However, the Court held that Linmas’ rectification claim was not a genuine offsetting claim.
In Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269, cited in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397 (Grandview), the test for deciding whether an offsetting claim exists is whether there is a serious question to be tried that the person on whom the demand has been served has an offsetting claim, or that the claim is not frivolous or vexatious, or that it is not fictitious or merely colourable. In Grandview, the Court also believed that the test is the same as the test for the existence of a genuine dispute, which is that the claim must be bona fide, that it truly exists and that the grounds for alleging the existence of the dispute are real and not spurious, hypothetical, illusory or misconceived.
The Court held that Linmas had not adduced sufficient evidence to show that the Rectification Claim is a genuine offsetting claim. In relation to the alleged defects, Chedid’s First Affidavit contained the vague statement that Linmas ‘has incurred and is set to incur costs to complete and rectify defective work’ As there is no evidence that Mr Chedid, as Linmas’ solicitor, would have any personal knowledge of the defects, the statement has no evidentiary weight. There were also no submissions at the hearing on this issue and Linmas did not identify any material within their three volumes of documentary evidence that supported any plausible contentions.
Due to the lack of submissions, Linmas also failed to establish that it would be reasonable for the rectification works to be carried out. While not relevant to the preliminary jurisdiction issue, the fact that Linmas was unlikely to carry out rectification works as the property had been transferred to another trustee was relevant to the issue of reasonableness of the rectification works.
As stated by the Court:
‘What Linmas was required to establish in these proceedings were plausible contentions (as distinct from spurious assertions) that the rectification work underpinning its offsetting claim was necessary, and that it was reasonable to carry out that work in the circumstances’
A copy of the full judgment can be found here.
If you require any advice on the Security of Payment Act 1999 (NSW) or on statutory demands, please do not hesitate to contact us at admin@valorumlaw.com.au or voregan@valorumlaw.com.au. Our expert construction lawyers and expert commercial lawyers will be on hand to assist you
The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.
Contributors: Harry Chen
