Jarena Pty Ltd v Sholl Nicholson Pty Ltd

[1996] FCA 177

CATCHWORDS

CORPORATIONS - statutory demand - claim by solicitor for costs - application to set aside statutory demand - whether debt specified - defect not causing substantial injustice - solicitor's bill not in taxable form - provision in Supreme Court Act 1986 (Vic) for stay of proceedings - whether relevant to setting aside statutory demand

Corporations Law ss 459E, 459H, 459J

Supreme Court Act 1986 (Vic) ss 61, 64

Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACLC 1143

Mibor Investments Proprietary Limited v Commonwealth Bank of Australia (1993) 11 ACLC 1062

re:  Jarena Pty Ltd v Sholl Nicholson Pty
(No. 3558 of 1995)
re:  Leapint Pty Ltd v Sholl Nicholson Pty
(No. 3559 of 1995)

Judge:    Heerey J
Date:     27 February 1996
Place:    Melbourne

IN THE FEDERAL COURT OF AUSTRALIA )
  )
VICTORIA DISTRICT REGISTRY       )         No. 3558 of 1995
  )
GENERAL DIVISION                 )

IN THE MATTER OF JARENA PTY LTD
(ACN 056 635 191)

B E T W E E N:
  JARENA PTY LTD
  (ACN 056 635 191)
  Applicant
  - and -

SHOLL NICHOLSON PTY
  (ACN 052 098 012)

Respondent
IN THE FEDERAL COURT OF AUSTRALIA )
  )
VICTORIA DISTRICT REGISTRY       )         No. 3559 of 1995
  )
GENERAL DIVISION                 )

IN THE MATTER OF LEAPINT PTY LTD
(ACN 006 977 779)

B E T W E E N:

LEAPINT PTY LTD
  (ACN 006 977 779
  Applicant
  - and -

SHOLL NICHOLSON PTY
  (ACN 052 098 012)
  Respondent
JUDGE:    Heerey J
DATE:     27 February 1996
PLACE:    Melbourne

MINUTE OF ORDERS

The Court orders that in each proceeding:

1. Application is allowed.

2. The statutory demand dated 5 September 1995 is set aside.

3. The respondent pay the applicant's costs including reserved costs.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

IN THE FEDERAL COURT OF AUSTRALIA )
  )
VICTORIA DISTRICT REGISTRY       )      No. VG 3558 of 1995
  )
GENERAL DIVISION                 )

IN THE MATTER OF JARENA PTY LTD
(ACN 056 635 191)

B E T W E E N:

JARENA PTY LTD
  (ACN 056 635 191)
  Applicant
  - and -

SHOLL NICHOLSON PTY
  (ACN 052 098 012)

IN THE FEDERAL COURT OF AUSTRALIA )
  )
VICTORIA DISTRICT REGISTRY       )         No. 3559 of 1995
  )
GENERAL DIVISION                 )
  Respondent

IN THE MATTER OF LEAPINT PTY LTD
(ACN 006 977 779)

B E T W E E N:

LEAPINT PTY LTD
  (ACN 006 977 779
  Applicant
  - and -

SHOLL NICHOLSON PTY
  (ACN 052 098 012)
  Respondent

JUDGE:    Heerey J
DATE:     27 February 1996
PLACE:    Melbourne

REASONS FOR JUDGMENT

These are two applications to set aside demands under Division 3, Part 5.4 of the Corporations Law.  Both companies, Jarena Proprietary Limited and Leapint Proprietary Limited, were controlled by a Mr Richard John Kaplon.  The respondent Sholl
Nicholson Proprietary is a legal firm and the amounts the subject of the demands arise out of legal work said to be done by it at the request of the two applicants. I think it would be a convenient way of dealing with this matter if I go immediately to deal with the points said to create a genuine dispute for the purposes of s 459H or demonstrate sufficient "other reasons" for the purposes of s 459J.

First, it was said the demand was misleading and confusing because the company had no way of working out the amount due to it, and that it was not to the point that further explanations were given in subsequent affidavits.  I do not think that a genuine dispute is raised in relation to this point.  The demand makes clear what is the amount claimed, that is $21,929.60.  The recipient of the demand would know that, rightly or wrongly, that is the amount which the respondent is claiming. 

Secondly, there may be some ground for thinking that the demand does not "specify" the debt as is required by s 459E(2)(a) of the Corporations Law.  There is apparently no authority on this point.  I take it that specifying a debt means at least indicating the nature of the debt, for example, for goods sold and delivered or work and labour done.  The demand in the present case does not specify the debt in that sense, and as a matter of formal validity it probably does not comply with the Corporations Law even though I have little doubt that Mr Kaplon knew in fact what was the nature of the respondent's claim. 

However, I think the point is met by s 459J(2) which provides that except as provided in sub section (1) the court must not set aside a statutory demand merely because of a defect. Sub-section 459(J)(1) gives the Court a discretion to set aside the demand if it is satisfied that

(a)because of a defect in the demand substantial injustice would be caused unless the demand is set aside; or

(b)there is some other reason why the demand should be set aside.

It does not seem to me that the defect that I have referred to can be shown to have caused substantial injustice to the applicant, or indeed any injustice at all.

The third point related to the requirements of the Supreme Court Act 1986 (Vic). Section 64 of that Act provides for agreements between solicitors and clients concerning the costs to be charged by a solicitor for a transaction. By s 64(3) such an agreement must be in writing signed by or on behalf of the person to be bound by it. It is common ground that no agreement satisfying s 64 was entered into in the present case.

Therefore the respondent can only pursue its claim under s 61 which provides that, except where there is a solicitor/client agreement under s 64, a solicitor must not commence any proceeding to recover costs due to the solicitor until after the solicitor has complied with the section. Sub section (2) provides that the solicitor may draw and serve on a party a bill of costs either in a taxable form or in lump sum form.

In the present case the bill was in lump sum form. Sub-section (3) provides that if a solicitor serves a bill of costs drawn in lump sum form the party to be charged may within one month after that service request the solicitor to serve the bill of costs drawn in taxable form. Mr Kaplon deposed that he requested a bill in taxable form on a number of occasions. That is denied on oath by the solicitor who handled the work at the respondent's office. But it is an essential element of the protection provided by s 61(3) that the request be made within one month after service of the bill. There is no evidence as to compliance with that time limit.

However, s 64(4) provides:

If no request is made under sub-section (3) within the time referred to in that sub-section, the solicitor may then commence any proceeding to recover the costs due to him or her but that proceeding may on the application of the party to be charged be stayed by the court in which it was commenced until one month after the solicitor has served on that person a bill of costs drawn in taxable form. 

In the present case, I am satisfied that there is a dispute as to the rate at which the respondent was to do the work.  There was a delay in making complaint about the amount charged.  That to my mind is valid criticism which may well carry weight with a court deciding the dispute, but is not conclusive
against the existence of a genuine dispute: see Mibor Investments Proprietary Limited v Commonwealth Bank of Australia (1993) 11 ACLC 1062 at 1064.

Perhaps more importantly, it appears to be common ground that there was an agreement between the applicant and the respondent that the work was to be done on a time basis, the only dispute being as to the rate agreed upon. As such it must follow that, there being no written agreement within s 64, the entitlement of the respondent must be under the Supreme Court scale. Unless there is some extraordinary coincidence, that would not be the same as the amount calculated on a time basis, whether at the respondent's suggested rate or the applicant's suggested rate.

Now it is true that there is no "proceeding to recover the costs" in this Court brought by the solicitor within the meaning of s 61(4). The only proceeding in this Court is one brought by the applicants to set aside the demands. Nevertheless it seems to me that I can and should, for the purpose of exercising the discretion conferred by section 459J(1)(b) of the Law, take into account the policy behind s 61 of the Supreme Court Act, which seems to me that even if a client does not avail himself or herself of the right to request a bill, nevertheless the statute provides a second line of defence should the solicitor take any proceedings.  That provision was obviously enacted by the Victorian Parliament with a view to providing protection for clients against solicitors.  I think it would be wrong if that protection could be effectively bypassed by utilising winding-up proceedings.  I will therefore set aside the demands. 

I should say that some other points were argued.  First, that the respondent is a stakeholder of the sum of $34,586.63 which is held by it on behalf of the applicant Jarena, a company called Trephine Proprietary Limited, which was a joint venture of some sort with the applicant in the project which gave rise to the respondent's claim and the Commonwealth Bank, which is the banker to Trephine. 

However there is no material before me as to the source of these funds, and in particular as to what part was contributed by the applicant Jarena.  The solicitor deposes that the money can only be paid out on the joint request of the three parties concerned.  As counsel for the respondent put it, I think it is reasonable to assume that had the applicant Jarena been the sole party beneficially entitled to the sum that the respondent would have appropriated it in payment of the costs which are claimed. 

Finally, as to the applicant Leapint, there is a further question as to whether Leapint was ever a client.  I am inclined to think that there is a genuine dispute as to this point.  In particular, all the respondent's accounts were directed to Jarena.  If Jarena, as the respondent claims, was a separate client for which separate legal services were done, it is surprising that exactly the same amount is claimed against Leapint as is claimed against Jarena. 

Accordingly both demands will be set aside.  Each applicant should get its costs.  As I said in Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACLC 1143 it is the assertion of a disputed right - ie the right to have the demand set aside - on which the applicants here succeeded. The applicants, I might add, have not come home with colours flying and there is considerable force in the criticism that counsel for the respondent has made as to some aspects of the applicants' case. Nevertheless, it has to be kept in mind that all the law requires is a genuine dispute, not an establishment on the balance of probabilities that an applicant is more likely than not to succeed.

There is also this special element which has really turned the case in favour of the applicants;  that is, the requirements of the Supreme Court Act. Section 64 was obviously introduced for a purpose, and that is to enable clients and solicitors to know where they stood and to minimise the occurrence of disputes of which the present case is typical. It was within the respondent's position as solicitors to protect themselves against the possibility of this sort of dispute by entering into a costs agreement, but they did not. I think I can take that into account also in deciding that the applicants should get their costs.

I certify that this and the preceding seven (7) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.

Dated:

Associate

Appearances

Counsel for the applicant:       Ms S Horovitz

Solicitor for the applicant:     Vernons

Counsel for the respondent:      Mr S P Gardiner

Solicitor for the respondent:     Sholl Nicholson Pty

Date of hearing:                 27 February 1996