Commissioner of State Revenue Victoria v Carmrer Pty Ltd (ACN 074 021 257)
[2014] VSC 571
•10 November 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2013 03984
| COMMISSIONER OF STATE REVENUE, VICTORIA | Plaintiff |
| v | |
| CARMRER PTY LTD (ACN 074 021 257) AND OTHERS (according to the attached schedule) | Defendants |
---
JUDGE: | Efthim AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING | 25 June 2014 |
DATE OF JUDGMENT: | 10 November 2014 |
MEDIUM NEUTRAL CITATION: | [2014] VSC 571 |
COSTS JUDGMENT
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R E T Wodak | Commissioner of State Revenue |
| For the Defendants | Mr A Sandbach | Katherine Moorhouse-Perks |
HIS HONOUR:
Costs
The plaintiff, the Commissioner of State Revenue Victoria, applies for costs to be paid personally by Leon Rosen, the director of the defendants, Carmrer Pty Ltd, Galaxy Key Pty Ltd and Naranto Pty Ltd.
The Commissioner served statutory demands and accompanying affidavits on each of the defendants on 11 July 2013 and the defendants commenced proceedings to set aside those demands. Those proceedings were discontinued. The Commissioner then commenced proceedings to wind the defendants up by originating process filed on 5 August 2013.
The underlying debt to which the statutory demand related was for outstanding tax and interest owed jointly and severally by the defendants. The debts accrued in 2006 when assessments were made and not paid.
On 8 August 2013, the Commissioner brought an interlocutory process by which he sought to have a receiver appointed over the property that had land tax assessed against it. That application came before Croft J on 28 August 2013 and was resolved by the parties save and except that a costs order was made in favour of the Commissioner.
On 4 September 2013 the application to wind up the defendant companies was listed for hearing before Randall AsJ. Orders were made to allow the defendants to defend the proceedings and they were ordered to file material going to the question of solvency. Leave was granted to the Commissioner to file an amended originating process seeking winding up on the just and equitable ground in s 461(k) of the Corporations Act 2001 (Cth). An amended originating process was filed on 25 September 2013 but the land tax was paid on 26 September 2013.
On 4 February 2014, the application was listed for hearing before me. The plaintiff wished to proceed and orders were made for the filing of affidavits. The hearing was ordered to take place on 19 May 2014.
On 19 May 2014, at the hearing of the application, the defendants were wound up because they conceded that they were insolvent. The Commissioner sought orders against Mr Rosen that he pay costs personally and orders were made enabling the parties to file affidavits and submissions regarding that application.
No affidavit has been filed by Mr Rosen in opposition to the application. The plaintiff filed an affidavit of Vijitha Satkunanathan, solicitor employed by the plaintiff in the Debt Management Services operation division of the State Revenue Office of Victoria. The affidavit was not objected to. The affidavit deals only with procedural matters.
The Commissioner seeks costs against Mr Rosen pursuant to s 24 of the Supreme Court Act 1986 (Vic) and s 10(1)(d) of the Civil Procedure Act 2010 (Vic). Section 24 of the Supreme Court Act 1986 (Vic) provides:
Unless otherwise expressly provided by this or any other Act or by the Rules, the costs of and incidental to all matters in the Court, including the administration of estates and trusts, is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid.
Section 10(1)(d) of the Civil Procedure Act2010 (Vic) provides:
1.The overarching obligations apply to -
(d)any person who provides financial assistance or other assistance to any party insofar as that person exercises any direct control, indirect control or any influence over the conduct of the civil proceeding of or a party in respect of that civil proceeding, including, but not limited to:
(i)an insurer;
(ii)a provider of funding or financial support, including any litigation funder.
The Commissioner relies on the overarching obligations in ss 16 - 21, 23, 25 and 26 of the Civil Procedure Act, which are obligations to act honestly, to only take steps to resolve or determine a dispute, to cooperate in the conduct of a civil proceeding, not to mislead or deceive, to narrow the issues in dispute, to minimise delay and to disclose the existence of documents.
The Court has a wide discretion to award costs against a non-party. In Dunghutti Elders Council v Registrar of Aboriginal and Torres Strait Islander Corporation (No 4) Keane CJ, Lander and Foster JJ said:
A court has power to make an order for costs against a non-party where the non‑party is connected with the unsuccessful party to the proceeding and has caused that party to start, continue or prosecute the proceeding in circumstances where the non-party’s conduct makes it just and equitable that the non‑party be visited with an order for costs in favour of the successful party either in addition to such an order against the unsuccessful party or in substitution for such an order. As Gobbo J said in Bischof v Adams, a statement which the Full Court has approved, the categories of cases are not closed.[1]
[1](2012) 200 FCR 154, [88].
In Knight v FP Special Assets Ltd, Mason CJ and Deane J said:
… we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. The 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.[2]
[2](1992) 174 CLR 178, 192-193.
In Bonlac Foods Limited,[3] Warren J (as she then was) reviewed the authorities where a non‑party to litigation had been ordered to pay the successful party’s costs. Her Honour said:
Section 24(1) of the Supreme Court Act 1986 (Vic) places the award of costs at the discretion of the court and vests power in the court to determine by whom and to what extent costs are to be paid. There have been numerous cases where the court has ordered a non‑party to pay the costs of a party to the proceeding before the court. The general principle can be gleaned from the authorities that there are many circumstances in which considerations of justice may support an order for costs against a non‑party. The categories are never closed. Generally, the principle can be distilled from the authorities that where a party to a proceeding has incurred costs as a result of conduct or action by a non‑party that was wholly unnecessary and unreasonable and has unnecessarily troubled the court and caused the party to the proceeding to incur costs the court may exercise the discretion to order that the non‑party pay the costs of the party to the proceeding. In considering the proper approach to be adopted in a matter such as the present I am much assisted by the criteria laid down by Gobbo J in Bischof v Adams. There the learned judge identified two factors to be assessed in the determination of whether an order for costs should be made against a non‑party. The first factor was whether there was a connection between the non‑party and the proceedings. The second factor was whether there was a causal connection between the non‑party and the incurring of costs. While Gobbo J observed that the two criteria just described were by no means exclusive they nevertheless provide appropriate guiding principles in the present matter.[4]
[3](2001) 37 ACSR 457.
[4](2001) 37 ACSR 457, [26]. (Citations omitted.)
The following factors were raised by the plaintiff in support for an order for costs against Mr Rosen:
a.The defendants were, from the commencement of the proceeding, insolvent. The Commissioner:
i.relies on the statutory presumption in his favour;
ii.further relies on:
1.the defendants’ concession that they were insolvent on the hearing of the application;
2.the fact that the defendants were carrying on no business;
3.the fact that the defendants were insolvent as at the date of hearing (as was admitted) then they were insolvent throughout the entirety of the proceeding;
b.alternatively to (a), the defendants became insolvent during the course of the application but maintained their opposition to being wound up;
c.the defendants were, from the commencement of the application, men (companies) of straw;
d.The winding up of the defendants was in the public interest;
e.The defendants caused a lengthy delay in their winding up, including by seeking time to put on evidence to prove solvency;
f.The defendants’ evidence as to solvency, given by Mr Rosen was hopelessly inadequate;
g.The defendants’ evidence in response to the Commissioner’s evidence in support of the just and equitable winding up application was hopelessly inadequate;
h.Mr Rosen was at all relevant times the sole director and guiding mind of the defendants;
i.Mr Rosen was the only deponent for the defendants;
j.Mr Rosen had an interest in the defendants avoiding winding up, in that their being wound up may lead to:
i.his disqualification as a director;
ii.investigations by liquidators which may raise questions as to his conduct as director;
iii.his conduct being referred to proper authorities,
and the winding-up was defended, effectively, for Mr Rosen’s benefit;
k.the apparent inconsistencies in the information provided in relation to Mr Rosen’s health;
l.the defendants did not inform the Commissioner until the date of the hearing that Mr Rosen would not attend Court for examination on his affidavits;
m.Mr Rosen resisted the winding up of the defendants notwithstanding that he has engaged in the conduct relied on by the Commissioner in respect of the just and equitable ground.
In Rushton (Qld) Pty Ltd v Rushton (NSW),[5] which was cited with approval by Croft J in Manderson M & F Consulting (a Firm) v Incitec Pivot Ltd (No 3),[6] Muir J ordered costs against the sole director and shareholder of the unsuccessful corporate party to the proceeding. His Honour stated:
[5][2004] QSC 47.
[6][2011] VSC 441, [28].
In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs order against that person. And that is so even if the person was the corporation’s sole, principal or ultimate decision maker in relation to the litigation.
To conclude otherwise would be to ignore the principle that costs orders against non-parties are “exceptional” and ought be made only if appropriate in the interest of justice. The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognises that a company has an independent legal personality distinct from that of its members and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.
…
A reluctance to ground non-party costs orders merely on the circumstances of sole ownership and control of the defendant corporation is evident in Taylor v Pace Developments Ltd in which it was observed that the controlling director of a one-man company was inevitably the person who caused the costs of the litigation to be incurred, by causing the company to defend the proceedings. In that context Lloyd LJ noted –
But it could not be right that in every such case he should be made personally liable for costs, even if he knew that the company would not be able to meet the plaintiff’s costs should the company lose its case.
That would be far too great an inroad on the principle of limited liability. In the great majority of cases the directors of an insolvent company, which defended proceedings brought against it, should not be at personal risk for costs.[7]
[7][2004] QSC 47, [12]-[13], [15]. (Citations omitted.)
The mere fact that Mr Rosen was a director of the defendant companies does not justify a costs order against him. There must be something exceptional in the factors raised by the plaintiff which should lead to a costs order.
There is no doubt that the defendants were insolvent during the course of the application or alternatively became insolvent during the course of the application but maintained their opposition to being wound up. The evidence as to solvency given by Mr Rosen was, in my view, hopelessly inadequate, as was the defence given by the defendants in response to the plaintiff’s evidence in support of the just and equitable ground for winding up the companies.
I also accept that it is in the public interest to wind up a company that is insolvent even though that company has been deregistered. If a company is insolvent, whether it is deregistered or not should make no difference to it being wound up. I do note that the second defendant, Naranto Pty Ltd, was deregistered in mid‑2012. It, apparently, had entered into a contract for the sale of property owned by it in January 2013 whilst it was deregistered and settlement under the contract of sale took place in September 2013.
The plaintiff alleges that Mr Rosen has an interest in avoiding winding up in that winding up may disqualify him as a director in the future. An investigation by liquidators may raise questions as to his conduct as a director, and may result in his conduct being referred to the proper authorities. In oral submissions, it was put on behalf of Mr Rosen that he would step aside from directorial roles. There is no evidence before the Court that Mr Rosen would abandon any directorial roles. Mr Rosen chose not to file any evidence in response to the affidavits filed on behalf of the plaintiff seeking costs orders against him personally.
The main issue before the Court is whether the conduct of Mr Rosen caused delay and expense such that a costs order should be awarded against him.
On 4 September 2013, Randall AsJ made the orders for the filing of material going to solvency and granted leave for the filing of an amended originating process by 25 September 2013. It was filed on 25 September 2013 with an affidavit in support.
Mr Tucker, senior solicitor employed by the plaintiff, deposes that the residue of the debt the subject of the statutory demands was paid on 26 September 2013. The defendants assert that they did not learn that the Commissioner had filed an amended originating process until they were served with it on 2 October 2013.
The plaintiff submits that if the defendants had not sought an adjournment so as to put on evidence of their solvency, then the defendants would have been wound up on 4 September 2013. The plaintiff submits that accordingly, the delay in the winding up of the defendants is attributable to the defendants seeking an adjournment on 4 September 2013. Debts claimed in the statutory demand were paid on 26 September 2013. The Commissioner decided to continue with the application and relied on the just and equitable ground. At that stage, the defendants had every right to contest the application. The hearing was listed before Associate Justice Gardiner on 30 October 2013 but did not proceed because of a conflict and was ultimately listed before me on 4 February 2014. On that date, the defendants decided to continue opposing the application even though their evidence in relation to solvency was hopeless.
The plaintiff submits that if Mr Rosen did not intend to have the defendants defend the proceeding then he ought have had the defendants properly inform the plaintiff that the defendants did not oppose the winding up. Instead, the defendants did not inform the Court or the plaintiff that they did not oppose the winding up until 19 May 2014, the day the application was set for trial. That failure is said to have caused the Commissioner to have incurred significant costs and clearly it has.
I note that Mr Rosen did file an affidavit on 6 April 2014 and there is no basis upon which the defendants can argue that they decided not to oppose the winding up before 19 May 2014. No explanation was provided to the Court as to why the defendants continued opposing the application to wind up.
On the basis of the delay caused by Mr Rosen, I will order costs pursuant to s 24 of the Supreme Court Act 1986 (Vic) against Mr Rosen personally from 4 February 2014 as it is only from this date that there has been a significant delay in my opinion.
In relation to s 10(1)(d) of the Civil Procedure Act 2010 (Vic) the issue to be determined is whether Mr Rosen provided financial assistance to the defendants. That would invoke the operation of the Civil Procedure Act. If he did, then the overarching obligations would apply to Mr Rosen and, again, I would award costs as from 4 February 2014 pursuant to the Civil Procedure Act 2010 (Vic).
The plaintiff submits that there is no evidence as to the source of funds for the defence of the proceedings and the Court cannot find that Mr Rosen was not the source of funds merely because that is asserted to be the case in Mr Rosen’s submissions. Mr Rosen did not put any evidence before the Court as to the source of funding for the litigation and it is he alone who knows where the funds were coming from. The plaintiff submits that the evidentiary burden in relation to this aspect shifted to Mr Rosen because:
(a) the evidence would have been at minimum admissible and relevant;
(b) the relevant information is within Mr Rosen’s knowledge and not within the plaintiff’s knowledge;
(c) Mr Rosen was the sole director of the defendants and the guiding mind of the defendants; and
(d) the timetabling orders for this application expressly provided an opportunity for Mr Rosen to put on such evidence as he sought to rely on this application.
Mr Rosen was the sole director of the companies and the information concerning the source of funding was in his knowledge. He could simply have filed an affidavit stating that he did not give any financial assistance if that was the case. In the circumstances of this case, there is a strong inference that Mr Rosen was financially assisting the defendants. In my view, there has also been a breach of the overarching obligations of the Civil Procedure Act 2010 (Vic). Mr Rosen has not acted to minimise delay and has not cooperated in the conduct of the civil proceeding.
Mr Rosen will be ordered to pay the plaintiff’s costs personally from 4 February 2014.
PARTIES
| S CI 2013 03984 | |
| BETWEEN: | |
| COMMISSIONER OF STATE REVENUE, VICTORIA | Plaintiff |
| - and - | |
| CARMRER PTY LIMITED (ACN 074 021 257) | Firstnamed Defendant |
| NARANTO PTY LTD (ACN 070 123 527) | Secondnamed Defendant |
| GALAXY KEY PTY LTD (ACN 050 043 948) | Thirdnamed Defendant |
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