Lewis v Nortex Pty Ltd (in liq)

[2006] NSWSC 480

CITATION:	Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2006] NSWSC 480
HEARING DATE(S):	18 – 21, 24, 26 – 28 April and 1 – 3 May 2006
JUDGMENT DATE :	23 May 2006
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	Form of declarations settled; that Lewis should be ordered to pay interest on the sums he is ordered to pay to reconstitute the Nortex Unit Trust fund calculated at the rates specified in Schedule 5 to the Rules and compounded on annual rests; that Kation and Lewis be ordered to pay 70 per cent of Lamru’s costs of both sets of proceedings; that as between Lamru and the Liquidator there be no order as to the costs of the proceedings; and that the Liquidator may have his costs of the proceedings out of the assets of the company.
CATCHWORDS:	INTEREST [21] – Where equitable relief or fiduciary relationship – Generally – Simple or compound interest – Rate – Money repayable to trust estate – When commercial rate applicable - PROCEDURE [553], [573] - Costs - General rule - Costs follow the event - Costs of whole action - Generally - Plaintiff generally successful - Defendants win on some issues - Departing from the general rule - Powers of court - Relevant principle - Whether claims distinct - Whether issues intertwined - PROCEDURE [565] - Costs - General rule - Costs out of a fund - When costs allowed out of fund - Benefit of estate - Defendant defending proceedings for own benefit rather than benefit of estate - PROCEDURE [743] – Miscellaneous procedural matters – Declarations – Jurisdiction – Limitation on Court’s jurisdiction – Discretionary power not to be fettered by laying down rules – Confined only by bounds of judicial power.
LEGISLATION CITED:	Civil Procedure Act 2005 s 98 Corporations Law s 1321 Supreme Court Act 1970 ss 63, 76 Supreme Court Rules 1970 Part 52A rr 11, 42, Schedule J Trustee Act 1925 s 63 Uniform Civil Procedure Rules 2005 rr 42.1, 42.7, 42.25, Schedule 5
CASES CITED:	Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Alemite Lubrequip Pty Ltd v Adams (1997) 41 NSWLR 45 Australian Kitchen Industries Pty Ltd v Albarran (as liq of W & J Kitchens Pty Ltd) (2004) 51 ACSR 604 Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [2000] NSWSC 313 Drummond v Drummond [1999] NSWSC 921 Expo International Pty Ltd v Chant (No 2) (1980) 5 ACLR 193 Hagan v Waterhouse (1991) 34 NSWLR 308 Harrison v Schipp [2001] NSWCA 13 Hughes v Western Australian Cricket Association (1986) ATPR 40-748 In re Beddoe; Downes v Cottam [1893] 1 Ch 547 Lewis v Nortex Pty Ltd [2001] NSWSC 511 Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 482 Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 1062 Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 1127 Metropolitan Petar v Mitreski [2006] NSWSC 336 Miller v Cameron (1936) 54 CLR 572 National Trustees Executors and Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268 Nowell v Palmer (1993) NSWLR 574 Re Buena Vista Motors Pty Ltd (In Liq) and the Companies Act [1971] 1 NSWLR 72 Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 Ronnoc Finance Ltd v Spectrum Network Systems Ltd NSWSC 19 November 1997 unreported Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 Waters v P C Henderson (Australia) Pty Ltd NSWCA 6 July 1994 unreported Ford and Lee, Principles of the Law of Trusts (3rd ed, 1996, looseleaf) [17140] Jacobs’ Law of Trusts in Australia (6th ed, 1997) [2209]
PARTIES:	3081/97 Peter Lawrence Lewis (P) Lamru Pty Ltd (Applicant) Kation Pty Ltd (Respondent) Brian Raymond Silvia (Liquidator) 1750/02 Lamru Pty Limited (P) Kation Pty Limited (D1) Peter Lawrence Lewis (D2) Mark Lewis (D3) Nortex Pty Ltd (In Liq) (D4)
FILE NUMBER(S):	SC 3081/97; 1750/02
COUNSEL:	N A Cotman SC and J Baird (Solicitor) (P L Lewis & Kation P/L) S J Motbey (Lamru P/L & R W Lamb) V R W Gray (Liquidator & Nortex P/L)
SOLICITORS:	Kemp Strang (P L Lewis & Kation P/L) Lyons & Lyons (Lamru P/L & R W Lamb) Abbott Tout (Liquidator & Nortex P/L)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

TUESDAY, 23 MAY 2006

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LIMITED (In Liq)
1750/02 LAMRU PTY LIMITED v KATION PTY LIMITED & ORS

JUDGMENT

1 HIS HONOUR: In these long running proceedings I have delivered two substantive judgments. The first was Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 (“my first substantive judgment”). The second was Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 482 (“my second substantive judgment”). This judgment is the result of a further 11 day hearing. My first substantive judgment was delivered after 77 days of hearing. The full length of the trial before me has now reached 103 days. This most recent hearing was set to deal with four outstanding issues: see Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 1127 [7] - [11].

2 In this judgment, as in earlier judgments, Lamru Pty Limited is referred to as “Lamru”, Russell William Lamb as “Lamb”, Kation Pty Limited as “Kation”, Peter Lawrence Lewis as “Lewis”, Kation and Lewis collectively as “the Lewis interests” and Brian Raymond Silvia as “the Liquidator”.

3 The four outstanding issues dealt with at this recent hearing were as follows:

(1) Declaratory relief. Under this head were raised questions as to the form of the declaratory orders that should be made as a result of my substantive judgments.

(2) Interest. The questions raised were whether orders and, if so, what orders should be made for the payment of interest on the sums which Lewis will be ordered to pay into the trust fund: see orders 3(iii)(e) and (f) set out in [54] below.

(3) Loan accounts. The question was as to the figures to be inserted in the declaration relating to the loan accounts of Lamru and Kation: see order 7 below. Originally all parties asked me to make a declaration as to these amounts as at the commencement of the winding up: see my second substantive judgment at [4]. Now it has been argued by the Lewis interests that no such declaration should be made, despite their earlier request. There have also been arguments as to the form of the declaration and as to the amounts to be inserted in it.

(4) The costs of the proceedings .

1 FORM OF DECLARATIONS

4 Originally, I had proposed to grant declaratory relief relating to each of the sub issues formulated in my first substantive judgment. Thus, for instance, I had proposed declarations relating to the individual questions under Issue 1 that were set out in [37] of my first substantive judgment as to the 12 April 1991 resolution and surrounding issues. Mr Motbey, of counsel for Lamru, originally submitted that I had no power to make such declarations, as they did not really arise for decision in view of my conclusion which will be embodied in order 1 below. This will dispose of the overall issues under which these questions arose. During the recent argument before me, Mr Motbey did not put this submission as a matter of power, so much as a matter of what were the appropriate declarations to make in the circumstances. He put to me correctly that what should now be regarded as the principles governing the making of declarations are set out in the decision of the High Court in Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581 - 582 per Mason CJ, Dawson, Toohey and Gaudron JJ as follows:

“It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which ‘[i]t is neither possible nor desirable to fetter ... by laying down rules as to the manner of its exercise.’ Forster v Jododex Aust Pty Ltd (1972) 127 CLR 421 at 437 per Gibbs J. However, it is confined by the considerations which mark out the boundaries of judicial power. Hence, declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. See In re Judiciary and Navigation Acts (1921) 29 CLR 257. The person seeking relief must have ‘a real interest’ ( Forster at 437; Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448 per Lord Dunedin) and relief will not be granted if the question ‘is purely hypothetical’, if relief is ‘claimed in relation to circumstances that [have] not occurred and might never happen’ ( University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10 per Gibbs J) or if ‘the Court’s declaration will produce no foreseeable consequences for the parties’ ( Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 at 188 per Mason J; see also 189 per Aickin J).”

5 Mr Motbey submitted that, in the end, Lamru (and indeed the other parties) were not to be allowed to depart from the 1991 to 1995 accounts as originally settled (except in one particular regard in 1995) by reason of the findings about the 12 April 1991 resolution or otherwise. Although those findings were appropriately made, since they were presented for decision by the parties, as in the end the findings played no part in the decision relating to those years, they should not be spelt into declaratory relief. If it were necessary to determine at some later stage whether there was an issue estoppel between the parties on those subject matters, that could be determined by reference to the findings stated in my first substantive judgment. The only declaration necessary to dispose of Issues 1 to 4 is order 1 as set out below. The only other declaration that needed to be made was a declaration as to the add back and interest conventions, as determining Issues 2 and 3. Although Issues 2 and 3 also fed into the decision of Issue 4, this declaration was uncontestedly necessary, since the issue as to the add-backs convention was also applicable in the determination relating to the 1996 and 1997 years.

6 It was submitted on behalf of the Lewis interests that all these detailed matters, such as the findings concerning the 12 April 1991 resolution, should be the subject of independent declarations, since I had made findings concerning them. It became apparent during argument that one motivation in making this submission was so that the Lewis interests could claim that there were a greater number of issues decided in their favour for the purposes of the determination of costs. That is not a proper basis in my view for the making of declarations. The degree to which parties relevantly succeeded or lost will be assessed for the purposes of the costs determination independently of the form of the orders and will not depend mechanically on what is or is not spelt out into orders.

7 In general terms, I accept Mr Motbey’s submission. In my view, where an issue is decided on an overall basis, it is necessary to make only the declaration which generally disposes of the issue. Apart from the declaration necessary, for other purposes, to determine the conventions issue, the only declaration necessary to determine Issues 1 and 4 is order 1 below. The declarations sought by the Lewis interests do not flow from findings of fact which lead to order 1; that declaration proceeds from totally different matters. In those circumstances, only order 1 below will be made.

8 Mr Motbey submitted that, in a number of regards, the declarations to be made should descend to detail as to how matters should be treated in the accounts. I have taken the view that the declarations should enshrine the decisions that have been made, but that the Liquidator should, in general terms, be left to incorporate these matters in the accounts in accordance with my decisions as he deems appropriate. If a declaration does indicate the manner in which incorporation in the accounts should be effected, the Liquidator should, of course, follow its dictates.

2 INTEREST

9 The first question raised is whether any order should be made for the payment of interest on the sums which Lewis will be ordered to pay into the trust fund: see orders 3(iii)(e) and (f). It has been said that:

“The general principle is that where a trustee has, through his breach of trust, occasioned loss to the trust estate then he is liable to make good that loss, together with interest.”

Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399 at 408 per Street J. See also Hagan v Waterhouse (1991) 34 NSWLR 308 at 391 per Kearney J.

10 The Lewis interests have submitted that, as payment of the two sums of $101,626.00 and $138,773.30 was effected by crediting those amounts to the Mark Lewis loan account in the books of the trust, there was no loss to the trust through the misappropriations. This is not correct, as the amount of the Mark Lewis loan account liable to interest was reduced and the trust deprived of the benefit of that interest. Interest is therefore properly payable on these amounts. This raises the two further questions, whether the interest should be calculated as simple or compound interest and at what rate the interest should be calculated.

11 As to the first of these questions, a person committing a breach of trust may be made liable to compound rather than simple interest entirely in the discretion of the court: Jacobs’ Law of Trusts in Australia (6th ed, 1997) [2209]. Mr Ventry Gray, of counsel for the Liquidator, submitted that two circumstances in which courts of equity have exercised their discretion in favour of compound interest in cases of breach of trust are: (1) where the breach is of a particularly wilful or heinous kind; (2) where the trust has been engaged in a business income earning activity, so that, had the misappropriation not occurred, the amount misappropriated would have earned income for the trust. In general terms, this submission is correct: see Ford and Lee, Principles of the Law of Trusts (3rd ed, 1996, looseleaf) [17140]. In my view, either of these considerations individually would justify compound interest in the present case. The breach of trust was wilful and heinous: the facts found were that, recognising that Lamb’s agreement to payments of profit share or bonuses to Mark Lewis was necessary, Lewis in fact asked for his agreement and it was refused. The payments were made without authority and knowingly made in the face of the withholding of the authority. As to the second head, it is clear that these funds were funds of a trading trust. The trust lost interest on them through their payment to Mark Lewis, even if payment was effected by the diminution of what he owed on his loan account. Over time, the loss of interest would have had a compounding effect. It is my determination that the interest should be calculated on a compound basis on annual rests.

12 Mr Cotman, of Senior Counsel for the Lewis interests, relied on a passage from the judgment of Giles JA in Harrison v Schipp [2001] NSWCA 13 (with which Handley JA agreed and Fitzgerald JA substantially agreed) as supporting his argument that interest was not payable. The relevant passage under the heading “Compound Interest” was at [128] – [130] as follows:

“128 Concentrating on interest, the argument in support of the submission was concise: it is the use of money by a defaulting fiduciary for his own benefit that justifies compound interest, so there should not be interest where the money was not used by the defaulting fiduciary for his own benefit. The appellants relied on the language used in relation to equity’s award of compound interest in some of the cases. In Burdick v Garrick (1870) 5 Ch App 233 at 241 Lord Hatherley LC said that the court does not order a defendant to pay compound interest by way of punishment ‘for making use of the plaintiff’s money’, but proceeds on the principle ‘that he has made, or has put himself into such a position as that he is presumed to have made’ compound interest. In Wallersteiner v Moir (No 2) (1975) QB 373 at 388 Lord Denning MR said that equity does not award interest by way of punishment but ‘whenever money is misused by an executor or trustee or anyone else in a fiduciary position - who has misapplied the money and made use of it himself for his own benefit’. In Hungerfords v Walker (1990) 171 CLR 125 at 148 Mason CJ and Wilson J said that equity ‘awards interest, including not only simple interest but also compound interest, when justice so demanded eg, money obtained and retained by fraud and money withheld or misapplied by a trustee or fiduciary’. Use of the money, it was said, was common to all these statements.

129 These statements did not purport to limit the entitlement to interest in the manner for which the appellants contended, and do not support their argument. Interest is awarded not by way of punishment, but by way of compensation, and justice may demand interest on money not actually used by the defaulting fiduciary. It is awarded in order to make good what the plaintiff has lost by the breach of equitable obligation, see re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co at 214-6. Immediately following the statement in Wallersteiner v Moir (No 2) on which the appellants relied Lord Denning MR said, ‘In addition, in equity interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business. It is plain that the company should be compensated for the loss thereby occasioned to it.’

130 The defendant whose breach of equitable obligation has deprived the plaintiff of money must make restitution by payment of not only the money but also interest representing what the plaintiff could have obtained from use of the money. Equitable compensation does not depend on gain to the defendant (see Catt v Marac Australia Ltd at 659-60 and cases cited; Davidson, ‘The Equitable Remedy of Compensation’, 13 MULR 349; Gummow, ‘Compensation for Breach of Fiduciary Duty’ in Youdan, Equity, Fiduciaries and Trusts 57 at 71, 88-91; Davis, ‘Interest as Compensation’ in Finn, Essays on Damages 129 at 140), and it is immaterial that the defendant did not use or obtain the money. The defendant is liable because he deprived the plaintiff of the money, not because he obtained the money for himself, and so a fiduciary whose breach of equitable obligation causes loss to the plaintiff must make good the loss with interest even though he did not obtain the money. It is sufficient to cite as illustrations Holmes v Walton (1961) WAR 96 (solicitor whose investment advice in breach of fiduciary duty caused loss to the client liable for the loss plus interest having regard to ‘that interest which the client may be expected to have lost’ (at 98)) and re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co (trustee who improperly paid trust money to a third party who absconded with it liable for the money lost plus interest).”

In my view, far from supporting Mr Cotman’s submission, this passage supports my conclusion that compound interest should be awarded. Mr Cotman’s submission depends on the arguments that no payment was made and consequently the trust was deprived of nothing. These arguments of Mr Cotman I dealt with at [28] and [29] of my second judgment. See also the judgment of Barrett J in Australian Kitchen Industries Pty Ltd v Albarran (as liq of W & J Kitchens Pty Ltd) (2004) 51 ACSR 604.

13 As to the rate of interest, there has been a change over the years as to this Court’s approach to the appropriate rate of interest in trustee cases: see Re Dawson supra; Hagan v Waterhouse supra; Alemite Lubrequip Pty Ltd v Adams (1997) 41 NSWLR 45. The traditional view was that there should be a trustee rate of interest, which was at one time four per cent and subsequently eight per cent. These fixed and comparatively low rates of interest were determined on the basis that, traditionally, the investments in which trust funds could be placed were limited and conservative. Today, however, the trading trust is a familiar business vehicle and this trust was a trading trust. The business, as already observed, was a successful business. At one end of the scale of interest rates available in present day markets are the comparatively low rates offered by overnight deposit funds and the slightly higher rates for term deposits and home loans. Moneys borrowed to support trading activities are generally borrowed at much higher rates. The rates fixed by court rules as the standard rates for interest upon judgments, as formerly embodied in Schedule J of the Supreme Court Rules 1970 (“SCR”) and now embodied in Schedule 5 of the Uniform Civil Procedure Rules 2005 (“UCPR”), are rates designed to strike a balance between these extremes. It seems to me that they are the appropriate rates to apply in the present circumstances, where the trust deprived of the funds in question is a commercial trading trust. The orders for interest will therefore be for interest calculated at Schedule 5 rates and compounded on annual rests.

3 LOAN ACCOUNTS

14 The calculations producing the figures which have been included in order 7 below were made by Lamru. The correctness of the calculations has not been questioned by any other party. In the absence of any submission to the contrary, I propose to adopt those figures as correctly calculated on the assumptions made in the calculation. As I have already said, the Lewis interests have sought to withdraw from the request originally made to me in relation to the making of a declaration in this form. This is a further example of the changes of course so often made by parties in these proceedings. In this instance, the Lewis interests should not be allowed to change their course at the heel of the hunt or, at any rate, I should proceed to act on the request originally made.

15 Questions have been raised as to the appropriateness of a declaration in this form, bearing in mind that there are other proofs of debt still undetermined by the Liquidator, including proofs by Kation, Lewis, his wife and his son Mark Lewis. A declaration made in proceedings can, in general terms, bind only the parties to the proceedings and in relation to the issues decided. I have attempted to emphasise the latter aspect of this declaration by including in it the words “as a result of the foregoing declarations and orders”. The declaration will bind the parties who participated in the trial that led to the judgment in its terms. My decision in these proceedings may also be binding upon them by reference to the doctrines of issue estoppel and Anshun estoppel. It is not for the Court which makes the original decision, but for a court subsequently deciding any issue of estoppel raised, to determine the ambit of the Court’s decision and orders in these proceedings. One would imagine that persons such as Mrs Lewis and Mark Lewis, who have not been present at the trial before me, would not be bound, but even this it is not for me to determine. In the exercise of my discretion, I propose to make an order in the form of order 7.

4 COSTS

16 The parties to these proceedings have approached the arguments as to costs on a broad brush basis. They have not descended into a detailed analysis of the 8000 pages of transcript and thousands of pages of exhibits in an attempt to apportion precisely the time and effort spent at the trial on particular issues. Whatever their motives, this amounts to an approach to the question, perhaps unique in these proceedings, which keeps some proportion between the money and effort spent and the particular subject matter. In the same spirit, no submission is put that a separate order (other than any already made) should be made in respect of any interlocutory application during the proceedings, whether costs were reserved or not. Consequently, where no special order was made, these costs will be dealt with in the way prescribed by the general costs order: see UCPR r 42.7. I welcome this approach and intend to approach the subject in the same manner myself. I do not intend to expend excessive time on matters of detail, nor to make orders in a form which will simply remit to costs assessors any more detailed examination of the issues or the evidence than is absolutely necessary.

17 The arguments concerning costs fall into two major subdivisions (a) costs as between Lamru and the Lewis interests and (b) the costs of the Liquidator.

(a) Costs as between Lamru and the Lewis Interests

18 The law as to costs in multi issue proceedings may be outlined as follows.

19 By s 98 of the Civil Procedure Act 2005 the costs of proceedings are in the discretion of the Court, as they were previously under s 76 of the Supreme Court Act 1970 (“SCA”). By r 42.1 of the UCPR (previously Part 52A r 11 of the SCR) “the court is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole or any part of the costs.”

20 The basis upon which this discretion should be exercised was stated as follows by Toohey J in the Federal Court in Hughes v Western Australian Cricket Association (1986) ATPR 40-748 at 48,136:

“The discretion must of course be exercised judicially. There are decisions, both of Australian and English courts, that throw light on the way in which the discretion is to be exercised. I shall not refer to those decisions in any detail; I shall simply set out in a summary way what I understand to be their effect.

1 Ordinarily, costs follow the event and a successful litigant receives his costs in the absence of special circumstances justifying some other order. Ritter v Godfrey [1920] 2 KB 47.
2 Where a litigant has succeeded only upon a portion of his claim, the circumstances may make it reasonable that he bear the expense of litigating that portion upon which he has failed. Forster v Farquhar [1893] 1 QB 564.
3 A successful party who has failed on certain issues may not only be deprived of the costs of those issues but may be ordered as well to pay the party's costs of them. In this sense, ‘issue’ does not mean a precise issue in the technical pleading sense but any disputed question of fact or of law. Cretazzo v Lombardi (1975) 13 SASR 4 at 12.”

Although costs are in the discretion of the Federal Court by statute, it has no rule corresponding to UCPR r 42.1, but in my view that does not detract from the applicability of the principles.

21 The three principles enunciated by Toohey J were cited by the Full Federal Court (Gummow, Hill and French JJ) in Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 at 271. Their Honours said:

“The propositions enunciated in that case are subject to the further consideration that justice may not be served if parties are dissuaded by the risk of costs from canvassing all issues which might be material to the decision in the case: Cretazzo v Lombardi (1975) 13 SASR 4 at 12. In Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 42 FLR 213; 28 ALR 201, Fisher J regarded the discretion to apportion costs as one to be exercised only in the most exceptional circumstances. Nevertheless he accepted that where a considerable part of the trial is taken up in determining issues upon which a party fails, it is a proper exercise of the discretion to reduce the costs allowed to that party. Generally speaking, and notwithstanding the considerations referred to by Toohey J and the other authorities mentioned above, the demand of the community for greater economy and efficiency in the conduct of litigation may properly be reflected in a qualification of the presumption that a successful party is entitled to all its costs.”

22 In relation to the position in this Court, in Waters v P C Henderson (Australia) Pty Ltd NSWCA 6 July 1994 unreported Mahoney JA (with whom Kirby P and Priestley JA agreed), quoted with approval the following passage from Ritchie’s Supreme Court Procedure:

“Where the proceedings involve multiple issues the application of the rule that costs follow the event may involve hardship where a party succeeds on some issues and yet fails on others. Particularly is this so where, for example, a defendant succeeds on issues that occupy the bulk of the time taken by the proceedings. Nevertheless unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed.”

His Honour continued:


“Reference is made to cases, some of which I have considered. They appear generally to support the principle which is stated in the Practice. I think that was the principle to which his Honour had regard in the present case.

I do not think that it would have been appropriate for his Honour to attempt to determine which issues were won by particular parties, to what extent they were won, and what was the amount of time spent on each of the issues so as to apportion costs accordingly. I think that would have been contrary to the trend of decision in relation to the exercise of discretion as to costs.”

Santow J (as his Honour then was) considered the application of these principles in Ronnoc Finance Ltd v Spectrum Network Systems Ltd NSWSC 19 November 1997 unreported, as did I in Domino Hire Pty Ltd v Pioneer Park Pty Ltd (In Liq) [2000] NSWSC 313.

23 As between Lamru and the Lewis interests, the issues contested fell under four major heads. Those heads were:

(1) Issues 1 and 4 as to the reopening of the 1991 to 1995 accounts.
(2) Issues 2 and 3 as to the status of the conventions, which impacted on the decision of Issues 1 and 4, but also had other significance.
(3) The stock fraud issues.
(4) The Mark Lewis payments issues.

24 All these issues took a great deal of time at the trial. In my view, they should be regarded as separate issues for the purposes of the determination of the costs of the proceedings. It would not be just in proceedings of this length and complexity simply to award the costs in globo to Lamru, because it had some success in the proceedings. However, the exercise of determining what proportion of its costs it should as a matter of justice recover cannot be a precise one.

25 There were also certain separate but minor issues. Those worthy of note were:

(5) The legal and accounting costs issue.
(6) The China creditors issue.

26 I turn to the main four issues, to consider who may be regarded as successful upon each of those issues for costs purposes.

27 In relation to Issues 1 and 4, neither side in my view gained any overall success. The ultimate result was that the original accounts were ordered to stand, whereas both sides sought variations in their favour. The Lewis interests lost the benefit that they would have gained by the revision of the accounts ignoring the add backs convention, which was the stance also taken by the Liquidator during the course of these proceedings. On the other hand, Lamru did not gain the advantages that it would have gained by the accounts being redone in the various ways it suggested, particularly by an adjustment of the 1991 profit figures. In my view, the opposite sides should be regarded as having fought each other to a standstill on these Issues and there should not be an award of costs in favour of the one side against the other in relation to them: there should, in effect, be no order as to costs.

28 As to Issues 2 and 3 relating to the conventions, there can really be no doubt that Lamru was successful and entitled to costs in relation to these Issues. The view of the effect of the judgment of Young CJ in Eq in Lewis v Nortex Pty Ltd [2001] NSWSC 511 (“the 2001 judgment”) espoused by the Lewis interests (and by the Liquidator) was found by the Court to be wrong and the conventions were held to be still in operation. Lamru is entitled to the costs of this issue.

29 As to the stock fraud issue, the Lewis interests submit that by reason of the refusal of equitable relief at the suit of Lamru in the form of orders for payment by Lewis, by reason of the clean hands doctrine, Lamru should be treated as generally unsuccessful on this issue and that costs of the issue should go against it. However, that ignores the fact that the fraud was established and relief was obtained in the statutory appeal proceedings in the form of consequential adjustments of the free net income in the 1996 and 1997 years, which flow through to Lamru’s benefit in the declaration of the quantum of its loan account. In those circumstances, it seems to me that Lamru has succeeded upon the fraud issue and has obtained some, although not all, of the relief it sought. A plaintiff who obtains some, though not all, of the relief sought on an issue is generally regarded as successful on the issue. In some circumstances, the clean hands issue may properly be regarded as a discrete issue for costs purposes. However, in this case, the agitation of the clean hands issue was inextricably intermingled with the fraud issue itself, on which Lamru was successful. It cannot realistically be regarded as a discrete issue. Since it obtained some relief, Lamru should be regarded as successful and entitled to the costs of the stock fraud issue.

30 In relation to the Mark Lewis payments issues, Lamru was, on the surface, again successful. The Lewis interests argued that Lamru could not be regarded as successful, because it did not under its Barnes v Addy claim actually obtain orders for payment of moneys to it; what it obtained instead were orders that the trust fund be reconstituted by Lewis paying sums into that fund. Again, it seems to me that Lamru must realistically be regarded as successful on this issue. It obtained an order of potential value to it, through its interest in the trust fund. It established its cause of action and did not obtain all the relief it sought, but it did obtain relief as a result of its success upon this issue.

31 As to the minor issues, Lamru was substantially unsuccessful in relation to the legal and accounting costs issue, since I declined to disturb in any way the determinations of the Liquidator in relation to those matters. The costs of this issue should go against Lamru, but did not take a great deal of time at the trial. As to the China creditors issue, Lamru was successful, but this issue occupied very little time at all.

32 In my view and in the absence of argument to the contrary, the four principal issues should be taken as having occupied approximately equal time at the trial. Three of them were substantially won by Lamru. In relation to the other, the parties fought each other to a draw. Lamru lost on the legal and accounting costs issue. As has already been noted, no special order is asked for in respect of any interlocutory application in the proceedings, whether costs were reserved or not. In effect, they are all to be treated as part of the process by which the final result was reached and no submission is put to the contrary. In the circumstances, in my view, substantial justice will be done as between these parties if I order that Kation and Lewis pay 70 per cent of Lamru’s costs of the proceedings.

(b) The Costs of the Liquidator

33 These costs raise two separate issues. The first is what order should be made inter partes in relation to the Liquidator’s costs. The second is whether any order should be made as to whether the Liquidator may have his costs out of the company’s assets.

34 As between the parties, the general principle is that a liquidator whose determination is challenged under s 1321 of the Corporations Law should, like any other adjudicator who is a defendant to proceedings because a determination by that adjudicator is challenged, not take any active part in those proceedings, at least where there is another contradictor to support the adjudication. A liquidator who takes an active part becomes an adverse party in the proceedings. The principle was stated as follows in the High Court in Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 per Brennan and Dawson JJ at 341:

“In such a proceeding, a liquidator who defends his decision to reject a proof of debt is no longer acting in a quasi-judicial capacity; he is cast in the role of an adversary, defending the assets available for distribution against a liability which, according to the view he formed when acting quasi-judicially, is not legally enforceable. The liquidator may defend those assets against the creditor's claim on any ground on which the company might have defended the claim had it been sued by the creditor. If the liquidator relies on those special defences which allow him to go behind a judgment, an account stated, a covenant or an estoppel in order to ascertain the true liability of the company, he is none the less in the role of an adversary. The issue in the proceeding is whether the liability referred to in the proof of debt is a true liability of the company enforceable against it. The issue is contested between the putative creditor on the one hand and the liquidator on the other; the liquidator is a party litigant.”

Once a liquidator has become an adverse party, a consequence is that the liquidator should be at risk as to the costs of the proceedings accordingly.

35 It should be said at once that the Liquidator personally did not have a correct perception of the principle that it was open to him not to take any active part in the proceedings. He said several times in evidence that he was bound to defend his adjudication and, indeed, said on at least one occasion that, if he did not do so, he feared that the appeal would automatically succeed. This is certainly not so where there is, in the proceedings, an obvious and aggressive contradictor other than the Liquidator, as was the case here. It should be said at once that it does not appear that the lawyers who advised and appeared for the Liquidator (including the late Mr Peter Somerset) were under any misapprehension in this regard. Nor, in my view, does this subjective misperception have any great relevance to his costs in the circumstances of these proceedings. However, as observed above, once he has entered into the position of an adverse litigant, whatever his motive, a liquidator is at risk as to the costs of the opposing party.

36 The Liquidator played only a limited role in the trial, appearing on only about 30 days, sometimes by counsel and sometimes by his solicitor. There was only one of the major issues mentioned above with which he really engaged. That was the conventions issue, on which he propounded the view, also espoused by the Lewis interests, that it was a necessary consequence of the 2001 judgment that the conventions were not to be applied in the preparation of the trust’s accounts and the calculation of the free net income and consequent apportionment of income. As to the relationship between his view and the view of the Lewis interests to the same effect, more will have to be said. This is because of an allegation made by Lamru in the consolidated amended points of claim (“the points of claim”), but limited to the statutory appeal proceedings only. Paragraphs 76 to 88 of the points of claim (all pleaded in relation to the statutory appeal only) contained two claims, one in contract and one in estoppel. After long agitation, the claim in estoppel was ultimately withdrawn. The circumstances surrounding the withdrawal were adumbrated in Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2005] NSWSC 1062 at [34] to [37]. The contract claim was never withdrawn and, indeed, played a part in relief which Lamru obtained. It was only in respect of the estoppel claim that pars 76 to 88 were withdrawn. It is in this sense that [37], in its context, must be understood.

37 In the last mentioned judgment I withdrew the original [175] of my first substantive judgment because, consequential upon the abandonment of the estoppel claim, there remained no issue to which the findings in that paragraph related, except costs, which were not then under consideration. I indicated that I should reconsider the subject matter on the costs argument upon the evidence already given together with any additional evidence that was given on the costs issue. The withdrawn [175] was as follows:

“As a result of my decisions embodied in this judgment, the claim relating to the Mark Lewis payments is the only claim in respect of which this issue remains to be determined. There was some suggestion that it should be given some play in relation to my decisions relating to issues 2 and 3 as to the add backs convention and the differential interest convention. It was said to arise in that context from the fact that the final determination of the liquidator in relation to those conventions was erroneous and that the Lewis interests were responsible for that erroneous decision by reason of the fact that their solicitor, Mr Baird, applied persuasion to the liquidator to alter, after and by reason of the 2001 judgment, the previous regime that he had adopted. The evidence shows that Mr Baird did advocate that course to the liquidator at that time. I do not doubt that he did so vigorously. However, what he applied to the liquidator was vigorous intellectual argument. It does not appear on the evidence that any other form of persuasion was applied by the Lewis interests, through Mr Baird or otherwise. The liquidator is an officer of the Court who, as the evidence in these proceedings shows, held views of his own quite firmly in respect of many of the matters involved in the winding up of the company. I do not find that the Lewis interests were responsible in any improper way for the liquidator taking the decision he did. It was the liquidator’s decision, albeit I have found it erroneous. There can be no liability of Lewis or Kation in respect of that decision.”

38 The relevant paragraphs of the points of claim were as follows:

“85 By affidavit sworn 4 September 2001 (after the rulings on the preliminary points) the liquidator, in conformity with submissions urged upon him by Kation and Lewis Senior), advanced a new set of accounting conventions abandoning the accounting conventions referred to in 10 and 11.

86 The conduct of the liquidator referred to in 85 constituted a breach by Nortex of the agreement referred to in 10.

87 The said conduct was also unconscionable Lamru having acted on the faith of the liquidator’s previous representations as to what it was he disputed in connection with Lamru’s proof of debt (and what was not disputed); there never having been any dispute about the conventions until after the Court ruled that the advice previously acted upon was incorrect.

88 The liquidator is estopped from departing from the agreement referred to in 10.”

39 Rather strangely, in light of the conduct of the trial, Mr Motbey contended for a large part of the recent hearing that the allegation in par 85 of the points of claim that the Liquidator adopted his new stance in relation to the conventions in conformity with submissions urged upon him by the Lewis interests was not meant to allege that the Liquidator acted with actual partiality or under the influence of the Lewis interests. He said that it was meant to allege only that the views of the Liquidator were identical with those of the Lewis interests and that the Liquidator abrogated his duty of neutrality by advancing at the trial the same arguments as the Lewis interests.

40 Mr Motbey submitted that the word “conformity” had only a neutral meaning, simply equating the two things compared. Reference to dictionaries shows this is quite wrong. The Macquarie Dictionary (Rev 3rd ed, 1997) defines “conformity” as follows:

“1 correspondence in form or character; agreement, congruity, or accordance.
2 compliance or acquiescence.”

The Oxford English Dictionary (2nd ed, 1989) has two similar definitions. I had the view throughout the trial that “conformity” as used in par 85 had the second or (in the circumstances) pejorative meaning.

41 I had at all times a clear recollection that the trial was conducted on the basis that the complaint against the Liquidator went far beyond the proposition that the views of the Liquidator and the Lewis interests merely corresponded and that it was alleged that the Liquidator had allowed himself to be influenced or overborne by the Lewis interests in some highly improper fashion. Towards the end of the recent hearing Mr Motbey conceded that the propositions that he had been putting on the costs argument in relation to Lamru’s course of conduct at the trial were quite wrong. It is sufficient to cite one passage in the transcript to which, to his credit, he drew attention (T 3216 lines 7 - 20):

“MR MOTBEY: Suppose [the Liquidator’s] motives are to protect his reputation, for example, [he spent] $700,000 on that. Suppose there’s something else. I’m certainly entitled to raise what brought about his taking an active part in these proceedings. His judgments, his decisions, terminations and adjudications and so forth, are very much at the forefront of the criticisms that I am making of him. We’re putting the case that he’s really been a puppet for Lewis.

HIS HONOUR: I know it’s part of your case he was bias [sic] towards the Lewis interest in some way.

MR MOTBEY: Yes, and did their bidding. He hasn’t been the picture of the impartial officer of the court.”

It is quite clear that the trial was conducted on this basis and that par 85 of the points of claim was always intended to allege this type of impropriety.

42 During the costs hearing the Liquidator was further cross examined and more documentary evidence was led. There was nothing in that evidence which deflected me from the view which I was disposed to on the earlier evidence and which I expressed in the withdrawn [175]. Despite extensive cross examination on different occasions, I accept the Liquidator as a witness of truth. He appeared to state matters frankly, even when they were not to his advantage. In particular, I accept his word that he formed his own view (albeit I have found it to be wrong) on the effect of the 2001 judgment, after taking his own legal advice. I accept that Mr Baird did advocate the same view to the Liquidator and that he did so vigorously. However, I find that he did not proceed beyond intellectual argument. There was no impropriety in Mr Baird doing this and it was not by reason of Mr Baird’s argument that the Liquidator took the course he did. It flows from this that the Liquidator contested the issue that he had behaved with the impropriety alleged and contested it successfully.

43 That issue determined, as I have already said at [36], there was really only one of the major issues in respect of which the Liquidator actively participated in the contest and participated in it against Lamru. That was the issue of the conventions. As I have just concluded, the Liquidator formed his view concerning the effect of the 2001 judgment independently and on his own advice, not by reason of persuasion by the Lewis interests. Holding this view, he contested the issue with vigour and lost. As to the stock fraud issue, on his determination of Lamru’s proof of debt he had rejected Lamru’s assertions concerning this. It is hardly surprising that he did so, bearing in mind the sparseness of the evidence as it was available to him, without the benefit of the facts given in evidence by Mr Lamb at the trial under the protection of an Evidence Act certificate. The Liquidator did traverse the relevant allegations in the defence he filed, but did not actively contest the issue at the trial. It is to be borne in mind that he appeared by counsel or solicitor at a minority of the initial 80 days of the trial. He has subsequently participated at the trial in relation to the orders to be made and costs, but this has not expanded the ambit of the issues which he contested.

44 Lamru has argued that this limited participation does not make any difference to the costs situation as between Lamru and the Liquidator. It says that the Liquidator was in effect a defendant in the proceedings and that where a plaintiff brings proceedings against two defendants and succeeds, each will be ordered to pay the whole of the plaintiff’s costs, even if the second defendant’s counsel never rose to his or her feet during the trial. This may be true in an ordinary case. But this is not an ordinary case. The Liquidator was only present during part of the trial, maintaining a monitoring role through the transcript during the balance. There were only the two issues on which, realistically, there was contest between Lamru and the Liquidator. The Liquidator succeeded on the one and lost on the other. Both issues took substantial time at the trial. In my view the order for costs in relation to the costs of the trial as between Lamru and the Liquidator should be that there be no order as to costs.

45 That leaves the second question, as to whether the Liquidator should be entitled to have his costs out of the funds of the company. That issue may look a little hypothetical at the moment, as there are at present no funds in the company. However, the administration is not complete and, apart from anything else, orders will be made in these proceedings for the restoration of considerable funds to the trust. The question therefore calls to be dealt with.

46 The relevant principles were stated in the following passage in the judgment of Mahoney JA in Nowell v Palmer (1993) NSWLR 574 at 581 - 582:

“Mr Anderson, in his submission, had in mind, I think, the attitude which the courts have traditionally taken to the costs of legal personal representatives in defending proceedings brought against an estate. If the legal personal representative acts in accordance with proper principles, she will be safeguarded as to costs; in an appropriate case, her costs and/or the costs which she is ordered to pay in an unsuccessful defence of the estate may be ordered to be paid out of the estate: see Re Estate of Paul Francis Hodges Deceased; Shorter v Hodges (1988) 14 NSWLR 698 at 709-710; see generally Halsbury’s Laws of England, 4th ed, vol 17, pars 917 - 919, vol 37, par 721.

However, in the present case, the appellant, in defending the proceeding, was not acting as, or merely as, the executrix of the estate. She was, in a real sense, defending her own interests. She was the sole beneficiary of the estate. In addition, she had purported to distribute the estate to herself and, to an extent, the proceeding brought against her was a proceeding by way of tracing the assets in the estate to which the respondent was entitled and to secure an accounting in respect of them: see, eg, Re Diplock; Diplock v Wintle [1948] Ch 465; affirmed sub nom Minister of Health v Simpson [1951] AC 251. I do not think that in these circumstances the principle to which I have referred should apply. The proceeding was essentially a defence by the appellant of her own interests.”

47 They apply not only to personal representations but to fiduciaries generally. See Miller v Cameron (1936) 54 CLR 572 at 578 - 579 per Latham CJ. They were expounded by Austin J in Drummond v Drummond [1999] NSWSC 921 as follows:

“[43] In Miller v Cameron (1936) 54 CLR 572, 578, Latham CJ explained that ‘as a rule, a trustee is allowed his costs out of the trust estate if his conduct has been honest, even though it may have been mistaken’. In Re Weall; Andrews v Weall (1889) 42 ChD 674, 677, Kekewich J spoke of the ‘tenderness which the Court is anxious to exhibit towards trustees honestly exercising discretion in discharge of their duties, often difficult and still more often thankless’. In Re Jones; Christmas v Jones [1897] 2 Ch 190, 197 the same judge said that ‘a man who fulfils the difficult duties of an administrator, executor or trustee is, in common sense and common justice, entitled to be recouped to the very last penny everything that he has expended properly - that is to say, without impropriety - in his character of administrator, executor or trustee ...’. Thus it is normally the case that an executor who commences or defends an action in the capacity of executor is entitled to be indemnified out of the estate for the costs incurred in doing so, even if the litigation is unsuccessful, the executor’s conduct is found to have been mistaken, and the other party in the litigation is held to be entitled to an order for costs.

[44] This exception to the normal rule that costs follow the event, which permits an executor to recover costs from the estate, is itself subject to some exceptions, as is plain from Latham CJ’s reference to honest conduct and Kekewich J’s reference to impropriety. There are two ‘sub-exceptions’ which are arguably relevant to the present case.

[45] The first is the sub-exception for ‘impropriety’. As Kekewich J made clear in Re Jones , cases of impropriety include an executor taking or defending proceedings in breach of trust, or conducting the proceedings in such a way that the Court, on a general view of the case, regards the executor’s conduct as ‘not honestly brought forward’ ([1897] 2 Ch 190, 198). Additionally, recourse to the estate may be denied to an executor ‘where the claim is of monstrous character, that is, one which no reasonable man could say ought to have been put forward’ (at 198). In Re Weall the trustees allowed a solicitor to deduct fees which were not properly chargeable to the life tenant from the rental income of the estate. Kekewich J observed that while mistakes or errors in judgment would not disentitle the trustees to an indemnity, the beneficiaries were entitled to expect ‘reasonable prudence’ of the trustees (42 ChD at 678 - 9).

………

[47] Secondly, the rule which gives an executor the prima facie entitlement to be indemnified out of the estate for costs relates only the costs incurred in the administration and distribution of the estate. Such costs are to be distinguished from costs incurred by an executor in furtherance of a personal interest: Miller v Cameron (1936) 54 CLR at 578 - 9; Re Jones [1897] 2 Ch at 197 - 8; Plimsoll v Drake (No 2) (Supreme Court of Tasmania, Zeeman J, unreported, 8 June 1995). Executors who pursue personal interests in litigation are ‘not fighting for the estate any more than if they were not executors at all’: Skrimshire v Melbourne Benevolent Asylum (1894) 20 VLR 13, 18 per Madden CJ. An executor who prosecutes or defends proceedings in the capacity of, say, creditor or beneficiary of the estate rather than in the capacity as executor cannot expect to recoup the costs of litigation from the estate simply on the basis that he or she is also an executor. In Miller v Cameron Latham CJ took the view that a trustee who defended an action for his removal was thereby representing his own interests and not those of the trust estate. In Plimsoll v Drake Zeeman J reached a similar conclusion where a trustee unsuccessfully asserted the right to demand a release before distributing the trust estate to the beneficiaries.”

And see my judgment in Metropolitan Petar v Mitreski [2006] NSWSC 336 at [31] to [33]. That the same principle applies in the case of a liquidator in relation to proceedings in which he participates in his own name is made plain in Re Buena Vista Motors Pty Ltd (In Liq) and the Companies Act [1971] 1 NSWLR 72. In that case, Street J ordered a liquidator who brought an unsuccessful claim to pay the opponents’ costs but to be indemnified out of the company’s assets since, although “the claim had been unsuccessful, it could not be characterized as frivolous or vexatious. Nor could the liquidator be said to have been acting unreasonably in bringing the claim forward for litigation” (at 73).

48 At one time a trustee’s costs inter partes of proceedings were dealt with in the proceedings, but the question of whether the trustee should be entitled to recover costs out of the trust fund were dealt with in separate proceedings: In re Beddoe; Downes v Cottam [1893] 1 Ch 547. However, in this case I propose to deal with this question in these proceedings and at this time. There are a number of reasons for this. Section 63 of the SCA commands that the Court deal, so far as possible, with all issues between the parties in the one set of proceedings. Furthermore, in this case, the way in which the question would be dealt with if it were dealt with in separate proceedings would be by motion in the liquidation proceedings, which are already before the Court, in that the statutory appeal is by way of motion in the liquidation proceedings.

49 I have already found that the Liquidator contested the issue that he had behaved with the impropriety alleged successfully. The cases show that the Liquidator was entitled to contest this challenge to his rectitude and, as he did so successfully, to have his costs out of the company funds: National Trustees Executors and Agency Co of Australasia Limited v Barnes (1941) 64 CLR 268 at 279 per Williams J; Expo International Pty Ltd v Chant (No 2) (1980) 5 ACLR 193 at 197 - 198 per Needham J. He is undoubtedly entitled to have his costs of the impropriety issue on which he was successful against Lamru out of that fund.

50 As to his participation in the balance of the proceedings, Lamru contests that he should have these costs out of the fund. Although it ultimately eschewed the impropriety argument by withdrawing the allegation of estoppel, which was the only issue to which that allegation was relevant, Lamru maintained that any participation in the trial by the Liquidator was otiose. It also alleged that it was a breach of the Liquidator’s duty of neutrality for him to present the same argument as the Lewis interests on, for instance, the conventions issue, because of the appearance (even if there were no actuality) of favouring one side against the other.

51 I have already said that the proposition espoused by the Liquidator that he was bound actively to propound the correctness of his determinations on the appeal in the circumstances of this case was wrong. However, he also gave other reasons for some active participation in these proceedings. These included vigilance on behalf of unrepresented interests, such as the unsecured creditors, particularly in relation to the actual and potential debt to the Commissioner of Taxation. He also mentioned his duty as the representative of the company to ensure that correct information was furnished to the Commissioner. He mentioned the vigilance needed in respect of the actions of the principals of the corporate combatants. As a liquidator, he had always to be careful of the self interest of conflicting parties. But here he was dealing with men who were both found in the course of the proceedings, by Young CJ in Eq, by me or by both to have been guilty of significant dishonesty. That the need for caution was not illusory was demonstrated, admittedly late in the day, by both sides settling the New Zealand proceedings without referring to him, although both had promised to do so, when he refrained from active participation in those proceedings. In this regard, I accept his word.

52 It has been put to me that the obtaining of judicial advice before participation was a pre condition to his entitlement to have his costs out of the company. I do not agree that a proposition in these terms is correct. Furthermore, such an application in this case, whether by application in the winding up proceedings or in separate proceedings invoking s 63 of the Trustee Act 1925 or the Court’s inherent equitable jurisdiction, would inevitably have led to yet another hot side contest (perhaps even extending to appellate level) with diversion of money and attention from the main game. Of these there have been only too many. I am not prepared to criticise the Liquidator or hold him precluded from having his costs by reason of his refraining from making such an application in the circumstances of this case.

53 In short, the Liquidator as a trustee is entitled to his costs incurred in the conduct of these proceedings unless his actions were unreasonable or were for his or her own benefit rather than for the benefit of the fund: UCPR r 42.25; SCR Part 52A r 42. In all the circumstances of the case, I am not prepared to find that the Liquidator’s actions were in either of those categories. The result is that the Liquidator should have an order that he may have his costs of both sets of proceedings out of the fund.

54 The orders that I make in the proceedings are as follows:

(1) In relation to the financial years ended 30 June 1991, 1992, 1993, 1994 and 1995 declare that subject only to order 3(iii)(d) of these orders none of the parties is entitled to question reopen or have amended the accounts of Nortex Pty Ltd (In Liq) (“Nortex”).

(2) In relation to the issues concerning the agreements referred to in the proceedings as the add-backs convention and the differential interest convention (“the conventions”):
(a) declare that the implementation of the conventions did not constitute a breach or breaches of trust;
(b) declare that the conventions continue in operation and have not ceased to have effect;
(c) declare that the accounts of the 1996 and 1997 financial years should be prepared in accordance with the conventions;
(d) declare that the amounts of the add-backs to be taken into account in respect of the calculation and recording of the free net income for the year ended 30 June 1996 are in relation to Kation $243,684.08 and in relation to Lamru $63,375.70;
(e) declare that the amounts of interest which should not be treated as expenses in respect of the calculation and recording of the free net income for the year ending 30 June 1996 are $179,402.86 (as interest payable to Kation) and $28,500.73 (as interest payable to Lamru);

(f) declare that the amount of the add-back to be taken into account in respect of the calculation and recording of the free net income for the year ended 30 June 1997 is in relation to Kation $380,019.73;
(g) declare that the amounts of interest which should not be treated as expenses in respect of the calculation and recording of the free net income for the year ending 30 June 1997 are $98,862.50 (as interest payable to Kation) and $51,303.59 (as interest payable to Lamru).

(3) In relation to the issue concerning the payments made by Nortex of the disputed bonuses for Mark Lewis of:
(i) $58,070 in respect of the 1995 financial year to Kation,
(ii) $101,626 in respect of the 1996 financial year to Mark Lewis, and
(iii) $138,733.30 in respect of the 1997 financial year to Mark Lewis:
(a) declare that each of such payments was made in breach of trust;
(b) declare that Lewis participated in each of the breaches of trust;
(c) declare that Kation participated in the breach of trust that occurred in respect of the 1995 financial year;
(d) order that the accounts of Nortex in relation to the 1995 financial year be adjusted in relation to the sum of $58,070 so as to credit Lamru with the sum of $23,228 and to debit Kation with the same sum but that otherwise there be no order in respect of this breach of trust;
(e) order that in respect of the sum of $101,626 paid in respect of the 1996 financial year Lewis reconstitute the Nortex Unit Trust fund by paying into the trust fund:
(i) that sum;
(ii) interest calculated thereon at the rates specified in Schedule 5 to the Uniform Civil Procedure Rules 2005 (“the UCPR”) calculated from 30 June 1996 and compounded on annual rests until payment;
(f) order that in respect of the sum of $138,773.30 paid in respect of the 1997 financial year Lewis reconstitute the Nortex Unit Trust fund by paying into the trust fund:
(i) that sum;
(ii) interest calculated thereon at the rates specified in Schedule 5 to the UCPR calculated from 30 June 1997 and compounded on annual rests until payment.

(4) In relation to the issues as to the taking and selling of stock by Lewis:
(a) declare that Lewis with the knowledge and acquiescence of Kation during the 1997 financial year fraudulently took and sold stock of Nortex and did not pay or account to Nortex for the proceeds thereof;
(b) order that the accounts of Nortex be adjusted so as to include in the accounts for the 1996 financial year $210,000 to allow for the understatement of the value of the stock at the end of that financial year made in furtherance of the fraud referred to in (a) and so as to include in the accounts for the 1997 financial year $150,000 as the profit on the sale of the stock taken and sold;
(c) declare that by reason of Lamru’s use in proof of the fraud referred to in (a) of the evidence of the Russell William Lamb as to his and Lamru’s dishonest participation together with Lewis and Kation in the same practice in fraud on the revenue up to Lamb’s departure from Nortex Lamru is precluded by the unclean hands doctrine from obtaining equitable relief in relation to that fraud.


(5) Declare that the claim in relation to legal and accounting expenses in the 1997 financial year made in pars 68 to 71 of the consolidated amended points of claim is established as to $6,594 and is otherwise not established.

(6) Declare that the credit of $284,837 in respect of the item that was referred to in the proceedings as the “China creditors” item arising from the Liquidator’s rejection of the proofs of debt relating thereto should be recorded in the accounts for the 1997 financial year.

(7) Declare that as a result of the foregoing declarations and orders the balances of the loan accounts with Nortex of Lamru and Kation respectively as at the date of the commencement of the winding up of Nortex (2 September 1997) should stand at:
Lamru - $1,149,745.62
Kation - $679,579.55


(8) Order that the amended notice of motion filed on 11 March 2002 in proceedings No 3081 of 1997 be otherwise dismissed.

(9) Order that the amended summons filed on 3 March 2004 in proceedings No 1750 of 2002 and the claims made in the consolidated amended points of claim be otherwise dismissed.

(10) In relation to the points of amended cross claim filed on 1 May 2003 order that:
(a) the claims made in paragraphs 38 and 39 for contribution and/or indemnity;
(b) the claim made in paragraphs 40, 41, 41A-41D, 41H-41K, 42A, 60 and 70 for damages for breach of the contract pleaded in paragraph 60;
(c) the claims made in paragraphs 40, 41, 41A-41D, 41H-41K, 42A, 60 and 70 for damages for breach of the duties pleaded in paragraphs 40 and 41; and
(d) the claim made in paragraphs 67(c), 68 and 70 for damages for breach of the duties pleaded in paragraphs 40 and 41 by causing Lamru to make a vexatious application to the Court challenging the retainer of Mallesons Stephen Jaques
be dismissed.


(11) Order that Kation and Lewis pay 70 per cent of Lamru’s costs of both proceedings No 3081 of 1997 and No 1750 of 2002.

(12) Order that there be no order as between Lamru and the Liquidator as to the Liquidator’s costs of either proceedings No 3081 of 1997 or No 1750 of 2002.

(13) Order that the Liquidator may have his costs of proceedings No 3081 of 1997 and No 1750 of 2002 out of the assets of the company.

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