F Mekler v D Mekler

[2016] NSWSC 250

Supreme Court

New South Wales

Medium Neutral Citation:	F Mekler v D Mekler & Ors [2016] NSWSC 250
Hearing dates:	8 February 2016
Decision date:	16 March 2016
Jurisdiction:	Equity - Corporations List
Before:	Black J
Decision:	Application for costs dismissed.
Catchwords:	PROCEDURE — Costs — where the Defendant sought indemnity costs for the costs of two motions – whether the Plaintiff had acted unreasonably – whether the Defendant was almost certain to have succeeded if the motions had been fully determined.
Legislation Cited:	Corporations Act 2001 (Cth), ss 198F, 237, 290, 1303 Practice Note SC Eq 11 Uniform Civil Procedure Rules 2005 (NSW), r 33.4
Cases Cited:	- New Price Retail Services Pty Ltd v David Hanna [2012] NSWSC 422 - Re North Coast Transit Pty Ltd [2013] NSWSC 1912 - Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Category:	Costs
Parties:	Fernanda Mekler (Plaintiff) Dana Mekler (First Defendant) Jia Yan (Second Defendant) Rinfort Pty Ltd (Third Defendant)
Representation:	Counsel: J T Svehla (Plaintiff) F Assaf (First Defendant)   Solicitors: & Legal (Plaintiff) Mills Oakley (Defendant)
File Number(s):	2015/251530

Judgment

1. This application concerns the costs of an application to set aside a subpoena brought by the Plaintiff, Mrs Fernanda Mekler, and of an application seeking orders under s 1303 of the Corporations Act 2001 (Cth) to compel the production of documents brought by the First Defendant, Mr Dana Mekler. Neither of those applications proceeded to a hearing on the merits, in circumstances to which I will refer below.

Background facts

2. By way of background, on 16 November 2014, Mr Mekler requested access to balance sheets, bank statements, assets acquired and disposed of and other information in respect of AFDA Pty Ltd (“AFDA”), Arianna Holdings Pty Ltd (“Arianna Holdings”) and Garie Holdings Pty Limited (“Garie Holdings”), at a time when he was a director of those entities. That information could have been information to which Mr Mekler would be entitled under s 198F of the Corporations Act, in respect of any proposed proceedings, but his request did not indicate that it was a request under that section and there is a real question whether any such proceedings were proposed at that time. He may also have been entitled to access to that information, or part of it, under s 290 of the Corporations Act. Shortly thereafter, on 20 November 2014, Mr Mekler was purportedly removed as a director and officeholder of AFDA, Arianna Holdings and Garie Holdings, although there is a contest as to the validity of that removal in the proceedings. So far as the evidence goes, it does not appear that Mr Mekler repeated the request for access to information in respect of AFDA, Arianna Holdings or Garie Holdings until further letters dated 23 December 2015 sent by his solicitors, which expressly relied on s 198F of the Corporations Act, to which I will refer below.

3. Mrs Mekler subsequently commenced proceedings alleging oppression in respect of the Third Defendant, Rinfort Pty Limited (“Rinfort”), in which she seeks orders that Rinfort be wound up and declarations and other relief. By an Interlocutory Process filed on 21 September 2015 in those proceedings, Mr Mekler sought relief in respect of the affairs of Rinfort, AFDA, Arianna Holdings and Garie Holdings, including leave under s 237 of the Corporations Act to bring proceedings on behalf of each of those companies, and to join other persons including the companies’ accountant, Mr Robert Hauer, as party to the proceedings. The Court subsequently made orders for the filing and service of, inter alia, Mr Mekler’s Cross-Claim.

4. On 16 November 2015, a subpoena to produce documents was issued by the Court to Mr Hauer at Mr Mekler’s request. Several paragraphs of the subpoena were in broad scope, extending to documents of various kinds referring or relating to any resolution passed during the period 1 November 2014 to 30 November 2014 purporting to remove Mr Mekler as a director or officeholder of Arianna Holdings, AFDA and Garie Holdings and to all documents of various kinds relating to Rinfort in the periods 1992–1993, 1994–1995 and 25 June 2009 to date, the latter paragraph requiring production of the documents “pursuant to section 198F and section 290 of the Corporations Act 2001 (NSW)”. It should be noted that the issue of a subpoena is not a proper means to seek to require compliance with statutory access provisions under ss 198F and 290 of the Corporations Act. The subpoena also required production of notices of meeting, minutes of meeting and copies of resolutions relating to Rinfort, AFDA, Arianna Holdings and Garie Holdings over the same periods in 1992–1993 and 1994–1995 and for the shorter period from 23 August 2011 to date, together with shareholder agreements, constitutions, memoranda and articles of association for the companies.

5. By her Notice of Motion filed on 27 November 2015, Mrs Mekler sought to set aside the subpoena to produce issued to Mr Hauer under r 33.4 of the Uniform Civil Procedure Rules 2005 (NSW), which provides that the Court may, on a party’s application, set aside a subpoena in whole or in part. Mrs Mekler’s application to set aside the subpoena was supported by an affidavit of her solicitor, Mr Darian Iacono dated 26 November 2015, which referred to the history of the proceedings, to correspondence in which Mrs Mekler’s solicitor had set out her objections to the subpoena, and to a concern that the documents contained in the subpoena would constitute two A4 ring binder folders and would take approximately one day to collate. It may be noted that that is not a particularly substantial volume of documents nor a particularly substantial amount of time involved in collating documents for production. That affidavit pointed to the fact that, at the time the subpoena was issued, Mr Mekler had not filed his Defence to the Statement of Claim or the Cross-Claim which had been the subject of previous directions in the proceedings. In correspondence objecting to the subpoena, and referred to in that affidavit, Mrs Mekler’s solicitor drew attention to Practice Note SC Eq 11, Disclosure in the Equity Division and to observations of McDougall J in New Price Retail Services Pty Ltd v David Hanna [2012] NSWSC 422, to which I had in turn referred with approval in Re North Coast Transit Pty Ltd [2013] NSWSC 1912, to the effect that similar considerations to those underlying Practice Note SC Eq 11 attend to the issue of subpoenas, and that it ordinarily should be possible to demonstrate, from the pleadings and evidence, the issues in respect of which production of documents is required by subpoena. Mrs Mekler’s solicitors contended that the request for the issue of the subpoena was premature, where the pleadings had not closed and Mr Mekler had not served his Defence or Cross-Claim and also identified the fact that Mr Hauer was a proposed defendant in the proceedings to be brought by Mr Mekler, as well as indicating several other objections to the subpoena.

6. By Notice of Motion filed on 18 December 2015, Mr Mekler sought orders under s 1303 of the Corporations Act permitting him, or his authorised agent, to inspect or take copies of documents which substantially overlapped with those sought in the subpoena. By an affidavit dated 14 December 2015, Mr Mekler’s solicitor referred to previous requests for production of documents by Mr Hauer made by Mr Mekler and by Mr Mekler’s accountant. That affidavit did not, however, seek to identify any connection between the documents previously requested in the subpoena and the matters then in issue in the proceedings. Mr Mekler also relies on the affidavit of Mr Brown, who is also a solicitor acting for him, dated 5 February 2016.

7. By letters dated 23 December 2015, Mr Mekler, by his solicitors, made a request under ss 198F and 290 of the Corporations Act to inspect and copy documents of Rinfort, AFDA, Arianna Holdings and Garie Holdings, as set out in an attached schedule. Those requests were made after the Notice of Motion seeking orders for production of documents under s 1303 of the Corporations Act had been filed. Those letters were sent to the registered office of the companies, situated at the address of Mr Hauer’s accounting practice, and then returned to the sender. There is a dispute between the parties as to how that occurred, and Mrs Mekler contends that Mr Hauer was not involved in that matter since his office was closed at the time those letters were sent. It is not necessary or possible to determine that dispute in this application. Mr Mekler’s requests for access to documents of those companies were then repeated by further correspondence on 13 January 2016.

8. By letter dated 29 January 2016, Mrs Mekler’s solicitors responded to Mr Mekler’s request for access to those documents contending that his right, as a former director of AFDA, Arianna Holdings and Garie Holdings, and as a director of Rinfort, to inspect the books of those companies under s 198F of the Corporations Act was not unfettered. That letter also stated that Mrs Mekler had no objection to Mr Mekler having access to Rinfort’s books and stating that she understood those books had been available for inspection by Mr Mekler. There is also an issue as to the extent to which that had occurred, which it is not presently necessary or possible to address in this application. Mrs Mekler’s solicitors also stated that Mrs Mekler had been waiting for some time for Mr Mekler’s proposed Cross-Claim in the proceedings and that, so far as access to the other three companies’ documents was concerned, Mrs Mekler:

“will promptly consider the content of your client’s request to inspect as soon as the proposed Cross-Claim is received. If, and to the extent that those requests are proper requests within the scope of the material facts articulated in the proposed Cross-Claim, [Mrs Mekler] will agree to such inspection of these companies’ books.”

9. By letter dated 5 February 2016, Mr Mekler’s solicitors responded that the right of inspection under s 198F(2) of the Corporations Act was not limited to matters within the scope of the proceedings and extended to inspection that was for the purpose of a legal proceeding that satisfied the relevant statutory requirements and, by a further letter of the same date, served Mr Mekler’s unsealed Cross-Claim in these proceedings.

10. Mrs Mekler’s application to set aside the subpoena, and Mr Mekler’s application for orders under s 1303 of the Corporations Act, was listed for hearing before me on 8 February 2016. By that date, the parties had reached agreement, on a without admissions basis, that Mrs Mekler would provide the solicitors for Mr Mekler with copies of the documents the subject of the subpoena and that, except as to costs, Mrs Mekler’s motion to set aside the subpoena and Mr Mekler’s motion for access to documents should be dismissed. Orders were made on that date, by consent, to that effect.

The parties’ submissions

11. Mr Assaf, who appears for Mr Mekler, submits that Mrs Mekler should be ordered to pay Mr Mekler’s costs of both motions. Mr Svehla, who appears for Mrs Mekler, in written submissions, put the primary position that costs of the motions should be ordered in favour of Mr Hauer and Mrs Mekler, but ultimately placed greater weight in oral submissions on the alternative position that each party should bear its own costs of the motions. Mr Assaf rightly drew attention to the fact that, where the Court had not heard either application on its merits, this application should be determined in accordance with the approach set out by McHugh J in Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 at 624–625. I proceed on the basis that, in an appropriate case, the Court may make an order for costs although there has been no hearing on the merits, but is less likely to do so where this would involve the trial of a hypothetical action between the parties; and that costs may be awarded where one party has acted unreasonably or where the Court is confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully determined.

12. First, Mr Assaf submits that Mrs Mekler acted unreasonably by not providing the documents sought by Mr Mekler where he had an express statutory entitlement to those documents. In support of that submission, Mr Assaf refers to the submissions which he would have made, had there been a hearing on the merits as to Mr Mekler’s motion, to seek to establish that Mr Mekler had a statutory right to access to the various documents. Mr Assaf submits that, notwithstanding Mrs Mekler’s submission that documents had been available for inspection by Mr Mekler in respect of Rinfort, they were not in fact available. Mr Assaf submits that Mrs Mekler was not justified in refusing to provide documents in respect of AFDA, Arianna Holdings and Garie Holdings until after she received Mr Mekler’s Cross-Claim. Mr Assaf draws attention to s 198F(2) of the Corporations Act, which permits a former director of a company to inspect its books, including its financial records, at reasonable times for the purposes of a legal proceeding to which he or she is party or proposes in good faith to bring. Mr Assaf alternatively submits that the Court should find that Mr Mekler was almost certain to have succeeded in respect of both motions. Mr Assaf also submits that Mrs Mekler capitulated in respect of both motions at a late stage.

13. Mr Svehla responds that there has been no contravention of s 1303 of the Corporations Act where the motion under that section was filed before the requests for access to the documents which were its subject matter were issued; that proposition depends, however, on the extent to which Mr Mekler’s earlier requests for access to documents in 2014 could be supported by ss 198F or 290 of the Corporations Act, although they had not expressly referred to those sections. Mr Svehla submits that Mrs Mekler had not acted so unreasonably that Mr Mekler should obtain the costs of the motions and the Court would not find that Mr Mekler was almost certain to have succeeded in respect of the motion. Mr Svehla submits that Mrs Mekler, as a director of AFDA, Arianna Holdings and Garie Holdings, acted reasonably in taking the position that she would consider the request for access to documents after Mr Mekler’s proposed Cross-Claim had been filed, where existing directions for the filing and service of that Cross-Claim had not been complied with. Mr Svehla also points out that, after the Cross-Claim was filed, Mrs Mekler accepted that the relevant documents should be made available to Mr Mekler. Mr Svehla also submits that the motion seeking orders for access to documents under s 1303 of the Corporations Act was filed in respect of Rinfort, although Mr Mekler had not previously been denied access to Rinfort’s books. It should be recognised, of course, that that is a matter that would have been determined had the motion gone to hearing on its merits.

14. In relation to AFDA, Arianna Holdings and Garie Holdings, Mr Svehla also points out that Mr Mekler is not a director of those companies, although there is an issue as to whether his removal as a director was valid. However, the right of access to documents under s 198F of the Corporations Act is not limited to a current director of the company.

Outcome

15. It seems to me that there is no basis for finding that Mrs Mekler acted unreasonably in seeking to set aside the subpoena, or that Mr Mekler was almost certain to succeed in resisting the application to set aside the subpoena. It seems to me that Mrs Meckler had a strongly arguable case that the subpoena extended well beyond the matters that were then in issue in the proceedings, and sought to obtain a form of preliminary discovery in respect of the issues that were to be the subject of Mr Mekler’s proposed Cross-Claim. It also seems to me likely that, having regard to the approach noted by McDougall J in New Price Retail Services Pty Ltd v David Hanna above, the subpoena would have been set aside as premature, or on the basis that Mrs Mekler could not have identified, prior to the service of the Cross-Claim, the matters in issue to which significant parts of the subpoena related.

16. I accept that, as Mr Assaf points out, Mrs Mekler would not have been entitled to decline access to documents, to which Mr Mekler was otherwise entitled as a former director under ss 198F and 290 of the Corporations Act, on the basis that his Cross-Claim had not yet been filed. However, it seems to me that where there has been no hearing on the merits, the Court cannot and should not determine the question of the extent to which documents have previously been made available to, or at least offered to be made available to, Mr Mekler in respect of Rinfort. So far as the other companies are concerned, it seems to me likely that Mr Mekler would have obtained an order for access to those documents, so far as he was a former director of the companies and the inspection would properly be characterised as for the purposes of these proceedings, even if it was in anticipation of his proposed Cross-Claim in the proceedings. However, Mr Mekler’s claim to costs on that basis is substantially weakened by the fact that he first made a clear request for access to the documents under s 198F of the Corporations Act after, and not before, he filed the motion seeking an order under s 1303 of the Corporations Act. I also do not accept Mr Assaf’s submission that the change in Mrs Mekler’s position may properly be characterised as a capitulation, where it plainly followed from a significant change of circumstances, the service of Mr Mekler’s Cross-Claim, immediately before the applications were to be heard.

17. I am not satisfied, in these circumstances, that an order for costs should be made in Mr Mekler’s favour where the most favourable outcome for Mr Mekler was likely to have been that Mrs Mekler had succeeded in her application to set aside his subpoena, and he may have succeeded in his later motion for access to documents under s 1303 of the Corporations Act, by reference to a request that was only expressly made under s 198F of the Corporations Act after that motion was filed. The proper result, as Mr Svehla submitted in oral submissions, is that there should be no order as to costs of the application.

18. Mr Assaf also submits that costs should be ordered in Mr Mekler’s favour on an indemnity basis, having regard to his submission that Mrs Mekler’s conduct was unreasonable, Mrs Mekler’s capitulation at a late stage, and the fact that Mr Mekler had offered to compromise the costs of the motion in a fixed amount on a without admissions basis. This question does not arise where I have not ordered costs in favour of Mr Mekler. I should add, for completeness, that the offer to compromise the claim for costs in respect of payment of a particular amount would also not have supported a claim for indemnity costs, where there was no evidence to allow any assessment of whether the amount of the suggested compromise was reasonable or unreasonable.

19. Accordingly, there should be no order as to the costs of Mrs Mekler’s motion to set aside the subpoena dated 27 November 2015 and Mr Mekler’s motion seeking relief under s 1303 of the Corporations Act dated 18 December 2015. I will grant liberty to apply, within seven days, if either party wishes to devote further time and resources to argument as to the costs of this application.

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Decision last updated: 22 March 2016