Baa Baa Black Cow Pty Limited v CAFGA Livestock Pty Limited (No. 2) [2010] FCA 1239 (11 November 2010)

Last Updated: 12 November 2010

FEDERAL COURT OF AUSTRALIA

Baa Baa Black Cow Pty Limited v CAFGA Livestock Pty Limited (No. 2)

[2010] FCA 1239

Citation:		Baa Baa Black Cow Pty Limited v CAFGA Livestock Pty Limited (No. 2) [2010] FCA 1239
Parties:		BAA BAA BLACK COW PTY LIMITED AND OTHERS v CAFGA LIVESTOCK PTY LIMITED
File number(s):		QUD 83 of 2010
Judge:		GREENWOOD J
Date of judgment:		11 November 2010
Catchwords:		CORPORATIONS – consideration of the disposition of the costs of and incidental to an application to set aside statutory demands made under the Corporations Act 2001 (Cth)
Legislation:		Corporations Act 2001 (Cth), s 459G and s 459H
Cases cited:		Baa Baa Black Cow Pty Limited v CAFGA Livestock Pty Limited [2010] FCA 1191 – cited and quoted Clark v Commissioner of Taxation [2010] FCA 415 - cited CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 – cited Black v Lipovac (1998) 217 ALR 386 – cited Maniotis v J H Lever & Co Pty Ltd (No. 2) [2006] FCAFC 28 – cited Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 - cited IFTC Broking Services v Commissioner of Taxation [2010] FCAFC 31 [2010] FCAFC 31; (2010) 268 ALR 1 – cited Hazeldene’s Chicken Farm v Victorian Workcover Authority (No. 2) (2005) 13 VR 435 - cited
Date of hearing:	4 August 2010
Date of last submissions:	8 November 2010
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	19
Counsel for the Plaintiffs:	Dr Andrew Greinke
Solicitor for the Plaintiffs:	Shannon Donaldson Province Lawyers
Counsel for the Defendant:	Mr Philip Looney
Solicitor for the Defendant:	Bennett & Philp Lawyers as town agents for McPherson & Kelley Lawyers

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 83 of 2010

BETWEEN:	BAA BAA BLACK COW PTY LIMITED AND OTHERS Plaintiffs
AND:	CAFGA LIVESTOCK PTY LIMITED Defendant

JUDGE:	GREENWOOD J
DATE OF ORDER:	11 NOVEMBER 2010
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. The plaintiffs pay 50% of the defendant’s costs of and incidental to the application.
   

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION	QUD 83 of 2010

BETWEEN:	BAA BAA BLACK COW PTY LIMITED AND OTHERS Plaintiffs
AND:	CAFGA LIVESTOCK PTY LIMITED Defendant

JUDGE:	GREENWOOD J
DATE:	11 NOVEMBER 2010
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. On 2 November 2010, judgment was delivered in an application by the plaintiffs in which orders were sought under s 459G of the Corporations Act 2001 (Cth) setting aside statutory demands served upon the plaintiffs by the defendant, CAFGA Livestock Pty Limited (“CAFGA”). There were four statutory demands in issue. The plaintiffs contended that they were engaged in a genuine dispute with CAFGA about the existence or amount of the debt to which the demands related.
2. On 2 November 2010, the Court ordered that the statutory demands made by the plaintiffs be varied by reducing the amount of each demand to $15,674.33. The Court declared each demand to have had effect, as so varied, as from the date when the demand was served upon each company to which it was addressed. The order for variation of the demands and the declaration were made under s 459H of the Corporations Act. The parties were directed to file submissions on costs within seven days.
3. These reasons deal with the disposition of the costs of the application to set aside each statutory demand.
4. Each statutory demand concerned a demand for a debt said to be made up of an instalment under a Cattle Lease between CAFGA and Baa Baa Mack Sheep Pty Ltd (“BBMS”) which fell due for payment in January 2010 ($15,674.33) and an amount calculated in accordance with clauses 9.1 and 9.1(b) of the Cattle Lease of $669,029.00 described as an “Early Termination Amount”, constituting a total asserted debt of $714,703.33. One statutory demand was directed to BBMS as the principal debtor and the other three demands were directed to guarantors of the obligations under the lease assumed by BBMS. Those guarantees were given by Baa Baa Black Cow Pty Ltd (“BBBC”), Focus Accounting Pty Ltd (“Focus”) and Mack Grazing Pty Ltd (“Mack Grazing”).
5. The plaintiffs contended that a genuine dispute subsisted between them and CAFGA as to the existence or amount of the debt on four grounds. First, the plaintiffs contended that the version of the lease instrument relied upon by CAFGA failed to contain a page (relied upon by CAFGA) which recited definitional terms enabling the Early Termination Amount to be calculated. Secondly, the plaintiffs contended that if the terms and conditions of the lease included terms which properly enabled the Early Termination Amount to be calculated, the amount payable under that formulation is a penalty rather than a genuine pre-estimate of the loss suffered by CAFGA. Thirdly, the plaintiffs contended that each demand was no more than a claim for unliquidated damages and fourthly the plaintiffs said that CAFGA had engaged in misleading and deceptive conduct (relevantly relied upon by BBMS and the guarantors) in contravention of s 52 of the Trade Practices Act 1974 (Cth) giving rise to a claim for damages under s 82 of the Trade Practices Act or a remedial order under s 87 of that Act and that CAFGA had engaged in unconscionable conduct in contravention of s 51AC of the Trade Practices Act, with the result that the plaintiffs had offsetting claims extinguishing the amount of the debt recited in each statutory demand.
6. Each of those four contentions is addressed in the reasons for judgment in Baa Baa Black Cow Pty Limited v CAFGA Livestock Pty Limited [2010] FCA 1191 and those reasons should be read in conjunction with these reasons.
7. At [45] of those reasons, these observations were made in relation to the question of costs:
   45. As to the question of costs, the application to set aside the statutory demands falls into two questions. First, whether the component of the demand described as “Early Termination Amount $699,029.00” is the subject of a genuine dispute. Secondly, whether the plaintiffs have established an arguable contravention of ss 51AC and 52 of the Trade Practices Act so as to give rise to a cross-claim or setoff. The question of whether the Early Termination Amount, as claimed, constitutes a penalty is a separate question. The applicants have been successful on the first question but not the second. The statutory demands make proper demand for the unpaid amount of $15,674.33. The parties have not been heard on the question of costs. I propose to order that the parties file submissions in relation to costs within seven days should they wish to be heard in relation to a proposed order that the defendant pay 50% of the plaintiffs’ costs of and incidental to the application. If submissions are lodged by either party on the proposed costs order I will consider those submissions and make an order as to costs on the papers. In the absence of submissions, I will make a further order on the expiration of seven days in terms of the proposed costs order.
       
8. The parties have made submissions on the question of costs.
9. Having regard to those submissions and further consideration of the factors which ought to be taken into account in the exercise of discretion in the disposition of costs under s 43 of the Federal Court of Australia Act 1976 and s 1335(2) of the Corporations Act, I am satisfied that the order foreshadowed at [45] of the principal judgment ought not to be made.
10. The discretion ought to be exercised having regard to these considerations.
11. The defendant served four statutory demands which made claim for the payment of a debt recited in the demand which consisted of the two components previously described. The plaintiffs contended in the proceedings that a genuine dispute subsisted as to the existence or amount of the entire debt claimed by each notice. The plaintiffs successfully established in their proceeding that a genuine dispute subsisted between the parties as to the terms and conditions of the lease and whether the Early Termination Amount was capable of calculation in the manner contended for by CAFGA. The question of whether the Early Termination Amount might constitute a penalty rather than a pre-estimate of damage was unnecessary to decide as the plaintiffs had demonstrated a genuine dispute on the threshold matter of whether the terms and conditions of the lease were those terms and conditions contended for by CAFGA.
12. In order to demonstrate a genuine dispute as to the existence or amount of the remaining component of the debt asserted by each notice, that is, the January instalment of $15,674.33, the plaintiffs contended that facts had been established by affidavit evidence which gave rise to an offsetting claim on the footing already described. In that matter, the plaintiffs were unsuccessful. Therefore, each statutory demand was good as to an amount of $15,674.33 and remained good from the moment in time each demand was served.
13. It follows, as a matter of principle, that the defendant ought to be awarded the costs of successfully resisting the relief sought by the plaintiffs. However, those costs ought to be discounted by 50% having regard to the success of the plaintiffs on the issue concerning the Early Termination Amount.
14. A further question concerns an offer made by the plaintiffs to the defendant on 23 July 2010 expressed to be without prejudice save as to costs. The offer was made by the plaintiffs through their solicitors after the service by the defendant of its affidavits. The plaintiffs contended that the affidavits deposed to factual assertions which suggested that contentious questions of fact would need to be resolved in appropriate proceedings rather than in the course of the plaintiff’s application to set aside each statutory demand. The letter concludes in these terms:

We are instructed to make the following offer to resolve the proceeding. Our clients will consent to orders to the effect that:

1. Each of the statutory demands be varied such that the demand is $15,674.33.

2. Time for compliance with the statutory demands be extended to 6 August 2010.
   
3. The parties bear their own costs of and incidental to the proceeding.
   

This offer is open for acceptance in writing until 4 pm on 29 July 2010 after which the offer shall lapse. If this offer is not accepted, our clients will seek an order for the costs of the proceeding to be taxed on an indemnity basis. This letter will be tendered in relation to that application.

15. The letter of offer is annexed to the affidavit of Mr Aylward sworn 8 November 2010. The plaintiffs rely upon the letter as a Calderbank offer. The plaintiff’s offer was not expressed to be an offer made under Order 23 of the Federal Court Rules. In Clark v Commissioner of Taxation [2010] FCA 415 at [107] to [113], I discuss the principles governing the exercise of the discretion in the context of a Calderbank letter of offer. I will not repeat those observations in these reasons. The Calderbank offer must be genuine and the offer put by the party must be equal to or better than the party’s ultimate result at trial. The offeree’s refusal of the Calderbank proposal must be shown to be unreasonable. See CGU Insurance Ltd v Corrections Corporation of Australia Staff Superannuation Pty Ltd [2008] FCAFC 173 at [75]; Black v Lipovac (1998) 217 ALR 386 at 432; Maniotis v J H Lever & Co Pty Ltd (No. 2) [2006] FCAFC 28; Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd [2009] FCAFC 40 at [11]; IFTC Broking Services v Commissioner of Taxation (2010) 268 ALR 1; [2010] FCAFC 31 at [12]. As to the factors to be taken into account in assessing reasonableness see Hazeldene’s Chicken Farm v Victorian Workcover Authority (No. 2) (2005) 13 VR 435 at 442 at [25], Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA).
16. The terms of the plaintiffs’ Calderbank offer involved a proposal that each party ought to bear its own costs of and incidental to the plaintiffs’ application notwithstanding that CAFGA’s demand for payment of the January instalment remained good and was not shown to be susceptible of an offset or cross-claim. Further, the offer involved a proposal that the time for compliance with the statutory demand be extended to 6 August 2010 whereas the Court declared that the demand as to the January instalment had effect as so varied, as from the date when the demand was served upon each company to which it was addressed.
17. Accordingly, the plaintiffs’ offer was not equal to or better than the ultimate result at trial.
18. In addition, the Calderbank offer was made on 23 July 2010, approximately two weeks prior to the hearing of the application by which time a substantial body of costs would have already been incurred. The offer made by the plaintiffs was a genuine offer. It was put with a view to resolving the matters in issue at the application. However, the offer did not deal with the costs incurred by the defendant to the date of the offer nor did it address the question of the demand taking effect, as varied, as from the date when the demand was served.
19. The plaintiffs will be ordered to pay the defendant’s costs of and incidental to the application discounted by 50%.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated: 11 November 2010