FEDERAL COURT OF AUSTRALIA Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 4) [2016] FCA 1240 File number: NSD 469 of 2015 Judge: BEACH J Date of judgment: 19 October 2016 Catchwords: PRACTICE AND PROCEDURE – consent order – variation to consent order – underlying settlement agreement – costs order in favour of trustee – variation to costs order – application granted Legislation: Corporations Act 2001 (Cth) Chapter 2L, Part 2L.8 Federal Court Rules 2011 (Cth) r 39.05 Trustee Act 1925 (NSW) Cases cited: Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 Chavez v Moreton Bay Regional Council [2010] 2 Qd R 299 Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 5) [2007] FCA 1792 Harvey v Phillips (1956) 95 CLR 235 Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198 Paino v Hofbauer (1988) 13 NSWLR 193 R D Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389 Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited [2015] FCA 772 Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 2) [2015] FCA 861 Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 3) [2016] FCA 895 Date of hearing: 7 October 2016 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 53 Counsel for the Plaintiff: Mr T Woodward SC Solicitors for the Plaintiff: King & Wood Mallesons Counsel for the Defendant: Mr M Hoffmann QC Solicitors for the Defendant: Johnson Winter & Slattery ORDERS NSD 469 of 2015 IN THE MATTER OF ANGAS SECURITIES LIMITED (ACN 000 154 441) BETWEEN: THE TRUST COMPANY (NOMINEES) LIMITED Plaintiff AND: ANGAS SECURITIES LIMITED Defendant JUDGE: BEACH J DATE OF ORDER: 19 october 2016 THE COURT ORDERS THAT: 1. Within 7 days of the date of this order, the plaintiff is to inform the defendant and the Court of the amount of the costs referred to in order 5 of the orders made on 9 June 2015 (order 5) which relate to the plaintiff's costs of Federal Court of Australia proceeding no. NSD 1333 of 2014 (2014 proceeding costs). 2. Order 5 be varied by reducing the amount of the plaintiff's legal costs and expenses referred to in order 5(a) by the amount of the 2014 proceeding costs. 3. The defendant pay the plaintiff's costs of the defendant's amended interlocutory application dated 21 April 2016 on a party/party basis only. 4. The plaintiff shall not be entitled under the relevant Trust Deed for First Ranking Debenture Stock dated 19 July 2000 (as amended) to recoup any additional costs incurred in respect of the defendant's amended interlocutory application dated 21 April 2016 save for those ordered under paragraph 3 of these orders. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BEACH J: 1 The present application involves a variation sought by Angas Securities Limited (Angas) to consent orders made on 9 June 2015 (the run off orders) pursuant to an interim settlement agreement between Angas and The Trust Company (Nominees) Limited (Trustee) and in particular a variation to the following order (see [5] of the run off orders): Subject to the approval of the Court being given under clause 13(a) below, the defendant must pay to the plaintiff within 7 days of that approval the following amounts: (a) $1,506,841,49 for the plaintiff's legal costs, including GST and disbursements; and (b) $454,883.18 for PPB Advisory's unpaid costs. 2 By an amended interlocutory application dated 21 April 2016, Angas has sought a variation to this costs order to the effect that: (a) the costs order and any liability of Angas be subject, in essence, to the further approval and directions of the Court; (b) further or alternatively, there should be excised from the costs order any costs incurred by the Trustee relating to an earlier proceeding in this Court being proceeding NSD 1333 of 2014. 3 The present dispute has its genesis in disputes between the Trustee and Angas that I have described elsewhere (Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited [2015] FCA 772, Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 2) [2015] FCA 861 and Trust Company (Nominees) Limited, in the matter of Angas Securities Limited v Angas Securities Limited (No 3) [2016] FCA 895). It is not necessary to traverse the history in detail. The present reasons should be read with the earlier reasons. 4 For the reasons that follow, I propose to vary the costs orders made as part of the run off orders in accordance with the alternative variation sought and described in [2(b)] above. The context of the present application 5 It is appropriate to further elaborate on the context within which the present dispute has arisen. 6 The costs order was an interlocutory order made as part of the run off orders (also interlocutory orders) to facilitate Angas putting a proposition to debenture holders to enable amendments to the Trust Deed for First Ranking Debenture Stock dated 19 July 2000 (as amended and supplemented from time to time) (the Trust Deed) to facilitate the implementation of a run off proposal in respect of Angas' loan book to enable debenture holders to be repaid their principal and interest (in part). 7 The run off orders were part of an interim settlement agreement reached between Angas and the Trustee on 9 June 2015. 8 On 3 June 2015, the trial of this matter had commenced before me concerning the Trustee's originating process seeking various declarations and relief against Angas including: (a) a declaration that Angas had breached the Trust Deed, a declaration that an event(s) of default had occurred and a declaration that the Trustee was entitled to enforce the charge given by Angas over its assets and undertaking; (b) an order pursuant to s 283HB(1)(c) of the Corporations Act 2001 (Cth) (the Act) that the said charge be enforceable immediately. 9 In essence, the Trustee was seeking to place itself in a position to have receivers appointed in respect of Angas and its assets given asserted non-compliance by Angas with the Trust Deed and its obligations to debenture holders. Since 29 April 2015, freezing orders have been in place freezing the redemption of matured debentures and imposing restrictions on the payment of early redemptions due to hardship. 10 On 3 June 2015, the trial was adjourned to 9 June 2015 when it then recommenced. Late on 9 June 2015, it was agreed between the parties to further postpone the trial to enable a run off proposal to be put to debenture holders and, if agreed, for that run off proposal to be implemented. If implemented, the run off proposal was to have the effect of extending the redemption date of all debentures to 31 December 2016 with interim part-payments of principal. It was contemplated that during the period to 31 December 2016, Angas would cease making debenture funded loans, it would realise its existing debenture funded loan assets and it would continue as a going concern with the management of two mortgage trusts. It was also proposed that Angas would continue to comply with its payment obligations to debenture holders in respect of interest but at a reduced rate in line with its reduced ability to generate income. 11 What subsequently transpired is not relevant for present purposes; the detail is set out in my earlier reasons. What is relevant for present purposes is that a debate has arisen between the parties concerning: (a) the construction of the costs order; (b) the terms of the settlement agreement between the parties which resulted in the run off orders including the costs order; (c) my power to vary the costs order and whether I should exercise my discretion to do so given that it was made pursuant to a settlement agreement between the parties. 12 It is accepted by the parties that the run off orders generally and the costs order specifically are interlocutory orders, albeit that some aspects of the run off orders may be said to have more substantive and final effect. The agreement that culminated in the run off orders 13 The parties have filed a plethora of affidavits from their solicitors, their then senior counsel and others on the question of what the parties agreed on 9 June 2015 on the question of costs which resulted in the costs order. The competing affidavits discuss who said what to whom, what each party thought that they were doing in agreeing to the costs order, what was not disclosed by one to the other and so on. 14 What is apparent is that an oral agreement was reached between the then senior counsel for each of the parties which culminated in the run off orders and the costs order. 15 A number of general observations may be made: (a) There is nothing relevantly in writing that evidences the oral agreement except for the run off orders themselves which perform the dual function of both evidencing the agreement and being an act in its performance. (b) But notwithstanding this, it is not necessary to set out the detail of the affidavit material setting out the course of the discussions and the negotiations, what each party thought that they were doing, their state of knowledge and what ultimately the then senior counsel for each side discussed on the question of costs. There are a number of reasons for this. First, no deponent was cross-examined; moreover each party agreed not to take any Browne v Dunn point. Accordingly, I am not in an appropriate position to resolve factual differences one way or the other. Second, much of the affidavit material paid little regard to what was admissible in terms of the application of objective contractual theory. I accept though that Angas' rectification argument and the breadth of my discretion to vary an interlocutory order would permit of a broader range of material being considered. Third, in terms of the discussions between senior counsel on the question of costs, it must be said that this was not the major matter being discussed between them, relevant discussions occurred in an environment where time for contemplative reflection was unrealistic, and such discussions as did occur related to a topic on which senior counsel are not usually known for displaying intellectual enthusiasm. Accordingly, it is more useful to consider the terms of the costs order and more general themes rather than to recount some penny dreadful narrative involving dealings between the major characters. 16 In the circumstances I propose to adopt the following course. 17 First, I will take the precise text of the run-off orders including the costs order as reflecting and embodying the anterior oral agreement between the parties. 18 Second, I will construe the costs order in that light and also in an independent objective sense given that it is also an order of the Court. In that latter sense, but for the context of construction only, it is to be construed objectively as distinct from my own subjective views as to what I contemplated by the order or thought was contemplated by the parties in proffering such an order. Construction of the costs order 19 Angas has advanced two construction questions. 20 First, it says that the costs order is to be construed such that the dollar amounts were always to be subject to later approval and verification by the Court or another mechanism. I reject this construction. The costs order does not say so. Further, the "approval" referred to in the order was dealing with a different approval than that now contended for by Angas. Indeed, the fact that the parties turned their mind to approvals and referred to one type but not another is a point against Angas. Further, the stipulation of precise dollar amounts in the order is against Angas. If there was to be a later approval and verification mechanism as Angas contends, why bother with precise stipulations? Further, the payment trigger, ie "within 7 days of that approval [unrelated]" is against Angas' contention. If there was to be a later approval and verification mechanism, the precise and strict payment trigger was inapposite. 21 Second, Angas contends that the reference to "legal costs" in sub-paragraph (a) of the costs order is a reference only to the legal costs incurred in the present proceeding, rather than also including legal costs in proceeding NSD 1333 of 2014. The phrase in sub-paragraph (a) is "the plaintiff's legal costs…" and has no words of express limitation that confine costs to those incurred in the present proceeding. 22 In my view, it is strongly arguable that in context the expression "legal costs" refers to costs in the present proceeding only, not to costs in an extraneous proceeding. The Court's jurisdiction was only invoked in the present proceeding. The orders were all about the present proceeding. Further, no application was before me on 9 June 2015 to deal with the costs of proceeding NSD 1333 of 2014 which was being case managed by Yates J. 23 A fair and objective reading of the order was that it was quantifying legal costs with the necessary implication "in this proceeding". But I do not need to come to a final view on this construction question because, as I will later explain, I have reached the view that it is appropriate to vary the costs order to excise costs incurred in proceeding NSD 1333 of 2014 in any event if they are otherwise covered by the costs order. 24 Before discussing the Court's power to vary the costs order, I should discuss one other matter. 25 Angas has raised various contractual type arguments based principally on what it asserts to be a material non-disclosure concerning the figure of $1,506,841.49 that it says it agreed to. But given my views on the second construction question and in any event the variation that I propose to make, it is unnecessary to discuss these matters further in any detail, except to say that I was not persuaded by them. The power to vary consent orders 26 It is appropriate to discuss some general principles. 27 First, I have power to vary an interlocutory order (rule 39.05 of the Federal Court Rules 2011 (Cth)) even if made by consent and pursuant to an agreement between the parties. 28 Second, the power to vary is more readily exercisable in the context of an interlocutory order as compared with a final order, where in the former case "the finality of litigation does not weigh so heavily in the scales" (Cosdean Investments Pty Ltd v Football Federation Australia Limited (No 5) [2007] FCA 1792 at [17] per Mansfield J). 29 Third, it may be appropriate to vary an interlocutory order where "new facts come into existence or are discovered which render its enforcement unjust" (Adam P. Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178 per Gibbs CJ, Aickin, Wilson and Brennan JJ), although such a statement is not exhaustive of the possibilities. 30 Fourth, in the context of a consent order or judgment that is final and which gives effect to an underlying agreement, the consent order may be set aside or varied on any ground that would impeach the underlying agreement or its enforceability (Harvey v Phillips (1956) 95 CLR 235 at 243 and 244). Correspondingly it has been said that if the underlying agreement or its enforceability is not so impeached, then the consent order or judgment should not be set aside or varied absent an "exceptional" or "rare" case (see Paino v Hofbauer (1988) 13 NSWLR 193 at 198 per McHugh JA and at 201 per Clarke JA and Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198 at [27] and [28] per Bathurst CJ, Beazley P and McColl JA). Moreover, there may be an implied term of the agreement not to invoke any curial power to set aside or vary such an order. 31 Fifth and relatedly, the Court has power to vary a consent interlocutory order even if made pursuant to an agreement between the parties (R D Werner & Co Inc v Bailey Aluminium Products Pty Ltd (1988) 18 FCR 389 at 392 and 393 per Woodward and Foster JJ). Moreover, the same rigidity applying to varying final orders does not apply where the consent order, based upon an agreement, is interlocutory. Now it is possible that a party may contend for an implied term not to apply to vary, but such an implication is even more problematic when dealing with an interlocutory order. In any event, no such implied term has been contended for in the present case. 32 Before proceeding further, it is appropriate to note one other aspect relating to the fourth and fifth propositions. It has been pointed out in Chavez v Moreton Bay Regional Council [2010] 2 Qd R 299 at [35] per Keane JA that the views expressed in R D Werner & Co Inc v Bailey Aluminium Products Pty Ltd may be considered to be more liberal than those expressed in Paino. Nevertheless, his Honour at [39] applied Paino but used more generous language, viz, "good reason for depriving…" rather than the adjectives "exceptional" or "rare". 33 Perhaps the differences in language may reflect the differences in context. Where the consent order is made in implementation of an agreement between the parties in order to finally resolve the proceeding, then adjectives such as "exceptional" or "rare" are not inapposite. The circumstances justifying variation should be more limited given the intended finality sought to be achieved. But where the consent order is made to resolve an interlocutory dispute, there is not such a paramountcy of finality. The present application 34 Angas has sought to vary the costs order in the two respects set out at [2] above. The first respect 35 As to the first way in which Angas puts its case for a variation (see [2(a)] above), I would reject any such variation for the following reasons. 36 First, it is well apparent that the parties agreed on quantifying costs without the need for any further review or appraisal. The Trustee was concerned to procure such a benefit. Moreover, this was the quid pro quo for it agreeing to defer the trial of its originating process and to allow Angas to obtain the debenture holders' consent to and then implementation of the run off proposal. 37 Second, there is nothing equivocal in terms of how the costs order has been expressed in this respect. 38 Third, it has not been disputed that the Trustee incurred the costs in no less than the amount claimed. 39 Fourth, clauses 17.6 and 18.5 of the Trust Deed permitted the Trustee to seek indemnification for costs incurred by it in its capacity as such (absent negligence or wilful neglect or default) on a "solicitor and own client basis". That was the context within which the costs order was negotiated, supporting if anything a more ready propensity by Angas to agree to a quantified sum without further review mechanisms, providing that the costs were actually incurred by the Trustee. 40 Fifth, although Angas has filed evidence from a costs consultant raising queries about the reasonableness of some of the costs incurred by the Trustee, I found that material to be underwhelming. It raised possibilities of unreasonable charges rather than reaching definitive conclusions. In any event, the quantification of the costs in the costs order was designed to avoid such a taxation exercise. 41 Sixth, it cannot be said that it is not in the interests of debenture holders to allow the costs order to stand without the variation sought in [2(a)]. Moreover, they have had the benefit of being able to vote on the run off proposal and to have it implemented (as further varied), which from one perspective may be seen as a benefit flowing from postponing the Trustee's originating process which was agreed to by the Trustee on the basis of the costs order. 42 Generally, I see no good reason to vary the costs order in the first respect. The second respect 43 Contrastingly, in my view the costs order should be modified in the second respect referred to in [2(b)]. I say this for the following reasons. 44 First, on one view of construction, the costs order does not cover the costs in proceeding NSD 1333 of 2014 in any event. 45 Second, there is considerable doubt as to what was within the contemplation of both parties, objectively assessed, in relation to whether the costs order embraced the costs in proceeding NSD 1333 of 2014. 46 Third, it is more appropriate that any question of costs in proceeding NSD 1333 of 2014 be dealt with in that proceeding. Such a result causes no relevant prejudice to the Trustee. 47 Fourth, the Trustee has received a sufficient quid pro quo for agreeing to defer its originating process by reason of the costs order unmodified by the variation sought in [2(a)], without the additional collateral advantage of bringing within the costs order the costs incurred in a separate proceeding. 48 Fifth and more generally, the exercise of my supervisory control justifies the variation to the costs order whatever the parties might have privately agreed. There are three dimensions to the supervisory control that I have in the present case: (a) There is the supervisory control over the interlocutory orders that have been made. (b) There is the supervisory control over the Trustee and its activities whether under the Trustee Act 1925 (NSW), Chapter 2L of the Act or otherwise in the Court's equitable jurisdiction including in relation to the costs and expenses that the Trustee has incurred. (c) There is the supervisory control that I have generally over Angas and the Trustee under Part 2L.8 of the Act to ensure that the best interests of debenture holders are pursued by both Angas and the Trustee. 49 I have discussed the first dimension. Let me say something about the other dimensions. Each of these second and third dimensions can in an appropriate case, such as the present, override any private agreement between Angas and the Trustee. The costs order in favour of the Trustee will ultimately be funded by the debenture holders. Accordingly, whatever agreement may have been reached between the Trustee and Angas, I ought not to condone a situation where debenture holders are required to in effect fund the Trustee's costs in circumstances where: (a) those costs relate to another proceeding not before me; (b) those costs are properly the subject of scrutiny in the other proceeding; (c) there is a real issue as to whether there has been a consensus ad idem reached between the parties in the present proceeding in relation to such extraneous costs. 50 There is another related issue. The Trustee's submissions have been premised on the basis that the costs order was the subject of an underlying agreement between the parties each negotiating in and for their own interests and that I ought not interfere but should respect the sanctity of the bargain struck. But in one sense this is an inapposite framework within which to view the present matter. Each of them was in fact bargaining with respect to, in substance, debenture holders' funds. Accordingly, the present case differs from the Harvey, R D Werner and Paino line of authority. Whatever else be said about that line of authority, I am entitled to consider the best interests of debenture holders (as too should the Trustee) in determining whether and if so how I should vary any interlocutory order, particularly one dealing with costs that will have a financial effect on debenture holders. I see little difficulty in varying a consent order based upon a private agreement between the Trustee and Angas when circumstances have been drawn to my attention which satisfy me that the best interests of debenture holders may not have been fully considered. Indeed, such a scenario falls within the circumstances contemplated by Adam P. Brown. I am satisfied that if the costs order includes the costs incurred in proceeding NSD 1333 of 2014, then that is not in the best interests of debenture holders. I propose to exclude such costs from the costs order. 51 In summary and for the reasons that I have expressed, the costs order will be varied to exclude the Trustee's costs in proceeding NSD 1333 of 2014. 52 As to the costs of the present application, Angas has had partial success but so too has the Trustee. Moreover, I do not consider the Trustee's opposition to this application as being unreasonable. In the circumstances I consider the fair result to be that the Trustee should have its costs, but only on a party/party basis. 53 I will make orders accordingly. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate: Dated: 19 October 2016