Federal Court of Australia

Lane v Great Northern Developments Pty Ltd [2021] FCA 923

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent pay 75% of the Applicant’s costs.

2.    Pursuant to rule 40.02 of the Federal Court Rules 2011 (Cth), the Applicant’s costs be assessed on a lump sum basis.

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

REASONS FOR JUDGMENT

CHEESEMAN J:

OVERVIEW

1    On 4 May 2021 the Applicant, Ms Lane, filed the Originating Process in the present proceedings seeking to wind up the Respondent, Great Northern Developments Pty Ltd (GND). On 25 May 2021, GND filed an Interlocutory Process to restrain Ms Lane from advertising the fact of the winding up application in accordance with the obligation to do so under rule 5.6 of the Federal Court (Corporations) Rules 2000. The substantive proceedings between the parties were resolved by consent save for the issue of costs, in respect of which there are competing applications. These reasons address the issue of costs which the parties agree are to be determined on the papers.

2    Ms Lane seeks:

(a)    an order that GND pay the costs of the winding up application (including her costs of responding to GND’s interlocutory application); and

(b)    directions for the exchange of material so a lump sum order for those costs may be made.

3    GND seeks costs on an indemnity basis for defending the winding up application and for prosecuting its interlocutory application.

4    In the result, having considered the parties’ respective written submissions and the additional material upon which they rely, I am satisfied that in the circumstances of this application GND should pay 75% of Ms Lane’s costs of the winding up application (including Ms Lane’s costs on the Interlocutory Process). Further, that the costs payable by GND to Ms Lane should be assessed on a lump sum basis.

BACKGROUND

5    Ms Lane recovered judgment against GND in the District Court in the sum of $173,341.47 on 16 February 2021. A Statutory Demand was served on GND in that amount on 5 March 2021. On 19 March 2021, GND appealed from the District Court judgment to the New South Wales Court of Appeal and applied for a stay of the judgment and an extension of time for compliance with the Demand.

6    On 26 March 2021, Emmett AJA granted a stay conditioned on compliance with certain conditions precedent but did not extend time for compliance with the Demand. The relevant orders made on that occasion were as follows:

1    Upon undertakings in the form set out below being given to the Court, and conditional upon such undertakings being given, the orders made by the District Court on 16 February 2021 in proceedings 175974 of 2019 be stayed until the final resolution of the appeal.

The Undertakings

(i)    Undertaking by Mr Christopher Malcolm Edwards that he will procure that the appellant no later than 30 April 2021 pay into Court or into the trust account of [GND's] solicitors the amount of the judgment debt in the District Court such amount to be held until the final resolution of the appeal.

(ii)    Undertakings by each of the entities described as “associates” in the accounts of [GND] as at 24 March 2021 and in the Report on Company Activities and Property lodged with the Australian Securities and Investments Commission in respect of [GND] on 10 November 2019 that such entity will not require repayment to such entity by [GND] of any part of the money owing by [GND] to that entity until the amount of the judgment debt has been satisfied in full.

7    The conditions precedent for the stay required GND to:

(a)    Pay money into court (or to GND’s solicitor’s trust account) by 30 April 2021; and

(b)    Furnish undertakings to the court from a number of companies (the Edwards Companies) controlled by Mr Edwards, the principal of both GND and those companies. The undertakings were directed to preventing the Edwards Companies from calling for repayment of substantial sums that GND owed to those companies. It appears that these undertakings were directed to protecting the GND payment from potential exposure to being characterised as a preference and thus possibly impacting Ms Lane’s ability to recover and retain her judgment.

8    It is not necessary in these proceedings to form a view on whether a payment into court can be so characterised as a preference. For present purposes, it is relevant that what was required by the second of the conditions precedent was that undertakings be given by Mr Edwards and each of the Edwards Companies not merely by Mr Edwards. Whereas the payment into court or to the solicitor’s trust account was required by 30 April 2021, there was no express time frame for the provision of the undertaking by the Edwards Companies. That said, the stay did not become operative until both conditions were met, the first of which had to be met by 30 April 2021.

9    On 29 March 2021, GND failed to comply with the Demand.

10    Following the stay application, Ms Lane’s solicitors sought security for costs of the appeal asserting that the evidence filed on the stay application revealed that GND was insolvent from both a cash flow and balance sheet perspective. The request for security does not appear to have been pursued other than in correspondence.

11    During the month of April, the parties exchanged no less than eleven email communications about the conditions precedent to the stay of the District Court judgment.

12    Although there was some dispute between the parties in relation to the timing of the payment into court, it appears that on 30 April 2021, Mr Edwards paid the money into court on GND’s behalf but it was not until after 4 May 2021, that GND demonstrated to Ms Lane’s satisfaction that the payment into court had in fact been made. There was further disputation in relation to the payment between the parties’ solicitors. On 3 May 2021, Ms Lane expressly foreshadowed that winding up proceedings would be commenced unless proof of payment into court and executed undertakings by the Edwards Companies were provided by 10 am on 4 May 2021. At this time Ms Lane’s solicitors also required an undertaking that GND would pay Ms Lane’s costs capped at $2,200. When the deadline passed, Ms Lane’s solicitors informed GND’s solicitors that proceedings would be commenced. GND’s solicitors responded later in the day providing a receipt in respect of the payment into court.

13    GND did not however cause the Edwards Companies to give the undertakings required by the second condition precedent. The undertakings were not in fact given until 9 June 2021 (having been accepted by the Court of Appeal Registry on that date). In the period between 29 March 2021 and 2 June 2021, GND submitted various iterations of the undertakings to Ms Lane’s solicitor. Confusion as to what was required by the conditions precedent and the fact that the conditions were cumulative generated a deal of arid correspondence between the parties.

14    On 4 May 2021, Ms Lane commenced the winding up proceedings in this Court, there being no operative stay of the District Court judgment at this time.

15    On 5 May 2021, the appeal was heard by the Court of Appeal and judgment was reserved. GND did not seek clarification from the Court of Appeal in respect of the issue between the parties as to the undertakings required by the second condition precedent.

16    The winding up application in this Court was listed for hearing before the Registrar on 16 June 2021. By operation of rule 5.6 of the Corporations Rules, Ms Lane was required, by no later than seven days before the hearing date, to publish a notice advertising the fact of the winding up application.

17    On 25 May 2021, GND lodged an application seeking to restrain Ms Lane from advertising the fact of the winding up application, as Ms Lane would otherwise have been required to do.

18    On 26 May 2021, after the interlocutory application was accepted by the Registry, and before the return date, GND made an offer to Ms Lane’s solicitors to resolve the whole of the proceedings in this Court. That offer was not accepted. At this time, GND had still not complied with the undertakings condition precedent of the stay and there was no stay in place in respect of the District Court judgment.

19    On 27 May 2021, Ms Lane through her legal representatives offered to undertake to the Court that advertising would not take place until the interlocutory application was determined to facilitate Ms Lane putting on her evidence and submissions in relation to that application. That offer was rejected by Counsel for GND when the matter came before the Court in the duty list, on the afternoon of Friday, 28 May 2021.

20    GND through its Counsel sought to press its application for an injunction against Ms Lane. Counsel for Ms Lane pressed for an adjournment on the basis an undertaking being given as had been offered.

21    During the hearing before me in the duty list, it was apparent that there was a degree of confusion on GND’s part as to why the various iterations of the undertakings that it had put forward were not satisfactory. Upon questioning Counsel for GND, I was left with the impression that GND was not contending that it had complied with the undertakings condition, or if it was, it was a faint attempt to preserve future flexibility in that regard. Rather, GND’s Counsel was frank in his submission that he and his instructors were befuddled as to what was required by the undertakings.

22    Counsel for GND was not able to provide a satisfactory explanation for why the confusion concerning the Edwards Companies’ undertakings had not been re-listed before Emmett AJA or raised at the hearing of the appeal rather than being left to fester in correspondence. The proper course if the parties were at an impasse, was for GND, as the party who was the applicant for and the beneficiary of the conditional stay, to cause the matter to be re-listed before the Registrar in the Court of Appeal to resolve that impasse. No steps were taken to do that in the period from 26 March 2021 (when the conditional stay was ordered) until 5 May 2021 (when the appeal was heard and judgment reserved). Had that been done, the entirety of these proceedings may have been avoided.

23    Counsel for Ms Lane, who was fresh to the matter not having been involved in the District Court or the Court of Appeal, took the opportunity during the first hearing in the duty list to explain Ms Lane’s position as to the inadequacy of the undertakings that had been offered by GND. Namely, that the undertakings that GND had put forward were not acceptable because they were not undertakings by the Edwards Companies, as required, but rather were undertakings by Mr Edwards on behalf of each of the relevant companies. Ms Lane’s position was that the undertakings were unacceptable in the form they had been offered because they would not be, or potentially would not be, enforceable against the Edwards Companies, who were the relevant creditors of GND.

24    For reasons which will become apparent it is noteworthy that the evidence filed in support of the present costs application reveals that nowhere in the correspondence was there a clear articulation by Ms Lane’s solicitors of the issue as to the identity of the entities required to give the undertaking. It was only after Ms Lane’s Counsel was engaged prior to the first return of GND’s interlocutory application that steps were taken to facilitate the Edwards Companies’ undertakings being prepared to the satisfaction of both parties and thereafter filed with the Court of Appeal.

25    In the duty list, Counsel for Ms Lane indicated, on a subject to instructions basis, that the matter was unlikely to proceed to a contested hearing if undertakings were given that complied with the Court of Appeal’s orders. In doing this, it was clear that consistently with his duty to the Court, Counsel for Ms Lane was actively seeking to arrive at a resolution of the real matter in issue between the parties. Accordingly, on the basis of Ms Lane providing an undertaking to refrain from advertising, I adjourned the matter for a week to allow the parties to seek to resolve the issues between them. In doing so, I indicated that if necessary on the next occasion, I would vacate the listing of the winding up application on 16 June 2021 and list that application at a later date, so that the requirement to advertise 7 days before the hearing would be postponed.

26    On 4 June 2021, the interlocutory application was again listed before me as duty judge. By that time, GND had lodged the undertakings with the Court of Appeal Registry but the undertakings had not yet been accepted. GND’s legal representatives were assisted in drafting the undertakings by Ms Lane’s solicitor. Again, Ms Lane proposed an adjournment with a continuation of the undertaking to refrain from advertising in order to enable the Registry to process the undertakings that had been filed with the Court of Appeal. Again, GND sought to proceed to hearing on its application to restrain Ms Lane from advertising in accordance with rule 5.6 of the Corporations Rules. After hearing from the parties, and over GND’s objection, I made orders vacating the hearing of the winding up application before the Registrar on 16 June 2021 and adjourned the proceedings for case management on 15 June 2021 with a view to affording the Registry of the Court of Appeal sufficient time to process the proposed undertakings.

27    The undertakings filed in the Court of Appeal on 3 June 2021 were noted and accepted on 9 June 2021.

28    On 15 June 2021, the proceedings were next listed before the duty judge, and orders were made by consent dismissing the originating process and the interlocutory process and timetabling the present costs dispute to be determined on the papers.

LEGAL PRINCIPLES

29    The Court has an unfettered discretion in relation to an order for costs. Paragraph 3 of Practice Note GPN-Costs specifies that the procedure for determining the quantum of costs for a party successful at a final hearing should not be delayed, should be as inexpensive and efficient as possible and that the Court's preference is to avoid, where possible, the making of costs orders that lead to potentially expensive and lengthy taxation of costs hearings through the use, inter alia, of lump-sum costs orders.

SUBMISSIONS

Ms Lane’s Submissions

30    Ms Lane submits that at the time when the proceedings were commenced, and at all times up until 9 June 2021, Ms Lane was a judgment creditor who had issued a demand that had not been complied with. She was therefore entitled to commence and maintain winding up proceedings against GND, relying on the presumption of insolvency that arises as a consequence pursuant to ss 459C(2)(a) and 459E of the Corporations Act 2001 (Cth).

31    GND sought and obtained a stay which was subject to certain conditions which were cumulative. GND did not comply with the condition in respect of the Edwards Companies’ undertakings and did not secure a stay of the District Court judgment.

32    It was not reasonable for GND to rely on Ms Lane’s solicitor to settle undertakings to the court or to suggest that Ms Lane’s reluctance to incur the costs of doing so was the reason that GND did not comply with the conditions imposed by the Court of Appeal as the price of awarding the conditional stay. GND was represented by solicitors and Counsel throughout. Mr Edwards the principal of GND, himself, is a solicitor.

GND’s Submissions

33    GND submits that the winding up application was “completely unnecessary and was not made in good faith”. GND asserts that it was at all times “a fully solvent corporation which had no outstanding debts and which had given full security for the claimed debt”. GND further submits that there was no reason to think that the related entities would withdraw their funds from GND.

34    The express allegation of bad faith is put on the basis that the “winding up notice was issued immediately upon discovering the disputed judgment sum had been paid into court” and because an offer by GND to resolve the proceedings in this Court on the basis of a payment of $4,800 to Ms Lane on 26 May 2021 was rejected. That GND was unable to demonstrate that the payment into court had been made as at the last date for doing so is not in dispute. Rather, GND submits that the assertion by its solicitor that payment had been made should have been sufficient for Ms Lane to stay her hand in commencing winding up proceedings. GND accepts that the Edwards Companies’ undertakings had not been filed with the Court of Appeal Registry until 3 June 2021 but submits that that was the fault of Ms Lane and her advisers. GND asserts that it stood ready to procure the necessary undertakings but did not know why the undertakings it had provided were deficient and that despite request could not obtain information from Ms Lane’s solicitors as to what was required.

CONSIDERATION

35    GND suffered a judgment against it in the District Court. It well knew that notwithstanding that it had appealed the judgment, that unless it obtained a stay, the judgment debt could be the subject of a statutory demand. GND applied for and obtained a stay however that stay was conditional on GND doing two things by 30 April 2021, one of which it did not do. In adopting this course GND exposed itself to the risk of Ms Lane bringing a winding up application against it. That risk came to fruition.

36    GND took no effective steps to remedy its non-compliance with the conditions precedent to the stay. It may be accepted that despite the plain wording of the orders, GND was unable to produce undertakings that complied with the court orders. It may also be accepted that GND looked to and expected Ms Lane’s solicitors to assist in this regard and that assistance was not forthcoming. GND was on notice that Ms Lane would move against it if the conditions on which the stay was predicated were not met. GND had applied for but failed to obtain an extension of time to comply with the Demand. GND did nothing to take the dispute concerning the undertaking back before the Court of Appeal to resolve the impasse. Indeed, it chose to run the risk of Ms Lane commencing winding up proceedings against it, as she was entitled to do.

37    In this case, notwithstanding there has been no hearing on the merits, I am satisfied that Ms Lane is prima facie entitled to her costs on the winding up application. I reject the submission that Ms Lane acted in bad faith in commencing the proceedings. Ms Lane was entitled to commence a winding up application based on GND’s failure to comply with the Demand coupled with GND’s failure to procure the Edwards Companies’ undertakings in order to secure the stay. After proceedings were commenced, Ms Lane, through her Counsel, took an approach that was focussed on resolving the underlying issue in relation to the provision of the Edwards Companies’ undertakings. Once the undertakings were provided, after Ms Lane’s representatives provided some assistance, Ms Lane moved to bring the winding up application to an end.

38    I now turn to whether costs order in Ms Lane’s favour should be qualified.

39    Ms Lane submits that it was not the responsibility of her legal advisers to provide advice to her opponent. Be that as it may, each of the parties and their legal advisers, are required in this Court to cooperate to achieve the overarching purpose in s 37M of the Federal Court of Australia Act, 1976 (Cth). Similarly, in the proceedings in the Court of Appeal, the parties were under a duty to assist the court to further the overriding purpose embodied in s 56 of the Civil Procedure Act 2005 (NSW). Had the parties adopted an approach that was informed by their obligations in this regard, the entirety of the proceedings in this Court may have been avoided. In particular, with respect to Ms Lane’s representatives, they did not in their correspondence make clear that the critical concern they had was the identity of the entities required to give the undertakings. The draft undertakings were being given by Mr Edwards as director on his own behalf and not expressly on behalf of the Edwards Companies. That was a point capable of being simply made. It was not until Counsel for Ms Lane made that point plain at the first hearing in the duty list that GND’s representatives appeared to first understand Ms Lane’s complaint in connection with the proffered drafts. For this reason, responsibility for the proceedings in this Court does not lie solely with GND, Ms Lane’s solicitors had an obligation to assist in achieving the overriding purpose under s 56 of the Civil Procedure Act. What was required was co-operation and dialogue between the parties’ representatives: Crosbie v McLachlan [2013] FCA 1101; (2013) 217 FCR 211 at 217 [23] (Gordon J). A review of the correspondence between the parties reveals that constructive co-operation was conspicuous in its absence. The costs order in Ms Lane’s favour on the winding up application should be reduced to reflect that it is at least possible, likely probable, that the issue in respect of the Edwards Companies’ undertakings could have been resolved in correspondence and the whole of these proceedings been averted. That said, on the three occasions that the proceedings were listed in the duty list, the approach taken by GND in seeking to press its application for an injunction was misconceived and unnecessarily prolonged the proceedings and wasted court resources. Accordingly, the costs order in Ms Lane’s favour should be reduced by 25%. It was not necessary for Ms Lane’s solicitors to advise GND but they ought to have clearly conveyed the real issue which rendered the undertakings that had been offered by GND unsatisfactory to Ms Lane.

40    The approach taken by GND at each of the hearings in this Court was not productive of bringing forward any real issue which it was necessary for the Court to determine. There was a repeated resistance by GND to adopting a pragmatic position that would protect it from the advertisement of the winding up application and also facilitate the resolution of the real issue about the conditional stay. By way of contrast, the approach taken by Ms Lane’s Counsel focussed on resolving the proceedings in a way that was both collegiate and of assistance to the Court.

41    Accordingly, for these reasons, GND is to pay 75% of Ms Lane’s costs of these proceedings, including the Interlocutory Process. Costs are to be paid by lump sum. The parties are to provide short minutes to my Associate within 7 days to give effect to these reasons, including with respect to the exchange of materials concerning payment by lump sum in the event the parties do not reach agreement.

Associate:

Dated:    13 August 2021