3 The numbers in the middle column identify invoices rendered by the defendants as solicitors to the plaintiff as their client. Invoice No B 6568 (pp 77ff of Ex P1) is for professional costs in the period from 1 April to 30 April 2008 in the sum of $106,386.50 plus GST and disbursements of $25,903.19, for a total amount of $142,928.34. Invoice No B 6599 (pp 84ff of Ex P1) is for professional costs in the period from 1 May to 31 May 2008 in the sum of $94,186 plus GST and disbursements of $25,372.53, for a total amount of $128,977.13. Invoice No B 6889 (pp 94ff of Ex P1) is for professional costs in the period from 1 August to 30 September 2008 in the sum of $70,685.20 plus GST and disbursements of $39,068.48, for a total amount of $116,822.20. It will be seen that the statutory demand is for the whole amount of invoices B 6599 and B 6889, but for $100,000 less than the amount of invoice B 6568. The total amount claimed for professional costs excluding GST is $271,257.70, and the total amount claimed for disbursements is $90,344.20. There is no evidence as to the apportionment of the payment of $100,000.
4 Chameleon is a public company engaged in mining and mineral exploration. It retained AH in September 2007, to represent it in relation to some claims it had against Murchison Metals Ltd. Mr Hartnell of AH sent a letter headed "engagement letter" to Mr Karam, the managing director of Chameleon, on 14 November 2007, attaching a document entitled "Standard Terms of Engagement" and another document constituting "Disclosures under Legal Profession Act 2004 (NSW) including under Division 3". These documents evidently constituted or evidenced the terms of a costs agreement for the purposes of the Legal Profession Act.
5 Chameleon, represented by AH, commenced proceedings against Murchison Metals in the Federal Court of Australia on 29 November 2007. During the period from 17 October 2007 to 13 October 2008 Chameleon received invoices from AH for professional costs and disbursements in relation to those proceedings, in the total sum of $1,248,296.29. Ms Pickford, the partner at AH responsible for the day-to-day conduct of the proceedings from about March 2008 onwards, gave evidence that until about February 2008 Chameleon paid AH's invoices reasonably promptly, but by July 2008 three invoices were outstanding, the April and May invoices listed above and another one rendered earlier in April on which $4,620 was owed. She said that prior to 12 November 2008, no representative of Chameleon had ever suggested to her, or to her knowledge any other solicitor or partner of AH, that Chameleon was dissatisfied with the quantum or nature of the costs incurred by AH.
6 According to the affidavit of Mr Karam, Chameleon fully paid nine invoices issued during the period from October 2007 to October 2008, but it did not pay invoices B 6599 and B 6889 and it paid only $100,000 on invoice B 6568. It appears from his evidence that the statutory demand accurately identified the invoice amounts that remain outstanding. Mr Karam gave evidence expressing the view that the unpaid invoices are excessive having regard to the stage of the Federal Court proceedings to which they relate.
7 On 5 November 2008 Piper Alderman ("PA") wrote to AH informing them that Chameleon had retained PA to act for it in place of AH in the Federal Court proceedings against Murchison Metals. According to AH, Mr Karam had told them on the previous day that he considered it likely that an incoming litigation funder would wish Chameleon to retain PA to conduct the proceedings. AH wrote to PA on 5 November 2008, drawing attention to their unpaid fees and asserting a solicitor's lien over Chameleon's documents in their possession.
8 AH's statutory demand was served on Chameleon on the following day, 6 November 2008.
Relevant provisions of the Corporations Act
9 The statutory authority to issue a demand for debt to a company is in s 459E, which says that the demand must require payment or compounding of the debt within 21 days after the demand is served. In the present case the last day of the 21 day period was 27 November 2008.
10 Under s 459C(2)(a) the court must presume in winding up proceedings that a company is insolvent if it has failed to comply with a statutory demand within the three months ending on the day when the application for winding up was made. The concept of failing to comply with a statutory demand is elucidated in s 459F(1), which says:
"If, as at the end of the period for compliance with the statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period."
11 It will be noted that under this provision, there is no failure to comply if the demand is no longer "in effect" at the expiration of the 21 day period. In my opinion if the creditor validly withdraws the statutory demand it ceases to be "in effect". What constitutes valid withdrawal of the statutory demand?
12 In Cempro Pty Ltd v Dennis M Brown Pty Ltd (1994) 13 ACSR 628, a firm of chartered accountants served statutory demands on 12 companies for unpaid professional fees and then, after negotiations and before the commencement of proceedings to set aside the demands, the accountants' solicitors wrote to the solicitors acting for the companies unconditionally withdrawing 11 of the notices. A point arose as to whether it was necessary for the companies to continue with the proceedings and obtain orders from the court setting aside the demands, in order to prevent the statutory consequences of non-compliance with the demand from arising, or whether the interests of the companies were sufficiently protected by the letter withdrawing the notices. Von Doussa J said (at 629):
"In my view if the party serving a notice of statutory demand under s 459E, within the time limited by the notice for compliance therewith, arms the recipient company with a document in writing saying that the statutory demand is unequivocally withdrawn, the notice thereafter has no further force or effect, and it is not necessary to prevent presumed insolvency arising at the expiration of the period for compliance to obtain an order of the court formally setting aside the notice. I consider that the unconditional withdrawal of the notice of statutory demand means that there is no longer a demand to be complied with, and at the expiration of the time limited for compliance, there can be no failure to comply with the demand. The fact that the withdrawal is evidenced by a document in writing given to the recipient company ensures that the company is in possession of proof of the withdrawal should any question thereafter arise as to the fate of the statutory demand."
13 I respectfully agree. In the present case, a question arises whether a statutory demand can be withdrawn orally. Although Von Doussa J envisaged withdrawal in writing, it appears from his observations that he regarded writing as desirable for the purpose of proving the withdrawal, rather than necessary for the validity of the withdrawal. I can see no reason for insisting upon writing as a prerequisite to validity. In my view, if the court is satisfied, on the evidence, that a statutory demand has been unequivocally withdrawn within the notice period, the withdrawal is valid and effective notwithstanding the absence of any document, and it is unnecessary for the company to apply for an order setting the demand aside.
14 However, on the view I take of the facts it is not necessary to decide whether an oral statement of withdrawal is sufficient. More importantly for present purposes, assuming that writing is not required, it seems to me that prudence will nevertheless usually dictate that the company should seek written withdrawal so that the fact and terms of the withdrawal can be readily proved, especially given the serious consequences of failing to comply with the statutory demand. I shall return to this point.
15 Section 459G allows the company to apply to the court for an order setting aside the statutory demand within 21 days after the demand is served, provided that the application is filed and served, with a supporting affidavit, within those 21 days.
16 In light of these provisions, receipt of a statutory demand puts a company in a difficult position, as noted in many cases (see, for example, Buddies Liquor Pty Ltd v Wah Lai Investment (Australia) Pty Ltd [2001] NSWSC 337 at [3], per Santow J; Soudan Lane Pty Ltd v Glen Bradshaw [2007] NSWSC 772 at [4], per White J, extracted below). The company must, within a strict 21 day period, either pay or compound the debt, or initiate court proceedings to set the demand aside. If it fails to act in either of those ways, then it is subject to a presumption of insolvency in any winding up proceedings commenced within the ensuing three months, even if the debt is not in fact owing. That is a serious consequence for any company, but particularly so for a public company such as Chameleon.
The correspondence between the solicitors, to 26 November 2008
17 In the present case Chameleon's solicitors, PA, and AH corresponded during the 21 day period after service of the statutory demand. On 12 November 2008 PA wrote a long letter to AH in response to the statutory demand, contending that under the Legal Profession Act 2004 (NSW) ("LPA") AH had not been entitled to issue the demand, because the invoices were not bills in proper form. The letter indicated that Chameleon required bills in proper form and would seek to have AH's costs assessed. The letter also made a request under the Act for itemised bills in respect of all 12 invoices rendered since October 2007. It asserted that there was a genuine dispute concerning the amount claimed because AH's costs appeared to be excessive. Under the heading "Conclusion", the letter said amongst other things:
"On the basis of the matters outlined above, we invite you to withdraw the Statutory Demand. Please let us have your written confirmation that you will do so, no later than 5.00 p.m. today."
18 At the hearing, counsel for AH criticised Chameleon and PA for taking 6 days to respond to the statutory demand. But it must be remembered that PA had only just come into the matter, having notified AH of its instructions on 5 November, and additionally, taking instructions on the statutory demand and reviewing AH's invoices would have required some substantial time. The 6 days taken to reply included a weekend. I therefore do not accept that there was any unreasonable delay on the part of Chameleon and PA in responding to the statutory demand 6 days after it was served.
19 AH did not respond to PA's letter until Friday 21 November, 6 days (including a weekend) before the end date of the statutory demand and 9 days (including a weekend) after PA's letter. It seems to me that AH's delay in replying was unreasonably long in the circumstances. AH was fully seized of the matter and did not need to receive instructions, because the demand was made by the firm themselves. They should be taken to have understood the requirements imposed upon them by the LPA in connection with demanding payment of fees for their legal professional services. They had issued a demand that was subject to a strict 21 day timetable, and they must have realised that the longer they delayed their response the more difficult it would be for Chameleon, in light of the response, to decide whether to apply to set the demand aside.
20 AH's letter denied any failure on their part to comply with the LPA, on the ground that Chameleon was a "sophisticated client" to which the provisions of the LPA regarding the form of a bill and the disclosure to accompany it were not applicable. It contested the proposition, attributed to PA, that no debt was due and payable so long as Chameleon had the right to have the bills assessed. The letter contended that a law practice is not prohibited from commencing or maintaining proceedings for recovery of legal costs until an application for a costs assessment is in fact made.
21 The letter noted that under s 355(b) of the LPA, if an application for a costs assessment is made, the law practice is precluded from commencing or maintaining any proceedings to recover the legal costs until the costs assessment has been completed. The letter said:
"If Atanaskovic Hartnell receives notice in accordance with s 356(1) LPA that Chameleon has in fact applied for an assessment of costs in accordance with Division 11 of any of the Invoices, it will take action to withdraw the statutory demand with respect to that Invoice accordingly."
22 The letter purported to refute any suggestion that there was a genuine dispute about the invoices and suggested that the only reason Chameleon was raising a dispute in connection with the costs that had been incurred was because it would be insolvent unless it did so. It said that if Chameleon wished to contend that there was in fact a genuine dispute in respect of the invoices, it should proceed to an application for assessment of costs. It foreshadowed that AH might seek to assign the debts to someone else interested in becoming Chameleon's largest creditor. As to the request for itemised bills, it denied that AH was obliged to comply in respect of invoices given on or before 12 November 2007, and said that the firm would not do so.
23 AH's letter adopted a tone that I regard as regrettable. For example, responding to observations PA had made about s 333(1) of the LPA, the letter said:
"There is no doubt that section 333(1) LPA is a fascinating section, capable of exciting the intellect and captivating the attention of the keen legal mind, and in any other circumstance we could find no fault with a lawyer who spent (as the author of the 12 November 2008 letter did) more than an A4 page discussing its intricacies, complete with underlinings for emphasis. If only the author of that analysis had not found subsection 333(1) so fascinating, there is a possibility that they may have read as far as section 333(3), which provides that 'Subsection (1) does not apply in relation to a sophisticated client'."
24 Stripped of the verbiage and irrelevancies, this conveys the short point that AH denied the application of s 333(1) because Chameleon was a "sophisticated client" within s 333(3). The tone of the letter enhances the impression created by the delay in supplying it, namely that AH was acting unreasonably in relation to the statutory demand.
25 PA replied to AH on Monday 24 November 2008. Their letter challenged AH's assertion that Chameleon was not entitled to a bill because it was a sophisticated client, and AH's claim that they were entitled to take immediate steps to recover fees as long as Chameleon did not apply for an assessment of costs. The letter said Chameleon had instructed PA to apply for an assessment of costs on the basis of the invoices and would notify AH when the application had been lodged. The letter ended:
"We again invite you to withdraw the Statutory Demand. Please let us have your written confirmation that you will do so no later than 12.00 midday, 25 September 2008."
26 AH did not reply in writing to that letter. An application for assessment of costs was filed with this court on 26 November 2008. The application asserted that all 12 invoices issued by AH from 17 October 2007 to 13 October 2008 were not bills in the form prescribed by the LPA, and it claimed that AH had not made proper disclosures as required by the LPA. It made various objections to the invoices and said that the amount of costs in dispute was $912,649.11.
27 On the same day, a letter from PA was hand-delivered to AH enclosing a copy of the application, by way of service. The letter said that pursuant to s 355(b) of the LPA, AH was then not entitled to maintain any proceedings to recover the alleged outstanding fees. The letter continued:
"Please indicate as a matter of urgency, and in any event, by no later than 5 p.m. today, that you will withdraw the statutory demand, as indicated in your letter of 21 November 2008.
"If we do not receive your confirmation by the time requested, Chameleon will have no alternative but to file an application to set aside the statutory demand, in which case it will seek its costs from you in relation to their application on an indemnity basis."
28 In submissions at the hearing, counsel for AH pointed out that this letter did not expressly require written withdrawal of the statutory demand. But in the previous two letters written withdrawal had been expressly demanded, and in their letter of 21 November AH had said that they would "take action" to withdraw if an application was made, suggesting in my view something more than verbal confirmation during a telephone conversation. Although the letter of 26 November did not stipulate a withdrawal in writing, it spoke about not receiving AH's "confirmation" by the time requested. In my view the language of the letter clearly conveyed, in the context of the earlier letters, that PA was demanding a written withdrawal of the statutory demand.
Section 332A - itemised bills
29 It is unnecessary for the court to resolve all of the conflicting opinions of the lawyers about the operation of the LPA. It is sufficient to deal with PA's request for itemised bills and AH's response to that request.
30 Section 332A is in the following terms:
"(1) If a bill is given by a law practice in the form of a lump sum bill, any person who is entitled to apply for an assessment of the legal costs to which the bill relates may request the law practice to give the person an itemised bill.
(2) The law practice must comply with the request within 21 days after the date on which the request is made.
(3) If the person making the request is liable to pay only a part of the legal costs to which the bill relates, the request for an itemised bill may only be made in relation to those costs that the person is liable to pay.
(4) Subject to subsection (5), a law practice must not commence legal proceedings to recover legal costs from a person who has been given a lump sum bill until at least 30 days after the date on which the person is given the bill.
(5) If the person makes a request for an itemised bill in accordance with this section, the law practice must not commence legal proceedings to recover legal costs from the person until at least 30 days after complying with the request.
(6) A law practice is not entitled to charge a person for the preparation of an itemised bill requested under this section.
(7) Section 332(2), (5) and (6) apply to the giving of an itemised bill under this section [these provisions relate to signature and service of the bill]."
31 As noted above, in their letter of 12 November 2008 PA requested itemised bills for all 12 AH invoices, which they listed by number. The invoices that were the subject of the statutory demand were included in that list. That was a valid request for itemised bills under s 332A(1).
32 In their letter of 21 November the 2008 AH noted the request for itemised bills. They contended that s 332A(1) confers a right to request an itemised bill only on a person who is entitled, at the time of the request, to apply for an assessment of the legal costs to which the bill relates. They asserted that at the time of the request, Chameleon was not entitled to apply for an assessment of legal costs in respect of any invoice given to it on or before 12 November 2007 (presumably on the basis that according to s 350(4) of the LPA, the time limit for an application for assessment of costs is 12 months after the request that payment was made to the client). Therefore, they said, Chameleon was not entitled to request itemised bills for invoices given on or before 12 November 2007, and consequently AH would not be providing itemised bills in respect of those invoices.
33 AH did not deny that they were obliged under s 332A(2) to provide itemised bills within 21 days in respect of the invoices rendered after 12 November 2007, including the three invoices that were the subject of the statutory demand. On the facts before me, it seems to me that the obligation to provide itemised bills in respect of those three invoices has been made out. At the hearing counsel for AH conceded that the point was correct.
34 The evidence does not reveal whether that statutory obligation has been performed, and that being so, non-compliance is not to be assumed, but on the other hand the evidence indicates that itemised bills for the three invoices were not supplied on or prior to 27 November 2008.
35 For present purposes the importance of the request for itemised bills arises under s 332A(5). According to that provision, as from 12 November 2008, the date when the request for itemised bills was made in respect of the three invoices that were the subject of the statutory demand, AH was precluded from commencing legal proceedings to recover the costs that were the subject of the statutory demand until at least 30 days after complying with the request. Consequently after the first 6 days of its currency, the statutory demand related to debts claimed by AH which they could not seek to recover by legal proceedings. There is authority to the effect that if a statute prohibits commencement of proceedings to recover a debt, then so long as the statutory prohibition remains in place the debt is not "due and payable" and consequently cannot found a statutory demand: Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 at [39]-[40], applying Re Elgar Heights Pty Ltd [1985] VR 657 at 669 and 671.
36 AH accepted, as noted above, that they should withdraw the statutory demand in respect of an invoice if Chameleon made an application for assessment of costs for that invoice. This must have been because s 355(b) of the LPA prevented them from commencing proceedings to recover the debt once they had received an application for an assessment of costs, and consequently the debt was no longer due and payable and no longer an appropriate subject for a statutory demand. Consistency required that they should have taken that attitude immediately on receipt of PA's letter of 12 November 2008, which contained a request for itemised bills, given that s 332A(5) likewise prevented them from commencing recovery proceedings once the request was received. In my view AH acted unreasonably in failing to withdraw the statutory demand as soon as the request for itemised bills was received, and in asserting in their letter of 21 November that their debt remained due and payable notwithstanding s 332A(5) and the Elgar Heights and Remuneration Data Base cases.
The conversation between the solicitors on 26 November 2008
37 On the afternoon of 26 November 2008 Ms Pickford of AH telephoned Ms Banton of PA, and when she did not answer her phone, Ms Pickford left a voicemail message for her to return the call. Ms Pickford said she received PA's letter of 26 November and the application for costs assessment just before 5 p.m. That was after she left her message for Ms Banton.
38 Ms Pickford and Ms Banton spoke on the telephone a little after 5 p.m. According to Ms Pickford's version of the conversation, after Ms Banton inquired about the statutory demand, Ms Pickford said:
"As we said in our previous letter, if Chameleon filed an application for assessment of costs we would withdraw the statutory demand. That has now happened, so consider the statutory demand withdrawn. We will not take any further action on the statutory demand - the matter is now at an end."
39 Ms Pickford said they then had a debate about whether a statutory demand can be withdrawn once it has been served. Ms Pickford said she referred to s 459F(1) and said there would only be failure to comply with the statutory demand if it was "still in effect" and the company had not complied with it, and she asked, "if we say that the statutory demand is withdrawn and we will take no further action on it, how could it still be in effect?" She then pointed out that, Chameleon having made an application for a costs assessment, AH was prohibited from instituting proceedings for recovery and would fully comply with its obligations under the LPA and abide by the results of the costs assessment process. She suggested there was no reason for applying to have the demand set aside. She said Ms Banton expressed concern as to whether failure to comply with the statutory demand could be relied upon by another creditor, and after further debate Ms Banton said she wanted to check the case law to decide whether it was possible to withdraw the statutory demand or necessary to apply to set it aside.
40 Ms Pickford's file note of the conversation contains the words "now notice app has been commenced demand withdrawn - no need for application s 459F."
41 In her affidavit replying to Ms Pickford's affidavit, Ms Banton disagreed with Ms Pickford's account of the telephone conversation in some respects. Principally, she said that when she asked Ms Pickford to confirm that the statutory demand would be withdrawn, Ms Pickford replied:
"As you have now filed for costs assessment then the matter is progressing. Therefore the statutory demand will be withdrawn."
The essential difference between her evidence and the evidence of Ms Pickford is that according to Ms Banton, Ms Pickford only said that the demand "will be" withdrawn, not that she should "consider the statutory demand withdrawn".
42 Ms Banton said she expressed the view that a statutory demand cannot be withdrawn once it has been served, and that she would obtain instructions as to whether her clients still wished to apply to have the statutory demand set aside. She denied ever saying that she would provide a response to Ms Pickford as to the outcome of her consideration of the law and her instructions from Chameleon. She said she agreed to obtain Chameleon's instructions as to whether it would pay the outstanding fees into court.
43 Ms Banton's file note (Ex P2) says, relevantly:
" st demand withdraw"
demand
set aside / 459E
not sure you can"
44 Both Ms Banton and Ms Pickford were cross-examined about this conversation, by leave, but they maintained their evidence as given in their affidavits. Their file notes seem to me to support their respective versions of the conversation and so they do not help to resolve the inconsistency. In those circumstances making a finding that chooses between the inconsistent versions is quite a difficult matter. During the course of argument I said I was inclined to think that there probably was a withdrawal of the demand in the conversation, but now that I have had the chance to consider the correspondence carefully, as well as the transcript of cross-examination, I have reached the contrary view, on balance. I have done so for the following reasons.
45 First, the context created by the previous correspondence is significant. In my view the correspondence created an expectation on the part of AH that PA would require withdrawal in writing, and on the part of PA that the withdrawal would be by writing. Writing was expressly required in the letters of 12 and 24 November. It was not expressly required in the letter of 26 November but as indicated earlier, that letter used language conveying the idea that there should be written "confirmation", especially as it followed two previous requests that the withdrawal be in writing. Further, AH's letter of 21 November said that they would "take action" to withdraw the demand if they received "notice in accordance with s 356(1) of the LPA". The notice would be in writing and one would expect that the action contemplated to be taken in response to that written notice would be a written withdrawal.
46 Secondly, and following from that context, it seems to me implausible that Ms Pickford would have expressly purported to withdraw the demand then and there. Her own correspondence had contemplated that she would "take action". A statement saying Ms Banton should "consider the statutory demand withdrawn" conveys the idea that there would be no action taken to achieve that objective.
47 Thirdly, I agree with Ms Banton's evidence that if Ms Pickford had said something conveying the idea of immediate withdrawal by virtue of her statement alone, Ms Banton would have responded differently. Ms Banton said in cross-examination (T 4-5):
"If the withdrawal had happened during the course of the conversation I would have taken a thorough file note saying that the demand had been withdrawn and more likely sought an undertaking that it wouldn't be relied upon because it would be a very serious matter that we would later be likely to produce in court."
I take it she was saying she would have sought a written undertaking. In my view her evidence on this matter is plausible and I accept it.
48 Counsel for AH submitted that the balance of the conversation between the two solicitors was only consistent with there having been a withdrawal, because they immediately turned to the legal consequences of withdrawal and Ms Banton said she would have to see whether Chameleon still wanted to issue the application. I disagree. It seems to me that Ms Banton's desire to consider whether a statutory demand could be withdrawn is equally consistent with Ms Pickford having expressed an intention to withdraw and with her having purported to withdraw forthwith. Her indication that she would take instructions on whether Chameleon would proceed to issue the application is also consistent with both versions of the conversation: if Ms Pickford had led her to expect that a withdrawal would be forthcoming, she would want to take instructions on whether the client wanted to issue the application or trust that the foreshadowed withdrawal would be communicated in writing.
49 Counsel for AH also relied on the conversation between Ms Banton and Ms Pickford on the following morning outside court, before and after the Federal Court directions hearing. The evidence concerning that conversation is discussed below. But it is common ground that Ms Banton did not follow up on the withdrawal of the statutory demand by asking when a written withdrawal would be forthcoming. It seems to me, on balance, that I should not attribute any significance to that omission. The evidence indicates that the first conversation between the solicitors on 27 November occurred about 10 minutes before the directions hearing, and the second conversation occurred immediately after the directions hearing. I infer that Ms Banton's attention would have been focused on that hearing and that withdrawal of the statutory demand was not relevant to any matter for consideration in the Federal Court directions hearing. It seems to me unsurprising that Ms Banton would have responded to Ms Pickford's question simply by saying that she had not obtained instructions concerning the statutory demand.
Federal Court directions hearing on 27 November 2008
50 The Chameleon proceedings against Murchison Metals came before the Federal Court for directions on the morning of 27 November 2008. Ms Pickford gave evidence that she was concerned that the issue of delay in the proceedings arising out of AH's exercise of a solicitor's lien over the file might be mentioned, and she wanted to make sure that the court was informed about that matter in an accurate and complete fashion. She endeavoured to make telephone contact with Ms Banton, but was unsuccessful, and so she and her colleague Ms Gigg went to the Federal court and spoke to Ms Banton shortly before the directions hearing, and again after the directions hearing.
51 Ms Pickford said that during the first conversation she asked Ms Banton for a response to the matters discussed on the previous afternoon and Ms Banton said she had not had an opportunity to take instructions. Ms Pickford said that at no time during their conversations did Ms Banton indicate an understanding that the statutory demand had not actually been withdrawn during the conversation on 26 November, or that PA required that the statutory demand should be withdrawn in writing.
52 Ms Banton's evidence is consistent with the evidence of Ms Pickford, in that she agreed that Ms Pickford asked to whether she had instructions from her clients and that she replied in the negative. Ms Banton gave evidence about some other matters discussed in the conversations on 27 November, but they appear to me to be of only marginal relevance to the matters I have to decide, and as they are contentious matters relating to professional conduct, not the subject of cross-examination, I will not make any findings.
Subsequent correspondence
53 Ms Pickford said that she received a copy of the originating process seeking orders to set the demand aside and for indemnity costs, and supporting affidavits, at about 2 p.m. on 27 November 2008.
54 AH responded by letter dated 27 November, complaining that the affidavits in support of the application to set aside the demand made no mention of the withdrawal of the demand on 26 November. The letter asserted that the demand had in fact been withdrawn during the conversation on 26 November and it set out the evidence that AH would rely upon if there were a hearing. The letter alleged that the commencement of the proceedings was unnecessary and wasteful, because even if Ms Banton had persisted in the view that it was not possible to withdraw a statutory demand, an application for an order setting the demand aside could have been made by consent, and consent would have been forthcoming. The letter communicated AH's offer to consent to the statutory demand being set aside, but only on the basis that each party pay its own costs.
55 PA responded by an extraordinarily long letter dated 3 December 2008, the gist of which was to dispute Ms Pickford's version of the events of 26 and 27 November and to offer to consent to orders setting aside the statutory demand and requiring AH to pay Chameleon's costs of $17,815. The letter also raised questions about Ms Pickford's conduct outside court on 27 November and in particular, whether she had compromised her duty of confidentiality to Chameleon.
56 AH responded, also by an extraordinarily long letter, on 11 December 2008, rejecting the proposal for consent orders made by PA, and reiterating that they would consent to set aside the statutory demand but only if each party paid their own costs.
57 PA wrote to AH again on 21 January 2009 seeking confirmation that AH would consent to the statutory demand being set aside, and saying they would not consent to an order that each party pay their own costs and that they intended to seek the costs of the proceedings at the hearing. By an e-mail dated 5 February 2009 and letter of 12 February 2009 PA asked again whether AH would consent to an order setting aside the demand and asking whether costs were the only issue. On 12 February 2009 AH responded saying they would consent to the statutory demand being set aside, but only on the basis that each party pay its own costs. On 13 February 2009 PA responded saying that in light of AH's attitude they would continue to prepare for the application on the basis of AH had not unconditionally consented to the setting aside of the demand. On 13 February AH responded, reasserting their position.
Proceedings before McDougall J
58 On about 18 December 2008 Chameleon filed a summons seeking delivery up of the files of AH over which AH had asserted a solicitor's lien. The summons came before McDougall J on 22 December 2008. Counsel for AH informed McDougall J that of the amount covered by the statutory demand, the sum of $90,344.20 for disbursements relating primarily for counsel's fees was not the subject of any dispute. McDougall J asked counsel for Chameleon whether that amount could be paid and counsel told the judge he had instructions that the amount could be paid that day (see Ex D 2, pages 3-4). Consent orders were made later, providing for the payment of those disbursements and the payment of $193,653.47 into PA's trust account, and subject to those payments, for Chameleon to have access to AH's files.
59 Thus of the total amount of $288,727.67 claimed in the statutory demand, $90,344.20 (the whole of the disbursements in the three invoices that are the subject of the demand) was paid pursuant to McDougall J's orders, and the balance of the amount claimed (less $4730) was paid into a solicitor's trust account. Under the terms of McDougall J's orders, AH is to be paid the amount of costs payable to them pursuant to the outcome of the application for costs assessment. That amount is to be paid either 7 days after expiry of the appeal period in respect of determination of the application for costs assessment (if no appeal is filed), or 7 days after final determination of the application for costs assessment after appeal.
60 On 29 May 2009 the costs assessor completed his assessment of costs in respect of eight of AH's invoices, including the three invoices that are the subject of the statutory demand, and issued a Certificate of Determination of Costs. He reduced the total amount of costs claimed on those invoices by $88,282.43, a reduction of 12.5% applied uniformly across the eight invoices. Consequently I infer that the professional costs of $271,257.70 claimed in the three invoices that were the subject of a statutory demand were reduced by 12.5% or $33,907.21. Given that the disbursements have already been paid, there appears to be ample money held in trust to cover the amount outstanding to AH, and that will be paid 7 days after the appeal period if there is no appeal.
Should the statutory demand be set aside?
61 I have found that AH's statutory demand was not withdrawn during the telephone conversation between the solicitors on 26 November 2008. Nothing has happened subsequently to constitute withdrawal: AH's consistent position has been that it would consent to the setting aside of the statutory demand only on the condition that each party pay their own costs, a condition never accepted by Chameleon. Therefore the statutory demand is still in place. AH submits that in those circumstances, the correct order to make is an order under s 459H, varying the demand to $90,344.20, the amount of disbursements that is no longer in dispute having regard to the proceedings before McDougall J.
62 On the other hand Chameleon submits that the statutory demand should be set aside under s 459J(1)(b) on the basis that there is "some other reason why the demand should be set aside". If that provision is applicable then an order under s 459H is inappropriate. In the present case the "other reason" is said to be that by their letter of 12 November 2008, PA on behalf of Chameleon requested itemised bills in respect of all invoices including those that were the subject of the statutory demand, and itemised bills were not supplied prior to the last day for compliance with the statutory demand. That had the consequences that under s 332A(5) of the LPA the proceedings could not be commenced for recovery of the amount claimed, and that the statutory demand could not be sustained after 12 November 2008..
63 The availability of s 459J(1)(b) was considered by Barrett J in Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055, decided on facts broadly analogous to the present facts. There the statutory demand was based on a judgment debt in this court. After service of the statutory demand the Registrar made an instalment order, which had the effect under the UCPR of staying execution of the judgment. Barrett J held that when s 459J(1)(b) is invoked, the court is called upon to decide what will best serve the statutory purpose at the time it considers the question, and therefore it is appropriate to consider the matter in light of the circumstances prevailing at that time, including circumstances that have arisen after the service of the statutory demand (at [12]). He held that if a stay of execution is in place, to allow the judgment creditor to rely upon a statutory demand to produce a presumption of insolvency as a basis for seeking a winding-up order would entail consequences for the plaintiff of a serious and adverse kind (at [27]). A judgment creditor who has been expressly denied the remedy of execution upon the judgment should not be permitted to rely on the judgment as a basis for bringing to bear the pressure for payment and threat of serious adverse consequences inherent in a statutory demand and winding up application.
64 It seems to me that s 332A(5) of the LPA, though not operating in precisely the same way as a stay of execution of a judgment, is amenable to the same reasoning as Barrett J applied in that case. If the legislature declares that in given circumstances, a law practice cannot take proceedings for recovery of the amount that it claims, the law practice should not be allowed to subvert the legislative policy by issuing or relying upon the statutory demand for the amount claimed (see also Jarena Pty Ltd v Sholl Nicholson Pty Ltd (1996) 19 ACSR 425 and Callite Pty Ltd v Peter John Adams [2001] NSWSC 52). It therefore seems to me that AH's statutory demand should be set aside, in circumstances where AH was precluded by statute from commencing proceedings for recovery during the currency of the demand and up to the last date for compliance with it.
Costs
65 Chameleon has been successful in obtaining the principal order sought in these proceedings, but AH contends that the proceedings were unnecessary. In a case such as this the court's discretion as to costs will be influenced by an examination of the conduct of the parties prior to the commencement of the proceedings, with a view to determining whether either party has acted unreasonably and has thereby brought about the need for the proceedings to be taken: Soudan Lane Pty Ltd v Glen Bradshaw [2007] NSWSC 772. In that case White J cited the well-known observations of McHugh J in Re Minister for Immigration and Ethnic Affairs ex parte Lai Qin (1997) 186 CLR 622, at 624-5, concerning the correct approach for the court to take to an application for costs where there has been no hearing on the merits. White J applied the principles stated by McHugh J to statutory demand proceedings, in observations that I respectfully adopt:
"[4] These principles are applicable to proceedings to set aside a statutory demand, but special features of such proceedings need to be taken into account in judging the reasonableness of the parties' conduct. A company faced with a statutory demand in relation to a debt, disputed in whole or in part, has no option but to commence an action under s 459G to set aside the demand within 21 days even if the ultimate order sought will be an order under s 459H(4) varying the demand to the amount which is not genuinely in dispute. If the company were merely to pay the amount which was not genuinely in dispute, without securing or compromising the balance to the reasonable satisfaction of the creditor, it would face the prospect of winding up proceedings being brought against it, of its being presumed to be insolvent (s 459C(2)(a)), and of its being unable to oppose the winding-up application on a ground upon which it could have relied for the purposes of an application to have the demand set aside unless leave is given (s 459S)."
66 I have identified several aspects of AH's conduct that I find to be unreasonable. First, their delay of 9 days in responding to PA's letter of 12 November concerning the statutory demand was an unreasonable delay given that they had immediate access to all relevant facts and the law and that the delay left Chameleon with little time to decide whether to apply to set aside the demand.
67 Secondly, the letter of 21 November adopted an unfortunate tone, which in my view would have created an impediment to a sensibly negotiated outcome.
68 Thirdly, AH asserted in their letter of 21 November that the costs they claimed were due and payable, and would remain so unless and until an application for an assessment of costs was filed. However, they acknowledged that the position would change if such an application were made and served, no doubt because s 355(b) of the LPA would then prevent AH from commencing proceedings for recovery, and consequently the debts would no longer be due and payable. However, on 12 November PA had requested itemised bills on behalf of Chameleon, and in their letter of 21 November AH did not deny Chameleon's entitlement to do so except for invoices given up to and including 12 November 2007. By virtue of s 332A(5) of the LPA, no proceedings could be commenced for recovery of costs invoices issued after 12 November 2007, including the invoices that were the subject of the statutory demand. Consequently those invoices ceased to be due and payable on 12 November 2008, when the request for itemised bills was made. Consistently with the approach they had taken to an application for assessment of costs, AH should have withdrawn the demand on that date. Their failure to do so was unreasonable, and it was unreasonable of them to maintain in their letter of 21 November, notwithstanding the request for itemised bills, that the debts were due and payable unless and until an application for assessment of costs was made.
69 Fourthly, I have found that on the evening of 26 November Ms Pickford of AH said to Ms Banton of PA that as an application for assessment of costs had been made, AH would be withdrawing the statutory demand, but she did not purport withdraw the demand immediately. In my view AH, specifically Ms Pickford, must have been aware that the last day for commencing proceedings to set aside the statutory demand was 27 November. She was aware that PA had twice required that any withdrawal of the statutory demand be in writing. She must have realised, on the evening of 26 November, the importance to Chameleon of having a clear statement of withdrawal as a matter of some urgency, as it was required to file and served the application to set aside the demand and the supporting affidavits on the following day. In all of those circumstances it was unreasonable, in my view, AH not to provide written confirmation of withdrawal of the statutory demand promptly after the telephone conversation of 26 November.
70 In my view, AH's conduct in not promptly providing written confirmation of the withdrawal after the telephone conversation on 26 November would have been unreasonable even if Ms Pickford had immediately withdrawn the demand by oral statement during the conversation. It seems to me that in the circumstances confronting Chameleon after the telephone conversation on the evening of 26 November, and in view of the earlier requests for written withdrawal that had not been satisfied, it would have been reasonable and prudent for it to commence the proceedings even if there had been an oral withdrawal. In this regard the facts analogous to Buddies Liquor Pty Ltd v Wah Lai Investment (Australia) Pty Ltd [2001] NSWSC 337.
71 In my view if AH had not behaved unreasonably in the ways I have identified, and instead had categorically withdrawn the statutory demand in writing promptly after 12 November 2008 and in any event by no later than early on 27 November 2008, there would have been no good reason for Chameleon to commence proceedings to set aside the demand, and it could not expect to recover the costs of those proceedings from AH. But in the circumstances that I have found to exist, on the last day for filing proceedings to set aside the demand Chameleon was in a position of uncertainty as to whether a firm withdrawal would be received because of the unreasonable conduct of AH, and therefore there was good reason for Chameleon to commence the proceedings.
72 After the proceedings were commenced, it would have been reasonable for AH to consent to the setting aside of the statutory demand and to the payment of Chameleon's costs up to the time of that consent. AH adopted the unreasonable position that it would consent to the setting aside of the statutory demand only if each party paid their own costs.
73 Counsel for AH submitted that the demand was issued in circumstances in which no dispute as to the amount in question had previously been expressed, and he said the existence of the dispute was not conveyed to the defendants until after the demand had been issued. But in the present circumstances the question is not whether AH was justified in issuing the statutory demand, but whether they ought to have withdrawn the statutory demand after they received PA's letter of 12 November. Since, in my view, they should have withdrawn the demand, and they left Chameleon with no satisfactory option but to take proceedings to set the demand aside, they should be required to pay the costs of those proceedings.
74 In those circumstances the correct order for costs is that the defendants pay the plaintiff's costs as agreed or assessed. It is unnecessary to consider whether the costs should be on the indemnity basis as counsel for Chameleon has not asked for that order.
Conclusion
75 For these reasons I shall order that the statutory demand be set aside with costs.
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