Elite Bricklaying Services Pty Ltd v Kelly [No 2]
[2022] ACTSC 257
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Elite Bricklaying Services Pty Ltd v Kelly (No 2) |
Citation: | [2022] ACTSC 257 |
Hearing Date: | 9 September 2022 |
DecisionDate: | 20 September 2022 |
Before: | McWilliam AsJ |
Decision: | 1. From the amount of $3,608,863.45 paid into Court pursuant to the orders of Elkaim J made on 8 December 2021, an amount of $80,000 is to be paid out of court to Chantel Therese Kelly, to be held by her solicitors and utilised for the payment of her legal expenses in defending each or any of proceedings SC 460 of 2021, SC 461 of 2021, and SC 114 of 2022. 2. The parties have liberty to apply to relist the matter. 3. Costs are reserved. |
Catchwords: | PRACTICE AND PROCEDURE – money paid into court – application to release money to defendant for legal expenses – where money paid into court constitutes proceeds of sale of land in which plaintiff claimed an interest |
Legislation Cited: | Court Procedures Rules 2006 (ACT) r 1616 |
Cases Cited: | Elite Bricklaying Services Pty Ltd v Kelly [2021] ACTSC 315 Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 |
Parties: | Elite Bricklaying Services Pty Ltd (Plaintiff) Chantel Therese Kelly (Defendant) |
Representation: | Counsel A Hogan (Plaintiff) J Larkings (Defendant) |
| Solicitors Namadgi Legal (Plaintiff) Robinson Locke (Defendant) | |
File Number: | SC 461 of 2021 |
McWilliam AsJ
The defendant in this proceeding, Ms Chantel Kelly, is the defendant in multiple proceedings being litigated in this Court and has previously paid monies into court in the amount of $3,608,863.45. Those monies were paid into Court following urgent orders made when a number of properties owned by Ms Kelly were about to proceed to auction: see Elite Bricklaying Services Pty Ltd v Kelly [2021] ACTSC 315 (Elite v Kelly).
The substantive dispute between the parties involves a claim made by Elite Bricklaying Services Pty Ltd (Elite) against Ms Kelly, concerning guarantees she executed for the debt of a construction company that was put into liquidation and a separate advancement of funds to Mr Liam Kelly.
This proceeding (SC 461 of 2021) is tied to two other proceedings, namely SC 460 of 2021 and SC 114 of 2022. The plaintiffs in those proceedings are respectively MZ Walker Family Super Pty Ltd (MZ Walker) and Lawson Development ACT Pty Ltd.
Although proceedings SC 460 of 2021 and SC 461 of 2021 are each listed for concurrent hearing on 6 March 2023, those proceedings have been formally stayed on the basis that the plaintiffs in those proceedings will be counterclaimants in proceeding SC 114 of 2022. That proceeding, which is travelling separately from the other two, will be determined first.
The application before the Court
Ms Kelly cannot afford to pay her legal fees. Notwithstanding the stay of the proceeding, by application dated 8 August 2022, she sought the sum of $120,000 be paid out to her from the money paid into court, for the purpose of defending proceeding SC 460 of 2021, SC 461 of 2021 and SC 114 of 2022.
The application was made in proceeding SC 461 of 2021, being the proceeding the subject of the original order for the payment of the moneys into Court. It was supported by affidavit evidence of the solicitor acting for Ms Kelly, Mr Malcolm Robinson.
The application was opposed by Elite and MZ Walker. To the extent that its interests might be affected by the application, the plaintiff in proceeding SC 114 of 2022 did not oppose the order sought by Ms Kelly.
During the hearing of the application, it transpired that there is a mediation scheduled in this matter in November 2022, which raised the possibility that the Court might choose to order a reduced amount that would be sufficient to progress the matter to mediation only. That amount was able to be clarified as being $60,000 for legal costs already incurred, and $20,000 for the costs of preparing for mediation ($80,000 in total). The amount also includes the costs of preparing evidence in proceedings SC 460 of 2021 and SC 461 of 2021 that is due to be filed prior to the mediation.
The Court’s power and applicable principles
Rule 1616 of the Court Procedures Rules 2006 (ACT) provides that an amount paid into court under an order of the court may be paid out of court only under an order of the court.
10. The Court has a general discretion to determine the release of funds that have been paid into Court, subject to any specifically agreed or conditioned limitation on the purpose of the payment: Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60; 99 NSWLR 397 at [80], citing Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929 at [17]-[22] and [151] and JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501 (JKB Holdings) at [101]–[112].
11. Funds held in court are not held by the court as trustee for any particular party; no party retains any legal or beneficial interest in the money: Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [80]. In that decision, McColl JA (with whom Macfarlan JA agreed) went on to say at [81] (references omitted):
[81] In making decisions about the payment out, or retention, of funds in court the court engages in an exercise of prudential management of the funds in order to ensure their due administration and that the processes of the court are not abused. It is relevant to have regard to the fact funds were paid into court to achieve a particular purpose.
12. As explained by Lindsay J in JKB Holdings at [9], in relation to a rule in similar terms in the New South Wales jurisdiction, a determination about payment of money out of court may bear the character of an interlocutory or final judgment. On the present application, the order sought is of an administrative or procedural character – it does not involve a contested hearing about the merits of competing substantive entitlements.
13. Some assistance in relation to the application of rule 1616 in the present context may also be gleaned from authorities dealing with asset preservation orders. In Harrison Partners Constructions Pty Ltd v Jevena Pty Ltd [2006] NSWSC 317 (Harrison), and through detailed reference to the authorities, Brereton J (as his Honour then was) referred at [10] to the general principle that the proper legal costs of the defence should be exempted from the scope of an asset preservation order, and that such an order should not be allowed to stultify the proper defence of the proceedings.
14. His Honour went on at [11] to explain:
[11] In this context, the proper legal costs of the defence should not be viewed in any narrow way, and are not limited to the bare essentials which might be allowed on a party/party assessment. The proper purpose of the [asset preservation] jurisdiction is not to confer on a plaintiff any priority or security or anticipatory execution, nor to constrain the legitimate conduct of the defendant, but only to prevent an abuse by the defendant of its dispositive power in a manner calculated to produce the result of defeating an anticipated judgment in favour of the plaintiff. Generally, it is not an abuse of a defendant’s dispositive power to fund its own defence, even on a lavish scale, so long as the expenditure is bona fide for that purpose. Courts should not deny such expenditure, even if the defence choses to engage the most expensive law firm and counsel, unless the expenditure is not bona fide for the purpose of defending the proceedings.
15. Where a defendant applies to vary an asset preservation order, or the order binds only part of the defendant’s assets, the defendant bears an onus of demonstrating that there are not other assets to which they may have resort in order to fund the legal costs, and that the proposed expenditure is reasonable: see Harrison at [12] and the authorities there cited.
16. Brereton J also referred, at [14] of the same judgment, to the exercise of the court’s discretion (on an application to release funds that have been frozen) as taking account of how a defendant has spent its other resources, and a concern to ensure that the resources have not been expended “wantonly”.
The funds in Court
17. Here, the funds have been paid into court as a means of preserving the proceeds of sale pending the resolution of litigation: see Elite v Kelly. They have not been paid into court for any particular purpose, such as for security for costs.
18. At the time the order was made for the payment of the subject sum into court, Elkaim J excluded from the order $60,000, which was to be paid to Ms Kelly’s solicitors and held on account for the defendant’s legal expenses. His Honour stated in Elite v Kelly at [18]:
[18] In relation to the exception of the $60,000, I think the defendant’s suggestion is appropriate. If the defendant’s financial position is as dire as seems to be generally accepted then I think the reserving of monies to allow her to conduct her litigation is reasonable.
19. It is relevant that no asset preservation order was made in relation to Ms Kelly and there was no suggestion of dissipation of assets in the concerns that were agitated before Elkaim J.
Competing arguments of the parties
20. Ms Kelly argued that the evidence demonstrated she does not have any other resources that she can use to pay for her legal costs.
21. The claims by Elite and MZ Walker were said to total approximately $2.7 million (plus ongoing interest), which is an amount significantly less than the amount presently in court. Putting aside claims of other parties claiming a priority interest to the monies in court, the $120,000 (or the alternative lesser amount of $80,000) sought to be paid out of court for Ms Kelly’s legal expenses, would not presently affect the satisfaction of a judgment in favour of Elite and MZ Walker.
22. Ms Kelly likened the payment into court in this instance to an asset preservation order, arguing that the proper legal costs of the defence should be exempted from the scope of such an order, relying on Harrison at [10] as discussed above.
23. Elite opposed the payment of any money for Ms Kelly’s legal expenses on the basis that the whole reason the money was paid into court was to preserve monies to which a number of entities claim to be entitled. It argued that because of the multiple proceedings taking place in this court, there was no conceivable circumstance in which the money would be paid out to Ms Kelly. The plaintiffs were being asked to fund Ms Kelly’s litigation with no oversight of how that money would be spent. Elite also had concerns that the legal fees that had already been carved out from the initial payment into court, have been expended. It seems Elite holds a different view about how the legal resources should have been used and considers that the money ought to have been spent differently in defence of the litigation.
24. In response to this, Ms Kelly relied on the various authorities discussed above as to the proper legal costs of the defence not being viewed narrowly. She further relied on her solicitor’s evidence as to the expenses, contending that her expenditure was bona fide for that purpose: see Harrison Partners at [11] and Virgtel Ltd v Zabusky (No 2) [2008] QSC 316 at [35] and [38]-[39].
Resolution
25. I accept that Ms Kelly has no other means of paying her legal expenses. Notwithstanding the concerns raised by her opponents, I also accept that she has demonstrated that the $80,000, in either incurred or anticipated legal expenses to progress the litigation to the stage of mediation of all three proceedings, is bona fide and reasonable on the broad reading of what constitutes “proper legal costs”.
26. The difficulty faced by Elite and MZ Walker is appreciated. They initially claimed an interest in the land that was sold, with the proceeds being the sum that was paid into court. There is also plainly a concern that they are not the only claimants on the sum of money in court. If Ms Kelly does not succeed in her defence of the various proceedings being brought against her, it may be that ultimately the sum in court is insufficient to satisfy all the claims of those creditors.
27. However, each of the proceedings in which Ms Kelly is involved is complex. The interest of Elite and MZ Walker in preserving the fund in court does not equate to security for judgment. The interests of the efficient management of the litigation and the just resolution of the real issues in dispute are best served by Ms Kelly being able to continue the reasonable conduct of the litigation through access to legal representation, at least up to the point of mediation between all the interested parties in each of the three proceedings.
28. During the hearing, I indicated that if I reached the view that the discretion ought be exercised in favour of Ms Kelly, the order would be limited to the expenses to be incurred up to mediation, in light of the likelihood that a settlement with any or all of the parties will affect Ms Kelly’s anticipated costs after that date. In order to avoid the present application becoming part-heard, but noting that no determination has been made as to the funding of any legal expenses likely to be incurred beyond the parties attending mediation, it is appropriate to reserve liberty to Ms Kelly to apply to relist the matter and to also reserve the question of costs.
29. Elite and MZ Walker submitted that if the court were minded to make an order in favour of Ms Kelly, a condition should attach to how the money was to be utilised. In particular, they were concerned that it should be spent across each of the three proceedings. Having read the authorities closely, and what has been said in Harrison (referred to above) about a defendant’s dispositive power to fund their own defence as they chooses, so long as the expenditure is bona fide for that purpose, I do not consider it appropriate to attach the type of condition envisaged by the plaintiffs.
30. However, by the arguments raised on this application, Ms Kelly will plainly be on notice that she may be required to justify both the amounts spent and the costs going forward in any further hearing of an application for funds out of court in payment of her legal expenses.
Conclusion
31. The orders of the Court are as follows:
(1)From the amount of $3,608,863.45 paid into Court pursuant to the orders of Elkaim J made on 8 December 2021, an amount of $80,000 is to be paid out of court to Chantel Therese Kelly, to be held by her solicitors and utilised for the payment of her legal expenses in defending each or any of proceedings SC 460 of 2021, SC 461 of 2021, and SC 114 of 2022.
(2)The parties have liberty to apply to relist the matter.
(3)Costs are reserved.
| I certify that the preceding thirty-one [31] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam. Associate: Date: |
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