JKB Holdings Pty Ltd v de la Vega
[2013] NSWSC 501
•08 May 2013
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: JKB Holdings Pty Limited v de la Vega [2013] NSWSC 501 Hearing dates: 08.04.2013 Decision date: 08 May 2013 Jurisdiction: Equity Division Before: Lindsay J Decision: Order that the defendants' Motion (for payment of funds out of court) be dismissed
Catchwords: PROCEDURE - Supreme Court procedure - New South Wales - Procedure under Uniform Civil Procedure Rules - Payment into and out of court - Land in dispute registered in names of defendants - Proceeds of sale of land paid into court - Defendants granted charge over funds in court in favour of their lawyers - Funds in court insufficient to satisfy costs entitlement of plaintiffs and defendants' lawyers - Application by defendants for payment out for benefit of their lawyers - Application refused.
PROCEDURE - Judgments and orders - In general - Defendants' previous application for payment out of court refused - Whether principles of res judicata or issue estoppel bar another application for payment out of court by defendants - Whether principles governing abuse of process bar another application for payment out of court by defendants.Legislation Cited: Uniform Civil Procedure Rules 2005 NSW
Civil Procedure Act 2005 NSW
Trustee Act 1925 NSW
Legal Profession Act 2004 NSW
Corporations Act 2001 (Cth)
Australian Constitution, Part IIICases Cited: La Trobe Capital [2009] NSWSC 1118 at [8]-[16]
La Trobe Capital & Mortgage Corporation Limited [No 2] [2009] NSWSC 1372 at [2], [36], [38] and [49]
Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [6]-[11]
Jackson v Sterling Industries Limited (1987) 162 CLR 612
Cardile v LED Builders Pty Limited (1999) 198 CLR 380
Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146 at 153 [35]-[36]
Derrawee Pastoral Co Pty Ltd v McConochie (unreported, 24 February 1995)
A Hudson Pty Limited v Legal & General Life of Australia Limited (1985) 1 NSWLR 701 at 712A-C, 714G-715B, 716C-717B and 718B-E
Rajski v Computer Manufacture & Design Pty Limited [1982] 2 NSWLR 443 at 451G-452A
Avco Financial Services Limited v Commonwealth Bank of Australia (1989) 17 NSWLR 679 at 683C
Shirlaw (now Rogers) v Malouf (1989) 15 ACLR 641 at 647-648; Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm) [2006] VSCA 123 at [22]-[24]; Gizonic v Suttor [2011] NSWSC 471 at [48]
Cf, Re Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd [1989] FCA 548; 90 ALR 589 at [16]-[19]
La Trobe Capital & Mortgage Corporation Limited [No 2] [2009] NSWSC 1372 at [33]
JKB Holdings Pty Ltd v de la Vega (No 4) [2012] NSWSC 1177 at [2]-[7]
Australian Hardboards Limited v Hudson Investment Group Limited (2007) 70 NSWLR 201 at 214 [52]
Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 248
Nominal Defendant v Manning (2000) 50 NSWLR 155-156 [71]-[73] and 167 [122].
139 at 167 [122]
Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301
Stanley-Hill v Kool [1982] 1 NSWLR 460 at 464C-E
Southern Cross Exploration NL v All Risks Insurance Co Ltd (1985) 1 NSLR 114;Sagacious Procurement Pty Ltd v Symbion Health Ltd [2007] NSWCA 205 at [49]-[55])
Blair v Curran (1939) 62 CLR 464 at 531-533
Kuligowski v Metrobus (2004) 220 CLR 363 at 373 [21] and 374-375 [25]
National Parks and Wildlife Service v Pierson (2002) 55 NSWLR 315 at 317-318 [13]-[17]
Adam P Brown Male Fashions Pty Limited v Phillip Morris Incorporated (1981) 148 CLR 170 at 177-178
Re Delta Landscaping Pty Limited v Bell Dies Pty Limited (1990) 20 NSWLR 508 at 509E-G
Macguire v Makaronis (1997) 188 CLR 449 at 466-467
Country Law Services v Duff [2007] NSWSC 1509 at [33]-[35]
Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 at 435E-436C and 437C
Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Limited [1972] VR 702 at 705 and 706 Coshott v Sakic (1988) 44 NSWLR 667 at 672B-D
Morgan v 45 Flers Avenue Pty Ltd (1987) 11 NSWLR 573 at 579D-E.
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352; Western Export Services Inc v Jineh International Pty Ltd [2011] HCA 45; 86 ALJR 1 at [3]-[5]
Equuscorp Pty Ltd v Glengallan Investments Pty Limited (2004) 218 CLR 471 at 483-484 [33]-[35])
Australian Consolidated Press v Morgan (1965) 112 CLR 483 at 491, 492 and 503
Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 717C-F Livingston v Commissioner of Stamp Duties (Queensland) (1960) 107 CLR 411 at 435
McLean v Burns Philp Trustee Co Pty Limited (1985) 2 NSWLR 623 at 634E
Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 24-34
Avco Financial Services Limited v Commonwealth Bank of Australia (1989) 17 NSWLR 679 at 681G
Xenos v National Australia Bank Ltd [2007] NSWSC 973 at [24]-[29]
New South Wales v The Commonwealth [No 3] (1932) 46 CLR 246 at 260-261, 262, 266 and 268
Duncan (as Trustee for the bankrupt estate of Garrett) v National Australia Bank Limited [2006] SASC 239; 235 ALR 385 at [31], [35], [39], [41] and [46]-[56
The Registrar of the Accident Compensation Tribunal v Federal Commissioner for Taxation (1993) 178 CLR 145 at 161, 163-164, 168-169 and 171
Re McJannet; Ex parte Minister for Employment, Training and Industrial Relations (1995) 184 CLR 620 at 664n 132Texts Cited: JM Bennett, A History of the Supreme Court of New South Wales (Law Book Co, Sydney, 1974), pp 90 and 137. Category: Principal judgment Parties: JKB Holdings Pty Ltd ACN 089 683 929 (First Plaintiff)
Jason Mark Schwede (Second Plaintiff)
Karen Elizabeth Schwede (Third Plaintiff)
Alejandro Jose de la Vega (First Defendant)
Lynette Margaret de la Vega (Second Defendant)Representation: R Kaye SC with S Reuben appeared for the Defendants/Applicants
M Steele appeared for the Plaintiffs/Respondents
Lawyers Queensland (Plaintiffs/Respondents)
Charles Roth Solicitors (Defendants/Applicants)
File Number(s): 2010/0228124
Judgment
INTRODUCTION
The determination of an application, such as that presently before the Court, for the payment out of funds in court generally requires consideration of any legislation (including rules of court) governing the payment into and out of court; the circumstances surrounding payment into court of the particular funds; and the circumstances surrounding the application for payment out, including identification of competing claimants to the funds in court and the respective entitlements of such claimants.
Along the way, subject to the terms of any applicable legislation, and the facts of the particular case, regard also has to be had to three interrelated questions. First: What was, and is, the character of moneys paid into Court? Secondly: What purpose or purposes govern the payment into Court, the retention of funds in Court and the prospective payment out of Court? Thirdly: What is the nature of the determination required of the Court, be it a decision regarding management of property or an adjudication of claims of right? These questions must be addressed in the context of the Court's judicial function in the administration of justice.
The application for payment out presently before the Court has two additional features that require attention. First, the application is a second attempt by the defendants to obtain an order for payment out of the funds presently in court, necessitating consideration of the nature of both the Court's initial refusal to make an order for payment out and the current application. Secondly, the defendants endeavour to support their application by reference to charges granted by them to their lawyers over the funds in court, necessitating consideration of the nature of the parties' interests, if any, in those funds.
LEGISLATIVE CONTEXT
The application of the defendants is made by reference to Part 41 of the Uniform Civil Procedure Rules 2005 NSW (entitled "Funds in court"), particularly rules 41.1 and 41.11. The former rule defines "funds in court" as meaning "money that has been paid into court". The latter provides that "[subject] to these rules, funds in court may not be paid out of court except to the party entitled or (on the party's written authority or by order of the court) to the party's solicitor."
UCPR Part 55 Division 3 (r 55.8-55.12), which relates to "Matters arising under the Trustee Act 1925", does not apply in these proceedings because the funds in court were not paid in, pursuant to Part 4 (ss 95-98) of that Act, by a trustee seeking the protection of a payment of trust funds into court. They were paid in from the proceeds of sale of land of which the defendants were registered proprietors and over which the plaintiffs claimed a disputed, equitable charge.
To the extent that they depend on UCPR Part 55, recent cases such as La Trobe Capital [2009] NSWSC 1118 at [8]-[16], La Trobe Capital & Mortgage Corporation Limited [No 2] [2009] NSWSC 1372 at [2], [36], [38] and [49]; Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [6]-[11]; Ruth Chong v Super Equity Invests Pty Ltd [2012] NSWSC 27 at [12]-[15]; and Re C&L Cameron Pty Ltd [2012] NSWSC 676 at [120]-[122] and [127]-[130] have no direct application to the problems posed in these proceedings. However, they do speak directly on the question of "onus of proof", a topic of interest here.
The word "entitled" in UCPR r 41.11 is directed to the time of payment out. An order authorising, or directing, a payment out to a party establishes, rather than merely evidences, that party's entitlement to receive the money paid out pursuant to the order. Rule 41.11 is directed towards orderly management of funds in court. A payment out must be made to the "party entitled" personally unless a payment to the party's solicitor is duly authorised, in which event payment can be made to the solicitor.
Rule 41.11 does not mandate that funds in court can only be paid out to, or at the direction of, the party who paid them in. Once moneys are paid into court they come under the general control of the court and are liable to be dealt with, in the ordinary course of the business of the court, subject to such orders as may be made by the court from time to time.
Whether a determination about payment of money out of court bears the character of an interlocutory or final judgment depends on the context, and terms, in which the particular decision is made. Some determinations about payment out may be entirely administrative in character and, accordingly, characterised as interlocutory. Other determinations, made after a contested hearing about the merits of competing, substantive entitlements, may bear the character of a final judgment. In each case, characterisation of the Court's decision depends upon its legal effect: Carr v Finance Corporation of Australia Ltd (1981) 147 CLR 246 at 248. An adjudication of competing claims of substantive right generally bears the character of a final judgment; not so, a discretionary management decision about a matter of practice or procedure: A Hudson Pty Limited v Legal & General Life of Australia Limited (1985) 1 NSWLR 701 at 712A-C, 714G-715B, 716C-717B and 718B-E.
Part 41 deals with management of money that has been paid into court. It does not address the circumstances in which money may be required, or allowed, to be paid into court.
The circumstances in which money may be paid into court are many and varied. Legislation governing payments into court is not exhaustive of the occasions upon which a payment into court can be made. It is open to the Court, by order, to allow a payment into court whenever appropriate in the administration of justice. An illustration of this may be found when the Court, in its inherent jurisdiction, makes an order for the provision of security for costs (and, so, contemplates the possibility of money being paid into court by way of security): Rajski v Computer Manufacture & Design Pty Limited [1982] 2 NSWLR 443 at 451G-452A and 455D (upheld in [1983] 2 NSWLR 122).
In practice, money may be paid into court as a means of providing security for costs (pursuant to the Court's inherent jurisdiction, UCPR rr 42.21 or 51.50 or the Corporations Act 2001 (Cth), s 1335); but parties often prefer to provide security by way of a bank bond or a deposit of funds in an interest bearing account in the joint names of solicitors on either side of proceedings. Not uncommonly, a payment into court may be made (by reference to UCPR r 25.3 or otherwise) as a means of preserving the proceeds of sale of property the subject of competing claims of entitlement. In each of those cases the authority for a payment into court is tied specifically to an order of the Court requiring or allowing it to be done.
However, legislation governing proceedings in the Court provides for other occasions upon which money may be paid into court without any necessity for a court order. Three examples will suffice. First, there are traditional interpleader proceedings (by a stakeholder or the sheriff) under UCPR Part 43. Secondly, s 77 of the Civil Procedure Act 2005 NSW provides for payment into court of money recovered on behalf of a person under legal incapacity, including a person incapable of managing his or her own affairs. Thirdly, Part 4 of the Trustee Act 1925 NSW and UCPR Part 55 Div 3 (rr 55.8-55.12) provide for payments into court by trustees (Trustee Act, s 95), debtors of minors or persons of unsound mind (s 96) and life assurance companies concerned about the sufficiency of any discharge available to them for payments under a life policy (s 97).
The diversity attending payments into court calls attention to the need, on an application for payment out, to inquire as to the nature and purpose of the antecedent payment in . This is necessary to ensure that the Court acts within its mandate, judicially, and in a manner that gives due recognition to the rights and expectations of persons who may claim to be "entitled" to property affected by an exercise of the Court's jurisdiction.
THE FUNDS IN COURT
The money the subject of the application presently before the Court is part of a larger sum paid into court pursuant to orders made in these proceedings, by consent, on 9 July 2010.
The money paid into court pursuant to the orders of 9 July 2010 was paid in by the defendants, the registered proprietors of land (over which the plaintiffs claimed an equitable mortgage) the subject of a sale. To the extent that the plaintiffs were entitled to an equitable charge on the land they, presumably, claimed an entitlement, on sale of the land, to an equitable charge on the proceeds of sale: Avco Financial Services Limited v Commonwealth Bank of Australia (1989) 17 NSWLR 679 at 683C; La Trobe Capital & Mortgage Corporation Limited [No 2] [2009] NSWSC 1372 at [33]. That was not spelled out in, but may be inferred from, the orders for payment in.
Broken down into its component parts, the claim of the plaintiffs was a claim in debt, coupled with a claim to an equitable charge over land by way of security for the alleged indebtedness of the defendants: JKB Holdings Pty Ltd v de la Vega (No 4) [2012] NSWSC 1177 at [2]-[7].
Both sides of the record claimed ownership of the disputed funds to be, as they were, paid into court.
The Court was called upon to adjudicate the parties' competing claims, and to hold the disputed funds in the meantime.
Even if, with the benefit of the Court's final judgment, the funds could, in retrospect, be said to have been owned by one side of the record or the other, or in particular proportions, the fact is that ownership of the whole was in dispute at the time the funds were paid into court, and neither side could be said, at that time, to have had more than rights contingent upon the Court's determination of their dispute. By analogy, it might be said that the payment in constituted the Court as something akin to a stakeholder: Cf, Shirlaw (now Rogers) v Malouf (1989) 15 ACLR 641 at 647-648; Equuscorp Pty Ltd v Wilmoth, Field Warne (a firm) [2006] VSCA 123 at [22]-[24]; Gizonic v Suttor [2011] NSWSC 471 at [48]. However, any such analogy is imprecise. The Court has no need of it. The terms upon which funds were paid into court were set by the orders made for payment in. Thereafter, it was for the Court to fulfil its judicial function. It is not a mere stakeholder.
It is also important to remember that, at both the time consent orders were made for the payment of money into court and the time that money was paid into court pursuant to those orders, such (if any) security interest the defendants' lawyers may now have in the funds in court or might have upon payment out of those funds was not in existence. The defendants' lawyers did not take, or purport to take, a charge over those funds until after the funds had been paid into court.
Most of the money paid into court was paid out pursuant to orders made by Rein J on 28 September 2012, consequentially upon Reasons for Judgment published by his Honour on that date ([2012] NSWSC 1238) and on 7 September 2012 ([2012] NSWSC 1177).
The present application concerns the balance of the moneys paid into court, an amount (with accrued interest) just under $155,000.00.
THE DEFENDANTS' MOTION FOR PAYMENT OUT
The defendants move the Court (on a notice of motion filed on 30 November 2012) for an order that that residue of the funds in court be paid out to their solicitor's trust account for payment out to their solicitor and their junior counsel. The declared object of the motion is to appropriate the funds in court to payment of the defendants' legal costs.
The plaintiffs resist the motion because, they contend, the orders made by Rein J contemplate that (subject to any competing claims that might materialise) the disputed funds are to remain available, in court, for partial satisfaction of their entitlement, under his Honour's costs orders, to be indemnified by the defendants against costs incurred in the principal proceedings.
The plaintiffs have prepared a bill of costs chargeable to the defendants, and they have applied for an assessment of those costs under the Legal Profession Act 2004 NSW, Part 3.2 Div 11. The defendants have served no objections to the bill. Nor have they foreshadowed objections or offered an explanation for any delays on their part in facilitating the conduct of a formal assessment of the plaintiffs' entitlements. The assessment process is proceeding - I infer, in the ordinary course.
The defendants' motion appears, on its face, to be an application made in the interests of their solicitor and junior counsel no less than in their own interests. The evidence before the Court does not permit an estimate to be made of such liability for costs as they might have to their lawyers.
The lawyers themselves are not parties to the proceedings. This is a fact worthy of notice because, with the aid of their lawyers, the defendants have endeavoured to strengthen their application for the payment of funds out of court by a contention that they have granted charges over those funds in favour of the lawyers. The proceedings, as presently constituted, are not, however, a vehicle for enforcement of those charges (should they be enforceable) as such. That would require the lawyers to be joined as parties in their own right.
The plaintiffs, for their part, deny that any entitlement the lawyers may have vis á vis the defendants can compete with their entitlement under Rein J's costs orders. That denial is based, inter alia, upon a non-compliance by the solicitor for the defendants with formal requirements, under Part 3.2 of the Legal Profession Act, for the enforcement of costs entitlements by a lawyer against a client.
The defendants' case, in support of their motion, does not ultimately depend upon whether or not their lawyers are presently entitled to enforce an entitlement to costs against them. That is because, in essence, they contend that they are entitled to a return of the funds presently in court in any event: because, first, the payment made into court was made for a purpose limited to provision of security for the principal judgment awarded by Rein J in favour of the plaintiffs; and, secondly, that purpose has been fully served by the payment made out of court pursuant to his Honour's orders. Their motion is predicated upon an assumption that they do not, themselves, put in issue the entitlement of their lawyers to be remunerated by them.
It is common ground between the parties, on either side of the record, that the funds in court (just under $155,000 or thereabouts) are insufficient to satisfy the claims made against the defendants by the plaintiffs on the one hand and, on the other, the defendants' lawyers.
On the hearing of the motion no evidence was adduced which, explicitly, dealt with the capacity or otherwise of the defendants to meet any shortfall in their costs liabilities to the plaintiffs and to their own lawyers. They invite the Court to proceed on the basis that the plaintiffs, in truth, seek relief against the funds in court analogous to that of a freezing order (under UCPR Part 25 Div 2) or a Mareva injunction. Accordingly, they contend, the plaintiffs should bear the onus of proving an entitlement to relief in a manner consistent with Jackson v Sterling Industries Limited (1987) 162 CLR 612 and Cardile v LED Builders Pty Limited (1999) 198 CLR 380 if they seek access to the funds in court.
They insist that coherence in substantive and procedural law matrices requires that the funds in Court be paid out to them. Not to order that the funds be paid out to them, they suggest, would be to permit the plaintiffs, ex post facto, to have the benefit of an order for security for costs against them. Ordinarily, security for costs is not available to a plaintiff against a defendant (Buckley v Bennell Design and Constructions Pty Ltd (1974) 1 ACLR 301; Stanley-Hill v Kool [1982] 1 NSWLR 460 at 464C-E); and it is generally only ordered prospectively, not retrospectively (Southern Cross Exploration NL v All Risks Insurance Co Ltd (1985) 1 NSLR 114; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2007] NSWCA 205 at [49]-[55]).
The defendants have offered no evidence of their solvency. They merely point to the absence of any competing claims on the funds in court other than the claims of themselves, their lawyers and the plaintiffs. They contend, in substance, that the evidence does not permit a finding to be made that the defendants are not able, and willing, to pay their debts as and when their debts fall due.
In supplementary written submissions filed, with leave, after the hearing of the defendants' motion, the plaintiffs sought, by a tender of documents and submissions, to draw to the Court's attention matters not before the Court at the time the motion was heard. The defendants object. The objection having been taken, I decline to allow the plaintiffs to adduce the evidence tendered, and I disregard the supplementary submissions made by the plaintiffs without any evidentiary foundation established at the hearing of the motion.
Nevertheless, in the absence of any evidence expressly directed to the defendants' solvency, I am not prepared to exclude the possibility that the defendants may have debts which could, now or within a short time, crystallise as competing claims on the funds presently in Court. The manner in which the defendants have conducted their case on the motion leaves open an inference that there is such a possibility. They have refused to countenance any need of evidence as to their solvency, but they have also insisted that each of the competing claims for costs (namely, the respective claims of the plaintiffs and the defendants' own lawyers) presently before the Court cannot be satisfied, as seemingly they must be satisfied, from funds in Court incapable of satisfying the quantum of both claims.
For their part, the plaintiffs invite the Court to proceed on the basis that the money paid into court was paid in to abide orders (including costs orders) made in the proceedings generally, and that the manner in which the defendants have pursued their motion entitles the Court to draw an inference that the defendants intend, by an unwillingness or inability to satisfy their costs obligations to the plaintiffs, to frustrate the processes of the Court.
THE CIRCUMSTANCES OF PAYMENT INTO COURT
The principal proceedings were commenced by a summons filed on 8 July 2010 on an ex parte application by the corporate plaintiff (then the only plaintiff) to the duty judge. Late in the afternoon of that day the judge granted an order (under s 74K of the Real Property Act 1900 NSW) for extension of the operation of a caveat, without which the caveat was due to lapse at day's end. The summons was stood over to the judge's list the following day, 9 July 2010.
As events unfolded, the order for extension of the caveat was ineffective because the plaintiff was unable, due to constraints of time, to lodge a copy of the order with the Registrar General before the caveat lapsed.
As a result of negotiations between the parties at or about the time of the return of the summons before the duty judge on 9 July 2010, his Honour made the consent orders that gave rise to the payment into court of the funds presently the subject of contention.
So far as is material, the orders made by the Court on 9 July 2010 were to the following effect:
"1. Order that the first and second defendants be discharged from their undertaking given in writing on 8 July 2010 in relation to the payment of $800,000 from the sale of their property at 67 Goodhope Street, Paddington.
2. Order that the first and second defendants and their solicitors ... pay the sum of $791,682 to the Registrar of the Supreme Court from the sale of the said property within seven (7) days of settlement of the sale of the property.
3. Order that the court to [sic] hold the said moneys pending court order or written agreement between the parties. ..."
Those orders were entered by the Court on 12 July 2010.
The defendants rely upon three contextual facts said to bear upon identification of the purpose of the payment of money into court (on 15 July 2010) pursuant to those orders.
First, they draw attention to the terms in which the subject caveat (numbered AF511306 in the records of the Registrar General) claimed an "equitable mortgage" in the subject land.
The entitlement to an equitable mortgage asserted by the corporate plaintiff as caveator was justified in the caveat by the following statement of facts relied upon by the caveator:
"The Equitable Mortgage secures capital and interest totalling $780,588 as at the date hereof [18 May 2010] plus $258.00 daily thereafter owed by [the defendants] as Borrower and [the corporate plaintiff] as Lender, the predominant purpose of which was to finance the purchase of the borrowers' residence (being the property the subject of this caveat) in May 2008."
The second contextual fact is found in the terms of a document entitled "Irrevocable Authority" and dated 8 July 2010 addressed by the defendants to their then solicitor. Its text was in the following terms:
"We confirm that we have instructed you to act on our behalf in respect of the sale of our home at 67 Goodhope Street, Paddington.
We hereby irrevocably authorise you to direct the purchaser of the property to draw a bank cheque payable to [your trust account] in an amount of $800,000 from the net balance of the settlement moneys due to us from the said sale and hold same in a controlled money account until you are instructed further jointly by our solicitors and the solicitors acting for [the corporate plaintiff] or your [sic] are served with a court order directing you to account for the said funds."
The third contextual fact is found in an extract from an affidavit sworn by the sole director of the corporate plaintiff (now himself a co-plaintiff) on 8 July 2010, deposing to the amount of the alleged indebtedness of the defendants to the corporate plaintiff as at 30 June 2010.
The effect of paragraph 21 of that affidavit was that the corporate plaintiff claimed that, as at 30 June 2010, the amount owing to it by the defendants pursuant to Loan Agreements and other advances totalled the sum of $791,682 inclusive of interest.
That is the precise amount specified in order 2 of the orders made on 9 July 2010 for the payment of money into court.
The transcript of proceedings before the duty judge on 9 July 2010 provides a further connecting link between the lapsed caveat and the agreement for the payment of money into court. It records the following exchange between the solicitor for the corporate plaintiff and the judge in the presence of the solicitor for the defendants:
"THE PLAINTIFF'S SOLICITOR: We have come to a resolution of the matter for today. I have some proposed consent orders. By way of background, the caveat which was the subject of yesterday's proceedings, lapsed because we were not able to take the order to the Land Titles Office in time.
HIS HONOUR: As a matter of interest, when do they clock off[?]
THE PLAINTIFF'S SOLICITOR: 4.30 your Honour.
HIS HONOUR: It was not much use me giving you an order at 4.20.
THE PLAINTIFF'S SOLICITOR: No, but we did our best your Honour. In any case, these orders avoid the need for a caveat altogether. There is simply an agreement to pay the funds into court.
HIS HONOUR: All right. In [these proceedings], I will make orders in accordance with the consent orders set out in the document entitled "Judgment/Order signed by the solicitors for the plaintiff and the defendants and dated 9 July which I will also sign, date and place with the papers. ..."
THE CIRCUMSTANCES SURROUNDING THE APPLICATION FOR PAYMENT OUT OF FUNDS IN COURT
The principal proceedings were hotly contested. Brereton J published three interlocutory judgments not now necessary to review: [2011] NSWSC 836 (29 April 2011); [2011] NSWSC 1236 (5 October 2011); [2011] NSWSC 1635 (21 December 2011).
The final hearing was conducted with the benefit of pleadings, to which neither side of the record has referred on the hearing of the defendants' current motion.
The final hearing took place before Rein J on 7-8 and 12-15 June and 2 August 2012. His Honour delivered his principal judgment on 7 September 2012: JKB Holdings Pty Limited v de la Vega (No 4) [2012] NSWSC 1177.
Upon the publication of those Reasons, his Honour adjourned the proceedings until 28 September 2012 in order to allow the parties to make submissions on three topics: first, the arithmetical calculation of interest to be included in the money judgment to be entered in favour of the plaintiffs' side of the record; secondly, the costs of the proceedings; and, thirdly, "the issue of payment of monies out of the monies paid into court in July 2010".
After entertaining those submissions on 28 September 2012, his Honour delivered an ex tempore judgment in support of the orders he made on that day: JKB Holdings Pty Limited v de la Vega (No 5) [2012] NSWSC 1238.
The parties are agreed that it is not necessary on the hearing of the defendants' current motion to do more than notice paragraphs 30-32 of these last mentioned Reasons for Judgment. Under the heading of "Balance of monies", Rein J made the following observations in those paragraphs:
"30. The sum of $791,000 [sic] was paid into court [on 15 July 2010] and that amount has increased to approximately $860,000 with interest. The plaintiffs submit that the difference between the $712,003 to be paid out to the plaintiffs [pursuant to orders made by his Honour in the principal proceedings] should be left in court pending assessment of the costs or agreement on the amount payable to the plaintiffs. The defendants have not made any application for the payment out of the money but they assert that the difference of approximately $158,000 [sic] should be paid out and that the plaintiffs should not be placed in the position of a secured creditor.
31. Whilst there is evidence that the [defendants] have no real estate assets, at present there is no evidence that they are unable to pay their lawyers without the receipt of the $158,000. If there was evidence that the [defendants] could not both meet the amount due to the plaintiffs for costs, whatever that amount may be, and pay their own lawyers, there may be a question about who, if anyone, should have priority. There may also be a question about other creditors.
32. Neither [counsel then appearing before his Honour] were able to point to authority on the point. As I mentioned to counsel, it seemed to me that absent any concern that other creditors of the defendants might be disadvantaged, the plaintiffs should be entitled to receive costs out of the funds in court because:
(1) The money was paid into court by the defendants without any limit on what the funds could be applied to;
(2) Mareva orders can be obtained in support of costs and ships can be arrested in support of an award of costs, or even a prospective award of costs: see Plaus Shipping Limited v Augusta Due Sri (Kwa Zulu-Natal High Court, Durban, Republic of South Africa, 25 November 2011); and
(3) A party who obtains a judgment or order for costs can enforce that judgment against property of the judgment debtor.
33. At least if the money remains in court until assessment of costs, when the costs are known it will then be apparent whether or not there will be a surplus payable to the defendants or not. This does seem unlikely in view of the evidence that has been put on by the plaintiff [sic] as to the disbursements alone that have been incurred in this case. No point was taken as to any distinction between the position of [the corporate plaintiff] and that of [another plaintiff] in relation to these funds. In the circumstances I think that the plaintiffs' position, which is that the balance of money after payment out of the $712,003 should remain in court, is appropriate. ..."
The plaintiffs adduced in evidence, on the defendants' motion, the transcript of argument before Rein J on 28 September 2012. Its relevance, and utility, are limited to verification of the fact and nature of the dispute between the parties, on that date, about whether the residual balance of funds in Court should be retained in Court pending assessment of the plaintiffs' costs or paid out to the defendants.
ANALYSIS
Abuse of Process in Relitigation of an Interlocutory Application
The significant point about the nature of Rein J's determination (not to order that the funds presently in dispute be paid out of court) is that his Honour made a considered decision, after argument, that the interests of justice favoured the retention of the disputed funds in court for the time being. At the request of the defendants, he reserved liberty to apply. However, I infer that he did so as a matter of administrative convenience against a possibility that a change in circumstances or other factors might necessitate, or warrant, a reconsideration of how the funds in court should be dealt with.
The effect of a reservation of liberty to apply depends, at least to some extent, on context; but, generally, such a reservation cannot be used to alter the substance of an order already made: Australian Hardboards Limited v Hudson Investment Group Limited (2007) 70 NSWLR 201 at 214 [52]. Where, as here, a deliberate decision has been made not to make an order, reservation of a liberty to apply will not, of itself, ordinarily justify re-litigation of the issue determined.
The plaintiffs contend that principles of res judicata or issue estoppel stand in the way of the defendants' present motion. I think not. His Honour's decision was considered, but interlocutory in character. The fact that it followed closely upon, or was associated with, other orders of a final character does not render it final. The decision not to order that the disputed funds be paid out to the defendants was not consequential upon, and merely working out, a principal order from which it could take on the colour of a final judgment: cf, Meehan v Glazier Holdings Pty Ltd (2002) 54 NSWLR 146 at 153 [35]-[36], citing Handley JA in Derrawee Pastoral Co Pty Ltd v McConochie (unreported, 24 February 1995). Each order must be assessed in terms of its legal effect. Principles governing res judicata and issue estoppel are predicated upon the existence of a final judgment or order: Blair v Curran (1939) 62 CLR 464 at 531-533; Kuligowski v Metrobus (2004) 220 CLR 363 at 373 [21] and 374-375 [25].
That said, principles governing abuses of the process of the Court may be called in aid of opposition to repetitive interlocutory applications: National Parks and Wildlife Service v Pierson (2002) 55 NSWLR 315 at 317-318 [13]-[17].
There is no absolute bar on the renewal of an interlocutory application absent a change in circumstances: Nominal Defendant v Manning (2000) 50 NSWLR 139 at 155-156 [71]-[73] and 167 [122]. However, the Court of Appeal has noticed, and left open for consideration in an appropriate case, the possibility that Nominal Defendant v Manning may require reconsideration in light of the subsequent enactment of the "case management" system of judicial administration embodied in the Civil Procedure Act 2005 NSW, ss 56-60: Fletcher v Besser [2010] NSWCA 30 at [17].
It is not necessary, and therefore it is not appropriate, to enter upon that territory in this judgment. The motion presently before the Court can be adequately dealt with without doing otherwise than applying Nominal Defendant v Manning, upon an assumption that it remains the guiding star despite the appearance of statutory case management procedures in the firmament.
Nevertheless, I do not overlook the practical reality that a change in circumstances bearing upon the justice or otherwise of adherence to an interlocutory decision is generally looked for on renewal of an application for a different decision: Adam P Brown Male Fashions Pty Limited v Phillip Morris Incorporated (1981) 148 CLR 170 at 177-178. And care needs to be taken to guard against repetitive applications that might be characterised as "judge shopping" - an endeavour to seek from one judge what another has refused, in order to circumvent limitations on the availability of appeals from interlocutory decisions: Re Delta Landscaping Pty Limited v Bell Dies Pty Limited (1990) 20 NSWLR 508 at 509E-G.
The plaintiffs' contention that some measure of finality should be taken to have attached to Rein J's determination (that disputed funds should, for the time being, remain in court) is a contention implicitly based upon an assertion that it is an abuse of process for the defendants to re-agitate an interlocutory application for a payment out of court in the absence of a material change of circumstances.
The motion presently before the Court was filed by the defendants on 30 November 2012, approximately two months after Rein J decided that the appropriate course was that the moneys presently held in court should remain in court until the process of costs assessment has been completed or, at least, one might infer, until such time as competing claims to the funds in court referable to costs have been quantified.
Nevertheless, both sides of the record have made extensive submissions - the defendants in support of an order for the payment out of all moneys in court to them, the plaintiffs for the moneys to remain in court as security for their costs entitlement - on the hearing of the defendants' motion.
There has been no change in circumstances since publication of Rein J's judgment of 28 September 2012 sufficient to allow the current motion to be debated afresh without a very real question arising as to whether the motion is an abuse of process.
The only "change" of substance is the fact that the plaintiffs have made an application for assessment of their costs, claiming an amount far in excess of the balance of the funds paid into court, and the defendants have neither made nor foreshadowed objections to the plaintiffs' bill. This is not a development, objectively, beyond contemplation at the time Rein J delivered judgment.
The fact that, before Rein J, the defendants may not have pressed their arguments about their lawyers' security entitlements does not entitle them, on reflection after judgment, to have another go on a fresh application for payment out.
If anything more than an absence of a material change of circumstances is required to ground a finding that the defendants' motion is an abuse of process (Nominal Defendant v Manning (2000) 50 NSWLR 139 at 167 [122]) it might, on the plaintiffs' case, be found in characterisation of the motion as an attempt to pre-empt any assessment of the plaintiffs' costs. The defendants seek to appropriate to themselves, or more especially their lawyers, their only disclosed "asset". They seek to do that without disclosure of their financial circumstances, or the existence of potential competing claims to the funds in court. They proffer to the Court no undertaking, or any lesser form of assurance, that the defendants have, or will set aside, sufficient funds to satisfy the plaintiffs' costs entitlement presently being quantified via a formal assessment process.
On balance, however, I decline to dismiss the defendants' motion as an abuse of process. Given the course of the proceedings, and Rein J's express apprehension about the absence of applicable authority, the better course appears, to me, to deal with the motion on its merits, treating as going to no more than an exercise of the Court's discretion the undesirability of repetitive interlocutory applications. That is consistent with Hayden JA's observations in Nominal Defendant v Manning (2000) 50 NSWLR 139 at 156 [72] and the later observations of the Court of Appeal in National Parks and Wildlife Service v Pierson (2002) 55 NSWLR 315 at 318 [16].
As it happens, I am in substantial agreement with Rein J's conclusion that, subject to further orders of the Court, the disputed funds should not be paid out and, prima facie, they should remain in court pending completion of the current process for assessment of the plaintiffs' costs pursuant to his Honour's costs orders.
The Defendants' Lawyers' Claim to a Security Interest in Funds in Court
A high water mark in the defendants' case by reference to their lawyers' claim to costs is a letter dated 16 March 2011 addressed by the defendants' junior counsel to their solicitor, counter signed by the defendants personally on 17 March 2011. It sets out the terms upon which junior counsel was engaged to appear in the principal proceedings. It included terms to the following effect:
"4. The amounts charged [by junior counsel] will be payable upon Judgment in the matter out of funds paid by the defendant [sic] into court.
5. If the amount paid into Court is insufficient after payment thereout of amounts charged against those funds to satisfy payment of legal fees then the balance of legal fees outstanding [to junior counsel] will then become a debt due and payable by the clients [namely, the defendants], payable within 28 days after judgment or release of the funds. Any unpaid amount for legal fees will then carry interest at the Supreme Court rates for unpaid judgments of the Court. ...
8. The clients agree to charge the funds paid into court or so much as remains thereof after payment toward any judgment or settlement in the proceeds for the payment of legal fees on the terms herein expressed.
9. You [the solicitor] are to enter into a Costs Agreement with the client [sic] that also secures my fees upon similar terms. My engagement is to be conditional upon [the defendants] guaranteeing the payment of counsel's fees on the above terms, which will be evidenced by them counter-signing a copy of this letter."
The defendants' solicitor entered into an oral Costs Agreement with the defendants, the terms of which simply provided for him to be paid at his usual hourly rate of remuneration plus disbursements. He relied upon the defendants' counter-signature of junior counsel's letter as their confirmation of their agreement to counsel's terms.
On 21 September 2012 the defendants, their junior counsel and their solicitor entered into a deed entitled "General Security Agreement", bearing the date "September 2012". It purports to charge in favour of the lawyers "the amount paid into the Supreme Court of New South Wales by or on behalf of [the defendants] in respect of [the current proceedings] and all interest accrued thereon." It appears to have been executed in anticipation that, on 28 September 2012, Rein J would make an order, in favour of the defendants, for the payment out of the balance of moneys in Court after allowing the plaintiffs the amount of their judgment debt.
The deed purports to secure in favour of one or both of the lawyers a sum of not less than $225,000 referable to solicitor-client costs payable by the defendants.
Questions might arise as to the enforceability of such a deed.
A lawyer who induces a litigation client to execute a charge in his or her favour, without the client having obtained independent legal advice or otherwise having clearly given fully informed consent, runs a risk that the charge will be held to be unenforceable against the client: Macguire v Makaronis (1997) 188 CLR 449 at 466-467; Country Law Services v Duff [2007] NSWSC 1509 at [33]-[35]; Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 at 435E-436C and 437C. Cf, Coshott v Sakic (1988) 44 NSWLR 667 at 672B-D. I assume, without having conducted any form of inquiry into the subject, that that is not a problem in this case.
However, each of the charges, if effective, came into existence after the defendants' payment into court and each purports to charge funds in court. That gives rise to a question about the character of any property rights the defendants may have to funds in court, and the related question of the character of the lawyers' property rights (if any) vis á vis the defendants in respect of those funds.
Construction of the Order for Payment into Court: Purpose of Payment In
The purpose of the payment into court in these proceedings, pursuant to the consent orders made on 9 July 2010, must be ascertained, objectively, from a construction of the orders themselves, having regard to both text and context.
Although a contract may underlie the making of court orders, the fact that an inter partes agreement was intended to be, and was in fact, given expression in orders of the Court must be taken into account. The parties, by their agreement, submitted to the ordinary processes of the Court: Morgan v 45 Flers Avenue Pty Ltd (1987) 11 NSWLR 573 at 579D-E.
The amount that the defendants agreed to pay into court coincided with the amount which, at that time, was claimed by the corporate plaintiff (then the only plaintiff), as principal and accrued interest, secured by an equitable charge. However, it does not follow from this that the plaintiffs have no call on the funds in court to the extent they exceed the amount of principal and interest found due at trial. The Court is unable to enter into the competing considerations that led to the parties' compromise on the particular sum to be paid in. To what extent the parties had in mind the future course of the proceedings (including joinder of two additional plaintiffs and the filing of a cross claim) has not been explored in the evidence.
What is known is that, by an order of the Court made with the consent of the then parties to the proceedings, the regime within which the parties' litigation was to be conducted provided for "the Court to hold [moneys to be paid into Court] pending Court order or written agreement between the parties".
The terms of the Court's order are sufficiently clear to govern the parties' rights without resort to extrinsic evidence of their intention: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352; Western Export Services Inc v Jineh International Pty Ltd [2011] HCA 45; 86 ALJR 1 at [3]-[5].
The parties' agreement for the payment of money into court can, and should, be construed, objectively, by reference to the solemn form (of a court order) in which they gave it expression. It is the order of the Court to which attention must primarily be given, both from the perspective of the parties' inter partes agreement and from the perspective of due administration of the Court's processes. Others than the parties to a particular order may have an interest in being able to rely upon the formal record of proceedings represented by the order.
Factors which bear upon the importance of writing as a record of a contract (discussed in Equuscorp Pty Ltd v Glengallan Investments Pty Limited (2004) 218 CLR 471 at 483-484 [33]-[35]) may, mutatis mutandis, have scope for operation in the construction of a court order. Moreover, although it may be necessary in contempt proceedings to allow an alleged contemnor the benefit of any doubt as to the true meaning of an order of the Court, ordinary rules of construction (including the principle of objectivity applied in the construction of contracts) may be applied in the interpretation of a court order: Australian Consolidated Press v Morgan (1965) 112 CLR 483 at 491, 492 and 503. One needs to be mindful of the nature and purpose of a court order, and not too lightly to depart from a fair, objective reading of its terms.
The legislation governing the funds in court accommodates the process of payment in, retention of funds by the Court and payment out; but it does not, in the context of the current case, define the purpose of the payment in, the duration of retention or the conditions for payment out.
In the absence of any definitive guidance from the legislation, one must turn to the order made for payment in, and construe it having regard to the context in which it was made. That context includes, at least, the fact that the corporate plaintiff made a claim for relief that must be taken to have included, in fact or prospectively, a claim for costs: UCPR r 6.12(4).
The order for payment in defined both the purpose of the payment in, and the duration of the retention of funds in court, in the expression "pending Court order or written agreement between the parties". In the absence of any written agreement between the parties, the words "pending Court order" must be construed as equivalent to the expression "to abide an order of the Court". The agreed order did not limit either the purpose of the payment in, or the duration of the Court's retention of funds, to a particular phase of the proceedings.
On its proper construction, the court order governing the retention of funds in court is consistent with retention of funds in court after the entry of a judgment in debt in the principal proceedings and pending the working out of a costs order made at the time of entry of final judgment.
In adopting that construction, I agree with the observations made by Rein J in paragraph 32 of his judgment of 28 September 2012 (extracted in paragraph 56 above); and with those of Brereton J in Grizonic v Suttor [2011] NSWSC 471 at [49] (4). In the latter judgment, Brereton J observed "that where ... parties [have not given] close attention to the precise scope of what [a fund paid into court] would secure, the preferable view is that it was intended to secure any monetary liability of one to the other that might be established in the proceedings, which includes any costs order".
In attributing an intention to the parties, on an objective construction of the order to which they consented, and bearing in mind the absence of any express limitation on either the purpose of the payment in or the duration of the Court's retention of funds, the preferable view is that the payment in was intended to "secure" any monetary liability that might be established in the proceedings, including any costs order.
That purpose continues to govern the retention of funds in court and any prospective payment out.
The Character of the Funds in Court
There is a substantial foundation in the authorities (including judgments of Australian intermediate courts of appeal) for description of the funds in court (or, equally, funds held by a stakeholder) as a form of "security" for payment of moneys found to be due by the defendants to the plaintiffs: Commercial Banking Company of Sydney Limited v Colonial Financiers of Australia Pty Limited [1972] VR 702 at 705 and 706; Shirlaw (now Rogers) v Malouf (1989) 15 ACLR 641 at 647; Equuscorp Pty Limited v Wilmoth Field Warne (a firm) [2006] VSCA 123 at [22]-[23]; Grizonic v Suttor [2011] NSWSC 471 at [48]. Cf, Re Caboolture Park Shopping Centre Pty Ltd v White Industries (Qld) Pty Ltd [1989] FCA 548; 90 ALR 589 at [16]-[19].
At one level, the only decision required of the Court now is whether, on the application of the defendants, the funds should be paid out on the basis that they will be dedicated to payment of costs that are, or may be, due to the defendants' lawyers. The plaintiffs have made no application for payment out. They merely oppose any payment out pending assessment of their costs entitlement in the ordinary course of an assessment process presently in train. By virtue of UCPR r 36.4(2), the costs orders made in their favour take effect when their costs are assessed.
My decision not now to make an order for payment out of the disputed funds has three bases. First, the funds in court were paid into court, and are retained in court, as "security" for any monetary liability that might be established in the proceedings, including a liability for costs. Secondly, the defendants, and their lawyers, have no property interest in the funds in court that mandates that they have "priority" over the plaintiffs in the due administration of the funds in court. Thirdly, as the plaintiffs' costs entitlements have yet, in the ordinary course, to be quantified in the pending assessment process there is no compelling reason to do other than await the completion of that process.
The defendants' application is no stronger for presentation in terms of a claim to a charge over funds in court granted to their lawyers. Even if the defendants had a proprietary right to payment out, any charge in favour of their lawyers was taken with notice of the fact of payment in and subject to orders of the Court for disposition of the funds. The defendants cannot dictate the fate of the funds in court by an ex post facto grant of a charge.
At least in proceedings in which parties have agreed that moneys be paid into court "to abide the order of the Court" in circumstances in which there is no pre-existing trust, the right of the claimant of funds in court may, generally, be a right to due administration of the funds in court, and a right to be heard about disposition of those funds, rather than a right of property: Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 at 272-274.
Four points of present interest can be drawn from Harmer's Case.
First, if funds paid into court are the subject of a pre-existing trust, the funds paid in remain (as between competing claimants to the fund) subject to the pre-existing trust notwithstanding the payment in: 173 CLR 272, 272-273 and 274.
Secondly, if the funds paid into court are not the subject of a pre-existing trust but are the subject of a disputed liability in debt, no party has an interest in the funds that is vested in interest or possession; each party has no more than an interest contingent upon orders of the Court; and competing claimants have an interest in the funds in the sense that they are entitled to insist that the funds be properly administered and applied for the purposes for which they were paid in: 173 CLR 272-273.
Thirdly, insofar as funds in court may be held on trust pursuant to legislation governing court practice and procedure, the trust may be regarded (subject to the terms of the legislation) as a trust for statutory purposes (173 CLR 274, citing Fouche v Superannuation Fund Board (1952) 88 CLR 609 at 604) and the interest of contributors to the fund (vis á vis the trustee) is an entitlement in equity to have the trust fund duly administered rather than a property interest in the fund in specie. It is open to parliament to create "a trust for statutory purposes, with no ascertained beneficiary to enjoy beneficial ownership": Re McJannet; Ex parte Minister for Employment, Training and Industrial Relations (1995) 184 CLR 620 at 664n 132. Cf (by analogy), Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 717C-F, upholding Livingston v Commissioner of Stamp Duties (Queensland) (1960) 107 CLR 411 at 435 (Fullager J), 451 (Kitto J) and 459 (Menzies J).
Under the Uniform Civil Procedure Rules 2005 (NSW), funds paid into court are paid to the Court (UCPR rules 41.1, 41.2, 41.10 and, for example, 55.9(2)(b)) but they may be, and generally are, paid by the Court to the NSW Trustee & Guardian for payment into a "common fund" (UCPR r 41.7) regulated by the NSW Trustee & Guardian Act 2009 NSW (including ss 103-104, 105(1)(c), 105(3)(a) and 106-108).
Insofar as the Court receives and retains funds in court, there is room for debate about the correctness of any characterisation of the Court as a "trustee". An allusion to this issue appears in Harmer at 173 CLR 272, where the High Court said that upon payment into court moneys "become 'trust moneys' in the broad sense that neither the Accountant of the Crown Law Department [of South Australia, in that case] nor the Court itself was beneficially entitled to them".
The expression " 'trust moneys' in the broad sense" suggests an acceptance by the High Court that moneys paid into court are not (absent legislation providing for such an outcome) moneys held on trust according to ordinary private law principles. There is a distinction between a "true trust" (according to private law principles) and a trust "in the higher sense" of a governmental obligation: The Registrar of the Accident Compensation Tribunal v Federal Commissioner of Taxation (1993) 178 CLR 145 at 162-163.
In fact, the High Court has held that, when (absent legislation to the contrary) this Court receives a payment into court it receives that money as an exercise of the judicial function of the State, not as a trustee for particular parties: New South Wales v The Commonwealth [No 3] (1932) 46 CLR 246 at 260-261, 262, 266 and 268. Harmer was a case involving a trust for statutory purposes (173 CLR 272 n 19, 273 and 274 n 23) but the result of its analysis is similar insofar as it denies individual parties a beneficial interest in funds in court vis à vis the Court.
If ever a "trustee" of funds paid into court, the Court must be viewed as a trustee sui generis, one of a kind. Its obligations might be analogous to those of a trustee, but it is not readily viewed as a trustee. Its role is that of the judicial branch of government. Its juristic identity is not readily equated with that of a natural person or a private corporation. It has jurisdiction, in equity, to grant an order for the general administration of trusts in court, which enables it to supervise trusts generally, but it does not thereby become a trustee.
In bygone days officers of the Court, and more especially its English analogues, may personally have received, and dealt with, funds in court: McLean v Burns Philp Trustee Co Pty Limited (1985) 2 NSWLR 623 at 634E. However, those days passed from view, generally, in the 19th century - not without some pain in the history of this Court, arising from misappropriation of money by a Master of the Court (JE Manning): JM Bennett, A History of the Supreme Court of New South Wales (Law Book Co, Sydney, 1974), pp 90 and 137.
That does not mean that, by legislative enactment, an officer of a court or tribunal cannot (subject to Part III of the Australian Constitution) be constituted a trustee for limited purposes: The Registrar of the Accident Compensation Tribunal v Federal Commissioner for Taxation (1993) 178 CLR 145 at 161, 163-164, 168-169 and 171. However, that is not this case. It is neither necessary nor appropriate to characterise the Court itself, literally, as a trustee.
Fourthly (and by inference from the first three of these propositions), funds paid into court for a particular purpose associated, as it must be, with the administration of justice by the Court, are dedicated to that purpose and orders made by the Court in pursuit of that purpose. It is not open to claimants to the funds, by private agreement unattended by an order of the Court, to divert the funds away from a purpose to which they are dedicated or to override orders of the Court.
This analysis is not inconsistent with that of the Full Court of the Supreme Court of South Australia in Duncan (as Trustee for the bankrupt estate of Garrett) v National Australia Bank Limited [2006] SASC 239; 235 ALR 385 at [31], [35], [39], [41] and [46]-[56]. Whether or not a party has a "security interest" in funds in court may depend on the character of payments into court and the purposes for which the payments were made: [47]. To speak of such an interest is to speak of the rights of parties as between themselves, not of a private property right vis á vis the Court. Any obligation on the part of the Court to recognise, or give effect to, such interests as parties may have inter se arises not from the law of property, but from the obligation of the Court to administer justice in discharge of its judicial function.
Other considerations arise if the focus of discussion shifts from a pre-existing right referable to funds paid into court to a right to funds in court purportedly created after the funds became dedicated to a particular purpose (at the time of the Court's order for payment in or, depending on the terms of the order, at the time of payment in).
First, a party cannot create or charge a property right to funds in court that does not exist; it can only deal with what it has or, as discussed in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 24-34, by a contract to deal with "future property", what it might ultimately receive when funds are paid out of court. Secondly, insofar as the subject matter of a private contract is funds in court, it may be a term of the contract that the parties' agreement is subject to such orders as may be made by the Court in dealing with the funds and, in any event, parties cannot, by private agreement, bind the Court's exercise of its powers: Morgan v 45 Flers Avenue Pty Ltd (1987) 11 NSWLR 573 at 579D-E and 580C-E. Thirdly, such a contract, and any resultant security interest arising from it, must be dealt with as one made with notice of limitations affecting the funds arising from their character as funds in court.
Onus of Proof - An Excursis
In their presentation of their respective cases, each side of the record appeals to the concept of onus of proof. The defendants submit that the plaintiffs bear an onus to establish an entitlement that the funds in court be retained in court pending an assessment of costs. The plaintiffs submit that the defendants bear an onus to establish a foundation for payment out, given the terms of the order for payment in, the pending process for the assessment of costs payable in the proceedings, and (in the absence of evidence from the defendants) a risk that there may be other claimants on the funds.
The question presently before the court for determination relates, essentially, to the management of funds in court. The funds held in court to abide orders of the Court are available in the working out of orders for costs made in the proceedings. The plaintiffs' costs have yet to be assessed (and, to the extent it may be relevant, the defendants' costs have not even been quantified). The time for the making of an order for payment of the funds out of court has not yet arrived. There is no good reason to bring it forward.
In the context of a dispute about the proper management of funds in court, and in the absence of crystallised, competing claims of right, notions of "onus of proof" may be of limited utility, particularly in circumstances in which (as is the case here) there is, or may be, a question about the existence of unidentified competing claims to the fund in dispute.
Nevertheless, in circumstances in which Rein J has already made a considered judgement call about the present disposition of funds in court, the defendants bear, at least, a forensic onus to persuade the Court to change the status quo.
That much appears from the judgment of Young J in Avco Financial Services Limited v Commonwealth Bank of Australia (1989) 17 NSWLR 679 at 681G (where his Honour observed that, if the Court cannot be satisfied that there is no other claimant on funds in court, or if potential claimants have been notified of a claim but have not appeared in the proceedings, it will ordinarily make orders for the conduct of an inquiry), and recent judgments of Slattery J in La Trobe Capital [2009] NSWSC 1118 at [8]-[16], La Trobe Capital and Mortgage Corporation Limited [No 2] [2009] NSWSC 1372 at [2], [36], [38] and [49] and Commonwealth Bank of Australia v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [6]-[11].
In his judgments, Slattery J observed that an applicant for the payment of funds in court (in the context of the Trustee Act 1925 (NSW), s 98 and UCPR r 55.11) must establish three matters to justify an order for payment out. The first is identification of the person who is primarily entitled to any funds paid into court and the basis of that entitlement. The second is proof that the applicant is not merely an unsecured creditor against the person primarily entitled to the fund, but is a person who has a beneficial interest in the fund. The third is identification of other potential claimants to the fund, and proof that those persons have been notified of the applicants' claim and have had an opportunity to contest the claim.
As his Honour records in Commonwealth Bank of Australia Limited v Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [11]: "The Court requires strict proof as to who has the entitlement to the funds in court. There is a heavy burden placed on the party seeking payment of money out of court [under Trustee Act s 98 and UCPR r 55.11]. It is necessary for that party not only to prove his or her entitlement to the funds but also to prove that all other potential claimants to the funds in court have been properly notified. Otherwise there is a risk of incorrect payments being made."
In Xenos v National Australia Bank Ltd [2007] NSWSC 973 at [24]-[29] an order for payment out was set aside (by Palmer J) as irregularly obtained for want of disclosure of a competing claim to funds in court.
These cases provide a counsel of caution about the need for prudential management of funds in court. An applicant for payment out who fails to recognise that imperative in the exercise of the Court's function will not succeed, and a lack of success might be attributable to a failure to attend procedural safeguards for potentially interested parties as much as by an inability, in a contest between adversarial parties, to prove particular facts.
An applicant for payment of funds out of court cannot prudently take a stand, as the present defendants have done, against a need for a frank disclosure of facts that may bear upon the existence of other potential claimants or the Court's prudential management of funds in court.
CONCLUSION
The funds presently in court were paid into court to abide the orders of the Court including costs orders; and they are available as "security" for satisfaction of the costs entitlements of the plaintiffs, subject to due consideration of such, if any, other claims as may be made on the fund at the time a decision about payment out has to be made.
The defendants have no property interest in the funds in court but, in common with the plaintiffs, they have an interest in due administration of those funds.
The charges taken by the defendants' lawyers may operate to charge such, if any, funds as may be paid out to the defendants by a future order of the Court, but those charges provide no advantage to the defendants in procuring such an order in their favour. They confer no priority on the defendants, or their lawyers, vis à vis the plaintiffs.
If (contrary to the primary finding in this judgment) the charges might otherwise have effected a charge over the funds in court, they must be construed as having an operation subject to orders of the Court. That is because their subject matter is "funds in court" and, by its nature, that subject matter is subject to orders of the Court in management or disposition of the funds.
The funds presently in court should not be paid out now. Prima facie, and subject to further orders of the Court, the funds should remain in court pending completion of the current process of assessment of the plaintiffs' costs entitlements.
It is not correct to characterise the plaintiffs' opposition to a payment out of the funds at this time as an attempt, retrospectively, to obtain "security for costs". Their entitlement, to due administration of the funds in court, is an entitlement that dates from the time of the order made, shortly after commencement of the proceedings, for the payment of funds into court. The payment in was intended to "secure" any monetary liability that might be established in the proceedings, including any costs order. That purpose continues to govern the retention of funds in court and any prospective payment out.
Nor is it necessary for the plaintiffs to establish an entitlement to a Mareva injunction or its equivalent under UCPR Part 25 Division 2 (rr 25.10 - 25.17), a "freezing order". The plaintiffs' entitlement to due administration of the funds in court arises, as does that of the defendants, from the terms of the payment in, having regard to the character of the funds paid in and the purpose of the payment in. The funds in court came under the control of the Court no later than the time of their payment in. They remain under the control of the Court. No form of injunction is necessary to restrain the conduct of any party.
ORDERS
The defendants' motion is dismissed.
I will hear the parties on what costs orders should attend dismissal of the motion. Prima facie, costs should follow the event, meaning that the defendants should be ordered to pay the plaintiffs' costs.
The plaintiffs have submitted that the defendants' solicitor, also, be ordered personally to pay their costs. I decline to make such an order. Although the defendants' lawyers interests were to the forefront of the defendants' Motion, the application for payment out was that of the defendants themselves.
Having stopped short of a finding that the defendants' motion was an abuse of process, I decline to accept the plaintiffs' submission that any costs order made against the defendants be assessed on the indemnity basis, rather than the ordinary basis.
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Amendments
15 May 2013 - M Steele as counsel for the Plaintiffs/Respondents in substitution for M Steel as solicitor for the Plaintiffs/Respondents
Amended paragraphs: Representation
Decision last updated: 15 May 2013
70
53
6