In the matter of Ming Tian Real Property Pty Ltd

By Originating Process filed on 22 February 2021 the Plaintiff, Ming Tian Real Property Pty Ltd (“Ming Tian”) applied, under s 459H and 459J of the Corporations Act 2001 (Cth) for an order that a creditor’s statutory demand (“Demand”) issued on 29 January 2021 by the Defendant, Rose Ives Pty Ltd (“Rose Ives”) be set aside. The application was supported by an affidavit dated 22 February 2021 sworn by the solicitor for the Plaintiff, Mr Rashed, which contended that the Demand was not in the prescribed form, Form 509H and, that Ming Tian was not indebted to Rose Ives because the relevant debt “was or was intended to be assigned or novated to a different company controlled by the director of [Rose Ives]”. Mr Rashed also referred to aspects of the suggested relationship between Ming Tian and Rose Ives and to a contention that a loan made in 2016 was “rolled into” a loan made in 2018 so that another entity was the true creditor under the loan made in 2018. On 5 March 2021, I ordered, by consent, that the Demand be set aside and, at the parties’ request, that the issue of costs be determined on the papers.

By written submissions filed on 15 March 2021, Mr Li, who appears for Ming Tian, contends that Rose Ives capitulated to the relief sought by Ming Tian, other than as to costs, and that costs should follow the event. Mr Li also refers to the general principle that costs follow the event under r 42.1 of the Uniform Civil Procedure Rules. That principle has no application here, because there has been no determination of these proceedings on their merits. Mr Li also referred to the principle recognised in observations of McHugh J in Re The Minister for Immigration and Ethic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (“Lai Qin”) that, where proceedings are determined without a hearing on the merits, the Court can generally not make an order for costs, where that would require the determination of a hypothetical proceeding, in order to determine the question of costs. Mr Li submits that the rule does not apply if the result reflects a capitulation by one party so that the Court can be satisfied one party won and the other party lost.

Mr Li relies also on Mr Rashed’s evidence to contend that Rose Ives had full knowledge, through its director and shareholder, of the matters on which Ming Tian relied to set aside the Demand, and contends that it was not open to Rose Ives to complain that it was taken by surprise by the application to set aside the Demand. That proposition is untestable, where Mr Rashed’s evidence was not read in the application to set aside the Demand, because it did not proceed. Mr Li also submits that:

By submissions in response dated 22 March 2021, Mr Lee, who appears for Rose Ives, submits that there should be no order as to the costs of the proceedings and relies on an affidavit dated 22 March 2021 of Mr Li Min, the solicitor acting for Rose Ives. Mr Lee refers to evidence by which he contends that the Demand relates to a loan made in August 2016; the repayment date for the loan was December 2018; a demand for payment was sent in October 2020; an extension of time to repay the debt was then sought by MT; and MT did not raise any dispute as to the debt until the application to set aside the Demand was made on 22 February 2021.

Mr Lee refers to the proposition, to which I have noted above, that there has been no event for the purposes of UCPR r 42.1 where there has been no determination on the merits and refers to Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772. He refers to the decision in Lai Qin, to which I have referred above, and notes that that principle has been applied in the context of an application to set aside a creditor’s statutory demand: Re Telegraph Point Sports and Recreation Club Ltd [2020] NSWSC 616. He recognises, and I accept, that a relevant question is whether both sides have acted reasonably up to the point the proceeding is “compromised”, and repeats the contention that Ming Tian had failed to identify any genuine dispute in relation to the debt, and acknowledged its existence and sought an extension of time to repay, before the application to set aside the Demand was brought. He submits that Rose Ives acted reasonably in agreeing to set aside the Demand, after Ming Tian identified its purported grounds for the genuine dispute. He also noted, and I accept, that the Court cannot now reach findings as to whether the Demand would have been set aside either on the basis that the Deed of Loan had been novated or that there was a deficiency with the form of the Demand or that either proposition was genuinely arguable, where the matter has not gone to hearing.

Several cases that 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 again in Re Telegraph Point Sports and Recreation Club Ltd above.

In Lai Qin above at 624–625, 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 above 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 and 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 and Recreation Club Ltd above, 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 am satisfied in this case that the Court could not here reach a determination as to the disputed issues to which Counsel have referred, or as to the disputed question of the extent of notice that Rose Ives had of Ming Tian’s grounds for disputing the Demand, in the absence of a hearing on the merits. For these reasons, there will be no order as to the costs of the proceedings, other than in respect of this application for costs. Ming Tian has been unsuccessful in its application that Rose Ives should pay its costs of the proceedings, and it should be ordered to pay the costs of the application.

Accordingly, I make the following orders: