Huntingdale Village Pty Ltd v Mallesons Stephen Jaques
[2013] WASC 48
•8 MARCH 2013
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: HUNTINGDALE VILLAGE PTY LTD -v- MALLESONS STEPHEN JAQUES [2013] WASC 48
CORAM: LE MIERE J
HEARD: 27 NOVEMBER, 11 DECEMBER 2012
DELIVERED : 8 MARCH 2013
FILE NO/S: CIV 1791 of 2012
MATTER :Section 295 of the Legal Profession Act 2008 (WA)
Order 58 r 11 of the Rules of the Supreme Court 1971 (WA)
BETWEEN: HUNTINGDALE VILLAGE PTY LTD
First Plaintiff
SILKCHIME PTY LTD
Second PlaintiffVANNIN PTY LTD (RECEIVERS AND MANAGERS APPOINTED)
Third PlaintiffWARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVERS AND MANAGERS APPOINTED)
Fourth PlaintiffPARAGON APARTMENTS LTD (RECEIVERS AND MANAGERS APPOINTED)
Fifth PlaintiffAND
MALLESONS STEPHEN JAQUES
Defendant
Catchwords:
Legal Profession Act 2008 (WA) - Meaning of 'third party payers' - Bill of costs - Liability to pay - Taxation
Rules of the Supreme Court 1971 (WA) O 58 r 11 - Application to set aside, dismiss or stay action - Originating summons - Proceedings commenced by
Rules of the Supreme Court 1971 (WA) O 18 r 6(2)(b) - Joinder of a party
Legislation:
Corporations Act 2001 (Cth)
Legal Practice Act 2003 (WA)
Legal Profession Act 2004 (NSW)
Legal Profession Act 2007 (Qld)
Legal Profession Act 2008 (WA)
Rules of the Supreme Court 1971 (WA)
Result:
Plaintiff's application be dismissed
Mr Carey be joined as plaintiff
Category: B
Representation:
Counsel:
First Plaintiff : Mr A Metaxas
Second Plaintiff : Mr A Metaxas
Third Plaintiff : Mr A Metaxas
Fourth Plaintiff : Mr A Metaxas
Fifth Plaintiff : Mr A Metaxas
Defendant: Mr M J Feutrill
Solicitors:
First Plaintiff : Metaxas & Hager
Second Plaintiff : Metaxas & Hager
Third Plaintiff : Metaxas & Hager
Fourth Plaintiff : Metaxas & Hager
Fifth Plaintiff : Metaxas & Hager
Defendant: King & Wood Mallesons
Case(s) referred to in judgment(s):
Amos v Ian K Fry & Co [2010] QCA 131
Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Joint Venture [2007] WASCA 152
Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1163; 60 ACSR 217
Boyce v McIntyre [2009] NSWCA 185
Capital Globe Investments Pty Ltd v Parker Investments Australia Pty Ltd [2011] QSC 031
Carey v Korda & Winterbottom [No 2] [2011] WASC 220
Carey v Korda [2012] WASCA 228
Carey v Mark Anthony Korda and David John Winterbottom [2010] WASC 362
Chamberlain v Shirand Nominees Pty Ltd (Unreported, WASC, Library No 8332, 22 June 1990)
Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia (2001) 108 FCR 77; [2001] FCA 173
Great Australian Operations Pty Ltd (Receivers and Managers Appointed) v Washington H Soul Pattinson & Company Ltd [2012] NSWSC 1134
Legal Services Commissioner v Wright [2010] QCA 321
Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75
Raja v Darul‑Iman (WA) Inc (No 2) [2011] WASCA 251 (S)
Re Geneva Finance Ltd; Quigley v Cook (1992) 7 WAR 496
LE MIERE J: The defendant solicitors, King & Wood Mallesons (Mallesons) have applied to set aside, dismiss or stay this action. In the action the plaintiff companies seek declarations that they are 'third party payers' as defined in s 295 of the Legal Profession Act 2008 (WA) (the Act) in relation to the defendant's bills of costs to Mark Korda and David Winterbottom as the receivers and managers of the plaintiffs and others in proceeding COR 147 of 2010 in this court, and that Mallesons is required to submit the bills for assessment to a taxing officer in accordance with s 295(3) of the Act. Norman Carey has applied to be joined as a plaintiff in the action.
The Westpoint Group
Mr Carey is the founder of the Westpoint Group of companies which include the plaintiffs, Westpoint Corporation Pty Ltd (Westpoint Corporation), Bayview Port Melbourne Ltd (Bayview Port Melbourne) and Westpoint Management Ltd (Westpoint Management). Mr Carey is a director of each of the plaintiff companies. On 28 September 2005, Perpetual Nominees Ltd (Perpetual Nominees) as Custodian of the ING Mortgage Pool for ING Funds Management Ltd as the Responsible Entity of the ING Mortgage Pool as lender, and Westpoint Corporation and the plaintiffs, other than Paragon Apartments Limited (Paragon Apartments) (the Borrower), as borrower entered into a loan agreement (Loan Agreement). At the same time Perpetual Nominees as lender and Mr Carey, Paragon Apartments, Bayview Port Melbourne and Westpoint Management as guarantor entered into a guarantee and indemnity (Guarantee) by which the guarantor guaranteed to the lender the payment to it by the borrowers under the Loan Agreement of the Guaranteed Money, that is all money and damages which the borrower is liable to pay to the lender. Each of the borrowers under the Loan Agreement and each of the corporate guarantors under the Guarantee granted a fixed and floating charge in favour of Perpetual Nominees.
Each of the plaintiff companies committed an act of default and on 24 January 2006 Perpetual Nominees appointed Mark Korda, David Winterbottom and Oran Zohar as the receivers and managers of each of the companies. Zohar later retired as one of the receivers. I will refer to Mark Korda and David Winterbottom in their capacity as receivers and managers of the plaintiffs as the Receivers. Westpoint Corporation, Bayview Port Melbourne and Westpoint Management are and have been since 2006, in liquidation.
COR 147 of 2010
Mr Carey requested from the Receivers copies of invoices of their fees in respect of the receiverships of the plaintiffs, Westpoint Corporation, Bayview Port Melbourne and Westpoint Management (collectively the Westpoint companies) and copies of the invoices for the legal costs charged by Corrs Chambers Westgarth (Corrs) in respect of the receiverships of those companies. The Receivers refused to permit Mr Carey to inspect those documents but offered to allow Mr Carey to inspect certain nominated documents.
On 30 August 2010 Mr Carey commenced proceedings in this court (COR 147 of 2010) against the Receivers and Perpetual Nominees in which he claimed relief relating to the inspection and copying of financial records relating to the Westpoint companies. Quarts Nominees Pty Ltd, a member of Westpoint Management, was later added as a plaintiff to those proceedings. Also on 30 August 2010 Mr Carey caused to be issued an interlocutory process in which he claimed, amongst other things, an order that the Receivers produce for inspection and copying pursuant to s 290 or s 421(2) of the Corporations Act 2001 (Cth) financial records relating to the companies as correctly recorded and explain payments to the Receivers and to Corrs. The Receivers raised a number of issues concerning the entitlement of the plaintiffs in those proceedings to inspect the documents sought and the obligation of the Receivers to make them available for inspection. I ordered that a number of issues arising in the matter be tried separately. On 7 December 2010 I delivered reasons determining those issues: Carey v Mark Anthony Korda and David John Winterbottom [2010] WASC 362. Most relevantly for present purposes, the issues concerned whether the Receivers were required to produce two categories of documents:
(a)recharge schedules ‑ documents detailing the Receivers' fees and expenses, for their work in the course of the receiverships, which had been charged to the companies in receivership; and
(b)Corrs' bills of costs - concerning legal costs for work done by the solicitors on instructions from the Receivers.
I determined, in effect, that documents in both categories were amenable to inspection under s 421(2) of the Corporations Act, subject to any claim for legal professional privilege which the Receivers might make. A claim for privilege had been foreshadowed but not made at that time.
On 21 December 2010 I ordered that the Receivers' claim for legal professional privilege be referred to a judge for determination in relation to their claims of privilege in respect of:
(a)the invoices issued by Corrs and narratives provided with those invoices; and
(b)a sample of the recharge schedules.
That matter was heard by Edelman J on 26 July 2011. His Honour delivered judgment on 26 August 2011. Edelman J in effect dismissed the application by the plaintiffs for the production and inspection of the documents. His Honour found, in effect, that the documents in issue were not amenable to production because they were subject to legal professional privilege: Carey v Korda & Winterbottom [No 2] [2011] WASC 220.
The plaintiffs appealed to the Court of Appeal. The appeal was heard on 8 August 2012 and the Court of Appeal delivered judgment on 15 November 2012. The Court of Appeal upheld the appeal in part and determined that the Receivers should have the opportunity of putting on further evidence in support of their claim for privilege and that the matter should be remitted to the General Division for directions in that regard and further determination by another CMC judge: Carey v Korda [2012] WASCA 228.
In COR 147 of 2010 the Receivers were represented by Mallesons, the defendants in this action. In his affidavit sworn 7 May 2012 Mr Carey says that he has reviewed forms lodged by the Receivers with ASIC and these reveal that the total payments made by Westpoint Corporation and the other entities to Mallesons in COR 147 of 2010 between 25 October 2010 and 19 May 2011 have been $403,286.71. On 20 April 2012 the solicitors for the plaintiffs in this action wrote to Mallesons requiring 'all of your firm's costs totalling $403,286.71 to be assessed pursuant to section 295(3) of the Legal Profession Act 2008 (WA)'. On 27 April 2012 Mallesons replied stating they did not consider the plaintiffs are third party payers, as defined in the Act, and therefore have no entitlement to request that Mallesons' bills be assessed pursuant to s 295(3) of the Act. The plaintiffs then commenced this proceeding by originating summons.
Originating summons
In this originating summons the plaintiffs claim:
1.the Court declares that the plaintiffs are 'third party payers' as defined in section 295 of the Legal Profession Act 2008 ('LPA') in relation to the defendants' bills of costs ('Bills') to Mark Anthony Korda and David John Winterbottom as the receivers and managers of the plaintiffs and others in application COR 147 of 2010;
2.the Court declares that the defendant is required to submit the Bills for assessment to a taxing officer in accordance with section 295(3) of the LPA consequent upon the plaintiffs' request by letter dated 20 April 2012;
3.to the extent that such may be required the Court declares that it is just and fair for the plaintiffs' application for assessment be dealt with after the 12 month period in section 295(6) of the LPA;
4.the defendant deliver the Bills to a taxing officer for assessment within 7 days from the date of this order; and
5.costs.
The originating summons is supported by an affidavit sworn by Mr Carey on 7 May 2012.
Application to set aside, dismiss or stay the action
Mallesons have applied to set aside, dismiss or stay the action. More specifically, Mallesons seek orders that:
1The defendant have leave to make this application to the extent it is made under Order 16 Rule 1(1).
2The originating summons in the action be set aside, alternatively the action be dismissed or permanently stayed.
3The solicitors on the record for the plaintiffs and the individuals instructing them do jointly and severally pay the defendant's costs of the action, including any reserved costs, to be taxed in any event.
4The solicitors on the record for the plaintiffs and the individuals instructing them do jointly and severally pay the defendant's costs of this application to be taxed in any event.
Carey applies to be joined as plaintiff
At the commencement of the hearing of the defendant's application counsel for the plaintiffs and Mr Carey moved that Mr Carey be joined as a plaintiff. The defendants oppose that application.
Issues
Counsel for the defendant submitted that there are four issues:
1.Should Mr Carey be joined as a plaintiff?
2.Is there any arguable case, or serious question to be tried, on the causes of action raised by the plaintiffs or Mr Carey?
3.Should the action by the plaintiff companies be stayed because the alleged causes of action upon which the plaintiff companies sue are assets under the control of the Receivers, and the plaintiff companies, or the director instructing them, do not have authority to commence or maintain the action on behalf of the companies?
4.Is the originating summons irregular because the proceedings should have been commenced by writ?
Joinder
Order 18 r 6(2)(b) of the Rules of the Supreme Court 1971 (WA) provides that at any stage of the proceedings the court may order that any person who ought to have been joined as a party or whose presence before the court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, be added as a party. The defendant submits that Mr Carey should not be joined as a plaintiff because Mr Carey has not established that he has an arguable case on the cause of action raised by the originating summons. In essence, that is the second issue raised by the defendant. It is convenient to consider that issue at this time.
Cause of action raised by originating summons
The defendant submits, in effect, that there is no serious question to be tried that the plaintiffs, or Mr Carey, are third party payers as defined in s 295(1) of the Act in respect of the defendant's bills of costs to the Receivers in COR 147 of 2010.
Part 10 div 8 of the Act makes provision for the review, by way of assessment, of lawyer‑client bills of costs. Section 295(2) provides for a client to apply to a taxing officer for an assessment of a bill of costs. Section 295(3) provides that a third party payer may apply for an assessment of the costs payable by the third party payer. The plaintiffs, and Mr Carey, say that they are third party payers in respect of the bills rendered by Mallesons to the Receivers.
Before considering the meaning of 'third party payer' in s 253 of the Act it is convenient to refer to the decision of the Court of Appeal in Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Joint Venture [2007] WASCA 152 in which the Court of Appeal considered the predecessors to s 253 and s 295 of the Act. Section 232(3) of the Legal Practice Act 2003 (WA) provides:
(3)A person charged with a bill of costs that contains detailed items may ‑
(a)serve upon the legal practitioner, within 30 days from the service of the itemised bill, a written notice of intention to have the bill taxed; and
(b)upon service of that notice, have the bill taxed by the taxing officer.
Section 228(2)(a) provides that, for the purposes of pt 13 div 3, in which s 232(3) appears:
(a)a reference to the person or party charged includes a reference to ‑
(i)a person who has paid the bill to which the charge relates;
(ii)any other person who is authorised to administer the estate or affairs of any such person who is deceased, incapable or insolvent;
(iii)a person liable to pay or to reimburse another for costs in a bill; or
(iv)a person who is a beneficiary of a trust estate or fund against which costs may be chargeable;
In Andrew Koh Nominees a receiver and manager appointed to a joint venture incurred legal costs. The costs were challenged by the appellant which was one of the joint venturers. The costs had been paid from monies in a bank account in the name of the joint venture. The question was whether the appellant was a 'party charged with a bill of costs', which it was only if it was 'liable to pay' those costs. After referring to several authorities Buss JA, with whom Steytler P agreed, said:
In my opinion, a person will be 'liable to pay' costs in a bill, within s 228(2)(a)(iii), if, relevantly:
(a)the person is under a legally enforceable personal obligation to pay the legal fees in a bill of costs to the legal practitioner who rendered the bill;
(b)the person is under a legally enforceable personal obligation to reimburse another person for the legal fees in a bill of costs which that other person has paid to the legal practitioner who rendered the bill; or
(c)the person's property may lawfully be applied in paying the legal fees in a bill of costs to the legal practitioner who rendered the bill, or in reimbursing another person for the legal fees in a bill which that other person has paid to the relevant practitioner.
It is not essential that there be a contractual or other relationship between the person who is under a legally enforceable personal obligation to pay or reimburse the legal fees, or whose property may lawfully be applied in paying or reimbursing the legal fees, on the one hand, and the legal practitioner in question, on the other. Where a person's property may lawfully be applied in paying the legal fees in a bill of costs etc, that person will in substance be 'liable to pay' costs in a bill, within s 228(2)(a)(iii). It would be inconsistent with the evident intention of the Parliament and with the remedial character of s 228(2)(a) to hold that such a person was not 'liable to pay'. The reasoning in Debney, at 394, 396 ‑ 397, is, with respect, persuasive and should be applied, by analogy, in the present case. Also see Parramatta River Lodge at 12,040. The examples I have given of a person who will be 'liable to pay' costs in a bill, within s 228(2)(a)(iii), are not intended to be exhaustive.
In the present case, the appellants are persons 'liable to pay' costs in the bills of costs rendered by Phillips Fox to Mr Trevor in that, at all material times, Mr Trevor has been lawfully empowered, by cl 7 of the orders made by Roberts‑Smith J, to apply the appellants' joint venture property in the payment of the costs (assuming they are reasonable and have been properly incurred).
The present case is distinguishable from cases such as Equuscorp and Re Barber. In those cases, the person who sought to have the solicitors' costs taxed or assessed merely contributed, with others, to a fund out of which the solicitors' account was to be paid. The fund in question was not the property of the party seeking taxation or assessment, even though it was comprised of amounts which, before payment into the fund, had been the property of that person and others. By contrast, in the present case, at all material times the credit balance from time to time in the joint venture bank account which Mr Trevor applied in payment of the bills of costs rendered by Phillips Fox was the appellants' property [34] ‑ [36].
The Act was drafted in accordance with the National Model Bill on the legal profession and in doing so brought Western Australia into the common national framework for the regulation of the legal profession. The term third party payer is defined in s 253 of the Act:
(1)For the purposes of this Part ‑
(a)a person is a third party payer, in relation to a client of a law practice, if the person is not the client and ‑
(i)is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(ii)being under that obligation, has already paid all or a part of those legal costs;
and
(b)a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person; and
(c)a third party payer is a non‑associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not to the law practice.
(2)The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise.
(3)A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client.
The Explanatory Memorandum to the Act explained the term 'third party payer' as follows:
A 'third party payer' is a person who is not the actual client, but who nevertheless carries the obligation of paying the costs of providing legal services to the client. An 'associated third party payer' is someone whose obligation to pay is to the law practice, whereas a 'non‑associated third party payer' is someone whose obligation to pay is to some other person (perhaps the client) but not the law practice. An associated third party payer could be, for example, a friend or family member of the client who gives an undertaking to the law practice to pay the client's bill. A non‑associated payer may be, for example, a tenant who in a lease agreement with a landlord agrees to pay the landlord's bill if there is any dispute that results in the landlord engaging a legal practitioner.
In Boyce v McIntyre [2009] NSWCA 185 the New South Wales Court of Appeal considered s 302A of the Legal Profession Act 2004 (NSW) which is in the same terms as s 253 of the Act. The dispute between the parties concerned legal costs payable by the first respondent, Mrs McIntyre, under a contract of sublease she entered into with the second respondent, KT. By the sublease, Mrs McIntyre agreed to pay KT's reasonable legal costs of or incidental to the sublease. The applicant solicitors rendered tax invoices to KT. KT in turn sent a tax invoice to Mrs McIntyre seeking payment of the amount charged by the solicitors. Mrs McIntyre applied to have KT's bill assessed by a costs assessor. Ipp JA, with whom MacFarlan JA and Hoeben J agreed, observed that it was common ground that Mrs McIntyre is a 'non‑associated third party payer'. His Honour observed that 'a non‑associated third party payer', while being under legal obligation to pay 'legal costs' for legal services rendered to the client, owes no legal obligation to the law practice that provided the legal services. His Honour said, referring to s 302A and s 350(2) of the Legal Profession Act 2004 (NSW) which are the equivalent provisions to s 253 and s 295(2) of the Act:
Section 350(2) (which also was introduced into the Legal Profession Act by the Legal Profession Further Amendment Act 2006 (Sch 2 [131]‑[133]) provides that a third party payer may apply to a costs assessor for an assessment of the whole or any part of legal costs payable by the third party payer. This means that a non-associated third party payer may require a costs assessment to be made notwithstanding that the non‑associated third party payer is not obliged to pay the costs in issue to the law practice that rendered the services giving rise to the costs in question.
Thus, s 302A read with s 350(2) affords persons in the position of non‑associated third party payers the right to have legal costs assessed even though they are only liable to pay the amount of such costs to a party other than the law practice which charged that other party for those costs. Such a liability will ordinarily arise out of a contract entered into between a non-associated third party payer and the client of the law practice. In many cases such a contract will be a lease or a mortgage (with the non‑associated third party payer being the lessee or mortgagor).
In these circumstances, the introduction in 2006 of the non-associated third party payer provisions in the Legal Profession Act in 2006 can be seen as being for the purpose of consumer protection. In particular, the introduced provisions afford protection to persons who agree, in effect, to indemnify other parties (such as lessors and mortgagees) in respect of legal costs for services rendered to those other parties [20] - [22].
Amos v Ian K Fry & Co [2010] QCA 131 concerned proceedings to which Amos and his brother (the executor) who was the executor and trustee of their late father's estate were parties. The two brothers and their sister were the beneficiaries of the estate. In proceedings relating to the administration of the estate an order had been made requiring Amos to pay the 'unnecessary costs of the administration of the estate' flowing from the conduct of Amos. The order also provided for the sale of the main asset of the estate, with the executor to then deduct the costs payable to the solicitor, who had been retained by the executor, from Amos' share of the estate of the proceeds of sale, and to pay those costs to the solicitor. Amos sought leave to commence proceedings for a costs assessment order against the solicitor in respect of invoices prepared by the solicitor for costs. Amos submitted that by virtue of the order authorising the deduction of the solicitor's costs from the share of the estate otherwise payable to Amos, he became a third party payer of the solicitor's fees. White JA found that the solicitor could not recover his costs incurred in work for the estate from a beneficiary and that Amos was not legally liable to pay the solicitor's costs, and Amos was not a third party payer.
Legal Services Commissioner v Wright [2010] QCA 321 involved the construction of 'third party payer' in pt 3.4 of the Legal Profession Act 2007 (Qld). The respondent solicitor acted for Mr A in proceedings in the District Court flowing from the break down of his de facto relationship with Ms A. A consent order provided for the house in which they had lived to be sold, costs and expenses to be paid out of the proceeds and the balance to be paid 75% to Ms A and 25% to Mr A. Mr A was the registered proprietor but both parties were borrowers under the mortgage. Mr A retained the respondent to attend to the sale. On the completion of the sale the respondent paid the amount of her fees to herself and distributed the remainder in the shares of 75% and 25% according to the consent order.
Ms A complained to the Legal Services Commissioner about the respondent's fee. The Commissioner requested an itemised account which the respondent refused to give. The Commissioner brought proceedings seeking a declaration, amongst other things, that Ms A is a third party payer under pt 3.4 of the Legal Profession Act 2007 (Qld) and was entitled to apply for an assessment of the legal costs. The Queensland Court of Appeal held that Ms A was personally liable to pay the costs and those costs were enforceable against her by court order or otherwise and hence she was a third party payer: [2012] 2 Qd R 360. At first instance de Jersey CJ had rejected the submission that Ms A was a third party payer. His Honour had accepted that Ms A was under a legal obligation to discharge certain expenses of the sale, including a proportion of the respondent's costs, but held that this legal obligation was owed to Mr A and not to the respondent. In the Court of Appeal McMurdo J, with whom Holmes and White JJA agreed, noted that the primary judge had made no reference to s 301(3) and to its definition of 'non‑associated third party payer'. In his Honour's view, it necessarily followed from the finding that Ms A was obliged to pay a proportion of the legal costs, that she was a third party payer and was entitled to apply for an assessment.
The Commissioner had argued that there was relevantly no change from the previous statute, under which an assessment could be sought by a person who is 'liable to pay' the costs and submitted that a person was under a legal obligation to pay the costs, and hence a third party payer under the present statute, in every case in which that person would have been regarded as 'liable to pay' the costs under the previous statutes in Queensland and their equivalents in other jurisdictions. McMurdo J, with whom Holmes and White JJA agreed, rejected that submission stating:
Unambiguously, s 301 requires the existence of a legal obligation to pay the costs. As the judgments in Debney and in Andrew Koh Nominees specifically recognised, a person might have been 'liable to pay' the costs in the relevant sense whilst not being under a legal obligation to pay them … But what must be considered now are the terms of the present statute which in my view cannot be construed, in its requirement for a legal obligation to pay the costs, as including a case where there is no such obligation [27].
McMurdo J held that the obligation of Ms A to cause the proceeds of sale to be paid in the various ways according to the order, was enforceable against her. If all of the respondent's costs had not been paid from the proceeds of sale, Ms A's obligation could have been enforced by Mr A claiming that she contribute 75% of the shortfall for which he would have been liable to the respondent. Moreover, the legal obligation to cause the proceeds of sale to be applied in accordance with the order had its basis and thereby its enforceability primarily from the force of the order itself, as well as its contractual force. It was thereby, his Honour said, an obligation enforceable not only by a money claim but also by proceedings to compel compliance with the court's orders.
White JA included in her judgment a qualification on her conclusion in Amos v Ian K Fry & Co that Amos was not legally liable to pay the respondent solicitor's costs. Her Honour said:
The extent to which Amos might suggest that a person liable to pay any part of the solicitor's costs out of a fund by virtue of an order of the court was not legally liable to pay costs must be regarded as incorrect [7].
Both her Honour and McMurdo J confirmed the outcome in Amos on the basis that the appellant in that case sought an assessment not of a discrete bill for the costs he was legally obliged to pay, but of the solicitor's bills for all of the work performed for the estate. In those circumstances the costs he sought to have assessed were not the costs which he was obliged to pay.
The defendant firm sought to distinguish this case. Counsel for the defendants submitted that to be a third party payer a person must be under a legal obligation to pay the specific legal costs in question not under a general obligation which included payment of the costs in question. I do not accept that distinction. A person must be under a legal obligation to pay all or any part of the legal costs for legal services provided to the client. The legal obligation need not be owed to the lawyer. In the case of a non‑associated third party payer the legal obligation is owed to the client or another person but not to the lawyer. There is no basis in the text of s 253 of the Act to confine the legal obligation to a legal obligation to pay the specific costs in question rather than a legal obligation to pay amounts or to do things which includes paying the legal costs in question. Furthermore, the defendant's analysis does not sufficiently take into account the essentially remedial nature of the legislation which led the Court of Appeal in Andrew Koh Nominees to adopt a broad construction of the expression 'liable to pay' and the Queensland Court of Appeal to decline to adopt a narrow analysis of the Queensland equivalent of s 253 of the Act in Legal Services Commissioner v Wright.
Plaintiffs' obligation to pay Mallesons' costs
Mallesons acted for the Receivers in COR 147 of 2010. The Receivers have lodged with ASIC accounts of their receipts and payments during the periods 24 July 2010 to 23 January 2011 and 24 January 2011 to 23 July 2012. Those accounts record payments to Mallesons for legal fees totalling $403,286.71.
It is common ground that the Receivers have paid legal costs for legal services provided to them by Mallesons in relation to COR 147 of 2010. The Receivers submit that the plaintiffs are not under a legal obligation to indemnify the Receivers for those costs and hence are not under a legal obligation to pay all or any part of those costs.
The Receivers say that no part of Mallesons' fees have been paid by the Receivers as receivers of the plaintiff companies, the Receivers have not rendered any invoices or recharge invoices to the plaintiff companies and it cannot be inferred that there has been a demand pursuant to which payment has been made under an indemnity by Westpoint Corporation. The Receivers say that unless and until the Receivers, or Perpetual Nominees, demand that the plaintiff companies pay or reimburse any part of those costs, the plaintiff companies are not under a legal obligation to pay all or any part of Mallesons' costs.
Mallesons submits that unless and until any demand is made upon the plaintiff companies to indemnify the Receivers or Perpetual Nominees against Mallesons' fees, they are under no legal obligation to pay all or any part of those fees. Mallesons submits that a demand to indemnify the Receivers, or Perpetual Nominees, against the cost or expense of Mallesons' legal costs is a condition precedent to the liability of the plaintiff companies to indemnify the Receivers, or Perpetual Nominees, against Mallesons' legal costs under each of the Loan Agreement Guarantee and Charges. Mallesons submits that no such demand has been made and hence none of the plaintiffs, or Mr Carey, is under a legal obligation to pay all or any part of the legal costs for legal services provided by Mallesons to the Receivers.
Clause 11.2(b) of the Loan Agreement provides that the Borrower must on demand pay and if paid by the Lender reimburse to the Lender the Lender's costs and expenses in relation to, amongst other things, the exercise or attempted exercise of any of the rights of the Lender under the Transaction Documents. The Transaction Documents include the Loan Agreement, the Guarantee, the Charges and any agreement or instrument created under any of them. Clause 12.1 provides that the Borrower indemnifies the Lender, that is Perpetual Nominees, on demand against any liability, loss, cost or expense caused or contributed to by the exercise or attempted exercise of any right by the Lender or any Receiver under the Transaction Documents. Clause 12.2 provides that the Borrower indemnifies each Receiver against any liability, loss, costs and expense caused or contributed to by anything the Lender is indemnified against under cl 12.1 and the Lender holds the benefit of that clause on trust for those persons.
Clause 3.1 of the Guarantee provides that the Guarantor, which includes Mr Carey, unconditionally and irrevocably guarantees to the Lender the punctual payment to it by the Borrower of the Guaranteed Money. The Guaranteed Money includes all money and damages which the Borrower is or at any time may become actually or contingently liable to pay to or for the account of the Lender for any reason whatsoever. Clause 9 of the Guarantee provides for the Guarantor to indemnify the Lender in essentially the same terms as cl 12.1 of the Loan Agreement.
Clause 5.1 of each Charge provides that the Chargor must pay the Secured Money to the Lender in accordance with any agreement which obliges the Chargor to pay it. Secured Money includes all money which the Chargor (whether alone or with another person) is or at any time may become actually or contingently liable to pay to or for the account of the Lender for any reason whatsoever. Clause 11 provides that the Lender, Perpetual Nominees, may appoint a receiver or receiver and manager of the property of the Chargor. Clause 12.1 provides that the receiver is the agent of the Chargor who is responsible for the receiver's acts and omissions and remuneration. Clause 18.1 of the Charge provides that the Chargor indemnifies the Lender on demand against any liability, loss, cost or expense in essentially the same terms as cl 12 of the Loan Agreement. Clause 18.2 provides that the Chargor indemnifies each Receiver against any liability, loss, cost and expense caused or contributed to by anything the Lender is indemnified against under cl 18.1 and the Lender holds the benefit of this clause on trust for those persons.
The plaintiffs and Mr Carey submit, and I accept, that the effect of the various instruments is that each Borrower and each Guarantor is obliged to indemnify the Receiver for loss, cost and expense incurred by the Receiver acting as such. As regards each Borrower, cl 12.2 of the Loan Agreement applies. As regards each Guarantor, by cl 3.1 a Guarantor covenants to pay the Guaranteed Money which the borrower is liable to pay to the Lender. Neither the Borrower's nor the Guarantor's obligation to indemnify is conditional on demand being made.
The forms lodged by the Receivers with ASIC which reveal that the Receivers have paid $403,286.71 to Mallesons list the Receivers' receipts and payments. The Receiver is obliged to lodge such accounts by s 432 of the Corporations Act. The forms disclose, or it is to be inferred from those forms, that the payments were made out of the assets of Westpoint Corporation. The form includes a statement, in effect, that the payments recorded were paid on account of the company.
The plaintiffs submit that the Receivers cannot have resorted to the assets of Westpoint Corporation to pay the legal costs incurred by the Receivers in COR 147 of 2010 and CACV 132 of 2011 unless the indemnities granted in respect of the Receivers' costs and expenses in the Loan Agreement, the Guarantee or the Charges had been activated. Mallesons submit that there are other possible ways in which the payment could be characterised in the Receiver's accounts. For example, it is submitted that it could be treated as a loan to the secured creditor or the Receivers pending final accounting at the conclusion of all the receiverships. There is no evidence to support those propositions. In any event, it is not the function of the court to finally determine this issue on an application for summary dismissal.
The plaintiffs submit that the defendant cannot assert that there has been no demand for payment by any Borrower or Guarantor when there is evidence that the Receivers have used the assets of Westpoint Corporation, a borrower, to pay legal costs incurred by the Receivers. It is submitted that the Receivers have no power to expend the assets of any of the corporations in payment of liabilities incurred by the Receivers other than as permitted by the security documents. The plaintiffs submit that it follows that the necessity for a demand did not arise because the Receivers held assets of the companies.
Action should not be summarily disposed of
The principles which apply to the summary dismissal of an action were recently summarised by Beech J in Lois Nominees Pty Ltd v QBE Insurance (Australia) Ltd [2011] WASC 208; (2011) 42 WAR 75 where his Honour said at [34]:
The caution with which the power to grant summary judgment is to be exercised is well known. In an application by a defendant, the defendant bears the onus of showing that there is no serious question to be tried on any cause of action raised by the plaintiff: Anderson v Effexseven (1998) 10 ANZ Ins Cas 61-424, 74, 757. The power to order summary judgment should never be exercised unless it is clear there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99. It is only in the clearest of cases, when there is a high degree of certainty about the ultimate outcome of the proceeding if it went to trial, that summary judgment ought be given: Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 [57]; Batistatos v Roads & Traffic Authority of NSW; Batistatos v Newcastle City Council [2006] HCA 27; (2006) 226 CLR 256 [46] [34].
I respectfully adopt his Honour's summary of the principles. The defendant has not established that there is no real question to be tried with the requisite degree of certainty about the ultimate outcome of the proceeding if it went to trial. The plaintiffs' claim should not be summarily dismissed.
Leave to bring application
The application for summary dismissal has been brought out of time. It is arguable that the defendant has a good defence on the merits. For that reason, in the circumstances of this case, leave should be granted to bring the application for summary dismissal.
Joinder application allowed
For the reasons stated it is arguable that Mr Carey is a third party payer. Mr Carey has an arguable case that he has a good cause of action as claimed by the plaintiffs against the defendant in the originating summons. Mr Carey should be joined as a plaintiff.
Power of directors to pursue action
The defendants submit that this action has been commenced without the consent of the Receivers and they alone are entitled to pursue the action.
The residual capacity of the directors to enforce the rights of a company in receivership was considered by French J in Australian Securities and Investments Commission v Lanepoint Enterprises Pty Ltd [2006] FCA 1163; 60 ACSR 217. His Honour recognised that the directors retain the right to take proceedings in the company's name to enforce a cause of action. His Honour referred with approval to Re Geneva Finance Ltd; Quigley v Cook (1992) 7 WAR 496 where Owen J accepted that, upon the appointment of a receiver under a charge, there will be limited residual duties that a company's directors can carry out. At [19] French J adopted the statement of Owen J in Re Geneva Finance Ltd; Quigley v Cook:
It is difficult to see why a director should be prevented from taking a step which he believed in the interests of the company unless that step would, in the reasonable opinion of the receiver, prejudice the proper administration of the receivership.
French J then said:
There may be a question whether the power conferred upon a receiver can displace all of a director's powers and functions for the duration of the receivership. Given that a receiver's powers must be exercised for the purposes of the appointment and the enforcement of the security under which appointment is made, it may be doubtful whether such a situation could arise even in theory. In Deangrove Pty Ltd v Commonwealth Bank of Australia (2001) 108 FCR 77; 37 ACSR 465; [2001] FCA 173, Sackville J said (at [30]):
'[30] The general principle, at least so far as the usual form of debenture or charge is concerned, is that the appointment of receivers does not entirely displace the powers and authority of the directors.'
The practical concern must be whether the exercise by a director of any power in the name of the company would interfere with the legitimate exercise by the receivers of their powers. As Owen J said in Re Geneva Finance (at WAR 511; ACSR 430):
'The real question is whether the directors, wishing to exercise a power which they would otherwise have, can do so without prejudicing the legitimate interests of the receiver and the secured creditor in the realisation of the asset' [20] ‑ [21].
In ASIC v Lanepoint, ASIC had applied for winding up orders in respect of the two respondent companies to which receivers had been appointed under company charges. A director of the companies sought leave under s 236 and s 237 of the Corporations Act to defend the winding up applications in the name of the companies. French J held that the director had standing to defend the winding up proceedings in the name of each of the companies and she did not need leave to intervene. In that case the receivers did not oppose the ASIC applications. His Honour said that there was no actual or apparent conflict between that non‑opposition and the directors proposed exercise, in the name of the companies, of their rights to oppose the winding up applications.
The issue was considered by Applegarth J in Capital Globe Investments Pty Ltd v Parker Investments Australia Pty Ltd [2011] QSC 031. An issue in that case was whether the appointment of receivers to certain property of the applicant company had affected the residual power of the applicant's sole director to continue an application to set aside the respondent's statutory demand. Applegarth J referred to Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia (2001) 108 FCR 77; [2001] FCA 173 where Sackville J, after reviewing relevant authorities, held that where a company in receivership has a claim against the debenture holder and the receiver declines to pursue the claim, the directors are entitled to initiate and maintain proceedings in the name of the company, provided the directors offer the company a satisfactory indemnity against costs. Applegarth J referred to the statements of Owen J in Re Geneva Finance Ltd; Quigley v Cook that:
The task is to look at the effect which the exercise of the power will have on the receiver's functions rather than to concentrate on the identification and delineation of the residual duties reposed in the directors …
It is a question of fact to be decided in each case whether the purported exercise of power by the directors is detrimental to the functions of the receiver. If it is, the directors must defer to the receiver. If it is not, it does not offend the principle which Newhart Developments Ltd v Co‑operative Commercial Bank Ltd [1978] QB 814 enunciates.
Applegarth J observed that that statement has been followed in later cases and noted that in ASIC v Lanepoint French J stated that the practical concern must be 'whether the exercise by a director of any power in the name of the company would interfere with the legitimate exercise by the receivers of their powers'. Applegarth J followed the approach adopted by French J of enquiring whether the exercise of the residual power of the director to continue the proceedings in the name of the company would interfere with the legitimate exercise by the receivers of their powers or prejudice the legitimate interests of the receiver and the secured creditor in respect of the assets that are the subject of the charge. His Honour observed that in that case the receivers did not suggest that to be the case but that the receivers' lack of objection to the relief sought in the application was seemingly premised on the offer made by the director to indemnify the company and the receivers against any adverse costs consequences. Applegarth J concluded that the appointment of receivers in respect of property of the applicant had not deprived the director of the residual power to continue the prosecution of the application to set aside the statutory demand and he was at liberty to continue that application in the name of the company, subject to his personally financing the continuation of the proceedings.
The right of directors to institute or continue proceedings in the name of a company after the appointment of receivers was recently considered by Slattery J in Great Australian Operations Pty Ltd (Receivers and Managers Appointed) v Washington H Soul Pattinson & Company Ltd [2012] NSWSC 1134. Great Australian and Soul Pattinson were shareholders in CopperChem, a mining company. Soul Pattinson and Great Australian entered into a number of agreements. A shareholders agreement governed the mutual shareholders relations between them and included mutual rights of pre‑emption and of buy‑out, should one or other of them seek to transfer its shares in CopperChem. Under a loan agreement Soul Pattinson advanced funding to CopperChem. Great Australian guaranteed the repayment of the loan and gave security for its guarantee of CopperChem's primary obligations to repay the loan. Great Australian's provision of security came through a share mortgage agreement under which Great Australian mortgaged its shares in CopperChem (the Secured Property). Upon default under the loan agreement Soul Pattinson was empowered under the share mortgage agreement to appoint receivers to the Secured Property. Under the share mortgage agreement the powers of the receivers included the right to sell Great Australian's shares in CopperChem. CopperChem defaulted on a loan repayment. Soul Pattinson issued a demand against Great Australian for repayment of the amount alleged to be outstanding under the loan agreement. Great Australian did not meet the demand. Soul Pattinson appointed receivers and managers to the Secured Property. Two months later Mr Woolfe, a director of Great Australian, served a mandatory buy‑out notice on Soul Pattinson pursuant to the rights of pre‑emption and buy‑out under the loan agreement. Soul Pattinson did not respond to the mandatory buy‑out notice. Great Australian claimed that Soul Pattinson's failure to respond triggered the exercise of its rights under the shareholders agreement. Mr Woolfe, claiming to act in the name of Great Australian, commenced proceedings seeking to enforce against Soul Pattinson contractual obligations he claimed for Great Australian had been created as a result of the service of the mandatory buy‑out notice. The relief sought in the statement of claim included a claim for specific performance of provisions of the shareholders agreement and the mandatory sale of Great Australian's shares in CopperChem and in the alternative damages. Soul Pattinson brought a motion challenging the retainer of the solicitors apparently acting for Great Australian and summary dismissal of the proceedings on the basis that Great Australian's claim disclosed no reasonable cause of action. Soul Pattinson's essential argument on the strike out motion was that the issuing of the notice and the enforcement of any contract alleged to arise under the notice are inconsistent with the exclusive powers over the Secured Property conferred upon the receiver.
Slattery J surveyed applicable authority relating to the residual powers of directors upon the appointment of a receiver including Re Geneva Finance. Slattery J said that the importance of Re Geneva Finance is that Owen J, considering arguments such as those advanced by the applicant on the strike out motion, said the appropriate task is to look at the actual effect that the exercise of the power by the directors will have upon the receiver's function. Slattery J said that if one applies Owen J's test in Re Geneva Finance, the relief sought for specific performance of the share sale agreement said to have been created through the service of the mandatory buy‑out notice, it was clear that there was a direct detriment to the exercise of the receiver's functions. The specific performance of the agreement must involve the disposition of the shares and that relief would be a direct interference with and detriment to the existence of the receiver's functions. His Honour concluded that the directors had no authority to commence proceedings to seek such relief. Slattery J reached a different conclusion in relation to Great Australian's claim for damages. Great Australian claimed that its exercise of rights under the shareholders agreement resulted in a claim for damages under that agreement and Great Australian was entitled to pursue that claim against Soul Pattinson where there was evidence that the receivers had declined to pursue the claim in the name of the company and had in substance abandoned it. Great Australian in effect conceded that the claim for damages was Secured Property but says that the receivers had abandoned it. Slattery J considered that argument to be at least arguable and made no final determination about the matter. Slattery J upheld Soul Pattinson's strike out claim in relation to the claim for specific performance but not in relation to the claim for damages. Slattery J observed:
Merely because the directors may be entitled to initiate or maintain proceedings in the name of the company … does not mean that they can do so using the company's assets; indeed, their right to do so may be subject to providing the company with a satisfactory indemnity against the costs of the litigation. Nor does the conduct of the litigation by the directors in the name of the company displace the ordinary application of principles about the provision of security for the defendant's costs of such litigation [133].
Finally, Slattery J considered the challenge to the solicitor's retainer. His Honour observed that such challenges are not really an issue for defence at trial but should generally be disposed of before trial. However, his Honour considered that the issue of the challenge to the solicitor's retainer should be deferred to be determined at the final hearing. His Honour said:
An action for damages in the name of Great Australian is not capable of now being summarily dismissed on the basis that Great Australian's directors had no authority to use its name to bring such an action. It seems equally difficult now to determine against those directors that they lacked the authority in Great Australian's name to retain [the solicitors] to bring and continue this action for damages [138].
His Honour concluded that the just, quick and cheap resolution of the matters in issue in the proceedings indicated that the question of retainer should be dealt with in the course of a final hearing.
There is no evidence that the plaintiffs' action for a declaration that they are third party payers and that Mallesons is required to submit its bills for assessment to a taxing officer, or the making of such a declaration and an order, or Mallesons submitting their bills for assessment to a taxing officer is likely to interfere with the Receivers' conduct of the receivership. I am not satisfied that the action should be set aside, dismissed or stayed on the ground that the director instructing the plaintiffs' solicitors on behalf of the plaintiffs does not have authority to commence or maintain the action on behalf of the companies.
Proceedings commenced by originating summons
Actions in this court are usually commenced by writ. Order 58 provides for proceedings to be commenced by originating summons. Order 58 div 4 provides for proceedings to be commenced by originating summons when a person claims any legal or equitable right where the determination of the question whether he is entitled to the right depends upon a question of construction of a statute. The defendant says that the proceedings were not properly commenced by originating summons and should have been commenced by writ.
I find it unnecessary to determine that question. Order 2 r 1(1) provides that where in beginning or purporting to begin any proceedings there has, by reason of anything done or left undone, been a failure to comply with the requirements of the Rules, the failure shall be treated as an irregularity and shall not nullify the proceedings. Order 58 r 27(1) provides that if an originating summons is not disposed of altogether in the first hearing, the court shall give such directions as to the further conduct of the proceedings as it thinks best adapted to securing the just, expeditious and economical disposal thereof. This rule empowers the court to order that a matter commenced by originating summons shall proceed as if begun by writ of summons. It is not uncommon for the court to make such an order when the issues cannot be effectively disposed of upon affidavit: Chamberlain v Shirand Nominees Pty Ltd (Unreported, WASC, Library No 8332, 22 June 1990).
In my view the procedure by originating summons is inappropriate in this case. It is appropriate for this action to proceed on pleadings so that the plaintiffs can plead the facts that give rise to their entitlement to the declarations claimed and in particular their legal obligation to pay Mallesons' costs. The matter should proceed as if begun by writ of summons and by pleadings.
Costs
A lawyer who has commenced a proceeding without the client's authority, and knew or ought to have known that authority was lacking, may be ordered to pay the costs of the proceeding if his actions caused a person to incur a cost liability that would not otherwise have been incurred. However, a finding of absence of authority is not, in itself, dispositive of the application to order costs against the solicitors. The court has a broad discretion, which remains to be exercised, upon a review of all relevant considerations, including the degree of negligence or fault in the solicitor: Raja v Darul‑Iman (WA) Inc (No 2) [2011] WASCA 251 (S) [30]. In this case I have not found that the plaintiffs' solicitors commenced this action without authority or that Mr Carey did not have authority to instruct the solicitors to commence the actions.
Conclusion
The defendant will have leave to make this application for summary dismissal under O 16 r 1(1). The application that the action be summarily dismissed will be dismissed. Mr Carey's application to be joined as a plaintiff will be allowed. The matter should proceed as if begun by writ of summons. I will hear from the parties what order for costs should be made.
8
18
6