Simatis v Walgenup Aboriginal Corporation

1. The plaintiff pay the costs of and incidental to the proceeding to be assessed by a registrar if not agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

COLVIN J: 1 On 21 December 2022, Mr George Simatis applied to wind-up Walgenup Aboriginal Corporation (WAC). He relied upon the failure to comply with a statutory demand that had been served on 21 November 2022. The demand was based upon a claim that there was a debt of $307,801.61 due by WAC to Mr Simatis (Debt) which was said to have arisen under the terms of a lease between Mr Simatis as lessee and WAC as lessor (Lease). The Lease was of a property known as Pemberton Farm Chalets. Mr Simatis was the deponent to the affidavit accompanying the statutory demand (Affidavit). 2 WAC did not apply to set aside the statutory demand within the statutory time to do so. It sought leave to challenge the existence of the Debt on the hearing of the winding-up application. Its application was successful: Simatis v Walgenup Aboriginal Corporation [2023] FCA 357 (Principal Reasons). Thereafter, before the hearing of the winding-up application, Mr Simatis discontinued the application. The parties disagree as to the appropriate order as to costs consequent upon the discontinuance. 3 Where proceedings have been discontinued, there must be good reason for the discontinuing party not to be ordered to pay the costs of the proceedings: see the review of the authorities by Flick J in Taylor v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2020] FCA 1760 at [7]-[12]. Where both parties have acted reasonably in the conduct of proceedings and the purpose of the proceedings has been overtaken by settlement or a supervening event then it will usually be appropriate to make no order as to the costs of the proceedings: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624-5 (McHugh J) and Travaglini v Raccuia [2012] FCA 620 at [13] (McKerracher J). 4 For the following reasons, Mr Simitas should be ordered to pay the costs of and incidental to the proceedings. 5 Mr Simatis claimed that the Debt was due under provisions in the deed of lease which provided for circumstances in which WAC could be liable for capital expenses incurred by Mr Simatis. Under the relevant leave provisions, save for cases of urgency, Mr Simatis was required to give notice before incurring the relevant expense and only if there was no response or there was an approval did liability arise on the part of WAC. I set out the relevant provisions of the deed of lease in my Principal Reasons at [34]-[40]. 6 In the Affidavit, Mr Simitas referred to the relevant provisions in the deed of lease. He then deposed that WAC 'has incurred $307,801.61 of capital expenses pursuant to the Deed, as categorised and set out in the table below'. The table below identified 12 categories of expenditure, each with a brief description and an amount. No date was given for any of the categories. For each category, Mr Simatis annexed copies of what were said to be 'the substantiating document' for the category. 7 Perusal of the annexed documents reveals that they are copies of invoices that stretch back over a period of up to 7 years. They were annexed without any further explanation. Many of the invoices themselves are quite obscure when it comes to discerning from them any understanding of the nature of the expenses to which they relate. For the most part, the reader of the Affidavit is left with no more than the brief description in the table to indicate the subject matter of each of the 12 categories of expenditure. Further, there are no notices produced which comply with the terms of the lease. Indeed, there is no reference to any demand being made for the Debt (as alleged) at any time prior to 3 August 2022. As to that demand, it was made at a time when a dispute had arisen between the parties as to whether Mr Simatis would be offered a further lease term. 8 For most of the categories it is not apparent on the face of the brief descriptions given or the review of the annexed documents as to how it might be said that the expense relates to capital expenses of the kind referred to in the deed of lease. In my Principal Reasons, I described the three largest categories in the following terms at [42]: (1) Item 5 is for diesel fuel for the electrical generator used primarily to power electric hot water systems in the amount of $185,929.63. It is arguable that this is a business expense which is not a Capital Expense. (2) Item 9 is for electrical and lighting installation said to have been carried out in units and sheds in the amount of $53,823.99. The invoices begin in 2018 and contain items which, on the face of them, arguably relate to repair and maintenance. (3) Items 11 and 12 are for a total amount of just over $20,000 for the installation of a limestone wall on the property. The expenditure is said to have been incurred more than 6 years ago and therefore any claim for the expense is said to be out of time. 9 Counsel appearing for Mr Simitas was unable to point to any basis for the claim that the itemised expenses represented an amount due under the terms of the deed of lease beyond the bald assertion in the Affidavit to which reference has been made. There was simply no articulation of a foundation for Mr Simatis to assert that any of the items had been the subject of the required notice procedure and, as to most of the quantum of the Debt as alleged, how the expenditure came within the definition of capital expense as provided for in the deed of lease. Indeed, on the contrary, for the most part, review of the brief description in the table and the attached invoices indicated that the amounts claimed did not relate to capital expenses. As to a small part of the amounts claimed there was evidence that Mr Simatis had been reimbursed the amount by WAC. 10 Further, when affidavits were filed on behalf of WAC to support its application for leave to challenge the Debt at the hearing of the application to wind-up the company, Mr Simatis persisted in maintaining that the whole of the Debt was due without providing any reasoned answer to the claims by WAC that there had been no notice given as required by the deed of lease and that most of the claims were for costs that did not appear to be capital costs. He also maintained that WAC had not demonstrated solvency because the report of an independent accountant as to the financial position of WAC was not based on audited accounts and a claim that WAC could not pay its debts because it had incurred legal costs in dealing with the winding-up application. This position was maintained by Mr Simatis despite there being independent accounting evidence as to the financial position of WAC, including evidence to the effect WAC owned the Pemberton Farm Chalet properties which were unencumbered and the only significant liabilities of WAC apart from the alleged liability to pay the Debt were the legal and accounting costs that had been incurred in answering the winding-up proceedings. 11 The position of Mr Simitas was maintained in circumstances where (a) Mr Simatis had originally managed the Pemberton Farm Chalets for WAC; (b) the parties had a long history of dealings; (c) the commercial affairs of WAC (which was operated for charitable purposes) were known to Mr Simitas to be confined to owning the Pemberton Farm Chalets and leasing them to Mr Simtas; (d) there was no dispute that the property was unencumbered; (e) a director of the incorporated legal practice acting for WAC had provided an affidavit which deposed to a decision made that the lawyers would not call on the payment of fees that had been incurred until after the resolution of the winding up proceedings; and (f) otherwise, there was no reason to believe that WAC could not pay its debts. Mr Simitas must have known that his claim that the Debt was owed and the bringing of the winding up proceedings were themselves the only matters that had given rise to any liability beyond the alleged Debt. Further, the evidence showed that WAC had funds to meet the accounting fees and there was affidavit evidence that the lawyers had agreed to defer payment until after the proceedings had been resolved. In short, the only basis for any claim as to insolvency was the alleged Debt and there was no real evidence or contention advanced to support its existence. 12 No settlement was reached between the parties and no supervening event was alleged to have resulted in the discontinuance. 13 In those circumstances, both the commencement of the proceedings and the opposition of the application for leave to challenge the Debt were unreasonable actions by Mr Simatis. 14 Other submissions were advanced for WAC as to the purpose of Mr Simatis in commencing the proceedings which were also said to support a conclusion that his actions were unreasonable, but it is not necessary to reach any conclusions in that regard for present purposes. 15 It was submitted for Mr Simatis that, in any event, there should be no liability for costs incurred of just over $6,000 in obtaining a valuation for the Pemberton Farm Chalets property. However, it was reasonable for those costs to be incurred to support a submission as to solvency based upon the overall balance sheet position of WAC. It valued the property at $920,000. Having regard to the amount of the Debt as alleged, the existence of an unencumbered asset with such a value was a matter to which the Court could have regard in forming a view as to whether to grant the leave sought. Its existence was relied upon in the Principal Reasons. 16 Therefore, Mr Simatis should bear the costs of the proceedings. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Colvin.