Elias v Smidt

[2025] NSWSC 762

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Elias v Smidt [2025] NSWSC 762

Hearing dates:

14 July 2025

Date of orders:

14 July 2025

Decision date:

14 July 2025

Jurisdiction:

Equity

Before:

Leeming JA

Decision:

1. Judgment in favour of the plaintiff against the first and second defendants in the amount of $225,161.29.

2. The judgments in order 1 are in the nature of default judgments and in substance reflect an entitlement to indemnity by the first and second defendants in respect of the unpaid liability of the plaintiff for Director’s Penalty Notices issued in respect of the second defendant.

3. Consistently with order 2 above, the plaintiff may take no step, without leave, to execute either of the judgments in order 1 above unless he establishes actual loss pursuant to the Director’s Penalty Notices.

4. Direct the plaintiff to serve each of the first and second defendants copies of these orders and the Court’s reasons by email at [email protected] and also Mr Christopher Nolan, the Law Society’s appointed manager of that practice.

5. Grant liberty to all parties and the Law Society to apply on 3 business days’ notice by email to my Associate.

6. Stand over the matter for further directions at 9.30am on Friday 1 August 2025.

Catchwords:

PROCEDURE — default judgment — claim in nature of indemnity for amounts former director liable pursuant to Director Penalty Notices — whether former director entitled to indemnity under corporate constitution — whether continuing director and her company misled or deceived him in trade or commerce — effect of irrevocable undertaking to appoint restructuring practitioner under s 453B of Corporations Act 2001 (Cth) — form of relief

Legislation Cited:

Australian Consumer Law, s 18

Competition and Consumer Act 2010 (Cth)

Corporations Act 2001 (Cth), ss 127, 453B

Taxation Administration Act1953 (Cth), sch 1 s 269-35

Uniform Civil Procedure Rules 2005 (NSW), r 16.10

Cases Cited:

ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594; [1990] HCA 17

Rosebanner Pty Ltd v EnergyAustralia [2009] NSWSC 43; 223 FLR 406

Termijtelen v Van Arkel [1974] 1 NSWLR 525

The University of Notre Dame Australia v Persons Unknown [2025] NSWSC 550

Vines v Djordjevitch (1955) 91 CLR 512; [1955] HCA 19

Category:

Principal judgment

Parties:

Charbel Elias (Plaintiff)
Lee Smidt (First Defendant)
Just Law Group Pty Ltd (Second Defendant)

Representation:

Counsel:
MJ Jones (Plaintiff)

Solicitors:
Saile Law Pty Ltd (Plaintiff)

File Number(s):

2025/00144117

Publication restriction:

Nil

EX TEMPORE JUDGMENT

1. HIS HONOUR: By notice of motion filed on 30 May 2025, the plaintiff, Mr Charbel Elias, seeks judgment against each of the first and second defendants, namely, Ms Lee Smidt and Just Law Group Pty Ltd, in the amount of $230,599.40. Some of that amount has been paid and, in fact, the plaintiff instead moves on that amount less $5,438.11, which is to say, $225,161.29.

2. As raised during the hearing, although this is a case where the default is tolerably clear – no defence has been filed by either defendant, despite orders for that to occur being made on both 22 April 2025 (when it was to be filed on 26 May 2025) and 6 June 2025 (an occasion on which Ms Smidt participated actively by AVL – and when it was ordered to be filed on 20 June 2025) – it is an unusual application for default judgment for the following reasons.

3. First of all, the plaintiff (who is a solicitor) makes serious allegations against the first defendant who, via her company, owns a solicitor’s practice operating in Coffs Harbour which is the second defendant, to which more recently the Law Society has appointed a manager. The plaintiff also makes serious allegations against the incorporated law practice itself.

4. Secondly, although the motion seeks judgment in the amount mentioned above, and although it is true that the statement of claim seeks orders that such amount be paid, either by way of “equitable damages/restitution” or statutory damages under the Competition and Consumer Act 2010 (Cth), in fact the plaintiff is not presently entitled to that amount. He is at present merely exposed to a liability crystallised by a series of Director Penalty Notices issued by the Australian Tax Office to him, and the essential relief which is sought is by way of indemnity against that contingent liability, rather than a compensatory judgment for an amount which as yet he has not paid. That is the position despite Mr Jones, who has appeared on this application which has proceeded ex parte, emphasising quite rightly that it is a large amount and enforceable at any time.

5. Thirdly, there are considerations concerning the regulation of the legal profession and the public confidence in that profession which tell in favour of reasons which are more substantial than would usually be the case in an application of this nature.

6. Fourthly, when the matter was last before the Court, it was set down with an estimate of two days in light of (I infer) the anticipated complexity and significance of the matter.

7. Fifthly, most of the relief sought by the plaintiff is equitable or discretionary. That does not stand in the way of orders in the nature of default judgment, although the applicable principles are slightly different from a case at common law where there is a demonstrated loss: see Termijtelen v Van Arkel [1974] 1 NSWLR 525. However, in order to explain the exercise of discretion involved it is appropriate to say more than merely rely upon the deemed admissions in the verified statement of claim. A recent example of relatively extensive reasons given on an application for default judgment, where equitable relief was sought, may be seen in The University of Notre Dame Australia v Persons Unknown [2025] NSWSC 550 at [37]-[54].

8. That is a long way of saying this. I propose in fairness to the submissions and evidence that have been relied upon by the plaintiff, to give substantially more reasons than would ordinarily be the case in an application for default judgment.

Background

9. The plaintiff is a solicitor. He was also a director, according to ASIC records, of Just Law Group from 21 February 2023 until 18 March 2024 (there may be some dispute about the latter date but nothing turns on it for present purposes). In February or March 2024, he resigned. Following his resignation he has received four Director Penalty Notices. The Commissioner of Taxation thereby contends that there are substantial amounts of unpaid liabilities of the company relating to Superannuation Guarantee, GST and PAYG withholding amounts. Three notices were issued to the plaintiff dated 29 May 2024. Each notice advised that there was a 21-day period, with time commencing from the issue, within which certain steps could be taken. Each notice provided, after setting out the amounts which were “by way of penalty” equal to the “unpaid amount of each liability of the company to pay an assessed net amount for a tax period”, as follows:

The penalty in respect of each unpaid amount of the company’s liability is detailed in [...] the above table, will be remitted if within 21 days after the date of this notice:

(a) the company complies with its obligation to pay the unpaid amount to the Commissioner; or

(b) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or

(c) a small business restructuring practitioner for the company is appointed under section 453B of that Act; or

(d) the company begins to be wound up (within the meaning of the Corporations Act 2001)

The penalty in respect of each unpaid amount of the company’s liability as detailed [above] will be remitted if within 21 days after the date of this notice the company complies with its obligation to pay the unpaid amount to the Commissioner.

10. There ensued a series of communications between the plaintiff and Ms Smidt. At this time, it should be said a second director had been appointed to Just Law Group. According to ASIC records, Mr Mathew Lowry was appointed with effect from 18 March 2024.

11. Ms Smidt made a series of representations about the company’s debt to the Australian Taxation Office.

12. On 7 June 2024, she advised that the ATO had been contacted on the same day of receipt of the notices, and “a payment plan has been entered into for all three accounts, until November 2024.” The plaintiff responded later that day advising that because that of itself would not cause the penalties to be remitted, he would now proceed on the basis that she would not be causing the penalties to be remitted.

13. Later still that Friday 7 June 2024, Ms Smidt advised among other things that she had retained the solicitor Ms Lindy Thistleton of Harbour Law Legal Services & Conveyancing and asked for any further correspondence to be directed to her.

14. On Tuesday 11 June, the plaintiff wrote to Ms Thistleton, copying in Ms Smidt, among other things requesting that by no later than 5pm Wednesday 12 June, Ms Smidt provide an irrevocable undertaking that she will cause the penalties in respect of unpaid amounts to be remitted by no later than close of business Wednesday 19 June 2024.

15. Ms Thistleton responded confirming that she acted for Ms Smidt in relation to “business matters”. She also asked for all correspondence to be directed to her.

16. Later on 12 June 2024, Ms Thistleton advised that “the company is in the process of engaging a restructuring expert to address the ATO obligations” and that an indemnity document was in the process of being drafted. That document was later provided in draft but was unacceptable to Mr Elias, for a number of reasons which were well-founded, in my view, including that it went no further than the existing indemnity under the company’s constitution.

17. On 13 June 2024, a Thursday, the plaintiff wrote to Ms Thistleton including the following:

The lack of transparency and failure to provide key and relevant information and documents clearly indicate that your client is not willing or able to remit the penalties in the DPNs.

If I simply received the written undertaking by Ms Smidt that she will or has taken one of the four steps outlined in the DPNs to cause the penalties in respect of the unpaid amounts detailed in each DPN to be remitted by no later than the 21-day period specified in each DPN, being Wednesday, 19 June 2024, along with the requisite evidence, it would have prevented the need for me to approach the Duty Judge on a urgent basis. Your client should be aware that if the Company does indeed appoint a small business restructuring practitioner under section 453B of the Corporations Act 2001 (Cth) (the Act), prior to 19 June 2024, this would be sufficient to remit the penalties specified in each DPN. If your client intends to do this and cause the penalties to be remitted by way of appointing a small business restructuring practitioner under section 453B of the Act, I am at a complete loss as to how you have stated that your client is in the process of engaging a small business restructuring practitioner, yet you have failed to provide the requested evidence, details, information and the written undertaking confirming same.

To be abundantly clear, if I receive the written undertaking confirming that Ms Smidt has or will appoint a small business restructuring practitioner for the Company under section 453B of the Act, and will do so prior to 19 June 2024, along with the relevant evidence, information and details, I will not be required to approach the Duty Judge and make an urgent application. With respect to the issue of the indemnity, it was raised by your client, and it can be finalised at a later date. If the undertaking is not received by 10:00am tomorrow, 14 June 2024, I will be approaching the Duty Judge along with Counsel forthwith and without further notice. No further delays will be tolerated and I have been more than fair and reasonable in all the circumstances, given the urgency in the matter. I confirm that I have now exhausted all avenues without having to resort to approaching the Court.

18. Highly significantly for present purposes, on Friday 14 June 2024, Ms Thistleton advised the plaintiff that:

Ms Smidt on behalf of the company is arranging to appoint a small business restructuring practitioner for the company under section 453B of the Act so as to remit the debt by 19 June next.

19. Later that day, at 3.06pm, Ms Thistleton provided an “Irrevocable Undertaking” signed by Ms Smidt, the terms of which are of some importance.

20. It purported to be from both defendants. It purported to be executed for and on behalf of Just Law Group in accordance with s 127(1) of the Corporations Act “by authority of the Directors” (the plaintiff emphasises the plural of that term), but was signed only by Ms Smidt. It stated as follows:

In relation to the Director Penalty Notices issued to the directors of Just Law Group and each of the directors of Just Law Group by the Australian Taxation Office dated 29 May 2024, Just Law Group and Ms Lee Smidt irrevocably undertake to appoint a small business restructuring practitioner under section 453B of the Corporations Act 2001 (Cth), prior to 19 June 2024 and advise the Australian Taxation Office of this appointment.

21. On 17 June 2024, the plaintiff provided a copy of that irrevocable undertaking to the Deputy Commissioner of Taxation by express post.

22. On Monday 24 June, the week after the expiry of the deadline imposed by the Director Penalty Notices, the plaintiff wrote to Ms Thistleton seeking confirmation that in accordance with the undertaking a restructuring practitioner had been appointed under s 453B of the Corporations Act.

23. On 25 June 2024, Ms Thistleton advised that her client had confirmed that Mr Adam Preiner of Integra Restructuring & Insolvency had been retained.

24. There ensued correspondence which need not be addressed for present purposes in any detail to the effect, by reference to the absence of any notice being published on the ASIC public notices page, of the failure in fact to appoint a small business restructuring practitioner under the section. At this stage, Mr Elias retained Cadmus Lawyers to appear for him. The latter’s correspondence referred to there being “a breach of an undertaking by a law firm” and noted that that was a “very serious professional matter”.

25. Finally, on 1 August 2024, Mr Preiner confirmed that he had not been appointed as a restructuring practitioner of Just Law Group Pty Ltd.

26. Subsequently, a garnishee notice was issued by the Australian Tax Office to the plaintiff in respect of a nominated account in his name at Westpac. Further, there was a relatively small amount of somewhat more than $5,000 which had been credited to the plaintiff’s internal ATO tax account which was transferred from that account in partial discharge of the penalty reflected in the Director Penalty Notices. That gave rise to a debt owing by the company to Mr Elias by dint of statute in the amount of $5,438.11 which was the subject of a statutory demand, but was ultimately paid a few weeks ago and is the reason for the motion today being in slightly less than the amount claimed on the face of the motion.

27. Some time thereafter passed, but on 14 April 2025 Mr Elias commenced proceedings in this Court. He sought and obtained asset preservation orders on 16 April 2025, consequent upon short service and substituted service being granted the previous day. The matter proceeded on pleadings and there are two aspects of the procedural history that matter.

The pleaded claim

28. First I should identify the nature of the claim. The plaintiff sought four declarations to the effect that there had been a breach of the irrevocable undertaking, an entitlement to indemnification, breaches of the Corporations Act and misleading or deceptive conduct. The substantive orders sought were that the defendants, “do any and all things necessary to effect the indemnity over the Plaintiff”, as mentioned above, orders by way of “equitable damages/restitution”, or statutory damages for the payment of $230,599.40. A separate order for restitution in the amount of $5,438.11 reflects the credit balance in the ATO internal account, which has gone away. The other substantive orders that were sought were that Just Law Group be wound up and a liquidator appointed to it. Those were not before me today.

29. The basis of those orders was:

1. first of all, the irrevocable undertaking which was said to have caused Mr Elias to forebear from immediately applying to wind up Just Law Group and which was either breached or repudiated;

2. secondly, a claim that there was misleading or deceptive conduct when the irrevocable undertaking was provided to the plaintiff, that that was done in trade or commerce (paragraph 24), was misleading and deceptive and sounded in relief under the Australian Consumer Law;

3. thirdly, a statutory indemnity under clause 160 of Just Group’s Constitution; and

4. fourthly, a statutory right of indemnity under the Taxation Administration Act1953 (Cth).

Procedural history

30. The procedural history, considering that the defendants are a law practice and the owner of a law practice, are both unusual and alarming.

31. I start with the appearances. On 2 June 2025, shortly before the application for default judgment was returnable, a document styled “Submitting Appearance” was filed on behalf of the first and second defendants, signed by Ms Smidt on behalf of herself and as director of Just Law Group Pty Ltd.

32. However, on 3 June 2025, Ms Smidt wrote directly to the chambers of Justice Hammerschlag, copying in the plaintiff, saying:

Dear Researcher to the Equity Division,

I’m writing to sincerely apologise to the Court and all Parties for incorrectly filing the wrong form. I mistakenly filed a “Submitting Appearance” while seeking legal representation.

I respectfully ask that the Court, and his Honor [sic] allow the Defendants time to correctly correct [sic] the mistake in the appropriate manner.

33. On 4 June 2025, Ms Smidt, describing herself as “Operations Manager / Director” of Just Law Group, emailed the Equity Registrar (and no other recipient), requesting the submission of a notice of appearance. An apology was reiterated and Ms Smidt advised that:

We understand the importance of accuracy in these legal proceedings and remain committed to ensuring compliance with the procedural requirements.

34. The appearance that accompanied the email to the Registrar purported to be for Ms Smidt in person for herself and in her capacity as company director on behalf of the second defendant.

35. The Registrar, appropriately, replied telling Ms Smidt to include all other parties in her correspondence.

36. The evidence before me is that Ms Smidt is not an admitted or qualified legal practitioner.

37. When the matter came before Hammerschlag CJ in Eq on Friday 6 June 2025, there was at first no appearance by Ms Smidt. The matter was stood over until the afternoon, and Ms Smidt appeared by AVL link. She said that she could not attend that day because of various domestic commitments. She also said it was not possible for her to go to Sydney on short notice. She advised that she was not an admitted legal practitioner of the Court. Hammerschlag CJ in Eq confirmed from her that she was not purporting to represent the second defendant and was not seeking leave to appear on its behalf as a director.

38. The judge declined to permit Mr Elias to proceed against the second defendant saying as follows:

There’s a significant ethical problem here. I cannot have a defendant which is a firm carrying on business as an incorporated law practice represented by a director in circumstances where that director hasn’t got leave and that director is not a legal practitioner... I will deal with your application for default judgment against the first defendant, and whatever the outcome I will stand the proceedings over against the second defendant and I will direct a registered qualified practitioner in this state to be present when the matter is next mentioned.

39. There were difficulties in proceeding against Ms Smidt on that occasion because of a failure to establish service, the result of which was that the matter was stood over and fixed for hearing today with an estimate of two days. After making timetabling directions for the exchange of evidence and for the defendants to file and serve their defences by 20 June 2025, Hammerschlag CJ in Eq confirmed with Ms Smidt that she needed to convey to the lawyer who would appear for the company that they needed to be present, that evidence had to be served in accordance with the directions otherwise it could not be relied upon without leave, and then added this:

HIS HONOUR: Just remember, you have not put on a motion, neither you nor the second defendant have put on a motion to vary your appearances.

FIRST DEFENDANT: Yes, your Honour.

HIS HONOUR: If I were you, I would quick smart put on such a motion supported by an affidavit explaining how you came to make a submitting appearance apparently mistakenly.

FIRST DEFENDANT: Yes, your Honour.

40. The matter returned before the Chief Judge in Equity on Friday 27 June 2025. At 9.56 am that morning, Ms Smidt sent an email to the chambers of Hammerschlag CJ in Eq copied in to the Equity Registrar, apparently not copied to Mr Elias headed “Request for Adjournment – Summary Judgment Proceedings”. The substance of the email was that an adjournment was sought first on medical grounds.

41. First, it was said that:

[She had] been suffering from illness (severe infection) and is unable to attend the Court or adequately instruct legal representation in this extensive and legally complex case particularly given the short notice of the motion before the Court today.

A medical certificate confirming the defendant’s condition and inability to attend the Court will be provided the Court’s Registry today when received from the first Defendants specialist medical practitioner.

42. The second matter was the fact that the small debt the subject of the statutory demand had been paid.

43. When the matter was called, the judge supplied Ms Smidt’s email to Mr Jones, who once again appeared for the plaintiff. The matter was stood over until today. So far as both Mr Jones and his client is concerned and so far as appears from the Court file, the promised medical certificate from 27 June 2025 from the “specialist medical practitioner” was not supplied.

44. Since 27 June 2025, no defence has been filed. Nor has any application to withdraw the submitting appearances been filed.

45. Instead, by email sent to my chambers at 4.16am this morning, copied to Mr Elias and his law firm, a letter on Just Law Group’s letterhead was supplied, signed by Ms Smidt.

46. The heading was “Urgent - Notice of Illness (defendants unable to attend)”. The letter provided as follows:

We write on behalf of the Defendants, Ms Lee Smidt the (First Defendant); and Just Law Group Pty Ltd the (Second Defendant), hereinafter referred to collectively as (the Defendants).

We write to inform you that Ms Lee Smidt, the First Defendant and director of the Second Defendant in the above listed proceedings is suffering from illness, unfit for the 6-hours of travel Sydney from Coffs Harbour to attend the Court or adequately instruct legal representation as required for the hearing listed today 14 July 2025 and tomorrow 15 July 2025.

A medical certificate confirming the defendant’s condition and inability to attend the Court is attached to this letter. [sic]

47. Ms Smidt is not a legal practitioner, notwithstanding the communication on the letterhead of her law firm concerning this litigation. There is no explanation of what the legal representation that could not adequately be instructed in light of the illness was or when it was retained. There is no suggestion of any steps which had been taken to arrange for travel to attend court today and tomorrow.

48. The letter did attach a medical certificate from Urgent Care Clinic, a practice in Coffs Harbour. The entirety of the certificate is as follows:

Medical Certificate

This is to certify that

Ms Lee Smidt has a medical condition, and will be unfit for work from 13/07/2025 to 14/07/2025 inclusive.

[illegible scrawl]

Dr Rene Lazzaro

595104VX

49. The certificate gives the doctor’s phone number and a statement that it was “reviewed & electronically signed”.

50. The so-called certificate does not identify whether the practitioner saw her patient, what the condition is, and how it affects her ability either to travel or to instruct.

51. The threshold question is whether, in light of the email to my chambers earlier this morning, the plaintiff ought be permitted to proceed, or whether it should be regarded as an informal application once again to vacate the hearing. Mr Jones has pointed out that there remained and remains a submitting appearance and no application to seek leave to withdraw it. In those submissions he is completely correct.

52. What occurred on 6 June 2025 makes it clear beyond all argument that Ms Smidt (the owner of a legal practice and relevantly its state of mind for present purposes) was aware of the need promptly to seek to withdraw the submitting appearances that had been filed shortly before the application for default judgment if she or her company wished to contest the proceedings brought by the plaintiff. The medical certificate provides absolutely no explanation as to why what needed to be done in order to comply with the Court’s directions – namely, to file an application to withdraw the submitting appearance and file a defence – had not been done.

53. Further, the reason for reproducing with tedious length the procedural history of the litigation in this Court is in part to explain that Ms Smidt has a habit of supplying medical excuses shortly in advance of hearings that have been set down.

54. It is not necessary for me, in order to adjudicate the plaintiff’s motion which was set down today, to form any concluded view about the bona fides or otherwise of the letter to my chambers. The fact remains, as Mr Jones has submitted, that there is at present a submitting appearance and no application to withdraw it. Strictly speaking it would be wrong to construe the correspondence to my chambers as even an informal application to vacate the hearing. No step can be taken until the submitting appearances are withdrawn.

55. I am satisfied that the motion on which the plaintiff moves and the material in support was served upon Ms Smidt. I have an affidavit of service from a process server, and further I have evidence before me of subsequent electronic service of the same materials by email, and evidence that those emails were received and opened. Most importantly, it is plain from the transcript of 6 June that Ms Smidt was aware of the fact and nature of the plaintiff’s application.

The substance of the application

56. I turn then to the substance of the discretion which the plaintiff asks me to exercise.

The indemnity under Just Law Group’s Constitution

57. The application is far from free from complexity. The least complex aspect is the entitlement to an indemnity from the corporate constitution.

58. Clause 160 of the constitution of Just Law Group provides relevantly that each former officer of the company, “is entitled to an indemnity from the company against any liability, loss or expense incurred as an officer of the company. However, this indemnity only applies if one of the following conditions is satisfied”, and one of those conditions is, “that the liability, loss or expense is to another person … and does not arise out of conduct involving a lack of good faith”.

59. There is perhaps a question which is arguable as to who bears the onus of satisfying the concluding words of the indemnity that it “does not arise out of conduct involving a lack of good faith”. I heard no submissions about this. The point is, of course, not one that is raised – no defence has been filed. I confess that my instinctive view based on its wording is that the officer seeking the indemnity must, given the way it is drafted, satisfy the negative condition that the conduct does not involve a lack of good faith. Clause 160 is expressed to be a condition upon the availability of the right; cf Vines v Djordjevitch (1955) 91 CLR 512 at 519; [1955] HCA 19. The issue arises because this is litigation involving a solicitor suing his former employer, which is an incorporated law practice, albeit one which is presently under external management. The essence of, as I understand it, the ATO’s basis for issuing the Director Penalty Notices seems to be that there was a substantial understatement of PAYG, GST and superannuation guarantee obligations by the law practice for the entirety of the period in which the plaintiff was a director. I bear in mind that he was a lawyer and his co-director, who was also the owner of the company, was not. He, as a lawyer, must have known that he personally, as a director, was under obligations by statute and in equity in relation to compliance with the Corporations Act and taxation legislation.

60. When this was raised during the hearing, Mr Jones directed me to paragraph 97(a) of an affidavit which was read on this application but prepared in connection with the Mareva relief sought and obtained in April, in which Mr Elias said:

Ms Smidt previously withheld key business, financial and accounting information from me and misled me into believing she was taking care of the taxation affairs of the Company, and she said to me that the Company had “all arrangements in place”.

61. In those circumstances, and bearing in mind the absence of opposition, I am satisfied that the indemnity in cl 160 of the constitution is engaged. Plainly, the Director Penalty Notices which relate to the taxation obligations of the company fall within the scope of the indemnity granted by that provision, and the claim is not one that involves a lack of good faith.

62. Of course, since it is the plaintiff’s case that the company is insolvent, the indemnity to which he is entitled from it may prove to be of little value, but the orders I will make in due course may give him some comfort.

The claim under the irrevocable undertaking

63. I turn to the claim based on the irrevocable undertaking. That has two facets, as an undertaking itself and as conduct amounting to a contravention of the statutory norm in the Australian Consumer Law. Although the pleading is directed to a claim based on the document as constituting a solicitor’s undertaking, it is a little difficult to see just how that can be so. It is not necessary to express a concluded view on this, and in the circumstances it is probably better not to do so.

64. It was known to the plaintiff that Ms Smidt was not a legal practitioner. The irrevocable undertaking was only signed by Ms Smidt. I did raise this squarely, but I understand that no part of the case is based upon an undertaking given by Ms Thistleton, who at the time was acting for Ms Smidt and Just Law Group Pty Ltd.

65. HIS HONOUR: If that’s wrong, please let me know, Mr Jones. She’s not here and I thought when I raised this to you, you said no, you’re not relying upon any undertaking given by Ms Thistleton. You did point to her emails as supporting your case on reliance and I do understand that.

66. JONES: Yes. That’s correct, your Honour.

67. HIS HONOUR: Thank you.

68. Hence, the irrevocable undertaking, although purportedly given on behalf of the incorporated law practice, has not been signed by any legal practitioner, and that fact was perfectly well-known to the plaintiff who had been an employee of that law practice and knew that Ms Smidt was not legally qualified. Against this, Mr Jones pointed to the plurality of the undertaking, namely that it referred to “each of the directors” and had been executed pursuant to s 127 “by authority of the Directors”. The difficulty with that is that it was apparent on its face that it was not executed by two directors, but only signed by Ms Smidt. Without expressing any concluded view, and in circumstances where it is not necessary to reach a conclusion, I shall pause there with the analysis of the claim based on the irrevocable undertaking.

The claim under the Australian Consumer Law

69. As previously noted, the plaintiff also relies upon a claim under the Australian Consumer Law. He says that the conduct involved in and immediately proximate to the making and serving of the irrevocable undertaking was misleading or deceptive, that he relied upon it in not exercising his rights as a former director to apply to wind up the company, and that when as it turned out no small business restructuring practitioner was appointed by the company, the 21-day period in the Director Penalty Notices had expired leaving him exposed to, by way of penalty, the tax liabilities of the company.

70. The first issue is whether the supply of the irrevocable undertaking was in trade or commerce. That is not entirely straightforward, but ultimately I am persuaded that it was. For one thing, there is the admission of paragraph 24 of the statement of claim by the failure to file a defence. I am conscious that whether or not something is in trade or commerce is at best a mixed question of fact and law and so that admission only goes so far. Secondly, Mr Jones’s point is that supplying the irrevocable undertaking was very closely connected with trade or commerce because it was part of an exchange between the parties relating to Mr Elias’ threat to wind up the business which would cause it to cease to continue to conduct its practice which was in trade or commerce.

71. A third point was discussed by Ward J in Rosebanner Pty Ltd v EnergyAustralia [2009] NSWSC 43; 223 FLR 406 at [396]-[416]. There the parties to a commercial dispute engaged in without prejudice communications with a view to settling it and EnergyAustralia, when sued for its conduct being misleading and deceptive, maintained that it was not in trade or commerce.

72. There is with respect force in what her Honour there said first of all as to what was said in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602; [1990] HCA 17, that trade or commerce extended to activities which are undertaken “in the course of, or as incidental to, the carrying on of an overall trading or commercial business”, and secondly at [412]-[415] that it cannot be the case that in discussions with a view to resolving a dispute at the least possible cost to a corporation and with what must have been a view to the continued and efficient conduct of its business, “a corporation would be free to engage in misleading and deceptive conduct without recourse by a party suffering loss in reliance thereon”. It will be seen that that paragraph in her Honour’s judgment resembles the proposition propounded by Mr Jones to me.

73. In the circumstances, I am prepared to proceed on the basis that the communication was in trade or commerce. It was a statement concerning a future matter and it has been proven not to have been correct. Moreover, there is nothing to suggest that there was anything like a reasonable basis sought at the time. That is because, among other things, it is necessary in order to exercise the power under s 453B to appoint a restructuring practitioner for, among other things, the board to have resolved to the effect that, “in the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time”.

74. There is nothing to suggest that Mr Lowry was able or willing, on short notice, to participate in a board meeting at which such a resolution would be passed (I note that a members’ resolution (which Ms Smidt was in a position to carry on short notice because her company was the sole shareholder of the second defendant) is not sufficient to engage s 453B). For that matter, there is nothing to suggest that Ms Smidt took any steps to do what she and her company had undertaken to do.

75. The question then is whether Mr Elias has established that the prima facie misleading and deceptive statement, that Just Law Group would appoint a restructuring practitioner by the following Wednesday prior to the expiration of the 21-day period under the Director Penalty Notices, was something he relied upon. I reiterate, he was a lawyer and must have known that Mr Lowry had not signed the irrevocable undertaking. On the other hand, as Mr Jones submits, the context of the provision of the irrevocable undertaking was one where he was threatening with winding up the company the following week, or at least commencing to do so, and this is a case where the Court can take some comfort from the proposition that the supply of a document in circumstances such as these which plainly was intended to be relied upon, produces the result that it was in fact relied upon: ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [55]. For those reasons, I am satisfied that for the purposes of an application for default judgment, orders pursuant to the Australian Consumer Law are appropriate. That entitles him to relief against both defendants.

Orders

76. I return to the point with which I started. Although what is before me is a notice of motion seeking default judgment, this is not a claim for debt or some other liquidated sum. I am empowered by UCPR r 16.10 to give such judgment as the plaintiff appears to be entitled. In substance, the plaintiff’s claim is for indemnity in respect of a liability to which the plaintiff is exposed at the hands of the ATO, but which so far has mostly not been enforced. It is true that the ATO has appropriated to discharge part of the plaintiff’s debt, the amount of some $5,500 in credit in an internal account, but that amount has now been paid and is outside the scope of this application. It is also true that a garnishee notice was issued by the tax office to a Westpac account. Ultimately, it became clear, although only on my asking a question, that that has not availed the ATO and is no part of the claim because in Mr Elias’ words, “the amount was nil in that account” (Tcpt 14 July, T50.4).

77. Although the plaintiff is exposed to a liability owed to the ATO, he has not as yet suffered actual crystallised loss. As raised during submissions, I do not think it is appropriate that he obtain in an unqualified way a judgment in the amount of some $225,000 against each of the first and second defendants, leaving him free to execute that judgment in circumstances where, as it happens, none of the liability to which he is exposed has been enforced against him. Putting this another way, it would not be right, although it may seem unlikely having regard to the steps that have been taken by the defendants so far, for him to succeed in obtaining execution of a judgment debt in his favour against either or both of Ms Smidt and Just Law Group in circumstances where he is merely exposed to a liability to the ATO.

78. As the Court of Appeal indicated in Termijtelen to which I referred at the outset, there is some flexibility available in a case such as this where, in substance, what is sought is equitable relief. Against this, I bear in mind that the motion which has proceeded before me today is a motion for a default judgment for a liquidated amount in the sum of $230,599.40. I am also conscious that the proceeding having proceeded ex parte today is open to either or both of the defendants to seek to be let back in under the rules to challenge the judgment that I will shortly enter in favour of the plaintiff.

79. In all the circumstances, the appropriate course is to enter judgment in the amount of $225,161.29. But it is also appropriate, despite entering judgment in that amount, to make an order precluding the plaintiff from taking any steps to execute it against either defendant until and unless the plaintiff demonstrates that he has suffered actual loss pursuant to the Director Penalty Notices. The orders that I will make necessarily will involve the plaintiff returning to this Court to deal with other issues, including interest and costs, and they will require the service of the orders and these reasons upon the other defendants. I also think it is appropriate that the manager of the law practice be served with these reasons and the orders I shall make. I am not aware of any obligation to join or entitlement to be heard by the manager, but, against the possibility that that is wrong, the directions I make will permit and indeed require that to occur.

76. The orders that I will make be as follows:

1. Judgment in favour of the plaintiff against the first and second defendants in the amount of $225,161.29.

2. The judgments in order 1 are in the nature of default judgments and in substance reflect an entitlement to indemnity by the first and second defendants in respect of the unpaid liability of the plaintiff for Director’s Penalty Notices issued in respect of the second defendant.

3. Consistently with order 2 above, the plaintiff may take no step, without leave, to execute either of the judgments in order 1 above unless he establishes actual loss pursuant to the Director’s Penalty Notices.

4. Direct the plaintiff to serve each of the first and second defendants copies of these orders and the Court’s reasons by email at [email protected] and also Mr Christopher Nolan, the Law Society’s appointed manager of that practice.

5. Grant liberty to all parties and the Law Society to apply on 3 business days’ notice by email to my Associate.

81. HIS HONOUR: Mr Jones I have in mind bringing it back at some stage in the future – I am not quite sure when – with a view to finishing off loose ends. There might be an application by the defendants to come back in. If not, it may be your application to alter the conditions upon the judgment which you presently got in your favour, but which take away a lot of its force, and also to deal with things like interest and costs.

82. [Discussion concerning timing]

6. Stand over the matter for further directions at 9.30am on Friday 1 August 2025.

83. Addendum 16 July 2025: In the course of revising the foregoing from the transcript, I have considered s 269-35 of Schedule 1 to the Taxation Administration Act 1953 (Cth). That section provides a defence to a person in the position of the plaintiff who “took all reasonable steps to ensure that”, inter alia, “the directors caused a small business restructuring practitioner for the company to be appointed under s 453B”. This provision was not mentioned during the hearing. Nonetheless, the plaintiff’s letter to the Deputy Commissioner of Taxation of 17 June 2024, while not mentioning s 269-35 in terms, did maintain that he had taken all reasonable steps available to him as a former director. Although I have addressed in some detail why I have concluded that the positive elements of the plaintiff’s claim under cl 160 of Just Law Group’s Constitution and the Australian Consumer Law have been made out, the judgment entered on 14 July is nonetheless in the nature of a default judgment, based on the failure to file a defence. No argument was addressed as to the effect of s 269-35, and of course that provision has not been pleaded. Nothing in these reasons should be understood as expressing a view on the operation of s 269-35. That said, I am conscious that the plaintiff’s evidence before me was “I do not know of any defence that could be raised by the Defendants” and that the Commissioner, by issuing a garnishee notice and appropriating a credit in the plaintiff’s internal account has, on at least those two occasions, proceeded on the basis that the plaintiff is subject to an extant liability, a stance which was formally confirmed by letter dated 13 November 2024 which is particularised in the statement of claim. However, if at some future occasion an aspect of any defence which might be filed contends that there was no liability in light of s 269-35, or if an application is on some future occasion made for a variation of the condition attaching to the ability, it may be necessary to address this.

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Amendments

01 August 2025 - date of orders "14 July 2024" changed to "14 July 2025"

Decision last updated: 01 August 2025