Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2)
[2012] FCA 977
•6 September 2012
FEDERAL COURT OF AUSTRALIA
Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977
Citation: Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977 Parties: SUPERIOR IP INTERNATIONAL PTY LTD ACN 126 853 558 v AHEARN FOX PATENT AND TRADE MARK ATTORNEYS File number: QUD 322 of 2011 Judge: REEVES J Date of judgment: 6 September 2012 Corrigendum: 12 September 2012 Catchwords: COSTS – indemnity costs – an order for indemnity costs requires “special or unusual features” – plaintiff not wholly successful on application under s 459G Corporations Act 2001 (Cth) – inappropriate to assess fairness and reasonableness of offer to settle a dispute in relation to application under s 459G Corporations Act 2001 (Cth)
PRACTICE AND PROCEDURE – costs – no genuine steps statement filed by the plaintiff – consideration of the appropriateness of the application of the Civil Dispute Resolution Act 2011 (Cth) to statutory demand proceedings under Pt 5.4 of the Corporations Act 2001 (Cth) to set aside a statutory demand
Legislation: Civil Dispute Resolution Act 2011 (Cth)
Corporations Act 2001 (Cth)Federal Court of Australia Act 1976 (Cth)
Cases cited: Carr v Finance Corporation of Australia Limited (1981) 147 CLR 246
Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225
Re Application by the Chief Commissioner of Police (Victoria) (2005) 214 ALR 422; [2005] HCA 18Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282
Date of last submissions: 8 June 2012 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Plaintiff: Mr JR Webb Solicitor for the Defendant: Mr LW Fox of blueFox Legal FEDERAL COURT OF AUSTRALIA
Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977
CORRIGENDUM
1.In [8], in the third line, delete “s 459G” and insert in lieu thereof “s 459E”.
I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Reeves. Associate:
Dated: 12 September 2012
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 322 of 2011
BETWEEN: SUPERIOR IP INTERNATIONAL PTY LTD ACN 126 853 558
PlaintiffAND: AHEARN FOX PATENT AND TRADE MARK ATTORNEYS
Defendant
JUDGE:
REEVES J
DATE OF ORDER:
6 SEPTEMBER 2012
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.The defendant pay the plaintiff costs paid in the sum of $2,175.
2.Other than as provided by Order 1, there be no order as to costs.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 322 of 2011
BETWEEN: SUPERIOR IP INTERNATIONAL PTY LTD ACN 126 853 558
PlaintiffAND: AHEARN FOX PATENT AND TRADE MARK ATTORNEYS
Defendant
JUDGE:
REEVES J
DATE:
6 SEPTEMBER 2012
PLACE:
BRISBANE
REASONS FOR JUDGMENT
THE PREVIOUS DIRECTIONS
The substantive decision in this matter ([2012] FCA 282) included directions (at [46]):
1.That each of the two lawyers concerned is to provide a copy of these reasons to his respective client and advise it to seek independent legal advice on the question of the costs of these proceedings.
2.That the two lawyers concerned be joined as parties to these proceedings for the limited purpose of determining the question of the costs of these proceedings.
Both lawyers subsequently informed me that they had complied with these directions and their clients had given instructions that they wanted them to continue to appear for them in these proceedings. Furthermore, the lawyers informed me that neither client wished to seek an order for costs against them or the other party’s lawyer.
When the substantive decision was delivered in this matter, Mr Webb, for Superior IP International Pty Ltd (Superior IP), sought liberty to apply on the question of costs. Acting under that leave, Mr Webb subsequently sought to have the matter relisted so that he could make submissions in support of an application for costs on behalf of Superior IP. Instead of relisting the matter, I directed that each party file a brief outline of submissions (no more than three pages) on the issue of costs. My obvious purpose in giving that direction was to attempt to avoid a repetition of the voluminous quantity of materials that had emerged from the parties on the substantive issues in these proceedings: see [2012] FCA 282 at [2]. Despite this, while each outline of submissions on costs was limited to three pages as directed, they were each accompanied by an affidavit of some 25 to 30 pages. Furthermore, Superior IP chose to file an outline of submissions in reply. The parties were not given leave to file any of this additional material and the filing of such materials without leave should not occur: see Re Application by the Chief Commissioner of Police (Victoria) (2005) 214 ALR 422; [2005] HCA 18 at [54] per Kirby J and Carr v Finance Corporation of Australia Limited (1981) 147 CLR 246 at 257–8 per Mason J. In those circumstances, I do not propose to have regard to any of this additional material.
CONTENTIONS ON COSTS
In his outline of submissions on costs, Mr Webb submitted that Superior IP was wholly successful in the proceedings and the usual rule – that costs follow the event – should apply. Furthermore, he submitted that the costs should be awarded on an indemnity basis. In support of the latter submission, Mr Webb pointed to various alleged failings on the part of Ahern Fox Patent and Trade Mark Attorneys (Ahern Fox), including its lawyer’s failure to be ready to proceed at one of the hearings before the District Registrar and its failure to file its materials within the time period as directed by the District Registrar. He also pointed to negotiations that have occurred between the parties and an offer Superior IP had made to pay $2,000 in full and final settlement of all issues, including costs and fees. The “fee” was the filing fee of $2,175 Superior IP had paid to file its application to set aside the statutory demand.
Mr Webb acknowledged that Superior IP had not filed a genuine steps statement in accordance with its obligations under the Civil Dispute Resolution Act 2011 (Cth) (the Civil Dispute Act). He asserted that, at the time Superior IP made its application, it was self-represented and Mr Smeaton, the managing director of Superior IP, was not aware of its obligations under the Civil Dispute Act. Nonetheless, he submitted that, prior to issuing the application, Mr Smeaton, on behalf of Superior IP, had unsuccessfully attempted to resolve the issues in dispute with Ahern Fox by engaging in the negotiations referred to above. Mr Webb also submitted that Superior IP “had little choice in this matter if it did not want to be wound up. There was a dispute about the debt which could never be ventilated if the Statutory Demand was not set aside or withdrawn …”.
In his outline of submissions, Mr Fox, on behalf of Ahearn Fox, submitted that Superior IP was not wholly successful in its application because the Court had found there was not a genuine dispute as to more than $1,000 of the outstanding debt. He also submitted that the Court had found that the material going to the genuine dispute was “patently lacking in precision and detail” and only “barely” provided enough information to support the existence of the genuine dispute about the debt. Further, Mr Fox alleged there were various defaults by Superior IP in its conduct of the proceedings, including the volume, content and defective form of the affidavit material it had filed. On the question of the application of the Civil Dispute Act, Mr Fox submitted that Ahearn Fox had no obligation to file a genuine steps statement because, in the absence of such a statement from the plaintiff in a proceeding, s 7(1) of the Civil Dispute Act did not place any obligation on a defendant in that same proceeding.
CONSIDERATION
Because it figured prominently in the concluding paragraphs of the substantive decision (see [2012] FCA 282 at [31] and following), it is appropriate to begin by considering the application of the Civil Dispute Act in these proceedings. First, as I observed in the substantive decision, the Civil Dispute Act clearly does apply to Superior IP’s application under s 459G of the Corporations Act 2001 (Cth) (the Act): see [2012] FCA 282 at [37]. Secondly, Mr Fox is quite correct in his submission that there was no obligation under the Civil Dispute Act upon Ahearn Fox, as the defendant, to file a genuine steps statement if Superior IP, as the plaintiff, had neglected to comply with its obligations to do so. In this respect, I should note that my statement at [33] of the substantive decision does not clearly identify this distinction.
However, to my mind, this raises a curious aspect of the way in which the Civil Dispute Act applies to statutory demand proceedings under Pt 5.4 of the Act. While the filing of Superior IP’s application under s 459E of the Act marked the formal institution of those proceedings in this Court, in real terms the statutory demand proceedings between the parties began when Ahearn Fox served the statutory demand on Superior IP under s 459E of the Act. The stated object of the Civil Dispute Act is “… to ensure that, as far as possible, people take genuine steps to resolve disputes before certain civil proceedings are instituted” (emphasis added): see s 3 of the Civil Dispute Act. It would seem to follow that, if the stated object of the Civil Dispute Act is to be achieved, in the peculiar context of statutory demand proceedings under the Act, any genuine steps to resolve the dispute relating to such proceedings should occur before the statutory demand is served under s 459E of the Act.
This leads me to Mr Webb’s submission (see at [5] above) that in the circumstances that prevailed in this matter, Superior IP had little option but to issue its s 459G application if it wished to avoid being wound up. Mr Webb is essentially correct in this submission. Once a statutory demand is served on a company under s 459E of the Act, it is on the path to being wound up, unless it successfully applies under s 459G to set aside that statutory demand. If the company fails to do so, or it is unsuccessful in that application, a number of dire consequences follow. First, if an application is made to wind up the company under s 459P (among other provisions) of the Act, the Court must presume that it is insolvent: see s 459C(2)(a) of the Act. Secondly, in any such winding up application, the company may not, without leave, oppose the winding up application on a ground that the company relied upon in an application to set aside the statutory demand, or that it could have relied upon had it made such an application: see 459S of the Act.
Furthermore, once a company is served with a statutory demand, there is a very short time period during which it can apply under s 459G to set aside that demand – generally 21 days after the demand is served: see 459F of the Act. All of this means that when a company comes to institute an application under s 459G of the Act, it is under time constraints and, more importantly, it is placed in a position when it essentially has to defend its future existence as a company. So, at this advanced stage of the statutory demand proceedings and in this fraught situation for the company, it seems to me to be somewhat unrealistic and incongruous to expect the company to take genuine steps to resolve the dispute under the Civil Dispute Act. In my view, this outcome provides further support for the proposition (at [8] above) that, in the peculiar context of statutory demand proceedings under Pt 5.4 of the Act, the requirement to take genuine steps to resolve the dispute should apply before the statutory demand is served under s 459E, not when the company is forced to apply under s 459G if it wishes to avoid the dire consequences described above. The alternative approach would be to recognise that statutory demand proceedings under Pt 5.4 of the Act have such peculiar and unique features to them that they should be an excluded proceeding under either Pt 4 of the Civil Dispute Act or the Regulations to that Act. This would appear to be entirely consistent with the fact that an application to wind up a company under s 459A, which is the principal object of serving a statutory demand under s 459E, is already an excluded proceeding under the Civil Dispute Act: see [2012] FCA 282 at [37].
Nonetheless, as mentioned above, it is clear that, as the Civil Dispute Act currently stands, Superior IP was under an obligation to file a genuine steps statement in accordance with that Act at the time it filed its application under s 459G of the Act. Further, it has acknowledged it failed to comply with that obligation. I do not consider I can simply ignore these statutory provisions. However, as noted in the substantive decision ([2012] FCA 282 at [40]), the Court still retains a discretion as to whether it takes into account a failure to comply with these obligations: see s 12(1) of the Civil Dispute Act. So, while I cannot ignore the fact Superior IP has breached its obligations under the Civil Dispute Act, this does not prevent me taking into account this fact and all the other circumstances mentioned above, in the exercise of my discretion as to costs in this matter. I also take into account the fact that Superior IP was self-represented at the time and Mr Smeaton’s ignorance of the provisions of the Civil Dispute Act is, perhaps, understandable.
As to s 9 of the Civil Dispute Act dealing with the duty of lawyers to advise their clients of the requirements of the Civil Dispute Act, I accept Mr Webb’s submission that he was not acting for Superior IP at the relevant time and therefore that duty did not apply to him. It follows further that the provisions of ss 12(2) or 12(3) of the Civil Dispute Act do not apply to justify an order that Mr Webb not recover his fees from Superior IP. Finally, since neither client seeks any order for costs against its own, or the other party’s lawyer, I do not, in the circumstances, propose to make an order under s 37N(5) of the Federal Court of Australia Act 1976 (Cth).
However, in light of the conduct that attracted my condemnation in the substantive decision (see [2012] FCA 282 at [2]–[9]), it is appropriate to add these observations. If it were not for the fact that both clients in this matter have expressly rejected the opportunity to seek to recover their costs via one of the avenues mentioned above, I would have been very likely to take one of them to attempt to deter lawyers engaging in that type of conduct.
This brings me back to Superior IP’s application that Ahearn Fox pay the costs of these proceedings. First, I do not consider that the matters identified by Mr Webb amount to the necessary “special or unusual feature[s]” that would justify an order for indemnity costs against Ahearn Fox: see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233. Secondly, I do not consider Mr Webb is correct in his submission that Superior IP was completely successful in its application and that costs should therefore follow the event. As Mr Fox correctly pointed out, Superior IP failed to establish that there was a genuine dispute in relation to approximately $1,000 of the debt and it barely established a genuine dispute in relation to the balance. Furthermore, while Ahearn Fox was a willing participant in the process whereby more than 400 pages of affidavit material was submitted to the Court in relation to a debt of a little more than $10,500, it was Superior IP that initiated that process.
Finally, it is necessary to say something about Mr Webb’s reliance on the offer Superior IP made to Ahearn Fox before issuing its s 459G application. This raises another unique feature of statutory demand proceedings under Pt 5.4 of the Act. As noted in the substantive decision (see [2012] FCA 282 at [19]–[22]), the primary purpose of an application under s 459G of the Act is to show that there is a genuine dispute about the existence, or amount, of the debt claimed in the statutory demand. I interpolate that in these proceedings, there was no issue about an off-setting claim: see s 459H(1)(b). If the plaintiff establishes that there is such a genuine dispute as to all, or a part, of the debt claimed in the statutory demand, the statutory demand is set aside as to that disputed amount or, as in this case, completely if the remaining amount in dispute is less than the minimum statutory amount of $2,000: see s 459H(3) of the Act. However, the conclusion that there is a genuine dispute about all, or a part, of the debt claimed in the statutory demand does not mean that the disputed amount of the debt is not due and owing. It simply means that there is a genuine dispute about that part of the debt. It is not, therefore, the purpose of an application under s 459G to determine whether all, or part, of the debt is actually due and owing. In this matter, that determination will be made by the Court in which Ahearn Fox chooses to commence proceedings to recover the disputed part of the debt. That being so, it is not possible for me to make any proper assessment as to whether Superior IP’s offer to settle the dispute about the debt was fair and reasonable.
CONCLUSION
Taking into account all these matters, I consider that, in the exercise of my discretion as to costs in the proceedings, I should order Ahearn Fox to pay Superior IP the amount of $2,175, being the filing fee it incurred in filing its s 459G application, but otherwise there should be no order for costs. This order is intended to cover any reserved costs, but not to affect any costs orders previously made by the District Registrar.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves. Associate:
Dated: 6 September 2012
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