Atco Controls Pty Ltd (in Liquidation) v Stewart & Anor [2013] VSCA 132

Atco Controls Pty Ltd (in Liquidation) v Stewart & Anor [2013] VSCA 132 - VSCA 2013 case summary — Zoe

[37]

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co (1867) LR 4 Eq 601 at p 611). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co; Perry v Oriental Hotels Co (1871) LR 12 Eq 126). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf In re Regent's Canal Ironworks Co; Ex parte Grissell (1875) 3 Ch D 411, per James LJ at p 427; and see Batten v Wedgwood Coal and Iron Co (1884) 28 Ch D 317 per Pearson J at p 325).

In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property ... In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate... The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.[14]

[254]

In addition to the anxiety of the court to protect the position of its officer, in particular, lest there be in the future an absence of persons willing to take such appointments, the claims of the officer under a court-appointed administration may be seen as in the nature of 'salvage'. The principle is that those taking the benefit of the administration should not escape bearing the burden of the proper cost of it: see In the Matter of Tharp [1852] EngR 659; (1852) 2 Sm & Giff 578; [1852] EngR 659; 65 ER 533 and Re Berkeley Applegate (Investment Consultants) Ltd (In liq); Harris v Conway [1989] Ch 32 at 51. In the latter decision, it was held (at 50-51) that there was:

'... 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 be made, it would have had to be done either by the person entitled to the equitable interest (as in Re Marine Mansions Co (1867) LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt [1808] EngR 39; (1808) 14 Ves Jun 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v Boardman [1964] 1 WLR 993; [1964] 2 All ER 187).'

Similar reasoning supports what was said by Dixon J in Re Universal Distributing Co Ltd (In liq) (supra) as to the costs and expenses of one who has by his efforts brought into court a fund for administration. This must be so particularly where the administration has been conducted by an officer appointed by the court for that purpose.[163]

[321]

Subrogation, like other equitable doctrines, is applicable to a variety of circumstances, as explained earlier in these reasons. One circumstance concerns sureties, another the paying off of an existing mortgage. But that is not to say that subrogation is a 'tangled web'[234] in need of the imposition of the 'topdown' reasoning which is a characteristic of some allembracing theories of unjust enrichment.[235]

Such allembracing theories may conflict in a fundamental way with wellsettled equitable doctrines and remedies. Reference was made in the opening paragraph of these reasons to the importance attached by equity to the fashioning of the particular remedy to meet the nature of the case. The administration of the remedies of injunction and specific performance provides perhaps the most obvious examples. So also the remedial constructive trust, as these reasons have sought to demonstrate.

Equity has been said to lack the necessary 'exacting taxonomic mentality' when providing an appropriate remedy for unconscientious activity.[236] The better view is said to be that liability in 'unjust enrichment' is strict, subject to particular defences,[237] while '[t]he unreliability of conscience' offends the precept that like cases must be decided alike and not by 'a private and intuitive evaluation'.[238]

But the experience of the law does not suggest debilitation by absence of a sufficiently rigid taxonomy in the application of equitable doctrines and remedies. And legislatures have taken the same view in Australia, notably by calling upon equitable analogues in framing the remedial provisions laid out in Pt VI of the Trade Practices Act 1974 (Cth).

As these reasons have sought to show, the relevant principles of equity do not operate at large and in an idiosyncratic fashion. So it was that in Boscawen v Bajwa,[239] Millett LJ, after denying that subrogation is a remedy which the court has a general discretion to impose whenever it thinks fit to do so, went on:

'The equity arises from the conduct of the parties on well settled principles and in defined circumstances which make it unconscionable for the defendant to deny the proprietary interest claimed by the plaintiff.'[240]

[346]

In Jarbin Pty Ltd v Clutha Ltd (in liq) [2004] NSWSC 28; (2004) 208 ALR 242, Campbell J concluded at [68] that s 564 operates as an exception to the prima facie equality of treatment of 'all unsecured creditors within the respective classes which s 556 recognises'. Barrett J in Australia and New Zealand Banking Group Ltd v TJF EBC Pty Ltd [2006] NSWSC 25; (2006) 224 ALR 490 accepted at [8] that as a matter of power the Court may under s 564 make an order that causes a creditor chosen for preferred treatment to rank ahead of 'any one or more of the creditors having claims within the s 556(1) categories'. That construction was said to follow firstly because s 556(1) is subject to Division 6 and thus subject to the power conferred on the Court by s 564 and secondly, because s 564 provides that a preferred creditor may be given an advantage 'over others in consideration of the risk assumed'. At [9], Barrett J said this:

Section 564 contemplates that assisting or indemnifying creditors within its purview may be given 'an advantage over others'. The section does not say 'all others' or 'some others' or 'any others'. In referring to 'others' generally, it contemplates, in my view, that the court may, by its order, give the assisting or indemnifying creditors 'an advantage over' any one or more of the other creditors or all of them, with the result that the court may, as a matter of jurisdiction, cause the debts of the creditors in question to be placed on any of the rungs of the ladder of priority created by s 556(1) (and, within a particular rung, above, below or beside the creditors with claims that s 559 causes to rank equally inter se), above the topmost of those rungs or below the bottom rung (yet ahead of 'all other unsecured debts and claims'). In short, s 564 is cast in terms giving the court a complete discretion regarding positioning of the whole or any part of the debts of the assisting or indemnifying creditors on the scale of priorities in the winding up and the opening words of s 556(1) cause any such positioning ordered by the court to have effect despite what would otherwise be the order of priority under s 556(1).

That view of the scope of the power conferred on the Court by s 564 and the relationship between s 564 and s 556(1) was adopted by Austin J in Australian Steel Company v EPS Group [2006] NSWSC 1080; (2007) 59 ACSR 602 although his Honour thought that the discretion was not correctly described as a 'complete discretion' or a 'totally open discretion' but rather a power to make such orders as the Court deems just. Nevertheless, the discretion is conferred in broad terms.[254]

[406]

295 I agree with Atco that it is inappropriate to consider in isolation the "benefit" that Atco would obtain from being paid the settlement sum. Of course, compared to its current position, Atco would be better off with the settlement sum than without it. The value of this monetary "benefit" is objectively measurable, whereas the same cannot always be said in relation to the provision of goods or physical services. However, that does not necessarily mean that if Atco takes the settlement sum, it will have received an "incontrovertible benefit," within the meaning of the relevant authorities, from the work done by the liquidator. Far from it. An affidavit of Atco's solicitor, Andrew John Chambers, dated 2 December 2010, was in evidence before the Associate Judge and the learned trial judge. In paragraph 7, Mr Chambers deposes that Atco's actual costs, including counsel's fees, of the trial proceeding, the Court of Appeal proceeding, the High Court proceeding and the proceeding brought by Newtronics to appoint a special purpose liquidator over Atco, exceed the sum of $1.25 million. Mr Chambers was not crossexamined on this affidavit. It is true that Atco has been paid an agreed amount for its costs of the trial, a taxed amount for its costs of the appeal to the Court of Appeal, and an assessed amount for its costs of the High Court special leave application. The costs of the special purpose liquidator application were reserved.[287] The total of the amounts already paid to Atco for costs is approximately $435 000. The respondents rightly say that that amount, at least, should be notionally deducted from Mr Chambers' total figure for Atco's actual costs, namely (in excess of) $1.25 million. This means that if the liquidator's equitable lien were recognised and enforced in priority to Atco, Atco may only be out of pocket approximately $815 000 on the entire exercise. The respondents also point out that Atco's claimed actual legal costs of (in excess of) $1.25 million amount to approximately three times its taxed or agreed costs. The respondents do not suggest anything improper in relation to the incurring of costs by Atco, but they do say that if Atco wishes to take a "Rolls Royce" approach to its litigation, it should not be heard to rely on that as a basis to set aside an equitable lien that would otherwise be enforced.[288]

At a glance

Court

Decision date

Before

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Judgment (648 paragraphs)

Atco Controls Pty Ltd (in Liquidation) v Stewart & Anor [2013] VSCA 132 (25 June 2013)

Parties

Legislation Cited (1)

Cases Cited (28)