Balderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd

Affidavit evidence

1. Turning now to the affidavit evidence, SHN relies on the affidavit dated 7 September 2023 of Ms Marques, who describes herself as the manager of SHN and outlines the history of the winding up proceedings which gave rise to the costs order and sets out correspondence between SHN's and Kretchmer's solicitors in respect of the costs order. She contends that there exists a genuine dispute in respect of the amount of the debt claimed, on the basis that the amount claimed by Kretchmer for legal costs was excessive; the work undertaken was excessive and unnecessary; and the time charged for the work claimed was excessive; and she relies on the exchange of emails between the solicitors to support that proposition.
2. Ms Marques also refers to the fact that the Demand included costs incurred after the consent orders had been made by the Court, on 16 June 2023, a matter which Kretchmer now accepts. Her evidence is that SHN will seek to object to the costs claimed by Kretchmer in a future costs assessment and, as events have occurred, SHN has now commenced that costs assessment, although it has only done so recently. The documents exhibited to Ms Marques' affidavit include the Demand and the documents attached to it, to which I referred above, and also include a document which appears to indicate a range of objections raised by SHN, or its solicitor, as to whether the solicitors' costs claimed in the Demand were reasonably claimed. That exhibit also includes a letter dated 6 September 2023 from SHN's solicitor which drew attention to relevant principles as to the existence of a genuine dispute and invited the withdrawal of the Demand.
3. SHN also relies on the affidavit dated 6 September 2023 of its solicitor, Mr Hadchiti, which refers to the commencement of an application for a cost assessment as to the amount claimed by Kretchmer.
4. In response, Kretchmer relies on the affidavit dated 29 November 2023 of its solicitor, Mr Lucas, which referred to a request for particulars of aspects of the dispute in respect of the Demand, and to the response to that request, although it is not apparent to me that that correspondence took matters much further.
5. Kretchmer also tendered a series of documents, including the Originating Process in the proceedings in which the winding up application was sought; the Demand which had founded that Originating Process; and several hire agreements on which it relied for a claim that SHN was contractually bound to indemnify Kretchmer for all costs and disbursements incurred by it in recovering outstanding amounts. There were two difficulties with reliance on that indemnity clause, one of which was addressed in this application and one of which was not. The first is that the Demand relies on the costs order made by the Court, not contractual rights arising under the hire agreements. The second is that it is by no means clear that a winding up proceeding is a claim to recover outstanding amounts within the scope of the indemnity clause, where it is not capable of resulting in a judgment for debt but only in a winding up order, with the result that creditors can participate in the distribution of the company's residual assets in the liquidation. It is not necessary or appropriate to seek to resolve that second difficulty here, where the Demand did not rely on those contractual rights and where that difficulty was not addressed by the parties' submissions.
6. The documents tendered by Kretchmer also include correspondence between the parties' solicitors, which made clear that, before the consent orders as to costs were made on 16 June 2023, which made clear that there was a dispute between the parties as to the amount of costs that would fall within those orders, which the parties plainly proposed to leave to determination at a future day, after those orders were made. By an email dated 6 June 2023, Kretchmer's solicitors referred to the components of the amount of $18,698 to which I referred above, and SHN's solicitor responded, clearly enough, that: "[SHN] does not agree to the amount of costs sought. It is [SHN's] view that the costs are disproportionate and higher than the usual scale rate for costs in winding up proceedings."
7. Further correspondence followed in which SHN's solicitor raised the possibility that an application for costs could be made by Kretchmer to the Court and proposed an order that SHN pay Kretchmer's costs on an ordinary basis. That proposal was not accepted, although agreement was reached to the form of order which I noted above.

Whether there is a genuine dispute as to the existence and amount of the debt claimed by Kretchmer

1. First, as I noted above, SHN seeks to set aside the Demand on the basis of a genuine dispute as to the existence and amount of the debt claimed by Kretchmer under s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute between the company and the issuer of the demand about the existence or amount of the debt to which the demand relates. I reviewed the relevant case law in that respect in my judgment in Re PSR Refining Services Pty Ltd [2023] NSWSC 243 at [16]ff and I adopt that review, without repeating it here.
2. For the reasons noted below, it seems to me that the issues raised by these proceedings are better characterised as arising under s 459J of the Act, rather than under s 459H(1)(a) of the Act. However, to the extent that any debt may presently be due and payable by SHN to Kretchmer, a matter which is doubtful for the reasons noted below, it seems to me that both the existence and amount of that debt is genuinely disputed, for the reasons noted below. It is genuinely disputed, not least, because the correspondence between the parties (through their solicitors) prior to the making of the costs order made clear that they had radically different views as to the amount of costs which would be payable, and SHN had made clear that it did not accept Kretchmer's quantification of that amount, and objected to that quantification on grounds that were plainly seriously arguable. As I noted above, Kretchmer itself does not now press the amount claimed in the Demand and accepts that it included amounts of costs that were not properly claimed because they arose after the date of the Court's order.
3. There is no basis for the Court to determine an admitted amount or a substantiated amount for the purposes of s 459H(2) of the Act, because the evidence is not sufficient to support the amount of costs properly claimed, where Kretchmer now relies on no more than an email from its solicitor to SHN's solicitor to support that claim, which it is not possible to reconcile, on the evidence that it stands, with the amounts shown in the documents which are said to support the amount claimed.
4. Mr O'Sullivan, who appears for Kretchmer, submits that some amount is plainly due by SHN to Kretchmer. While I accept that proposition, it does not assist Kretchmer, since it neither supports the amount claimed in the Demand nor permits the calculation of the substantiated amount for the purposes of s 459H(2) of the Act. The statutory demand regime in Part 5.4 of the Act does not allow a genuine dispute as to the debt claimed to be displaced by the submission that some other unquantified amount, being neither the amount claimed nor an amount that the Court can calculate, is due, although the party issuing the Demand did not claim it.

Whether there is some other reason to set aside the Demand

1. Mr Jucha, who appears for SHN, also submits that there is some other reason to set aside the Demand for the purposes of s 459J of the Act. Mr Jucha points out that an order for costs, which ordinarily contemplates either an assessment or agreement as to the amount of the costs, does not give rise to a debt until after that agreement is reached or an assessment of the relevant costs is made: National Australia Bank Ltd v Market Holdings Pty Ltd (in liq) [2001] NSWSC 253 at [134]-[135]; Leveraged Capital Pty Ltd v Modena Imports Pty Ltd [2009] NSWSC 509.
2. Mr O'Sullivan submits that the order for costs here must have operated in some different way, because it contemplated payment on an indemnity basis and within 21 days. I do not accept that submission, so far as it reduces to the proposition that the amount of costs due by SHN to Kretchmer was the amount of $18,698, because Kretchmer's solicitor had previously referred to a claim for that amount, or such other amount as Kretchmer might claim. The amount of costs that was properly payable on an indemnity basis under that order could not be determined other than by a gross sum costs application that was not here made, or agreement that was here not reached, or an assessment that was not here undertaken. No debt in respect of costs was due and payable by SHN to Kretchmer at the time the Demand was served, although a contingent obligation existed, which would become a debt that was due and payable to Kretchmer when and if costs were agreed or an assessment of them was undertaken.
3. Second, Mr Jucha submits and I accept that, where the debt claimed by the Demand was only contingent or prospective and not then due and payable, it was not properly the subject of a creditor's statutory demand: Re North Sunbury Developments Pty Ltd (1983) 1 ACLC 644; First Line Distribution v Whiley (1995) 18 ACSR 185 at 188. Those propositions are likely sufficient to require that the Demand be set aside, under s 459J of the Act.
4. The same proposition could be put in a somewhat different way, also advanced by Mr Jucha in submissions. Because there was no agreed or assessed costs debt that supported the Demand when it was issued, a debt was not then due and payable by SHN to Kretchmer for the purposes of the applicable statutory provisions. The case law has been divided as to whether, when a debt claimed is not due and payable, a creditor's statutory demand should be set aside under s 459H(1)(a) of the Act on the basis that a genuine dispute is established, or under s 459J of the Act on the basis that there is some other reason to set aside the demand; however, it is clear that such a demand should be set aside on one or other of those bases: Re MK Group Phoenix Pty Ltd [2014] NSWSC 1467 at [39]ff; Re Golden Robot Records International Pty Ltd [2021] NSWSC 1146 at [35]ff; Re Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [98]ff. I would tend to prefer the view, which I have adopted in earlier cases, that, where a debt is not presently due and payable, a creditor's statutory demand should be set aside under s 459J(1)(b) of the Act rather than under s 459H(1)(a) of the Act.
5. In any event, the fact that the debt claimed by Kretchmer here was not due and payable, because the amount of costs payable had not been subject to a gross sum costs order, had not been agreed and had not been assessed, is sufficient basis to set aside that Demand under one or other of those sections.
6. For these reasons, the Demand should plainly be set aside, with costs.

SHN's claim for indemnity costs

1. SHN seeks orders for its costs of its successful application to set aside the Demand on an indemnity basis. Mr O'Sullivan responds to the application for indemnity costs that, first, the proceedings were conducted efficiently, and I accept that proposition so far as the hearing today goes. Second, he submits that the position taken by Kretchmer was arguable, a proposition that I do not accept for the reasons noted below; and, third, that earlier correspondence from SHN's solicitors had foreshadowed a claim to costs, without specifically raising the prospect of a claim for indemnity costs.
2. The Court, of course, has a broad discretion to order costs, and may determine to whom and to what extent costs are to be paid, and whether costs are to be awarded on the ordinary basis or on an indemnity basis under s 98 of the Civil Procedure Act 2005 (NSW) ("CPA"). In order to establish a claim to indemnity costs under s 98(1)(c) of the CPA, a party must ordinarily show conduct of the other party that is unreasonable or delinquent: Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199; K & A Laird (NSW) Pty Ltd (in liq) v Aidzan Pty Ltd [2022] NSWSC 1786 ("Laird") at [5]. I also bear in mind that an indemnity costs order does not punish an unsuccessful party for bringing, or maintaining, a case that failed, but compensates the successful party for incurring costs arising from the other party's unreasonable conduct: Hamod v State of New South Wales [2002] 188 ALR 659; [2002] FCA 424 at [20]. It is plain that an order for indemnity costs may be made where a party should have known that a case had no prospect of success, although a relatively high threshold is required for such a finding: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401[1988] FCA 202 364 ; Balderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd (No 2) [2009] NSWCA 12 at [8]; Laird at [6].
3. It seems to me plain that, on a review of the relevant case law, and of the correspondence between the parties, Kretchmer should have recognised that the proposition which it put today was unarguable, although I recognise that Mr O'Sullivan has conducted the proceedings today efficiently and fairly, and done the best that he could to develop cogent submissions for that unarguable proposition. It seems to me that, even without any detailed analysis of the relevant provisions, it should have been plain to Kretchmer that the amount of the debt claimed, if any debt was due prior to an assessment or agreement as to its amount, was in fact genuinely disputed; that that dispute could readily be resolved by assessment, if it could not be resolved by agreement; and that the order made, where the Court had not been asked to address the question of quantification, did not support a quantification of costs in a particular amount, still less a quantification of costs in whatever amount Kretchmer claimed that it might be, without any independent process of review or verification, or any assessment of whether the amount it claimed was reasonable. In these circumstances, the difficulty with the conduct of this case is not the manner in which it was put at the hearing, but the substantive position that was pressed by Kretchmer. For these reasons, I am comfortably satisfied that an order for indemnity costs should be made in favour of SHN.

Orders

1. Accordingly, I make the following orders:
2. The creditor's statutory demand dated 11 August 2022 issued by Kretchmer Enterprises Pty Ltd to Sydney Hire NSW Pty Ltd be set aside.
3. The Defendant pay the Plaintiff's costs of and incidental to the proceedings, on an indemnity basis, as assessed or as agreed.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2023