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 adjudication outcome.
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By the time of the hearing, the demand was withdrawn, but that was not enough to prevent the Federal Court from ordering the builder to pay the principal’s costs on the indemnity basis.
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Logan found that, in the face of Cooper Grace Ward’s detailed correspondence explaining why the demand should be withdrawn, the stance taken by the builder was “imprudent”.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given that strict time limit, to put Total Building Group on notice as to why it was that the demand ought to have been withdrawn.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 Wales authorities.
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 adjudications.
The Tesoro decision is available online at http://www.austlii.edu.au/au/cases/cth/FCA/2009/802.html.