Qureshi v Lillywhite [2005] NSWSC 1291

New South Wales Supreme Court

CITATION : Qureshi v Lillywhite [2005] NSWSC 1291

HEARING DATE(S) : 12 December 2005

JUDGMENT DATE : 15 December 2005

JURISDICTION : Common Law Division

JUDGMENT OF : Associate Justice Malpass at 1

DECISION : The summons is dismissed; the plaintiff is to pay the costs of the summons.

CATCHWORDS : Leave to appeal - question of costs - order made against non-party - what has to be demonstrated to obtain a grant of leave - leave refused.

LEGISLATION CITED : Local Court (Civil Claims) Act 1970

Zia Qadir Qureshi (Plaintiff) PARTIES : Peter Lillywhite (Defendant)

FILE NUMBER(S) : SC 12963/05

Mr F Austin (Plaintiff) COUNSEL : Mr C D Wood (Defendant)

Buttar Caldwell & Co (Plaintiff) SOLICITORS : Garland Hawthorn Brahe (Defendant)

LOWER COURT JURISDICTION : Local Court

LOWER COURT FILE NUMBER(S) : 7857/04

LOWER COURT JUDICIAL OFFICER : Lulham LCM

- 7 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

Associate Justice Malpass

15 December 2005

12963 of 2005 Zia Qadir Qureshi v Peter Lillywhite

JUDGMENT 1 His Honour: The defendant was an employee of Business Catalyst International Pty Limited (the company). The terms of the employment were governed by a written agreement (the agreement). The company terminated the agreement. 2 The defendant brought proceedings in the Local Court to recover money claimed pursuant to the agreement. An amount in the order of $60,000 was claimed. 3 A defence was filed. The dispute was set down for arbitration (to take place on 28 February 2005). 4 On 25 February 2005, the company changed its name (to Chloer Pty Limited) and resolved that it be wound up voluntarily. A liquidator was appointed (Mr Slaven). 5 On 28 February 2005, the proceedings were adjourned to a callover and an order for costs in the sum of $4,000 was made. Subsequently, the dispute was referred to the Court in its General Division. 6 On 10 May 2005, the Court was advised that the liquidator did not oppose the entry of judgment (a decision had been made that it was unable to pay its debts and the liquidator was not in a position to fund a defence). Judgment was entered in the sum of $60,000 (together with interest) and costs were reserved. 7 On the same day, the plaintiff was notified by letter that an order for costs of the proceedings would be sought against him. Thereafter, the defendant filed a notice of motion. It named the plaintiff as a respondent thereto. It sought an order that the plaintiff pay the costs of the proceedings on an indemnity basis. 8 On 28 June 2005, a contested hearing took place on the question of costs. The plaintiff was legally represented. The Magistrate (Lulham LCM) made an order that the plaintiff pay the costs of the proceedings on an indemnity basis. An order was also made against the company. They were to be jointly and severally liable to pay the costs. 9 On 8 July 2005, the plaintiff filed a summons in this court. It seeks leave to appeal against the decision of the Magistrate. 10 The grounds of appeal as set forth in the summons are as follows:- 1. His Honour erred in failing to exercise his discretion in accordance with the law in ordering the plaintiff to pay the defendant's costs of [sic] in the substantive proceedings in circumstances whereby: a. The plaintiff was not a party to the proceedings; b. The plaintiff relinquished his power as a director of the Chloer Pty Limited, (a party in the substantive proceedings), when the company went into voluntary liquidation on 26 February 2005; c. No steps were ever taken by the defendant to join the plaintiff to the substantive proceedings; d. The proceedings were not contested with summary Judgment being entered in the defendant's favour on 10 May 2005. e. Prior to judgment being entered, the defendant did not take any steps to warn the plaintiff that he would seek an order that he pay the defendant's costs. f. There was no evidence to demonstrate that the plaintiff's actions amounted to an abuse of court process. 2. His Honour erred in finding that the plaintiff was the sole member representing 100% of the nominal voting shares in the company. 3. His Honour erred in finding that the plaintiff had power to control the proceedings by virtue of the fact that he placed it into voluntary liquidation. 4. His Honour erred in finding that the plaintiff continued to have power to control the proceedings after the company went into liquidation by virtue of the fact that he was responsible to meet the costs of the liquidator. 5. His Honour erred in finding that the plaintiff had deliberately or wilfully asset stripped the company and restructured the business in order to avoid liability in the substantive proceedings and deprive the defendant of the benefit of that liquidation. 6. His Honour erred in finding that the plaintiff had deliberately or wilfully placed the company into voluntary liquidation in order to avoid liability in the substantive proceedings and deprive the defendant of the benefit of that litigation. 7. His Honour failed to give adequate reasons for exercising his discretion in ordering the plaintiff to pay the defendant's costs of the proceedings. 11 The proceedings were heard on 12 December 2005. The plaintiff accepts that he must demonstrate both an error in point in point of law and an entitlement to leave. 12 It was common ground that this case should be determined in the light of the costs provisions that were in force at the time the matter was dealt with by the Magistrate. Under the Local Court (Civil Claims) Act 1970, costs in or in relation to an action were in the discretion of the Court. 13 There is no dispute that the Court had the power to make an order against a non-party. The basis upon which it is sought to disturb the decision of the Magistrate is one of error in the exercise of his discretion. 14 The court is to have regard to the relevant circumstances of the case that is before it. The discretion is untrammelled. It is to be exercised judicially and so that the dictates of justice are best served. Whilst the authorities reveal that the power to make an order against a non-party has been exercised in a variety of categories, the exercise of that power is not restricted to those categories. 15 The onus rests on the plaintiff to demonstrate both error in point of law and an entitlement to leave. In my view, that onus has not been discharged. 16 In his judgment, the Magistrate observed as follows:- My view is that the company did not just happen to go into voluntary liquidation. It was his action, the action of Mr Quereshi [sic] who had the effective control of the company, and to place it into liquidation. Mr Austin further submitted that there was no evidence to demonstrate that Quereshi had acted so as to abuse the Court process, so as to make him culpable. In my view the timing of the holding of the meeting, where it was held, the fact that the other company, Business Catalyst Asia, had already been incorporated, and I find on the evidence, has continued to carry on the same business and work from the same building, using the same advertising and web site, does amount to conduct on behalf of Mr Quereshi which, in my view, and in the exercise of my discretion, I propose to make the orders sought. I propose to make orders against Mr Quereshi. And in the exercise of my further discretion that such costs should be awarded on an indemnity basis. I am not persuaded, looking at the statement of claim and the defence, that the intention to originally defend the matters was not one that could have been reasonably taken and in the exercise of my discretion I am satisfied that the actions of Mr Quereshi and the consequences of his actions, are properly given effect if I order him to pay the costs of the plaintiff on the usual basis. [Judgment 28 June 2005, p6] 17 The plaintiff was in the business of management consulting. He was the director and secretary of the company. He was its chief executive officer. He was the majority shareholder (holding all ordinary shares). 18 The plaintiff had the control of the company up until the time of the voluntary liquidation. He had verified the defence filed by the company. The evidence to be relied on by the company included an affidavit sworn by him. 19 The voluntary liquidation came as a surprise to the defendant. It happened in unusual circumstances. At the time, the company had problems apart from this litigation. 20 The voluntary liquidation (together with the change of name) came to pass at a general meeting conducted at Sydney International Airport (it was held at 4.15pm on 25 February 2005). The plaintiff signed the declaration of solvency. Following the meeting, the solicitors for the defendant were advised of what had happened. The plaintiff did not take steps to fund the further defence of the proceedings. 21 Thereafter, the management consultancy business formally conducted by the company came to be conducted by another company known as Business Catalyst Asia Pacific Pty Limited (which had been incorporated prior to 25 February 2005). The sole director of that company was Mr Farooq (a nephew of the plaintiff). The business continued to be carried on at the same address. 22 By 9 May 2005, Mr Slaven had formed an opinion as to the solvency of the company and proposed to convene a meeting of creditors. The company came to be insolvent. The voluntary liquidator was removed and the company was placed in insolvency liquidation by its creditors. The order for costs made on 28 February 2005 has not been paid. 23 Both counsel for the parties have prepared written submissions. These were supplemented by oral argument. The submissions relied on by the plaintiff narrowed the grounds of appeal. 24 It is convenient to first look at the question of whether or not the plaintiff has demonstrated an entitlement to leave. 25 There seems to be little authority dealing with what is required by the provisions of subs (3) of s69 of the Local Courts (Civil Claims) Act 1970 (the Act). The Act is silent as to the relevant criteria. The requirement for leave is intended as a filtering process. The question of whether or not it is granted may fall to be determined on a case by case basis. In dealing with it, the Court has an unfettered discretion which has to be exercised having regard to the relevant circumstances of the particular case before the Court. 26 In this case, the amount in dispute is relatively modest (it concerns a sum in the order of $15,000). It relates to a question of costs. It is to be determined having regard to its own circumstances. It involves the exercise of a discretion. There is no question of principle or of public importance. 27 I am not satisfied that there is manifest error. Indeed, as earlier said, I am not satisfied that there has been error in point of law. In the circumstances of this case, it seems to me that any error would have been of no consequence. I consider that the Magistrate reached the correct result. 28 The summons is dismissed. The plaintiff is to pay the costs of the summons. **********