Bamburgh Holdings Pty Ltd v Kennedy [2011] NSWSC 792 | Case summary

Bamburgh Holdings Pty Ltd v Kennedy [2011] NSWSC 792 | Case summary | Zoe

Chronology 3I should first set out a short chronology of relevant events, which is relevant to the determination of the appropriate orders as to costs. This chronology includes reference to "without prejudice except as to costs" correspondence which is only admissible on the application for costs before me. 4Mr Kennedy was employed under the terms of a letter of agreement dated 18 December 2008. Arguably, that letter was varied by an exchange of emails dated 11 February 2010 which provided that Mr Kennedy would be paid until 31 July 2011 if his employment was not continued to July 2011. It is not necessary for me to determine that matter given the parties had agreed that the Demand should be set aside. 5On 25 January 2011, Bamburgh gave Mr Kennedy notice of termination of his employment and offered payment referable to one month's notice. By email dated 9 February 2011, Mr Kennedy accepted Bamburgh's email dated 25 January 2011 as a notice of termination of his contractual arrangements with Bamburgh and required payment of his salary to 31 July 2011, by reference to the email dated 11 February 201o to which I have referred above. 6By email dated 24 February 2011, Mr Kennedy advised Bamburgh that he had not received payment since his employment had been terminated and asked when payment would be made. On 25 February 2011, Mr Kennedy issued the Demand. The affidavit supporting the Demand divided the claimed debt into components referable to salary, annual leave and superannuation. 7By email dated 1 March 2011, an officer of Bamburgh emailed Mr Kennedy taking issue with the proposition that there was no genuine dispute about Mr Kennedy's claim for payment and identifying areas of dissatisfaction with Mr Kennedy's performance. By that email, Bamburgh offered to pay Mr Kennedy, without prejudice, $8,500 to settle all debts. (Neither party took objection to the tender of this email before me on the basis that it was subject to any "without prejudice" privilege.) 8On 17 March 2011, Bamburgh filed an application to set aside the Demand, which was supported by an affidavit of Mr Hughes sworn 17 March 2011 which was read on this application. That affidavit indicated, in respect of the three components of salary, annual leave and superannuation claimed in the Demand, that:

Bamburgh accepted that it owed Mr Kennedy salary up to and including 11 February 2011 and an amount referable to accrued but untaken annual leave up to that date, for a total of $8,490.23.
Bamburgh contended that, with the exception of that admitted part of the debt, Mr Kennedy's claim for the balance of the amount to 31 July 2011 was a claim for damages for breach of contract rather than a liquidated debt and could not be subject of a statutory demand.
Bamburgh contended that superannuation was a statutory rather than a contractual obligation and that the superannuation charge referable to Mr Kennedy was not payable until 28 April 2011 and would be paid to Mr Kennedy's nominated superannuation account in accordance with Bamburgh's statutory obligation to make that payment. That affidavit also identified a dispute as to the Demand on the basis that Bamburgh contended it had the right summarily to terminate Mr Kennedy's employment on specified grounds and also identified an offsetting claim against Mr Kennedy in respect of what was alleged to be unauthorised leave taken and in respect of loss and damage caused to Bamburgh by specified matters. 9It is common ground that Bamburgh paid Mr Kennedy the amount of $8,490.23 in respect of ordinary pay and annual leave on the date the Originating Process was filed. 10By letter dated 22 March 2011, the solicitors for Bamburgh wrote to Mr Kennedy's solicitors, on a "without prejudice save as to costs" basis, offering to settle the proceedings by payment of a specified amount on the basis that Mr Kennedy entered into a Deed of Release. That offer related to the resolution of all disputes between the parties, not only the dispute as to the validity of the Demand. 11By letter dated 19 May 2011, the solicitors for Mr Kennedy wrote to the solicitors for Bamburgh, on a "without prejudice save as to costs" basis, contending that the debt claimed was not in the nature of damages for breach of contract but a demand for a stipulated consideration in return for Mr Kennedy's remaining with Bamburgh beyond February 2011, and that decisions such as Rothenberger Australia Pty Ltd v Lumley General Insurance Ltd [2003] NSWSC 788; (2003) 58 NSWLR 288 had no application. That letter offered to resolve the proceedings (and, implicitly, all issues in dispute between the parties) on the basis that the Demand be withdrawn and Bamburgh pay Mr Kennedy a specified amount and his costs. 12By letter dated 11 July 2011, solicitors for Mr Kennedy wrote to solicitors for Bamburgh acknowledging the affidavit material filed for Bamburgh may be sufficient to establish a genuine dispute as to the existence of the balance of the amount sought by Mr Kennedy, beyond the amount paid on 17 March, and indicating that Mr Kennedy was prepared to consent to an order setting aside the Demand, with no order as to costs. 13The proposal referred to in paragraph 12 above was rejected by Bamburgh's solicitors by letter dated 13 July 2011, so far as it provided for no order as to costs, on the basis that Bamburgh contested the Demand and had also offered to settle the proceeding with payment of an additional amount to Mr Kennedy by the letter dated 22 March 2011 to which I referred above, and had incurred unnecessary costs in defending the Demand. The letter dated 13 July 2011 from Bamburgh's solicitors put an alternative proposal as to discontinuance of the application to set aside the Demand on the basis that each party bear their own costs provided Mr Kennedy entered into a Deed of Release which extended beyond the matters in issue in this application. 14By letter dated 15 July 2011, Mr Kennedy's solicitors indicated that he consented to an order setting aside the Statutory Demand.

[3]

Relevant matters 15Mr Carolan, who appeared on behalf of Bamburgh, pressed an application that Mr Kennedy pay the costs of the application. He noted that, as at the date that the Originating Process to set aside the Demand was filed, Bamburgh had indicated that it would pay Mr Kennedy's outstanding entitlements (and in fact it did so on that date) and that the balance of the amount claimed was not properly the subject of a statutory demand. Mr Spencer, who appeared for Mr Kennedy, pointed to authorities indicating that the usual position where consent orders were made in matters of this kind was that there be no order as to costs, and also contended that the Demand, when served, was valid at least to the extent of the amount of $8,490.23 admitted by Bamburgh and would not have been set aside but, at best, varied down to that amount and treated as having no continuing effect so far as that amount had been paid. 16The Court's power to award costs is discretionary and, in an appropriate case, the Court will make such an order even where there has been no hearing on the merits, although it is less likely to do so where this would involve the trial of a hypothetical action between the parties and deprive them of the cost saving which they would have achieved by settlement. In particular, costs may be awarded where a Judge is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625. 17As at the date of the application to set aside the Demand was filed, or at least by the next day, it was apparent that the amount of Mr Kennedy's undisputed entitlements supporting the Demand had been paid. The balance of that Demand related to superannuation to which I have referred above and to the amount claimed to 31 July 2011 under the terms of his contract of employment. Unless Mr Kennedy withdrew the Demand, it was necessary for Bamburgh to file and proceed with an application to set aside the Demand to avoid the presumption of insolvency which would otherwise arise from an unsatisfied statutory demand. It was also necessary for Bamburgh to pursue that application, although its likely outcome was that the Demand would be varied down to the amount which Bamburgh had already paid and be treated as satisfied in respect of that amount. The fact that a company faced with a statutory demand has no option but to commence an application under s 459G to set aside that demand, even if the ultimate order sought under s 459H(4) varying the demand to the amount which is not genuinely in dispute, was noted by White J in Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [4]. 18I do not regard this as a case where Bamburgh capitulated to Mr Kennedy's demand after commencing proceedings to have the Demand set aside by paying the sum demanded; rather, Bamburgh paid the amount which it had acknowledged was due to Mr Kennedy, and pursued the application to set aside the Demand in respect of the larger amount which was in dispute. In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital above, White J made an order that the defendant pay the plaintiff's costs where it acted unreasonably in serving the statutory demand and not agreeing to its withdrawal. In other circumstances, Courts have taken different approaches, having regard to their assessment of the conduct of the particular parties: for example, Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602; Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95. 19In the present circumstances, I am satisfied that Bamburgh was required to proceed with the application to set aside the Statutory Demand by Mr Kennedy's failing to withdraw that Demand after the undisputed amount was paid and the application to set aside the Demand was filed on 17 March 2011. Had Mr Kennedy not conceded that the Demand should be set aside, I would have varied that Demand down to the amount which had already been paid by Bamburgh so that it had no continuing effect, having regard to the authorities which have been referred to in correspondence between the parties' solicitors, particularly Rothenberger Australia Pty Ltd v Lumley General Insurance Ltd (2003) 58 NSWLR 288; [2003] NSWSC 788. 20In these circumstances, I consider that I should order that Mr Kennedy pay Bamburgh's costs of and incidental to its application to set aside the Demand incurred on and from 17 March 2011, as agreed or as assessed. I do not order that Mr Kennedy pay any costs of Bamburgh incurred prior to 17 March 2011 since the amount which Bamburgh conceded was due was not paid until that date and, until that date, it was reasonable for Mr Kennedy to proceed with a statutory demand since he had no assurance as to when Bamburgh would pay that amount. 21Mr Spencer puts that any order for costs against Mr Kennedy should exclude an additional period of time after 17 March 2011, since Mr Kennedy should be allowed time to analyse the implications of the payment which had been made by Bamburgh on that date. I do not consider it is appropriate to accept that submission since, from that date, no amount remained unpaid by Bamburgh which would support the continuance of the Demand. The order for costs in favour of Bamburgh from that date is directed to compensating it for the costs which it reasonably incurred in moving to set aside the Demand from that date. 22Mr Spencer also argues that an order for costs against Mr Kennedy should not continue beyond 11 July 2011 when he offered to consent to setting aside the Demand with no order as to costs. I do not consider that offer is sufficient to avoid liability for costs after that date, since Bamburgh did not act unreasonably in not accepting an offer that would have required it to bear the costs which it had already incurred in respect of the application. Mr Kennedy subsequently agreed unconditionally to the Demand being set aside, but not as to any payment of Bamburgh's costs, and it was therefore necessary for argument to proceed today as to the question of costs. 23Accordingly, I order that the Defendant pay the Plaintiff's costs of the to the application to set aside the statutory demand dated 25 February 2011 incurred on and from 17 March 2011, as agreed or as assessed.

Bamburgh Holdings Pty Ltd v Kennedy

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