In the matter of Powerpark Systems Pty Ltd

1. [1]

   GLEESON JA: The plaintiff, Powerpark Systems Pty Ltd (Powerpark), seeks an order under s 459G of the Corporations Act 2001 (Cth) setting aside a creditor’s statutory demand dated 25 October 2017 served by the defendant, Shoemark Electrical Pty Ltd (Shoemark). The debt to which the statutory demand relates is described in the schedule to the demand as “outstanding accounts confirmed by Adjudication Determination issued by Adjudicate Today on 11 October 2017” in the amount of $48,230.74.

2. [2]

   The affidavit accompanying the statutory demand was sworn by Mr Colin Shoemark, a director of Shoemark. He deposed to his belief that there is no genuine dispute about the existence or amount of the debt.

3. [3]

   After service of the statutory demand, Shoemark obtained a judgment against Powerpark in the Local Court at Wyong pursuant to s 25 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act), upon the filing of the adjudication certificate. The judgment sum is $48,835.83.

4. [4]

   Powerpark seeks to set aside the demand on three grounds. First, it relies on the ground in s 459H(1)(a). It says that there is a genuine dispute about the existence or amount of the debt because of a jurisdictional error affecting the adjudication certificate and the subsequent judgment. Next, it relies on the ground in s 459H(1)(b). It says that it has an offsetting claim against Shoemark in the form of a genuine claim to sue Shoemark for defective work in relation to the Coles site at Casino and for loss of profits in relation to other potential contracts. Finally, it relies on the ground in s 459J(1)(b). It says that the jurisdictional error referred to above constitutes some other reason why the demand should be set aside.

Evidence on the application

1. [5]

   The business of Powerpark includes installing solar panels. In the first half of 2017, Mr Shoemark acted as a supervisor for Powerpark on an as-needs basis for the installation of solar panels at various sites. In late May and early June 2017, Mr Shoemark sent invoices for work done in the name of the defendant. Following a conversation between Mr Jeremey Rowe, a director of Powerpark, and Mr Shoemark as to who or what is “Shoemark Electrical”, Mr Shoemark indicated that it was the company he sent invoices through. No point is taken on the present application as to the correct identity of the contracting parties.

2. [6]

   On 31 August 2017, Shoemark issued a payment claim under the Security of Payment Act, claiming $44,811.11 from Powerpark. The payment claim was stated to relate to the provision of electrical services, including racking and DC wiring, site installations and labour at TPG Glebe, Casino Coles and Sunny Queen worksites.

3. [7]

   On 7 September 2017, Powerpark provided a payment schedule complaining of defective work done by Shoemark and agreeing to pay $24,956.97. Powerpark stated that it had inspected work undertaken at Casino which was deficient and would be pursuing Shoemark for rectification costs if the matter was not resolved. The particulars given of the defective work were that conduits were not present in the correct place and bolts were not at the correct heights to allow the column attachments.

4. [8]

   On 21 September 2017, Shoemark applied for adjudication of its claim. That application described the project location suburb as “Sydney, Central Coast” and the project name as “Sunny Queensland LAFHA”.

5. [9]

   On 11 October 2017, the adjudicator determined that the amount payable by Powerpark to Shoemark was $44,811.11. It is apparent from the adjudicator’s reasons (at par 2) that he proceeded on the basis that Shoemark’s claim was in relation to construction work or the supply of related goods and services at project sites within the Sydney and Central Coast areas of New South Wales.

6. [10]

   Powerpark subsequently issued invoices to Shoemark in respect of rectification works preparatory to rectifying the alleged defects in the work performed by Shoemark. Two invoices were emailed from Powerpark to Shoemark on 27 October 2017: invoice no 58 dated 7 August 2017 for $6,824.40; and invoice no 65 dated 23 August 2017 for $4,365.90. Those invoices were re-sent by email on 6 November 2017, together with further invoices no 76 dated 7 September 2017 for $7,010.30; no 79 dated 20 September 2017 for $4,730; and no 85 dated 4 October 2017 for $3,817.

7. [11]

   As mentioned, on 27 November 2017 judgment was entered in the Local Court for Shoemark in the amount of $48,230.74. That amount comprised the adjudicated amount ($44,811.11), adjudication fees ($2,904), and interest on the adjudicated amount from 31 August 2017 to 25 October 2017 ($515.63).

Security of Payment Act

1. [12]

   It is not necessary to set out the relevant provisions of the Security of Payment Act. The following passages from the judgment of the plurality in the High Court in Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4; (2018) 351 ALR 225 provide a sufficient explanation of the scheme of that Act:

2. [13]

   In Re Douglas Aerospace Pty Ltd [2015] NSWSC 167, Brereton J considered the relevant features of the Security of Payment Act and reviewed the authorities that had considered the relationship between debts arising under the Security of Payment Act and ss 459F and 459H of the Corporations Act. Those cases included the decision of the West Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91 (Diploma Construction). Although lengthy, it is of assistance to set out in full the relevant conclusions by Brereton J at [91]-[93], [97]-[100]:

Genuine dispute

1. [14]

   It is not in dispute that the question of whether there is a genuine dispute for the purpose of s 459H(1)(a) is to be determined as at the date of the hearing. Shoemark emphasised that the question of a genuine dispute is to be considered in the context that it now has a judgment debt for the amount claimed in the statutory demand. Shoemark submitted that a judgment debt arising upon a filed adjudication certificate pursuant to s 25 of the Security of Payment Act cannot be the subject of a genuine dispute for the purpose of s 459H(1)(a).

2. [15]

   In written submissions filed 21 March 2018, Powerpark contended that the adjudication determination was invalid on two grounds and should be set aside under a “pending” application for judicial review. Counsel who appeared for Powerpark on the hearing corrected the latter submission. Counsel accepted that no judicial review proceedings under s 69 of the Supreme Court Act 1970 (NSW) have been commenced by Powerpark seeking an order in the nature of certiorari quashing the determination of the adjudicator.

3. [16]

   The first ground of challenge referred to in Powerpark’s written submissions may be put aside. This ground asserted that the payment claim by Shoemark involved work done under multiple and distinct construction contracts and not a single construction contract, as required under the Security of Payment Act. No submissions to this effect were relied upon by counsel who appeared for Powerpark on the hearing.

4. [17]

   The second ground asserted that the adjudication determination was beyond the jurisdiction of the adjudicator because two of the construction contracts the subject of the adjudication were performed in Queensland. On the hearing, counsel for Powerpark corrected this submission and asserted that only one of the contracts the subject of the adjudication was performed in Queensland, being that described as the “Sunny Queen Australia” site.

5. [18]

   Against that background, the argument by Powerpark that there is a genuine dispute relied upon the following propositions:

   1. (1)

      the Security of Payment Act does not apply to a construction contract to the extent to which it deals with construction work carried out outside New South Wales and related goods and services supplied in respect of construction work carried out outside New South Wales: Security of Payment Act, s 7(4);

   2. (2)

      the adjudication determination issued on 11 October 2017 was in respect of, among others, construction work carried out for Sunny Queen Australia in Queensland. So much is acknowledged by Shoemark in its payment claim dated 31 August 2017 the subject of invoice no 48 for $22,458.54, which describes the work as the installation of solar structure for Sunny Queen Australia in Queensland, including the supply of site supervisor and labour;

   3. (3)

      accordingly, the determination by the adjudicator issued on 11 October 2017 may be set aside upon an application for judicial review for jurisdictional error;

   4. (4)

      it followed, according to the submission, that an inferior court such as the Local Court had no power to register a judgment for a debt in favour of Shoemark upon the filing of the adjudication certificate pursuant to s 25(1) of the Security of Payment Act. Accordingly, the judgment is a nullity. Reference was made to the remarks of the High Court in Pelechowski v The Registrar, Court of Appeal (NSW) (1998) 198 CLR 435; [1999] HCA 19 (Pelechowski) at [27].

6. [19]

   There are a number of difficulties with Powerpark’s argument, in particular, proposition (4).

7. [20]

   It may be accepted that the Supreme Court may exercise its supervisory jurisdiction under s 69 of the Supreme Court Act and make an order in the nature of certiorari quashing the determination of an adjudicator for jurisdictional error of law. By contrast, the Supreme Court does not have jurisdiction to quash an adjudicator’s determination for error of law on the face of the record that is not a jurisdictional error: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd at [53].

8. [21]

   Thus, if an adjudicator has erroneously decided that a pre-condition which the Security of Payment Act makes essential for the existence of such a determination has been satisfied when in fact it has not, that will amount to a jurisdictional error making the determination “reviewable”. Where a determination is void, relief is available by way of declaration and injunction: Transgrid v Siemens Ltd (2004) 61 NSWLR 521; [2004] NSWCA 395 at [29] (Hodgson JA, Mason P and Giles JA agreeing), citing earlier remarks in Brodyn Pty Ltd (t/a Time Cost & Quality) v Davenport (2004) 61 NSWLR 421; [2004] NSWCA 394 at [52].

9. [22]

   In Brodyn v Davenport, Hodgson JA described the essential pre-conditions for the existence of an adjudication determination under the Security of Payment Act at [53]:

10. [23]

    It is not necessary to decide whether the five “basic and essential requirements” identified in Brodyn v Davenport are exhaustive: Reiby Street Apartments Pty Ltd v Winterton Constructions Pty Ltd [2006] NSWSC 375 at [65] (White J). In the present case, Powerpark relies upon the first pre-condition referred to in Brodyn v Davenport, namely, the existence of a construction contract between Shoemark and Powerpark to which the Security of Payment Act applies: s 7. With some reluctance, counsel for Shoemark ultimately accepted that the Security of Payment Act did not apply to the work in relation to the Sunny Queen Australia site in Queensland, by reason of the exclusion in s 7(4) of the Security of Payment Act, which provides:

11. [24]

    However, contrary to Powerpark’s submissions, there is no analogy with the reasoning of Palmer J in Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284. That case concerned the statutory debt created by s 15(2) of the Security of Payment Act. That is not the present case. Once the adjudication certificate has been filed pursuant to s 25 of the Security of Payment Act, the resulting judgment is not void. Of course, an application for judicial review can be made to set aside the judgment, as Hodgson JA explained in Brodyn v Davenport at [61]:

12. [25]

    Pelechowski does not assist Powerpark’s argument. Pelechowski involved the power of the District Court to make an asset preservation order and subsequently a contempt order against the judgment debtor for failing to comply with the asset preservation order. The majority in the High Court (Gaudron, Gummow and Callinan JJ) held that the District Court did not have the power to make the asset preservation order which was the subject of the successful contempt proceedings. It was in this context that the majority in Pelechowski at [27] approved the statement in United Telecasters Sydney Ltd v Hardy (1991) 23 NSWLR 323 at 335, applying the principle which McHugh JA had explained in Attorney-General (NSW) v Mayas Pty Ltd (1988) 14 NSWLR 342 at 357:

13. [26]

    In the present case, the Local Court was a court of competent jurisdiction in which an adjudication certificate (up to the limits of the jurisdiction of the Local Court) may be filed as a judgment for a debt pursuant to s 25(1) of the Security of Payment Act. Such a judgment is not a nullity. An application for judicial review can be made for an order to quash the judgment on the ground of jurisdictional error. And as explained by Hodgson JA in Brodyn v Davenport, it is not contrary to s 25(4)(a)(iii) of the Security of Payment Act to do so on the basis that there is in truth no adjudicator’s determination.

14. [27]

    One further matter warrants comment. No application has been made by Powerpark to stay the judgment in the Local Court registered on 29 November 2017 and Powerpark is now out of time to commence proceedings for judicial review. Such proceedings must be commenced within three months of the date of the decision: Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 59.10(1). Here, the relevant date of the adjudicator’s decision is 11 October 2017.

15. [28]

    The Court may, at any time, extend the time for commencing proceedings for judicial review: UCPR, r 59.10(2). Relevant factors which the Court is required to take into account include any particular interest of the plaintiff in challenging the decision, possible prejudice to other persons caused by the passage of time, the time at which the plaintiff became, or by exercising reasonable diligence, should have become aware of the decision, and any relevant public interest: UCPR, r 59.10(3).

16. [29]

    Powerpark did not adduce any evidence seeking to explain its failure to commence proceedings for judicial review within time, or to seek an extension of time to commence such proceedings. Nor did Powerpark make any mention of these matters in its oral submissions. I will return to this issue under the s 459J ground addressed below.

17. [30]

    The contention by Powerpark that there is a genuine dispute in relation to the debt the subject of the statutory demand must be rejected.

Off-setting claim

1. [31]

   The relevant principles are not in dispute as to what is required to establish an off-setting claim. The test for an offsetting claim is whether the Court is satisfied that there is a serious question to be tried that the party has an offsetting claim, or that the claim is not frivolous or vexatious. The claim must be made in good faith and be arguable and not frivolous or vexatious. Good faith in this context means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful: Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743 (Macleay Nominees) at [18]. In Macleay Nominees, Palmer J went on to observe at [18]:

2. [32]

   In Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [36], the Court of Appeal accepted that the evidence need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. Nonetheless, the Court at (at [46]) approved the following statement of McLelland CJ in Eq in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787:

3. [33]

   In Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [18]-[19], Barrett J made the following observations concerning the nature of the evidence of the quantum of an offsetting claim that is required:

4. [34]

   In Douglas Aerospace at [40], Brereton J observed that:

5. [35]

   Having considered the affidavit evidence, I am satisfied that Powerpark has established that it has a genuine offsetting claim against Shoemark for defective work in relation to the Coles site at Casino. That claim is not spurious or lacking in bona fides. The claim was first raised in Powerpark’s payment schedule sent to Shoemark on 7 September 2017. That the invoices subsequently issued by Powerpark to Shoemark were back-dated does not of itself cast doubt upon the genuineness of Powerpark’s claim. It would be open to a court to accept that the dates of the invoices reflect the dates Powerpark claims to have incurred costs sending staff to inspect the site at Casino to undertake works preparatory to the rectification works which it says are required, and also incurred costs in the remanufacture of certain items, including two uprights.

6. [36]

   That the assertion of a genuine claim of defective work in relation to the length of the bolts holding the uprights is plausible and cogent, is also apparent from the photograph annexed to the affidavit of Mr Shoemark dated 10 January 2018 (Court Book, p 120).

7. [37]

   This part of Powerpark’s offsetting claim may be quantified for the purposes of the present dispute in the amount of the invoices issued by Powerpark to Shoemark reflecting the costs of the work undertaken by Powerpark preparatory to undertaking the rectification works. That amount is $26,747.60.

8. [38]

   Insofar as Powerpark asserted a further offsetting claim in respect of loss of opportunity to perform further work in respect of particular projects, the evidence in the affidavit of Mr Rowe (par 23) is in the form of a conclusory statement that as a result of the delays caused by Shoemark’s suspension of work in August 2017, Powerpark lost the chance to perform further work for Moran Health Care Group on two other sites in respect of which it had already provided quotes and was in a good position to obtain those projects which had profit margins of $60,000 and $35,000 and also lost the chance to perform Stage 2 works for Sunny Queen Australia and the profit margin on the Stage 2 works would have been $75,000.

9. [39]

   Significantly, in his affidavit (par 24), Mr Rowe was unable to put the matter any higher than that Powerpark “may have an offsetting claim against Shoemark that is greater than the value claimed in the demand” (emphasis added).

10. [40]

    Accepting that the threshold for genuineness for an offsetting claim is relatively undemanding “… to identify the genuine level of an offsetting claim (not the likely result of it)”: Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601 at 605, the evidence adduced by Powerpark does not rise above the level of bear assertion that Powerpark lost the chance to obtain other contracts. The scant evidence given by Mr Rowe does not, in my view, provide a plausible and coherent basis for asserting a claim for damages for the loss of a chance (the deprivation of a commercial opportunity to make profits on other projects) that was not promised, but that would nevertheless had been created by performance of the contract by Shoemark.

11. [41]

    In any event, this asserted offsetting claim has not been articulated with sufficient particularity to enable the Court to quantify the asserted offsetting claim, and if I had concluded that the claim was genuine, it would be appropriate to attribute to it only a nominal value: Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 455.

Is there some other reason to set aside the demand?

1. [42]

   In the alternative to its assertion of a genuine dispute, Powerpark relies upon the “some other reason” ground under s 459J(1)(b) to set aside the statutory demand, contending that the adjudication determination is affected by jurisdictional error.

2. [43]

   In Meehan v Glazier Holdings Pty Ltd [2005] NSWCA 24; (2005) 53 ACSR 229, the Court of Appeal (Santow JA at [35], Tobias JA agreeing, and Young CJ in Eq also agreeing at [57], [59]), approved the statement by Bryson JA in Portrait Express (Sales) Pty Ltd v Kodak (A’asia) Pty Ltd (1996) 20 ACSR 746 at 757 that the discretionary power of the Court under 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”. It has also been said that this provision will be rarely employed, but when employed, it will be for the purpose of meeting the demands of justice: Diploma Construction at [83].

3. [44]

   As mentioned, the pendency of curial proceedings which seek relief to the effect that the adjudicated amount is not payable because the adjudication does not reflect the true legal rights of the parties, cannot of itself amount to “some other reason” for setting aside the demand: Douglas Aerospace at [92]. This is because such proceedings are for the purposes of an application to set aside a statutory demand, analogous to an application to set aside a default judgment, or an appeal. As a general proposition, a pending appeal may provide “some other reason” for setting aside a demand only if the judgment is stayed or security is given: Douglas Aerospace at [92].

4. [45]

   In Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 (Eumina Investments), Emmett J explained at 459:

5. [46]

   In Eumina Investments, Emmett J concluded that it was appropriate for the Court to exercise the discretion conferred by s 459J(1)(b) where the Court is satisfied that there is an appeal based on reasonable and arguable grounds which, if successful, would result in the existence of an offsetting claim. In setting aside the demand, his Honour imposed conditions under s 459M relevantly, that the debtor pay the amount of the debt into court or otherwise secure the amount of the debt.

6. [47]

   In Quarter Enterprises Pty Ltd v Allardyce Lumber Co Ltd [2011] NSWSC 1031, White J remarked at [9]:

7. [48]

   Generally there will not be some other reason for setting aside the statutory demand if to do so would have the practical effect of granting a stay of the judgment, but I accept the observation of White J in Quarter Enterprises v Allardyce Lumber Co at [9] that “there is no rigid rule that can confine the scope of the power under s 459J(1)(b)”.

8. [49]

   In the present case, there are difficulties with Powerpark’s contention that the prospects of the adjudicator’s determination being set aside in foreshadowed proceedings for judicial review to quash that determination, provide a good reason to set aside the statutory demand under s 459J(1)(b).

9. [50]

   First, as indicated, Powerpark has not applied to stay the judgment in the Local Court. Nor has it applied for an extension of time to commence proceedings for judicial review seeking relief to quash the adjudicator’s determination. Nor is there any evidence explaining Powerpark’s failure to commence such proceedings within time, or to subsequently seek an extension of time to do so. Nor is there any evidence going to the discretionary factors relevant to the exercise of the Court’s power to grant an extension of time for the commencement of judicial review proceedings.

10. [51]

    Second, given that setting aside the statutory demand would have the practical effect of granting a stay of the Local Court judgment in circumstances where Powerpark ought to have sought a stay and also commenced proceedings by way of judicial review within three months of the adjudicator’s determination, or sought an extension of time to commence such proceedings (but there is no satisfactory explanation for Powerpark not having done so), I am not persuaded that the Court should exercise its discretion under s 459J(1)(b) to set aside the statutory demand.

11. [52]

    It is not necessary to consider the suggestion by Robb J in Re J Group Constructions Pty Ltd [2015] NSWSC 1607 at [104], that there may be scope for the Court to be more liberal in considering the possible application of the “some other reason” ground under s 459J(1)(b) than the approach suggested in Diploma Construction (being an issue left open by Brereton J in Douglas Aerospace at [92]). Here, assuming in Powerpark’s favour that it has an arguable claim which could be made in judicial review proceedings for a different result to the adjudication determination and the resulting judgment, the demands of justice do not require the Court to exercise the power under s 459J(1)(b), given the matters referred to in the two preceding paragraphs. There is no analogy with the approach taken to appeals and applications to set aside judgments; there is no pending claim by Powerpark in curial proceedings; and there is no stay of the Local Court judgment.

Conclusion and Orders

1. [53]

   Powerpark has not established that the statutory demand should be set aside, either on the ground of a genuine dispute (s 459H(1)(a)) or for some other reason (s 459J(1)(b)). Powerpark has established an offsetting claim in the form of a genuine claim to sue Shoemark for defective workmanship in respect of the relevant building project at Casino Coles in an amount of $26,747.60.

2. [54]

   The appropriate course is to vary the statutory demand by reducing it by $26,747.60 and by declaring it to have effect as so varied from the time when it was served: Corporations Act, s 459H(4).

3. [55]

   As to costs, each party has had a measure of success. Powerpark has succeeded in obtaining a substantial reduction in the amount of the demand. On the other hand, Shoemark has succeeded in keeping the demand alive for future use as may be thought fit. In the circumstances, the appropriate outcome seems to me to be that each party should bear its own costs: Kerslake Superannuation Pty Ltd v C&L Building Pty Ltd [2010] NSWSC 424 at [20]. Nonetheless, given that the parties have not had an opportunity to make submissions on the question of costs, I will stay the operation of the costs order I propose to make for 14 days, to allow either party a short period of time to apply for a different costs order.

4. [56]

   Accordingly, the Court makes the following orders:

   1. (1)

      Order that the statutory demand dated 25 October 2017 served on the plaintiff by the defendant be varied by reducing the amount thereof to $21,483.14;

   2. (2)

      Declare that the statutory demand is to have had effect as so varied as and from when the statutory demand was served on the plaintiff;

   3. (3)

      Subject to order (4), there be no order as to costs with the intent that each party bear its own costs;

   4. (4)

      Stay the operation of order (3) for a period of 14 days, or until the Court determines any application by a party for a different costs order as referred to in (5) below;

   5. (5)

      Direct that if either party seeks a different costs order, that party is to file and serve written submissions within 7 days, and the other party is to file any written submissions in response within a further 7 days. Written submissions are not to exceed two pages. Direct that any such application be determined on the papers.