Federal Court of Australia

Kookaburra Educational Resources Pty Limited v MacGear Limited Partnership trading as MacGear Australia, in the matter of Kookaburra Educational Resources Pty Limited (No 2) [2021] FCA 1049

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff pay the defendant’s costs on an indemnity basis other than with respect to the determination of the costs of the proceedings.

2.    The plaintiff pay the defendant’s costs with respect to the determination of the costs of the proceedings on a party and party basis.

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

REASONS FOR JUDGMENT

HALLEY J:

Introduction

1    On 16 July 2021, I delivered a judgment in the substantive proceeding dismissing the plaintiff’s originating process seeking to set aside a statutory demand served by the defendant: see Kookaburra Educational Resources Pty Limited v MacGear Limited Partnership trading as MacGear Australia, in the matter of Kookaburra Educational Resources Pty Limited [2021] FCA 797 (J).

2    At the conclusion of the hearing of the substantive proceeding and prior to the delivery of judgment, both parties sought to separately address the Court on the question of the appropriate costs orders to be made irrespective of which party was ultimately successful. The orders that I made on 16 July 2021 provided for the parties to serve written submissions on costs and, unless either party sought an oral hearing, provided for the issue of costs to be determined on the papers.

3    The plaintiff seeks an order that there should be no order as to costs or, in the alternative, that the plaintiff should pay the costs of the defendant on a party and party basis. The plaintiff relies on the affidavit of Craig Doyle sworn on 16 August 2021 in support of its submissions as to costs.

4    The defendant seeks an order that the plaintiff pay its costs on an indemnity basis. The defendant relies on the affidavit of Laura Anderson sworn on 30 July 2021 in support of its submissions as to costs.

5    For the reasons that follow, I am satisfied that the plaintiff should pay the defendant’s costs on an indemnity basis.

Background

6    The background facts in this proceeding are set out at J[4]-[18].

7    For present purposes those background facts relevantly establish that:

(a)    the defendant’s statutory demand dated 19 February 2021 (Statutory Demand) was sent by both express post and registered mail to the plaintiff’s registered office at 226A Harbour Drive, Coffs Harbour, New South Wales: J[9];

(b)    there was an automatic diversion in place for 226A Harbour Drive, Coffs Harbour, New South Wales which resulted in the express post and registered mail copies of the Statutory Demand being delivered to the post office box of the plaintiff’s accountant: J[13]-[14]; and

(c)    the plaintiff’s accountant first brought the existence of the Statutory Demand to the attention of a director of the plaintiff on 23 February 2021 and emailed it to him on that same day (having received the copy of the Statutory Demand that was sent by express post): J[11]; [14]-[15].

8    The following communications between the plaintiff’s solicitor and the solicitors for the defendant are relevant for the purposes of determining the competing submissions on costs.

9    By letter dated 24 March 2021, the solicitors for the defendant advised the plaintiff’s solicitor that the plaintiff’s originating process filed on 17 March 2021 (Application) seeking to set aside the Statutory Demand was brought out of time and must fail (24 March letter). The defendant’s solicitors requested that the plaintiff discontinue its Application. If it was not discontinued, the defendant stated that it would rely on the 24 March letter in relation to the question of costs, which would be sought on an indemnity basis.

10    On 25 March 2021, the plaintiff’s solicitor responded to the 24 March 2021 letter stating that the date of service of the Statutory Demand was “not admitted”, the “documents” (that is, the unfiled Application and accompanying affidavit) had been served on the defendant’s solicitors by email on 16 March 2021 and the plaintiff intended to maintain and proceed with the Application. The plaintiff’s solicitor also enquired as to whether the defendant would agree to withdraw the Statutory Demand in order to avoid legal costs.

11    On 26 March 2021, the solicitors for the defendant responded to the 25 March 2021 communication from the plaintiff’s solicitor observing that the plaintiff had not made any positive assertion about when it claimed it was served with the Statutory Demand. The solicitors for the defendant also noted that the documents received by them on 16 March 2021 were unsealed and therefore failed to comply with the strict requirements imposed by Pt 5.4 of the Corporations Act 2001 (Cth) (Corporations Act). The defendant’s solicitors maintained that the Application was brought out of time and must fail. They again sought confirmation that the Application would be discontinued, failing which the defendant would seek payment of its costs on an indemnity basis.

12    On 13 May 2021, the plaintiff’s solicitor advised the defendant that because the Statutory Demand had not been served on the registered office of the plaintiff and because two statutory demands had been served, there could be no doubt that they were invalid. The plaintiff’s solicitor invited the solicitors for the defendant to consent to the Statutory Demand being set aside and for the defendant to agree to pay the plaintiff’s costs.

13    On 14 May 2021, the plaintiff’s solicitor wrote again to the solicitors for the defendant raising an additional claim that a statutory demand was an “initiating process or document” under the Corporations Act. Accordingly, service of a statutory demand required a “Form 1” and was required to be served at the registered office of a company, not at a post office box. The plaintiff’s solicitor repeated his invitation for the defendant to agree to set aside “any valid statutory demand” and to pay the plaintiff’s costs.

14    On 24 May 2021, the plaintiff’s solicitor wrote again to the defendant’s solicitors noting that an affidavit filed by the defendant indicated “a document, apparently a Statutory Demand, was received at 9.16 am on 26 February 2021”. The plaintiff’s solicitor noted that the originating process was filed on 17 March 2021, which was within 21 days of 26 February 2021. He repeated his invitation to the defendant’s solicitors for the Statutory Demand to be set aside and for the defendant to pay the plaintiff’s costs to date.

15    On 27 May 2021, the solicitors for the defendant advised the plaintiff’s solicitor, by an email and letter of that date, that:

(a)    only one statutory demand was served, an original and a copy of the original, by express post and registered post;

(b)    although the plaintiff purported to rely on the copy of the Statutory Demand served by registered post on 26 February 2021, it was clear from the plaintiff’s own evidence (namely an affidavit of the plaintiff’s solicitor) that the Statutory Demand first came to the plaintiff’s attention on 23 February 2021 when the plaintiff’s accountant received and forwarded the express post copy of the Statutory Demand to a director of the plaintiff;

(c)    a statutory demand was not an “initiating process or document” pursuant to the Corporations Act or a “proceeding” and was not caught within the definition of an “initiating process” under s 9 of the Corporations Act, meaning a statutory demand did not require a Form 1 for the purposes of the Service and Execution of Process Act 1992 (Cth) (SEPA); and

(d)    because the Application was filed out of time, persisting with the proceeding would expose the plaintiff to an indemnity costs order and, if it was pressed, the defendant would seek its costs on an indemnity basis.

PrincIples

16    The Court has a very broad discretion with respect to costs. In the usual course, a successful party is entitled to its costs. The particular circumstances of a case, however, might be such as to warrant the Court departing from the usual course: Colgate-Palmolive Company v Cussons Pty Limited [1993] FCA 801; (1993) 46 FCR 225 at 233 (Sheppard J). Such circumstances might include matters in which an “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 [1988] FCA 364; (1988) 81 ALR 397 at 401 (Woodward J), cited with approval by the Full Court in Melbourne City Investments Pty Ltd v Treasury Wine Estates Limited (No 2) [2017] FCAFC 116 at [5] (Jagot, Yates, Murphy JJ).

17    Rule 40.02(a) of the Federal Court Rules 2011 (Cth) provides for costs to be paid other than as between party and party, including on an indemnity basis. As Gaudron and Gummow JJ explained in Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [44]:

It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a “solicitor and client” basis or on an indemnity basis. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.

[Footnotes omitted.]

18    Indemnity costs orders have been made or foreshadowed in proceedings involving applications to set aside statutory demands in circumstances where:

(a)    the proceeding was not commenced within the 21 day statutory period and clear authority showed it was “doomed to fail”: Carinda Homes Pty Ltd v Highlands Austral Pty Ltd, in the matter of Carinda Homes Pty Ltd [2003] FCA 275 at [9] (Lindgren J);

(b)    it was “clear to all that the proceeding had been commenced outside the 21 day time limit”: H Lal & Associates Pty Limited v Patel, in the matter of H Lal & Associates Pty Limited [2009] FCA 1551 at [8]-[9] (Lindgren J);

(c)    notwithstanding an absence of personal fault, “where, for example, proceedings are objectively certain to fail”: Australian Civil Infrastructure Group Pty Ltd v Murphy, McCarthy & Associates Pty Ltd [2012] NSWSC 133 at [4] (Black J); and

(d)    the dismissal of the application was “the predictable consequence of the application of well-established case law, which should have been apparent to [the applicant] and its advisors before its application was brought”: In the matter of AXL Financial Pty Ltd [2019] NSWSC 867 at [45] (Black J).

19    As the defendant submits, the plaintiff was best placed to calculate the statutory time limit and to have knowledge of when the Statutory Demand was brought to its attention on 23 February 2021. The decision to proceed with the Application could reasonably be characterised as a “relevant delinquency” on the part of the plaintiff by its pursuit of an application that was “objectively certain to fail” and “doomed to fail”. The dismissal of the Application was the “predictable consequence of the application of well-established case law”.

20    Further, contrary to the submissions advanced by the plaintiff, the dismissal of the Application did relevantly achieve a final resolution of an issue between the parties, namely the validity of the Statutory Demand.

21    It is also not relevant in the present context that the plaintiff might consider that there is a genuine dispute with respect to the debts the subject of the Statutory Demand. The statutory regime mandates that such disputes be raised in an application to set aside the relevant statutory demand filed within the statutory period: David Grant & Co Pty Limited (Receiver Appointed) v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 278-279 (Gummow J with Brennan CJ, Dawson, Gaudron and McHugh JJ agreeing). Further, as Black J explained In the matter of Urban Solutions Group Pty Limited [2015] NSWSC 1940 at [13], the proper forum to raise alleged defects in a statutory demand when an application to set aside the demand is brought out of time is at the hearing of any winding up application.

Disposition

22    For the reasons outlined above, the plaintiff is to pay the costs of the defendant on an indemnity basis, other than the defendant’s costs of the costs application which are to be paid by the plaintiff on a party and party basis.

Associate:    

Dated:    31 August 2021