Dudley v Reece Australia Pty Ltd

[2021] WASC 240

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   DUDLEY -v- REECE AUSTRALIA PTY LTD [2021] WASC 240

CORAM:   STRK J

HEARD:   ON THE PAPERS

DELIVERED          :   16 JULY 2021

PUBLISHED           :   16 JULY 2021

FILE NO/S:   CIV 1984 of 2020

BETWEEN:   GREGORY BRUCE DUDLEY

Plaintiff

AND

REECE AUSTRALIA PTY LTD

First Defendant

ELECTRICAL DISTRIBUTORS OF WA PTY LTD

Second Defendant

THE REGISTRAR OF TITLES

Third Defendant

STARCLIP ENTERPRISES PTY LTD trading as MYELEC

Fourth Defendant

Catchwords:

Costs - Substantive questions of the validity and priority of competing claims resolved by agreement - No decision on merits - Appropriate costs order - Whether the position of the first defendant was unreasonable so as to expose the first defendant to an adverse costs order - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA)
Supreme Court Act 1935 (WA)

Result:

No order as to costs

Category:  B

Representation:

Counsel:

Plaintiff	:	No appearance
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance
Fourth Defendant	:	No appearance

Solicitors:

Plaintiff	:	Williams & Hughes
First Defendant	:	Trinix Lawyers
Second Defendant	:	Havilah Legal
Third Defendant	:	No appearance
Fourth Defendant	:	Turks Legal (NSW)

Case(s) referred to in decision(s):

Gilroy v Lee in her capacity as director, WorkCover Western Australia Authority [2021] WASC 200

Lafferty v Waterton [2016] WASCA 183

Latoudis v Casey (1990) 170 CLR 534

Naidoo v Williamson (2008) 37 WAR 516; [2008] WASCA 179

Northern Territory v Sangare [2019] HCA 25

Ohn v Walton (1995) 36 NSWLR 77

Oshlack v Richmond River Council (1998) 193 CLR 72

Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622

Ritter v Godfrey [1920] 2 KB 47

Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96

Towercom Pty Ltd v Fahour [No 4] [2013] VSC 585

Wentworth v Attorney-General (NSW) (1984) 154 CLR 518

STRK J:

1. This proceeding was commenced by a bankruptcy trustee in circumstances where a dispute had arisen concerning the adjudication of claims made by competing creditors of a bankrupt's estate, in the context of a modest estate after the repayment of a first ranking mortgagee.

2. The validity and priority of the competing claims in the end does not fall to be judicially determined. The parties have reached agreement as to the substantive dispute between them. A minute of proposed orders was filed on 13 May 2021. The minute is reproduced at Schedule A to these reasons.

3. There remains a contest as to how the costs of the action should be borne, as is revealed in proposed order 6 of the parties' minute. Despite there being no hearing of the merits of the action, adverse costs orders are pressed by the plaintiff, the second and fourth defendants as against the first defendant; and by the first defendant as against the plaintiff.

4. Programming orders were made for the filing of evidence, submissions and authorities in relation to the question of costs, which now falls to be determined on the papers.

5. For the following reasons I propose to make an order dismissing the applications for costs, and otherwise make no order as to costs. I will however give the plaintiff (the bankruptcy trustee) liberty to apply to recover his costs from the bankrupt's estate.

6. In these reasons, I deal with the following matters:

   1.      background facts and procedural history;
   2.      the position pressed by each of the parties in relation to costs;
   3.      applicable principles;
   4.      disposition concerning costs; and
   5.      conclusion and orders.

Background facts and procedural history

1. To explain the competing positions with respect to costs, it is necessary to refer to the background and procedural history in some detail.

Background facts

1. I understand that the following summary of the background facts is not controversial. It is derived from the affidavit sworn by Gregory Bruce Dudley in his capacity as trustee for the bankrupt estate of Brett Stewart Matthews on 24 September 2020, and filed in this proceeding with the originating summons.

2. Mr Dudley is the trustee in bankruptcy of Mr Matthews, administration number WA 847 of 2020/7. He was appointed on 20 July 2020.

The Beldon properties

1. The bankrupt estate of Mr Matthews holds an interest in the net equity derived from the sale of two properties that were previously held by Mr Matthews as registered proprietor, commonly known as 10 Marion Court, Beldon and 14 Galleon Road, Beldon (together the Beldon properties).

2. Annexed to the bankruptcy trustee's affidavit as 'GBD‑2' are copies of the certificates of title for the Beldon properties procured on 22 July 2020. They reveal that the Beldon properties were mortgaged in favour of the National Australia Bank Ltd (NAB) on 23 June 2005. Upon the appointment of the bankruptcy trustee, the NAB held first ranking registered mortgages over both Beldon properties.

3. As at the appointment of the bankruptcy trustee, the property known as 10 Marion Court, Beldon was also subject to a number of caveats. They included a caveat lodged by the second defendant (Electrical Distributors) on 9 April 2020, and a caveat lodged by the first defendant (Reece Australia) on 14 April 2020.

4. As at the appointment of the bankruptcy trustee, the property known as 14 Galleon Road, Beldon was subject to a caveat lodged by Reece Australia on 14 April 2020.

The Broadwater and Greenwood properties

1. The bankruptcy trustee deposes that the bankrupt estate of Mr Matthews also holds an interest in two other properties commonly known as 3 Rose Street, Broadwater and 43 Pitonga Way, Greenwood (the Broadwater and Greenwood properties, respectively).

2. Also annexed to the bankruptcy trustee's affidavit as 'GBD‑2' are copies of the certificates of title for the Broadwater and Greenwood properties procured on 22 July 2020. They reveal that as at the appointment of the bankruptcy trustee, the registered proprietors of the Broadwater property were Pia Matthews and Mr Matthews as joint tenants. The Broadwater property was also mortgaged in favour of the NAB. The NAB held a first ranking registered mortgage over the Broadwater property.

3. As at the appointment of the bankruptcy trustee, the Broadwater property was also subject to a number of caveats including a caveat lodged by Electrical Distributors on 16 January 2020; a second caveat lodged by Electrical Distributors on 16 January 2020; and a caveat lodged by Reece Australia on 25 June 2020.

4. As at the appointment of the bankruptcy trustee, the registered proprietor of the Greenwood property was Pia Matthews. The Greenwood property was also mortgaged in favour of the NAB. Again, the NAB held a being a first ranking registered mortgage over the Greenwood property.

5. As at the appointment of the bankruptcy trustee, the Greenwood property was also subject to a number of caveats including a caveat lodged by Electrical Distributors on 16 January 2020; and a second caveat lodged by Electrical Distributors on 23 June 2020.

Adjudication of claims

1. This proceeding was commenced in circumstances where the bankruptcy trustee was in dispute with Reece Australia regarding the adjudication of the validity and priority of the equitable interests of Reece Australia and Electrical Distributors in:

   1.      the surplus sale proceeds of the Beldon properties; and
   2.      the Broadwater and Greenwood properties.

2. Annexed to the bankruptcy trustee's affidavit as 'GBD‑3' is a bundle of correspondence exchanged from 29 July 2020 to 20 September 2020 between the representatives of Reece Australia, Electrical Distributors and the bankruptcy trustee.

3. The bundle of correspondence includes communications as between the representatives of the bankruptcy trustee and Electrical Distributors on 29 July 2020 concerning the removal of a caveat lodged by Electrical Distributors to permit settlement of the sale of 10 Marion Court, Beldon to proceed.[1] Recorded in the correspondence is the agreement of the bankruptcy trustee to hold surplus funds on trust pending determination of priorities to the funds. The bankruptcy trustee also requested provision of the documents relied upon by Electrical Distributors to support its claim.

   [1] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 11 - 20.

4. The bundle of correspondence also includes an email communication from the bankruptcy trustee's representative to the representatives of Electrical Distributors and Reece Australia sent on 13 August 2020, forwarding an email communication received from an officer of the NAB on 12 August 2020.[2] In summary, the communications reveal that the NAB claimed priority in relation to the full net proceeds of sale of the Beldon properties (approximately $830,000) under its securities, albeit with the potential for a surplus to be delivered to the bankruptcy trustee, which surplus was contingent upon whether certain bank guarantees were ultimately called upon or cancelled.

   [2] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 21 - 24.

5. From the bundle of email correspondence, it can be discerned that the representative of Electrical Distributors confirmed that settlement could proceed with the NAB receiving the proceeds of sale. The correspondence does not make clear the position that was adopted by Reece Australia.[3] However, it can be inferred from the remainder of the correspondence that the Beldon properties were sold.

   [3] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 23 - 29.

6. Following requests made on behalf of Reece Australia for a status update from the bankruptcy trustee, on 14 September 2020, the representative of the bankruptcy trustee confirmed receipt of a bank cheque in the amount of $42,149.81 from the NAB, with the potential for the receipt of additional funds from the NAB.[4]

   [4] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 30.

7. By the same communication, the bankruptcy trustee requested provision from Reece Australia of certain information within 7 days, including documents which evidenced its claim, particularly invoices and copies of communications as between Reece Australia, the bankrupt and RNM Solutions Pty Ltd (in liq) (a company related to the bankrupt), in relation to any debt incurred and a 2019 credit application entered into by the bankrupt as sole surety.[5] The language of the email communication suggests that this was not the first request made by the bankruptcy trustee of Reece Australia for the provision of the requested documents. The email communication of 14 September 2020 appears to have had two annexures, the first being a document titled Reece trade credit application entered into on 25 May 2016 by the bankrupt as one of two named guarantors; the second being a certificate of title of a property registered in the name of the other guarantor, Kevin Taffurelli, as a joint tenant.

   [5] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 33 - 39.

8. By an email communication sent on 15 September 2020, Reece Australia's representative wrote to the bankruptcy trustee's representative in the following terms:[6]

   …

   Thank you for your email.

   As you are aware, we have already provided all the documents in our possession in relation to Reece's debt and its security.

   We intend to issue proceedings in Victoria in relation to the funds held by the Trustee, and we will produce the communications between us on the question of costs.

   Please advise if you hold instructions to accept service on behalf of the Trustee of Mr Matthews.

   …

   [6] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 41.

9. On 20 September 2020, the representative of the bankruptcy trustee informed the representative of Electrical Distributors as follows:[7]

   …

   Regrettably Reece Plumbing's solicitors see it as appropriate to threaten the Trustee in bankruptcy with legal action rather than provide documents and information to test the validity and priority of their client's security interest.

   The trustee will now have to commence the foreshadowed proceedings and would like to name your clients (L&H and EDWA) as second and third defendants. The litigation would be from the Supreme Court in Perth and would likely go before Master Sanderson who will allow your client (and you) to appear remotely. No objection will be taken by the Trustee for your client to appear by audio link.

   Please confirm you will accept service of an originating summons with your clients named as second and third defendants.

   …

Procedural history

[7] Affidavit of G B Dudley sworn 24 September 2020 'GBD-3' page 45.

1. The bankruptcy trustee commenced this proceeding so that the court could determine the validity, priority and quantum of the claims of Reece Australia and Electrical Distributors to the surplus sale proceeds of the Beldon properties, and the Broadwater and Greenwood properties.

2. By an originating summons filed on 25 September 2020, the bankruptcy trustee sought declarations as to the validity, priority and quantum of the security interests of Reece Australia and Electrical Distributors in any remaining proceeds of sale of four properties. Reece Australia and Electrical Distributors were named in the originating summons as the first and second defendants, respectively. The Registrar of Titles was named as the third defendant but did not participate in the proceeding. The amount in issue is $42,149.81, which amount is held in the trust account of the solicitors for the bankruptcy trustee.

3. The originating summons was supported by an affidavit sworn by the bankruptcy trustee on 24 September 2020 and filed with the originating summons on 25 September 2020. By this affidavit, the bankruptcy trustee deposed to:

   (a)the estate having an interest in the net equity derived from two recently sold properties (being the Beldon properties);

   (b)the estate's interest in two other properties (being the Broadwater and the Greenwood properties); and

   (c)the fact that the bankruptcy trustee was in dispute with Reece Australia regarding the adjudication of the validity and priority of Reece Australia and Electrical Distributors' equitable interests in the surplus sale proceeds of the properties.

4. An appearance was filed on behalf of Electrical Distributors on 30 September 2020 and on behalf of Reece Australia on 5 October 2020. Both were represented by solicitors in the proceeding.

5. By the consent of the parties, on 10 November 2020, orders were made which included an order for the provision of discovery on affidavit by Reece Australia of certain documents and classes of documents which concerned the credit arrangements as between Mr Matthews, RNM Solutions Pty Ltd, Mr Taffurelli (a co‑surety of RNM Solutions Pty Ltd), and Reece Australia, including agreements, invoices and correspondence. Programming orders were also made for the defendants and the plaintiff to file and serve any affidavits relating to the validity and priority of the defendants' security interests in the real property and personal property of Mr Matthews.

6. Reece Australia complied with the programming orders within the time prescribed. On 24 November 2020, an affidavit sworn by Malani Ann Mason (Group Credit Manager) verifying a list of documents was filed on behalf of Reece Australia. On 3 December 2020, a further affidavit of Ms Mason relating to the validity and priority of Reece Australia's security interests in the real property and personal property of Mr Matthews, was sworn and filed.

7. On 22 December 2020, on the same day as the proceeding was listed before the Master for directions, a minute of proposed orders was filed on behalf of the bankruptcy trustee together with an affidavit of John Andrew Robertson (solicitor for the bankruptcy trustee) sworn on the same day. Annexed to Mr Robertson's affidavit at 'JAR‑1' was a bundle of email correspondence exchanged between the representatives of the bankruptcy trustee and the representatives of Reece Australia.

8. Annexed to Mr Robertson's affidavit at 'JAR‑1' is a copy of an email communication sent by Reece Australia's representative to the representative of the bankruptcy trustee on 17 December 2020. In that email communication it was asserted that on the basis of the material provided to the court, Reece Australia had the first priority to the surplus funds from the sale of the Beldon properties (being the amount of $42,149.81). Further, as Reece Australia's claim for debt, interest and costs as at 29 July 2020 totalled $44,057.40, it was asserted that the entirety of the surplus funds should be paid to Reece Australia. The bankruptcy trustee was asked to arrange a transfer of the funds to Reece Australia; it was noted that Reece Australia's rights were reserved in relation to claiming further interest and costs; and that if payment was not received the communication and other correspondence would be produced to the court on the question of costs.[8]

   [8] Affidavit of J A Robertson filed 22 December 2020 'JAR-1' page 8.

9. Annexed to Mr Robertson's affidavit at 'JAR-1' is also a copy of an email communication sent by the representative of the bankruptcy trustee to Reece Australia's representative on 17 December 2020. Attached to that email communication was a copy of a credit agreement which was said to support a new claim made by Star Clip Enterprises Pty Ltd trading as Myelec Electrical Wholesalers (Myelec) in the amount of $78,093. By that email communication, Reece Australia was advised that Myelec's claim was being investigated and that it might have priority over existing creditors. Reece Australia was further advised that the bankruptcy trustee was waiting on a response from Mr Matthews about the circumstances of the 2019 credit application to Reece Australia. A minute of proposed orders was promoted on behalf of the bankruptcy trustee on the basis that they would allow the bankruptcy trustee time to investigate Myelec's claim and to determine if Myelec needed to be joined to the proceeding.

10. On 22 December 2020, after hearing counsel for the parties, the learned Master made an order extending time for Electrical Distributors and the bankruptcy trustee to file affidavits relating to the validity and priority of the defendants' respective security interests in the real property and personal property of Mr Matthews.

11. On 18 January 2021 the affidavit of Konstantinos Dimitropoulos (Group Credit Legal Manager) was filed on behalf of Electrical Distributors relating to the validity and priority of Electrical Distributors' security interests in the real property and personal property of Mr Matthews.

12. On 29 January 2021, the supplementary affidavit of the bankruptcy trustee was filed. The bankruptcy trustee deposed, among other things, that since swearing his first affidavit, Myelec, another secured creditor of the bankrupt estate of Mr Matthews, had approached the bankruptcy trustee, who is owed approximately $78,000. The bankruptcy trustee further deposed that as at the date of his supplementary affidavit, he controlled the sum of $42,149.81 in a trust account and the competing creditors of the estate were:

    (a)Myelec in the amount of approximately $78,000;

    (b)Reece Australia in the amount of approximately $40,000;

    (c)Electrical Distributors in the amount of approximately $283,000; and

    (d)other creditors of the bankrupt.

13. On 8 February 2021, on behalf of Reece Australia, the priority of Myelec's charge over the security interests of Reece Australia and Electrical Distributors was conceded. The position of Reece Australia was expressed as follows:[9]

    Our client has instructed that [Myelec] has a charge which takes priority over [Reece Australia] and [Electrical Distributors] and that it should be paid the funds currently held by the Trustee. Further it instructs that Myelec should receive in priority to [Reece Australia] and [Electricity Distributors], any additional funds received by the Trustee to satisfy its claim.

    On that basis, there is no requirement to join Myelec to the proceedings.

    [9] Affidavit of G B Dudley sworn 26 February 2021 'GBD 3'.

1. By an order made on 12 February 2021 with the consent of all parties, Myelec was added as the fourth defendant to the proceeding in terms of the bankruptcy trustee's minute of amended originating summons dated 29 January 2021. An appearance was filed on behalf of Myelec on 22 February 2021.

2. Electrical Distributors was directed to file and serve an informal list of further documents that could 'time clock' the creation of its credit agreement with RNM and Mr Matthews dated 20 September 2019, including but not limited to the meta data of any document evidencing the time of day the document was created or exchanged. Electrical Distributors provided that informal list by letter dated 16 February 2021.

3. By the consent of the parties, orders were made on 23 February 2021 programming the filing of any affidavit evidence, submissions and authorities relating to the costs of the action. From the affidavit material filed, it can be inferred that by that date, there remained no dispute as to Myelec being entitled in priority to the other defendants to the money held in trust by the bankruptcy trustee.

4. The third affidavit of the bankruptcy trustee sworn 26 February 2021 was filed on 3 March 2021. The bankruptcy trustee deposes, among other things, that since swearing his first and second affidavits, he had received documents from Reece Australia and Electric Distributors that confirmed the order of priority in time between them within a matter of hours on the same date of creation of their respective equitable interests, being 20 September 2019. He also deposed to his belief that the order of priority was such that Myelec was first ranking; Reece Australia was second ranking; and Electrical Distributors was third ranking secured creditors of the bankrupt estate of Mr Matthews.

5. However, there was no judgment or final resolution on the merits. The parties agreed among themselves the validity and priority of the security interests. The parties proceeded to file affidavit evidence, submissions and authorities relating to the costs of the action. In this regard:

   (a)the bankruptcy trustee filed his third affidavit on 3 March 2021, and outline of submissions on 5 March 2021;

   (b)on behalf of Reece Australia, an outline of submissions was filed on 17 March 2021, together with the affidavit of Michele Ann Harrick affirmed on the same date and a list of authorities filed on 18 March 2021;

   (c)on behalf of Electrical Distributors, the affidavit of Bruce Douglas Havilah affirmed on 17 March 2021 was filed, together with an outline of submissions filed on 18 March 2021; and

   (d)on behalf of Myelec, an outline of submissions was filed on 18 March 2021.

The position pressed by each of the parties in relation to costs

1. Summarised below are the respective positions taken by each of the parties in relation to the question of costs.

The position of the bankruptcy trustee

1. The bankruptcy trustee contends that Reece Australia created the adversarial contest out of something that the bankruptcy trustee does routinely in the administration of an insolvent estate. At par 12 and par 13 of the bankruptcy trustee's affidavit filed on 29 January 2021, the bankruptcy trustee deposed as follows.

   Why this application was made

   12.This action was initiated as I was threatened with a court action in Victoria by Reece's solicitors. Reece was demanding any monies I recovered from NAB claiming it was first ranking secured creditor with an entitlement based on the priority in time of Reece's security interest. I resisted Reece's demands as I was not satisfied Reece was first ranking in time or otherwise. Further, I had not, at that time, had an opportunity to investigate all secured creditor claims and assess the equities. I verily believe the threats of Reece was to apply commercial pressure and extract an outcome Reece was not entitled to.

   13.Accordingly this action would likely not have been required had Reece not started threatening me and allowed me time to investigate, amongst other things, secured creditor claims and other sources of recovery for the benefit of all creditors of the Bankrupt.

2. The bankruptcy trustee deposes that the priority and validity of their respective security interests of the defendants to this proceeding was, in effect, resolved by the bankruptcy trustee probing each of them for the details of creation of the credit agreements and security interests. Further, the bankruptcy trustee says that he would have made enquiries about the secured creditor claims without need of this proceeding had it not been for Reece Australia claiming it was the first ranking secured creditor and threatening the bankruptcy trustee with a court application in Victoria.[10]

   [10] Affidavit of G B Dudley sworn 26 February 2021 par 8 - 9.

3. The bankruptcy trustee complains about the stance taken by Reece Australia as to the enforceability of a 2016 credit agreement, in circumstances where a later 2019 credit agreement had been entered into. The bankruptcy trustee asserts that the conduct of Reece Australia 'involved a collateral purpose relating to wrongfully pressing a security interest known to be incapable of enforcement - which Reece (by its solicitors) still will not clarify for the parties or the court (ie which security interest it relies on - the abandoned/released 2016 security interest - or the 2019 security interest it had tried to enforce in March 2020).'[11]

   [11] Outline of submissions filed on behalf of the bankruptcy trustee on 5 March 2021 par 6.

4. On behalf of the bankruptcy trustee, it is submitted that the bankruptcy trustee would be entitled to ask the court to make an order for indemnity costs against Reece Australia because the conduct of Reece Australia was so unreasonable. However, as an officer of the court, the bankruptcy trustee refrains from doing so, as he contends that Reece Australia should also pay the other parties' costs by reason of its unreasonable conduct.

5. The bankruptcy trustee seeks orders in terms of the minute of re-amended originating summons, and an order that Reece Australia pay the costs of the bankruptcy trustee, Electrical Distributors and Myelec on a party/party basis, to be taxed if not agreed.

The position of Reece Australia

1. Reece Australia seeks an order for its costs of defending the summons 'on a standard basis'. To ensure that there was no misunderstanding of Reece Australia's position, the court requested clarification. Reece Australia clarified that it seeks an order that the bankruptcy trustee pay Reece Australia's costs of defending the application, including reserved costs, such costs to be taxed if not agreed. In the alternative, Reece Australia seeks an order that each party bear its own costs.

2. In summary, Reece Australia says that while costs are always at the discretion of the court, there is a general practice that in the absence of a good reason to the contrary, a successful litigant should receive his or her costs.[12] Reece Australia contends that 'Regardless of the [bankruptcy trustee's] claim about the 2016 Agreement, Reece is the successful litigant in these proceedings, as until it was provided the documents supporting a new claim by Myelec in January 2021, it held the highest priority to the funds held in trust by the [bankruptcy trustee].'[13]

The position of Electrical Distributors

[12] Outline of submissions filed on behalf of Reece Australia on 17 March 2021 par 2(b), citing Towercom Pty Ltd v Fahour [No 4] [2013] VSC 585 [6] citing Ritter v Godfrey [1920] 2 KB 47, 52 and Oshlack v Richmond River Council (1998) 193 CLR 72 [67] - [69].

[13] Outline of submissions filed on behalf of Reece Australia on 17 March 2021 par 23.

1. Electrical Distributors seeks an order for costs against Reece Australia on a party/party basis, to be taxed if not agreed, largely adopting the submissions of the bankruptcy trustee. It contends that it was 'drawn into these proceedings through the lack of clear disclosure and a clear position from Reece coupled with the aggressive demands by Reece for the Trustee to concede priority to Reece without the proper material disclosed by Reece to determine priority of creditors. [Electrical Distributors] has provided the information sought by the [bankruptcy trustee] in these proceedings and has accepted the assessment of the [bankruptcy trustee] regarding priority which it should have been able to do with routine correspondence between [it] and the [bankruptcy trustee].'[14]

The position of Myelec

[14] Outline of submissions filed on behalf of Electrical Distributors on 18 March 2021 pars 6 - 7.

1. Myelec agrees with and adopts the submissions of the bankruptcy trustee and Electrical Distributors. I understand that Myelec also seeks an order for costs against Reece Australia on a party/party basis, to be taxed if not agreed.

Applicable principles – no determination of merits

1. Where costs should fall is at the discretion of the court.[15] The discretion to order costs under the Supreme Court Act 1935 (WA) s 37 and the Rules of the Supreme Court 1971 (WA) (RSC) O 66 r 1 is very wide.[16] The only restrictions are those provided elsewhere in the Supreme Court Act and the RSC, or in any other Act; and the fact that the discretion must be exercised judicially, in accordance with established principles and factors directly connected with the litigation.[17] The discretion must be exercised so as to achieve what is fair and just between the parties according to the circumstances of the particular case.[18]

   [15] Supreme Court Act 1935 (WA) s 37.

   [16] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.1.2] citing Wentworth v Attorney-General (NSW) (1984) 154 CLR 518, 528; Naidoo v Williamson (2008) 37 WAR 516; [2008] WASCA 179 [39].

   [17] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.1.2] citing Naidoo v Williamson [39], [42]; Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96 [48] - [50].

   [18] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.1.2] citing Latoudis v Casey (1990) 170 CLR 534, 558.

2. An order for the payment of costs by one party is compensatory in nature; it is not for the purpose of punishment. Costs generally follow the event because such an order is intended, at least to the extent that the costs incurred were not unreasonable or unreasonably incurred, as compensation (and vindication) for the successful action or application.[19]

   [19] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.1.2] citing Latoudis v Casey; Northern Territory v Sangare [2019] HCA 25 [30] ‑ [31]; and Ohn v Walton (1995) 36 NSWLR 77.

3. Where there is no judgment of other final resolution on the merits, the principles that apply to an award of costs are set out in [66.10.12] of Civil Procedure Western Australia which states:[20]

   If at an interlocutory stage the parties to the litigation resolve a dispute about a hearing of the merits of an action, and if it appears that both parties have acted reasonably in the proceedings until the litigation was resolved or its further prosecution became futile, the usual consequence is that the court will make no order as to costs of the proceedings, for to do so would involve an examination of the merits of the action: Australian Securities Commission v Aust-Home Investments Ltd (1993) 44 FCR 194 at 201.

   [20] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.10.12], as was recently cited in Gilroy v Leein her capacity as director, WorkCover Western Australia Authority [2021] WASC 200 [2].

4. Where there has been no hearing on the merits, the court will be 'deprived' of the factor that will usually determine how the discretion as to costs is to be exercised.[21] The court cannot try a hypothetical action between the parties to determine who should have paid the costs had there been a hearing on the merits.[22]

   [21] Lexis Nexis, Civil Procedure Western Australia, Vol 1, (185-11-19) [66.10.12], citing Lafferty v Waterton [2016] WASCA 183; BC201609249 at [17].

   [22] Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, 624, as cited by Curthoys J in Gilroy [3].

Disposition concerning costs

1. I turn first to consider the cost order sought by Reece Australia, and whether there is a proper basis for an adverse cost order to be made against the bankruptcy trustee in favour of Reece Australia.

2. The submission made on behalf of Reece Australia that, but for Myelec's claim, Reece Australia was the 'successful litigant in these proceedings' is misconceived for the following reasons.

3. First, there has been no judgment or resolution on the merits. No finding has been made by the court as to the validity, priority or quantum of any competing claim.

4. Secondly, I have had regard to the form and character of the proceeding and find that it was not in substance adversarial as between the bankruptcy trustee and the defendants. In so finding I have had regard to the nature of the relief sought by the bankruptcy trustee. By the application, the bankruptcy trustee sought to determine the validity, priority and quantum of competing claims to surplus proceeds following the sale of the Beldon properties and the Broadwater and Greenwood properties.

5. While the bankruptcy trustee was 'in dispute' with Reece Australia regarding the adjudication of the competing equitable interests,[23] and was aggrieved by what he considered to be the unreasonable approach of Reece Australia to the adjudication of its claim, the proceeding was not a vehicle whereby the interests of the plaintiff were sought to be prosecuted in competition with those of the defendants. By late February 2021, the bankruptcy trustee had deposed to his belief as to the order of priority as between the defendants.[24] It is not however accurate to describe Reece Australia as the 'successful litigant', nor is it accurate to characterise the bankruptcy trustee as having been unsuccessful in the prosecution of an action as against Reece Australia or any defendant.

   [23] Affidavit of G B Dudley sworn 24 September 2020 par 4.

   [24] Affidavit of G B Dudley sworn 26 February 2021, referred to at [44] above.

6. In all of the circumstances, I find that there is no proper basis for an adverse cost order to be made against the bankruptcy trustee in favour of Reece Australia, as promoted by Reece Australia or at all.

7. I next turn to consider the cost order sought by the bankruptcy trustee against Reece Australia, which submission is joined by Electrical Distributors and Myelec. They contend that it is appropriate that Reece Australia pay their costs, including reserved costs, to be taxed if not agreed.

8. As noted above, where there has been no determination of the merits the usual consequence is that the court will make no order as to the costs of the proceeding. The usual outcome might not be appropriate where a party has not acted reasonably in the proceeding. In an appropriate case, despite there being no determination of the merits, a cost order may be appropriate to achieve what is fair and just between the parties.

9. In considering whether to exercise discretion so as to make an adverse cost order in this case, I have carefully considered the submissions made on behalf of all of the parties, the affidavit evidence filed in support of the same and the court record. On balance, I am not persuaded that the conduct of Reece Australia in the proceeding warrants an adverse costs order.

10. All other parties to this proceeding complain that the approach adopted by Reece Australia created an adversarial contest out of an adjudication process - something that the bankruptcy trustee does routinely. The bankruptcy trustee says that it was the threat of proceedings in Victoria by Reece Australia that caused him to commence this proceeding. [25]

    [25] Affidavit of G B Dudley sworn 29 January 2021, par 12, reproduced at [47] above.

11. Absent a substantive hearing and finding as to merits, I find that it is not possible to conclude that the conduct of Reece Australia in the proceeding is unreasonable or so egregious as to warrant departure from the usual order.

12. Without a substantive hearing, it is not possible to now find that Reece Australia acted unreasonably in having adopted what might be described as a forceful position as to recovery of amounts owed to it by the bankrupt; or by foreshadowing the commencement of its own proceeding. Without a hearing, there is no proper basis upon which to conclude that the threats of Reece Australia were intended to advance a collateral purpose as was submitted, or to apply commercial pressure and to extract a recovery outcome to which it was not entitled.

13. The question of the validity, priority and quantum of competing claims to surplus proceeds was resolved by agreement, depriving the court of a hearing as to merits. Without the resolution of the merits of the case it is not possible to determine whether the respondent has conducted itself in the conduct of the litigation in the manner that was unreasonable. Further, an interrogation of the court record does not reveal conduct so unreasonable as to justify Reece Australia bearing the costs of all other parties to the proceeding.

Conclusion and orders

1. As to the final form of orders disposing of the action, I will make orders in terms of the parties' minute of consent orders filed on 13 May 2021 pursuant to the RSC O 43 r 16.

2. As to costs, for the reasons set out above it is appropriate that the applications for costs be dismissed and, subject to the following observation, there should be no order as to costs.

3. I note that the final order promoted by the parties by consent is that:

   7.The Plaintiff's remuneration for his costs of realisation of the surplus sale proceeds released, to date, from the Beldon Properties by the Bankrupt's mortgagee, the NAB (hereinafter, the Fund) be paid out of the proceeds of the Fund.

4. The bankruptcy trustee pressed for his costs to be paid by Reece Australia. No alternative cost order was promoted on behalf of the bankruptcy trustee. In all of the circumstances and in light of my findings above as to the form and character of the proceeding, it would appear open for the bankruptcy trustee to apply to recover his costs from the bankrupt estate of Mr Matthews. If in light of these reasons, such a cost order is sought on behalf of the bankruptcy trustee, I would be prepared to relist this matter and hear from counsel for the bankruptcy trustee and Myalec in relation to the same.

Schedule A - Minute of proposed consent orders filed on 13 May 2021

I certify that the preceding paragraphs comprise the reasons for decision of the Supreme Court of Western Australia.

MH

Associate to Justice Strk

16 JULY 2021