IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd

THE COURT NOTES: 7. The agreement of the appellant and the first, third and fifth respondents that: (a) upon a payment to the third respondent from the funds in the hands of the fifth respondent, the third respondent will pay to the appellant $50,000 towards the appellant's costs and the first respondent's and the fifth respondent's costs of Proceeding WAD 150 of 2007 and of this appeal and the appeal in proceeding WAD 134 of 2007; (b) all orders for costs as against the appellant, the first respondent or the fifth respondent in favour of the third respondent made in Proceeding WAD 150 of 2007 be set aside; and (c) that there be no other order as to the costs as between the appellant, the first and third respondents. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WAD 134 of 2008

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN: MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQUIDATION) (ACN 084 358 592)

AND: BALANCED SECURITIES LTD (ACN 083 514 685)

KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQUIDATION) (ACN 089 532 169)

WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 083 526 630)

1. Order 16 made on 29 May 2008 in Proceedings WAD 150 of 2007 be set aside.
2. The sum paid by the appellant and its liquidator to the first respondent pursuant to Order 16 made on 29 May 2008 be repaid to the appellant together with interest calculated in accordance with Federal Court Rules O 35 r 8 from the date of the original payment to the date of repayment.
3. The appeal be otherwise dismissed.
4. The first respondent's cross-appeal be dismissed.
5. There be no order as to the costs of the appeal or of the cross-appeal.
6. These orders are not to be entered until 17 June 2009 or such later date as the Court may direct following receipt of any submissions pursuant to order 7. THE COURT DIRECTS THAT:
7. The parties file and serve no later than 10 June 2009 any written submissions they wish to make as to the form of these orders.

8. The agreement as between the appellant and the first respondent that: 8.1 The appellant will pay the first respondent's costs of Proceeding WAD 150 of 2007 on those issues as between the appellant and the first respondent on which the first respondent succeeded. 8.2 The first respondent will pay the appellant's costs of Proceeding WAD 150 of 2007 on those issues as between the appellant and the first respondent on which the appellant succeeded. 8.3 The costs payable pursuant to paragraphs 8.1 and 8.2 above are to be set off against each other.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

WAD 124 of 2008 BETWEEN: IMF (AUSTRALIA) LTD (ACN 067 298 088)

AND: MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQUIDATION) (ACN 084 358 592)

WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 083 526 650), KNIGHTSBRIDGE MANAGED FUNDS (IN LIQUIDATION) (ACN 089 532 169) & KNIGHTSBRIDGE FINANCE PTY LTD (IN LIQUIDATION) (ACN 008 716 872)

HURLY INVESTMENTS PTY LTD (ACN 082 972 067) & TIMOTHY JOSEPH CASEY

BRIAN MCMASTER IN HIS CAPACITY AS LIQUIDATOR OF MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQUIDATION) (ACN 084 358 592)

WAD 134 of 2008 BETWEEN: MEADOW SPRINGS FAIRWAY RESORT LTD (IN LIQUIDATION) (ACN 084 358 592)

AND: BALANCED SECURITIES LTD (ACN 083 514 685)

KNIGHTSBRIDGE MANAGED FUNDS LIMITED (IN LIQUIDATION) (ACN 089 532 169)

WESTRALIAN CAPITAL HOLDINGS PTY LTD (IN LIQUIDATION) (ACN 083 526 630)

REASONS FOR JUDGMENT 1 On 6 February 2009, the Full Court published reasons for the conclusions reached by it on the substantive issues raised in these two appeals, WAD 124 of 2008 and WAD 134 of 2008 (the Principal Reasons). The parties were directed to file and serve short minutes of orders to give effect to the Principal Reasons. They have now done so. However, there are disputes in connection with both sets of proposed orders. The Full Court has considered the written submissions of the relevant parties on the disputed questions and now publishes its reasons for its conclusions on the disputed issues. In these reasons, terms and expressions have the same meanings as in the Principal Reasons.

WAD 124 OF 2008 2 In relation to proceeding WAD 124 of 2008, the parties are agreed as to the orders that should be made except in two respects. The first concerns the precise orders that should be made to reflect the conclusions of the Full Court concerning priorities. The second concerns IMF's entitlement to costs. 3 In relation to the first matter, IMF proposed that all of the orders made on 10 June 2008 be set aside and that, in lieu thereof, there be a declaration that IMF is entitled to be paid, out of the amount received by the Liquidator by way of settlement of the Colliers Proceeding, the sum of $115,000, together with the further sum of 35% of Resolution Sum, in priority to the amounts payable to: · Balanced under the Balanced Charge; and · Knightsbridge under the Westralian Charge. Balanced, on the other hand, proposed that there should be no interference with the orders made on 10 June 2008 to the extent that those orders governed the priorities of the parties other than IMF. 4 There is no reason to interfere with the priorities except as between IMF, on the one hand, and the other parties, on the other hand. Accordingly, orders should be made to reflect the priorities that are to prevail in accordance with the conclusions of the Full Court. As a matter of form, it is preferable to set aside the relevant orders and to substitute new orders that reflect the Full Court's conclusions, rather than to vary the orders made by the primary judge. 5 In relation to IMF's costs of the proceeding at first instance, IMF proposed that Balanced pay IMF's costs, save in so far as those costs related to the issues of the validity of the securities of Knightsbridge. On the other hand, Balanced proposed that the appropriate form of order is that Balanced be required to pay IMF's costs of its cross-claim against Balanced and Balanced's cross-claim against IMF. The latter order reflects more appropriately the costs that Balanced should be ordered to pay. 6 The principal dispute concerning costs is as to the basis of taxation of costs ordered to be paid to IMF by Balanced. In the Principal Reasons, the Full Court concluded that IMF should have an order for its costs of the s 511 Proceeding at first instance and of its appeal in proceeding WAD 124 of 2008. However, IMF asks for an order that those costs be taxed on the indemnity basis against Balanced, both in respect of the proceeding at first instance and in respect of the appeal. IMF says that it is entitled to orders on that basis primarily by reason of Order 23 of the Federal Court Rules.

Federal Court Rules Order 23 7 Order 23 deals, relevantly, with offers of compromise. Rule 2 of Order 23 provides that, in any proceeding, a party may make to another party an offer to compromise any claim in the proceeding on the terms set out in the notice of offer. Under s 4 of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) a proceeding is a proceeding in the Court and includes an appeal. Rule 11 deals with the consequences of the acceptance or non-acceptance of such an offer of compromise. Under rule 11(1), if an offer of compromise is accepted in accordance with Order 23, costs are to be taxed on a party and party basis up to the day of acceptance. That is of no relevance in the present context. Rules 11(4), 11(5) and 11(6) deal with the consequences where an offer of compromise has not been accepted in accordance with Order 23. 8 Rule 11(4) relevantly provides that, if an offer is made by a cross-claimant and not accepted by the cross-respondent, and the cross-claimant obtains judgment on the claim to which the offer relates not less favourable than the terms of the offer, then, unless the Court otherwise orders, the cross-claimant is entitled to an order against the cross-respondent for costs incurred in respect of the claim: · up to and including the date of acceptance, taxed on a party and party basis; and · after that day, taxed on an indemnity basis. 9 Rule 11(5) relevantly provides that, if an offer is made by a cross-respondent and not accepted by the cross-claimant and the cross-claimant obtains judgment on the claim to which the offer relates not more favourable than the terms of the offer, then, unless the Court otherwise orders: · the cross-claimant is entitled to an order that the cross-respondent pay the cross-claimant's costs in respect of the claim incurred up to 11 am on the day after the day when the offer was made, taxed on a party and party basis; and · the cross-respondent is entitled to an order that the cross-claimant pay the cross-respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis. 10 Rule 11(6) relevantly provides that, if an offer is made by a cross-respondent and not accepted by the cross-claimant and the cross-respondent obtains an order or judgment on the claim to which the offer relates as favourable to the cross-respondent, or more favourable to the cross-respondent, than the terms of the offer, then, unless the Court otherwise orders: · the cross-respondent is entitled to an order that the cross-claimant pay the cross-respondent's costs in respect of the claim incurred up to 11 am on the day after the day the offer was made, taxed on a party and party basis and · the cross-respondent is entitled to an order that the cross-claimant pay the cross-respondent's costs in respect of the claim incurred after that time, taxed on an indemnity basis.

IMF's Offer of Compromise 11 IMF claims that, by reason of the offer of compromise made by it on 11 October 2007 (the Compromise Offer), it is entitled to have the costs incurred by it after that day, both in the s 511 Proceeding and in this appeal, taxed on an indemnity basis. Balanced, on the other hand, accepts that there is a rebuttable presumption that IMF is entitled to have its costs of the s 511 Proceeding taxed on an indemnity basis, but says that that presumption has been rebutted in the present case and that the Court should exercise its discretion under r 11 to order otherwise. 12 Before describing the Compromise Offer, it is necessary to say something more about the claims to which the Compromise Offer relates. As indicated in the Principal Reasons, the s 511 Proceeding was commenced in the name of Meadow Springs as plaintiff. Meadow Springs sought the determination of questions by the Court pursuant to s 511 of the Corporations Act 2001 (Cth) (the Corporations Act), which provides that the liquidator of a company being wound up may apply to the Court to determine any questions arising in the winding up. While the Liquidator was not originally party to the s 511 Proceeding, the Full Court gave leave for the Liquidator to be joined as a plaintiff and as a respondent to the appeal (see para [6] of the Principal Reasons). 13 In the application by which the s 511 Proceeding was commenced, no specific question arising out of the liquidation of Meadow Springs was stated. However, Meadow Springs filed a statement of facts setting out the questions that the Liquidator sought to have determined by the Court and the facts said to give rise to those questions. In the statement of facts, separate sets of questions were stated by reference to the parties affected by them, including, relevantly, IMF, Balanced and Knightsbridge. 14 Cross-claims were then filed by those parties as follows: · By Balanced, against Meadow Springs and IMF, claiming a declaration that the Balanced Charge is enforceable against the property of Meadow Springs and an order that Meadow Springs and the Liquidator pay to Balanced forthwith all funds held by or on behalf of Meadow Springs after deduction of such costs and expenses of realisation of those funds as the Court may determine; · By Knightsbridge, against Meadow Springs and IMF, claiming a declaration that the Westralian Charge is enforceable against the assets and undertaking of Meadow Springs, secures the repayment of all amounts advanced to Meadow Springs pursuant to the Westralian Loan Agreement and was assigned to Knightsbridge, and · By IMF, against Knightsbridge and Balanced, claiming a declaration that IMF is entitled to payment of the sums of $2,199,750 and $115,000 from the sum of $6,400,000 then held by Meadow Springs, being the balance of the proceeds of the Colliers Proceeding after payment of the Liquidator's costs of the Colliers Proceeding, or, alternatively, an order that the Liquidator pay those sums to IMF. Defences and replies were filed by the cross-respondents and cross-claimants respectively in each of the cross-claims. 15 The s 511 Proceeding was conducted on the basis that the same question, as to the entitlement of IMF to be paid the two sums of $2,199,750 and $115,000 claimed by it, arose both under the Liquidator's statement of facts and in the cross-claims filed by each of Balanced, Knightsbridge and IMF. That is the question upon which the Full Court reached a conclusion contrary to that of the primary judge. The Full Court concluded, in effect, that there should be paid, out of the balance of the proceeds of the Colliers Proceeding, the sums of $115,000 and $2,199,750 claimed by IMF, in priority to the amounts payable to Balanced under the Balanced Charge and the amounts payable to Knightsbridge under the Westralian Charge (see para [95] of the Principal Reasons). The sum of $115,000 is the amount of the Fees, as referred to in the IMF Funding Agreement. The sum of $2,199,750 is 35% of $6,285,000, the balance after deducting $115,000 from $6,400,000, calculated under the IMF Funding Agreement. The amount of $6,400,000 is the balance of the proceeds of the Colliers Proceeding. 16 The Compromise Offer consisted of a single document, which contained two independent offers, one to Balanced and one to Knightsbridge. The effect of IMF's offer to Balanced was to compromise IMF's cross-claim as against Balanced and Balanced's cross-claim in so far as it affected IMF. The offer to Balanced was as follows: · Balanced will consent to an order in IMF's cross-claim, Knightsbridge's cross-claim and Balanced's cross-claim that the Liquidator pay the sum of $2 million to IMF from the fund held by the Liquidator. · IMF will seek no further relief against Balanced in IMF's cross-claim. · Balanced will seek no further relief against IMF in Balanced's cross-claim. · The costs of IMF and Balanced, in so far as they were incurred in relation to IMF's cross-claim and Balanced's cross-claim, will be paid from the fund held by the Liquidator, if not agreed. The offer made by IMF to Knightsbridge was in the same terms, mutatis mutandis, as the offer made to Balanced. 17 Neither offer was accepted. However, in the course of the hearing of the appeals, a compromise was reached as between IMF and Knightsbridge. As a consequence, no question now arises as to the costs as between IMF and Knightsbridge of either the s 511 Proceeding or IMF's appeal. The question presently under consideration is concerned only with the costs of IMF ordered to be paid by Balanced, both in respect of the s 511 Proceeding and in respect of the appeals. 18 By the Compromise Offer, IMF was saying, in effect, that it would accept $2,000,000 in lieu of its claim for a total of $2,314,750 ($115,000 plus $2,199,750). The sum of $2,000,000 represented a discount of approximately 13.6% from the sum of $2,314,750. However, the offer to Balanced involved the making of orders not only in IMF's cross-claim as against Balanced and Knightsbridge but also in each of the cross-claims brought by Balanced and Knightsbridge against each other and against IMF. 19 As at the date of the Compromise Offer, Meadow Springs and the Liquidator held the sum of $6,400,000 (the Fund), being the balance of the proceeds of the Colliers Proceeding. The claims on the Fund as at that date were as follows: · IMF: $2,314,750; · Knightsbridge: $1,185,907.75 together with interest; · Balanced: $3,611,029.83 together with interest. Thus, the Fund was inadequate to meet the combined claims of Balanced and Knightsbridge, as well as IMF's claim and IMF's costs of the s 511 Proceeding.

Balanced's Submissions 20 Balanced contends that, where an offer requires capitulation, rather than compromise, it would be appropriate for the Court to exercise its discretion to order otherwise under rule 11, even if the presumption of entitlement to taxation of costs on an indemnity basis had been triggered by the Compromise Offer. Balanced says that the offer made by IMF was an invitation to Balanced to capitulate rather than to compromise. Balanced contends that the discount offered by IMF had no apparent logic other than to trigger an entitlement to indemnity costs. Accordingly, Balanced says, the Compromise Offer was not a genuine offer of compromise as contemplated by Order 23. 21 Balanced also points out that, because Knightsbridge's and Balanced's claims on the Fund ranked pari passu, the burden of a finding that IMF had priority would fall on both Balanced and Knightsbridge. Thus, Balanced says, the effect of its accepting IMF's offer, in circumstances where Knightsbridge did not also accept the offer made to it, was to place Balanced in an impossible position: if Balanced accepted IMF's offer, and Knightsbridge did not, Balanced would bear the whole burden of the payment to IMF, should IMF be unsuccessful against Knightsbridge; the Fund would then have been sufficient to have allowed the Liquidator to pay IMF without any compromise by Knightsbridge. 22 Balanced also says that, if Knightsbridge did not accept IMF's offer, it would not have been possible for a compromise to result from Balanced's acceptance because of the requirement for Knightsbridge to participate in relation to its cross-claim. Further, Balanced says, even if Balanced had accepted the offer made to it by IMF, the s 511 Proceeding would not necessarily have been resolved, because it would still have been necessary for the Court to consider what was a reasonable return to IMF in accordance with the Universal Distributing Principle (In Re Universal Distributing Company Limited (1932) 48 CLR 171). 23 Thus, Balanced says, acceptance by it of IMF's offer would not have resolved that claim. Balanced says that the claim could only have been resolved if and when: · Knightsbridge accepted the offer made to it, which it did not. · The Liquidator procured favourable orders on his motion for leave, nunc pro tunc, to enter into the IMF Funding Agreement. · The Court determined, on the Liquidator's application, that the two sums should be paid to IMF from the Fund before either Balanced or Knightsbridge received any part of the Fund. · The Court approved an order for payment out of the Fund to IMF and to Balanced. Balanced says, therefore, that IMF's offer was conditional. Accordingly, Balanced says, acceptance by it could only have been provisional and would not have resulted in resolution of that claim until the question as to whether the Universal Distributing Principle was satisfied had been determined. 24 Balanced points out that, throughout the s 511 Proceeding, Balanced maintained its stance that IMF bore the onus of establishing what return for its effort and risk constituted a reasonable expense of realising the Fund. Balanced says that some smaller amount than $2,314,750 might have been awarded as representing a reasonable return on investment to IMF, having regard to the risk undertaken by IMF. In the end, as appears from the Principal Reasons, the primary judge concluded that the whole of the amount claimed by IMF was reasonable and there was no appeal from that conclusion. 25 IMF had relied upon three bases to support its claim to payment of the two amounts in question. They were as follows: · IMF had a prior equitable interest to that of Balanced and Knightsbridge; · There was, in accordance with the Universal Distributing Principle, an equitable lien securing payment to IMF of reasonable expenses of realising the Fund; and · IMF was entitled to payment in priority under the principles of salvage. Balanced points to the fact that IMF was ultimately successful only in respect of the second basis, the Universal Distributing Principle. 26 Finally, Balanced also points to the nature of the s 511 Proceeding. Balanced says that the s 511 Proceeding should be considered in a similar light to that of a winding up application and that it would be inappropriate for the presumption raised by Order 23 to apply in such a proceeding. The notion of an offer of compromise is peculiarly adapted to the case of private litigation. Having regard to the nature and special character of the Court's jurisdiction in a proceeding for the winding up of a company, such a proceeding is not fairly characterised as truly private litigation. Thus, in a winding up proceeding, the question of whether a winding up order ought or ought not to be made is a matter for the exercise of judicial discretion, subject to the conditions imposed by the Corporations Act. In the exercise of that discretion, it is legitimate for the Court to take into account the interests of the general body of creditors as an important discretionary consideration (see Kapeleris v Bytenet Pty Ltd [2007] FCA 1005).

IMF's Submissions 27 The Compromise Offer was framed on the premise that, irrespective of the outcome of the s 511 Proceeding, each of Balanced and Knightsbridge together had a sufficient entitlement to the Fund to agree to pay, from that entitlement, the sum of $2,000,000 to IMF plus the costs of IMF, Balanced and Knightsbridge of the s 511 Proceeding. IMF's reasoning in support of that proposition is as follows: · The Fund was $6,400,000. · The charges held by Balanced and Knightsbridge, which ranked pari passu, had priority over any other claims to the Fund. · The amount of Balanced's claim was $3,611,029. · Knightsbridge did not challenge the efficacy of the Balanced Charge or the quantum of Balanced's claim. · The amount of Knightsbridge's claim was less than $2,000,000. · The only other secured creditors of Meadow Springs conceded IMF's priority over their secured claims. · Both of the offers made by IMF in the Compromise Offer might be accepted or one might be accepted and the other might be refused. · If only Balanced accepted the offer made to it by IMF, IMF could be paid the sum of $2,000,000, leaving the balance of $4,400,000 to be shared between Balanced and Knightsbridge. IMF says that the precise apportionment of the sum of $4,400,000 between Balanced and Knightsbridge, if in dispute, could have been litigated between them in the s 511 Proceeding, in which each of Balanced and Knightsbridge had filed cross claims asserting their respective entitlements to the Fund.

Consideration 28 In those circumstances, Balanced would not have been put in an impossible position by the Compromise Offer, as it suggests. If Balanced accepted the offer made to it and Knightsbridge did not accept the offer made to it, Balanced could press its proportionate entitlement to the fund by prosecuting its cross-claim as against Knightsbridge, on the basis that IMF had priority over both of them, a matter that could be litigated as between Balanced and Knightsbridge, if Knightsbridge did not concede it. Indeed, acceptance by Balanced of the offer made to it may well have encouraged Knightsbridge to accept the offer made to it. 29 Balanced is saying, in effect, that, if it accepted the offer made to it, and Knightsbridge did not accept the offer made to Knightsbridge, Knightsbridge may have obtained an advantage. However, that is beside the point. There was a dispute as between Balanced and IMF as to whether IMF should receive $2,314,750 from the Fund, at the expense of Balanced and Knightsbridge. There was no possibility, in the circumstances that arose, that there would be any competition between IMF, on the one hand, and the unsecured creditors of Meadow Springs, on the other. Knightsbridge and Balanced ranked pari passu in relation to their claims against the Fund. In the circumstances that applied in relation to the s 511 Proceeding, therefore, there was simply a dispute between IMF, on the one hand, and Balanced and Knightsbridge, on the other, which was capable of compromise by agreement. 30 Indeed, as indicated above, IMF and Knightsbridge reached a compromise during the conduct of the appeal. The compromise was reached on the basis that IMF would, then and there, be paid from the Fund the amount of its claims in their entirety. That is to say, Knightsbridge conceded IMF's entitlement to payment from the Fund, notwithstanding that Balanced continued to dispute IMF's priority, as between Balanced and IMF. 31 Similarly, Balanced could have consented to the payment to IMF, out of the Fund, of the sum of $2,000,000, leaving IMF with the risk that leave might not be granted, nunc pro tunc, for the Liquidator to enter into the IMF Funding Agreement. Knightsbridge's consent was not necessary for IMF to be paid the sums claimed by it, if Balanced agreed that IMF had priority. Further, it was not necessary for the Court to determine separately from the application for leave to enter into the IMF Funding Agreement that IMF should be paid the sums claimed by it. If IMF and Balanced agreed that the sum of $2,000,000 be paid to IMF from the Fund, at the expense of Balanced, it is likely that the Court would have made an order to that effect, since no other party would have been adversely affected by it. Thus, the offer made by IMF to Balanced could have been accepted by Balanced. 32 The s 511 Proceeding was commercial litigation between three parties with competing claims on a single fund that was insufficient to meet all of those claims in full. There was effectively no outside interest affected by that aspect of the s 511 Proceeding. There was no public interest, in those circumstances, to take that aspect of the s 511 Proceeding outside the category of truly private litigation. 33 A discount in excess of $300,000 was not insignificant in the context of a total claim of $2,314,750. It involved a genuine compromise. Had Balanced accepted the offer made to it, IMF would have received $2,000,000 and would have consented to the disposition of its cross claim and would not have been involved further in the cross-claims brought by Balanced and Knightsbridge or in the s 511 Proceeding generally. Following the appeals, IMF has obtained a result on its claim that was more favourable than the terms of the offer made by it to Balanced in the Compromise Offer. In the circumstances, the presumption of entitlement to have its costs after the date of the Compromise Offer taxed on an indemnity basis arose under rules 11(4) and 11(5). The matters raised by Balanced do not constitute compelling and exceptional circumstances such as are required to rebut the presumption raised by rules 11(4) and 11(5) that IMF is entitled to have its costs taxed on an indemnity basis such that the Court should otherwise order (see Port Kembla Coal Terminal Limited v Braverus Martime Inc (No. 2) (2004) 212 ALR 281 at [16]-[18]). 34 The appeal from the orders made in the s 511 Proceeding is a different proceeding from the s 511 Proceeding itself. The definition of proceeding in s 4 of the Federal Court Act includes an appeal. However, the amplificatory definitions of claim in the proceeding and proceeding in O 23 r 1 suggest that the use of the word proceeding in O 23 is related to one, but not both, of a proceeding in the original and a proceeding in the appellate jurisdiction of the Court. A claim in the appellate jurisdiction is different from a claim in the original jurisdiction. Ordinarily, the claim in an appeal by way of rehearing is to change or sustain the orders made in the proceeding below because of the demonstration of, or the failure to demonstrate, an error by the primary judge in arriving at the orders the subject of the appeal (see Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at 203-204 [14]). So, a compromise of an appeal will require additional orders, even if formal, to those sought or resisted in the original jurisdiction. That is not to say that an unaccepted offer to compromise the proceedings below will not be relevant to the exercise of the Court's discretion as to costs in an appeal. However, it demonstrates that the appeal is a different proceeding (see CDJ v VAJ (1998) 197 CLR 172 at 196-197 [95], 201-202 [111], cf: Attorney-General v Sillem (1864) 10 HLC 704 [11 ER 1200]). 35 No offer to compromise IMF's appeal was made by IMF. Nor did IMF make any offer to compromise Balanced's appeal. IMF contends, however, that the presumption raised by Rules 11(4) and (5) applies not only to the proceeding in which an offer of compromise is made but in any appeal in which the claims that were the subject of the offer of compromise are in issue. Certainly, the question as to IMF's entitlement to payment of the two sums, which was raised in the s 511 Proceeding and the cross-claims, was a hotly contested issue in the appeals. 36 While the matter is certainly not without doubt, the better view is that, once a proceeding in which an offer of compromise in accordance with Order 23 has been disposed of, the offer of compromise should be regarded as spent. That is not to say that, if the orders disposing of the proceeding are disturbed on appeal, the offer of compromise will not have effect for the proceedings at first instance, including any retrial or further hearing on a remittal (see Ettinghausen v Australian Consolidated Press (1995) 38 NSWLR 404 at 410). Thus, in the present case, the result, so far as IMF is concerned, is more favourable to it, following the appeal. Accordingly, the presumption raised by rule 11 now applies to the s 511 Proceeding, in the light of the orders that will be made in the s 511 Proceeding following the appeal. Thus, the costs of the s 511 Proceeding should be taxed on an indemnity basis after the date of the Compromise Offer. 37 However, Order 23 does not give rise to a presumption of entitlement to have costs taxed on an indemnity basis in an appeal brought in a different proceeding altogether from the proceeding in which the offer of compromise was made and rejected. Order 23 should not be construed, for example, as applying to an appeal from an order of a court other than the Federal Court. Nor should it be construed as giving an entitlement to costs in an appeal from orders of the Federal Court to a court other than the Federal Court. 38 IMF says, however, that, even if the presumption raised by rules 11(4) and 11(5) is not applicable in relation to IMF's appeal, the fact of the Compromise Offer should be taken into account in the exercise of the Court's discretion as to the basis upon which the costs of the appeal should be ordered to be taxed. IMF contends that an order that the costs of the appeal be taxed on the indemnity basis would be consistent with the purpose of Order 23, namely, to encourage the settlement of litigation. IMF asserts further that, having stood by and let the Liquidator, and IMF, take the risk of the Colliers Proceeding, thereby avoiding any risk on its part, Balanced has adopted an unreasonable position throughout in so far as it has sought to deny IMF its remuneration under the IMF Funding Agreement and to deny the entitlement of the Liquidator to indemnity and reimbursement in respect of that remuneration in priority to the Balanced Charge. 39 The offer made by IMF was rejected and the s 511 Proceeding continued to judgment. No further offer was made by IMF following judgment and there was no offer by IMF to compromise its claims in the appeal. Of course, if the offer made to Balanced by IMF in the Compromise Offer had been accepted, there would, necessarily, have been no appeal as between IMF and Balanced. Nevertheless, Balanced had the benefit of a judgment in its favour in the s 511 Proceeding. IMF made no further offer. In the circumstances, no case has been made out for departing from the usual order in relation to the costs of IMF's appeal. The Court should not, in the exercise of its general discretion, order that IMF's costs of the appeal be taxed on the indemnity basis rather than the party and party basis.

WAD 134 OF 2008 40 The parties to the second appeal, WAD 134 of 2008, are agreed as to the orders that should be made, save for two questions. First, Meadow Springs and the Liquidator contend that, in effect, the appeal was successful, at least to the extent that the issues raised in it duplicated the issues raised in the other appeal, WAD 124 of 2008. They proposed, therefore, that an order should be made that the appeal be upheld. However, the priority to be given to IMF was determined in WAD 124 of 2008. There is no need for any further orders to be made in appeal WAD 134 of 2008, since all parties to that appeal were also parties to the other appeal. There is no utility in duplicating the orders. The issue of priority was determined on the basis of the notice of appeal in WAD 124 of 2008 and not the notice of appeal in WAD 134 of 2008. Accordingly, the appropriate order is that appeal WAD 134 of 2008 be dismissed. 41 The second question concerns the continuing dispute as between Balanced, on the one hand, and Knightsbridge on the other. Meadow Springs and the Liquidator, supported by Knightsbridge, ask for an order that the sum of $3,621,445.75, which was paid to Balanced pursuant to Order 16 made on 29 May 2008 in proceeding WAD 150 of 2007, be repaid to the Liquidator, together with interest at 6% per annum from 30 May 2008 until the date of payment. Meadow Springs and the Liquidator point out that Order 16 was made on the basis of a determination made by the primary judge that Balanced and Knightsbridge had priority over IMF in relation to the Fund. They say that, now that the priority has been reversed, there are three secured creditor claimants with claims on the Fund that substantially exceed, in total, the balance remaining after the payment out of the Fund of the prior claim of IMF. The three secured claimants are Balanced, Knightsbridge and Hurly and Casey and there are priority issues remaining to be resolved as between those secured creditors. 42 Balanced, on the other hand, contends that, while there is an issue between Knightsbridge and Balanced as to the quantum of Knightsbridge's secured claim and, to the extent not dealt with by the primary judge, as to the quantum of Balanced's secured claim, the issue is one as between those parties alone. That issue was not the subject of either appeal. Balanced says, therefore, that, as between Meadow Springs and Balanced, Balanced is entitled to the payment. 43 However, as indicated above, Knightsbridge supports the stance taken by Meadow Springs and the Liquidator. There is apparently an unresolved dispute as between Knightsbridge and Balanced as to their entitlement to the Fund. The payment that was made to Balanced pursuant to Order 16 of 29 May 2008 was made on the assumption that there would be sufficient funds to satisfy the claims of both Balanced and Knightsbridge. The effect of the conclusions of the Full Court is that that assumption was ill founded. Had the primary judge reached the same conclusion as has been reached by the Full Court, Order 16 would not have been made and the payment would not have been made to Balanced. It follows that the consequence of the appeal is that the Fund should be restored. 44 It may be that there is truly only a dispute between Balanced and Knightsbridge. However, the Fund should be held by a stakeholder rather than by one of the disputant parties. Payment of the Fund into Court might achieve that purpose. In the absence of payment into Court, the appropriate course is to restore the status quo as it would have been but for what has now been shown to be an erroneous conclusion on the part of the primary judge. There should therefore be an order that the sum paid to Balanced pursuant to Order 16 of 29 May 2008 be repaid to the Liquidator. It will then be a matter for the Liquidator to seek directions, failing agreement between the parties, as to the manner in which that sum should be disbursed. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices North, Emmett and Rares.

Associate: Dated: 4 June 2009 Counsel for IMF: Mr DM Stone

Solicitor for IMF: Williams & Hughes

Solicitor for the Liquidator and Meadow Springs: Solomon Brothers

Counsel for Balanced: Ms F Vernon

Solicitor for Balanced: Herbert Geer & Rundles

Solicitor for Knightsbridge: Christensen Vaughan