SOPA Payment Claim not enough to prove debt is due and payable

Executive summary

In Re J Build Developments a statutory demand was issued in reliance of a progress claim pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act) and but it did not produce the desired effect. The Court held that just because the statutory demand relied upon the SOP Act provisions it did not necessarily mean there was a debt due and payable. Instead there was a genuine dispute and the statutory demand was set aside.

In this case, J Build successfully disputed the alleged debt based on two key factors:

1. there was a genuine dispute as to whether the SOP Act requirements had been satisfied; and
2. there was a genuine dispute as to the existence of the debt itself.

This case serves as an important reminder to ensure statutory demands refer to debts that are actually owed.

What happened?

Re J Build Developments Pty Ltd [2022] VSC 434 (Re J Build Developments) concerned the interaction between the SOP Act and the statutory demand process under the Corporations Act 2001 (Cth) (Corporations Act).

The head contractor, J Build Developments (J Build), entered into a subcontract with Air-conditioning and Electrical Services (Aust) Pty Ltd (AES) for the provision of air-conditioning systems for each unit at a property in Camberwell, Victoria, for approximately $109,000.

On 31 May 2021, AES issued a payment claim for $81,504.61, requiring payment by 30 June 2021 (Payment Claim). By September 2021, only partial payment had been made by J Build leaving an outstanding amount of $35,000 owing to AES.

AES served a notice on J Build pursuant to section 18(2) of the SOP Act for the $35,000. J Build submitted a payment schedule proposing to pay nil in respect of the Payment Claim on the basis the works had not been completed. AES did not issue an adjudication application.

Instead, AES issued a statutory demand for the $35,000 as “monies due and owing pursuant to” the Payment Claim. J Build sought to set aside the statutory demand on the basis there was a genuine dispute.

Arguments

Under section 459H(1)(a) of the Corporations Act, a statutory demand can be set aside if there is a genuine dispute about the existence or amount of the relevant debt. J Build argued there was a genuine dispute because the Payment Claim did not satisfy the following requirements of the SOP Act:

1. it was issued outside the required time to serve a payment claim, per ss 9 and 10(4) of the SOP Act; and/ or
2. the claimed amount included an amount relating to a variation of the contract, which was not a claimable variation, per section 10B of the SOP Act.

The parties accepted that if the Payment Claim was valid, J Build were statutorily liable to pay the amount of $35,000, and therefore there was no genuine dispute as to the debt. Conversely, the parties accepted that the existence of a genuine dispute about the debt was conditional on whether the Payment Claim complied with the SOP Act.

Decision

Despite the parties acceptance of the above principles, Associate Justice Hetyey held that the SOP Act did not prevent J Build’s entitlement to rely upon there being a genuine dispute.¹ The Court analysed the various facets of the Payment Claim and noted that whilst the Court’s role was not to conclusively determine the validity of the Payment Claim, it was satisfied that there was a genuine dispute as to whether the relevant SOP Act provisions were followed. That particular issue, however, should be determined in a proceeding brought under the provisions of the SOP Act, and not for consideration by the Court.

The Court went on to consider whether J Build could set aside the statutory demand under section 459H(1)(a) of the Corporations Act. The Court held, amongst other things, that there was a genuine dispute as to:

• the terms of the agreement between J Build and AES, and whether the terms were solely written or superseded by verbal agreement;
• whether all of the variation works subject to the statutory demand were actually carried out; and
• the classification of the work, and whether it was considered commercial or domestic (which subsequently led to differences in price).

Therefore, Hetyey J was satisfied J Build had established the evidentiary hurdle that there was a genuine dispute to the existence of the debt. Consequently, the statutory demand should be set aside under section 459H(3) of the Corporations Act.²

Why is this important?

Statutory demands under the Corporations Act are normally efficient and inexpensive legislative mechanisms which allow creditors to demand payment of a debt. However, Re J Build Developments highlights that statutory demands will not automatically apply based on reliance on the operation of another Act.

It is important for a party issuing a statutory demand to ensure the debt is actually owed and not subject to a dispute and process pursuant to other legislation.

HWL Ebsworth Lawyers has considerable experience in relation to the SOP Act and the Corporations Act in particular, the statutory demand process. Please contact Paul Graham of our Construction and Infrastructure team to discuss any aspects of the above.

This article was written by Paul Graham, Partner, Tara Nelson, Senior Associate and Chris Kipouridis, Solicitor

¹Re J Build Developments Pty Ltd [2022] VSC 434, [50]
²[2022] VSC 434, [89]