Sinergia Construction Project Management Pty Ltd v Clear Interiors Pty Ltd (No 2)

[2016] FCA 1308

FEDERAL COURT OF AUSTRALIA

Sinergia Construction Project Management Pty Ltd v Clear Interiors Pty Ltd (No 2) [2016] FCA 1308

File number:

SAD 182 of 2016

Judge:

CHARLESWORTH J

Date of judgment:

7 November 2016

Catchwords:

COSTS – application for an order for costs against a non-party — non-party the sole director and sole shareholder of plaintiff company – non-party granted leave to represent plaintiff company – circumstances not sufficient to justify non-party costs order

Legislation:

Corporations Act 2001 (Cth), s 459G

Federal Court of Australia Act 1976 (Cth), s 43

Federal Court Rules 2011 (Cth), rr 4.01, 4.04, 4.05

Cases cited:

Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429

Kebaro Pty Ltd v Saunders [2003] FCAFC 5

Knight v FP Special Assets Limited (1992) 174 CLR 178

Selig v Wealthsure Pty Ltd (2015) 255 CLR 661

Vestris v Cashman (1998) 72 SASR 449

Yates v Boland [2000] FCA 1895

Date of hearing:

Determined on the papers

Date of last submissions:

26 October 2016

Registry:

South Australia

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Corporations and Corporate Insolvency

Category:

Catchwords

Number of paragraphs:

19

Counsel for the Plaintiff:

The Plaintiff did not appear

Counsel for the Defendant:

The Defendant did not appear

ORDERS

SAD 182 of 2016

BETWEEN:

SINERGIA CONSTRUCTION PROJECT MANAGEMENT PTY LTD

Plaintiff

AND:

CLEAR INTERIORS PTY LTD

Defendant

JUDGE:	CHARLESWORTH J
DATE OF ORDER:	7 NOVEMBER 2016

THE COURT ORDERS THAT:

1.The defendant’s application for an order that the plaintiff and Mr Desmond Struck be jointly and severally liable to pay the defendant’s costs is dismissed.

2.Subject to the order in paragraph 3, the plaintiff is to pay the defendant’s costs of the action.

3.The defendant is to pay the costs of Mr Struck of and incidental to the defendant’s application for an order for costs against him personally.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

CHARLESWORTH J:

1. On 7 October 2016, I made an order dismissing the plaintiff’s application to set aside a statutory demand pursuant to s 459G of the Corporations Act 2001 (Cth). I published reasons for making that order on 24 October 2016.

2. The defendant applies for an order that the plaintiff and its sole director and shareholder, Mr Desmond Struck, be jointly and severally liable to pay the defendant’s costs of and incidental to the proceedings.

3. For the reasons given below, I am not satisfied that it is appropriate to make an adverse costs order against Mr Struck.

   PRINCIPLES

4. This Court has the power to award costs against a non-party: s 43(1) of the Federal Court of Australia Act 1976 (Cth) (FC Act). In respect of an equivalent power conferred upon the High Court, Gageler J said in Selig v Wealthsure Pty Ltd (2015) 255 CLR 661 (at [43]):

   In Knight v FP Special Assets Ltd, this Court held that its discretionary power to make orders against non-parties extends to the circumstance ‘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 … has an interest in the subject of the litigation’.  There is, however, no rule that where a non-party falls into this category an order for costs will necessarily follow.  Rather, as Mason CJ and Deane J said, ‘an order for costs should be made against the non-party if the interests of justice require that it be made’.

   (footnotes omitted)

5. The power to award costs against a non-party is at the discretion of the Court: s 43(2) of the FC Act. The discretion “must be exercised judicially and in accordance with general legal principles pertaining to the law of costs”: Knight v FP Special Assets Limited (1992) 174 CLR 178 (Knight) at 192 (Mason CJ and Deane J). See also Gore v Justice Corporation Pty Ltd (2002) 119 FCR 429 at [50] (O’Loughlin, Whitlam and Marshall JJ). An order for costs against a non-party is exceptional and depends upon the particular circumstances of the case: Kebaro Pty Ltd v Saunders [2003] FCAFC 5 (Kebaro) at [69] and [103] (Beaumont, Sundberg and Hely JJ). There must be a sufficiently close connection between the non-party and the proceedings, which is material to the issue of costs: Kebaro at [103]. An order for costs against a non-party may be appropriate where a non-party has commenced the action for his or her own financial benefit, has maintained or financed an action, or has some management of the action: Kebaro at [74]. In exercising the discretion, the Court will have regard to, among other things, whether the non-party has been warned that an application for costs against it would be made or whether the non-party could have been joined as a party to the action: Yates v Boland [2000] FCA 1895 at [32] (O’Loughlin, North and Weinberg JJ) citing Lander J in Vestris v Cashman (1998) 72 SASR 449 at 468; Kebaro at [75].

   THE PLAINTIFF’S REPRESENTATION

6. The plaintiff company was legally represented when it first commenced these proceedings. On 23 September 2016, the plaintiff's legal representative filed a notice of ceasing to act pursuant to r 4.04(3) and r 4.05(1)(b) of the Federal Court Rules 2011 (Cth) (Rules). Rule 4.01(2) of the Rules provides that a corporation must not proceed in the Court other than by a lawyer. No alternative lawyer appeared for the plaintiff.

7. At the commencement of the hearing of the application, Mr Struck sought to have r 4.01(2) dispensed with. He applied for leave to represent the plaintiff. He made a submission to the effect that legal representation was not affordable for the plaintiff. Mr Struck gave oral evidence on oath to the effect that he was the sole director of the plaintiff company. Mr Struck’s application was not opposed by the defendant. In the circumstances, and in the interests of avoiding an adjournment of the hearing, I granted Mr Struck leave to act as the plaintiff’s representative in the proceedings. Mr Struck had already filed written submissions on the plaintiff’s behalf prior to the grant of leave. The Court read those submissions without objection from the defendant.

   THE DEFENDANT’S POSITION

8. The defendant relies on the following circumstances in support of its application:

   (1)Mr Struck is the plaintiff’s sole shareholder and director and therefore has an interest in the outcome of the proceedings;

   (2)Mr Struck swore affidavits in support of the plaintiff’s case;

   (3)Mr Struck drafted and filed written submissions on behalf of the plaintiff company;

   (4)Mr Struck appeared as the plaintiff’s representative at the hearing;

   (5)the grounds advanced by the plaintiff company had no merit and Mr Struck had not “considered the matter rationally”;

   (6)Mr Struck had wrongly submitted that the defendant had used the statutory demand procedure for “ransom and coercion” purposes, and that the statutory demand constituted “an abuse of power”; and

   (7)Mr Struck had made submissions to the effect that the plaintiff company did not have the financial resources to pay the debt forming the subject of the statutory demand and the plaintiff company should therefore be regarded as insolvent or a “man of straw”.

9. As to the last of those grounds, it should be noted that Mr Struck did not make any submission to the effect that the plaintiff company did not have the financial resources to pay the debt that forms the subject of the statutory demand.  Rather, Mr Struck explained to the Court that the company appeared without legal representation because it did not have the financial means to pay a lawyer.  I will determine the application for costs in light of the submission that was in fact made.

10. The application for an order for costs against Mr Struck personally was made without notice to him.  In the circumstances, I afforded Mr Struck the opportunity to obtain advice in relation to the application and to file written submissions in respect of it.

    CONSIDERATION

11. Mr Struck acknowledges that the principles explained by the High Court in Knight are applicable.

12. I accept Mr Struck’s submission that on an application for costs to be awarded against a person who is the sole director and sole shareholder of a corporate litigant it will not be sufficient to point merely to the circumstance that the person has an interest in the subject matter of the proceedings, or has played an active part in them in those capacities.  Such a person, at least in his or her capacity as a director of a corporate litigant, must ordinarily play an active part in the legal proceedings.  To proceed otherwise may constitute a breach of the duties the person owes to the corporation.

13. Although Mr Struck appeared as the plaintiff company’s representative at the hearing of its application, I take into account the circumstance that his application to represent the company was not opposed by the defendant, nor did the defendant take issue with Mr Struck’s assertion, made from the bar table, that legal representation was not affordable for the plaintiff.  In those circumstances, I afford very little weight to the fact that Mr Struck acted as the plaintiff’s representative.  Absent a legal representative, he was the most appropriate person to make submissions on the plaintiff’s behalf.

14. There is some merit in the defendant’s contention that Mr Struck’s written and oral submissions were, in part, immoderate in their tone.  However, that circumstance is to be weighed against Mr Struck’s status as a non-lawyer.  Where leave is granted to a non-lawyer to represent a company, it is to be expected that the advocacy of the non-lawyer may not display the same standard of professionalism and circumspection that is to be expected of an admitted legal practitioner, at least in circumstances where the non-lawyer (as in the present case) has been given no notice, warning or guidance as to those standards.  In those circumstances, I received Mr Struck’s submissions alleging “ransom and coercion” as amounting to a submission that the statutory demand procedure was utilised by the defendant as a wrongful means of recovering a genuinely disputed debt.  Although I rejected that submission, it does not follow that the substance of the submission was irrelevant or irrational.  The manner in which Mr Struck conducted the proceedings does not, of itself, justify the making of a costs order against him personally.

15. Further, I am not satisfied that the plaintiff’s application to set aside the statutory demand was so devoid of merit that it could not possibly have succeeded and that Mr Struck acted “irrationally” in continuing to prosecute the action as the plaintiff’s representative.  As I have said in my reasons for dismissing the plaintiff’s application to set aside the statutory demand, the case was one in which the evidence adduced in support of the plaintiff’s case was framed at a level of generality or abstraction that was insufficient to persuade the Court that the dispute alleged by the plaintiff was “genuine” within the meaning of the Act.  The evidence was prepared and filed at a time when the plaintiff company was legally represented.  Whilst that circumstance might be relevant to the costs order that ought to be made as between the parties themselves, it weighs heavily in the balance in my consideration as to whether Mr Struck should be personally liable to pay the defendant’s costs.  I am satisfied that there is no suggestion of any bad faith or improper purpose on Mr Struck’s part in the conduct of the proceedings as a whole.

16. I have had regard to the possibility that the plaintiff company may be unable to satisfy a costs order made against it, however that circumstance is not sufficient, whether alone or in combination with other factors, to justify an order that the costs be jointly and severally payable by its sole director and shareholder.

17. Although no one of the circumstances relied upon by the defendant is sufficient to justify the order sought, I have nonetheless considered all of the considerations in their totality.  I remain satisfied that a costs order should be made against Mr Struck personally.  I therefore dismiss the defendant’s application.

18. In the circumstances, it is appropriate that I order that the defendant pay Mr Struck’s costs of and incidental to the costs application forming the subject matter of these reasons.  The plaintiff company should otherwise pay the defendant’s costs of and incidental to the proceedings.

19. I will make orders giving effect to that outcome.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Charlesworth.

Associate:

Dated:        7 November 2016