The recent Western Australian Supreme Court decision in Kellogg Brown & Root Pty Ltd v Doric Contractors Pty Ltd  WASC 206 gives clear guidance to those in the building and construction industry wishing to enforce a favourable adjudication determination by issuing a statutory demand. Leave of the Court to enter a judgment must first be obtained.
This decision is important because it provides further guidance on the interaction between the statutory demand regime under the Corporations Act 2001 (Cth) (the Corporations Act) and the regime for the rapid adjudication of payment disputes between parties to construction contracts under the Construction Contracts Act 2004 (WA) (the Act).
In short, failure to obtain the leave of the Court to enter a judgment for an adjudication determination pursuant to section 43(2) of the Act before issuing a statutory demand resulted in the statutory demand being set aside.
Doric was engaged to carry out design and construction works in relation to two buildings on the site of BHP Billiton’s Jimblebar iron ore project in the Pilbara region of Western Australia.
By a subcontract, Doric engaged KBR to provide engineering services to Doric in relation to the two site buildings.
Both of the site buildings were completed in July 2013. KBR issued its final invoice under the contract on 24 July 2013. Three months after this date, Doric issued two invoices to KBR by which Doric sought payment for expenses that, it said, it had incurred as a result of the poor performance or non-performance by KBR in the provision of its services under the contract. KBR did not pay the invoices and disputed any liability to do so.
Doric then made two, separate, applications for adjudication under the Act in relation to KBR’s failure to pay each invoice. Doric was successful against KBR in both adjudications.
However, KBR commenced proceedings in the Supreme Court seeking judicial review of both of the adjudicator’s determinations.
Subsequently, Doric served a statutory demand (under section 459E(1) of the Corporations Act) on KBR for an amount of $1,010,508.50, being the total of the two debts that Doric said arose out of the two adjudication determinations. Doric did not, before issuing the statutory demand, obtain the leave of a court pursuant to section 43(2) of the Act to enforce the determinations.
KBR then commenced further proceedings in the Supreme Court (the subject of this decision) by which it applied to set aside the statutory demand.
THE COURT’S DECISION
In his judgment, Acting Master Gething indicated his orders would contemplate Doric’s statutory demand being set aside:
- first, because Doric had failed to obtain the leave of a court to enforce the determinations as required by section 43(2) of the Act;
- secondly, because Doric’s failure to obtain leave to enforce under section 43(2) would constitute ‘some other reason’ for setting aside the statutory demand pursuant to section 459J(1)(b) of the Corporations Act. The Acting Master considered that KBR’s commencement of judicial review proceedings prior to Doric issuing the statutory demand could enliven the Court’s discretion in section 459J(1)(b) of the Corporations Act; and
- thirdly, because in the circumstances of the case before him Doric should be restrained (using the Court’s inherent jurisdiction) from enforcing the statutory demand because Doric had sought to use the statutory demand process to recover the debts arising from the adjudication determinations rather than as a step in the winding up of KBR.
The Acting Master was of the view that the recent decision of the Western Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd  WASCA 91 established that a determination under the Act may not be enforced by way of the issue of a statutory demand unless the party seeking to enforce the determination has first obtained the leave of a court pursuant to section 43(2) of the Act.
He said that the proposition established in Diploma Construction was reinforced by the approach taken by that Court to the application of section 43(2) of the Act where the party seeking to resist payment had applied for judicial review of the determination.
Interestingly, the issue of whether leave of the Court must first be obtained in order to issue a statutory demand was not before the Court of Appeal in Diploma Construction; however, the Acting Master appears to have relied on Pullin JA’s comments (which appear to be obiter) in paragraph 56 of his Honour’s judgment, where his Honour said:
The contractor may, with the leave of the court, register the determination as a judgment. Section 43(2) of the Act states that '[a] determination may, with the leave of a court of competent jurisdiction, be enforced in the same manner as a judgment or order of the court to the same effect'. The contractor may therefore 'enforce' a determination or a consequential judgment by employing the relevant provisions of the Civil Judgments Enforcement Act 2004 (WA).
KBR’S JUDICIAL REVIEW PROCEEDINGS
Assuming the Acting Master was correct in his view that a determination under the Act may not be enforced by way of the issue of a statutory demand unless leave has been sought pursuant to section 43(2), such a proposition would appear to apply in all circumstances and not just, as in this case, where judicial review proceedings are on foot at the time that the statutory demand is issued. The Acting Master did, however, make it clear that the existence of parallel judicial review proceedings is relevant. He said a court will, and should, in considering whether to grant leave to enforce pursuant to section 43(2) of the Act, consider the existence of, and the prima facie merits of, whether or not the determination creating the debt is invalid (as would be the case if it was found to have been made by the adjudicator acting in jurisdictional error).
He considered it unsatisfactory that where an application for leave of a court pursuant to section 43(2) of the Act is brought separately from an application for judicial review, there is a risk that:
- the judicial officer hearing the leave application grants leave to enforce the adjudication determination;
- the amount of the adjudication determination is paid out; and
- subsequently, the judicial officer hearing the judicial review application forms the view that the adjudication determination was void or otherwise invalid such that it was not a ‘determination’ for the purposes of section 43(2) of the Act.
ABUSE OF PROCESS
With respect to the Acting Master’s finding that Doric had sought to abuse the statutory demand process, he was of the view that the abuse of process arose because, amongst other things:
- KBR’s judicial review proceedings were on foot;
- by Doric’s failure to seek leave of the court pursuant to section 43(2) of the Act, KBR was not afforded the opportunity to have the court consider the impact of its application for judicial review on any enforcement action;
- KBR was (on the evidence) solvent and there was no doubt that it would be able to pay the amount of the debt; and
- it could thereby be inferred that Doric did not issue the statutory demand for the purpose of proceeding to wind up KBR on the ground of insolvency but, instead, as a means of compelling KBR to pay the debt.
CONSEQUENCES OF THE DECISION
This decision has consequences for enforcing favourable adjudication determinations in Western Australia.
This decision makes it clear that the consequence of failing to obtain the leave of the Court pursuant to section 43(2) of the Act before issuing a statutory demand may be that the statutory demand will be set aside.