In the matter of Sans Souci Aged Care 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
- Corporations Act 2001 (Cth), ss 459H, 459J
- 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 Authium Pty Ltd [2025] NSWSC 622
- Re Bell Potter Securities Ltd [2023] NSWSC 1528
- Re Dalski Pty Ltd [2025] NSWSC 99
- Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Re RPNA Water Views Pty Ltd [2025] NSWSC 636
- Re Ziwei Pty Ltd [2025] NSWSC 621
- Soudan Lane Pty Limited v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772

Category: Costs

Parties: Sans Souci Aged Care Pty Ltd (Plaintiff)
Nanevski Developments Pty Ltd (rec apptd) (Defendant)

Representation: Counsel:
D J Fleming (solicitor) (Plaintiff)
S Golledge SC / J Parrish (Defendant)
Solicitors:
Pigott Stinson (Plaintiff)
Independent Legal Pty Ltd (Defendant)

File Number(s): 2025/101172

JUDGMENT

1. By Originating Process filed on 14 March 2025, the Defendant, Nanevski Developments Pty Ltd (recs apptd) (“NDPL”) applied to set aside a creditor’s statutory demand dated 21 February 2025 (“Demand”) issued by the Plaintiff, Sans Souci Aged Care Pty Ltd (“SSAC”) under s 459H or s 459J of the Corporations Act 2001 (Cth) (“Act”). On 19 May 2025, I noted, by consent, that the Demand was withdrawn. Notwithstanding there had been no determination of the matter on the merits, SSAC pressed for an order for costs in respect of the application and I made orders for evidence and submissions as to costs, on the basis that the question of costs was to be determined on the papers.

Applicable principles

2. The applicable principles are well established. 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 Act] 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] (“Ayrton”), 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. In Re Bell Potter Securities Ltd [2023] NSWSC 1528 at [5] (“Bell Potter”), 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 have also summarised the relevant principles in recent decisions including Re Dalski Pty Ltd [2025] NSWSC 99 at [14]-[18] (“Dalski”), Re Ziwei Pty Ltd [2025] NSWSC 621; Re Authium Pty Ltd [2025] NSWSC 622 and Re RPNA Water Views Pty Ltd [2025] NSWSC 636, from which I have drawn this summary.

Affidavit evidence

8. SSAC relies on the affidavit dated 14 March 2025 of Mr Nanevski, the affidavit dated 13 June 2025 of Mr Sydes and the exhibit to that affidavit. By his affidavit dated 14 March 2025, Mr Nanevski, who is the General Manager of SSAC, identified the parties, set out the nature of SSAC’s aged care business, referred to NDPL’s purchase of the premises from which SSAC conducts that business and to the development of the Sans Souci aged care facility. He addressed a refinancing of NDPL’s finance facility with a financier, Gemi 100 Pty Ltd, a subsequent assignment of the rights under the financing to PF 459 Pty Ltd (“PF 459”) and by PF 459 to BHG Investment 100 Pty Ltd (“BHG”). He also referred to the appointment of a receiver by BHG to NDPL and to NDPL’s challenge to the validity of that receiver’s appointment.

9. Mr Nanevski in turn refers to the structure of the business conducted by NDPL and SSAC as a group of companies, to the lease between SSAC and NDPL and to proceedings which were brought by BHG in February 2025, in which BHG’s appointment as receiver of NDPL has been challenged. Mr Nanevski also addressed the relatively complex sequence of events in relation to the financing of the relevant property and to alleged misrepresentations in respect of that financing. He refers to the issue of the Demand to SSAC and to an affidavit sworn by the receiver appointed to NDPL in respect of the Demand, and claims there was a common intention between SSAC and NDPL that SSAC would not make cash payments for rent under the lease of the residential aged care facility business, which has only been operated between SSAC since February 2023, until SSAC generated sufficient revenue to meet rental expenses.

10. By his affidavit dated 13 June 2025, Mr Sydes, who is the solicitor acting for SSAC in the proceedings, referred to an email dated 13 March 2025 which he had sent to the solicitor acting for NDPL (by its receiver) and to the matters raised in possession proceedings between BHG and NDPL.

11. By an affidavit dated 30 May 2025 in response, Mr Seelenmeyer, who is a solicitor acting for NDPL under instructions from the receiver of NDPL, contends that SSAC had previously claimed that rent had been paid in respect of the facility, and did pay some rent, prior to the commencement of the proceedings, and only subsequently claimed that no rent was payable under the lease of the premises by reason of an agreement between the common directors of NDPL and SSAC. He also refers to aspects of the conduct of the proceedings.

Submissions and determination

12. By its submissions made on 13 June 2025, SSAC refers to the background to the proceedings, including possession proceedings commenced by BHG on 11 February 2025 and the issue of the Demand by NDPL (by its receiver) on the same date. SSAC refers to a letter dated 9 March 2025 sent by its solicitors requesting the withdrawal of the Demand; to the Defence and Cross-Claim filed in the possession proceedings, shortly before SSAC filed its application to set aside the Demand, which had challenged the receiver’s appointment to NDPL; and to a further letter dated 13 March 2025 again inviting NDPL (by its receiver) to withdraw the Demand. SSAC notes that it commenced these proceedings on the last day on which it was open to do so after the Demand was not withdrawn.

13. SSAC generally accepts NDPL’s submissions as to the applicable principles and contends that, even where it was reasonable for a creditor to issue a creditor’s statutory demand having regard to the relevant circumstances at the time of issue, it is under an obligation to withdraw, or cease to oppose the setting aside of, that demand if it subsequently appears that there is a genuine dispute, as soon as that appears: Bell Potter at [5]; Ayrton [26]. SSAC submits, and I accept, that NDPL (by its receiver) was on notice of challenge to the receiver’s appointment in sufficient time to confirm that it would withdraw the Demand before these proceedings were commenced. SSAC rightly concedes that the time available for NDPL to withdraw the Demand, before the proceedings were commenced, was short. SSAC submits that NDPL (by its receiver) should have promptly withdrawn the Demand after it was placed on notice of the evidence relied on to support a genuine dispute, but did not withdrew the Demand until the second directions hearing in the proceedings on 28 April 2025.

14. Mr Golledge, with whom Mr Parrish appears for NDPL, submits that the application to set aside the Demand was not determined on its merits, and addresses the circumstances in which the Demand was issued and refers to the communications which had passed between the solicitors before the Demand was issued, including requests for information from the receiver’s solicitors, to which SSAC’s solicitors did not respond until after the Demand had been served and the proceedings were commenced. NDPL also submits that SSAC’s position prior to the commencement of the proceedings was that the debt had been paid rather than, as now contended, that the debt was not payable. Mr Golledge also refers to the approach noted in Lai Qin and to its application in subsequent judgments including Ayrton, Bell Potter and Dalski and submits that the Demand was issued in circumstances where it was reasonable for the receiver to believe (and he does not now concede to the contrary) that the debt claimed in the Demand was due and payable by SSAC to NDPL for unpaid rent in respect of the property; SSAC has subsequently changed its position as to why the debt was not payable; and the receiver first became aware of SSAC’s changed position after the commencement of the proceedings.

15. Given the apparent change in SSAC’s position, and the failure by SSAC to respond to the receiver’s inquiries until after the proceedings were commenced, I am not satisfied that it was unreasonable for NDPL (by its receiver) to issue the Demand at the time it was issued or not to withdraw the Demand until the time at which it was withdrawn. On balance, I am not satisfied that this is a proper case to order that NDPL pay SSAC’s costs of the proceedings, where there has been no determination as to the merits of the proceedings.

16. For these reasons, there should be no order as to the costs of the proceedings. NDPL did not seek the costs of the costs application and I will also make no order as to the costs of the costs application.

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