In the matter of RPNA Water Views 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: - Building and Construction Industry Security of Payment Act 1999 (NSW)
- 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) 34 ACSR 643; [2000] ACTSC 55
- Re Bell Potter Securities Ltd [2023] NSWSC 1528
- Re Dalski Pty Ltd [2025] NSWSC 99
- Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386
- Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Re Pierotti Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust: Re Etruscan Properties Ltd [2018] NSWSC 457
- Soudan Lane Pty Limited v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772

Category: Costs

Parties: RPNA Water Views Pty Ltd (Plaintiff)
Framed Future Pty Ltd (Defendant)

Representation: Counsel:
A F Fernon SC (Plaintiff)
A Kaufmann (Defendant)
Solicitors:
O’Neill McDonald Lawyers Pty Ltd (Plaintiff)
RK Lawyers (Defendant)

File Number(s): 2025/49931

JUDGMENT

1. By Originating Process filed on 7 February 2025, the Plaintiff, RPNA Water Views Pty Ltd (“RPNA”) applied to set aside a creditor’s statutory demand dated 17 January 2025 (“Demand”) served on it by Framed Future Pty Ltd (“FFPL”). On 5 May 2025, I made orders by consent, and without admissions, that the Demand served by FFPL on RPNA be set aside. Notwithstanding that there had been no determination of the application on its merits, RPNA pressed for an order for costs of the application, and I made orders allowing for the determination of the question of costs in Chambers. The parties subsequently agreed that the Court should have regard to a range of affidavits dealing with that question and I reflected that agreement in an order. I take that course, although, in having regard to those affidavits, I also recognise that they were not read in contested proceedings and that the evidence led in them has not been tested.

Applicable principles

2. Section 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; 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).

3. There is, however, here 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. 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 [of the Corporations Act 2001 (Cth)] 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) 34 ACSR 643; [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. Mr Fernon, who appears for RPNA in the application, also refers to my summary of the applicable case law, in the context of an application to set aside a creditor’s statutory demand, in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386 at [6]ff (“Ming Tian”). 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. I also summarised the relevant principles in Re Pierotti Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust: Re Etruscan Properties Ltd [2018] NSWSC 457 at [19]-[28] and in Re Dalski Pty Ltd [2025] NSWSC 99 at [14]-[18] where I referred to several of the cases noted above.

The parties’ evidence, submissions and determination

8. The Demand claimed payment of $350,166.37 arising from an adjudication under the Building and Construction Industry Security of Payment Ac**t 1999 (NSW) (“SOPA”) and was supported by an affidavit dated 7 February 2025 of Mr Sapsford. In response, RPNA relied on an affidavit dated 28 March 2025 of Ms O’Neill which annexed expert reports relating to an offsetting claim asserted by RPNA against FFPL; and RPNA also relies on a second affidavit of 13 May 2025 of Ms O’Neill.

9. Mr Fernon rightly recognises the application of the principles in Lai Quin and Ming Tian and submits that FFPL “capitulated” by consenting to an order that the Demand be set aside. He submits that FFPL knew before it issued the Demand that RPNA claimed an offsetting claim against it for amounts in excess of the amount claimed in the Demand because RPNA had raised those claims in the adjudication process. RPNA relies, in that respect, on payments made to a third party which it alleges had been instigated by FFPL in breach of fiduciary duty and were greater than the value of the Demand. There has been no determination of whether that claim is genuinely arguable in this application. Mr Fernon also refers to RPNA’s claim that there were design flaws in work undertaken by FFPL that caused damage to RPNA and whether that claim is genuinely arguable has also not been determined in this application. RPNA also referred to the identification of those claims in a letter dated 10 October 2024 from RPNA to FFPL’s solicitor; however, that letter establishes the fact of those claims not that they had a genuine basis. Mr Fernon also refers to the fact that those claims were repeated in response to a second adjudication application brought by FFPL, and again by two subsequent letters to FFPL’s solicitor. Again, it is not apparent to me that the fact that a claim is made more than once has the consequence that it is necessarily genuine in character. Mr Fernon also refers to the fact that expert evidence was obtained by RPNA at significant cost, although it is apparent whether that evidence was necessary, or was in fact obtained, in order to establish the offsetting claim in this application, where an asserted double payment was relied on as at least part of the basis to set aside the Demand.

10. Mr Fernon in turn submits, and I accept, that the Demand was served, although RPNA had given notice of its offsetting claim, and that required that RPNA bring an application to set aside the Demand. He submits that FFPL acted unreasonably in issuing the Demand, when it already knew the basis of RPNA’s offsetting claim, and that RPNA should be awarded its costs on that basis. Again, that proposition assumes, but does not establish, that the offsetting claim made by RPNA had a genuine basis, which has not been determined in this application, where it has not gone to hearing.

11. In response, Mr Kaufmann, who appears for FFPL, submits that, having considered RPNA’s evidence, which was completed by Ms O’Neill’s affidavit dated 28 March 2025, FFPL consented to the Demand being set aside. He submits that the submission that FFPL capitulated should not be accepted, where there has been no hearing on the merits. Mr Kaufmann points out that the Demand was based on a judgment debt arising from the registration of the adjudicator’s determination under SOPA; the adjudicator had rejected the contentions made by RPNA that it was not liable for the amount claimed by FFPL; and no new evidence was provided by RPNA to support its claim until it led its evidence in these proceedings. Mr Kaufmann submits that there was nothing unreasonable in FFPL issuing the Demand based on an adjudication determination reflected in a judgment debt, where, FFPL contends, the evidence that might support an offsetting claim did not emerge until RPNA filed its evidence in these proceedings.

12. Mr Kaufmann also accepts that the principles set out in Ming Tian are applicable here and submits that the Court should be satisfied that FFPL did not act unreasonably in issuing the Demand. Mr Kaufmann submits that FFPL did not know of a genuine offsetting claim before it issued the Demand, where the relevant questions had been considered in an adjudication in which determination was made in FFPL’s favour. He also submits, and I accept, that the extent of FFPL’s knowledge of RPNA’s grounds for disputing the Demand, and indeed the question whether those grounds are genuine grounds, could not be determined without a hearing on the merits. Mr Kaufmann also addresses the correspondence between the parties prior to the issue of the Demand but contends that RPNA did not advance matters which would support an offsetting claim, beyond those which had already been addressed during the adjudication process. Mr Kaufmann also points out that RPNA deferred issuing the Demand over the Christmas and New Year period and engaged in further communications with RPNA during that period, and only issued the Demand after its invitation to RPNA to commence proceedings in respect of its asserted offsetting claim had not been taken up by RPNA. Mr Kaufmann also points out that, on the chronology of events, it appears likely that the costs of expert evidence incurred by RPNA were incurred prior to the issue of the Demand, where RPNA had referred to the receipt of expert evidence in an email dated 12 December 2024 long before the Demand was issued and the proceedings commenced, although it did not provide FFPL with access to the expert’s findings at that time.

13. I am not satisfied, in these circumstances, that FFPL’s conduct in issuing the Demand, relying on the result of the adjudication and the judgment arising from that adjudication, was unreasonable or that RPNA had then provided FFPL with sufficient information to show a genuine basis for its asserted offsetting claim. The Court cannot now determine whether that offsetting claim has such a basis without a hearing on the merits which will not now take place.

Orders

14. For these reasons, there should be no order as to the costs of RPNA’s application to set aside the Demand, and RPNA must pay the costs of the costs application as agreed or as assessed.

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