New South Wales Supreme Court CITATION : Owners Corp SP66609 v Perpetual Trustee Co Ltd [2010] NSWSC 497 HEARING DATE(S) : 5 March 2010 JUDGMENT DATE : 14 May 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 5 March 2010 DECISION : Costs orders against each party as in paragraph [26] CATCHWORDS : CORPORATIONS – STATUTORY DEMAND – COSTS – SOLICITORS – Defendant overlooks service of Statutory Demand – Plaintiff takes advantage of oversight, knowing debt disputed, and files winding up application against obviously solvent Defendant – proceedings eventually settled – costs dispute – indemnity costs sought – both parties' solicitors acted in inflammatory manner – observations on professional conduct. LEGISLATION CITED : Corporations Act 2001 (Cth) – s 459G CATEGORY : Consequential orders - Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd (2007) 213 FLR 450 - Edwards Madigan Torzillo Briggs Pty Limited v Stack [2003] NSWCA 302 - Fountain Selected Meat (Sales) Pty Limited v International Produce Merchants Ltd (1988) 81 ALR 397 CASES CITED : - L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 1 ACLC 536 - Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411 - One.Tel Ltd & Ors v Deputy Commissioner of Taxation (2000) 101 FCR 548 - Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867 2009/00291869 (winding up proceedings): Owners Corporation Strata Plan 66609 (Plaintiff) Perpetual Trustee Company Limited (Defendant) PARTIES : 2009/00327426 (s 459G proceedings): Perpetual Trustee Company Limited (Plaintiff) Owners Corporation Strata Plan 66609 (Defendant) FILE NUMBER(S) : SC 2009/00291869; 2009/00327426 COUNSEL : M.W. Sneddon (Owners Corporation Strata Plan 66609) J. Hewitt (Perpetual Trustee Company Ltd) SOLICITORS : Macpherson Greenleaf (Owners Corporation Strata Plan 66609) Corrs Chambers Westgarth (Perpetual Trustee Company Ltd) 2009/00291869 Owners Corp of SP66609 v Perpetual Trustee Co Ltd 2009/00327426 Perpetual Trustee Co Ltd v Owners Corp of SP66609 JUDGMENT Ex tempore 5 March, 2010, and 14 May 2010 1 This is a dispute about the costs of two proceedings both of which were dismissed by consent. Both sets of proceedings arise from a Statutory Demand dated 23 November 2009 which Owners Corporation SP 66609 ("OC") served on Perpetual Trustee Company Limited ("Perpetual"). The date of service is disputed. 2 Perpetual claims that the Statutory Demand did not come to its attention until 18 December 2009, the consequence of which was that it did not apply to have the Demand set aside under s 459G of the Corporations Act 2001 (Cth) ("CA") within twenty-one days after OC allegedly served the demand on 23 November 2009. 3 On 17 December 2009, OC commenced proceedings 2009/291869 for the winding up of Perpetual, relying upon the insolvency of Perpetual presumed by virtue of CA s 459C(2)(a). Perpetual says that it first became aware of the Statutory Demand on 18 December 2009, when it was served with the winding up application. 4 On 24 December 2009, Perpetual commenced proceedings 2009/327426 seeking to set aside the Statutory Demand on the basis that it had not been served before 18 December 2009 and that there was a genuine dispute as to the amount of the debt claimed. 5 On 13 January 2010, the Court ordered a stay of OC's winding up application pending determination of Perpetual's s 459G application. On 11 February 2010 the Court, by consent but without admissions on the question of costs, dismissed both OC's winding up application and Perpetual's s 459G application. 6 Perpetual now seeks orders that OC pay its costs of the winding up application on the indemnity basis and its costs of the s 459G application on the party/party basis. 7 OC submits that, as Perpetual's s 459G application was dismissed, Perpetual should pay OC's costs of that application on the party/party basis. It submits that no order as to costs should be made against OC in the winding up application because although that application was dismissed it was commenced by OC reasonably, having regard to Perpetual's failure to comply with, or to set aside, the Statutory Demand within the prescribed time, so that OC was properly able to rely upon Perpetual's presumed insolvency in commencing proceedings to wind it up. Alternatively, OC submits that in all the circumstances there should be no order as to costs in both proceedings. 8 Neither of the two proceedings was brought to an end after a hearing on the merits. In such a case determination of a costs dispute is difficult. As Burchett J said in One.Tel Ltd & Ors v Deputy Commissioner of Taxation (2000) 101 FCR 548, at 553: "In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs." See also Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302. 9 Perpetual says that OC effectively surrendered in consenting to the dismissal of its winding up application because it accepted that Perpetual, a very substantial public company, would have no difficulty in proving its solvency. It says that OC should have known even before it commenced the winding up application that that application was doomed to failure. It submits, therefore, that the winding up application was an abuse of process, being an attempt to coerce a clearly solvent company into paying a disputed debt, so that indemnity costs should be ordered. 10 Alternatively, Perpetual says that indemnity costs should be ordered as from 11 January 2010 when its solicitors wrote to OC's solicitors pointing out that Perpetual was solvent and referring to its financial position as a matter of record. In the alternative to that proposition, it is submitted that indemnity costs ought to be ordered from 29 January 2010 on the basis that on that date Perpetual's solicitors wrote to OC's solicitors attaching Perpetual's balance sheet and relevant financial statements, which unquestionably demonstrated Perpetual's solvency. In seeking indemnity costs on this basis, Perpetual relies on decisions such as Fountain Selected Meat (Sales) Pty Limited v International Produce Merchants Ltd (1988) 81 ALR 397, at 401, Australian Beverage Distributors Pty Ltd v Redrock Co Pty Ltd (2007) 213 FLR 450, at [36] per White J, L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 1 ACLC 536, at 538 per McLelland J. 11 Further, Perpetual says that OC must have known that the debt claimed in the Statutory Demand was genuinely disputed, so that serving the Statutory Demand and relying upon non-compliance with it within the prescribed time was also an abuse of process. 12 I do not need to go into the question of whether the debt claimed in the Statutory Demand was genuinely disputed, at least for the purposes of the costs question. OC's solicitor swears that he personally served the Statutory Demand on Perpetual's registered office on 23 November 2009. On the other hand, an officer of Perpetual says, on information and belief, after inquiring from various office staff, that there is no record of the Statutory Demand having been served on Perpetual on that date. Various other officers of the company, who would normally have received the Statutory Demand, say that they have no recollection of having seen it. There has been no cross examination of any deponent. 13 There is no suggestion that the unequivocal statement of OC's solicitor as to what he did and when he did it is untruthful. Perpetual is, of course, a large corporation with many employees. It must of necessity rely upon normal office procedures to make sure that matters requiring its attention are brought to the attention of its responsible officers. It is possible that the Statutory Demand, although served on 23 November by OC's solicitor, somehow escaped the notice of the appropriate officers within Perpetual and thus went unanswered. For that reason, the state of the evidence being as it is, I prefer the evidence of OC's solicitor that the Statutory Demand was, in fact, served on Perpetual at its registered office on 23 November 2009. 14 There is no evidence to suggest that OC's solicitor ought to have known that Perpetual's failure to respond in any way to the Statutory Demand within twenty-one days of 23 November 2009 was inadvertent. OC's solicitor was entitled to act upon the basis that Perpetual did not respond because it had decided not to dispute the debt claimed. 15 In those circumstances, OC was within its rights in commencing winding up proceedings against Perpetual, relying upon the insolvency to be presumed by virtue of CA s 459C(2)(a): see e.g. Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd [2001] NSWSC 867 at [29]; Liverpool Cement Renderers (Aust) Pty Ltd v Landmarks Constructions (NSW) Pty Ltd (1996) 19 ACSR 411. However, at this point common sense and pragmatism come into play. I do not think that discretionary decisions as to costs should ignore those factors. 16 Perpetual is a long established, highly reputable listed public company, as OC and its solicitors must have known. Perpetual's financial position could be ascertained easily from its balance sheet and its financial statements, all of which were publicly available. Those financial statements would have showed clearly that Perpetual was unquestionably solvent. OC and its solicitor must have realised that position if they had made the requisite and easily performable investigations. 17 To commence winding up proceedings in insolvency in such a circumstance, rather than commencing proceedings against Perpetual for recovery of a debt, can only be seen as inflammatory conduct by OC: an attempt to coerce prompt payment of what it knew to be an undisputed debt. This inference is supported by the fact that three days after the time for Perpetual's response to the Statutory Demand had expired, OC sought ex parte leave on the second last day of term in 2009 to serve the winding up application returnable on the last day of term. Austin J, in rejecting that application, said: "The difficulties presented in this case are quite long standing. According to the submissions I heard today, difficulties that were originally about poor workmanship have progressed to the stage where there is now non-compliance with a statutory demand, which expired only three days ago (although the applicant's solicitor is not entirely sure whether there has been an application filed to set aside the statutory demand). The underlying problem is long standing and it is a problem which it seems to me primarily to be one to be pursued in proceedings for recovery of debt rather than through the winding up process . I do not say that attempts at recovery of debt having failed, it is inappropriate to institute proceedings for winding up. But I do say that to institute proceedings for winding up made returnable the day after the originating process is filed, that being the last day of the Court's term, would be to apply undue and improper pressure in which the Court would be in effect collaborating, and in those circumstances it would be wrong for leave to be granted. The fact that the defendant is the Perpetual Trustee Company seems to me to add to the difficulty. I am not sure whether the applicant is right to name the Perpetual Trustee as the defendant, but even if there is a case for doing so, my understanding is that Perpetual Trustee is either a listed public company or a subsidiary of a listed public company. In either event, the publication that necessarily is associated with the initiation of winding up proceedings might produce collateral damage, especially if it is publicised that the Court has granted an extraordinarily shortened time for service and a return date suggesting extreme urgency. For all those reasons it seems to me that making the matter returnable tomorrow is simply not an appropriate course." (Emphasis added.) 18 With respect, I entirely endorse his Honour's remark that, in seeking short service of the winding up application returnable on the last day of term, OC was endeavouring "to apply undue and improper pressure" against Perpetual, a listed public company which would suffer considerable damage from publicity of a winding up application being presented urgently against it. 19 OC may have been justifiably confident that Perpetual's failure to respond to the Statutory Demand within the prescribed time would deny it the right to set aside the Statutory Demand on the ground of a genuine dispute as to the debt, but it also must have realised that resisting proof of Perpetual's solvency in a winding up application was doomed to failure. That circumstance was made even more plain to OC and its solicitors by the correspondence which came from Perpetual's solicitors in January 2010. 20 On 11 January 2010, Perpetual's solicitors wrote complaining of the commencement of the winding up proceedings in several respects but, relevantly for present purposes, asserting that Perpetual was clearly solvent, as evidenced by its 2009 annual report, which was publicly available on its website. That letter invited OC to withdraw the winding up application by 12 January 2010. The letter continued that, if the winding up application was not withdrawn, Perpetual reserved the right to seek the dismissal of the winding up application with costs to be awarded on an indemnity basis. 21 The solicitors for Perpetual wrote again on 29 January 2010, this time enclosing copies of the annual financial report of Perpetual and a certification of net tangible assets as at 30 November 2009. Those documents unquestionably demonstrated solvency. The letter also repeated the assertion that Perpetual would seek indemnity costs in respect of the winding up application. There is a disturbing aspect of the letter of 29 January 2010 to which I will return at the conclusion of this judgment. Nevertheless, despite these two letters, OC did not consent to the dismissal of the winding up application until 11 February. 22 The overall situation is, therefore, as follows. There is no basis to infer that Perpetual would have succeeded in its s 459G application because it is probable that OC would have proved due service of the Statutory Demand on 23 November 2009, so that Perpetual's application was therefore out of time. It is probable, therefore, that had Perpetual's s 459G application not been dismissed by consent, it would have failed and Perpetual would have been ordered to pay OC's costs. 23 On the other hand, although OC was technically justified in relying upon the presumption of Perpetual's insolvency by reason of failure to comply with the Statutory Demand, it must have appreciated even before it filed its winding up application that the application would fail because Perpetual would be able to prove solvency. It certainly must have realised that its winding up application was doomed to failure by 11 January 2010 or, at the very latest, by 29 January 2010. 24 I cannot hold that the filing of the winding up proceedings was an abuse of process because OC could rely, prima facie, on s 459C(2) and the insolvency presumed thereunder. But I can, and do, hold that the commencement of the proceedings ignored commercial reality. Further, OC ignored the evidence fairly and squarely placed before it as to Perpetual's solvency in the letters from Perpetual's solicitors sent on 11 and 29 January 2010. 25 In my view, if the winding up proceedings had gone to trial OC would have failed and would have been ordered to pay Perpetual's costs on the party/party basis up to 11 January 2010 and thereafter on the indemnity basis. 26 In the result, I conclude that Perpetual should pay OC's costs of the s 459G application, that is, 2009/327426, and OC should pay Perpetual's costs of the winding up application, that is, proceedings 2009/291869. OC's costs of the s 459G proceedings are to be assessed on the party/party basis. Perpetual's costs of the winding up proceedings are to be assessed on the party/party basis up to and including 11 January 2010 and thereafter on the indemnity basis. 27 However, I am not content to let a costs order remain in those terms in Perpetual's favour without some qualification or further scrutiny. I say this because of a highly disturbing statement made in the letter from its solicitors to OC's solicitors of 29 January 2010 in which Perpetual's solicitors give an estimate of Perpetual's costs which, to my mind at the moment, seems outrageous. I will say nothing further about this aspect of the matter at this stage because I have directed Perpetual's solicitor to place an affidavit before me by 10.00am on Monday, 8 March 2010, explaining how the amount of costs of the proceedings asserted in that letter has been calculated. If it seems to me that the costs of what is a relatively very plain and straightforward matter, disposed of by consent after a life of only some weeks, is going to be blown out of all proportion, I will impose a capping order on the costs which may be recovered by Perpetual. I will say nothing further about the quantum of Perpetual's claimed costs until I see the affidavit from Perpetual's solicitors. 14 May 2010 28 In accordance with my directions, the solicitor for Perpetual has filed an affidavit attempting to justify the assertion which he made in his letter of 29 January 2010 that Perpetual's costs of defending the winding up application were estimated at $100,000. 29 I am satisfied that the solicitor must have appreciated, at the time of writing that letter, that OC's winding up application was a bluff – inflammatory and highly ill advised, but a bluff nevertheless. He had telephoned OC's solicitor in an attempt to negotiate withdrawal of the winding up application but had been met with the brusque response that Perpetual could simply pay the debt (which Perpetual disputed) immediately. 30 I can understand that Perpetual's solicitor was piqued by this rebuff. However, the proper and professional response of a solicitor in that situation is not to answer silliness with silliness and to write threatening to seek indemnity costs in an amount which might have been justified in a genuine battle about Perpetual's solvency between corporate giants, but which was ridiculous in the context of OC's bluffing application. All that that letter produced was a flaring of tempers and further delay and expense in bringing to an end these ill-fated proceedings. 31 I am satisfied by the solicitor's affidavit and by his oral evidence that Perpetual's assessed costs which OC is to pay as a result of the orders which I will make will not be overblown, so that a capping order is not necessary. However, I have made these observations to emphasise two truisms. 32 The first, which Austin J also emphasised in this very matter on 17 December 2009, is that the Statutory Demand process is not to be used for the coercive collecting of disputed debts from solvent companies. If it is, or ought to be, plain to a properly advised creditor that not only is there a dispute about the debt but, despite the creditor's own strong view to the contrary, a Court is likely to find that the debtor has proved, to the low degree of satisfaction required, that the dispute is genuine, then the creditor should save its time and money by eschewing statutory demand litigation and commencing debt recovery proceedings immediately. 33 I wish also to emphasise that, in all types of contentious matters, clients' interests are served very badly indeed when their legal advisers lose professional detachment and engage in combat with the same irrational heat that has brought their clients into conflict. What every client involved in a dispute really needs in a lawyer is not blind passion for the cause, but cool judgment as to the most effective means of securing the best result. 34 This case is a vivid illustration of what happens when these truisms are disregarded. Orders 35 I make orders in terms of paragraph [26]. – oOo – 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.