In the matter of DJ&A Pty Ltd

Jurisdiction: Equity - Corporations List

Before: Black J

Decision: There be no order as to costs in the three proceedings

Catchwords: COSTS — party/party — where statutory demands set aside by consent – whether unreasonable for Defendants to issue and refuse to withdraw statutory demands – where Plaintiff claims costs on a gross sum basis– where no determination of proceedings on the merits

Cases Cited: - Re Captcha Property No 3 Pty Ltd [2026] NSWSC 60
- 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 Ziwei Pty Ltd [2025] NSWSC 621

Category: Costs

Parties: Proceedings 2026/14730
DJ&A Pty Ltd (Plaintiff)
Beijing Youshare Food Co Ltd (Defendant)
Proceedings 2026/14737
DJ&A Pty Ltd (Plaintiff)
Qingdao Youshare Food Co Ltd (Defendant)
Proceedings 2026/14741
DJ&A Pty Ltd (Plaintiff)
Beijing Yangsen Food Technology Co Ltd (Defendant)

Representation: Counsel:
M Mijatovic (Solicitor) (Plaintiff)
YLR Chen (Defendants)
Solicitors:
Bridges Lawyers (Plaintiff)
LWPG & Partners (Defendants)

File Number(s): 2026/14730; 2026/14737; 2026/14741

JUDGMENT

Background

1. In proceedings 2026/14730, DJ&A Pty Ltd (“DJ&A”) applied to set aside a creditor’s statutory demand for payment dated 22 December 2025 issued by Beijing Youshare Food Co Ltd (“BYF”). In proceedings 2026/14737, DJ&A similarly applied to set aside a creditor’s statutory demand dated 22 December 2025 issued by Qingdao Youshare Food Co Ltd (“QYF”). In a third set of proceedings, 2026/14741, DJ&A applied to set aside a creditor’s statutory demand dated 22 December 2025 issued by Beijing Yangsen Food Technology Co Pty Ltd (“BYFT”). On 9 March 2026, I ordered, by consent in each of the proceedings, that the statutory demands be set aside and, at the parties’ request, made orders for the determination of costs to be dealt with in Chambers.

Applicable principles, submissions and determination

2. In each of the proceedings, DJ&A seeks an order that the Defendant pay its costs of the proceedings, to be fixed in a lump sum amount. In proceedings 2026/14730, DJ&A seeks to rely on three affidavits which were not read in the substantive proceedings and an exhibit which has not been tendered in them, where they have not gone to hearing. DJ&A’s solicitors refer to the applicable principles, by reference to my decisions in Re Kaloriziko Pty Ltd [2021] NSWSC 1276 at [2]ff (“Kaloriziko”) and Re Ziwei Pty Ltd [2025] NSWSC 621 at [2]ff (“Ziwei”). DJ&A rightly recognises the relevance of the question whether BYF’s decision to issue the relevant statutory demand was unreasonable and contends that BYF knew or should reasonably have known that there was room for a genuine dispute as to whether DJ&A owed it that amount that was the subject of the demand.

3. DJ&A there submits that the demand identifies purchase orders as being the basis for BYF’s claim against it and points to DJ&A’s evidence that it was not a party to the relevant purchase orders, although it accepts that it had historically had dealings with BYF and other companies within the Youshare group (“Youshare Companies”). It refers to earlier correspondence in which it had disputed debts claimed by the Youshare Companies and submits that the Court could not be satisfied that email correspondence on which the Youshare Companies relied gave rise to an understanding on the Defendants’ part that that dispute had been resolved. DJ&A submits that it had also identified other defects in the demand to which BYF had not responded. It submits that BYF should have, but did not, withdraw the demand after being placed on notice of the dispute, prior to the commencement of these proceedings. DJ&A made substantially identical submissions in the proceeding 2026/14737 relating to QYF and in proceeding 2026/14741 relating to BYFT as it made in the proceeding relating to BYF, and claimed the same amount of costs on a gross sum basis in respect of each of the proceedings.

4. By its submissions, BYF responds by reference to the principles arising from Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622;[1997] HCA 6, and refers to my summary of those principles in Re Captcha Property No 3 Pty Ltd [2026] NSWSC 60 as follows:

“In Re The Minister for Immigration and Ethnic 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.)

In the context of applications to set aside a creditor’s statutory demand, 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.’

In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [3]–[4], White J referred to the principles set out in Lai Qin above and observed that these principles apply to proceedings to set aside a statutory demand, but that special features of such proceedings also need to be taken into account in judging the reasonableness of the parties’ conduct. His Honour observed 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 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).’

In Dynamics Co Pty Ltd v G & M Nicholas Pty Ltd [2012] NSWSC 206 at [26], I noted several of these authorities and expressed the view that:

‘… 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.’

In Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616, 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 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.”

5. BYF in turn refers to the chronology of events, arising from evidence which was also not read in the substantive proceedings where they did not go to hearing and advances submissions as to the alleged deficiencies in the demands and the question of who the purchaser was under relevant purchase orders, and also addresses the detail of an alleged offsetting claim which has also not been determined on its merits where the matter did not go to hearing.

6. Mr Chen, who appears for BYF, submits that the Court should not be satisfied that BYF’s refusal to withdraw the demand was unreasonable; or, if the Court was to make any costs order, it should be made for costs only up to 11 February 2026, when the demand was withdrawn, and that a lump sum costs order should not be made where the evidence does not show the period in which costs were incurred. Mr Chen makes substantially the same submissions in proceedings 2026/14737 relating to QYF, although he there addresses the question of offsetting claims in less detail than in submissions made in respect of BYF, and advances the same submissions in conclusion. Mr Chen also makes substantially the same submissions in proceedings 2026/14741 on behalf of BYFT, again making detailed submissions as to an offsetting claim which has not been the subject of any determination on the merits, and advances the same submissions in conclusion in that matter.

7. The submissions made by DJ&A assume but do not establish that the dispute which it raises in respect of each of the Youshare Companies’ claims was a genuine dispute in the relevant sense. That question cannot be determined without a determination on the merits, which will here not take place where the proceedings will not go to hearing. In these circumstances, and contrary to the position in Kaloriziko and Ziwei, I am not satisfied that it was unreasonable for the Youshare Companies to issue the statutory demands or that a basis for an order for costs is established in these three matters. It is therefore not necessary to address DJ&A’s application for an order that its costs be quantified on a lump sum basis. I should add that, in any event, I would likely have declined to undertake a quantification on that basis, where complex questions would have arisen as to DJ&A’s entitlement to recover the same amount of costs in each of the three proceedings, given the overlap of issues in those proceedings.

8. I therefore make no order as to costs in the three proceedings.

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