Bull v Lee [2021] NSWSC 1176 | Case summary

Bull v Lee [2021] NSWSC 1176 | Case summary | Zoe

Background, affidavit evidence and the parties' submissions

By Originating Process filed on 30 June 2021 the Applicant, Shinetec (Australia) Pty Ltd ("Shinetec") sought an order under ss 459H or 459J of the Corporations Act 2001 (Cth) setting aside a creditor's statutory demand dated 2 April 2021 ("Demand") or alternatively orders that the First and Second Respondents, Rockpower Pty Ltd ("RPL") and The Gosford Pty Ltd ("TGPL"), be permanently restrained from making an application to wind up Shinetec in insolvency for failure to comply with that Demand. The application was supported by an affidavit dated 30 June 2021 of Mr Hedges, the solicitor for Shinetec.
When the matter was listed in the Corporations List on 6 September 2021, it became apparent that a winding application brought on the basis of the Demand had already been dismissed in earlier proceedings in the Federal Court of Australia ("Federal Court Proceedings"), in which there was a dispute as to whether the Demand had been served. Shinetec had brought this further application to set aside the Demand upon an apprehension that the attachment of that Demand to an affidavit filed in the Federal Court Proceedings may have constituted service of the Demand; RPL and TGPL then confirmed that they did not contend for that novel proposition and did not further rely on the Demand to support a presumption of insolvency in respect of Shinetec and the proceedings were dismissed on the basis that they were unnecessary. I reserved an opportunity to make submissions as to costs to the parties, although one might have thought that the opportunity to do so was not a particularly prospective one.
Shinetec now seeks not only an order for costs against RPL and TGPL, but an order for costs on an indemnity basis. Shinetec relies on the affidavit dated 30 June 2021 of its solicitor, Mr Hedges and a substantial exhibit to that affidavit, which referred to the earlier service of the Demand on 10 June 2021 upon Mr Hedges as the solicitor acting for Shinetec in the Federal Court Proceedings, although it did not indicate how that had occurred, and several bases on which Shinetec contended the Demand should be set aside. A further affidavit dated 3 September 2021 annexed correspondence between the parties and a transcript of a hearing on 16 June 2021 before a registrar in the Federal Court Proceedings, when judgment was entered for Shinetec in those proceedings. RPL and TGPL relied on an affidavit dated 3 September 2021 of their solicitor, Mr Beazley.
Mr Galvin, who appears for Shinetec, supports its claim for indemnity costs on that basis that it previously requested RPL and TGPL to confirm that they did not rely upon the Demand and that it would be withdrawn prior to the commencement of these proceedings, and RPL and TGPL refused to do so. In that respect, Shinetec relies on a letter dated 3 September 2021 which was an annexure to Mr Hedges' affidavit dated 3 September 2021. Mr Galvin also takes issue with Mr Beazley's affidavit dated 3 September 2021 in respect of the straightforward factual question whether an Originating Process filed in the Federal Court Proceedings also annexed the Demand, which one would have thought was not capable of being genuinely in dispute. Mr Galvin also addresses apparently disputed questions as to the conduct of the Federal Court Proceedings, which cannot be determined in this Court in an application on the papers. Mr Galvin indicates Shinetec's concern that, where the Demand was (at least) brought to its attention by an affidavit filed in the Federal Court Proceedings, the Demand would need to be set aside unless it was withdrawn. He refers to subsequent correspondence with the solicitors for RPL and TGPL which did not communicate that the Demand (I interpolate, to the extent that it had been led in evidence in the Federal Court Proceedings) was withdrawn. Mr Galvin submits that RPL and TGPL have acted unreasonably and could have confirmed that the Demand was withdrawn and seeks indemnity costs on that basis.
In submissions for RPL and TGPL, Mr Beazley, solicitor, contests any suggestion that the service of affidavit evidence in the Federal Court Proceedings could have amounted to further service of the Demand. He refers to the affidavit of service which, he contends, was directed to establishing in the Federal Court Proceedings that the Demand was served by RPL on Shinetec on 2 April 2021 in respect of a debt owed to TGPL. He submits that service of an affidavit of service in existing proceedings could not be service of the Demand and that the Federal Court of Australia had previously given judgment in favour of Shinetec on a winding up application based on an alleged failure to comply with the Demand served on 2 April 2021. He points out that the proceedings were commenced 30 June 2021, well outside the 21-day period if the Demand was served in April 2021, although that that would not be the case if there was a real issue whether the Demand had again been served in the course of the Federal Court Proceedings on 10 June 2021.
Mr Galvin then made reply submissions, which were made without leave and canvass matters which may well not properly be submissions in reply. Those submissions should properly be disregarded, where they were made without leave: Carr v Finance Corp of Australia Ltd (No 1) (1981) 147 CLR 246 at 257-258; [1981] HCA 20; Notaras v Waverley Council [2007] NSWCA 333 at [147] per Tobias JA, with whom Mason P and Hodgson JA agreed; Bull v Lee (No 2) [2009] NSWCA 362 at [8]. Even if I had regard to them, they would not alter the resolution of the matters in dispute.

[3]

Applicable principles and determination

The principle that costs follow the event under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) has no application here, because there has been no determination of these proceedings on their merits. In Re The Minister for Immigration and Ethic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, McHugh J in turn observed that, where proceedings are determined without a hearing on the merits, the Court can generally not make an order for costs, where that would require the determination of a hypothetical proceeding, in order to determine the question of costs. That principle may be displaced if the result reflects a capitulation by one party so that the Court can be satisfied one party won and the other party lost. Several cases have considered the position as to whether costs should be ordered against a party which issues a creditor's statutory demand which is then withdrawn or set aside by consent, and I have summarised the case law in Re Pierotti & Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust; Re Etruscan Properties Ltd [2018] NSWSC 457 at 20[ff], and again in Re Telegraph Point Sports and Recreation Club Ltd [2020] NSWSC 616 and Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386. However, these principles have limited application here, where the dispute is primarily whether the evidence led in the Federal Court Proceedings could have reasonably been understood as further service of the Demand that was the subject of those proceedings, so as to require such an application in the first place.
Section 98(1)(c) of the Civil Procedure Act 2005 (NSW) in turn permits the Court to order costs on an ordinary or an indemnity basis. Rule 42.2 of the Uniform Civil Procedure Rules provides that, unless the Court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 deals with an order for costs on an indemnity basis. Costs are awarded on an ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant fully for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20]. Whether an indemnity costs order should be made depends, at least in part, on whether there was a relevant delinquency on the part of the unsuccessful party: Oshlack v Richmond River Council (1998) 193 CLR 72 at 89; [1998] HCA 11; Westpac Banking Corporation v Ollis [2007] NSWSC 1008 at [6]. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199, McDougall J observed (at [24]) that there must usually be some special or unusual feature to justify departure from the ordinary rule as to costs, and that delinquency is not necessary for an order for indemnity costs, but is relevant to whether it should be made. The relevant principles were also considered by the Court of Appeal in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6], where the Court observed that an order for indemnity costs may be made where a party's conduct in proceedings is plainly unreasonable or involves an element of delinquency.
I am satisfied that the Court should not here make an order for costs or for indemnity costs. Shinetec draws attention to no authority which identifies any risk that the leading of evidence of service of a creditor's statutory demand in the Federal Court Proceedings, which was alleged to have occurred at an earlier time, could have itself amounted to a separate act of service of the Demand, and there is an open question whether Shinetec had any reasonable basis to be concerned that that evidence could require a further application to set aside the Demand. That question in turn involves disputed facts and should not be determined on the papers in an application for costs. It is also apparent that RPL and TGPL could readily have advised Shinetec that its concerns were unwarranted and did not do so. No party has been successful in the proceedings and both have arguably behaved unreasonably in the proceedings. There should be no order as to the costs of the proceedings.

Bull v Lee

At a glance

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Legislation Cited (3)

Cases Cited (17)