Judgment
1By Originating Process filed on 14 October 2013, Messrs Peter Krejci and Martin Green as deed administrators ("Deed Administrators") of National Buildplan Group Pty Ltd (subject to deed of company arrangement) ("Company") seek directions under s 447D of the Corporations Act 2001 (Cth) and s 63 of the Trustee Act 1925 (NSW) as to the proper distribution of the funds held in a bank account maintained by the Company ("Retention Account"). The Administrators rely on affidavits of Mr Krejci dated 11 October 2013 and 11 February 2014 and Mr Costas Nicodemou dated 5 December 2013 in support of the application.
Scope of the statutory provisions
2As I noted above, the Deed Administrators seek directions under s 447D of the Corporations Act as to the proper distribution of the funds held in the Retention Account. An administrator or deed administrator's power to approach the Court for directions under this section is designed to facilitate his or her functions and should be interpreted widely to give effect to that intention, and the Court may give directions to provide guidance on matters of law or to protect the administrator against accusations that it has acted unreasonably: Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [27]ff; Re Green (as voluntary administrators of Bevillesta Pty Ltd) [2011] NSWSC 417; (2011) 254 FLR 324; 84 ACSR 215 at [10]. In Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [65], Goldberg J undertook a detailed review of the authorities as to the circumstances in which directions have been given to administrators and liquidators and summarised the relevant principle as follows:
"... the prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance."
3The principles applicable to a deed administrator's application for directions broadly correspond to those applicable to a liquidator's application for a direction in relation to a matter arising under a winding up, which I summarised in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] as follows:
"Section 479(3) of the Corporations Act allows a liquidator to apply to the Court for directions in relation to a matter arising under a winding up. The function of a liquidator's application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686-7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32]."
A direction under this section protects the administrator or deed administrator from liability for breach of duty or unreasonable behaviour if full disclosure was made to the Court: Re Ansett Australia Ltd [2002] FCA 639; (2002) 41 ACSR 605 at [45]; Re Ansett Australia Ltd and Korda above.
4In Re MF Global Australia Ltd (in liq) above, I noted that the Court's jurisdiction under s 63 of the Trustee Act at [9]:
"permits relief aimed at resolving legitimate doubts held by a trustee as to the proper course of action and protecting the trust and those entitled to it: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [70]-[71]; Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) at [39]. In this case, the Liquidators' application reflects at least a potential dispute between different claimants to the relevant client segregated accounts and the general rule is that opinion or advice will not be given under s 63 of the Trustee Act where a question concerns the respective rights of beneficiaries or their identity: J D Heydon and M J Leeming, Jacobs' Law of Trusts in Australia, 7th ed, LexisNexis Butterworths, 2006 at [2134]; Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) above at [40]."
The present case also involves issues as to the entitlements of potential claimants against the Retention Account and I will therefore proceed under s 447D of the Corporations Act rather than under s 63 of the Trustee Act.
5Several New South Wales Government entities, namely Health Infrastructure NSW, NSW Department of Finance and Services ("DFS"), NSW Department of Attorney General and Justice and NSW Department of Education and Communities ("Interested Parties") also appeared in the application. I am satisfied that each of the Interested Parties has a proper interest in order to warrant that it be heard, both as a creditor in the administration and as principal to construction contracts with the Company which are in issue in this application, so far as they are contended to require the Company to hold subcontractor retention monies in trust and/or to require the Company to deposit those monies to a trust account.
6I raised a question, at the commencement of the proceedings, as to whether there was a sufficient contradictor in respect of the application where both the Deed Administrators and the Interested Parties took a common view as to the manner in which the Retention Account should be distributed. There is evidence that creditors of the Company are on notice of the proposed application for directions from the Court as to distribution of the fund, since cl 9 of the Deed of Company Arrangement ("DOCA") (to which I will refer below) provides that the Deed Administrators shall determine, and thereafter seek Court directions in relation to, whom are the creditors for whom the Retention Account is held on trust and shall distribute the Retention Account in accordance with the directions. There is also evidence that unsecured creditors were notified of the filing of this application by a notice placed on the Deed Administrators' website and no unsecured creditor either attended Court when the matter was first listed or has given notice to the Deed Administrators of any wish to appear. In any event, as events have developed, it will be necessary for the Deed Administrators to give a further notice of the outcome of these proceedings to creditors, and I will stay the orders that I make for a period to permit any interested person to appear to be heard in respect of those orders. In these circumstances, I see no difficulty with making orders on the basis of the submissions from the parties represented before me, where the right of any unsecured creditor to appear and contend for a contrary position will be preserved.
Factual background
7The Company was, prior to the appointment of administrators, involved in the construction of residential, commercial, industrial, civil and mining infrastructure projects. The Company's creditors include employee creditors, secured creditors and unsecured creditors, including subcontractors owed payments for retention monies under the terms of the particular contract signed between each subcontractor and the Company.
8The Interested Parties engaged the Company in respect of 16 projects, under four forms of NSW government contract that were in evidence, namely GC 21 Edition 1, GC 21 Edition 2, HGC 21 and MW 21 (minor works) contracts ("Government Contracts"). I will address the terms of those contracts below. The first of the Interested Parties, Health Infrastructure NSW, engaged the Company to undertake design and construction work in relation to several projects in New South Wales under NSW Government Procurement Contracts in the form of HGC 21, GC 21 Edition 2 and a minor works contract in respect of one project. After the Company was placed in administration, Health Infrastructure NSW terminated its contracts with it, and took steps to complete incomplete projects and to rectify defects in respect of particular projects and claims to be a creditor of the Company in respect of costs incurred in doing so. The second of the Interested Parties, DFS, engaged the Company to undertake design and construction work under NSW Government Procurement Contracts in the form of GC 21 Edition 1, and in the case of two projects, under minor works contracts. Several of those contracts had been completed prior to the Company being placed in administration. DFS terminated the Company's employment under those contracts which had not been completed after the Company was placed in administration, took steps to complete the relevant projects and attend to rectifying defects and also claims to be a creditor of the Company on that basis.
9The third of the Interested Parties, the NSW Department of Attorney General and Justice, engaged the Company to undertake construction work in respect of one project also under NSW Government Procurement Contract in the form of GC 21 Edition 1, terminated the Company's engagement under that contract after it was placed in administration and engaged another entity to undertake completion of that project and also claims to be a creditor of the Company. The fourth of the Interested Parties, the NSW Department of Education and Communities, engaged the Company to undertake design and construction work in respect of one project under a NSW Government Procurement Contract in the form of GC 21 Edition 1.
10The Company initially operated a single operating account for its general operations from which it received payments from the parties for which it completed projects and paid subcontractors, and retention amounts due to subcontractors were paid out of that operating account when the relevant defects period had expired (Nicodemou [5]). The Company utilised a software program to record the amounts due to its subcontractors (Krejci [11], Nicodemou [5]). This approach did not comply with the requirements of the Government Contracts to which I have referred above, at least so far as the Company did not deposit monies received from the Interested Parties referable to retention payments to subcontractors to a separate account. In December 2012, Health Infrastructure NSW advised the Company that it required retention amounts to be held in a separate bank account. The Company subsequently sought direction from DFS as to whether there were formal guidelines as to the operation of such an account and, having been advised that there were no such guidelines, established a single account to hold retention monies for all subcontractors engaged to work in respect of the Government Contracts and continued to use its project management system to track the amounts owed to each subcontractor.
11The relevant account was opened with the ANZ Bank on 11 January 2013. Four lump sum deposits totalling $1,343,657 were subsequently made into the Retention Account and one withdrawal of $250,000 was made from that account and used for the Company's purposes.
12On 8 April 2013, the Company was placed in administration and Messrs Krejci and Green were appointed as joint and several administrators. The creditors of the Company resolved that the DOCA be executed at a second meeting of creditors held under s 439A of the Corporations Act on 30 May 2013 and that DOCA was signed on 20 June 2013. As I noted above, the DOCA provided for directions to be sought from the Court about the manner in which distributions from the Retention Account was to be distributed, as follows:
"9. Retention Account
(a) The Retention Account is held on Trust by the Company for various subcontractors. The Deed Administrator shall determine, and thereafter seek Court directions in relation to whom are the Creditors for whom the Retention Account is held on Trust and shall distribute the Retention Account to those creditors in accordance with the directions.
(b) Any distribution received by a creditor from the Retention Account shall be in addition to any right they may have to a dividend from the Deed Fund or the Creditors' Trust.
(c) The Company agrees that it will, to the extent necessary, comply with any Court directions in respect of the distribution of the Retention Account."
It will be noted that this provision proceeds on an assumption that the Retention Account is held on trust for various subcontractors, rather than being available to unsecured creditors of the Company generally. The Deed Administrators also proceeded, in their dealings with the ANZ Bank, on the basis that the Retention Account was held on trust and ANZ Bank accepted that position by not consolidating the funds in that account with other accounts of the Company in accordance with its contractual rights. That assumption seems to me to be well founded, for the reasons noted below.
13The Company's creditors include "retention creditors" which are subcontractors to the Company which have claims for amounts due to them but withheld until the expiry of a defects liability period in respect of the relevant works. Mr Krejci quantifies the claims of retention creditors generally as approximately $7,503,697.75 (Krejci 11.10.2013 [53] Ex A1 Tab 19), and expresses the understanding that project management software utilised by the Company is a reliable tool to identify the retention monies owed to such subcontractor. The amount referable to retention creditors in respect of the Government Contracts is estimated to total $2,403,065.32. It is common ground that the current balance attributable to the Retention Account, which is now held in a corresponding account at the Westpac Banking Corporation, is $1,098,859.60.
Whether the monies in the Retention Account are held on trust
14The Deed Administrators submit that the Court may properly infer that the amounts placed in the Retention Account were intended to be held in trust for the benefit of retention creditors whose debts are the subject of the Government Contracts. The Interested Parties submit that the relevant forms of Government Contract required the Company to hold subcontractor retention monies retained by it by way of security in trust and deposit those monies into a trust account. They also point out that the Company (or at least its officers) acknowledges that it opened the account with ANZ Bank for subcontractor retentions after Health Infrastructure drew that obligation to its attention in December 2012 and after making inquiries of DFS as to any guidelines for establishing and operating such an account and that the Deed Administrator's investigations indicate that the Company established the ANZ Retention Account as a single account to hold retention monies for all subcontractors engaged for work in respect of the relevant Government Contracts.
15Whether a trust exists over the monies initially held in the Retention Account and now held in the Retention Account should be determined in the manner noted by Campbell J in Re Sutherland; French Caledonia Travel Service Pty Limited (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361 at 368, ("French Caledonia"), by reference to an examination of all relevant circumstances "to determine whether the company really intended to create a trust". His Honour also drew attention to the need to identify any relevant countervailing factors.
16Relevant facts include, first, the terms of the Government Contracts. There is evidence identifying the particular contracts that were used for particular projects, but it is not necessary to address that matter in this judgment since each of the relevant forms of Government Contract provided, in somewhat different terms, that retention amounts in respect of subcontractor payments were to be held by the Company in trust. Thus, cl 31 of the GC 21 Edition 1 contract required the Company to use the form of GC 21 Subcontract conditions for all subcontracts over a specified value. That subcontract in turn provided at cl 37 that:
".7 If the Contractor receives payment under the Contract for, or on account of, work done or Materials supplied by the Subcontractor, and does not pay the Subcontractor the whole amount to which the Subcontractor is entitled under the Subcontract, the difference is held in trust for payment for the work done or Materials supplied.
.8 The Contractor must deposit all money it receives in trust under clauses 36.6 and 37.7 into a trust account in a bank selected by the Contractor no later than the next Business Day, and:
1 the money must be held in trust for whichever party is entitled to receive it until it is paid in favour of that party (subject to clause 37.5 and 67);
2 the Contractor must maintain proper records to account for this money and make them available to the Subcontractor on request; and
3 any interest earned by the trust account is owned by the party which becomes entitled to the money held on trust.
A statutory declaration to be executed by the contractor under that form of subcontract in turn required that it declare that:
"All cash retentions from Subcontractor payments are held in trust by the Contractor. ... for whichever party is entitled to them, until payment is made to that party."
Clause 62.6 of the GC 21 Edition 1 contract in turn required that payment claims be accompanied by a statutory declaration in the form set out in Schedule 7 relating, inter alia, to all subcontract monies held in trust by the contractor. Schedule 7 cl 21 provided that, relevantly:
"All cash retentions from Subcontractor payments are held on trust by the Contractor. The cash security and retentions are held on trust for whichever party is entitled to them, until payment is made to that party."
17Mr Krejci in turn notes that cll 33.7 - 33.9 of GC 21 Edition 2 contract and Schedule 7 cll .21 - .23 address payment security arrangements between the company and subcontractors. Clause 33.8 relevantly provided that:
"If the Contractor receives payment under the Contract for, or on account of, work done or Materials supplied by any Subcontractor, and does not pay the Subcontractor the whole amount to which the Subcontractor is entitled under the relevant Subcontract, the difference is held in trust for payment for the work done or Materials supplied."
That form of contract in turn required the form of subcontract with a subcontractor to contain a corresponding provision.
18Mr Krejci also notes that cll 31.5 and 62.6 of the HGC 21 contract and Schedule 7 address payment security arrangements between the Company and its subcontractors and cl 62.6.2 similarly required a statutory declaration to be executed by the Company that provided for the relevant monies to be held in trust. A minor works contract was used by the DFS in respect of certain works at Westport High School, and cl 4.2 of that contract required that each subcontract include provision that monies be held in trust until they are paid to the party entitled to receive them and the security holder shall maintain proper records to account for such monies.
19Another relevant circumstance is the purpose for which the Retention Account was opened and the manner in which it was operated. The coincidence of the timing of Health Infrastructure's requirement and the opening of the Retention Account is consistent with an inference that that requirement led to the opening of that account. Information provided by company officers to the Deed Administrators also supports the conclusion that the Retention Account was established to meet, or at least partly meet, the requirement of the Interested Parties that retention amounts owed to subcontractors in respect of the Government Contracts be held in trust. Mr Krejci's affidavit refers to information provided by the Company's managing director in respect of the operation of the Retention Account, and Mr Nicodemou's affidavit refers to further information provided by the company's former corporate services manager and its managing director in respect of the operation of that account. The Company's managing director expressed the belief, consistent with that formed by the Deed Administrators that, on the basis of the matters set out in his statement, he did not believe that the monies in the Retention Account were intended by the Company to be held for specifically identified retention creditors and he believes they were held for all subcontractors in respect of work performed pursuant to subcontracts in NSW government projects.
20The information provided by the Company's corporate services manager was that the Company was seeking to deposit sufficient funds into the Retention Account to roughly equate to the retentions money owed under the Government Contracts, although the funds in that account took some time to build up and the Company was placed in administration before the Retention Account held sufficient funds to cover all retention monies owed to subcontractors referable to the Government Contracts. He also advised the Deed Administrators that the payments into that account were for whole amounts and were not referable to particular subcontractors, reflecting a bulk estimate estimation of all retention monies owed under the Government Contracts.
21I note that the Retention Account was not titled "trust account" and monies paid into it were not directly referable to payments made by the Interested Parties in respect of amounts referable to subcontractors' work but were sourced from the Company's operating account. There is no evidence that the Retention Account was used to hold subcontractor retention monies in respect of projects other than under the Government Contracts. There is evidence of one later withdrawal from the Retention Account that was apparently applied to cover two payments for contractors at a particular project. It does not seem to me that that payment undermines any inference which might otherwise arise that the funds held in that account were held on trust to meet the relevant retention payments, although it may not have been consistent with that requirement. It would not be appropriate for me to address that matter further where the necessary parties to any application in respect of that matter are not presently before the Court.
22I am satisfied, on the basis of these matters, that the monies held in the Retention Account were intended to be, and were, held on trust for, broadly, the retention creditors in respect of Government Contracts.
How should the monies in the Retention Account be distributed?
23The question then arises as to the manner in which those funds should be distributed. Mr Krejci's affidavit identifies four possible scenarios as to how those funds should be distributed, and he gives evidence as to the result of a distribution on each such basis. These scenarios were summarised in an earlier report to creditors. However, that report foreshadowed that the Deed Administrators would put a different position as their primary position to that which was in fact adopted before the Court. That matter is to be addressed by a further circular to creditors prior to the implementation of any orders made by the Court in this application.
24The evidence led by the Interested Parties is also relevant to the manner in which the amount held in the Retention Account should be distributed. The Interested Parties relied on affidavits of Mr Martin Gordon dated 31 January 2014, Mr Martin Cook dated 31 January 2014 and Mr Jean Jacques De Senerpont Domis dated 30 January 2014 in respect of the application. Mr Gordon gives evidence in respect of the contract between the NSW Department of Attorney General and Justice and the Company and indicates that he has no reason to believe that the summary of subcontractor retentions in respect of that project in Mr Krejci's affidavit are not accurate. Mr Cook gives evidence in respect of contracts between Health Infrastructure NSW and the Company and also indicates that, to the best of his knowledge, there is no reason to believe that the figures in respect of subcontractor retentions contained in Mr Krejci's affidavit are not accurate. Mr De Senerpont Domis gives evidence in respect of the contract between the Company and New South Wales Public Works, a division of DFS and indicates that, to the best of his knowledge, there is no reason to believe that the information contained in Mr Krejci's affidavit in respect of subcontractor retentions relating to DFS projects and the NSW Department of Education and Communities' project are not accurate.
25The first scenario, supported by the Deed Administrators and Interested Parties, would involve a distribution on a pro-rata basis to subcontractors owed retentions on projects where GC 21 (Edition 1), GC 21 (Edition 2), HGC 21 and MW 21 contracts were used, being the contracts involving the Interested Parties, and would result in an estimated return for subcontractors on government projects of $0.44 in the dollar on retention claims. It seems to me that a distribution on this basis is consistent with the evidence as to the purpose for which the Retention Account was established. I also consider that a pro-rata distribution is justified, where the investigations of the Deed Administrators and their staff indicate that retention payments were not processed separately to other payments due by the Company, and the Company did not keep separate records showing a breakdown of the lump sum payments into the Retention Account or information which would allow them to be allocated to entitlements owed to specific subcontractors by way of retention funds.
26The issues arising in respect of whether a distribution of mixed trust funds should be made on a pro-rata basis were considered in some detail by Campbell J in French Caledonia above. His Honour observed (at [169]) that the principles upon which tracing operated and the proper scope of the rule in Clayton's case (1816) 1 Mer 572; 35 ER 781 favoured the result that that rule not be used to allocate losses suffered by beneficiaries whose funds were mixed, regardless of whether there was sufficient information to enable an allocation of withdrawals to deposits. His Honour also distinguished Clayton's case, where the trust account maintained by a travel agent in that case was contributed by numerous travellers, each intending to pay for their own travel, and any misappropriation of funds from that account would involve taking money of all the people whose money was in it.
27His Honour also noted the complexities involved in an approach of "pari passu distribution" and noted that there was a preliminary question, prior to adopting a rateable abatement of claims to a fund, whether all claimants had equal claims upon it. His Honour observed at [186] that:
"Sometimes, a liquidator seeking to administer a fund will know nothing more than that the fund is held on trust, and that there are a number of potential claimants to the fund, whose merits he cannot on any rational basis distinguish between. In such a situation, it may be appropriate for the Court to direct a liquidator that he is justified in distributing the fund amongst the claimants proportionately to their claims. It is relevant to this that in Sinclair v Brougham [[1914] AC 398] the fact of monies being mixed was enough for the House [of Lords] to decide that there should be a pro-rata distribution, and the paucity of evidence meant that there was no reason to depart from a pro-rata distribution."
28His Honour also reviewed the tracing principles applicable where claimants fell within particular classes, and noted (at [187]) the possible relevance of a "lowest intermediate balance" rule, such that:
"If the account in which the mixing occurred at any time reached a particularly low level, it may be that those people whose money was paid into the account before that low level was reached ought be accorded a smaller dividend on the amount of their claim than people whose money was paid in after the low level was reached. In carrying out such calculations, estimation and inference can be appropriate if precise evidence is not available."
His Honour did not accept that an approach based on the lowest intermediate balance rule could never have a part to pay in deciding how a mixed fund of several beneficiaries should be distributed, but observed that in that case no facts were before the Court which led to a conclusion that the various claimants ought to be divided into various classes which were given different dividends and there was no reason to believe that there were assets purchased from the accounts, into which some beneficiaries could trace but others could not. There are also no facts that seem to me to warrant that approach in this case.
29The second scenario would identified by the Deed Administrators would involve a distribution only to subcontractors owed retentions on projects for Health Infrastructure NSW where GC 21 (Edition 2) contracts were used with the balance of the funds of approximately $900,000 then made available to the creditors trust. This scenario would result in a return to the relevant subcontractors of 100 cents in the dollar on retention claims. The Deed Administrator's rationale for that scenario was that Health Infrastructure NSW insisted on compliance with the contractual terms in respect of the creation of a trust account arose in respect of that form of contract. However, I can see no real justification for that approach where a corresponding obligation to hold the relevant monies in separate accounts on trust arose under each of the Government Contracts and the information provided by the Company's officers to the Deed Administrator that the Retention Account was set up with a view to comply with that obligation under the Government Contracts generally and not only the contracts with Health Infrastructure NSW.
30The third scenario would involve a distribution to subcontractors owed retention amounts on projects where Health Infrastructure NSW was the principal and would result in an estimated return of $0.54 in the dollar on retention claims by those subcontractors. It appears that scenario also reflects the fact that Health Infrastructure NSW had insisted on the maintenance of the Retention Account. That scenario is not supported by Health Infrastructure NSW, which accepts that it is in no better position than the other Interested Parties. Again, I can see no real justification for that approach where a corresponding obligation to hold the relevant monies in separate accounts on trust arose under each of the Government Contracts and given the information provided by the Company's officers to which I referred above.
31The fourth scenario would involve a distribution on a percentage basis to subcontractors owed retentions across all 132 projects managed by the Company and would result in an estimated return of $0.14 in the dollar on retention claims. It does not seem to me that the evidence supports this scenario. There was no evidence before the Court that trust arrangements were required or existed in respect of retentions on projects other than those involving the Interested Parties, undertaken under the Government Contracts, and there is no basis to treat other subcontractors which (regrettably) did not have the benefit of such arrangements as sharing in monies held on trust for the subcontractors owed retentions in respect of the Government Contracts.
32Mr Krejci's evidence is that the investigations of the Deed Administrators and their staff have also indicated that certain subcontractors have had retention monies claims satisfied by principals in respect of the particular contracts, and that subrogation claims may exist in respect of those principals. One of the Interested Parties, DFS, contends that it has novated contracts in respect of three projects and performed the obligations which were previously the responsibility of the Company and has paid a retention amount which would otherwise by payable by the Company to one subcontractor and will shortly complete payment of retention amounts otherwise payable by the Company in respect of another project to two other subcontractors. DFS submits that the Deed Administrators should be directed to distribute specific amounts that would be due to those subcontractors, so far as the amounts were held on trust for them, to DFS rather than those subcontractors. The Administrators acknowledge, in their submissions, that the Interested Parties should stand in the shoes of any retention creditors whose debts have been paid by them. In principle, the Deed Administrators are justified in recognising rights of subrogation in making a distribution from the Retention Account.
Costs of this application
33An issue also arises as to the manner in which the costs of this application incurred by the Deed Administrators and the Interested Parties and the Deed Administrators' remuneration in respect of certain matters should be borne. The Deed Administrators and the Interested Parties took different positions as to this issue.
34It did not appear to me that there was ultimately a substantial dispute as to the applicable principles, as summarised by Ms Whittaker, who appeared for the Deed Administrators. As she pointed out, the Court has an inherent jurisdiction to allow an insolvency practitioner, in his or her capacity as trustee of a fund, to receive payment of remuneration, costs and expenses out of trust assets: Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 at [10]-[16]. Ms Whittaker refers to the judgment of Finkelstein J in 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 149; (1999) 30 ACSR 377 at [34], to which I referred in Re MF Global Australia Ltd (in liq) (No 2) [2012] NSWSC 1426 at [50], noting that a liquidator may, if acting reasonably, be indemnified out of trust assets for costs and expenses incurred in recovering or attempting to recover, realising or attempting to realise, or protecting or attempting to protect, trust assets and in distributing those assets to the persons beneficially entitled to them. Ms Whittaker also properly acknowledges that the Court may decline to make such an order if a company did not act solely as trustee and has sufficient assets to meet the liquidator's remuneration, costs and expenses, and where the work done by the liquidator in relation to trust assets may properly be treated as done in winding up the company's affairs: Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 685-689; Re MF Global Australia Ltd (in liq) (No 2) above at [55]. The Deed Administrators also submit that, where work is reasonably done and is appropriately done by a professional person, its fees should be charged at its usual rates: Re Australian Hotel Acquisition (in liq) [2011] NSWSC 1441 at [15].
35The Deed Administrators submit that the costs and remuneration incurred by them in respect of the distribution of the Retention Account does not relate to general administration matters, where the DOCA provides for a creditor's trust to be established rather than for distributions to creditors generally, and that it would not be just that unsecured creditors (including retention creditors in respect of work performed on contracts other than the Government Contracts, who are owed a substantial amount by the Company) to be required to bear the costs and remuneration involved with the determination of the entitlements and distributions from the Retention Account. In oral submissions, Ms Whittaker accepted that there was no evidence before the Court that the Deed Administrators would not be paid for their work unless the cost of that work were allocated to the Retention Account.
36Mr Kulevski, who appeared for the Interested Parties, was instructed to oppose the Deed Administrators' claim in respect of costs from the Retention Account. The Interested Parties accept that the Deed Administrators are entitled to be remunerated for the work they have performed and note that the only question is the fund from which that remuneration should come. Mr Kulevski submitted that, before the Company went into external administration, the costs of administering the Retention Account would have been met out of the Company's general assets rather than the monies held in the Retention Account. Mr Kulevski also points out that the Company was not a specialist corporate trustee and was administering the Retention Account as an ancillary aspect of its core construction business. There is some force in those submissions; however, countervailing considerations include that the Deed Administrators are involved in a somewhat different task, involving a distribution of moneys from the Retention Account when the Company is no longer a going concern, and that that task is not one which relates to the administration of the Company's affairs generally as distinct from the distribution of the funds held in that account.
37Mr Kulevski also points out that the DOCA did not specifically provide for the Deed Administrators to receive their remuneration from the Retention Account and that unsecured creditors were on notice that all costs in respect of the DOCA would be paid out of the deed fund. I give little weight to that matter, since the Deed Administrators and creditors could not have reached a determination in the DOCA that the costs of administering the trust constituted by the Retention Account should be paid from trust funds without an appropriate order of the Court.
38Mr Kulevski also points out that the findings reached in French Caledonia above as to a liquidator's entitlement to costs and remuneration from the relevant fund were reached in circumstances where there were no monies available in the general fund and distinguishes the position where that is not established in this case. Mr Kulevski also contends that the Court has a discretion whether to award remuneration and costs to a liquidator or administrator, rather than such an award being a matter of right. Finally, Mr Kulevski also points out, as an alternative submission that, in French Caledonia, Campbell J contemplated the possibility of contribution, such that both general creditors and the relevant fund should contribute to the costs and remuneration of the insolvency administrator, although Mr Kulevski accepted that that possibility appeared to be directed to the position where the relevant activity was attributable both to the administration of the relevant company and the administration of the trust.
39Turning now to the relevant authorities, in Re Berkeley Applegate (Investment Consultants) Ltd (in liq) [1989] Ch 32 at 50-51, Edward Nugee QC observed that:
"The authorities establish, in my judgment, a general principle that 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. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to made, it would have had to be done either by the person entitled to the equitable interest ... or by a receiver appointed by the Court whose fees would have been borne by the trust property ... and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity ..." (citations omitted)
40That principle was in turn applied by McLelland J in Re G B Nathan & Co Pty Ltd (in liq) above, although his Honour did not there make an order that the liquidator's remuneration and expenses be met from trust assets where the company's assets were sufficient to meet that remuneration and expenses. On the other hand, in Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301 at [21], and in Australian Securities and Investments Commission v Rowena Nominees Pty Ltd [2003] WASC 112; (2003) 45 ACSR 424 at [94], orders were made for a liquidator's costs to be charged against trust assets. I accept that, as Campbell J noted in French Caledonia above, these cases do not establish a general rule but are applications of the established principles to the particular facts.
41In French Caledonia above, a liquidator sought an order that he was entitled to recoup his costs and expenses (including remuneration) of acting, initially as administrator and thereafter as liquidator, of a company from its trust accounts, prior to any distributions to any beneficiary, where that company had no assets available for distribution to its general creditors. Campbell J noted that, when a company which carries on no activities other than being the trustee of a trading trust goes into liquidation, the proper costs and expenses of the liquidator can be met from the trust assets. That principle has no application here, where the activities of the Company extended well beyond its role in respect of the Retention Account. Campbell J also noted that the position was different where a corporation which is a trustee of a trust, but also conducts other activities, goes into liquidation (at [206]) and referred to Re Berkeley Applegate (Investment Consultants) Ltd (in liq) above as authority that there is a general equitable principle by which a liquidator who performs tasks in the administration of trusts of which the company is trustee can be granted remuneration for those tasks out of the trust assets.
42In 13 Coromandel Place Pty Ltd above at 385, Finkelstein J expressed the view that the authorities provided that a liquidator who was acting reasonably was entitled to be indemnified out of trust assets for his costs and expenses in carrying out specified activities, including distributing trust assets to persons beneficially entitled to them, although distinguishing the position where work was done and expenses incurred in general liquidation matters, and noted that, where a company did not act as trustee to a significant extent:
"The liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets."
In the present case, the Deed Administrators do not seek to recover remuneration or costs other than those that are directly attributable to the administration of the Retention Account, consistent with the approach referred to in 13 Coromandel Place above.
43In Alphena Pty Ltd (in liq) v PS Securities Pty Ltd (as trustee of the Joseph Family Trust) [2013] NSWSC 447; (2013) 94 ACSR 160 at [53]-[54], Kunc J relied upon the principle in Berkeley Applegate to order that costs of a liquidator's work in enforcing a company's right of indemnity against a new trustee were properly ordered to be paid from the trust fund. His Honour also held that, so far as any scale was to be applied by the Registrar in assessing those costs, it ought to be applied in assessing an insolvency administrator's remuneration in the relevant circumstances. In Hundy (liquidator); In the matter of Enviro Friendly Products Pty Ltd (in liq) [2013] FCA 852, Foster J followed 13 Coromandel Place above and French Caledonia above in holding that the costs of analysis and identification of trust assets for the benefit of eligible beneficiaries should be recoverable against the assets of the relevant trusts.
44On balance, it seems to me that the order for costs and remuneration sought by the Deed Administrators against the Retention Account should be made, recognising that the jurisdiction to allow such recovery against trust assets should be sparingly exercised. The matters supporting such an order include the fact that, had the Deed Administrators not undertaken the work, it may have been necessary for the Court to appoint a receiver to do so, whose fees would have been borne by the Retention Account, and that the work undertaken by the Deed Administrators will in fact have been of real benefit to retention creditors with claims against the Retention Account. An allocation of the expenses to the trust assets, in this case, will not infringe the principle noted in French Caledonia above that an insolvency administrator cannot recover the expenses of work which could not be fairly categorised as administering the trust from trust assets. I do not consider that this is a case for a sharing of expenses between the Company's distributable property and the trust assets, because the work done seems to me to be properly attributable to the particular issues arising in respect of the Retention Account rather than the administration of the Company generally, particularly given the structure of the DOCA which provides for any distributions to unsecured creditors to occur at a later point, by means of a creditors trust.
45The Deed Administrators accept that, when a trustee reasonably seeks advice from the Court as to the proper administration of a trust, all parties properly joined should have their appropriate costs out of the fund (Re MF Global Australia Ltd (in liq) (No 2) above at [27]) and that the Interested Parties should therefore have their costs of these proceedings paid out of the Retention Account. The Interested Parties have indicated that they do not seek their costs from the Retention Account unless the Deed Administrators are awarded their costs from the Retention Account. Since the Deed Administrators' costs are to be paid from the Retention Account, the Interested Parties should also be entitled to their costs from that account.
Orders
46The parties agreed that it was necessary to give further notice to interested persons of the proposed orders, and allow them an opportunity to be heard, since the position put by the Deed Administrators in submissions before me differed from that foreshadowed in the circular to creditors to which I referred to in paragraph 22 above. I therefore propose to make the directions sought by the Deed Administrators, while reserving liberty to creditors who may be affected by those directions to apply to vary them within a short time. The Deed Administrators and interested parties indicated that they did not oppose that course in the circumstances.
47Accordingly, I make the following orders:
- The Court directs that the Plaintiff is justified in:
(a) distributing the funds held in the Westpac Retentions Account (being the Westpac Banking Corporation interest bearing account number [omitted] held in the name of National Buildplan Group Pty Limited (Subject to Deed of Company Arrangement) ABN 091 716 504 ("the Company")), net of the amounts the subject of the orders below, pari passu amongst the entities identified in the annexure to the short minutes of order initialled by Black J and placed in the Court file ("the retention creditors") for their claim for subcontractor retention monies as identified in that annexure or as otherwise determined by the Plaintiff; and
(b) treating any entity which satisfies the Plaintiff that it has paid any retention creditor the retention monies owed to it by the Company as standing in the shoes of the retention creditor for the purposes of the distribution set out in the direction above.
2.The Court orders that:
(a) the reasonable costs of this application for directions as incurred by the Plaintiff, and the interested parties (being Health Infrastructure NSW, NSW Department of Finance & Services, NSW Department of Education and Communities and NSW Department of Attorney General & Justice) as agreed or as assessed; and
(b) the Plaintiff's reasonable remuneration in respect of the preparation for and conduct of this application and the subsequent costs, disbursements and remuneration associated with the distribution of the Westpac Retentions Account (determined in accordance with the provisions of s 449E of the Corporations Act 2001 (Cth) and the Deed of Company Arrangement),
be paid from the Westpac Retentions Account prior to the distribution the subject of the directions above.
3 Direct that the Plaintiff notify each creditor of the company identified as a claimant or potential claimant in respect of retention funds in or substantially in the form initialled by Black J and placed in the file.
4 Order that the directions in paragraphs 1-2 above shall be effective on and from 4pm on 4 April 2014 unless, prior to that time:
(a) an interested person complies with order 5 below; or
(b) the Court varies or revokes the directions by reason of the objection of that interested person.
- Direct any interested person wishing to object to the directions in paragraphs 1-2 above to:
(a) file a notice of appearance and any affidavit evidence in support of the objection; and serve a copy of the notice of appearance and any affidavit evidence in support of the objection on the Plaintiff's solicitors, or
(b) notify the Plaintiff in writing of their interest in the account
on or before 4pm on 21 March 2014.
- List the matter for directions at 9.30am on 11 April 2014.
- The Plaintiff and the Interested Parties have liberty to apply on 3 days notice specifying the relief sought.
I note that the form of orders, as recorded above, reflect two immaterial amendments made in those orders, at the Deed Administrators' request, prior to their entry.