FEDERAL COURT OF AUSTRALIA Kortz Ltd v Data Acquisition Pty Ltd [2007] FCA 252 CORPORATIONS LAW – consideration of the exercise of discretion in awarding costs in the light of the judgment in Kortz Ltd v Data Acquisition Pty Ltd [2006] FCA 1722. Corporations Act 2001 (Cth) Kortz Ltd v Data Acquisition Pty Ltd [2006] FCA 1722 - cited KORTZ LTD v DATA ACQUISITION PTY LTD QUD413 OF 2006 GREENWOOD J 2 MARCh 2007 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD413 OF 2006 BETWEEN: KORTZ LTD ACN 113 534 688 Plaintiff AND: DATA ACQUISITION PTY LTD ACN 050 209 848 Defendant JUDGE: GREENWOOD J DATE OF ORDER: 2 march 2007 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The defendant pay 70% of the plaintiff's costs of and incidental to the application to set aside a statutory demand dated 31 August 2006 and served on the plaintiff on 6 October 2006 pursuant to the provisions of the Corporations Act 2001 (Cth) identified at pages 1 and 2 of exhibit 'RM2' to the affidavit of Robert McInnes sworn 26 October 2006, the subject of the order of the court made on 11 December 2006. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD413 OF 2006 BETWEEN: KORTZ LTD ACN 113 534 688 Plaintiff AND: DATA ACQUISITION PTY LTD ACN 050 209 848 Defendant JUDGE: GREENWOOD J DATE: 2 march 2007 PLACE: BRISBANE REASONS FOR JUDGMENT 1 On 11 December 2006, I made an order that a statutory demand dated 31 August 2006 made by the defendant upon the plaintiff pursuant to the provisions of the Corporations Act 2001 (Cth) ('the Act') identified as pages 1 and 2 of exhibit 'RM2' to the affidavit of Robert McInnes sworn 26 October 2006 be set aside. I further ordered that the costs of the proceeding to set aside the statutory demand be reserved with written submissions in relation to the question of costs to be forwarded to the court for determination on the papers. 2 The plaintiff sought to set aside the demand on three grounds. 3 First, that the demand contained a defect and substantial injustice would arise should the demand not be set aside. 4 Secondly, apart from any question of injustice arising out of effect being given to a demand contended to be defective, the plaintiff contended that the failure to recite correctly the total amount of the debt due and payable (rather than the lesser sum reflected in the demand) constituted a failure to comply with a mandatory obligation going to the validity of the demand. Thus, the demand ought to be set aside per se. 5 Thirdly, the plaintiff contended that based upon the affidavit evidence of Robert McInnes, a genuine dispute subsisted between the plaintiff and the defendant as to the 'existence of a debt to which the demand relates' for the purposes of s 459H(1)(a) of the Act on two bases. First, that the goods supplied by the defendant to the plaintiff and identified in one of the tax invoices in question, are not fit for the relevant purpose and secondly, that goods listed in two other tax invoices making up the amount of the statutory demand were not ordered by the plaintiff from the defendant and were not supplied by the defendant. 6 In the result, the plaintiff failed to establish the first two grounds of the application. 7 The defendant, apart from responding to all three grounds relied upon by the plaintiff, also contended that the plaintiff had failed to comply with s 459G(3) of the Act, compliance with which goes to jurisdiction. The defendant contended that as a result, the jurisdiction of the court had not been enlivened and the court could not make an order setting aside the demand either pursuant to s 459H(3) or s 459J(1)(a) or (b). The merits of that contention are dealt with at [16] to [37] of the reasons for judgment (Kortz Ltd v Data Acquisition Pty Ltd [2006] FCA 1722). 8 I have had the benefit of receiving and considering submissions from both the plaintiff and the defendant in relation to the principles governing the exercise of the discretion as to costs in the light of the judgment and urging the exercise of the discretion in a particular way. 9 Since the plaintiff failed to establish the first two grounds of challenge to the statutory demand and the defendant was unsuccessful in relation to the contention going to s 459G(3), the final question to be determined was whether the plaintiff's material adequately demonstrated the subsistence of a genuine dispute between the parties as to the existence or amount of a debt to which the demand related. 10 In the result, the affidavit material of the plaintiff by reason of the contentions contained in a letter written by Mr Ian Williams, a director of the plaintiff, to the solicitors for the defendant dated 23 October 2006 and exhibited to the affidavit of Robert McInnes sworn 26 October 2006 together with an email [54], in the context of the exchanges, established contentions of fact giving rise to a controversy of fact as to the basis upon which the parts were to be procured for each board, a controversy as to the relevance and consequences of correct or incorrect voltage ratings for at least one of the boards and questions going to the approval of the prototypes. 11 The defendant contends that there are special circumstances which justify an order other than an order that the plaintiff receive its costs of the application. The special circumstances are said to be these: '1. As at the date of service of the statutory demand the defendant was unaware of any genuine dispute. This is deposes to by David Swinnerton relying in particular on the email from Terry Priest exhibit "DLS13" which is totally inconsistent with the assertion that any dispute existed. 2. Ian Williams had no dealings with the defendant and gave no basis in his letter of 23 October 2006 for his knowledge of the existence of and the nature of the alleged dispute. 3. Terry Priest, who exclusively dealt with the defendant on behalf of the plaintiff and who was the person with knowledge of these dealings, has neither written to the defendant regarding the existence of any dispute nor has he gone on the record in the proceeding as to any aspect of the matter.' 12 The defendant says that it received the affidavit of Robert McInnes in support of the application prior to the filing of the application and there was nothing in the affidavit to support the proposition that a genuine dispute existed in relation to the defendant's claim. The defendant says that had Mr McInnes clearly and fully stated the content of the grounds for a genuine dispute, the defendant would have been afforded the opportunity to withdraw the statutory demand prior to the filing of the application. 13 In the course of the judgment, I expressed some reservations about the adequacy generally of the affidavit of Robert McInnes sworn 26 October 2006 as the affidavit failed to engage directly and precisely with the content of the contentions of the defendant. Perhaps some of the costs in this application might have been avoided had Mr McInnes focused upon a precise identification of the central matters which might have demonstrated the subsistence of a genuine dispute at an earlier time and with more transparency. The defendant may well have been unaware of a genuine dispute at the date of service of the demand and whilst it is true that the affidavit of Robert McInnes fails to deal adequately with the content of the grounds of dispute, I have found that the letter from Mr Williams exhibited to that affidavit raises the basis for a dispute as to particular matters. In addition, the defendant was strongly of the view that the application to set aside the statutory demand was fatally flawed irrespective of any question going to a genuine dispute and sought to resist the application on that ground. 14 In terms of the real burden of the grounds of the application, the first two grounds unsuccessfully advanced by the plaintiff in challenging the statutory demand were less significant than the unsuccessful argument of the defendant going to s 459G(3) and the question of whether having regard to a consideration of the affidavit material, the plaintiff had established a genuine dispute between the parties. 15 Although the plaintiff established a genuine controversy of fact, some of the affidavit material put on by the plaintiff was unsatisfactory and failed to properly address the central contentions of the defendant and simply expressed denials or assertions at a high level of abstraction. Nevertheless, the plaintiff ultimately established a basis upon which the statutory demand ought to be set aside. 16 In the ordinary course, for the purposes of the Federal Court Rules, reserved costs would follow the event unless the court otherwise orders. Having regard to the above matters and the reasons for the orders made on 11 December 2006, it seems to me that the proper exercise of the discretion involves making an order that the defendant pay 70% of the plaintiff's costs of and incidental to the application to be taxed. I do not propose to examine a quantification of the costs as suggested by the plaintiff or fix the amount of the costs. Rather, the taxation or assessment processes for determining the quantum of the costs within the court ought to be applied in resolving the quantum of the costs in the absence of any agreement between the parties. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate: Dated: 2 March 2007 Solicitor for the Plaintiff: Mr D Kake, Quinn & Scattini Lawyers Solicitor for the Defendant: Cleveland Lawyers Date of Hearing: 10 November 2006 Date of Principal Judgment: 11 December 2006 Date for Submissions in relation to Costs: 15 December 2006 Date of Judgment in relation to Costs: 2 March 2007