New South Wales Supreme Court CITATION : Takchi Bros Constructions Pty Ltd v Woods [2010] NSWSC 115 HEARING DATE(S) : 11/02/10 JUDGMENT DATE : 24 February 2010 JURISDICTION : Equity JUDGMENT OF : White J DECISION : Order that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis. CATCHWORDS : PROCEDURE - costs - order setting aside statutory demand by consent or without opposition - defendant sought no order as to costs after filing of submitting appearance - plaintiff sought indemnity costs from date of settlement offer rejected by defendant - prima facie position that costs follow the event not displaced - defendant to pay plaintiff's costs on ordinary basis Legal Profession Act 1987 LEGISLATION CITED : Legal Profession Act 2004 Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) CATEGORY : Procedural and other rulings Re Elgar Heights Pty Ltd (No 1) [1985] VR 657 Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 Callite Pty Ltd v Peter John Adams [2001] NSWSC 52 CASES CITED : Sanders v Constantine [2006] NSWSC 534 April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867 Develtor Property Group Pty Ltd v Newcastle City Council [2001] NSWLEC 47 Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 Trust Company of Australia Ltd v Perpetual Trustees (WA) Ltd (No P2) (1995) 36 NSWLR 654 TEXTS CITED : LexisNexis, Ritchie's Uniform Civil Procedure NSW PARTIES : Plaintiff: Takchi Bros Constructions Pty Ltd Defendant: Patrick John Woods FILE NUMBER(S) : SC 2009/291485 COUNSEL : Plaintiff: Mrs J Baxter Defendant: Mr R Tregenza SOLICITORS : Plaintiff: n/a Defendant: Patrick Wood & Company IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Wednesday, 24 February 2010 2009/291485 Takchi Bros Constructions Pty Ltd v Patrick John Woods JUDGMENT 1 HIS HONOUR: On 12 February 2010 I ordered that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis. These are my reasons. 2 The defendant is a solicitor. He had been retained to provide legal services to the plaintiff and to its director, Mr Takchi. On 28 October 2009 he signed and verified a statutory demand that the plaintiff was indebted to him in the sum of $82,741.46 for legal work done, disbursements incurred, and interest owing on unpaid invoices rendered between 5 December 2003 and 13 December 2004. The invoiced amount claimed was $57,284.12. The balance of $25,457.34 was interest. 3 On 23 November 2009 the plaintiff filed an originating process to set aside the demand. On 1 February 2010 the defendant served a notice of appearance in which he submitted to all orders save as to costs. On 8 February 2010 I made an order setting aside the statutory demand. The proceedings were stood over to 11 February 2010 to deal with questions of costs. 4 In support of the plaintiff's application to set aside the statutory demand it filed and served an affidavit of its sole director, Mr Takchi. Amongst other things, Mr Takchi deposed that the defendant's costs agreement was made with both the plaintiff company and Mr Takchi. He deposed that he was unaware of the company having been served with an itemised bill of costs for the fees referred to in the schedule to the demand. 5 The significance of this point is that a statutory demand may only be made for a debt recoverable by action (Re Elgar Heights Pty Ltd (No 1) [1985] VR 657; Remuneration Data Base Pty Ltd v Pauline Goodyer Real Estate Pty Ltd [2007] NSWSC 59 at [38]-[42]; see also Callite Pty Ltd v Peter John Adams [2001] NSWSC 52). The Legal Profession Act 1987 and the Legal Profession Act 2004 both provided, or provide, in substance, that a solicitor cannot take action to recover a claim for unpaid costs until 30 days after he or she has sent an itemised bill (Legal Profession Act 1987, s 192; Legal Profession Act 2004, s 331). 6 Mr Takchi also raised complaints about the legal services provided by the defendant to which it is unnecessary to refer. For his part, the defendant deposed that over more than six years the plaintiff raised no dispute that it was liable for the costs and disbursements claimed. 7 On 25 November 2009 the plaintiff, through his solicitors, made an offer expressed to be without prejudice except as to costs. The offer was that the statutory demand be set aside by consent and that the defendant pay half the plaintiff's costs. No offer was made to pay any part of the claimed debt or to submit the defendant's bill for assessment. The offer was not accepted. The plaintiff relies on this offer to seek indemnity costs from 25 November 2009. 8 The originating process was returnable before the Registrar on 2 February 2010. On 25 January 2010 the defendant wrote to the plaintiff and enclosed new invoices dated between December 2003 and 13 December 2004. The difference between the invoices enclosed under cover of the defendant's letter of 25 January 2010 and the invoices as they had been served earlier was that the invoices served under cover of the letter of 25 January 2010 were expressly directed to the plaintiff company as well as to Mr Takchi whereas previously the invoices were addressed to Mr Takchi alone. The defendant proposed that the parties resolve the proceedings by his withdrawing the statutory demand, with each party to pay its own costs, and the plaintiff's lodging the bills with the Manager of Costs Assessment within 28 days so that the bills could be assessed. In his letter of 25 January 2010 the defendant stated that Mr Takchi had never disputed that the invoices were owing and payable, but had pleaded for more time to pay and had indicated that the defendant should bear part of the financial burden of the unsuccessful litigation in which the defendant had acted for the plaintiff and Mr Takchi. 9 The plaintiff did not agree with the proposal in the defendant's letter of 25 January 2010. 10 As noted above, on 1 February 2010 the defendant served a notice of appearance submitting to all orders save as to costs. That appearance was served under cover of the letter of 1 February 2010 in which the defendant referred to his proposal that the plaintiff proceed to an assessment. He observed that that proposal had not been commented on. He wrote: " I foresee, if this matter proceeds to Court, that a Judge will allow your clients to pursue assessment of the bills of costs in taxable form. Therefore I choose not to escalate the argument into a long and expensive hearing in the Supreme Court while you run up costs by continuing to fail to seize the opportunity of seeking assessment. Instead: (a) I enclose by way of service my submitting appearance in the Supreme Court proceedings; and (b) I enclose for your information a copy of my statement of claim filed in the Local Court in relation to the unpaid bills on 7 th December, 2009 before any part of the money owing became potentially statute barred. I will expect that you will bring to the attention of the Court tomorrow the existence of this letter, and of my earlier letter dated 25 th January, 2009. With me having filed a submitting appearance, your clients are not entitled, by reason merely of that appearance having been filed, to the orders sought in the Originating Process. The Court is still required to be satisfied that the making of the Orders you are seeking are a proper exercise of its discretion, and therefore it is incumbent on you to put all relevant matters before the Court including the existence of this letter, and of my earlier letter of 25 th January, 2010, as well as the existence of any other relevant correspondence touching on issues the Court is required to consider in its decision. " 11 On 2 February 2010 the Registrar referred the proceedings to the Corporations Judge's list on 8 February 2010. On that day I made an order setting aside the statutory demand by consent, or without opposition, and stood the proceedings over to hear argument on costs. 12 After the defendant served his submitting appearance, both parties prepared lengthy affidavits going to the merits of the dispute and their respective offers of settlement. On the plaintiff's side at least, this work was not solely directed to the issue of costs. The defendant had stated that the plaintiff should bring his correspondence of 25 January 2010 to the attention of the Court notwithstanding the filing of a submitting appearance and had suggested that the Court might not make the order to which he submitted if it accepted the defendant's arguments in correspondence that there was no genuine dispute about the debt. Part of the plaintiff's further preparation was to identify the differences between the invoices dated between 5 December 2003 and 13 December 2004 served under cover of the defendant's letter of 25 January 2010 and the invoices as they were originally served. The undertaking of that work was not unreasonable given the defendant's contention that the Court should have regard to the merits of the dispute as outlined in his correspondence, notwithstanding the filing of a submitting appearance. During the course of submissions I expressed concern that the parties should incur further substantial costs in order to resolve questions of costs, a concern I earlier expressed in Sanders v Constantine [2006] NSWSC 534 at [6]. However, I accept that the further work done, at least by the plaintiff, was not solely directed to questions of costs. It will be a matter for the costs assessor as to whether the further costs incurred after the service of the submitting appearance was in proportion to the remaining issue in dispute (Civil Procedure Act 2005 (NSW), s 60; April Fine Paper Macao Commercial Offshore Ltd v Moore Business Systems Australia Ltd [2009] NSWSC 867). 13 Prima facie, as the plaintiff obtained the relief it sought in the originating process, it is entitled to its costs (Uniform Civil Procedure Rules, r 42.1). Prima facie, a defendant who files a submitting appearance except as to costs is liable for the costs up to the time of the service of the appearance but not thereafter (Develtor Property Group Pty Ltd v Newcastle City Council [2001] NSWLEC 47; LexisNexis, Ritchie's Uniform Civil Procedure NSW at [6.11.10]). Both parties argued that I should depart from this prima facie position. 14 The plaintiff sought indemnity costs from 25 November 2009 on the basis of its letter referred to in para [7] above. I do not regard its offer of 25 November 2009 as a genuine offer of compromise. The offer did not address the underlying claim of the defendant for legal fees. In any event, the defendant did not act unreasonably in not accepting the plaintiff's offer. Whilst the defendant did not ultimately contest the plaintiff's claim, I cannot say that it was so clear that the plaintiff would be entitled to an order setting aside the statutory demand had the matter been ultimately contested that the defendant's rejection of the plaintiff's offer was unreasonable. In my view, the critical question in such proceedings would have been whether, at the time he served the demand, the defendant was then entitled to bring an action to recover the claimed debt. The reason why that would be the critical question is that whilst in his affidavit Mr Takchi made complaints about the legal services provided, there was unchallenged evidence from the defendant that no such complaints had previously been raised. Moreover, a substantial sum claimed was for the recovery of disbursements paid on the plaintiff's behalf. The absence of complaint would not establish that there was no genuine dispute that the debt the subject of the statutory demand was then due and payable within the meaning of s 459E(1) of the Corporations Act 2001 (Cth), that is, recoverable by action. I could not resolve that issue without a full hearing on the merits of the underlying dispute, and a court will not take such a course to resolve questions of costs (Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624). Even if that question were resolved in favour of the plaintiff, it would not follow that the issue was so clear that the defendant's rejection of the without prejudice offer of 25 November 2009 was unreasonable. Accordingly, I reject the plaintiff's claim for indemnity costs from 25 November 2009. 15 It follows that the further settlement offer made by the plaintiff on 8 February 2010 does not warrant an order for indemnity costs. That offer was predicated on the defendant's paying indemnity costs from the time of the expiry of the offer of 25 November 2009 up to the service of the submitting appearance. But I have rejected the claim to indemnity costs. 16 At the hearing on 11 February 2010 the defendant, through his counsel, resolutely maintained that there should be no order as to the costs of the proceedings, not only that there should be no order as to costs after service of the submitting appearance. In support of that position, counsel for the defendant raised the matters which would have been raised on the hearing of the proceedings had no submitting appearance been filed in an attempt to show that there was no genuine dispute about the debt. Counsel submitted that the defendant had acted reasonably in serving the statutory demand (there having been no prior complaint about the fees claimed) and in proposing that the proceedings be resolved by the plaintiff sending the defendant's bills for assessment. 17 But this argument faces the same obstacle as the plaintiff's claim for indemnity costs. Proof that the plaintiff did not object to the invoices rendered did not establish that when the statutory demand was served the debt demanded was then enforceable by action. On the arguments put to me, that is not the question I could resolve. Nor is it one I would resolve simply to deal with the issue of costs. 18 I do not think that the prima facie position that costs follow the event, at least up to the time of service of the submitting appearance, has been displaced. The question then is whether notwithstanding the service of the submitting appearance the defendant should pay the plaintiff's costs after 1 February 2010. Two matters are relevant to this. First, the defendant sought to have it both ways. Whilst serving a submitting appearance, he told the plaintiff that it was obliged to draw to the attention of the judge the arguments he raised in correspondence as to why the statutory demand should not be set aside. The plaintiff had to consider that contention, and it was not unreasonable for it to incur further costs in preparing an affidavit to meet the arguments raised by the defendant in his letters of 25 January and 1 February 2010. The defendant's contention about the effect of the submitting appearance was not correct (Trust Company of Australia Ltd v Perpetual Trustees (WA) Ltd (No P2) (1995) 36 NSWLR 654 at 659-661). Nonetheless, it was not unreasonable for the plaintiff to proceed on the basis that it might have to prove its claim and meet the arguments raised by the defendant in his correspondence. That was the position until orders were made on 8 February 2010. The position taken by the defendant distinguishes this case from the usual case in which the defendant files a submitting appearance and warrants a departure from the prima facie position that there would be no order for costs after such an appearance is filed. 19 The second relevant matter is that most of the work done by the parties after 1 February 2010 related to the argument on costs. The position as I have found it is that the plaintiff is not entitled to the order for indemnity costs it sought, but is entitled to its costs on the ordinary basis, at least up to the time of the filing of the submitting appearance. I have rejected the defendant's argument that there should be no order as to the costs of the proceedings. Whilst it could be said that both parties had had a measure of success and failure on this issue of costs, in quantitative terms, the plaintiff will have had much the better of the argument. The plaintiff should be regarded as the successful party on the argument about costs, although it does not receive all of the relief sought. Hence it should be entitled to its costs in connection with that argument, to the extent they were reasonably incurred. 20 For these reasons I concluded that the appropriate order was that the defendant pay the plaintiff's costs of the proceedings on the ordinary 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.