- Harbourside Catering Pty Ltd v TMG Developments Pty Ltd

Judgment 1By Interlocutory Process filed on 4 September 2014, the Applicant, a firm of solicitors trading as Turner Freeman, seeks an order that proceedings No 2014/207798 in the District Court of New South Wales ("District Court Proceedings") be transferred to this Court and joined to existing proceedings in this Court. 2In the existing proceedings in this Court, the liquidator of Dungowan Manly Pty Ltd ("Dungowan") and Dungowan apply for directions under ss 479 and 511 of the Corporations Act 2001 (Cth) addressing an issue as to the ownership of a home unit that is presently registered in Dungowan's name. One of the parties with claims to that unit is Turner Freeman, who are the solicitors formerly acted for the First and Second Defendants, Mr and Mrs McLaughlin, in earlier proceedings against Dungowan in this Court. Mr and Mrs McLaughlin in turn seek leave to bring proceedings in the name of the company against its shareholders to enforce obligations arising under Share Surrender Agreements and, if such leave is granted, will also bring such proceedings. 3I have summarised the background to these proceedings in my judgment in Re Dungowan Manly Pty Ltd (in liq) [2014] NSWSC 856 and will address them in a more summary fashion here before turning to the particular application. A dispute arose between Dungowan and Mr and Mrs McLaughlin in about 2000 in respect of arrangements relating to repairs of the company title block of units owned by Dungowan. Turner Freeman were instructed to act for Mr and Mrs McLaughlin against Dungowan in relation to that dispute and, in 2006, Mr and Mrs McLaughlin gave a mortgage of their shares in Dungowan in favour of Turner Freeman to secure their costs. Mr and Mrs McLaughlin commenced proceedings against Dungowan in September 2006 seeking certain relief and Ward J delivered judgment in respect of those proceedings in February 2010 and published her reasons for judgment in March 2010. The Court of Appeal subsequently handed down a decision on appeal in June 2012 and made final orders in the appeal in August 2012. 4Turner Freeman in turn retained Mr Burchett of Counsel to act for Mr and Mrs McLaughlin in the earlier proceedings against Dungowan, initially under a costs agreement entered into in September 2006 which referred, inter alia, to the fact that Turner Freeman was taking a mortgage over shares in Dungowan owned by Mr and Mrs McLaughlin, which they were taking steps to sell, and contemplated that Mr Burchett's fees would be paid out of the sale proceeds of those shares following a reasonable time to permit such a sale. It appears there is a dispute between Mr Burchett and Turner Freeman as to whether that term applied throughout Mr Burchett's retainer, or only in the proceedings at first instance or part of them, and whether a reasonable time to permit the sale of such shares has elapsed. The latter issue may be complicated by the other dealings between the company and Mr and Mrs McLaughlin which were the subject of the earlier proceedings between Mr and Mrs McLaughlin and Dungowan in this Court and the further issues now raised by these proceedings. 5Mr and Mrs McLaughlin were - at least so far as the Court's judgment was concerned - successful in the earlier proceedings and damages and costs were ordered to be paid to them. However, the shareholders in Dungowan did not place Dungowan in funds to meet its obligations under the judgment, notwithstanding they were arguably obliged to do so under the terms of Share Surrender Agreements entered into between Dungowan and its shareholders (other than Mr and Mrs McLaughlin) and the Company's directors placed it in voluntary administration, from which it passed to liquidation. 6Turner Freeman in turn obtained an assessment of the costs payable to them by Mr and Mrs McLaughlin, and a certificate of determination of costs in respect of the proceedings at first instance was issued in favour of Turner Freeman in the amount of $610,200.14 and a certificate of determination of costs was issued in favour of Turner Freeman in the amount of $347,365.25 in respect of the costs, of the Court of Appeal proceedings. Turner Freeman subsequently issued bankruptcy notices to Mr and Mrs McLaughlin in respect of those costs and bankruptcy proceedings are presently pending in the Federal Circuit Court of Australia. The fees claimed by Mr Burchett are, at least in part, included in the costs assessed by Turner Freeman which are the subject of the bankruptcy notices to Mr and Mrs McLaughlin. Mr Burchett has now brought the District Court Proceedings against Turner Freeman to seek to recover his fees and, as I noted above, Turner Freeman apply to have those proceedings transferred to this Court. That application is opposed by Mr Burchett and by the liquidator to Dungowan. 7There is no dispute as to the relevant principles. The Court has power to transfer the District Court Proceedings to it under s 140 of the Civil Procedure Act 2005 (NSW), which relevantly provides that: "The Supreme Court may, of its own motion or on an application by a party to proceedings before the District Court or a Local Court, order that the proceedings, including any cross-claim in the proceedings, be transferred to the Supreme Court." The power to transfer such proceedings may be exercised where the Court considers it appropriate to do so in the light of the circumstances of the proceedings and the matters in issue: McCormick v BP Australia [2003] NSWSC 690 at [20]. In Harbourside Catering Pty Ltd v TMG Developments Pty Ltd [2006] NSWSC 631 at [17], Campbell J (as his Honour then was) noted that section was not materially different to former s 145 of the District Court Act 1973 (NSW), and referred to, and agreed with, Bryson J's observation in Sanderson Motors Pty Ltd v Kirby [2000] NSWSC 924 at [4] that: "When asked to exercise this power the Court should, in my opinion, appraise the facts and circumstances of the case before it and consider whether the applicant has shown something which, within the framework of the purposes for which the power exists, is a sound ground or a good reason why an order ought now to be made." I followed that approach in Pool & Spa Builders (Aust) Pty Ltd (subject to DOCA) [2013] NSWSC 185 at [30] - [31]. 8The Interlocutory Process also relied on r 6.20 of the Uniform Civil Procedure Rules 2005 (NSW), which provides for joinder in cases of joint entitlement. It was not apparent that that rule was applicable in the present circumstances, and the parties' substantive submissions were directed to s 140 of the Civil Procedure Act. As the liquidator points out, there is no joint entitlement as between Dungowan's rights under the Share Surrender Agreement, which would be the subject of any derivative claim brought by Mr and Mrs McLaughlin on its behalf, and Mr Burchett's rights under his costs agreement with Turner Freeman, notwithstanding that the amount due under the latter (as assessed) may in practical terms be part of the amount due under the former. The parties' evidence and submissions 9Turner Freeman relied on several affidavits in respect of the application, namely, an affidavit of Mr Rupert Gray sworn 2 September 2013; an affidavit of Mr Gray sworn 26 May 2014; an affidavit of Mr Gray sworn 16 June 2014; an affidavit of Mr Gray sworn 4 September 2014; and an affidavit of Mr Gray sworn 18 September 2014, which replies to Mr Burchett's affidavit to which I will refer below. Mr Burchett in turn relies on his affidavit sworn 16 September 2014. 10Turner Freeman submit that, even if there is no precise identity of issues between the District Court proceedings and the matters in issue in this Court, the Court has a discretion to permit transfer of the proceedings where to do so would be the most conducive course to the just resolution of the whole dispute: Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1991) 13 ATPR 41-078 at 52, 165-166. It is common ground that the Court must exercise that discretion by reference to the overriding purpose as identified in s 56 of the Civil Procedure Act. 11Turner Freeman have foreshadowed that they will contend, in the District Court Proceedings, that the reference in the costs agreement between them and Mr Burchett to the shares in Dungowan extends to Mr and Mrs McLaughlin's rights with respect to a strata title unit in the relevant property, if their title was converted to strata title; and that a reasonable time has not yet elapsed to permit the sale of Mr and Mrs McLaughlin's shares, given the ongoing dispute in proceedings between them and Dungowan and Dungowan's refusal to transfer the strata title unit to them. Turner Freeman submit that the matters raised by their proposed defence in the District Court Proceedings are closely related to the matters arising in the present proceedings and that the amount sought by Mr Burchett as against Turner Freeman is included in the amount claimed by Dungowan against its shareholders, which is in turn the subject of the derivative proceedings which Mr and Mrs McLaughlin seek leave to bring in Dungowan's name against those shareholders. Turner Freeman submit that there is a material and substantial risk of inconsistent findings and potentially issue estoppel with respect to matters of fact and law in the respective proceedings. 12Turner Freeman also foreshadow bringing a Cross-Claim in the District Court proceedings seeking damages and/or contribution and/or indemnity against Mr and Mrs McLaughlin or other parties to the present proceedings, to the extent that Turner Freeman may be found liable to Mr Burchett. That Cross-Claim is presently described in the most general way and it does not seem to me that I should exercise a discretion to transfer the proceedings on the basis of no more than a broad reference to that foreshadowed Cross-Claim. If Turner Freeman in future bring such a Cross-Claim, and it is such to give rise to a significant overlap with the present proceedings, they may bring such further application to transfer the proceedings at this Court at that time. Alternatively, as Turner Freeman recognised, a defendant to such a Cross-Claim who is also a party to the present proceedings may bring such an application, if so advised. 13Mr Friedgut, who appears for Mr Burchett, submits that, first, some of the costs that Mr Burchett claims against Turner Freeman do not relate to work for Mr and Mrs McLaughlin but instead to work for Turner Freeman in collecting fees from Mr and Mrs McLaughlin. (This submission would seem to have Mr Burchett acting both for Mr and Mrs McLaughlin in respect of their claims in the earlier proceedings and against them in respect of any claim by Turner Freeman in respect of costs, but that matter was not addressed by the parties' submissions.) Second, Mr Burchett points to the fact that there is not identity between the partners of Turner Freeman who are defendants in the District Court proceedings and those partners of the firm who are party to these proceedings. Turner Freeman in turn take issue with the joinder of some former and subsequent partners of that firm in the District Court Proceedings. They point out, and I accept, that nothing seems to turn on that question in the present application, where the partners of Turner Freeman joined in the two applications should be the same. 14Third, Mr Burchett submits that the issues in the District Court Proceedings are distinct from those raised in these proceedings and there is no overlap of the legal issues between them, where the claim in the District Court is a liquidated claim in contract in respect of fees for professional services, for an amount which is within the District Court's jurisdiction. Mr Burchett submits that the interpretation of his retainer agreement(s) with Turner Freeman, which is a primary issue in the District Court proceedings, is not a matter that would arise in the proceedings in this Court. Turner Freeman responds, with some force, that the question whether a reasonable time has elapsed, for the purposes of the retainer, will involve at least some review of the factual matters that are likely to be in issue in these proceedings. However, it seems to me that that matter is likely to be determined by legal argument by reference to the chronology of events, which would be established objectively and without the need for substantial contested evidence. Each party referred, in submissions, to the merits of their respective submissions as to whether a reasonable time had elapsed for the purposes of the retainer agreement between Mr Burchett and Turner Freeman. I do not consider it necessary or appropriate to express any view as to that issue, where it is a matter to be determined in the substantive proceedings, and the merits of it do not affect the question whether the proceedings should be heard in the District Court or in this Court. 15There is also a dispute between Mr Burchett and Turner Freeman as to whether the initial costs agreement, containing the clause on which Turner Freeman rely, was superseded by subsequent costs agreements which did not include that clause. Mr Burchett points out that no issue exists in these proceedings as to the Turner Freeman's right to recover their fees against Mr and Mrs McLaughlin, since they already have a judgment arising out of their assessment of those fees in their favour. Mr Burchett also points out that the liquidators are not and could not be party to the issues as between Mr Burchett and Turner Freeman. 16Mr Burchett also submits, with considerable force, that his claim in the District Court is more closely analogous to the assessment application previously brought by Turner Freeman against Mr and Mrs McLaughlin, as a means of enforcing their respective entitlements to costs, than to any issue arising in these proceedings. Turner Freeman respond that the judgments which arose from their assessments are significantly less than the amounts now claimed by Mr Burchett against them and do not include interest on Mr Burchett's costs, which is claimed against Turner Freeman in the District Court Proceedings. Mr Burchett in turn submits that there would be oppression, or at least disadvantage, to him in his claim being joined with these proceedings, given the existence of other factual and legal issues in these proceedings which are not relevant to his claim against Turner Freeman. 17The liquidator also submits that there are no substantial common questions of law or fact arising between Mr Burchett's claim under his costs agreement and the liquidator's application for directions or any derivative claim brought by Dungowan against its shareholders, for the purposes of r 6.19 of the Uniform Civil Procedure Rules. The liquidator submits that the transfer of the proceedings to this Court and their joinder would cause unfairness to the creditors of Dungowan, the liquidator and its representatives, so far as it would further delay the proceedings, particularly in circumstances where Dungowan is presently without substantial assets and the liquidator and its representatives are unfunded in respect of their participation in the proceedings. Outcome 18It ultimately seems to me that there is little overlap in the issues in the District Court proceedings and little or no likelihood of inconsistent findings arising from those proceedings and the present proceedings. The question in the District Court proceedings, as presently framed, turns upon the dealings between Mr Burchett and Turner Freeman and involves contractual questions arising from the terms of Mr Burchett's retainer. The questions in the present proceedings involve, first, the entitlement to the unit in the property as to which the liquidator, Mr and Mrs McLaughlin and Turner Freeman are potential claimants, but that depends on the dealings between Dungowan and Mr and Mrs McLaughlin and the conduct of the liquidation, and does not involve any issue as between Turner Freeman on the one hand and Mr Burchett on the other. There also seems to me to be no overlap between Mr Burchett's claim against Turner Freeman and any derivative claim brought on behalf of Dungowan against its shareholders, which raise distinct legal issues. 19The significant distinction between the two proceedings seems to me to be that the District Court Proceedings between Mr Burchett and Turner Freeman will turn largely on the dealings between them, and to some extent with Mr and Mrs McLaughlin; by contrast, the issues to be determined in this Court, both in respect of claims to the unit and in respect of any derivative action by Mr and Mrs McLaughlin against Dungowan, turn substantially or entirely on dealings between Mr and Mrs McLaughlin and Dungowan. There is, it seems to me, little factual or legal overlap between those dealings between different parties, at least unless and until any Cross-Claim by Turner Freeman is brought in the District Court proceedings. Mr Phillips, who appeared for Turner Freeman, fairly acknowledged in the course of submissions that it could not be said that the legal issues arising in the proceedings in this Court were identical or had a high degree of overlap with the issues arising in the proceedings between Turner Freeman and Mr Burchett in the District Court, although he contended that that was not the end of the analysis and that there was a substantial practical overlap which the Court should take into account (T14). 20There is, I accept, a real practical connection between Mr Burchett's claim against Turner Freeman, Turner Freeman's claim against Mr and Mrs McLaughlin, their claim against Dungowan and Dungowan's claim against its shareholders, of the kind that I noted in my earlier judgment. In particular, if Mr and Mrs McLaughlin were successful in a derivative claim brought on behalf of Dungowan against its shareholders, and Dungowan was successful in recovering the relevant amounts against its shareholders, then it would be placed in funds to meet its obligations to Mr and Mrs McLaughlin; they would be placed in funds to meet their obligations to Turner Freeman; and Turner Freeman would be placed in funds to meet its obligations to Mr Burchett. Plainly, that would be to the practical advantage of all parties other than the shareholders who were ultimately called upon to fund the relevant payments. There may be some practical advantage to Turner Freeman in the joinder of the proceedings, so far as a judgment in favour of Dungowan against its shareholders might assist in funding any amount which they are required to pay to Mr Burchett, or reduce the risk that judgment is given in favour of Mr Burchett against Turner Freeman prior to Turner Freeman having the benefit of the judgment against Mr and Mrs McLaughlin or Mr and Mrs McLaughlin having the benefit of payment by Dungowan and Dungowan having the benefit of payment by its shareholders. 21However, a practical connection of that kind does not seem to me sufficient to warrant the transfer of the District Court proceedings to this Court where, as Mr Burchett and the liquidator point out, the joinder of the proceedings would complicate both the resolution of the issues as between Mr Burchett and Turner Freeman on the one hand and the resolution of the issues as between the Company and other parties in these proceedings, to which Mr Burchett is a stranger, on the other. The position in this respect seems to me to be plainly distinguishable between the issues arising in respect of Mr and Mrs McLaughlin's derivative claim in respect of Dungowan, which had a significant overlap with the other issues in the proceedings for the reasons noted in my earlier judgment. 22It does not seem to me that there is, in truth, substantial prejudice to Turner Freeman by the separation of the proceedings, because the lack of overlap between them - at least prior to any Cross-Claim brought by Turner Freeman - has the consequence that the costs of defending the separate proceedings are not likely to exceed the costs of defending the proceedings if they were joined and the additional issues in dispute as to the nature of the contractual relationship between Turner Freeman and Mr Burchett needed to be determined in this Court rather than in the District Court. 23Turner Freeman point, with some force, to the possibility that costs will be wasted if the District Court proceedings continue in parallel with these proceedings, particularly if other parties are joined in a Cross-Claim. However, it seems to me that that matter could be managed because the parties to the District Court proceedings might well consider that it is in their respective interests to adjourn those proceedings, at least pending the determination of Mr and Mrs McLaughlin's claim for leave to bring the derivative proceedings, and possibly for a determination of those proceedings, if they will go to hearing early in 2015. As I noted above, any issue in respect of any Cross-Claim brought by Turner Freeman against other parties in the District Court proceedings can be addressed when it arises. 24For these reasons, the Interlocutory Process filed by the Applicant, Turner Freeman, should be dismissed. The Applicant, Turner Freeman, must pay the costs of the Respondent, Mr Burchett, of and relating to that Interlocutory Process, as agreed or as assessed.