[1992] HCA 28
PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168
Yu v Cao (2015) 91 NSWLR 190
Source
Original judgment source is linked above.
Catchwords
[1992] HCA 28
PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168
Yu v Cao (2015) 91 NSWLR 190
Judgment (3 paragraphs)
[1]
Judgment
HIS HONOUR: EMG Stone Pty Ltd commenced these proceedings by summons filed on 3 May 2022. It seeks relief with respect to a determination by the NSW Civil & Administrative Tribunal concerning a dispute between the company and the defendants over the supply and installation of granite bench tops in the defendants' dwelling in Jindabyne. The company had sought to recover $3,383 in unpaid charges for that job but the defendants cross-claimed alleging defective and incomplete work totalling approximately $15,000. On 26 May 2021, Tribunal Member Smith ordered the company to make good the works associated with the supply and installation contract upon which it would become entitled to the amount claimed. However, that did not occur and the defendants applied to bring the matter back. On 30 March 2022, Tribunal Member Smith ordered the company to pay the defendants $25,991.90, being the amount required to make good the kitchen to comply with the orders previously made.
The summons is a challenging document. It is fair to say that the company effectively seeks to relitigate the whole of the contest determined unfavourably to it by Tribunal Member Smith. In response to the summons, the defendants have filed two notices of motion, the first on 2 June 2022 and the second on 1 December 2022. The motions came before me on 6 December 2022 for determination. In combination, the defendants move the Court for the following relief:
1. To the extent required, an order granting leave to the defendants to continue these proceedings against the plaintiff (in liquidation) pursuant to s 471B or s 500(2) of the Corporations Act 2001.
2. An order that the plaintiff's summons filed 3 May 2022 be struck out for lack of jurisdiction as failing to be an "appealable decision" in accordance with s 82(1) of the Civil and Administrative Tribunal Act 2013.
3. Alternatively, an order that the summons be set aside under UCPR 12.11(1)(a) or otherwise dealt with under UCPR 12.11(1)(g) or (h), 13.4(1)(b) or (c) or 14.28(1)(a) or (c) or 50.16A(1).
4. An order that the Court determine the defendants' costs of these proceedings fixed in the sum of $15,363 be paid by the plaintiff or Saad Asaad, Bimal Bhandari and Nilawali Ayoub pursuant to s 98 of the Civil Procedure Act or as the Court may otherwise determine.
5. Interest.
The evidence establishes that the plaintiff went into voluntary liquidation pursuant to a resolution passed on 17 November 2022. Mohammad Najjar was appointed as the company's liquidator. Mr Najjar advised by letter dated 1 December 2022 that his recommendation was that the present proceedings be dismissed "given the current external administration status of the company". Mr Najjar also advised in his letter that he neither consented to nor opposed the proceedings continuing "should the parties think otherwise". Mr Najjar expressly indicated that whatever course were adopted, he did not wish actively to participate in the proceedings.
When the proceedings were called on for hearing, there was no appearance for the plaintiff. My Associate received an email attaching a medical certificate dated 2 December 2022 from Dr Paul Placanica indicating that Saad Asaad, (the director of the plaintiff) was suffering from severe anxiety and distress, was not medically fit to attend court and sought an adjournment. My Associate did not otherwise receive any communication by or on behalf of Mr Asaad in which he sought an adjournment of the proceedings or any other concession. I am satisfied that the plaintiff and Mr Asaad have received notice of the defendants' proposal to move the Court for the orders referred to earlier in these reasons.
Sections 471B and 500(2) of the Corporations Act are relevantly as follows:
471B Stay of proceedings and suspension of enforcement process
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
500 Execution and civil proceedings
(1) Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.
(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.
(3)…
In my view, the defendants do not require leave to prosecute their motions against the company. The nature of the various forms of relief that the defendants seek against the plaintiff are not within the ambit of s 500(2) as they are in effect defensive procedural measures. In BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 at 859, the Supreme Court of Western Australia held that leave was not required for an application for security for costs against a company that has gone into liquidation on the basis that s 471B applied to proceedings initiated against a company in liquidation and not "defensive procedural measures" by defendants in proceedings initiated by the company. In Zervas v Burkitt [2019] NSWCA 112 at [11], Gleeson JA concluded that there "are authorities that a 'defensive proceeding' is not subject to the requirement of leave under s 471B or s 500(2) of the Corporations Act".
Even if that conclusion were wrong, I would in any event have been inclined to grant leave. That is particularly so having regard to the attitude expressed by the liquidator and the absence of any representation by the plaintiff, an entity obviously separate and distinct from Mr Asaad whose indisposition is not challenged.
Sections 82(1) and 83(1) of the Civil and Administrative Tribunal Act provides as follows:
82 INTERPRETATION
(1) Each of the following kinds of decisions of the Tribunal is an "appealable decision" of the Tribunal for the purposes of this Division--
(a) any decision made by an Appeal Panel in an internal appeal,
(b) any decision made by the Tribunal in an external appeal,
(c) any decision made by the Tribunal in proceedings in which a civil penalty has been imposed by the Tribunal in exercise of its enforcement or general jurisdiction.
83 APPEALS AGAINST APPEALABLE DECISIONS
(1) A party to an external or internal appeal may, with the leave of the Supreme Court, appeal on a question of law to the Court against any decision made by the Tribunal in the proceedings.
Neither of the determinations of Tribunal Member Smith was an appealable decision. Even if that were not so, neither decision is the subject of an application for leave to appeal nor a question of law.
It should also be noted that the plaintiff filed a summons commencing an appeal in the District Court on 30 March 2022. It is identical in form and substance to the summons filed by the plaintiff in these proceedings. The defendants filled a notice of motion in that Court seeking orders to have the plaintiff's summons struck out for want of jurisdiction, relying on the same grounds as those relied upon for the same relief in this Court. On 2 May 2022, Judicial Registrar Howard heard the plaintiff's summons and the defendants' notice of motion. He dismissed the summons for lack of jurisdiction and ordered the plaintiff to pay the defendants' costs of the summons of $5,349.
In the circumstances of this case, there is no reason why a similar order should not be made by me. Moreover, having regard to the history of the proceedings so far, and to the matters described in detail in the summons, I would be inclined on the court's own motion summarily to dismiss the proceedings pursuant to UCPR 13.4 or the inherent power of the Court as it appears to me that they disclose no reasonable cause of action and are otherwise an abuse of the process of the Court.
The defendants have filed evidence that establishes that their costs of responding to the plaintiff's summons up to and including 6 December 2022 amount to $15,363.13: see pages 180 - 182 of the Court Book. The defendants seek a specified gross sum costs order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 for the payment of those costs calculated on an indemnity basis. Mr Charles submitted that there was little if any realistic or convenient prospect that the costs, if ordered against the plaintiff, would be recovered. It was for that reason that he also seeks a non-party costs orders against the named individuals. The characterisation of the costs as indemnity costs is strictly unnecessary as Mr Charles, solicitor, who appears for the defendants has acknowledged that the specified gross sum sought represents the whole of the costs incurred by the defendants.
I consider that a specified gross sum costs order in the amount claimed should be made. The amount is small. The costs of an assessment are disproportionate to the amount in question. The summons is unmeritorious and the costs should follow the event of its dismissal.
However, while I appreciate the practical strength of submissions that a non-party costs order should also be made, I have some difficulty with the proposition that the named non-parties are not in a similar position to Mr Finnerty in PM Works Pty Ltd v Management Services Australia Pty Ltd trading as Peak Performance PM [2018] NSWCA 168 in which the following remarks of the trial judge were cited with approval by Leeming JA in the Court of Appeal:
"[10] On the only issue which has given rise to this application for leave, namely, the failure to make a non-party costs order against Mr Finnerty, it is convenient to reproduce the entirety of his Honour's commendably concise reasons:
'Decision: the application against Mr Finnerty
46. In my view, this application should fail. I accept, as Ms Cairns submitted, that Mr Finnerty is the guiding mind of PPPM. I am prepared to accept also that it was he who caused PPPM to commence the litigation and to conduct it to finality, and he who funded it. It is clear that Mr Finnerty would have benefited substantially from success. But to state those propositions does no more than state that PPPM is a company that Mr Finnerty caused to be incorporated for the purpose of conducting 'his' management training business. They do not indicate why the veil of incorporation should be, not so much pierced, as rent in twain.
47. To make the order sought with no more to justify it than the facts recited in the preceding paragraph would mean, in effect, that every entrepreneur in a similar situation would be exposed to the like risk. The power would become one exercised regularly and frequently, not sparingly. In my view, more must be shown to justify the making of the order.
48. There is nothing in the facts to suggest that it would be just to deprive Mr Finnerty of the advantages of separate legal personality. It is unnecessary to decide whether, as Mr Assaf submitted, it is necessary to characterise Mr Finnerty's conduct as unreasonable, before a third party costs order can be made against him. There is really nothing more than the fact that Mr Finnerty pursued his business through PPPM, caused PPPM to commence and prosecute to finality (subject to any appeal) litigation relating to that business, paid the costs of doing so, and stood to receive the benefits of doing so. For the reasons I have tried to explain, that does not seem to me to justify the exercise of the undoubted discretion to make the order sought.
49. Were it necessary to characterise Mr Finnerty's conduct as unreasonable, I would not accept Ms Cairns' submission that it is appropriate to do so. There is nothing to show that Mr Finnerty (for example) proceeded in the teeth of advice that the claim was weak, or with knowledge that the claim was unlikely (even very unlikely) to succeed. I accept that the offer of compromise should have caused him, as the guiding mind of PPPM, to consider its prospects of success. There is however no evidence that he failed to do so; and a fortiori, no evidence that his decision to continue, in the face of the offer, was relevantly unreasonable. Hindsight analysis should not be applied for the purpose of characterising his conduct, retrospectively, in that way.
50. I note further (although Ms Cairns did not refer to it) that, in answer to the defendants' application for security for costs, Mr Finnerty undertook to put his personal assets at risk, and to accept joint and several liability for costs. However, that circumstance does not strike me as having any consequences favourable to the defendants. On the contrary, in my view, it tends otherwise. They did not accept Mr Finnerty's offer. Instead, they pressed ahead with their application for security (and obtained it). It strikes me as being a little inconsistent to have taken that position, no doubt for perceived (although legitimate) advantage at one stage, and now to be seeking to resurrect the proposal in connection with costs.
51. The application for a costs order against Mr Finnerty must fail'."
The power under s 98(1) of the Civil Procedure Act extends to making a costs order against a non-party: Yu v Cao (2015) 91 NSWLR 190; [2015] NSWCA 276 at [136]. The decision to order costs against a non-party is an exercise of the Court's discretionary power. It is unfettered: there is no onus of proof in the application for the exercise of the discretion: Ipex ITG Pty Ltd (in liq) (receivers appointed) v Victoria (No 2) [2014] VSCA 315 at [45]. Even so, there is an established category of case where the power may be exercised. In Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-193; [1992] HCA 28, Mason CJ and others said this:
"Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognized that it may be appropriate for such an order to be made. See the discussion in Oasis Hotel ibid, at pp 458-459.
For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where 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. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."
A case will fall within the established category if three elements exist, namely the plaintiff is a man of straw, the non-parties have an interest in the subject of the litigation and they have played an active part in the conduct of the litigation. In such a case, a costs order may be made against a non-party if the interests of justice require.
In Knight v FP Special Assets, Dawson J (at 202) referred to a costs order being made against the "effective litigant standing behind an actual party". There is no significant difference between the approach of Dawson J and that of the Chief Justice. Both approaches direct attention to the "real party": FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [205]. Reference to the "real party" is to be understood as a reference to a real party, even if not the real party: Ipex ITG Pty Ltd v Victoria (No 2) at [36]. In that case, the Court held that a non-party who was a beneficiary of a discretionary trust and director of the trust company that "may well" have had the power to distribute the proceeds of litigation to himself should be ordered personally to pay the costs of proceedings unsuccessfully brought by the trustee: Ipex at [41]. Ultimately it is a question of the interests of justice: Brand2Content t/as Franchise Works v Dalby [2019] NSWCA 16 at [12].
The defendants submitted that this case falls clearly within the category of cases referred to in Knight v FP Special Assets.
I am not satisfied that the interests of justice favour the making of the orders sought. As far as the evidence indicates, the plaintiff was in the business of supplying granite benchtops and related products and services. It was not, for example, a special purpose vehicle incorporated in order to conduct spurious or questionable litigation in a way designed cynically to shield its controlling minds from potentially likely adverse costs orders. As far as I can determine, Mr Asaad and the others named in the defendant's notices of motion, carried on their business in a legitimate fashion through the medium of the plaintiff in what might be described as the usual way. The fact that Mr Asaad may have felt aggrieved by the unfavourable decision of the Tribunal or the Judicial Registrar, and persisted with ill-advised, not to say hopeless, litigation in an attempt to vindicate his view, is not in my mind so unusual as to warrant lifting the corporate veil.
I am not prepared to make the non-party costs orders that are sought.
[2]
Orders
In the circumstances I make the following orders:
1. Dismiss the summons pursuant to UCPR 13.4.
2. Order the plaintiff to pay the defendants' costs calculated as a specified gross sum pursuant to s 98(4)(c) of the Civil Procedure Act 2005 in the amount of $15,363.13.
[3]
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Decision last updated: 09 December 2022