FEDERAL COURT OF AUSTRALIA

Luo v Zhai (No 5) [2015] FCA 774

THE COURT ORDERS THAT:

1.    Pursuant to s 500(2) of the Corporations Act 2001 (Cth), leave be granted to continue these proceedings against the second respondent.

2.    The application against the second respondent be dismissed.

3.    The applicant pay the second respondent’s costs of the proceeding as taxed or agreed.

4.    The first respondent pay the applicant’s costs of the proceeding as taxed or agreed.

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

REASONS FOR JUDGMENT

1    I delivered judgment in favour of the applicant (‘Mr Luo’) in these proceedings, insofar as the first respondent (‘Ms Zhai’) was concerned, on 17 April 2015. I had apprehended that the second respondent (‘Jantom’) was in administration at [90] of Luo v Zhai [2015] FCA 350 (‘the primary judgment’) and declined to make orders dealing with the case against it on the basis that the proceedings concerning it were stayed. It now transpires that it was already in liquidation by that time. The issue of costs requires determination, but there remains an anterior question concerning the proceedings against Jantom.

2    At the hearing on 28 July 2015, Mr Norrie of counsel, who appeared for Ms Zhai, placed reliance on a letter addressed to the Court dated 27 July 2015 from Messrs Ozem Kassem and Ahmed Sowaid, the liquidators of Jantom, which relevantly stated as follows:

‘[W]e wish to advise the Court and his Honour that we, as Liquidators of the Company, consent to the First Defendant and her solicitor or counsel acting for the Company in any application for the costs of the proceedings and using its name for that purpose and, to the extent that it becomes necessary, we consent to any application brought by the First Defendant under Section 500 of the Corporations Act 2001 seeking leave to proceed on the Company’s behalf in relation to any costs application.’

3    It was said that this was sufficient basis for Ms Zhai to seek leave to lift the stay which would otherwise prevent further steps being taken as regards Jantom and accordingly an application for leave was made from the bar table on behalf of Jantom.

4    Jantom’s creditors resolved on 20 February 2015 that the company should be wound up in accordance with s 439C(c) of the Corporations Act 2001 (Cth). That being so, s 446A(1)(a) was satisfied and s 446A(2) deems the winding up of Jantom to be a members voluntary. The consequence is that s 500(2) operates to stay the proceedings against Jantom.

5    Section 500(2) also gives this Court the power to grant leave with respect to those proceedings. I need not concern myself with the authorities in relation to the exercise of this power, however, as there is nothing to suggest that Jantom’s contributories or creditors will be prejudiced here. Rather if the stay is lifted and the proceedings against it are dismissed (as foreshadowed at [90] of the primary judgment) then a costs order in Jantom’s favour would inure for the benefit of its creditors. And, of course, it is relevant that the liquidators consent to the granting of leave to proceed against the company.

6    I will, therefore, grant leave pursuant to s 500(2) in respect of these proceedings against Jantom so that the proceedings against it may be dismissed. Since it succeeded in the litigation I can see no reason why it should not have its costs. I will order that its costs, as taxed or agreed, be paid by Mr Luo.

7    I turn then to the question of costs as between Mr Luo and Ms Zhai. Mr Luo had sought to recover the money he had paid to Ms Zhai on three bases. He can be considered to have succeeded in respect of two of them, however, success on one was sufficient to found the judgment in his favour of $820,000. I rejected his claim insofar as it was based on misleading conduct on Ms Zhai’s part, having found that the provision of Jantom’s profit and loss statement in the circumstances was not misleading or deceptive contrary to s 18 of the Australian Consumer Law.

8    Counsel for Mr Luo, Mr King, submitted that this was a case in which costs should merely follow the event. Ms Zhai claimed that there should be an apportionment of costs in the order of 70% in her favour, on the basis that much of the time and cost in both preparation and during the hearing was attributable to Mr Luo’s misleading and deceptive conduct claim upon which he had failed.

9    I reject Ms Zhai’s submission. This case is not one in which circumstances obtain that would justify ordering Mr Luo to pay part of Ms Zhai’s costs; indeed whilst his claim for misleading and deceptive conduct failed there were aspects of Ms Zhai’s case which would militate against making a costs order in her favour, such as the factual findings which I made at [69]-[83] of the primary judgment. It was hardly a triumph.

10    During the course of the hearing I raised with Mr King whether, in the event that I did lift the stay against Jantom and ordered that Mr Luo pay its costs, he would wish to make an application for either a Bullock or Sanderson order. I note that he indicated that he would not be making such an application.

11    Accordingly, the orders I will make are as follows:

1.    Pursuant to s 500(2) of the Corporations Act 2001 (Cth), leave be granted to continue these proceedings against the second respondent.

2.    The application against the second respondent be dismissed.

3.    The applicant pay the second respondent’s costs of the proceeding as taxed or agreed.

4.    The first respondent pay the applicant’s costs of the proceeding as taxed or agreed.

Associate:

Dated:    31 July 2015