In the matter of Maize Enterprises Pty Ltd

[2000] QSC 358

SUPREME COURT OF QUEENSLAND

CITATION:

In the matter of Maize Enterprises Pty Ltd [2000] QSC 358

PARTIES:

MAIZE ENTERPRISES PTY LTD
(ACN 010 353 590)
(applicant)
v
NATIONAL AUSTRALIA BANK LIMITED
(respondent)

FILE NO:

No 7870 of 2000

DIVISION:

Trial Division

DELIVERED ON:

10 October 2000

DELIVERED AT:

Brisbane

HEARING DATE:

26 September 2000

JUDGE:

Chesterman J

ORDER:

1. The applicant’s costs of the application should be assessed on the standard basis and paid by the respondent

2. By consent, the statutory demand issued by the respondent on 24 August 2000 be set aside

CATCHWORDS:

PROCEDURE – COSTS – DEPARTING FROM THE GENERAL RULE – ORDER FOR COSTS ON INDEMNITY BASIS – respondent served statutory demand on applicant – dispute of facts as to debt – whether statutory demand an abuse of process – whether costs should be paid on indemnity or standard basis

Corporations Law, s 459E

COUNSEL:

D P O’Brien for the applicant
J W Peden for the respondent

SOLICITORS:

Fox Lawyers for the applicant
Mallesons Stephen Jacques for the respondent

1. CHESTERMAN J: On 24 August 2000 the respondent served upon the applicant a statutory demand pursuant to s 459E of the Corporations Law insisting upon the payment of $132,411.24 within 21 days, failing which the respondent intimated it would seek the winding up of the applicant.  On 8 September 2000 the applicant applied for an order setting aside the statutory demand and an injunction restraining the respondent from applying to wind it up. 

1. The respondent concedes that the debt which it demanded is genuinely disputed by the applicant and consents to an order that the statutory demand be set aside.  The injunction is no longer sought. 

1. The only outstanding question is that of costs.  The applicant seeks an order that its costs be paid on an indemnity basis because the issue of the demand was an abuse of process.  It submits that the respondent well knew that the debt was disputed.  The respondent admits liability to pay costs but submits that the amount should be assessed on the standard basis and should be limited by reason of the extravagant volume of material prepared and relied upon by the applicant in support of the application. 

1. The applicant leased a hotel to Rengar Equity Pty Ltd (“Rengar”).  Clause 12.2 of the lease provided that at the date of its termination Rengar had to leave “selected fittings” in the premises.  The applicant was obliged to purchase them for a price calculated in accordance with a formula set out in the lease.  The clause gave the applicant a right to set off against the purchase price any money owing by Rengar to the applicant “on any account whatsoever”. 

The lease was terminated because of Rengar’s default. Fittings remain in the premises and the applicant is obliged to pay for them. The amount demanded by the respondent pursuant to s 459E is the price fixed by the lease.

1. The respondent claims to be entitled to payment of the sum because it lent money to Rengar on the security inter alia of a chattel mortgage over the selected fittings.  The applicant consented to the mortgage by a deed, clause 3(b) of which is relevant.  It provides that:

“The (respondent) covenants with the (applicant):

(a)         . . .

(b). . . if any right power or remedy becomes exercisable or enforceable under the security to duly . . . perform the covenants on the part of (Rengar) . . . which are contained in clauses 12.2 . . . of the lease as if the (respondent) had been named in and executed the Lease as lessee under it.”

The security was defined by the deed to include the chattel mortgage. 

1. The respondent’s claim as adumbrated in its solicitors’ letter to the applicant’s solicitor of 8 September 2000 was that the fittings were conveyed by Rengar to the respondent under the terms of the chattel mortgage to which the applicant had consented.  When the lease was determined in June 1999 the fittings were owned by the respondent pursuant to the security.  The lease obliged the applicant to buy the fittings at the specified price.  The operation of clauses 3 and 4 is said to have substituted the respondent for Rengar as the vendor of the fittings. 

1. The applicant’s argument is that clause 3(b) of the deed allows it to extend its right to set-off against the purchase price any money owed by Rengar to its obligation to pay the respondent.  That is the applicant argues that it can set off moneys it is owed by Rengar against the price it is obliged to pay the respondent for the fittings. 

1. Neither argument strikes me as being self evident from a reading of the lease and the deed.  Both parties accept that there is sufficient ambiguity to give rise to a dispute about the respondent’s entitlement to be paid and/or the applicant’s right to set-off against the purchase price Rengar’s debt to it. 

1. The real question is whether the dispute was so notorious before 24 August as to make the issue of the statutory demand an abuse of process.  Unless it was there is no basis for an award of indemnity costs. 

1. By a letter dated 22 November 1999 from the respondent’s solicitors to Cleary Hoare solicitors (then acting for the applicant) the respondent drew attention to clause 12 of the lease, and the deed of covenant, and asked whether the applicant contended “that any of the lessee’s fittings at (the) hotel . . . are not selected fittings (as that term is defined in (the) lease).”  On 1 February 2000 the respondent’s solicitors sent a letter by fax referring to its earlier letter of 22 November, noted that it had received no response, and went on:

“The (respondent) therefore proceeds on the basis that all of the lessee’s fittings are selected fittings . . . accordingly . . . we demand that your clients pay the amount of . . . the depreciated value of the selected fittings . . . on or before . . . 4 February 2000.  If payment is not received  . . . we anticipate receiving instructions to take formal steps to recover the amount owing . . .”

1. On 4 February 2000 the applicant’s solicitors wrote to the respondent’s solicitors. They referred to the letter of 1 February to Cleary Hoare and went on:

“It is unclear who you are acting for, to whom your demand is directed and upon what right the demand is based.  Please clarify these matters.”

The solicitor who signed the letter was formerly an employee of Cleary Hoare.  He is closely related to the directors and shareholders of the applicant.  His ignorance of the matters referred to in his letter appear surprising given the circumstances.  On 11 February 2000 the respondent’s solicitors replied and enclosed a copy of their earlier letter of 22 November 1999 to Cleary Hoare.  On 20 February 2000 the applicant’s solicitors wrote to the respondent’s solicitors:

“We understand that your demand . . . is based upon the terms of the deed . . . under which our client consented to the (respondent) taking security . . . that deed does not appear to contain any  covenant on the part of our client to pay any moneys to the (respondent).  Please explain . . . your assertion that our client is indebted to the (respondent) and in particular please specify which clause of the deed . . . you assert imposes an obligation . . . to pay . . .”

1. There was no further correspondence until the issue of the demand. The explanation sought  by the applicant was provided in the letter I have mentioned which the respondent’s solicitors wrote on 8 September 2000.  In a letter of the same date the applicant’s solicitors asserted that the respondent “had been aware for over 12 months that there is a genuine dispute as to the debt which is a subject of the statutory demand . . .” 

1. The correspondence I have referred to does not bear out that assertion.  Counsel for the applicant referred me to earlier letters but they appear frankly irrelevant.  It appears that the parties are in dispute over a large number of issues arising from Rengar’s default under the lease of the hotel and another lease of property to Rengar. There has been a voluminous and acrimonious exchange of correspondence about many matters but I have not been referred to any material which shows that the difference between the parties with respect to the particular debt the subject of the statutory demand was evident before it was issued.

1. I do not think it right that the respondent issued its demand knowing that there was an arguable defence to its claim.  Both parties ignored the requests of the other for clarification of their respective positions.  Not having clearly articulated why it resisted payment of the price for the fittings the applicant cannot now contend that the demand was an abuse of process.  It was warned in February that a demand would issue without further notice unless it could satisfy the respondent that the money was not, or was arguably, not owing. 

1. There is no basis for an award of indemnity costs. 

1. The respondent has a point in its complaint that the applicant’s material is prolix and contains much that is irrelevant and unnecessary.  The point at issue could have been demonstrated by the production of the lease and the deed and a minimum of correspondence.  Such economy did not appeal to the applicant.  Its affidavit material runs to over 400 pages.  The respondent asks for an order which would not expose it to liability to pay for what is said to be an extravagant affidavit.  There is considerable substance in the respondent’s submission but it is neither appropriate nor necessary for a judge to rule upon the amount of costs payable as a consequence of the demand being set aside.  I apprehend that the taxing officer would disallow costs unnecessarily incurred by the applicant. 

1. The respondent concedes that an order for costs should be made against it.  The appropriate order is that the applicant’s costs of the application should be assessed on the standard basis and paid by the respondent.

1. There will also be an order, by consent, that the statutory demand issued by the respondent on 24 August 2000 be set aside.