The Oak Hotel Cessnock Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] NSWSC 1589 | Case summary

The factual and procedural background

The first plaintiff owned and operated a pub in Cessnock known as The Royal Oak Hotel Cessnock. The second plaintiff is the sole shareholder of the first plaintiff. Dr Harvey is the sole director of each of the plaintiffs.
On 7 May 2019, the DCT commenced proceedings in the Federal Court for an order to wind up the first plaintiff on the ground of insolvency under the Corporations Act 2001 (Cth).
As referred to above, these proceedings were commenced on 3 September 2019. They were not properly constituted as there was neither a solicitor on the record nor a director of the plaintiffs named as a plaintiff, as required by Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 7.1. When the defendants were served their solicitors, Ashurst, filed a notice of appearance. Ms Stewart was the solicitor at Ashurst who had day-to-day carriage of the matter, subject to the supervision of the solicitor on the record, Wen-Ts'ai Lim.
On 6 October 2019, Dr Harvey wrote to the defendants' solicitors asking for a proposed timetable and suggesting a settlement conference. He also foreshadowed that the statement of claim would be amended.
On the first return date, 23 October 2019, there was no appearance for the plaintiffs. At the request of the defendants, the Court stood the matter over to 20 November 2019. The Court noted that it would issue a letter to the plaintiffs pursuant to UCPR, r 13.6 (which provides that the Court may dismiss proceedings if there is no attendance by a plaintiff after notice has been given) and directed the defendants to notify the plaintiffs of the orders.
On 28 October 2019 the first plaintiff entered into voluntary administration. Mr Lucan of Worrells was appointed the administrator.
On 28 October 2019, the defendants' solicitors, who appear to have been unaware that the first plaintiff was in voluntary administration, wrote to Dr Harvey informing them of the orders made by the Court on 23 October 2019. They sought an indication by 1 November 2019 as to whether the plaintiffs still proposed to file an amended statement of claim, and if so, when it would be filed.
It would appear that the parties agreed that at the directions hearing on 20 November 2019, the matter ought be stood over for a week to 27 November 2019. On 20 November 2019 Ms Stewart appeared for the defendants and mentioned the appearance of both plaintiffs.
On 20 November 2019, Mr Lucan, who was still administrator of the first plaintiff, sent a report to creditors (the November 2019 creditors' report). It was common ground that the DCT, as a creditor of the first plaintiff, received that report. I understood it also to be common ground that Ashurst did not act for the DCT in relation to the debt claimed by the DCT against the first plaintiff. Accordingly, there is insufficient basis to infer that the November 2019 creditors' report came to the attention of the defendants' solicitors before an affidavit sworn by Mr Lucan on 2 July 2020 was served by him in opposition to the orders sought to which the report was annexed.
In the November 2019 creditors' report, Mr Lucan informed creditors, of present relevance: "6. Claim against the Deputy Commissioner of Taxation The company and a related entity, Hunter Valley Dental Surgery Pty Limited, are plaintiffs in NSW Supreme Court Proceedings against the Deputy Commissioner of Taxation claiming damages of at least $4,534,000 according to the Statement of Claim. The proceedings are defended, and absent funding and an adverse costs indemnity, it is anticipated that those claims would not be prosecuted by or on behalf of the company in the event that it was wound up. Further, in the event that the proceedings are determined against the company, there is a prospect of a potentially significant adverse cost order being made. The proposed Deed of Company Arrangement would entitle the company to receive a benefit from the any successful resolution without occurring any costs in so doing and otherwise to avoid the adverse cost risk of those proceedings."
On 22 November 2019 Ms Stewart wrote to Mr Lucan and Dr Harvey and informed them of the order made by the Court on 20 November 2019. They also said: "Based on an indication from Dr Harvey that the plaintiffs will shortly be in a position to file their amended statement of claim, we consider that it would be appropriate to seek timetabling orders for the filing of pleadings. This will facilitate the orderly progress of this matter. As you can appreciate, it is both time consuming and expensive to appear at directions hearings to seek adjournments. Accordingly, the defendants will seek the following orders on 27 November 2019: (a) The plaintiffs file any amended statement of claim by 13 December 2019. (b) The defendants file a defence by 24 January 2019. (c) The matter be listed for directions on the first available date thereafter. (d) The parties have liberty to apply on 3 days' notice. The proposed orders are sensible in circumstances where: (a) an amended statement of claim has now been foreshadowed since 6 October 2019; (b) the administrators have had a number of weeks to consider their position in relation to the progress of the claim on the part of the Oak Hotel Cessnock; and (c) there are office closures over the Christmas period and Court closures in January. Please let us know by no later than 5pm on Monday 25 November 2019 whether the plaintiffs agree to those orders. If not, please state what orders the plaintiffs will be seeking next week and who will be appearing at the directions hearing for the plaintiffs. It is apparent to us that the Court is losing patience. We strongly suggest that all parties appear at the next directions hearing."
On 25 November 2019 at 9.15am, Dr Harvey sent an email to the defendants' solicitors and also to Mr Lucan and Brendan Giles, a Senior Manager at Worrells who worked on the matter with Mr Lucan, to inform them that the short minutes of order proposed were not acceptable. Dr Harvey continued to agitate for a settlement conference with the DCT. Shortly after receiving the email from Dr Harvey, Ms Stewart, at 9.37am, sent an email to Mr Lucan, which was copied to Mr Giles, in which she asked for "an update on the administration and the administrator's position in relation to the next steps in this proceeding". I infer from the terms of this email that Ms Stewart was unaware of the terms of the November 2019 creditors' report.
At 9.57am on 25 November 2019 Dr Harvey emailed the parties to inform them that he agreed with the proposed orders except for the omission of a settlement conference for which Dr Harvey was consistently agitating.
On 26 November 2019, at 9.58am, Ms Stewart, in an email to all parties (including Mr Lucan on behalf of the first plaintiff), responded by saying that her client considered a settlement conference to be premature. In the same email she also said: "Mr Lucan - can you please advise the administrator's position in advance of the directions hearing."
On 26 November 2019 at 10.43am, Ms Stewart emailed Dr Harvey and Mr Lucan and informed them that the defendants would seek directions on 27 November 2019 that the plaintiffs file an amended statement of claim by 13 December 2019, the defendants file a defence by 24 January 2020 and the matter be set down for further directions thereafter.
At 11.16am on 26 November 2019, Mr Lucan emailed Ms Stewart (and others) and said: "I have recommended to creditors that they should vote in favour of a proposal for Deed of Company Arrangement at the upcoming meeting of creditors on 28 November 2019. If the Deed is executed, upon entry into the deed the company's rights and interest in proceedings against the Deputy Commissioner of Taxation, described in NSW Supreme Court Proceedings 19/274489, will be assigned to Hunter Valley Dental Surgery Pty Limited. There is an application by the Deputy Commissioner of Taxation seeking orders to wind the company up in insolvency in proceedings NSD692/2019 I will be seeking a further adjournment of those proceedings tomorrow to allow the meeting of creditors to proceed on 28 November 2019. I refer to the proposed orders in your letter of 22 November 2019. The date for filing an amended statement, being 13 December 2019, may not be appropriate given the statutory timetable for execution of a Deed of Company Arrangement. Furthermore, should the company instead go in to liquidation, the liquidator may require further time to consider whether they will proceed with the amended statement of claim. Accordingly, I believe it is appropriate to seek a further adjournment of tomorrow's directions hearing to a date not earlier than 19 December 2019."
At 1.10pm on 26 November 2019, Ms Stewart responded to Mr Lucan as follows: "So that we can seek instructions on the matters raised in your email, can you please provide a date by which you would be comfortable that the Deed of Company Arrangement will be sorted (assuming that creditors vote in favour of the proposal)?"
At 5.39pm on 26 November 2019, Ms Stewart sent a further email to Mr Lucan as follows: "We refer to your emails earlier today outlining the plaintiffs' position to seek a further adjournment of the matter to a date not earlier than 19 December 2019. We are instructed to press for timetabling orders. In order to take into account the matters raised in Mr Lucan's email, the defendants will be seeking orders that: • the plaintiffs file any amended statement of claim by 24 January 2019; • the defendants file a defence by 21 February 2020; • the matter be listed for directions on the first available date thereafter; and • the parties have liberty to apply on 3 days' notice. Mr Lucan - further to my email below and call to your office this afternoon, please urgently advise by no later than 9am tomorrow morning if the dates proposed do not allow sufficient time for the Deed of Company Arrangement to be sorted. The proposed orders are intended to progress the matter without needing to appear before the Court again before the end of the Court term whilst also taking into account the time required to sort through the Deed of Company Arrangement or liquidation. If the Deed of Company Arrangement is accepted by creditors, we presume that Dr Harvey will continue to progress the claim for both plaintiffs (in which case, timetabling orders are appropriate). If not, our view is that the liquidator can request that the matter be re-listed for further directions as appropriate. Please let us know if you agree with the orders proposed above. Otherwise, if the plaintiffs are not intending to appear tomorrow, we will bring to the attention of the Court the plaintiffs' position regarding an adjournment and request that the Registrar make orders as she sees fit."
At 5.52pm on 26 November 2019, Mr Giles, on behalf of Mr Lucan, sent an email to Ms Stewart to inform her that the timetable was acceptable. Mr Giles sent a further email to Ms Stewart that evening, at 6.13pm, and said: "The proposed timetabling would allow for the execution of a Deed of Company Arrangement. I have left a voice message on you[r] answering service this afternoon. Please contact me on [XXX] this evening should you wish to discuss."
At 6.44pm on 26 November 2019 Mr Lucan sent an email to Ms Stewart and the other parties in which he said: "If creditors approve the Deed of Company Arrangement on 28 November 2019, the Deed will be executed on or before 19 December 2019. There are other variables that I cannot account for, namely: • Creditors could vote to adjourn the meeting for up to 45 business days. • The Court could order the winding up of the company tomorrow, and: ͦ could be appointed Liquidator of the company; or ͦ Another registered liquidator could be appointed as Liquidator of the company. • The creditors could pass a resolution appointing a Liquidator at the meeting of creditors on 28 November 2019, and: ͦ I could be appointed Liquidator of the company; or ͦ Another registered liquidator could be appointed as Liquidator of the company. In any of the above circumstances, the proposed timetabling may not be suitable."
This email was the last Ashurst heard from Mr Lucan until seven months later when he wrote to them on 24 June 2020.
At 7.19pm on 26 November 2019, Ms Stewart responded to Mr Lucan's email and said: "We will note these variables to the Registrar tomorrow. In the event the timetabling orders are not suitable, the parties can seek to have the matter relisted."
On 27 November 2019, the Federal Court refused Mr Lucan's application for an adjournment of the originating process in winding up proceedings commenced by the DCT, as petitioning creditor, to permit a creditors' meeting to consider the proposed Deed of Company Arrangement. The Court ordered that the first plaintiff be wound up and appointed Mr Lucan as the liquidator. The effect of the winding up order was to authorise and entitle Mr Lucan to take control of the first plaintiff's property (s 471 of the Corporations Act) and to carry on proceedings on its behalf (s 477(2)(a) of the Corporations Act). Mr Johnson accepted the uncontroversial proposition that, upon Mr Lucan's appointment as liquidator, he became the only person authorised to speak on behalf of the first plaintiff and that Dr Harvey, as its former director, no longer had any such authority.
Ms Stewart appeared on behalf of the defendants at the directions hearing in this Court on 27 November 2019. There was no appearance on behalf of the first or second plaintiff. The Court ordered the amended statement of claim to be filed and served by 24 January 2020, the defence to be filed and served by 21 February 2020 and stood the matter over for further directions on 4 March 2020.
The plaintiffs did not file an amended statement of claim by 24 January 2020.
On 29 January 2020 Ms Stewart emailed Mr Lucan and Dr Harvey requesting confirmation by 31 January 2020 as to when an amended statement of claim would be filed and enquiring whether the first plaintiff (in light of its winding up) intended to continue with the claim relating to alleged misuse of information (being the claim that was brought solely by the first plaintiff).
Dr Harvey (who had no authority to speak on behalf of the first plaintiff) responded by email dated 3 February 2020. Of present relevance he said: "I will be in a position by close of business today to give you an update regarding your request for a date for the filing of our amended statement of claim."
On 7 February 2020, Dr Harvey wrote to Ms Stewart indicating that he needed further information from the DCT "to be able to move forward with the amended statement of claim" and suggested a meeting on 10 February 2020.
By email to Ms Stewart dated 14 February 2020, Dr Harvey said that the Royal Oak Hotel Cessnock would have to close on 17 February 2020. The letter concluded: "I am giving your client till close of business today to have the closure of the Hotel stopped."
Ms Stewart responded by email dated 14 February 2020, which was sent to both Mr Lucan and Dr Harvey. She said, in part: "You indicated in your letter of today's date your intention to file an amended statement of claim in the week commencing 17 February 2020. If, however, it is not your intention to do so, please let us know immediately. We will then prepare and file a defence on behalf of our clients. In the circumstance that an amended statement of claim is not filed, or you have not informed us that the plaintiffs no longer wish to amend their claim, we are instructed to apply for the case to be dismissed for want of prosecution or to be struck out. Such application will be made in the week commencing 24 February 2020."
Dr Harvey emailed Ms Stewart on 18 February 2020 in response to her email of 14 February 2020. He said, of present relevance: "Counsel is currently preparing [an] amended statement of claim."
Subsequently, on 27 February 2020, Dr Harvey emailed Ms Stewart to inform her that he had been "advised not to amend the original statement of claim and request that [the defendants] file a defence within 14 days".
On 27 February 2020, Mr Lucan sent a further report to creditors (the February 2020 creditors' report). Once again, it was sent to the first plaintiff's creditors, which included the DCT. It was not, however, sent to Ashurst, the defendants' solicitors in these proceedings, or otherwise brought to Mr Lim's or Ms Stewart's attention.
On 4 March 2020, the matter was listed before the Registrar for further directions. Ms Stewart appeared on behalf of the defendants. There was no appearance on behalf of either of the plaintiffs. The Court made the following orders which were sought by the defendants: "1. Orders 2 and 3 of the orders made on 27 November 2019 be vacated. 2. The defendants are to file a defence by 20 March 2020. 3. The plaintiffs are to file any reply by 3 April 2020. 4. The matter is listed for directions on 15 April 2020. 5. The defendants are to notify the plaintiffs of these orders."
On 10 March 2020 Ms Stewart sent an email to Mr Lucan and Dr Harvey informing them of the orders made by the Court on 4 March 2020. She continued: "We reported to the Registrar that the first plaintiff was in liquidation and the position of the liquidator had not been communicated to the defendants. We also reported that Dr Harvey indicated on 27 February 2020 that an amended statement of claim would not be prepared at this stage. As already flagged by the Court, and as we said in our letters of 22 and 27 November 2019, it is important that the parties attend directions hearings. Neither of the plaintiffs appeared at the recent directions hearing. The Registrar indicated that the Registry will issue a letter to the plaintiffs under Rule 13.6 of the Uniform Civil Procedure Rules 2005 (NSW) which allows the court to dismiss the proceedings in the absence of attendance by, or on behalf of, the plaintiffs at the next directions hearing."
On 10 March 2020, Ms Stewart also wrote separately to Mr Lucan, in an email copied to Dr Harvey. She said of present relevance: "We act for the defendants in the proceedings named above. We understand that you were appointed liquidator of The Oak Hotel Cessnock Pty Ltd on 27 November 2019. We wrote to you on 27 November 2019 informing you of orders made by the Court that day. On 29 January 2020, we sent you an email enquiring whether you intended to continue to prosecute The Oak Hotel Cessnock's claim. On 7 February 2020, we left a message with your office about the proceedings but did not receive a return call. On 14 February 2020, we copied you to correspondence to Dr Harvey regarding compliance with the timetable (among other things). We sent a further letter to you today reporting on the outcome of the directions hearing on 4 March 2020. Please let us know by no later than 13 March 2020 whether The Oak Hotel Cessnock will continue its claim. If we do not hear from you by then, we will seek instructions to have the company's case dismissed for want of prosecution."
On 12 March 2020, Bathurst CJ announced changes to Supreme Court procedure as a consequence of the COVID-19 pandemic, including the following: "In an endeavour to contain its effects and keep the Court operational as much as possible, the Court will be implementing the following procedures from Monday, 23 March 2020. The primary aim is to minimise the need for parties to come to the Court in the near future. Registrars' Lists will be conducted as much as possible either by the online court, where available, or by telephone link and, in the case of contentious matters, by videolink. The parties will be required not less than three (3) business days before their matter is listed before the Registrar to jointly notify the Registrar whether the matter can be dealt with by the online court, telephone, videolink or in person. They will then be given a block of time in which their matter will be heard. Cases in respect of which notification has not been given will be heard in person. Precise arrangements regarding telephone and video hearings will be provided. …"
As a consequence of the changes in procedure effected by this announcement, all directions hearings before the Registrar which took place on or after 23 March 2020 were conducted by telephone or by audio-visual link (AVL). It was not suggested that this change disrupted the conduct of the proceedings.
On 12 March 2020, Dr Harvey wrote to Ms Stewart in the following terms: "I have come to an agreement with Worrells regarding the assignment of the proceedings to me. My solicitor is preparing a deed to document the agreement. The document will be ready to sign by both parties on Tuesday 17 March 2020. I will send you a signed copy early next week. Looking forward to receiving your defence by 20 March 2020. I will be attending the directions hearing set down for 15 April 2020."
On 7 April 2020, Ms Stewart emailed Mr Lucan and Dr Harvey and proposed the following orders: "1. The plaintiffs file and serve any reply by 17 April 2020. 2. The plaintiffs serve any lay and expert evidence by 27 May 2020. 3. The defendants serve any lay and expert evidence by 8 July 2020. 4. The plaintiffs serve any lay and expert evidence in reply by 5 August 2020. 5. The matter be listed for further directions on 12 August 2020."
She also said: "It would be sensible for the parties seek to agree a timetable for the next steps. The Court can then make the orders by consent, which will avoid the need for the parties to appear by telephone or video - our recent experience of the Court's online platform has not been happy as the Justice Department's platform has been overwhelmed. Please let us know by 9 April 2020 whether the plaintiffs agree with the orders proposed above."
On 8 April 2020, Ms Stewart sent two emails to Dr Harvey and Mr Lucan. In the first, which was addressed to Dr Harvey, and copied to Mr Lucan, she referred to his letter of 12 March 2020 in which he had represented that the deed of assignment would be executed by 17 March 2020 and that he would send a copy of the executed deed to her. She said: "The proceedings cannot continue indefinitely in its present form and, unless your entitlement to make all of the allegations in the statement of claim is regularised, the proper course would be to have the proceedings partially dismissed, leaving only the solvent plaintiff [the second plaintiff] to continue to pursue its case."
In her second email to Mr Lucan and Dr Harvey dated 8 April 2020, Ms Stewart sought particulars of paragraph 17 of the statement of claim (which was part of the claim brought solely by the first plaintiff against the defendants) which alleged: "Prior to on or about 25 June 2018, Mr Duckett [who worked at the ATO] disclosed information held by the DCT in relation to TOHC and HVDS to Ms Franklin, who was an unauthorised third party of access to the information held by the DCT of TOHC and HVDS ('the Private Information'). Particulars Mr Duckett disclosed the taxation and financial information of TOHC and/or HVDS to Ms Franklin."
Ms Stewart sought the following further particulars of paragraph 17: "Please specify: 1. the taxation information and financial information alleged to have been disclosed; 2. each occasion when confidential information is alleged to have been disclosed; and 3. state in relation to each occasion: (a) whether the information was disclosed orally or in writing; (b) if the information was disclosed in writing, please identify each relevant document containing the writing and supply a copy; and (c) if the information was disclosed orally, state the substance of what was said."
By letter dated 9 April 2020 Dr Harvey notified Ms Stewart that he had suffered a heart attack. He proposed the following further orders: "1. The plaintiffs file and serve any reply by 8 May 2020. 2. The plaintiffs serve any lay and expert evidence by 17 June 2020. 3. The defendants serve any lay and expert evidence by 29 July 2020. 4. The plaintiffs serve any lay and expert evidence in reply by 26 August 2020. 5. The matter be listed for further directions on 9 September 2020."
By email sent at 9.51am on 14 April 2020, Ms Stewart wrote to Dr Harvey (which was copied to Mr Lucan) and said: "Our clients agree to the timetable proposed in your letter dated 9 April 2020. We have not received a response from Mr Lucan. As the proceedings have not yet been assigned, the Court may require the parties to appear tomorrow in the absence of consent by all parties. We attach short minutes of order and a proposed email to the Registrar. Please let us know if you consent to the below email being sent to the Court on a joint basis - consent orders are required to be sent to the Court by 4pm today. Dear Registrar We act for the first and second defendants. We write with the consent of the second plaintiff. We attach short minutes of order. The defendants and second plaintiff respectfully request that the orders be made in chambers. A liquidator was appointed for the first plaintiff on 27 November 2019. The liquidator has not informed us of his position with respect to the orders. We have, however, been informed by Dr Harvey, who has conduct of the proceedings for second plaintiff, that the conduct of proceedings for the first plaintiff is in the process of being assigned to him. Please advise if an appearance is required at the directions hearing listed for tomorrow 15 April 2020."
By email sent on 14 April 2020 in response, Dr Harvey wrote to Ms Stewart as follows: "We are hoping to have the document regarding assignment by the end of the day. I am aware that you need to have the short minutes of order sent in by 4.00pm."
On 15 April 2020, the Court made the following orders and directions "by consent of the second plaintiff and the first and second defendants": "1. The date for compliance with Order 3 of the orders made on 28 February 2020 for the plaintiffs to file and serve any reply be amended to 8 May 2020. 2. The plaintiffs serve any lay and expert evidence by 17 June 2020. 3. The defendants serve any lay and expert evidence by 29 July 2020. 4. The plaintiffs serve any lay and expert evidence in reply by 26 August 2020. 5. The matter be listed for further directions on 9 September 2020."
On 22 April 2020 at about 9am, in emails sent to Dr Harvey and Mr Lucan, Ms Stewart reiterated the defendants' requests for particulars of paragraph 17 of the statement of claim. The email concluded: "If the particulars are not supplied by 8 May 2020, we will seek instructions to have the matter relisted and seek appropriate orders from the Court that the further and better particulars be provided."
On 22 April 2020 at 4.58pm, Ms Stewart wrote to Dr Harvey as follows: "Dear Dr Harvey We write in relation to the assignment of proceedings on the part of the first plaintiff from Mr Lucan to you. In your letter of 12 March 2020, you stated that 'I have come to an agreement with Worrells regarding the assignment of the proceedings to me. My solicitor is preparing a deed to document the agreement. The document will be ready to sign by both parties on Tuesday 17 March 2020'. In your letter of 14 April 2020, you stated that 'we are hoping to have the document regarding assignment by the end of the day'. It has now been over 5 weeks since you first indicated that an agreement had been reached with Mr Lucan to assign the proceedings. Please provide us with a copy of the assignment documentation by 29 April 2020. As stated in our letter of 8 April 2020, if the proceedings are not assigned, the proper course would be to have the proceedings partially dismissed (leaving only the solvent plaintiff to continue to pursue its case). We look forward to hearing from you at your earliest convenience."
Dr Harvey responded at 7.06 pm that evening and said: "The deal has been done - the documents are ready to sign. Just finding the time to fit in with my medical treatment - will have it ready by next Monday [27 April 2020]."
By email dated 24 April 2020, Dr Harvey responded, of present relevance: "Your request for further and better particulars is not a proper request but a matter for evidence."
By email sent to Ms Stewart at 10.12am on 29 April 2020, Dr Harvey said: "Signing document [deed of assignment] today."
On 4 May 2020 at 8.14am, Ms Stewart wrote to Dr Harvey seeking confirmation that the document referred to in his email was the deed of assignment. She asked for a copy of the document.
At 10.15am on 4 May 2020, Dr Harvey emailed Ms Stewart and informed her that: "the documents re: assignment will arrive today."
On 7 May 2020, Ms Stewart emailed Mr Lucan and Dr Harvey. She said of present relevance: "Defendants' request for particulars Contrary to the assertion in Dr Harvey's letter of 24 April 2020, our clients' request for further and better particulars is a proper request. Particulars must be provided with the statement of claim to enable the opposing party to understand the case they are required to meet. The pleading has not identified the 'Private Information' Mr Duckett is alleged to have disclosed and when and how that information was disclosed. Our clients press for the supply of these particulars and ask that that be done by 8 May 2020. Our client reserves the right to apply to the Court for orders compelling provision of the particulars if that has not been done by that time."
By email sent at 9.29am on 11 May 2020 to Mr Lucan and Dr Harvey, Ms Stewart said: "Deed of Assignment Since 12 March 2020, Dr Harvey has indicated that an agreement with Aaron Lucan of Worrells had been reached regarding the assignment of the proceedings on behalf of the first plaintiff to him. Two months have now elapsed and we have not yet received a copy of the Deed of Assignment. Since the below email, Dr Harvey has indicated that the Deed of Assignment was being signed on 29 April 2020 and that the documents regarding the assignment would arrive on 4 May 2020. Please can you confirm whether the Deed of Assignment has been signed and, if so, send us an electronic copy by close of business on Wednesday 13 May 2020. Failing production of the Deed of Assignment by this time, we are instructed to file a motion to have the first plaintiff's claim dismissed for want of prosecution (leaving the second plaintiff to continue its claim). Plaintiffs' reply In accordance with the orders made on 15 April 2020, the plaintiffs were required to file and serve any reply to the defence by 8 May 2020. As no reply has been filed, we assume that the plaintiffs are not intending to do so. Please let us know if this is not the case."
On 14 May 2020, Dr Harvey wrote to the defendants seeking an order for discovery.
On 19 May 2020, the defendants filed and served a notice of motion in which they sought the following orders: "Dismissal of first plaintiff's claim 1. The proceedings commenced by the first plaintiff be dismissed for want of due despatch pursuant to Rule 12.7 of the Uniform Civil Procedure Rules 2005 (NSW). 2. Paragraphs 15, 16, 19, 20, 28, 32 and 37 of the Statement of Claim be struck out. 3. The first plaintiff pay the defendants' costs of the proceeding so far as they relate to allegations made by the first plaintiff. Particulars 4. By 12 June 2020 the second plaintiff provide the particulars sought in the letter dated 8 April 2020 to Dr Harvey and Mr Lucan."
In her email of service to Dr Harvey and Mr Lucan, Ms Stewart informed Dr Harvey that the defendants did not consent to the orders for discovery "until the issue of the first plaintiff's claim is resolved".
The Court listed the defendants' notice of motion for directions on 26 May 2020. Ms Stewart served the notice of listing on Mr Lucan and Dr Harvey.
On 25 May 2020, Mr Lucan wrote to the Court as follows: "I refer to my appointment as Liquidator of the Company on 27 November 2019, case number 19/274489 and the hearing set down for tomorrow. Deed of Assignment We have received a proposal from John Harvey to assign the Company's right to take the legal proceedings against the ATO to him. John Harvey will pay $10,000 plus one quarter of any damages, excluding costs, awarded to the Company arising from the proceedings whether by judgement or settlement in its capacity as the first plaintiff in the proceedings. $10,000 is currently held in John Harvey's solicitor's trust account. Liquidator's Recommendation I am preparing a report to creditors to convene a creditor's meeting and seek creditor's approval for the Deed of Assignment. In that report, I will recommend that creditors accept the Deed of Assignment proposal because: • The Deed of Assignment provides an extra $10,000 in third party funds. Since the business ceased trading, there will be no other income before the property of the Company is sold. • The Deed of Assignment provides for a potential additional payment into the deed fund in the event that the claim against the ATO is successfully prosecuted without an adverse cost risk or requirement to incur any further costs."
Mr Lucan did not provide a copy of the letter he had sent to the Court to Ms Stewart. At 9.02am on 26 May 2020, Dr Harvey emailed Ms Stewart, informing her that he had called her at 9am to discuss the directions hearing. He included as an attachment to his email the letter which Mr Lucan had sent to the Court the previous day. This was the first communication from Mr Lucan that Ms Stewart had received since 26 November 2019. As referred to above, Mr Lucan did not send it to Ms Stewart, who received it from Dr Harvey.
At the directions hearing on 26 May 2020, Mr Ball of counsel appeared for the defendants. Dr Harvey appeared for the second plaintiff and mentioned Mr Lucan's appearance for the first plaintiff. The Court stood the matter over for further directions on 10 June 2020 and reserved the costs of the day.
By email dated 28 May 2020, Ms Stewart wrote to Mr Lucan as follows: "You were appointed liquidator of The Oak Hotel Cessnock Pty Ltd on 27 November 2019. Since that time, you have failed to conduct these proceedings on behalf of the first plaintiff. We have also contacted you on no fewer than 15 occasions without receiving a response (a chronology is set out in Annexure A). As a result, the proceedings have drifted and little progress has been made. That cannot continue indefinitely. The question of whether the first plaintiff can or will actively prosecute its claim must be resolved. On 26 May 2020, the day our clients' application to have the first plaintiff's case dismissed for want of prosecution came before the Court, Dr Harvey sent us a copy of a letter from you to the Supreme Court of New South Wales, a further copy of which is enclosed for convenient reference. According to your letter: 1. you received a proposal from Dr Harvey to assign to him the company's right to continue the proceedings, and 2. you are preparing a report to creditors to convene a creditors' meeting and seek approval for the assignment. As a result of the receipt of your letter, our clients' application was adjourned and relisted for mention on 10 June 2020. This is not an appropriate way to conduct proceedings. As an officer of the Court you should know that it is not appropriate to communicate ex parte with the Court, particularly when you could at any time in the past six months have contacted us to indicate that you intended to assign the first plaintiff's rights to Dr Harvey. Moreover, our clients could have been spared the costs of appearing on 26 May if you had contacted us beforehand to ask for the matter to be adjourned by consent. Please therefore let us know by no later than 2 June 2020 when the proposal from Dr Harvey was received and when the creditors' meeting will take place. We would also urge you to appear or arrange for a representative to appear when the matter next comes before the Court on 10 June 2020. Please also note that, on that day, our clients propose to seek an order for costs against you, including for their costs thrown away on 26 May 2020."
At the directions hearing before the Registrar on 10 June 2020, Dr Harvey appeared on behalf of the second plaintiff and mentioned the appearance of the first plaintiff. Mr Ball appeared on behalf of the defendants. The Court made directions regarding the hearing of the defendants' notice of motion filed on 19 May 2020 and listed it for hearing on 23 July 2020. The Court noted that the defendants would be making an application that the liquidator pay the defendants' costs personally.
On 10 June 2020 an employee of Mr Lucan's firm, Worrells, sent to Ms Stewart a copy of what was described as the "latest report to creditors" in the first plaintiff's liquidation (the June 2020 creditors' report). The email was plainly pro forma and said: "Please find attached the latest report to creditors on the file of The Oak Hotel Cessnock Pty Ltd. Your reference: You can lodge Proofs of Debt at any time and, when meetings are pending, Proxy Forms and Voting Slips from our File Information Page on our webpage."
There was no indication in the body of the email that it had anything to do with the present proceedings.
The June 2020 creditors' report informed creditors of a meeting to take place at 10.30am on 25 June 2020. Under the heading "Outstanding Issues" it said: "Deed of Assignment I have received a proposal from the director of the Company, John Harvey, to assign the Company's rights and interest in legal proceedings against the Deputy Commissioner of Taxation ("DCT"), to him. John Harvey will pay $10,000 plus one-quarter of any damages, excluding costs, awarded to the Company arising from the proceedings whether by judgement or settlement in its capacity as the first plaintiff in the proceedings. $10,000 is currently held in John Harvey's solicitor's trust account. John Harvey and his related entity will also withdraw their claims as creditors in the Liquidation should a judgement or settlement be reached with the DCT. They currently have claims in the Liquidation of $5,355,376. Pursuant to Section 477(2B) of the Corporates Act 2001 [sic], the liquidator of a company must not enter into an agreement on the company's behalf if the term of the agreement is more than, or is likely to be more than, three months. Accordingly, I am calling a meeting of creditors so that creditors can consider accepting the proposal. … Notes 3. Claim Against the DCT Under the Deed of Assignment, the Liquidation will receive 25% of any damages, excluding costs, awarded to the Company arising whether by judgement or settlement The Claim against the DCT is approximately $4,534,000. Should the claim be successful, we expect that the DCT will offset their existing unsecured debt and claim for superannuation guarantee charge prior to making any payment for damages. This would result in the DCT no longer having a claim in the Liquidation. We have also estimated the cost of conducting the litigation at $300,000. Accordingly, the potential return to the Company in the event that the litigation is successful would be $483,242 ..."
On 11 June 2020 Ms Stewart wrote again to Mr Lucan and Dr Harvey setting out the orders made by the Court on 10 June 2020. She noted that there was no appearance on behalf of Mr Lucan, who was a respondent to the amended notice of motion. The letter concluded: "As foreshadowed in our letter of 28 May 2020, our clients propose to seek an order for costs against you to be paid personally, including for their costs thrown away on 26 May 2020. These costs will be sought on an indemnity basis. The Court has made a note of our clients' intention on the Court file."
On 24 June 2020 Mr Lucan wrote to Ms Stewart. This was the first time he had communicated with the defendants' solicitors directly since 26 November 2019 (the day before he was appointed as the first plaintiff's liquidator). Mr Lucan noted that the proceedings had been commenced prior to his appointment and that he had not caused the first plaintiff to take any steps in the proceedings since his appointment. He asserted that "solely due to an administrative error" his letter to the Court of 25 May 2020 was not provided to the defendants' solicitors. Mr Lucan rejected any assertion that he had acted in any improper manner which might cause the Court to make a costs order against him personally and sought details of the basis on which the order was sought.
By email dated 30 June 2020, Ms Stewart responded in part as follows: "The matters set out in your letter do not provide a reasonable excuse for the complete failure to engage with the case. It would not have been difficult for you to respond to any one of the numerous attempts to contact you and indicate one way or another what the first plaintiff's plans were with respect to this case."
Ms Stewart confirmed that she was instructed to press for orders that he pay the costs of 26 May 2020 and the notice of motion filed on 19 May 2020 on an indemnity basis.
In a further email sent on 30 June 2020 to Mr Lucan and Dr Harvey, Ms Stewart noted that neither had served evidence in accordance with the directions made on 10 June 2020.
By email sent on 30 June 2020, Dr Harvey sent to the defendants' solicitors a copy of an executed deed of assignment dated 25 June 2020. It was common ground that this deed was ineffective to assign the cause of action as it was conditional and purported to assign future property (any damages awarded to the first plaintiff in the proceedings). Thus, the only relevant effect of the deed dated 25 June 2020 was to confer an irrevocable power of attorney on Dr Harvey to act on behalf of the first plaintiff with respect to the cause of action.
On 14 July 2020, Mr Lucan received the sum of $10,000 in cleared funds from Dr Harvey, being payment of the consideration under the Deed of Assignment.
Mr Lucan swore an affidavit on 22 July 2020 which was read on the applications before me. He deposed that he provided the November 2019 creditors' report, the February 2020 creditors' report and the June 2020 creditors' report to the first plaintiff's creditors, which included the DCT. He deposed that he provided those reports to Amanda Machielsen, the contact person named on the proof of debt lodged by the DCT. He also deposed that: "At all times in my reports to creditors I have indicated that I did not intend to cause the Company to prosecute these proceedings, and that I was negotiating for an assignment of the Company's causes of action the subject of these proceedings to a party associated with the Second Plaintiff."
When preparing his affidavit of 22 July 2020 Mr Lucan realised that the original deed of assignment dated 25 June 2020 was ineffective to assign the cause of action and arranged for a replacement deed to be executed on 22 July 2020. It was common ground that this deed was effective to assign those causes of action which were capable of being assigned which are described in the replacement deed.
On 23 July 2020, when the matter came before the Registrar, Mr Ball appeared for the defendants. Mr Johnson appeared on behalf of Mr Lucan. Dr Harvey appeared for the second plaintiff and purported to appear for the first plaintiff. The Registrar noted that the defendants proposed to file an amended notice of motion. The matter was again stood over. Subsequently draft consent orders were provided to the Registrar who noted that the first plaintiff had executed a deed of assignment of the first plaintiff's cause of action against the defendants. Further directions were made.
The matter was listed for hearing before me on 6 November 2020 and heard on that day.

The defendants' application for the costs of the motion

The defendants sought an order that Mr Lucan pay the costs of their application to dismiss that part of the proceedings brought solely by the first plaintiff relating to alleged unauthorised disclosure of its taxation information. From the time of his appointment as the first plaintiff's liquidator, Mr Lucan was the only person authorised to speak on behalf of the first plaintiff. His silence, as far as the proceedings were concerned, lasted for a seven-month period from 26 November 2019 (on the eve of his appointment as liquidator) until he wrote to the defendants' solicitors on 24 June 2020.
Mr Johnson submitted that Mr Lucan was not silent at all in that, although he did not communicate with the Court throughout this period, he did communicate with Dr Harvey, who mentioned his appearance on several occasions, and he communicated directly with the defendants by sending the DCT his reports to creditors in November 2019, February 2020 and June 2020. Mr Johnson contended that the reports were ample to appraise the DCT (and through him the Commonwealth) of the first plaintiff's position with respect to the cause of action based on alleged disclosure: namely, that it would not be prosecuted by the liquidator but may be assigned to a person associated with the second plaintiff (Dr Harvey). While Mr Johnson did not seek to persuade me that Mr Lucan's silence as far as the Court was concerned was other than unacceptable, he contended that the defendants were, or ought to have been, well aware of what was likely to happen (the action would proceed only if it could be assigned) and ought to have conducted themselves accordingly.
There is a significant distinction between the role of a liquidator in the winding up of a company and the role of a trustee in bankruptcy. Proceedings initiated by a person who subsequently becomes bankrupt are stayed until the trustee elects in writing whether to prosecute or discontinue the action: s 60(2) of the Bankruptcy Act 1966 (Cth). If the trustee does not make such an election within 28 days after notice of the action is served on them by a party to the proceedings, the trustee is deemed to have abandoned the action: s 60(3) of the Bankruptcy Act. There is no equivalent to s 60 in company liquidations.
If a voluntary administrator is appointed to a company, no litigation can be commenced or continued against the company, except with the administrator's written consent or leave of the court: s 440D of the Corporations Act. If a liquidator has been appointed, there is an automatic stay of proceedings brought against the company, unless the court's leave is obtained: ss 471B and 500(2) of the Corporations Act. These provisions apply when the company is a defendant, but not where, as here, the company is a plaintiff. Mr Johnson did not suggest that there was any statutory provision which absolved Mr Lucan of the responsibilities to which a party to proceedings in this Court is subject or which would authorise him to refrain from communicating with the Court or the defendants in litigation commenced by a company of which he is the court-appointed liquidator.
As the sole authorised agent of a party to proceedings in this court, it was encumbent on Mr Lucan to participate in the proceedings. Section 56(1) of the Civil Procedure Act 2005 (NSW) provides: "The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings."
I am obliged, by s 56(2) of the Civil Procedure Act to seek to give effect to the overriding purpose when exercising any power under the Act or the rules and when interpreting any such provision. This includes the power to order costs under s 98 of the Civil Procedure Act.
Section 56(3) of the Civil Procedure Act imposes a duty on parties to civil proceedings "to assist the court to further the overriding purpose and, to that effect to participate in the processes of the court and to comply with directions and orders of the court".
Mr Lucan is not a party to the proceedings. However, his role in the proceedings is not confined to his role as respondent to the defendants' notice of motion seeking an order for costs against him personally. As referred to above, he was, until the power of attorney was granted to Dr Harvey by deed executed on 25 June 2020, the sole agent of the first plaintiff from the time of his appointment as liquidator on 27 November 2019. Accordingly, he was the only person who had the capacity to discharge the duty imposed on the first plaintiff by s 56(3) of the Civil Procedure Act. He was a "duly authorised officer" and was therefore the agent through which the first plaintiff could carry on the proceedings: UCPR, r 7.1(4).
It follows that s 56(3) of the Civil Procedure Act obliges a liquidator of a company which has already commenced proceedings to take active steps on behalf of that company to engage with the court's processes, either by filing a notice of discontinuance, or prosecuting the claim or seeking an adjournment so that the prudence of prosecuting the claim, or assigning it for consideration, can be investigated. Further, it was accepted by Mr Johnson that Mr Lucan, as the first plaintiff's liquidator, was an officer not only of the Federal Court, which ordered the winding up, but also of this Court. His obligations under s 56(3) of the Civil Procedure Act do not depend on his being an officer of the court since the obligations apply to all parties.
Upon his appointment as liquidator, Mr Lucan became authorised to carry on the proceedings in the name of the first plaintiff. He was, accordingly, obliged to file an affidavit of authorisation under UCPR, rr 7.2(1)(a) and 7.2(3). That he did not do so does not absolve him of the responsibilities imposed on him by s 56(3) of the Civil Procedure Act.
This Court is not unsympathetic to the position of liquidators who may be expected to need time to work out whether to continue proceedings on behalf of a company. However this does not excuse, much less justify, a failure to communicate with the other parties and the Court. It is plain from the November 2019 creditors' report that Mr Lucan, before his appointment as liquidator, had no intention of prosecuting the action on behalf of the company. This was not communicated to the solicitors on the record for the defendants for a period of about six months. During the course of that time, the defendants incurred costs, including the costs of the application to have the alleged unauthorised disclosure claim brought by the first plaintiff struck out for want of prosecution.
It is no answer to say, as Mr Johnson did, that Mr Lucan in fact informed the defendants of his intentions with respect to the litigation because the DCT was a creditor of the first plaintiff and received the reports to creditors. The DCT was entitled to appear in person, by an authorised solicitor or by a legal practitioner: s 15 of the Taxation Administration Act 1953 (Cth). The DCT chose to engage solicitors for the purposes of these proceedings. A party to proceedings is obliged to communicate with the solicitors on the record for the party. As referred to above, Ashurst was the firm of solicitors on the record for the defendants in the proceedings. Mr Lim was named as the legal representative at that firm and Ms Stewart was the named contact person. Her phone number and email were set out on documents filed on behalf of the defendants. In the context of proceedings in this Court, it is irrelevant that Ms Machielsen was the contact person named on the proof of debt lodged by the DCT, since Ms Machielsen had no authority to act on behalf of the defendants in these proceedings, once a notice of appearance had been filed by Mr Lim on their behalf.
Very little was required of Mr Lucan. All he needed to do was to inform the defendants and the Court that he had no intention of prosecuting the claim of alleged unauthorised disclosure on behalf of the plaintiff but that he was seeking to assign the cause of action to Dr Harvey. As long as he had done so and periodically informed the Court, Dr Harvey and the defendants of the status of the proposed assignment, he would not have exposed himself to an adverse costs order. By failing to do the little that was required of him, Mr Lucan has caused the defendants, whose solicitors have evidently sought to discharge the duties owed by the defendants to the Court and the other parties to the proceedings, to incur unnecessary costs.
I reject Mr Johnson's submission, in reliance on Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 (Lai Qin), that there is no warrant for an adverse costs order to be made in circumstances where one party has withdrawn an application before it has been determined on the merits. I regard the present case as falling squarely within the category referred to by McHugh J in Lai Qin at 624 where the court is "able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action". The defendants' solicitors sought, time and again, to communicate with Mr Lucan, who had been prepared to communicate with them after he had been appointed administrator but who fell unaccountably silent as soon as he was appointed as the first plaintiff's liquidator. Dr Harvey proved himself to be an unreliable source of information as to the progress, or lack thereof, of the assignment of the first plaintiff's cause of action and had, in any event, no authority to speak on its behalf.
Mr Johnson submitted that there was no basis on which I could conclude that Mr Lucan had acted with impropriety such as would warrant an order for costs against him personally. He contended that, as Mr Lucan had not been required for cross-examination, I could draw no inferences as to his state of mind to the requisite standard. In Mead v Watson [2005] NSWCA 133, the Court of Appeal (Sheller, Ipp and Tobias JJA) said at [14]: "A degree of personal misconduct or wilful recklessness on the part of the liquidator was not required: mere negligence or mistake or the incurring of costs unreasonably or unnecessarily was sufficient to constitute the relevant degree of impropriety to justify an order that the costs be paid by the liquidator personally."
Mr Lucan's inaction lasted for such a long period as to be inconsistent with "mere negligence or mistake". However, it was at least that. I am satisfied that it is appropriate to hold Mr Lucan liable for the costs.
The further question arises whether Mr Lucan ought be ordered to pay the defendants' costs of the motion on an indemnity basis or on the ordinary basis. An order that costs be paid on the indemnity basis is appropriate when the impugned conduct of the party in relation to the litigation itself is such as to warrant it: Mead v Watson, at [8]-[9].
The evidence is insufficient to explain Mr Lucan's non-compliance with the court's directions and with his obligation under s 98(3) of the Civil Procedure Act. Mr Lucan, who swore an affidavit in opposition to the defendants' application for costs, has omitted to provide any explanation to the court for his lengthy silence in communications with the Court or with the defendants' solicitor. In these circumstances, I am entitled to infer that any explanation would not have assisted his opposition to the defendants' application. The lack of explanation for defaults is relevant to the discretion whether to order costs and on what basis: see the factors listed in s 58(2) of the Civil Procedure Act.
I reject Mr Johnson's submission that an order for indemnity costs is only appropriate in situations where impropriety of a high order was established. An order for indemnity costs is appropriate where a party's conduct exhibits a degree of unreasonableness such as to warrant an order on a higher basis than the ordinary basis. In my view, the defendants have established that Mr Lucan's conduct in the present case falls into to that category. His lengthy silence for a period in the order of seven months has not been explained. The consistent and persistent efforts of the defendants' solicitors (in fulfilment of the defendants' duty under s 56(3) of the Civil Procedure Act) to get Mr Lucan to answer correspondence and engage with the Court's process went unrewarded. Mr Lucan's inaction bespeaks a gross breach of his statutory obligation under s 56(3) of the Civil Procedure Act. It caused the defendants to incur the costs of a subsequently withdrawn application to have the unauthorised disclosure claim dismissed for want of due despatch. It also caused this Court to have several directions hearings in which little, if anything, was achieved to advance the proceedings. I am satisfied that Mr Lucan's conduct warrants an order that he pay these costs on an indemnity basis.
Mr Johnson submitted that, if the order for costs sought by the defendants was appropriate, it ought be made against the first plaintiff. I reject that submission. Although the duty under s 56(3) of the Civil Procedure Act was imposed on the first plaintiff as a party, it could only act through the human agency of Mr Lucan. Mr Lucan's actions caused the first plaintiff to be in breach of its obligations under s 56(3) of the Civil Procedure Act. The effect of ordering the first plaintiff to pay the defendants' costs would be to visit the consequences of Mr Lucan's conduct (or, more accurately, his inaction) on the first plaintiff's creditors. I am not persuaded that this is appropriate since Mr Lucan ought be held responsible for his own conduct.

The Oak Hotel Cessnock Pty Ltd (in liq) v Deputy Commissioner of Taxation

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