Professional Services of Australia Pty Ltd v Lean - [2018] WASC 28 (S)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- LEAN [2018] WASC 28 (S)
CORAM:   SMITH AJ
HEARD:   ON THE PAPERS
DELIVERED          :   24 APRIL 2018
FILE NO/S:   COR 160 of 2017
BETWEEN:   PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD
Plaintiff

AND

GRAEME TREVOR LEAN
Defendant

Catchwords:

Practice and procedure - Defendant's application for costs - Whether plaintiff successful in substantial application - Plaintiff in reality not a successful party - No disentitling conduct of defendant found - Turns on own facts

Legislation:

Corporations Act 2001 (Cth), s 459G, s 459H(1)(a), s 459H(1)(b), s 459H(5), s 459(5)(1)

Result:

Plaintiff to pay the defendant's costs of the action to be assessed if not agreed

Category: B

Representation:

Counsel:

Plaintiff	:	Mr T R Stephenson
Defendant	:	Mr C P Stokes

Solicitors:

Plaintiff	:	Eastwood Law
Defendant	:	Chris Stokes & Associates

Case(s) referred to in decision(s):

Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11] [2016] WASC 365
Frigger v Campbell‑Smith [2010] WASC 353
Frigger v Professional Services of Australia Pty Ltd [No 2] [2011] WASCA 103 (S)
Lean v Banning Holdings Pty Ltd [2017] WASC 353 (S)
Professional Services of Australia Pty Ltd v Lean [2018] WASC 28

SMITH AJ:

The application for costs

Professional Services of Australia Pty Ltd (PSA) made an application under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand served on it by Graeme Trevor Lean.
The debt upon which the statutory demand was based is a judgment debt that arose out of a decision by Master Sanderson in Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11][1] (CIV 2265 of 2006).
[1] Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11] [2016] WASC 365.
On 31 January 2018 I made an order:[2]
(a)to set aside the statutory demand on condition that PSA pay into court the sum of $105,000 and certain interest within 14 days; and
(b)that if the sums were not paid by 14 February 2018, the application be dismissed.
[2] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [69].
No funds were paid into court by 14 February 2018, or at all. Pursuant to the terms of the order the plaintiff's application was dismissed.
Mr Lean seeks an order that PSA pay his costs of the application. PSA opposes the order.

Background

PSA claimed that the statutory demand be set aside on grounds that:
(a)PSA had a genuine claim against Mr Lean by way of a counterclaim, set-off or cross‑demand (an offsetting claim) pursuant to s 459H(5) of the Corporations Act; and
(b)the service of the statutory demand was oppressive and would cause substantial injustice to PSA being 'some other reason' pursuant to s 459J(1) of the Corporations Act.
PSA is a joint debtor to the judgment debt pursuant to the order made by the Master in CIV 2265 of 2006. The other debtor is Mr Donald Campbell-Smith, in his capacity as executor of the estate of Mr Martin Banning. PSA and Mr Campbell-Smith have filed an appeal against the award of remuneration made by the Master in CIV 2265 of 2006.[3]
[3] CACV 2 of 2017.
In the application to set aside the statutory demand, PSA claimed that the reasoning of the Master in making the award is flawed. It also claimed it has an offsetting claim against Mr Lean that may be greater in quantum than the judgment debt.[4] These contentions were rejected. I found that it is not open to PSA at law to challenge the judgment debt. Consequently, PSA could not claim a genuine dispute within the meaning of s 459H(1)(a) as to the existence or amount of the resulting judgment debt.[5]
[4] This claim related to PSA and Mr Campbell‑Smith defending CIV 1727 of 2009 (Frigger v Campbell‑Smith [2010] WASC 353).
[5] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [35].
The reason why I made this finding was that the arguments raised, however genuine and strong (in relation to which I made no findings), could not raise an offsetting claim within the meaning of s 459H(1)(b), as defined in s 459H(5).[6] I observed that the law is clear that a judgment debt, whilst it stands, cannot be disputed; that is, it cannot be the subject of a 'genuine dispute' so as to enliven s 459H(1)(a). This is because the fact of the debt is res judicata between the parties.[7]
[6] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [35].
[7] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [36].
I also found that PSA had no offsetting claim against Mr Lean arising out of action by Mr Lean in CIV 1727 of 2009, as PSA was not a party to the proceedings out of which such a claim could possibly arise.[8]
[8] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [47].

PSA is not successful in the substantive application

The general rule is that a successful party to an action is to recover his or her costs.
PSA claims that it was successful in the action, however, without any proper inquiry being made as to the capacity of it to make a payment into court it has been denied relief only due to its financial circumstances and not as a result of a lack of merit in its application.
The contention that no proper inquiry was made as to the capacity of PSA to make a payment into court is rejected. Firstly, the issue was squarely raised in the written submissions filed on behalf of Mr Lean on 20 November 2017. Secondly, at the hearing of the application to set aside the statutory demand, counsel for PSA referred to the issue raised in Mr Lean's submissions about the question of a payment into court 'as being a potential condition'. A submission was then made on behalf of PSA that it would not be appropriate for PSA to be assessed as having to pay into court an amount of over $100,000 for costs for a claim and have costs awarded against PSA when they could potentially have a claim for a much larger amount against Mr Lean which Mr Lean would have to pay.[9] As the issue was squarely raised in the proceedings it was open to PSA for a submission to be made as to its capacity to pay. Whether it wished to do so was a matter for it to determine.
[9] ts 75, 13 December 2017.
PSA's claim was not found to be meritorious. PSA failed on both grounds of its application to set aside the statutory demand. None of the arguments it forwarded to the court were accepted.
Whilst an order was made in favour of PSA that the statutory demand would be set aside if the judgment debt plus nominated interest was paid into court within 14 days, it cannot be said that in reality this order resulted in PSA being a successful party. In these circumstances, PSA is not entitled to its costs of the action. In Frigger v Professional Services of Australia Pty Ltd [No 2] the court explained:[10]
However, deciding what amounts to success is not always revealed merely by reading the orders of the court. Where an appellant has been successful in obtaining what is, in effect, a variation in their favour of orders below, there may remain valid reasons to not award costs in favour of the appellant where the appellant has not been successful in the underlying, real contest: Laws v Australian Broadcasting Tribunal (1989) ALD 522; (1989) 85 ALR 659, 677. Where appellants have only won a nominal victory then the court may not award costs. Success in proceedings is to be determined by the 'reality' of the circumstances involved: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [70] (McHugh J); Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, 401.
[10] Frigger v Professional Services of Australia Pty Ltd [No 2] [2011] WASCA 103 (S) [12].

Should Mr Lean's claim for costs be refused?

PSA also makes a submission that whilst acknowledging that Mr Lean successfully defended aspects of the points PSA put before the court, it claims that in the litigation between the parties Mr Lean has engaged in conduct which deserves to receive the opprobrium of the court by the refusal of any award of costs. In determining whether Mr Lean should be entitled to costs PSA says the court should have regard to the conduct of the parties within the 'whole battlefield of the action and matters in dispute'.
In support of its submission, PSA submitted that Mr Lean has acted improperly or unreasonably by:
(a)serving a statutory demand on PSA after a payment had been made into court as security for costs in CACV 2 of 2017 (on behalf of PSA and Mr Campbell‑Smith) instead of waiting until the appeal against the decision of the Master is heard by the Court of Appeal;
(b)seeking to enforce the judgment of debt which has caused the appellants in CACV 2 of 2017 to commence an application for a stay of the judgment of the Master in CIV 2265 of 2006;
(c)raising irrelevant matters in an affidavit, sworn on 28 September 2017, including making allegations of historical insolvency and impropriety in the management of PSA and Banning Holdings Pty Ltd, which increased the cost of the action substantially; and
(d)engaging in conduct that has resulted in delay and difficulties for the appellants in prosecuting the appeal in CACV 2 of 2017.
I do not accept, however, that any of these submissions can be properly made in determining this application for costs.
Firstly, the contention that it is unjust for Mr Lean to enforce the judgment debt by issuing a statutory demand in the absence of a stay of the judgment of the Master was an issue considered and rejected in my reasons for decision delivered on 31 January 2018.[11]
[11] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [54] ‑ [60].
Secondly, in my reasons, whilst I found that Mr Lean had delayed in filing his case in the appeal in CACV 2 of 2017, I was not persuaded that it was a matter I should have regard to as I found that both parties (on the facts recounted to me and set out in the supporting affidavits) had not been diligent in progressing the appeal.[12]
[12] Professional Services of Australia Pty Ltd v Lean [2018] WASC 28 [61] ‑ [64].
Thirdly, given that PSA sought to make a collateral attack on the judgment of the Master in the application to set aside the statutory demand, on grounds that went to the conduct of Mr Lean, in those circumstances it is difficult to be critical of Mr Lean for raising issues in response which went to the conduct of the management and potential insolvency of PSA.
The matters set out in the affidavit of Mr Lean, sworn on 28 September 2017, that are objected to by PSA in opposing Mr Lean's claim for costs must be read in light of the matters set out in an affidavit filed in support of the application to set aside the statutory demand that was sworn by a director of PSA, Sandra May Banning, on 11 July 2017. In the affidavit of Mrs Banning (which was filed prior to the affidavit of Mr Lean) she alleges that Mr Lean had acted improperly and misconducted himself as a court appointed receiver of one share of Banning Holdings Pty Ltd. In making this allegation she refers to the conduct of Mr Lean as receiver in CIV 2265 of 2006 and CIV 1727 of 2009.
As these issues were raised by Mrs Banning, it is not surprising that in the affidavit of Mr Lean sworn on 28 September 2017 he responds to the allegations made by Mrs Banning and in turn makes allegations of historical insolvency against PSA and Banning Holdings Pty Ltd, and of impropriety in respect of the management of both of those companies.
I do however agree that, despite these issues being raised in the affidavits of both parties it was not necessary nor appropriate to make any findings about whether PSA is insolvent in determining whether to set aside the statutory demand. Nor was it necessary to make any findings as to whether any of the allegations made by Mrs Banning or Mr Lean had any substance.
PSA also seeks to raise issues that go to the conduct of Mr Lean in proceedings that PSA is not party to, being a matter in the Federal Court and COR 35 of 2018 of this court. Both of these matters have yet to be determined.
PSA also seeks to raise issues going to the conduct of Mr Lean in COR 140 of 2017.[13] In COR 140 of 2017 I found that it was not open to put an argument that Mr Lean had engaged in the proceedings either for an improper or unreasonable purpose.[14]
[13] Lean v Banning Holdings Pty Ltd [2017] WASC 353; Lean v Banning Holdings Pty Ltd [2017] WASC 353 (S).
[14] Lean v Banning Holdings Pty Ltd [2017] WASC 353 (S) [74].
Except in respect of the findings made by the Master in CIV 2265 of 2006 which are to be reviewed by the Court of Appeal in CACV 2 of 2017, the contentions regarding Mr Lean's conduct that PSA seeks to raise in other proceedings have not been the subject of any findings of improper or unreasonable conduct by any court.
In any event, the adverse findings made by the Master against Mr Lean in CIV 2265 of 2006 were matters the Master took into account when making an award that PSA and Mr Campbell‑Smith pay Mr Lean an amount of $75,000, being an award of compensation for the work as a receiver of one share of Banning Holdings Pty Ltd.[15]
[15] Computer Accounting and Tax Pty Ltd (in liq) v Professional Services of Australia Pty Ltd [No 11] [2016] WASC 365.
In these circumstances, I do not intend to have regard to the matters raised in respect of any other proceedings.
Given that both parties made allegations of impropriety against the other in this action and in the absence of any such findings of impropriety or unreasonable conduct by either party, I am not satisfied that any finding of disentitling conduct can be made against Mr Lean so as to deprive him of an order that PSA is to pay his costs of the application.
For these reasons, I am satisfied that an order should be made that the plaintiff is to pay the defendant the costs of the action, to be assessed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
VV
ASSOCIATE TO THE HONOURABLE JUSTICE SMITH
24 APRIL 2018