The Supreme Court of NSW has reiterated the potential problems that may arise where a statutory demand is issued by a creditor for enforcement of an adjudication certificate under the Building and Construction Industry Security of Payment Act 1999 (NSW) in the case of In the matter of J Group Constructions Pty Ltd.

In this case, there was an application by J Group Constructions Pty Ltd (J Group) to set aside a statutory demand.

PGA (“the defendants”) had obtained an adjudication certificate and registered a Judgment for $173,761.80.  J Group claimed it had an offsetting claim in relation to whether building works completed by J Group were completed to the appropriate standard.

The issue that was for determination before the court was whether or not the demand should be set aside pursuant to s459H of the Corporations Act on the basis of a genuine dispute when a judgment had been obtained and the offsetting claim had been raised and rejected by the adjudicator.

The Court held that while an adjudicator had rejected the offsetting claim, that same claim remained available for the purposes of the application to set aside the statutory demand and that they were “true” offsetting claims. Further, it was said that:

“[while the] Security of Payment Act may have the effect that the adjudication amount cannot reasonably be disputed by J Group… the statutory provisions do not clothe the adjudicator’s reasoning with any finality that must be accepted by the court“

The Court determined that the statutory demand should be varied taking account the difference between the judgment amount of $173,761.80 and the offsetting claim amount ($165,218.90) leaving the statutory demand claiming only $8,542.90.

This case serves as a warning for creditors seeking to issue statutory demands based on judgments arising from adjudicated claims.

For more information on statutory demands please contact ERA Legal.