Abuse of process in first-of-its-kind case in Western Australia sees statutory demand set aside

Thomson Geer has successfully had a statutory demand against a client set aside in a first-of-its-kind judgment in Western Australia that considered the interaction between the provisions of the Building Industry (Security of Payments) Act 2021 (WA) (SOP Act) with the statutory demand process under the Corporations Act 2001 (Cth) (Corporations Act).

The Western Australia Supreme Court found in Grounded Construction Group Pty Ltd v KW Civil & Construction Pty Ltd [2025] WASC 307 that the statutory demand against Grounded Construction Group (Grounded), which was based on a determination under the SOP Act,  was an abuse of process due to an overlap in the amounts sought in the statutory demand and amounts sought in civil proceedings that had already been commenced.

The decision means parties seeking to enforce an adjudication through a statutory demand will need to carefully consider whether this is an appropriate path to take, especially if there is an overlap between the amount determined in the adjudication and amounts sought in other proceedings already commenced by that party.

The judgment is also a first in Western Australia in confirming that:

1. evidence of things said and done in an adjudication under the SOP Act will not be admissible for the purposes of offsetting claims raised in proceedings to set aside a statutory demand that was issued for the amount determined in the adjudication;
2. an offsetting claim can be raised as a ground for setting aside a statutory demand even if the offsetting claim was raised in an adjudication under the SOP Act and rejected by the adjudicator in the determination; and
3. retention money held as security under a construction contract cannot be applied by the defendant or the Court to reduce the amount of offsetting claims raised by the plaintiff in proceedings to set aside a statutory demand.

Background

The matter arose out of a construction contract between Grounded and KW Civil & Construction Pty Ltd (KWC) with respect to the Rocklea Iron Ore Project, located in Paraburdoo, and civil works performed by KWC pursuant to that construction contract.

On 7 June 2024, KWC commenced proceedings against Grounded in the Supreme Court of Western Australia in which it sought monies allegedly outstanding pursuant to a payment claim from December 2023 (Civil Proceedings).

On 19 July 2024, KWC commenced an adjudication application pursuant to s. 28 of the SOP Act in which it sought a determination with respect to monies allegedly outstanding pursuant to a separate payment claim from May 2024. On 30 August 2024, a determination was issued in favour of KWC (Determination) and the Determination was subsequently certified and taken to be a monetary judgement of a court of competition pursuant to ss. 53 and 54 of the SOP Act.

On 10 September 2024, KWC served a creditor's statutory demand on Grounded in which it sought the amount awarded to it in the Determination (Statutory Demand).

Grounded applied to set aside the Statutory Demand on the grounds that the Statutory Demand constituted an abuse of process (pursuant to s. 459J of the Corporations Act), alternatively, that Grounded had offsetting claims for the purposes of s. 459H of the Corporations Act (Application).

Decision

Abuse Of Process

Both parties accepted that there was an overlap between the amount claimed by KWC in the Civil Proceedings and the amount sought by KWC in the Statutory Demand.  However, KWC's position was that it had given an unequivocal indication to both Grounded and the Court that it would amend the claim in the Civil Proceedings to the extent it overlapped with the amount sought in the Statutory Demand and that this meant no abuse of process had been committed.

The Court found that the unequivocal indication offered by KWC did not resolve the conclusion that there were two parallel proceedings on foot with differing objectives – the Civil Proceedings were designed to extract payment from Grounded and the Statutory Demand was designed to obtain an event of insolvency.

The Court had regard to the New South Wales Supreme Court decisions in Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 and Re Zarzar Pty Ltd [2017] NSWSC 93 and to the Victoria Supreme Court decision in Re Vortex Communications Australia Pty Ltd [2020] VSC 796 and ultimately held that the inconsistency in the purposes between the overlapping parallel processes relied upon by KWC gave rise to an abuse of process.

Admissibility of evidence in an adjudication

KWC raised a number of objections with respect to the affidavit evidence relied on by Grounded in the Application, including that certain aspects of the evidence were inadmissible under s. 55(4) of the SOP Act on the basis the evidence was of things said or done in the course of an adjudication under the SOP Act.

The Court, having regard to and applying the decision of Pritchard J in Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd [2012] WASC 304 (Cape Range) with respect to s. 45 of the Construction Contracts (Former Provisions) Act 2004, found that s. 55(4) of the SOP Act only prohibits the use of evidence of things said and done in an adjudication in proceedings dealing with the merits of the contractual dispute between the two parties to the construction contract.

The Court further found that proceedings to set aside a statutory demand are interlocutory in nature and do not involve ultimate assessments of the merits of the dispute.

Nonetheless, the Court ultimately upheld KWC's objections under s. 55(4) of the SOP Act on the basis that some degree of analysis of the force or strength of an asserted offsetting claim was required in proceedings to set aside a statutory demand.  In other words, the limitation on the scope of the prohibition in s. 55(4) of the SOP Act from Cape Range did not apply.

True and genuine offsetting claims

KWC argued that the Grounded was not entitled to rely on offsetting claims in support of its Application where such offsetting claims had already been considered and rejected by the adjudicator during the adjudication and in the Determination. In support of this position, KWC relied on s. 27(3)(b) of the SOP Act and the decision in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2013] WASC 407.

The Court rejected KWC's submission that Grounded's offsetting claims were not true or genuine offsetting claims for the purposes of s. 459H of the Corporations Act and held that Grounded was entitled to raise and rely on its offsetting claims in the Application.

Outcome

As a result of the Court's finding that the overlap between the parallel Civil Proceedings and the Statutory Demand amounted to an abuse of process, the Statutory Demand was set aside in its entirety for 'some other reason' under s. 459J of the Corporations Act.

Additionally, of the three offsetting claims raised by Grounded, two of those claims were wholly successful. Had the Statutory Demand not been set aside as a result of the abuse of process, it would have been varied pursuant to s. 459H(4) of the Corporations Act and would have otherwise remained valid with respect to the varied amount.

Authors

Adam Spitz | Special Counsel | +61 8 9404 9131 | ASpitz@tglaw.com.au

James Allison | Associate | +61 8 6326 2612 | jallison@tglaw.com.au

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