CSR Ltd v Eddy

Factual background

1. The underlying facts are as follows. The principal of the plaintiff is Mr Paul Anthony Cordeiro, who has sworn two affidavits in support of his company's application. In 2016, Mr Cordeiro was confronted with two pieces of litigation.
2. First, on June 2016 he was charged with a serious indictable offence, and retained Mr Ekes to conduct his defence. The short chronology of the criminal proceedings is that there was a trial before District Court judge and jury running some 12 days in around September and October 2017, resulting in a guilty verdict. There was a sentencing hearing on 15 December 2017, as a result of which a full-time custodial sentence was imposed. Mr Cordeiro had been granted bail at all times up to the imposition of that sentence on 15 December 2017. During the criminal trial before the jury, Mr Cordeiro was represented by Mr Glissan QC. It is unclear from the material before me what his representation was on the sentencing hearing on 15 December 2017.
3. Secondly, in around October 2016, the plaintiff was served with a Local Court statement of claim which had been filed by Periklis Giannoulis trading as S&P Marine. That was a liquidated claim for $18,260.48 arising from various services and parts said to have been provided to the plaintiff. Mr Ekes represented the plaintiff in the Local Court proceedings. The brief chronology there is that the defence was served in around April 2017 and a cross-claim was served either then or in the following months. Mr Cordeiro swore what appears from the emails in evidence to have been a relatively detailed affidavit in support of the defence and the cross-claim. The matter was set down for hearing on 30 October 2017 (after the jury's guilty verdict but before sentence had been imposed). On that date, an employed solicitor within Mr Ekes' office and a barrister appeared for the plaintiff and a settlement was reached on terms that the plaintiff was to pay Mr Giannoulis $6,000 and the cross-claim was dismissed.
4. Plainly enough, the defence of the criminal charge was far more important, and complex, and expensive, than the defence of the Local Court liquidated claim.
5. The tax invoice that gives rise to the statutory demand was served on 13 December 2017. On that date in fact two tax invoices were served. The amounts of time and dollars for items of work done in the Local Court proceedings between 4 October 2016 and 30 October 2017 are identical in both. Both tax invoices also record a discount that the solicitor was providing to his client in the amount of $8,955. The result in both cases was invoiced fees of precisely $12,500. The first invoice then included an amount of GST on fees of $12,500 [sic] yielding a total fee of disbursements of $25,000. The second invoice, which was provided by email later on the morning of 13 December, corrected the error as to GST yielding an invoice of $13,750 which gives rise to the statutory demand.
6. The two invoices described the discount slightly differently, although it was in the same amount. The first invoice (which included the erroneous amount of GST) described the discount as "Discount for you". The second described the same entry as "Discount for you and as agreed".
7. There are two disputed conversations relevant to Mr Ekes' entitlement to issue the tax invoice on 13 December 2013 and one disputed document.
8. The first disputed conversation arose towards the commencement of the retainer of the plaintiff and the defendant. Mr Cordeiro gives the following evidence of a conference at Mr Ekes' office on that occasion. "[Mr Cordeiro]: Hector, I have received this statement of claim in the mail. Sydney VIP Boats is being sued by Periklis Giannoullis. Peri did some mechanical work on my yachts. I believe I owe him some money but not the full amount claimed. Mr Ekes: Give me the statement of claim. This is a bullshit case. Don't worry about it at all. I will have some fun with this guy. You will not have to pay him a cent. Leave it with me." [Mr Cordeiro]: What about your fees? How much will it cost me? Mr Ekes: It will not cost you anything. As I said don't worry about it. I will have some fun with this guy. I am going to get him to do a whole lot of extra work and I will be able to record my extra time spent on the file. I will file a cross claim to increase the costs and then, when we win, I will get an order from the court that Peri has to pay all of your legal costs, and I will collect my costs from him. So you will not have to pay me anything Paul. I will get all my fees from Peri. Don't worry, this is a bullshit case."
9. Mr Ekes denies the entirety of that conversation.
10. The second disputed conversation occurred after the receipt of the first tax invoice on 13 December 2017. According to Mr Cordeiro, he spoke with Mr Ekes about not only the sentencing hearing to occur two days later but also the Local Court fees. He deposes to this conversation. "Paul my office has sent you an email. It was an invoice for the Civil Matter. Can you please disregard that invoice as there is a mistake? I am going to reduce those fees. I just need to close the file. We will email you a new discounted invoice. [Mr Cordeiro]: OK I haven't seen any email yet but you told me that you weren't going to charge any fees for that matter. We agreed that your fees would be limited to whatever you were able to get out of Peri. Mr Ekes: Well that was the intention but the matter settled and I want to be paid something for my work. Don't worry I will reduce the fees for you. We will work something out."
11. Mr Ekes says that on 13 December 2017 he appreciated that the first tax invoice included a mistake, that he telephoned Mr Cordeiro and had a conversation to this effect. "[Mr Cordeiro]: Mate I am strapped I can't pay that much, can you halve it? [Mr Ekes]: Paul mate, please disregard it, I will amend it be around $12,500 plus. [Mr Cordeiro]: Mate … legend"
12. The disputed document is a letter on the defendant's letterhead dated 30 October 2016 addressed to "Access Private Equity Pty Limited t/as Sydney VIP Boat Charters and Paul Cordeiro", said to have been provided by hand, and purporting to constitute a disclosure for the purpose of the Local Court proceedings. The disclosure provides an estimate of total costs of between $7,500 and $15,000 plus GST, excluding barristers' disbursements. It also discloses hourly rates of $600 and $300 per hour for, respectively, principal and lawyers, in both cases exclusive of GST. The letter includes a space for the signature of Mr Cordeiro and Access Private Equity by way of acceptance. The letter proceeds on the basis that its terms will be the terms of an (enforceable) costs agreement. It provides four methods of acceptance on offer. The first is signing and returning a copy of the document, the second and third involve receipt of instructions after receipt of the document, and the fourth is oral acceptance.
13. Mr Ekes gives evidence that the document was handed to Mr Cordeiro at a conference on or about 4 November 2016. He says that on that occasion the two men had a brief discussion however he does not recall the subjects discussed. Mr Cordeiro denies ever having received the document and says further that had Mr Ekes indicated to him that his estimated fees and costs excluding barristers' disbursements in the civil matter would be $7,500 and $15,000 he would never have instructed Mr Ekes to act for him in a claim as small as it was.

Applicable principles

1. The parties today, who have assisted me with helpful written and oral submissions, are agreed as to the applicable principles. Both are content to accept the formulation of principle in Barrett AJA's decision in Ligon 158 Pty Ltd v Huber [2016] NSWCA 330; 117 ACSR 495 at [8]-[11] as follows. "8. The primary judge summarised a statement of relevant principles found in the judgment of Black J in Re Wollongong Coal Ltd [2015] NSWSC 1680; (2015) 110 ACSR 134 (at [9]-[22]). Black J identified the following matters by reference to decided cases: (1) A dispute is 'genuine' if it is not 'plainly vexatious or frivolous' or 'may have some substance' or 'involves a plausible contention requiring investigation'. A genuine dispute requires that it be bona fide and, to that effect, be premised on sufficiently particularised grounds that are 'real and not spurious, hypothetical, illusory or misconceived' and which demonstrate the dispute's 'objective existence' and 'prima facie plausibility'. (2) The test is governed by principles analogous to those which underpin an application for an interlocutory injunction or summary judgment. The court must, however, guard against setting the threshold too low for that is liable to defeat the legislative purpose of the section. (3) The task faced by a company challenging a statutory demand on the genuine dispute ground is by no means at all a difficult or demanding one. Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow and the demand will be set aside. A finding to the contrary could only be arrived at if the contentions advanced are so devoid of substance that no further investigation is warranted. (4) The function of the court is merely to determine the existence of a genuine dispute. While this neither requires nor invites it to weigh or assess the merits of the dispute, the court will not exceed its legitimate function by having regard to evidence which bears upon whether the asserted dispute is genuine. 9. Black J referred in particular to the decision of this Court (Beazley P, Meagher and Gleeson JJA) in Britten-Norman Pty Ltd v Analysis and Technology Australia Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344 at [30]-[31] and [39]-[55], a case concerning the allied ground of offsetting claim under s 459H(1)(b). After considering the tests emerging from the decided cases, the Court made several important points about the forensic approach to be adopted in s 459G proceedings: (1) While there must be evidence showing a serious question to be tried or an issue deserving of a hearing, that evidence cannot and need not conclusively prove the claim or otherwise be incontrovertible or substantially non-contestable. (2) The short time allowed by s 459G(2) for the preparation of the affidavit supporting the claim for an order setting aside the demand militates against the presentation of the fullest and best evidence in some cases. (3) In determining whether there is evidence of a genuine dispute regarding the debt, the court is generally not concerned to engage in an enquiry as to the credit of the deponent of the supporting affidavit. At the same time, it is not required to accept uncritically every statement in the affidavit that is inconsistent with undisputed contemporary documents, is inherently improbable, does not have sufficient prima facie plausibility to merit further investigation or is an assertion of facts unsupported by evidence. (4) Inconsistent contemporaneous documents are not necessarily sufficient to defeat the company's challenge even though they might pose difficulties for the ultimate proof of the case that it would advance if the dispute were litigated. 10. The grounds on which the company disputes the alleged debt must appear from the affidavit filed by it within the relatively short period allowed by s 459G(2). The issue for the court is not whether the company would succeed on those grounds in defending a debt recovery action brought against it by the person who served the statutory demand. Rather, the court must decide whether the grounds of dispute delineated by the affidavit are grounds which, when viewed in the whole of the circumstances emerging from the evidence, indicate a plausible defence propounded in good faith and not one merely constructed in response to the pressure represented by the statutory demand. Issues of credibility will generally be confined to the question whether the asserted grounds are of that quality, as distinct from questions going to the ultimate merits of the postulated defence itself. It is for this reason that cross-examination of deponents is rare in such proceedings. 11. The restraint that a court should exercise in considering the ultimate question of the indebtedness of a company served with a statutory demand was emphasised by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd [2001] VSCA 89; (2001) 19 ACLC 1270. They said (at [3]-[4]): 'The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question - the existence of the debt - may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared. We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.'" [citations omitted]

The plaintiff's first basis

1. I turn to the first and primary basis on which the plaintiff contends that there is a genuine dispute. That submission is founded upon the disputed conversations as to the terms of the defendant's retainer with the plaintiff. It is to be recalled that in Ligon 158 Pty Ltd v Huber, a case in which there was what was described as "closely confined and controlled" cross-examination: see at [86], the primary judge recorded at [2016] NSWSC 652 at [34] what he described as "The incredible implausibility of Ms Huber denoting her savings of $410,000 for legal expenses incurred by her husband's brother's company on the basis that it would never be repayable". The primary judge observed that that "incredible implausibility" would "still not suffice of itself to deny this dispute the epithet of 'genuine'."
2. The primary judge in Ligon 158 Pty Ltd v Huber took the view that a series of other matters, principally based in inconsistencies with the unchallenged contemporaneous documents, entitled his Honour to form the view that there was no genuine dispute. The Court of Appeal allowed an appeal from that determination and identified a number of respects in which a dispute could arise from the contemporaneous accounting, financial and SMS messages in evidence. The Court of Appeal was not required to and did not determine the second ground of appeal, which concerned whether the limited cross-examination of the principal of the debtor had had his evidence disbelieved without having been confronted with it: see at [16] and [86].
3. Ms Dolenec who appears for the creditor accepts, entirely properly, that only in a rare case would this Court on the application of this nature resolve disputed testimonial evidence as to a conversation in favour of the creditor so as to deny the existence of a genuine dispute. She says this is such a case. She contends that the conversation to which Mr Cordeiro deposes on 4 October 2016 is so inherently implausible - principally having regard to the strength of the views on prospects and what on its face involves unethical conduct as to the recording of extra time on a file so as to give rise to an inflated entitlement to costs - that it should be rejected out of hand.
4. I bear in mind that Mr Ekes is a solicitor and also that now there has plainly been a serious falling out between solicitor and client. Two difficulties seem to me to confront acceptance of that submission. The first is one of procedural fairness. No application has been made to seek to confront Mr Cordeiro with the proposition that his evidence is not genuine or bona fide and is contrived so as not to give rise to a genuine dispute. The second is that a number of matters make the present facts considerably less extreme than the facts I have shortly summarised above in Ligon 158.
5. First, there is some inherent plausibility in Mr Cordeiro's contention that it would be unlikely for his company to retain Mr Ekes' firm to defend civil proceedings for a liquidated claim of some $18,000 in circumstances where an estimate of the fees to be charged was between $7,500 and $15,000 exclusive of GST and disbursements. Against this Ms Dolenec has taken me to some contemporaneous records of communications between Mr Cordeiro and the firm, which I accept do suggest that Mr Cordeiro displayed a very aggressive approach to that claim.
6. Secondly, there is the fact that Mr Ekes' firm brief retained Queen's Counsel to appear for Mr Cordeiro over at least 12 days before judge and jury and no doubt there was a deal of preparation beforehand. There is no evidence before me as to the expense incurred by Mr Cordeiro in the defence of his criminal proceedings. Nevertheless, I would confidently infer, based on the identity of counsel, the seriousness of the charge which Mr Cordeiro faced and the length of the hearing that the cost of the legal services supplied to Mr Cordeiro in his criminal defence enormously outweigh the $13,750 which is the subject of the statutory demand. (I interpolate, there is nothing in the evidence to suggest that Mr Cordeiro's representation was legally aided, and I proceed on the basis that his defence was privately funded.) In those circumstances, where the firm was in fact generating much more substantial revenue from Mr Cordeiro's criminal defence, it is far from implausible that for small civil proceedings against a company whose director was being defended by the firm, that firm might offer to defend the proceedings on behalf of the company on what amounted in effect to a "no win no fee" basis.
7. The third matter is that the disclosure letter of 30 October 2016 has not been signed, and cannot therefore unequivocally be shown to have been provided to Mr Cordeiro at about that time.
8. The fourth matter is that there is an inconsistency in the amounts of that letter and the amounts which appear on the tax invoice that gives rise to the statutory demand. All of the amounts of time based charging in both of 13 December 2017 tax invoices are calculated at higher rates than those disclosed in the fee disclosure ($650 per hour in the case of the principal and $350 per hour in the case of a lawyer). Those amounts include legal services which are recorded as having been supplied in October 2016, before even the disclosure letter is said to have been supplied to Mr Cordeiro.
9. The fifth matter is that if, as Mr Cordeiro contends, Mr Ekes was going to seek to be remunerated for the work done in the Local Court civil litigation for a favourable costs order, then it would have been prudent for him, in order to avoid any potential issue in the assessment of those party/party costs, to have a document satisfying his obligations of disclosure. Issues of this kind arose, under an earlier regime, in CSR Ltd v Eddy (2008) 70 NSWLR 735; [2008] NSWCA 83: see at [22]. In other words, the existence of the document is not entirely inconsistent with the "no win no fee" basis which is central to the plaintiff's case.
10. Sixthly, there is the question of timing. The 13 December 2017 invoice was not provided shortly after the conclusion of the Local Court proceedings on 30 October 2017. Rather there was a delay in the order of some six weeks, such that it was served only a couple of days before the sentencing hearing. One might expect in the ordinary course of events, if a firm was charging for legal services provided on the ordinary basis, for a tax invoice to be rendered more promptly after the conclusion of the litigation than has occurred in this case.
11. The last matter is that both of the forms of the tax invoice rendered on 13 December 2017 make it plain that there was some oral term in the retainer which is not recorded in the 30 October 2017 disclosure. True it is that Mr Ekes deposes to a conversation with Mr Cordeiro after service of the first (erroneous) tax invoice in which he says agreement was reached to reduce the fees to $12,500. However, even the first tax invoice contains a discount to exactly that amount. The contemporaneous documents suggest the terms of the retainer included matters falling outside the letter of 30 October 2016.
12. What I have said so far provides in my view two independent reasons for accepting the plaintiff's submission that there is a genuine dispute as to the debt giving rise to the statutory demand. By way of summary, the first is that I fail to see how I can accede to the creditor's submissions as to the absence of bona fides on the part of Mr Cordeiro, given the failure even to apply to challenge what he deposes to in his affidavits. The second is that the various features in the contemporaneous documents and the commercial reality of the circumstances to which I have referred, all tend to support some measure of plausibility to the account given by Mr Cordeiro. In both of those ways, this is a stronger case than Ligon 158 Pty Ltd v Huber.
13. For those reasons, I accept the primary basis on which the plaintiff has contended that there is a genuine dispute and that the statutory demand should be set aside.

The plaintiff's second basis

1. A second basis was propounded, which turned upon the contravention, so it was said, of provisions in the Uniform Law. That in turn gave rise to a debate between the parties as to whether those matters were sufficiently disclosed in the affidavit supporting the originating process to give rise to a dispute before me today.
2. During the course of the plaintiff's submissions in reply, I indicated that I did not need to hear him on that point. That was because I am of the view that in litigation involving the setting aside of a statutory demand, where the outcome is to leave extant a dispute between the parties, it is ordinarily desirable to exercise the restraint to which Brooking and Charles JJA referred in Spacorp Australia Pty Ltd v Myer Stores Ltd [20001] VSCA 89; 19 ACLC 1270 at [4], and to which Barrett AJA referred in Ligon 158 at [11]. Further, as debated in argument, the provisions, particularly s 177 and its relationship to s 178(1)(b) of the Uniform Law, give rise to questions of construction which are not free from difficulty. I was not directed to any authority that comprehensively analyses the effect of a contravention of s 177. That seems to me to be a further reason why it is inappropriate for me to express views on a question of statutory construction of general application which will have no impact upon any order that I make today and arise only in relation to a secondary argument advanced by the plaintiff.

Orders

1. For those reasons, after discussing the matter briefly with counsel I propose to make orders setting aside the statutory demand and I will hear the parties as to costs.
2. [discussion as to form of orders].
3. I make the following orders: 1. Pursuant to s 459H of the Corporations Act 2001 (Cth), the creditor's statutory demand dated 2 February 2018 be set aside. 2. The defendant to pay the plaintiff's costs.

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 May 2018