Mi-Ok Pty Ltd v The Owners of Strata Plan No 56059

DECISION : Statutory demand set aside. No order as to costs.

CATCHWORDS : CORPORATIONS - winding up - creditor's statutory demand - set aside by consent - contest on costs - PROCEDURE - costs - where no determination on the merits - whether supporting affidavit sufficiently delineated case - where plaintiff initiated proceedings without intervention of solicitor but was represented by counsel at hearing - whether defendant entitled to costs

LEGISLATION CITED : Corporations Act 2001 (Cth), s.459G Uniform Civil Procedure Rules 2005, rules 7.1(2) and (3)

Access Services Group Pty Ltd v McLoughlin; McLoughlin v ACN 098 883 884 Pty Ltd [2006] NSWSC 532 CASES CITED : Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104 Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622

PARTIES : Mi-Ok Pty Ltd and Robin William Luck - Plaintiffs The Owners Strata Plan No 56059 - Defendant

COUNSEL : Mr L.W. Judd - Plaintiffs Mr A. Blank - Defendant

SOLICITORS : Leon M. Ratner & Associates - Plaintiffs K.M. Harkness & Co - Defendant

• 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1005/06 MI-OK PTY LTD & ANOR v THE OWNERS OF STRATA PLAN NO. 56059

1 In these proceedings there are ostensibly two plaintiffs, a company called Mi-Ok Pty Ltd and a Mr Luck, who, according to his affidavit, is its sole director. 2 By an originating process filed on 3 January 2006 and expressed to be advanced under s.459G of the Corporations Act 2001 (Cth), both of them purport to claim an array of relief which boils down to a claim for an order setting aside a statutory demand served on Mi-Ok. Although the originating process contains a solicitor's address as the address for service, it was not drawn or filed by a solicitor. 3 While, as I have said, there are two ostensible plaintiffs, I have treated the originating process as an application by Mi-Ok alone for an order setting aside the relevant statutory demand. It alone has standing and I shall refer to it as "the plaintiff". Mr Luck's ostensible status as a second plaintiff is superfluous and I ignore it. 4 I am not now called upon to determine the plaintiff's substantive claim. The defendant consents to the making of the order the plaintiff seeks, with the result that there will be, by consent, an order setting aside the statutory demand. 5 The defendant says, however, that despite this grant of the relief the plaintiff seeks, there should be an order that the plaintiff pay the defendant's costs of the proceedings. 6 In a case such as this, where there has been no hearing or determination on the merits, the matter of costs is to be approached in accordance with a well known passage in the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at pp.624-5: "In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs [1]. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order [2]. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties [3]. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action [4]. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd [5], the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans. Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission [6] where his Honour ordered the respondent to pay 80 per cent of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases [7]." 7 It is submitted, on behalf of the defendant, that the plaintiff was guilty of unreasonable conduct which should displace the general expectation in cases such as this, that general expectation being that, with nothing about the merits of the case having been determined by it, the court should leave each party to bear its own costs. 8 The defendant's central contention in support of the proposition that the plaintiff was guilty of unreasonable conduct is that the affidavit in support of the originating process was deficient according to the so-called Graywinter principle derived from the decision in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452, to the effect that an affidavit called for by s.459G must delineate the areas of controversy sufficiently to allow the defendant to see the general parameters of the dispute or offsetting claim that it advances as the reason why the statutory demand should be set aside. If the original affidavit meets the threshold test, the evidence in it may be supplemented by further affidavits, but the grounds relied upon cannot thereby be expanded. 9 The supporting affidavit in this case is the affidavit of Mr Luck of 3 January 2006. Although that affidavit contains references to "genuine dispute", its content shows very clearly that what is really relied upon is an offsetting claim of $9,850.50 plus interest. A schedule to the affidavit refers to amounts said to be owed by the defendant to the plaintiff for work done by the plaintiff to rectify faults on the body corporate property of the defendant. There is an attached sheet headed "Particulars of Debt" which refers briefly to various items or descriptions of repair, maintenance and rectification work, with a period (or at least, a month in 2004) shown in respect of each such item or description, with, I think, one exception, being the last item in the Particulars of Debt attachment. 10 In a later affidavit of Mr Luck, being the affidavit of 27 April 2006, the plaintiff gave greater details of the alleged repair, maintenance and rectification works and attached a number of letters or invoices that Mr Luck said had been sent to the defendant or its managing agents relating to various sums. 11 Ms Lake, a director of the managing agents, gave evidence for the defendant. She says that she has no recollection of the receipt of any of the letters Mr Luck says he sent. She says that she only became aware of the basis of the plaintiff's offsetting claim when she saw Mr Luck's affidavit of 27 April 2006 and that she would have remembered the various letters (or at least a number of them) had she received them, since several raised matters she would have had to take up with the body corporate's insurers. It is to be noted, however, that, as Mr Judd of counsel pointed out for the plaintiff, not all the letters were addressed in such a way that they would necessarily have reached Ms Lake herself. 12 I was invited by Mr Blank, who appeared for the defendant, to find that Mr Luck never sent the letters. Mr Blank refers to Ms Lake's evidence about not recollecting receipt and the absence of any references to the letters in the descriptions of work items in the Particulars of Debt attachment to Mr Luck's January affidavit, and indeed the absence of such references all together from that affidavit. 13 Mr Judd has, however, taken me to the various letters and the content of the so called Particulars of Debt in Mr Luck's first affidavit, where different items of work are described and months are referred to. It is fair to say that there is a high degree of correlation between the months stated in that schedule and the dates of letters referring to similar classes of work. 14 Mr Luck's evidence that he sent the letters is, of course, not in direct collision with Ms Lake's evidence that she has no recollection of having received them. The two can stand together. 15 Having regard to the various matters I have mentioned, I decline to disbelieve Mr Luck's evidence and I decline to draw an inference that Mr Luck did not send the letters as he deposed he did. 16 The main contention of the plaintiff is that, contrary to the submission made on behalf of the defendant, the January affidavit did satisfy the Graywinter test. I accept that submission made on behalf of the plaintiff, having regard to the aspects of the content to which I have earlier referred. It is true that the later affidavit supplemented and particularised the initial content, but that initial content was, of itself, sufficient to put the defendant on notice of the nature of and basis for the offsetting claim. There is, accordingly, not shown to have been any unreasonable conduct of the plaintiff in relation to the matters canvassed that should be regarded as entitling the defendant to a cost order. So far as those matters are concerned, the ordinary result in the case of disposition by consent should apply. 17 Mr Blank has, however, pointed to an additional matter which is that, as I have said, the originating process was prepared and issued without the intervention of a solicitor. That raises questions under rule 7.1(2) and (3) of the Uniform Civil Procedure Rules 2005. That provision is to the effect that a company within the meaning of the Corporations Act may commence and carry on proceedings by a solicitor or by a director of the company, but that, in the Supreme Court, it may not do so by a director unless that director is himself or herself also a plaintiff in the proceedings. 18 As I mentioned at the outset, Mr Luck appeared in the originating process as a plaintiff but he had no standing to seek the relief under s.459G and, in the way I have described, I have regarded the originating process as embodying an application by the corporate plaintiff alone for an order under that section. 19 That being so, I regard the position as one in which there was non-compliance with rule 7.1(2). That, however, does not mean that the court must decline to deal with the matter or impose an adverse costs order on the corporate plaintiff. The reality is that the plaintiff has today appeared by counsel and that the adverse effects against which the rule intends to afford protection have not eventuated. The case has been argued in an efficient way on both sides. The time of the court has not been wasted and the initial non-compliance with the rule may, in my view, be regarded as having been overtaken by events. 20 There is a power in the Civil Procedure Act to dispense with provisions of the rules. In my recent decision in Access Services Group Pty Ltd v McLoughlin; McLoughlin v ACN 098 883 884 Pty Ltd [2006] NSWSC 532, I had occasion to consider the application of s.14 of that Act in the specific context of rules 7.1(2) and (3) and to have regard to the decision in Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104. The Court of Appeal there declined to exercise any dispensing power in respect of corresponding provisions of the Supreme Court Rules 1970 where a director sought to appear and argue the company's case before court. 21 The circumstances here, as I have said, do not warrant disqualification of the plaintiff from the proceedings on the grounds of representation. Counsel has appeared on the hearing. 22 In the result, therefore, I make the following orders: 1. By consent, order that the statutory demand dated 8 December 2005 served by The Owners Strata Plan No. 56059 on Mi-Ok Pty Ltd be set aside. 2. Order that there be no order as to the costs of these proceedings, to the intent that each party bear its own costs of the proceedings. **********

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