Najjar v Alfayhaa Cheese Pty Ltd

Supreme Court of NSW|2011-07-19|Before: Black J

Judgment 1In these proceedings, the Plaintiff, Mr Najjar, seeks orders under s 471B of the Corporations Act 2001 that, first, he be granted leave nunc pro tunc to commence proceedings in the District Court of New South Wales ("District Court Proceedings") against the Defendant, Alfayhaa Cheese Pty Ltd (in liquidation) ("Alfayhaa Cheese") and that he be granted leave to proceed with the District Court Proceedings to judgment. In the alternative, he seeks an order that he be granted leave to bring the District Court Proceedings on behalf of Alfayhaa Cheese. 2The application for leave to commence and continue the proceedings under s 471B was neither consented to nor opposed by the liquidator of Alfayhaa Cheese, subject to submissions that three conditions should be imposed on the grant of leave. At the conclusion of submissions before me, I granted leave under s 471B to Mr Najjar to commence the District Court proceedings, nunc pro tunc, and to continue the proceedings. I did not impose any of the three conditions sought by the liquidator. I gave a brief outline of my reasons, but indicated that I would provide fuller reasons in a written judgment. These are the reasons for my decision. 3I should first make three introductory comments. I have had the benefit of detailed submissions and a detailed chronology provided by Mr D.R. Stack, Counsel for Mr Najjar, and have drawn on those submissions and chronology in this judgment. Second, it will be necessary to refer to matters involving a third party, a solicitor, in the course of this judgment. The solicitor was not party to the application before me, did not have an opportunity to be heard before me and the matters to which I refer have yet to be determined on their merits in the District Court Proceedings. Third, I have limited my outline of the relevant facts to the minimum necessary to provide reasons for my judgment, since those facts are likely to be contested in the District Court Proceedings.

Factual background 4The background facts to this application are as follows. In October 2006, a third party commenced proceedings ("Initial Proceedings") against Alfayhaa Cheese in the Local Court seeking to recover $23,590.80. 5On 26 October 2006, a costs agreement was purportedly signed between the solicitor on the one hand and Mr Najjar and Alfayhaa Cheese on the other. On the evidence before me, Mr Najjar does not read or speak English. The circumstances in which that costs agreement was signed and its validity are contested issues in the District Court Proceedings. There is evidence before me that raises a serious question whether Mr Najjar was overseas at the time the costs agreement was purportedly signed and a consequential question arises as to the status of that document. 6The Initial Proceedings were settled on the basis that judgment be entered against Alfayhaa Cheese in the sum of $7,100 with no order as to costs. It appears that, during the course of the hearing of the Initial Proceedings, Mr Najjar had paid costs to the solicitor of $18,690. Shortly after the settlement of the Initial Proceedings, the solicitor issued an invoice requiring a further payment of $10,252.45. 7The solicitor subsequently commenced proceedings against Mr Najjar and Alfayhaa Cheese to recover the amount of $12,944 for outstanding legal costs. He filed an application for his costs to be assessed in relation to the Initial Proceedings, and a costs assessor determined the solicitor's costs in the sum of $29,013.18 ("Costs Determination"). The Costs Determination did not have regard to the amount that had already been paid by Mr Najjar or Alfayhaa Cheese. Judgment was entered against Mr Najjar and Alfayhaa Cheese in reliance on the Costs Assessment in the sum of $34,437.81 ("Costs Judgment"), again without regard to the amount which had already been paid by Mr Najjar or Alfayhaa Cheese. 8In June 2010, the solicitor issued a Statutory Demand to Alfayhaa Cheese for $15,747.81, calculated as the amount of the Costs Judgment less the payments of $18,690 which had already been made by Mr Najjar or Alfayhaa Cheese for which no credit had been given in the Costs Judgment. The solicitor subsequently commenced proceedings to wind up Alfayhaa Cheese, and that company was wound up and a liquidator was appointed. 9Mr Najjar instructed new solicitors to act on his behalf in January 2011 and, after unsuccessful settlement negotiations between Mr Najjar and the solicitor, he filed the District Court Proceedings which appeal against the Costs Determination and the Costs Judgment. He commenced these proceedings on 11 May 2011 seeking leave to commence (nunc pro tunc) and continue the District Court Proceedings as noted above. 10It appears that the solicitor has now issued a bankruptcy notice against Mr Najjar although proceedings in respect of that bankruptcy notice have been deferred until the outcome of the District Court Proceedings.

Section 471B application 11The Court has a broad discretionary power under s 471B of the Corporations Act in respect of the grant of leave to begin or proceed with proceedings against a company in liquidation and such leave can be granted nunc pro tunc: see, for example, Vagrand Pty Ltd (in liq) v Fielding (1993) 113 ALR 128 at 131; Swaby v Lift Capital Partners Pty Ltd (2009) 72 ACSR 627; [2009] FCA 749 at [22]-[33]; Hu v PS Securities Pty Ltd t/as Trustee of Joseph Family Trust [2011] NSWSC 303. 12I should first note that, in my opinion, the joinder of Alfayhaa Cheese as a defendant to the District Court Proceedings is likely to be required by Uniform Civil Procedure Rules Pt 6 rule 20, in circumstances that the liquidator did not, at least until 11 May 2011, consent to Alfayhaa Cheese being joined as a plaintiff to those proceedings. 13There are also other reasons why the joinder of Alfayhaa Cheese as a defendant in the District Court Proceedings is desirable. If Mr Najjar is successful in challenging the Costs Determination which presently founds the Costs Judgment against both Mr Najjar and Alfayhaa Cheese, that result prima facie benefits Alfayhaa Cheese and its creditors and contributories, so far as it establishes that a liability which is presently claimed against it is not properly based. Conversely, if Mr Najjar were successful in challenging the Costs Determination and Alfayhaa Cheese did not have the benefit of that outcome, that result is prima facie disadvantageous to Alfayhaa Cheese since a liability which is presently asserted against both Mr Najjar and Alfayhaa Cheese could then only be asserted by the solicitor against Alfayhaa Cheese. 14There was a contest between the liquidator and Mr Najjar in the course of submissions before me as to whether Alfayhaa Cheese had any assets and whether it would obtain any practical benefit from a determination of whether the solicitor's claim against it had any proper basis. The evidence before me is not sufficient to resolve that question, and I do not consider it necessary to do so. As I noted above, it seems to me that there is a benefit to Alfayhaa Cheese in determining which liabilities are properly claimed against it, particularly if Mr Najjar will conduct the proceedings which would bring that determination without, as I will note below, the need for any active involvement by Alfayhaa Cheese. 15A question commonly arises in applications for leave under s 471B as to the prospects of the case brought against a company in liquidation. In the present circumstances, that question has a somewhat different character, so far as Mr Najjar's application seeks to confer a benefit upon Alfayhaa Cheese rather than impose a liability upon it. To the extent that that question does arise in this application, I find that there is plainly a serious question to be tried on the District Court Proceedings. I also regard the District Court Proceedings as raising serious matters, having regard to the sum directly involved in them and the additional costs which, I readily infer, will have been involved in the Costs Determination and the winding up of Alfayhaa Cheese. I also regard those matters as significant since a serious question has arisen as to the status of the Costs Agreement which has in turn founded the Costs Determination, the winding up of Alfayhaa Cheese and now a bankruptcy application in respect of Mr Najjar. I do not elaborate further on these conclusions since the merits of Mr Najjar's claim will ultimately need to be canvassed in the District Court proceedings. 16In my opinion, this is an appropriate case for the grant of leave under s 471B of the Corporations Act 2001 (Cth) to Mr Najjar nunc pro tunc to commence the District Court Proceedings and to continue those proceedings.

Conditions for grant of leave 17The liquidator submitted that any grant of leave to the Plaintiff should be subject to three conditions. 18First, the liquidator contended that any grant of leave should be subject to a condition that Alfayhaa Cheese be indemnified against the future costs of the District Court Proceedings. The liquidator's solicitor has rightly drawn my attention to circumstances in which such an indemnity has been required, typically in circumstances where orders have been made granting a party leave to bring proceedings on behalf of, or in the name of, a company in liquidation. That is not surprising, because the commencement of proceedings on behalf of, or in the name of, the company in liquidation necessarily exposes that company to an order for costs. 19I do not consider such an indemnity is necessary or appropriate where I have held that the appropriate order is that Mr Najjar have leave nunc pro tunc to commence the proceedings and continue them as against Alfayhaa Cheese, which is joined as a defendant in the District Court Proceedings. It seems to me likely that the liquidator would choose not to take a substantive role in the District Court Proceedings having regard, first, to his submission before me that he has not made any assessment of their prospects and, second, to the fact that Mr Najjar's success in those proceedings appears, on its face, to be in Alfayhaa Cheese's interests, so long as Alfayhaa Cheese has the benefit of that success. In these circumstances, it is open to Alfayhaa Cheese to file a submitting appearance under Pt 6 r 11 of the Uniform Civil Procedure Rules, on the express basis that it submits to any order other than as to costs. That course would, in my view, remove any substantive risk of future exposure to adverse costs orders in the proceedings. On the evidence before me, I can see no conceivable reason why the liquidator would not take that course, and an indemnity against future costs is unnecessary in that situation. 20Second, the liquidator contended that any grant of leave should be subject to a condition that Mr Najjar pay Alfayhaa Cheese's costs of the District Court Proceedings to date as agreed or assessed. The liquidator contended that Mr Najjar should be ordered to pay those costs because he had not sought leave to commence the proceedings against Alfayhaa Cheese before they were commenced, and the liquidator would not have incurred those costs had he done so. There are two reasons why I do not consider it appropriate to impose such a condition:

First, at least part of the costs incurred by the liquidator in the District Court Proceedings to date appear to have related to correspondence questioning why Alfayhaa Cheese needed to be party to the District Court Proceedings (a position which was initially maintained in submissions before me), notwithstanding Alfayhaa Cheese's apparent legal interest in the proceedings and the practical desirability of its being bound by the outcome.
Second, if Mr Najjar is ultimately successful in the proceedings, Alfayhaa Cheese (or Mr Najjar, if he is ordered by the District Court to pay them) may well be entitled to recover those costs against the solicitor, and I do not consider it would be appropriate to impose costs on Mr Najjar at this stage where a full determination of the District Court Proceedings on their merits may indicate that those costs should rest elsewhere. I should note that Mr Najjar, by his Counsel, indicated that he would accept such a condition if the Court considered it necessary to impose it, but that does not provide a basis for imposition of the condition where it is not otherwise warranted. 21Third, the liquidator contended that any grant of leave should be subject to a condition that Mr Najjar pay the costs of this application. There are potential exceptions to the general rule that costs follow the event. In particular, a party which seeks a dispensation from the Court will generally be required to pay the costs of other parties which need to be notified by the claim, and a liquidator which has limited funds is a necessary party to an application and acts reasonably is usually entitled to his or her costs: Chand v Azurra Pty Ltd (in liq) [2011] NSWCA 58. I have had regard to the fact of these exceptions. 22However, I am not satisfied that Mr Najjar should be required to pay the liquidator's costs in respect of this application. The liquidator did not oppose the grant of leave but instead directed submissions to the conditions to which I have referred above. I have concluded that neither condition was warranted and I am not satisfied that they were reasonably sought in the circumstances of this application. Although a plaintiff would generally be order to pay the liquidator's costs of an application of this character, I do not consider it appropriate to order that Mr Najjar pay the liquidator's costs in the circumstances of this application.

Alternative order sought by Mr Najjar 23In the alternative, Mr Najjar sought an order that he be granted leave to represent Alfayhaa Cheese in the District Court Proceedings. Mr Najjar's Counsel properly recognised that the Court does not appear to have jurisdiction to make such an order Pt 2F.1A of the Corporations Act where Alfayhaa Cheese is in liquidation: Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 (65 ACSR 661) It appears that the Court has jurisdiction to authorise a derivative action on behalf of a company in liquidation under Corporations Act s 477(2)(a)-(m) and s 477(6): ACT Commissioner for Revenue v Slaven (2009) 178 FCR 334; [2009] FCA 744; Hu v PS Securities Pty Ltd , above. However, it appears that Mr Najjar could not establish standing for an application under that section in the present circumstances, since it appears that he is neither a creditor nor a present contributory of Alfayhaa Cheese. 24The Court also has inherent jurisdiction to permit proceedings to be brought in the name of a company in liquidation: Brightwell v RFB Holdings (2003) 44 ACSR 186; [2003] NSWSC 7; Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577; Hu v PS Securities Pty Ltd , above. I do not need to make such an order having regard to the orders that I have made under s 471B of the Corporations Act .

Orders 25I make the following orders: (1) Order that the Plaintiff be granted leave nunc pro tunc pursuant to s 471B of the Corporations Act 2001 to commence the New South Wales District Court Proceedings 2011/96830 against Alfayhaa Cheese Pty Limited (in liquidation) ACN 087 044 488 as Second Defendant. (2) Order that the Plaintiff be granted leave pursuant to s 471B of the Corporations Act 2001 to proceed with the New South Wales District Court Proceedings 2011/96830 against Alfayhaa Cheese Pty Limited (in liquidation) ACN 087044488 as second Defendant to judgment. 26I make no order as to the costs of the application today.

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: 29 July 2011

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