Federal Court of Australia

Porter Finance Australia Pty Ltd v Trenel Pty Ltd (in liq), in the matter of Trenel Pty Ltd (Administrators Appointed) [2024] FCA 1359

ORDERS

THE COURT ORDERS THAT:

1.    The defendants pay the plaintiff’s costs of and incidental to the proceedings up to and including 6 November 2024 on the indemnity basis.

2.    The defendants pay the plaintiff’s costs since 6 November 2024 on the ordinary basis.

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

REASONS FOR JUDGMENT

JACKMAN J:

Introduction

1    These proceedings concern a claim by the plaintiff (Porter Finance) pursuant to s 123 of the Personal Property Securities Act 2009 (Cth) (PPSA) in respect of equipment over which it holds a first-ranking security interest. The first defendant (Trenel) had possession of the Porter Goods until at least 6 November 2024, and the second defendants (Liquidators) are the liquidators of Trenel. The original customer of Porter Finance in relation to the finance which gave rise to the security interest was Sloans Sands Pty Ltd (in liq) (Sloans), which is the third defendant. Sloans and Trenel are related companies. On about 2 October 2023, Trenel acquired the Porter Goods from Sloans as reflected in documents entitled “Assignment of Finance Agreement”, although an issue in the proceedings concerns whether the transaction was properly described as an assignment rather than a novation. A New Zealand company known as Porter Finance Limited was referred to in that document as “the Assignor”, although the evidence indicates that that was a mistake and the reference should have been to Porter Finance.

2    On 6 November 2024, the parties provided orders by consent declaring that Porter Finance is entitled to take possession of the Porter Goods, and ordering that the defendants are to do all things reasonably necessary and within their power and control to provide Porter Finance with unimpeded access to the Porter Goods for the purposes of their collection. Those orders were formally entered on 8 November 2024. In effect, those consent orders represented a completely successful outcome for Porter Finance in the proceedings.

3    However, the parties have not been able to reach agreement on the question of costs. That issue is the subject of the present judgment.

The parties’ positions in the underlying proceedings

4    On 14 May 2024, the solicitors for Porter Finance, ClarkeKann, wrote to the Liquidators advising that Porter Finance intended to take possession of the Porter Goods. The solicitors acting for Trenel and the Liquidators, Wallmans, stated that they would write to ClarkeKann the following day setting out their clients’ position in relation to Porter Finance’s security interest.

5    Having not received the promised correspondence, on 28 May 2024 ClarkeKann sent correspondence to Wallmans seeking confirmation that the Liquidators acknowledged Porter Finance’s security interests over the Porter Goods and seeking consent for Porter Finance to exercise its interest in the Porter Goods. On 5 June 2024, Wallmans responded to the effect that, in their view, Porter Finance was an unsecured creditor of Trenel, and asserting that Trenel acquired the Porter Goods free of the original security interests granted by Sloans which they claimed had been discharged upon the “refinancing” from Sloans (as the original borrower) to Trenel (as the new borrower). The Liquidators then continued to take steps to sell the Porter Goods and refused to undertake not to do so. As at 14 June 2024, the Porter Goods had been delivered to Pickles Auctions.

6    On 6 June 2024, ClarkeKann wrote to Wallmans by email explaining that Porter Finance amended its security interests registered in the PPSA with respect to the Porter Goods to reflect the assignment by Sloans to Trenel, as required by s 34 of the PPSA, and thus Porter Finance maintained a continuously perfected security interest in the Porter Goods. The email also pointed out that under the assignment, Trenel assumed the obligations under the finance agreements between Porter Finance and Sloans, and that liability was redocumented by way of a finance agreement dated 18 March 2024. Accordingly, ClarkeKann stated that Porter Finance is a secured creditor of Trenel and its security interests in each of the Porter Goods were perfected.

7    On 17 June 2024, an Originating Process and Affidavit in support were provided to Wallmans, foreshadowing interlocutory relief to restrain the Liquidators from dealing with the Porter Goods until the final determination of the proceedings. On 18 June 2024, the Liquidators provided a written undertaking to Porter Finance not to take steps to sell the Porter Goods without providing seven days' notice.

8    On 2 July 2024, Wallmans sent an email to ClarkeKann pointing out several issues with the assignments of finance agreements, namely (a) that the Assignor was stated to be Porter Finance Limited rather than Porter Finance Australia Pty Ltd, (b) that an assignment can only be of benefits not of obligations, and (c) that an assignment of obligations would be a novation not an assignment. The email referred to the finance agreement dated 18 March 2024 between Porter Finance and Trenel, which spoke of “refinance” of the goods on and subject to the Porter Group Master Terms and Conditions dated 1 November 2022 (Master Terms), which post-dated the initial grant of security interests by Sloans to Porter Finance. The email then stated that that document “strongly suggests the grant by Trenel of fresh security interests on 18 March 2024, in replacement of whatever legacy security interests Sloans had granted and that may have carried over when Trenel acquired the goods from Sloans”.

9    ClarkeKann responded later that day, referring to s 21 of the PPSA and stating that there was no obligation on Porter Finance to register a fresh security interest. The email stated that the collateral was properly described by the existing security interest, and s 21 applies such that even if Wallmans’ analysis were correct and a new security interest were created by the 18 March 2024 agreement, that security interest was perfected.

10    On 25 July 2024, ClarkeKann informed Wallmans that it would press on with the Originating Process if the Liquidators continued to refrain from providing Porter Finance with its consent to repossess the Porter Goods. However, the Liquidators did not change their position and these proceedings were commenced on 30 July 2024.

11    It should be observed at this point that, on the case articulated in the Liquidators’ opening written submissions dated 20 September 2024, the Liquidators contended that it was Sloans and not Trenel which purportedly maintained ownership and possession of the Porter Goods at all material times. On that view of the transactions, the Liquidators’ contention that Porter Finance had to establish a valid registered security interest granted by Trenel in order to maintain a claim was entirely beside the point. I note that this contention in the Liquidators’ opening written submissions was contrary to their earlier position that Trenel acquired the Porter Goods from Sloans, as stated in the 2 July 2024 email by Wallmans.

Case management hearings and conduct of the proceedings

12    At the first case management hearing on 8 August 2024, the Liquidators sought unsuccessfully to have the matter pleaded and proposed a relatively lengthy timetable.

13    At the second case management hearing on 9 September 2024:

(a)    the Liquidators refused to provide their consent for Sloans to be joined to the proceedings, despite the evidence of one of the Liquidators to the effect that Sloans continued to own the Porter Goods;

(b)    I ordered that Sloans be joined as the third defendant to the proceedings and made orders, among others, for Sloans to file and serve any affidavits and written submissions on which it sought to rely by 20 September 2024.

14    On 20 September 2024, in breach of the Court’s orders of 8 August 2024 (requiring the first and second defendants to file written submissions by 6 September 2024), the Liquidators filed and served their written submissions. In those submissions, Trenel and the Liquidators advanced the argument that the purported assignments by Sloans to Trenel were actually novations with the claimed result that Sloans was released from its obligations under the original contract, such that from 2 October 2023, Porter Finance ceased to have rights against Sloans in respect of the Porter Goods and there was no security interest to attach to those goods as against Sloans. As indicated above, the Liquidators’ position as at 20 September 2024 was that Trenel did not enter into actual possession of the Porter Goods, which remained in the possession of Sloans.

15    On 24 September 2024, ClarkeKann sent an email to Wallmans requesting details of Sloans’ legal representatives. In response, Wallmans unhelpfully directed ClarkeKann to correspond with Mr Otway (one of the Liquidators) directly in his capacity as a liquidator of Sloans.

16    On 27 September 2024, ClarkeKann wrote to the Liquidators in their capacity as liquidators for Sloans and sent a copy of the documents filed with the Court together with the orders made on 9 September 2024. This should not have been necessary, given that the Liquidators were also the controlling minds of Sloans and were plainly aware of the orders made by the Court as parties to those proceedings, but ClarkeKann had been put to the task by reason of the unhelpful position that Wallmans had adopted.

17    On 21 October 2024, ClarkeKann served Porter Finance’s reply written submissions, an affidavit in reply by Mr Luoni and a copy of its then proposed Amended Originating Process. On 22 October 2024, the Liquidators reiterated their position that the matter ought to proceed by way of pleadings given Porter Finance’s proposed amendments to the Originating Process.

18    On 24 October 2024, ClarkeKann received correspondence from the solicitors for Sloans, Lynch Meyer, and proceeded to exchange a series of correspondence in which Sloans:

(a)    criticised ClarkeKann for not having served them with a copy of the orders made on 9 September 2024 until 27 September 2024;

(b)    supported the Liquidators’ proposal that the matter proceed by way of pleadings; and

(c)    in the event that the Court did not agree with the Liquidators for the matter to proceed by way of pleadings, confirmed that they would seek an order extending the time for Sloans to file and serve any affidavits and written submissions which it intended to rely on.

19    The matter was relisted before me on 30 October 2024. The Liquidators reiterated that the matter ought to proceed by way of pleading and attempted to push the timetable for hearing out to March 2025. Sloans appeared to abandon the position which I have summarised in the previous paragraph at the 30 October 2024 case management hearing.

20    On 6 November 2024, a week before the final hearing of the matter, the defendants effectively capitulated, and orders were entered accordingly on 8 November 2024. The defendants attribute their capitulation to the new claims made in the Amended Originating Process relating to rectification (substituting Porter Finance for Porter Finance Limited in the assignments of finance agreements), a separate claim that the defendants are estopped from asserting ownership of the Porter Goods by reason of representations made in the assignments of finance agreements, and in the alternative an order for the rescission of each of the assignments of finance agreements.

Unreasonableness of defendants’ conduct

21    In my view, the Liquidators on behalf of themselves, Trenel and Sloans have acted unreasonably in asserting that Porter Finance did not have a security interest over the Porter Goods, and in having attempted to sell the Porter Goods themselves. The most cogent argument advanced by the defendants in support of their position concerns whether the documents entitled “Assignment of Finance Agreement” are properly regarded as assignments of any of the property or contracts by Sloans to Trenel, rather than novations, but ultimately nothing turns on that question. If there was no formal assignment, then Trenel took possession of encumbered property from Sloans, and the taking of mere possession of personal property does not defeat or extinguish any security interest held over the underlying equipment. Trenel would have to establish one of the “taking free” provisions pursuant to Part 2.5 of the PPSA if it sought to assert that it took its interest in any of the relevant equipment free from Porter Finance’s security interest. If there was a formal assignment (and Trenel’s subsequent conduct in entering into the agreement with Porter Finance of 18 March 2024 suggests that there was), then the “new grantor” of the security interest became Trenel regardless of whether or not Trenel took physical possession of the underlying equipment, and Porter Finance complied with its obligation to ensure that it was properly perfected as against the “new grantor” pursuant to s 34 of the PPSA. Even if the amendments to the registrations occurred before the arrangements between Sloans and Trenel were finalised, s 151(1) of the PPSA expressly provides for the ability of a secured party to pre-perfect a security interest. If (which appears very unlikely) Sloans in fact retained possession of the Porter Goods at all material times, then the representations implicit in the documents entitled “Assignment of Finance Agreement” must have been false to Sloans’ knowledge and thus liable to be set aside, such that Porter Finance’s rights over the Porter Goods in Sloans’ possession remained intact.

22    Nothing in the documents entitled “Assignment of Finance Agreement” could conceivably be regarded as evincing an intention to discharge Porter Finance’s security interest. While it appears that Porter Finance intended to release Sloans from its obligations to make payments pursuant to the Finance Agreement, given that Trenel was now to be the party liable to make those payments, it would be absurd to suppose that Porter Finance intended to release its security interest over the Porter Goods.

23    The claim for rectification made in the Amended Originating Process was aimed at remedying an error in the documents entitled “Assignment of Finance Agreement”, but in my view the claim was not necessary and the defendants should have conceded that Porter Finance held a valid security interest over the Porter Goods well before that claim was made. First, the security interest in question was originally granted by Sloans to Porter Finance and duly registered as such, and that interest was subsequently maintained upon the transfer to Trenel by compliance with s 34. Second, the error was an obvious one even without the benefit of Mr Luoni’s affidavit of 21 October 2024, given that (a) all of the original finance agreements (which were provided to the Liquidators) were with Porter Finance, not with Porter Finance Limited; and (b) the re-documentation of the Finance Agreement on 18 March 2024 was expressly between Porter Finance (not Porter Finance Ltd) and Trenel.

24    The unreasonableness in the substantive position taken by the defendants was compounded by the unreasonableness of the defendants in seeking to protract and delay the determination of the proceedings.

Relevant legal principles and their application

25    In Chapman v Luminis Pty Ltd [2003] FCAFC 162 at [7], Beaumont, Sundberg and Hely JJ referred to the following general principles in relation to the making of costs orders in circumstances such as the present:

(a)    Where a proceeding terminates before there has been a hearing, the Court should not resolve the issue of costs by engaging in something in the nature of a hypothetical trial: Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194 at 201 (Hill J).

(b)    This does not mean that a Court can never make an order for costs. Often it will be unable to do so, but in other cases an examination of the reasonableness of the conduct of the parties may provide the basis for an order, or a judge may be confident that one party was almost certain to have succeeded if a matter had been fully tried: Re Minister for Immigration & Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 at 625 (McHugh J).

(c)    A distinction is to be drawn between cases in which one party after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court’s discretion otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs: ONE.TEL Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 171 ALR 227 at [6] (Burchett J).

26    In my view, the present case falls within the first of the two categories referred to in subpara (c) above. Further, as I have explained above in relation to the unreasonableness of the defendants’ conduct, there is a sufficient basis in the present case for the making of a costs order despite the fact that the substantive proceedings came to an end before the final hearing.

27    In relation to the making of costs orders against liquidators, the authorities and principles were helpfully analysed by Rees J in Re Azmac Pty Ltd (in liq) (No 2) [2020] NSWSC 363; (2020) 145 ACSR 443 at [3]–[20], in which the following principles were stated:

(a)    If proceedings are brought by a liquidator in relation to a company’s affairs and those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally: Silvia v Brodyn Pty Ltd [2007] NSWCA 55; (2007) 25 ACLC 385 at [50] (Hodgson JA, with whom Ipp and Basten JJA agreed). The rationale is that a liquidator should not be entitled to an immunity which is not conferred on other litigants, and should be treated analogously with a trustee or a personal representative who institutes proceedings and has a right of indemnity out of the estate which he or she represents but who litigates at his or her own risk.

(b)    If proceedings brought against a liquidator are successful, a costs order will ordinarily be made in such a way that the liquidator does not incur any personal liability: Silvia v Brodyn Pty Ltd at [52]. The rationale is that a liquidator cannot protect himself or herself against claims being made, and must be entitled to defend himself or herself without being subjected to the risk of having costs awarded personally, as otherwise it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies.

(c)    Where a liquidator defends proceedings on behalf of the company in liquidation, a costs order may be made against the liquidator personally in “exceptional circumstances”, being where the liquidator’s opposition to the relief sought was, in the circumstances, unreasonable, unnecessary or dishonest: Mead v Watson (as Liquidator for Hypec Electronics) [2005] NSWCA 133; (2005) 23 ACLC 718 at [16] (Sheller, Ipp and Tobias JJA), by analogy with the position of a trustee in bankruptcy as explained by Bowen LJ in Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 562 to the effect that trustees ought not be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness. That standard was approved in relation to a trustee in bankruptcy in Adsett v Berlouis (1992) 37 FCR 201 at 211–12 (Northrop, Wilcox and Cooper JJ). The New South Wales Court of Appeal in Mead v Watson at [14] said that a degree of personal misconduct or wilful recklessness on the part of the liquidator was not required, and that mere negligence or mistake or the incurring of costs unreasonably or unnecessarily was sufficient to constitute the relevant degree of impropriety to justify an order that the costs be paid by the liquidator personally. Mead v Watson was followed in Silvia v Brodyn Pty Ltd at [54].

(d)    In circumstances where the liquidator is a defendant or not even a party to the proceedings but provoked the litigation such that he or she should be treated as a plaintiff and thus not entitled to the protection afforded by the need to show “exceptional circumstances”, then the Court will order costs against the liquidator personally, although such an order, without more, may not preclude the liquidator from being indemnified from the assets of the company in liquidation. Rees J at [9]–[14] identified three cases where such an order has been made: Commissioner of Taxation v Warner (No 2) [2015] FCA 1281; (2015) 244 FCR 498 (Perry J); AMC Commercial Cleaning (NSW) Pty Ltd v Coade (No 2) [2013] NSWSC 332 (Rein J); and Lum v MV Developments (Lane Cove) Pty Ltd (in liq) [2016] NSWSC 1248 (Darke J).

28    In my view, the present case falls within the principle stated in subpara (d) of the previous paragraph. As Porter Finance submits, it was the Liquidators’ refusal to allow Porter Finance access to the Porter Goods which caused proceedings to be commenced. By asserting the position that Porter Finance was an unsecured creditor and that its first-ranking security was invalid, the Liquidators provoked the litigation and should be treated as the moving party. In any event, in my view, the conduct of the Liquidators was unreasonable within the meaning of the principle referred to in subpara (c), for the reasons given above.

29    The evidence shows that the Liquidators sought legal advice before adopting the stance which they did (as reflected in an email by Mr Otway to Mr Luoni of 30 October 2024). It has been said in the context of the costs consequences of a refusal to accept an offer of compromise that it is irrelevant whether a liquidator obtained and followed legal advice: Lum v MV Developments (Lane Cove) Pty Ltd (in liq) (No 2) [2018] NSWSC 1129 at [73] (Emmett AJA). It is not necessary for me to decide whether the same is true of an application for costs against a liquidator which is made on the ground of unreasonable conduct by the liquidator more generally, rather than a refusal to accept an offer of compromise in particular. In Maylord Equity Management Pty Ltd v ReelTime Media Limited (No 2) [2008] NSWSC 1133 at [11], Palmer J made personal costs orders on an indemnity basis against administrators who were not parties to the proceedings on the ground that they were acting unreasonably, saying that even if the administrators relied upon legal advice in doing so, they ought to have recognised that the result which they embraced was inconsistent with common sense and ordinary notions of fairness which, despite what any legal adviser may say, are reliable guides to what is a sound legal conclusion. In my view, the present case is similar, in that even if the Liquidators followed legal advice in contending that the security claimed by Porter Finance was invalid, that would have been contrary to common sense and ordinary notions of fairness, for the reasons I have given above.

30    As to whether costs should be awarded against the Liquidators on the indemnity basis, while the Court’s discretion is broad, there must be some special or unusual feature of the case justifying such an award. One such case is where a party persists in what should have been seen to be a hopeless case: Mead v Watson at [8]. Put differently, indemnity costs are available where allegations or contentions are made that ought never have been made or the case has been unduly prolonged by groundless contentions: Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 at 233 (Sheppard J).

31    In my view, for the reasons given above in relation to the unreasonableness of the Liquidators’ conduct, I regard the present case as falling within those principles. Accordingly, in my view it is appropriate that an award of indemnity costs be made against the Liquidators. The same order should be made against Trenel and Sloans, although it appears unlikely that they will have the wherewithal to satisfy the order.

32    Porter Finance also relied on a number of offers of compromise which it made, including an offer on 6 September 2024 which involved the Porter Goods being returned to them and the defendants paying Porter Finance 50% of its costs incurred at that time, being a sum of $45,000. The offer was marked “Without prejudice save as to costs” pursuant to the principles set out in Calderbank v Calderbank [1975] 3 All ER 333. That offer represented a better result for the defendants than the ultimate outcome. Accordingly, if I had not regarded the Liquidators’ conduct as otherwise unreasonable, such that the Liquidators would have been liable for costs on the ordinary basis, I would have ordered that they pay Porter Finance’s costs on an indemnity basis after 6 September 2024.

33    As to the form of the order, the preferred alternative advanced by Porter Finance is an order that the defendants pay its costs of and incidental to the proceedings on the indemnity basis, except in relation to the costs of and incidental to the argument in respect of costs, which are to be assessed on the ordinary basis. As a matter of substance, I regard Porter Finance as entitled to orders to that effect. However, as a matter of form, there may be a difficulty in separating out the two categories of costs in that much of the argument before me in relation to the appropriate costs order referred back to the evidence and written submissions for the hearing of the underlying dispute. Accordingly, for the sake of clarity and ease of application, the orders which I make distinguish between the period up to and including 6 November 2024 when the consent declaration and order were agreed, and the period afterwards. Costs incurred in the latter period would appear to have been directed to the question of costs only.

Associate:

Dated:    26 November 2024