David Grant & Co Pty Ltd v Westpac Banking Corporation

Judgment - EX TEMPE 1By Originating Process filed on 15 March 2012, Nahas Construction Pty Limited ("Nahas Construction") sought orders under ss 459E, 459F, 459P, 459Q and 1324 of the Corporations Act 2001 (Cth), inter alia, declaring that Nu-Glass and Glazing Pty Limited (in liq) ("Nu-Glass") was not a creditor of Nahas Construction and restraining Nu-Glass and its liquidator, Mr Michael Smith, from commencing any proceedings seeking an order that Nahas Construction be wound up based on a statutory demand dated 25 January 2012 ("Demand") issued by Nu-Glass to Nahas Construction. 2When the matter was listed for hearing before me today, Nahas Construction indicated that it consented to the dismissal of the Originating Process, and Nu-Glass and Mr Smith did not oppose that course. I will make that order shortly. The question of the costs of the proceedings was in dispute before me. 3Nahas Construction contended that, notwithstanding that the Originating Process which it had filed was now being dismissed, Nu-Glass and Mr Smith should pay its costs of the proceedings on an indemnity basis or alternatively, its costs on a party-party basis to 4 April 2012 and thereafter on an indemnity basis. Nu-Glass and Mr Smith contended that the costs should follow the event and that Nahas Construction should pay their costs of the proceedings. 4By way of background, it appears that Nahas Construction was incorporated on 20 April 2011 as Nahas Trading Co Pty Limited and changed its name to Nahas Construction on 21 June 2011. 5Another entity, previously known as Nahas Construction Pty Limited, was party to two contracts with Nu-Glass and changed its name to Nahas Construction (NSW) Pty Limited ("Nahas NSW") on 21 June 2011. The two contracts disclosed an Australian business number which apparently related to the former Nahas Construction, now Nahas NSW, in its capacity as trustee for the Nahas Family Trust, but did not show the Australian company number of that entity. There was a dispute before me, which the evidence did not resolve, as to whether it was possible to determine which company was party to the contracts by reference to that Australian business number. In any event, the exchange of names between the two entities was likely to create confusion and has certainly done so. 6Nu-Glass issued a statutory demand to Nahas Construction in respect of debts which it contended were owing under the two contracts which came to the attention of Nahas Construction on 27 January 2012. I interpolate that it appears that Nahas Construction was not party to those contracts, because the entity which was party to those contracts is the entity now known as Nahas NSW. Nahas Construction did not move to set aside the demand within the twenty-one day period specified for such an application under s 459G of the Corporations Act. Had it done so, it would likely have succeeded on the basis that the relevant debt was owed by the entity previously known as Nahas Construction and now known as Nahas NSW rather than the entity now known as Nahas Construction. 7A party which has not applied to set aside a statutory demand within the time period specified in s 459G of the Corporations Act may still apply to restrain a winding-up application based upon that statutory demand, if that winding up application would amount to an abuse of process and generally subject to demonstrating solvency: David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265 at 279; RH Mortgage Corporation Ltd v Kerry Ann Properties Pty Ltd [2011] NSWSC 298. The Originating Process filed by Nahas Construction initially invoked that jurisdiction. Nahas Construction ultimately did not press that application and has consented to the dismissal of the Originating Process because the presumption of insolvency arising from a statutory demand is only available for three months after a company fails to comply with the demand under s 459C of the Corporations Act. That three month period has now expired in respect of the Demand. 8Turning now to the question of costs, s 98(1) of the Civil Procedure Act 2005 (NSW) relevantly provides that: "Subject to rules of court and to this or any other Act: (a) costs are in the discretion of the court, and (b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and (c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis." 9Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. However, that rule does not apply where there has been no adjudication on the merits: Lake Burrendong State Park Trust v Thompson [2011] NSWSC 1554. 10In an appropriate case, the Court will make an order for costs even where there has been no hearing on the merits, although it is less likely to do so where this would involve a trial of a hypothetical action between the parties. In particular, costs may be awarded where a judge is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-625. 11In the present case there is no presumption that costs should be ordered in favour of Nahas Construction particularly where the Originating Process is to be dismissed, albeit without a hearing on the merits. I do not consider that it is inevitable that Nahas Construction would have succeeded had the Originating Process been pursued. In particular, the only evidence of solvency of Nahas Construction put before me was its accounts as at 30 June 2011, now nearly twelve months out of date, and that may well not have been sufficient to establish its present solvency. The circumstances in which the change of name to which I referred above occurred, and the fact that Nahas Construction appears to have failed to include its Australian company number on contractual documents, and the fact that that conduct has generated much of the confusion which followed, would also have raised discretionary considerations in respect of the grant of relief. It is now not necessary for me to determine those issues, which could not be determined without evidence and submissions of the parties as to those issues. 12Nahas Construction contends, but has not in my view established, that Nu-Glass and its liquidator acted unreasonably so as to warrant and order for costs against them. Nahas Construction contends that Nu-Glass and its liquidator were on notice from 9 March 2012 that it was not the relevant debtor. It is true that Nahas Construction, by its solicitors, had advised Mr Smith of that contention on 9 March 2012, the date on which he was first appointed as liquidator of Nu-Glass by the Federal Court of Australia. However, I do not consider that he was obliged to accept that contention without further investigation, given the circumstances in which the relevant entities had changed their names. It is not surprising that that investigation would take some time where he was newly appointed as liquidator of the relevant company. 13On 13 March 2012, a member of Mr Smith's staff advised Nahas Construction's solicitors, sensibly enough, that Mr Smith was conducting his investigations into Nu-Glass' affairs and was not then in a position to confirm or deny the contentions which were advanced by Nahas Construction. 14Proceedings were commenced on 15 March 2012. On 4 April 2012, the solicitors for Nahas Construction requested an undertaking that proceedings to wind up Nahas Construction not be commenced and Nahas Construction contends that the proceedings would not have needed to continue had such an undertaking been given. Mr Smith's solicitor responded, on that date, pointing out that Mr Smith had not in fact foreshadowed the commencement of winding up proceedings against Nahas Construction. Regrettably, Nahas Construction did not then seek, and Mr Smith did not then offer, any lesser undertaking, for example not to bring a winding up application without some period of notice. At this point, there was no evidence of the solvency of Nahas Construction in the proceedings, and an affidavit addressing that issue (albeit by the dated accounts to which I referred above) was first filed on 19 April 2012. By letter dated 26 April 2012, Nu-Glass identified an unclean hands defence, by reference to the fact that Nahas Construction had not included its Australian company number on the relevant contracts and the circumstances surrounding the change of names, which I have noted above may have been a significant issue had the proceedings proceeded to judgment. 15Nahas Construction sensibly offered to discontinue the proceedings with no order as to costs on 11 May 2012. Nu-Glass and Mr Smith sought a proportion of their costs. No agreement as to costs was thereafter reached. 16Conversely, Nu-Glass and Mr Smith contend that they should be entitled to costs on the basis that costs follow the event and there has been no unreasonable conduct on their part. I do not consider that the dismissal of the proceedings can properly be characterised as a substantive success by Nu-Glass and Mr Smith, where the proceedings were in any event moot because the presumption of insolvency arising from the Demand has expired, and there has been no decision on the merits in the proceedings. Nahas Construction at least had a strongly arguable case for an injunction, on the basis that it would be an abuse of process to wind up an entity that did not enter the contract which gave rise to the relevant debts. I accept, for the reasons that I have noted above, that the conduct of Nu-Glass and Mr Smith in respect of the proceedings was not unreasonable, but this is a reason not to order costs against them rather than a reason to order costs in their favour. 17In these circumstances, I am not satisfied that an order for costs should be made in favour of Nahas Construction, still less an order for costs on an indemnity basis. I am also not satisfied that an order for costs should be made in favour of Nu-Glass, since Nahas Construction may have succeeded at a final hearing. There is no occasion for an order for costs either for or against Mr Smith, who had filed a submitting appearance in the proceedings. I consider that the proper order in the circumstances is that there be no order as to the costs of the proceedings including the costs of the hearing before me today. 18I therefore order that: