In the matter of Southern Cross Exploration N L [2016] NSWSC 1003

Supreme Court New South Wales

Medium Neutral Citation: In the matter of Southern Cross Exploration N L [2016] NSWSC 1003 Hearing dates: Monday, 9 May 2016 Date of orders: 09 May 2016 Decision date: 09 May 2016 Jurisdiction: Equity - Corporations List Before: Brereton J Decision: No order as to costs of proceedings to intent that each party bear own costs; plaintiff pay defendant's costs of argument on costs fixed in sum of $4,400 inclusive of GST. Catchwords: COSTS – where creditor's statutory demand was set aside by plaintiff – where dispute to set aside demand was not genuine – where there was an offsetting claim by defendant Legislation Cited: (CTH) Corporations Act 2001, s 459G Cases Cited: BGC Contracting Pty Ltd v Whitsunday Crushers Pty Ltd [2004] WASC 209 In the matter of Gutsy Junior Pty Ltd [2015] NSWSC 2046 Category: Costs Parties: Southern Cross Exploration N L (plaintiff) Evelyn Goh (defendant) Representation: Counsel: B Lo Plastrier (plaintiff) E Cohen (defendant)

Solicitors: K & L Gates (plaintiff) File Number(s): 2016/ 91909

Judgment (EX TEMPORE) 1. HIS HONOUR: On 3 March 2016, the defendant Evelyn Goh served on the plaintiff Southern Cross Exploration NL a creditor's statutory demand for payment of debt dated 29 February 2016 for a sum of $66,856, described as "accounting/secretarial fees", supported by an affidavit accompanying the creditor's statutory demand. On 24 March 2016, the plaintiff filed an originating process seeking an order pursuant to (CTH) Corporations Act 2001, s 459G, setting aside the creditor's statutory demand. On 6 April 2016, Ms Goh appeared in person before the Registrar – having the previous day indicated in correspondence that she would withdraw the demand – and the Registrar by consent made an order setting aside the creditor's statutory demand, and that argument on costs be heard today. The Registrar also directed the exchange of written submissions. 2. The amount demanded by Ms Goh was her remuneration pursuant to a resolution of the company of 13 September 2012 to the effect that the provision of accounting and secretarial services by her at $3,000 per month from 1 January 2012, and at $4,000 per month from 1 July 2012, "be confirmed and approved". It was also resolved that a consultancy agreement with her was to be approved and executed, but there is no evidence that that ever happened. On 10 September 2014, the company's auditor wrote to Ms Goh seeking her confirmation that an amount of $69,856 was payable and due to her by the company, and that no other amounts were payable to her by the company as at 30 June 2014. She replied on 10 September 2014 confirming that $69,856 was payable and due to her and that there were no other amounts payable and due to her at the relevant date. On 30 September 2014, the plaintiff's solicitor sent to Ms Goh a "related party form as agreed with the auditors" for checking, signing and return. That form recorded that there were fees payable by the company to her of $69,856. 3. Ms Goh wrote to the company demanding payment of the outstanding balance of $66,856 (after a small amount of additional fees was said to have accrued, and a payment of $5,000 made) in October 2014, and submitted an invoice for that amount. She sent another letter on 27 November 2015 questioning settlement of the long outstanding amount. 4. After the creditor's statutory demand had been served, the company's solicitors on 14 March 2016 sent a letter to her asserting that the demand was flawed and liable to be set aside in a number of respects, and in particular that there was a genuine dispute about the existence of the debt and that the demand was potentially an abuse of process, and demanded a withdrawal of the demand. Ms Goh replied on 18 March, asserting that the contentions had no basis and repeating her demand for the sum claimed. The day before the demand expired on 23 March, the company solicitors sent two letters to Ms Goh. One of them was an open letter and the other was without prejudice. The open letter, in addition to the matters previously raised, propounded an "off-setting claim" for compensation pursuant to Corporations Act, s 1317H, for alleged breach of directors' duties in permitting the company to enter into an arrangement which is said to be contrary to the financial assistance provisions of the Corporations Act. No-one suggests that this had ever been asserted before 23 March 2016. Together with the without prejudice letter of the same date, the effect was to demand withdrawal of the creditor's statutory demand by 2pm on the following day, 24 March. To suggest that a person in Ms Goh's position, who up until that point was acting for herself, could obtain advice in respect of such an off-setting claim within half a day in order to withdraw a demand, is plainly unreasonable. However, by 5 April, Ms Goh had sought and obtained some advice, and agreed in the light of the off-setting claim to withdraw the demand. In those circumstances, the consent order was made the following day, 6 April 2016. 5. It is unnecessary that I form any particular view about the off-setting claim, in circumstances where Ms Goh has consented to the setting aside of the demand, save to observe that it is by no means clear to me that it will ultimately prove to be a meritorious one. The significant matter for present purposes is that it was not raised until 23 March, and it is not the type of claim which a person in Ms Goh's position ought be expected to have foreseen before it was raised. 6. As I said in In the matter of Gutsy Junior Pty Ltd [2015] NSWSC 2046, where a statutory demand is set aside, even by consent, it would ordinarily follow that a costs order should be made in favour of the successful plaintiff. That is because typically a case in which a statutory demand is set aside, even by consent, is not one in which there is an element of compromise in the outcome. However, this case is rather different. 7. First, although the plaintiff's solicitor's evidence is to the effect that remuneration was not payable until there was a resolution of the company that it be paid, it seems to me, on the material to which I have already referred, that Ms Goh had more than reasonable prospects of succeeding in a contention that the dispute raised was not a genuine one, and in sustaining the demand for the amount claimed in it. In those circumstances, consenting to the setting aside of the demand involved a very substantial compromise indeed, and would not have happened but for the off-setting claim. 8. As to the off-setting claim, Ms Goh's concession came as soon as reasonably possible after that claim was first raised. It is true that in BGC Contracting Pty Ltd v Whitsunday Crushers Pty Ltd [2004] WASC 209, Master Newnes declined to depart from the practice of making an order in favour of the plaintiff for costs where a demand was set aside, albeit that it was on the basis of an off-setting claim first notified when the s 459G application was filed and served. However, it is material to observe that in that case the Master found that, while not aware of the nature and quantum of the off-setting claim before the statutory demand was served, the defendant was aware of complaints by the plaintiff about the defendant's performance, and that the plaintiff disputed whether the full amount of the invoices was due and payable, and that the defendant had not given any warning of an intention to serve a statutory demand. 9. In this case, save for what was at least reasonably arguably a less than genuine dispute concerning the principal debt, the defendant was not aware of any such dispute; and although her correspondence may not have explicitly given warning of an intention to serve a statutory demand, her repeated demands and requests for payment were more than adequate notice and provided ample opportunity to raise any such off-setting claim earlier. 10. In my view, this is not the ordinary case referred to in In the matter of Gutsy Junior Pty Ltd. Rather, this is a case in which the parties compromised the case without resolving the question of costs, and in which there has been nothing unreasonable about the defendant's conduct in the making of the demand and initial defence of the proceedings, and a reasonable and early abandonment of their defence after the off-setting claim was raised. 11. Accordingly, there will be no order as to the costs of the proceedings, to the intent that each party bear its own costs. The Court orders that the plaintiff pay the defendant's costs of the argument on costs, fixed in the sum $4,400 inclusive of GST.