KATION PTY LTD v LAMRU PTY LTD; LEWIS v NORTEX PTY LTD [2010] NSWCA 102 | Case summary

10 MAY 2010 KATION PTY LTD v LAMRU PTY LTD; LEWIS v NORTEX PTY LTD (In liq) [No 4] Judgment of the Court 1 THE COURT: The principal judgment in relation to this litigation was handed down on 12 June 2009: Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) [2009] NSWCA 145. Kation Pty Ltd and Mr Peter Lewis ("the appellants") were unsuccessful, the appeal being dismissed and the appellants being ordered to pay the costs incurred by Lamru Pty Ltd's ("Lamru") in the appeal: original orders (2) and (8)(a). A cross-appeal brought by Lamru was partly successful. That required the variation of the orders made by the trial judge (Hamilton J) on 15 August 2006. One such variation involved the amounts of the loan account balances in favour of Kation and Lamru in the Nortex unit trust. 2 In order to permit the balances to be calculated and for other specific purposes, the original orders were directed not to be entered for a period of 28 days and thereafter only with the leave of a judge of the Court: original order (12). The parties were given leave, strictly limited in its terms, to make further submissions. 3 On 21 December 2009 the Court handed down its second judgment: Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) (No 2) [2009] NSWCA 428. It made certain variations to the original orders and, subject to two exceptions, directed that the orders be entered forthwith. The exceptions were original orders (6) and (11) dealing with costs. In respect of those orders, the parties were given leave to provide written submissions, a course which each followed. This judgment deals with the outstanding issues with respect to costs. Scope of leave 4 There was some confusion demonstrated in the submissions as to the scope of the grant of leave with respect to costs. Lamru made submissions with respect to the proportion of its costs at trial which should be paid by the appellants. The appellants contended that the grant of leave did not extend so far and made no response to the substance of Lamru's submissions. The uncertainty arose from the terms of the grant of leave which permitted submissions "with respect to the variation of orders (6) and (11) made on 12 June 2009 as to the costs of the trial and in this Court". It was only those two orders which were not to be entered forthwith. Accordingly, it was only those orders in respect of which variation is now possible. 5 The trial judge made three orders in relation to costs on 15 August 2006, namely: "11. Order that Kation and Lewis pay 70 per cent of Lamru's costs of both proceedings No 3081 of 1997 and No 1750 of 2002. 12. Order that there be no order as between Lamru and the Liquidator as to the Liquidator's costs of either proceedings No 3081 of 1997 or No 1750 of 2002. 13. Order that the Liquidator may have his costs of proceedings No 3081 of 1997 and No 1750 of 2002 out of the assets of the company." 6 Nothing now turns on order (13) made by the trial judge; Lamru's position in respect of that order was protected by this Court making a further order (14), providing for the appellants to indemnify Lamru to the extent that the Liquidator's costs diminish Lamru's interests in the assets of Nortex Pty Ltd (In liq) ("Nortex"). The explanation for that order was to be found in the following passages in the first judgment: "215 Because the liquidator acted in Kation's interests, Kation could not complain if the liquidator's costs were to be paid first out of Kation's interests in any reconstituted fund. If that order were made, the next question is whether, if those interests are insufficient to meet the costs of the liquidator with respect to the issue in question, he should be entitled to recover the balance from the interest payable to Lamru. Because his conduct, vis-à-vis Lamru, was indeed an abandonment of a position of neutrality, such recovery would not be equitable. 216 To a significant extent, Lamru's complaint about the costs incurred by the liquidator and recouped from the trust funds, are met by its success in obtaining orders for payment of various amounts directly to it from Mr Peter Lewis and Kation. As noted above, there was no application on foot with respect to the quantum of the liquidator's remuneration. Accordingly, the only relief which would have been available to Lamru would be to limit the rights of recovery by the liquidator to such share of the reconstituted trust as was part of Kation's entitlement. Lamru also sought an order that Kation and Mr Peter Lewis indemnify Lamru in respect of any part of the liquidator's costs which were to be payable out of Lamru's share. … 219 In the circumstances, it is appropriate that Lamru have an order that, to the extent that costs incurred by the liquidator have been paid out of its share of the trust fund, it should be indemnified by Mr Peter Lewis and Kation in respect of that amount." 7 In relation to order (11) made by the trial judge, this Court did not propose any variation. That position was explained by the following passage in the original judgment at [196]: "It is clear that there were issues litigated before Hamilton J which neither side won and at least one set of issues which Lamru lost. Although Lamru has enjoyed some further success on its cross-appeal in relation to the 'clean hands' defence, the trial judge treated Lamru as successful on the stock fraud issue and entitled to its costs, despite not obtaining all the relief it sought: see [2006] NSWSC 480 at [29]. No reason has been demonstrated for interfering with the apportionment of costs as between Lamru on the one hand and Mr Peter Lewis and Kation on the other. Assuming that the recoverable costs of each side were the same, 85% of those costs were to be borne by Mr Lewis and Kation. So far as the cross-appeal seeks to interfere with that finding, it should be rejected. Indeed, in so far as leave was required to interfere with that finding, that is to the extent to which the challenge was not consequential upon other substantive challenges, leave should be refused because no real argument was mounted in its favour." 8 Lamru had earlier suggested that there should be a variation of the trial judge's order (11) in the event that it was entirely successful, or evenly partly successful, on the appeal. Those submissions have been repeated, with the acceptance that it was not entirely successful. However, as indicated in the original judgment at [196] set out above, the Court took account of the degree to which Lamru was successful on the cross-appeal and declined to interfere with the costs order made by the trial judge, on the basis that it adequately reflected a reasonable apportionment of success and failure, taking into account the findings of this Court. The further grant of leave was not intended to allow reagitation of that issue. Even if it had been, there was nothing further in Lamru's submissions which would have led the Court to reopen that question, were that course available. Costs of trial as between Lamru and the Liquidator of Nortex 9 The two orders with respect to which further submissions were invited read as follows: "(6) Set aside order 12 [made by the trial judge] and in lieu thereof order that the Liquidator pay 30% of Lamru's costs of the claims: (i) with respect to the Mark Lewis bonuses, and (ii) its entitlement to costs at trial. … (11) Order that the Liquidator pay 50% of Lamru's costs of its cross-appeal with respect to the issues identified in (6) above." 10 This Court's orders were intended to reflect the liquidator's heavy expenditure of funds in the course of the litigation, to a significant extent in support of the appellants and in circumstances where there was no reason to suppose that they would not (as they did) actively defend their own position: see first judgment at [189] and [198]-[210]. To the extent that the liquidator actively supported the appellants on issues on which they were unsuccessful, it should bear joint responsibility for part of the costs payable by them, but not so as to render those costs payable out of the assets of the company which might otherwise be available for distribution to Lamru, in accordance with the judgment of the Court.

12 Original order (11) in this Court required the liquidator to pay 50% of Lamru's costs of its cross-appeal with respect to the issues identified in (6) above. The scope of the cross-reference was perhaps unclear in that the only specific issues identified in (6) above related to the Mark Lewis bonuses. However, as no party made submissions seeking a variation of order (11), it should stand in its present form. 13 As a postscript, it may be noted that whilst this judgement was awaiting final approval from a member of the Court who was on leave, and months after the timetable for submissions had passed, a further submission was received from counsel for Lamru seeking a further variation of order (11) to reflect its success in respect of the expenditure of legal fees improperly accounted for as an expense of Nortex. No leave was sought to raise this issue out of time and no leave is granted. The submission is disregarded. Conclusions 14 There should be no variation of the orders and they should be entered forthwith. 15 The Court makes the following orders:

KATION PTY LTD v LAMRU PTY LTD; LEWIS v NORTEX PTY LTD

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