RadioMio v Kendell (No. 2)
[2011] VSC 677
•16 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2011 182
| RADIOMIO PTY LTD | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
| - and – | |
| S CI 2011 184 | |
| SISS BUSINESS SYSTEMS LIMITED | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
| - and - | |
| S CI 2011 00953 | |
| SISS BUSINESS SYSTEMS LIMITED | Plaintiff |
| v | |
| DAVID WARD KENDELL | Defendant |
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JUDGE: | GARDINER AsJ | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | The parties both filed written submissions and the plaintiffs relied on affidavits of John Morrow sworn 8 June 2011 and 19 October 2011. | |
DATE OF RULING: | 16 December 2011 | |
CASE MAY BE CITED AS: | RadioMio v Kendell (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 677 | |
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CORPORATIONS – Application to set aside statutory demand under Section 459G and 459J of the Corporations Act 2001 – Demands set aside – Costs awarded against the defendant on an indemnity basis save for prolix and unnecessary affidavit filed in support of plaintiffs’ application for costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Evans of Counsel | John R Morrow |
| For the Defendant | Mr D W Kendell, a solicitor, appeared in person |
HIS HONOUR:
On 12 October 2011, I delivered reasons and made orders in these three proceedings setting aside the statutory demands which were the subject of these applications.[1] At the conclusion of my reasons I invited the parties to submit submissions, which they have done, on the question of what order should be made as to costs.
[1]RadioMio v Kendell [2011] VSC 511.
In addition to the written submissions, the plaintiffs filed two affidavits of its solicitor, John Morrow, sworn 8 June 2011 and 19 October 2011. The affidavit of 8 June 2011 is a 34 page document of 68 paragraphs exhibiting 62 documents. The affidavit of 19 October 2011 exhibits an additional 11 documents. The exhibited documents for the main part contain acrimonious correspondence passing between the parties which reflect no credit on either side, particularly when the correspondents involved are experienced solicitors. I have considered those affidavits and the exhibits to them. There was, as may be expected, correspondence from the plaintiffs’ solicitor which warned Mr Kendell that an order for indemnity costs would be sought if he maintained the demands and it became necessary to make application to set them aside. That material could have been adduced by a very short affidavit deposing to an exhibiting such correspondence. In my view, the affidavits add very little at all of assistance to me in determining whether a special order as to costs should be made in this proceeding. It was already abundantly clear from the substantial of evidence filed in the applications and the submissions made at the hearing that the parties harbour considerable animosity towards each other and that Mr Kendell’s maintenance of the demands was motivated by this. I will disallow the plaintiffs any costs associated with the preparation, swearing and filing of those affidavits.
It was indicated by me (at least twice) in the course of the hearing to Mr Kendell, that my task in deciding the matters involved the application of a body of case law which is well settled and which required the plaintiffs to satisfy a relatively low threshold in that part of the applications which dealt with the establishment of genuine disputes or offsetting claims. The case law in respect of applications under s 459J is perhaps less clear.
The determination of the applications was not a finely balanced one. The demands and accompanying affidavits in support of them suffered from the defects and deficiencies outlined in my reasons for judgment, which resulted in them being set aside under section 459J. The comparatively low threshold required to be satisfied by the plaintiff in establishing that there were genuine disputes and offsetting claims under section 459G was, to my mind, comfortably satisfied.
As my reasons reveal, I consider that Mr Kendell should not have served the statutory demands and should have instead instituted conventional inter partes proceedings to establish his claims against the plaintiffs. A considerable amount of time was occupied at the hearings of these matters dealing with objections to passages of the plaintiff’s affidavits, some of which objections were allowed but which, at the end of the day, had little effect on the outcome of the matters. The approach taken by Mr Kendell to the conduct of his defence to the applications was akin to one which might be taken in the defence of conventional proceedings. This reflected a serious misunderstanding of the nature of the task the Court has to undertake in these types of applications.
The proceedings were protracted by Mr Kendell mounting argument in respect of matters which were unsuccessful, such as the submissions that certain of the applications had not been served within time. The amount of affidavit and other material filed in the applications by Mr Kendell which required detailed response by the plaintiffs, was quite extraordinary.
In his written submissions, Mr Kendell appears to accept and makes no submissions in respect of the award of costs on the ordinary basis and the question I have to determine is whether they should be awarded on an indemnity basis. In his submissions, Mr Kendell has approached the matter by dealing with the proceedings separately. I do not consider that there is any reason to approach it in that way and I shall deal collectively with the three proceedings.
Legal principles
In Manderson M and F Consultingv Incitec Pivot Ltd (No 3),[2] Croft J summarised the principles to be applied in considering whether a special order for costs should be made. He stated:[3]
[2][2011] VSC 441 (“Manderson”).
[3]Manderson [2011] VSC 441, [8]-[12](citations omitted).
8.The jurisdiction of the Court as to costs is conferred by sub-s 24(1) of the Supreme Court Act 1986, in the following terms:
24(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.
This general discretion must be exercised in accordance with Order 63 of the Rules.
9.The usual order as to costs is an award of costs to the successful party on a party and party basis. This position is reflected in rule 63.31 of the Rules. Nevertheless, the Court has a discretion to make special costs orders. The previously identified categories of circumstances that warrant a special costs order provide guidance in relation to the exercise of this discretion. These categories were identified by Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd as including:
...the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud ...; evidence of particular misconduct that causes loss of time to the Court and to other parties ...; the fact that the proceedings were commenced or continued for some ulterior motive ... or in wilful disregard of known facts or clearly established law ...; the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions ...; an imprudent refusal of an offer to compromise ...; and an award of costs on an indemnity basis against a contemnor...”
10.In Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd, Woodward J commented in relation to the commencement or continuation of proceedings with no chance of success:
... 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 laws.
11.Further, with respect to this category or circumstance, the Victorian Court of Appeal said in Macedon Ranges Shire Council v Thompson that:
Where the proceeding has no prospect of success
Costs may be ordered whenever it appears that an action has been commenced in circumstances where the applicant properly advised should have known it had no chance of success. When a litigant presses on where on proper consideration their case should have been seen to be hopeless, the discretion to make a special costs order may be enlivened. French J (as he then was) in J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers Western Australia & Anor considered that the discretion to award such costs would be enlivened when a party persisted, for whatever reason, in what should on proper consideration have been seen to be a hopeless case, and alluding to the presumption referred to by Woodward J in Fountain Selected Meats said that it was an unnecessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. But where the litigant did not recognise that its case was without merit a court may be disinclined to make a special costs order. The Court must measure the litigant’s conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained. This exercise may be subject to some qualification in respect of a self represented litigant.”
12.As was made clear by Sheppard J in Colgate Palmolive Company v Cussons Pty Ltd, a special costs order may be warranted where a party has engaged in misconduct leading to unnecessary costs or delay. An application for a special costs order on this basis was considered by French J (as he then was) in Re Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd:
[21] Counsel for the respondent next attacked the applicant's conduct of the proceedings saying that interlocutory steps had been protracted by its failure to comply with requests for particulars and discovery and with orders of the Court. Further, it was said, there were untenable applications to amend pleadings and for leave to appeal. Discontinuance of the action was at the last minute and no explanation had been advanced for it. He submitted that it should be inferred that there had been a sudden acceptance by the applicant of the hopelessness of its case and that this was a matter which should have been apparent very shortly after the commencement of the proceedings.
[22] I accept that the interlocutory processes were unduly protracted and that the applicant must bear much of the responsibility for this. However, costs orders were made in favour of the respondent where the applicant was responsible for wasted appearances. When, in an individual case, there is evidence of particular misconduct on the part of a party that causes loss of time to the Court and to other parties then an order for solicitor-client costs and/or costs to be paid forthwith may be made. In my opinion a global order of this kind is not warranted in this case.”
In CGI Information Systems and Management Consultants Pty Ltd v Apra Consulting Pty Ltd,[4] Barrett J of the Supreme Court of New South Wales considered the question of the award of indemnity costs in the context of applications to set aside statutory demands. He stated, at paragraphs 19 to 22:
19.In the s 459G field, Santow J warned in a number of judgments that, with the hurdle to be cleared by companies seeking to have statutory demands set aside being so low, creditors persisting with the defence of such applications need to consider carefully, against the possibility of an order for indemnity costs, whether there are valid grounds for their taking up court time and putting the company to expense by doing so: see, for example, Polaroid Australia Pty Ltd v Minicomp Pty Ltd(1997) 16 ACLC 529; Buddies Liquor Pty Ltd v Wah Lai Investment (Australia) Pty Ltd[2000] VSC 570; (2001) 19 ACLC 848; Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd[2001] NSWSC 654. A clear warning to the same effect was issued by the Full Court of the Supreme Court of South Australia in Drewniak v Air Rubber Pty Ltd[2002] SASC 319; (2002) 84 SASR 302.
20.Indemnity costs have been awarded in some s 459G cases. In Galaxy Resources Ltd v Arrinooka Pty Ltd[2002] WASC 70, an order of that kind was made where the statutory demand asserted debts said to come from an oral agreement, where the supposed conversation was denied by one of its supposed parties and the plaintiff offered to withdraw its application and bear its own costs on the basis that the defendant withdrew its statutory demand, an offer that Master Bredmeyer said should have been accepted. In Wildtown Holdings Pty Ltd v Rural Traders Company Ltd[2002] WASCA 196; (2002) 172 FLR 35, the Full Court of the Supreme Court of Western Australia found that the statutory demand was grossly defective and its accompanying affidavit was obviously inadequate, yet the defendant persisted in resisting an application to have the demand set aside. The Court saw the case as involving “shortcomings ... sufficiently serious ... to warrant the conclusion that the respondent’s defence of its position was an abuse of the court’s process, arguably justifying an award of indemnity costs”. In Carinda Homes Pty Ltd v Highlands Austral Pty Ltd[2003] FCA 275, Lindgren J ordered costs on the indemnity basis where the evidence made it plain that the time limit fixed by ss 459G(2) and (3) (which is immutable: David Grant & Co Pty Ltd v Westpac Banking Corporation[1995] HCA 43; (1995) 184 CLR 265) had not been met, so that, as his Honour put it, “the proceeding was doomed to fail” and it was “quite unreasonable for it to be pursued once 25 February 2003 had passed without service having been effected”.
21.At the same time, it is important to remember that the party by whom a statutory demand is served is entitled not only to test the recipient company’s claim that the alleged debt is genuinely disputed but also to see the evidence the plaintiff is able to marshal in support of the claim of genuine dispute. That principle has been stated on several occasions by Palmer J in sounding a note of caution about the award of indemnity costs in this type of case: see Redglove Holdings Pty Ltd v GNE & Associates Pty Ltd[2001] NSWSC 867; (2001) 165 FLR 72; Club Marconi of Bossley Park v AVR Services (NSW) Pty Ltd[2002] NSWSC 584; Grass Manufacturers Pty Ltd v Sraennik Pty Ltd[2003] NSWSC 95.
22.I accept that the possibility of an order for indemnity costs should not be allowed to deter a party by whom a statutory demand has been served from putting the company to appropriate proof of the genuine dispute it asserts. But that principle has a limit to it. As Galaxy Resources, Wildtown Holdings and Carinda Homes show, there are cases in which attempts to resist the setting aside of the demand are, even on the interpretation of the facts most favourable to the defendant, so devoid of prospects of success as to be perverse. The opportunity to put the company to proof of the asserted genuine dispute is something to which the defendant should not be regarded as entitled in such obvious cases. A defendant, on having an obvious and irremediable weakness in its position pointed out, ought to withdraw the statutory demand. If, in such circumstances, such a defendant does not do so, it may well be appropriate for the court to award costs to the plaintiff on the indemnity basis.
[4][2003] 47 SCSR 100.
Conclusion
At paragraph 33 of my reasons for judgment, I found that Mr Kendell’s conduct prior to and including service of the statutory demands amounted to “reckless, careless and vexatious use of the demand regime” and an abuse of process of the statutory demand procedure. I agree with the submissions of Mr Evans of Counsel where he states that this is sufficient to enliven the Court’s discretion as to the making of an award of indemnity costs.
In my view, it is appropriate to make an order for indemnity costs against Mr Kendell in each of the proceedings. As I have already noted above, when one has regard to the case law dealing with these types of applications, Mr Kendell, who is apparently an experienced solicitor, either should have carefully considered the case law dealing with such applications prior to service of the statutory demands or sought independent and objective advice in this regard. It seems that Mr Kendell’s judgment in relation to the matter was distorted by the depth of animosity arising from the breakdown in the commercial relationship that he formerly had with the plaintiffs.
I have considered whether the special order for costs which I propose to make should cut in at some point in the timeline after the filing of the applications to set aside the demands but I have concluded that the plaintiffs should be entitled to their costs on an indemnity basis from the time that the applications were instituted. As I have said, I observed to Mr Kendell on at least two occasions when this matter was before me, of the nature of the tests to be applied in these types of cases and the need to reflect on whether he should persist in maintaining the demands and he elected to do so.[5]
[5]See [52] of RadioMio v Kendell [2011] VSC 511.
The Court orders that:
In proceeding S CI 2011 00182
1.The defendant is to pay the plaintiff’s costs of the proceeding, including any reserved costs on an indemnity basis, save for the costs of the affidavits of John Morrow sworn 8 June 2011 and 19 October 2011, which costs are disallowed.
In proceeding S CI 2011 00184
1. The defendant is to pay the plaintiff’s costs of the proceeding, including any reserved costs on an indemnity basis, save for the costs of the affidavits of John Morrow sworn 8 June 2011 and 19 October 2011, which costs are disallowed.
In proceeding S CI 2011 00953
1. The defendant is to pay the plaintiff’s costs of the proceeding, including any reserved costs on an indemnity basis, save for the costs of the affidavits of John Morrow sworn 8 June 2011 and 19 October 2011, which costs are disallowed.
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