Eastland Medical Systems Ltd v Sims
[2012] WASC 241
•6 JULY 2012
EASTLAND MEDICAL SYSTEMS LTD -v- SIMS [2012] WASC 241
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2012] WASC 241 | |
| Case No: | COR:55/2012 | 29 MAY 2012 | |
| Coram: | MASTER SANDERSON | 6/07/12 | |
| 6 | Judgment Part: | 1 of 1 | |
| Result: | Defendant to pay plaintiff's costs of application including reserved costs | ||
| B | |||
| PDF Version |
| Parties: | EASTLAND MEDICAL SYSTEMS LTD DOUGLAS SIMS |
Catchwords: | Corporations Law Costs of application to set aside statutory demand when application is conceded |
Legislation: | Nil |
Case References: | Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
DOUGLAS SIMS
Defendant
Catchwords:
Corporations Law - Costs of application to set aside statutory demand when application is conceded
Legislation:
Nil
Result:
Defendant to pay plaintiff's costs of application including reserved costs
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr J R Ludlow
Defendant : Mr R J Squires
Solicitors:
Plaintiff : Downings Legal
Defendant : HHG Legal Group
Case(s) referred to in judgment(s):
Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85
(Page 3)
1 MASTER SANDERSON: On 24 April 2012, the plaintiff filed an application to set aside a statutory demand served on it by the defendant. By consent, on 8 May 2012, the demand was set aside. The question of the costs of the application were reserved. These reasons deal with the issue of costs.
2 The defendant's claim, the subject of the statutory demand, is described as follows:
The debt arises from invoices rendered to the Creditor by HHG Legal Group for legal services provided to the Creditor and for which the Creditor is entitled to be reimbursed pursuant to a deed of access, insurance and indemnity entered into by the Creditor and the Debtor Company in or about 2007, being invoices numbered 47671, 48121, 48375, 48720, 49037 and 49563, totalling $41,882.14. The amount of $41,882.14 remains due and payable by the Debtor Company.
3 It is unnecessary for present purposes to go into detail about the circumstances which led to the defendant incurring the legal fees, the subject of the demand. Suffice it to say that the defendant sent an email to Mr Peter Jooste QC, the non-executive chairman of the plaintiff and various parties. Mr Jooste took exception to the email and issued proceedings in the Federal Court. Effectively, the defendant said it was entitled to an indemnity from the plaintiff for the cost of defending those proceedings.
4 The Deed of Access, Insurance and Indemnity referred to in the statutory demand is a curious document. A copy appears as annexure SJC5 to the affidavit of Stephen John Carter, sworn 24 April 2012 and filed in support of the application to set aside the statutory demand. It is an agreement between a director of the plaintiff company, referred to in the deed as 'the Officer' and the company itself. The aim of the deed can be summarised by quoting par (B) of the recitals:
The Company wishes to establish arrangements to ensure that the Officer is fully indemnified and protected from any claims relating to that Officer's position with the Company (and any subsidiary of the Company) to the fullest extent permitted by law.
5 It is not uncommon for a company to take out directors' and officers' liability insurance. The possibility of the company taking out such insurance is anticipated by recital B. The agreement itself is simply an undertaking by the company to indemnify the officer irrespective of whether or not insurance is obtained.
(Page 4)
6 The defendant's difficulty in this case is that he is unable to produce a signed copy of the deed. The plaintiff, through Mr Carter, says a search of its records has not located any deed entered into between the plaintiff and the defendant. Once that point is reached, it is clear there is a dispute between the parties such as would require the statutory demand to be set aside. So, the defendant has properly conceded the application.
7 The plaintiff says that the defendant should pay the plaintiff's costs and those costs should be awarded on an indemnity basis. The defendant maintains it should have the costs of the action not only until the affidavit in support was filed, but up to and including the costs in relation to this residual argument. The parties are diametrically opposed on the question of costs.
8 The plaintiff made three main submissions in support of its application. First, it was said the issue of the statutory demand was an abuse of process. By reference to the decision of the Court of Appeal in Createc Pty Ltd v Design Signs Pty Ltd [2009] WASCA 85, it was submitted the true purpose of a statutory demand is to assist an applicant in an application for an order winding-up a company in insolvency. The statutory demand procedure was not intended to provide a debt-recovery tool for those who do not believe the recipient of the statutory demand is insolvent, or who do not intend, if the demand is not satisfied, to apply for an order winding-up the company in insolvency. The service of a statutory demand for debt-collecting purposes, and nothing more, is an abuse of process.
9 On behalf of the plaintiff, it was pointed out at the same time the defendant was serving and relying upon the statutory demand, it was applying to the Federal Court for an order it recover its alleged entitlements the subject of the claim in the statutory demand, in a court alleged to be of competent jurisdiction. It was said the making of that application was effectively a concession on the defendant's part that the defendant could, and should, seek to recover his alleged entitlements in such a court. Further, it was said the published accounts of the plaintiff, which is a public company, were freely available to the defendant and would have showed it was solvent. In that circumstance, so it was submitted, the statutory demand procedure was not appropriate.
10 Secondly, it was said the defendant knew there was a genuine dispute as to the liability of the plaintiff to the defendant. The plaintiff says the fact it was denying liability to indemnity the defendant in relation to Mr Jooste's claim was made plain to the defendant in writing by
(Page 5)
- 2 February 2012. Further, by letter of 11 April 2012, the plaintiff's solicitors outlined the arguments as to the genuine dispute. It was submitted on behalf of the plaintiff the defendant ought to have conceded the application as at that date.
11 Thirdly, in the same letter of 11 April 2012, the plaintiff's solicitors asked the defendant's solicitors to unconditionally withdraw the statutory demand. They indicated if the statutory demand was not withdrawn, the plaintiff would commence preparation of the application and in making the application would seek indemnity costs. The demand was not withdrawn.
12 By letter from the plaintiff's solicitors to the defendant's solicitors dated 24 April 2012, attaching by way of service the application in this matter and the supporting affidavit, the plaintiff offered without prejudice as to costs to settle the application on the basis that the defendant would pay the plaintiff's costs. The defendant did not accept that offer. Rather, the defendant called upon the plaintiff to provide a further affidavit of the plaintiff's chairman confirming certain matters not relevant to the application.
13 During the course of the hearing, I indicated to the parties I would not order indemnity costs. However, it was a near run thing. The plaintiff's submissions made three very valid points. Before issuing a statutory demand, a party should be fully advised as to the circumstances which make the procedure appropriate. This includes careful consideration as to whether there is a genuine dispute and as to whether the company is solvent. There are many cases where the arguments which eventually give rise to the genuine dispute were not raised by the company before the statutory demand is served. In many cases, perhaps the majority of cases, the company is a proprietary limited company and no assessment can be made as to its solvency. No criticism can be levelled against a party who issues a demand in such circumstances. It is incumbent upon every party who does issue a demand to consider these matters.
14 Once the demand is served, the company has 21 days to apply to set aside the demand. No extension of that timeframe is possible. So, the parties serving the demand knows the company and its solicitors must act quickly. If the company puts forward an argument which shows a genuine dispute, even where that argument was not raised prior to the issue of the demand, and even if it could have been raised before the issue of the demand, it is incumbent upon a party to consider whether it is
(Page 6)
- appropriate to proceed. One of the matters that should be taken into account is the question of costs. To proceed in circumstances where it is clear there is a genuine dispute, is to invite not only a costs order, but an indemnity costs order.
15 Having put the matter in this way, it is clear why it was a very close decision as to whether or not to award indemnity costs. In the end, I was not satisfied the circumstances of the case were such as to warrant an indemnity costs orders. The facts disclose it was the practice of the plaintiff company to provide a written indemnity to its officers. Although the defendant appears not to have had a copy of that indemnity, it is by no means certain one was not signed. The fact the plaintiff cannot now locate such a copy might suggest one does not exist, but it is hardly conclusive. If a search of the plaintiff's records had thrown up such a document, it may have been the case a genuine dispute would not exist.
16 I am satisfied the defendant ought pay the costs of this application, including the costs of the argument as to costs and reserved costs. As a general rule, costs should follow the event. The defendant conceded this application and, prima facie, the plaintiff is entitled to the costs. Nothing in the conduct of the plaintiff suggests it should forfeit that prima facie right to costs. Nothing in the conduct of the defendant alters the position. He had no choice but to concede the application and he should have done so earlier than it did, and without conditions. There is certainly no justification for awarding costs in favour of the defendant.
17 Accordingly, there will be an order the defendant pay the plaintiff's costs of the application, including reserved costs and the costs of this hearing.