Lewis v Nortex Pty Ltd

J T Johnson (Kation P/L & P L Lewis) COUNSEL : S J Motbey (Lamru P/L) P A Somerset, Solicitor (Liquidator) M Wilks, Solicitor, later M P Cleary (M Lewis) Kemp Strang (Kation P/L & P L Lewis) SOLICITORS : Lyons & Lyons (Lamru P/L) Abbott Tout (Liquidator) Corrs Chambers Westgarth (M Lewis) CATCHWORDS : PROCEDURE [671] - Costs - Security for costs - Practice matters - Order for security by cash deposit or bank guarantee - Application for variation of order to permit guarantee to be given by controller of plaintiff and his wife. LEGISLATION CITED : Corporations Act 2001 (Cth) s 471B Supreme Court Rules 1970 Part 8 r 14 CASES CITED : Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 237 Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 238 DECISION : Previously announced decision as to security for defendants' costs varied to allow for written guarantees by the plaintiff's controller and his wife rather than undertakings to the Court. Nortex Pty Ltd (in Liq) joined as fourth defendant and leave to proceed granted. Vacation of fixture refused.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LTD (In Liq) 1750/02 LAMRU PTY LTD v KATION PTY LTD & ORS JUDGMENT 1 HIS HONOUR: Yesterday afternoon and today there have been before me a number of further applications by way of notice of motion and for directions in these complicated matters. The nomenclature I shall adopt in this judgment is: the plaintiff - Lamru Pty Ltd; the first and second defendants - Kation Pty Ltd and Peter Lewis; the third defendant - Mark Lewis; and the liquidator - the liquidator of Nortex Pty Ltd (In Liq). 2 Yesterday I delivered judgment concerning an application dated 21 March 2002 for the calling as a witness of a Mr Potter and I dismissed that application: Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 237. I also delivered judgment on a notice of motion of the plaintiff of 21 March 2002 by way of review of a decision of the Registrar relating to security for costs. I postponed the making of orders in relation to that matter until today. Likewise, I delivered judgment on a notice of motion of the third defendant relating to security for costs but postponed the making of orders in relation to that until today: Lewis v Nortex Pty Ltd (in Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 238. Various further applications have continued to be agitated before me today, as will appear subsequently in these reasons for judgment. 3 Having given the matter of the plaintiff's motion for variation of the Registrar's order for security for costs further consideration overnight, I have decided that, in my view, the decision I announced yesterday ought be altered in one regard. The form of the guarantee by Mr Lamb and Ms Tilbury of the plaintiff's liability for costs which I contemplated yesterday, was a guarantee to be given by way of undertaking to the Court. Overnight I revised my opinion concerning this and came to the view that it would be better if the guarantee were given by way of written guarantee, rather than by way of undertaking to the Court. This was what was originally sought by the plaintiff in its notice of motion. Upon my raising this question in open court this morning, the first and second defendants indicated that they would prefer to have the guarantee by way of a written form of guarantee, rather than by way of undertakings given to the Court. This was on the ground that a guarantee in this form would be easier to enforce and would not involve, for the purposes of enforcement, an application against the guarantors for contempt of court, in which the first and second defendants would rather not be involved. The plaintiff, in view of the original form of the prayer in its notice of motion, was equally content that the order should be made in this form. The first and second defendants did ask that the form of guarantee should contain a provision to the effect that the guarantee should not be revoked without the written consent of the first and second defendants or the leave of the Court. The plaintiff again consented to the inclusion of a term to this effect in the form of written guarantee and I shall mould the order to be made accordingly. 4 The third defendant also applied before me for security for costs. Had this application involved any assessment on my part of the strength of the plaintiff's case against the third defendant or any assessment of the credit of any of the parties, I should have declined to hear it, as I declined to hear the first and second defendants' original application for security for costs; it would have had to go either to the Registrar or to another Judge. However, yesterday for the first time the plaintiff, through Mr Motbey of counsel, consented to the making of an order for security and thereafter contested only the quantum of the order and the mode in which security was to be given. As the decision of these questions did not trench upon the matters which I felt I should avoid, I proceeded to assess the security at $50,000 and to determine that security should be given in favour of the third defendant in the same way as it is to be given in favour of the first and second defendants as a result of the Registrar's order as modified by me. No objection is taken by Mr Cleary, of counsel for the third defendant, to my modifying the form of the guarantee by which security may be given from the form in which I was minded to make the order yesterday to the form in which I propose to make the order today. 5 Another question that has been raised before me and which I propose to determine today is that it has been suggested to me, in light of the fact that the plaintiff's claim in proceedings 1750/02 allege breaches of trust by Nortex Pty Ltd as the then trustee of the Nortex Unit Trust, that Nortex Pty Ltd (in Liq) is a necessary party to those proceedings and ought be joined as fourth defendant. Mr Motbey protested that this was not necessary, since no relief was sought in those proceedings against Nortex Pty Ltd (in Liq). However, the rules, particularly the rules in equity proceedings, as to the necessity for the presence of parties are not limited to the joinder of parties against whom relief is sought. Parties frequently have to be joined because of their interest in property or otherwise in the subject matter of proceedings, so that they may be bound in relation to the result. In my opinion, there is a problem if Nortex Pty Ltd (in Liq) is not joined as fourth defendant to these proceedings. That does not mean that it is necessary for the plaintiff to claim relief against that party or to amend its proceedings otherwise than by the joinder of that defendant. Leave for this joinder under s 471B of the Corporations Act 2001 (Cth) is necessary and that leave I shall grant. 6 Mr J Johnson, of counsel for the first and second defendants, has pressed me on various occasions, including yesterday and this morning, to vacate the fixture of these proceedings for 10 April 2002 and seven subsequent days. He has foreshadowed various reasons why he says that his clients may suffer injustice if the proceedings are forced on on those days. I refuse his application at this time to vacate that fixture. There are reasons why the proceedings ought be brought on for trial as soon as possible and, despite gaps in the preparation which currently appear, it is certainly not clear to me at the moment that it would not be advantageous, from all parties' points of view, to commence the proceedings at that time and to proceed some way down the track as, for instance, by having the affidavits to be used identified and read, objections to those affidavits taken and determined and bodies of documentation that are to be tendered on the hearing tendered and objected to as necessary. It may be possible even to conduct some cross examination in the proceedings so that they may be taken as far as possible in the available time. I am not saying that any of those things will necessarily occur. What will occur at the time will be subject to applications made at the time and my determination of those applications in the light of circumstances then prevailing. 7 One important fact that I have taken into consideration in deciding to proceed in this fashion is that it is quite clear to me, and all at the bar table now agree with me, that the proceedings as they are now constituted will not be able to be tried to finality during that eight day period and will have to go over for some time. The availability of that time will cure many problems of lack of preparedness. In addition, as I have explained to Mr Johnson, to any extent that I am convinced at the time that any party will suffer prejudice by the proceedings being conducted to any extent at all during the April fixture, I shall not allow the proceedings to go ahead in a fashion which will be to the demonstrated prejudice of any party. On the other hand, it seems to me that to say that the fixture should simply be cancelled and the matter now go over for some considerable time is to allow the matter to return to limbo and to come back to the Court again at a later time with many of the problems unresolved, the solution to which may well be able to be found or advanced during the course of the April fixture. 8 I have dealt with various questions and difficulties that the parties have raised as to the conduct of the proceedings in the directions that are numbered 8 to 13 of the orders that I propose to make. I shall reserve liberty to restore on 12 hours notice so that any further applications that are necessary in relation to preparation, either arising from those directions or otherwise, may be made in the interim. The first and second defendants have sought leave to file in court points of defence and amended cross claim. To a large part of that document the plaintiff has no objection and, rather than have the document divided into two, I propose to allow the whole document to be filed in Court at this stage. However, there are serious questions as to whether the matters pleaded in paragraphs 42 to 63 inclusive of the amended cross claim raise a totally new matter; whether that matter, if allowed in these proceedings, can be dealt with at all during the April fixture; and, indeed, whether they ought be allowed to be agitated at all in the trial of these proceedings which is to be conducted before me or whether they ought be ordered to be decided separately from and after other questions in the case. I therefore propose to direct that the defendants not be at liberty to rely on those paragraphs of the amended cross claim without the further leave of the Court. The first and second defendants are to be at liberty to reapply for the right to rely on paragraphs 42 to 63 when the trial commences on 10 April, so that those questions can then be determined in the light of the circumstances then prevailing. 9 There is one other matter that has been agitated before me which I do not propose to determine this afternoon. That is the plaintiff's notice of motion of 3 August 2000 concerning representation of the trust in the proceedings before me. That was originally an application for the appointment of a new trustee of the Nortex Unit Trust, Nortex Pty Ltd (in Liq) having ceased, by virtue of a provision of the trust deed, to be trustee upon its being placed into liquidation. As a result of debate which has taken place before me, the application as it is now made is an application, not for the appointment of a new trustee but for the appointment of a representative of the trust pursuant to Part 8 r 14 of the Supreme Court Rules 1970. Mr Johnson, at one stage, argued that the present circumstances did not fall within Part 8 r 14 as not within paragraphs (a), (b) or (c) of r 14(1). However, it is quite clear to me that the proceedings do concern property subject to a trust within the meaning of r 14(1)(b) and the Court may therefore act under that rule. 10 At one stage there was a suggestion that Mr Silvia, the liquidator of Nortex Pty Ltd (in Liq), should be appointed as the current representative of the trust. However, I have been convinced that there is a sufficient risk of a conflict between the interests of the ongoing trust and the former trustee of which Mr Silvia is the liquidator, to make that appointment undesirable, although it would have had the advantage of involving the least possible cost, because Mr Silvia is already seized of the subject matter of the proceedings. The currently competing versions are that Mr Watson, a qualified liquidator, should be appointed to the position, he being a person whose consent to be appointed has been obtained by the plaintiff. Furthermore, the first and second defendants concede that Mr Watson is a suitable person to be appointed and no objection has been raised by any other party to the identity of Mr Watson as a potential appointee. Mr Johnson has, however, pressed on me that no appointment is necessary, as the only beneficiaries of the Nortex Unit Trust are Lamru Pty Ltd and Kation Pty Ltd, the plaintiff and the first defendant respectively, so that all relevant persons are already parties to the suit and liable to be bound by its result. 11 There is a deal of force in this submission which has caused me to pause and I do not propose finally to determine this matter this afternoon. There is, however, some lingering thought in my mind that it may be desirable to have a specific single representative of the beneficiaries as a party to the suit, to preclude any possible suggestion either that Lamru Pty Ltd or Kation Pty Ltd is not bound, because there is no claim against it in its guise as a beneficiary of the trust or that there was not present, as a party to the suit, a single representative of the trust, who could decide, if necessary, whether some defence ought be raised or some action taken on behalf of the beneficiaries collectively in relation to the subject matter of the proceedings. Whilst anxious not to cause the generation of additional costs, I am at the moment rather of the view that the latter course would be the more prudent. I have already made it plain during the course of argument that to control the situation as to costs I should attach conditions to the appointment of the representative. Those conditions would include a condition that the representative should not play an active part in the proceedings and therefore generate costs, except by leave of the Court, on application for which leave the necessity or appropriateness of the proposed action could be the subject of submissions by all interested parties and scrutiny by the Court. Rather than proceed to a decision at this late hour of the day, I propose to reserve my judgment on this notice of motion to the intent of delivering judgment one day next week to give the representative, if appointed, some time to consider his position before the commencement of the hearing on 10 April 2002. 12 I propose to reserve the costs of the argument before me, save in relation to the two notices of motion relating to security that will finally be disposed of by the orders that I am now proceeding to make. In relation to the plaintiff's notice of motion of 21 March 2002, the plaintiff has obtained, in effect, precisely what it asked for in that motion and over the opposition of the first and second defendants. Mr Cowled, solicitor, who is representing the first and second defendants this afternoon, is unable to put anything in opposition to his clients, in those circumstances, being ordered to pay the costs of that motion and I propose to make that order. Equally, it appears to me that the plaintiff cannot resist an order in the third defendant's favour in relation to the third defendant's notice of motion dated 20 March 2002. The plaintiff ultimately consented to the making of an order for security for costs, engaging in argument only as to the quantum and form, but that concession was made only yesterday afternoon, after the entire costs of the motion had been substantially incurred. In those circumstances, I propose to order that the plaintiff pay the third defendant's costs of that motion. However, as this afternoon no one has attended who could put any argument to me to the contrary of this, the plaintiff being represented by Mr Cowled, solicitor for the first and second defendants, for the purpose of receiving these reasons for judgment and the orders that I am to make, I shall direct that the relevant order not be entered before 11 April 2002, so that the plaintiff may apply at the commencement of the trial on 10 April 2002, if it can advance any grounds on which I ought make any other order for the costs of the motion than the one I now propose to make. 13 I make the following orders: 1 On the notice of motion of the plaintiff dated 21 March 2002 order that the order of the Registrar made on 15 March 2002 be varied (a) by providing that the security ordered shall be security for costs in both proceedings 3081/97 and 1750/02; (b) by providing that the security for costs ordered by the Registrar may be provided by Russell William Lamb and his wife Ms Tilbury lodging with the Court a joint and several written guarantee of the liability of the plaintiff to pay costs in the proceedings to the extent of $120,000 such guarantee to contain a provision that it shall not be revoked without the written consent of the parties benefited by it or the leave of the Court provided that there be lodged with the guarantee an affidavit or affidavits deposing that Ms Tilbury has before executing the guarantee received appropriate independent advice as to the giving of such a guarantee and its consequences; (c) that the security for costs ordered be provided on or before 5 April 2002. 2 On the notice of motion of the third defendant dated 20 March 2002 by consent order that the plaintiff furnish security for the costs of the third defendant. 3 Order that the security for the costs of the third defendant be in the sum of $50,000 and be provided on or before 5 April 2002 in the manner provided in the Registrar's said order or order 1(b) of these orders mutatis mutandis. 4 Grant leave to the plaintiff in 1750/02 pursuant to s 471B of the Corporations Act 2001 (Cth) to join Nortex Pty Ltd (in liq) as a defendant to those proceedings and maintain those proceedings against that defendant. 5 Order that Nortex Pty Ltd (in liq) be joined as the fourth defendant in proceedings 1750/02. 6 Reserve judgment in the plaintiff's motion of 3 August 2000 concerning representation of the trust in the proceedings. 7 Grant leave to the first and second defendants to file in Court points of defence and amended cross claim but direct that the first and second defendants not be at liberty to rely on paragraphs 42 to 63 inclusive of the amended cross claim without the further leave of the Court. 8 Direct that the plaintiff today specify in writing to the defendants and the liquidator the attachments referred to as "some attachments only" in its communication of 26 March 2002 specifying the affidavit evidence on which it intends to rely and the portion of the affidavit of Jason Frost sworn 2 June 2000 intended to be relied on. 9 Direct that all other parties on or before 28 March 2002 furnish to the third defendant copies of the affidavits filed by them referred to in that communication and any other affidavits on which they at present intend to rely. 10 Direct that the defendants and the liquidator on or before 5 April 2002 serve any further affidavits on which they intend to rely. 11 Direct that the plaintiff on or before 5 April 2002 serve on the other parties and deliver to my Associate: (a) Judge's bundle (1 copy) of copy pleadings (all parties) in their up to date form and copy affidavits proposed to be read on behalf of the plaintiff (without annexures). (b) Paginated bundle (2 copies) of documents (including annexures and exhibits to its affidavits) arranged in chronological or some other logical order. 12 Direct that all other parties on or before 9 April 2002 serve on the other parties and deliver to my Associate: (a) Judge's bundles (1 copy) of copy affidavits proposed to be read on their behalf (without annexures). (b) Paginated bundles (2 copies) of documents (including annexures and exhibits to their affidavits) arranged in chronological or some other logical order. 13 Direct that all parties have present in Court on 10 April 2002 lists of objections to affidavits and documents in the bundles specifying the portions objected to and indicating briefly the grounds of objection. 14 Order that the first and second defendants pay the plaintiff's costs of its notice of motion dated 21 March 2002 and the plaintiff pay the third defendant's costs of his notice of motion dated 20 March 2002 otherwise costs reserved. 15 Direct that order 14 be not entered before 11 April 2002. 16 Liberty to restore on 12 hours' notice.

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