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NSWNSWSC

In the matter of CharterLaw Legal Pty Ltd

[2025] NSWSC 297

Supreme Court of NSW|2025-03-28|Before: Black J

View on NSW CaselawOr email me a plain-English summary of this case

General information, not legal advice.

At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2025-03-28

Before

Black J

Catchwords

CORPORATIONS – winding up – creditor’s statutory demand
– application to set aside – whether there is
a genuine dispute
about the existence of the debt – costs – whether indemnity costs

Source

Original judgment source is linked above.

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Catchwords

CORPORATIONS – winding up – creditor’s statutory demand– application to set aside – whether there isa genuine disputeabout the existence of the debt – costs – whether indemnity costsshould be ordered

Judgment

Source: NSW Caselaw (www.caselaw.nsw.gov.au). Converted to plain text by ZoeLaw. Not the official version.

Medium Neutral Citation: In the matter of CharterLaw Legal Pty Ltd [2025] NSWSC 297

Hearing dates: 28 March 2025

Date of orders: 28 March 2025

Decision date: 28 March 2025

Jurisdiction: Equity - Corporations List

Before: Black J

In the matter of CharterLaw Legal Pty Ltd [2025] NSWSC 297 | Case summary | Zoe

Turning now to the evidence led in this application, CLL relies on affidavits dated 29 January 2025 and 30 January 2025 of Mr McCrohon. The first of Mr McCrohon's affidavits refers to the Demand, points to the nature of Mr Michales' claim and notes that he was the responsible solicitor in respect of the provision of legal services by CLL to Mr Michales, prior to CLL ceasing to hold registration as a legal practitioner, when a new incorporated legal practice was established at the end of June 2024. Mr McCrohon also refers to aspects of the previous retainer between Mr Michales and CLL. I do not understand those matters to be in dispute in these proceedings, where the Demand proceeds on the basis that the debt is recoverable by reason of s 10 of the LPUL, and not on any other basis. By his second affidavit dated 30 January 2025, Mr McCrohon points to the registration of another entity as a registered law practice, when CLL ceased to be registered, but the status of that other entity is also not in issue in the proceedings.
Mr Michales in turn reads three affidavits, all of which were prepared when he was not legally represented. Those affidavits are not in orthodox form, but Mr Parish, who appears for CLL, rightly took no objection to them so that they could be read in the proceedings. By his first affidavit, dated 8 February 2025, Mr Michales highlights his reliance on the fact that CLL ceased to be registered as a legal practice on 30 June 2024, but contends that it continued as a legal practice after that date. It appears that that proposition is put in reliance on steps taken by CLL, not in providing legal services to Mr Michales or third parties, but in participating in an ongoing assessment in respect of the costs of services that had previously been provided.
Mr Michales in turn makes several allegations, in relatively strong terms, as to the position of CLL in respect of the alleged provision of those services after it had ceased to be registered as a legal practice from 30 June 2024. By his second affidavit dated 15 February 2025, Mr Michales refers to a number of complaints that he has made to the Law Society and the Office of the Legal Services Commissioner in respect of these matters. Those matters are properly left to those regulatory bodies to deal with in accordance with their respective jurisdictions, where they are not relevant to the question whether there is a genuine dispute as to the debt claimed by Mr Michales such that the Demand should be set aside. In his third affidavit dated 28 February 2025, Mr Michales in turn refers to the Demand and to aspects of the conduct of the assessment of costs paid to CLL, which was taking place under the cost assessment regime.

I have also reviewed the relevant principles in Re Wollongong Coal Ltd [2015] 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22] where I referred, among other things, to the fact that the task faced by a company challenging a statutory demand on the genuine dispute ground is "by no means at all a difficult or demanding one”, adopting the observations of Barrett J in Panel Tech in that respect. My observations in that case were in turn approved by the Court of Appeal in Lygon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8]. The Court of Appeal has subsequently adopted the same approach in cases including, for example, Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60. Mr Parish in turn refers to a recent, and orthodox, summary of the applicable principles by Nixon J in Re One Pro Investment Group Pty Ltd [2025] NSWSC 108 at [53]ff, in terms which are consistent with the summary of those principles to which I have referred above. An understanding of those principles is critical to the determination of this application.
Turning now to the parties' submissions, CLL recognises that Mr Michales contends that the debt alleged is owing because CLL ceased to be an incorporated legal practice on 30 June 2024, and that Mr Michales relies on s 10 of the LPUL to found an obligation to repay moneys that he had paid to CLL for legal services provided to him, importantly, before it had ceased to be an incorporated legal practice. Again, I remind myself that my role is not here to determine the correctness of Mr Michales' contention, but whether a genuine dispute exists in respect of it.
Mr Parish submits that a genuine debt exists whether a debt is due and payable by CLL to Mr Michales, where CLL was a qualified entity during the period in which it provided legal services to Mr Michales and received fees for those legal services from Mr Michales, and submits that there is no basis to read s 10(2) of the LPUL as imposing an obligation to repay fees previously paid to an incorporated legal practice, because at a later date it ceases to hold registration as an incorporated practice. Mr Parish there recognises Mr Michales' reliance on steps taken by CLL in respect of the costs assessment, after it ceased to be a qualified practice. He submits that the steps undertaken by CLL in respect of an assessment, in respect of the costs of legal services that were previously rendered to Mr Michales, does not constitute providing new legal services after the date on which CLL had ceased to be a qualified practice.
Mr Nguyen, who was retained to act for Mr Michales after Mr Michales’ evidence had been filed, in turn addressed the relevant issues in written and admirably efficient oral submissions. He points to the fact of the payments made by Mr Michales to CLL and to the evidence led by Mr McCrohon on that regard. He points to the fact that, on 12 April 2024, I interpolate, when CLL was still a registered and incorporated legal practice, Mr Michales lodged an application for costs assessment. He pointed to the fact that, on 25 July 2024, CLL amended its application for costs assessment, a matter on which Mr Michales relies to seek to invoke s 10 of the LPUL. It appears, although Mr Nguyen's submissions are not particularly clear as to this matter, that it is contended that that amounted to the provision of legal services. That question is plainly open to dispute, where there was no solicitor-client relationship between Mr Michales and CLL in respect of the conduct of a costs assessment, in which they were in opposing interests, relating to costs of Mr Michales’ previous retainer of CLL.
Mr Nguyen in turn contends that the amendment of the costs assessment application triggered s 10 of the LPUL, with the perhaps surprising result that the whole of the legal costs rendered by CLL and paid by Mr Michales in the period prior to its ceasing to be a registered incorporated legal practice become a debt due and payable to Mr Michales. Mr Nguyen relies for that proposition on the language of s 10(2) of the Act which, as I have noted above, provides that an amount received in respect of anything an entity did in contravention of s 10(1) of the LPUL may be recovered as a debt by the person who paid it. Mr Nguyen submits, putting Mr Michales' case at its highest, that:

It seems to me that Mr Nguyen has there rightly recognised the core of the dispute, although I do not accept that it can fairly be said that CLL does not dispute that proposition.
I have referred to the requirements for a genuine dispute above. It seems to me plain that a genuine dispute here exists. First, the question whether CLL provided to Mr Michales legal services in contravention of s 10 of the LPUL, at any time after 30 June 2024, and whether a step taken in a costs assessment in July 2024 can be characterised in that way, is plainly open to both a factual and legal dispute. Second, the construction of s 10(2) of the LPUL, in its application in the relevant circumstances, is also plainly open to dispute. While Mr Nguyen puts Mr Michales's case by reference to a literal application of s 10(2) of the LPUL, that would not assist Mr Michales if the relevant contravention of the LPUL is not established. Third, equally fundamentally, the case law has long recognised that statutory provisions are construed by reference to their terms, but in their relevant context. CLL here contends, that s 10 of the LPUL does not have the construction that Mr Michales attributes to it. It seems to me that contention is plainly arguable, where it would be a remarkable result if a provision that is intended to provide for repayment of legal costs, in respect of services provided by unlicensed entities, has the consequence that costs are repayable in respect of services provided by licensed entities, merely because they later ceased to conduct business or hold the relevant licences, well after the services were provided. One obvious difficulty with that proposition is that it would subvert the apparent statutory purpose of the prohibition, because an entity which was licensed and properly entitled to provide those services at the relevant time would be exposed to the same risks as an unlicensed entity, which provided those services without being entitled to do so.
For these reasons, the Demand must be set aside, and I so order. I will hear the parties as to costs, and as to the costs of a notice of motion which was previously filed by CLL, although ultimately resolved by consent, seeking to restrain Mr Michales from pursuing a winding up application prior to the determination of the application to set aside the Demand.

CLL seeks an order for indemnity costs of the proceedings, comprising the substantive application to set aside the Demand, and a notice of motion that it filed on 6 February 2025 seeking to restrain Mr Michales from proceeding to a winding up application while the application to set aside the Demand was on foot. These matters raise different issues, and I will deal with them in turn.
Mr Parish rightly draws attention to the review of the applicable principles by the Court of Appeal in Cappello v Homebuilding Pty Ltd [2023] NSWCA 109, where Mitchelmore JA, with whom Meagher JA and Simpson AJA agreed, noted that the Court had a discretion to award costs on an indemnity basis in a proper case, but that ordinarily the conduct of the party against whom such costs are sought must exhibit some special or unusual feature to support that order, and the focus was on the way the litigation was conducted. Her Honour there recognised that the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case. However, her Honour also recognised that, as a general rule, the Court would be more reluctant to order indemnity costs against an unrepresented litigant, although recognising that the circumstances may make it appropriate to do so. Importantly, she observed that allowance should be made for an unrepresented litigant's possible lack of knowledge of the law, unfamiliarity with court practices and lack of objectivity. Plainly enough, those matters will not always prevent an order for indemnity costs against an unrepresented litigant, and the Court of Appeal in that case made an order for costs against an unrepresented litigant.
Here, I bear in mind those factors. I bear in mind that an experienced legal practitioner, having regard to the relevant case law as to the circumstances in which a Court would set aside a creditor’s statutory demand, may well not have taken the position that was initially taken by Mr Michales in the proceedings. I bear in mind that the Court itself sought to explain the possible difficulties of the application to Mr Michales on earlier occasions. However, I recognise that Mr Michales is not an experienced legal practitioner, and he likely did not recognise the availability of a genuine dispute in respect of the construction point that he took. I also recognise that, here, Mr Michales, while having pursued the proceedings as an unrepresented litigant for some time, was wise enough to retain Mr Nguyen to represent him at the hearing. Mr Nguyen has conducted the application in a balanced and appropriate manner, and that has reduced the costs to which both parties, including Mr Michales, would have been exposed had that not occurred.
On balance, recognising that there were plainly difficulties with the case that Mr Michales put, and that those difficulties may be more stark than would ordinarily exist in an application to set aside a creditor's statutory demand, I am not persuaded that an order for indemnity costs should be made in respect of the application to set aside the Demand. CLL has succeeded, but plaintiffs often succeed in applications to set aside creditor’s statutory demands, and it seems to me that the difficulties of Mr Michales's case are balanced by the need to recognise his status as an unrepresented litigant. Those matters are not sufficient to warrant an order for indemnity costs in respect of the application to set aside the Demand.
It seems to me that the position as to the notice of motion falls in a different category. CLL had filed an application in this Court to set aside the Demand and the Court plainly had jurisdiction to deal with that application under the relevant provisions of the Act. Mr Michales appears to have taken the view that it was not able to do so, because the costs assessment was proceeding under the costs assessment regime, where the Manager - Costs Assessment has an administrative responsibility. Plainly, the judges of the Court have no involvement in that matter, and judges in the Corporations List in particular have no involvement in that matter, and there was no barrier to the Court's exercise of its jurisdiction. Mr Michales in turn appeared to advance a threat, which had to be taken seriously by CLL, that he would proceed to a winding up application although CLL’s application to set aside the Demand had not been determined, where that application had not been brought in the Federal Court of Australia. There was, in my view, no proper basis for that threat.
In those circumstances, CLL was justified in taking steps to seek to restrain Mr Michales from commencing a winding up application until after its application to set aside the Demand was determined, and it ought not to have been put to the need to do so. I bear in mind that, ultimately, Mr Michales acted reasonably in not pursuing the threat of a winding up application where the injunction application was listed, so the Court ultimately did not need to determine a fully contested injunction application. However, that does not displace the fact that CLL was put to costs which it would otherwise not have to incur, and which it should not have had to incur, in progressing that application up to that point.
For these reasons, I will order that Mr Michales pay the costs of and incidental to the notice of motion filed 5 February 2025, seeking to restrain the commencement of a winding up application, as on an indemnity basis. CLL also seeks a gross sum costs order and the parties agreed to orders to progress that application.