Newstart Homes Australia Pty Ltd v Kodiak Concrete Pty Ltd (No 2)

[2024] QSC 144

SUPREME COURT OF QUEENSLAND

CITATION:

Newstart Homes Australia Pty Ltd v Kodiak Concrete Pty Ltd (No 2) [2024] QSC 144

PARTIES:

NEWSTART HOMES AUSTRALIA PTY LTD ACN 616 573 463

(applicant)

v
KODIAK CONCRETE PTY LTD ACN 636 336 322

(respondent)

FILE NO/S:

BS 14327 of 2023

DIVISION:

Trial Division

PROCEEDING:

Originating Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

10 July 2024

DELIVERED AT:

Brisbane

HEARING DATE:

Heard on the papers.  Respondent’s written submissions on costs filed 26 June 2024.  Applicant’s written submissions on costs filed 2 July 2024.

JUDGE:

Cooper J

ORDER:

The applicant pay the respondent’s costs of and incidental to the proceeding to be assessed on the standard basis until 17 April 2024 and thereafter on the indemnity basis.

CATCHWORDS:

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – INDEMNITY COSTS – PARTICULAR CASES – ABUSE OF PROCESS – where the respondent succeeded in resisting a winding up application on both grounds of opposition to that application – where the applicant committed an abuse of process by bringing the winding up application despite failing to establish the impugned amount payable in a statutory demand served on the respondent – where the applicant did not know its conduct constituted an abuse of process at the time it filed the winding up application – whether indemnity costs should be awarded against the applicant on the basis that the applicant’s winding up application constituted an abuse of process

PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – OFFERS OF COMPROMISE, PAYMENTS INTO COURT AND SETTLEMENTS – INFORMAL OFFERS AND CALDERBANK LETTERS – UNREASONABLE REFUSAL OF OFFER – where the respondent sent a Calderbank offer to the applicant to resolve the winding up application – where the Calderbank offer only provided the applicant with a few days to consider the offer, was made before the applicant had received the respondent’s evidence, and explained its argument that the claimed debt was not properly the subject of a statutory demand on a basis other than that upon which the respondent ultimately succeeded – where a second Calderbank offer was made by the respondent – where the second offer remained open for a brief period but the compromise involved was substantial and it should have been apparent to the applicant that the applicant’s prospects of succeeded were poor – whether the applicant acted unreasonably in refusing either of the Calderbank offers so as to justify ordering that the applicant pay the costs of the winding up application on the indemnity basis

Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359, distinguished
Calderbank v Calderbank [1976] Fam 93, applied
Re Bond Corporation Holdings Ltd (1990) 1 WAR 465, distinguished
S.H.A Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323, cited

COUNSEL:

MD Martin KC for the applicant

NJ Derrington for the respondent

SOLICITORS:

Arrow White Lawyers for the applicant

McInnes Wilson Lawyers for the respondent

1. On 16 May 2024, I dismissed an application to wind up the respondent (Kodiak) on the ground of insolvency.[1]  Kodiak succeeded on both grounds of opposition to the winding up application: abuse of process and solvency.  At the request of the parties, directions were made for the filing of written submissions on the issue of costs.

   [1]Newstart Homes Australia Pty Ltd v Kodiak Concrete Pty Ltd [2024] QSC 129 (Judgment).

2. Kodiak seeks an order that the applicant (Newstart) pay its costs of the proceeding to be assessed on the indemnity basis.  It advances two arguments in support of that position:

   (a)the finding in the Judgment that the winding up application was an abuse of process is sufficient in itself to warrant the award of costs on the indemnity basis;

   (b)alternatively, Newstart’s unreasonable refusal of either of two offers to resolve the winding up application warrants the award of costs on the indemnity basis from the date the relevant offer expired.[2]

   [2]Pursuant to the principles in Calderbank v Calderbank [1976] Fam 93 (Calderbank).

3. Newstart accepts that it should be ordered to pay Kodiak’s costs but opposes an order that those costs be assessed on the indemnity basis.

   Relevant principles

4. The usual rule is that where the Court orders the costs of one party to litigation to be paid by another party, the order is for assessment of those costs on the standard basis.  However, the Court will depart from the usual rule where the circumstances of the case warrant that course.[3]

   [3]S.H.A Premier Constructions Pty Ltd v Niclin Constructions Pty Ltd (No 2) [2020] QSC 323 (S.H.A Premier Constructions), [10]-[11].

5. The commencement or continuation of a proceeding that constitutes an abuse of process has been recognised as a feature that may justify a departure from the usual rule.  It is sufficient to refer to the decisions of Re Bond Corporation Holdings Ltd[4] and Baillieu Knight Frank (NSW) Pty Ltd v Ted Manny Real Estate Pty Ltd[5] which Kodiak relied on as authority for that proposition.  As Kodiak accepted in its written submissions, however, each application for costs to be awarded on the indemnity basis must be determined based on its own facts.

   [4](1990) 1 WAR 465 (Bond Corporation).

   [5](1992) 30 NSWLR 359 (Baillieu Knight Frank).

6. The rejection of a Calderbank offer is also a feature that may justify a departure from the usual rule.  In determining whether such a departure is warranted, the Court will consider whether the offeree’s rejection of the offer is unreasonable in all the circumstances.  Relevant factors to be considered include:[6]

   (a)the stage of the proceeding at which the offer was received;

   (b)the time allowed to the offeree to consider the offer;

   (c)the extent of the compromise offered;

   (d)the offeree’s prospects of success, assessed as at the date of the offer;

   (e)the clarity with which the terms of the offer were expressed;

   (f)whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

   [6]Hadgelias Holdings Pty Ltd v Seirlis [2014] QCA 325, [11].

   Abuse of process

7. The basis for finding that Newstart’s winding up application was an abuse of process differs from that in Bond Corporation and in Baillieu Knight Frank.

8. In Bond Corporation, the alleged debt was already the subject of legal proceedings at the time the winding up application was filed.  In those proceedings, the company disputed the existence of the alleged debt on substantial grounds.  Further, the application was filed without notice to the company at the close of court business on the Friday prior to the New Year weekend, even though solicitors had been acting for both parties for months.  In those circumstances, Ipp J found that the applicant had no chance of successfully obtaining a winding up order but had brought the application as a deliberate tactical manipulation of the winding up process for the purposes of bringing substantial pressure to bear on the company to pay the disputed debt.[7]

   [7]Bond Corporation, 478.

9. Baillieu Knight Frank was also a case in which the abuse of process was bringing a winding up application as a means of putting pressure on the company to pay a debt which was the subject of a genuine dispute on substantial grounds.[8]

   [8]Baillieu Knight Frank, 362-363.

10. In the present case, the abuse of process occurred because of Newstart’s knowledge, when it served the statutory demand, that:

    (a)it had not established the amount payable as a liquidated debt under the subcontract; and

    (b)consequently, the debt claimed in the statutory demand was not then due and payable.[9]

    [9]Judgment, [39]-[46].

11. Although I found that Newstart’s misuse of the statutory demand procedure rendered the winding up application an abuse of process, I am not satisfied that this would have been apparent to Newstart at the time it filed the winding up application. 

12. As Newstart submits, the presumption of insolvency arose in the present case because of Kodiak’s failure to apply to set the statutory demand aside.  Furthermore, the cases of State Bank of New South Wales v Tela (No 2)[10] and Redglove Holdings Pty Ltd v GNE and Associates Pty Ltd,[11] which were referred to in the Judgment at [12], provided some support for Newstart’s decision to commence the winding up application in reliance upon the presumption of insolvency even though it knew that Kodiak disputed the debt. 

    [10](2002) 188 ALR 702, 705 [11].

    [11](2001) 165 FLR 72, 77-78 [29].

13. This situation can be contrasted with the position in Bond Corporation,[12] where Ipp J found that the winding up application had been brought in wilful disregard of the known facts and the clearly established law, and in Baillieu Knight Frank,[13] where Powell J referred to earlier warnings in the authorities concerning conduct of the type which occurred in that case.

    [12]at 478.

    [13]at 363.

14. For these reasons, I am not persuaded that Newstart knew (or ought to have known) when it commenced the winding up application that it had no chance of succeeding on the application such that its conduct constituted an abuse of process which would put it at risk that costs would be awarded against it on an indemnity basis.  I do not accept Kodiak’s first argument as a basis for awarding the costs of the winding up application on the indemnity basis.

    Kodiak’s offers to resolve the application

15. Kodiak’s solicitors first wrote to Newstart about the issue of abuse of process on 4 December 2023.  That letter stated, among other things, that issuing a statutory demand for a sum that is not a debt but a claim for unliquidated damages, and subsequently filing a winding up application based on that demand, might amount to an abuse of process.  The letter stated Kodiak’s solicitors would take instructions about the matter and revert to Newstart with Kodiak’s position.

16. Kodiak’s solicitors sent a Calderbank offer to Newstart’s solicitors on 19 December 2023.  That offer:

    (a)proposed a compromise by which the winding up application would be dismissed with no order as to costs;

    (b)notified Newstart that Kodiak would seek costs on the indemnity basis if the winding up application proceeded further;

    (c)explained Kodiak’s position that the claimed debt was not properly the subject of a statutory demand on the basis that the rectification costs which comprised the claimed debt were not payable pursuant to a judgment or as a liquidated debt under contract but instead comprised a claim for unliquidated damages for breach of contract;

    (d)remained open for acceptance until 4:00pm on 22 December 2023.

17. I am not persuaded that Newstart acted unreasonably in not accepting this offer.  There are several reasons for this.

18. First, the time which the offer remained open for acceptance was brief, particularly given the impending Christmas period.  Kodiak submitted, and I accept, that the timing of the closing of the offer was explained in part by the impending Christmas period and the need for Kodiak to file evidence on 5 February 2024.  That, however, does not change the fact that Newstart was only afforded a few days to consider and respond to the offer.

19. Secondly, as is apparent from Kodiak’s submission referred to in the preceding paragraph, the offer was made before Newstart had received Kodiak’s evidence, including the evidence it relied upon to displace the presumption of insolvency.  That is relevant because of the observation in Re Kornucopia Pty Ltd (No 4),[14] (referred to in the Judgment at [10]) that, because the starting point on a winding up application following a failure to set aside or comply with a statutory demand is the presumption of insolvency, a company that seeks to establish that the winding up application is an abuse of process must adduce evidence of solvency.

    [14][2020] VSC 7, [89], [98], [107].

20. Thirdly, and perhaps most importantly, the basis upon which Kodiak explained its argument that the claimed debt was not properly the subject of a statutory demand was not the same as that upon which it ultimately succeeded.  The claim for repayment of costs incurred in rectifying work which Newstart asserted was defective was not a claim for unliquidated damages for breach of contract.  As Newstart submitted, and as was recorded in the Judgment at [16] and [17], the subcontract conferred rights upon Newstart to direct Kodiak to rectify work, to perform rectification work if Kodiak failed to comply with such a direction and, most relevantly, to recover the reasonable costs of performing that work (or having it performed by a third party) as a debt due and payable.

21. The critical issue upon which the abuse of process question turned was the distinction between a liquidated sum on one hand and a liquidated claim or liquidated demand on the other hand; a liquidated sum being an amount calculated or ascertained according to a mechanism in the contract and an amount which could be claimed as a debt in a statutory demand and a liquidated claim or demand not being a debt which could be claimed in a statutory demand: see the Judgment at [43] and [44] applying the distinction drawn in AMD Resources Ltd v TRS Management Pty Ltd.[15]  Kodiak did not draw Newstart’s attention to that issue in the offer.  Consequently, I do not regard Newstart as having acted unreasonably in refusing the offer made on 19 December 2023.

    [15][2021] VSC 202 (AMD Resources), [86]-[89].

22. Kodiak made a further Calderbank offer in a letter sent by its solicitors on 16 April 2024.  That second offer:

    (a)proposed the same form of compromise as had previously been offered; that is, the dismissal of the winding up application with no order as to costs;

    (b)notified Newstart that if it declined to accept the offer Kodiak would rely on the offer on the question of costs, including to obtain an award of costs on the indemnity basis;

    (c)referred, in explaining the basis of Kodiak’s abuse of process argument, to the distinction between a liquidated sum and a liquidated claim or demand and cited the relevant passage from AMD Resources;

    (d)was made after Kodiak had filed evidence addressing the question of solvency and, more importantly, the day after Kodiak filed its written submissions on the winding up application which set out the abuse of process argument more fully;

    (e)remained open for acceptance until 4:00pm on 17 April 2024.

23. The costs which Kodiak had incurred by the time the second offer was made, in filing its evidence and preparing its written submissions for the hearing of the winding up application, meant that the compromise involved in a walk-away offer was substantial.

24. Although the period during which the second offer remained open for acceptance was brief, I do not regard that factor as being as significant in assessing the reasonableness of Newstart’s conduct in refusing to accept the second offer as compared to its conduct in refusing to accept the first offer.  That is because, by the time the second offer was made, the application had substantially progressed to the point where the parties were preparing for the hearing of the winding up application.  The abuse of process issue had been alive for about four months.  Kodiak had fully articulated its argument on that issue in written submissions and filed its evidence. 

25. In those circumstances, I am satisfied that when Newstart received the second offer it should have been apparent that Kodiak’s abuse of process argument had good prospects of succeeding and that Newstart’s own prospects of succeeding on the winding up application were correspondingly poor.  In my view, Newstart acted unreasonably in refusing to accept the second offer.

26. Newstart should pay Kodiak’s costs of the winding up application from the date of the expiry of the second Calderbank offer on the basis that, from that date, it was Newstart’s unreasonable attitude which caused the application to continue and resulted in Kodiak having to incur further costs.[16]

    [16]S.H.A Premier Constructions, [13].

    Conclusion

27. I will order that Newstart pay Kodiak’s costs of and incidental to the proceeding to be assessed on the standard basis until 17 April 2024 and thereafter on the indemnity basis.