Refractory Constructions Pty Ltd, in the matter of A4dable Geeks Pty Ltd (in... [2014] FCA 1162 | Case summary

REASONS FOR JUDGMENT 1 Earlier this month, and in circumstances of some asserted, and, as it proved, apparent urgency, an application was made, at least nominally, by Refractory Constructions Pty Ltd (Refractory Constructions), by an originating application filed on 3 October 2014, for the termination of the winding up of A4dable Geeks Pty Ltd (in liquidation) (A4dable Geeks). That particular application has, after much interlocutory angst, which included an application by the officer of Refractory Constructions, Mr Michael Davey, to regularise an apprehended difficulty with Refractory Constructions' ability to make the application, now becomes nothing other than a controversy as to whether an order for costs ought to be made against Mr Davey personally; and so far as the party A4dable Geeks is concerned, additionally whether an order for costs should go against Refractory Constructions. 2 The application for termination was made pursuant to s 482(1) and s 511 of the Corporations Act 2001 (Cth) (Corporations Act). The application was one which was made by Refractory Constructions as a contributory of A4dable Geeks. As events evolved, there was a controversy about whether Refractory Constructions had validly been placed in liquidation itself. If valid, that liquidation would have prevented, in the absence of leave from the Court, Mr Davey, as an officer of that company, causing Refractory Constructions to prosecute the application. That controversy drew responsively, once that question arose, an application on Mr Davey's part for leave to cause Refractory Constructions to prosecute the application. 3 It should also be recorded that I was informed today that Refractory Constructions has now been placed in administration, that as a sequel to the revelation that, on any view, it has third party debts and an apparent inability to meet them or at least a realisation on Mr Davey's part that the appropriate course to take is to place the company in administration. 4 At the heart of the purpose of the substantive application lay a telephone number, inferentially in respect of which A4dable Geeks had some contractual right with Telstra, and a difficulty in securing from Telstra the transfer of that telephone number to another company controlled by Mr Davey whilst A4dable Geeks was in liquidation. Unusually, but very understandably, having regard to particular documents filed with it to which I shall refer, Refractory Constructions' application was the subject of an intervention by the Australian Securities and Investment Commission (ASIC), pursuant to the right conferred on ASIC by the Corporations Act 5 What lay behind the intervention by ASIC were interrogative notes sounded by documents filed with it as a sequel to the placing of A4dable Geeks (in liquidation). Exhibit 3 in the proceeding includes, materially, two documents: a form 509, summary of affairs of a company, in respect of A4dable Geeks, dated 30 September 2014; and the minutes of a general meeting of members of A4dable Geeks on 25 September 2014. 6 The importance and evidentiary status, in terms of recording an event in the life of a corporation, of the minutes of a meeting was highlighted recently by the High Court in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345. In this particular case, the minutes, signed by Mr Davey in his capacity as chairperson, record a resolution for the winding up, by way of creditors voluntarily winding up of A4dable Geeks. The minutes also record the tabling of a consent by Mr McLeod, a liquidator, to act as liquidator, and a resolution that he be appointed liquidator of the company. The form 509 also, on its face signed by Mr Davey, records at item 6, under the heading Summary of Assets and Liabilities, unsecured creditors of A4dable Geeks in the amount of $257,000, with an estimated realisable value of that same amount. 7 Filed in support of the application as originally made was an affidavit by Mr Davey. At paragraph 12 of that affidavit he deposed: The company has no assets. In order to tidy up the corporate structure of the various businesses I operate I caused the company to be wound up on a voluntary basis. Resolutions for winding up were passed on 25 September 2014 true copies of which are exhibit MD4 to this affidavit. Exhibit "MD4" to the affidavit includes the minutes of general meeting of members, to which I have already referred, which was filed with ASIC. It also includes the minutes of a meeting of directors held on 25 September 2014 in respect of A4dable Geeks. Those minutes are signed by Mr Davey as director. They include a director's resolution: That the company is insolvent and is unable to pay its debts as and when they fall due. 8 It is apparent from Exhibit "MD4" that the statement in paragraph 12 to which I have referred, as causing the company to be wound up on a voluntary basis, is erroneous. On the face of the minutes the resolution was one to cause the company to be wound up on the basis of insolvency by creditors, as a creditors voluntarily winding up. 9 On the initial return of the substantive application, the interrogative notes sounded by the forms lodged with ASIC, both as to the nature of the winding up as well as the existence of creditors and the solvency of A4dable Geeks, were raised, and quite properly raised, by ASIC. ASIC has a role consigned to it by the Parliament in respect to the day to day administration of the Act. That role extends to companies large and small. 10 The position initially of the liquidator, Mr McLeod, was one of neither consenting nor opposing the making of orders. After the interrogative notes, to use a neutral term, were highlighted as a result of the intervention by ASIC, an adjournment of the application for termination was granted with a return on 9 October 2014 fixed. 11 On that adjourned date, Mr Davey made his application for leave. That application was put on the premise that if, contrary to the primary position adopted for Refractory Constructions (which was that there has been no valid placement of Refractory Constructions in liquidation), leave should nonetheless be granted to him to cause Refractory Constructions to prosecute the application. Also, and materially, further affidavits were filed, one by Mr Davey, another by Mr McLeod personally, and also one by a Mr Bill Karageozis, who is an employee of Mr McLeod's firm, working under Mr McLeod's direction. It emerged from Mr Karageozis' affidavit that he, within that firm had had the day to day carriage of dealings with Mr Davey which related to the placing of A4dable Geeks in liquidation. 12 Mr McLeod has also, albeit briefly, had the role of liquidator of Refractory Constructions, but had resigned from that. 13 In the course of his day to day carriage of the liquidation of A4dable Geeks and in relation to the placement of that company in liquidation, Mr Karageozis spoke both with Mr Davey personally and also with a Mr Chris Morris of Advivo Accountants. Advivo Accountants were accountants for A4dable Geeks as well as Refractory Constructions. 14 Mr Davey's further affidavit, which was filed on 9 October 2014, was directed to the end of explaining and answering the interrogative notes sounded earlier as a result of ASIC's intervention and its pointing to the form 509 and to the resolution in respect of insolvency. Mr Davey gives a version of events as to how the sum of $257,000 came to be inserted in the form 509 which differs from that of Mr Karageozis. 15 What is inferentially clear is that, initially, Mr Davey signed and returned to Mr McLeod's firm a form 509 which did not have in it the insertion of creditors in the sum of $257,000. Whether or not the inspiration for the insertion came from an acknowledgment by Mr Davey that there was indeed a debt in that amount comprised of an intercompany loan of $200,000 and employee entitlements on his part of $57,000 is moot. Mr Davey disavows any indebtedness and also promotes that, at most, what he put to Mr Karageozis was that he did not know whether it was right that there was any intercompany loan from Refractory Constructions to A4dable Geeks. 16 Mr Davey also puts no positive assertion of an entitlement of $57,000 as a result of his employment status with A4dable Geeks, but rather that this is nothing more than a construct on Mr Karageozis' part. 17 It is not for me today, given the fate of the application substantively, to resolve that conflict. On any view, though, there is a casual quality to the way in which both Mr Davey and Mr Karageozis have gone about the responsible task of preparing and lodging with ASIC, as part of the administration of a company in liquidation, a form 509. A director has the primary responsibility for the accuracy of such a document. An advisor has a responsibility to ensure a director is indeed advised and that statements in the form have a foundation. 18 I make no other finding other than it does appear the approach was casual on the part of each of them. I say that in relation to Mr Karageozis only because there does not appear to have been a foundation in the books of account presented to him for the sum of $200,000, and on his own version of events in his affidavit, the foundation for the $200,000 part of the $257,000 comes on his version from a statement by Mr Davey estimating that the amount owed might be approximately $200,000. It was on the strength of that, I infer, together with the estimation of entitlements of $57,000 that Mr Karageozis came to insert $257,000 into the already signed form 509. His version, of course, is that the insertion had authority from Mr Davey. Mr Davey's version is that he sounded, to say the least, a cautionary note. 19 The question for today, then, is whether and against whom costs should be awarded? As to Mr Davey's application for leave to cause the company to make the application, that application is no longer prosecuted. It was an application made out of an abundance of caution but nonetheless it was an application which was the subject of initial contest and now no further prosecution. Costs were incurred both by ASIC and by Refractory Constructions in meeting that. There is no particular resistance on Mr Davey's part to the usual order that costs should follow the event in respect of that particular application. 20 Some documents filed in the proceedings anticipate what may have been the result of that application by according Mr Davey as an applicant in the substantive proceeding. He never gained that status, because, deliberately, so as to allow yet further opportunity for evidence to be put forward in support of the substantive application, the hearing of that particular "regularising" application was adjourned to today, along with the substantive application. Nonetheless, it is not being prosecuted and costs should follow the event in respect of it. 21 The more difficult question is whether Mr Davey should have any wider responsibility in respect of costs? As to that, the question is one for the application of principles that have come to be settled. Those principles are to be found in a passage in the judgment of Basten JA, with whom Beazley JA agreed, in FPM Constructions Pty Ltd v The Council of the City of Blue Mountains [2005] NSWCA 340 at [210] (FPM Constructions), in a passage expressly adopted with approval by a Full Court of this Court in Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at [83]. Those principles are these: [210] … What is significant from a survey of the cases in which orders have been made against non-parties is that they tend to satisfy at least some, if not a majority, of the following criteria: (a) the unsuccessful party to the proceedings was the moving party and not the defendant; (b) the source of funds for the litigation was the non-party or its principal; (c) the conduct of the litigation was unreasonable or improper; (d) the non-party, or its principal, had an interest (not necessarily financial) which was equal to or greater than that of the party or, if financial, was substantial interest; and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw. 22 The more general question as to whether the court has power to award costs against a non-party was resolved in favour of the existence of such a power by the High Court in Knight v FP Special Assets Ltd (1992) 174 CLR 178. 23 I proceed on the basis that there is power to award costs against a non-party and that in the ordinary course the considerations referred to by Basten JA in FPM Constructions. 24 Mr Davey, on the evidence, has stated that the company had no assets and stated that from the outset. That itself is moot in its correctness given that the company had some contractual right in respect of a telephone number with Telstra. It is also apparent that Mr Davey had a view that A4dable Geeks owed nothing to Telstra in respect of an ongoing use of that number. His view, which was, on his own evidence, not shared by Telstra, was that the liability for the charges in respect of the use of the number was vested in another company controlled by him. Again on his own evidence, it was that particular view which he had promoted to Telstra and which Telstra had not accepted. On this view alone, there was or should have been an interrogative note sounded on his part as to the correctness, if not of the form 509, at least of his statement that there was no indebtedness on the part of the company. Accepting that, it was not that particular absence of candour which resonated in the intervention made by ASIC or, for that matter, the need for the liquidator of Refractory Constructions to take a more active role than initially he was disposed to take. 25 Putting aside, as I consider I should, that question about candour concerning the existence or otherwise of a Telstra debt, what is left is an evidentiary controversy about whether there was any debt at all owed by A4dable Geeks to Refractory Constructions and whether there was ever any entitlement based debt by A4dable Geeks to Mr Davey personally amounting in total to $257,000. Mr Davey did not hide from the court the creditors resolution for winding up. It is true, as I have already observed, that his statement at paragraph 12 was erroneous, but the whole point of his application as originally cast was to explain error on his part in promoting a creditors voluntary winding up and it was to that end that he exhibited the director's meeting minutes and general meeting minutes and made statements in his affidavit designed to put the correct position as he saw it. 26 I am quite sure that Mr Davey is the person who stands behind both A4dable Geeks, Refractory Constructions and also the successor company which was the desired recipient and user, if winding up were terminated, of the telephone number which had apparent value in business. I am not satisfied though that Mr Davey deliberately displayed an absence of material candour. To find that, I would have to resolve an evidentiary controversy. It is not apt in the circumstances of a case which has resolved itself to nothing more than a costs controversy to do that. That is not in any way to gainsay the appropriateness of ASIC's intervention, only to acknowledge that to award costs against Mr Davey personally would be an exceptional course and one which would require determination of exactly what was said by whom as between Mr Davey and Mr Karageozis. 27 The end result was the form which drew ASIC's presence as intervenor, but what preceded that is controversial. I can well see on the one hand that Mr Davey, particularly in circumstances of apprehended commercial imperative on his part, would have been motivated to do whatever it took to get the use of the number, but whether that was to the extent deposed to by Mr Karageozis is not now for me to decide. 28 I have been informed that the administrator of Refractory Constructions authorised Mr Martin QC to appear today to resist the making of any costs orders other than those which might otherwise follow the event and to inform the court that the substantive application was not to be further prosecuted. I have been informed that the administrator does not wish otherwise to be heard in respect of costs. 29 It seems to me then that the case is one where, in relation to the costs of the substantive application, insofar as a party seeks those costs, costs should follow the event. 30 ASIC has as a matter of value judgment, determined not to seek costs as against Refractory Constructions in respect of the substantive application so as not to burden the creditors of that company with yet another set of costs. Such value judgments are made by an administrator of legislation in the ordinary and proper course of discharging that function. 31 A4dable Geeks though is in a different position and is an ordinary litigant which has been brought to court in respect of an application which is no longer prosecuted. It should have its costs as against Refractory Constructions (now in administration) but not otherwise on the substantive application. It should though have its costs against Mr Davey in respect of the application he brought for the granting of leave which also is not prosecuted. Likewise ASIC should have its costs against Mr Davey in respect of that application but not, for the reasons which I have given, otherwise. 32 There will be orders as to costs in the terms that I have indicated. Further to those, both the application for termination of the winding up and the application for leave to cause that application to be prosecuted by Refractory Constructions are dismissed. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Refractory Constructions Pty Ltd, in the matter of A4dable Geeks Pty Ltd (in liq) v A4dable Geeks Pty Ltd

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