Lorebray Pty Ltd v Liddy

[2022] NSWSC 1633

Supreme Court

New South Wales

Medium Neutral Citation:

Lorebray Pty Ltd v Liddy [2022] NSWSC 1633

Hearing dates:

22 July 2022

Date of orders:

29 November 2022

Decision date:

29 November 2022

Jurisdiction:

Equity

Before:

Henry J

Decision:

Applicants to be joined as plaintiffs to these proceedings and granted leave to continue to prosecute these proceedings as second to fifth plaintiffs: see [70].

Catchwords:

CIVIL PROCEDURE –– application by beneficiaries to be joined as plaintiffs where trustee declines to continue to prosecute proceedings against beneficiary – whether special or exceptional circumstances exist – whether claim advanced against beneficiary has merit – where trustee neither consents nor opposes application but seeks indemnity for past and future costs backed by security – whether trustee should be made a defendant – application granted on condition that indemnity provided to trustee in relation to future costs

Legislation Cited:

Civil Procedure Act 2005 (NSW)

Court Suppression and Non-publication Orders Act 2010 (NSW)

Limitation Act 1969 (NSW)

Trustee Act 1925 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Alexander v Perpetual Trustees WA Ltd (2003) 216 CLR 109; [2004] HCA 7

Bhagat v Australian Securities Commission (1995) 16 ACSR 536

Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 619

Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd(No 2) [2018] NSWCA 266

Chahwan v Euphoric Pty Ltd trading as Clay & Michael & anor [2009] NSWSC 805

Cong v Shen [2019] NSWSC 1675

Dean v Antunes [2016] NSWSC 1845

In the matter of Canberra Babington Pty Ltd [2021] NSWSC 552

In the matter of Lorebray Pty Ltd [2021] NSWSC 1533

In the matter ofWil Brown Management Pty Ltd [2022] NSWSC 207

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432

Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42

Pearson v Commissioner of Taxation (2001) 116 FCR 357; [2001] FCA 1427

Ramage v Waclaw (1988) 12 NSWLR 84

TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim [2016] NSWCA 68

Treadtel International Pty Ltd v Cocco [2016] NSWCA 360

Category:

Procedural rulings

Parties:

Lorebray Pty Limited (ACN 052 110 175) (Plaintiff)
Christine Liddy (Defendant)
John Christopher McNamee (First Applicant)
Peter John McNamee (Second Applicant)
Stephen John McNamee (Third Applicant)
Philippa Margaret Hardy (Fourth Applicant)

Representation:

Counsel:
R K Jameson (Plaintiff)
G O’Mahoney (Defendant)
M K Condon SC (Applicants)

Solicitors:
Garland Hawthorn Brahe (Plaintiff)
Gilbert + Tobin Lawyers (Defendant)
Allsop Glover Lawyers (Applicants)

File Number(s):

2019/00395533

Publication restriction:

Nil

Judgment

1. This is an application by some of the beneficiaries of the McNamee Property Trust (MPT) to be joined as plaintiffs to enable them to continue to prosecute proceedings that were commenced by the trustee of the MPT, Lorebray Pty Ltd (Lorebray), against another beneficiary, that Lorebray no longer wants to pursue.

Background

2. The MPT was established by deed dated 23 September 1991. The primary beneficiaries are the late John Boden McNamee, his wife, Margaret (Peg) McNamee, their seven adult children: Peter McNamee, Stephen McNamee, John McNamee and Philippa Hardy (together the Applicants), William (Bill) McNamee, Sally Collignon and Christine Liddy (the defendant in these proceedings), their grandchildren and the respective spouses of their children and grandchildren.

3. Members of the McNamee family have been in dispute for some years about the distribution of family-related trust assets. Broadly speaking there are two camps. The Applicants, who are the shareholders of Red Hill MCN Pty Ltd (Red Hill), are on one side. Ms Liddy, Bill McNamee, Ms Collignon, who are the shareholders of McMardi Pty Ltd (McMardi shareholders) and Peg McNamee are on the other side.

4. In December 2019, as part of a settlement, the relevant parties entered into a Shareholders Agreement and Deed of Settlement and Release, under which the board of Lorebray was to comprise a representative from each of Red Hill and McMardi and an independent director. Brenden Miller, a solicitor, was appointed to that position.

5. On 16 December 2019, Lorebray commenced these proceedings against Ms Liddy. The decision to commence the proceedings was approved by a majority of Lorebray’s directors, namely, Red Hill’s representative, Stephen McNamee, and Mr Miller. The other director, McMardi’s representative, Bill McNamee, opposed the decision.

6. In these proceedings, Lorebray sues Ms Liddy to recover $1,650,030 plus interest and costs. Lorebray claims that, in the period from 2013 to 2015, Ms Liddy received the amount of $1,650,030 by way of loans from Lorebray that were payable on demand, which she has refused to repay despite demand being made.

7. By her defence and cross-claim filed on 13 July 2020, Ms Liddy says that the monies received were paid to her as a gift or trust distributions and denies any liability to repay them.

8. On 4 September 2020, Ms Liddy filed a motion seeking security from Lorebray for her costs in these proceedings, which were estimated at the time to be $229,867.15 and $160,900 on a party/party basis (including GST). Due to numerous adjournments and interlocutory steps in these proceedings and other proceedings (some of which are detailed below), that motion has yet to be heard and determined. Ms Liddy’s revised estimate of her legal costs, as at September 2021, is $350,000 (including GST and disbursements).

9. On 16 October 2020, Lorebray filed a summons seeking judicial advice as to whether it would be justified in continuing to prosecute its claim against Ms Liddy and meeting the costs of the litigation out of the assets of the MPT, including to give security for Ms Liddy’s costs.

10. In November 2020, Lorebray served its evidence in chief in support of its claim against Ms Liddy, which comprises an affidavit from Gavin Hilton sworn 6 November 2020.

11. On 15 March 2021, Lindsay J heard and determined Lorebray’s application for judicial advice. The advice provided by the Court was made available to Lorebray’s directors and their legal representatives but is otherwise confidential and subject to suppression orders.

12. It appears that, on or about 31 March 2021, Stephen McNamee resigned as a director of Lorebray: In the matter of Lorebray Pty Ltd [2021] NSWSC 1533 at [12].

13. In May 2021, McMardi commenced proceedings in the Corporations List of this Court seeking declaratory relief that, notwithstanding the absence of a representative of Red Hill on the board, valid resolutions by Lorebray could still be passed (Corporations List proceedings).

14. On 9 June 2021, Lorebray’s solicitor wrote to the Applicants’ solicitor and asked whether the Applicants were willing and able to take over the carriage of these proceedings on terms that provided for them to indemnify Lorebray for any costs orders made in the proceedings (CB74). Correspondence between Lorebray’s and the Applicants’ solicitors then ensued about that offer and whether the directors of Lorebray were able to pass valid resolutions due to a lack of quorum. Suffice to say, the offer made by Lorebray for the Applicants to take over these proceedings was not accepted by the Applicants at that time.

15. On 30 June 2021, Lorebray’s solicitors wrote to Ms Liddy’s solicitors in relation to a possible settlement of these proceedings. The correspondence in evidence on this application (to which no objection was taken) indicates that Ms Liddy was willing to settle if her legal costs incurred to date were paid (CB122-125).

16. On or about 30 July 2021, Red Hill filed an interlocutory application in the Corporations List proceedings that sought, as amended, to restrain Lorebray from resolving or taking steps in these proceedings without the consent of all of Lorebray’s shareholders and to restrain Lorebray’s directors from passing any resolution purporting to cause Lorebray to take any such step (CB133).

17. Rees J commenced hearing Red Hill’s interlocutory application on 31 August 2021. During the course of the hearing, in relation to the usual undertaking as to damages proffered by Red Hill, Her Honour stated (T161.4-9):

…that undertaking as to damages might be absolutely useless, and given the extensive history of intense family disputations, wouldn't I infer that even if the undertaking as to damages was given and that the company had some assets. The ability to actually extract any money from the company to honour the undertaking might itself be the subject of a further set of prolix proceedings.

18. On 3 September 2021, the hearing of Red Hill’s interlocutory application resumed, on which occasion Rees J was advised that the Applicants, as Red Hill’s shareholders, wished to avail themselves of Lorebray’s offer to take over the carriage of these proceedings and that Red Hill would abandon its interlocutory claim for relief. Her Honour made orders dismissing Red Hill’s interlocutory application and for Red Hill to pay McMardi’s and Lorebray’s costs.

19. On 6 September 2021, the Applicants filed a notice of motion (the subject of the hearing before me on 22 July 2022) (Notice of Motion) seeking orders for leave to be granted to the Applicants to continue these proceedings on behalf of Lorebray and represent it for the purposes of the proceedings and, to the extent necessary, for leave to amend the Statement of Claim, with effect from the date of commencement of the proceedings, so as to plead their standing to continue this proceeding on behalf of Lorebray.

20. On 5 October 2021, Black J made orders by consent in the Corporations List proceedings that David Sampson of BPS (the Receiver) be appointed as receiver and manager without security of the assets of the MPT.

21. On 2 March 2022, the Receiver’s solicitor wrote to the solicitors for Lorebray, Ms Liddy and the Applicants and advised that the Receiver would not be taking over the conduct of these proceedings.

The Applicants’ motion

22. At the hearing of the Notice of Motion, the Applicants propounded orders in the following terms:

1. Pursuant to r 6.27, the Applicants are to be joined as plaintiffs.

2. Each of the Applicants have leave, to the extent that is necessary, to continue to prosecute these proceedings as the second to fifth plaintiffs.

3. Costs.

23. In addition, the Applicants have proffered the following undertaking to the Court:

The Applicants, and each of them, hereby undertake to the Court not to seek contribution from the first plaintiff:-

(a)    in respect of any costs which they are ordered to pay to the defendant and which are incurred by her after the date of grant of leave by this Court; and

(b)    in respect of such costs as they cannot recover from the defendant pursuant to any order for costs against her. [NB: this would be for any reason whatsoever]

Note: This undertaking is given on the basis that it does not prevent the Applicants obtaining indemnification for the party and party (ie the ordinary) costs incurred by them from monies paid by the defendant pursuant to any judgment or order, or any agreement to resolve the proceedings.

24. The Applicants contend that the relief they seek should be granted as it is apparent that Lorebray does not wish to continue to prosecute the proceedings and the claims against Ms Liddy have merit, relying on the special and exceptional circumstances jurisdiction, the principles of which are set out in In the matter of Canberra Babington Pty Ltd [2021] NSWSC 552 at [27]-[29] (Canberra Babington). They submit that the undertaking that they have proffered is sufficient to deal with any prejudice that Lorebray may suffer as a consequence of it remaining a party to the proceedings, which they say should be as the first plaintiff to deal with any doubt that may arise from the operation of r 6.28 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), which relevantly provides that the date of commencement of the proceedings in relation to a person joined as a party is taken to be the date on which the order is made or such later date as the Court may specify in the order.

25. In support of their application, the Applicants rely upon the affidavits of Richard Allsop, the Applicants’ solicitor, sworn 6 September 2021 (and Exhibits RJBA-1 and RJBA-2 to that affidavit), and 10 May 2022. They also rely on the affidavit from Mr Hilton sworn 6 November 2020 and Exhibit GH-1 to that affidavit to establish that there is material capable of supporting the claims made against Ms Liddy in these proceedings.

26. At the hearing, Lorebray’s Counsel confirmed that Lorebray would not continue the proceedings and would seek to discontinue them if they are not settled (T37.26-27). Lorebray did not make any submissions in relation to the merits of the claim against Ms Liddy in response to the application. Its position is that it neither consents nor opposes the application, in the absence of the Applicants providing an indemnity for its costs of the proceedings supported by appropriate security. Lorebray submits that the Applicants should provide Lorebray with an indemnity backed by security if the application is granted, as prejudice will continue to flow to Lorebray if it remains a plaintiff as it does not have the usual ability to reduce its costs exposure going forward and the costs exposure is significant having regard to Ms Liddy’s estimate of her costs and Lorebray’s own costs. Lorebray also emphasised the proposition stated by Rees J (at [17] above) and submits that there is doubt as to the Applicant’s ability to make good on a call on any indemnity provided to a trustee from the assets of the MPT in the context of the Receiver’s appointment.

27. Lorebray relies on an affidavit of Stephen Martin sworn 1 April 2022. Lorebray also relied on a confidential affidavit of Mr Martin sworn 15 July 2022, the confidential exhibit to that affidavit (‘Exhibit SEM-Confidential Documents’) and confidential written submissions, which related to the judicial advice given to Lorebray in connection with this proceeding (together the Judicial Advice Material) and were the subject of a closed court session of the hearing from which Ms Liddy and her legal representatives were excluded. The Applicants had contended that the Judicial Advice Material was objectionable on relevance grounds but it was read on the basis that it might assist the Court in understanding Lorebray’s position on the application. Suppression orders were made in relation to the Judicial Advice Material in the context where most of it was subject to existing suppression orders made by Lindsay J on 15 March 2021.

28. Ms Liddy raises a number of matters which she contends bears on the question of whether the Court should grant the orders sought by the Applicants and relies on her affidavit sworn 1 April 2022 that deals, in the main, with the procedural aspects of the proceedings. The matters raised by Ms Liddy can be summarised as follows:

1. the Applicants require leave from the Court to continue the proceedings on Lorebray’s behalf and bear a considerable burden as the authorities refer to leave only being granted in “exceptional or special circumstances”;

2. the Court should have regard to the Judicial Advice Material in considering whether the claim against Ms Liddy has merit (noting that she has not been privy to that advice) as, to the extent the advice identifies shortcomings with the claims, that would weigh heavily against the application. Ms Liddy did not adduce any evidence in response to the claims made against her but simply asserted that they lack any factual foundation;

3. these proceedings have been before the Court for a considerable period of time and there has been a failure by any moving party to take positive steps to progress them since they were commenced in October 2019. This reflects a departure from the requirements of s 56 of the Civil Procedure Act 2005 (NSW) (CPA) and has led to Ms Liddy incurring considerable costs to date, which tells against the existence of “exceptional or special” circumstances in favour of the orders sought;

4. Ms Liddy has consented to numerous adjournments during the proceedings for various reasons, including to provide Lorebray with opportunities to implement the judicial advice and deal with the other litigation (to which reference has been made) and to provide the Receiver with time to determine whether to take carriage of the proceedings. Ms Liddy submits that her consent to those adjournments has been provided in circumstances where she has limited resources at her disposal, wishes to seek to avoid incurring unnecessary costs, has engaged with Lorebray constructively and in good faith and has not been privy to the content of the judicial advice; and

5. should the Applicants succeed on their application, Lorebray ought to be removed as a plaintiff and instead, be joined as a defendant, which is said to be consistent with the weight of authority.

29. Each of the parties provided further written submissions after the hearing that supplemented earlier written submissions and their oral submissions at the hearing.

Consideration and determination

30. A beneficiary under a trust has no cause of action against a third party in relation to injury to trust property unless they can establish special or exceptional circumstances. Special or exceptional circumstances relevantly include a failure by a trustee, excusable or inexcusable, to sue on an available cause of action that a trustee has against a third party, in performance of the duties owed by the trustee to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate: Canberra Babington at [27]; see also Chahwan v Euphoric Pty Ltd trading as Clay & Michael & anor [2009] NSWSC 805 at [16] – [17] (Chahwan v Euphoric); Ramage v Waclaw (1988) 12 NSWLR 84 at 91 (Ramage v Waclaw); Alexander v Perpetual Trustees WA Ltd (2003) 216 CLR 109; [2004] HCA 7 at [55].

31. To invoke the special or exceptional circumstances jurisdiction, a beneficiary must establish not only that the trustee is unable or unwilling to commence or maintain proceedings on a cause of action against the third party, but also that the proposed action has merit, in the sense that there is, at least, a serious question to be tried as to the claims that the beneficiaries wish to pursue. That requires the pleadings to disclose a good cause of action and for there to be material capable of supporting the claims alleged, not that the proposed claims will succeed or are particularly strong, although the merit requirement will not be satisfied if there are defences available that are bound to succeed. If the Court concludes that the claims are not ‘meritorious’, the requirement for special or exceptional circumstances will not be met: Canberra Babington at [28] and [29]; Chahwan v Euphoric at [19] and [30]; Dean v Antunes [2016] NSWSC 1845 at [98].

32. While traditionally limited to a claim in equity, the exceptional circumstances jurisdiction extends to common law claims: TAL Life Ltd v Shuetrim; MetLife Insurance Ltd v Shuetrim [2016] NSWCA 68 at [54]. It typically involves beneficiaries taking action as plaintiffs and joining the trustee as a defendant to the proceedings, or otherwise conducting the proceedings in the trustee’s name: Ramage v Waclaw at 91; Bhagat v Australian Securities Commission (1995) 16 ACSR 536 at 542; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432 at 438; and Canberra Babington at [27].

33. There is some conflict in the authorities as to whether leave is required before an applicant beneficiary is entitled to bring a proceeding in special or exceptional circumstances. In Treadtel International Pty Ltd v Cocco [2016] NSWCA 360, Barrett AJA (Gleeson and Leeming JJA agreeing) observed there were conflicting authorities on whether a prior grant of leave to bring derivative proceedings was required, and stated (at [74]) that:

I suspect that there is no hard and fast rule and that much depends on context. The need for a safeguard by way of screening by the court as a prelude to a derivative suit by a beneficiary upon a cause of action maintainable by the trustee is understandable where certain conditions prevail — for example, where there are several beneficiaries one of whom purports to act for the estate as a whole; where there is a question about the benefit that the estate will derive from pursuit of the proceedings; or where it is necessary to discover whether the trustee’s decision not to proceed has some sound basis. In straightforward cases, there will be no need for such a safeguard. (citations omitted)

34. Recent authorities favour the view that leave is not required, although the principles of whether to grant leave may be relevant when considering whether to grant leave to amend a pleading to introduce a claim by a beneficiary on a cause of action of the trustee, noting that any pleading relying on exceptional circumstances should include an allegation to the effect that the trustee will not bring the proceedings: In the matter ofWil Brown Management Pty Ltd [2022] NSWSC 207 at [99]; Chahwan v Euphoric at [33] and [39].

35. Dealing first with whether the claims against Ms Liddy has merit, the Applicants submit that Mr Hilton’s evidence and the financial records of the MPT, including the recently produced draft financial statements for the MPT for the 2022 financial year, establish that there is a good cause of action and material capable of supporting the claim. I agree.

36. The essential terms of the pleaded claim are set out at [6] above. The pleaded facts may be somewhat sparse but, in my view, the Statement of Claim discloses a reasonable cause of action that Lorebray lent $1,650,030 to Ms Liddy, which is now due and owing. No submission was advanced by Ms Liddy to the contrary (T25.1-6), despite assertions to that effect having been made in the inter-partes correspondence (see, for example, the letter from Ms Liddy’s solicitors dated 20 July 2020 at CB330).

37. I am satisfied that there is material that is capable of supporting the claim against Ms Liddy. Mr Hilton, who had been engaged as Lorebray’s accountant, deposes that he signed the compilation report in respect of the financial accounts of the MPT and the Red Hill Property Trust for the financial year ending 2018 and prepared draft financial accounts for those entities for the financial year ending 2019. According to Mr Hilton’s evidence and the documents exhibited to his affidavit:

1. the amount of $3.564 million is recorded in the balance sheet for the MPT (contained within the MPT Draft 2019 Accounts) (2019 Balance Sheet) as one of a number of “Loans at Call”, and is money that was advanced to, and is owing by Ms Liddy (at 15(a) and (b)) (Total Liddy Payments);

2. the Total Liddy Payments included advances made by J & M McNamee Holdings Pty Limited (McNamee Holdings), as trustee for the Red Hill Property Trust (RHPT), to Ms Liddy totalling $695,000 in FY2014, and a payment of $1 million advanced to her in FY2015 (at [16]). The 2019 Balance Sheet also records a loan of $6.761 million owed by McNamee Holdings, as trustee for the RHPT, to Lorebray as trustee of the MPT (at [15(c)]);

3. the MPT General Ledgers at 30 June 2014 and 30 June 2015 and the MPT – Family Loan Account Movements schedule record the payments made to Ms Liddy in 2014 and 2015 and the loans to her and other McNamee children (or their related corporate entity or trust) (at [17] and [18]);

4. Mr Hilton had various discussions with John McNamee Snr about the payments made to the children after they had been paid and how they should be dealt with, including in November 2014, in respect of which a file note records that Mr Hilton had to confirm that “$695,000 [was] lent to CM Liddy during the 2014 year”, and in about December 2014 and March 2016, when Mr Hilton was told that the payments should be put in “their own family loan accounts” and to the “loan account” (at [25] – [26]);

5. neither John McNamee Snr nor Peg McNamee ever said to Mr Hilton that the monies advanced to the children from the assets of the MPT or the RHPT were to be recorded as gifts or distributions for the purpose of the trusts’ financial records or treated as payments by John McNamee Snr and Peg McNamee personally or that they should be reflected as a reduction in the loan owed by Lorebray to them jointly (at [28] – [30]);

6. an email from Mr Hilton dated 4 August 2017 records that Mr Hilton met with “John and Peg McNamee to … go through the attached family loan summary. Peg wants to wipe all the loans clean so that no one owes any money back. John has a different view. They argued for a while and then I left them to discuss it further.”’

7. the entries relating to the distributions to the beneficiaries were separate to and distinct from the entries concerning loans to the children (at [38]).

38. The recently produced draft financial statements for the MPT for the 2022 financial year also contains confirmatory evidence, given they record the amount of $3,563,963 as “Current Borrowings” and “Loans – Related Parties” to Ms Liddy (CB307), although I note that these draft statements are the subject of dispute.

39. In her cross-claim, Ms Liddy admits that, between October 2013 and March 2015, she received four payments totalling $1,650,000 from McNamee Holdings but says they were made at the direction of John McNamee Snr and/or Peg McNamee and paid to her as a gift or, alternatively, a discretionary distribution by McNamee Holdings in its capacity as trustee of the RHPT. However, Ms Liddy did not adduce any evidence to negate the terms of Mr Hilton’s evidence or Lorebray’s business records. Rather, she relied solely on the confidential Judicial Advice Material which she had not seen.

40. In my view, the question of whether the claim is meritorious is a matter for this Court based on the evidence and submissions relied on by the parties on this application, rather than the Judicial Advice Material. There is also a question as to what significance should be attributed to the judicial advice obtained given it was only sought after the proceedings had been commenced and an application had been made by Ms Liddy for security for costs.

41. The non-confidential material before the Court identifies the following: Ms Liddy does not dispute receiving the amount of $1,650,000 nor that she has not repaid the money to Lorebray on demand; the amount claimed by Lorebray from Ms Liddy is part of the amount recorded in the financial statements relating to the MPT as “Loans at Call”; there are business records that suggest that John McNamee Snr and Peg McNamee referred to the amounts received by Ms Liddy as “loans” and part of the “Loan accounts”; there are no resolutions or other documents in evidence that refer to the amounts claimed as having been paid to Ms Liddy as gifts or that distributions were declared by MPT or the RHPT in her favour for those amounts. In my view, that material is sufficient to demonstrate that the claim has merit, in the sense that it raises a serious question to be tried that the payments made to Ms Liddy were loan monies repayable on demand, as pleaded in the Statement of Claim, although I do not accept the Applicants’ submission that the claim is a strong one. This is particularly as John McNamee Snr is no longer available to give evidence and an Amended Judicial Advice Statement dated 15 March 2021 [1] refers to the existence of conflicting evidence about how the payments to Ms Liddy should be characterised, such as a statutory declaration in which Peg McNamee addressed (amongst other things) payments made to the McNamee children in past years, supporting evidence from Ms Collignon that payments made to her that were recorded as loans in Lorebray’s financial records were not loans to her, bank statements related to Ms Liddy and communications with another accountant who provided services in the 1980s and 1990s. That said, the material before me did not include the documents which are said to comprise this “conflicting evidence”, such that I cannot say that the matters raised in Ms Liddy’s defence and cross-claim will prevail over Lorebray’s claim.

    1. Pages 35-54 in Exhibit RJBA-1 (CB55) in respect of which no suppression order or confidentiality claim has been made.

42. My review of the confidential Judicial Advice Material, including the terms of the judicial advice itself, does not alter my view that the claim against Ms Liddy is arguable and meritorious in the relevant sense, even though I do not assess the claim to be particularly strong and consider that Ms Liddy’s defence and cross-claim may ultimately prevail. In that regard, I do not accept Ms Liddy’s contention that the concept of exceptional or special circumstances means that the Applicants bear a considerable burden to the extent her submissions suggest that the claim must be shown to be a strong one.

43. I accept Ms Liddy’s submission that there have been significant delays in the conduct of the proceedings and that the manner in which these and the related Corporation List proceedings have been run have likely caused her personal stress and led to increased costs. However, I am not persuaded that those matters are relevant to whether special or exceptional circumstances exist or weigh against granting the orders sought by the Applicant. I do not see how the effective substitution of the Applicants for Lorebray or any amendment to clarify the capacity in which they are maintaining the claim should occasion significant additional prejudice over and above that which has already been occasioned by the delay in this case. Further, and to the extent that any delay and other steps in the proceedings have led to increased costs on the part of Ms Liddy, it is to be expected that those costs will be taken into account when her security for costs application is dealt with by the Court.

44. Prior to the hearing, Lorebray’s position that it does not wish to purse the proceedings could be discerned from the fact that, since receiving judicial advice, it had taken no steps to actively progress the proceedings, it had offered to consent to the Applicants taking over the claim on terms that it be indemnified and it had sought to resolve the proceedings with Ms Liddy. At the hearing, Lorebray confirmed that it does not wish to prosecute the proceedings any further, as outlined at [26] above. In those circumstances, and as I consider that the material demonstrates that there is a serious question to be tried as to whether Ms Liddy is indebted to Lorebray for $1,650,000, I am satisfied that special or exceptional circumstances exist that warrant the Applicants taking over the proceedings from Lorebray to protect the interests of beneficiaries of the MPT and that orders should be made that they be joined as the second to fifth plaintiffs pursuant to r 6.27 of the UCPR.

45. I deal next with the question of whether the Applicants require the Court’s leave to be joined to continue the prosecution of these proceedings as the second to fifth plaintiffs. As the pleadings have closed and the Applicants will need to amend the Statement of Claim to plead their standing to continue the proceedings instead of Lorebray, I am inclined to the view that leave from the Court is required, and I will grant such leave.

46. A relevant factor in deciding to grant leave is that the cause of action upon which the Applicants wish to be joined and pursue in their own name (as the second to fifth plaintiffs) is not a new or substitute cause of action but is the same cause of action as that commenced by Lorebray, which claim was seemingly commenced within the period prescribed by s 14 of the Limitation Act 1969 (NSW) and at a time when the Applicants had no standing to bring the action. The Applicants only became entitled to pursue the cause of action due to Lorebray’s decision to decline to continue to pursue the claim, which together with the finding of merit, constitute the special and exceptional circumstances that arose after the proceedings were commenced. The parties were agreed that limitation period issues should not be decided at this preliminary stage, although I should record that my view in this case accords with that expressed by Brereton J in Chahwan v Euphoric at [27] – [29]. If resort to s 65(2) of the CPA is necessary in relation to any amendments to the Statement of Claim to plead the Applicants’ entitlement to bring the action, their position would attract the operation of s 65(2)(a) of the CPA, as they would be amending the Statement of Claim to make clear the capacity in which they have, since the proceedings have commenced, become entitled to bring and maintain the proceedings. Alternatively, to the extent that the amendment does add a new cause of action, the Applicants would be within s 65(2)(c) of the CPA, as the cause of action clearly arises from substantially the same facts as those giving rise to the cause of action already pleaded.

47. I do not consider that it is necessary for the proceedings to be reconstituted so that Lorebray is joined as a defendant to the proceedings, as Ms Liddy submits. The authorities relied on by Ms Liddy (at [32] above) may refer to a trustee ordinarily being “joined as a defendant”, but none of those cases involved a situation such as this, where beneficiaries seek to take over existing proceedings commenced by a plaintiff trustee by joinder as further plaintiffs. Unlike the more usual position of a beneficiary commencing new proceedings to which a trustee must be joined (as a defendant), the trustee in this case is already a party. There does not seem to me to be any reason why Lorebray, as a necessary party to the proceedings, cannot remain a plaintiff, noting that it is unlikely to take many active steps as a plaintiff after the Applicants are joined and Lorebray raised no objection in principle to remaining as a plaintiff.

48. As to whether the Applicants should grant Lorebray an indemnity for its costs as a condition of continuing to bring the claim and be ordered to provide security for any such indemnity, the conclusion I have come to is that it should provide an indemnity but only in respect of future legal costs.

49. Lorebray (and the MPT) is already exposed to the legal costs it has incurred in pursuing the proceedings to date and is also at risk in respect of Ms Liddy’s legal costs to date, assuming that the proceedings are discontinued by Lorebray or a settlement is reached along the lines that she indicated would be acceptable to her, as described at [15] above. Those risks remain irrespective of whether leave is granted to the Applicants to take over the proceedings or not. For that reason, I am not persuaded that the Applicants should be required to indemnify Lorebray in respect of past legal costs as a condition of granting them leave to continue the claim.

50. I accept that authority does not compel persons in the position of the Applicants always to indemnity a trust or estate as a condition of bringing an action in a trustee’s or an estate’s name: Cong v Shen [2019] NSWSC 1675 at [88] – [95]. It also seems practically unlikely that Ms Liddy (as a beneficiary of the MPT and a shareholder of McMardi, which is a shareholder of Lorebray) would seek to recover her costs from Lorebray, rather than from the Applicants, if she succeeds in defending the claim.

51. However, as a plaintiff, Lorebray will be exposed to future costs of its own and an order in relation to Ms Liddy’s legal costs (past and future) if she successfully defends the claim.

52. During oral submissions, the Applicants’ Senior Counsel also acknowledged that Lorebray should be indemnified in respect of any future legal costs, when he stated that “if [Ms Liddy] decided to pursue Lorebray for the costs going forward, Lorebray would simply seek indemnity from my clients, so, on any view, the costs going forward would be borne by [them], as individuals” (at T32.35-38), referred to the offer not to seek contribution as “more than that” (T38.36) and indicated that the “undertaking will ensure that the costs going forward, the trustee will not be out of pocket … if leave is given [to the Applicants]” (T38.46-49).

53. The Applicants’ proffered undertaking should go some way to ameliorating Lorebray’s costs risk going forward but, in my view, in the absence of the Applicants proffering an indemnity, the undertaking does not fully deal with Lorebray’s exposure in respect of future legal costs and the possibility that it may need to rely on its right of indemnity at general law out of the MPT assets in respect of those costs, which could impact other beneficiaries, such as Ms Liddy and those who will not be parties to these proceedings.

54. If the Applicants are to be granted leave to continue the proceedings, the orders should seek to minimise future disputation by ensuring that, as between the Applicants and Lorebray, the Applicants are responsible for the future legal costs associated with continuing the proceedings.

55. For these reasons, I am satisfied that this is a case where the Court should exercise its discretion and require, as a condition of the grant of leave, that an indemnity be provided by the Applicants in favour of Lorebray in respect of future legal costs.

56. I am, however, not persuaded by Lorebray’s submission that the indemnity should be backed by security (by either a payment of monies into Court, a bank guarantee or something else). The indemnity is to be provided by four individuals and there is no evidence that any of them are impecunious, unlike the position in Pearson v Commissioner of Taxation (2001) 116 FCR 357; [2001] FCA 1427. While the observations of Rees J (outlined at [17] above) may not be inapt in the context of the continuing family disputes, they related to an undertaking proffered by a family company, not an indemnity to be provided by a group of individuals who will be joined as plaintiffs to these proceedings. It is also relevant to my decision not to require security that Lorebray’s future costs are not expected to be significant (they were estimated at the hearing to be approximately $45,000), and Ms Liddy’s application for security for costs in these proceedings is the subject of a separate notice of motion to be determined by the Court on a different occasion.

57. Accordingly, I will grant the relief sought by the Applicants subject to a condition relating to an indemnity.

Confidentiality orders

58. It is also appropriate that I record my reasons for making suppression orders under s 8(1) of the Court Suppression and Non-publication Orders Act 2010 (NSW) (Court Suppression Act) in relation to the affidavit of Stephen Martin sworn 15 July 2022, Exhibit SEM-Confidential Documents, the confidential submissions on this application and that part of the transcript of the hearing of the application that was dealt with in closed court (Confidential Material).

59. I was satisfied that the information which is the subject of the orders is confidential to Lorebray and that it was necessary to prevent prejudice to the proper administration of justice for Lorebray to gain some protection for that information. The Confidential Material included privileged legal opinions given by Lorebray’s legal advisors in relation to the judicial advice proceedings. I also concluded that it was appropriate for the Confidential Material to be brought to the Court’s attention as it assisted the Court in understanding Lorebray’s position on this application.

60. An application for judicial advice is not exempt from the operation of the Court Suppression Act. But, they are often heard in closed court (as it was in this case), reflecting that the jurisdiction under s 63 of the Trustee Act 1925 (NSW) is in the nature of giving private advice that functions to provide personal protection to a trustee rather than to determine a dispute between competing litigants: Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42 at [64].

58. Making the suppression orders was also consistent with the approach of Lindsay J, who had already made orders preserving the confidentiality of some of the Confidential Material.

59. As to the duration of the orders sought, Lorebray submitted, and I accepted, that the Court should make the orders until the time that is one month after the final resolution or final determination, including any appeal or time for appeal, of Proceedings No. 2019/395533 (being Lorebray Pty Limited v Christine Liddy), or until such other time as ordered by a judge of the Court.

Costs and orders

63. As to costs of this application, the applicable principles are well established. The starting point is that the award of costs is a matter within the Court's discretion: CPA, s 98(1). While the Court’s discretion is broad, it must be exercised judicially and consistently with the overriding mandate provided for in ss 56–60 of the CPA.

64. The usual rule is that costs follow the event unless it appears that some other order should be made as to part or all of the costs: UCPR, r 42.1. Rule 42.7 of the UCPR relates specifically to interlocutory applications and reserved costs. The general position with respect to the costs of interlocutory applications is that they are to be paid and dealt with in the same way as the general costs of the proceedings.

65. Underlying both the general rule that costs follow the event and the qualifications to that rule is the idea that costs should be paid in a way that is fair, having regard to what the Court considers to be the responsibility of each party for the costs that are incurred: Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd (No 2) [2018] NSWCA 266 at [9]. In some cases, departure from the usual rule that costs follow the event is warranted, such as where costs might be considered to be an appropriate price that a plaintiff or applicant should pay for its success or where a party is seeking what might be described as an indulgence of the Court: Celermajer Holdings Pty Ltd v Kopas [2011] NSWSC 619 at [22] – [26].

66. The Applicants contended that (if they had success on their application) there should be no order as to costs as against Lorebray, as the application was, in a sense, of Lorebray’s own making. Lorebray’s position is that the Applicants should pay its costs. I agree with Lorebray’s submission.

67. I do not consider that the application should be characterised as one of Lorebray’s own making, such as to warrant there being no order as to costs. The application arose because the Applicants wished to continue proceedings that Lorebray no longer wants to maintain. Lorebray did not oppose the application and effectively conceded that the exceptional circumstances jurisdiction had been properly invoked. The only issue on which there was any contest was the question of whether an indemnity should be provided, in respect of which Lorebray had success. Accordingly, I will order that the Applicants pay Lorebray’s costs of the application.

68. As for Ms Liddy, the Applicants seek an order for her to pay their costs on the basis that there was some opposition by Ms Liddy to the application, or alternatively, they submit that the costs as between them and her, should be the Applicants’ costs in the cause. I do not consider that Ms Liddy should be ordered to pay the Applicants’ costs of the application. As Ms Liddy submits, the application required the Applicants to satisfy the Court of certain matters and her submissions, and opposition, were relatively confined to bringing particular points to the Court’s attention. The Court may not have considered that all of the matters raised were of the significance that Ms Liddy contended, but she did not actively oppose the application by putting on evidence in response to the merits of the claim, nor raise matters that could be said to have been unwarranted or led to additional costs being incurred.

69. Weighing up these matters, in my view, the appropriate outcome is to make no order as to costs as between the Applicants and Ms Liddy, as she seeks.

70. For these reasons, I make the following orders:

1. Subject to the provision of an indemnity by the Applicants in favour of the plaintiff in accordance with Order 3 below:

1. Pursuant to UCPR r 6.27, Peter John McNamee, Stephen John McNamee, John Christopher McNamee and Philippa Margaret Hardy (the Applicants) are to be joined as plaintiffs to these proceedings.

2. Each of the Applicants has leave to continue to prosecute these proceedings as second to fifth plaintiffs.

2. The Court notes the Applicants’ undertaking to the Court in the following terms:

1. The Applicants, and each of them, hereby undertake to the Court not to seek contribution from the first plaintiff:

1. in respect of any costs which they are ordered to pay to the defendant and which are incurred by her after the date of grant of leave by this Court; and

2. in respect of such costs as they cannot recover from the defendant pursuant to any order for costs against her, noting that this would be for any reason whatsoever.

2. The Court also notes that the undertaking is given on the basis that it does not prevent the Applicants obtaining indemnification for the party and party (ie the ordinary) costs incurred by them from monies paid by the Defendant pursuant to any judgment or order, or any agreement to resolve the proceedings.

3. The orders made in 1(a) and (b) are conditioned on each of the Applicants’ providing an indemnity in favour of the plaintiff in respect of any costs which the plaintiff incurs or is ordered to pay to the defendant and which are incurred after the date of grant of leave by this Court, which indemnity is to be provided in writing to the plaintiff (with a copy sent to the Associate of Henry J) within 7 days of the date of these orders.

4. In relation to the costs of the Applicants’ notice of motion dated 6 September 2021:

1. the Applicants are to pay the plaintiff’s costs; and

2. there be no order as to costs as between the Applicants and the defendant.

5. List the proceedings before the Equity Registrar at 9.30am on 1 December 2022 for further directions and for the listing of the defendant’s motion seeking security for costs.

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Endnote

Decision last updated: 29 November 2022