Two recent decisions by Master Sanderson of the Western Australia Supreme Court suggest that it is open to parties who have the benefit of adjudication determinations under made under the Construction Contracts Act 2004 (WA) (Act) to enforce the determination by way of statutory demand without having to first register it as a judgement of a Court.
The decisions have also clarified the scope of the Court’s discretion to give leave to enforce determinations as judgements under s 43 of the Act.Facts
In Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd (Diploma’s Case) KPA Architects Pty Ltd (KPA), had successfully secured adjudication determinations in respect of two payment claims under the Act.
KPA successfully applied to the District Court to have the determinations registered as judgements under s 43 of the Act. However, Diploma Construction (WA) Pty Ltd (Diploma) refused to pay the judgement sum and KPA served a statutory demand for the amount of the judgement sum. The Supreme Court case arose when Diploma sought to have the statutory demand set aside under s 459G of the Corporations Act2001 (Cth) (Corporations Act) on the basis that there was an “underlying genuine dispute” as to the debt.
It was uncontroversial that there was, in fact, a dispute between the parties in relation to the adjudicated sums. Diploma argued (relying on s 45 of the Act) that the interim nature of the determined sums was such that it was not “shut out” from disputing the legal status of its indebtedness to KPA Architects before a Court.
Alternatively, Diploma also argued that it had an ‘offsetting claim’ under s 459H of the Corporations Act or that there was ‘some other reason’ to set aside the statutory demand as contemplated by s 459J of the Corporations Act.
RNR Contracting Pty Ltd v Highway Constructions Pty Ltd (RNR’s Case) concerned a similar set of facts. RNR Contracting Pty Ltd (RNR) successfully secured a determination under the Act in respect of a number of unpaid invoices. Highway Constructions Pty Ltd (Highway) refused to pay the adjudicated sum. Accordingly, RNR sought leave to register the adjudication determination as a judgement of the Supreme Court under s 43 of the Act.
Highway resisted the application for leave on the basis that the adjudicator had fallen into jurisdictional error. The principal thrust of Highway’s argument was that the adjudicator had determined multiple payment disputes without the consent of the parties. However, critically, Highway had not sought to invoke the Court’s prerogative powers to exercise a judicial review of the determination. Rather, it relied on a passage in Perrinepod Pty Ltd v Georgiou Building Pty Ltd (Perrinepod) where Murphy JA stated that:
[a] determination can then be challenged by judicial review on the ground of jurisdictional error, or at the point at which application is made to enforce the determination by a court of competent jurisdiction, under s 43, again on the basis that the determination exceeded the jurisdiction of the adjudicator and therefore was not a “determination” at all.
Highway contended that Murphy JA’s comments entitled it to raise jurisdictional issues in defence of an application for leave to enforce a determination as a judgment without seeking to invoke the Court’s prerogative powers.
In Diploma’s Case Master Sanderson referred to the High Court decision of Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (Broadbeach) as the “complete answer to the plaintiff’s submission.”
In Broadbeach, The Deputy Commission of Taxation had issued default assessments against the respondents in relation to certain allegedly unpaid taxes. The respondents lodged objections which were rejected by the Deputy Commissioner. The respondents then sought a review of the Deputy Commissioner's decision from the Administrative Appeals Tribunal under Part IVC of the Taxation Administration Act 1953 (Cth). Prior to the Tribunal reviewing the Deputy Commissioner's decision, the Deputy Commissioner issued statutory demands for the assessed amounts. The respondents sought to set aside the statutory demands on the basis that there was a genuine dispute, evidenced by the review proceeding, in relation to the assessed amounts.
The action to set aside the statutory demands made it way to the High Court where the court held that two features of the Taxation statutes were important. First, if an assessment is made by the Commissioner the amounts of tax assessed and all particulars of the assessments leading to the debts are deemed to be correct. Second, the Commissioner has an immediate right to recover those debts whether or not objection was taken to the assessment and whether or not the assessment was under review.
In Diploma’s case Master Sanderson applied similar reasoning. He held that the Act seeks to “ensure the subcontractors are paid by head contractors” and that parties to adjudication determinations are “statutorily bound to make payment,” on the important proviso that it is an interim payment and that parties are free to litigate or arbitrate to obtain a final determination of rights and liabilities.
On that basis Master Sanderson held that there was no basis to set aside the statutory demand because of the existence of a genuine dispute. Significantly, again on the basis of Broadbeach,Master Sanderson held that registering the adjudication determination as a judgment would not be a necessary precursor to issuing a statutory demand. In making that finding, Master Sanderson pointed out that in both Broadbeach and Diploma’s Case, the statutory requirements to establish the debt had been met, meaning the genuine dispute provisions in the statutory demand procedure were not available. For the same reasons, the ‘offsetting provisions’ in the statutory demand procedure were also unavailable.
Master Sanderson’s decision may be at odds with the recent New South Wales Court of Appeal decision in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd where the Court of Appeal held that evidence of an offsetting claim was sufficient to ground an action to set aside a statutory demand. However, for the time being Master Sanderson’s decision is good law in Western Australia and conceivably could stay that way, given the statutory framework behind the decision.
Of course, the enforcement mechanism in the Act remains useful if a party wishes to enforce a determination using the rights available under the Civil Judgements Enforcement Act 2004 (WA).
Master Sanderson also rejected Diploma’s argument that there was ‘some other reason’ for the statutory demand to be set aside. Again relying on Broadbeach, where the their honours rejected the ‘some other reason’ ground, yielding to the need to respect legislative policy respecting the recovery of tax debts, notwithstanding the pending review. Master Sanderson stated that:
The underlying policy of the [The Act]...is crystal clear. A subcontractor should be paid once an adjudication is made. To conclude, as a matter of discretion, there was a reason why the procedure ought not be available would be to subvert that clear legislative intent.
In RNR’s Case the Master was even more definitive. In the course of his judgement the Master stated that:
there would appear to be nothing to stop a party who has an adjudication award in its favour, but does not have the award registered as a judgement, issuing a statutory demand. In my view, there is a real doubt as to whether, in those circumstances, a party [who was obliged to pay on the basis of the adjudication award] could argue that there was a genuine dispute as to the debt.
The Master observed that his view creates an obvious tension. Murphy JA’s comments in Perrinepod (set out above) imply that it is open to a party in the position of Highway to raise jurisdictional errors in opposition to the grant of leave to enter an adjudication award as a judgement without actively seeking prerogative relief. However, to not grant leave in circumstances where there is no active appeal or other action on foot to set aside the adjudication award creates a situation where the award, and hence the obligation to pay, remains on foot but the beneficiary of the award cannot enforce it other than by way of a statutory demand. It was for that reason that the Master granted the leave sought by RNR. He held that the existence of an argument that the adjudicator fell into jurisdictional error was not, by itself, a sufficient reason to refuse to register the award as a judgement. Accordingly, he exercised his discretion to grant leave to register the judgement.The implications
There are two important implications to come out of these cases.
First, it now seems clear that in circumstances where an adjudication award has been made the beneficiary of that award is entitled to use it as the basis for a statutory demand without:
- needing to register the award as a judgement of a court; or
- the fear of the award being set aside on the basis that there is a genuine dispute.
This seems to be the case even where there exist off setting claims or an ongoing dispute in relation to the facts that gave rise to the adjudication award.
Second, a party who thinks that an adjudicator has fallen into jurisdictional error in making an award would be well advised to take active steps (by way of seeking prerogative relief) for the award to be subjected to a judicial review before the moment that the beneficiary of the award seeks to register it as a judgement of the Court.