- Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd

Judgment 1By Originating Process filed on 26 October 2012, the Plaintiff, Palladium Consulting Pty Limited ("Palladium") applied under sections 459H and 459J of the Corporations Act 2001 (Cth) to set aside a Creditors' Statutory Demand dated 8 October 2012 ("Demand") issued by Strategy-Matters International Pty Limited ("SMI"). The Demand related to an amount of $185,640.36, being a judgment debt under a judgment of the Court dated 12 September 2012 reflecting the result of a costs assessment determination issued in 17 August 2012, in respect of proceedings discontinued in March 2012 on the basis that Palladium pay SMI's costs. 2When the matter was listed before me today, I was advised that agreement had been reached between the parties that the application to set aside the Demand should be dismissed. I will make that order below. The parties had not reached agreement as to the form of costs order that should be made consequential upon the dismissal of the proceedings. SMI contended that Palladium should be ordered to pay its costs of the proceedings on an indemnity basis, and that an order for payment of those costs on a gross sum basis should be made under s 98 of the Civil Procedure Act 2005 (NSW). 3Section 98 of the Civil Procedure Act relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 4Uniform Civil Procedure Rules 2005 (NSW) r 42.1 ("UCPR") provides that, if an order is made as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. UCPR r 42.20 deals specifically with the costs payable on dismissal of proceedings, which, unless the Court otherwise orders, will be that the plaintiff pay the defendant's costs of the proceedings. It was not contended that the court should otherwise order in these proceedings. 5UCPR r 42.2 in turn states the general rule that costs payable to a person under an order of the Court or these rules are to be assessed on the ordinary basis. It is not necessary to repeat the principles applicable to an order for indemnity costs at length. Those principles were summarised by Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; (1993) 118 ALR 248 at 256-257 and by McDougall J in White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 303 at [5]-[11] in a passage subsequently quoted in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) [2008] NSWSC 199; (2008) 65 ACSR 324 at [24]. The summary of principles in Colgate-Palmolive Co v Cussons Pty Ltd above was in turn applied in Lahoud v Lahoud [2006] NSWSC 126 at [11] and in Ng v Chong [2010] NSWSC 127 at [18]. 6In Hamod v State of New South Wales [2002] FCAFC 97; (2002) 188 ALR 659 at [20], the Full Court of the Federal Court noted that: "Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs." In Liverpool City Council v Estephan [2009] NSWCA 161 at [100], Giles JA observed that s 56 of the Civil Procedure Act adds emphasis to the occasion to depart from costs on an ordinary basis where a failure to properly conduct the proceedings has caused costs to be incurred unnecessarily, but does not override the need for a rational connection between the reason for that departure and the extent of that departure. For the Court to apply these principles in circumstances where proceedings are dismissed by consent, without a hearing on the merits, it will be necessary that the Court should at least be able to form a view as to the likely prospects of the proceedings, had they proceeded to a hearing. 7In the present case, it seems to me that there is real substance in the application for indemnity costs. At the time the application to set aside the Demand was brought, the Demand was founded on a judgment arising from the costs assessment and an application had been made by Palladium, out of time, to seek a review of that costs assessment, but an extension of time for that application had not yet been granted. There is no evidence before me as to whether that application was ultimately granted. Even if leave was later granted for review of the costs determination, the judgment of the Court arising from that determination had not been stayed and no genuine dispute could ordinarily be established in respect of a debt that arose from a judgment that had not been stayed: Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd (1996) 21 ACSR 235; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466 at [11]. It seems to me that Palladium's application to set aside the Demand, to the extent it relied on s 569H of the Corporations Act, would not have any real prospect of success. 8Palladium alternatively brought its application under s 459J(1)(b) of the Corporations Act which provides, relevantly, that a statutory demand may be set aside when the Court is satisfied that there is some other reason why the statutory demand should be set aside. Even if an extension of time for the review of the costs assessment had been granted, it is well established that the existence of an appeal would not itself have been sufficient reason to set aside the Demand where there was no stay of enforcement of the judgment: Barclays Australia (Finance) Ltd v Mike Gaffikin Marine Pty Ltd above. There is some prospect that the Demand might have been set aside on terms that Palladium paid the amount of the judgment debt into Court: Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; Cranney Farm Pty Ltd v Corowa Fertilizers Pty Ltd [2011] NSWSC 9; Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd above at [26]. There is, however, no evidence before me as to whether Palladium would have had the capacity to make such a payment. It seems to me, with greater hesitation, that SMI might also have established an order for indemnity costs in that regard. The circumstance in which the application to set aside the Demand was abandoned, shortly before their hearing date, would reinforce the basis for such an order. 9An indemnity costs order would also be supported by the lateness of notice of the fact that Palladium would not press the proceedings, which has put SMI to the costs of preparing not only its evidence in the proceedings but also an outline of submissions and chronology, which would not have been necessary in respect of an uncontested application. By contrast, Palladium, presumably knowing that it would not press the proceedings, did not comply with the Court's directions in respect of the provision of an outline of submissions. Counsel for Palladium advised the Court that she was only briefed several days prior to the hearing and provided certain advice on the last business day before the hearing, which is presumably reflected in the decision not to proceed with the application. 10However, it is ultimately not necessary for me to determine the application for indemnity costs, because SMI indicated that its primary position was to seek an order for costs on a lump sum basis rather than an order for indemnity costs, if it were unable to obtain both. Although an order for indemnity costs and a gross sum costs order are not logically inconsistent, I do not consider that there is any utility in ordering indemnity costs where any gross sum costs order would then be significantly discounted in the manner noted below. 11SMI in turn seeks an order that its costs of the proceedings be assessed in a lump sum under s 98 of the Civil Procedure Act. Palladium submits that a lump sum costs order should not be made in this matter, since it would deprive it of the opportunity to challenge the costs claimed on assessment. Section 98(1) of the Civil Procedure Act relevantly provides that the Court may make an order to the effect that a person to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. That power has been most commonly exercised when costs have been incurred in lengthy or complex cases and it is not a power that the Court would routinely exercise in place of the cost assessment process. The power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Courts have typically applied a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s 98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23. 12The Court has been prepared, in the context of winding up applications, to make lump sum orders, particularly in the case of uncomplicated applications where the amount of the costs can readily be estimated based on the Court's experience of such applications. In Re Niruzzi Pty Ltd [2012] NSWSC 773, Brereton J noted that it is desirable that the costs of assessment should not necessarily be incurred where that can be avoided without compromising the objectives to be served by the assessment regime. In that case, Brereton J was prepared to make a lump sum costs order in a relatively complex application although his Honour allowed significantly less than the amount that was sought. In Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961, Garling J also made a lump sum costs order, where a bankrupt party could not meet a costs order in full and having regard to the time likely to be required for assessment and the history of dispute between the parties. 13There is evidence before me as to the work undertaken by the solicitor with carriage of the proceedings for SMI, which involves costs (inclusive of GST) and disbursements of $10,299.96. Doing the best I can from the evidence, it appears that amount is made up of costs (excluding GST) of $9180, GST of $918 and disbursements (other than Counsel's fees) of $202. Counsel's fees of the proceedings are $11,385.00, inclusive of GST, which should amount to $10,350 exclusive of GST. I should exclude GST from each of these figures, since there is no suggestion that SMI is not registered for GST and would not be entitled to an input credit for that GST which it pays. However, a potential difficulty with a lump sum costs order in this matter is the absence of evidence as to the amount which is likely to be recoverable on assessment as distinct from the level of costs actually incurred: cf Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2011] NSWSC 11. 14On balance, it seems to me that I should nonetheless make a gross sum costs order having regard to the relatively modest amount of the costs claimed; the delay which is likely to occur on a further assessment; the history of existing disputes between the parties as to the previous assessment; the uncertainty as to whether Palladium will ultimately meet a costs order, given that it has not met the previous costs order from the original proceedings; and the Court's experience as to the level of costs likely to be allowed in more complex applications of this kind. Notwithstanding the absence of evidence as to the amount likely to be recoverable on an assessment, I am satisfied that an order allowing two-thirds of solicitor-client costs exclusive of GST (the percentage that was adopted by Garling J in Dubow v Fitness First Australia Pty Ltd (No 2)) ($6129), counsel's fees as charged (exclusive of GST) ($10,350) and other disbursements ($202) is sufficiently conservative that it will not overcompensate SMI, whether costs would have been awarded on an indemnity basis or on an ordinary basis. 15Accordingly, I order that: