Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1249 | Case summary

3963/09 DRILLSEARCH ENERGY LIMITED v CARLING CAPITAL PARTNERS PTY LIMITED JUDGMENT 1 I am dealing with the question of costs consequent upon my judgment of 9 November 2009: Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd [2009] NSWSC 1192. 2 The order made on that occasion was that the statutory demand dated 14 July 2009 served on the plaintiff by the defendant be set aside. 3 The plaintiff says that it should have an order for costs against the defendant and that those costs should be assessed on the indemnity basis. 4 The defendant's contention is an unusual one, namely, that the costs of these proceedings "should abide the Commercial List proceedings" - which I take to mean that the costs of these proceedings should follow the event in the pending Commercial List proceedings referred to at paragraph [48] of the substantive judgment. In those proceedings, the present defendant, as plaintiff, seeks to establish the liability of the present plaintiff for the debt claimed in the second invoice referred to in the earlier judgment. This is one of two debts covered by the statutory demand said by the defendant to be created by a contract of 27 May 2009. 5 The submissions of junior counsel for the defendant on costs canvass certain of the findings made in the judgment. In relation to the question whether an agreement was reached on 27 May 2009, the submissions say that Mr Carling and Mr Simpson (the parties to the conversation said to have given rise to a contract) "were the only ones able to determine the matter" and that "seemingly inconsistent matters fall away when this is recognised" (no explanation is given as to how this is consistent with the objective theory of contract formation under which subjective intentions of the parties are not to be taken into account). The submission is really that the court got it wrong and should have found that an agreement was made - not, as it did find, that there was a genuine dispute about the matter. 6 In relation to the other main question, that is, whether Mr Simpson had the plaintiff's authority to conclude an agreement, junior counsel for the defendant, after referring to a number of matters, says in written submissions: "On balance, the defendant submits the evidence supporting authority was clearly in the defendant's favour." 7 Here too, it seems, the court got it wrong: the finding should have been that Mr Simpson had authority, not that there was a genuine dispute about the matter. 8 The submissions made are of no assistance. The only question before the court was whether there was a genuine dispute as to the existence of the debt. Part and parcel of that were the questions whether there was a genuine dispute about the binding force of the alleged agreement of 27 May 2009 or about Mr Simpson's authority to bind the plaintiff or about both those matters. Only if there had been no plausible contention whatsoever against the existence of an agreement or the existence of the authority would it have been open to the court to come to the clearcut conclusions suggested by the submissions. That was not the case. 9 The idea that the costs of these proceedings should follow the event in the Commercial List proceedings also misses the point. The finding of genuine dispute by reference to which these proceedings were determined will not change or be overborne or be shown to be wrong because of the outcome in the Commercial List proceedings. There will eventually be, in those proceedings, an answer to the ultimate question whether the plaintiff owes money to the defendant, as the defendant alleges. That was not the question before the court in these proceedings. 10 There is no sensibly articulated basis on which to make an order that the costs of these proceedings should abide the costs of the Commercial List proceedings. Nor is there any sensibly articulated basis on which the court should, in these proceedings, depart from the general rule that costs follow the event. 11 There will therefore be an order that the defendant pay the plaintiff's costs of the proceedings. 12 There is then the contention of the plaintiff that these costs should be assessed on the indemnity basis. 13 That contention is advanced on the basis that, in the light of correspondence, the existence of a genuine dispute was known to the defendant before the issue of the statutory demand on 14 July 2009 or before expiration of the time for compliance (in early August 2009) or, at the latest, by the time the defendant commenced the Commercial List proceedings on 12 October 2009. Counsel for the plaintiff says that the following observations in Polstar Pty Ltd v Agnew [2007] NSWSC 114; (2007) 208 FLR 226 at [44] - [45] are in point: "The intention underlying Pt 5.4 is that a creditor who genuinely believes that a debt is due and payable and is unaffected by either genuine dispute as to existence or amount or offsetting claim may obtain, for the purposes of a winding up application, the benefit of a statutory presumption of insolvency. Such a creditor may be met, at the threshold, by a claim on the part of the alleged debtor company that a genuine dispute or offsetting claim exists. If the creditor then wishes to persist with his or her attempt to obtain the benefit of the presumption of insolvency, he or she must succeed in defeating the allegation of genuine dispute or offsetting claim.

Clearly implicit in this statutory scheme is the proposition that a person claiming to be a creditor will not resort to the statutory demand process where that person is already aware of the existence of a genuine dispute or offsetting claim. Section 459E(3)(a) requires that person to say on oath or affirmation that the relevant amount is due and payable by the company. Via s 459E(3)(a) and the rules of court (Form 7), the person must also say that he or she believes that there is no genuine dispute about the existence or amount of the claimed debt." 14 Also relevant is the following observation of Santow J in First State Computing Pty Ltd v Kyling (1995) 13 ACLC 939 at 951: "It has been said on numerous occasions that the Companies Court is not to be the court which deals with disputed debts. If there is an honest dispute between the parties as to the amount of the debt, they are expected to resolve their dispute through the normal channels such as litigation in the Common Law Division or the District Court, not by the means of winding up proceedings; for example, see John Holland Construction and Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716 at 717 per Young J." 15 There is substance in the plaintiff's contention, at least from the point at which the Commercial List proceedings were commenced. The defendant should have accepted, at that point, that the statutory demand procedure was no longer appropriate in respect of the debts claimed in the second and third invoices, being debts said to be created by the agreement of 27 May 2009: see paragraph [50] of the principal judgment. 16 There remained, however, the debt claimed in the first invoice (see paragraphs [55] to [60] of the principal judgment). The Commercial List proceedings do not cover that alleged debt. 17 After the commencement of the Commercial List proceedings, the defendant should not have persisted with the statutory demand in respect of the debts claimed in the second and third invoices. Those proceedings raised as an issue for determination in the usual way whether the contract relevant to those debts had been made. 18 The same cannot be said of the debt claimed in the first invoice. It was not unreasonable for the defendant to persist with the statutory demand in relation to that debt. 19 Given that most of the evidence and argument in the proceedings went to the contract formation and authority questions involving the second and third invoices, the appropriate order is: Order that the defendant pay the plaintiff's costs of the proceedings, such costs to be assessed on the ordinary basis up to and including 11 October 2009, on the ordinary basis as to 20% from and after 12 October 2009 and on the indemnity basis as to 80% from and after 12 October 2009. **********

Drillsearch Energy Ltd v Carling Capital Partners Pty Ltd

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Judgment (12 paragraphs)

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Cases Cited (3)