In the matter of Domicgra Trading Pty Ltd (No 2)

On 17 December 2015, I gave judgment in this matter in favour of the plaintiff: see In the matter of Domicgra Trading Pty Ltd [2015] NSWSC 1918.

I ordered that the creditor’s statutory demand served by the defendant on the plaintiff on 20 August 2015 be set aside pursuant to s 459H(1)(a) of the Corporations Act 2001 (Cth).

I also ordered the defendant to pay the plaintiff’s costs of the proceedings.

Following the making of those orders, the plaintiff has applied for a further order that the defendant pay the costs on the indemnity basis.

The parties have delivered written submissions on the issue, and I am invited to decide the question in chambers based on the papers.

In Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728; (2003) 47 ACSR 100, Barrett J (as his Honour then was), made the following observations concerning the circumstances in which the court will order an unsuccessful defendant on an application to set aside a creditors statutory demand to pay the plaintiff’s costs on the indemnity basis:

I respectfully adopt the observations made by his Honour. In that case, the defendant had served the relevant creditor’s statutory demand on the basis that the defendant was entitled “to claim damages from your company for the loss suffered by our client”. The plaintiff’s solicitors then wrote to the defendant making it clear that the creditor’s statutory demand would necessarily be set aside, because it was based upon a claim for liquidated damages, and not a debt.

It must be remembered that Barrett J began his consideration of the subject by referring to the circumstance that a party may be ordered to pay indemnity costs where there was “relevant delinquency”, including “some improper defence or other misconduct”. In the examples of cases considered by his Honour, where indemnity costs had been awarded against an unsuccessful defendant, the level of delinquency approached an abuse of process of the court.

In the present case, the creditor’s statutory demand claimed a debt of $167,843.11. That is the balance the defendant claims is owing in respect of five invoices addressed by the defendant to the plaintiff, in the total sum of $388,080.80, after five payments totalling $220,237.69 had been paid.

The originating process was filed by the plaintiff on 10 September 2015. It was supported by the affidavit of Mr Dominic Giallombardo, sworn on 9 September 2015. In short, Mr Giallombardo said that the debt was not owed by the plaintiff, but by an associated company Transform Formwork Contract that Pty Ltd (in liq) (Transform). He said that Transform was, before its liquidation, in a business that required it to acquire formwork, and that the debt claimed by the defendant was a debt owed by Transform under a contract by which it agreed to acquire formwork from the defendant.

Three of the five invoices had originally been addressed to Transform, but when that company went into liquidation, the defendant reissued the invoices addressed to the plaintiff.

The Defendant’s principal witness, Mr Christopher Banks, claimed in his affidavit, sworn on 5 October 2015, that dealing with Mr Giallombardo was not as straightforward as that gentleman claimed. Mr Banks said that, whenever his company dealt with Mr Giallombardo, Mr Giallombardo talked in terms that it was Mr Giallombardo who was the person doing business, and that Mr Banks did not always know, at the time of a particular agreement, whether he was being asked to contract with Mr Giallombardo, or a company controlled by Mr Giallombardo. Mr Banks might be told afterwards the name of the company to which invoices should be addressed.

Mr Banks said that, after Transform was placed in liquidation, he was asked by Mr Giallombardo’s accounts manager to reissue all of the invoices addressed to the plaintiff.

Mr Banks’ version of events was denied by Mr Giallombardo and the accounts manager in their affidavits.

However, even though I found in my reasons for judgment in favour of the plaintiff, as appears from those reasons, there were a number of unusual features of this case.

First, of the $220,237.69 of the debt claimed by the defendant that had been prepaid, $100,000 was paid on 1 February 2013, apparently by Mr Giallombardo’s wife. The other four payments, in the total sum of $120,237.69, were paid by various entities, apparently at the behest of Mr Giallombardo, after Transform was placed in liquidation.

Additionally, it was at least doubtful that the RATA for Transform disclosed that the company was indebted to the defendant. As I explained in my reasons for judgment, there was some possibility that the debt was in fact recognised by the RATA, but was misdescribed, and was a component of the debt said to be owed by Transform to another company associated with the defendant.

Taking into account all of the circumstances, I do not accept that the defendant’s prosecution of its defence of the plaintiff’s claim to set aside the creditor’s statutory demand involved the degree of delinquency that is required before the court will order an unsuccessful defendant to pay the plaintiff’s costs on the indemnity basis. In particular, I do not accept that the defendant’s defence was doomed to fail. It did fail, as is the case for one of the parties in nearly every proceedings determined by the court, but it was necessary for me to consider carefully all of the evidence, before I was in a position to decide to order that the creditor’s statutory demand be set aside. In my view, this was a case where the defendant was entitled to test the strength of the plaintiff’s case that there was a genuine dispute as to the existence of the debt.

The plaintiff also submitted that the defendant should be ordered to pay its costs on the indemnity basis, because the defendant had not accepted a Calderbank offer made by the plaintiff on 10 December 2015. I reject that submission for two reasons. First, the offer was made on the day before the hearing, and the plaintiff gave the defendant only until 2 PM on the day the letter was sent to accept the offer. The letter was sent too late to be an effective Calderbank offer, and it did not give the defendant a reasonable time to consider the merits of the offer. Secondly, and more importantly, the offer was not directed only to the settlement of the plaintiff’s application for an order setting aside the creditors statutory demand. A component of the offer was that the statutory demand be set aside, but another component was that the defendant accepts payment of $25,000 in final settlement of all claims as between the parties. The court is in no position to form a view as to the appropriateness of this offer, and as it was in part directed to proceedings that are not before the court, it does not provide any basis for the court to make an order that the defendant pay costs on the indemnity basis.

The plaintiff also based arguments on a number of other matters concerning assertions made by the solicitor for the defendant, concerning the propriety of the conduct of the plaintiff, and persons related to it, and also the fact that the defendant had required Mr Giallombardo and the accounts manager to attend for cross-examination, and then not cross-examine them after their affidavits had been read.

These matters do not affect my decision to decline to make the order sought by the plaintiff. The defendant did not seek to pursue, in these proceedings, any disparaging claims against any persons. I do not accept that the forensic decision made by counsel for the defendant, which was not to cross-examine some witnesses, is a basis for ordering the defendant to pay the plaintiff’s costs on the indemnity basis.

Accordingly, I decline to make an order that the defendant pay the plaintiff’s costs on the indemnity basis, as sought by the plaintiff.

As I have already made an order that the defendant pay the plaintiff’s costs on the ordinary basis, and as the plaintiff has failed in its application for an order that the costs be payable on the indemnity basis, it is appropriate in my view, that I order the plaintiff to pay the defendant’s costs of the application for indemnity costs.

Accordingly, I make the following orders: