Canon Australia Pty Ltd v Yong Bros Pty Ltd (Costs) [2009] NSWSC 1245

New South Wales Supreme Court

CITATION : Canon Australia Pty Ltd v Yong Bros Pty Ltd (Costs) [2009] NSWSC 1245

HEARING DATE(S) : 1 October 2009 JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Brereton J

EX TEMPORE JUDGMENT DATE : 1 October 2009

DECISION : No order as to costs

CATCHWORDS : CORPORATIONS – costs – where creditor's statutory demand issued – where demand later withdrawn – relevant considerations – where decision to withdraw statutory demand a unilateral decision and not the product of compromise between the parties – where demand issued on an obviously solvent company – where not self-evident that there was a legitimate dispute – where demand withdrawn after dispute established – whether use of statutory demand an abuse of process

LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules 2005, r 15.10

CATEGORY : Consequential orders

Canon Australia Pty Ltd v Yong Bros Pty Ltd [2009] NSWSC 842 CASES CITED : Canon Australia Pty Ltd v Yong Bros Pty Ltd [2009] NSWSC 843 Immigration and Ethnic Affairs, Re Minister for; Ex parte Lai Qin (1997) 186 CLR 622

PARTIES : Canon Australia Pty Ltd (plaintiff) Yong Bros Pty Ltd (defendant)

FILE NUMBER(S) : SC 5805/08

COUNSEL : Mr J K Chippindall (plaintiff) Mr J T Johnson (defendant)

SOLICITORS : McLachlan Chilton (plaintiff) Yates Beaggi (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BRERETON J

Thursday 1 October 2009

5805/08 Canon Australia Pty Limited v Yong Bros Pty Limited JUDGMENT (ex tempore)

1 HIS HONOUR: On 3 November 2008, the defendant Yong Brothers Pty Ltd served a creditor's statutory demand on the plaintiff Canon Australia Pty Ltd. Canon applied by originating process filed 24 November 2008 for an order setting aside the statutory demand. Various interlocutory proceedings have since taken place, including an application by Yong for an order that the proceedings continue on pleadings (in circumstances where Canon asserted that it had an offsetting claim for damages for breach of contract and fraud exceeding the amount of the debt that was able to be substantiated). On 11 June 2009 I declined to order that the proceedings continue on pleadings but instead ordered, pursuant to UCPR, r 15.10, that within twenty-one days Canon file and serve a statement of the nature of the case on which it relied in respect of any offsetting claim that it asserted against the defendant [Canon Australia Pty Ltd v Yong Bros Pty Ltd [2009] NSWSC 843]. On 2 July 2009 Canon filed and served a memorandum pursuant to that order particularising its offsetting claims. That memorandum was comprehensive, and was supported by vouchers and other material said to evidence the claims which it advanced. 2 On 24 July, Yong offered to withdraw the demand and consented to a discontinuance of the present proceedings, on the basis that each party bear its own costs. That offer was rejected by Canon on 3 August. On 11 August Yong indicated that it intended, in any event, to withdraw the demand, and sought to have the matter listed for hearing, on the question of costs alone. On 12 August, when the matter was listed before the Registrar, Yong's solicitor advised the court that the creditor's statutory demand was unequivocally withdrawn. The matter was referred to Barrett J as Corporations Judge, who fixed the matter for hearing today on the question of costs. 3 In his helpful written submissions, Mr Chippindall of Counsel, for Canon, has referred to authorities which establish that a demand may effectively be withdrawn by unequivocal statements to that effect, perhaps supported by a letter or other document arming the company with evidence that it has been withdrawn. No submission to the contrary has been advanced and, for present purposes, I will proceed on that basis. Mr Chippindall asked me formally to note the withdrawal of the demand, and so that there can be no doubt that that is what has happened, it is appropriate to do so; again, there is no contrary submission. 4 That leaves the remaining dispute, as to costs. In respect of various of the interlocutory processes, special costs orders have already been made: in particular, in respect of Canon's application to set aside notices to produce served on behalf of Yong, and Canon's unsuccessful application for an order for the separate determination of certain questions. Costs of the application for pleadings were ordered to be costs in the proceedings. 5 In favour of the contention that the defendant Yong should pay the plaintiff Canon's costs, the major considerations invoked include first and foremost, the ultimate withdrawal of the creditors statutory demand. This, in effect, gave the plaintiff Canon the result which it sought at the outset – though not quite in the form in which it had been sought – but for all practical purposes, it amounts to substantial success in the proceedings. The creditors statutory demand which Canon sought to have set aside now no longer exists as a matter of law. It is also telling that this was not as part of a compromise but, ultimately, a unilateral act on the part of Yong. That distinguishes the case from the circumstances typically encountered where parties settle proceedings except on the question as to costs. It was that latter type of case, not the present, that McHugh J dealt with in Immigration and Ethnic Affairs, Re Minister for; Ex parte Lai Qin (1997) 186 CLR 622, 624-5. 6 Next, it is said that Canon was an obviously solvent corporation in respect of which the issue or service of a creditor's statutory demand was inappropriate, because there was no prospect that it would ultimately be wound up. I do not give this factor much weight. There is no prohibition on serving a creditor's statutory demand on a perfectly solvent company. The solvency of the company does not impugn or affect the validity of the creditor's statutory demand; it provides a defence, the onus of proving which is borne by the company, to a consequential winding up summons. 7 It might be but it is completely unnecessary to my decision to consider this – that a winding up summons brought against a company that was obviously solvent in fact, despite the presumption of insolvency arising from failure to comply with a demand, might be an abuse of process. In any event such a summons would fail. But that does not affect the validity of the preceding creditor's statutory demand, nor the entitlement of a creditor to serve one, which entitlement is given by s 459E in respect of a debt regardless of any question of actual solvency. 8 The next factor invoked was the absence of supporting evidence provided at any stage by or on behalf of Yong for the debt it claimed. Again, I do not give this significant weight. This was an application on which Canon bore the onus of proving a genuine dispute or offsetting demand. As the case materialised this depended largely, though not exclusively, on the offsetting demand. It was for Canon to adduce evidence to prove that case, and I do not think the absence of evidence from Yong to prove that it had a debt tells significantly on the present question. 9 Then, it was argued that it is an abuse of process to use the statutory demand to pressure a solvent corporation into paying a disputed debt. I agree; but at the outset it was not self-evident that this was a case of a disputed debt. It is not an abuse of process to use a statutory demand to pressure a solvent corporation to pay a debt which is due and payable. 10 Finally, it was submitted that the circumstances were aggravated by the fact that there was an early request for withdrawal of the statutory demand which was not heeded or, if heeded at all, only on conditions upon which Yong was not reasonably entitled to insist. There was unquestionably an early request for withdrawal of the demand, but at that stage the state not only of the evidence in the proceedings but also of the correspondence between the parties was, as I described it in the judgment on the application for pleadings [Canon Australia Pty Ltd v Yong Bros Pty Ltd [2009] NSWSC 842], as follows: [4] It was accompanied by spreadsheets setting out what appear to be total commission claims "from CFA" of $15,856.24 and "total hardware sales commissions" of $45,703.64. Those amounts do not on their face correspond with the amounts referred to in paragraphs 2 and 3 of the affidavit and do not total the debt claimed of $67,715.86. It has subsequently been explained, in the course of argument, that the difference is 10 percent and represents GST. There is no reference in the Schedule to the creditor's statutory demand to GST. In my view, it could not be said it would be apparent to a reasonable person in the position of the company how the total of the debt claimed was made up, but it would be apparent that, in order to comply with the demand, the company was required to pay $67,715.86 within 21 days after service of the demand. [5] Solicitors for the company raised in correspondence, dated 19 November 2008, an assertion that it had a genuine dispute in relation to the debt, and also that there were further "technical defects in your client's documentation", including failure to include the note required by s 509H, failure to refer to the proper date of Mr Yong's affidavit on the face of the demand, and "the fact that the debt claimed has been overstated in that Canon Australia is not liable for any brokerage payment. This liability, which is denied, due to additional set offs would be owed by Canon Finance Australia Pty Limited.

11 Against those considerations, the argument that there should be no order as to costs is founded primarily on the circumstance that, until the memorandum was filed on 2 July 2009, it was not apparent (and Yong could not reasonably have been expected to accept) that there was a genuine dispute or offsetting claim. The observations I made in the earlier judgment, set out above, provide considerable support for that conclusion. There is an occasional hint in the correspondence, before and after proceedings were commenced, of allegations of breach of contract and fraud; but there are no particulars of them, and it is fair to say that the ground on which Canon was relying on the correspondence seemed to shift from time to time. In those circumstances I think it was reasonable for a creditor in Yong's position to take the stance that there was not self-evidently a bona fide dispute, until the memorandum was filed on 2 July 2009. 12 There is also some force in the submission that Yong offered to consent to a discontinuation of the proceedings without costs and to withdraw the statutory demand, upon terms that Canon commence proceedings on its alleged offsetting claim in an appropriate Court of Common Law jurisdiction. However, it is not infrequently said that a creditor is entitled to test the water by serving a statutory demand, but at its own risk as to costs if it turns out that there is a genuine dispute. On the other hand, it seems to me that a company that wishes to take advantage of the costs consequences that follow from that proposition ought to be prepared to show at an early stage what the genuine dispute is or what its offsetting claim is. The company cannot, as it were, keep its powder dry while at the same time leaving the creditor in the dark as to why the creditor is not being paid. That, it seems to me, is what happened in this case until July 2009. As I have said, there were references to multiple breaches of contract, fraud, fraudulent claims and apparent fraudulent activities, but these were all very general and vague allegations which did not in reality disclose why the creditor was not being paid. 13 In those circumstances, I would have thought that the proper outcome was that there be no order as to costs up to 2 July 2009. The position after 2 July 2009 might have fallen into a different category, because from that time it was or ought to have been obvious that there was a genuine dispute or offsetting claim. 14 In those circumstances, had Yong persisted in the proceedings in resisting the relief sought, thereafter Canon would have had a strong claim to costs from 2 July 2009. However, although the offers made by Yong were, as Mr Chippindall rightly pointed out, not (at least initially) unconditional, those offers were not less favourable to Canon than the result that would otherwise have prevailed – namely, withdrawal or setting aside of the demand, with no order as to costs up to 2 July 2009. The further costs occasioned since 24 July 2009 could have been avoided by acceptance of the offer that was made on that occasion. 15 It, therefore, seems to me that the view that I have reached as to costs up to 2 July 2009 should prevail in respect of the whole of the proceedings, save in so far as a special costs order otherwise already provided. 16 Accordingly, save insofar as special costs orders already otherwise provide, there will be no order as to costs, to the intent that each party bear its own costs of the proceedings. **********

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