Jadwan Pty Ltd v Rae & Partners

THE COURT ORDERS THAT: Upon QBE Insurance Australia Ltd giving the usual undertaking as to damages, and upon the first, second, third, and fifth respondents undertaking to prosecute the taxation and assessment of costs of this proceeding and of the appeal TAD28 of 2018 with all due diligence -

1. Subject to further order, the applicant (Jadwan Pty Ltd) as the registered proprietor of the land comprised in Certificate of Title Vol. 23609/4 known as 1 Star Street South Hobart, and as the registered proprietor of the land comprised in Certificate of Title Vol. 23609/1 known as 20 Fitzroy Place South Hobart (hereafter referred to as "the properties") must pay or cause to be paid into Court from any net proceeds payable to, or otherwise receivable by it, in consequence of the sale, transfer, mortgaging, or charging of either of the properties to any other person the following amounts - (a) an amount of $375,000 (or such lesser amount as is payable to or receivable by it) in respect of the costs of the first, second and third respondents; and (b) after the payment in paragraph 1(a) above, an amount of $119,200 (or such lesser amount as is payable to or receivable by it) in respect of the costs of the fifth respondent - to be held pending finalisation of the taxation and assessment of costs payable by the applicant to the first, second, third and fifth respondents pursuant to the following orders for costs - (i) the orders made by Kerr J on 29 June 2018; and (ii) the orders made by the Full Court on 29 May 2020.
2. The interlocutory applications of the first to third respondents filed on 10 February 2021, and of the fifth respondent filed on 8 February 2021 are otherwise dismissed.
3. The first, second, third and fifth respondents pay the costs of the non-parties to these interlocutory applications, Julie Ann Alexander, Joan Isobel Alexander, Wayne Noel Alexander, Stephanotis Pty Ltd and Centaurea Pty Ltd, on an indemnity basis as agreed or assessed.
4. The applicant (Jadwan Pty Ltd) pay 60% of the first, second, third and fifth respondents' costs of the interlocutory applications against it on a party and party basis as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This proceeding has a long history. It was commenced in the Supreme Court of Tasmania in February 2003, and was cross-vested to this Court by orders made on 12 August 2016. On 29 June 2018, and following the trial of the proceeding, a Judge of this Court made orders dismissing the proceeding, and ordered that the applicant (Jadwan) pay the costs of the respondents. Subsequently, Jadwan appealed the primary judge's decision, and on 9 April 2020, the Full Court dismissed the appeal. Shortly afterwards on 29 May 2020, after receiving submissions in writing, the Full Court ordered Jadwan to pay the respondents' costs of the appeal. On 11 November 2020, an application by Jadwan for special leave to appeal to the High Court of Australia was dismissed with costs. 2 In the following circumstances, the first, second and third respondents, and separately the fifth respondent, seek orders that Jadwan pay into court monies on account of their costs of the proceeding and the appeal that are yet to be assessed. For ease of reference, I shall refer to those respondents as "the respondents", noting that the fourth respondent, which is separately represented, did not make a similar application, and did not appear on the applications.

Security for costs 3 Prior to the trial of the proceeding, the respondents obtained orders that Jadwan provide security for the costs of the trial. The first to third respondents obtained security in the sum of $220,000, and the fifth respondent obtained security in the sum of $180,000. In relation to the appeal, the first to third respondents obtained an order for security for the costs of the appeal in the sum of $75,000, as did the fifth respondent. Jadwan provided security in accordance with the orders. 4 On 30 August 2018, the first to third respondents filed bills of costs of the proceeding at first instance for work commencing in March 2004 in the sum of $652,443.65. In relation to the appeal, the Full Court ordered that costs be assessed by a Registrar on a lump sum basis, and on 10 February 2021 the first to third respondents filed a claim for costs in the sum of $139,703.90. 5 On 20 August 2018, the fifth respondent filed a bill of costs of the proceeding at first instance in the sum of $336,505.28. A Registrar of the Court has provided an estimate of the fifth respondent's costs of $299,200. Jadwan has objected to this assessment. On 8 February 2021, the fifth respondent filed a claim for the costs of the appeal in the sum of $53,932.40. Jadwan has made objections to this claim also. 6 None of the respondents' claims for costs have yet been the subject of formal taxation or adjudication leading to an enforceable order for payment. The differences between the costs claimed by the respondents and in the case of the fifth respondent, the Registrar's estimate, and the security for costs that has been given by Jadwan, are summarised in the following table - Party Costs claimed Corresponding security for costs Difference First to third respondents First instance $652,443.65 $220,000 $432,443.65 Full Court $139,703.90 $75,000 $64,703.90

Fifth respondent First instance $299,200 (Registrar's estimate of costs) $180,000 $119,200 Full Court $53,932.40 $75,000 -$21,067.60

Real property held by Jadwan 7 Jadwan is the trustee of J G and J I Alexander Family Trust (the Alexander Trust). The accounts of Jadwan and of the Alexander Trust for the year ended 30 June 2015 indicate that Jadwan held no property beneficially, and acted solely as trustee of a trust. Jadwan did not tender any further evidence on these applications about its state of affairs. 8 Jadwan is the registered proprietor of two parcels of Torrens title land in Hobart. The land is situated at 20 Fitzroy Place, and 1 Star Street in Sandy Bay. I find for the purposes of these applications that the land is held by Jadwan on trust subject to the terms of any instruments governing the Alexander Trust, and subject to general law. 9 On 29 November 2018, mortgages dated 1 November 2018 were registered on the titles to the two properties. The hearing of the appeal took place between 5 and 8 November 2018. Each of the following persons is a registered mortgagee under a mortgage to secure the following sums that were identified in the instruments - Stephanotis Pty Ltd $1,118,368 Centaurea Pty Ltd $659,481 Joan Isobel Alexander $557,330 Wayne Noel Alexander $169,002 Total: $2,504,181

10 The hearing was conducted on the basis of an acceptance by the parties, and the five non-parties, that the total amount secured by the mortgages is $2,504,181, and that the combined value of the properties was $3,440,000. 11 Each of the mortgage instruments refers to a loan deed and a deed of debt arrangement, neither of which is before the Court. Stephanotis Pty Ltd is the trustee of the Julie Ann Alexander Trust. Centaurea Pty Ltd is a company associated with the Alexander family: Julie Ann Alexander, Joan Isobel Alexander, and Wayne Noel Alexander is each a director and shareholder of the company. On the basis of the information contained in the 30 June 2015 accounts of Jadwan, together with the evidence of Ms Julie Alexander given in cross examination at the hearing of these applications, I find that each of the mortgagees is a beneficiary of the Alexander Trust. 12 In addition, there have been some other dealings with the land. It is not necessary to mention all of them, but they include a transfer in respect of one of the titles of 1/100th share to Julie Ann Alexander, and related to that transaction, the grant of an easement for the benefit of one of the properties. 13 For their part, the respondents have lodged caveats on the titles to the properties pursuant to s 134 of the Land Titles Act 1980 (Tas), claiming to be judgment creditors. I do not find it necessary to determine whether for the purposes of that provision the respondents are judgment creditors, or whether they have a caveatable interest.

The applications 14 The property at 20 Fitzroy Place, Sandy Bay has been offered for sale and there have been public advertisements for the sale of the property. In these circumstances, by further amended interlocutory applications that name Jadwan, the four mortgagees, and Ms Julie Alexander as parties, the respondents seek orders that Jadwan pay monies into court from the net proceeds payable to, or otherwise receivable by it in consequence of the disposal of any interest in either of the properties. The sums that the respondents seek to have paid into court are - (a) $497,000 in respect of the claim for costs of the first to third respondents; and (b) $125,000 in respect of the claim for costs of the fifth respondent. 15 In addition, the respondents seek orders that each of the four mortgagees should pay into court any amount that is payable to, or receivable by them pursuant to the mortgages if Jadwan does not pay into court the sums identified above. The respondents seek these orders pursuant to s 53 of the Federal Court of Australia Act 1976 (Cth), Division 7.4 of the Federal Court Rules 2011 (Cth), which relates to freezing orders, and r 41.10 which relates to execution of judgments generally. 16 Because the respondents' bills of costs have not been assessed or taxed, the respondents are not yet in a position to enforce an order against Jadwan for a monetary amount. Counsel for Jadwan made submissions that the respondents had been dilatory in prosecuting the assessments of costs, although in relation to the fifth respondent, this submission was pressed only faintly. Having reviewed the dates on which the respondents presented their bills and their claims for costs with the Court, I do not accept those submissions. 17 Once the respondents obtain enforceable orders for costs, then Jadwan is directly liable for those costs. However, the respondents are not able to levy execution against property that is not held by Jadwan beneficially: Octavio Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 at 367 (Stephen, Mason, Aickin and Wilson JJ). As I have found, Jadwan is not the beneficial owner of the land in Hobart that is the subject of these applications. Its only beneficial interest in trust property appears to be in respect of its entitlement to be indemnified for liabilities that were not improperly incurred in its capacity as trustee, which operates as a charge on trust assets that is enforceable at least against any unsecured interest of the beneficiaries. The possible mechanisms by which the respondents might seek to enforce a money judgment for their costs include the appointment of a receiver by way of equitable execution to realise the trustee's beneficial interest in the trust property: Levasseur v Mason & Barry Ltd [1891] 2 QB 73; Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; 16 BPR 30,397 at [74] (Barrett JA, Campbell JA and Sackville AJA agreeing). 18 In circumstances where Jadwan is not the holder of any property beneficially, where the beneficiaries of the Alexander Trust are secured creditors under registered mortgages, and where Jadwan proposes to dispose of, by way of sale, the principal assets of the trust, the respondents seek the assistance of the Court to preserve trust assets to aid the enforcement of the costs orders in their favour. The power of the Court to make the orders sought by the respondents was not put in issue. The Court has implied power to make orders of the kind sought by the respondents that is recognised by s 23 of the Federal Court of Australia Act: Jackson v Sterling Industries Ltd [1987] HCA 23; 162 CLR 612. The Court also has express power under Division 7.4 of the Federal Court Rules to make an order for the purpose of meeting a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied (r 7.32(1)), including against a person who is not a party to the proceeding (r 7.34). 19 At the invitation of counsel for Jadwan, the Court heard first from the solicitor who appeared for the mortgagees and Ms Julie Alexander in response to the submissions advanced on behalf of the respondents. As I mentioned earlier, the four mortgagees are also beneficiaries of the Alexander Trust, and Ms Julie Alexander is the sole director of Jadwan. They submitted that the Court should not make an order requiring the mortgagees to pay any money into court. However, they accepted that it was appropriate that sums of $300,000 and $125,000 be paid into court by Jadwan on account of the costs of the first to third respondents, and the fifth respondent, respectively, from the proceeds of sale of the properties after sale and conveyancing costs were paid, and before the mortgages were discharged. On behalf of the non-party respondents it was emphasised that the Court should do only the minimum necessary to do justice between the parties. 20 Counsel for Jadwan submitted that there was no occasion for the exercise of the Court's discretion to make the orders sought to the extent that they required Jadwan to pay any monies into Court. Counsel submitted that the evidence did not disclose that there was any danger of Jadwan dissipating assets, and submitted that on the accepted premises that the combined value of the properties was $3,440,000 and the amount secured by the mortgages was $2,504,181, there would be a surplus even after the amounts claimed by the respondents on account of their costs were met. 21 In relation to prejudice, the only prejudice that I discerned that was claimed in the submissions on behalf of Jadwan and the non-parties was the prospect that Jadwan might have to pay into court more than would ultimately be found due on a taxation or assessment of costs.

Consideration 22 The guidance given by the authorities is that where a freezing order is sought on the basis of a danger of the dissipation of assets, it is not necessary for the Court to be satisfied that the risk of dissipation is more probable than not, and nor is it necessary for the applicant to adduce evidence of an intention on the part of the respondent to dissipate assets: Basi v Namitha Nakul Pty Ltd [2019] FCA 743 at [9] (Wigney J). 23 I reject the respondents' applications to the extent that they seek orders that the mortgagees pay any monies into court. There is no allegation by the respondents that the debts that are the subject of the mortgages do not exist, or that there has been any fraud such as would affect the title of the mortgagees. Prima facie, the mortgagees' interests are indefeasible by reason of the registration of the mortgages: Land Titles Act 1980 (Tas), s 40, when read with the definition of "registered proprietor" in s 3(1). Senior counsel for the respondents did not advance any cogent basis on which the mortgages might be impugned, and specifically confirmed that the respondents did not seek to impugn the mortgages. Although there was a faint suggestion by senior counsel in reply submissions that the mortgages might be voidable in the event of a liquidation of Jadwan, this submission had not been developed, and did not form part of the case to which the solicitor for the mortgagees had responded. I give it no weight. 24 I am unable to accept the submission of Jadwan that there will be a surplus of assets once the properties are realised and debts discharged. Jadwan has not adduced any evidence of its current state of affairs, when it was in the best position to do so: cf, Blatch v Archer (1774) 1 Cowp 63. I am not able to form any conclusions about what other liabilities Jadwan has, and apart from the evidence of Ms Julie Alexander who is the sole director of Jadwan, and her preparedness to have Jadwan pay some money into court, there is no evidence upon which to evaluate the likely course of events once Jadwan realises the principal trust assets. Jadwan itself did not offer any undertakings to the Court, or give any enforceable assurances concerning the potential dissipation of funds once the properties were sold. 25 In all the circumstances, I consider that there is a danger of dissipation of assets, albeit not one that I can quantify with certainty. I take account of the absence of reliable evidence concerning Jadwan's state of affairs, bearing in mind that it is liable at law in respect of all liabilities that it has properly incurred as trustee. Its only beneficial asset apparent on the evidence is its interest in the trust assets that corresponds to its right of indemnity. That asset can be realised only with the cooperation of Jadwan, or by a court order involving the appointment of a receiver. As I have mentioned, Jadwan by its counsel has not advanced any undertakings to the Court, and resists any type of order: see in an allied context, Laundry Coin-Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584 (Smithers J). 26 I shall act on the concession of the beneficiaries and of Jadwan's sole director Ms Julie Alexander that some money might be paid into court by Jadwan pending assessment of the respondents' costs: see Trailer Trash Franchise Systems Pty Ltd v GM Fascia & Gutter Pty Ltd [2017] VSCA 293 at [71]-[72]. However, in accepting that concession, I am not bound by the figures that were advanced, and nor am I bound to accept the concession that the monies paid into court should be in priority to the interests of the mortgagees, for which I see no basis. The purpose of the orders that are sought is to preserve trust assets in aid of execution, and not to enable the respondents to gain a de facto security interest, or an interest in priority to the mortgagees or other creditors. In this respect, senior counsel for the respondents accepted that any payment into court did not give the respondents any greater security over trust assets, including any fund in court established pursuant to such an order. 27 The amount of party and party costs claimed by the first to third respondents in excess of the amounts that Jadwan has provided by way of security for costs is $497,147.55. I am prepared to infer that the bills were professionally prepared, and represent bona fide claims for costs. The total claim for costs is $792,147.55. Although there was no evidence adduced by Jadwan that provided any basis for finding that any particular claim by the first to third respondents was excessive, taking a broad approach to the issue, I am prepared to accept that claims for costs of that magnitude rarely, if ever, survive the scrutiny of a taxation. Doing the best I can to do the minimum necessary to do justice between the parties, and to reduce the prospect of prejudice to Jadwan, I consider that Jadwan should pay into court the sum of $375,000 from the proceeds of the sale of the properties on account of the costs of the first to third respondents. 28 In relation to the fifth respondent, in the absence of evidence to suggest any error in the Registrar's estimate of its costs of the proceeding at first instance in the sum of $299,200, I will act on the Registrar's estimate as being reliable and objective. The difference between this sum and the security that was provided by Jadwan is $119,200. Jadwan should pay that sum into court. As to the costs of appeal, Jadwan has given security for the fifth respondent's costs of the appeal in an amount that exceeds the costs that are claimed, and no further amount needs to be considered. 29 Senior counsel for the respondents offered two undertakings to the Court on which the orders will be conditional. First, he offered an undertaking as to damages on behalf of QBE Insurance Australia Ltd, which is conducting the litigation on behalf of the respondents. Second, he offered an undertaking on behalf of the respondents to prosecute the assessments of costs with due diligence. 30 I will hear the parties on the question of the costs of the applications. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wheelahan.

SCHEDULE OF PARTIES TAD 39 of 2016 Respondents Fourth Respondent: JANET KAY HOGAN AS THE EXECUTRIX OF THE ESTATE OF THE LATE JOHN MICHAEL HOGAN Fifth Respondent: WORSLEY DARCEY & ASSOCIATES (A FIRM)