He concluded that:
"The plaintiff was therefore justified in making and pursuing the application for the winding up. The dismissal of that application came only after the defendant (or, in practical terms, the insurer) had paid the debt that was unquestionably owing, due and payable. The debt should have been paid, at the latest, when the statutory demand was served. Because of its nature, one would have expected payment at an earlier time. The plaintiff should never have been put to the trouble and expense of bringing the proceedings."
In the second case, Australia Wide Airlines v Aspirion Pty Ltd [2006] NSWCA 365, the Court of Appeal unanimously overturned the decision at first instance in which the defendant debtor had been ordered to pay the plaintif's creditor's costs. Justice Bryson, JA, with whom McColl JA concurred, pointed out that pt 42 r 20, to which at first instance, it appeared, no attention had been given, provides a starting point for the court in relation to orders where proceedings have been dismissed. The starting point is that the unsuccessful plaintiff is required to pay the costs of the defendant. Of course, pt 42 r 20 does make provision for the court to order otherwise and it is, therefore, necessary for the court to consider whether or not a discretion to make an order other than that contemplated by that rule should be exercised, and, if so, what alternative orders should be made.
Justice Bryson drew a distinction between the High Court rules and the rule with which the court is now concerned, noting that the passage often cited from Lai Qin was not readily applicable to a decision under Pt 42 r 20, and that that rule was "not entirely consistent with McHugh J's observation, that the proper exercise of the court's discretion will usually mean the court will make no order as to costs".
The Court of Appeal, having decided that the discretion had miscarried then proceeded to exercise the discretion itself: see [55] of Bryson J's decision. His Honour noted that the evidence on which the creditor had launched the proceedings was "no more than a formal conclusion based on the absence of an appropriate response to its statutory demand that there was evidence of insolvency". His Honour noted that there had been communications between the creditor's director and the defendant even after the statutory demand indicating that the creditor regarded its debt and the amount of its debt as in dispute and subject to continuing communications directed to resolution. It was said that those communications appeared to show that the creditor recognised the sincerity of the defendant's position. His Honour said:
" While it cannot be said that IAS had no basis for commencing winding up proceedings in insolvency, its basis for doing so was very slight. Non-compliance with the Statutory Demand provided only a shred of support for IAS's case, and there was nothing else to indicate that REX was unable to pay its debts. REX produced evidence of its solvency promptly and in overwhelming force early in the litigation and its appropriate victory was soon conceded.
His Honour did point out that REX had not applied properly to set aside the statutory demand and that was a matter which he took into account.
Mr Golledge submits that the plaintiff has only one basis for asserting that the normal rule should not apply; namely, that the basis for non-payment of the $57,000, although articulated by the director in his affidavit of 22 November, was not the subject of any cross-claim until this week. It is for this reason he said, the defendant conceded that an order different to the usual order under pt 42 r 20 was appropriate.
I should note that Mr Maatouk in his affidavit dealt with the question of the cross-claim in paragraph 18 and said the following:
" I am of the view that as a result of the matters relied upon by way of cross-claim in those proceedings that the plaintiff will eventually be shown to be a substantial debtor of the company. As well I believe that the company will become entitled to recover its costs of the balance of those proceedings from the plaintiff."
Mr Wells pointed out that there were a number of paragraphs of Mr Maatouk's affidavit to which objection would be taken if this was a hearing of the application to wind up. Those objections included, but went well beyond, the passage to which I have just referred. It was accepted that for purposes of deciding this costs issue I could have regard to the affidavits that were read in support of today's application on costs including the paragraph to which I have just referred.
In accordance with what has been said by the Court of Appeal in Aspirion, I proceed on the basis that: (1) the starting point for the court where the proceedings are dismissed, is an order that the plaintiff pay the defendant's costs; and (2) that the fact that the plaintiff was entitled to bring winding up proceedings is, of itself, insufficient.
I must consider whether to exercise my discretion to make a different order from that contemplated by the rules and, if so, to determine what is appropriate, but Mr Golledge concedes, correctly in my view, that it is appropriate to make an order other than that which is contemplated by r 20 and the question is what order is appropriate.
I have regard to Mr Maatouk's explanation as to why the statutory demand was not paid, but I do not think it is an answer to the statutory demand or really explains or provides an appropriate explanation of the non-payment of the debt. I take the following matters into account in relation to the exercise of discretion:
(1) The statutory demand was reduced by the entire amount of the claims asserted by the defendant after the defendant had taken proceedings to vary the amount.
(2) The amounts in question were not merely the subject of a statutory demand, they were a total of costs orders made against the defendant in proceedings in this Court and entered in this Court following assessment and certification.
(3) The defendant did not obtain a stay of payment of the costs order on the basis of the existence of future proceedings or the continuation of the proceedings, actual or contemplated.
(4) The explanation of the non-payment of the debt was based on a claim for costs which had not been formulated at that time and certainly not filed. Further, in that regard the cross-claim was only filed, I am told, this week.
In my view, the plaintiff was entitled to regard the evidence of solvency which was originally presented with some caution.
Mr Wells makes the point that no expert evidence in appropriate form was received in relation to the valuation of the property. There was evidence from an accountant to which some paragraphs were objected or would have been objected if at a final hearing but the view that I take it is that there was sufficient material in what was served on or about 22 November to establish that the defendant owned property of value, a matter known to the plaintiff because it had leased premises from the defendant, that although the valuation or the material in support or annexed to Mr Maatouk's affidavit was not in the form of an expert opinion it, nevertheless, pointed to a valuation and it would have been a relatively easy matter for the plaintiff to either form an assessment itself of what the value of the property was or to obtain some information in respect of it to gain an appreciation of whether or not the appraisal provided was within a reasonable realm or not and there was material supplied by Mr Maatouk which showed the state of encumbrances on the property.
In my view, the appropriate order is that the defendant pay the plaintiff's costs up to a reasonable time after the service of 22 November to allow it to make some reasonable enquiries of the sort to which I have referred and to form an assessment of whether or not the fact of the ownership of the property and lack of encumbrance and the evidence of a conditional approval of the loan indicated the loan was likely to be forthcoming. This is not to say that that material would have been sufficient for a final hearing, but I agree with Mr Golledge, that the task with which I am concerned now is not to, as it were, hear the matter but rather to make an assessment of what is an appropriate costs order given the circumstances.
I would regard the plaintiff as being able to make an informed assessment as to the solvency of the defendant and the likelihood of success in obtaining a winding up order which was dependent upon the defendant being unable to prove solvency, by the end of a period of two weeks following receipt of the affidavit of 22 November.
I order that the defendant pay the plaintiff's costs up to and including 7 December but after that date there will be no order as to costs.
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