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Representation: Counsel:
Mr D Birch (Plaintiff)
Mr B Hord (First Defendant)
Mr D F Elliott (Second Defendant)
Solicitors:
McCabes Lawyers (Plaintiff)
Origin Lawyers (First Defendant)
Amberlake Lawyers (Second Defendant)

File Number(s): 2023/450291

JUDGMENT

Nature of the application and affidavit evidence

1. By Originating Process filed on 12 December 2023, the Plaintiff, Mr Xu, sought an order under s 90-15 of the Insolvency Practice Schedule (Corporations) that a decision made by Mr Teng in his capacity as deed administrator (“Administrator”) of Firmtech Aluminium Pty Ltd (subject to Deed of Company Arrangement) (“Firmtech”) to reject a proof of debt lodged by Mr Xu in October 2022 be set aside and that Mr Xu’s claim against Firmtech as set out in that proof of debt be admitted in an amount of $489,275.95 and interest. That application was brought in the context that Mr Xu also brought other proceedings (“Other Proceedings”) relating to Firmtech which were heard and determined by Nixon J in this Court.

2. On 6 July 2026, by consent, I granted leave to Mr Xu to discontinue these proceedings and, at the parties’ request, reserved the question of costs and made orders for Mr Xu to file any application under r 42.19(2) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) for costs other than that he pay the Defendants’ costs of the proceedings. By Interlocutory Process filed on 17 July 2026, Mr Xu applied for an order that each party pay their costs of the proceedings.

3. Mr Xu read an affidavit dated 17 July 2026 of his solicitor, Mr Dewan, in support of the application. Mr Dewan there referred to the commencement of the Other Proceedings in the Court which sought derivative and substantive relief in favour of Firmtech arising from claims against Firmtech’s other shareholder, Mr Zhang and his wife Ms Xie, and to further proceedings that were commenced by Mr Zhang and Ms Xie. He noted that Mr Teng was appointed as voluntary administrator of Firmtech in September 2022; and referred to Mr Xu’s proof of debt, to further dealings between the parties and to a stay of these proceedings pending the determination of the Other Proceedings. Mr Dewan also addressed findings reached by Nixon J in the Other Proceedings, as recorded in his judgment in Firmtech Aluminium Pty Ltd v Xie [2024] NSWSC 1293. Mr Dewan in turn addressed further correspondence between the parties as to the costs of these proceedings.

4. Mr Teng, as Administrator, relied on the affidavit dated 11 August 2026 of his solicitor, Ms Cox, who referred to Mr Xu’s submission of a proof of debt in the administration, Firmtech’s entry into a deed of company arrangement proposed by Mr Zhang and to the execution of that deed of company arrangement and the rejection of Mr Xu’s proof of debt. Ms Cox also referred to correspondence between the Administrator and Mr Xu and his solicitors prior to the Administrator’s determination as to the proof of debt.

Applicable principles

5. Rule 12.1 of the UCPR permits a plaintiff to discontinue proceedings as to, relevantly, all claims for relief with the consent of each active party or with the court’s leave. Rule 42.19 of the UCPR deals with the position where proceedings are discontinued in accordance with UCPR r 12.1 and relevantly provides that:

“Unless the court orders otherwise or the notice referred to in rule 12.1(2) otherwise provides, the plaintiff must pay such of the defendant’s costs as, at the date on which the notice of discontinuance was filed, had been incurred by the defendant in relation to each claim in respect of which the proceedings have been discontinued.”

6. The application of this rule was considered in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 (“Bitannia”) at [53]–[54] (Hodgson JA, Tobias and Basten JJA agreeing) and [70], [74] (Basten JA). In McNamara v San [2010] NSWSC 809 at [12] (“McNamara v San”), Hallen AsJ (as his Honour then was) summarised the principles applicable to the similar provision in UCPR r 42.20 as including that:

“(c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the Plaintiff: Fordyce v Fordham [2006] NSWCA 274; (2006) 67 NSWLR 497; Foukkare v Angreb Pty Limited [2006] NSWCA 335 at [65]; Pentroth Pty Ltd v Kirschild Pty Ltd (2006) 96 SASR 129; Australiawide Airlines Ltd v Aspirion Pty Ltd [2006] NSWCA 365 at [53]; Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32. However, the rule does create a starting point by requiring “… the plaintiff must pay the defendant's costs of the proceedings …” unless that outcome is displaced by a discretionary decision (“unless the court otherwise orders”);

(d) Generally, there must be some proper justification, sound positive ground, or a good reason, for departing from the ordinary position: Fordyce v Fordham at [2] per Santow JA; Australiawide at [54] per Bryson JA; circumstances in which it has been held appropriate to depart from the ordinary position include where the proceedings have been rendered unnecessary by circumstances beyond the plaintiff’s control; where the plaintiff achieved practical success in the proceedings, or where costs have been significantly increased by the unreasonable conduct of the defendant.

(e) The Plaintiff should be the moving party on an application for an alternative costs order: Bitannia at [70] per Basten JA. If facts are to be relied upon to found the court making a different order, the Plaintiff will bear the onus of proving the relevant facts;

(f) Where the proceedings are dismissed prior to any hearing on the merits, “the Court cannot try a hypothetical action between the parties” to determine the question of costs: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201; Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; Metro Chatswood Pty Ltd v CRI Chatswood Pty Ltd [2007] NSWSC 1120 at [35];

(g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order: Fordyce at [67] per McColl JA. A relevant consideration is whether the Plaintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them: Australian Securities Commission v Aust-Home Investments Ltd at 201 (cited with approval in Foukkare); all the relevant circumstances, and not just the fact of dismissal, should be considered;

(h) It is also important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event, or settlement, so removes, or modifies, the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the court’s discretion otherwise than by an award of costs by the successful party. It is the latter type of case that usually creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553; cited with approval in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 per Davies AJA (with whom Mason P and Meagher JA agreed) at [5];

(i) The distinction between the two categories referred to above is often helpful in exercising the costs discretion, notwithstanding that neither category can be precisely defined, the boundary between them is unclear and other factors may be relevant: Bitannia per Basten JA at [79]–[81]; Perre v State of New South Wales [2009] NSWLEC 51 at [49];

(j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case.”

7. That summary was cited with approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64] and I followed it in Parlby v Blair [2013] NSWSC 100 at [13]ff, Re Myao Travel Pty Ltd [2020] NSWSC 1672 at [7]ff, Australian Unity Funds Management Ltd v NorthWest Healthcare Australia RE Ltd [2021] NSWSC 1039 at [15]ff, in Davis v Certain Lloyd’s Underwriters [2022] NSWSC 131 at 9[ff] and again in Re Harmony Homes Pty Ltd (in liq*)* [2023] NSWSC 300 (“Harmony Homes”) at [5]ff.

Submissions and determination

8. Mr Birch, who made submissions for Mr Xu in this application, submitted that the normal consequence that costs follow the event that would arise from the discontinuance of the proceedings is displaced here, because Mr Xu obtained a favourable result in the Other Proceedings so that his claims in the proof of debt (which was in the alternative to his primary position in the Other Proceedings) could no longer be prosecuted. Mr Birch in turn addressed the matters in issue in the Other Proceedings and referred to Mr Xu’s lodgement of a proof of debt in the administration of Firmtech. Mr Birch submitted and I accept that it was common ground between the parties that these proceedings should be stayed pending the determination of the Other Proceedings, and that order was made by consent. Mr Birch referred to the judgment delivered by Nixon J in the Other Proceedings, which he characterises as amounting to substantial success on the part of Mr Xu and his associated entities in those proceedings.

9. Mr Birch in turn addressed the application of UCPR r 42.19 and to circumstances in which the default position set out in that rule may be displaced, including where a plaintiff had obtained practical extra-curial success which made the costs of the further proceedings pointless. Mr Birch submitted that Mr Xu has been a “clear winner” in the Other Proceedings. That may be the case, as between Mr Xu and Mr Zhang in the Other Proceedings, but it neglects the fact that the Defendants in these proceedings include the Administrator as well as Mr Zhang. Mr Birch submitted that:

“[I]t was not unreasonable for Mr Xu to commence the DOCA Proceeding to protect himself against the risk that Nixon J might reject his explanation as to the payment from the proceeds of the Lansvale Property (with the consequence that Firmtech would remain indebted to Mr Xu as claimed in his proof of debt.”

10. That proposition, however, neglects the fact that it would be unreasonable for Mr Xu to commence these proceedings to protect his own position, as against the Administrator, who is not party to the dispute between Mr Xu and Mr Zhang, and then discontinue the proceedings for his convenience, once the dispute with Mr Zhang was resolved, without compensating the Administrator for the costs to which he had been exposed by the proceedings. I am reinforced in that view where the position now taken by Mr Xu implicitly acknowledges that, where he was successful in his submissions put in the Other Proceedings, he would have been unsuccessful in these proceedings in advancing the contrary position so as to overturn the Administrator’s decision not to admit the proof of debt in the administration.

11. Mr Hord, who made submissions for the Administrator in respect of the costs application, referred to my summary of the applicable principles in Re Cabramatta King Tea Pty Ltd [2022] NSWSC 462 at [7]ff and in Harmony Homes. He referred to the history of these proceedings and the evidence filed by the Administrator in these proceedings. He submitted that, where these proceedings have now been discontinued and the Administrator’s finding as to the proof of debt is no longer challenged, it is appropriate that the Court makes the usual order that Mr Xu as the discontinuing party pay the Administrator’s costs of the proceedings. Mr Hord rightly also emphasised that the Administrator’s decision not to admit the proof of debt lodged by Mr Xu in the administration will remain undisturbed and the deed of company arrangement will be administered in accordance with that determination, where Nixon J did not take the contrary view and these proceedings are now not pressed by Mr Xu. Mr Hord also rightly pointed out that the Administrator was in any event not party to the Other Proceedings and is not bound by any determination in those Other Proceedings, and there is no suggestion of any “surrender” by the Administrator in either the Other Proceedings or these proceedings. I need not address Mr Hord’s further submission that Mr Xu had available alternatives other than the commencement of these proceedings, which might have included seeking to achieve a consensual position that the Administrator not give effect to the deed of company arrangement until the Other Proceedings were determined and not take any limitations point as to delay in the commencement of these proceedings.

12. Mr Elliott, who made submissions for Mr Zhang, also addressed the issues arising in the proceedings and the conduct of the proceedings. Mr Elliott drew attention to the scope of the applicable rule and to relevant case law, including the observations of Hallen AsJ (as his Honour then was) in McNamara v San. Mr Elliott in turn submitted that there is no proper justification or good reason for departing from the ordinary position that Mr Xu ought to pay Mr Zhang’s costs of these proceedings. He submitted that it was unreasonable for Mr Xu to commence these proceedings where, he contends, Mr Xu had received a payment of the relevant amount from funds belonging to Firmtech and could not be a creditor of Firmtech for that amount. I cannot accept that submission, which depends on a finding which cannot be made where these proceedings have not been determined on their merits. Second, Mr Elliott referred to the matters in issue in the Other Proceedings, but I am not in a position to determine the extent of any interaction between the issues determined in the Other Proceedings as between Mr Zhang, Ms Xie and Mr Xu, and the proof of debt on which Mr Xu relied in these proceedings. I do not accept Mr Elliott’s submission that Mr Xu is the “clear loser” of these proceedings, as between Mr Xu and Mr Zhang, given the uncertainty as to the interaction between the two proceedings and as between those persons, although I do accept that the Administrator’s decision as to the proof of debt remains undisturbed in these proceedings.

13. For these reasons, and particularly those noted in paragraphs 10 and 11 above, the default position in UCPR r 42.19 has not been displaced so far as the position between Mr Xu and Mr Teng as Administrator of Firmtech is concerned, and Mr Xu should pay Mr Teng’s costs of these proceedings and this costs application. For the reasons set out in paragraph 12 above, I accept the default position has been displaced as between Mr Xu and Mr Zhang.

Orders

14. Accordingly, I make the following orders:

15. The Plaintiff, Mr Xu, pay the costs of the First Defendant, Mr Teng, of these proceedings and of this costs application as agreed or as assessed.

16. There be no order as to costs of these proceedings and this costs application as between the Plaintiff and the Second Defendant, Mr Zhang.

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