Supreme Court New South Wales Medium Neutral Citation: Coshott v Parker & Collins as Executors of the Estate of the late Michael Petrovic Lenin [2015] NSWSC 998 Hearing dates: 14 & 16 July 2015 Date of orders: 24 July 2015 Decision date: 24 July 2015 Jurisdiction: Common Law Before: Davies J Decision: The parties are to bring in Short Minutes of Order Catchwords: EQUITY – subrogation – payment of debt by third party at request of the debtor – whether unconscionable of debtor to avoid liability to third party – whether debtor is subrogated to third party Legislation Cited: Legal Profession Act 2004 (NSW) Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Aetna Life Insurance Co v Middleport (1887) 124 US 534 Cochrane v Cochrane (1985) 3 NSWLR 403 Cook v Italiano Family Fruit Company Pty Ltd (in liq) [2010] FCA 1355; (2010) 190 FCR 474 Re Dalma (No. 1) Pty Ltd (in liq) [2013] NSWSC 1335 Texts Cited: Meagher, Gummow and Lehane's Equity Doctrines and Remedies (Butterworths Lexus Nexus (2002) 4th Ed.) Category: Procedural and other rulings Parties: Ljiljana Coshott (Plaintiff) Michelle Lena Parker (First Defendant) Christina Marie Collins (Second Defendant) Ronald Coshott (Applicant) Representation: Counsel: W Colbron (Plaintiff) A Cornish (First and Second Defendants) R D Marshall (Applicant) Solicitors: Colbron & Associates (Plaintiff) Hicksons (First and Second Defendants) B Hocking (Applicant) File Number(s): 2012/388476 Judgment 1. On 14 December 2012 the Defendants, Michelle Parker and Christina Collins, the executors of the estate of the late Michael Petrovic Lenin, filed a Certificate of Determination of Costs arising out of Supreme Court proceedings 2001/154086 where the present Plaintiff was the plaintiff and they were the defendants. By s 368 of the Legal Profession Act 2004 (NSW) the filing of the Certificate is taken to be a judgment of the Court for the amount of unpaid costs. 2. When those costs were not paid the Defendants filed in the Federal Circuit Court of Australia a creditor's petition seeking a sequestration order against the Plaintiff. 3. On 16 April 2015 the Plaintiff, the Defendants and Mr Ronald Coshott who was the brother in law of the Plaintiff, entered into an agreement whereby Ronald Coshott agreed to pay to the Defendants the amount of $40,000 in full satisfaction of the costs judgment including interest. At the time of the agreement the solicitors for the Plaintiff and the Defendants signed Short Minutes of Order providing for the withdrawal of the Defendants as petitioning creditors and providing for the payment by the Plaintiff of the Defendants' costs of the bankruptcy proceedings as agreed or taxed. 4. On 18 June 2015 Judge Driver in the Federal Circuit Court of Australia gave leave to the Defendants as petitioning creditors to withdraw as applicants on the position, substituted two other persons as petitioners and adjourned the hearing of the creditor's petition to 5 August 2015. 5. Ronald Coshott (the Applicant) applied by Notice of Motion filed 9 June 2015 for the following orders: 1. The name of the judgment creditor entered on 14 December 2012 in these proceedings be amended to Ronald Michael Coshott. 2. The judgment be set aside. 1. The basis for the orders sought was said to be that the Applicant had become subrogated to the rights of the Defendants by the payment to them of the $40,000 owing under the judgment by the Plaintiff to the Defendants. Whether or not the Applicant was so subrogated and whether the present proceedings should be amended so that he became a party to the present proceedings as the judgment creditor were the issues argued on the Notice of Motion. 2. The Applicant sought to rely on an affidavit sworn by him on the morning of the hearing where he said that he was requested by the Plaintiff to pay the $40,000 to the Defendants. The Defendants objected to this evidence on the basis that it had not been served earlier and in time for them to respond. The evidence was said to be inconsistent with what the Plaintiff had said at an earlier time. The evidence appeared to me to be significant. I said that, if the Applicant pressed it there would need to be an adjournment at the Applicant's cost. The Defendants, to avoid an adjournment, withdrew their objection to the evidence. 3. The Applicant submitted that the request from the Plaintiff to the Applicant to pay the debt and his agreement to do so meant that he was not a volunteer. The result was, in reliance on Cook v Italiano Family Fruit Company Pty Ltd (in liq) [2010] FCA 1355; (2010) 190 FCR 474 at [100] ff and Re Dalma (No. 1) Pty Ltd (in liq) [2013] NSWSC 1335 at [34], that in equity the Applicant was subrogated to the rights of the Defendants as judgment creditors. The Applicant submitted further that r 6.32 Uniform Civil Procedure Rules 2005 (NSW) provided for the facility to substitute a person in his position as the judgment creditor, a matter which, it was submitted, was acknowledged by the terms of r 39.1. 4. Prior to the adducing of the evidence by the Applicant of a request by the Plaintiffs to pay the monies, the Defendants had argued in written submissions that what was said in Cook and Dalma (No 1) was authority for the proposition that a volunteer would not be subrogated to the rights of the person on whose behalf the debt was paid. The Defendants accepted, however, that where the debtor made the request a right of subrogation would arise. Nevertheless, the Defendants submitted that such a right did not entitle the Applicant to the order sought in the Motion. 5. The Defendants submitted that the Applicant had no standing to make the present application because he is not a party to the proceedings. They submitted that he was not an assignee of the judgment debt because the agreement was not an agreement to assign it. The Defendants submitted that even if the Applicant was found to be subrogated to the rights of the judgment creditors for the amount paid that did not entitle him to be substituted for the Defendants in the present proceedings. There was no power under Part 6 of the Rules, and r 39.1 provided no basis for substituting the Applicant in the circumstances of his payment. 6. The Defendants pointed also to the fact, which the Applicant accepted, that there is an outstanding matter of costs in the present proceedings relating to an unsuccessful motion by the Plaintiff to set aside the judgment. Any substitution of the Applicant for the Defendants would affect the rights of the Defendants in that, as yet, unresolved dispute. 7. During the hearing of the Motion I expressed concern about two matters. The first was that the Plaintiff was not represented at the hearing of the Motion. It was her rights that would particularly be affected by the orders sought by the Applicant. If the Applicant was substituted as judgment creditor because he was subrogated to the rights of the Defendants, the Applicant would have the right to claim the judgment sum from the Plaintiff or to prove for the amount of the judgment in any bankruptcy of the Plaintiff that ensued. Secondly, and not disconnected with the first matter, there was the issue of the solicitor who was retained by the Applicant, Bruce Hocking. Mr Hocking was the solicitor on the record and remained on the record for the Plaintiff. It seemed to me that Mr Hocking was in a position of conflict. 8. At the conclusion of submissions the Applicant's counsel suggested that he might want to amend the relief sought in the Motion. For that reason, and to enable me to be satisfied about the position of the Plaintiff, the hearing was adjourned until 16 July. 9. On 16 July, the Applicant was given leave to file an Amended Notice of Motion seeking only the following relief: A declaration that the applicant, Ronald Coshott, is subrogated to the rights of the defendants with respect to the judgment debt they have against the plaintiff entered in these proceedings on 14 December 2012. 1. The Defendants said that they neither consented to, nor opposed, the relief sought in the Amended Notice of Motion. 2. The Plaintiff was represented by Mr Colbrun solicitor who informed me that his instructions were that his client would accept the determination of the Court in relation to the relief claimed and that she did not seek further to be heard. 3. The effect of the attitude of the Plaintiff and the changed approach to the matter by the Defendants meant that there was no contradictor to the Motion. However, I had the benefit of the earlier submissions from both the Applicant and the Defendants where the whole matter was in issue. 4. In Aetna Life Insurance Co v Middleport (1887) 124 US 534 at 549 the Supreme Court of the United States said this: The doctrine of subrogation is not applied for the mere stranger or volunteer, who has paid the debt of another, without any assignment or agreement for subrogation, without being under any legal obligation to make the payment, and without being compelled to do so for the preservation of any rights or property of his own. In commenting on this passage the learned authors of Meagher, Gummow and Lehane's Equity Doctrines and Remedies (Butterworths Lexus Nexus, (2002) 4th Ed.) said at [9-010]: [T]he quest always is to isolate the attribute of the relations between A, B and C … which makes A more than a stranger to the nexus between B and C and generates in his favour an equity satisfied only by requiring B to pursue his legal rights against C for the benefit and at the direction of A. 1. In Cook v Italiano Family Fruit Company Pty Ltd Finkelstein J said: [109] It is clear that where a person (eg a surety) pays off a creditor's debt, the person will, in certain well-defined circumstances, be entitled to subrogation. The rationale behind these cases, and the reason why equity intervenes, is that it would be unconscionable for the debtor to escape the liability which has been discharged by the person's acts. Of course, the mere fact that one person pays off another's debt does not automatically give rise to a right of subrogation against the debtor. There must be something more that generates the equity in favour of the payee. … [113] … A common bar to subrogation is where the claimant is a "volunteer", "officious" or an "intermeddler". This reflects equity's concern for the autonomy of the debtor. As Bowen LJ put it in Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 248: "Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will". A related issue is whether a volunteer's payment is effective to discharge a debt: see P Birks and J Beaton, "Unrequested Payment of Another's Debt" (1976) 92 LQR 188; A Burrows, The Law of Restitution (2nd ed, 2002) 293–302. [114] The complexities caused by voluntary payments do not arise where the payments are not "voluntary". In particular, a payment is not considered voluntary in the relevant sense where the claimant has been expressly or impliedly requested to act by the debtor: Owen v Tate [1976] 1 QB 402 at 411; see also K Mason, J W Carter and G J Tolhurst, Restitution Law in Australia (2nd ed, 2008) [642]; Goff & Jones, The Law of Restitution (7th ed, 2007) [1–080]; cf P Birks and J Beaton, "Unrequested Payment of Another's Debt" (1976) 92 LQR 188, 209. … 1. Brereton J adopted the principles in these passages in Dalma (No 1) at [34]. 2. The notion of unconscionability providing the basis for the doctrine finds support in Cochrane v Cochrane (1985) 3 NSWLR 403 where Kearney J said (at 405) in the context of the repayment of a mortgage debt by the person claiming the right of subrogation: This principle is based on equity's concern to prevent one party obtainingan advantage at the expense of another which in the circumstances of thecase is unconscionable. Hence, there is a common thread running through the relevant cases to the effect that the conscience of the mortgagor should be affected so as to cause the mortgage to be kept alive. This is illustrated in the text book examples first, of a third party not being entitled to a right by way of subrogation where he simply lends the money on an unsecured basis to the mortgagor who then uses such funds to pay off the mortgage; and secondly, of a third party being so entitled where he advances the money to pay out the mortgage on the understanding that security would be provided for such advance upon the mortgage being paid out. As a corollary to this basis for the principle, there is no occasion for equityto intervene by way of subrogation where there is available to the third partya remedy at law or in equity sufficient to avoid an unconscionable result. 1. In my opinion, it would be unconscionable for the Plaintiff to deny to the Applicant his right to subrogation to the extent of the payment made. He made the payment at her request for the purpose, which was achieved, of avoiding a sequestration order on the petition of the Defendants. The benefit the Plaintiff received, apart from not immediately being sequestrated, was that she necessarily had a longer time to pay the debt. 2. The Applicant is entitled to be subrogated to the rights of the Plaintiff to the extent of the payment of $40,000 paid by him to the Defendants on 16 April 2015. Such entitlement does not affect in any way any continuing rights the Defendants have in the present proceedings, in the bankruptcy proceedings or otherwise. 3. In the light of the Amended Notice of Motion it is not necessary to consider the arguments concerning the right of the Applicant to become substituted for the Defendants in the proceedings. 4. The parties are directed to bring in Short Minutes to reflect this judgment. 5. I will hear the parties on costs. ********** Amendments 27 July 2015 - Name of solicitor for the Plaintiff on Coversheet corrected. 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 2015