Supreme Court New South Wales

• Medium Neutral Citation: Prime City Investments Pty Limited v Paul Jones & Associates Pty Limited & anor [2013] NSWSC 2
• Hearing dates: 13 September, 22 October, 5 November 2012
• Decision date: 25 January 2013
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Creditor's statutory demand set aside; proceedings otherwise dismissed

• Catchwords: CORPORATIONS - External administration - winding up in insolvency - creditor's statutory demand - setting aside - whether application to set aside served within time -where demand based on judgment arising from registration of adjudication certificate under Building and Construction Industry Security of Payment Act - whether offsetting claim
• Legislation Cited: (Cth) Corporations Act 2001, s 459G; (NSW) Building and Construction Industry Security of Payment Act 1999
• Cases Cited: Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284; BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; 68 ACSR 1; CCD Group Pty Limited v Premier Drywall Pty Limited [2006] NSWSC 1012; Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37; Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393; (2010) 272 ALR 750; [2010] NSWCA 190; Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553; Ettamogah Pub (Rouse Hill) Pty Limited v Consolidated Constructions Pty Ltd (In Liq) [2006] NSWSC 1450; Grave v Blazevic Holdings Pty Ltd [2010] NSWCA 324; Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186; Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd (2006) 22 BCL 285; [2005] NSWSC 1129; In the Matter of Prime City Investments Pty Ltd [2012] NSWSC 1287; Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743; Max Cooper & Sons (Builders) Pty Limited v M & E Booth & Sons Pty Limited [2003] NSWSC 929; (2003) 202 ALR 680; Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91; (2006) 94 SASR 269; Plus 55 Village Management Pty Limited v Parisi Homes Pty Limited [2005] NSWSC 559; Scanhill Pty Ltd v Century 21 Australasia (1993) 47 FCR 451
• Category: Principal judgment
• Parties: Prime City Investments Pty Limited (plaintiff); Paul Jones & Associates Pty Limited (first defendant); Andrew Wallace (second defendant)
• Representation: Counsel: J Loxton (plaintiff); S Phillips (first defendant); Solicitors: Coopers Law Firm (plaintiff); Access Law Group (first defendant); Submitting (second defendant)
• File Number(s): 12/180675

Judgment

1 The plaintiff Prime City Investments Pty Limited ("Prime") applies, pursuant to (Cth) Corporations Act 2001, s 459G, for an order setting aside a creditor's statutory demand dated 18 May 2012 and served on it that day by the first defendant Paul Jones & Associates Pty Limited, claiming a judgment debt of $152,858.64 being a judgment of the District Court of New South Wales arising upon registration of an adjudication certificate under the (NSW) Building and Construction Industry Security of Payment Act 1999. The plaintiff also claims an order quashing the adjudication, for alleged jurisdictional error. Following the exclusion, for reasons previously given [In the Matter of Prime City Investments Pty Ltd [2012] NSWSC 1287], of an affidavit referred to in the s 459G affidavit but not annexed or exhibited to or served with it (or at all, except in earlier proceedings), the chief remaining issues are:

(1) Whether the application was served within the 21-day period after service of the demand;

(2) Whether the plaintiff has a relevant offsetting claim, namely that an entity other than it was the party liable to the defendant under the relevant construction contract, and whether such an offsetting claim is within the scope of the dispute defined by the s 459G affidavit; and

(3) Whether the plaintiff has established jurisdictional error such as to warrant the quashing of the adjudication.

Service

2 The plaintiff, reliant on the evidence of its solicitor Mr Shacklady, says that the originating process was served at the defendant's address for service nominated in the creditor's statutory demand, namely the offices of Messrs Milne Berry Berger & Freedman (MBBF), Solicitors, at 254 Elizabeth Street, Sydney, between 17.05 and 17.10 on 7 June 2012. The defendant, reliant on the evidence of its (former) solicitor, Mr Berger, says that it was not served on that occasion. It is common ground that if it was not served then, it was not served within time, as the 21-day period expired on 8 June 2012.

3 Mr Shacklady's evidence was initially to the effect that he thought he took four copies of the originating process (and supporting affidavit) to the Registry at about 15.30 on 7 June, filed them (copy 1 being retained in the Court file) and returned to Mr Loxton's chambers. Counsel reminded him of the imperative to serve the originating process that day. Either then, or possibly at some later stage before mid-July, he gave one sealed copy to Counsel (copy 2). He retained copies 3 and 4, and with them proceeded to the office of MBBF, with which he was familiar, and left a sealed copy with a female receptionist aged between 20 and 30 with medium length hair; he did not obtain her name.

4 Later, on 12 June, he forwarded by facsimile to Access Lawyers, who had commenced to act for the defendant with effect from 4 June 2012, a facsimile of copy 3. The original of the facsimile bore a seal and signature, which enables it to be distinguished from each of the other copies 1, 2 and 4 - whether original or photocopy cannot be ascertained - so that he must still have had it in his possession, and could not therefore have served copy 3 on MBBF.

5 In the course of his cross-examination, it appeared from examination of the Court file that on 13 July, Mr Shacklady annexed the remaining originally sealed copy from his file (copy 4) to an affidavit of service, which is now in the court file. So he could not have served copy 4 on MBBF. He swore another affidavit of service on 14 July, annexing to it another originally sealed copy (copy 2), which he said he retrieved from counsel for that purpose. In this way, it appeared that all four sealed copies were accounted for: copy 1 is now in the court file as the filed process; copy 2 was originally given to counsel, then annexed to the 14 July affidavit of service; copy 3 must have been retained by Mr Shacklady or served on the second defendant, as a facsimile was served on Access Lawyers and the original is not annexed to any affidavit of service; and, copy 4 is annexed to the 13 July affidavit of service. This would leave no room for an originally sealed copy to have been served on MBBF, as Mr Shacklady claims - unless he made a photocopy of it in Counsel's chambers prior to service (which, given that he says that he asked the Court to seal three copies in addition to the filed original seems unlikely); or that contrary to his own evidence he obtained more than four copies - which on reflection is quite possible, since there were two defendants to be served, a matter apparently overlooked in his original evidence.

6 Mr Berger's evidence was to the effect that there was no record of receipt of the process in the firm's "deliveries" record maintained at its reception; that the firm's systems should have resulted in any such documents upon being served being brought to his attention; that upon inquiry no-one in the office - in particular the two relieving receptionists who could conceivably have met Mr Shacklady's description, but due to their habitual departure times were unlikely to have still been in the office at that time - recalled receiving the documents (but they did not swear affidavits, the evidence being hearsay of Mr Berger); and that the regular receptionist was a male, Mr Croft, who did swear an affidavit to the effect that he did not recall receiving them. However, Mr Berger could not exclude the possibility that service had taken place as deposed to by Mr Shacklady and that there had been some breakdown of the firms' systems.

7 Mr Berger's evidence was persuasive, and no reason to doubt it, so far as it went, appeared. However, he was not able to - and did not - testify that the process had not been served; only that it had not come to his notice and that in accordance with the firm's processes it should have come to his attention had it been served. In that regard, it must be noted that some deviation from the firm's systems could have been accounted for by the circumstance that the defendant had changed solicitors on or about 4 June 2012, of which change MBBF were given notice on 4 June, although they remained the address for service specified in the Creditor's Statutory Demand. The evidence does not reveal when the file was transferred or what became of it. There is no evidence as to whether there is or ever was a sealed copy of the originating process in the defendant's solicitors' file.

8 Other than the accounting for the copies to which I have referred, Mr Shacklady's evidence was also plausible and believable - in particular his reference to having been reminded by counsel to serve it that afternoon, which renders it rather unlikely that he would have overlooked doing so. While it was challenged, it was not directly contradicted by Mr Berger. It was not put that he might have been mistaken as to place or date - the defendant's case was that his evidence was intentionally false.

9 That was the state of the evidence following the conclusion of the original hearing on 13 September 2012. The apparent accounting for the four sealed copies had emerged during cross-examination, largely through questions from the bench prompted by what appeared from an examination of the evidence and the Court file, and the parties were afforded an opportunity to make additional written submissions in that respect.

10 The plaintiff took advantage of that opportunity not by making further submissions but by seeking leave to rely on two additional affidavits of Mr Shacklady, made after a further examination of his file, the effect of which was that he in fact obtained a total of six sealed copies, as follows: (1) filed with the Court; (2) annexed to affidavit of service of 14 July; (3) facsimile served on Access Law on 12 June, original not accounted for; (4) annexed to affidavit of service of 14 July; (5) retained on Mr Shacklady's file; and (6) served on second defendant. Reproductions of the various copies, all of which have identifiable differences so as to establish that they are copies of different originals, confirm the accuracy of this evidence and that his previous recollection that he thought he obtained four sealed copies was incorrect. This is all the more likely once it is appreciated that he would have needed copies for service on the second defendant and (as he understood it) the related affidavit of service, which his earlier evidence overlooked. I therefore accept that he obtained six sealed copies, which are accounted for as set out earlier in this paragraph. That leaves the original of sealed copy 3, a facsimile of a photocopy of which was sent to the defendant's new solicitors, Access Law, on 12 June, unaccounted for.

11 Mr Shacklady added that after returning to Counsel's chambers and before serving the process, he left chambers to have a photocopy made (at Printer's Devil in Elizabeth Street, near King Street, as the photocopier in counsel's chambers was not operating) of the sealed copy that he intended to serve at MBBF, and then returned to Counsel's chambers before proceeding to serve the process at MBBF. He said that the copy faxed to Access Law on 12 June was the photocopy of the sealed copy that he served on MBBF, which was copy 3.

12 Given the way in which the issue had arisen on 13 September, on 22 October 2012, I granted leave to the plaintiff to adduce Mr Shacklady's further affidavit evidence, subject to further cross-examination, and for that purpose there was a further hearing on 5 November 2012, when Mr Shacklady was, unsurprisingly, further cross-examined closely as to the inconsistencies in his various versions.

13 The evidence and cases presented allow only two explanations of the established facts. The explanation proposed by the defendant is essentially that having issued the process and obtained six sealed copies on 7 June, when the last day for service was 8 June, Mr Shacklady (i) on 7 June, overlooked effecting service on MBBF; (ii) on or prior to 12 June obtained a photocopy of sealed copy 3 (presumably still having the original) and transmitted it by fax to Access Law; (iii) on about 18 June, it having been asserted that the process had not been served in time, falsely represented to Access Law that he had served it on MBBF; (iv) on 13 and 14 July, swore two false affidavits of service; and, (v) at some stage, presumably after 12 June, coincidentally lost (or deliberately disposed of) the original of sealed copy 3. The alternative explanation proposed by the plaintiff is that having issued the process and obtained six sealed copies on 7 June, (1) Mr Shacklady obtained a photocopy of sealed copy 3; (2) he then served sealed copy 3 at MBBF, where a person other than the usual receptionist was present in or came to reception, it being after 5:00pm, and received it; (3) for some reason - perhaps that it was received by a non-regular receptionist out-of-hours - it was not recorded in the delivery register (which is in any event a fairly sparse record, and I would not on that account be prepared to infer from the absence of any record in it that an item had not been received); (4) for some reason - again perhaps associated with its being received by someone other than the regular receptionist, and perhaps also associated with the firm having ceased to act for the defendant - the process did not come to Mr Berger's or Mr Rupell's attention; (5) on 12 June, when he transmitted the photocopy of copy 3 to Access Law, its original was not in his possession, because it had already been served on MBBF; and (6) his response on or about 18 June to the effect that the process had been served on 7 June represented his true and accurate recollection of a very recent event.

14 Mr Phillips, for the defendant, submitted that while the evidence to the effect that there were six sealed copies could be accepted, the further evidence concerning the making of the additional photocopy at Printer's Devil was fanciful, and that unless it was accepted, Mr Shacklady could not have had a photocopy of copy 3 to fax to Mr Mitchell at Access Law. The progressive evolution of Mr Shacklady's evidence, and the associated inconsistencies, mean that his evidence is not without its difficulties. The evidence about Printer's Devil involved a substantial elaboration of Mr Shacklady's earlier evidence, and demands close scrutiny, even suspicion. This is all the more so when aspects of it were capable of corroboration by counsel who appeared for the plaintiff and did not give evidence; but in the way in which this issue arose I think the failure to adduce such evidence (which would have necessitated counsel withdrawing at a late stage of the case) can be regarded as explicable. It is also true that there was no need to obtain any such copy (as not only are copies no longer required for affidavits of service, but when they were required a sealed copy, not a photocopy was required, and there were in any event sufficient sealed copies for that purpose); but it is possible that Mr Shacklady laboured under some misapprehension in this respect, although the fact that ultimately he did not use such photocopy for the purpose of the affidavit of service makes this perhaps the least satisfactory aspect of his evidence. It is also perhaps surprising that he would have taken the time to return to counsel's chambers (at 235 Macquarie Street) rather than proceeding down Elizabeth Street to effect service after obtaining the photocopy, given that he said that his client Mr Houlton (who it emerged in further cross-examination, for the first time, was present in chambers) was allegedly pressing the urgency of effecting service, and 5:00pm was rapidly approaching.

15 On the other hand, the evidence establishes that what was transmitted by facsimile to Access Law on 12 June was a photocopy of sealed copy 3. It follows that at some time prior to sending the facsimile on 12 June, Mr Shacklady must have obtained a photocopy of sealed copy 3. The original of sealed copy 3 is not accounted for - unless it was delivered to MBBF as Mr Shacklady says it was. It would seem unlikely that Mr Shacklady still held sealed copy 3 on 12 June - if he did, why would he not have transmitted the original sealed copy, rather than a photocopy of it? It would also seem many times against the odds that he would by chance transmit a photocopy of the only sealed copy of which a photocopy was apparently made, yet the only one the original of which cannot now be accounted for. Thus it is consistent with what is known of the distribution of the six sealed copies that one had been served on MBBF, and a photocopy of it made before that occurred, although I am acutely conscious that "consistent with" does not by any means amount to "probative of".

16 A conclusion as to whether more probably than not the process was served as Mr Shacklady asserts requires more than consideration of whether it is more probable than not that there was some failure of the systems in MBBF's office; it requires consideration of the whole of the relevant evidence, which crucially includes Mr Shacklady's sworn direct evidence that he served the originating process, against Mr Berger's sworn testimony, more or less to the effect that it is improbable (but not impossible) that it was so served. In a sense, it involves weighing two hypotheses, each objectively improbable, to ascertain which of them is the less improbable explanation of the known facts. But it is not without significance in this context that there is not a direct conflict - while Mr Berger's evidence might support an inference that service was not effected, a conclusion that service was effected would not involve rejection of his testimony, which was to the effect that it is improbable - but not impossible - that service was effected as alleged.

17 No doubt it is relatively improbable (according to the firm's usual practices) that a female receptionist was on duty at MBBF at the relevant time (after 5:00pm); and that the firm's systems failed to bring process served to the attention of the responsible solicitor. But it is not impossible, and it is not impossible that someone else in the office responded, after ordinary business hours, to a call at the front desk. It is on the other hand also relatively improbable that a solicitor would overlook the imperative of prompt service of a s 459G application, yet would assert very soon afterwards (on or about 18 June) that he had served it within time, and then proceed to swear two false affidavits of service.

18 Although Mr Phillips invoked Mr Berger's letter of 20 June 2012, disputing service, I do not think this adds anything to Mr Berger's sworn evidence. The earlier oral assertion on 14 June 2012 to the same effect by Mr Rupell, who had had carriage of the matter at MBBF - as evidenced by the letter from Access Law to MBBF of 19 June 2012 - does add something, because its source was perhaps the person most likely at MBBF to be or become aware of receipt of the process. However, this is not a case in which early disputation of service strengthens the inference that might be available from Mr Berger's evidence, as the relevant effect of the evidence of Mr Berger (and, indirectly, that of Mr Rupell) is not affected by the accuracy of their recollections; the question is whether it should be inferred, from the established circumstance that the process did not come to their attention, that it was not served at MBBF as Mr Shacklady asserts. Mr Phillips also says that Mr Shacklady's evidence is uncorroborated; but one would not expect it to be corroborated in the ordinary course; solicitors serving process do not customarily take corroborating witnesses with them. However, unlike the evidence of early denial, the early assertion of timely service on the part of Mr Shacklady - evidenced by the letter from Access Law to MBBF of 19 June 2012 - does, if in a small way, corroborate his version, which does depend on recollection.

19 Ultimately, the crucial factors are first, that there is direct testimonial evidence that Mr Shacklady served the process on 7 June, as against only indirect evidence to support an inference that he did not, which admits of the possibility that he might have done so; secondly, that the plaintiff's theory is consistent with, and the less improbable explanation of, the established facts - including in particular the transmission of a photocopy of sealed copy 3 to Access Law on 12 June, and the absence of an explanation for the whereabouts of its original unless it was served on MBBF.

20 I therefore find, on the probabilities, that the originating process and supporting affidavit were served on the defendant at MBBF on 7 June 2012, within time.

Offsetting claim

21 In BBB Constructions Pty Ltd v Frankipile Australia Pty Ltd [2008] NSWSC 982; 68 ACSR 1, I observed:

[2] Although in the past it was contentious, it is now well established that the circumstance that a creditor's statutory demand is founded upon a debt arising from an adjudication under the Building and Construction Industry Security of Payment Act does not preclude the setting up of an offsetting claim pursuant to s 459H on an application to set aside such a demand [Greenaways Australia Pty Ltd v CBC Management Pty Ltd [2004] NSWSC 1186; Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553, [18]-[20]; and, in particular, in respect of an offsetting claim Aldoga Aluminium Pty Ltd v De Silva Starr Pty Ltd [2005] NSWSC 284].

[3] An offsetting claim is defined in s 459H(5) as:

a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).

[4] The test for determining whether there is a genuine offsetting claim is whether the Court is satisfied that there is a serious question to be tried that a party has an offsetting claim [Scanhill Pty Ltd v Century 21 Australasia (1993) 47 FCR 451] or that the claim is not frivolous or vexatious [Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37]. In other words, the claim must be bona fide and a truly existing fact and not spurious, hypothetical, illusory or misconceived [Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation [2006] SASC 91; (2006) 94 SASR 269, [46]]. In Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743, Palmer J put it in the following terms (at [18]):

In my opinion, a genuine offsetting claim for the purposes of [Corporations Act] s.459H(1) and (2) means a claim on a cause of action advanced in good faith, for an amount claimed in good faith. "Good faith" means arguable on the basis of facts asserted with sufficient particularity to enable the Court to determine that the claim is not fanciful. In a claim for unliquidated damages for economic loss, the Court will not be able to determine whether the amount claimed is claimed in good faith unless the plaintiff adduces some evidence to show the basis upon which the loss is said to arise and how that loss is calculated. If such evidence is entirely lacking, the Court cannot find that there is a genuine offsetting claim for the purposes of s.459H(1) and (2).

22 In Ettamogah Pub (Rouse Hill) Pty Limited v Consolidated Constructions Pty Ltd (In Liq) [2006] NSWSC 1450, White J said:

[10] The evidence of Mr O'Brien of the plaintiff on this application is that no formal order was entered. Nonetheless, there is no dispute that the plaintiff is indebted to the defendant pursuant to s 14(4) of the Security of Payment Act for the amount of $1,336,567.48. Nor is it material whether that debt should be properly classified as a judgment debt. The statutory demand was accompanied by an affidavit as required by s 459E(3) of the Corporations Act, even if the debt is not properly classified as a judgment debt.

[11] The procedures provided by the Security of Payment Act were designed to alleviate difficulties which builders experienced in their cash flow whilst their claims for payment under building contracts were mired in litigation or arbitration. The remedies provided by the Security of Payment Act are interim in the sense that the Act does not affect the rights of parties to a construction contract at general law or otherwise under the contract. So much is clear from s 32.

[12] Whilst there can be no dispute that the plaintiff is indebted to the defendant for the amount claimed in the statutory demand, the plaintiff will nonetheless have an offsetting claim equal to the amount of that debt if there is a genuine dispute that the defendant was not contractually entitled to the amount claimed in the payment claims made under s 13 of the Security of Payment Act (see Max Cooper & Sons (Builders) Pty Limited v M & E Booth & Sons Pty Limited (2003) 202 ALR 680; M & D Demir Pty Limited v Graf Plumbing Pty Limited [2004] NSWSC 553; Greenaways Australia Pty Limited v CBC Management Pty Limited [2004] NSWSC 1186; Aldoga Aluminium Pty Limited v De Silva Starr Pty Limited [2005] NSWSC 284; Plus 55 Village Management Pty Limited v Parisi Homes Pty Limited [2005] NSWSC 559; and CCD Group Pty Limited v Premier Drywall Pty Limited [2006] NSWSC 1012).

23 The effect of this is that, although a party the subject of an adverse adjudication under the Security of Payment Act cannot dispute liability to pay under the consequent registered judgment, such an adjudication is not a final determination of the rights of the parties [Building and Construction Industry Security of Payment Act, s 32], and such a party may therefore recover, in an action at law, any amount it is wrongly required to pay under an adjudication. Thus, where it can show a "plausible contention requiring investigation" that casts doubt on the adjudication, it will have a genuine offsetting claim that corresponds in quantum to the judgment based on the adjudication.

24 In this case, the plaintiff contends that it was not a party to nor liable under the relevant construction contract pursuant to which the judgment debt arises. The defendant argued that a dispute on this basis was not within the scope of the dispute described in the s 459G affidavit, and accordingly - on the Graywinter principle - that it was not open to the plaintiff to rely on it. However, aside from the admission of service and reference to the other affidavit (which I rejected), the only substantive matter in the s 459G affidavit was as follows:

[7] I am also authorised to speak on behalf of Avenue Ten Pty Limited ACN 082 230 153 ("Avenue Ten").

[8] Annexed hereto and marked "B" is a copy of a Statement of Claim filed in the District Court of New South Wales, matter number 2012/179302, between Avenue Ten, the first defendant and Asquared Planning Pty Limited.

[9] Avenue Ten brings those District Court proceedings on the basis that it was the contracting party in respect of the matters being the subject of the first defendant's statutory demand and as deposed by me in my affidavit of 20 March 2012 referred to above.

25 In my view, the only sensible inference available from that material in the context of a s 459G affidavit is that the basis of the dispute raised by the plaintiff was that it was not the party truly liable. Although it proposed that Avenue Ten was, I do not think that narrows the scope of the dispute, which was in essence that it was not Prime, but another entity, that was the party responsible for the defendant's fees the subject of the adjudication.

26 The contract was for architectural services in relation to a proposed development at Mosman. Each of Mr Jones and Mr Houlton gave evidence, which was of very little utility, as to who he intended or regarded (subjectively) to be the client. What is important is not their subjective intentions, but the objective indicia. Prime's principal, Mr Houlton, had had previous dealings with the defendant of this type. The first was in respect of a property in Alison Road Randwick, in respect of which Prime was undoubtedly the nominated contracting party. The second was at Cremorne, in respect of which it seems that Avenue Ten Pty Limited was the nominated contracting party. In respect of the subject project at Mosman, Mr Jones on behalf of the defendant issued a fee proposal letter on 12 April 2010 addressed to Prime, but amended this - he says at Mr Houlton's request - to Pancontinental Property Services Pty Ltd (PanCon). Mr Houlton denies having given that instruction - he says that he had no company or business by that name - but says that he instructed substitution of Avenue Ten Pty Limited. Drawings prepared in connection with the project identify the client as Avenue Ten. The development application was lodged in the name of Avenue Ten. Mr Phillips pointed to conversations deposed to by Mr Jones to the effect that the plaintiff would remain the liable party, notwithstanding the change of the contracting party; but these conversations are disputed by Mr Houlton, and although Mr Jones has a file note of one of them, it cannot be said that they are so inherently probable as not to admit of reasonable dispute.

27 While the ultimate outcome might not be clear, it is clear enough that there was a deliberate decision to change the identity of the nominated contracting party, to the intent that it not be Prime. The result might be that the party liable under the construction contract was Avenue Ten (as Mr Houlton would have it) or PanCon, or Mr Houlton personally (whether on the basis that he was the true client throughout, or that he was acting as the agent of PanCon, a non-existent principal). But it is distinctly arguable that it was not Prime.

28 There is therefore a plausible contention requiring investigation that the plaintiff was not a party to, or liable under, the construction contract. Accordingly, the plaintiff has a genuine offsetting claim, in an amount equal to the demand. The Creditor's Statutory Demand should therefore be set aside.

Insufficient evidence of error to set aside adjudication

29 The grounds on which an adjudication under the Security of Payment Act can be reviewed are limited, but include essentially what falls within the scope of "jurisdictional error" [Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393; (2010) 272 ALR 750; [2010] NSWCA 190; cf Holmwood Holdings Pty Ltd v Halkat Electrical Contractors Pty Ltd (2006) 22 BCL 285; [2005] NSWSC 1129]. There will be such error where an Adjudicator wrongly identifies a party liable under the construction contract, as only a party so liable is amenable to the adjudication process [Grave v Blazevic Holdings Pty Ltd [2010] NSWCA 324].

30 Although, as I have said, the evidence adduced before me shows a "plausible contention requiring investigation" that Prime was not the contracting party, it falls well short of establishing that the Adjudicator was in error in reaching the conclusion, as he apparently did, that it was. None of the evidence one would normally expect to see on such an application - for example the adjudication application, adjudication response and the adjudicator's decision - are before the Court. This makes it quite impossible to be satisfied that the adjudicator was in error.

31 On the evidence before the court, error on the part of the adjudicator such as would vitiate the adjudication is not established.

Conclusion

32 My conclusions may be summarised as follows:

33 The originating process and supporting affidavit were served on the defendant on 7 June 2012, within time.

34 There is a plausible contention requiring investigation, that Prime was not party to and liable under the construction contract. Accordingly, the plaintiff has a genuine offsetting claim, in an amount equal to the demand. The Creditor's Statutory Demand should therefore be set aside.

35 On the evidence before the court, error on the part of the adjudicator such as would vitiate the adjudication is not established.

36 My orders are:

(1) Order that the Creditor's Statutory Demand issued and served by the first defendant on the plaintiff on 18 May 2012 be set aside;

(2) Order that the proceedings be otherwise dismissed.

37 As to costs, the plaintiff has succeeded on its application to set aside the Creditor's Statutory Demand, but failed in its application to set aside the adjudication, although the latter application occupied only a relatively minor part of the proceedings. In addition, a very substantial amount of the evidence relied on in support of the application was rejected. For those reasons, I would have deprived the plaintiff of 40% of its costs, so that but for the following consideration I would have ordered that the defendant pay 60% of the plaintiff's costs up to and including the initial hearing on 13 September. However, the subsequent additional evidence and submissions and the re-opening of the hearing was an indulgence granted to the plaintiff and was necessitated by the deficiencies in its original evidence. This considerably increased the costs of the hearing, and the plaintiff should bear those costs. Accordingly, I make the following further orders:

(3) Order that the defendant pay 60% of the plaintiff's costs of the proceedings, other than those incurred between 14 September and 5 November 2012 inclusive;

(4) Order that the plaintiff pay the defendant's costs of the proceedings incurred between 14 September and 5 November 2012 inclusive.

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Decision last updated: 31 January 2013