In the matter of Cafe Strand Pty Limited
[2012] NSWSC 781
•10 July 2012
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Cafe Strand Pty Limited [2012] NSWSC 781 Hearing dates: 10 July 2012 Decision date: 10 July 2012 Before: Young AJ Decision: Paragraph 32
Catchwords: PRACTICE AND PROCEDURE - costs - review of Registrar's order as to costs Legislation Cited: Corporations Act 2001 (Cth) Category: Costs Parties: Proline Signs Pty Ltd (Plaintiff)
Cafe Strand Pty Limited (Defendant)Representation: B Hemsworth (of Somerville Legal) (Plaintiff)
D Farrar (of Farrar Lawyers) (Defendant)
File Number(s): 2012/38199
Judgment - EX TEMPORE
This is an application to review a decision of a Senior Deputy Registrar. It is necessary to set out with as little detail as possible the history of the matter.
The plaintiff, Proline Signs Pty Ltd, claims that the defendant, a restaurant company, owed it money, presumably for putting up a sign. The original debt was claimed at $9353.30. The debt was incurred in May 2011. The defendant paid half, and then paid a further $2500 in September 2011. That left, according to the plaintiff, a balance of almost $2600. Nothing happened and on 4 November 2001 the plaintiff served a creditor's statutory demand.
The defendant did not retain solicitors. However, the controller of the defendant wrote to the plaintiff or its solicitors, the most significant correspondence being an email of 25 November, which said:
"We advise the following:
(1) Cafe Strand has not at any time engaged the services of your client for any works.
(2) All works to the building were by contractors who were paid for all works carried out.
(3) We have requested and your client has failed to provide us with any documents of proof with regards to any work ordered by Cafe Strand or any purchase order by the company.
Can you please advise if your client wishes to continue with this statutory demand or is prepared to withdraw their claim on Cafe Strand..."
The emailed ended with this:
"If you wish to proceed with this matter, you are put on notice that (a) you are to respond to this correspondence by close of business today; (b) you must contact our lawyers 'Farrar Lawyers' below."
The email had been sent, according to the document, at 8.12am. At 6pm that night the solicitor to whom it was directed said she had been in court all day and had been unable to speak with her client, and requested time until close of business the following Monday. I should note that 25 November was a Friday.
The next piece of correspondence is an email sent by the defendant on 29 November, being the last day on which the statutory demand could be set aside, which said that the company had not received a response from the plaintiff's solicitor yesterday and that would they be making an application to have the notice set aside with costs.
It was only the following Friday, 2 December, that there was a reply, but it was a reply which contained an offer to compromise. That was on 2 December. On 21 December the defendant offered to settle on a without-prejudice basis for $1500. The email ended: "Payment can be made today or tomorrow."
The solicitor responded:
"I advise my client accepts your offer of $1500, payable today. Please confirm the payment by close of business today."
Nothing happened. The $1500 was never paid. However, in March or early April 2012, the defendant finally provided satisfactory evidence that it was not insolvent.
On 17 April 2012, Senior Deputy Registrar Howard dismissed the originating process virtually by consent. However, there was a debate before the learned registrar as to whether either the plaintiff or the defendant should get an order for costs. He decided that there should be no order as to costs. I am told that he gave reasons, but no one has a copy of those reasons and there is no copy in the file. It seems to be that he thought there were some unsatisfactory aspects of the matter on both sides.
The plaintiff filed an interlocutory process on 9 May 2012 to review those orders, seeking that the defendant pay the plaintiff's costs of the proceedings and of this motion.
That is what I have heard today. Mr Hemsworth, solicitor, appeared for the plaintiff and Mr Farrar, solicitor, appeared for the defendant.
There has always been some doubt in my mind as to just what are the rules that govern the making of an order for costs in the present situation. Section 466 of the Corporations Act 2001 (Cth) makes it clear that where there is an application to wind up a company on the ground of insolvency, the Court does not make any order for costs of the applicant in the ordinary way, but the liquidator then has a statutory obligation to "reimburse the applicant out of the property of the company the taxed costs incurred by the applicant".
Section 467 deals with the Court's powers on the hearing of a winding-up application. Section 467(1) empowers the Court to "dismiss the application with or without costs" (in subsection (a)) or to make any other order that it thinks fit (in subsection (c)).
Section 467(3) is headed "powers when application comes on for hearing or at any time on request", which seems to suggest that the powers of the Court on hearing are only on the hearing of the actual application and not at any other stage of the proceedings and, because this is a Commonwealth Act, it would tend to displace any provision of the State Supreme Court Rules as to costs.
However, for all intents and purposes, both parties have approached this case on the basis that the Court has a discretion, subject to the guidelines in the authorities, to make whatever order for costs is appropriate and, apart from setting out my concerns, I will, for once, do as I am told.
So then what is the situation between the parties? The Court, and doubtless the plaintiff's solicitors, have seen thousands of situations where debtors have reacted to a statutory demand or threat of issue of a statutory demand by saying that the debt is disputed. The Court, and most solicitors who constantly act for creditors in this situation, always require more than that. They usually write back and say, "It's not enough for you to say that the debt is disputed. We want you to tell us exactly why you say the debt is disputed." That did not happen here; presumably it did not happen because a reasonable solicitor would have formed the opinion that the debtor was just playing for time.
I have set out the email of 25 November, which sets out three reasons why the debt is disputed. At that stage one would have expected there to be further details requested by the creditor or at least the creditor to say, "Hey, wait a minute. If we are not a creditor, why have you already paid us something like $7,176 with respect to the debt?" But none of that happened.
The statutory demand was to expire on 29 November. The solicitor for the creditor asked for further time to get instructions and that was fair enough. But on 29 November, the last day, there was a further email from the defendant, which, whilst not saying anything of itself, should have urged a decision by that date. However, there was no answer until 2 December, after the demand had expired, so there was now a statutory presumption of insolvency.
Mr Farrar submits that the email of 2 December was made with the benefit of an expired demand and with a threat that "within the next three business days we will seek instructions in relation to filing an originating process". Mr Farrar submits that the statements are telling and that they demonstrate an awareness that the demand had expired and suggest that Mr Yiasemides obtained legal advice which would confirm this. So it was a matter of putting undue pressure on the debtor to pay, the creditor's solicitors having deliberately waited until the demand had expired before taking this view.
It is a bit unfortunate, but it would be unfair to the solicitor, who was an assistant solicitor at the plaintiff's solicitor's firm, to accuse her of deliberate trickiness without giving her an opportunity to answer that sort of allegation. However, the activity or non-activity between 25 November and 2 December does not sit well with the way in which the matter was handled in the plaintiff's solicitor's office.
However, as I have said, there was an agreement to settle the case on 22 December.
Mr Hemsworth's submissions were that there may have been an accord on 22 December but there was no satisfaction because the $1500 was not paid on that date or within a reasonable time thereafter.
Mr Farrar, on the other hand, says that when one looks at the email, the contract was that the $1500 was the settlement. There were mutual promises that that would be paid and accepted. Time was not of the essence for the payment of the money. It was to be paid within a reasonable time and when it was not paid within a reasonable time there was an action for debt which could have been brought in the Local Court.
The mind revolts against that sort of proposition. Unfortunately, however, it would seem to me that the way in which the emails were given and exchanged on 22 December means that Mr Farrar's construction of the contract is correct. But that does not really assist his client very much because on 6 February, when the originating process was issued, the plaintiff was still a creditor. It may have been a creditor because it was bound by an agreement to accept $1500, but it was still a creditor. There was a statutory demand which had been put out, and not complied with, mainly because the defendant did not approach any lawyer before it expired. So that the plaintiff had a lay-down misère case that it was a creditor, was owed at least $1500 and there was a presumption of insolvency, so that unless the defendant could show under s 459S of the Corporations Act that some other view should be taken, it would be wound up.
When the plaintiff saw that the company could prove its solvency, it did the appropriate thing and it accordingly agreed to either withdraw or have the summons dismissed. Now, on that scenario I cannot see any reason at all why the defendant would be entitled to any costs. It had behaved like a professional debtor. It had never paid the amount due under the settlement. It had never given any details as to what its defence was. Indeed, the affidavit that was sworn yesterday as to why the debt is disputed is, to my mind, quite contrary in some respects to the email of 25 November.
So there is no reason why the defendant should get any costs. The question is should the plaintiff.
Now, the plaintiff's solicitor's handling of the matter in the period between 25 November and 2 December leaves a bit to be desired. There is a suggestion that it operated unfairly for the defendant. I just do not have enough material to make a finding one way or the other and I am always reluctant to make a finding that a solicitor did not do his or her job properly. However, it did provide the defendant with a reason for saying that the issue of the process was a little premature. That would have sounded far more feasible if the $1500 had actually been paid and if the affidavit of the accountant showing the solvent position of the defendant had been processed earlier. But that did not happen.
So then what should the registrar have done on 17 April? The authorities show that when I am hearing a review, I am not working out whether the registrar was right or wrong, though there is a guideline that Judges should not lightly interfere with a decision made by a Registrar. However, in this case we just do not know what was the reasoning for the Senior Deputy Registrar's decision.
When I adjourned for the short adjournment, I was under the mistaken impression that the plaintiff had been paid the $1500. I am now told that that is not so and that, I think, makes a difference. If the $1500 had been paid, I would have considered that, in the exercise of the discretion of the Court as to what was the appropriate order for costs, the appropriate order for costs was that the disbursements - that is, the filing fees and other ancillary disbursements for service et cetera - should have been paid by the defendant but otherwise there should be no order as to costs and there be no order for costs of the interlocutory process.
However, it seems to me that with the additional fact that the $1500 was not paid, it was appropriate for the plaintiff to issue the proceedings on 6 February (that was over a month after the $1500 was due and there had been no proper reaction from the defendant). Thus, it was not reasonable to require it to sue for the $1500 in the Local Court. In the circumstances, the learned Senior Deputy Registrar should have ordered the plaintiff to get its costs of the proceedings. It also follows that the plaintiff is entitled to the costs of this interlocutory process.
Accordingly, I review the order of the Senior Deputy Registrar. In lieu of his order that there be no order as to costs, I make Orders 2 and 3 in the interlocutory process of 9 May.
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Decision last updated: 11 July 2012
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