Federal Court of Australia

CBS Commercial Canberra Pty Ltd v AXIS Commercial (ACT) Pty Ltd; In the matter of CBS Commercial Canberra Pty Ltd (No 2) [2022] FCA 687

ORDERS

THE COURT ORDERS THAT:

1.    The defendant is to pay the plaintiff’s costs of the proceedings on the ordinary basis up to and including 8 March 2022 and thereafter on an indemnity basis, as taxed or agreed.

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 12 May 2022, 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 CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd, in the matter of CBS Commercial Canberra Pty Ltd [2022] FCA 544 (J).

2    The orders that I made on 12 May 2022 provided for the parties, subject to any consent position that they might reach on appropriate costs orders, 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 its costs be taxed on an indemnity basis. The plaintiff relies on two letters from its solicitors, Meyer Vandenberg, to the solicitors for the defendant, Harrington Lawyers, dated 7 May 2021 (First MV Letter) and 8 June 2021 (Second MV Letter) in support of its submissions as to costs.

4    The defendant seeks an order that the costs order against it should be made on the ordinary basis, payable as agreed or assessed.

5    For the reasons that follow, I am satisfied that the plaintiff should pay the defendant’s costs on the ordinary basis up and until 8 March 2022 and thereafter on an indemnity basis.

Background facts

6    On 8 March 2021, an adjudicator made a determination under the Building and Construction (Security of Payment) Act 2009 (ACT) (SOPA) in the sum of $783,474.63 (Adjudication Debt): J [26].

7    On 20 April 2021, the plaintiff served a notice of dispute pursuant to cl 47.1 of its subcontract with the defendant in which it claimed, among other relief, an entitlement to liquidated damages for delay, backcharges and/or damages for defective works, and included further offsetting claims that had not been the subject of the Adjudication Debt (Notice of Dispute): J [29].

8    On 4 May 2021, the defendant served a statutory demand in respect of the Adjudication Debt (Statutory Demand). I note that the Statutory Demand was dated 28 April 2021 and there was some evidence, as reflected at J [31], that it was served on that date, but at a case management hearing on 6 May 2022 leave was granted to the plaintiff to reopen its case, without objection, to read an affidavit of Mr John Katsanevakis sworn 5 May 2022 confirming that the Statutory Demand was in fact served on 4 May 2021.

9    On 7 May 2021, the plaintiff’s solicitors sent the First MV Letter to the defendant's solicitors. The letter referred to the Notice of Dispute and stated at paragraphs 10 and 12:

... in the circumstances that CBS has a genuine off-setting claim against Axis as outlined in the Notice of Dispute dated 20 April 2021, the statutory demand is liable to be set aside pursuant to s 459H ...

…

If our client is required to apply to the Court to have the statutory demand set aside, our client will seek an order that Axis pay their legal costs of the application, which in light of this letter will be sought on an indemnity basis.

10    The Statutory Demand was not withdrawn.

11    On 19 May 2021, the plaintiff filed an originating process to set aside the Statutory Demand. Paragraph 2 of the originating process gave notice that costs were sought on an indemnity basis. The plaintiff relied on offsetting claims in an aggregate amount of $1,454,603 as establishing a genuine counterclaim falling within s 459H of the Corporations Act 2001 (Cth) (Corporations Act): J [3].

12    On 8 June 2021 the plaintiff's solicitors sent the Second MV Letter to the defendant's solicitors. The plaintiff’s solicitors stated at paragraph 9 of the letter:

Prior to the issue of the statutory demand, Axis was aware that the debt was genuinely disputed but nonetheless issued the demand and refused to withdraw it despite our previous letter dated 7 May 2021. Our client had no alternative other than to apply to the Federal Court to have the statutory demand set aside, so will be seeking its costs on the indemnity basis.

13    The plaintiff’s solicitors also drew to the defendant’s solicitors the following statement of principle in Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 533 in which Campbell J stated at [20]:

When a judgment has been obtained pursuant to the BACISOP Act, if the judgment debtor does not pay it voluntarily, then the judgment creditor can use the range of remedies open to a judgment creditor. It is not possible, however, for the terms of a Commonwealth Act, the Corporations Act 2001 (Cth), to be construed, or limited, by reference to the intention implicit in a State Act. The provisions of Division 3 of Part 5.4 of the Corporations Act 2001 (Cth) set out a regime whereby a statutory demand is set aside whenever there is an offsetting claim.

[Emphasis in original.]

14    On 8 March 2022, the plaintiff filed and served its outline of submissions in support of its application to set aside the Statutory Demand (Submissions). The Submissions included the following statements of principle addressed at the availability of offsetting claims in the context of an application to set aside a Statutory Demand based on an adjudicated debt under the SOPA or equivalent State legislation:

7    While CBS accepts that this Court, sitting as a judge at first instance, should follow the decision of the Western Australian Court of Appeal in Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd (Diploma), this decision does not prevent CBS from relying on these offsetting claims, for the reasons discussed by Brereton J in Re Douglas Aerospace Pty Ltd (Douglas) and by Robb J in Re J Group Constructions Pty Ltd (J Group).

…

16    In J Group, Robb J found that, where an adjudicator had rejected offsetting claims, those claims remain available for the purposes of establishing an offsetting claim, as ‘true’ offsetting claims for s 459H(1)(b).

[Footnotes omitted.]

15    The plaintiff submits that, given the modest threshold for establishing that there is a plausible contention requiring further investigation, courts will apply indemnity costs orders to those who should have appreciated both the ground upon which the applicant ultimately succeeded in setting aside the statutory demand and the high probability of its success, citing: Austrac Rail P/L v Hunter Premium Funding Limited [2001] NSWSC 654 at [23] (Austrac) (Santow J); Professional Advantage Pty Ltd v Australian Broadcasting Commission [2007] NSWSC 607 (Professional Advantage) at [2]-[5] (White J); and Tekno Autosports Pty Limited v Jenkins (No 2) [2014] FCA 809 (Tekno) (Gleeson J).

16    The defendant submits that:

3.    In circumstances where the Defendant was of the view that the claims and the quantum for liquidated damages, back charges and the negative variation were not genuine offsetting claims, it cannot be said that the Defendant “persisted in defending the application even though it should have been apparent that the plaintiff had genuine offsetting claims”. The basis of the proceedings before this Court was in fact to determine the genuineness and legitimacy of those claims and the fact that the Defendant was unsuccessful in these proceedings should not be a basis for the Plaintiff to seek indemnity costs.

17    The defendant submits that there must be some special or unusual feature to justify an award of indemnity costs or some relevant delinquency on the part of the unsuccessful party, neither of which are present in the current circumstances: see Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133 at [8] (Sheller, Ipp and Tobias JJA); Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [44] (Gaudron and Gummow JJ).

18    The defendant also submits that the First and Second MV Letters (together MV Letters) lacked the necessary requirements for an offer to engage the Calderbank v Calderbank [1975] 3 All ER 333 principles and failed to follow the requirements provided by the Uniform Civil Procedure Rules 2005 (NSW) (UCPR). It submits that the MV Letters failed to provide a clear offer of compromise to the defendant and therefore their rejection was not unreasonable because they did not state on their face that they were Calderbank letters, they were not clear, precise and certain in their terms as the letters did not state a time frame for acceptance: citing Barboza v Blundy & others [2021] QSC 82; Mallonland Pty Ltd & Anor v Advanta Seeds Pty Ltd [2021] QSC 132.

Consideration

19    The plaintiff does not contend that the MV Letters were Calderbank letters nor that it was seeking to rely on the UCPR provisions. Rather, the plaintiff contends that the conduct of the defendant had the relevant delinquency identified in Tekno because the defendant persisted with the Statutory Demand when it ought to have been apparent that the plaintiff had offsetting claims.

20    Moreover, the basis on which the defendant contended that the offsetting claims were not genuinely in dispute was that they had “been determined by the Adjudicator”. The defendant did not seek to contend by reference to the affidavit evidence read on the application that the offsetting claims were not otherwise genuinely in dispute: J [87]

21    Hence the application turned only on whether offsetting claims that had been rejected by an adjudicator in the course of determining an adjudication amount under the SOPA could be relied upon for the purposes of seeking to set aside a statutory demand pursuant to s 459G of the Corporations Act. That was an issue that had been conclusively determined by Robb J in Re J Group Constructions Pty Ltd (2015) 303 FLR 139; [2015] NSWSC 1607 (J Group). As I explain at J[67]-[81] I was not satisfied, contrary to the submissions advanced by the defendant, that J Group was plainly wrong and should not be followed.

22    Following the service of the Submissions in which its attention was expressly drawn to the decision of Robb J in J Group, the defendant should have appreciated both the ground on which the plaintiff ultimately succeeded and the high probability of its success: Austrac at [23] (Santow J); Professional Advantage at [4], [14] (White J).

23    I am satisfied that the decision by the defendant to persist in its defence to the plaintiff’s application to set aside the Statutory Demand after J Group was brought to its attention gave rise to a relevant delinquency or alternatively a special or unusual feature sufficient to justify an award of indemnity costs: Oshlack at [44] (Gaudron and Gummow JJ); Colgate-Palmolive Company and Another v Cussons Pty Limited (1993) 46 FCR 225 at 233-4 (Sheppard J).

24    The defendant should have recognised that the decision in J Group precluded it from maintaining, unless it could satisfy the Court that it was plainly wrong, that offsetting claims rejected by an adjudicator under the SOPA or equivalent State legislation could not be taken into account in an application to set aside a statutory demand. Given that was the only basis the defendant contended the offsetting claims could not be relied upon, it should have recognised that the plaintiff had a very high probability of persuading the Court that it had genuine offsetting claims in an amount in excess of the debt the subject of the Statutory Demand.

25    I am not persuaded that the MV Letters, which did not refer to J Group, identified the ground on which the plaintiff ultimately succeeded or its high probability of success in a manner that would constitute a relevant delinquency a special or unusual feature sufficient to justify an award of indemnity costs.

Disposition

26    The defendant should pay the plaintiff’s costs on the ordinary basis up to the date of the service of the Submissions and thereafter on an indemnity basis.

Associate:

Dated:    14 June 2022