The Demand Stands: When a Dispute won’t be enough to set aside a Statutory Demand

The Supreme Court of Western Australia has dismissed an application to set aside a Statutory Demand in the case of Paulsens East Iron Ore Pty Ltd v Terra Mining Pty Ltd [2025] WASC 221, on the grounds that there was no genuine dispute about the debt as claimed by the Plaintiff Debtor.

Background Facts

In this case, the Defendant Creditor had served a Statutory Demand on the Plaintiff Debtor, under S459E of the Corporations Act (the Act), for a debt owed by the Plaintiff Debtor in the sum of $6,889,712.14. The debt arose pursuant to a Mining Services Contract (the Contract) and a further Security of Payment Contract executed by the parties.

The Defendant Creditor as a contractor, had submitted monthly claims to the Plaintiff Debtor for the months of August, September and October 2024. The email accompanying the October claims noted that the previous two claims remained unpaid. Further to this, on 23 September 2024, the Defendant Creditor submitted variation claims for works it was said to have carried out in the month of August. On 22 November 2024, the Defendant Creditor submitted Invoice 3082, the subject of this Statutory Demand, which included the variation claims.

On 8 January, the Plaintiff Debtor wrote to the Defendant Creditor requesting further details on the calculation of the variation claims. The Defendant Creditor did not provide clarification on this issue and subsequently issued a Statutory Demand on 22 January 2025.

The Plaintiff Debtor contends that the debt was in dispute for two reasons: firstly that they did not consent to the variation claims submitted by the Defendant Creditor, and that subsequent queries regarding the breakdown of the variations were not clarified by the Defendant Creditor; and secondly that the Defendant Creditor had been non-compliant with the Contract, by not going through the dispute resolution mechanism set out in Clause 17 of the contract, and by submitting an Invoice 3082 that was a composite invoice and not a monthly invoice as was required by the contract. The Plaintiff Debtor subsequently applied to set aside the Statutory Demand under S459G of the Act.

Reasons for Decisions

The Court considered that the principles applicable to an application of this nature were well-established and referred to the judgment in the Court of Appeal decision of CA & Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31 and expounded those principles in detail. In 459G applications, the Court’s function is to determine the existence of a genuine dispute, and while that may at times include making a determination on the construction of a contract, this would be “the exception rather than the norm”, and while the Court is not required to make findings on the merits of the contract it could choose to do so in instances where it was a “patently feeble legal argument”. Rather, that there are competing submissions regarding a contractual construction, would suffice to make a finding that there was a dispute on the question, and consequentially a dispute on the existence of a debt that was the subject of the Statutory Demand.

The threshold that a Plaintiff Debtor must meet under 459H of the Act, is “whether the existence of the dispute, provides a reason, other than insolvency, as to why the demanded amount has not been paid” and that the question for the Court is “whether the Corporation’s basis for disputing the debt is so lacking in merit as to indicate that the professed dispute is not genuine”.

Applying those principles to the current circumstances, and, while acknowledging the need to exercise restraint in matters of construction, the Court found that there was no such genuine dispute. While the disputed clause might have used language to the effect that there would be a breach of contract where an invoice was not submitted in the ‘Monthly Claim’ format required by the clause, such an interpretation would have been contrary to both the interpretation provisions of the contract, and not aligned with how a “reasonable business person” would have read the clause.[1]  His Honour thus found that a mere non-compliance by the Defendant Creditor could not lead to the finding that there was a dispute.

Justice Howard also further considered the dispute resolution clause that the Plaintiff Debtor had referred to earlier. While the Plaintiff Debtor themselves had conceded that the dispute resolution clause did not prevent the Defendant Creditor from issuing a Statutory Demand, His Honour noted that a dispute, arbitration or mediation clause would not of itself lead to a Statutory Demand being set aside.[2]

Implications

While a Company, having been served a Statutory Demand, is always able to make an application to set aside the Statutory Demand, the decision in this case serves as a reminder that consideration should be given to whether the basis on which one is seeking to set aside the demand is reasonable, and not merely used as a tool to resist the payment of a debt.

In cases like this where applications to set aside Statutory Demands are dismissed, it often leaves the Company with limited room to pursue other avenues, including an opportunity to resist a wind-up application for non-compliance with the statutory demand. Under section 459S of the Act, the Company cannot raise grounds it relied upon to set aside the demand, without leave of the Court, and such leave is only likely to be granted if the court is satisfied that the ground is material to proving the company’s solvency.

Further, dismissal of an application to set aside a Statutory Demand, would generally also only leave the Company with limited time to comply with such a demand, unless the court has made an order providing an extension of time. Non-compliance with this deadline, will trigger a presumption of insolvency under S459C of the Act, allowing creditors to make an application for winding-up the Company within three months of the failure to comply with the demand.

While parties can rebut this presumption of insolvency, this often proves to be a challenging task with the party having to present credible evidence, including but not limited to updated financials, to demonstrate its solvency despite the failure to comply with the statutory demand.

MPH Lawyers advises clients in relation to Commercial matters including the issuing and setting aside of Statutory Demands. Please feel free to contact us on (08) 9221 0033 or at legal@mphlawyers.com.au for any assistance or queries.

[1] Black Box Control Pty Ltd v Terra Vision Pty Ltd [2016] WASCA 219

[2] Arris Investments Pty Ltd v Fahd [2010] NSWSC 309