Plaintiff v Defendant

Novotel's submissions in support of its application for indemnity costs

1. Novotel's submissions refer to a chain of correspondence exhibited to Mr Haddad's affidavit from its solicitors, MDW, to Conference Planner's solicitors, S&C after service of the Demand.
2. On 21 August 2024,[7] during the 21 day compliance period of the Demand, MDW wrote an open letter to S&C describing in some detail the basis for Novotel's offsetting claim, requiring the withdrawal of the Demand and putting Conference Planners on notice that indemnity costs would be sought if an application was required to set the demand aside. Reference was also made to the statutory formula in s 459H.
3. The 21 August letter contended that Conference Planners was indebted to Novotel for $42,447.17, comprised of its offsetting claim of $49,170.00 less the amount claimed in the Demand, $6,722.83. It stated:

... the statutory demand has been served on invalid grounds, as there is clearly a genuine dispute in respect of the alleged debt, and in any instance, Novotel has an offsetting claim against Conference Partners which far exceeds the debt being demanded in the statutory demand.

1. The letter asserts that Ms Doyle was put on notice about the cancellation fee as early as 30 May 2024 and went on to sharply criticize her for deposing in the affidavit accompanying the Demand that there was no genuine dispute about the existence or the amount of any of the debts claimed in the Demand.
2. I note that despite MDW contending in the letter that there was a genuine dispute in respect of the claim made in the Demand, the amount of Conference Planners' claim is deducted from Novotel's offsetting claim in calculating the amount of Novotel's claim. This involves an implicit acceptance that the amount claimed in the Demand was not disputed and is payable. A proper characterisation of the position is that there was no dispute about Conference Planners' debt, rather Novotel claimed it had an offsetting claim which overwhelmed Conference Planners' debt.
3. MDW's 21 August letter invited Conference Planners to withdraw the Demand by no later than 23 August 2024, failing which Novotel would prepare and file an application seeking that the Demand be set aside. It also demanded that Conference Planners pay Novotel $42,447.17 by 28 August 2024_._ The letter culminated in the statement that the correspondence would be relied upon on the question of costs which would be sought 'on a full indemnity basis'.
4. On 23 August 2024, MDW wrote again to S&C in an open letter providing a response to the position put on behalf of Conference Planners in an email sent earlier that day by S&C.[8] The letter referred to the email communications of 29 May 2024[9] which stated Novotel's position in respect of the Banyule Agreement. MDW stated that Novotel did not admit the debt claimed in the Demand, repeated its contention that it was clear that there was an offsetting claim, invited Conference Planners to withdraw the Demand by 26 August 2024 and demanded payment of the balance said to be owing to it, $42,447.17, by 28 August 2024. The letter again concluded with the statement that the correspondence would be relied upon on the question of costs which would be sought 'on a full indemnity basis'.
5. The Demand was not withdrawn and this application was filed on 30 August 2024 together with Ms Jackson's affidavit in support.
6. On 12 September 2024, MDW wrote again to S&C in response to a letter from S&C of 10 September which is not in evidence, detailing what it considered to be the shortcomings in the position been put by S&C on behalf of Conference Planners. By that time, the affidavit of Karen Jackson of 30 August 2024, which deposed to the matters giving rise to the offsetting claim, had been served. The letter also made reference to the case law including the passage from the judgment of Barrett J in Panel Tech Industries v Australian Skyreach (No 2)[10] which is set out in my Prior Reasons[11] which described the principles to be applied in these types of applications and the low threshold required to be passed. The letter stated:

Under no circumstances will Novotel agree to dismiss the Setting Aside Application without first recovering the legal costs that it was forced to incur as a result of the Statutory Demand and [Strategic's] failure to comply with its various demands to withdraw same.

Without derogating from the above and the difficulties that Novotel [sic][12] would need to overcome in order to successfully defend the Setting Aside Application, and in seeking to avoid having to engage in lengthy and protracted litigation, we are hereby instructed that subject to receipt of payment of $25,000, Novotel will agree to dismiss the Setting Aside Application with no order as to costs.

1. That offer was expressed to remain open until 19 September 2024. The letter stated that:

For the avoidance of doubt this offer purely deals with the Setting Aside Application and does not absolve the Conference Planners from the cancellation fee of $49,170 which will be pursued by Novotel in due course.

1. The 12 September letter culminated in a statement that the offer was being put in accordance with the principles applied in Calderbank v Calderbank.[13]
2. MDW did not state how the figure of $25,000 was comprised but, because it was expressly stated that the cancellation fee which was the basis of its offsetting claim would be pursued at a later time, that sum can only have been intended to be applied toward Novotel's costs. The letter contained no information as to what costs Novotel had incurred in connection with the application to that point.
3. On 18 November 2024, MDW again wrote to S&C. The letter contained an offer to resolve the application to set aside the demand on the basis that the demand be set aside and that Conference Planners pay Novotel $20,000 'as a contribution to its legal costs'. It asserted that for the reasons described in the letter, the offer was more than reasonable and that the correspondence would be relied upon in support of an application that Conference Planners pay Novotel's costs of the application if the offer was not accepted by the deadline stipulated.
4. The 18 November 2024 letter asserted that the offer 'is more than reasonable because it is inevitable that the demand will be set aside and your client will be ordered to pay our client's costs of the application'. It then again described what MDW contended were the shortcomings in Conference Planner's position and concluded with a statement that the letter was sent in accordance with the principles laid down in Calderbank v Calderbank.
5. In his affidavit, besides exhibiting the correspondence to which I have referred, Mr Rodrigo exhibits a number of invoices directed by MDW to its client, Novotel. Mr Rodrigo stating that Novotel's total costs were approximately $35,616.13.
6. Novotel's written submissions made reference to a number of authorities. It was said that the circumstances in which indemnity costs may be ordered include where there has been '[t]he commencement or continuation of proceedings in wilful disregard of known facts or clearly established law'.[14]
7. Novotel also referred to Dixon J's statement in Banksia Securities Ltd v Insurance House Pty Ltd (Costs) that: [15]

The Court may order indemnity costs in cases where a party, properly advised, knew or should have known that it had no chance of success and has persisted with its claim.

1. Novotel's submissions made reference to the statement of the Victorian Court of Appeal in Secretary to the Department of Transport v Provan's Timber Pty Ltd (No 2)[16] in which Tate, Kyrou and McLeish JJA stated:[17]

The Calderbank offer made reference to Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority [No 2] which affirmed that where the refusal of a Calderbank offer is, in all of the circumstances, 'unreasonable', this will constitute proper grounds for an indemnity costs order. While there is no need to show that the rejection of a Calderbank offer was 'highly' or 'grossly' unreasonable, it is not presumed that a refusal is unreasonable simply because the offered sum is higher than the ultimate award. Instead, the onus rests on the offeror to show that the offeree acted unreasonably. This is ultimately a matter of judgment and impression, and must be assessed at the time the offer is made, without the advantages of hindsight.

1. At [26], the Court of Appeal observed:[18]

Hazeldene set out the familiar factors that ought ordinarily be taken into account to assess whether a refusal to accept a Calderbank offer is, in all the circumstances, unreasonable:

(1) the stage of the proceeding at which the offer is received;

(2) the time allowed to the offeree to consider the offer;

(3) the extent of the compromise offered;

(4) the offeree's prospects of success, assessed as at the date of the offer;

(5) the clarity with which terms of the offer were expressed; and

(6) whether the offer foreshadowed an application for indemnity costs in the event of its rejection.

1. Novotel contended there were five reasons why indemnity costs should be ordered in these circumstances.

(a) The Demand should have been withdrawn before the application was required to be filed. By 21 August 2024, Conference Planners was armed with all necessary information to form the view that the offsetting claim was genuine, significantly outweighed the amount of the demand and would inevitably result in the demand being set aside.

(b) Conference Planners was given at least four opportunities to withdraw the demand but it ignored each of those opportunities.

(c) Conference Planners chose to disregard what it described as 'known facts'. What it contends were 'the known facts' included that Novotel had an offsetting claim of $49,170 pursuant to an agreed cancellation fee in the 2024 agreement which dwarfed the $6,722.83 in the Demand.

(d) Conference Planners chose to disregard established law. The established law included that a signed contract is binding, absent vitiating factors and irrespective of subjective intentions; that the beneficiary of a contractual right may waive it; that offering to enter into an alternative agreement does not amount to repudiation of an existing agreement; and that there can only be penalty where there is a collateral stipulation designed to punish the counterparty. The established law also was that an offsetting claim need only be bona fide and not spurious, and the threshold is relatively low; that a Court ordinarily will not decide competing contractual interpretations in a s 459H application but that in any event, a court will tend to construe a condition precedent as going to performance rather than formation. It was said that each of these propositions was confirmed in the Court's reasons.

(e) Conference Planners did not accept the Calderbank Offers made to it on 12 September and 18 November 2024 which satisfy the requirements of a valid Calderbank Offer. Each was made at a time when Conference Planners was well aware of Novotel's case and the second offer was made after Novotel filed and served its submissions in respect of the application on 14 November. Each offered to resolve on a basis which Novotel was paid less than the costs in fact incurred; the 21 and 23 August letters did not seek any costs contribution at all.

1. Conference Planners submitted that none of the several without prejudice offers exchanged in the correspondence support an application for indemnity costs.
2. Conference Planners observes that an order for indemnity costs is exceptional and should only be awarded where there has been an imprudent refusal of an offer to compromise. It is for the offeror to show that the rejection of the offer was unreasonable.[19]
3. Conference Planners submitted that in the context of statutory demands, it has been said that a party who serves a statutory demand is entitled to test the recipient company's claim that the alleged debt is disputed and to see the evidence they marshal in support of the claim for genuine dispute and cannot be penalised on that ground alone with an order for indemnity costs.[20] It was said that this principle has application in circumstances where the offsetting claim was not formally raised by Novotel's solicitors until the demand was served and Conference Planners was entitled to serve the statutory demand.
4. Conference Planners observes that the Court has accepted that both interpretations proffered by the parties in this matter were arguable based on the current evidence before the Court and that there is a low threshold to establish a genuine dispute or offsetting claim.
5. The submissions referred to the correspondence between the parties which is detailed above. It was observed that the offers made in the letters of 12 September and 18 November 2024 did not:

(a) specify how the amounts of $25,000 and $20,000 respectively had been calculated or nor did they provide any evidence or material to support the amount of such offers, such as the number of hours spent working on the file or the hourly rates of solicitors or counsel working on the matter;

(b) neither indicated the actual legal costs incurred by Novotel up to that date; or

(c) articulated the discount if any, on the actual legal costs incurred that the offer represented.

1. Conference Planners contended that in the absence of any supporting material or elaboration as to how the amounts had been arrived at, both offers seemed excessively high figures for costs incurred in relation to the setting aside of a statutory demand. In this regard the statutory demand had been issued only one month before the offer of $25,000 was made and no explanation was provided as to why the offer on 18 November 2024 had been reduced by $5,000. Conference Planners contended that this lead to the impression that these amounts were not serious offers and did not reflect a genuine compromise. Conference Planners contended that it was unable to ascertain how the figures had been calculated or whether they were reasonable.
2. Conference Planners also contended that at the time of the correspondence, the parties were also exchanging correspondence unrelated to the setting aside application and related to the broader dispute between them about the Whittlesea Agreement, to which references were made in the judgment and the Banyule Agreement. It is said that it would have been unreasonable for Conference Planners to pay for costs relating to that dispute in circumstances where the offer was only for the settling of the setting aside application. Conference Planners submits that neither offer attempted to be a reasonable estimate of Novotel's legal fees incurred and was therefore not a reasonable offer.
3. Conference Planners notes that in addition to the offers which reference has been made, which appeared to solely relate to the setting aside of the demand, Novotel made three offers which provided for settlement of both the statutory demand and the broader dispute relating to the Whittlesea Agreement and the Banyule Agreement. In this regard, reference was made to the letters of 21 August and 23 August 2024 where MDW sent S&C a letter which contemplated the settlement of both the setting aside application and the broader dispute between the parties subject to paying Novotel $42,447.17. Later, on 12 September 2024, MDW sent S&C a letter which contemplated a settlement of both the setting aside application and the broader dispute between the parties subject to Conference Planners paying Novotel $55,000.
4. Conference Planners submits that the global offers encompassing the broader dispute cannot be relied upon in a consideration of whether an indemnity costs order should be made in circumstances where the parties' rights and the broader commercial dispute have not been determined; no claim has been made by Novotel against Conference Planners with respect to the broader dispute and it is only the setting aside application which has been resolved by the Court.
5. Conference Planners' submissions conclude with the contention that neither of Novotel's offers were reasonable. Neither articulated how the amount had been calculated or the actual legal costs Novotel had incurred as of the date of the offer. Neither outline the extent of the compromise by comparing the actual legal costs incurred with the quantum of the offer. It was said that because of the lack of detail Conference Planners was not informed as to whether the offers represented a fair compromise of the application to set aside the statutory demand. In the circumstances it was reasonable for Conference Planners to reject the offers.

1. In my opinion, the circumstances here entitle Novotel to an order for indemnity costs from the time of commencement of this proceeding.
2. In coming to that conclusion, I consider it is appropriate to focus on the communications that passed between the parties in the period after service of the Demand on 12 August 2024 and before Novotel had to begin to prepare to make application to set aside the Demand in the last week of August 2024. In my view, upon a proper, objective consideration of the matters raised by MDW and the principles set out in the case law, Conference Planners should have withdrawn the Demand and, in maintaining it, did not act reasonably. I agree with Novotel's submission that by 21 August, Conference Planners had all the necessary information to enable it to form the view that the offsetting claim was genuine and arguable and if agitated would overwhelm the Demand and result in it being set aside. In doing so, I would not however describe it in terms of Conference Planners ignoring 'known facts' as Novotel submits.
3. The evidence is that since 29 May 2024, Novotel had made its position clear that it considered that the Banyule agreement remained on foot and had not been repudiated and regarded itself as being entitled to cancellation fees. For much the same reasons as outlined in the August correspondence from MDW to S&C, the Prior Reasons make a finding that the argument concerning the offsetting claim was plausible and cogent.
4. In my opinion, Novotel could not have gone to any greater lengths in that correspondence to inform Conference Planners of the position as to why, on an application of the authorities, it would succeed and why it should not be necessary to make an application to this Court, with all that involved in terms of the application of resources by the parties. The correspondence was sent very early in the piece before significant costs had been incurred. Neither party could claim costs from the other at that point. Conference Planners reaction to the approaches was to dismiss Novotel's contentions out of hand. The die was cast as Conference Planners had apparently decided to press its demand.
5. While I have observed that the respective interpretations of the Banyule Agreements pressed by the parties are equally arguable, the proper test in the current context is, was the position being put by Novotel, which bears the onus, bona fide plausible and arguable, rather than being fanciful and concocted for the purpose of resisting the demand.
6. The correspondence from MDW subsequent to the issuing of the application containing offers to settle the proceeding is, to my mind, somewhat peripheral. If proper consideration had been given to the matter prior to the application being required to be filed, all of the costs of the parties in this proceeding could have been avoided. The correspondence of September and November does nothing more than repeat the matters which were already in the knowledge of Conference Planners. Because Novotel had by then incurred a significant proportion of the costs of the application, the only additional feature are the claims for money sums for costs.
7. The matter also has the feature that Conference Planners chose to serve a statutory demand for a very modest sum, an amount at the low end of the jurisdictional range for claims in the Magistrates' Court. Because it rebuffed Novotel's approach to have the Demand withdrawn, Novotel, which is apparently a substantial commercial enterprise, had no choice but to either pay the amount demanded despite the existence of its much larger offsetting claim or bring the application to set the demand aside if it wanted to avoid being presumed to be insolvent under s 459C(1)(a).
8. In my view, it always returns to the question of whether it was reasonable for Conference Planners to rebuff the approaches made by Novotel to withdraw the Demand prior to its service. Once the Demand was not withdrawn and an application had to be made, the generation of what will be disproportional expenditure for costs was underway.
9. I consider this case to be a paradigm of why, before service of a statutory demand, particularly for smaller sums, a creditor and its advisors should conduct a proper objective assessment of the factual background and the relevant legal principles, with the prominent consideration being whether service of the demand is indicated or whether the claim should be first litigated in a conventional inter partes setting. In this case, Conference Planners is no further advanced in recovering its relatively small claim; rather, it is instead now confronted with what will be a substantial order for Novotel's costs and its own costs, the total of which will be several times the amount of its claim.
10. In its written submissions, Conference Planners referred to case law which is said to identify a principal that a party who serves a statutory demand is entitled to test the recipient company's claim that the alleged debt is disputed and to see the evidence they marshal in support of the claim for a genuine dispute; it was also said that such logic also extends to demands which are sought to be set aside on the basis of an offsetting claim. It is contended that in this case, the offsetting claim was not formally raised by Novotel's solicitors until after the Demand was served.
11. I do not accept that submission. As discussed above, the evidence is that the offsetting claim was identified and described in some detail in late May 2024. In any event, the correspondence from Novotel's solicitors after service of the Demand made it plain that the offsetting claim would be raised if it became necessary to make application to set aside the Demand. The affidavit of Ms Jackson merely swore up to what appeared in the August correspondence. Armed with all that information, it chose to maintain the Demand. In my view, the Demand should have been withdrawn on a proper consideration of the correspondence before service of the Demand in August 2024.
12. In Assaf's Winding Up in Insolvency ('Assaf'), the issue of the award of indemnity costs in these types of circumstances is discussed.[21] Reference was made to the decision of Santow J in Polaroid Australia Pty Ltd v Minicomp Pty Ltd,[22] one of the earlier decisions involving an application to set aside a statutory demand. After making a general observation in respect of the operation of ss 459G and 459H, Santow J observed:[23]

But what needs to be said, with some emphasis, is this. When regard is had to the results in favour of the Plaintiff seeking to set aside the statutory notice, insufficient appreciation is evidently being paid to that basic principle. The number of such cases far exceeds any other type of case in corporate law - some 80 or 90 so far - see the attachment to this judgment by way of survey. Sooner or later, Courts will have to consider whether indemnity costs should be awarded against the unsuccessful user of a statutory notice to force payment of a genuinely contested debt, simply because those taking out such statutory demands are disregarding that basic principle. Many trials of such dispute simply add to costs, more especially as the relevant tests do not ordinarily permit more than a relatively superficial probing.

...

Nor can statistics be any substitute for a trial of proper cases on their merits. But what such statistics do show, is that there is either an insufficient appreciation of the relevant principles, which publicising their results should dispel, or even in some cases a knowing use of the statutory demand to pressure payment where that payment is genuinely disputed, risking indemnity costs orders in appropriate instances.

1. Assaf also cites the decision of CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd,[24] where a creditor issued a statutory demand seeking to recover damages following the alleged termination of contract.[25] Shortly after issuing the statutory demand, the debtor pointed out to the creditor the obvious shortcomings of the demand (that it was based on an alleged debt that was not due and payable and in which a clear dispute existed), and invited the creditor to withdraw the demand. The creditor persisted in treating the claim for damages for breach of contract as if it were a debt, and due and payable.
2. In that case, Barrett J held that there was no cogent basis for treating a claim for damages as a debt and observed that the creditor should have withdrawn the demand when invited to do so.[26] The circumstances, particularly the fact that the creditor refused to withdraw the demand after being warned of 'obvious and irremediable weakness' in its position, warranted an order for indemnity costs.[27]
3. Assaf further observes that other examples of indemnity costs orders being made against creditors abound, all of which have the common theme that it was known, or should have been known to the creditor that the statutory demand was clearly susceptible of being set aside.[28]
4. In SJG Developments Pty Ltd v NT Two Nominees Pty Ltd (in liq),[29] an order for indemnity costs was made against liquidators of a company who had issued a statutory demand in circumstances where it was found to be obvious that there was a genuine dispute as to the debt. The respondent was provided with a fair warning of the grounds upon which the applicant would seek to set aside the demand and the applicant foreshadowed that it would apply for indemnity costs.[30]
5. Of course, the Court has a general discretion concerning the award of costs but these are examples of awards of indemnity costs in circumstances not dissimilar to the present matter.
6. In my opinion, by not withdrawing the Demand, Conference Planners conduct was 'unreasonable'. This was not a case where the August correspondence from Novotel's solicitors required complete capitulation; it is not that sort of a case. Conference Planners could have withdrawn the Demand with its position in respect of its claim being completely reserved and then commenced a claim in the Magistrates' Court.
7. I will order that the defendant pay the plaintiffs costs of the proceeding, including reserved costs on an indemnity basis.

[1] Re Strategic Conferences Pty Ltd [2025] VSC 374. In these reasons I shall adopt the same descriptors of the parties and the other terminology adopted in the Prior Reasons.

[2] In response to that direction, submissions were filed by both parties directly on RedCrest on the final day ordered for the filing of submissions but were not sent directly to my associates. As a consequence, I did not consider the submissions before making orders on 4 July 2025 that costs follow the event as foreshadowed when delivering my reasons. I was later informed that submissions had been filed and the practitioners were notified that the submissions would be taken into consideration and, if indicated, the order would be amended pursuant to r 36.07 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).

[3] Mr Haddad is an employed solicitor who had carriage of the matter at Novotel's solicitors, MDW.

[4] Section 459N provides that where the Court sets aside the demand under s 459G, it may order the person who served the demand to pay the company's costs in relation to the application.

[6] See F Assaf, Assaf's Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) [1.34]-[1.38] ('Assaf'); CA and Associates v Fini Group Pty Ltd [2020] WASCA 31, [89] (Mitchell JA).

[7] The demand was served on 12 August 2024, giving Novotel until 2 September 2024 to make a timely application to set aside the Demand.

[10] [2003] NSWSC 896 (Barrett J).

[12] From the context, Novotel appears clearly to be a reference to Conference Planners instead, who was opposing the application to set aside the Demand.

[13] [1975] 3 All ER 333.

[14] Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189, [7] (Harper J) citing J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) [1993] FCA 70; (1993) 46 IR 301, 303 (French J). Applied to the present context, instead of the 'commencement or continuation of proceedings' it would be the service or continued maintenance of the statutory demand by the defendant.

[15] [2020] VSC 234, [15] ('Banksia').

[16] [2020] VSCA 258 (Tate, Kyrou and McLeish JJA).

[19] Re Moneysaver Free Coupons Pty Ltd (in Liq) (2021) 152 ACSR 565, 611.

[20] Assaf [9.18], citing Club Marconi of Bossley Park v AVR Services NSW Pty Ltd [2002] NSWSC 584, [24].

[22] (1998) 16 ACLC 529.

[24] [2003] NSWSC 728; (2003) 47 ACSR 100.

[25] Assaf [9.16] citing CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 (Barrett J).

[26] CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100, 106 (Barrett J).

[29] [2020] QSC 104 (Bond J).

[30] Assaf [9.17] citing SJG Developments Pty Ltd v NT Two Nominees Pty Ltd (in liq) [2003] NSWSC 728; (2003) 47 ACSR 100 (Bond J).