Nature of proceedings, affidavit evidence and chronology
By Originating Process filed on 18 December 2019, Mr David Winterbottom and Mr Rahul Goyal ("Receivers") sought a range of relief in respect of their claim to apply certain funds to the payment of costs incurred in the defence of proceedings ("Fee Proceeding") brought against them by Bicheno Investments Pty Ltd ("Bicheno") and Stock Suppliers Australia Pty Ltd ("SSA"), who had previously appointed them as receivers to DSG Holdings Australia Pty Ltd ("DSG") and subsequently terminated that appointment. The Receivers sought relief including declarations as to the construction of several documents relating to their appointment and orders for payment and directions under s 424 of the Corporations Act 2001 (Cth). By an Interlocutory Process filed on 14 April 2020, DSG, Bicheno and SSA initially sought declarations that the Receivers were not entitled to pay legal costs of defending the Fee Proceeding from funds realised from the receivership of DSG and an order for repayment of monies which the Receivers had applied for that purpose. That relief was not pressed.
By way of background, Bicheno and SSA, which were under common control with DSG, were secured lenders to DSG which operated a chain of discount retail outlets, and SSA also took an assignment of another entity's interest under a general security agreement. On 30 June 2014, Bicheno and SSA appointed the Receivers as receivers and managers of the assets of DSG on the terms of a Deed of Appointment dated 30 June 2014, a Deed of Indemnity dated 30 June 2014 ("Indemnity Deed") and a further deed dated 30 June 2014 ("Fee Deed") providing for the remuneration of the Receivers in respect of the appointment.
The Deed of Appointment (Ex P1, 154) provided for the appointment of the Receivers by Bicheno and SSA in the exercise of powers conferred on them under the relevant security agreements and recorded, in cll 2.3 and 2.6, that Bicheno and SSA respectively:
"shall be at liberty at any time to revoke such appointment of the Receivers by notice in writing executed in accordance with section 127(1) of the Act to that effect and such revocation shall not entitle the Receivers to any compensation or remuneration in respect of their services from the date of such revocation, other than in respect of their retirement."
The Fee Deed between SSA, Bicheno and the Receivers recited Bicheno's and SSA's appointment of the Receivers under the Deed of Appointment and the grant of indemnity to the Receivers "in respect to" the relevant appointments under the Indemnity Deed and also recited that:
"Notwithstanding the terms of the Deed of Appointment and the [Indemnity Deed], the parties have agreed to terms in respect of the remuneration of the Receivers pursuant to the Bicheno Appointment and the SSA Appointment and have agreed to set out those terms in this Deed."
Clause 2.1 of the Fee Deed in turn provided for the Receivers' remuneration "for their services rendered during the receivership" of the relevant assets pursuant to the Bicheno Appointment and the SSA Appointment, providing that the Receivers would be entitled to remuneration which was the lesser of their time costs and the Capped Amount. The term "Capped Amount" was defined as $1.2 million plus disbursements (but not including any Flight Costs, as defined) plus GST. Clause 2.2 in turn provided that:
"The parties agree that any amount to which the Receivers may be entitled as a result of the Bicheno Appointment and/or the SSA Appointment is to be calculated in accordance with clause 2.1."
Clause 3 provided for the Receivers to be entitled to a further amount, titled the "Receivers Incentive" calculated in a specified manner. An issue relating to the operation of that clause was the subject of the Fee Proceeding.
The Indemnity Deed (Ex P1, 160) referred, in the recitals, to the appointment of the Receivers by Bicheno and SSA under the Deed of Appointment and recited that the Receivers accepted the relevant appointments conditional upon the execution of the Indemnity Deed by Bicheno and SSA. Clause 2 dealt with the remuneration of the Receivers separately in respect of the appointments by Bicheno and SSA, using the Bicheno clause as an example:
"The Receivers shall for their services rendered during the receivership of the Charge Secured Assets pursuant to the Bicheno appointment, or otherwise, be entitled to remuneration according to the time occupied by them, their partners and persons employed or retained by them, the amount of such remuneration to be determined in accordance with the scale of fees customarily charged by the Receivers for work of a like kind, together with such actual disbursements as the Receivers may incur in the due course of acting as receivers and managers of the Charge Secured Assets."
A corresponding clause in respect of the appointment by SSA was in the same terms, other than referring to the GSA Secured Assets (as defined) and the SSA Appointment (as defined). That clause provided for remuneration of services during the receivership, and, in its terms, did not create a right to remuneration after termination of the receivership.
Clause 3 of the Indemnity Deed provided an indemnity, given by separate clauses by Bicheno and SSA, with one immaterial difference between the two clauses. Clause 3.1, in respect of Bicheno, provided that:
"Bicheno hereby indemnifies and shall keep indemnified the Receivers from and against:
(a) all liability of the Receivers for debts properly incurred by the Receivers in the due course of the [appointment];
(b) all actions, proceedings, accounts, claims and demands whether for liquidated and unliquidated amounts and whether for costs, damages, expenses or otherwise and whether at law, in equity or arising out of the provisions of any statute in relation to:
(i) the receivership;
(ii) the Bicheno Appointment or any subsequent invalidity of the Bicheno Appointment;
(iii) the Deed of Charge or any subsequent invalidity of the Deed of Charge;
(iv) any or all actions of the Receivers in the due course of the Bicheno Appointment which may be made or brought against the Receivers by any person, firm or corporation whatsoever including DSG, any creditor or creditors whether secured or unsecured of DSG and any receiver, receiver and manager or administrator of DSG and against all costs, charges and expenses incurred by the Receivers in respect thereof."
Clause 3.5 is in broadly corresponding terms in respect of SSA, although cl 3.5(b)(iv) omits the word "and" between the phrase "liquidator or administrator of DSG" and "against all costs, charges and expenses". I accept the Receivers' submission that that word can be read into the clause, as a matter of construction, where the clause would otherwise not be grammatical, and there is a necessary distinction between the earlier part of that sentence referring to the identity of the parties bringing proceedings and the latter part identifying the subject matter of the indemnity.
Clause 3.3, in respect of Bicheno, and the corresponding clause 3.6 in respect of SSA, in turn provide that (using Bicheno's clause as example):
"The indemnity on the part of Bicheno contained in this deed shall not, nor shall anything else in this deed affect or prejudice all or any rights that the Receivers may have against DSG, or against any person, firm or corporation to be indemnified against any costs, charges, expenses and liabilities incurred by the Receivers (including but not limited to remuneration and disbursements) in or incidental to the exercise or performance of any of the powers, authorities or discretions conferred upon them by the Deed of Charge or otherwise in relation to the Deed of Charge."
That clause preserves any other indemnity available to the Receivers, but does not itself create any further right of indemnity beyond that contained in the Indemnity Deed or available at general law.
The Receivers recovered substantial funds during the receivership through liquidation of stock held by DSG. A dispute subsequently arose between Bicheno and SSA on the one hand and the Receivers on the other as to whether the Receivers were entitled to an Incentive Fee as calculated under the Fee Deed, and that dispute was resolved in favour of the Receivers in May 2017. The parties did not agree the costs payable in respect of those proceedings and the Receivers subsequently proceeded to an assessment of those costs and took enforcement steps in respect of those costs.
Bicheno and SSA subsequently sought to set aside the costs judgment arising from the assessment of costs in the Receivers' favour, and that application was later dismissed by consent on terms that an amount be paid to the Receivers' solicitors to be held on trust for all parties and not applied or disbursed without further directions or orders from the Court. The directions and orders sought in this application are intended to meet that condition.
The Receivers relied on the affidavit of Mr Goyal affirmed 17 December 2019, from which I have drawn the chronology of events that appears above. Mr Goyal, inter alia, gives evidence of costs incurred by the Receivers following termination of their appointment and, as I have noted above, there is no dispute as to the quantum of those costs.
[3]
Matters no longer in dispute in this hearing
By the time the matter reached hearing before me, Bicheno and SSA had conceded that the Receivers were entitled to pay, as they have paid, an amount of approximately $703,830 from receivership funds in respect of pre-termination legal costs of the Fee Proceeding, by reason of their appointment documentation and at general law, and were also entitled to pay an amount of $221,316.31 by way of post-termination legal costs of the Fee Proceeding pursuant to an Indemnity Deed dated 30 June 2014 ("Indemnity Deed"). It is therefore not necessary to determine those issues, although I made orders at the conclusion of the hearing to bring about the payment of the unpaid amount of $221,316.31 from funds held by the Receivers and their solicitors.
[4]
External legal costs incurred after the termination of the receivership
Issues remain in dispute as to several categories of external legal costs incurred by the Receivers after the termination of the receivership, totalling $339,103.58, namely costs of $66,659.60 incurred in a costs assessment process in respect of the Fee Proceeding; costs of $158,090 incurred in the enforcement of costs awards; costs of $70,597.22 incurred in the Receivers successfully resisting Bicheno's and DSG's motion to set aside the costs judgment in the Fee Proceeding and disbursements of $43,756.76 relating to the costs assessment. There was no dispute as to the quantification of those amounts.
These matters raise issues of construction of the Fee Deed and Indemnity Deed, which I approach having regard to well-established principles of contractual construction. I bear in mind that the construction of a contract is determined objectively, by reference to its text, context and purpose and, in determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean, and that that task requires consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[51]; Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13 at [44].
Mr Williams, who appears with Ms Doyle-Markwick for the Receivers, submits that the phrase "in relation to" in cll 3.1(b) and 3.5(b) of the Indemnity Deed is a word of wide meaning and draws attention to the observations of McHugh J in O'Grady v The Northern Queensland Co Ltd (1990) 169 CLR 356 at 376 that that phrase requires a "connexion or association" between two matters, and what "connexion or association" will be sufficient to satisfy that requirement will be a matter of judgment on the facts of each case. Mr Williams also submits that, where the relevant nexus exists between the actions taken subsequent to the Fee Proceeding and the receivership, then the legal expenses fall within cll 3.1(b)(i) and 3.5(b)(i) of the Indemnity Deed because they are demands for payment issued by the Receivers' solicitors (T20-21).
Mr Williams alternatively submits that the indemnity under cll 3.1(b)(iv) and 3.5(b)(iv) of the Indemnity Deed extends to "all costs, charges and expenses" incurred by the Receivers "in respect of" proceedings brought by "any creditor" in relation to the Receivers' actions in the due course of their appointment. Mr Williams also draws attention to Commissioner of Taxation v Scully (2000) 201 CLR 148 at 171, where the plurality of the High Court referred to the width of the concept "in respect of" and noted that those words take their meaning from their context. Mr Williams points to the matters in issue in the Fee Proceeding and submits that that proceeding concerned the remuneration to which the Receivers were entitled in conducting the receivership, what they were required to do during the receivership and the proper construction of the documents governing their appointment, and those matters relate to the Receivers' actions "in the due course" of the receivership. Mr Williams also points to the express reference in cll 3.1(b)(iv) and 3.5(b)(iv) of the Indemnity Deed to claims by any secured creditor of DSG, where Bicheno and SSA were the only secured lenders to DSG at all relevant times.
Mr Williams submits, and I accept, that the relevant legal costs incurred by the Receivers after termination of the receivership have the requisite connection with the "due course" of the receivership for the purposes of cll 3.1(b)(iv) and 3.5(b)(iv), where they flow from the Receivers' payment of the incentive fee during the course of the receivership, which Bicheno and SSA unsuccessfully challenged by bringing the Fee Proceeding. Mr Williams also submits that, if costs and expenses in relation to the Fee Proceeding are captured by the indemnity, then steps taken to recover those costs must be incidental to them and that it would be an odd result if an indemnity which extends to the costs of the Fee Proceeding (as is now accepted) does not extend to the ancillary costs incurred to obtain satisfaction of those costs and that result would defeat the purpose of the indemnity (T22).
Mr Williams also submits, and I also accept, that the termination of the Receivers' appointment does not prevent the indemnity afforded to the Receivers under the Indemnity Deed attaching to costs incurred after the termination that fall within the relevant provisions. As Mr Williams points out, there is no temporal restriction in cll 3.1 and 3.5 as to when expenses must be incurred to be the subject of indemnity, including by reference to the term of the receivership, and the phrase "shall keep indemnified" allows the clause at least some continuing effect. The Court should not read into the clause a limitation that is not there, where its commercial purpose, particularly in the context of third party proceedings, would be frustrated if the Receivers were not indemnified for continuing costs of proceedings commenced prior to termination of the receivership which could not necessarily be resolved immediately on its termination.
Mr Emmett, who appears for Bicheno and SSA, in turn submits that the indemnity under the Indemnity Deed does not extend to legal costs subsequent to the Fee Proceeding, although he accepts that it extends to legal costs of that proceeding after termination of the receivership. Mr Emmett submits, first, that the indemnity does not cover the Receivers' legal costs for bringing any actions. Mr Emmett relies on the prefatory words "from and against" in cll 3.1 and 3.5 of the Indemnity Deed as well as the specific categories of indemnifiable events or claims listed in subparagraphs (a) and (b) of those clauses and submits that there is no indemnity that covers the plaintiffs for bringing actions against any person. I do not accept that submission, where the indemnity is "from and against", inter alia, actions and proceedings and cll 3.1(b) and 3.5(b) do not exclude limit such proceedings to exclude those commenced by the Receivers.
Mr Emmett also submits that the indemnity, so far as paragraph (b)(iv) of each indemnity clause is concerned, is restricted to liabilities incurred "in the due course of" the Bicheno Appointment and the SSA Appointment. I also do not accept that submission, where that clause, although not particularly clearly drafted, extends to actions of the Receivers in the due course of appointment, to actions which may be brought against the Receivers by secured creditors and expressly to costs, charges and expenses "in respect thereof". The Fee Proceeding related to actions of the Receivers which were found to be justified, they were brought by Bicheno and SSA as secured creditors and the legal costs incurred in respect of the costs assessment and defence and enforcement of the costs judgment seem to me to have sufficient connection with those matters to be "in respect" of those matters. I also do not accept Mr Emmett's further submission that steps taken to enforce payment of the judgment sum in the Fee Proceeding or bring proceedings to enforce a contractual right of indemnity post-termination of appointment are not matters that relate to the receivership or appointment, for the purposes of paragraphs (b)(i) and (b)(ii).
Mr Emmett also submits that, to the extent that there is any ambiguity regarding the scope of the indemnity, any ambiguity would be construed in favour of Bicheno and SSA, in accordance with the principles set out in Andar Transport Pty Ltd v Brambles Limited (2004) 217 CLR 424 at 437. It does not seem to me that there is here any ambiguity that can bring about the application of such a principle, and all that is required is that the clauses be properly construed in their commercial context and applied to the particular facts.
It seems to me that these legal expenses after the termination of the Receivers' appointment are therefore recoverable under cll 3.1(b)(i) and 3.5(b)(i) of the Indemnity Deed, as claims and demands for, relevantly, costs in relation to the receivership. As I have noted above, Bicheno and SSA now accept that the legal costs of the Fee Proceeding, both prior to the termination of the receivership and post the termination of the receivership, fell within the scope of the indemnity provided under the Indemnity Deed. Costs were awarded in the Fee Proceeding in favour of the Receivers, and it seems to me that the legal costs of the assessment of those costs, enforcement of the costs award, seeking to preserve the costs judgment against Bicheno and SSA's application to set it aside, and disbursements relating to the costs assessment are sufficiently connected with the Fee Proceeding and the receivership to fall within the scope of that indemnity. It seems to me that, where the Fee Proceeding had the necessary connection with the receivership and with the indemnity from such actions, then the steps taken to preserve and enforce the costs award in that proceeding also had the necessary nexus with the receivership. It seems to me that these amounts are also recoverable under cll 3.1(b)(iv) and 3.5(b)(iv) of the Indemnity Deed for the reasons put by Mr Williams.
[5]
Claim for Receivers' professional time
A further category was in dispute as to the Receivers' professional time costs totalling $266,137.50, comprising $205,722.50 incurred prior to the termination of the receivership and $60,415 after the termination of receivership, in the Receivers' dealing with the Fee Proceeding and costs recovery. Again, the quantification of that amount was not in dispute, although the Receivers' entitlement to recover that amount was in dispute. Mr Emmett submits that the Receivers' entitlement to remuneration in respect of the receivership is limited to that which is provided for in the Fee Deed and is subject to the Capped Amount.
Mr Williams did not submit that the Receivers are entitled to recover their pre-termination professional time costs in dealing with the Fee Proceeding under the Fee Deed, because he accepted that they were not remuneration for services rendered during the receivership. The Receivers instead seek to establish a right to their pre-termination professional time costs under the Indemnity Deed. As Mr Williams accepted in oral submissions (T23), the reasoning which was available to bring legal expenses within the scope of paragraphs cll 3.1(b)(i)-(ii) and 3.5(b)(i)-(ii) of the Indemnity Deed does not extend to the Receivers' professional costs, because no question arises of the Receivers issuing a claim or demand for professional costs upon themselves. Mr Williams nonetheless submitted that those paragraphs were sufficiently broad to cover "costs" in the form of professional time costs in the Fee Proceeding and subsequent steps.
Mr Williams submits that the phrase "costs, charges and expenses" in the Indemnity Deed extends to the professional time costs of an insolvency practitioner, and he refers to the express inclusion of a liquidator's remuneration within that phrase in statutory provisions including s 109 of the Bankruptcy Act 1966 (Cth), s 275 of the Companies Act 1961 (Cth), s 414 of the Companies Code and the concept of "expenses" now used in s 556 of the Corporations Act. Mr Emmett responds, and I accept, that each of those sections expressly extend the concept of "costs, charges and expenses" to include liquidator's remuneration, where it is intended to bring that remuneration within the section, rather than recognising that concept would include remuneration absent that extension; and time costs are not an "expense" in the general usage of that term for the purposes of cl 3.1(b) and 3.5(b) of the Indemnity Deed: Wang v Farkas (2014) 85 NSWLR 390 at 396.
Mr Williams also refers to the observations of the Court of Appeal of the Supreme Court of Victoria in Gippsreal Ltd v Ross [2017] VSCA 257, although fairly accepting that it is no more than an illustration of circumstances in which receivers were entitled to apply funds in repayment of remuneration, outside a fee cap, having regard to the provisions in issue in the indemnity in issue in that case. I recognise that the Court there observed (at [72]) that the appointor's requiring the receivers to undertake the defence of a claim that they might otherwise not have done "surely had to come at a price" and that it was "not readily apparent" why that price would not include remuneration. It seems to me that those observations are directed to the indemnity arrangement and circumstances in issue in that case, which are quite different from the position in this case.
Mr Emmett also points out that, while the professional costs claimed by the Receivers may incorporate a costs component, they also incorporate a profit component and the Receivers have not led evidence of their cost of attending to the Fee Proceeding, as opposed to the amount of time spent attending at their professional rates including that profit component. It seems to me that, while the introductory words of cl 3.1(b) of the Indemnity Deed provide for an indemnity from and against, proceedings, accounts, claims and demands, it must be read as indemnifying the Receivers against loss in respect of such actions, proceedings, accounts, claims and demands, in accordance with the usual scope of an indemnity provision. Reading the indemnity in that way, it might potentially have indemnified the Receivers against their on-costs referable to their and their employees' work in respect of such actions and proceedings, excluding any profit element, but the Receivers did not seek to quantify their claims in that way. The indemnity does not, in my view, extend to any profit element and cannot support the claim for professional time costs comprising such a profit element. Nor can that claim be supported on the basis that the Receivers lost any other opportunity for profit or work, because there is no evidence that they turned down, and no reason to think that they would have turned down, any other opportunity for profitable work because of their involvement in the Fee Proceeding.
Mr Emmett also submits that the Indemnity Deed must also be construed in conjunction with the fee cap arrangement provided for in the Fee Deed and that it would be:
"incongruent on one hand for the parties to expressly agree that "any amounts" the [Receivers] were to receive as a result of their appointment was to be limited to the fee cap, while allowing for the [Receivers] to recover amounts beyond the fee cap by stretching the definition of "expenses" to assert that they are entitled to be indemnified for all time spent on receivership matters which they did not foresee at the outset of the receivership."
I recognise that cl 2 of the Indemnity Deed recognises the Receivers' right to remuneration, but the recitals to the Fee Deed in turn indicate that its terms are intended to operate notwithstanding the terms of the Indemnity Deed in respect of remuneration, preserving the operation the fee capping provisions to which I have referred above. As Mr Emmett points out, cl 2.2 of the Fee Deed applies the Capped Amount to the calculation of "any amount to which the Receivers may be entitled as a result of the Bicheno Appointment and/or the SSA Appointment", and it seems to me that limitation applies irrespective of whether the entitlement to remuneration is claimed under the Fee Deed or the Indemnity Deed, where it has the specified nexus with the Receivers' appointment. I do not accept the Receivers' submission that cll 2.1 or 2.2 of the Fee Deed can be read so as to exclude the costs of litigation generally or of litigation between the Receivers and their appointors from the Capped Amount. There is no express exclusion of that character and no commercial reason to read that clause in that way, since the parties could readily have negotiated additional remuneration of the Receivers, if the appointors wished the Receivers to pursue litigation which would have given rise to professional costs that would not have been supportable within the Capped Amount. The fact that the appointors may have had no reason to reach such an agreement, in respect of a dispute between the Receivers and the appointors, does not undermine that construction. It simply emphasises that, as Mr Emmett pointed out, the Receivers were pursuing their claims in the Fee Proceeding against Bicheno and SSA for their own and not for Bicheno's and SSA's benefit. I note, for completeness, that any wider policy reflected in Bell Lawyers v Pentelow [2019] HCA 29 against a professional profiting from the time spent in the conduct of litigation in its own interest does not seem to me to assist in determining these questions of contractual construction.
Mr Williams also did not contend that professional time costs after the termination of the receivership are not recoverable under cl 2.1 of the Fee Deed dealing with the remuneration of the Receivers, since they do not relate to services rendered during the receivership. The Receivers' post-termination professional fees are also not recoverable by reason of the Capped Amount under the Fee Deed and are excluded by the Capped Amount under the Fee Deed, for the reasons I noted above in dealing with their claim to pre-termination professional fees.
In summary, Mr Williams did not contend that the Receivers' pre-termination professional time costs are recoverable under cl 2.1 of the Fee Deed, I have concluded that they are not within the scope of indemnity under the Indemnity Deed, and they are in an any event not recoverable by reason of the Capped Amount under the Fee Deed. The Receivers' post-termination time costs are similarly not recoverable under cl 2.1 of the Fee Deed, they are not within the scope of the indemnity under the Indemnity Deed and they are also not recoverable by reason of the Capped Amount under the Fee Deed.
[6]
Orders and costs
I will determine the question of costs on written submissions, if it cannot be agreed between the parties. My preliminary view is that, subject to the terms of the Receivers' appointment, Bicheno and SSA must pay the costs of and incidental to these proceedings up to and including 22 April 2020, when they significantly narrowed the scope of their opposition to the Receivers' claims for pre-termination costs. I would be inclined to make no order as to the costs of the hearing itself, where each party succeeded on a significant issue and failed on a significant issue, so the result at the hearing was evenly balanced.
I direct the parties to bring in agreed short minutes of orders, including as to costs, to give effect to this judgment within 7 days or, if there is no agreement between them, their respective submissions not exceeding 8 pages in one and a half spacing.
[7]
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Decision last updated: 04 June 2020