In the matter of Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2019] NSWSC 1891

Supreme Court of NSW|2019-12-23|Before: Black J

Solicitors: Malcolm McDonald & Co (Plaintiffs) Mistry Fallahi (Respondent in the application) William James Lawyers (interested parties) File Number(s): 2018/91831

Background

On 16 December 2019, I delivered judgment ([2019] NSWSC 1810) ("earlier judgment") indicating that I would adopt the report of a referee, Mr Gregory Burton SC, in respect of the amount of interest and fees payable in respect of loan arrangements and securities involving Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) ("Fearndale") as guarantor and Consolidated Capital and Funding Limited ("CCF") as lender. Another entity, Australian Lending Investment Pty Limited ("ALI"), has since acquired CCF's rights in that regard and had sought to vary the referee's report in the hearing before me. I also observed that the Court would make orders in accordance with the provisional view expressed by the referee as to the costs of the reference. On 20 December 2019, I delivered a further judgment ([2019] NSWSC 1885) ("further judgment") addressing further submissions made by ALI in response to a provisional view that I had expressed in paragraph 49 of the earlier judgment and confirming that I took that view on a final basis.
In the earlier judgment, I directed the parties to bring in agreed orders to give effect to that judgment by 4pm pm on 20 December 2019 or, if there was no agreement between them, their respective draft orders and submissions subject to a page limit as to any differences between them. The Plaintiffs, the Messrs Harpley, and ALI submitted orders in radically different terms on 20 December 2019. It is unfortunate that the parties could not further advance a consensus as to the orders between themselves, having regard to the parties' and their legal representatives' obligations under s 56 of the Civil Procedure Act 2005 (NSW), although I make no adverse comment as to any particular legal representative in that respect. The matter was listed before me on 23 December 2019 to address the differences between the proposed orders. It was then relisted for a second time on that date to allow Ms Kaur, who appeared for ALI, to correct a submission she had made at the first hearing. I then permitted Ms Kaur to provide a further revised version of orders proposed by ALI, which she indicated were prompted by an issue as to CCF's claim to legal costs recoverable under the mortgage to which I refer below.

Determination of the amounts payable to ALI

The Plaintiffs, the Messrs Harpley's, proposed orders provided for the referee's report to be adopted in accordance with the earlier judgment for a declaration that certain amounts were owing pursuant to the mortgage and guarantee. Paragraphs 2.1(i)-(iv) of those amounts specified in the Messrs Harpley's proposed orders corresponded to amounts set out in paragraph A1 of the summary of the outcome in the referee's report and paragraph 2.2 provided for the off-set of an amount as acknowledged by ALI, by its Counsel, in the hearing before me. Their proposed orders did not contain a paragraph 2.3.
Paragraph 2.4 of the Messrs Harpley's proposed orders provided for interest on the principal sum limited to $1.8 million calculated at the rates specified in the summary in paragraph A1 of the referee's report and adopted by the earlier judgment. The referee had made no finding that interest was limited to a principal sum of $1.8 million although he had referred (in paragraph 71) to a limit of the guarantee in that amount. The Messrs Harpley had not contended that his report should be varied in that respect at the hearing before me. The Messrs Harpley's proposed order 2.4 also included an end date of 15 November 2019 in respect of sub-orders, which was intended to reflect the date on which the relevant mortgage was discharged in connection with the sale of the mortgaged land. It appears that did not occur until 19 November 2019. In any event, that matter was also not addressed in the referee's report or in the hearing before me and should not be addressed in the proposed orders, which will determine the interest rates payable but leave open the period at which the liability to pay interest ends, for determination if necessary with any other remaining disputes. The Messrs Harpley's proposed orders 2.1, 2.2 and 2.4, with the exception of the limit on interest to a principal amount of $1.8 million and the end date in the two orders, properly reflected the referee's findings which the Court had adopted.
Paragraph 2.5 of the Messrs Harpley's proposed orders provided for certain costs and fees, being the amount of the second receivers' (Third Defendants') fees specified in the referee's report, the amount of the Third Defendants' expenses (other than legal expenses) specified in the referee's report, the amount of the Second Defendant's fees and expenses other than legal expenses specified in the receiver's report and management expenses of CCF in the amount of $205,000 also specified in the referee's report. ALI responded, in submissions, that the orders proposed by the Messrs Harpley gave effect only to some of the referee's findings, but did not identify the additional orders that it contended should be made to address other findings made by the referee. I address the amounts omitted from the Messrs Harpley's orders below.
The Messrs Harpley's proposed order 2.5 omitted reference to the second receiver's legal expenses in the amount of $90,445.70, the current administrators' legal expenses in the amount of $121,102 and CCF's legal expenses in the amount of $730,339 which the referee had found to be "reasonable and proper amounts which [CCF] is entitled to receive out of the proceeds of the sale of the land in satisfaction of its entitlements under the guarantee and the Mortgage", subject to a note in his report that legal expenses were subject to the costs orders made in the proceedings, including the costs of the reference and to assessment procedures as appropriate. These expenses were not challenged in the hearing before me as to the adoption of the referee's report.
ALI relies on the referee's findings at paragraphs 42, 48, 61, 68, 76-77, 154 and 182-192 in respect of legal fees up to early April 2019. The second receiver's legal expenses are also addressed in paragraphs 169-175 of the referee's report, the administrators' legal expenses are addressed in paragraphs 176-179 of the referee's report and ALI's legal expenses are also addressed in paragraphs 180-181 of the report. ALI submits that there is no basis for varying the referee's findings in relation to those fees. I accept that submission, where no proposition that the referee's report should not be adopted in respect of that matter was put at the hearing before me and I have adopted the referee's report in that respect, with two important qualifications. The first qualification is that ALI should not be entitled to recover any of those fees to the extent they may be attributable to the costs of the reference, given the findings that I have now made in that regard, and Ms Kaur concedes that the legal costs to which it refers include such costs. The second is that the referee's report does not allow findings as to particular amounts, where it leaves open the prospect of assessment of the costs claimed. It will therefore not be possible to make orders in respect of these amounts and I will reserve liberty to apply in that regard. The parties would be well-advised to compromise these amounts, to avoid the risk that any distribution of the amounts paid into Court by Ferndale's administrators to any party will be substantially delayed by further disputes as to this issue.
I will, as the Messrs Harpley submit I should, also note the acknowledgement given by ALI at the hearing before me that it is obliged to credit a sum of $100,000 paid to CCF by Epic Mining Pty Ltd on 3 August 2018.

Order as to the costs of the reference

The Messrs Harpley submitted that an order should be made that CCF and ALI pay 30% of their costs of and incidental to the reference. That order reflects the referee's provisional finding as to costs which I adopted, but I will make it in a somewhat different form to take account of the complexity that CCF appeared at the reference and ALI now has the benefit of amounts payable pursuant to the reference, by providing that that amount is to be deducted from any further amount otherwise payable by Fearndale to ALI and to be remitted by Fearndale's administrator to the Messrs Harpley in discharge of that liability. The Messrs Harpley, ALI and Fearndale's administrator did not oppose an order in that form.
The Messrs Harpley also seek an order that CCF and ALI pay the Plaintiffs' costs of and incidental to the adoption of the report. That order should be made against CCF and ALI where each participated in part of the process in respect of adoption of the report. I will again make an order that that amount is to be deducted from any further amount otherwise payable by Fearndale to ALI and to be remitted by Fearndale's administrator to the Messrs Harpley in discharge of that liability. Again, the Messrs Harpley, ALI and Fearndale's administrator did not oppose an order in that form.
The Messrs Harpley also seek an order that no costs of CCF or ALI of or incidental to these proceedings be allowed out of the property subject of the proceedings. ALI responded that the Messrs Harpley sought injunctive relief, presumably as to the question of costs, without identifying the basis for that relief. Whether or not the relief sought by the Messrs Harpley as to costs is properly characterised in that way, I will not make that further order at this stage, although I have made findings in the first judgment and further judgment that have the consequence that CCF, and ALI as its successor, are each disentitled from relying on any rights under the loan agreements or mortgage in respect of the costs of the reference. It is not necessary to make any further order as to that matter at this stage since the moneys realised from the sale of the secured asset have been paid into Court and there is no risk that they will be paid out of Court other than by an order of the Court. Such an order would likely only be made in accordance with and not contrary to the findings in the further judgment. It is also likely that the Court would only make an order for any further payment out of Court when the administrator has identified and assessed all claims against Fearndale's assets, including claims of other parties which have foreshadowed claims to secured status in addition to or in competition with ALI's claims as a secured creditor.

ALI's further claims

ALI indicates that its proposed orders do not concern additional amounts that ALI seeks in respect to costs after early April 2019, although it seeks to reserve various matters in those orders, and submits that it should be given the opportunity to seek payment of further amounts out of the sale proceeds for additional amounts it claims to be owed for the period after early April 2019. There is no occasion to make any order addressing these matters, which do not arise from the reference or the hearing before me. Such orders would not give effect to the referee's report or the judgment. Any further applications that may be brought by ALI in that regard will likely to be adjourned to be determined at the same time as any other disputes involving other parties in respect of claims to the amount paid into Court by Fearndale's administrator. The administrator supported that approach.

Liberty to apply as to other matters

The Messrs Harpley sought to reserve liberty to apply and, as I noted above, ALI sought to reserve liberty to apply for payment out of additional monies from the monies held in Court. I will not make such orders, since these orders are not a platform from which further disputes between the parties as to other matters may be launched, other than the specific issue as to legal costs as to which I have reserved liberty to apply.

Orders

Accordingly, I make the following orders: 1 Order that the report of the referee, Mr Gregory Burton SC dated 8 July 2019 ("the Report") be adopted. 2 Declare that the amounts owing pursuant to the mortgage and guarantee are, subject to any additional amounts determined pursuant to paragraph 3 below: 2.1 Principal i $1,618,762.48; ii $59,464.70 from 19 December 2014; iii $5,100 per annum calculated daily from 20 December 2014 and debited quarterly from 17 February 2015; iv $35 per month with the first payment to be added on 20 February 2015 and thereafter on 20th of each month. 2.2 The sum of $100,000 noted in paragraph 7 below shall be offset and credited against the principal from 3 August 2018. 2.3 Interest on, the principal sum calculated at; i 8.66% compounding with daily rests from 19 December 2014 to and including 19 January 2015 and; ii 11.66% compounding with daily rests from 20 January 2015. 2.4 Costs and fees i. The fees of the third defendant (second receiver) $161,123 ii. The third defendant's expenses (other than legal expenses) $1,055.55 iii. The second defendant's fees and expenses (other than legal expenses) $60,215 iv. Management expenses of CCF $205,000

3 Reserve liberty to apply as to the quantification, after any assessment (or agreement in lieu of assessment) and after excluding the amount of costs attributable to the reference, of the third defendant's legal expenses (quantified by the referee as $90,445.70), the second defendant's legal expenses (quantified by the referee as $121,102) and CCF's legal expenses (quantified by the referee as $730,339). 4 Order that CCF pay 30% of the First and Second Plaintiffs' costs of and incidental to the reference on the ordinary basis as agreed or assessed, provided that the amount payable under this order is to be deducted from any further amount otherwise payable by Fearndale to ALI and to be remitted by Fearndale's administrator to the Plaintiffs in discharge of that amount, reducing CCF's liability for costs to the extent that amount is paid in that manner. 5 Make no order in respect to the costs of CCF and ALI of and incidental to the reference with the intent that they should bear their own costs of those matters. 6 Order that the CCF and ALI pay the Plaintiffs' costs of and incidental to the application for the adoption of the Report, on the ordinary basis as agreed or assessed, provided that the amount payable under this order is to be deducted from any further amount otherwise payable by Fearndale to ALI and to be remitted by Fearndale's administrator to the Plaintiffs in discharge of that amount, reducing CCF's and ALI's liability for costs to the extent that amount is paid in that manner. 7 The Court notes the acknowledgement of ALI given by its counsel on 11 December 2019 that ALI is obliged to credit the sum of $100,000 paid to the first defendant by Epic Mining Pty Ltd on 3 August 2018.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2019

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