Vanguard 2017 Pty Limited, in the matter of Modena Properties Pty Limited v Modena Properties Pty Limited

Federal Court of Australia|2018-09-27|Before: Thawley J

BACKGROUND 4 The dispute has its genesis in a statutory demand dated 27 September 2017, served by Vanguard on Modena, demanding payment of $138,000. Paragraphs [4] to [9] of the judgment in the principal proceedings described the background: 4. … The plaintiff had an opportunity to acquire two development sites, one in Tweed Heads West in New South Wales and the other in Springwood in Queensland. In the context of considering the opportunity so presented, the plaintiff was introduced to Mr Andrew Carr, the sole director of the Company [Modena], trading as Westchester Properties. 5. The plaintiff and the Company entered into two agreements: the Tweed Heads Agreement and the Springwood Agreement. These were signed by the plaintiff on 13 January 2017 or at least appear to have been signed on or around that day. The agreements contemplated that the Company assist the plaintiff with procuring finance and with other aspects of the two proposed property developments. The "commitment fee" in each agreement was said to be payable on execution of the initial agreement. Each agreement stated: "We underwrite the agreement for the refund of the upfront fee if this facility does not go unconditional". 6. In accordance with those two agreements, the plaintiff (by a related entity, Ronpom Pty Ltd) paid a commitment fee of $69,000 under each agreement. Payment under the Springwood Agreement occurred on 22 February 2017 and payment under the Tweed Heads Agreement occurred by two instalments on 7 and 31 March 2017. 7. The plaintiff terminated the Springwood Agreement on 14 August 2017 and the Company terminated the Tweed Heads Agreement on the same day. Mr Carr undertook on behalf of the Company to refund the two commitment fees "no later than 29 March 2018". Mr Pomering, on behalf of the plaintiff, responded on 14 August 2017 that the agreement did not provide for that date and requested the fees be refunded promptly. 8. On 15 August 2017, Mr Carr responded in an email stating: I am aware there is no clause to cover a time period for refund of fees with the contract, as this is the first occurrence of this scenario. Accordingly, I have committed to refunding the fee by 29th March 2018. 9. Neither Mr Carr nor the Company, on the evidence, responded to Mr Pomering's further attempts to communicate. Accordingly, on 31 August 2017, the plaintiff instructed its solicitor to demand payment by 7 September 2017. Mr Carr responded by letter dated 7 September 2017, stating that the Company did not deny the obligation to refund the payments and pointing out that the words "no later than 29 March 2018" when understood in context was that the Company "will refund the fee as soon as possible but in any instance no later than 29 March 2018". Mr Carr therefore described the plaintiff's solicitor's assertion of "refusal to make the repayment until 29 March 2018" as "simply fabricated and misleading". He continued: Westchester does however, agree with the statement "There is no foundation whatsoever for Westchester retaining any of the payments beyond the time it would reasonably take for Westchester to make repayment of the funds in the usual course". Whereby Mr Pomering took a period of 200 days to make payment to Westchester post commencement of services, the usual course would be to refund Mr Pomering within the same period. In the circumstances, Westchester has committed to refunding the fee no later than 29 March 2018. 5 The statutory demand was served and Modena applied to the Supreme Court of Queensland under s 459G of the Corporations Act to set the demand aside. That application was dismissed by consent on 22 December 2017 and Modena was ordered to pay costs. 6 The effect of these events was that Modena was deemed to be insolvent from 29 December 2017: s 459C(2)(a). 7 On 17 January 2018, Vanguard commenced proceedings in this Court to wind up Modena in insolvency. The first return date was 21 February 2018. 8 On 15 February 2018, Modena filed and served an appearance which contained two grounds of opposition to winding up: 1. The Applicant failed to comply with s. 470(1)(a) of the Corporations Act 2001. 2. The Application is an abuse of process because it was issued for an unlawful purpose in circumstances in which the Applicant was at all material times aware that a bona fide dispute existed as to the date upon which the debt was payable. 9 On the same day, Modena served affidavits sworn by Mr Carr and Mr Schimana. By his affidavit, Mr Carr indicated his position that Modena could not retain the amount of $138,000 but that it would be paid no later than 29 March 2018. 10 Mr Schimana's affidavit, sworn on 15 February 2018, stated that he was a Certified Practising Accountant; that he had known Mr Carr for over ten years; that he was employed by NBC Mango Hill Pty Ltd; and that his employers had performed services for Mr Carr personally and for entities associated with him. NBC had been engaged to establish Modena (which was incorporated on 23 August 2013) and to provide various services in relation to it. No other accountants performed work for Modena. Mr Schimana deposed to knowing of Modena's "business practices", having been involved in them for some five years. He deposed to Modena's position in an "overall group" in the following terms: Modena's Part of the Overall Group 19. Modena, whilst an entity in its own right, forms part of an overall larger group of companies and entities. 20. Other entities also associated with Modena and Carr have, in the past, provided for the internalised transfer of funds by way of internal loans and contributory sums. 21. The entities are linked by way of the head company being the sole shareholder & beneficiary in the child entity to enable this to occur. 22. As a lesser part of the overall group, Modena exists solely for the provision of facilitation, strategy and associated services in relation to accepted projects. 23. Given this, it is not considered of high importance for Modena to retain profits, but rather to distribute those to the parent company and account for the parent company's greater financial position in relation to taxation and requirements accordingly. 24. The parent company, rather than Modena is responsible for the majority of cash flow and profits within the group as it receives the benefits provided by child companies and their respective income streams. 11 He deposed to the way in which Modena maintained accounts: How Modena Maintains Accounts 25. Modena maintains an online Xero file which provides an account of every transaction effected by the company on a real time basis. Authorised persons are able to see Modena's financial position at any given time via accessing the portal on their computer or mobile telephone. 26. This file, whilst a good indicator of Modena's position for internal purposes, does not provide the level of detail of otherwise substantiated accounts maintained on behalf of a company such as profit and loss statements or annual returns. 27. This level of information does however, contain a sufficient level of data in order for members to establish solvency at any given point in time. 28. The data from the Xero file is prepared by an internal bookkeeper who also provides manual entries and categorises expenses. 29. These unaudited accounts are then used to complete the required returns and associated compliance items. 12 The affidavit addressed Modena's financial position in the following way: Modena's Financial Position 34. Carr, on behalf of Modena, requested NBC prepare several items for the purposes of defending its position in relation to Federal Court of Australia matter NSD27/2018, these include: (a) Preparation of monthly profit and loss statements; (b) Ongoing projects; and (c) Generalised financial statements. 35. NBC is presently in the process of completing the items detailed above, but has not been able to complete same by reason of pressure of work. 36. I am told my affidavit must be filed and served no less than three days before the hearing presently set down for 21 February 2017. As such I have provided details to the best of my ability at this point. 37. As at date of swearing this affidavit, I am aware Modena has approximately $300,000 in cleared funds available in its company bank account which is held with Westpac Banking Corporation. 38. On the advice of Carr, provision has been made for the sum of $138,000 falling due and payable as at the date of 29 March 2018. 39. Modena is now, and has, at all times since its incorporation been able to pay its debts as and when they fall due, and accordingly is, and at all material times been solvent. 40. Contracts are presently in place for provision of works in relation to projects for which settlement is expected to occur within 30-60 days whereby Modena shall become entitled to its settlement fees. The settlement fees associated with these projects total several million dollars. 41. Modena has advised it is able to call on the financial support of the wider group of companies, in any instance it is required to do so. 13 The affidavit did not annex or exhibit any financial records. 14 Mr Schimana's first affidavit implied that Modena intended to oppose the winding up application on the basis that it was, contrary to the statutory presumption, in fact solvent. Further, paragraph 37 stated that Modena had $300,000 in cleared funds in its Westpac account as at 15 February 2018 and paragraph 38 stated that, on Mr Carr's advice (or instruction), provision had been made for the debt of $138,000 to be paid on 29 March 2018. 15 It was also apparent from the evidence filed and the grounds of opposition that Modena intended to oppose the winding up on the basis that the debt was not in fact payable when the proceedings were commenced and was payable at the latest by 29 March 2018. Opposing the proceedings on this ground would require Modena to obtain leave under s 459S(1) of the Corporations Act in light of the fact that such a ground could have been raised in the application to set aside the statutory demand. By reason of the terms of s 459S(2), this would have required that the ground be "material to proving that the company is solvent". 16 At the first case management hearing on 21 February 2018, the following order was made: The Defendant to file and serve any amended Notice of grounds of opposition, any interlocutory process for leave under section 459S of the Corporations Act, and any additional evidence on or before 28 February 2018. 17 In compliance with these orders, Modena filed an amended notice of appearance which contained the following grounds of opposition (emphasis in original): 1. The Plaintiff failed to comply with s. 470 (1) (a) of the Corporations Act 2001. 2. The Application is an abuse of process because it was issued for an unlawful purpose in circumstances in which the Applicant was at all material times aware that a bona fide dispute existed as to the date upon which the debt was payable. 3. The Plaintiff failed to seek leave of the Court for standing as a prospective creditor in terms of s. 459P (2) (a) of the Corporations Act 2001 (Cth). 4. The originating Application fails to identify a debt that is due and payable as required by s. 459Q(c) (i) of the Corporations Act 2001 (Cth). 5. The affidavits accompanying the origination Application do not comply with rule 29.02 of the Federal Court Rules 2011 (Cth). 18 On 21 March 2018, Modena's solicitors wrote to the solicitors for Vanguard indicating their view that Vanguard's proceedings were an abuse of process and asserting that Vanguard would be ordered to pay costs on an indemnity basis. 19 On 27 March 2018, Vanguard's solicitors responded setting out their view that the proceedings were not an abuse of process and stating that Vanguard "reserve[d] its rights" to seek costs on an indemnity basis not only against Modena but also against its "directors". In fact, Mr Carr was its only director. 20 Modena did not pay to Vanguard $138,000 (or any amount) on 29 March 2018. 21 On 29 March 2018, Vanguard filed an interlocutory application for leave to wind up Modena as a prospective creditor. This was a prophylactic measure in the event it were to be concluded that the admitted debt of $138,000 was not due until 29 March 2018. 22 Mr Schimana's second affidavit was sworn and filed on 12 April 2018. It stated: 1. Subsequent to my Affidavit sworn 15 February 2018, I have been engaged by the Defendant Modena Properties Pty Limited ("Modena") to prepare current annual financial statements ("Financials"). 2. Modena has, at the date of swearing this Affidavit prepared Financials and filed all required formalities associated with Taxation and other affairs, including Business Activity Statements. 3. These Financials indicate Modena's solvency. 4. Copies of these Financials, are available for submission at hearing should the honourable court require. Financial Standing of the Defendant Since Swearing of Previous Affidavit 5. I am not aware of Modena experiencing any significant negative impacts to its financial standing since the swearing of my last affidavit on 15 February 2018. 6. Modena's expenses during the period of 15 February 2018 and 11 April 2018 have been ordinarily incurred in its day to day operations. 7. Incomings to Modena's accounts over the same period have been derived of the same nature. 23 Mr Schimana's second affidavit did not annex or exhibit a single financial record of any description. It did not annex or exhibit the "Financials" (referred to in paragraph 1 of the affidavit) nor the other documents which the first affidavit stated were then in the process of being prepared. No "Financials" were tendered on this interlocutory application. Indeed, no financial record of any description was filed or tendered by Modena in the proceedings, including on this interlocutory application. 24 On 23 May 2018, Vanguard's solicitors sought from Modena's solicitors informal production of the financial documents which Mr Schimana had referred to in his affidavits as ones which he had prepared and which his second affidavit indicated would be available at the final hearing. It was said that this would avoid the need to issue a notice to produce. 25 By email sent on 23 May 2018, Modena's solicitors required all of Vanguard's witnesses to be available for cross-examination, but indicated they would confirm this position with counsel. They indicated that there was no consent to informal production of documents as had been requested by Vanguard's solicitors. 26 On 1 June 2018, at the request of Vanguard, a subpoena, returnable 27 June 2018, was issued to Westpac. Paragraph 1 of the subpoena required production of Modena's bank statements for the period 1 January 2017 to 30 April 2018. It was common ground that Modena only had one account with Westpac. Paragraph 2 required production of bank statements of various entities which included Modena and entities which Modena asserted (in an email of 15 June 2018) were unrelated to it. 27 On 7 June 2018, Modena's solicitors wrote stating Modena would file an interlocutory application to set aside the subpoena as being too broad and stating that the only issue was whether the proceedings were an abuse of process. The interlocutory application was filed on 12 June 2018. 28 On 20 June 2018, Modena's solicitors wrote indicating, again, that the only issue was whether the proceedings were an abuse of process and that the documents sought were, in substance, irrelevant. They invited Vanguard to withdraw the subpoena. 29 On 22 June 2018, Vanguard's solicitors wrote noting that Modena had indicated it intended to rely on the affidavits of Mr Schimana and that his evidence asserted Modena was, and at all times had been, solvent. The letter included: If your client confirms and undertakes in writing that it: (a) does not and will not contend or seek to contend at the final hearing of this matter that it is "solvent" (as defined in s 95A(1) of the Corporations Act 2001 (Cth) ("Act")); (b) will not, at final hearing, seek to rebut the presumption of insolvency under s 459C(2) of the Act or otherwise seek the Court to find that the said presumption of insolvency has been rebutted; (c) will not contend or seek to content [sic] at the final hearing of this matter that it has been "solvent" (as defined in s 95A of the Act) at any time since 22 December 2017; and (d) that it will not rely upon and not seek to lead any evidence on solvency, including in the form of the affidavits sworn by Mr Schimana, at the final hearing of this matter, our client will consent to the subpoena being set aside on the basis that each party bear its own costs of and incidental to the Interlocutory Process. Unless and until your client confirms the matters referred to in points (a) to (d) above, the subpoena must be complied with. Conduct of the Defendant's case As you are aware, s 37N of the Federal Court Act 1976 (Cth) imposes obligations on parties to proceedings before the Court. Your client's conduct as referred to above, including its refusal to provide documents which it has represented will be available at hearing and the issuing of correspondence which seeks to represent a position which does not sit with its grounds of opposition, is not in keeping with the requirements of s 37N. With the above in mind, our client: (i) assuming your client does not confirm the matters referred to in points (a) to (d) above, renews its request that your client provide us with copies of all documents it intends to rely upon at hearing and as referred to in Mr Schimana's affidavits, by no later than 5 pm, 25 June 2018; (ii) requires your client to immediately identify which of the 5 grounds of opposition it will rely upon at hearing; and (iii) places your client on notice that our client reserves its right to rely on this correspondence on the issue of costs of the Interlocutory Application filed by your client as the costs of the whole of the Proceedings at final hearing. 30 The response to this letter from Modena's solicitors, dated 22 June 2018, included: The affidavits of Peter Albert Schimana are intended to be relied upon to rebut the presumption of insolvency as a result of failing to make payment in response to the statutory demand. The grounds of opposition our client relies upon at hearing are clearly set out in the affidavits of Joshua Odin Deem and Andrew Michael Carr sworn 14 February 2018. Our client has no intention of furnishing the undertakings referred to in paragraph 2 of your letter. Your client's subpoena is patently a "fishing expedition", and is defective on a number of different basis [sic]. As to the documents referred to in Mr Schimana's affidavits, they are documents which would be intended to provide, if necessary an updated financial position as at the date of the hearing representing a fullest and best account of Modena's financial position at that date. It is appropriate that such documents only be collated at the time of the hearing. Those documents have no bearing, in any event, upon your client's attempt to obtain transactional documents from 6 entities from Westpac Banking Corporation by way of subpoena. All of the "5 grounds of opposition" to which you refer in paragraph 3 of your letter remain alive. For the reasons advanced in our letter of 7 June 2018 and 20 June 2018, it is appropriate that your client pay the costs of, and incidental to the subpoena you have served upon Westpac Banking Corporation on an indemnity basis. 31 On 27 June 2018, the Court dismissed with costs the interlocutory application filed by Modena on 12 June 2018 seeking to set aside the subpoena and granted leave to Vanguard to inspect the documents. The content of Modena's bank statements assume some significance, referred to below. 32 On 28 June 2018, following dismissal of its interlocutory application to set aside the Westpac subpoena, Modena's solicitors wrote to the solicitors for Vanguard stating: We refer to previous correspondence. We confirm that we will not be raising a solvency argument at the hearing on 4 and 5 July 2018. To this end, we confirm that we no longer intend to rely upon the two affidavits sworn by Mr Schimana. 33 On 29 June 2018, Vanguard's solicitors wrote to Modena's solicitors noting they had been informed of a discussion between counsel for both parties in which Modena's counsel indicated that Modena might withdraw the representations contained in the email of 28 June 2018 (set out above). The letter stated that Vanguard would object to solvency being raised as an issue and enclosed a notice to produce requiring production of various financial records, including those which had been referred to by Mr Schimana. The letter stated that Vanguard would not press for production and the notice to produce would be withdrawn "upon confirmation that your client will not raise solvency nor rely upon Mr Schimana's affidavit evidence at the hearing on 4 and 5 July 2018". 34 On 2 July 2018, Modena's solicitors sent an email to Vanguard's solicitors stating that they had been instructed on a "non-admissions basis" to consent to the orders sought by Vanguard. 35 At the hearing on 4 July 2018, Modena neither consented to nor opposed the orders which had been sought in the originating process.

Non-party costs orders 36 Section 43 of the Federal Court of Australia Act 1976 (Cth) includes: (1) The Court or a Judge has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which this or any other Act provides that costs must not be awarded. This is subject to: (a) subsection (1A); and (b) section 570 of the Fair Work Act 2009; and (c) section 18 of the Public Interest Disclosure Act 2013. … (2) Except as provided by any other Act, the award of costs is in the discretion of the Court or Judge. (3) Without limiting the discretion of the Court or a Judge in relation to costs, the Court or Judge may do any of the following: (a) make an award of costs at any stage in a proceeding, whether before, during or after any hearing or trial; (b) make different awards of costs in relation to different parts of the proceeding; (c) order the parties to bear costs in specified proportions; (d) award a party costs in a specified sum; (e) award costs in favour of or against a party whether or not the party is successful in the proceeding; (f) order a party's lawyer to bear costs personally; (g) order that costs awarded against a party are to be assessed on an indemnity basis or otherwise; (h) do any of the following in proceedings in relation to discovery: (i) order the party requesting discovery to pay in advance for some or all of the estimated costs of discovery; (ii) order the party requesting discovery to give security for the payment of the cost of discovery; (iii) make an order specifying the maximum cost that may be recovered for giving discovery or taking inspection. 37 Although s 43(3) does not expressly state that the Court has power to make an order for costs against a non-party, it has been accepted that it does provide such power: Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at [73] (Keane CJ, Lander and Foster JJ). 38 The terms of s 43(1) - which provides that this Court's jurisdiction to award costs is subject to "any other Act [which] provides that costs must not be awarded" - make it necessary to consider s 1335(2) of the Corporations Act. That section provides: The costs of any proceeding before a court under this Act are to be borne by such party to the proceeding as the court, in its discretion, directs. 39 These provisions might be read as indicating that the costs in respect of proceedings under the Corporations Act must be borne only by a party to the proceeding and not by a non-party. However, in Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd (2009) 176 FCR 348 at [314], Lander J held that s 1335(2) did not have the effect of preventing this Court from making an order for costs against non-parties to such proceedings. It was common ground before this Court that s 1335(2) did not prevent an order being made against Mr Carr as a non-party. In those circumstances, if it is otherwise appropriate to order costs against Mr Carr, it is not necessary that an order be made that he be joined as a party for that purpose. 40 In Knight v FP Special Assets Ltd (1992) 174 CLR 178 at 192-3, Mason CJ and Deane J (with whom Gaudron J agreed) stated: Obviously, the prima facie general principle is that an order for costs is only made against a party to the litigation. As our discussion of the earlier authorities indicates, there are, however, a variety of circumstances in which considerations of justice may, in accordance with general principles relating to awards of costs, support an order for costs against a non-party. Thus, for example, there are several long-established categories of case in which equity recognised that it may be appropriate for such an order to be made. For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non- party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made. 41 Dawson J stated (at 202): The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court. 42 Mason CJ and Deane J expressly indicated that they were recognising a "general category of case". The categories of case which may attract the exercise of the discretion are not closed: Kebaro Pty Ltd v Saunders [2003] FCAFC 5 at [103] (Beaumont, Sundberg and Hely JJ). However, as Basten JA stated in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 at [210] (Beazley and Giles JJA agreeing): Nevertheless, the requirements of justice should not be allowed to expand an exception to the general rule, so as to undermine the rule itself. 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 a substantial interest, and (e) the unsuccessful party was insolvent or could otherwise be described as a person of straw. 43 Although Basten JA recorded these criteria, his analysis of whether an order was appropriate proceeded by reference to the three circumstances in the "general category of case" identified in the joint judgment in Knight. His Honour recognised that the three circumstances should not necessarily be treated as independent of each other and that they are inter-related: FPM Constructions at [214]. 44 In Citrus Queensland Pty Ltd v Sunstate Orchards Pty Ltd (No 10) [2009] FCA 498 at [20], Collier J noted that the exercise of the discretion to make an order for a non-party to pay the successful party's costs "is approached with caution" and has been described as "rare and exceptional". It has also been said that "exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense … [t]he ultimate question [being] whether in all the circumstances it is just to make the order": Yu v Cao (2015) 91 NSWLR 190 at [139] (McColl JA, with whom Sackville AJA and Adamson J agreed), quoting Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39; [2005] 1 NZLR 145 at [25(1)]. 45 In Citrus Queensland at [20] and [21], Collier J identified a number of principles relevant to the exercise of the discretion and circumstances in which the discretion had and had not been exercised. One of those principles is that the non-party's connection with the proceedings, which is a central consideration, must be a real and material connection. A "non-party can fairly be liable if adjudged by its conduct, to be a real party to the litigation, even if not the real party": Kebaro at [103] (emphasis in original). It is necessary to look at the causal connection between the non-party's conduct or management of the litigation and the costs of the litigation. 46 There is often little difficulty connecting with the proceedings the actions of a director of a company which is a party to the proceedings. In the case of a sole director company, the director is the controlling mind of the company. However, it is obviously not sufficient of itself that the director, being actively involved in the proceedings, caused the company to defend proceedings. Such conduct is consistent with the director's duties to the company and would not be described as "exceptional" so as to disengage the ordinary rule that it is the parties to the proceedings who bear the costs. However, there may be situations where the director's conduct is such that a non-party costs order is appropriate. The question might arise, for example, where the director's management of the litigation was in breach of a duty to the company or was in some material way improper, or where the director caused the litigation to be conducted in a manner intended to increase irrecoverable costs of the opposing party. Such circumstances are potentially capable of warranting the exercise of the discretion to award costs against a non-party director. 47 In Taylor v Pace Developments Ltd [1991] BCC 406 at 409F-H, Lloyd LJ (with whom Nourse and Ralph Gibson LJJ agreed) observed: … The controlling director of a one-man company is inevitably the person who causes the costs to be incurred, in one sense, by causing the company to defend the proceedings. But it could not be right that in every such case he should be made personally liable for the costs, even if he knows that the company will not be able to meet the plaintiff's costs, should the company prove unsuccessful. That would be far too great an inroad on the principle of limited liability. I do not say that there may not be cases where a director may not properly be liable for costs. Thus he might be made liable if the company's defence is not bona fide, as, for example, where the company has been advised that there is no defence, and the proceedings are defended out of spite, or for the sole purpose of causing the plaintiffs to incur irrecoverable costs. No doubt there will be other cases. But such cases must necessarily be rare. In the great majority of cases the directors of an insolvent company which defends proceedings brought against it should not be at personal risk of costs. 48 This passage was approved in Framework Exhibitions Ltd v Matchroom Boxing Ltd (unreported, Court of Appeal (England and Wales) (Civil Division), 23 September 1992, Transcript No 873 of 1992) by Leggatt LJ, with whom Glidewell and Mann LJJ agreed. Taylor (and other cases) were referred to in Symphony Group Plc v Hodgson [1994] QB 179 at 191G-192A (Balcombe LJ). His Lordship noted that "while it was not suggested in any of these cases that it would never be a proper exercise of the jurisdiction to order the director to pay the costs, in none of them was it the ultimate result that the director was so ordered". 49 I respectfully agree with the observations of Lloyd LJ set out above.

Indemnity costs orders 50 The terms "costs as between party and party" and "costs on an indemnity basis" are defined in the Dictionary in Schedule 1 to the Federal Court Rules 2011 (Cth). The ordinary rule is that costs are awarded on the party and party basis. Accordingly, if an order is made for costs, without further description, the costs are awarded as between party and party: r 40.01 of the Rules. 51 Rule 40.02 contemplates departure from the ordinary rule. Note 1 specifically contemplates departure by way of an order for "costs … on an indemnity basis". 52 The exercise of the discretion to award costs on a basis other than as between party and party requires circumstances which justify a departure from the ordinary rule: Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 (Sheppard J). A number of categories of case have come to be recognised as ones in which it may be appropriate to order indemnity costs. The categories are not closed, but are instructive. The question is ultimately whether the particular facts and circumstances in question warrant the making of an indemnity costs order. The categories identified by Sheppard J in Colgate-Palmolive at 233-4 included: (1) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud; (2) vidence of particular misconduct that causes loss of time to the Court and to other parties; (3) the fact that the proceedings were commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law; (4) the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions; and (5) an imprudent refusal of an offer to compromise.

Mr Carr's principal submission 53 Mr Carr's "principal submission" against making a non-party costs order was that an application to wind up was not litigation in its true sense, with the result that the principles in Knight have no work to do. It was said that the proceedings should not be used as a debt collection mechanism (see Lifese Pty Limited v Lee Crane Hire Pty Limited [2012] FCA 302) and that the true nature of the proceedings is the enforcement by a creditor of the public policy that an insolvent company should not be allowed to continue to trade. In that sense, it was said, the litigation did not produce a successful or unsuccessful party. 54 It was submitted that, if the creditor obtained the relief sought, the public policy was given effect by placing the company into the hands of a liquidator. The creditor does not secure repayment of its debt, but rather it is converted into a right to prove in the liquidation. The creditor will receive a priority for its costs of the winding up application under s 556 of the Corporations Act. The moving creditor is thus fully compensated for costs by the making of the usual costs order. 55 The "principal submission" is rejected. The fact that the proceedings were winding up proceedings does not immunise a director of an insolvent company from a non-party costs order if his or her conduct was such as to warrant such an order being made. A moving creditor is not necessarily fairly compensated by the usual order for costs if, for example, a non-party has, by their conduct, improperly increased irrecoverable costs. Further, if that has occurred, it is not obvious that the other creditors should, in effect, bear the burden of those additional costs if they are properly attributable to the improper conduct of the director of the insolvent company rather than being attributable to the litigation conducted in a proper way.

Mr Schimana's affidavits and solvency 56 The written submissions filed on Mr Carr's behalf included that: "[t]he evidence advanced by the company, deposed [to] by its accountant was that the company had $300,000 in cleared funds in its bank account and that provision had been made for the debt claimed by the applicant"; "the evidence of the company as to solvency was left unchallenged"; it was "difficult to suggest there was anything untoward in the company taking the view it did about solvency … when regard is had to the evidence of Mr Schimana"; the evidence of Mr Schimana that there was $300,000 in cleared funds and that provision had been made for payment of the debt made it "difficult to suggest" that the company should not have agitated solvency. 57 In his first affidavit, Mr Schimana stated that, when the affidavit was sworn on 15 February 2018, he was aware that Modena had approximately $300,000 in "cleared funds" available in its Westpac account - see paragraph [12] above. It was common ground that Modena only had one account with Westpac. In fact, as was demonstrated by the bank statements obtained by the plaintiff from Westpac under subpoena, there was only $1,203.54 in the account on 15 February 2018. 58 It was submitted for Mr Carr that Mr Schimana's first affidavit was to be understood having regard to the fact that an amount of $271,000 had been transferred into the account on 20 February 2018. It was said that the Court should infer that this was what Mr Schimana was referring to. It was not clear why such an inference should be drawn when Modena and Mr Carr could have adduced evidence on the issue. It is true that the bank statements showed an amount of $271,000 transferred into the account on 20 February 2018. However, although this was not pointed out in submissions made for Mr Carr, the amount was also immediately withdrawn on 20 February 2018. No submission was advanced about what inference should be drawn about the immediate withdrawal of the amount. 59 Paragraph 37 of Mr Schimana's affidavit was intended to convey the impression that, on 15 February 2018, there were cleared funds in Modena's Westpac account sufficient to meet the debt which Modena said was due to be paid on 29 March 2018. Paragraph 38 of the affidavit was intended to convey the impression that provision had been made for payment of the debt on 29 March 2018. The true position, however, was that an amount of $271,000 passed through the account on 20 February 2018 and the balance of the account before and after that transient receipt was otherwise inadequate to meet repayment of the debt of $138,000. 60 There was no explanation provided (apart from the transient receipt of $271,000 on 20 February 2018) as to how Mr Schimana's first affidavit came to contain the statements in paragraphs 37 and 38 which it did. 61 Mr Schimana's second affidavit, sworn on 12 April 2018, did not correct the assertion in his first affidavit that there were cleared funds of approximately $300,000 in the Westpac account on 15 February 2018. The second affidavit specifically referred to Modena's "expenses" and "incomings" - see paragraph [22] above. The Westpac bank statements had not yet been sought or obtained. Nor did the second affidavit explain why the debt, for which provision had assertedly been made, was not paid by 29 March 2018. 62 Mr Schimana, in his second affidavit, stated that he had been engaged to prepare current "annual financial statements". He deposed to having prepared them and swore that they "indicate Modena's solvency". He swore that "all required formalities associated with taxation and other affairs, including Business Activity Statements" had been complied with. Notwithstanding these assertions, no "annual financial statements" were provided to Vanguard and none have been tendered. 63 Mr Carr was the sole director of (and shareholder in) Modena and I infer that Mr Schimana's affidavits were filed on his instructions and that he was aware of the contents of them. 64 Modena unsuccessfully attempted to have the subpoena to Westpac set aside on 27 June 2018. The documents produced under this subpoena showed that Mr Schimana's first affidavit was incorrect in asserting that there were cleared funds of approximately $300,000 in Modena's Westpac account on 15 February 2018. The material showed that $271,000 passed through the account on 20 February 2018. 65 In oral submissions, it was said that Modena could "compel other members of the group to improve its asset position through inter-company loans at the very least". The evidence said to support that submission was the Westpac bank statements. The only statement specifically relied on was that page which revealed the transient receipt of $271,000 on 20 February 2018. The evidence did not establish that Modena could compel other group entities to provide it loans. In particular, the transient receipt of $271,000 from an unknown entity does not support the submission. 66 No doubt Modena might have been able to request financial support from other entities in the group and Mr Carr may have procured such support. However, there was no evidence to the effect that Modena took, or considered taking, any such step. The highest the evidence went was contained in the first affidavit of Mr Schimana, which asserted that Modena could call on the financial support of the wider group of companies in any instance required. 67 Mr Carr submitted that solvency was only in issue until Modena withdrew the issue on 28 June 2018. However, solvency was not finally abandoned as an issue on that date. There were further discussions on 29 June 2018 in which it was indicated that the position expressed in the email of 28 June 2018 might be withdrawn - see paragraph [33] above. This prompted the plaintiff to issue a notice to produce to Modena, on 29 June 2018, requiring production of various financial records which would be called on in the event that solvency was raised. 68 Mr Carr further submitted that Modena consented to the orders sought on a "non-admissions basis" on 2 July 2018, shortly before the hearing. This was submitted to have "the result that the evidence of the company as to solvency was left unchallenged". It was said that "[in]solvency is one matter which it is always incumbent upon a moving party to establish at a final hearing - with the result that it is not necessarily an issue which needs to be the subject of a specific pleading in a notice of opposition", and that "it cannot be said that there was anything unreasonable or improper in the respondent company agitating solvency or ultimately conceding that matter shortly before hearing". These submissions are rejected. There was no evidence of solvency before the Court in the principal proceedings which required challenge. Modena did not read the evidence of Mr Schimana. Vanguard did not need to establish insolvency; Modena was presumed insolvent. At the hearing, Modena did not submit that it was solvent; it neither consented to nor opposed the application that it be wound up. 69 If the evidence of Mr Schimana had been read in the principal proceedings, it could not rationally have been accepted as establishing solvency, absent tender of appropriate financial records providing a foundation for Mr Schimana's bald assertions of solvency - see, for example: Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 at [44] (Weinberg J); Deputy Commissioner of Taxation v De Simone Consulting Pty Limited [2007] FCA 548 at [10]-[14] (Finkelstein J). 70 I conclude: (1) Mr Carr knew the affidavit of Mr Schimana concerning the existence in Modena's Westpac account on 15 February 2018 of cleared funds of approximately $300,000 to be misleading. The statement about these funds was intended by Mr Schimana (and Mr Carr) to give credence to the statements in the affidavit that provision had been made for payment of the debt on 29 March 2018 and that Modena could pay its debts as and when they fell due. (2) In circumstances where Modena had the ability to obtain (and had obtained) advice from "in-house counsel" (Mr Deem), Mr Griffin QC and its solicitors and, given that Mr Carr was the sole director of Modena, Mr Carr knew the two affidavits of Mr Schimana filed by Modena were of themselves (and without appropriate financial records) inadequate to establish solvency. (3) Mr Schimana's second affidavit was filed on 12 April 2018 with a view to maintaining solvency as an issue and conveying the impression that financial records which established solvency existed and would be available to be produced at hearing. (4) If "annual financial statements" had been prepared at all (as stated in the second affidavit), they were known by Modena and Mr Carr not to be sufficient to establish solvency. (5) As at 12 April 2018, Modena and Mr Carr did not reasonably consider solvency would be an issue at hearing. (6) On the instructions of Mr Carr, solvency was maintained by Modena as an issue in the proceedings until at least 2 July 2018, in circumstances where Mr Carr did not genuinely intend that the company would contest the winding-up application on the basis that Modena was solvent.

Non-party costs on an indemnity basis 71 This is an exceptional case in which it is appropriate to make a non-party costs order. As to the three circumstances referred to in Knight: (1) First, I conclude that Modena was in fact insolvent from at least the time the proceedings to have it wound up in insolvency were commenced on 17 January 2018. As noted earlier, it was also deemed to be insolvent from 29 December 2017. (2) Secondly, Mr Carr as the sole director of Modena played an active role in the conduct of the litigation. It was submitted that "independently of the discharge of his duties as a director of the company, Andrew Carr played no role in the proceedings". Mr Carr substantially funded the litigation - see paragraph [81] below. He was, I infer, responsible for giving instructions and seeking advice, including from Mr Deem and Mr Griffin QC. I infer that Mr Schimana's affidavits were prepared on his instructions. I conclude that Mr Carr was involved in providing the instructions on which paragraphs 37 and 38 of Mr Schimana's first affidavit were drafted. I infer he had knowledge of the true position with respect to Modena's Westpac account. I infer he instructed that Mr Schimana's second affidavit should refer to the existence of "Financials" said to establish solvency without providing them. I conclude that he instructed that solvency be maintained as an issue knowing it was not genuinely in issue. (3) Thirdly, Mr Carr had an interest in the litigation. It was submitted for Mr Carr that his interest in the subject of the litigation was only as a shareholder and that this interest remained unaffected whether that interest "is satisfied internal or external to a winding up". Mr Carr's interest in the litigation arises in at least two ways: (a) First, he had an interest in preserving the financial integrity, general commercial operations and reputation of the corporate group of which Modena was a member. (b) Secondly, as the sole shareholder in Modena and by reason of his interest in other group entities, Mr Carr had an interest in the monetary outcome. It is to be inferred that Mr Carr directly or indirectly through Modena or other entities benefitted from use of the commitment fees paid by Vanguard. The evidence of Mr Schimana was that all of Modena's profits were distributed to the parent company - see paragraph [10] above. 72 At the time of the transactions in early 2017 giving rise to the receipt of the commitment fees from Vanguard, Modena traded as "Westchester Properties"; it used that business name from 23 August 2013 in association with its ABN. The business name "Westchester Properties" was registered by Regal Bridges Pty Ltd on 20 December 2017 and used from that date by that entity in association with its ABN. The registration of the business name by Regal Bridges occurred 2 days before Modena consented to dismissal of its application to set aside the statutory demand in the Queensland proceedings. Mr Carr was appointed a director of Regal Bridges on 20 December 2017, the day Mr Deem ("in-house counsel") ceased as a director. These events pre-dated the commencement of the winding-up application on 17 January 2018, but evidence Mr Carr's interest in the sense that the business name which Modena had used would already be registered to another entity associated with Mr Carr were Modena ultimately to be wound-up in insolvency. 73 I take into account that Mr Carr was necessarily connected with the proceedings as the sole director. As noted at paragraphs [46] to [49] above, that is not of itself sufficient to attract an order for costs. 74 Mr Carr procured Modena to conduct its defence of the proceedings maintaining solvency as an issue until 2 July 2018: without genuinely intending to defend the proceedings on the basis of solvency; in reliance on evidence and the asserted existence of financial material which was known to Modena and Mr Carr to be inadequate to prove solvency; and in reliance on evidence known to be misleading. The conduct of the litigation in this way had the consequence of increasing Vanguard's (probably irrecoverable) costs in engaging with the issue of solvency through communications with Modena's solicitors, issuing the Westpac subpoena, issuing a notice to produce and preparing for a hearing on the basis that Modena was proposing to, or to seek to, raise solvency at the hearing and that Modena would seek to rely upon undisclosed financial material which it contended established solvency when neither of these things were genuinely intended. 75 Subject to the matter dealt with at [89] and [90] below, Mr Carr should pay Vanguard's costs of the proceedings from 27 March 2018 when he was put on notice that costs would be sought against him personally. For the reasons given at [85] and [86] below, those costs should be on the indemnity basis. 76 It remains to deal with some particular submissions made by Mr Carr in respect of a non-party costs order which have not been fully addressed above. 77 First, heavy reliance was placed on hearsay evidence to the effect that certain steps in the litigation, including the filing of the notice of appearance setting out the grounds of opposition and the filing of the amended notice of opposition and seeking to set aside the Westpac subpoena, were taken "upon" the advice of Modena's "in-house counsel" (Mr Deem) and Mr Griffin QC. It was submitted that Modena's "conduct of the litigation after taking that advice could not sensibly be said to be anything other than proper". 78 There was a call for Mr Griffin QC's advice but nothing was produced. Perhaps the advice was given orally. In the absence of knowing what instructions were given and what advice was received, the hearsay evidence does not advance Mr Carr's case in the manner submitted. The instructions to Mr Griffin QC (or to Mr Deem) may have been wholly inadequate. Mr Griffin QC's (or Mr Deem's) advice may not have been favourable. The steps taken "upon" the advice may not have implemented the advice in fact given. These are not matters which I infer in Mr Carr's favour from the hearsay evidence which was given. If Mr Carr had wanted to advance a case that the steps he caused the company to take in the litigation implemented the advice of its "in-house counsel" or of Queen's Counsel or both, properly instructed, then more was required. As Lord Mansfield said in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970: It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted. 79 In addition, it was not established that Mr Deem was a lawyer who was in fact acting in his capacity as a lawyer in giving advice or might be regarded as having been consulted in his professional capacity such as to be regarded as giving independent legal advice - see: Swart v Carr; Swart v LawCover Pty Ltd [2006] NSWSC 1302; Archer Capital 4A Pty Ltd v Sage Group Plc (No 2) (2013) 306 ALR 384 at [59]-[74] (Wigney J), albeit in the context of legal professional privilege. Mr Deem's connection with Regal Bridges has been noted at paragraph [72] above. He also received payments from the Westpac account out of the proceeds of the commitment fees paid by Vanguard. Even if I had accepted steps were taken on the advice of Mr Deem, I would have given that little weight absent evidence his advice could be seen to have been given as a lawyer in the exercise of independent and considered judgment. 80 Secondly, it was submitted that Modena was not the moving party, but was "dragged to Court" by the moving creditor. That is correct. It is also correct to observe, as Basten JA did in FPM Constructions, that a non-party costs order is usually made in the situation where the unsuccessful party was the moving party. However, each case must depend on its own facts. If there is sufficient responsibility on the part of a non-party for the management of litigation in a way otherwise sufficient to attract an order for non-party costs, the fact that the unsuccessful party was the defendant will not operate to deny such an order being made. Basten JA expressly did not suggest that the criteria he identified in FPM Constructions were pre-requisites. Indeed, they were expressed as criteria, some or a majority of which the cases indicated tended to be satisfied. 81 Thirdly, it was submitted that the evidence was to the effect that "the company funded the proceedings from its own balance sheet and did not rely upon Mr Carr, entirely, for such funding". The evidence on which that submission was based was given by Modena's solicitor: "Modena had paid its legal fees whether directly and through its director, Mr Carr". In light of the submission and the evidence asserted to support it, and given the absence of any evidence of what the legal fees were or of the capacity of Modena to fund such fees, I conclude that Mr Carr substantially funded the litigation. There was no direct evidence that Modena paid any legal fees "from its own balance sheet". I would not draw that inference in its, or Mr Carr's, favour. 82 Fourthly, Mr Carr pointed to the fact that Modena, by way of letter dated 21 March 2018, offered to pay $138,000 (being the debt), plus $10,000 in respect of the application to set aside the statutory demand which was dismissed with costs with Modena's consent in the Supreme Court of Queensland, less the unquantified costs Modena incurred in the winding up proceedings in this Court as assessed by a costs assessor. Vanguard rejected that offer by letter dated 27 March 2018. Vanguard pointed to various perceived inadequacies in Modena's offer and made a counteroffer open for acceptance until 6 April 2018. It noted that the costs of the Queensland proceedings were in the order of $40,000. 83 I accept that Modena's offer of 21 March 2018 is relevant. The debt was not paid on 29 March 2018 in accordance with the "provision" which had purportedly been made and it is not clear that the offer would have been honoured if accepted. Modena's offer supports the conclusion that Mr Carr had a real interest in the litigation. The offer is consistent with a conclusion that Mr Carr procured Modena to maintain solvency as an issue, not with any bona fide intention to seek to prove solvency, but for the purpose of seeking to secure an outcome which he would prefer over a winding-up of Modena. 84 Finally, Mr Carr pointed to a series of text messages said to have been received from Mr William Pomering of Vanguard and directed to Mr Deem and to Mr Carr threatening to "slaughter" Mr Carr and to "bury him" and containing such messages as: "You and your buddy will be fixed forever". It was submitted that regard should be had to these "attempts to cajole" the defendant to pay the debt. These messages mostly pre-dated the commencement of these proceedings on 17 January 2018. I regard these to be of little weight to the legal issues which arise.

Non-party costs should be on an indemnity basis 85 Mr Carr should pay Modena's costs on the indemnity basis. The indemnity basis is appropriate in particular because: (1) Mr Schimana's first affidavit sworn on 15 February 2018 was materially misleading and shown to have caused an increase in costs of Vanguard. I infer that Mr Carr knew the true state of the Westpac account and that the affidavit was misleading. I conclude that he gave instructions for the affidavit to be filed and relied upon by Modena. (2) Mr Schimana's second affidavit sworn on 12 April 2018 was intended to convey the impression that Modena was solvent and asserted the existence of documentary records, including annual financial statements, establishing solvency which might be sought to be introduced at hearing. This affidavit caused Vanguard to take steps in the proceedings which it otherwise would not have taken. I have concluded earlier that it was not intended to argue seriously or at all at hearing that Modena was solvent. 86 For these reasons, the proceedings were continued in wilful disregard of known facts and the proceedings were unduly prolonged by making groundless contentions - see paragraph [52] above.

Modena should pay costs on the indemnity basis 87 Modena should pay indemnity costs from 15 February 2018, the day Mr Schimana's first affidavit was sworn and filed. Modena sought to convey from that time until at least 2 July 2018, that it was solvent. It sought to do so, amongst other things, on the basis of evidence which was misleading and must have been known to be misleading. 88 It did so on the basis of evidence as to solvency which any litigant properly instructed would have known to be inadequate. Whilst it asserted - through its accountant, Mr Schimana - that it had financial material which established solvency, no such documents were shown to exist and, as I have concluded above, without any genuine intention of seeking to rebut the statutory presumption of insolvency at the hearing.

The interlocutory process filed on 29 March 2018 89 As noted above, on 29 March 2018, Vanguard filed an interlocutory process for leave, nunc pro tunc, to wind up Modena as a prospective creditor. This was considered appropriate because Modena had raised, as ground 3 of its amended grounds of opposition, a contention that Vanguard had failed to seek leave of the Court to bring its application as a prospective creditor under s 459P(2)(a) of the Corporations Act. If it were concluded that the admitted debt of $138,000 was not due until 29 March 2018, then before that date the debt might be regarded as "contingent or prospective" within the meaning of s 459P(2)(a), in which case leave was arguably required. This raised the question whether Modena required leave under s 459S(1) of the Corporations Act to argue ground 3 of its amended grounds of opposition as the contention that the debt was not yet due for payment at the time the statutory demand was served could have been, but was not, raised in the application to set aside the statutory demand the subject of the Queensland proceedings. It was always clear that this interlocutory application would only need to be dealt with at the final hearing. 90 The costs associated with this interlocutory process should by paid by Modena on the ordinary basis and Mr Carr should not be ordered to pay them. As to Mr Carr, it was not established by primary fact or by inference that there was any conduct by him in respect of the management of the litigation which warranted a conclusion that he should pay these costs. As to Modena, it is appropriate it bear the costs of the interlocutory application which was a reasonable one for Vanguard to bring in the circumstances and which, as a matter of substance, Modena lost. I do not, however, see any basis for concluding that Modena should be responsible for the costs of that interlocutory process on an indemnity basis having regard to the principles outlined earlier.

The interlocutory process filed on 12 June 2018 91 There was also an issue in respect of the costs of the interlocutory process filed on 12 June 2018 by Modena, seeking orders setting aside the Westpac subpoena. That interlocutory application was unsuccessful and, on 27 June 2018, the Court made an order that Modena pay Vanguard's costs on a party-party basis as agreed or assessed. 92 Mr Carr submitted that no basis had been shown for setting aside or otherwise disturbing the order made on 27 June 2018. However, that submission does not address Vanguard's application, which does not involve disturbing the order in any way. Vanguard seeks an additional order, namely that Mr Carr pay the costs of the interlocutory process on a party-party basis. It was appropriate to await the conclusion of the proceedings to seek such an order. 93 An order that Mr Carr pay the costs is appropriate. 94 The Westpac subpoena was issued on 1 June 2018 at the request of Vanguard because: (1) Mr Carr had given instructions for Modena to file and serve evidence intended to convey the impression that: (a) Modena had $300,000 in cleared funds in its Westpac account on 15 February 2018 (which I conclude Mr Carr knew to be misleading); (b) provision had been made to pay the debt of $138,000 to Vanguard which Modena contended was payable (at the latest) by 29 March 2018; and (c) Modena had financial material available to establish that it was solvent, which it might seek to tender at hearing on 4 July 2018, when (on the findings I have earlier made) Modena had no genuine intention of seeking to establish solvency at the hearing; (2) 29 March 2018 had passed and the admitted debt, for which provision had been made, had not been paid; (3) Modena had not filed a single financial or accounting record in support of its case that it was solvent; and (4) Modena had, on 23 May 2018, refused informal production of the financial documents referred to in Mr Schimana's second affidavit. 95 The documents sought under the Westpac subpoena were clearly relevant. I infer that Mr Carr procured Modena to seek to set aside the subpoena because he considered that the bank statements would: (a) tend to indicate or establish that the evidence concerning there being $300,000 in the Westpac account was misleading; and (b) not assist in conveying an impression of solvency. 96 For the reasons set out earlier, Mr Carr's management of the litigation in this way was sufficiently inappropriate to attract the conclusion that he should be responsible for Vanguard's costs of opposing the application Mr Carr had procured Modena to make, namely to seek to set aside the Westpac subpoena.

CONCLUSIONS 97 For the reasons above, the Court orders: (1) Subject to order 2, the defendant pay the plaintiff's costs of the proceedings on the party and party basis until and including 14 February 2018 and on the indemnity basis from and including 15 February 2018. (2) The defendant pay the plaintiff's costs of the defendant's interlocutory process filed 29 March 2018 on the party and party basis. (3) The plaintiff's taxed costs payable under orders 1 and 2 hereof be reimbursed out of the property of the company in accordance with s 466(2) of the Corporations Act. (4) Mr Carr pay the plaintiff's costs on the indemnity basis from 27 March 2018, except for costs in relation to the defendant's interlocutory process filed 29 March 2018. (5) Mr Carr pay the plaintiff's costs of the defendant's interlocutory process filed on 12 June 2018 on the party and party basis. I certify that the preceding ninety-seven (97) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.

Federal Court Act 1976(Cth)

Corporations Act 2001(Cth)ss 459A, 459C, 459G, 459P, 459S, 466, 556, 1335

Federal Court Rules 2011(Cth)rr 40.01, 40.02

THAWLEY J: 1 On 4 July 2018 an order was made under s 459A of the Corporations Act 2001 (Cth) winding up Modena Properties Pty Ltd and appointing a liquidator: Vanguard 2017 Pty Limited, in the matter of Modena Properties Pty Limited v Modena Properties Pty Limited [2018] FCA 1020 (the principal proceedings). Costs were reserved. 2 By an amended interlocutory process filed on 6 July 2018, Vanguard 2017 Pty Limited sought orders that: (1) its costs of the proceedings, including its interlocutory process filed 29 March 2018, calculated on the indemnity basis, be: (a) taxed and paid by Modena and reimbursed out of the property of the company in accordance with s 466(2) of the Corporations Act; and (b) paid by a non-party to the proceedings, namely the sole director of Modena, Mr Andrew Carr; (2) Mr Carr pay Vanguard's costs of Modena's interlocutory process filed 12 June 2018 (to set aside a subpoena issued to Westpac Banking Corporation) on a party-party basis; (3) Mr Carr be joined as a party. 3 The parties relied upon affidavits from their respective solicitors. Annexures to the affidavit filed by Vanguard included affidavits of Mr Schimana (a Certified Practicing Accountant familiar with Modena's financial affairs) which had been filed by Modena in the principal proceedings. Mr Carr did not give evidence or swear or affirm an affidavit for the purposes of this application.

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