After the agreements were terminated on 14 August 2017, the sole director of Modena, Mr Carr, provided assurances that Modena “will refund the fee as soon as possible but in any instance no later than 29 March 2018”.
Vanguard did not accept this situation. On 27 September 2017, it served on Modena a statutory demand for repayment of the commitment fees. Modena was unsuccessful in its application to set aside the statutory demand and was therefore deemed insolvent. On 17 January 2018, Vanguard commenced proceedings in the Federal Court of Australia to wind up Modena in insolvency.
Modena indicated its intention to oppose the winding up on the basis that it was, contrary to the statutory presumption, in fact solvent. It served on Vanguard an affidavit sworn by a Mr Schimana. He deposed, amongst other matters, that he was a Certified Practising Accountant; that his employer performed accounting services for Mr Carr and entities associated with him; and “Modena is now, and has, at all times since its incorporation been able to pay its debts as and when they fall due”. However, the affidavit failed to annex or exhibit any financial records to evidence Modena’s solvency.
In a second affidavit, Mr Schimana deposed that he had been engaged by Modena to prepare current annual financial statements, and that “[t]hese Financials indicate Modena’s solvency”. The affidavit did not annex or exhibit a single financial record, but indicated that copies of the Financials would be “available for submission at hearing should the honourable court require”.
On 1 June 2018, Vanguard issued a subpoena to Westpac to ascertain the balance of the Modena’s only bank account. Modena unsuccessfully sought to set aside the subpoena on the basis that it was too broad and irrelevant.
At the hearing on 4 July 2018, Modena neither consented to nor opposed the orders which had been sought in the originating process.
Thawley J also observed that the exercise of the discretion to make an order for a non-party to pay the successful party’s costs has been described as “rare and exceptional”. His Honour continued as follows (at ):
“[I]t is obviously not sufficient of itself that the director, being actively involved in the proceedings, caused the company to defend proceedings. … However, there may be situations where the director’s conduct is such that a non-party costs order is appropriate. The question might arise, for example, where the director’s management of the litigation was in breach of a duty to the company or was in some material way improper, or where the director caused the litigation to be conducted in a manner intended to increase irrecoverable costs of the opposing party.”
Thawley J noted that Mr Carr was the sole director of (and shareholder in) Modena, and thus inferred that Mr Schimana’s affidavits were filed on his instructions and that he was aware of the contents of them.
Mr Carr argued that insolvency is one matter which it is always incumbent upon a moving party to establish at a final hearing, with the result that “it cannot be said that there was anything unreasonable or improper in the respondent company agitating solvency or ultimately conceding that matter shortly before hearing”. Thawley J rejected this submission, observing (inter alia) that Vanguard did not need to establish insolvency; Modena was presumed insolvent.
Ultimately, the Court concluded that this was an exceptional case in which it was appropriate to make a non-party costs order. It ordered that Mr Carr pay Modena’s costs on the party and party basis until and including 14 February 2018 and on the indemnity basis from and including 15 February 2018 (the day Mr Schimana’s first affidavit was sworn and filed).
In relation to the exercise of its discretion to make a non-party costs order, the Court was satisfied that: