Matter Technology Ltd (administrators appointed) v Mrakas; Mrakas v Matter... [2018] NSWSC 1245 | Case summary

Mr Mrakas's notice of motion

Although the point was not taken during the hearing before me (at which time Mr Mrakas and Platipus Foundation were represented by solicitor and counsel) Mr Mrakas now contends that Matter's solicitors, Marque Lawyers, "did not have authority to act for Matter".
In his written submissions Mr Mrakas said: "Mr Mrakas contends that, by reason of a number of facts…it would have been impossible for Matter to provide authority to act to the Plaintiffs' solicitors (Marque Lawyers) to commence proceedings, that as a fact Marque Lawyers were not retained to litigate when they commenced proceedings on 31 January 2018 and that [there] was no affidavit filed in the proceedings confirming that Marque Lawyers had authority to act in the proceedings, (together with a copy of the instrument evidencing that authority), that the proceedings were invalidly commenced, should be dismissed and that Marque Lawyers should bear Mr Mrakas' costs of the proceedings chiefly as Marque Lawyers had intimate [knowledge] of Matter being their exclusive company lawyers since 2014 and would have reasonably…known that their authority was wanting and would be challenged."
The proceedings were commenced on 31 January 2018 when Matter approached Hammerschlag J ex parte for injunctive relief.
On that occasion Matter obtained leave to file in Court a summons and an affidavit affirmed by Mr Simon Barnes.
At that time Mr Barnes was the only director of Matter.
Prior to 31 January 2018 there were three directors of Matter: Ms Marie Taylor, Mr Mrakas and Mr Barnes.
Ms Taylor resigned as director on 31 January 2018 (see principal judgment at [6] and [134]). Mr Barnes as CEO caused Mr Mrakas to resign as director on 30 January 2018 (principal judgment at [135] and [136]).
Clause 22.1 of Matter's Constitution provides that: "Minimum Number The Company will have at least three Directors, unless otherwise provided by the Corporations Act [2001 (Cth)]".
Clause 28.6 of the Constitution provides that: "Quorum The quorum necessary for the transaction of business at a board meeting is two directors unless the board determines a greater number."
Clause 28.10 of the Constitution provides: "Too few Directors The Directors may continue to act even if there are vacancies on the Board. If the number of Directors is reduced below the minimum required under clause 22.1, the continuing Directors may act as a Board only: (a) to convene a general meeting of Members; or (b) in emergencies."
Thus, despite the resignation of Ms Taylor and Mr Mrakas, Mr Barnes was able to "act as a Board" as the remaining director in the event of an emergency.
In my opinion, as at 31 January 2018 there was a state of emergency at Matter.
In my principal judgment I outline Mr Mrakas's misuse of Matter's intellectual property and confidential information; see [98] to [113] of the principal judgment.
A crisis had developed at Matter, all of which was of Mr Mrakas's making. It was necessary for Matter to commence these proceedings to protect its interests. There was an emergency that enabled Mr Barnes, as the sole director, to act as the board.
Mr Mrakas drew my attention to a Delegation of Authority approved at a meeting of directors of Matter on 29 May 2015. That document authorised Matter's CEO to initiate legal proceedings valued in excess of $15,000 and for the "board of directors" to initiate legal proceedings valued in excess of $30,000.
By reason of the state of emergency that I have described, Mr Barnes was entitled to act as the "board of directors" for the purposes of that Delegation of Authority.
On 2 February 2018, two days after these proceedings were commenced, Marque Lawyers sent Matter a costs agreement which described the proposed "scope of work" as: "We will act for you in the Supreme Court of NSW proceedings 2018/00033137 against Christopher Mrakas and Platipus Foundation Pty Ltd, with work on these proceedings having commenced on 24 January 2018. Please refer to our hourly rates as outlined under part 1 'scope and fees' below."
The costs agreement provided that: "You accept this agreement by continuing to instruct us".
Later that day Mr Nathan Mattock, a partner at Marque Lawyers, had a conversation with Mr Barnes in which Mr Barnes said: "I've received the costs agreement. I'm happy for you to proceed on that basis".
In those circumstances, Mr Mrakas submits that Marque Lawyers' authority to commence proceedings was only given on 2 February 2018 and therefore that Marque had no instructions to commence proceedings on 31 January 2018.
But Mr Barnes, then the only director of Matter, swore an affidavit in support the summons that was filed on 31 January 2018. It is obvious from that fact that he authorised the commencement of proceedings.
There are also numerous entries in Marque Lawyers' time costing records of telephone discussions and other dealings with Mr Barnes leading up to 31 January 2018 which make it clear that Marque Lawyers were acting on Mr Barnes's instructions and that he had authorised the commencement of proceedings.
Mr Mrakas next contended that the costs agreement that Marque Lawyers sent Matter on 2 February 2018 did not comply with the requirements of s 174 of the Legal Profession Uniform Law (NSW) in that it did not contain an "estimate of the total legal costs" as required by s 174 of the LPUL.
The costs agreement in evidence does not appear to contain any such estimate.
However, it does not follow that Marque Lawyers did not have authority to act for Matter.
The consequence of non-compliance with the disclosure obligations under the LPUL is set out in s 178 which is in the following terms: "s 178 Non-compliance with disclosure obligations (1) If a law practice contravenes the disclosure obligations of this Part - (a) the costs agreement concerned (if any) is void; and (b) the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and (c) the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and (d) the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention."
As Mr Mrakas points out, if a disclosure obligation is breached the costs agreement is void (s 178(1)(a)). But the succeeding subsections of s 178 set out the consequences of a costs agreement being void, namely that the client is not required to pay legal costs, and the law practice must not commence proceedings to recover costs until they have been assessed.
If the 2 February 2018 costs agreement does not comply with the LPUL, then Matter was and is entitled to take advantage of those provisions. But this says nothing about Marque Lawyers' authority to conduct these proceedings on Matter's behalf.
Next Mr Mrakas submits that Matter had not complied with UCPR r 7.2(1) as Mr Barnes had not filed an affidavit as to his authority as a director or an instrument evidencing that authority.
However, as I pointed out to Mr Mrakas during argument, UCPR r 7.2(1) only applies if, relevantly, a director of a company seeks to commence or carry on proceedings on the company's behalf.
That is not this case.
UCPR r 7.1(2) provides that a company may commence and carry on proceedings by a solicitor or by a director. In this case Matter commenced, and has carried on the proceedings, by a solicitor - Marque Lawyers. Accordingly, UCPR r 7.2 is not relevant.
Finally Mr Mrakas submits that Mr Mattock, who is the partner at Marque Lawyers with carriage of the matter (although he is not the solicitor on the record), has a "conflict of interest" because he is a close friend of Mr Barnes and had a beneficial shareholding in Matter through a company of which he is the director and shareholder.
I do not see those alleged matters as having any relevance to the question of Marque Lawyers' authority to act for Matter in the proceedings.
For those reasons, Mr Mrakas's notice of motion of 19 July 2018 should be dismissed with costs.

Gross sum costs order

Mr Hutton, who appeared for Matter, put his case for a gross sum order on the basis of three matters.
First, he drew my attention to the observations of Slattery J in Pham v Enterprise ICT Pty Ltd; Pham v Sebie (No 2) [2018] NSWSC 22 at [34] and [35]: "The principles for the making of specified gross sum costs orders instead of assessed costs are now well settled. The circumstances in which the Court may make a CPA, s 98(4)(c) gross sum costs order are not confined and the power may be exercised whenever the circumstances warrant its exercise, having regard to the scope and purpose of the provision: Hamod v State of New South Wales [2011] NSWCA 375 at [813] and Zepinic v Chateau Constructions (Aust) Ltd (No 2) [2014] NSWCA 99 at [28] and [29]. The purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum [NL v Johnson (No 2) (1995) 57 FCR 119]. Probable inability to pay a costs order will usually provide a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered, then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also probably being unrecoverable: Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 (Lehane J)."
Mr Hutton places particular emphasis on his Honour's statement that probable inability to pay a costs order would usually provide a basis to make a gross sum order.
In that regard, Ms Emma Johnsen, a solicitor at Marque Lawyers, has given uncontested evidence that at a directions hearing on 15 June 2018 she had this conversation with Mr Mrakas: "Mr Mrakas: Matter won't get anything out of me. I have no assets. Zero. [Ms Johnsen]: Mr Mrakas do you understand you understand you may be declared bankrupt if Matter [is] successful in this application? Mr Mrakas: Bankruptcy is a badge of honour in my industry."
Mr Hutton also points to the fact that, as I recorded at [29], [30], [145] and [146] of the judgment, Mr Mrakas took a number of unmeritorious points during the course of the hearing, many of which were ultimately abandoned.
Finally, Mr Hutton submits that it is reasonable to anticipate that Mr Mrakas will cause difficulty during the assessment of costs.
Mr Hutton points to the matters I have set out at [47] and to the matters that Mr Mrakas raised in support of his 19 July 2018 notice of motion that the proceedings be dismissed by reason of Marque Lawyers' want of authority to act for Matter.
I see substance in this submission.
Before me Mr Mrakas behaved with courtesy and decorum.
However, his supporting affidavit and submissions were very detailed and, as I have determined, misconceived.
The propositions that Mr Mrakas advanced to support the orders he sought do not augur well for a trouble free assessment of Matter's costs.
Those three factors, in combination, persuade me that this is a case in which it is appropriate to make a gross sum costs order.
Mr Mattock swore an affidavit which annexes all of the invoices sent by Marque Lawyers to Matter and all invoices received in respect of disbursements, which include counsel's fees, Court fees, and the amount paid to a forensic IT provider (retained to investigate the extent to which Mr Mrakas had misused Matter's confidential information).
Mr Mattock also annexed all of Marque Lawyers' time costing records.
That material reveals that Marque Lawyers has rendered invoices to Matter for professional fees and disbursements (including counsels' fees) totalling $244,834.71.
In his affidavit Mr Mattock said: "In my experience advising and acting with respect to the recovery costs in the Supreme Court of New South Wales, I consider that it is common to recover on a party/party basis between 75% and 85% of solicitors' fees and 100% of disbursements, including counsel fees."
Mr Mattock has calculated the fees and disbursements charged by Marque Lawyers before and after 26 February 2018 (the date from which I ordered costs be on an indemnity basis) and applied those percentages.
The resultant figure is $235,475.99.
Matter does not seek, as part of the costs to be incorporated into a gross sum order, the costs of this application.
In Colquhoun v District Court of New South Wales (No 2) [2015] NSWCA 54 the Court held at [6]: "The power to make a lump sum costs order 'should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available': Harrison v Schipp…at [22]; Hamod v State of New South Wales…at [813]."
I have reviewed invoices that Marque Lawyers has sent to Matter and the time costing records and I am not able to detect any work done that was not reasonably necessary for the conduct of the litigation.
I am otherwise satisfied that there is sufficient material in evidence to enable me to make a fair assessment of the amount of a gross sum costs order.
However, to determine a fair figure to be the subject of a gross sum order, I would apply the lower of the percentages to which Mr Maddock referred (see [58] above) to the fees referable to the period prior to 26 February 2018 and, rounding off the figure, specify $230,000 as a reasonable sum.
I order that the plaintiffs' costs in these proceedings be specified, pursuant to s 98(4)(c) of the Civil Procedure Act at $230,000.
I order that Mr Mrakas pay Matter's costs of its notice of motion of 2 May 2018.

Matter Technology Ltd (administrators appointed) v Mrakas; Mrakas v Matter Technology Ltd

At a glance

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Judgment (6 paragraphs)

Legislation Cited (4)

Cases Cited (9)