In the matter of Checkling Pty Ltd (Rec & Mgr Apptd) - Clout v Whitton & ors

Judgment 1This matter came before me in the Corporations List on 14 March 2011 in relation to, broadly, a dispute as to who was entitled to exercise rights in respect of certain water licences (the Turf Farm and Moxey Dairy licences) held by Checkling Pty Ltd (the third defendant). Mr Clout (the first plaintiff) was appointed as receiver over the property of Checkling by Equititrust Ltd (the second plaintiff) and brought an originating process seeking relief to permit him to deal with those water licences in priority over Mr Whitton (the first defendant). Mr Whitton was appointed as receiver by Rural Security Holdings Pty Ltd ('RSH') (the second defendant) pursuant to its security over the assets of Checkling. 2The dispute in question arose following assertions by Mr Whitton to Mr Clout to the effect that Equititrust's securities did not apply to the water licences and thus that Mr Clout could not have been appointed as receiver of them. 3The issue was one that needed to be determined on an urgent basis because of the circumstances (to which I was only briefly taken) of a sale/tender process being or to be conducted for the sale of the water licences within a short period of time. The plaintiff's concern was that RSH was interfering in the sale of the water licences after the Water Administration Ministerial Corporation (WAMC) had agreed in principle to acquire them from him. 4Mr Whitton set out RSH's position in a letter dated 14 February 2011, in response to which Mr Clout's position was outlined in a letter dated 23 February 2011. In the latter, Mr Clout demanded certain acknowledgments and undertakings from RSH. As at 23 February 2011, therefore, RSH was on notice of the factual and legal basis on which Equititrust contended that it had prior security over the water licences and the right to appoint the receiver to sell the licences. When the demanded acknowledgements and undertakings were not provided, these proceedings were commenced on 8 March 2011. 5When the matter came before me on 14 March 2011, I gave directions (including as to service on the various defendants) to permit an urgent hearing of the priority issue. On that occasion, Mr Levet of Counsel appeared for Mr Whitton as receiver of RSH. 6On the return of the matter on 17 March 2011, leave was sought by the plaintiff to file an Amended Originating Process and join Equititrust as the second plaintiff. Mr Levet indicated that the first defendant might wish to serve expert valuation evidence and I made directions to enable that to occur. I listed the matter for hearing before me at 2pm on 22 March 2011. It is relevant to note that the matter was listed at short notice due to the urgency imposed by the imminent water licence tender process. 7On 22 March 2011, a solicitor attended on behalf of RSH (whose interests had, I understood, hitherto been represented by Mr Levet) on the basis that RSH was concerned that a claim it had under a machinery lease was not being dealt with by Mr Whitton (whose appointment as receiver did not extend to any such claim). I was informed that the receiver's appointment by RSH was only for specific purposes and that there had been some issue as to the scope of Mr Whitton's appointment in relation to RSH's claims. Mr Levet (without purporting to make submissions for RSH), helpfully indicated the nature of the issue that had arisen in that regard. I gave a short adjournment to permit Ms Byrne to obtain more complete instructions (Ms Byrne only had instructions to seek an adjournment). 8I refused to grant such an adjournment, given that this would defeat the purpose for which the matter had been listed for urgent hearing (in order to meet the concern in relation to the timing of the water licences sale process) and given that RSH had been on notice of the hearing in accordance with the earlier orders for service and had been represented (as I understood it) until then by Mr Levet (instructed by Mr Whitton). 9The position at that stage was that Mr Whitton was prepared to consent to orders that would preserve the ability of Mr Clout to deal with the water licences (subject to an arrangement to preserve the ability of some third parties (the Birches) to raise issues as to their entitlements as tenants of the Moxey Dairy Farm) and to preserve any claim that RSH might later have to challenge the basis on which any sale was ultimately concluded. 10(There is a potential issue, for example, as to a potential claim under s 420A of the Corporations Act 2001 (Cth) or for breach of fiduciary duty relating to the circumstances in which the water licences may ultimately be sold.) 11After some adjournment that afternoon, and further debate, the matter was largely disposed of by consent orders (other orders being made but not by consent). All that was left was the application by Mr Clout that the costs (that I had by that stage ordered to be paid by RSH) should be assessed on an indemnity basis. 12Written submissions were then served on behalf of each of Mr Clout and RSH respectively on that issue. 13For Mr Clout, it is submitted that an indemnity costs order is warranted because: (a) RSH (and Mr Whitton) had provoked the commencement of proceedings, and continued them, where they should have known they had no real prospect of success, as reflected in the abandonment of the proceedings (relying upon Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at [233-4] and Lahoud v Lahoud [2006] NSWSC 126 at [44]-[69]); (b) the Court can (and it is said should) infer that the continued assertion of rights and failure to give acknowledgements and undertakings as requested in the 23 February 2011 letter were with the aim of defeating (through delay) the plaintiffs' interests: ( Cultus Petroleum NL v OMV Australia Pty Ltd [1999] NSWSC 435); and (c) the letter of 23 February 2011 to Mr Whitton can be equated with an offer or compromise in circumstances where it is said that the plaintiffs were substantially successful in obtaining the same relief as that sought in the proceedings. 14It is submitted that both Mr Whitton and RSH had abandoned the position stated in the 14 February 2011 letter, when consenting to orders that, in substance, gave effect to the acknowledgements and undertakings sought by the plaintiffs from Mr Whitton in paragraphs 1(a), (b), (c) and (d), as well as paragraphs 3 and 4 (as concerns Checkling) of the letter of 23 February 2011. 15Counsel for Mr Clout (Mr Hogan-Doran) submitted that, by comparison with the orders sought in the originating process, the only limitation in the consent orders ultimately made on this application was immaterial (namely, the limitation of some of the orders to the Turf Farm Water Licences, which limitation reflected the disputed status of occupation of the Moxey Dairy Farm - a matter between some third parties (the Birches) and Mr Clout). It was submitted that these amendments to the orders were made by the plaintiffs of their own volition (given the time available) and that the final orders as made by consent still ensure that if Mr Clout is able to sell the Moxey Dairy farm licences, he will be able to apply the proceedings to Equititrust in priority to RSH. 16Mr Hogan-Doran submitted that the reservation of rights for any s 420A or breach of fiduciary duty claim (because the licences are being sold separately from the land) is immaterial. (It was contended that the allegation made in this regard by RSH was likely to be spurious since that allegation was made at the same time that RSH and Mr Whitton were also seeking to find buyers for the water licences separately from the land.) 17It was submitted by Mr Arraj, on behalf of RSH, that RSH was entitled to assert a right to deal with the water licences and to exercise that right until it was established that some other person had priority over it or that there was some other impediment to the exercise of this right, and that RSH was requiring the plaintiffs to assert that priority by commencing these proceedings. This, it was said, did not give rise to an order for indemnity costs. 18It was further submitted by Mr Arraj that the assertion or attempted exercise of rights by RSH prior to the commencement of these proceedings was not unreasonable, nor was it without foundation or something that arose as a result of some misconduct on behalf of RSH, which would give rise to an order for costs on an indemnity basis against it. 19As noted earlier, the substance of the proceedings is an application under ss 418 and 424 of the Corporations Act 2001 (Cth) for determination of the competing interests of Mr Clout (as receiver appointed by Equititrust) and Mr Whitton, to deal with the water licences. Mr Arraj submitted that no claim was made independently against RSH and that, in the event that it was found that Mr Clout had no power to deal with the water licences, such power would have reverted to Mr Whitton as the appointed receiver in respect of the next ranking security interest, rather than RSH itself. 20Mr Hogan-Doran took issue with this and noted that at all times, there was relief sought against RSH in respect of the issues of priority (seeking directions in order 3 and injunctive relief) in respect of which Mr Whitton had no interest apart from that of RSH. 21It is submitted by Mr Arraj that during the course of the proceedings, the plaintiffs had amended their position in relation to the particular water licences with which they sought power to deal, such that the orders as eventually entered by the Court were substantially different to the undertakings that had been sought from RSH prior to the commencement of the proceedings. Mr Hogan-Doran also took issue with this, contending that the question of Equititrust's priority (whether or not, vis a vis the Birches, it was yet said to be the receiver of the Moxey Dairy Farm water licences) did not affect the priority dispute between Mr Whitton and Mr Clout. It was noted that the injunctive relief granted by consent extended to all of the water licences. 22As to the late involvement in the proceedings by RSH, it was said by Mr Arraj that when the proceedings were commenced, it was then not necessary for RSH to appear independently because it was clear that RSH's interests, as far as the orders sought in the various versions of the Originating Process were concerned, were sufficiently represented through the appearance of Mr Whitton (and it was similarly not necessary to file a joint appearance in the proceedings to address those orders). However, where RSH's and Mr Whitton's interests had diverged was in relation to machinery lease payments allegedly owed to RSH by Mr Clout as a result of his appointment as receiver and manager of the turf farm business owned by Checkling. Mr Whitton had then advised RSH that he could not advance that matter on RSH's behalf in the proceedings and at that stage, Mr Arraj said that RSH sought its own independent advice (by which time it was said that the proceedings had progressed to a stage that it was too late for RSH independently to appear and ventilate that issue). 23However, Ms Byrne did attend to make submissions as to RSH's position, although the instructions were initially limited to seeking an adjournment on RSH's behalf. The difficulty was that Ms Byrne appeared to have no clear instructions as to the basis on which RSH might be seeking to oppose the then proposed consent orders (which related to the priority dispute in effect conceded by Mr Whitton). 24The issue of the lease payments said to be owing by Mr Clout to RSH was submitted by Mr Arraj to be relevant to the matters in dispute in the proceedings (though it had not seemingly been raised until the last occasion on which the matter was before me). It was submitted that, as the plaintiffs were seeking an order allowing Mr Clout to distribute the proceeds of the sale of the water licences in a proposed order of priority, RSH (as a defendant) was entitled to make such applications in relation to that order of priority as was necessary to protect its interests, including in relation to the lease payments. 25It was further submitted by Mr Arraj that RSH's claim for the lease payments was "entertained" by an adjustment of the orders made in respect of Mr Clout's power to deal with the proceeds of the sale of the water licences (something said to be dealt with in court at the hearing of the matter resulting in no additional costs being incurred by any of the parties). Mr Hogan-Doran submitted that this is an erroneous account of what occurred on the day of the hearing and noted that the submission of Mr Arraj identifies no particular order in this respect. 26Mr Hogan-Doran submitted (with great force) that the relevance of the lease claim to the dispute as to the priority between secured creditors was not then explained, nor has it since been explained. (At best it seems to me that this is raised as an offsetting claim - i.e. that if Mr Clout receives proceeds from the sale of the water licences then some part of the proceeds should be offset against the lease payments and not distributed to Equititrust - but that was not articulated as such.) 27Mr Arraj therefore contended that RSH should not be ordered to pay indemnity costs. 28In brief submissions in reply, Mr Hogan-Doran (other than addressing the errors said to have been contained in Mr Arraj's submissions) emphasised that there had been no explanation as to the failure of RSH (presumably through Mr Whitton or otherwise) to give the undertakings and acknowledgments sought by the plaintiffs in the 23 February 2011 letter.