FEDERAL COURT OF AUSTRALIA

Product People (International) Pty Limited v Box Seat Company Pty Limited (in liquidation) (No 2) [2013] FCA 1437

THE COURT ORDERS THAT:

1.    Mr Neville Jones pay the plaintiff’s costs (including costs of the application for costs) incurred after 14 December 2012.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    In Product People (International) Pty Ltd v Box Seat Company Pty Ltd (in liquidation) [2013] FCA 277 (Product People), I made orders setting aside a statutory demand dated 27 August 2012 (Statutory Demand) served on the plaintiff, The Product People (International) Pty Limited, by the defendant, The Box Seat Company Pty Limited (in liquidation). I awarded costs in favour of the plaintiff but as the defendant had, at the end of the hearing of the plaintiff’s application, requested an opportunity be heard on the question of costs, the order was made subject to an application being made by 5 April 2013 if the costs issue was to be agitated. Terms defined in Product People bear the same meaning in these reasons.

2    There are five factors which may affect the application of the usual practice that costs follow the event: (1) it is uncontested that the defendant is insolvent and unlikely to be able to satisfy a costs award; (2) the role of Mr Neville Jones (Mr Jones), a major creditor of the defendant; (3) the plaintiff paid to the defendant a conceded debt of $8,383.33 on 14 December 2012; (4) an offer of settlement made by the plaintiff on 5 February 2013; and (5) the role of the defendant’s liquidators is contested. Mr Stephen Hathway (Mr Hathway) and Mr Paul Sweeney of SV Partners (Liquidators) are and have at all relevant times been the joint and several liquidators of the defendant.

3    Brown & Partners have at all times acted for Mr Jones. From about 17 August 2012, they acted for both Mr Jones and the Liquidators, and from about early April 2013, they ceased to act for the Liquidators. Brown & Partners were the solicitors on the record for the defendant in relation to the proceedings and Ms Olga Edwards (Ms Edwards), a senior associate, had carriage of the matter at Brown & Partners. Mr Simon Gallant of ERA Legal (Mr Gallant and ERA respectively) was appointed as lawyer to the Liquidators and the defendant Company in early April 2013 replacing Brown & Partners.

4    As a result of changes of solicitors for the defendant and the Liquidators and the need to establish the role of Mr Jones, there have been a number of iterations of the parties’ applications for costs. The orders initially sought by Brown & Partners (then acting for the Liquidators and Mr Jones) on 4 April 2013 were: (1) that there be no order as to costs; or in the alternative (2) the plaintiff pay the defendant’s costs to 14 December 2012 and the defendant pay the plaintiff’s costs on the ordinary basis thereafter; or in the alternative (3) there be no order as to costs to 14 December 2012 and the defendant pay the plaintiff’s costs on an ordinary basis thereafter; and (4) costs of this application be paid by the plaintiff, and such further order as the Court sees fit.

5    The parties, Mr Jones and the Liquidators have each confirmed their position as set out at [6] – [9] below.

The plaintiff’s claim

6    The plaintiff seeks orders that Mr Jones (or in the alternative, the Liquidators) pay the plaintiff’s costs: (a) on an indemnity basis; or, alternatively (b) on the ordinary basis until 5 February 2013 and the indemnity basis thereafter on account of a Calderbank offer; or further in the alternative, (c) on the ordinary basis.

Mr Jones’ position

7    Mr Jones opposes any order of costs against him but if costs are ordered against him they should not be on an indemnity basis and they should be limited to the period after 14 December 2012.

The defendant’s position

8    The defendant seeks no orders and accepts that costs should follow the event.

The Liquidators’ position

9    The Liquidators oppose any order that they pay costs and express no view on the appropriateness of the orders sought by Mr Jones.

10    The plaintiff, Mr Jones and the Liquidators each provided written submissions. It was ultimately agreed that the plaintiff’s application would be disposed of on the papers. No objection was taken to: (1) the affidavits of Mr Michael Carroll of Carrolls Lawyers (Mr Carroll) sworn on 18 April 2013 (First Carroll Affidavit) and 24 May 2013 (Second Carroll Affidavit). Carrolls Lawyers act for the plaintiff; (2) the affidavit of Mr David Brown of Brown & Partners (Mr Brown) sworn on 26 April 2013 (Brown Affidavit); (3) the affidavit of Mr Hathway affirmed on 7 June 2013 (Hathway Affidavit); and (4) the affidavit of Mr Jeremy Noonan of Brown & Partners (Mr Noonan) sworn on 12 June 2013 (Noonan Affidavit). Reference is also made the affidavit of Ms Edwards affirmed 30 November 2012 (Edwards Affidavit), the affidavit of Ms Anke King (Ms King) sworn 25 September 2012 (Supporting Affidavit) and the affidavit of Ms King sworn on 13 December 2012 (December Affidavit) each of which was read at the hearing of the plaintiff’s application to set aside the Statutory Demand.

Background

11    The Statutory Demand for $75,107.37 was based on a line item in an unaudited balance sheet for the period to 30 July 2010 (2010 Balance Sheet). The 2010 Balance Sheet was supplied to the Liquidators by Ms King under cover of a letter dated 26 January 2012 and sent by email the next day (see annexure F to the Edwards Affidavit). Ms King is the company secretary of the plaintiff and a company called The Product People Pty Limited (TPP) She was the company secretary of the defendant before it went into liquidation): Product People at [3].

12    Mr Gallant provided background to the matter by letter dated 6 May 2013 in response to a request for information from Mr Carroll: see annexure B to the Second Carroll Affidavit. Mr Gallant explained that the defendant originally went into a members voluntary winding up. The defendant then went into liquidation after a claim made by Mr Jones. The Liquidators had received remuneration and expenses to undertake a members voluntary winding up; they were not in possession of assets or funding to undertake any other steps.

13    The background to Mr Jones’ claim in the defendant’s winding up is set out in a letter dated 8 March 2013 to Mr Hathway from Ms Edwards (annexure Q of Noonan Affidavit):

Background: Prior to your appointment as liquidator, in about November 2007, the Company [the defendant] had borrowed $400,000 from the National Australia Bank (“loan”). This loan was guaranteed by [Mr Jones] and Sheldon King. In or about 20 August 2010 NAB issued a letter of demand to the Company for the full amount of a loan. On or about 6 September 2010 NAB issued a letter of demand to Mr Jones and Mr King. In or about November 2010 the loan was paid out by Mr. Jones and he in turn commenced proceedings against the Company and Mr. King to recover the said amount so paid. On 29 July 2011 Mr Jones obtained a Judgment against the Company in respect of the loan amount, together with costs. On 1 November 2011 Mr Jones obtained a Judgment against Mr King as co-guarantor in respect of the said loan, together with costs.

14    Further background was provided to the Liquidators in Ms King’s letter of 26 January 2012 which explained (among other things) her view of Mr Jones’ involvement with the defendant: Mr Jones approached Mr King in 2007 with a view to his becoming involved with the business; he suggested that a $400,0000 loan be taken out with NAB; Mr Jones offered to secure the guarantee with a property asset in return for which he was offered and he accepted a 10% shareholding the defendant: Mr Jones refused appointment as a director of the defendant; the defendant was to operate in the Australian market; on 4 May 2009, Mr Jones “suddenly and without any explanation or reason” walked out of the business and as a result the defendant stopped trading. Ms King says that the outcome of the judgment referred to at [13] was that Mr King was ordered to pay $219,744.59 plus costs (half of the amount then owing to NAB), which he paid. Ms King says that the NAB loan facility has been paid by both guarantors in equal shares.

15    On 20 July 2012, Ms Edwards sent an email to Mr Leon Zheng (Mr Zheng) of SV Partners (cc to Mr Jones and Mr Hathway): annexure D of Second Carroll Affidavit. The email states:

We refer to the [defendant] (in liquidation).

We know that liquidators (Mr Hathway and Mr Sweeney) have sent a letter to Mr Sheldon King (director) requesting various information and production of books and records of the company.

We have been informed by Mr Jones that Mr King did not respond to the liquidators’ requests.

As you would probably be aware, The Product People (International) Pty Ltd owes the company the sum of $75,107.37 (please see attached Balance Sheet).

We are instructed by Mr Jones to prepare a Creditor’s Statutory Demand against The Product People (International) Pty Ltd.

Please see attached daft [sic] Creditor’s Statutory Demand for Mr Hathway’s review and execution. Once signed, please provide us with the original, so that we could serve the same upon the registered office of The Product People (International) Pty Ltd.

If you have any questions, please email me.

16     On 17 August 2012, Mr Jones agreed to pay Brown & Partners costs and to indemnify SV Partners: the indemnity is written on the letterhead of Brown & Partners, addressed to the Liquidators and signed by Mr Jones: annexure F to First Carroll Affidavit. This 17 August 2012 letter is in the following terms:

Re: THE BOX SEAT COMPANY PTY LTD (IN LIQUIDATION)

I, [Mr Jones] hereby confirm that:

1.    I will pay all legal costs and disbursements of Brown & Partners solicitors … in respect of the legal action conducted on behalf of the Box Seat Company (in liquidation) against the Product People (International) Pty Limited (ABN 75 127 645 130) (“litigation”).

2.    My payment of all legal fees and disbursements in accordance with invoices issued by Brown & Partners in respect of the said litigation would be made directly to Brown & Partners’ account.

3.    I agree to indemnify SV Partners for any adverse costs orders in respect of the litigation.

17    By a letter from Brown & Partners addressed to the Liquidators which bears the date of 17 August 2012, countersigned as client by Mr Hathway as a director of SV Partners (Costs Agreement), Brown & Partners were instructed to “act on your behalf in relation to legal action against the Product People (International) Pty Limited (ABN 75 127 645 130), and as requested by you”: annexure A to the Noonan Affidavit.

18    On 20 August 2012, Ms Edwards asked Mr Zheng by email to confirm that any money recovered from the plaintiff as a result of the Statutory Demand and related proceedings would first reimburse Mr Jones for the costs (legal fees) he would incur, then pay the Liquidators their professional costs and then be distributed pro rata to creditors: annexure D to Second Carroll Affidavit. Mr Gallant advised Mr Carroll that the Liquidators did not reply to this email: annexure E to Second Carroll Affidavit.

19    Mr Carroll says that the Statutory Demand dated 27 August 2012 was served without warning: First Carroll Affidavit at [5].

20    On 24 September 2012, Carrolls Lawyers wrote to the defendant’s solicitors, Brown & Partners, asserting that the defendant could not maintain its claim that the amount of the demand was due and payable for essentially the same reasons as those set out in the Supporting Affidavit: see Product People at [4]-[7]. Carrolls Lawyers submitted that the statutory demand should be withdrawn. Ms Edwards provided a copy of this letter to Mr Jones cc Mr Zheng by email of the same day: annexure B to Noonan Affidavit.

21    On 26 September 2012, Ms Edwards responded. She said that the information provided with Carrolls Lawyers’ letter was insufficient. Ms Edwards asserted that Mr Sheldon King had failed to respond to requests from the Liquidators to provide the defendant’s books and records and other information supplied by him had been inadequate. Copies of the requests dated 23 November 2011 and 3 May 2012 were attached to the letter: annexure B to Brown Affidavit. By email dated 25 September 2012, Ms Edwards had provided a draft of this letter to Mr Zheng (cc Mr Jones) and had asked for instructions to be confirmed by 9.30 am the next day: annexure C to Noonan Affidavit. By email of 26 September 2012, Mr Zheng confirmed to Ms Edwards that the letter to Carrolls Lawyers was “good to go”: annexure D to Noonan Affidavit. By a separate email on 26 September 2012, Mr Zheng provided to Ms Edwards a copy of a letter of 23 November 2011 which was attached to Ms Edwards letter to Carrolls Lawyers; she had requested it by an email of 26 September 2012 addressed to Mr Zheng (cc Mr Jones): annexure E to Noonan Affidavit.

22    The application to set aside the Statutory Demand and the Supporting Affidavit were served on Ms Edwards on 26 September 2012. Ms Edwards forwarded a copy to Mr Jones and to Mr Zheng at 4.39 pm by email, she then forwarded that email to Ms Sandra Ciganda at SV Partners (Ms Ciganda) at 4.46 pm with an inaccurate email address and reforwarded it to Ms Ciganda at what appears to be her correct email address at 4.51 pm: annexure G to Noonan Affidavit.

23    Ms Edwards forwarded to Mr Jones and Mr Zheng on 12 October 2012 an email from the NSW District Registry of this Court advising of first directions in the plaintiff’s application to set aside the Statutory Demand: annexure H to the Noonan Affidavit.

24    On 1 November 2012, Ms Edwards sent an email to Mr Zheng saying:

I understand that the liquidator is without of [sic] funds in this matter, and would probably not be able to go through the books and records of the Company produced by Kevin Roberts [the defendant’s accountant].

Could you please forward to us all books and records of the Company so that we could inspect it at our office.

Mr Zheng responded that copies would be available for collection: annexure I of the Noonan Affidavit.

25    On 30 November 2012 Ms Edwards affirmed the Edwards Affidavit which sought to address the issues in Ms King’s Supporting Affidavit and incorporated material obtained under a notice to produce which had been issued in October 2011, including the 2011 Balance Sheet (see [8]-[12] of Product People).

26    On 5 December 2012, Ms Edwards sent an email addressed to “SV Partners” attaching a copy of the Court order setting a timetable for filing and serving evidence; it was resent to Ms Ciganda and cc to Mr Zheng on 10 December 2012: annexures J and K to the Noonan Affidavit.

27    Ms King swore the December Affidavit on 13 December 2012 which responded to the Edwards Affidavit based on work referred to at [13]-[17] of Product People. As a result of this work, Ms King concluded that the plaintiff owed the defendant $8,383.33. On 13 December 2012, Ms Edwards forwarded by email to Mr Jones (cc to Ms Ciganda and Mr Zheng) a copy of a letter from Carrolls Lawyers which enclosed the December Affidavit: annexure L to the Noonan Affidavit. Carrolls Lawyers letter said (among other things):

We also advise that our client, as per paragraph 29 of the affidavit enclosed to this correspondence, has transferred the sum of $8,383.33 into the trust account of this office.

Please note that these funds will take approximately seven (7) working days to clear in our account. Once the funds have been cleared it will be made payable immediately to your client.

28    Carrolls Lawyers sent a cheque for this amount to Brown & Partners on 14 December 2012 under cover of a separate letter of that date: annexure C to Brown Affidavit.

29    On 30 January 2013, Ms Edwards sent an email to Ms Ciganda and Mr Zheng (cc to Mr Jones and Mr Hathway). The email said:

Please see the emails below for your information.

Would you please confirm whether The Product People Pty Ltd submitted the Proof of Debt to the Box Seat Company (in liquidation), and if so, could you please forward to us a copy of the submitted Proof of Debt?

Ms Edwards drew to their attention an attached chain of emails: on 23 January 2013 Carrolls Lawyers sent an email to Ms Edwards noting that the defendant required Ms King for cross examination and enquiring whether this could be done by video link. On 30 January, Ms Edwards replied that “We do not consent” to cross examination by video link: see annexure M of Noonan Affidavit. There is nothing in the reply email which indicates the identity of the “We” to whom Ms Edwards refers.

30    On 5 February 2013 at 11.33 pm Mr Sachin Naidu of Carrolls Lawyers sent by email to Ms Edwards a letter from Carrolls Lawyers which conveyed to Brown & Partners an offer to settle the proceedings on the basis that the statutory demand was withdrawn and each party paid its own costs (Settlement Offer). The letter was stated to be without prejudice save as to costs and in accordance with the principles set out in Calderbank v Calderbank [1975] 1 All ER 333. It required a response by 11 February 2013, the day before the application was set down for hearing. Otherwise the plaintiff would seek party/party costs and where appropriate indemnity costs against “the liquidator and/or the funder of the present Proceeding”. Ms Edwards forwarded the email to Mr Jones, Mr Brown and another person (cc to Ms Ciganda, Mr Hathway and Mr Zheng): annexure C to First Carroll Affidavit and annexure N to Noonan Affidavit. I have not been provided with evidence in relation to how this offer was addressed by the Liquidators or Mr Jones.

31    The hearing of the application to set aside the Statutory Demand was held on 12 February 2013. On 14 February 2013, Ms Edwards sent an email to Mr Zheng, Mr Hathway, Ms Ciganda cc Mr Jones advising that the hearing had occurred and the defendant’s counsel would argue the issue of costs following publication of the decision: annexure O to Noonan Affidavit.

32    On 21 February 2013, TPP lodged a proof of debt with the defendant: annexure E to Second Carroll Affidavit.

33    On 27 February 2013, Ms Edwards sent an email to Mr Hathway, Ms Ciganda and Mr Zheng (cc Mr Jones) attaching a letter addressed to Mr Hathway from Brown & Partners (see annexure P to Noonan Affidavit). The letter said:

As you would be aware, we are holding on our trust account the sum of $8,697.92, which we received from The Product People (International) Pty Ltd on the account of The Box Seat Company Pty Ltd (In Liquidation).

We note that the amount paid by Mr Neville Jones in respect of the Federal Court proceedings exceeds the said amount.

We have therefore accounted to ourselves for the full $8,697.92, which payment is taken as part of the legal fees paid by Mr Jones, the funder of the Federal Court proceedings.

If you have any objections, please notify us immediately.

34    On 27 March 2013, Ms Edwards sent an email to Mr Zheng (cc Mr Hathway, Mr Jones and Ms Ciganda) that she would attend at Court to obtain judgment. Judgment was handed down on 28 March 2013. On 28 March 2013, Ms Edwards sent a copy of the judgment to Mr Golledge of counsel, Mr Zheng, Mr Hathway and Mr Jones by email: see annexures R and S of Noonan Affidavit.

35    On 2 April 2013, Mr Carroll wrote to Ms Edwards conveying an offer by the plaintiff to settle the costs issue in an amount of $40,300 (instead of $53,734.96) (Costs Settlement Letter). This letter foreshadowed that, if the offer was not accepted, the plaintiff would seek an order for costs on an indemnity basis against the “Liquidator and the Funder of the Proceedings”, and serve a notice to produce to ascertain the funder’s identity: annexure D to Brown Affidavit. Ms Edwards forwarded a copy of the letter to Mr Golledge and Mr Jones (cc to Mr Hathway and Mr Zheng): annexure A to the Hathway Affidavit.

36    On 3 April 2013, Ms Edwards wrote to Mr Carroll (Rejection Letter): annexure E to Brown Affidavit. It said:

We refer to your client’s offer contained in the letter dated 2 April 2013.

We are instructed to reject your client’s offer.

37    Ms Edwards sent a copy of this letter by email to Mr Jones, Mr Hathway, Ms Ciganda and Mr Zheng immediately after its dispatch to Mr Carroll: annexure B of Hathway Affidavit.

38    On 4 April 2013, Ms Kimberley Perez of Carrolls Lawyers sent by email to Ms Edwards a copy of a letter from Mr Carroll requesting that the Liquidators disclose information about the funding arrangements for the proceedings so as to avoid the cost and delay involved in issuing subpoenas. Ms Edwards forwarded it two minutes later to Mr Jones and Mr Hathway cc Ms Ciganda and Mr Zheng: annexure T of Noonan Affidavit. Ms Edwards requested urgent instructions in relation to the letter.

39    At 10.07 am on 5 April 2013, Ms Edwards sent an email to Mr Zheng, Mr Hathway and Ms Ciganda seeking confirmation of her instructions in relation to Mr Carroll’s 4 April letter: annexure W of Noonan Affidavit.

40    Ms Edwards sent an email to the plaintiff’s solicitors on 5 April 2013 in response to Mr Carroll’s request for information about the Liquidators’ funding arrangements: see annexure F of the First Carroll Affidavit. It advised:

Please be advised that the funder of the proceedings is Mr Neville Jones. We are instructed to act for Mr Jones and the liquidator Mr Hathway in connection with any application your client proposes to make.

Please see attached the document which shows the Indemnity given by Mr Jones to the liquidator (“Brown & Ptner Indemnity”).

In respect of the foreshadowed costs application against the liquidator, we draw your attention to the Indemnity provided by Mr King (please see attached “Deed of Indemnity”), and note that if any order for costs was made against the liquidator personally we would advise him in turn to pursue Mr King under that Indemnity.

The text of the “Brown & Ptner Indemnity” is set out at [16] above.

41    On 5 April 2013, Ms Edwards sent a further letter to Mr Carroll: see annexure E to the First Carroll Affidavit. It is not clear at what time this letter was sent in the series of letters on that day. The letter said:

We refer to our letter dated 3 April 2013 rejecting your client’s offer.

We wish to clarify that the rejection was made on behalf of Mr Neville Jones, and at the time of writing that letter we had no instructions from the liquidator as to your offer set out in your letter dated 2 April 2013.

We anticipate receiving the liquidator’s instructions with respect of the offer this afternoon.

42    At around 4.30 pm on 5 April 2013, Ms Edwards sent two emails to Mr Jones, Mr Golledge cc Mr Hathway, Ms Ciganda and Mr Zheng advising of a directions hearing on 11 April 2013, and advising of my direction to the plaintiff that Mr Jones be given notice of the directions hearing and the orders sought: annexures U and V to Noonan Affidavit.

43    On 10 April 2013, Ms Edwards sent an email to Mr Hathway, cc to Ms Ciganda and a third person who has an SV Partners email address: annexure X to Noonan Affidavit. It requested immediate instructions in relation the proposed directions. It attaches an email from Ms Edwards to Mr Brown which says:

… We confirm that this firm is now instructed by the liquidator, on behalf of the Company (in respect of the application it makes) as well as by Mr Jones in respect of the application which is proposed to be made against him.

In our view, in light of the intention of the plaintiff to seek an order against Mr Jones, the appropriate orders for the prosecution of those claims are as follows:

[Directions as to service of evidence and submissions]

44    The Hathway Affidavit deposes as follows:

[3]    At no time did the liquidators: –

(a)    authorise Mr. Jones to give instructions on behalf of the liquidators to Brown & Partners in connection with this litigation or any other matter; or

(b)    authorise Brown & Partners to obtain instructions from Mr Jones in connection with the proceedings.

[4]    After the issue of the Creditor’s Statutory Demand for Payment of Debt, the liquidators were informed by Mr. Brown that an application had been made to set aside the Statutory Demand and that Mr. Jones wished the liquidators to cause the Company to defend the proceedings and that he would pay Mr. Brown’s costs of so defending.

[5]     Neither Mr. Jones nor Mr. Brown kept the liquidators informed of progress in the proceedings. We were not provided with any of the evidence filed in the proceedings, we were not informed by Mr. Brown that moneys had been received by Mr. Brown from the Plaintiff (I did not become aware of that until I reviewed the judgment) and those monies were not and still have not been provided to me.

[6]    At no time until judgment was handed down did we see annexures A or B to the affidavit of Mr. Brown made on 26 April 2013. [These are the documents referred to at [20] and [21] of these reasons.]

[7]    Mr Brown did not obtain the instructions of the liquidators before rejecting the offer made in the [Costs Settlement Letter].

[8]    At 2.14pm on 2 April 2013, I received [the Costs Settlement Letter] advising me of the offer made and noting that time for acceptance of the offer would expire at 10.00am on 4 April 2013.

[9]    At 3.06pm on 3 April 2013, Mr. Brown wrote to the Plaintiff’s solicitors rejecting the offer, without having received instructions from me or anyone from my office. A copy of the [Rejection Letter] is annexed and marked “B”.

[10]    When the liquidators learnt that judgment had be [sic] delivered and that the offer made by the Plaintiff had been rejected by Mr. Brown without instructions, we became very concerned about the way in which proceedings had been conducted without our authority and it was this failure which caused us to instruct ERA Legal to act on behalf of the liquidators.

Jurisdiction to award costs against non-parties

45    The plaintiff seeks orders under s 43 of the Federal Court of Australia Act 1976 (Cth) (FCA) and s 459N of the Corporations Act 2001 (Cth) (Corporations Act) against non-parties to the proceedings. Section 459N provides:

Costs where company successful

Where, on an application under section 495G, 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.

46    Mr Jones acknowledged that s 43 of the FCA authorises the Court to make orders against non-parties: Knight v FP Special Assets Ltd (1992) 174 CLR 178. Section 43 relevantly provides:

Costs

(1)    … the Court or a Judge has jurisdiction to award costs in all proceedings before the Court … other than proceedings in respect of which this or any other Act provides that costs shall not be awarded.

(1A) …

(2)    Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge.

(3)    Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following:

(a)    make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial;

(b)    make different awards of costs in relation to different parts of the proceeding;

(c)    order the parties to bear costs in specified proportions;

(d)        award a party costs in a specified sum;

(e)    award costs in favour of or against a party whether or not the party is successful in the proceeding;

(f)        …;

(g)        order that costs awarded against a party are to be assessed on an indemnity basis or otherwise;

(h)    …

47    Mr Jones originally submitted that the Court nonetheless does not have jurisdiction to order third party costs because s 1335(2) of the Corporations Act permits the Court only to make orders against parties to the proceedings. Section 1335(2) provides:

The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs.

48    Mr Jones relied on the line of authorities which include Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193 per Jenkinson J (Wridgemont) and Australian Forest Managers Limited (in liq) v Bramley (1996) 65 FCR 13 per Lindgren J in this Court (Australian Forest Managers).

49    This argument was rejected in Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 at [293]-[314] per Lander J (Consolidated Byrnes) and in Re Firepower Operations Pty Ltd (in liq) (No 3) (2010) 183 FCR 150 at [16]-[18] per Siopis J (Re Firepower). Mr Jones ultimately conceded that the Court does have jurisdiction on the authority of the Full Court of this Court in MG Corrosion Consultants Pty Ltd v Vinciguerra (No 2) (2011) 276 ALR 319 at [15]-[18] per North, McKerracher and Jagot JJ (MG Corrosion Consultants).

50    In MG Corrosion Consultants, the Full Court said at [18] that “[i]t follows, therefore, that there is power to make an order with respect to costs in relation to a non-party to a proceeding” after it cited at [15]-[17]: Re Firepower at [16]-[18], the use of a similar power by Le Miere J in Huntingdale Village Pty Ltd v Corrs Chambers Westgarth [2011] WASC 44 at [30]-[34] and the decision of Rares J in City of Swan v Lehman Bros Australia Ltd (No 3) [2009] FCA 1190 at [13] (City of Swan). In City of Swan, Rares J concluded that under s 1337S(1)(c) of the Corporations Act, the Court’s rule making powers under s 59 of the FCA were extended “without limitation, with respect to costs”, so as to extend to non-parties despite the word “party” in s 1335(2). I note that Rares J took recourse to s 1337S as a second resort; counsel in argument had accepted that s 1335(2) precluded the award of costs against non-parties on the basis of the decisions in Wridgemont and Australian Forest Managers. It does not appear that his Honour was taken to the decisions of Chernov J in U.T.S.A. Pty Ltd (In liquidation) v Ultra Tune Australia Pty Ltd [1999] 1 VR 204 and Brereton J in Re Struthers, Liquidator of Project Management, Architecture and Construction, Interior (Paci) Pty Ltd (No 3) (2005) 64 NSWLR 392 which were persuasive to Lander J in Consolidated Byrnes and Siopis J in Re Firepower. The position of the later authorities is that s 1335(2) should be taken as an enabling provision, not a limitation on the power conferred by s 43: see in particular Consolidated Byrnes at [303]-[314], and I understand the Full Court’s reference to City of Swan as being a further basis on which the Court has power to order costs against a non-party in appropriate cases.

51    Having regard to the language of s 459N, I regard that provision also as being facilitative, not exclusionary of the powers of the Court to award costs under s 43 of the FCA. See also Hornet Aviation Pty Ltd v Ansett International Air Freight (1994) 16 ACSR 21 at 28-29 per Northrop J and New Era Installations Pty Ltd v Don Mathieson & Staff Glass Pty. Ltd (1999) 31 ACSR 53 at [49] per Katz J.

Exercise of discretion

52    Six categories of cases in which the courts have ordered non-parties to pay costs were summarised in Symphony Group Plc v Hodgson [1994] QB 179 at 191-192 per Balcombe LJ; his Honour noted that the categories are not rigid or closed.

53    The principles governing such awards were usefully summarised by Collier J in Citrus Queensland Pty Ltd v Sunstate Orchids Pty Ltd (No 10) [2009] FCA 498 at [20]-[21]:

[20]    Although as a general rule costs are not awarded against a stranger to litigation, as I have already indicated it is well-settled that the Court has a discretion pursuant to s 43 of the Federal Court Act to order costs against a non-party in appropriate circumstances (Knight (1992) 174 CLR 178, Caboolture Park (1993) 45 FCR 224, Gore v Justice Corp Pty Ltd (2002) 119 FCR 429, Kebaro Pty Ltd v Saunders [2003] FCAFC 5, Life Therapeutics Ltd v Bell IXL Investments Ltd (No 2) (2008) 170 FCR 595). The exercise of such discretion is approached with caution – indeed it has been described as “rare and exceptional” (Vestris v Cashman (1998) 72 SASR 449 at 467, Kebaro [2003] FCAFC 5 at [103]) – and depends on the circumstances of each case as it is a “fact-specific jurisdiction” (Kebaro [2003] FCAFC 5 at [69]). Principles guiding the approach of the Court to the exercise of the include the following:

    There must be a real link between the non-party and the proceedings, which is material to the issue of costs (Bischof v Adams [1992] 2 VR 198 at 204-205, Kebaro [2003] FCAFC 5 at [70]).

    The mere fact that a person may benefit from litigation will not, without more, suffice to justify an award of costs (Bischof v Adams [1992] 2 VR 198 at 204-205, Vestris v Cashman (1998) 72 SASR 449, Kebaro [2003] FCAFC 5 at [70], Probiotec Ltd v The University of Melbourne (2008) 166 FCR 30 at [48]).

    An order for costs may be appropriate – provided the interests of justice so require – where the party to litigation is an insolvent person or a man of straw, the non-party has played an active part in the conduct of the litigation and the non-party has an interest in the subject of the litigation (Mason CJ and Deane J in Knight (1992) 174 CLR 178 at 192).

    Regard will be had to whether the non-party had been warned, or the non-party could have been joined as a party or applied to join earlier in the proceedings and thereby obtained the protection of the rules of the court (Vestris v Cashman (1998) 72 SASR 449, Kebaro [2003] FCAFC 5 at [75], Yates v Boland [2000] FCA 1895 at [32]).

    It can be appropriate to exercise the power against a person who may be characterised as no more than a real party to the litigation in critical and important respects, albeit not the only such party (Kebaro [2003] FCAFC 5 at [111], Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 at 414, Gore (2002) 119 FCR 429 at 439).

    An order for costs may be appropriate where a non-party causes a party to bring or defend proceedings for his or her own financial benefit, either to gain the fruits of the litigation or to preserve assets in which the person has an interest (Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 at 765).

    Where a non-party has maintained or financed an action, or caused an action, or has some management of the action, a costs order may be appropriate (Symphony Group Plc v Hodgson [1993] 3 WLR 830 at 840). This may be the case where, for example, the nominal plaintiff is mentally incompetent and the non-party has a substantial interest in the outcome (Flinn v Flinn [1999] 3 VR 712).

[21]    Conversely, the courts have declined to order costs against a non-party:

    Simply because the non-parties were directors of the plaintiff company and had caused the plaintiff to commence and maintain proceedings in circumstances where they ought to have known that, if the proceedings were unsuccessful, it was unlikely that the plaintiff could meet a costs order: Carborundum [1992] 3 NZLR 757.

    Where the non-party had not been separately represented at the hearing of the primary proceedings.

    Simply because the non-party is a legal expense insurer (Murphy v Young & Co’s Brewery plc [1997] 1 WLR 1591).

54    The order will be made when, in the circumstances of the particular case, it is just and equitable that a non-party pay the costs of a party to the litigation: Vestris v Cashman (1998) 72 SASR 449 at 469 per Lander J. His Honour also said at 468:

… In exercising the discretion regard would be had to whether the non-party could have been joined as a party earlier in the proceedings and thereby obtained the protection of the rules of court; whether the non-party has had any warning that an application for costs against that party would be made; whether, in those circumstances, the non-party could have applied to be joined in the proceedings and thereby had the capacity to influence the proceedings or the non-party could have protected itself by making an offer in accordance with the rules; whether if a warning had been given the non-party could have terminated the proceedings by discontinuance, negotiation, payment or otherwise; whether the party who would otherwise be usually liable for costs can meet an order for costs and if relevant the reason why that party cannot meet an order for costs; whether it was apparent at any earlier stage in the proceedings, and if so when, that the party could not meet costs; whether the moving party should have sought an order for security for costs; the relationship, if any, between the non-party and the party who would usually be liable for costs; whether the non-party has caused the proceedings; whether the non-party has funded the proceedings; whether the non-party stood to benefit by the litigation and if so how; whether the non-party had a direct or indirect financial interest in the litigation; and whether there has been any improper conduct on the part of the non-party.

None of the matters will necessarily be decisive. Indeed the presence of one or more of those matters does not inexorably lead to the conclusion that an order for costs should be made against a non-party. In Bischof v Adams the mere fact that a person may benefit from the litigation was not enough.

…

Mr Jones

55    It is fair to say that the Court has not had the benefit of full disclosure of the role played by Mr Jones. Mr Jones has provided no evidence himself. Nor has Ms Edwards provided evidence on the costs issue; she played a pivotal role in the Statutory Demand and the conduct of the defendant’s role in the proceedings. The Brown Affidavit is of very limited scope. Had the Hathway Affidavit not been provided, and in the terms it was, it is doubtful whether much of the correspondence which is attached to the Noonan Affidavit would otherwise have emerged. That correspondence reveals the relationship of Brown & Partners with Mr Hathway and staff at SV Partners and, incidentally to that, with Mr Jones. The Noonan Affidavit does not say that it attaches all of the correspondence between Brown & Partners and Mr Jones or Mr Hathway and SV Partners nor does it include file notes of conversations with them or anyone else at SV Partners (if such file notes exist) which might illuminate with certainty from where Brown & Partners received its instructions at each stage of the proceedings.

56    Nevertheless, on the basis of the evidence available to me, I am satisfied that it would be appropriate to make an order for the payment of costs by Mr Jones.

57    The evidence which has been provided discloses a real link between Mr Jones and the issue of the Statutory Demand and subsequent proceeding. Mr Jones has played an active part in the conduct of the litigation, even if the Liquidators’ (through Mr Gallant’s letter to Mr Carroll of 6 May 2013) resist the characterisation that they acted at his “behest” and assert that Mr Hathway exercised his powers independently. The Liquidators certainly acted at Mr Jones instigation in issuing the Statutory Demand and he financed the litigation; they would not have acted without Mr Jones’ indemnity; he was in a position to bring the proceedings to an end at any time and Brown & Partners acted on his instructions to issue the Rejection Letter. Mr Jones is the person who would benefit from pursuit of the action. He was not simply a creditor of an insolvent company who might benefit, along with other creditors, from action pursued by the Liquidators of their own initiative. Ms Edwards appeared to look to Mr Jones first: I consider it fair to characterise him as the “real party” to the action. For these and the following reasons, I reject the submissions set out in [15] of Mr Jones’ written submissions:

(a)    Mr Jones’ commercial motivation is plain from the background provided to Mr Hathway in Ms Edwards’ letter of 8 March 2013 and Ms King’s letter of 26 January 2012: see [13]-[14]. It appears that until at least 21 February 2013, Mr Jones was and would have expected to be the sole creditor of the defendant for $430,000 (albeit that if Ms King is right and Mr King paid half of the amount outstanding to NAB the basis for a debt of $430,000 to Mr Jones is unclear). Mr Jones would therefore have expected to be the beneficiary of the payment of the Statutory Demand (subject to payment of professional costs). He would have been in a position to exert commercial leverage on Mr King by reason of the service of the Statutory Demand and the conduct of the proceedings. Mr Jones and Mr King appear to have a failed business relationship and a difficult litigious history.

(b)    Mr Jones’ instructions to Brown & Partners in relation to the preparation of the Statutory Demand predate the Liquidators’ involvement with Brown & Partners and Brown & Partners (and Counsel who acted for the defendant in the proceedings) continue to act for Mr Jones. Mr Jones instructed Brown & Partners to draft the Statutory Demand which was provided to Mr Zheng and Mr Hathway (cc Mr Jones) on 20 July 2012: see [15]. The Costs Agreement between Brown & Partners and the Liquidators is dated the same day (17 August 2012) as the indemnity from Mr Jones: see [16] and [17]. In his letter of 6 May 2013, Mr Gallant says: “It is certainly the case that had the indemnity not been provided the liquidator would not have issued the statutory demand”. This is because the defendant had no funds from which the Liquidators could have acted independently.

(c)    Mr Jones funded all aspects of the proceedings from the drafting of the Statutory Demand onwards. It is true that Mr Jones did not stand to “profit” from the proceedings in the sense of a commercial funder (as was found relevant in Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429). Mr Jones sought the Liquidators’ agreement that he would share in the “fruits” of the proceedings only after receiving back the costs of the litigation, the Liquidators’ fees and then equally with other creditors (see [18]), although the Liquidators did not respond to this proposal. Until 21 February 2013 when TPP lodged its claim, Mr Jones was the sole creditor for an amount of $430,000: annexure B to the Second Carroll Affidavit. It appears that Ms Edwards had reason to suspect that TPP might lodge a claim as early as approximately 30 January 2013 (see [29]), but that claim did not emerge until after the plaintiff’s application to have the Statutory Demand set aside had been heard. Accordingly, Mr Jones would reasonably have expected to be the sole beneficiary if the defendant was successful. While the Statutory Demand is a claim only the defendant could make, its prosecution served Mr Jones’ interests and no one else.

(d)    Correspondence with the Carrolls Lawyers was often sent by Ms Edwards first to Mr Jones and then copied to the Liquidators or their staff (albeit often in the same email). Mr Jones was copied on all substantial correspondence: see [20]-[41] above. While there are clear gaps in the correspondence provided so that all aspects of Mr Jones’ involvement with Brown & Partners is not transparent, Mr Hathway’s evidence that the Rejection Letter was sent without the Liquidators’ instructions is uncontroverted by the Noonan Affidavit and it is consistent with Ms Edwards having acted on instructions from Mr Jones, as is the 5 April 2013 letter to Mr Carroll which clarifies that the Rejection Letter was made on behalf of Mr Jones even though he was not a party to the litigation in any formal sense (see [41]). It is not clear on what basis the moneys received by Brown & Partners from the plaintiff in December 2012 were applied to legal costs: the evidence is that the Liquidators did not respond to the regime for dealing with the “fruits” of the Statutory Demand (see [18]) and it would have been more appropriate for Brown & Partners to seek instructions from the Liquidators about how those moneys were to be applied rather than take it upon themselves to act first and inform the Liquidators later (see [33]). It is, however, consistent with the view that Mr Jones was an active participant in the litigation and Ms Edwards looked to him for direction.

(e)    The fact that Mr Jones instigated the issuing of the Statutory Demand (including instructing his solicitors to draft it and then seek the Liquidators’ agreement to issue it), funded the proceedings (without which the proceedings would not have commenced and are unlikely to have continued), his lawyers had conduct of the matter both before and after the Liquidators were involved in relation to the Statutory Demand and the proceedings, and the extent of his involvement as disclosed in the correspondence referred to in the immediately preceding paragraph all demonstrates that Mr Jones did take an active role in the proceedings. It is my view that the evidence demonstrates that at the very least Mr Jones shared control with the Liquidators. That the Liquidators had previously sought information from Mr King and Ms King by their letters of 23 November 2011 and 3 May 2012 does not derogate from the role that Mr Jones played. I deal with the relevance of the difficulties faced by the Liquidators in getting relevant information from Mr King and Ms King at [65] below. The letter of 3 May 2012 did attach a copy of the 2010 Balance Sheet: that letter did not, as asserted in Mr Jones’ submissions, demand payment of the amount of the Statutory Demand, but rather requested information: see attachment G to the Edwards Affidavit. The 3 May 2012 letter was in the following terms:

Balance Sheet

We refer to the Balance Sheet for TBSC for the period ending on 30 July 2010 (copy attached), and in particular a loan of $75,221.96 to TPPI:

1.    What was the purpose of this loan and to whom was it paid?

2.    Has this sum been repaid? If so, when?

3.    Has any arrangements been made to repay the same?

4.    Is TPPI able to pay the same?

5.    Please provide a copy of the latest Balance Sheet of TPPI.

6.    Please provide a list of payments reflecting how this money was applied.

58    Mr Jones asserted that it was a relevant factor that notwithstanding that the plaintiff knew that the defendant lacked funds it did not seek an order for security for costs. The special nature of proceedings under s 459G was recognised in Aquatown Pty Ltd v Holder Stroud Pty Ltd (1995) 18 ACSR 622 per Sundberg J and most lately in Aurora Networks Pty Ltd v Halbedl; In the matter of Aurora Networks Pty Ltd [2013] FCA 632 in which Foster J refused to grant an application by the defendant for security for costs against the plaintiff because a s 495G action is essentially defensive: it is necessary to avoid the statutory presumption of insolvency. In Classic Ceramic Importers Pty Ltd v Ceramica Antiga SA (1994) 13 ACSR 263 and Aspermont Ltd v Lechmere Financial Corp [2001] WASC 35, the Court recognised that it may be appropriate for this reason to award security for costs on a s 459G application against a foreign defendant but in each case it was not done for discretionary reasons.

59    I do not consider that the plaintiff’s failure to seek security for costs is a factor which should prevent a non-party costs order against Mr Jones in the facts of this case. Mr Jones had an active role in these proceedings as discussed in [57] and suffered no prejudice by not being joined as a party or from the failure of the plaintiff to seek security for costs. Mr Jones was formally put on notice of the jeopardy of the application for costs against him from 6 February 2013 when he received a copy of the Settlement Offer. The Settlement Offer identified the fact that if the Statutory Demand was not withdrawn and the proceedings terminated on the basis that each party pay its own costs the plaintiff would seek party/party and if appropriate indemnity costs against the “the liquidator and/or the funder of the present Proceeding”: see [30] above. Mr Jones has also had the opportunity to provide submissions and submissions in reply on the issue of costs.

The Liquidators

60    The Liquidators are also non-parties to the proceedings. I am satisfied that no costs order should be made in relation to them primarily because the plaintiff seeks the order against the Liquidators in the alternative and I am satisfied that an order should be made against Mr Jones. This view is reinforced by the suggestion made to Carrolls Lawyers in Ms Edwards email of 5 April 2013 (see [40] above) that if an order were to be made against the Liquidators, Brown & Partners would advise them to have recourse to the indemnity provided by Mr King (presumably at the time of the members voluntary winding up), rather than her other client, Mr Jones who had given an indemnity in relation to the conduct of these proceedings. It is, perhaps, as well that the Liquidators sought other advice which was not open to conflict of interest at this point.

61    Other relevant factors are: (1) Mr King and Ms King failed to provide information to the Liquidators in a timely way when requested, and Ms King only provided the 2011 Balance Sheet in response to a notice to produce which was issued by the defendant in October 2011; (2) the Liquidators were acting in pursuance of their statutory function of getting in the assets of an insolvent company; (3) importantly, they are indemnified by Mr Jones, who appears to be the real contestant as part of an ongoing dispute with Mr King and Ms King; and (4) it is arguable that Liquidators should have recognised that there was a real dispute about the claimed debt on which the Statutory Demand was based at the latest on 30 November 2012 (because the Edwards Affidavit demonstrated that the 2010 Balance Sheet was plainly incorrect and they had by that time access to the 2011 Balance Sheet which showed that TPP, not the plaintiff, was a debtor of the defendant); that it is even more so the case after 13 December 2012 and that they should prudently have settled the proceedings on receipt of the Settlement Offer. Their conduct therefore may not be above criticism. However, I do not consider that this would be a sufficiently compelling case in the interests of justice to award costs against them when it is open to the Court to make a costs order against Mr Jones: see Macks v Hedley (1999) 94 FCR 188 at [82]-[85]. In that case the Full Court of this Court (Gallop, Moore and Madgwick JJ) remarked on the special position of official liquidators which is to be protected, absent serious delinquency on their part and I do not consider that Liquidators’ conduct amounted to serious delinquency.

62    I have taken into account Mr Gallant’s 6 May 2013 letter to Mr Carroll which said:

It is certainly the case that had the indemnity not been provided the liquidator would not have issued the statutory demand.

The liquidator does not agree that he acted at the “behest” of Mr. Jones – the liquidator exercises his powers and responsibilities independently and has not acted at “behest” … of anyone. We raise this only due to our understanding of the meeting [sic] of the word “behest” but trust this part of the response addresses the queries you have raised.

63    I have also taken into account that paragraphs [5] and [6] of the Hathway Affidavit are clearly not correct based on the email correspondence annexed to the Noonan Affidavit and that staff of SV Partners (and on occasion Mr Hathway himself) were involved in decisions or given notice of the conduct of the proceedings. I accept that the Rejection Letter was issued without the Liquidator’s instructions. There is nothing annexed to the Noonan Affidavit which demonstrates that anyone at SV Partners gave instructions to reject the Costs Settlement Letter and the Noonan Affidavit otherwise provides evidence of communications between Brown & Partners, Mr Jones and SV Partners including Mr Hathway on almost every other significant aspect of the proceedings which are raised by Mr Hathway’s claims in the Hathway Affidavit. I also accept that the Liquidators did not instruct Brown & Partners that they may act on the instructions of Mr Jones. However, there is no evidence that the Liquidators gave Brown & Partners instructions that they should not have regard to Mr Jones’ views and it is plain from the correspondence that he played an active role in the proceedings.

Costs

64    I am satisfied that it would be unfair to leave the plaintiff with a worthless award of costs against the defendant. The fact that the defendant is impecunious is not contested.

65    I am not satisfied that costs should be awarded in respect of the period to 14 December 2012. This is because:

(a)    Although Carrolls Lawyers’ letter of 24 September 2012 pointed out that the defendant’s claim could not be maintained, Mr King and Ms King as company officers had not provided the Liquidators with up to date books and records of the defendant on the basis of which its assets and liabilities could be definitively determined. This is despite the requests for information by the Liquidators on 23 November 2011 and 3 May 2012 and Ms King’s response on 26 January 2012. It was in the response of 26 January 2012 that the 2010 Balance Sheet was provided to the Liquidators. Ms King’s explanation in the Supporting Affidavit for the plaintiff being shown as a debtor of the defendant in the 2010 Balance Sheet was error on her behalf which the defendants were entitled to test. Greater clarity was only achieved after the 2011 Balance Sheet and other information which was provided in response to a notice to produce issued in October 2012 and the work done by Ms King on books and records to enable her to prepare the December Affidavit to respond to the Edwards Affidavit and to correct errors in her Supporting Affidavit.

(b)    Even though the plaintiff asserts that the amount of $8,383.33 paid by the plaintiff on 14 December 2012 was not the same debt as claimed in the Statutory Demand, it was an amount owed by the plaintiff to the defendant, and the plaintiff’s contention that it is not part of the same debt is not clearly right. The amount exceeded the statutory minimum.

66    The plaintiff claims indemnity costs, and in the alternative on the ordinary basis until 5 February 2013, the date on which it sent the Settlement Offer, and thereafter on an indemnity basis.

67    In CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100 (CGI) at [18] – [22] there is set out the relevant principles for determining when indemnity costs are appropriate to be awarded to a successful plaintiff on a s 459G application:

[18] CGI seeks an order for costs on the indemnity basis. In doing so, it invokes the general principle that an award of costs on that basis is appropriate in cases of what Gaudron and Gummow JJ called, in Oshlack v Richmond River Council (1998) 193 CLR 72; 152 ALR 83, “relevant delinquency”, including “some improper defence or other misconduct”.

[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 eg Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1997) 16 ACLC 529; Buddies Liquor Pty Ltd v Wah Lai Investment (Aust) Pty Ltd (2001) 19 ACLC 855; Austrac Rail Pty Ltd v Hunter Premium Funding Pty Ltd [2001] NSWSC 654; BC200104352. 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) 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; BC200201522, 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 Co Ltd (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; BC200301362, Lindgren J ordered costs on the indemnity basis where the evidence made it plain that the time limit fixed by s 459G(2) and (3) (which is immutable: David Grant & Co Pty Ltd v Westpac Banking Corp (1995) 184 CLR 265; 131 ALR 353; 18 ACSR 225) 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) 165 FLR 72; Club Marconi of Bossley Park v AVR Services (NSW) Pty Ltd [2002] NSWSC 584; BC200203662; Grass Manufacturers Pty Ltd v Sraennik Pty Ltd [2003] NSWSC 95; BC200300470.

[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.

68    It is plainly inappropriate that Court time be taken and the plaintiff incur the time, cost and anxiety attendant on statutory demands when the defence to a s 459G application to set aside a statutory demand is irredeemably weak. The service of the Statutory Demand in this case may have been justified although the 2010 Balance Sheet was always a slender basis for the demand. I consider that there were circumstances demonstrating a plausible contention requiring investigation from 30 November 2012 when Ms Edwards swore the Edwards Affidavit for the reason at [39] of Product People and that became clearer by 13 December 2012 when the December Affidavit was served and the payment of money was foreshadowed for an admitted debt. However, I do not consider that the award of indemnity costs is appropriate notwithstanding the Settlement Offer because the defendant had available arguments which deserved testing (albeit not successful) (primarily that based on the Greywinter principle) and I am conscious of the stricture at [21] of CGI. Further, the Settlement Offer did not comply with the time periods justifying the award of indemnity costs under Part 25 of the Federal Court Rules 2011 (Cth).

69    I will therefore make no order as to costs in respect of the period to 14 December 2012. I order that Mr Jones pay the plaintiff’s costs (including costs of the application for costs) incurred after that date on a party/party basis.

Executive Assistant:

Dated:    23 December 2013