In the matter of CharterLaw Legal Pty Ltd

[2025] NSWSC 297

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of CharterLaw Legal Pty Ltd [2025] NSWSC 297

Hearing dates:

28 March 2025

Date of orders:

28 March 2025

Decision date:

28 March 2025

Jurisdiction:

Equity - Corporations List

Before:

Black J

Decision:

Order that creditor’s statutory demand be set aside and consequential orders as to costs.

Catchwords:

CORPORATIONS – winding up – creditor’s statutory demand – application to set aside – whether there is a genuine dispute about the existence of the debt – costs – whether indemnity costs should be ordered

Legislation Cited:

- Corporations Act 2001 (Cth), s 459H

- Legal Professional Uniform Law (NSW) s 10

Cases Cited:

- Cappello v Homebuilding Pty Ltd [2023] NSWCA 109

- Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60

- Lygon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330

- Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896

- Re Growthbuilt Pty Ltd [2024] NSWSC 1418

- Re One Pro Investment Group Pty Ltd [2025] NSWSC108

- Re Wollongong Coal Ltd [2015] 110 ACSR 134; [2015] NSWSC 1680

- Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452; [1997] FCA 681

Category:

Principal judgment

Parties:

CharterLaw Legal Pty Limited (Plaintiff)
Paul Michales (Defendant)

Representation:

Counsel:
Mr D Parish (Plaintiff)
Mr Q Nguyen (Solicitor – Defendant)

Solicitors:
CharterLaw Pty Ltd (Plaintiff)
Q V Law (Defendant)

File Number(s):

2025/36726

JUDGMENT

Nature of the application

1. By Originating Process filed on 29 January 2025, CharterLaw Legal Pty Ltd ("CLL") applies to set aside a creditor's statutory demand (“Demand”) served by the defendant, Mr Michales.

2. That Demand was served by Mr Michales when he was not legally represented and much of his conduct of the case has also occurred while he was not legally represented. On a previous occasion, I had sought to explain to Mr Michales the limits of the Court's jurisdiction in respect of an application to set aside a creditor's statutory demand, which is the exercise of a confined statutory power conferred upon the Court by the Corporations Act 2001 (Cth) (“Act”). This application will not determine all matters which may be in dispute between Mr Michales and CLL, but that is inevitable by reason of the limited scope of the Court's jurisdiction in an application of this character. The intent of the creditor's statutory demand regime is to deal with undisputed debts and, where there is a genuine dispute as to a debt, it is open to the parties, and has always been open to Mr Michales, to commence substantive proceedings where a Court will determine that dispute on its merits.

3. The Demand is dated 13 January 2025 and Mr Michales there contends that CLL owes Mr Michales the amount of $298,216.88, being the amount of a debt specified in the Schedule. The Schedule describes the debt as follows:

"The Amounts listed are payments to [CLL] as a result of [CLL] continuing to practise, unlicensed/unqualified after 30 June 2024. In accordance with Ch 2 of the Legal Professional Uniform Law [sic] in respect of the entity now unqualified. Any amount so received may be recovered as a debt by the person who paid it.

Creditors/plaintiff is exercising its rights under s 10(2) LPUL NSW".

4. The reference to “LPUL NSW” is plainly to s 10 of the Legal Profession Uniform Law(NSW) (“LPUL”) which I address below.

5. The Demand then sets out a series of amounts that it appears were paid by Mr Michales to CLL. I should point out, to avoid any misunderstanding, that there is no suggestion that those amounts were paid to CLL or received by it at a time that it did not hold registration as a legal practice. The last of those payments was made in mid-2023 and CLL subsequently ceased to be a registered legal practice on 27 June 2024, when an apparently associated entity commenced practice.

6. A supporting affidavit in respect of the Demand, sworn by Mr Michales, indicates that he is a former client of CLL and refers to a debt owed by CLL to him, relating to a suggested breach of the LPUL when CLL ceased to practise on 30 June 2024 but, Mr Michales contends, "continued to practice unqualified" after that date. There is also no suggestion here that CLL provided legal services to Mr Michales after that date, although I will refer below to a costs assessment that continued after that date in respect of the costs of legal services that had been provided to Mr Michales well prior to the date.

7. That affidavit in turn refers to relevant provisions of the LPUL, specifically s 10 of the LPUL, to which I referred above, which provides that an entity must not engage in legal practice in this jurisdiction, unless it is a qualified entity; and, in the sub-section on which Mr Michales relies:

"An entity is not entitled to recover any amount, and must repay any amount received, in respect of anything the entity did in contravention of subs (1). Any amount so received may be recovered as a debt by the person who paid it."

8. I pause to note that provisions of this kind are not unique to the LPUL; similar provisions are found, for example, in the Act in respect of the recovery of fees paid to unlicensed financial advisers. Ordinarily, however, those provisions are invoked in respect of persons who have not, at the time of providing services, held the requisite licences. Their purpose in supporting a licensing regime, and protecting a client who been provided services by an unlicensed person, are apparent in that situation.

9. Mr Michales's affidavit also sets out his claim that CLL is an unqualified law practice, presumably because it ceased to be registered to conduct practice from 30 June 2024, and asserts his claim to recover the amounts that he had paid to CLL prior to it ceasing to be registered to conduct that practice. He in turn indicates that:

"I believe that there is no genuine dispute about the existence or the amount of the 'debt/' [sic] any of the debts."

The affidavits read in the application

10. Turning now to the evidence led in this application, CLL relies on affidavits dated 29 January 2025 and 30 January 2025 of Mr McCrohon. The first of Mr McCrohon's affidavits refers to the Demand, points to the nature of Mr Michales' claim and notes that he was the responsible solicitor in respect of the provision of legal services by CLL to Mr Michales, prior to CLL ceasing to hold registration as a legal practitioner, when a new incorporated legal practice was established at the end of June 2024. Mr McCrohon also refers to aspects of the previous retainer between Mr Michales and CLL. I do not understand those matters to be in dispute in these proceedings, where the Demand proceeds on the basis that the debt is recoverable by reason of s 10 of the LPUL, and not on any other basis. By his second affidavit dated 30 January 2025, Mr McCrohon points to the registration of another entity as a registered law practice, when CLL ceased to be registered, but the status of that other entity is also not in issue in the proceedings.

11. Mr Michales in turn reads three affidavits, all of which were prepared when he was not legally represented. Those affidavits are not in orthodox form, but Mr Parish, who appears for CLL, rightly took no objection to them so that they could be read in the proceedings. By his first affidavit, dated 8 February 2025, Mr Michales highlights his reliance on the fact that CLL ceased to be registered as a legal practice on 30 June 2024, but contends that it continued as a legal practice after that date. It appears that that proposition is put in reliance on steps taken by CLL, not in providing legal services to Mr Michales or third parties, but in participating in an ongoing assessment in respect of the costs of services that had previously been provided.

12. Mr Michales in turn makes several allegations, in relatively strong terms, as to the position of CLL in respect of the alleged provision of those services after it had ceased to be registered as a legal practice from 30 June 2024. By his second affidavit dated 15 February 2025, Mr Michales refers to a number of complaints that he has made to the Law Society and the Office of the Legal Services Commissioner in respect of these matters. Those matters are properly left to those regulatory bodies to deal with in accordance with their respective jurisdictions, where they are not relevant to the question whether there is a genuine dispute as to the debt claimed by Mr Michales such that the Demand should be set aside. In his third affidavit dated 28 February 2025, Mr Michales in turn refers to the Demand and to aspects of the conduct of the assessment of costs paid to CLL, which was taking place under the cost assessment regime.

Applicable principles and the parties’ submissions

13. Before turning to the parties’ submissions, which are in narrow scope, I should refer to the applicable principles. These are, of course, now very well established, and I have drawn on my summary of those principles in, among many cases, Re Growthbuilt Pty Ltd [2024] NSWSC 1418.

14. CLL seeks to set aside the Demand on the basis of a genuine dispute under s 459H(1)(a) of the Act. The Court has power to set aside a creditor's statutory demand under that section where there is a genuine dispute about either the existence or the amount of the debt to which the Demand relates. In Spencer Constructions Pty Ltd v G & M Aldridge Pty Ltd (1997) 76 FCR 452 at 464; [1997] FCA 681, the Full Court of the Federal Court, observed that a genuine dispute must be bona fide and truly exist in fact, and the grounds of the dispute must be real and not spurious, hypothetical, illusory or misconceived. The case law emphasises that the threshold to establish a genuine dispute is not high, and it is necessary to bear in mind the observations of Barrett J in Panel Tech Industries (Australia) Pty Ltd v Australian Skyreach Equipment Pty Ltd (No 2) [2003] NSWSC 896 at [18] that:

"Once the company shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The Court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the company, it must find that a genuine dispute exists, even where any case apparently available to be advanced against the company seems stronger."

15. I have also reviewed the relevant principles in Re Wollongong Coal Ltd [2015] 110 ACSR 134; [2015] NSWSC 1680 at [9]-[22] where I referred, among other things, to the fact that the task faced by a company challenging a statutory demand on the genuine dispute ground is "by no means at all a difficult or demanding one”, adopting the observations of Barrett J in Panel Tech in that respect. My observations in that case were in turn approved by the Court of Appeal in Lygon 158 Pty Ltd v Huber (2016) 117 ACSR 495; [2016] NSWCA 330 at [8]. The Court of Appeal has subsequently adopted the same approach in cases including, for example, Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd (2019) 99 NSWLR 397; [2019] NSWCA 60. Mr Parish in turn refers to a recent, and orthodox, summary of the applicable principles by Nixon J in Re One Pro Investment Group Pty Ltd [2025] NSWSC 108 at [53]ff, in terms which are consistent with the summary of those principles to which I have referred above. An understanding of those principles is critical to the determination of this application.

16. Turning now to the parties' submissions, CLL recognises that Mr Michales contends that the debt alleged is owing because CLL ceased to be an incorporated legal practice on 30 June 2024, and that Mr Michales relies on s 10 of the LPUL to found an obligation to repay moneys that he had paid to CLL for legal services provided to him, importantly, before it had ceased to be an incorporated legal practice. Again, I remind myself that my role is not here to determine the correctness of Mr Michales' contention, but whether a genuine dispute exists in respect of it.

17. Mr Parish submits that a genuine debt exists whether a debt is due and payable by CLL to Mr Michales, where CLL was a qualified entity during the period in which it provided legal services to Mr Michales and received fees for those legal services from Mr Michales, and submits that there is no basis to read s 10(2) of the LPUL as imposing an obligation to repay fees previously paid to an incorporated legal practice, because at a later date it ceases to hold registration as an incorporated practice. Mr Parish there recognises Mr Michales' reliance on steps taken by CLL in respect of the costs assessment, after it ceased to be a qualified practice. He submits that the steps undertaken by CLL in respect of an assessment, in respect of the costs of legal services that were previously rendered to Mr Michales, does not constitute providing new legal services after the date on which CLL had ceased to be a qualified practice.

18. Mr Nguyen, who was retained to act for Mr Michales after Mr Michales’ evidence had been filed, in turn addressed the relevant issues in written and admirably efficient oral submissions. He points to the fact of the payments made by Mr Michales to CLL and to the evidence led by Mr McCrohon on that regard. He points to the fact that, on 12 April 2024, I interpolate, when CLL was still a registered and incorporated legal practice, Mr Michales lodged an application for costs assessment. He pointed to the fact that, on 25 July 2024, CLL amended its application for costs assessment, a matter on which Mr Michales relies to seek to invoke s 10 of the LPUL. It appears, although Mr Nguyen's submissions are not particularly clear as to this matter, that it is contended that that amounted to the provision of legal services. That question is plainly open to dispute, where there was no solicitor-client relationship between Mr Michales and CLL in respect of the conduct of a costs assessment, in which they were in opposing interests, relating to costs of Mr Michales’ previous retainer of CLL.

19. Mr Nguyen in turn contends that the amendment of the costs assessment application triggered s 10 of the LPUL, with the perhaps surprising result that the whole of the legal costs rendered by CLL and paid by Mr Michales in the period prior to its ceasing to be a registered incorporated legal practice become a debt due and payable to Mr Michales. Mr Nguyen relies for that proposition on the language of s 10(2) of the Act which, as I have noted above, provides that an amount received in respect of anything an entity did in contravention of s 10(1) of the LPUL may be recovered as a debt by the person who paid it. Mr Nguyen submits, putting Mr Michales' case at its highest, that:

"The clear and literal wording of [s 10(2)] makes clear that any amount received, would include the total amount that was in fact received by [CLL] from [Mr Michales]. [CLL] does not dispute this. Therein is the basis for the debt due and payable according to the debt entitlement provided for in [s 10(2)] and therein is the basis for the [Demand]."

20. It seems to me that Mr Nguyen has there rightly recognised the core of the dispute, although I do not accept that it can fairly be said that CLL does not dispute that proposition.

21. I have referred to the requirements for a genuine dispute above. It seems to me plain that a genuine dispute here exists. First, the question whether CLL provided to Mr Michales legal services in contravention of s 10 of the LPUL, at any time after 30 June 2024, and whether a step taken in a costs assessment in July 2024 can be characterised in that way, is plainly open to both a factual and legal dispute. Second, the construction of s 10(2) of the LPUL, in its application in the relevant circumstances, is also plainly open to dispute. While Mr Nguyen puts Mr Michales's case by reference to a literal application of s 10(2) of the LPUL, that would not assist Mr Michales if the relevant contravention of the LPUL is not established. Third, equally fundamentally, the case law has long recognised that statutory provisions are construed by reference to their terms, but in their relevant context. CLL here contends, that s 10 of the LPUL does not have the construction that Mr Michales attributes to it. It seems to me that contention is plainly arguable, where it would be a remarkable result if a provision that is intended to provide for repayment of legal costs, in respect of services provided by unlicensed entities, has the consequence that costs are repayable in respect of services provided by licensed entities, merely because they later ceased to conduct business or hold the relevant licences, well after the services were provided. One obvious difficulty with that proposition is that it would subvert the apparent statutory purpose of the prohibition, because an entity which was licensed and properly entitled to provide those services at the relevant time would be exposed to the same risks as an unlicensed entity, which provided those services without being entitled to do so.

22. For these reasons, the Demand must be set aside, and I so order. I will hear the parties as to costs, and as to the costs of a notice of motion which was previously filed by CLL, although ultimately resolved by consent, seeking to restrain Mr Michales from pursuing a winding up application prior to the determination of the application to set aside the Demand.

Costs

23. CLL seeks an order for indemnity costs of the proceedings, comprising the substantive application to set aside the Demand, and a notice of motion that it filed on 6 February 2025 seeking to restrain Mr Michales from proceeding to a winding up application while the application to set aside the Demand was on foot. These matters raise different issues, and I will deal with them in turn.

24. Mr Parish rightly draws attention to the review of the applicable principles by the Court of Appeal in Cappello v Homebuilding Pty Ltd [2023] NSWCA 109, where Mitchelmore JA, with whom Meagher JA and Simpson AJA agreed, noted that the Court had a discretion to award costs on an indemnity basis in a proper case, but that ordinarily the conduct of the party against whom such costs are sought must exhibit some special or unusual feature to support that order, and the focus was on the way the litigation was conducted. Her Honour there recognised that the discretion may be enlivened where a party persists in what should have been seen to be a hopeless case. However, her Honour also recognised that, as a general rule, the Court would be more reluctant to order indemnity costs against an unrepresented litigant, although recognising that the circumstances may make it appropriate to do so. Importantly, she observed that allowance should be made for an unrepresented litigant's possible lack of knowledge of the law, unfamiliarity with court practices and lack of objectivity. Plainly enough, those matters will not always prevent an order for indemnity costs against an unrepresented litigant, and the Court of Appeal in that case made an order for costs against an unrepresented litigant.

25. Here, I bear in mind those factors. I bear in mind that an experienced legal practitioner, having regard to the relevant case law as to the circumstances in which a Court would set aside a creditor’s statutory demand, may well not have taken the position that was initially taken by Mr Michales in the proceedings. I bear in mind that the Court itself sought to explain the possible difficulties of the application to Mr Michales on earlier occasions. However, I recognise that Mr Michales is not an experienced legal practitioner, and he likely did not recognise the availability of a genuine dispute in respect of the construction point that he took. I also recognise that, here, Mr Michales, while having pursued the proceedings as an unrepresented litigant for some time, was wise enough to retain Mr Nguyen to represent him at the hearing. Mr Nguyen has conducted the application in a balanced and appropriate manner, and that has reduced the costs to which both parties, including Mr Michales, would have been exposed had that not occurred.

23. On balance, recognising that there were plainly difficulties with the case that Mr Michales put, and that those difficulties may be more stark than would ordinarily exist in an application to set aside a creditor's statutory demand, I am not persuaded that an order for indemnity costs should be made in respect of the application to set aside the Demand. CLL has succeeded, but plaintiffs often succeed in applications to set aside creditor’s statutory demands, and it seems to me that the difficulties of Mr Michales's case are balanced by the need to recognise his status as an unrepresented litigant. Those matters are not sufficient to warrant an order for indemnity costs in respect of the application to set aside the Demand.

24. It seems to me that the position as to the notice of motion falls in a different category. CLL had filed an application in this Court to set aside the Demand and the Court plainly had jurisdiction to deal with that application under the relevant provisions of the Act. Mr Michales appears to have taken the view that it was not able to do so, because the costs assessment was proceeding under the costs assessment regime, where the Manager - Costs Assessment has an administrative responsibility. Plainly, the judges of the Court have no involvement in that matter, and judges in the Corporations List in particular have no involvement in that matter, and there was no barrier to the Court's exercise of its jurisdiction. Mr Michales in turn appeared to advance a threat, which had to be taken seriously by CLL, that he would proceed to a winding up application although CLL’s application to set aside the Demand had not been determined, where that application had not been brought in the Federal Court of Australia. There was, in my view, no proper basis for that threat.

25. In those circumstances, CLL was justified in taking steps to seek to restrain Mr Michales from commencing a winding up application until after its application to set aside the Demand was determined, and it ought not to have been put to the need to do so. I bear in mind that, ultimately, Mr Michales acted reasonably in not pursuing the threat of a winding up application where the injunction application was listed, so the Court ultimately did not need to determine a fully contested injunction application. However, that does not displace the fact that CLL was put to costs which it would otherwise not have to incur, and which it should not have had to incur, in progressing that application up to that point.

26. For these reasons, I will order that Mr Michales pay the costs of and incidental to the notice of motion filed 5 February 2025, seeking to restrain the commencement of a winding up application, as on an indemnity basis. CLL also seeks a gross sum costs order and the parties agreed to orders to progress that application.

Orders as to costs

30. Accordingly, I make the following orders:

1. The creditor’s statutory demand dated 13 January 2025 issued by the Defendant to the Plaintiff be set aside.

2. Mr Michales pay the costs of and incidental to the Plaintiff’s Notice of Motion filed 6 February 2025 on an indemnity basis.

3. Mr Michales otherwise pay the costs of the proceedings on an ordinary basis.

4. The Plaintiff serve, and send to the Associate to Black J, any further evidence on which it relies in respect of the gross sum costs application, and its submissions by 4:00 pm on 2 April 2025.

5. The Defendant serve, and send to the Associate to Black J, any evidence in response and its submissions as to the gross sum costs order by 4:00 pm on 11 April 2025.

6. Reserve the question of a gross sum costs order to be determined in Chambers, without the need for an oral hearing.

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Decision last updated: 01 April 2025