Chen v The College of Building Ltd
[2015] ACTSC 248
•25 August 2015
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Chen v The College of Building Ltd |
Citation: | [2015] ACTSC 248 |
Date of written submissions: | 4 March 2015 |
DecisionDate: | 25 August 2015 |
Before: | Penfold J |
Decision: | The appellant is to pay the respondent’s costs of the appeal on an indemnity basis. |
Category: | Costs |
Catchwords: | PROCEDURE – Costs – statutory demand set aside – appeal against setting aside of statutory demand dismissed – offers of compromise – late provision of evidence – persistence with appeal despite statutory demand becoming “stale” – late concession that debt was disputed – misuse of statutory demand process – indemnity costs ordered. |
Legislation Cited: | Acts Interpretation Act 1901 (Cth), s 29 Corporations Act 2001 (Cth), ss 459C(2), 459P |
Cases Cited: | Chen v The College of Building Ltd [2015] ACTSC 19 |
Parties: | Swee Eng Chen (Appellant) The College of Building Ltd (Respondent) |
Representation: | Counsel Dr G Blank (Appellant) Dr G Dempsey (Respondent) |
| Solicitors Trinity Law as agents for Toomey Maning & Co (Appellant) Bradley Allen Love (Respondent) | |
File Number: | SC 47 of 2014 |
Decisions under appeal: | Court: ACT Supreme Court Before: Deputy Registrar Edwards Dates of Decisions: 11 March 2014; 24 March 2014 Case Title: The College of Building Ltd A.C.N. 146 570 087 v Swee-Eng Chen Court File Number: SC 47 of 2014 |
Introduction
On 18 February 2015 I handed down a judgment (Chen v The College of Building Ltd [2015] ACTSC 19) dealing with an appeal from a decision of the registrar setting aside a statutory demand and making associated costs orders.
In that judgment I confirmed the costs orders made by the registrar, but invited written submissions from the parties on the costs of the appeal. In explaining why the costs would not necessarily follow the result of the appeal, I said:
81. The only issue that arose during the appeal that might lead me to give further consideration to the question of costs is the fact that some significant elements of the evidence on which I have relied in reaching my findings about the delivery of the statutory demand might not have been drawn to Mr Chen’s attention before the appeal. In particular, some of that information:
(a) was not apparently available to the registrar or Mr Chen when the registrar made his decision;
(b) might not have been available to Mr Chen when he decided to appeal the decision; and
(c) might not have been available even when appeal submissions were written on behalf of Mr Chen.
82. Furthermore, at the end of the hearing before me, counsel for the College indicated that, depending on the outcome of the appeal, the parties might wish to make further submissions about the costs of the appeal by reference to offers of settlement made before the appeal was heard.
In accordance with my orders, each party filed an affidavit on 25 February 2015 and written submissions by 4 March 2015.
Background
Mr Chen posted a statutory demand to the College of Building on 13 December 2013. It was received by the College on 13 January 2014, and the College applied, just within the 21-day time limit, to have it set aside. Mr Chen argued that irrespective of when it was received by the College, the statutory demand had been served rather earlier (probably on 19 December 2013 but certainly before 10 January 2014) and therefore the College’s application to set it aside was out of time.
If the statutory demand had survived the 21-day period within which an application to set aside could have been made, and had not been complied with by the College during that period, then it would have permitted Mr Chen, within the following three months, to apply under s 459P of the Corporations Act 2001 (Cth) to wind up the company in insolvency, and for that purpose the company would have been presumed to be insolvent under s 459C(2) of that Act. Presumably Mr Chen could have attempted to claim as a creditor in the insolvency.
If the statutory demand had been served as asserted by Mr Chen, the three-month period would have begun to run on either 9 January, or, if the demand had been served as late as 9 January 2014, the three-month period would have begun on 31 January. The three-month period would thus have expired either on 8 April or at the latest at the end of April, and by the time the appeal was heard on 22 May, no application under s 459P had been made before the end of April, or at all.
That is, by the time I heard the appeal, even if Mr Chen had been successful in it, he would have lost the opportunity to apply to have the College wound up in an insolvency.
As mentioned, the registrar set aside the statutory demand, and made costs orders.
On the appeal, I found that the statutory demand had been served on the day it was received, 13 January 2014, that the application to set aside the demand had been made within time, and that it had been properly set aside having regard to Mr Chen’s concession that there was in fact a dispute over the debt he claimed the College owed him.
Evidence
An affidavit was filed on behalf of Mr Chen sworn by Paul Andrew Conde on 23 February 2015. That affidavit attached two letters.
An affidavit was filed on behalf of The College of Building Ltd (the College) sworn by Laura Scotton on 17 February 2015. It attached a copy of a letter sent on behalf of the College to Mr Chen, a copy of which was also attached to Mr Conde’s affidavit. Ms Scotton also referred to other letters attached to an affidavit sworn by her on 3 March 2014 and read in proceedings before the registrar on 17 March 2014 in the context of his consideration of costs.
The letters before me in relation to the costs argument are summarised in the following table:
Date of letter
From
To
Contents
13 January 2014
The College
Mr Chen
· Complains that statutory demand is not appropriate given that there is a dispute between the parties about the debt; and
· threatens application for indemnity costs.
31 January 2014
Bradley Allen Love for the College
Mr Chen
· Points out deficiencies in the statutory demand;
· invites withdrawal of demand;
· advises of intention to apply to have statutory demand set aside; and
· threatens application for indemnity costs.
7 February 2014
Mr Chen
Bradley Allen Love for the College
· Asserts validity of statutory demand;
· denies any genuine dispute between the parties about the debt;
· invites withdrawal of application to set aside the statutory demand; and
· advises intention to tender this letter in court.
12 February 2014
Bradley Allen Love for the College
Mr Chen
· Asserts dispute about debt, deficiencies in statutory demand, and service of statutory demand on 13 January 2013;
· indicates intention to pursue setting aside of statutory demand;
· specifies that the College’s costs of application already exceed $17,000;
· proposes settlement on basis that statutory demand withdrawn and the College’s costs fixed at $12,226.70 are paid by Mr Chen; and
· identifies this as a Calderbank offer.
13 February 2014
Mr Chen
Bradley Allen Love for the College
· Rejects 12 February offer;
· refers to relevant cases about s 29, Acts Interpretation Act 1901 (Cth);
· asserts there is no dispute about the debt; and
· offers to withdraw the statutory demand in return for payment of $10,000.
14 February 2014
Bradley Allen Love for the College
Mr Chen
· Rejects 13 February offer;
· refers to other cases about s 29;
· reiterates that there is a dispute about the debt;
· repeats the 12 February offer; and
· again identifies this as a Calderbank offer.
17 February 2014
Mr Chen
Bradley Allen Love for the College
· Rejects 14 February offer;
· argues about receipt of statutory demand;
· repeats the 13 February offer; and
· advises intention to tender the letter in court.
28 February 2014
Bradley Allen Love for the College
Toomey Maning & Co for Mr Chen
· Raises various matters about Mr Chen’s approach to the application to set aside statutory demand;
· notes the College’s instructions to proceed with the hearing of the application; and
· questions whether Toomey Maning & Co is conflicted in acting for Mr Chen (because one of its principals was a director of the College during part of the period of Mr Chen’s alleged provision of services to the College).
7 May 2014
Toomey Maning & Co for Mr Chen
Bradley Allen Love for the College
· Refers to email from Laura Scotton dated 2 May 2014 attaching supplementary affidavits from Robert Hunt and Sean Bruce also dated 2 May 2014;
· rejects veracity of those affidavits but claims that if the affidavits had been provided before the hearing of the application by the registrar, Mr Chen might have elected not to oppose the application or not to proceed with the appeal from the registrar’s order;
· offers to settle the matter on the basis that each party pays its own costs, including the costs the subject of the registrar’s costs order; and
· identifies this as a Calderbank offer.
12 May 2014
Bradley Allen Love for the College
Toomey Maning & Co for Mr Chen
· Refers to the College’s longstanding claim about receipt of the statutory demand and assertion that the debt is disputed;
· criticises Mr Chen for failing to address the substance of the dispute about the debt; and
· invites Mr Chen to consent to the dismissal of his appeal and to costs orders requiring him to pay the College’s costs:
o on ordinary basis from 13 January 2014 to 12 February 2014;
o on indemnity basis from 13 February 2014 to 24 March 2014; and
o on ordinary basis from 24 March 2014 [sic] until date of letter; and
· identifies this as a Calderbank offer.
Basic chronology
The following table sets out a basic chronology of this matter.
Date Event 13 December 2013 Statutory demand posted by Mr Chen 13 January 2014 Statutory demand received by the College 13 January 2014 Letter from the College to Mr Chen 31 January 2014 College filed application in Supreme Court for statutory demand to be set aside 31 January 2014 Letter from the College to Mr Chen 7 February 2014 Letter from Mr Chen to the College 12 February 2014 Letter from the College to Mr Chen 13 February 2014 Letter from Mr Chen to the College 14 February 2014 Letter from the College to Mr Chen 17 February 2014 Letter from Mr Chen to the College 28 February 2014 Letter from the College to Mr Chen 3 March 2014 Application heard by registrar. 11 March 2015 Statutory demand set aside. 24 March 2014 Costs order made by registrar 2 May 2014 Supplementary affidavits provided to Mr Chen’s solicitors by the College 7 May 2014 Letter from Mr Chen to the College 12 May 2014 Letter from the College to Mr Chen 22 May 2014 Appeal hearing
Submissions
Mr Chen (citing authority for these propositions which I do not dispute but which need not be recited here) submitted:
(a)that costs are not awarded to punish the unsuccessful party;
(b)that there must be special and unusual features to justify an award of indemnity costs; these may include the party’s conduct of the litigation, eg by pursuing “thoroughly unjustified defences” or prolonging a proceeding “by deliberately false defences and allegations of fact”;
(c)that a Calderbank offer that does not involve “any substantial element of compromise” does not of itself justify an order for indemnity costs;
(d)that there is no presumption that a reasonable rejection of a Calderbank offer entitles a party to indemnity costs thereafter; and
(e)that where a debtor “conceals its hand” until after the statutory demand has issued, “the creditor ought not be ordered to pay the debtor’s costs, or at least not indemnity costs”.
The submissions summarised Mr Chen’s claim to avoid an indemnity costs order in this case:
(a)the Respondent did not disclose its case sufficiently at the first instance and not completely until two days prior to the hearing on appeal ...;
(b)had the Respondent presented its case sufficiently early for the Appellant to consider his options completely, he may have opted not to oppose the Respondent's application to set aside the statutory demand;
(c)in the circumstances, it was reasonable to proceed to cross-examine on the supplementary affidavits in order to determine whether the new material had been invented or whether that evidence was credible or reliable;
(d)it was reasonable for the Appellant to proceed with the appeal (and notwithstanding that it may have been too late to apply to wind up the appellant [sic]) as he believed, on the information to hand that it would be found that there had been no jurisdiction to set aside the statutory demand and further because he had a costs order against him;
(e)in making the offer referred to at paragraph 10, the Appellant took reasonable steps to attempt to extricate himself from the litigation (subject to the points at (a) and (c) above);
(f) the Appellant did not unreasonably reject the Respondent's offer of compromise as it was not on reasonable terms in that there is no or no significant degree of compromise and further the Respondent repeats (a) and (c) above; and
(g)there are no special or unusual features present in these proceedings to justify an award of indemnity costs.
Paragraph (a) quoted at [15] above included a reference to paragraph 13 of the submissions, which read:
On 20 May 2014 the Respondent’s Submissions in Reply were filed, which include articulation for the first time that the issue of the address on the envelope containing the statutory demand.
I was not able to make any sense of that submission.
The College submitted:
(a)that the registrar’s order for payment of certain costs on an indemnity basis related to Mr Chen’s rejection of the 12 February 2014 compromise offer, and that that rejection remains relevant, since acceptance of the 12 February 2014 offer would have eliminated all subsequent proceedings;
(b)that it had made a further offer of compromise on 12 May 2014, detailing the factual and legal difficulties facing Mr Chen in the appeal, and inviting consent to a dismissal of the appeal and a reduction in the costs otherwise likely to be payable by Mr Chen;
(c)that Mr Chen’s 7 May 2014 offer was unreasonable because it required the College to abandon the costs order made in its favour by the registrar;
(d)that the appeal as such was of no practical utility, because by then the statutory demand had become “stale”;
(e)that the appeal had therefore been pursued for no reason other than in an attempt to avoid the costs order made by the registrar, and that such use of the court system should be discouraged;
(f)that the additional evidence admitted in the appeal was supplementary only, and clarified evidence that had been prepared initially under the strict time limits applicable to the making of an application to set aside the statutory demand.
Consideration
Late provision of College’s supplementary evidence
I do not understand Mr Chen’s references to the debtor “concealing its hand” until after the statutory demand is issued (at [14(e)] above) and to the College “not disclosing its case sufficiently at the first instance” (at [15] above). The only “late” provision of information or evidence, as far as I am aware, related to the supplementary evidence of arrangements for mail delivery to and collection by the College over the Christmas/New Year period; this was relevant only to when the demand was served, not to whether the debt was disputed, and could not have been disclosed before the statutory demand was issued.
The chronology provided at [13] above shows that the supplementary evidence going to service was provided to Mr Chen’s solicitors 20 days before the appeal hearing, which should have provided ample time for Mr Chen and his advisers to consider its significance.
That evidence was in my view an important advance on the evidence originally provided by the College. However, I accept that the deadline for applying to set aside the statutory demand would have constrained the College’s capacity to provide detail in its original documents, and it is clear that the registrar did not regard the absence of such evidence before him as significant.
In any case, Mr Chen’s response to the supplementary evidence was simply to question its veracity and to suggest it would not survive scrutiny under cross-examination. There is no basis on which I could find that if that evidence had been provided significantly earlier than it was (but after the registrar’s decision), Mr Chen would have backed away from the appeal rather than taking the opportunity to cross-examine the relevant witnesses.
Futility of appeal in relation to winding-up application
Secondly, as noted at [5] to [7] above, by the time that supplementary evidence was filed, and well before the appeal was heard, it was already too late for Mr Chen to seek the winding up of the College based on its failure to comply with his statutory demand. Therefore, there was no reason except the hope of improving his costs position for Mr Chen to proceed with the appeal (wasting not only the time and money of both parties but also the time and other resources of an already stretched court).
Calderbank offers
From the day it received the statutory demand (13 February 2014), and repeatedly thereafter, the College made it clear to Mr Chen that the debt alleged by him was disputed, that the statutory demand was therefore inappropriate, and that it would seek indemnity costs if the matter proceeded. It invited Mr Chen on several occasions to abandon the proceedings, and made an offer to settle the proceedings in return for payment of about 70% of the College’s cost to date, which offer was repeated several days later.
Immediately before the appeal hearing, the College again offered to settle the matter, on the basis that Mr Chen would meet the registrar’s costs order and would pay the College’s costs for the subsequent period on an ordinary basis (despite the College’s repeated indications that it would seek indemnity costs for the continued proceedings).
Mr Chen’s offers on the other hand made no concessions.
On 13 February, he offered to withdraw the statutory demand in return for payment of $10,000 (the amount specified in the statutory demand). This would have been a concession if the statutory demand had been legitimate in referring to an undisputed debt, but it was not. Furthermore, the offer was made at a point which was apparently before Mr Chen obtained legal representation, and when he had presumably incurred few or no costs of his own. In those circumstances, the offer was simply a reiteration of his demand. That offer was repeated several days later.
On 7 May Mr Chen offered to settle the matter on the basis that each party paid its own costs. This offer required the College to abandon the registrar’s costs orders in its favour, while Mr Chen’s only concession was abandoning the disputed $10,000 debt (which, as well as being disputed, was by then probably substantially less than the value of the registrar’s costs orders against him).
In short, the College made several settlement offers that involved foregoing likely entitlements, but there was nothing in the offers made by Mr Chen that could now improve his position in relation to liability for the College’s costs.
Existence of genuine dispute about debt
Finally, as already mentioned, Mr Chen conceded at the appeal hearing that there was a genuine dispute about the debt the subject of the statutory demand. That is, quite apart from time limit arguments, the statutory demand should never have been made, and whether the College had sought its setting aside within the appropriate time limits should not have been the determining factor in whether it survived.
Having regard to that concession, it is hard to avoid the inferences that:
(a)the statutory demand was served in full knowledge that it was unjustified, and that Mr Chen would struggle to make out his claim in substantive litigation; and
(b)it was served in the hope that:
(i)the exigencies of the Christmas/New Year period would prevent the College responding to it appropriately;
(ii)such a failure by the College would enable Mr Chen to threaten to seek the winding up of the College in insolvency; and
(iii)such a threat would enable Mr Chen to negotiate a settlement of his dispute with the College without having to pursue the disputed debt, and establish it, in the courts in the usual way.
It is possible, of course, that the scenario described above exaggerates Mr Chen’s strategic planning, and that a misguided faith in the justice of his claim against the College (and the natural if irrational disinclination to accept sunk costs and move on) simply led him to risk far more in the way of legal costs, both his own and those of the College, than should rationally have been risked in pursuit of a doubtful $10,000 debt.
Whatever Mr Chen’s motivation, I consider, having regard to the College’s attempts to resolve this matter by compromise despite having the law largely if not entirely on its side, and to the concession that the statutory demand was never legitimate because the debt was genuinely in dispute, that Mr Chen should pay the College’s costs of the appeal, as assessed or agreed, on an indemnity basis.
I point out that ordering Mr Chen to pay the College’s costs on an indemnity basis is not done to “punish” Mr Chen. Rather, it is done to minimise the damage resulting from Mr Chen’s unjustified attempt to use inappropriate legal avenues to pursue the College for a debt that, if it existed, should have been established using a substantive legal process in which the arguments on both sides could have been properly canvassed. It is very easy to make a statutory demand, and thereby to expose one’s alleged debtor to trouble and expense to avoid insolvency processes. Misuse of the statutory demand process should not be encouraged by allowing an alleged creditor to evade responsibility for the expense thereby caused.
| I certify that the preceding thirty-four [34] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Justice Penfold. Associate: Kate Harris Date: 25 August 2015 |
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