FEDERAL COURT OF AUSTRALIA

Woodgate (Trustee) v Northop Hall Pty Ltd [2016] FCA 370

ORDERS

THE COURT ORDERS THAT:

1.    The claims in the interlocutory application for security for costs by the applicant/cross-respondent filed 11 February 2016 be dismissed.

2.    The applicant/cross-respondent be granted leave to serve any outlines of evidence in reply on or before 9 March 2016.

3.    The respondents/cross-claimants be granted leave to serve any outlines of evidence replying to the outlines under order 2 above, on or before 23 March 2016.

4.    The claims in the interlocutory application filed by the respondents/cross-claimants on 11 February 2016 seeking an order that the second respondent be paid money from the funds paid into Court be dismissed.

5.    There be no order as to costs of the interlocutory applications filed on 11 February 2016.

6.    Leave be granted to the respondents to adduce evidence at the final hearing from:

(a)    Graeme Martin Jennings (the bankrupt); and

(b)    Stuart Albert Spencer.

THE COURT NOTES THAT:

7.    The respondents/cross-claimants are to continue to make efforts for Mrs Audrey Jennings to give evidence by audio-visual link from the United Kingdom at a time of day which is suitable to accommodate the differing time zones between Australia and the United Kingdom and her advanced age and circumstances.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    This is an application by the second respondent, Ms Noi Snith for a payment out of moneys that had previously been paid into Court from the sale of a property at Mosman held by her and her partner, Martin Jennings, the bankrupt, who had been registered proprietors of the property as tenants in common in equal shares. The applicant in the proceedings, Giles Woodgate, is the trustee of the bankrupt’s estate.

2    The bankrupt had purchased the Mosman property in May 2001 as sole registered proprietor. In June 2006, in a dealing that Mr Woodgate challenges, the bankrupt executed a registrable transfer of a one half share in that property to Ms Snith for a consideration of $1.00. That transfer was not registered until 2011, at which time the bankrupt and Ms Snith became registered proprietors as tenants in common in equal shares.

Litigation background

3    There are three separate proceedings involving the parties, all of which relate to Mr Jennings or his bankruptcy.

4    On 10 November 2014, after Mr Jennings had become bankrupt, the Supreme Court of New South Wales made consent orders providing for the sale of the Mosman property. The consent orders empowered Mr Woodgate to sell the Mosman property on behalf of the registered proprietors and required that Ms Snith execute any contract for sale, transfer in registrable form or other document required to facilitate and complete such a sale. The orders required Mr Woodgate deduct from the proceeds of sale amounts necessary to obtain discharges of the registered mortgages and to pay the costs and expenses necessarily incurred in the conduct of the sale. Mr Woodgate then had to distribute the net balance of the proceeds of sale under order 5e) of the consent orders as follows:

e)    pay the net balance of the proceeds of sale of the Mosman Property (Sale Proceeds) as follows:

(i)    $40% to Mr Woodgate In his capacity as trustee of the bankrupt estate of Graeme Martin Jennings;

(ii)    60% paid into Court with such amount to be subsequently paid to Mr Woodgate or Ms Snith, or partly to Mr Woodgate and partly to Ms Snith:

1)    In accordance with the Court's determination in these proceedings [being proceedings brought by two of Mr Jennings’ creditors that I stayed on 8 May 2015] as to whether the transfer of part of the interest in the Mosman Property of [Mr Jennings] to Ms Snith pursuant to the [contentious] Transfer is voidable under s37A of the Conveyancing Act 1919 (NSW); and

2)    in accordance with the Court's determination in proceedings [that I ordered be consolidated with these proceedings] as to the extent of the interests of Mr Jennings and Ms Snith (if any) in the Mosman Property: and

3)    In accordance with any orders of any Court in any cross claim or proceedings brought by Mr Woodgate in his capacity as trustee of the bankrupt estate of Mr Jennings, contending that the [contentious]Transfer was and/or is:

A.     voidable under section 37A of the Conveyancing Act 1919 (NSW): and/or

B.    voidable, void or otherwise liable, in any way, to be set aside, discharged or varied under the provisions of the Bankruptcy Act 1966 (Cth). (emphasis added)

5    In addition, under order 7 of the consent orders made on 10 November 2014, the Supreme Court granted the parties liberty to apply on three days’ notice in relation to any matter arising. Mr Woodgate sold the Mosman property at auction and settlement occurred in February 2015.

6    The proceedings contemplated in order 5e)(ii)3) eventuated as the proceedings in this Court. The net proceeds of the sale that Mr Woodgate paid into the Supreme Court, are now about $560,000 and are held by this Court under order 5e)(ii).

7    On 8 May 2015, I made orders staying one proceeding and consolidating into this proceeding another proceeding that, on 29 and 30 April 2015 respectively, Robb J in the Supreme Court had ordered by consent be transferred to this Court under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). These consolidated proceedings involve, relevantly, a claim filed in this Court on 22 January 2015 by Mr Woodgate against Northop Hall Pty Ltd and Ms Snith for orders to set aside the transfer to Ms Snith of her half share as tenant in common of the Mosman property. The transfer was dated 5 June 2006 but it was registered only on 19 August 2011. The Supreme Court proceeding that is consolidated in these proceedings, originally involved a claim brought by Ms Snith against Mr Woodgate in relation to the Mosman property.

Factual background

8    Northop Hall is the trustee of the Broad Oak Trust and owns a property at Potato Point on the South Coast of New South Wales in which Mr Jennings and Ms Snith now cohabit. That property is the subject of a claim by the trustee in the consolidated proceedings that it should also form part of the bankrupt’s estate.

9    In her affidavit of 11 February 2016, Ms Snith explained that she is 66 years old, currently is unemployed and, since 19 November 2014, has received a hardship pension of $511.43 per fortnight from the Commonwealth Government. Ms Snith is a naturopath by profession. She said that she earns occasional sums from the practice of her profession that she estimated to be on average no more than $440 per month. She said that, her partner, the bankrupt, also received a pension and that they had very little money in order to live. She said that they occasionally needed to borrow money to pay for general goods and services from the bankrupt’s mother, who is a 93 year old lady resident in England, and from other family members and some friends.

10    Ms Snith attached copies of her then most recent Westpac Bank statement and two credit card statements indicating that she owed over $35,000 to Westpac for her 55 day platinum Visa card and nearly $13,000 to American Express for her platinum rewards credit card. Ms Snith said that she currently had to pay over $1,000 per month in interest payments and that, since the proceedings had been commenced, she had been using her credit cards to pay for her small living expenses. She said that she was unable to afford bare essentials.

11    She recorded that her solicitors had been paying significant amounts for disbursements from their own funds and that they had informed her that in order to proceed to the hearing of the matter, which I fixed on 5 February 2016 for three days commencing on 30 May 2016, she would be required to pay an amount of $62,600 up front on account of counsel’s estimated costs and disbursements (which did not include costs that would be payable to her solicitors). She also said without further elaboration of what her “wealth” was:

As the entirety of my wealth is tied up on [scil: in] funds held in Court or subject to freezing orders made in the UK as a result of UK proceedings to which I was not a party, I seek the Court's allowance for an amount of funds to be released to me from those held in Court to enable me to meet the heavy costs of this litigation which has been brought against me by the Applicant and for a small allowance of $1,000.00 a fortnight to be paid on account of my cost of living expenses. (emphasis added)

12    She sought orders for payment out of Court of lump sums, totalling about $48,000, to discharge the debts on her two credit cards. Ms Snith also sought payment of two other lump sums to be paid to her solicitors of, first, $5,685.20 for unpaid disbursements and, secondly, of $62,600 on account of the matters to which I referred above. She only faintly pressed in argument for fortnightly payments of $1,000.

13    Ms Snith’s solicitor, Jason Green, swore an affidavit in which he explained, among other matters, that he had arrived at the figure of $62,600 for future disbursements by estimating the fees for counsel to appear at today’s interlocutory hearing and the fees for senior counsel to appear with junior counsel at a mediation and at the trial, including preparation, together with other sums for necessary disbursements such as transcript costs. Mr Green said that his firm had received no payments for its professional fees or disbursements it has met of nearly $5,700 to date in the various proceedings. Mr Green said that his firm will not be able to cover the costs of counsel to run the three day trial in this Court or the further disbursements that would be necessary for the preparation of the matter for trial. He said that he believed that if the orders sought for payments from the moneys held in Court were not made, Northop Hall and Ms Snith would not be able to retain counsel for the trial and would be forced to represent themselves.

14    Mr Jennings also swore an affidavit that was read today but he gave no evidence as to his financial position or the willingness of his family and friends to provide support to Ms Snith, himself or Northop Hall.

15    Stewart Spencer, the director of Northop Hall, also swore an affidavit in these proceedings but he gave no information on its financial position. However, there is some evidence as to Northop Hall’s financial position. The only set of its financial statements which the respondents tendered are for the year ended 30 June 2011 and include the corresponding amounts for the year ended 30 June 2010. In each year the Potato Point property was the only substantive asset of Northop Hall as trustee of the Broad Oak Trust and its stated value was $944,844.05.

16    Ms Snith is the current appointer of the Broad Oak Trust. Ms Snith and the bankrupt are the principal members of the class to whom Northop Hall may make distributions in the exercise of its powers as a trustee of its discretionary trust. The balance sheet confusingly recorded as current liabilities of the Broad Oak Trust two negative sums as “Current liabilities: trade and other payables” totalling over $10.6 million in both years. Those “liabilities” appeared above the entry for net assets and were reversed to result in a positive sum of over $11.5 million of net assets in each year. Note 4 to the financial statements “Trade and Other Payables” comprised two debtors (or negative creditors), Didgeridoo Records Pty Ltd, a company that the bankrupt controlled, that owed the Broad Oak Trust over $7.5 million as at June 2011, and the bankrupt himself, who owed it over $3.1 million at that date.

17    There is no evidence before me that Northop Hall is not now able to call on or resort to Didgeridoo’s very considerable indebtedness to meet costs or pay money to Ms Snith if it chooses.

18    Moreover, Ms Snith’s affidavit left hanging exactly what her net wealth was, including whatever was tied up by freezing orders made in the United Kingdom. She gave no evidence about when those orders might cease and what, if any, funds or assets would, or would be likely, to be then available to her.

19    The personal circumstances of herself and Mr Jennings, that Ms Snith described in her affidavit, suggest that they are currently in difficult financial circumstances. Nonetheless, each has been able to travel to the United Kingdom in the last year, and on Mr Green’s evidence, they spent some months overseas, Ms Snith in both the United Kingdom and a remote part of France, where she was caring for her gravely ill father, and Mr Jennings with his mother, together, from time to time, with Ms Snith. While the circumstances of their elderly parents make it understandable that each would wish to be with them, there was no explanation as to where the money came from to finance and sustain that travel. Ms Snith’s bank statement for December 2015 and January 2016, showed that she had received a transfer of $2,000 from Mrs Jennings, the bankrupt’s mother, again with no explanation as to what, if any, resources or willingness Mrs Jennings has to assist or support her son and his partner in respect of this litigation or their other circumstances.

Ms Snith’s submissions

20    Ms Snith argued that the circumstances disclosed in the evidence demonstrated that she is in necessitous straits, will be unable to participate through lawyers in the litigation, and so would be disadvantaged by not being allowed to have access to the funds. She contended that, because order 7 of the consent orders gave liberty to apply in respect of order 5, there is a rubric under which the Court can vary those orders so as to allow the payment out of amounts that she seeks. She submitted that, prima facie, the money held in Court represented the whole of her 50% share of the sale proceeds of the Mosman property and only 10% of the share of the bankrupt’s estate. Thus, she argued five-sixths of the money held in Court represented the sum realised by sale of her half share as registered proprietor, the validity of which Mr Woodgate has challenged in these proceedings. On that basis, Ms Snith argued that she was now seeking about 30% of that half share to be paid out of the money held in Court.

21    She argued that it is evident that because Mr Jennings and she were in a bona fide and long term de facto relationship, the likelihood is that at the final hearing orders will be made reflecting that she had, and has, a beneficial interest of substance, whether or not it will be found to be entirely consonant with her 50% share as the previous registered proprietor with her partner on the basis of the principle of joint contribution discussed in Baumgartner v Baumgartner (1987) 164 CLR 137 at 149 per Mason CJ, Wilson and Deane JJ.

22    Ms Snith contended that in the interests of justice, orders should be made giving her some reasonable access to the legal asset that she formally held as a 50% registered proprietor, now represented by the moneys paid into Court, in a similar way to that in which the trustee was entitled to be paid 40% of the net proceeds of sale of the Mosman property so as to enable him to conduct his administration and the various proceedings in which they are engaged. Ms Snith relied on Perpetual Trustee Company Limited; Application of Chen [2010] NSWSC 808 at [22] to suggest that once a party pays money into court he or she no longer retains any legal or equitable interest in the money. She argued that the proceedings had taken considerably longer than she had appreciated at the time that the consent orders were made, and that this was another reason why it would be just and equitable to vary them. Nonetheless, Ms Snith accepted that part of the delay was due to the circumstances in which she and the bankrupt found themselves in caring for their elderly parents overseas at times when they were then unable to comply timeously with orders for the provision of their outlines of evidence to bring the case on for hearing earlier. Those difficulties have now been overcome and the matter is being readied for trial in a diligent way.

Consideration

23    The purpose of the payment into court, as reflected in the terms of order 5 made by the Supreme Court, was to put the funds into the control of the Court to abide the outcome of the proceedings.

24    When a person pays money into court, the circumstances in which that is done can affect the character of the person’s rights and interests in the money. Ordinarily, where a person pays money into court by way of security for the outcome of proceedings, the payer retains his or her beneficial interest in the fund up to the time of judgment. In Dwight v Commissioner of Taxation (1992) 37 FCR 178 at 192, Hill J explained that the other party or parties for whom the moneys are held in court as security for any future order in his, her, its or their favour, has or have a defeasible equitable charge or lien over the moneys in respect of that potential order, but no present entitlement to them. Only at the time of judgment might an order for payment from that fund, giving effect to the decision of the Court or arbitrator, change the underlying rights in the fund.

25    Payment of money into court can be made as security for the outcome of proceedings in that or another court or in an arbitration. For example, s 29 of the Admiralty Act 1988 (Cth) which gives courts exercising jurisdiction under the Act power to order that a ship or other property (including a bail bond or P&I club letter of indemnity or guarantee) be held as security for the satisfaction of a judgment of a foreign court or arbitral award that may be made in proceedings that are either extant or prospective and the court may impose conditions for that purpose.

26    In other cases, such as in Chen [2010] NSWSC 808, a trustee appointed simply for sale who had no other connection to the subject matter of the controversy between the parties, will pay the net proceeds of sale into court and, the trustee having recouped the expenses and entitlements of the performance of the trust, will lose all beneficial interest in the trust fund paid into court. Ordinarily, the trustee’s beneficial interest in the trust fund to secure its right to reimbursement or exoneration for liabilities properly incurred in the administration of the trust will be satisfied at the time of payment into court: cf Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226 at 246-247 [50] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.

27    In such a case, the interests of the persons involved in the controversy, or who may have a beneficial interest or mere equity to seek the proper administration of a trust, can either exist independently of the outcome of the proceedings, so that the Court declares the pre-existing rights to the property represented by the fund, or the Court can create new rights by a judgment establishing or changing those rights by ordering payment out of the fund. Thus, where a party pays money into court as security, if subsequently judgment is entered in favour of another party, an order for payment out of the fund in court to the judgment creditor will change the underlying beneficial interests in the fund.

28    Here, there are competing claims to the money paid into Court, as order 5e) recognised in its terms. Under r 2.43(1) of the Federal Court Rules 2011 (Cth) money paid into court in a proceeding under r 2.42 (as is the case here) may be paid out or applied only in accordance with an order. Slattery J discussed a three stage test that an applicant had to satisfy to obtain such an order under an analogue of r 2.43(1): Commonwealth Bank of Australia v The Estate of the Late Mahmoud Slieman [2010] NSWSC 661 at [8]-[10]; (see too Yuan v Xie [2015] NSWSC 492 at [10] per Stevenson J), namely that:

(1)    the applicant (or someone else) is the person primarily entitled to the funds and the basis of that entitlement;

(2)    that person has a beneficial interest in the very funds paid into court; and

(3)    all other interested parties are on notice of the application.

29    However, where money has been paid into court pursuant to an order made by consent, the parties will have entered into an antecedent contract where they agreed that they, or one of them, would ask the Court to act by its order in the manner that they had agreed.

30    Where a final order is made by consent, the Court does not possess a discretion to set it aside, except on proper grounds: Harvey v Phillips (1956) 95 CLR 235 at 242-244 per Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ. There the Court said (95 CLR at 243-244 and see too Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 at 378 [44] per Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ):

But in the case of a compromise which is made within the actual as well as apparent authority of counsel a court does not appear to possess a discretion to rescind it or set it aside. The question whether the compromise is to be set aside depends upon the existence of a ground which would suffice to render a simple contract void or voidable or to entitle the party to equitable relief against it, grounds for example such as illegality, misrepresentation, non-disclosure of a material fact where disclosure is required, duress, mistake, undue influence, abuse of confidence or the like. The rule appears rather from positive statements of the grounds that suffice (cf. Halsbury's Laws of England, vol. 26, 2nd ed., pp. 84, 85); but there is a dictum of Lindley L.J. which is distinct enough: “ … nor have I the slightest doubt that a consent order can be impeached, not only on the ground of fraud but upon any grounds which invalidate the agreement it expresses in a more formal way than usual … To my mind the only question is whether the agreement on which the consent order was based can be invalidated or not. Of course if that agreement cannot be invalidated the consent order is good”: Huddersfield Banking Co. Ltd. v. Henry Lister & Son Ltd [1895] 2 Ch 273 at 280. (emphasis added)

31    The court retains control of any interlocutory order that it makes. Ordinarily, a further order will be appropriate when, for example, new facts come existence or are discovered which render the enforcement of an interlocutory order unjust: Adam P. Brown Male Fashion Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 178 per Gibbs CJ, Aickin, Wilson and Brennan JJ; see too r 39.05(c).

32    Here, the only persons with an actual or potential interest in the funds in court are Ms Snith and Mr Woodgate as trustee of the bankrupt’s estate. The consent order for payment into court was interlocutory. It did not resolve any controversy on a final basis. But, the interlocutory order for payment into court in this matter involved a compromise between the parties as to how the proceeds of sale of the Mosman property would be dealt with both immediately (by 40% being paid to the trustee) and in the period up to final determinations by the Court of the controversies in the three proceedings between the parties.

33    There is no suggestion here that there is any ground to set aside or vary the contract for the making of the consent order for payment in, other than the failure of Ms Snith to anticipate how long the proceedings would take and any finance that she might need. For example, she did not suggest that any other circumstance of which she currently complains, namely her impecuniosity and lack of resources, was not present at the time at which she agreed to the order, but arose subsequently in an unforeseen way.

34    The evidence that Ms Snith has relied on does not enable me to be confident that she would be in a position to repay any money that a final judgment established belonged, or should have been paid out, to the bankrupt’s estate for distribution to his creditors. Order 5e) expressly contemplated one possible outcome of the litigation was that none of the 60% of the proceeds of the sale of the Mosman property would be hers or payable to her.

35    Of course, I am in no position to make any finding as to the merits of that dispute. However, the consent order evidences that one of the matters that the parties contemplated when they made their agreement for the consent orders was that very result, as they expressed in the statement in order 5e)(ii) that, “60% paid into court with such amount to be subsequently paid to Mr Woodgate or Ms Snith, or partly to Mr Woodgate and partly to Ms Snith”. Thus, at the time that the parties agreed to ask the Supreme Court to make the consent orders, they contemplated that Ms Snith may, I emphasise, not would, be exposed to an ultimate determination that she was not entitled to any of the fund paid into Court.

36    Part of my difficulty with Ms Snith’s evidence in support of her application is the non-exhaustive explanation of, first, what her asset and liability position is and, secondly, what, if any, resources outside her own personal financial situation she could resort to, including whether loans may be available from other family members or Northop Hall or Didgeridoo to tide her through the proceedings.

37    In those circumstances, there is a not insubstantial risk that, if the orders that Ms Snith seeks were made, over 20% of the trust fund would be paid out of Court to a person who has no demonstrated capacity to repay any money were she subsequently ordered to do so. That result could put at risk the very purpose for which the fund was paid into court.

38    In my opinion, on the present evidence, the agreement to pay the money into Court on the basis recorded in order 5e) made on 10 November 2014 should not be disturbed.

Conclusion

39    For those reasons, I refuse to vary that order or to make an order for payment out to Ms Snith of money from the funds in court.

Associate:

Dated:    18 April 2016