Case Note: In the matter of Douglas Aerospace Pty Ltd [2015] NSWSC 167

Summary

Adjudication debtors beware, the NSW Supreme Court has limited the previous ability for debtors to set aside applications to wind up companies based on an unpaid adjudication certificates under BACISOPA.

Facts

Douglas Aerospace Pty Ltd (Douglas) and IEA entered into a contract under which IEA would construct 2 aircraft hangers at the Wagga Wagga Airport.

On 21 January 2015, IEA sent Douglas a payment claim for $224,445.87. No payment schedule was served, and IEA ultimately obtained an adjudication certificate which it filed as a judgment in the NSW District Court in the sum of $229,320.23. Relying on this judgment, IEA served Douglas with a creditor’s statutory demand on 17 June 2014.

Douglas sought to have the statutory demand set aside on the basis of there being both a genuine dispute and an offsetting claim.

The question before the Court was whether genuine disputes and offsetting claims can be relied upon in respect of a judgment based on an adjudication certificate.

Finding

In his detailed judgment, his Honour Brereton J held, regarding the availability of raising a “genuine dispute” [at 101(4)]:

“[A] judgment debt founded on a filed adjudication certificate is beyond dispute: the existence … of an arguable claim in … proceedings that the adjudication does not reflect the true legal rights of the parties cannot amount to a “genuine dispute” about the existence or amount of a judgment debt consequent upon an adjudication. Nor … that the adjudicated amount is not payable because the adjudication does not reflect the true legal rights of the parties of itself amount to “some other reason” for setting aside the demand.”

With regards to the “offsetting claim”, his Honour held [at 101(5)]:

“While a “true” offsetting claim – for example, a cross-claim for damages for negligence or breach of contract, or the recovery by way of restitution of amounts already allegedly overpaid – may be relied on to set aside a statutory demand for a judgment debt founded on an adjudication certificate, the existence  … of an arguable claim that an adjudication does not reflect the true legal rights of the parties – involving no cross-claim for damages, and where there has been no payment and thus no complete claim for restitution – cannot be an offsetting claim”

Impact

Participants in the building industry ought to take note that, not only can a certificate (once filed as a judgment) be used as the basis for a creditor’s statutory demand, the ability to set aside the demand may be more limited.

The usual basis for setting aside a creditor’s statutory demand (a genuine dispute or an offsetting claim) are not as broad as they are for a demand based on a simple debt. Any genuine dispute limited to the basis for the certificate, and therefore judgment, is unlikely to be sufficient to defeat the creditor’s statutory demand. If the defence is an offsetting claim then the offsetting claim must be made and based on some contractual or tortious breach if the offsetting claim is to be used to try and defeat the creditor’s statutory demand.

Accordingly, greater caution should now be taken by those that are subject to an adverse finding in a NSW adjudication under the subject legislation.