[1997] HCA 6
Category: Costs
Parties: Dalski Pty Ltd (Plaintiff)
Zen Haus Group Pty Ltd (Defendant)
Representation: Counsel:
Source
Original judgment source is linked above.
Catchwords
Ex parte Lai Qin (1997) 186 CLR 622[1997] HCA 6
Category: Costs
Parties: Dalski Pty Ltd (Plaintiff)
Zen Haus Group Pty Ltd (Defendant)
Representation: Counsel:
This is an application for costs in respect of an application to set aside a creditor's statutory demand which was not determined on its merits.
By way of background, on 3 July 2024, the Defendant, Zen Haus Group Pty Ltd ("Zen Haus") issued a creditor's statutory demand ("Demand") to the Plaintiff, Dalski Pty Ltd ("Dalski"). On 12 July 2024, Dalski's solicitors wrote to Zen Haus requesting that the Demand be withdrawn and referring to a letter which set out the matters on which Dalski relied to contend that Zen Haus's product was not compliant with the National Construction Code ("Code") and to advance a claim of misleading and deceptive conduct against Zen Haus in that respect.
By Originating Process filed on 23 July 2024, Dalski filed its application to set aside the Demand. That application was supported by an affidavit of Mr Szkudlarek dated 23 July 2024, to the effect that Dalski and Zen Haus had agreed to work together to deliver a tender for the supply and construction of prefabricated homes to the disabled housing market, with Zen Haus as the supplier and Dalski as the builder under any head contract. Mr Szkudlarek there referred to the entry into individual supply agreements for modular housing at several sites and asserted that Zen Haus had made representations as to compliance with applicable building standards. Mr Szkudlarek also contended that he became aware during the design process in early 2024, that modular housing products supplied by Zen Haus did not comply with the Code or applicable residential building work legislation. Mr Szkudlarek referred to correspondence with Zen Haus concerning that question and referred to work done by Dalski to seek to address issues of non-compliance at a first construction site at Mackay. Mr Szkudlarek then referred to Dalski's termination of agreements with Zen Haus, other than for the project at Mackay. He also referred to the amount paid by Dalski to Zen Haus in respect of several proposed projects, although his affidavit is unclear as to any reconciliation between the total sum that he says was paid to Zen Haus and another amount which he claims was paid with "nothing in return". The latter amount exceeds the amount claimed in the Demand, referable to supply of materials by Zen Haus for the Mackay project. Mr Szkudlarek in turns refers to an offsetting claim against Zen Haus in a much larger amount, relating to certain costs allegedly incurred by Dalski.
On 24 October 2024, Dalski commenced proceedings against Zen Haus pleading the misleading and deceptive conduct on which Dalski relies to establish an offsetting claim in respect of the Demand. By letter sent by Zen Haus's solicitors on 31 October 2024, Zen Hause then withdrew the Demand.
On 18 November 2024, I made orders noting that Zen Haus had withdrawn the Demand and that the only remaining issue was as to costs and made orders for service of affidavits and submissions as to costs. I ultimately determined that the question as to costs should be determined on the papers, without the need for an oral hearing.
By an affidavit dated 6 December 2024, Mr Howard, the solicitor acting for Dalski in the proceedings, referred to earlier correspondence sent on behalf of Dalski to Zen Haus, to which I have referred above. Mr Howard noted that the application to set aside the Demand was filed when Dalski received no response to the request that the Demand be withdrawn. Mr Howard there refers to an exhibit to Mr Szkudlarek's affidavit, containing documents on which Dalski would have relied to support its misleading and deceptive conduct claim including earlier email correspondence between Dalski and Zen Haus as to compliance issues. Mr Howard also referred to subsequent correspondence between the parties' legal representatives and to the commencement of the substantive proceedings brought by Dalski against Zen Haus.
Zen Haus in turn relied on an affidavit dated 13 December 2024 of its director, Mr Lienemann, which referred to earlier correspondence as to non-compliance with the Code; asserted that he believed that Dalski's claims were baseless, and denied non-compliance with that Code. Mr Lienemann takes issue with other aspects of Mr Szkudlarek's affidavit, and refers to further correspondence, but it is not necessary to address those matters in detail where his evidence, at its highest, emphasises that there existed a genuine dispute as to the matters raised by Dalski by way of offsetting claim in response to the Demand.
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The parties' submissions and determination
By its initial submissions as to costs, Dalski referred to the correspondence sent on 12 July 2024 and the basis on which it contended that there was a genuine dispute as to the amount claimed in the Demand and that it had an offsetting claim, inter alia, for misleading and deceptive conduct and contended that Zen Haus unreasonably failed to withdraw the Demand, requiring Dalski to apply to set it aside. Dalski also referred to its subsequent commencement of proceedings in the Court, and to Zen Haus's then withdrawal of the Demand.
Dalski rightly referred to the observations of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 ("Lai Qin"), but emphasises his Honour's observation that, while the Court will not try a hypothetical action between the parties to determine costs:
"In some cases, however, the Court may be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action."
Dalski in turn contended that it was unreasonable for Zen Haus not to withdraw the Demand promptly, when invited to do so, when it ultimately withdrew the Demand more than three months later, after Dalski had had to commence the proceedings to set aside the Demand and incurred further costs in the proceedings. Dalski also submitted that the Court should make a lump sum costs order pursuant to s 98(4) of the Civil Procedure Act 2005 (NSW), although that it is not clear whether that application is pressed The making of such orders are an exception and not the rule and I do not consider that there is a sufficient basis to make such an order here, rather than to leave the parties to an assessment of costs in the ordinary course.
By submissions in response, Mr Fielder, who appears for Zen Haus, referred to Mr Lienemann's affidavit and submits that Dalski's application to set aside the Demand was resolved by a "compromise" without the need for a hearing. I do not accept that characterisation, where it seems to me that Zen Haus here capitulated to Dalski's application to set aside the Demand. Mr Fielder submitted that there should be no order as to costs, on the basis that that would be consistent with the position in Lai Qin. He also referred to the matters in dispute between the parties; the proof of issues in dispute does not assist Zen Haus, so far as it emphasises the existence of a genuine dispute as to the amount claimed in the Demand or the off-setting claim raised by Dalski.
Mr Fielding in turn acknowledged that in "rare cases" it may be appropriate to make an order for costs without a contested hearing on the merits, if the Court can be "almost certain" which party would have succeeded. He submitted that Zen Haus denied the allegations that its product was defective, and that the Court cannot have certainty as to which party would have succeeded. I do not accept that submission, because Dalski did not have to establish that Zen Haus's product was defective in order to succeed, but only that there was a genuine dispute as to the amount claimed in the Demand, or that it had a genuinely arguable offsetting claim that warranted a hearing on the merits. That evidence seems to me to be plainly sufficient to raise genuine disputes as to those matters.
By submissions in reply, Mr McIntosh, who then appeared for Dalski, characterised the present position as one of "surrender" by Zen Haus. He also emphasised, rightly, that all that was required for Dalski to succeed in an application to set aside the Demand was that it established either a genuine dispute as to the amount claimed or an offsetting claim that was not plainly without merit. Mr McIntosh also rightly referred to later authorities, including One.Tel v Deputy Commissioner of Taxation (2001) 101 FCR 548 at [6], where the Court had recognised that an order for costs could be made without a hearing on the merits, where one party, after litigating for some time, effectively surrendered to the other.
Neither party referred to the case law which has considered similar issues in respect of applications to set aside a creditor's statutory demand, to which I now refer. In Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; the applicant sought costs where a statutory demand was set aside by consent. Heerey J noted that:
"… creditors have to realise that if they invoke winding up provisions by issuing a statutory demand they run the risk that if a debtor establishes that the amount claimed is subject to a genuine dispute, the debtor will get an order for costs, as s 459N expressly contemplates." …
In Ayrton Investments Pty Ltd v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55 at [26], Higgins J observed that a person who issued such a demand faces "a risk as to costs, not an inevitability". His Honour there expressed the view that:
"… the focus is on the reasonableness of the decision to issue [the statutory demand]. Whether on the material known to the creditor before the notice issued, it should have been apparent that there was a dispute which, viewed objectively, was "genuine", that is, warranting further inquiry. If so, the creditor must expect to pay costs in any event once the notice is set aside. If it was reasonable to issue the notice, but thereafter it appears that there is a genuine dispute then, as soon as that appears, the creditor must withdraw or cease to oppose the setting aside of the notice. Otherwise, the creditor risks an adverse costs order." …
I took the same approach in circumstances where an application did not proceed to final hearing and the demand was set aside before the hearing in Re Kaloriziko Pty Ltd [2021] NSWSC 1276.
in Re Bell Potter Securities Ltd [2023] NSWSC 1528 at [7], I accepted Counsel's submission that:
"The relevant authorities that have considered how to exercise the Court's costs discretion in cases where a statutory demand is withdrawn prior to a final hearing have been reviewed by Black J in a number of recent decisions, including Re Ming Tian Real Property Ply Ltd [2021] NSWSC 386 (at [6]-[13]) and Re Aussie Strength Pty Ltd [2021] NSWSC 1594 at [4]-[11]. In substance, the applicable principles indicate that the relevant inquiry is to focus upon the reasonableness of the creditor's decision to issue the statutory demand, and to act promptly in respect of changes in circumstances, see: Ayrton Investments Ply Ltd v Andrlik (2000) 34 ACSR 643 at [26]."
Although there has here been no determination of the application to set aside the Demand on the merits, the Court can here readily be satisfied that Dalski would likely have succeeded in an application to set aside the Demand, and that Zen Haus' withdrawal of the Demand amounted to a capitulation rather than a compromise of the proceedings, and that Zen Haus had acted unreasonably in maintaining the Demand, rather than withdrawing it when invited to do so, until the point at which it ultimately abandoned reliance on the Demand.
For these reasons, I order that:
The Defendant, Zen Haus Group Pty Ltd, pay the costs of these proceedings, including the costs of the costs applications, as agreed or as assessed.
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Decision last updated: 25 February 2025