Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2011] NSWCA 211 Hearing dates: 18 July 2011 Decision date: 18 July 2011 Before: McColl JA Decision: (1) Upon the respondent undertaking to the Court that: (a) it will apply the funds so received to pay the costs incurred by it in the appeal and any interest on those costs; and (b) it will repay the moneys to the extent it is determined on an assessment that Equititrust has been overpaid its costs of the appeal, having regard to the order for costs made on 16 June 2011 and its contractual entitlements. Order that the Registrar of the Supreme Court of New South Wales pay to the respondent $50,000, being the money held as security for costs pursuant to order 3 of Allsop P dated 7 February 2011. (2) Order that the order for costs made by the Court of Appeal on 16 June 2011 take effect today. (3) Direct the Registrar to pay the sum of $698,000 received from Abacus Group Holdings Limited to Equititrust Limited CAN 061 383 944. (4) Order the appellants to pay the respondent's costs of the motion on an indemnity basis. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PROCEDURE - security for costs - discharge of security - whether security may be discharged before costs assessed - Uniform Civil Procedure Rules 2005 36.4 Legislation Cited: Income Tax Assessment Act 1936 (Cth) Legal Profession Act 1987 (NSW) Legal Profession Act 2004 (NSW) Supreme Court Act 1935 (SA) Supreme Court Rules 1970 (NSW) Uniform Civil Procedure Rules 2005 Cases Cited: Andrew Garret Wine Resorts Pty Limited & Anor v National Australia Bank Ltd [2005] SASC 455; (2005) 227 ALR 113. Buzzle Operations Pty Ltd (In Liquidation) v Apple Computer Australia Pty Ltd (No 2) [2010] NSWSC 490 Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank [2006] SASC 239; (2006) 95 SASR 208 Dwight v Commissioner of Taxation (1992) 37 FCR 178 Illawong Village Pty Limited v State Bank of New South Wales [2005] NSWSC 524 Summer Hill Business Estate Pty Ltd v Equititrust Limited [2011] NSWCA 192 Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2011] NSWCA 149. Summer Hill Estate Pty Ltd v Equititrust Ltd [2010] NSWSC 776 Category: Procedural and other rulings Parties: Equititrust Ltd - Applicant on the motion Summer Hill Business Estate Pty Ltd - Respondent on the motion Representation: J Hogan-Doran - for the applicant on the motion (respondent on the appeal) MJ Dawson - for the respondents on the motion (appellants on the appeal) Tucker & Cowan - for the applicant on the motion (respondent on the appeal) Blackstone Waterhouse - for the respondents on the motion (appellants on the appeal) File Number(s): 2010/283982 Publication restriction: No Decision under appeal Citation: Summer Hill Business Estate Pty Ltd v Equititrust Limited [2010] NSWSC 776 Date of Decision: 2010-07-30 00:00:00 Before: Pembroke J File Number(s): SC 2010/6725 Judgment 1McCOLL JA : The applicant, Equititrust Ltd, seeks three orders by Notice of Motion filed on 27 June 2011. 2First, that the Registrar of the Supreme Court be directed to pay it $50,000, being money held as security for costs pursuant to Order 3 of Allsop P dated 7 February 2011. Secondly, that if the Registrar has not already done so, the Registrar be directed to call on the guarantee provided to the Registrar pursuant to Order 2 of Allsop P dated 7 February 2011 forthwith, by presenting the original guarantee along with a demand for payment of the sum of $698,000 to the registered office of Abacus Group Holdings Ltd. Thirdly, that the Registrar be directed upon receipt of the sum referred to in the second order, pay that sum to Equititrust. 3The motion first came before the Court on 4 July 2011 on which date Basten JA made an order directing the Registrar to call upon the guarantee which had been provided pursuant to Allsop P's orders and, to the extent necessary, varied a stay Allsop P had granted on 8 February 2011 to permit that step to be taken: Summer Hill Business Estate Pty Ltd v Equititrust Limited [2011] NSWCA 192. 4The sum held under the guarantee has now been paid into Court and, pursuant to a direction made by the Registrar pursuant to Uniform Civil Procedure Rules 2005 ("UCPR") 41.7(1)(a), is held in the New South Wales Trustee Common Fund. 5The controversy arises out of proceedings concerning the question whether, pursuant to a number of loan agreements, Equititrust Ltd (the respondent on the appeal) was entitled to charge Summer Hill Business Estate Pty Ltd (and associated companies - all referred to for convenience as "Summer Hill" and all of which were the appellants from a judgment of Pembroke J) default interest or interest at a higher rate on various loans advanced to Summer Hill. The loans were refinanced early in the piece. The disputed sum of approximately $2.4 million Equititrust said Summer Hill owed on account of default interest, was paid into Court pending resolution of the appeal. 6On 30 July 2010 Pembroke J found in Equititrust's favour, holding that default or higher rate interest could be charged on each of three facilities from the date of their expiry. His Honour ordered Summer Hill to pay the respondent's costs on an indemnity basis: Summer Hill Estate Pty Ltd v Equititrust Ltd [2010] NSWSC 776 . Summer Hill appealed. 7On 27 September 2010 the funds in Court, including accrued interest, by then approximately $2.5 million, were paid to Equititrust which in turn applied those moneys across three facilities. However, each of the facilities had continued to accrue interest at the default or higher rate. Also legal costs were incurred and added from time to time to the amount outstanding pursuant to the terms of the facilities. As at 27 September 2010 $505,261.99 was still due and owing. 8In October 2010 Equititrust served statutory demands on three of the borrowers in relation to those moneys. 9In late 2010 Allsop P granted a temporary stay to Summer Hill of enforcement of relevant parts of Pembroke J's final orders and also gave it the opportunity to make provision for security for the costs of the appeal. 10In early February 2011 Allsop P's stay was finalised by the provision of the letter of guarantee to which I earlier referred. On 7 February 2011 Allsop P also ordered Summer Hill to provide security for the costs of the appeal in the amount of $50,000. Compliance was effected by Summer Hill paying that sum to the Registrar. 11On 16 June 2011 the Court dismissed Summer Hill's appeal with costs: Summer Hill Business Estate Pty Ltd v Equititrust Ltd [2011] NSWCA 149. Thereafter, as I have said, Equititrust sought the orders in the present notice of motion. 12The critical controversy in today's motion is whether the amount held by the Registrar as security for costs should be paid out to Equititrust prior to those costs being assessed. Mr Tucker, Equititrust's solicitor, has calculated that the legal costs it has incurred in the appeal amount to approximately $131,000. He expresses the opinion that those costs were reasonably incurred and that any costs assessment would not reduce them below $50,000. He also states that, pursuant to the securities the subject of the proceedings, costs are payable on an indemnity basis. However Mr J Hogan-Doran of counsel, who appears for Equititrust, does not contend that the order of this court dismissing the appeal with costs did so other than on the basis that costs would be assessed on the ordinary basis: UCPR 42.2 13Summer Hill's solicitor, Ms Byrne, in her affidavit summarises the costs which Equititrust has added to one of the facilities and which are claimed in the proceedings overall as being in the sum of $438,886.81. As is apparent from Mr Tucker's affidavit, $300,000 or thereabouts of that amount relates to the proceedings at first instance. Ms Byrne further states that, as at 15 July 2011, the date her affidavit was sworn, Summer Hill had not received any itemised tax invoices or bill of costs in assessable form from Equititrust's solicitors setting out the work that they have performed. Accordingly, she says, Summer Hill is unable to make a determination as to the fairness and reasonableness of the legal costs charged to Equititrust and claimed by it. 14On 15 July 2011 Ms Byrne forwarded a letter to Equititrust's solicitor informing him that Summer Hill wished to exercise its rights to have the legal costs assessed under the Legal Profession Act 2004 (NSW). She sought a bill, or bills, of costs in assessable form, invoices for disbursements, the copy of any costs agreement(s) or other documents identifying the basis upon which Equititrust's solicitors' fees have been charged and evidence of payment of the legal costs Equititrust says it has incurred. The letter contended that Equititrust would not be prejudiced by the process of assessment, because to the extent costs were properly chargeable, interest would continue to accrue on them pursuant to the facilities and there was no controversy that Summer Hill was in a position to meet any liability for accruing interest. 15Equititrust has indicated that it is prepared to undertake to the Court first, that it will apply the funds received by payment out of the $50,000 to pay the costs incurred by it in the appeal and any interest on those costs and will repay the moneys to the extent it is determined on an assessment that it has been overpaid its costs of appeal, having regard to the order for costs made on 16 June 2011 and its contractual entitlements. 16There is no controversy that if and to the extent any sum was paid out to Equititrust, in terms of the amount deposited for security for costs or, I would add, the amount the Registrar presently holds, following the call upon Abacus Group Holdings Limited, it would be able to repay that amount if there was found to have been any overpayment. 17Summer Hill does not consent to the Court paying the sum of $698,000 to the respondent but Mr M Dawson of counsel, who appeared for it, has not made any submissions as to why that order should not be made and I propose, in due course, to make it. 18As I have said, the principal controversy concerns the payment out of the $50,000. As to this, Mr Dawson submits that the Court may not order that amount be released to Equititrust until such time as the costs are assessed. He submits that that consequence flows from the UCPR 36.4(2) which provides, relevantly: "... if an order of the court directs the payment of costs, and the costs are to be assessed, the order takes effect as of the date when the relevant costs assessor's certificate is filed." 19The terms of UCPR 36.4(3) should also be noted: "(3) Despite subrules (1) and (2), the court may order that a judgment or order is to take effect as of a date earlier or later than the date fixed by those subrules." 20Mr Dawson has drawn attention to Campbell J's decision in Illawong Village Pty Limited v State Bank of New South Wales [2005] NSWSC 524, where his Honour was considering the predecessor of UCPR 36.4 in the Supreme Court Rules 1970 Part 40 Rule 3(4). After referring also to s 5 of the Legal Profession Act 1987 (NSW), his Honour held that an order for costs did not take effect until the Certificate of Assessment was issued. It is not entirely apparent whether s 215 of the Legal Profession Act 1987 has been reproduced in the current Legal Profession Act 2004 but I shall assume, for present purposes, that it has. 21Mr Dawson also relies upon White J's decision in Buzzle Operations Pty Ltd (In Liquidation) v Apple Computer Australia Pty Ltd (No 2) [2010] NSWSC 490. In that case, White J appears to have been determining a number of procedural matters consequent upon a principal judgment, including the question of the release of security for costs in circumstances where the court was holding an amount of $1.1 million, plus accrued interest, as security for the defendants' costs. The defendants in that case accepted that, if any money received from the security held in court had to be repaid, they would be liable to interest at a rate prescribed in schedule 5 to the UCPR. 22White J considered a submission that Buzzle made that UCPR 36.4 precluded the court ordering a release of the moneys held for security for costs before the costs order took effect. His Honour said (at [43]) that, if it were necessary to do so, he would have ordered that, for the purpose of payment out, the costs orders he was about to make should take effect forthwith, a power his Honour would have been able to exercise, pursuant to UCPR 36.4(3). His Honour did not think it necessary to make such an order. This was because, in his Honour's view (at [44]), the amounts held as security could be dealt with pursuant to orders of the court and retain their character as security for costs and would become payable under orders that took effect in the future. 23His Honour continued at ([44] - [45]): "44 ... Moneys when paid out can be dealt with as part of the general assets of the defendants, but they will not on that account lose their character as security for the costs which will be payable when the costs orders take effect. The defendants can have recourse to that security before the costs orders take effect, but they are still security for costs. 45 The defendants accept that the moneys the defendants will receive can be accounted for by being applied in whatever way the plaintiffs direct in reduction of the moneys to be payable by the defendants for costs and interest on costs." 24The characterisation White J attached to the moneys paid into court in Buzzle appear to reflect the characterisation Hill J gave to like funds in Dwight v Commissioner of Taxation (1992) 37 FCR 178. In that case, moneys were deposited as security for costs in a bank account opened in the joint names of the solicitors for the parties. A question arose as to any liability of those monies to tax pursuant to the Income Tax Assessment Act 1936 (Cth) in respect of income earned on the security fund. That question turned on whether there was a beneficiary presently entitled to that income in the relevant tax years. Hill J held (at 186) that regardless of the form in which security for costs was given, the property the subject of the security continued to be the general property of the party who gave it and, pending resolution of the dispute between the parties and the making of a costs order, the other party had no propriety interest in the property forming the security, but, at best, a right in nature of an equitable charge or lien giving a right of recourse to the fund to satisfy the terms of the judgment, that is, to secure reimbursement if an order for costs be made in his or her favour. 25Gray J distinguished Dwight in Andrew Garret Wine Resorts Pty Limited & Anor v National Australia Bank Ltd [2005] SASC 455; (2005) 227 ALR 113. However, the basis upon which his Honour did so appears to have been that by virtue of s 119 of the Supreme Court Act 1935 (SA) the monies which had been paid into court, fell within the description of "suitors' funds" and vested in the Registrar on behalf of the court and the court had a judicial discretion as to whom the money should be paid out. On appeal, Duncan (as trustee for the bankrupt Estate of Garrett) v National Australia Bank [2006] SASC 239; (2006) 95 SASR 208, Gray J's decision was affirmed, albeit it would seem for different reasons. The court did not cavil with Hill J's characterisation in Dwight of the funds he was considering: see Duncan (at [42] - [46]). 26Summer Hill, as I have said, does not oppose the payment out of the sum of $698,000, accepting that Equititrust's entitlement to that sum crystallised upon the making of the Court of Appeal's order dismissing the appeal. However, Mr Dawson submits that by applying to have the security for costs paid out, Equititrust is seeking to bypass UCPR 36.4. He contends that the costs assessment process should not be shortcut save, in effect, in exceptional circumstances where, for example, the unsuccessful party could not pay any costs even if assessed by the successful party, or where there would be considerable delay, I infer, occasioning substantial prejudice. He submits neither of those situations exists here. 27It is not entirely clear that UCPR 36.4 applies in circumstances where the Court has not expressly ordered that costs be assessed. However, I am prepared to accept Mr Dawson's contention that UCPR 36.4(2) is sufficiently engaged by Summer Hill's solicitor's letter of 15 July 2011. However, in my view, there are reasons to order that even if it be the proper interpretation of UCPR 36.4(2) that payment out cannot be ordered until the costs order takes effect, the Court should order pursuant to UCPR 36.4(3) that the costs judgment of 16 June 2011 take effect earlier than the date when the costs assessor's certificate is filed. 28Those circumstances first, are that Mr Tucker's affidavit setting out the amount of the costs of the appeal expresses the opinion that those costs would not be reduced below $50,000, a proposition which is unchallenged. Secondly, the Court's experience also is that it is unlikely that on assessment an assessor would reduce legal costs in the sum of $131,000 to an amount below $50,000. Indeed, $50,000 appears to have been a very modest assessment of the amount to be secured by the security for costs order. 29Thirdly, there is no challenge to the proposition that the respondent can repay any or all of the $50,000 should the costs assessor's assessment produce a result contrary to that which the evidence, and experience, dictates. I do not regard the step Equititrust seeks to take as one which can properly be described as shortcutting the costs assessment process. The security for costs procedure is available to ensure that the beneficiary of a security for costs order is not left out of pocket in the event of a successful appeal. Obviously each case must turn on its own facts, but as I say, this is one where in the scheme of things I cannot see there being a strong, if any, possibility of Equititrust having to be in the position where it will have to repay the $50,000. 30Equititrust seeks its costs of the application on an indemnity basis, not because of Summer Hill's conduct in resisting the motion, but because of a contractual entitlement. Mr Dawson does not dispute that contractual entitlement and asks that in the event I order costs on an indemnity basis, I make it plain that it is pursuant to that entitlement. I trust these reasons sufficiently make that plain. 31I make the following orders: (1) Upon the respondent undertaking to the Court that: (a) it will apply the funds so received to pay the costs incurred by it in the appeal and any interest on those costs; and (b) it will repay the moneys to the extent it is determined on an assessment that Equititrust has been overpaid its costs of the appeal, having regard to the order for costs made on 16 June 2011 and its contractual entitlements. Order that the Registrar of the Supreme Court of New South Wales pay to the respondent $50,000, being the money held as security for costs pursuant to order 3 of Allsop P dated 7 February 2011. (2) Order that the order for costs made by the Court of Appeal on 16 June 2011 take effect today. (3) Direct the Registrar to pay the sum of $698,000 received from Abacus Group Holdings Limited to Equititrust Limited CAN 061 383 944. (4) Order the appellants to pay the respondent's costs of the motion on an indemnity basis. ********** 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: 27 July 2011