The plaintiff Melrose Cranes & Rigging Pty Limited is a creditor, for a claimed amount of $80,774.23, in the liquidation of the company Cardinal Project Services Pty Limited, of which the defendants Richard Stone and Peter William Marsden are the liquidators. By originating process filed on 14 April 2016, Melrose seeks a review under (CTH) Corporations Act 2001, s 504, of the liquidators' remuneration. [1]
[3]
Background
The liquidators were originally appointed as voluntary administrators of Cardinal on 15 December 2011, pursuant to Corporations Act, s 436A. Concurrently, they were also appointed administrators of three related companies - Cardinal Group Pty Limited, Complete Concrete Cutting Pty Limited and Cardinal Logistics Services Pty Limited - and liquidators of yet another related company, Card Services Pty Limited.
Cardinal (and the other companies in the group) ceased trading upon appointment of the administrators, and their employees were terminated. On 19 December 2011, a secured creditor - the National Australia Bank - appointed Christopher Hill and Mark Robinson as receivers and managers of the group companies. The receivers took control of the assets and, with some minor exceptions, realised them for the benefit of the secured creditor.
In their s 439A report to creditors dated 23 January 2012, the administrators, as they then were, sought approval of their remuneration in that capacity in the sum of $43,974, of which $23,974 was for the period 15 December 2011 to 13 January 2012, and $20,000 for the period 14 January 2012 to 31 January 2012. [2] A further $45,000 was sought in respect of liquidators' remuneration, in the event that the creditors resolved that the company be wound up.
At the creditors' meeting on 1 February 2012, the creditors resolved that the company be wound up, and it thereupon transitioned into a deemed creditors' voluntary winding up. [3] The creditors also approved the remuneration as sought - that is, in respect of Cardinal, $43,974 for the voluntary administration, and $45,000 for the liquidation.
The liquidators have received 258 unsecured claims against Cardinal, totalling about $7,616,315. [4] During 2012, they commenced investigating the affairs of the companies and the conduct of the directors, and identified potential claims in respect of insolvent trading and unfair preferences. On 10 September 2012, they issued letters of demand to in excess of twenty creditors. By 23 April 2013, the liquidators had recovered only $4,000 in respect of preferences, of total recoveries of $14,999.73 - the balance representing a pre-appointment bank account. Meanwhile, the receivers had retired on 21 February 2013.
In a report to creditors of 15 January 2014, the liquidators reported that they had identified a number of potential preferences, and had instructed solicitors to commence proceedings to recover four (in respect of the group; those relating to Cardinal amounted to $605,122). They sought approval to enter into a funding agreement, to enable the conduct of public examinations and recovery proceedings; and they also sought approval of further remuneration (additional to the $45,000 previously approved) in the amounts of $34,219 for the period from 1 February 2012 to 31 October 2013, and $100,000 from 1 November 2013 to the conclusion of the liquidation. They reported that a dividend was dependent on the outcome of the recovery proceedings. A creditors' meeting on 31 January 2014 approved the funding agreement, and also approved the further remuneration as sought.
During July and August 2014, the liquidators conducted examinations. On 3 October 2014, their solicitors made demand on a number of creditors for repayment of alleged preferences; Melrose was one of those creditors. On 11 December 2014, the liquidators commenced recovery proceedings, including against Melrose. By 29 April 2015, the liquidators had recovered $157,000. A material dividend was still thought unlikely.
In a report to creditors of 15 March 2016, the liquidators reported having recovered $674,000 in settlement of preference claims. They had so far taken $179,219 approved remuneration as liquidators (in addition to $43,974 as administrators), paid their lawyers about $205,000, the funder $153,630, and $151,390 was in the bank account. They sought approval of additional remuneration (from 1 November 2013 to 29 February 2016) of $272,146, and future remuneration of up to $150,000. At a creditors' meeting on 31 March 2016, resolutions approving that remuneration were declared carried, on the strength of a proxy, the validity of which Melrose - which attended the meeting with its solicitor - disputed.
On 7 April 2016, the Federal Court made directions in the preference proceedings, including setting them down for hearing to commence on 27 July 2016 - although that date was subsequently vacated, with the hearing ultimately commencing on 2 December 2016.
On 14 April 2016, Melrose commenced these proceedings, to set aside the resolution of 31 March 2016 approving the liquidators' further remuneration, and for review of their remuneration. On 2 June 2016, the liquidators filed in these proceedings an interlocutory process whereby they themselves sought that the resolution of the 31 March 2016 meeting be set aside, and otherwise staying or dismissing the originating process. An order setting aside the 31 March 2016 resolution was made by consent on 20 June 2016.
On 26 August 2016, and again on 24 October 2016, Melrose made an offer to the liquidators, to the effect that both these proceedings and the liquidators' preference claim against Melrose be dismissed, with the liquidators to pay 50% of Melrose's costs. That offer was not accepted, and on 24 October 2016, Melrose made a further offer to the liquidators, to the effect that Melrose pay the liquidators $20,000 in satisfaction of the preference claim and relinquish its entitlement to costs orders already made in its favour in both proceedings, and that both proceedings be dismissed. Although marked "without prejudice", evidence of those offers was received under (NSW) Evidence Act 1995, s 11(2) and/or s 131(2)(k), as it was tendered to show that they were elements in an alleged abuse of process. [5]
By 9 December 2016, the only unresolved preference claim in the liquidation of Cardinal was that against Melrose, for $308,544. That claim was heard in the Federal Court over seven days, concluding in April 2017. Judgment is reserved.
[4]
Issues
Corporations Act, s 504, provides for the review by the court of a liquidator's remuneration fixed - in the case of a creditors' voluntary winding up - by the committee of inspection if there is one, and by the creditors if there is not:
504 Review of liquidator's remuneration
Any member or creditor, or the liquidator, may at any time before the deregistration of the company apply to the Court to review the amount of the remuneration of the liquidator, and the decision of the Court is final and conclusive.
On such a review, the ultimate test is whether the remuneration is in all the circumstances reasonable. [6] However, there is a threshold question as to whether the court should embark on a review, to which the test is whether there is some demonstrated need to inquire into the originally determined quantum. [7]
The issues are:
1. whether (as the liquidators submit) Melrose's claim in these proceedings is an abuse of process and ought to be dismissed on that basis; and
2. whether there is a demonstrated need for a review of the liquidators' remuneration.
[5]
Abuse of process?
The defendants' submission that the proceedings should be dismissed as an abuse of process relies not on any proposition that they are doomed to fail, but on the doctrine of collateral abuse of process, namely that proceedings are an abuse of process if brought not with the intention of being prosecuted to a conclusion for the remedy sought in them, but for the predominant purpose of obtaining some advantage for which they are not designed, or some collateral advantage beyond that which the law offers. [8]
To constitute an abuse of process, the commencement or maintenance of the proceeding must be for a purpose which does not include - at least to any substantial extent - the obtaining of relief within the scope of the remedy. [9] As Isaacs J observed in Varawa v Howard Smith Co Ltd: [10]
… the term 'abuse of process' connotes that the process is employed for some purpose other than the attainment of the claim in the action. If the proceedings are merely a stalking-horse to coerce the defendant in some way entirely outside the ambit of the legal claim upon which the court is asked to adjudicate they are regarded as an abuse of process for this purpose.
In this respect, as Brennan J explained in Williams v Spautz, there is a distinction between an improper purpose which will amount to an abuse of process, and an ulterior motive which will not: [11]
There is no impropriety of purpose (whatever may be said of motive) when a plaintiff commences or maintains a proceeding desiring to obtain a result within the scope of the remedy, even though the plaintiff has an ulterior purpose - or motive - which will be fulfilled in consequence of obtaining the legal remedy which the proceeding is intended to produce. To amount to an abuse of process, the commencement or maintenance of the proceeding must be for a purpose which does not include - at least to any substantial extent - the obtaining of relief within the scope of the remedy.
After referring to the following passage in the judgment of Bridge LJ in Goldsmith v Sperrings Ltd: [12]
What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired byproduct of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it.
Brennan J concluded that an abuse of process occurs when the only substantial intention of a plaintiff is to obtain an advantage or other benefit, to impose a burden or to create a situation that is not reasonably related to a verdict that might be returned or an order that might be made in the proceeding. [13]
The liquidators contend that these proceedings are an abuse of process by reason that they were commenced or are being maintained for an improper collateral purpose, in that the only substantial intention of Melrose is to obtain "leverage" in connection with the Federal Court preference proceedings, such that these proceedings are no more than a "stalking-horse" to coerce the liquidators into abandoning their preference claim against Melrose. They submit that that conclusion should be drawn from the following circumstances:
1. that the proceedings are commercially irrational, having regard to the potential economic cost and benefit to Melrose. Melrose is at present a creditor of Cardinal for $80,774 (about 0.23% of known claims including National Australia Bank, or 1.05% if claims of the Bank - being a secured creditor - are excluded). Even if the whole of the remuneration of $179,000 were disallowed, Melrose could benefit only to the extent of about $1,790. While, as Melrose submitted, its interest would increase if the preference claim against it were to succeed, it would still represent only about 5% of the unsecured creditors, so that the potential benefit to it would not exceed about $9,000. Commercially and rationally, this could not justify the proceedings;
2. that the timing of the institution of the proceedings revealed their true purpose: Melrose had made no objection to the quantum of the liquidators' remuneration before it commenced proceedings, and their commencement on 14 April 2016 was precipitated by the directions hearing on 7 April, when the preference proceedings were set down for hearing; and
3. that the true purpose was confirmed by the offers of settlement made on 26 August and 24 October 2016, proposing dismissal of the preference proceedings in return for dismissal of the present proceedings, and which, as the liquidators emphasise, were to the effect that the resolution of both proceedings was interdependent.
However, there are other considerations. First, absence of commercial rationality for legal proceedings can be explained by the intent of a party to pursue a matter of principle, regardless of the economic cost/benefit equation. Cases of litigation as a "matter of principle" regardless of the economic cost/benefit equation are notorious. [14] Secondly, the chronology is at least equally consistent with the precipitating factor being the meeting of 31 March 2016, in which Melrose participated and opposed the resolution of that date. Proceedings to appeal the liquidators' acceptance of the proof of debt on which the resolution depended had to be instituted within ten business days; that is to say by 14 April 2016. [15] Thirdly, the proceedings when instituted included a claim to set aside the 31 March 2016 resolution - to which the liquidators soon acceded, and which order was made by consent; in that light, the institution of the proceedings could not have been an abuse of process. Fourthly, when Melrose's offers were not accepted, and the preference proceedings proceeded to hearing and judgment was reserved, it did not abandon these proceedings, but continued to prosecute them to and at the hearing, for the remedy claimed in them, which tells strongly against the absence of intention to prosecute them for the remedy claimed.
In my view, the success of the proceedings in procuring the setting aside of the 31 March 2016 resolution is an insuperable obstacle to any contention that they were instituted improperly. As to their continuation, Melrose's participation in the 31 March 2016 meeting; its initially unsuccessful attempts to challenge the proxy on which the resolution turned; the seemingly cavalier approach of the liquidators to its objections; the liquidators' actions in then bringing their own application to reverse their decision to accept that proxy; and the quantum of the remuneration which the resolution would have approved, provide grounds on which a reasonable creditor, with the resources to do so, might have thought that the liquidators' past remuneration merited scrutiny.
The observations made by Wigney J of Mr Boné in In the matter of Petrolink Pty Ltd; Smith v Boné are readily transposable to Melrose in this case: [16]
[117] In particular, whilst it might safely be inferred that some of Mr Boné's conduct was motivated by a desire, if not determination, to stop Mr Smith from pursuing him and Valvelink in the insolvency of Petrolink, it does not follow that this was Mr Boné's predominant purpose in commencing and prosecuting the proceedings. There is evidence that supports the inference that Mr Boné was genuinely aggrieved and discontent with the level of Mr Smith's remuneration and the manner in which it had been purportedly approved. There are clear indications that Mr Boné genuinely wished to pursue Mr Smith in relation to this matter. The fact that in pursuing Mr Smith in relation to this matter Mr Boné had in mind, as a desired by-product of the action, that Mr Smith might ultimately be pushed into discontinuing the actions against him and Valvelink, does not mean that the bringing and prosecution of the application was an abuse of process.
An abuse of process is a serious allegation, and where it depends on circumstantial evidence, should not be inferred where it is but "a choice among rival conjectures"; rather, there must be "evidence supporting some positive inference … which arises as an affirmative conclusion from the circumstances proved in evidence". [17] The circumstances must do more than give rise to conflicting inferences of equal degrees of probability. [18] As was the case with Mr Boné in Petrolink, there is a reasonable hypothesis, which is not less probable than that the predominant purpose was improper (let alone clearly so), that Melrose believed it had a proper claim for review of the liquidators' remuneration, and that even if it had an ulterior purpose in pursuing that cause of action - namely, that the liquidators might be persuaded to discontinue the preference claim - its substantial purpose in bringing and prosecuting the present proceedings application was to obtain the relief claimed in them.
Accordingly, the liquidators have not established that these proceedings are an abuse of process.
[6]
Demonstrated need for review?
The criterion identified by s 473(10), namely "whether the remuneration is reasonable, taking into account any or all of" the enumerated matters, is relevant to the threshold decision whether or not to review, as well as in exercising the power to review; although on the threshold question, there will generally be no occasion to come to firm conclusions, and the approach will be more impressionistic. [19] The onus upon a person seeking to persuade the court to undertake a review is not a particularly heavy one, and it suffices if there is a well-based suspicion indicating a need for further investigation. [20]
At present - the 31 March 2016 approval having been set aside - the liquidators are entitled to (and have fully drawn) remuneration of $179,219 (in addition to their remuneration as administrators of $43,974), as follows:
remuneration approved 1 February 2012 - $45,000;
additional remuneration to 31 October 2013, approved 31 January 2014 - $34,219; and
remuneration 1 November 2013 to conclusion of liquidation, approved 31 January 2014 - $100,000.
That is the remuneration the subject of the present review application. Melrose drew attention to the circumstance that the total approved remuneration for the Group was $1,122,515, but although the liquidators were also liquidators of four related entities, and their reports to creditors related to all the entities, it is only their remuneration in respect of Cardinal that is presently the subject of review, and the remuneration they have received or to which they may be entitled in respect of the other related entities does not of itself inform the reasonableness of their remuneration in respect of Cardinal.
The liquidators' time sheets evidence work performed for the period since 1 November 2013 which, at their applicable hourly rates, substantially exceeds the sum of $100,000. It was to this work that the 31 March 2016 approval, since set aside, related. Melrose points out that that the liquidators may well seek a further approval in respect of their post-1 November 2013 work and the liquidators did not indicate otherwise. However, at this stage their approved remuneration is $179,219 for the entire liquidation until its conclusion, and accordingly the present application is concerned with the liquidators' approved remuneration in respect of Cardinal of $179,219, on the basis that it is their remuneration to the conclusion of the liquidation. If they seek and obtain a further approval in respect of post-1 November 2013 work, it would be liable to be reviewed, not limited to the period to which any further approval related, but having regard to the totality of work done during the liquidation and the total remuneration.
The principal relevant matters pointed to on behalf of Melrose as indicating a need for a review were that:
1. the company did not trade after the liquidators were first appointed as administrators, yet remuneration was claimed in respect of "employees" and "trade on";
2. for the period from 19 December 2011 until 21 February 2013, the receivers were in control of the assets, and the company's assets were realised by the receivers, thus the liquidators did not have to realise and get in assets;
3. much of the work done by the liquidators is characterised by them as "investigation". However, in the preference proceedings in the Federal Court, the cross-examination of Mr Stone showed that the investigations had been superficial;
4. the liquidators have provided no real explanation why the remuneration originally approved to the end of the administration has proved insufficient; and
5. the recoveries would have been exhausted by liquidators' remuneration, had the 31 March 2016 approvals not been set aside.
However:
1. the amounts claimed in respect of "employees" and "trade on" were minimal, and entirely explicable on scrutiny of the liquidators' detailed records of work done;
2. the cross-examination of Mr Stone in the Federal Court may well support the view that the liquidators undertook little analysis of the company's pre-liquidation solvency status, or of the causes of the company's failure. But it does not demonstrate that the liquidators did not perform the work recorded in their time sheets; and
3. the liquidators' time sheets evidence the performance of substantial work which, at their rates, exceeds their approved remuneration.
Out of recoveries of $674,500 to date, legal costs have accounted for $205,000 (30%), funder's premium $153,630 (22%), and liquidators' remuneration $179,219 (26%), leaving $151,390 in the bank account. Had the 31 March 2016 approval stood, questions of proportionality would have loomed very large, as liquidators' remuneration would then have exhausted the available fund, and resulted in a situation where the sole beneficiaries of the preference proceedings would have been the liquidators, their solicitors and the funder. However, as things stand, the 31 March 2016 approval having been set aside, that is not the case. This application is not concerned with the liquidators' disbursements, and in particular legal costs. In a case where substantially all of the available assets have been recovered as a result of the exertions of the liquidators through preference, involving a measure of risk (albeit mitigated by the sourcing of a litigation funder), remuneration in the order of 25% of recoveries does not seem to me to be self-evidently disproportionate.
Moreover, if one thing is clear from the judgment of the Court of Appeal in Sanderson v Sakr, [21] it is that one must have regard to the work actually done by the liquidators. The best evidence of that is to be found, in the present case, in their timesheets. By no means does this mean that I would necessarily approve their remuneration on a time-costed basis. However, having regard to the work actually done by liquidators as evidenced by their timesheets (including in respect of the period since 1 November 2013), the recoveries generated and the manner in which they were obtained, I am comfortably satisfied that the remuneration so far approved of $179,000, for the entirety of the liquidation until its conclusion - which represents 26% of recoveries - is not unreasonable, and there is no warrant for a review.
[7]
Conclusion
For those reasons, I have concluded that:
1. the liquidators have not established that these proceedings are an abuse of process;
2. however, I am comfortably satisfied that the remuneration so far approved of $179,000, for the entirety of the liquidation until its conclusion - which represents 26% of recoveries - is not unreasonable, and there is no warrant for a review.
The Court orders that:
1. Save insofar as orders have already been made on it, the application be otherwise dismissed.
2. The liquidators pay the plaintiff's costs up to and including 20 June 2016, and thereafter the plaintiff pay the liquidators' costs.
[8]
Endnotes
The originating process also sought the setting aside of a resolution approving remuneration which was purportedly passed at a creditors' meeting on 31 March 2016, but on 20 June 2016 orders were made by consent setting aside that resolution, leaving the application for review the only live issue.
In the same report, which (like subsequent reports to creditors) related to all four companies in administration, the administrators also sought approvals for remuneration in respect of the other three companies.
A similar resolution was carried by the creditors of each of the related companies that had been in administration.
The National Australia Bank's secured claim was in the order of $26,000,000, which related to all the group companies.
See Van Der Lee v New South Wales [2002] NSWCA 286 at [24], [62], [68].
Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at 45-46 [76]-[78].
Paul's Retail Pty Ltd v Morgan [2009] NSWSC 1222; (2009) 76 ACSR 26 at [79] (Barrett J), in a passage not challenged by either party on appeal (Paul's Retail Pty Ltd v Morgan [2010] NSWCA 217; (2010) 79 ACSR 580 at [54]-[56]); see Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [75] (Barrett J).
Williams v Spautz (1992) 174 CLR 509 at 526-527, 529.
Williams v Spautz (1992) 174 CLR 509 at 535.
(1911) 13 CLR 35 at 91.
(1992) 174 CLR 509 at 535.
[1977] 1 WLR 478 at 503.
Williams v Spautz (1992) 174 CLR 509 at 537.
Robinson v Balmain New Ferry Co Ltd [1910] AC 295 being, perhaps, the paradigm.
In the matter of Petrolink Pty Ltd; Smith v Boné [2014] FCA 1024 at [117] (Wigney J),
In the matter of Petrolink Pty Ltd; Smith v Boné [2014] FCA 1024 at [17] (Wigney J), citing Ashby v Slipper (2014) 219 FCR 322 at [71], quoting from Jones v Dunkel (1959) 101 CLR 298 at 304.
In the matter of Petrolink Pty Ltd; Smith v Boné [2014] FCA 1024 at [17] (Wigney J), citing Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466
at [38]; Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5; Holloway v McFeeters (1956) 94 CLR 470 at 480-481; Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 at [31].
Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [77] (Barrett J).
Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [78] (Barrett J).
[2017] NSWCA 38 at [63], [64].
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Decision last updated: 17 April 2018