Gee Ha Pty Ltd v Dera Developments Pty Ltd

[2007] NSWSC 95

CITATION:	Gee Ha Pty Ltd v Dera Developments Pty Ltd [2007] NSWSC 95
HEARING DATE(S):	18/09/06
JUDGMENT DATE :	20 February 2007
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	White J
DECISION:	Order that the plaintiff pay the defendant’s costs of the proceedings.
CATCHWORDS:	COSTS - Discretion - Where no determination on the merits - Proceedings unreasonably instituted by plaintiff - Proceedings delayed and costs increased by plaintiff's conduct - Order that the plaintiff pay the defendant's costs of proceedings - No issue of principle.
CASES CITED:	Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 Jem No. 4 Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602
FILE NUMBER(S):	SC 1912/06
COUNSEL:	Plaintiff: J T Johnson Defendant: R Harper SC
SOLICITORS:	Plaintiff: Smith Monti Legal Defendant: The Law Partnership
LOWER COURT JURISDICTION:	Compensation Court

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

WHITE J

Tuesday, 20 February 2007

1912/06 Gee Ha Pty Ltd v Dera Developments Pty Ltd

JUDGMENT

1 HIS HONOUR: These were proceedings for an order to set aside a statutory demand. The statutory demands, served by the defendant on the plaintiff, was dated 22 February 2006 and demanded payment of a sum of $211,824.18. This was said to comprise a principal sum of $200,000 together with interest from 10 September 2005 to 22 February 2006 of $11,824.18. Interest was claimed to accrue at the rate of 13% per annum, being $71.23 per day.

2 On 18 September 2006, an order was made by consent that the statutory demand be set aside. However, that order did not deal with the question of costs. I received an exhibit of correspondence in relation to costs and directed that written submissions on costs be provided. I received submissions from the defendant in accordance with those orders. I received no submissions from the plaintiff.

3 It appears from the affidavit in support of the application to set aside the statutory demand that the plaintiff had entered into a contract with EFI Constructions Pty Ltd to develop the land. It appears that EFI Constructions carried out construction work and made progress claims on the plaintiff. It also appears from that affidavit that the defendant was a company associated with EFI Constructions, in that it had common directors and shareholders. It appears that the defendant agreed to lend $350,000 to the plaintiff to assist it with payments due to EFI Constructions.

4 The statutory demand was dated 22 February 2006. Mr Marando of the plaintiff deposed that it was received on 23 February 2006. On that day, the plaintiff paid the defendant $50,000 in reduction of the debt.

5 In correspondence marked “without prejudice save as to costs” of 8 June 2006, the plaintiff’s solicitors also claimed that on 6 January 2006, a sum of $35,000 had been paid to EFI Constructions, which, the plaintiff claimed, was a reduction of the principal amount of the loan. The defendant denied that this was a payment in reduction of principal. In a letter of 9 June 2006, the defendant’s solicitors claimed that this was a part-payment due under the building contract with EFI Constructions, not a part-repayment of the loan.

6 A settlement was reached on 1 September 2006. Pursuant to that settlement, the plaintiff agreed to pay to the defendant the sum of $134,061.92 calculated as principal together with interest on outstanding principal (reduced by $35,000 on 7 January 2006, and $50,000 on 23 February 2006) up to 1 September 2006.

7 Accordingly, as the defendant submitted, there was never a genuine dispute in relation to the claimed debt, save as to the alleged payment of $35,000. That payment was not made to the defendant.

8 Before the matter was settled in September 2006, the plaintiff had offered to place the undisputed amount into a separate account, or to pay that sum into Court. Its reason for doing so, plainly enough, was to obtain leverage in related negotiations for the settlement of two other related proceedings.

9 The settlement provides for a sum of in excess of $60,000 to be paid into a trust account and not to be released until the question of the costs of the proceedings are determined and the costs quantified.

10 The settlement agreement also provided for the settlement of the two other related proceedings.

11 In Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin (1997) 186 CLR 622 at 624-625, McHugh J said:

“ 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 ( Latoudis v Casey (1990) 170 CLR 534). 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 ( Latoudis (1990) 170 CLR 534 at 543, 566-568). 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 ( Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201). 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 ( Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201).
…
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 (Unreported; Federal Court of Australia; 10 February 1989) 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.” [References omitted.]

12 There is a distinction between settlements where one party effectively surrenders to the other, and those where some supervening event or settlement removes the subject of the dispute (One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553).

13 In Jem No. 4 Pty Ltd v Southern Cross Construction (NSW) Pty Ltd [2006] NSWSC 602, the plaintiff paid the amount claimed in the defendant’s statutory demands shortly before the hearing. As a result, the parties agreed that the application to set aside the statutory demand should be dismissed as the demand had been satisfied. Barrett J ordered that the plaintiff pay the defendant’s costs. His Honour accepted the defendant’s submission that the plaintiffs acted unreasonably in commencing the proceedings when, if they were going to pay the sum demanded, they could and should have done so much earlier, to spare the defendant the time, trouble and expense of the proceedings (at [8]). His Honour said (at [10]):

“ … 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.”

14 Had the application been to vary the demand by reducing it by $35,000 plus interest, and had that application been settled, it is likely there would have been no order as to costs. However, the plaintiff would have had to pay the balance of the debt or face the presumption of insolvency. Instead, it bought itself time to pay the balance of the debt by applying to set aside the statutory demand. In doing so, it put the defendant to unnecessary expense in defending the application.

15 After the initial return of the originating process before the Registrar, the application was adjourned on a further five occasions between 13 June and 4 September 2006, on the application of the plaintiff. Whilst there were extensive settlement negotiations between 8 June and 1 September 2006, the plaintiff did not make a better offer than the actual payment of the undisputed amount which was ultimately paid.

16 I order that the plaintiff pay the defendant’s costs of the proceedings.

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