Ethos Urban Pty Ltd v Sunshine Energy Australia Pty Ltd [2020] NSWSC 971

Supreme Court New South Wales

Medium Neutral Citation: Ethos Urban Pty Ltd v Sunshine Energy Australia Pty Ltd [2020] NSWSC 971 Hearing dates: On the papers (Final submissions received 25 June 2020) Date of orders: 30 July 2020 Decision date: 30 July 2020 Jurisdiction: Equity Before: Emmett AJA Decision: Make no order as to the costs of the proceedings. Catchwords: COSTS — Party/Party — General rule that costs follow the event — Proceedings discontinued or dismissed Legislation Cited: Corporations Act 2001 (Cth) ss 109X, 459C, 459R, 459S Category: Costs Parties: Ethos Urban Pty Ltd (Plaintiff) Sunshine Energy Australia Pty Ltd (Defendant) Representation: Counsel:

S Bell (Plaintiff) N Raj, Solicitor (Defendant)

Solicitors:

SR Law (Plaintiff) Case Legal Pty Ltd (Defendant) File Number(s): 2019/316103

Judgment 1. The only question remaining in these proceedings is the appropriate order for costs. By originating process dated 8 October 2019 and filed on 10 October 2019, the plaintiff, Ethos Urban Pty Ltd (Ethos), sought the winding up in insolvency of the defendant, Sunshine Energy Australia Pty Ltd (Sunshine). On 19 May 2020, an order was made by consent that the winding up application be dismissed. Each of Ethos and Sunshine has asked for an order for costs in its favour and, on 19 May 2020, directions were given for the parties to make written submissions on the question of costs. 2. The originating process applied for an order that Sunshine be wound up under the provisions of the Corporations Act 2001 (Cth) (the Corporations Act) and that a liquidator be appointed to conduct the winding up. The originating process also sought an order for costs. The basis for the application was that a statutory demand dated 29 August 2019 had been served on Sunshine on 30 August 2019 claiming the sum of $17,462.50 as a debt due and owing by Sunshine to Ethos and that Sunshine had failed to comply with the statutory demand, in that it did not, within 21 days after service, pay the amount demanded or secure or compound for the amount of the debt to the reasonable satisfaction of Ethos. 3. A notice of appearance was filed by Sunshine on 27 November 2019. The notice of appearance stated as follows: "[Sunshine] requests an opportunity to present evidence to the Court of solvency, by way of Solvency Reports to be prepared by their accountants in Hong Kong. A period of two months would be required to complete the report." In the notice of appearance, Sunshine asserted that it had not been properly served with the statutory demand or with the originating process and that Sunshine had a genuine cross-claim or set-off in respect of the debt allegedly owed to Ethos. However, no material was served on behalf of Sunshine seeking leave to rely on any of those grounds pursuant to s 459S of the Corporations Act. Section 459S relevantly provides that, where an application for a company to be wound up in insolvency relies on the failure by the company to comply with a statutory demand, the company may not, without the leave of the Court, oppose the application on the ground that the company relied on for the purposes of an application by it for the demand to be set aside or that the company could have so relied on, but did not so rely on (whether it made such an application or not). The Court is not to grant such leave unless it is satisfied that the ground is material to proving that the company is solvent. No leave was sought by Sunshine to adduce evidence pursuant to s 459S of the Corporations Act and no evidence of solvency was filed on behalf of Sunshine. 1. The matter first came before the Court on 11 November 2019, when it was adjourned by consent to 2 December 2019. Sunshine was ordered to file and serve any notice of appearance including grounds of opposition and affidavits in support by 27 November 2019. Several affidavits were served by Sunshine but there was no affidavit as to solvency from Sunshine other than an assertion that Sunshine was solvent. There was no solvency report. 2. On 17 December 2019, directions were given for Ethos to file and serve any evidence in reply no later than 14 February 2020 and Sunshine was ordered to file any further evidence no later than 21 February 2020. Thereafter, Ethos filed an affidavit of Mr James Simons dated 14 February 2020 dealing with service of the statutory demand and the originating process. Sunshine filed an affidavit on 21 February 2020 of Mr Niren Raj, Sunshine's solicitor, giving reasons as to why a solvency report had not been obtained. 3. On 24 February 2020, Gleeson JA granted leave to Sunshine to file and serve affidavits as to solvency and any other grounds of opposition no later than 20 March 2020. No affidavit as to solvency was filed on behalf of Sunshine. 4. On 19 March 2020, Mr David Simons sent an email to Gleeson JA's associate requesting a hearing date in May 2020. Mr Raj also sent emails to Gleeson JA's associate on that day indicating that the hearing may take more than one day. On 20 March 2020, Black J listed the proceedings for hearing on 27 and 28 May 2020, with an estimate of one day plus. 5. On 28 April 2020, Mr David Simons wrote to Mr Raj requesting a list of affidavits intended to be relied upon by Sunshine together with objections and submissions. There was no response to that email. On 11 May 2020, Mr David Simons wrote again to Mr Raj noting that no list of affidavits had been provided. 6. On 11 May 2020, Mr Raj wrote to Mr David Simons requesting that Ethos consent to the matter being stood over to 11 July 2020 because Mr Raj had difficulty in obtaining instructions because of his client's "continuous ailment". Mr David Simons responded on 11 May 2020 saying that the Court had video conference facilities and that Mr Raj would need to apply to the Court for an adjournment. 7. On 11 May 2020, Mr Raj wrote to Mr David Simons saying that Sunshine would rely on all the affidavits filed with the Court. On 12 May 2020, Mr David Simons replied saying that much of the material in the filed affidavits was irrelevant and otherwise inadmissible. 8. Also on 11 May 2020, the Court informed the parties that the matter would be listed for hearing before me on 27 and 28 May 2020. On the afternoon of 11 May 2020, Mr Raj sent an email to my associate asserting difficulties on the part of Sunshine because its solicitor and counsel were based in Brisbane, its director was based in Melbourne and its only shareholder was based in Hong Kong. Mr Raj said that his request to Mr David Simons for the hearing of the matter to be adjourned had been rejected and therefore proposed that the hearing be conducted by telephone. The proceedings were therefore listed before me for directions at noon on 19 May 2020. 9. Shortly before the time fixed for hearing, it was brought to the attention of Mr David Simons that the proposed hearing date would be more than six months after the date on which the originating process was filed and that s 459R of the Corporations Act appeared to be applicable. Section 459R relevantly provides that an application for a company to be wound up in insolvency is to be determined within six months after it is made. While the Court may extend the period within which an application must be determined, the Court may do so only if the Court is satisfied that special circumstances justify the extension and the order is made within that period of six months or as last extended. Section 459R(3) provides that an application is dismissed if it is not determined as required by s 459R. Since the originating process was filed no later than 10 October 2019, the period of six months expired in April 2020. It follows that, by 19 May 2020, the winding up application was dismissed by the operation of s 459R(3). 10. Mr David Simons instructed counsel who was appearing for Ethos to inform the Court in the course of the directions hearing on 19 May 2020 that there might be a problem by reason of s 459R of the Corporations Act and that the application may not proceed to a hearing. During the course of the directions hearing, Mr Raj, who appeared for Sunshine, said that he thought the application was out of time and that Sunshine's barrister would be making that point at the hearing. 11. Later on 19 May 2020, the order that the application be dismissed was made by consent. The order was made without prejudice to the entitlement of Ethos to commence fresh proceedings, if so advised, seeking the winding up of Sunshine other than on the ground of failure to comply with any statutory demand served before 19 May 2020. In addition, I directed Ethos to file and serve any further evidence on which it wished to rely together with written submissions in support of any application for costs. I directed Sunshine to file any evidence on which it wished to rely together with any written submissions in relation to costs no later than 2 June 2020. Ethos was directed to file any submissions in reply no later than 9 June 2020. I subsequently received written submissions from Sunshine dated 26 May 2020, together with an affidavit sworn by Mr David Simons on that day, written submissions on behalf of Sunshine, together with an affidavit sworn by Mr Raj on 2 June 2020, and submissions in reply on behalf of Ethos together with an affidavit of Mr David Simons sworn on 9 June 2020. 12. Relevantly for present purposes, the affidavit of Mr David Simons sworn on 26 May 2020 contained the assertion that during the directions hearing on 19 May 2020, Mr Raj said: "We think the application is out of time and our barrister will be making that point of the hearing." 1. The submissions in reply and the affidavit of 9 June 2020 prompted a further submission on behalf of Sunshine of 11 June 2020 to the effect that the submissions and affidavit of 9 June 2020 went beyond matters of mere reply and raised new factual assertions against Sunshine and its legal advisers. The submission of 11 June 2020 was supported by an affidavit of Mr Raj sworn on the same day. 2. On 12 June 2020, I directed Sunshine to file and serve further submissions stating why it should be entitled to rely on its submissions and affidavit of 11 June 2020. I ordered Ethos to file and serve within a further seven days any response as to why the Court should not receive Sunshine's submissions and affidavit of 11 June 2020. Draft submissions were provided by Sunshine on 19 June 2020. Ethos responded by submissions dated 25 June 2020. In order to deal with the secondary dispute concerning Sunshine's submissions of 11 June 2020, it is necessary to deal with the primary dispute concerning costs. 3. In essence, Ethos contends that, but for the operation of s 459R(3) of the Corporations Act, it would have succeeded in obtaining a winding up order because there would have been a presumption of insolvency by reason of Sunshine's failure to comply with the statutory demand alleged to have been served by Ethos. Under s 459C(2), the Court must presume that a company is insolvent if, during or after the three months ending on the date when the application was made, the company failed to comply with a statutory demand. 4. However, Sunshine contends that it would have had an answer to the originating process because neither the statutory demand nor the originating process had been "properly received" by it. In that regard, it relied upon an affidavit sworn by Mr Khandkar Haque on 8 November 2019. By that affidavit, Mr Haque asserted that he monitors all incoming mail and deliveries received for and on behalf of Sunshine at Sunshine's registered office in the Australian Capital Territory. Mr Haque also asserted in his affidavit that neither the statutory demand nor the originating process had been "received or sighted" by him at Sunshine's registered office. He asserted that, if either of the statutory demand or the originating process had been received or sighted by him, he would immediately have contacted Mr Chi Man Li and informed him of the documents. Mr Li was the director of Sunshine at the relevant times. 5. The only evidence of service relied upon by Ethos is that the statutory demand and the originating process were sent by prepaid registered mail to the registered office of Sunshine. Sunshine contends that, in circumstances where Ethos provided no evidence that delivery was actually effected, the presumption of service was rebutted by the evidence of Mr Haque. The affidavit of Mr Raj of 2 June 2020 set out circumstances concerning the failure to provide a solvency report, namely, that Sunshine's only shareholder has its head office in Hong Kong and asserted that the Court would have allowed Sunshine further time to adduce evidence of solvency. 6. Sunshine's submissions contended that, since the originating process was dismissed by the operation of s 459R, the hearing of the originating process had become unnecessary. It asserted that that was by reason of the oversight of the lawyers advising Ethos in failing to point out to the Court that the date fixed for hearing of the originating process was outside the six month period limited by s 459R. 7. The submissions filed on behalf of Ethos, on the other hand, observed that Sunshine had sought a hearing date outside the six month period limited by s 459R and subsequently sought a hearing date after 11 July 2020. It pointed out that it was Ethos who first raised the issue of the six month period at a directions hearing, thereby saving the Court and the parties time and costs that would have been incurred in relation to a hearing. Ethos contends that it acted properly in so far as it notified the Court as soon as it realised the oversight. 8. Sunshine responded in its submission of 2 June 2020 that Ethos had sufficient opportunity to object to the proposed hearing dates that had been fixed for May and asserts that it was the oversight on the part of Ethos and those advising it that the Court was not asked for an earlier hearing date. Sunshine asserts that Ethos could have asked the Court, on or before 22 April 2020, for an extension of time under s 459R. In the circumstances, Sunshine contends, costs should follow the event and it should be entitled to its costs of the originating process. 9. The submission of 9 June 2020 on behalf of Ethos made the following assertions: * Sunshine was properly served with the statutory demand and the originating process; * Sunshine is deemed insolvent; * Sunshine has provided no evidence of solvency and has not been granted leave to oppose the winding up application; * at some time prior to 19 May 2020, Sunshine was aware that the scheduled hearing would not be within the period limited by s 459R and intended to make that submission at the hearing; * Sunshine has continually sought to defer the further hearing of the matter by seeking extensions of time for service of evidence and seeking the hearing to be set down at the latest possible date; and * Ethos notified the Court of the problem under s 459R at the earliest opportunity. Ethos again relied on the evidence of Mr James Simons that the statutory demand and originating process were posted to the registered office of Sunshine and drew attention to s 109X of the Corporations Act, which provides for service on a corporation by post addressed to the registered office of the corporation. 1. The 9 June 2020 submission by Ethos also pointed out that Mr Haque did not give any evidence as to how he checks incoming mail deliveries at the registered office of Sunshine or how often he checks mail deliveries. Ethos also relied on the affidavit of Mr David Simons sworn on 9 June 2020 exhibiting photographs of the registered office of Sunshine and suggested the possibility that "the postal delivery person" would have delivered the relevant documents to the ground floor of the building whereas Mr Haque appears to occupy an office on level one of the building. Ethos contends that Mr Haque's affidavit should therefore be given little or no weight as to whether Sunshine was "properly served". 2. The submissions filed on behalf of Ethos pointed out that Mr Raj did not dispute the assertion made by Mr David Simons in his affidavit of 26 May 2020 as to what Mr Raj told the Court about the matter being "out of time". The submission asserted that Mr Raj had not "taken the opportunity" to inform the Court as to when he became aware that the winding up application would be out of time and made the assertion that "apparently [Sunshine] was intending to ambush [Ethos] at the hearing". 3. Those submissions prompted Mr Raj to write to Mr David Simons on 10 June 2020 requesting that the submissions on behalf of Ethos be amended as "there was no deliberate or intentional attempt" by Sunshine to delay the matter outside the period limited by s 459R of the Corporations Act. Mr Raj also asserted that the submissions on behalf of Ethos went "beyond matters properly raised in reply" and sought to draw a factual inference as to the knowledge of Sunshine and its lawyers, which was not was "not a submission in reply". The response by Mr David Simons was that Mr Raj did not respond to the paragraph in the affidavit of 26 May 2020 that Mr Raj, in the course of the directions hearing on 19 May 2020, had said that Sunshine's barrister would be making the point that the application was out of time and that the submissions were "fairly put on the evidence". 4. That response prompted a further submission on behalf of Sunshine on 11 June 2020 asserting that, at no time, had Sunshine or its solicitors intentionally delayed the hearing of the originating process. The affidavit by Mr Raj of 11 June 2020 asserted that it was after counsel for Ethos advised the Court on 19 May 2020 that its application for winding up may be outside the time limited by s 459R that Mr Raj stated that it would be the intention of Sunshine's counsel to make that submission at the hearing on 27 and 28 May 2020. Mr Raj denied the suggestion that Ethos "was ambushed" and said that, at all times, Sunshine was proceeding with the hearing on 27 and 28 May 2020. 5. Mr Raj asserted that, at no time prior to 19 May 2020, had he considered that the winding up application was out of time and rejected the suggestion that Sunshine had "continually sought to defer the hearing of the matter". Mr Raj asserted that the first time that he had considered the operation of s 459R of the Corporations Act was when counsel for Ethos informed the Court on 19 May 2020 that the application was out of time by reason of the operation of s 459R. He said that he was surprised at "the error" on the part of Ethos. 6. There was nothing in the submissions of 26 May 2020 filed on behalf of Ethos or in the affidavit of Mr David Simons sworn on the same date to suggest that the Court should conclude that Sunshine or its legal advisers were aware, when the matter was fixed for hearing on 27 and 28 May 2020, that that hearing date was outside the six month period limited by s 459R of the Corporations Act. While the affidavit by Mr David Simons referred to the statement made by Mr Raj in the course of the directions hearing, there was no hint in the submissions of 26 May 2020 or of the affidavit of 26 May 2020 that that would be taken as some kind of admission by Mr Raj that he was aware of the possible difficulty with s 459R prior to the expiration of the six month period. 7. In those circumstances, it was hardly appropriate for Ethos and its advisors to make the submission, on 9 June 2020, that Sunshine was intending to ambush Ethos at the hearing. Even more so, it was inappropriate for Ethos and its advisers to resist giving Mr Raj the opportunity of responding to the serious suggestion made in the submissions of 9 June 2020. I consider that fairness requires the Court to have regard to the denials by Mr Raj that he consciously and deliberately allowed the proceedings to be fixed for hearing on a date outside the time limited by s 459R. 8. Clearly enough the matter was overlooked by Ethos and its legal advisers. There is no reason to conclude that it was not also overlooked by Sunshine and its legal advisers. I therefore propose to have regard to the additional material filed on behalf of Sunshine on 11 June 2020. I reject the contention advanced on behalf of Ethos in its reply submissions of 9 June 2020 that there was an intention on the part of Sunshine and its legal advisers to "ambush" Ethos. 9. In the circumstances, I consider that it is appropriate to direct that there be no order as to costs of the originating process. While the conduct of Sunshine in failing to file evidence as to solvency in good time is certainly not to be commended, the frustration of the proceedings resulted failure on both sides to apply diligence to the conduct of the proceedings. But for the lack of diligence on the part of Sunshine, the proceedings would probably have been heard within the relevant six month period. On the other hand, but for the lack of diligence on the part of Ethos, an application for an extension could have been made on behalf of Ethos. 10. Whether a hearing on the merits would have resulted in a winding up order is a matter for speculation and it is not appropriate to decide the merits of the case in order to determine the question of costs. I do not consider that the evidence is appropriate for determining whether or not the statutory demand and the originating process were properly served in accordance with s 109X of the Corporations Act. Ultimately, the proceedings failed by reason of lack of diligence on the part of Ethos in failing to ask the Court to fix the matter for hearing within the six month period or to request an extension in accordance with the terms of s 459R. Having regard to the fact that the delays were occasioned by failures on the part of Sunshine, there may be good reason to conclude that an extension would have been granted. Be that as it may, no application was made. For those reasons, I consider that there should be no order as to the costs of the proceedings.