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[2026] NSWSC 60
Supreme Court of NSW
2026-02-12
Black J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Captcha Property No 3 Pty Ltd [2026] NSWSC 60
Hearing dates: Last submissions 6 February 2026
Date of orders: 12 February 2026
Decision date: 12 February 2026
Jurisdiction: Equity - Corporations List
Before: Black J
Decision: No order as to the costs of the proceedings up to and including 2 February 2026; Plaintiff to pay the Defendant’s costs of the costs application brought by the Plaintiff, as agreed or as assessed.
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: - Building and Construction Industry Security of Payment Act 1999 (NSW)
Cases Cited: - Ayrton Investments Pty Ltd v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55
- Dynamics Co Pty Ltd v G & M Nicholas Pty Ltd [2012] NSWSC 206
- Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; [1993] FCA 455
- Re Aussie Strength Pty Ltd [2021] NSWSC 1594
- Re Kaloriziko Pty Ltd [2021] NSWSC 1276
- Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386
- Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616
- Re The Minister for Immigration and Ethic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772
Category: Costs
Parties: Captcha Property No 3 Pty Ltd (Plaintiff)
Hilston Constructions Pty Ltd (Defendant)
Representation: Counsel:
D Allen (Plaintiff)
M A Karam/D de Mestre (Defendant)
Solicitors:
Beckers & Associates Lawyers (Plaintiff)
Flame Tree Legal (Defendant)
File Number(s): 2025/431612
By Originating Process filed on 7 November 2025, the Plaintiff, Captcha Property No 3 Pty Ltd (“Captcha”) applied to set aside a creditor’s statutory demand (“Demand”) issued by the Defendant, Hilston Constructions Pty Ltd (“Hilston”), on the several grounds that the Demand was defective; the alleged debt was not owing and was the subject of a bona fide dispute; there was no valid contract between the parties by which Hilston claimed payment was due; and Captcha had a valid claim against Hilston. By consent of the parties, on 2 February 2026, the Court noted that the Demand was withdrawn and the proceedings were dismissed by consent.
Notwithstanding the dismissal of the proceedings without a determination on the merits, Captcha sought an order for costs and the parties served evidence and made submissions on the basis that the question would be determined in Chambers.
In support of its costs application, Captcha relies on an affidavit dated 4 February 2026 of its solicitor, Mr Beckers, and also relied on a voluminous exhibit to that affidavit. Mr Beckers addressed service of the Demand and referred to an earlier adjudication application made by Hilston in January 2025 under the Building and Construction Industry Security of Payment Act 1999 (NSW). He referred to correspondence and communications between the solicitors and to Captcha’s filing of the application to set aside the Demand. Mr Beckers also referred to an affidavit dated 7 November 2025 of Mr Goodacre, which was not in evidence, to support a contention that Captcha would have made had the matter gone to hearing, that it was not a party to the contract on which Hilston relied for the debt claimed against it. Mr Beckers also referred to the evidence on which Hilston relied in the proceedings and to evidence led by Captcha in reply. Mr Beckers expressed his opinion that Captcha would have been successful with its application to set aside the Demand had it gone to hearing, apparently on the basis that the Demand had been issued to the incorrect party. Captcha also relies on an affidavit dated 27 January 2026 of Ms Simmons, who may be a director of Captcha, which refers to an affidavit of Mr Hilal and Mr Sassen filed in the proceedings, but not read in this application, and to matters in dispute which would have been determined had the matter gone to hearing.
Hilston relies on an affidavit dated 12 December 2025 of Mr Sassen, who was previously a director of Captcha, which also goes to the merits of the dispute which will not now be determined by the Court
I reviewed the relevant case law in my judgment in Re Kaloriziko Pty Ltd [2021] NSWSC 1276 (“Kaloriziko”) and again in Re Aussie Strength Pty Ltd [2021] NSWSC 1594, and have drawn on that review below.
In Re The Minister for Immigration and Ethic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624–625 (“Lai Qin”), McHugh J observed that:
“In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extracurial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation …
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried … [b]ut such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.” (Citation of authorities omitted.)
“… 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.”
“… 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.”
“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 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]).
On the other hand, a company which capitulates to the creditor’s demand after commencing proceedings to have the demand set aside by paying the sum demanded, or a company which puts the creditor to unnecessary expense in defending an application to set aside the demand before recovering what is unquestionably due, is likely to have to pay the creditor’s costs even though the demand is set aside upon the creditor being paid (Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602; Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95).”
“… consistent with the approach adopted by Higgins J in Ayrton Investments, the reasonableness of a party serving a statutory demand must be determined by reference to what that party knew as to the nature of any dispute as to the debt; conversely, a debtor which fails to pay a debt which is apparently due and undisputed, and also fails to disclose the basis of any dispute, can scarcely complain when the statutory demand procedure is invoked by a creditor who is acting reasonably on the basis of the information which is then known to it.”
“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 Demand, had it proceeded to a hearing, or the cogency of evidence that was to be relied on in the application to set aside the Demand 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 Demand, 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 similarly made no order as to costs 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. On the other hand, in Kaloriziko, I made an order for costs in favour of the plaintiff which obtained an order to set aside a creditor’s statutory demand, where the other party, after litigating for some time although it led no substantive evidence, effectively surrendered to the plaintiff’s claim to set aside that demand.
Turning now to the parties’ submissions, Mr Allen, who appears for Captcha, submits that Captcha invited Hilston to withdraw the Demand and bring proceedings for the claimed debt, and that Hilston capitulated and withdrew the Demand before a hearing on the merits. Putting aside the use of the pejorative term “capitulated”, this submission does no more than note the obvious, namely that the matter did not proceed to a determination on its merits. Mr Allen in turn identifies matters which would have had to be determined at a hearing on the merits, including that the Demand refers to a single invoice and the affidavit in support refers to a debt comprising more than one invoice; refers to correspondence between the parties which does not prove the relevant facts; and asserts that Hilston’s contention that Captcha’s commencement of these proceedings was not authorised by its board is disputed, a matter which has also not been determined where there has been no hearing on the merits.
Mr Karam, with whom Mr de Mestre appears for Hilston, responds that there should be no order as to costs. He contends that the evidence led by Hilston would have established the proceedings were commenced in Captcha’s name without the authority of its board. Mr Karam rightly notes that there has here been “no event” within the meaning of r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) because there has been no hearing on the merits and submits that the Court will not try a hypothetical action between the parties in order to determine a question as to costs. Mr Karam also submits that, absent a hearing on the merits, the Court cannot assess the likely outcome of Captcha’s application or the cogency of its evidence; that evidence has not been read or tendered at a substantive hearing, or any witnesses cross-examined; and that the Court is not in a position to find whether a genuine dispute or off-setting claim exists. Mr Karam also submits that Hilston’s decision to issue the Demand was reasonable, where Hilston contends that the debt owed to it was acknowledged by a director of Captcha (Mr Sassen) prior to the issue of the Demand, and a dispute as to the debt was raised by Captcha only after the Demand was served. That matter has also not been determined on the merits at a substantive hearing.
Here, the Court cannot find the Demand was not reasonable served without determining the contested issue as to whether Captcha had previously acknowledged liability for the debt claimed. It also seems to me that the Court cannot determine whether the proceedings were not properly authorised by Captcha’s directors, as Hilston contends, or whether the application to set aside the Demand would have succeeded had it gone to a hearing on the merits. For these reasons, I make no order as to the costs of the proceedings up to and including 2 February 2026. Captcha has unsuccessfully sought its costs in the proceedings and put Hilston to the costs of responding to its costs application and should pay the costs of that application.
I make the following orders:
There be no order as to the costs of the proceedings up to and including 2 February 2026.
The Plaintiff pay the Defendant’s costs of the costs application brought by the Plaintiff, as agreed or as assessed.
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Ayrton Investments Pty Ltd
Andrlik
(1997) 186 CLR 622