Alphena Pty Limited (in liq) v PS Securities Pty Ltd as Trustee of the Joseph Family Trust

Supreme Court of NSW|2020-12-07|Before: Leeming JA

Judgment

This is an application, made by interlocutory process filed on 11 November 2020, for orders fixing the remuneration of Mr Vincent Pirina in his capacity as Court-appointed Receiver and Manager of the assets and undertaking of the JOG Unit Trust in the amount of $13,075 and in his capacity as liquidator of JSMOT Pty Ltd, which was the trustee of that trust, in the amount of $47,378. Both amounts relate to period from April 2020 until 31 October 2020. Both amounts exclude GST. Mr Pirina also seeks to draw the amount approved from the assets of the trust.
Underlying this application is a lengthy dispute between the plaintiff, Ms Gillian Mary McCall, who obtained orders from this Court for the appointment of Mr Pirina as receiver and manager so long ago as 20 November 2017, and the second defendant Mr Jeffrey Sharp. (Until mid-2019, there was a second receiver and manager appointed together with Mr Pirina; nothing turns on that detail for present purposes.) I understand that Ms McCall and Mr Sharp between them owned all units in the JOG Unit Trust, of which JSMOT was trustee.
On 24 April 2020, Mr Pirina was appointed as liquidator of JSMOT. According to the trust deed, JSMOT "will ipso facto cease to be a Trustee if, being a Corporation, such Trustee will go into liquidation" (cl 6.4(a)(2)). I shall return to this below. For present purposes, it suffices to note that the principal asset of the trust, an agricultural property, was sold earlier in April and the proceeds of sale are held by Mr Pirina. There are also (according to the liquidator's report) significant proceeds of sale of certain agricultural equipment, which Mr Sharp as I understand it claims to be his, but which may be trust property and which have been retained by the auctioneer. There may be other trust assets, which the liquidator is presently investigating. The report records an unsatisfactory response by Mr Sharp to the liquidator's request for books and records of the company, and flags the possibility of recovery actions.
That said, the present application is relatively straightforward. It is much smaller in amount, and much more circumscribed in time, than the application approved by Black J by orders made on 4 May 2020: In the matter of JSMOT Pty Ltd [2020] NSWSC 549. It is unopposed by Ms McCall. I am satisfied on the evidence that Ms McCall has notice of it, and she has sought not to intervene. It is consented to by Mr Sharp, who has signed orders consenting to the remuneration sought in full (including aspects as to the approval of expenses which are not pressed).

Applicable principles

The underlying principles are clear. The source of the jurisdiction invoked by Mr Pirina is UCPR r 26.4 (in his capacity as receiver), cl 60-10 of the Insolvency Practice Schedule (Corporations) which was given effect by s 600K of the Corporations Act 2001 (Cth) (in his capacity as liquidator), and, at least insofar as the application turns upon JSMOT's status as former trustee of the JOG Unit Trust and bare trustee of the trust assets, this Court's inherent jurisdiction: see In the matter of Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 at [19].
In respect of both aspects of his application, the onus rests upon Mr Pirina to establish that the costs are reasonable: see Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [6] (receiver); cl 60-12 of Insolvency Practice Schedule and Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 at [51] and [54] (liquidator).
Proportionality, in terms of the work done compared to the size of the property or activity the subject of the administration, is a relevant factor in fixing remuneration, although it is important not to focus solely upon that: Sanderson as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr at [64].
Gleeson JA in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 at [46] said that: "the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the special purpose receivers are not entitled to be remunerated for it. In the present case, the Trustee fee application and the time spent consulting with the committee of creditors on various issues, including obtaining approval of the special purpose receivers' remuneration will not result in the augmentation of the funds available for distribution. Provided it was reasonable to carry out the work and the amount charged is reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work: Sakr at [57]-[58]."
In the earlier judgment approving remuneration, Black J said at [11], by reference to Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 at [58], that: "it is not the court's role, as constituted by a judge, to undertake a line by line review of the relevant narratives in an insolvency practitioner's billing record, but I there reviewed the relevant narratives in a broad way in order to satisfy myself that they supported the other evidence led in respect of the claimed remuneration."
I shall take the same approach.

The effect of cl 6.4(a)(2) of the Trust Deed

JSMOT ceased to be trustee of the JOG Unit Trust on 24 April 2020. There is no evidence to suggest that any other person or company has been appointed as replacement trustee. In the ensuing 7 months, Mr Pirina as liquidator has been undertaking work relating to the trust assets, to the knowledge of Ms McCall and Mr Sharp. If the assets were vested in some other trustee, it is likely that would have come to his attention, or have been stated by Ms McCall or Mr Sharp. The trust deed has no provision for an Appointor, but rather authorises the unit holders to appoint a substitute trustee (cl 6.4(d)) and hence it is entirely unsurprising that they have not done so. Accordingly, I accept Mr Nathan's submission that since 24 April 2020 JSMOT has continued as a bare trustee of the assets of the JOG Unit Trust: Harker-Mortlock v Commonwealth Bank of Australia [2019] NSWCA 56 at [21].
In its capacity as bare trustee, JSMOT retains a right of indemnity and exoneration and a lien over the trust assets: Alphena Pty Limited (in liq) v PS Securities Pty Ltd as Trustee of the Joseph Family Trust [2013] NSWSC 447; 94 ACSR 160 at [37]; In the matter of Independent Contractor Services (Aust) Pty Ltd ACN 119 186 971(in liquidation) (No 2) [2016] NSWSC 106; 305 FLR 222 at [31]; In the matter of Houben Marine Pty Ltd (in liq) at [16].
Mr Pirina relied on what Black J had said in Structum Pty Ltd v CWCN Pty Ltd [2020] NSWSC 1314 at [6]: "the case law allows a liquidator, acting reasonably, to indemnity out of trust assets for remuneration, costs and expenses, notwithstanding that the trustee is or may be a former trustee of the trust, who no longer holds assets of the trust, or holds such assets only as bare trustee of the trust: see, for example, ASIC v Primelife Corporation Ltd [2007] FCA 1874."
In that passage, Black J was merely recording and approving a submission which was appropriate to the facts of the case. It may be important, when speaking of the circumstances when there is an entitlement to indemnity out of trust assets, to distinguish the case where a former trustee had done nothing save to hold office as trustee from a case where a former trustee has or had other undertakings, such as running a business in its own name, or being a trustee of other trusts. Those complexities may be put to one side for present purposes. Here, Mr Pirina's report to creditors states that he was unaware of JSMOT acting in any capacity other than as trustee of the JOG Unit Trust, and there is no evidence, so far as I am aware, to the contrary. Also, the principal expenses which Mr Pirina has incurred as liquidator have related to JSMOT in its capacity as former trustee, notably, investigating and identifying the trust assets.
It follows that Mr Pirina in his capacity as liquidator of the company which was formerly trustee of the JOG Unit Trust, and which is now a bare trustee, is entitled to be paid his remuneration from trust assets, in circumstances where the company has no assets other than trust assets: In the matter of Houben Marine Pty Ltd (in liq) at [17] and the authorities there cited. In his capacity as receiver and manager, Mr Pirina is entitled to be remunerated from the assets to which he has been appointed, in respect of which he enjoys a lien for that purpose: Re Application of Central Commodities Services Pty Ltd [1984] 1 NSWLR 25 at 26-27.

Costs of receiver and liquidator

Mr Pirina seeks remuneration in the amount of $13,075 (exclusive of GST) in his capacity as receiver. The amount has been determined using time-based calculations. I am satisfied that the hourly rates are reasonable. The largest contributors to that amount are "Claiming for remuneration" ($5,567) and "General administration" ($4,241). Bringing an independent mind to these costs in accordance with the authorities reproduced above, I was concerned that Mr Pirina's affidavit on its face disclosed that the largest single category was the cost of making an application for the approval of his costs. That immediately raises a real concern as to proportionality. It is highly relevant that costs be relative to the magnitude of what is at stake, and it would be alarming if the cost of making an application for the approval of remuneration were the largest category of a receiver's costs.
However, Mr Nathan explained, by reference to the time records exhibited to Mr Pirina's affidavit, that a substantial majority of those costs were referable to the previous application for approval of remuneration. I am satisfied by reference to the evidence that that is so. The previous application was for a much more substantial amount (some $250,000 exclusive of GST) incurred over a much more substantial period (some 2½ years). The costs of the present application are presumably much smaller.
I note that Mr Pirina's evidence is that while there may be some dispute as to which category particular costs are allocated to, and indeed whether they are associated with the receivership or the liquidation, there has been no duplication. I agree that there may be considerable difficulty in the task of allocation. I have myself conducted an audit on five randomly selected line items (in each case, reflecting relatively large amounts) to ensure that there has not been duplication in the various tables of costs, and none has appeared. I accept that there has been no duplication.
The liquidator's costs are in the amount of $47,378 exclusive of GST. The largest contributor is "Performing investigation in relation to affairs of JSMOT"; this is $27,502. The other significant categories are "Liaising with creditors and attending to queries of creditors of JSMOT" ($9,096) and "General administration" ($9,775). The latter comprises 134 entries, most of which reflect tasks done by relatively modestly remunerated employed staff. The investigation and liaising with creditors involve 228 and 53 entries respectively. I have not reviewed any of these categories line-by-line as if I were conducting a taxation or assessment of costs, however, the verbal descriptions are moderately informative, and the amounts and the timing of the amounts seem reasonable.
Overall, I am satisfied that the costs for which approval is sought are reasonable.

Conclusion and orders

I shall approve the remuneration claims, and make an order confirming that the remuneration may be drawn from the assets of the JOG Unit Trust.
The interlocutory process also seeks an order that Mr Pirina's costs and expenses of this application be paid out of the assets of the JOG Unit Trust. I am unwilling to make that order. The first reason is that the evidence does not disclose what those costs are. The second is that, in small part at least, I do not think that Mr Pirina is entitled to them.
The affidavit material adduced in the application included material supporting payments of some $15,000 to external solicitors and to certain expenses. This aspect of the application was abandoned at the outset. It should not have been included, in light of what Black J had said previously (see [2] of the reasons of 4 May 2020) to Mr Pirina represented by the same counsel and firm of solicitors. To some small extent, costs will have been incurred in relation to that part of the application which should not have been incurred. The onus rests on Mr Pirina to demonstrate that the costs are reasonable, and I am unsatisfied that it was reasonable to spend time adducing evidence of the same expenses which were not pressed in a similar application earlier in the year which was abandoned, and properly so, at the outset of the hearing. That is to say, I do not regard the work done attributable to drafting paragraphs 70-79 of Mr Pirina's affidavit filed on 11 November 2020 and exhibiting pp 178-194 of Exhibit VP-5 as reasonably recoverable.
I expect that the collection of the various expenses which contributed to this part of the application would have been quite mechanical, and the cost of doing so relatively small.
The liquidation is ongoing. There is no reason why Mr Pirina may not efficiently make further application, supported by appropriate evidence, for the balance of the receiver's costs. I note that no written or oral submissions were made in respect of the costs of the application. I am presently minded to leave the approval of the costs of the present application to some further date.
I make the following orders in accordance with prayers 1, 2 and 5 of the interlocutory process: 1. The remuneration of the Applicant for acting in his capacity as the Receiver and Manager of the assets and undertaking of the JOG Unit Trust for the period 18 April 2020 to 31 October 2020 be fixed by the Court in the amount of $13,075 plus GST. 2. The remuneration of the Applicant for acting in his capacity as the Liquidator of JSMOT Pty Ltd for the period 27 April 2020 to 31 October 2020 be fixed by the Court in the amount of $47,378 plus GST. 3. The Applicant may draw the remuneration referred to in 1 and 2 above from the assets of the JOG Unit Trust.

Amendments 08 December 2020 - Catchwords - "external application" changed to "external administration". [24] - "the cost of doing so" inserted before "relatively small". DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 December 2020

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