Galbally & O'Bryan v Easton

[2016] NSWSC 77

Supreme Court

New South Wales

Medium Neutral Citation:	Galbally & O’Bryan v Easton [2016] NSWSC 77
Hearing dates:	4 February 2016
Date of orders:	24 February 2016
Decision date:	24 February 2016
Jurisdiction:	Equity
Before:	Hallen J
Decision:	1. Direct the Plaintiff to deliver to my Associate within 14 days from the date of delivery of these reasons for judgment, Short Minutes of Order that reflect these reasons for judgment.  2. Stand over the proceedings for 21 days from the date of delivery of these reasons for judgment.
Catchwords:	PROCEDURE – Judgments and orders – Execution against property – Modes of execution – Charging order – Plaintiff obtained charging order under Civil Procedure Act 2005, s 106, against first Defendant’s shares in public companies – Plaintiff commences separate proceedings seeking relief under s 126 Civil Procedure Act for orders to take the benefit of the charge arising under a charging order, including an order for sale of the shares and appointment of registered liquidator to sell the shares – Entitlement of the Plaintiff as judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor’s favour by the judgment debtor   COSTS – Whether the Plaintiff should obtain an order for all of its costs as against the first Defendant
Legislation Cited:	Administration and Probate Act 1958 (Vic) Civil Procedure Act 2005 (NSW) Enforcement of Judgments Act 1991 (SA) Judgments Act 1838 (UK) Judicature Act 1873 (UK) Magistrates' Court Act 1989 (Vic) Service and Execution of Process Act 1992 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Alesco Corporation Limited ACN 008 666 064 v Te Maari [2015] NSWSC 469 Andersons Solicitors v Schigulski [2004] SASC 21; (2004) 88 SASR 1 ANZ Banking Group Ltd v Greig [1980] 1 NSWLR 112 Australia and New Zealand Banking Group Ltd v Donnelly [2012] NSWSC 1615 Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 Chateau Constructions (Aust) Limited v Zepinic [2013] NSWSC 1326 Chateau Constructions (Aust) Ltd v Zepinic (No 5) [2010] NSWSC 265 D'Auvergne v Cooper WN (1899) 256 Davidson Armstrong & Campbell Solicitors Nominee Company Ltd v Morrison [2008] NZHC 2057 Ezekiel v Orakpo [1997] 1 WLR 340 Falcone and Williams v Mentyn; Pearce v Mentyn (No 2) [2004] TASSC 156; (2004) 13 Tas R 384 Fine Real Estate Network Pty Ltd v Howell (Supreme Court (NSW), Young J, 4 December 1997, unrep) French Consulting Pty Ltd v Donald [2011] NSWSC 584 Gould v Purtle [2014] NSWSC 493 Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230 King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 64 NSWLR 441 Kolchmann v Meurice (1903) 1 KB 534 Leggott v Western 12 QBD 287 Linga v C & N Constructions Pty Ltd [2012] NTSC 8 McNamara Business & Property Law v Kasmeridis (No 2) [2006] SASC 167 Ndjamba v Toyota Finance Australia Ltd [2010] NTSC 23 Oxley v Oxley [2014] NSWSC 1606 Padkohe Pty Ltd v Fletcher [2006] NSWSC 1239 Smirski v Macander [2010] NSWSC 929 Sood v Christianos [2008] NSWSC 1087 United Travel Agencies Pty Ltd v Cain (1990) 20 NSWLR 566 Widgery v Tepper (1877) 6 Ch.D 364 Wilkie v Wilkie [1905] VLR 80 Yarrangah Pty Limited v National Australia Bank Limited [1999] NSWSC 97
Texts Cited:	S E Williams and F G-S, Daniell's Chancery Practice, (8th ed 1914, Stevens and Sons) Edward Sykes and Sally Walker, The Law of Securities, (5th ed 1993, Law Book Co) Tyler, Young and Croft, Fisher & Lightwood’s Law of Mortgage, (2nd Aust ed 2005, LexisNexis Butterworths)
Category:	Principal judgment
Parties:	Galbally & O’Bryan (Plaintiff) Noelle Elizabeth Easton (first Defendant) Amcor Limited (ACN 000 017 372) (second Defendant) BHP Billiton Limited (ACN 004 028 077) (third Defendant)
Representation:	Counsel: Ms A Avery-Williams (Plaintiff)   Solicitors: Galbally & O’Bryan (Plaintiff)
File Number(s):	2015/241127

Judgment

1. HIS HONOUR: In these proceedings, the Plaintiff, which is a firm of solicitors, performed legal services for the first Defendant, Noelle Elizabeth Easton, between 17 August 2010 and 31 May 2011, in proceedings commenced in the Supreme Court of Victoria, in which she sought further provision out of the estate of her late mother pursuant to Part IV of the Administration and Probate Act 1958 (Vic).

2. The second Defendant is Amcor Limited and the third Defendant is BHP Billiton Limited. Neither of these Defendants filed an Appearance (Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), rule 6.9) or otherwise participated in the current proceedings. Pursuant to UCPR rule 6.1, each would have been unable to take any step in proceedings (including any appearance in court) without the leave of the court. Each was not an “active party” in these proceedings (UCPR rule 1.2).

3. The first Defendant is the owner of 2,225 Amcor Limited fully paid ordinary shares and 738 BHP Billiton fully paid ordinary shares. Both of the companies are listed on the Australian Stock Exchange.

4. The first Defendant has not paid all of the costs and disbursements due to the Plaintiff for providing her with legal services. The Plaintiff seeks the following relief in a Summons filed 18 August 2015:

“1   The security interests charged in favour of the Plaintiff pursuant to paragraph 1 of the orders of the District Court made on 4 March 2013 in Case No. 2013/38422 (Shares), be sold.

2   Mr Steve Nicols of Nicols + Brien be appointed to conduct the sale of Shares on behalf of the Plaintiff.

3   The Second Defendant transfer to Mr Nicols, 2,225 Amcor Limited ordinary shares, security holder reference number I xxxxxxx, held in the name of the First Defendant.

4   The Third Defendant transfer to Mr Nicols, 738 BHP Billiton Limited ordinary shares, security holder reference number I xxxxxxx, held in the name of the First Defendant.

5   The costs and expenses of Mr Nicols in relation to the realisation of the Shares be paid out of the proceeds of sale of the Shares on an indemnity basis.

6   Interest.

7   Costs.”

5. Thus, the focus of these proceedings is upon the remedy that the Plaintiff seeks in order to take the benefit of a charging order against the shares of the first Defendant so as to satisfy the judgment debt, registered in the District Court of New South Wales, as well as the interest, accruing on the judgment debt, and the costs of the Plaintiff’s current action.

Underlying Facts

6. The following facts have been established. There was really no dispute about them.

7. As stated above, the Plaintiff was the firm of solicitors which had acted for the first Defendant in the Victorian proceedings. On 20 April 2011, it issued a tax invoice for $5,128 for disbursements incurred in those proceedings, which invoice was paid by the first Defendant on about 19 May 2011.

8. On 31 May 2011, the Plaintiff issued to the first Defendant an itemised tax invoice for $35,310, in respect of its work (and not disbursements) in relation to the proceedings. The amount sought in the invoice was not paid by the first Defendant.

9. On about 27 July 2011, the Plaintiff filed proceedings, by way of “Complaint” in the Magistrates’ Court of Victoria in respect of the unpaid amount the subject of the invoice.

10. At about this time, the first Defendant paid $20,000 towards the unpaid amount. (Although the first Defendant complained about the failure of the Plaintiff to give credit for the payment of $20,000, I am satisfied that the first Defendant’s cheque was received by the Plaintiff after the commencement of the proceedings in the Magistrates’ Court. In any event, it is clear that the Plaintiff, before entering judgment, did acknowledge receipt of, and give credit for, that amount.)

11. The first Defendant did not file a defence. On 31 October 2011, judgment was entered, in favour of the Plaintiff, in the Magistrates’ Court of Victoria, in the sum of $16,774.01, being calculated as $15,310 (the balance of the unpaid amount after deduction of $20,000), $427.21 (for interest) and $1,036.80 (for costs).

12. The Plaintiff registered the judgment in the District Court of NSW on 19 February 2013.

13. The document, from the District Court, addressed to the Plaintiff and headed “NOTICE OF ORDERS MADE”, apparently under the hand of the Principal Registrar, provided as follows:

“On 19 February 2013 the following orders (and/or directions) were made:

Judgment:

Noelle Elizabeth EASTON, First Defendant

Is to pay

GALBALLY & O’BRYAN, First Plaintiff

the sum of $16774.01”

14. On 4 March 2013, the District Court made a charging order, which, relevantly, provided:

CHARGING ORDER

Name of charge

Noelle Elizabeth Easton

Judgment creditor

Galbally & O’Bryan, Plaintiff

Judgment debtor

Noelle Elizabeth Easton, Defendant

Amount outstanding under

judgment

$19,712.33

($16,774.01 plus $2,340.32 interest and $598.00 costs).

Details of security interests

(a)   2,225 Amcor Limited ordinary    shares

   Security holder reference number    xxxxxx held by the chargee;

(b)   738 BHP Billiton Limited ordinary    shares

   Security holder reference number    xxxxxx held by the chargee.

1.   The security interests listed above are charged in favour of the judgment creditor to the extent necessary to satisfy the judgment in these proceedings.

2.   The chargee is restrained from dealing with the security interests otherwise than in accordance with the directions of the judgment creditor, until further order of the court or until the judgment against the judgment debtor is satisfied in full.”

15. Under cover of a letter dated 12 March 2013, the Plaintiff sent a copy of the Charging Order to the first Defendant.

16. On 20 March 2013, the Plaintiff received written confirmation from Computershare Investor Services Pty Limited (“Computershare”) confirming its receipt of a copy of the Charging Order and confirming that it had placed “Stop Trades” on the shares. The shares have not been sold since that time.

17. Mr O’Bryan, a solicitor at the Plaintiff, asserts in an affidavit, upon which he was not cross-examined, that interest has continued to accrue on the unpaid judgment debt secured by the charging order, and that it will continue to accrue until and including the date of hearing, being 4 February 2016. (The entitlement to interest is to post-judgment interest on the judgment debt at the prescribed rates.)

18. No amount of the judgment debt having been paid, the amount of the debt secured by the charge (including interest to 4 February 2016) is said to be $24,988.19.

19. (During the course of submissions, it was necessary to explain to the first Defendant that this sum was calculated as follows: $16,774.01 (the judgment debt), plus $2,340.32 (interest on the judgment debt calculated until the date of the charging order), plus $598 (legal costs of obtaining the charging order), $4,448.43 (interest on the judgment debt calculated from the date of the charging order until 4 August 2015) and $827.43 (interest on the judgment debt calculated from 5 August 2015 until 4 February 2016)).

20. There is no explanation in either of Mr O’Bryan’s two affidavits for the delay between about mid-June 2013 (3 months after the date the charging order was obtained) and the date of the commencement of these proceedings, some 2 years later (a matter that the first Defendant says has caused some prejudice bearing in mind the recent drop in share prices).

21. In addition, the Plaintiff claims disbursements ($10,212.59) that have been paid, in respect of the current proceedings. It seeks an order that this amount be paid out of the proceeds of sale of the shares.

22. There has not been an assessment of the costs and disbursements and no application was made for a gross costs order. However, there is evidence to support the amounts which combine to total the disbursements said to have been paid.

23. It was only during the course of the hearing that counsel for the Plaintiff, without objection, tendered evidence about the current value of the shares. This evidence (Ex. B) revealed that, as at 3 February 2016, the price, per share, for the Amcor Limited ordinary shares is $12.82, and that the price, per share, for the BHP Billiton Limited ordinary shares is $14.27.

24. Finally, I should mention that, prior to the hearing, there was no evidence concerning Steven Nicols, the person identified as the person the court should appoint to conduct the sale of the shares (in Paragraph 2 of the relief claimed). However, at the hearing, the Plaintiff tendered, without objection, a copy ASIC search (Ex. C) that revealed that Mr Nicols is currently, and has been since December 1992, a registered liquidator.

25. No evidence of the amount of the fees proposed to be charged by Mr Nicols in selling the shares was provided to the court. (There was an attempt to rely upon an email from the Plaintiff’s solicitors but because there was no suggestion that a copy had been provided to the first Defendant prior to the hearing, I rejected the tender.)

The first Defendant’s Defence to the relief claimed

26. In summary, the first Defendant’s defence to the claim, gleaned from her two affidavits read at the hearing, appears to be that she is a pensioner and does not have enough assets to satisfy the claim of the Plaintiff; that she “feels” that she has fulfilled her obligations to the Plaintiff having paid in excess of $25,000 to it on account of the legal services that were provided; that the agreement that she had with the Plaintiff was a “No Win/No Fee” agreement; and that she does “not feel that I owe any further money”. In addition, she states that she “would be sorry to lose my shares – the dividend money has helped me survive over the years”.

27. There is no evidence that the first Defendant took any steps to set aside the default judgment that the Plaintiff obtained, at any time, either before, or after, the charging order was made. Nor is there any evidence of any attempt made by her to seek the rescission, discharge, or variation, of the charging order. It was not suggested by her that there had been an inadequate evidential basis for the District Court making the charging order.

28. Nor did the first Defendant allege that the shares affected by the charging order belonged to a third person, that a third person had a claim thereon by way of lien, charge or otherwise, or that the first Defendant only held a bare legal interest in the shares. (In fact, as stated, she acknowledged that she has been receiving the dividends from the shares.)

The Hearing

29. At the hearing, the first Defendant appeared, in person, and without any legal representation. She acknowledged that she had received a copy of the affidavits upon which the Plaintiff wished to rely, and that she wished to read the two affidavits that she had sworn, a copy of each of which had been served on the Plaintiff.

30. I explained to the first Defendant that as a self-represented litigant there was only limited assistance that could be provided to her by the court; that the court’s duty was to ensure that the trial was conducted fairly and in accordance with the law, not only for her, but for all parties; that the court’s duty was not to advise her upon how to conduct her case; nor was it able to become her lawyer; and nor was it to advise her of any inadequacies in her evidence. The court would tell her how the case would proceed; that she had a right to object to evidence and, that if she thought it necessary and appropriate, to cross-examine Mr O’Bryan. I also explained that the Plaintiff’s legal representative had the right to object to her evidence and to cross-examine her. Finally, I stated that she would not be permitted to give evidence from the bar table without oath or affirmation.

31. Prior to the hearing commencing, the matter was called three times outside the court without response by, or on behalf of, the second and third Defendants. Accordingly, the second and third Defendants were absent when the trial had been called which necessitated a consideration whether to proceed with the trial so far as any claim for relief in the proceedings as against each of them was concerned: UCPR, rule 29.7.

32. An affidavit of service, sworn 26 August 2015, of law clerk, Ms L J Cambridge, revealed that on 19 August 2015, she had sent, by ordinary pre-paid post, to the address of the second Defendant, a copy of the Summons and the affidavit of Andrew Peter O’Bryan sworn 4 August 2015, together with the exhibits thereto, with a covering letter. No Appearance was filed by, or on behalf of, the second Defendant.

33. As counsel for the Plaintiff conceded, there was no evidence that the second Defendant had been served with a copy of an affidavit sworn on 21 January 2016 by Mr O’Bryan, upon which the Plaintiff sought to rely.

34. Another affidavit of Ms Cambridge, this one sworn on 17 December 2015, revealed that she had posted a copy of an email dated 6 November 2015, from my Associate, confirming the hearing date of the proceedings and the directions made regarding the filing of any affidavits and an outline of submissions.

35. There was no evidence of service of the initiating process, and the affidavits upon which the Plaintiff sought to rely being served upon the third Defendant. However, at the hearing, counsel for the Plaintiff tendered (Ex. A) a copy of a letter, dated 25 August 2015, from the third Defendant, in which it acknowledged receipt of the Summons and the affidavit of Mr O’Bryan sworn 4 August 2015. The letter went on to state:

“We also note your advice by email to James Clarke dated 24 August 2015 that:

a)   BHP Billiton has been named as a defendant in this proceeding solely for the purpose of giving effect to any order that the Court may make requiring BHP Billiton to transfer the first defendant’s shareholding to Mr Steve Nicols of Nicols + Brien (as sought in the summons), and

b)   no costs orders are sought against BHP Billiton

On the basis of that information, BHP Billiton does not propose to appear at the hearing listed for 27 August 2015 and does not oppose any order that the Court may be inclined to make requiring transfer of the first defendant’s shareholding in BHP Billiton to Mr Nicols. A copy of this letter may be provided to the Court for its information.

In due course, we would be grateful if you could advise us of the outcome of the hearing on 27 August 2015.”

36. It follows that the third Defendant submits to the orders of the court (other than as to costs, which costs, in any event, are not being sought against it).

37. Counsel for the Plaintiff accepted that the onus of proving service of the Summons, affidavits in support, and any correspondence establishing notice of the date for hearing and that the matter was to proceed on that date, falls on the Plaintiff.

38. As stated, the judgment debt secured by the charging order has continued to accrue interest: s 108 Service and Execution of Process Act 1992 (Cth); s 100(7) Magistrates' Court Act 1989 (Vic). I am satisfied that the interest accrued is also secured by the charge: Ezekiel v Orakpo [1997] 1 WLR 340 at [346] per Millett LJ (cited in Chateau Constructions (Aust) Limited v Zepinic [2013] NSWSC 1326). I have previously set out the amount currently payable ($24,988.19) and how it has been calculated.

The Submissions

39. The Plaintiff and the first Defendant each filed a written outline of submissions. The Plaintiff’s submissions dealt, in some detail, with the effect of a charging order. It was submitted that a charging order creates an equitable charge, enforceable by sale; the reasons why sale should be ordered; and whether the Plaintiff’s costs of the proceedings should be paid out of the proceeds of sale of the shares.

40. The Plaintiff did not refer to the trial proceeding in the absence of the second and third Defendants despite the relief that was sought against each of them (Paragraphs 3 and 4 of the relief sought in the Summons).

39. In her written submissions, the first Defendant wrote that she believed the Plaintiff was desirous of obtaining the shares and the amount claimed was “created” in order to get control of her shares in circumstances where it must have been known to the Plaintiff that she would be otherwise unable to pay the balance of the debt claimed. There is no foundation for this allegation made by her that what has been done is the product of some devious conspiracy against her.

40. The first Defendant made other assertions about the mala fides of the Plaintiff but there was no evidence to support those assertions either. She also made other statements about some of her family members but these were without a factual foundation and are otherwise irrelevant to the matters that are currently before the court.

Determination

43. UCPR rule 29.7, relevantly, provides:

"Procedure to be followed if party is absent

(1) This rule applies when a trial is called on.

(2) If any party is absent, the court:

(a) may proceed with the trial generally or so far as concerns any claim for relief in the proceedings, or

(b) may adjourn the trial..."

44. In French Consulting Pty Ltd v Donald [2011] NSWSC 584, I wrote at [14]:

"The clear purpose of UCPR rule 29.7 is the efficient dispatch of Court business. However, in despatching Court business, I cannot ignore the right of a defendant to be informed, or, at least, to be made aware, of a trial date. It is a fundamental principle that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571, in which Rich J said (at 589):

It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside, and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside ... In such a case that has been no valid trial at all."

45. I also wrote, in the case, at [16]–[17], that whilst the court may be satisfied that a party was “absent”, that is, he, she, or it was not physically present at the trial and was not represented, a party is “absent” within the meaning of the rule, when the trial is called on, only if it can be shown that he, she, or it, has knowledge, or notice, of the date of the trial, and is not physically present, or not represented. In other words, before UCPR rule 29.7 can be relied upon, there should be proof that the absent party has been given reasonable notice of, or has knowledge of, the date of the trial. Therefore, it is necessary for the party seeking to proceed to establish that notice of the date for the trial and that it was to then proceed has been brought to the Defendant’s knowledge or notice.

46. I had earlier written, in Smirski v Macander [2010] NSWSC 929 at [34]:

“It is to be remembered that the primary considerations on whether to proceed ex parte concern whether there is urgency; whether irreparable damage would flow from making an ex parte order; whether hardship would flow to a party against whom an order is made and whether such an order can be set aside: Ndjamba v Toyota Finance Australia Ltd [2010] NTSC 23, per Blokland J at [8].”

47. I referred to these principles more recently, in Gould v Purtle [2014] NSWSC 493, in Oxley v Oxley [2014] NSWSC 1606 and in Alesco Corporation Limited ACN 008 666 064 v Te Maari [2015] NSWSC 469.

48. Of course, I must also have regard to the obligations imposed by s 56 to s 60 of the Civil Procedure Act 2005 (NSW). Section 56 emphasises that the overriding purpose of the Act and the rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. The court is required to give effect to the overriding purpose when it exercises any power given to it by the Act or by the rules of court. Section 60 of the Civil Procedure Act requires that in any proceedings the Court should seek to resolve the issues between the parties in such a way that “the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute.”

49. Section 57 of the Civil Procedure Act, in turn, requires the court to have regard to specified matters. Section 58 requires the court, in deciding whether to make any order or direction for the management of the proceedings, to act in accordance with the dictates of justice, and the court must have regard to the provisions of ss 56 and 57. These sections recognise the fact that delay and case backlog are matters which affect not only the public cost in delivery of justice, but also the court’s ability to provide individual justice, and that the reforms introduced by the Civil Procedure Act promote the provision of individual justice notwithstanding that they may have adverse effects on the claims of individual parties in particular circumstances: Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230, per Allsop P (as his Honour then was) at [36].

50. The Court is authorised by s 90(1) of the Civil Procedure Act and UCPR rule 36.1 to give such judgment, or make such orders, as the nature of the case requires, at any stage of proceedings.

51. In this case, I am satisfied, despite the non-appearance of each of the second and third Defendants, that the court should proceed with the trial, particularly since no costs order is being sought against each, and because the nature of the substantive relief, involving the sale of the shares, does not detrimentally affect its interests. This does not mean, however, that the precise form of the order sought against each should be made.

52. In regard to the form of order to be made against each of these Defendants, it does seem to me that the Plaintiff should satisfy itself of the precise form of the order for the transfer of the shares and what, if any, formal requirements there are to ensure that any share transfer will be registered.

53. As I have noted, no costs order is sought against either the second or the third Defendant.

54. The jurisdiction to make a charging order is to be found in s 106(1) of the Civil Procedure Act 2005 (NSW). The section describes the types of orders that may be made for the enforcement of a judgment debt and, relevantly, it includes that a judgment of the District Court may be enforced by a charging order. The section does not specify the nature of the property against which a charging order can be made or the effect of such an order.

55. Section 3 of the Civil Procedure Act defines “judgment” as including “any order for the payment of money, including any order for the payment of costs”.

56. Section 102 of the Civil Procedure Act defines "chargee" as “the person to whom a charging order is addressed” and, somewhat unhelpfully, defines a charging order to be “an order referred to in section 106(1)(c)”. However, in ANZ Banking Group Ltd v Greig [1980] 1 NSWLR 112 at [18]-[19], Master Allen described the nature of a charging order as follows:

“A charging order is a hypothecation. It does not involve any passing, from the owner of the property to the holder of the charge, of any of the rights of ownership. In this respect, a charging order, or other true hypothecation, stands in sharp contrast to a mortgage of land under Old System title whereby the mortgagor conveys his interest in the land to the mortgagee.

The law, in my opinion, is accurately stated in Sykes, op cit, at pp 15, 16, as follows: ‘… whilst … mortgage stricto sensu … deal(s) with existing rights by assigning them, the hypothecation creates rights. … (the) rights only arise on default; they are new creations coming into existence on that contingency … what are created are mere potentially exercisable rights which automatically cease on repayment.’”

57. It has also been said that it is not a mortgage but rather a “right of realisation by judicial process in case of non-payment of a debt”: Andersons Solicitors v Schigulski [2004] SASC 21; (2004) 88 SASR 1.

58. UCPR rule 39.44 refers to an application for a charging order being made by way of notice of motion, which, unless the court orders otherwise, may be dealt with in the absence of the parties, and which needs not be served on the judgment debtor or the proposed chargee.

59. UCPR rule 39.45 deals with the evidence to be given by way of affidavit in support of the application for a charging order.

60. Section 126 of the Civil Procedure Act deals with the operation of a charging order and prescribes the kinds of property in relation to which such orders can be made.

61. The section, relevantly, provides:

“(1) This section applies to the following kinds of property in relation to a judgment debtor (referred to in this Division as "security interests"):

(a) stock and shares in a public company,

(b)…

(c)…

(2) Subject to the uniform rules, a charging order operates, in relation to each security interest specified in the order:

(a) to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment, and

(b) to restrain the chargee from dealing with the security interest otherwise than in accordance with the directions of the judgment creditor.

(3) A charging order takes effect when it is made.

(4) Despite subsection (3), the judgment creditor may not commence proceedings to take the benefit of a charge arising under a charging order until after the expiration of 3 months from the date of the order.

(5) A charging order entitles the judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor’s favour by the judgment debtor.”

62. Thus, a charging order does not create an interest in the property of the judgment debtor the subject of the order. It does no more than secure the judgment debt by the making of that order and merely protects the interests of the judgment creditor to the extent necessary to satisfy the judgment.

63. Furthermore, a charging order is not, of itself, execution of the judgment on which it is founded since it requires the commencement of “proceedings to take the benefit of a charge arising under a charging order” (s 126(4)).

64. The first Defendant has not submitted that the District Court did not have jurisdiction to make the charging order in this case. Nor did she submit that there were any grounds to enable the charging order to be set aside.

65. I am unaware of any basis for impugning the validity of the charging order which has been issued by the District Court.

66. Having reached that conclusion, it is important to remember s 126(5) which entitles the Plaintiff, as a judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor’s favour by the judgment debtor.

67. The usual manner of taking the benefit of a charging order is by fresh proceedings begun by Summons rather than by application in the proceedings in which the charging order was made. That seems to be confirmed by s 126(4) of the Civil Procedure Act.

68. In S E Williams and F G-S, Daniell's Chancery Practice, (8th ed 1914, Stevens and Sons) at [818], the learned editors state:

"The provisions of section 24 of the Judicature Act, 1873, have not conferred any new jurisdiction on the Court with regard to the enforcement of a charging order, so as to enable it to make an order for sale after the expiration of six calendar months from the date of the charging order. The judgment creditor is only entitled to such remedies as he would have been entitled to if such charge had been made in his favour by the judgment debtor, and must, therefore, in order to enforce the charge, institute separate proceedings Leggott v Western, 12 QBD 287; Kolchmann v Meurice, (1903) 1 KB 534... It is settled law that the remedy is by sale, not foreclosure D'Auvergne v Cooper, WN (1899) 256."

69. In other words, in the case of an equitable charge, there is a right to have, by separate process, an appropriation of the property to satisfy the debts in the event of default: Tyler, Young and Croft, Fisher & Lightwood’s Law of Mortgage, (2nd Aust ed 2005, LexisNexis Butterworths), referred to in Linga v C & N Constructions Pty Ltd [2012] NTSC 8 at [23].

70. In United Travel Agencies Pty Ltd v Cain (1990) 20 NSWLR 566, Young J (as his Honour then was) expressed the view that the judicial sale of shares is the method by which a charging order may be enforced. (Also see, Falcone and Williams v Mentyn; Pearce v Mentyn (No 2) [2004] TASSC 156; (2004) 13 Tas R 384; King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 64 NSWLR 441 at [51]; Chateau Constructions (Aust) Ltd v Zepinic (No 5) [2010] NSWSC 265).

71. Young J, at [572], also considered that the sale under such an order “will be only of the judgment debtor’s right title and interest in the shares which are charged”.

72. Then, it is necessary to note what Brereton J wrote in Sood v Christianos [2008] NSWSC 1087 at [16]:

"… judicial sale is the standard remedy of an equitable chargee. Upon default, an equitable chargee is entitled as of right to an order for sale; this is not regarded as a matter of discretion. Sykes and Walker say as much (at 198): 'The chargee on default has the right to apply to the court for an order for sale. Such order is of right and not regarded as a matter of discretion'. In this field, where it is a remedy of an equitable chargee, judicial sale is not a remedy of last resort but the standard remedy".

73. However, Garling J in Australia and New Zealand Banking Group Ltd v Donnelly [2012] NSWSC 1615 at [27]–[30], noted, after referring to the passage quoted:

“The reference to Sykes and Walker in this extract is to Edward Sykes and Sally Walker, The Law of Securities, 5th ed (1993) Law Book Co. An examination of the text book does not suggest that the learned authors have cited any authorities to support the statements which Brereton J has extracted. It seems to me that the context for the remarks of Brereton J was that a judicial sale at the suit of an equitable chargee is a standard remedy rather than a last resort remedy, in accordance with remarks to the effect that an order for judicial sale is a remedy which was to be only applied as "a last resort" see Yarrangah Pty Limited v National Australia Bank Limited [1999] NSWSC 97 at [27] per Young J (as his Honour then was).

It seems to me that Brereton J took a great deal of care to emphasise that where a default exists, an order for judicial sale is a standard remedy available to an equitable chargee. I do not with respect take Brereton J's statement that an equitable chargee is entitled to have a Court make an order for judicial sale, to be an automatic entitlement to the relief regardless of any submissions which the Court may receive as to whether it is appropriate to make such an order.

So, it seems to me that in order to obtain an order for judicial sale, an equitable chargee does not have to demonstrate what, if any, other steps have been taken to enforce the charge. Nor does an equitable chargee have to prove any special or exceptional entitlement to the order. It is sufficient that the equitable chargee can show that the charge exists and is enforceable and that default has occurred. That said, it seems to me that before a Court makes an order for judicial sale, it is and must be entitled to have regard to the position of those who will be affected adversely by the making of the order.

I find it difficult to accept that a Court would grant an equitable remedy where the remedy itself would become an instrument of injustice. Although an equitable chargee may have an entitlement upon default to seek an order for judicial sale, the Court retains a discretion to determine whether, in all the circumstances, such an order ought to be made. To the extent that ANZ contended that Brereton J's judgment expressed some other principle which had the effect of removing all discretion from the Court as to whether it would make such an order, and that the order would in effect automatically be made in every case, I reject that submission. That is not how I understand the principle to which his Honour refers.”

74. Respectfully, I agree that judicial sale is the method by which the Plaintiff may take the benefit of a charge arising under a charging order where default in paying the judgment debt exists.

75. In this case, the Plaintiff, as required by s 126(4) of the Civil Procedure Act, has commenced proceedings seeking an order for the sale of the shares. In addition, it seeks orders for possession of the shares, because an order for possession of the shares is required in order to effect a sale and because the Plaintiff has no power of sale unless and until the court orders it.

76. It is clear that the three month moratorium on the commencement of proceedings to take the benefit of the charge, also prescribed by s 126(4), has long passed.

77. As Mr Nicols is a registered liquidator I would be satisfied that he is an appropriate person to be appointed to sell the shares. However, I would not be prepared to make an order in terms of Paragraph 5 of the relief sought in the Summons without more information about the fees proposed to be charged and also whether there is any alternative way of achieving the sale that might not be as costly.

78. For example, it may be possible to appoint a share broker to sell the shares on the standard terms and conditions of the Australian Stock Exchange and to pay the proceeds of sale, after deducting its, his or her, proper and reasonable commission, into court for payment out to the Plaintiff, and if there is a surplus of the proceeds of sale, to the first Defendant: see, for example, Davidson Armstrong & Campbell Solicitors Nominee Company Ltd v Morrison [2008] NZHC 2057.

79. Another alternative, despite the lengthy period that has passed since the charging order was made, is to make an order for the sale of the shares but to stay the order for a brief time to allow the first Defendant to provide sufficient funds from another source to satisfy the charging order, with the result that any order for sale of the shares, which shares she says provides her with a supplement to her income, would be discharged. The obvious costs and expenses of sale of the shares could then be avoided. Whilst the first Defendant did not give any indication that she would discharge the judgment debt on her own volition, she should be given one last opportunity to do so. She should be allowed no more than 2 weeks to make other arrangements, if she is able, to satisfy the judgment debt and interest accrued thereon.

80. The first Defendant should realise that the Plaintiff is in a position to recover the unpaid judgment debt from her, a position that she seems to have been unable to face, or if she has faced it, to come to terms with the prospect of the sale of her shares to meet the judgment debt.

81. Finally, I should deal with the costs of these proceedings. No order for costs is sought against either the second or third Defendants. The Plaintiff did not seek any gross sum costs order against the first Defendant.

82. Costs, of course, are in the discretion of the court, and the court has full power to determine by whom, to whom and to what extent costs are to be paid.

83. I am satisfied that the Plaintiff should receive some of its costs of the application as against the first Defendant but not all of those costs, principally because of the manner in which the case was prepared and presented.

84. It must have been obvious to the Plaintiff that the first Defendant was appearing without legal representation and that there was a real likelihood that the second and third Defendants would not appear at the hearing. These facts should have prompted the Plaintiff to take more care in the preparation of its case for hearing and it should have served all of the necessary evidence to enable the first Defendant and, as importantly, the court, to consider the basis of its application and the facts giving rise to the making of the orders that it sought.

74. Clearly, from what has been written above, the Plaintiff did not do so, despite having been reminded that the necessary evidence, by affidavit, should be served and provided to the court. In this regard, I note that it was necessary for counsel to tender documents at the hearing, a copy of which had not been served. The tender of these documents appeared to be prompted by the court asking about the evidence the subject of the subsequent tender.

75. Had it not been for the costs involved in adjourning the matter, as well as the first Defendant’s obvious desire not to be troubled further by the proceedings, there was a real possibility that the matter would not have been able to proceed and it would have had to be adjourned to enable the further evidence to be provided.

76. Even now, there is no evidence of what steps the Plaintiff needs to take to ensure that the shares which will be subject to the order for sale, can be sold pursuant to the order for sale and the most economical method by which the shares may be sold.

77. In addition, there was no evidence of any steps taken by, or on behalf of, the Plaintiff, to discuss with the first Defendant, prior to the hearing, a practical and less costly solution to the problem. In this regard, it is important to remember that the facilitation of the just, quick and cheap resolution of the real issues in the proceedings is an object which the court and the parties must remember.

78. An opportunity given to the parties to find such a practical solution during the hearing proved fruitless. It is now necessary to reserve consideration of the manner in which the sale of the shares must take place and whether, in all the circumstances, bearing in mind the costs, a registered liquidator should be appointed to sell the shares.

79. In my view, the Plaintiff should receive only 50 per cent of the costs and disbursements calculated on the ordinary basis, of these proceedings.

80. Counsel for the Plaintiff submitted that “although not currently articulated as a specified sum, the Plaintiff's costs of these proceedings can be added to the amount of the charge”. She added: “Even if the Plaintiff's costs of enforcement are not added to the equitable charge, they ought be satisfied out of the proceeds of sale of the shares.”

81. In support of the submission, counsel for the Plaintiff relied upon what had been written by Darke J in Chateau Constructions (Aust) Limited v Zepinic [2013] at [31]. However, what his Honour wrote there should be set out to demonstrate that it does not apply in the present case:

“I accept, having regard to the nature of the proceedings, that the plaintiff's costs, which have been the subject of assessment, were properly incurred in the course of preserving and enforcing the equitable charge contained in the building contract. I am further satisfied that the principle, that costs of this character may be recovered by recourse to the secured property, is applicable to an equitable chargee in the position of the plaintiff (see Fisher and Lightwood's Law of Mortgage, 13th ed (2010) at paragraph 55.7; Ezekiel v Orakpo [1997] 1 WLR 340 at 346 per Millett LJ). Accordingly, I am prepared to make order 1(a) as sought in the Further Amended Notice of Motion which has the effect of adding those costs to the amount which the Court previously declared to be covered by the charge.” (My emphasis)

93. As stated, the costs of these proceedings have not been the subject of assessment. In Widgery v Tepper (1877) 6 Ch.D 364, James LJ, with whom Baggallay and Cotton LJJ concurred, in discussing charging orders under the Judgments Act 1838 (UK), observed, at [369]:

“The authorities are sufficient to shew that a charging order cannot be given except for an ascertained sum, and not for costs, charges, and expenses, until they have been taxed. The necessity of an ascertained sum has been settled by numerous authorities; the necessity of the costs being taxed is clear from the case of Jones v Williams”.

94. In Wilkie v Wilkie [1905] VLR 80, Hodges J, at [82], accepted, based on Widgery v Tepper, that an ex parte order made by him charging a sum of money paid into court as security for costs of an appeal could not stand because the costs had not yet been taxed. Also see Fine Real Estate Network Pty Ltd v Howell (Supreme Court (NSW), Young J, 4 December 1997, unrep) and Padkohe Pty Ltd v Fletcher [2006] NSWSC 1239 at [13] (Barrett J).

95. More recently, in McNamara Business & Property Law v Kasmeridis (No 2) [2006] SASC 167 at [22] after citing a number of English authorities, Gray J wrote that there was an established principle (in the United Kingdom) that “a charging order cannot be given except with respect to an ascertained sum. Consequently, a charging order in the United Kingdom cannot be made for untaxed costs”. His Honour added at [25]:

“Sections 3 and 8 of the Enforcement of Judgments Act 1991 should not be interpreted so as to include an order for costs that has not yet been ascertained. A party with the benefit of an order for costs to be taxed will only be a judgment creditor once an allocatur has been issued. An allocatur has not been issued with respect to the High Court order for costs. The Full Court had not yet made any order for costs.”

96. I respectfully agree. It will be necessary to have the Plaintiff’s bill of costs formally assessed and those costs should not form part of the charging order against the first Defendant’s shares. Until the order for costs of these proceedings is made and entered, there is no obligation, or liability, to pay those costs and there is no right to recover them from the first Defendant.

97. Furthermore, I note s 126(2) of the Civil Procedure Act which states that “Subject to the uniform rules, a charging order operates, in relation to each security interest specified in the order (a) to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment.” The judgment to be satisfied, does not, of course, concern the costs of these proceedings.

98. Finally, s 137(2) of the Civil Procedure Act should be noted. That section, which deals with what is included in the costs recoverable under, inter alia, a charging order, does not refer to the costs of obtaining an order for judicial sale.

99. I direct the Plaintiff to deliver to my Associate within 14 days from the date of delivering these reasons for judgment, Short Minutes of Order that reflect these reasons for judgment. I shall adjourn these proceedings for 21 days from the date of delivering these reasons. Provided I am satisfied that the Short Minutes of Order are appropriate, and if there is no objection to the form of orders by the first Defendant, I shall make orders in Chambers without the need for any party to appear on the adjourned date. In the event that I am not satisfied with them, I shall inform the parties that the matter will proceed on the adjourned date for further argument on the form of the orders. It follows that careful consideration should be given by the Plaintiff’s legal representatives to the form of the Short Minutes of Order.

100. The Plaintiff should provide a copy of these reasons to each of the second and third Defendants.

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Decision last updated: 24 February 2016