In the matter of Lidco International 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] ACTSC 55
- Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302
- Northern Territory v Sangare [2019] 265 CLR 164; [2019] HCA 25
- 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
- Soudan Lane Pty Limited v Glen Bradshaw t/as - Pacific Coast Digital [2007] NSWSC 772

Category: Costs

Parties: Lidco International Pty Ltd (Plaintiff)
Build Executive Pty Ltd (Defendant)

Representation: Counsel:
R Size (Plaintiff)
L Moussa (Defendant)
Solicitors:
Equium Lawyers (Plaintiff)
SMB Law (Defendant)

File Number(s): 2025/43658

JUDGMENT

Nature of the application

1. By Originating Process filed on 3 February 2025, the Plaintiff, Lidco International Pty Ltd (“Lidco”) applied to set aside a creditor’s statutory demand (“Demand”) dated 10 January 2025 served by Build Executive Pty Ltd (“Build Executive”). That application was supported by an affidavit dated 3 February 2025 of Mr Saad, the sole director of Lidco. The parties subsequently filed further affidavit evidence in the proceedings. On 28 April 2025, I made an order by consent that the Demand be set aside. Notwithstanding that there had been no determination of the proceedings on their merits, Lidco sought to have the question of costs reserved to be determined in Chambers and I made directions as to that determination.

Applicable principles and determination

2. It is, of course, uncontroversial that s 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, and 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). The principle that costs should follow the event is the “guiding principle” with respect to costs: Northern Territory v Sangare [2019] 265 CLR 164; [2019] HCA 25 at [24]-[25].

3. There is, however, 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. Mr Size, who made submissions as to costs for Lidco, refers to the decision in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 as establishing the principles applicable to a determination of costs where there is no hearing on the merits. Subsequently, 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 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] 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. Mr Size also refers to my summary of the relevant principles in Re Dalski Pty Ltd [2025] NSWSC 99 at [14]-[18], where I referred to several of the cases noted above.

The parties’ submissions and determination

8. Mr Size pointed out that the Demand issued by Build Executive claimed the amount of $39,248, by reference to an invoice dated 10 December 2024, which in turn referred to the provision of recruiting services by Build Executive on 20 November 2024. He referred to a letter dated 23 January 2025 from Lidco’s solicitors to the solicitors for Build Executive which set out the bases on which Lidco disputed the debt and invited Build Executive to withdraw the Demand. Mr Size in turn referred to Mr Saad’s evidence as to terms of an agreement relating to the recruitment of a staff member by Lidco and to his claim that he did not agree to the proposed agreement and that an alternative arrangement was formed relating to payment of a fee by reference to consulting fees paid under an arrangement with Build Executive. Mr Size also refers to a first invoice issued by Build Executive to Lidco on 20 November 2024 and a second invoice issued on 10 December 2024, and contends that the potential employee never commenced full term employment with Lidco. Mr Size in turn refers to the principles that apply in an application to set aside a creditor’s statutory demand and invites the Court to determine that there was a genuine dispute as to the relevant debt, as though this were the hearing of the substantive proceedings to set aside the Demand.

9. In response to the costs application, Ms Moussa, who appears for Build Executive, also refers to the applicable principles and addresses the correspondence prior to the issue of the Demand in which Build Executive sought payment of the amount claimed, without receiving a response from Lidco; withdrew an earlier discounted invoice in the absence of payment by Lidco and issued an invoice for the full amount pursuant to its standard business terms; issued a demand for payment to Lidco by its solicitors; and only then received a response from Lidco denying any obligation to pay on the basis that the potential employee had not commenced full-time employment with Lidco. Ms Moussa also refers to correspondence which occurred after the Demand had been served on Lidco and submits that the basis of any dispute that existed in respect of the debt claimed only emerged in Lidco’s evidence-in-chief in the proceedings. Ms Moussa submits, and I accept, that absent a hearing on the merits, the Court would be satisfied that it was reasonable for Build Executive to have served the Demand, on the information then known to it.

10. There has here been no determination of the application to set aside the Demand on the merits and the Court cannot be satisfied that it was unreasonable for Build Executive to issue the Demand or that Lidco would likely have succeeded in an application to set aside the Demand, absent a determination of the application on the merits. There is no basis for an order of costs of the application to set aside the Demand in favour of Lidco, and Lidco must pay the costs of and incidental to this costs application.

Orders

11. I make the following orders:

12. 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.

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

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