Kennett v Charlton [2007] NSWSC 190 | Case summary

6422/06 PETER DAVID KENNETT v CHRISTOPHER JOHN CHARLTON & ORS EX TEMPORE JUDGMENT 1 Before the Court is an application by the plaintiff to pay into court moneys held in a bank account, being moneys claimed from the plaintiff by each of the defendants together with an order that the plaintiff be dismissed from the proceedings. 2 The plaintiff is a solicitor who acted for the second defendant in a conveyance. The second defendant is a corporate trustee of a superannuation fund. The first defendant is the administrator of the estate of a former director of the corporate trustee who was also a beneficiary of the superannuation fund. The third defendant is a director of the second defendant and a beneficiary of the estate of the deceased. 3 The application is for relief by way of interpleader. Draft orders have been prepared and there is no contention with respect to an order that the plaintiff pay into court the moneys held in the bank account. There is no dispute that consequent upon that order and consequent upon dealing with other matters the subject of the draft orders, the plaintiff should be dismissed from the proceedings. 4 The contentious issues are an application by the plaintiff for costs on an indemnity basis and an application by the plaintiff for an indemnity from the defendants for any penalty or interest incurred as a result of tax liabilities owed to the Australian Taxation Office by the second defendant. 5 The dispute with respect to the indemnity arises because of a difference of view between the parties as to the payment of an amount of $9,251.00 to a firm of accountants. That is a relatively small amount when the amount in the bank account was of the order of $1.6 million. 6 Correspondence passed between the parties. The solicitors for the second and third defendants informed the plaintiff that the $9,251.00 should be paid to the accountants. The solicitors for the first defendant opposed that course and sought a break down of the fees and answers to a series of questions before the first defendant would agree to payment. 7 The solicitors for the second and third defendants in some correspondence acted on behalf of the directors of the second defendant in demanding that the moneys be paid out to the accountants. 8 Correspondence between the plaintiff and the solicitors for the first continued with the plaintiff, on at least two occasions, seeking an urgent reply to his earlier request for advice on whether he could pay the accountants. 9 The plaintiff put the parties on notice that if the matters could not be settled an application to the court by way of interpleader summons would be made and that would add to the costs. 10 The perceived urgency in the request by the plaintiff for approval of the payment to the accountants was because the second defendant was behind in the lodgement of its income tax returns by four years and it was apprehended that penalties would be incurred. The indemnity is sought by the plaintiff with respect to any such penalties as might arise as a result of the failure to lodge the returns in accordance with the requirements of the Taxation Administration Act 1953 (Cth). 11 So far as the argument for indemnity costs is concerned, reference was made to McPherson, Thom & Co v Sandhurst and Northern District Trustees, Executors and Agency Co Ltd (1929) The Argus Law Reports 240 at 241 where Lowe J said: "In my judgment the rule to be deduced from these cases in regard to costs is that, where the applicant on an interpleader summons has come promptly to the Court when faced with conflicting claims, and has been guilty of no conduct which has increased costs, prima facie he should have a complete indemnity so far as the fund will permit for his costs; that is to say, he is prima facie entitled in such circumstances to his costs as between solicitor and client. In most cases of interpleader, however, the proceedings on the part of the applicant are of the simplest nature, and his costs should not be required to be taxed in order that he should have a full indemnity. In such cases - and these, I think, will be the general rule - the Judge on the hearing will fix the costs of the applicant at an amount which will give that indemnity." 12 On behalf of the first defendant it was submitted that the application for an indemnity was premature, was made against the wrong entities, was too wide and there was no "free-standing" right against the administrator. 13 It was submitted that there was no actual threat of penalties by the Australian Taxation Office. But the occurrence of a penalty is a self-executing activity under the Taxation Administration Act 1953 (Cth). By that I mean that the Act prescribes various penalties for failures to comply with requirements with a right of remission, as a matter of discretion, by the Commissioner of Taxation. There is, in my view, a real prospect that when the taxation returns are finally lodged with the Australian Taxation Office, some penalty will be imposed. 14 It was submitted that the plaintiff has a right of exoneration and reimbursement from the trust fund. So he does, as the trustee of the fund in the bank account. But the effect of the interpleader relief is to put an end to that trust by payment of the fund into court and, by so doing, the plaintiff loses that right of exoneration and reimbursement against the fund. In my view, the need for an indemnity arises by reason of the payment into court. 15 It was submitted that it was not clear who was the correct party to give an indemnity because in Goodman v Blake (1887) 19 QBD 77 at 78 it was said: "…where an order is made on the application of the sheriff, he is entitled to his costs from the period at which he has been called into interpleader action, that is to say, he is entitled, as against an unsuccessful claimant, to costs and possession money from the time of the notice of claim or from the time of sale…" 16 First, this is not such an application. As I have indicated, it is not a question of awaiting the determination of who is the unsuccessful party before the plaintiff be entitled to an indemnity. The indemnity is necessary once the fund is paid into court with an outstanding contingent liability. It is up to the parties who remain adversaries after the moneys are paid into court to argue by whom the liability for any moneys paid under the indemnity should be borne. 17 So far as costs are concerned, it was submitted that the plaintiff did not fall within the proposition in McPherson because he had added to the costs by choosing to bring interpleader proceedings when the simpler process of a trustee paying money into court was open to him. But in circumstances where rival parties were making claims against the fund, that simple process would not have saved costs because the rival parties would have wished to be heard with respect to the moneys in court. Where a trustee of a simple fund, as this was, is faced with claims by rival parties to those funds an application for relief by way of interpleader is the appropriate course to take. 18 It was submitted on behalf of the second and third defendants that the plaintiff should have said at an earlier juncture that his firm could no longer act, and he should have notified the second defendant of that fact and then paid the money into court. 19 In my view, the correspondence clearly indicates that the plaintiff was mindful of his obligations but was faced with the dilemma of rival claims and faced with the dilemma of the refusal to agree to the payment of the $9,251.00 to the accountants. In those circumstances, it is understandable that the matter took some time before it reached the court. 20 The second and third defendants submitted that it was not appropriate for the first defendant to interfere, $9,251.00 was a fair and reasonable sum and it was not for the first defendant to delay matters by making his request to see time sheets. It was submitted that the plaintiff should have paid out to the second defendant and he acted improperly in failing to do so. In my view, when faced with the rival claim of the administrator of the estate, the plaintiff was not in a position to accept the instructions of the second and third defendants and pay out the moneys. The appropriate course was that which he adopted. 21 It was submitted that the third defendant should not have been joined. But there is a suggestion that she might be required to be separately represented, and joining her in this application through abundance of caution has not added to costs because she and the second defendant are represented by the same firm of solicitors. 22 In my view, the plaintiff ought not to be out of pocket as a result of the rival claims upon the fund he holds. I regard him as falling within the principle stated in McPherson. I do not think that any of the arguments raised constitute a reason for denying him indemnity costs. 23 So far as the indemnity is concerned, it does not seem to me to be appropriate that the second and third defendants be ordered to give an indemnity. At all times they sought payment by the plaintiff to the accountants of the $9,251.00. It was the first defendant who stood against that course of action and it is he, in my view, who should give the indemnity. 24 I do not think it appropriate for me to determine the amount of the plaintiff's costs, notwithstanding the suggestion in McPherson and the affidavit material that swears to the amounts incurred. In my view, an order in the form that the defendants pay the indemnity costs forthwith upon assessment or agreement will suffice. I direct the parties to bring in short minutes of order in accordance with my reasons.

Kennett v Charlton

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Judgment (12 paragraphs)

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Cited By (7)