Galbally & O'Bryan v Easton

Determination

UCPR rule 29.7, relevantly, provides: "Procedure to be followed if party is absent (1) This rule applies when a trial is called on. (2) If any party is absent, the court: (a) may proceed with the trial generally or so far as concerns any claim for relief in the proceedings, or (b) may adjourn the trial..."
In French Consulting Pty Ltd v Donald [2011] NSWSC 584, I wrote at [14]: "The clear purpose of UCPR rule 29.7 is the efficient dispatch of Court business. However, in despatching Court business, I cannot ignore the right of a defendant to be informed, or, at least, to be made aware, of a trial date. It is a fundamental principle that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571, in which Rich J said (at 589): It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae, to have any determination which affects him set aside, and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside ... In such a case that has been no valid trial at all."
I also wrote, in the case, at [16]-[17], that whilst the court may be satisfied that a party was "absent", that is, he, she, or it was not physically present at the trial and was not represented, a party is "absent" within the meaning of the rule, when the trial is called on, only if it can be shown that he, she, or it, has knowledge, or notice, of the date of the trial, and is not physically present, or not represented. In other words, before UCPR rule 29.7 can be relied upon, there should be proof that the absent party has been given reasonable notice of, or has knowledge of, the date of the trial. Therefore, it is necessary for the party seeking to proceed to establish that notice of the date for the trial and that it was to then proceed has been brought to the Defendant's knowledge or notice.
I had earlier written, in Smirski v Macander [2010] NSWSC 929 at [34]: "It is to be remembered that the primary considerations on whether to proceed ex parte concern whether there is urgency; whether irreparable damage would flow from making an ex parte order; whether hardship would flow to a party against whom an order is made and whether such an order can be set aside: Ndjamba v Toyota Finance Australia Ltd [2010] NTSC 23, per Blokland J at [8]."
I referred to these principles more recently, in Gould v Purtle [2014] NSWSC 493, in Oxley v Oxley [2014] NSWSC 1606 and in Alesco Corporation Limited ACN 008 666 064 v Te Maari [2015] NSWSC 469.
Of course, I must also have regard to the obligations imposed by s 56 to s 60 of the Civil Procedure Act 2005 (NSW). Section 56 emphasises that the overriding purpose of the Act and the rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in dispute in the proceedings. The court is required to give effect to the overriding purpose when it exercises any power given to it by the Act or by the rules of court. Section 60 of the Civil Procedure Act requires that in any proceedings the Court should seek to resolve the issues between the parties in such a way that "the cost to the parties is proportionate to the importance and complexity of the subject-matter in dispute."
Section 57 of the Civil Procedure Act, in turn, requires the court to have regard to specified matters. Section 58 requires the court, in deciding whether to make any order or direction for the management of the proceedings, to act in accordance with the dictates of justice, and the court must have regard to the provisions of ss 56 and 57. These sections recognise the fact that delay and case backlog are matters which affect not only the public cost in delivery of justice, but also the court's ability to provide individual justice, and that the reforms introduced by the Civil Procedure Act promote the provision of individual justice notwithstanding that they may have adverse effects on the claims of individual parties in particular circumstances: Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230, per Allsop P (as his Honour then was) at [36].
The Court is authorised by s 90(1) of the Civil Procedure Act and UCPR rule 36.1 to give such judgment, or make such orders, as the nature of the case requires, at any stage of proceedings.
In this case, I am satisfied, despite the non-appearance of each of the second and third Defendants, that the court should proceed with the trial, particularly since no costs order is being sought against each, and because the nature of the substantive relief, involving the sale of the shares, does not detrimentally affect its interests. This does not mean, however, that the precise form of the order sought against each should be made.
In regard to the form of order to be made against each of these Defendants, it does seem to me that the Plaintiff should satisfy itself of the precise form of the order for the transfer of the shares and what, if any, formal requirements there are to ensure that any share transfer will be registered.
As I have noted, no costs order is sought against either the second or the third Defendant.
The jurisdiction to make a charging order is to be found in s 106(1) of the Civil Procedure Act 2005 (NSW). The section describes the types of orders that may be made for the enforcement of a judgment debt and, relevantly, it includes that a judgment of the District Court may be enforced by a charging order. The section does not specify the nature of the property against which a charging order can be made or the effect of such an order.
Section 3 of the Civil Procedure Act defines "judgment" as including "any order for the payment of money, including any order for the payment of costs".
Section 102 of the Civil Procedure Act defines "chargee" as "the person to whom a charging order is addressed" and, somewhat unhelpfully, defines a charging order to be "an order referred to in section 106(1)(c)". However, in ANZ Banking Group Ltd v Greig [1980] 1 NSWLR 112 at [18]-[19], Master Allen described the nature of a charging order as follows: "A charging order is a hypothecation. It does not involve any passing, from the owner of the property to the holder of the charge, of any of the rights of ownership. In this respect, a charging order, or other true hypothecation, stands in sharp contrast to a mortgage of land under Old System title whereby the mortgagor conveys his interest in the land to the mortgagee. The law, in my opinion, is accurately stated in Sykes, op cit, at pp 15, 16, as follows: '… whilst … mortgage stricto sensu … deal(s) with existing rights by assigning them, the hypothecation creates rights. … (the) rights only arise on default; they are new creations coming into existence on that contingency … what are created are mere potentially exercisable rights which automatically cease on repayment.'"
It has also been said that it is not a mortgage but rather a "right of realisation by judicial process in case of non-payment of a debt": Andersons Solicitors v Schigulski [2004] SASC 21; (2004) 88 SASR 1.
UCPR rule 39.44 refers to an application for a charging order being made by way of notice of motion, which, unless the court orders otherwise, may be dealt with in the absence of the parties, and which needs not be served on the judgment debtor or the proposed chargee.
UCPR rule 39.45 deals with the evidence to be given by way of affidavit in support of the application for a charging order.
Section 126 of the Civil Procedure Act deals with the operation of a charging order and prescribes the kinds of property in relation to which such orders can be made.
The section, relevantly, provides: "(1) This section applies to the following kinds of property in relation to a judgment debtor (referred to in this Division as "security interests"): (a) stock and shares in a public company, (b)… (c)… (2) Subject to the uniform rules, a charging order operates, in relation to each security interest specified in the order: (a) to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment, and (b) to restrain the chargee from dealing with the security interest otherwise than in accordance with the directions of the judgment creditor. (3) A charging order takes effect when it is made. (4) Despite subsection (3), the judgment creditor may not commence proceedings to take the benefit of a charge arising under a charging order until after the expiration of 3 months from the date of the order. (5) A charging order entitles the judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor's favour by the judgment debtor."
Thus, a charging order does not create an interest in the property of the judgment debtor the subject of the order. It does no more than secure the judgment debt by the making of that order and merely protects the interests of the judgment creditor to the extent necessary to satisfy the judgment.
Furthermore, a charging order is not, of itself, execution of the judgment on which it is founded since it requires the commencement of "proceedings to take the benefit of a charge arising under a charging order" (s 126(4)).
The first Defendant has not submitted that the District Court did not have jurisdiction to make the charging order in this case. Nor did she submit that there were any grounds to enable the charging order to be set aside.
I am unaware of any basis for impugning the validity of the charging order which has been issued by the District Court.
Having reached that conclusion, it is important to remember s 126(5) which entitles the Plaintiff, as a judgment creditor, in relation to the security interests charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made in the judgment creditor's favour by the judgment debtor.
The usual manner of taking the benefit of a charging order is by fresh proceedings begun by Summons rather than by application in the proceedings in which the charging order was made. That seems to be confirmed by s 126(4) of the Civil Procedure Act.
In S E Williams and F G-S, Daniell's Chancery Practice, (8th ed 1914, Stevens and Sons) at [818], the learned editors state: "The provisions of section 24 of the Judicature Act, 1873, have not conferred any new jurisdiction on the Court with regard to the enforcement of a charging order, so as to enable it to make an order for sale after the expiration of six calendar months from the date of the charging order. The judgment creditor is only entitled to such remedies as he would have been entitled to if such charge had been made in his favour by the judgment debtor, and must, therefore, in order to enforce the charge, institute separate proceedings Leggott v Western, 12 QBD 287; Kolchmann v Meurice, (1903) 1 KB 534... It is settled law that the remedy is by sale, not foreclosure D'Auvergne v Cooper, WN (1899) 256."
In other words, in the case of an equitable charge, there is a right to have, by separate process, an appropriation of the property to satisfy the debts in the event of default: Tyler, Young and Croft, Fisher & Lightwood's Law of Mortgage, (2nd Aust ed 2005, LexisNexis Butterworths), referred to in Linga v C & N Constructions Pty Ltd [2012] NTSC 8 at [23].
In United Travel Agencies Pty Ltd v Cain (1990) 20 NSWLR 566, Young J (as his Honour then was) expressed the view that the judicial sale of shares is the method by which a charging order may be enforced. (Also see, Falcone and Williams v Mentyn; Pearce v Mentyn (No 2) [2004] TASSC 156; (2004) 13 Tas R 384; King Investment Solutions v Hussain [2005] NSWSC 1076; (2005) 64 NSWLR 441 at [51]; Chateau Constructions (Aust) Ltd v Zepinic (No 5) [2010] NSWSC 265).
Young J, at [572], also considered that the sale under such an order "will be only of the judgment debtor's right title and interest in the shares which are charged".
Then, it is necessary to note what Brereton J wrote in Sood v Christianos [2008] NSWSC 1087 at [16]: "… judicial sale is the standard remedy of an equitable chargee. Upon default, an equitable chargee is entitled as of right to an order for sale; this is not regarded as a matter of discretion. Sykes and Walker say as much (at 198): 'The chargee on default has the right to apply to the court for an order for sale. Such order is of right and not regarded as a matter of discretion'. In this field, where it is a remedy of an equitable chargee, judicial sale is not a remedy of last resort but the standard remedy".
However, Garling J in Australia and New Zealand Banking Group Ltd v Donnelly [2012] NSWSC 1615 at [27]-[30], noted, after referring to the passage quoted: "The reference to Sykes and Walker in this extract is to Edward Sykes and Sally Walker, The Law of Securities, 5th ed (1993) Law Book Co. An examination of the text book does not suggest that the learned authors have cited any authorities to support the statements which Brereton J has extracted. It seems to me that the context for the remarks of Brereton J was that a judicial sale at the suit of an equitable chargee is a standard remedy rather than a last resort remedy, in accordance with remarks to the effect that an order for judicial sale is a remedy which was to be only applied as "a last resort" see Yarrangah Pty Limited v National Australia Bank Limited [1999] NSWSC 97 at [27] per Young J (as his Honour then was). It seems to me that Brereton J took a great deal of care to emphasise that where a default exists, an order for judicial sale is a standard remedy available to an equitable chargee. I do not with respect take Brereton J's statement that an equitable chargee is entitled to have a Court make an order for judicial sale, to be an automatic entitlement to the relief regardless of any submissions which the Court may receive as to whether it is appropriate to make such an order. So, it seems to me that in order to obtain an order for judicial sale, an equitable chargee does not have to demonstrate what, if any, other steps have been taken to enforce the charge. Nor does an equitable chargee have to prove any special or exceptional entitlement to the order. It is sufficient that the equitable chargee can show that the charge exists and is enforceable and that default has occurred. That said, it seems to me that before a Court makes an order for judicial sale, it is and must be entitled to have regard to the position of those who will be affected adversely by the making of the order. I find it difficult to accept that a Court would grant an equitable remedy where the remedy itself would become an instrument of injustice. Although an equitable chargee may have an entitlement upon default to seek an order for judicial sale, the Court retains a discretion to determine whether, in all the circumstances, such an order ought to be made. To the extent that ANZ contended that Brereton J's judgment expressed some other principle which had the effect of removing all discretion from the Court as to whether it would make such an order, and that the order would in effect automatically be made in every case, I reject that submission. That is not how I understand the principle to which his Honour refers."
Respectfully, I agree that judicial sale is the method by which the Plaintiff may take the benefit of a charge arising under a charging order where default in paying the judgment debt exists.
In this case, the Plaintiff, as required by s 126(4) of the Civil Procedure Act, has commenced proceedings seeking an order for the sale of the shares. In addition, it seeks orders for possession of the shares, because an order for possession of the shares is required in order to effect a sale and because the Plaintiff has no power of sale unless and until the court orders it.
It is clear that the three month moratorium on the commencement of proceedings to take the benefit of the charge, also prescribed by s 126(4), has long passed.
As Mr Nicols is a registered liquidator I would be satisfied that he is an appropriate person to be appointed to sell the shares. However, I would not be prepared to make an order in terms of Paragraph 5 of the relief sought in the Summons without more information about the fees proposed to be charged and also whether there is any alternative way of achieving the sale that might not be as costly.
For example, it may be possible to appoint a share broker to sell the shares on the standard terms and conditions of the Australian Stock Exchange and to pay the proceeds of sale, after deducting its, his or her, proper and reasonable commission, into court for payment out to the Plaintiff, and if there is a surplus of the proceeds of sale, to the first Defendant: see, for example, Davidson Armstrong & Campbell Solicitors Nominee Company Ltd v Morrison [2008] NZHC 2057.
Another alternative, despite the lengthy period that has passed since the charging order was made, is to make an order for the sale of the shares but to stay the order for a brief time to allow the first Defendant to provide sufficient funds from another source to satisfy the charging order, with the result that any order for sale of the shares, which shares she says provides her with a supplement to her income, would be discharged. The obvious costs and expenses of sale of the shares could then be avoided. Whilst the first Defendant did not give any indication that she would discharge the judgment debt on her own volition, she should be given one last opportunity to do so. She should be allowed no more than 2 weeks to make other arrangements, if she is able, to satisfy the judgment debt and interest accrued thereon.
The first Defendant should realise that the Plaintiff is in a position to recover the unpaid judgment debt from her, a position that she seems to have been unable to face, or if she has faced it, to come to terms with the prospect of the sale of her shares to meet the judgment debt.
Finally, I should deal with the costs of these proceedings. No order for costs is sought against either the second or third Defendants. The Plaintiff did not seek any gross sum costs order against the first Defendant.
Costs, of course, are in the discretion of the court, and the court has full power to determine by whom, to whom and to what extent costs are to be paid.
I am satisfied that the Plaintiff should receive some of its costs of the application as against the first Defendant but not all of those costs, principally because of the manner in which the case was prepared and presented.
It must have been obvious to the Plaintiff that the first Defendant was appearing without legal representation and that there was a real likelihood that the second and third Defendants would not appear at the hearing. These facts should have prompted the Plaintiff to take more care in the preparation of its case for hearing and it should have served all of the necessary evidence to enable the first Defendant and, as importantly, the court, to consider the basis of its application and the facts giving rise to the making of the orders that it sought.
Clearly, from what has been written above, the Plaintiff did not do so, despite having been reminded that the necessary evidence, by affidavit, should be served and provided to the court. In this regard, I note that it was necessary for counsel to tender documents at the hearing, a copy of which had not been served. The tender of these documents appeared to be prompted by the court asking about the evidence the subject of the subsequent tender.
Had it not been for the costs involved in adjourning the matter, as well as the first Defendant's obvious desire not to be troubled further by the proceedings, there was a real possibility that the matter would not have been able to proceed and it would have had to be adjourned to enable the further evidence to be provided.
Even now, there is no evidence of what steps the Plaintiff needs to take to ensure that the shares which will be subject to the order for sale, can be sold pursuant to the order for sale and the most economical method by which the shares may be sold.
In addition, there was no evidence of any steps taken by, or on behalf of, the Plaintiff, to discuss with the first Defendant, prior to the hearing, a practical and less costly solution to the problem. In this regard, it is important to remember that the facilitation of the just, quick and cheap resolution of the real issues in the proceedings is an object which the court and the parties must remember.
An opportunity given to the parties to find such a practical solution during the hearing proved fruitless. It is now necessary to reserve consideration of the manner in which the sale of the shares must take place and whether, in all the circumstances, bearing in mind the costs, a registered liquidator should be appointed to sell the shares.
In my view, the Plaintiff should receive only 50 per cent of the costs and disbursements calculated on the ordinary basis, of these proceedings.
Counsel for the Plaintiff submitted that "although not currently articulated as a specified sum, the Plaintiff's costs of these proceedings can be added to the amount of the charge". She added: "Even if the Plaintiff's costs of enforcement are not added to the equitable charge, they ought be satisfied out of the proceeds of sale of the shares."
In support of the submission, counsel for the Plaintiff relied upon what had been written by Darke J in Chateau Constructions (Aust) Limited v Zepinic [2013] at [31]. However, what his Honour wrote there should be set out to demonstrate that it does not apply in the present case: "I accept, having regard to the nature of the proceedings, that the plaintiff's costs, which have been the subject of assessment, were properly incurred in the course of preserving and enforcing the equitable charge contained in the building contract. I am further satisfied that the principle, that costs of this character may be recovered by recourse to the secured property, is applicable to an equitable chargee in the position of the plaintiff (see Fisher and Lightwood's Law of Mortgage, 13th ed (2010) at paragraph 55.7; Ezekiel v Orakpo [1997] 1 WLR 340 at 346 per Millett LJ). Accordingly, I am prepared to make order 1(a) as sought in the Further Amended Notice of Motion which has the effect of adding those costs to the amount which the Court previously declared to be covered by the charge." (My emphasis)
As stated, the costs of these proceedings have not been the subject of assessment. In Widgery v Tepper (1877) 6 Ch.D 364, James LJ, with whom Baggallay and Cotton LJJ concurred, in discussing charging orders under the Judgments Act 1838 (UK), observed, at [369]: "The authorities are sufficient to shew that a charging order cannot be given except for an ascertained sum, and not for costs, charges, and expenses, until they have been taxed. The necessity of an ascertained sum has been settled by numerous authorities; the necessity of the costs being taxed is clear from the case of Jones v Williams".
In Wilkie v Wilkie [1905] VLR 80, Hodges J, at [82], accepted, based on Widgery v Tepper, that an ex parte order made by him charging a sum of money paid into court as security for costs of an appeal could not stand because the costs had not yet been taxed. Also see Fine Real Estate Network Pty Ltd v Howell (Supreme Court (NSW), Young J, 4 December 1997, unrep) and Padkohe Pty Ltd v Fletcher [2006] NSWSC 1239 at [13] (Barrett J).
More recently, in McNamara Business & Property Law v Kasmeridis (No 2) [2006] SASC 167 at [22] after citing a number of English authorities, Gray J wrote that there was an established principle (in the United Kingdom) that "a charging order cannot be given except with respect to an ascertained sum. Consequently, a charging order in the United Kingdom cannot be made for untaxed costs". His Honour added at [25]: "Sections 3 and 8 of the Enforcement of Judgments Act 1991 should not be interpreted so as to include an order for costs that has not yet been ascertained. A party with the benefit of an order for costs to be taxed will only be a judgment creditor once an allocatur has been issued. An allocatur has not been issued with respect to the High Court order for costs. The Full Court had not yet made any order for costs."
I respectfully agree. It will be necessary to have the Plaintiff's bill of costs formally assessed and those costs should not form part of the charging order against the first Defendant's shares. Until the order for costs of these proceedings is made and entered, there is no obligation, or liability, to pay those costs and there is no right to recover them from the first Defendant.
Furthermore, I note s 126(2) of the Civil Procedure Act which states that "Subject to the uniform rules, a charging order operates, in relation to each security interest specified in the order (a) to charge the security interest in favour of the judgment creditor to the extent necessary to satisfy the judgment." The judgment to be satisfied, does not, of course, concern the costs of these proceedings.
Finally, s 137(2) of the Civil Procedure Act should be noted. That section, which deals with what is included in the costs recoverable under, inter alia, a charging order, does not refer to the costs of obtaining an order for judicial sale.
I direct the Plaintiff to deliver to my Associate within 14 days from the date of delivering these reasons for judgment, Short Minutes of Order that reflect these reasons for judgment. I shall adjourn these proceedings for 21 days from the date of delivering these reasons. Provided I am satisfied that the Short Minutes of Order are appropriate, and if there is no objection to the form of orders by the first Defendant, I shall make orders in Chambers without the need for any party to appear on the adjourned date. In the event that I am not satisfied with them, I shall inform the parties that the matter will proceed on the adjourned date for further argument on the form of the orders. It follows that careful consideration should be given by the Plaintiff's legal representatives to the form of the Short Minutes of Order.
The Plaintiff should provide a copy of these reasons to each of the second and third Defendants.

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Cases Cited (24)

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