In the matter of Checkling Pty Ltd (Rec and Mgr Apptd) - Clout v Whitton and ors
[2011] NSWSC 305
•14 April 2011
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Checkling Pty Ltd (Rec & Mgr Apptd) - Clout v Whitton & ors [2011] NSWSC 305 Hearing dates: 22 March 2011 Decision date: 14 April 2011 Jurisdiction: Equity Division - Corporations List Before: Ward J Decision: Costs awarded in favour of plaintiffs on a party/party basis and thereafter on an indemnity basis
Catchwords: COSTS - HELD - costs awarded in favour of plaintiffs on a party/party basis and thereafter on an indemnity basis Legislation Cited: Corporations Act 2001 (Cth) Cases Cited: ASC v Aust-Home Investments Ltd (1993) 44 FCR 194
Austcorp Finance and Leasing Pty Ltd v Thomas (unreported, Supreme Court Queensland, 23 August 1991)
Dean v Stockland Property Management Ltd (No 2) [2010] NSWCA 141
East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159
J T Stratford & Son v Lindley (No 2) [1969] 1 WLR 1547; 3 All ER 1122
Liddle v Kooralbyn Pty Ltd (unreported, Supreme Court Queensland, 9 October 1987)
R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13
Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622Category: Costs Parties: David Lewis Clout (Plaintiff)
Equititrust Ltd (Second Plaintiff)
Robert William Whitton (First Defendant)
Rural Security Holdings Pty Ltd (Second Defendant)
Checkling Pty Ltd (Rec & Mgr Apptd)(in liq) Third Defendant
Syndicate Mortgage Securities Pty Ltd (Fourth Defendant)
SMS CF Pty Ltd (Fifth Defendant)
SMS (Common Fund) Pty Ltd (Sixth Defendant)
Howard Hilton (Seventh Defendant)
Alex Lankry (Eighth Defendant)Representation: Counsel:
J Hogan-Doran (Plaintiff)
B Levet (First Defendant)
Ms C Byrne (Second Defendant)
H Hilton (in person) (Seventh Defendant)
Solicitors:
Bransgroves Lawyers, as agent for Tucker & Cowen (Plaintiff)
William Roberts Lawyers (First Defendant)
File Number(s): 11/075311
Judgment
This matter came before me in the Corporations List on 14 March 2011 in relation to, broadly, a dispute as to who was entitled to exercise rights in respect of certain water licences (the Turf Farm and Moxey Dairy licences) held by Checkling Pty Ltd (the third defendant). Mr Clout (the first plaintiff) was appointed as receiver over the property of Checkling by Equititrust Ltd (the second plaintiff) and brought an originating process seeking relief to permit him to deal with those water licences in priority over Mr Whitton (the first defendant). Mr Whitton was appointed as receiver by Rural Security Holdings Pty Ltd ('RSH') (the second defendant) pursuant to its security over the assets of Checkling.
The dispute in question arose following assertions by Mr Whitton to Mr Clout to the effect that Equititrust's securities did not apply to the water licences and thus that Mr Clout could not have been appointed as receiver of them.
The issue was one that needed to be determined on an urgent basis because of the circumstances (to which I was only briefly taken) of a sale/tender process being or to be conducted for the sale of the water licences within a short period of time. The plaintiff's concern was that RSH was interfering in the sale of the water licences after the Water Administration Ministerial Corporation (WAMC) had agreed in principle to acquire them from him.
Mr Whitton set out RSH's position in a letter dated 14 February 2011, in response to which Mr Clout's position was outlined in a letter dated 23 February 2011. In the latter, Mr Clout demanded certain acknowledgments and undertakings from RSH. As at 23 February 2011, therefore, RSH was on notice of the factual and legal basis on which Equititrust contended that it had prior security over the water licences and the right to appoint the receiver to sell the licences. When the demanded acknowledgements and undertakings were not provided, these proceedings were commenced on 8 March 2011.
When the matter came before me on 14 March 2011, I gave directions (including as to service on the various defendants) to permit an urgent hearing of the priority issue. On that occasion, Mr Levet of Counsel appeared for Mr Whitton as receiver of RSH.
On the return of the matter on 17 March 2011, leave was sought by the plaintiff to file an Amended Originating Process and join Equititrust as the second plaintiff. Mr Levet indicated that the first defendant might wish to serve expert valuation evidence and I made directions to enable that to occur. I listed the matter for hearing before me at 2pm on 22 March 2011. It is relevant to note that the matter was listed at short notice due to the urgency imposed by the imminent water licence tender process.
On 22 March 2011, a solicitor attended on behalf of RSH (whose interests had, I understood, hitherto been represented by Mr Levet) on the basis that RSH was concerned that a claim it had under a machinery lease was not being dealt with by Mr Whitton (whose appointment as receiver did not extend to any such claim). I was informed that the receiver's appointment by RSH was only for specific purposes and that there had been some issue as to the scope of Mr Whitton's appointment in relation to RSH's claims. Mr Levet (without purporting to make submissions for RSH), helpfully indicated the nature of the issue that had arisen in that regard. I gave a short adjournment to permit Ms Byrne to obtain more complete instructions (Ms Byrne only had instructions to seek an adjournment).
I refused to grant such an adjournment, given that this would defeat the purpose for which the matter had been listed for urgent hearing (in order to meet the concern in relation to the timing of the water licences sale process) and given that RSH had been on notice of the hearing in accordance with the earlier orders for service and had been represented (as I understood it) until then by Mr Levet (instructed by Mr Whitton).
The position at that stage was that Mr Whitton was prepared to consent to orders that would preserve the ability of Mr Clout to deal with the water licences (subject to an arrangement to preserve the ability of some third parties (the Birches) to raise issues as to their entitlements as tenants of the Moxey Dairy Farm) and to preserve any claim that RSH might later have to challenge the basis on which any sale was ultimately concluded.
(There is a potential issue, for example, as to a potential claim under s 420A of the Corporations Act 2001 (Cth) or for breach of fiduciary duty relating to the circumstances in which the water licences may ultimately be sold.)
After some adjournment that afternoon, and further debate, the matter was largely disposed of by consent orders (other orders being made but not by consent). All that was left was the application by Mr Clout that the costs (that I had by that stage ordered to be paid by RSH) should be assessed on an indemnity basis.
Written submissions were then served on behalf of each of Mr Clout and RSH respectively on that issue.
For Mr Clout, it is submitted that an indemnity costs order is warranted because:
(a) RSH (and Mr Whitton) had provoked the commencement of proceedings, and continued them, where they should have known they had no real prospect of success, as reflected in the abandonment of the proceedings (relying upon Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at [233-4] and Lahoud v Lahoud [2006] NSWSC 126 at [44]-[69]);
(b) the Court can (and it is said should) infer that the continued assertion of rights and failure to give acknowledgements and undertakings as requested in the 23 February 2011 letter were with the aim of defeating (through delay) the plaintiffs' interests: ( Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 435); and
(c) the letter of 23 February 2011 to Mr Whitton can be equated with an offer or compromise in circumstances where it is said that the plaintiffs were substantially successful in obtaining the same relief as that sought in the proceedings.
It is submitted that both Mr Whitton and RSH had abandoned the position stated in the 14 February 2011 letter, when consenting to orders that, in substance, gave effect to the acknowledgements and undertakings sought by the plaintiffs from Mr Whitton in paragraphs 1(a), (b), (c) and (d), as well as paragraphs 3 and 4 (as concerns Checkling) of the letter of 23 February 2011.
Counsel for Mr Clout (Mr Hogan-Doran) submitted that, by comparison with the orders sought in the originating process, the only limitation in the consent orders ultimately made on this application was immaterial (namely, the limitation of some of the orders to the Turf Farm Water Licences, which limitation reflected the disputed status of occupation of the Moxey Dairy Farm - a matter between some third parties (the Birches) and Mr Clout). It was submitted that these amendments to the orders were made by the plaintiffs of their own volition (given the time available) and that the final orders as made by consent still ensure that if Mr Clout is able to sell the Moxey Dairy farm licences, he will be able to apply the proceedings to Equititrust in priority to RSH.
Mr Hogan-Doran submitted that the reservation of rights for any s 420A or breach of fiduciary duty claim (because the licences are being sold separately from the land) is immaterial. (It was contended that the allegation made in this regard by RSH was likely to be spurious since that allegation was made at the same time that RSH and Mr Whitton were also seeking to find buyers for the water licences separately from the land.)
It was submitted by Mr Arraj, on behalf of RSH, that RSH was entitled to assert a right to deal with the water licences and to exercise that right until it was established that some other person had priority over it or that there was some other impediment to the exercise of this right, and that RSH was requiring the plaintiffs to assert that priority by commencing these proceedings. This, it was said, did not give rise to an order for indemnity costs.
It was further submitted by Mr Arraj that the assertion or attempted exercise of rights by RSH prior to the commencement of these proceedings was not unreasonable, nor was it without foundation or something that arose as a result of some misconduct on behalf of RSH, which would give rise to an order for costs on an indemnity basis against it.
As noted earlier, the substance of the proceedings is an application under ss 418 and 424 of the Corporations Act 2001 (Cth) for determination of the competing interests of Mr Clout (as receiver appointed by Equititrust) and Mr Whitton, to deal with the water licences. Mr Arraj submitted that no claim was made independently against RSH and that, in the event that it was found that Mr Clout had no power to deal with the water licences, such power would have reverted to Mr Whitton as the appointed receiver in respect of the next ranking security interest, rather than RSH itself.
Mr Hogan-Doran took issue with this and noted that at all times, there was relief sought against RSH in respect of the issues of priority (seeking directions in order 3 and injunctive relief) in respect of which Mr Whitton had no interest apart from that of RSH.
It is submitted by Mr Arraj that during the course of the proceedings, the plaintiffs had amended their position in relation to the particular water licences with which they sought power to deal, such that the orders as eventually entered by the Court were substantially different to the undertakings that had been sought from RSH prior to the commencement of the proceedings. Mr Hogan-Doran also took issue with this, contending that the question of Equititrust's priority (whether or not, vis a vis the Birches, it was yet said to be the receiver of the Moxey Dairy Farm water licences) did not affect the priority dispute between Mr Whitton and Mr Clout. It was noted that the injunctive relief granted by consent extended to all of the water licences.
As to the late involvement in the proceedings by RSH, it was said by Mr Arraj that when the proceedings were commenced, it was then not necessary for RSH to appear independently because it was clear that RSH's interests, as far as the orders sought in the various versions of the Originating Process were concerned, were sufficiently represented through the appearance of Mr Whitton (and it was similarly not necessary to file a joint appearance in the proceedings to address those orders). However, where RSH's and Mr Whitton's interests had diverged was in relation to machinery lease payments allegedly owed to RSH by Mr Clout as a result of his appointment as receiver and manager of the turf farm business owned by Checkling. Mr Whitton had then advised RSH that he could not advance that matter on RSH's behalf in the proceedings and at that stage, Mr Arraj said that RSH sought its own independent advice (by which time it was said that the proceedings had progressed to a stage that it was too late for RSH independently to appear and ventilate that issue).
However, Ms Byrne did attend to make submissions as to RSH's position, although the instructions were initially limited to seeking an adjournment on RSH's behalf. The difficulty was that Ms Byrne appeared to have no clear instructions as to the basis on which RSH might be seeking to oppose the then proposed consent orders (which related to the priority dispute in effect conceded by Mr Whitton).
The issue of the lease payments said to be owing by Mr Clout to RSH was submitted by Mr Arraj to be relevant to the matters in dispute in the proceedings (though it had not seemingly been raised until the last occasion on which the matter was before me). It was submitted that, as the plaintiffs were seeking an order allowing Mr Clout to distribute the proceeds of the sale of the water licences in a proposed order of priority, RSH (as a defendant) was entitled to make such applications in relation to that order of priority as was necessary to protect its interests, including in relation to the lease payments.
It was further submitted by Mr Arraj that RSH's claim for the lease payments was "entertained" by an adjustment of the orders made in respect of Mr Clout's power to deal with the proceeds of the sale of the water licences (something said to be dealt with in court at the hearing of the matter resulting in no additional costs being incurred by any of the parties). Mr Hogan-Doran submitted that this is an erroneous account of what occurred on the day of the hearing and noted that the submission of Mr Arraj identifies no particular order in this respect.
Mr Hogan-Doran submitted (with great force) that the relevance of the lease claim to the dispute as to the priority between secured creditors was not then explained, nor has it since been explained. (At best it seems to me that this is raised as an offsetting claim - i.e. that if Mr Clout receives proceeds from the sale of the water licences then some part of the proceeds should be offset against the lease payments and not distributed to Equititrust - but that was not articulated as such.)
Mr Arraj therefore contended that RSH should not be ordered to pay indemnity costs.
In brief submissions in reply, Mr Hogan-Doran (other than addressing the errors said to have been contained in Mr Arraj's submissions) emphasised that there had been no explanation as to the failure of RSH (presumably through Mr Whitton or otherwise) to give the undertakings and acknowledgments sought by the plaintiffs in the 23 February 2011 letter.
Legal principles
In Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin 186 CLR 622 McHugh J (as his Honour then was) said (from [624]):
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.
...
... in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare .
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the minister to pay the whole or part of the cost of the proceedings. (my emphasis)
In East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159 at [17] said:
In the exercise of its general discretion the court can award costs on an indemnity basis if it appears that proceedings have been commenced or continued in circumstances where a party should have known that there was no real prospect of success ( Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-1; Re: Bond Corp Holdings Ltd (1990) 1 WAR 465 at 478; ((1990) 1 ACSR 350 at 363-4) ... "
Hill J in ASC v Aust-Home Investments Ltd (1993) 44 FCR 194 outlined the following propositions as emerging from R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13; Liddle v Kooralbyn Pty Ltd (unreported, Supreme Court Queensland, 9 October 1987) per Ryan J; Austcorp Finance and Leasing Pty Ltd v Thomas (unreported, Supreme Court Queensland, 23 August 1991) per Master White and J T Stratford & Son v Lindley (No 2) [1969] 1 WLR 1547; 3 All ER 1122:
(1) where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a costs order: Stratford and the SEQEB case.
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford . This will particularly be the case were a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).
(4) In a particular case it might be appropriate to the Court in its discretion to consider the conduct of a respondent prior to the commencement of proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1993) 33 SR (NSW) 371.
(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 605, a case, however, which depended on the specific wording of the statute under consideration.
In Dean v Stockland Property Management Ltd (No 2) [2010] NSWCA 141 at [43], the Court of Appeal sounded a note of caution, stating that:
care must be taken, however, lest parties be unduly deterred from bringing or defending proceedings for fear that they will retrospectively be found to have not been justified in doing so. Uncertainty in outcome is not enough, and what appears certain at the time of judgment does not necessarily have that character at an earlier time.)
The issue raised on the present indemnity costs application is whether it can be said that the assertions raised by Mr Whitton (and the basis on which the acknowledgements were referred) were untenable (so as to be bound to fail), or whether it could be said that the stance of RSH was intended to defeat Equititrust's interests (by delaying the sale of the water licences), or that RSH's position was so unreasonable as to warrant an indemnity costs order, or that the position ultimately obtained was no less favourable than the initial acknowledgements sought on 23 February 2011.
In that regard, the fact that Mr Whitton abandoned the priority argument in advance of the hearing does not of itself lead to the conclusion that it was bound to fail (although it might be thought that, as the receiver, had it been perceived that there was a reasonable prospect of success, the defence might have been pursued).
To the extent that the RSH position seems to be that it was entitled to force Equititrust to commence proceedings in order to vindicate its interest (as I read paragraph 4 of the submission to say), then if it did so without a real basis for disputing Mr Clout's priority, in my view that would be conduct so unreasonable as to warrant an indemnity costs order.
I have had some concern that, in effect, this is indicated by paragraph 4 of the RSH submissions - namely that, even though the basis of Equititrust's priority was outlined in detail in the correspondence, RSH was putting Equititrust to proof of that priority. However, putting a party to proof of an allegation does not of itself indicate a lack of a bona fide belief that the claim is not well founded.
Giving RSH the benefit of the doubt, I am prepared to accept that, in the urgency of the matter, RSH and its receiver had not been in a position to concede the priority issue within the time frame allowed. The fact that proceedings had to be commenced to resolve the issue may not be due to conduct which was deliberately designed to delay Mr Clout or to hinder the proposed sale (or conduct which was so unreasonable as to warrant an indemnity costs order).
The position once RSH and Mr Whitton's interests diverged seems to me to fall within a different category.
RSH's intervention (at the last minute), on a basis separate from that of its receiver, was seemingly to raise a dispute as to the manner in which any proceeds of sale of the water licences should be made to Equititrust (i.e. whether there was some liability first to account for the alleged outstanding machinery lease payments). This did not go to the priority issue as between Equititrust and RSH. It could have been dealt with by simply proposing that the issue as to entitlement to the lease payments be resolved (or taken into account) at some later time when any proceeds were received. This was not a basis on which to seek to defer the hearing (or its determination by consent) of the priority issue which needed to be determined urgently in order to preserve the possibility of the sale to WAMC.
I should note that there was an appearance in person by the seventh defendant (Mr Hilton) on 22 March 2011 but he did not oppose the relevant orders (having attended to preserve his own position in relation to any ultimate sale of the licences).
Conclusion
I consider that RSH should pay the costs of the plaintiffs of the application before me from 14 March 2011 up to the date of the hearing on 21 March 2011 on a party/party basis and the costs of that day's hearing and subsequent costs submissions on an indemnity basis).
In the circumstances of urgency relating to the water licence issue (which should have been clear to the second defendant), its failure to raise the alleged lease claim as a reason for not consenting to the proposed orders with Mr Clout prior to the hearing on 21 March 2011 led, in my view, to the incurring of unnecessary costs and a waste of court time. It was incumbent on RSH, if it considered it had a legitimate basis for opposing the relief sought insofar as it related to the priority issue (and I make no comment on the relevance or otherwise of the lease payment claim, particularly as RSH's solicitor was able to give me only very limited information in that regard) to ensure that the claim was raised in advance and that properly instructed legal representatives were able to appear and make clear that claim. RSH did not do so. As it transpired, the lease claim did not appear to have anything to do with the priority dispute as between Equititrust and RSH, and it was that dispute that needed to be determined with a degree of urgency.
Accordingly, I order that RSH pay the costs of the plaintiffs of the application before me on a party/party basis up to 21 March 2011 and on an indemnity basis thereafter.
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Decision last updated: 29 July 2014
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