Kukulovski v Georges

[2011] NSWSC 514

Supreme Court

New South Wales

Medium Neutral Citation:	Kukulovski v Georges [2011] NSWSC 514
Hearing dates:	Written submissions
Decision date:	03 June 2011
Jurisdiction:	Equity Division - Corporations List
Before:	Barrett J
Decision:	Order that the second plaintiff (National Andrews Pty Ltd) pay the defendants' costs of the proceedings
Catchwords:	PROCEDURE - costs - where proceedings in substance brought by estate agent against its principals to determine entitlement to commission - where estate agent in liquidation and proceedings initially framed as application by liquidator for the court's direction and judicial advice - but principals joined at the outset as defendants - where principals (defendants) held entitled to recover balance of deposit held by estate agent because agent did not establish right to commission - costs order to be made against estate agent as unsuccessful party - whether order should be made against liquidator - held not, there being no dereliction by the liquidator and given the substantive nature of the proceedings from the outset
Legislation Cited:	Consumer, Trader and Tenancy Tribunal Act 2001, s 53 Consumer, Trader and Tenancy Tribunal Regulation 2009, clause 20(4) Corporations Act 2001 (Cth), s 511 Trustee Act 1925, s 63
Cases Cited:	Arena Management Pty Ltd v Campbell Street Theatre Pty Ltd [2011] NSWCA 128 Kukolovski v Georges [2011] NSWSC 359 Mead v Watson [2005] NSWCA 133; (2005) 23 ACLC 718
Category:	Costs
Parties:	Trajan Kukulovski as liquidator of National Andrews Pty Ltd - Plaintiff Badoui Georges, Sam Georges, Peter Georges, John Gerard George, Anna Maree Waters and Samuel Kenneth George - Defendants
Representation:	Counsel Mr K D Ginges - Plaintiff Mr M Southwick - Defendant Solicitors Clamenz Corporate Lawyers - Plaintiff Gary George & Co - Defendants
File Number(s):	2011/46044

Judgment

1. I am dealing with the question of costs consequent upon my judgment of 3 May 2011 ( Kukolovski v Georges [2011] NSWSC 359) and orders later made in conformity with it. One of those orders added National Andrews Pty Ltd as a plaintiff.

1. While the proceedings, as initially constituted, involved an application by the liquidator of the estate agent (National Andrews) for the court's direction under s 511 of the Corporations Act 2001 (Cth) or judicial advice under s 63 of the Trustee Act 1925, they were, from the outset, proceedings in which the principals of the estate agent were defendants. The liquidator's summons filed on 11 February 2011 described him as "Trajan Kukulovski in his capacity as liquidator of National Andrews Pty Ltd (in liquidation)" and named the six principals of the estate agent as defendants. They, by filing an appearance on 18 February 2011, in turn acquiesced in the liquidator's framing of the proceedings as adversary proceedings.

1. Moreover, the proceedings had as their objective the obtaining of the court's authoritative determination of entitlement to the sum of $62,500 held in trust by the estate agent - whether it belonged to the estate agent (National Andrews) so as to be an asset applicable in its winding up, or to the principals. The estate agent and its liquidator obviously recognised, first, that the moneys in question could not be regarded as the property of the estate agent (and therefore as an asset applicable in its winding up) unless the court had so determined; and, second, that the question of beneficial ownership could be determined only in proceedings to which the estate agent's principals were parties, they being the only other conceivable owners of the money.

1. The issue of beneficial ownership of the moneys had earlier been squarely raised in separate proceedings in the Consumer, Trader and Tenancy Tribunal ("CTTT") initiated by the principals against National Andrews. The parties were content to see the CTTT proceedings overtaken by these proceedings.

1. The court's decision was that the principals were entitled to the $62,500 and National Andrews was not. On the basis that costs follow the event, there should therefore be an order that National Andrews pay the costs of the principals (defendants).

1. The point is made that the $62,500 - recognised throughout as trust moneys - was the only asset in the liquidator's hands and that, as a result of this case, the defendants will, in a practical sense, receive nothing under a costs order against National Andrews. The defendants say that the liquidator (who was himself the applicant for judicial advice and the court's direction) should pay their costs.

1. It is relevant to record that it was the defendants who initiated the CTTT proceedings with a view to determining the question of entitlement to the funds in question. They commenced those proceedings in November 2010 and pursued them to the point of filing in this court an application for leave to proceed against the company in liquidation, which application was listed for hearing by the Corporations Judge on 29 April 2011. In the meantime, the liquidator took steps not only to seek the guidance of this court but to make the principals defendants to his application. The liquidator's summons was filed on 13 February 2011 and heard on 29 April 2011. The defendants did not, at that point, press their application for leave to proceed.

1. The liquidator could, of course, have sought the court's guidance without involving the principals - for example, by asking whether he would be justified in taking a particular stand in the CTTT proceedings already on foot against the company in liquidation. Had that course been adopted, no expectation of any costs order would have arisen against the liquidator.

1. The substance of what transpired is, I think, that the CTTT proceedings were replaced by the proceedings in this court which, despite their original form, became adversary proceedings of the ordinary kind between the estate agent and its principals. The circumstance that the estate agent was a company in liquidation was, in a real sense, incidental.

1. The circumstances in which the court will award costs against a liquidator personally were recently addressed by the Court of Appeal in Arena Management Pty Ltd v Campbell Street Theatre Pty Ltd [2011] NSWCA 128. There is, as noted at paragraphs [18] to [20] of the judgment of Campbell JA, a distinction between cases in which the proper plaintiff is the liquidator in person and those in which the proper plaintiff is the company actuated by its liquidator. As I have said, I am of the opinion that this case was in reality of the second kind, the applications by the liquidator alone being inapt for the reasons stated.

1. Where it is the company in liquidation that is the unsuccessful plaintiff, the costs awarded to the successful defendant against that plaintiff will be made payable by the liquidator personally only if the liquidator has acted unreasonably or dishonestly in causing the company to institute the litigation: Mead v Watson [2005] NSWCA 133; (2005) 23 ACLC 718. Subject to two possible exceptions, there has been no such dereliction here, with the result that there is no warrant for a costs order against the liquidator personally.

1. The first possible exception relates to the liquidator's initial decision to frame the proceedings as an application by him for both judicial advice under the Trustee Act (which, for reasons stated at paragraph [4] of the principal judgment, was an inappropriate course) and a direction under s 511 of the Corporations Act (also, as stated at the same paragraph, an inapt procedure where defendants are joined and sought to be bound). There was no good reason for the liquidator to take that course when CTTT proceedings commenced by the principals were on foot and would have determined the central question concerning the ownership of the remaining balance of the deposit moneys.

1. I am of the opinion that if and to the extent that the defendants (principals) were put to additional expense because these proceedings were inappropriately framed as applications by the liquidator, there would be a case for ordering the liquidator to bear personally that part of the defendants' costs. Looking at the court file, however, I must say that I cannot discern any such element. As I have said, the summons filed on 11 February 2011, while naming the liquidator (in his capacity as liquidator) as the sole plaintiff, also named the principals as defendants, so that they were drawn in from the outset. As I have also said, they filed an appearance on 18 February 2011. The proceedings were accordingly proceedings inter partes from the beginning and no added dimension of costs came from the inappropriate reliance on the statutory provisions about judicial advice and liquidators' directions.

1. The second possible exception referred to at paragraph [12] above relates to the fact that the earlier CTTT proceedings had been commenced by the defendants. If and to the extent that the defendants (principals) were put to additional expense because the liquidator chose to have these proceedings commenced by him overtake the CTTT proceedings, there might be a case for ordering the liquidator personally to bear that part of the costs. On reflection, however, I think that the fact that the defendants, by filing an appearance here and allowing their own CTTT proceedings to be by-passed (rather than arguing that they should not be parties to an application by the liquidator for the court's direction or judicial advice), accepted these proceedings as an appropriate vehicle for determining rights means that they should be seen as having consented to the replacement of the CTTT proceedings by these proceedings.

1. Submissions on both sides were addressed to the question of what the costs outcome might have been had the CTTT proceedings continued to the exclusion of these proceedings. Had the fate of the moneys in question been left to be decided by the CTTT, s 53 of the Consumer, Trader and Tenancy Tribunal Act 2001 would have governed the matter of costs. The principal rule under that section is stated in s 53(1):

"Subject to this section and the regulations, the parties in any proceedings are to pay their own costs."

1. Section 53(2) then permits the CTTT to award costs in relation to any proceedings in accordance with the Consumer, Trader and Tenancy Tribunal Regulation 2009 which, in clause 20(4), dealing with proceedings where the amount claimed or in dispute exceeds $30,000, says that the CTTT "may award costs in relation to the proceedings in such circumstances as it thinks fit".

1. It thus appears that, if the matter of entitlement to the $62,500 had proceeded to a conclusion in the CTTT instead of in this court, it would have been open to the CTTT to make such costs order, if any, as it thought fit in the circumstances. In the result, therefore, the outcome as to the availability of an appropriate costs order would been, in substance, the same, whichever forum had eventually dealt with the matter. And in the CTTT, of course, it was clearly the company in liquidation, not the liquidator, that was the party to the proceedings.

1. In all of the circumstances, the appropriate order for costs is that National Andrews Pty Ltd pay the defendants' costs of the proceedings. There is nothing in the conduct of the liquidator that warrants any order against him personally.

1. It is necessary, in conclusion, to deal with two particular matters raised by National Andrews.

1. First, National Andrews says that clause 20 of the agency agreement means that, contrary to what I have said, the court should award costs to it and against the defendants. By clause 20, the defendants indemnified National Andrews against all actions, suits and claims "which may be taken or made against the Agent in the course of or arising out of the performance or exercise of any of the powers, duties or authorities of the Agent under this agreement". The simple answer, in my view, is that it was not part of the powers, duties or authorities of the estate agent under the agency agreement to sue the principals for commission and that, in any event, clause 20 is irrelevant to the exercise of the court's discretion as to costs in such proceedings.

1. Second, National Andrews says that costs should be awarded to it according to some form of quantum meruit. The contention seems to be that the defendants only managed to recover the deposit due to them (including the $62,500 in issue in these proceedings) because the liquidator got in those moneys from the defaulting purchaser. This, even if accepted, says nothing whatsoever about the correct and principled exercise of the discretion with respect to costs in these proceedings.

1. The order is:

Order that the second plaintiff (National Andrews Pty Ltd) pay the defendants' costs of the proceedings.

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Decision last updated: 03 June 2011