Analysis and conclusion
105 At the hearing on 22 March 2024, I informed the parties that I would determine whether: (a) a costs order should be made in favour of Ms Keating and the Deputy Commissioner; (b) if so, whether costs should be awarded against Mr Nehm personally; and (c) whether costs should be awarded on an indemnity basis. I informed the parties that, after making those determinations, I would refer the questions of whether it was appropriate to award costs on a lump sum basis and, if so, the amount of those costs, to a Registrar of the Court, acting as a referee pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act), for inquiry and report.
106 I do not accept DPI's and Mr Nehme's submission that lump sum costs "are not regularly given". The Court seeks to adopt, and encourages parties to utilise, sophisticated costs orders and procedures, including lump sum costs orders: see para 3.3 of the Court's Practice Note on Costs (GPN - Costs). As GPN - Costs makes clear, the taxation of costs should be "the exception".
107 Section 43 of the Federal Court Act confers a broad, discretionary power to award costs. This power must be exercised judicially and in accordance with "the general principles pertaining to the law of costs": Knight v F.P. Special Assets Limited [1992] HCA 28; 174 CLR 178 (Knight) at 192.
108 It is not in dispute that the power under s 43 extends to making costs orders against non-parties: Knight at 192; Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) [2012] FCAFC 50; 200 FCR 154 at [73]; Hardingham v RP Data Pty Limited (Third Party Costs) [2023] FCA 480 (Hardingham) at [19] approved in Court House Capital Pty Ltd v RP Data Pty Limited [2023] FCAFC 192 at [13].
109 In Hardingham, Thawley J (at [21]) considered the proposition that costs orders against non-parties are only awarded in exceptional circumstances. His Honour said that this proposition, and similar statements, are no more than an observation that costs usually (i.e., in the ordinary run of cases) fall on the parties to litigation:
… It is, accordingly, not particularly helpful to state that a third party costs order is rare and exceptional. When there is a sufficient connection between the litigation and a third party, and the circumstances are such that the making of a costs order is fair in all the circumstances, the making of a third party costs order is normal…
110 In Knight, Mason CJ and Deane J (at 192 - 193; Gaudron J agreeing at 205) said that it is appropriate to recognise a general category of case in which an order for costs should be made against a non-party if the interests of justice require that the order be made - namely, where: (a) the party to the litigation is insolvent or a "man of straw"; (b) the non-party has played an active part in the conduct of the litigation; and (c) the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.
111 This general category of case can encompass the actions of a sole director who is the controlling mind of a company which is a party to the litigation: Vanguard 2017 Pty Limited, in the matter of Modena Properties Pty Limited v Modena Properties Pty Limited (No 2) [2018] FCA 1461 at [46] - [48]; Hooke v Bux Global Limited (No 8) [2019] FCA 671 at [19] - [21]; Taylor v Pace Developments Ltd [1999] BCC 406 at 409.
112 Section 43(3)(g) of the Federal Court Act recognises, explicitly, that the Court has power to award costs on an indemnity basis against a party. It cannot be doubted that the Court's broad, discretionary power to award costs extends to making an award of indemnity costs against a non-party, where it is appropriate to do so.
113 I am satisfied that the Deputy Commissioner and Ms Keating are each entitled to an award of costs in their favour. The review application was initiated by DPI in which they (and ASIC) were joined by DPI as parties. DPI has failed in the review application. Costs should follow that event.
114 Plainly, the Deputy Commissioner had a role to play in defending the winding up order it had obtained. I am satisfied that it was also appropriate for Ms Keating to play an active role in the review application by filing affidavit evidence and making submissions given that, at all times up to 26 February 2024, the review application was advanced, principally, on the basis that DPI was solvent. Ms Keating provided assistance to the Court in expressing her opinion on that question based on the facts known to her as a result of her (then) investigation into DPI's financial circumstances and affairs.
115 I am satisfied that Mr Nehme should be ordered to pay the Deputy Commissioner's and Ms Keating's respective costs of and incidental to the review application on an indemnity basis.
116 Mr Nehme is the sole director of DPI. He is the person who, on the evidence, provides "formal instructions" on DPI's behalf. I am satisfied that he provided "formal instructions" to commence the review application on the basis that DPI was solvent and that there was a basis to contend, on discretionary grounds, that a winding up order should not be made against it.
117 In providing those instructions, I am satisfied that Mr Nehme was either acting in his own right as a director or at the behest of Mr Dimitriou, whose role in respect of DPI appears to be a far more intimate and influential one than the simple liaison portrayed in Mr Adelstein's affidavit.
118 In this connection, the following passage in Mr Adelstein's affidavit is revealing. It concerns the circumstances in which Mr Adelstein, knowing that winding up proceedings against DPI were on foot, came to learn, through a telephone conversation initiated by Mr Dimitriou, that a winding up order had actually been made:
13. Mr Dimitriou: "Why didn't you attend today to oppose the wind up? I have just been advised by an acquaintance that the company was wound up today."
Mr Adelstein: "I didn't have it in my diary. I had not been instructed to attend. I haven't sent a retainer. I don't believe I was instructed to act."
Mr Dimitriou: "Of course you were. You act for Defined in all its matters. Why would this be different?"
Mr Adelstein: "I only act when I am instructed. In the other matters I have received formal instructions from Mr Nehme. That didn't happen here."
Mr Dimitriou: "The company is solvent. The Court would be likely to exercise its discretion against a wind up in those circumstances. We will need to apply to review the decision. Can you do that? I understand it happened in Melbourne. The proceedings were filed in NSW, We are in NSW, the Liquidator is in NSW, the ATO's lawyers are in Queensland and yet I believe the matter was heard by video link in Melbourne. Go figure."
Mr Adelstein: "Very well. When I receive formal instructions, I will look into the possibility of a review."
119 This evidence, taken with the fact that Mr Adelstein's communications to Mr Nehme (as revealed in his affidavit) appear to be through, and only through, Mr Dimitriou, strongly suggests that Mr Dimitriou himself is the real source of instructions on behalf of DPI. I infer that, in relation to DPI's affairs, it is Mr Dimitriou who instructs Mr Nehme who "formally instructs" Mr Adelstein.
120 I am satisfied that there was no proper basis for advancing the position in the review application that DPI was solvent or that there was a sound discretionary reason for not making a winding up order against it.
121 As to the question of solvency, DPI ignored the Court's orders of 21 December 2023 to file a notice of opposition, affidavit evidence, and supporting submissions. I am satisfied that, unbeknown to the Deputy Commissioner and Ms Keating, there never was any prospect, at that time, that DPI would be able to support the review application on the basis that it was solvent. This fact was either known by Mr Nehme and Mr Dimitriou, or ought reasonably to have been known by them.
122 As I have noted, in oral submissions Mr Adelstein referred to the contention that DPI was solvent as an "unmeritorious argument". That is an apt description. Mr Adelstein attempted to qualify his submission by contending that his affidavit showed that DPI had the prospect of recovering "some monies". I reject that qualification. As I have noted, Mr Adelstein's affidavit referred, in somewhat vague terms, to DPI's claimed entitlement to certain sums of money. That evidence could not realistically support the proposition that DPI was solvent (if, in fact, the evidence was truly directed to that question). Indeed, Mr Adelstein's affidavit appears to acknowledge that fact by its repeated references to DPI's intention to file affidavit evidence demonstrating its solvency.
123 What is more, DPI made no attempt to inform the Deputy Commissioner or Ms Keating that it was not intending to prosecute the review application on the basis that it was solvent. Rather, it induced, and allowed, the Deputy Commissioner and Ms Keating to prepare for the hearing on 26 February 2024 (including by filing affidavit evidence and, in the case of the Deputy Commissioner, written submissions), and incur further costs, on a completely false basis. It was only at the hearing on 26 February 2024 that DPI abandoned any pretence that it was solvent.
124 Further, I am satisfied that, as at 21 December 2023, there was no sound discretionary reason not to make a winding up order against DPI. The contention that there was such a reason is an illusion. I am satisfied that this fact was also known by Mr Nehme and Mr Dimitriou at that time, or ought reasonably to have been known by them. As became apparent in DPI's written and oral submissions at the hearing on 22 March 2024, DPI was, in fact, advancing nothing more than a bargaining chip to reach a settlement. The bargaining chip was that Mr Dimitriou would consider paying some money to the Deputy Commissioner on DPI's behalf if the Deputy Commissioner would consent to the winding up application being dismissed and submit to a costs order in relation to DPI's costs and Ms Keating's costs.
125 As to the attempt to advance the defective notice ground as a viable ground of opposition, I accept that I permitted DPI to advance that ground. However, I did so only because, at the time that it was first raised, both the Court and the respondents were taken by surprise. I was not prepared to consider the merits of the defective notice ground "on the run" without informed assistance from the Deputy Commissioner, which could not realistically be given at that time. As I also appreciated at the time, that assistance required evidence, which was, in fact, subsequently provided by the Deputy Commissioner, at further cost. DPI and Mr Nehme cannot take comfort from the fact that I permitted DPI to advance the new ground.
126 I am satisfied that the review application was not commenced on a proper basis. Ultimately, it was not prosecuted, on a viable basis. As I have found, the defective notice ground is without merit.
127 Further, DPI's conduct of the review application has been unsatisfactory throughout, and unreasonable. The Deputy Commissioner and Ms Keating should not have been put to the cost and inconvenience of the application, particularly at the hands of an insolvent applicant against whom they have no practical recourse. It is just and appropriate that they be indemnified for their legal costs by Mr Nehme who, I am satisfied, was the person who provided "formal instructions" to Mr Adelstein to commence the review application and to conduct it on behalf of DPI in the way it was conducted, knowing since at least January 2024 that a personal costs order would be sought against him (at least by Ms Keating).
128 Further, I am satisfied that the review application was brought in an attempt to delay the winding up. There does not appear to be any other rationale for taking that action. I can only conclude that Mr Nehme (or, if acting at the behest of Mr Dimitriou, Mr Dimitriou) had an interest in achieving that outcome that was at least equal to DPI's interest. I can think of no other reason why the review application would have been commenced.
129 For completeness, I should record that I have not reached these findings or conclusions on the basis that, at an earlier stage of the proceeding, Mr Nehme offered to provide an undertaking as to costs. Having said that, I should make clear that I do not accept DPI's and Mr Nehme's submission as to the circumstances in which that offer was made. It is clear from the correspondence that the undertaking was offered to meet any order that might be made against DPI to pay costs. The correspondence in which the offer was made makes no mention of a proceeding to be commenced by Mr Nehme as a director. Moreover, it would be odd to offer an undertaking to pay an adverse costs order when the party against whom that order would be made is the person offering the undertaking.