Polytrade Pty Ltd v Glass Recovery Services Pty Ltd
[2015] VSC 164
•28 April 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2015 00709
IN THE MATTER of POLYTRADE PTY LTD (ACN 068 669 349)
| POLYTRADE PTY LTD | Plaintiff |
| v | |
| GLASS RECOVERY SERVICES PTY LTD (ACN 130 869 920) | Defendant |
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JUDGE: | Randall As J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 March 2015 |
DATE OF JUDGMENT: | 28 April 2015 |
CASE MAY BE CITED AS: | Polytrade Pty Ltd v Glass Recovery Services Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2015] VSC 164 |
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CORPORATIONS — Section 459G of the Corporations Act 2001 (Cth) — Statutory demand withdrawn prior to expiration of 21 day period and prior to filing originating process to set aside — Section 459G application filed and served solely to seek costs.
COSTS — Section 24 of the Supreme Court Act 1986 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Frenkel | Slater + Gordon Limited Lawyers |
| For the Defendant | Mr S Morris | Settle Legal |
HIS HONOUR:
The originating process before the Court was filed on 18 February 2015. The creditor had, on 24 January 2015, served a statutory demand seeking payment of the debt of $2,698,191 (inclusive of GST). The statutory demand was received by the plaintiff on 27 January 2015. It was withdrawn by the defendant on 17 February 2015.
The sole issue is whether the originating process is an efficacious application under s 459G of the Corporations Act 2001 (Cth) (‘Act’). Costs consequences ensue.
Background
On 16 February 2015 at 9:02am the plaintiff’s solicitors transmitted a letter by email, seeking withdrawal of the demand and partial reimbursement of costs:
2.I seek that your client formally withdraws [sic] the Creditors Statutory Demand for Payment of Debt received on 29 January 2015. As your client is aware, there is a genuine dispute about the existence and amount of the debt and [the plaintiff] has a genuine offsetting claim against your client.
…
8.In relation to the Creditors Statutory Demand for Payment of Debt, your client has an opportunity to formally withdraw same and utilise the Dispute Settling Procedure. We have retained Counsel to assist us in drawing the necessary material to apply to have the Statutory Demand set aside. The material is at an advanced stage and we will be ready for filing early next week. In the event that the Creditors Statutory Demand for Payment of Debt is not withdrawn by 5pm on Tuesday 17 February 2015, together with your client’s cheque in favour of our client in the sum of $5,000 to reimburse it for some of the costs it has already incurred, then this letter will be produced to the court on … the question of costs, which will be sought on an indemnity basis.
The letter briefly summarised the dispute which revolved around the supply by the plaintiff to the defendant of glass products for recycling. In particular, the plaintiff’s solicitors identified that the parties were in dispute with respect to the method of testing and the subsequent results. The plaintiff’s solicitors also attached to the email a Notice of Dispute pursuant to the provisions of the agreement between the parties.
The defendant’s solicitor responded by email transmitted the same day at 3:57pm. That email transmission acknowledged receipt of the plaintiff’s solicitors’ letter and Notice of Dispute. In it, the defendant’s solicitor set out:
I note that your client disputes that it has breached the agreement but there is no attempt in your letter to explain the nature of the dispute.
Our client will consider withdrawing the Statutory Demand but, first, we request that you respond to the following queries today: …
He then listed a number of queries with respect to failures and with respect to the testing and testing methods. After that, he referred to the potential withdrawal of the demand:
Upon receipt of response to this email, our client will consider and we will let you know its position on withdrawing the Statutory Demand ahead of your deadline of 4 pm tomorrow.
In response, the plaintiff’s solicitors transmitted an email at 8.39am the next day. The response emphasised the urgency of filing the plaintiff’s application to set aside the statutory demand:
The test results were exchanged between the parties. I do not propose to answer in a formal letter given time constraints. However, I will provide you with the draft affidavit to be sworn by Mr Louie Cheng around [m]idday today which provides a detailed response. Given the time constraints for filing and avoiding the fatal implications of the Statutory Demand, it is imperative that you obtain instructions as a matter of urgency on the matters raised in my earlier letter including costs. I reserve the right to make any changes to the affidavit upon final instructions. Please note that given the volume of exhibits comprising predominantly of emails between the parties covering quality and delivery matters I am unable to forward them. In any event they are in your client’s possession and they are aware of the dispute.
I will require your urgent response today as I intend to file and serve before [R]egistry closes.
I reserve the right to place this email before the [c]ourt on the question of costs.
The draft affidavit of Louie Cheng, ultimately sworn on 17 February 2015, was attached to that email. The draft affidavit was 15 pages in length, comprising of 37 paragraphs and relied on 45 exhibits.
The defendant’s solicitor responded by email transmission on 17 February 2015 at 11.15am:
My client disputes the bulk of the content of Mr Cheng’s draft affidavit as provided.
However, I am instructed to withdraw the Creditor’s Statutory Demand for payment dated 24 January 2015 – please accept this email as such withdrawal [emphasis added].
On the basis our clients remain in dispute, we confirm our client is prepared to attend a meeting convened pursuant to clause 15 of the Agreements. …
That, however, was not the end of the matter.
On 17 February 2015 at 1.04pm the plaintiff’s solicitors transmitted an email reasserting the issues of costs and the urgent statutory deadline for filing an application to set aside the demand:
I refer to your email today and confirm that your client does not agree to pay our client[’]s costs as per our letter of 16 February 2015. Accordingly I am instructed to proceed and lodge the Originating Motion and Affidavit and seek payment of our costs reasonably incurred in the preparation due to the time constraints imposed as a result of your client serving a Statutory Demand.
I require your response by 4pm today.
The defendant’s solicitors transmitted their reply later that day at 7.09pm, alleging that an application by the plaintiff to set aside the demand would constitute an abuse of process:
Our client does not accept there is a genuine dispute about its claim and, as such, was within its rights to serve a Statutory Demand.
We responded promptly to your correspondence and were instructed to withdraw the demand despite our client’s confidence in its position.
Your client has not issued a proceeding and has no entitlement to costs. To issue a proceeding in such circumstances would, in our view, amount to an abuse of process and a waste of Court time. Should you follow this course, we shall produce this email in support of an application for indemnity costs.
At 8.38am the following day (18 February 2015) the plaintiff’s solicitors transmitted by email:
The affidavit clearly shows that the parties were in dispute given the voluminous correspondence between them including the test results. Further your client issued a notice of intention to terminate. It was clear to your client that my client contested the rejection of the glass and had sought to resolve the matter. Further that there was a claim by my client for unpaid amounts. Clearly there would have been a set off or counterclaim. Therefore the Statutory Demand was not the appropriate mechanism and costs were incurred in preparing to defend. Issuing the Statutory Demand was done solely on the basis that it was a cost effective method of recovery and[/]or to place pressure on my client to pay. In the circumstances issuing the notice was in fact the only real abuse of process that took place here. An application for costs is appropriate to deter the use of Statutory Demands in inappropriate circumstances where a party is aware of the dispute. To deny the existence of the dispute is in light of the evidence is a folly.
My client will have incurred in excess of $12 000 in Legal and Counsel’s fees and the offer to resolve the matter for the reduced sum is fair and reasonable. Unless I am otherwise instructed, I have been instructed to issue proceedings this morning particularly to address the issue of costs. The offer made to your client was on the basis that he withdraw the demand and pay our costs which were not sought on an indemnity basis but were … reasonably and necessarily incurred. I will if required produce this email on the question of costs.
I await your reply.
Receiving no response from the defendant’s solicitors, the plaintiff’s solicitors filed the originating process at 3.29pm that day.
The application
From the outset, the plaintiff conceded that it did not seek an order setting aside the statutory demand but sought an order for indemnity costs. The plaintiff also conceded that unless there was a contractual provision in the agreement between the plaintiff and the defendant germane to the question of costs in these circumstances, the plaintiff would not be able to file a fresh proceeding seeking payment of the costs incurred in relation to its preparation to set aside the statutory demand.
Relevant Law
Legislative Scheme
The power to serve a statutory demand is contained in s 459E of the Act, which also sets out the circumstances in which this may be done. Of particular note is s 459F(1), which states as follows:
If, as at the end of the period for compliance with a statutory demand, the demand is still in effect and the company has not complied with it, the company is taken to fail to comply with the demand at the end of that period. [emphasis added].
The period for compliance ends 21 days after service of a demand, unless an application is made for the demand to be set aside.[1]
[1]Corporations Act 2001 (Cth) s 459F(2).
Section 459G(1) of the Act provides that a ‘company may apply to the Court for an order setting aside a statutory demand served on the company’. Section 9 defines a statutory demand as ‘a document that is, or purports to be, a demand served under section 459E’. Once an application has been made under s 459G(1), there are a limited number of circumstances in which the Court can set aside the statutory demand.[2] Unless the demand is set aside on one of these bases, the Court must dismiss the application.[3]
[2]Corporations Act 2001 (Cth) 459H.
[3]Corporations Act 2001 (Cth) s 459L.
Section 459C refers to presumptions that may be made in relation to certain proceedings, including winding up and insolvency. Section 459C(2) relevantly provides:
(2)The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
(a)the company failed (as defined by section 459F) to comply with a statutory demand; …
Accordingly, the consequences of not complying with or not setting aside an ‘effective’ statutory demand are dire.
In relation to the question of costs, there are only two relevant statutory provisions. The first is s 459N of the Act, which provides as follows:
459N Costs where company successful
Where, on an application under section 459G, the Court sets aside the demand, it may order the person who served the demand to pay the company's costs in relation to the application.
The second is s 24(1) of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’), which states that:
24 Costs to be in the discretion of Court
(1)Unless otherwise expressly provided by this or any other Act or by the
Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
In Felkro Nominees Pty Ltd v Austissue Pty Ltd,[4] the plaintiff submitted that the service of the statutory demand in circumstances where there had been an ongoing dispute between the parties since at least 2013, constituted an abuse of process. Heerey J observed:
Now that a statutory regime is in force for resolving the often sterile disputes which used to take place about the validity of demands, creditors have to realise that if they invoke winding up provisions by issuing a statutory demand they run the risk that if a debtor establishes that the amount claimed is subject to a genuine dispute, the debtor will get an order for costs, as s 459N expressly contemplates.[5]
[4](1993) 11 ACSR 607.
[5]Ibid, 608.
In Mackay Computer Services Pty Ltd v Wi-man Pty Ltd, McMeekin J explicitly held that s 459N of the Act does not cover the field in relation to costs awards in statutory demand proceedings.[6] Section 459N only applies to cases where the statutory demand has been set aside, and does not preclude the award of costs after a dismissal of the application. Section 24 of the Supreme Court Act applies in this case by virtue of r 1.3(2)(a) of the Supreme Court Corporations Rules 2013 (Vic) (‘Court’s Corporations Rules’):
[6][2008] QSC 221.
1.3 Application of these Rules and other rules of the Court
…
(2)The other Rules of the Court apply, so far as they are relevant and not inconsistent with these Rules—
(a)to a proceeding in the Court under the Corporations Act or the ASIC Act;
…
As there is no inconsistency as contemplated by r 1.3(2) of the Court’s Corporations Rules, r 63.02 of the Supreme Court Rules applies, which imports s 24 of the Supreme Court Act:
63.02 General powers of Court
The power and discretion of the Court as to costs under section 24 of the Act shall be exercised subject to and in accordance with this Order.
Section 24 of the Supreme Court Act confers a discretion to award costs. Also applicable would be the general principle that costs should follow the event.[7]
[7]See, eg, Oshlack v Richmond River Council (1998) 193 CLR 72, [67] (McHugh J):
The expression the “usual order as to costs” embodies the important principle that, subject to certain limited exceptions, a successful party in litigation is entitled to an award of costs in its favour. The principle is grounded in reasons of fairness and policy and operates whether the successful party is the plaintiff or the defendant.
Authorities
The plaintiff relied upon Cempro Pty Ltd v Dennis M Brown Pty Ltd.[8] In that proceeding the 12 applicant companies were served with a Notice of Statutory Demand in the form prescribed by s 459E of the Act. In setting out the background to the proceedings, von Doussa J outlined the consequence of the unconditional withdrawal of a demand:
Between the date of service of the notices of statutory demand and the commencement of proceedings in this court there were communications between the parties which dealt with contentious issues that existed or were perceived by one side or the other to exist between the parties. In consequence of that correspondence, the respondents’ solicitors wrote to the solicitors acting for the applicants unconditionally withdrawing 11 of the notices. The only notice that remains outstanding, in the sense that it has not been withdrawn, is the one against Cempro Pty Ltd. In the case of the 11 withdrawn notices, a point has arisen whether it is necessary for the recipient companies to continue with these proceedings and to obtain an order of the court setting aside the notices, to prevent the statutory consequences of non-compliance with a notice of demand arising or whether the interests of the recipient companies are sufficiently protected by the letter which withdraws the notices.
In my view if the party serving a notice of statutory demand under s 459E within the time limited by the notice for compliance therewith, arms the recipient company with a document in writing saying that the statutory demand is unequivocally withdrawn, the notice thereafter has no further force or effect, and it is not necessary to prevent presumed insolvency arising at the expiration of the period for compliance to obtain an order of the court formally setting aside the notice. I consider that the unconditional withdrawal of the notice of statutory demand means that there is no longer a demand to be complied with, and at the expiration of the time limited for compliance, there can be no failure to comply with the demand.[9]
[8](1994) ACSR 628.
[9]Ibid, [2]–[3].
Von Doussa J set aside the statutory demand addressed to Cempro Pty Ltd. As to the remaining 11 notices that had been withdrawn, von Doussa J set out the reason for not setting them aside:
On the application to set aside the 11 notices that were unequivocally withdrawn by notice in writing given to the applicants before the proceedings were commenced, I decline to make the orders sought. For the reasons given I think that is unnecessary to do so. The notices ceased to operate before the period for compliance expired, and the applicants have been armed with a document signed on behalf of the party giving the notice upon which they could rely if it were ever suggested that demands for payment had not been complied with.
There will be an order under s 459N that the respondents pay the applicants’ costs of the application under s 459G. In the result there has only been an order in favour of one of the applicant companies, but the proceedings in so far as they related to the other 11 applicants have added nothing to the nature or length of the issues fought out between the one successful applicant and the respondents.[10]
[10]Ibid, [35]–[36].
While it is clear that von Doussa J made an order in favour of all the applicants,[11] it is not altogether clear on what basis the order was made, save that each of the applicants had engaged the same solicitor. In any event, Cempro Pty Ltd v Dennis M Brown Pty Ltd is distinguishable as there was at least one valid application before his Honour.
[11]Ibid, paragraph 3 of the Order: ‘The respondents pay the applicants’ costs of the application’.
I was also referred to a number of other cases[12] in which costs had been ordered after the withdrawal of a statutory demand. However, in each of those cases, there was an efficacious application pursuant to s 459G filed prior to withdrawal of the relevant statutory demand. Not only was it open to each of the presiding judges to order costs on a standard basis but, as appropriate, costs on an indemnity basis.
[12]In the Matter of Rajlaw Pty Ltd [2014] NSWSC 219; Mackay Computer Services Pty Ltd v Wi-man Pty Ltd [2008] QSC 221; BGC Contracting Pty Ltd v Whitsunday Crushers Pty Ltd [2004] WASC 209.
In Mackay Computer Services Pty Ltd v Wi-man Pty Ltd, McMeekin J specifically considered the jurisdiction to award costs in applications under s 459G of the Act, stating that:
Power to Award Costs
[9]Before turning to the submissions it is necessary to say something about the power to award costs. The basis for the jurisdiction to award costs is said by s 459N of the Act to be dependent on a decision of the court to set aside the demand. That section cannot apply because I have not set aside the statutory demand — it was withdrawn by the respondent.
[10]The alternative ground of power is said to be the Uniform Civil Procedure Rules 1999. They apply “so far as they are relevant and not inconsistent with these rules” … There are two relevant issues. The first is whether the UCPR can apply when the Act expressly provides that a precondition must first be satisfied for the exercise of the power to award costs — a condition not found in the UCPR. The second is whether I can determine where the merits lie given the compromise of the dispute here — mere withdrawal of the demand does not necessarily establish that the demand should not have issued.
…
[12] Plainly it would be unfortunate if the court’s power to award costs was thwarted by a party withdrawing an unmeritorious demand prior to a hearing. The court’s proceedings would be open to abuse.
[13]As to the first issue there is no inconsistency with the CPR as there is no provision in the CPR dealing with costs. The inconsistency, if there is one, is with the Act. In my view there is no relevant inconsistency. Section 459N does not say that the court can “only” award costs when it sets aside the demand. I would be slow to adopt an interpretation that would have the effect of depriving the court of the very useful power of indemnifying partially or wholly a party wrongly subjected to the court’s processes.
In Kinex Exploration Pty Ltd v Tasco Pty Ltd,[13] an application was made to set aside an order made by a Magistrate in proceedings below. While the Court had jurisdiction to set aside final orders made by the Magistrates’ Court, it was held in this case that the orders on which the appeal was based were, in fact, interlocutory orders. In considering the question of costs in this case, Batt J said:
Where a proceeding in this court is dismissed as incompetent, that is, where the court has no jurisdiction, this court nevertheless has jurisdiction under s 24 of the Supreme Court Act 1986 and r 63.03(1) to award costs: In re Crittendon; Ex parte Law Institute of Victoria [1958] VR 101. As that case shows, apart from statute, a superior court has power to award costs in a proceeding which it does not have jurisdiction to hear. [14]
[13][1995] 2 VR 318.
[14]Ibid, 327.
In Coffee v Scanlon,[15] the applicant had made an application to the Industrial Commission under s 88F of the Industrial Arbitration Act 1940 (Cth), on the basis of a prior decision of the Industrial Commission on similar facts. However, after the commencement of the proceedings but before the hearing of the matter, the decision on which the applicants had based their application was overturned by the Court of Appeal, which held that the Commission had no jurisdiction under s 88F to grant the relief sought in the application. On that basis, the applicant sought leave to withdraw the application.
[15](1992) 26 NSWLR 485.
In granting leave to withdraw the application, Cahill V-P considered the question of whether to award costs to the respondents. His Honour set out the submissions made by counsel for the applicants in that case as follows:
In submitting that, in the exercise of discretion in the matter, no order for costs against the applicants should be made and that each side should bear its own costs, Mr Elkaim put that the applicants had instituted the proceedings on an understandable basis. Previous decisions by the Commission in Court Session as to the interpretation of s 88F had held that
jurisdiction to grant the relief sought existed. A genuine belief was held that
there existed a case on the merits. It would be a very unfortunate result for
his clients to be in the position of having to meet not only their own costs,
but the costs of the respondent, because of a different and authoritative
interpretation of the section made subsequently to the institution of
proceedings.[16]
[16]Ibid, 488.
Cahill V-P went on to note the rule that costs follow the event. While the Court retains discretion to award costs in favour of an unsuccessful party, and special circumstances must exist before such an order will be made, his Honour found that:
In the present case I am in sympathy with the position of the applicants.
Nevertheless, no fault or blame can be sheeted home to the respondent for
the failure of the proceedings. I have come to the conclusion, having taken
into account the submissions of the parties and the material to which I have
herein referred, that the proper exercise of discretion in this case would be
to order costs in favour of the respondent.[17]
[17]Ibid, 490 (emphasis added).
One of the cases referred to in Coffee v Scanlon was Ritter v Godfrey.[18] In that case, Aitken LJ outlined three principles upon which to exercise the discretion over costs:
It is not easy to deduce from these authorities what the precise principles are that are to guide a judge in exercising his discretion over costs. And yet as the discretion is only to be exercised where there are materials upon which to exercise it, it seems important to ascertain the principles upon which a judge is to discern whether the necessary materials exist. In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution of the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.[19]
[18][1920] 2 KB 47.
[19]Ibid, 60.
However, the reasoning in Ritter v Godfrey must be considered carefully. The defendant, a medical practitioner, had been accused of negligence in relation to a childbirth. After the event the plaintiff initiated correspondence with the defendant, who replied by:
wr[iting] to the plaintiff a very long letter properly defending himself against the charge of negligence, but using in addition language of an insulting character, and concluding with a proposal that the case should be submitted for the opinion of medical experts, and that the losing party should pay 20l. to charity.[20]
The defendant was found not to be negligent. Yet the trial judge refused to give the defendant his costs of the action, having found that the tone of his letters was unjustifiable and deplorable. The defendant appealed. On appeal, Lord Sterndale MR emphasised the principle that was relevant to the exercise of discretion over costs in the matter before his Lordship:
Speaking generally, I think it may be said that, in order to justify an order refusing a defendant his costs, he must be shown to have been guilty of conduct which induced the plaintiff to bring the action, and without which it would properly not have been brought. This is so stated by Vaughan Williams LJ in Bostock v Ramsey Urban Council … and it generally may be tested by the question stated in the judgment of the two other members of the Court, AL Smith LJ and Rommer LJ in the same case, ie, was the defendant’s conduct such as to encourage the plaintiff to believe that he had a good cause of action?
I do not say that this is the only test, but I think it is the one properly applied in this case. From this point of view I think the respondent’s counsel was right in laying stress upon what he called the levity with which the appellant, in a part of his letter, dealt with the respondent’s complaint, more than upon offensive expressions which would only tend to excite anger, and the question finally turns on this point: Were the tone and language of the letters such as fairly to lead the respondents to think that the appellant was likely to have been negligent and to think that they could not accept the explanations given in the earlier part of the letter of April 6? I have had great difficulty in the case, and great doubts as to whether the letter did not afford some ground for refusing an order for costs, the sufficiency of such grounds, if existent, being entirely for the discretion of the judge, and not of this Court.[21]
[20]Ibid, 48.
[21]Ibid, 53–4.
The criteria referred to by Aitkin LJ in Ritter v Godfrey must also be considered in the light of the statutory demand regime. In Ritter v Godfrey, Aitkin LJ referred to a number of cases, the first of which noted the importance of considering all the circumstances of the case:
It is the duty of the judge who tried the case, and the duty of the Court of Appeal also, to consider the whole circumstances of the case, everything which led to the action, everything which led to the libel, everything in the conduct of the parties which may show that the action was not properly brought in respect of the libel complained of.[22]
[22]Harnett v Vise (1880) (1880) 5 Ex D 307, 311 (James LJ).
In Bostock v Ramsay, also referred to by Aitkin LJ in Ritter v Godfrey, AL Smith LJ commented on Harnett v Vise, saying of that case that:
… it was distinctly held by the Court of Appeal that the judge is not confined, in considering the question whether there is good cause for depriving the successful party of costs, to the conduct of the parties in the litigation itself, but must consider the whole circumstances of the case and everything which led to the action. I think that in this case there was evidence of conduct on the part of the defendants such as to lead the plaintiff reasonable to think that he had a good cause of action against them, and which the judge was entitled to take into consideration as constituting good cause for depriving the defendants of costs.[23]
[23]Bostock v Ramsay Urban Council (1900) 2 QB 616, 622.
Also in Bostock v Ramsay, Vaughan Williams LJ said:
The only question in this case comes to be whether there was conduct on the part of the defendants which can be considered to having led to the action being brought, and but for which it probably never would have been brought.[24]
Finally, in Bostock v Ramsay, Rommer AJ in the same case said that good cause:
… is not confined to causes founded upon the conduct of the successful party in the course of the litigation. It might, for example, in the case of a successful defendant, be founded on conduct of the defendant outside the action, if the conduct was such as to have led the plaintiff reasonably to suppose that he had a good cause of action, and thus induced him to bring the action. I limit the proposition so as to show clearly that I do not consider that such conduct on the part of the defendant would constitute good cause of action … if it had no reference to the action, and did not induce the plaintiff reasonably to believe that he had a right of action. Misconduct which in no way is connected with the action could not be any ground for depriving a successful defendant of costs. Nor, I think, could conduct of the defendant outside the action constitute “good cause” if it were not such as to induce the plaintiff reasonably to suppose that he had a good cause of action, and so conduce to the action.[25]
[24]Ibid 625.
[25]Ibid 627.
Aitkin LJ in Ritter v Godfrey then referred to Sutcliffe v Smith, in which a trustee in bankruptcy brought suit after an examination of the bankrupt. In that case, Fry LJ said:
Whether a defendant had by his misstatements made under circumstances which imposed an obligation upon him to be truthful and careful in what he said, brought litigation on himself, and rendered the action reasonable, there would be “good cause” to deprive him of costs.[26]
[26]Sutcliffe v Smith (1886) 2 Times LB 881, 883.
The next case referred to in Ritter v Godfrey was Huxley v West London Extension Ry. Co, in which Lord Watson said:
I do not think that any and every reason which may be assigned for disallowing the costs of a successful party must necessarily be accepted as ‘good cause’ within the meaning of the rules. I shall not attempt a complete definition of what is meant by these words. They at all events embrace, in my opinion, everything for which the party is responsible, connected with the institution or conduct of the suit, and calculated to occasion unnecessary litigation and expense.[27]
[27]Huxley v West London Extension Ry. Co (1889) 14 App Cas 26, 33.
Consideration
Whether the Court has power to award costs in this case
Of the decisions referred to above, few assist the determination of whether the Court has power to order costs in favour of unsuccessful parties in a proceeding such as this. As already noted, the decisions in Cempro Pty Ltd v Dennis M Brown Pty Ltd and the related cases are easily distinguishable from the case at hand, in that they all involved at least one statutory demand that had not been withdrawn and thus remained in issue before the Court. Kinex Exploration Pty Ltd v Tasco Pty Ltd and Coffee v Scanlon both involved a discussion of whether the Court may award costs in circumstances where the matter before it was without jurisdiction. As demonstrated by those cases, it is well established that the Court has power to award costs in those circumstances.
Whether the Court should exercise its discretion to award costs in this case
In this case, the Court has no option but to dismiss the plaintiff’s application. Section 459L of the Act requires the application to be dismissed unless the statutory demand is set aside under s 459H or s 459J. Here, the plaintiff did not seek any order setting aside the statutory demand, conceding that the demand had been withdrawn by the respondent.
The plaintiff submitted that the service of the statutory demand in circumstances where there had been an ongoing dispute between the parties since at least 2013, constituted an abuse of process. I have sympathy for that submission given that the draft affidavit (which was ultimately sworn) clearly demonstrated an exchange between the parties from May 2013 continuing up to the date of service of the statutory demand. I declined to hear the merits of whether ‘a genuine dispute’ had been established. The defendant’s counsel submitted that there were all sorts of reasons why the defendant chose to withdraw the statutory demand, including mere commerciality. Although that may be right, it is inescapable that I would have had no difficulty in identifying a ‘genuine dispute’.
However, the question remains whether the existence of such a ‘genuine dispute’ satisfies any of the criteria set out by Aitken LJ in Ritter v Godfrey. Clearly, the first two categories are not relevant. In effect, the plaintiff complains that by serving the statutory demand in circumstances where there is a background of ongoing discourse between the parties that is ‘some wrongful act in the course of transaction of which the plaintiff complains’.
The third criterion referred to by Aitken LJ in Ritter v Godfrey can be applied. If I accept that the service of the statutory demand was an abuse of process (which I have not ultimately decided) then the issue is:
(a) whether this conduct induced the plaintiff to file the proceeding; or
(b) whether this conduct induced the plaintiff to consider that it had a reasonable cause of action for its costs.
I agree with McMeeking J’s statement in Mackay Computer Services Pty Ltd v Wi-man Pty Ltd that it would be unfortunate if the Court’s power to award costs could be thwarted by the withdrawal of an unmeritorious application prior to any substantive determination, and that the court process could be abused as a result of such a principle. However, in that case, the application to set aside the statutory demand had already been filed by the time the demand was withdrawn. As a result, judicial proceedings had been commenced and the jurisdiction of the Court enlivened. That was not the case in this matter.
All of the cases previously referred to involving an award of costs in favour of the plaintiff in spite of the statutory demand having been withdrawn by the creditor, involved withdrawal after the commencement of proceedings. Thus, even though the proceedings were ultimately dismissed or withdrawn, the creditor’s delay in withdrawing, or failure to withdraw, the demand could be seen as conduct inducing the plaintiff to file the application to have it set aside.
As a result of these distinctions, I must remain focussed on the application that was, in fact, before me. It was an application for costs and nothing more. The defendant had been steadfast in refusing to pay costs and that conduct or position could not have fulfilled the third criterion set out by Aitkin LJ in Ritter v Godfrey. In the case at hand, the defendant withdrew the demand promptly upon identification of the dispute alleged by the plaintiff. The defendant’s refusal to pay costs could not be categorised as inducing an application to set aside the statutory demand. Nor could such refusal be categorised as inducing the plaintiff to believe it had a reasonable cause of action for costs. By filing the originating process purely to seek an order for costs, the plaintiff risked the position that I would determine that such application had no efficacy. As a result, I consider that the issue as identified by Aitken LJ on whether conduct induced the plaintiff to file the proceeding, or induced the plaintiff to consider that it had a reasonable cause of action for its costs, must be determined against the plaintiff.
While I am sympathetic to the plaintiff’s position, I note as an aside that the plaintiff’s predicament was partly imposed by its own tardiness. There is a 21-day window in which to make application to set aside a statutory demand. The demand had been received on 29 January 2015. It is evident that the plaintiff’s solicitors received instructions shortly before, if not on, 16 February 2015. If the plaintiff had provided instructions in a timely manner, it may have been that the plaintiff’s solicitors could have procured the withdrawal before embarking on the costly exercise of preparing the affidavit in support of the originating process. As it was, the plaintiff’s solicitors had no choice other than to prepare the material for filing to ensure that it would be ready to commence proceedings prior to the end of the period for compliance with the demand. This resulted in additional costs that did not need to be incurred, which in turn caused the current predicament.
Conclusion
I conclude that there is no reason to depart from the usual rule that costs follow the event. Given the plaintiff’s concession that there is no basis for an order setting aside the statutory demand, I dismiss the application and award costs in favour of the defendant on a standard basis.
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