Focus: Adjudications under WA's SOPA legislation – enforcement by statutory demands clarified
24 June 2014
In brief: The WA Supreme Court has provided important clarification on the enforcement of adjudication determinations by the use of statutory demands under that State's security of payment legislation. It has confirmed that leave to enforce an adjudication determination as a judgment must be obtained before the issue of a statutory demand, and that failing to do so will mean the statutory demand is liable to be set aside. Partner Michael Hollingdale , Senior Associate Jeremy Quan-Sing and Lawyer Brittney Nash report.
How does it affect you?
- Obtaining leave of a court to enforce an adjudication determination as a judgment under section 43(2) of the Construction Contracts Act 2004 (WA) (the CCA) is now an essential step prior to seeking to enforce the determination by way of statutory demand.
- The practical effect of this is that a party seeking to enforce a determination cannot use the statutory demand process to 'side step' the existence of judicial review proceedings in relation to the determination. This is because, in considering whether to grant leave under s43(2) of the CCA, the existence of any judicial review proceedings will be a factor considered by the court.
Doric Contractors Pty Ltd was contracted to construct several buildings on the Jimblebar iron ore project in the Pilbara region of Western Australia. Doric engaged Kellogg Brown & Root Pty Ltd to provide engineering services in relation to the construction of those buildings.
After construction of the buildings was completed, Doric issued Kellogg with two invoices under the contract relating to alleged sub-standard performance of the contract. Kellogg refused to pay the invoices, disputing any liability to make payment. As a result of Kellogg's failure to pay, Doric made two adjudication applications under the CCA for each invoice. The adjudicator ultimately issued determinations under each adjudication application in favour of Doric.
Kellogg filed an application for judicial review of the adjudicator's determinations in the WA Supreme Court, asserting that Doric's claim amounted to a claim for damages and not a 'payment claim' for the purpose of the CCA.
Aware of the application for judicial review, Doric issued a statutory demand for payment of the amounts owed under the determinations. It did not obtain leave of a court in accordance with s43(2) of the CCA to enforce the determinations before issuing the statutory demand. In doing so, Doric essentially sought to 'side step' the usual process, which would have given Kellogg the opportunity to have the court consider the impact of the judicial review proceedings on the application for leave to enforce as a judgment.
Kellogg applied to the Supreme Court of WA to set aside the statutory demand.
Acting Master Gething found that the statutory demand should be set aside, because Doric had not first obtained leave of the court to enforce the determinations in accordance with s43(2) CCA. He relied primarily on an earlier decision of the WA Supreme Court of Appeal, Diploma Constructions (WA) Pty Ltd v KPA Architects  WASCA 91.
In addition to this, the Acting Master found that:
- a failure to obtain leave to enforce a determination as a judgment prior to issuing a statutory demand constituted 'some other reason' for setting aside the statutory demand under s459J(1)(b) of the Corporations Act 2001 (Cth); and
- the failure to comply with s43(2) of the CCA meant that the statutory demand procedure was being improperly used to compel a solvent company to pay a disputed debt. This constituted an abuse of process that would warrant the court exercising its inherent jurisdiction to prevent reliance on the statutory demand.
Interestingly, in the event the Acting Master was wrong in his finding that leave must be sought to enforce an adjudication determination as a judgment under s43(2) of the CCA before a statutory demand can be issued, he also considered the impact that the existence of judicial review proceedings had on the statutory demand. He considered that the existence of the judicial review proceedings meant that there was a 'genuine dispute' as to the existence of the debt for the purpose of s459H(1)(a) of the Corporations Act. He noted that on this basis alone, he would have set aside Doric's statutory demand.
As noted by the Acting Master, an issue 'that will need to wait for another occasion' is whether, if leave is obtained to enforce a determination as a judgment (at which time any application for judicial review would be considered) and a statutory demand subsequently issued, the existence of arguable judicial review proceedings will still be a ‘genuine dispute’ requiring the statutory demand to be set aside. Watch this space.
Following this decision, it is clear that a party seeking payment of an adjudicator's determination by way of a statutory demand should ensure that it first obtains a court's leave to enforce the determination in accordance with s43(2) of the CCA. Failing to do so will mean that the statutory demand can be set aside.
The ability of a beneficiary of a determination under the CCA to access the statutory demand process will be subject to the oversight of the court, by way of the requirement to make an application seeking leave to enforce the determination as a judgment under s43(2) of the CCA.
The courts will not allow the statutory demand process to be used to 'side step' the existence of judicial review proceedings, which will be considered when a party seeks leave to enforce an adjudication determination under s43(2) of the CCA.
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