Supreme Court New South Wales Medium Neutral Citation: In the matter of Fearndale Holdings Pty Ltd (in liq) (recs & mgrs apptd) [2020] NSWSC 984 Hearing dates: 16 July 2020 Date of orders: 16 July 2020 Decision date: 16 July 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Directions to pay money out of Court in accordance with consent orders. Catchwords: PROCEDURE – Payment into court – Discretion approving payment out of court – Payment out of court in accordance with proposed consent orders. Cases Cited: - Fearndale Holdings Pty Ltd (in liq) [2020] NSWSC 901 - Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 Category: Procedural and other rulings Parties: Various interlocutory processes Lawrence William Harpley and Gary Richard Harpley Australian Lending Investment Pty Ltd Equivest Holdings Pty Ltd Timothy James Cook, administrator of Fearndale Holdings Pty Ltd (admin apptd) and Fearndale Holdings Pty Ltd (admin apptd) Representation: Counsel: B Coles QC/G Rich (Harpleys) M Ashhurst SC/P Afshar (ALI) M Bennett (Equivest Holdings Pty Ltd) S Golledge SC/H Somerville (Cook and Fearndale) Solicitors: Malcolm McDonald & Co (Harpleys) Mistry Fallahi Lawyers (ALI) Low Doherty & Stratford (Equivest) William James (Cook and Fearndale) File Number(s): 2018/91831 Judgment – ex tempore (revised 21 july 2020) 1. On 10 July 2020 the parties to these proceedings proposed certain orders for the payment for moneys out of Court which would have resolved some of the issues in dispute in these proceedings. I declined to make those orders on the basis set out in my ex tempore judgment delivered on that date, not because there was any substantive difficulty in the content of the orders sought, but because they left unresolved two substantial issues as between Fearndale Pty Ltd (in liq) ("Fearndale") and its liquidator, on the one hand, and Australian Lending Investment Pty Ltd ("ALI") and the Messrs Harpley, who are creditors or contributories of Fearndale, on the other. I noted in that judgment that the lack of resolution of those issues involved a significant risk of further disputes and further costs in the liquidation, at least if the parties were unable then to resolve those issues between themselves. 2. The first of those issues has now been resolved between Fearndale and its liquidator on the one hand and ALI on the other and the second has been addressed by the Messrs Harpley seeking leave to discontinue their claim in these proceedings and indicating that they will prove for it in the liquidation of Fearndale in the usual way. I am satisfied that the orders sought may now properly be made, because of those changes and for the reasons that I indicate below, to bring about a final determination of these long running proceedings. 3. Mr Golledge, who appears with Mr Somerville for Fearndale and its liquidator, refers to the approach which should be taken by the Court to the determination of claims for payment out of funds held in Court. He refers to the observations of Bell P (with whom Sackville JA agreed) in Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2019] NSWCA 60 at [80] recognising the Court's general discretion to determine the release of funds paid into Court, at least absent any specifically agreed or conditioned limitation on the purposes of the payment. Mr Golledge rightly identifies several matters that are relevant to the nature and circumstances of the payment into Court in this case, namely that they reflect the balance of sale proceeds of land then belonging to Fearndale; that land, at the time of its sale was subject to claims by ALI as a successor to a mortgagee, by assignment, and also by Equivest Holdings Pty Ltd ("Equivest") and by receivers previously appointed to the land; there was a dispute as to the quantum of those claims; and the payment was ordered, by substantial agreement of the parties, to facilitate a settlement of the sale of the land in a manner that would allow claims to the proceeds by the several parties to be determined in due course. Mr Golledge also recognises that the Messrs Harpley have since made claims against the moneys generated by the sale of the land, by reference to their costs in a reference previously ordered by the Court, although those claims will now be deferred as I noted above to be dealt with by the proof of debt process in the liquidation. 4. The proposed orders provide for a payment to Mr Cook, the former voluntary administrator and current liquidator of Fearndale, in the amount of $1,292,956.19, subject to his undertaking to repay any amount by which his future "salvage" costs (in the sense used in a separate judgment, Re Fearndale Holdings Pty Ltd (in liq) [2020] NSWSC 901) are less than his present estimate of those costs. Mr Cook's entitlement to recover remuneration and costs incurred to 22 May 2020, in the nature of "salvage" costs, is also addressed in that judgment. I am satisfied that that order may properly be made, where the basis of Mr Cook's claim for costs previously incurred is determined by that judgment, and it is proper that Mr Cook be placed in funds for his estimated future "salvage" costs, where the interests of creditors or contributories may properly be protected by an undertaking for repayment if that estimate ultimately is greater than the costs incurred. 5. Second, the proposed orders provide for payment to ALI in the amount of $764,796.50. That amount has been reduced from an earlier version of the draft orders, to reflect the fact that a third party whose costs are to be paid from that amount will now be paid directly by Fearndale, rather than that payment being made in the first instance to ALI and then by ALI to that third party. That change does not alter the substance of the orders, but simplifies the administration of the orders as between the parties. A large part of that payment reflects ALI's entitlement to legal costs to April 2020 as determined by the referee's report of Mr Burton SC that was adopted by the Court in December 2019. 6. Mr Ashhurst, who appears with Mr Afshar for ALI, submits that the orders made by the Court in December 2019 permitted, but did not require, an assessment of ALI's legal costs of the reference and that the time in which a third party could seek that assessment has passed. No party has contended to the contrary. ALI has, with respect, rightly abandoned several claims to amounts which would not properly have been recoverable, as set out in a schedule marked MFI 4, and other expenses have been split, following review by ALI and the liquidator, to exclude costs that were not properly recoverable. The costs claimed also include further legal costs of ALI since April 2020 which could not have been practically addressed in the reference, and the liquidator has satisfied himself as to the amounts there claimed by reference to affidavits filed but not read by ALI in the proceedings. It has not been necessary for those affidavits to be read by reason of the agreement that has been reached between the parties. I note that the schedule at MFI 4 records a further compromise made by ALI that reduced the amount it claimed, to reach the agreement now been reached the parties. ALI fairly does not seek to recover the costs of the proceedings, given the extent to which the amount it initially claimed exceeded the amount which was properly recoverable as a result of the agreement now reached between the parties, or on the merits. I am satisfied that the proposed orders can properly be made so far as they provide for that payment to ALI. 7. The third amount to be paid under the orders is a payment to the former administrators to Fearndale, and is properly made so far as that claim was addressed in the referee's report, as adopted by the Court, and discharges a liability that would otherwise be payable by Fearndale. 8. The fourth amount to be paid under the orders is $125,000 payable to the Messrs Harpley, which is in full satisfaction of orders 4 and 6 that I made on 23 December 2019. This amount reflects costs of the reference payable by ALI to the Messrs Harpley pursuant to the referee's report, as adopted by the Court. A further order made by the Court in December 2019 contemplated that those amounts would be paid by the liquidator of Fearndale to the Messrs Harpley and set off against the amount otherwise payable to ALI by Fearndale. I am satisfied that the amount payable to the Messrs Harpley properly reflects a negotiated result between the liquidator and the Messrs Harpley and is justifiable having regard to the amount of the Messrs Harpley's wider claim, the referee's order as to the proportion of their costs that should be payable by ALI, and the discount which ordinarily results on an assessment or a gross sum costs order. In making that observation, I do not express any view, either positive or negative, in respect of the Messrs Harpley's wider claim to an indemnity for costs, which the parties have agreed they should have leave to discontinue, on the basis that they may prove for it as creditors or contributories of Fearndale in the winding up. That course does not seem to me to have difficulties in deferring the determination of these proceedings, or prolonging the liquidation, where other matters still need to be resolved in the ongoing liquidation, including a third party claim which is presently before the Court. I am satisfied that that order can properly be made, reserving any wider question as to the Messrs Harpley's claim for indemnity for costs to be dealt with by a proof of debt in the liquidation. 9. The next payment under the proposed orders is a substantial payment to Equivest, being a compromise of a much larger claim by Equivest. The amount paid to Equivest corresponds to repayment of the principal amount of a loan by Equivest to Fearndale recorded in contemporaneous documentation, and an amount of $200,000 by way of a portion of the interest claimed. Each of Mr Golledge for the liquidator and Mr Bennett, who appears for Equivest, have addressed the complex legal issues which would have arisen in respect of that claim, involving both limitation issues and a question of the availability of set off in respect of another borrowing made by Equivest from ANZ for Fearndale's benefit, and subsequently discharged by payment to a successor mortgagee made by Fearndale. Mr Golledge submits, and I accept, that that compromise is supported, so far as Fearndale is concerned, by the risk that a limitation defence might not succeed, because of the matters to which Mr Bennett points in response to it, and that the set off claim might not operate as a complete answer to Equivest's claims. I also recognise, as Mr Golledge points out, that the liquidator had access to expert legal advice in that regard, and that supports the Court's approval of the settlement that has been reached in that respect. 10. It is sufficient to note that this is a compromise of a complex claim, which seems to me to be well within the proper scope of the liquidator's commercial judgment, after he has taken proper advice. Mr Golledge points out, and I accept, that the Court can be satisfied that Equivest's claims had sufficient merit that the liquidator appropriately recognises a risk that they could succeed, and indeed that they could succeed for a substantially larger amount than the compromise that has been reached with Equivest. It seems to me that the payment out of the Court, to give effect to that compromise, is also supported so far as it involves avoiding the risks of a larger judgment against Fearndale and further costs and delays in the continuance of this litigation, which are matters to which the liquidator could reasonably have regard. Those matters are, in my view, sufficient to allow the Court to approve the payment out of Court of that amount. 11. Finally, an amount will be payable to Fearndale, which is expected to pay out creditors in full and, depending on the outcome of the Messrs Harpley's proof of debt in respect of costs of the reference, may potentially allow a significant distribution to contributories of Fearndale. That result is a significant achievement in respect of Mr Cook's conduct of the voluntary administration and, subsequently liquidation, of Fearndale. 12. Mr Golledge also points out, in support of the orders for the proposed payment out of Court generally, that they will bring an end to a dispute that has continued for a substantial period and involved substantial costs and expenses for Fearndale and the other parties involved in it. That, and the outcome of the resolution between the parties in fairly affecting a proper return for Fearndale, its creditors and contributories, again seem to me to support the proposed compromise. I also have regard to the fact that, as Mr Golledge points out, Fearndale and Mr Cook, and all other parties to this application have been represented by experienced counsel in respect of the compromise reflected in those orders, and the Court can infer they have properly assessed the advantages and disadvantages of that compromise. Several other orders are proposed, which do not involve the exercise of any judicial discretion by the Court, so far as they are proper incidents of the resolution of the proceedings between the parties. 13. For these reasons, I make orders in accordance with the form of orders initialled by me and placed in the file, noting that paragraph 1(b) refers, in line 1, to the amount of $764,796.50. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2020