In the matter of Elrob Construction Group Pty Ltd

By Originating Process filed on 17 September 2025, the Plaintiff, Elrob Construction Group Pty Ltd (“Elrob”) applied to set aside a creditor’s statutory demand (“Demand”) dated 3 September 2025 served by Mr Schmuelly. On 10 November 2025, by consent of the parties, I made orders granting leave to Elrob to file a notice of discontinuance in respect of the application and reserved the question of costs at the parties’ request. I made orders for submissions as to costs and for the determination of that question in Chambers.

Mr Krochmalik, who appears for Mr Schmuelly, submitted that the Demand relied on a judgment debt for $1,133,332 (excluding interest) arising from a judgment in Schmuelly v Elrob Construction Group Pty Ltd (No 3) [2025] NSWSC 118, and was issued after that judgment was not stayed and was not satisfied by Elrob. Mr Krochmalik also submitted that the Court should set aside the orders granting leave to Elrob to discontinue the proceedings and instead dismiss the proceedings, and that Elrob should pay Mr Schmuelly’s costs of the proceedings on an indemnity basis. No application was made by Mr Schmuelly to reopen the proceedings and reagitate the question of the orders made in them, and there is no basis on which the orders previously made should be set aside at this point.

Second, Mr Krochmalik submitted that Elrob should pay Mr Schmuelly’s costs of the proceedings, whether they were discontinued or were dismissed, and should do so on an indemnity basis. By submissions dated 13 November 2025, Mr Rajeev, who appears for Elrob, submitted that there should be no order as to costs, having regard to the procedural history, “genuine settlement negotiations” between the parties and the “equitable circumstances” of the discontinuance. Mr Rajeev submitted that the application was brought by Elrob in good faith, based on genuine disputes concerning the underlying debt and procedural irregularities in the Demand, and was not pressed after the parties entered “good faith settlement discussions” in respect of a possible creditors’ voluntary liquidation of Elrob. Mr Rajeev relied on Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 in support of a submission that a discontinuance following reasonable settlement efforts should not ordinarily result in a costs order. Mr Rajeev also addressed the position taken by the Defendant, Mr Schmuelly, in respect of the possible appointment of a liquidator, but it is not necessary to address that submission in order to determine the application. Mr Rajeev also submitted that no personal costs order should be made against the director of Elrob, in anticipation of the possibility that such an order might be sought.

I accept that, where the proceedings have been discontinued, the starting point under r 42.19 of the Uniform Civil Procedure Rules 2005 (NSW) is that Elrob is to pay Mr Schmuelly’s costs of the proceedings. I summarised the relevant principles in Re Cabramatta King Tea Pty Ltd [2022] NSWSC 462 (at [5]ff) and I adopt, without repeating, that summary. Mr Krochmalik submits and I accept that the matters raised by Elrob are not sufficient to displace that starting point where Elrob commenced the application to set aside the Demand, put Mr Schmuelly to the costs of defending it and then did not pursue that application. Mr Krochmalik submits that, obviously enough, the Court has power to make an order for costs on an indemnity basis under s 98 of the Civil Procedure Act 2005 (NSW) and, as is well established, such an order may be made if the conduct of the other party is unreasonable or delinquent. Mr Krochmalik submits that Elrob’s application to set aside the Demand was doomed to fail. I do not accept that submission where its merits have been the subject of submissions or determination. The fact that an application to set aside a creditor’s statutory demand might have failed would not, without more, warrant an order for indemnity costs, particularly where Elrob was sensible enough to discontinue that application rather than pursue it to completion.

Third, Mr Krochmalik also sought to reserve Mr Schmuelly’s “right” to seek a third party costs order against Elrob’s director. The Court here made orders as to the manner in which the costs application should proceed in this matter; that costs application was made against Elrob and not against its director personally, and it has now been finally determined. No doubt, Mr Schmuelly may apply to reopen the proceedings, if so advised, although his prospects of succeeding in such an application seem remote.

For these reasons, I order that the Plaintiff pay the Defendant’s costs of the proceedings as agreed or as assessed.