Solicitors:
Keith Bagley Lawyer (Plaintiff)
J Brent & Co (Defendant)
File Number(s): 2016/7246
[2]
Judgment
On 19 April 2016 I heard an application by Scahill & Co Pty Limited ("SCPL") to set aside a creditor's statutory demand served by Armacor Pty Limited ("Armacor"). I delivered judgment on 6 May 2016 ordering that the creditor's statutory demand be set aside. I initially ordered that Armacor pay SCPL's costs of and incidental to that application as agreed or as assessed. However, when I delivered my judgment, SCPL indicated that it wished to bring an application for indemnity costs, and I made orders for service of evidence and submissions on which the parties relied in respect of that application.
In support of its application for indemnity costs, SCPL relied on an affidavit of its solicitor, Mr Bagley sworn 6 May 2016 which annexed an "offer" that it made to Armacor on 22 December 2015 ("22 December letter"). That letter drew attention to the well-established principle that the creditor's statutory demand procedure is inappropriate where there is a genuine dispute as to a debt, and contended, on instructions, that Armacor was aware that there was a genuine dispute in respect of its dealings with SCPL. The letter also claimed that there was a "well settled principle" that the Court's jurisdiction is not a venue for debt recovery. That proposition is overstated, so far as the creditor's statutory demand procedure may properly be used to establish a presumption of insolvency arising from the failure to pay an undisputed debt, and the use of that procedure is only inappropriate if it is apparent that the debt is disputed. The letter contended that the proper course for Armacor was to commence proceedings in the District Court, and indicated that those proceedings would be "strenuously defended" by SCPL and a "significant Cross-Claim filed". That letter invited Armacor to withdraw the creditor's statutory demand and foreshadowed the commencement of proceedings and that an order for costs including indemnity costs would be sought if the statutory demand was not withdrawn.
Ms Peden, who appears for SCPL, refers to s 98(1) of the Civil Procedure Act 2005 (NSW) and submits that the award of costs, in proceedings in which an offer in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333 had been served, depend on discretionary factors as they apply in the circumstances of individual cases. If the 22 December letter were properly characterised as a Calderbank letter, the Court would be required to determine the question whether to order indemnity costs in accordance with well-established principles. In Re Alsafe Security Products Pty Ltd atf the Alsafe Trust (in liq) [2016] NSWSC 575 at [8], I summarised those principles as follows:
"[T]he fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]-[15]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that:
'If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8].'"
I also bear in mind, in determining this application, that the case law permits an order for indemnity costs in respect of an application to set aside a creditor's statutory demand which involves the improper use of the statutory demand procedure or the persistence in the claim although it should have been apparent to the defendant that there was a genuine dispute as to the debt claimed. In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 at [19], Barrett J referred to the warning previously given by Santow J in several judgments that was a creditor which issued a statutory demand in respect of a genuinely disputed debt was at risk of indemnity costs, where it put the applicant to set aside the statutory demand to expense by doing so. His Honour there noted that the party which issued a statutory demand might, in some circumstances, be entitled to test the other party's claim that the debt was genuinely disputed, but also noted that that principle had a limit to it and that there were cases which were "so devoid of prospects of success as to be perverse" and that, if a defendant is put on notice of an "obvious and irremediable weakness in its position" and does not withdraw a statutory demand, it may well be appropriate for the court to award costs to the plaintiff on an indemnity basis. In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [4]-[5], White J again observed that creditors are often ill-advised to proceed with a statutory demand once plausible grounds for a dispute are asserted, and they risk an order for indemnity costs if they do so: see also Professional Advantage Pty Ltd v Australian Broadcasting Commission [2007] NSWSC 607; R2M Pty Ltd v Gourlay [2011] FCA 168; Re Suters Holdings Pty Ltd [2012] NSWSC 1051.
Ms Peden submits that the 22 December letter was a "genuine offer of compromise", as SCPL gave Armacor:
"The opportunity to withdraw the statutory demand without requiring any compensation for costs incurred in considering and seeking instructions following its service."
I do not accept that submission. It does not seem to me that there was any material element of compromise in the 22 December letter, which drew attention to SCPL's position, without identifying the genuine dispute as to the debt claimed with any specificity, and otherwise invited Armacor to surrender without a determination of the foreshadowed application to set aside the creditor's statutory demand on its merits. The amount of costs involved in considering and seeking instructions following service of the statutory demand would, or should, have been immaterial and an offer not to seek compensation for them involved little by way of concession. Ms Peden in turn draws attention to several matters which she submits means the rejection of that offer was unreasonable.
Mr Sleight, who appears for Armacor, responds that SCPL's application to set aside the creditor's statutory demand did not identify the ground on which it relied to set aside the statutory demand and that SCPL first did so on the hearing of the application. I partly accept that submission, where the 22 December letter made clear that at least a contention that the debt was genuinely disputed was advanced, but did not identify its basis. Mr Sleight also refers to communications between SCPL and Armacor in respect of the debt in mid and late 2015 and submits, with considerable force, that some of the material on which SCPL relied in order to establish a genuine dispute, including a review of the relevant work undertaken by one of its employees, had not been communicated to Armacor so as to disclose the basis of such a dispute prior to the application to set aside the statutory demand. Mr Sleight points out, also with considerable force, that SCPL had not previously provided Armacor with a clear explanation of the basis on which invoices that it had issued had not been paid. Mr Sleight also submits that the proceedings that SCPL had foreshadowed it would commence in the District Court were, as I noted in my judgment, not filed until shortly before the hearing of the application to set aside the creditor's statutory demand. It seems to me that SCPL had not put Armacor clearly on notice of the basis of the genuine dispute claimed prior to the issue of the creditor's statutory demand, and the bare assertion (on instructions) of the existence of that dispute, without identifying its basis, in the 22 December letter did not change that position. Mr Sleight also submits that Armacor's issue of the creditor's statutory demand was "not an attempt to force payment of what could reasonably be considered by Armacor to be a genuinely contested debt" and did not constitute a relevant delinquency that would justify an order for indemnity costs.
It seems to me that, although SCPL's contention that a genuine dispute existed (as distinct from its basis) was identified at least from the 22 December letter, that did not have the result that it was then unreasonable for Armacor to continue to press the creditor's statutory demand. Adopting the language of Barrett J in CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd above, this case properly falls in the category where Armacor could properly test SCPL's claim that the debt was genuinely disputed, on grounds that SCPL had not then made clear, and not one where Armacor's case was "so devoid of prospects of success as to be perverse" or where it was put on notice of an "obvious and irremediable weakness in its position". In my view, the case is properly treated as one in which Armacor was unsuccessful in sustaining the statutory demand, with an order for costs against it to follow on the ordinary basis, rather than one where the statutory demand was improperly maintained so as to warrant an order for indemnity costs.
Additional costs will have been incurred by both parties in addressing this application for indemnity costs. For that reason, I will order that SCPL pay Armacor's costs of and incidental to the application for indemnity costs. Such an order is consistent with the compensatory purpose of orders for costs, and the Court should not be reluctant to make such an order where an unsuccessful application for indemnity costs puts the parties to additional costs. It may be that the parties can reach agreement to set-off those costs against the costs payable by Armacor to SCPL in respect of the application to set aside the creditor's statutory demand. If they cannot, that is a matter that can be addressed in an assessment.
Accordingly, I do not amend the order for costs on the ordinary basis that I made when delivering judgment on 6 May 2016. I make the further order that
The Plaintiff pay the Defendant's costs of and incidental to the Plaintiff's application for costs on an indemnity basis.
[3]
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Decision last updated: 16 June 2016