Australian Conservation Services v Liladel Holdings (No 2)
[2017] ACTSC 170
•12 July 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Australian Conservation Services v Liladel Holdings (No 2) |
Citation: | [2017] ACTSC 170 |
Hearing Date: | Decided on written submissions |
Date of Last Submissions: | 3 May 2017 |
DecisionDate: | 12 July 2017 |
Before: | Mossop J |
Decision: | See [42]. |
Catchwords: | PROCEDURE – COSTS – Trusts – unsuccessful proceedings as to appointment of trustee of trust – whether there was some difficulty of construction or administration of a trust justifying the proceedings – whether the proceedings were brought to advance the interests of the plaintiff – jurisdiction to make costs order against non-party – plaintiff with nominal assets – whether appropriate to make costs order against director of plaintiff when proceedings brought for his benefit |
Legislation Cited: | Court Procedures Rules 2006 (ACT), rr 1703(2)(e), 1732, 1752(2)(b) Trustee Act 1925 (ACT), s 9(3) |
Cases Cited: | Australian Conservation Services v Liladel Holdings [2017] ACTSC 162 Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 Re Swaris; Swaris v Seneviratna [2013] ACTSC 231 |
Parties: | Australian Conservation Services Pty Ltd (Plaintiff) Liladel Holdings Pty Ltd (Defendant) |
Representation: | Counsel W D B Buckland (Plaintiff) M A Karam (Defendant) |
| Solicitors R D Silverstein (Plaintiff) McInnes Wilson Lawyers (Defendant) | |
File Number: | SC 90 of 2017 |
MOSSOP J:
Introduction
On 21 April 2017 I dismissed these proceedings: see Australian Conservation Services v Liladel Holdings [2017] ACTSC 162 (‘the principal judgment’). I gave the parties the opportunity to make submissions and tender evidence on costs. They have done so. They also had the opportunity to file submission in reply on costs. They have done so.
Plaintiff’s submissions
The position of the plaintiff is that its costs of the proceedings and the costs of the defendant should be paid out of the Teddington Trust, the trust the subject matter of the proceedings (the Trust). In support of that contention the plaintiff relied upon two distinct lines of argument.
First it submitted:
(a)Notwithstanding the appointment of the defendant as trustee of the Trust in June 2016 the defendant has not called for the transfer of the Macregor property into its name.
(b)Therefore s 9(3) of the Trustee Act 1925 (ACT) has the effect that the Macgregor property is not vested in the defendant and the plaintiff remains the bare trustee of that property.
(c)As bare trustee the plaintiff retains its right of indemnity and exoneration and its lien over the trust assets: Caterpillar Financial Australia Ltd v Ovens Nominees Pty Ltd [2011] FCA 677 at [26]. The plaintiff also remains under an obligation to exercise reasonable care over the property: Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271 at 281.
(d)The property was subject to a mortgage in the name of the plaintiff and guaranteed by the plaintiff’s directors which prevented the plaintiff from selling or parting position with the property (clause A11) and required it to do everything necessary to remove a caveat placed on the property without the consent of the Commonwealth Bank (clause A13).
(e)Therefore the plaintiff was required to bring these proceedings to protect the interests of the beneficiaries of the Trust to prevent a mortgage default and the consequences thereof and it therefore submitted that it should be treated in the same way as a trustee on the question of costs. It pointed to r 1732 of the Court Procedures Rules 2006 (ACT) which provides that where a party sues or is sued as a trustee the party is entitled to have costs of the proceedings that are not paid by someone else paid out of the fund held by the trustee on a solicitor and client basis.
Second it submitted:
(a)Its original concern about the validity of the nomination of the new appointor and hence the new trustee did not arise but a further concern, namely the issue of fraud on a power, did.
(b)In Re Buckton; Buckton v Buckton [1907] 2 Ch 406 at 414–15 it was said that where there was some difficulty of construction or administration of a trust which would have justified an application by the trustees but instead the application was made by some other person, costs of all parties necessarily incurred for the benefit of the estate should be paid out of the trust.
(c)In Elders Trustee & Executor Company Limited v Eastoe [1963] WAR 36 at 40 Hale J referred to it as being proper to enquire whether the claim required to be decided was for the due administration of the estate and whether it was reasonable in the sense that on the information available it would appear to competent counsel to be fairly arguable. If that was the case then the cost of all parties should be met out of the estate. See also Sheehy v Mitchell Crane Hire Pty Ltd (1991) 104 FLR 96 at 106; Re Swaris; Swaris v Seneviratna [2013] ACTSC 231.
(d)Because the plaintiff’s application raised real questions about the administration of the Trust the plaintiff’s costs should be allowed out of the Trust.
Defendant’s submissions
The defendant read an affidavit of the defendant’s solicitor in relation to costs. That affidavit annexed correspondence between the parties and some other documents.
The defendant submitted that the appropriate order was that the plaintiff pay the defendant’s costs (without recourse to the assets of the Trust) on a solicitor/client basis or alternatively a party/party basis to 12:00 pm on Wednesday, 5 April 2017 and thereafter on an indemnity basis. It also submitted that an order should be made that Thomas Davey be liable jointly and severally for the costs payable by the plaintiff.
The starting point for its submissions was that the plaintiff was wholly unsuccessful in the proceedings and therefore the usual approach that costs follow the event should be applied.
It then relied upon a series of additional matters in support of the orders which it sought.
(a)It relied upon r 1752(2)(b) which provides for costs to be assessed on a solicitor and client basis where a party sues or is sued as a trustee.
(b)It next relied upon a Calderbank offer made on 4 April 2017 and open until midday on 5 April 2017. That offer was immediately prior to the defendant being required to file and serve its evidence. The offer included that the parties would bear their own costs of the proceedings. The offer was rejected. The defendant contended that the failure to accept the offer was unreasonable. It submitted that the rejection of the offer was because of the position taken by Thomas Davey and Carol Davey (also referred to in the evidence as Carol Cooper) as guarantors of the loan relating to the property. The defendant submitted that the consequence that should follow was that it should be entitled to costs on an indemnity basis from 12:00 pm on 5 April 2017.
(c)The defendant submitted that the plaintiff should not be entitled to recourse to the assets of the Trust to meet a costs order. First it submitted that the plaintiff does not have an entitlement to invoke r 1732 because it was found not to be the trustee. Second, it submitted that r 1732(3) applied and prevented costs of an unsuccessful claim being paid out of the fund unless the Court otherwise ordered.
(d)The defendant submitted that a costs order should be made against Thomas Davey pursuant to r 1703(2)(e) which provides that the Court may make an order for costs against a person who carries on proceedings or purports to do so as an authorised director of a corporation. It pointed to the correspondence that occurred in relation to a security for costs application which was put on by the defendant but did not ultimately need to be determined. The defendant submitted that the correspondence and other evidence to which it referred was consistent with the proceedings being motivated by a desire to protect the personal interests of Thomas Davey and that in those circumstances, having regard to the fact that the plaintiff is unlikely to be able to meet a costs order, the costs order should extend to Mr Davey on a joint and several basis.
Submissions reply
Both parties made detailed submissions in reply. It is not necessary to separately set out those submissions.
Chronology
In order to assess the submissions of the parties it is useful to set out in chronological order the matters disclosed by the evidence.
On 14 April 2016 John Davey signed an instrument by which Suzanne Davey became the appointor of the Trust: principal judgment at [8].
On 7 June 2016 Ms Davey appointed the defendant as trustee of the Trust: principal judgment at [8].
On 4 August 2016 the property was listed for sale on the instructions of the plaintiff: principal judgment [36](o).
On 26 August 2016 a caveat by the defendant was registered in relation to the Macgregor property (caveat number 2048937): principal judgment [36](p).
On 15 March 2017 Thomas Davey lodged a caveat (number 2080528) identifying his interest in the land as being pursuant to an unregistered mortgage dated 6 March 2017 between the plaintiff and himself. The mortgage document identified the principal sum as being “Monies and expenses advanced from time to time for an on behalf of the Mortgagor” and the details of repayment as being “At call of the Mortgagee”. The other terms of the mortgage were not disclosed by the evidence.
These proceedings were commenced by originating application on 20 March 2017.
On 23 March 2017 at 11:47 am the solicitor for the plaintiff wrote to the solicitor for the defendant in relation to the supply of some documents. The email included:
My clients want to secure their expenses have their monies paid back and no longer wish to be trustees. The property is to be sold and balance of monies paid into Court or as directed by new trustees. [sic]
The email also referred to the mortgage which the solicitor indicated his client (who I take to be Thomas Davey) wished to have registered over the property and a wish that the defendant remove her caveat so as to permit that registration to occur.
It is notable that, notwithstanding the desire expressed in the email of the plaintiff to no longer be trustee, the substance of the claim by the plaintiff in the proceedings was to obtain a declaration that it remained the trustee.
On 28 March 2017 at 12:10 pm the solicitor for the plaintiff wrote to the solicitor for the defendant advising that the bankruptcy of Mr John Davey had been extended for two years. The email indicated that his client will arrange for “the Lapsing caveat 2080527” to be withdrawn. The reference to “the Lapsing caveat 2080527” is a reference to the plaintiff’s application to lapse caveat 2048937 which application was given the number 2080527.
At 12:23 pm the solicitor for the defendant sent an email in reply stating that the application for a lapsing notice could not be withdrawn and because it had been served it would become effective 14 days from the date of service. As a consequence the defendant remained bound to bring an urgent application. The email stated that if there was consent to the application then costs on a party and party basis only (and not indemnity costs) would be sought.
On 28 March 2017 the solicitors for the defendant wrote to the solicitor for the plaintiff seeking security for costs. The letter raised the contradiction between the lack of desire on the part of the plaintiff to fulfil the role of trustee and its position in the proceedings. It identified the likely costs of the proceedings, the apparent lack of financial resources of the plaintiff and made a request that security for costs be provided by agreement.
At 4:59 pm the same day the solicitor for the plaintiff responded stating that the application for security had “no basis at law”. It contended that the defendant had engineered a situation which caused the Trust to be unable to satisfy its indemnity obligations to the plaintiff. It also contended that the amount claimed as security was excessive. It provided information as to the assets and liabilities of the plaintiff in its capacity as trustee of the Trust. The letter urged the solicitor for the defendant to have “a real close good look” at the document signed by John Davey on 14 April 2016. This part of the email appears to be a rather oblique (and in the circumstances unhelpful) reference to an argument that the solicitor wished to make about the validity or effectiveness of the instrument.
On 30 March 2017 at 8:18 am the solicitor for the plaintiff wrote a long email to the solicitor for the defendant. This was in response to a letter sent by the defendant enclosing an unsealed copy of its application in proceedings dated 29 March 2017 and supporting affidavit. The email dealt at length with matters under the headings: “A. Deficiencies in current application and request for reasonable time to respond”; “B. Misleading the court in the current application; “C. The rent issue -non accounting for trust monies” and “D. Security of costs”.
At 4:00 pm on 4 April 2017 the defendant made a Calderbank offer to settle the proceedings. That offer proposed a declaration that from 7 June 2016 the trustee of the Trust was the defendant. It also included other orders that required the plaintiff to make any claim for indemnity from the trust assets within 28 days. In relation to costs, each party was to bear its own costs. The offer was open until 12 noon the next day (5 April 2017).
At 4:37 pm the solicitor for the plaintiff responded:
I have not discussed this with my client but I really cannot see it being accepted. My client is paying interest on a loan and someone is getting the income and not accounting. in essence as each month goes by my client is going backwards at the rate of $1000 per month and there is no end in sight. It makes no sense. [sic]
On 4 April 2017 at 6:42 pm the solicitor for the plaintiff sent an email rejecting the offer. In order to understand the tone of the correspondence and the approach of the plaintiff and its directors it is necessary to set out what was said in that email:
You do not have to wait until tomorrow, I have explained to my client your offer. Their position is very clear it is rejected. It makes no logical sense to them nor to myself. My reading of its practical effects is my client continues to pay the interest and be liable to repay the loan funds and someone collects the rent and does not account for it in any capacity. I must admit I have never seen such a deal in my practice. I was admitted in 1972 and your clients proposition is unique. I am sure a Court will be very impressed with such a transaction. Four weeks ago I saw a Statement signed under oath by John Davey. your clients brother to the Trustee in Bankruptcy who had no idea about the Macgregor property. This was also a unique proposition. There is certainly no end of unique propositions in dealing with the Davey children. The name of the landlord on the Macgregor property is bound to be another unique experience. My client is waiting with bated breadth for this information. I would expect your client in her Affidavit to states what she knows about the rental after all she claims to be trustee. Tom Davey and Carol Cooper are beneficiaries of the trust. They are entitled to a proper accounting from someone who ever that might be. [sic]
The point to note about the terms of these emails is that they do not engage with the legal issue that was before the Court, namely, who was the trustee of the Trust. Rather, they were concerned with the substantive difficulty in which the directors of the plaintiff have found themselves because they are guarantors of the obligation of the plaintiff and Mr Davey is also a creditor of the plaintiff. The communication appears to treat the contest over who is the trustee of the Trust as being the key to any entitlement to indemnification out of trust assets for expenses paid by either the plaintiff or its directors on behalf of the Trust when in fact that entitlement was not in issue in the proceedings and was not, as a matter of principle, in issue between the parties.
The proceedings were heard on 18 April 2017 and judgment given on 21 April 2017. The proceedings were dismissed. The ground for the application was initially that because John Davey had been declared bankrupt he could not exercise the power to nominate a new appointor. At the hearing of the proceedings counsel for the plaintiff also advanced an additional argument that the appointment by the new appointer of a company which she controlled was ineffective because it was a fraud upon the power of appointment given under the Trust Deed. Both arguments were unsuccessful for reasons given in the principal judgment.
On 24 April 2017 at 4:25 pm the solicitor for the plaintiff sent an email to the solicitor for the defendant. The email asked whether the defendant would advise the “authorities and the CBA bank” that the defendant was responsible for all future costs and charges. In relation to the topic of “Buy out” it said:
Logically your client and Mr [John] Davey ought to buy my clients out or my client buys your client out. My client would consider buying the two beneficiaries there [sic] 2/5 interest out at market valuation.
The email indicated that the quantum of a claim under its right of indemnity would be supplied within two days.
Consideration
I generally accept the submissions of the defendant in favour of those made on behalf of the plaintiff. The submissions of the plaintiff might have been persuasive if the evidence supported some of the submissions in relation to the motivation of the plaintiff in bringing the proceedings. However the facts are more consistent with the submissions of the defendant as to the motivations of the plaintiff in bringing and continuing the proceedings.
The issue raised by the proceedings was whether the plaintiff or the defendant was the trustee of the Trust. The proceedings did not raise the issue of whether or to what extent the plaintiff was entitled to an indemnity arising from its performance of the duties of the trustee under the Trust Deed or during its period as bare trustee. Those matters would only be indirectly affected in so far as the proceedings would determine which entity was the trustee that determined, in the first instance, the proper extent of the right of indemnity.
The evidence was consistent with a finding, which I make, that the proceedings were brought by the plaintiff in order to:
(a)advance its interest in being indemnified from the assets of the Trust;
(b)advance the interests of Thomas Davey and Carol Davey, who had guaranteed the loan from the Commonwealth Bank; and
(c)advance the interests of Thomas Davey who was a creditor of the Trust and had purported to secure his position by way of the mortgage dated 6 March 2017.
I make those findings because of the following matters:
(a)the stated desire of the plaintiff, expressed by its solicitor to no longer be the trustee of the Trust;
(b)the attempt by the plaintiff to sell the property at a time when it was not the trustee of the Trust;
(c)the purported granting of a mortgage over the property by the plaintiff in order to secure the interests of Thomas Davey as a creditor of the plaintiff at a time when it was not the trustee of the Trust;
(d)the terms of the communications from the solicitor for the plaintiff which make it clear that the contest over the identity of the trustee was perceived by the plaintiff and Thomas Davey as being the means by which the plaintiff, Thomas Davey and Carol Davey would advance their interests in obtaining indemnification from Trust assets.
(e)
The absence of any evidence to support the submissions recorded at
[3](d)–(e) above as to the motivation of the plaintiff in bringing the proceedings and the inconsistency between those submissions and the actions of:
(i)the plaintiff in attempting to sell the property in August 2016; and
(ii)the actions of Thomas Davey in himself lodging a caveat over the property in March 2017.
In reaching my conclusion as to the reasons for the plaintiff bringing the proceedings, I have not accepted the submission put on behalf of the plaintiff that the plaintiff’s position would not have been improved if its proceedings were successful. The plaintiff, and those standing behind the plaintiff, clearly perceived there to be a benefit in retaining the position of trustee because of the plaintiff’s wish to recover money pursuant to its entitlement to indemnity without the necessity of dealing with an independent trustee.
I do not consider that the statements in the cases referred to at [4](b)–(c) above are applicable in circumstances where the plaintiff has unsuccessfully asserted a particular interpretation of the Trust Deed and asserted that conduct of the appointor amounted to a fraud on a power in order to regain control of the Trust in order to advance its own interests and the interests of its directors. The motivation of the plaintiff was not to resolve some uncertainty impeding the proper functioning of the Trust but instead to regain control of the Trust. The advancing at the hearing of the alternative argument as to the existence of a fraud on the power is consistent with a desire to achieve the removal of the defendant as trustee by any reasonably available argument as opposed to a disinterested application aimed at determining an issue relating to the administration of the Trust which had been identified, considered and remained contentious between the relevant parties.
In the circumstances I consider that the defendant should have a better than usual costs order in its favour. I consider that the appropriate order is an order that the plaintiff pay the defendants costs on a solicitor and client basis. Consistent with the reasons that I have given, the order will make it clear that those costs are not costs in relation to which the plaintiff is entitled to be indemnified out of the assets of the Trust.
In reaching that conclusion I have taken into account the making of the Calderbank offer on 4 April 2017. I have considered the making of that offer as simply one factor relevant to the question of costs. The making of the offer and the response by the solicitor for the plaintiff was consistent with my finding as to the purpose of the proceedings and also my conclusion that proceedings were misconceived to the extent to which they targeted the identity of the trustee as opposed to the entitlement to an extent of indemnity.
I also consider that it is appropriate to make an order that Thomas Davey be jointly and severally liable for the costs ordered to be paid by the plaintiff. Such an order is available under r 1703(2)(e) of the Court Procedures Rules 2006. Counsel for the plaintiff made submissions opposing the making of such an order. I accept the submissions of counsel for the plaintiff that the power to make a costs order against a non-party director is not enlivened merely because a director has caused a company to bring proceedings that have ultimately failed. Further I accept that care must be taken not to inappropriately invade the principles of limited liability under company law: see the discussion in FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 340 at [204]-[214]. The reasons for my conclusion that an order is appropriate in this case are:
(a)Thomas Davey is the director of the plaintiff who appears to have been responsible for the dealings with Suzanne Davey. He swore the affidavit in support of the plaintiff’s proceedings.
(b)I have found that the motivation in bringing the proceedings was to advance his interests as a creditor of the plaintiff through the indemnification of the plaintiff from the assets of the Trust. I do not accept the submission that Thomas Davey’s position as a creditor of the plaintiff would have been no different whether or not the proceedings were successful. While that is the position that should pertain as a matter of law, I have found that the plaintiff and its directors perceived that there was a benefit to be obtained by taking back control of the Trust. The most obvious benefit to them would be avoiding the necessity of dealing with an independent trustee in relation to the quantification and recovery of money pursuant to its entitlement to indemnification.
(c)The plaintiff has share capital of $200 and no assets (of which there is evidence) other than an entitlement to indemnity arising from its role as trustee. It is not appropriate for the purposes of determining the question of costs to make findings about the likely extent of that right of indemnity. I therefore consider it appropriate to treat the plaintiff for the purposes of dealing with the question of costs as having only nominal assets. (The alternative would be to defer the question of whether to make a third party costs order to some future time when the extent of the indemnity was known but that would only prolong and hence increase the costs of the proceedings and is therefore not appropriate.) There is therefore a risk that an order for costs will remain unsatisfied if the order is made only against the plaintiff.
I note that the making of such an order should not be seen as an alternative to a party seeking security for costs at an early stage of the proceedings. In the present case the defendant did seek security and the application that it put on was only not determined because of the early hearing date given to the proceedings.
The circumstances are sufficient to bring them within the principle articulated in Knight v FP Special Assets (1992) 174 CLR 178 at 192–93 and warrant the making of an order against Thomas Davey. There would be a clear injustice if the plaintiff was unable to meet its cost liability and Thomas Davey who, as creditor of the plaintiff stood to benefit from the control that the plaintiff would have achieved over Trust assets had the proceedings been successful, was not required to meet the defendant’s costs.
Orders
The orders of the Court are:
1. The plaintiff is to pay (without recourse to the assets of the Teddington Trust) the costs of the defendant on a solicitor and client basis.
2. Thomas Davey is jointly and severally liable for the costs ordered to be paid by the plaintiff under order 1.
3. The defendant has liberty to apply for any further orders necessary to give effect to order 2.
| I certify that the preceding forty-three [43] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Justice Mossop. Associate: Date: 12 July 2017 |
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