In the matter of Dungowan Manly Pty Ltd (in liq) [2015] NSWSC 915 (10 July 2015)

Last Updated: 16 July 2015

Supreme Court New South Wales

Case Name:	In the matter of Dungowan Manly Pty Ltd (in liq)
Medium Neutral Citation:	[2015] NSWSC 915
Hearing Date(s):	10 – 13 and 19 March, 23 June 2015
Decision Date:	10 July 2015
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Orders to be made substantially in accordance with draft Orders submitted to the Court. Order the Third-Sixth Cross-Defendants pay the Cross-Claimants’ disbursements as agreed or as assessed, and two-thirds of the Plaintiffs’ costs of the proceedings, as agreed or as assessed. Otherwise no order as to costs.
Catchwords:	PROCEDURE – judgments and orders – proposed orders – form of orders to be made to give effect to primary judgment. PROCEDURE – costs – orders made as to costs as between parties to proceedings. PROCEDURE – interest – whether interest to be awarded under s 100 of the Civil Procedure Act 2005 (NSW).
Legislation Cited:	Civil Procedure Act 2005 (NSW) ss 14, 90(1), 98, 100 Corporations Act 2001 (Cth) pt 5.3A, pt 5.6 div 6; ss 443D, 449E, 479, 479(3), 511, 553, 553C, 553C(2), 554, 556, 563B, 563B(1), 563B(2), 564 Uniform Civil procedure Rules 2005 (NSW) rr 6.12, 42.1 Supreme Court (Corporations) Rules 1999 (NSW) r 2.13
Cases Cited:	Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403 Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622 Farrell v Mulroney [1978] 1 NSWLR 221 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 Knight v FP Special Assets Ltd (1992) 174 CLR 178 Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 443 McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 NSW Trustee and Guardian v Schneider [2011] NSWSC 424 Paul’s Retail Pty Ltd v Morgan [2009] NSWSC 1222 Petrovski v Radin [2000] NSWSC 323 Re Dungowan Manly Pty Ltd (in liq) [2015] NSWSC 491 Re Emilco Pty Ltd (in liq) [2002] NSWSC 1124; (2002) 43 ACSR 536 Re HIH Casualty and General Insurance Ltd [2006] NSWSC 6 Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) 48 ACSR 681 Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15
Category:	Procedural and other rulings
Parties:	Adam Farnsworth and Adam Shepard (in their capacity as joint and several liquidators of Dungowan Manly Pty Ltd (First Plaintiff/First Cross-Defendant on First and Second Cross-Claims) Dungowan Manly Pty Ltd (in liq) (Second Plaintiff/Second Cross-Defendant on Second Cross-Claim) Patrick McLaughlin (First Defendant/First Cross-Claimant on First Cross-Claim/Fourth Cross-Defendant on Second Cross-Claim) Jennifer McLaughlin (Second Defendant/Second Cross-Claimant on First Cross-Claim/Third Cross-Defendant on Second Cross-Claim) Turner Freeman Lawyers (Third Defendant/Second Cross-Defendant on First Cross-Claim/Cross-Claimant on Second Cross-Claim) Loafer Pty Ltd (Third Cross-Defendant on First Cross-Claim) Peter William Brown (Fourth Cross-Defendant on First Cross-Claim) Louise Jane Brown (Fifth Cross-Defendant on First Cross-Claim) Garmen Pty Ltd (Sixth Cross-Defendant on First Cross-Claim).
Representation:	Counsel: S Golledge (First Plaintiff/First Cross-Defendant on First and Second Cross-Claims) P D McLaughlin (self-represented - First Defendant/ First Cross-Claimant on First Cross-Claim/ Fourth Cross-Defendant on Second Cross-Claim) J T McLaughlin (self-represented - Second Defendant/ Second Cross-Claimant on First Cross-Claim/ Third Cross-Defendant on Second Cross-Claim) S J Philips (Third Defendant/Second Cross-Defendant on First Cross-Claim/Cross-Claimant on Second Cross-Claim) B K Nolan (Third and Sixth Cross-Defendants on First Cross-Claim) G D McDonald (Fourth and Fifth Cross-Defendants on First Cross-Claim) Solicitors: Somerset Ryckmans (First Plaintiff/First Cross-Defendant on First and Second Cross-Claims P D McLaughlin (self-represented - First Defendant/ First Cross-Claimant on First Cross-Claim/ Fourth Cross-Defendant on Second Cross-Claim) J T McLaughlin (self-represented - Second Defendant/ Second Cross-Claimant on First Cross-Claim/ Third Cross-Defendant on Second Cross-Claim) Turner Freeman (Third Defendant/Second Cross-Defendant on First Cross-Claim/Cross-Claimant on Second Cross-Claim) Harris & Co (Third and Sixth Cross-Defendants on First Cross-Claim) Gavin Parsons & Associates (Fourth and Fifth Cross-Defendants on First Cross-Claim)
File Number(s):	2013/204311

JUDGMENT

1. By my judgment delivered on 1 May 2015 ([2015] NSWSC 491 (“Judgment”), I determined several applications involving a claim by the liquidator of Dungowan Manly Pty Ltd (in liq) (“Company”) for directions under ss 479 and 511 of the Corporations Act 2001 (Cth) in respect of several competing claims to a unit (“Property”) owned by the Company; a claim brought by two shareholders in the Company, Mr and Mrs McLaughlin, in their own right to establish that the Property was held on trust for them; a claim brought by Mr and Mrs McLaughlin, by leave, to enforce levies made by the Company’s former administrators and the liquidator against other shareholders in the Company; and a claim by Mr and Mrs McLaughlin’s former solicitors, Turner Freeman, to a mortgage over the Property once `the Company transferred title to it to Mr and Mrs McLaughlin. Several other issues were not pressed, and those issues narrowed, during the course of the hearing before me, although others were fully contested.
2. I summarised the outcome of the proceedings as follows (Judgment [115]):

“I have held that the Company is entitled to judgment against the [shareholder cross-defendants] in respect of the levies upon them, subject to the liquidator’s election as to which levies are pressed, to the extent they overlap. It is now common ground that Mr and Mrs McLaughlin are entitled to a transfer of lot 6 to them, subject to a mortgage in favour of Turner Freeman. I have held above that Turner Freeman’s mortgage extends to any distribution to Mr and Mrs McLaughlin relating to the judgment and costs in their favour in the proceedings before Ward J and the Court of Appeal. The liquidator has not established an entitlement to a declaration that he has a lien over lot 6, where the form of declarations which he seeks would also leave significant issues unresolved, including the scope of the lien claimed and its priority as against Turner Freeman’s mortgage.”

3. I directed the parties to bring in agreed short minutes of order to give effect to the Judgment within 14 days and, in the event of any disagreement, short submissions as to any differences between them, indicating whether an oral hearing was required. The liquidator, helpfully, prepared draft orders to give effect to the judgment, the parties made written submissions about them on 19 May 2015 and several parties also indicated that they sought to make oral submissions, which I heard on 23 June 2015. There was a degree of consensus between the parties as to the orders to be made, although several further issues require determination and the parties had not reached agreement as to the question of costs, which I will address below.
4. The liquidator, Mr and Mrs McLaughlin, Turner Freeman and the Third and Sixth Cross-Defendants on the First Cross-Claim, Loafer Pty Ltd (“Loafer”) and Garmen Pty Limited (“Garmen”) (which were the two shareholders which made substantive submissions at the earlier hearing) made both written submissions in chief and in reply and oral submissions. Mr and Mrs Brown, the Fourth and Fifth Cross-Defendants, who are also shareholders in the Company and appeared in the same interest in the hearing as Loafer and Garmen, although they were excused from attendance, generally adopted the submissions of Loafer and Garmen in their written submissions and also made additional submissions as to their position. They advised, by their Counsel, that they did not seek to make oral submissions and did not appear when other parties made further submissions, and Ms Nolan (who appeared for Loafer and Garmen) mentioned the matter on their behalf. I will refer in this judgment, as in the Judgment, to Loafer, Garmen, and Mr and Mrs Brown as the “Shareholders”, and I will use the uncapitalised term “shareholders” to refer to the Company’s shareholders generally, who include other persons not party to the proceedings.

The form of the orders generally

5. Mr and Mrs Brown submitted that the liquidator’s proposed orders ought to refer to the parties, not by their names, but by reference to their part in the proceedings. It seems to me that the orders drafted by the liquidator are appropriate, so far as they refer to the parties by their capacity, where applicable, but by name where necessary for clarity. In some circumstances, it seems to me that a reference by name is necessary, particularly where there is more than one Cross-Claim in the proceedings and a reference to a cross-claimant or cross-defendant would not be clear, without also identifying the particular Cross-Claim in which they were involved.

Liquidator’s proposed order 1

6. This paragraph of the liquidator’s proposed orders deals with a direction to the liquidator, under s 511 of the Corporations Act, that he would be justified in transferring the Property to Mr and Mrs McLaughlin, subject to the provision by them of a signed share surrender agreement. In paragraphs 68-69 of the Judgment, I noted the liquidator’s submission that the Company was obliged, either as a matter of contract or in equity, to convey title to the Property to Mr and Mrs McLaughlin or to Turner Freeman, depending upon the outcome of Turner Freeman’s Second Cross-Claim, and that common ground had developed between Turner Freeman and Mr and Mrs McLaughlin that such title should be conveyed to Mr and Mrs McLaughlin, subject to the mortgage to Turner Freeman. I noted that it seemed to me likely that a constructive trust was established, so far as share surrender agreements between the Company and Mr and Mrs McLaughlin that provided for the transfer of the Property to them would be specifically enforceable by Mr and Mrs McLaughlin against the Company, or at least an estoppel would have prevented the Company from denying Mr and Mrs McLaughlin’s beneficial title to the Property. I also noted that it was not necessary to seek to be more precise as to the terms of any such contract or estoppel, where no party sought to make submissions about that matter or to contest Mr and Mrs McLaughlin's entitlement to a transfer of the Property to them subject to the terms of the mortgage to Turner Freeman. In paragraph 70 of the Judgment, I then observed that:

“The liquidator submits, and I broadly accept, that a transfer of the [Property] to Mr and Mrs McLaughlin should be subject to the execution of a form of share surrender agreement and to their payment to the Company of the amount due under the levy raised in early 2010, to which I referred above, which was in turn taken into account in the damages awarded in their favour by Ward J and the Court of Appeal. The liquidator acknowledges that such a payment by Mr and Mrs McLaughlin would take place by set off against the debt owed to them by the Company under s 553C of the Corporations Act, and I did not understand Mr and Mrs McLaughlin to contest that such an adjustment should be made. ...”

7. There was no contest as to this order as between the liquidator, Mr and Mrs McLaughlin and Turner Freeman. However, Loafer and Garmen made submissions as to this matter at the further hearing before me as to orders. They submit that:

“The nature of the cross-demand that exists upon entering into the Share Surrender Agreement as entered into by all other shareholders to the Company is not one open to the set-off envisaged by s 553C of the Act. The mutuality of dealings caught by the operation of the provision must be pecuniary and not constituted by an interest in real property.
Alternatively, if a credit were to be given for a notional payment of the ‘net Indebtedness” owing under the Share Surrender Agreement now, a set-off would be precluded by the provision of s 553C(2) of the Act.
The direction contained in Order 1 should be understood to so operate.”

8. In his submission in reply, the liquidator responds that:

“[The above submission] appears to be that the form of the Share Surrender Agreement, entry into which is authorised by the proposed Direction, must require that the amount due from Mr & Mrs McLaughlin pursuant to the 2010 Levy be actually paid by them to the Company at the time of the transfer of the [Property] as opposed to being set off against their existing claim against the company. The form of the draft Share Surrender Agreement provides for the 2010 Levy obligation to be discharged by way of set-off. The Liquidator’s submission is that this issue has already been determined by the Court’s judgment and argument over the form of orders is not a forum in which to seek to re-open that issue. It is a matter to be taken on appeal if at all.”

9. In oral submissions in reply, Ms Nolan submitted that:

“[Section] 553C of the [Corporations] Act deals with mutual dealings which are meant to be pecuniary in nature and it is not open to effect a set-off pursuant to the provision between interest in real property and monetary debt and that is the nature of the submissions that I make, probably by way of preservation of my clients’ position with respect to any appeal, but I should ventilate that submission now.” (23.6.2015, T18)

10. I was not able to identify where this submission was made by Ms Nolan at the earlier hearing and I invited Ms Nolan to do so. She was unable to do so, because she did not have a transcript of the earlier hearing, and she could not specifically recall whether this issue had been raised, although she noted that she had made submissions as to equitable set-off in respect of reconciliations. I had addressed that issue in the Judgment. I need not address Loafer’s and Garmen’s further statement in their written submissions as to how they consider the proposed order should be understood, because that order will speak for itself. So far as this submission turns on the application of s 553C of the Corporations Act to the levy payable by Mr and Mrs McLaughlin at the substantive hearing, I determined the issues that were raised at the hearing in the Judgment, and do not consider that it is open to Loafer and Garmen to reagitate the issue by reference to legal issues that were not previously raised at the point of making orders to give effect to the Judgment.
11. I should add that it is, in any event, not apparent to me how any question of set-off between real property and debt arises, since the issue that was addressed in the Judgment was a set-off between a monetary amount payable by Mr and Mrs McLaughlin by way of the 2010 levy and a monetary amount payable by the Company to them by way of damages by reason of the judgments in their favour. It is also not apparent to me, and Ms Nolan’s submissions did not explain, how s 553C(2) of the Corporations Act could apply so far as it would require that Mr and Mrs McLaughlin had notice of the Company’s insolvency at the time any set-off arose. If the making of an order for damages against the Company and in favour of Mr and Mrs McLaughlin can properly be characterised as their “giving credit” to the Company for the purposes of that section, it is difficult to see any basis for a suggestion that they had notice of the Company’s insolvency at the time that order was made. The representations previously made by the Company to Ward J, to which I have referred in earlier judgments, that the Share Surrender Agreements were adequate to protect Mr and Mrs McLaughlin’s rights would hardly have placed them, or the Court, on notice that the shareholders would not comply with those agreements and that the Company would later become insolvent in consequence.

Liquidator’s proposed order 4

12. Mr and Mrs McLaughlin initially contested an addition made, in the liquidator’s form of order recording that the Company holds title to the property on trust for them, which states that that is:

“subject to the Deed of Mortgage of Company Title Unit between [Turner Freeman] and [Mr and Mrs McLaughlin] executed on or about 12 September 2006 (“Turner Freeman Mortgage”).”

Mr and Mrs McLaughlin also initially omitted, from their draft orders, an order proposed by the liquidator that Turner Freeman are entitled to a further mortgage over the Property in substantially the same form as their existing mortgage over Mr and Mrs McLaughlin’s shares in the Company (which previously conferred a right to occupy a company title unit) as soon as title to the Property has been transferred from the Company to Mr and Mrs McLaughlin. These matters were ultimately not contested in oral submissions before me, and orders in this form were not opposed by Mr and Mrs McLaughlin.

Liquidator’s proposed orders 6-8 – quantum of judgment

13. The draft orders proposed by the liquidator provided for calculation of the judgment sums on the basis of an election made by the liquidator to rely upon a demand made by the liquidator on shareholders in the Company in February 2013, so far as it included a claim for voluntary administration costs in the sum of $150,000; an amount for trade creditors of $124,499.61 and an amount payable by the Company under a judgment in favour of Mr and Mrs McLaughlin against the Company in the amount of $632,038.95. The liquidator relied on a further demand issued in February 2015 so far as it included amounts for pre-judgment interest on the judgment in favour of Mr and Mrs McLaughlin and a higher allowance for Mr and Mrs McLaughlin’s legal costs referable to that judgment. That approach reflected an observation in my judgment that, where I had upheld each of the levies issued by the former administrators and the liquidator, to the extent that they have been contested in the proceedings, it would be necessary for the liquidator to elect between them, provided that its election did not give rise to double recovery.
14. Loafer and Garmen made submissions as to the proposed orders relating to the amounts of the judgment against the Shareholders. I should first address a wider issue addressed by Ms Nolan in both her written submissions in reply and oral submissions, as to what she characterised as the liquidator “cherry-picking” between the relevant levies or demands. By way of background to that issue, I had addressed an issue raised by the Shareholders at the substantive hearing, as to whether the liquidator had elected to rely on the 2015 levy (or demand) to the exclusion of earlier levies (or demands), and a consequential issue as to whether he could now make such an election at several points in the Judgment. I observed that:

“[36] The [Shareholders’] proposition, that the only claim maintainable against the shareholders was for the enforcement of the February 2015 levy, depends upon a proposition, which Ms Nolan identified but did not seek to establish by reference to authority, that the issue of the February 2015 levy amounted to an election by the liquidator to abandon the earlier levy. It appears that the Shareholders contend that the making of the February 2015 levy is inconsistent with reliance by the liquidator, in the alternative, on the earlier levies. I do not accept that submission. First, there is not a complete overlap between the 2013 levies and the February 2015 levy, so far as the February 2013 levy was founded on both the share surrender agreements and the Company's articles of association and included the administrators' costs of the winding up, in reliance on the Company's articles of association, and the February 2015 levy was founded only on cl 8 of the share surrender agreements and did not include those costs. Second, there is no evidence of any determination or representation by the liquidator that he did not press the earlier levies, at least in the alternative. There is also no evidence that the Shareholders have acted to their detriment by proceeding on any assumption that only the February 2015 levy is pressed by the liquidator or that the earlier levies are not pressed, particularly where they have not met any of those levies.
[37] I accept, of course, that the liquidator would not be entitled to judgment against the Shareholders for all of the levies, at least to the extent that they overlap. However, I am not persuaded that the liquidator has made any unequivocal election to rely on one levy rather than the others, or would not be entitled to make that election after delivery of this judgment and prior to the entry of orders.
[50] ... the February 2013 levy was authorised by the Company’s articles of association and the Company is entitled to enforce it (or, potentially, that part of it which relates to the costs of the administration) as against the Shareholders, subject to the liquidator now making an election between the several levies, to the extent they overlap.
[63] ... the two 2013 levies and the February 2015 levy are each authorised by, and consistent with, the share surrender agreements and the Company is entitled to enforce them against the Shareholders, again subject to the liquidator making an election between those levies to the extent they overlap. There should be judgment against the Shareholders reflecting the outcome of such an election.”

These observations contemplated, but did not express any concluded view about, the possibility that the liquidator could elect between levies (or demands) or (as I noted, “potentially”) between parts of such levies (or demands) including the costs of the administration included in the 2013 levy. Ms Nolan addressed this issue in two contexts in submissions on this application.

15. In addressing the Shareholders’ argument in relation to s 449E of the Corporations Act, to which I refer further below, and also in addressing a submission in respect of costs incurred by Mr and Mrs McLaughlin, Ms Nolan challenged what she described as “cherry picking” between the various levies made by the liquidator in determining the amount for which the Shareholders were liable. So far as the issue raised under s 449E of the Corporations Act is concerned, Ms Nolan submitted that:

“It was never contemplated that the Court would allow a cherry picking from the various levies and, indeed it was not apparent to the Liquidator who would otherwise be astute to have ensured proof the entitlement to the administrators’ remuneration in the proceedings was before the Court. It is plain that this argument never arose for consideration. It was never the subject of precise pleading and it was never one advanced by the Liquidator.
The argument against the 2011 levy was predicated on the election point. It was never specifically put by anyone or as a matter raised by the Court that the administrator’s costs would ever be capable of being a stand-alone item in any judgment.”

16. Ms Nolan raised a similar issue in respect of a submission as to costs made by Mr and Mrs McLaughlin, as follows:

“The McLaughlins assert that the Shareholders did not challenge the approach of the Liquidator’s calculations of the levies at the hearing and should not be allowed to do so. This is not correct, the 2015 levy was challenged directly. The earlier levies were not challenged by reason of the fact that it was said that there had been an election not to rely upon the earlier levies. It was never contemplated nor was it argued that the Liquidator would be in a position to cherry pick from the various levies.”

17. The Shareholders’ submission that the 2015 levy was directly challenged is plainly correct. So far as the Shareholders’ submission that the earlier levies were not challenged for a particular reason, it is, of course, open to a party to advance only a primary position and not to address the position if that primary position is found to be incorrect, and there may be good strategic reasons for a party to take that approach, including to avoid encouraging analysis of the alternatives to its primary position. That approach seems to me to have been adopted by the Shareholders at the substantive hearing, in contending that the liquidator had elected to rely on the 2015 levy to the exclusion of earlier levies, and that the 2015 levy was not properly based, and not giving substantive attention to the position if that submission was not accepted. I consider that the validity of the earlier levies was squarely in issue before me and I addressed it in the Judgment.
18. However, I should also address Ms Nolan’s second submission, that the liquidator had not squarely raised, or the Shareholders squarely addressed, the possibility that an election might be made between different components of the levies (or demands) made by the liquidator, as he has now done. That submission seems to me to have considerable force. In the course of the substantive hearing on 13 March 2015, I requested Mr Golledge (who acted for the liquidator) and Ms Nolan to confirm whether all demands were in issue before me (T65). Mr Golledge noted (T66) that some parts of the 2013 and 2015 demands were overlapping and “there can’t be any question of double recovery” so that one must supplant the other as a matter of construction and he did not then specifically address the question of election between non-overlapping items in the demands. Mr Golledge also noted that Mr and Mrs McLaughlin sought to enforce both the 2013 demands and the 2015 demand and that both were properly before the Court, and Ms Nolan accepted that proposition (T75). I then sought further to clarify the matters in issue with Ms Nolan, so as to address any question whether the Shareholders were caught by surprise (T75) and Ms Nolan addressed the issue of election between more than one debt predicated on the same damage (T76).
19. I then sought to summarise what Ms Nolan contended was in issue (T77) and noted that Ms Nolan had raised:

“an issue which would need to be determined as to whether there has been an election, such that the 2015 demand has superseded or excluded reliance which would have previously been available in [sic] the 2013 demand.”

I also noted that, as I understood it, the issues before me were whether the 2013 demands were displaced by reason of an election, as the Shareholders contended, an issue as to the validity of the 2013 demands and an issue as to the 2015 demand for which Ms Nolan contended that the liquidator had now elected, and Ms Nolan accepted the accuracy of that summary (T78). That summary did not refer to the question of election between the components of the demands if each of them was valid, so far as they did not overlap but covered different components.

20. In oral submissions in this application, Ms Nolan accepted that the position was, in substance, that she contended the liquidator did not put against the Shareholders that he could choose parts of levies, and that the Shareholders did not put that he could not do so, but that would have been her submission had the matter been raised (23.6.2015, T31). It seems to me that the issue of election between components of the levies was not squarely addressed at the substantive hearing, and that I should now permit the Shareholders to address that issue, as they have done, and determine it. I therefore do not accept Mr and Mrs McLaughlin’s submission that it is not open to the Shareholders now to address that issue, which seems to me properly to be an issue consequential on my judgment and the finding that several levies, which overlapped only in part, were valid.
21. Turning to the substance of that issue, Ms Nolan submitted that it is not open to the liquidator to “cherry pick” between the levies because they are claims to debt rather than claims to damages. I am not persuaded that that submission is correct. That submission seems to me to turn on a premise that an election must be made at the level of a levy as a whole, rather than at the level of the components of that levy, and Ms Nolan did not identify, and I am aware of, no principle of law that has that effect. It seems to me that it would be a matter of common experience that, for example, a supplier may issue an invoice for items A, B, C and D; may then, by error, issue a second invoice for items A, E, F, G and H; and the purchaser might then point out, for example, that the charge for item A was duplicated in the two invoices, the charge for item B related to a defective item and the charge for item F related to an item that had not been supplied. I can see no reason of law or principle why, in that situation, the supplier would be bound to press either the first or the second invoices, in the form in which they were originally issued, or neither of them, rather than electing to press for payment of item A in the first invoice and not where the charge was duplicated in the second invoice, and not for the disputed items in the first and second invoices, notwithstanding that the Shareholders would characterise that course as “cherry-picking”. As a matter of principle, it seems to me that the only constraint on an election of that kind would be that it could not properly claim for more than the amount properly due, in respect of the totality of the items which were pressed from the relevant invoices. It does not seem to me that the position where the liquidator seeks to press particular components from the relevant levies is different in principle from that situation.
22. Loafer and Garmen also contend that, in fixing the judgment amount reflecting the unpaid demands, the liquidator must allow a credit to the Company’s shareholders (of whom the Shareholders are a subset) for an amount that will come into the winding up by payment of a 2010 levy by Mr and Mrs McLaughlin, which amount is to be payable on the transfer of the Property to them, although it will be set-off under s 553C of the Corporations Act for the reasons noted in the Judgment. The liquidator submits that that submission seeks to reargue a matter that has already been determined in the Judgment, where I addressed the issue of the effect of that levy after hearing detailed submissions from Ms Nolan. Mr and Mrs McLaughlin also submit that the Shareholders should not now be permitted to challenge the liquidator’s calculation of the levies due to him to the extent that they did not do so at the hearing. It seems to me that this matter is not properly raised in determining the orders to be made to give effect to the Judgment, where I heard comprehensive submissions from all parties at the substantive hearing as to the matters they wished to raise as to quantification of the levies.
23. Loafer and Garmen also submit that the Judgment should not include any amount on account of the voluntary administrator’s remuneration because approval of that remuneration has not been obtained under s 449E of the Corporations Act. They submit that the amount of remuneration claimed by the administrators, and anticipated by the 19 February 2013 levy, has not been fixed in accordance with s 449E of the Corporations Act and is not payable under s 443D(b) of the Corporations Act.
24. The liquidator responds that that matter was not raised as a defence to the claim against the Shareholders, whether by pleadings or by evidence or submissions at the substantive hearing. In oral submissions, Mr Golledge contended that that issue was a matter of defence in respect of the claims brought by Mr and Mrs McLaughlin on the Company’s behalf, against the Shareholders, and should have been raised at the substantive hearing and not in settling orders to give effect to the Judgment. It seems to me that that matter is not properly raised in an argument as to the orders to be made to give effect to the Judgment, having not been raised in the substantive hearing.
25. In any event, the liquidator also submits, and I accept, that a voluntary administrator’s right to remuneration under s 443D of the Corporations Act, and his or her entitlement to indemnity for expenses, does not depend on a determination under s 449E of the Corporations Act, which is directed to the quantum of that remuneration and its payment, as distinct from their right to it: Paul’s Retail Pty Ltd v Morgan [2009] NSWSC 1222 at [14]. The liquidator also points out, and I held in the Judgment that, the liquidator’s power to raise a levy under paragraph 4(k) of the Company’s articles of association extends to a levy for contingencies. Mr Golledge also submits in oral submissions that that section is concerned with the administrator’s entitlement to payment of remuneration out of the Company, rather than to the question in this case, whether the Company is entitled to recover levies made in anticipation of an ultimate liability to the administrator or the liquidator, which involved bringing money into the Company rather than paying money out of it (23.6.2015, T8). Ms Nolan responds, in oral submissions in reply (23.6.2015, T28) that the protective function of s 449E of the Corporations Act was applicable not only to the “paying out” of remuneration to an administrator, but also to the “getting in” of funding for the Company, which might ultimately be applied to such a payment out (23.6.2015, T28). With respect, I can see no warrant for that reading of the section.
26. Even if it were open to the Shareholders now to raise this argument, not having done so at the substantive hearing, the fact that the administrators will be entitled to payment of their remuneration, after invoking s 449E of the Corporations Act to the extent necessary, and a right to indemnity as to their expenses, seems to me to be sufficient to indicate that the Company has a contingent liability for those claims, and that is sufficient to support the relevant levy in that respect.

Interest against Shareholders

27. The liquidator’s quantification of the judgment amounts includes interest on components of the 2013 and 2015 demands from the date of those demands to the date of publication of this judgment. The interest quantified by the liquidators comprises, in respect of the February 2013 demand and as against all of the Company’s shareholders, interest on the voluntary administrator’s costs and trade creditors for the period from 19 February 2013 (the date of that levy) to 1 May 2015 in the amount of $40,046,86 and an amount referable to interest payable (subject to the matters noted below) by the Company on the judgment in favour of Mr and Mrs McLaughlin for the same period (ie after the date of the February 2013 levy) in the amount of $92,208.42. It should be noted that both levies were issued and any debt arose after the administrator was appointed but before the liquidator was appointed, although part of the interest period claimed is after the liquidator’s appointment. The interest components in the February 2015 levy was quantified by reference to interest payable (subject to the matters noted below) by the Company on the judgment in favour of Mr and Mrs McLaughlin in the amount of $149,942.90 for the period from that judgment to the date of the administrator’s appointment on 18 December 2012, all of which was prior to the winding-up, and a further amount of interest on the levy amount from 11 February 2015, which was after the winding up.
28. Loafer and Garmen raise a question as to the correctness of “post-appointment” interest charges, although neither that description nor their submissions were particularly clear as to whether the issue was directed to the position after the appointment of the liquidator in mid 2013 or was also directed to the position after the appointment of the administrator and before the liquidator’s appointment. It may be the former was intended, since Loafer’s and Garmen’s submissions did not specifically address any question of interest by reference to Pt 5.3A of the Corporations Act, as distinct from the statutory provisions applicable after a winding up. There was also a degree of ambiguity in Loafer’s and Garmen’s submissions as to whether the challenge to an entitlement to “interest” was directed to a creditor’s claim for interest as against the Company (a question that would arise at the point of quantification of the levies, an issue that was addressed at the earlier hearing) or to the Company’s claim for interest as against its debtors (a question that would arise after valid levies were issued against the Shareholders such that they became debtors to the Company).
29. It may be that Loafer and Garmen were seeking to contend, in part, that the levies issued by the administrator and subsequently the liquidator should not have included an allowance for interest on the judgment in favour of Mr and Mrs McLaughlin, because that interest is not payable by reason of s 563B of the Corporations Act unless and until there is a surplus in the liquidation. It seems to me that submission is not properly open to Loafer and Garmen in submissions as to orders, when that issue was not raised as a challenge to the quantification of the levies at the substantive hearing, and the issue now is the orders to be made to give effect to the Judgment that determined the matters that were raised at that hearing.
30. Loafer and Garmen also directed submissions to whether interest is payable on a judgment in favour of the Company in respect of the unpaid levies, which seems to me to be an issue that is properly open at this point. However, for the reasons set out below, it seems to me that s 563B of the Corporations Act, on which Loafer and Garment relied, does not affect the question whether interest should be allowed in respect of a claim made by the Company against its shareholders in respect of debts owed to it. That section relevantly provides that:

“(1) If, in the winding up of a company, the liquidator pays an amount in respect of an admitted debt or claim, there is also payable to the debtor or claimant, as a debt payable in the winding up, interest, at the prescribed rate, on the amount of the payment in respect of the period starting on the relevant date and ending on the day on which the payment is made.
(2) Subject to subsection (3), payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of section 563A).
(3) If the admitted debt or claim is a debt to which section 554B applied, subsection (2) does not apply to postpone payment of so much of the interest as is attributable to the period starting at the relevant date and ending on the earlier of:
(a) the day on which the payment is made; and
(b) the future date, within the meaning of section 554B.”

31. Turning now to the detail of Loafer’s and Garmen’ submission, they submit that any entitlement to interest on creditors’ claims in a winding up arises under s 554 and s 563B of the Corporations Act and refer to the scope of those sections. Loafer and Garmen submit that interest claimed to be payable on the judgment in favour of Mr and Mrs McLaughlin against the Company and interest on trade creditors is not admissible to proof in the winding up, other than if a surplus arises and in accordance with s 563B of the Corporations Act, and that the Company is not liable for such interest, after the commencement of the winding up, by reason of s 563B(2) of the Corporations Act. Ms Nolan accepted, in the course of oral submissions, that her submission in respect of s 563B of the Corporations Act depended on the proposition that a levy could not be made on a basis that contemplated the possibility that there would be a surplus in the liquidation and interest would be payable after the levy was paid (23.6.2015, T27).
32. The liquidator responds that s 563B of the Corporations Act does not prevent payment of interest for the period after the commencement of the winding up and that s 563B(1) provides that interest is payable for that period, although its payment is deferred. He submits that the section does not indicate a statutory intention that interest on claims in the liquidation should cease once a winding up is initiated. He also submits that it cannot be said that interest will not, at some time in the future, become actually payable to trade creditors or Mr and Mrs McLaughlin for the period after the winding up commenced, where the Judgment leaves open that the possibility that a liquidator (or, more precisely, a voluntary administrator appointed by him) might issue further demands which would bring sufficient funds into the liquidation to enable payment of all debts and claims, including costs, in full so that any deferral of a right to interest would be lifted. The liquidator also points out, and I accept, that s 563B of the Corporations Act is directed to the relationship between an insolvent company and its creditors, and gives effect to the pari passu principle under Part 5.6 Div 6 of the Corporations Act by postponing the payment of interest until debts provable in the winding up have been paid in full.
33. Mr and Mrs McLaughlin also submit that the claim for interest falls under s 553 of the Corporations Act, as a contingent claim that arose from an event, namely the failure to pay the amount due to the Company in relation to their judgment debt, prior to the liquidators’ appointment. Mr and Mrs McLaughlin also refer to the decision in Re Emilco Pty Ltd (in liq) [2002] NSWSC 1124; (2002) 43 ACSR 536 to support the proposition that interest on the judgment debt arising after the date of the liquidators’ appointment is admissible to proof in the winding up if a surplus arises and in accordance with s 563B of the Corporations Act. Mr and Mrs McLaughlin also point out that interest has been running on the judgment as to costs that Turner Freeman obtained against them, and submit that it would be unfair that they should be required to pay such interest, in circumstances that the Company’s inability to recover amounts due from shareholders has in turn prevented it paying amounts due to them. However, it seems to me that the Company’s right to interest arises from the fact that its shareholders did not pay the amounts I have already held, in the Judgment, to be due to it, and that the Company has been deprived of and the shareholders have gained the benefit of that money, and not from the position as between the Company and Mr and Mrs McLaughlin or between Mr and Mrs McLaughlin and Turner Freeman.
34. It seems to me that, as the liquidator points out and as I will note below, the Shareholders’ submission misapprehends the relevant issue. The question before me is not whether, or when, as between the liquidator, the Company and creditors, interest would be payable to creditors in the winding up. As the liquidator points out, in submissions in reply:

“The claim to interest as part of the judgment sum is based, as the Shareholders’ Submissions apprehend, on s.100 of the Civil Procedure Act.
The [Company’s] Articles provide that an amount levied is due and payable 14 days after service of the levy notice and can then be the subject of recovery in a court. Similarly, the Share Surrender Agreements require the amounts owing under a clause 7 or clause 8 reconciliation to be paid 14 days after the reconciliations are carried out. Both sources give rise to an enforceable debt on which, whilst unpaid, interest would normally be expected to accrue.”

Section 100 of the Civil Procedure Act 2005 (NSW) in turn provides that the Court may include interest in the amount for which judgment is given, on the whole or any part of the amount of the money judgment, and for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. The liquidator also submits that the question of recovery of interest by the Company under s 100 of the Civil Procedure Act is directed to the relationship between the Company and a party against which judgment has been given, to address the prejudice suffered by the Company by reason of having been kept out of money due to it. Mr and Mrs McLaughlin also submit that the cause of action arose prior to the liquidation and that interest in favour of the Company should run until the time the judgment takes effect.

35. In the course of oral submissions before me on 23 June 2015, Ms Nolan in turn relied on my decision in Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd [2013] NSWSC 443 in support of the proposition that interest should not be awarded in favour of the Company and against the Shareholders under s 100 of the Civil Procedure Act, by reason of s 563B of the Corporations Act. However, that decision, and the decision in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) [2011] NSWCA 315; (2011) 81 NSWLR 690 to which I there referred, were directed to the question whether a creditor could prove, in a winding up, for interest awarded on a judgment debt under s 100 of the Civil Procedure Act accruing in the period after the winding up. It seems to me that question does not arise, where the question is instead whether the Company has a right to recover interest, under s 100 of the Civil Procedure Act, against a debtor to it, which will initially fall into the pool of assets to be distributed in the order of priority set out in s 556 of the Corporations Act, and may later become available for payment of interest to creditors under s 563B of the Corporations Act if a surplus ultimately eventuates.
36. It seems to me that the Company’s claim to interest arises because an amount was due to it, being the levies upon the Shareholders, and has not been paid for a considerable period. The Company has been deprived of that money and the Shareholders have had the use of it for the entirety of that period. Whether the levy included amounts of interest that may or will be treated in a winding up, as between persons other than the Shareholders, on a particular basis is not to the point, since an award of interest is properly made to compensate the Company for the fact that it has been out of those monies for that period, and does not depend upon the manner in which those monies or interest on them will be distributed in the winding up. An award of interest under s 100 of the Civil Procedure Act serves to place the Company in the position which it would have been had the debts due to it by the Shareholders been paid to it in a timely manner. The Company is entitled to be placed in that position, whether or not it is in winding up, and not less so because that may improve the prospect that the Company’s assets will be sufficient to meet the liquidator’s costs or creditors’ claims, either to a greater extent or in full, and to pay any interest due to them after such claims are met in full. The decisions in McGrath v Sturesteps; Sturesteps v HIH Overseas Holdings Ltd (in liq) above and Liberty Industrial Pty Ltd v Donald Mcarthy Trading Australia Pty Ltd above do not seem to me to be relevant to that question. I can see no basis, in principle or in law, for a proposition that a company in liquidation should be unable to recover interest on judgments obtained against third parties, or its shareholders, so as to disadvantage its creditors and advantage its debtors. The award of such interest, in proceedings brought by companies in liquidation against their debtors, as commonplace.
37. Loafer and Garmen also submit that interest claimed by the liquidator in respect of its 11 February 2015 levy, in the amount of $14,141.98, from the date of that levy to the date of judgment, could only be awarded under s 100 of the Civil Procedure Act and refer to Uniform Civil Procedure Rules (“UCPR”) r 6.12(6)–(8) for the requirement that an order for interest up to judgment must be specifically claimed. They point out that no claim for interest was pleaded in the First Cross-Claim brought by Mr and Mrs McLaughlin on the Company’s behalf. In submissions in reply, Ms Nolan initially submitted that s 100 of the Civil Procedure Act (or, more precisely, UCPR r 6.12, as Ms Nolan acknowledged) is a “mandatory” provision and is “not one open to dispensation”. It does not seem to me that that submission can be accepted, where s 14 of the Civil Procedure Act, to which I refer below, expressly permits the Court to dispense with that and other rules in a proper case. Ms Nolan subsequently qualified that submission, in oral submissions, to submit that the rule is an important one and ought not lightly to be dispensed with. I accept that submission, so far as it requires that the Court exercise a judicial discretion, having proper regard to the interests of justice, in determining whether to dispense with the rule.
38. In his submissions in reply, the liquidator responds that:

“It is true that the Amended Statement of Cross Claim filed on 12 December 2014 (being the form of the Cross Claim on which the matter proceeded to trial) did not include any reference to s.100 of the Civil Procedure Act. However, that was a document prepared by Mr and Mrs McLaughlin who were, at the time, without legal representation. To the extent that the Rules require a claim for interest to be expressly pleaded then the Court has power to relieve them of that obligation and that power ought be exercised. The Shareholders can have been in no serious doubt, when preparing for the final hearing, that Mr & Mrs McLaughlin, pursuant to the grant of leave that had been made, were seeking to recover, in the name of the Company, amounts due under 2013 and 2015 Levy notices. ... The effect of the judgment is that the Shareholders were liable in accordance with the terms of the 2013 demands, as well as the 2015 demands (to the extent they were not inconsistent). Given those demands were not met when they fell due, an award of interest is entirely just.”

39. Ms Nolan responded to the liquidator’s submission that Mr and Mrs McLaughlin were not legally represented by submitting that their former solicitors, Colin Biggers & Paisley, had assisted them in drawing the First Cross-Claim and any experienced legal practitioner would have included a claim for interest in the claim. That submission does not assist the Shareholders, because the First Cross Claim prepared by Colin Biggers & Paisley was directed to the dispute as to ownership of the Property, which did not raise any question as to interest. The claim brought by Mr and Mrs McLaughlin on the Company’s behalf, against the Shareholders, which did raise a question of interest, was introduced after Colin Biggers & Paisley had ceased to act for Mr and Mrs McLaughlin.
40. Section 14 of the Civil Procedure Act permits the Court to dispense with the application of UCPR 6.12(6)-(8), on which the Shareholders rely, if satisfied that it is appropriate to do so in a particular case. Under s 90(1) of the Civil Procedure Act, the Court is also obliged to give judgment or make such order as the nature of the case requires. Under UCPR r 36.1, the Court may give such judgment or make such order as the nature of the case requires, whether or not a claim for relief extending to that judgment or order is included in any originating process or notice of motion: Farrell v Mulroney [1978] 1 NSWLR 221; NSW Trustee and Guardian v Schneider [2011] NSWSC 424 at [24]. In determining whether to dispense with the application of UCPR 6.12(6)-(8) in this case, I should have regard to the role of the identification of a claim for interest in giving notice of the case that the Shareholders had to meet, but also to the wider interests of justice. I bear in mind the factors summarised by the Full Court of the Federal Court of Australia in Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15, albeit in the context of whether an unpleaded matter could be raised rather than in the specific context of a claim for interest. The Court observed (at [13]) (omitting authorities) that:

“It is well-established that the main purposes of pleadings are to give notice to the other party of the case it has to meet, to avoid surprise to that party, to define the issues at trial, to thereby allow only relevant evidence to be admitted at trial and for the trial to be conducted efficiently within permissible bounds .... However, it is also well-established that pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation ... For these reasons, the courts do not, at least in the current era, take an unduly technical or restrictive approach to pleadings such that, among other things, a party is strictly bound to the literal meaning of the case it has pleaded. The introduction of case management has, in part, been responsible for this change in approach ... Even before the widespread use of case management, the High Court reflected this approach ...”

41. The factors relevant to the exercise of the discretion in this case include that, in the somewhat unusual circumstances of this case, Mr and Mrs McLaughlin were granted leave to represent the Company in bringing the claim against the Shareholders, where the Company’s shareholders’ failure to pay amounts levied by the administrators and subsequently the liquidator had left the liquidator unfunded to bring the claim, and prevented the Company paying amounts due to Mr and Mrs McLaughlin pursuant to the Court of Appeal’s judgment in their favour, creating difficulties for their funding of legal representation. It is not surprising that Mr and Mrs McLaughlin had a less than comprehensive understanding of the pleading requirements of the UCPR in respect of claims for interest. On the other hand, the principal of Loafer and Garmen is Mr Rodney Garrett QC, a Senior Counsel who practices in Victoria, and Loafer and Garmen were ably represented by Ms Nolan and by solicitors in these proceedings. Mr and Mrs Brown were also represented by Counsel and solicitors although their legal representatives were excused from attending the hearing at their request. As the liquidator points out, it cannot be sensibly suggested that Mr Garrett or the Shareholders’ legal representatives would have been unaware of the possibility that interest might be ordered against the Shareholders where they had the use of the unpaid levies for a substantial period or would have been unaware of the Court’s power to dispense with the UCPR in an appropriate case. I am comfortably satisfied that this is a proper case for the Court, by order, to dispense with the requirements of UCPR r 6.12 in respect of the pleading of a claim for interest by the Company and I do so.

Liquidator’s proposed order 9

42. Turner Freeman initially identified a possible dispute with Mr and Mrs McLaughlin in respect of paragraph 9(b) of the liquidator’s proposed orders (which corresponds to order 10(b) set out below) and addressed submissions as to that matter. Mr and Mrs McLaughlin confirmed in oral submissions that they did not have any difficulty with that proposed order (23.6.2015, T11) and I need not address it further.

Whether the liquidator’s costs should be costs in the winding up

43. By his Originating Process filed on 5 July 2013, the liquidator applied for directions under ss 479(3) and 511 of the Corporations Act in respect of competing claims, including claims by Mr and Mrs McLaughlin and Turner Freeman over the Property that was held in the Company’s name. As events developed, the liquidator did not press those directions at the hearing, since issue was joined (and then resolved) between Mr and Mrs McLaughlin and Turner Freeman as to that matter. The liquidator continued to press a claim to a lien over the Property, as to which he was unsuccessful at the hearing. The liquidator also adopted a proper, and helpful, role in making limited submissions as to the First and Second Cross-Claims to which I will refer below. The liquidator points to my finding that he acted reasonably in approaching the Court to seek directions in respect of the dispute that then existed over title to the Property (Judgment [94]). The liquidator also submits, and I accept, that he could not have effectively extracted himself or the Company from other disputes raised in the proceedings. The liquidator’s draft orders as to costs provide that the liquidator’s costs of the conduct of the proceedings, including in respect of the First and Second Cross-Claims, and any amount for which the Company or the liquidator should become liable in respect of the costs of any other party, should form part of the costs and expenses of the winding up.
44. Mr and Mrs McLaughlin do not oppose the liquidator’s order that its costs of the Originating Process and the proceedings form part of the costs of the winding up of the Company, but seek an order that those costs are not attributable to them. They submit that they should not be forced to bear the costs of the winding up since their actions in pursuing the First Cross-Claim, after giving an indemnity for costs to the liquidators, have brought about recovery by the Company. I recognise that the Company, and potentially its creditors including Mr and Mrs McLaughlin, will be in a better position by reason of such a recovery. I also recognise that the costs order that is sought by the liquidator may, indirectly, disadvantage Mr and Mrs McLaughlin to the extent that the liquidator’s costs, as costs of the winding up, would be paid in priority to a distribution to creditors. Nonetheless, it seems to me that the basis for an order that the liquidator’s costs be costs in the winding up is established, notwithstanding that Mr and Mrs McLaughlin may indirectly bear a proportion of those costs, to the extent that orders for costs are not made in favour of the liquidator against other parties to the proceedings or those orders are not sufficient to recover the relevant costs and the associated remuneration of the liquidator. I note, for completeness, that no party contended that the liquidator should not be entitled to costs of his unsuccessful claim to a lien over the Property, and it is therefore not necessary to deal with that issue. Those costs are not likely to be substantial in any event.
45. In submissions in reply, the liquidator identified a possibility that Mr and Mrs McLaughlin’s submissions might be intended to suggest that the statutory order of priorities in a winding up should be altered in their favour, and I should also address this issue, which was addressed both by Mr Golledge and Ms Nolan in submissions. Mr Golledge submitted that:

“In any event no order altering the statutory priorities should be made. A fundamental principle in company windings up, as is in bankruptcy administrations, is that creditors of equal ranking share equally in any distribution of the debtor’s property (“the pari passu principle”). Apart from as expressly provided by s.556 of the Corporations Act, the order in which the property of a company is to be distributed amongst its creditors cannot be altered by Court order. The “merit” of one creditor’s claim does not entitle it to rank ahead of the claims of other creditors of the same class, or to seek to climb higher up the priority ranking than the nature of its claim allows. Given the priority granted by s.556 to the costs and expenses of the winding up, it is inevitable, as matters presently stand, that even if the whole of the amounts claimed from the shareholders pursuant to the 2015 demands is recovered that creditors of the company, including Mr & Mrs McLaughlin, will not receive a dividend of 100 cents in the dollar. To that extent, all creditors, including Mr & Mrs McLaughlin, “are forced to bear” the costs of the winding up. Because Mr & Mrs McLaughlin are, by far, the most substantial creditors, they are, comparatively, therefore, bearing the substantial costs of the winding up, in the sense that payment of those costs reduces the amount otherwise available for payment of a dividend. But that is the natural, and unfortunate, consequence faced by creditors in every insolvency administration.”

46. Ms Nolan also submitted that, to the extent that Mr and Mrs McLaughlin were seeking an order that the statutory order of priorities under s 556 of the Corporations Act should not apply to them as creditors, there was no power to exempt later ranking debts or claims from the consequences of the order of priority. Ms Nolan also rightly submitted that the Court should not adjudicate on any question of the future levies, which had not been made and were not presently before it, and that was a matter in which other parties, including other shareholders may have an interest.
47. I accept the liquidator’s and Loafer’s and Garmen’s submission that, first, such an order could not be made without notice to other creditors affected by it and, second and more fundamentally, the Court does not have any general power to alter the statutory ranking for debts and claims for payment under s 556 of the Corporations Act. I would add that the priority given to proper remuneration and expenses incurred by, inter alia, a liquidator in a winding up exists for good reason, where he or she fulfils a function that advances the public interest. It is also not appropriate that I address any wider question, in a judgment as to the form of orders, as to whether Mr and Mrs McLaughlin would be able to invoke the Court’s power to make an order in favour of particular creditors under s 564 of the Corporations Act. That issue was not raised before me; any application under that section would need to be brought by Mr and Mrs McLaughlin by interlocutory process in the winding up that squarely raised that question; and it is likely that other creditors of the company would need to be given notice of any such application so that they had an opportunity to be heard in respect of it. In any event, an order under that section would only affect the priority as between the Company’s creditors and would not support any attempt to reduce the priority afforded to the liquidator’s proper costs and expenses under s 556 of the Corporations Act.
48. Mr and Mrs McLaughlin also submit that the liquidator’s costs, if they are to form part of the costs of the winding up, may not be levied against them as shareholders, and rely on an agreement noted by the Court of Appeal which excluded them from being levied for any contribution to the payment of interest or costs awarded to them. It seems to me that I need not address this issue, first, because there is no suggestion that a levy has been raised against Mr and Mrs McLaughlin and no such levy is in issue before me.
49. Mr and Mrs McLaughlin also seek to exclude the liquidator’s costs associated with an application, brought in the course of the hearing, for approval of a proposed settlement of the claim against the Company’s shareholders, from any order that the liquidator’s costs be costs of the winding up. Brereton J declined to approve that proposed settlement. The liquidator points out, and I accept, that it does not follow that the liquidator was acting unreasonably in seeking to negotiate such a settlement or applying for its approval, where that settlement had a potential to avoid the need to bring corresponding proceedings against other shareholders in the Company who are not party to these proceedings. The liquidator also points out, and I also accept, that the judgment of Brereton J did not indicate that the liquidator was acting in bad faith, or unreasonably, in seeking approval for such a settlement. I am not satisfied that the liquidator is disentitled to an order that those be costs in the winding up. I therefore need not address the liquidator’s further submission as to the additional complexity which would be involved in the exclusion of remuneration and costs associated with that application, in any assessment of the costs of the proceedings or the calculation of the liquidator’s remuneration.

Costs as between the parties – Costs as between Mr and Mrs McLaughlin and the Shareholders

50. I now turn to the question of costs as between the parties, which is to be determined by reference to s 98 of the Civil Procedure Act which relevantly provides that:

“Subject to rules of court and to this or any other Act:
(a) costs are in the discretion of the court; and
(b) the court has full power to determine by whom, to whom and to what extent costs are to be paid, and
(c) the court may order that costs are to be awarded on the ordinary basis or on an indemnity basis.”

Rule 42.1 of the UCPR in turn provides that, where the Court makes an order as to costs, the Court is to order that costs follow the event unless it appears to the Court that some other order should be made as to the whole or any part of the costs.

51. By their Amended First Cross-Claim, Mr and Mrs McLaughlin sought relief both in their own right and, by leave, in the name of the Company. The application brought in their own right sought to establish that the Property was held by the Company on trust for them, and overlapped with the liquidator’s application for directions in his Originating Process. It became apparent at the hearing that no party contested that aspect of their claim. The application brought in the name of the Company sought to enforce levies made by the Company’s former administrators (and, more recently, the liquidator) against the Shareholders.
52. Mr and Mrs McLaughlin submit that their costs incurred in the proceedings, being the costs of solicitors, Colin Biggers & Paisley, which they had previously retained in respect of the First Cross-Claim, and their accommodation and airfares in attending the hearing should be borne by the Shareholders. An order for costs cannot be made against the Shareholders in respect of Mr and Mrs McLaughlin’s conduct of the First Cross-Claim prior to the date on which the Shareholders were joined as party to that Cross-Claim, and, as I noted above, Colin Biggers & Paisley had ceased to be retained by them prior to that date.
53. Loafer and Garmen in turn submit that a successful plaintiff in a shareholder derivative suit may usually recover legal costs from the corporation on whose behalf he or she sues and that Mr and Mrs McLaughlin are not personally entitled to an order for their costs. Loafer and Garmen refer to no authority for that proposition, so far as it is a statement as to the costs of derivative claim. It does not seem to me that the Court’s power is confined in the manner for which Loafer and Garmen contend, and I can see no reason why a successful corporate plaintiff rather than an unsuccessful defendant should, in the ordinary course, pay the costs of the party that brought a derivative claim on a company’s behalf. However, Loafer and Garmen also submit, with greater force, that a costs order may not be made in favour of a self-represented litigant who is not a legal practitioner, in respect of time spent in preparation of his or her “own litigation”: Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403. There may be an open question as to how that proposition would apply to proceedings conducted by Mr and Mrs McLaughlin on the Company’s, not their own behalf. However, that issue does not arise, since Mr and Mrs McLaughlin do not seek to recover costs of their own involvement in the conduct of the derivative proceedings, as distinct from disbursements involved in the conduct of the proceedings.
54. It seems to me that Mr and Mrs McLaughlin should have an order for their proper disbursements in respect of the First Cross-Claim against the Shareholders, from the date on which the Shareholders were joined as parties to the First Cross-Claim. The extent to which those disbursements are properly recoverable will be a question for agreement between the parties or assessment.
55. Mr and Mrs Brown in turn submit that the First Amended Cross-Claim made allegations and sought relief against persons described as directors, and that Mr Brown was the only Cross-Defendant who was a director at any relevant time and that he should be awarded costs of defending the Amended Cross-Claim. They also submit that:

“As the Cross-Claim was a derivative action, the Company would have been the beneficiary of any order against the Directors or [Mr Brown], as claimed, and it follows that the Company ought to be liable for the above costs.”

56. The liquidator responds, in his submission in reply, that:

“If [Mr Brown] ought be awarded costs, referrable to defending that part of the allegations contained in the Amended Cross Claim filed 12 December 2014 directed to misconduct as a director (being a matter on which the Liquidator makes no particular submission) those costs should be not be awarded against the Company or the Liquidator.
The grant of leave allowed to Mr & Mrs McLaughlin was limited to the Company’s entitlement to enforce the levies raised under the Articles of Association and the Share Surrender Agreement. Mr & Mrs McLaughlin were not given leave to bring any claim against the Directors. To the extent that the Amended Cross Claim made such a claim, neither the Company nor the Liquidator is responsible for the form of that pleading. If any cost consequences arise as a result of the first cross claim containing that material they are matters which arise between Mr Brown and Mr & Mrs McLaughlin.”

57. The issues to which Mr and Mrs Brown refer in this submission were not pursued at the hearing and Mr and Mrs Brown did not appear at the hearing so as to incur such costs. To the extent that they adopted Loafer’s and Garmen’s defence of the Amended Cross-Claim, they were unsuccessful in defending that Amended Cross-Claim. It seems to me that there is no reason to distinguish Mr and Mrs Brown’s position from that of Loafer and Garmen in respect of the First Amended Cross-Claim. I can also see no reason why the Company should be liable to Mr and Mrs Brown for the costs of the Cross-Claim that was successfully brought against them on its behalf, by Mr and Mrs McLaughlin. That would, it seems to me, turn the usual order for costs on its head.

Costs as between Mr and Mrs McLaughlin and the liquidator

58. The liquidator submits that, as between the liquidator and the Company on the one hand and Mr and Mrs McLaughlin on the other, there should be no order as to costs. The liquidator points out that he did not oppose Mr and Mrs McLaughlin’s claim to the Property but sought a direction as to title to it, in the face of other competing claims. He points out, and I accept, that the interests of the Company and Mr and Mrs McLaughlin were generally aligned in respect of the claims brought by Mr and Mrs McLaughlin by leave on the Company’s behalf, although Mr and Mrs McLaughlin were successful in opposing the liquidator’s claim to a lien. He submits that there is no reason why he and the Company should pay any part of Mr and Mrs McLaughlin’s costs, and he and the Company do not seek an order for costs against Mr and Mrs McLaughlin, in respect of either the principal claim or the First Cross-Claim. I did not understand Mr and Mrs McLaughlin to advance a contrary position – although they addressed the question whether the liquidator should have his costs in the winding up, as I noted above – and I accept the liquidator’s submissions in this regard.

Costs as between the liquidator and the Shareholders

59. The liquidator also sought an order for costs as against the Shareholders. The liquidator submits that the Shareholders failed on all issues, as between the Company and the Shareholders, and that they did not press several earlier arguments in opposition to Mr and Mrs McLaughlin’s claim for a transfer of the Property and that those arguments which they did advance were largely unsuccessful. The liquidator submits that the Shareholders should bear the bulk of the costs of the proceedings from the date on which they were joined to them.
60. Mr and Mrs McLaughlin also submit that the liquidators’ costs of the application for directions brought in the Originating Process, and the whole of the proceedings, have been caused by claims to beneficial ownership of the Property advanced by “Mr Rodney Garrett in his capacities as former chairman [of the Company] and shareholder.” Mr Garrett, in his personal capacity, is not one of the Shareholders joined as party to the proceedings, although he was or is a director of Loafer and Garmen. Mr and Mrs McLaughlin did not seek to advance a claim that he could be made liable as a third party for the costs of the proceedings, and such a claim would have faced the obstacle that he appeared to be expressing a view as to ownership of the Property on behalf of the Company rather than the Shareholders, at the relevant time, and could not have been determined without affording Mr Garrett an opportunity to be heard in respect of it.
61. Loafer and Garmen initially submitted that the liquidator was not party to the First Cross-Claim and was heard on that First Cross-Claim on the basis that he made submissions on law and relevant facts that assisted the Court in a way that it would not otherwise have been assisted, and to that extent appeared “amicus curiae” in respect of that aspect of the proceedings. I do not accept the liquidator’s role was limited to that of “amicus curiae” where he was a party to the proceedings and had and exercised a right to be heard in respect of the First Cross-Claim, although Mr and Mrs McLaughlin had the carriage of it. Loafer and Garmen also initially submitted that the liquidator is not entitled to his costs of the First Cross-Claim and the costs of his participation in the proceedings should not be the subject of indemnity out of the assets of the Company. Ms Nolan advanced a more qualified position in oral submissions, to which I will refer below.
62. The Liquidator responded to Loafer’s and Garmen’s initial position, in reply, by submitting that:

“The Court has determined that the Liquidator acted reasonably, in the circumstances that arose, in applying to Court for Directions as to the manner in which he should deal with the [Property]. Having commenced those proceedings, in respect of that relatively narrow issue, the scope of the case was widened by the filing of the First and Second Cross Claims. Those developments had the inevitable effect of increasing the complexity of the proceedings and their cost including by adding to the length of the final hearing. There is nothing the Liquidator could have done, consistent with his obligations both to the Company and to the Court given the terms of s.56 of the CPA, to avoid or reduce those consequences. Is it suggested, for instance, that the liquidator could have absented himself from the hearing whilst the First Cross Claim was being dealt with or that he ought not have addressed, as obviously occurred, in respect of issues which arose on that cross claim? In those circumstances, and absent some finding of unreasonable conduct on behalf of the Liquidator, there is no reason to limit his entitlement to be indemnified from the assets of the Company for the costs that have actually been incurred as a result of becoming involved in the proceedings, in its various forms, including the cross claims.”

63. I now turn to whether the Court could, and should, make an order for costs in favour of the liquidator against the Shareholders, as the liquidator also sought, where Mr and Mrs McLaughlin rather than the liquidator had carriage of the Company’s claim against the Shareholders, although the liquidator made submissions in respect of the factual and legal issues raised by that claim which, as I noted in the Judgment, were of substantial assistance to the Court. The parties did not draw attention to authority in respect of the Court’s power to make an order for costs in favour of the liquidator and appeared to proceed on the assumption that the Court could make such an order, although the Shareholders initially contended it should not do so. It seems to me that that assumption was correct, for the reasons that I will note below. It seems to me that the Court must have power to make an order for costs in favour of the liquidator against the Shareholders, where he is party to the proceedings. The fact that such an order could be a proper exercise of discretion is emphasised by the fact that the Court could have made such an order in his favour even if he had been heard in respect of the First Cross-Claim without being party to them: Knight v FP Special Assets Ltd (1992) 174 CLR 178 per Dawson J at 198, 203; Petrovski v Radin [2000] NSWSC 323; Cresvale Far East Ltd v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622 at [101] (dealing with the position where a non-party creditor supporting a winding-up application); Re Pan Pharmaceuticals Ltd; Selim v McGrath [2004] NSWSC 129; (2004) 48 ACSR 681; Re HIH Casualty and General Insurance Ltd [2006] NSWSC 6 (dealing with the question whether a costs order should be made in favour of a non-party which had been heard under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW)). Ms Nolan, fairly, accepted that the cases in that area provided assistance as to the Court’s exercise of its discretion in this regard.
64. It seems to me that an order for costs should be made against the Shareholders and in favour of the liquidator where he was party to the proceedings, although Mr and Mrs McLaughlin had the carriage of the First Cross-Claim; he and the Company had an obvious and appropriate interest in the outcome of that cross-claim; and his submissions in respect of the First Cross-Claim were of real and substantial assistance to the Court. In this case, as in Re HIH Casualty and General Insurance Ltd above, no more than one order for costs would be made in respect of the claim against the Shareholders since Mr and Mrs McLaughlin were self-represented and, as the Shareholders point out, an order for costs (as distinct from disbursements) will not be made in their favour.
65. A question then arises as to the quantum of costs to be awarded against the Shareholders. In submissions in reply, Ms Nolan helpfully drew attention to the decision of the Court in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] where the Court of Appeal summarised the principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed, and observed (omitting several citations):

“The principles governing the making of an order as to costs so as to reflect the time taken in dealing with a particular issue in which the successful party in the proceedings or on the appeal did not succeed were reviewed by this court in Elite Protective Personnel Pty Ltd v Salmon (No 2) [2007] NSWCA 373. Those principles may be summarised as follows:
● Where there are multiple issues in a case the Court generally does not attempt to differentiate between the issues on which a party was successful and those on which it failed. Unless a particular issue or group of issues is clearly dominant or separable it will ordinarily be appropriate to award the costs of the proceedings to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed ....
● In relation to trials it has been said that it may be appropriate to deprive a successful party of costs or a portion of the costs if the matters upon which that party was unsuccessful took up a significant part of the trial, either by way of evidence or argument ... A similar approach is adopted on appeal ...
● Where there is a mixed outcome in proceedings, the question of apportionment is very much a matter of discretion and mathematical precision is illusory. The exercise of the discretion depends upon matters of impression and evaluation ....

While the issue that I must address is not one of a mixed result in the proceedings, since the Company was substantially successful and the Shareholders substantially unsuccessful, those principles do seem to provide assistance, at least by analogy, in apportioning costs where not all issues were relevant to all parties in the proceedings. The authorities also indicate that, where costs of proceedings should be apportioned as between different issues, the Court will generally take a relatively broad brush approach, largely as a matter of impression and evaluation: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (No 3) (1998) 30 ACSR 20 at 22.

66. Ms Nolan initially submitted that any apportionment of costs should be undertaken in respect of the Originating Process and the First Cross-Claim, without regard to the Second Cross-Claim to which the Shareholders were not party. She ultimately accepted that, as a practical matter, it might be preferable to undertake any apportionment across all of the claims, taking into account the fact that the Shareholders were not party to the Second Cross-Claim in determining the proportion of any costs that would be payable by them, where a detailed assessment would otherwise be required to segregate and exclude the costs of the Second Cross-Claim.
67. The liquidator submits that the Shareholders should pay 90% of his and the Company’s costs of the whole proceedings from 2 July 2014, being the date when the matter was first before the Court following their joinder. In oral submissions in reply, Mr Golledge submitted that the issues which were pressed in respect of the Second Cross-Claim as between Mr and Mrs McLaughlin and Turner Freeman (which, I interpolate, had significantly narrowed by the time of the hearing) took up only a short amount of time at the end of the case, and the actual hearing was concerned largely if not exclusively with the issue of the claims against the Shareholders (23.6.2015, T6). Ms Nolan responds that the First Cross-Claim involved several issues, including personal claims brought by Mr and Mrs McLaughlin that were not the subject of leave, and that argument in respect of the issues on which the Company was successful against the Shareholders took one hearing day, and that much of that day was consumed by submissions made by the liquidator, and that the Shareholders should only be liable for costs corresponding to one hearing day. In oral submissions, Ms Nolan acknowledged the possibility that the Shareholders could fairly be required to pay one-third of the costs of the proceedings, on the basis that costs would not be ordered in favour of Mr and Mrs McLaughlin so far as they were self-represented, so that no question of more than one order as to costs would arise.
68. It seems to me that Ms Nolan’s submission provides a helpful starting point for analysis but requires several qualifications. First, although the matter was listed for four hearing days, little occurred on two of those days, when the matter was adjourned to allow continuing discussions between Loafer and Garmen and the liquidator, and then an unsuccessful application by the liquidator for directions as to a potential settlement with the shareholders, and the matter then continued into a fifth hearing day. Accordingly, the one hearing day to which Loafer and Garmen refer amounted to one-third of the time spent in the substantive hearing. Second, a significant amount of the time spent by Mr and Mrs McLaughlin in leading evidence related to evidence in respect of the claims against the Shareholders and, if the time spent on that issue is included, the portion of time spent in relation to the claim against the Shareholders would increase to two-thirds of the time spent in the substantive hearing. If the two hearing days devoted to possible settlement of the claim against the Shareholders were included, that proportion would be calculated as four of the five hearing days, increasing to 80% of the hearing time. Third, it seems to me that the parties’ written submissions, having regard to the significant issues that were not pressed as between the liquidator, Mr and Mrs McLaughlin and Turner Freeman, also indicate that the claims against the Shareholders occupied a substantial majority of the parties (other than Turner Freeman’s) efforts in respect of the proceedings. A substantial majority of the preparation time in respect of the proceedings, from the point at which they were joined to the First Cross-Claim, is also likely to have related to the claims against the Shareholders for the same reason.
69. The quantum of costs is necessarily a matter of impression to some extent. It seems to me that the order sought by the liquidator that the Shareholders pay 90% of the liquidator’s costs gives insufficient weight to the extent of other issues in the proceedings. On the Shareholders’ analysis, qualified in the manner I noted above, it seems to me that an order that the Shareholders pay two-thirds of the liquidator’s and the Company’s costs of the proceedings from the date on which the Shareholders were joined as parties to the First Cross-Claim would be justified. It seems to me that such an order will do justice between the parties, where the liquidator will be entitled to recover the balance of his costs as costs in the winding up, and I will make such an order quantified as two-thirds of the liquidator’s and Company’s costs of the proceedings from the date of the Shareholders’ joinder.

The costs of the proceedings in respect of Turner Freeman

70. Turner Freeman contends that a proper order is that it pay its own costs of the Originating Process, although it seeks orders for costs in its favour in respect of the Cross-Claims as noted below. Mr and Mrs McLaughlin seek, by their proposed order 2, an order that, inter alia, Turner Freeman pay the costs of the Originating Process. Mr and Mrs McLaughlin also seek a wider order that Turner Freeman pay the liquidator’s and the Company’s costs relating to the whole of the proceedings. Mr and Mrs McLaughlin submit that the liquidators’ costs of the application for directions, and the whole of the proceedings, have been caused by claims to beneficial ownership of the Property advanced by, inter alia, Turner Freeman. Mr and Mrs McLaughlin also submit that, but for those claims, the liquidator would not have needed to approach the Court for directions, at least in respect of the ownership of the Property. Mr and Mrs McLaughlin refer to paragraph 81 of my Judgment where I observed that:

“Mr and Mrs McLaughlin also submit, with some force, that Turner Freeman's previous claim to beneficial ownership of [the Property], as distinct from a right to security over [the Property], has contributed to the length of these proceedings and the related costs incurred. However, that is a matter to be addressed in respect of the costs of the proceedings, and does not impact upon their substantive rights under the mortgage.”

It seems to me that those submissions would tend to support an order for costs against Turner Freeman in respect of the Second Cross-Claim, to which I will refer below, but such an order could not extend to the costs of the proceedings which involved a much wider range of issues. Mr and Mrs McLaughlin also criticise Turner Freeman’s conduct in bringing bankruptcy proceedings against them. It does not seem to me that issue is properly addressed by an order for costs in these proceedings. I consider that there should be no order for costs in respect of Turner Freeman so far as the Originating Process is concerned.

71. Turner Freeman submits that the Mr and Mrs McLaughlin and the Shareholders should each be ordered to pay half its costs of the Amended First Cross-Claim filed on 12 December 2014. Mr Philips, who appeared for Turner Freeman, confirmed in oral submissions that a claim for costs was not made against the liquidator or the Company in that regard and I therefore need not address the liquidator’s submissions in opposition to such a claim.
72. So far as Turner Freeman seeks its costs of the First Cross-Claim against Mr and Mrs McLaughlin, it submits that criticisms of the firm’s conduct were made in the pleading and were not pursued at the final hearing or were determined in its favour or “went nowhere”. Although Mr and Mrs McLaughlin referred in the First Cross-Claim, and in the course of submissions, to Turner Freeman’s conduct, that matter was of little relevance to the substantive matters determined in the proceedings; neither Mr and Mrs McLaughlin nor Turner Freeman devoted substantial attention to it in the course of the hearing; and the comments that I made in respect of that issue in the Judgment were not necessary to the determination of the substantive proceedings. I do not consider that material costs were incurred in respect of this issue and, in the absence of a determination of it on its merits, I do not consider that Turner Freeman have established a claim for costs against Mr and Mrs McLaughlin on that basis.
73. So far as costs are sought by Turner Freeman against the Shareholders, it submits, and I accept as I noted above, that a greater portion of the costs of the proceedings, with respect to the evidence read at the hearing, related to the First Cross-Claim, brought by Mr and Mrs McLaughlin on the Company’s behalf against the Shareholders. However, I do not accept Turner Freeman’s further submission that the Shareholders should be ordered to pay its costs of this aspect of the First Cross-Claim, where there was no issue as between Turner Freeman on the one hand and the Shareholders on the other in respect of the First Cross-Claim. The claim brought against the Shareholders was brought by the Company, by Mr and Mrs McLaughlin by leave, and Mr and Mrs McLaughlin (acting on the Company’s behalf) and the liquidator had the substantive interest in that claim. It does not seem to me that there is a proper basis for ordering costs in favour of Turner Freeman in respect of the First Cross-Claim.
74. By its Second Cross-Claim, Turner Freeman, initially sought relief against the Company in respect of the ownership of the Property. That relief was not pressed at the hearing. Turner Freeman also sought relief against Mr and Mrs McLaughlin, but the dispute between them narrowed at the hearing, since Mr and Mrs McLaughlin acknowledged that they were obliged to grant a mortgage over the Property to Turner Freeman once the Company transferred title to the Property to them.
75. Turner Freeman contends that Mr and Mrs McLaughlin and the Company should each pay half of its costs of the Second Cross-Claim. Turner Freeman submit, in support of their contention that the Company should pay their costs of the Second Cross-Claim, that the Company’s chairman, Mr Garrett, had refused to acknowledge that the Company held the Property on trust for Mr and Mrs McLaughlin, subject to Turner Freeman’s mortgage. Turner Freeman also submits that it was substantially successful with respect to its Second Cross-Claim, so far as its rights pursuant to its mortgage were upheld. The liquidator responds, in reply submissions, that:

“In respect of the costs of the Second Cross Claim, it is not the case that [Turner Freeman] was substantially successful with respect to its Second Cross Claim, unless one ignores the substantial revision to that claim made on the final morning of the hearing. By that revision all claims, and this did not just include claims directed to the question of title to the [Property], against the liquidator and the company were abandoned. Considered in that context, [Turner Freeman] was entirely unsuccessful in those parts of its Cross Claim which sought relief against the Company and the liquidator.”

76. Mr and Mrs McLaughlin submit that Turner Freeman should be required to pay the costs of the Second Cross-Claim. The liquidator submits that, as between Turner Freeman on the one hand and the liquidator and the Company on the other, Turner Freeman had brought claims for substantive relief against the Company and the liquidator that had prompted the need for the liquidator to apply for directions, and for relief in the Second Cross-Claim, that were not pressed at the hearing. The liquidator submits that the usual outcome of that result would be an order that Turner Freeman pay the Company’s and the liquidator’s costs of the Second Cross-Claim. The liquidator acknowledges that one factor tending against an order for costs against Turner Freeman is that that firm was successful in opposing the liquidator’s claim to a lien over the Property, which he submits played a minor part in the litigation, taking some time on the last day of the hearing and was the subject of further written submissions. The liquidator submits that a fair and reasonable outcome is that there be no order as to the costs as between the liquidator and the Company on the one hand and Turner Freeman on the other in respect of the Second Cross-Claim.
77. In submissions in reply, Turner Freeman in turn submits that its claim to an entitlement to a transfer of the Property did not give rise to the liquidator’s application for directions and points out that the liquidator initially sought a direction that he would be justified in rejecting Turner Freeman’s claim that it had a mortgage over the Property and not merely a direction as to whether the Property should be transferred to Turner Freeman. Turner Freeman also draws attention to correspondence it had sent to the liquidator’s solicitors that indicated why it contended that there was no basis for dispute as to its entitlement to the Property. Turner Freeman also questions the finding in my Judgment (at [91]) that the liquidator was not bringing a claim to ownership adverse to the claims made by Mr and Mrs McLaughlin or Turner Freeman. It still seems to me that that finding was correct, where the liquidator’s application was, as I noted in the Judgment, for directions as between various alternatives. The fact that the liquidator’s application for directions in the Originating Process had sought to contest Turner Freeman’s security interest, which it sustained, matter might have supported an order in its favour for the costs of its Second Cross-Claim, had that Second Cross-Claim been limited to seeking to establish the security interest which it claimed and as to which it was successful. However, Turner Freeman’s Second Cross-Claim was not limited to such a claim, and went substantially further, in asserting not merely a security interest over the Property but an entitlement to a transfer of the Property to it.
78. Turner Freeman’s submission that Mr and Mrs McLaughlin and the Company should pay its costs of the Second Cross-Claim seems to me to be substantially weakened by the fact that its position in that Cross-Claim, which it maintained up to the point of the hearing, was that it was entitled to a transfer of the Property to it, rather than Mr and Mrs McLaughlin being entitled to a transfer of the Property to them. That proposition was rightly abandoned at the hearing, but it contributed to the difficulties that the liquidator faced in determining the title to the Property. There seems to be no basis, where Turner Freeman advanced a position that it ultimately abandoned, for ordering that the Company or Mr and Mrs McLaughlin pay any part of its costs in that regard. Turner Freeman was successful, as between it and Mr and Mrs McLaughlin in respect of the question of construction of its mortgage. I do not accept Turner Freeman’s further submission that it was successful as to the scope of allegations made by Mr and Mrs McLaughlin with respect to the firm’s conduct, which were collateral to the proceedings (Judgment [79]). Turner Freeman’s further submission that Turner Freeman was “substantially successful” with respect to the Second Cross-Claim ignores the fact that Turner Freeman did not press, at the hearing, a substantial part of that Cross-Claim, including its claim to ownership of the Property which (as I observed in Judgment [81]) contributed to the length of the hearing.
79. I also do not accept Turner Freeman’s submission that its withdrawal of its claim to beneficial ownership of the Property in the Second Cross-Claim was consequential upon the liquidator’s and Company’s withdrawal of its claim to beneficial and legal ownership of the Property. It seems to me that Turner Freeman’s claim to ownership of the Property, as distinct from an entitlement to security over it under its mortgage, was not properly founded and needed to be withdrawn because it would fail, irrespective of the position taken by the liquidator and the Company. I therefore do not infer, as Mr Philips invites me to, that that claim would have been with withdrawn earlier but for the maintenance of a contrary claim by the Company and the liquidator, since that contrary claim provided no support for the maintenance of Turner Freeman’s claim. I also do not accept that Turner Freeman’s assertion of beneficial ownership to the Property did not contribute to the length of the proceedings.
80. In the result, Turner Freeman has achieved a mixed result in the Second Cross-Claim. It was unsuccessful in its claim to ownership of the Property, which it had maintained up to the point of the final hearing, and was successful, as against Mr and Mrs McLaughlin, in respect of the issue of construction of its mortgage raised by the Second Cross-Claim. There would have been a case for Turner Freeman to pay the liquidator’s costs referable to the Second Cross-Claim, but I have noted above that the liquidator does not seek such an order, where Turner Freeman successfully opposed his claim to a lien in the Originating Process. It seems to me that the liquidator’s position that there should be no order as to costs as between turner Freeman on the one hand and the Company and the liquidator on the other fairly reflects the outcome of these claims.
81. It seems to me that, where Turner Freeman was unsuccessful in establishing title to the Property to the exclusion of Mr and Mrs McLaughlin, and successful in establishing its right to security under its mortgage, there should be no order as to costs as between Turner Freeman and Mr and Mrs McLaughlin. It seems to me likely that the costs thrown away, by reason of Turner Freeman’s maintenance of a claim to ownership of the Property over a substantial period may well exceed, and are certainly unlikely to be less than, the costs of the relatively confined argument as to the construction of the mortgage that occurred before me at the hearing.
82. In summary, there should be no order as to costs as between the liquidator and Turner Freeman, for the reasons identified by the liquidator, primarily that the result as between them was a mixed one, where the liquidator was unsuccessful in his claim for a lien, which was resisted by the liquidator, and Turner Freeman abandoned their claim to a transfer of the Property to it in the Second Cross-Claim. There should be no order as to costs as between Mr and Mrs McLaughlin and Turner Freeman, where the result was also a mixed one since Turner Freeman had partial success in respect of the terms of the security claimed as against Mr and Mrs McLaughlin but abandoned its claim to a transfer of the Property to it. There should also be no order as to costs as between the Shareholders and Turner Freeman.

Shareholders’ stay application

83. In written submissions, Loafer and Garmen foreshadowed an application for a stay of the Court’s orders pending appeal on the basis that the judgment sum will be paid by them into an interest bearing or controlled monies account within 60 days of entry of the orders and remain in such an account pending the outcome of any appeal, which they undertake to pursue expeditiously. Mr and Mrs Brown also foreshadowed an appeal and payment of funds into a controlled monies account. That application was not pressed at the oral hearing on 23 June 2015 but may, of course, be pressed on delivery of this judgment and when orders would otherwise be made to give effect to it.
84. It may be that any stay application by the Shareholders will be directed only to the monetary orders against the Shareholders and not to those aspects of the judgment relating to other matters, such as the transfer of the Property, in which they emphasise they took no role, and as to which an offer to pay the judgment sum into Court may well not sufficiently protect Mr and Mrs McLaughlin’s and Turner Freeman’s interests. It may be that the Court will require that monies be paid into Court, rather than into a controlled monies account, as a term of any stay, and that any payment should be made in much less than 60 days, given the history of this matter. However, the parties should of course be heard as to those matters if any stay application is pressed, and the basis for a stay pending appeal is otherwise established.

Orders and costs

85. Accordingly, I would make the following orders, subject to resolution of the terms of the proposed share surrender agreement between the Company and Mr and Mrs McLaughlin, and subject to any error in them pointed out by the parties’ legal representatives in a manner that does not reagitate matters addressed in the Judgment or above, by 4pm on 17 July 2015. I do not consider that it is possible to make a direction that the liquidator would be justified in transferring the Property to Mr and Mrs McLaughlin by reference to the proposed share surrender agreement until the terms of that agreement are determined and made available to the Court. It will therefore not be possible to make the orders until the liquidator and Mr and Mrs McLaughlin have agreed the form of the share surrender agreement referred to in proposed orders 1 and 5 or, if they are unable to do so, any issues as to it are determined, whether by a further application by the liquidator for directions or such further relief as he may be advised.
86. The majority of the proposed orders set out below were not opposed by any party at the hearing, and I have addressed those that were in dispute above. The proposed orders are as follows:

A. In respect of the relief sought in the liquidator’s Originating Process

1. Pursuant to Corporations Act s 511, the Court Directs that the liquidator of Dungowan Manly Pty Limited (in liquidation) (“the Company”) would be justified in transferring the property comprised in Lot 6 in Strata Plan 81784 and known as Unit 4, 7 South Steyne, Manly (“the Property”) to Jennifer and Patrick McLaughlin (the First and Second Defendants) subject to the provision by them of a signed share surrender agreement in the form of Annexure A to these Orders.

2. The Originating Process is otherwise dismissed.

3. The liquidator’s costs of the Originating Process and of the whole of these proceedings shall form part of the costs of the winding up of the Company

B. In respect of the First Cross Claim

4. The Court declares that the Company holds title to the Property on trust for the First and Second Defendants subject to the Deed of Mortgage of Company Title Unit between the Third Defendant (“Turner Freeman”) and the First and Second Defendants executed on about 12 September 2006 (“the Turner Freeman Mortgage”).

5. The Company is ordered to deliver to the First and Second Defendants a memorandum of transfer in registrable form in respect of the Property within 5 business days of receipt by it of a signed Share Surrender Agreement in the form of Annexure A to these Orders and satisfaction, by the First and Second Defendants, of the requirements of paragraph 5 of that Agreement.

6. Dispense, to the extent necessary, with any requirement for pleading of a claim for interest under r 6.12 of the Uniform Civil Procedure Rules in respect of the First Cross-Claim.

7. Judgment for the Company against the Sixth Cross Defendant in the sum of $199,323.04.

8. Judgment for the Company against the Third Cross Defendant in the sum of $411,934.29.

9. Judgment for the Company against the Fourth Cross Defendant and the Fifth Cross Defendant in the sum of $221,470.05.

C In respect of the Second Cross Claim

10. The Court declares that:

a the Cross Claimants to the Second Cross Claim (“Turner Freeman”) hold an equitable mortgage in the form of the Turner Freeman Mortgage over the shares held by the First and Second Defendants in the Company; and

b Turner Freeman are entitled to a further mortgage over the Property in substantially the same form as the Turner Freeman mortgage as soon as title to the Property has been transferred from the Company to the First and Second Defendants; and

c any amounts paid or payable to the First and Second Cross-defendants as a dividend in the winding up of the Company constitutes property which is subject to the Turner Freeman Mortgage.

11. The Second Cross Claim is otherwise dismissed.

Costs

12. The Third, Fourth, Fifth and Sixth Cross-Defendants pay, from the date on which they were joined as parties to the First Cross-Claim, the Cross-Claimants’ proper disbursements incurred in respect of that Cross-Claim, as agreed or as assessed.

13. The Third, Fourth, Fifth and Sixth Cross-Defendants pay, from the date on which they were joined as parties to the First Cross-Claim, two-thirds of the Plaintiffs’ costs of the proceedings, as agreed or as assessed.

14. There be otherwise no order as to costs.

15. Liberty to all parties to apply on 3 days’ notice.

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