Mevahire Pty Ltd v Huxtable - [2022] WASC 429

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   MEVAHIRE PTY LTD -v- HUXTABLE [2022] WASC 429
CORAM:   MASTER SANDERSON
HEARD:   12 OCTOBER 2022
DELIVERED          :   14 DECEMBER 2022
PUBLISHED           :   14 DECEMBER 2022
FILE NO/S:   CIV 1282 of 2021
BETWEEN:   MEVAHIRE PTY LTD
First Plaintiff
AND
CARL ALAN LOUIS HUXTABLE
First Defendant
CAMERON HUGH SHAW
Second Defendant
RICHARD ALBARRAN
Third Defendant

Catchwords:

Practice and procedure - Application by defendants for summary judgment and security for costs - Turns on own facts

Legislation:

Rules of Supreme Court 1971 (WA)
Corporations Act 2001 (Cth)

Result:

Both applications dismissed

Category: B

Representation:

Counsel:

First Plaintiff	:	T Langdon
First Defendant	:	J E Scovell
Second Defendant	:	J E Scovell
Third Defendant	:	J E Scovell

Solicitors:

First Plaintiff	:	Robert Grayden Legal
First Defendant	:	Edwards Mac Scovell Legal
Second Defendant	:	Edwards Mac Scovell Legal
Third Defendant	:	Edwards Mac Scovell Legal

Case(s) referred to in decision(s):

Lee v Parker [No 2] [2022] FCA 582
Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171
Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15
Westpac Banking Corporation v Anderson [2017] WASC 106

MASTER SANDERSON:

By amended chamber summons dated 9 August 2022, the defendants seek summary judgment under O 16 of the Rules of the Supreme Court 1971 (WA). Alternatively, they seek an order the plaintiff give security for costs. In support of the application, the defendants relied on two affidavits of Cameron Hugh Shaw, the first sworn 3 August 2022 and the second sworn 8 September 2022. They also relied on an affidavit of Bonnie Taylor affirmed 4 August 2022. For their part, the plaintiff relied on two affidavits of Gary James Clarke, the first sworn 25 August 2022 and the second sworn 14 September 2022. There were a number of objections taken to the various affidavits and I dealt with those objections during the course of the hearing. At that time I gave brief reasons for my decision. I said I would expand upon the reasons for my rulings in this judgment. It is convenient to deal with this issue at the outset.
The defendants objected to pars 42 to 58 of Mr Clarke's first affidavit. The defendants said those paragraphs disclosed without prejudice communications which were privileged. Furthermore, the communications sought to be adduced culminated in a Deed of Settlement entered into on 24 September 2020. That document is pleaded by the plaintiff. That being so, precontractual conduct, including antecedent negotiations, is irrelevant and can only be used in aid of the construction of the agreement if that agreement itself is ambiguous. The rule exists so as to require that the parties' intentions must be ascertained from the words they have used in the contract itself.
In my view, the defendants have made good their argument. I accept the material was provided by the plaintiff for a limited purpose and was not intended to undermine the clear wording of the settlement agreement. Nonetheless, the correspondence was privileged and it is inappropriate it should be tendered, even if it is tendered for a limited purpose. Accordingly, the paragraphs of the affidavit to which the defendants took objection were struck out.
For its part, the plaintiff objected to certain paragraphs of the first affidavit of Mr Shaw. Most of these objections were based upon the claim they were opinion and directed at the ultimate issue. By way of example, par 45 of Mr Shaw's affidavit is in the following terms:
With respect to the liquidators' fees to date, we have conducted a comprehensive review of those time entries comprising our fees incurred to date and ensured that they have been allocated as appropriate as between:
a)those fees that are attributable to the care, preservation, pursuit and realisation of assets the subject of the Plaintiff's Security Interest and determination of claims payable in priority to any payment to the Plaintiff; and
b)those fees that are not attributable to the care, preservation, pursuit and realisation of assets the subject of the Plaintiff's Security Interest and determination of claims payable in priority to any payment to the Plaintiff,
and accordingly, I say that the liquidators' fees stated above accord accurately with the work undertaken by the liquidators and our staff in the conduct of the liquidation.
It may be that this paragraph is directed at the ultimate issue to be determined on this application. But it is also evidence of what Mr Shaw has done and the conclusions he has reached. Properly drafted, the affidavit would not have contained the conclusion that it does. But the mischief that causes is not such as to warrant the whole of the paragraph being struck out. Accordingly, I allowed the paragraphs to which objection was taken to stand. There was one further more general objection to the defendants' evidence. But before dealing with that objection, I should say something about the nature of the claim itself.
The plaintiff is the first ranking secured creditor of Stuttgart Assets Pty Ltd (in liquidation) (Stuttgart). The plaintiff holds a security interest over all present and after acquired property of Stuttgart including property that Stuttgart held as former trustee of the Clarke Trust (charged assets). Stuttgart was placed into liquidation on 4 May 2015 and the defendants were appointed its liquidators.
After their appointment, the defendants received significant proceeds of charged assets. In broad terms, the defendants received the proceeds of sale by auction of plant and equipment in June 2015, totalling just over $49,000, and proceeds of cash sales of Stuttgart's equipment. They also received three tranches of retention money from contractors between October 2015 and March 2016. The plaintiff refers to these funds collectively as the 'charged proceeds'. The defendants also recovered GST refunds from the Commissioner of Taxation. It is unclear on the evidence whether these funds are charged assets or not. For present purposes, it is enough to note that GST funds were received.
It is common ground (at least for the purposes of this application) the plaintiff was entitled to payment of all of the proceeds of the charged assets. There are, however, two exceptions to this entitlement. First, any employment claims against Stuttgart falling within the scope of s 561 and s 562 of the Corporations Act 2001 (Cth) have priority to the plaintiff. Second, the defendants are entitled to be reimbursed for any reasonable and necessary expenses incurred strictly for the care, preservation and realisation of the charged proceeds. This is an important concession in the context of this application and it is worth noting that it is limited in its scope.
It should also be noted the defendants rely on a document signed by the plaintiff's director stating that the plaintiff granted the defendants priority to the first $40,000 of funds recovered in the liquidation of Stuttgart.
It is against this background that the plaintiff makes a general objection to the evidence led by the defendants. The plaintiff's position is summarised in pars 9 and 10 of its written submissions. These two paragraphs read as follows:
9.One further observation in relation to the Defendants' evidence is necessary. The Defendants rely on two affidavits of the Second Defendant, Cameron Shaw. Mr Shaw is one of the liquidators of Stuttgart. However, it is apparent that carriage of the winding up of Stuttgart primarily sat with the First Defendant, Carl Huxtable, until Mr Huxtable's retirement on 25 September 2020. Between May 2015 and February 2020, Mr Huxtable recorded 138.5 hours of time in the winding up, while Mr Shaw recorded only 24.9 hours, 15.8 of which related to 'litigation'. Further, by 31 July 2016 - after all of the Charged Proceeds had been received by the Defendants - Mr Huxtable had recorded 103.1 hours of time, while Mr Shaw had recorded only 1 hour.
10.Despite this, Mr Huxtable has chosen not to give evidence in this application. It is unclear from Mr Shaw's evidence how much direct knowledge he has of the matters he deposes to, as opposed to information he has been told by Mr Huxtable. While evidence of information and belief is admissible in an application of this kind, it should be given minimal weight, particularly where no explanation has been given why Mr Huxtable has not given evidence. The Defendants are seeking summary dismissal of the Plaintiff's claim, which places a high evidentiary burden on them. The Court should be reluctant to determine the proceeding summarily in the absence of clear and compelling evidence in support of the Defendant's defence.
In my view, there is no substance to this objection. Order 16 differs from O 14 in a number of ways. To enliven jurisdiction under O 14, a plaintiff must, by an authorised person, verify the contents of the statement of claim and swear to a belief there is no defence to the plaintiff's cause of action. Under O 16, r 1 anticipates the plaintiff's claim is as formulated in the statement of claim. It is not open to a plaintiff on an application by a defendant for summary judgment to argue there are claims not pleaded which would result in judgment in its favour. In Westpac Banking Corporation v Anderson [2017] WASC 106 [52] the position was put as follows:
The principles in relation to the determination of applications for summary judgment are well established. A party should not ordinarily be denied the opportunity to have his or her case determined following trial, and for that reason, the jurisdiction to grant summary judgment should be reserved for the clearest of cases, where there is a high degree of certainty about the ultimate outcome of the action if it were allowed to go to trial. The question is whether, on the material before the Court, it has been demonstrated that the plaintiff's action should not be permitted to proceed to trial because it is apparent that it must fail. However, that does not mean that summary judgment will be given only where the case is so hopeless as not to require argument. Extensive argument may be necessary to demonstrate that a party's case is so clearly untenable that it cannot possibly succeed.

What is common to both O 14 and O 16 is that the version of facts most favourable to the respondent to the summary judgment application must be accepted. Of course if those facts are directly contradicted by evidence led by an applicant then the respondent's evidence can be rejected. But evidence is only rejected in the clearest of cases. In this application there can be no suggestion that the fact Mr Huxtable did not swear an affidavit is significant. Order 14 and O 16 provide a summary procedure - that is to say, they are materially different from a trial where the best evidence rule applies. Of course it may be preferable to have the best evidence even on a summary judgment application. But an application will not fail, generally speaking, because the best evidence rule has not been observed.
It is the defendants' position the plaintiff's claim must fail for four reasons. As I have determined the defendants' application for summary judgment fails, it is inappropriate for me to explore any of these issues in detail. What follows then is a broad analysis of the defendants' position and my conclusions as to why the plaintiff's position is arguable.
The first argument put by the defendants is that the plaintiff's claim is at odds with established authority. The defendants say the secured creditor's rights over, and in connection with, assets held by a company in liquidation is prescribed by ch 5 of the Corporations Act and the common law that bears upon it. Equity will not intervene except where there is the existence of a wrong, or threatened wrong, and the absence of an adequate remedy at law. The defendants rely upon what was said by Dixon J in Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171. His Honour expressed the view that expenses reasonably incurred in the care, preservation and realisation of the property of a company in liquidation would be 'thrown against' the fund created by the liquidator's efforts, and concluded that the liquidator's remuneration for work done for the purpose of raising the fund should be charged against it. This principle, which has its origins in the law of salvage, was upheld by the High Court in Stewart v Atco Controls Pty Ltd (in liq) [2014] HCA 15. The defendants say that given the plaintiff expressly pleads that its rights and interests in the charged funds is subject to 'satisfaction of any right of indemnity or reimbursement the subject of an equitable lien or equitable charge arising by the operation of law for costs associated with their care, preservation and administration', there is no triable issue as to whether the defendants drawing upon the charged funds to enforce their lien was lawful.
The plaintiff says there are two separate, if inter‑related, concepts at play in relation to the charged assets. First, there is the right of the defendants to be paid for their work in the care, preservation and realisation of the charged assets. On the other hand, there is the liquidator's right to renumeration associated with the winding up as a whole which is generally not payable from the charged assets. Annexed to the plaintiff's written submission was a chronology of all receipts and payments the defendants have recorded in the accounts they lodged with ASIC. The plaintiff then says, in its written submissions, the following:
It is clear from that chronology that:
(a) all of the Charged Proceeds were realised by 20 May 2016 (being the date on which the retention sum was received by Pindan);
(b) on that date, the balance of the liquidation account stood at $207,092.14, after deduction of all of the expenses and remuneration paid by the Defendants before that date (including, without justification, expenses that do not appear to have any relevance to the care, preservation or realisation of the Charged Proceeds);
(c) the only expenses that appear to be relevant to the realisation of the Charged Proceeds are auctioneer’s fees, paid on 26 June 2015 and 16 November 2015, totalling $12,876.99;
(d) other than GST refunds, the Defendants did not receive any further payments until 24 July 2018, when the Defendants received the first preference recovery of $6,000 from Kennerlys;
(e) however, after 20 May 2016, the Defendants continued to pay - without justification - remuneration and expenses out of the Charged Proceeds, even though the Charged Proceeds had already been realised and converted to money held in a bank account, and the value of those expenses and remuneration exceeded the further receipt;
(f) as a result, between 20 May 2016 and 23 July 2018, the balance of the liquidation account was reduced from $207,092.14 to $75,543.12: a reduction of $131,549.02, which establishes the Defendants made net payments out of the Charged Proceeds totalling $131,549.02 after all of the Charged Proceeds had been recovered; and
(g) the payments that resulted in that net diminution of $131,549.02 between 20 May 2016 and 23 July 2018 included:
(i) remuneration of $33,000 on 14 June 2016 – bringing the total remuneration paid by that date to $44,000 (exceeding the priority amount of $40,000);
(ii) remuneration of $22,000 on 11 January 2017;
(iii) legal fees paid to Lavan Legal totalling $51,274.16;
(iv) legal disbursements paid to Lavan Legal totalling $735.90; and
(v) printing costs of $1,891.77. [33]
Based upon that analysis of the payments made by the defendants, the plaintiff concludes:
That is, during a period when:
(a) all of the Charged Proceeds had already been realised and paid into a bank account, and ‘care and preservation’ should have been limited to payment of bank fees;
(b) total GST refunds since the commencement of the winding up had totalled $12,002; and
(c) no other recoveries (such as preference recoveries) had been received in the winding up,
the Defendants must have used funds that comprised the Charged Proceeds to pay for the ongoing administration of the winding up, including their own remuneration, legal fees and other expenses. That is, the Defendants treated the Charged Proceeds as if they were ordinary funds available in the winding up, which could be applied in accordance with s 556 of the Act, despite the fact that the Plaintiff held a security interest over the Charged Proceeds. [34]
It is unnecessary for me to go further. On a summary judgment application, it is only necessary for the plaintiff to establish its position is arguable. Clearly that is the case here. I do not accept the principle in Universal Distributors is such that the plaintiff's position is doomed to fail.
The second reason the defendants say the claim must fail relates to an issue which is said to arise from pars 21 through to 24 of the substituted statement of claim. These paragraphs appear under a sub‑heading 'Obligations owed by the defendants to the plaintiff'. The defendants say the substituted statement of claim is 'pregnant' with references to the Clarke Trust as though a building block for causes of action. With respect, that does not seem to me to be the case. The paragraphs complained of plead duties allegedly owed by the defendants in their capacity as liquidators to the plaintiff. Nothing in that plea is controversial. The plaintiff pleads the duties owed by the liquidators are fiduciary in nature - again not a plea that is surprising. The plaintiff then alleges the defendants, as one aspect of their fiduciary duty, are not entitled to benefit personally as to do so would be a breach of the fiduciary duty. Really this is just another way of pleading a claim the defendants are only entitled to renumeration for the work done protecting the charged assets. It may in fact be the case the paragraphs are superfluous - it looks as though the plaintiff is pleading a cause of action rather than material facts. But the paragraphs are benign and no complaint is made about the pleading itself. Given I am satisfied the plaintiff's case is arguable with respect to the first issue, it follows that the position is arguable in relation to this matter.
The third reason the defendants say the plaintiff's claim must fail has to do with the provisions of a Settlement Deed entered into between the plaintiff and the defendants. In particular, cl 3 of the deed is relied upon by the defendants. It reads as follows:
In consideration of this Deed and the settlement actions referred to in cl 2, the parties release one another from any and all claims in respect of the Company (including the liquidator's claim) excluding the secured claim admitted in 2(b)(i) above.
The defendants say this shuts out the plaintiff's action. The plaintiff responds by noting that cl 3 expressly excludes from its operation 'the secured claim admitted at 2(b)(i) above'. They say the action is proceeding in respect of that secured claim. In my view, this point is arguable. The position is not so clear that it warrants the plaintiff's action being struck out.
The fourth reason advanced by the defendants is that there is no jurisdiction to grant the relief sought. The relief actually sought by the plaintiff in the substituted statement of claim is an account and, effectively, declarations that money paid to the defendants in respect of renumeration is held by the defendants on trust for the plaintiff. I can see no reason why such relief should not be granted were the plaintiff to make good its claim. But even if that were not the case, if the plaintiff succeeded in establishing the claim as pleaded then it would be up to the court to craft orders which did justice between the parties. It cannot be said that assuming the plaintiff made good its claim no relief was available and the action was therefore futile. Accordingly, there is no basis for striking out the plaintiff's claim.

That then leaves the defendants' application for security for costs. The application is brought under s 1335 of the Corporations Act. The plaintiff admits that were it called upon to do so, it would not be able to meet any costs order out of its own assets. Thus, the jurisdictional requirements of the section are satisfied. It is the plaintiff's position security ought not be ordered on the basis of a number of discretionary factors. On the plaintiff's case, the relevant discretionary factors are:
(a)to the extent the plaintiff is impecunious, that is because the plaintiff has been hindered in recovering its primary asset, being the secured debt owing by the plaintiff to Stuttgart;
(b)the reason that the plaintiff has been hindered in recovering that asset is the conduct of the defendants that is the subject of the proceeding;
(c)the plaintiff's claim is bona fide and has merit;
(d)the security would be oppressive and is likely to stultify the litigation; and
(e)there is a public interest in the conduct of the liquidators being scrutinised.
On this last issue, the plaintiff relies on what was said by Halley J in Lee v Parker [No 2] [2022] FCA 582 [87]:
The other factor that weighs against ordering security for costs against the corporate plaintiffs is the public interest in liquidators being held to account. As Griffiths J stated in Lee at [24] in the context of the Reinstatement Application, there is a public interest in bringing the proceeding against Mr Parker where his alleged failures occurred as an official liquidator. I do not accept that the present proceedings can be characterised as simply a claim for damages by the plaintiffs. An alleged failure by an official liquidator to take steps to secure and then realise significant assets of a company is a serious allegation that has ramifications well beyond the immediate interests of parties seeking to recover damages. It reflects on the public confidence in the administration of insolvent companies, which is an important consideration in the preparedness of stakeholders to have confidence that if a company becomes insolvent all reasonable steps will be taken to secure and realise its assets for the benefit of creditors and members by competent professional insolvency practitioners.
The discretionary factors in this case favour the refusal of an order for security for costs for the reasons advanced by the plaintiff. In particular, this is a case where the conduct of the liquidators requires examination. That is not in any way to suggest the plaintiff's claim will succeed or that the liquidators are not entitled to the renumeration they have received. But given the action has merit and given the matters at issue, I am not satisfied an order for security for costs which, on the plaintiff's evidence, might well stifle the action, is justified in the circumstances.
For the sake of completeness, I should note that the application for summary judgment under O16 required an extension of time. The defendants offered no explanation as to why time should be extended. This was one of those cases where the defendants said their application was so strong it was in the interests of justice to extend time. Given I have determined the application for judgment should be dismissed, there is no basis for extending time to bring the application. In a technical sense then, the extension of time will be refused and the application will fail on that basis. The application for security for costs will be dismissed. In my view, the costs of both applications ought be costs in the cause. If the parties are not satisfied with that order they should file short submissions with respect to costs within seven days of the publication of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TM
Court Officer
14 DECEMBER 2022