In the matter of Latitude 63 Australia 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

Cases Cited: - Re Aussie Strength Pty Ltd [2021] NSWSC 1594
- Re Lidco International Pty Ltd [2025] NSWSC 572
- Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386
- Re Settlement Holdings Pty Ltd [2026] NSWSC 209
- Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616

Category: Costs

Parties: Latitude 63 Australia Pty Ltd (Plaintiff)
EnerMech Pty Ltd (Defendant)

Representation: Counsel:
A Dark (Solicitor) (Plaintiff)
J I Whealing (Defendant)
Solicitors:
Dark Legal (Plaintiff)
McCullough Robertson Lawyers (Defendant)

File Number(s): 2025/415209

JUDGMENT

1. By Originating Process filed on 28 October 2025, Latitude 63 Australia Pty Ltd (“Latitude”) applied to set aside a creditor’s statutory demand dated 3 October 2025 (“Demand”) issued by EnerMech Pty Ltd (“EnerMech”). On 9 February 2026, by consent of the parties, the Court noted that the Demand had been withdrawn. At the request of the parties, I made orders allowing them to serve further affidavit evidence and submissions in respect of the question of costs, after first drawing their attention to the real prospect that an application for costs would not be successful where there had been no determination of the proceedings on their merits.

2. Latitude seeks its costs of the proceedings, although they have not been determined on the merits. It reads an affidavit dated 23 February 2026 of its solicitor, Ms Dark, which referred to its offer to consent to orders requiring EnerMech to pay its costs in the proceedings on an ordinary basis. That affidavit established no basis on which EnerMech should have consented to that position.

3. In submissions, Ms Dark submits that, absent a determination of the proceedings on the merits, EnerMech should be ordered to pay Latitude’s costs on an indemnity basis; or on an ordinary basis up to 3 November 2025 and on an indemnity basis thereafter; or on an ordinary basis. Ms Dark also relies on affidavit evidence that was not read in the substantive proceedings as well as on her affidavit. Ms Dark addresses the applicable principles; rightly recognises that the Court will not try a settled case in order to determine the incidence of costs; and submits that “the expectation that costs should lie where they fall may be displaced where a party acted unreasonably in such a way which should be compensated by costs, and/or one party was almost certain to have succeeded if the matter had been fully tried”.

4. I have, not for the first time, reviewed the applicable principles, in declining to make a costs order in somewhat similar circumstances in Re Settlement Holdings Pty Ltd [2026] NSWSC 209 at [3]ff, as follows:

“I reviewed the relevant case law in my judgment in Re Kaloriziko Pty Ltd [2021] NSWSC 1276 (“Kaloriziko”), Re Aussie Strength Pty Ltd [2021] NSWSC 1594 and again in Re Captcha Property No 3 Pty Ltd [2026] NSWSC 60, and have drawn on that review below.

In Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624–625; [1997] HCA 6 (“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 extra-curial 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.’ [citations 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) 11 ACLC 1142, the applicant sought costs where a statutory demand was set aside by consent. Heerey J noted (at 608) 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 [19], Higgins J observed that a person who issued such a demand faces “a risk as to costs, not an inevitability”. His Honour expressed the view (at [26]) 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 (at [4]–[6]) 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 [(“Telegraph Point”)], 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. Ms Dark here submits that there is “no question” as to whether Latitude acted reasonably by seeking to set aside the Demand in order to avoid it being deemed insolvent. I do not accept that proposition, which begs the questions whether there was a genuine dispute as to the debt claimed in the Demand or any other basis to set aside the Demand, which have not been determined. Ms Dark also submits that EnerMech acted unreasonably in several respects, which generally turn on the premise that EnerMech should not have issued the Demand or should have withdrawn it because (which has not been determined) there existed a genuine dispute and offsetting claim as to the Demand. Ms Dark seeks to support that position by submissions which, in substance, seek to require the Court to determine the merits of Latitude’s application to set aside the Demand where there has been no hearing of that matter. I am not persuaded I should take that course, and it is not apparent, without a determination on the merits, whether EnerMech had acted unreasonably in issuing the Demand.

6. EnerMech resists the making of a costs order, and reads an affidavit dated 9 March 2026 of its solicitor, Mr Wrigley, which referred to an adjudicator’s determination in 2026 received on 3 February 2026. By submissions dated 9 March 2026, Mr Whealing referred to service of the Demand and to an earlier affidavit dated 6 February 2026 of Mr Matheson which had not been read in the substantive proceedings. He set out the history of the construction of a storage facility and related infrastructure in Darwin, which is not otherwise in evidence; and referred to the final invoice issued by EnerMech after practical completion of the relevant project and to a second retention claim after the expiry of a 12-month defects liability period. Mr Whealing referred to conversations between representatives of the parties, which were also not in evidence, and to a suggested dispute as to the second retention claim. He also referred to the adjudication application made by Latitude which was dismissed on 12 January 2026.

7. Mr Whealing noted, uncontroversially, the Court’s power to make orders as to costs. He acknowledged there is no basis on which costs should follow the event where there had been no determination on the merits. He referred to my decisions in cases including Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386 at [6]ff, Re Aussie Strength Pty Ltd [2021] NSWSC 1594 at [4]ff and Re Lidco International Pty Ltd [2025] NSWSC 572 at [2]ff. Mr Whealing submitted that EnerMech had acted reasonably in issuing the Demand and withdrawing it when it did. That proposition depended on matters which have not been determined, where the application to set aside the Demand did not go to a hearing on its merits. Mr Whealing also submitted that there should be no order as to the costs of Latitude’s application to set aside the Demand in the absence of any determination on the merits. That submission did not depend upon the evidentiary matters to which it referred. EnerMech also sought its costs of the costs application, where Latitude had sought an order that EnerMech pay its costs of the proceedings.

8. In reply, Latitude reads the affidavit dated 23 March 2026 of its managing director, Mr Martin, who advances various criticisms of EnerMech’s performance project and addresses questions as to practical completion of the project and other matters. That evidence does not seem to me to properly be evidence in reply, and the Court also should not determine those matters on the merits and without a hearing in order to determine a costs application. In submissions in reply, Ms Dark addresses further questions as to when practical completion of the relevant project was achieved and as to the scope of the adjudication determination. It is also not apparent that those submissions are properly made in reply, and they also raise questions that are not properly determined without a hearing on the merits and in an application for costs.

Determination

9. Here, as in Telegraph Point, I am not able 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 was not read when the hearing did not proceed. I am not able to find whether the debt was genuinely disputed, or whether the asserted offsetting claim was genuine. This is again not one of the rare cases where the Court could be satisfied, without a hearing, 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. Latitude’s application for costs must fail on that basis.

10. That is sufficient basis to make the costs order that EnerMech seeks, that Latitude pay the costs of the application on the basis that costs follow the event of the costs application.

11. I make the following orders:

12. Subject to paragraph 2, there be no order as to the costs of the proceedings.

13. The Plaintiff, Latitude 63 Australia Pty Ltd, pay the costs of the Defendant, EnerMech Pty Ltd, of and incidental to the Plaintiff’s application for costs of the proceedings.

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