Building Central Pty Ltd v Trustee of the Property of Kris Halliday (No.2) - [2011] FMCA 676

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BUILDING CENTRAL PTY LTD v TRUSTEE OF THE PROPERTY OF KRIS HALLIDAY (No.2)

[2011] FMCA 676

COSTS – Ordinary rule that costs follow the event – consideration where respondents have little involvement in proceeding – whether liquidator ought be personally liable for costs occasioned in the conduct of litigation – indemnity costs – consideration whether circumstances warrant order on another basis.

Bankruptcy Act 1966 (Cth)
Federal Magistrates Act 1999 (Cth), s.79(2)

Adsett v Berlouis (1992) 37 FCR 201
Belar Pty Ltd (In liq) v Mahaffey [2000] Qd R 477
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807
Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397
Jenkins v Jonkay Pty Ltd (in liquidation) [2007] FCA 858
Kimtran Pty Ltd v Downie [2004] 1 Qd R 651
Knight v FP Special Assets Ltd (1992) 174 CLR 178; (1992) 107 ALR 585
Loizou v Derrimut Enterprise Pty Ltd (No.2) [2004] VSC 548
Mead v Watson [2005] NSWCA 133 (28 April 2005)
Probiotec Ltd v The University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30
Re Beddoe; Downes v Cottam [1983] 1 Ch 547
Ritter v Godfrey [1920] 2 KB 47
Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129

Applicant:

BUILDING CENTRAL PTY LTD

First Respondent:

TRUSTEE OF THE PROPERTY OF KRIS HALLIDAY

Second Respondent:

REECE PTY LTD

File Number:

BRG 664 of 2008

Judgment of:

Burnett FM

Hearing date:

16 April 2011

Date of Last Submission:

16 April 2011

Delivered at:

Brisbane

Delivered on:

12 December 2011

REPRESENTATION

Counsel for the Applicant:

Solicitor for the Applicant:

Piper Alderman

There was no appearance by the First Respondent

Counsel for the Second Respondent:

Solicitors for the Second Respondent:

Patane Lawyers

ORDERS

It is declared that:

(a)The Bank of Western Australia Ltd ABN 22 050 494 454 (“the Bank”) holds a registered, legal mortgage over the land situated at 14 Ralston Street, West End Townsville in the State of Queensland, more particularly described as Lot 1 on Survey Plan 166517, County of Elphinstone, Parish of Coonambelah contained in Certificate of Title 50566435 (“the Property”) being Mortgage No. 707560175 registered on the Queensland Land Register on 15 March 2004 and transferred to the Bank by transfer No. 712120385 registered on 18 December 2008.
(b)The Bank holds an equitable mortgage over the Property pursuant to a Form 2 Mortgage in registrable form executed by Kris Halliday on 19 June 2007.
(c)The Bank’s said registered Mortgage, or alternatively its said equitable mortgage, have priority over the equitable charges over the Property claimed by the applicant and the second respondent herein.
(d)The bankrupt estate of Kris Halliday (a bankrupt) (“the Bankrupt Estate”) is subject to the Bank’s said registered mortgage, or alternatively its said equitable mortgage, such that any proceeds of sale of the Property do not form part of the divisible property of the Bankrupt Estate to the extent necessary to discharge the Bank’s said registered Mortgage, or alternatively its said equitable mortgage.

I order that:

Paragraphs 1, 2, 3, 10, 11, 12 and 13 of the Orders made by the Court on 29 October 2008 be set aside.
The net proceeds of the sale of the Property in the amount of $341,881.92 previously paid into the Court by the Trustees for Sale be released and paid to the Bank of Western Australia Ltd towards the discharge of registered Mortgage No. 707560175, or alternatively its said equitable mortgage.
The costs of each of BCPL and Reece of and incidental to the application of 30 October 2008 (the initiating application) as agreed or in default of agreement as assessed on the party and party basis be paid out of the proceeds of sale in priority to payment of any other claim on such funds.
BCPL and Reece pay BWA’s costs of and incidental to the application filed 29 March 2009 including costs of the initiating application between 30 October 2008 and 29 March 2009 which such costs be assessed on the party and party basis except for costs beyond 12 April 2010 as against BCPL be assessed on the indemnity basis.
Where costs against BCPL and Reece are assessed to be common, such common costs to be apportioned between them in accordance with the ratio reflecting the quantum of their respective debts being $205,198.00 for BCPL and $4,396.62 on behalf of Reece which such costs are to be apportioned in respect of party and party costs.
That costs assessed as payable by BCPL be payable by Ian Alexander Currie as liquidator for Business Central Pty Ltd (in liquidation).
Liberty to apply particular in respect of order 4 or other orders.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 664 of 2008

BUILDING CENTRAL PTY LTD

Applicant

And

TRUSTEE OF THE PROPERTY OF KRIS HALLIDAY

First Respondent

REECE PTY LTD

Second Respondent

REASONS FOR JUDGMENT

Introduction

For reasons which are explained in the judgment in the substantive application the third respondent, BankWest (BWA) was joined as a party in the application. It succeeded in its application for relief for declarations in respect of its registered mortgage and for declarations in the alternative that it has an equitable mortgage which has priority to the interests of the applicant, Building Central Pty Ltd (in liquidation) (BCPL) and Reece Pty Ltd (Reece).
Following the delivery of reasons I requested that parties prepare a minute of order giving effect to the judgment and to make submissions in respect of costs. The parties agree on minutes of order contained in paragraphs 1 to 5 of orders below. They disagree on the matter of costs and the setting aside of paragraphs 1, 2 and 3 of orders made on

25 October 2009. The parties otherwise also agree with the terms of order 6.

Orders of 25 October 2009

The parties agree on the setting aside of orders 10, 11, 12 and 13 of orders made that day. They disagree on the setting aside of orders 1, 2 and 3.
In view of my findings orders 1, 2 and 3 have been rendered otiose. BCPL contends for their retention. Clearly that contention is made out of an abundance of caution. However in the face of uncontested evidence that after discharge of the secured debt there will be nothing for the unsecured creditors their presence can only lead to further dispute. I will allow parties liberty to apply in the event circumstances change and other orders are considered necessary.

Costs

The usual order is that costs follow the event. In this case, subject to one matter concerning costs personally against the liquidator, each of BCPL and Reece contend that there should be no orders as to costs in relation to costs of and incidental to the various applications before the Court as between BWA and BCPL and Reece.
Before proceeding to consider costs arguments the uncontroversial costs ought be resolved. The initiating application sought orders for declarations and appointment of trustees for sale. In the ordinary course these orders ought not have generated much controversy.

In fact they generated no controversy until the parties to that application sought to ignore the rights of BWA. However subject to the real dispute which was manifest in BWA’s application filed

29 March 2009 the orders generally made at orders 11 and 12 of orders dated 30 October 2008 would have been acceptable orders. Those orders ought be modified to provide an ongoing indemnity to BCPL and Reece in respect of such costs to 30 October 2008 as such costs were incurred for the common good, including for BWA.
The real issue to be addressed are costs beyond 30 October 2008 as they represent costs incurred in respect of BWA’s involvement in the application.
For BCPL it was submitted that the reason for the parties to be before the court was because of the conduct of BWA and that factor would justify an order that there be no order as to costs. In particular BCPL relied upon dictum of Lord Atken in Ritter v Godfrey [1920] 2 KB 47 as applied in Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] 1 VR 129, a decision which has been cited since on various occasions; see for instance Loizou v Derrimut Enterprise Pty Ltd (No.2) [2004] VSC 548.
The conduct complained of against BWA was its failure to register the transfer of the CBA mortgage or the BankWest mortgage. In particular it relied upon the fact that BWA was unable to explain how it came to pass that these documents were not registered. It submitted:
“Had BankWest registered either of these documents and made its interest in the subject property known, the hearing for which orders were made on 29 October 2008 and the subsequent applications are unlikely to have occurred as BankWest’s interests in the land would have been beyond approach.”
Furthermore it contended that BCPL’s opposition to the applications of BWA was effectively brought about by the conduct of BWA as explained in Ritter v Godfrey (supra) because BCPL had applied only for clarification of the original orders and was a respondent to applications by BWA which in practical terms took the bulk of the time for preparation and hearing; it was served with material during the course of the hearing itself which was central to BWA’s case particularly in respect of indefeasibility; and it was not afforded any explanation for BWA’s failure to register the CBA transfer of BankWest mortgage.
Additionally BCPL complained that BWA appeared to be indifferent to its position leaving BCPL to incur significant expenses before engaging on the last and substantive point being that concerning indefeasibility and/or the priority of equitable mortgage. Finally it contends that, at least initially, BCPL was enforcing a statutory deed and covenant and assurance which arose under public protection legislation for the benefit of creditors which is in contrast to the usual commercial charges which give rise to no over-arching public purpose.
As my reasons for judgment indicate there was no reasonable explanation proffered for BWA’s failure to act to protect its interest between July 2007 and about December 2008 when its interest was registered and in due course made application in March 2009. In the meantime the bankrupt had been subject to sequestration and BCPL by its liquidator was properly seeking to enforce its rights. Plainly if BWA had registered its interest, as intended, from about July 2007 BCPL, by its liquidators, would most probably have taken a different course. Plainly it would have recognised that there was insufficient equity in the property secured by BWA’s mortgage to see any worthwhile dividend in any proceeding launched by it to execute against the secured asset.
To that point I consider BCPL’s submission that BWA has occasioned it costs as made out and BCPL is correct in its assertion that costs beyond 30 October 2009 arose because of BWA’s involvement. However I consider that submission is a gloss over of the facts.
The presence of BWA ought to have been apparent to BCPL at an early stage if BCPL, by its liquidator, had made appropriate enquiry of the bankrupt, the companies former officer and guarantor of the companies debt and thereby ought to have discovered BWA’s relevance to these events from the outset. By proceeding, as it did, by failure of reasonable enquiry, ignorant of BWA’s interest it undoubtedly sought to avoid the confrontation that was always going to be had. The argument between parties from October 2008 preceding BWA’s application of

29 March 2009 was an argument which addressed the substantive dispute between the parties. The dispute, not being resolved, manifest in the application of 29 March 2009. In my view the costs incurred in that period ought be allowed as part of BWA’s costs as they were not costs properly incurred in the sale of the property. In making that determination I am mindful that although much of the exchange was between representatives for BCPL and BWA, Reece was informed of these matters and never sought to cavil with BCPL’s position on these matters.
It follows in my view that costs from 30 October 2008 ought be part of the costs of the application of 29 March 2009 as costs incurred following October 2008 were directed to the issue agitated in that application and were not expressly related to the costs of the initiating application.
BWA was successful in its application filed 29 March 2009. There is no reason why the ordinary rule as to costs ought not follow. It should have the costs of the application filed 29 March 2009 which costs should include costs in the principal application from 30 October 2009. Subject to what follows those costs should be on the standard basis.

Costs against Reece

Reece also seeks an order that there be no order as to costs. The principal basis for its contention is that any order for costs against it would be unjust having regard to all of the circumstances and in particular the nature and extent of the second respondent’s participation and involvement in the proceedings: Probiotec Ltd v The University of Melbourne [2008] FCAFC 5; (2008) 166 FCR 30. In particular it relies upon its submission at trial that:
“Reece is willing to abide the orders of the Court and does not otherwise intend to participate in these proceedings, save submission as to the nature and existence of the interest claimed by it in the property and submissions as to its costs of and incidental to the application.”
Reece’s attitude expressed in its outline was consistent with the relatively small quantum of its claim.
In Probiotec Ltd v the University of Melbourne (supra) the issue for consideration was whether a party which files a defence denying the claim but then takes no further steps in the proceeding other than to comply with orders for disclosure is liable for full costs incurred by the parties successful in enforcing its action when the proceedings are actively defended by other parties. In that case the appellant, Probiotec as an unsuccessful party to the original litigation was also ordered to pay the costs of the successful applicant. On appeal the Full Court allowed the appeal considering that the ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order; applying Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR at 2815 [25]. The Full Court varied the order to direct that Probiotec in the circumstances pay 10% rather than 100% of the costs ordered for them to pay.
Although Reece supported BCPL’s application and adopted its arguments, the presence of Reece at the proceeding, which was reflected by its conduct in the application, was to lend support to BCPL. Undoubtedly had BCPL succeeded, Reece too would have succeeded. It seems inconceivable in those circumstances that had the equitable mortgagee succeeded in their application they would not have each applied for costs.
For that reason I consider that Reece should not simply be permitted to ride upon the shirt tails of BCPL without assuming some responsibility particularly given that had BCPL been successful, Reece too would have enjoyed a full dividend in the company’s winding up. Although it adopted a passive stance in the application it was within its power for instance to resile from those parts of BCPL’s case which for instance I consider justify an order for costs to be assessed on the indemnity basis. It did not do so. In the circumstances I think it too ought pay its share of costs on that basis with its share being limited to pro rata value of the sum it and BCPL would have realised in the event of their success in the proceeding.
As I see it, the effort of the respective parties in the application can be, in part, separately assessed. For instance Reece having put BWA to the trouble of addressing some arguments which were specific to Reece, BWA should not be denied its right to recover those costs upon assessment simply because Reece took a more passive stance in the application. Its relative passiveness is a matter which can be assessed on taxation. Where costs are common they can be shared on the basis of the respective entitlements of Reece and BCPL, a matter which can be fairly apportioned by reference to the respective quantums of their equitable claims.
It follows that in my view that as with BCPL’s costs, the appropriate order for costs is that Reece also pay BWA’s costs of and incidental to the application filed 29 March 2009 including costs from 30 October 2008, with such costs to be assessed on the standard basis.
Insofar as costs of BCPL and BWA are assessed to be common, such common costs be apportioned between them in accordance with the ratio reflecting the quantum of their respective debts being $205,198.00 for BCPL and $4,396.62 on behalf of Reece.

Costs against the liquidator personally

BWA also seeks an order against a third party to the proceedings being the liquidator of BCPL in his personal capacity.
In Jenkins v Jonkay Pty Ltd (in liquidation) [2007] FCA 858 Finkelstein J at [9] stated:
“There is a general rule that in a proceeding by or against a liquidator the real party to the action is the company and the company’s assets are responsible for the costs…
...Of course if the liquidator is the plaintiff he will be ordered to pay the costs…
If this were not the rule a liquidator would be in an impossible position. …He might not resist claims brought against the company unless they were clearly hopeless. There is also the risk that good people would be deterred from taking on the responsibility of acting as a liquidator: Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274”.
In contending for costs against the liquidator personally, BWA relied upon the observations of the Full Court of Queensland in Belar Pty Ltd (In liq) v Mahaffey [2000] 1 Qd R 477 and Kimtran Pty Ltd v Downie [2004] 1 Qd R 651 and in particular the observations made by the Full Court in Belar (supra) that:
“[36] When an insolvent company, under the control of a liquidator, unsuccessfully brings litigation against another party, a simple order for costs against the company would carry a considerable risk and in some cases a virtual certainty that the costs would not be recovered. The present case is of this kind. The most usual order in such a case is that the liquidator pay the costs, and it is recognised that this makes the liquidator personally liable for such costs. It is usual in such cases to permit the liquidator to recover costs so far as this is feasible, from company assets, provided there has not been misconduct or other unusual circumstances. The exercise of such a discretion by the courts along the above lines is consonant with principles under which orders for costs may be made against a non party.”
This observation was cited with approval in Kimtran (supra) noting:
“In particular what the court said on that occasion was that the failure to prove misconduct on the part of a liquidator in the prosecution of the proceedings was not a bar to invoking the discretion but rather only a factor to be considered in determining in which way the discretion was to be exercised.”[1]
[1] At [25].
Later at [26] the court noted that it did not see the court in Belar as going “beyond the position that a finding of misconduct or mis-competence was not an essential pre-condition” to an award of costs.
In hearing the appeal in Kimtran the Court of Appeal was conscious of a suggestion that the law in Queensland had departed from that which applied in other Commonwealth jurisdictions and for that reason it granted leave to appeal.[2] However in proceeding to determine the appeal, the court (McMurdo P, Dutney and Philippides JJ) concluded nothing in the interpretation and application of the principles in Queensland was controversial. Both those cases, like most, were determined by reference to their peculiar facts.
[2] At [11].

In Jenkins (supra), the authority principally relied upon by the applicant, reference was made by Finkelstein J to Mead v Watson [2005] NSWCA 133 (28 April 2005) where the Full Court noted there was no controversy that the relevant principles were those set out in the Full Federal Court (Northrop, Wilcox and Cooper JJ) in Adsett v Berlouis (1992) 37 FCR 201.[3]
[3] At [11].
In Mead (supra) the NSW Court of Appeal particularly cited with approval the observations of the Full Court in Adsett v Berlouis (supra) commencing at [211] where the Full Court noted that the Beddoe[4] test should be applied. There commencing at [209] the Full Court observed the general principles are as follows:
“A trustee in bankruptcy is governed by the general law relating to trustees save where the position of the trustee is modified by the Bankruptcy Act or Rules: see Re Ladyman (1981) 55 FLR 383 at 394 – 396. The Act confers no right on a trustee to be reimbursed in respect of the costs, charges or expenses incurred in the administration of the estate. The trustee's right to an indemnity is provided under the general law. Under that law a trustee is entitled as of right to a full indemnity out of the trust estate against all costs, charges and expenses properly incurred by the trustee: Turner v Hancock (1882) 20 Ch D 303 at 305; Re Love; Hill v Spurgeon (1885) 29 Ch D 348 at 350; Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 558.
A trustee's right to remuneration for his or her own efforts, as distinct from reimbursement of outgoings, is not conferred by the general law. A trustee, generally speaking, has no right to remuneration. Neither does the right to remuneration arise out of the indemnity in respect of “costs, charges or expenses”. That collocation of words does not include the value of services provided by the trustee in administering the estate. The concepts of remuneration and outgoings are distinct. …
Where a trustee in bankruptcy is appointed in the expectation that he or she will be remunerated, and there is no prior agreement to act gratuitously, the Act assumes the existence of a right to be remunerated. Section 162 provides a mechanism for fixing the quantum of the remuneration. … The right to remuneration for work done is enforceable by the trustee by calling a meeting of creditors to fix the remuneration by resolution or, if the creditors so resolve, to have the remuneration fixed by the committee of inspection, if any: s 162(1)…. The right to payment is only lost for a specific reason, as, for example, if no work was done or needed to be done or misconduct by the trustee: Mayne v Jaques …. The obligation of a trustee in bankruptcy to pay costs to another party involved in litigation unsuccessfully instituted or defended by the trustee is a matter distinct from the trustee's entitlement to recoupment out of the bankrupt's estate:… Ordinarily, an unsuccessful trustee will be ordered to pay the costs of the successful party. Such an order imposes a personal obligation on the trustee. In such a case, the question then arises as to whether or not the trustee has a right to be reimbursed out of the trust estate. This latter question arises in the administration of the bankruptcy, not in the original litigation. In the general area of the administration of trusts, the position was stated by Lindley LJ in Re Beddoe at [558]:
I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words ‘properly incurred’ in the ordinary form of order are equivalent to ‘not improperly incurred’.
[4] Re Beddoe; Downes v Cottam [1983] 1 Ch 547
…
Having addressed the general principles the Full Court then expressly addressed the principles governing entitlement to indemnity. It stated:
“The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs — whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation — was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred. Where, for example, the litigation was obviously misconceived or, even if it was otherwise reasonable to be undertaken, extravagant in the resources applied to it, we would not regard the expense incurred as proper; notwithstanding that the trustee may have acted honestly throughout. It is neither possible nor desirable to attempt to identify all of the situations in which costs expenditure would not be regarded as proper. Nor is it profitable to attempt a detailed rule covering all circumstances. But we issue the caution that the language in some authorities, many of which relate to gratuitous trustees, may mislead…. If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not “properly incurred”. The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment”.
Although the parties each seek to agitate a different approach to the decisions in Jenkins and Beddoe the difference of approach is a matter of nuance best understood by reference to the underlying facts in each case. Jenkins concerned the issue from the perspective of liquidators who having been appointed still sue in the name of the company and thus to be rendered liable must be subject to third party orders. Beddoe on the other hand dealt with the position of a trustee in bankruptcy who sues in his own name and thereby is personally liable and relies upon indemnity from the estate. The difference of approach is in nuance only. The principle remains the same and critically addresses the question of whether or not the relevant officer, whether he be a liquidator or bankruptcy trustee, ought be personally liable for costs occasioned in the conduct of litigation rather than have the bankrupt estate or corporation suffer the expense of those costs because of his/her conduct of the litigation.
For reasons which follow I have concluded that the liquidator should in this instance pay BCPL’s costs of this application insofar as I have ordered them.
In answer to BWA’s application, BCPL makes essentially two submissions. First it submits that the application is not one brought on notice. While strictly correct, the lack of form in these circumstances did not occasion the liquidator any prejudice. Secondly and more significantly, BCPL contends that in respect of the substantive matter in dispute the liquidator was not the plaintiff. That submission is correct.
However the power to award costs is broad; s.79(2) Federal Magistrates Act 1999 (Cth). It is well settled that in that context the court has power to award costs against a non party and this occurs particularly in the context of costs against liquidators of and receivers of insolvent corporations; see Knight v FP Special Assets Ltd (1992) 174 CLR 178; (1992) 107 ALR 585. There is plainly jurisdiction to award costs and although BCPL complains of an absence of notice that such an order might be sought, no prejudice can be demonstrated in the context of the application now made.
Although each party made submissions concerning the significance of whether or not BCPL was prosecuting a claim, that matter does not appear to be one of moment particularly when it is accepted that the starting point for determining the question is that the discretion to award costs is “at large”.[5]
[5] Kimtran at [25].
The real issue in this case is whether or not the conduct of the liquidator in prosecuting its claim for orders for sale and distribution of proceeds in its favour or alternatively resisting BWA’s claim for priority in respect of the excess realised in any sale constituted a properly incurred expense.
BWA advances four reasons why the liquidator ought pay the costs without prejudice to any right to recourse he might have against the assets of the applicant. First it is contended there is a substantial risk that a costs order against the applicant alone would not be satisfied. This is not only because the applicant is in liquidation but also because of the likelihood that the liquidator may pay his own legal costs as well as his own costs in the pursuit of the liquidation before meeting any subsequently assessed costs. In making that observation I am conscious that the liquidator has already deposed to having expended $65,000.00 in costs, at least to April 2010.
Secondly, BWA could not have mitigated its loss at an early stage of the proceeding by, for instance, bringing an application for security for costs. In this case BWA only became aware of the orders for appointment of statutory trustees for sale after they had been made leaving it with no option but to seek to have those orders set aside. BCPL in fact opposed that course.
Thirdly, not only did BCPL lose the application but the manner in which it conducted the application was in my view unreasonable. First it applied for initial orders without notice to BWA when it ought have known or ought reasonably have known of BWA’s interest particularly given the BWA advance of $560,000.00 by way of refinance of the CBA loan which loan security for which was still registered on the title. Even allowing for an early absence of knowledge by the liquidator it is plain that by December 2008 the liquidator would have been fully informed of BWA’s interest. On 26 November 2008 BWA lodged its caveat and its solicitors were informed by the statutory trustees shortly thereafter that BWA was making a claim for the property. In any event even before these matters of record arise it ought to have been apparent to the liquidator by reasonable enquiry that there had been refinance and BWA had assumed the debt formerly secured by the CBA mortgage. Subsequently in December 2008 a CBA mortgage transfer was registered and BWA’s security was also registered. By that time there had been a considerable exchange of correspondence between solicitors acting for both BWA and BCPL from which basis BCPL would have been fully informed of BWA’s position.
In the course of the subsequent litigation every possible point open to be taken was taken by BCPL notwithstanding the significant hurdles which confronted it in the form of BWA’s registered interest. Further, as BWA contended in its outline, that included pressing allegations of actual dishonesty which matters could not be made out. Furthermore the resistance by BCPL to BWA’s security position was inconsistent with its obligations under a guarantee and indemnity which had been granted by it to BWA to secure the loan that was the subject of BWA’s secured debt. Plainly a matter BCPL’s liquidator ought to have had knowledge of.
For BCPL it is contended that indulgences in favour of BWA were required and court intervention was necessary in any event because of mistakes of form such as that which was apparent in the Form 2 mortgage. However respectfully that difficulty was one which I regard as confected and in the ordinary course ought not have given rise to difficulty because of the equitable mortgage which came into being by reason of the loan agreement with BWA and BWA’s entitlement to rely upon the doctrine in equity regarding done that which ought to have been done. Generally I have concluded that errors or omissions on the part of BWA giving rise to argument were not so substantial as to cause BCPL to suffer significant or unreasonable loss and by taking issue with such matters BCPL’s approach was unreasonable.
Finally by letter dated 14 April 2010 solicitors for BWA put solicitors for BCPL on notice that costs would be sought personally against the liquidator on the indemnity basis if the liquidator did not accept an offer which was made in the letter. The offer was not accepted and accordingly BCPL’s refusal by its liquidator to accept the offer was in my view unreasonable in the circumstances. In any event putting aside the timing of the letter for the reasons that I have noted above, I consider the liquidator’s approach on behalf of the insolvent company in the conduct of this litigation to have been manifestly unreasonable from a very early point. In the circumstances I conclude that this is an appropriate instance where the liquidator by reason of his conduct should be subject to an order for costs.

Indemnity Costs

BWA also seeks an order for costs to be assessed on the indemnity basis. In Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 230 – 234 Shepherd J set out a non-exhaustive summary of circumstances which may justify the exercise of the discretion to order indemnity costs, including, inter alia:
a)Making allegations of fraud knowing them to be false and making irrelevant allegations of fraud;
b)Particular misconduct that causes loss of time to the Court and to other parties;
c)The fact that the proceedings were commenced and continued for some ulterior motive or in wilful disregard of known facts or clearly established law;
d)Making of allegations which ought never have been made or the undue prolongation of a case by groundless contentions; and
e)An imprudent refusal of an offer to compromise.
BWA contends that an order for indemnity costs ought be made because the conduct of the applicant was unreasonable either at its inception or by its continuing with the proceeding once it became fully appraised of BWA’s claim; an offer to settle was made and ignored which offer was subsequently bettered by the orders of the Court; and the continuing incurring of costs occasioned by the liquidator contesting costs and not being prepared to argue costs when the judgment was delivered.
In this case BCPL took issue despite BWA having registered its interest and arguably having an indefeasible registered interest over the land. The basis of BCPL’s contentions were that BWA’s indefeasible title ought be defeated by reason of fraud. Although BCPL did not assert any actual fraud it alleged fraudulent conduct in the equitable sense maintaining that BWA had acted in absence of good faith and/or wilful breach of trust, and further that its conduct was in part premised upon purposeful ignorance. In my view these were extraordinary allegations to be levelled against BWA particularly in circumstances where it openly conceded for reasons that could not be explained that it did not register its security nor the discharge of the earlier security in favour of the CBA and where its subsequent registration of security was undertaken in conformity with its contractual entitlements. In the quotation from Woodward J’s judgment in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400, cited with approval in Colgate-Palmolive v Cussons (supra) at 230, Woodward J noted that to constitute some “special or unusual feature” in a case to justify indemnity costs particularly where a charge of fraud has been made and not sustained some further factor is required to influence the exercise of the court’s discretion, for example allegations of fraud which have been made knowing them to be false or where they have been irrelevant to the issues between the parties. In this instance the allegations of fraud were in the manner in which they were made without foundation. As can be seen from a review of the reasons for judgment the better part of the judgment was directed to the issue of equitable fraud raised in its various forms in the proceeding.
Additionally in an open letter dated 12 April 2010, BWA made an offer to settle which was more favourable than the orders ultimately made by the court. That offer was forthcoming late in the application. The refusal of that offer was in my view imprudent. As a copy of that letter was never forwarded to Reece it would be unfair to burden Reece with an indemnity costs order. If however BCPL places material before me within seven (7) days of publication of these reasons to demonstrate Reece was put on notice as to this offer I will hear it and Reece on why Reece too should be subject to an order for indemnity costs.
Given all those matters, costs on the indemnity basis ought at least be allowed from the date of 12 April 2010 offer. Such an order should be limited to BCPL as the letter of offer was addressed only to them.

Summary

It follows that I am of the view that it is appropriate in this case that the liquidator pay the costs personally and that BWA be entitled to its costs against BCPL and that the costs be assessed on the indemnity basis from April 2010 as between the applicant, BCPL and Reece in proportion to their respective claims.

Orders

It is declared that:
a)The Bank of Western Australia Ltd ABN 22 050 494 454 (“the Bank”) holds a registered, legal mortgage over the land situated at 14 Ralston Street, West End Townsville in the State of Queensland, more particularly described as Lot 1 on Survey Plan 166517, County of Elphinstone, Parish of Coonambelah contained in Certificate of Title 50566435 (“the Property”) being Mortgage No. 707560175 registered on the Queensland Land Register on 15 March 2004 and transferred to the Bank by transfer No. 712120385 registered on 18 December 2008.
b)The Bank holds an equitable mortgage over the Property pursuant to a Form 2 Mortgage in registrable form executed by Kris Halliday on 19 June 2007.
c)The Bank’s said registered Mortgage, or alternatively its said equitable mortgage, have priority over the equitable charges over the Property claimed by the applicant and the second respondent herein.
d)The bankrupt estate of Kris Halliday (a bankrupt) (“the Bankrupt Estate”) is subject to the Bank’s said registered mortgage, or alternatively its said equitable mortgage, such that any proceeds of sale of the Property do not form part of the divisible property of the Bankrupt Estate to the extent necessary to discharge the Bank’s said registered Mortgage, or alternatively its said equitable mortgage.
I order that:
a)Paragraphs 1, 2, 3, 10, 11, 12 and 13 of the Orders made by the Court on 29 October 2008 be set aside.
b)The net proceeds of the sale of the Property in the amount of $341,881.92 previously paid into the Court by the Trustees for Sale be released and paid to the Bank of Western Australia Ltd towards the discharge of registered Mortgage No. 707560175, or alternatively its said equitable mortgage.
c)The costs of each of BCPL and Reece of and incidental to the application of 30 October 2008 (the initiating application) as agreed or in default of agreement as assessed on the party and party basis be paid out of the proceeds of sale in priority to payment of any other claim on such funds.
d)BCPL and Reece pay BWA’s costs of and incidental to the application filed 29 March 2009 including costs of the initiating application between 30 October 2008 and 29 March 2009 which such costs be assessed on the party and party basis except for costs beyond 12 April 2010 as against BCPL be assessed on the indemnity basis.
e)Where costs against BCPL and BWA are assessed to be common, such common costs to be apportioned between them in accordance with the ratio reflecting the quantum of their respective debts being $205,198.00 for BCPL and $4,396.62 on behalf of Reece which such costs are to be apportioned in respect of party and party costs.
f)That costs assessed as payable by BCPL be payable by Ian Alexander Currie as liquidator for Business Central Pty Ltd (in liquidation).
g)Liberty to apply particular in respect of order 4 or other orders.

I certify that the preceding fifty-two (52) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date: 12 December 2011