Australiawide Airlines Ltd v Aspirion Pty Ltd

Applicable principles

1. Turning now to the applicable principles, s 98 of the Civil Procedure Act 2005 (NSW) provides for orders for costs. Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provides that, generally, costs will follow the event, and UCPR r 42.20 provides that: "If the Court makes an order for dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the Court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed."
2. Mr Lees, who appears for Myao, refers to observations of Burchett J in One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; [2000] FCA 270 that, where a party pursues proceedings, but then capitulates at a late stage, "there will commonly be lacking any basis for an exercise of the Court's discretion otherwise than by an award of costs to the successful party". In Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, McColl JA (with whom Beazley JA agreed) observed that the "default order" in UCPR r 42.20 does not establish a presumption that costs will be ordered against the plaintiff upon the dismissal of the proceedings, and other relevant considerations included those identified in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625; [1997] HCA 6. Santow JA there agreed with that observation and also noted that the onus is on a discontinuing party to justify such an order by reference to the normal costs outcome in such an event. An order contrary to the default position in UCPR 42.20 will therefore involve an exercise of discretion to depart from that position contemplated by the rule, where "some sound positive ground or good reason for departing from the ordinary course" is established: Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [10], [54]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 at [54] per Hodgson JA. The fact that parties were justified or acted reasonably in commencing or defending the proceedings may but will not necessarily support a departure from the provision of the UCPR: Australiawide Airlines at [64].
3. In McNamara v Bao San & Ors [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) observed, in a summary of the relevant principles that I gratefully adopt: "The following principles may be regarded as relevant in determining who is to bear the burden of costs in a case where the proceedings are dismissed before a final hearing: (a) Costs discretions are truly discretionary … and there are no absolute rules; (b) The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made…; (c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: … However, the rule does create a starting point by requiring "... the plaintiff must pay the defendant's costs of the proceedings ..." unless that outcome is displaced by a discretionary decision ("unless the court otherwise orders"); (d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position … circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff's control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant. (e) The Plaintiff should be the moving party on an application for an alternative costs order … If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts; ... (g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order … A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them … all the relevant circumstances, and not just the fact of dismissal, should be considered; (h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court's discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs …; (i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant …; (j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case. [citations omitted]
4. I followed that approach in the context of a dismissal of a winding up application by consent in Parlby v Blair [2013] NSWSC 100 at [11]ff, on which I have drawn for the summary which appears above.

Costs of and incidental to the hearing before Rees J

1. As I noted above, Savoy submits that Myao should pay its costs of and incidental to the question of the time of service of the statutory demand determined by Rees J on 7 September 2020. Mr Leong submits that the costs of the 7 September 2020 hearing on the question of service are a separate matter and, on an issue by issue approach, Myao should pay Savoy's costs of and incidental to that hearing because Savoy was successful on that issue. Myao resists an order for costs against it in respect of the proceedings before Rees J, on the basis that Savoy did not seek an order for costs before her Honour, and submits that costs should follow the event in the main proceedings. I do not accept that submission, where the question before me is now to determine the orders that should be made as to the costs of the proceedings generally.
2. I am satisfied that there are discretionary factors which warrant departing from the starting point under UCPR r 42.20 and ordering that Myao pay Savoy's costs of and incidental to the determination whether Myao had been served with the creditor's statutory demand by 24 March 2020 in the hearing before Rees J. Myao had raised the contention that it had not been served with that demand by that date, so as to invoke the application of the Omnibus Act; a significant amount of evidence was led by both parties in respect of that proposition and a significant amount of hearing time was spent by Rees J in determining it; and Myao was unsuccessful in establishing the position for which it contended. Accordingly, Myao should pay Savoy's costs of and incidental to the 7 September 2020 hearing, as agreed or as assessed.

Costs of the s 459S application

1. As I noted above, I had already ordered that the costs of this application be Myao's costs in the cause. As I also noted above, by its submissions dated 11 November 2020, Savoy submitted, instead, that each party should bear its own costs of and incidental to the hearing of this application. Mr Leong, while recognising that I had ordered that the costs of the s 459S application heard on 26 October 2020 be Myao's costs in the cause, submits that the s 459S application would not have happened if Savoy had known of Myao's liabilities position (and, implicitly, its solvency) earlier. This is the same argument that Savoy puts in respect of the costs of the balance of the proceedings, which I address below, and I do not accept it for the reasons that I set out below. Consistent with the order that the costs of the s 459S application be Myao's costs in the cause, there is no reason to treat the costs of this application differently to the costs of the balance of the proceedings to which I now turn.

Costs of the balance of the proceedings

1. By its submissions dated 11 November 2020, Savoy submits that each party should otherwise bear its own costs of and incidental to the winding up application. Mr Leong submits that the winding up application was about only one issue, namely solvency, and refers to a question in the case law as to the result which follows if a defendant establishes there is a genuine dispute about the debt, after a successful application under s 459S of the Act, but is unable to rebut the presumption of insolvency. Mr Leong submits that that question is now resolved in the case law and, if a genuine dispute is established, but the presumption of insolvency is not rebutted, then winding up still occurs. Mr Leong refers to Perpetual Nominee Ltd v NA Investment Holdings Pty Ltd [2011] NSWSC 282 at [84], where Ward J (as her Honour then was) noted that, if leave were granted under s 459S of the Act, it would not have operated to set aside the presumption of insolvency and the burden would still have been on the defendant to satisfy the Court that it was solvent. Her Honour there noted that: "While s 459S provides a 'safety net' in relation to grounds of opposition which are material to the solvency or otherwise of the company, on a winding up application based on the presumption of insolvency it remains for the company to prove that it is solvent."
2. It is by no means apparent that this proposition assists Mr Leong. Once leave was granted under s 459S of the Act, it was open to Myao to establish, as it sought to establish, that there was a genuine dispute as to the debt claimed against it and that that debt should not be treated as due and payable in determining its solvency. In that situation, Myao would likely have more readily established its solvency. The later cases on which Mr Leong relies do not seem to me to take the matter further. In Re Kornucopia Pty Ltd (No 4) [2020] VSC 7, no application under s 459S of the Act was made and Sifris J indicated that he would not have granted leave under that section had it been made, and that decision does not illuminate the position where, as here, such leave was granted. In Merrion B Pty Ltd v Donchoid Pty Ltd (No 2) [2020] VSC 566, Randall AsJ undertook a comprehensive and helpful review of the authorities concerning s 459S of the Act, but also did not grant leave under that section, and that case also does not illuminate the position where, as here, such leave was granted.
3. Mr Leong in turn submits that Savoy sent what he describes as a "scouting letter" in June 2020, 12 days after filing the winding up application, to ask Myao's solicitors why Myao should not be wound up. Mr Leong points to Myao's response, which attached business activity statements and tax returns but, he contends, not financial statements from 2019 to 2020 and gave several reasons why winding up should not occur, including that the creditor's statutory demand was not received by Myao; the debt was not owed by Myao; the affidavit in support of the creditor's statutory demand was defective; the statutory demand was itself defective; and that a s 459S application was on the cards (which was brought and was ultimately successfully brought) and that it would be shown that the debt was not owed and Myao was solvent as a result. It seems to me that Myao then raised significant grounds for opposition to the winding up application, albeit it did not then provide sufficient evidence to convince Savoy of its solvency. It also seems to me that, in continuing after that response, Savoy assumed the risk that any of those matters, including Myao's contention that the debt was not owed, would be established.
4. Mr Leong also complains that, after that response: "[Savoy] could only have guessed at what [Myao's] liabilities were and when they were due." That proposition also does not assist Savoy, where it necessarily indicates that Savoy had commenced the winding up application, relying on a presumption of insolvency, without, on Mr Leong's submission, knowing whether Myao could rebut that presumption by establishing its solvency. In doing so, it assumed the risk that is now reflected by its consent to dismissal of the proceedings. Mr Leong also submits that Myao only revealed its liability position, implicitly in a manner that indicated its solvency, in evidence served on 28 September 2020 in support of the application under s 459S of the Act, which contained its financial statements for 2019-2020. Mr Leong submits that, if Savoy had known of Myao's current liability position, "it is almost certain that the matter would have stopped". Mr Leong contends that Savoy then sent "walk away letters" dated 29 October 2020 and 3 November 2020 in which, it appears, Savoy sought to avoid being liable for the costs of the proceedings. Mr Leong submits that the Court would not make a costs order, especially on an indemnity basis, where Savoy has "sensibly agreed" to dismiss the winding up application in the light of that evidence.
5. Mr Lees refers to UCPR r 42.20(1) and rightly recognises that the effect of that rule is not a presumption, but the starting point as to costs where proceedings are dismissed unless there is a discretionary decision to order otherwise. Mr Lees points to the position in Australiawide Airlines above, where a winding up application had been brought on a failure to comply with a creditor's statutory demand; evidence of solvency had then been produced early in the proceedings (which did not occur here, although evidence as to the dispute as to the debt emerged promptly) and the Court of Appeal held that grounds to take costs out of the ordinary course indicated by UCPR r 42.20(1) had not been established. Mr Lees contends that it was unreasonable for Savoy to commence the winding up proceedings where Myao had put it on notice that there was a genuine dispute as to the existence or amount of the debt, because (Myao contended) it had not been trading at the time the debt was alleged to have been incurred. Mr Lees also refers to documents produced by Savoy in response to a notice to produce which, he contends, raised further questions as to the basis on which the debt was claimed, including email correspondence referring to a different company in respect of the debt.
6. It seems to me that, in commencing the winding up proceedings, Savoy took the risk that Myao would establish the basis for leave under s 459S of the Act (as it did); that it could likely also establish that the debt claimed by the Plaintiff was genuinely disputed, as it would likely have done on the evidence had the matter gone to a final hearing; and that it would have established its solvency, as Savoy now implicitly recognises that it would have done at a final hearing. In these circumstances, it seems to me that the outcome of these proceedings is a capitulation by Savoy.
7. I am not persuaded that there is a proper justification, sound positive ground, or a good reason, for departing from the ordinary position under UCPR r 42.20 in this respect. Savoy commenced the proceedings and took upon itself the risk of proving Myao's insolvency, where the evidence indicates that the debt on which it relied was genuinely disputed, and its capitulation indicates an acceptance that it cannot do so. It does not seem to me that it can shift that risk to Myao by a complaint that Myao's solicitors, which repeatedly invited a discontinuance of the proceedings, should have provided further documents to seek to persuade Savoy not to pursue that risk. This is not a case where the proceedings have been rendered unnecessary by circumstances beyond Savoy's control or where Savoy has achieved practical success in the proceedings, or where costs have been significantly increased by Myao's conduct, other than in respect of the hearing before Rees J which I have addressed above. Assuming, without deciding, that Savoy acted reasonably in commencing the proceedings, Myao equally acted reasonably in defending them, particularly given the dispute as to the debt on which Savoy relied. The case seems to me to be one where Savoy, after litigating for a considerable time, has effectively surrendered to Myao and I have noted above that, in that case, there will commonly be no basis for an exercise of the Court's discretion otherwise than by an award of costs by the successful party. It seems to be that that result does justice between the parties in the circumstances of the case.

Myao's claims for indemnity costs for alternate periods

1. Myao in turn seeks orders that Savoy pay its costs of the proceedings on the ordinary basis up to 14 August 2020, and on an indemnity basis thereafter; or alternatively that Savoy pay its costs of the proceedings on an ordinary basis up to noon on 2 November 2020, and on an indemnity basis thereafter; or alternatively that Savoy pay its costs of the proceedings on the ordinary basis. This submission fails so far as I have held that Myao should pay Savoy's costs of the separate issue determined by Rees J.
2. In respect of the balance of the proceedings, Myao's submission depends on several offers made by Myao under the principles in Calderbank v Calderbank [1975] 3 All ER 333. In Re Alsafe Security Products Pty Ltd atf the Alsafe Trust (in liq) [2016] NSWSC 575 at [8], I summarised those principles as follows: "[T]he fact that a party ultimately achieves a worse result than he or she would have achieved if he or she had accepted a Calderbank offer does not itself establish that the other party should be awarded indemnity costs, unless it can be said that it was unreasonable for the first party not to accept that offer, so as to warrant a departure from the general rule as to costs: Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [above] at [9]-[15]; Perisher Blue Pty Ltd v Nair-Smith (No 2) [2015] NSWCA 268 at [14], [16]. In Lawrence v Gunner; Gunner v Lawrence [2015] NSWSC 1229 at [26], Stevenson J observed that: "If a Calderbank offer is made, but not accepted, the court's discretion to make a special order is enlivened. The court's discretion is an open one, but is commonly enlivened if (a) the party that made the offer achieves a better result than the amount offered, (b) the offer was a genuine offer of compromise, and (c) it was unreasonable of the offeree not to accept: for example Miwa Pty Ltd v Siantan Properties Pte Ltd (No 2) [2011] NSWCA 344 at [7]-[8].""
3. Myao relies variously on a letter dated 2 May 2019 (to which no reference is made in Mr Lu's affidavit on which Savoy relied) from its solicitors inviting Savoy to discontinue the proceedings on the basis that there was a genuine dispute as to the existence of the debt, where Myao claimed that it was not trading at the relevant time, and where it claimed that the creditor's statutory demand was defective. Myao also relies on a letter dated 8 July 2020 from its solicitors proposing that Savoy withdraw the winding up proceedings and each party pay its own costs. It relies on a Calderbank offer made on 11 August 2020 proposing that the proceedings be dismissed with the parties to pay their own costs and on a further letter dated 2 September 2020 proposing that the proceedings be withdrawn and the parties pay their own costs, and on a further letter dated 30 October 2020, making another Calderbank offer that the proceedings be dismissed and that Savoy pay Myao's costs of the 459S application on the ordinary basis as agreed or as assessed. Myao also refers to several proposals put by Savoy which it is not necessary to address for present purposes.
4. I am not persuaded that the various offers made by Myao, on which it relies as Calderbank offers, support an order for indemnity costs against Savoy. While I accept that Savoy was on notice of the basis on which Myao defended the winding up proceedings, the factual basis of that defence was not self-evidently correct, and it could not be said that it was unreasonable for Savoy not to accept those offers, although it took the risk (which has come home) that a costs order would be made against it on the ordinary basis, if it ultimately failed or capitulated in the proceedings.

Orders

1. For these reasons, I make the following orders: 1. The Defendant pay the Plaintiff's costs of and incidental to the hearing before Rees J on 7 September 2020, as agreed or as assessed. 2. The Plaintiff otherwise pay the Defendant's costs of the proceedings, as agreed or as assessed.

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