Re J Build Developments Pty Ltd [2022] VSC 434 (4 August 2022): s 459G Corporations Act, whether genuine dispute is also a payment claim under Building and Construction Industry Security of Payment Act,

November 20, 2022 |

In Re J Build Developments Pty Ltd [2022] VSC 434 Hetyey AsJ set aside a statutory demand on the basis that there was a genuine dispute in the context of a notice being issued under the Building and Construction Industry Security of Payment Act 2002.


The facts in applications to set aside statutory demand relating to construction contracts and building works invariably have complicated and involved factual issues.  This case is no exception.

On 26 June 2020, J Build entered into a $2.9 million building contract with Abboud Corporates Pty Ltd to construct three double-storey residential dwellings at 10 Glyndon Road, Camberwell, Victoria (‘the head contract’ and ‘the property’, respectively) [2].

AES is a mechanical and electrical services provider specialising in heating, ventilation, air conditioning and associated electrical work [2].

On or about 24 February 2020, Jamiel Daou (“Daou”),  a director of J Build, texted Wright, the sole director of AES, asking for  a quotation  for the supply and installation of ducted heating and cooling air-conditioning systems in each of the units at the property (‘the sub-contracting works’).  There was a subsquent telephone conversation between the two the contents of which are in contention.

On 5 March 2020, AES provided JB Build with a quotatio of $88,002.64 inclusive of GST.

Prior to 22 October 2020, JB Build requested that revisions be made to the quotation. On 22 October 2020, AES issued a second quotation for $101,507.09 (inclusive of GST) [6].

On or around 27 October 2020, the parties discussed a further variation which would provide a cost saving to the plaintiff of between $5,000 and $6,000 and reduce the contract price contained in the second quotation [7]. On 28 October 2020, Wright emailed Daou requested confirmation of the revised second quotation with Daou responding via email  with the word ‘[a]pproved’ [8].

On 31 October 2021, AES issued an invoice for $16,874.55 (inclusive of GST) regarding work performed between 28 October 2020 and 31 October 2020,  payable by 14 November 2020 but paid on 7 December 2020 [10].

Wright and Daou  had a site meeting at the property on or around 5 February 2021 where they discussed the need for further variations to AES’ scope of work [11]. AES issued J Build with a further revised quotation on 14 May 2021, documenting additional proposed revisions to the scope of work and increasing the contract price to $109,047.31 (inclusive of GST) (‘the third quotation’). A signed acceptance of the third quotation was returned to AES via email later that day [12].  AES rendered an invoice in the sum of $81,504.61 (inclusive of GST) (‘the second invoice’)  to J Build by email on 14 On 31 May 2021. AES required payment by 30 June 2021. J Build didn’t pay by this date and in or around July 2021, AES stopped work [13]. J Build paid AES $41,504.61 on 22 July 2021 and $5,000 on 20 September 2021 [15], leaving $35,000 owing in respect of the second invoice.

On 4 October 2021, AES served a notice under s 18(2) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (‘the SOP Act’) on J Build,   J Build responded the next day by sending AES a payment schedule informing AES that it proposed paying nil in respect of the second invoice on the basis that works had not been completed. No adjudication application was ultimately pursued by AES [16].

On 14 October 2021 AES instructed its solicitors to issue and serve the statutory demand claiming the  $35,000 as ‘monies due and owing pursuant to [AES’] tax invoice no 6394 dated 31 May 2021,’ which refers to the second invoice. The statutory demand did not annex a copy of the second invoice [17].

J Build commenced this application  on 3 November 2021 [18].

The defendant contended that:

  • the second invoice referred to in the statutory demand constitutes a ‘payment claim’ within the meaning of s 14 of the SOP Act which was not effectively challenged by way of a ‘payment schedule’ served within time and is therefore due and payable by force of statute and beyond challenge.
  • J Build was precluded from contending the existence of any genuine dispute about the subject of the statutory demand in this proceeding.


The court, at [21],defined the issues for determination as:

(a) is there a genuine dispute under s 459H(1)(a) of the Act that the defendant’s invoice the subject of the demand (ie the second invoice) is a ‘payment claim’ which satisfies the requirements of s 14 of the SOP Act? In particular, is there a genuine dispute whether:

(i) the invoice was served outside of the required time for the defendant to serve a valid payment claim in respect of a progress payment in accordance with ss 9 and 10(4) of the SOP Act?; and/or

(ii) the ‘claimed amount’ in the invoice impermissibly includes ‘an amount that relates to a variation of the construction contract that is not a claimable variation’ and is therefore an ‘excluded amount’ as defined in s 10B of the SOP Act?;

(b) depending on the answers to the above, is the plaintiff precluded from contending the existence of any other genuine dispute about the statutory demand?;

(c) … is there a genuine dispute under s 459H(1)(a) of the Act about the existence of the debt the subject of the demand having regard to the contractual terms agreed between the parties?;

(d) does the plaintiff have partially offsetting claims against the defendant pursuant to s 459H(1)(b) of the Act in respect of:

(i) recovery of overpayment to the defendant according to the contractual terms as agreed between the parties?; and/or

(ii) costs incurred by J Build relating to AES’ failure to remove rubbish and excess materials left at the property?; and

(e) should the statutory demand be set aside for ‘some other reason’ under s 459J(1)(b) of the Act?

Regarding an applications to set aside statutory demands the court noted:

  • the prescribed form for a statutory demand is Form 509H,  found in Schedule 2 of the Corporations Regulations 2001 (Cth);
  • Rule 5.2 of the Supreme Court (Corporations) Rules 2013 (Vic) (‘the Corporations Rules’)  states that the affidavit accompanying a statutory demand must:
    • ‘be in accordance with Form 7 and state the matters mentioned in that Form’. Paragraph 1 of Form 7
    • specify the amount of the debt or debts owed by the debtor company to the creditor.
    • state:

‘..[the] nature of [the] debt, or debts, ensuring that what is stated corresponds with the description of the debt, or debts, to be given in the proposed statutory demand, with which … [the] affidavit is to be served on the debtor company’.

  • under s 459H of the Act, the Court must calculate the ‘substantiated amount’ of the demand in accordance with the formula prescribed in s 459H(2).
  • under section 459H(3) where the substantiated amount is less than the statutory minimum, the Court must set the demand aside [27].
  • regarding a genuine dispute under s 459H(1), at [28] :
    • it must be ‘bona fide [28(a)]
    • it must truly exist in fact’ [28(a)];
    • the grounds for alleging the existence of a dispute mmust be real and not spurious, hypothetical, illusory or misconceived’ [28(b)];
    • must have a ‘sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile …
    • is something “between mere assertion and the proof that would be necessary in a court of law” may suffice’ [28(c)];
    • may involve a ‘plausible contention requiring investigation’ [28(d)]
    • raises the same sort of considerations as the ‘serious question to be tried’ test that applies in the case of interlocutory injunctions [28(e)];
    • the Court should not uncritically accept statements about an alleged genuine dispute which are ‘equivocal, lacking in precision, inconsistent with undisputed contemporary documents … or inherently improbable …’ [28(e)];
    • if it appears to be something ‘merely created or constructed in response to the pressure represented by the service of the statutory demand’, then it is not advanced in good faith and will not be regarded as genuine [28(f)];and
    •  the Court will not deal with the merits and nothing of substance will be decided [28(g)].
  • the principles applying to a genuine dispute equal applies to set aside a statutory demand on the basis of an offsetting claim with the following additional principles:
    • a genuine offsetting claim ‘means a claim on a cause of action advanced in good faith, for an amount claimed in good faith’ [29(a)].
    • ‘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 [29(a)];
    • there must be some evidence to indicate the:
      • nature of the offsetting claim and
      • the way in which it is calculated,
      • any loss [29(b)]
    •  it is not necessary to particularise the offsetting claim to the last ‘dollar and cent’ [30]
    • the evidence need only be:
      • sufficient for the Court to make an estimate of the amount of the offsetting claim [30],
      • capable of being quantified in monetary terms [30]
    • it is not ordinarily an occasion for the Court to construe a contract where its meaning is in dispute [31].
  • under section 459J applications:
    • sub-paragraphs (a) and (b) of s 459J(1) are mutually exclusive.
    • the only source of power to set aside a demand on the basis of a defect is found in s 459J(1)(a) [33]
    • the term ‘defect’ is given a wide and inclusive definition and may encompass:
      • an irregularity,
      • a misstatement of an amount or total,
      • a misdescription of a debt or other matter,
      • a misdescription of a person or entity [33].
    • ‘defect’does not imply any degree of proportionality or distinguish between defects which are major or minor in nature [33].
    • [the ‘other reason’ required by s 459J(1)(b) cannot be a defect in the demand [33]. Something else is required.
    • the something else includes ‘conduct that may be described as unconscionable, an abuse of process, or which gives rise to substantial injustice’ [33].
    • the discretion is broad
    • the Court’s power under the sub-section exists to maintain the integrity of the statutory demand procedure in Part 5.4 of the [Act] and to counter its subversion [33].

Regarding the operation of hte SOP Act the court stated:

  • the procedure involves the:
    • contractor claiming payment (‘the claimant’),
    • the recipient providing a payment schedule which identifies any aspect of the claimed amount which is disputed,
    • under section 15(4) of the SOP Act if the respondent does not serve a payment schedule in response, they become statutorily liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates [36].
  • where no payment schedule is served by the respondent, the claimant may elect between recovering the unpaid portion of the claimed amount as a debt due to the claimant in any court of competent jurisdiction or making an adjudication application in relation to the payment claim [36].
  • a judgment may not be given unless the court is satisfied of:
      • the existence of the circumstances referred to in s 16(1)
      • the claimed amount does not include any excluded amount [36].

AEC contended that the invoice referred to in the statutory demand is a valid ‘payment claim’ under the SOP Act and as such the debt was made conclusive by statute and cannot now be the subject of a genuine dispute. [37] Both parties accepted that:

  • the question of whether J Build is in fact precluded from contending the existence of a genuine dispute depended upon whether legislative conditions has been met by AEC.
  • a valid payment claim under the SOP Act would not prevent a plaintiff from raising an offsetting claim under s 459H(1)(b) of the Act [37]. 38 Pursuant to s 9(1) of the SOP Act, a person is entitled to a ‘progress payment’ for work undertaken or the supply of goods or services under a construction contract on and from each ‘reference date’ [38]

The plaintiff contended that:

  • 50% of the total contract price was payable prior to commencing work with the balance payable on completion [44]
  • the variation works were not completed at the time of service of the demand or at the time of commencement of this proceeding [45].
  • the incomplete works are itemised in J Build’s payment schedule.

The court noted that  this evidence was not directly contradicted and is corroborated by the narrative contained in the second invoice [45].

Genuine Dispute

The court was satisfied there was a genuine dispute:

  • that the second invoice the subject of the statutory demand was served before the reference date which gave rise to the defendant’s entitlement to a progress payment which made it not a valid progress claim for the purpose of the SOP Act.
  • as to the identification of the applicable reference date. [50].

The court stated that in ascertaining the ‘amount’ of a progress claim, certain ‘claimable variations’, which may arise from variations to the construction contract, may be taken into account. Claimable variations are defined exhaustively within s 10A of the SOP Act, as falling into two classes of variations, which are discussed below. An ‘excluded amount’:

  • must not be taken into account in calculating the amount of any progress payment,
  • must not include an excluded amount.
  • includes any amount which relates to a variation of the construction contract that is not a claimable variation [53].

Where there is a dispute about the extent to which excluded amounts are being claimed, that is a matter for adjudication [54] & where a claimant seeks recovery of a payment claim in court, the court is not to give judgment in favour of the claimant unless it is satisfied that the claimed amount does not include any excluded amount.  A payment claim containing an excluded amount is still valid and potentially give rise to a statutory liability under s 15(4) if a payment schedule is not provided in time.

The second invoice is unlikely to fall within the first class of claimable variation in s 10A(2)(a) of the legislation which contemplates work which the parties agree has been carried out or goods and services which the parties agree have been supplied [55].

Because there is a plausible contention that some or all of the variation work in the second invoice was not carried out as a matter of fact, it is unclear whether that work falls within the second class of claimable variation contemplated by s 10A(3)(a) of the SOP Act or represents an excluded amount [57]. As such there is a genuine dispute about whether the second invoice impermissibly claimed excluded amounts [58].

The Court found:

  • there was no conclusive statutory bar preventing the plaintiff from raising grounds of genuine dispute in relation to the debt the subject of the statutory demand [58]
  • having regard to the the terms and conditions contained within the various quotations provided by the defendant to the plaintiff there is a genuine dispute as to the existence of the debt the subject of the demand.
  • the ways there is a genuine dispute are:
    • a genuine dispute as to whether the terms comprising the contractual relationship between the parties were located solely within the terms and conditions and the other document titled ‘Conditions’ which accompanied the relevant quotations provided by AES, or whether the terms were varied or superseded by oral agreement between the parties [75].  Whether an oral agreement varied the written terms of the agreement in place between the parties is a triable issue [76]
    • even if the written terms and conditions were not displaced/ modified by oral agreement, there are unresolved questions as to the proper construction of those terms as aspects of the written documentation are internally inconsistent and ambiguous [77].
    • there is a genuine dispute in relation to whether the ‘commercial’ or ‘domestic’ category of the table applies [78].
    • depending on the applicable classification of the agreement between the parties as ‘commercial’ or ‘domestic’, different payment amounts at different intervals are required [81].
    • it is not appropriate for the Court to decide between the plausible and competing constructions of the relevant agreement in an application to set aside a statutory demand under s 459G of the Act [84]
    • a genuine dispute as to whether the defendant is entitled to payment for work not yet completed. It is not possible for the Court to calculate the ‘substantiated amount’ for the purposes of ss 459H(2) and (5) of the Act in order to vary the statutory demand under s 459H(4) [85]

Section 459J Ground

The plaintiff submitted that that the statutory demand and the accompanying affidavit are defective because they describe the debt claimed in the demand of $35,000.00 as ‘relating to monies due and owing pursuant to [the second invoice]’ in circumstances where that invoice was for a materially different amount of $81,504.61 [102].

His Honour summarised the legal principles as:

  • in LSI Australia v LSI Holdings the court stated that the need for a statutory demand to clearly and unambiguously articulate the matters required by s 459E of the Act [104]
  • in Re Simmoll Pty Ltd  the court held that the statutory demand must put the debtor company on notice in an unambiguous way of the matters the legislation requires:
    • the nature of the debt a statement that the debt is due and payable;
    • an explanation of how the amount claimed is composed or calculated.
  • in Pluton Resources Limited (Recs and Mgrs Apptd) v Lefty Resources Pty Ltd,  the court said there will not be a substantial injustice when the statutory demand makes clear sufficient information so that a debtor, if its own record keeping has been adequate, is able to determine whether it is liable for the amounts claimed [106].

The Court found that:

  • the demand and its affidavit are not presented in such vague and ambiguous terms that they would fail to explain to a reasonable person in the position of director of the plaintiff the general nature of the alleged debt to which it refers and how it is composed [107].
  • the demand clearly refers to the amount which is outstanding against the second invoice [108].
  • the plaintiff had sufficient familiarity with the demand’s subject matter without having to speculate as to how the sum claimed was arrived at [108].
  • when considering the demand alongside the second invoice and the plaintiff’s own record of payments, it would have been readily apparent to a reasonable person in the position of the plaintiff’s director that the sum specified in the statutory demand ($35,000) has been calculated by subtracting the total payments received from the plaintiff ($46,504.61) from the amount of the second invoice ($81,504.61) following its service [108].
  • even if the discrepancy and ambiguity complained of by the plaintiff gave rise to a defect under s 459J(1)(a), it did not cause any substantial injustice [109].

Regarding the submission that the accompanying affidavit failed to verify the nature of the debt relied upon as required by s 459E(3)(a) of the Act the court noted:

  • that in Growth Equities Corporation Ltd  an invoice of its nature cannot in general create or be the source of a debt. It has the character of a request or demand for payment in respect of a sum for which liability has already arisen from some independent source, such as by the supply of goods or services [111].
  • in AMD Resources found that referring to an invoice or statutory demand does not satisfy the requirements of s 459E(3), to state the nature of the debtor debts relied upon.  The obligation of verification extends  to the nature of the debt claimed which is the foundation of the statutory demand. Even if the reference to the debts in the statutory demand is a reference to the unpaid invoices that is  insufficient if it does not refer to what the invoices were in relation to. The invoices do not create the debts but merely record the claims [113].
  • in Aromas Café the Court  held that reference in the supporting affidavit to mere invoices rather than the underlying contractual debts did not provide requisite verification of the debt claimed in the demand as required by s 459E(3)(a) however it was only when this deficiency was taken together with other (and arguably more serious) matters that there was held to be ‘some other reason’ to set the demand aside under s 459J(1)(b) [115].
  • iIn Re Simmoll  the court noted that the authorities make clear that a failure by a creditor to properly verify matters required by the prescribed form of affidavit found in Form 7 of the Corporations Rules may constitute ‘some other reason’ to set aside the statutory demand under s 459J(1)(b) of the [Act]  and the absence of a specific reference to the nature of the debt in the affidavit may warrant the setting aside of the statutory demand under s 459J(1)(b) of the legislation and/or where the subject words of the affidavit are ambiguous [116].

While the supporting affidavit referred to the second invoice and not the underlying contractual basis pursuant to which goods and services were provided meant the affidavit does not strictly conform with Form 7 of the Corporations Rules and s 459E(3)(a) that  deficiency, of itself, was not sufficient for the Court to exercise its discretion to set aside the statutory demand for ‘some other reason’ under s 459J(1)(b) of the Act [120]. There were no additional factors and circumstances in this case which, when taken in combination, would justify an order setting aside the demand for ‘some other reason’ under s 459J(1)(b) [121].

The Court set aside the statutory demand will be set aside by reason of a genuine dispute pursuant to s 459H(1)(a) of the Act and because of an associated offsetting claim under s 459H(1)(b) of the legislation [122].


Great care needs to be taken in issuing a statutory demand where the creditor is also relying on the SOP Act which has a very strict and technical requirements. The Defendant’s argument that the Plaintiff could not contest the invoice in question on the basis that it was a payment claim under the SOP Act was not well received given the lack of clarity in the claim under the SOP Act.

The generally agreed facts also made it clear that the negotiations between the parties were complex, involving variations.  In that context having a demand relying on a poorly worded invoice also provided a, ultimately, successful basis for setting aside the statutory demand.

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