New South Wales Supreme Court CITATION : Austin Corp Pty Ltd v Blanford [2010] NSWSC 964 HEARING DATE(S) : 16/08/10 JUDGMENT DATE : 16 August 2010 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 16 August 2010 1. Make order 1 of the originating process. DECISION : 2. Order that the plaintiff pay the defendant's costs. 3. The exhibits may be returned after 28 days. CATCHWORDS : CORPORATIONS – application to set aside statutory demand – common ground that statutory demand should be set aside – COSTS – determination of appropriate costs orders – whether to award indemnity costs against defendant – relevant considerations in statutory demand proceedings – where statutory demand based on judgment debt – where grounds for setting aside statutory demand not adjudicated – where plaintiff contended that defendant obtained default judgment and served statutory demand because induced by defendant to believe that action would not be taken without plaintiff's knowledge – where plaintiff disputed debt based on alleged compromise agreement or existence of valid offsetting claim – plaintiff's failure to repay money under alleged compromise agreement and to offer to pay remainder of debt into court from outset put defendant to unnecessary expense in defending application – plaintiff to pay defendant's costs LEGISLATION CITED : Building and Construction Industry Security of Payment Act 1999 (NSW) Corporations Act 2001 (Cth) CATEGORY : Procedural and other rulings Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602 Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95 CASES CITED : Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 Eumina Investment Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACLC 1038 PARTIES : Plaintiff: Austin Corp Pty Ltd ACN 078 081 893 Defendant: Adam John Blanford t/as Blanford Balancing & Commissioning ACN 912 956 466 FILE NUMBER(S) : SC 2010/91379 COUNSEL : Plaintiff: R Jefferis Defendant: G Penhall SOLICITORS : Plaintiff: Church & Grace Defendant: Penhall & Co IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Monday, 16 August 2010 2010/91379 Austin Corp Pty Ltd ACN 078 081 893 v Adam John Blanford t/as Blanford Balancing & Commissioning ACN 912 956 466 JUDGMENT 1 HIS HONOUR: This is an application to set aside a statutory demand. It is common ground that the statutory demand should be set aside. The argument has been as to costs. The statutory demand is dated 24 March 2010. In it the defendant ("Mr Blanford") demanded payment of a debt of $38,557.51 described as a judgment debt recovered by him against the plaintiff ("Austin") in the Local Court at Burwood on 13 March 2010 and entered on 23 March 2010. 2 The statement of claim in the Local Court was served on 19 October 2009. It claimed $39,043.25 as moneys due pursuant to the service by Mr Blanford on Austin of a payment claim under s 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW). The statement of claim alleged service of the payment claim and alleged that Austin failed to provide a payment schedule within ten business days. 3 On 14 April 2010 Austin filed a notice of motion in the Local Court seeking to set aside the default judgment. That application was successful. On 21 June 2010 S Freund SM ordered that the default judgment entered on 13 March 2010 be set aside provided that within 28 days Austin pay into Court the sum of $32,388.78 and file its defence. 4 It appears that on about 19 July 2010, Austin paid the sum of $32,388.78 into Court. In affidavits sworn both in the Local Court and in these proceedings Mr Blanford has accepted that the claim he made in the Local Court ought to have given credit to Austin for two amounts of $2,000 and $3,895, leaving $32,388.78 as the amount for which he contends he is entitled to judgment. As Mr Blanford now has security for that amount by the payment made into Court, he accepts that the statutory demand should be set aside. Costs are in the discretion of the Court. Pursuant to r 42.1 of the Uniform Civil Procedure Rules, costs follow the event, unless it appears to the Court that some other order should be made as to the whole or any part of the costs. 5 Austin contends that it should have its costs on the indemnity basis. I take it that it contends that it has relevantly succeeded because the statutory demand is to be set aside. It also contends that there was a genuine dispute as to the debt. It also says that the reason the default judgment was obtained and the statutory demand was served was that Mr Blanford failed to respond to correspondence which Austin sent to his solicitors in October 2009, which it is said induced the principal of Austin, Mr Philips, to form the incorrect view that Mr Blanford would not take any further action in the Local Court without first informing Austin. 6 The plaintiff refers to authorities that establish that where a defendant who has served a statutory demand but has no valid reason to contest that there is a genuine dispute about the debt subject to the demand, then upon the demand being set aside, the defendant is at risk of being ordered to pay costs on the indemnity basis. 7 For his part Mr Blanford seeks costs on the ordinary basis, save as to one appearance for which costs are sought on the indemnity basis. He says that there has been a supervening event since the proceedings were commenced, namely the payment of $32,388.78 into Court. It is for this reason and this reason only that he consents to the demand being set aside. He contends that he should be regarded as the substantially successful party. Thus in Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602, a statutory demand was set aside where the plaintiff paid the amount the subject of the demand shortly before the hearing. Although the plaintiff obtained the order it sought in the originating process, as it only did so after having paid the debt, the plaintiff was ordered to pay the defendant's costs. Similarly in Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95 an order was made by consent that the statutory demand be set aside, but I ordered the plaintiff to pay the defendant's costs of the proceedings because I considered that the plaintiff had sought to buy itself time to pay the balance of the debt by applying to set aside the statutory demand. Only a part of the debt claimed was genuinely disputed. But rather than pay the undisputed amount, the plaintiff pressed on with its application to set aside the whole of the demand. 8 There has been no resolution of the grounds on which the plaintiff sought to have the statutory demand set aside. The principles in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625 apply. However, as I said in Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [4], there are special features of proceedings to set aside a statutory demand that need to be taken into account in judging the reasonableness of a party's conduct in either commencing the proceedings or defending them. Moreover, as applications to set aside a statutory demand are almost invariably dealt with on the affidavits (because of the nature of the issues in such proceedings), a Court is better placed to assess a likely outcome of proceedings where there has not been a hearing on the merits than is the case with other litigation. 9 Because the statutory demand was based on a judgment debt the execution of which had not been stayed, there could have been no genuine dispute that there was a debt due and payable for the amount of the judgment owed by Austin to Mr Blanford. However, in a number of cases it has been held that if an application has been made to have a judgment set aside and there are serious grounds for such an application, this may constitute "some other reason" why the demand should be set aside under s 459J(1)(b) of the Corporations Act 2001 (Cth). (See for example Eumina Investment Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454 and Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759; (2007) 25 ACLC 1038.) 10 Not infrequently when orders are made on that basis under s 459J(1)(b), the order setting aside the demand is made subject to conditions including that the judgment debt sought to be disputed be paid into Court. 11 In the present case the affidavit supporting the application to set aside the statutory demand appears to raise three grounds for that relief. The director of Austin, Mr Philips, deposed that on 3 September 2009 he reached an oral agreement with Mr Blanford. Mr Blanford was then claiming $38,148.25. Mr Philips deposed that it was orally agreed on 3 September 2009 that Austin would pay $23,500 to compromise the claim, with those payments to be made by instalments of $3,000 immediately, a further $2,000 by the end of September, and $5,000 on 30 October, 30 November and 30 December, with the remaining $3,500 to be paid by 30 January 2010. 12 Mr Philips deposed that whilst Mr Blanford was still at Austin's premises, he typed up on his computer a memorandum entitled "financial agreement" that recorded the terms of the oral agreement. He produced that document which included provision for its being signed by both Mr Philips and Mr Blanford. However the document was not signed. The document included the payment plan as outlined above and stated that Austin's agreement to pay $23,500 was in total and unconditional settlement of all invoices submitted to Austin, past, present or future in relation to any works undertaken by either party. However, it was also stated to be dependant upon "verification of the $30,357 inc GST figure claimed as due by BBC 3-9-09 by Austin Corp". 13 Mr Blanford contends that he served the payment of claim for $39,043.29 on 21 September 2009. He attaches to his affidavit an email from Austin of the same day in response to an email attaching the payment of claim stating "What about the deal we have done prior?" 14 On 29 September 2009, Mr Philips of Austin sent another email to Mr Blanford attaching a new version of the document headed "financial agreement". It excluded a line in the earlier version of the document which had stated: "Add costs for ceilings and the like; see 407 at Trio". 15 Although Mr Blanford has given evidence that was served three days earlier on 16 October 2009, nothing turns on this discrepancy. 16 On 21 October 2009 Mr Philips of Austin wrote to Penhall & Co, the solicitors for Mr Blanford. Mr Phillips stated that he and Mr Blanford had reached an agreement on 3 September 2009 and enclosed a copy of the document sent under cover of his email of 29 September 2009. Mr Phillips stated that Austin had paid $5,000 under the agreement and the next payment of $5,000 was due on 30 October. He said that the latter payment was "dependant upon the matters raised in my fax". He asked that Mr Blanford discontinue the proceedings in the Local Court and said if that were done within the next seven days, Austin would consent to the discontinuance without seeking costs, otherwise he would reserve his right to file a defence and tender the letter on any argument as to costs. 17 Mr Phillips followed this up with another fax on 30 October 2009 to the same effect. He followed it up with a further letter of 16 November 2009 stating that he understood that Mr Blanford and his solicitor were reviewing the faxes. 18 Mr Phillips said that he believed that Mr Blanford would not take any further action in respect of the statement of claim filed in the Local Court proceedings without first informing Austin. Austin did not make any of the payments which would have fallen due on 30 October, 30 November, 30 December and 30 January if there were an agreement as contended for by it. It appears that there was no response to Austin in respect of the correspondence forwarded in October and early November 2009. No defence was filed in the Local Court and it was in these circumstances the default judgment was obtained. 19 Hence, the first and principal ground upon which Austin disputed the debt claimed in the statutory demand was that there was a compromise embodied in an oral agreement at 3 September 2009. Mr Philips also deposed that Austin had a valid offsetting claim in that it was entitled to back charge Mr Blanford for certain costs and expenses of remedial works the subject of the contract between Austin and Mr Blanford. Mr Philips assessed the value of that offsetting claim at $8,222.50. That claim can only be an alternative to the first ground, because, if there were a compromise as alleged, then the compromise encompassed the asserted offsetting claim. 20 Counsel for Austin also contended that there was a third ground raised in the plaintiff's affidavits for setting aside the statutory demand, namely the silence of Mr Blanford in response to Austin's assertions that a compromise agreement had been reached. I do not think there is any substance in that contention. 21 This is not the occasion to assess the genuineness of the issues raised by Austin in response to the statutory demand. There are obvious issues which, in due course, will need to be considered in the Local Court as to whether any binding agreement was made. But it seems to me to be clear that had the plaintiff's application been able to be dealt with immediately after it had been filed, the plaintiff would not have had unqualified success. Even on the plaintiff's case, it owed and owes Mr Blanford $18,500 which has not been paid. It is improbable in the extreme that the Court would only have varied the demand by substituting that sum for the amount claimed in the demand, without also making it a condition of its order that the balance of the debt of $32,388.78 be paid into Court. An order for payment of that sum into Court was made as a condition of setting aside the default judgment. The reason such a condition would have been placed upon an order varying the demand is that it is clear from the email from Mr Philips of 21 September 2009 that he had received the email from Mr Blanford attaching the payment claim on 21 September. Mr Philips was the sole director of Austin. There is no dispute that no payment schedule was served. 22 Austin did not offer to pay $18,500. Nor did it offer to pay $32,388.78 into Court as a condition of obtaining an order setting aside the statutory demand. It has not made any offer to pay any of that sum. 23 Austin no doubt had to file an application to set aside the statutory demand because it claimed a sum which was greater than the sum for which Mr Blanford should have sought default judgment. However, contrary to the submission made for Austin, this is not a case in which Mr Blanford sought to maintain an entitlement to an incorrect amount. He readily acknowledged the error. I am satisfied that had the error of $5,895 been brought to his attention, he would have acknowledged that Austin was not required to pay that amount of the demand, and that he would not rely upon the demand as creating a presumption of insolvency arising from a failure to pay the amount of $5,895. 24 In my view the plaintiff ought to have paid at least $18,500 and ought to have offered at least to pay the balance of the sum of $32,788.70 into Court from the outset. In not doing so, the plaintiff has put the defendant to what I consider to be unnecessary expense in defending the application. In my view the proper order is that the plaintiff pay the defendant's costs of the proceedings. 25 So far as the order for indemnity costs on one occasion is concerned, that application is made because on 2 August 2009, the plaintiff sought an adjournment because the plaintiff's counsel with the carriage of the matter was unavailable. But for that unavailability, the argument which was heard today would have been heard then. Mr Penhall seeks an order for indemnity costs in respect of the attendance on 2 August. I do not propose to make such an order. 26 There was a further adjournment on 9 August which I think could have been avoided and this was at the defendant's request. I consider that the adjournment on 2 August is one of those incidents of litigation which, in circumstances of this case, does not warrant a special costs order. I doubt that the difference between an order for ordinary costs and indemnity costs for the attendance on that day would be significant. 27 For these reasons, by consent, I make order 1 of the originating process. I order that the plaintiff pay the defendant's costs. The exhibits may be returned after 28 days. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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