Re Drake St Brighton: Setting aside a statutory demand based on a SOP Act Judgment Debt

In Re Drake St Brighton Pty Ltd [2026] VSC 627, the Supreme Court of Victoria set aside a statutory demand served by a Contractor, PC Whitehall & Sons Pty Ltd (Contractor), on the developer, Drake St Brighton Pty Ltd (Developer). The statutory demand was founded on a judgment debt arising from an adjudication determination under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). The Developer established genuine off-setting claims under the Corporations Act 2001 (Cth) (Corps Act), for liquidated damages and defective and incomplete work. The Court also declined to impose conditions under section 459M of the Corps Act, treating SOP Act judgment debts as fundamentally different from “true” judgment debts arising from contested hearings.

1. Contractors who obtain judgment on adjudicated amounts and pursue statutory demands should be aware that developers may be able to use offsetting claims, particularly for liquidated damages and defects, to set aside those demands.
2. At the time of the Adjudication, the SOP Act prevented claims for time-related costs, including (without limitation) liquidated damages from being raised in payment claims and schedules made under that Act. Reforms to the SOP Act have changed this position.
3. Offsetting claims can only be raised against judgment debts on adjudicated amounts under the SOP Act, provided they are not accounted for in the adjudication determination.
4. Courts may be reluctant to impose conditions under section 459M of the Corps Act where the demand is based on an SOP Act judgment debt (as distinct from a “true” judgment debt obtained at a contested hearing), even where the debtor is a special purpose vehicle, provided that the offsetting claim is genuine and exceeds the demand.

The Developer was the Principal in the building contract for the construction of a residential development comprising four double-storey townhouses in Brighton (Project). Following the insolvency of the original builder, the Contractor was appointed to complete the Project under a standard form building contract (Contract).

The Contractor submitted several claims for extensions of time seeking a total extension of 293 days (EOTs) during the Project to the Superintendent. The Superintendent assessed and allowed only 55 days extension. The Contractor submitted variation costs in connection with its EOT claims. The Superintendent declined those claims.

The Contractor issued a progress claim including amounts for its variations, EOT claims and associated costs. This was for the amount of $761,339.76 (incl GST) (Payment Claim). The Superintendent issued a payment schedule in response and certified a $NIL amount on account of the Payment Claim (Payment Schedule). The Contractor applied for adjudication of the Payment Claim under s.18 of the SOP Act (Adjudication).

Neither party’s submissions in the adjudication addressed the question of liquidated damages, but the Developer expressly reserved the right to enforce its liquidated damages entitlement following conclusion of the adjudication.

The adjudicator determined that $263,939.25 (incl GST) was payable by the Developer to the Contractor (Adjudicated Amount) and found that the Contractor was entitled to 75 days’ worth of EOTs (collectively the ‘Adjudication Determination’). This reduced the Contractor’s claim from $761,339.76 (incl GST) to $497,400.51 (incl GST). The adjudicator did not deal with liquidated damages.

Separately to the Adjudication Determination, the Superintendent issued revised liquidated damages certificates (LDs Certificates). The LDs Certificates adopted the adjudicator’s findings that the Contractor was entitled to a greater amount of EOTs (75 days) than what the Superintendent had originally certified (55 days). This reduced the total amount of liquidated damages that the Superintendent certified as being owed by the Contractor to the Developer, to the amount of $554,688.75.

The Contractor obtained judgment against the Developer for the Adjudicated Amount (plus fees, interest and costs) in the County Court of Victoria (SOP Judgment Debt) and served a statutory demand for the SOP Judgment Debt on the Developer.

The Developer commenced proceedings under section 459G of the Corps Act to set aside the statutory demand.

The Developer argued that the statutory demand should be set aside under section 459H of the Corps Act on the basis of two offsetting claims: (1) a claim for liquidated damages; and (2) a claim for defective and incomplete construction work.

The Developer argued that the Adjudication Determination was factored into the LDs Certificates. As such, if the SOP Judgment Debt was to be accepted, then the Developer’s entitlement to LDs was made out “in the precise amount as determined by the Superintendent” in the LDs Certificates.[1] It was argued that this liquidated damages claim was a genuine off-setting claim against the SOP Judgment Debt for the purpose of s459G of the Corps Act.

The Contractor disputed this claim and said further that any claim for defects by the Developer was for “minor” defects which would be rectified during the defects liability period, for defects which had not been notified to the Contractor before receipt of the Developer’s affidavits, or for defects that had already been attended to.[2]

In the alternative, the Contractor submitted that if the statutory demand were set aside, its rights should be protected by the imposition of conditions under section 459M of the Corps Act, either to require payment of the SOP Judgment Debt into Court or require the Developer to provide security for that amount. The Contractor relied on the limited evidence on the Developer’s solvency or ability to satisfy the SOP Judgment Debt arising from the nature of the Developer as a special purpose vehicle as the basis for this application.[3]

The Court ordered that the statutory demand be set aside, without the imposition of any conditions.

The Developer’s claim for liquidated damages was held to be available to establish an offsetting claim, because those damages were not accounted for in the Adjudication Determination. The Developer’s claim drew significant support from the LDs Certificates, which accounted for the EOTs allowed in the Adjudication Determination.[4] This meant that there was “no real controversy” that the Contract provided for liquidated damages and that practical completion was achieved late.[5]

While it was “not strictly necessary” to determine the defects question, the Court also preferred the Developer’s evidence on documented rectification costs, which were sufficient to establish a separate offsetting claim.[6]

In declining to impose conditions under s. 459M of the Corps Act, the Court noted that the SOP Judgment Debt was not the subject of a contested hearing, and the Developer’s claims for liquidated damages and defects easily passed the test for a genuine off-setting claim. On this basis, the Court was reluctant to enhance the Contractor’s position as an unsecured creditor by requiring that funds be paid into Court by the Developer.[7]

This decision provides further clarity with respect to the availability of off-setting claims in statutory demand proceedings: offsetting claims can only be brought in statutory demand proceedings to the extent that they are not dealt with and accounted for in an SOP Act adjudication.

This decision also serves as a timely reminder to ensure that construction industry participants keep contemporaneous and detailed records of all defects and rectification work. The availability and quality of those records is likely to impact the success of claims on which they are based.

This article was co-authored with contributions from James Lalios, Associate.