Seventy Seventy Pty Ltd v Tanjent Pty Limited

[2010] VSC 668

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST

LIST E

S CI 2009 9664

SEVENTY SEVENTY PTY LTD	Plaintiff
v
TANJENT PTY LIMITED	Defendant

ASSOCIATE JUSTICE:	Gardiner AsJ
WHERE HELD:	Melbourne
DATES OF HEARING:	5 February 2010
DATE OF JUDGMENT:	24 February 2010
CASE MAY BE CITED AS:	Seventy Seventy Pty Ltd v Tanjent Pty Limited
MEDIUM NEUTRAL CITATION:	[2010] VSC 668

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CORPORATIONS – Application to set aside statutory demand under section 459G of the Corporations Act 2001 (Cth) – Costs – Demand withdrawn shortly before hearing of the application – Defendant ordered to pay plaintiff’s costs of the application on an indemnity basis.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	C. Moeller	Norton Rose Australia
For the Defendant	N. Frenkel	Cornwall Stodart

HIS HONOUR:

1. On 20 October 2009, the plaintiff, Seventy Seventy Pty Ltd, (“Seventy Seventy”) made application to set aside a statutory demand dated 29 September 2009, which had been served on it by the defendant, Tanjent Pty Ltd, (“Tanjent”).  The hearing of the originating process, together with the associated proceeding involving Vallas Enterprises Pty Ltd, was set down for hearing on 5 February 2010.  However, on 3 February 2010 in its written submissions, Tanjent withdrew the demand.  Its reasons for such withdrawal were not explained but I infer that it had accepted the advice of Counsel that it could not sustain its demand.  This, in practical terms, is somewhat akin to a discontinuance of the proceeding by the defendant and, as such, Tanjent would normally be obliged to pay the costs of the proceeding on a party-party basis.

1. Mr Moeller of Counsel, who appeared on behalf of Seventy Seventy, sought an order that Tanjent pay his client’s costs on an indemnity basis. In support of that application, he referred to the affidavit of Matthew Edward Croagh, sworn 20 October 2009. Mr Croagh is a partner of Norton Rose Australia (formerly Deacons), the solicitors for Seventy Seventy and he exhibited correspondence passing between his firm and Cornwall Stodart, the solicitors for Tanjent. In a letter of Deacons to Cornwall Stodart of 9 October 2009 Deacons demanded withdrawal of the statutory demand and put Cornwall Stodart on notice that an order for indemnity costs would be sought if the demand was not withdrawn and an application to set it aside under s 459G of the Corporation Act 2001 (Cth) (“the Act”) became necessary.  On 15 October 2009, Cornwall Stodart wrote back and stated that Deacons’ client was jointly and severally liable for the debt to the extent of $67,500 and observed:

“If and when the full amount as claimed is paid by Vallas Enterprises Pty Ltd, then your client’s debt will be expunged.”

1. Cornwall Stodart wrote another letter to Deacons on the same day of greater length.  It stated:

“We are interested in your assertion that we could only proceed against one of the parties.  The FitOut Contract is with two parties.  Unless we have missed some clause in the Contract and we invite you to point us to that, those parties are jointly and severally liable.  We are not seeking to double dip on behalf of our client.  When Seventy Seventy Pty Ltd pays its debt, that amount will reduce the amount on which our client will proceed against the other company.”

1. Mr Croagh swore a further affidavit on 20 November 2009 in which he exhibited correspondence subsequent to the issue of the originating process.  One of these exhibits is a letter of 4 November 2009 in which he renewed his invitation to Cornwall Stodart to withdraw the statutory demands and, in particular, that the Seventy Seventy demand be withdrawn and the costs be paid on an indemnity basis.  In that letter he stated:

“The reason for assessing the costs of the two proceedings on different bases is that there is no basis upon which the statutory demand can have been served on Seventy Seventy Pty Ltd.  That company is not indebted to your client.  There is nothing in the Fitout Contract which imposes any payment obligations on it.  For that reason, the statutory demand should never have been served.”

1. In my view, Deacons had articulated in plain terms that Tanjent had no sustainable claim and stated its basis for so contending. Its invitations to Tanjent to withdraw the demand were rebuffed.

1. It appears that it was only in early February 2010 that proper consideration and analysis were given by Tanjent and its legal advisors to the contractual position and the demand was then withdrawn.  This was only after very significant legal costs were incurred by both sides, all of which could have been avoided had the matter been properly considered before the demand was issued.

1. The decision of Colgate Palmolive Co & Anor v Cussons Pty Ltd (1993) 118 ALR 248 is generally accepted to be the seminal authority on the question of the award of indemnity costs. At page 255 of that judgment, Sheppard J stated:

French J dealt with the matter again in J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers – Western Australian Branch (Fed C of A, 19 Feb 1993, unreported).  He referred (p 5) to Fountain and his earlier decision in Tetijo. In relation to Fountain he said (p 5):

Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that collateral purpose or some species of fraud be established.  It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case (emphasis added).

1. At pages 256-257, Sheppard J summarised what he regarded to be the general position with regard to the award of indemnity costs and cited exemplars.  Those exemplars included:

1. “… the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud… the fact that the proceedings were commenced or continued for some ulterior motive… unlawful disregard of known facts were 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 impudent refusal of an offer to compromise…”  In my view, Tanjent should pay the costs of Seventy Seventy on an indemnity basis.  The statutory demand was served on Seventy Seventy in the absence of any contractual liability for doing so and only withdrawn on the eve of the hearing of the application.  If proper consideration had been given to the contractual position when it should have been, several tens of thousands of dollars in legal costs would have been avoided. 

1. Deacons wrote to Cornwall Stodart prior to making the application to set aside the demand and set out the position in the clearest of terms.  That approach was met with a response which betrayed that no further consideration was given at that juncture to the legal ability to proceed against Seventy Seventy.  If proper consideration had been given at that juncture there would have been no necessity to commence the current application.  Instead, Deacons’ invitation to reconsider the position was rebuffed and one can infer that no revisitation of the legal position occurred at that point.  It was only two days before the hearing that the position was properly assessed and Tanjent withdrew. 

1. I consider that what occurred was, in the words of French J, as he then was, a party persisting in “what should on proper consideration be seen to be a hopeless case” or in the words of Sheppard J in Colgate, “the undue prolongation of a case by groundless contentions.”[1]

   [1]which in turn was derived from the decision of Davies J in Ragata Developments Pty Ltd v Westpac Banking Corporation (Fed C of A, 5 March 1993, unreported.

1. On occasion in these types of applications there is a point in the timeline before which indemnity costs should not be awarded.  In this case, Deacons made its approach prior to the making of the application to set aside the demand and no such differentiation within the time line is warranted.

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