Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd
[2009] FCA 399
•29 April 2009
FEDERAL COURT OF AUSTRALIA
Consolidated Byrnes Holdings Limited ACN 111 052 585 v Hardel Investments Pty Limited ACN 083 276 000 [2009] FCA 399
PRACTICE AND PROCEDURE – costs – application for indemnity costs brought by defendants against plaintiffs and non-parties – originating action an application for winding up under Corporations Act 2001 (Cth) – application previously dismissed – circumstances necessary to award costs in absence of hearing – whether plaintiffs and non-parties acted reasonably in bringing proceedings – whether plaintiffs and non-parties acted reasonably in prosecution of the proceedings – whether plaintiffs and non-parties acted reasonably in events leading up to proceedings being dismissed – application brought for improper and collateral purposes – application was an abuse of process – plaintiffs’ and non-parties’ conduct entirely unreasonable – application for indemnity costs granted
PRACTICE AND PROCEDURE – costs – application for costs against non-parties – where plaintiffs may not be capable of satisfying orders for costs – Court can make an order for costs against non-parties even though proceedings have been dismissed – whether operation of s 43 of Federal Court of Australia Act 1976 (Cth) was affected by s 1335(2) of Corporations Act 2001 (Cth) – s 1335(2) only operates to save earlier enactments which otherwise would be inconsistent with the provision introduced – intended to be an enabling provision – does not prevent Court from making an order for costs against non-parties in proceedings brought under the Corporations Act 2001 (Cth) – Court can utilise O 6 r 8(1)(b) to join a non-party even where s 1335(2) would prevent an order for costs against non-parties – application granted
PRACTICE AND PROCEDURE – costs – application for costs against non-parties – where non-parties were legal practitioners – where proceedings had been dismissed – whether O 69 r 9(1)(d) empowers the Court to make an order for costs against legal practitioners if s 1335(2) operates to prevent an order being made against a non-party – statute must prevail where power under Federal Court Rules to award costs against legal practitioner is inconsistent with statute – legal practitioners joined as parties to proceedings so costs orders could be made – application granted
Acts Interpretation Act 1958 (Vic) s 38
Companies Act 1936 (NSW) s 365(2)
Corporations Act 2001 (Cth) s 58AA, s 459E, s 459F, s 459G, s 459P, s 465C, s 1335(2)
Federal Court of Australia Act 1976 (Cth) s 43, s 59
Judicature Act 1890 (UK) s 5
Justices Act 1958 (Vic) s 74(1)
Licensing Act 1958 (Vic)
Supreme Court Act 1928 (Vic)
Supreme Court Act 1986 (Vic) s 24(1)
Federal Court (Corporations) Rules 2000 r 1.3, r 2.9, r 213
Federal Court RulesApplicant NAGM of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2002) 125 FCR 488 referred to
Australian Forest Managers Ltd (in liq) v Bramley (1996) 136 ALR 431 not followed
Australian Securities Commission v Australian Home Investments Ltd (1993) 116 ALR 523 applied
Baillieu Knight Frank v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359 cited
Bent v Gough (1992) 36 FCR 204 cited
Bond Corporation Holdings Ltd (1990) 1 WAR 465 cited
Boscaini v Corporation of Kensington and Norwood [1999] SASC 327 not followed
Caboolture Park Shopping Centre Pty Ltd (in liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 applied
Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179 cited
Construction Enterprises Pty Ltd v Lafarge Plasterboard Pty Ltd [2002] NTSC 21 cited
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 referred to
Garnett v Bradley (1878) 3 App Cas 944 cited
Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 cited
Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284 applied
Hardel Investments Pty Ltd (ACN 083 276 000) v Consolidated Byrnes Holdings Limited (ACN 111 052 585) [2009] FCA 400 referred to
Knight v F.P. Special Assets Ltd (1992) 174 CLR 178 referred to
L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACLR 180 referred to
Naomi Marble and Granite Pty Ltd v FAI General Insurance Company Ltd (No 2) (1999) 1 Qd R 518 applied
Packer v Meagher (1984) 3 NSWLR 486 cited
Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216 cited
Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175 cited
Re A Company (No 0012209 of 1991) [1992] 2 All ER 797 cited
Re British Electric Street Tramways [1903] 1 Ch 725 cited
Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622 cited
Re Struthers (liq of Project Management, Architecture and Construction Interiors Pty Ltd) (No 3) (2005) 56 ACSR 238 applied
Re Wridgemont Display Homes Pty Ltd (1992) 39 FCR 193 not followed
Ritter v Godfrey [1920] 2 KB 47 cited
TS Recoveries Pty Ltd v Sea-slip Marinas (Aust) Pty Ltd (2007) 25 ACLC 1371 cited
U.T.S.A. Pty Ltd (In liquidation) v Ultra Tune Australia Pty Ltd (1999) 1 VR 204 applied
Vestris v Cashman (1998) 72 SASR 449 applied
Williams v Spautz (1992) 174 CLR 509 citedCONSOLIDATED BYRNES HOLDINGS LIMITED ACN 111 052 585 and ALPHA ASSET GROUP PTY LIMITED ACN 108 722 541 v HARDEL INVESTMENTS PTY LIMITED ACN 083 276 000
NSD 424 of 2008
CONSOLIDATED BYRNES HOLDINGS LIMITED ACN 111 052 585 and ALPHA ASSET GROUP PTY LIMITED ACN 108 722 541 v AVPRI PTY LIMITED ACN 109 814 057
NSD 425 of 2008LANDER J
29 APRIL 2009
ADELAIDE
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 424 of 2008
IN THE MATTER OF HARDEL INVESTMENTS PTY LIMITED ACN 083 276 000
BETWEEN: CONSOLIDATED BYRNES HOLDINGS LIMITED
ACN 111 052 585
First PlaintiffALPHA ASSET GROUP PTY LIMITED
ACN 108 722 541
Second Plaintiff
AND: HARDEL INVESTMENTS PTY LIMITED
ACN 083 276 000
Defendant
JUDGE:
LANDER J
DATE OF ORDER:
29 APRIL 2009
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1.Mr James Warren Byrnes be joined as a defendant to the proceeding.
2.Mrs Catherine Gina Byrnes be joined as a defendant to the proceeding.
3.Dr Justin Peter Low be joined as a defendant to the proceeding.
4.Mrs Elizabeth Laura Low be joined as a defendant to the proceeding.
5.Messrs Simmons and McCartney be joined as a defendant to the proceeding.
6.The applications to join Mr Ian Lazar and Mrs Victoria Lazar as defendants to the proceeding and to pay the defendant’s, Hardel Investments Pty Limited ACN 083 276 000, costs be dismissed.
7.The plaintiffs and each of Mr James Warren Byrnes, Mrs Catherine Gina Byrnes, Dr Justin Peter Low, Mrs Elizabeth Laura Low and Messrs Simmons and McCartney pay the defendant’s, Hardel Investments Pty Limited ACN 083 276 000, costs on an indemnity basis.
8.The costs referred to in paragraph 7 hereof shall include the costs of the preparation, swearing and filing of the affidavit of Peter William Harris sworn on 28 April 2008 and filed in action number NSD 584 of 2008.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 425 of 2008
IN THE MATTER OF AVPRI PTY LIMITED ACN 109 814 057
BETWEEN: CONSOLIDATED BYRNES HOLDINGS LIMITED
ACN 111 052 585
First PlaintiffALPHA ASSET GROUP PTY LIMITED
ACN 108 722 541
Second PlaintiffAND: AVPRI PTY LIMITED
ACN 109 814 057
Defendant
JUDGE:
LANDER J
DATE OF ORDER:
29 APRIL 2009
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
1.Mr James Warren Byrnes be joined as a defendant to the proceeding.
2.Mrs Catherine Gina Byrnes be joined as a defendant to the proceeding.
3.Dr Justin Peter Low be joined as a defendant to the proceeding.
4.Mrs Elizabeth Laura Low be joined as a defendant to the proceeding.
5.Messrs Simmons and McCartney be joined as a defendant to the proceeding.
6.The applications to join Mr Ian Lazar and Mrs Victoria Lazar as defendants to the proceeding and to pay the defendant’s, Avpri Pty Limited ACN 109 814 057, costs be dismissed.
7.The plaintiffs and each of Mr James Warren Byrnes, Mrs Catherine Gina Byrnes, Dr Justin Peter Low, Mrs Elizabeth Laura Low and Messrs Simmons and McCartney pay the defendant’s, Avpri Pty Limited ACN 109 814 057, costs on an indemnity basis.
8.The costs referred to in paragraph 7 hereof shall include the costs of the preparation, swearing and filing of the affidavit of Peter William Harris sworn on 28 April 2008 and filed in action number NSD 584 of 2008.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 424 of 2008
IN THE MATTER OF HARDEL INVESTMENTS PTY LIMITED ACN 083 276 000
BETWEEN: CONSOLIDATED BYRNES HOLDINGS LIMITED
ACN 111 052 585
First PlaintiffALPHA ASSET GROUP PTY LIMITED
ACN 108 722 541
Second Plaintiff
AND: HARDEL INVESTMENTS PTY LIMITED
ACN 083 276 000
Defendant
NSD 425 of 2008 IN THE MATTER OF AVPRI PTY LIMITED ACN 109 814 057
BETWEEN: CONSOLIDATED BYRNES HOLDINGS LIMITED
ACN 111 052 585
First PlaintiffALPHA ASSET GROUP PTY LIMITED
ACN 108 722 541
Second Plaintiff
AND: AVPRI PTY LIMITED
ACN 083 276 000
Defendant
JUDGE:
LANDER J
DATE:
29 APRIL 2009
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
INTRODUCTION
It is convenient, because these two proceedings have common plaintiffs and, more particularly, the applications under consideration raise common issues, to give the one set of reasons.
These reasons should be read in conjunction with the reasons given today in action number NSD 584 of 2008 in which the defendants to these proceedings are the plaintiffs and the plaintiffs in these proceedings are the defendants: Hardel Investments Pty Ltd (ACN 083 276 000) v Consolidated Byrnes Holdings Limited (ACN 111 052 585) [2009] FCA 400.
This is an application by the defendants for the costs of these proceedings. It is necessary to trace the history of the proceedings before identifying against whom the defendants seek orders for costs and the particular orders sought.
THE PROCEEDINGS
Both these proceedings were commenced in the New South Wales Registry of this Court on 28 March 2008 by the plaintiffs seeking the winding up of the two defendants in the separate proceedings in insolvency pursuant to s 459P of the Corporations Act 2001 (Cth) (the Corporations Act). In both proceedings the plaintiffs claimed to be creditors of the defendants and relied upon the defendant’s failure to comply with two statutory demands. They claimed that debts had been assigned to them.
The relationship of the parties to each other will be explained later, but it should be noted in passing that Mrs Catherine Byrnes is the sole director of the first plaintiff, Consolidated Byrnes Holdings Limited (CBH) and Dr Low and Mrs Low are the directors of the second plaintiff, Alpha Asset Group Pty Ltd (Alpha). The plaintiffs asserted in these proceedings that they have been assigned two debts from companies controlled by Dr and Mrs Low, Contor Developmennts Pty Ltd (Contor) and Cobra Property Services Pty Ltd (Cobra). Mr James Byrnes is the husband of Mrs Catherine Byrnes and claims to be a consultant of the plaintiffs.
The originating processes which commenced these two proceedings attached a copy of an unsigned creditors’ statutory demand which was dated 18 December 2007 and which was a copy of the document which was said to have been served upon the defendants together with an affidavit of Mr James Byrnes who deposed that in his belief there was no genuine bona fide dispute to the amount claimed by the plaintiffs. The plaintiffs also filed an affidavit in support of the originating process, again sworn by Mr James Byrnes who deposed that the statutory demands were posted to the defendants at 5.45pm on 18 December 2007. He asserted that at that time and date, and at the date of his affidavit, the amounts claimed in the statutory demand, in the case of the defendant, Hardel Investments Pty Limited (Hardel) ($1,791,032.50) and in the case of Avpri Pty Limited (Avpri) ($2,100,000), were still unpaid and due and owing.
On 26 April 2008 the defendants filed their notices of appearance to which was annexed their Grounds of Opposition to Winding Up (grounds of opposition): rule 2.9 of the Federal Court (Corporations) Rules 2000 (Cth); s 465C of the Corporations Act.
The defendants raised a number of grounds of opposition to the applications for winding up, the principal ground being that the statutory demands had never been served upon the defendants and, in those circumstances, did not comply with s 459E of the Corporations Act.
Moreover, the defendants claimed that the statutory demands were defective for the purpose of s 459E in that Mr Byrnes was not authorised to make the demands and that the affidavits which purportedly accompanied the demands did not comply with the requirements of s 459E(3) in that they did not properly verify the debts or give proper notice to the defendants of the basis of the alleged indebtedness.
A further ground in opposition was that at the time that the statutory demands were purportedly served on the defendants there was no valid assignment of the alleged debts to the plaintiffs. It was claimed, in opposition to the winding up, that neither of the plaintiffs were creditors of the defendants.
Lastly, it was claimed that the defendants were solvent.
The defendants asserted in their grounds of opposition that if the plaintiffs claimed that the statutory demands had been served by reason of them having been attached to the originating process which was issued on 28 March 2008 and which had been served on the defendants on 7 April 2008, then the period within which the defendants had to comply with the statutory demands had not expired at the time the originating process was issued, and there was a genuine dispute as to the existence and amount of the alleged debts to which the statutory demands related.
On the same day that the defendants filed their notices of appearance and grounds of opposition to the applications for winding up they commenced a proceeding against the plaintiffs in NSD 584 of 2008 to set aside the statutory demands pursuant to s 459G of the Corporations Act.
The grounds upon which the orders for the setting aside of the statutory demands were based were stated to be:
1.That the Statutory Demands purported to be served by the Respondents on each of the Applicants on 7 April 2008 be set aside pursuant to s 459H of the Corporations Act.
2.In the alternative to paragraph 1 herein, that the statutory demand purported to be served on the Applicants by the Respondents on 7 April 2008 be set aside pursuant to s 459J of the Corporations Act.
3.That the Respondents pay the Applicant’s costs of this application.
4.That this application be made specifically returnable before the Court at 9.15am on 2 May 2008.
The significance of the last date was to have that proceeding returned before the same judge at the same time as these proceedings for winding up.
It can be seen that the defendants commenced their proceeding against the plaintiff in NSD 584 of 2008 in case it be found that the service of the originating processes in the winding up proceedings was held to be service of the statutory demands which were attached to those originating processes.
On 4 June 2008 Gyles J ordered that the proceedings be transferred to the South Australian Registry. All three proceedings came before me for directions on 27 June 2008. The plaintiffs who were represented by counsel appeared by video conference. The defendants were represented by senior and junior counsel. I made various directions as to the filing of evidence and written submissions, and listed the proceedings for hearing on 25 August 2008.
Mr Byrnes was in the habit of emailing his and the plaintiffs’ solicitors and copying in the defendants’ solicitor. His correspondence is particularly aggressive. A sample was an email sent on 20 August 2008:
Grant, [referring to his solicitor, Mr McCartney] based on a conversation between the first Mortgagees representative and myself today it would seem that our action is somewhat hopeless from a recovery point of view.
The first mortgage is 14.8m
The second mortgage is 1.45Leaving aside the questions of a third there are 60 blocks in stage one.
Settlements start this week.
The first advises there are only 42 sold.
The first expects 9 million from the 42 sales
The first is taking 100% from sales over agent’s commission and rates and land tax.
By next week the borrower will have an unfunded GST liability approaching 1 million as well.This new information once presented to the court would mean that the court should wind up the companies on a just and equitable basis.
They are so far from Solvent it’s not funny.
As I have been saying this for over 6 months the director would be wise to have his personal affairs in order as he will be bankrupted sooner or latter.
I have agreed to disciss purchasing the first mortgage at full value next week or the week after.
I can buy the second if I want it at a discount.The Hardel agreement requires him to provide us a second ranking mortgage.
If this guy had any brains he would get on a plane this week with lawyer in hand and try and cut a deal ... I can get money the easy way or the hard way ... the hard way means I ensure he gets a liquidator to pursue him for insolvent trading, bankrupt him and start examining everyone he has given money to in his family in the past 5 years. Wife, Kids, Who ever ... look at any donations to the church in the past year as they are on notice of the insolvency ... this guy is a candidate for a fully tax paid vacation in a government facility for 2 to 3 years.
I am a disgruntled person who knows how to ensure disingenuous errant debtors do not get away with there ill gotten gains without great shame and discomfort.
In stead of going to church on Sunday morning, he will wake up next to some guy named bubber who will teach him some new sexual acts.
(Grammatical and spelling errors as per original document.)
On 22 August 2008 the plaintiffs’ solicitors (Simmons and McCartney) wrote to the defendants’ solicitors advising that they thought the matter ought to be adjourned because they were aware that the defendants were settling approximately $9 million in property sales over the next two weeks. They wrote to my Chambers on the same day attaching a copy of the letter to the plaintiffs’ solicitors advising they would be seeking an adjournment of the hearing on Monday, 25 August 2008. In that letter they wrote:
We refer to the above matter that is scheduled to be heard in the Federal Court on Monday 25 August 2008.
Our client is of the understanding that your clients’ (sic) are in the process of settling approximately $9.0million in property sales over the next 2 weeks.
This may assist in the resolution of this matter and we are therefore of the view that Monday’s hearing should be adjourned to enable this to take place.
We have been instructed by our client to request an adjournment on Monday for a period of 8 weeks to enable your clients’ settlements to be completed without the involvement of any external parties.
In that regard any costs associated with the adjournment are to be reserved at this stage.
Please contact my office to discuss this matter further.
They also sought to appear on 25 August 2008 by video conference.
On the same day the defendants’ solicitors wrote to the plaintiffs’ solicitors advising that the defendants would not consent to any adjournment of the matter. However, they offered to settle the matter on the basis that the plaintiffs discontinue the winding up proceedings; the plaintiffs acknowledge that there had been no effective service of the statutory demands; the plaintiffs pay the defendants’ costs fixed at $50,000; and the plaintiffs undertake not to issue or attempt to issue any other winding up proceedings in respect of the alleged debts. The defendants wrote that if the plaintiffs did not accept the offer they should be prepared to proceed and Mr Byrnes and Mrs Low should be present and available for cross-examination. The defendants also filed an outline of argument addressing the grounds of opposition in the notice of appearance. The grounds identified were: (a) non-service of demands; (b) no fair notice of the demands; (c) defective demands; and (d) no valid assignment of the debts.
Dr Low said in an affidavit subsequently relied upon by his counsel that neither he nor his wife were made aware of that offer.
The plaintiffs’ solicitors’ request gave rise to an exchange of correspondence between the plaintiffs’ solicitors and the defendants’ solicitors in relation to whether there had been compliance with the directions which I had made on 27 June 2008.
On the same day as they made their request (22 August 2008), the plaintiffs’ solicitors were advised that I would not allow the plaintiffs’ counsel to appear by video conference on 25 August 2008.
On 25 August 2008 the plaintiffs’ solicitors wrote to my chambers claiming that the defendants were in default in relation to various directions I had given on 27 June 2008. They wrote:
I am the solicitor for the Applicant’s (sic) in this matter. Unfortunately I was interstate on business last Friday and therefore did not have a direct hand in the various communications that took place.
I am taking the liberty of writing to you to foreshadow the Applicant’s intention to seek a reasonable adjournment for the scheduled preliminary hearing.
You have already heard from my office regarding the property sales that the Respondents’ (sic) are in the process of completing in Queensland. It is our clients’ view that an appointment of a liquidator to the Respondent companies will have a seriously deleterious effect on the standing of the unsecured creditors.
That in itself is a valid reason to seek an adjournment today, however there are other matters that have had a serious impact on our position.
What is of serious concern to myself and my clients is that the Respondents’ (sic) were extremely late in filing their further evidence and Outline of Argument.
The Outline of Argument (unsigned and unstamped) was received in my office by email at 5:57pm on Friday the 22nd of August 2008.
This outline was to have been served on us by the 20th August 2008.
By a further email received by my office at 5:21pm, also on Friday 22nd August 2008 was an affidavit containing the evidence of Ken Pridmore, a person who we had not previously intended to call.
In that email I was advised that this affidavit was to be filed in Court today.
This affidavit should have been in our hands on the 8th August 2008.
Toni Vozzo, the solicitor having charge of this matter at Johnson Winter & Slattery served an affidavit on us by email at 3:42pm on 21st August 2008. That affidavit was required by 8th August as well.
Apart from the lateness of receipt of that material, it is my view that neither of those affidavits addressed the further evidence put on by Mr Byrnes in his affidavit sworn and filed on 12th August 2008 but rather addressed the more substantial issues raised in his previous affidavit of 30th May 2008.
In addition to the above we received four Notices to Produce under cover of the email of 22nd August 2008, received at 5:57pm.
It is my view that we were not given proper time to respond to those notices, the affidavits, or to give proper and reasonable consideration to the Respondents’ Outline of Argument.
My office had already put a request to the Respondents’ lawyers seeking to adjourn proceedings to allow the property settlements to take place. Last night, on returning to my office and seeing the emails, I put a further request to Johnson Winter and Slattery advising them that we were unable to respond to their material in the limited time left to us and that as a consequence we were embarrassed.
My office did request a Video teleconference this morning to make the foreshadowed adjournment application.
As our clients’ (sic) took the decision on Friday night not to incur considerable expenditure in travelling to Adelaide I would like the opportunity to be heard in relation to matters raised herein.
I make that request accordingly and look forward to hearing from you.
For my part I apologise to the Court for the confusion that this is causing.
As the letter shows, they repeated their request to be heard by video but I again refused, because to accede to that request would have meant that the proceedings had to be adjourned in circumstances where the defendants were opposing an adjournment.
THE PROCEEDINGS ARE DISMISSED
On 25 August 2008 when the matter was called on the plaintiffs were represented by Adelaide counsel, Mr Michael Burnett, who applied for an adjournment of the proceedings on the ground that the defendants had failed to comply with the directions which I had made on 27 June 2008. I was advised that counsel was only retained to make the application for the adjournment and not in the proceedings. The plaintiffs’ solicitors’ letter of 22 August 2008 spoke of an adjournment of eight weeks. Their letter of 25 August 2008 spoke of a reasonable adjournment. Counsel asked for a short adjournment. The defendants opposed the application. I was not satisfied that the reasons put for the adjournment were bona fide. First, because the defendants’ obligations were to file affidavits and their written submissions in response to any affidavits and written submissions filed by the plaintiffs. The plaintiffs failed to comply with the directions which bound them in relation to the time within which they were to file their affidavits and submissions. In those circumstances, the plaintiffs were not entitled to rely upon the defendants’ failure to comply with the time limits which applied to them. Secondly, I had been advised, as already indicated, that on 22 August 2008 the plaintiffs indicated that the reason why they sought an adjournment was not because of the fault on the part of the defendants but because they were aware that the defendants were settling approximately $9 million in property sales over the next two weeks.
In considering the application, I asked counsel to inquire as to whether his instructors and counsel who were retained in the proceedings were available to attend the next day. He obtained instructions in relation to that request, and advised me that whilst the solicitors and counsel would be available, Mr Byrnes, who was required for cross-examination, could not attend until Wednesday. Further inquiries were made and counsel then sought an adjournment of the matter until Wednesday so that Mr Byrnes could attend for cross-examination and the matters could proceed.
I refused the application for an adjournment for other than a very short period and adjourned the matter to Wednesday, 27 August 2008 to allow the plaintiffs to consider the defendants’ evidence and submissions, and to arrange for Mr Byrnes to be present in Adelaide for cross-examination as requested by the defendants. As already indicated, the defendants also wished to cross-examine Mrs Low.
I indicated at that stage that I would allow the defendants to have their costs thrown away by reason of the adjournment on an indemnity basis but left open the party who would be responsible for those costs.
On Tuesday, 26 August 2008 the plaintiffs purported to discontinue both proceedings by filing a notice of discontinuance. However, the notice was incompetent because O 22 r 2(3) of the Federal Court Rules provides that an application for winding up order under s 459P may not be discontinued without leave of the Court and no leave had been sought or given. The plaintiffs’ solicitors were advised that the proceedings would be heard on Wednesday, 27 August 2008.
Dr Low said he was not told of the implication of this action.
On the morning of 27 August 2008 the plaintiffs’ solicitors wrote to the defendants’ solicitors advising that they were “agreeable to dismissal of the proceedings and costs as agreed or assessed”.In correspondence to my Chambers, the plaintiffs’ solicitors advised that the costs of Monday and Tuesday ought to be on an indemnity basis and the remainder of the costs on a party and party basis. They said in their letter that the costs should be paid by the applicants (the plaintiffs). They wrote:
As lawyers and Counsel we unfortunately do not control our client’s (sic) decisions and act on instructions.
I renew and repeat my apologies to the Court for the inconvenience. I have just been informed by Mr Burnett that he is not available today.
My chambers responded advising the plaintiffs’ solicitors that if Mr Burnett was not to appear, and no alternative counsel were available, then the plaintiffs would be unrepresented. It was pointed out to the plaintiffs’ solicitors that it was not acceptable for them to make submissions to the Court via email. They were advised that if the plaintiffs were to be unrepresented the plaintiffs may need to reach an agreement with their opponents as to costs.
Five minutes before the hearing was due to commence my Associate was advised by email by the plaintiffs’ solicitors:
That is exactly what I want to do.
I need Eve Thomson to agree or we need to have an alternative date to appear in front of his honour and make submissions as per my email.
Ms Thomson is a solicitor employed by the defendants’ solicitors.
The plaintiffs did not appear at the hearing on 27 August 2008 and, as a consequence, I dismissed the proceedings: Consolidated Byrnes Holdings Ltd v Hardel Investments Pty Ltd [2008] FCA 1337. Mr Whitington QC, senior counsel for the defendants, sought an order for the costs of the proceedings and for the costs awarded on Monday to be reserved so that the defendants could give notice to non-parties to the proceedings that an order for costs would be sought against them.
He contended that orders for costs ought to be made against non-parties because the plaintiffs in the proceedings were bare trustees and any order for costs against them might not be able to be enforced.
I reserved the question of costs and adjourned further consideration of that question until 26 September 2008.
I directed each defendant in the two proceedings to give notice to any non-parties against whom they sought an order for costs advising (1) the orders sought; and (2) the basis upon which the orders were sought by identifying the material facts upon which the defendants would rely for those orders.
The proceeding NSD 584 of 2008 in which the defendants are plaintiffs was not listed for hearing on either 25 August 2008 or 27 August 2008. In those circumstances, I indicated that I would list that proceeding for hearing on the return of any application for costs in these proceedings.
THE DEFENDANTS’ APPLICATION FOR COSTS
On 15 September 2008 and in compliance with my directions, the defendants wrote to the following parties:
· James and Catherine Byrnes;
· Justin and Elizabeth Low;
· Ian and Victoria Lazar; and
· Simmons and McCartney
advising them that orders for costs would be sought against them in these proceedings on a full indemnity basis.
I will not set out the whole of their letter which is in similar terms to each of the non-parties. The letter indicated the nature of the proceedings commenced by the plaintiffs and the proceeding commenced by the defendant. A history of the proceedings was included. The parties were advised that on 27 August I had reserved the question of costs and made directions that the defendants give notice to any non-parties against whom they sought any order for costs. The letter set out the costs orders and the reason for the orders. The letter claimed that the plaintiffs would be unlikely to be able to satisfy any costs orders made against them; that the non-parties had played a significant role in the conduct and control of the winding up proceedings; and that the non-parties had an interest in the subject matter of the proceedings. Copies of the exhibits and the statement of facts which had been taken from the affidavits and in the letter were given with the letter. The defendants’ solicitors offered to provide the whole of the affidavit material for inspection at their Sydney offices.
Ms Thomson, a solicitor in the employ of the defendants’ solicitors, has exhibited to her affidavit Mr Byrnes’ reply to the notice given on 15 September 2008. On 16 September 2008 at 7.25 pm, he emailed her (copy to his solicitor, Mr McCartney):
Let be clear
You are aware who the lawyers are.
You will not be able to recover any money, because we have a genuine offsetting claim
Your clients owe us over 4 million.
Don’t expect to actually get money.
What ever you may be able to get a cost order for just reduces our claim
If you try and recover other than by agreeing to an offset, we will apply for the matter to be transferred and run the matter of our claim
(Grammatical and spelling errors as per original document.)
On 26 September 2008 the proceedings were called on when the plaintiffs and the non-parties were represented by the same solicitor.
On that date I made the following orders:
1.The defendants in NSD424 of 2008 and NSD425 of 2008 and the plaintiffs in NSD584 of 2008 issue any notice of motion seeking joinder of any parties to these proceedings by 29 September 2008.
2.The defendants in NSD424 of 2008 and NSD425 of 2008 and the plaintiffs in NSD584 of 2008 file and serve any affidavits upon which they intend to rely in support of the notice of motion by 29 September 2008.
3.Any party who is sought to be joined in the notice of motion file and serve any affidavits in opposition to the notice of motion upon which they intend to rely by 7 October 2008.
4.The notice of motion if issued be listed at 9.30am on Thursday, 9 October 2008 for hearing.
On 29 September 2008 the defendants, by notice of motion, sought the following orders:
1.Pursuant to Order 6, rule 8 of the Federal Court Rules and/or rule 2.13 of the Federal Court (Corporations) Rules 2000, that James Warren Byrnes, Catherine Gina Byrnes, Justin Peter Low, Elizabeth Laura Low, Ian David Lazar and Victoria Lazar be joined as defendants to this action.
2.To the extent necessary to make the order sought in paragraph 1 above:
2.1pursuant to Order 35, rule 7(2) of the Federal Court Rules, or pursuant to the inherent jurisdiction of the Court, that the order of this Court dated 27 August 2008 that this action be dismissed be set aside; and
2.2following joinder of the persons referred to in paragraph 1 herein, this action be dismissed, but reserving the question of costs.
3.That the plaintiffs, James Warren Byrnes, Catherine Gina Byrnes, Justin Peter Low, Elizabeth Laura Low, Ian David Lazar and Victoria Lazar, pay the defendant’s costs of this action, including the costs of this Notice of Motion, jointly and severally on an indemnity basis.
4.Pursuant to order 62, rule 9(2)(d) of the Federal Court Rules, that the plaintiffs’ solicitors, Simmons & McCartney, pay the defendant’s costs thrown away of 25, 26 and 27 August 2008 on an indemnity basis.
The matter came on before me on 9 October for the purpose of making directions and on that occasion I made the following directions:
1.The plaintiffs and any non-party the subject of the notice of motion filed by the defendant on 29 September 2008 file and serve any affidavits in opposition to the notice of motion to join the non-parties as parties to the proceeding and for the order for costs sought by the defendant by Friday, 17 October 2008.
2.The defendant file and serve any further written submissions in support of the application for joinder in the notice of motion filed on 29 September 2008 and any further written submissions as to the application for costs by 21 October 2008.
3.The plaintiffs and any non-parties the subject of the notice of motion filed by the defendant on 29 September 2008 file and serve any written submissions in opposition to the application for joinder in the notice of motion and the application for costs by 24 October 2008.
4.The proceeding be adjourned until Friday, 31 October 2008 at 10.30am for hearing.
The defendants’ application that the plaintiffs and non-parties pay its costs was heard on 31 October 2008.
At the hearing the first plaintiff, Mr and Mrs Byrnes and the plaintiff’s solicitors, Messrs Simmons and McCartney, were represented by Mr Dart. The second plaintiff and Dr and Mrs Low were represented by Mr Lazarevich. Mr and Mrs Lazar were represented by Mr Quinn. The defendants continued to be represented by Mr Whitington QC and Mr Doyle.
The parties relied upon a number of affidavits. The defendants relied upon an affidavit of Peter William Harris, the sole director of each of the defendants sworn on 28 April 2008; an affidavit of Mr Kenneth Pridmore, who provides business consulting and litigation management services to the defendants sworn on 22 August 2008; an affidavit of Mr Matthew Holden, an accountant employed by the defendants’ accountants, Brentnalls SA Chartered Accountants sworn on 24 April 2008; and two affidavits of the defendants’ solicitor, Ms Eve Thomson sworn on 23 and 29 September 2008.
The first plaintiff, Mr and Mrs Byrnes and Messrs Simmons and McCartney relied upon affidavits of Mr Byrnes sworn on 29 May 2008 and Mrs Byrnes sworn on 17 October 2008. The second plaintiff and Dr and Mrs Low relied upon the affidavits of Dr Justin Low sworn on 8 and 23 October 2008; the affidavits of Mrs Low sworn on 13 August 2008 and 8 October 2008; and the affidavit of Dr and Mrs Low’s solicitor, Mr Christian Dennis Moore sworn on 30 October 2008. They also relied upon exhibit KJP1 to the affidavit of Kenneth Pridmore.
Finally, Mr and Mrs Lazar relied upon the affidavit of Mr Lazar sworn on 17 October 2008. They also relied upon the affidavit of Mrs Byrnes sworn on 17 October 2008.
There can be no doubt, because these winding up proceedings were dismissed, that the defendants are entitled to the costs of the proceedings as against the plaintiffs at least on a party and party basis: Ritter v Godfrey [1920] 2 KB 47; Re British Electric Street Tramways [1903] 1 Ch 725. No submission was made by any party to the contrary.
However, the defendants claim that they are entitled to costs on an indemnity or a solicitor and client basis against the plaintiffs and the non-parties for separate reasons; first, because proceedings had been initiated and maintained for an ulterior and abusive purpose being to pressure the defendants into paying the claimed debts with a threat of the proceedings; secondly, the proceedings were in any event hopeless and lacking in merit and known to the plaintiffs as such at the time of issuing proceedings; thirdly, the defendants had not received fair notice of the purported statutory demands; and fourthly, at all times there was a genuine dispute as to the existence of the underlying debts.
THE WINDING UP PROCEDURE
The purpose of the winding up procedure in insolvency in Pt 5.4 of the Corporations Act is to permit a creditor to apply to the Court for an order that an external administrator (a liquidator) be appointed to get in the company’s assets; and to identify the company’s liabilities so that the company’s assets can be distributed amongst the company’s creditors. Section 459E provides a statutory regime which allows a creditor to serve a statutory demand on a company which if not satisfied within the time prescribed in the Act raises a presumption that the company is insolvent.
Gummow J described the purpose of Pt 5.4 of the Act in David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 270:
The provisions of the new Pt 5.4 constitute a legislative scheme for quick resolution of the issue of solvency and the determination of whether the company should be wound up without the interposition of disputes about debts, unless they are raised promptly.
The purpose of a winding up order and the appointment of a liquidator is to impose a regime for the benefit of all of the company’s creditors not to secure the repayment of the plaintiff creditor’s debt: TS Recoveries Pty Ltd v Sea-slip Marinas (Aust) Pty Ltd (2007) 25 ACLC 1371 at [19].
The winding up procedure is not to be used for the purpose of compelling a solvent company to pay a disputed debt: Radiancy (Sales) Pty Ltd v Bimat Pty Ltd (2007) 25 ACLC 1216. Nor is it to be used for the purpose of coercing a company into paying a debt without allowing the company a reasonable opportunity to ascertain that the debt is payable: L & D Audio Acoustics Pty Ltd v Pioneer Electronics Australia Pty Ltd (1982) 7 ACLR 180 at 183.
A winding up proceeding which is brought for a purpose other than the purpose identified may amount to an abuse of process: Williams v Spautz (1992) 174 CLR 509 at 518-522. A winding up proceeding brought for a collateral purpose will be an abuse of process and will attract the Court’s implied power to prevent abuse of its own processes: David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 at 279.
It will be an abuse of process if a creditor brings a winding up proceeding under Pt 5.4 against a solvent company as a means of putting pressure on the company to pay its debt: Baillieu Knight Frank v Ted Manny Real Estate Pty Ltd (1992) 30 NSWLR 359; Re A Company (No 0012209 of 1991) [1992] 2 All ER 797.
It may be an abuse of process if the creditor who has served a statutory demand has knowledge that the company is unaware of the statutory demand but persists with the winding up proceedings: Chief Commissioner of Stamp Duties v Paliflex Pty Ltd (1999) 149 FLR 179.
62In L & D Audio Acoustics Pty Ltd v Pioneer Electronic Australia Pty Ltd (1982) 7 ACLR 180, McLelland J said at 183:
Proceedings by a person as creditor for the winding up of a company on the ground that it is unable to pay its debts will ordinarily be held to be an abuse of process:
(1)if the winding up proceedings are bound to fail eg if it is clear that the applicant will not be able to prove that he is a creditor within the meaning of s 363(1)(b) of the Code, or will not be able to prove that the company is unable to pay its debts within the meaning of s 364(1)(e);
(2)if the application is made for some improper purpose eg if the applicant is seeking to use the winding up proceedings to coerce a company into paying an alleged debt without affording the company a reasonable opportunity to ascertain or have it established that the debt is properly payable; or
(3)if issues will arise in the winding up proceedings of a kind inappropriate for determination in such proceedings eg a substantial contest as to the existence or enforceability of a debt relied on by the applicant, which should properly be resolved in separate proceedings brought for that purpose.
The question to be determined when it is asserted that the proceedings constitute an abuse of process is the purpose for which the proceedings have been brought. If the proceedings have been brought for an ulterior or collateral purpose, then the proceedings are an abuse of the Court’s processes. The party who has initiated the proceedings may then be liable to pay the costs of the party against whom the proceedings were brought on an indemnity basis.
HISTORY
The defendants’ claims for indemnity costs against the plaintiffs and the non-parties necessitate an examination of the facts and circumstances giving rise to the bringing of the winding up applications and the circumstances which transpired after their commencement.
In a sense, that is undesirable because the proceedings have already been dismissed in circumstances where the plaintiffs have abandoned their claims. However, because of the defendants’ claims against the plaintiffs and non-parties, an examination of the facts cannot be avoided.
This is not to try a hypothetical action between the parties. The Court should not be called upon to decide whether the plaintiffs’ proceedings if pursued would or would not have succeeded. The parties should not be burdened with the conduct of proceedings already dismissed. Moreover, the only evidence before the Court is in affidavit form. The Court has not had the advantage of seeing and hearing the witnesses on matters where the facts are in dispute. In those circumstances, the inquiry must be limited to whether commencing the proceedings was reasonable and whether the conduct in the proceedings, including the conduct leading up to my dismissing the proceedings, was reasonable: Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin (1997) 186 CLR 622 per McHugh J at 624.
The following matters are taken from the affidavits to which I have referred.
The defendant, Hardel is the trustee for the Hardel Investments Unit Trust. It entered into a loan agreement with Contor as trustee for the Contor Developments Unit Trust on or about 16 December 2005 (the loan agreement).
The defendant, Avpri entered into a services agreement with Mr Harris, a company director of the defendants and Cobra on or about 14 July 2005 (the services agreement).
At the relevant time, Dr Justin Low was the sole director of Contor and Cobra, and the two agreements to which I have referred were entered into in the context of a property development at Coomera in Queensland.
The plaintiff, CBH, has as its sole director, Catherine Byrnes, the wife of Mr James Byrnes. At the relevant time, Mr Byrnes was disqualified from managing a corporation. The plaintiff, Alpha, has as its directors, Dr Low and his wife, Mrs Low. It would appear from the evidence that CBH is a company associated with Mr James Byrnes and Alpha is a company associated with Dr Low and Mrs Low.
Mrs Low has sworn an affidavit in which she says that she had no involvement in the events except in a formal sense. She was not involved in the negotiations leading up to the loan agreement and services agreement. She was not a director of Contor or Cobra. She had little or no involvement or knowledge of the events that followed.
Sometime prior to 2004 Mr Harris and Dr Low met each other as members of the Paradise Community Church and became friends.
In early 2004 Avpri obtained an option to purchase land in Coomera, Queensland for the purpose of development. Contor owned adjoining land and, after Avpri obtained its option, approached Avpri offering to sell its land for $8.5 million. On 9 July 2004 Contor and Avpri entered into agreement for the sale and purchase of the Contor land.
It is Mr Harris’ case that, prior to entering into that agreement, various representations had been made by Dr Low relating to development approval which representations were relied upon by Mr Harris in causing Avpri to enter into the contract for sale and purchase.
Settlement was to take place on 9 November 2004 but did not occur because Avpri could not obtain a valuation of the property at the $8.5 million purchase price, nor had development approval been obtained at that date.
In July 2005 the purchase price was adjusted to $6.5 million (the second contract of sale). At the same time, Dr Low proposed that a services agreement should be entered into so that Cobra could provide services and skills in relation to property development through Dr Low. The services agreement provided that Avpri would pay Cobra in the order of $2.5 million in instalments. Mr Harris says that agreement was also entered into in reliance on representations made by Dr Low.
The second contract of sale was to settle on 15 August 2005. For reasons which are unimportant, Hardel was incorporated to become the vehicle to purchase the land on the same terms and conditions as Avpri had agreed, and the contract for sale between Contor and Avpri was rescinded on 16 December 2005. A deed of rescission was entered into under which Hardel agreed to pay the fees which Avpri had previously agreed to pay. Contor acknowledged in that Deed that it had received $815,000 from Avpri on account of deposit monies and extension fees.
A third contract for sale and purchase of the land was entered into by Hardel and Contor. That contract provided for settlement on 16 December 2005 which was the same date upon which the contract was executed.
There was a shortfall of funds as a result of which Hardel entered into the loan agreement with Contor. The contract of sale between Contor and Hardel settled on 16 December 2005.
Some monies were paid by Hardel in satisfaction of the loan agreement but no monies were paid by Avpri in relation to the services agreement.
Mr Harris deposes in his affidavit as to the reasons why no monies were payable:
56. In particular, I disputed (and continue to dispute) that:
56.1.The interest, extension fees and other charges said to be payable by Hardel at settlement of the Third Contract of Sale, and which necessitated entry into the Loan Agreement, were in fact payable by Hardel;
56.2.Dr Low provided the services to Avpri contemplated by the Services Agreement, and certainly not the services which he represented that he was capable of providing and would provide under the Services Agreement;
56.3.The final instalment of $1 million under the Services Agreement is due and payable; and
57.I also believe that a counterclaim exists against Contor and Cobra as a result of the falsity of the July 2004 representations and the July 2005 representations, which were relied upon in entering into the Contracts of Sale and Services Agreement, and in incurring the expenses my companies have incurred based on the representations. I believe that there are further claims available against Contor and Cobra for costs incurred by my companies as a consequence of those representations not being fulfilled or capable of being fulfilled.
58.Throughout mid to late 2007 I had various without prejudice meetings and discussions with Dr Low about settlement of our disputes regarding the Loan Agreement, the Services Agreement, and the sale of the Reserve Road land, including a without prejudice meeting with Church elders held on or about 23 October 2007.
Mr Harris says that on 10 October 2007 Mr Ian Lazar advised a financier of Hardel that he had bought “the vendor finance debt” from Dr Low. Mr Lazar is the sole director and secretary of Business Acquisitions Australia Pty Ltd (BAA). Dr Low had first met Mr Lazar in February 2007. Dr Low said in his affidavit that he bumped into Mr Lazar again in April 2007. In August 2007 he told Mr Lazar there was a large amount of money owed to his companies. Mr Lazar said he would help. Mr Lazar suggested Dr Low assign the debt to him and he would recover the debt. In September 2007 Mr Lazar introduced Dr Low’s accountant (Michael Armstrong) to Mr James Byrnes, who was then a director of Australian Litigation Funders Pty Ltd (ALF). Dr Low has deposed that he did not wish to engage Mr Byrnes “but he started acting any way and claimed Armstrong agreed to engage him on my behalf. In any case Mr Byrnes assisted Lazar in sending emails to the Harris (sic) and his consultant Ken Pridmore demanding the payment of the debt”.
On 12 October 2007 Mr Harris received an email from Mr Lazar of BAA in the following terms:
I have tried to contact you on all your numbers.
I have taken an assignment of debt from Justin Low and unlike Justin I don’t wait to be paid.
I will be writing to your mortgagee’s (sic), any creditors that I will have my mercantile agent track down, the ATO and any other government entity that I think you owe money to or have breached any form of legal obligation by yourself or any current or previous director.
I will seek to make an application in court immediately to have you and any family members publicly examined and I will be pushing for an urgent application next week to injunct any of your assets both company family trust or personal under the corporation act that allows me to do so in order to protect my position.
I require you to respond as an urgency to confirm how and when I am getting my money back.
If I don’t get a response by close of business today, I will take this as you wish me to proceed the other way.
The email contains a number of threats calculated to obtain a response from the addressee.
Mr Harris responded seeking a stamped copy of the assignment of debt from Dr Low referred to in Mr Lazar’s email. Mr Lazar responded:
I will not be providing you with anything.
I suggest you find your own mechanisms to prove the purchase of debt.
In the interim I await you solicitors (sic) correspondence.
This second email was copied to Dr Low. His email address is given as [email protected].
There is no explanation in the evidence why such aggressive emails were written. Mr Lazar has sworn an affidavit but has not explained the circumstances in which he (or BAA) received an assignment of the debt (if in fact he did) and why it was that he wrote what he did.
Mr Harris said that on 17 October 2007 he made a without prejudice offer to Dr Low to resolve the dispute and he requested a copy of the assignment of debt to Mr Lazar. He said that he received no response from Dr Low but, instead, on 22 October 2007, received an email from Mr Byrnes (a copy of which was sent to Dr Low’s email address) in the following terms:
I have instructions from Mr Ian Lazar of BAA who has taken assignment of debts, which has been confirmed by Dr Low. Than any offer or settlement will need to be approved by BAA and on terms acceptable to BAA.
I prepared a detailed document pertaining to the history and causes of action which are available to the parties.
I confirm that from the documents and actions by the parties that Harris and His companies are substantially in breach of the agreements.
Clearly even by there offers it is clear they are hopelessly insolvent.
I have prepared a document setting out the agreement, the default and the defaulting parties action ... or lack of it.
This document will be sent to ASIC to the head of investigations. this area issues section 30 notices and investigates insolvent companies.
I know the area and have had dealing with them before on behalf of clients ... it is very simple ... my documents are complete and ASIC will act as I provide information which shows insolvent trading.
The term insolvent means cant pay your debts as and when they fall due.
To simply turn these insolvent companies to solvent companies you need to schedule debt that is presently due and pay able to be paid in part now and the balance secured in a manner which is acceptable to BAA.
I understand Dr Low is in discussion. I am instructed BAA do not authorize any settlement discussions and or any settlement.
We will however actively and commercially agree to take part in any fruitful discussions within the next 2 days.
After Wednesday if we are not completely satisfied then we shall file such notices and reports as we deem fit.
This ranges from filing defaults on the director and the companies with Veda/Baycorp.
Filing the appropriate complaint with ASIC fraud and insolvent investigations with a view of seeing ALL companies placed into the hands of a liquidator.
Finally if for one second I though there was any truth that, a respectable church and its elders would use un fair and unreasonable tactics to pressure Low. i would be horrified.
The man and his company were correctly owed money (the subject of the assignment.) the debt is 3.7 mil and growing.
If you are having difficulty ... we are willing to be commercial, don’t be thinking 2,350 as we are not interested ...
Neither I or Mr Lazar are easy intimated and would suggest you stop all the un godly threats and get real!
Email me and fast as my patience is running out fast.
Friday I was polite and willing to be as accommodating and reasonable as ever ... Mr Pridmore’s rudeness and stupid and unprofessional statements have only inflamed matters and have made me more determined than before and far less accommodating when it comes to commercial give and take ... i am happy however to put things back on track and will deal with any person who is authorized by the two companies to bind the companies to a deal.
So its back to you Mr Harris!(Grammatical and spelling errors as per original document.)
This was, on the evidence, the first involvement of Mr Byrnes. In this email Mr Byrnes purports to be acting for BAA and claims, as Mr Lazar had, that Mr Lazar had taken an assignment of the debts. Mr Byrnes swore affidavits in the proceedings before the proceedings were listed for trial on 27 June 2008. He has not sought to rely on any further affidavits and has proffered no evidence to explain his actions in the period leading up to the commencement of the proceedings and since.
As a result, his conduct remains unexplained. The threats which can be seen in the email, and which will be shown in further communications, remain unexplained.
On 23 October 2007 a meeting took place between Dr Low, Mr Harris and elders of the church of which they were both members. Mr Harris said an in-principle agreement was reached to resolve the dispute but the matter did not resolve.
On 24 October 2007 at 4.20 pm Mr Harris received a further email, copies of which were sent to Dr Low and Mr Lazar from Mr Byrnes:
Further to our Email below [referring to email previously sent on 22 October 2007: see [70]].
We had the opportunity to meet with Mr Low from 11-45 am to 12-15 today.
At his request we agreed to withhold lodging caveats, Mr Low also undertook certain positive covenants to meet certain obligations to BAA and ALF.
Clearly if those obligations are not meet we reserve our rights
It would appear that Mr Low is trying very hard to accommodate the Harris group.
We wish to be informed of a time and place for the first tranche of funds to be paid.
We wish to be informed of the solicitor who is handling this from the Harris group
We seek an undertaking from the Harris group and or its lawyers that they will inform us of 2 things, the time and place of the first settlement and that directions have been given by Mr Low to pay ALF and BAA.
As you can imagine if the undertakings are not given we will look to our rights.
Further based on agreements reached both BAA and ALF stood to benefit substantially out of recovery of funds from the Harris companies and him personally, so we are to say the least very unhappy with being asked to stand down.
Further to accommodate the offer made (which we consider to be at the very low end of the scale at which we believed recoverable) and accepted subject to satisfactory security Mr Low both BAA and ALF agreed to give up certain bonus percentage payments. we trust that the Harris group appreciate that Low has been very accommodating and they should move quickly to settle this matter
Whilst we have agreed to allow Justin to enter into settlement discussions and agreements, BAA and ALF have and continue to affirm an equitable interest in the settlement.
Justin has arranged for a payment to be made to our respective groups from the proceeds paid down on debts owed by the Harris group
BAA are within there rights to seek specific performance of the assignment but have agreed subject to payment to BAA and ALF to agree upon payment to rescind and verbal or written agreement.
Likewise ALF have an equitable interest in the proceeds which are presently secured by agreements and guarantees and mortgages
There are a number of things the Harris group should be mindful of
They have got a good deal from Low and should Honor it.
It does not take 2 weeks to draft terms of settlement and provide positive covenants re loan documents. this is in reality should be effected next week.
The schedule of payments to be secured and subsequently paid at a latter date are as important to ME JIM BYRNES as is our payment out next week and that if the Harris group default in any way now or in the future we have agreed to immediately assist Mr Low in taking the Harris group to task.(Grammatical and spelling errors as per original document.)
As already noted, ALF which was referred to in Mr Byrnes email of 24 October 2007 is a company associated with Mr Byrnes.
Mr Byrnes again claims in that email to be representing BAA which is surprising in view of the fact that on the same day Mr Lazar of BAA wrote to Dr Low acknowledging that the assignments of debts from Contor and Cobra to BAA “are now rescinded” and BAA has now relinquished its rights under the assignment. A deed was entered into on the same day to that effect. A redacted form of the Deed of Release is exhibited to Mr Harris’ affidavit. The parties to the Deed are BAA, ALF, Mr James Byrnes and Cobra, Contor and Dr Low.
Paragraph C of the Deed of Release records that a “verbal agreement” had been entered into between Cobra and Contor and BAA “to assign the debt to BAA with the option for Justin to withdraw the assignment should he negotiate a satisfactory settlement directly with the Harris parties”. It is further recorded that BAA subsequently introduced ALF to act on BAA’s behalf.
Paragraph D of the recital to the Deed of Release records that “Justin’s Group” had negotiated a settlement with “the Harris parties”. It is a term of the Deed of Release that “ALF and Jim further agreeing not to contact “Justin’s Group” or the Harris parties or take any action whatsoever which will adversely affect the Harris parties or jeopardise the payment to be made by the Harris parties at any time unless requested to do so by Justin Low”.
It would appear that no assignment had occurred as at the date of the release but merely an agreement to assign.
On 25 October 2007 the defendants’ Sydney solicitors (J. Biady & Associates) wrote to Mr Lazar at BAA saying:
Our client instructs as follows :-
a)It is the registered proprietor of development properties at Coomera (“the Properties”) which were acquired from Contor Developments Pty Ltd (“Contor”);
b)Demands for payment have been received from you in relation to the Properties;
c)You have written to our client and asserted that certain monies payable by Hardel to Contor have been assigned to you. As such you requested that our client must pay those monies to you in lieu of paying them to Contor;
d)Our client requested you to provide some evidence of the assignment in order to establish your legal entitlement, if any, to be paid any amounts and to quantify the amounts to which you lay claim;
e)Your response was to steadfastly refuse to provide any of the information requested. You also refused to provide a copy of the assignment document and repeatedly stated to Mr Harris, the CEO of our client, that he should “get it himself”.
f)Our client has not been able to obtain any confirmation from Contor that there has been any assignment of any debt by it to you.
g)Our client is and remains ready, willing and able to meet all proper claims on it. Our client will pay any debts properly and legitimately due and owing.
h)At this stage there is nothing whatsoever that might suggest that any moneys are due to you.
i)Our client has had no dealings whatsoever with you, no contract with you and no notification of any assignment of any debt to you.
If you wish to assert that you have a binding and valid entitlement to claim moneys from Hardel, you will need to particularise the claim and substantiate it to our client’s reasonable satisfaction.
If we do not receive the requested substantiation within 14 days of the date hereof, our client will proceed to deal with Contor without further regard to you. Please be very clear that unless you take the necessary steps to allow our client to verify and quantify the claims you are making, our client intends to disregard the claims by you and you may lose any entitlement you may have to require our client to deal with you.
The letter set out the substantiation which was required.
On 30 October 2007 Dr Low’s accountant, Mr Armstrong, was provided with a facsimile of the letter written by Mr Lazar on 24 October 2007 of BAA to Dr Low acknowledging that the assignment had been relinquished and enclosing a copy of the redacted Deed of Release.
Apparently in November, Mr Harris and Dr Low exchanged further correspondence in an attempt to resolve the ongoing disputes. No settlement was achieved.
Dr Low said in his affidavit that in late November 2007 he had a number of discussions with Mr Byrnes regarding the debts owed to Cobra and Contor. Mr Byrnes offered to purchase the debts for $200,000. Dr Low said in his affidavit that it was agreed that any funds recovered would cover costs and the balance would be distributed according to the Heads of Agreement dated 29 November 2007. He said, “We agreed to establish an entity named the Coomera Trust for the purpose of conducting the matter.”
The Heads of Agreement of 29 November 2007 is a handwritten agreement, the parties to which are Cobra, Contor, Dr Low and BAA and ALF. The agreement claims:
This agreement is an agreement, not an agreement to agree as defined in Masters and Cameron.
Contor and Cobra were to assign for the consideration of $1 each to BAA all “claims, interest and securities it either holds or may be entitled from Avpri Pty Ltd (owed to Cobra) Hardel Investments Pty Ltd (owed to Contor)”. BAA was to hold the assignments “non-beneficially” – “to the benefit of BAA/ALF unit trust which will issue units equally to ALF and BAA”. The total consideration was expressed to be $1 each to Cobra and Contor on signing; a further two instalments of $25,000 on two separate but unidentified Fridays in November; and two further instalments of $75,000 each to Cobra and Contor on 31 January 2008. The Heads of Agreement then provided for the disbursement of funds owed. $200,000 was payable to the unit holders. BAA was to be entitled to be reimbursed all costs and expenses involved in the recovery of the debts:
Upon repayment of the 200,000 and costs BAA will then Direct the Next $650,000 to Be Paid to Either Cobra, Contor or at Justin Lows Direction.
(Grammatical and spelling errors as per original document)
The Heads of Agreement provided that “all funds and assets” were to be distributed as to 50% to the BAA unit trust and 50% at the direction of Justin Low. The document exhibited to Dr Low’s affidavit is unsigned.
On 10 December 2007 Mr Byrnes emailed Mr Pridmore and copied in Mr Michael Armstrong, Dr Low and Mr Lazar:
Ken
I extended you an olive Branch, you failed to take advantage of the offer.
Big mistake!
As you would have appreciated my firm and Lazars firm have a vested interest in making sure YOUR client pays Justin a portion of what is legally owed.
There was an agreement to assign the debts rights and entitlements, this did not proceed because of your promises.
My firm was engaged as an advisor and part of a team of professionals to assist Low.
As an agent for the lender and or contractor to Harris companies Low is perfectly entitled to discuss what is going on much the same as Harris uses your services and know doubt pays (or should do) for same.
If nothing eventuates we will complete the assignment process, then the fun will really begin, but not for Harris nor you if you ever expected to get fees that may be owed .!!.
Low and I have discussed again assigning all rights title an interest to a trust associated with the writer.
And we have now completed a new assignment which we have agreed to hold for a few days to see if you were going to provide a proof of funds and execute an acceptable agreement ... that acceptable to us ... you have no bargaining power here ...
Instead I here you again carry on with rubbish about confidentiality, there is No binding Confidentiality agreement ... there was an offer and an acceptance of the offer that required an agreement that we needed to approve ... Time UP ..., there was a draft agreement sent, not accepted By Low ... the terms of which would need to be changed before being executed and your time process to effect same would need to be in hours not days. If you or Harris want to play games re the agreement, expect that we will need to discuss this with Bankwest as it is a default under your loan to have proceedings on foot for such an amount as is owed to Low entities. They are entitled to be fully informed of the position and as a fellow member of the same reporting agency we are entitled to discuss with them defaulting commercial accounts
Low and I have discussed causes of action that he legally able to pursue.
As this may surprise you, I have a very senior contact at Bank west who I am yet to talk to regarding this offer to settle the moment I talk to him forget getting 1c.
I will call him and tell him what a rogue and cheat Harris is ... maybe tomorrow. see how you respond by 12 noon
I will advise him that I plan to have Harris listed as a payment defaulter with credit reporting agencies.
I will advise him that I will be seeking a section 30 examination through ASIC.
I will advise him that after chatting to my old friend David Geer, who I was borrowing off 16 years ago, that there is action afoot which will no doubt Domino in to a cascading series of liquidations of the Harris group.
Seeking enforcement under the personal Guarantees
Seeking to lodge personal default notices under the guarantees.
Seeking to set aside the variation based on breaches of the trade practices act and enforcing the original securities on comera.
Taking assignment of existing securities.
Causing yet more good Christians to be thrown to the lions (Harris being the predator)
That’s just for starters.
So pull your head in with the silly statements and threats as they only make a fool of you ken.
Your man owes the money.
Low wants his money.
He agreed to an offer subject to an acceptable agreement and payment.
So far all you have done is talk. time to put up or shut up as they say.
Provide the proof of funds from Bankwest by 12 noon tomorrow.
Set aside Wednesday to fly to Sydney with your lawyers to meet and finalise the agreement ... including allowing Low security over comera for the 800 k p>
Now I hope you understand this is not a negotiation, do it or watch how I Huff and Puff and Blow your house down
Merry Christmas
Jim Byrnes
(Grammatical and spelling errors as per original document.)
It would appear from Mr Harris’ affidavit that that email was received without any warning. In any event, Mr Byrnes claimed that his firm and Mr Lazar’s firm had a vested interest in ensuring that Mr Harris pays Dr Low a portion of what is legally owed. Mr Byrnes threatened that a number of actions would be taken to embarrass Mr Harris with his bankers and bring Mr Harris to the attention of reporting agencies. The writer also threatened to have Mr Harris examined by ASIC. The email is written in similar terms to previous correspondence. The email suggests that the agreement to assign the debts did not proceed. It may be inferred that the Heads of Agreement of 29 November 2007 did not proceed.
As I have said, Dr Low was sent a copy of the email, as was Mr Lazar. Both would have been aware of the threats that Mr Byrnes made in that email.
On 11 December 2007 Mr Byrnes emailed Mr Pridmore (consultant to Mr Harris) and Mr Armstrong (accountant to Dr Low) at 10.16 am:
I start writing to you at 10-10, so we can be clear that leaves you 1 hour 50 minutes to respond to yesterdays email.
Low entities have agreed to assign all rights and interest to a new entity which will be jointly controlled by ALF.
The offer to settle will be terminated, repudiated, finished ... gone ... as will Harris’s chances of borrowing money until after he comes out of bankruptcy in 2011.
There will be a new Sherif in town and he wants the 3.7 million owed ... but will be reasonable. i will give him a few alternatives.
Oopppsss sorry
Only 1 hour 47 minutes to go
(Grammatical and spelling errors as per original document.)
Later the same day, at 12.44 pm, he wrote again to the same gentlemen but this time copied in Dr Low:
Mark Altschwager you Bankwest relationship manager is away today ... lucky you ...
My contact is far senior and has given me all his contacts.
So ken ... are you feeling Lucky?
(Grammatical and spelling errors as per original document.)
He wrote twice more on 11 December, at 2.31 pm and 2.43 pm, in much the same vein. In the second of those emails, a copy of which was sent to Dr Low, Mr Byrnes wrote:
Post 12 noon update.
Assignments now being finalized.
I have spoken with Bankwest and am talking to the Hardel relationship manager tomorrow and have already got the ear to someone much more senior. Have not decided what I want to tell them yet ... but the truth is that companies and Harris are in default of contractual obligations and the security holder is within there rights to list the companies and directors as defaulters today. The security Holder can seek the appointment of a controller over the sites ... note I am saying sites. the Group is insolvent and unable to pay its debts as and when they fall due.
Document
great page, have completed the complaint and have spoken to ASIC and said I have information about a that represents they have a ASIC commission license, yet there phone does not work.
they have no C.R.M, they have no corporate governance, they are associated with a group that has an un approved funds or funds.
the funds are insolvent and they are still trying to raise money.
remember insolvent means unable to pay it debts as and when they fall due.
it is a great Pity that ken Pridmore and or the companies management did not have either the manners or good sense to properly deal with these issues before it became to late.(Grammatical and spelling errors as per original document.)
He continued his email assault on 12 December by sending two emails. The first was sent at 12.29 am:
Good evening gentleman.
Got a message saying you don’t want to pay your bills and don’t want to resolve this.
Fine, I expect to forward you a notice of assignment mid morning.
I will speak to Bankwest tomorrow and advise them of the default and our intention to move to wind up various entities.
Our action to move to Bankrupt Mr Harris under is Guarantee that he has defaulted on.
Our listing with the credit reference tomorrow both personally as a defaulter under is guarantee and as a director.
We will list the defaulting companies as well
I have had a preliminary discussion with ASIC but to date have not advised who the party is, that changes tomorrow.
Caveats will be lodged on other entities property tomorrow.
I have arranged already to acquire from lenders securities held over a property.
Any securities taken out or lodged to secure investor funds will be set aside.
Securities taken or given by other companies are an uncomercial transaction and will be void.
All payments made to unsophisticated investors and related parties will be subject to claims as preferential payments and or uncomercial transactions.
Transfers by the director to related parties and family within the past 5 years will be subject to claw back.
I will suggest ASIC review the various funds raised from unsophisticated investors and the numerous breaches that ASIC can and will pursue, of course Ken is no stranger one only needs to see what happened to his last major client.
We will support ASICs move to appoint a provisional liquidator as the companies are clearly insolvent and unable to pay there debts as and when they fall due it may be a contest to see who gets a controller appointed first.
I will encourage ASIC to undertake an immediate section 30 examination.
Within days of me really bring to the attention of your lenders the position and our causes of action, they will need to appoint a receiver under there respective charges.
We will advise Paradise Church that we feel for the investors who have been cheated but we are bring an end to Harris Pridmore ponzi scheme
Perhaps you Mr Harris should consider getting advise from someone besides Pridmore.
I don’t like bullies ... there is only one way to deal with them and that’s to let them no were they stand and deal them numerous decisive blows up front.
Unfortunately this makes me act like a bully, which is not how I wanted to resolve this ... but as your MR PRIDMORE IS ABOUT TO LEARN ... THERE IS ALWAYS A BIGGER BULLY OUT THERE ... AND YOU HAVE FOUND HIM
I was offended by Pridmores rude behaviour, his disingenuous comments, and his complete lack of morality but it will be Mr Harris who pays for Pridmores behavior.
All offers are withdrawn.
All settlement discussions and offers have been repudiated by the Harris group.
There purported settlement offer was an agreement to agree and falls within the masters and Cameron definition of agreement to agree and is therefore non binding on the parties, even if it was a binding agreement the Harris failure to adequately provide a document on acceptable terms and the Harris failure to pay as per the original offer means that the offer was repudiated by the constant failures of the Harris companies
Mr Harris you have the most to lose here
Our advise suggests that the variation agreement should be either set aside as it was based on deceptive conduct.
This allows us to maintain our position on comera.
We are happy to Be paid the $3.8m owed plus further cost and interest.
You had the chance ... you choose to listen to someone whose advise will ultimately see you bankrupt and struck of as a director and possibly facing criminal charges.
You have my contact details, you can stick your head in the sand ... in which case its going to be quick and devasting ... or you can smarten up get your “A” team together and get to Sydney and try and resolve this.
I will be talking to my contact at the bank tomorrow, David Geer with whom I have known for 16 years, ASIC fraud and insolvency investigation area, let me make it clear ... what I propose wont all happen in the next couple of days, some parts of my intended actions will happen within days, others may take months ...
Recently I received lots of negative press arising out of comments by a road contractor from Victoria.
He misappropriated 3 million of my clients money.
He wanted to settle but try as he may he could not do what was required.
All his companies went into receivership (I WARNED HIM OF THIS DAY ONE), his companies were then liquidated (I HATE TO SAY BUT I TOLD HIM SO), I arranged for funding for the liquidator to examine the director. the transcript has been sent to the DPP with a senior counsels advise. (ALL MY PLANS ALL CARRIED OUT)
I pushed him into bankruptcy.
His wife is being pursued now for funds she received 2 years prior to the liquidation ... she will be forced to hand back not only several million ... but interest and cost ... she is soon to be bankrupt.
Finally I am fair and I can be negotiable and commercial ... let me make it perfectly clear ... never mistake Kindness for weakness ... i am Not Justin and I have no qualms about doing what is required to recover money. (within the law that is)
So consider Mr Harris your options ... consider them quickly, as I am out of the office until 12 noon but am on my mobile.
If you Mr Harris don’t call me to plead your case and ask politely to meet for a without prejudice discussion ... then by 5pm, I will have the defaults listed and called in my contact at Bank west.
Up to you ,,, BY THE WAY NO NEED CALLING JUSTIN ... THAT’S TO LATE !
(Grammatical and spelling errors as per original document.)
In the second email, sent at 9.43 am, he said that he was “passing the SA area of Bankwest and discussing the situation at a national senior management level”. Mr Byrnes threatened to inform the defendants’ bankers of their default; Mr Harris will be bankrupted and listed as defaulter with credit reference queries; ASIC has been informed; ASIC will be asked to review the defendants and appoint a provisional liquidator; ASIC will be encouraged to undertake a s 30 examination; and the Church will be informed.
Mr Byrnes boasts that he is a bigger bully and boasts about how he ruined a road contractor.
The email sent at 12.29 am contains naked threats. They go further than a creditor pressing for repayment of a debt. The email contains threats that no reasonable person would make. They are outrageous and constitute harassment. There can be no doubt that the series of emails to which I have referred constituted serious threats which I find were made for the purpose of frightening Mr Harris into paying to Dr Low the amount which Dr Low was seeking from Mr Harris at or about this time.
The emails were written after Dr Low had withdrawn the offer to assign the debt to BAA which was recorded in the Deed of Release of 24 October 2007. During that interval Dr Low and Mr Harris were attempting to resolve their dispute.
If such an order is made, and so as to avoid any doubt I intend to make those orders, s 1335(2) on the construction given to it by Jenkinson J and Lindgren J would not stand in the way of an order for costs against the non-parties after they become parties.
The defendants contended, however, that there was no need to make an order joining Simmons and McCartney, the plaintiffs’ solicitors, given that there is an express power under O 62 r 9(1) of the Federal Court Rules. That rule provides:
(1)Without limiting the Court’s discretion to award costs in a proceeding, if costs are incurred improperly or without reasonable cause, or are wasted by undue delay or by any other misconduct or default, and it appears to the Court that a legal practitioner is responsible (whether personally or through a servant or agent), the Court may, after giving the legal practitioner a reasonable opportunity to be heard, do any of the following:
(a)disallow the costs as between the legal practitioner and the legal practitioner’s client;
(b)if the legal practitioner is a barrister — disallow the costs as between the barrister and the barrister’s instructing solicitor;
(c)direct the legal practitioner to repay to the client, costs which the client has been ordered to pay to another party;
(d)direct the legal practitioner to indemnify any party other than the client against costs payable by the party indemnified.
It was contended because of that express power in the Rules there was no need to make an order joining the solicitors as a party to the proceedings.
Simmons and McCartney did not take issue with the proposition that the Federal Court Rules empowered the Court to make an order against them. They simply argued that such an order should not be made.
The matter to which I now advert therefore was not the subject of argument but I am not sure that the defendants’ contention is correct. The question raised is, if s 1335(2) of the Corporations Act prevents an order being made against a non-party, does O 69 r 9(1)(d) of the Federal Court Rules notwithstanding empower the Court to make such an order?
The defendants relied upon a decision of Master Coulehan of the Supreme Court of the Northern Territory in Construction Enterprises Pty Ltd v Lafarge Plasterboard Pty Ltd [2002] NTSC 21 for the proposition that an order for costs could be made against solicitors without making the solicitors parties and notwithstanding s 1335(2) of the Corporations Act.
That case concerned an application to set aside a statutory demand pursuant to s 459G of the Corporations Act. Shortly after the proceeding was commenced, the plaintiff was wound up by order of the Supreme Court of New South Wales. The defendant sought costs against the plaintiff’s solicitor who had pursued the application on the part of the plaintiff, notwithstanding that the plaintiff had been wound up before the hearing of the application and notwithstanding that the liquidator was unaware of the application.
The Master thought he was constrained by the decisions in Re Wridgemont Display Homes Pty Ltd 39 FCR 193 and in Australian Forest Managers Ltd (in liq) v Bramley 136 ALR 431 from ordering costs against persons who were not parties. However, he was of the opinion that O 63.21 of the Supreme Court Rules of the Northern Territory, which provides for the costs liability of a legal practitioner where the legal practitioner has caused costs to be incurred improperly or without reasonable cause or be wasted by undue delay or negligence or by some other misconduct or default, was not in conflict with either the Corporations Regulations or s 1335(2).
As already adverted to, if the Supreme Court Rules of a jurisdiction are relevant and not inconsistent with the Corporations Rules, the Court can have regard to those Rules in a proceeding under the Corporations Act.
However, that is not, it seems to me, the question that needs to be addressed. The question in issue is whether the Rule is inconsistent with s 1335(2) of the Corporations Act.
The Master relied upon two decisions for the second proposition that the rule was not inconsistent with s 1355(2): Myers v Elman [1940] AC 282 and Caboolture Park v White Industries 45 FCR 224. I am not sure how those cases support the proposition that there is no conflict between the Rules of Court of the Supreme Court of the Northern Territory and s 1335(2) of the Corporations Act. The first case stands for the proposition that the High Court in England has power to order a solicitor to indemnify a party who has been injured by the solicitor’s default. The power rests upon the Court’s jurisdiction over its own officers. That proposition can no longer be doubted. The second case, a decision to which I have already referred, is authority for the proposition that the Federal Court has the power to award costs against a non-party and, in that case, the solicitors for a party.
The power to award costs against a non-party, and in particular against a solicitor, are not the questions in issue. The question, further refined, is whether the Court can award costs against a legal practitioner who is a non-party. The Master, it seems to me, with respect, did not address that issue.
If the jurisdiction to award costs against a solicitor emanates from the Rules of Court, then the first consideration is whether those Rules are inconsistent with an Act of the Parliament. The power to make Rules of Court is given by s 59 of the Federal Court Act which is to make Rules not inconsistent with the Federal Court Act for and in relation to the practice and procedure to be followed in the Court. In particular, the Court may make Rules in relation to the costs of the proceedings in the Court: s 59(2)(o). However, the Court cannot make Rules relating to costs inconsistent with s 43 of the Act. That section allows the Court to make orders for costs other than in proceedings in respect of which any other Act provides that costs shall not be awarded. If, contrary to my opinion, the Corporations Act prevents the Court from making any order for costs against a non-party, the Federal Court Rules could not overrule that statutory injunction and empower the Court to make such an order. Subordinate legislation such as the Federal Court Rules cannot, in the absence of express statutory power, repeal or amend an Act of the Parliament. If the Rules are inconsistent with the Corporations Act, then they could not empower the Court to make an order that the Corporations Act forbids: Wardley Australia Ltd v State of Western Australia (1992) 109 ALR 247 per Toohey J at 281; Mahfoud v Minister for Immigration, Local Government and Ethnic Affairs (1993) 43 FCR 217.
If the jurisdiction to make an order for costs against a legal practitioner is independent of the Rules of Court and arises out of the Court’s power over its own officers, that power must be understood to be and will always be subject to any Act which limits the power. Thus, if the power to award costs against a legal practitioner who is a non-party is inconsistent with an Act of the Parliament, the statute must prevail. It seems to me therefore that the solicitors, Simmons and McCartney, are in the same position as the other non-parties. If the Corporations Act does not allow the Court to make orders against non-parties, the solicitors must, if such an order is to be made, be joined as parties.
Because these matters were not argued, I will not dwell upon them.
It seems to me that it would be appropriate to treat Messrs Simmons and McCartney the same as the other non-parties and if I were of the opinion that an order ought to be made against the solicitors, Messrs Simmons and McCartney, that an order should be made joining them as parties to the proceedings in order that the order can be made.
That raises the next question as to what orders should be made.
THE ORDERS TO BE MADE
On 25 August 2008 I made an order that the defendants have their costs thrown away by reason of the adjournment on an indemnity basis, but reserved the question as to whether those costs were to be paid by the plaintiffs, the plaintiffs’ solicitors or their counsel. On 27 August 2008, after dismissing the proceedings brought by the plaintiffs, I reserved the question of costs including the costs thrown away, the subject of the order made on 25 August 2008.
As I have already said at [53], there can be no doubt that the defendants must be entitled to their costs as against the plaintiffs on a party and party basis. The plaintiffs, for reasons unexplained, failed to prosecute the proceedings and the proceedings were dismissed. However, the defendants seek orders on an indemnity basis against the plaintiffs.
I have been asked to infer that the plaintiffs did not proceed with their winding up applications because neither Mr Byrnes nor Mrs Low were prepared to give evidence and subject themselves to cross-examination. It was put that their cross-examination would have exposed irregularities in the assignments of the debts, the notices of assignment and the failure by the plaintiffs to serve a statutory demand.
I am not in a position to make the findings which would need to have been made if the proceedings had proceeded to trial and judgment.
It is not possible to determine whether the statutory demands were in fact ever served on the defendants in accordance with the Act. Mr Byrnes contends they were and the defendants contend they were not received. That was an issue to be determined at the trial but the proceedings were dismissed for the reasons given. I do not think, in the absence of hearing the witnesses whose evidence is relevant to this issue and particularly Mr Byrnes, the issue can be resolved. Moreover, the resolution of that issue would be undesirable after the proceedings were dismissed at the behest of the defendants: Australian Securities Commission v Australian Home Investments Ltd (1993) 116 ALR 523 at 530.
In that case, the Court was required to consider the question of costs where the applicant had sought and obtained the appointment of a receiver to the respondents’ property. The appointment was subsequently revoked but without an inquiry into the merits. The respondents sought an order for costs. Hill J considered the authorities and said:
These cases seem to me to support the following propositions being made.
(1) Where neither party desires to proceed with litigation the court should be ready to facilitate the conclusion of the proceedings by making a cost order: Stratford and the SEQEB case.
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford, supra. This will particularly be the case where a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB, supra).
(4) In a particular case it might be appropriate for the court in its discretion to consider the conduct of a respondent prior to the commencement of the proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1933) 33 SR(NSW) 371.
(5) Where the proceedings terminate after interlocutory relief has been granted, the court may take into account the fact that that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd (in liq) [1973] 1 NSWLR 603 at 606, a case which, however, depended upon the specific wording of the statute under consideration.
In Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 284, Finkelstein J said at 287:
For my own part I should wish to emphasise that in the absence of a hearing on the merits it is difficult to see how any order, other than an order that each party bear its own costs, can be made except in special circumstances. To do otherwise would require some prediction of the outcome of the case. It seems to me that the third proposition stated by Hill J was intended to cover the situation where the Court was in fact able to form a clear view about the merits of a case without a trial. So, if a claim is patently hopeless that would be a good reason to make an order for costs against the claimant. Likewise if a defence was bound to fail that would be good reason for awarding costs in favour of the claimant. But I venture to suggest that there will be very few cases where the issues will be sufficiently clear, in the absence of a hearing, for an order for costs to be made in favour of a party.
Debelle J agreed with the decision in Gribbles Pathology Pty Ltd v Health Insurance Commission 80 FCR 283 in Boscaini v Corporation of Kensington and Norwood [1999] SASC 327 and said at [22]:
I immediately acknowledge the assistance of Hill J but suggest that proposition (3) is of limited assistance. The fact that a party has not conducted himself reasonably may disentitle him to costs. But, beyond that, the reasonableness of the conduct of the parties is not likely to assist in determining whether the applicant should recover his costs. The real question is whether the applicant had reasonable prospects of success. It seems preferable, therefore, to express proposition (3) in different terms.
As my reasons show, the inquiry that I have undertaken is as to the reasonableness of the conduct of the plaintiffs and the non-parties. There are three questions to be determined.
The first question for decision is whether the plaintiffs (and the non-parties) acted reasonably in bringing winding up proceedings.
The second question to be determined is whether the plaintiffs (and the non-parties) acted reasonably in the prosecution of the proceedings having been put on notice that the defendants claimed never to have been served with the statutory demands and the defendants’ requests for the deeds of assignment.
The third question to be determined is whether the plaintiffs (and the non-parties) acted reasonably between 22 August and 27 August 2008 when these proceedings were dismissed.
The three questions I have posed mean that I disagree with respect with Debelle J’s decision in Boscaini v Corporation of Kensington and Norwood [1999] SASC 327. A party may behave so unreasonably in the bringing or conducting of proceedings so that an order for costs against that party is required in the interests of justice without ever deciding whether the party had a good cause of action.
Finkelstein J cast some doubt on the third principle referred to by Hill J. I do not need to decide whether I agree with the proviso mentioned by Finkelstein J because, in my opinion, at the very least this is one case where the issues are sufficiently clear, in the absence of a hearing, for orders for costs to be made.
The plaintiffs’ behaviour, which was demonstrated by Mr Byrnes’ emails and correspondence generally prior to the commencement of proceedings, was quite unreasonable. Mr Byrnes behaved like a bully as he claimed to be. He threatened the defendants and Mr Harris with all sorts of commercial harm. His communications were calculated to induce fear into the defendants. His threats, if carried out, would have ruined the defendants in circumstances where he knew the defendants took issue with the debts. His actions were taken for the benefit of the plaintiffs and for the assignors, Cobra and Contor. The threats which were made prior to the proceedings commencing indicate that the proceedings were to be used for a collateral purpose; namely, the recovery of a debt, rather than for the purpose for which the proceedings were designed; namely, the winding up of an insolvent corporation. The proceedings were an abuse of the Court’s processes.
That finding is enough, it seems to me, to make the order sought by the defendants that the plaintiffs pay the defendants’ costs on an indemnity basis: In the matter of Bond Corporation Holdings Ltd (1990) 1 WAR 465; Packer v Meagher (1984) 3 NSWLR 486. In Ragata Developments Pty Ltd v Westpac Banking Corporation (1993) 217 ALR 175, Davies J said at [7]:
... it is not open to an individual Judge to award costs having regard to his own view as to the adequacy of party/party costs so fixed. An award of costs on an indemnity basis may be made only in a special case, where the circumstances justify departure from the ordinary principle. The circumstances must be such as to justify an award indemnifying the successful party in respect of all of the costs incurred, save only as to those costs which are unreasonable in amount.
The very nature of the award of costs on an indemnity basis gives a guide to the type of case in which such an award is appropriate. Thus, indemnity costs may be awarded where unsuccessful proceedings have been brought and prosecuted, not for the bona fide purpose of protecting and enforcing a legal right, but to achieve an ulterior or extraneous purpose.
However, there are further reasons for making the orders.
The plaintiffs’ and Mr Byrnes’ behaviour, after the commencement of the proceedings, has also been unreasonable. The defendants have always maintained that they did not receive the statutory demands. They requested on a number of occasions a copy of the statutory demands but none was provided. The plaintiffs have refused to cooperate with the defendants and have refused to provide evidence of the service of the statutory demands said to have been served upon the defendants. The plaintiffs have provided the defendants with three different notices of assignment. No explanation was given for the discrepancies. They have done nothing to cooperate in these proceedings. In my opinion, the plaintiffs, by reason of the conduct of Mr Byrnes, involved themselves in a vindictive campaign which consisted of bullying and threatening in an endeavour to frighten the defendants and Mr Harris into paying what the plaintiffs claim to be owing to them by reason of the deed of assignment.
The plaintiffs’ conduct from 22 to 27 August 2008 was also unreasonable. It is to be remembered that the plaintiffs’ application was for the winding up of the defendants. Their letter of 22 August 2008 was quite inconsistent with the basis upon which the applications were made. Whether the defendants were intending to sell land of the value mentioned in the letter of 22 August is, in my opinion, not to the point. The plaintiffs’ application was for winding up an insolvent company, not for the purpose of debt collecting. Their conduct of 22 August was further evidence of the collateral purpose which motivated the plaintiffs to bring these proceedings.
The plaintiffs had no right, after receiving the defendants’ communications indicating that the application for an adjournment would be opposed and receiving advice from my chambers that the matter would proceed on 25 August 2008, to absent themselves from the proceedings for the purpose of having counsel make an application for an adjournment.
The matter was adjourned because the plaintiffs indicated their solicitors and counsel and witnesses would be available on Wednesday, 27 August 2008. On 26 August 2008 the plaintiffs tried to discontinue these proceedings. That failed and the proceedings were dismissed on 27 August 2008.
The plaintiffs’ conduct after the commencement of these proceedings and up until the time of the dismissal of the proceedings has been entirely unreasonable. For those further reasons, there will be an order that the plaintiffs pay the defendants’ costs on an indemnity basis.
COSTS TO INCLUDE AN AFFIDAVIT IN NSD 584 OF 2008
As I have said in [2] of these reasons, these reasons should be read with the reasons in Hardel Investments Pty Ltd (ACN 083 276 000) v Consolidated Byrnes Holdings Limited (ACN 111 052 585) [2009] FCA 400 given today. I have made no order for costs in that proceeding for the reasons given.
However, the affidavit sworn by Peter William Harris on 28 April 2008 which was filed in that other proceeding was used extensively in these proceedings and for the purpose of these reasons. Indeed, the defendants filed an affidavit in each of these proceedings sworn by Mr Harris on the same day in which he referred to and relied upon his affidavit sworn in the other proceeding. In that way the affidavit was used in these proceedings.
It would be appropriate to allow the defendants the costs of that affidavit even though it was filed in the other proceeding because it contained the relevant information relied upon by the defendants for the defence of these proceedings. The costs which the defendants are entitled to recover on the orders in these proceedings shall include the costs of the preparation, swearing and filing of Mr Harris’ affidavit sworn on 28 April 2008 and filed in action number NSD 584 of 2008.
COSTS AGAINST THE NON-PARTIES
That leaves for consideration whether orders for costs should be made against any of the non-parties.
Mason CJ and Deane J (with whom Gaudron J agreed) said in Knight v F.P. Special Assets Ltd 174 CLR 178 at 192-193:
For our part, 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. 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 if the interests of justice require that it be made.
It cannot be thought, as some of the non-parties contended, that the High Court was intending to lay down the only category of case in which an order for costs may be made against a non-party.
The discretion to award costs against a non-party is unfettered except that it must be exercised judicially. Having said that, the cases identify the principles upon which the exercise of the discretion might be exercised.
In Vestris v Cashman (1998) 72 SASR 449 at 467, I said, when a member of the Supreme Court of South Australia:
The circumstances in which it is just to order costs against a person who was not a party to the litigation will be both rare and exceptional: see Aiden Shipping Ltd v Interbulk Ltd per Lord Gough of Chieveley. If the order for costs which is sought against non-parties in lieu of, in substitution for or complementary to an order for costs against a party, the circumstances for making such an order will not arise unless there is some connection or association between the party to the litigation and the non-party against whom the order for costs is sought. The connection must be of a kind that makes it just to make an order for costs in that the connection must be material to the question of costs: see Bischof v Adams (1992) 2 VR 198 at 205.
The ordinary rule is that only parties to the proceedings will be subject to costs orders but that rule will give way where “within the circumstances of the particular case, it is just and equitable that a non-party pay the costs of a party to the litigation”: Vestris v Cashman 72 SASR 449 at 469.
The categories of costs in which a court may order a non-party to pay costs are not closed: Applicant NAGM of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2002) 125 FCR 488. In that case, at [62] the Court said:
There are certain categories of cases in which the jurisdiction to award costs against a non-party has been exercised, if not frequently, then with some degree of regularity. One such category is where the non-party is considered to be the “real party” to the litigation: Knight v Special Assets at 188 per Mason CJ and Dean J. Another is where the non-party is a legal representative of a party to the proceedings. A costs order may be made, for example, against a solicitor in consequence of his or her conduct in the litigation: Caboolture Park at 231. While s 43 of the Federal Court Act empowers the Court to make a costs order against a legal representative of a party, a second source of jurisdiction is the “implied”, “accrued” or “inherent” jurisdiction of the Court over its own officers: Caboolture Park at 231.
However, the Court also made it clear that the jurisdiction is not limited to those particular categories of cases: at [63].
In Naomi Marble and Granite Pty Ltd v FAI General Insurance Company Ltd (No 2) (1999) 1 Qd R 518, Shepherdson J identified categories of cases where it might be appropriate to make an order for costs against a non-party. He said at 545:
1.Where a person has some management of the action e.g. a director of an insolvent company who causes the company improperly to prosecute or defend a proceeding (191).
2.Where a person has maintained or financed the action (citing Singh v. Observer Ltd [1989] 2 All E.R. 751).
Balcombe L.J. was a member of the Court of Appeal in each of Bahai v. Rashidian and Symphony Group and in Symphony Group went on to say that he accepted that the categories which he had set out were neither rigid nor closed.
To the above two categories of non-parties against whom costs orders may be made the following can be added:
(a)Where the unsuccessful party is a corporation (as is the case here) the director or directors who have the right to control the corporation; (Oz B and S Pty Ltd v. Elders IXL Ltd (1993) 117 A.L.R. 128 (Einfeld J.); Re Land and Property Trust Co. Plc. [1991] 1 W.L.R. 601 at 604-605 and H. Leverton Ltd v. Crawford Offshore (Exploration) Services Ltd – unreported decision on costs of Garland J. in Queens Bench Division dated 11 October 1996).
(b)In the situation of a party to litigation who was an insolvent person or a man of straw, a person who has played an active part in the conduct of the litigation and who has an interest in the subject matter of the litigation (Knight v. F.P. Special Assets Limited at 193 in a passage I set out earlier in these reasons).
(c)Where the non-party is the effective litigant standing behind the actual party – Knight v. F.P. Special Assets Limited at 202 (per Dawson J.).
(d)Where the non-party is funding or otherwise financially assisting the unsuccessful party to the litigation and stands to benefit if that party has been successful (Re Foster; Ex parte Foster v. Duus (1994) 121 A.L.R. 494 at 503; (Einfeld J.) H. Leverton Ltd v. Crawford Offshore (Exploration) Services Ltd).
(e)Where a non-party has supported the unsuccessful party and has done so acting in bad faith towards the other parties and towards the court such as by giving false testimony or forging documents or preventing relevant documents being discovered (H. Leverton Ltd v. Crawford Offshore (Exploration) Services Ltd).
As I have already said, I am not satisfied that either of the plaintiffs are in a position to satisfy an order for indemnity costs which is the order I propose to make against them. As I have already said, CBH’s financial position is that Mrs Byrnes would be in a position to cause CBH not to be able to pay costs if she called upon the amount owing to her. Dr Low has not descended into advising the Court of the financial position of Alpha.
In my opinion, the plaintiffs may well be incapable of satisfying the orders for costs which are to be made against them.
In those circumstances, the defendants are entitled to ask the Court to make orders against any of the non-parties who have joined in or maintained these proceedings for the same ulterior and collateral purposes as the plaintiffs.
There can be no doubt in my mind that an order for costs should be made against Mr Byrnes who has been the conductor of the vindictive campaign which has been maintained against the defendants. His conduct has been reprehensible and he should be made a party to the order for costs. So also should Mrs Byrnes. She caused CBH to commence these proceedings for the ulterior and collateral purposes which I have identified. She has allowed CBH to be used as a debt collector and has caused CBH to improperly bring these proceedings. She has done nothing to restrain Mr Byrnes in his conduct. Of course, she was a party to his appointment on 17 December 2007. There will be an order for costs against Mrs Byrnes.
In my opinion, Dr Low and Mrs Low also should be ordered to pay the defendants’ costs on an indemnity basis.
Although they protest that they had little or nothing to do with the conduct of these proceedings and would claim to be affronted by the conduct of which they have been made aware, those claims and those denials cannot be reconciled with the information which Mr Byrnes supplied Dr Low from time to time.
Dr Low and Mrs Low assigned Contor and Cobra’s debts to CBH and Alpha so that they could bring these proceedings. They also have used the proceedings for the same improper and collateral purposes as the plaintiffs. They have done nothing to restrain Mr Byrnes in his conduct throughout the proceedings.
The solicitors, Simmons and McCartney, have not sought to explain their conduct in any way. They have, in my opinion, failed as officers of the Court to conduct themselves appropriately.
The plaintiffs’ solicitors would have been aware prior to the commencement of these proceedings that the proceedings were to be instituted for an ulterior or collateral purpose. They were aware of Mr Byrnes’ communications with the defendants and the defendants’ agents. They could not have failed to be aware that these proceedings were to be commenced for an ulterior or collateral purpose.
Moreover, they should have responded to the defendants’ request in relation to the statutory demands and the notices of assignment. It was inappropriate to merely ignore those matters and to assert that they would be matters for issue at trial.
The letter they wrote on 22 August 2008 and the request for an adjournment and for the hearing on 25 August 2008 to be by way of video were all inappropriate having regard to the fact that the proceedings had been set for hearing on 25 August 2008. The fact that the defendants were to sell $9 million worth of property was irrelevant.
The solicitors failed to advise the defendants’ solicitors that neither they nor Mr Byrnes would be attending Court on 25 August 2008 until the morning of 25 August 2008. The failure to have counsel available on the hearing of the proceedings indicated a lack of respect for the Court.
On 22 August 2008 the solicitors were aware that the defendants would oppose the application for an adjournment and the Court would not permit the plaintiffs to appear by videolink. Notwithstanding that awareness, they took no steps to have counsel or their witnesses available for the hearing on 25 August 2008. Moreover, they did not advise the defendants that they would not be appearing.
On 26 August 2008 they inappropriately attempted to discontinue those actions. When that step failed on 27 August 2008 they simply did not appear indicating very shortly before the hearing that the plaintiffs would consent to dismissal of the action with costs assessed or agreed. Notwithstanding that the matter was listed for trial on 27 August 2008, they failed to appear.
In my opinion, in all those circumstances, the solicitors have failed to prosecute these proceedings for the appropriate purpose and after the commencement of the proceedings have failed to prosecute the proceedings diligently and appropriately.
They should also be subject to an order that they pay the defendants’ costs on an indemnity basis.
That leaves Mr and Mrs Lazar. It must be said immediately that there is no evidence that Mrs Lazar had any awareness of any of the circumstances relating to these proceedings either before or after they were commenced and there should be no order for costs made against her.
The evidence discloses that Mr Lazar was aware of Mr Byrnes’ various demands made prior to the commencement of the proceedings. He was also a director of BAA which purported to take an assignment of the Contor and Cobra debts in October 2007, and he made demands upon the defendants in relation to those debts.
He was also copied in to correspondence between Mr Byrnes and the defendants’ solicitors in January 2008, and was aware that the defendants had disputed that the statutory demands had been served and disputed the debts and their assignment.
Lastly, he is a beneficiary of the Coomera Trust.
However, I am not satisfied that Mr Lazar played any active part in the commencement of these proceedings or the maintenance of these proceedings after their commencement. It is true, as I have said, that he was aware of the commencement of the proceedings and of the defendants’ assertions. There is, however, no evidence that he did anything active in maintaining the proceedings.
There will be no order for costs against Mr Lazar.
I certify that the preceding four hundred and one (401) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. Associate:
Dated: 29 April 2009
Counsel for the First Plaintiff: Mr G Dart Solicitor for the First Plaintiff: Simmons & McCartney Lawyers & Attorneys Counsel for the Second Plaintiff: Mr A Lazarevich Solicitor for the Second Plaintiff: Simmons & McCartney Lawyers & Attorneys Counsel for Mr and Mrs Byrnes: Mr G Dart Solicitor for Mr and Mrs Byrnes: Simmons & McCartney Lawyers & Attorneys Counsel for Dr and Mrs Low: Mr A Lazarevich Solicitor for Dr and Mrs Low: Aejis Legal Counsel for Mr and Mrs Lazar: Mr P Quinn Solicitor for Mr and Mrs Lazar: Stewart Rattray Lawyers Counsel for the Defendants: Mr R Whitington QC with Mr S Doyle Solicitor for the Defendants: Johnson Winter & Slattery
Date of Hearing: 31 October 2008 Date of Judgment: 29 April 2009
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