New South Wales Supreme Court CITATION : Professional Advantage Pty Ltd v Australian Broadcasting Commission [2007] NSWSC 607 HEARING DATE(S) : 08/06/07 JUDGMENT DATE : 8 June 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 8 June 2007 DECISION : 1. Order that the plaintiff's costs of the proceedings be paid by the defendant on the indemnity basis; 2. Order that the statutory demand dated 27/2/07 served by the defendant on the plaintiff be set aside. CATCHWORDS : CORPORATIONS – Winding up – Statutory demand – Application for order setting aside under s 459G of the Corporations Act 2001 (Cth) – Where there is a genuine dispute about the existence of the debt – Existence of genuine dispute uncontested – Order that statutory demand be set aside. - PROCEDURE – Costs – Departing from the general rule – Order for costs on indemnity basis – Where procedure for issuing statutory demand used improperly to force payment of a debt known by defendant to be disputed – Where defendant persisted in claim notwithstanding that it ought to have been apparent that there was a genuine dispute as to the debts claimed – Order that defendant pay costs on indemnity basis. - (Cth) Corporations Act 2001, s 459G LEGISLATION CITED : Corporations Act 2001 (Cth) Polaroid Australia Pty Limited v Minicomp Pty Limited (1997) 16 ACLC 529 CASES CITED : Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd [2001] NSWSC 654 CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Limited (2003) 47 ACSR 100 Professional Advantage Pty Ltd PARTIES : v Australian Broadcasting Commission FILE NUMBER(S) : SC 1852/07 COUNSEL : Plaintiff: A P Coleman Defendant: J Sheahan SC SOLICITORS : Plaintiff: Somerville & Co Defendant: Baker & McKenzie IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Friday, 8 June 2007 1852/07 Professional Advantage Pty Ltd v Australian Broadcasting Commission JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 27 February 2007. This morning, senior counsel for the defendant submitted that the claim for relief would not be opposed by the defendant. The defendant belatedly accepts that there is a genuine issue as to the debts claimed in the statutory demand. The only argument has been on the question of costs. In its originating process, the plaintiff seeks an order that its costs be paid on an indemnity basis. 2 In Polaroid Australia Pty Limited v Minicomp Pty Limited (1997) 16 ACLC 529, Santow J (as his Honour then was) said (at 536): " ... the result yet again affirms the basic principle, essentially preserved in the amendments to the Corporations Law comprising s 459G and that as a matter of discretion a winding up order will not be made on a debt which is genuinely disputed; see Mibor (supra) at ACLC 1,065-1,066; ACSR 365-6 and the earlier authorities cited. But what needs to be said, with some emphasis, is this. When regard is had to the results in favour of the Plaintiff seeking to set aside the statutory notice, insufficient appreciation is evidently being paid to that basic principle. The number of such cases far exceeds any other type of case in corporate law - some 80 or 90 so far (see the attachment to this judgment by way of survey). Sooner or later, courts will have to consider whether indemnity costs should be awarded against the unsuccessful user of a statutory notice to force payment of a genuinely contested debt, simply because those taking out such statutory demands are disregarding that basic principle. Mini-trials of such disputes simply add to costs, more especially as the relevant tests do not ordinarily permit more than a relatively superficial probing. That said, it is of course not to be suggested that all such cases fit into that category. Nor can statistics be any substitute for a trial of proper cases on their merits. But what such statistics do show, is that there is either an insufficient appreciation of the relevant principles, which publicising their results should dispel, or even in some cases a knowing use of the statutory demand to pressure payment where that payment is genuinely disputed, risking indemnity cost orders in appropriate instances. " 3 His Honour then set out statistics showing the result of a survey of a large number of reported and unreported cases involving applications to have statutory demands set aside. His Honour's warning and the principles to which his Honour referred are still, it would appear, insufficiently appreciated. 4 In Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd [2001] NSWSC 654 (at [23]), Santow J referred to the warning he gave in Polaroid Australia Pty Limited v Minicomp Pty Limited and reiterated that, given the modest threshold for establishing that there is a plausible contention requiring further investigation, the time will come when courts will apply indemnity costs orders to those who should have appreciated both the ground upon which the applicant ultimately succeeded in setting aside the statutory demand and the high probability of its success. His Honour made such an order in that case. 5 In CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Limited (2003) 47 ACSR 100 (at 105-105 [19]-[22]), Barrett J, whilst accepting the possibility of there being an order for indemnity costs is not something that should be allowed to deter a party who has served a statutory demand from putting the company to appropriate proof of the genuine dispute, reiterated that there is a limit to that principle, and that, particularly where the weakness of the defendant's position is pointed out, it may well be appropriate for the court to award costs of the successful plaintiff on an indemnity basis. 6 In the present case, it came as no surprise that the defendant did not contest the relief sought. The statutory demand claimed an amount of $112,351.51 comprised of two debts. The description of the two debts was sufficiently similar to justify confining a description of them to the first. That was for the sum of $45,790.36. It was said to be an amount "owed to the creditor being the amount of the 'Annual Maintenance: PA Customised Developed Software' component of the First Invoice ... which amount was paid by the creditor to the company on the basis that the cost of any upgrades which were requested by the creditor would be deducted from this amount, and the creditor having requested no upgrades and by the Letter, having confirmed that no upgrades would be requested by the creditor from the company and demanded the repayment of the [debt]." The "Letter" was defined as a letter from Baker & McKenzie, solicitors for the creditor, dated 8 February 2007. 7 On its face, this description of the debt does not disclose the reason why the money is said to be payable. It can be inferred from it, and from the terms of the letter of Baker & McKenzie of 8 February 2007, that the defendant's claim is that payments made by it on 31 March 2006 had either been made by mistake, or for consideration which had wholly failed, such that the defendant is entitled to a cause of action in restitution for the amounts of the debts claimed. 8 The invoices were rendered as long as ago as 18 March and 12 December 2005. The relevant charges were described as being for "Annual Maintenance: PA Customised Developed Software 1 May 2005-1 December 2005)" and "Annual Maintenance: PA Customised Developed Software 29 December 2005-29 September 2006". 9 On the face of the invoices, one might infer that there was at least a genuine dispute that the charge was to provide an upfront payment for as much maintenance as might reasonably be requested during the term specified in the invoice. The fact that the defendant in due course paid the invoices could raise at least a plausible contention requiring investigation as to why that was so and why there was no consideration for the payments. The evidence filed for the plaintiff in support of the application to set aside the statutory demand referred to a long series of correspondence between the parties in which the existence of a genuine dispute plainly emerges. Indeed, it appears from the correspondence referred to that that the payments were only made by the defendant after the plaintiff had agreed to the institution of an external review of the defendant's systems, for which the plaintiff was providing services. Plainly enough, it was at least arguable that such acquiescence could amount to an accord and satisfaction to provide sufficient consideration for the payments. 10 The statutory demand was preceded by correspondence from the defendant's solicitors of 8 February 2007. They contended that there was no contractual basis for the rendering of the invoices in question and there was no consideration for the payments made. They said that no services were actually provided by way of technical support for the Customised Developed Software and none would be sought. They asserted that in those circumstances, the defendant was entitled to the return of that amount. Plainly, that does not necessarily follow. However, the letter concluded by saying that, should payment of the sum of $112,381.03 not be made by Monday 12 February 2007, the defendant would not wish to proceed either to mediation or expert determination. Rather, the defendant's solicitors said they were instructed to issue a creditor's statutory demand to the plaintiff for payment of that debt and, if necessary, take steps to have the plaintiff wound up in insolvency. That was a plain threat to use the procedure for issuing statutory demands to endeavour to force payment of a debt which the defendant, on a review of its own correspondence, must have known was disputed. 11 The letter was responded to by the plaintiff's solicitors on 12 February 2007. Amongst other things, they said that that consideration necessary to support a contract includes a promise to do or to forebear from doing something. They said that the plaintiff's agreement to maintain and support the software as required amounted to valuable consideration, regardless of the extent to which those services were actually required. They also referred to the ample authority to the effect that a statutory demand cannot be maintained where there is a genuine dispute as to a debt and invited the defendant, if it wished, to pursue its claim to institute appropriate proceedings in the District Court. They advised they had instructions to accept service of any such proceedings. 12 The defendant's reply was to serve the statutory demand with an accompanying affidavit. Those documents were served under cover of a letter from the defendant's solicitors which said that the defendant did not consider any of the matters raised as establishing the existence of a genuine dispute. The defendant's solicitors went on to say that, if the plaintiff maintained that there was an agreement as to the provision of goods or services constituting the annual maintenance of PA Customised Developed Software, it should provide by way of statutory declaration, or declarations, full particulars of the agreement. 13 I do not accept that that correspondence showed the defendant to be taking a proper position in relation to the service of a statutory demand. Rather, the defendant appears to have been seeking to use the service of a statutory demand to force the plaintiff to go on oath giving particulars of an alleged agreement. Having to conform with such a requirement could well be a forensic disadvantage in any subsequent proceeding which may be brought for recovery of the alleged debts. 14 In my view, an order that costs be paid on an indemnity basis is an appropriate order for two separate reasons. The first is the improper use of the statutory demand procedure. The second is the persistence in the claim, notwithstanding that it ought to have been apparent to the defendant that there was a genuine dispute (at least) as to the debts claimed. 15 It was not until this morning, the day of hearing, that the defendant indicated its consent to the substantive order sought. That consent was entirely proper, but was belated. The plaintiff ought never to have been put in a position where it was necessary to institute the proceedings. 16 I order that the plaintiff's costs of the proceedings be paid by the defendant on an indemnity basis. I also order the statutory demand dated 7 February 2007 served by the defendant on the plaintiff be set aside. ****** 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.