Australian Mortgage and Finance Company Pty Ltd as trustee of the Melnikoff Family Trust v Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust
[2014] NSWSC 1173
•25 August 2014
Supreme Court
New South Wales
Medium Neutral Citation: Australian Mortgage & Finance Company Pty Ltd as trustee of the Melnikoff Family Trust & Ors v Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust & Ors [2014] NSWSC 1173 Hearing dates: 26 June and 3 July 2014 Decision date: 25 August 2014 Jurisdiction: Equity Division Before: Black J Decision: Orders made for dismissal of relevant paragraphs in amended notice of motion, the striking out of relevant prayers and paragraphs of cross-claim and the setting aside of relevant paragraphs of relevant notices to produce. Leave granted to relevant defendants, nunc pro tunc, to file a defence in relevant proceedings on behalf of company. Leave granted to relevant defendants, nunc pro tunc, to defend separate NCAT proceedings on behalf of company subject to relevant conditions. Agreement between relevant parties to take all steps necessary to procure payment of relevant business expenses of company as and when they fall due noted by the Court. Order made for relevant defendants to provide copies of invoices in respect of payment of relevant business expenses. Orders made as to costs between parties.
Catchwords: PROCEDURE - judgments and orders - disputed issues remaining before orders can be made to give effect to interlocutory judgment in proceedings - dismissal of relevant paragraphs of notices of motion - striking out of paragraphs of cross-claim - setting aside of notices to produce - leave to act on behalf of company - payment of company debts - indemnity of costs.
PROCEDURE - costs - general rule that costs follow the event - whether reason shown to depart from general rule.Legislation Cited: - Corporations Act 2001 (Cth) ss 237, 242 Category: Consequential orders Parties: Australian Mortgage & Finance Company Pty Ltd as Trustee for the Melnikoff Family Trust (First Plaintiff)
Lilya Melnikoff (Second Plaintiff/First Cross-Defendant)
Steve Melnikoff (Third Plaintiff/Second Cross-Defendant)
Rome Euro Windows Pty Ltd as trustee of the Rome Euro Windows Unit Trust (First Defendant/First Cross-Claimant)
Iryna Rosinska (Second Defendant/Second Cross-Claimant)
Yuri Rudi (Third Defendant/Third Cross-Claimant)
IUR Australia Holdings Pty Ltd (Fourth Defendant)
Rome Euro Windows & Doors Pty Ltd (Fifth Defendant)
Kathrin Rudi (Sixth Defendant)Representation: Counsel:
D Hogan-Doran (Plaintiffs)
J Hyde (First to Fourth Defendants)
Solicitors:
Aitken Lawyers Pty Ltd (Plaintiffs)
Mills Oakley Lawyers (First to Fourth Defendants)
File Number(s): 2014/28291
Judgment
On 25 July 2014, I delivered judgment dealing with several issues raised by a Notice of Motion filed on 7 April 2014 by the Plaintiffs in these proceedings, Mr Steven Melnikoff and Ms Lilya Melnikoff, and an Amended Notice of Motion filed on 26 June 2014 filed by the Second-Fourth Defendants/Cross-Claimants, Ms Iryna Rosinska, Mr Yuri Rudi and IUR Australia Holdings Pty Ltd ("IUR"). I directed the parties to bring in agreed Short Minutes of Order to give effect to the judgment and, if no agreement was reached, their respective draft Short Minutes of Order and submissions as to costs. The parties then submitted two different forms of order, although Mr & Mrs Melnikoff's submissions in respect of orders went some way to identifying the differences between them.
Plaintiffs proposed order [1]
Paragraph 1 of Mr & Mrs Melnikoff's proposed orders provides for dismissal of paragraphs 3, 4 and 8 of the Amended Notice of Motion filed 26 June 2014 by Ms Rosinska, Mr Rudi and IUR. Paragraph 3 of that Amended Notice of Motion addressed the question of leave to bring the specified paragraphs of the Cross-Claim, involving an application by Ms Rosinska and Mr Rudi for leave under s 237 of the Corporations Act 2001 (Cth) to bring a proposed Amended Cross-Claim that made claims on behalf of Rome Euro Windows Pty Ltd ("REW") as trustee of the Rome Euro Windows Unit Trust, which was not successful. Paragraph 4 of that Amended Notice of Motion address an alternative claim by Ms Rosinska and Mr Rudi for leave to bring proceedings on behalf of REW against Luxcon Group, which I held should not be granted until a pleading was prepared identifying the nature of the claim in any separate proceedings brought against that entity. Paragraph 8 deals with an application by Ms Rosinska and Mr Rudi for leave to bring proceedings against REW to recover wages, superannuation and statutory entitlements owing to them notwithstanding that they had leave to bring proceedings on its behalf, which I held was not required, at least where Ms Rosinska and Mr Rudi had not in fact been granted leave to bring proceedings on REW's behalf. Each of those paragraphs should be dismissed.
Plaintiffs' proposed order [2], Defendants' proposed order [3]
Paragraph 2 provides for specified prayers and paragraphs of the Statement of Cross-Claim to be struck out. This is consequential on the refusal of leave under s 237 of the Corporations Act in respect of those matters.
Plaintiffs' proposed order [3]
Paragraph 3 deals with the setting aside of two notices to produce dated 18 March 2014. Paragraphs 4 and 5 of the Plaintiffs' notice of motion sought to set aside the two notices to produce dated 18 March 2014 issued by Ms Rosinska, Mr Rudi and IUR to Mr & Mrs Melnikoff and five subpoenas filed 21 March 2014. Orders were made on 3 July 2014 that the subpoenas issued to three parties be set aside and it was noted that paragraphs 7-11 of the two notices to produce issued by Ms Rosinska, Mr Rudi and IUR were withdrawn. Mr & Mrs Melnikoff point out that paragraphs 1-6 of the Notices to Produce relate to the Cross-Claim in respect of the Meriton projects, for which leave has been refused, and those paragraphs should therefore be set aside.
Plaintiffs' proposed order [4] and note [11], Defendants' proposed orders [1]-[2]
Paragraph 4 of the orders proposed by Mr & Mrs Melnikoff, which deals with the same subject matter as paragraph 1 of orders proposed by Ms Rosinska, Mr Rudi and IUR, provides for Ms Rosinska and Mr Rudi to have leave to file a Defence to the Statement of Claim on behalf of REW. I held that an application by Ms Rosinska and Mr Rudi for leave to defend proceedings brought by Mr and Mrs Melnikoff against REW on its behalf should be granted nunc pro tunc, but limited to the filing of a Defence so as to avoid a default judgment, where any further evidence in the proceedings on behalf of REW could be filed in their own right, and excluding any leave to defend the claims which Ms Rosinksa and Mr Rudi themselves brought against REW.
Each party includes a reference to the risk of a default judgment against REW, which I had noted in my Judgment, in the form of order. It is not necessary to include that matter in the order, since it is part of the reasoning that leads to the making of the order and need not be reflected in the order itself. The order which should be made is that:
"Pursuant to s 237 of the Corporations Act 2001 (Cth), grant leave to the Second and Third Defendants, nunc pro tunc, to file a Defence on behalf of the First Defendant in the proceedings, no further step to be taken by them in respect of the defence of the proceedings without leave of the Court."
Ms Rosinska, Mr Rudi and IUR introduce a further proposed order 2 that the costs associated with filing a Defence in accordance with that order be paid by REW forthwith. I did not indicate that I would make such an order in the Judgment and I do not consider that I should do so where it is proper that the costs of filing that Defence, in a dispute between the shareholders, be borne in the first instance by the shareholders who wish to file it.
Plaintiffs' proposed order [5]-[6], Defendants proposed order [3]-[4]
Order 5 of the orders proposed by Mr & Mrs Melnikoff and order 3 of the orders proposed by Ms Rosinska, Mr Rudi and IUR deals with the grant of leave to conduct a defence by REW of proceedings brought by a third party against REW brought in the New South Wales Civil and Administrative Tribunal. I held that leave should be granted to Ms Rosinska and Mr Rudi to defend those proceedings on behalf of REW, subject to a condition noted in the Judgment. Order 6 proposed by Mr & Mrs Melnikoff reflects that condition and provides for Ms Rosinska and Mr Rudi to inform Mr & Mrs Melnikoff of the making of any offers of compromise and settlement in those proceedings. Ms Rosinska, Mr Rudi and IUR, offering what appears to be a more favourable provision for the Plaintiffs, provide for consultation with Mr & Mrs Melnikoff. I will make the order set out below which is drawn from the parties' respective drafts:
"As a condition of the leave granted in paragraph # above, the Second and Third Defendants shall:
(a) Provide copies of all relevant material including without limitation, correspondence (inter parties and between solicitor and client), evidence, reports and court documents in respect of the NCAT proceedings in a timely manner but in any event within 48 hours of receipt of or sending such material;
(b) Consult the Second and Third Plaintiffs in respect of the making of any offers of compromise/settlement before any offers of compromise/settlement are made and provide any offers of compromise/settlement (including counter-offers) from the claimant in the NCAT proceedings, in a timely manner but in any event within 48 hours of receipt of such correspondence; and
(c) Not compromise the NCAT proceedings without the consent of the Second and Third Plaintiffs."
Ms Rosinska, Mr Rudi and IUR introduce an additional order that the costs of defending the NCAT proceedings be paid by REW. It is not necessary to make such an order where the agreement between the parties noted in my order addresses the payment of such costs. If any difficulty arises with that agreement, the Court may well make such an order as to costs at that point, so far as Ms Rosinska and Mr Rudi are being granted leave to defend those proceedings to avoid the risk of a default judgment against REW, and in circumstances that Mr and Mrs Melnikoff have not offered to take on the responsibility of defending the proceedings. The Court has power to make such an order under s 242 of the Corporations Act, although that power is exercised in a minority of derivative claims.
Plaintiffs' proposed order [7], paragraph [10], Defendants proposed orders [7]-[8]
An application by Ms Rosinska and Mr Rudi seeking an order directing Mr and Mrs Melnikoff to approve payments of certain debts of REW from a specified account, to the extent that agreement had not already been reached between them, was deferred. Paragraph 7 of Mr & Mrs Melnikoff's proposed orders deals with the provision of copies of invoices to third parties. That order cross-refers to order 6, but the intended cross-reference appears to be to the note of an agreement between the parties which is now reflected in order 10 of Mr & Mrs Melnikoff's proposed orders. Paragraph 10 of Mr & Mrs Melnikoff's proposed orders reflect an agreement of the parties as to the payment of various business expenses. Paragraph 7 of Ms Rosinska, Mr Rudi and IUR's proposed orders is formulated as an order made by the Court. The latter formulation is not supported by the Judgment, particularly where it extends to payments that appear to be in dispute and where the Court has not resolved that dispute. I will accordingly note the matter in Mr & Mrs Melnikoff's proposed paragraph 10, and will make an order as to the provision of copies of invoices, amended to insert the correct cross-reference.
The corresponding order in paragraph 8 of the Defendants' proposed orders include an order that the Plaintiffs' approve for payment of all amounts in such invoices within 48 hours of receiving the relevant invoice or timesheet. Again, that does not reflect any finding in the Judgment and should not be made. I repeat the observation which I made in the course of submissions, and referred to in the Judgment, that, if the parties cannot reach agreement as to the payment of ordinary business expenses between them, then the appropriate course may well be to appoint a provisional liquidator, rather than to make a mandatory order that one party approve the payment of such expenses.
Plaintiffs' proposed orders [8]
Paragraph 8 of Mr & Mrs Melnikoff's proposed orders provides for the dismissal of paragraph 7 of the Amended Notice of Motion filed 26 June 2014. That paragraph deals with an application by Ms Rosinska, Mr Rudi and IUR for an order varying freezing orders made by the Court on 29 January 2014, as subsequently varied, which was not successful. The Defendants' proposed Short Minutes of Orders did not reflect that aspect of my judgment. When parties are directed to bring in Short Minutes of Order to give effect to a judgment, their draft orders ought fairly to reflect that judgment, not merely any aspect of that judgment which they consider might be favourable to them.
Plaintiffs' proposed note 11
Order 11 of Mr & Mrs Melnikoff's proposed orders notes a suggested undertaking of Ms Rosinska, Mr Rudi and IUR:
"to indemnify [REW], jointly and severally, in respect of any and all liability, loss and cost (including without limitation legal costs and disbursements) incurred or suffered by [REW] in respect of the leave granted pursuant to section 237 in orders 3 and 4 above."
The intended reference appears to be to orders 4 and 5 of Mr & Mrs Melnikoff's proposed orders. No such undertaking should be required in respect of the Defence filed in these proceedings, which is not capable of causing loss so far as it avoids default judgment in respect of REW in respect of matters in issue between the parties. No such indemnity should be required in respect of the NCAT proceedings where Ms Rosinska and Mr Rudi have no real alternative other than to seek to defend those proceedings in REW's name where Mr and Mrs Melnikoff do not seek to do so. There is no reason why an indemnity should be provided to Mr & Mrs Melnikoff as the price of a defence that is, on the face of it, in REW's interests which they do not themselves choose to undertake.
Other matters
I held that an application by Ms Rosinska and Mr Rudi to strike out parts of Mr & Mrs Melnikoff's Statement of Claim should be deferred until Mr & Mrs Melnikoff had brought any application for leave under s 237 of the Corporations Act and led any evidence on which they relied in respect of that application.
The Plaintiffs also sought orders striking out a Defence filed by REW and certain prayers and paragraphs of the Cross-Claim filed by Ms Rosinska, Mr Rudi and IUR. No occasion arose to strike out the Defence since I had granted leave to Ms Rosinska and Mr Rudi to defend the proceedings on behalf of REW, but I held that orders should be made striking out the relevant paragraphs of the Cross-Claim for which leave had not been granted.
Costs
It is perhaps no surprise that the parties also took different views as to the orders which should be made in respect of the costs of the proceedings, as to which they each made extensive submissions. Mr & Mrs Melnikoff's position was that an order for costs should be made in the following form:
"The Second-Fourth Defendants shall pay the Plaintiffs' costs of and incidental to the Plaintiffs' Notice of Motion filed 7 April 2014 and the Second-Fourth Defendants Notice of Motion filed 17 April 2014 and the Amended Notice of Motion filed 26 June 2014, but excluding costs of:
(a) Paragraph 1 of the Second-Fourth Defendants' Notice of Motion filed 17 April 2014. Such costs are reserved; and
(b) Paragraph 1 of the Plaintiffs' Notice of Motion filed 7 April 2014. Such costs shall be borne by the Plaintiffs."
Mr & Mrs Melnikoff submit, and I accept, that the majority of the hearing time was taken up in respect of matters as to which they have been successful, in respect of the issues as to the grant of leave under s 237 of the Corporations Act in relation to the claims concerning the Meriton projects and Luxcon Group and the variation of the freezing orders. They submit that they had not refused consent for Ms Rosinska and Mr Rudi to represent REW in the NCAT proceedings but had made requests as to the manner in which those proceedings should be conducted and note that the parties reached a degree of agreement as to that matter prior to the hearing. It seems to me that the proper course is that there be no order as to costs as to those matters, and I will exclude it from the orders as to costs made below.
Conversely, Ms Rosinska, Mr Rudi and IUR sought an order that Mr & Mrs Melnikoff should pay the costs of and incidental to Ms Rosinska's, Mr Rudi's and IUR's Amended Notice of Motion. They also sought an order that Mr & Mrs Melnikoff should pay the costs of and incidental to the Plaintiffs' Notice of Motion filed 7 April 2014. Ms Rosinska, Mr Rudi and IUR accept that the general position is that a Court should ordinarily award the costs of an application to a successful party without attempting to differentiate between the issues on which the party succeeded and any issues on which it failed and that an unsuccessful party should generally be ordered to pay a successful party's costs, to the extent those costs have been reasonably incurred in the conduct of the litigation.
Ms Rosinska, Mr Rudi and IUR rely on a letter dated 9 April 2014 to the solicitors for Mr & Mrs Melnikoff proposing a means to dispose of the need for a contested hearing on Mr & Mrs Melnikoff's Notice of Motion. They submit that Mr & Mrs Melnikoff had limited success in prosecuting their Notice of Motion. They note that order 1 of that Notice of Motion failed, and that matter is reflected in Mr & Mrs Melnikoff's proposed costs orders. They submit, and I accept, that no substantial argument was required as to paragraphs 4-6 dealing with notices to produce and subpoenas, because of concessions previously made by Ms Rosinska, Mr Rudi and IUR in their solicitors' letter dated 9 April 2014. They fail to recognise, however, that a substantial issue in the proceedings before me was whether paragraphs of the Statement of Cross-Claim dealing with the claim in respect of the Meriton projects should be struck out, as to which Mr & Mrs Melnikoff were successful.
Ms Rosinska, Mr Rudi and IUR also submit that they enjoyed "substantial success" in their Notice of Motion. They submit they succeeded in whole or part in respect of order 1, dealing with the application to strike out parts of the Statement of Claim as to which an application under s 237 of the Corporations Act was required by the Plaintiffs. I do not accept that submission, so far as that matter was not determined pending an application by the Plaintiffs under s 237 of the Corporations Act. They submit, and I accept, that they succeeded in respect of order 2 of their motion, subject to limitations, in respect of the leave to conduct the defence of the proceedings on behalf of REW. They do not address paragraphs 3 and 4 of their Notice of Motion, dealing with the unsuccessful applications for leave to bring the proposed Amended Cross-Claim in respect of the Meriton projects and Luxcon Group claims. They submit, correctly, that the Court made an order in respect of s 237 of the Corporations Act in respect of the NCAT proceedings, as to which consensus was largely reached between the parties. They also do not address paragraphs 6 and 7 of their Notice of Motion, which were the unsuccessful application for the freezing orders. They rightly note that Order 8 of the Notice of Motion was not required. They submit that orders 9 and 10, requiring Mr & Mrs Melnikoff to approve specified payments, have been made. That is incorrect, both because no such order has been made as to a matter which was agreed between the parties and because other aspects of that order are not the subject of agreement and have not been determined by the Court. In these circumstances, I do not accept Ms Rosinska's, Mr Rudi's and IUR's submissions that Mr & Mrs Melnikoff should pay the costs of and incidental to Ms Rosinska's, Mr Rudi's and IUR's Notice of Motion. Those submissions do not recognise the substantial aspects in which Mr & Mrs Melnikoff were successful and Ms Rosinska, Mr Rudi and IUR were unsuccessful.
Ms Rosinska, Mr Rudi and IUR also submit that Mr & Mrs Melnikoff should pay the costs of Mr & Mrs Melnikoff's Notice of Motion or that each party should bear their own costs of that motion. Ms Rosinska, Mr Rudi and IUR should be ordered to pay the costs referable to paragraph 2 of that motion, referable to Mr & Mrs Melnikoff's successful application relating to the Cross-Claim in respect of the Meriton projects. No order should be made in respect of costs of paragraph 1 of the Motion, which has not been determined, or paragraph 5 which was largely resolved between the parties and otherwise consequential on this judgment.
For these reasons, it seems to me that the orders as to costs sought by Mr & Mrs Melnikoff, with the qualifications noted below, reflect the substantive outcome of the motions. As noted above, the exclusion in Mr & Mrs Melnikoff's proposed orders in respect of paragraph 1 of Ms Rosinska's, Mr Rudi's and IUR's Notice of Motion is appropriate, where that matter has not yet been determined. The provision for Mr & Mrs Melnikoff to pay the costs of paragraph 1 of their Notice of Motion is also appropriate, where they have not been successful in their application that REW's Defence be struck out. The costs of Ms Rosinska's, Mr Rudi's and IUR's application for leave in respect of that Defence overlap with that category but there should be no order as to the costs of that matter where they were only successful to a limited extent in that regard. I am not able to form a view, even as a matter of impression, as to whether the overall outcome could properly be reflected in any order that Ms Rosinska, Mr Rudi and IUR pay a percentage of Mr & Mrs Melnikoff's costs. It may be that the parties can agree such an order between them, in order to avoid the costs of an assessment by reference to particular issues.
Accordingly, I propose to make the following orders and note the following matters. However, I will allow the parties until 4pm on 1 September 2014 to make any comments as to the form (as distinct from the substance) of the orders or to advise that they have reached agreement as to a basis on which Ms Rosinska, Mr Rudi and IUR should pay a percentage of Mr & Mrs Melnikoff's costs of the motions so as to avoid the costs of an assessment by reference to particular issues:
1. Dismiss paragraphs 3, 4 and 8 of the Amended Notice of Motion filed 26 June 2014.
2. Prayers 1-3 and 6-11 and paragraphs 1-38 of the Statement of Cross-Claim filed 14 March 2014 be struck out.
3. Paragraphs 1-6 of the two Notices to Produce to Court dated 18 March 2014 issued by the Cross-Claimants to the Cross-Defendants be set aside.
4. Pursuant to s 237 of the Corporations Act 2001 (Cth), grant leave to the Second and Third Defendants, nunc pro tunc, to file a Defence on behalf of the First Defendant in the proceedings, no further step to be taken by them in respect of the defence of the proceedings without leave of the Court.
5. Pursuant to s 237 of the Corporations Act, grant leave to the Second and Third Defendants, nunc pro tunc, to defend proceedings on behalf of the First Defendant brought in the New South Wales Civil & Administrative Tribunal, being proceedings no HB13/63749 ("NCAT Proceedings").
6. As a condition of the leave granted in paragraph 5 above, the Second and Third Defendants shall:
(a) provide copies of all relevant material including without limitation, correspondence (inter parties and between solicitor and client), evidence, reports and court documents in respect of the NCAT proceedings in a timely manner but in any event within 48 hours of receipt of or sending such material;
(b) consult the Second and Third Plaintiffs in respect of the making of any offers of compromise/settlement before any offers of compromise/settlement are made and provide any offers of compromise/settlement (including counter-offers) from the claimant in the NCAT proceedings, in a timely manner but in any event within 48 hours of receipt of such correspondence; and
(c) not compromise the NCAT proceedings without the consent of the Second and Third Plaintiffs.
7. The Court notes the agreement of the Second and Third Plaintiffs and the Second and Third Defendants to take all steps necessary to procure the payment of the following ongoing business expenses of the First Defendant from the available cash funds of the First Defendant, as and when they fall due:
(a) Rent due and owing to Commercial Property Partners in respect of the property known as 111 Eldridge Road, Condell Park, NSW;
(b) Roden Security Services in respect of security/surveillance services provided at 111 Eldridge Road, Condell Park, NSW;
(c) Fisher Security Services in respect of security/surveillance services provided at 111 Eldridge Road, Condell Park, NSW;
(d) Neverfail (Account no: XXX);
(e) Telstra (Account no: XXX);
(f) Optus (Account no: XXX);
(g) any amounts due and payable to the Australian Securities Investment Commission; and
(h) Mills Oakley, for fees and disbursements invoiced in respect of the NCAT Proceedings.
8. The Second and Third Defendants shall provide copies of invoices due and payable to the third parties referred to in paragraph 7 above in a timely manner but in any event within 48 hours of receipt of such invoices.
9. Dismiss paragraph 7 of the Amended Notice of Motion filed 26 June 2014.
10. The Second-Fourth Defendants pay the Plaintiffs' costs, as agreed or as assessed, of and incidental to:
(a) paragraph 2 of the Plaintiffs' Notice of Motion filed 7 April 2014; and
(b) the Second-Fourth Defendants' Notice of Motion filed 17 April 2014 and the Amended Notice of Motion filed 26 June 2014 (excluding costs referable to the application for leave to bring the NCAT proceedings, the application for orders for the payment of suppliers and the costs referred to in paragraph 11 below).
11. The costs of paragraph 1 of the Second-Fourth Defendants' Notice of Motion filed 17 April 2014 be reserved.
12. The Plaintiffs pay the costs of paragraph 1 of the Plaintiffs' Notice of Motion filed 7 April 2014 as agreed or as assessed.
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Decision last updated: 09 September 2014
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