Work Childcare Holdings Pty Ltd (In Liq) & Anor v Phillip Redmond Dwyer by... [2007] NSWSC 97 | Case summary

2849/06 Work Childcare Holdings Pty Ltd (In Liq) & Anor v Phillip Redmond Dwyer by his tutor Patricia Alice Clark (No. 3) JUDGMENT 1 HIS HONOUR: This judgment concerns the costs of the originating process and of an interlocutory process filed by the defendant on 10 November 2006. 2 In my judgment of 1 November 2006 (Work Childcare Holdings Pty Ltd (In Liq) & Anor v Phillip Redmond Dwyer by his tutor Patricia Alice Clark [2006] NSWSC 1443), I noted (at [11]) that notice had been given on behalf of the defendant to the lessee pursuant to s 63 of the Real Property Act 1900 (NSW) requiring the lessee to pay rent to the defendant. I noted that, notwithstanding service of the notice, the liquidator had continued to receive the rents, but that it did not appear on what ground he contended he was entitled to do so. I also noted (at [38]) that the liquidator did not press a claim in the originating process for the rents, but there was no cross-claim that the plaintiffs held on trust for the defendant the rent received from the tenant after service of the s 63 notice. 3 The interlocutory process of 10 November 2006 sought orders restraining the liquidator from dealing with rents collected after service of the s 63 notice, a declaration that the defendant was entitled to all such moneys, and an order for payment. I made an ex parte order restraining the liquidator from dealing with the rents. That order was extended on two occasions. Ultimately, the liquidator agreed to an accounting and payment for the rents collected. Costs of the Originating Process 4 The plaintiffs submitted there should be no order as to costs of the originating process, so that each party should pay its and his own costs. The defendant submitted that the plaintiffs should pay his costs on an indemnity basis. 5 The plaintiffs say that "the liquidator ought not to be penalised with any order for costs … when in essence what was sought was what is incumbent upon him [to do] in circumstances where the mortgagee of the property had not properly entered into possession of the property or provided any or any adequate details of the circumstances of the advance and amounts paid to him or at his direction in relation to the advance." 6 It is irrelevant that the defendant had not entered into possession. 7 It was submitted that the defendant failed to respond to the liquidator's request that he provide proper evidence and an explanation to show that the advance said to be secured by the mortgage had in fact been advanced, and failed to provide receipts or other documents showing payment of interest and the balance of indebtedness. 8 The fact that the liquidator had not satisfied himself that moneys had been advanced under the mortgage, or that the advance had not been repaid, was not a sufficient justification for the commencement of proceedings. 9 The correspondence from Hansteins of 14 November and 30 November 2005 explained the mortgagee's position. In particular, the defendant's tax returns and bank statements, forwarded to the liquidator on 30 November 2005, disclosed the receipt of interest and corroborated the earlier advice that interest had been paid directly by the lessee to the mortgagee. 10 In any event, the Corporations Act 2001 (Cth) provides procedures for a liquidator to conduct investigations into a company's affairs. The liquidator could have applied for the issue of an examination summons under s 596B of the Corporations Act, and for a summons for the production of books pursuant to s 596D. The proceedings were not a proper vehicle for what, in substance, was a continued investigation into the affairs of the company. The statement of claim, summarised at para [23] of my judgment of 1 November 2006, on its face failed to establish grounds for the liquidator's contention that the mortgage secured no obligation of the company to the defendant. 11 In my view, there is no reason why the plaintiffs should not be ordered to pay the defendant's costs of the proceedings. The fact that the liquidator will be personally liable for such costs is the result of his decision to commence the litigation in which he is a plaintiff (Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285-286). 12 The defendant submitted that such costs should be paid on an indemnity basis on three grounds. First, that the plaintiffs' claims were brought in disregard of clearly established law in relation to the priority of registered mortgagees and in disregard of clearly established facts that funds had been advanced under the mortgage, as was ultimately admitted by the plaintiffs. It was submitted that the claim had no prospects of success and should not have been brought and maintained on proper advice. Secondly, the defendant relied upon a Calderbank offer of 13 September 2006. Thirdly, his counsel referred to a provision in the mortgage that the mortgagor would pay all costs and expenses, including costs as between solicitor and client, incurred by the mortgagee "for the preservation of or in any manner in reference to the security". 13 Whilst I do not consider that the plaintiffs had proper grounds for disputing the advance acknowledged in the mortgage, that was not all that the plaintiffs' claim was about. The liquidator's claim to be entitled to be paid remuneration and expenses for work done by him in priority to the debt of the defendant to secure his reasonable remuneration and expenses in caring for, preserving and realising the land was a substantial part of the claim. I do not think that claim was brought in disregard of an acknowledged principle of law. The defendant acknowledged the relevant principle. The fact that I found that the liquidator had not established that he was entitled to the payment of any moneys in priority to the mortgagee does not mean that that claim was so hopeless as to attract an indemnity order for costs. 14 The letter from Hansteins of 13 September 2006 contained an offer to settle the proceedings on terms that on completion and after deduction of the agent's sale costs, advertising expenses and outstanding rates and levies, there be paid to the mortgagee the principal sum of $250,000 together with interest, or such other lesser amount as remained available, after such costs were paid. It was also a term of the settlement offer that the mortgagee would pay to the liquidator any "reasonable sums applied or incurred in respect of preserving, enhancing or realising the property, such sums if any to be determined by the Court or agreed by the parties". The defendant also offered a term that each party pay its and his own costs of the proceedings. 15 The plaintiffs do not better that offer. In substance, I found that the mortgagee was entitled not to discharge his mortgage until payment of the outstanding principal and interest had been made. I also found that the liquidator was not entitled as against the mortgagee to any sum in respect of the preservation, enhancement or realisation of the property. 16 However, the offer still left open for litigation the determination of what sum, if any, should be paid to the liquidator as remuneration for his preserving, enhancing or realising the property. It was not an offer for the complete resolution of the proceedings. Its acceptance would not have brought the proceedings to a conclusion. 17 I do not consider that the term of the mortgage to which the defendant referred justifies the making of an indemnity costs order. The defendant will be entitled to recover his costs from the company on a solicitor and client basis pursuant to the terms of the mortgage. That is so even if the order for costs under s 98 of the Civil Procedure Act 2005 (NSW) is made on the usual party and party basis. He is not entitled to recover such costs pursuant to the mortgage against the liquidator. 18 The question whether the defendant's costs should be paid on an indemnity basis is finely balanced. However, notwithstanding the matters urged by counsel for the defendant, I have decided that neither the offer of 13 September 2006, nor the inherent difficulties in the plaintiffs' case, were such as to warrant departure from the usual basis on which costs are awarded. In my view, there was an arguable basis for a substantial part of the claim made by the plaintiffs such that I should not find that the proceedings were commenced and continued in disregard of clearly established facts or law. Those claims would not have been resolved by acceptance of the offer of 13 September 2006. 19 The plaintiffs should pay the defendants' costs of the originating process on the usual party and party basis. Costs of Interlocutory Process 20 Different considerations apply to the costs of the interlocutory process. As recorded in my judgment of 1 November 2006 and set out above, the liquidator originally asserted an entitlement to the rents which he had collected in disregard of the notice served by the defendant pursuant to s 63 of the Real Property Act. No justification for the liquidator's position was ever advanced. Following delivery of my judgment on 1 November 2006, the solicitors for the defendant wrote to the liquidator's solicitors. They stated that they presumed that the whole of the rent moneys collected by the liquidator would be released to the defendant and applied in reduction of the mortgage. They noted that the net proceeds of sale of the property under the contract entered into by the liquidator would not be sufficient to discharge the mortgage without those funds. The liquidator's solicitors responded by saying that the presumption was incorrect. They contended that the defendant would be precluded from seeking the release of the rent moneys by the principles in "Anshun" (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) because no cross-claim had been filed by the defendant seeking an order in relation to those rents. 21 That contention was without merit. Until the hearing, it was the liquidator himself who had sought relief to justify his retention of those moneys. The defendant could reasonably have thought that the liquidator would pursue such a claim if he thought there was substance to it and abide the result. The liquidator abandoned that claim at the hearing. 22 The defendant was compelled to file an interlocutory process. No defence to the interlocutory process based on Anshun principles was advanced. There was a number of appearances until the liquidator ultimately provided the accounting and agreed to pay the rents in question. Where proceedings are resolved by one party's capitulating to the other's demand, costs may be ordered, even though there has been no trial on the merits. Likewise, costs may be ordered against a defendant where the Court can be satisfied that a defence was unreasonably maintained (Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625; One.Tel Ltd v Deputy Commissioner of Taxation (2000) 101 FCR 548 at 553). 23 There should never have been an issue about the claim to rent. There was no proper ground to resist that claim. The liquidator never articulated any justification for his conduct in collecting the rent after the service of the s 63 notice. He abandoned his own claim to the rent but resisted the defendant's claim. Even though the liquidator was respondent to the interlocutory process, both plaintiffs should pay the defendant's costs of the interlocutory process on an indemnity basis, with the liquidator's liability not limited to the availability of the company's assets. 24 For these reasons, I make the following orders:

Work Childcare Holdings Pty Ltd (In Liq) & Anor v Phillip Redmond Dwyer by his tutor Patricia Alice Clark

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