Bluestars Real Estate Pty Ltd v Australian Legal Advisory Service
[2019] VSC 430
•28 June 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COSTS COURT
S ECI 2018 01576
IN THE MATTER of Section 198(1)(a) Legal Profession Uniform Law (Victoria)
BETWEEN
| BLUESTARS REAL ESTATE PTY LTD | First Applicant |
| MXXD INVESTMENT PTY LTD | SecondApplicant |
| FANG MING DAI | Third Applicant |
| v | |
| MIN JUAN DAI T/A AUSTRALIAN LEGAL ADVISORY CENTRE | Respondent |
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JUDGE: | Wood AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 11 June 2019 |
DATE OF DECISION & REASONS: | 28 June 2019 |
CASE MAY BE CITED AS: | Bluestars Real Estate Pty Ltd & Ors v Australian Legal Advisory Service |
MEDIUM NEUTRAL CITATION: | [2019] VSC 430 |
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CONFLICT OF INTEREST – Lawyer acting for multiple parties.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr S Buchanan | Victorian Legal Costs Assessors |
| For the Respondent | Mr J Love | Australian Legal Advisory Service |
HIS HONOUR:
This current proceeding was initiated by Summons for Taxation filed on 26 September 2018. The first applicant (‘Bluestars’) was the only applicant at that time. The Summons seeks to review legal costs charged by the respondent pursuant to two separate Costs Agreements dated 29 July 2016 and 12 September 2017. The retainers were in relation to separate proceedings issued in the Federal Circuit Court in 2016[1] and in the Supreme Court of Victoria in 2017.[2] The Federal Circuit Court proceeding has resolved.[3] The Supreme Court proceeding remains on foot.[4]
[1]MLG 1424 of 2016.
[2]SECI 2017 00215.
[3]Dai v Bluestars Real Estate Pty Ltd & Anor [2019] VCC 17 at [4].
[4]The trial is part heard before Bell J.
At the callover on 23 October 2018 an order was made that Bluestars file and serve a Notice of Dispute in relation to the Costs Agreements and costs disclosures and the proceeding was adjourned to 11 December 2018. The Notice of Dispute was filed and the applicant disputed the respondent’s compliance with disclosure obligations under the Legal Profession Uniform Law 2014 (‘the Act’) and the validity of the Costs Agreements.
Prior to the listing on 11 December 2018 the respondent filed an affidavit which asserted that although she had acted for Bluestars, MXXD Investment Pty Ltd (‘MXXD’) and Fangming Dai (‘Bob Dai’) it was the latter who confirmed he was solely liable for the legal costs incurred. The affidavit also deposes that on 22 October 2018 proceedings were issued by the respondent against Bob Dai in the County Court[5] for unpaid legal costs in respect of the representation provided by the respondent in the Supreme Court proceeding. A claim was made for $199,092.30 in that proceeding. Judgment was entered in default of appearance but it was subsequently set aside on 17 December 2018.[6] In the Defence filed in that proceeding on 29 January 2019, Bob Dai denies being personally liable for the respondent’s costs.
[5]CI-18-04677.
[6]Dai (Trading as Australian Legal Advisory Centre) v Dai (2018) VCC 2235.
On 31 January 2019 Bluestars issued a Summons in the current proceeding seeking to add MXXD and Bob Dai as second and third applicants. On 4 February 2019 the respondent filed a Summons seeking an order that Bob Dai be treated as a third party payer and that it be determined that Bluestars had no standing to seek a review of the costs. A stay was also sought in the current proceeding in relation to the taxation of the legal costs that related to the Federal Circuit Court proceeding on the basis that a second County Court proceeding was issued by the respondent on 19 October 2018 to recover unpaid costs for representation in the Federal Circuit Court proceeding. A claim was made for $120,362 in that proceeding.[7] The defendants to that proceeding were Bluestars and Ling Xu (‘Xu’).[8]
[7]CI-18-04667.
[8]The name of Xu was amended from Ming Xu in an Amended Writ filed 17 January 2019.
On 5 February 2019 an order was made by consent in the current proceeding to add MXXD and Bob Dai as the second and third applicants. That same consent order also provided that the parties use their best endeavours to have the two County Court proceedings transferred to this Court. An order has been made by the County Court to this effect.
The transferred County Court proceeding in relation to the Federal Circuit Court proceeding costs has become SECI 2019 01439 (with Bluestars and Xu as respondents). The substantive Federal Circuit Court proceeding to which the costs relate was issued in the Fair Work Division and concerned sponsored employment with a view to obtaining residency.[9] It was issued by Yapei Xing against Bluestars, Bob Dai, Xu and Yuhui Fang (‘Fang’). The respondent acted for Fang and Bluestars. The Costs Agreement dated in July 2016 is in the name of Bluestars.[10] Invoices issued by the respondent were either addressed to Bluestars or to Fang, Xu and Bob Dai in their capacities as directors of Bluestars.[11] From this point onwards in this judgment that proceeding will be referred to as the ‘Xing matter.’
[9]Dai v Bluestars Real Estate Pty Ltd & Anor (2019) VCC 17 at [1].
[10]Exhibit ‘LX 1’ to the affidavit of Xu affirmed 18 April 2019.
[11]Ibid at Exhibit ‘LX 2’.
The transferred County Court proceeding in relation to the Supreme Court proceeding costs has become SECI 2019 01440 (with Bob Dai as respondent). The substantive Supreme Court proceeding to which the costs relate was issued by Kuifu (Jeffrey) Ji against Bluestars, MXXD, Bob Dai and Ying Li.[12] This was essentially a property dispute. From this point onwards in this judgment that proceeding will be referred to as the ‘Ji matter’.[13]
[12]S ECI 2017 00215 – part heard before Bell J.
[13]I conducted a mediation in the Ji matter in March 2018 but there is no objection to me hearing the current proceeding.
On 2 May 2019 Riordan J made orders in both transferred matters that they be heard and determined by an Associate Judge pursuant to Rule 77.05 of the Supreme Court(General Civil Procedure) Rules 2015. The current proceeding and the two transferred proceedings have common issues. The progression of the two transferred proceedings is awaiting the outcome of the Summons referred to in paragraph 10 below,[14] being the subject matter of this decision.
[14]Orders were made to that effect by consent on 31 May 2019 in both matters.
It is clear from the Australian Securities and Investments Commission (‘ASIC’) data base and search histories of Bluestars and MXXD that their directorships and shareholdings have been somewhat fluid throughout the relevant period. No discernable reason for this is immediately apparent from the material filed.
Turning now to the issues at hand. On 18 March 2019 the respondent filed a Summons (‘conflict Summons’) seeking an order that the solicitors on record in the current proceeding for Bluestars, MXXD and Bob Dai be prevented from continuing to act. In the respondent’s written submission dated 25 April 2019 the concern is restricted to the solicitors on record continuing to act for Bob Dai and Bluestars.[15] In the respondent’s affidavit in support sworn 18 March 2019[16] it is deposed that the respondent also seeks an order that the same solicitors on record be restrained from acting for Xu in one of the transferred proceedings, namely the one that relates to the Xing matter.[17] Xu is not a party in the current proceeding but has filed a Defence in that transferred proceeding denying he is liable.[18] It is the fate of the conflict Summons which comprises the subject matter of this decision and reasons arising from the hearing held on 11 June 2019.
[15]Paragraph 4.
[16]Paragraph 2.
[17]SECI 2019 01439.
[18]Paragraph 15 of the respondent’s affidavit sworn 18 March 2019.
The day after the conflict Summons was filed, a Judicial Registrar made orders by consent that the applicants file and serve any affidavit in reply by 9 April 2019. The order also provided for the respondent to file submissions by 16 April 2019 with the applicant to file reply submissions by 23 April 2019. The hearing was set for 3 May 2019. That time table was not complied with.
The applicants did not file any affidavit in reply to the respondent’s affidavit of 18 March 2019 by 9 April 2019. In fact it was the respondent who filed another affidavit sworn 8 April 2019. The applicants then filed affidavits of Bob Dai and Xu both affirmed 18 April 2019. The respondent filed submissions on 25 April 2019.
On 1 May 2019 the applicants filed an affidavit of Sergey Sizenko (their solicitor on record) affirmed that day. Exhibited to the affidavit is a comprehensive advice from counsel (Mr Jim Doherty). In summary, the advise was at that stage that there is no conflict of interest and a conflict would potentially arise after the quantification of the respondent’s legal costs.
On 2 May 2019 the applicants filed written submissions. The position of the applicants in relation to the Ji matter is that the applicants are all jointly and severally liable. That position was reiterated by counsel for the applicants at the hearing on 11 June 2019.[19] In relation to the Xing matter it is put that the position of Bluestars and Xu is that Bluestars is liable. The respondent’s case in relation to that matter is that Xu is liable under an alleged agreement to indemnify the respondent for any unpaid costs. That position was reiterated by counsel for the respondent at the hearing on 11 June 2019.[20] Counsel for the applicants also understood that to be the respondent’s position.[21]
[19]Transcript – 11 June 2019 - page 25 – lines 12 to 13.
[20]Transcript – 11 June 2019 - page 18 – lines 24 to 27.
[21]Transcript – 11 June 2019 - page 8 – lines 3 to 12.
On 2 May 2019 the respondent filed another affidavit. This late affidavit was sworn by Fang. In that affidavit she deposes that she is a 50% shareholder and co-director of Bluestars[22] with Xu and that she did not consent to the current procedings being issued by Bluestars in September 2018 or continued.[23] It should be noted at this point that Fang was one of three directors in September 2018 with Bob Dai and Xu.[24] However, Fang and Xu alone became co-directors from 24 October 2018 (when Bob Dai ceased) and in her affidavit of 1 May 2019 she deposed that she has declined to authorise this current proceeding.[25] Fang deposes that Xu promised to pay the respondent’s costs in relation to the Xing matter and that Bob Dai promised to pay the respondent’s costs in relation to the Ji matter. It is apparent from the judgment in the respondent’s County Court proceeding against Bluestars and Xu regarding the Xing matter that Judge Macnamara noted that the respondent argued that it was Xu who accepted personal liability in both the Xing matter and the Ji matter.[26]
[22]Paragraph 2.
[23]Paragraphs 4, 5 and 8.
[24]ASIC search dated 22 November 2018 - exhibited at ‘MJD 1’.
[25]Paragraph 5 of Fang affidavit sworn 1 May 2019.
[26]Dai v Bluestars Real Estate Pty Ltd & Anor (2019) VCC 17 at [18] and [19].
Given the position taken by Fang in the late affidavit in relation to actions and positions taken without her consent on behalf of Bluestars, the hearing on 3 May 2019 was adjourned to 11 June 2019 so that counsel appearing, and the solicitor on record for Bluestars, could consider their positions and clarify if they were properly authorised to act and appear for Bluestars on the instructions of Xu only, or at all.
Since then the applicants have filed two more affidavits of Mr Sizenko (sworn 6 & 7 June 2019), the latter of which exhibits another advice from Mr Doherty.[27] The respondent filed another written submission dated 10 June 2019.
[27]Exhibit ‘SS 1’ to the affidavit of 7 June 2019.
At the hearing on 11 June 2019 it was conceded on behalf of the solicitor on record for the applicants that they could no longer act for Bluestars and that a Notice of Ceasing to Act would need to be filed in the current proceeding (where Bluestars are an applicant), and in transferred proceeding SECI 2019 01439 (in which Bluestars and Xu are respondents) in relation to the Xing matter. Notices were accordingly filed in both the current proceeding and in SECI 2019 01439 immediately after the conclusion of the hearing on 11 June 2019.
At the hearing on 11 June 2019 the respondent stated they were seeking orders that that the conflict Summons be amended to seek to exclude the solicitor on record from acting for Xu as well as the named parties, that the solicitor on record for the applicants be ordered to cease acting for all parties, and the respondent be favoured by an order for costs of the conflict Summons or, in the alternative, at least the costs of the hearing on 3 May 2019 on the basis that their continuing to act in relation to Bluestars had been raised as an isssue at a much earlier stage.
In summary, the respondent argues that conflicts of interest still arise where the current solicitor on record is still acting for MXXD, Bob Dai and Xu. It was conceded on the hearing date that potential access that the current lawyers may have already had to confidential documents held by Bluestars, was the main reason.[28] The potential confidential information is outlined in the respondent’s written submissions dated 10 June 2019.[29] The information is said to be such that Bob Dai, Xu and MXXD might gain an advantage. It should be said at this point that both Xu and Bob Dai would already have knowledge of confidential information in relation to Bluestars as they are either a current director or former director at the relevant time.
[28]Transcript – 11 June 2019 - page 22 – lines 3 to 26.
[29]Paragraph 32.
At the hearing on 11 June 2019 counsel for the respondent took the position that the solicitor on record could not act for Xu, MXXD and Bob Dai even if they withdrew from acting for Bluestars. This was said to arise from the fact that it was possible Bluestars might participate in other proceedings in relation to who was liable.[30] That scenario is unlikely as it would have happened by now if it was going to and this was an unusual argument for the respondent to put at this time given the fact that Bluestars is deadlocked between the 50% directors and shareholders. Counsel for the respondent had no strong objection to the one solicitor acting for Xu, MXXD and Bob Dai.[31]
[30]Transcript – 11 June 2019 - page 6 – lines 9 to 16 and also page 20 - lines 13 & 14.
[31]Transcript – 11 June 2019 - page 21 – lines 5 to 7 and page 29 – lines 5 to 11.
In relation to MXXD and Bob Dai it is put on behalf of the respondent that there is a conflict for the same lawyer to act. That same lawyer will be arguing on behalf of Bob Dai that he is not personally liable. Bluestars and MXXD are companies. The respondent acted for all three in the Ji matter. The affidavits of Bob Dai and Xu assert there is no conflict as both companies have always maintained the position they are liable for costs.[32]
[32]Paragraph 3 of Xu affidavit affirmed 18 April 2019 and paragraph 4 of Bob Dai affidavit affirmed 18 April 2019.
Consistent with the applicants’ position in relation to Bluestars the respondent initially sued Bluestars in the County Court in relation to the Xing matter for unpaid costs, presumably on the basis that the respondent took the position Bluestars was liable.[33] There would be an abuse of process if the respondent alleges in the Xing matter (S ECI 2019 1439) that Bluestars are liable, and in the current proceeding, that they are not. When this was raised at the hearing on 3 May 2019 counsel for the respondent advised that seeking orders against Bluestars was an alternative to relief against Xu in relation to the costs in the Xing matter.[34] The Statement of Claim was initially amended to allege joint and several liability between Xu and Bluestars. The Further Amended Statement of Claim alleges Xu agreed to indemnify the respondent for any unpaid costs.
[33]Paragraph 8 of Xu affidavit affirmed 18 April 2019.
[34]Paragraph 23 of the Further Amended Statement of Claim.
Arising from the ASIC search dated 22 November 2018[35] in relation to Bluestars, Bob Dai was a director between 17 December 2009 and 24 October 2018[36] and is a former shareholder. Xu is one of two current directors. The other director was Yuhui Fang (‘Fang’) who was also a 50% shareholder. The respondent deposes that she has previously represented Fang.[37] The other 50% shareholder was Xu Sync Investments Pty Ltd. The respondent incorrectly asserts on oath two errors. First, that the company is named Xu Sync Pty Ltd and secondly, that this is a company owned by Xu.[38] However, the exhibit to that affidavit contradicts that evidence as it discloses that the company is named Xu Sync Investments Pty Ltd and further, that all the shares in that company were owned by Yingyin Shao (‘Shao’)[39]. It is apparent from a judgment in the Ji proceeding[40] that Shao is an aunt of Bob Dai and that Xu is a cousin of Bob Dai.
[35]Exhibit ‘MJD 1’.
[36]Exhibit ‘MJD 1’ to the respondent’s affidavit 18 March 2019.
[37]Paragraph 32 of the respondent’s affidavit sworn 8 April 2019.
[38]Paragraph 23 of the respondent’s affidavit sworn 8 April 2019 and exhibit ‘MJD 9.’
[39]ASIC search dated 8 April 2019.
[40]Ji v Bluestars Real Estate Pty Ltd (2018) VSC 11 at [2] and [28}.
An ASIC search of 8 April 2019 in relation to Bluestars confirmed that Fang and Xu are co-directors with 50% of the shares owned by Xu Sync Investment Pty Ltd. Fang owns the other 50%.
Arising from an ASIC search dated 5 October 2017[41] in relation to MXXD, Bob Dai was a director from 26 May 2009 to 24 September 2015, from 21 October 2015 to 15 November 2015 and then from 16 May 2017 and continuing. Xu had been a director since 24 September 2015 at that time. Bob Dai and Xu were therefore co-directors at the time of that search. That search showed the shareholders of MXXD to include Bob Dai as holding 30 shares. The other shareholders were Yunlan Winthrope (40 shares), Wei Zhong (20 shares) and Xu Sync Investments Pty Ltd (30 shares). Therefore 50% of the shareholding was collectively held by Bob Dai (25%) with the other 25% held by the company in which Xu (his cousin) is the sole director and Shao (his aunt) owns 100%.
[41]Exhibit ‘MJD 1’.
However, the respondent’s written submission of 25 April 2019 incorrectly stated that the shareholders of MXXD are now Bob Dai (50%) and Yunlan Winthrope (50%).[42] A more up to date ASIC search dated 7 April 2019[43] discloses that Bob Dai is the sole director with 60% of the shares and Yunlan Winthrope with 40% of the shares.
[42]Paragraph 20 of the written submission.
[43]Exhibit ‘MJD 12’.
In his affidavit, Bob Dai, as a director of MXXD and former director of Bluestars, deposes that these companies have always been liable for the respondent’s costs.[44] He also accepts that he is jointly and severally liable for the respondent’s costs in the Ji matter (along with Bluestars and MXXD).[45] That position was repeated by his counsel at the hearing on 11 June 2019.[46] The respondent had also accepted that position at the commencement of the retainer and stated so in an email to Bob Dai dated 12 September 2017.[47] The email is sent the day after the Costs Agreement and Disclosure Statement and confirms ‘that we will charge Bluestars Real Estate Pty Ltd, Bob Dai and MXXD Investment Pty Ltd as one combined entity’. The email goes on to state ‘We confirm that Bluestars Real Estate Pty Ltd, Bob Dai and/or MXXD Real Estate Pty Ltd (sic) are and will only joint (sic) liable for Bill of Costs’. The affidavit of Xu (former director of MXXD and current director of Bluestars) states the companies are liable in the Ji and Xing matters and that he is not.[48] Xu is not an applicant in any of the three proceedings before the Court. He is only a respondent in one of them.[49]
[44]Affidavit affirmed 18 April 2019 at paragraph 4.
[45]Ibid at paragraph 5.
[46]Transcript – 11 June 2019 - page 25 – lines 12 to 13.
[47]Part of Exhibit ‘MFD 2’ to Bob Dai affidavit affirmed 18 April 2019.
[48]Paragraphs 3 and 4 in the Xu affidavit affirmed 18 April 2019.
[49]SECI 2019 01439.
The applicants’ submission is therefore that Bob Dai, MXXD and Bluestars are jointly and severally liable for the repondent’s costs in the Ji matter and in relation to the Xing matter, that Bluestars is liable and Xu is not.
It is clearly desirable to avoid multiplicity of legal representation where possible particularly given the provisions of the Civil Procedure Act 2010. A complicating factor here is that the attitude of Fang as co-director (with Xu) of Bluestars is now known and there is a potential deadlock between 50% directors and 50% shareholders. In relation to MXXD there is agreement between the former co‑directors Bob Dai and Xu. The current sole director is Bob Dai.
Drawing on the essense of a decision of Elliot J in Ji all persons with an interest in the disputed costs of the respondent need to be properly informed of the proposal that the one solicitor represent Bob Dai, Bluestars, MXXD and Xu in a matter where an argument is to be put that only the companies are liable for costs and where there were claims for proportionate liability.[50] That argument will only be put in relation to the Xing matter by the applicants. The argument by the applicants in relation to the Ji matter is that there is joint and several liability of both companies with Bob Dai.
[50]Ji v Bluestars Real Estate Pty Ltd (2018) VSC 11 at [20].
Potential interested shareholders include Yunlan Winthrope (40% of the shares in MXXD). Fang owns 50% of Bluestars[51] and is already on notice about the matter. The other 50% of the shares in Bluestars is held by Xu Sync Investment Pty Ltd where Xu is the sole director of that company but 100% of the shares are owned by Shao.
[51]Affidavit of Fang sworn 1 May 2019 at paragraph 2.
Both Bob Dai and Xu are being sued in their personal capacities in the two transferred proceedings. Bob Dai as a director of MXXD and Xu as a director of Bluestars and former director of MXXD. Arguments will be put that both companies are liable for the respondent’s disputed costs. It is important that the interested parties in both companies know at the appropriate stage what strategy is being adopted by Bob Dai or Xu in relation to the company they have an interest in.
In his second advice Mr Doherty maintains his opinion that the review of the respondent’s costs occur next.[52] He also refers to a potential mediation, however, given the history there is little cause for optimism. Further, Fang is not a party and not legally represented and while Bluestars is a party, it is not legally represented and the 50% directors/shareholders are deadlocked.
[52]Paragraph 35 of exhibit ‘SS 1’ to the affidavit of Mr Sizenko dated 7 June 2019.
Mr Doherty identified the potential for a conflict but this would depend on what occurs next. Bluestars are now not represented[53] and are a named party in two of the three proceedings in this Court. The respondent has the option to put any relevant shareholder in Bluestars and MXXD on notice about the three proceedings although in practical terms the respondent will be protecting shareholder interests (and those of Bluestars) in the future by arguing that individuals and not the companies are liable for the costs.
[53]Notices of Solicitor Ceasing to Act were filed in this proceeding and SECI 2019 01439 on 11 June 2019.
Non-parties always have the option to seek leave to be a party and be legally represented if they can establish they have sufficient interest. It is worth bearing in mind there are existing provisions in the Act which may have relevance to the current proceeding as a review under that Act is certainly the primary basis of the current proceeding. For example, section 198 of the Act enables an individual to participate as a party (see sub-sections (9)(a) and (b)).
The next logical step in all three proceedings in this Court is to determine whether one or both of the Costs Agreements are void, and if so on what basis should costs be assessed. The respondent’s costs should then be assessed. There is no conflict of interest in determining those matters as Bob Dai, Xu, MXXD all have the same interest, that is, to minimise costs recovery by the respondent. Accordingly, there is no present basis to justify an order preventing the solicitors on record from acting for Bob Dai, Xu and MXXD.
The respondent has identified a number of categories of information that the current legal representatives may have gained access to in the period they acted for Bluestars which would justify them not acting further.[54] The information identified relates to the financial status of the company which is irrelevant to the quantification of the respondent’s costs. This information is said to be such that Bob Dai, Xu and MXXD could gain an advantage ‘vis a vis Bluestars.’[55] However both Bob Dai and Xu were directors of Bluestars at the relevant time and were privy to that information anyway by virtue of those postions. Making them engage fresh solicitors would not prevent them from utilising that knowledge. This would merely add to the costs without solving that issue. In any event, the focus is now on the respondent and what work was performed, and what charges are fair and reasonable.
[54]Paragraph 32 of the written submissions dated 10 June 2019.
[55]Ibid at paragraph 33.
The respondent submitted that the party responsible to them should be ascertained first before any review takes place. This would not be the most efficient way to proceed. Discovery, further affidavits and cross examination would be required. The better course, which would satisfy the Civil Procedure Act 2010, would be to embark on the taxation and quantify the respondent’s entitlement to costs. Evidence will emerge in this process which will bear on that issue. File notes, letters and other documents will be produced by the respondent in order to support the items claimed and the evidence of who is liable is likely to be a by-product of that process. This may obviate the necessity for, or narrow the scope of, the other potential processes and will probably result in a cheaper and faster resolution of all issues.
At the hearing on 11 June 2019 counsel for the respondent submitted that the necessity to assess the quantum of costs might prove unnecessary once the party liable is identified. It was a matter of speculation, but it was put that Xu might just agree to pay the respondent’s costs once his liability to pay was clarified and this would avoid the necessity for an assessment of costs.[56] This is highly unlikely for two reasons. First, there are allegations of non-compliance with disclosure obligations and the Act provides that, if established, a law practice cannot commence or maintain proceedings until costs have been assessed.[57] There is no obligation to pay anything until costs have been assessed. Secondly, prior to transferring the matter where the respondent joined Xu (which became S ECI 2019 01439), Judge Macnamara found there was a ‘deficiency in disclosure’ in relation to the matter.[58] That was in fact the reason those proceedings were stayed prior to transfer.
[56]Transcript – 11 June 2019 - page 11 – lines 12 to 20.
[57]Section 178(1)(c).
[58]Dai v Bluestars Real Estate Pty Ltd & Anor (2019) VCC 17 at [28].
The respondent has an interest in recovering money if there is money owing. In relation to Ji it will be argued on behalf of Bob Dai and MXXD that they are jointly and severally liable with Bluestars. The respondent’s main concern is the solvency of Bluestars.[59] There would be no point in arguing that Bob Dai is solely liable if the respondent has the option of recovery against any, or all of them. There would be little point in agitating the issue of whether anyone is solely liable.
[59]Respondent’s affidavit sworn 8 April 2019 at paragraphs 26 and 27.
In relation to the Xing matter there is no reason the respondent’s entilement to recover costs cannot be quantified. Bluestars will be unrepresented but Xu is also a respondent in SECI 2019 01439 and will no doubt defend that proceeding. Who is liable may well emerge in the taxation and a separate hearing of that issue may not be necessary.
Once the taxation process is completed there are a couple of possible scenarios. If a refund of money is the result then a determination of who receives it would be required, or, if the respondent is entitled to more money a determination at that point would be required as to the party or parties liable to pay it. At that point there might be a potential conflict and separate representation might be warranted and justified.
The parties will now have an opportunity to consider these reasons and formulate appropriate orders to advance this proceeding and, if necessary, the two transferred proceedings. A timetable for itemised bills, inspection and objections will be required.
The respondent should serve a copy of these reasons on any interested shareholder so they are aware of what has occurred in relation to the two companies.
The orders should include a provision that leave to amend the Summons filed 18 March 2019 is granted by adding an application to restrain the solicitors on record from acting for Xu in S ECI 2019 01439. The Summons should be dismissed as the legal representatives of Bluestars have withdrawn from this proceeding and S ECI 2019 01439 on 11 June 2019 and the relief in relation to the other parties has not been granted.
In relation to costs, the respondent has had ‘success’ in relation to Bluestars in the sense that the solicitor on record has withdrawn from acting, but not in relation to Xu, Bob Dai and MXXD. However, it is clear that the applicants were on notice as of 13 November 2018[60] that there was an issue in relation to Bluestars and the absence of authority to prosecute the proceeding on behalf of that company. The current proceedings were issued on 26 September 2018 on behalf of Bluestars when there were three directors (Bob Dai, Xu and Fang). As of 24 October 2018 there were only two (Fang and Xu) after Bob Dai resigned. This created a deadlock and presumably Xu continued to instruct the solicitor on record on behalf of Bluestars.
[60]Exhibit ‘MJD 13’ to the respondent’s affidavit sworn 8 April 2019.
It was on 13 November 2018 that notice was given by the respondent that Fang, who at that point was one of two directors and a 50% shareholder, had no knowledge of the proceedings and did not authorise it. It took until 11 June 2019 for the legal representatives of Bluestars to acknowledge that they had no authority to continue to act. The scheduled hearing on 3 May 2019 was aborted because that issue had not been clarified before then, and the respondent was required to obtain an affidavit from Fang to bring the matter to a head.
At the hearing on 11 June 2019 the respondent contended for the costs of the conflict Summons or alternatively, the costs associated with the 3 May 2019 hearing and the affidavit of Fang.[61] The respondent was invited to make any further submissions but merely relied upon the written submissions.[62]
[61]Transcript - 11 June 2019 - page 23.
[62]Transcript – 11 June 2019 - page 28 – lines 14 to 24.
The applicants have had ‘success’ in relation to MXXD, Xu and Bob Dai as the solicitors on record are able to keep acting at this stage. However, the solicitors on the record have withdrawn from acting for Bluestars at the eleventh hour. This was for reasons relating to an absence of authority rather than any conflict of interest. However, they should have done so soon after being alerted to the issue by the respondent in November 2018 and both sides would not have had to file material relating to Bluestars. The respondent ran the argument for removal in relation to Bluestars on a different basis than the reasons flagged in November 2018. In the circumstances the respondent is entitled to costs of the hearing of 3 May 2019 and the affidavit of Fang. The parties should otherwise bear their own costs of the conflict Summons.
The issue of liability for those costs needs to addressed. It was the actions of Xu and Bob Dai that created the issue around the legitimacy of Bluestars initiating and continuing to prosecute this proceeding up until the time the solicitors on record withdrew. Xu is not a party to the current proceeding but the respondent ran this matter seeking relief in relation to the ongoing representation of Xu (see paragraph 10 above). The solicitors on record are acting for Xu (in S ECI 2019 01439) and filed affidavit material by him in this matter resisting the relief sought. Xu has therefore fully participated in the conflict Summons. The amendment sought by the respondent in relation to the conflict Summons on the hearing date had the effect of formally bringing Xu and that other proceeding into the ambit of the conflict Summons. In the circumstances the respondent’s costs as outlined should be borne by Xu and Bob Dai.
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