Costs where statutory demand withdrawn

In a recent case the court was asked to determine which party should pay the costs of proceedings to set aside a statutory demand where after the proceedings were commenced the creditor voluntarily withdrew the statutory demand.

In Global Mortgage Equity Corporation v GBW Nominees [2010] NSWSC 153 a statutory demand was issued by the creditor and the debtor commenced proceedings to set aside the statutory demand. The creditor then agreed to withdraw the demand and the Justice Palmer had to decide which party should pay the costs of the proceedings.

The debtor argued that the statutory demand has been withdrawn because it was obvious that there was a genuine dispute relating to the whole of the amount claimed and that it was inevitable that the statutory demand would be set aside. The creditor argued that the statutory demand had been withdrawn by agreement because the debtor conceded liability for a substantial amount of the money claimed in the statutory demand.

The court decided that each side should pay its own costs. This was because in the context of continuing negotiation that the debtor offered to pay a sum of $155,000 to the creditor however this amount did not relate to either debt particularised in the statutory demand. They were payments in furtherance of resolution of all differences between the parties. On the other hand the debtor ran up a great deal of legal costs by preparing a lengthy affidavit that did not confine itself to the debts in question and “there would have been problems in the debtor’s case in pointing to a particular dispute relating to these particular debts if the matter had gone on for trial.”

His Honour concluded:

In short, I do not think that the withdrawal of the Statutory Demand was a clear victory for the Plaintiff. It was a not forgone conclusion that the Statutory Demand would have been set aside if the proceedings had gone ahead. I think that what has happened is simply a facet of a commercial negotiation which continues. If it does not resolve, there will have to be specific litigation to determine any outstanding claims.

Tactically the creditor’s steps resulted in substantial payments being made by the debtor. Legally had the debtor fought the proceedings and won the creditor could have been saddled with the costs. However if the invoices claimed in the winding up notice were clear cut the debtor may have been wound up. Both parties seem to have acted wisely. However their lawyers ought to have agreed the costs issue at the same time as the deal was struck to withdraw the notice and pay the money. The costs in arguing the costs were entirely foreseeable and the parties could and should have avoided them.

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