Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd

Background facts

1. The relevant factual background emerges from the affidavits and the documentary evidence and was uncontested. SEQ relies on affidavits sworn by its director, Mr Stephen Duval dated 1 October 2014, its business manager Mr Andrew Biber dated 23 June 2015 and its solicitor, Mr Darrin Mitchell dated 23 June 2015. I have drawn on the helpful submissions prepared by Mr Fernon of Counsel, who appeared for SEQ in this application, in the narrative of facts and legal analysis that follows.
2. SEQ is engaged in the business of event management and the Company was engaged in the business of artist management. The liquidators were appointed as liquidators of the Company on 24 August 2009. Investec was senior lender to, and a participant in, a joint venture between several parties, including SEQ and the Company in respect of an Australian tour ("the tour") by an American entertainer, David Copperfield, and was designated to hold and pay monies collected under several agreements in respect of that tour. The Company in turn engaged third parties to provide services for the tour, which invoiced it for services provided, and it then issued directions to pay the relevant invoices to Investec. Those arrangements were documented by several agreements to which SEQ, the Company, Investec and a mezzanine lender were party, including a Senior Loan Agreement (Ex A2, tab 1), Mezzanine Loan Agreement (Ex A2, tab 2), Collection Account Management Agreement dated 2 March 2009 (Ex A1, tab 5; Ex A2, tab 3) ("CAMA") and Payment and Priority Deed (Ex A2, tab 4).
3. Clause 9.1 of the Payment and Priority Deed dated 2 March 2009 provided for proceeds received by any of the parties to be paid to Investec and applied in priority, first to Investec, then to the mezzanine lender and then in accordance with the CAMA. The CAMA in turn provided that the monies collected from the tour were to be held on trust for the relevant parties by Investec then disbursed in accordance with cl 4.1 of the CAMA. Clause 2.4 of the CAMA, which is important to the conclusions that I reach below, provided that: "The Senior Lender agrees to hold in trust, until their distribution, all Collected Gross Receipts standing to the credit of the Senior Lender's BDA Account, the rights vis-à-vis the Senior Lender's BDA Account and all rights in regard to the Bank as agent for the parties (including itself) who shall be the owners or the deemed owners thereof in accordance with the Entitlements" [emphasis added] The term "Collected Gross Receipts" is in turn defined in cl 1 of the Collection Management Agreement as "Gross Receipts" credited to the Senior Lender's BDA Account, including "Deemed Collected Gross Receipts" as defined. The term "Entitlement" is in turn defined in the CAMA" as "such part or parts of the Collected Gross Receipts which are payable to each party in accordance with the Recoupment Schedule" and the term "Recoupment Schedule" is defined as the Recoupment Schedule for the tour providing for the distribution of Gross Receipts attached as Schedule 1 to the CAMA.
4. Clause 4.1 of the CAMA in turn provided that the Collected Gross Receipt (as defined) that were received in Investec's BDA Account were to be allocated and paid out by Investec in accordance with the Recoupment Schedule that is Schedule 1 to that Agreement. That schedule in turn permitted SEQ and the Company to vary the amounts payable between them as follows (Ex A1, tab 5, p18; Ex A2, tab 3, p118): "The arranger [SEQ] and the promoter [the Company] may by written notice to [Investec] executed by both [SEQ] and [the Company] and served upon [Investec] and the Mezzanine Lender vary the amounts payable to [SEQ] but so that any such variation does not decrease any amount payable to [Investec] and the Mezzanine Lender."
5. An Amending Deed dated 17 March 2009 (Ex A1, tab 6) in turn provided for the approved budget and cash flow schedules, as set out in the Senior Loan Agreement and the Mezzanine Loan Agreement, to be varied to permit additional marketing for the tour and deferred certain fees due to Investec, the Company and SEQ which were instead to be paid under the Approved Expenses Cash Flow Schedule in the Amending Deed. A producer fee of $55,000 (or possibly $25,300) payable to the Company and an establishment fee of $110,000 payable to Investec were deferred under that Schedule and a management fee of $55,000 (or possibly $25,300) (part of which was later paid), a structuring fee of $110,000 and commission of $34,363.33 payable to SEQ, which together give rise to the current balance of the Deferred Fees in the amount of $169,363.33, were also deferred under that Schedule. SEQ points out, and no other party contests, that the parties' consent to payment of the Deferred Fees and other fees due to Investec and the Company was given by the execution of the Amending Deed containing that Schedule.
6. Mr Fernon pointed out, in the course of submissions, that the Schedule to the Amending Deed (Ex A1, tab 6) is unclear as to whether an amount of either $25,300 or $55,000 is to be treated as a Deferred Fee due to the Company. After the oral hearing before me, Mr Fernon fairly drew attention to the fact that, if the higher amount of $55,000 was to be deducted from the amount received by the Company's liquidator, the balance remaining would be $168,349.14, which is slightly less than the amount claimed by SEQ. SEQ indicated that, to avoid the necessity to determine any dispute as to that issue, it would accept the lower amount of $168,349.14, if the elements of its claim were otherwise established. I will proceed on that basis.
7. By email dated 6 August 2009, SEQ requested a confirmation from the Company that deferred fees due to Investec, SEQ and the Company would have priority for payment over other post-event expenses, as outlined in the Amending Deed dated 17 March 2009 and, by email dated 7 August 2009, the Company's director confirmed his agreement to that proposal (Ex A3).
8. Fees due to Investec were paid on 10 August 2009, including the deferred fee due to it under the Approved Expenses Cash Flow Schedule to the Amending Deed and the final payment due to the mezzanine lender was made on 21 August 2009.
9. By his affidavit dated 1 October 2014, Mr Duval referred to an agreement which he reached with the director of the Company on 21 August 2009 to the effect that the CAMA would be amended so that Deferred Fees due would have priority for payment over other post-event expenses set out in the Amending Deed (Duval 1.10.14 [17]). That agreement was documented by an exchange of correspondence which concluded on 21 August 2009, by which the Company and SEQ varied the priority of the amounts payable between them. That correspondence commenced with an undated letter from the Company to SEQ and its director (Ex A1, tab 7) which provided that: "With reference to the Payment and Priority Deed dated 2nd March 2009, the deferred fees due to [Investec, SEQ and the Company] will get priority for payment over any other post-event expenses, as outlined in the Amending Deed dated 17th March 2009." That proposal was accepted by SEQ by letter dated 21 August 2009 (Ex A1, tab 8) which attached a copy of the Company's letter and noted that: "We confirm the arrangement set out in that Deed in respect of additional payments is acceptable to us and we note that under cl 8.18 of the Collections Account Management Agreement, counterpart execution is allowed for and to the extent that it might be deemed necessary, this note should be taken to be [SEQ's] executed counterpart."
10. That variation complied with the requirements of the provision in the Schedule to the Amending Agreement, so far as it did not decrease any amount payable to Investec or the mezzanine lender, which (as I will note below) had each been paid the fees due to them by about that time. The liquidators have otherwise taken no point in these proceedings that the arrangements reached between SEQ and the Company, three days before the Company was placed in voluntary liquidation, were open to challenge.
11. SEQ then emailed the correspondence comprising that notice to Investec and the mezzanine lender and copied to the Company and instructed the payment of the Deferred Fees to SEQ (Ex A1, tab 11). It seems to me that a written notice to Investec, for the purposes of the Recoupment Schedule to the CAMA, could be comprised of more than one document executed by both SEQ and the Company. By email of the same date, Investec accepted that it was bound to pay the amount of $203,000 to SEQ in accordance with the CAMA (and later) paid that amount to SEQ on 25 August 2009, but took the view that remaining monies should be paid to the Company (Ex A1, tab 10). By email dated 21 August 2009 (Ex A1, tab 9; Ex A1A), SEQ again requested payment of the amount of $203,000 which it claimed was due under the Schedule to the Amending Deed, together with Deferred Fees pursuant to the variation noted above.
12. The Company was placed in liquidation under a creditor's voluntary winding up on 24 August 2009. The balance of monies due to Investec were paid by 25 August 2009.
13. Investec did not pay the Deferred Fees to SEQ and paid the amount of $223,349.14 to the liquidators of the Company on 1 September 2009. When the matter was heard on 25 June 2015, I noted, by consent that: "[Investec] admits that on 1 September 2009 a payment in the sum of $223,349.14 was made from an account held by [Investec] in the name of [the Company] to [the liquidators' trust account]."
14. It is common ground between the parties that the liquidators still hold the amount of $168,427 of the monies received from Investec.

Application for leave under s 500 of the Corporations Act

1. SEQ submits that leave should be granted to it under s 500 of the Corporations Act 2001 (Cth) to pursue these proceedings, because its claim is a proprietary claim. That proposition is straightforward, where the proof of debt procedure does not permit proprietary claims to be advanced or adjudicated, and supports the grant of such leave: Hewlett Packard Australia Pty Ltd v Siltek Holdings Pty Ltd [2005] NSWSC 672 at [7]; Oliveri v PM Sulcs & Associates Pty Ltd (in liq) [2012] NSWSC 1311 at [10]. I am satisfied, for the purposes of the relevant application, that SEQ's claim to a proprietary interest in the relevant monies has a solid foundation and gives rise to a serious dispute, so that a serious question to be tried is established, and that supports the grant of leave: Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556. Accordingly, leave should be granted to SEQ to bring the relevant proceedings under s 500 of the Corporations Act.

Whether monies held by Investec were held on trust

1. SEQ contends, and I accept, that the monies held by Investec were held on trust pursuant to the terms of the CAMA. I am satisfied that cl 2.4 of the CAMA, to which I referred above, was sufficient to create an express trust over the relevant monies. In order to establish a trust, the intent to do so must be clear and it must also be clear what property is subject to the trust and reasonably certain who are the beneficiaries: Kauter v Hilton (1953) 90 CLR 86; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 at 604. Those matters are plainly satisfied in respect of the relevant clause. The Schedule attached to the CAMA in turn provided for variation of the amount payable as between SEQ and the Company by a particular mechanism, namely the giving of written notice of the variation by SEQ and the Company to Investec and the mezzanine lender, and that occurred in this case. That variation required the payment to SEQ of the amounts due to it by way of Deferred Fees, in priority to the payment to the Company of amounts not referable to Deferred Fees.
2. I have given consideration to whether the relevant trust terminated when Investec paid the amount of the Deferred Fees to the Company, so that SEQ is unable to maintain a claim that those monies are held in trust after that date, and I afforded the parties an opportunity to make further submissions as to that question after I reserved my judgment. Clause 2.4 of the CAMA, to which I have referred above, which is the source of the trust on which SEQ relies, expressly provides that Investec agrees to hold the funds in trust until their distribution. The intent of that clause is obviously at least that the trust attaches to those funds while they are in Investec's hands, and ceases when they are distributed. A view might have been open that distribution of the relevant funds occurred, by payment of them to the Company, by its liquidators; the relevant trust ceased to exist at the point that occurred; and that, when the liquidators received those funds, they were no longer subject to the trust (because, by definition, they had been distributed) and no proprietary claim was available against the Company or the liquidators.
3. Mr Fernon, in those further submissions, pointed to the provision in cl 4.1 of the CAMA for payment out in accordance with the Recoupment Schedule, to which I have referred above; and emphasised that the "distribution" contemplated by cl 2.4 of the CAMA was a distribution to the parties who were treated as the owners of the relevant funds "in accordance with their Entitlements", as defined, and submitted that the effect of the variation made by the Company and SEQ, in accordance with the Recoupment Schedule to the CAMA was that SEQ was treated as owner of the Deferred Fees under that clause. I have concluded that, on balance, the concept of "distribution" of funds in cl 2.4 of the CAMA is directed to a distribution in accordance with the parties' Entitlements (as defined), and the trust does not terminate on a distribution to the Company that did not, on the view that I take, give effect to either the Company's entitlements or SEQ's entitlements as varied in accordance with the Schedule to that Agreement.
4. It is not necessary to address the question whether a claim for breach of trust might have been available against Investec, so far as it paid out the funds to the liquidator and SEQ, at a time that they were still subject to the relevant trust, in a manner which, on SEQ's case, was inconsistent with the relevant trust, because SEQ expressly abandoned a claim for breach of trust against Investec and the liquidators as part of orders made by consent prior to the hearing of the application. SEQ also did not pursue any claim for breach of contract against Investec in respect of the payment made to the Company, by its liquidators.
5. SEQ contends that the liquidators, on behalf of the Company, received monies from the trust as volunteers, and therefore hold those monies subject to the trust. I accept Mr Fernon's submission that, on the basis that the relevant trust did not terminate at the moment of distribution, where it was made to a party not entitled to it, the liquidators received the trust funds as volunteers and were bound by the relevant trust. The relevant principles were summarised by Brereton J in Chong v Chanell [2009] NSWSC 765 at [28] where his Honour noted that: "So far as tracing in equity is concerned, the principles governing the right of a claimant to trace property into the hands of a third party who has received them include the following [Re Diplock's Estate [1948] Ch 465 at 517 and 557; Jacob's Law of Trusts in Australia, 5th ed [2719]]: 1. If the property has been transferred to someone who has taken the legal estate for value without notice of the claim, then the property cannot be followed [Re J Leslie Engineers Co Ltd [1976] 2 All ER 85]; 2. If the transfer is to a volunteer who takes without notice and there is no question of mixing, the transferee holds the property on behalf of the true owner, whose equitable right persists against him [Strang v Owens (1925) 42 WN(NSW) 183] …" His Honour there held that an unauthorised payment of trust funds paid to a third party could, relevantly, be traced into his hands as recipient if he received them as a volunteer. Those principles are summarised in similar terms in the leading texts: see, for example, JD Heydon & MJ Leeming, Jacob's Laws of Trusts in Australia, 7th ed, [2711]; PW Young et al, On Equity, [12.870]-[12.900]. There is no suggestion that the Company received the amount of the Deferred Fees paid to it, which I have held were subject to the relevant trust, other than as volunteer.
6. Accordingly, SEQ's claim succeeds. By consent, there is no order as to costs. I make the following orders:
7. Leave be granted pursuant to s 500(2) of the Corporations Act 2001 (Cth), nunc pro tunc, for the plaintiff to commence and maintain these proceedings against Bigdeal Artist Management Pty Limited (ACN 003 657 387) (in liquidation).
8. The First Defendant and the Second Defendants (in their capacity as liquidators of the First Defendant) pay the Plaintiff the sum of $168,349.14.
9. There be no order as to the costs of the proceedings.

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