New South Wales Supreme Court CITATION : Wharfside Pty Ltd v McCormick [2010] NSWSC 398 HEARING DATE(S) : 12/04/10 Written submissions: 13/04/10, 23/04/10 JUDGMENT DATE : 6 May 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Application for order for assessment of costs on the indemnity basis dismissed. CATCHWORDS : PROCEDURE - costs - indemnity costs - compromise on basis that defendants pay plaintiff's costs - application by plaintiff for order that such costs be assessed on the indemnity basis - plaintiff says that defendants should have recognised the hopelessness of their case - conclusion on "relevant delinquency" available only by full assessment of the facts - not appropriate to try now hypothetical case merely to decide question of costs Corporations Act 2001 (Cth), ss 459G, 459H(1)(a), 459H(1)(b) LEGISLATION CITED : Legal Profession Act 2004 (NSW), s 331 Legal Profession Act 2007 (Qld) , s 329 Trade Practices Act 1974 (Cth), s 52 CATEGORY : Consequential orders Austrac Rail Pty Ltd v Hunter Premium Funding Ltd [2001] NSWSC 654 Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275 CASES CITED : CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100 Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 PARTIES : Wharfside Pty Limited - Plaintiff Megan Rae McCormick, John Richard Paul Hunt, Craig Edward Cavanagh, Richard Michael Burr, Shane Russell Williamson, Andrew Mark Williams, Dale Frances Cliff, William Robert Blake, Paul Michael O'Dea, John Dominic Toigo, Timothy David Ferrier, Michael John Sparksman and Steven Mark Cardell trading as ClarkeKann - Defendants FILE NUMBER(S) : SC 2010/009328 COUNSEL : Ms K Stern - Plaintiff Ms D Prichard - Defendants SOLICITORS : Watson Mangioni Lawyers Pty Ltd - Plaintiff ClarkeKann Lawyers Pty Ltd - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY 6 MAY 2010 2010/009328 WHARFSIDE PTY LIMITED v MEGAN RAE McCORMICK & 13 ORS JUDGMENT 1 By originating process filed on 11 January 2010, the plaintiff made application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by the defendants. 2 On 12 April 2010, I was asked to make, by consent, an order that the statutory demand be set aside. That order was made, as was an order that the defendants pay the plaintiff's costs. Also made on that occasion were directions for the filing of written submissions on the question whether, as the plaintiff argued, the costs awarded to the plaintiff should be assessed on the indemnity basis. 3 The central question, upon any application for assessment of costs on the indemnity basis, is whether the party liable for costs was guilty of some misconduct or, as it was described by Gaudron J and Gummow J in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, "relevant delinquency". 4 The main submission made by the plaintiff is that the defendants were relevantly guilty of misconduct because they issued and served the statutory demand knowing that the alleged debt the subject of it was genuinely disputed by the plaintiff and that the plaintiff had an offsetting claim. 5 There are three propositions in this submission as it relates to the matter of genuine dispute: first, that there was, before the issue of the statutory demand, a dispute as to the existence or amount of the claimed debt; second, that that dispute was a "genuine" dispute; and, third, as to the state of the defendants' knowledge on that matter. 6 If the s 459G application had proceeded to trial and been determined by reference to the genuine dispute ground in s 459H(1)(a), the court would, of necessity, have made a decision on the first two propositions. In the events that have happened, however, the parties have chosen a course that avoids any such decision by the court. Any determination of those two matters now will involve the court's addressing the question of genuine dispute from the beginning, just as it would have done if the claim based on s 459H(1)(a) had proceeded to trial. 7 That brings into particular focus the following statement of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622: "In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action …" 8 To like effect is an observation of Hill J in Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194: "It will rarely, if ever, be appropriate where there has been no trial on the merits, for a Court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial …" 9 The argument put by the plaintiff on the present application and the "genuine dispute" aspect go to a number of matters identified in the submissions of both parties as follows: 1. The question whether it would have been permissible for solicitors suing for costs to sue someone other than the person named in the relevant invoice. 2. The correct construction of an invoice in the light of the name of the addressee and the description of the work done. 3. The significance of the fact that an invoice was paid by someone other than its addressee. 4. The impact of s 329 of the Legal Profession Act 2007 (Qld) and s 331 of the Legal Profession Act 2004 (NSW) on that question. 5. Whether a retainer existed in respect of the sale and purchase of a restaurant business. 6. Whether the disclosure regime under the Legal Profession Act (NSW) had been complied with. 7. Whether certain statements in correspondence should be regarded as admissions. 10 There was also, as I have said, apparent reliance on the offsetting claim ground in s 459H(1)(b). This was based on alleged breach of retainer or solicitors' negligence plus conduct within s 52 of the Trade Practices Act 1974 (Cth). Such description as there is of this claim makes it clear that a factual inquiry into instructions given to the defendant solicitors and aspects of their conduct would have been needed in order to discover whether there was in reality a plausible claim and, if so, the sustainable amount of the plausible claim. 11 The plaintiffs refer in submissions to cases in which indemnity costs have been awarded against defendants who did not heed early warnings by plaintiffs that a genuine dispute existed. The cases mentioned are Austrac Rail Pty Ltd v Hunter Premium Funding Ltd [2001] NSWSC 654 and CGI Information Systems & Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100. In the second of these, reference was made to like cases, including Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70 and Carinda Homes Pty Ltd v Highlands Austral Pty Ltd [2003] FCA 275. 12 In all those instances, however, there had been a determination on the merits. The court had assessed the strengths of the respective cases and thereby put itself on a position to know whether the claim of one side or the other was so weak and insubstantial that the relevant party should not have persisted with it. 13 Here, the court is not in that position. Any conclusion that the defendants' defence to the s 459G application was so weak and insubstantial that the defendants should have capitulated could only be reached by trying what the parties' compromise has made a purely hypothetical case. In some cases where there has been no hearing on the merits it can be clearly seen, without any extensive consideration of the facts, that a particular result would have emerged. A good example is where the s 459G application was served after the end of the mandatory 21 day period. This is not a simple or clearcut case of that kind. A view as to who would have won could be reached only by assessing the whole of the evidence in the way it would have been assessed by a judge actually deciding the substantive application. 14 In the result, therefore, the plaintiff's claim for an order that the plaintiff's costs ordered to be paid by the defendants be assessed on the indemnity basis is dismissed. ********** 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.