JGM Nominees Pty Ltd v Tulip Investments Pty Ltd
[2013] VSCA 125
•6 June 2013
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2011 0172
| JGM NOMINEES PTY LTD (ACN 006 210 402) | First Appellant |
| SEVENTH ASTEROID PTY LTD (ACN 006 077 256) | Second Appellant |
| ROCCO ANTONIO CALDERONE | Third Appellant |
| V | |
| TULIP INVESTMENTS PTY LTD (ACN 112 507 221) | First Respondent |
| AUSTRALVIC PROPERTY MANAGEMENT PTY LTD (ACN 113 858 021) (In liquidation) | |
| Second Respondent |
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| JUDGES | NEAVE, REDLICH JJA and KYROU AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 18 February 2013 |
| DATE OF JUDGMENT | 6 June 2013 |
| MEDIUM NEUTRAL CITATION | [2013] VSCA 125 |
| JUDGMENT APPEALED FROM | JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) (No. 3) [2010] VSC 623 |
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Costs orders — Balance of proceeds of mortgagee’s sale of property paid into court —appellant held entitled to proceeds as beneficiary of trust — Effect on grant of leave of requirement that appeal from Associate Justice be heard by way of re-hearing de novo — Whether unsuccessful respondent entitled to costs from funds in court — Whether liquidator entitled to recover costs and expenses from fund — Costs and expenses not incurred for the purpose of administering the trust — Liquidator must look to the assets of the company to satisfy costs and expenses — Corporations Act 2001 s 479(3) – Supreme Court Act 1986 s 17A, r 77.06 — 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (In Liq) (1999) 30 ACSR 377 — Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169, 190 — Re Enhill Pty Ltd [1983] VR 561.
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| Appearances: | Counsel | Solicitors |
| For the Appellants | Mr D J Williams S.C. with | Aitken Partners |
| For the Respondents | Mr G R McCormick | Goldsmiths |
NEAVE JA:
This appeal concerns the costs of trial division proceedings in which the appellants, JGM Nominees Pty Ltd (‘JGM’), Seventh Asteroid Pty Ltd (‘Seventh Asteroid’), and Mr Rocco Calderone (‘Calderone’) successfully claimed funds in court in the amount of $123,649.09.
The funds in Court represented the net proceeds of the sale of a property at 23 Oxford Street, Oakleigh (‘Oxford Street property’). In September 2005, that property was transferred from the first appellant, Calderone, to the second respondent, Australvic Property Management Pty Ltd (‘Australvic’), as part of a joint venture in which Australvic agreed to finance the development of various properties by Calderone.
On 5 February 2007, Calderone terminated the joint venture and on the same day, a receiver and manager was appointed to Australvic by a third party. Orders were made for the winding up of Australvic on 23 May 2007, which were stayed until 5 October 2007.
On 5 May 2007, the first mortgagee of the Oxford Street property exercised its powers of sale under its mortgage with Australvic and sold the property. It paid the surplus proceeds of sale into court on 29 August 2007, to await determination of entitlement to that surplus.
On 13 March 2009, the appellants issued proceedings claiming they were entitled to the funds on various bases. These included a claim that the proceeds of sale were held on trust for Calderone under a joint venture agreement. JGM was a nominee company which Calderone used to lend funds to Australvic, whilst the second appellant, Seventh Asteroid, a company which Calderone controlled, is one of several companies which held and/or developed residential properties.
The liquidator of Australvic asserted a competing claim to the funds, and argued that the joint venture agreement and trust asserted by the appellants were a sham.
On 4 December 2009, Daly AsJ gave judgment in favour of the appellants. Her Honour found that Australvic held the Oxford Street property on trust for Calderone, pursuant to their joint venture agreement and made substantive orders to that effect (‘the substantive orders’).
On 15 December 2009, Australvic issued a summons seeking orders that the liquidator’s costs and expenses be met from the funds in court and that the liquidator’s costs of the proceeding be taxed on a solicitor/client basis and paid out of the funds in court. After hearing the parties,[1] Daly AsJ made the following orders on 14 April 2010:
1. The remuneration of the liquidator of the Second Defendant and the party/party legal costs of the Second Defendant, up to and including 15 July 2009,[2] be paid from the funds held in Common Fund No 1 and debited to account No 70877, such remuneration and costs to be assessed and taxed (respectively) in default of agreement.
…
3.The liquidator pay the Plaintiffs’ costs of the proceeding (save for the costs of the Plaintiffs’ application for security for costs filed 18 September 2009) to be taxed on a party/party basis otherwise there be no order as to the parties’ costs, including the costs of the Plaintiffs’ application for security for costs filed 18 September 2009.
…
6.The costs of the liquidator’s summons filed 16 December 2009 be reserved until after the assessment of such remuneration and taxation of such costs has been completed.[3]
[1]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) [No 2] [2010] VSC 104 (‘Reasons of Daly AsJ’).
[2]Her Honour’s reasons suggest that this date should have been 17 July 2009, see Reasons of Daly AsJ [16].
[3]This was a reference to a summons dated 15 December 2009, in which the liquidator sought payment from the funds in court of the liquidator’s costs and expenses.
It will be noted that the first order made by her Honour provided that both the remuneration of the liquidator and Australvic’s party/party legal costs up to and including 15 July 2009 (the date of a mediation between the parties) be paid from the fund.
Her Honour’s orders were based on the view that, up until the date of the mediation, it was:
entirely proper for the liquidator to consider and evaluate the competing claims to the funds in court, without necessarily coming to a final view as to whether any of the parties had a better claim to the funds than he did.[4]
[4]Reasons of Daly AsJ [18].
However, her Honour held that by the time the mediation had concluded the liquidator had become ‘an active protagonist’ in the litigation, and should not be entitled to payment out of the fund of the costs and expenses of adopting an unsuccessful position. Her Honour also held that the appellants were entitled to the costs of the proceeding and that the liquidator should be personally liable for those costs.
Application before Bell J
By notice of appeal dated 8 April 2010, Australvic appealed against the judgment and substantive orders of Daly AsJ,[5] holding that JGM and Calderone were entitled to the funds in court.[6] Australvic also sought leave to appeal against her Honour’s costs orders.[7]
[5]Tulip Investments Pty Ltd was also a party but made no claim to the funds in court. The liquidator does not appear to have been a separate party, although Bell J gave leave to both the liquidator and to Australvic to apply for leave to appeal out of time.
[6]Daly AsJ rejected the claim by Seventh Asteroid Pty Ltd, which was based on a charge said to have been given to secure a loan, because she was not satisfied that the loan had been made. Her decision on that issue was upheld by Bell J.
[7]Although there was a defect in the original notice of appeal, and the appeal was out of time, Bell J gave leave to make applications for leave to appeal in relation to the costs orders nunc pro tunc and to bring the overall appeal out of time. JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) [No 3] [2010] VSC 623, [22] (‘Reasons of Bell J’).
On 25 June 2010, the application was heard by Bell J, who dismissed the appeal from the substantive orders made by Daly AsJ, but set aside the costs orders she had made. [8]
[8]Orders of Bell J, 19 October 2011.
In relation to the order that the liquidator be personally liable for the appellants’ costs and expenses, his Honour said that:
The liquidator’s conduct of the case of the company in the proceeding was reasonable at all times. In prosecuting the competing claim of the company, he was properly performing his statutory function as a liquidator and an officer of the court. On the evidence, it was not unreasonable for the liquidator to oppose Mr Calderone’s claim and to submit Australvic’s alternative claim to judicial determination.
Further, the liquidator incurred reasonable costs and expenses by participating in legal proceedings over disputed property of a company in liquidation which was constituted by funds in court. In the circumstances, the liquidator was entitled to an order that those costs and expenses be paid out of the funds in court. The liquidator was entitled to such an order even though there may be nothing left of the funds to satisfy the judgment in favour of Mr Calderone. That is a risk which all parties experience in proceedings involving companies in liquidation.[9]
[9]Reasons of Bell J, [129]−[130].
Accordingly, his Honour allowed the appeal with respect to the costs orders made by Daly AsJ in respect of the liquidator, and invited the parties to make submissions as to the form of the orders.
After hearing the parties as to the form of the orders, on 19 October 2011 his Honour delivered judgment on costs in which he stated that:
the appropriate characterisation of the result of the appeal is that Australvic and the liquidator were successful because their challenge to the orders of Associate Justice Daly, except the order upholding the entitlement of the Calderone interests to access the funds in court, was upheld. The costs orders in the appeal should follow that event.[10]
[10]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq)Pty Ltd[No 4] (‘Cost reasons’) [2011] VSC 520, [8].
Accordingly, his Honour made the following orders, which are the subject of this appeal:
5.The plaintiffs are to pay the second defendant’s and its liquidator’s costs, including any reserved costs, of the appeal and at first instance on a party/party basis, to be taxed if not agreed.
6.The remuneration of the liquidator of the second defendant and the party/party legal costs of that defendant and its liquidator both at first instance and on this appeal … are to be paid from the funds held in Common Fund No. 1 and debited to account 70877, such remuneration and costs to be assessed and taxed (respectively) in default of agreement.
It will be observed that, like the orders made by Daly AsJ, the orders made by Bell J provided that the party/party costs of Australvic at first instance and on appeal be paid from the funds in court.
Grounds of appeal
The appellants rely on three grounds of appeal. In summary, they argue that Bell J made errors of law in setting aside the orders made by Daly AsJ and making orders under which the costs of Australvic, which was unsuccessful in its claim, and the remuneration and costs of its liquidator, were payable out of the funds in court, even though Calderone had established that these funds were held on trust for him.
Ground 1
Ground 1 alleges that:
Having dismissed the substantive appeal from the Associate Judge, the learned judge erred in re-considering de novo the costs orders made by the Associate Judge without first determining whether there was some error of the kind which would justify granting leave, and whether such leave should be granted. There being no such error, leave should not have been granted and the Associate Justice’s costs orders should not have been disturbed.
In support of that submission, the appellants argued that there were two separate matters before Bell J. The first matter was the substantive appeal against Daly AsJ’s decision that Australvic held the Oxford Street property on trust for Calderone pursuant to their joint venture agreement. The second matter was the application for leave to appeal against the costs orders.
Counsel for the appellants relied on r 77.06(2) of the Supreme Court (General Civil Procedure) Rules 2005, which at the relevant time[11] provided that:
No judgment or order of an Associate Judge given or made by consent or order of an Associate Judge as to costs only shall be the subject of appeal under paragraph (1) except by leave of a Judge of the Court or the Associate Judge.
[11]Version 22.
It was initially submitted that his Honour had not considered whether leave should be granted in relation to the costs orders as required by r 77.06(2). During the appeal, counsel conceded that this complaint was not made out. This concession was clearly correct, because the orders made by Bell J included the grant of leave to appeal against the costs orders made below.[12]
[12]Order 1 of Bell J dated 19 October 2011.
The alternative argument made by the appellants was that his Honour had applied the wrong principles in granting leave to appeal on the issue of costs. They argued that his Honour should have applied the principles in House v R,[13] both in deciding whether leave to appeal should be granted, and if such leave was granted, in determining the appeal. In the oral argument there was some elision between the question of whether the judge applied correct principles in deciding whether leave to appeal should be granted (as I have said it was initially contended that he had not considered this question) and whether his Honour had applied correct principles in determining the appeal.
[13](1936) 55 CLR 499.
In support of their argument that his Honour had erred, the appellants relied on the following passage in his Honour’s reasons:
Under r 77.06(2), no judgment or order of an associate judge as to costs can be the subject of appeal except by leave of a judge or the associate judge. If that leave is granted, under r 77.06(7) the appeal ‘shall be by re-hearing de novo’. As the appeal is by re-hearing de novo, it would not be appropriate to apply the rules governing appeals against orders as to costs which are applied by the Court of Appeal. Under those rules, the function of the Court of Appeal when determining an appeal on a question of costs is more limited than the function of a judge when conducting a re-hearing de novo under an appeal from a decision of an associate judge on such a question. Nor do the principles enunciated in House v R[14] apply in such a hearing de novo. As I apprehend my function in an appeal of this nature, I must myself exercise the discretion to make an order as to costs, not just determine whether the order made by the associate judge was in error.[15]
[14](1936) 55 CLR 499.
[15]Reasons of Bell J, [93] (some citations omitted).
Counsel argued that if the appellants had not appealed against the substantive order of Daly AsJ and had only sought leave to appeal against the costs orders, the principle in House v R would have applied. It should make no difference that there was an appeal against the substantive orders as well.
In response to questions from the Bench, counsel conceded that there was no direct authority supporting his submission, but relied on a 2007 decision of Warren CJ in ACN 072 358 831 Pty Ltd v Arnott.[16] Arnott was an appeal under r 77.05(2) (as it then stood) against an order for costs made by a Master. Counsel argued that Warren CJ’s statement that the Master had a broad discretion as to costs, with which the Court would not interfere unless the Master had not exercised that discretion or had done so erroneously,[17] also applied to the application for leave to appeal against Daly AsJ’s costs orders in this case.
[16][2007] VSC 349 (‘Arnott’).
[17]Ibid, [13]–[14].
Counsel further submitted that a parallel should be drawn between r 77.06(2) and s 17A of the Supreme Court Act 1986, which governs appeals from a single judge of the trial division to the Court of Appeal. Section 17A provides that:
(1) An order made by the Trial Division constituted by a Judge of the Court —
(a) by consent of the parties; or
(b) as to costs which are in the discretion of the Trial Division —
is not subject to appeal to the Court of Appeal except by leave of the Court of Appeal or by leave of the Judge of the Court constituting the Trial Division which made the order.
Counsel submitted that since the principle in House v R applied to the grant of leave under s 17A(1), the requirement to show error before granting leave to appeal also applied to an appeal from cost orders made by an Associate Judge to a single judge of the trial division.
The respondents submitted that the clear words of r 77.06.7 required the application for leave to appeal against a costs order made by an Associate Judge to be decided de novo, so that ‘all questions of fact and law must be tried again’.
Conclusion on ground 1
At the relevant time, r 77.06(7) provided that an appeal from an Associate Judge to a trial division judge ‘shall be by re-hearing de novo of the application to the Associate Judge’.[18]
[18]See (now) Supreme Court (General Civil Procedure) Rules 2005, r 77.06.9(2) and (3).
There are some difficulties in reconciling this provision with the requirement for leave in relation to costs appeals in r 77.06(2). It could be argued that the requirement to hear the matter de novo applies only to appeals proper, so that the provision in r 77.06(7) becomes relevant only after leave to appeal has been granted. It is somewhat anomalous for the legislation to require a costs appeal from an Associate Judge to be determined de novo, in light of the different principles which have historically applied to appeals against costs orders. But that is what the Rules, as they then stood, required.
I consider that, in the passage relied upon by the appellants, his Honour was not setting out the test for the grant of leave to appeal but simply saying that it would not be appropriate to apply House v R principles to the grant of leave to appeal against a costs order in circumstances where, if leave is granted, the matter must be determined de novo.[19] I agree with that view.
[19]The question will not arise in the future because the nature of the appeal from an Associate Judge to a trial division judge has now changed.
As the matter was not argued, it is not necessary to decide whether the test in Niemann v Electronics Industries Ltd,[20] which requires there to be sufficient doubt attending the decision and substantial injustice if the decision were allowed to stand, applies when leave to appeal is sought from a decision of an Associate Judge relating to costs, in circumstances where, if the leave were granted, the judge was required to determine the matter de novo. In Arnott, the Chief Justice was considering an application for leave to appeal under a different provision from that which applies in this case. Her Honour was not asked to consider the application of a provision equivalent to r 77.06(7). Nor am I persuaded by the argument that because House v R applies on an appeal to this Court against a costs order made by a trial division judge, r 77.06(2) combined with r 77.06(7) must be read as achieving the same effect.
[20][1978] VR 431.
For these reasons, ground 1 fails. Of course, the conclusion that the principle in House v R does not apply to the costs appeal from Daly AsJ to Bell J, does not apply to the appeal from Bell J to this Court. In the case of the current appeal, the usual principles governing appeals against costs orders applies. Unless error in the House v R sense is established, this Court will not set aside his Honour’s orders
Ground 2
This ground alleges that:
The learned judge erred in applying an analogy between the position of the liquidator of a trustee company, and that of the executor of a deceased estate where:
(a) the analogy was flawed in that here, the liquidator of the Respondent disputed the very existence of the relevant trust in favour of the Third Appellant;
(b)the Respondent having nonetheless been found to be a trustee, its conduct (and that of its liquidator) in so disputing the existence of the trust, and in making a competing claim in its own right to the funds in court, was a breach of its fiduciary obligations;
(c)the costs of all parties in the proceeding were thereby occasioned by the Respondent’s breaches of its fiduciary duties; and
(d)unlike an executor, the liquidator for the Respondent had special statutory powers to investigate the affairs of the Respondent which did not require the Respondent to defend the Appellants’ claims and thereby make its own claim to the funds in court.
His Honour’s reasons
In his reasons for dismissing the appeal against the substantive orders made by Daly AsJ, his Honour reviewed the competing evidence as to whether Australvic owed JGM moneys which were secured over the Oxford Street property by a charge and/or whether that property was held on trust for Calderone.[21] The judge referred to various unsatisfactory or unusual features of the transactions between Calderone (and his associated companies, including JGM) and Mr Kyriakou (and his associated companies, including Australvic). These included:
[21]His Honour agreed with Daly AsJ that it was unnecessary to decide whether JGM or Mr Calderone had priority to the funds in court, because Mr Calderone was the ultimate beneficiary of the debt.
(a) the fact that a written declaration of trust relating to the joint venture agreement signed by the sole director and secretary of Australvic was not executed until about October 2006, although it was dated 12 August 2005.[22]
(b) the fact that a contract of sale of the Oxford Street property dated 12 August 2005 was made between Mr Calderone and Australvic. The contract purported to sell the property to Australvic for $530,000 and made no reference to any trust.[23]
[22]Reasons of Bell J [65].
[23]Ibid [65].
His Honour held that any suspicions raised by these matters had been removed by Calderone’s explanations about how the trust arrangements were put into place, as well as by additional objective evidence of the intention to create a trust. His Honour noted that:
The associate judge had the advantage of seeing Mr Calderone give evidence and be extensively cross-examined. While her Honour had some doubts about aspects of Mr Calderone’s evidence, she did not find him generally to be an unreliable witness. I have no basis for doubting his evidence as a whole, although I would be cautious about accepting certain parts of it without corroboration.[24]
[24]Ibid [66].
Before Daly AsJ, the liquidator had argued that there was an analogy between his role in protecting the assets of the company and the role of an executor in getting and distributing a testator’s assets. Bell J said that her Honour had:
accepted the application of this analogy up to a point. She held the liquidator had a responsibility to evaluate the competing claims, but he went beyond this legitimate role as the proceeding progressed. She held the liquidator’s role shifted from being an independent evaluator and arbiter of competing claims to that of a competing beneficiary. It vigorously resisted the claims advanced by each of the plaintiffs in circumstances where the claims of two of the plaintiffs were established on the basis of the objective documentary evidence.[25]
[25]Ibid [88].
Her Honour held that this shift had occurred around the time of the mediation on 17 July 2009.
Although the liquidator was not a party to the originating summons under which the appellants sought to establish their entitlement to the funds in court, s 24 of the Supreme Court Act1986 permits an order for costs to be made against a non‑party. Such power can only be exercised in exceptional circumstances.[26] His Honour held that Daly AsJ should not have made a personal order for costs against the liquidator, on the basis that he had conducted the litigation in his own interests. His Honour said that:
It was legitimate – indeed appropriate – for the liquidator to put the plaintiffs to their proof, and subject their witnesses to searching cross-examination, at a final hearing. It was legitimate and appropriate for the liquidator to do so because the objective documentation and other evidence gave rise to suspicions which it was the liquidator’s responsibility – as a liquidator – to address. On the state of the evidence just prior to trial, a reasonable liquidator performing their functions properly as an officer of the court could still have maintained suspicions. In the absence of evidence which resolved the suspicions satisfactorily, the liquidator could reasonably have decided vigorously to prosecute the company’s defence until the court determined the issues in dispute. That position did not change just because there was an unsuccessful mediation. I must therefore disagree with the major premise on which the costs order against the liquidator personally was based.
…
As to the appeal against the costs orders, I must respectfully disagree with the order that the liquidator personally pay the plaintiffs’ costs. The liquidator’s conduct of the case of the company in the proceeding was reasonable at all times. In prosecuting the competing claim of the company, he was properly performing his statutory function as a liquidator and an officer of the court. On the evidence, it was not unreasonable for the liquidator to oppose Mr Calderone’s claim and to submit Australvic’s alternative claim to judicial determination.[27]
[26]Sitzler Savage Pty Ltd v Northen Mining Holdings Pty Ltd [2012] VSC 104, [158]–[159]; Manderson M & F Consulting v Incitec Pivot Ltd [No 3] [2011] VSC 441, [20]–[31].
[27]Reasons of Bell J, [95], [129].
His Honour referred to the unsatisfactory features of the evidence of the existence of the trust, and said that the conclusion he had reached on that issue ‘depended in large measure on the kind of careful scrutiny of the evidence’ which the liquidator’s involvement in the hearing had facilitated. The liquidator’s conduct had to be measured against the standard of what could reasonably be expected of a liquidator performing his duty as an officer of the Court, having regard to the state of the evidence.[28] Further, his Honour said that:
I am respectfully unable to accept that the date of the mediation marks a point after which the liquidator’s participation in the proceeding became self‑interested. Other than that the mediation was unsuccessful, the court has no information about the outcome of the mediation or what occurred there. That is entirely appropriate, for the mediation is confidential to the parties. On the state of the evidence which was filed in court at and after the mediation, I could not conclude that the only reasonable course open to the liquidator was to concede the claims of the plaintiffs. At all material times, the plaintiffs’ prospects of success depended almost entirely on whether Mr Calderone’s evidence would be accepted. In the light of the unusual and unsatisfactory arrangements that he entered into with Mr Kyriakou, it was reasonably open to the liquidator to consider that this should be determined at trial.[29]
[28]Reasons of Bell J, [97].
[29]Reasons of Bell J, [98].
Counsel’s submissions
Although the second ground of appeal took issue with his Honour’s reference to the role of the executor, no emphasis was placed on this matter in oral argument. The appellants’ submissions on this ground were, at least in part, based on the argument that unless a House v R error were demonstrated, there was no basis upon which the learned trial division judge could have properly interfered with Daly AsJ’s conclusion of fact that the liquidator had acted unreasonably. The appellants contended that his Honour was required to identify some error of principle in Daly AsJ’s exercise of the costs discretion, or to hold that the orders she had made were not reasonably open to her. Instead, he had considered the matter de novo, and had wrongly substituted his own conclusion for that reached by Daly AsJ.
The respondents submitted that his Honour was obliged to consider the issue de novo, and that there was no basis for interfering with his Honour’s decision that the liquidator had acted reasonably in contesting the claim that Australvic held the property on trust, both before and after the unsuccessful mediation.
According to the respondents, the liquidator was entitled to oppose the appellants’ claim to the fund in Court, since there was some suspicion as to the legitimacy of the trust asserted. If liquidators could only do so at the risk of facing the possibility of an adverse costs order being made against them personally, they would be dissuaded from reasonably pursuing or defending claims to an asset whenever a competing claim was made, regardless of the strength of that claim.
Conclusion on ground 2
Since I have concluded that the trial judge was required to determine the appeal against costs on a de novo basis, the appellants’ argument that Daly AsJ’s decision could only be set aside if she had made a House v R error must fail.
However, even if the principle in House v R did apply, I consider that Daly AsJ erred in concluding that the liquidator acted unreasonably in continuing to litigate after the mediation failed.
In their written submission, the appellants argued that the liquidator breached his duty as trustee by opposing the appellants’ claim. But at the time that the liquidator caused the company to defend the claim to the funds paid into court, there were circumstances likely to raise suspicion that the alleged trust was a sham.
Like Bell J, I consider that the appellants’ argument that it was unreasonable for the liquidator to proceed to the trial before Daly AsJ was based on ‘the wisdom of hindsight’.[30] As Northrop and Ryan JJ observed in Bent v Gough,[31] the exercise of the discretion to make liquidators personally liable for the costs of litigation should take account of the undesirability of discouraging
liquidators from performing their public duty in pursuing litigation by an undue readiness to impose on them personal liability for the costs of successful parties.
[30]Reasons of Bell J, [97]. See also Mana Property Trustee Ltd v James Development Ltd[No 2] [2011] 2 NZLR 25, 29 [12].
[31](1992) 36 FCR 204, 219 (Northrop and Ryan JJ).
Whilst the appellants ultimately succeeded in establishing that the property was held on trust for him, the question whether the Court accepted or rejected Calderone’s evidence could not have been predicted by the liquidator.
The appellants have not established that Bell J erred in reaching the conclusion that there were no exceptional circumstances which justified subjecting the liquidator to personal liability for JGM and Calderone’s costs, after the unsuccessful mediation. Accordingly, ground 2 fails.
Ground 3
This ground alleges that:
The learned judge erred in making costs orders (both as to the proceedings before the Associate Judge and as to the appeal to the learned judge) which are manifestly unjust in that:
(a)the Court upheld the First and Third Appellants’ claims that the monies in Court constituted a trust fund for their benefit, yet notwithstanding this the Appellants have been ordered to pay the Respondent’s costs, and the Liquidator’s costs and remuneration, both of the trial before the Associate Judge, and of the appeal before the learned Judge. There is a double danger for (and unfairness to) the Appellants, in that if the funds in Court are insufficient to cover the total of these amounts, not only will they lose the funds in Court to which they are entitled, but further they will have to pay the shortfall; and
(b)this outcome is so manifestly unjust that it cannot be the product of a proper exercise of the Court’s discretion as to costs. The principles of House v R (1936) 55 CLR 499 are thus engaged, such that even if specific error cannot be identified, the costs orders made by his Honour should be set aside and the discretion exercised afresh by the Court of Appeal.
The appellants submitted that in ordering that the party/party legal costs of Australvic should be paid out of the fund, rather than by Australvic, his Honour had erroneously conflated the issue of the costs payable inter partes with the issue of the remuneration of Australvic’s liquidator. The legal costs of Australvic should be met out of the company assets and not out of the property in which Calderone had a beneficial interest.
The appellants acknowledged that a trustee has a right to an indemnity out of the assets of the trust fund for expenses incurred in the administration of the trust. However, they submitted that in this case the liquidator was not acting in the capacity of a trustee in contesting the claim to the funds in court, but was rather acting in the interests of Australvic.
The respondents argued that Australvic was prima facie entitled to the funds paid into court, and that it was a necessary party to the litigation. In these circumstances, both Daly AsJ and Bell J had correctly held that the respondents’ costs and the costs and remuneration of the liquidator should be defrayed from the fund before the balance was paid to the person beneficially entitled to the fund.[32] If this were not the case, liquidators would be placed in a very difficult position. If the liquidator unsuccessfully contested a claim that moneys were held on trust, and was not entitled to be indemnified out of funds paid into court, he or she would run the risk of being deprived of the costs of defending the claim on behalf of the company, if the trust were established. This could result in liquidators conceding such claims to the detriment of creditors, even where the claim that money or property was held on trust was doubtful.
[32]The respondent referred to Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169, in support of this proposition, although they did so to refute the appellants’ argument that the analogy between the position of an executor and a liquidator was misconceived. The Hypec case in turn relied on a passage from Daniell’s Chancery Practice (7th ed, 1901, Vol 1), 987.
Conclusion on ground 3
The conclusion which I have reached on ground 1 makes it unnecessary to consider ground 3(b). However even if, contrary to my view, the principle in House v R applied to the appeal from Daly AsJ to Bell J, I consider that his Honour’s discretion miscarried.
The central issue raised by ground 3(a) is whether the respondents’ legal costs and the liquidator’s costs and remuneration should have been paid out of the funds in court. As I have said, this Court can only set aside those orders if Bell J took account of irrelevant considerations, failed to have regard to relevant matters or if the orders he made are clearly wrong.
Should Calderone and/or JGM have been held liable for Australvic’s legal costs?
I deal first with the question whether his Honour erred, in the House v R sense, in ordering that Calderone and JGM should pay Australvic’s costs, and that these costs should be paid out of the funds in court.
Although costs normally follow the event, it is not necessarily an error for a judge to order that a successful party to litigation bear the costs of the unsuccessful party.[33] The circumstances which may, in the exercise of a judge’s discretion, justify the making of such an order, include misconduct prior to or in the conduct of litigation, the fact that the successful party has succeeded on a point which was not argued at trial and/or the fact that the successful party obtains relief which had already been offered by the unsuccessful party. None of those circumstances applied in this case.[34]
[33]Oshlack v Richmond River Council (1998) 193 CLR 72, 88 (Gaudron and Gummow JJ). See also 121 (Kirby J).
[34]Ibid, 97 (McHugh J in dissent but not on this point), 120–122 (Kirby J).
Bell J concluded that Calderone and JGM should bear the costs of Australvic and that the liquidator, having acted reasonably,[35] was entitled to his costs and remuneration out of the funds in court, for the following reasons:
The parties were not agreed in relation to the costs orders which should be made in the appeal. The critical question is whether Australvic and the liquidator were successful in the appeal. On behalf of the Calderone interests, it was submitted that Australvic had wholly failed and that the liquidator had succeeded only on the issue of costs. Australvic and the liquidator submitted that it was artificial to draw a distinction between them and that they were both successful in the appeal.
In my view no distinction should be drawn between Australvic and the liquidator. In the way that the appeal was run and determined, there was significant overlap between the issue of the entitlement of the Calderone interests to access the funds in court and the issue of the entitlement of the liquidator to access those funds for his remuneration. It was only after a full consideration of the first issue that I was able to give proper consideration to the second issue. If there had been no appeal with respect to the first issue, and an appeal only with respect to the second issue, it would still have been necessary for me to go into the entitlement of the Calderone interests to access the funds in court in some depth. Therefore the length of the appeal was not made much greater by the inclusion of the first issue.
Further, Australvic and the liquidator were both necessary parties in the appeal. Because of the overlap between the first and second issues, it was not convenient and probably not possible to distinguish between their participation in the appeal in relation to these issues. Australvic was the moving party in the appeal on both issues. Having regard to the overlap, that was both appropriate and necessary. The liquidator was not separately represented and Australvic’s counsel carried the burden of representing the interests of the liquidator in the appeal. In my view, the appropriate characterisation of the result of the appeal is that Australvic and the liquidator were successful because their challenge to the orders of Associate Justice Daly, except the order upholding the entitlement of the Calderone interests to access the funds in court, was upheld. The costs orders in the appeal should follow that event.[36]
[35]Reasons of Bell J [130].
[36]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) [No 4] [2011] VSC 520 [6]–[8].
In this passage his Honour gave two reasons for ordering that Australvic’s legal costs be paid out of the funds in Court, in priority to Calderone and JGM. The first reason was that Australvic and the liquidator had been successful on the appeal, even though Calderone had established his entitlement to the funds in court. It may be noted that it was the company and not the liquidator who was the party to the proceedings before Bell J, but his Honour did not regard that as significant. The second reason was that ‘there was a significant overlap between the issue of the entitlement of the Calderone interests to access the funds in court and the issue of the entitlement of the liquidator to access those funds for his remuneration.’[37]
[37]Ibid [7].
In my opinion, neither of these reasons can be accepted. The question whether Calderone was entitled to the funds in Court was the primary issue which the judge had to determine. Calderone was the respondent in Australvic’s unsuccessful appeal against Daly AsJ’s conclusion that he was entitled to the funds. The determination of costs was consequent upon and should have been largely determined by that decision. The respondents were unable to advance any cogent reason why costs should not have been awarded to Calderone as a result of that success. In the passage above, his Honour may have meant that if the company had succeeded in its claim to the fund, the liquidator would have been entitled to an indemnity from company assets for any costs he had incurred.[38] However, this was irrelevant in determining whether the liquidator was entitled to payment out of funds to which Calderone held an equitable title.
[38]In Hypec Electronics Pty Ltd (in liq) v Mead (2004) 61 NSWLR 169 (‘Hypec Electronics’), Campbell J noted that in the context of the liquidation the court responsible for its administration can, if a right of indemnity exists, order that the costs of the successful litigant be paid from the assets of the company, rather than achieving this result in two steps, at [88].
I would also accept the appellants’ contention that the orders made by his Honour conflated the issue of the costs order which should be made inter partes with the question whether the costs and remuneration of the liquidator should be paid out of the funds in court. In Hypec Electronics Campbell J emphasised the importance of distinguishing between
proceedings in which one party seeks to have pre-existing legal rights determined and enforced by the court, and proceedings where the court is carrying out an administrative function such, as occurs where there is a winding up by the Court.[39]
[39]Ibid [79], [81].
In this case the appellants had sought to have their pre-existing rights determined. For these reasons I consider that his Honour erred in holding that Calderone and JGM should pay Australvic’s costs.
Should the judge have ordered that the liquidator’s costs and remuneration be payable out of the fund?
The respondents relies on the following statement from the decision of Campbell J in Hypec Electronics to justify his Honour’s order that the costs and remuneration of the liquidator be paid out of the fund. [40]
[40]Ibid.
When a liquidator is sued, and loses, there is a similar analytical distinction required to be observed between the role of the court which hears the action deciding that the winner should have his costs paid, and the court which conducts the administration of the liquidation deciding whether those costs should be allowed from the fund. However, a factor comes into play here, which differentiates the situation where a liquidator is a defendant from the situation where the liquidator is a plaintiff. It arises from a fundamental principle which equity courts use in deciding questions of costs in administration actions. That principle is stated in Daniell's Chancery Practice, 7th ed (1901) London, Stevens and Sons Ltd, Vol 1, at 987:
As a general rule, wherever an estate or fund is administered by the Court, the costs of all necessary and proper parties to the proceedings are a first charge upon it, and must be defrayed thereout before the claims of the persons beneficially entitled thereto are satisfied. But the costs only of those proceedings which were in their origin properly directed for the benefit of the estate will be ordered to be thus paid; and the costs of any unnecessary and useless proceedings must be paid by the person at whose instigation they were taken. (citations omitted)
That principle led Gaudron J and Gummow J to say in Oshlack v Richmond River Council:[41]
Nor, before or since the introduction of the Judicature system, has there been any absolute proposition that the sole purpose of a costs order is to compensate one party at the expense of another. As a general rule, wherever an estate or fund is administered by the court, the costs of all necessary and proper parties to the proceedings should be defrayed out of the fund.[42]
When a liquidator is sued as such, he does not instigate the litigation, has no real choice about whether to take part in the litigation, and in the vast majority of cases in opposing the litigation he is seeking to protect the fund. Thus, the working through of the principle articulated by Daniell means that nearly always any costs which a liquidator is ordered to pay as a consequence of losing such litigation, will be a charge on the fund. It is because this principle concerning payment of costs out of a fund exists that it can be an appropriate order, even in a case where the court orders a liquidator to be removed, for the costs of the application for his removal to be paid from the fund: Re Biposo Pty Ltd; Condon v Rogers (1995) 17 ACSR 730; 13 ACLC 1, 271.[43]
[41](1998) 193 CLR 72.
[42]Ibid, 89 [43].
[43]Hypec Electronics (2004) 61 NSWLR 169, 190-1 [85] - [86].
Before Daly AsJ, the respondents drew an analogy between the position of a liquidator in relation to funds in court and the common practice of ordering that the costs of all parties to family provision proceedings be borne out of the estate of the deceased. In the respondents’ written submissions to this Court it was argued that:
The Appellants’ submissions argue that the analogy is flawed because it disputes the very existence of the trust. However here we have a fund that is prima facie to the account of Australvic and which he liquidator is seeking to preserve for the benefit of all creditors. It is a fund in the sense referred to in the quote from Daniell’s Chancery Practice. Australvic was necessarily a party to the litigation: indeed it had to be a party as otherwise the Appellants could not get the relief they sought. Further, the Appellants argued for and ultimately succeeded in establishing there was a trust and that the monies in Court were trust assets.
Further the Appellants’ argument, if correct, puts a liquidator in a very difficult position. If he (or she) contests a claim alleging a trust on monies prima facie to the account of a company the liquidator runs the risk that if unsuccessful he (or she) will not be paid his costs of that defence from those monies. This has the potential to have liquidators conceding such claims to the detriment of all the other creditors even where the claim (as was the case here) is on its face doubtful.[44]
[44]Respondent’s submissions [24]–[25].
There are a number of difficulties with this argument. The question which arose in Hypec Electronics was whether an order should be made subjecting a liquidator to personal liability for costs incurred in two separate proceedings concerning ownership of assets. In the second proceedings, which were brought against the liquidator, costs orders were made in favour of the successful party, but the liquidator was held to be entitled to an indemnity for those costs from the assets of the company, because the liquidator had not acted improperly in defending the proceedings.
Nothing in the case supports the proposition that simply because a claim made against a company relates to funds paid into court, pending determination of the beneficial ownership of those funds, the company is entitled to have its costs paid out of the fund.[45] Nor does the case support the proposition that the liquidator is always entitled to have his or her costs and remuneration paid out of the fund in priority to the successful claimant.
[45]Indeed the inter partes costs arising from the first proceeding in Hypec Electronics were dealt with according to normal costs principles.
The reference in the passage relied upon by the respondents to Daniell’s Chancery Practice to ‘an estate or fund administered by the Court’ was clearly a reference to a fund which the Court is actively involved in administering for the benefit of third parties, such as the infant beneficiaries of a will.
A trustee who becomes a party to legal proceedings is generally entitled to be indemnified from the assets of the trust for costs properly incurred. Similarly a liquidator may be entitled to an indemnity from the assets of the company. In Re Enhill Pty Ltd[46] it was held that the right of indemnity which a trading trustee company has over trust assets is property of the trustee company available to its liquidator, for division among creditors, including the liquidator’s costs, expenses and entitlement to remuneration incurred in the winding up of the company.
[46][1983] VR 561.
But no principle entitles a liquidator to recover his or her costs or remuneration from monies paid into court, simply because those funds are being held by the court for the purpose of determining who is entitled to them.
Calderone was not a creditor of Australvic, but the beneficiary of a trust. A liquidator who is also a trustee, who acknowledges that he holds monies as a trustee and who reasonably incurs expenses in administering the trust, is entitled to an indemnity from trust funds. That was not the case here. The liquidator took no steps to administer the trust. Rather, by opposing Calderone’s claim and denying the existence of the trust, the liquidator was acting in the interests of the company.[47] Clearly, the liquidator cannot look to the appellants for an indemnity from the trust property for expenses or remuneration incurred in resisting, rather than pursuing, their claim.
[47]The situation would be different if the liquidator had been acting in the capacity of trustee to identify trust assets or attempting to realise or protect trust assets; see 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 and Australian Securities & Investments Commission v Primelife Corporation Ltd (ACN 010622 901) BC 200710476 where this principle extended to a situation where a liquidator has filled a lacuna in the absence of a trustee and acted to secure and preserve trust assets.
Thus the liquidator must look to the assets of the company to satisfy his claim.[48] A liquidator who is uncertain as to whether to exercise the power to initiate or defend proceedings can seek guidance from the Court under s 479(3) of the Corporations Act 2001 (Cth), although a failure to do so does not mean that the liquidator has acted unreasonably.[49] The fact that the company may have
insufficient assets to pay the liquidator’s costs and remuneration is a consequence of the company’s lack of assets, for which Calderone cannot be called to account.
[48]Corporations Act 2001 (Cth) determines priorities in relation to such a claim.
[49]Hypec Electronics (2004) 61 NSWLR 169 [124].
For these reasons the third ground of appeal is made out. The parties agreed that in the event that the appeal succeeds this Court should not remit the matter for decision to the trial division, but should make appropriate costs orders. Those costs orders may need to take account of Australvic’s success in appealing to Bell J against the order making the liquidator personally liable for legal costs.
REDLICH JA:
Under Ground 1 the appellants contended that Bell J proceeded to consider de novo the costs order made by the Associate Justice without first determining whether there was error of a kind which would justify the grant of leave. Although not raised by the ground, they argued in the alternative that if his Honour did consider the question of leave, he did not apply the correct test as the principles in House v R applied.[50] The appellants rightly did not persist in their contention that the judge did not consider the question of leave. As to the alternative argument, I agree with Neave JA that the principles in House v R do not apply to the question of leave on a costs appeal from an Associate Justice to a judge on appeal. That was the conclusion which Bell J also reached.
[50](1936) 55 CLR 499.
Bell J concluded that the principle that a liquidator acting reasonably is entitled to be indemnified out of trust assets for costs and expenses which he has incurred should not have been limited by the Associate Justice to the time of the mediation. It is clear from his reasons that he regarded it as a specific error not to have applied the principle to the liquidator’s entire remuneration and costs. Thus, even if House v R or Niemann principles applied, there would have been a grant of leave on the basis of that identified error.
The requirement of leave is undoubtedly intended to circumscribe the circumstances in which an appeal should proceed. An appeal in the strict sense or by way of rehearing, permits appellate interference only where legal, factual or discretionary error is demonstrated. That is because in the absence of something contained in the statutory provisions conferring the appellate power, it is to be exercised only to correct error. A statutory provision which confers a right of appeal by way of rehearing de novo requires the exercise of the appellate power regardless of error. [51] The nature of the power to be exercised on appeal will inform the content of the leave requirement in the absence of any statutory indication as to the leave requirement.
[51]Allesch v Maunz (2000) 203 CLR 172, 180-1 [23] (Gaudron, McHugh, Gummow, Hayne JJ); Coal and Allied Operations Pty Ltd v AIRC (2000) 203 CLR 194, 203 [12]—[14] (Gleeson CJ, Gaudron and Hayne JJ).
As demonstration of error is not required on the present appeal, the principles in House v R or Niemann are, in my view, inapposite. What is required is that the applicant show that it is reasonably arguable that the judge on appeal may make a different order to that from which it is sought to appeal. Such a leave requirement is to be found in a number of different appellate regimes where it must be established that a ground of appeal is reasonably arguable.[52] Such an approach is compatible with the rehearing of the appeal de novo and accommodates an appeal where the judge is not confined to the evidence at first instance.
[52]R v Raad (2006) 15 VR 338.
I agree with Neave JA that Ground 3 should be upheld and the appeal allowed. Notwithstanding that the respondents had failed to establish that the funds in court were not a trust asset to which the appellants were beneficially entitled, Bell J ordered that the liquidator and the company should have their costs of the proceedings before him and before the Associate Justice paid out of the trust funds in court. In reaching that conclusion Bell J referred to the judgment of Finkelstein J in 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (In Liq)[53] where his Honour stated:
Provided a liquidator is acting reasonably he is entitled to be indemnified out of trust assets for his costs and expenses in carrying out the following activities, identifying or attempting to identify trust assets; recovering or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to persons beneficially entitled to them.[54]
[53](1999) 30 ACSR 377.
[54]Ibid 385.
These propositions were drawn from a number of cases, as Finkelstein J observed, in which the activities of the liquidator of a trust company could be characterised as performing work which can be related to the administration of trust assets. The company as well as the liquidator rested their claim to costs on this principle.
In the exercise of the inherent equitable jurisdiction of the court, the entitlement of a liquidator to have recourse to trust assets for remuneration and expenses will only arise where it appears to be work done for the proper administration of a trust. Such costs are to be distinguished from those incurred solely with the winding up and which are not for the purpose of the administration of the trust.
In the present case the liquidator was not seeking to administer the trust assets or to do work for the benefit of the trust. As Bell J stated, the liquidator here incurred costs and expenses in prosecuting the company’s competing entitlement to the funds in court.[55] He was not seeking to perform any active duty arising from the office of the trustee such as to vindicate the rights associated with the trust property.[56] The costs and expenses were not incurred for the purpose of administering the trust but were for a purpose hostile to the existence of the trust and to the appellant beneficiaries’ entitlement. The principle upon which the
liquidator relied to charge the trust assets with his remuneration and costs had no application.
[55]JGM Nominees Pty Ltd v Australvic Pty Ltd (in liq) [No 3] [2010] VSC 623, [111].
[56]CGU Insurance Ltd v One-Tel Ltd (In Liq) (2010) 242 CLR 174.
I agree for the reasons given by Neave JA that the liquidator must look to the assets of the company to satisfy his claim for his costs and expenses.
KYROU AJA:
I agree with Neave JA.
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