The recent decision of the Supreme Court of Victoria (Court) in Re J Build Developments Pty Ltd  VSC 434 highlights the importance of issuing a creditor’s statutory demand for payment of debt (CSD) only in respect of a debt which is actually owed pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (the SOP Act).
In that case, J Build Developments Pty Ltd (J Build) successfully applied to set aside a CSD issued by Airconditioning and Electrical Services (Aust) Pty Ltd (AES) on the basis that there was a genuine dispute about the existence or amount of the debt to which the CSD relates, and by reason of an associated offsetting claim.
In determining that the CSD will be set aside, Associate Justice Hetyey held (amongst other things) that:
(a) there was a genuine dispute that the invoice the subject of the relevant CSD was served before the reference date which gave rise to AES’ entitlement to a progress payment;
(b) alternatively, there was a genuine dispute as to the identification of the applicable reference date;
(c) it is not the Court’s role to conclusively determine the correct reference date or the validity of the invoice the subject of the relevant CSD in a summary proceeding brought under Part 5.4 of the Corporations Act 2001 (Cth);
(d) because there is a plausible contention that some or all of the variation work in the invoice the subject of the relevant CSD was not carried out as a matter of fact, it is unclear whether that work falls within the second class of claimable variation contemplated by section 10A(3)(a) of the SOP Act or whether it represents an excluded amount and, on that basis, there is a genuine dispute about whether the invoice the subject of the relevant CSD impermissibly claims excluded amounts;
(e) the fact that a respondent issues a payment schedule in response to a payment claim does not change whether that payment claim is technically invalid under the SOP Act;
(f) there is a genuine dispute as to whether the terms comprising the contractual relationship between J Build and AES were solely written or were varied or superseded by oral agreement. This is a triable issue, not an issue for determination under Part 5.4 of the Corporations Act 2001 (Cth), as it will ultimately turn on the evidence of witnesses under cross-examination; and
(g) there is a genuine dispute as to the proper interpretation of the ambiguous wording of the written terms and conditions said to comprise or form part of the agreement between J Build and AES.
After determining that a genuine dispute had been established, the Court considered it unnecessary for the purposes of section 459H(1) of the Corporations Act 2001 (Cth) to determine whether J Build also had an offsetting claim. However, the Court went on to say that had it been required, it would have found that J Build can demonstrate the existence of a genuine offsetting claim in respect of the amount of the overpayment made by J Build to AES.
Take home points
This case highlights:
(a) the need to have a properly drafted, unambiguous contract;
(b) the importance of reducing any verbal variations or agreements into writing;
(c) that the bar which must be cleared in order to set aside a CSD is set low; and
(d) that a CSD should not be issued unless there is actually a debt owed.
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This Construction and Infrastructure case note was authored by Dominic Brown, Senior Associate.
Note: This update is a guide only and is not intended to constitute legal advice.