VSCA orders solicitor director of incorporated legal practice to pay costs personally because veil ‘gossamer thin’

Lillas and Loel Lawyers Pty Ltd v Celona [2014] VSCA 70 is just a little decision about the costs of an appeal, but it seems to me to be interesting indeed. That is because the Court was prepared to look through the ‘gossamer thin’ veil between James Loel and Lillas and Loel Lawyers Pty Ltd, a $2 company and — presumably — an incorporated legal practice, of which he was the sole director and, through another company, the owner.  The Court ordered the director to pay personally the costs order made in favour of the firm’s former client in the appeal.  The firm’s website suggests that the firm today is no one-man band, listing two employee solicitors and one law graduate.

The appellant was a Brisbane firm.  For some reason the Celonas retained it to conduct proceedings to which they were party in the Supreme Court of Victoria. The firm and its former clients subsequently fell into dispute.  The firm wanted its fees and the Celonas wanted damages for negligence.  The dispute was set down for a compulsory conference before VCAT’s Member Butcher, in the Legal Practice List. The firm did not attend or provide any explanation for not attending.  Mr Butcher gave judgment for the Celonas, in the sum of $27,000.  The firm applied for judgment to be set aside.  VCAT’s Vice-President Macnamara dismissed the application, describing Mr Loel’s conduct in the proceedings as ‘appalling’, noting the firm’s refusal to pay interlocutory costs orders made against it, and pouring scorn on Mr Loel’s explanation for not attending: I was going to appear by telephone without prior notice or permission to appear only in that way, in the breaks between a minor interlocutory hearing I appeared at in Brisbane on behalf of a client of the firm, but I completely forgot about the VCAT hearing.  Macnamara J’s typically elegant and no doubt ex tempore decision is Celona v Lillas & Loel Lawyers Pty Ltd [2012] VCAT 403.

The firm appealed to the Court of Appeal, obtaining leave along the way.  The Celonas offered to consent to orders allowing the appeal, setting aside the VCAT orders including those as to costs, on the basis that there be no order as to the costs of the appeal.  That early offer, clearly expressed, and open for a reasonable period was rejected.  The Court of Appeal subsequently dismissed the appeal.  On the question of the costs of the appeal, Neave and Priest JJA and Robson AJA unanimously found that the rejection of the offer was unreasonable and that the firm should as a result pay costs to the date of the offer on the standard basis and thereafter on an indemnity basis.  They had declined a second application for an extension of time by which the firm was to file material on the basis of the cavalier attitude of the firm to court orders and the poverty of the excuses for lateness so that, as in the decision at first instance, the Court did not have the benefit of a proper articulation of the firm’s position.

But what is really interesting is the preparedness to make orders that Mr Loel as director and controller of the firm, a company, pay the costs.  Their Honours’ reasons are as follows:

‘8. With respect to the claim for costs against a non-party, briefly the [Celonas] relied on the following:

·           on 6 August 2012, the respondents’ solicitor sent a letter to the appellant’s solicitors setting out the respondents’ concerns that the appellant would not be able to pay its costs if it were unsuccessful in the appeal and requesting security for costs;

·           by letters of 14 August 2012 and 22 April 2013, the appellant’s solicitors stated that Mr Loel was prepared to guarantee payment of any costs ordered in the appeal;

·           after an exchange of correspondence between the solicitors for the parties concerning the execution of a guarantee with respect to the costs of the appeal occurring between 29 August 2013 and 9 September 2013 (the afternoon before the date fixed for hearing of the appeal), the respondents’ solicitors received a letter from the solicitors for the appellant enclosing a personal guarantee by Mr Loel (although not in a form acceptable to the respondents’ solicitors);

·           searches made of the Australian Security and Investments Commission (‘ASIC’), reveal that Mr Loel is the sole director of the appellant and that there are two issued ordinary shares to the appellant having a paid value of $2.00, those shares being held by Pioneer Investments (Aust) Pty Ltd (of which Mr Loel is sole director);

·           searches also reveal that the appellant has granted two separate securities in favour of two separate corporate entities (the precise amounts secured being indeterminable);

·           Mr Loel is effectively the person who controls the appellant and knows the nature of the security arrangement;  and

·           Mr Loel has acknowledged that he is the person who stands behind the corporate appellant.

Counsel relied on Flinn v Flinn.[6]

[6]          [1999] 3 VR 712, 760–1 [159]–[163].

  1. We turn to the question of whether Mr Loel should bear responsibility for the [Celonas’] costs of the appeal.

Costs against a non-party, Mr Loel

  1. In our opinion, Mr Loel should bear responsibility for the [Celonas’] costs.
  2. Mr Loel is, in our view, the ‘real party’ to the appeal.  His conduct was the gravamen of the proceedings at VCAT that were the subject of the appeal.  He is the sole director of the corporate appellant, and of the company holding the corporate appellant’s two shares.  He has not contradicted the claim made by the respondents that he controls the appellant and knows of the security arrangements that apply to it.  He has previously stated a preparedness to guarantee the payment of any costs ordered against the appellant (albeit the offered guarantee was not in a form suitable to the respondents), all of which amply demonstrates that in real and practical terms there is but a gossamer thin veil — if any — between the appellant and Mr Loel.
  3. We acknowledge that ‘it would invariably be unjust to make an order against a non party without affording that person a proper hearing’, which ‘should include an opportunity to resist evidence already received in the proceedings’.[17]  As we have earlier noted, however, both the summons of 30 September 2013 and the affidavit of 19 September 2013 (which were served on the appellant) flagged in unequivocal terms an intention to apply for costs personally against Mr Loel, yet they remained unanswered.  Moreover, the submissions of the respondents’ counsel dated 3 March 2014 set out at some length the reasons why Mr Loel should personally be responsible for the costs of the appeal.  Those submissions also went unanswered.  Thus it cannot be said that Mr Loel was deprived of an opportunity to resist the mooted order.

    [17]         Bischof v Adams [1992] 2 VR 198, 205 (Gobbo J).  See also Knight v FP Special Assets Ltd (1992) 174 CLR 178, 203.


  4. In those circumstance, it is appropriate to make an order that Mr Loel pay the respondents’ costs of the appeal.[18]  We will make orders accordingly.

    [18]         Oz B and S Pty Ltd v Elders IXL Ltd (1993) 117 ALR 128 (Einfeld J);  Yates Property Corp Pty Ltd v Boland (No 2) (1997) 147 ALR 685, 694 (Branson J);  Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 185 ALR 463, 478-9 [44]-[45]Knight v FP Special Assets Ltd (1992) 174 CLR 178, 192-3 (Mason CJ and Deane J).


    Conclusion

  5. We will make orders to give effect to our intention that James Beresford Loel pay the respondents’ costs of appeal on a standard basis up to and including 25 June 2012, and thereafter on an indemnity basis.’

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