FEDERAL COURT OF AUSTRALIA

Sheraz Pty Ltd v Rumsley [2019] FCA 1522

ORDERS

THE COURT ORDERS THAT:

1.    The plaintiff must file and serve any notice of discontinuance within 14 days of the date of these orders.

2.    For the purposes of r 26.12(7) of the Federal Court Rules 2011 (Cth), the plaintiff is not liable to pay the defendant's costs of the proceedings.

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

REASONS FOR JUDGMENT

JACKSON J:

1    These proceedings involve a statutory demand under s 459E of the Corporations Act 2001 (Cth), which the defendant, Mr Rumsley, served on the plaintiff, Sheraz Pty Ltd, on 24 January 2019. Sheraz applied for an injunction to prevent Mr Rumsley from relying on the demand in any application for the winding up of Sheraz. Before the injunction application was heard, however, the three month period after Sheraz's alleged failure to comply with the demand expired. That meant that Mr Rumsley could no longer use that failure to found a presumption of insolvency: see s 459C(2)(a) of the Act. So these proceedings are now pointless.

2    Sheraz has indicated that it will discontinue the proceedings. I will make an order requiring it to do so within 14 days. But Sheraz seeks the costs of commencing the proceedings, because it claims that unreasonable conduct by Mr Rumsley made the application necessary. Mr Rumsley opposes any order for costs against him. These reasons concern that costs dispute.

Background

3    The statutory demand was the subject of Banks-Smith J's judgment in Sheraz Pty Ltd v Rumsley [2019] FCA 493. Her Honour sets out the background in her reasons and it is unnecessary to repeat it in full here. In the demand, Mr Rumsley claimed $248,667.50. Sheraz filed an application to set the demand aside but, her Honour found, did not serve that application on Mr Rumsley within the 21 day period prescribed under s 459G(3)(b) of the Act. So her Honour dismissed the application.

4    Her Honour's reasons recorded that Sheraz had foreshadowed seeking injunctive relief of the kind sought in the present proceedings, and that Mr Rumsley had 'agreed to undertake that he would not bring any winding up application based on non-compliance with the statutory demand for a period of some weeks', with the parties to confer about the precise period.

5    The hearing was on 9 April 2019 and Banks-Smith J delivered judgment at the end of the hearing. The transcript shows that after judgment was delivered Mr Rumsley, who is a legal practitioner and was representing himself, undertook 'to take no steps until the first week of May at the earliest'.

6    The next day, on 10 April 2019, Philip Lafferty, a solicitor acting for Sheraz, emailed Mr Rumsley asking for the precise date on which he intended to make his application to wind up Sheraz in reliance on the statutory demand, or that he give notice (preferably at least 10 days) of the intention to do so. Mr Rumsley replied saying that he had undertaken not to commence winding up proceedings relying on the failure to comply with the statutory demand before May 2019. He calculated that the three month period from failure to comply with the demand would expire on 14 May 2019.

7    On 23 April 2019 Mr Lafferty emailed Mr Rumsley asking for an undertaking 'in keeping with your exchange with the Court on 9 April 2019'. On 29 April 2019 Mr Lafferty again wrote to Mr Rumsley, asking for his 'undertaking by return'. On the same day, Mr Rumsley replied to the effect that in his 10 April 2019 email he had undertaken not to commence winding up proceedings relying on the failure to comply with the statutory demand before May 2019. He said he did not understand why Mr Lafferty would suggest that he did not have an undertaking.

8    On 2 May 2019 a director of Sheraz, Mr Philip Clifford, wrote to Mr Rumsley saying that the position that Mr Rumsley had taken was 'unsatisfactory regarding the timing of an application for injunctive relief'. His letter attached drafts of the application papers in these proceedings. Mr Clifford asked Mr Rumsley to confirm that he would not be making an application to wind up Sheraz, or would give 10 days' notice of any application. The letter indicated that if Mr Rumsley did not respond to the request or refused it, the draft documents would be filed and served the next day.

9    On 3 May 2019, Mr Rumsley responded to Mr Clifford's letter, effectively alleging that Mr Clifford was inappropriately purporting to act as the lawyer for Sheraz. The response did not address the request for confirmation that he would not be applying to wind up Sheraz.

10    On 3 May 2019 Mr Lafferty emailed Mr Rumsley saying that his response left Sheraz with no option but to apply for an injunction and related orders restraining Mr Rumsley from bringing a winding up application against Sheraz. It said that unless Mr Rumsley undertook not to file an application to wind up by return, an application for an injunction would be filed that day.

11    The application was lodged with the court electronically late in the day of Friday 3 May 2019, but was not served immediately. The application sought a declaration that the statutory demand was invalid and an injunction restraining Mr Rumsley from relying on it. In an accompanying affidavit, Mr Clifford asked for an urgent hearing 'because of the Respondent's conduct in general and in particular, in not responding in any timely manner and not in the spirit of the undertaking he gave to the Court on 9 April 2019'. Mr Clifford signed the jurat of the affidavit but not the other pages, and the signature was not witnessed, so the affidavit was not validly sworn or affirmed.

12    Mr Rumsley emailed Mr Lafferty a little later on 3 May 2019 (apparently unaware that the application had been filed), saying that in his email of 29 April he had said he was taking independent advice from a barrister as to whether to bring any application to wind Sheraz up, 'however that could not happen this week due to my workload. On that basis there is nothing which could leave your client "no option but to apply for an injunction".' It is not clear what email of 29 April Mr Rumsley is referring to there. The only email from him to Mr Lafferty dated 29 April 2019 which is in evidence (time stamped 4.02 pm) makes no reference to seeking advice from a barrister.

13    On 6 May 2019 Mr Rumsley wrote to Mr Lafferty saying that he had received independent advice from a barrister and he would not be bringing an application to wind up Sheraz relying on the failure to comply with the statutory demand. Later on the same day Mr Rumsley wrote to the court informing it of this. Accordingly, the application for an injunction was not listed for hearing. No determination has been made as to its merits.

Submissions

14    Sheraz has filed two sets of written submissions (signed by Mr Clifford as 'counsel for the applicant') in support of its claim for the costs of the proceedings, as well as an affidavit setting out what is in effect a bill of costs for $7,740. Mr Rumsley has filed written submissions opposing the application for costs, as well as affidavit material largely annexing correspondence, some of which is referred to above.

15    Sheraz submits that Mr Rumsley was asked several times to 'formalise the timing' of an undertaking to give notice of any winding up application against the plaintiff, but either did not respond or just said that he would not wind up Sheraz until May 2019. Sheraz says that he ought to have given the undertaking and that he did not confirm that he would not apply to wind up Sheraz until after these proceedings were commenced. That made it inevitable that the injunction application had to be commenced in early May 2019. Sheraz claims that the statutory demand was always subject to a finding that it was invalid and that Mr Rumsley only decided not to apply to wind the company up after he saw the materials filed in these proceedings by Sheraz, and realised that any application to wind up would be futile.

16    Mr Rumsley submits the documents commencing this application were only accepted by the court for filing on 21 May 2019, by which time the three month period from failure to comply with the statutory demand had expired, so the proceedings could have no utility. He also relies on the fact that when the proceedings were commenced, they were supported by an affidavit that was unsworn, which he says alone was fatal to the application. He makes submissions as to the merits of the injunction sought in the application. He complains about Mr Clifford purporting to act for Sheraz, when there have been findings in other courts that it is not appropriate for him to do so.

Principles

17    The proper approach in cases like the present is to determine the application by reference to all of the circumstances known to the court. The filing of a notice of discontinuance as proposed by Sheraz does not of itself give rise to a presumption that Mr Rumsley should have his costs of the proceedings: see Leadenhall Australia Pty Ltd v Australian Securities and Investments Commission [2018] FCA 1792 at [7] (Charlesworth J).

18    In determining the approach to take to the question, there is no need to go beyond the well-known principles set out by McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 624-625. In summary they are as follows:

(1)    The power to order costs is discretionary.

(2)    When there has been no hearing on the merits, the court is necessarily deprived of the factor that usually determines whether or how it will make a costs order, namely which party has been successful.

(3)    In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action.

(4)    The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they have avoided.

(5)    In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

(6)    Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried.

(7)    If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.

Disposition

19    I do not accept Sheraz's submission that the proceedings were made necessary by any unreasonable failure by Mr Rumsley to give an undertaking he said he would give. That is because Mr Rumsley had already given the undertaking.

20    The test to be applied in determining whether something that has been said to the court gives rise to an undertaking to the court is an objective one: Hamersley Iron Pty Limited v The National Competition Council [2008] FCA 598; (2008) 247 ALR 385 at [151]. It is a question of fact which may be determined by making proper inferences in all the circumstances of the case: Oswal v Burrup Holdings Ltd (No 2) [2012] FCA 1187; (2012) 208 FCR 425 at [74].

21    Here, there is no need to make any inference. Mr Rumsley said to the court that he undertook 'to take no steps until the first week of May at the earliest'. In context, that was plainly an undertaking to the court. It may be that there was some ambiguity about when it expired, because May 2019 commenced on a Wednesday, so the first full week of May did not commence until 6 May. But any such ambiguity was dispelled by Mr Rumsley's email, sent the day after the hearing before Banks-Smith J, in which he said he had undertaken not to commence winding up proceedings relying on the failure to comply with the statutory demand before May 2019.

22    So there was no need for the repeated requests on behalf of Sheraz for an undertaking, and no unreasonableness in Mr Rumsley not proffering one. Mr Rumsley was correct to say that he has already given the undertaking. While Sheraz might have preferred to have it in the form of a formal written undertaking, the fact remains that it had been given in open court and confirmed subsequently by correspondence. Nothing more was required.

23    When that undertaking expired, the parties were in the following position. Mr Rumsley had a current statutory demand, and it was open to him to apply to wind up Sheraz on the basis of it. It was open to Sheraz to apply for an injunction preventing Mr Rumsley from applying to wind it up.

24    As Lai Qin makes plain, it is not for the court now to make any finding as to the merits of the parties' respective positions. I reject the attempts by both parties in their written submissions to have the court do so. While the application as originally filed was supported by an unsworn affidavit, that is explicable by the perceived urgency and there is nothing to indicate that it would not have been quickly remedied. It is not to the point that the court did not accept the papers for filing until much later; Sheraz lodged them on 3 May 2019, and the reason for the subsequent delay in acceptance is not clear. And while there is clearly cause for concern in Mr Clifford purporting to act as legal practitioner for Sheraz (see Sheraz Pty Ltd v Vegas Enterprises Pty Ltd [2015] WASCA 4; (2015) 48 WAR 93 at [22] (Buss JA), [189] (Murphy JA), [191]-[195] (Chaney J)), there is no suggestion that this invalidates Sheraz's claim or otherwise undermined any merit it might have had.

25    Therefore it cannot be said that either party acted unreasonably. Mr Rumsley gave the undertaking. It had expired. Whether he then chose to rely on the demand by making an application to wind up Sheraz before 14 May was a matter for him. Whether Sheraz chose to try to prevent that by applying for an injunction was, similarly, a matter for it.

26    It might be arguable that Sheraz making the application when it did was unreasonable because Mr Rumsley had indicated that he was seeking advice about whether to rely on the demand. But the email of 29 April 2019 in which he apparently said that is not in evidence, so there can be no finding as to exactly what he did say. In any event, there is no suggestion that Mr Rumsley said he would give advance notice if the advice was that he could apply to wind Sheraz up. So I do not find that Sheraz acted unreasonably in commencing these proceedings. The 14 May deadline was near. Mr Rumsley does not seek his costs of the proceedings anyway.

27    Mr Rumsley does, however, seek his costs of this application for costs. He offered in correspondence to resolve these proceedings on the basis that there would be no order as to costs, and he had left it open to pursue his own costs if Sheraz persisted with seeking its costs. I have some sympathy for his position. Costs usually follow the event, and the order Mr Rumsley sought as to the costs of the proceedings is the order that will be made here.

28    However, in the end no order as to costs is a neutral outcome for the parties. Also, the result of awarding the costs of the application to Mr Rumsley will be further litigation, in a taxation of costs, or other method of determining Sheraz's costs liability (such as a lump sum bill). In order to resist Sheraz's costs application, Mr Rumsley has filed a short affidavit annexing some correspondence, and brief written submissions. The application has been resolved on the papers with no need for an appearance. So the amount of costs he would be awarded would not be large.

29    Prolonging these proceedings by awarding costs will in itself will use further resources of the parties and the court, to an extent that is disproportionate to the amount of costs in issue. I exercise the costs discretion by making no award of costs to Mr Rumsley.

Associate:

Dated:    16 September 2019