Mitako Constructions Pty Ltd v Isa Constructions Pty Ltd

[1992] FCA 1074

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WALES DISTRICT REGISTRY	) No. NG3071 of 1992

)

GENERAL DIVISION )

BETWEEN:MITAKO CONSTRUCTIONS PTY LIMITED

Applicant

AND:ISA CONSTRUCTIONS PTY LIMITED

Respondent

19 May 1992

REASONS FOR JUDGMENT

LOCKHART J.

There is before the Court a consolidated matter, having

been consolidated by Order of the Court on 28 April 1992. Prior

to that there were two separate proceedings. The first

proceeding was commenced on 22 April 1992 by Mitako

Constructions Pty Limited ("Mitako") in this Court, number 3071

of 1992. Mitako sought to restrain ISA Constructions, ISA, from
instituting proceedings in any Court to wind up Mitako.

That application, after leave being granted by me to serve short notice on 22 April, came into the list on 24 April and was then adjourned until 1 May. On 24 April, both parties were represented by their legal advisers in Court; but on the same day, 24 April, ISA commenced proceedings in the Supreme Court of

New South Wales to wind up Mitako and on 27 April, the Supreme

Court ordered that the winding up proceeding be transferred to this Court because the earlier proceeding had been instituted in

this court by Mitako. Consequently, this Court then became

seized of both matters.

On 28 April, I said that it seemed plain enough to me that

there was a dispute between the parties as to the relevant debt

on which the winding up proceeding was based. I said that whether there was a bona fide dispute was not a matter which I proposed to consider then, but would do so in due course. I

decided that the interests of justice were served by the Court giving the earliest date it could to hear the winding up

application, but that in the meantime the winding up proceeding should be frozen. The Court made orders consolidating both matters and upon Mitako, by its counsel, giving the usual undertaking as to damages, the Court restrained ISA from advertising or otherwise proceeding further with its winding up application until further order. The Court then gave interlocutory directions for the purpose of getting the case

ready for hearing and it was adjourned until today to the intent that the Court would hear the two proceedings as consolidated.

I said on 28 April that, although I would not that day determine

whether there was a bona fide dispute as to the existence of the debt from Mitako to ISA, it was apparent that the parties were

in dispute as to whether a debt existed. Accordingly, on that

occasion I made an order for costs in terms that the costs of the motion of Mitako should be its costs in the proceeding as

consolidated. I further expressed the view that, although there was no legal barrier to the respondent filing the winding up application in the Supreme Court, it was regrettable that it did so, and that matter was relevant to the order for costs which I made on 28 April.

When the matter was called on for hearing today, I was

informed by counsel for Mitako and the solicitor for ISA that it

was agreed that it had now been established that a bona fide dispute as to the debt existed. Consequently, the question of

indebtedness will be litigated in an appropriate Court, not this

Court. The solicitor for ISA informed me that his client would

be instituting such a proceeding and that until it was

determined no further notice under s. 460 of the Corporations

Law would be served upon Mitako by ISA relating to that debt.

That is not the subject of an undertaking to the Court, but has been expressed as being an undertaking of the parties.

There is no dispute that the Court today should grant an

injunction in Mitako's application restraining ISA from

instituting proceedings in any Court for an order to wind up

Mitako based upon Mitako's alleged failure to comply with the

requirements of the notice of demand served upon it on 31 March

1992, which led to this litigation.

The dispute between the parties is as to costs. Counsel

for Mitako seeks an order that ISA should pay all Mitako's costs

of both proceedings on an indemnity basis and that order is resisted by the solicitor for ISA. The relevant principles governing indemnity costs are well known. I dealt with the

matter in Bauer v Stapleton Partners, unreported, 17 December 1991, where I reviewed relevant authorities with respect to

solicitor and client costs which are akin to indemnity costs.

I was also referred to the judgment of Woodward J. in

Fountain Selected Meats (Sales) Pty Limited v International

Produce Merchants Pty Limited (1988) 81 ALR 397 where his Honour

said at 401:

"I believe that it is appropriate to consider awarding 'solicitor and client' or 'indemnity' costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur the court will need to consider how it should exercise its unfettered discretion.""

It is not necessary that I refer to all the relevant facts

but I have taken them into account and I have examined in

particular, the correspondence and other documents that are

annexed to the affidavit of Anthony Michael Mulkearns sworn on 22 April 1992. There was a facsimile transmission sent on 11

December 1991 from a gentleman whom I am informed is the site

foreman of Mitako, to an officer of ISA, from which the impression is gained that the sender of the facsimile

transmission was of the opinion that a substantial sum was owed

without dispute by Mitako to ISA.

However, thereafter there passed a considerable amount of correspondence between the parties, and on 24 March 1992 the solicitors for ISA wrote to Mitako enclosing the notice of demand dated 24 March 1992 which has given rise to this

litigation. The sending of the notice of demand enlivened

correspondence from the solicitors for Mitako strongly disputing the alleged indebtedness of Mitako to ISA and that was followed

by a great deal of correspondence including a letter of 16 April

1992 and a certificate from Clive Steele Partners Consulting

Structural and Civil Engineers relating to certain of the work

carried out on the building site at Willoughby by ISA for Mitako

as sub-contractor.

It is unnecessary to refer to the correspondence in detail

but I am satisfied that at the time the notice of demand was

sent by ISA to Mitako, the parties were plainly in substantial dispute as to the existence of the debt alleged to be owed by

Mitako to ISA, notwithstanding what might have been said by a

site foreman in the facsimile transmission some few months earlier. In my opinion the notice issued under s. 460 and the subsequent commencement of the winding up proceeding were steps which should not have been taken by ISA. It should have done then what it is proposing to do now: litigate the matter in an

appropriate court.

Clearly the notice was issued and the proceedings were commenced by ISA in the Supreme Court in circumstances where it should have known that it had no chance of success. It is appropriate that indemnity costs be awarded. Accordingly, the Court orders that:

1.ISA Constructions Pty Limited be restrained by itself, its servants and agents from instituting any proceedings in any court seeking an order that the applicant, Mitako Constructions Pty Limited, be wound up, based upon any

allegation that the latter is insolvent by reason of its failure to comply with the requirements of a notice of

demand for payment of the sum of $26,147.71 served by Isa

Constructions Pty Limited upon Mitako Constructions Pty

Limited pursuant to s. 460 of the Corporations Law on or

about 31 March 1992;

2.ISA Constructions Pty Limited pay to Mitako Constructions Pty

Limited its costs of and incidental to both sets of

proceedings which have been consolidated on an indemnity

basis;

3.The summons to winding up be dismissed.

I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Mr. Justice Lockhart.

Associate

Dated: 19 May 1992

Counsel for the Applicant :	V.R.W. Gray
Solicitors for the Applicant :	Messrs Landerer & Co.

Solicitors for the Respondent :Messrs A.G. Robinson Creais

Date of Hearing : 19 May 1992

Date of Judgment : 19 May 1992