By Originating Process filed on 31 October 2023, the Plaintiff, Keybridge Capital Ltd ("Keybridge") sought orders setting aside a creditor's statutory demand ("Demand") dated 10 October 2023 served on it by Bell Potter Securities Ltd ("BPSL"), together with an order for costs. The Demand claimed the amount of $497,565.35, referable to a judgment of this Court entered on 6 October 2023 in respect of a costs assessment in favour of BPSL. On 10 November 2023, I made orders by consent setting aside the Demand, and providing for submissions as to costs, with the question of costs to be determined in Chambers. In advising of that consent position, the solicitors for Keybridge recorded BPSL's position that:
"the debt the subject of the proceeding has, since its commencement, ceased to be enforceable, but [BPSL] has nevertheless consented to order 1 in the attached orders to make it clear that the statutory demand has no continuing effect".
In its submissions as to costs, Keybridge also seeks to rely on an affidavit dated 31 October 2023 of its director, Mr Bolton, filed in support of the application to set aside the Demand and an exhibit to that affidavit. That exhibit was neither provided to the Court nor tendered and I have not requested a copy of it since it could not affect the conclusions that I reach below. Keybridge also relies on the affidavit dated 16 November 2023 of its solicitor, Mr Lim. Keybridge does not seek to explain why either affidavit advances its claim for the costs of the application to set aside the Demand.
Keybridge submits that an order should be made that BPSL pay its costs of the application to set aside the Demand in a lump sum between $18,700 and $20,800 or such other amount determined by the Court or, alternatively, as agreed or assessed. Keybridge draws attention to the applicable principles and submits that:
"Rule 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) [("UCPR")] provides that costs should generally follow the event and, in circumstances where, the Demand was set aside (notwithstanding it was by consent) there is no good reason for why Keybridge is not entitled to its costs of the proceedings.
It is well established that the successful party should, generally speaking, have the benefit of an order for costs in his or her favour. This is especially so in this case, where [BPSL] served the [Demand], Keybridge was forced to commence proceedings to set it aside to avoid a presumption of solvency arising, and [BPSL] later consented to set aside the [Demand].
Keybridge should be awarded its costs where [BPSL] had issued a creditor's statutory demand which is then withdrawn or set aside by consent.
In Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; [1993] FCA 455, 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." …
His Honour Justice Black adopted the above in similar circumstances where the application did not proceed to final hearing and the demand was set aside before the hearing (see In the matter of Kaloriziko Pty Ltd [2021] NSWSC 1276).
By his submissions dated 20 November 2023, Mr Langshaw, who appears for BPSL on the application, submits there should be no order as to the costs of the application to set aside the Demand. He points out that the debt which was the subject of the Demand arose from a costs order made in BPSL's favour in unsuccessful proceedings brought by Keybridge against BPSL (Keybridge Capital Ltd v Bell Potter Securities Ltd [2022] NSWSC 1022) and that the Demand relied on a costs assessor's determination which had been registered as a judgment of the Court. Mr Langshaw refers to correspondence from Keybridge to BPSL which noted its intention to seek a review of the cost assessor's determination, but points out that Keybridge had not done so by the time that the Demand was served, or by the time that Keybridge brought its application to set aside the Demand, which relied on a "draft" application for a review which was not filed until 3 November 2022. BPSL accepts that the filing of the application for review had the effect of suspending the operation of the costs assessor's determination underlying the judgment debt under s 86 of the Legal Profession Uniform Law Application Act 2014 (NSW) and notes that, after the application for review was filed, BPSL indicated that it would unconditionally withdraw the Demand and consented to orders that it be set aside.
Mr Langshaw submits, and I accept, that there has here been no determination of the proceedings on the merits so as to give rise to an "event" within the meaning of UCPR r 42.1. He submits, and I accept 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]."
Mr Langshaw submits that the judgment debt on which the Demand relied was enforceable when the Demand was issued, and was enforceable when Keybridge commenced the application to set aside the Demand, and points to the fact that a mere intention to seek a review of a determination, which has not been commenced, does not give rise to a genuine dispute as to the debt arising from it: Re Land Envirocorp Pty Ltd [2013] NSWSC 731 at [7]. Mr Langshaw submits, and I also accept, that BPSL acted reasonably in promptly withdrawing the Demand as soon as Keybridge commenced the review application, as distinct from merely indicating a future intention to do so. It seems to me that there has been nothing by way of unreasonable conduct in respect of BPSL in this application, where the Demand was properly served and properly withdrawn after Keybridge commenced its review application,
I do not accept that Keybridge has established a basis for costs here. In submissions, Keybridge did not refer to other relevant case law, including my decision in Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616, where I made no order as to the costs of an application to set aside a creditor's statutory demand where I found (at [13]) that:
"It seems to me that, in this case, the Court is not in a position to assess the likely outcome of the application to set aside the [d]emand, had it proceeded to a hearing, or the cogency of evidence that was to be relied on in the application to set aside the [d]emand but has not been read or tendered in the application for costs. I am not able to find whether the debt was genuinely disputed, or whether there was an offsetting claim or some other reason to set aside the [d]emand, and this is not one of the rare cases where I can be satisfied that one party was almost certain to have succeeded if the matter had been fully tried. It is also not possible to determine whether either party acted unreasonably so as to warrant an order for costs against it."
I took the same approach in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386 where genuine issues had been raised but were not determined when the demand was not pressed and in Re Aussie Strength Pty Ltd [2021] NSWSC 1594 where I observed (at [13]), in somewhat similar circumstances to this case, that:
"I am not persuaded that an order for costs should be made in favour of [the plaintiff] in respect of the application to set aside the [d]emand. There has been no determination of the proceedings to set aside the [d]emand on their merits. The [d]emand was issued and the proceedings were commenced when a default judgment against [the plaintiff] had full legal effect, which was sufficient to support the issue of the [d]emand. The order setting aside that default judgment, by consent, was made only after the commencement of these proceedings. After that order was made, it was a reasonable step for [the plaintiff] to agree to set aside the [d]emand, consequential upon setting aside of the default judgment on which it was founded, but it is not apparent that that step reflected a capitulation by [the plaintiff] as distinct from a recognition of developments subsequent to the commencement of the proceedings."
There has here been no determination of the application to set aside the Demand on the merits; and, by contrast with the position considered in Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; [1993] FCA 45, Keybridge has not established that the amount claimed in the Demand was subject to a genuine dispute when the Demand was served or the application to set it aside was made, although the later filing of the review application means it is not presently recoverable. There is no basis for an order for costs in favour of Keybridge in respect of the application to set aside the Demand.
Keybridge also makes submissions in support of a lump sum costs order, and Mr Langshaw advances several criticisms of the quantification of Keybridge's claim for costs on a lump sum basis. It is not necessary to address the principles applicable to the making of a lump sum costs order, or the parties' submission as to why such an order should be made and as to the amount of that order, where I am not satisfied that an order should be made in favour of Keybridge as to the costs of the application to set aside the Demand.
For these reasons, I order that:
There be no order for the costs of the Plaintiff's application to set aside the creditor's statutory demand.
The Plaintiff must pay the Defendant's costs of this costs application, as agreed or as assessed.
[3]
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Decision last updated: 08 December 2023