In the matter of Kaloriziko Pty Ltd

By Originating Process filed on 1 July 2021 the Plaintiff, Kaloriziko Pty Ltd (“Kaloriziko”) applied to set aside a creditor’s statutory demand (“Demand”) issued by Calibre Construction Group Pty Ltd (“Calibre”) under ss 459H and 459J of the Corporations Act 2001 (Cth). That application relied on an affidavit dated 1 July 2021 of Mr Tran, one of the directors of Kaloriziko, which sought to establish a genuine dispute as to the debt, an offsetting claim arising in respect of proceedings for damage to a neighbouring property, a claim in respect of building defects and a claim that the Demand was not verified by the supporting affidavit. That affidavit also contended that the Demand had been used to put “commercial pressure” on Kaloriziko where Calibre had not used the processes available under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”). The matter was referred to the Corporations List by the Registrar on 6 September 2021, and the Court was then advised that the legal representative for Calibre was ill, and the time for Calibre to file and serve the evidence on which it relied was extended to 16 September 2021 and the matter was relisted on 20 September 2021. When the matter was mentioned on that date, Calibre consented to the Demand being set aside by consent, and I made orders for written submissions as to costs, to allow the question of costs to be determined in Chambers.

Several cases have considered the position as to whether costs should be ordered against a party which issues a creditor’s statutory demand which is then withdrawn or set aside by consent. I have here drawn on my summary of the case law in Re Pierotti & Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust; Re Etruscan Properties Ltd [2018] NSWSC 457 at 20[ff] and in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386.

In Re The Minister for Immigration and Ethic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624–625 (“Lai Qin”), McHugh J observed that:

In the context of applications to set aside a creditor’s statutory demand, in Felkro Nominees Pty Ltd v Austissue Pty Ltd (1993) 11 ACSR 607; [1993] FCA 455 the applicant sought costs where a statutory demand was set aside by consent. Heerey J noted that:

In Ayrton Investments Pty Ltd v Andrlik (2000) 34 ACSR 643; [2000] ACTSC 55 at [26], Higgins J observed that a person who issued such a demand faces “a risk as to costs, not an inevitability”. His Honour there expressed the view that:

In Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602 at [7], Barrett J observed that:

In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 at [3]-[4], White J referred to the principles set out in Lai Qin above and observed that these principles apply to proceedings to set aside a statutory demand, but that special features of such proceedings also need to be taken into account in judging the reasonableness of the parties’ conduct. His Honour observed that:

In Dynamics Co Pty Ltd v G & M Nicholas Pty Ltd [2012] NSWSC 206 at [26], I noted several of these authorities and expressed the view that:

In Re Telegraph Point Sports & Recreation Club Ltd [2020] NSWSC 616, I made no order as to the costs of an application to set aside a creditor’s statutory demand where I found (at [13]) that:

I similarly made no order as to costs in Re Ming Tian Real Property Pty Ltd above, where genuine issues had been raised but were not determined when the demand was not pressed.

Mr Fernandes, who appears for Kaloriziko, submits that an order should be made that Calibre pay Kaloriziko’s costs of the proceedings, and relies on Mr Tran’s affidavit. He submits that Calibre served the Demand in respect of the amounts claimed in progress claims rather than making an adjudication application under SOPA, and refers to the content of the Demand and the content of the affidavit supporting it. It is not possible to determine the merits of that submission where Mr Tran’s affidavit annexed neither the Demand nor the affidavit supporting it and they are not in evidence.

Mr Fernandes relies on the fact that an order was made setting aside the Demand by consent, to support a contention that costs follow the event. I am not persuaded that an order by consent amounts to an “event” which gives rise to the application of the presumption as to costs under r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW). Mr Fernandes submits that this is a case where a party, after litigating for some time, effectively surrendered to the other party, within the language of One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548; [2000] FCA 270. I accept that proposition, where Calibre served the Demand; Kaloriziko was forced to commence proceedings to set it aside to avoid a presumption of solvency arising; and Calibre abandoned the Demand and consented to it being set aside, when it would otherwise have been required to file its evidence in accordance with the orders made by the Court. The position is distinct from that in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386, on which Calibre relies, where Calibre here led no evidence to answer the claim that the Demand be set aside or to give rise to any dispute as to whether that should occur that remains to be determined on the merits. Third, Mr Fernandes submits there was unreasonable conduct in the manner in which Calibre conducted the proceedings but it is not necessary to determine that submission. Fourth, Mr Fernandes submits that the Demand would have been set aside because there was no verifying affidavit, but it is not possible to determine that submission where neither the Demand nor any affidavit in respect of it are in evidence.

Mr Walker, who appears for Calibre, responds that the Plaintiff was not put to the expense of considering any evidence served by Calibre or adducing evidence beyond Mr Tran’s affidavit filed with its Originating Process. That proposition neglects the continuing costs of involvement in the proceedings and, in any event, would only affect the amount of the costs that Kaloriziko would be entitled to recover, rather than the question whether a costs order should be made in its favour. Mr Walker also refers to the principle in Lai Qin above and its application in Re Ming Tian Real Property Pty Ltd above. I do not accept those principles support not making a costs order here, given the absence of evidence led by Calibre and the element of capitulation by Calibre supports the costs order sought by Kaloriziko.

I am satisfied that an order for costs should be made in favour of Kaloriziko, on the second of the bases put by Mr Fernandes, namely that Calibre, after litigating for some time although it led no substantive evidence, effectively surrendered to Kaloriziko’s claim to set aside the Demand. For these reasons, I order that: