New South Wales Supreme Court CITATION : Patonga Beach Holdings Pty Ltd v Lyons [2009] NSWSC 1329 HEARING DATE(S) : 19, 20 November 2009 JUDGMENT DATE : 2 December 2009 JURISDICTION : Equity JUDGMENT OF : Austin J DECISION : Defendants to pay plaintiff's costs on the indemnity basis CATCHWORDS : COSTS - indemnity costs - defendants issue creditors' statutory demand against guarantor company, purporting to rely on an assignment - Deed of Assignment plainly does not assign the benefit of the guarantee - defendants should not have issued statutory demand - indemnity costs justified CASES CITED : Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 PARTIES : Patonga Beach Holdings Pty Ltd (Plaintiff) John Howard Lyons, Rosebanner Pty Ltd and Australian Hotels Ltd (Defendants) FILE NUMBER(S) : SC 2769/09 COUNSEL : R M Lovas (Plaintiff) J B Simpkins SC (Defendants) SOLICITORS : Angela M Frost (Plaintiff) Legal Ease Lawyers (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST AUSTIN J WEDNESDAY 2 DECEMBER 2009 2769/09 PATONGA BEACH HOLDINGS PTY LTD V JOHN HOWARD LYONS & 2 ORS JUDGMENT 1 HIS HONOUR: The proceedings are an application under s 459G of the Corporations Act 2001 (Cth) to set aside a statutory demand. The final hearing took place on 19 November 2009 and I delivered reasons for judgment on 20 November 2009, holding that the statutory demand was to be set aside under s 459J(1)(a). Counsel for the plaintiff then made an application for indemnity costs. Since the legal representative of the defendants was not in a position to deal with the application, I directed written submissions on costs. I subsequently received written submissions from the plaintiff dated 20 November 2009, but nothing has been received from the defendants. 2 I have decided that the case for indemnity costs has been made out. The defendants issued their statutory demand as assignees of the right of Ray Armstrong to receive payment under a deed dated 20 December 2007 ("the Osborne Deed"). Under the Osborne Deed, Robert Osborne covenanted to pay Mr Armstrong a settlement sum of $550,000 by three instalments, the last of which, in the sum of $400,000, was payable under clause 5(c) on certain terms. By clause 7 of the deed, any unpaid part of the settlement sum was secured by the "unlimited personal guarantee" of the plaintiff (Patonga Beach Holdings Pty Ltd) and Robert Osborne. 3 The statutory demand, made by the defendants against the plaintiff, asserted that Mr Armstrong's "rights and obligations" under the Osborne deed had been assigned to the defendants by way of a deed of assignment dated 24 January 2008 and notice of assignment dated 4 September 2008. The defendants' entitlement to be paid the sum demanded by them depended, therefore, on: that amount being payable by Mr Osborne under the Osborne Deed; the plaintiff being obliged to meet that payment under the terms of its guarantee; and Mr Armstrong's rights in respect of the guarantee being validly assigned to the defendants. 4 On the day of the hearing, shortly before the hearing commenced, counsel for the plaintiff was handed a copy of a deed of assignment dated 24 January 2008, which I have marked Ex A1 on the application for indemnity costs. It appears to be the Deed of Assignment referred to in the statutory demand. According to the plaintiff's submissions on costs, no-one in the plaintiff's camp had seen the document before that time. 5 By clause 2.2 of Ex A1, the Assignors (Mr Armstrong and a company called Goldstar Gaming Pty Ltd) assigned "the Debt" to the Assignees (the defendants). Recital B is as follows: "Sub-Clause 5(c) of the Osbourne [sic] Deed provides that Robert Osborne is to pay the Assignors the sum of $550,000 on certain terms as set out in that Sub-clause ('the Debt')." 6 Thus, the subject matter of the assignment in clause 2.2 is the right of Mr Armstrong and Goldstar Gaming to be paid the sum of $550,000 on the terms of clause 5(c) of the Osborne Deed. (I note in passing that Goldstar Gaming does not seem to have any such right under the Osborne Deed). Clause 2.2 does not purport to assign the benefit of the plaintiff's guarantee in clause 7. That construction is confirmed by clause 2.4 of Ex A1, which required the Assignors to deliver to the Assignees a signed Notice of Assignment addressed to Mr Osborne, which the Assignees are required to forward to Mr Osborne. There is no provision requiring a notice of assignment addressed to the plaintiff. 7 The statutory demand referred to the "balance of settlement sum due on or about 9 April 2008 as per sub-clause 5(c) and clause 7" of the Osborne Deed, and asserted that "the rights and obligations" of Mr Armstrong had been assigned to the defendants by way of the Deed of Assignment and Notice of Assignment. The assertion that Mr Armstrong's rights under clause 7 were assigned is patently false, having regard to Ex A1. 8 At the foot of each page of Ex A1 there is a fax imprint indicating that a copy of the document was sent at 17.35 hours on a date which appears to be in February 2009 (apparently 16 February though it is hard to read) from Lyons Bros Group to Alex Ronayne. Mr Ronayne is the solicitor before whom Mr Lyons swore his affidavit accompanying the statutory demand on 17 April 2009. 9 I agree with the submission by counsel for the plaintiff that in these circumstances the defendants, by their agent Mr Ronayne, must have known that the plaintiff did not owe them any money when they caused the demand to be made and sent. It was not a matter of knowing of the existence of a genuine dispute about the debt. The plain effect of Ex A1 was that there was no debt owing by the plaintiff to the defendants at all. 10 In the circumstances it was wrong of the defendants to serve the statutory demand, and to resist the action to have it set aside. It was wrong of them to withhold the terms of the Deed of Assignment until it was too late for its contents to be properly digested. Had the document been available for proper consideration at the hearing, it would have provided an additional and absolutely plain ground for setting aside the demand. These are "relevant delinquencies": Oshlack v Richmond River Council (1998) 193 CLR 72 at 89; [1998] HCA 11 at [44] per Gaudron and Gummow JJ. In combination, these wrongs amply justify an order that the plaintiff be indemnified for the costs incurred in bringing the proceedings to set aside the defendants' false and unwarranted demand. ********** 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.