G.A. Atkins and G.T. Connellan and J. Cooper and L. Gardner and S.C. Harris and M.J. Huckerby and M.J. Lee and P. McCarthy trading as Moray and Agnew (Newcastle) ABN 35 262 692 173) v Shade Systems Pty Limited (in..

[2020] NSWSC 1186

Supreme Court

New South Wales

Medium Neutral Citation:

G.A. Atkins & G.T. Connellan & J. Cooper & L. Gardner & S.C. Harris & M.J. Huckerby & M.J. Lee & P. McCarthy trading as Moray & Agnew (Newcastle) ABN 35 262 692 173) v Shade Systems Pty Limited (in Liquidation) (ACN 134 134 400 [2020] NSWSC 1186

Hearing dates:

12, 20 August 2020

Decision date:

02 September 2020

Jurisdiction:

Equity - Technology and Construction List

Before:

Hammerschlag J

Decision:

1. Declaration that the applicant has a lien over monies of Shade Systems Pty Ltd (in liquidation) ACN 134 134 400 which lien prevails against Probuild Constructions Pty Limited ACN 095 250 945 to the extent of $117,847.33 plus interest

2. Probuild Constructions Pty Limited ordered to pay this amount to the Applicant

3. Probuild Constructions Pty Limited’s amended notice of motion filed 30 July 2020 dismissed.

Catchwords:

EQUITY – LEGAL PRACTITIONERS – CORPORATIONS – Corporations Act 2001 (Cth) (the Act) s 553C – Solicitor’s “fruits of the action” lien over costs order made by the Court of Appeal in favour of their client against the losing party (the debtor) which solicitors argue covers their costs for acting in Court of Appeal and subsequent High Court proceedings – Where as a condition to the grant of special leave to appeal the debtor undertook not to disturb the Court of Appeal costs order – Where debtor claims that lien should not be recognised because without it it would have an equitable set-off for a claim it says it has against the client for liquidated damages or s 553C of the Act would have worked to effect one – Where debtor argues that the lien should not be recognised because the solicitors had other security which they did not realise – Where debtor argues that the High Court costs are not secured by the lien because those costs were not to defend a fund and were not immediately incidental to the costs incurred in the Court of Appeal proceedings – Where costs debtor argues that the solicitors have not established the reasonableness of their fees – HELD – Lien effective to cover Court of Appeal costs but not High Court costs – HELD – No equitable set-off would have been available – s 553C of the Act did not operate – Solicitors did not impair their lien – Their fees were reasonable – Lien operative with respect to Court of Appeal charges but not High Court

Legislation Cited:

Bankruptcy Act 1966 (Cth)

Building and Construction Security of Payment Act 1999 (NSW)

Corporations Act 2001 (Cth)

Cases Cited:

Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470

Cade Pty Ltd v Thomson Simmons (No 2) [2000] SASC 369

Carew Counsel Pty Ltd v French (2002) 4 VR 172

Color Point Pty Ltd v Markby’s Communication Group Pty Ltd [1998] FCA 1516

Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96

Firth v Centrelink (2002) 55 NSWLR 451

Gye v McIntyre (1991) 171 CLR 609

Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Receivers and Managers Appointed) (2018) 53 WAR 325

HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 479

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770

Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] NSWSC 540

Re Wedgwood: Ex parte Bank of New Zealand (1993) 116 ALR 153

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2016] NSWCA 379

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 3) [2016] NSWCA 382

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2018] NSWCA 34

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 4) [2018] NSWCA 52

Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33

Westpac Banking Corp v Kingsland (1991) 26 NSWLR 700

Texts Cited:

P.V. Baker & P. St J. Langan (eds), Snell's Equity (29th edn, 1990, Sweet & Maxwell)

Category:

Principal judgment

Parties:

G.A. Atkins & G.T. Connellan & J. Cooper & L. Gardner & S.C. Harris & M.J. Huckerby & M.J. Lee & P. McCarthy trading as Moray & Agnew (Newcastle) - Applicant
Shade Systems Pty Limited (In Liquidation) - Plaintiff
Probuild Constructions (Aust) Pty Limited - Defendant

Representation:

Counsel:
D Hume - Applicant
S Robertson with A Smith - Defendant

Solicitors:
Moray & Agnew - Applicant
Maddocks - Defendant

File Number(s):

2020/166624

JUDGMENT

1. HIS HONOUR:   This is yet another chapter, and hopefully, but probably not, the last, in this long-running saga between Probuild Constructions Pty Ltd (Probuild) and Shade Systems Pty Limited (now in liquidation) (Shade Systems). The field of battle has covered this Court, the Court of Appeal, and the High Court.

2. This time, the contest is between Moray & Agnew Newcastle (Morays), the firm of solicitors who have throughout represented Shade Systems, and Probuild as to whether Morays has an effective “fruits of the action” lien over a Court of Appeal costs order made on 23 December 2016 in favour of Shade Systems against Probuild. On 31 May 2018, the District Court entered judgment against Probuild for the taxed amount of the costs, $260,428.13 (the Costs Judgment). The proceedings in the District Court have been transferred to this Court.

3. Morays has unpaid fees of $263,944.53 (exclusive of interest) owing to it by Shade Systems, made up as to:

1. $117,847.33 for acting in the Court of Appeal; and

2. $146,097.20 for acting in the High Court of Australia.

4. On 18 May 2018, Shade Systems was wound up by the Federal Court of Australia at the instance of the Deputy Commissioner of Taxation.

5. By Notice of Motion dated 28 April 2020, Morays seeks a declaration that they have a lien over monies of Shade Systems, together with an order enforcing the lien by requiring Probuild to pay to them the Costs Judgment amount, plus interest since 31 May 2018.

6. By Amended Notice of Motion dated 30 July 2020, Probuild seeks to set aside the Costs Judgment. It contends that its obligation to pay it was discharged by operation of s 553C of the Corporations Act 2001 (Cth) (the Corporations Act), by effecting a set-off of that liability against a liquidated damages claim which it says it has against Shade Systems.

LITIGATION

7. The war began when, on 15 February 2016, an adjudicator determined under the provisions of the Building and Construction Security of Payment Act 1999 (NSW) (the SOP Act) that Probuild was liable to pay Shade Systems $277,755.03 plus adjudicator’s costs of $17,907. Probuild did not pay.

8. Instead, it challenged the determination. It initially succeeded when, on 15 June 2016, Emmett AJA quashed the determination: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2016] NSWSC 770.

9. Shade Systems appealed.

10. When its appeal to the Court of Appeal was pending, Shade Systems came under financial stress, which was no doubt contributed to by Probuild’s failure to pay the adjudication amount.

11. Shade Systems is associated with members of the Jolly family, Michael, Jillian and Trent. Trent Jolly is its sole director. Its sole shareholder is MPJ Investments Pty Ltd, of which the sole director is Jillian and the shareholders are Jillian and Michael. Michael and Jillian executed a guarantee for the obligations of Shade Systems to Morays and Jillian mortgaged a property worth approximately $155,000 to Morays securing fees outstanding from the first instance proceedings and the fees for the appeal. In the highest tradition of the Bar, Mr Christie SC and Mr Hume of counsel accepted briefs to appear for Shade Systems in the appeal on a no-win no-fee basis.

12. On 23 December 2016, the Court of Appeal upheld the appeal, with costs: Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd(No 2) [2016] NSWCA 379 (Bathurst CJ, Beazley P, and Basten, Macfarlan and Leeming JJA). This meant that, absent a stay, Shade Systems was entitled to be paid the adjudicated amount.

13. Probuild, however, made it clear that it intended to move the High Court for special leave to appeal. Pending its application, the Court of Appeal granted a stay on condition that Probuild pay the adjudicated amount plus interest (totalling $314,504.71) into Court, which it did: Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 3) [2016] NSWCA 382 (Basten JA).

14. On 12 May 2017, the High Court gave Probuild special leave to appeal: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2017] HCATrans 112.

15. As a condition of the grant, the High Court required Probuild to undertake that it would not seek to disturb the costs order made by the Court of Appeal in favour of Shade Systems and would pay the costs of the High Court appeal in any event. Probuild gave those undertakings.

16. On 8 June 2017, Probuild started proceedings in this Court against Shade Systems claiming liquidated damages of $2,353,800 or, in the alternative, $11,625,600.

17. On 14 September 2017, Probuild moved the Court for an order restraining Shade Systems from applying for assessment of its costs orders. Stevenson J dismissed the application.

18. On 11 October 2017, Shade Systems filed its Technology and Construction List Response in the damages case.

19. On 9 January 2018, Shade System’s costs in this Court and the Court of Appeal were assessed. On 9 February 2018, Probuild applied to review the assessment.

20. On 14 February 2018, the High Court dismissed Probuild’s appeal: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1.

21. On 14 and 15 February 2018 respectively, Probuild applied to the Court of Appeal for a stay of that Court’s costs orders and for a stay of the payment out of the adjudicated amount. On 28 February 2018, the Court of Appeal dismissed both applications: Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2018] NSWCA 33 (Payne JA); Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 2) [2018] NSWCA 34 (Payne JA).

22. On 6 March 2018, the adjudication amount of $322,195.50 standing in Court was paid out to Shade Systems. Of this amount, $114,106.54 was applied to paying Morays and counsel. The remaining $208,088.96 was applied as follows. Shade Systems had defaulted in paying PAYE amounts to the Australian Taxation Office (ATO) and in making superannuation contributions for the Jollys, who were its employees. The ATO threatened to apply to wind up Shade Systems.

23. On 6 March 2018, Michael Jolly asked Morays to release money to enable “all the old pays and entitlements” to be paid straight away on the basis that $50,000 would be returned to Morays’ trust account within 2 to 3 days to be put towards legal costs. He also asked Morays to release money to pay superannuation entitlements. In an email, Michael Jolly wrote of the PAYE amounts:

If the ATO is able to appoint a Liquidator this Friday and this is not paid, and we are treated as “related parties”, we would only get 3-4 weeks of these entitlements and would loose [sic] tens of thousands of dollars.

24. Mr Kaluski, a Morays partner, acceded to the request. On 7 March 2020, Morays disbursed $111,940.98 to Shade Systems in respect of “Jillian Jolly PAYE Entitlements” and $96,147.98 in respect of “Jillian Jolly Superannuation”. Negotiations with the ATO brought about an adjournment of the winding up application. On 12 March 2020, Morays, with Shade Systems’ authority, applied $114,650.84 to various legal costs, including counsel. On the same day, Shade Systems returned $50,000 to Morays’ trust account.

25. On 21 March 2018, the Court of Appeal declined an application by Probuild for a stay of that Court’s costs orders: Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 4) [2018] NSWCA 52 (Payne JA).

26. On 24 April 2018, Shade Systems moved this Court for leave to amend its Technology and Construction List Response. Probuild opposed the grant of leave. Leave was granted: Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] NSWSC 540 (McDougall J).

27. On 8 May 2018, Probuild paid Morays $154,629.19 to cover Shade Systems’ costs incurred in the High Court in accordance with the undertaking Probuild had given that Court. Morays, however, did not apply the entirety of this amount to the High Court costs. It applied some of it to the High Court special leave application and some of it to outstanding Court of Appeal costs, thereby reducing its outstanding fees for the Court of Appeal proceedings from $260,189.54 to $117,847.33 (exclusive of interest). $146,097.20 remained outstanding to Morays in respect of the High Court appeal costs.

28. On 18 May 2018, Shade Systems was wound up.

29. On 22 May 2018, the Review Panel assessed Shade Systems’ party/party costs as $70,257.02 (Supreme Court), $181,792.54 (Court of Appeal) and $3,262.88 (costs assessment review).

30. On 30 May 2018, Shade Systems applied to the District Court to register its costs certificates and, on 31 May 2018, the District Court entered the Costs Judgment against Probuild for $260,428.13. The Costs Judgment was stayed until further order by the District Court. The proceedings in the District Court were transferred to this Court.

31. Thus, as at 31 July 2020, the position was (and still is) that Shade Systems has paid Morays in full their fees in respect of the first instance proceedings and for the special leave application. Morays had invoiced Shade Systems $260,189.54 for the Court of Appeal proceedings. Some money was applied to these invoices and the amount due is $117,847.33, exclusive of interest. On the High Court appeal, Morays had invoiced Shade Systems $146,097.20, exclusive of interest. The total amount owed by Shade Systems to Morays as at 31 July 2020, inclusive of interest, was $289,775.99.

THE CASE

32. The liquidators of Shade Systems took no role in the present contest. They do not put in issue Morays’ entitlement to a lien and they do not suggest that Morays’ charges (which the lien would secure) are unreasonable or excessive.

33. Probuild has lodged a proof of debt in Shade Systems’ winding up for its claimed liquidated damages. At this stage, the liquidators of Shade Systems have neither admitted it to proof nor rejected it.

MORAYS’ CONTENTIONS

34. Morays argue that they have an equitable lien over the Costs Judgment. They say that it was obtained as a result of their exertions and that it secures all of the fees currently outstanding by Shade Systems to Morays for acting in the Court of Appeal and the High Court.

35. Morays argue that the costs incurred in the High Court are secured by the lien because they are immediately incidental to those incurred in obtaining the Costs Judgment.

PROBUILD’S CONTENTIONS

36. Probuild argues that the Court will not recognise the lien because to do so would put Morays in a better position against Probuild than Shade Systems itself would be in, in that:

1. Probuild would have the benefit of an equitable set-off of its costs liability to Shade Systems against its much larger asserted liquidated damages claim;

2. absent the lien, s 553C of the Corporations Act would have operated to discharge Probuild’s costs liability.

37. Probuild argues that the Court will not recognise the lien for the further reasons that:

1. when, on 7 March 2020, Morays disbursed funds to Shade Systems as requested by Michael Jolly, Morays thereby agreed to waive its rights under the lien over those monies because it could have used them to meet its outstanding fees in full; and

2. Morays desisted from enforcing the additional security which it obtained from the Jollys as a condition of agreeing to act for Shade Systems in the proceedings that led to the Court of Appeal costs order. Probuild argues that the doctrine of marshalling applies by way of analogy with the effect that any lien is reduced by the amount of the security to which recourse could have been had.

38. Probuild argues that the lien does not extend to the costs and disbursements incurred in the High Court because those costs and disbursements did not procure a fund or defend one because Probuild had given an undertaking not to seek to disturb the Court of Appeal costs order and Probuild did not seek to do so. If the High Court costs are not covered, Morays’ security extends to only $117,847.33 of their fees (exclusive of interest).

39. Finally, Probuild argues that Morays’ lien extends only to their reasonable solicitor and client costs, and Morays have not demonstrated that their invoiced costs and disbursements of $260,189.54 for the appeal to the Court of Appeal are reasonable.

40. On its motion, Probuild argues that the Costs Judgment should be set aside because, before it was obtained, s 553C of the Corporations Act operated to bring about a set-off between its costs liability to Shade Systems and its much larger liquidated damages claim. The effect of this, so Probuild contends, is that before the Costs Judgment was entered, it had paid what it owed.

41. During argument, Probuild abandoned the unmeritorious contention that Morays’ motion was not properly constituted because one of their partners had retired since the Costs Judgment was obtained. An unjustified attack on the integrity of Mr Kaluski for assisting Shade Systems in March 2008 by acceding to its request for payment was initiated but abandoned. Probuild also abandoned a contention, which it initially put, that a solicitor’s “fruits of the action” lien arises only when a Court of Equity orders.

THE CORPORATIONS ACT

42. It is appropriate now to set out s 553C of the Corporations Act and to make reference to the leading High Court authority which explains how it works.

43. The section provides:

553C Insolvent companies—mutual credit and set‑off

(1) Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:

(a) an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and

(b) the sum due from the one party is to be set off against any sum due from the other party; and

(c) only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.

(2) A person is not entitled under this section to claim the benefit of a set‑off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.

44. The equivalent section in the Bankruptcy Act 1966 (Cth), s 86(1), was considered by the High Court in Gye v McIntyre (1991) 171 CLR 609 (Gye v McIntyre). In a well-known passage at 623, the plurality said:

In the context of s. 86, the word "mutual" conveys the notion of reciprocity rather than that of correspondence. It does not mean "identical" or "the same". So understood, there are three aspects of the section's requirement of mutuality. The first is that the credits, the debts, or the claims arising from other dealings be between the same persons. The second is that the benefit or burden of them lie in the same interests. In determining whether credits, debts or claims arising from other dealings are between the same persons and in the same interests, it is the equitable or beneficial interests of the parties which must be considered: see, e.g., Hiley (52). The third requirement of mutuality is that the credits, debts, or claims arising from other dealings must be commensurable for the purposes of set-off under the section. That means that they must ultimately sound in money.

45. The relevant time at which mutuality is to be assessed is the commencement of the winding up in insolvency: see Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Receivers and Managers Appointed) (2018) 53 WAR 325 (Hamersley Iron) at 348 [68].

THE SOLICITOR’S “FRUITS OF THE ACTION” LIEN

46. The following is a synopsis of the legal principles which apply to the equitable lien commonly known as a solicitor’s “fruits of the action” or “fruits of litigation” lien.

46. A solicitor may have two kinds of lien for his or her costs, a common law lien over the property of the client in his or her possession, which merely gives the right to retain the property until payment is made, or an equitable lien on property recovered or preserved through the solicitor’s instrumentality which gives a charge upon the property which can be asserted actively by taking steps to realise the property for sale: see P.V. Baker & P. St J. Langan (eds), Snell's Equity (29th edn, 1990, Sweet & Maxwell) at 457. It is the latter type of lien with which this case is concerned.

47. In Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 (Makinson) at 100, in an oft-cited passage, Sir Frederick Jordan said:

A solicitor has no lien for his costs over any property which has not come into his possession. If, however, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment or award or compromise for the payment of money, although the solicitor acquires no common law title to his client's right to receive the money or to any part of that right, he acquires a right to have his costs paid out of the money, which is analogous to the right which would be created by an equitable assignment of a corresponding part of the money by the client to the solicitor. That is to say, the solicitor has an equitable right to be paid his costs out of the money; and if he gives notice of his right to the person who is liable to pay it, only the solicitor and not the client can give a good discharge to that person for an amount of the money equivalent to the solicitor's costs. If the person liable to pay refuses, after notice, to pay the costs of the solicitor, the solicitor may obtain a rule of Court directing that the amount of his costs be paid to him and not to the client; and payment by the judgment debtor to the client after notice of the solicitor's claim is no answer to an application for such a rule. [Citations omitted]

49. In Carew Counsel Pty Ltd v French (2002) 4 VR 172 (Carew Counsel) at 187, the Court of Appeal of Victoria said:

The essence of the solicitor's "particular" or "non-possessory" costs lien is that the solicitor has been instrumental in recovering the judgment sum (whether by way of compromise or otherwise) or, put another way, that the monies have been recovered as a result of his exertions. Thus the fund in respect of which the lien arises is the fund represented by the fruits of the labours exercised by the solicitor in recovering it. The charge on the fund represented by the "particular" lien arises immediately upon the recovery of the monies through the exertions of the solicitor and should be distinguished from rights which might arise through a solicitor's exertions in respect of other matters. However, for the right to arise, it must be shown that there is a sufficient causal link between the solicitor's exertions and the recovery of the fund. In each case, that is a question of fact. The costs which are protected by the lien will not only include the costs incurred in recovering the judgment, but also those "immediately incidental thereto". The solicitor's lien will extend to costs incurred on appeal, either in defending the fund or in promoting it, because such costs arise from exertions in "recovering the fund". [Citations omitted]

50. The lien attaches by the recovery of the property. It is not dependent, for its existence, upon the judgment of the Court. The equitable right which a solicitor has to be paid costs and disbursements from the fund which his or her efforts have recovered, is a kind of proprietary interest in that fund. It can survive an insolvency administration of the client: Re Wedgwood: Ex parte Bank of New Zealand (1993) 116 ALR 153; Color Point Pty Ltd v Markby’s Communication Group Pty Ltd [1998] FCA 1516 at [18]; Carew Counsel at 186 [33]; Firth v Centrelink (2002) 55 NSWLR 451 at 466 [38]-[44] (Firth).

51. Where a solicitor obtains a costs order on behalf of a client, the solicitor is entitled to a lien over the fruits of that order, that is, an equitable charge over the property comprised in the order for costs as security for the solicitor’s costs: Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 474-5 (Akki). In general terms, the essence of an equitable charge is a proprietary interest, granted by way of security, without any transfer of title or possession to the chargee: see Hamersley Iron at 343 [49].

52. The Court has flexible powers to protect and to enforce the lien: Cade Pty Ltd v Thomson Simmons (No 2) [2000] SASC 369 at [15] (Cade).

53. The Court will not lend its assistance to enforce the solicitor’s rights where to do so would be inequitable by, for example, making an order which would give the solicitor an inequitable advantage when considered in the light of the provisions of the respective parties to litigation out of which the claim to the lien arose. An example of such a situation may be where the effect would be to extend to the solicitor rights beyond those to which the client would be entitled: Akki at 483.

54. If there would otherwise be a set-off of judgment amounts between the parties to the action, the Court will not deprive the relevant party of the right of set-off merely because the set-off will have the effect of eliminating a fund over which a solicitor would otherwise have a lien: Cade at [16].

55. It is a usual incident of equitable liens that they bear interest with respect to the amount for which the solicitor’s lien exists: Firth at 483.

CONSIDERATION

EQUITABLE SET-OFF

56. I reject Probuild’s argument that, but for Morays’ lien, it would have the benefit of an equitable set-off of its liquidated damages claim against its costs liability.

57. Probuild would be entitled to an equitable set-off only if its asserted right to damages were bound up with and went to the root of Shade Systems’ right to have Probuild honour the Costs Judgment. Probuild’s asserted right does not qualify. So much was observed by Payne JA in declining Probuild’s application for a stay: see Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 4) [2018] NSWCA 52 citing HP Mercantile Pty Ltd v Dierickx [2013] NSWCA 479 at [136]. I respectfully agree with his Honour’s observation.

58. Perhaps more importantly, not to recognise such a set-off, rather than being equitable, would be profoundly inequitable. It would undermine the policy of the SOP Act and would have the effect of absolving Probuild from meeting a costs order which came about because of its unsuccessful resistance in the Court of Appeal. Nothing in justice or fairness entitles Probuild to such absolution.

59. Probuild has throughout made every attempt to avoid meeting its obligations and Morays’ exertions have been critical in repulsing those attempts.

60. Probuild has acted contrary to the spirit of the undertaking it gave to the High Court not to do anything to disturb that order: see Shade Systems Pty Ltd v Probuild Constructions (Aust) Pty Ltd (No 4) [2018] NSWCA 52 at [15].

61. Probuild may have initially succeeded in its challenge to the adjudication determination, but from 23 December 2016 it was under a legal obligation to pay it. The costs order in respect of which it claims a set-off is inextricably bound up with Probuild’s unmerited resistance.

62. The Court has flexible powers to protect and enforce the lien. Not to recognise the lien in present circumstances would be inimical to the proper exercise of that power.

SECTION 553C

63. Section 553C did not operate. Because of their lien, Morays had (and has) at all material times an equitable interest in the Court of Appeal costs order, so that the dealings between Shade Systems and Probuild were not in the same interests: see Gye v McIntyre at 623. Shade Systems was not freely entitled to take the money those orders represent, and spend it: see Hamersley Iron at 349-50 [76] and the authorities cited there.

64. Although Probuild’s motion depends on s 553C having operated, it ultimately did not contend (or if it did, it did so very faintly) that s 553C actually operated. Its submission was that Morays’ lien should not be recognised because if it is, s 553C will not have operated. Probuild maintains that this is unfair to it in that it puts Morays in a better position than, but for the lien, Shade Systems itself would be as against Probuild.

65. I reject this submission.

66. Morays’ lien arose without the intervention of the Court. Section 553C did not operate. It would be an unsound jurisprudential approach not to recognise the lien because a statutory provision which has not operated might, in other circumstances, have done so. Additionally, nothing in justice or fairness entitles Probuild to the assistance of the Court in that fashion.

67. It follows from rejection of this submission that Probuild’s motion must be dismissed and I will so order.

ADDITIONAL SECURITY, WAIVER, AND “MARSHALLING”

68. I reject Probuild’s submissions that Morays impaired their lien.

69. Morays had no obligation, and Probuild had no right to require Morays, to realise any particular or additional security which it had for the obligations of Shade Systems in any order of priority, or at all: see, e.g., and by analogy, Westpac Banking Corp v Kingsland (1991) 26 NSWLR 700 at 706.

70. That they had security from the Jollys, separately from Shade Systems, is a matter in which Probuild has no cognisable interest.

71. For Morays to have waived or abandoned its security, they would have had to have acted inconsistently with their right to maintain it. Whilst Morays was waiting for Probuild to pay the costs which it owed, they released some money to Shade Systems. By releasing some of the subject matter of their security, they did not act inconsistently with that security applying to subject matter which subsequently came within it.

72. Morays’ release on 7 March 2020 of funds to Shade Systems was not inconsistent with maintaining their rights under their lien.

73. I do not accept the proposition that the doctrine of “marshalling” should apply by analogy. Probuild did not cite any authority to support it.

HIGH COURT COSTS

74. Morays, perhaps understandably, took a step, which may turn out to be costly, when they appropriated the money Probuild paid on 8 May 2018 for High Court costs to their bill for acting in the Court of Appeal.

75. Whilst Probuild’s point is entirely lacking in commercial morality, it must be upheld.

76. Morays’ exertions in the High Court appeal (as opposed to the application for special leave) did not defend the fund, nor were they, in my view, immediately incidental to the costs which were incurred in acting for Shade Systems in the Court of Appeal.

77. Their exertions in the special leave application were necessary to protect the Court of Appeal costs order, which was under attack, but at the end of that application Probuild gave the undertaking not to disturb that costs order and subsequently did not try to do so, although it has never paid them.

78. By the time of the High Court appeal, the fund had been created and did not need protection. Accordingly, the costs incurred by Morays’ exertions in the High Court appeal were not necessary to protect it and cannot fairly be said to be necessarily incidental to those costs. Shade Systems was not at risk of any adverse costs order in the High Court which may have brought about a set-off against the Court of Appeal costs order.

79. It follows that Morays’ lien does not extend beyond the amount still owing by Shade Systems in respect of the Court of Appeal proceedings which is the amount of $117,847.33 (plus interest).

80. Whilst Morays’ error may have cost them, it may well not in the end benefit Probuild. Section 553C did not operate at the critical time, namely at commencement of the winding up. On this footing, it may be that Probuild must pay the balance of the Costs Judgment to Shade Systems and prove for the full amount of its liquidated damages claim in the winding up. It is not necessary for the Court to determine whether this is the case. It is a matter between the liquidators and Probuild.

REASONABLENESS OF MORAYS’ FEES

81. I reject Probuild’s submission that Morays’ lien should not be recognised because they have not demonstrated that their asserted costs and disbursements are reasonable. Shade Systems, through its liquidators, makes no such suggestion. Mr Kaluski, who gave evidence as to the outstanding charges, was not challenged on the subject.

82. Probuild put a submission that Morays’ charges of $260,189.54 appears to be excessive for a one day appeal. But as Morays points out, the charges concerned included an interlocutory dispute about security for costs, a stay application, and four separate applications after the appeal. The one day appeal spawned seven Court of Appeal judgments.

83. Bringing the Court’s own experience to bear, Morays’ costs do not appear to be unreasonable or excessive.

84. Finally, party/party costs for the appeal were assessed at $167,426.65. Probuild submits that Morays has not demonstrated that their reasonable solicitor and client costs exceed this amount. Having regard to my finding that the lien does not extend to protect Morays beyond $117,847.33 plus interest, Probuild can, in any event, have no complaint.

CONCLUSION

85. The Court will declare that Morays have a lien over monies of Shade Systems Pty Limited (in liquidation) which lien prevails against Probuild to the extent of $117,847.33 plus interest.

86. The Court will make orders requiring Probuild to pay this amount to Morays.

87. Probuild’s Amended Notice of Motion filed 30 July 2020 will be dismissed.

88. I will hear the parties on costs if necessary.

89. I will stand the matter over for 14 days to enable Morays and Probuild to bring in Short Minutes reflecting this outcome and to give them an opportunity to reach agreement on costs. If within ten days they have not reached agreement, they are to exchange brief written submissions on costs and provide them to my Associate. If necessary, arrangements will be made for further hearing.

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Decision last updated: 02 September 2020