Supreme Court New South Wales Medium Neutral Citation: In the matter of Malvern Developments (Vic) Pty Ltd [2021] NSWSC 958 Hearing dates: Last costs submissions 28 July 2021 Date of orders: 3 August 2021 Decision date: 03 August 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Application to vary costs order dismissed. Plaintiff to pay the costs of and incidental to the application on the ordinary basis. Catchwords: COSTS — Party/Party — Indemnity costs. Legislation Cited: - Corporations Act 2001 (Cth), s 459M Cases Cited: - Calderbank v Calderbank [1975] 3 All ER 333 - CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100; [2003] NSWSC 728 - Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647 - Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386 - Re Pierotti & Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust [2018] NSWSC 457 - Soudan Lane Pty Limited v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 - Specialty Fashion Group Ltd v Global Red Australia Pty Ltd [2012] NSWSC 256 Category: Costs Parties: Malvern Developments (Vic) Pty Ltd (Plaintiff) Devakon Pty Ltd (Defendant) Representation: Counsel: N Li (Plaintiff) P Reynolds (Defendant) Solicitors: Pagin + Mak Lawyers (Plaintiff) Madison Marcus (Defendant) File Number(s): 2021/95065 Judgment 1. By my judgment delivered on 14 July 2021 ([2021] NSWSC 888) I ordered that a creditor's statutory demand ("Demand") issued by the Defendant, Devakon Pty Ltd ("Devakon") be set aside and that Devakon pay the costs of the Plaintiff, Malvern Developments (Vic) Pty Ltd ("Malvern") of that application, as agreed or as assessed. At Malvern's request, I reserved the opportunity for it to bring an application for indemnity costs if so advised. The applicable legal principles 1. By submissions made on 21 July 2021, Malvern pursued the application for indemnity costs. Mr Li, who appears for Malvern, referred to cases which have recognised that a creditor who uses the procedure for service of a creditor's statutory demand to seek to require payment of a genuinely disputed debt risks an order for indemnity costs, including Barrett J's decision in CGI Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728 at [18]-[22], White J's decision in Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 and my decision in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386. 2. In CGI Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd above at [18]-[22], Barrett J observed that: "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". 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. 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. Indemnity costs have been awarded in some s 459G cases. In Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70, 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, 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". 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; Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95." 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." 1. In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital above at [5]ff, White J observed that: "A person claiming to being a creditor who uses the procedure for service of a statutory demand under s 459E to seek to force payment of a genuinely disputed debt risks an order for indemnity costs. For the purposes of s 459H a genuine dispute will exist about a debt if there is a plausible contention requiring investigation that the company is not indebted (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787–788). Because the threshold for establishing a genuine dispute is low, creditors are often ill-advised to proceed with a statutory demand once plausible grounds for a dispute are asserted. They risk an order for indemnity costs if they do so (Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529 at 536; CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100 at 104–105, [19]–[22]). On the other hand, a company which capitulates to the creditor's demand after commencing proceedings to have the demand set aside by paying the sum demanded, or a company which puts the creditor to unnecessary expense in defending an application to set aside the demand before recovering what is unquestionably due, is likely to have to pay the creditor's costs even though the demand is set aside upon the creditor being paid (Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602; Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95)." 1. In Specialty Fashion Group Ltd v Global Red Australia Pty Ltd [2012] NSWSC 256 at [14], I observed that the focus is on whether on the objective material known to the creditor, prior to the demand being issued, it was reasonable for the creditor to issue that demand. I adopted the same approach in Re Pierotti & Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust [2018] NSWSC 457. The parties' submissions and determination 1. Mr Li, in submissions for Malvern, referred to Devakon's service of the Demand on 11 March 2021; to a letter dated 1 April 2021 sent by Malvern's solicitor which gave notice of an offsetting claim for liquidated damages on which Malvern would rely in an application to set aside the Demand; and to Malvern's application to set aside the Demand filed on 6 April 2021. Mr Li also referred to Devakon's submissions prior to the hearing before me on 14 July 2021 and noted that, at the hearing on 14 July 2021, Counsel for Devakon accepted that the Demand should be set aside, where Malvern had recently commenced proceedings in the Commercial List pursuing a claim for liquidated damages, but unsuccessfully contended that a condition should be imposed on an order setting aside the Demand, under s 459M of the Corporations Act 2001 (Cth), that required Malvern to pay the amount claimed into Court. 2. Mr Li submits that Devakon knew of the factual basis giving rise to the offsetting claim on which Malvern relied at the hearing, as set out in the letter dated 1 April 2021 from Malvern's solicitors. He submits that it was unreasonable for Devakon to have proceeded to defend the application to set aside the Demand and that Devakon's "true purpose" for pressing the Demand was to obtain orders requiring Malvern to proffer security for the amount claimed under s 459M of the Corporations Act. He submits that, if that was Devakon's sole purpose in serving and pressing the Demand, then that conduct should not be encouraged and was unreasonable. That proposition turns, of course, upon its premise. 3. Mr Reynolds, who appears for Devakon, responds, with some force, that Malvern's application for indemnity costs was another example of a "very unfortunate trend of parties seeking indemnity costs based on little more than the fact of their success in litigation" and that: "It has never been the case that a successful party is entitled to indemnity costs, and the making of such ambit applications in circumstances that they do not travel beyond the ordinary boundaries of normal litigation should not be encouraged." 1. Mr Reynolds submits that the letter dated 1 April 2021 from Malvern's solicitors did not amount to a letter falling within the scope of the principle in Calderbank v Calderbank [1975] 3 All ER 333. I do not understand Mr Li to contend that that letter had that character, as distinct from having significance in drawing Devakon's attention to the basis on which Malvern sought to set aside the Demand. If Malvern relied on that principle, I would accept Mr Reynold's submission that it was not unreasonable for Devakon not to accept an invitation to capitulate before the hearing, not least because it was fairly arguable that the Court should impose a condition under s 459M of the Act on setting aside the Demand. There are cases in which Courts have done so, including Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647, as well as other cases in which Courts have not done so, and the outcome of Devakon's application for such a condition turned on the particular facts. 2. Mr Reynolds also submits that it was not unreasonable for Devakon to have resisted the application to set aside the Demand or, as events developed, it was not unreasonable for it to seek the imposition of the condition under s 459M of the Act. It also seems to me that, as Mr Reynolds submits, I should not draw any inference that Devakon's purpose in serving the Demand was to extract that condition, or that that purpose was foreign to the purpose of the Demand, not least because the Act authorises the imposition of such a condition on setting aside a creditor's statutory demand and there are cases in which the Courts have imposed such conditions. Mr Reynolds submits that the application to vary the costs order made on 21 July 2021 should be dismissed, with Malvern to pay Devakon's costs of that application on an indemnity basis. I had drawn the possibility that such an order may be made, if an application for indemnity costs was unsuccessful, to Mr Li's attention at the conclusion of the hearing, when reserving the liberty to his client to press such an application if so advised. 3. For the reasons I have set out above in dealing with the parties' submissions, I am not persuaded that Devakon acted unreasonably in seeking the condition that funds be paid into Court, at the hearing before me, although it was unsuccessful in obtaining the order that it sought. As I noted above, there are several cases in which such a condition has been imposed and it might have been imposed here, although it was not. 4. For these reasons, the application brought by Malvern to vary the costs order that I had previously made for costs in its favour on the ordinary basis is dismissed, and Malvern Developments (Vic) Pty Ltd must pay the costs of and incidental to that application on an ordinary basis. I am not persuaded that the application to vary the costs order is sufficiently unreasonable to order that it pay the costs of the application on an indemnity basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 August 2021