New South Wales Supreme Court CITATION : Main Camp Tea Tree Oil Ltd v Australian Rural Group Limited (In liq) [2003] NSWSC 953 HEARING DATE(S) : 17 October, 2003 JUDGMENT DATE : 17 October 2003 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Plaintiff's application dismissed with costs. CATCHWORDS : CORPORATIONS - STATUTORY DEMAND - COSTS ORDER AGAINST THIRD PARTY - LIQUIDATORS - SOLICITORS - Defendant served Statutory Demand for payment of costs certified under the Legal Practitioners Act - Plaintiff sought review of costs determination prior to service of Statutory Demand - review not determined at time of service of Statutory Demand - whether s.208KE(1) Legal Practitioners Act has effect of making no amount in respect of costs due until determination of review of costs assessment - whether liquidators and solicitors of Defendant ought to have been aware of effect of s.208KE(1) - whether their conduct in serving the Statutory Demand and defending proceedings to set it aside was so negligent and unprofessional that a personal costs order should be made against them. HELD: Conduct of liquidators and solicitors not unreasonable in the circumstances. LEGISLATION CITED : Corporations Act, 2001 (Cth) - s.459G Legal Profession Act 1987 (NSW) - s.208KE CASES CITED : - Farrugia v Farrugia [2000] FCA 516 - Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 PARTIES : Main Camp Tea Tree Oil Ltd - Plaintiff Australian Rural Group Limited (In liq) - Defendant FILE NUMBER(S) : SC 1589/03 COUNSEL : R.K. Eassie - Plaintiff C.R.C. Newlinds SC - Defendant SOLICITORS : Cordato Partners - Plaintiff Clayton Utz - Defendant Ex tempore 1 Before the Court is a Further Amended Originating Process filed by the Plaintiff, Main Camp Tea Tree Oil Ltd ("Main Camp"). The relief which Main Camp seeks today is set out in paragraphs 3 to 5 of the Further Amended Originating Process. In brief, the relief sought comprises an order that the Defendant ("ARG") pay Main Camp's costs of these proceedings on an indemnity basis, an order that the liquidators of ARG themselves personally be jointly and severally liable to pay Main Camp's costs of the proceedings on an indemnity basis and, lastly, an order that the liquidators be joined to the proceedings for the purposes of costs orders being made against them. 2 The proceedings themselves were initiated by Main Camp pursuant to s.459G of the Corporations Act, 2001 (Cth) in order to set side a Statutory Demand which had been served by ARG on 5 February 2003. The debt claimed was an amount of $68,935.43, being the amount of costs ordered to be paid by Main Camp to ARG on 3 December 2001 in proceedings 2716 of 2001 as assessed by an Assessor under the Legal Profession Act 1987 (NSW) and certified by a certificate dated 21 August 2002. 3 Main Camp filed an Originating Process to set side the Statutory Demand on 25 February 2003. In support of the application there was filed an affidavit of Mr John Bax sworn on 25 February 2003. In paragraph 4 of that affidavit Mr Bax, who is a director of Main Camp, said: "[Main Camp] is indebted to ARG in the sum of $68,935.43 as claimed in the Creditor's Statutory Demand for payment of Debt dated 4 February, 2003 with supporting affidavit of Mark Julian Robinson, sworn 5 February, 2003." 4 Paragraph 5 of that affidavit said: "[Main Camp] has a set off for the amount claimed by ARG" . The affidavit then set out the grounds which were said to establish Main Camp's claim to a set-off against the debt of $68,935.43. 5 The matter progressed in a somewhat desultory fashion toward a hearing. There were a number of directions issued by the Court, some of which were not complied with. Further affidavits were filed by both sides. However, on 29 August 2003 by consent of the parties, the Statutory Demand was set aside, with the question of costs reserved. It is that question of costs which has now been debated before me today. 6 Main Camp's submission is that this is a case in which the liquidators and their solicitors have been so much at fault in procuring the service of the Statutory Demand and maintaining these proceedings when it must have been obvious that the Statutory Demand could not be supported, that they should personally be compelled to pay Main Camp's costs of the proceedings on an indemnity basis. 7 The reason that Mr K. Eassie, who appears for Main Camp, says that it was so obvious that the Statutory Demand could not be supported depends upon s.208KE of the Legal Profession Act , and upon certain events which, it is said, brought that section into operation so as to deny legal effect to the costs order which the Statutory Demand sought to recover. 8 What happened was that after issue of the Assessor's Certificate on 21 August 2002, Main Camp on 20 May 2003 sought a review of that assessment pursuant to s.208KE(1) of the Legal Profession Act . The "Manager, Costs Assessment", as defined in the Act, referred the costs assessment on for review in accordance with Main Camp's application. Mr Eassie says that the effect of that reference on for review was that there was no amount owing for costs to ARG pending determination of that review. He relies on s.208KE(1), which is in the following terms: "If the Manager, Costs Assessment refers a determination of a costs assessor to a panel for review under this Subdivision, the operation of that determination is suspended." Mr Eassie says that the operation of the prior determination by the Costs Assessor having been suspended, there was no amount owing in respect of costs by Main Camp to ARG as at 5 February 2003 when the Statutory Demand was served, since the panel had not determined the review by that time. 9 Mr Eassie says that as at 5 February 2003 ARG's liquidators and its solicitors must have known, and probably did know, according to correspondence which has been produced, that the determination of the Costs Assessor which was relied upon to support the Statutory Demand, was the subject of a review and that that review had not yet been determined. He says that the liquidators' solicitors and the liquidators themselves must therefore have realised that there was, at the date of service of the Statutory Demand, no debt owing as claimed therein by operation of s.208KE(1) of the Legal Profession Act . If they had not appreciated that the effect of the section was to make the Statutory Demand completely unsupportable, then they were guilty of such sloppiness or negligence, to borrow words from the judgment of Madgwick J in Farrugia v Farrugia [2000] FCA 516, that they deserve to be visited with a personal costs order against them. 10 Decisions such as Farrugia v Farrugia show that sometimes, in a proper case, the Court in the exercise of its discretion as to costs will order a party's costs to be paid by the solicitor of another party if it is plain that the solicitor has been guilty of incompetence or other unprofessional behaviour in the conduct of the litigation such that the proceedings have been unduly protracted or have been brought when it should have been clear that there was no basis for bringing them. Mr Eassie submits that this case falls into that category of conduct on the part both of the solicitors for the liquidators and the liquidators themselves. I will return in a moment to the basis upon which Mr Eassie says orders can be made against the liquidators as well as against the solicitors. 11 In my opinion, this is plainly not a case in which either ARG's solicitors or tis liquidators have acted in an improper manner, in an unskilful manner or in a manner deserving of any special costs order. The fact of the matter is that even if Mr Eassie be right in his construction of s.208KE(1) of the Legal Profession Act that construction was not so patently obvious to Main Camp's own solicitors, who were aware of exactly the same facts as the liquidators and their solicitors at the time the Statutory Demand was served, that Main Camp's solicitors themselves raised the point in Main Camp's application to set aside the Statutory Demand. 12 Indeed, quite the contrary: as I have noted above, the affidavit filed by Main Camp's solicitors in support of the application to set aside the Statutory Demand contained an express admission that the sum certified in the first Costs Assessor's Certificate was then owing by ARG. The dispute as to the debt arose, it was said, from an asserted counter-claim which offset the amount conceded to be owing by Main Camp under the costs certificate. I think it lies ill in the mouth of Main Camp to assert that ARG's liquidators and their solicitors ought to have been aware of the legal effect of s.208KE Legal Profession Act when it is plain that its own solicitors were not aware of it. 13 I may add that because the ground now taken by Main Camp to assert the invalidity of the Statutory Demand was not taken in an affidavit in support of the application to set side the Demand filed within the time required by s.459G(3) Corporations Act , it is, in my view, highly arguable that that point could not have been raised at the hearing of the application to set aside the Statutory Demand: see Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452. 14 The solicitors for Main Camp eventually realised that they had an arguable point arising under s.208KE(1) and on 15 July 2003 they wrote to the liquidators' solicitors drawing attention to that section, saying: "In our view this would have the further result that when your client's notice of demand was issued on 4 February 2003, which date was prior to the determination of review mainly in 20 May 2003 there would have been no debt 'due and payable'. The final consequence of all this appears to us to be that the notice of demand in issue is defective." I do not know whether it was this letter or some other circumstance which induced the liquidators to consent to the setting aside of the Statutory Demand on 29 August 2003. In a sense it does not matter because I must assume that the liquidators were advised that the Statutory Demand was not defensible and that that was the reason for the consent order which was made. 15 A recitation of these facts demonstrates that both sides to this dispute seemed unaware of the argument which was available under s.208KE(1) of the Legal Profession Act until the solicitors for Main Camp raised it in July 2003. Even after that, on one view the liquidators would arguably have been justified in continuing to maintain the validity of the Statutory Demand because the s.208KE(1) point had not been raised in an affidavit in opposition to the Statutory Demand filed within the time required. 16 For the reasons which I have given, I do not accept the submission that it must have been patently obvious to ARG's liquidators and to their solicitors that the Statutory Demand was unsupportable. It follows that I do not regard the conduct of ARG's liquidators or their solicitors in serving the Demand and maintaining the proceedings until 15 July 2003 as deserving of any criticism or warranting any special costs order. 17 In those circumstances I do not need to consider the complex issues as to whether the Court has power to make a costs order against a liquidator in a case such as this. Neither is it necessary for me to consider the question whether under the Corporations Rules or the Supreme Court Rules this is a case in which the liquidators should be added as a party to the proceedings for the sole purpose of making a costs order against them. These are difficult issues and they would require close consideration were it not for the fact that I am clear in my view that this is not a case in which any such costs order should be made, even if the liquidators were joined, or were able to be joined, or even if a costs order could be made against them directly without joinder. 18 The question remains whether I should make any special costs order in respect of the proceedings from 15 July 2003 onward, that being the date upon which the argument founded on s.208KE(1) was raised by Main Camp's solicitors. As I say, I think that there is at least a respectable argument that this point could not properly have been taken at that stage because of the decision in Graywinter . There do not, therefore, seem to me to be any circumstances warranting a special costs order arising from the fact that the liquidators did not consent to setting aside the Statutory Demand immediately after the solicitors for Main Camp raised this point on 15 July 2003. It seems to me that there is nothing in the circumstances of this case and in the way in which it has been conducted both by the liquidators and their solicitors which warrants departure from the normal costs rule that ARG, having consented to the setting aside of the Statutory Demand on 29 August 2003, should pay the costs of the proceedings on a party/party basis. 19 I therefore refuse the orders sought in paragraphs 3, 4 and 5 of the Further Amended Originating Process. 20 I think it is proper that Main Camp pay the costs of ARG, and any separate costs which may have been incurred by the liquidators, of the unsuccessful application for orders in paragraphs 3, 4 and 5 of the Further Amended Originating Process. – oOo – Last Modified: 10/28/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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