- Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation

Supreme Court of NSW|2023-06-29|Before: Black J

Solicitors: Daniel Judge Lawyers (Plaintiff) Solon Lawyers (Defendant) File Number(s): 2022/215010

Affidavit Evidence

The parties relied on a smaller range of affidavit evidence, in respect of the application, than had originally been filed by them, as a result of the narrowing of the issues in dispute. B&K reads two affidavits dated 17 May 2022 and 12 July 2022 of Mr Khoury. By his first affidavit dated 17 May 2022, Mr Khoury refers to correspondence received by B&K from solicitors acting for Ms Rahme, and to the issue of the Demand for $57,563.14 (also stated in the Schedule to the Demand as $57,563.49). The Demand claimed an amount of $57,563.14; states that the amount of the debt is due and payable by B&K; and describes the debt, in the Schedule, as the marginally different amount of $57,563.49 derived from a judgment of the Court of Appeal dated 8 October 2019, plus interest, less part payments of the judgment debt in the amount of $258,968.35. An annexure to the Demand contained the calculation of interest. A verifying affidavit was sworn by Mr Soulos, the solicitor acting for Ms Rahme, who confirmed that the debt was due and payable by B&K and he believed that there was no genuine dispute about the existence or amount of the debt.
Mr Khoury then outlines the position in respect of a claim made by Kekatos Lawyers, the solicitors acting for Ms Rahme, for a solicitor's lien in respect of the judgment in favour of Ms Rahme. Mr Khoury's evidence (Khoury 17.5.22 [5]) is that: "The part payments [of the judgment debt] were all made save for the final instalment of $52,950.27 (final instalment amount). That final instalment amount was not paid because of a dispute which arose between [Ms Rahme] ... [and] her former solicitors Kekatos Lawyers."
Mr Khoury then sets out, at some length, the matters which gave rise to that dispute, involving a change of Ms Rahme's solicitors from Kekatos Lawyers to her current solicitors, a subsequent notice given by her current solicitors that payment of the judgment debt should be made to Ms Rahme, and a notice issued by Kekatos Lawyers to B&K that Kekatos Lawyers claim a lien over all outstanding judgments and costs to be paid to Ms Rahme by B&K, and asserting that: "As a consequence of the lien, the debt owing by [B&K] to, [Ms Rahme] cannot be discharged except by payment to Kekatos Lawyers."
Subsequent correspondence followed, in which Kekatos Lawyers asserted, in strong terms, that the solicitor's lien was maintained and that B&K would be held liable for any amount paid to Ms Rahme in "derogation of the lien".
Mr Khoury then refers to correspondence sent to Kekatos Lawyers and Ms Rahme which contemplated proceedings being commenced between those parties as to the lien, and B&K paying the amount claimed into Court. Mr Khoury's evidence is that that proposal was then rejected by the solicitors acting for Ms Rahme, although Mr Bevan, who appears for Ms Rahme in this application, now contends that it is the approach which B&K should have taken.
Mr Khoury also set out the matters relied on by B&K to establish an offsetting claim, by way of costs orders made against Ms Rahme in other matters. It is not necessary to deal with that evidence, because, as issues narrowed in the hearing today, Mr Smith, who appears for B&K, did not press the offsetting claim.
By a second affidavit dated 20 July 2022, Mr Khoury refers to further correspondence between the parties, and to the position in respect of costs in other proceedings between them.
Ms Rahme in turn relies on the affidavit dated 26 May 2023, of her solicitor, Mr Soulos, who in turn refers to the complex history of this application, including several previous grounds of dispute which he contends were raised by B&K in opposition to the payment of the amount claimed in the Demand. It is not necessary to address those matters, where the issues arising have now substantially narrowed. Mr Soulos also addresses the costs orders, which are said to underpin the offsetting claim, but I also need to address his evidence as to that matter, where the offsetting claim was ultimately not pressed by B&K.
The parties also agreed between themselves the factual position in respect of the lien claimed by Kekatos Lawyers and that agreement was summarised in a document (Ex J1) as follows: "1. A fruits of the action lien has been asserted by Kekatos Lawyers. 2. The lien is currently the subject of a dispute in the Common Law Division. 3. Neither Kekatos Lawyers nor Ms Rahme can give a good receipt for any of the sums demanded. 4. To the extent it is valid, [B&K] must pay money to Kekatos Lawyers, other than to the extent moneys are in Court. 5. [B&K] cannot presently pay money to [Ms Rahme] or Kekatos Lawyers. 6. The quantum of the lien is not in dispute for the purposes of this case. 7. The issue for the Court on [this Demand] is whether there was an obligation of [B&K] to pay the sum demanded into a stakeholder account or into Court."
So far as the seventh of those propositions recorded the issue for determination by the Court, it seems to me that it misunderstood the questions which the Court must decide in an application of this kind. The questions which arise here, where B&K seeks to set aside the Demand, is, first, whether there is a genuine dispute between B&K and Ms Rahme about the existence or amount of the debt to which the Demand relates, for the purposes of s 459H(1)(a) of the Corporations Act 2001 (Cth), and, second, because of the way in which B&K puts its case, whether there is some other reason to set aside the Demand for the purpose of s 459J(1)(b) of the Act. B&K's reliance on s 459J(1)(b) of the Act was implied rather than explicit in B&K's written outline of submissions in chief. However, I raised that question in the course of submissions, and Mr Smith made clear that B&K also relied on s 459J(1)(b) to set aside the Demand. I have afforded the parties procedural fairness in respect of that further issue.

Applicable case law

I should first refer to the applicable principles, before turning to the parties' submissions as to the setting aside of the Demand. First, as I noted above, B&K seeks to establish a genuine dispute in respect of the Demand for the purposes of s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute between a company and the issuer of the demand about the existence or amount of the debt to which the demand relates. In Spencer Constructions Pty Limited v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full'Court of the Federal Court observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds of the dispute must be real and not spurious, hypothetical, illusory or misconceived. The threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that: "Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow...If [the Court] sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."
The Court of Appeal has also addressed these issues on several occasions, including in Britten-Norman Pty Ltd v Analysis & Technology Australian Pty Ltd (2013) 85 NSWLR 601; [2013] NSWCA 344, where, in summarising the case law applicable to offsetting claims, it observed the limited inquiry which the Court undertakes in respect of finding a genuine dispute or offsetting claim. I also summarised the applicable principles in my judgment in Re Wollongong Coal Ltd (2015) 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22], which I will not repeat, and the Court of Appeal approved those observations in Ligon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330, where Barrett JA in turn summarised the applicable principles at [8]. The Court of Appeal has continued that approach in its decision in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; 136 ACSR 563; [2019] NSWCA 60.
B&K initially formulated its application to set aside the Demand by reference to a genuine dispute, but the proposition which it advanced, by way of argument, was that the amount claimed was not presently due and payable to Ms Rahme by reason of the solicitor's lien claimed by Kekatos Lawyers. The case law has addressed the issues which arise where it is alleged that a debt is not due and payable, at least in the more common situation that it is alleged that the debt is not due and payable at all, as distinct from not being due and payable to the person who has issued the creditor's statutory demand. The applicable principles were summarised by Rees J in Re Essential Media and Entertainment Pty Ltd [2020] NSWSC 990 at [98]-[102], which I will not repeat, other than to note her Honour's summary that: "When a company applies to set aside a statutory demand on the basis that there is a genuine dispute, not as to the existence or the amount of the debt, but whether it is due and payable within the meaning of s 459E, then the Court may set it aside either under s 459H(1)(a), 459J(1)(a) or 459J(1)(b), but, whatever route is taken, the Court must be satisfied before doing so that there is a 'plausible contention requiring investigation' that the debt is not presently due and payable."
Her Honour's reference to s 459E is important, because that section is directed to the identity of a person who may serve a creditor's statutory demand, and provides that a person may serve such a demand relating to, relevantly, a debt that the company owes to the person, that is due and payable and the amount of which is at least the statutory minimum. Unsurprisingly, that section plainly requires a link between the person who serves the demand and the amount that is due and payable, by requiring that the company owes that debt to the person at the time the demand is served.
I drew the parties' attention to the application of s 459J(1)(b) to cases of this kind, noted by Rees J in Re Essential Media Pty Ltd above, in the course of submissions. I also raised the potentially wider application of that section in this matter with the parties in the course of submissions. Section 459J(1)(b) of the Act permits the Court to set aside a demand for some other reason, and that power is available at least where the issue of the demand would be unconscionable or amounts to an abuse of process or where the issue of the demand would subvert the statutory scheme: Arcade Badge Embroidery Co Pty Ltd v Deputy Commissioner of Taxation [2005] ACTCA 3 at [27]; Saferack Pty Ltd v Marketing Heads Australia Pty Ltd (2007) 214 FLR 393; [2007] NSWSC 1143 at [33]. The Court's power to set aside a creditor's statutory demand under that section exists to maintain the integrity of the process provided under Pt 5.4 of the Act and is not exercised by reference to subjective notions of fairness: Portrait Express (Sales) Pty Ltd v Kodak (Australasia) Pty Ltd (1996) 20 ACSR 746; [1996] NSWSC 199; Re Modern Wholesale Jewellery Pty Ltd [2017] NSWSC 236 at 24; Re Malosi Group Pty Ltd [2021] NSWSC 633 at [24]ff.

The parties' submissions

Turning now to the parties' submissions, both parties made detailed submissions, and Ms Rahme made particularly detailed submissions, which have to some extent been displaced by the narrowing of the issues in dispute between the parties.
Mr Smith, who as I noted above appears for B&K, addressed the dealings between the parties, with particular focus upon the circumstances in which the Court of Appeal ordered B&K to pay equitable compensation to Ms Rahme, the large part of which has been paid and the last instalment of which is the amount claimed in the Demand; and, so far as an offsetting claim was previously asserted by B&K, there were costs orders as between the parties, some of which have been made in favour of B&K. Mr Smith refers to the fact that, for a period of time, B&K was making periodic payments of the judgment debt, pursuant to an instalment order made by the Court, to Kekatos Lawyers who were then acting for Ms Rahme; to the circumstances in which Ms Rahme's present lawyers commenced to act for her, and sought to have further instalments made to them rather than to Kekatos Lawyers; and to the subsequent, and continuing, assertion of a solicitor's lien by Kekatos Lawyers as to the remaining amount due by B&K to Ms Rahme. Mr Smith also refers to the subsequent proceedings in the Common Law Division in respect of aspects of those issues. He submits that there is an extant dispute before the Court between Ms Rahme and Kekatos Lawyers as to the entitlement to the sums demanded in the Demand; I understand Mr Bevan to accept that proposition, although he also points to the fact that the dispute in respect of the amount claimed in the Demand has only recently developed to the point of proceedings.
Mr Smith in turn refers to the elements of a solicitor's lien, as a matter of general law, some aspects of which are reflected in the agreed position of the parties to which I referred above. In particular, Mr Smith refers to Firth v Centrelink (2002) 55 NSWLR 451; [2002] NSWSC 564 at [35] and to reference in that case to the decision of Jordan CJ in Ex parte Patience; Mackinson v The Minister (1940) 40 SR (NSW) 96 at 100-101 where the Chief Justice had observed that: "The solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs..."
That proposition is significant for the fact, now agreed between the parties, that, if B&K complied with the Demand by making payment to Ms Rahme, she could not give a discharge and it would, necessarily, then be exposed to a further claim by Kekatos Lawyers for the same amount, to the extent that Kekatos Lawyers are ultimately successful in establishing their solicitor's lien.
Both parties also refer to an unreported decision of Lehane J in Roam Australia Pty Ltd v Telstra Corporation Ltd (Federal Court of Australia, 22 September 1997), which also recognises the proposition that, if the solicitor gives notice of the claimed right to the person liable to pay the moneys, only the solicitor and not the client can give a good discharge to that person for the amount equivalent to the solicitor's costs. Mr Bevan, for Ms Rahme, in turn relies on the particular form of order that was made by Lehane J in that case.
Mr Smith contends that the amount claimed in the Demand is not due and payable to Ms Rahme, where the debt owed by Ms Rahme to Kekatos Lawyers protected by the lien has not been discharged. He submits that, if the amount protected by the lien exceeds the amount claimed in the Demand, then nothing is owing to Ms Rahme by B&K. While that proposition is directed to a claim for a genuine dispute as to the amount of the debt, for the purposes of s 459H(1)(a) of the Act, is also relevant to s 459E(1) of the Act so far as the creditor who may serve a creditor's statutory demand is a person to whom the debt is due and payable. Mr Smith also there addressed the issue as to the offsetting claim but, as I noted above, B&K does not press that claim as events have developed.
Mr Bevan in turn advanced very detailed and complex submissions, part of which were directed to disputes that had previously existed between the parties, but which were no longer in issue. His primary submission as to the matter that remains in dispute, put in written submissions and repeated in oral submissions, is that: "There can never be a genuine dispute about payment of a judgment debt as a judgment debt, absent any order setting it aside pending determination of an appeal against it, is the product of a 'judgment [which] includes any dispute, and the existence of the debt is res judicata between the parties' unless and until it is set aside by an appeal under the doctrine of finality of litigation."
Mr Bevan cites, as authority for that proposition, Brereton J's decision in Re Amy Holdings (2014) 102 ACSR 150; [2014] NSWSC 1176 at [14] which referred to my decision in Re Land Enviro Corp [2013] NSWSC 731 at [7]. It seems to me that there are at least two difficulties with the proposition which Mr Bevan draws from those decisions. The first is that both of those decisions were cases where a party sought to resist a creditor's statutory demand on the basis that, in effect, the judgments which had found it was liable were wrong. Plainly, it is not open to a party simply to contest the result of a judgment, absent appeal, in order to establish a genuine dispute, although the case law has also recognised that such a contest combined with an intention to appeal and a payment of money into Court may give rise to some other reason to set aside a creditor's statutory demand under s 459J(1)(b) of the Act. Second, the proposition put by Mr Bevan seems to me to be too wide. For example, one would have thought that there could be a genuine dispute about payment of a judgment debt, where the challenge was not whether that judgment debt existed, but instead that the amount had been paid and, for example, the creditor was claiming payment for a second time. A dispute of that character does not seek to impugn the existence of the judgment debt, but instead to raise a genuine dispute as to whether a liability now exists to meet it. B&K here similarly relies on the solicitor's lien claimed by Kekatos Lawyers to contest the liability to make the final instalment payment to Ms Rahme, on a judgment debt which it does not seek to impugn.
Mr Bevan in turn contends that B&K's reliance on the solicitor's lien claimed by Kekatos Lawyers fails at a conceptual level because it is not a dispute between B&K and Ms Rahme, which is required by s 459H(1)(a) of the Act, and is, instead, a dispute between Ms Rahme and Kekatos Lawyers. Mr Bevan submits, in written submissions and again in oral submissions, that: "Every debtor company which is faced with a lien claim has no right to dispute the liability and quantum of the debt in the manner that B&K has sought to do in this case. Rather, the debtor company must pay the entire debt either into Court, into the creditor's solicitor's trust account or a stakeholder's account to abide the outcome of the lien dispute between the creditor/respondent and the third party claiming the lien."
I put aside the question whether an affirmative obligation of that character exists, because, it seems to me, the existence or non-existence of such an obligation is not material to in an application to set aside a creditor's statutory demand. The questions in this application are instead, relevantly, whether there is a genuine dispute as to evidence or the amount of the debt claimed by Ms Rahme, and, as events have developed, whether there is some other reason to set aside the Demand, where B&K did not pursue its offsetting claim in this application.
Mr Bevan submits that, had B&K paid the amount into Court, the Demand would not have been issued or would have been withdrawn. I accept that may be the case as a matter of fact. No doubt, of course, had Ms Rahme recognised that B&K could not pay the amount to her, without being exposed to double liability, and not issued the Demand, then the issues would also not have arisen in their present form. It seems to me that little turns upon the proposition that events might have been different from the events that have in fact occurred. Mr Bevan in turn develops an extended account of B&K's conduct in respect of the application, but it is not necessary to address that matter, where the questions which I need to address are those which the Act identifies, in respect of an application to set aside a creditor's statutory demand.

Determination

I do not accept Mr Bevan's submission that it is not open to B&K to establish a genuine dispute, where a judgment debt is in issue, in circumstances that what is sought to be raised is not the status of the judgment debt, but whether B&K is a person who is obliged to make payment to Ms Rahme, at the time the Demand was served or now. It seems to me that that question arises here, by reason of B&K's contention that payment cannot be made, or cannot reasonably be made, where Ms Rahme cannot deliver a discharge of the debt, by reason of the existence of the solicitors lien claimed by Kekatos Lawyers and payment to Ms Rahme would expose B&K to the risk of double payment. I accept that, here, there can be no dispute as to the existence of the judgment debt or the amount of that judgment debt, but it seems to me that there is a seriously arguable dispute as to whether a debt is due and payable to Ms Rahme, having regard to s 459E of the Act.
It also seems to me that, here, the issue of the Demand is also plainly inconsistent with the statutory regime established by the Act, and that gives rise to some other reason to set aside the Demand for the purposes of s 459J(1)(b) of the Act. First, for the reasons recognised in the case law, to which Rees J referred in Re Essential Media Entertainment Pty Ltd above, and to which I have referred in Re Malosi Group above at [26], there seems to be a genuinely arguable case as to whether the debt is due and payable to Ms Rahme, within the meaning of s 459E of the Act, and that is sufficient to allow the Court to set aside the Demand under s 459J(1)(b) of the Act.
Secondly, and possibly more fundamentally, it seems me that the issue of the Demand in these circumstances undermines the statutory regime established by Pt 5.4 of the Act, in two fundamental respects. The first is that the approach adopted by Ms Rahme places pressure on B&K, where those costs are subject to a lien claimed by Kekatos Lawyers, to pay the debt to Ms Rahme rather than Kekatos Lawyers in order to avoid a presumption of insolvency, at the risk of being held liable to pay that debt twice. Second, and importantly, it seems to me that the approach adopted by Ms Rahme is inconsistent with the underlying premise of Pt 5.4 of the Act, namely that a failure to comply with a creditor's statutory demand fairly creates a presumption of insolvency, because the failure to pay the undisputed debt allows an inference that the debtor is unable to pay that debt and other debts. Here, there is obviously no basis for such an inference, because B&K's failure to pay the amount claimed by Ms Rahme is readily explicable by the fact that a solicitor's lien has been asserted by Kekatos Lawyers; the payment will not discharge B&K's asserted liability to Kekatos Lawyers, if made to Ms Rahme pursuant to the Demand; and, in those circumstances, B&K may reasonably wish to avoid being exposed to the risk of double payment. It is not, in my view, the intent of Pt 5.4 of the Act to create a presumption of insolvency, arising from these peculiar circumstances.
It is not to the point, in that respect, that B&K could have taken some other step, whether to reach an agreement with the solicitors acting for Ms Rahme, if that were possible, or to seek to make payment to a stakeholder or into Court, if it were possible to reach some degree of consensus between the parties as to how that would occur. That is not to the point, it seems to me, because the question here is not what steps could have been taken by B&K, but instead what steps can properly be taken by Ms Rahme in issuing a creditor's statutory demand within the scope of Pt 5.4 of the Act.

Question of order subject to conditions under s 459M of the Act

In the course of submissions, I raised with the parties the question whether an order setting aside the Demand should be made subject to conditions under s 459M of the Act and, in particular, an order that B&K pay the amount into Court which was the subject of the Demand. It is well-established that the Court has power to make such an order, subject to conditions: Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Pty Ltd (No 2) [2003] NSWSC 896.
Mr Smith opposed the imposition of such a condition for setting aside the Demand on the basis that B&K would have relied on its offsetting claim in opposition to such a condition, because it contends that the offsetting claim has the consequence that the amount claimed by Ms Rahme is not due. Mr Bevan, in response, sought to address the question of the offsetting claim, in answer to an argument that Mr Smith had not previously put, where the issues between the parties had previously narrowed.
On balance, it seems to me that I should not impose such a condition. I recognise that it would be open to the Court to do so although Ms Rahme had not sought such a condition, as a term of setting aside the Demand, and subject to affording procedural fairness to the parties. However, it seems to me that I should not do so, where the issue as to the offsetting claim has not been determined, by reason of the manner in which the parties chose to conduct the case, and there would be unfairness, at the conclusion of the hearing, in reopening the question of the offsetting claim that the parties had previously chosen not to address.
It also seems to me that, in the particular circumstances, it ought to have been apparent to Ms Rahme that the debt she claimed against B&K was disputed, or at least the fact that it was payable to her while the position as to the lien claimed by Kekatos Lawyers was unresolved, was disputed. In those circumstances, it seems to me that it would be inappropriate to impose a condition as to payment into Court, where that would allow Ms Rahme a collateral benefit from the service of the Demand in those circumstances.
For these reasons, I order that the creditor's statutory demand dated 27 April 2022 issued by the Defendant, Ms Rahme, to the Plaintiff, Benjamin & Khoury Pty Ltd be set aside.

Costs

I indicated a preliminary view that, in the particular circumstances of this case, there should be no order as to costs. I noted that, while B&K had been successful in the ultimate outcome, it had succeeded on a basis that developed as the matter proceeded and earlier disputes between the parties were displaced, and by reference to issues as to the operation of Pt 5.4 of the Act which were not at the forefront of its submissions, although they were developed in this hearing and the parties had procedural fairness in respect of them. I indicated I would allow the parties an opportunity to reflect on that matter, and deal with any contest as to that question, and the question of costs of two earlier applications in which creditor's statutory demands that were set aside by consent, after the lunch adjournment.

Costs in respect of the first creditor's statutory demand

I then heard the parties further as to costs. B&K seeks an order for costs in respect of its application to set aside the first creditor's statutory demand dated 21 December 2021 issued by Ms Rahme for the amount of $186,339.84 (which was set aside by consent), limited to its costs from 16 May 2023 on an ordinary basis. The significance of 16 May 2023 is that, on that date, the solicitors acting for B&K wrote two letters, one without prejudice except as to costs and the other open, to the solicitors acting for Ms Rahme. In the without prejudice except as to costs letter, the solicitors acting for B&K contended that Ms Rahme had no prospect of success in the proceedings and referred to the lien claimed by Kekatos Lawyers. Importantly, they also pointed out that two of three amounts that were the subject of the three demands, including the amount claimed in the first demand, had been paid into Court. They proposed that the two statutory demands dated 21 December 2021 served by Ms Rahme upon B&K be set aside and each party bear their own costs of the proceedings. That was a reasonable offer, so far as it contemplated that Ms Rahme would not be liable for costs where the first and second demands were set aside, and where the payment of funds into Court was relied on as one of the matters that would support it being set aside
By the open letter dated 16 May 2023, the solicitors acting for B&K recorded their understanding that Ms Rahme took the position that none of the three demands should be set aside, but asked the solicitors for Ms Rahme to advise if that understanding is incorrect. By letter dated 17 May 2023, the solicitors acting for Ms Rahme responded that B&K bore the onus of proof in its application to set aside the demands and, implicitly, required B&K to establish the basis on which the three demands should be set aside. However, when the hearing commenced today, Mr Bevan rightly recognised that there was little utility in the continuance of the first demand dated 21 December 2021, where payment had been made into Court, and ultimately, after an exchange with the Court, accepted that that first demand should be set aside, reserving the question as to costs.
Mr Smith submits that the position offered by B&K on 16 May 2023 was to set aside the first demand dated 21 December 2021, and to do so on the basis that Ms Rahme would not have to pay B&K's costs of the proceedings. Ms Rahme did not accept that position, although it is identical to the position to which Mr Bevan rightly moved at the commencement of the proceedings today. Mr Bevan rightly took that course because, with respect, it is inconceivable that a creditor's statutory demand would not be set aside, where it claimed an amount that had already been paid into Court to await the determination of a dispute. Of course, the difficulty with that proposition, so far as Ms Rahme is concerned, is that that was no less inconceivable on 16 May 2023 than it was today.
Mr Bevan, in response, fairly accepted that B&K had been put to additional expense since 16 May 2023, but drew attention to the observations of McHugh J in Re Minister For Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 that: "In an appropriate case, the Court will make an order for costs even where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The Court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra curial action they had avoided. In some cases, however, the Court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action."
Mr Bevan submits, here, that the Court cannot determine the position in respect of costs prior to 16 May, where Ms Rahme has complaints as to the manner in which B&K conducted the proceedings and submits that, if B&K had taken a different approach, the proceedings would have been narrower and would have been resolved more quickly. Mr Bevan is right that the Court cannot determine that matter, where to do so would involve a review of the lengthy history of the matter prior to 16 May, which was not and could not properly be the subject of detailed evidence and submissions. The difficulty for Ms Rahme with that proposition, however, is that one thing is clear. The costs since 16 May have been wasted, for both parties, but they have been wasted in respect of B&K because Ms Rahme did not accept, on 16 May, a position which she rightly accepted today in respect of the need to set aside the first creditor's statutory demand, and did not accept a costs position on 16 May 2023 which was the most favourable costs position that she could reasonably hope for, that there be no order as to the costs of the proceedings.
It seems to me that it can be said, within the language of Lai Qin above, that Ms Rahme has acted so unreasonably since 16 May 2023 that B&K should obtain the costs of the action. That does not depend upon any assessment of the position prior to 16 May 2023, where the Court cannot and should not make an assessment, but involves the Court making an assessment of one matter that is apparent, and can be assessed without any trial of a hypothetical action. For these reasons I will order that Ms Rahme pay B&K's costs of the application to set aside the first creditor's statutory demand for $186,339.84 on and from 17 May 2023, being the date of Ms Rahme's solicitor's response, on an ordinary basis as agreed or assessed.

Costs in respect of the second creditor's statutory demand

I have heard Counsel as to any difference in the position as to the creditor's second demand from that in respect of the first. I will also order that Ms Rahme pay costs of the application to set aside side the second creditor's statutory demand dated 21 December 2021 for $393,108.08 (also set aside by consent) from 17 May 2023 on an ordinary basis as agreed or as assessed, for the same reasons as I made that order in respect of the first creditor's statutory demand.

Costs in respect of the contested application to set aside the Demand

B&K seeks the same order in respect of the contested application to set aside the Demand as I have made in respect of the first and second creditor's statutory demands, namely, that Ms Rahme pay the costs of that application on an ordinary basis as and from 17 May 2022. Notwithstanding that it was ultimately successful in the application, B&K does not contend that Ms Rahme should pay the costs of the entirety of the proceedings concerning that Demand. It is therefore not necessary to address the question of earlier claims that were made and ultimately not advanced, where the issues were narrowed at this hearing.
In supporting its claim that Ms Rahme should pay its costs of this application from 17 May 2022, B&K again relies on the exchange of letters dated 16 and 17 May 2023 with Ms Rahme's solicitors. B&K there raised, in the without prejudice except as to costs letter, the dispute as to the proper payee of the amount claimed in the Demand as between Ms Rahme and Kekatos Lawyers. That reference is important because, as Mr Smith points out, it focuses not only on a genuine dispute as to the existence or amount of the debt, but also on the identity of the payee which was important in the determination of the application to set aside the Demand. In their response dated 17 May 2023, the solicitors for Ms Rahme again put B&K to proof of its application to set aside the Demand.
Mr Bevan points to earlier correspondence where the parties had contemplated the possibility that moneys might be paid into Court, possibly with the intent that the entitlement to those moneys be determined in these proceedings. It may or may not have been possible to pay moneys into Court in these proceedings, and it was likely possible to pay moneys into Court in one of the other proceedings that presently exist between the parties. It was not possible, or appropriate, for substantive issues as to the lien to be determined in this application to set aside a creditors statutory demand, for the reasons noted by Barrett J in Gujarat NRE Australia Pty Limited v Williams [2006] NSWSC 211 at [3], and in my judgment in Re Passion Projects (allyouneedislove) Pty Limited [2014] NSWSC 345, to which I had previously drawn the parties' attention. Mr Bevan also submitted that the costs of the proceedings could have been avoided had moneys been paid into Court. It does not seem to me that that assists Ms Rahme, where the issue of the Demand was not a proper way in which to seek to achieve a result that moneys be paid into Court. Mr Bevan also submits that, by contrast with the position as to the first two demands, B&K had not paid the amount claimed in the Demand into Court. That difference exists, but it is not a relevant difference so far as the costs of the application to set aside the Demand are concerned, where the payment into Court was not necessary to setting aside the Demand.
On balance, I am now persuaded that I should order that Ms Rahme pay the costs of the application to set aside this Demand from 17 May 2023, again by reason that B&K had offered a resolution of the proceedings which was consistent with the resolution that has now been reached on the merits, and which was favourable to Ms Rahme so far as costs were concerned. It seems to me that there was again a degree of unreasonableness in Ms Rahme's position and there is no reason to depart, at least from 17 May 2023 onwards, from the ordinary principle that costs follow the event in respect of the contested application to set aside the Demand.

Form of order

For these reasons, in the interests of simplicity and expediting an assessment, in substitution for orders as to the costs of the applications to set aside the separate demands, I will make a single costs order referable to the whole of the proceedings. I order that the Defendant, Ms Rahme, pay the Plaintiff's costs of and incidental to of the proceedings on and from 17 May 2023, on an ordinary basis as agreed or as assessed. I also order that Exhibit D1 be returned.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 July 2023

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