In the matter of Nutrimonde Pty Ltd

In these proceedings, the remaining issue for me to determine are the orders to be made in respect of costs after the plaintiff, J. Rettenmaier & Sӧhne GmbH + Co KG (Rettenmaier Germany), applied for leave to discontinue the proceedings seeking to wind up the defendant, Nutrimonde Pty Ltd, under s 459P of the Corporations Act 2001 (Cth) on the ground of insolvency.

On 1 May 2024, the first day of the hearing before me of the winding up application, Rettenmaier Germany sought leave under r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to discontinue the proceedings. I then made an order under s 459R of the Corporations Act extending the period within which the winding up application must be determined to 30 June 2024 and made directions setting a timetable for the parties’ written submissions and evidence in respect of the remaining issue of the costs of the proceedings. I indicated that I would determine Rettenmaier Germany’s application seeking to discontinue the proceedings and the question of costs in chambers.

Each of Rettenmaier Germany and Nutrimonde seek orders for costs in their favour respectively.

Despite my announced misgivings at the time of the application to discontinue the proceedings on 1 May 2024 (T6.6–.10), both parties have seemingly approached the task of seeking to make out their respective cases for a costs award in their favour by endeavouring to demonstrate that they behaved reasonably in prosecuting and defending the winding up application respectively by reference to matters which would involve me conducting a hypothetical hearing on the merits. Rettenmaier Germany wants me to assess the evidence of Nutrimonde at various points to determine whether it was or was not capable of proving that Nutrimonde was solvent. Nutrimonde wants me to do the same. I will not approach the determination of costs in that fashion. I will instead focus on the conduct of the parties in the proceedings.

In this judgment, I have determined the issue of costs in chambers, having regard to the parties’ respective written submissions and evidence on which they each relied.

J. Rettenmaier USA LP (Rettenmaier USA) and Rettenmaier Germany manufactured and sold fibre and cellulose products which were supplied to Nutrimonde and then on-sold by Nutrimonde to Australian food manufacturers.

Rettenmaier Germany and Rettenmaier USA are companies within the same corporate group.

From about 2001 until the termination of their relationship on 31 December 2022, Nutrimonde was a distributor in Australia of the products supplied by Rettenmaier USA and Rettenmaier Germany.

At all relevant times, the sole director of Nutrimonde was Anthony Blackley.

On 31 August 2023, the proceedings were commenced by originating process filed by the then plaintiff, Rettenmaier USA, after Nutrimonde had failed to comply with a statutory demand issued on 6 June 2023 by Rettenmaier USA in the amount of US$198,601.25 (USA debt), and served by post on 8 June 2023.

Nutrimonde did not pay the USA debt by 30 June 2023, which was the date of the expiry of the statutory period for payment of the USA debt in the statutory demand. Accordingly, from that date Nutrimonde was presumed to be insolvent pursuant to s 459C(2)(a) of the Corporations Act. The consequence was that in the proceedings, Nutrimonde then had the onus to rebut the presumption to prove that it was solvent.

On 8 September 2023, Nutrimonde’s solicitors (Hancock Alldis & Roskov) wrote to Rettenmaier USA’s solicitors (Swaab) stating that Nutrimonde had “no solvency issues whatsoever” and would pay the USA debt by close of business on 12 September 2023. This did not happen.

On 26 September 2023, Nutrimonde paid the full amount of the USA debt of US$198,601.25.

On 27 September 2023, Nutrimonde’s solicitors sent a letter to Rettenmaier USA’s solicitors serving its notice of appearance and attaching the affidavit of Anthony John Blackley sworn 26 September 2023 (Blackley affidavit 1, which asserted the payment of the USA debt and the solvency of Nutrimonde), as well as copies of Nutrimonde’s financial statements and tax returns for the financial years ended 30 June 2020, 30 June 2021 and 30 June 2022. The letter confirmed that the debt the subject of the statutory demand was paid on 26 September 2023. The letter also stated:

As regards the financial statements provided with that letter, the financial statement for the year ended 30 June 2022 (a date 15 months earlier than the letter) showed that Nutrimonde at that earlier time had:

It was clear from these financial statements that as at 30 June 2022 the current liabilities of Nutrimonde exceeded the amount it held in cash, so that payment of those liabilities and the non-current liabilities depended on the collection of receivables and the sale of inventory. There was no financial information attached to the letter which disclosed the financial position of Nutrimonde as at 27 September 2023.

On 5 October 2023, the solicitors for Rettenmaier Germany (also Swaab) sent a letter to the solicitors for Nutrimonde demanding payment of €843,756.53 by 11 October 2023 from Nutrimonde for outstanding invoices in relation to products supplied by Rettenmaier Germany. In the letter, the rights of Rettenmaier Germany were reserved, including in relation to the making of a substitution application in these proceedings.

On 30 October 2023, the solicitors for Nutrimonde wrote to the solicitors for Rettenmaier USA alleging offsetting claims. The solicitors for Nutrimonde had previously written to Rettenmaier's Australian subsidiary, Rettenmaier Australia and New Zealand Pty Ltd (Rettenmaier ANZ), on 12 October 2022, raising the substance of these claims, being misappropriation of Nutrimonde's confidential information by a former employee of Nutrimonde who had been appointed as managing director of Rettenmaier ANZ. Nothing ever came of those alleged offsetting claims.

On 24 November 2023, Rettenmaier Germany filed the interlocutory process seeking an order pursuant to s 465B of the Corporations Act that it be substituted as plaintiff in the proceedings.

On 4 December 2023, Black J made consent orders substituting Rettenmaier Germany as plaintiff in the proceedings and setting a timetable for the service of Nutrimonde’s evidence on or by 31 January 2024 and Rettenmaier Germany’s evidence in reply on or by 14 February 2024.

On 24 January 2024, the solicitors for Nutrimonde instructed Roderick Thyer (a chartered accountant and company auditor) to prepare an expert report on the solvency of Nutrimonde for the purposes of the proceedings.

On 31 January 2024, Nutrimonde filed and served the affidavit of Mr Blackley sworn that day (Blackley affidavit 2). In Blackley affidavit 2 at [18], Mr Blackley denied that Nutrimonde was indebted to Rettenmaier Germany in the sum of €843,756.53, and in Blackley affidavit 2 at [24](f) Mr Blackley asserted that the amount owing to Rettenmaier Germany by Nutrimonde was €799,492, which when converted equated to A$1,332,488. Blackley affidavit 2 at [20] and [24](h) also asserted that Nutrimonde had an offsetting claim for damages against Rettenmaier Germany.

Exhibited to Blackley affidavit 2 were a number of documents, including:

In Blackley affidavit 2 at [24](g) Mr Blackley also asserted that the amount in Nutrimonde’s bank account more than covered the amount of the invoices issued by Rettenmaier Germany to Nutrimonde and the other liabilities of Nutrimonde.

In Blackley affidavit 2 at [25](c), Mr Blackley stated that on about 4 September 2019, he executed a loan agreement on behalf of Cash Box which provided a loan facility to Nutrimonde in the maximum sum of $1.2 million, and that Cash Box had provided $800,000 to Nutrimonde under this loan facility which had been repaid in full with interest. This loan agreement was exhibited to Blackley affidavit 2.

The Westpac bank statements for Cash Box show that as at 29 December 2023, Cash Box held the sum of €1,000,100 in a Euro currency account (which Mr Blackley asserted continued to be held as at 31 January 2024) and as at 20 January 2024 a further account with the sum of $1,245,850.32.

The Westpac bank statement of Nutrimonde for the period from 30 November 2023 to 29 December 2023 exhibited to Blackley affidavit 2 showed an opening balance as at 30 November 2023 of $1,071,531.62 and a closing balance as at 29 December 2023 of $1,460,761.38. They revealed that two substantial deposits had been made in that period, being:

The Westpac bank statement for the period from 1 to 20 January 2024 showed a further deposit on 18 January 2024 by Monaco Securities in the amount of $238,750, which was recorded as a “repayment” and as at 20 January 2024 a current balance of $1,688,333.26.

These three deposits total $637,150. Without those deposits, in the period from 30 November 2023 to 20 January 2024, the opening balance of $1,071,531.62 was insufficient to repay the debt owing by Nutrimonde to Rettenmaier Germany of A$1,332,488 (as calculated by Mr Blackley) and there were debit transactions totalling $15,890.24 exceeding the only credit transaction of $6,720 on 11 December 2023. Without the three deposits, the closing bank balance on 20 January 2024 would have been $1,051,183.26, which would also have been insufficient to pay the debt owing by Nutrimonde to Rettenmaier Germany of $1,332,488 (as calculated by Mr Blackley).

Mr Blackley said in Blackley affidavit 2 at [25] that:

None of the three deposits were explained in Blackley affidavit 2 to indicate the circumstances in which they arose. Mr Blackley said nothing in Blackley affidavit 2 about his own financial circumstances, or those of his family trust, or the ownership or control of Blackley Family Investments Pty Ltd.

The financial statements of Nutrimonde for the financial years ended 30 June 2020, 30 June 2021 and 30 June 2022 revealed the loan facility of $800,000 owing by Nutrimonde to Cash Box apparently repaid in 2023 and unsecured loans totalling $200,000 (in 2020), $28,000 (in 2021), $28,000 (in 2022) and $478,750 (in 2023) owing by Nutrimonde to the Blackley Family Trust.

The financial statements of Nutrimonde for the period from 1 July 2023 to 20 January 2024 demonstrate that there was a significant collapse in sales by Nutrimonde, falling to $203,304 across those 7 months compared to $4,713,874 (in 2020), $6,202,680 (in 2021), $6,033,110 (in 2022) and $5,707,491 (in 2023), with a commensurate decline in receivables to $65,556 at the end of those 7 months compared to $653,810 (in 2020), $1,282,973 (in 2021), $855,634 (in 2022) and $715,418 (in 2023).

The financial statements of Cash Box for the financial year ended 30 June 2022 (18 months earlier) showed that:

On 2 February 2024, the solicitors for Nutrimonde sent a letter to the solicitors for Rettenmaier Germany referring to their letter of 31 January 2024 enclosing and serving Blackley affidavit 2 and stating:

The reference to section 459R at the end of the letter is to the statutory provision stipulating that an application for a company to be wound up in insolvency is to be determined within 6 months after it is made, subject to any extension by order of the court.

On 7 February 2024, the solicitors for Rettenmaier Germany sent an email to the solicitors for Nutrimonde referring to Nutrimonde’s statement that its evidence was incomplete and that it intended to serve an expert report and noting that the then current orders of the court required Rettenmaier Germany’s evidence to be served by 14 February 2024. The email stated that Rettenmaier Germany would require more time to respond to Nutrimonde’s evidence, including any expert report it may prepare, and proposed consent short minutes seeking an amendment to the timetable and also an extension of time for the determination of the winding up application under s 459R(2) of the Corporations Act.

On 7 February 2024, Nutrimonde filed and served the affidavit of Mr Blackley sworn that day (Blackley affidavit 3). Exhibited to Blackley affidavit 3 were the Westpac bank statements of Nutrimonde for the period 30 June 2021 to 19 January 2024 as part of a confidential exhibit. In Blackley affidavit 3, Mr Blackley said that these bank statements had been furnished to Mr Thyer as part of the brief of documents for his consideration in preparing an expert report in these proceedings.

On 9 February 2024, Nutrimonde’s solicitors sent an email to Rettenmaier Germany’s solicitors indicating that Nutrimonde consented in principle to an extension of time for the determination of the proceedings under s 459R of the Corporations Act, stating that a slightly amended timetable for evidence could be agreed and requesting that the matter be given a hearing date prior to 30 April 2024 given that Mr Blackley would be overseas in May 2024.

On 9 February 2024, Black J made orders by consent requiring Nutrimonde to serve its expert evidence by 16 February 2024, Rettenmaier Germany to serve its lay and expert evidence in reply by 8 March 2024, listing the matter for directions to take a hearing date on 18 March 2024 and pursuant to s 459R(2) of the Corporations Act extending the period within which the winding up application must be determined to 30 April 2024.

On 16 February 2024, Nutrimonde filed and served the affidavit of Mr Thyer sworn that day, to which was annexed Mr Thyer’s expert report. In Mr Thyer’s expert report, he expressed the opinion that Nutrimonde was solvent as of 20 January 2024, taking into account the cash flow, balance sheet test and the ability to raise funds from external sources.

On 18 March 2024, Black J made orders, including:

On 22 March 2024, the solicitors for Rettenmaier Germany sent a letter to the solicitors for Nutrimonde referring to the contents of Blackley affidavit 2 and the Westpac bank statements of Nutrimonde which revealed cash held as at 20 January 2024 of $1,691,013 and numerous transactions involving entities associated with Mr Blackley. The email then stated (my emphasis):

This was the first time that Rettenmaier Germany made its position clear on what it considered to be the lack of merits of Nutrimonde’s evidence on solvency, being Blackley affidavit 2 and its exhibit, Blackley affidavit 3 and its exhibit and Mr Thyer’s expert report.

Nutrimonde did not provide the Undertaking.

On 12 April 2024, Rettenmaier Germany filed and served the affidavit of Dr Niclas Witton affirmed 11 April 2024 and the affidavit of Gregor Woitier affirmed 12 April 2024. No expert evidence was filed and served by Rettenmaier Germany.

On 24 April 2024, Nutrimonde filed and served the affidavit of Mr Blackley sworn that day (Blackley affidavit 4) to address the requirement that Nutrimonde establish its solvency as at the date of the hearing. In Blackley affidavit 4 at [2]–[3], Mr Blackley corrected the statements he made in Blackley affidavit 2 at [24](f) regarding the amount of the debt owing to Rettenmaier Germany by Nutrimonde, now conceding it to be €843,756.53 as stated in the demand by Rettenmaier Germany. Blackley affidavit 4 also exhibited financial statements of Nutrimonde for the period from 1 July 2023 to 23 April 2024 and Westpac bank statements of Nutrimonde showing transactions for the period from 29 December 2024 to 18 April 2024. In Blackley affidavit 4 at [8](e), Mr Blackley asserted:

On 24 April 2024, Nutrimonde filed and served the affidavit of Mr Thyer affirmed that day (Mr Thyer’s updating affidavit) in which Mr Thyer corrected errors in Mr Thyer’s expert report and stated that he remained of the view that Nutrimonde was solvent as of 23 April 2024.

On 26 April 2024, the parties served their outline submissions and objections to evidence.

The outline submissions of Rettenmaier Germany ran to 23 pages, but only 1.5 pages of those submissions dealt with the question of the solvency of Nutrimonde, including by saying (footnotes and citations omitted):

In its objections to evidence, Rettenmaier Germany objected to the various financial documents annexed to Blackley affidavit 2 and Blackley affidavit 4 which had been provided to Mr Thyer for the purposes of Mr Thyer’s expert report and Mr Thyer’s updating affidavit. The financial documents to which objection was taken were as follows:

Rettenmaier Germany provided separate outline submissions of seven pages on the admissibility of those documents. The objections were put on the basis that, inter alia, Mr Blackley had not established personal knowledge of the financial affairs of Nutrimonde such that it could not rely on the business record exception to the hearsay rule in s 69(3) of the Evidence Act 1995 (NSW) in respect of any of the financial documents which had been prepared for the purpose of conducting, or for or in contemplation of or in connection with an Australian proceeding.

The outline submissions of Nutrimonde were also short on the subject of solvency, relevantly saying:

On 30 April 2024 by email at 1:14pm, without prior notice, Nutrimonde filed and served the affidavit of Mr Blackley sworn 30 April 2024 (Blackley affidavit 5). In summary, in Blackley affidavit 5, Mr Blackley stated:

On 1 May 2024, which was the first day of the hearing before me, counsel for Rettenmaier Germany sought leave to discontinue the proceedings.

Section 98(1) of the Civil Procedure Act 2005 (NSW) (CPA) states:

The discretion to award costs under s 98 of the CPA is broad and the section itself is to be construed liberally: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11, Gaudron and Gummow JJ at [21]. The discretion is, however, subject to the rules of court, being the UCPR. It is therefore necessary to consider whether there are any rules which would impact on the exercise of that discretion.

Rule 42.1 of the UCPR states:

There was “no event” in the present case because there was no hearing on the merits, such that r 42.1 of the UCPR has no bearing on the exercise of the discretion to award costs. In such circumstances, the court must be careful not to engage in a hypothetical hearing.

This point is emphasised in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6, McHugh J at 624–625 saying (footnotes omitted):

There are particular provisions in the UCPR regarding the way in which costs are to be dealt with in the case of a discontinuance.

Rule 12.1(1) of the UCPR states:

In the present case there was an application for a discontinuance by Rettenmaier Germany with leave of the court on 1 May 2024.

Rule 42.19(1) and (2) of the UCPR have particular application to the determination of costs in relations to a discontinuance, relevantly stating:

Rule 42.20(1) of the UCPR contains a similar “unless the court orders otherwise, the plaintiff must pay the defendant’s costs” approach in relation to the dismissal of proceedings.

It is necessary to consider the way in which the authorities have dealt with the question of costs in such circumstances, some of which involve the discontinuance or dismissal of proceedings in the context of a winding up application. I have done so at length below.

In Lavercombe v Auscott (2006) 58 ACSR 586; [2006] NSWSC 867, Barrett J considered, among others, the question of the costs of the winding-up proceedings in circumstances where those proceedings were dismissed by consent. It was not a case involving the application of r 42.19 of the UCPR.

The plaintiff issued a statutory demand on the defendant company, which was not paid within the period prescribed by s 459F of the Corporations Act. The plaintiff applied to have the defendant company wound up in insolvency. There was no dispute as to the existence of the debt or that it was due and payable. The defendant company then paid the debt. The plaintiff consented to the dismissal of his application but reserved his position on costs.

At [43], Barrett J stated that there was no “event” for the purposes of r 42.1 of the UCPR, the proceedings were disposed of by consent and there had been no determination on the merits. Barrett J at [43] also quoted those parts of the judgment of McHugh J in Lai Qin quoted above and said at [44]:

At [45], Barrett J considered that in the area of company winding up, an aspect of what is unreasonable is identified in a passage from the judgment of Brightman J in Re Lanaghan Bros Ltd [1977] 1 All ER 265 at 266:

Relying on the principle stated in Lanaghan Bros, Barrett J at [47]–[48] found that the plaintiff had initiated and pursued his application “with complete propriety”, the debt should have been paid before the expiry of the period for complying with the statutory demand and the plaintiff should never have been put to the trouble and expense of bringing the proceedings. Barrett J at [49] ordered that the defendant company pay the plaintiff’s costs of the proceedings.

Two months after the decision in Lavercombe, in Fordyce v Fordham (2006) 67 NSWLR 497; [2006] NSWCA 274, the Court of Appeal of this court considered the operation of r 42.19 of the UCPR. The case involved two neighbours feuding over the access to land of one neighbour to enable the other neighbour to remove trees on that land to stabilise and replace a retaining wall. At first instance the primary judge granted an interlocutory injunction ex parte to the plaintiff to restrain the defendant’s access to the land to remove the trees. When the proceedings did not go to final hearing, the primary judge dismissed the proceedings and ordered the defendant to pay the plaintiff’s costs.

The following propositions emerge from the judgment of McColl JA (with whom Beazley and Santow JJA agreed) at [84]–[87]:

In Fordyce, Santow JA at [3] also added:

Cockatoo Ridge Wines Ltd v Naked Wines Direct Pty Ltd [2006] NSWSC 1074 was also decided by Barrett J, two months after his Honour’s decision in Lavercombe, and one week after the Court of Appeal handed down its decision in Fordyce.

In Cockatoo Ridge Wines the plaintiff sought a winding up order in respect of the defendant company. On the date the originating process came before the Registrar, the debt owing to the plaintiff had been paid and it did not seek to proceed with the winding up application. However, WorkCover Queensland had filed a notice of appearance to support the winding up application as a creditor of the defendant company. WorkCover Queensland was granted leave to apply for an order substituting it as the applicant for the winding up order.

The proceedings were stood over and during that time, the defendant company gave WorkCover Queensland a cheque for its debt. By consent, the originating process was dismissed and an argument ensued as to costs.

At [6] Barrett J said that because there had been no determination on the merits, the general expectation was that there should be no order as to costs, citing Lai Qin.

At [7] Barrett J cited Fordyce only for the proposition that the Lai Qin approach is pertinent but not necessarily determinative in cases of this kind. Fordyce was not relied on for any broader proposition.

Cockatoo Ridge Wines was not a case involving the application of rr 42.19 or 42.20 of the UPCR. Barrett J held at [10] that the case was within r 42.20 of the UCPR because the court made an order for the dismissal of the proceedings but since there was no application by the defendant company for an order against the plaintiff, there was no occasion to apply the rule. Barrett J also observed at [10] that the court may depart from the costs position stated in r 42.20 and would have done so in the circumstances of the case.

The defendant company submitted that WorkCover Queensland should not have its costs because, if it had gone to trial with WorkCover Queensland as substituted plaintiff, the defendant company would have won because the proceedings were doomed to fail based on invalid service of the statutory demand and there being no presumption of insolvency. At [14], Barrett J rejected this submission.

In Cockatoo Ridge Wines, Barrett J at [15] came to the same conclusion as that reached by his Honour in Lavercombe, relying on the principle in Lanaghan Bros and saying:

Barrett J ordered the defendant company to pay WorkCover Queensland’s costs.

Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548 was decided by Finkelstein J six months after Fordyce was handed down. The Deputy Commissioner of Taxation withdrew its application to wind up the defendant company based on its failure to comply with a statutory demand after a director of it produced in court a suitcase containing several hundred thousand dollars in cash (more than enough to satisfy the debt) which it asserted was evidence of its solvency. Shortly after, the director served a lengthy affidavit deposing to the company’s solvency. In the following week, the defendant company paid the debt.

At [6] Finkelstein J stated that for the purposes of deciding who should bear the costs his Honour did not intend to enquire into the merits of the company’s claim that it was not indebted to the Deputy Commissioner of Taxation. At [8]–[15], Finkelstein J rejected the notion that a company can only prove its solvency by producing audited accounts and observed that the nature of the evidence as to solvency in the end will depend upon each particular fact of a case (at [14]).

The following reasoning of Finkelstein J at [15]–[17] is particularly apt (my emphasis):

Finkelstein J ordered that the defendant company pay the Deputy Commissioner of Taxation’s costs up to the date on which the Deputy Commissioner of Taxation received the affidavit deposing to the company’s solvency.

Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWCA 32 involved the granting of leave to a plaintiff to discontinue proceedings in the District Court and the making of costs orders in favour of the plaintiff against the defendant. Hodgson JA (with whom Tobias JA agreed) at [53]–[54] said:

These principles from Bitannia have been regularly cited and applied since: see for example, Walton v Commonwealth Bank of Australia [2020] NSWCA 191, Basten JA (with whom Macfarlan and White JJA agreed) at [26] and Nadilo v Eagleton [2021] NSWCA 232, Brereton JA (with whom Meagher JA agreed) at [7].

Deputy Commissioner of Taxation v Rhodium Australia Pty Ltd [2011] FCA 988 concerned the issue of costs in the proceedings after the Deputy Commissioner of Taxation as the applicant for an order winding up the defendant company in insolvency sought leave to discontinue at the outset of the hearing. At [3] and [4] Bromberg J cited and applied the principles stated in Lai Qin and Lavercombe, stating at [5]:

The “good reason” to which Bromberg J refers at [20]–[23] was that the application for the winding up rested on the defendant company’s failure to comply with a statutory demand, which justified the making and pursuing of the winding up application “with complete propriety”, the presumption of insolvency which operated against the defendant company and the fact that the evidence provided by the defendant company consisted of unaudited financial statements with no valuation for the intangible asset comprising 95% of the total assets of the company.

Bromberg J held at [25] that there came a point when the defendant company did provide sufficient evidence which should have caused the Deputy Commissioner of Taxation to have immediately moved to discontinue the proceedings. As a result, the defendant company was ordered to pay the costs of the Deputy Commissioner of Taxation up to that point.

The decision of Bromberg J in Rhodium Australia was affirmed on appeal: Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17.

In Nicolai v Indochina Medical Co Pty Ltd, in the matter of Indochina Medical Co Pty Ltd (No 2) [2013] FCA 180, Yates J dealt with the issue of costs following the discontinuance of the plaintiff’s application that the defendant company be wound up in insolvency after it had failed to comply with a statutory demand for an undisputed debt giving rise to the presumption of insolvency. At [11]–[12], Yates J referred to the Federal Court’s counterparts to rr 12.1 and 42.19. At [13]–[15], Yates J cited Lavercombe at length, including its reliance on the principles contained in Lai Qin. Yates J also referred at [16] to the approach taken in Rhodium Australia. Yates J said at [18]–[19] that the approach his Honour proposed to take was that which was described in Bell v Macquarie Bank Ltd [2000] FCA 1521 by Lehane J at [5] as follows:

Yates J at [19] did not see this approach as being inconsistent with that taken in Rhodium Australia.

Re Nutek Constructions Pty Ltd [2017] NSWSC 451 is a decision by Gleeson JA concerning costs following the dismissal of a winding up application by consent. The winding up application was brought by Sydney Elite Concrete Pumping Services against Nutek Constructions in reliance on the presumption of insolvency arising from Nutek Construction’s failure to comply with a statutory demand. A few days before the proceedings were first returnable, Nutek Constructions paid the debt. The only issue between the parties after the date of that payment was costs.

Despite the debt being paid, the plaintiff continued to prosecute its winding up application and the defendant brought an application against the plaintiff under s 459S of the Corporations Act (which Gleeson JA describes as misconceived: at [9]). At [24], Gleeson JA said that the procedural steps which were taken after that time unnecessarily incurred further costs as they continued to wrangle about the question of costs and the disposition of the proceedings. Finally, the parties reached an agreement and the court made orders by consent dismissing the winding up application and listed the hearing before Gleeson JA to deal with the issue of costs.

Gleeson JA, relying on Lai Qin, Lanaghan Bros and Lavercombe, held at [37]–[39]:

His Honour ordered that the defendant pay the plaintiff’s costs on an ordinary basis up to the time at which the winding up application was first returnable and the defendant had proposed to file consent orders discontinuing the proceedings as the debt had been paid.

Distilling these various principles in respect of an award of costs arising from a discontinuance of proceedings, I propose to apply the following approach:

A summary of the relevant principles relating to the discretion to award costs on an indemnity basis based on the conduct of a party can be found in Cappello v HomeBuilding Pty Ltd [2023] NSWCA 109, a recent decision of the Court of Appeal of this court, in which Mitchelmore JA (with whom Simpson AJA and Meagher JA agreed) at [46]–[48] stated:

The principle concerning the awarding of indemnity costs based on the failure of a party to accept an offer of compromise contained in a Calderbank letter was stated in SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, Giles JA at [37] saying:

In summary, Rettenmaier Germany made the following submissions:

In summary, Nutrimonde made the following submissions:

I start my consideration with the relevant, but neither presumptive nor determinative, factor that r 42.19(2) of the UCPR provides that unless I otherwise order, Rettenmaier Germany is to pay Nutrimonde’s costs of the proceedings. I then turn to other relevant considerations.

In my view, through their submissions the parties have approached the issue of determining the appropriate costs order that should be made in this case with the misconceived notion that I should consider the merits of the position they each took on the substantive issue of solvency at different points in the proceedings. The overwhelming majority of their submissions are directed to that approach, particularly the arguments about the admissibility of evidence going to the issue of solvency and the resort to the decision of Megaward in relation to how either party can address or test the issue of solvency, as the case may be. Rettenmaier Germany invites me to forensically examine the evidence of Nutrimonde and conclude that it was inadequate to prove its solvency and Nutrimonde invites me to do the same but reach the opposite conclusion.

But, to paraphrase Lai Qin, this is not a case in which I feel confident that I can determine that one party was almost certain to have succeeded if the matter had been fully tried. The evidence remained untested. The parties made forensic decisions for their own reasons as to the manner in which they conducted the proceedings. I will not engage in a hypothetical trial or make hypothetical rulings on what was or was not admissible evidence on the issue of solvency. I find myself in the same position as Finkelstein J in De Simone — it is impossible to predict what the outcome of the case would have been.

In my view, both parties behaved reasonably during the proceedings.

Rettenmaier Germany behaved reasonably because it was owed a significant sum of money for unpaid invoices which had been outstanding for some time and by becoming substituted as the plaintiff it was able to take advantage of the statutory presumption that Nutrimonde was insolvent which Nutrimonde had the onus to displace. That presumption of insolvency operated throughout the proceedings. Assertions by Nutrimonde that it was solvent are no substitute for admissible evidence on that issue. It was not a matter for Rettenmaier Germany to put on any lay or expert evidence going to that issue or seek production of documents by discovery, subpoenas or notices to produce unless it took the view that Nutrimonde was likely to meet its onus with admissible evidence. Rettenmaier Germany clearly considered that the admissible evidence did not meet the onus until it received Blackley affidavit 5 in the afternoon before the hearing. When Rettenmaier Germany saw that Nutrimonde had addressed what it considered to be evidentiary deficiencies, it took the sensible course of applying for leave to discontinue the proceedings.

Nutrimonde behaved reasonably because it sought to address the onus it had to prove that it was solvent by successive rounds of lay evidence from Mr Blackley as the sole controller of Nutrimonde with knowledge of its financial affairs and expert evidence from Mr Thyer seeking to provide an opinion on solvency. Nutrimonde had its own reasons for refusing to provide the Undertaking. While Nutrimonde admitted the amount of the debt owing to Rettenmaier Germany (ultimately agreeing with the amount claimed by Rettenmaier Germany) at all times Nutrimonde maintained that it had an offsetting claim. When it became clear in the submissions and objections provided by Rettenmaier Germany on 26 April 2024 that objection was being taken to the admissibility of significant parts of Nutrimonde’s evidence, Nutrimonde naturally sought to address those alleged deficiencies in the form of Blackley affidavit 5 provided on 30 April 2024.

This is not a case like those of Lavercombe, Cockatoo Ridge Wines and Nutek Constructions where the debt owing by the defendant to the plaintiff creditor was obviously owing and paid during the course of the proceedings. In this case Nutrimonde contested the debt on the basis that it had an offsetting claim.

This is also not a case which provides any basis for an award of indemnity costs in favour of Nutrimonde. There are no circumstances concerning Rettenmaier Germany maintaining the proceedings (such as a hopeless case or unreasonable conduct) in the sense described in Cappello which would justify such an award. Further, the alleged Calderbank offer made on 27 September 2023 in the letter sent by Nutrimonde’s solicitors to Rettenmaier USA’s solicitors was made at a time when Rettenmaier Germany was not a party to the proceedings and no such offer was made to it at any subsequent time. In addition, the letter was not sent when any recipient would be able to make any informed assessment of the solvency of Nutrimonde at that time because the financial statements accompanying that letter were already 15 months old by then. To use the words in SMEC Testing, a recipient of the letter could reasonably fail to accept the offer without suffering in costs.

In my assessment, Rettenmaier Germany conducted itself with complete propriety in prosecuting the proceedings with an operative presumption of insolvency against Nutrimonde and Nutrimonde conducted itself with complete propriety in defending the proceedings by seeking to displace that presumption through the provision of lay and expert evidence. The position of each party was not analysed and determined on the merits. In the circumstances, I consider that this is a case where in the exercise of my discretion the costs of the parties in the proceedings should lay where they fall and neither party should pay the costs of the other.

For these reasons, I propose to make the following orders: