Judgment - EX TEMPORE
Revised from transcript; issued 26 August 2020
The substantive claims in these proceedings have been dealt with. This judgment concerns a dispute about who should receive payment of $70,000 which has been paid into court in the proceedings.
The parties to the dispute are:
(1) Wise & Young Pty Limited ("WY"), the unsuccessful plaintiff, which paid the moneys into court;
(2) Darren William Culley, the successful defendant, who seeks to have the moneys applied in partial satisfaction of his costs of the proceedings; and
(3) Defined Properties Investments Pty Limited ("Defined"), apparently an associated company of WY, which provided the monies.
The issue came before the Court on an application by Mr Culley, made by notice of motion filed 14 July 2020, for an order that the moneys be paid out to him. No formal application has been made by WY or Defined (which was separately represented at the hearing because of a conflict between its interests and those of WY). But all parties agreed that the Court should determine any issues of substantive entitlement to the monies and make orders accordingly, despite the lack of pleadings and the apparently interlocutory nature of the proceedings.
The events which have led to the dispute began with orders made by Registrar Walton on 12 April last year. The Registrar ordered that WY provide security for Mr Culley's costs of the proceedings in the amount of $70,000. On 9 July that order had not been complied with. The Registrar ordered that the deadline for compliance be extended to 4pm on 16 July 2019, but if the security was not paid by that time, the proceedings were to be dismissed.
The moneys were not in fact paid by 4pm on 16 July. At 4:38pm on that day, Mr George Dimitriou, who was at the time the sole director of WY, attended the Registry with a bank cheque. The moneys were accepted and recorded as "SFC [security for costs] paid into court by plaintiff pursuant to orders made 12 July 2019".
Despite the notation, the effect of the self-executing order was that the proceedings were dismissed upon WY's failure to pay the security into court by 4pm on 16 July. On 23 July the Court made an order formally dismissing the proceedings and ordering that WY pay Mr Culley's costs. The order provided that it would take effect at 4:01pm on 16 July.
Mr Culley later proceeded to assessment of his costs. A certificate of determination issued in May this year in the sum of $134,141. On 20 August (six weeks after the filing of the notice of motion, and one day before the hearing) the certificate was registered as a judgment in Mr Culley's favour in the District Court.
The parties now agree that the payment never stood as security for Mr Culley's costs of the proceedings. I say that the parties "now" agree because this did not become clear until written submissions for Mr Culley were provided to the Court on the day of the hearing. Counsel for Mr Culley accepts that, having obtained dismissal of the proceedings on the basis of non-compliance with the Registrar's order, his client can claim no security interest or other proprietary interest in those moneys. Mr Culley in his application is asking the Court in the exercise of its discretion to apply the moneys against WY's unsecured liability for costs as now represented by the judgment.
On the other hand, Defined does claim a proprietary interest. Defined's case is that it provided the funds for the purposes of there being lodged a security; on the failure of that purpose, the funds, so Defined contends, belong to it on the analogy of a Quistclose-style trust.
The parties agree that if this contention succeeds Defined will be entitled to the moneys in priority to both WY and Mr Culley. I will therefore deal with it first.
In evidence is a minute of a general meeting of Defined held on 16 July 2019. Mr Dimitriou is recorded as the sole director and secretary of Defined. The minute also records that all members of the company were present (presumably being, or being represented by, Mr Dimitriou). The minutes state the business of the meeting as follows:
Security paid into Court in Proceedings Wise & Young Ply Ltd -v- Darren William Culley No. 2018/00117056 Defined companies to make good of the ordered security by 16 July 2019.
Wise to repay Defined $70,000 within 12 Months of any advance.
Two resolutions were passed at the meeting, the first resolution was:
That on 16 July 2019, Defined Properties Investment pay into the Supreme court Registry $70,000 pursuant to an order for security made against Wise & Young Ply Ltd that will enable Wise to continue to prosecute the proceedings.
The second resolution was:
That the time in which Wise must repay Defined $70,000 is within 12 Months of the advance.
Following these resolutions, a bank cheque was obtained by Defined in favour of the Supreme Court of New South Wales. The cheque was delivered to the Court by Mr Dimitriou, as I have already indicated, at 4:38pm on the day.
In Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, a bank lent money to a company for the purpose of the company paying a dividend to its shareholders. The terms of the loan provided that it would be used only for that purpose, and until the dividend was paid, the loan money would be held in a separate bank account in the name of the company. The company was liquidated and the dividend could not be paid. The House of Lords decided that the company held the moneys in the account as trustee for the bank.
It is clear that a trust of this type does not arise in every case where moneys are lent for a specified purpose. In Twinsectra Ltd v Yardley [2002] 2 AC 164 Lord Millett said at [73]:
A lender will often enquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and maybe used as part of his cashflow. Commercial life would be impossible if this were not the case.
In Raulfs v Fishy Bite Pty Ltd [2012] NSWCA 135, Campbell JA, with whom Meagher and Barrett JJA agreed, quoted a larger part of [73]-[74] of the judgment from Twinsectra and expressed some qualifications to the passage quoted. But the qualifications did not apply to the particular passage I have extracted. In my view that passage recognises that something more than making a loan for a specified purpose is usually required before there will be a trust created which operates in favour of the lender if the purpose cannot be achieved.
In the Quistclose judgment, Lord Wilberforce distinguished the case before the House of Lords from other cases where moneys were paid to a company for the purpose of obtaining the allotment of shares. He said of those cases, (at 581):
I do not think it necessary to examine these cases in detail, nor to comment on them, for I am satisfied that they do not affect the principle on which this appeal should be decided. They are merely examples which show that, in the absence of some special arrangement creating a trust (as was shown to exist in In re Nanwa Gold Mines Ltd.), payments of this kind are made upon the basis that they are to be included in the company's assets. They do not negative the proposition that a trust may exist where the mutual intention is that they should not.
In the present case, the language of the minute is not such as to specify that the funds were to be used "only" or "exclusively" for the purpose specified. Furthermore, although it is now clear that after 4pm it was impossible for the moneys to be lodged as security, it was not so clear at the time. Indeed, the failure to lodge the security in time might have been waived by Mr Culley, or if not by Mr Culley, by the Court.
Defined's argument requires the conclusion that if the money was not paid by 4pm, it immediately had to be returned. The action of WY, through Mr Dimitriou in paying the money into Court, would therefore have been a breach of trust. In my view there is nothing in the circumstances to support this inflexible and draconian interpretation of the terms on which the moneys were lent. Furthermore, if there had been a breach, Mr Dimitriou who appears to have represented both WY and Defined, probably would have had authority to sanction it.
For these reasons, I think that Defined's claim to payment of the moneys fails. I therefore return to the contest between WY and Mr Culley.
The parties agree that the Court has power under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 41.3 to make an order for payment out. The exercise of that power is discretionary. Counsel for Mr Culley submitted that a factor in favour of exercising the power was the terms of the order under which Mr Dimitriou attempted to pay it into Court. Counsel relied on the judgment of Lindsay J in JKB Holdings Pty Ltd v de la Vega [2013] NSWSC 501 at [86]:
The parties' agreement for the payment of money into court can, and should, be construed, objectively, by reference to the solemn form (of a court order) in which they gave it expression. It is the order of the Court to which attention must primarily be given, both from the perspective of the parties' inter partes agreement and from the perspective of due administration of the Court's processes. Others than the parties to a particular order may have an interest in being able to rely upon the formal record of proceedings represented by the order.
In my view these observations do not apply in the present case. No doubt Mr Dimitriou intended to comply with the order but that intention was frustrated and the order never was actually complied with. One thing Mr Dimitriou certainly would not have intended was that the payment would fail to operate as security but would then be provided to Mr Culley anyway.
Counsel for Mr Culley also submitted that there was a question mark over the solvency of WY and that this was a reason for the Court to exercise its discretion in paying the money out by way of partial satisfaction of Mr Culley's costs judgment. I am not sure why that should be so. It seems to me that, if anything, question marks over the insolvency of WY would be a factor against the payment out, as insolvency might prejudice the ability of a liquidator to recover those moneys for the benefit of all unsecured creditors. But, in any event, counsel for WY contended strenuously that there was no evidence before the Court to suggest that WY is in fact insolvent and, in my view, this contention was correct. In the end, I do not think this factor can play any part in my decision
But there is another factor which I think is important. Mr Culley now has an enforceable judgment. If the money, rather than being held by the Court, was held in an ordinary bank account, it could be attached by means of a garnishee notice. Why should the Court pay it out to WY and then require Mr Culley to take the additional trouble and run the additional risk of having to invoke that procedure?
In my view, as a matter of principle, it would be appropriate for the Court, especially where insolvency has not been demonstrated and no other judgment creditor has been identified in the evidence, to shortcut the enforcement process in this way. I was not pointed to any authority in which the Court had made such an order but the parties agree that, as a matter of principle, the Court's powers are wide enough to do so.
For these reasons I will order that, subject to any application which may be made for payment of costs out of the fund, the monies in Court be paid out to Mr Culley.
(Parties addressed on costs)
The orders of the Court are:
Order that the monies paid into Court on 16 July 2019 together with any accrued interest be paid out to the defendant.
Order that the plaintiff and Defined Properties Investments Pty Limited pay the defendant's costs of his notice of motion filed 14 July 2020.
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Decision last updated: 26 August 2020