Re Slodyczka & Farren Pty Ltd (Costs) [2022] VSC 102 (4 March 2022): application for costs by the defendant; where presumption of insolvency rebutted, multiple defences relied upon

March 9, 2022 |

The postscript to Re Slodyczka & Farren Pty Ltd [2022] VSC 102 is a decision by Associate Justice Hetyey regarding costs of the application. 


in the substantive judgment  the plaintiff’s application to wind up the defendant in insolvency was dismissed.

The relevant facts for the purpose of considering a costs order were:

  • whilst the matter was commenced by originating process filed on 11 April 2021, there were delays and adjournments [2] resulted in two previous costs orders being made being:
    • on 7 July 2021, consent orders were made which, among other things, required the plaintiff to pay the defendant’s costs thrown away by reason of an adjournment of the hearing originally scheduled that day (‘the first costs order’).
    • at the next hearing date, on 27 July 2021, it was adjourned at the request of the defendant to enable it to put on supplementary material on the question of solvency, including audited accounts for the 2019/2020 and 2020/2021 financial years. The plaintiff’s costs of the hearing be reserved (‘the second costs order’).

The defendant opposed the winding up application on the following alternative bases [4]:

(a) service of the plaintiff’s statutory demand dated 3 February 2021 (‘the statutory demand or the demand’) was defective;

(b) the defendant was solvent and could displace the statutory presumption of insolvency;

(c) the defendant should be given leave pursuant to s 459S of the Corporations Act2001 (Cth) (‘theCorporations Act’) to oppose the winding up application on a ground or grounds it could have relied on for the purpose of an application to set the demand aside. The grounds sought to be raised were: (i) there was a genuine dispute about the amount of the debt claimed in the statutory demand in accordance with s 459H(1)(a); (ii) the defendant had an offsetting claim for the purpose of s 459H(1)(b) of the Corporations Act; and (iii) the demand was defective and a substantial injustice would be caused to the defendant if the demand was not set aside pursuant to s 459J(1)(a) of the Corporations Act; and

(d) pursuant to s 467(1)(a) of the Corporations Act, the Court should dismiss the plaintiff’s application as a matter of discretion.

In the substantive judgment the court held that, [5]:

  • the defendant failed to rebut the presumption of service of the statutory demand under s 29(1) of the Acts Interpretation Act 1901 (Cth).
  • the defendant succeeded in displacing the statutory presumption of insolvency on the basis that it was cash flow positive and balance sheet solvent. The proceeding was dismissed on this basis.
  • the defendant’s application under s 459S of the Corporations Act was not granted because the grounds sought to be raised in respect of the plaintiff’s debt were not material to proving solvency however  had the defendant failed to establish solvency the corut would haveultimately have granted it leave
  • the defendant could not to pursue its argument that the Court should dismiss the plaintiff’s application in accordance with the Court’s discretion under s 467(1)(a) of the Corporations Act because of a lack of proper notice to the plaintiff


In relation to considering the question of costs the Court stated:

  • Section 466(1) of the Corporations Act  provides that an applicant in a winding up proceeding must, at its own expense, prosecute all proceedings in the winding up until a liquidator has been appointed [7]
  • Section 467(1) permits the Court to dismiss an application for winding up with or without costs, even if the ground has been proved on which the Court may order the company to be wound up, or to make any other order that ‘it thinks fit’.
  •  s 24 of the Supreme Court Act 1986 (Vic) provides that ‘the costs of and incidental to all matters in the Court … is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.’
  • Rule 63.04 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) allows the Court to make an order for costs in relation to a particular question or a particular part of the proceeding.
  • the Court has a wide discretion in relation to costs which while unconfined and unfettered but must still be exercised judicially [9]
  • there is a general rule that, in the absence of good reason to the contrary, a successful litigant should recover his / her costs [9].
  • where a winding up application is dismissed, the Court will usually order the applicant to pay the respondent company’s costs in accordance with the principle that costs follow the event [9]
  • where a multiplicity of issues is raised in a case and the parties achieve mixed success on those issues, the Court is entitled to adopt a pragmatic approach, taking into consideration the success (or lack of success) of the parties on an issues basis and award the successful party a proportion of its costs  [10]
  • an award of costs is usually on a standard basis unless there are special or unusual features warranting an order for costs on an indemnity basis such as:

(a) proceedings are commenced or continued for an ulterior motive;
(b) proceedings are commenced or continued in disregard of known facts or clearly established law;
(c) a defendant raises issues that could not succeed in establishing a defence and the proceeding was entirely unnecessary; or
(d) there is an imprudent refusal of an offer to compromise [11].

Regarding Calderbank offers the Court noted:

  • it is relied upon as a basis for an award of indemnity costs where the party who rejected the offer receives a less favourable result at trial [12].
  • the mere sending of a Calderbank offer does not automatically justify an indemnity costs order
  • where a recipient of an offer does not achieve an outcome at trial more favourable than that contained in the offer, there is a basis to award indemnity costs if the refusal of the offer was unreasonable in all the circumstances
  • the fact that a party ultimately failed to make good their case does not mean:
    • they acted unreasonably in rejecting the Calderbank offer.
    • the reasonableness of a Calderbank offer mean it was unreasonable to reject it.
  • factors relevant to assessing whether the rejection of a Calderbank offer was unreasonable include, [12]:

(a) the stage of the proceeding at which the offer was received;
(b) the time allowed for consideration of the offer;
(c) the extent of the compromise allowed;
(d) the recipient’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for indemnity costs in the event of its rejection.

The court stated that the parties have each enjoyed a measure of success [14].

In that regard the Defendant:

  • failed to convince the Court that  that the statutory demand had not been served at the address of its current registered office. This involved a significant portion of the parties’ material and the hearing. The plaintiff submits the defendant should be ordered to pay its costs of and incidental to this issue or, at the very least, that the plaintiff should not be required to pay the defendant’s costs associated with that question [15].
  • the defendant’s application for leave under s 459S of the Corporations Act also involved considerable time. Because the Court found that the Company was solvent leave under s 459S was declined because the grounds raised relating to the plaintiff’s debt were not material to proving solvency [16]
  • in contesting the winding up application both on the ground of solvency and other grounds under s 459S, it advanced two potentially inconsistent positions because:
    • on the one hand, it submitted that the evidence demonstrated it was ‘plainly solvent on a cash flow and balance sheet test; however
    • on the other hand, it argued that the grounds sought to be raised against the plaintiff’s statutory demand in the sum of $36,091.77 were material to proving solvency.[16]

The inevitable consequence of the defendant relying on multiple and alternative grounds in opposition to the winding up application was that each party incurred substantial costs[17].

Calderbank offers

The defendant relied upon three settlement offers being:

  • on 29 April 2021, the defendant offered to settle all claims between the parties by payment to the plaintiff of the sum of $5,000 (‘the April settlement offer’) [20]
  • on 14 May 2021, the defendant made a Calderbank offer that the parties release each other from the ‘dispute’, the genuine dispute & offsetting claim, with each party bearing their own costs (‘the May Calderbank offer’).
  • on 19 July 2021, the defendant made a further Calderbank offer by which it offered to pay the plaintiff the sum of $5,140.60, with the plaintiff, in turn, paying the defendant’s costs fixed in the sum of $22,000 (approximately 80% of its actual costs at that time) and all other disputes between the parties concerning the relevant underlying agreements being compromised (‘the July Calderbank offer’) [20].

The defendant submitted it was unreasonable for the plaintiff to have rejected each of the offers because:

(a) they were clear in their terms and were capable of being accepted by the plaintiff;
(b) they were made at an early stage in the proceeding, with the April settlement offer being less than two weeks after the proceeding was commenced;
(c) the plaintiff was aware there was a genuine dispute between the parties and an offsetting claim by the defendant which were raised prior to the commencement of the proceeding in a video sent by the director of the defendant to the director of the plaintiff on 24 August 2020;[29] and
(d) the plaintiff was on notice as to the defendant’s solvency by 7 May 2021 when it received Ms Allen’s expert report as to solvency (and prior to the plaintiff filing and serving an affidavit on 20 July 2021 concerning the question of service of the demand). The audited financials and the solvency opinion expressed by Mr Klein in the annexures to his affidavit affirmed on 24 August 2021 only served to confirm Ms Allen’s opinion that the defendant was solvent.

The Court found significant flaws with the offers, stating:

  • the April settlement offer was made prior to the defendant adducing any evidence to support its contention that it was solvent [23].
  • the May Calderbank offer was made a week after the filing of the defendant’s initial evidence on solvency which included the solvency report and unaudited financial reports. It was made prior to the provision of  the audited financial reports.
  • the July Calderbank offer was made prior to provision of the audited financial reports;
  • each of the three offers relied upon by the defendant were made before the transfer of the sum of $200,000 into the defendant’s business transaction account on 16 August 2021, five days prior to the finalisation of audited accounts.
  • the provenance and ownership of the $200,000 became a critical issue in the proceeding and the defendant did not lead any evidence to confirm the Company owned these funds and the Court ultimately drew an inference, permitted by the available evidence, that the Company was entitled to use the $200,000 as its own asset [23]
  • while the May Calderbank offer allowed the plaintiff 14 days to respond, the other two offers unlikely afforded the plaintiff sufficient time to properly consider the merits of the proposals [24].
  • while the May Calderbank offer and the July Calderbank offer foreshadowed an application for indemnity costs  the April settlement offer did not [24]
  • while the April settlement offer and the May Calderbank offer involved some measure of compromise, these offers were made before the defendant had laid out its fullest and best evidence of solvency [25]
  • the July Calderbank offer being made before the fullest and best evidence of solvency was provided was not  a genuine compromise of the proceeding because it required  the plaintiff to pay a large portion of the defendant’s costs.  In effect it called for a capitulation by the plaintiff [25].
  • the plaintiff’s prospects of success as at the date of each of the defendant’s three offers were reasonable given the plaintiff had the benefit of the statutory presumption of insolvency and because the offers were all made well prior to the filing of the defendant’s fullest and best evidence of solvency and the transfer of the $200,000 into the defendant’s bank account.
  • it was “unconvinced”  that evidence about a genuine dispute and the offsetting claim had any real bearing on the reasonableness of the plaintiff’s refusal to accept the settlement offers noting that the defendant took no steps to set aside the statutory demand within the 21 day statutory period
  • the plaintiff acted reasonably in bringing the winding up application following the defendant’s non-compliance with the statutory demand [27]

Based on the above the court was unpersuaded that the plaintiff acted unreasonably in refusing each of the three offers of settlement put forward by the defendan and the court would not award indemnity costs [29].

The court reasoned that:

  • the defendant succeeded in having the winding up application dismissed on the basis that it was solven but  did not succeed on all of the grounds advanced in opposition.
  • the plaintiff was put to real expense in addressing each of these grounds and in dealing with two sets of material on the question of solvency.

it was appropriate that the defendant be awarded 20 per cent of its costs of the proceeding on a standard basis [30]


The Defendant was justified in relying on multiple grounds in resisting the winding up application.  Even if they involved mutually inconsistent bases.  The key for the defendant was to dismiss the application.  In proving solvency reliance under section 459S was moot.  As the court noted considerable time was devoted to those submissions.

The key lesson in this case is the need to properly prepare and time the making of Calderbank Offers. They can be particularly effective but care needs to be taken in framing them.  They have to be made having regard to the circumstances.  In this case the offers were made before the audited books were made available to the plaintiff and prior to the injection of $200,000 into the defendant which bolstered its claim of solvency.  The Court undertook a thorough, and conventional, analysis of the offers and made the salient point that at the times the offers were made the plaintiff had reasonable prospects of success.  In other words it would do better than what is contained in the offers.  The July Calderbank Offer had real problems as it in effect, as the court stated, demanded a capitulation from the plaintiff rather than a compromise of a claim. 

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