In the matter of Nutek Constructions Pty Ltd

[2017] NSWSC 451

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Nutek Constructions Pty Ltd [2017] NSWSC 451
Hearing dates:	6 April 2017
Date of orders:	06 April 2017
Decision date:	06 April 2017
Jurisdiction:	Common Law
Before:	Gleeson JA
Decision:	(1)   Order that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 20 February 2017.  (2)   No order as to costs of the present application for costs.
Catchwords:	PROCEDURE – costs – where statutory demand issued in relation to a debt – where plaintiff instituted winding up proceedings – where judgment debt subsequently paid into Local Court – where parties continued to prepare for preliminary hearing under s 459S, Corporations Act and contested winding up after judgment debt paid into court – where no purpose could be served by either side continuing to prepare for proceedings after 20 February 2017 – appropriate order as to costs before and after 20 February 2017.
Legislation Cited:	Building and Construction Industry Security of Payment Act 1999 (NSW) Civil Procedure Act 2005 (NSW), s 98(4) Corporations Act 2001, s 459S
Cases Cited:	Ann Street Mezzanine Pty Ltd (in liq) v Beck (2009) FCR 532; [2009] FCA 333 Braams Group Pty Limited v Miric (2002) 171 FLR 449 Calderbank v Calderbank [1975] 3 All ER 333 De Montfort v Southern Cross Exploration NL (1987) 17 NSWLR 469 Lavercombe v Auscott Ltd (2006) 58 ACSR 586; [2006] NSWSC 867 Re Lanaghan Bros Ltd [1977] 1 All ER 265 Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6
Category:	Costs
Parties:	Sydney Elite Concrete Pumping Services Pty Ltd (Plaintiff) Nutek Constructions Pty Ltd (Defendant)
Representation:	Counsel: Mr DP O’Connor (Plaintiff) Mr BA Jacobs (Defendant)   Solicitors: Lou Baker & Associates (Plaintiff) Harrington Lawyers (Defendant)
File Number(s):	2017/15991

Judgment

1. GLEESON JA: On 3 April 2017 the court made an order dismissing the application brought by the plaintiff, Sydney's Elite Concrete Pumping Services Pty Limited, to wind up the defendant, Nutek Constructions Pty Limited. There remains the question of costs.

Proposed Costs Orders

2. The plaintiff seeks an order for costs against the defendant for the whole of the proceedings and also seeks a lump sum costs order under s 98(4) of the Civil Procedure Act2005 (NSW) in the sum of $25,000. The plaintiff says that this amount constitutes a significant discount on its actual costs which, according to the affidavit of the plaintiff's solicitor, comprised professional costs in the amount of $42,995.92 together with disbursements of $9,007.92.

3. The defendant accepts that it should pay some costs to the plaintiff. It opposes the making of a lump sum costs order. The defendant's position is that the appropriate orders would be:

1. Order that the defendant pay the plaintiff's costs of the proceedings up to and including 15 February 2017 on the ordinary basis; and

2. Order that the plaintiff pay the defendant's costs of the proceedings on and from 16 February 2017 on an indemnity basis.

4. The rationale of those proposed orders will be clear from the history of the matter explained below but, in short, the defendant relies upon an open offer made to the plaintiff on 16 February 2017.

5. Alternatively, the defendant submits, by reliance upon what is said to be a Calderbank offer made on 23 March 2017, that the appropriate orders would be:

1. Order that the defendant pay the plaintiff's costs of the proceedings up to and including 22 March 2017 on the ordinary basis; and

2. Order that the plaintiff pay the defendant's costs of the proceedings on and from 23 March 2017 on an indemnity basis.

6. To explain the competing positions taken by the parties, it is necessary to refer in a little detail to the background to these proceedings.

Background

7. On 22 December 2016, the plaintiff registered an adjudication determination as a judgment in the Local Court in the amount of $41,184.69 against the defendant pursuant to the Building and Construction Industry Security of Payment Act 1999 (NSW). On the following day, 23 December 2016, the plaintiff served a statutory demand for payment on the defendant.

8. On 17 January 2017 the plaintiff commenced these proceedings by originating process seeking an order that the defendant be wound up, relying upon the presumption of insolvency arising from the defendant's failure to comply with the statutory demand.

9. The proceedings were first returnable before the court on 20 February 2017. A few days earlier, on 16 February 2017, the defendant paid the judgment debt with interest into the Local Court at Fairfield. On the same day, the defendant filed its notice of appearance in these proceedings and stated its grounds of opposition to the winding-up application: that the defendant had discharged the plaintiff's debt or tendered payment; that the defendant is solvent; and, with leave pursuant to s 459S of the Corporations Act 2001 (Cth), that the statutory demand issued by the plaintiff to the defendant on 23 December 2016 was liable to be set aside. It can be said immediately that that third ground was misconceived. Section 459S provides:

1. In so far as an application for a company to be wound up in insolvency relies on a failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on a ground:

1. that the company relied on for the purposes of an application by it for the demand to be set aside; or

2. that the company could have so relied on, but did not so rely on (whether it made such an application or not).

2. The Court is not to grant leave under subsection (1) unless it is satisfied that the ground is material to proving that the company is solvent.

10. The effect of s 459S is that the defendant company may not, without the court's leave, oppose the application for winding up on a ground which it relied on or, as in the present case, could have relied on to apply to set aside the statutory demand. A successful s 459S application does not lead to setting aside the statutory demand.

11. By email dated 16 February 2017 from the defendant's solicitor to the plaintiff's solicitor, the defendant's solicitor confirmed that his client had paid the judgment debt on that day and stated:

"We would be pleased to receive your client's agreement to discontinue the winding-up application listed before the court on 20 February 2017. Should your client consent to discontinue its application, we would be pleased to receive consent orders to that effect to avoid any further costs to the parties and so that we may file consent orders with the court on or before 20 February 2017."

16 February 2017 “open letter”

12. The defendant emphasises on the present application that the email of 16 February 2017 was an open offer to discontinue the plaintiff's winding-up application by consent. So much may be accepted however, importantly, the defendant's offer did not deal with the question of costs of the proceedings. To that extent, the defendant's offer did not contain any true element of compromise.

13. The plaintiff's solicitor initially responded by email on 16 February 2017 stating that the plaintiff could not necessarily abandon the application, "at this late time. At best, our instructions, yet to be confirmed is that the application be adjourned for our client to consider its costs to date." Later on 16 February 2017 at 4.45pm, the plaintiff's solicitor sent an email indicating that he was unable to obtain instructions before the close of business that day.

14. The plaintiff's solicitor sent a further email to the defendant's solicitor on 16 February 2017 at 5.18pm indicating that his current instructions were to press for the winding up on the following Monday and confirming his earlier email, at 4.25pm that day, that he could not obtain instructions from his client so late in the day.

15. The court has been informed from the bar table by counsel for the defendant, without objection by counsel for the plaintiff, that the defendant filed its affidavit evidence in support of the foreshadowed s 459S application on 16 February 2017. When the parties appeared before the Corporations List judge on 20 February 2017, directions were made for the filing of the defendant's evidence as to solvency by 21 February 2017. It seems that the defendant served an affidavit and one volume of documents by that date. Other directions were made in relation to service of evidence by the plaintiff and the preparation of the court book for the s 459S application.

16. The s 459S application was listed for hearing with an estimate of half a day on 23 March 2017. The winding-up application was listed for hearing with an estimate of up to a day on 6 April 2017.

17. Neither party was able to satisfactorily explain on this costs application why they could reasonably have taken the view, in circumstances where the judgment debt had been paid into the Local Court on 16 February 2016, that this Court should entertain either the s 459S application or the winding-up application itself. Counsel for the defendant properly drew attention on this application to well-known authority to the effect that it would be quite unacceptable for a creditor to serve a notice upon a debtor specifying a sum in that notice, then, when the debtor failed to comply with that notice, take proceedings, be paid the full amount claimed, and then seek to wind up the defendant nonetheless: De Montfort v Southern Cross Exploration NL (1987), 17 NSWLR 469 at 471 (Needham J); see also Braams Group Pty Limited v Miric (2002) 171 FLR 449 at [77]. It seems, however, that these authorities were not brought to the plaintiff’s attention on 20 February 2017

18. Counsel for the defendant submits that it was unreasonable for the plaintiff not to accept the open offer of 16 February 2017 and accordingly, the plaintiff should be visited with an indemnity costs order against it from that date. In the circumstances of the present case, I do not accept that submission. Among other things, the open offer did not address the costs of the proceedings. Further, it seems to me that both parties were at fault, and probably equally so, in the way in which they approached the matter on and after 20 February 2017.

19. The plaintiff seeks to excuse itself by pointing to the fact that the judgment debt had been paid into the Local Court, rather than to the plaintiff itself. It seems that the plaintiff did not receive the amount of the judgment debt until on or about 28 March 2017, in circumstances necessitating the plaintiff's solicitor attending the Fairfield Local Court to verify his authority to obtain payment of the amount which had been paid into court.

20. Nonetheless, it should have been readily apparent to both parties, by 16 February 2017, or shortly thereafter once the plaintiff's solicitor had verified that the judgment debt had been paid into the Local Court at Fairfield, that there was no further utility in the winding-up proceedings. The only issue between the parties after 16 February 2017 was costs. As I have indicated, that did not seem to be properly appreciated by the parties. Instead, the parties sought and obtained directions from the court fixing for hearing two unnecessary applications, one, the s 459S application; the other, the winding-up application.

21. The applications were unnecessary because, on any view, once the judgment debt had been paid into court or at least received by the plaintiff (it is not necessary to be any more precise on this application), the plaintiff would not be in a position to assert that it remained a creditor at the hearing of any winding-up application. Absent standing as a creditor, both at the date the winding up application is filed and at the hearing, the plaintiff could not obtain a winding-up order: Ann Street Mezzanine Pty Ltd (in liq) v Beck (2009) FCR 532; [2009] FCA 333 at [9] (Finkelstein J).

22. There is no suggestion in the present case that there was any other creditor of the defendant standing in the wings seeking to be substituted as plaintiff. The winding-up proceedings should have been dismissed no later than 20 February 2017. All that would have remained would have been the question of costs.

23. Why the defendant thought it necessary to file evidence as to solvency on 21 February 2017 and to pursue (before later withdrawing) the preliminary application under s 459S of the Corporations Act was not satisfactorily explained; as the defendant correctly submitted on this application, no purpose could be served in the plaintiff pursuing the winding-up proceedings after 20 February 2017.

24. Counsel for the defendant indicated that he had brought to the Court's attention on 20 February 2017 the fact that the judgment debt had been paid into the Fairfield Local Court. That, however, does not excuse the parties from unnecessarily seeking and obtaining directions with respect to the continuance of proceedings which should have been brought to an end immediately by dismissal of the winding-up proceedings on 20 February 2017, with the only remaining issue being costs. What has occurred in the present case is most unfortunate; both parties unnecessarily incurred further costs as they continued to wrangle about the question of costs and the disposition of proceedings after 20 February 2017.

25. What happened next in the proceedings can be summarized as follows. On 21 March 2017 the court made orders by consent noting that the defendant's s 459S application was withdrawn, vacating the hearing date for that application listed on 23 March 2017, and ordering each party to pay its own costs and making no other orders as to costs. I would observe that the last order is a little convulse but its meaning seems clear; the parties compromised the s 459S application on the basis that each party would bear their own costs.

26. Next, on 3 April 2017 the court made orders by consent dismissing the plaintiff's application to wind up the defendant and noted that the hearing listed for today would proceed on the issue of costs only.

23 March 2017 Calderbank offer

27. In support of its application for indemnity costs from 23 March 2017, the defendant points to an email of that date from the defendant's solicitor to the plaintiff's solicitor offering to settle the proceedings on the following basis:

1.   The proceedings are dismissed; and

2.   The defendant is to pay the plaintiff's costs of the proceedings as assessed or agreed.

28. The email noted that the offer remained open for acceptance until 29 March 2017. The offer was expressed to be made pursuant to the principles referred to in Calderbank v Calderbank [1975] 3 All ER 333.

29. There then ensued email correspondence between the solicitors directed to the question of the possibility of agreeing costs. Ultimately, on 28 March 2017, the plaintiff's solicitor replied to the defendant's solicitor in the following terms:

“We are instructed to consent to dismissing the proceeding. The matter should be settled in regard to costs. We are instructed to hold the hearing date until settlement of costs is resolved to the satisfaction of the plaintiff.”

30. The email continued, outlining the total costs and disbursements incurred by the plaintiff were $42,995.92 and offered to settle the matter upon payment of the sum of $25,000 by the defendant to the plaintiff.

31. There were some further terms in relation to the time for payment and the provision of guarantees by third parties if payment was not made by a specified date and a further term that the defendant would consent to the plaintiff filing an uncontested winding-up application if the agreed terms of payment were not complied with.

32. The defendant says that the 28 March 2017 response by the plaintiff's solicitor involved a rejection of the defendant’s 23 March 2017 offer and accordingly, is to be treated as a counter-offer. So much can be accepted but the critical issue is whether the plaintiff acted unreasonably in not accepting the defendant's offer of 23 March 2017. The defendant says that if the offer had been accepted by the plaintiff, the matter would have come to an end by no later than 29 March 2017, being the last date specified for acceptance of the offer and no further costs would have been incurred by either party in the proceedings, including costs of the present application.

33. There is some force in that submission, however it overlooks two matters. First, it is tolerably clear from the plaintiff's email of 28 March 2017 that the plaintiff was not pursuing the winding-up proceedings against the defendant. The only remaining issue was costs, which the parties seem to have failed to have properly appreciated was the only issue since 20 February 2017. Secondly, on 3 April 2017 the parties sent to the Corporations List judge consent orders in this matter, recording their agreement that the winding-up application be dismissed.

34. There is no evidence before the court, on the present application, that the defendant incurred any costs in preparation with respect to the winding‑up proceedings after 23 March 2017. As I have said, it seems that the defendant's evidence had been filed at a much earlier time, on 16 February 2017, and a solvency report on 21 February 2017. The costs incurred by the parties after the defendant's offer of 23 March 2017 seem, at least on the evidence, to be solely directed to the present costs dispute.

35. Accepting that the plaintiff did not formally accept the defendant's offer of 23 March 2017, I do not regard the plaintiff's rejection of that offer to be unreasonable. As I have indicated, the defendant's offer contemplated that the plaintiff's costs would be either agreed or assessed. The plaintiff attempted to reach agreement in that regard by offering to accept the sum of $25,000 on the terms indicated above. The defendant's response by email of 31 March 2017 was, in effect, to repeat its earlier offer to compromise the proceedings on the basis that the proceedings be dismissed. The defendant also offered to pay the plaintiff the sum of $8,000 in satisfaction of its costs in the proceedings.

36. It is not entirely clear whether the defendant relies upon the 31 March 2017 email as a further Calderbank offer. To the extent that it does, then in my view the plaintiff's rejection of that further offer was not unreasonable. The evidence in the affidavit of the plaintiff's solicitor establishes that the plaintiff's professional costs up to 20 February 2017 were in the order of $14,220 and disbursements were $5,960. Even accepting that some discount might be applied to those figures, and without seeking to bind any future assessor, the plaintiff could reasonably have expected to have obtained, on an assessment of its costs, an amount in excess of $8,000 offered by the plaintiff on 31 March 2017.

Other matters

37. One further matter should be mentioned. No submission was advanced on the present application to the effect that no order for costs should be made against the defendant where the winding-up proceedings have been dismissed and there has been no hearing on the merits. Ordinarily, the court will not determine the merits of an application which has not been heard in order to deal with a question of costs. That principle and its rationale are explained by McHugh J in Re the Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; ex parte Lai Qin (1997) 186 CLR 622 at 624 – 625; [1997] HCA 6 at [6]-[9].

38. His Honour noted that there are exceptions to that proposition. One well-known exception is where one party has acted unreasonably. Another is where the court can be confident that, although the parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully determined. The present case falls into the former category and so much was, in effect, fairly acknowledged by the defendant in its concession that there should be an order for costs against the defendant on the ordinary basis up until 20 February 2017.

37. Why that is so can be expressed in simple terms. The defendant failed to comply with an adjudication under the Security of Payment Act; failed to pay the judgment debt based on that adjudication; failed to comply with the creditor's statutory demand served on it by the plaintiff; and took no steps within the 21-day time limit to seek to set aside that statutory demand. In the circumstances the plaintiff was entitled, "with complete propriety", to use the words of Brightman J in Re Lanaghan Bros Ltd [1977] 1 All ER 265 at 266, to initiate and pursue its winding-up application, at least up to the point where it was able to ascertain that the judgment debt had been paid into court by the defendant: see the remarks of Barrett J in Lavercombe v Auscott Ltd (2006) 58 ACSR 586; [2006] NSWSC 867 at [42] - [48].

Conclusion and orders

40. In my view, the appropriate costs order in the present case is that the defendant pays the plaintiff's costs of the proceedings on an ordinary basis up to and including 20 February 2017 and thereafter there is no order as to costs, including no order as to costs in respect of the present costs application.

41. Accordingly, I make the following orders:

1. Order that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis up to and including 20 February 2017.

2. No order as to costs of the present application for costs.

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Decision last updated: 16 April 2018