In the matter of Authium Pty Ltd

Catchwords: COSTS — Party/Party — General rule that costs follow the event — Where application to set aside statutory demand did not proceed – Where no determination of proceedings on the merits.

Legislation Cited: - Civil Procedure Act 2005 (NSW), s 98
- Uniform Civil Procedure Rules 2005 (NSW), r 42.1

Cases Cited: - Ayrton Investments Pty Limited v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55
- Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70
- Re Bell Potter Securities Ltd [2023] NSWSC 1528
- Re Dalski Pty Ltd [2025] NSWSC 99
- Re Kaloriziko Pty Ltd [2021] NSWSC 1276
- Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Re Pierotti Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust: Re Etruscan Properties Ltd [2018] NSWSC 457
- Soudan Lane Pty Limited v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772

Category: Costs

Parties: Authium Pty Ltd (Plaintiff)
Liberation Metallurgy International Pty Ltd (Defendant)

Representation: Counsel:
E ten Kate (Plaintiff)
J R G Bell (Solicitor) (Defendant)
Solicitors:
Thomson Geer (Plaintiff)
J R G Bell (Defendant)

File Number(s): 2025/125734

JUDGMENT

Nature of the application

1. By Originating Process filed on 2 April 2025, the Plaintiff, Authium Pty Ltd (“Authium”) sought an order setting aside a creditor’s statutory demand dated 13 March 2025 (“Demand”) issued to it by Liberation Metallurgy International Pty Ltd (“LMI”). On 19 May 2025, I made an order by consent setting aside the Demand on the ground that there was a genuine dispute as to the existence or amount of the debt that was the subject of the Demand. Although there has been no determination of the matter on its merits, Authium pressed for costs of the application, and I made orders for submissions and the determination of that question in Chambers.

Applicable principles

2. Section 98 of the Civil Procedure Act 2005 (NSW) confers on the Court a wide discretion with respect to costs, and the Court has discretion to determine by whom, to whom and to what extent costs are to be paid; costs will ordinarily 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, in accordance with r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW).

3. There is, however, here no event which costs should follow where there has been no determination on the merits. In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622, at 624; [1997] HCA 6 (“Lai Qin”), McHugh J observed that the Court will not try a hypothetical action between the parties to determine costs but also noted that:

“In some cases, however, the Court may be able to conclude that one of the parties had acted so unreasonably that the other party should obtain the costs of the action.”

4. In Soudan Lane Pty Limited v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772, White J considered the application of Lai Qin in respect of an application to set aside a creditor’s statutory demand, and pointed to particular characteristics of such an application that may support a costs order where a statutory demand had been set aside by consent. His Honour observed (at [4]-[5]) that:

“A company faced with a statutory demand in relation to a debt, disputed in whole or in part, has no option but to commence an action under s 459G [of the Corporations Act 2001 (Cth)] to set aside the demand within 21 days even if the ultimate order sought will be an order under s 459H(4) varying the demand to the amount which is not genuinely in dispute. If a company were merely to pay the amount which was not genuinely in dispute, without securing or compromising the balance to the reasonable satisfaction of the creditor, it would face the prospect of winding up proceedings being brought against it, of its being presumed to be insolvent (s 459C(2)(a)), and of its being unable to oppose the winding-up application on a ground upon which it could have relied for the purposes of an application to have the demand set aside unless leave is given (s 459S).

A person claiming to being a creditor who uses the procedure for service of a statutory demand under s 459E to seek to force payment of a genuinely disputed debt risks an order for indemnity costs. For the purposes of s 459H a genuine dispute will exist about a debt if there is a plausible contention requiring investigation that the company is not indebted (Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785 at 787 –788). Because the threshold for establishing a genuine dispute is low, creditors are often ill-advised to proceed with a statutory demand once plausible grounds for a dispute are asserted. They risk an order for indemnity costs if they do so (Polaroid Australia Pty Ltd v Minicomp Pty Ltd (1998) 16 ACLC 529 at 536; CGI Information Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd (2003) 47 ACSR 100 at 104 –105,[19] – [22]).”

5. Subsequently, in Ayrton Investments Pty Limited v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55 at [26], Higgins J observed 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.”

6. I took the same approach in circumstances where an application did not proceed to final hearing and the demand was set aside before the hearing in Re Kaloriziko Pty Ltd [2021] NSWSC 1276 and, in Re Bell Potter Securities Ltd [2023] NSWSC 1528 at [5], I accepted Counsel’s submission 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].”

7. I also summarised the relevant principles in Re Pierotti Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust: Re Etruscan Properties Ltd [2018] NSWSC 457 at [19]-[28] (“Pierotti”), to which Authium refers in submissions, and in Re Dalski Pty Ltd [2025] NSWSC 99 at [14]-[18] where I referred to several of the cases noted above.

The parties’ evidence, submissions and determination

8. Authium relies, in support of its application for costs, on an affidavit dated 26 May 2025 of its solicitor, Mr Cruden, who refers to several affidavits which were not read in the application to set aside the Demand, because it did not go to hearing, and have not been read in this application. He refers to evidence as to Authium’s liability to pay a monthly retainer to LMI for test work and to communications issued following the receipt of the Demand, where Authium advised Lithium of its claim that there was a genuine dispute to the amount claimed in the Demand. Those communications show the fact of a dispute concerning that amount and not that that dispute had a genuine character for the purposes of the application to set aside the Demand. Mr Cruden also refers to a subsequent settlement offer made by LMI and to the rejection of that offer by Authium and to the commencement of the proceedings to set aside the Demand.

9. Mr Cruden also refers to the evidence led by LMI in response to the application to set aside the Demand, where LMI relied on an oral conversation which is said to have given rise to an agreement that Authium would pay the retainer fee claimed in the Demand and to Authium’s evidence in reply denying he fact of that agreement. Mr Cruden in turn referred to subsequent correspondence from LMI’s solicitor which expressed surprise that there had been a “blanket denial” by Authium of the existence of the alleged agreement and rightly recognised that it was likely to be more cost effective to determine the contest which had emerged as to that matter in proceedings on the merits rather than in an application to set aside the Demand.

10. In submissions in support of the claim for costs, Authium contends that the consent order made on 19 May 2025 constituted a “surrender” or capitulation by LMI to the relief sought in the Originating Process, and that the Demand ought not to have been issued or should have been withdrawn immediately upon LMI being notified of the existence of the “genuine dispute” (or, I interpolate, more precisely, the fact of a dispute which may or may not have been genuine) as to the debt claimed in the Demand. Authium also contends that LMI conducted itself so unreasonably, in the sense noted in Lai Qin, that the Court should be comfortably satisfied that an order for costs should be made in favour of Authium despite the absence of a hearing on the merits. Authium also refers to the circumstances in which the Demand was served, and to subsequent correspondence between the parties’ solicitors in which Authium sought the withdrawal of the Demand and, when it was not withdrawn, filed the application to set aside the Demand supported by affidavit evidence contending that it had never agreed to pay the relevant retainer fee.

11. Authium in turn refers to my summary of the applicable principles in Pierotti and submits that:

“The touchstone is whether the creditor acted unreasonably in the relevant sense by issuing the demand, or by refusing to withdraw the demand, in circumstances where it knew, or ought to have known, that the debt was or would be genuinely disputed.”

12. Authium also refers to a decision in Galaxy Resources Ltd v Arrinooka Pty Ltd [2002] WASC 70, where the defendant had issued a creditor’s statutory demand on debts said to arise from an oral agreement; the relevant conversations were denied by the plaintiff; and the defendant had not withdrawn the demand. However, each case will turn on its own facts, and I again note that the existence of a dispute and the existence of a genuine dispute are not the same thing. Authium also submits that the issue of the Demand was an abuse of process, on the basis that the Demand sought to force payment of a genuinely disputed debt and that supports a claim for indemnity costs in Authium’s favour. I reject that submission, where its premise is that there existed a genuinely disputed debt, and the question whether the debt was genuinely disputed, or not, has not been determined in this application.

13. In response, LMI submits that the mere assertion of a genuine dispute is not sufficient to establish a basis to set aside a creditor’s statutory demand. He refers to the factual circumstances surrounding work done by LMI in respect of a proposed project and to documentary references to an “agreed monthly retainer” as the basis on which LMI staff would undertake specified work. The significance of this documentation has not been determined in a hearing of the application to set aside the Demand. LMI also submits that, irrespective of Authium’s claim that it did not agree to terms of a monthly fee for the work, Authium permitted LMI to continue that work on the basis such a fee would be paid, and that it would stretch credulity to suggest that Authium was expecting LMI to undertake that work for free or that LMI would have done so. These matters have also not been determined where the application to set aside the Demand did n0ot go tom hearing. LMI responds to the complaint that it did not withdraw the Demand by again pointing to the difference between the existence of a dispute as to Authium’s liability to pay the amount claimed by MMI and a “genuine” dispute as to that matter. LMI maintains its contention that there is no genuine dispute as to the basis to set aside the Demand, while accepting that it would be preferable if the dispute is determined by a substantive hearing on the merits, rather than an application to set aside the Demand.

14. In submissions in reply, Authium repeats its claim in chief that LMI had acted so unreasonably that Authium should be entitled to its costs and otherwise largely repeats matters it put in chief, with some elaboration that is not properly raised in reply.

15. There has here been no determination of the application to set aside the Demand on the merits and I am not satisfied that it was unreasonable for LMI to issue the Demand or that Authium would necessarily have succeeded in an application to set aside the Demand, where the question whether there was a genuine dispute (as distinct from a dispute that does not meet that standard) as to the debt claimed in the Demand has not been determined. There is no basis for an order of costs of the application to set aside the Demand in favour of Authium, and Authium must pay the costs of and incidental to this costs application as agreed or as assessed.

Orders

16. I therefore order that:

17. There be no order as to the costs of the Plaintiff’s application to set aside the creditor’s statutory demand issued by the Defendant.

18. The Plaintiff pay the Defendant’s costs of this costs application, as agreed or as assessed.

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