Combis & Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation) v Lee

These proceedings commenced on 20 December 2018. The plaintiff sought possession of land in two folios situated at Sapphire Road, Gunning. The statement of claim also sought an order that the defendant pay to the plaintiff the sum of $293,643.87.

The basis for the claim was liability under a General Deed of Indemnity and a Deed of Variation entered into by the defendant with the plaintiff. In addition, the amounts said to be owing under the deeds were secured by a mortgage given by the defendant to the plaintiffs.

The plaintiffs were liquidators of a company called RB Hospitality Holdings Pty Ltd. The defendant was the sole director and a 50% shareholder of the company. On 20 February 2015 the plaintiff was wound up and the plaintiffs were appointed liquidators.

The defendant objected to the winding up and asked the plaintiffs to allow the company to continue to trade. To that end, a General Deed of Indemnity was entered into between the plaintiffs and the defendant on 5 March 2015. The Deed was varied by a Deed of Variation on 23 April 2015. The operative deed is principally the Deed of Variation.

The recitals to the Deed of Variation set out the background to the entry into the Deeds as follows:

Clause 2 of the Deed provided indemnity from the defendant. The wording of the indemnity was changed in the Deed of Variation. The defendant relies on the change of wording to support a construction argument he wishes to raise. The indemnity clause from the original Deed provides:

The indemnity clause in the Deed of Variation reads in this way:

Clause 4 of the original Deed was the provision of security by the defendant. In its amended form from the Deed of Variation it provides:

Clause 5 of the original Deed dealt with default. It was amended in the Deed of Variation to read as follows:

Liabilities is defined in the Deed of Variation as meaning:

Remuneration is defined as including:

Paragraphs 11-14 of the statement of claim provided:

The defendant admitted paragraph 11, denied paragraphs 12 and 14, and did not admit paragraph 13. The defendant provided particulars of its denial of paragraph 12(a) as follows:

The defendant also provided particulars of its denial of paragraph 12(b) as follows:

Subsequently, the defendant’s solicitor indicated that paragraph (d) (in each case) of the Particulars was no longer relied upon.

By a notice of motion filed 10 June 2020 the defendant sought, pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW), that the Court make orders for the hearing of threshold issues in the matter as follows:

The affidavit in support of the motion said that the threshold issues were questions of law and would not require witnesses to be called or issues of credit to be determined. The affidavit said that if findings were made in the defendant’s favour on the threshold issue, such findings would bring the proceedings to an end. It was said that settlement would be more likely to be achieved if the threshold issues were determined first. It was said that the cost of expensive expert evidence could be avoided completely if the threshold questions were determined in the defendant’s favour. The last matter was an indirect reference to the fact that the defendant had, in a notice of motion filed 13 March 2020, sought a reference to a referee for enquiry and report on the questions of the reasonableness and proportionality of the liquidators’ fees of $183,019.54 claimed in the statement of claim, and the amount of $110,624.33 being the unpaid surplus claimed in the statement of claim. During the hearing of that earlier notice of motion, the defendant sought to amend to seek the relief in the present motion. I adjourned the hearing of the earlier motion so that a new motion seeking a separate hearing under r 28.2 could be filed.

During the hearing of the present notice of motion, the defendant suggested that the only evidence the Court would need to look at were the deeds themselves. However, Ms Gall of counsel for the plaintiff drew attention to what was said by Leeming JA in Cherry v Steele-Park (20170 96 NSWLR 548; [2017] NSWCA 295 at [76]:

The plaintiffs submitted that evidence of the surrounding circumstances ought to be provided to the Court. This included evidence pertaining to the appointment of the liquidator, the defendant’s various requests that the liquidator continue trading the company, the termination of winding up proceedings brought by the defendant and, more generally, the surrounding circumstances to which the Court would need to have regard in order to engage in construction of the deeds. That evidence would include the fact that the defendant had paid some of the liquidator’s remuneration. That was said to be a reliance by the plaintiff on some form of estoppel and acknowledgment of liability.

The plaintiff submitted, and the defendant agreed, that if question 2(f) was altered, so that after the words “liquidator’s fees” the words “in these proceedings” were inserted to confine the enquiry to the circumstances of this case only, that would be an appropriate question for a separate determination.

At the conclusion of the parties’ submissions at the hearing of the notice of motion on 25 June 2020 I said:

I then adjourned the proceedings to 24 July 2020 so that the parties could consider what evidence or facts could be agreed for the purpose of the separate questions.

On 23 July my Associate was provided, after request by me, of the correspondence that had passed between the parties in relation to the evidence proposed to be led at the hearing of the separate questions. A letter had been sent by the plaintiff’s solicitors on 9 July 2020 identifying a large number of paragraphs in an affidavit of Steven Neville Staatz sworn 3 May 2019, some 28 annexures to an exhibit to that affidavit, a large number of paragraphs of a further affidavit of Mr Staatz sworn 28 February 2020 and two documents annexed to an exhibit to that affidavit. That evidence was extensive.

The defendant’s solicitors replied suggesting that much of the evidence the plaintiff would seek to rely on went beyond the questions for determination at the hearing of the separate question. As Mr Andrews, solicitor for the defendant, made clear in submissions, the defendant’s position was that the questions of construction could be decided on an examination of the Deed of Indemnity and the Deed of Variation. He identified in his correspondence certain parts of the affidavits which would provide the evidence of surrounding circumstances.

Short Minutes of Order were forwarded to my Associate shortly before the hearing resumed on 24 July. These orders, which were agreed between the parties, provided for the hearing of the separate questions on the basis of the evidence identified in the letter from the plaintiffs’ solicitors dated 9 July 2020 reserving to the defendant the right at that hearing to object to any of that evidence.

I reserved my decision and requested that a copy of the affidavit of Mr Staatz of 3 May 2019 be forwarded to my Associate. Later that same day, my Associate received a further email from the plaintiffs’ solicitors saying that the plaintiff now agreed to have the separate questions determined on the basis of considering only the Deed of indemnity, the Deed of Variation and the mortgage.

In Commissioner of the Australian Federal Police v Pharmacy Depot Hurstville Pty Ltd [2018] NSWSC 1284; (2018) 360 ALR 782, I set out the principles governing the making of orders under r 28.2 from three other cases, as follows:

In circumstances where the only evidence to be put before the court at any separate determination are the three identified documents, I am satisfied that it is appropriate to order that the six questions identified in the defendant’s notice of motion be determined separately from, and prior to, the final hearing of the proceedings, with an amendment being made to question (f), by inserting the words “in these proceedings” after the words “liquidator’s fees”.

My reasons are these. First, there are only two heads of claim made in the statement of claim. If neither of them is indemnified, there will be judgment for the defendant. If only one is indemnified, the plaintiffs will be entitled to judgment for possession of land because the mortgage makes it an event of default if the defendant fails to pay any money that must be paid under any agreement made between the plaintiffs and the defendant. Secondly, and relatedly, if the defendant is unsuccessful in demonstrating that the claimed amounts do not fall within the indemnity, there is a strong likelihood of a settlement of the amounts owing. This is because, as I have said, the mortgage secures any amount owing to the plaintiffs.

Thirdly, if the answer to question (f) is in the negative, the plaintiffs will be entitled to judgment for possession of the land. Further, the question is a question of law only. Fourthly, the parties agree that a final hearing will take three days. The hearing on the separate questions will take no more than one day and probably less, with consequent costs saving. If a reference to a referee is required to deal with the quantum of any claims at any final hearing, particularly in relation to the reasonableness of the liquidator’s fees, further costs will be incurred. Finally, the plaintiff now accepts that the construction argument can be dealt with by reference only to the three documents identified. In any event, the essential surrounding circumstances would appear to be made clear by the recitals to the Deed of Indemnity and the Deed of Variation.

Accordingly, I make the following orders: