Australian Home Backloads Pty Ltd v Searay Pty Ltd

[2010] VSC 638

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL COURT

List E

No. S CI 2010 04015

AUSTRALIAN HOME BACKLOADS PTY LTD (ACN 097 626 349)	Plaintiff
v
SEARAY PTY LTD	Defendant

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JUDGE:	GARDINER J
WHERE HELD:	Melbourne
DATE OF HEARING:	18 August 2010
DATE OF JUDGMENT:	15 September 2010
CASE MAY BE CITED AS:	Australian Home Backloads Pty Ltd v Searay Pty Ltd
MEDIUM NEUTRAL CITATION:	[2010] VSC 638

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CORPORATIONS – COSTS - INSOLVENCY – Application to set aside statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth) – Demand made for payment in respect of order made in VCAT – VCAT decision appealed to Associate Justice – Plaintiff commenced further VCAT proceeding seeking to agitate an offsetting claim against earlier VCAT order that proceeding be dismissed by reason of issue estoppel arising by reason of earlier VCAT decision – Director of company withdraws application to set aside a statutory demand – Defendant seeks indemnity costs against director – Application for indemnity costs granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Matysik, Director in person
For the Defendant	Mr J. W. Robinson, Solicitor	Best Hooper Solicitors

HIS HONOUR:

1. The plaintiff has applied by an originating process filed 23 July 2010 to set aside a statutory demand served on it by the defendant. 

1. The demand makes a claim for $27,469.41 in respect of an order made in favour of the defendant in VCAT on 14 July 2009 in proceeding number C 8184 of 2008. 

1. The plaintiff appealed the decision of VCAT to the Supreme Court of Victoria.  That appeal was dismissed by Mukhtar AsJ.  On 2 June 2010, Mukhtar AsJ ordered that among other things, the director of the plaintiff, Mr Matysik pay the defendant’s costs of the appeal on a solicitor‑client basis.

1. In Mukhtar AsJ’s reasons for judgment, he noted that Mr Matysik, a non‑party to the appeal, is the sole director of the plaintiff.  Mukhtar AsJ set out his reasons for awarding solicitor‑client costs in that case.  He noted that on 10 February 2010, the plaintiff made a resolution a notice of which was lodged with ASIC that the plaintiff was unable to pay its debts.  Despite this, the plaintiff, through the actions of Mr Matysik, continued with the appeal from the judgment in favour of the defendant.  Ultimately, an order for security for costs was made which the plaintiff could not satisfy.

1. The plaintiff commenced a VCAT proceeding in which it sought to agitate an offsetting claim against the VCAT order. That proceeding sought to contest a fact which was decided in the earlier VCAT proceeding after a contested hearing.  On 10 August 2010, VCAT dismissed that proceeding, apparently on the basis of there being an issue estoppel by reason of the earlier VCAT decision.  On that day, Mr Matysik indicated in writing that the application to set aside the statutory demand was now “withdrawn DUE TO FINDINGS IN VCAT CASE No. 2220/2010 HEARD TODAY”. 

1. When this matter came before Associate Justice Efthim on 11 August 2010, Mr Robinson, solicitor for the defendant, indicated that he wished to seek an order for indemnity costs against Mr Matysik.  Mr Matysik was not in attendance at Court that day and Associate Justice Efthim directed that the defendant should notify the plaintiff of the adjournment and that on the next occasion, an order for indemnity costs would be sought against Mr Matysik personally. 

1. On 11 August 2010, Mr Robinson wrote to Mr Matysik at his residential address at 6 Rhodes Drive, Glen Waverley in Victoria and to him as the director of the plaintiff at the registered office of the defendant, 14 Barrier Street, Fyshwick in the Australian Capital Territory.  Those letters alerted Mr Matysik that an order for indemnity costs would be sought against him personally.

1. Mr Matysik has a law degree but he has never been admitted to practice. There is no doubt that he is the “directing mind” of the plaintiff (he conceded as much at the hearing of this matter) and actuated the appeal from the VCAT order which is the subject of the statutory demand.  In addition, as the directing mind of the company, he caused the commencement of the proceeding seeking to set up the offsetting claim in VCAT, which was forlorn.  Mr Robinson, who attended VCAT on the occasion of the dismissal of that claim, stated that the VCAT Member regarded the application as an abuse of process. 

1. I am satisfied that Mr Matysik has had adequate notice of the intention to apply for costs against him personally and for a higher level than party-party costs.  In my view, the circumstances point to Mr Matysik commencing and continuing with this application in circumstances where on a proper consideration it should have been seen by him to be a hopeless case having regard to his involvement in the earlier VCAT proceeding.  This was also in the context of the plaintiff having filed a declaration with ASIC that it was insolvent. It appears to have been instituted as a means of resisting the defendant’s rights to enforce the VCAT order in its favour. Those factors lead me to conclude that Mr Matysik should pay the costs of this proceeding, including costs reserved on 11 August 2010, on a solicitor‑client basis.  In Knight v FP Special Assets Limited,[1] Mason CJ and Deane J with whom Gaudron J agreed, stated in respect of awards being made against non‑parties as follows:

That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non‑party has played an active part in the conduct of the litigation and where the non‑party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.  Where the circumstances of a case fall within that category, an order for costs should be made against the non‑party of the interests of justice require that it be made.

[1](1992) 174 CLR 178.

1. Mr Matysik, as a director of the plaintiff company and a shareholder, has an interest in the subject of the litigation and has certainly played an active part in the conduct of the present application.  Indeed, he actuated the issue of the application to set aside the statutory demand and has appeared on behalf of the plaintiff both at VCAT and, with leave, in court today.  Mr Matysik referred me to the decision of the Court of Appeal of the Supreme Court of Queensland in Byrne v State of QueenslandandCrotan[2] as authority for the proposition that a costs order should not be made against him.  I note that the decision of the High Court in Knight is referred to in that judgment.

   [2][2007] QCA 240.

1. In my view, Mr Matysik, the sole director of the plaintiff, is in reality the alter ego of the plaintiff and he initiated the litigation and had control over it.  Unlike the facts in Byrne, Mr Matysik, who is apparently legally qualified but not admitted to practice, was involved in the earlier VCAT proceeding and should on an objective basis have been aware that the claim he sought to agitate as an off‑setting claim in this application was hopeless and, by reason that the plaintiff was insolvent, the defendant would have no means of recovering its costs from the defendant. The defendant should not be out of pocket for its costs of defending this application and in the circumstances of the plaintiff being insolvent, Mr Matysik should pay those costs on a solicitor-client basis.

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