Kimberley Oil Nl v Geological and Corporate Management Pty Ltd
[2000] WASC 294
•5 DECEMBER 2000
KIMBERLEY OIL NL -v- GEOLOGICAL & CORPORATE MANAGEMENT PTY LTD [2000] WASC 294
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2000] WASC 294 | |
| Case No: | COR:258/2000 | 27 NOVEMBER 2000 | |
| Coram: | MASTER SANDERSON | 5/12/00 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Indemnity costs awarded | ||
| PDF Version |
| Parties: | KIMBERLEY OIL NL (ACN 075 760 655) GEOLOGICAL & CORPORATE MANAGEMENT PTY LTD (ACN 080 119 455) |
Catchwords: | Costs Application for indemnity costs Application to set aside statutory demand Plainly genuine dispute as to debt subject of demand Accompanying affidavit not complying with rules Duties of solicitors when drafting accompanying affidavit |
Legislation: | Rules of the Supreme Court 1971, O 81G r 31 |
Case References: | Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397 Mibor Investments Pty Ltd v Commonwealth Bank of Australia Ltd (1994) 2 VR 290 Australian Underwriting Agencies Pty Ltd v QBE Insurance Ltd (1999) 17 ACLC 22 Clearance Nominees Pty Ltd v Discount Acceptance Corporation Pty Ltd [1997] WASC 443 Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 Gabstone Pty Ltd v Gumina Investments Pty Ltd [2000] WASC 149 Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11 Map Plumbing Services Pty Ltd v B B Enterprises Pty Ltd [2000] NSWSC 820 Portrait Express (Sales) Pty Ltd v Kodak Australasia Pty Ltd (1996) 20 ACSR 746 Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
GEOLOGICAL & CORPORATE MANAGEMENT PTY LTD (ACN 080 119 455)
Defendant
Catchwords:
Costs - Application for indemnity costs - Application to set aside statutory demand - Plainly genuine dispute as to debt subject of demand - Accompanying affidavit not complying with rules - Duties of solicitors when drafting accompanying affidavit
Legislation:
Rules of the Supreme Court 1971, O 81G r 31
Result:
Indemnity costs awarded
(Page 2)
Representation:
Counsel:
Plaintiff : Mr G M Abbott
Defendant : Mr B P Wheatley
Solicitors:
Plaintiff : Arthur Robinson Hedderwicks
Defendant : Murfett & Co
Case(s) referred to in judgment(s):
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd & Ors (1988) 81 ALR 397
Mibor Investments Pty Ltd v Commonwealth Bank of Australia Ltd (1994) 2 VR 290
Case(s) also cited:
Australian Underwriting Agencies Pty Ltd v QBE Insurance Ltd (1999) 17 ACLC 22
Clearance Nominees Pty Ltd v Discount Acceptance Corporation Pty Ltd [1997] WASC 443
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Gabstone Pty Ltd v Gumina Investments Pty Ltd [2000] WASC 149
Kezarne Pty Ltd v Sydney Asbestos Removal Services Pty Ltd (1998) 29 ACSR 11
Map Plumbing Services Pty Ltd v B B Enterprises Pty Ltd [2000] NSWSC 820
Portrait Express (Sales) Pty Ltd v Kodak Australasia Pty Ltd (1996) 20 ACSR 746
Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452
(Page 3)
1 MASTER SANDERSON: This is the plaintiff's application to set aside a statutory demand. The day prior to the hearing the defendant advised the plaintiff that there would be no opposition to the order that the statutory demand be set aside. The only issue between the parties was costs. The plaintiff seeks costs on an indemnity basis. The defendant says either there should be no order for costs or the costs should abide the outcome of Local Court proceedings the defendant intends to issue with respect to the debt the subject of the statutory demand. To background the costs argument it is necessary to identify certain parties and to explain the relationship between the plaintiff and the defendant. Derek George Clauson ("Clauson") is a director of the plaintiff and had primary responsibility for all dealings with the defendant. The defendant is the alter ego of Gerald Johnson ("Johnson") and Ildiko Wowesny ("Wowesny"). Both Johnson and Wowesny were at all material times directors of the defendant and Carpathian Resources NL ("Carpathian"). The plaintiff and Carpathian are both involved in the oil and gas industry. The plaintiff is a company listed on the Australian Stock Exchange. The defendant is in the business of providing geological advice and general consultancy services to the oil and gas industry.
2 On 29 June 1999 the plaintiff and Carpathian reached an agreement which is described by all parties as a letter of intent. Pursuant to this agreement the plaintiff took pre-emptive rights over certain interests in a Polish company which were held by Carpathian. Pursuant to the agreement, the plaintiff was entitled to carry out a due diligence study in relation to the projects held by the Polish company. If after the due diligence investigation the plaintiff was not satisfied as to the projects, then the agreement came to an end. It was agreed that if the plaintiff exercised the option granted by the letter of intent then the defendant would be appointed as consultant to the plaintiff on terms to be agreed. It is common ground between the parties that there was nothing in the letter of intent which obliged the plaintiff to engage the defendant to assist in the due diligence investigation. It was only if the option was exercised that the plaintiff was to engage the defendant as consultant with respect to the Polish projects.
3 In the event, the plaintiff did engage the defendant to assist with the due diligence investigation. Apart from anything else, Wowesny is fluent in Polish and the due diligence investigation was conducted in Poland. According to Clauson the engagement of the defendant by the plaintiff was oral and in broad terms was limited to expenses incurred while Johnson and Wowesny were in Poland. In the event, the due diligence investigation did not satisfy the plaintiff that it was prudent to exercise the
(Page 4)
- option granted by the letter of intent and Carpathian was advised accordingly.
4 By invoice dated 20 August 1999 the defendant rendered an account in the sum of $16,551.70 to the plaintiff for services for "Period Ending: 31 July 1999". On 2 September 1999 the defendant sent to the plaintiff a further invoice said to be for "Period Ending: 31 August 1999". The total amount of this invoice was $21,215.64. It was said to be for work undertaken overseas and in Australia. (These are part of annexure "DGC6" of Clauson's affidavit sworn 3 October 2000 filed in support of the application). It was this second invoice which formed the subject of the statutory demand.
5 It is not clear from the evidence what followed after the second invoice was rendered to the plaintiff by the defendant. What is clear, however, is that on 4 May 2000 the defendant's solicitors wrote to the plaintiff with a copy to the plaintiff's solicitors requesting payment of the invoice (annexure "DGC6"). The plaintiff's solicitors responded to this letter on 12 May 2000 (annexure "DGC9"). They sought particulars of the work undertaken by the defendant giving rise to the invoice. The defendant's solicitors responded on 26 July 2000, providing details of the work undertaken (annexure "DGC6"). The letter does not make it clear the basis upon which the claim is made. The letter details the work done but does not indicate the contractual background pursuant to which the invoice was raised. On 11 August 2000 the plaintiff's solicitors advised they were taking instructions (annexure "DGC10"). On 18 August 2000 the defendant's solicitors advised the plaintiff's solicitors that if the debt was not paid by 21 August 2000 proceedings would be issued (annexure "DGC11"). On 21 August 2000 the plaintiff's solicitors acknowledge receipt of the facsimile of 18 August and indicated they would respond by 23 August (annexure "DGC12"). In fact they responded by a facsimile dated 24 August (annexure "DGC13"). That facsimile disputes the liability of the plaintiff to the defendant for the amount claimed in the second invoice. The statutory demand was issued on 12 September 2000 (annexure "DGC5") and was served on 14 September 2000.
6 The plaintiff's position can be summarised in the following way. They say that it is plain from the correspondence that there is a genuine dispute between the parties in relation to the debt upon which the statutory demand is based. Counsel submitted this emerges clearly from a reading of the correspondence. Counsel further submitted that a party in the position of the defendant properly advised would never have issued the
(Page 5)
- statutory demand. Counsel relies upon what was said by French J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397. In making this submission counsel placed heavy reliance on the affidavit (sworn by Johnson on 12 September 2000, which is annexure "DGC6") which accompanied the statutory demand. Counsel made a number of points. First, it was said that the affidavit did not conform with Form 7 of the Seventh Schedule as is required by O 81G r 31. In particular the affidavit does not contain a statement to the effect that the deponent believes that there is no genuine dispute about the existence or amount of the debt. What the affidavit did contain was the following statement (par 16):
"I verily believe that the Debt is due and payable by the Debtor to the Creditor and that the Debtor is justly and truly indebted to the Creditor for the Debt."
8 Secondly, counsel pointed to the terms of the accompanying affidavit. Annexed to that affidavit was a copy of the letter of intent. Counsel made the point that whatever the basis of the claim in relation to the second invoice it was not anything to be found in the letter of intent. Once again, counsel submitted, properly advised, the defendant could not have drawn the accompanying affidavit to verify the debt based upon the letter of intent.
9 Finally, counsel pointed to the fact that the accompanying affidavit annexed some of the correspondence passing between the solicitors for the parties. Counsel submitted that even taking into account the limited selection of letters annexed to the accompanying affidavit, it must have been plain both to the draftsman of the affidavit and to the deponent that there was a dispute about the debt the subject of the demand. On that basis it was said that the statutory demand should never have been served.
10 There were a number of other points made by counsel during what was a careful and thorough submission. Without attempting to cover all the points raised, counsel referred to correspondence from the plaintiff's solicitors to the defendant's solicitors after the application to set aside
(Page 6)
- statutory demand had been issued. In this correspondence the plaintiff's solicitors pointed out the strength of the plaintiff's case and invited the defendant to settle on the basis that the statutory demand was set aside and the defendant paid the plaintiff's costs. These overtures were rejected. Further, counsel pointed to the fact that a second affidavit of Johnson was filed and served two days prior to the hearing and only 24 hours before the defendant conceded. Counsel questioned how in such circumstances the defendant could have left it to the last minute before acknowledging that the plaintiff's application must succeed.
11 Counsel for the defendant in response drew attention to a number of inconsistencies in the plaintiff's case. By way of example, Clauson says in his affidavit sworn 3 October 1999 that he advised Johnson and Wowesny in Poland in July or August 1999 that the plaintiff would not exercise the option under the letter of intent (see par 13 and par 15). This statement of fact was contradicted by Johnson in his affidavit sworn 25 August 2000(see annexures "C" and "D"). In his second affidavit sworn 7 November 2000 Clauson qualifies his earlier statement by saying that he advised Johnson and Wowesny "that we could not recommend that Kimberley exercise the Option immediately" (par 6).
12 It may well be that there are some inconsistencies in Clauson's evidence. The instance I have quoted above is one example and there are perhaps two or three others. But they really make no difference to the overall position. At no stage either in the accompanying affidavit or in the affidavit's filed in opposition to the application does the defendant attempt to set out the contractual basis upon which it is said that the plaintiff is indebted to the defendant. But more importantly, given that there was plainly a dispute on the facts between the plaintiff and the defendant, counsel was unable to explain why in such circumstances a statutory demand was issued. In my view, even the most cursory reading of the correspondence passing between the parties' solicitors would show that there was a genuine dispute within the meaning of the Corporations Law.
13 What this case highlights is the need for solicitors drafting a statutory demand to pay careful attention to the requirements of the accompanying affidavit. Order 81G r 31 sets out clearly and concisely what should be in the accompanying affidavit. Form 7 provides a template. There is no reason why it should not be followed. Of particular significance is the statement in par 5 of Form 7 which sets out the deponent's belief that there is no genuine dispute in relation to the debt. The use of this phrase is no accident of drafting. It may well be that the deponent does not believe
(Page 7)
- that the debtor has, in truth, any answer to the claim. That belief may be honestly held. But that is not the question. The question is whether there is a genuine dispute within the terms of the Corporations Law. That means that the draftsman of the affidavit and the deponent must turn their mind to what in law is meant by the phrase "genuine dispute". There are any number of cases on this question - Mibor Investments Pty Ltd v Commonwealth Bank of Australia Ltd [1994] 2 VR 290 being one of the most frequently quoted. The draftsman and the deponent must then determine whether in the light of the principles set out in Mibor and the other cases, it is possible for the deponent to honestly say that there is no genuine dispute as to the debt. Then and only then should the statutory demand be issued. In giving careful consideration to whether or not in all the circumstances the issue of a statutory demand is appropriate, a solicitor is doing no more than discharging his or her professional duty. From time to time, after careful consideration has been given to all of the facts, the demand will be issued and on an application by the alleged debtor, will be set aside. Perhaps facts will emerge which were not known to the creditor and his solicitor at the date of the issue of the demand; perhaps the matter is finely balanced and in the circumstances, issue of the demand was not unreasonable. It is easy to imagine a range of possibilities. But in many cases, when the statutory demand procedure is not viewed simply as some sort of debt collection procedure and the facts are given careful consideration, it will be readily apparent that the use of the statutory demand procedure is not appropriate.
14 This is one of those cases where, on any view, use of the statutory demand procedure was not appropriate. It is plain from the correspondence passing between the solicitors that there was a genuine dispute about the debt. The letter from the plaintiff's solicitors to the defendant's solicitors of 24 August 2000 makes that plain beyond question. The defendant properly advised should not have issued this statutory demand. On that basis I think that it is appropriate that the defendant should pay the plaintiff's costs of this application on a full indemnity basis, save insofar as the costs of the plaintiff have been unreasonably incurred.
15 I will hear the parties as to the precise form of the orders
3
8
1