New South Wales Supreme Court CITATION : Tuheta Pty Ltd v Ehrenfeld [2010] NSWSC 799 HEARING DATE(S) : 16/07/10 JUDGMENT DATE : 16 July 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 16 July 2010 1. Order that the statutory demand dated 16 March 2010 served on the plaintiff by the defendant be varied by reducing the amount thereof to $183,000 and that that demand has effect as so varied as from when the demand was served on the plaintiff. DECISION : 2. Order that the defendant pay the plaintiff's costs of the proceedings from and after 4pm on 14 July 2010 and that those costs be assessed on the indemnity basis. 3. Otherwise, there is no order as to the costs of either party to the intent that each party shall bear his or its own costs. 4. I decline to make the order sought under s 459F(2)(a)(i). CATCHWORDS : PROCEDURE - costs - proceedings by company for order setting aside statutory demand - agreed at hearing that statutory demand should stand but for reduced amount - two offers of settlement - whether non-acceptance was unreasonable - in one case "no", in the other "yes" - various costs orders made LEGISLATION CITED : Corporations Act 2001 (Cth), ss 459F(2)(a)(i), 459G, 459H(4), Uniform Civil Procedure Rules 2005, rule 20.26 CATEGORY : Principal judgment Calderbank v Calderbank [1976] Fam 93 CASES CITED : Dean v Stockland Property Management Pty Limited (No 2) [2010] NSWCA 141 Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194 PARTIES : Tuheta Pty Limited - Plaintiff Gabriel Ehrenfeld - Defendant FILE NUMBER(S) : SC 2010/081574 COUNSEL : Mr A M Gruzman - Plaintiff Mr S T O'Brien - Defendant SOLICITORS : Boskovitz & Associates - Plaintiff Sachin Naidu Carroll & Associates - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY 16 JULY 2010 2010/081574 TUHETA PTY LTD v GABRIEL EHRENFELD JUDGMENT 1 When this application for an order under s 459G of the Corporations Act 2001 (Cth) came on for hearing this morning, an agreed position on the substantive question fairly quickly emerged, that is, there is a genuine dispute as to the existence of the $240,000 component of the statutory demand amount, but not as to the balance of $183,000. 2 It was ultimately accepted on both sides that the court should make an order under s 459H(4) varying the demand by reducing the amount to $183,000 and declaring the demand to have effect as so varied from the time it was served. 3 There was then argument on the question of the costs. 4 The plaintiff's position is that it should have an order that the defendant pay its costs and that those costs should be assessed on the indemnity basis either as to the whole or from 31 May 2010. The defendant's position is the plaintiff should be ordered to pay the defendant's costs or, in the alternative, that there be no order as to costs. 5 The two amounts referred to in the statutory demand, one of $240,000 and the other of $183,000 as I have mentioned, relate to a failed conveyancing transaction concerning a property of which the plaintiff is the owner and the defendant arguably became the purchaser in consequence of a put and call option agreement. 6 After written submissions in these proceedings had been exchanged on 20 and 24 May 2010, it was clear that the defendant accepted the existence of a genuine dispute regarding the $240,000 element of the debt and the question of the genuine dispute continued in relation to the $183,000 element. 7 It was in that context that the plaintiff, on 31 May 2010, conveyed an offer of settlement to the defendant by means of a solicitor's letter of that date. It is necessary to set out the operative part of the letter which must be understood in the context of an earlier statement that the plaintiff had resold the property at a loss. The new sale had not been completed when the letter was written: "1. We are instructed by our client, Tuheta Pty Ltd, to make an offer of settlement to you, as defendant in the abovementioned Supreme Court proceeding to set aside the statutory demand issued by you and as plaintiff in possible Supreme Court proceedings to extend the operation of the caveat, as follows: (a) pay to you the sum of $183,000.00 exclusive of costs. In addition, our client will pay your costs in the abovementioned proceedings until today as agreed or assessed; and (b) quarantine the sum of $240,000.00 from the proceeds received by our client from the sale of the Property. 2. This offer is made on the basis that: (a) judgment in the aforesaid Supreme Court proceedings be entered for our client (ie the statutory demand is set aside); (b) contemporaneously to payment of the said sum of $183,000.00 by our client to you and the quarantining of the sum of $240,000.00, you deliver to our client a withdrawal of the caveat lodged by you on the title of the Property in the registration form; (c) the quarantined sum of $240,000.00: (i) may be released to our client if proceedings to recover the said sum are not commenced by you within four (4) weeks of quarantining of the sum of $240,000.00; (ii) if you commence proceedings to recover the said sum within four (4) weeks of quarantining of the sum of $240,000.00, then the said sum is to be paid as ordered by the court in the aforesaid proceedings or as agreed by you and our client in writing." 8 The letter then said that the offer was made in accordance with the principles in Calderbank v Calderbank [1976] Fam 93 and would be relied on in seeking indemnity costs. The offer in the letter was expressed to be open until 9 July 2010. 9 When the proceedings were before the court on 24 May 2010, they were listed for hearing today, 16 July 2010. The parties thus knew the hearing date when the letter of 31 May 2010 was sent and received. 10 At first blush, the offer in the letter of 31 May 2010 seems more favourable to the defendant than the result reached today. Under that result, the defendant will have the benefit of a presumption of insolvency in any winding up proceedings it chooses to bring against the plaintiff assuming that $183,000 is not paid by the plaintiff to the defendant within the time for compliance with the reduced statutory demand. But, of course, the plaintiff might proceed to defend any such winding up proceedings – and do so successfully. In short, the fact that the statutory demand is reduced to $183,000 by no means represents $183,000 in the pocket of the defendant, whereas, on one view, acceptance of the 31 May 2010 offer by the defendant would have brought $183,000 into its pocket immediately. 11 As Mr O'Brien of counsel for the defendant pointed out, however, a close reading of the letter of 31 May 2010 does not bear out this interpretation. There was no explicit statement in the letter of when the $183,000 would be paid. While paragraphs (a) and (b) of clause 1 contain separate specifications with respect to the $183,000 and the $240,000, paragraph (b) of clause 2 linked three elements by use of the word "contemporaneously". It is there implied that payment of the $183,000, quarantining of the $240,000 (which is made clear at an earlier point in the letter was to be out of the proceeds of the pending sale) and withdrawal of a caveat by the defendant were all contemplated to happen contemporaneously. 12 If that were so, the $183,000 would not be paid until the pending sale was completed and proceeds were forthcoming which, of course, might take a long time or even not happen at all. 13 This means, on the view I take, that there is no sound basis for finding that non-acceptance of 31 May 2010 offer was unreasonable when judged in the light of the outcome of the proceedings. That outcome is such that the defendant will receive either $183,000 through a decision of the plaintiff to satisfy the statutory demand or will receive the benefit of presumption of insolvency, which means that it will be in a position to launch proceedings against the plaintiff for winding up on the ground of insolvency if the $183,000 is not paid promptly. 14 Had he accepted the offer, the defendant would have had no presumption of insolvency working in his favour for future winding up proceedings and would have had to wait for completion of the sale of the plaintiff's property (and take his chances of that sale going off) in order to see whether he was going to receive the promised $183,000. With the offer of 31 May working in that way, it cannot be said that the defendant's non-acceptance of it was unreasonable. Equally if and to the extent the offer was uncertain and ambiguous as to the timing of the $183,000 payment, again non-acceptance of it was not unreasonable. 15 The plaintiff also relies on an offer of compromise purportedly made under the rules of court and dated 13 July 2010, that was expressed to be open until 4pm the next day, 14 July. The terms of the offer appear in its paragraphs 1 – 4: "1. by the payment to you (the Defendant) of the sum of $183,000.00 plus costs until today as agreed or assessed; 2. judgment in these proceedings be entered for the Plaintiff; 3. the balance of the amount claimed by you (in the Statutory Demand which is the subject of these proceedings) in the sum of $240,000.00 remain in dispute and the dispute be determined by the Court in proceedings number 2010/155871; 4. this offer of compromise remains open for acceptance until 4.00pm on 14 July, 2010." 16 There are then two concluding paragraphs: "This offer is made in accordance with the Uniform Civil Procedure Rules 2005 ('the Rules'). If for any reason this offer is not validly made under the Rules then the same offer is made without prejudice save as to costs (in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333, [1976] Fam 93) and this document may be tendered to the Court on the question of costs of the proceedings." 17 The defendant says that this was not an offer of compromise under r 20.26 of the Uniform Civil Procedure Rules 2005 because it was not, as required by r 20.26.2, "exclusive of costs". Mr O'Brien referred in this respect to the recent decision of the Court of Appeal in Dean v Stockland Property Management Pty Limited (No 2) [2010] NSWCA 141. 18 I accept that the offer to settle by payment of $183,000 "plus costs until today as agreed or assessed" was not an offer "exclusive of costs" and that the offer of 13 July 2010 therefore did not have effect as an offer of compromise under r 20.26. 19 As the concluding paragraph of the offer document made clear, however, the offer was intended to be a Calderbank offer if for any reason it was not validly made under the rules. Such a fallback provision clearly stated so as to convey the offeror's alternative position will be effective. It was so held in Trustee for the Salvation Army (NSW) Property Trust v Becker (No 2) [2007] NSWCA 194, a case decision approved in the Dean case, to which I have referred. 20 By the time the offer of 13 July 2010 was made, the landscape had changed in a significant way compared with the position on 31 May 2010. The present defendant had commenced separate proceedings in which he maintained that he had a charge over the land of the present plaintiff securing $423,000, being the $240,000 and the $183,000 that were the subject of the statutory demand. He claimed in those separate proceedings an order that, upon completion of any sale of the plaintiff's land, the plaintiff pay him $423,000 out of the proceeds of the sale. 21 Those separate proceedings were commenced on 23 June 2010. A statement of claim dated 7 July was later filed. A defence dated 15 July has been served and, if not already filed, is about to be filed. In the statement of claim, the present defendant alleges an obligation of the present plaintiff to pay $183,000. In the defence, paragraph 22, the present plaintiff admits its liability to pay the $183,000. 22 The reasonableness of the defendant's non-acceptance of the offer of 13 July, therefore, falls to be assessed against three factors: first, the offer was open for only one day or perhaps something of the order of 28 hours; second, the plaintiff had not, within the short period for acceptance fixed by it, made the admission regarding the $183,000 ultimately included in the defence dated 15 July 2010; and, third, the offer involved payment to the defendant of not only $183,000 but also his costs up to 13 July. 23 On balance, I regard non-acceptance of this offer as unreasonable. There was clearly an ongoing dispute about the $240,000 and that had become the subject of the other proceedings, as was entirely appropriate. The $183,000 was also bound up in the other proceedings. By its offer in these proceedings, the plaintiff was effectively accepting the legitimacy of the $183,000 claim in the other proceedings and offering a payment that would cut that sum out from the other proceedings and put an end to these proceedings, and, in addition, offering to protect the defendant for his costs in these proceedings up to the day two days before the scheduled trial. The offer was not complex. It was straightforward and clear cut. No great amount of cogitation was needed to see the benefits to the defendant that it entailed. The time for acceptance was, in the circumstances, adequate. Non-acceptance was unreasonable. 24 I need, at this point, to return to the point to the outcome of these proceedings is not wholly in favour of the plaintiff. In fact, there has been a mixed result. The plaintiff has been unsuccessful in having the statutory demand set aside and the defendant has been unsuccessful in sustaining the statutory demand as to the $240,000 in addition to the $183,000. Each side has had a measure of success and a measure of failure, but without any real hearing on the merits. In these circumstances, I do not accept that, as Mr O'Brien submitted, there should be an order that the plaintiff pay the defendant's costs. There has been no clear-cut event warranting that. The alternative put forward is that each party pay his or its own costs as would often be an appropriate outcome in the absence of any hearing on the merits. 25 In view of my findings about the 13 July 2010 offer and its non-acceptance, however, that prima facie position is displaced. This matter could have been disposed of quite efficiently and promptly by the defendant's acceptance of that offer. He would have been left in a position where he received the $183,000 he considered himself entitled to and also received his costs of these proceedings up to 13 July 2010. These proceedings would have been at an end and the parties would have litigated in other proceedings the remaining claim of $240,000. It is, however, true that it was not until 13 July that an unequivocal and unambiguous offer in respect of $183,000 was made. But once that happened, the hearing and the immediate lead up to it could and should have been avoided. 26 The order that is appropriate and which I make, therefore, is that the defendant pay the plaintiff's costs of the proceedings from and after 4pm on 14 July 2010 and that those costs be assessed on the indemnity basis. Otherwise, there is no order as to the costs of either party to the intent that each party shall bear his or its own costs. 27 In addition, I order that the statutory demand dated 16 March 2010 served on the plaintiff by the defendant be varied by reducing the amount thereof to $183,000 and that that demand has effect as so varied as from when the demand was served on the plaintiff. [The plaintiff made an oral application for an order extending the time for compliance with the statutory demand] 28 The plaintiff makes an application under s 459F(2)(a)(i) extending the time for compliance with the statutory demand as so varied. Without such an order the time for compliance will end seven days after final determination of the s 459G application by the judgment I have just given. 29 The defendant opposes the making of any order for extension of time. He does so on the footing that no evidence has been tendered in support of the proposition that the statutory period is in need of revision. I accept that submission. The statutory scheme must take its course unless the court makes an order displacing it. The court will make an order displacing the statutory scheme if some good reason to do so is shown. Evidence is required to substantiate the existence of a good reason. The general observation that seven days is a short time and 14 days is longer is insufficient. 30 I therefore decline to make the order sought under s 459F(2)(a)(i). ********** 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.