Cockatoo Ridge Wines Ltd v Naked Wines Direct Pty Ltd

[2006] NSWSC 1074

CITATION:	Cockatoo Ridge Wines Ltd v Naked Wines Direct Pty Ltd [2006] NSWSC 1074
HEARING DATE(S):	28/08/06
JUDGMENT DATE :	13 October 2006
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Costs order made: see paragraph 19
CATCHWORDS:	CORPORATIONS - winding up - application on grounds of insolvency - appearance filed by supporting creditor - plaintiff's debt paid - application by supporting creditor to be substituted as applicant for winding up order - supporting creditor's debt then paid - winding up application not pressed - application dismissed - whether supporting creditor should have costs order against defendant - provision for costs in fixed sum
LEGISLATION CITED:	Civil Procedure Act 2005, s.98 Corporations Act 2001 (Cth), ss.459C, 459E, 467(1)(a) Legal Profession Act 2004, s.353 Service and Execution of Process Act 1992 (Cth) Uniform Civil Procedure Rules 2005, rule 42.20
CASES CITED:	Elan Copra Trading Pty Ltd v J K International Pty Ltd (2005) 226 ALR 349 Fordyce v Fordham [2006] NSWCA 274 IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 Lavercombe v Auscott Ltd (2006) 58 ACSR 586 Re Lanaghan Bros Ltd [1977] 1 All ER 265 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622
PARTIES:	Cockatoo Ridge Wines Ltd - Plaintiff Naked Wines Direct Pty Ltd - Defendant WorkCover Queensland - Supporting Creditor
FILE NUMBER(S):	SC 3418/06
COUNSEL:	Mr J. D'Arcy, Solicitor - Defendant Mr D.J. Currie, Solicitor - Supporting Creditor
SOLICITORS:	Heckenberg Associates - Defendant The Argyle Partnership as agents for Tucker & Cowen - Supporting Creditor

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

FRIDAY, 13 OCTOBER 2006

3418/06 COCKATOO RIDGE WINES LTD v NAKED WINES DIRECT PTY LTD

JUDGMENT

1 I am dealing solely with a question of costs that has arisen in proceedings in which Cockatoo Ridge Wines Ltd sought a winding up order in respect of the defendant, Naked Wines Direct Pty Ltd.

2 The originating process was filed on 26 June 2006. It was returnable on 25 July 2006. When the matter came before Registrar Walton on that day, it appeared that the plaintiff’s debt had been paid and it did not seek to proceed. There was, however, an appearance for WorkCover Queensland which claimed to be a creditor of the defendant. It had previously filed a notice of appearance signifying an intention to support the winding up application. Upon the plaintiff’s withdrawing, WorkCover Queensland was granted leave to apply for an order substituting it as the applicant for a winding up order.

3 The proceedings were stood over to 15 August 2006 and, on the morning of that day, the defendant gave WorkCover Queensland a cheque for its debt. By consent, the matter was stood over for a further seven days to allow time for the cheque to clear. When the matter came back before the registrar on 22 August 2006, WorkCover Queensland did not press its application to be substituted, acknowledging that it had been paid. At that point, there was some dispute about the orders that should be made, particularly as to costs. The registrar therefore stood the matter into the Corporations Judge’s list on 28 August 2006.

4 When the matter came before me on 28 August 2006, there were appearances for the defendant and for WorkCover Queensland. It was agreed that the originating process should be dismissed and I made an order accordingly. There was then argument about costs. I reserved my decision on that aspect.

5 Two basic propositions are advanced. WorkCover Queensland says, in essence, that it should have an appropriate costs order because the defendant paid its debt only at a late stage and after the need for several appearances had arisen. The defendant says that WorkCover Queensland should not have any costs order because, if it had pursued the winding up proceedings as substituted applicant, it would surely have failed.

6 Because there has been no determination on the merits, the general expectation is that there should be no order as to costs. This is indicated by the following passage in the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at pp.624-625:

“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. 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. 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. 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. 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. …

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 In Fordyce v Fordham [2006] NSWCA 274, it was pointed out by

McColl JA that Lai Qin, which is widely cited in contexts such as the present, turned on the application of a provision of the High Court Rules 1952 concerned with a situation where “the further prosecution of a proceeding becomes unnecessary, except for the purpose of determining by whom the costs of the proceedings should be paid”. Her Honour emphasised that the Lai Qin approach is pertinent, but not necessarily determinative, in matters of this kind.

8 It was submitted on behalf of WorkCover Queensland that the discretion as to costs is, in this case, unconfined because of s.467(1)(a) of the Corporations Act 2001 (Cth):

“Subject to subsection (2) and section 467A, on hearing a winding up application, the Court may:
(a) dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application;
…”

9 I do not regard this section as laying down a general rule as to costs. Rather, it makes provision with respect to a case where the winding up application has been heard and a ground for the making of a winding up order has been proved. The purpose of the provision is to make it clear that, in such a case, the court may nevertheless dismiss the application and make (or desist from making) a costs order. It is not a provision with respect to costs generally. In any event, in this case the court has neither heard the winding up application nor had proved to it the existence of a ground for making a winding up order. Section 467(1)(a) is irrelevant to the present case.

10 The case is, however, within rule 42.20 of the Uniform Civil Procedure Rules 2005 in that the court has made an order for the dismissal of the proceedings. The consequence, in terms of costs (from which the court may, however, depart), is therefore that the plaintiff must pay the defendant’s costs. But since there is no application by the defendant for an order against the plaintiff, there is no occasion to apply the rule. The circumstances of this case are, in any event, such that the court would have exercised its discretion to depart from the rule had an application in terms of it been made.

11 I approach the present application on the footing that no particular provision of legislation or the rules of court is relevant, beyond s.98 of the Civil Procedure Act 2005 that makes costs a matter for the discretion of the court. I therefore proceed to consider matters which might tend to displace the general expectation expressed in the Lai Qin case, namely, that the burden of costs should be left to be where it has fallen.

12 WorkCover Queensland filed a notice of appearance on 25 July 2006 signifying its intention to appear to support the plaintiff’s application. It never became the substituted applicant. Once its debt had been paid, it did not seek to pursue the matter beyond contending that the defendant should be made to pay its costs of appearances on 25 July 2006, 15 August 2006, 22 August 2006 and 28 August 2006 the circumstances of which have already been noted. Its contention is, in essence, that if the defendant had paid its debt at the earliest opportunity, the need for these appearances would have been avoided.

13 The defendant says that WorkCover Queensland should not have costs because the proceedings were doomed to fail and it informed WorkCover Queensland accordingly. As a result, it is said, if the matter had gone to trial with WorkCover Queensland as substituted plaintiff, the defendant would have prevailed and would have been entitled itself to a costs order. It is submitted by the defendant that WorkCover Queensland should therefore not recover costs in the way it seeks.

14 The defendant’s contention that the proceedings were doomed to fail rests on the proposition that the statutory demand on which the plaintiff relied in initiating the winding up proceedings originated in Sydney and was served in Brisbane without compliance with the Service and Execution of Process Act 1992 (Cth). That means, according to the defendant, that there was never valid service of a statutory demand and that no presumption of insolvency arose. Several things may be said about this. First, the absence of a presumption of insolvency created by s.459C does not mean that a winding up application is doomed to fail. It merely affects the onus of proof. Second, despite strenuous submissions on behalf of the defendant to the contrary (based on the decision of the Full Court of the Supreme Court of South Australia in Elan Copra Trading Pty Ltd v J K International Pty Ltd (2005) 226 ALR 349, a case concerning service of a s.459G application, not a statutory demand), I do not accept that service of a statutory demand pursuant to s.459E requires resort in any way to the Service and Execution of Process Act. Indeed, the Elan Copra case (at [19]) supports, rather than denies, the efficacy of a statutory demand emanating from one State and served in another even in the absence of specification of an address for service in the destination State. There is no substance in the defendant’s submissions.

15 In the result, therefore, the case is of the kind I described in Lavercombe v Auscott Ltd (2006) 58 ACSR 586 by reference to the decision of

Brightman J in Re Lanaghan Bros Ltd [1977] 1 All ER 265, that is, a case in which a creditor whose debt is not disputed resorts in a responsible and acceptable way to the means provided by law to seek to vindicate the right recognised by the High Court in IOC Australia Pty Ltd v Mobil Oil Australia Ltd (1975) 11 ALR 417 at p.427, being the right of a creditor who cannot obtain payment to have a winding up order. When the debt is not disputed and the debtor company pays the debt at a late stage, the situation is seen to be one in which the creditor has been put to trouble and expense to which it should not have been subjected. The cases mentioned concerned a petitioning creditor but precisely the same considerations apply to a supporting creditor who has filed a notice of appearance and foreshadowed an application to be substituted as plaintiff following the plaintiff’s withdrawal in consequence of payment of the plaintiff’s debt.

16 The order of the court will therefore be that the defendant pay the costs of WorkCover Queensland of and incidental to appearances on 25 July 2006, 15 August 2006, 22 August 2006 and 28 August 2006.

17 Because the sums sought are small and, as to the first three days at least, are particularised in the written submissions, I am of the opinion that the just, quick and cheap outcome is that WorkCover Queensland should be provided with a means of by-passing the costs assessment process if it chooses to do so. The sums stated in the written submissions as costs of and incidental to the first three appearances are:

25 July 2006 $ 814 . 00
15 August 2006 947 . 85
22 August 2006 $ 770 . 00
$ 2,531 . 85

18 Taking the average, a sum of $845.95 could be allowed for the fourth day, to produce a total of $3,375.80. If two-thirds of this total were assumed to be the sum that might be obtained on assessment, an appropriate sum for the purposes of an order for the payment of costs in a specified gross sum pursuant to s.98(4)(c) of the Uniform Civil Procedure Act 2005 would be $2,250.00.

19 The order I make is as follows:

Order that the defendant pay the costs of WorkCover Queensland of and incidental to appearances on 25 July 2006, 15 August 2006, 22 August 2006 and 28 August 2006, such costs to be
(a) if, within fourteen days after the making of this order, WorkCover Queensland has made an application under s.353 of the Legal Profession Act 2004 for assessment of such costs and has delivered to Heckenberg & Associates, Level 9, 185 Elizabeth Street, Sydney a copy of the application – in an amount assessed pursuant to the Legal Profession Act ; and
(b) otherwise – in a fixed gross sum of $2,250.00.
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