In the matter of Aussie Strength Pty Ltd

By Originating Process filed on 29 September 2021 the Plaintiff, Aussie Strength Pty Ltd (“ASPL”), applied to set aside a creditor’s statutory demand dated 6 September 2021 (“Demand”) served by the Defendant, Pro Arc International Pty Ltd (“PAI”). On 8 November 2021, I made orders, by consent, setting aside the Demand and, at the parties’ request, setting a timetable for submissions as to costs, on the basis that the Court would determine the question of costs on the papers based on the parties’ submissions. ASPL filed submissions in support of its claim to costs on 19 November 2021 and PAI did not file submissions in response in accordance with that timetable or prior to the delivery of this judgment.

ASPL relied on the affidavit dated 2 November 2021 of its solicitor, Mr Alistair Little, in respect of the question of costs. Mr Little referred to a default judgment issued in the Local Court in favour of PAI and against ASPL in the amount of $37,200.71 inclusive of costs, on which PAI relied in the Demand, and to consent orders subsequently made on 21 October 2021 by which that default judgment was set aside and further orders were made for the conduct of the proceedings in the Local Court. I note that, at the time the Demand was served on 6 September 2021, that default judgment remained in effect, and it appears that ASPL did not seek orders to set it aside until 20 October 2021, not only after service of the Demand but also after the commencement of the proceedings.

Mr Pokoney, who appears for ASPL, refers to the principles applicable to an order for costs under s 98 of the Civil Procedure Act 2005 (NSW). He refers, in particular, to the circumstances in which an order may be made in favour of a successful party in proceedings, but those principles assume a determination of the proceedings in favour of that party on its merits. He recognises that there is case law considering the position in respect of an application to set aside a creditor’s statutory demand, where that demand is withdrawn or set aside by consent.

I reviewed the relevant case law in my judgment in Re Kaloriziko Pty Ltd [2021] NSWSC 1276, to which Mr Pokoney refers, and have drawn on that review below. 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 [2021] NSWSC 386 where genuine issues had been raised but were not determined when the demand was not pressed. On the other hand, in Re Kaloriziko Pty Ltd above, 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. Mr Pokoney submits that the position in this case reflects that considered in Re Kaloriziko Pty Ltd above as distinct from that considered in Re Ming Tian Real Property Pty Ltd above.

Mr Pokoney submits that ASPL was compelled to commence the proceedings by PAI’s conduct in serving the Demand, in order to avoid the statutory presumption of insolvency arising under the Corporations Act 2001 (Cth). I accept the commencement of the proceedings was one way of seeking to avoid a presumption of insolvency, another being to pay the debt claimed, and I note that a default judgment of the Local Court requiring payment of that amount remained in effect at the time the Demand was served and the proceedings to set aside the Demand were commenced. Second, ASPL submits that PAI has “substantially capitulated” in the proceedings, consenting to set aside the judgment on which the Demand relied and to orders setting aside the Demand. Each of those developments took place after service of the Demand and after the commencement of the proceedings. Third, ASPL notes that PAI did not file or serve evidence in opposition to its application to set aside the Demand. Fourth, ASPL submits that it has obtained the relief sought in the Originating Process and should be considered the “successful litigant in the proceedings”. While the demand was set aside by consent, there has been no determination on the merits in ASPL’s favour.

I am not persuaded that an order for costs should be made in favour of ASPL in respect of the application to set aside the Demand. There has been no determination of the proceedings to set aside the Demand on their merits. The Demand was issued and the proceedings were commenced when a default judgment against ASPL had full legal effect, which was sufficient to support the issue of the Demand. The order setting aside that default judgment, by consent, was made only after the commencement of these proceedings. After that order was made, it was a reasonable step for PAI to agree to set aside the Demand, consequential upon setting aside of the default judgment on which it was founded, but it is not apparent that that step reflected a capitulation by PAI as distinct from a recognition of developments subsequent to the commencement of the proceedings.

For these reasons, I make no order as to the costs of the proceedings.