A v C

Judgment 1By interlocutory application filed 4 April 2013, the first defendant, Ms Claire Huang, seeks an order that the sum of $47,300 be paid forthwith to Ms Huang from the moneys held in Court on behalf of Ms Huang for the purpose of paying legal costs in these proceedings in relation to the preparation of and appearances at a hearing on 17 April 2013. 2The proceedings have been on foot for some time, and the plaintiffs bring claims for misleading and deceptive conduct and breach of fiduciary duty against Ms Huang and the second defendant, CH Design Pty Limited. Numerous interlocutory processes have been filed by the respective parties, and directions have been made listing them, including a number pressed by Ms Huang, for hearing on 17 April 2013. 3The funds sought to be released by Ms Huang relate to the estimated costs of that hearing. The amount of $47,300 is made up of the costs of senior counsel ($18,000), junior counsel ($10,000) and Ms Wang's solicitors ($5,000) and GST on those costs. Ms Huang sought consent to the outlay of those funds from the plaintiffs, which was not forthcoming. 4It is necessary to refer to the history of the matter to indicate the reason why Ms Huang needed the plaintiff's consent, or an order of the Court, to apply the relevant funds to payment of legal fees for the hearing on 17 April. 5In early September 2012, Ms Huang placed a residential property which she owned on the market. On 25 September 2012, the Plaintiffs filed an interlocutory process seeking orders dealing with the proceeds of sale of that property, which have not yet occurred. The application was listed for hearing on 15 October 2012 and Ms Huang gave certain undertakings which continued to that date. On that date, consent orders were made which included, relevantly: "4. The Defendants will not, by themselves, their servants or agents, remove from Australia or in any way dispose of, deal with, diminish the value of or encumber any of their assets in Australia, in particular the real property located at [address] up to the unencumbered value of AUD $2 million. 5. This undertaking does not prohibit the Defendants from: (a) expending up to $4,000 per week for their ordinary living expenses; (b) expending up to $300,000 for their reasonable legal expenses; and (c) dealing with or disposing of their assets in the ordinary and proper course of their respective businesses, including paying business expenses bona fide and properly incurred." 6It should be noted that these orders were made in the form agreed between the parties. The Court needed to be, and was, satisfied that the undertaking given to it was of a character that it could properly accept. However, the Court made no determination as to whether the defendants were entitled to relief of the kind sought, had Ms Huang not offered an undertaking in that form, and the limits to that undertaking, including the exceptions in paragraph 5, were matters that were agreed between the parties and involved no involvement on the court's part, other than to accept an undertaking in the form that it was offered, where the Defendants were satisfied with it. 7On 5 December 2012, Begin CJ in Eq granted leave to Ms Huang to vary the undertaking given on 15 October to enter a contract for the sale of the relevant property for a specified amount, on the basis that the deposit would be paid to a specified account. On 11 February 2013, orders were made by consent permitting Ms Huang to settle the sale of the relevant property. A dispute then arose between the parties as to the basis on which the sale proceeds were to be deposited, and was resolved by an order, in a form offered by Ms Huang, for the payment of a substantial amount into Court to be held pending further order. 8On 12 February, the orders made on 11 February were further amended by consent. The orders made on 11 and 12 February did not, in my view, place any further constraint upon application of the relevant funds beyond the requirement that they be paid into Court, so that any release of them would be required to be the subject of agreement between the parties reflected in consent orders or an order of the Court. The sale of the relevant property was completed on 13 February 2013. 9The application is supported by affidavit evidence of Ms Huang, who gives evidence that, apart from amounts held in her personal accounts and an amount due by Osman's Home Improvements Pty Limited in relation to the sale of a business in China, she does not have any other source of funds to pay for on going legal expenses or legal fees relating to the proceedings, other than the moneys presently held in Court. Ms Huang gives evidence of commitments she has made to her former and current solicitors to pay amounts owing to them from the sale of the property; and that she borrowed an amount of $20,000 from friends to deposit it in her current solicitors' trust account, part of which remains. 10Ms Huang also notes that the plaintiffs have retained Senior Counsel, and she also wishes to retain Senior Counsel, but that her solicitors will not brief Senior Counsel until they have funds in trust to pay Senior Counsel's fees. Her solicitor in turn gives evidence that it was not his firm's intention to extend credit to Ms Huang beyond the sale of the relevant property, and his firm will not continue to act if its fees are not met within the near future and if funds are not paid into trust to cover on going fees and disbursements. He confirms that he has been instructed to brief Senior Counsel when fees are available to do so. 11Before turning to the parties' arguments, I should note one matter that gives rise to disquiet. This application is, as I understand it, the twenty-fourth interlocutory application in these proceedings. There are listed before me on 17 April numerous interlocutory applications. It is unclear to me why what appears to be a claim for misleading and deceptive conduct and breach of fiduciary duty, involving elements which are common to many claims of this character, has generated this multitude of applications and the very large costs that are likely to be associated with them. 12Ms Huang expresses the view that she wishes to have Senior Counsel briefed for the application on 17 February. One might have thought, in the ordinary course, that a matter of this kind did not warrant a retainer of Senior Counsel for an application that is interlocutory in character, well short of a final hearing, and that that position would not change simply because there were numerous interlocutory applications. Having said that, it is difficult for the Court to adopt that approach, so far as Ms Huang is concerned, where the Plaintiffs also brief Senior Counsel for interlocutory applications which may well not warrant Senior Counsel's involvement. While the approach may be unsatisfactory, so far as both parties are concerned, it is difficult for the Court to proceed in a way that the Plaintiffs may proceed in that manner but Ms Huang may not because she has moneys deposited in Court. 13There is, of course, a more fundamental difficulty in this process, which is that Ms Huang presently has, depending on issues of construction which I will address, an ability to expend up to $300,000 for reasonable legal expenses. If, on an objective analysis, that $300,000 is a reasonable amount to bring the proceeding to conclusion, but is in fact expended before interlocutory processes are completed, then there is no guarantee that Ms Huang will be permitted anything further by way of legal expenses from the monies held in Court. In these circumstances, one might have thought that there was need for moderation in such expenditures, but even within the regime established by ss 56-60 of the Civil Procedure Act 2005 (NSW), I do not consider that the Court should intervene to prevent the retainer of Counsel of particular standing, notwithstanding that it may be troubled as to the process which is adopted. 14I turn now to the parties' submissions in respect to this application. Ms Huang's primary submission is that the undertaking given by Ms Huang to the Court on 15 October 2012 does not prevent Ms Huang from expending up to $300,000 for her reasonable legal expenses, and that moneys should be released from those held in Court to allow her to do what her undertaking contemplates that she may do. Mr Assaf, who appears for the plaintiffs, contends, and I accept, that the undertaking should be construed in the light of admissible evidence of surrounding circumstances, although that does not extend to permitting direct evidence of the parties' intentions: Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 382 at [109-110]. 15Mr Assaf points out, and it is common ground, that the surrounding circumstances known to the parties include the fact that the Plaintiffs' claim was at least $2 million. Mr Assaf contends that, construed in the light of surrounding circumstances, paragraph 5 of Ms Huang's undertaking, to which I have referred above, does not permit expenditure on legal expenses where, it now appears, Ms Huang's and the Defendants' assets are less than $2 million. 16I am unable to accept the construction of the undertaking for which Mr Assaf contends, as a matter of its plain language viewed in the context of the surrounding circumstances to which my intention was drawn. Paragraph 4 of the undertaking is a prohibition on taking certain actions in respect of the defendants' assets up to the unencumbered value of AUD $2 million. This paragraph is readily understood, in accordance with its language and the surrounding circumstances, as prohibiting dissipation of assets to the amount reflecting the amount that the Plaintiffs' claim and preserving the Defendants' ability to deal with their assets beyond that value as they wish. In other words, the phrase "up to the unencumbered value of AUD $2 million" in that paragraph is not language that provides an additional right to the Plaintiffs, to warrant a minimum value of that amount or to preserve a minimum value of that amount, irrespective of the exceptions in paragraph 5, but are simply intended to permit the Defendants to deal with assets which exceed that amount and are therefore, having regard to the amount of the Plaintiffs' claim, not necessary to meet the Plaintiffs' claim estimated in that amount. 17Paragraph 5 of the undertaking is in turn an unqualified permission, or qualification to the prohibition in paragraph 4, allowing certain amounts of expenditures to be incurred for, inter alia, ordinary living expenses and reasonable legal expenses up to the specified figure. It does not appear to me to be open to a construction, whether in its language or by reference to surrounding circumstances, that it only applies if the Defendants' assets exceed $2 million. First, the paragraph is not, in terms, drafted in that way. Second, that construction would have the surprising consequence that Ms Huang would be prohibited from paying her ordinary living expenses, even for basic necessities, in circumstances where the Defendants' assets did not, as now appears, exceed that amount. 18In my view, the surrounding circumstances, including the amount the Plaintiffs' claim, do not require and do not permit a different reading of the paragraph. No doubt, the plaintiffs wished to avoid Ms Huang dissipating her assets on living or legal expenses so as to frustrate a judgment, and Ms Huang equally wished to be able to incur such living and legal expenses. The parties' objectives were necessarily inconsistent, and reference to the surrounding circumstances, and in particular the amount of the Plaintiffs' claim, does not indicate that the undertaking should be read so as to achieve the Plaintiffs' objectives and disregard Ms Huang's objectives, so far as they emerge from those surrounding circumstances. It should, instead, be read in accordance with its terms, as permitting Ms Huang to undertake the actions which it specifically permits. 19Mr Assaf also contends that the Court should be guided by principles applicable to when it will accept undertakings, and points out that the acceptance of an undertaking is akin to the grant of an injunction against the party giving it: OD Transport Pty Ltd v Western Australian Government Railways Commission (1987) 13 FCR 500; (1987) 71 ALR 356 at 361. Mr Assaf submits that the Court would not construe the undertaking in a manner that would allow its process to be frustrated. While I accept those propositions, I do not consider that they assist in resolving the issue presently before the Court. A construction of the undertaking which preserves Ms Huang's assets and prevents her incurring legal or living expenses is advantageous to the Plaintiffs and disadvantageous to Ms Huang; the contrary construction for which Ms Huang contends is to some extent disadvantageous to the Plaintiffs, although that disadvantage is limited by the monetary limits on permitted expenditures; but neither construction is either less or more conducive to the preservation of the Court's processes. 20The construction for which Ms Huang contends is not such that the Court's processes would be frustrated, given the monetary limits contained in the terms of the undertaking. Indeed, the construction for which Ms Huang contends appears to be consistent with the fundamental proposition that, even if the court had made a freezing order (which it did not), that order would not have prevented Ms Huang from having had access to her own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses: Clout (as trustee in bankruptcy of the estate of Dexter) v Anscor Pty Ltd [2001] FCA 174 at [19]. 21Mr Assaf also contends that the Court would have regard to the principles applicable where a freezing order has been granted over part of a person's assets and he or she seeks to vary the order so as to make an expenditure on those assets rather than other assets which are not subject to restraint: A v C (No 2) [1981] 2 All ER 126; Clout v Anscor Pty Ltd above at [20]. I do not consider those principles assist the Plaintiffs, for several reasons. First, the grant of a Mareva injunction or freezing order involves the Court first satisfying itself, on the merits, that the basis for the injunction is established. Here, the Court has not determined that matter on the merits, but simply accepted an undertaking which Ms Huang offered in resolution of interlocutory disputes between the parties. Second, although the Plaintiffs have vigorously contended that Ms Huang has, or may have, other assets beyond those subject to the freezing orders, the court has not determined that question in the Plaintiffs' favour, since the giving of the undertaking obviated the need to determine the question, and it will not have been appropriate to do so in this application where it was not squarely raised and where Ms Huang did not have a full opportunity to respond to it. The position is therefore one where it cannot be assumed that the restraint is over anything other than substantially all of Ms Huang's assets. Third, Ms Huang does not, in fact, seek to vary the undertaking but to incur an expenditure which I have found, on its proper construction, is within its scope. 22Next, Mr Assaf contends that if the Court were to find that, on its proper construction, the undertaking would permit Ms Huang to incur the legal expenses she seeks to incur, the Court should accept an oral application from the plaintiffs to vary that undertaking or, indeed, impose a freezing order which would prevent that expenditure. I do not consider that I should take that course. First, the issue as to the proper construction of the undertaking has existed for some time and the plaintiffs have previously foreshadowed that they may seek a freezing order but have not done so. Second, such an order would, as I noted in submissions, be a significant intrusion on individual autonomy and should not, in my view, be made on an oral application without fair notice to Ms Huang and a proper opportunity for her to respond to it. Third, where the order sought would, if Ms Huang's assets are as she claims, prevent her funding legal representation, it would be inconsistent with the usual form of such an order, and for that reason also should not be made other than on a formal application. 23Finally, Mr Assaf contends that the costs which Ms Huang seeks to incur are not "reasonable legal expenses" within the terms of the exception of the undertaking. Mr Assaf did not contend that the amounts claimed were themselves unreasonable but that, in substance, the motions sought to be agitated by Ms Huang on 17 April 2013 are unreasonably broad. There is, it seems to me, a substantial reason to be concerned that the proliferation of interlocutory disputes in this matter is not consistent with the overriding object of the just, quick and cheap resolution of the real issues in dispute mandated by s 56 of the Civil Procedure Act, but that issue is not one that affects Ms Huang alone. It does not seem to me that the Court can otherwise properly prejudge the motions which are to be heard on that occasion, without hearing submissions as to their merits, to determine that they are unreasonable and that the costs incurred in bringing them are not reasonably incurred. To put it another way, the Court cannot conduct the hearing of those motions on their merits, without conducting the hearing on 17 April, which is itself the hearing for which Ms Huang seeks representation. 24For these reasons, it seems to me that the expenditure which Ms Huang seeks to make is permitted under the undertaking she has given to the Court, and that the Court should order release of the relevant funds from the monies held in Court where the consent order for payment into court did not impose any further constraint beyond that imposed by the undertaking. In making that order, I should not be thought to have accepted that the expenditure of those amounts are necessarily appropriate, or that the motions themselves are appropriate in respect of the wider context of the proceedings, and it is plain that Ms Huang is at significant risk that the amount of monies she has available to expend under the exception to the existing orders may well be expended well before the matter reaches a final hearing at the present rate of expenditure. 25I have heard the parties as to the costs of the application. Mr Assaf contends that costs should be reserved, pending the application on 17 April 2013. Mr Neggo contends that, on any view, Ms Huang was entitled to some amount by way of costs released to her, on the findings which I have reached, and the Plaintiff opposed any release of such funds in their entirety, rather than contending that some amount claimed was unreasonable in amount. 26On balance, it seems to me that this application raised a discrete issue, first as to the limits of the existing undertaking, and second as to whether Ms Huang was entitled to a payment out of Court, raising several legal issues on which Ms Huang has been substantially successful. That proposition can be tested another way, by asking whether, if Ms Huang was unsuccessful in most or all of the motions, that would demonstrate retrospectively that the costs she had incurred were unreasonable. To the contrary, in my view, a judgment of whether costs are reasonably incurred must be made prior to their expenditure rather than with hindsight. In circumstances that the undertaking on the view that I have formed, permitted the release of the relevant monies, and Ms Huang has been substantially successful in obtaining an order for that relief, the plaintiff should pay the costs of and incidental to the determination of paragraph 6 of the interlocutory process dated 4 April 2013, including the costs of the hearing before me on 5 April 2013. 27Accordingly, I make the following orders: