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[2026] NSWSC 209
Supreme Court of NSW
2026-03-13
Black J
Original judgment source is linked above.
Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.
Medium Neutral Citation: In the matter of Settlement Holdings Pty Ltd [2026] NSWSC 209
Hearing dates: Last submissions as to costs 3 March 2026
Date of orders: 13 March 2026
Decision date: 13 March 2026
Jurisdiction: Equity - Corporations List
Before: Black J
Decision: No order as to costs made.
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: - Uniform Civil Procedure Rules 2005, r 42.20
Cases Cited: - Ayrton Investments Pty Ltd v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55
- Davis v Certain Lloyd’s Underwriters [2022] NSWSC 131
- Dymocks Franchise Systems (NSW) Pty Ltd v Chapter 3 Pty Ltd [2022] NSWSC 35
- Dynamics Co Pty Ltd v G & M Nicholas Pty Ltd [2012] NSWSC 206
- Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; (1993) 11 ACLC 1142
- McNamara v San [2010] NSWSC 809
- Re Aussie Strength Pty Ltd [2021] NSWSC 1594
- Re Captcha Property No 3 Pty Ltd [2026] NSWSC 60
- Re Kaloriziko Pty Ltd [2021] NSWSC 1276
- Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386
- Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616
- Re Minister for Immigration & Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
- Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772
- Spatt v Benson [2019] NSWSC 1195
Category: Costs
Parties: Settlement Holdings Pty Ltd (Plaintiff)
Evelyn Hinson (First Defendant)
Paul Hinson (Second Defendant)
Representation: Solicitors:
AHD Lawyers (Plaintiff)
Colin Biggers & Paisley (Defendants)
File Number(s): 2025/354375
By Originating Process filed on 15 September 2025, Settlement Holdings Pty Ltd (“SHPL”) applied to set aside creditor’s statutory demands dated 26 August 2025 (“Demands”) served on it by Mr and Ms Hinson. It appears that the Demands served by Mr and Ms Hinson claimed an amount of $6,250 being allegedly unpaid interest under a Bill Facility Agreement dated 5 May 2025 (“BFA”) and an amount of $1 million asserted to be immediately repayable following an event of default on termination of the BFA. SHPL filed an affidavit dated 15 December 2025 of Mr Sutherland, a director of SHPL, in support of the application to set aside the Demands. It appears that SHPL’s bank froze the accounts into which those amounts were paid and, on 4 December 2025, SHPL’s bank repaid amounts of $1 million each to Mr and Ms Hinson respectively.
On 2 February 2026, I made orders, by the consent of the parties, noting that the debts under the Demands issued by the Defendants had been satisfied and dismissing the proceedings. At the parties’ request, I reserved the opportunity to make submissions as to costs, with the question of costs to be determined on the papers.
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 p**arte 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]
“… 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.”
“… 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.”
“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).”
“… 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.”
“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.
SHPL also refers to the effect of r 42.20 of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”). That rule provides that, if the Court makes an order for the dismissal of proceedings, then, unless the Court orders otherwise, the plaintiff must pay the defendant’s costs of the proceedings to the extent to which they have been dismissed. In McNamara v San [2010] NSWSC 809 at [12], Hallen AsJ (as his Honour then was) summarised the principles applicable to this rule as including that:
(c) Rule 42.20 of the UCPR does not give rise to a presumption that costs will be ordered against the [p]laintiff: … 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 … 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 [p]laintiff should be the moving party on an application for an alternative costs order: … If facts are to be relied upon to found the court making a different order, the [p]laintiff 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 …;
(g) It may be necessary to analyse the whole of the proceedings to determine the appropriate costs order … A relevant consideration is whether the [p]laintiff acted reasonably in commencing the proceedings and whether the defendant acted reasonably in defending them … 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 …;
(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 …;
(j) The rule requires the court to make such order as it thinks just in the particular circumstances of the case.” [citations omitted]
That summary was cited with approval by Kunc J in Spatt v Benson [2019] NSWSC 1195 at [64], and I have followed it in cases including Davis v Certain Lloyd’s Underwriters [2022] NSWSC 131 at 9[ff].
In submissions in reply, Mr and Ms Hinson in turn drew attention to Stevenson J’s summary of applicable principles, drawing on Lai Qin, in Dymocks Franchise Systems (NSW) Pty Ltd v Chapter 3 Pty Ltd [2022] NSWSC 35 at [1]–[2] (“Dymocks”) as follows:
“The Court is confronted with the familiar, and often difficult, problem of determining what orders should be made for the costs of proceedings, now dismissed, but where there has been no adjudication on the merits of the proceedings.
The principles are well established:
(a) the court cannot try a hypothetical action between the parties;
(b) nonetheless, in an appropriate case, the 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;
(c) an example of such a case is where the court is able to conclude that one of the parties has acted so unreasonably as to justify a costs order against it;
(d) in other cases, the court may be able to conclude that one party would almost certainly have succeeded;
(e) a distinction needs to be drawn between a case in which one party, after litigating for some time, effectively surrenders to the other on the one hand; and cases where some sort of supervening event or settlement so removes or modifies the subject of the dispute that no issue remains between the parties except as to costs, although no party can be said to have won; and
(f) if both parties have acted reasonably in commencing and defending proceedings, and the conduct of the parties continued to be reasonable until the litigation was settled or the further prosecution became futile, the proper exercise of the court’s discretion will usually mean there should be no order as to costs.”
SHPL submits that the parties should each pay their own costs of the proceedings. It outlines, in submissions, the circumstances of the entry into the BFA and notes that the relevant funds were paid into a bank account which was then frozen by SHPL’s bank, although the evidence as to these matters was not read in the proceedings. SHPL acknowledges that it was not able to return the funds to Mr and Ms Hinson or pay interest on them in July 2025 because, it contends, the funds were in the frozen account, although the evidence as to that matter was also not read in the proceedings. SHPL also referred to without prejudice correspondence, which addressed the position in respect of the frozen bank accounts, but did not have the effect that Mr and Ms Hinson would be repaid the relevant funds.
SHPL in turn submits that there are good reasons for departing from the ordinary position here, because it took steps to have the Demands set aside but was prepared to return the deposit or take steps within its power to do so. The difficulty with that submission is, of course, that SHPL had no power to repay the deposit if, as it contends, the account in which it was held was frozen. SHPL also contends that the actions of its bank in freezing the account were outside its control, but that contention depends on evidence that was not read in the proceedings and does not answer SHPL’s inability to repay the funds. SHPL submits that the return of the funds by SHPL’s bank to Mr and Ms Hinson brought an end to the proceedings or removed the subject matter of the dispute and supports a contention that the money was never in SHPL’s possession. SHPL submits that, in the language of Dymocks, this is a case where “no party can be said to have won”; SHPL has not acted “so unreasonably” in respect of the proceedings; and “the proper exercise of the Court’s discretion would usually mean there should be no order as to costs.”
Mr and Ms Hinson in turn submit that r 42.20 of the UCPR should apply and SHPL should pay the costs of the proceedings. They in turn outline the history of the proceedings and acknowledge that they each received the amount of $1 million into their accounts directly from SHPL’s bank on 4 December 2025, but contend that a relatively small amount remained payable to them under the Demands. They note that that amount was deposited into their solicitor’s trust account on 30 January 2026, before the Court made orders to dismiss the proceedings by consent. They submit that these events indicate that SHPL accepted that the debt was owed to them. In submissions in reply, SHPL in turn took issue with aspects of Mr and Ms Hinson’s submissions.
The complexity of these matters seems to me to be sufficient to displace the proper application of UCPR r 42.20. The nature of the dealings between Mr and Ms Hinson and SHPL are by no means clear; the bulk of the evidence led in the proceedings has not been read; and the Court has not reached a determination as to the merits. The proceedings appear to have been mooted, in large part, by the payment made by SHPL’s bank to Mr and Ms Hinson in early December 2025, although they continued, in respect of the relatively small additional amount claimed by Mr and Ms Hinson, until consent orders were made on 2 February 2026. The effect of the payment made by SHPL’s bank would have likely been that, at the least, the Demands issued by Mr and Ms Hinson would have been varied, to reduce the substantiated debt from a large amount to a relatively small amount. This is not a case where SHPL has surrendered to Mr and Ms Hinson, where the payment of the relevant funds by its bank to Mr and Ms Hinson has undermined the factual basis of the proceedings.
For these reasons, I will make no order as to the costs of the proceedings. Mr and Ms Hinson sought an order for costs on a gross sum costs basis and relied on an affidavit dated 23 February 2026 of its solicitor, Mr Hedge, in that respect. That question does not arise where no costs will be ordered in their favour.
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Ayrton Investments Pty Ltd
Andrlik
(1997) 186 CLR 622