I will expect that you will bring to the attention of the Court tomorrow the existence of this letter, and of my earlier letter dated 25 th January, 2009. With me having filed a submitting appearance, your clients are not entitled, by reason merely of that appearance having been filed, to the orders sought in the Originating Process. The Court is still required to be satisfied that the making of the Orders you are seeking are a proper exercise of its discretion, and therefore it is incumbent on you to put all relevant matters before the Court including the existence of this letter, and of my earlier letter of 25 th January, 2010, as well as the existence of any other relevant correspondence touching on issues the Court is required to consider in its decision. "
11 On 2 February 2010 the Registrar referred the proceedings to the Corporations Judge's list on 8 February 2010. On that day I made an order setting aside the statutory demand by consent, or without opposition, and stood the proceedings over to hear argument on costs.
12 After the defendant served his submitting appearance, both parties prepared lengthy affidavits going to the merits of the dispute and their respective offers of settlement. On the plaintiff's side at least, this work was not solely directed to the issue of costs. The defendant had stated that the plaintiff should bring his correspondence of 25 January 2010 to the attention of the Court notwithstanding the filing of a submitting appearance and had suggested that the Court might not make the order to which he submitted if it accepted the defendant's arguments in correspondence that there was no genuine dispute about the debt. Part of the plaintiff's further preparation was to identify the differences between the invoices dated between 5 December 2003 and 13 December 2004 served under cover of the defendant's letter of 25 January 2010 and the invoices as they were originally served. The undertaking of that work was not unreasonable given the defendant's contention that the Court should have regard to the merits of the dispute as outlined in his correspondence, notwithstanding the filing of a submitting appearance. During the course of submissions I expressed concern that the parties should incur further substantial costs in order to resolve questions of costs, a concern I earlier expressed in Sanders v Constantine [2006] NSWSC 534 at [6]. However, I accept that the further work done, at least by the plaintiff, was not solely directed to questions of costs. It will be a matter for the costs assessor as to whether the further costs incurred after the service of the submitting appearance was in proportion to the remaining issue in dispute (Civil Procedure Act 2005 (NSW), s 60; April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867).
13 Prima facie, as the plaintiff obtained the relief it sought in the originating process, it is entitled to its costs (Uniform Civil Procedure Rules, r 42.1). Prima facie, a defendant who files a submitting appearance except as to costs is liable for the costs up to the time of the service of the appearance but not thereafter (Develtor Property Group Pty Ltd v Newcastle City Council [2001] NSWLEC 47; LexisNexis, Ritchie's Uniform Civil Procedure NSW at [6.11.10]). Both parties argued that I should depart from this prima facie position.
14 The plaintiff sought indemnity costs from 25 November 2009 on the basis of its letter referred to in para [7] above. I do not regard its offer of 25 November 2009 as a genuine offer of compromise. The offer did not address the underlying claim of the defendant for legal fees. In any event, the defendant did not act unreasonably in not accepting the plaintiff's offer. Whilst the defendant did not ultimately contest the plaintiff's claim, I cannot say that it was so clear that the plaintiff would be entitled to an order setting aside the statutory demand had the matter been ultimately contested that the defendant's rejection of the plaintiff's offer was unreasonable. In my view, the critical question in such proceedings would have been whether, at the time he served the demand, the defendant was then entitled to bring an action to recover the claimed debt. The reason why that would be the critical question is that whilst in his affidavit Mr Takchi made complaints about the legal services provided, there was unchallenged evidence from the defendant that no such complaints had previously been raised. Moreover, a substantial sum claimed was for the recovery of disbursements paid on the plaintiff's behalf. The absence of complaint would not establish that there was no genuine dispute that the debt the subject of the statutory demand was then due and payable within the meaning of s 459E(1) of the Corporations Act 2001 (Cth), that is, recoverable by action. I could not resolve that issue without a full hearing on the merits of the underlying dispute, and a court will not take such a course to resolve questions of costs (Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624). Even if that question were resolved in favour of the plaintiff, it would not follow that the issue was so clear that the defendant's rejection of the without prejudice offer of 25 November 2009 was unreasonable. Accordingly, I reject the plaintiff's claim for indemnity costs from 25 November 2009.
15 It follows that the further settlement offer made by the plaintiff on 8 February 2010 does not warrant an order for indemnity costs. That offer was predicated on the defendant's paying indemnity costs from the time of the expiry of the offer of 25 November 2009 up to the service of the submitting appearance. But I have rejected the claim to indemnity costs.
16 At the hearing on 11 February 2010 the defendant, through his counsel, resolutely maintained that there should be no order as to the costs of the proceedings, not only that there should be no order as to costs after service of the submitting appearance. In support of that position, counsel for the defendant raised the matters which would have been raised on the hearing of the proceedings had no submitting appearance been filed in an attempt to show that there was no genuine dispute about the debt. Counsel submitted that the defendant had acted reasonably in serving the statutory demand (there having been no prior complaint about the fees claimed) and in proposing that the proceedings be resolved by the plaintiff sending the defendant's bills for assessment.
17 But this argument faces the same obstacle as the plaintiff's claim for indemnity costs. Proof that the plaintiff did not object to the invoices rendered did not establish that when the statutory demand was served the debt demanded was then enforceable by action. On the arguments put to me, that is not the question I could resolve. Nor is it one I would resolve simply to deal with the issue of costs.
18 I do not think that the prima facie position that costs follow the event, at least up to the time of service of the submitting appearance, has been displaced. The question then is whether notwithstanding the service of the submitting appearance the defendant should pay the plaintiff's costs after 1 February 2010. Two matters are relevant to this. First, the defendant sought to have it both ways. Whilst serving a submitting appearance, he told the plaintiff that it was obliged to draw to the attention of the judge the arguments he raised in correspondence as to why the statutory demand should not be set aside. The plaintiff had to consider that contention, and it was not unreasonable for it to incur further costs in preparing an affidavit to meet the arguments raised by the defendant in his letters of 25 January and 1 February 2010. The defendant's contention about the effect of the submitting appearance was not correct (Trust Company of Australia Ltd v Perpetual Trustees (WA) Ltd (No P2) (1995) 36 NSWLR 654 at 659-661). Nonetheless, it was not unreasonable for the plaintiff to proceed on the basis that it might have to prove its claim and meet the arguments raised by the defendant in his correspondence. That was the position until orders were made on 8 February 2010. The position taken by the defendant distinguishes this case from the usual case in which the defendant files a submitting appearance and warrants a departure from the prima facie position that there would be no order for costs after such an appearance is filed.
19 The second relevant matter is that most of the work done by the parties after 1 February 2010 related to the argument on costs. The position as I have found it is that the plaintiff is not entitled to the order for indemnity costs it sought, but is entitled to its costs on the ordinary basis, at least up to the time of the filing of the submitting appearance. I have rejected the defendant's argument that there should be no order as to the costs of the proceedings. Whilst it could be said that both parties had had a measure of success and failure on this issue of costs, in quantitative terms, the plaintiff will have had much the better of the argument. The plaintiff should be regarded as the successful party on the argument about costs, although it does not receive all of the relief sought. Hence it should be entitled to its costs in connection with that argument, to the extent they were reasonably incurred.
20 For these reasons I concluded that the appropriate order was that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis.