FEDERAL COURT OF AUSTRALIA D.S. Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd [2015] FCA 277 Citation: D.S. Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd [2015] FCA 277 Parties: D.S. CLARKE NOMINEES PTY LTD (ACN 131 023 777) v ADDER HOLDINGS PTY LTD (ACN 009 264 037) File number: WAD 120 of 2014 Judge: GILMOUR J Date of judgment: 27 March 2015 Catchwords: COSTS - application for indemnity costs by defendant where plaintiff discontinued proceedings against defendant - winding-up application discontinued - whether proceedings commenced in wilful disregard of known facts - no proper evidentiary foundation - indemnity costs awarded Legislation: Corporations Act 2001 (Cth) ss 459C(2), 459F, 459G, 459P, 459S Federal Court Rules 2011 (Cth) r 26.12 Cases cited: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 O'Neill v Mann [2000] FCA 1680 State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702 Date of hearing: 5 February 2015 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 48 Counsel for the Plaintiff: Mr TJ Porter Solicitor for the Plaintiff: Wilson & Atkinson Counsel for the Defendant: Mr BG Grubb Solicitor for the Defendant: Metaxas & Hager IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 120 of 2014 BETWEEN: D.S. CLARKE NOMINEES PTY LTD (ACN 131 023 777) Plaintiff AND: ADDER HOLDINGS PTY LTD (ACN 009 264 037) Defendant JUDGE: GILMOUR J DATE OF ORDER: 27 March 2015 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The plaintiff pay the defendant's costs of and associated with this application up to and including 22 September 2014 on an indemnity basis. 2. The plaintiff pay the defendant's costs of the application for indemnity costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 120 of 2014 BETWEEN: D.S. CLARKE NOMINEES PTY LTD (ACN 131 023 777) Plaintiff AND: ADDER HOLDINGS PTY LTD (ACN 009 264 037) Defendant JUDGE: GILMOUR J DATE: 27 March 2015 PLACE: PERTH REASONS FOR JUDGMENT 1 The defendant has applied for indemnity costs against the plaintiff consequent upon the discontinuance by the plaintiff of its winding-up application against the defendant. The winding-up application, dated 13 May 2014, was made under s 459P of the Corporations Act 2001 (Cth) (the Act), on the ground of insolvency; the plaintiff relied upon the purported failure of the defendant to comply with a statutory demand dated 31 March 2014 (Statutory Demand). 2 In its application for indemnity costs, the defendant relies upon the following affidavits: (a) Gregory Emerson Metaxas sworn on 13 June 2014; and (b) Bruce Graeme Grubb sworn on 9 October 2014. 3 The plaintiff relies on the affidavit of James Richard Marzec sworn on 3 November 2014 as well as its originating application and the supporting documents filed on that date. 4 The Statutory Demand and the originating application in these reasons are collectively referred to as "the Action". 5 The law and much of the facts are not in dispute. Discontinuance costs 6 A notice of discontinuance was signed by the plaintiff's solicitor on 9 September 2014, and consented to by the defendant on 16 September 2014. Pursuant to an order of the Court, the Action was discontinued on 22 September 2014. 7 Rule 26.12(2)(b) of the Federal Court Rules 2011 (Cth), provides that a party may discontinue a proceeding where judgment has not been entered, with the consent of all the parties. 8 A party who discontinues under r 26.12(2)(b), is liable to pay the costs of the other party, unless the terms of the consent or the Court provide otherwise: r 26.12(7). 9 The plaintiff accepts that it is liable to pay the defendant's costs upon a party and party basis up to the date of discontinuance. This is an appropriate concession. As Finn J stated in O'Neill v Mann [2000] FCA 1680 at [13]: [W]here no objective circumstance provides reason for the discontinuance, a costs order in favour of the other party will ordinarily be made. 10 His Honour there was, it seems to me, referring to a circumstance providing a reason for discontinuance which might warrant no costs order being made. 11 In any event, here, the plaintiff has provided no explanation to the Court as to why it discontinued these very serious proceedings, other than that it was "for commercial reasons". 12 Accordingly the live issue is whether the costs should be ordered on an indemnity basis. Indemnity costs Legal Principles 13 The principles applicable to an award of indemnity costs are well understood and are conveniently collected in Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232-235. Importantly, the court should only make an order for the payment of costs on some basis other than a party and party basis where the circumstances of the case warrant the court departing from the usual course, including where the justice of the case might require or where some special or unusual feature in the case justifies the court in departing from the ordinary practice. The categories in which the discretion may be exercised are not closed. 14 The circumstances which may warrant the exercise of the discretion to award indemnity costs include: evidence of a particular misconduct that causes loss of time to the court and the other parties; the fact that the proceedings were commenced for some ulterior motive; the fact the proceedings were commenced in wilful disregard of known facts or clearly established law; the making of allegations that ought never to have been made, or the undue prolongation of a case by groundless contentions; an imprudent refusal of an offer to compromise; or an award of costs on an indemnity basis against a contemnor. Application of principles to the facts 15 The defendant submits that the plaintiff commenced and continued the Action in circumstances where the plaintiff, properly advised, should have known that it had no chance of success. Further, the defendant submits that the plaintiff either commenced the Action for some ulterior motive, or in wilful disregard of known facts or clearly established law, making allegations that ought never to have been made, and unduly prolonged the Action. The facts 16 In March 2013 the plaintiff, in its capacity as trustee for the D.S. Clarke Superannuation Fund together with a related company and Mr David Clarke, issued Supreme Court proceedings against four parties, one of which was the present defendant although in its capacity as trustee for the Geraldton Retirement Village Unit Trust. 17 The statement of claim in that proceeding is relevantly alleged that by the terms of a Memorandum of Understanding dated 8 May 2008 (the MOU) as orally varied, the plaintiff, as trustee, was owed $225,000 by the defendant, as trustee, following the exercise by the plaintiff, as trustee, of a put option. 18 It is accepted by the plaintiff that so far as concerns the quantum of the amount set out in the Statutory Demand, this is comprised by the same amount of $225,000 plus interest. What is critical however, is that the Supreme Court proceeding alleged the debt was one owed to the plaintiff as trustee by the defendant as trustee. 19 The Statutory Demand, however, it was accepted by the plaintiff, was issued in its individual capacity and against the defendant in its individual capacity. 20 The plaintiff, as trustee, applied for leave to apply for summary judgment in its Supreme Court proceedings. Leave was required because the plaintiff was out of time to apply. On 24 September 2013, Master Sanderson refused leave. The Master, in his reasons, stated that even had he granted leave he could not have ordered summary judgment. He identified that there was a difficulty in establishing that the second plaintiff (the present plaintiff) was in fact trustee of the D.S. Clarke Superannuation Fund. The trust deed proffered in evidence had not been signed and no signed deed could be located. 21 Nonetheless, as was conceded by the present plaintiff, Mr Clarke had sworn an affidavit in support of the summary judgment application (First Clarke Affidavit), relevantly, deposing that the amount was owed by the defendant as trustee for the Geraldton Retirement Village Unit Trust to the plaintiff as trustee for the D.S. Clarke Superannuation Fund. 22 Following this, no doubt to cater for the difficulty identified by the Master, the present plaintiff amended its statement of claim in the Supreme Court proceeding to allege in the alternative that the money was owed to the present plaintiff in its own capacity. 23 It also pleaded facts in support of its case that the D.S. Clarke Superannuation Fund existed and, in effect, that the present plaintiff was the trustee of that Fund. 24 The plaintiff issued its Statutory Demand dated 31 March 2014. It is not clear whether the plaintiff satisfied the statutory requirements for service of the Statutory Demand, although Mr Lindsay Quann, the defendant's Director, deposes in an affidavit sworn on 16 June 2014 that it was never actually received. There are implications which arise as a result of these facts. 25 The Statutory Demand sought payment of the monies alleged due from the defendant in its personal capacity to the plaintiff in its personal capacity. This of course is at odds with the plaintiff's original statement of claim in the Supreme Court proceeding and the affidavit in support sworn by Mr Clarke deposing to this alleged debt. 26 The Statutory Demand was supported by a further affidavit sworn by Mr Clarke on 31 March 2014 (Second Clarke Affidavit). This affidavit deposes that the money is owed by the defendant. It does not depose that the money is owed to the plaintiff as trustee of the D.S. Clarke Superannuation Fund. It refers to and annexes the MOU relied upon in the Supreme Court proceeding. This discloses that the plaintiff was a party to the MOU in its capacity as trustee for the D.S. Clarke Superannuation Fund. This is plainly the reason why the original statement of claim in the Supreme Court proceeding alleged that the debt was owed to the plaintiff as trustee. 27 Moreover, Mr Clarke deposes in the Second Clarke Affidavit that at no time has the defendant denied that the amount of $225,000 was repayable. This is not correct for a number of reasons. First, the Statutory Demand was issued on 31 March 2014, more than three weeks before the statement of claim in the Supreme Court proceeding was amended, adding the alternative claim by the plaintiff in its own capacity. Accordingly, as at that time, no claim had been made that the defendant in its personal capacity owed the plaintiff, in its personal capacity, any money whatsoever. 28 Second, the set-off alleged in the defence and set-off filed by the defendants in the Supreme Court proceeding is particularised. No set-off is claimed by the defendant. The set-off is claimed by the other defendants in the Supreme Court proceeding. The pleading concerning the put option was not admitted, and the pleading that the present defendant, relevantly, was in breach of its agreement to pay the $225,000 was denied in the defence. 29 In the closing paragraphs of the Second Clarke Affidavit Mr Clarke deposed that the debt was due and payable by the defendant and that he believed there was no genuine dispute about the existence or amount of the debt. 30 The defendant did not apply within the requisite period under s 459G of the Act to set aside the Statutory Demand. This is explicable on the basis that he asserts he never received the Statutory Demand during that period. 31 Nonetheless s 459S of the Act, which confines the circumstances in which a company may oppose a winding-up application, may well have prevented the defendant from relying on this ground, if in fact there was service for the purposes of the Act. I will, for present purposes, assume that there was effective service of the Statutory Demand and that by reason of ss 459F and 459C(2)(a) of the Act there was a presumption that the defendant was insolvent. Other grounds of opposition, for example that there was a genuine dispute that the money was owed, may well also have been precluded. 32 However, this is not a hearing on the winding-up application substantively but rather is concerned with whether indemnity costs should be ordered in circumstances where the plaintiff has conceded it ought be liable for costs although only on a party and party basis. 33 I do not consider that s 459S of the Act operates so as to prevent the Court from considering the circumstances surrounding the application to wind up a company, or the applicant's conduct generally in relation to that application. 34 It is disingenuous, in response to the defendant's application for indemnity costs, for the plaintiff to attempt to justify its substantive application, in part, on the grounds that the defendant by its solicitors "invited" this course to be adopted. As the correspondence makes clear this was no more than the defendant refusing the plaintiff's demands for payment of monies and saying, in effect, "we will see you in court - go ahead and issue your proceedings". 35 I am persuaded that the winding-up application constituted an abuse of the process of the Court. 36 The Statutory Demand, upon which it proceeded, had no proper evidentiary foundation; indeed it was antithetical to the facts as known to the plaintiff. 37 There was no basis on the material before me to sustain a case that the plaintiff, in its personal capacity, was owed any money whatsoever by the defendant whether in its personal capacity, as the Statutory Demand claimed, or as trustee of the Geraldton Retirement Village Unit Trust, as was claimed in the Supreme Court proceeding. 38 That the money was owed to the plaintiff in its capacity as trustee for the D.S. Clarke Superannuation Fund was, as conceded by counsel for the plaintiff, an allegation deposed as being true by Mr Clarke in the First Clarke Affidavit. 39 That Mr Clarke deposes in the Second Clarke Affidavit that the money was due to the plaintiff in its personal capacity demands, for present purposes, some explanation. This is particularly so when, as I have explained, the MOU relied upon does not support such a claim. Rather it supports the claim as originally articulated by the plaintiff as trustee in the original statement of claim in the Supreme Court proceeding. 40 I infer that the change of position by the plaintiff is explained by reason of the difficulty identified by Master Sanderson in his reasons for judgment refusing leave: there was no proof of the existence of the D.S. Clarke Superannuation Fund and therefore no proof that the plaintiff was trustee of that fund. 41 In those circumstances it is difficult to discern on what basis Mr Clarke found himself able to depose in the Second Clarke Affidavit that the plaintiff was owed the money, in its own capacity, and that there was no genuine dispute. For reasons I have explained there clearly was. Moreover, again as I have explained, no set-off had been claimed by the defendant to any claim made against it, in whatever capacity, by the plaintiff, in whatever capacity. 42 These matters might all have been cleared up by Mr Clarke putting on an affidavit in opposition to this claim for indemnity costs. He did not. I invited counsel for the plaintiff on a number of occasions to make submissions as to whether the MOU was capable of being construed as evidencing that the money claimed was owed to the plaintiff in its own capacity. Despite this, counsel for the plaintiff not only declined to make any such submissions but he did not even take the Court to the MOU and its terms. 43 His decision to decline this invitation is telling. 44 An affidavit might also have explained to the Court what the plaintiff meant by the phrase "for commercial reasons" as the basis for discontinuing the proceeding. 45 I am of the opinion that the justice of this case requires that the plaintiff pay the defendant's costs of, and associated with, the proceeding upon an indemnity basis up to and including the date of discontinuance, 22 September 2014. The Statutory Demand and the application to wind-up the defendant proceeded on wilful disregard of known facts. Properly advised the plaintiff ought not to have issued the Statutory Demand claiming the money was owed to it in its own capacity by the defendant in its own capacity. That case reliant upon the MOU was hopeless: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-401. 46 Such circumstances are to be distinguished from the situation where a winding-up application is made even though the debt is disputed and a set-off exists: State Bank of New South Wales v Tela Pty Ltd (No 2) (2002) 188 ALR 702 at [11] and [13]. 47 That is not this case. Here the Statutory Demand and the winding-up application proceeded on assertions of fact supported by the Second Clarke Affidavit which were contrary to the terms of the instrument relied upon as founding the debt, contrary to the First Clarke Affidavit and the original statement of claim in the Supreme Court proceeding, and absent any explanation as to why this was so when obviously one was required in respect to this application for indemnity costs. 48 There will also be an order that the plaintiff pay the defendant's costs of the application for indemnity costs. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate: Dated: 27 March 2015