Riabkoff v Abenergy Properties Pty Ltd
[2012] NSWSC 724
•29 June 2012
Supreme Court
New South Wales
Medium Neutral Citation: Riabkoff v Abenergy Properties Pty Ltd [2012] NSWSC 724 Hearing dates: 27 June 2012 Decision date: 29 June 2012 Jurisdiction: Equity Division - Duty List Before: Stevenson J Decision: Interpleader entitled to indemnity costs payable from funds held as stakeholder
Catchwords: Interpleader - whether costs should be on indemnity basis - whether costs payable from fund held Legislation Cited: Civil Procedure Act 2005
Legal Profession Act 2004
Supreme Court Rules 1970
Trustee Act 1925
Uniform Civil Procedure Rules 2005Cases Cited: Harrison v Schipp (2002) 54 NSWLR 738
Kennett v Charlton [2007] NSWSC 190
McPherson, Thom & Co v Sandhurst and Northern District Trustees, Executors and Agency Co Ltd [1929] VLR 295
Rockeagle Ltd v Alsop Wilkinson [1992] Ch. 47Category: Costs Parties: Michael Riabkoff (plaintiff)
Abenergy Properties Pty Ltd (first defendant)
Paul Young Taek Chong (second defendant)Representation: Counsel:
H Somerville (plaintiff)
S Reuben (first defendant)
C R Ireland (second defendant)
Solicitors:
P Tomlinson (plaintiff)
Dahan Lawyers (second defendant)
File Number(s): SC 2012/103099
Judgment
This judgment is concerned with the costs of Mr Paul Young Taek Chong ("Mr Chong"), solicitor, and principal of the practice Dahan Lawyers, arising from his Notice of Motion filed 11 May 2012 seeking relief by way of interpleader pursuant to r 43.2 of the Uniform Civil Procedure Rules 2005 ("UCPR").
On 23 May 2012, by consent, the Registrar made an order that Mr Chong was, in the circumstances that I will outline below, entitled to interpleader.
The question of costs was referred to me as Duty Judge on 27 June 2012.
Mr Chong seeks orders that: -
(1) the plaintiff, Mr Michael Riabkoff ("Mr Riabkoff"), and the first defendant, Abenergy Properties Pty Ltd ("ABE"), pay Mr Chong's costs of the proceedings;
(2) the Court make a gross sum order pursuant to s 98(4)(c) of the Civil Procedure Act 2005 fixing those costs at $18,842;
(3) Mr Chong be paid that sum from the $100,000 held by him in his trust account as stakeholder for Mr Riabkoff and ABE; and
(4) Mr Chong pay the balance of $1,158 into court within seven days.
Background
By an agreement made between Mr Riabkoff and ABE on 29 September 2011, ABE agreed to pay Mr Riabkoff a "facilitation fee" of $100,000 in return for Mr Riabkoff procuring the passage of certain resolutions at an Extraordinary General Meeting ("EGM") of Wintech Group Limited ("Wintech").
Pursuant to that agreement, ABE agreed to: -
"Re-mit the sum of $100,000 in cleared funds to the Dahan Lawyers Solicitors's Trust account... Dahan Lawyers will act as stakeholders. Any fees payable to Dahan Lawyers shall be met by M Riabkoff."
The agreement between ABE and Mr Riabkoff provided that if the relevant resolutions were not passed at the EGM of Wintech then Mr Riabkoff undertook: -
"To ensure the prompt return to ABE of its entire $100,000".
A few days earlier, Mr Riabkoff wrote to an employee of Mr Chong as follows: -
"We spoke about this matter very briefly some time ago. Party we are dealing with has agreed to our conditions with exception that he wants payment to be made to a solicitor's account until all conditions are met. Party is afraid that I will do a runner with funds before delivering. In order to keep some control I want to nominate you as my solicitor and use your trust account to hold funds until they can be released."
Mr Chong's employee replied: -
"[Mr Chong] is willing to use the Trust Account as stakeholder ..."
ABE paid into Mr Chong's trust account $100,000, by two $50,000 instalments on 30 September 2011 and 3 October 2011.
On 30 September 2011, ABE's then solicitor sent Mr Chong a copy of the deed made on 29 September 2011 between Mr Riabkoff and ABE, and stated: -
"Please note the explicit conditions within the contained Deed and ensure no funds are released from your trust account unless those condition precedents have been satisfied..."
The relevant resolutions were not passed at the EGM.
On 18 October 2011 ABE's then solicitors wrote to Mr Chong informing him that the resolutions had not been passed and requested that the $100,000 be returned to ABE.
Two days later, on 20 October 2011, Mr Riabkoff's solicitors wrote to Mr Chong stating that Mr Riabkoff was "examining his legal position" and requesting: -
"...that the funds in your account remain there pursuant to the Deed until we advise you as to whether this matter will be pursued further."
On 10 November 2011, and again on 21 November 2011, ABE, through its then solicitors, demanded that Mr Chong return the $100,000 to ABE.
Mr Chong referred these requests to Mr Riabkoff's solicitors who, on 24 November 2011, replied: -
"...the funds held by you as a stakeholder in the above matter are still in dispute...
Therefore we are instructed by our client that he does not consent to the release of the funds to ABE...until the dispute is resolved.
If, in your role as stakeholder, you release the funds prior to the dispute being resolved we are instructed by our client that he will review all legal options open to him."
Faced with this dilemma, Mr Chong wrote to ABE's solicitors drawing their attention to this correspondence and stating: -
"As the stakeholder we are not in a position to release any funds until we obtain written consent from both parties".
In the meantime, ABE made a complaint to the Legal Services Commissioner concerning Mr Chong's refusal to release the funds.
On 9 January 2012, the Legal Services Commissioner wrote to ABE as follows: -
"Dahan Lawyers maintain that there is an ongoing dispute between the parties and they are not in a position to release the funds without that dispute being resolved. In effect, they are saying that were they to release the funds now they may well be open to criticism. You could expect that [Mr Riabkoff's solicitors] would now object to the release of the funds.
Unfortunately, you will need to obtain legal advice about your options.
As it stands at present there is nothing this office can do to assist you."
There the matter rested until 2 April 2012, when ABE's present solicitors, Slater & Gordon, wrote to Mr Chong enclosing a draft statement of claim (in which Mr Chong was named as second defendant) and stating: -
"We are now instructed to request that you either return the funds to our client or that you provide our client with an undertaking to pay the $100,000 into Court within seven days pending resolution by the Court of our client's entitlement to the $100,000.
If the funds are returned to our client, the [proposed statement of claim] will not proceed.
If the funds are not returned to our client but you agree to pay the monies into Court, then it will unnecessary for you to be a party to the claim and our client proceed solely against Mr Riabkoff and amend its relief to seek a payment of the funds out of Court."
As it happened, on that very day, Mr Riabkoff commenced these proceedings. Mr Chong was joined as second defendant and orders were sought against Mr Chong that he be restrained from releasing the $100,00 to ABE and that he release that sum to Mr Riabkoff.
On 4 April 2012, Mr Chong wrote to the solicitors for both Mr Riabkoff and ABE: -
"Unfortunately we are now in a position where we have, and seemingly will continue to have incurred, legal costs as a party to the proceedings. We note, if we are put to the test of having to make an Application in respect of our position by way of Notice of Motion, we will have to engage Solicitors and Counsel, causing further unnecessary (in our view) costs. We submit the costs to date and continuing will be paid by the unsuccessful party, [Mr Riabkoff] or [ABE].
We are prepared to pay or transfer the said Trust sum to the Registrar of the Supreme Court of NSW provided our legal costs incurred to that date, are paid.
To prevent incurring further costs on our part, we request either [Mr Riabkoff] or [ABE] obtain the necessary Court Orders (to be consented to by us) to enable the suggested transfer of the said Trust fund."
On 11 April 2012, ABE's solicitors wrote to Mr Chong stating that ABE would not consent to paying his costs, that Mr Riabkoff should pay any costs that Mr Chong had incurred, and stating that ABE would consent to: -
"You being discontinued as a party to the proceedings on the basis that you pay the amount of $100,000 into Court pending resolution of the proceedings between [Mr Riabkoff] and [ABE]."
Mr Riabkoff made no reply Mr Chong's letter of 4 April 2012.
On 17 April 2012, Mr Chong wrote to Mr Riabkoff's solicitors: -
"As is quite evident, we are attempting to minimise legal costs in this matter. In the circumstances of your lack of response, we are left no alternative but to incur legal costs by having to make an Application, etc., as detailed in our said letter to you dated 4 April 2012. [ABE] is amenable to our submission and we are at a loss as to why Mr Riabkoff does not consent to discontinuance of his claim against us."
On 24 April 2012, Mr Chong wrote to Mr Riabkoff's solicitors: -
"Again we request the usual professional courtesy of a reply to our letters of 4 April 2011 [sic], and 17 April 2012 and our numerous attempted telephone calls to your office...
We give you hereby...notice, as a result of your lack of response, [Mr Riabkoff] is further exposed to increasing legal costs and we are left no alternative but to file a Defence to [Mr Riabkoff's] claim against us and make an urgent Application as previously detailed to you in writing."
On 20 April 2012, Mr Chong filed a Defence, disclaiming any interest in the $100,000 and foreshadowing of the making of an application for relief by way of interpleader.
On 30 April 2012, Slater & Gordon wrote to Mr Riabkoff's solicitors: -
"As a consequence of your failure to consent to Dahan being discontinued as a party to the proceedings, our client has no choice other than to join Dahan Lawyers as a party to a cross claim which it intends to file and incur the associated costs of doing so.
We put you on notice that regardless of the outcome of the proceedings, this letter ... will be tendered to the Court in support of an application that you pay our client's costs associated with the claim against Dahan on an indemnity basis."
On 11 May 2012, Mr Chong made the application, to which I have referred, for relief by way of interpleader. As I have mentioned, on 23 May 2012 Mr Riabkoff and ABE consented to the making of the orders sought by Mr Chong.
Although Mr Riabkoff appeared by counsel before me, no evidence was adduced from Mr Riabkoff about the matter, and no explanation was proffered as to his solicitor's failure to respond to the correspondence set out above.
Who should pay Mr Chong's costs?
There is no dispute that Mr Chong should be paid his costs of the Notice of Motion of 11 May 2012.
The debate before me was whether Mr Riabkoff alone should pay Mr Chong's costs or whether an order should also be made in favour of Mr Chong against ABE.
In my opinion, the appropriate costs order is that both Mr Riabkoff and ABE pay Mr Chong's costs.
Until 2 April 2012, ABE was demanding that Mr Chong pay the $100,000 to it. Mr Riabkoff instructed Mr Chong not to make that payment. Mr Chong adopted the entirely appropriate position that he could not pay the funds to either party, without the consent of both. Faced with that circumstance, ABE, without any justification in my view, complained to the Legal Services Commissioner about Mr Chong's conduct.
It is true that once Slater & Gordon commenced acting for ABE, a more conciliatory position was taken by ABE, namely that Mr Chong should either pay the funds to ABE or undertake to pay the funds into court.
However, had Mr Chong acceded to that suggestion, it would have been necessary, or at least appropriate, for him to make an application under UCPR r 43.2(2)(b).
Further Mr Chong said to both parties that he would pay the money into court provided his legal costs to date were paid. In my opinion, that was not an unreasonable condition for Mr Chong to propose. It was immediately rejected by ABE who suggested that Mr Chong should look to Mr Riabkoff for costs.
Overall, it appears to me that both Mr Riabkoff and ABE have placed Mr Chong in the position were he has incurred legal costs. They should jointly bear those costs.
However I do think it appropriate that I make a further order that, although Mr Chong can look to both Mr Riabkoff and ABE for his costs, Mr Riabkoff should indemnify ABE in relation to those costs.
This is for two reasons.
First, in the deed of 29 September 2011, Mr Riabkoff agreed to pay Mr Chong's fees, see [6] above.
Second, it was Mr Riabkoff's failure to respond to Mr Chong's letters of 4, 17 and 24 April 2012 which, in substance, led to the necessity of Mr Chong making his application of 11 May 2012.
Should there be a gross sum costs order?
Mr Chong seeks an order under s 98(4)(c) of the Civil Procedure Act 2005 that his costs of the Notice of Motion of 11 May 2012 be specified at $18,842.00.
Those are the actual costs rendered by Dahan Lawyers to Mr Chong. The costs included work done by Mr Chong's employee, Mr Se-Yoon Kim at his usual charge out rate, together with counsel's fees.
I should add that no suggestion was made in argument that Mr Chong was not entitled to costs by reason only of the fact that his employee did the necessary work.
The relevant principles were considered by Giles JA in Harrison v Schipp (2002) 54 NSWLR 738 (in the context of the forerunner to s 98, Supreme Court Rules 1970 part 52A rule 6). His Honour said at [21] and [22]: -
"The power conferred by Pt 52A, r 6(2) is not confined, and may be exercised whenever the circumstances warrant its exercise. It may appropriately be exercised where the assessment of costs would be protracted and expensive, and in particular if it appears that the party obliged to pay the costs would not be able to meet a liability of the order likely to result from the assessment (Leary v Leary [1987] 1 WLR 72; [1987] 1 All ER 261; Sparnon v Apand Pty Ltd (Federal Court of Australia, von Doussa J, 4 March 1998, unreported); Beach Petroleum NL v Johnson (No 2) (1995) 57 FCR 119; Hadid v Lenfest Communications Inc [2000] FCA 628).
Of its nature, specification of a gross sum is not the result of a process of taxation or assessment of costs. As was said in Beach Petroleum NL v Johnson (at 124), the gross sum 'can only be fixed broadly having regard to the information before the Court'; in Hadid v Lenfest Communications Inc (at [35]) it was said that the evidence enabled fixing a gross sum 'only if I apply a much broader brush than would be applied on taxation, but that ... is what the rule contemplates'. The approach taken to estimate costs must be logical, fair and reasonable (Beach Petroleum NL v Johnson (at 123); Hadid v Lenfest Communications Inc (at [27])). The power should only be exercised when the Court considers that it can do so fairly between the parties, and that includes sufficient confidence in arriving at an appropriate sum on the materials available (Wentworth v Wentworth (Court of Appeal, 21 February 1996, unreported) per Clarke JA)."
I do not think that it would be appropriate for me to make an order under s 98 of the Supreme Court Rules 1970 in this case.
Assessment of Mr Chong's costs is unlikely to be either protracted or expensive.
There is no suggestion that either Mr Riabkoff or ABE could not meet any costs associated with that assessment.
Further, there is no evidence enabling me to make any assessment as to how reasonable the figure claimed for Mr Chong's costs is. There may be room to argue that Mr Chong has incurred some costs unnecessarily. These are matters which ought properly be raised during the course of an assessment.
Is Mr Chong entitled to recover his costs from the $100,000 in his trust account?
Mr Chong claims that he is a trustee of the funds in his trust account and that, accordingly he is entitled to reimburse himself for his costs, by reason of s 59(4) of the Trustee Act 1925 which is in the following terms: -
"A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee's trusts or powers."
Alternatively, Mr Chong seeks an order under s 93(3) of the Trustee Act which is in the following terms: -
"In any proceedings with respect to the management or administration of any property subject to a trust..., the Court may, if it thinks fit, order any costs to paid out of such part of the property as in the opinion of the Court is the real subject matter of the proceedings."
Mr Chong submits that, notwithstanding s 59(4) of the Trustee Act, he could not take his costs from the funds in trust, by reason of s 255 of the Legal Profession Act 2004, which obliges Mr Chong to: -
"(a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and
(b) disburse the trust money only in accordance with a direction given by the person."
Section 255(2) of the Legal Profession Act provides that such obligation is subject to an order of a court of competent jurisdiction.
It was submitted on behalf of ABE that, notwithstanding the fact that the $100,000 was deposited into Mr Chong's trust account, he was not a trustee of the funds, but a mere stakeholder.
Mr Reuben, who appeared for ABE, drew attention to the decision of the United Kingdom Court of Appeal in Rockeagle Ltd v Alsop Wilkinson [1992] Ch. 47 in which Farquharson LJ said: -
"It is clear from the authorities, and in particular Potters v Lopppert [1973] Ch. 399, that the duties and authority of a stakeholder lie in contract or quasi-contract and not as trustee".
It is true that in that case their Lordships were dealing with a situation where a solicitor was holding a deposit in a trust account as stakeholder, and thus bears some resemblance to the facts in this case.
However, monies paid into Mr Chong's trust account were subject to the Legal Profession Act.
Section 243 of that Act defines "trust money" to include "transit money received by the practice".
That expression is also defined, in that section, as "money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice".
In my opinion, the money held by Mr Chong as stakeholder fell within these definitions and was "transit money" and thus "trust money" for the purposes of the Legal Profession Act.
As the funds were "trust money" in Mr Chong's trust account, it follows in my opinion that Mr Chong, as proprietor of the practice, held the funds in trust for Mr Riabkoff and ABE.
It follows that Mr Chong has a right of indemnity by reason of s 59(4) of the Trustee Act.
In any event, as Mr Ireland for Mr Chong has pointed out, the subject matter of this argument has been dealt with, in terms, by Gzell J in Kennett v Charlton [2007] NSWSC 190.
In that case a plaintiff solicitor sought relief by way of interpleader in respect of funds in his trust account.
Gzell J cited with approval the following passage from the judgment of Lowe J in McPherson, Thom & Co v Sandhurst and Northern District Trustees, Executors and Agency Co Ltd [1929] VLR 295 at 301: -
"In my judgment the rule to be deduced from these cases in regard to costs is that, where the applicant on an interpleader summons has come promptly to the Court when faced with conflicting claims, and has been guilty of no conduct which has increased costs, prima facie he should have a complete indemnity so far as the fund will permit for his costs; that is to say, he is prima facie entitled in such circumstances to his costs as between solicitor and client. In most cases of interpleader, however, the proceedings on the part of the applicant are of the simplest nature, and his costs should not be required to be taxed in order that he should have a full indemnity. In such cases - and these, I think, will be the general rule - the Judge on the hearing will fix the costs of the applicant at an amount which will give that indemnity."
Gzell J continued at [14]: -
"It was submitted that the plaintiff has a right of exoneration and reimbursement from the trust fund. So he does, as the trustee of the fund in the bank account. But the effect of the interpleader relief is to put an end to that trust by payment of the fund into court and, by so doing, the plaintiff loses that right of exoneration and reimbursement against the fund. In my view, the need for an indemnity arises by reason of the payment into court."
It is true that, in this case, Mr Chong could have moved earlier to seek relief by way of interpleader. He could have sought that relief before Mr Riabkoff commenced these proceedings. And once Mr Riabkoff commenced these proceedings, Mr Chong could have, within those proceedings, moved earlier for interpleader relief.
Nonetheless, in the circumstances I have set out above, I do not consider that Mr Chong has acted unreasonably and do not consider he has been guilty of conduct which has, in any relevant sense, increased costs.
I come to the same conclusion as Gzell J at [22] that Mr Chong "ought not be out of pocket as a result of the rival claims upon the fund he holds".
For the reasons I set out above, I do not consider it appropriate for me to make a gross costs sum order and, in effect, determine the amount of Mr Chong's costs. I have come to the same conclusion as did Gzell J in Kennett (at [24]) that an order in the form that Mr Riabkoff and ABE pay Mr Chong's costs on an indemnity basis forthwith upon assessment or agreement will suffice.
I make the following orders: -
(1) the plaintiff and the first defendant pay the costs of the second defendant of the second defendant's Notice of Motion of 11 May 2012 and of the proceedings on an indemnity basis;
(2) the plaintiff pay the costs of the first defendant that the first defendant is liable to pay by reason of order 1;
(3) declare that the second defendant is entitled to deduct from the funds held by him as stakeholder the amount of those costs forthwith upon their assessment, or agreement;
(4) the second defendant pay into court the funds held by him as stakeholder after deduction of those costs; and
(5) the matter stand over before the Registrar in Equity on a date convenient to counsel.
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Decision last updated: 03 July 2012
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