Executive Summary
This case sets out the relevant principles when the Court looks at setting aside a statutory demand for an adjudicated amount. Particularly, the Court confirms that there is a low evidentiary burden to prove that there are viable offset claims which deserve a hearing.
This case is one of many on the interaction and competing objectives of Commonwealth corporations legislation and the various States’ security of payment legislation.
Background
On 19 January 2021, Duke Ventures Wellington Street Pty Ltd (Duke), a developer, and Cobolt Constructions Pty Ltd (Cobolt), a builder, entered into a construct only contract (the Contract) which after amended had a date for practical completion of 16 June 2022.
Throughout the lifetime of the Contract, both parties served numerous show cause notices and had disagreements about the same.
Adjudication
On 10 November 2023, a determination was made in favour of Cobolt in the sum of $152,376 (Adjudication Determination) pursuant to the Building and Construction Industry Security of Payment Act 2002 (VIC) (SOP Act).
On 2 February 2024, Cobolt obtained judgment on the adjudicated amount together with fees, interest and costs in the amount of $158,422.34. Duke did not take any steps to set aside the judgment.
Statutory demand
On 16 February 2024, Cobolt served a statutory demand. On 5 March 2024, Duke applied to set it aside relying on three broad categories of offsetting claims:1
- Rectification costs in relation to the defects in the sum of $649,294 (excluding preliminaries, margins and GST) (Offset Claim 1);
- Liquidated damages in the sum of $880,000 (excluding GST) up to the purported termination, or $1,234,200 (excluding GST) as at the date of Duke’s set aside application (Offset Claim 2); and
- Costs to complete the works (including rectification costs) in the sum of $4,500,000 (Offset Claim 3).
In response, Cobolt submitted that:
- a number of claims raised by Duke were raised in, and ultimately merged in, the Adjudication;
- the claims to complete the works were speculative with no evidence as to the actual costs that would be incurred;
- the liquidated damages claim was premature as the date for completion was not set until the issuance of a final certificate (which had not occurred) and therefore liquidated damages could not be claimed; and
- to allow the offsetting claims would subvert the terms of the Contract and SOP Act.2
Issues
The main issues to be determined in the proceeding were as follows:
- What are the principles in relation to the availability of offsetting claims for the purposes of setting aside a statutory demand based on a SOP Act judgment debt?
- Are Duke’s offsetting claims excluded because allowance was made for them in the Adjudication Determination?
- Has Duke otherwise established the offsetting claims to the requisite standard?
Issue one: What are the principles in relation to the availability of offsetting claims for the purposes of setting aside a statutory demand based on a SOP Act judgment debt?
The relevant legislation considered by the Court
A statutory demand is a common way for a creditor to seek to enforce its right to payment for a debt. In the case of an adjudication determination the debtor can serve a statutory demand on the basis that the adjudication determination has become due and payable under the SOP Act.
A debtor can challenge a statutory demand if it disputes the underlying debt or has an offsetting claim against the creditor.
Relevantly, section 459(H)(1) of the Corporations Act 2001 (Cth) (Corporations Act) provides:
‘1. This section applies where, on an application under section 459G, the Court it satisfied of either or both of the following:
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- that there is a genuine dispute between the company and the respondent about the existence of a debt which the demand related;
- that the company has an offsetting claim.’
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Section 459H(5) of the Corporations Act defines an offsetting claim as a ‘genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).‘
The case law considered by the Court
The test for proof of an offsetting claim is whether the Court it satisfied that there is a serious question to be tried or ‘an issue deserving a hearing‘.3
In further explanation of the threshold, the Court noted that the threshold is akin to that of an interlocutory injunction requiring a plausible contention requiring investigation.4
The Court at paragraph [26] defined the relevant principles in relation to the availability of a genuine dispute or offsetting claim under section 495H of the Corporations Act in the context of a SOP Act adjudication. These principles are that where a debt arises by reason of an adjudication under the SOP Act:
- a debtor may not rely on a ‘genuine dispute’ in relation to that debt;5
- a debtor may not rely on an offsetting claim to the extent allowance has been made for that claim in the adjudication;6
- a debtor may rely on an offsetting claim to the extent the claim was raised before the adjudicator but was rejected;7
- a debtor may rely on an offsetting claim that was not raised before the adjudicator;8 and
- a debtor may rely on an offsetting claim that arises from transactions separate to the one giving rise to the debt.9
Issue two: Are Duke’s offsetting claims excluded because allowance was made for them in the adjudication?
The Court found that any offsetting claim, whether connected to the debt or not, or arising from the same transaction or not, may be relied on as an offsetting claim except to the extent that allowance has been made for it in the adjudication.
This caused the Court to find that:
‘Duke may, subject to sufficient proof, rely on any offsetting claims whether or not arising under the contract, including claims insofar as they were rejected by the adjudicator. That is to say, if a claim is totally rejected by an adjudicator, then the whole claim may be relied on as an offsetting claim. If the claim is partially rejected by the adjudicator, then the rejected part only may constitute an offsetting claim.’10
Issue three: Has Duke established the offsetting claims to the requisite standard?
Offset claim 1
The Court in assessing Offset Claim 1, provided significant weight to an independent assessment completed by John Lyng dated 30 November 2023 (Lyng Report). In each defect asserted by Duke, the Lyng Report was relied on to provide cost estimates to rectify the project.
As such, the Court found that some of these defects were sufficiently evidenced for the purposes of section 459H of the Corporations Act and could be relied on. This does not mean that these items were able to establish a fully evidenced claim but instead to the threshold required for an offsetting claim which is that there is an issue deserving of a hearing.11
Offset claim 2
Duke argued that Cobolt was required to bring the works to practical completion by 23 August 2022 and that liquidated damages at a daily rate of $2,200 (excl GST) were otherwise incurred.12
Cobolt disputed the date for practical completion and said that a number of EOT’s had not been taken into account. Further, it argued that the Superintendent did not respond to or grant reasonable EOT’s which subsequently caused the date for completion to not be set until the issue of the Final Certificate.13
The Court found that the issues were sufficiently articulated and deserved a hearing.14
Offset claim 3
Duke argued that the costs of completion, including to rectify defects was estimated at $7,673,721 subtracting the works Cobolt had completed leaves a claim of $4,500,000 (excl GST).15
Cobolt argued that the claim is contingent on works which have not yet been completed and that there has been a failure to account for EOT’s.16
The Court found that the issues were sufficiently articulated and deserved a hearing.17
Conclusion
The Court set aside the statutory demand on the basis that the offsetting claims of Offset Claim 1, Offset Claim 2 and Offset Claim 3 were evidenced to a sufficient level that it was deserving of hearing.
The key takeaways from this case
- The threshold for setting aside a statutory demand is a low bar.
- If a claim is rejected by an adjudicator, it can be relied on as an offsetting claim.
- The Court will apply the five principles set out in this article when analysing whether a statutory demand should be set aside because of a genuine dispute or offsetting claim under section 495H in the context of a SOP Act adjudication.18
This article was written by Leighton Moon, Partner, Fin Neaves, Senior Associate, and Campbell Dawes, Law Graduate.
1 Re Duke Ventures Wellington Street Pty Ltd (ACN 645 670 480) [2025] VSC 75 (Re Duke) at [13].
2 Ibid at [16].
3 Ibid at [20], citing Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, [30] (Beazley P, Meagher and Gleeson JJA).
4 Ibid at [20], citing Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liquidation) [2015] VSCA 330, [47]-[51] (Kyrou, Ferguson and Kaye JJA) cited in MSA Renex Corp Pty Ltd v Create Environment Pty Ltd [2021] VSCA 178, [28] (Fergusson CJ and Walker JA, Kyrou JA agreeing as to the principles [53]).
5 Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, [77]; cited in Re Roberts Construction Group Pty Ltd [2024] VSC 679, [17] (Steffensen AsJ).
6 CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd [2022] FCA 544, [82].
7 Re Dask Entertainment Melbourne Pty Ltd [2023] VSC 66, 38].
8 Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553, [20].
9 Ibid at [70] – [71].
10 Re Duke at [27].
11 Ibid at [32], [36], [40], [48], [54], [59], [66].
12 Ibid at [67].
13 Ibid at [68].
14 Ibid at [70].
15 Ibid at [71].
16 Ibid at [71].
17 Ibid at [72].
18 Ibid at [26].
