What a relief! Statutory demand brought back to ground

In the case of Grounded Construction Group Pty Ltd v KW Civil & Construction Pty Ltd [2025] WASC 307, the Supreme Court of Western Australia considered whether a statutory demand issued in reliance on an adjudication determination under the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOP Act) should be set aside or varied on the basis of an abuse of process and the existence of genuine offsetting claims.

The facts

On 1 June 2023, the plaintiff entity, Grounded Construction Group Pty Ltd (Grounded), entered into a subcontract with the defendant entity, KW Civil & Construction Pty Ltd (KW), to perform particular civil works for Hammersley Iron Pty Ltd in relation to the Rocklea Palms Village Expansion Project in Paraburdoo (Project).

Relevantly, KW issued two payment claims for works performed at the Project. The first claim issued in December 2023, sought payment of $920,129.35 (First Claim Amount).  The second claim issued in May 2024, sought payment of $1,585,203.10 for all works performed to the date of the claim (Second Claim Amount).

In June 2024, KW commenced proceedings against Grounded seeking recovery of the First Claim Amount from Grounded.  Then in July 2024, KW commenced another set of proceedings seeking adjudication of the Second Claim Amount under the SOP Act.  The adjudicator ultimately awarded KW the sum of $1.03 million in respect of that claim (Adjudication Determination Amount).  On 10 September 2024, KW issued a statutory demand against Grounded for non-payment of the Adjudication Determination Amount.

Application to set aside

Grounded applied to have the statutory demand set aside citing a genuine offsetting claim to the demand amount or, in the alternative, that the statutory demand constituted an abuse of process.

Three primary issues were before the Court¹:

• Issue 1 – Whether the affidavit evidence initially filed by Grounded was sufficient to meet the minimum statutory requirements of s 459G of the Corporations Act 2001(Cth) (Act) to properly raise the offsetting claims and abuse of process argument.
• Issue 2 – Whether Grounded sufficiently demonstrated that it had ‘true’ and ‘genuine’ offsetting claims for the purposes of s 459H(1)(b) of the Act.  Grounded contended it had three offsetting claims for liquidated damages, damage to property, and backcharges.
• Issue 3 (in the alternative) – Whether Grounded had sufficiently demonstrated that the statutory demand constitutes an abuse of process for the purposes of s 459J(1)(b) of the Act. Grounded contended an overlap between the amount claimed in the adjudication proceeding (and therefore the statutory demand) and that the statutory demand was being maintained in circumstances in which KW knew or ought to have known that Grounded was solvent.

The Judge’s reasons include a detailed summary of the relevant legislative framework within Division 3 Part 5.4 of the Act which formed the statutory basis for Grounded’s application.  The primary provisions addressed were sections 459G, 459H and 459J of the Act.

Relevant to this matter, a Court may set aside a statutory demand if it is satisfied that there is ‘some other reason’ to do so pursuant to section 459J(1)(b) of the Act.  Also, pursuant to section 459H(1)(b) of the Act, a Court may also set aside a statutory demand where it is satisfied the company has an offsetting claim.

Issue 1 – Sufficiency of evidence

In determining whether Grounded had a genuine offsetting claim, the Court considered the sufficiency of the evidence relied on to support the existence of the offsetting claim and whether the Court was able to make a reasonable assessment of the quantum of in relation to the amount of the claimed.  KW contended the supporting affidavit did little more than attach documents.

The Judge determined that the evidence initially led by Grounded was sufficient to fairly alert KW to the nature of the argument raised against the statutory demand (in accordance with the minimum statutory requirements of s 459G of the Act and the well-known Graywinter² decision) and that it was permissible for Grounded to supplement that evidence with further affidavit material after the statutory timeframe had expired.

Issue 2 – Offsetting claim

Grounded relied on s459H of the Act to argue that it was entitled to liquidated damages against KW for delayed completion of the works, back charges for providing an operator to perform KW’s work under the contract and for property damage alleged to be caused by KW.

The Court noted that the SOP Act provides a procedure for the swift determination of payments and such determination does not affect any rights that a party to a construction contract may have under the contract or may have apart from the legislation in respect of anything done or omitted to be done under the contract.

The offsetting amounts had been previously ventilated, and rejected, in the adjudication application under the SOP Act.  Notwithstanding, the Court held that Grounded was not precluded from raising these claims as “offsetting claims” for the purposes of section 459H of the Act.  Accordingly, the Court was satisfied there was a genuine claim which would warrant a reduction or set off to the statutory demand claim amount.

Issue 3 – Abuse of process

Grounded contended there was an overlap between the amount claimed in the adjudication proceeding (and therefore the statutory demand) and that the statutory demand was being maintained in circumstances in which KW had accepted that Grounded was solvent.

The Court held that notwithstanding KW’s indications to both Grounded and the Court that that it will not prosecute or duplicate claims in the recovery proceedings so as to ensure no overlap with amounts claimed in the statutory demand, the existence of parallel proceedings with differing objectives (being recovery proceedings on one hand and the statutory demand on the other) gave rise to an abuse of process.  There was an inconsistency between the two processes, one being to extract payment from Grounded and the other to obtain an event of insolvency in circumstances for failure to comply with the statutory demand.

It was not necessary for the Court to make a finding of an abuse of process on the part of KW based on alleged knowledge of solvency given the above conclusion with respect to inconsistent parallel proceedings.

In setting aside the statutory demand, the Court held that KW ought not have served the statutory demand on Grounded while the recovery proceedings (which was seeking relief in respect of overlapping amounts) was on foot.

Lavan comment

This case is a useful reminder that a statutory demand may be set aside pursuant to section 459J(1)b) of the Act where inconsistent parallel proceedings are on foot.

The case also highlights the importance of considering the potential risks and consequences of issuing a statutory demand while recovery proceedings are on foot and that attempts to limit recovery proceedings to amounts not the subject of a statutory demand might prove to be ineffective.

If you have any questions regarding statutory demands or any aspects of the statutory demand process, the Lavan Restructuring, Disputes and Insolvency team are here to help.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.

Footnotes

[1] Grounded Construction Group Pty Ltd v KW Civil & Construction Pty Ltd [2025] WASC 307, [21].

[2] Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452; Sceam Constructions Pty Ltd v Clyne [2021] VSCA 270 [12].