Metledge v Owners - Strata Plan 87778 & Anor - [2020] NSWSC 891 - NSWSC 2020 case summary

Supreme Court of NSW|2020-07-06|Before: White J

Solicitors: n/a Madison Marcus Law Firm (First Respondent) MDW Law (Second Respondent) File Number(s): 2020/70699

Judgment

HIS HONOUR: By interlocutory process dated and filed 6 May 2020 the applicant, Mr Tony Metledge, seeks, amongst other things, orders setting aside an order made on 23 April 2020 by the registrar that the third respondent, Orico Properties Pty Ltd (in liquidation) ("the Company") be wound up, or alternatively an order pursuant to s 482 of the Corporations Act 2001 (Cth) that the winding-up of the Company be terminated.
On 23 April 2020 a registrar made orders as follows: "1. Orico Properties Pty Ltd (A.C.N 137 872 416) be wound up. 2. Jason Lloyd Porter and Shumit Banerjee, of SV Partners, Level 7, 151 Castlereagh Street Sydney NSW 2000 be appointed as liquidators of the defendant corporation. 3. The Defendant to pay the plaintiffs costs fixed in the sum of $7,274.57."
The Company was ordered to be wound up in insolvency on the application of the first respondent, the Owners - Strata Plan 87778 ("the Owners Corporation").
On 22 January 2020 a paralegal employed by the solicitors for the Owners Corporation, Madison Marcus Law Firm ("Madison Marcus") posted a statutory demand to the registered office of the Company. There was no response to the service of the statutory demand. The statutory demand was dated 21 January 2020 and was for an alleged debt of $12,548.03 described as follows: "SCHEDULE Description of the debt Amount of the debt Debt arising from the Company's failure to attend to payment of strata levies and subsequently penalties from 1 January 2018 to 9 October 2019. $10,409.16 Interest calculated pursuant to section 85 (1) of the Strata Schemes Management Act 2005 (NSW). $2,138.87 Calculated on the sum of $10,409.16, from 1 January 2018 to 21 January 2020, which is 750 days at 10% per annum. TOTAL AMOUNT OWING $12,548.03

The affidavit accompanying the demand was sworn by a Mr Karim El-Khatib. He deposed that he was employed as a strata manager at Ace Body Corporate and was responsible for the management of the Owners Corporation and had oversight of its books and records. He deposed that he believed that there was "no genuine dispute about the existence or amount of the debt" which was the subject of the statutory demand. As will be seen, it cannot be correct that there was no genuine dispute about the amount of the debt claimed.
Mr Metledge is the sole director and shareholder of the Company. It carries on business as a joint venturer in respect of a property development at a site in St Peters. The statutory demand did not come to Mr Metledge's attention. He deposed that the reason for this was that the Company's registered office, which was a suite in Morwick Street, Strathfield, was owned by his late uncle, Mr Albert Metledge. Albert Metledge was murdered on the building site on 6 November 2019 and his son, Mr Metledge's cousin and business partner, was stabbed.
Mr Metledge deposed: "I did not know about the Statutory Demand or these proceedings until the winding up order was made. The Strathfield Office was the place from which ARM Holdings Pty Ltd and my late Uncle conducted their businesses. Before the tragic events of last November, I would go into the Strathfield Office every day before attending the St Peters Development site. Between January and April 2020, I did not go there at all. As far as I am aware, no mail for Orico has ever previously been sent to the Strathfield Office."
There is no evidence that the Owners Corporation, nor its strata manager, knew, or had reason to know, that a statutory demand delivered to the Company's registered office would not be received by the Company's director. But there was a history to the dispute about strata levies that would have made the strata manager and its solicitor alert to the likelihood that the statutory demand, if received, would have been contested.
The Company is the owner of a unit known as lot 18 at 1-11 Canterbury Road, Canterbury. It is in that capacity that it is liable to pay strata levies.
On 6 June 2017 the Owners Corporation brought proceedings in the Local Court against the Company for allegedly unpaid strata levies of $2,903.85 and interest and costs. Those proceedings were dismissed on 12 February 2018 for want of prosecution and the Owners Corporation was ordered to pay the Company's costs in a fixed sum of $601.92.
The Company was represented in those proceedings by a solicitor, Mrs Mary Metledge. She is Mr Metledge's mother.
On 12 July 2018 Mrs Metledge wrote to the chairman of the Owners Corporation, a Mr Daniel Khan, and also to Mr El-Khatib of Universal Strata Management, described as being "an association with Ace Body Corporate Management". She wrote to Mr Khan as follows: "We refer to our unanswered letter to you dated 12 February 2018 (a copy of which is annexed) and wish to advise you that our client company's Court ordered costs of $601.92 have not been paid and are overdue together with after judgment interest pursuant to s.101 Civil Procedure Act 2005. ... Please note these costs cannot be paid from the funds already held by the scheme and a special levy must be struck (with the members' consent) and should not include any portion for Lot 18 as Lot 18 is the beneficiary of the costs order. In the event any contribution is levied against our client for these costs then we are instructed to obtain orders specifying that Lot 18 is to be excluded from contributing to that special levy pursuant to the Strata Management Act 2005 [sic] ('the Act'). ... In the meantime, we advise that our client company is currently in a position to settle its outstanding levies (less costs, fees, interests and other invalid charges) to bring the levies up to date. To this end, would you urgently provide this office with a simple to understand, itemised statement of account for all outstanding and current levies (without any additional costs, fees, interest and other charges) so that those levies can be paid without delay. To avoid doubt, please deduct any amounts apportioned to Lot 18 from any special levies struck to pay for the scheme's legal or other costs and disbursements associated with or incidental to the legal dispute with our client."
In her letter to Mr El-Khatib, Mrs Metledge stated: "As you are no doubt aware, the writer is the nominated representative for the owner of lot 18".
On 15 August 2018, Mrs Metledge wrote to Mr El-Khatib. She stated: "Please note that there is currently a valid dispute regarding the amount of levies validly outstanding (which our client made a genuine attempt to pay when sufficient funds were recently available) and any legal action commenced by or on behalf of the said Strata Scheme will be vigorously defended as it was in the previous legal proceedings where a costs order was made against the Strata Scheme."
Disputes about strata levies continued in 2019. In 2019 solicitors, were involved on both sides.
On 15 January 2019, Mrs Metledge wrote to Mr El-Khatib on her letterhead that included her practice email address. She wrote, amongst other things, that she was the nominated representative for the owner of lot 18, and: "Accordingly, any document which must be given to Lot 18 must be served on the writer. Sending emails to Mr Tony Metledge is ineffective service unless the document is also emailed to the writer. Service by post to the above address is also effective service."
She added: "In the meantime, we advise that our client is currently in a position to pay any properly outstanding levies but we require a statement as described in our letter to you dated 12 July 2018 (over 6 months ago), showing only what levies have accrued and are currently due. In order that our client can pay the currently outstanding levies promptly, we need to receive the statement in the detail requested by no later than 5.00 pm Monday 4 February 2019. If we do not receive same by that date then our client cannot ensure prompt and full payment of outstanding levies only. In future, kindly ensure that all communication of any kind be directed to the writer at the above address and please remove Mr Metledge's contact details as a nominated representative as he has long been removed as such."
On 5 February 2019, Mr El-Khatib wrote to the Company at Mrs Metledge's post office box, asserting that the Company then owed $7,161.41 for overdue contributions, interest and expenses, that were incurred by the Owners Corporation in recovering overdue amounts.
A statement of account was attached to Mr El-Khatib's letter of 5 February 2019. It covered the period from 30 January 2018 to 31 January 2019. The statement showed an opening balance, as at 30 January 2018, of $3,905.56, that was described simply as "Journal-BBF-Universal Strata". It was not otherwise explained. The statement described a closing balance of $7,168.65.
Thereafter, there was extensive correspondence between Mrs Metledge and the solicitors retained for the Owners Corporation, Madison Marcus. Mrs Metledge wrote to the strata manager, and later to Madison Marcus, on 6 February 2019, 30 April 2019, 15 May 2019 and 16 July 2019.
The theme of her correspondence was that she required from the Owners Corporation or the strata manager a statement showing levies imposed without details of penalties, costs and other charges. She said that those were disputed. She said that this was sought so that an undisputed debt for levies could be paid or paid by instalments. Mrs Metledge also sought payment of the costs order by the Local Court or a credit for those costs.
On 15 May 2019, Mrs Metledge wrote to Madison Marcus as follows: "I have been asking for a simple statement showing only the amount of levies owing to date. Yet again I am sent a Levy Statement showing every detail of penalties, costs and charges since 25.4.18. In any event, the only pure levies which I am able to calculate from that Levy Statement after deducting my client's Judgements costs of $601.92 (excluding interest to date) is the amount of $1,845.19. Given my client's substantial claim against yours in damages far exceeds $8,178.34, my client's proposal is as follows: 1 The sum of $1,845.19 be paid by my client within 7 days of this offer being accepted in writing; 2 The strata scheme look to Daniel Khan to be personally liable for payment of any remaining amount allegedly owing by my client; 3 Both parties relinquish any further claims they may have against the other. My client genuinely and reasonably believes that the parties have been placed in the position they find themselves in, solely as a result of Daniel Khan, as Chairperson, committing (or at least aiding and abetting the strata scheme to commit) several serious breaches of the Strata Schemes Management Act 2015 including but not limited to s.37 of that Act, resulting in my client suffering substantial loss and damage."
The alleged claim against Mr Khan was not articulated in the correspondence that was in evidence on this application.
On 8 July 2019, Madison Marcus provided a new statement of account showing an outstanding balance of $8,178.34. They stated that the Owners Corporation was not obliged to supply a levy statement free of penalties, costs and interest. The statement attached was for the period from 25 April 2018 to 27 March 2019. It showed an opening balance of $4,466.56 as at 25 April 2018 that increased to $7,035.80 as at 27 March 2019.
As can be seen from the schedule quoted above, the debt claimed in the statutory demand included a component of interest of $2,138.87. This was said to be calculated pursuant to s 85 of the Strata Schemes Management Act 2005 (scil. 2015) on the sum of $10,409.16 from 1 January 2018 to 21 January 2020, being 750 days at ten per cent per annum.
It is clear that there was not an outstanding balance of $10,409.16 for that period. Section 85(1) of the Strata Schemes Management Act provides that a contribution, if not paid when it becomes due, be at simple interest until paid at ten per cent per annum.
Mr Cook, counsel for the Owners Corporation, submitted that although Mr El-Khatib knew that there was a dispute about the debt claimed in the statutory demand, there was no reason to doubt his sworn belief that there was no genuine dispute about the debt. That may be so in relation to the principal sum claimed, but it is difficult to see how that could have been so in relation to the interest component of the debt.
But this is a peripheral matter. There is no doubt that the statutory demand was validly served, and that it was not complied with. No application was made to set it aside and the demand was not satisfied. Accordingly, the presumption of insolvency arose.
But it is difficult to resist the inference that the Owners Corporation or the strata manager or their solicitors did not at least suspect that the reason there was no response to the statutory demand was because the Company had not collected the mail at its registered office.
The originating process and supporting affidavit were also served by post, addressed to the Company's registered office. Those documents also did not come to Mr Metledge's attention, nor to Mrs Metledge's attention.
The Owners Corporation and Madison Marcus gave no evidence to explain why they did not give notice to Mrs Metledge (who had said she was the nominated representative of the owner of lot 18 in its dealings with the Owners Corporation, and had asked Mr El-Khatib to ensure that "all communications of any kind" relating to the Owners Corporation and lot 18 be sent to her) that the statutory demand and the originating process had been served on the Company by post to its registered office.
The Owners Corporation's failure to provide such notice to Mrs Metledge was squarely raised in the affidavits deposed to by Mr Metledge in support of his interlocutory process and in his submissions. His interlocutory process seeks an order that the Owners Corporation pay the remuneration and expenses of the liquidators, and he seeks an order for costs against the Owners Corporation.
In the absence of any evidence explaining why no such notice was given, I can more readily draw the inference, and I do draw the inference, that no evidence could have been given by Mr El-Khatib or Madison Marcus that would have contradicted the inference that is otherwise open, that notice was deliberately not given to Mrs Metledge in hope that service of the statutory demand and originating process for the winding-up of the Company would pass unnoticed.
This inference is also confirmed by events occurring after service of the originating process. The winding-up application was first before a registrar on 7 April 2020. Mr Mournehis of Madison Marcus appeared by telephone link before the registrar.
Mr Mournehis advised the registrar that "there has been no contact from the defendant". He proposed that the matter stand over for seven days, to allow his firm to "notify the defendant's Court's profile". This was a reference to notifying the defendant of the details required to be completed and telephone numbers to be used for the purposes of listings by telephone during the COVID-19 pandemic.
The registrar directed that, "You are to notify the defendant, and the details will be exactly the same as those I gave you in the online court." Madison Marcus complied with the letter of that direction by sending a letter by post to the registered office of the Company on 9 April 2020.
On 15 April 2020, Mr Mournehis appeared by telephone before Senior Deputy Registrar Hedge. The registrar expressed concern that the letter was sent, albeit by express post, only on Thursday, 9 April, immediately before Easter. The transcript of the hearing on 15 April records Mr Mournehis saying: "The only thing in response to that I'll say Registrar is that the originating process was served on the defendant company back a while ago and there was the last week beforehand there was also further email also served by - letter sent with the liquidator's consent which was closer towards last week's direction hearing. So they have been notified this will be the third time now of these proceedings and what's happening in these proceedings and have had no response whatsoever."
The transcript is a little difficult to follow, and I do not understand Mr Mournehis to have said that the Company had been notified of matters by email to the Company. Rather, I infer that he said something to the effect that, by the letter that was sent on 9 April 2020, the Company was given directions as to how contact with the Court should be made.
The matter was stood over on 15 April for a week. On 22 April 2020, the matter came again before Senior Deputy Registrar Hedge. The transcript records the following: "SENIOR DEPUTY REGISTRAR: Have you got any email contact for the other party? MOURENHIS: I don't have an email contact for the other party I only have an address for service."
Whether Mr Mournehis knew it or not, his firm and Mr El-Khatib had an email address for the solicitor who had acted for the Company in the dispute. I trust that Mr Mournehis did not have personal knowledge of that fact.
The matter was adjourned to the next day, when the winding-up order was made.
It does not follow from my finding that a deliberate course was taken not to draw Mrs Metledge's attention to the commencement of winding-up proceedings, that there was not valid service. Both the statutory demand and the originating process were served in a way provided for by the rules. Service by post to the Company's registered office is an available mode of service.
I do not accept Mr Metledge's submission that the Company is entitled ex debito justitiae to have the winding-up orders set aside. This is not a case where the petitioning creditor knew that the address for service did not exist, or where the documents were returned with a statement that the Company was no longer at the address at which service was attempted, or where there was deliberate suppression of knowledge of the documents, in the sense that there was no attempt to prevent the Company from being acquainted with the documents by accessing its registered office. Nor is it a case where the Company's registered office was the office of the creditor who knew that the documents would not be received by the Company (Re Future Life Enterprises Proprietary Limited (1994) 33 NSWLR 559 at 564; Lane Cove Council v Geebung Polo Club Proprietary Limited (Green as liquidator) and Ors (No 2) [2002] NSWSC 118; 41 ACSR 15 at [51]-[53]; Re Rosecell Pty Ltd [2016] NSWSC 1914 at [4]-[7]).
I do not accept that the orders were made irregularly within the meaning of r 36.15(1) of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). I will assume without deciding that the order was not made against good faith within the meaning of that rule. No submissions were made as to the scope of that part of r 36.15. For the reasons which follow it is unnecessary to decide that question.
The Court nonetheless has power pursuant to UCPR r 36.16(2)(b) and (3A) to set aside the orders made on 23 April 2020. The orders were made in the absence of the Company, and the application to set aside the orders was brought within 14 days. I propose to act under r 36.16(2)(b).
In light of my conclusion that the order was made regularly, and in the absence of a finding that it was made against good faith, it is necessary for Mr Metledge to demonstrate that the Company is solvent before the winding up order can be set aside (George Ward Steel Pty Ltd v Kizkot Pty Limited (1989) 15 ACLR 464 at 465; Registrar of Aboriginal Corporations v Murnkurni Women's Aboriginal Corporation (in liq) (1995) 58 FCR 125; Labraga v Pomfret [2005] NSWSC 654 at [44]; and Double Bay Newspapers v The Fitness Lounge [2006] NSWSC 226; 57 ACSR 131 at [20]-[25]).
As can be seen above, the orders of 23 April 2020 provided for the appointment of Messrs Porter and Banerjee of SV Partners as liquidators of the Company. Mr Banerjee carried out an investigation into the solvency of the Company. He described his conclusions as preliminary, but they appear to have been arrived at after as thorough an investigation of the Company's financial position as time has permitted.
The Owners Corporation does not dispute his opinion that the Company is solvent. It does not dispute that the presumption of insolvency is rebutted.
There are two matters of prima facie concern as to the Company's solvency. One is that, in 2018 and 2019, Mrs Metledge proposed an instalment plan for the payment of such of the strata levies as were undisputed. The second is that, according to the Company's financial statements that are in evidence up to 30 June 2019, and according to a summary of the plaintiff's financial statement prepared up to 23 April 2020, the Company has made losses in each of the last five financial years. According to the balance sheet made up to 23 April 2020 summarised by Mr Banerjee, there was disclosed a deficiency of assets to liabilities as at 23 April 2020 of $923,063.
However, that is not a complete picture. The Company's principal asset is its interest in a joint venture for the development at St Peters. That is recorded in its balance sheet at a cost of $13,997,502 as at 23 April 2020.
Mr Banerjee estimates that the value of the Company's interest in the St Peters development is $31,325,628 if the development is valued on a "Gross Realisation value 'As If Complete'", or $21,900,628 if the development is valued as "Market Value 'As If Complete' in One Line".
This estimate is based on an updated valuation of the development prepared by a Mr Jared Morgan, a certified practising valuer. Mr Morgan had valued the development as at 29 April 2018, and valued the development then in the figures stated above.
He was asked by the liquidator to update his valuation, and provided a further report dated 10 June 2020, in which he noted the change in market conditions currently being experienced. Notwithstanding this, he adhered to the original valuation as being a reasonable estimate of the market value of the development.
The value takes into account the estimated costs of completion. These have been certified by a firm of quantity surveyors. The development is said to be 80 per cent complete.
The Company's lot in the Canterbury property is also included in the balance sheet at cost, at a figure of less than half of its current estimated market value. Mr Banerjee opines as follows: "6.3.9 Based upon the available information, we estimate the Company's realisable asset and liability position as at the date of Liquidation as follows: Notes $ Assets Current Assets Cash at Bank a. 806,684 GST Refund b. 250,727 Non-Current Assets Canterbury Property c. 643,819 St Peters Development d. 31,325,628 Total Assets 33,026,858

Liabilities Current Liabilities Petitioning Creditor e. 12,548 Non-Current Liabilities Secured Creditor f. 17,020,000 Beneficiary Loan g. Nil Metcorp h. Nil Total Liabilities 17,032,548

In relation to unsecured creditors, Mr Banerjee states (para 8.10) that: "To date we are only aware of the Petitioning Creditor's claim. In this regard we have published a 'Notice Inviting Formal Proof of Debt or Claim' on the ASIC Published Notices requesting details of any outstanding claim due by the Company to be submitted to my office on or before 13 May 2020. No details of creditors' claims was received."
He also states that he has not discovered any loan defaults in the Company's arrangements with its bank, other than the Company's being wound up.
He also opined (at [8.6]) that: "Our preliminary investigations and dealings with the CBA indicates the Company has a favourable relationship with CBA and may be able to borrow further funds."
The Company's loan facilities with the CBA were fully drawn as at the date of the liquidation.
Mr Banerjee states: "The Company operated within a group of companies which has been in the business of construction and development for over 30 years including A.R.M Holdings Pty. Limited ('ARM Holdings'), T J M Holdings Group Pty Ltd ('TJM Holdings') and Metcorp."
Affidavits have been provided by relatives or associates of Mr Metledge deposing to their willingness, or the willingness of related entities, to advance moneys unsecured if required to complete the development.
Irrespective of those matters, the Company's current cash flow position can be stated shortly. It had cash at the date of liquidation of $806,684, and no unsecured debts other than that owed to the Owners Corporation. It also has an apparent entitlement to a GST refund of $250,727.
It is clear that the company does not, and I infer never did, require an instalment plan in order to meet its liability to pay strata levies. I am satisfied that it is solvent.
The Owners Corporation submitted that it should be a term of any order setting aside the winding-up order that its debt that was the basis of the originating process be paid. It is clear that the Company does owe the Owners Corporation some debt for strata levies.
If I were satisfied as to what that debt was, I would agree that it should be condition of the making of an order setting aside the winding-up order that the Company pay what it owes. But the position remains unclear.
I am satisfied that the Company does not owe the amount claimed in the statutory demand, and I am not able to ascertain what is the proper amount of the unpaid strata levies or other charges for which the Company is liable. The solvency of the Company is such that I am satisfied that whatever is the debt owed, the Company is well able to pay that amount.
For these reasons, the orders for the winding-up of the Company and for the appointment of Messrs Porter and Banerjee as liquidators should be set aside. It will follow that there is no occasion to make an order under s 482 of the Corporations Act terminating the winding-up.
Mr Metledge's interlocutory process did not seek an order for the setting aside of the costs order made on 23 April 2020. He sought leave to amend the interlocutory process to seek that relief.
I should add that he also did not seek an order setting aside order 2 made on 23 April 2020, but that would necessarily follow from the setting aside of order 1. The same is not true of order 3.
The Owners Corporation did not identify any prejudice if leave to amend the interlocutory process were granted. Rather, it relies on the submissions it otherwise has made in respect of costs.
I grant leave to the applicant to amend the interlocutory process to seek an order that order 3 made on 23 April 2020 be set aside.
I direct that an amended interlocutory process be filed in accordance with this leave by 5pm tomorrow, 8 July 2020.
For the reasons that I have given in relation to the Company's solvency in dealing with the interlocutory process, I am satisfied that the originating process that seeks an order for the winding up of the Company should be dismissed. Counsel for the Owners Corporation accepted that that would follow, and I will make that order in due course.
These conclusions leave for decision what orders should be made as to the liquidator's remuneration and expenses, and what costs orders should be made in respect of the originating process and Mr Metledge's interlocutory process.
As to the liquidators' remuneration and expenses, Mr Banerjee deposes that, on 13 June 2020, the creditors approved the liquidators' original remuneration claim of $53,730. It appears that the only creditor attending the creditors meeting was the Owners Corporation, but there is no reason to doubt the efficacy of the resolution.
In addition, the liquidators seek approval of further remuneration and reimbursement of expenses of $69,527.15. This includes amounts of $33,130 for solicitors' costs and counsel's fees in respect of this application.
Mr Metledge did not take issue with the liquidators' claimed remuneration and expenses, but this application was not the occasion for him to do so. I am not in a position to assess the reasonableness of the amounts claimed. On the other hand, there is no reason that the liquidators should be put in the position of having to sue the Company for their remuneration and expenses.
The liquidators submitted that I should make an order fixing their remuneration. I decline to do so. Instead, I will direct, pursuant to s 90-15(1) and (3)(a) of the Insolvency Practice Schedule that the liquidators would be justified in withdrawing the further moneys claimed by them for their remuneration and expenses, viz. $69,527.15.
I will also order that this will be without prejudice to the Company's right to seek a review pursuant to s 90-15(3)(f) of the Insolvency Practice Schedule, and I will order that any such application for review be filed and served within 28 days.
I will also hear further submissions from solicitor or counsel for the liquidators in relation to an order that they have sought in their proposed short minutes of order in relation to the time for the making of an application by the liquidators for their remuneration.
On the question of costs as between Mr Metledge and the Company on the one hand, and the Owners Corporation on the other, I have accepted that the originating process was validly served, and the winding-up orders were regularly obtained. But I do not condone the Owners Corporation's failure to advise Mrs Metledge of the steps it was taking.
Had it done so, the winding-up application would have been defended. The Company's solvency would have been established by evidence such as that which has been adduced on the present application. In that event, the Owners Corporation would have been required to pay the costs of an unsuccessful originating process for the winding-up of the Company, including the costs of the Company in proving its solvency.
Alternatively, if the application were defended, the application might have been withdrawn without the necessity for the incurring of costs for the proof of solvency.
The Owners Corporation opposed any costs orders being made against it. It submitted, correctly, that it did not oppose the Company's being returned to the management of its director.
But the Owners Corporation only consented to the orders sought by Mr Metledge if Mr Metledge (or, I assume, the Company) paid the Owners Corporation the sum of $12,251.43 being the debt that the Owners Corporation asserted it was owed by the Company, and paid the Owners Corporation the sum of $7,274.57 for its costs of the winding-up proceedings.
For the reasons I have given, I do not accept that there should be an order for the payment of the debt claimed by the Owners Corporation as a pre-condition to the making of an order setting aside the winding-up order.
The Owners Corporation then submitted that Mr Metledge and the Company were seeking an indulgence, and should pay its costs of the interlocutory process, as well as its costs of obtaining the winding-up order. Counsel for the Owners Corporation cited the judgment of Gleeson JA, with whom Brereton JA and Simpson AJA agreed, in J & M McNamee Holdings Pty Ltd v Mungerie Vale Pty Ltd t/as Greenwood, Group Realtors [2019] NSWCA 283 at [97], and the cases there referred to.
Gleeson JA in turn cited Dal Pont, Law of Costs 3rd ed (2013) LexisNexis Butterworths at [14.39]. Professor Dal Pont there stated: "An applicant will as a general rule be ordered to pay a respondent's costs of the application to set aside a default judgment as it is the applicant's default that has occasioned the need for the application."
There is no fixed rule that the costs discretion conferred by s 98 of the Civil Procedure Act 2005 (NSW), and to be exercised in accordance with UCPR r 42.1, requires that wherever an applicant succeeds in setting aside a default judgment, the judgment will be set aside only on the basis that the successful applicant pays the respondent's costs.
It will be a question no doubt in each case as to whether it can be truly said that the party seeking to set aside a default judgment is seeking an indulgence. There are indulgences and indulgences.
In one sense, in this case Mr Metledge and the Company are seeking an indulgence which arises from their not having checked whether any mail was being received at their registered office or making arrangements to change the Company's registered office.
The fact that their failure to take those steps is understandable in the difficult circumstances the family faced, does not mean that, in a sense, they are not seeking an indulgence. But by the same token, I consider that a principal cause for the incurring of costs in these proceedings was the Owners Corporation's failure, which I have inferred was deliberate, not to bring the winding-up process to the attention of the Company through its solicitor, notwithstanding prior requests that any communications concerning the Company and its ownership of lot 18 be brought to its solicitor's, Mrs Metledge's, attention.
In the circumstances of this case, I do not consider that it is appropriate either that the Company or Mr Metledge pay the Owners Corporation's costs, or that there be no order as to costs of either the originating process or the interlocutory process.
As to the costs of the interlocutory process, Mr Metledge appeared for himself at the hearing. He would have incurred expenses, including filing fees. He had legal representation up to 11 May 2020.
The Company was initially named by Mr Metledge as a second applicant. The liquidators had not caused or consented, or given approval in writing, to its being joined as an applicant by Mr Metledge.
At the commencement of the hearing, I ordered that the Company be removed as an applicant and be joined as third respondent because no written approval had been given by the liquidator, nor at that stage, by the Court, to the applicant's causing the Company to seek the setting aside of the winding-up order pursuant to s 198G(3)(b). That does not change the fact that, in substance, Mr Metledge sought to maintain the claim of the Company that it ought not to have been wound up, and that the orders of 23 April 2020 should be set aside, or alternatively that the winding-up should be terminated.
I accept that, in the absence of approval under s 198G(3)(b), Mr Metledge would not have standing as a director to apply for the setting aside of the winding-up order (Walker v Midlink Nominees Pty Limited [2000] WASC 112; 34 ACSR 210 at [28]; Buckland Products Pty Limited v Deputy Commissioner of Taxation Commonwealth [2003] VSCA 85 at [13]-[16]; Brolrik Pty Ltd v Sambah Holdings Pty Ltd [2001] NSWSC 1171; 40 ACSR 361 at [9]-[17]). He did have standing, at least in his capacity at least as contributor to apply under s 482 of the Corporations Act for an order for the termination of the winding-up.
In circumstances where Mr Metledge had standing to apply for the termination of the winding-up, and where the liquidator supported his contention that the winding-up should be either set aside or terminated, and having regard to the affidavits that had been prepared and the written submissions provided, I was satisfied that this was an appropriate case in which to grant approval nunc pro tunc pursuant to s 198G(3)(b) to his causing the Company to bring the application (Re Day & Night Online Transport Pty Ltd (in liq) [2018] NSWSC 796 at [22]).
It may be that, in those circumstances, I was in error in removing the Company as second applicant and making it a third respondent. But nothing turns on that because in substance it remains an applicant. I will in due course revoke the order I made yesterday in light of my decision to grant the applicant the necessary approval.
I also indicated that I would, in due course, dispense with the operation of r 7.1 of the UCPR concerning the representation of the Company by a solicitor.
As I have said, Mr Metledge would have incurred some expenses in bringing the application. The Company, through its liquidators, has also incurred costs. As I have noted above, the liquidators claimed reimbursement of what were apparently solicitor client costs in excess of $30,000 in respect of the application. It is clear that a considerable part of the liquidators' claim for remuneration would also be referable to the costs of preparation of the liquidators' solvency report which is exhibit SV-1 to the affidavit of Mr Banerjee, sworn 26 June 2020, and some costs and perhaps some remuneration referable to Mr Banerjee's time would have been incurred in the preparation of his affidavit of 26 June 2020, short though it is.
To the extent that the liquidators have incurred costs in seeking to protect their entitlement to remuneration for things done other than in relation to participating in this application, there is no reason that the Owners Corporation should be liable to pay those costs or remuneration. Otherwise, in my view, for the reasons I have given, I consider that the costs incurred by the Company, including the costs of the preparation by the liquidator of the solvency report, should be paid by the Owners Corporation. I also consider that the Owners Corporation should pay Mr Metledge's costs.
By his interlocutory process, Mr Metledge sought an order that the Owners Corporation pay all the liquidators' remuneration. Except to the extent that the liquidators' remuneration is referable to their participation in this application, including the preparation of Mr Banerjee's affidavit and the solvency report, exhibit SV-1, which are recoverable as costs incurred by the Company, I do not consider there is power to make that order. Such an order could only be made, if at all, as part of an assessment of damages, if any action were brought in some cause of action in tort. No such action is before me.
There may be a question, about which I have not yet received submissions, as to how the burden of the costs that I will order that will be payable by the Owners Corporation, should be borne between unit holders, and how the Owners Corporation's own costs should be borne as between unit holders.
Before making final orders, I will hear further submissions from the Owners Corporation and Mr Metledge on that question.
For these reasons, and subject to any submissions that any party may have as to the appropriate form of the orders, I propose the following orders: 1. Revoke the order made on 6 July 2020 that the named second applicant, Orico Properties Pty Limited (in liquidation) ("the Company") be removed as second applicant and joined as third respondent. 2. Give approval nunc pro tunc to the applicant, Mr Tony Joseph Metledge, causing the Company to apply for the orders in the interlocutory process filed 6 May 2020. 3. Dispense with the requirements of r 7.1 of the Uniform Civil Procedure Rules 2005 (NSW). 4. Grant leave to the applicants to amend the interlocutory process to claim an order that order 3 made on 23 April 2020 be set aside, and direct that an amended interlocutory process be filed by 5:00pm on 8 July 2020 pursuant to this leave. 5. Order that orders 1, 2 and 3 made on 23 April 2020 be set aside. 6. Order that order 5 take effect on and from 9 July 2020. 7. Order pursuant to s 90-15(1) and (3)(a) of the Insolvency Practice Schedule that the second respondents are justified in withdrawing the sum of $63,206.50 plus GST for their claim for remuneration and expenses from the Company's liquidation account by 5:00pm on 8 July 2020. 8. Order that order 7 is made without prejudice to the right of the Company or the applicant to seek an order in relation to remuneration, including an order requiring repayment pursuant to s 90-15(3)(f) of the Insolvency Practice Schedule. 9. Order that any application for review of the second respondents' remuneration and expenses be filed and served by 5:00pm on 3 August 2020. 10. Order that the first respondent, the Owners - Strata Plan 87778 ("the Owners Corporation") pay; 1. the Company's costs of the originating process, and 2. the first applicant's and the Company's costs of the interlocutory process filed 6 May 2020. 1. Order that the Company's costs payable pursuant to order 10 include the reasonable costs and expenses incurred by the Company in respect of the preparation of the affidavit of Shumit Banerjee sworn 26 June 2020, and Exhibit SB-1 to that affidavit, including that part of the liquidators' remuneration referable to the preparation of that evidence. 2. Order that the originating process be dismissed. 3. Order that the interlocutory process filed 6 May 2020 be otherwise dismissed. [Parties address.]
HIS HONOUR: I will add the following:
Mr Metledge seeks an order pursuant to s 90 of the Strata Schemes Management Act that the burden of the costs payable by the Owners Corporation pursuant to the above orders should be borne by the other lot owners of the strata plan and not by the Company.
In my view, that application is well founded. There is no reason that the Company should be required, through the payment of levies, to fund a proportion of the costs that it has incurred by reason of the actions brought by the Owners Corporation which are payable to it.
I make the following further order, namely: 1. Order pursuant to s 90(2) of the Strata Schemes Management Act 2015 and s 98 of the Civil Procedure Act 2005 that money payable by the Owners Corporation to the Company pursuant to these orders be paid from contributions levied only in relation to lots in Strata Plan 87778 other than lot 18 and in shares proportional to the unit entitlements of the other lots.
No application has been made for any order in relation to how the burden of the Owners Corporation's own costs of the proceedings should be borne as between lot owners. The question whether the Court has power to make an order adjusting such a burden is not without difficulty.
Section 104 of the Strata Schemes Management Act provides that: "104 Restrictions on payment of expenses incurred in Tribunal proceedings (1) An owners corporation cannot, in respect of its costs and expenses in proceedings brought by or against it for an order by the Tribunal, levy a contribution on another party who is successful in the proceedings. (2) An owners corporation that is unsuccessful in proceedings brought by or against it for an order by the Tribunal cannot pay any part of its costs and expenses in the proceedings from its administrative fund or capital works fund, but may make a levy for the purpose. (3) In this section, a reference to proceedings includes a reference to proceedings on appeal from the Tribunal."
So far as I am aware, there is no equivalent provision in relation to court proceedings. In Owners Strata Plan 50411 v Cameron North Sydney Investments Pty Limited [2003] NSWCA 5 at [170]-[172], and Symes v Proprietors Strata Plan 31731 [2003] NSWCA 7 at [82]-[84], the Court of Appeal held in substance that, by necessary implication, s 76 of the Supreme Court Act 1970 (NSW) (that was in materially the same terms as the current s 98 of the Civil Procedure Act) conferred power on the Court to make such orders in respect of the owners corporation's own costs, so that a successful lot owner in proceedings against the owners corporation did not bear the burden of a levy from the owners corporation in respect of its own costs of the proceedings.
However, there is a question, which is not addressed in those decisions, as to the effect of the opening words of what is now s 98 the Civil Procedure Act, that the power to order costs is subject, amongst other things, to "any other Act".
In the absence of argument on the question, and in the absence of any specific application directed to the question, I decline to make any order in respect of how the burden of the Owners Corporation's own costs should be borne as between lot owners.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 July 2020

Strata Schemes Management Act 2005(NSW)

Metledge v Owners - Strata Plan 87778 & Anor

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