In the matter of GTH Equipment Pty Ltd

On 24 November 2017, I delivered judgment in this matter ([2017] NSWSC 1617) and made orders that a creditor’s statutory demand dated 4 August 2017 (“Demand”) issued by the Defendant, Merlo Group Australia Pty Ltd (“MGA”) to the Plaintiff, GTH Equipment Pty Ltd (“GTH”), be set aside and that MGA pay GTH’s costs of the application as agreed or as assessed. GTH then sought a lump sum costs order under s 98(4) of the Civil Procedure Act 2005 (NSW) and MGA indicated that, notwithstanding that GTH had obtained an order setting aside the Demand, it sought to be heard as to the question of costs. I then made orders for written submissions in respect of the question of costs.

It will be convenient first to deal with MGA’s submissions. MGA submits that an order should be made that it be paid its costs of the proceedings after 2 November 2017 or, alternatively, that each party should be ordered to pay its own costs of the proceedings.

MGA relies on a letter dated 2 November 2017 from its solicitors to GTH’s solicitors. That letter was labelled “without prejudice save as to costs” and referred to District Court proceedings between the parties and the commencement of the proceedings to set aside the Demand and made an offer to resolve both the District Court proceedings and the application to set aside the Demand (excluding costs orders in the District Court proceedings which would be left to assessment in due course) on terms, inter alia, that GTH pay MGA a substantial amount in full and final settlement of the District Court proceedings and the Supreme Court proceedings within 14 days from the date the offer was accepted by GTH. That offer was said to be made on the basis of the principles set out in Calderbank v Calderbank [1975] 3 All ER 333 and was left open for acceptance for 7 days.

Mr Afshar, who appears for MGA, refers to r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) which provides that, subject to Pt 42, if the Court makes any order as to costs, it should order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs. Mr Afshar also refers to the summary of the applicable principles by Ward J (as her Honour then was) in Nu Line Construction Group Pty Ltd v Fowler (aka Grippaudo) [2012] NSWSC 816 at [9]–[15]. Her Honour observed that:

In Re MF Global Australia Ltd (in liq); Hopper v Campbell in his capacity as liquidator of MF Global Australia Ltd (in liq) [2015] NSWSC 1583 at [6], I referred to that decision and summarised the principles applicable in determining the effect of a Calderbank offer as follows:

Mr Afshar submitted that the letter dated 2 November 2017 offered to accept a lesser amount than the amount claimed in the Demand although, on the face of it, that letter appears to have required the payment of $55,425.23 (defined as the “Settlement Sum”) rather than the amount of $29,099.15 to which Mr Afshar refers in submissions. However, even if that letter had the effect for which Mr Afshar contends, it linked the resolution of the application to set aside the Demand with the resolution of the District Court proceedings. MGA submits that it was unreasonable for GTH not to accept that offer, on the basis of the suggested discount involved in it. I do not accept that submission, where GTH was entitled to pursue an application to set aside the Demand, which was defective, rather than being required to compromise the District Court proceedings in order to avoid a presumption of insolvency arising from a failure to comply with that Demand.

Mr Beazley, who appears for GTH, responds to this submission by pointing out that GTH had, by the date of the letter from MGA’s solicitors, incurred the filing and hearing allocation fee for the application to set aside the Demand and a substantial amount of solicitor’s costs and that MGA’s offer extended to the District Court proceedings, was conditional upon GTH making payments to MGA, and was not an offer to reduce the amount claimed in the Demand or an unconditional offer to withdraw the Demand.

I am not satisfied that it was unreasonable for GTH to pursue its application to set aside the Demand, rather than accepting MGA’s offer that also required resolution of the District Court proceedings. I am therefore also not satisfied that there is any basis to depart from the usual order that costs follow the event, either to order that GTH pay MGA’s costs after 2 November 2017, the date of that letter, or that there should be no order as to costs.

As I noted above, GTH seeks a lump sum costs order. By its submissions served on 29 November 2017, GTH indicated that it sought a lump sum costs order in the amount of $17,846.30, comprising $6,787 by way of professional costs, $3,000 for Counsel’s fees and amounts in respect of the filing fee, a hearing allocation fee and an ASIC search fee. GTH did not claim for goods and services tax because it is registered for GST. GTH relied on a draft itemised bill in support of that application. Mr Beazley referred to my summary of the circumstances in which a gross sum costs order could be made in Re Aquaqueen International Pty Ltd [2015] NSWSC 500 at [16]–[21]. I there observed that:

Mr Beazley submitted that the parties were in continuing litigation in the District Court of New South Wales, the costs claimed were relatively small and the delay of and costs in an assessment would be disproportionate, where it was unlikely that the parties would reach agreement as to costs. MGA responds that, if it is required to pay GTH’s costs, those should be as agreed or as assessed, and also advanced criticisms of the time spent by GTH’s solicitors reflected in the claimed costs.

I am satisfied that this is a proper case for a lump sum costs order, and there is every reason to think that the delay in assessment and the costs of assessment would be disproportionate in the circumstances of a relatively straightforward application to set aside a creditor’s statutory demand. It seems to me that such an order may more readily be made where the bulk of the costs claimed relate to Counsel’s fees, the filing fee and the hearing allocation fee, as to which there is little room for dispute. I will not, however, make an order for lump sum costs on a solicitor/client basis, which is the approach for which GTH contends. The amount of costs should be discounted to 70% of the solicitor/client costs claimed, consistent with a percentage that has frequently been accepted by this Court in respect of applications for gross sum costs orders: see, for example, Dubow v Fitness First Australia Pty Ltd (No 2) [2012] NSWSC 961 at [14]–[21]; Re Palladium Consulting Pty Ltd [2013] NSWSC 92 at [14]; Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 279 at [17]; Re Aquaqueen International Pty Ltd above. I am satisfied that that will be sufficient to take account of the criticisms made by MGA of the time spent in respect of the solicitor’s work, and that the amounts raised by those criticisms are not sufficiently material to warrant the further costs of or delay in an assessment.

Since GTH has been successful in its application for a lump sum costs order, and MGA has been unsuccessful in its resistance to that order and unsuccessful in its contention that a contrary order should be made, MGA should also pay the costs of the costs application on and from 24 November 2017.

Accordingly, I make the following orders: