The Supreme Court's decision in Re Zenith Vinyl Pty Ltd [2025] VSC 274

The Supreme Court's decision in Re Zenith Vinyl Pty Ltd [2025] VSC 274, emphasises parties’ obligations under the Civil Procedure Act 2010 (Vic) to act proportionately, promptly, and to narrow issues in dispute.

Background

Zenith Vinyl Pty Ltd (Zenith), a company operating a vinyl record business engaged Kainelaw Australian Lawyers (Kainelaw), to represent it in a neighbourhood dispute that became the subject of County Court proceeding. The dispute led to legal costs, amounting to $21,612.

Kainelaw issued a statutory demand on the unpaid legal costs. Zenith in turn applied to have the statutory demand set aside.

Issues

The issues were whether there was a genuine dispute as to the existence or amount of the debt for the purposes of s 459H of the Corporations Act 2001 (Cth), and whether the parties complied with their overarching obligations under the Civil Procedure Act 2010 (Vic) (CPA).

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Court's findings

Genuine Dispute

The Court was satisfied that a genuine dispute existed for the purposes of s 459H(1)(a) of the Corporations Act 2001 (Cth). The disputed invoice, totalling $26,785, was nearly three times greater than the $9,000 costs estimate provided on 30 November 2023 and exceeded even the upper range of the $15,000–$20,000 estimate set out in a pre-mediation document headed ‘statement regarding settlement – 177 LPUL’ dated 14 February 2024.

Importantly, Zenith’s director gave evidence that the 14 February 2024 document was not received. These inconsistencies cast doubt on whether Kainelaw complied with its cost disclosure obligations under s 174 of the Legal Profession Uniform Law (LPUL). The Court found that these matters were sufficient to establish a genuine dispute about the existence and amount of the debt claimed in the statutory demand.

Costs and compliance with the Civil Procedure Act:

Although Zenith ultimately succeeded in setting aside the statutory demand, the Court determined that no order as to costs was appropriate. The Court expressed serious concerns about the disproportionate legal costs incurred in this proceeding, given the modest sum in dispute. Zenith incurred $28,000 on costs, while Kainelaw’s costs were estimated at $20,000, both amounts exceeding or close to the quantum of the statutory demand.

The Court found that the parties had contravened several provisions in the CPA:

• There was a failure to adhere to s 23 of the CPA, which requires the parties to narrow issues in dispute and to resolve those capable of agreement. While extensive materials were filed, only one real issue was truly in dispute that is whether there was a genuine dispute concerning the claimed debt.
• The disproportionate costs raised clear issues under s 24 of the CPA, which mandates that parties and practitioners take reasonable steps to ensure that costs are reasonable and proportionate to the matters at issue.
• There was a failure to comply for timely filing evidence and submissions under s 25 of the CPA, which mandates the parties to act promptly and minimise delay.

The Court also had regard to attempts by Kainelaw to resolve the matter, including three separate Calderbank offers and drew attention to s 28 of the CPA, which allows the Court to consider contraventions of the overarching obligations when exercising discretion as to costs.

In conclusion, the Court also made some observations about the future conduct of statutory demand applications to better align with the CPA's overarching obligations:

1. Timetabling orders should provide that late material will not be considered unless leave is granted on affidavit.
2. Submissions should be limited to no more than 6 pages.
3. Early conferral after defendant's affidavit is served.
4. Impose strict limit for hearings of applications to set aside statutory demands.

Implication:

This decision emphasises that parties in litigation must observe their obligations under the CPA. In particular, where a sum in dispute is modest, the parties have an obligation under the CPA to narrow the issues in dispute and ensure costs are reasonable and proportionate.