In the matter of Invigor Group Limited (No 3)

HER HONOUR: On 7 August 2019, I gave judgment dismissing the plaintiff’s (Invigor) application to set aside a statutory demand served by the defendant (Raus Capital) and ordered Invigor to pay Raus Capital’s costs of the proceedings: In the matter of Invigor Group Limited [2019] NSWSC 995 (Invigor No 1). On 14 August 2019, I granted Invigor a short extension of time under section 459F(2)(a)(i) of the Corporations Act 2001 (Cth), in effect giving a short stay pending filing an appeal: In the matter of Invigor Group Limited (No 2) [2019] NSWSC 1192 (Invigor No 2).

Raus Capital now seeks a variation of the costs order in Invigor No 1 to have its costs paid either on an indemnity basis, or on an indemnity basis from 2 August 2019. Whether or not I accede to that application, Raus Capital also now seeks to have its costs fixed in a specified sum.

The facts in relation to the debt owed by Invigor to Raus Capital are set out in Invigor No 1 and I have adopted the defined terms contained in that judgment. In respect of costs, Raus Capital sent a letter of demand on 22 February 2019 calling for payment of $500,000 due under the Loan Agreement plus interest within seven days and reserved its rights to recover the monies.

On 4 March 2019, Invigor replied without prejudice save as to costs in a letter said to have been sent with the awareness and approval of Marcel Equity. It will be recalled that Invigor and Marcel Equity share a common director, Gary Cohen. Marcel Equity offered to pay Raus Capital $500,000 plus interest by lending the sum to Invigor if Raus Capital transferred 125 million ordinary shares in Invigor to Invigor, Marcel Equity or its nominee. It will be recalled from Invigor No 1 that the 125 million ordinary shares were apparently obtained by Invigor, Marcel Equity and Karoo using share transfers annexed to two back-to-back Convertible Note Sale Agreements in a manner not envisaged by those agreements and then, somewhat belatedly, putting the shares in the name of Raus Capital: Invigor No 1 at [11]–[23]. Invigor’s letter continued:

On 18 March 2019, Raus Capital issued a statutory demand which is the subject of Invigor No 1. On 15 April 2019, Raus Capital wrote at length to Invigor in response to a suggestion by Invigor that there was a genuine dispute suggesting:

On 23 April 2019, Invigor filed its Originating Process with an affidavit in support of Mr Cohen. On 5 July 2019, Raus Capital wrote without prejudice save as to costs noting that Invigor had indicated it would be putting forward an offer to resolve the matter, but none had been received. The matter had, by then, been allocated a hearing date and Raus Capital advised that unless Invigor paid its debt in full by 24 July 2019, Raus Capital would be pressing ahead with its final preparation for the hearing and would incur further significant costs in doing so. Accordingly, Raus Capital pressed Invigor to resolve the matter amicably before 24 July 2019.

On 10 July 2019, Invigor made a without prejudice offer:

Unsurprisingly, this offer was rejected. On 17 July 2019 Raus Capital sent an email without prejudice save as to costs noting it considered that Invigor’s application was doomed to fail at the hearing on 6 August 2019 but offering to resolve the matter on the basis of:

On 25 July 2019, Invigor, in an email marked without prejudice save as to costs, rejected Raus Capital’s offer suggesting that the statutory demand would be set aside “because the Court takes a dim view of any party who attempts to abuse this process”. Invigor offered to settle the proceedings on the following basis:

On 29 July 2019, Raus Capital requested details of the form of guarantee proffered by Invigor. On 1 August 2019, rather than provide details of the guarantee, Invigor put a revised offer:

The hearing took place on 6 August 2019 and judgment was given on 7 August 2019 in Raus Capital’s favour, in which each of the factual and legal contentions propounded by Raus Capital were successful.

No submissions were filed by Invigor.

In respect of an order for indemnity costs for the whole proceedings, Raus Capital submitted that a party that commences or maintains proceedings without prospects of success is liable to pay the costs of the other party on the indemnity basis: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; [1998] FCA 202. In this case, Raus Capital warned Invigor of the fundamental difficulties with its claims and that it would seek indemnity costs before proceedings were commenced. Given the dearth of evidence in support of the central planks of Invigor’s claims, especially in relation to the extension of the Maturity Date under the Loan Agreement to 14 December 2018, the knowledge of Raus Capital and the absence of any evidence of reliance on the alleged promise or detriment flowing from such reliance, Invigor’s contentions were always doomed to fail. In those circumstances, the Court would order Raus Capital to pay all of Invigor’s costs on the indemnity basis. I agree with each of the underlying propositions put in support of this submission.

In respect of its alternative argument that indemnity costs should be payable from 2 August 2019, Raus Capital relied on Miwa Pty Ltd v Siantan Properties Pty Ltd (No 2) [2011] NSWCA 344, where Basten JA (with whom McColl and Campbell JJA agreed) said, at [8]:

Prior to the commencement of the proceeding, Raus Capital responded in detail to Invigor’s contentions, which responses were consistent with the findings ultimately made in Invigor (No 1), and foreshadowed an application for its costs to be paid on the indemnity basis if proceedings were commenced. Accordingly, Invigor was at all times aware of the case Raus Capital put against it and was aware of the potential costs consequences. On 17 July 2019, Raus Capital made genuine offers to resolve the proceeding commercially. The failure to accept the offer was unreasonable, especially given the dearth of evidence to support Invigor’s contentions, which would have been glaringly obvious 4 days prior to the hearing. Accordingly, the Court would order that the costs up to and including 2 August be paid on the ordinary basis and, thereafter, on the indemnity basis. Again, I agree with each of the underlying propositions put in support of this submission.

In respect of costs in a specified sum, Raus Capital submitted that the power to make lump sum costs orders derives from section 98(4) of the Civil Procedure Act 2005 (NSW) and the principles upon which the Court's discretion is to be exercised are set out in Hamod v State of New South Wales [2011] NSWCA 375 at [816]–[817]; Idoport Pty Limited v National Australia Bank Limited [2007] NSWSC 23 at [9]; and In the matter of GTH Equipment Pty Ltd [2017] NSWSC 1816 at [9] ff. Based on those principles and that the purpose of the power to make lump sum costs orders is the “avoidance of expense, delay and aggravation involved in protracted litigation arising out of taxation” (see Idoport at [9]), the costs of assessment are likely to be disproportionate to the costs amounts in question, given that this was a relatively straightforward proceeding concerning the existence of a genuine dispute as to a debt claimed in the statutory demand. There is little room to dispute the costs that have been incurred in the proceedings and an appropriate discount has been applied by Raus Capital’s solicitor in his affidavit in support of the costs order sought. Finally, there is a serious question as to Invigor’s capacity to satisfy a costs order, especially given the matters set out in the affidavit of Gary Cohen affirmed on 13 August 2019 in support of the application for a staying, that is, the absence of any explanation as to whether the debt under the PFG Finance Agreement has been repaid: see Invigor (No 2) at [5]–[6]. In these circumstances, Raus Capital submitted that a lump sum costs order is appropriate and desirable. I agree with each of these propositions.

In considering Raus Capital’s application, I note the comments of Allsop P, with whom Beazley and Campbell JJA agreed, in Baulderstone Hornibrook Engineering (No 2) v Gordian Runoff Limited [2009] NSWCA 12 at [5]:

In respect of indemnity costs, section 98(1)(c) of the Civil Procedure Act provides:

In In the matter of Indoor Climate Technologies Pty Ltd [2019] NSWSC 356, Black J recently summarised the applicable principles relating to the making of indemnity costs orders at [8]:

In particular, an order that costs be paid on an indemnity basis may be made if a party has persevered with a hopeless or futile case: Baulderstone Hornibrook at [4].

Section 98(4)(c) of the Civil Procedure Act provides:

As Giles JA noted in Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 at [21]:

It is a relevant consideration “whether the financial capacity of the party liable to pay costs is such that the additional burden of taxation will import a significant burden on the party in whose favour costs are ordered without real prospects of recovering those costs”: Dunstan v Human Rights and Equal Opportunity Commission (No 3) [2006] FCA 916 at [24], citing Hadid v Lenfest Communications Inc [2000] FCA 628; Sparnon v Apand Pty Ltd [1998] FCA 164; Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788; [2005] FCA 228.

Correspondence from Invigor canvassed in Invigor No 1, Invigor No 2 and this judgment points to an inability to repay its loan from Raus Capital. Invigor’s failure to make any submissions in respect of the application for these costs orders is another matter which supports the inference that Invigor cannot or will not pay Raus Capital. Invigor’s inability to pay any costs order made against it favours the award of a lump sum costs order thereby reducing wasted time and expense on any costs process which may have no useful purpose. For these reasons, I consider that this is an appropriate case to specify a gross sum.

In Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23, Einstein J summarised the principles which inform the exercise of the discretion to specify a gross sum, at [9]:

His Honour’s summary has been cited with approval in the Court of Appeal: Hamod v New South Wales per Beazley JA, with whom Giles and Whealy JJA agreed, at [793]. Her Honour continued, at [816]:

And at [820] (citations omitted):

Further, as Ball J explained in Baychek v Baychek [2010] NSWSC 987 at [11]:

I consider it appropriate to order indemnity costs for the whole proceedings in this case. Invigor’s application to set aside the statutory demand was audacious and without proper basis. The application was devoid of merit and brought in circumstances where Invigor appeared to be simply ‘playing for time’. Invigor’s reference in correspondence to “abuse of process”, apparently without irony, was also audacious in the circumstances. Further, Invigor has led Raus Capital ‘a merry dance’ in its attempts to resolve the proceedings on a commercial basis, thereby causing Raus Capital to waste time and money considering and responding to nebulous offers.

Raus Capital’s legal costs including counsel’s fees are $38,643.15 excluding GST, that is $42,507. Having regard to the fact that I consider it appropriate to award Raus Capital its costs on an indemnity basis for the whole of the proceedings, I consider it appropriate to fix Raus Capital’s costs in a gross sum of $40,000 including GST.

For these reasons I make the following orders: