Australian court: application to set aside judgment debt must comply with formalities

The court dismissed an application by Linmas Holdings Pty Ltd (Linmas) to set aside a demand issued by Infigo II Pty Ltd (Infigo) based on an alleged offsetting claim.

When making an application to set aside a judgment debt or adjudicated amount, statutory requirements under the Corporations Act (Cth) (the Act) must be complied with. Parties must ensure that their affidavit evidence in support of the application adequately substantiates its grounds for the application, in line with sections 459(H) and 459(J) of the Act, and that this evidence is filed within the 21-day statutory time period following service of the application. Evidence in support of the grounds to set aside which is filed later than this period will not be capable of being relied on by the applicant at hearing, which may result in the application failing on jurisdictional grounds.

Ideally, where the statutory demand relates to adjudicated amounts under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act), the offsetting claims relied upon should not relate to those canvassed before the adjudicator, to avoid any argument that they should be characterised as claims that the adjudication does not reflect the true legal rights of the parties.

The statutory demand was issued by Infigo in respect of a judgment debt arising from Infigo’s entitlement to an adjudicated amount under the SOP Act. An application to set aside a statutory demand under section 459(G) of the Corporations Act is validly made only if it is filed together with “an affidavit supporting the application” within the 21-day statutory period (‘supporting affidavit’).

The supporting affidavit was provided by Linmas' lawyer, who asserted an offsetting claim on the basis of incomplete and defective work (‘the defects claim’) and liquidated damages, and that Linmas intended to sue Infigo for breach of contract and negligence for damages in excess of the amount in the statutorily required.

During the course of the proceedings Linmas served a number of further affidavits, all from Linmas’ lawyer. These further affidavits asserted various claims, including for the “differential” between the value of the variations awarded by the adjudicator and the value alleged by Linmas in its adjudication response (‘variation differential claim’).

At the hearing, Linmas limited its offsetting claim to the defects claim and the variation differential claim.

Judge Williams found that the court had no jurisdiction to set aside the statutory demand on the basis of the variation differential claim as it was not raised in the supporting affidavit. In addition, even if it was, it should be characterised as a claim that the adjudication does not reflect the true legal rights of the parties – and that this does not amount to an offsetting claim.

Judge Williams found that while the defects claim was sufficiently raised in the supporting affidavit, neither in the supporting affidavit nor any subsequent affidavits did Linmas adduce sufficient evidence to establish the claim given that works had not been carried out and the property had been transferred to a different but related entity.

Co-written by Benjamin Mann of Pinsent Masons.