Supreme Court New South Wales Medium Neutral Citation: Maylord Equity Management Pty Ltd as trustee of the Batterham Retirement Fund v Nauer [2017] NSWSC 634 Hearing dates: 12 May 2017 Date of orders: 12 May 2017 Decision date: 22 May 2017 Before: Ward CJ in Eq Decision: 1. Confirm the orders made on 12 May 2017, dismissing the plaintiff's application for an order setting aside the orders made on 24 October 2016 by Bergin CJ in Eq; ordering the plaintiff to pay the defendant's costs of the proceedings (otherwise than as have already been the subject of costs orders to date); and staying the proceedings until satisfaction of the costs orders made in the proceedings to date. 2. Order that the costs of the proceedings since 24 October 2016 be paid as a gross sum in the amount of $55,000 (without prejudice to the plaintiff claiming a higher amount on any later assessment of the costs of these proceedings). 3. Note that liberty has been granted to the defendant to apply on three business days' notice if there be any application to dismiss the proceedings for want of prosecution; and that liberty has been granted to the plaintiff to apply on three days' notice for any order reinstating the proceedings in the list (after payment of the costs ordered on 24 October 2016 and the costs the subject of order 2 above). Catchwords: PRACTICE AND PROCEDURE – application to set aside costs orders made as condition to grant of leave to the plaintiff to apply to file an amended commercial list statement in circumstances where leave refused for filing of then proposed amended commercial list statement – where plaintiff contends that new information and evidence has come to light – application unsuccessful PRACTICE AND PROCEDURE – application that proceedings be dismissed or stayed on basis that plaintiff lacks authority to commence or continue proceedings in its stated capacity as corporate trustee of a superannuation fund Legislation Cited: Civil Procedure Act 2005 (NSW), s 98(4)(c) Corporations Act 2001 (Cth), s 206B(3) Superannuation Industry (Supervision) Act 1993 (Cth), ss 10, 17A(1), 17A(2), 17A(3), 17A(10), 26, 120, 106A, 126K, 133 Uniform Civil Procedure Rules 2005 (NSW), rr 7.2, 7.9(4) Cases Cited: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; [1984] FCA 34 Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364; [2006] HCA 32 Fay v Moramba Services Pty Ltd [2010] NSWSC 725 Hamod v New South Wales [2011] NSWCA 375 Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213 Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 House v The King (1936) 55 CLR 499; [1936] HCA 40 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709; [2000] NSWSC 210 Malek Fahd Islamic School Ltd v Australian Federation of Islamic Council Inc [2016] NSWSC 672 Matthews v SPI Electricity Pty Ltd; SPI Electricity Pty Ltd v Utility Services Corp Ltd (2011) 34 VR 560; [2011] VSC 167 Ox Operations Pty Ltd v Landmark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221 Pioneer Park Pty Ltd (in liq) v ANZ Banking Group Ltd [2007] NSWCA 344 PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 Raja v Darul-Iman (WA) Inc (No. 2) [2011] WASCA 251 Rinfort Pty Ltd v Arianna Holdings Pty Ltd [2016] NSWSC 251 Scott v Secretary, Department of Social Security (No 2) [2000] FCA 1450 Category: Procedural and other rulings Parties: Maylord Equity Management Pty Ltd (ACN 0943 852 892) as trustee of the Batterham Retirement Fund (Plaintiff) Marcel Andre Nauer (Defendant) Representation: Counsel: G R Ohlson (Director of Plaintiff) J R Clarke SC (Defendant) Solicitors: Esplins Solicitors (Defendant) File Number(s): 2016/124822 Publication restriction: Nil Judgment 1. HER HONOUR: Before me for hearing on 12 May 2017 were two notices of motion. First, a notice of motion filed on 7 April 2017 by the plaintiff (Maylord Equity Management Pty Ltd (Maylord)) seeking, in effect, the setting aside of certain orders made by Bergin CJ in Eq on 24 October 2016 (including, in particular, the costs order made by her Honour on that date). Second, a notice of motion filed on 28 April 2017 by the defendant, Mr Nauer, seeking, among other things, that the proceedings be dismissed or stayed on the basis that Maylord lacks (and at the time of the commencement of the proceedings lacked) proper authority to commence or to continue the proceedings in the stated capacity in which it commenced the proceedings, namely as the corporate trustee of the Batterham Retirement Fund (the BRF). 2. I gave leave for Maylord to be represented on the hearing of these applications by Mr Garry Ohlson, the sole director of Maylord, on condition that he file an affidavit in compliance with r 7.2 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and directed Mr Ohlson to file such an affidavit by 9.00am on 16 May 2017. 3. Following the hearing of the respective motions, I dismissed Maylord's application for the setting aside of the orders that were made by Bergin CJ in Eq last year. This means that Maylord continues to be precluded from continuing to prosecute the proceedings until payment by it of the costs ordered by her Honour on that occasion in the sum of $25,000. In relation to the defendant's application, I did not dismiss the proceedings (though I consider them not to have been properly commenced by Maylord for the reasons I set out later in this judgment) but, rather, I stayed them pending payment of the respective costs orders made to date, on the basis that it was not inconceivable that Maylord might be able to rectify the irregularities in its commencement of the proceedings as trustee of the BRF so as to enable it, or another trustee, to continue the proceedings. 4. I indicated that I would order that the costs payable by Maylord in respect of the proceedings since 24 October 2016 be in a gross sum after consideration of submissions as to the quantum of the solicitor-client costs that had been incurred in that period; and that I would publish my reasons for the orders made on 12 May 2017 in due course. These are those reasons. Background 1. The background to the present applications is somewhat complicated. 2. The BRF was established as a superannuation plan by deed poll titled "Trust Deed and Rules of the Batterham Retirement Fund" (the Trust Deed) made on 29 October 1999. On 4 September 2002, by deed of change of trustee, Maylord was appointed as trustee of the fund. At all relevant times, the sole member of the BRF is and has been Peter James Batterham. 3. Relevantly, r 5.3 of the Trust Deed provides that if the fund has fewer than five members (as has at all times been the case) and the fund is not a self-managed superannuation fund (SMSF) (for the purposes of the Superannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act)) then the trustee must be an "Approved Trustee" (within the meaning of the SIS Act or regulations). The term "Approved Trustee" is no longer a defined term within the SIS Act but at the relevant time it referred to a trustee approved by the Australian Prudential Regulation Authority pursuant to s 26 of the SIS Act as then in force. Rule 6.3 of the Trust Deed further provides that: No person who is disqualified under the Statutory Requirements from acting as Trustee shall be appointed as a trustee. Any Trustee who becomes so disqualified shall immediately resign. 1. As to whether the BRF satisfies the statutory requirements for an SMSF under the SIS Act, it is necessary to consider the operation of s 17A of that Act. Pursuant to s 17A(1)(d), each member of an SMSF must be a trustee or a director of the corporate trustee of the fund. As noted above, Mr Batterham is the only member of the BRF. He is not the trustee of the BRF but was a director of the corporate trustee of the fund (Maylord) for some time. 2. Relevantly, s 17A(2)(a) of the SIS Act provides that, if the trustee of the fund is a body corporate, a superannuation fund with only one member (i.e., a fund such as the BRF) is an SMSF if and only if: the member is one of only 2 directors of the body corporate, and the member and the other director are relatives 1. Section 10 of the SIS Act defines "relative" as "a parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the individual or of his or her spouse". 2. The complication arising in the present case is that Mr Batterham was placed into bankruptcy on 13 November 2014. As an undischarged bankrupt, not only is he automatically disqualified from being a director of any corporation (s 206B(3) of the Corporations Act 2001 (Cth)), but he is also a disqualified person under s 120 of the SIS Act and cannot be a director of a body corporate that is a trustee of an SMSF (s 126K of the SIS Act). 3. Section 17A(3)(b)(ii) of the SIS Act provides that: (3) A superannuation fund does not fail to satisfy the conditions specified in subsection (1) or (2) by reason only that: … (b) the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during any period when: … (ii) the legal personal representative has an enduring power of attorney in respect of the member of the fund; … 1. However, that is qualified by s 17A(10) of the SIS Act which provides that: For the avoidance of doubt, subsection (3) does not permit a person, in the capacity of legal personal representative of a disqualified person (within the meaning of section 120), to be a trustee of a self managed superannuation fund or a director of a body corporate that is a trustee of a self managed superannuation fund. 1. For most of the time prior to his entry into bankruptcy, Mr Batterham had been the sole director of Maylord. On 1 November 2014, shortly prior to his entry into bankruptcy, a Ms Daniela Nica was appointed as a director of Maylord. Mr Batterham has deposed that Ms Nica is a friend, not a relative or dependant, of his and not entitled to take any benefit under the BRF. Her directorship thus did not satisfy the requirements of s 17A(2)(a)(ii) of the SIS Act. 2. On 1 May 2015, Mr Batterham executed an enduring power of attorney in favour of Mr Ohlson. Clause 3 of the enduring power of attorney provides that: This Enduring Power of Attorney is made due to me, being a member of the Batterham Retirement Fund, suffering a legal disability due to my bankruptcy preventing me being a director of the corporate trustee of the fund, Maylord Equity Management Pty Ltd. My attorney may do anything as a director of Maylord Equity Management Pty Ltd as trustee of Batterham Retirement Fund established by a deed poll made on 29 October 1999 as reasonably required to advance the interests of the fund as stipulated in said deed. This Enduring Power of Attorney will remain in force until such a time as my legal disability from bankruptcy no longer exists. 1. Mr Ohlson was appointed as a director of Maylord on 5 May 2015 (and, from 7 November 2016 when Ms Nica ceased to be a director, has been its sole director). 2. Proceedings were first commenced by Maylord against the defendant, in Maylord's stated capacity as trustee of the BRF, on 19 December 2014 (2014/373063). Those proceedings were dismissed on 24 April 2015 by Hammerschlag J, due to non-compliance by Maylord with certain procedural directions as to the conduct of the matter, but with leave to commence fresh proceedings relating to the same matter within 12 months. On the eve of the expiry of that 12 month period, Maylord commenced the present proceedings, by summons filed on 22 April 2016. It did so again in its stated capacity as trustee of the BRF. 3. The effect of s 17A(10) of the SIS Act, on its face, is that notwithstanding that Mr Ohlson holds an enduring power of attorney to act on behalf of Mr Batterham (which would otherwise satisfy the requirements of s 17A(1) and (2) by reference to s 17A(3)), for so long as Mr Batterham is a disqualified person this will not satisfy the requirements of the SIS Act for an SMSF. Accordingly, the BRF does not satisfy the definition of an SMSF and has not done so since before the commencement of the present proceedings. 4. The trustee of a superannuation entity or a director of a corporate trustee who has knowledge that the superannuation entity has ceased to be an SMSF must notify the Commissioner of Taxation within 21 days of first gaining that knowledge (see s 106A of the SIS Act). A superannuation entity that no longer meets the definition of an SMSF must either appoint a registrable superannuation entity licensee as trustee and become regulated as a small fund under the Australian Prudential Regulation Authority or else must wind up the fund. 5. Maylord is not an approved trustee within the meaning of the SIS Act. The defendant thus maintains, having regard to the provisions of the Trust Deed referred to above, that Maylord cannot be a trustee of the BRF and had no power to commence proceedings on behalf of the BRF nor does it have power to prosecute or pursue the current proceedings. The defendant further maintains that Maylord is currently in breach of trust by remaining trustee of the BRF, which may result in Maylord and its directors losing their right of indemnification out of the BRF monies under r 6.6 of the Trust Deed. The defendant's solicitors notified Maylord of this difficulty by letter dated 27 April 2017, marked to the attention of Mr Ohlson. The applications before Bergin CJ in Eq on 24 October 2016 1. Before Bergin CJ in Eq on 24 October 2016 was, first, an application by Maylord for leave to file an amended commercial list statement and an amended summons; and, second, various applications by the defendant: to strike out the then current commercial list statement; to have the proceedings dismissed as failing to disclose a reasonable course of action; to have the proceedings dismissed as being barred under a settlement deed (the Settlement Deed) entered into on 4 July 2011 (between, amongst others, Maylord, Mr Batterham and two other entities, Vesture Limited and Victoria Body Corporation Services Pty Limited), the benefit of which the defendant maintains he has as a related party under the relevant definition in the Settlement Deed; and for the provision by Maylord of security for its costs. 2. Maylord was represented by Mr Fernon of Counsel on that occasion. Maylord's position, as communicated to her Honour on that occasion, was that the Settlement Deed had been signed under economic duress. 3. In relation to the security for costs application, the defendant had submitted that, where a plaintiff asserts that an order for security would stultify its claims, the plaintiff bears the onus of proving that those who stand behind it and who would benefit from the litigation if successful are also without means (referring to Pioneer Park Pty Ltd (in liq) v ANZ Banking Group Ltd [2007] NSWCA 344 at [43]-[51]; Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; [1984] FCA 34 at 4, approved in PS Chellaram & Co Ltd v China Ocean Shipping Co (1991) 102 ALR 321 at 323 (McHugh J)). In that context, the defendant submitted that it might be inferred that Ms Nica (then a director of Maylord) was a dependant who would be entitled to receive benefits. 4. The basis on which such an inference was invited to be drawn was that the two directors of Maylord at the time when Maylord was acting as the trustee of the BRF were Ms Nica and Mr Ohlson; Mr Ohlson was a director in his capacity as the holder of an enduring power of attorney of Mr Batterham (the sole member of the retirement fund); thus Mr Ohlson was the "legal personal representative" of a member under a legal disability (namely, a bankrupt) and it followed that, for the BRF to be an SMSF, Ms Nica must be a director who is a "relative" of the member (T 37.40). It was thus submitted that it would be inferred that Ms Nica was a "relative" (T 38.30). The relevance of this on the security for costs application was that as Mr Batterham was an undischarged bankrupt, he was unable to receive distributions of benefits but the trustee was entitled under the Trust Deed to pay benefits to his defined dependants (rr 12.1(b) and 12.3) and no evidence had been adduced as to Ms Nica's financial position. 5. A copy of the transcript of the hearing before Bergin CJ in Eq was handed up in Court on the hearing of the present applications. 6. Her Honour (at T 39.21) made clear that she was satisfied the pleading was and remained deficient. Her Honour said that in those circumstances, the defendant was entitled to bring its claim and she was not going to award security for costs that day. Her Honour queried whether Mr Batterham was available for cross-examination and, when informed that he was, said (at T 39.28-32) "we can go forward to cross-examine him but I think you had better have a talk to Mr Clarke [the defendant's counsel]. It does seem he may have the appropriate ammunition and assume that there are takers under the deed, then it may be an interesting legal argument" but then went on to say that leave (to amend) would be granted on condition that the costs of the defendant be paid. 7. Counsel for Maylord, Mr Fernon, asked for an order that the costs not be payable forthwith and there was the following exchange (at T39.37-40.1): HER HONOUR: Why? Why should the defendant need to pay all this? Time after time you have tried to get this in order but it should be in order by now, and the conceptual difficulties that you face, the parties not being appropriate it seems, there may be another plaintiff, but certainly if you are seeking to set aside that deed of release. FERNON: I accept that Vesture and VBCS, your Honour. I am not aware of anyone else being a party. HER HONOUR: I don't know, but if you are going to seek to set aside a deed of release that was allegedly entered into in circumstances where economic duress was at force, then it is a very serious case, so costs are going to be paid, they are going to be paid forthwith, and I will adjourn the application for security, and then when they are paid, you can have leave to file your amendment. That is my present thinking. 1. The orders made by her Honour on 24 October were to strike out the commercial list statement filed on 22 April 2016; to refuse the leave sought by Maylord for the filing of the proposed amended commercial list statement attached to Maylord's counsel's submissions dated 18 October 2016; and to order Maylord to pay the defendant's costs of the applications. Order 4 required Maylord to pay the defendant $25,000 by way of costs in respect of these applications by no later than 21 November 2016 without prejudice to the defendant's application to have its costs assessed in due course. Her Honour granted leave to Maylord to make application to file an amended commercial list statement, subject to the payment of the $25,000 to the defendant, by no later than 21 November 2016; granted liberty to restore on one day's notice and listed the matter for directions on 25 November 2016. Relevantly, for present purposes, her Honour adjourned the application for security for costs until that date. By consent, the matter was referred to mediation (which was to be court annexed mediation unless the parties agreed to proceed to private mediation on terms agreed upon by the parties). Proceedings after 24 October 2016 1. The matter was listed on 2 December 2016 for further directions and for the adjourned security for costs application. Meanwhile, the parties participated in a private mediation of the matter. Although the Court was at first notified that the parties had reached a settlement in principle which was in the process of being documented (as noted in the short minutes of order made by consent on 8 December 2016) that settlement apparently did not proceed. By orders made on 24 October 2016, O 6 (as had already earlier been varied on 21 November 2016) was further extended by allowing the date for payment of the sum of $25,000 to no later than 22 December 2016. 2. The matter came back before Bergin CJ in Eq on 16 December 2016. By that stage Maylord was no longer legally represented. Mr Ohlson attended on that occasion and I understand from him that he informed her Honour that Maylord was seeking to set aside the orders made on 24 October 2016 on the basis of new information and/or evidence. An allegation of fraud was foreshadowed. Presumably, the suggestion was that the orders had been made irregularly or against good faith. Her Honour granted leave for the filing of a notice of motion seeking to set aside those orders on the basis of new information and/or evidence and for that to be made returnable before the list judge on 17 February 2017. (The defendant points out that there was no leave granted for any other step to be taken in the proceeding.) 3. The matter came before Hammerschlag J on 17 February 2017. On that occasion Maylord was again not legally represented. Mr Ohlson was granted leave to appear amicus curiae. His Honour dismissed with costs Maylord's notice of motion filed 6 February 2017 (seeking to set aside the October orders) but granted leave to Maylord (upon it giving no less than seven days' notice to the defendant) to reinstate the motion on the same papers and to have it returnable 14 days after the giving of such notice on a Friday (provided this was done within six months of 17 February 2017). Maylord in due course filed such a motion which was listed first on 28 March 2017 but by consent varied for hearing on 7 April 2017. 4. On 7 April 2017, there was no appearance for Maylord and his Honour dismissed Maylord's motion with costs. 5. The present notice of motion was then filed on behalf of Maylord seeking to set aside Hammerschlag J's orders and to have the notice of motion filed 24 March 2017 re-listed. Mr Ohlson swore an affidavit deposing to the circumstances in which there was no appearance on 1 April 2017, namely that he had arrived late at the 7 April 2017 hearing and only after Maylord's motion had already been dismissed. (For the purpose of the present application, the defendant accepts that a sufficient explanation for Mr Ohlson's failure to attend was given.) 6. On 28 April 2017, Ball J gave leave to the defendant to file a motion and supporting affidavit to be made returnable on 12 May 2017 and stood that notice of motion over until that day with the intention that the defendant's motion and Maylord's motion filed 7 April 2017 be heard together. Maylord's motion - submissions 1. Attached to the notice of motion filed by Maylord on 24 March 2017 is a proposed amended commercial list statement. Maylord's case is there said (as also in the written submissions filed on the present applications at [39]) to involve alleged breach of fiduciary duties, breach of the Corporations Act, breach of listing rules, unconscionable conduct and the defendant gaining a financial advantage by deception arising from a joint venture agreement entered into for the purpose of investing in the Australian strata management industry. It is said that such breach has deprived Maylord of the value of its shareholding in that joint venture, being a shareholding in offshore companies. 2. Much of the written submissions filed by Maylord on the present applications deal with the circumstances in which it is said Maylord entered into the said joint venture and its assertion that the defendant breached his fiduciary duties as a director of Ztrata Capital Ltd (ZCL), a company set up in the British Virgin Islands. At [37] of Maylord's submissions, it is asserted that the defendant gained a financial advantage by deception, namely the acquisition of Maylord's shares in ZCL at a nil value when in fact they had a substantial value at all times and that this value more than doubled in the following two years. 3. Maylord relied upon an affidavit sworn 24 March 2017 of Mr Batterham, much of the contents of which was read by me as submissions. The new information and evidence identified on the present application (and said by Maylord to justify the orders now sought by it) is based upon three documents. 4. The first document (referred to at [5] of Mr Batterham's affidavit) is an ASIC record disclosing that Ms Nica ceased to be a director of Maylord on 7 November 2016. It is said that as such she has no involvement with Maylord as trustee of the BRF or in any other capacity. Mr Batterham asserts that Ms Nica has never been a member of the fund and has never been a potential "taker" under BRF as a dependant or relative of his. It is said that Ms Nica's only involvement was for a time as a director of the trustee company Maylord and that it was an oversight that ASIC records were not altered for Ms Nica to cease being recorded as a director when she re-located to Germany to live and Mr Ohlson was appointed to replace her as a director. Mr Batterham deposes (at [5](e)) that he is the only member of the BRF and the only person who stands to benefit from the proceedings; that he is bankrupt and that the only asset of the fund is any order the Court may make relating to these proceedings; and that Maylord as trustee has never conducted business on its own account and as such has no assets or revenue. 5. It is submitted by Mr Ohlson that Bergin CJ in Eq was misled by the defendant when the defendant's counsel stated at the hearing on 24 October 2016 that it would be inferred that Ms Nica was a relative. It is submitted that, at least in part, this misinformation was a contributing factor in her Honour's formulation of the orders made on 24 October 2016. 6. Complaint is also made that Mr Batterham was not called to be cross-examined, as had been anticipated at one point in the proceedings before her Honour (see above). It is said that, had Mr Batterham been cross-examined, he could have corrected the misunderstanding created by the defendant but that he was not given the opportunity to do so and that Maylord's counsel, Mr Fernon, was not given the opportunity to seek instructions from him to correct the claims made about Ms Nica. However, Mr Fernon sought no such opportunity. There is no basis for a complaint as to any lack of procedural fairness in this regard. It was a matter for Maylord to adduce the relevant evidence as to potential stultification of its claims, not to wait for it to emerge in cross-examination which might or might not eventuate. In any event, this is irrelevant, since no order for security for costs was ultimately made on that occasion. 7. The second and third documents to which Mr Batterham refers (and relies on as new information) comprise a presentation dated 4 September 2009 to the defendant by a company Parazelsus Limited concerning the structure and objectives of the proposed joint venture and a register of directors ZCL (a company set up to control the joint venture). It is said that it was not known (at the time of the commencement of proceedings) that the defendant was a director of ZCL and had been fully briefed on the joint venture and Mr Batterham's role in it in September 2009. It is said that this new information provides evidence of serious intentional wrongdoing by the defendant. 8. This appears to relate to the allegation made in the proposed commercial list statement (at [16](d)]) that the defendant, as a director of ZCL, owed fiduciary duties to Maylord "as a minority shareholder in ZCL and [Ztrata Limited]". It is also asserted (at [16](d)]) that, as ZCL controlled Parazelsus Body Corporate Services Pty Ltd (PBCS), the fiduciary duties of the defendant as a director of PBCS were compromised by his breach of fiduciary duties owed to Maylord as a direct or ZCL (see [16(d)]). There is also a reference (at [19]) to a breach of fiduciary duties (as a partner in the joint venture) as well as breach of fiduciary duties as a director of ZCL and PBCS; and allegations of fraud. The deficiencies identified in the existing pleading included the lack of material facts for the allegation that the defendant owed fiduciary obligations. 9. It is said (at [6] of Mr Batterham's affidavit) that the second and third documents were first seen by Maylord when attached to an affidavit filed on behalf of the defendant on 19 August 2016 and that, had that information been available at the time the initial commercial list statement was filed, the pleadings could have corrected the failings in the pleadings identified by Bergin CJ in Eq. Mr Batterham deposes (at [8]) that the document dated 4 September 2009 shows that the defendant knew, sometime prior to being allocated shares in ZCL on or about 9 November 2009, that an association of persons was proposed for the purposes of a commercial undertaking with a view to a mutual profit with each participant contributing money and skill. Determination 1. It is clear from the transcript of proceedings on 24 October 2016 that the decision to order costs followed from her Honour's conclusion that the claim as then pleaded was seriously defective. The costs order was imposed as a condition of the indulgence that further time be granted for the amendment of the pleading. There was no order made for security for costs. Hence, the present reliance by Maylord on the alleged misinformation as to Ms Nica's position is irrelevant. 2. In Fay v Moramba Services Pty Ltd [2010] NSWSC 725 Brereton J made clear (at [3]) that "the circumstance that an adverse costs order will occasion hardship, or even prove ruinous, to an unsuccessful plaintiff is hardly if ever sufficient reason not to make the order: it is a risk that the plaintiff assumes in bringing proceedings". To similar effect, French J (sitting as his Honour then was in the Full Court of the Federal Court) and Beaumont J had earlier said in Scott v Secretary, Department of Social Security (No 2) [2000] FCA 1450 (at [4]) that: …inability to meet a costs order or the fact that the losing party has limited financial means has never been a sufficient reason to deny a successful party his costs: Yilan v Minister for Immigration and Multicultural Affairs [1999] FCA 1212; Hollier v Australian Maritime Safety Authority (No 2) [1998] FCA 975. 1. I also note that there was nothing misleading in the submission put by the defendant's counsel to her Honour as to Ms Nica's position, in light of the evidence that she was then a director of Maylord, having regard to the requirements governing self-managed superannuation funds to which I have referred above. The onus was on Maylord (if it wished to argue in relation to security for costs that the making of an order for security would stultify proceedings) for it to establish that any person standing behind or likely to benefit from the proceedings was also unable to provide the funds for the proceedings. Maylord put forward no information to explain Ms Nica's position. As adverted to above, it cannot be said that the fact that the security for costs application was not dealt with on that occasion or that Mr Batterham was not ultimately required for cross-examination gave rise to any denial of procedural fairness to Maylord. 2. Mr Ohlson submitted that Maylord had in fact been the successful party because, as a result of what has happened in the proceedings, it has now obtained further information in relation to the claims it wishes to bring. But that was not the issue. The "event", for the purpose of the application of the general rule as to costs, was as to the adequacy of the filed commercial list statement to identify a reasonable cause of action and to comply with the rules as to the contents of commercial list statements. No error of principle, nor any material misapprehension of fact, was demonstrated as having affected the exercise of her Honour's costs discretion nor was any other House v The King error (see House v The King (1936) 55 CLR 499; [1936] HCA 40) disclosed. 3. Hence, I dismissed Maylord's application to set aside her Honour's orders. The defendant's motion - submissions 1. As noted above, the defendant submitted that Maylord has no authority to be the corporate trustee of the BRF under the SIS Act or under the Trust Deed and that it is currently acting in breach of trust. Thus, it was said that Maylord has no proper authority to commence or continue the proceedings. 2. The defendant accepted that where proceedings are commenced without authority, the proceedings are not a nullity nor are they void ab initio (referring to Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709; [2000] NSWSC 210 at [50]; Ox Operations Pty Ltd v Landmark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221 at [2]; Raja v Darul-Iman (WA) Inc (No. 2) [2011] WASCA 251 at [33]; Matthews v SPI Electricity Pty Ltd; SPI Electricity Pty Ltd v Utility Services Corp Ltd (2011) 34 VR 560; [2011] VSC 167 at [68]). Rather, the defendant contended that commencing proceedings without authority is an irregularity which makes the proceedings liable to be dismissed or set aside (referring to Rinfort Pty Ltd v Arianna Holdings Pty Ltd [2016] NSWSC 251 at [38]; Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364; [2006] HCA 32 at [11]; Jennings at [50]; Malek Fahd Islamic School Ltd v Australian Federation of Islamic Council Inc [2016] NSWSC 672 at [24]). The defendant also referred to authority for the Court striking out the appearance of a party where solicitors have commenced proceedings without authority (Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421). 3. The defendant submitted that the irregularity cannot be rectified or otherwise remedied in these proceedings because: Maylord is not a proper trustee of the BRF because it is in breach of rr 5.3 and 6.3 of the Trust Deed; by commencing proceedings without authority, Maylord is in breach of its fiduciary duty; Maylord does not have authority to represent the BRF and therefore the beneficiaries of the BRF are not bound by any judgment (UCPR r 7.9(4)); and Maylord, as trustee of the BRF, is liable to be removed under s 133 of the SIS Act and the new trustee of the BRF should consider its own position. 4. Nevertheless, in oral argument, Senior Counsel for the defendant accepted that it could not be said that it was impossible for the position to be remedied, although that would require amendment to the Trust Deed in relation to the BRF and that might lead to the BRF losing its status as an SMSF. 5. Maylord disputed that s 17A(10) of the SIS Act precludes someone holding an enduring power of attorney for a member suffering a legal disability from becoming a director of a corporate trustee of an SMSF and relied on an ATO ruling dated 21 April 2010, paragraph [5] of which states: Under sub-paragraph 17A(3)(b)(ii) a legal personal representative who holds an enduring power of attorney granted by a member may be a trustee of the SMSF, or a director of the corporate trustee of the SMSF, in place of the member without causing the fund to fail to satisfy the definition of an SMSF. 1. Maylord further noted that the ruling states (at [6]) that "[a] person who holds an enduring power of attorney for a member qualifies as a legal representative". 2. However, no reference was made by Maylord to [14] of the ruling (which refers to s 17A(10) and makes clear that Maylord's argument is one inconsistent with the Commissioner's ruling). Determination 1. As adverted to earlier, I accepted the submissions of the defendant as to the import of the provisions of the SIS Act referred to above. The proceedings are not a nullity but they are liable to be stayed or dismissed for want of authority. In the circumstances, I considered it appropriate that the proceedings be stayed (rather than dismissed for want of present authority) pending payment by Maylord of the costs orders because it is not beyond doubt that the defect in the commencement of the proceedings could not be rectified in some fashion. I encouraged Maylord to seek legal advice as to the issues raised by the defendant in respect of the constitution of the proceedings. (I note that compliance was also made that not all of the necessary parties have been joined, in the event that Maylord is seeking to argue that the Settlement Deed should be set aside as having been entered into under economic duress. That also could be addressed if and when the proceedings are revived.) 2. If payment of the amounts I have ordered by way of costs is made in due course, but steps are not taken to clothe Maylord with the necessary authority to continue to prosecute the proceedings, then the defendant can apply for the matter to be struck out on the basis that the proceedings that have been commenced are sought to be continued without authority. However, I considered it appropriate to allow Maylord an opportunity to rectify the position, given that there will inevitably be some delay pending payment of the court costs having regard to what I was told as to the impecuniousness of Maylord's position. Hence the basis on which I stayed the proceedings. 3. In passing, I note that in the affidavit filed pursuant to the direction I made on 12 May 2017, Mr Ohlson has deposed that he has been made aware that he may be liable to pay some of the costs of the proceedings [as a director having been given leave personally to appear for Maylord on the applications before me] and he states that "consequentially I have instructed that no further activities in this matter be continued until Maylord has sufficient funds". Costs orders 1. The Commercial List Practice Note states that, unless otherwise ordered, a party in whose favour an order for costs is made may proceed to assessment of such costs forthwith. 2. The defendant has sought a gross sum costs order. Section 98(4)(c) of the Civil Procedure Act 2005 (NSW) provides that, at any time before costs are referred for assessment, the Court may make an order to the effect that the party to whom costs are to be paid is to be entitled to a specified gross sum instead of assessed cost. 3. In Hamod v New South Wales [2011] NSWCA 375, Beazley JA (as her Honour then was), with whom Giles and Whealy JJA agreed, identified (at [816]-[818]) some of the relevant considerations in exercising the wide discretion conferred by s 98(4)(c): The terms of s 98(4), together with the more general considerations reflected in the Civil Procedure Act, ss 56(1), 57(1)(d) and 60, suggest the factors that merit particular consideration include: the relative responsibility of the parties for the costs incurred (for example, Harrison v Schipp); the degree of any disproportion between the issue litigated and the costs claimed; the complexity of proceedings in relation to their cost; and the capacity of the unsuccessful party to satisfy any costs liability: Ritchie's Uniform Civil Procedure NSW at [s 98.45]. The exercise of the power conferred by s 98(4) is particularly appropriate where the costs have been incurred in lengthy or complex cases and it is desirable to avoid the expense, delay and aggravation likely to be involved in contested costs assessment. This may arise either from the likely length and complexity of the assessment process: Beach Petroleum NL v Johnson (No 2) at 120; Charlick Trading Pty Ltd v Australian National Railways Commission; Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006; or from the likelihood that the additional costs of formal assessment would disadvantage the successful party because of the likely inability of the unsuccessful party to discharge the costs liability in any event: Harrison v Schipp; Sony Entertainment (Aust) Ltd v Smith [2005] FCA 228; (2005) 215 ALR 788 at [90], [194]-[195]; Hadid v Lenfest Communications Inc [2000] FCA 628. The power may also be exercised where a party's conduct has unnecessarily contributed to the costs of the proceedings, especially where the costs incurred have been disproportionate to the result of the proceedings: Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sony Entertainment (Aust) Ltd v Smith; Microsoft v Jiang (2003) 58 IPR 445; [2003] FCA 101; Ritchie's Uniform Civil Procedure NSW at [s 98.60]). 1. In the present case, I consider that it is appropriate to make such an order in circumstances where: first, there is no certainty as to when (or if) the proceedings will be re-activated; second, the defendant has been put to considerable expense in attendance at directions hearings and contested interlocutory motions in circumstances where the deficiencies in the commercial list statement as filed cannot be disputed and there is a respectable argument that the proposed amended commercial list statement does not adequately address those difficulties; third, there has been no compliance with the costs order made by Bergin CJ in Eq; and, fourth, there are real issues as to the constitution of the proceedings and as to whether Maylord is properly authorised to prosecute the proceedings. I have taken into account, in this regard, that Mr Ohlson's current position (as the sole director of Maylord) is not to take any further action until funds become available. 2. The quantum of gross sum costs order must be the consequence of "an informed assessment" (Hamod v New South Wales at [820]). In Harrison v Schipp (2002) 54 NSWLR 738; [2002] NSWCA 213, Giles JA said (at [22]) that the power "should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available". In submissions provided in accordance with the directions I made on 12 May 2016, the defendants have identified the total solicitor/client costs incurred in the proceedings from 24 October 2016 amounting to $107,148.27. Those include costs of $44,922.82 for the period 1 November 2016 to 30 January 2017 including the costs of the court ordered mediation; costs of $21,845.45 in the period from 31 January 2017 to 10 March 2017 and costs in the period from 11 March 2017 to 12 May 2017 of $40,380.00. 3. The defendant could expect to recover somewhere in the range of, say, 60%-75% of its solicitor/client costs on an assessment of party/party costs. On a conservative basis, I propose to order roughly 55% of the solicitor/client costs be paid as a gross sum costs order in respect of the costs since 24 October 2016, without prejudice to the defendant's ability on a later assessment of costs to claim a higher amount. Orders 1. I therefore confirm the orders made on 12 May 2016 and make the gross sum costs order adverted to above: 1. Confirm the orders made on 12 May 2017, dismissing the plaintiff's application for an order setting aside the orders made on 24 October 2016 by Bergin CJ in Eq; ordering the plaintiff to pay the defendant's costs of the proceedings (otherwise than as have already been the subject of costs orders to date); and staying the proceedings until satisfaction of the costs orders made in the proceedings to date. 2. Order that the costs of the proceedings since 24 October 2016 be paid as a gross sum in the amount of $55,000 (without prejudice to the plaintiff claiming a higher amount on any later assessment of the costs of these proceedings). 3. Note that liberty has been granted to the defendant to apply on three business days' notice if there be any application to dismiss the proceedings for want of prosecution; and that liberty has been granted to the plaintiff to apply on three days' notice for any order reinstating the proceedings in the list (after payment of the costs ordered on 24 October 2016 and the costs the subject of order 2 above). ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 May 2017