New South Wales Supreme Court CITATION : Jem Number Four Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602 HEARING DATE(S) : 16/06/06 JUDGMENT DATE : 16 June 2006 JURISDICTION : Equity DIvision Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 06/16/2006 DECISION : Proceedings dismissed. Plaintiffs to pay defendant's costs. CATCHWORDS : CORPORATIONS - winding up - application to set aside statutory demands - demands satisfied by payment on evening before hearing - appropriate disposition of proceedings - PROCEDURE - costs - where no determination on the merits - whether plaintiffs' conduct unreasonable so as to warrant costs order in favour of defendant LEGISLATION CITED : Corporations Act 2001 (Cth), ss.459C(2)(a), s.459F(2)(a)(ii), 459G CASES CITED : Re Minister For Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 Jem Number Four Pty Limited - First Plaintiff PARTIES : Pacifico Number Four Pty Limited - Second Plaintiff Southern Cross Constructions (NSW) Pty Limited - Defendant FILE NUMBER(S) : SC 1711/06 COUNSEL : Mr A.A.R. Vincent - Plaintiffs Mr G.A. Laughton SC - Defendant SOLICITORS : Salim Lawyers - Plaintiffs CV Theodore Solicitors - Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY 16 JUNE 2006 1711/06 JEM NUMBER FOUR PTY LTD & ORS V SOUTHERN CROSS CONSTRUCTION (NSW) PTY LTD JUDGMENT – ex tempore (revised) 1 By their originating process filed on 3 March 2006, the plaintiffs, Jem Number Four Pty Ltd and Pacifico Number Four Pty Ltd seek against the defendant, Southern Cross Constructions NSW Pty Ltd, as principal relief, "An order that the defendant's two statutory demands for payment of a non-judgment debt, in the sum of $363,000 (inclusive of GST), served by the defendant on the first and second plaintiffs on 14 February 2006 ('the statutory demands') be set aside pursuant to section 459G of the Act." 2 The application is thus advanced under s.459G and, as the order sought shows, there are in contention two statutory demands, one served on each of the plaintiffs. 3 When the matter was called on for hearing this morning, the court was informed that the amount claimed by the two demands had been paid to the defendant late yesterday. It was then put that the court should be concerned only with the matter of costs. Each party sought an order for costs against the other. As submissions progressed, it became clear that there was no agreement as to the appropriate outcome of the proceedings, even apart from costs. The plaintiffs' contention was that, notwithstanding the payment, they should still have an order that the statutory demands be set aside. The defendant said that there should be no order setting aside the statutory demands because they had been satisfied and effectively there was nothing left to set aside. 4 My initial reaction was that, if the court did not make an order setting aside the demands, they would operate to create a presumption of insolvency under s.459C. On reflection, however, I formed the opinion that that is not so. The position is one where the sum demanded has been paid (the defendant accepts that the one payment of $363,000 operated to satisfy the payment requirement notified by each demand) and that, since that happened while the s.459G applications remained pending, the case was of the kind referred to in s.459F(2)(a)(ii) and payment within the period there mentioned (being a period beginning when the demand was served and ending upon the making of the order of final disposition in this proceeding, whatever that order may be) constituted compliance with the demand. No presumption of insolvency can therefore arise via s.459C(2)(a). 5 The appropriate order is therefore an order that the proceedings be dismissed. 6 There has been no hearing or determination on the merits. In cases of that kind, the general expectation is that there should be no order as to costs, with the result that each side is left to bear its own costs. That is subject to some exceptions, which are conveniently summarised in the judgment of McHugh J in the case of Re Minister For Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at p.624-5: ""In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs [1]. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order [2]. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties [3]. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [4]. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [5], the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission [6] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare. If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases [7]." 7 The expectation that costs should lie where they fall may be displaced if the court can see, with ease, that one party has acted unreasonably in a way which should be compensated by costs. 8 The defendant's contention is, in effect, that it was required to defend these proceedings up to the evening of the day before that fixed for final hearing, whereupon the payment that lay at the heart of the statutory demand was eventually made. That, it is said, constitutes unreasonable behaviour in that the plaintiffs, if they were going to pay the sum demanded, could and should have done so much earlier, in order to spare the defendant the time, trouble and expense to which it has been put by reason of the proceedings. 9 The plaintiffs' contention, on the other hand, is that they were not obliged to make the payment and made late it late yesterday only to obtain some related commercial outcome. That has been said from the bar table and no evidence about it has been adduced. 10 The matter is not one which, in my view, requires the substantive contentions about genuine dispute to be explored. The simple fact is that the plaintiffs eventually paid as demanded. Why they paid and what prompted them to pay is, to my mind, beside the point. They paid only after having put the defendant to the time, trouble and expense to which I have referred. 11 I accept that the conduct of the plaintiffs in that respect was unreasonable in the sense to which McHugh J referred, with the result that the defendant ought to have an order for costs. 12 The proceedings are accordingly disposed of by the following orders: 1. Order that because of the parties' agreement that each of the statutory demands for payment of a non-judgment debt in the sum of $363,000 (inclusive of GST) served by the defendant on the first and second plaintiffs on 14 February 2006 was satisfied on 15 June 2006, the application for orders under s.459G setting aside those statutory demands is dismissed. 2. Order that the plaintiffs pay the defendant's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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