Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd

Judgment

1. 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.
2. 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).
3. I also ordered the defendant to pay the plaintiff's costs of the proceedings.
4. Following the making of those orders, the plaintiff has applied for a further order that the defendant pay the costs on the indemnity basis.
5. The parties have delivered written submissions on the issue, and I am invited to decide the question in chambers based on the papers.
6. 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.