Warton v Harris [2005] NSWSC 1168 | Case summary

4511/05 PAUL JOHN WARTON v NICHOLAS PETER HARRIS JUDGMENT 1 These proceedings have been compromised. The only matter outstanding is costs which falls to be considered according to principles discussed by McHugh J in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qiu (1997) 186 CLR 622 at p.624: "In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd , the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases." 2 The plaintiff, a director of Harrow Nominees Pty Ltd, sought an order under s.601AH(2) of the Corporations Act 2001 (Cth) that Australian Securities and Investments Commission reinstate the registration of that company. Deregistration had occurred at the behest of the defendant, another director. The proceedings were compromised on the basis that the originating process was, by consent, dismissed. The defendant says that costs should follow the event and that, since the relief sought by the plaintiff has not been granted, the defendant should have an order for costs. The plaintiff's position is that costs here should follow the event in an as yet undetermined proceeding involving the same parties, being 5203/05. The relevance of those proceedings will be mentioned presently. 3 Harrow Nominees was or was intended to be the trustee of a trust created or purportedly created by settlement and known as the Harrow Discretionary Trust. When the plaintiff found that Harrow Nominees had been deregistered, he was concerned that there was no longer a trustee and took steps towards bringing the company back into existence so that it might, as trustee, pursue a claim to confirm the existence of the trust and to recover the trust property, they both being matters which by then were in dispute. Ultimately, however, the plaintiff did not persist in his attempts to obtain reinstatement of the registration of Harrow Nominees. As an alternative, he brought or arranged to be brought an application for the appointment of new trustees. That application was acceded to and, on 13 October 2005, Young CJ in Eq appointed two individuals to be new trustees of the Harrow Discretionary Trust. Those new trustees were then in a position to pursue the concerns about recovery of trust property. They are doing so by means of the separate proceedings 5203/05 to which I have referred. Those proceedings are as yet undetermined. It was in these circumstances that the application for the reinstatement of Harrow Nominees was seen by the plaintiff no longer to be necessary. 4 In light of the circumstances generally, the defendant says that the plaintiff's s.601AH(2) application was misconceived from the outset. The status and position of the plaintiff as a director of Harrow Nominees, would, according to well-established precedent, not be sufficient, of itself, to make the plaintiff a "person aggrieved" by the deregistration: see, for example, Re Waterbury Nominees Pty Ltd (1986) 11 ACLR 348; Re Waldcourt Investment Co Pty Ltd (1986) 11 ACLR 7; Casali v Crisp (2001) 165 FLR 79. To be regarded as a "person aggrieved", the plaintiff would have to have shown some additional interest. 5 The plaintiff contends that such an additional interest arose by virtue of s.197 of the Corporations Act. That section provides that a person "who is a director of a company when it incurs a liability while acting, or purporting to act, as trustee, is liable to discharge the whole or a part of the liability" if certain conditions are satisfied. The plaintiff apparently apprehended some possibility of personal exposure under this provision and saw that as a further reason for wanting to have the company brought back into existence. When one looks at the section, however, there is no reason to think that the existence or non-existence of the relevant company affects either beneficially or adversely the position of a person who was a director of it when, in the past, it incurred a liability while acting or purporting to act as trustee. The statutory liability of a director is determined according to circumstances existing at the time the company incurs the liability. Matters crystallise, so far as the director is concerned, at that time - necessarily, of course, a time when the company exists. It follows that a director's exposure or lack of exposure cannot be affected by subsequent deregistration of the company. 6 As a quite separate matter, the plaintiff took action apparently calculated to enhance his status as a "person aggrieved" by taking an assignment of a debt owed by the company. That cannot have given rise to "person aggrieved" status. The plaintiff took the supposed assignment after the deregistration and with knowledge of it. He thus knowingly took what was supposed to be a debt owing by a non-existent entity. The deregistration and the dissolution of the company that it effected caused the debtor to go out of existence, with the result that the debt should be regarded as having been extinguished: see cases discussed in Re Lord as liquidator of Silverline Technologies Pty Ltd (2005) 23 ACLC 1320. There is no procedure by which a person can become a creditor of a non-existent debtor: Re New Timbiqui Gold Mines Ltd [1961] Ch 319. There is accordingly no basis on which the purported debt assignment could have warranted a finding that the plaintiff was a person aggrieved by the deregistration. 7 There is also the point that, where a company acting as trustee is deregistered, persons who are beneficiaries or otherwise interested in the trust cannot be said to be "aggrieved" by the demise of the trustee if there are ample means of causing a new trustee to be appointed: see Danich Pty Ltd v Cenco Holdings Pty Ltd (2005) 53 ACSR 484. Such means existed in this case and were successfully employed. 8 For all these reasons, it appears that the plaintiff's s.601AH application was doomed to failure from the outset. He would have been unable to show the "person aggrieved" status upon which the ability to make such an application depends. 9 That, it seems to me, leads to one or both of two conclusions referred to by McHugh J in the Lai Qin case (above). One is that the plaintiff acted unreasonably by persisting with a non-viable application. The other is that, despite the absence of an adjudication on the merits, the court can see that the defendant would have succeeded in his defence. Either way, the principles referred to by McHugh J indicate that the plaintiff should pay the defendant's costs of the proceedings. I so order. **********

Warton v Harris

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