Nauru Phosphate Royalties Trust (Rec and Mgr Apptd) v Wily
[2011] NSWSC 281
•08 April 2011
Supreme Court
New South Wales
Medium Neutral Citation: Nauru Phosphate Royalties Trust (Rec & Mgr Apptd) v Wily [2011] NSWSC 281 Hearing dates: 28 March 2011 Decision date: 08 April 2011 Before: Ward J Decision: No order as to costs
Catchwords: COSTS - principles in Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 where application resolved by agreement prior to hearing - whether application to pay by instalments was doomed to failure or so unreasonable in the circumstances as to warrant costs order - HELD - parties to bear their own costs Legislation Cited: Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: ASC v Aust-Home Investments Ltd (1993) 44 FCR 194
Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1064
Civil Procedure Act
Corporations Act 2001 (Cth)
Dean v Stockland Property Management Ltd (No 2) [2010] NSWCA 141
East West Airlines
East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159
Hellier Capital Pty Ltd v Richard Albarran [2009] NSWSC 403
Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622Category: Procedural and other rulings Parties: Nauru Phosphate Royalties Trust (Rec & Mgr Appt) (First Plaintiff)
Republic of Nauru Finance Corporation (Second Plaintiff)
Randwick Nominees Pty Ltd (Rec & Mgr Apptd) (Third Plaintiff)
Central Pacific (Downtowner) Pty Ltd (Rec & Mgr Apptd) (Fourth Plaintiff)
Spencer Investments Pty Ltd (Rec & Mgr Apptd) (Fifth Plaintiff)
Ronsi Business Pty Ltd (Rec & Mgr Apptd) (Sixth Plaintiff)
Ronsi Holdings Pty Ltd (Rec & Mgr Apptd) (Seventh Plaintiff)
Andrew Hugh Jenner Wily (First Defendant)
Business Australia Capital Mortgage Pty Ltd (in liq) (Second Defendant)
Business Australia Capital Finance Pty Ltd (in liq) (Third Defendant)
Bondedge Pty Ltd (in liq) (Fourth Defendant)Representation: Counsel:
J Baird (Plaintiffs/Applicants)
P Dowdy (Defendants/Respondents)
Solicitors:
Henry Davis York (Plaintiffs/Applicants)
HWL Ebsworth Lawyers (Defendants/Respondents)
File Number(s): 10/408468, 10/408925
Judgment
HER HONOUR : Before me for hearing on 28 March 2011 were applications as to the costs in relation to two applications which had been made (but determined by agreement before hearing for the payment, by instalments, of the costs ordered in favour of Nauru Phosphate Royalties Trust (Receivers and Managers Appointed) and other related parties (referred to collectively as the Nauruan parties) against Mr Andrew Hugh Jenner Wily. Mr Wily is the liquidator of various companies against whom proceedings had been brought in this Court by the Nauruan parties. The two instalment applications were made in related proceedings and, in essence, mirrored each other.
Background
There were earlier proceedings between the parties that had culminated in a judgment by Einstein J on 5 September 2008 in the Nauruan parties' favour. On 13 October 2008, Einstein J delivered a judgment on costs, again in favour of the Nauruan parties. Mr Wily was ordered to pay the Nauruan parties' costs. On 9 November 2010, after an application for the assessment of party/party costs had been issued pursuant to the relevant costs judgments (and served by the solicitors for the Nauruan parties), the costs assessor issued certificates of determination of costs and certificates of determination of costs assessments for substantial amounts in the respective proceedings.
On 11 November 2010, Mr Wily's solicitors informed the Nauruan parties' solicitors of Mr Wily's intention to file applications for review of the cost assessment on or before 9 December 2010. These were filed with the court on 9 December 2010. On the same day, judgments were entered by the Nauruan parties against Mr Wily and the other defendants pursuant to the certificates of determination of costs. (It is not suggested by Counsel for Mr Wily that this was not something the Nauruan parties were not fully entitled to do.) The filing of a bankruptcy notice was also foreshadowed (but service was not effected until the day after the instalment applications were filed). (Counsel for Mr Wily, Mr Baird, submitted that the issue of the bankruptcy notice was a factor pointing to the reasonableness of the instalment applications - that being something necessary in order to preserve Mr Wily's position.)
The instalment applications were filed by Mr Wily on 27 January 2011, pursuant to s 107(1) of the Civil Procedure Act and rule 37.2 of the Uniform Civil Procedure Rules 2005 (NSW). Under those applications Mr Wily sought an order to pay by way of instalments the costs that had been ordered against him in favour of the Nauruan parties (and that were by then the subject of the initial costs determinations). The effect of the filing of those applications under Part 37.5 of the Uniform Civil Procedure Rules 2005 (NSW) was that the Nauruan parties were unable to proceed with the bankruptcy notice (and it seems that this was a motivating factor in the issue of the instalment applications).
On 4 February 2011, Mr Wily was notified that the applications for review had been heard by the costs assessment manager to the review panel.
On 9 February 2011, the solicitors for the Nauruan parties served affidavits opposing the instalment applications. On 11 February 2011, bank cheques totalling some $200,000 were delivered to the solicitors for the Nauruan parties (in part payment of the amounts due under the certificates). (There was some issue with the tender of the bank cheques initially delivered but arrangements were apparently made for substitute cheques to be redelivered).
The applications for leave to pay by way of instalments were opposed by the Nauruan parties and were referred to this Court from the Common Law Division on 28 February 2011. On that occasion they were listed for hearing on 28 March 2011 before the Corporations List Judge (and in due course came to be before me).
By that time, the Nauruan parties had been paid all moneys which were owing to them under the judgments in their favour and agreement was also been reached with Mr Wily in relation to the payment of costs, such that the applications for leave to pay by way of instalments no longer arose for determination. What remained in dispute, however, was the question as to what orders, if any, should be made for the parties' costs in relation to the opposed (and no longer pressed) instalment applications.
It is Mr Wily's position that there should be no order as to costs of the instalment applications relying, on what was said in Re Minister for Immigration and Ethnic Affairs: Ex parte Lai Qin (1997) 186 CLR 622 . On the other hand, it is the Nauruan parties' contention that the instalment applications should be dismissed with costs on the indemnity basis, for the reason that the commencement of the applications was unreasonable; that the applications would doomed to fail, and that the Nauruan parties were justified in resisting them.
Legal Principles
In Lai Qin , McHugh J (as his Honour then was) said (from p 624):
"In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.
...
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80% of the applicant's taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the minister to pay the whole or part of the cost of the proceedings." (my emphasis)
For Mr Wily it is said that it was reasonable for him to commence proceedings seeking to have orders made for the payment of the judgment debt on instalments having regard to his personal financial situation and the impact on his practice as a professional if he were to be made bankrupt. (In substance, the criticism made against him in this regard seems that he put forward an unreasonable time period in which to pay the instalments, namely over a five-year period.)
It is said by Counsel for the Nauruan parties (Mr Dowdy) that the instalment applications were always going to fail and ought never to have been made; and thus an indemnity costs order is appropriate in this case. Reliance was placed by Mr Dowdy on what was said by the Court of Appeal in East West Airlines Ltd v Turner (No 2) [2010] NSWCA 159 at para 17:
"In the exercise of its general discretion the court can award costs on an indemnity basis if it appears that proceedings have been commenced or continued in circumstances where a party should have known that there was no real prospect of success ( Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-1; Re: Bond Corp Holdings Ltd (1990) 1 WAR 465 at 478; ((1990) 1 ACSR 350 at 363-4) ... "
Reference was also made to what was said by Hill J in ASC v Aust-Home Investments Ltd (1993) 44 FCR 194. In that case, his Honour said:
"These cases [including R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13, Liddle v Kooralbyn Pty Ltd (unreported) Supreme Court Queensland 9 October 1987 per Ryan J, Austcorp Finance and Leasing Pty Ltd v Thomas (unreported) Supreme Court Queensland Master White 23 August 1991 and J T Stratford & Son v Lindley (No 2) [1969] 1 WLR 1547; [1969] 3 AllER 1122, seem to me to support the following propositions being made:
(1) where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a costs order: Stratford and the SEQEB case. (emphasis as placed by Mr Dowdy).
(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford . This will particularly be the case were a trial on the merits would involve complex factual matters where credit could be an issue.
(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them (SEQEB).
(4) In a particular case it might be appropriate to the Court in its discretion to consider the conduct of a respondent prior to the commencement of proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1993) 33 SR (NSW) 371.
(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 605, a case, however, which depended on the specific wording of the statute under consideration."
In East West Airlines , the court was considering the import of a Calderbank offer to compromise the appeal and said that it could award costs on an indemnity basis if it appeared that the proceedings had been commenced or continued in circumstances where the parties should have known there was no real prospect of success, noting, however, what was said in Dean v Stockland Property Management Ltd (No 2) [2010] NSWCA 141 a [43]; namely that:
care must be taken, however, lest parties be unduly deterred from bringing or defending proceedings for fear that they will retrospectively be found to have not been justified in doing so. Uncertainty in outcome is not enough, and what appears certain at the time of judgment does not necessarily have that character at an earlier time.)
There, the Court of Appeal did not consider that on a proper appreciation of the circumstances of the appeal it could be said that the submissions were so untenable that indemnity costs should be ordered. Their Honours noted that, while ultimately the applicant's appellant's submissions did not carry the day, there was an arguable basis for supporting its position.
In relation to the present application, it is submitted by Mr Baird that Mr Wily's conduct in filing the instalment applications at the time that he did was reasonable; that the applications had reasonable prospects of success; and that Mr Wily's conduct in connection with the applications had been reasonable throughout until the settlement of this aspect of the litigation. Reliance was placed in this regard on Hellier Capital Pty Ltd v Richard Albarran [2009] NSWSC 403 and Chint Australasia Pty Ltd v Cosmoluce Pty Ltd [2008] NSWSC 1064.
- Was the instalment application doomed to failure?
In Hellier, McDougall J considered the principles applicable where there was an application by a liquidator to pay a judgment debt by instalments pursuant to rule 37.2. In that case the liquidator had been held liable for a sum exceeding $1.6 million and McDougall J noted that the exercise of discretion in such a case required close attention to the facts of the case. His Honour noted that a perusal of the authorities indicated that
- at least some of the matters referred to in the Queensland rules were of more general application, such as: the principle that an instalment order ought not be made if the judgment debtor's means are sufficient to enable him or her to pay the judgment debt immediately and in full ( Leondaris v KGB design & Construction Pty Ltd [1998] FCA 1354; Chint ;
- an instalment order ought not be made if it is obvious that it would be futile because the judgment debtor could not meet his or her obligations under it: Cahill v Howe [1986] VR 630;
- the period of time for payment under the instalment order must be reasonable ( Cahill) ; Lewis v Leslie [2001[ VSC 110 and GFT Australia Pty Ltd v Moore (Supreme Court of Victoria; 2 November 1992, unreported). [What is "reasonable" is a matter of fact in each case, and requires attention to the amount of the judgment debt and the time for which it will be outstanding, or more accurately the time it will be satisfied, if the proposed release order is made.]
- it will not ordinarily be a proper exercise of the discretion to make an instalment order if the amount proposed to be paid would not enable some reduction to be made in the amount of the judgment debt. That is an irrelevant circumstance because of course judgment debts carry interest; an instalment order which chipped away at part only of the interest obligation, but did not permit any reduction of the principal amount of the judgment, would be inefficacious (citing Red Lea Chickens Pty Ltd v Tansey (Court of Appeal, 17 July 1995, unreported; BC 9505123).
For Mr Wily it is said that the application to pay the judgment debt by instalments could not be said to have had no reasonable prospect of success.
There was evidence before the court as to Mr Wily's personal assets (as there was in the Hellier case). That evidence revealed that while there was a net surplus of assets over liabilities that was in part comprised of a contingent asset (namely a contingent claim by Mr Wily against his solicitor apparently for alleged negligent advice); and that the assets were ones that one might infer would not be readily saleable (a half share in the matrimonial home, for example, and a half share in Mr Wily's partnership). It was said that even though there was no evidence as to the making of applications for finance to enable Mr Wily to pay out the judgment debt (as there had been the Hellier case), it could be inferred from the fact that ultimately the judgment debts were paid, that such conduct was being entered into by him.
Mr Baird (for Mr Wily) thus contends that the evidence establishes a reasonably arguable case for an instalment order on the basis that the judgment debt would not readily be available from Mr Wily's own resources; that if the instalment order were not granted then it was likely that Mr Wily would be made bankrupt and would then be unable to practise his profession and support his dependents and would be unable to make any significant contribution to the judgment debt. It was also noted that in Hellier (although his Honour said he did not consider it to be of dispositive significance), there was some basis for concluding that the interest of the creditor in bankrupting Mr Albarran, was an interest of a more vindictive nature. In the present case, it is submitted by Mr Dowdy, and I accept, that it cannot suggested that there is any element of vindictiveness. Rather, the position seems to be that the Nauruan parties, through their lawyers, have made very clear that they intended to take every legal avenue open to them in order to enforce (as they are entitled to do) the judgment debt they obtained and to recoup moneys that have now been owing to them for a substantial period.
In Hellier it was noted that there was a legitimate public interest in having trained people, who perform important work, remaining available to perform that work and it is said that this is equally applicable in Mr Wily's case.
As adverted to earlier, the principal basis on which Mr Dowdy submitted that the instalment application was not reasonable and that it did not have reasonable prospects of success seemed to be the fact that it had proposed the payment of the judgment debts over a five-year period with quarterly instalments of $25,000 each quarter. (Mr Baird noted that in Hellier the instalment period was allowed for a period of a little less than four years, with payments of under $23,000 per month, initially but increasing thereafter.)
It was Nauruan parties should wait a period of five years for the full payment of the judgment debt for costs entered in their favour and that the instalment applications in making that request for such a time period would have clearly failed.
I am not satisfied that the instalment applications were doomed to failure. Yes, there were points of distinction between the present case and that before the court in Hellier . Nevertheless it seems to me that there was an arguable prospect that an instalment plan of some kind would be permitted (even if not to the degree sought in the applications). The quantum of the costs orders was large; there was a basis for concluding that Mr Wily would not immediately be able to realise sufficient assets to meet the costs orders and there was a public interest in a person in his position being able to continue to conduct his practice as a liquidator.
- Reasonableness of parties' conduct
As to the reasonableness of Mr Wily's conduct in bringing this application.
Mr Dowdy took me through the chronology of events in what was described as (and conceded by both parties to be) bitterly contested litigation. Mr Dowdy emphasised that Mr Wily had been warned prior to the commencement of the hearing of the legal proceedings that were ultimately determined by Einstein J that he would be personally liable for the costs of litigation if unsuccessful. Moreover, it is said that Mr Wily knew on the day that judgment was handed down that he had lost the dispute (as he must have realised) and that he and his legal advisers knew then that he would be personally liable for a significant piece of litigation; yet on that same day he paid $350,000 to himself for liquidator's remuneration and $350,000 to his solicitor for legal fees.
It was said that the very payment of legal fees to his solicitor required comment in circumstances where Mr Wily's affidavit in support of the application for instalment orders had deposed to Mr Nikolaidis being retained on a contingency fee basis. It was said that Mr Wily must be taken as having known when he made the remuneration payment to himself that the costs which he was inevitably going to be liable to pay to the Nauruan parties were an expense in the winding-up with the priority afforded either by s 556(1)(a) or 556(1)(dd) of the Corporations Act 2001 (Cth) and that those costs would rank ahead of his own entitlement to remuneration as a deferred expense. A further liquidator's remuneration in the amount of $105,000 was paid to Mr Wily on 11 September 2008.
I accept that the chronology of events suggests a concern by the liquidator to ensure that he (and others involved in the litigation) recoup their professional fees (which Mr Dowdy concedes these would be priority debts) ahead of the payment of the Nauruan parties' judgment debt (and hence it might be said that any financial difficulty on the part of Mr Wily in meeting the costs orders was, at least partly, of his own making). However, I do not accept that an inference should be drawn that these payments were motivated by an intention to thwart the ability of the Nauruan parties to recover their costs.
Mr Dowdy further noted that a Notice of Appeal had been filed and then subsequently dismissed some six months or so later, by consent, with what were described as further wasted costs.
It is submitted that in the period between 20 November 2008 to March 2009 Mr Wily caused the entities for whom he was liquidator to pay out some $82,000 for legal costs, preferring those priority creditors to the Nauruan parties (whose legal costs had equal priority) and that in the period from 17 December 2009 to 5 May 2010 it had paid out approximately $310,000 for various related legal costs.
On 28 August 2009, the Nauruan parties' solicitors advised Mr Wily that they had assessed their total cost under the costs orders in the amount of just over $1.4 million, and two months later, on 30 November 2009, Mr Wily told the Nauruan parties' solicitor that he had paid out all the funds received by him in the liquidations.
(Reference was also made to a payment made on 1 December 2006 for an alleged litigation funding premium. Mr Dowdy submits that there was no evidence of any moneys having been recouped from that litigation funding.)
Mr Dowdy also pointed to the fact that there was no indication of any intention by Mr Wily to make the instalment applications and it was further submitted that in making the instalment applications Mr Wily was seeking an indulgence (by way of an alleviation of his legal obligations to the Nauruan parties from the court) and that prima facie in such a case he would be liable for the costs of the applications in any event even if successful. (The significance of this is again that Mr Dowdy submits Mr Wily brought the costs of the instalment applications onto himself, by not putting forward a reasonable timetable (to which the Nauruan parties might have acceded) and made no attempt to put his arrangements in order at an earlier time.)
Ultimately, the application for costs by the Nauruan parties seemed to me to be predicated on the submission that it was not reasonable for the instalment applications to be commenced (and proceeded with) having regard to the chronology of events throughout the litigation (and having regard to what were perceived as being the low prospects of success for such an application).
As to the reasonableness of the Nauruan parties' position, in evidence there was correspondence from various parties in relation to the costs issues. A without prejudice letter of 14 January 2001 was sent from Commercial Litigation Project Management Pty Ltd, (who, as I understand it, were writing on behalf of Mr Wily to Henry Davis York, the solicitors acting the Nauruan parties) in which the letter noted Mr Wily's acceptance that there was a crystallised obligation (subject to the outcome of the applications for review) to pay the costs (as assessed) totalling $925,952.95, with the possibility of instigation of bankruptcy proceedings against him in the event that satisfaction of the assessed costs was not obtained. There was a reference to the proceedings having been bitterly contested. Mr Wily submitted that he had proceeded on the basis of seriously mistaken legal advice. A request was then made that the Nauruan parties refrain from recovery action for a period of 21 days.
An offer was made by Mr Wily for payment of the sum of $200,000 on execution of a Deed of Settlement; payment of $300,000 30 days thereafter and eight quarterly instalment payments of $37,500 with interest on the deferred balance. As part of that offer, Mr Wily sought the withdrawal of all applications for review of the costs determinations.
That proposal (rejected by the Nauruan parties) was said to amount to a payment of 86.4% of the assessed costs and assessment costs attributable to the Nauruan clients. The letter stated "While your clients might well be in a position to enforce full payment, it would be done in the context of bankruptcy proceedings and the real risk of financial outcomes not being as favourable as the simple commercial resolution now being proposed". It was said that the proposal would result in financial hardship for Mr Wily but that it should not be considered as a starting point for negotiations as the offer was to the limit of Mr Wily's capacity to pay.
Reliance was placed by Mr Wily on Hellier as a comparable case to that of the present where an order for payment of instalments over a four year period was made.
In Lai Qin , McHugh J referred to a situation where
the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. (my emphasis)
As I read McHugh J's judgment, the word "so" is used to indicate a level of unreasonableness which would warrant an order for costs being made; in other words, unreasonableness having regard to the circumstances in which the costs were incurred.
It is said by Mr Dowdy that the Nauruan parties' response was not unreasonable. I accept that to be the case. However, I am not satisfied that Mr Wily's conduct in bringing the instalment applications (whatever his conduct before them) was so unreasonable as to warrant an adverse costs order.
McHugh J there adverted to the situation where plaintiff may have had no reasonable alternative but to commence litigation. In the present case, it is submitted by Mr Baird that (in circumstances where a bankruptcy notice was imminent) Mr Wily similarly had no reasonable alternative but to commence proceedings seeking an order for the payment of the debt by instalments. It was further submitted that it was not unreasonable for him to do so having regard to his asset position and the hardship to which he would be put if a bankruptcy application were to be pursued.
Ultimately, I am of the view that this is a case where, the proceedings having resolved by agreement between the parties without the need for a hearing, it is not appropriate to try a hypothetical case for the purposes of determining the question of costs and that the appropriate order is simply that each party bear its own costs. I am not satisfied that it can be said that it was so unreasonable of the liquidator to put forward a proposal by way of application for a five-year instalment period (in the circumstances in which he did) nor that such an application was so obviously doomed to failure as to warrant an order for the payment of costs under the principles outlined in Lai Qin .
The matters of which complaint is made by the Nauruan parties (and which I do not suggest are unwarranted) seem to me to go, essentially, to the reasonableness of Mr Wily's conduct in the litigation itself and in relation to matters such as payment out to himself of remuneration at a time when the outcome of the judgment (and his liability for costs, as assessed) was known. Those may well have been matters to take into account in considering the merits of the instalment application, but I am not satisfied that they lead to a conclusion that it was inevitably bound to fail and I do not think his conduct in seeking to preserve his ability to such an instalment order, in light of a proposed bankruptcy application, was so unreasonable as to warrant indemnity costs.
Accordingly, in relation to the cost application, I order that there be no order as to costs.
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Decision last updated: 11 April 2011
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