On 17 December 2015, I gave judgment in this matter in favour of the plaintiff: see In the matter of Domicgra Trading Pty Ltd [2015] NSWSC 1918.
I ordered that the creditor's statutory demand served by the defendant on the plaintiff on 20 August 2015 be set aside pursuant to s 459H(1)(a) of the Corporations Act 2001 (Cth).
I also ordered the defendant to pay the plaintiff's costs of the proceedings.
Following the making of those orders, the plaintiff has applied for a further order that the defendant pay the costs on the indemnity basis.
The parties have delivered written submissions on the issue, and I am invited to decide the question in chambers based on the papers.
In Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100, Barrett J (as his Honour then was), made the following observations concerning the circumstances in which the court will order an unsuccessful defendant on an application to set aside a creditors statutory demand to pay the plaintiff's costs on the indemnity basis:
[18] CGI seeks an order for costs on the indemnity basis. In doing so, it invokes the general principle that an award of costs on that basis is appropriate in cases of what Gaudron and Gummow JJ called, in Oshlack v Richmond River Council (1998) 193 CLR 72 ; 152 ALR 83, "relevant delinquency", including "some improper defence or other misconduct".
[19] In the s 459G field, Santow J warned in a number of judgments that, with the hurdle to be cleared by companies seeking to have statutory demands set aside being so low, creditors persisting with the defence of such applications need to consider carefully, against the possibility of an order for indemnity costs, whether there are valid grounds for their taking up court time and putting the company to expense by doing so: see eg Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529 Buddies Liquor Pty Ltd v Wah Lai Investment (Aust) Pty Ltd (2001) 19 ACLC 855 Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd [2001] NSWSC 654; BC200104352. A clear warning to the same effect was issued by the Full Court of the Supreme Court of South Australia in Drewniak v Air Rubber Pty Ltd (2002) 84 SASR 302.
[20] Indemnity costs have been awarded in some s 459G cases. In Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70; BC200201522, an order of that kind was made where the statutory demand asserted debts said to come from an oral agreement, where the supposed conversation was denied by one of its supposed parties and the plaintiff offered to withdraw its application and bear its own costs on the basis that the defendant withdrew its statutory demand, an offer that Master Bredmeyer said should have been accepted. In Wildtown Holdings Pty Ltd v Rural Traders Co Ltd (2002) 172 FLR 35, the Full Court of the Supreme Court of Western Australia found that the statutory demand was grossly defective and its accompanying affidavit was obviously inadequate, yet the defendant persisted in resisting an application to have the demand set aside. The court saw the case as involving "shortcomings … sufficiently serious … to warrant the conclusion that the respondent's defence of its position was an abuse of the court's process, arguably justifying an award of indemnity costs". In Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275; BC200301362, Lindgren J ordered costs on the indemnity basis where the evidence made it plain that the time limit fixed by s 459G(2) and (3) (which is immutable: David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265 ; 131 ALR 353 ; 18 ACSR 225) had not been met, so that, as his Honour put it, "the proceeding was doomed to fail" and it was "quite unreasonable for it to be pursued once 25 February 2003 had passed without service having been effected".
[21] At the same time, it is important to remember that the party by whom a statutory demand is served is entitled not only to test the recipient company's claim that the alleged debt is genuinely disputed but also to see the evidence the plaintiff is able to marshal in support of the claim of genuine dispute. That principle has been stated on several occasions by Palmer J in sounding a note of caution about the award of indemnity costs in this type of case: see Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd (2001) 165 FLR 72 Club Marconi of Bossley Park v AVR Services (NSW) Pty Ltd [2002] NSWSC 584; BC200203662 Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95; BC200300470.
[22] I accept that the possibility of an order for indemnity costs should not be allowed to deter a party by whom a statutory demand has been served from putting the company to appropriate proof of the genuine dispute it asserts. But that principle has a limit to it. As Galaxy Resources, Wildtown Holdings and Carinda Homes show, there are cases in which attempts to resist the setting aside of the demand are, even on the interpretation of the facts most favourable to the defendant, so devoid of prospects of success as to be perverse. The opportunity to put the company to proof of the asserted genuine dispute is something to which the defendant should not be regarded as entitled in such obvious cases. A defendant, on having an obvious and irremediable weakness in its position pointed out, ought to withdraw the statutory demand. If, in such circumstances, such a defendant does not do so, it may well be appropriate for the court to award costs to the plaintiff on the indemnity basis.
I respectfully adopt the observations made by his Honour. In that case, the defendant had served the relevant creditor's statutory demand on the basis that the defendant was entitled "to claim damages from your company for the loss suffered by our client". The plaintiff's solicitors then wrote to the defendant making it clear that the creditor's statutory demand would necessarily be set aside, because it was based upon a claim for liquidated damages, and not a debt.
It must be remembered that Barrett J began his consideration of the subject by referring to the circumstance that a party may be ordered to pay indemnity costs where there was "relevant delinquency", including "some improper defence or other misconduct". In the examples of cases considered by his Honour, where indemnity costs had been awarded against an unsuccessful defendant, the level of delinquency approached an abuse of process of the court.
In the present case, the creditor's statutory demand claimed a debt of $167,843.11. That is the balance the defendant claims is owing in respect of five invoices addressed by the defendant to the plaintiff, in the total sum of $388,080.80, after five payments totalling $220,237.69 had been paid.
The originating process was filed by the plaintiff on 10 September 2015. It was supported by the affidavit of Mr Dominic Giallombardo, sworn on 9 September 2015. In short, Mr Giallombardo said that the debt was not owed by the plaintiff, but by an associated company Transform Formwork Contract that Pty Ltd (in liq) (Transform). He said that Transform was, before its liquidation, in a business that required it to acquire formwork, and that the debt claimed by the defendant was a debt owed by Transform under a contract by which it agreed to acquire formwork from the defendant.
Three of the five invoices had originally been addressed to Transform, but when that company went into liquidation, the defendant reissued the invoices addressed to the plaintiff.
The Defendant's principal witness, Mr Christopher Banks, claimed in his affidavit, sworn on 5 October 2015, that dealing with Mr Giallombardo was not as straightforward as that gentleman claimed. Mr Banks said that, whenever his company dealt with Mr Giallombardo, Mr Giallombardo talked in terms that it was Mr Giallombardo who was the person doing business, and that Mr Banks did not always know, at the time of a particular agreement, whether he was being asked to contract with Mr Giallombardo, or a company controlled by Mr Giallombardo. Mr Banks might be told afterwards the name of the company to which invoices should be addressed.
Mr Banks said that, after Transform was placed in liquidation, he was asked by Mr Giallombardo's accounts manager to reissue all of the invoices addressed to the plaintiff.
Mr Banks' version of events was denied by Mr Giallombardo and the accounts manager in their affidavits.
However, even though I found in my reasons for judgment in favour of the plaintiff, as appears from those reasons, there were a number of unusual features of this case.
First, of the $220,237.69 of the debt claimed by the defendant that had been prepaid, $100,000 was paid on 1 February 2013, apparently by Mr Giallombardo's wife. The other four payments, in the total sum of $120,237.69, were paid by various entities, apparently at the behest of Mr Giallombardo, after Transform was placed in liquidation.
Additionally, it was at least doubtful that the RATA for Transform disclosed that the company was indebted to the defendant. As I explained in my reasons for judgment, there was some possibility that the debt was in fact recognised by the RATA, but was misdescribed, and was a component of the debt said to be owed by Transform to another company associated with the defendant.
Taking into account all of the circumstances, I do not accept that the defendant's prosecution of its defence of the plaintiff's claim to set aside the creditor's statutory demand involved the degree of delinquency that is required before the court will order an unsuccessful defendant to pay the plaintiff's costs on the indemnity basis. In particular, I do not accept that the defendant's defence was doomed to fail. It did fail, as is the case for one of the parties in nearly every proceedings determined by the court, but it was necessary for me to consider carefully all of the evidence, before I was in a position to decide to order that the creditor's statutory demand be set aside. In my view, this was a case where the defendant was entitled to test the strength of the plaintiff's case that there was a genuine dispute as to the existence of the debt.
The plaintiff also submitted that the defendant should be ordered to pay its costs on the indemnity basis, because the defendant had not accepted a Calderbank offer made by the plaintiff on 10 December 2015. I reject that submission for two reasons. First, the offer was made on the day before the hearing, and the plaintiff gave the defendant only until 2 PM on the day the letter was sent to accept the offer. The letter was sent too late to be an effective Calderbank offer, and it did not give the defendant a reasonable time to consider the merits of the offer. Secondly, and more importantly, the offer was not directed only to the settlement of the plaintiff's application for an order setting aside the creditors statutory demand. A component of the offer was that the statutory demand be set aside, but another component was that the defendant accepts payment of $25,000 in final settlement of all claims as between the parties. The court is in no position to form a view as to the appropriateness of this offer, and as it was in part directed to proceedings that are not before the court, it does not provide any basis for the court to make an order that the defendant pay costs on the indemnity basis.
The plaintiff also based arguments on a number of other matters concerning assertions made by the solicitor for the defendant, concerning the propriety of the conduct of the plaintiff, and persons related to it, and also the fact that the defendant had required Mr Giallombardo and the accounts manager to attend for cross-examination, and then not cross-examine them after their affidavits had been read.
These matters do not affect my decision to decline to make the order sought by the plaintiff. The defendant did not seek to pursue, in these proceedings, any disparaging claims against any persons. I do not accept that the forensic decision made by counsel for the defendant, which was not to cross-examine some witnesses, is a basis for ordering the defendant to pay the plaintiff's costs on the indemnity basis.
Accordingly, I decline to make an order that the defendant pay the plaintiff's costs on the indemnity basis, as sought by the plaintiff.
As I have already made an order that the defendant pay the plaintiff's costs on the ordinary basis, and as the plaintiff has failed in its application for an order that the costs be payable on the indemnity basis, it is appropriate in my view, that I order the plaintiff to pay the defendant's costs of the application for indemnity costs.
Accordingly, I make the following orders:
1. The plaintiff's application for an order that the defendant pay the costs of the plaintiff on the indemnity basis is dismissed.
2. Order the plaintiff to pay the defendant's costs of the plaintiff's application for indemnity costs.
[2]
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Decision last updated: 08 April 2016