13 Coromandel Place Pty Ltd v C L Custodian Pty Ltd [2004] NSWSC 798 | Case summary

3173/02 APPLICATION OF RODERICK MACKAY SUTHERLAND JUDGMENT - Ex Tempore; revised 30 August 2004 1 HIS HONOUR: I delivered judgment in this matter on 24 November 2003: Re French Caledonia Travel [2003] NSWSC 1008; (2003) 48 ACSR 97; (2003) 204 ALR 353; (2003) 22 ACLC 498. The problems dealt with in the judgment all related to the administration of two trust funds held by a company which was placed first into administration, then into liquidation. 2 Part of the judgment related to an application by Mr Sutherland, the liquidator of the company, for remuneration. A contention which he put, and which I rejected in the judgment, was that he was entitled to be paid, from the two trust funds which were in dispute, all expenses of whatever nature which he incurred in connection with the liquidation, whether those expenses were related to the administration of the trust funds or not. He likewise contended, and I did not accept, that he should be allowed remuneration for all his activities concerning the winding up of the company from those trust funds, whether or not the work being paid for was in connection with the administration of the trusts or not. 3 At paragraphs [194] - [217] of the earlier judgment I gave reasons why I did not accept that contention. I concluded, however, that Mr Sutherland had an entitlement to be paid remuneration, and recover expenses which had been properly incurred in administering the trust funds, from those trust funds. I gave leave for him to make such further application as he might be advised to claim such remuneration, costs, charges and expenses. 4 The matter is before me today on an application by Mr Sutherland for allowance of such remuneration, costs, charges and expenses. 5 In my earlier judgment I dealt with questions of principle about the circumstances in which a liquidator can be remunerated if he comes to have practical control of a fund of which the company of which he is liquidator is trustee. Today's application requires a closer focus on both the principles and the procedures through which such an entitlement to remuneration is vindicated. 6 The winding up in question is a creditor's voluntary winding up. Usually, in a creditor's voluntary winding up, the remuneration of a liquidator is allowed pursuant to section 499(3) Corporations Act 2001 (Cth). It provides: "The committee of inspection, or, if there is no such committee, the creditors, may fix the remuneration to be paid to the liquidator." 7 In a creditor's voluntary winding up that power of the committee of inspection, or the body of creditors, is subject to section 504 Corporations Act 2001 (Cth), which states: "Any member or creditor, or the liquidator, may at any time before the deregistration of the company apply to the Court to review the amount of the remuneration of the liquidator, and the decision of the Court is final and conclusive." 8 The predominant role given to the creditors in determining the remuneration of the liquidator, in an ordinary creditors voluntary winding up, is consistent with its not being a winding up by the Court. Because the liquidator in a creditor's voluntary winding up is not an officer of the Court, any power of the Court to allow him remuneration derives, in the case of an ordinary creditor's voluntary winding up, from the statute, not from the Court's supervisory jurisdiction over its own officers: Clutha v Millar (No 5) (2002) 43 ACSR 295; (2003) 21 ACLC 1; [2002] NSW SC 833. By contrast, in a winding up by the Court the Court has both a statutory power to fix the remuneration of the liquidator, under section 473(3) - (6) Corporations Act 2001, and also an inherent power.

9 The evidence on today's application reveals that part of the work which Mr Sutherland did in administering the trusts was carried out while he was the administrator of the company, and before he became liquidator. Under section 449E Corporations Act 2001, the entitlement of an administrator to remuneration depends first on a resolution of the company's creditors, though if no remuneration is fixed, or if the Court is asked by a person with standing to review any amount of the administrators remuneration, it is ultimately the Court which fixes it. The power that the Court there exercises is purely a statutory one. 10 The basis upon which the Court acts in allowing remuneration to either a liquidator in a creditor's voluntary winding up, or a company administrator who in the course of that winding up or administration administers trust funds, derives in part, it seems to me, from the Court's inherent jurisdiction in relation to trust funds. 11 Although generally a trustee is not entitled to remuneration for his time and trouble in execution of the trust, there is an inherent equitable jurisdiction to allow a trustee remuneration, which is usually exercised sparingly and in exceptional cases: In Re Worthington, decd; Leighton v MacLeod [1954] 1 WLR 526. This inherent jurisdiction can be exercised in circumstances such as where the duties are extensive and the trustee can perform them only by seriously sacrificing his own interests (Marshall v Holloway (1820) 2 Swans 432 at 452-3, 36 ER 681 at 689; Re Cox's Will (1890) 11 LR (NSW) Eq 124), where the trustees are not prepared to act without being remunerated and no alternative trustees can be found (In re Freeman's Settlement Trusts (1887) 37 Ch D 148), or where it is otherwise advantageous to the trust estate to allow the remuneration (Plomley v Shepherd (1896) 17 LR (NSW) Eq 215; Johnston v Johnston (1903) 4 SR (NSW) 8 at 11-12). In exercising that jurisdiction one factor that the Court takes into account is whether there is really any practical alternative to allowing the remuneration: even before the time when there were trustee companies who were authorised to act as trustees for a remuneration, the Court recognised that if no trustee could be found who was willing to act without remuneration, the alternative was for the trust to be administered by the Court, in which case it was "at best unprofitably invested and generally frittered away": Richardson v Allen (1870) 10 SCR (Eq) 1 at 3; Re Cox's Will (1890) 11 LR (NSW) Eq 124 at 126. 12 The Court's inherent jurisdiction to allow remuneration to a trustee is wide. It exists whether the appointment of the trustee was made by the Court or not: In Re Masters, decd [1953] 1 WLR 81. It extends to allow the Court to approve the retention of remuneration for future work done, as well as past work done: Nissen v Grunden (1912) 14 CLR 297 at 307-8; In re Keeler's Settlement Trusts [1981] 1 Ch 156 at 161-2; Re White; Tweedie v Attorney-General (2003) 7 VR 219 at 233. It allows the court to authorise payment of remuneration at a higher rate than that originally allowed by the trust instrument: In Re Duke of Norfok's Settlement Trusts; Perth (Earl) v Fitzalan-Howard [1982] Ch 61. It extends to allowing remuneration to constructive trustees: Boardman v Phipps [1967] 2 AC 46; In re Jarvis, decd; Edge v Jarvis [1958] 1 WLR 815 at 820. It extends to permit the Court to allow remuneration to a trustee for work he does in acting as director of a company in which the trust funds are invested: In re Keeler's Settlement Trusts [1981] 1 Ch 156 at 162. Whether the jurisdiction is actually exercised in any particular factual circumstances is, of course, a completely separate question to whether the jurisdiction exists. 13 The usual situation in which that inherent jurisdiction comes to be applied is when it is the trustee who asks that the Court approve remuneration. In the present case, the trustee is the company in liquidation, not the liquidator himself. The cases to which I had referred in my earlier judgment as allowing remuneration to a liquidator who administers trusts ( In re Berkeley Applegate (Investment Consultants) Ltd (In Liquidation); Harris v Conway [1989] 1 Ch 32; Re Eastern Capital Futures LTB (1989) 5 BCLC 223; re G B Nathan & Co Pty Ltd (In Liq) (1991) 24 NSWLR 674; 13 Coromandel Place Pty Ltd v C L Custodian Pty Ltd (in liq) (1999) 30 ACSR 377), clearly accepted that the jurisdiction of the Court to make an allowance to the person in fact administering a trust fund permitted a payment to be made to a liquidator. 14 Those cases implicitly accept that the inherent jurisdiction of the Court to allow remuneration in connection with the administration of a trust fund is one which can apply so as to allow remuneration not only to a trustee, but also to someone who is for practical purposes controlling a trustee. 15 In permitting remuneration to a liquidator who administers trust funds, the decision in In re Berkeley Applegate also invoked another equitable principle, applicable outside trust law as well as inside it, that (at 50): ".. where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property." 16 The inherent power to allow remuneration to a person administering a trust fund, as well as the wider equitable principle which I have just referred to, justify the payment of remuneration and expenses for both work done while Mr Sutherland was administrator, and also while he was liquidator. There was no practical alternative available, of having the trusts administered by someone who would act gratuitously, and the work needed to be done by someone if the trusts were to be administered at all. 17 It is because it is an inherent equitable jurisdiction which is being exercised, in allowing payment of remuneration and expenses in the present case, that a procedure needs to be crafted which can give effect to it. The circumstances in which a liquidator appointed by the Court is allowed remuneration by the Court provides a precedent which can be readily adapted to the present circumstances. However, one needs to bear in mind that the power being exercised is the inherent power concerning administration of trusts. 18 The liquidator has filed evidence which shows that he has conducted an analysis of all the costs which were incurred through the period of his appointment as, first, administrator, then as liquidator of French Caledonia Travel Service Pty Ltd. In that analysis, he has identified items of work which are attributable to the following tasks. "(a) Identifying the trust accounts; (b) Obtaining control of the trust funds in the trust accounts; (c) Dealing with the Commonwealth Bank in relation to the trust accounts; (d) Dealing with persons who claim to have deposited monies to the trust account; (e) Dealing with persons who claimed to have paid monies, or caused monies to be paid to FCTS; (f) Convening meetings of creditors of FCTS, including all those who claimed to have paid monies to FCTS and/or deposited monies to the trust account; (g) Reviewing the claims of persons and organisations to the monies held in the trust account including: (i) IATA; (ii) Qantas Airways; (iii) The Travel Compensation Fund; (iv) The director; (v) Other claimants. (h) Instructing my solicitors to advise in relation to the various claims in relation to the trust account; (i) Instructing my solicitors to commence these proceedings to seek directions in relation to the trust accounts and assisting my solicitors in the preparation of evidence to be used in that application; (j) Acting in accordance with the directions of the court to cause a notice pursuant to section 60 of the Trustee Act 1925, to be issued, advertised and published seeking claims to the monies in the trust accounts. (k) Reviewing all claims received in response to the advertisement and publication of the notice inviting claims; (l) Reading and considering the judgments of this Honourable Court." 19 Those tasks are all ones which fall within the scope of administering the various trusts. For the purpose of the present application, there has been no examination of whether the liquidator has correctly allocated, to the tasks described, particular items of work. I have formed no view about whether that allocation has or has not been done correctly - the liquidator's performance of it has simply not been examined. 20 In the present circumstances, it seems to me that it is appropriate to adopt a procedure whereby if those people with the largest interest in the trust fund wish to contest either the detail of the liquidator's allocation of work done by him to categories relevant to the administration of the trusts, or the reasonableness of the basis of remuneration claimed for performing those tasks, there should be an opportunity for them to do it. Such opportunities are provided to creditors in the procedures which the Court ordinarily adopts when a liquidator, in a winding up by the Court, seeks approval of his remuneration and expenses. As well, even if no beneficiary objects, it is appropriate for the detail of the liquidator's claim for remuneration to be examined by the Registrar of the Court. The Registrar has extensive experience of what is reasonable and proper remuneration for tasks such as those which the liquidator has performed. The claim should be allowed only to the extent that the Registrar, after assessment, approves it. 21 I propose to adopt a procedure - which, I should say, Mr Sutherland himself has suggested - which allows the possibility of his claim being objected to, and any specific objections determined by the Registrar, and the claim as a whole being assessed by the Registrar, in an analogous way to the procedure adopted when a liquidator appointed by the Court seeks approval of his remuneration. 22 For those reasons, I make the following orders: "In these orders the Second Applicant is referred to as 'FCTS'. The Court: 1. Orders that the First Applicant be paid from the funds held in the trust accounts of FCTS ("the trust accounts") such remuneration as the court shall approve in respect of his administration of the trust accounts, including: (a) Identifying the trust accounts; (b) Obtaining control of the trust funds in the trust accounts;. (c) Dealing with the Commonwealth Bank in relation to the trust accounts; (d) Dealing with persons who claimed to have deposited monies to the trust account; (e) Dealing with persons who claimed to have paid monies, or caused monies to be paid to FCTS; (f) Convening meeting of creditors of FCTS, including all those who claimed to have paid monies to FCTS and/or deposited monies to the trust account; (g) Reviewing the claims of persons and organisations to the monies held in the trust account including: (i) IATA; (ii) Qantas Airways; (iii) The Travel Compensation Fund; (iv) The director of the second applicant; (v) Other claimants. (h) Instructing solicitors to advise in relation to the various claims in relation to the trust accounts; (i) Instructing solicitors to commence these proceedings to seek directions in relation to the trust accounts and assisting solicitors in the preparation of evidence to be used in that application; (j) Acting in accordance with the directions of the court to cause a notice pursuant to section 60 of the Trustee Act 1925, to be issued, advertised and published seeking claims to the monies in the trust accounts. (k) Reviewing all claims received in response to the advertisement and publication of the notice inviting claims; (l) Reading and considering the judgments of this Court. (2) Directs that the matter be referred to the Registrar for assessment of the First Applicant's proper remuneration. (3) Directs that the First Applicant file an interlocutory process seeking an order for the amount of any remuneration sought by the First Applicant. (4) Directs that, subject to these orders, the Registrar assess any application for remuneration lodged by the First Applicant as though it were an application by an Official Liquidator for approval of his or her remuneration. (5) Directs that at least 21 days before filing the interlocutory process seeking the order, the First Applicant must serve, on each of the 5 largest (measured by amount of debt) claimants on the trust accounts: (a) a notice in accordance with Form 16 of the Supreme Court (Corporations) Rules Forms amended as necessary to refer to the position of FCTS as trustee of the trust accounts; and (b) a copy of any affidavit upon which the First Applicant intends to rely; and (c) a copy of these orders. (6) Directs that within 21 days after the last service of the documents mentioned in paragraph 5, any trust claimant may give to the First Applicant a notice of objection to the remuneration claimed, stating the grounds of objection. (7) Directs that if the First Applicant does not receive a notice of objection within the period mentioned in paragraph 6: (a) The First Applicant may file an affidavit, made after the end of that period, in support of the interlocutory process seeking an order stating: (i) The date, or dates, when the notice, affidavit and orders required to be served under paragraph 5 were served; and (ii) That the First Applicant has not received any notice of objection to the remuneration claimed within the period mentioned in paragraph 6; and (b) The First Applicant may endorse the interlocutory process with a request that the applicant be dealt with in the absence of the public and without any attendance by the First Applicant; and (c) The application may be so dealt with. (8) Directs that if the First Applicant receives a notice of objection within the period mentioned in paragraph 6, the First Applicant must serve a copy of the interlocutory process seeking the order on each trust claimant who has given a notice of objection. (9) Directs that any affidavit in support of the interlocutory process seeking the order must: (a) state the nature of the work carried out by the First Applicant; and (b) state the amount of remuneration claimed; and (c) include a summary of the receipts taken and payments made in respect of the trust accounts by the First Applicant for the period for which remuneration is claimed; and (d) state particulars of any objection of which the First Applicant has received notice. (10) Orders that the First Plaintiff's costs and expenses of these proceedings be paid from the trust accounts." **********

13 Coromandel Place Pty Ltd v C L Custodian Pty Ltd

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