Auto Control Systems Pty Ltd v WA Glass Pty Ltd - [2024] WASC 160

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   AUTO CONTROL SYSTEMS PTY LTD -v- WA GLASS PTY LTD [2024] WASC 160
CORAM:   COBBY J
HEARD:   8 FEBRUARY 2024
DELIVERED          :   8 FEBRUARY 2024
PUBLISHED           :   3 MAY 2024
FILE NO/S:   COR 135 of 2023
BETWEEN:   AUTO CONTROL SYSTEMS PTY LTD
Plaintiff

AND

WA GLASS PTY LTD
Defendant

Catchwords:

Leave to discontinue - Costs of proceedings where no determination on the merits

Legislation:

Rules of the Supreme Court 1971 (WA) O 23 r 2(3)

Result:

Application granted in part

Category: B

Representation:

Counsel:

Plaintiff	:	Mr J P Cook
Defendant	:	Mr D H Solomon

Solicitors:

Plaintiff	:	Mendelawitz Morton Commercial Lawyers
Defendant	:	Solomon Brothers

Case(s) referred to in decision(s):

Re Kirkman and Brauer as joint and several administrators of Tiger Resources Ltd (Subject to deed of company arrangement) [2021] WASC 273
Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASC 187
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASCA 162
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2] [2023] WASCA 85
WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4] [2023] WASCA 154

COBBY J:

(This judgment was delivered ex temporaneously on 8 February 2024 and has been edited from the transcript to correct matters of grammar and include complete references.)

The plaintiff applied by originating process filed 1 September 2023 to wind up the defendant in insolvency, relying upon a failure by the defendant to comply with a statutory demand dated 12 February 2021.
By an interlocutory process filed 13 November 2023 the plaintiff now seeks leave to discontinue the action and an order that the defendant pay the plaintiff's costs of the action, including reserved costs.
The defendant does not oppose the discontinuance, but seeks an order that the plaintiff pay the defendant's costs of the action, including reserved costs.
The principles relating to the exercise of the discretion as to costs conferred by O 23 r 2(3) of the Rules of the Supreme Court 1971 (WA) where a proceeding has been discontinued were conveniently summarised by Hill J in Re Kirkman and Brauer as joint and several administrators of Tiger Resources Ltd (Subject to deed of company arrangement) [2021] WASC 273.
Relevantly for present purposes, the underlying policy of the Rules is that the discontinuing party should pay the other party's costs unless the court orders otherwise. The conduct of the parties and the reasons for discontinuing the proceedings can bear heavily on the exercise of the court's discretion to make some other order as to costs.
There has been no hearing on the merits in the action but the defendant can (and does) claim to be the successful party on the basis that the plaintiff seeks leave to discontinue. I therefore need to be satisfied that there is good reason for departing from the ordinary rule for the defendant to be denied its costs.
As I have said, the present action was founded upon the defendant's failure to comply with a statutory demand dated 12 February 2021, claiming debts totalling $248,391.90.
The defendant applied to set aside the statutory demand on the grounds that there was a genuine dispute as to the debts claimed and that the defendant had an offsetting claim. That application was heard by Master Sanderson, who dismissed it on 18 August 2021.[1]
[1] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASC 187.
The defendant appealed that decision. Pending the determination of its appeal, the defendant obtained an order to extend the period of time for compliance with the statutory demand until seven days after the determination of the appeal, on condition that the defendant pay the amount of $248,391.91[2] into court as security for compliance with the statutory demand if its appeal be dismissed.[3]
[2] The difference between the amount claimed in the demand and the amount paid into court is immaterial.
[3] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [2021] WASCA 162.
The imposition of that condition was suggested by the defendant.[4]
[4] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4] [2023] WASCA 154 [15].
The Court of Appeal dismissed the defendant's appeal on 30 May 2023,[5] holding that there was no genuine dispute as to the existence or the amount of the debt claimed by the plaintiff and no offsetting claim. Upon delivery of the Court of Appeal's reasons, the parties made competing applications for payment out of the amount paid into court to their respective solicitors.
[5] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 2] [2023] WASCA 85.
As at 30 May 2023, the time for compliance with the statutory demand had not expired, due to the extension of time to comply with the demand until 7 days after the determination of the appeal, and the Court of Appeal accordingly held that it was not appropriate to order payment out to the plaintiff's solicitors.[6]
[6] WA Glass Pty Ltd v Auto Control Systems Pty Ltd [No 4] [23].
The Court of Appeal further held that the payment into court would not operate as security for compliance with the statutory demand if it were to be repaid to the defendant where there had been no compliance with the statutory demand,[7] and consequently declined to make an order for payment out to the defendant's solicitors. In the course of delivering its reasons, the Court of Appeal stated that the terms of the condition were "unambiguous and admit of only one construction".[8]
[7] Ibid.
[8] Ibid.
The defendant did not comply with the demand within the extended time for compliance.
Thereafter, on 6 June 2023, the defendant's solicitors advised that the defendant would not oppose an application by the plaintiff for an order for payment out in favour of the plaintiff's solicitors.
On 20 June 2023, pursuant to liberty to apply granted on 30 May 2023, the plaintiff applied to the Court of Appeal for an order that the $248,391.90 be paid out to the plaintiff.
That application was heard by the Court of Appeal on 25 August 2025. Notwithstanding what had been said earlier, the defendant opposed the application and itself applied for an order that the amount held in court be paid out to the defendant's solicitors. The Court of Appeal reserved its decision on both applications.
As stated above, the plaintiff filed the originating process in this action on 1 September 2023.
The originating process having been served on the defendant, on 11 September 2023 the defendant, without having conferred with the plaintiff, applied to the Court of Appeal to stay the plaintiff's application filed 20 June 2023 for payment out of court on the ground that the application was an abuse of process, when regard was had to the commencement of this action.
On 10 October 2023 the defendant filed an affidavit of Peter William Harkins, the director of the defendant, sworn that day and an affidavit of David Ashleigh Norman Hurt, an accountant, also sworn 10 October 2023, in this action.
Redacted and unredacted copies of a report as to the solvency of the defendant prepared by Mr Hurt were attached to both affidavits. That report was to the effect that Mr Hurt considered, as at 9 October 2023, that the defendant was solvent.
I have been informed from the bar table that there was no conferral between the solicitors for the parties as to whether the defendant should take any steps in this action pending the Court of Appeal's determination of the plaintiff's application for payment out of court.
The action came before Forrester J on 17 October 2023. On that date, her Honour adjourned the matter to 23 November 2023, reserving the costs of that day's hearing.
On 26 October 2023 Court of Appeal heard and dismissed the defendant's application for the dismissal of the plaintiff's application for payment out of court as an abuse of process. On the same date, the Court of Appeal held that the plaintiff was entitled to an order for payment out of court, on condition that the plaintiff undertake that that it would not rely upon the defendant's non-compliance with the statutory demand at the hearing of any application under one or more of ss 234, 459P, 462 or 464 of the Corporations Act 2001 (Cth).
The plaintiff gave that undertaking on 27 October 2023. The consequence of doing so was that it could not rely upon the defendant's failure to comply with the statutory demand in this action.
The amount paid into court was subsequently paid out to the plaintiff's solicitors, satisfying the debt claimed in the statutory demand. The plaintiff then filed its application to discontinue this action.
Turning to the exercise of the discretion as to costs, I am satisfied that the plaintiff acted reasonably commencing this action. The defendant took the position on 25 August 2025 that the plaintiff was not entitled to payment out of the amount paid into court. Further, the effect of s 459C(2)(a) of the Corporations Act 2001 (Cth) was that the plaintiff would not be able to rely upon the presumption that the defendant was insolvent arising from the defendant's failure to comply with the statutory demand if the plaintiff did not commence winding up proceedings by 6 September 2023.
At the time this action was commenced the plaintiff was therefore exposed to the dual risks that the Court of Appeal might hold that the plaintiff was not entitled to payment out of the amount paid into court as security for the defendant's compliance with the statutory demand and that the demand would become stale if it did not commence proceedings by 6 September 2023, rendering the plaintiff's success in the proceedings before the Master and the Court of Appeal futile.
Those risks arose because the defendant had failed to abide by the condition on which it had obtained an extension of time in which to comply with the demand, it having been held that there was neither a genuine dispute as to the existence or amount of the debt claimed nor any offsetting claim. The defendant's insistence that the money paid into court could only be paid out to the defendant was contrary to the construction of the condition adopted by the Court of Appeal on 30 May 2023, a construction confirmed by the court on 26 October 2023.
I therefore consider that in this case I should depart from the general rule that the discontinuing party should pay the other party's costs of the action.
The plaintiff claims all its costs of the action. However, in my judgment, that goes too far.
As at 10 October 2023, the possible outcomes in relation to the various applications before the Court of Appeal were that the amount paid into court would be paid out to the plaintiff, in which case it would have obtained payment of the debt claimed in the statutory demand, or, as the defendant sought, that the plaintiff's application for payment out of court would be dismissed as an abuse of process or the amount paid into court paid out to the defendant.
In the case of each of the second and third outcomes, this action would have likely proceeded on the basis that the defendant had not complied with the demand, but in circumstances where the report of Mr Hurt indicated the defendant might establish that it was solvent on the hearing of the action, notwithstanding its failure to comply with the demand.
The court may order costs against a 'successful party' where a plaintiff has reasonably commenced a winding up application based on a failure to comply with a demand and the application is ultimately withdrawn in the light of new circumstances brought about by the defendant: see Rhodium Australia Pty Ltd v Deputy Commissioner of Taxation [2012] FCAFC 17.
Here, both the payment of the amount sought in the demand and the service of Mr Hurt's report as to solvency can be regarded as new circumstances brought about by the defendant.
Although the defendant submits that the plaintiff made an election when it chose to give the undertaking required by the Court of Appeal to obtain the order for payment out in favour of the plaintiff's solicitors, and was therefore likely to fail in the proceedings, in my judgment that does not disentitle the plaintiff to the costs incurred in the action as a result to the defendant's breach of the condition on which it obtained an extension of time in which to comply with the statutory demand.
In all the circumstances, I consider the appropriate orders are that:
(a)The plaintiff have leave to discontinue the action.
(b)The defendant pay the plaintiff's costs of the action up to and including 10 October 2023 together with any costs incurred in considering the affidavits of Peter William Harkins and sworn 10 October 2023 after that date.
(c)There otherwise be no order as to costs.
As neither party has been entirely successful, I propose, subject to hearing from counsel, that there be no order as to the costs of and incidental to today's hearing.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
VR
Associate to the Hon Justice Cobby
3 MAY 2024