FEDERAL COURT OF AUSTRALIA CKM (Mortgages) Limited v Real Property Group Pty Limited (In Liquidation) [2011] FCA 332 Citation: CKM (Mortgages) Limited v Real Property Group Pty Limited (In Liquidation) [2011] FCA 332 Parties: CKM (MORTGAGES) LIMITED v REAL PROPERTY GROUP PTY LIMITED (IN LIQUIDATION), RAID TAYEH AND ANTONY ANNE DE VRIES AND RONNIE GEDEON File number(s): NSD 1752 of 2010 Judges: EMMETT J Date of judgment: 24 February 2011 Legislation: Corporations Act 2001 (Cth), ss 500D, 509 Fair Trading Act 1987 (NSW) Trade Practices Act 1974 (Cth) Date of hearing: 24 February 2011 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 16 Counsel for the plaintiff: S. Golledge Solicitor for the plaintiff: Colin Biggers & Paisley Counsel for the third defendant: W. A. D. Edwards Solicitor for the third defendant: Uther Webster & Evans IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1752 of 2010 BETWEEN: CKM (MORTGAGES) LIMITED Plaintiff AND: REAL PROPERTY GROUP PTY LIMITED (IN LIQUIDATION) First Defendant RAID TAYEH AND ANTONY ANNE DE VRIES Second Defendant RONNIE GEDEON Third Defendant JUDGE: EMMETT J DATE OF ORDER: 24 FEBRUARY 2011 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The plaintiff pay the third defendant's costs of the argument as to costs incurred after 10 February 2011. 2. There be no other order as to the costs of the proceeding. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1752 of 2010 BETWEEN: CKM (MORTGAGES) LIMITED Plaintiff AND: REAL PROPERTY GROUP PTY LIMITED (IN LIQUIDATION) First Defendant RAID TAYEH AND ANTONY ANNE DE VRIES Second Defendant RONNIE GEDEON Third Defendant JUDGE: EMMETT J DATE: 24 FEBRUARY 2011 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 15 December 2010, the Court granted leave to the plaintiff, CKM (Mortgages) Limited (CKM), to file an originating process, with time for service to be abridged to 5 pm on that day. The proceeding was listed for directions on 17 December 2010. In the proceedings, CKM sought an order under s 509(6) of the Corporations Act 2001 (Cth) (the Corporations Act) delaying the date for deregistration of the first defendant, Real Property Group Pty Limited (the Company). 2 The liquidators of the Company and its former director, Mr Ronnie Gedeon, were joined as the second and third defendants in the proceeding. On 17 December 2010, there was no opposition to the making of an order under s 509(6) of the Corporations Act, and accordingly the Court ordered pursuant to s 509(6) that deregistration of the Company occur on 15 December 2011. A declaration was also made that the liquidators remain as liquidators of the Company. The question of the costs of the proceeding was reserved, and the matter was stood over to today to hear argument on the question of costs. CKM seeks an order that the third defendant, Mr Gedeon, pay the costs of the proceeding. In order to explain the basis for that claim, it is necessary to say something about the steps that led up to the making of the order. 3 In June 2009, CKM commenced a proceeding in the Supreme Court of New South Wales against a number of parties, including the Company and Mr Gedeon. The proceeding relates to claims in breach of contract for negligence, and claims under the Trade Practices Act 1974 (Cth), as it then was, and the Fair Trading Act 1987 (NSW), arising out of a valuation prepared by various of the defendants in that proceeding for CKM in respect of property situated in Kings Cross. The proceeding is still on foot in the Supreme Court. However, on 16 April 2010, a resolution was passed by members of the Company that the Company be wound up. The second defendants (the Liquidators) were appointed as liquidators. 4 The liquidation was a members' voluntary winding up, and on 14 April 2010 a declaration of solvency was signed by Mr Gedeon. The declaration of solvency disclosed that the company had assets of $2 and no liabilities. CKM was not informed of the winding up until 26 August 2010 when its solicitors were informed by the solicitors for the Company in the Supreme Court proceeding. On 27 August 2010, CKM's solicitors wrote to the Company's solicitors saying that CKM would be taking steps to file a notice of motion seeking leave to proceed with the claim against the liquidator. That involved a misapprehension, in that leave to proceed was not required in the circumstances of a members' voluntary winding up. 5 It appears that the liability of the Company that is the subject of the Supreme Court proceedings may be the subject of an insurance policy whose terms are not in evidence. In their letter of 27 August 2010, CKM's solicitors went on to ask the Company's solicitors to confirm that the insurance policy continued to apply notwithstanding the appointment of liquidators, and that the Company's solicitors continued to act in the Supreme Court proceeding. On 1 October 2010, CKM's solicitors wrote to the Company's solicitors again, referring to numerous telephone conversations and emails, and complaining that they had not yet received a response to the letter of 27 August 2010. The letter of 1 October 2010 foreshadowed that at the directions hearing in the Supreme Court on 8 October 2010 a response to the following question would be sought in open court: 1. Whether the insurance policy continued to apply notwithstanding that the liquidator had now been appointed to the company; 2. Whether the solicitors continued to act on behalf of the liquidator of the company. 6 The letter said that reasons for any delay in responding would be sought if a response was not given. A response was not in fact given until 18 October 2010 when the Company's solicitors wrote to CKM's solicitors saying that they had received instructions to confirm that the Company's insurance policy continued to apply subject to the same terms upon which cover was granted, notwithstanding the fact of the voluntary appointment of a liquidator. The letter also confirmed that the solicitors were instructed to continue to act on behalf of the Company and Mr Gedeon in the proceedings, although they were not acting on behalf of the liquidator. 7 The letter also said that receipt of an application under s 500D of the Corporations Act was expected in due course. On 27 October 2010, CKM's solicitors wrote to the liquidators enclosing a copy of the letter of 18 October 2010. The letter of 27 October 2010 also attached a search made at the Australian Securities and Investments Commission (ASIC) on 21 October 2010, confirming that the liquidation was as a result of a members' voluntary winding up and that, accordingly, it was not necessary to seek leave to proceed with the claim against the Company. 8 The letter of 27 October 2010 asked the liquidators to confirm that the liquidation was in fact a members' voluntary winding up. The liquidators responded on 3 November 2010 confirming their appointment as liquidators as a result of a resolution of members on 15 April 2010. The letter also said that the liquidation had been finalised on 20 September 2010, and that the company was due to be deregistered on 20 December 2010. CKM's solicitors replied on 19 November 2010 seeking the liquidators' undertaking that the company would not be deregistered until the proceedings had been finalised. 9 The liquidators responded on 23 November 2010 saying that, since the final meeting of the company had been held on 20 September 2010, there was nothing that the liquidators could do to prevent deregistration. They pointed out that CKM was entitled to make its own application to ASIC to request postponement of the deregistration. The letter also pointed out that an advertisement had been placed in the Commonwealth Gazette on 10 August 2010 to provide notification of the final meeting to be held on 20 September 2010. 10 On 24 November 2010, CKM's solicitors wrote to the Company's solicitors in the proceeding inquiring whether they were aware of the pending deregistration to take place on 20 December 2010, and what steps would be taken to stop the deregistration. The Company's solicitors responded that they acted for the company in the liquidation but that their retainer went no further. They suggested that the matters should be raised with the liquidator. After corresponding with ASIC, they informed CKM's solicitors on 25 November 2010 that, since notification of the final meeting had been lodged, it would be necessary for an application to be made to the court to vary the date of deregistration before 21 December 2010. 11 That prompted the commencement of this proceeding. The question now in issue is whether Mr Gedeon should be ordered to pay CKM's costs of the proceeding to defer deregistration of the Company. The basis advanced for such an order is that Mr Gedeon signed an at least misleading and possibly false declaration of solvency, insofar as the declaration of solvency stated that the company had assets of $2 and no liabilities. The true position is probably that the company may have a liability as asserted in the Supreme Court proceeding, although it may also have an asset of an equivalent value, being the right to an indemnity under some insurance policy. 12 The circumstances I have recounted indicate that there may well be some element of fault on both sides. Had Mr Gedeon disclosed the existence of the proceeding in the Supreme Court in his declaration of solvency, it is unlikely that the liquidators would have taken the steps that they did to convene a final meeting of creditors, without at least communicating with CKM to determine whether it wished to be treated as a creditor in the winding up. 13 On the other hand, once CKM's solicitors became aware of the winding up, albeit that being some number of months after it had begun, they took no steps for some time to communicate with the liquidator. It is not clear whether the Company's solicitors were aware of the winding up before August 2010. Some fault might be sheeted home to them, if they were aware of the winding up and failed to disclose that to CKM's solicitors. 14 Ultimately, however, it seems to me that there was no necessity for Mr Gedeon to be joined as a defendant in the present application. He was joined, it appears, solely for the purpose of obtaining an order for costs against him. That is not a sufficient justification. That is not to say that Mr Gedeon was not a proper party. He was, however, not a necessary party. He would certainly be an interested party and would be entitled, if he so chose, to oppose the making of an order deferring the deregistration. 15 However, there was no evidence that Mr Gedeon was approached before the commencement of the proceeding in order to determine whether he would oppose the making of an order. Indeed, once the initiating process was served on him, he promptly indicated that he did not oppose the making of the order. Thus, the only justification for joining him is to seek this order for costs. However, there is no cause of action, it seems to me, simply to recover costs. 16 In all of the circumstances, I consider that it was not necessary for Mr Gedeon to have been joined as a defendant in the proceeding. Accordingly, notwithstanding that some criticism can be directed to him, and perhaps to the Company's solicitors, for not disclosing the existence of the Supreme Court proceeding to the liquidators, the consequences that have ensued could have been avoided had CKM's solicitors communicated with the liquidators as soon as they found out about the winding up. I do not consider that it is appropriate to make any order for the costs of the proceeding. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 6 April 2011