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Judgment - ex tempore

1. By Originating Process filed on 6 June 2016 the Plaintiff, Wickham Hill Holding Pty Limited ("Wickham") applied to wind up the Defendant, Cheviot Wine Group Pty Limited ("Cheviot") under s 459P of the Corporations Act 2001 (Cth), relying on a failure by Cheviot to comply with a creditor's statutory demand ("Demand"). All that remains before me is an application for costs made by Wickham, in circumstances that it is not proceeding with the application, although a substituted creditor, the Deputy Commissioner of Taxation, now continues the winding up application.
2. Wickham submits that it has not discontinued the proceedings, for the purposes of Uniform Civil Procedure Rules 2005 (NSW) r 42.19, although it accepts that it is not proceeding with them. I will assume, without deciding, that what has occurred is not a discontinuance, although it seems to me to be something that is substantively very close to a discontinuance, at least in circumstances where Wickham has no continued interest in the proceedings.
3. The chronology of events, and the circumstances in which the Demand was served, is complicated to say the least. Wickham has read several formal affidavits in respect of the application today, which would have been read on the winding up application, and has also relied on substantive affidavits of its director, Mr Xu, dated 7 July and 13 October 2016. Cheviot has in turn relied on the affidavit of its director Mr Fabrizio dated 2 November 2016. I will refer to at least some of the relevant chronology, to indicate some of the complexities which arise in the application.
4. By a deed dated 24 December 2015 ("December deed") between Wickham and Cheviot, to which Mr Xu refers, although the copy that is in evidence is signed only by Cheviot, the parties recited the existence of debts owed as between several parties, including not only Wickham and Cheviot, but also third parties, Wyadra Wines Pty Ltd ("Wyadra"), Coolabah Wine Pty Ltd and Warburn Estate Pty Ltd ("Warburn"). The parties refer to arrangements, described as assumptions and assignment of debts, by which one or more of them would assume liability for the debts owed by others or set off debts owed by others against debts owed by them, with the outcome being, as set out in cl 4.1, that Cheviot would pay the "Residual Debt" (as defined) to Wickham in three instalments of $72,693.74 each payable at the end of January 2016, February 2016 and March 2016.
5. The Demand, on which Wickham ultimately relied to support the winding up application, was dated 22 April 2016 and it stated that Cheviot then - that is, at 22 April 2016 - owed Wickham the amount of $73,136.63, which was specified as the amount of $218,081.22 less three instalments (which appear to correspond to approximately the first two amounts specified in the December deed), there being a balance of $73,136.63 outstanding. Mr Xu in turn deposed, in his affidavit accompanying the Demand, that the amount then owed by Cheviot was $73,136.63.
6. The Originating Process was in turn filed, on 6 June 2016, after Cheviot's application to set aside the Demand had failed on the basis that the Court did not have jurisdiction to entertain it, presumably because it was filed outside time. Mr Xu's affidavit in support of the Originating Process, dated 6 June 2016, in turn stated that the sum demanded - that is, the amount of $73,136.63 to which I previously referred - was then due and payable by Cheviot to Wickham. It is important to note, at that point, that no larger amount was alleged to be owing at that point.
7. By a without prejudice letter dated 15 June 2016 from the solicitors for Cheviot to the solicitors for Wickham, Cheviot proposed payments of approximately $48,000 would be made, on the basis that an amount of $25,000 had already been paid to Wickham, which would have, on its face, had the result that the amount specified in the Demand would be paid. By a letter dated 15 June 2016, the solicitors for Wickham advised the solicitors for Cheviot that, in addition to the amount of $48,136.63, which was the balance remaining of the amount that had previously been referred to in the creditor's statutory demand, a further amount of $350,293.94 remained payable by Cheviot. That letter appeared to suggest that that amount remained payable because the release of an amount which was to be assumed by Wyadra under the December deed was conditional upon Wyadra making payment to Warburn within one month, and would not take effect if that had not occurred. It should be noted that, at least in principle, any failure of that condition would have taken place by January 2016 and would have existed throughout the period in which the Demand had stated a much lower amount as due and payable by Cheviot.
8. By letter dated 21 June 2016, the solicitors for Wickham reconfirmed the claim that a larger amount was due, and by letter dated 27 June 2016, the solicitors for Cheviot confirmed its position that the balance of the amount claimed under the Demand had been satisfied. On 30 June 2016, a further development occurred, so far as Warburn issued an adjustment note to Wickham, which was said to credit the amount of $301,462.89, and is now said by Wickham to have reduced the larger amount it claims to have been owed to $48,539.75.
9. On 4 July 2016, Cheviot filed its grounds of opposition to the winding up, which asserted that it was solvent and able to meet its debts; that the debt claimed to arise under the Demand had been satisfied; that Wickham was not a creditor of Cheviot, which would appear to be a consequence of the discharge of debts owed to it, if that had occurred; and, to the extent that Wickham claimed to be a creditor, that claim amounted to an abuse of process. None of those matters have, of course, been determined as a matter of substance in this application.
10. There are further factual disputes between the parties, as to the consequences of the relevant transactions, which are addressed in part in Mr Xu's affidavit of 13 October 2016 and Mr Fabrizio's affidavit dated 2 November 2016, which in turn refers to the affidavit evidence of Mr Xu filed at earlier stages of the application identifying the balance of the debt claimed by Wickham as $73,136.63. Lastly, on 25 October 2016, Cheviot transferred a further amount of $48,539.75 to Wickham, which appears to have the consequence that the larger amount claimed by Wickham, and not only the smaller amount initially claimed in the Demand, was satisfied.
11. With this background, Wickham claims the costs of the winding up application, notwithstanding that the winding up application which it has brought will not now be determined. It seems to me that that claim cannot succeed, for several reasons. The first is that, as is well established, where the court has not heard an application on its merits, it will not ordinarily determine the substance of that application in order to deal with a question of costs. That principle has been recognised at least since the decision of McHugh J in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625. There are exceptions to that proposition, but they do not extend to a hypothetical trial of a hypothetical action between the parties, and they will ordinarily only arise where one party has acted unreasonably or where the court can be confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully determined.
12. It seems to me that the Court cannot be confident that Wickham would have certainly succeeded, or even that Wickham would have succeeded on the balance of probabilities, as matters now stand. The Demand was founded on a smaller debt, at a time events are said to have occurred that gave rise to a larger debt. The question whether Wickham is in fact a creditor of Cheviot would turn on whether the larger debt, rather than the smaller debt, was owed, and that would depend upon the complex factual narrative set out above and require substantive findings in the absence of a substantive hearing as to those matters. The question whether Cheviot is in fact solvent has also not been determined, so far as there has been no substantive hearing as to that matter, and there will not be such a hearing unless and until the winding up application brought by the Deputy Commissioner of Taxation as a substituted creditor is determined.
13. Mr Gruzman, who appears for Wickham, responds to these matters by submitting that Wickham can establish its standing as a creditor, because it is, using the language of Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 397; (2005) 54 ACSR 228 at [11], a person who has "re-captured the status of creditor by the time the winding up application is heard". There seem to me to be several difficulties with that proposition. The first is that there can be here no question of recapturing any such status since, if Wickham had that status, it had that status since at least January 2016, including throughout the period in which it claimed to be owed a debt in a lower amount. The second difficulty is that, by the time the winding up application was to be heard, the debt owed to Wickham, even on the larger amount, had been discharged. It is possible that, as a matter of discretion, a court may proceed to a winding up application, even where a debt has been discharged, but it has not been established here, and cannot be established absent a substantive hearing, that the court would exercise its discretion in that manner at a substantive hearing.
14. Mr Gruzman also refers to several decisions in which the courts have ordered costs, where it was held that a party should not have been put to the trouble and expense of bringing winding up proceedings, and is in substance the successful party: for example, Lavercombe v Auscott Ltd [2006] 58 NSWSC 867; (2006) 58 ACSR 586 at [48]; Deputy Commissioner of Taxation v Rhodium Australia Pty Ltd [2011] FCA 988. It seems to me that those cases are plainly correct, in their particular context, but the factual matters to which I have referred above indicate that this is not a case of such simplicity. In particular, to the extent that the winding up application relied on the debt which was the subject of the Demand, that debt had been discharged at about the time the winding up application commenced. To the extent that it relied on the larger debt, that debt had not been identified in the winding up application, and the fact that it existed, if it existed, was inconsistent with the evidence led by Mr Xu in support of the winding up application.
15. It seems to me there is a further reason to take that approach. It has long been established that, where an original petitioning creditor drops out in a winding up application, and a substituted petitioning creditor comes in, because the original petitioning creditor has been paid out, and a winding up order is subsequently made on the application of the substituted petitioning creditor, the original creditor will ordinarily not have a right to receive its costs of the application, and that the original petitioning creditor is in effect put to a choice whether to accept or refuse the payment, in circumstances that accepting that payment leads to a loss of its rights to costs. This principle was noted in Re Bostels Ltd [1968] Ch 346 and approved in Re Castle Coulson & MacDonald Ltd [1973] Ch 382 at 385, with the qualification that Templeman J there held that a petitioning creditor should have its costs of advertising the original petition and the fee on presentation of the petition, because they were inevitably incurred in the winding up of the company. Those costs are limited, as I understand it, to disbursements which would have been incurred, by the substituted creditor, which will now not have to be incurred by that substituted creditor because they have been incurred by the creditor that first brought the winding up application.
16. The principle in Re Bostels Ltd above does not appear to have been cited in subsequent Australian case law, but it is recognised in Mr Assaf's well-known text, Statutory Demands and Winding up in Insolvency, (2nd ed 2012, LexisNexis Butterworths) at [9.75] where the author notes: "Where an order is made substituting an applicant to a winding-up application, the original applicant may be entitled to its costs insofar as the activities of the original applicant have been conducive to obtaining the winding-up order. These costs will normally comprise the filing fee for the application and the cost of advertising the application." Mr Assaf also notes that, in practice, such orders are rarely made, because the original creditor would usually have come to an arrangement with the debtor when it is paid out, although that did not occur here.
17. I am therefore satisfied that the order for costs sought by the Plaintiff should not be made. Mr Allen, who appears for Cheviot, indicates that Cheviot is content with an order that there be no order as to the costs of the winding up application, which is consistent with the somewhat ambiguous position as to whether Wickham has, as a formal matter, discontinued that application. I will reserve, to the final winding up hearing, the question whether Wickham seeks to have its costs of filing the Originating Process and advertising the winding up application, if it did so, consistent with the authorities to which I have referred. Such an order could only be made, however, if the Deputy Commissioner of Taxation is ultimately successful in the winding up application, because such costs would not be ordered in favour of any party if, for example, Cheviot is ultimately successful in establishing its solvency at that application. It seems to me to follow, subject to hearing briefly from Counsel, that Wickham must pay the costs of today, because Cheviot has been substantially successful in avoiding the costs order that was sought against it.
18. For completeness, I note that Mr Allen also sought to rely upon the amount of costs claimed by Wickham, which it was suggested were substantial, as a basis for resisting the application. I have had no regard to that matter, both because there is no evidence about the amount of the costs ultimately claimed and because, in any event, that issue would be addressed by an order that the costs payable, if they have been properly payable, be costs as agreed or as assessed.