New South Wales Court of Appeal CITATION : SCOTT & Anor v McMAHON & 2 Ors [2001] NSWCA 481 FILE NUMBER(S) : CA 40250/01 HEARING DATE(S) : 23 November 2001 JUDGMENT DATE : 23 November 2001 PARTIES : John Joseph SCOTT & Anor v Brian McMAHON & 2 Ors JUDGMENT OF : Mason P at 1; Meagher JA at 77; Stein JA at 81 LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT Eq 2000/98 FILE NUMBER(S) : LOWER COURT Windeyer J JUDICIAL OFFICER : 1 & 2 Appellants: B Coles QC/ D L Ronzani COUNSEL : 1 Respondent: D Hammerschlag SC/ A Blank 3 Respondent: J E Marshall/ S Fendekian 1 & 2 Appellants: Church & Grace SOLICITORS : 1 Respondent: Horowitz & Bilinsky 3 Respondent: Deacons CATCHWORDS : Practice and Procedure - competency of appeal - equity - orders made against defendants - claim of breach of trust - whether order for account was intended to represent the final disposal of the plaintiff's claim - Part 48 Rule 2 Supreme Court Rules - standing of plaintiff to seek account - costs. DECISION : See par 76 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40250/01 MASON P MEAGHER JA STEIN JA Friday 23 November 2001 John Joseph SCOTT & Anor v Brian McMAHON & 2 Ors JUDGMENT 1 MASON P: Unless the orders made by Windeyer J on 21 March 2001 are final orders, this appeal is incompetent. 2 The orders were made in the context of a rather complex equity claim by Dr Brian McMahon against three defendants, Mr Livingstone, Mr Scott and Ophix Financial Corporation Pty Limited. 3 The plaintiff made a number of claims against the defendants, formulated in a variety of ways. But they did include a claim that the defendant Livingstone was in breach of trust with respect to moneys deposited by the plaintiff with Livingstone for the purpose of Livingstone investing them; and a claim against the defendants Scott and Ophix that, in the manner alleged in paragraphs 12, 13 and 13A of the amended statement of claim, they participated in the breach of trust in such a way as to make themselves liable to compensate the plaintiff. 4 It is I think common ground that the critical issue touching the competency of the appeal is whether the order for account made by his Honour, being an accounting as between the defendants, was intended to represent or did represent the final disposal of the plaintiff's claim. Senior counsel for the appellants has submitted that his Honour's judgment is to be read as effectively concluding that the plaintiff was not entitled to any relief in his own right other than the simple order for accounting as between the defendants, to which I have referred. 5 I do not read the reasons or the orders in light of those reasons in that way. In my view, the account was ordered pursuant to Part 48 Rule 2, which authorises the Court at any stage of proceedings to make orders for the taking of any account or the making of any enquiry. 6 There are issues as to the standing of the plaintiff to seek the account where the direct accounting parties are his trustee (Mr Livingstone) and one other or both of Mr Scott and Ophix Finance Corporation Pty Limited. 7 My reading of the judgment of his Honour was that he considered that this was one of those exceptional cases where a beneficiary could seek such relief, particularly in circumstances where it was in aid of the beneficiary's own claim for equitable compensation against each of the defendants sued. 8 His Honour appears to have made what can perhaps be described as interim findings, although they may well on further consideration stand as ultimate findings. But they do encompass findings that indicate at least a preliminary view that Mr Scott and Ophix were knowing participants in a breach of trust by Mr Livingstone in relation to an agreement made in 1994 and confirmed or varied in 1999 concerning the offsets capable of being made to Scott or Ophix's liability to Livingstone under the investment arrangement made between those parties. 9 Senior counsel for the plaintiff has indicated that his client does not contend that the orders are final orders. Indeed, he has been asserting for some considerable time that the appeal is incompetent because they are not. 10 The position of the trustee in bankruptcy of the bankrupt estate of Mr Livingstone is a little different and, if I may say so, a little difficult to understand. What is clear is that Mr Livingstone went bankrupt after the proceedings were commenced. There is an apparently unresolved issue as to the extent to which any money he held in trust, including moneys held in trust for Dr McMahon, passed either into his bankrupt estate or into the control of the trustee in bankruptcy, Mr Donnelly. These issues can be determined later in the proceedings in the Equity Division, or if necessary in the Federal Court. 11 The orders of Windeyer J establish a regime for taking of accounts referable to one aspect of the ultimate calculation of the equitable compensation which his Honour has either determined is due, or indicated is probably due, depending upon how one reads the existing findings. 12 The other orders provide further confirmation in my view that the order for account was an interlocutory one, and I refer in particular to orders 11 and 16 made on 21 March 2001. 13 The appellants indicated today that if the Court were of the view that the appeal was incompetent it should entertain an application for leave to appeal nonetheless. This was opposed by the first respondent-- 14 COLES: Could I interrupt your Honour just to clarify one matter. I didn't really address your Honour on the leave question. If your Honour has come to the view that the appeal is incompetent and because the success of the appeal really does depend on the orders being final on the grounds as they're presently articulated, we would not be pressing your Honour to grant leave. 15 MASON P: Thank you. I will correct what I have just said. 16 For a period, it was the case that the appellants were seeing by way of fallback position to persuade the Court to grant leave to appeal from an interlocutory judgment if that was what it was. That application is no longer pressed and therefore need not be addressed. 17 In my view, the proper order is that the appeal should be struck out as incompetent and that the appellants should pay the costs of the firsts respondent. There should be no order as to the costs of the second respondent, who has not appeared, if he was ever served, or the third respondent, who took the position that the appeal should be regarded as competent. 18 COLES: Could I make a small submission. I appreciate your Honour has got better things to do than hear what may be regarded as an observation about costs. I think the rules, I'm just having trouble finding it, but what Mr Hammerschlag should have done under the rules is taken an early and prompt objection to the competence of the appeal. It was really raised only a couple of weeks ago in submissions. I raised it in my submissions-- 19 STEIN JA: I thought it was fairly and squarely raised by the Registrar with the appellant. 20 COLES: That's in my submissions. What the rules as we recollect them, without being able to find them at the moment, seem to indicate is that a party who protests the competency of an appeal are supposed to flag that point early. 21 MASON P: When was this appeal commenced? Things get on rather quickly these days. 22 COLES: The appeal was commenced in May I think. There was a holding appeal filed on 1 June 2001. 23 MASON P: When was the matter before the Registrar when on my understanding the Registrar raised the whole question of competency with the parties? 24 COLES: It says on p 44 red the appeal be called over on 16 August, so on that or some not too long thereafter date one would suppose. 25 MASON P: Then we go to the rule which says when you take your objection as to competency. Rule 25? 26 COLES: 25 Rule 1 of Part 51 I think, your Honour. 27 MASON P: So the time period according to 25 Rule 1 is 21 days after service of the notice of appeal with appointment. 28 COLES: Yes. 29 MASON P: So we're talking about some time in June. When was the objection taken? 30 COLES: 1 June the document was filed, when it was served, the same day I'm told. The objection was taken by the Registrar we've mentioned. In Mr Hammerschlag's submissions, orange book, he'll correct me if I get this wrong, para 8 says as to the fourth order, the order for taking accounts is clearly not final, the taking of accounts only a step on the way, and that's dated 8 November 2001, by which time of course these proceedings had already been set down. 31 MASON P: They were set down after the Registrar had indicated concern about the competency and before you filed your submissions. 32 STEIN JA: And you dealt with that from para 24 onwards in your written submissions. 33 COLES: I brought it forward, I didn't just leave it hanging in the wind, as it were and I found error-- 34 STEIN JA: No, and you said in the very opening statement there that the point of time you wrote these submissions none of the parties had challenged the competence of the present appeal. 35 COLES: That's right. We waved the red rag as it were and the bulls pawed the ground but no charges were forthcoming. 36 STEIN JA: That was 11 October. 37 COLES: Yes. 38 MASON P: Mr Hammerschlag, when did you jump on the Registrar's bandwagon? 39 HAMMERSCHLAG: When I got the brief your Honour, which was at or about the time that I filed the submission. When it came before Windeyer J not two weeks ago and Mr Marshall was there and Mr Cashion of Senior Counsel was there in Mr Coles' place, I reiterated that there was a problem and they nevertheless pressed on. The objection wasn't formally taken on our part until our submissions. I don't think I could fairly put to your Honour that we should have the costs prior to that date. 40 MASON P: Yes, that seems appropriate at the very least. 41 MARSHALL: Would your Honours hear me in respect of costs? 42 MASON P: Yes. 43 MARSHALL: On the question of costs, the position was as has been said flagged before the Registrar. Nobody took any view at that stage it was flagged by the Registrar. It did come before Windeyer J just recently and the point came up. On that occasion Windeyer J indicated that the appellants ought be getting their application for leave on. That was noted by the appellants. In the meantime we've had to deal with the appeal, because nobody's taken the point, the point's come on, so we've incurred the costs of dealing with the appeal on the merits. 44 MEAGHER JA: You don't seek costs in your favour, do you? 45 MARSHALL: We seek some costs in our favour and I'll explain why in a moment, your Honour. Your Honour will see in the appeal books there were some submissions put and we put some submissions in saying that the appeal doesn't challenge the joinder of my client, nor the filing of the cross-claim. The costs were very nominal at that point. We were then served with a notice of grounds of amended appeal and we were-- 46 STEIN JA: Was that the one that was handed up? 47 MARSHALL: Yes it was. 48 STEIN JA: And that was the one that first directly involved your client? 49 MARSHALL: That's right, because we had put in our original submissions which are in here that-- 50 STEIN JA: Because it said that you shouldn't have been a party. 51 MARSHALL: That's right. It challenged the joinder and challenged the filing of the cross-claim. We then incurred substantial costs to deal with that. We come here armed to deal with that if the leave was granted. We couldn't have taken the position properly that we would ignore being served two or so weeks before the appeal was to be heard, the proposed notice of grounds of amended appeal, raising grounds against my client. We couldn't just put our heads in the sand and say we know leave won't be granted so we won't do any work. We took the view, we would say properly, that we incurred costs to be able to deal with those arguments. Because we weren't involved at the time of the trial and there was a change of trustee and a change of solicitors, we had to inspect the Court file and work out what had actually happened. 52 STEIN JA: When did you get notice of the intention to seek to amend the appeal? 53 MARSHALL: Probably about 6 November, the day after we served our submissions. 54 STEIN JA: Because your submissions had been put on without reference to those matters in the amended notice of appeal, is that right? 55 MARSHALL: Yes. That's right, they had been at that stage and I was going to hand up submissions in response to the amended notice of appeal. We've prepared the booklet that contains all the transcript and the judgment from which the amended notice of appeal seeks to appeal. 56 STEIN JA: Your submissions are dated 5 November, so it was after that, was it? 57 MARSHALL: That's so. Could your Honour turn to p 10 of the orange book and para 2 of our submissions. We say the appellant's submissions are primarily directed to the first respondent, Dr McMahon, who was the plaintiff below. We then make a couple of points that there was no challenge to our joinder, our cross-claim, and that would have been all we needed to incur. But we were then met with a reasonable request to deal with an amended grounds of appeal which was handed up today which required us to be able to meet it. The application to amend was pressed before your Honours. 58 STEIN JA: That was one of the reasons why you put together the supplementary papers. 59 MARSHALL: Yes, it was. 60 MASON P: You would submit that simply because you support the competency of the appeal should not be a ground for putting you in a different position to the respondent who did not. 61 MARSHALL: That's so, your Honour. What I said on that was brief and to adopt Mr Coles' submissions. We didn't bring this matter to the Court now, we didn't cause these costs to be thrown onto ourselves. When the matter was finally raised by Mr Hammerschlag wanting to take the point, that was only in a document after our submissions were filed on 5 November. Dr McMahon's submissions weren't in on time. We put ours in. We didn't have the benefit of Dr McMahon's submissions on this point. We've put our submissions on. They were immediately met by a proposal to amend the notice of appeal to challenge our joinder in the cross-claim. That's what we've substantially come here to meet. Can I tender on the question of costs the submissions that we were going to put on and I have the written submissions to hand up to the Court, they were completed last night. 62 STEIN JA: These are the ones concerning the amended notice of appeal? 63 MARSHALL: Yes. They were served last night on Mr Coles, I have the copies that I was going to hand up, the unreported judgment I was going to rely upon to deal with the question of whether we were improperly joined at the heel of the hunt, which is the substantive reason we were here. We wanted to deal with that application. That notice of appeal has not been allowed. 64 MASON P: Yes, I'll ask Mr Coles what he has to say in response to what you've said. 65 COLES: Three things, your Honour. Mr Marshall's position is really in our submission that which enlivens Rule 25. If you want to carry on with the notion and assent to the proposition that the appeal is competent and it turns out it's not, that's the subject matter of Rule 25 as the first point. 66 The second point is that Mr Marshall or his client's participation in the incompetent appeal was of course due to their interest in resisting the notice of grounds of appeal, even in their unamended or unchanged form, which simply sought to set aside or to ascribe error to the order for the taking of accounts. So the other matters about joinder and the like are really ancillary or adjectival to what we hope was the substantive issue of the order for an account. 67 The third matter really is that even as late as yesterday it was being asserted in the submissions to which reference has just been made that even if leave was required it ought to be granted. In other words, the circumstances to which Rule 21 is directed, that is to say a person served and there's no question that Mr Marshall's client is a proper party to the application, or the purported appeal, what he does is do what Rule 25 says, or he suffers the consequences, unless of course the Court otherwise orders, that subrule (2) supplies. 68 MASON P: What about responding to your foreshadowed amendment though? What was he to do? He surely had to prepare to meet that? 69 COLES: I couldn't resist an order that the costs of the application to amend the grounds of appeal be paid by everybody. That's a drop in the bucket and not really what the present discourse is about, I don't think. That probably applies to Mr Hammerschlag too but he's not sufficiently concerned for the obvious practical and pragmatic reason that it is a drop in the bucket to be agitated about that. 70 MASON P: On the question of costs, in light of the further argument that we have heard, it is my view that notwithstanding Rule 25(2) it is appropriate that each respondent receive the costs of the appeal they incurred after the time they did indicate an intention to oppose the appeal and after the time the question of competency was fairly on the table. It would appear that 8 November is a date that gives effect to both of those principles. The appellants are to pay the respondent's costs from and after 5 November 2001. 71 MARSHALL: I think in fairness it ought to be 6 November rather than the 5th. There was a difference-- 72 COLES: In fairness to whom? 73 MARSHALL: To the appellants. I only seek them from the 6th onwards. I think your Honour pronounced the order from the 5th. 74 STEIN JA: That was the date when you told us that you first became aware of the application to amend the-- 75 MARSHALL: No, I said that on the 5th we put our submissions and we became aware on the 6th, your Honour. 76 MASON P: For the reasons I have given, the orders which I propose should be made by the Court are that the appeal should be dismissed as incompetent and that the appellants should pay the costs of the respondents from 6 November 2001. 77 MEAGHER JA: I respectfully agree with the learned President that Windeyer J's decision is in the relevant sense interlocutory and that therefore the appeal is incompetent and should be dismissed with costs. 78 I agree with the order of costs proposed by the learned President. 79 I am also of the view that if leave to appeal were sought, which it apparently is not now, that leave should be refused. 80 I also wish to add this, that I am of the preliminary view that Windeyer J's reasons are somewhat difficult to sustain. 81 STEIN JA: I agree with the President. 82 MASON P: The orders of the Court will be as indicated. ************* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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