Oz Cut Concrete Cutting Services v Shirlaw [2001] NSWSC 686 | Case summary

1 HIS HONOUR: This is a matter in which the proceedings have been substantively disposed of by agreement, but a question of costs remains outstanding. The proceedings are proceedings to set aside a statutory demand under the Corporations Law. The manner in which the proceedings have been disposed of is that it has been agreed that there should be an order setting aside the statutory demand. However, each party claims, or until very late in the argument claimed, its costs of the proceedings. At the heel of the hunt the defendant announced that it would consent to an order that there be no order as to the costs of the proceedings, but the plaintiff is still not prepared to agree to this and seeks an order for its costs of the proceedings. 2 The reason that there is some debate about this and some room for dispute is that, in a sense, both sides contributed to the situation that arose. The claim is by a liquidator for repayment of a sum of some $18,000 as a preference. It was always indicated that that claim would be defended. However, on 22 May 2001, the defendant served on the plaintiff a statement of liquidated claim issued out of the Local Court at Sydney. The defendant, within the next three or four days, indicated orally and by letter that it proposed to defend the proceedings, but, in fact, thereafter was not heard from again before the present defendant, the plaintiff in the Local Court, entered default judgment on 26 June 2001. Indeed, nothing was heard until the day on which a statutory demand was served, namely 13 July 2001, when Mr Hill, the now solicitor for the plaintiff, who had only just received instructions, telephoned to announce that he had instructions to move to set the judgment aside. Whether that was before or after the actual service of the statutory demand is unclear on the evidence. The present defendant, in general terms, thereafter indicated a preparedness to set the statutory demand aside, but there was great dispute as to costs, and the terms as to costs on which the defendant was prepared to set the demand aside were unacceptable to the plaintiff. The plaintiff, on 19 July 2001, obtained an ex parte order from a Magistrate staying the judgment in the Local Court temporarily, but, as no agreement as to the setting aside of the notice of demand had been reached on 30 July 2001, the 17th day after service of the demand, the plaintiff felt obliged to take out the present originating process before the statutory twenty-one day period expired. 3 The way in which the plaintiff could, as I said previously, be taken to have contributed to this situation was that, although it had from the start indicated it would defend the matter, it did nothing to file a defence or to respond during the period in which first the default judgment was entered and then a statutory demand was sent for service. Because of this delay, there is some basis for suggesting that the proper result would be to make no order as to costs, so that each party was left to bear its own. However, Mr Hill presses strongly on me that it was quite unreasonable for the defendant to decline to set aside a notice of demand, which it really could not sustain in face of the opposition to it. At least since the time he came into the matter, that opposition was being actively pursued. He says that it was not proper for the defendant to seek to maintain the default judgment (which, indeed, apparently it has not yet consented to have set aside) and the statutory demand in order to obtain what it wishes by way of costs, rather than allowing the notice to be set aside and participating in some appropriate process to determine the proper regime as to costs. The notice, he suggests, was being used to obtain the defendant's way as to costs by reason of the pressure that the pendency of a notice of demand always puts a company under. He has said that costs ought follow the event of these proceedings, which is the usual course. 4 That is not quite, in my view, a correct analysis of the applicable principles, since the merits of this matter never were determined by the Court. At the last minute, the defendant did capitulate as to the relief sought. The applicable principle is therefore not the general rule in relation to proceedings determined by the Court, but the principle enunciated by McHugh J in Re The Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624 - 625: "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 Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201. 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 Australian Securities Commission v Aust-Home Investments Ltd supra. 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. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. 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. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission, unreported, Federal Court of Australia, 10 February 1989, where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But 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. See, eg, Australian Securities Commission v Aust-Home Investments Ltd supra; Seventh Mingcourt Pty Ltd v Lawrence (unreported; Federal Court of Australia; 1 August 1996), per Branson J; Coleman v City of Melville (unreported; Supreme Court of WA; 22 September 1994), per Scott J; Compadres Australia Pty Ltd v Waterfront Place No 2 Pty Ltd (unreported; Supreme Court of Q; 15 August 1995), per MacKenzie J; Inprint Ltd v K & D Media Pty Ltd (unreported; Federal Court of Australia; 22 December 1995), per Einfeld J; Australian Securities Commission v Berona Investments Pty Ltd (1995) 18 ACSR 772."

In short, in respect of proceedings which are settled or abandoned, the principle enunciated by his Honour is that the appropriate course is to leave the parties to bear their own respective costs unless one acted unreasonably or the result that would have prevailed had the matter been decided is plain. The fact there was no curial determination here is therefore a basis on which it can be suggested that the proper order is that there be no order as to costs, and, as I have already said, the fact that the plaintiff contributed to the creation of the present situation also tends that way. 5 However, I have come to the view that, although there was capitulation at the last minute by the defendant in this matter, it is a matter where, on the material before me, the result that would have been achieved in any event, is quite reasonably plain. The judgment was for recovery of a preferential payment and preference cases are rarely clear cut. By the times material to the costs in these proceedings, it was clear that the defendant proposed to defend the claim. In reality, when the defendant capitulated it was reasonably plain that the plaintiff would succeed. It is suggested that there was no need for the plaintiff to bring the present proceedings, bearing in mind that the default judgment in the Local Court was, by that time, stayed. However, considering the sudden death nature of the scheme under the present corporations statute as to statutory demands, and the commercial disadvantage to a company of having a statutory demand current against it, I cannot regard the plaintiff's course in taking out an originating process on the 17th day after service on it of the demand as anything but prudent in its own interests. In all the circumstances, the conclusion that I have come to, is that the defendant ought pay the plaintiff's costs of the proceedings. 6 I order, by consent, that the statutory demand served by the defendant on the plaintiff on 13 July 2001 be set aside. I order that the defendant pay the plaintiff's costs of these proceedings. …oOo…

Oz Cut Concrete Cutting Services v Shirlaw

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