Weston v Aughton Flats Pty Ltd, in the matter of Empire Property and Investment Group Pty Ltd

EMPIRE PROPERTY AND INVESTMENT GROUP PTY LTD (ACN 103 826 919) Second Plaintiff

AND: AUGHTON FLATS PTY LTD (ACN 000 357 433) Defendant

JUDGE: FARRELL J DATE OF ORDER: 8 March 2019

1. The parties are to provide draft orders reflecting these reasons within 14 days. If the parties are unable to agree those orders, each is to provide to the chambers of Farrell J the draft orders for which they contend and submissions of no more than two pages supporting the position taken. Final orders will be made in chambers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE ISSUES 1 The parties agreed a statement of issues in relation to a Fund of $43,436.06 which is held in a trust account operated by the first plaintiff (Mr Weston) pursuant to orders made by this Court on 6 July 2017. The issues are: (1) Whether the defendant, Aughton Flats Pty Ltd, was entitled pursuant to its memorandum and articles of association to levy upon the second plaintiff, Empire Property and Investment Group Ltd, in respect of its shares in the capital of Aughton any or all of the amounts for legal fees set out in the Schedule below which was debited to the ledger of Empire in the owner's ledger maintained by the defendant in respect of the property at 226 Coogee Bay Rd, Coogee (owner's ledger), in the absence of: (a) any resolution passed by the defendant to levy any such amount or amounts for legal fees upon Empire or to record any such resolution in the minute book or to give notice of the making of any such levy to Empire; (b) any assessment of those legal fees pursuant to s 198 Legal Profession Uniform Law (NSW); (c) any proof of debt in respect of the same lodged by Aughton in the winding up of Empire; (d) any order for costs in favour of Aughton in these proceedings; and (e) any proof that such fees were reasonably incurred and reasonable in amount and recoverable under Article 29 of the Memorandum and Articles of Association. SCHEDULE Date Amount$ 01.07.16 2,783.00 14.10.16 868.45 11.01.17 6,600.00 01.04.17 1,447.40 28.04.17 3,894.00 28.04.17 1,364.00 01.05.17 4,985.20 01.06.17 16,379.00 10.06.17 5,115.00 Total 43,436.05

(2) Whether Aughton should pay the plaintiffs' costs of and incidental to the originating process dated 28 June 2017 and this application. (3) If so, should the amount of such costs be deducted from Aughton's share of the Fund. (4) Whether there should be orders for distribution of the Fund accordingly.

Background to proceedings NSD224 of 2017 2 On 14 May 2013, a sequestration order was made against Kylie Ridge's bankrupt estate and Mr Weston was appointed as the trustee. Accordingly, all of Ms Ridge's property vested in Mr Weston as her trustee in bankruptcy. At that time, Ms Ridge was the sole director and shareholder of Empire. Empire held 2,500 Class E shares (Shares) in Aughton. The shares entitled Empire to exclusive occupation of Flat 4, now known as Unit 2, in a block of flats on Coogee Bay Road, Coogee, New South Wales. The fact that the Shares formed part of the bankrupt estate did not become known to Mr Weston until mid-2016, and no levies were paid in relation to the Shares from October 2015 until settlement of the sale of the Shares by Mr Weston on 14 July 2017. 3 On 27 July 2014, Empire was deregistered by the Australian Securities & Investments Commission (ASIC). 4 On 20 February 2017, in proceedings NSD 224 of 2017, Mr Weston made an urgent application to this Court seeking reinstatement of Empire and orders for its winding up and his appointment as Empire's liquidator. Much of the background to the current proceedings is set out in the reasons published for making those orders on 22 and 27 February 2017: see Weston v Australian Securities & Investments Commission, in the matter of Empire Property and Investment Group Pty Ltd [2017] FCA 176 at [9]-[20] of those reasons: 9 It appears that at the time Empire was deregistered, Empire held 2,500 shares in Aughton Flats Pty Limited (Shares). Aughton is the registered proprietor of a building in Coogee in New South Wales. The building is divided into apartments. The shares held by Empire confer on their owner the right to occupy or lease a designated apartment. On 14 February 2017, Aughton issued a letter of demand for payment of outstanding levies, interest and legal fees owing by Empire and stating that the Shares would be forfeited if the outstanding amounts were not paid to Aughton by 28 February 2017: see [17] below. That letter dictated the urgency of Mr Weston's application. 10 Mr Weston was unaware of Ms [Ridge's] shareholding in Empire until mid-2016. He made attempts to contact Ms Ridge following his appointment, but they were unsuccessful until June and July 2016. Two of his staff interviewed Ms [Ridge] at that time; Ms [Ridge] admitted to receiving correspondence from Mr Weston but said that she did not understand it. 11 Ms [Ridge] lodged a statement of affairs on 8 July 2016, a copy of which was annexed to Mr Weston's affidavit. Among other things, it revealed that:  Ms [Ridge] is estranged from her husband whose surname is "Mhanna";  She conducted a business through Empire;  Empire's business was holding property, and it had not ceased operating;  Under the heading "Companies", Ms [Ridge] said that she held 100% of the shares in Empire; and  Ms [Ridge] answered "yes" to the question of whether a liquidator, receiver or company administrator had been appointed to manage the company. 12 Attached to Mr Weston's affidavit was a current and historical extract of information about Empire held by the Australian Securities and Investments Commission (ASIC) dated 16 June 2016. It indicates that the Commonwealth Bank of Australia (CBA) was a controller of Empire from 2 October 2012 to 18 September 2013. 13 The Shares were not disclosed in the statement of affairs and Aughton is not mentioned. However, it does refer to the street address of the apartment as property to which Ms [Ridge] contributed towards purchasing. Ms [Ridge] said the apartment is worth $500,000. Under the heading "liabilities", Ms [Ridge] indicated that the apartment is mortgaged to St George Bank, the outstanding liability is $435,000 and its resale value is $500,000. 14 Mr Weston is concerned that in about October 2014, Ms [Ridge] attempted to transfer the Shares to Mr Ali Mouhanna. Mr Weston believes that Mr Mouhanna is a family member of Ms [Ridge's] husband based on comments made by Ms [Ridge] in the interviews with Mr Weston's staff in July 2016. Mr Baird noted that "Mouhanna" appears to be a variant spelling of "Mhanna", Ms [Ridge's] husband's name. 15 Email correspondence indicates that on 17 October 2014, Ms [Ridge] made enquiries of Aughton's representative (Mr George Johnston, Strata Consultant of Kooper & Levi Strata Management) saying that she had sold "her" apartment and that settlement was being held up because of documentary requirements of the purchaser's bank. A share transfer form relating to Empire's Shares in Aughton indicates that the shares were purchased on 26 October 2014. Ms [Ridge] signed that transfer form as Empire's sole director and shareholder and Mr Mouhanna signed the form. Their signatures are dated 8 January 2015. Mr Weston submitted that the share transfer is invalid because Ms [Ridge] had no authority to sign it on 8 January 2015 or to sell the Shares on 26 October 2014, as she was an undischarged bankrupt at those times and therefore no longer a director of Empire. 16 Mr Weston says that: (1) He has been informed that Aughton refused to transfer Empire's Shares to Mr Mouhanna because it owed Aughton approximately $36,000 in shareholder contributions. (2) Empire's bank statements indicate that a loan from St George Bank to Empire was discharged by the payment of $480,148.81 on 23 January 2015. Until then, St George Bank had a charge over the Shares for approximately $480,000. (3) By a letter dated "5th February", CBA advised Aughton that its client (Mr Mouhanna) had purchased the Shares. Attached to the letter were a share certificate and the transfer form. CBA sought registration of the transfer and asked that a share certificate be returned to it in an express post envelope provided for that purpose. (4) Mr Weston therefore believes that CBA provided the funds to discharge St George Bank's loan to Empire. 17 On 14 February 2017, Aughton issued a letter of demand to CBA, Mr Mouhanna and Mr Weston for $53,361.65 representing "outstanding strata levies, interest and legal fees" for the apartment. The letter advised that if the outstanding sum was not paid within 14 days, then "upon the expiration of a further 28 days", a meeting of the directors of Aughton would be held at which it would be resolved to forfeit the Shares registered in Empire's name pursuant to article 31 of Aughton's Articles of Association. 18 Mr Weston says that on 16 February 2017, an assistant manager in his office had a conversation with Aughton's representatives who indicated that if the Shares were forfeited, Aughton would sell the Shares for any amount sufficient to cover the outstanding contributions. 19 Mr Weston believes that, based on the value of the apartment, the shares in Empire have significant value. Mr Weston has provided evidence of a "curbside" valuation obtained on 18 February 2017 for the apartment that its current value is between $795,000 and $850,000 and it would have been valued at approximately $615,000 in October 2014. An enquiry at "realestate.com.au" estimates the value of the apartment at between $1.1 million and $1.374 million dollars. 20 The bankrupt estate's unsecured creditors are owed approximately $921,289.

Letters of 14, 22 and 24 February 2017, reinstatement of Empire and appointment of Mr Weston as Empire's liquidator 5 For present purposes, it is useful to note that the letter dated 14 February 2017 sent to Mr Weston (among others) demanded the payment of $53,361.65 representing "outstanding strata levies, interest and legal fees" and advised of a procedure under which the Shares would be forfeited under Article 31 if payment was not made. I will refer to this letter as the 14 February 2017 letter. 6 On 22 February 2017, the Court made a declaration that Mr Weston, as trustee of Ms Ridge's bankrupt estate, was entitled to be registered as the holder of all of the issued shares in Empire and ordered that its registration be reinstated. The Court noted Mr Weston's undertaking that, upon Empire's re-instatement, he would pass a resolution forthwith to place Empire into liquidation and take all steps necessary to realise its assets, including taking any injunctive action necessary to prevent the forfeiture or transfer of the Shares. 7 On the same day, Mr Weston's lawyer, Angela Smith of Smith Leonard Fahey Lawyers (SLF Lawyers), wrote to Aughton's lawyer, Bronwyn Smith of Smith Partners Lawyers advising of the orders that had been made by the Court. The letter sought an undertaking that no transfer of the Shares would be registered, the Shares would not be cancelled and no meeting of Aughton would be held for the purpose of forfeiting the Shares without Mr Weston's approval. Aughton relies on the following passages from the letter (as written, emphasis in Aughton's submissions): In the event that your client fails to provide the required undertakings and withdraw the notice dated 14 February 2017 by 4 pm, 23 February 2017 we will be left with no alternative but to seek our client's instructions to obtain urgent orders restraining your client. … Moving Forward The proceedings commenced by our client are listed for further hearing before the Federal Court on Monday, 27 February 2017 at 10:15 am. At this time, we anticipate that the Court will make an order appointing our client as liquidator as a result of the Resolution of Empire referred to in the undertaking. Upon the appointment of our client as liquidator it is his intention to immediately proceed to market and sell the Shares and pay the arrears owed to your client upon settlement. It is our expectation that this process will take approximately 3 months. In the circumstances where your client will be paid in full in a relatively short period of time we would suggest that the proposal outlined in this reasonable and there is no adverse consequence to your client in allowing this to take place. I will refer to this letter as the 22 February letter. 8 By letter from Smith Partners to SLF Lawyers dated 24 February 2017, Aughton withdrew its forfeiture notice, provided the requested undertakings and requested that it be kept up to date with all developments in the matter. I will refer to this letter as the 24 February 2017 letter. 9 On 27 February 2017, the Court made orders winding up Empire and appointing Mr Weston as its liquidator. 10 Aughton was not a party to, nor did it take any part in, proceedings NSD 224 of 2017.

Sale of Shares and claims for reimbursement by Aughton 11 On 13 May 2017, Empire entered into a contract for sale of the Shares for a price of $905,000, and that contract provided for settlement 42 days later. 12 By a letter dated 18 May 2017, Kelly French of SLF Lawyers advised Smith Partners of the sale of "Unit 2" and they said (relevantly, as written): We kindly request the following be undertaken by you: 1. Please have your client execute the attached Contract for Sale (in duplicate); 2. Obtain your client's consent to the Sale of the property and provide to our office the written consent so that we may provide this to the Purchaser: and 3. Provide Section 184 certificate to our office and we attach a cheque in favour of …. for $165. We ask that you please provide these documents to our office at your earliest convenience, noting that settlement is to take place on Monday 5 June 2017. 13 The contract for sale of the Shares provided for Aughton to be a party. Clause 12 provided for completion to be conditional on Aughton consenting to the transfer of the Shares to the purchasers and for the parties to diligently and expeditiously do all things required by Aughton to obtain consent immediately upon exchange. Aughton had no obligation imposed on it to provide consent nor did it undertake any other obligation under the contract. If Aughton's consent was declined, either party may give notice terminating the contract, with the deposit being refunded and no right of action arising against the other. 14 A "section 184 certificate" is a certificate containing information relating to a lot in a strata scheme under the Strata Schemes Management Act 2015 (NSW). As such, it is not applicable to a company title scheme. The information to be included relates to periodic contributions, any unpaid contributions, interest payable including the rate at which it is payable, amounts payable for work carried out on that lot by the owners corporation and proposals for funding set out in the 10-year capital works plan. Section 184 requires the information to be provided within 14 days of application for it. 15 There were a number of emails exchanged between Bronwyn Smith and Kelly French between 25 and 30 May 2017: (1) On 25 May 2017, Kelly French asked Bronwyn Smith to advise if Aughton's consent had been provided as yet and when it might be expected "as settlement is fast approaching (being 5 June 2017)". Ms French also asked for the original share certificate to be provided together with the signed contract. (2) On 30 May 2017, there was an exchange of emails between them as follows: (a) Kelly French at 9.13 am: Could Ms Smith please advise when she expects consent to sale, s 184 certificate, the share certificate and contract will be provided? (b) Bronwyn Smith at 9.39 am: provided details of a bank account and said that the Article 30 (s 184) Certificate will be provided on receipt of the fee, "we" have the share certificate and it will be provided on settlement, and "we" do not have the contract. (c) Kelly French at 9.59 am: "we" issued the cheque and the original contract on 18 May 2017. It has been tracked and shown as delivered to Smith Partners on 22 May 2017. (d) Bronwyn Smith at 10.07 am: I have checked and it has been received. (e) Kelly French at 10.36 am: Do you have a timeframe as "we" are hoping to settle on Monday, 5 June 2017. (f) Bronwyn Smith at 12.24 pm: I will have the Contract signed tomorrow. I will also organise for the Article 30 and consent for you tomorrow or Thursday. 16 On Thursday, 1 June 2017, Smith Partners wrote to SLF Lawyers enclosing Aughton's consent to the sale and transfer of the Shares and saying: The Article 30 will be emailed to your office on Friday morning. We advise that we are instructed to attend settlement at which time we will provide the Share Certificate in exchange for a cheque payable to Aughton Flats Pty Ltd in accordance with Article 30. Would you advise the date, time and place of settlement at your earliest convenience.

Owner's ledger 17 On 2 June 2017, the owner's ledger was provided to the plaintiffs. It relevantly showed that, after the last payment received by Aughton, which was in respect of a quarterly levy in October 2015, the following amounts were debited to Unit 2's account: Due date Frequency Due Levy type 01/11/2105 Once-off To engage services of Banotek Pty Ltd 7,894.75 Special 01/01/2016 Quarterly Quarterly Levy 01/01/2016 to 31/03/2016 723.70 Standard 01/03/2016 Once-off Special levy-first instalment 7,236.85 Special 01/04/2016 Quarterly Quarterly Admin Levy 01/04/2016 to 30/05/2016 796.05 Standard 01/04/2016 Once-off Special levy second instalment 7,236.85 Special 22/04/2016 Once-off Redevelopment - rear of property 8,684.25 Special 01/07/2016 Quarterly Quarterly Admin Levy 01/07/2016 to 30/09/2016 796.05 Standard 01/07/2016 Special Lot 5: Smith partners Lawyers Pty Ltd Inv# 5504625 2,783.00 ** Owner Invoice 01/10/2016 Quarterly Quarterly Admin Levy 01/10/2016 to 31/12/2016 796.05 Standard 14/10/2016 Once-off To meet the cost of a senior legal counsel 868.45 Special ** 01/01/2017 Quarterly Quarterly Admin Levy 01/01/2017 to 31/03/2017 796.05 Standard 11/01/2017 Once-off Lot 5: re Senior Council fees regarding debt collection problems 6,600 Owner Invoice ** 01/04/2017 Quarterly Quarterly Levy 01/04/2017 to 30/06/2017 1,085.55 Standard 01/04/2017 Once-off For Legal Expenses 1,447.40 Special ** 28/04/2017 Once-off Lot 5: Smith Partners Lawyers Pty Ltd Inv# 5639226 3,894.00 Owner Invoice ** 28/04/2017 Once-off Lot 5: Smith Partners Lawyers Pty Ltd Inv# 5402515 1,364.00 Owner Invoice ** 01/05/2017 Once-off Lot 5: Smith Partners Lawyers Pty Ltd Inv# 5639226 4,985.20 Owner Invoice ** 01/06/2017 Once-off Lot 5: Smith Partners Lawyers Pty Ltd Inv# 5688389 16,379.00 Owner Invoice ** 01/06/2017 Once-off Lot 5: Smith Partners Lawyers Pty Ltd Inv# 5688389 5,115.00 Owner Invoice ** 01/07/2017 Quarterly Quarterly Levy 01/07/2017 to 30/09/2017 1,085.55 Standard 01/10/2017 Quarterly Quarterly Levy 01/10/2017 to 31/12/2017 1,085.55 Standard 01/01/2018 Quarterly Quarterly Levy 01/01/2017 to 31/03/2018 1,085.55 Standard Levy arrears & owner invoices due $79,482.20 Interest on levy arrears $4,426.49

The amounts specified in the Schedule to the agreed statement of issues set out at [1(1)(e)] above are identified with a double asterisk. In summary, the owner's ledger claimed:

1. Quarterly levies totalling $4,993.45;
2. Special levies totalling $14,473.70;
3. To engage the services of Banotek Pty Ltd totalling $7,894.75;
4. Redevelopment of rear of property costs totalling $8,684.25;
5. Legal fees totalling $43,438.05; and
6. Interest on levy arrears totalling $4,426.49. 18 On 2 June 2017, Kelly French sent an email to Bronwyn Smith asking for the "Section 184 Certificate" to be provided "at your earliest convenience".

Article 30 Certificate 19 A document headed "Schedule 5 Article 30 Certificate" dated 1 June 2017 was sent by email from Bronwyn Smith to Kelly French at 9.33 am on 5 June 2017. The Article 30 Certificate relevantly provided as follows (as written): A. ORDINARY LEVIES (TOTAL) (i) Total amount of current levy apportioned to the $4,342.20 pa said Share Group C including GST (ii) Administrative component of ordinary levy $4,342.20 pa including GST (iii) Capital Works Fund component of ordinary levy $NIL including GST (iv) Number of installments payable: Four (v) Date upon which installments are due and payable 1st days of April, July, and October 2017 and January 2018 (vi) Date to which installments are paid 29/10/2015 (vii) Amount (if any) now due and payable including GST $83,908.69 (viii) Amount of past levies not yet paid; And interest due thereon:- (a) Amount outstanding including GST $79,482.20 (b) Interest $4,426.49 Note: The arrears Status has been subject to the shareholder being placed in liquidation. All arrears and associated costs (Legal) have now been paid back to Aughton Flats Pty Ltd. at settlement. 20 It is notable that the amount now claimed to be owing to Aughton in respect of Unit 2 was an aggregate amount of $83,908.69 and according to the statement the amount of "past levies not yet paid" might be inferred to be $79,482.20, because interest is stated to be $4,426.49. The aggregate amounts are consistent with the owner's ledger provided on 2 June 2017, but no amounts are identified as being on account of legal costs.

Correspondence between 5 and 28 June 2017 21 On 5 June 2017, SLF Lawyers wrote to Smith Partners. The letter noted that settlement had had to be deferred because of the late delivery of the Article 30 Certificate. It relevantly says (as written, emphasis in the original): The Article 30 Certificate The Article 30 Certificate was received 5 June 2017 and dated 1 June 2017 ("the Certificate") and indicates that a sum of $83,908.69 is outstanding inclusive of interest with no rate specified. There is no breakdown in relation to the amounts which are alleged to be outstanding and we have since been provided with an Owner Ledger which does not provide us with any supporting evidence of the contributions purportedly raised, the costs claimed or the entitlement to recover 'other' expenses. As you can appreciate, on review of the amounts owed to your client, the sums stated to be outstanding have increased dramatically. In order for our client to determine if the sums outlined in the Certificate are properly payable (which is a duty of his as liquidator) he is required to assess whether: 1. The resolutions of your client support the levies stated to be outstanding; 2. The legal costs claimed have in fact been incurred and are payable by our client; and 3. The correct interest has been charged on any outstanding amounts. Accordingly, our client requires: 1. A copy of the Annual General Meeting minutes at which time the contributions were levied which are said to be outstanding; 2. A copy of the invoices relating to the legal costs which have been incurred; and 3. The resolution which requires interest to be paid on the unpaid sums and settling the rate at which interest can be charged. With respect, these documents are not voluminous and should be readily available to your client to provide in order for our client to assess whether the amounts in the Certificate are payable. The provision of these documents does not involve any legal work and would ordinarily be undertaken by the management of the Company Title in a conveyance scenario. … If the documents requested are not provided by close of business 9 June 2017, our client may be required to consider the commencement of proceedings in order to facilitate the production of documents or obtain a declaration regarding the sums properly payable. Costs recoverable As you are aware, Article 29 of the Constitution allows for your client to recover costs associated with the recovery of levy arrears from a shareholder and does not extend to general costs incurred by your client. This does not extend to an entitlement to recover all costs incurred in all circumstances. Given that the Owner Ledger clearly indicates that legal costs have been incurred at a time in which the Company was deregistered there is a serious concern with that the costs which are being sought to be recovered can actually be claimed against our client under Article 29. There is significant legal authority dealing with an Owners Corporation/Community Association's and mortgagee's right to recover legal costs where there is an instant of default similar to your client's rights under Article 29. In our view, both an Owners Corporation/Community Association's right and the right of the mortgagee to recover costs extends beyond that of your client under the Company constitution however these can be used as a comparison to the measure used in considering what costs can be recovered. The case law is clear that costs must: 1. Relate to the recovery of arrears; 2. Be reasonably incurred; and 3. Be reasonable in amount. While you are entitled to charge your client in whatever way you deem fit, this does not necessarily mean that you can recover all such costs from our client, in particular, costs associated with acting on this sale would not relate to costs recoverable under Article 29. As a result, our client is required to properly consider what is being claimed and whether he is required to pay this amount. Please ensure that only costs related to Article 29 are included in the Certificate and if it is necessary, please issue an urgent amended Certificate. 22 The letter went on to indicate that the delay in the provision of the Article 30 Certificate had caused delay in settlement and Mr Weston reserved his rights to recover any damage resulting from Aughton's failure to provide the requested documents. It indicated that the letter would be relied on in any application for costs. It also contained a complaint concerning direct contact by Bronwyn Smith with Mr Weston. 23 Smith Partners responded to this letter on 9 June 2017 saying, among other things (as written, emphasis in the original): The Article 30 Certificate The Article 30 Certificate was provided to your office and to the Purchaser's solicitor on Monday 5 June 2017 by email at 10.06 am. We were advised by your office on Thursday, 1 June 2017 that settlement was no longer taking place on 5 June 2017 and therefore there was no urgency in providing the document. We have sought the new settlement date from your office and to date have not received the courtesy of a reply. We draw your attention to the Contract which was drafted by your office in which our client is also a party to the Contract. In those circumstances, it is no more appropriate for your client to request details of our client's claim than it is for this office to request a breakdown of your fees and your client's fees. With respect, you would be unaware of whether the documents are voluminous or not nor would you be aware as to the time required to copy and collate the documents. However, we have sought instructions from a client who advised it would take over a week to collate these documents for which they will charge the normal hourly rates. We confirm that your client is not prepared to provide an assurance for these fees. Therefore, your time frame of the 9 June 2017 is unrealistic. These documents would never be requested in a "conveyance scenario" nor in our view is your client entitled to request the documents. We note that your Conveyancer advised that she has never undertaken a Company Title conveyance previously and is unaware of the requirements of same. In fact, with regards to all the parties concerned, the writer is the only person who has undertaken a Company Title conveyance and is aware of the requirements. Costs Recoverable Neither you nor your client are Cost Assessors and therefore, would be unaware of whether our fees are reasonable or not. We note that you purport to rely on "significant legal authority" without any specificity, possibly as you are unaware of this area of law. Delay in Settlement If there is a delay in settlement it will be as a result of the conduct of your office and that of your client. We have provided all documents to your office within the time frames requested. In the event that your client elects to make an urgent application to the Supreme Court our client reserves all its rights regarding costs and will rely on this letter on the question of indemnity costs. … Further, your client has contacted the writer on a number of occasions including providing the writer with a copy of the above mentioned documents. The communication the writer has had with your client has been regarding the correspondence with HWL Ebsworth and the Commonwealth Bank of Australia, in which you were not acting. We undertook the legal work in responding to HWL Ebsworth which has provided your client with an additional $400-500,000.00. Presumably notwithstanding this, your client now intends to argue that those fees were not in recovering the outstanding strata levies. Obviously, we would disagree. We advise your client of the correspondence with HWL Ebsworth as a matter of courtesy given our agreement that we assist each other in the matter. It is clear from the correspondence received from your office that that agreement is now an end. 24 SLF Lawyers responded by email on 9 June 2017, relevantly as follows: 3. You were informed that settlement was due on 5 June 2017 however could not take place as we have not been provided with the Article 30 Certificate that had been requested and not that there was no longer any urgency attached to the matter. 4. We are in a position to settle the sale pending the satisfaction of our client that the amounts payable under the Article 30 Certificate are in fact due and payable. 5. Unless your client provides the invoices that compromise the costs in the Article 30 Certificate our client will be unable to settle on the sale and will be required to commence urgent proceedings to mitigate any potential damage from a delayed settlement. 25 Smith Partners responded by letter dated 13 June 2017 relevantly stating: The writer is perplexed by the email. … In terms of the substantive issue that we provide certain documents to your client, we are of the view that we have responded to the issues in our letter dated 9 June last. We reiterate that, in the event, that your client makes an urgent application to the Supreme Court we will rely on the correspondence between the Solicitors in relation to the question of indemnity costs and our client reserves all their rights in this regard. Further, we are of the view that any damages incurred by your client by such an application will be as a result of their instructions. We respectfully suggest that settlement take place as soon as possible and no further legal costs being incurred in this matter. In this regard, we await your advices to the time, date and place of settlement. 26 SLF Lawyers responded by letter dated 13 June 2017 which relevantly provided: While settlement was due on the contract for the sale of shares, settlement has now been delayed as a result of: 1. The delay in obtaining the Article 30 Certificate; and 2. The refusal of your client to provide documentation to substantiate the claim which forms the basis of the amount specified is due in the Article 30 Certificate. This matter does not involve a standard conveyance and in fact involves the sale of company title shares by a company in liquidation by the liquidator, Paul Weston, noting that Mr Weston is compelled to proceed with the sale due to undertakings provided to the Court. The Article 30 Certificate The Article 30 Certificate dated 1 June 2017 ("the Certificate") specifies a sum of $83,908.69 as outstanding inclusive of interest with no rate specified (the debt). The debt This debt is not secured in any way and our client is required to consider this as a claim in the liquidation in the same [way] as any other debt payable by the Company. The fact that your client can refuse to transfer shares as a practical matter does not place your client before any other creditor in this matter. Ordinarily, your client would only be paid by our client upon the payment of dividends to all creditors. While this may be the case, in order to give effect to transactional efficiency, our client has determined that it would be appropriate for your client to be paid at settlement of the sale. This is no way gives your client some priority of payment, security or exemption to the provisions of the Corporations Act 2001, the Bankruptcy Act 1966 or the Legal Profession Uniform Law (NSW) 16a. … Legal Professional Uniform Law (NSW) Our client is considered third party payer of legal costs incurred by AH which are purportedly payable by the Company for the purpose of the Legal Profession Uniform Law (NSW) (LPUL). Accordingly, our client is entitled to invoices which are said to be payable and included in the debt in specific form as outlined under Division 5 of LPUL. Accordingly, a client request that all invoices that are purportedly payable under the Certificate be forwarded to our office immediately as third party payer. Given that the provision of all invoices will continue to delay settlement, we request that these be forwarded to our office by close of business 15 June 2016. Corporations Act 2001 and Bankruptcy Act 1966 … Our client is obliged to ensure that all claims made for debts owed by the Company are properly considered and verified where required. To date, our client's request for further documents has been refused with no basis provided for this refusal. In the event that no documents are provided, our client may be required to reject your client's entire claim while obtaining Court orders to give effect to the sale of the shares. Our client wishes to avoid making such determination and commencing such proceedings, however your client's continued refusal can only result in this. We make a final request for documents supporting your client's entire claim to be provided by close of business, 15 June 2017 otherwise we shall proceed on the assumption that your client maintains its refusal to provide such documents. For the avoidance of doubt, the documents requested are: 1. The invoices which comprise the legal fees claimed in the Certificate; 2. The company resolutions that comprise all other amounts claimed as owing in the Certificate; 3. The basis for the interest charged; 4. Any other documents that your client relies upon in asserting that the sums owed in the certificate are due and payable. Australian Financial Security Authority As noted above, Section 553E of the CA results in provisions of the BA being applicable in the determination of claims in liquidations. Recently, the Bankruptcy Regulator at the Australian Financial Security Authority (AFSA) has heavily criticised trustees in bankruptcy who pay out sums owed to body corporates, community titles, company titles and other similar unsecured creditors upon settlement of properties. In particular, AFSA have criticised the failure of trustees to examine sums comprised in legislative certificates which are ordinarily paid upon settlement of properties. AFSA has gone further than expressing mere criticism and has now issued a statement to trustees in bankruptcy seeking that they take certain steps in the sale of all properties, including the examination of all debts to be paid out by seeking evidence to support sums claimed. While the statement specifically applies to trustees in bankruptcy (noting that Paul Weston is a trustee in bankruptcy), Section 553E of the CA extends the operation of the BA to debts in a winding up and by implication, results in regulations applying in certain circumstances. In light of our client's obligations to consider a debt generally under the CA as the liquidator, and the recent comments and regulation issued by AFSA, our client cannot proceed to pay your client until it can be satisfied that the debt is due and owing. Further action … Given that your client's practical cooperation is required to give effect to the sale, if this is not forthcoming, our client will proceed with litigation in order to obtain orders compelling the sale the given effect together with any further declaratory relief that may be required. If such action becomes necessary, our client will seek an order for indemnity costs against your client together with an order that: 1. Cost be paid under a costs order; 2. Legal costs incurred directly by your client, Be paid from contributions levied against all other shareholders excluding our client on any subsequent shareholder specific to our client's shares. … Our client will rely on this correspondence in previous correspondence in support of not only any application for costs but also in relation to any claim for damages. Ultimately our client is seeking to reach a resolution to benefit all creditors while ensuring it complies with its various obligations. If your client is unable to cooperate with this process, our client will be left with no alternative. 27 On 16 June 2017, SLF Lawyers followed up its correspondence of 5 and 13 June 2017 with a further letter to Smith Partners, making essentially the same points and requiring confirmation that Aughton would cooperate by 2 pm on 19 June 2017, failing which urgent proceedings would be commenced and indemnity costs would be claimed. Relevantly, the letter said: As a result of your client's failure to provide evidence supporting its claim our client has been left with no alternative but to reject the claim made as creditor subject to the provision of evidence in support. Out client now intends to proceed with settlement of the Property which is already overdue (it was due to take place on 5 June 2017). Your client is not entitled to prevent the transfer of shares and frustrate the sale of the Property and we seek your confirmation that your client will cooperate with the settlement process, by giving effect to the transfer. 28 By a letter also dated 16 June 2017, Smith Partners responded to the correspondence on 13 June 2017, saying: We note that you assert that our client's debt is an unsecured debt in the Liquidation and Bankruptcy. Our client's debt does not form any part of either the Bankruptcy Liquidation as a secured or unsecured debt. If that is your understanding then you are under a misapprehension as to the law in this area. Further, we note that you have completely ignored the timeframe previously advised it would take to obtain a collate the documents and continue to request the documents within an unreasonable timeframe. Further, your client continues to assert that they are not responsible for paying for these documents which we disagree. Our client continues to assert that we have in no way at any time delayed settlement. Any damages suffered by your client will be as a result of their instructions to your office. The continued unprofessional tone of your letters and demands are necessary as are the constant threats of litigation. There are other remedies that are available to you that are not litigious and a far more cost-effective. As you practice in this area for you will be aware of them. In the event that your client commences proceedings without availing themselves to the non-litigious remedies then this will form part of our argument on the question of indemnity costs against your client. We await your advice as to when settlement will occur. 29 By letter dated 19 June 2017, Smith Partners replied to SLF Lawyers' letter of 16 June 2017 relevantly as follows: Our client has not failed "to provide evidence supporting the claim". As indicated previously, our client is unable to provide the documents within the 48 hour timeframe that you have demanded on numerous occasions and is entitled to be paid for their time expended on obtaining and collating the documents. We note that your client has continually refused to pay the costs associated with obtaining and collating the documents. Further, as indicated in our previous letter dated 16 June last and emailed to your office at 12.40 pm on that day, your client has non-litigious avenues of obtaining the documents, which you would be aware. Our client will not frustrate the settlement of this matter. However we note that if you intend to settle this matter without paying the outstanding amount owed as set out in the Article 30, as your letter indicates, then your client will be in breach of Clause 18 of the Contract and will not be passing clear title to the Purchasers. Further, after settlement, our client will continue to rely on the Article 30 document which has been forwarded to your office and to the Purchaser's Solicitor and all their rights and remedies pursuant to the Articles of Association (not the Constitution as indicated in the Contract). We enclose a copy of Article 30. To this end our client requires a letter prior to settlement from the Purchaser's Solicitor outlining the following: 1. The Purchaser's Solicitor has received the Article 30. 2. The Purchaser is aware that settlement is taking place in breach of Clause 18 of the Contract. 3. The purchaser is aware of my client's rights and it is available to them pursuant to the Articles of Association (not the Constitution as indicated in the Contract) and the Article 30. 4. The purchases are aware that they are settling without clear title. On receipt of this confirmation we will book in settlement. We note that you have again threatened legal action without regard to either the law, the Contract or the non-litigious avenues available to your client. Further, Order 3 that you would seek makes no sense. Our client continues to rely on the course of correspondence regarding indemnity costs in the event that litigation is commenced. Our client also reserves all its rights and remedies pursuant to Article 30 in the Articles of Association, both before and after settlement, notwithstanding that they may consent to the settlement of this matter. 30 On 19 June 2017, Smith Partners wrote to the purchasers' solicitors stating that if Aughton cooperated with settlement, it may still rely on all their rights and remedies pursuant to Article 30, including against the purchasers, for payment of outstanding levies, interest and legal costs and sought a letter confirming the matters foreshadowed in Bronwyn Smith's letter to Angela Smith of the same date. 31 By letter dated 22 June 2017, SLF Lawyers wrote to Smith Partners conveying that Mr Weston proposed the following offer: In a final attempt to resolve this matter without the need for imminent litigation, our client would propose to proceed on the following basis: 1. All parties agree to allow settlement to occur with no attempt to enforce any rights against purchaser; 2. A sum of $150,000 from the sale of the Shares be quarantined into our client's trust account not to be released until either point 4 or point 5 occurs; 3. Your client provide evidence in support of the amount claimed in the Article 30 Certificate within 14 days; 4. An amount from the $150,000 held in trust. Leased to clear the entire debt owed to your client by agreement of the parties; 5. If no agreement can be reached on the amount to be paid to a client, the trust funds not to be released until there is an order of the Court confirming what sum is properly due and owing. Given the urgency involved in this matter, this offer will remain open until 9.30 am, Monday 26 June 2017 after which time it will be immediately withdrawn and our client will proceed to file an application for urgent relief. If this proposal is not accepted, our client will seek: 1. An order for indemnity costs; 2. Damages resulting from the delay in settlement; 3. An order preventing any costs order and your client's associated costs from being paid from sums contributed by the shareholding (past, current or future) subject to the sale. 32 On 26 June 2017, Bronwyn Smith sent an email to Angela Smith advising that "We are unable to respond to your letter within the time frame demanded", that instructions were being sought, and that they would endeavour to respond by the close of business on Wednesday, 28 June 2017. The period for Aughton to respond was extended to 11 am on 27 June 2017, but no response was received. 33 In the meantime, the purchasers of the Shares were applying pressure on Mr Weston to obtain completion of the sale of the Shares by 27 June 2017. In a letter dated 26 June 2017, Kelly French advised the purchasers' solicitors that Mr Weston was extending settlement under a special condition, noting that "we expect to commence urgent Federal Court proceedings to ensure we can settle as soon as possible".

Originating process in these proceedings 34 Mr Weston (as liquidator of Empire) commenced these proceedings in the late afternoon of 28 June 2017. In the originating process, Mr Weston claimed (as written): 1. A declaration that the Defendant's lien over the shares specified in the schedule secures the sum of $40,472.64 only. 2. An order that an account be taken to determine the sum properly due and payable by the Plaintiff to the Defendant under the Articles of Association of the Defendant in respect Shares 12001-14,1500 held by the Plaintiff in the Defendant (the Shares) …. including any assessment of legal fees pursuant to Part 4.3 Division 5 of the Legal Profession Uniform Law (NSW) payable by the Plaintiff as a Third Party Non-Associated payer. 3. An Order that upon taking of such account, the sum determined under order 2 above be paid to the Defendant out of the fund to be established at completion under order 9 below. 4. An order that the Defendant pay the Plaintiff's costs, the amount of such costs: a) not be paid out of the Fund; and b) not be the subject of any levies upon the Shares. 5. An Order that the Defendant's costs, of and incidental to these proceedings a) not be paid out of the Fund; and b) not be the subject of any levies upon the Shares. 6. Such further or other orders as to this Honourable Court may seem fit. Interlocutory Relief 7. An order that pending the taking of the account referred to in order 2 above, completion of the sale of the Shares relating to the Property take place within seven (7) days of the date of this order upon the following terms: a) The Defendant produce or cause to be produced to the Plaintiff at or before such completion the original share certificate for the Shares; b) The Defendant shall not withdraw its consent to the transfer of the Shares provided to the Plaintiff on 1 June 2017; c) The Defendant shall not register or take any steps to register any interest on the PPSR in respect of the Shares; d) At completion, the sum of $40,472.64 be paid to the Defendant; At such completion the sum of $43$43,436.06 or such other amount that this Honourable Court may order is paid out of the nett proceeds of sale of the Shares into an interest bearing account in the joint names of and to be nominated by the respective solicitors for the Plaintiff and the Defendant, or failing agreement be paid into Court (the Fund). 8. Alternatively, directions pursuant to Section 479(3) of the Corporations Act 2001. 35 On 3 July 2017, SLF Lawyers wrote to Smith Partners. The letter noted that none of the documents requested from Aughton had been provided. The letter contained a further proposal as follows: 1. All parties agree to allow settlement to occur with no attempt to enforce any rights against the purchaser; 2. At settlement a sum of $40,472.64 be paid to your client in relation to the 'levies' and 'interest' specified [in] the Article 30 Certificate; 3. A sum of $43,436.06 from the sale of the Shares be quarantined into our client's trust account not to be released until point 5 or 6 occurs; 4. Your client provide evidence in support of the amount paid at point 2 above, within 14 days of settlement, being the 'levies' and 'interest' to allow our client to verify that the proper amounts have been paid (ensuring our client complies with his obligations) with agreement that any overpayment made by our client will be returned to our client and any underpayment be paid by our client to your client (we anticipate that this will merely be an accounting exercise of company resolutions relating to contributions); 5. Your client provide invoices relating to the costs claimed in article 30 Certificate that relate to the funds held in trust at point 3 above, within 14 days in order for our client determine if the amount specified in the Article 30 Certificate is properly payable; 6. If no agreement can be reached on the amount to be paid to your client, the trust funds not to be released until there is an order of the Court confirming what some is properly due and owing; This offer is open for acceptance until 9 am, 6 July 2017 after which time it will be immediately withdrawn. If this proposal is not accepted, our client will seek: 1. An order for indemnity costs; 2. Damages resulting from the delay in settlement; 3. An order preventing any costs order and your client's associated costs from being paid from some is contributed by the shareholding (past, current or future) subject to the sale. 36 On 5 July 2017, Aughton acceded to that proposal with amendments concerning an amount of a levy falling due and security in relation to the amount which might be held in Mr Weston's trust account. 37 Consent orders were made on 6 July 2017 requiring $41,904.50 be paid to Aughton at settlement and $43,436.06 be paid out of the net proceeds of sale into Mr Weston's trust account "impressed with an express equitable charge in favour of Aughton to the extent of the amount to be determined", that is, found to be payable in respect of legal fees incurred by Aughton and debited to the owner's ledger or by further order of the Court, with the balance to be payable to Empire. Aughton had filed no evidence on the application to that date nor did it make any submissions to the Court. Empire was joined as second plaintiff. Costs of the application were reserved and the matter was stood over until 26 October 2017.

Correspondence after consent orders up to settlement 38 On 12 July 2017, the plaintiffs were allowed to inspect Aughton's books and records to undertake an assessment of the amounts payable to Aughton. There is no evidence as to the content of the books and records. 39 There was correspondence between 11 and 13 July 2017 in relation to the exact date of settlement and satisfying the purchasers that, following the Court's orders on 6 July 2017, the effect was that they would get clear title to the Shares. 40 The sale of Shares was settled on 14 July 2017. On that day, prior to settlement, Smith Partners wrote to the purchaser's solicitors saying: We are instructed to advise that on receipt of a cheque in the sum of $41,904.50 payable to Aughton Flats Pty Ltd at settlement, clear title will be handed over. We confirm that SLF Lawyers with collect the cheque at settlement on behalf of our client and deliver it to our office. … Would you advise the rescheduled date and time of settlement at your earliest convenience. 41 Angela Smith made requests by email to Bronwyn Smith for copies of invoices for the legal fees on 20 and 31 July 2017 and on 7 August 2017.

Invoices provided on 7 and 15 August 2017 42 Invoices for legal fees were finally supplied by Aughton's solicitors on 9 and 15 August 2017. The plaintiffs note that they do not completely correspond with the amounts recorded in the owner's ledger in relation to Unit 2 supplied to them on 2 June 2017. They may be summarised as follows: Date Invoice No Period $Amount 23.03.15 5216311 - In the matter of Empire Property & Investment Group Pty Ltd (de registered) and Mouhanna 28.02.15-23.03.15 1,584.00 17.12.15 5402515 - Debt recovery matter 15.10.15-17.12.15 1,364.00 29.06.16 5504625 - Aughton Flats Pty Limited Outstanding Strata and Special levies for unit 2 … 20.05.15-29.06.16 2,783.00 14.02.17 5637101 - Empire Property & Investment Group Pty Ltd (de registered) 06.07.16-14.02.17 4,985.20 07.03.17 5639226 - Aughton Flats Pty Ltd and Empire Property & Investment Group Pty Ltd (in liquidation) 14.02.17-07.03.17 3,894.00 31.05.17 5688389 - Recovery of strata levies 07.03.17-08.06.17 18,634.00 15.08.17 5754226 - Empire Property and Investment Group Pty Ltd (in liquidation) 01.06.17-09.08.17 6,930.00 15.08.17 5754570 - Paul Gerard Weston in his capacity as liquidator of Empire Property and Investment Group Pty Ltd 28.06.17-15.08.17 17,864.00 $58,038.20

43 In relation to the table set out above, the plaintiffs submitted as follows: (1) When entries in the owner's ledger for Unit 2 as at 2 June 2017 are compared to the invoices provided by Aughton: (a) No invoices were supplied to support the entries in the owner's ledger dated 14.10.16, 11.01.17, 01.04.17 or 01.06.17, amounting to $14,030.85. (b) Counsel for the plaintiffs accepted that the entries for 14.10.16 ($868.85) and 11.01.17 ($6,600) were for "senior counsel costs" and "senior counsel court fees" (as described in the owner's ledger) and "so presumably okay in terms of the concession" the plaintiffs made (see [63] below) although it "would have been nice to see the invoice": T36: 16-20. (c) The entry in the owner's ledger for 01.04.17 ($1,447.40) was described as "legal expenses" and the entry for 01.06.17 ($5,115) was described as "Smith Partners Lawyers' invoice" but none was supplied: T36: 20-23. (d) Two items were debited in the owner's ledger on 0l.06.17, for $16,379 and $5,115 respectively. They were both recorded as relating to invoice number 5688389 for the period 07.03.17 to 08.06.17, but they do not in fact correspond with that invoice which is for the total amount of $18,634 (including professional fees of $12,040 and as a disbursement for Clive Locke barrister's fees of $5,l15), although counsel for the plaintiffs conceded that the difference is not great: T36: 40. (e) Invoice numbers 5754226 and 5754570 both dated 15.08.17 totalling $24,824.00 in the above table were not recorded in the owner's ledger as at 2 June 2017 and therefore did not form part of the amount of $43,436.05 constituting the Fund in accordance with the orders of 6 July 2017. (f) The invoice numbered 5754226 is for the period from 01.06.17 - 15.08.17 for $6,930 and it appears to relate primarily to settlement of the sale of the Shares: T37: 13-24, 41-44. Counsel for the plaintiffs submitted that, as such, it is clearly unreasonable. (g) Invoice numbered 5754570 is for the period 28.07.17 to 15.07.17 and appears to relate to these proceedings. It includes professional fees of $10,040 and senior counsel's fees of $1,600 and junior counsel's fees of $5,060. Copies of counsels' invoices were not included. No Article 30 certificate has been given in respect of them (and it is difficult to see how one could now be given to the plaintiffs since Empire was no longer a shareholder). These amounts could only be claimed in the event a costs order was made in Aughton's favour or under the general law; they are not properly the subject of a levy. (2) The total amount of the first five invoices shown in the above table for the period up to 7 March 2017 (corresponding approximately to the date of the liquidator's appointment on 27 February 2017) is $14,610.20. This corresponds with the open offer made by the plaintiffs on 16 October 2017 of $14,610 which was not accepted. (3) The dispute between the parties therefore, in substance, concerns Aughton's invoice numbered 5688389 dated 31 May 2017 for $18,634.00 for the period 07.03.17 to 08.06.17 and its entitlement to charge or levy Empire for that amount, the issue being whether those costs were reasonably incurred and are reasonable in amount. Similar issues arise in relation to Aughton's costs from 1 June 2017 to 15 August 2017 in relation to these proceedings referred to in the invoices dated 15 August 2017. The plaintiffs dispute that these invoices relate to recovery proceedings: T42:33-35.

Open settlement offer by the plaintiffs 44 On 16 October 2017, by letter from SLF Lawyers to Smith Partners, the plaintiffs made an open offer to Aughton to resolve the dispute. The letter noted that the issues in dispute were Aughton's entitlement to amounts paid at settlement of the sale of the Shares, costs claimed under Article 29 and costs of these proceedings. The letter explains the plaintiff's reason for that position as being: Our client has undertaken a preliminary however thorough investigation of the amounts which are sought to be recovered by your client in respect of the amounts claimed pursuant to Article 29 which are in excess of $64,000 according to the invoices you provided in support of this claim. On review and consideration of the invoices (noting no disbursement invoices were provided nor was a costs agreement or disclosure) in light of the entitlement to recover costs pursuant to Article 29, we draw your attention to the following matters: 1. Your client is not entitled to recover all costs incurred by it under all circumstances with no limitation or review. It is abundantly clear that costs associated with recovery of unpaid amounts (levies) are all that can be recovered, and case law dealing with this specific issue (where there is a much greater entitlement) only allows costs that are reasonably incurred and reasonable in amount to actually be recovered; 2. There are excessive costs being incurred while no actual recovery action other than a letter of demand being sent; 3. The costs themselves and time appear to be excessive for the work; 4. You client was aware from at least 10 May 2016 that the Company was deregistered which limited any recovery action which could take place and as such, action against third parties was unreasonable and unnecessary; 5. Extensive advice appears to have been obtained in relation to recovery when the only options available are non-controversial and straight forward processes involving either, forfeiture of shares or reinstatement and liquidation of the Company or a purchase of the Property from ASIC; 6. There are charges in the invoices which appear to be a replication of work already undertaken, including duplicate search fees and review of documents which would be well within the knowledge of the parties responsible for the work being undertaken; 7. There is a replication of work undertaken; 8. Significant costs have been incurred post liquidation which cannot relate to recovery action as no recovery action can be taken against a company in liquidation; 9. There are significant costs incurred in relation to Federal Court Proceedings commenced by our client in the reinstatement and liquidation of the Company however your client took no active role in these proceedings nor was any appearance ever made; 10. Work undertaken which in no way relates to Article 29 have been included as amounts which are recoverable against our client; 11. The Company was placed into liquidation in February 2017 so no costs or minimal costs ought to have been incurred from this time as there was no ability to take recovery action; and 12. Costs have been claimed for dealing with third parties, sale of shares and other matters that in no way relate to the Company's indebtedness. As a result of the factors noted above, our client does not consider the costs which have been claimed by your client to be recoverable against our client pursuant to Article 29. 45 In relation to these proceedings, the plaintiffs said: We have previously outlined the events which resulted in the necessity of our client having to commence the Proceedings. In our view, the Proceedings would not have been necessary but for the conduct of your client in failing to cooperate with reasonable proposals to allows settlement of the Property to take place. Further, your client capitulated to the interim relief sought on the morning of the hearing, causing significant costs to be incurred in the preparation of the matter which could have been avoided had agreement been reached prior to this time. In the circumstances, we are of the view that should the Proceedings continue, our client will be entitled to a costs order in its favour possibly on an indemnity basis. 46 As a final offer before litigating, the plaintiffs offered to settle on the commercial basis that: (1) The plaintiffs pay all costs invoiced to Aughton up to the date on which Empire went into liquidation (that is, 27 February 2017) in the sum of $14,610, and all other amounts held in Mr Weston's trust account be released to the plaintiffs; (2) The plaintiffs wave their entitlement to reimbursement for overpaid interest in an amount of $4,426.49 (that is, the interest component of moneys released to Aughton at settlement of the sale of Shares); and (3) each party bear their own costs of these proceedings. 47 No settlement was reached by 3 pm on 24 October 2017, the time specified in the letter. 48 On 26 October 2017, timetabling orders were made for the provision of evidence and listing the application for hearing on 29 March 2018. The parties' statement of issues set out in [1] above was received by the Court on 2 November 2017.

AUGHTON'S CONSTITUTION AND THE PARTIES' SUBMISSIONS 49 Much of the arguments at the hearing and in written submissions made after the hearing relates to the terms of Aughton's memorandum and articles of association. They are set out below. 50 I note that, at one point, Bronwyn Smith took issue with referring to Aughton's memorandum and articles of association as a "constitution", but that is a term now properly used for those constituent documents, albeit that Aughton was incorporated in March 1961 and there has been minimal change to either the memorandum and articles of association since then. 51 Based on the provisions of Aughton's constitution which are emphasised in bold below, Aughton submits that it has a lien for legal costs which were incurred (in whole or in part) in connection with the sale of Empire's shares, noting that Empire included Aughton as a party to the contract of sale of the Shares. It submits that, further or in the alternative, those legal costs are a secured debt or liability of Empire to Aughton and Aughton is entitled to recover those costs on an indemnity basis. 52 Clause 3 of the memorandum of association provides as follows: The objects for which the Company is established are: … (v) to employ managers agents clerks solicitors servants workmen mechanics craftsmen and labourers or any persons necessary for carrying on the business of the Company. 53 Article 3(a) identifies the shares in each class and Article 3(b) identifies to which flat and its location a class of shares relates. 54 Article 3(g) provides as follows: The holder of any group of shares shall comply at his own expense with the requirements on notice from any local or statutory authority to the extent that the same apply to the flat or shop allotted to his share group provided however that the Company may comply with the requirements of any such notice (even if there is no default on the part of the holder) whether obliged by law so to do or not and the cost to the Company of any work materials labour or other outgoings in compliance or purported compliance with the said requirements (and whether the requirements are lawful or not) shall be a debt due by the holder to the Company which shall be conclusively evidenced for all purposes and in Courts by a certificate in writing signed by a Director or the Secretary of the Company. Any indebtedness to the Company of a holder whether arising pursuant to this paragraph or any other Article or in any other manner may be recovered and enforced in the same manner as is provided hereafter for recovery of a levy or enforcement of the lien. 55 Article 4 relevantly provides as follows: The Directors shall have the right in each year at six monthly intervals or more often as they shall determine to make a levy on the holders of shares in the Company for an amount not exceeding the amount of the reasonable expenses charges and outgoings referred to hereafter and so that each shareholder may only be required to contribute to such levy that proportion of the total levy which the number of shares held bears to the then total issued shares in the capital of the Company. The expenses charges and outgoings above mentioned shall be as follows:- (a) All rates and taxes including Federal and State Land Taxes. (b) Any other charges imposed upon the said property by any properly constituted Governmental or semi-Governmental authority or body. (c) Insurance premiums for insurance upon the building… (d) The costs of external painting repairs and maintenance… (e) The cost of colouring, repairs and maintenance of internal and external passages and rooms in common use… (f) The cost of carrying out the requirements of any local or statutory authority except in relation to a particular flat or shop which is recoverable under Article 3(g) hereof. (g) The amount payable for electric light and power used for outside lighting… (h) Expenses of carrying on the Company including Directors' fees accountancy and legal charges management charges caretaker expenses and the like. (i) Any item of expenditure carried forward from the previous year. (j) All charges and outgoings which the Board in its discretion considers expedient to maintain the value of the property. (k) Such amount as the Board in its discretion considers desirable to provide for future repairs or other contingencies. For the purposes of this clause the expression "year" shall be the period commencing on first July in one year and ending on the 30th June in the succeeding year. 56 Article 5 provides as follows: Upon such levy being made in accordance with the preceding Article notice in writing shall be given to the holder of each group of shares addressed to him at his registered address or in care of the flat or shop which he has the right to occupy and the amount of such levy shall unless the Directors otherwise determined become due and payable 14 days thereafter and may be recovered by action in any Court of competent jurisdiction. Should the holder of any group of shares fail to pay the amount of such levy within such period of 14 days a second notice in writing shall be forwarded to such holder in the same manner as hereinbefore provided. 57 Article 6 provides as follows: The Directors shall have the right to determine how and when and under what terms his proportion of such levy shall be paid by each shareholder and in particular may determine that each shareholder shall pay to the Company towards satisfaction of his proportion of any such levy or levies made or considered by the Directors as likely to be made such equal weekly monthly or other periodical payments as the Directors may determine and if the Directors shall have determined that each shareholder shall pay periodical payments as aforesaid that upon such levy being made credit shall be given to the shareholder for all periodical payments made up to the date on which such levy was made. In the event of the periodical payments made by the shareholder exceeding his proportion of such levy the amount of any such excess shall be refunded to him or credited towards his proportion of any future levies as the Directors may determine. 58 Article 7 sets out conditions as to how a flat or shop may be used and restrictions concerning use of the common property. 59 Article 8 deals with forfeiture of shares. It provides as follows: The provisions of this Article shall not in any way restrict the powers of the Directors relating to forfeiture for non-payment of any call or levy or instalment of either. In the event of the Directors resolving that in their opinion a member has failed to observe any of the conditions set out in Articles 5 and 7 they may call upon that member to remedy the breach and if such breach be not remedied to their satisfaction within such time or upon such conditions as they shall notify to the member then the Directors shall call an Extraordinary General Meeting of the Company to consider whether that member shall cease to be a member of the Company. If the meeting resolves that he shall cease to be a member in the following provisions shall apply: - (i) That member may within two months from the date of the meeting or such further time as that meeting may allow but subject to these Articles transfer his shares. (ii) If he shall not within the time limited by the Meeting have found a transferee to whom he is entitled to transfer the shares and transferred his shares then the Board may find a purchaser for such shares and appoint a Director to sign all necessary documents for the purpose of transferring the shares of the member at all said to a purchaser and may receive on behalf of that member the purchase price and if that member having been called upon to do so does not surrender to the transferee or to the Company the certificate/s for such shares then such certificate/s may be cancelled by the Board and new certificate/s issued therefor and the Board is by this Article revocably authorised by every member to do all such acts and is hereby constituted for such purposes the Attorney of every member of the Company for the time being. (iii) After deduction of such reasonable sum as the Directors and/or the Company shall have incurred, the deduction of any moneys owing (whether due and payable or not) by the shareholder to the Company and the deduction of such sum as the Directors in their absolute discretion think reasonable to cover the costs and expenses of complying with any notice referred to in Article 3(g) served prior to the date of the transfer of shares or such proportionate part of the said costs and expenses so incurred as aforesaid as would have been charged against the shareholder had he continued to be a member of the Company the remaining balance shall be payable to the former shareholder within 14 days after date of registration of that transfer aforesaid. 60 Article 24 and 25 provide as follows: 24. If the sum payable in respect of any call or instalment or levy be not paid before or on the day appointed for payment thereof the holder for the time being of the share in respect of which the call shall have been made or the levy or instalment shall be due shall pay interest on the same at such rate not exceeding £15 per centum per annum as the Directors may from time to time determine from the day appointed for the payment thereof to the time of the actual payment but the Directors shall be at liberty to waive payment of the interest wholly or in part. 25. On the trial or hearing of any action for recovery of any money due for any call or levy it shall be sufficient to prove that the name of the member sued is entered in the Register as the holder or one of the holders of the shares in respect of which such debt accrued; that the resolution making the call or levy is duly recorded in the Minute Book and that notice of such call or levy was duly given to the member sued in pursuance of those presents and it shall not be necessary to prove the appointment of the Directors who made such call or levy nor any other matter whatsoever but the proof of the matters aforesaid shall be conclusive evidence of the debt. 61 Articles 29-41 appear under the heading "FORFEITURE AND LIEN". Relevantly they provide as follows: 29. If a member fails to pay any call or levy or instalment of a call or levy on or before the day appointed for payment thereof the directors may at any time thereafter during such time as any part of such call levy or instalment remains unpaid serve a notice on him requiring payment of so much of the call levy or instalment as his unpaid together with any interest which may have accrued and all expenses that may have been incurred by the Company by reason of such non-payment. 30. The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which in the place at which the payment required by the notice is to be made and shall state that in the event of non-payment on or before the time and the place appointed the shares in respect of which the call or levy was made or instalment is payable will be liable to be forfeited. 31. If the requirements of any such notice as aforesaid are not complied with any share in respect of which the notice has been given may at any time thereafter before the payment required by the notice has been made be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares are not actually paid before the forfeiture. 32. … 33. The Directors may at any time before any shares so forfeited shall have been sold or otherwise disposed of annul the forfeiture thereof if they shall think fit. 34. … 38. The Company shall have a first and paramount lien upon all the shares registered in the name of each member (whether solely or jointly with others) and upon the proceeds of sale thereof for his debts liabilities and engagements solely or jointly with any other person to or with the Company and also in respect of all monies which the Company under any present or future statute or legislative enactment of the Commonwealth of Australia or any of the Australian States or any other country or place at any time hereafter may become liable to pay or may hereafter pay in respect of the shares registered in the name of such member or otherwise in connection with the holding of such member in the Company whether in consequence of the death of such member or for any other reason. Any such lien shall extend to all dividends from time to time declared in respect of such shares. The said lien shall subsist whether the periods for the payment fulfilment or discharge thereof shall have actually arrived or not. Provided always that if the Company shall register or agree to register any transfer of any shares upon which it has such lien as aforesaid without giving to the transferee notice of its claim the said share shall be freed and discharged from the lien of the Company. 39. Such lien may be enforced by a sale of all or any of the shares subject to it and such sale may be made in such manner as the Directors may think fit but no sale shall be made until such period as aforesaid shall have arrived and until notice in writing of the intention to sell shall have been served on such member his executors or administrators and default shall have been made by him or them in payment fulfilment or discharge of such debts liabilities or engagements for seven days after such notice. 40. The nett proceeds of any such sale shall be applied in or towards satisfaction of the costs of such sale and next of such debts liabilities or engagements and the balance (if any) paid to such member his executor or is administrators or assigns. 41. …

Plaintiffs' submissions 62 The plaintiffs submitted that it is not in controversy that Article 38 provides for a lien over shares for outstanding levies and interest, but the amount properly secured is in controversy. They say that the fact of a lien under Article 38 does not give Aughton "carte blanche" to incur legal fees in whatever amount it chooses and thereby require the plaintiffs to pay irrespective of whether the costs are reasonable or not. The plaintiffs say that it remains Aughton's obligation to establish that its expenses (that is, legal fees) were reasonably incurred and for a reasonable amount. That is also the case having regard to the Legal Professional Uniform Law and Empire's status as a third party payer. 63 The plaintiffs concede that legal costs of recovering outstanding levies and interest on them would likely be payable under the general law in relation to unpaid levies and interest, insofar as the legal costs are properly incurred and reasonable in amount. While the plaintiffs say that there is no direct authority, they relied on Owners of Strata Plan 36131 v Dimitriou (2009) 74 NSWLR 370; [2009] NSWCA 27, a case concerning recovery of unpaid contributions, interest and legal costs under s 80 of the Strata Schemes Management Act 1996 (NSW). At [64]-[65], Basten JA said: 64 To the extent that legal expenses form part of the recoverable debt, they should be limited to such expenses as are properly incurred and reasonable in amount. That is consistent with the general law rule with respect to mortgagee's costs noted below; nor should Parliament be assumed to have authorised the recovery of costs which exceeded that measure. For these reasons and those given by Hodgson JA, question (2) should be answered "yes". 65 Similar issues can arise in respect of the recovery of costs under mortgages and other finance transactions. In such cases, the amount recoverable will turn upon the proper construction of the contractual provision: see, for example, Ringrow Pty Ltd v BP Australia Pty Ltd [2006] FCA 1446, per Rares J. With respect to a mortgagee, the entitlement to recover all costs reasonably and properly incurred in protecting or enforcing a security has long been a principle of general law, not dependent upon the existence of an express contractual term: see Re Shanahan (1941) 58 WN(NSW) 132 at 134, per Street J. The principle applied in Re Shanahan was not novel. It is commonly sourced to Detillin v Gale (1802) 7 Ves Jun 583; 32 ER 234, per Lord Eldon LC, and Cotterell v Stratton (1872) LR 8 Ch App 295, per Lord Selborne LC: see E L G Tyler, P W Young and C Croft, Fisher & Lightwood's Law of Mortgage 2nd Australian ed (2005) Sydney, LexisNexis Butterworths at par [40.1]. It is usual practice nowadays for there to be a clause in a standard form mortgage entitling the mortgagee to recover all its costs. The enforcement of such terms and their interrelationship with costs rules in courts and tribunals was considered in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, per Scott LJ in the England and Wales Court of Appeal. The Court in Gomba Holdings (UK) (at 194) held that there was a procedure available within the Court for taxation of non-litigation costs, albeit on the contractual basis. In addition, the Court held that it had power to disallow a mortgagee's costs, as part of the power of a court of equity to fix the terms on which relief will be allowed. 64 Counsel for the plaintiffs conceded that the authorities are against him on his concession that legal costs of recovery may be payable under the general law: T18: 11-12. The plaintiffs note that in Dimitriou at [34], Hodgson JA said that, apart from s 80 of the Strata Schemes Management Act 1996, an owners corporation would have a debt for contributions and interest, but not for expenses incurred in recovering them so that, apart from s 80, recovery of expenses would depend upon obtaining an order for costs made by a court hearing a relevant proceeding. Aughton operates under company title so that s 80 of the Strata Schemes Management Act 1996 does not apply to it. 65 Counsel for the plaintiffs contended that Dimitriou stands for these propositions: (1) To be recoverable, expenses must have been incurred in recovering levies and any interest for unpaid levies. They extend to legal costs and disbursements only to the extent that those costs and disbursements are reasonably incurred, a reasonable amount and the party claiming them has to prove them in order to obtain a judgment for them: see Dimitriou at [37] per Hodgson JA, [64] per Basten JA and [130] per Handley AJA. (2) The owners corporation's conduct in commencing recovery proceedings must be reasonable: see Dimitriou at [130] per Handley AJA. That issue does not arise here since Aughton did not commence these (or any other) proceedings to recover unpaid levies. (3) Recovery costs do not extend to the difference between party and party costs and the actual amount expended: see Dimitriou at [41] per Hodgson JA. (4) The owners corporation must be prepared to prove by evidence at the trial that the expenses claimed were reasonable in amount and were reasonably incurred. Its claim is in the nature of a quantum meruit: see Dimitriou at [132] per Handley AJA. (5) A lot owner facing a claim for recovery expenses incurred by an owners corporation is a third party payer within the meaning of s 350(9) of the Legal Profession Act 2004 (NSW) (as it then was) and as such was entitled to have the costs assessed by a costs assessor provided the appropriate steps are taken before the Court gives judgment: see Dimitriou at [133] per Handley AJA. (6) If the lot owner fails to take those steps in time it will still be open to the Court of its own motion or on the application of either party to refer a claim for legal expenses to a costs assessor. Final judgment for the legal expenses as assessed can be entered later when the certificate of the costs assessor becomes available: see Dimitriou at [134] per Handley AJA. 66 The plaintiffs note that in Owners Strata Plan 4003 v Mustafa [2012] NSWSC 780 (Mustafa) at [40], Beech-Jones J followed Hodgson JA at [40] and Handley JA at [116] concerning the necessity for there to be evidence before the Court that expenses had been reasonably and properly incurred. 67 Although there is no minute of a meeting of the directors of Aughton in evidence which supported the issue of the letter dated 14 February 2017, the plaintiffs are willing to accept that that letter was authorised and that an amount of $14,610.20 was incurred in legal costs which may have been costs incurred preliminary to enforcement proceedings and is properly payable out of the Fund. The amount of $14,610.20 comprises the sum for which there are invoices issued by Aughton's lawyers and debited to the owner's ledger prior to Mr Weston's appointment as Empire's liquidator on 27 February 2017. Accordingly, the plaintiffs made the open offer on 26 October 2017 set out above and they were prepared to repeat it in open Court at the hearing: see [43]. 68 The plaintiffs do not concede that legal costs are now payable by them under Aughton's articles of association in respect of any time after Mr Weston's appointment as Empire's liquidator. That is because: (1) No enforcement action was ever taken by Aughton for unpaid levies and interests, with the consequence that Article 25 was not engaged. (2) Although the letter dated 14 February 2017 which claimed payment of $53,361.65 in outstanding levies, interest and legal costs may have complied with Articles 29 and 30, Aughton withdrew it. The so called "Article 30 Certificate" dated 1 June 2017 which claimed an amount of $83,908.69 did not comply with the requirements of those Articles and has no status for the purpose of the forfeiture provisions of Aughton's articles of association, a matter conceded by counsel for Aughton at the hearing. (3) There is no evidence that a levy was raised under Article 5 in relation to legal costs or that a meeting of directors has been held to raise the levy and no notice of any such levy has been given, as would be required if Article 5 applied. Accordingly, there was no entitlement to debit the owner's ledger for Unit 2 with legal fees rendered by Smith Partners. 69 Accordingly, the plaintiffs say that: (1) There is no contractual entitlement for Aughton to claim legal costs and expenses because no contractual procedure was undertaken after 27 February 2017 (all outstanding levies and interest having been paid in an amount of $41,904.50 when settlement of the sale of Shares occurred on 14 July 2017). (2) Putting to one side the concession made by the plaintiffs with respect to the period before 27 February 2017, they say that having regard to Dimitriou, Aughton has not established any general law entitlement to legal costs and disbursements because it has not established that they were for recovery of unpaid levies and interest and there is no evidence that they were reasonably incurred and reasonable in amount, and that was held to be fatal in Mustafa. Such evidence could have been provided by a costs assessor. There has been no attempt by Aughton to comply with the Legal Profession Uniform Law in respect of Empire's rights as a third party payer. Aughton claims $43,428 in legal fees (including professional costs of $28,280 and counsels' fees of $11,775) for the period from 7 March 2017 to 15 August 2017 in circumstances where Aughton put on no evidence and made no submissions for the hearing on 6 July 2017 and that amount could by no means be said to be reasonable in amount or reasonably incurred. (3) Aughton could not have sued Empire after Mr Weston's appointment without leave under s 471B of the Corporations Act 2001 (Cth) and it has not lodged a proof of debt. 70 In summary, counsel for the plaintiffs submitted that Aughton seeks "extraordinary amounts" for the period after 27 February 2017 in relation to, effectively, obstructing Mr Weston in the performance of his duties when "all they had to do was provide invoices and turn up to settlement" and perfectly reasonable offers of settlement were refused: T42: 42-44. Aughton continued to delay at a time when the purchasers of the Shares were pressing for settlement. Aughton should not be rewarded for its conduct and there should be no award of costs in its favour in these proceedings. Instead, there should be an order that Aughton pay the plaintiffs costs or, alternatively, there should be no order as to costs.

Aughton's submissions 71 At the hearing, counsel for Aughton took the Court through the bolded parts of the memorandum and articles of association in support of its submissions. In the course of that, counsel accepted that levies imposed under Articles 4 and 5 are to be proportionate amounts among all shareholders, and that it had not been complied with because two notices had not been given. Counsel agreed that as events occurred, no issue of forfeiture arose under Articles 29 and 30. 72 Counsel relied on the passage from the 22 February 2017 letter quoted at [7] above and submitted that the assurance that Aughton would be "paid in full" on the sale of the Shares led to its decision to give the required undertakings and withdraw the forfeiture notice in the 14 February 2017 letter and that created an estoppel or should, at least, be taken into account by the Court. 73 Counsel for Aughton noted that the lien imposed by Article 38 has no notice requirement and that it secures against the Shares and proceeds of sale "debts liabilities and engagements" of the shareholder and Article 39 provides that the "lien may be enforced by a sale of all or any of the shares subject to it in such manner as the Directors may think fit". In response to a query from the Court about how Aughton's legal costs were a "debt" of the shareholder to the Company, counsel submitted that those costs are costs incurred in relation to the sale of the Shares and Article 40 established a right for Aughton to be paid costs associated with its role in the sale of the Shares. 74 Counsel submitted that, while the words "costs of the sale" are capable of differing interpretations, but, read in the entirety of the memorandum and articles, Aughton would be entitled to costs reasonably associated or connected with sale of the Shares, not just the basic expenses that one would incur for any conveyance. Counsel also submitted that, the plaintiffs having raised the issue of their liability for costs under the general law, the Court could also consider whether there was a debt or liability owing by Empire to Aughton under the general law for which Empire would have been liable under the bolded words in Article 3(g). 75 Counsel submitted that the 22 February 2017 letter did not give Aughton unequivocal assurances in relation to what would happen with the proceeds of sale so that Aughton could not be assured that it would be able to recover under its lien what it regarded as its entitlement. All that was required (given Empire's status as a third party payer) was for Mr Weston to agree that Aughton's costs as agreed or assessed would be paid, but there was no offer to that effect, so Aughton was in doubt as to what was really going to be paid. Counsel submitted that there was no clarity as to what the plaintiffs would pay and that resulted in the "regrettable amount" of correspondence which made it appear that all matters were in dispute: it was only when the originating process was served that on 28 June 2017 that the extent of the challenge to Aughton's levy was made clear and a concession was made regarding levies and interest. There was a further concession made by the plaintiffs' counsel that the hearing that $14,610 was payable in costs up to 27 February 2017. 76 Counsel submitted that Aughton was never a proper party to the contract of sale of the Shares and it should not have had to incur costs at all. After 27 February 2017, there was a lull, but from May 2017, there was ongoing and repeated contact between Aughton's lawyers and the plaintiffs' lawyers in relation to the mechanics of the sale of the Shares, correspondence which "was probably not really necessary" but "the liquidator nevertheless engaged in that and [Aughton] had to respond to it". Counsel submitted that some of Aughton's costs had been incurred unnecessarily, for instance, because the originating process in these proceedings was served on Bronwyn Smith late in the day and she was told by the solicitors for the plaintiffs that the matter was on for hearing the next day, necessitating Bronwyn Smith's attendance at Court. Further, it was unnecessary for Aughton to be a party to the contract of sale of the Shares so that Aughton was "dragged into" it entirely unnecessarily. There are things like that "peppered through" the plaintiffs' conduct which Aughton says was unreasonable. 77 Counsel ultimately confirmed that in his submission Aughton was entitled to legal costs: (1) In respect of the period to the end of February 2017, under Article 29, albeit that the 14 February 2017 letter relating to possible forfeiture was withdrawn; (2) In respect of the period from May to 14 July 2017, Aughton relied on Article 40 to establish a debt due by Empire to Aughton in relation to the sale of the Shares; and (3) These proceedings commenced on 28 June 2017. Counsel accepted that Aughton would be entitled to costs of the proceedings only if the Court so ordered and submitted that they are costs for which Mr Weston would be personally liable with a right of indemnity out of the proceeds of the sale of the Shares for those costs. 78 Counsel for Aughton accepted that, if it was successful, costs incurred in the period up to 14 July 2017 in relation to the sale of the Shares would be payable from the Fund and submitted that amounts relating to these proceedings would be payable by Mr Weston. Aughton claims a lien in relation to those costs. 79 Aughton was asked to identify, in submissions to be filed after the hearing, what costs Aughton claims were incurred between 17 February and 14 July 2017 which are not properly costs in relation to these proceedings commenced on 28 June 2017. 80 Counsel for Aughton accepted that it would be entitled only to costs reasonably incurred and in a reasonable amount. Counsel submitted that in Dimitriou, the Court of Appeal was dealing with a provision, s 80 of the Strata Schemes Management Act 1996, which is simply drafted. The Court had recourse to the Explanatory Memorandum for that Act to note that it was intended to ensure that the owners corporation should not be out of pocket, so that the "expenses" an owners corporation could recover would include legal expenses. However, the Court of Appeal did not, as part of its ratio decidendi, make a ruling on whether costs are recoverable on a solicitor/client basis or a party/party basis. The preferable approach was adopted by the Court in Coshott v Owners SP No 48892 [2008] NSWSC 854 in which Adams J ruled that the owners corporation's costs under s 80 were recoverable on an indemnity basis, albeit that at least one of the judges in Dimitriou disapproved of that by way of obiter dicta. Counsel submitted that, strictly speaking, Coshott v Owners SP No 48892 represents the law and should be followed. Counsel noted that in Dimitriou, Hodgson JA at [48] and Handley AJA at [134] held that it was open to the Magistrate to exercise the power under s 353(2) of the Legal Profession Act to refer legal expenses of an owners corporations for assessment, there being no evidence before the Magistrate about whether the legal expenses had been reasonably incurred and were of reasonable amount, an approach which was referred to with approval in IIB Australia Pty Ltd v Owners of Strata Plan 76028 (No 2) [2015] NSWSC 929. Accordingly, it is not necessary for Aughton to have adduced that evidence. 81 As to costs, Aughton submitted that the proceedings were "misconceived from the outset" and that, on 6 July 2017, the plaintiffs capitulated in relation to the undisputed amount of Aughton's lien for levies and interest accrued to 6 July 2017. It is Aughton's position that Mr Weston would be personally liable for any costs ordered in this matter, relying on Silvia v Brodyn Pty Ltd (2007) 25 ACLC 385; [2007] NSWCA 55 the statement made by Hodgson JA at 395 (with whom Ipp and Basten JJA agreed) that if proceedings are unsuccessful, an order for costs would generally be made against the liquidator personally.

Plaintiffs' submissions in reply 82 In reply, counsel for the plaintiffs submitted that: (1) In relation to the complaint that it was unnecessary for Aughton to be a party to the contract of sale of the Shares, it was necessary for Aughton to consent to the transfer of the Shares, to hand over the share certificates in relation to the Shares and they were going to have to receive payment. Further, on 1 June 2017, Bronwyn Smith wrote to Kelly French enclosing a letter containing Aughton's consent to the sale and transfer of the Shares and noting that Aughton was attending to signing the contracts and that the contract would, together with the consent, be sent by express post on the next day, with the "Article 30" to be emailed "on Friday", that is, the next day: see [16] above. (2) The Article 30 Certificate provided on 5 June 2017 was for an amount of $83,908.69, and that was the first time the plaintiffs had been told of that amount, not the amount of about $53,000 referred to in the letter of 14 February 2017. Aughton did not retreat from that position and made no concession whatsoever until 6 July 2017. It was only possible to work out what was claimed as a "levy" or "legal cost" from the owner's ledger; that information could not be derived from the Article 30 Certificate. (3) The plaintiffs do not concede that Article 40 entitles Aughton to claim any legal costs whatsoever of acting on the sale of the Shares. That is because Article 40 is dependent upon Article 39 which relates to costs of enforcing Aughton's lien by sale of shares, which is not what occurred. The sale of the Shares was effected by the liquidator, not Aughton, so Article 40 has no application. (4) The plaintiffs do concede that there may be a general law right of Aughton to claim costs for work associated with settlement of the sale of the Shares. However, under the general law, a lienee or mortgagee would be entitled to its reasonable costs of acting on the discharge of the security and that is a different basis of recoverability than for the amount of $14,610 for which the plaintiffs concede that there was liability up to 27 February 2017. The plaintiffs did not concede that the amount of $6,930 set out in invoice 5754226 relating to the period from 1 June to 9 August 2017 would be a reasonable amount for acting in relation to the transfer of the Shares and discharge of the lien, nor did counsel concede that there may be costs properly included in that amount arising from complexity added by the fact that Empire is in liquidation.

CONSIDERATION 83 I will address the issues by reference to the agreed statement of issues set out at [1] above, although I note that aspects of them must take into account concessions made during the hearing.

Question 1 84 Aughton is not entitled to recover legal costs from Empire on the basis of clause 3(v) of its memorandum or on the basis of any of Articles 4-6, 25, 29-31 or 40 of its articles of association for the following reasons. 85 Clause 3(v) of the memorandum of association empowers Aughton to employ solicitors in relation to the conduct of its business, but it says nothing about how those costs must be allocated as between shareholders. 86 Article 3(g) has relevance in these proceedings only insofar as the legal costs and disbursements incurred by Aughton result in indebtedness of Empire to Aughton under other provisions of its constitution or the general law. Aughton did not commence any Court action to recover unpaid levies and interest and there was no completed share forfeiture procedure conducted by Aughton. Accordingly, Article 3(g) (and Article 38) operate only if Empire owed an obligation under the general law for the legal costs which Aughton has applied against Empire's name in the owner's ledger or which it claims in respect of invoices provided to its lawyers by email on 7 and 9 August 2017. 87 Properly construed, Article 5 relates to levies for expenses incurred under Article 4 and levied under Article 6 - levies which Article 4 requires in express terms to be apportioned between all shareholders by reference to the number of shares held. Under Article 5, those levies are to be notified to shareholders and become a debt due and payable 14 days after notification and the debt is expressly said to be recoverable by Court action. Article 6 confers power on the directors to determine that the levies be paid by instalments or periodical payments. 88 There is no power under any of Articles 4-6 for the directors to determine that all of a particular expense incurred under Article 4 be paid by a particular shareholder and not be treated as a shared expense in proportion to the shareholding. In the absence of evidence of a mechanism by which the directors have determined a levy in any year and of notice being given to the shareholder that a levy is payable, there is no basis for Aughton to claim payment in respect of any amount which is recorded in an owner's ledger as a levy. So much is clear from the language of Article 25 concerning what must be proved on the trial of an action for money due on any call or levy. 89 These is nothing in Aughton's articles of association which provides for the keeping of an owner's ledger or which accords it any status in establishing what amount is owed by a shareholder to Aughton, albeit that is an appropriate way of keeping track of amounts which Aughton believes are owing to and received by it. 90 Although Aughton relies on the bolded language in Article 8, the forfeiture procedure prescribed by that article was not used and, in my view, the language to which Aughton refers does not advance its argument. I note that any "notice referred to in Article 3(g)" is plainly a reference to work required to be done by a local or statutory authority, not the circumstance envisaged by the bolded words in Article 3(g). 91 As Aughton has not pursued any recovery action for a levy, its reliance on the bolded language in Article 25 above does not advance its argument. 92 Aughton's reliance on Articles 29 and 40 as a basis for recovery of legal costs is wholly misplaced when the forfeiture procedure under Articles 29-31 has not been conducted and no enforcement action has been taken for unpaid levies as envisaged in Article 5. Any notice given under Articles 29 does not stand alone. Articles 29 and 30 must be read together, requiring a notice of demand for the payment of unpaid levies, accrued interest and expenses incurred by Aughton by reason of the non-payment under Article 29, and the specification of a day, not less than 14 days from the date of the notice, on or before which payment must be made and stating that shares in respect of which there has been failure to comply will be liable to be forfeited, as required by Article 30. Accordingly, the issue of a notice under both of those Articles is only the first step in the forfeiture procedure. Article 31 requires a directors' resolution to have been passed forfeiting the shares. That did not happen. 93 The only notice of possible forfeiture which appears to reflect the requirements of Articles 29 and 30 was that in the 14 February 2017 letter and it was withdrawn before the directors took any of the necessary steps under Article 31 to forfeit the Shares. Aughton conceded, for the first time at the hearing, that the "Article 30 Certificate" issued on 5 June 2017 does not meet the requirements of Articles 29 and 30: T: 1-3. 94 I accept the plaintiffs' submission that Article 40 relies wholly on Article 39 for its operation because Article 40 provides for the "nett proceeds of any such sale" to be applied in satisfaction of the costs of "such sale". That is a clear reference back to the enforcement of the lien under Article 38 by way of the sale of shares subject to it "in such manner as the Directors think fit" where relevant notices have been served on the member and default has been made in compliance with the notice in full, as required by Article 39. Those Articles relate to sale by Aughton of forfeited shares. Accordingly, Article 40 cannot be called in aid of Aughton's claim for recovering legal costs incurred by it after 27 February 2017 out of the Fund established on 14 July 2017 at settlement of the sale of the Shares. 95 Although aspects of the language used in Article 38 have a long history in model articles of association provided in Table A of now superseded legislation governing companies in Australia and the United Kingdom, it is not a model of clarity. In my view, it must be read in the context in which it appears under the heading "FORFEITURE AND LIEN". Its work is primarily concerned with protecting the right of Aughton to recoup "debts liabilities and engagements" of shareholders upon the sale of forfeited shares in pursuit of payment of unpaid calls, levies and interest which have been properly made in accordance with the articles of association. 96 It is therefore necessary for Aughton to establish how any or all of the legal costs the subject of the invoices provided to the plaintiffs in August 2017 came to be a debt, liability or engagement of Empire to Aughton for the purposes of Article 38. 97 Unless the forfeiture procedure has been gone through, or recovery action has been taken as envisaged by Articles 3(g), 5 and 25, there is nothing in Aughton's articles of association which establishes any liability of an individual shareholder to Aughton for legal costs incurred by Aughton absent an express or implied undertaking by a shareholder to pay a cost incurred by Aughton. Otherwise, such costs must be shared between all of the shareholders. 98 I do not agree with the concession made by the plaintiffs that there is any general law obligation imposed on a shareholder of Aughton to pay legal costs incurred in recovery of unpaid levies and accrued interest in the context of company title. I prefer the view expressed by Hodgson JA in Dimitriou at [34] that, apart from s 80 of the Strata Schemes Management Act 1996, recovery of expenses (including legal costs) would depend upon obtaining an order for costs made by a court hearing a relevant proceeding for recovery of unpaid contributions. Aughton operates under company title so that s 80 of the Strata Schemes Management Act 1996 (or any statutory successor) could not apply to it. Unless a Court has awarded costs for recovery action, any right of Aughton to be paid legal costs depends upon there being some provision in Aughton's constitution or other agreement between Aughton and its shareholder which creates the obligation. 99 While I do not accept that there is a general law liability of the kind conceded by the plaintiffs, there are other relevant factors to take into account in this case. 100 First, I accept Aughton's argument that it is appropriate to take into account that Aughton acted on the representation in the 22 February 2017 letter (see [7] above) that Aughton would be "paid in full in a relatively short timeframe" (of around three months) if Aughton withdrew the notice of forfeiture in the 24 February 2017 letter and gave the requested undertakings. In my view, that representation should be understood as an "engagement" of Empire with Aughton within Article 38 in relation to the payment of about $53,361.65 representing "outstanding strata levies, interest and legal fees" claimed in the letter dated 14 February 2017 to which it might be entitled upon forfeiture of the Shares. Having regard to the fact that Mr Weston was then Ms Ridge's trustee in bankruptcy and was proposing to become Empire's liquidator, that "engagement" would not be taken by a reasonable person to be unqualified; it would be taken to relate to levies and interest properly charged and legal costs which were reasonable in amount and reasonably incurred. That issue might not have loomed large as at 22 February 2017, but it was appropriate that it did so from 2 June 2017 in light of the much larger amount claimed in the Article 30 Notice. 101 Second, this case was run on the basis of the plaintiffs' concession that Empire was liable to pay Aughton's legal costs up until Mr Weston's appointment as liquidator on 27 February 2017 in an amount of $14,610, and that, having regard to the statement of issues, the correctness of the amount of unpaid levies and interest paid on 14 July 2017 at settlement of the sale of the Shares was effectively conceded. 102 Third, in the course of the hearing, the plaintiffs' accepted that that concession should extend to the amounts of $868.45 and $6,600 identified as being for senior counsel's fees as set out in the Schedule, even though no invoices were produced for those amounts. They did not concede that they should pay the amount of $1,447.40 in the Schedule as at 1 April 2017 and also referred to in the owner's ledger as being for "legal expenses" for which no invoice was provided, or for any amounts claimed in invoices dated on and from 31 May 2017 or in respect of the period after 27 February 2017 (subject to the next matter referred to below). 103 Fourth, the plaintiffs also conceded that, at general law, Aughton would be entitled to recover a small amount of legal costs related to the discharge of its lien, including tasks required to facilitate the settlement of the sale of the Shares, but not an amount as great as $6,930 claimed in invoice 5754226 dated 15 August 2017. I am inclined to accept that a reasonable person would understand what was said in the 22 February 2017 letter to extend to amounts in the usual range for legal costs relating to the discharge of Aughton's lien and consenting to the transfer of the Shares. 104 The parties were given leave to provide further written submissions in relation to the costs incurred by Aughton in the period from 27 February 2017 up to 14 July 2017 which were properly referable to the settlement of the sale of the Shares and the discharge of its lien, and not referable to these proceedings commenced on 28 June 2017. I accept the plaintiffs' submission that Aughton's written submissions (comprising 10 pages with 39 pages of attachments) exceeded the leave given by the Court. 105 Aughton says that its legal costs, including counsels' fees, up to 14 February 2017 were $20,924.20 (inclusive of GST and disbursements), comprising $11,024 (inclusive of GST) billed by Smith Partners, $6,600 (inclusive of GST) for services provided by Raoul Wilson SC and $3,300 for services provided by Mr Locke. No invoices have been provided to support the claims for counsels' fees, although counsel for the plaintiffs conceded that the account for $6,600 and an account for $868.85 listed on the owner's ledger at [17] above for counsel's fees as at 14 October 2016 should be accounted for. At [27], Aughton's written submissions state: Mr CP Locke's fees from the commencement of the proceedings on 26 April 2017 totalled $5115.00. This amount is reflected in the SPL invoice to Aughton Flats Pty Ltd and Mr Locke's fees have been apportioned between the periods pre and post 14 February 2017. 106 I take this submission to explain how $3,300 of Mr Locke's fees should be attributed to the period before Mr Weston's appointment as Empire's liquidator. In this regard, I note that: (1) No invoices for counsels' fees are in evidence, although it may be inferred from invoice 5688389 dated 31 May 2017 for the period from 7 March to 8 June 2017 that Mr Locke issued an invoice around 11 May 2017 for $5,115. That would (normally) imply that the work was done by Mr Locke in that period. (2) Smith Partners' invoice 5637101 dated 14 February 2017 and invoice 5639226 dated 7 March 2017 indicate that Mr Locke was briefed in about mid-July 2016, he appears to have been involved with a brief to senior counsel up until early February 2017 and to have been involved in advising concerning correspondence with SLF Lawyers from 14 February 2017 up to 20 February 2017. I accept that the amount of $5,115 relates to Mr Locke's fees, and that a reasonable proportion of them may relate to the period up to Mr Weston's appointment as liquidator of Empire. Invoice 5688389 dated 31 May 2017 indicates that Mr Locke's brief was updated on 14 April 2017, and he was involved in giving advice concerning correspondence with HWL Ebsworth Lawyers in late April 2017; nonetheless it appears likely that much of the work related to the period up to 27 February 2017. However, there is no detail of the work done by Mr Locke and that explanation was only given outside the scope of submissions which Aughton was given leave to make. Had that explanation been offered earlier and justified by evidence, it might be that it would have been accepted by the plaintiffs as an amount recoverable by Aughton consistent with the concession it made in relation to the amount of $14,610.20 in this Court and in the context of the settlement offers it made up to and including on 26 October 2017. In my view, it should not now be accepted. 107 Aughton claims that the representation in the 22 February 2017 letter extends to include fees incurred after 14 February 2017 in an amount of $25,850 (inclusive of GST) and $1,815 in counsel fees. 108 In light of matters addressed above, it is uncontroversial that the amount of $3,894, the subject of invoice 5639226 dated 7 March 2017, is accepted as payable by the plaintiffs. Thus, in respect of the period up to 27 February 2017 it appears that, consistent with the principles which the plaintiffs accepted at the hearing and the concessions then made, amounts of $14,610.20 in fees payable to Smith Partners and $7,468.45 in senior counsel's fees should be paid to Aughton out of the Fund, albeit that there are no invoices from counsel in evidence and Aughton was not a party to the hearings which occurred on 22 and 27 February 2017 resulting in orders being made as sought by Mr Weston. As noted below, the plaintiffs are also prepared to concede that an amount up to $1,000 may have been properly incurred in Smith Partners acting on the settlement of the sale of the Shares and the discharge of its lien, a submission which I accept. 109 Having regard to the submissions put in the unsigned written submissions filed by Aughton after the hearing, it is necessary to say the following. 110 It was submitted that Aughton was entitled to legal fees charged by Smith Partners for dealing with correspondence after 27 February 2017 in relation to the purported sale of the Shares to Mr Mouhanna while Empire was deregistered and Ms Ridge had lost office as a director of Empire due to her bankruptcy and the related borrowing by Commonwealth Bank. I regard these submissions as being outside of the scope of the leave given to the parties at the end of the hearing. Nevertheless, I will address them. For reasons previously given, in my view, the words "in circumstances where your client will be paid in full in a relatively short period of time" in the 22 February 2017 letter (see [7] above) relates to the amounts claimed in the 14 February 2017 letter giving notice of intended forfeiture of the Shares if Empire did not pay $53,461.65 by 28 February 2017. 111 I accept that there might be thought to be some unfairness if costs incurred in relation to the claims of Mr Mouhanna to be the proper transferee of the Shares and of the Commonwealth Bank as mortgagee after 27 February 2017 are not for Empire's account (because the costs would then need to be shared between all shareholders under Articles 4-6, to the extent that Aughton does not dispute them). However, I do not think that such expenses were incurred by Aughton in relation to the recovery of interest or levies so that they would not normally be recoverable by enforcement of rights under Aughton's articles of association on forfeiture or under the lien unless Empire made an express or implied undertaking to Aughton to pay them. In respect of the period to 27 February 2017, I accept that the 22 February 2017 letter made such an undertaking for the reasons explained at the hearing, but I do not accept that it extended to any such costs after that date. 112 This might be seen as a gap in Aughton's articles of association which should be addressed by amendment. 113 There is a claim for costs of addressing queries raised by prospective purchasers of the Shares on the basis that those queries should have been addressed by Mr Weston or his lawyers. I do not accept that these are costs for which Aughton would be entitled to claim reimbursement from the holder of the Shares in the absence of an express or implied undertaking by the shareholder to pay for that service, and I do not accept that the letter of 22 February 2017 is such an express undertaking. 114 For the period from 18 May 2017 to 2 June 2017, Aughton's submissions claim legal costs in an aggregate amount of $3,680 which are said to relate to settlement of the contract for the sale of the Shares. These appear to be derived from invoice 5688389 dated 31 May 2017. Both in the submissions and in correspondence between SLF Lawyers and Smith Partners, Bronwyn Smith claims that it was necessary for the work to be performed as Aughton had been named as a party to the contract and this should not have been done, such that Aughton should be entitled to its costs on an indemnity basis. Aughton notes that a mortgagee usually only charges a small amount on discharge of a mortgage because it requires little work, while the inclusion of Aughton in the contract of sale required much greater work. 115 The plaintiffs note that the amount of $3,680 includes two claims, one for a "conference with client in client's offices re executing contract" (2.40 units for an amount of $960) on 31 May 2017 and another for a "conference with client re contract" (2.10 units for $840) the next day. The plaintiffs say that these amounts are duplicated, there is no requirement for the solicitor to attend on the client for execution of the contract, the other amounts claimed are excessive; this is a simple transaction which required Aughton only to sign the contract, hand over the shares certificate and receive payment. They say there should be no need for counsel's advice on these issues. Nevertheless, the plaintiffs are prepared to concede that some proportion of this amount up to $1,000 might have been properly incurred. Although these comments were made in relation to items on invoice 5688389, which the plaintiffs say came within the leave granted by the Court, I take the concession to relate to all of the claims made in the submissions in relation to the period after 27 February 2017. 116 Aughton's submission cannot be accepted as a rational justification for the amounts claimed in the period from 18 May to 2 June 2017. There is only one clause in the contract which refers to Aughton and no obligations are undertaken by Aughton under the contract: see [13] above. Whether or not it is usual practice to include the company as a party to the contract for sale of shares in a company title scheme, it is clear from only a brief perusal of the contract that it raises no issues for Aughton, which remained free to give or withhold its consent to transfer of the Shares and under which it was not required to perform any obligation: that should require a very brief explanation to the client. This legal service would justify only a small fee from an experienced conveyancer, and it is difficult to understand why the contract would have required advice of counsel. 117 It is notable that the invoice numbered 5688389 dated 31 May 2017 relates to a period from 7 March to 8 June 2017 and contains the following entries for 8 June 2017: 08-06-2017 Telephone attendance on City Agents advising matter settled 0.10 40.00 08-06-2017 Telephone attendance on Client advising matter has settled 0.20 80.00 08.06-2017 Draft letter to Client enclosing cheque 0.10 40.00

On the kindest interpretation, these entries do not relate to this matter, since the sale of the Shares did not settle until 14 July 2017. 118 In relation to the items in invoice 5754226 dated 15 August 2017 for the period from 1 June 2017 to 9 August 2017, an amount of $6,930 is claimed. Most of the items relate to the correspondence between SLF Lawyers and Smith Partners in that period. The submissions rehearse the arguments recorded above in relation to that correspondence and a range of other matters. In relation to these matters, which are relevant on the issue of costs addressed in Questions 2 to 4: (1) In my view, the plaintiffs were entitled to seek copies of invoices for legal costs claimed and to seek to have established that the levies and interest charged to Unit 2's owner's ledger was properly charged by reference to resolutions of the directors. As Aughton conceded at the hearing, it does not have "carte blanche" in relation to legal fees, and any fees which may, under Aughton's articles of association or at general law, properly be charged to a shareholder must be reasonably incurred and reasonable in amount. The plaintiffs are "third party payers" as defined in s 171 of the Legal Profession Uniform Law, they are each a "non-associated third party payer" and under s 198(6) they were entitled to be given sufficient information to enable to them to consider making, if thought fit, an application for a costs assessment. Had the plaintiffs sought assessment (as Aughton suggested they should have done to resolve the issue), it would have been necessary for the invoices to be produced in any event, so Aughton's point was not well made. It would also, at any time before the hearing, have been open to Aughton to suggest assessment of the claimed legal costs under the Legal Profession Uniform Law but it did not do so. (2) While it is claimed that the "remedy" of looking at Aughton's books and records was always in the plaintiffs' hands in relation to establishing the basis of the claims for unpaid levies and interest, and the plaintiffs only availed themselves of it on 12 July 2017 when an inspection was carried out, it was equally always open to Aughton to offer it to avoid protracted correspondence. It did not, despite the references to non-litigious remedies referred to in its correspondence. In any event that does not address the issue of the claimed legal fees and it appears that the basis for charging interest was not established having regard to issues which remained live into October 2017. (3) Aughton's failure to provide invoices for legal costs claimed until well after settlement of the sale of the Shares was unreasonable. Aughton's failure to provide information concerning the amounts claimed in the Article 30 Certificate justified the plaintiffs in commencing these proceedings to bring the issue to a head so that settlement could be effected and the purchasers assured of clear title. Copies of the invoices should have been readily available if they had been included in the owner's ledger for Unit 2 as at 2 June 2017 (the date on which a copy of the owner's ledger was provided to the plaintiffs). Mr Weston's conduct in seeking to establish that the legal costs charged were reasonable in amount and reasonably incurred was entirely appropriate and consistent with his obligations as a liquidator of Empire and trustee for Ms Ridge's bankrupt estate. He was also justified in seeking to establish this because of the difference in the total amount claimed on 14 February 2017 and that claimed in the Article 30 Certificate received on 5 June 2017. The suggestion that this was a reciprocal obligation, so that Aughton should only provide copies of its invoices to the plaintiffs if the plaintiffs revealed their legal costs to Aughton is plainly misplaced. (4) Bronwyn Smith was advised of the proposed date for settlement of the contract for the sale of the Shares on 18 May 2017 and again on 25 and 30 May 2017 (see [12]-[15] above). It is plain that on 30 May 2017, she was unaware that a copy of the contract had been in her office since 22 May 2017. The fact that the contract did not specify an exact date for settlement is not to the point. (5) I do not accept that the majority of the costs for this period were reasonably incurred by Aughton and they are not justified on the basis that they were necessarily incurred in order for Aughton to be in a position to give its consent to the transfer of the Shares with clear title. (6) Bronwyn Smith's claim that the plaintiffs delayed in paying the amount of $41,904.50 to Aughton for unpaid levies and interest for a period of a month after settlement is contradicted by evidence given by Angela Smith that a cheque for this amount was posted to Smith Partners on 14 July 2017 but it was returned to SLF Lawyers on 25 July 2017 and subsequently sent direct to Aughton. 119 Accordingly, for the reasons set out above, and in particular at [108], I accept that (subject to the issue of costs set out below) an amount of $22,078.65 would be properly payable to Aughton out of the Fund and the balance should be released to the plaintiffs. That amount exceeds the open offer made on 16 October 2017 and settlement offers previously made by the plaintiffs.

Questions 2 to 4 120 The second issue is whether Aughton should pay the plaintiffs' costs of and incidental to the originating process dated 28 June 2017 and the determination of the issues in the agreed statement of issues. 121 Aughton submitted that: (1) The plaintiffs made no concessions as to the amount payable to Aughton for legal costs before the hearing on 29 March 2018. On that day it conceded that an amount of $14,610 was payable in relation to the period up to 27 February 2017, senior counsel's fees as set out in the owner's ledger and included in the Schedule were payable and some legal fees in relation to settlement of the sale of the Shares. (2) The plaintiffs capitulated in relation to the amount of the unpaid levies and interest payable on 6 July 2017 when they agreed consent orders. (3) The plaintiffs claimed that Aughton was an unsecured creditor for legal costs when they had the benefit of the lien under Article 38. (4) As a third party payer, it was always open to the plaintiffs to require an assessment of the legal costs and have the assessed amount be paid out of the Fund. (5) Aughton was always in doubt as to the amount which the plaintiffs would pay at settlement which led to a "regrettable amount" of correspondence. (6) The plaintiffs should pay Aughton's costs of these proceedings. 122 The plaintiffs say that: (1) Aughton unreasonably withheld evidence supporting its claims necessitating the commencement of these proceedings on 28 June 2017 so that the plaintiffs might settle the sale of the Shares which had been delayed by Aughton's conduct. (2) Aughton never retreated from its position that $83,908.69 was payable to it in respect of unpaid levies, interest and legal costs. It capitulated literally at the doors of the court room on 6 July 2017 by agreeing to the regime memorialised in the orders made that day which had, in essence, been offered on 22 June 2017. (3) The plaintiffs made a number of offers of settlement on a "without prejudice save as to costs" basis leading up to the open offer made on 16 October 2017. (4) The defendant should be ordered to pay the plaintiffs costs or there should be no order as to costs. 123 I am satisfied that the plaintiffs were justified in commencing these proceedings on 28 June 2017. Aughton had been advised more than once of the proposed settlement date of 5 June 2017 but only provided information which would indicate that it claimed amounts well exceeding the approximately $53,000 which was claimed in the letter dated 14 February 2017 on 2 June when the so called "Article 30 Certificate" was received by the plaintiffs on 5 June 2017. On the basis of the "Article 30 Certificate", it provided correspondence to the purchasers which could easily have derailed settlement (which not have been in anyone's interest) while still refusing to provide copies of minutes of meetings supporting the levies and interest claimed and any invoices supporting the legal costs claimed. I accept that the commencement of these proceedings was necessitated by Aughton's conduct and the costs of the application and the resolution of the interim position to 6 July 2017 should be paid by Aughton. The plaintiffs' letter of 22 June 2017 (see [31] above) in substance offered the protection to Aughton which was obtained by way of the orders made on 6 July 2017 and it is Aughton who capitulated, not the plaintiffs. 124 I find Aughton's unwillingness to demonstrate the basis of its claim to unpaid levies, interest and legal costs inexplicable. It must have had access to the materials which supported the claim made in the owner's ledger and the so called Article 30 Certificate at least as at 5 June 2017. While the plaintiffs might have sought assessment of the legal costs claimed by Aughton, it was reasonable for the plaintiffs to think that asking for the invoices would be quicker, cheaper and facilitate timely settlement. It was neither efficient nor in the interests of the shareholders of Aughton as a whole to persist in resisting the information requests leading to the escalation of the "regrettable correspondence". In my view, the position taken by Aughton was unnecessarily obstructive. I do not accept that Aughton could reasonably have been in doubt that justified amounts of unpaid levies, interests and legal costs would be paid. 125 It was only at the hearing that Aughton conceded that the "Article 30 Certificate" did not comply with Articles 29 and 30 and that it would not be entitled to costs included in the invoices dated 15 August 2017 to the extent that they properly related to these proceedings unless and until the Court made a costs order in its favour. Aughton has not succeeded in its claims to be able to rely on Article 29 and 40, which were the primary planks of its claim to all of the $43,436.05 referred to in the Schedule and to costs in the period between 27 February 2017 and settlement of the sale of the Shares. 126 Having said that, the plaintiffs made late concessions on the basis of which I have accepted that Aughton is entitled to be paid $22,078.65, and that amount would be secured by the lien in Article 38, albeit that its position in relation to an amount of $14,610 had been well flagged and invoices of counsel accounting for most of the rest of the amount have never been produced. 127 In all of the circumstances, where each party has had some measure of success, it is my view that each party should bear its own costs of these proceedings in respect of the period from 7 July 2017. It is therefore unnecessary for me to address the issue of on what basis costs should be awarded, although I think I should say that cases dealing with s 80 of the Strata Schemes Management Act do not provide determinative guidance where the issue is raised in the context of company title. 128 In my view it would be inappropriate for the purchasers of the Shares to bear any part of the costs incurred by Aughton. 129 In the circumstances, I am minded to make an order that the plaintiffs be entitled to retain an amount of $10,000 in the Fund from the amounts payable to Aughton pending determination of the amount of the costs payable by Aughton in respect of the plaintiffs costs of these proceedings incurred prior to 7 July 2017.

CONCLUSION 130 I will order that the parties provide draft orders reflecting these reasons within 14 days. If the parties are unable to agree those orders, they should each provide the orders for which they contend and submissions of no more than two pages supporting the position taken. I certify that the preceding one hundred and thirty (130) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.