FEDERAL COURT OF AUSTRALIA

Kraneworx Vertical Management Australia Pty Ltd v DSS Advisory Pty Ltd [2018] FCA 424

ORDERS

THE COURT ORDERS THAT:

1.    The defendant must pay the plaintiff’s costs on an indemnity basis.

2.    To give effect to Order 1 above, the defendant must pay the plaintiff’s costs in a lump sum amount of $28,648.90 within 21 days of this order.

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

REASONS FOR JUDGMENT

FARRELL J:

1    On 31 January 2018, I made consent orders setting aside a creditor’s statutory demand dated 25 August 2017 which had been issued by DSS Advisory Pty Ltd to Kraneworx Vertical Management Australia Pty Ltd. The application to set aside the statutory demand had been set down for hearing on 30 January 2018.

2    Although the parties agreed that the statutory demand should be set aside, there was a difference between them as to whether costs should be awarded on an ordinary or indemnity basis. Accordingly a timetable was set down for filing and serving submissions and evidence in support of the parties’ positions. Only Kraneworx filed submissions and evidence, being an affidavit in support sworn by Suzie Losanno of CorpLegal, Kraneworx’ solicitor, on 2 February 2018. The background below is primarily based on those materials. Kraneworx seeks an order for costs on an indemnity basis and a lump sum order.

Background

3    In submissions filed by Kraneworx on 24 January 2018 in anticipation of the hearing on 30 January 2018, it explained that it is a company that owns vertical cranes and hires them out to various parties. On 29 April 2016, Kranworx received a letter from PC Crane Services Pty Ltd (PCCS) in which PCCS stated, among other things, that Scottish Pacific Business Finance Pty Ltd (ScotPact) would provide it a debtor finance facility and, as part of that arrangement, existing and future accounts are transferred to ScotPac.

4    The statutory demand was for an amount of $77,346.51 (the alleged debt), being the aggregate amount of 11 invoices bearing dates from 14 October 2016 to 28 February 2017. A copy of each invoice was attached to the statutory demand. Each invoice claims that Kraneworx owes PCCS the amount set out in the invoice. At the bottom of each invoice there is an advice as follows: “All amounts payable under contracts to which this invoice relates, have been transferred to Scottish Pacific Business Finance Pty Ltd (“ScotPact”). This means that your cheques must be made out to ScotPact and sent direct to: [address]” (emphasis in original). There is then set out a postal address and an address for electronic funds transfers. The advice concluded: “Payments must be made to ScotPac. Payment to any other person will not discharge the debt.”

5    By a letter dated 15 August 2017, DSS Advisory notified Kraneworx that the debt had been assigned by PCCS to DSS Advisory on 15 May 2017 (15 August letter). Kraneworx says that DSS Advisory appears to be a company incorporated by a law firm, DSS Law, which operates a business purchasing accounts receivable and chasing alleged debts owed to other businesses.

6    Kraneworx says that it had not seen a copy of the deed of assignment referred to in the 15 August letter before evidence was served in these proceedings.

7    By letter dated 14 September 2017 from CorpLegal to DSS Law, CorpLegal requested that DSS Advisory withdraw the statutory demand because PCCS could not have assigned the debt to DSS Advisory on 25 May 2017. This was because PCCS had already assigned its debts to ScotPac and Kraneworx’ records indicated that no debt was owing to PCCS. It advised that Kraneworx would rely on the letter on the question of costs in the proceedings.

8    DSS Law replied on the same day that as Kraneworx had not paid the invoices by 30 March 2017, the right to recover the sums had been transferred back to PCCS by ScotPac. It refused to withdraw the statutory demand on the basis that there was no genuine dispute as to the debt and invited Kraneworx to provide a valid ground of dispute by close of business the following day. It reserved its client’s right to seek costs on an indemnity basis.

9    Kraneworx says that, despite two rounds of evidence from DSS Advisory, it has never received a notice of assignment of debt from ScotPac back to PCCS. It says that it filed an affidavit sworn by Allan Sarkis on 18 September 2017 which again pointed out the fact that DSS Advisory had no standing to issue the statutory demand because Kraneworx did not owe PCCS anything and it had not received notice that ScotPac had assigned debts back to PCCS. Following a case management hearing on 20 October 2017, DSS Advisory filed four affidavits and Kraneworx filed one affidavit in reply.

10    At the case management hearing before me on 30 November 2017, DSS Advisory sought more time to file evidence. That time was granted and timetabling orders made for a hearing on 30 January 2018. At that hearing, there was discussion concerning DSS Advisory’s investigations into the status of the debt. Counsel for DSS Advisory stated: “I’ve said to my friend that these investigations will determine the matter one way or the other and if our position is untenable then we will act appropriately.”

11    On 15 December 2017, DSS Advisory filed and served two further affidavits but neither attached a copy of the assignment from ScotPac back to PCCS. As required by the orders made on 30 November 2017, Kraneworx filed and served its submissions by 4 pm on 24 January 2018.

12    At around 6.30 pm on 25 January 2018, DSS Law sent an email containing an offer made without prejudice save as to costs to resolve the proceedings by withdrawing the statutory demand and paying Kraneworx’ costs on the ordinary basis, to be assessed failing agreement between the parties. As the next day, Friday, was Australia Day, Kraneworx’ solicitor could not get instructions until Monday, 29 January 2018. It is the solicitor’s evidence that on 29 January 2018, DSS Advisory agreed to set aside the demand and various counter offers were made to resolve the issue as to costs. Ultimately, Kraneworx sought $22,000 for its costs, but this was not accepted by DSS Advisory.

Submissions as to indemnity basis and lump sum costs

13    Kraneworx says that an order for costs on an indemnity basis is appropriate because:

(1)    There could never have been an assignment of the debt from PCCS to DSS Advisory unless ScotPac had first reassigned the debt to PCCS advisory. Before it filed its application to set aside the statutory demand, Kraneworx drew the flaws in it to DSS Advisory’s attention by the solicitor’s letter of 14 September 2017. Mr Sarkis’ affidavit of 18 September 2017 drew attention to the lack of evidence of ScotPac assigning the debt back to PCCS. Subsequent costs incurred by Kraneworx would have been avoided if DSS Advisory had acted at that time.

(2)    It was clear on the face of Kraneworx’ application to set aside the statutory demand that there was a genuine dispute as to whether ScotPac or DSS Advisory was entitled to the debt if any existed. The invoices attached to the statutory demand stated that the debt could only be discharged by payment to ScotPac.

(3)    At the case management hearing on 30 November 2017, DSS Advisory sought more time to address the assignment back issue and made statements as to how it would act if the assignment back to PCCS from ScotPac could not be established. It is plain that DSS Advisory had not acted on the warnings by Kraneworx about the defect in the statutory demand more than two months after it had been drawn to DSS Advisory’s attention. Despite that, the two affidavits filed by DSS Advisory on 15 December 2017 again contained no evidence of the assignment back from ScotPac to PCCS without the statutory demand being withdrawn.

(4)    The authorities make it clear that a statutory demand based on an assignment is defective without material from which the plaintiff could satisfy itself that there had been an assignment as alleged: see Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223; NSWSC 1139 at [35]-[38] per Barrett J. In this case there was no deed of assignment of debts from PCCS to DSS Advisory and there was also no evidence of the assignment back from ScotPac to PCCS without which any assignment of debts by PCCS to DSS Advisory could have been effective.

(5)    In accordance with the Federal Court’s Practice Note on Costs, it will save Kraneworx further time and expense if a lump sum costs orders is made.

Consideration

14    This Court’s power to order costs in cases of this kind derives from s 43 of the Federal Court of Australia Act 1976 (Cth). The principles relevant to the question of whether this Court should make an award of costs to be assessed on an indemnity basis were usefully summarised by Kenny J in Morad v El-Ashey (No 2) [2017] FCA 1612 at [6]-[11]:

PRINCIPLES

6    Under s 43(2) of the FCA Act, the disposition of costs is at the discretion of the Court, although it is well-established that this discretion must be exercised judicially: see, for example, Ruddock v Vadarlis (No 2) [2001] FCA 1865; 115 FCR 229 (Ruddock v Vadarlis (No 2)) at [9]. The Court may order that costs awarded against a party are to be assessed on an indemnity basis: see s 43(3)(g).

7    In exercising the discretion to award costs, the Court must take account of any failure by a party to comply with its obligation to conduct the proceeding in a way that is consistent with the overarching purpose of the civil practice and procedure provisions, namely, to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible: see FCA Act, ss 37N(4) and 37M(1).

8    In the ordinary course costs will follow the event and, if a party to an application succeeds, then the Court will order the respondent to pay the costs of that application, assessed on a party and party basis, unless there are special circumstances justifying some other order: Ruddock v Vadarlis (No 2) at [11]–[16] (Black CJ and French J). Ms El-Ashey contends that such circumstances exist here and that they justify an order for costs on an indemnity basis.

9    The principles relevant to an award of indemnity costs are well-established. In broad terms costs will be payable on a party and party basis, unless the circumstances of the case justify a departure from the normal course: see Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 536; (1993) 46 FCR 225 (Colgate-Palmolive) at 233 (Sheppard J). The question is always whether the facts and circumstances of a particular case justify the making of an order for the payment of costs other than on a party and party basis.

10    Plainly enough, the categories in which indemnity costs may be ordered are not closed. Reference to some of the circumstances in which costs on an indemnity basis have been ordered is illustrative, however, of the occasions that have been thought capable of attracting such an award of costs. It has been held, for example, that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd [1998] FCA 202; (1988) 81 ALR 397 (Fountain Selected Meats) at 401; where an application is wholly untenable and misconceived (Henke v Carter [2002] FCA 492 at [22] (Goldberg J)); and where there is “evidence of particular misconduct on the part of a party that causes loss of time to the Court and to other parties” (Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 225 at [22] (French J)).

11    The purpose of indemnity costs was explained in Hamod v State of New South Wales [2002] FCAFC 97; 188 ALR 659 (Hamod) at [20] by Gray J (with whom Carr and Goldberg JJ agreed) as follows:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.

15    I accept Kraneworx’ submission that it is appropriate to order costs on an indemnity basis in this case having regard to the matters set out at [13] above. In this case, Kraneworx has promptly and repeatedly drawn DSS Advisory’s attention to the defect in the statutory demand and that the debt was disputed. DSS Advisory plainly accepted that there was an issue to be addressed on 30 November 2017. While parties are entitled to contest issues, the fundamental factual issue was clear and DSS Advisory’s title to the debt should have been established before the statutory demand was issued. Kranworx was put to considerable unnecessary expense. Further, despite resisting an order for indemnity costs as part of the consent orders to set aside the statutory demand and being given the opportunity to make submissions contradicting Kraneworx’ contentions, DSS Advisory has elected not to do so. This put Kraneworx to further cost and DSS Advisory must now be taken to have accepted that such an order is appropriate in this case.

16    Accordingly, I will order that the defendant pay the plaintiff’s costs on an indemnity basis.

17    As to the question of the lump sum amount, Kranworx seeks an order for payment of $28,648.90.

18    Ms Losanno has deposed to the costs incurred by Kraneworx:

(1)    At annexure “J” are copies of six solicitors’ tax invoices in an aggregate amount of $23,806.80 (GST inclusive). The invoices related to the period from 31 August 2017 to 1 February 2018 and include disbursements relating to court filing fees and process servers’ fees.

(2)    At annexure “K” are copies of four tax invoices from Kraneworx’ counsel for an aggregate amount of $12,168.75 (GST inclusive). These invoices relate to the period from 11 September 2017 to 1 February 2018.

(3)    Kraneworx is entitled to claim input tax credits in relation to any GST relevant to the invoices issued by its solicitors and counsel. Annexure “L” sets out a costs summary.

19    The costs summary at annexure “L” indicates that:

    It has been prepared without the assistance of a costs expert.

    The GST on the solicitor’s invoices is $1,823.80 and the GST charged in counsel’s invoices is $1,106.25. The aggregate amount of solicitor’s and counsel’s fees less GST is $33,045.50.

    The solicitor’s hourly rate was $380 and counsel’s hourly rate was $375.

    Categories of work include drafting affidavits, attending Court, reviewing DSS Advisory’s affidavits and drafting submissions.

    The lump sum amount of $28,648.90 has been calculated on the basis of 80% of solicitors’ fees (excluding GST) and disbursements of counsel’s fees (excluding GST), $3,745 in court filing fees and $150 (excluding GST) for process servers.

    The amounts claimed falls within Scale and the National Guide to Counsel’s Fees.

20    Having regard to annexure “L”, the discount of 20% applied to solicitor’s costs, the treatment of goods and services tax and having perused the invoices set out in annexures “J” and “K”, I am satisfied that it is appropriate to order DSS Advisory to pay the lump sum amount claimed by Kraneworx. Again, having been apprised of the amount of the proposed lump sum order and the evidence and submissions supporting it, DSS Advisory has elected to make no submissions must now be taken to have accepted that a lump sum order in this amount is appropriate in this case.

Conclusions

21    I will make orders reflecting the Consideration set out above.

Associate

Dated:    29 March 2018