The Federal Court has ordered a builder to pay costs on the
indemnity basis for refusing to withdraw a statutory demand based
on a BCIPA adjudication.
The decision in Tesoro MB Pty Ltd v Total Building Group Pty
Ltd  FCA 802 (24 July 2009) provides important
clarification on the law relating to statutory demands in the
context of adjudications under the Building and Construction
Industry Payments Act 2004 (Qld) (BCIPA).
The BCIPA gives builders a fast-track mechanism for the
adjudication of disputes. An adjudication decision can be
registered and enforced as a judgment, but the parties still retain
their right to bring proceedings at a later stage to challenge the
Statutory demands can be served on a company in relation to
debts where there is no genuine dispute or offsetting claim. If the
demand is not complied with, the company will be presumed to be
insolvent and this can be relied upon to liquidate the company.
In the Tesoro case, a builder issued a statutory demand
claiming an amount under an adjudication certificate which had been
registered as a judgment.
Cooper Grace Ward, acting for the principal, sent detailed
correspondence to the builder explaining that the demand was liable
to be set aside because of the principal's right to challenge
the adjudication in subsequent proceedings. The builder refused to
withdraw the demand and so the principal commenced proceedings to
set the demand aside.
By the time of the hearing, the demand was withdrawn, but that
was not enough to prevent the Federal Court from ordering the
builder to pay the principal's costs on the indemnity
Justice Logan found that, in the face of Cooper Grace Ward's
detailed correspondence explaining why the demand should be
withdrawn, the stance taken by the builder was
"imprudent". Referring to the strict deadline for
applying to set aside a statutory demand, his Honour noted:
It is difficult to see how Tesoro could have done more, given
that strict time limit, to put Total Building Group on notice as to
why it was that the demand ought to have been withdrawn.
The significance of the Tesoro case is that it marks the first
nail in the coffin for the Queensland Supreme Court's decision
in Peekhurst P/L v Wallace  QSC 159.
In Peekhurst, Justice Douglas refused to set aside a
statutory demand which had been issued to recover an amount owing
under a disputed BCIPA adjudication. In effect, Peekhurst
suggested that a principal's right to challenge the
adjudication outcome was not a sufficient basis to set aside a
statutory demand. This was contrary to a line of authority from the
New South Wales Supreme Court.
In the Tesoro case, Justice Logan criticised the
Peekhurst decision because it was based on a line of cases
relating to statutory demands for tax debts which have now been
overturned, and because it appeared that Justice Douglas in
Peekhurst had not been referred to the relevant New South
In our view there is strong force the comments of Justice Logan,
and we hope that any future Queensland cases will proceed on the
basis that Peekhurst was wrongly decided.
For builders, the case means that statutory demands will rarely
be an appropriate method of recovering amounts owing under BCIPA
Many retail leases include a covenant to trade, requiring the tenant to open the premises for trade during certain hours.
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