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[2011] NSWSC 1616
Supreme Court of NSW
2011-11-03
Slattery J
Original judgment source is linked above.
EX TEMPORE Judgment 1HIS HONOUR: I gave my principal judgment in these proceedings on 10 October 2011: Peters v Lithgow Forge Pty Ltd [2011] NSWSC 1185. In this judgment I will refer to parties, places and events by the same names as they are referred to in the principal judgment. 2The parties are in issue about a number of matters to do with the form of the orders that are to be made resulting from the principal judgment. Those issues seem to fall into three main baskets. The first basket relates to the plaintiff's costs. The second basket relates to the third defendant, Ms Allen's costs. The third basket relates to questions of whether relief in the nature of a freezing order should be incorporated into the orders made. I will deal with each of these in turn.
The Plaintiff's Costs 3In relation to the plaintiff's costs there are two subissues. The plaintiff has been substantially successful and says that based on an early offer of settlement he should have his costs on an indemnity basis. He also says that his costs should not be reduced on account of the late amendment to the proceedings, upon which the plaintiff was successful. I will deal with each of these sub-issues in turn. 4As my principal judgment set out, the plaintiff brought proceedings on a creditor's petition in the Federal Magistrates Court, in mid2009. Those proceedings were ultimately withdrawn before these proceedings were commenced, as my principal judgment also describes. But in those bankruptcy proceedings the plaintiff says that it made a Calderbank offer to settle its claim, which it is said would now base the making of an indemnity costs order. 5The May 2009 offer the plaintiff made in the Bankruptcy proceedings was that the respondent pay the plaintiff $170,000 as follows: $85,000 by 1 June 2009, $42,500 by 1 September 2009, and $42,500 by 1 December 2009. In this offer the applicant indicated: that he made no claim as to interest; that he would discontinue the Federal Magistrates Court proceedings; and, that the offer was open for acceptance until 5pm on Monday 20 May 2009. This offer was not accepted. 6In my view the defendant's submissions in relation to indemnity costs are persuasive. The defendant says that the substance of the issues in those proceedings were different from the issues in these proceedings. These are proceedings to set aside a mortgage and a transfer and for a declaration of a resulting trust. Those proceedings were mainly for recovery of a debt through bankruptcy processes. 7Also it was not until late July 2010 that the full nature of the plaintiff's claim against the various defendants in these proceedings was evidenced, from its pleading amendments. Some of the present defendants to these proceedings were not even parties to the proceedings in the Federal Magistrates Court. It seems to me that the later communication of the full nature of the plaintiff's claim after the expiry of the May 2009 offer and the more complex relief claimed against more defendants in these later proceedings makes it quite unreasonable to use the 2009 offer as a basis for ordering indemnity costs against the defendants or any of them. 8The second issue in relation to the plaintiff's costs is whether they should be reduced in any way, by reason of his success on the amendments to the Statement of Claim made shortly before the August 2010 hearing. The Court foreshadowed in the principal judgment that by reason of the late amendment of the resulting cross-claim that there may be an argument available that the plaintiff's costs should be reduced. 9The plaintiff says a number of things on this issue: (1) that the late amendment to claim a resulting trust was only responsive to the defendants serving evidence in late June 2010 which raised for the first time that the property, the subject of the proceedings, was owned by the Wieland Family Heirs Trust; (2) that the amendments were served about 28 July 2010, even though the amendment was sought and granted on the first day of the hearing; (3) that the plaintiff succeeded, in any event on the equitable charge argument and succeeded in setting aside the mortgage, which were not part of the late amendments; and, (4) that the defendants pressed on to hearing with the issues even after the resulting trust argument was raised. 10The defendants rely upon what was said in my judgment. They concede that the plaintiff succeeded on the equitable charge issue but say that little time was spent on that issue. They point out that the plaintiff failed on the share transfer issue which was a bulky issue relating to the third defendant, and that although the plaintiff succeeded on the mortgage issue, the resulting trust issue was only added on the first day of the hearing. 11The plaintiff says that he should have his full costs; the second defendant says that he should pay one quarter of the plaintiff's costs. 12In relation to the plaintiff's costs, the arguments on both sides have merit. Yet the short facts are that the evidence of the defendants did raise in late June, clearly for the first time, the potential ownership of the Lithgow property by the Wieland Family Heirs Trust. The response to that by the plaintiff was quite timely. The plaintiff issued subpoenas to the Perth Mint, Westpac and L J Hooker in Lithgow, which resulted in the production of material that was then used in evidence. But even with the service at this time on the defendants of this extra evidence, the resulting trust amendments could have been foreshadowed even sooner it seems to me. The thrust of what was being pursued by attempting to show that the resulting trust arose was, as my judgment shows, not just supported by material from the Perth Mint and Westpac. But the general nature of the second defendant's conduct was some basis for putting the resulting trust contention. Exactly how much earlier the amendment could have been foreshadowed is difficult to say. But in my view it could have been forecast earlier than it was, which would have given the defendants a greater opportunity to consider their reaction. 13The plaintiffs on the other hand respond and say, an opportunity to settle the proceedings was not lost by reason of that, because it can be seen from the offer of compromise served by the defendants that the parties were a long way apart in negotiations. That offer of compromise was served on 19 August 2010, at the conclusion of the hearing of the proceedings. It invited a verdict for the defendants and for the plaintiff to pay fifty per cent of the costs. Certainly that is a factor to be taken into account. But in my view, some opportunity of settlement was lost by the timing of this amendment. 14Ordinarily, the principle is that a party who succeeds on one point but fails on others will receive a costs order in their favour only from the date of the amendment made: Beoco Limited v Alfa Laval Co Limited [1995] QB 137; Murrihy v Radio 2UE Sydney Pty Limited [2000] NSWSC 318 . But such principles are not clearly applicable here because the plaintiff did succeed on other matters. The plaintiff succeeded in relation to the mortgage issue and the charge issue. So in my view it is appropriate to discount the plaintiff's costs taking all these factors into account. 15I also note that the resulting trust argument, was a very important one for the plaintiff. Even if the plaintiff had succeeded, as it has, on the argument as to the charge, if the resulting trust argument had not also been successfully pursued, there would still have been a debate about priorities between Mr Wieland and Lithgow Forge. In my view the appropriate course in all these circumstances is to order the defendants, excluding the third defendant, pay twothirds of the plaintiff's costs of these proceedings.
Ms Allen's Costs 16We now come to Ms Allen's costs. She, as the third defendant, has succeeded against the plaintiff. I see no reason for her not to have an order for costs in her favour. But the matter is complicated by two subissues. The first sub-issue is that she claims indemnity costs against the plaintiff. The other sub-issue is that the plaintiff says that she shared her legal representation with the fourth defendant and an order for costs is now to be made against the fourth defendant. 17I will deal with the second of these questions first. The question of the allocation of costs for the one set of lawyers as between the fourth defendant and the third defendant seem to me to be a matter of taxation and should be dealt with at that stage. It is not in my view a reason not to make an order for costs in the third defendant's favour. Allegations were made against Ms Allen that she had dishonestly engaged in a scheme to defraud creditors of the second defendant. That allegation has now failed. She is entitled in my view to an order for costs. A costs assessor will be able to determine, by reference to the detailed findings in my principal judgment about the transfer issue and the mortgage issue, what evidence was discrete to each of those issues, and what were the respective costs of the fourth defendant and the third defendant. Ms Allen's separate costs can then be assessed and paid. So I propose, subject to the issue of indemnity costs, to make an order for costs in Ms Allen's favour. 18Ms Allen seeks an indemnity costs order. She says that the plaintiff made a very serious allegation against her of dishonesty which has failed. The discretion to order indemnity costs must be exercised on grounds connected with the actual litigation and conduct in circumstances leading up to litigation as opposed to the litigation itself is not a relevant type of connection, unless it bears upon the conduct of a litigant as litigant: Hypec Electronics Pty Limited (in liq) v Mead (2004) 61 NSWLR 169 at 178, 181, paras 40-46 per Campbell J. 19The exercise of a discretion to order costs on an indemnity basis does not exist for the purpose of punishing an unsuccessful party: Latoudis v Casey (1990) 170 CLR 54 at 5423 per Gleeson CJ. Even unconscionable conduct, breaches of fiduciary duty, fraud and other deplorable conduct, when established in litigation will ordinarily lead to an order for costs on the usual basis and something more must be established for a special order as to costs: Harrison v Schipp; Cameron v Schipp (2001) NSWCA 13 at 136 per Giles JA, with whom Handley and Fitzgerald JA agreed. 20In my view this is a case where indemnity costs should not be ordered against the plaintiff. Until Ms Allen and Mr Luna gave evidence and until the circumstances of the execution of the share transfer on 2 July 2006 were made clear, the plaintiff was entitled in my view look at this transaction with some suspicion, because it was only publicly revealed in January 2009, some years after it took place. 21In my view, looking at the plaintiff's conduct in the litigation in making the allegation, there were sufficient circumstances to ground the proper bringing of such allegations against Ms Allen, although I have found that they have been thoroughly repelled in the course of the her case. This is not a matter where indemnity costs should be ordered. But there will be a simple order for costs in Ms Allen's favour.
Making Freezing Orders 22The third basket of issues relates to possible freezing orders. The draft form of orders which the plaintiff advances includes an order, number 5, which in substance seeks the retention in Australia of the sale proceeds of the Lithgow property for the purposes of payment out of the costs judgment, the subject of the main proceedings and for that fund to be held pending the assessment of costs. The defendant says that in effect that is to give the plaintiff security for the judgment sum and that on ordinary Mareva principles that such an order should not be made: Jackson v Sterling Industries Ltd (1987) 162 CLR 612. 23In my view, there are a number of reasons why order 5 should be made. The Court is entitled to look at its own findings in the principal judgment that has been given to determine whether or not there is a risk of shifting of these assets offshore, before a costs assessment takes place or before the judgment can be satisfied. In Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 the Court of Appeal of this Court dealt with a Mareva application before trial. There allegations of serious misconduct were supported by evidence which, if sufficiently made out, would have resulted in serious findings of dishonesty. That was sufficient basis to ground a freezing order. In this case, the plaintiff is in a stronger position. My principal judgment has made findings of participation by the second and the fourth defendants in schemes to defraud the plaintiff as a creditor. 24Given my existing findings about the second and fourth defendants, unless it could be established that these funds would not be in any way under the control of the second or the fourth defendants, it is in my view quite appropriate for such a freezing order to be made. 25The defendants point to the fact that although the second and third defendants are resident in New Mexico, that the fourth defendant is a resident of Australia, and that therefore the freezing order should not be made. The difficulty with that submission is twofold. The fourth defendant has not established that, if there was not a restraint these funds would be solely under the control of the fourth defendant. But even more importantly, there is some evidence in the proceedings that the fourth defendant is not a person of substantial worth. 26But the defendants should not be left in a situation where the plaintiff can in effect take his time to assess the costs in these proceedings. The defendants should also be motivated to have the third defendant's costs assessed and any relevant practical setoff that is to take place to occur. It would be unfair in my view for the defendants to be left in a position where the plaintiff could simply take his time with this costs assessment, whilst this freezing order remains in place. I am not prepared to make order 5 as requested by the plaintiff unconditionally. The plaintiff will be kept to a requirement that it pursue a costs assessment diligently and with reasonable expedition. I propose to make a direction that if the plaintiff fails to do that then the defendants may apply for the discharge of order 5. That seems to me to provide an appropriate balance of the parties' interests in ensuring that the costs assessment takes place quickly. I am going to grant liberty to apply. If the plaintiff does not proceed quickly the defendant can reapply to the Court for the discharge of order 5. 27An application was also made on behalf of the plaintiff for a Sanderson or a Bullock order in relation to any costs order made in favour of the third defendant. It does seem to me that the allegations made against the third defendant, whose conduct on the surface looked somewhat suspicious, were nevertheless allegations about an entirely separate transaction from the other transactions the subject of the proceedings. An independent decision was made by the plaintiffs challenge that transfer. There is not a sufficient relevant connection in my view between that transaction and the balance of the allegations in the proceedings that this is an appropriate case in the exercise of the Court's discretion to make either a Bullock or a Sanderson order, and I decline to do so. 28The Court's declarations and orders are:- (1)A declaration that the Plaintiff has an equitable charge over the net proceeds of sale of the property situated at 227 Mort Street, Lithgow in the State of New South Wales being Lot 5 of DP930738 (" Proceeds "), being the funds held in the Controlled Money bank account with St George Bank Limited with the account number 410814120 and the account name " Gibson Howlin Lawyers & Rodd Peters Lawyers Con Mny A/C Lithgow Forge Pty Ltd " (" Controlled Moneys Account "), to secure payment to the Plaintiff as judgment creditor of the sum due from the Second Defendant as judgment debtor on the costs judgment entered on 25 August 2008 by the Supreme Court of NSW (in relation to the Certificate of Determination of Costs issued on 25 July 2008 with assessment number 3794 of 2008) (" Costs Judgment "). (2)A declaration pursuant to section 37A of the Conveyancing Act 1919 (NSW) that registered mortgage AE123601J (pursuant to which the First Defendant was mortgagor and the Fourth Defendant was mortgagee) was a sham and was void from the time of its purported grant on 25 July 2008 to its purported registered discharge AF789908N on 6 September 2010. (3)A declaration that the Proceeds are being held in trust for the Second Defendant, subject to the equitable charge declared in order 1. (4)An order that the parties take all necessary steps to transfer a sum equal to: (a)the Cost Judgment debt of $182,236.91; plus (b)interest of $58,944.28 calculated from 25 July 2008 to 3 November 2011 in accordance with the prescribed rate pursuant to section 101 of the Civil Procedure Act 2005 (NSW); plus (c)interest pursuant to section 101 of the Civil Procedure Act 2005 (NSW) from 3 November 2011 up to the date of payment, from the Controlled Moneys Account to the Plaintiff forthwith. (5)An order that the balance of the funds in the Controlled Moneys Account following the payment referred to in order 4 above continue to be held in escrow for the Plaintiff and Second Defendant until orders as to costs are made and the liability of the Second Defendant to the Plaintiff for its costs of these proceedings, if any, has been agreed or assessed, following which time: (a) the parties are to take all necessary steps to transfer an amount equal to the Second Defendant's liability to the Plaintiff for costs, if any, from the Controlled Moneys Account to the Plaintiff forthwith; (b) in the event that no Defendant appeals this judgment of the Court dated 10 October 2011 (" Judgment "), the parties are to take all necessary steps to transfer the balance of the funds in the Controlled Moneys Account following the payment in orders 4 and 5(a) above, if any, (" Residual ") to the Second Defendant forthwith; and (c) in the event that any Defendant appeals this Judgment, the Residual is to continue to be held in escrow for the Plaintiff and Second Defendant until further order of the Court or the Court of Appeal. (6)An order that the Plaintiff diligently and with reasonable expedition proceed with the assessment of his costs of these proceedings, otherwise the Defendants may apply for discharge of Order 5 above. (7)Liberty to apply. (8)An order that the First, Second and Fourth Defendants pay two-thirds of the Plaintiff's costs of these proceedings. (9)An order that the Plaintiff pay the Third Defendant's costs of these proceedings
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: 22 December 2011
Peters
Lithgow Forge Pty Ltd
(2004) 61 NSWLR 169
(1987) 162 CLR 612
(1990) 170 CLR 54
(1989) 18 NSWLR 319