Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd

Cawarrah's submissions

1. Cawarrah submit that this court should exercise its broad costs discretion in such a way as to cause for the judgments it has given, in substitution for those below, to be discharged to the extent of the funds in Court.
2. Cawarrah rely on evidence which they submitted in support of the application for the stay, to the effect that, although Cellarit's balance sheet showed positive equity, that equity may not be realisable because its largest asset is "software development" which has an unknown actual realisable value.

Reply submissions

1. Cellarit accepts that this court has broad discretion as to payment out of moneys paid into court, but submits that it would not be appropriate were the $45,000, paid pursuant to a written undertaking it gave to the court on 27 November 2017 that the monies be paid "as security for costs", to be paid out for a different purpose.
2. Cellarit also submits it is relevant that its undertaking was given as part of arrangements made with the consent of Cawarrah and that the court should not therefore accede to an application which is contrary to that arrangement.
3. Finally, Cellarit submits that the affidavit evidence relied on by Cawarrah, in support of their argument that it may not be able to realise its assets, is too old to enable this court to make any safe inference as to its present financial position. Further, Cellarit submits the affidavit evidence also included evidence to the effect that Cawarrah are companies with nominal issued share capital. It contends this provides an additional reason for not making the order sought by Cawarrah, particularly if any costs order is made in favour of Cellarit.

Consideration: moneys in court

1. UCPR Pt 41 deals with funds in court. "Deposited funds" means money that has been deposited in a bank in accordance with UCPR r 41.2 and "funds in court" means money that has been paid into court: UCPR r 41.1.
2. Pursuant to UCPR r 41.2, within one day after money is paid into court, the registrar must deposit the money in the court's bank account. Deposited funds may not be withdrawn or paid except by the authority of the rules or of a judgment or order: UCPR r 41.3. Money that is paid into court as security for costs does not bear interest: UCPR r 41.6(1). Subject to the UCPR, funds in court may not be paid out of court except to the party entitled or (on the party's written authority or by order of the court) to the party's solicitor: UCPR r 41.11.
3. If a party has paid money into court, the court may, in exercising its discretion as to costs, take into consideration both the fact and the amount of the payment: UCPR r 42.22.
4. Pursuant to UCPR r 41.16(2) if a person having an interest in any funds in court is a debtor under a judgment or order of the court, the court may, on that creditor's application make an order prohibiting the transfer, sale, delivery out, payment or other dealing in respect of the whole or any part of the funds, or of any income derived from the funds, without notice to the applicant.
5. A party who pays money into court does not retain any legal or beneficial interest in the money. Rather, funds held by the court are not held as a trustee for any particular party, but as an exercise of the judicial function of the State. [32] The money is vested in the registrar of the court and is to be disbursed in accordance with the decision of the court. [33] Such rights as claimants to those funds may have are to the due administration of the funds in court, and a right to be heard about disposition of the funds, rather than a right of property. [34] The parties cannot create by their success in the litigation a property right to the funds. The management of the funds remains within the power of the court, subject to any pre-existing rights. [35]
6. In making decisions about the payment out, or retention, of funds in court the court engages in an exercise of prudential management of the funds in order to ensure their due administration and that the processes of the court are not abused. [36] It is relevant to have regard to the fact funds were paid into court to achieve a particular purpose. [37]
7. Here, it is uncontroversial that the monies were paid into court as security for the costs of the appeal. On the court's orders, Cellarit succeeded on appeal and is the beneficiary of an order that Cawarrah pay 80% of the costs of the appeal.
8. I agree with Leeming JA, that it is not appropriate that the monies paid in as security for the costs of the appeal should be paid to Cawarrah and Crusader "for some different purpose, namely, as a partial discharge of the hitherto unpaid judgments in favour of Cawarrah and Crusader."

Orders

1. I propose the following orders: 1. Note that judgment will be entered for Cawarrah Holdings Pty Ltd in the sum of $36,631.16, plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount. 2. Note that judgment will be entered for Crusader Pty Ltd (ACN 094 092 734) in the sum of $79,704.98 plus pre-judgment interest at the rates referred to in Practice Note DC (Civil) No 15, such judgment to take effect on 13 November 2017 upon the parties providing to the court the interest figure and therefore the total judgment amount. 3. Direct the parties to provide the figures referred to in notes (1) and (2) to the court within seven days. 4. Order Cellarit Pty Ltd to pay Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) their costs of the trial. 5. Order Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734) to pay 80% of Cellarit Pty Ltd's costs of the appeal and cross-appeal incurred on or before 28 September 2018. 6. Dismiss Cawarrah Holdings Pty Ltd and Crusader Pty Ltd (ACN 094 092 734)'s motion filed on 12 October 2018. 7. Direct that the sum of $45,000, paid into court on 20 December 2017 pursuant to the order of the Registrar of the Court of Appeal dated 27 November 2017, be paid out to Cellarit Pty Ltd.
2. MACFARLAN JA: I agree with McColl JA.
3. LEEMING JA: On 28 September 2018, this Court made orders allowing Cellarit's appeal and entering judgments for Cawarrah and Crusader, subject to their filing a notice of cross-appeal, in the amounts of $36,631.16 and $79,704.98 respectively, exclusive of pre-judgment interest and with effect from 13 November 2017. The cross-appeal has now been filed, so those judgments are now unconditional; no further order is required to achieve that result. This Court directed the parties to file further submissions on the question of costs, at first instance and on appeal, and for the disposition of $45,000 paid into Court by way of security for the respondents' costs of the appeal. That has occurred, the last submission being supplied on 19 October 2018.
4. Cawarrah and Crusader obtained judgments in their favour. Costs follow the event unless there is some good reason for a contrary order. Cellarit says that (a) Cawarrah's and Crusader's success is a consequence of an amendment belatedly made, (b) Cawarrah and Crusader maintained a claim to 15% commission which was the primary claim made by them during the trial, and (c) their unreasonable pursuit of that claim so lacked in merit that a special order as to costs is warranted. I reject Cellarit's first submission, for the reasons given by McColl JA under the heading "Whether late amendment principle applies". The claim for 15% commission was but one of a number of claims made at the hearing, all of which were to the effect that Cellarit was wrongly withholding money it owed to Cawarrah and Crusader. I do not consider that the unsuccessful maintenance of a claim based on an unamended 15% entitlement to commission amounts to disentitling conduct to displace costs following the event. It is to be recalled that Cellarit has been found to have wrongly retained, for some years, more than $125,000 of its former client's money. Cellarit should pay Cawarrah's and Crusader's costs at first instance.
5. Cellarit succeeded in this Court in obtaining judgments which were considerably less than those ordered by the District Court. It seeks an order that it be paid 80% of the costs of the appeal. Cawarrah and Crusader submit that each party should bear its own costs of the appeal. They rely on the fact that Cellarit failed on a numerical majority of the 6 grounds of appeal, and the success they achieved on the cross-appeal. I disagree with the reasoning underlying the submission. The primary grounds of the appeal are, and always have been, grounds 3 and 4. Cellarit succeeded on those grounds. Such material success as Cawarrah and Crusader enjoyed came about by reason of the belated cross-appeal, which led to submissions after the event. As both parties recognised, it is appropriate to apply a broad-brush approach rather than apportioning costs issue by issue. An order reflective of the substantial success of Cellarit on appeal is that proposed by it, namely, that Cawarrah and Crusader pay 80% of its costs of the appeal. That order does not extend to costs incurred after 28 September 2018.
6. On 27 November 2017, the Registrar noted Cellarit's "undertaking to pay $45,000 into Court as security for costs within 28 days". The amount of security is large, but it is not suggested that the costs in respect of which that $45,000 was promised to be given, and was given, as security, were costs other than the costs of Cawarrah and Cellarit in this Court. The result of the appeal is that Cellarit is not liable to pay any of Cawarrah's and Crusader's costs in this Court. I see no reason for those funds now to be paid to Cawarrah and Crusader for some different purpose, namely, as a partial discharge of the hitherto unpaid judgments in favour of Cawarrah and Crusader. The position would be different if Cawarrah and Crusader had obtained some form of security for the judgment debts which Cellarit was challenging on appeal, but that is not this case. I see no reason to convert Cawarrah and Crusader, which are unpaid judgment creditors, into secured creditors by reason of the fact that they obtained security for costs of an appeal in which they were substantially unsuccessful, absent a proper evidentiary foundation as would support post-judgment Mareva relief. Cawarrah and Crusader have filed an affidavit, but it goes no further than to say, on information and belief, that the judgments remain unpaid. While it is established that Cawarrah and Crusader are creditors of Cellarit and have standing to apply under UCPR r 41.16(2), more needs to be shown to warrant an order under that rule in circumstances where, as here, funds have been paid into Court consensually for the limited purpose of providing security for the respondents' costs of the appeal.
7. Accordingly, I agree with orders 4 - 7 proposed by McColl JA. I would regard the parties as having an equal measure of success in relation to the applications made after judgment was delivered. The effect of limiting the costs order in favour of Cellarit to costs incurred on or before 28 September 2018 is that there will be no order as to the costs of the post-judgment applications, with the intent that the parties bear their own costs of those applications.

Endnotes

1. Cellarit Pty Ltd v Cawarrah Holdings Pty Ltd [2018] NSWCA 213 (principal judgment).
2. At [298].
3. Principal judgment at [260] - [274] and [275] - [291].
4. (2008) 39 Fam LR 323; [2008] NSWCA 73 at [11] (Mathews AJA agreeing).
5. Turkmani v Visvalingam (No 2) [2009] NSWCA 279 at [13] per Hodgson JA (Beazley and McColl JJA agreeing), citing Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121] per Hodgson JA (Mason P agreeing; Beazley JA substantially agreeing).
6. Dodds Family Investments Pty Ltd v Lane Industries Pty Ltd (1993) 26 IPR 261 (Dodds Family Investments) at 271 per Gummow, French and Hill JJ.
7. Commissioner of Australian Federal Police v Razzi (No 2) (1991) 30 FCR 64 at 69; (1991) 101 ALR 425 at 430 per Wilcox J, referred to in Dodds Family Investments at 272.
8. Waters v P C Henderson (Aust) Pty Ltd (1994) 254 ALR 328 at 330 - 331 per Mahoney JA; State of New South Wales v Abed (No 2) [2015] NSWCA 47 (SNSW v Abed) at [31] per Gleeson JA (Bathurst CJ and Macfarlan JA agreeing) referring to Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 (Bostik) at [38] per Beazley, Ipp and Basten JJA.
9. Nicholls v Michael Wilson & Partners Ltd (No 2) [2013] NSWCA 141 at [13] per Sackville AJA (Meagher and Barrett JJA agreeing).
10. James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 (James) at [34] per Beazley, Tobias and McColl JJA.
11. Ibid.
12. Tomanovic v Global Mortgage Equity Corporation Pty Ltd (No 2) [2011] NSWCA 256 (2011) 288 ALR 385 at [84] per Campbell JA (Macfarlan and Young JJA agreeing), referring to James at [36]; Dodds Family Investments at 272; Roads and Traffic Authority v McGregor (No 2) [2005] NSWCA 453 at [19]; Bostik at [38]; Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service (No 2) [2011] NSWCA 171 at [22].
13. See principal judgment at [28] - [29].
14. Ibid at [14].
15. At [236] - [245]; [299].
16. At [260].
17. Principal judgment at [19]ff.
18. SNSW v Abed at [31] per Gleeson JA (Bathurst CJ and Macfarlan JA agreeing), referring to Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (No 2) [2014] NSWCA 425 at [27] per Macfarlan JA (Meagher and Barrett JJA agreeing).
19. Waterman v Gerling (Costs) [2005] NSWSC 1111 (Waterman) at [10] per Brereton J.
20. Beoco Ltd v Alfa Laval Co Ltd [1993] EWCA Civ 22; [1995] QB 137 (Beoco Ltd) at 154 per Stuart-Smith LJ, with whom Balcombe and Peter Gibson LJJ agreed; Vero Insurance Ltd v Australian Prestressing Services Pty Ltd (No 2) [2014] NSWCA 8 at [7].
21. Beoco Ltd at 154, referring to Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft mbH (formerly CGL Handelgesellschaft mbH) [1993] 2 Lloyd's Rep 1 at 9.
22. See generally principal judgment at [84] - [91].
23. [2000] NSWSC 318.
24. Ibid at [8] per Studdert J.
25. See [276].
26. Anglo-Cyprian Trade Agencies Ltd v Paphos Wine Industries Ltd [1951] 1 All ER 873 at 874 per Devlin J.
27. (1998) 193 CLR 72; [1998] HCA 11 (Oshlack) at [69].
28. Moseley v AB (No 2) [2017] NSWSC 1812 at [71], referring to Lollis v Loulatzis (No 2) [2008] VSC 35 at [29]; Keddie v Foxall [1955] VLR 320 at 323 - 324.
29. At 11; see also Romer LJ at 12; Stirling LJ agreeing with both; Donald Campbell & Co Ltd v Pollak [1927] AC 732 was to like effect, Viscount Cave LC holding that a court may intervene were a judge "to refuse to give a party his costs on the ground of some misconduct wholly unconnected with the cause of action".
30. [1900] 2 QB 616 at 626 per Vaughan Williams LJ; see also at 622 per A L Smith LJ; at 627 per Romer LJ.
31. Cf Vernon v Perry [1962] VR 223.
32. Re ANZ Banking Group Ltd; Funds in Court, [2014] NSWSC 1076 (ANZ) per Lindsay J at [9], citing NSW v The Commonwealth [No 3] (1932) 46 CLR 246 at 260 - 261, 262, 266 and 268.
33. Pilmer and Others v HIH Casualty & General Insurance Ltd And Others (No 2) (2004) 90 SASR 465; (2004) 212 ALR 636 at [113] per Mullighan J.
34. ANZ at [9], citing Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264; [1991] HCA 51 at 272 - 274; JKB Holdings Pty Limited v De La Vega [2013] NSWSC 501 (JKB Holdings) at [99] - [114].
35. David Alan Thomson & Ors v Golden Destiny Investments Pty Limited & Ors (No 2) [2015] NSWSC 1929 at [126] per Sackar J.
36. ANZ at [10].
37. JKB Holdings at [82]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 November 2018