Curtis-Hayward v Sheahan No. Scciv-00-1311

CURTIS-HAYWARD v SHEAHAN
[2002] SASC 385
Civil
WICKS J
Preliminary

This is an application by the plaintiffs against the defendant for the costs of this action on the footing of an indemnity. It is also an application by the defendant for costs from 17 August 2001 to 5 December 2001 on an indemnity basis.
World Express (SA) Pty Ltd – Equitable Mortgage
On 19 October 1988, World Express (SA) Pty Ltd (“World Express”) entered into an Equitable Mortgage (“the Equitable Mortgage”) in favour of the State Bank of South Australia (“State Bank”) whereby World Express charged its undertaking and all its real and personal property and assets whatsoever and wheresoever both present and future in favour of the State Bank.
Also, World Express was a trustee for the World Express (SA) Unit Trust (“the Trust”) pursuant to a Deed dated 1 July 1985 between Greig Novelties Pty Ltd and Eaglemont Travel Pty Ltd the beneficiaries and World Express as trustee as amended by a further deed executed by World Express on 22 April 1988. As such trustee, World Express charged all the real and personal property and assets whatsoever and wheresoever situate and at any time and from time to time thereafter forming part of the trust fund of the World Express (SA) Unit Trust whether by way of original settlement or accretion thereto or purchase gift or other transfer or acquisition.
The undertaking of World Express and the assets of the Trust are all charged with the payment of “the moneys hereby secured”. Those moneys are defined in cl 41 of the Equitable Mortgage. The definition is a long one. Among other things it includes advances made by the State Bank to World Express and interest thereon. It also includes liabilities and indebtedness of World Express to the State Bank such as moneys due in respect of an express or implied indemnity in respect of a guarantee.
Rights of the plaintiffs as guarantors
As additional security to the Bank, Mr J E W Curtis-Hayward and his wife Mrs R E Curtis-Hayward, Mr D I Rickard and Mrs J E Rickard guaranteed to the State Bank the same moneys as are defined as the moneys hereby secured by the Equitable Mortgage. The guarantee was executed by the guarantors on 20 April 1988.
Assignment of the Equitable Mortgage to the plaintiffs and exercise of rights of subrogation
World Express defaulted on the repayment of a loan and the moneys outstanding to the State Bank. The Bank demanded payment of the loan from the plaintiffs pursuant to the guarantee. Between 21 January 1992 and 1 September 1993 the plaintiffs repaid the principal and interest due and payable to the State Bank pursuant to their guarantee.
The plaintiffs as guarantors having paid the debt due to the State Bank and secured by the Equitable Mortgage are entitled to have assigned to them all securities held by the State Bank from World Express and further, to exercise rights of subrogation in respect of World Express’ indebtedness to the Bank.
On 10 July 1991, World Express was wound up by order of the Supreme Court of South Australia and the defendant was appointed liquidator.
By virtue of the payment by the plaintiffs of the indebtedness of World Express to the State Bank the plaintiffs were entitled:
(a)to a transfer of the Equitable Mortgage from St George Bank Limited (being the successor of State Bank) and
(b)to be subrogated to the rights of the lender as the holder of the Equitable Mortgage.
Clause 2 of the Equitable Mortgage provides for the payment of interest. It provides as follows:
Covenant in the Equitable Mortgage providing for the payment of interest
"2.(a)That the Mortgagor will pay interest on the respective moneys and amounts referred to in the definition of the moneys hereby secured during the period that they are owing or remain unpaid to the Bank calculated (unless otherwise agreed in writing between the Mortgagor and the Bank) at such rate as the Bank (at its sole discretion) shall from time to time charge thereon and computed from the day or respective days of their being advanced or paid or becoming owing (whichever first occurs).
(b)That unless otherwise agreed upon interest accrues from day to day and is payable as and when demanded or, unless previously demanded, on the days from time to time [a]dopted by the Bank for that purpose.
(c)...
(d)That for the purpose of Clauses 2(a) and 2(b), a Certificate under the hand of any authorised officer of the Bank shall be taken for all purposes as conclusive evidence of:-
(i)the interest rate charged from time to time and at any particular time by the Bank on the moneys hereby secured; and
(ii)the days from time to time and at any particular time adopted by the Bank for payment of interest."
Recovery of assets secured by the Equitable Mortgage
A receiver in respect of World Express was not appointed pursuant to the terms of the Equitable Mortgage. Instead, the liquidator proceeded to wind up the company by getting in its assets and distributing moneys in hand from time to time according to the entitlements of various creditors the claims of some of which would rank ahead of those of the secured creditors. The following recoveries and payments in the liquidation took place:
Recoveries subject to the Charge
·   Other assets recovery
Plant and equipment (Subject to fixed charge)  $ 7,004.71
Cash on Hand (Subject to floating charge)  $18,330.07
Sale of business (Subject to floating charge)  $11,075.00
Debts Recovered (Subject to floating charge)  $ 1,695.60
Sub Total  $38,105.38
·   Litigation against former auditors  $455,000.00
Total  $493.105.38
Less
·   Liquidator’s cost for recovery of other assets  $    7,736.01
·   Liquidator’s cost for Litigation recovery  $371,612.31
·   Priority payments to Employee creditors pursuant to
section 556 of the Corporations Law $ 8,868.88
·   Priority payment to Australian Taxation Office  $ 22,998.60
Amount available for secured creditor after payment of
priorities under the Corporations Law and Liquidator’s
recovery costs  $ 81,889.58
Amount paid to plaintiffs as secured creditors  $ 52,919.35
Balance  $   28,970.23
After the realisation of various assets recoverable by the liquidator for the benefit of the plaintiffs as mortgagees in respect of the Equitable Mortgage and after payment of various priorities ranking ahead of the claim of the plaintiffs, the net amount on hand amounted to $81,889.58. Of this amount, $52,919.35 was paid to the plaintiffs on 11 August 2000 being in payment of the principal sum due to them as mortgagees under the Equitable Mortgage. On the date abovementioned the plaintiffs were entitled to have the Equitable Mortgage transferred to them and to stand in the shoes of the State Bank of South Australia in respect of the above sum of $52,919.35 and interest.
Payment of interest secured by the Equitable Mortgage
This left a sum in excess of $28,970.23 outstanding for interest in respect of the sum of $52,919.35 prior to the payment of that amount to the plaintiffs.
After the payment of $52,919.35 by the defendant as liquidator of World Express from the assets of World Express and the Trust on 11 August 2000, the net assets of World Express and of the Trust did not exceed the sum of $28,970.23 so that the claim of Mr and Mrs Curtis-Hayward as secured creditors under the charge was exhausted on the payment of that amount. Any further recovery could only be effected on Mr and Mrs Curtis-Hayward lodging a proof of debt with the liquidator for an unsecured amount: Corporations Law s 55D to s 55J and Corporations Regulations r 5.6.51 to r 5.6.57. In this matter, there are no assets outstanding for realisation and payment to unsecured creditors.
Action against the liquidator under s 1321 of the Corporations Law
On 20 December 2000 the plaintiffs issued these present proceedings against Mr John Sheahan in his capacity as liquidator of World Express. The plaintiffs’ claims were as follows:
"A.A declaration that the plaintiffs are entitled to be paid interest on the sum of $52,919.35 calculated [in] until 11 August 2000 in accordance with the provisions of the Charge [the Equitable Mortgage].
B.A declaration that the plaintiffs are entitled to be paid such interest in priority to the liquidation expenses and to unsecured creditors.
C.An order that the defendant allow the plaintiffs’ claim for interest in accordance with the terms of the Charge [the Equitable Mortgage].
D.Judgment against the defendant for the amount of such interest calculated in accordance with the Charge [the Equitable Mortgage] from the date of payment by the plaintiffs to the Lender until the date of payment of the principal sum by the defendant to the plaintiffs.
E.An order that insofar as the defendant retains in the administration of World Express insufficient funds to pay any money found due to the plaintiffs in this action such money be paid by the defendant personally.
F.Damages for negligence.
G.Costs.
H.Such further or other orders as the Court thinks fit."
Proceedings under s 1321 of the Corporations Law
These proceedings purported to have been brought under s 1321 of the Corporations Law which provides as follows:
"1321 A person aggrieved by any act, omission or decision of:
(a) - (ca) …
(d) a liquidator … of a company;
may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit."
It would appear that the decision of the liquidator to refuse to treat the above amount of $28,970.23 as part of the moneys secured by the Equitable Mortgage, and to lay claim to it as moneys to which he is entitled in respect of his administration would enable the plaintiffs to be persons aggrieved under s 1321 and to issue the proceedings in this matter for suitable declaratory and other relief.
Amendment of the defence
In August 2001, the defendant amended his defence to admit that the plaintiffs had a secured claim for interest to the value or extent of the security after costs of recovery of assets and priority payments.
On 16 August 2001, the solicitors for the defendant sent a facsimile to the solicitors for the plaintiffs, part of which was as follows:
"Our client has decided to apply the balance of the monies in the liquidator’s fund in full satisfaction of the plaintiffs’ claim for interest. Our client proposes to forward a cheque in the sum of $28,970.23 to your office made payable to ‘Bonnins Trust Account’ by 5.00 pm on Friday 17 August 2001."
On 17 August 2001, the solicitors for the liquidator sent a letter to the solicitors for the plaintiffs in which they enclosed a cheque for $28,970.23 made payable to Bonnins Trust Account “in full satisfaction of the plaintiffs’ claim for interest”.
The defendant has, in effect, conceded the plaintiffs’ claim for interest in that he has paid to the plaintiffs the above amount of $28,970.23 in full satisfaction of the plaintiffs’ claim under the Equitable Mortgage for interest.
Final judgment
On 12 November 2002, with the consent of all parties, I made an order for judgment in this action. I ordered that by consent of all parties, there be no judgment or order in this action save as to costs and that further consideration of the question of costs in this action be adjourned to 20 November 2002 at 9.00 am.
Orders for costs
I have already heard the parties on the question of costs. I will now proceed to make orders for costs and I will give my reasons for so doing.
The costs of a successful appeal against a liquidator’s decision rejecting a proof of debt are usually directed to be paid out of the assets of the company: re National Wholemeal Bread and Biscuit Co (1892) 2 Ch 457: re Rural & Veterinary Requisites Pty Ltd (In Liq) (1978) 3 ACLR 597: Le Force & WJ Wilde v Thos Clarke Ov & Son Quisseant; re Kratzmann Holdings Pty Ltd (In Liq) (1982) 1 ACLR 320 and also McPherson, The Law of Company Liquidation 4^th Edition, Mason at p 573.
If the company has insufficient funds to pay the additional costs incurred by the plaintiff, that is generally the end of the matter. The liquidator does not have to pay them personally unless they have been unreasonably incurred or are excessive in amount: Sea Bird Corporation (in Liquidation) v Westpac Banking Corporation; Unreported Jt No S6144 delivered 9.5.97 by Duggan J, EMI Records Ltd v Ian Cameron Wallace Ltd (1983) 1 Ch 59 and Singleton & Another v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103.
In Halsbury’s Laws of England, 4^th Ed, Vol 7 par 2354 the following statement appears:
"As a general rule the liquidator is entitled to his costs of litigation out of the assets, but he may be deprived of them for making a mistake, or where the proceedings are improperly taken by him, even if sanctioned by the liquidation committee, but it seems that the order depriving him of costs is subject to appeal. Where the liquidator is the respondent in proceedings brought against him as liquidator and is unsuccessful, the costs should be ordered to be paid out of the assets."
This passage was cited with approval by Oliver J in Re Wilson Lovatt & Sons [1977] All ER 274.
Under r 101.07(6)(d) of the Supreme Court Rules, costs as between solicitor and own client, or a like expression means costs as a complete indemnity against the costs incurred by the party in respect of the litigation provided that they are not to include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them. Under r 101.07(6)(e), indemnity costs or a like expression, means the same as costs as between solicitor and own client.
The situation here is similar to an appeal from a liquidator’s decision to reject a proof of debt. One would expect a similar approach to be taken in relation to an appeal from a liquidator’s decision under s 1321 of the Corporations Law. It must be borne in mind that the liquidator personally is the defendant in this case.
Costs on an indemnity basis
I think a fair order for costs in favour of the plaintiffs would be to allow the plaintiffs to have their costs of the action from the date of the commencement of the action to and including 17 August 2001, the date upon which the defendant conceded the plaintiffs’ claim and remitted the amount thereof to the plaintiffs’ solicitors.
The question arises whether costs in this matter have been unreasonably incurred by the liquidator or are excessive in amount. In relation to the interest amount of $28,970.23, it appears to be the position that the defendant liquidator steadfastly pursued his defence against the recovery by Mr and Mrs Curtis-Hayward of that amount. It seems to me that the defendant liquidator did not have an arguable defence against the recovery of that amount by the plaintiffs and decided to concede the plaintiffs’ claim at the door of the court.
The negligence claim
The matter has become complicated by the inclusion by the plaintiffs of a claim for damages for negligence. The plaintiffs continued to pursue this claim until 5 December 2001 when it was abandoned. The defendant claims an entitlement to costs for work done in respect of the negligence claim from 17 August 2001 up to 5 December 2001. The costs concerned would have to be on a party and party basis. I can see no basis for ordering those costs on an indemnity basis. I would make an order for costs in favour of the defendant in respect of that period.
In the present case, there is no evidence that the parties have agreed on a scale of costs. Accordingly, the Supreme Court Scale will apply. Under that scale there is some flexibility in relation to work unusually difficult but that is about as far as it goes.
Conclusion
In the circumstances, I make the following orders:
(1)That the defendant personally pay to the plaintiffs their costs of this action from the date of commencement up to 17 August 2001, such costs to be on an indemnity basis, and to be agreed or taxed;
(2)That the plaintiffs pay to the defendant his costs of this action from 17 August 2001 to 5 December 2001, such costs to be agreed or taxed.
(3)That there be no order as to costs of either party incurred after 5 December 2001.

[2002] SASC 385

20 November 2002