Burns Philp Investment Pty Ltd v Dickens

COUNSEL : Mr S Golledge, Solicitor - Applicant Mr B W Rayment QC - Respondent SOLICITORS : The Argyle Partnership - Applicant Rockliffs - Respondent CATCHWORDS : CORPORATIONS - winding up - remuneration of court appointed liquidator - creditor/contributory alleges breach of duty by liquidator - whether fixing of remuneration is occasion for assessment of such claims - procedure for determining remuneration and any impact of such claims thereon LEGISLATION CITED : Corporations Act 2001 (Cth) Corporations Act Rules Re Addstone Pty Ltd; Ex parte Macks (1998) 30 ACSR 177 Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 Re Carton Ltd (1923) 128 LT 629 City and Suburban Pty Ltd v Smith (unreported, FCA, 9 July 1998) Re Fine Food Distributors Pty Ltd (1993) 9 ACSR 599 CASES CITED : Re Kal Assay Southern Cross Pty Ltd (1992) 9 ACSR 245 Re Club Athletique Canadien Inc (1918) 20 Que P R 119 Leslie v Hennessy [2000] FCA 1532 Mayne v Jaques (1960) 101 CLR 169 Re Medforce Healthcare Services Ltd [2001] 3 NZLR 158 Re Palmer; Ex parte Taylor (1988) 18 FCR 271 Venetian Nominees Pty Ltd v Conlan [1998] WASCA 273 DECISION : Application to strike out objection to remuneration claim dismissed

• 2 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1236/00 - THE ANDERSON GROUP PTY LIMITED JUDGMENT 1 The Anderson Group Pty Ltd was wound up in insolvency by order made on 3 March 2000. Mr Mann was appointed liquidator but was afterwards replaced by Mr Palmer. The change was effected in accordance with consent orders made on 8 June 2001 in proceedings 2210/01 in which Mrs Christine Anderson, a creditor and the sole contributory of the company, sought Mr Mann's removal. Pursuant to the consent orders, Mr Mann resigned as liquidator. The orders included a direction to the new liquidator as follows: "As soon as he is able, to pay to Mann his proper fees, costs and expenses incurred by Mann as liquidator, including his reasonable costs, assessed on a solicitor and client basis, of these proceedings." 2 By interlocutory process filed on 7 January 2002 in these proceedings 1236/00 (being the winding up proceedings), Mr Mann sought, under s.473(3)(b)(ii) of the Corporations Act 2001 (Cth), an order that his remuneration as liquidator be determined in the amount of $142,252.69. Thereafter, Mrs Anderson, acting in accordance with rule 9.4(4) of the Corporations Act Rules, gave to Mr Mann a notice of objection to the remuneration claimed by him. A copy was filed on 8 April 2002. 3 By interlocutory process filed on 24 April 2002, Mr Mann sought an order striking out paragraphs 1 and 2 of Mrs Anderson's notice of objection. In accordance with directions made by me on 13 May 2002 and 1 July 2002, written submissions were filed on behalf of both Mrs Anderson and Mr Mann in relation to the latter's application to strike out paragraphs 1 and 2 of Mrs Anderson's notice of objection. These were supplemented by oral submissions which I heard on 14 August 2002. 4 The controversy about Mr Mann's strike-out application is, needless to say, best understood in the light of a brief description of the paragraphs in question. 5 Paragraph 1 of Mrs Anderson's notice of objection contends that the remuneration claimed by Mr Mann is excessive or unreasonable or both and many of his actions were not proper upon grounds pleaded by her in the removal proceedings. There are references to a number of particular matters in support of allegations that Mr Mann proposed or threatened to sell a major asset at an undervalue; that he failed to conduct a proper investigation of the affairs of the company and to take control of its property; that he did not conduct the winding up with due dispatch; that he did not afford due weight to the interests and wishes of the sole contributory; that he did not act impartially; that he refused to investigate possible claims by the company against other persons; and that, in other respects, his conduct fell short of that to be expected of a liquidator. Paragraph 2 of the notice of objection contains a contention that Mr Mann should have resigned promptly after one or other of several alternative points during his administration at which various criticisms were levelled at him. 6 I hasten to say that these are all untested allegations against an officer of the court which, on investigation, may prove to be unfounded. At this point, the question is whether the matters to which Mrs Anderson refers should be entertained in such a way that they may be taken into account in a negative way in the fixing of Mr Mann's remuneration as liquidator. Mrs Anderson contends not only that the matters in question should operate to deny or reduce remuneration but also that remuneration fixed without an appropriate reflection of the adverse factors would not be "proper" remuneration as referred to in the consent orders. 7 I do not pause at the moment to consider the basis of the strike-out jurisdiction that Mr Mann seeks to invoke. I move directly to the reasons why he says the matters raised in Mrs Anderson's paragraphs 1 and 2 should not be permitted to be agitated upon the determination of remuneration under s.473(3)(b)(ii). 8 Mr Mann's first contention is, in effect, that Mrs Anderson is precluded by the consent orders of 8 June 2001 from raising in the present context the matters of complaint she sought to advance in the removal proceedings that were compromised by the consent orders. The direction to the incoming liquidator to pay Mr Mann's "proper" remuneration is said to amount to an effective acceptance by Mrs Anderson that there would be no further agitation of the complaints she raised in support of her application to have Mr Mann removed. 9 I do not accept this submission. The reference to "proper" remuneration cannot be regarded as anything more than a reference to such remuneration as is duly fixed by the applicable processes. If, therefore, any misconduct in which a liquidator may have engaged in the course of a particular administration produces a denial of or reduction in the remuneration that would otherwise be payable, that is what is "proper". The submission therefore cannot avoid the question whether misconduct by a liquidator is to be taken into account in a fixing of remuneration by the court. 10 The central contention advanced on behalf of Mr Mann is that proceedings under s.473(3)(b)(ii) are not the appropriate occasion for the determination of issues going to the propriety of a liquidator's conduct as liquidator. Submissions made for Mr Mann emphasised that, where winding up occurs by order of the court, the liquidator is appointed by the court as its officer to wind up the company on the court's behalf; that the legislation contains a particular regime for remunerating that service; and that allegations of misfeasance and the like, if made at all, should be made and pursued through channels separate from the fixing of remuneration. Section 536(1) was identified as the main such channel. 11 Under s.473(3)(b)(ii), a liquidator has an entitlement to have his or her remuneration fixed by the court if other methods do not result in its being fixed. As with a trustee in bankruptcy, a liquidator "becomes entitled as remuneration to what is fixed (subject to alteration as provided) but only upon its being fixed": Mayne v Jaques (1960) 101 CLR 169 at 176 per Menzies J. And it is to be remembered that the remuneration is remuneration for the services actually rendered and the work actually done. The worth of this may be calculated in various ways, whether by reference to "the results obtained" that is on a percentage basis (Re Carton Ltd (1923) 128 LT 629) or by reference to the time expended (Burns Philp Investment Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280). It was suggested by Master Gambrill of the High Court of New Zealand in Re Medforce Healthcare Services Ltd [2001] 3 NZLR 158 that the time basis is more common in Australia than it is in the United Kingdom and Canada where the percentage approach is preferred. 12 In the ordinary course, the process of determination comes down essentially to ensuring that the work upon which the claim was based was work undertaken in the due course of administration and that the amount claimed for having done that work is a fair and reasonable reward for it. 13 The issue which arises on the present application is whether what is probably best termed unsatisfactory conduct (including misfeasance) is something which ought properly to be addressed when the s.473(3)(b)(ii) power is exercised by the court and, if so, how the assessment of the conduct should be made 14 In Burns Philp Investment (above), Young J held that the court's power under s.536(1) to inquire into complaints with respect to the conduct of a liquidator in connection with the performance of duties extended to permit examination of questions concerning agreed remuneration in a voluntary winding up, at least where it was shown that it would be in the public interest to conduct such an inquiry. Mr Mann submits, on that basis, that s.536(1) proceedings initiated by Mrs Anderson represent the correct vehicle for her complaints about his conduct and that this should be pursued separately from what is said to be the essentially administrative task of fixing remuneration. 15 This, to my mind, over-simplifies things. The cases seem to me to make it clear that unsatisfactory conduct on the part of a liquidator is something that can (and, in an appropriate case, should) be taken into account in fixing remuneration. In Re Addstone Pty Ltd; Ex parte Macks (1998) 30 ACSR 177, Mansfield J observed that the propriety of a liquidator's having undertaken certain work was something to be decided in determining the appropriate remuneration. The doing of (and seeking to charge for) work that is not properly related to the discharge of the liquidator's function is, no doubt, an obvious aspect of unsatisfactory conduct. There can, I think, be no real doubt that that species of unsatisfactory conduct is properly addressed when the appropriate quantum of remuneration is being considered. 16 This principle is of wider application. In City and Suburban Pty Ltd v Smith (unreported, FCA, 9 July 1998), Merkel J had before him both an application for the removal of a liquidator (and appointment of another in his place) and an application by the liquidator for a declaration of entitlement to receive a particular sum as remuneration for a particular period. The liquidator denied that there was any breach of duty or other misconduct on his part that would justify his removal and claimed that there was no basis on which his claim for remuneration could properly be refused by the court. Merkel J came to the conclusion that a prima facie case of breach of duty had been made out and that cause for removal of the liquidator had been shown. In relation to the remuneration issue, his Honour then said: "In my view the questions of whether the liquidator should be removed and whether he ought to be remunerated for the services he has provided raise separate issues. The liquidation has involved activity by the liquidator in relation to a range of matters. He is entitled to be paid his fees and expenses in relation to those matters. However part of the remuneration relates to his activities concerning the termination payments. I am satisfied that there were serious and significant failures on the part of the liquidator in relation to those payments and that those failures are such that he ought not to be remunerated for the services provided in relation to them. The parties are agreed that if I arrive at that conclusion it is appropriate that I treat five per cent of the remuneration as referable to the payments." 17 To generally similar effect is the decision in Re Le Club Athletique Canadien Inc (1918) 20 Que P R 119 cited at page 396 of the fourth edition (1999) of "McPherson The Law of Company Liquidation" by A Keay as authority for the proposition that a liquidator removed on the grounds of misconduct may suffer forfeiture of remuneration. The judgment of Allard J of the Supreme Court of Quebec put the matter thus:

"Qant à la réclamation de $900 pour salaire, je suis d'avis que le créancier réclamant n'a droit à aucun salaire. Depuis sa destitution, il a fallu nommer un nouveau liquidateur qui est chargé de continuer la liquidation et à qui il faudrait payer un salaire relativement considérable.

Le mandat du dit créancier réclamant n'est pas complètement exécuté et la partie qu'il a exécutée a été mal exécutée: le créancier réclamant s'est rendu couplable de dol et a forfait, d'une manière coupable et criminelle, à ses devoirs comme liquidateur.

Et, pour ces raisons, je suis d'avis que l'ancien liquidator n'a pas droit de réclamer de salaire et je retranche de sa réclamation cette somme de $900 qu'il réclame à titre de salaire. (Voir Laurent, vol 28, ed. de 1878, nos 10, 25 et 26)." 18 In Re Kal Assay Southern Cross Pty Ltd (1992) 9 ACSR 245, Acting Master Hawkins of the Supreme Court of Western Australia said: "In the proceedings before me, I am of the opinion that the liquidator is not entitled to any remuneration for services rendered in breach of his duty or for work which should not have been done. I am unable to ascertain how much of the fees the subject of this application relate to work done in connection with the disputed dividend. I propose making orders to the effect that the liquidator's remuneration not be approved, with liberty to file a further account which clearly distinguishes between work done in relation to other matters, and work done in relation to the inquiry into the disputed dividend." 19 These statements are sufficient to show that propriety of conduct, from the perspective of due discharge of duty, is a factor relevant to the exercise by the court of the s.473(3)(b)(ii) jurisdiction to fix a liquidator's remuneration. Reverting again to the analogy with a trustee in bankruptcy, it is instructive to refer to the meaning afforded by Fullagar J in Mayne v Jaques (above) to a provision of now superseded bankruptcy legislation analogous with s.473(3)(b)(ii) to the effect that should the creditors fail to fix the remuneration of the trustee in bankruptcy, the court may do so: "The Act presupposes and contemplates throughout that the trustee is entitled to remuneration for work and labour done by him - unless, no doubt, there is some specific reason why he should not receive remuneration, such as that he has had no work to do, or that he has misconducted himself in some way ." [Emphasis added] 20 There is recognition here that misconduct on the part of a trustee in bankruptcy may mean that the entitlement to remuneration is removed or, I would add, reduced. But the adjustment is not punitive in nature. Disallowance of the whole or some part of the remuneration claimed will be no more than a reflection of the reality that it is no part of the function of a trustee or liquidator to act in breach of duty and that conduct of that kind attracts no remuneration. The difference between adjustment to allow for such conduct and punishment emerges from the decision in Re Palmer; Ex parte Taylor (1988) 18 FCR 271 where a Deputy Registrar in Bankruptcy had denied remuneration to a trustee whose conduct he had found to be improper, an allegation the trustee had strenuously denied in detailed submissions made by him in writing. In holding that the Deputy Registrar had fallen into error, Spender J said: "It seems to me that in the discharge of the Deputy Registrar's functions, he has proceeded upon an erroneous basis. It is not part of his function to discipline trustees by the imposition of any penalty, but he is to fix the remuneration to which a trustee is entitled by the Act at a figure that is reasonable in all the circumstances. It is, of course, not correct that a person is entitled to be paid only if his work manifests no error or is without fault. Such a standard of perfection would be unworkable." 21 I should mention at this point that I have considered the possibility that, faced with an application to determine a liquidator's remuneration under s.473(3)(b)(ii), the court should proceed by way of analogy with the principles applied on an application for commission by an executor. My conclusion is that the analogy is not apt. In the case of a liquidator, the statute provides for the payment of remuneration and says that the amount will, in the ordinary course, be fixed by the creditors or the committee of inspection. The court's power is no more than a power to fix the amount and becomes exercisable only in default of a decision in both of those forums. The court quantifies the sum to be paid in satisfaction of the independently existing statutory entitlement. In the case of an executor, by contrast, the primary expectation is that he or she should act gratuitously. There is no right to remuneration. Commission is allowable only at the discretion of the court. 22 The requirement that an executor seeking commission show that there has been no neglect on his or her part which has in any way prejudiced the estate (In the Will of Wallace (1934) 51 WN(NSW) 84) should therefore not be regarded as applying to a liquidator seeking a determination of remuneration by the court under s.473(3)(b)(ii). When determining such an application, the court must start from the position that the liquidator is entitled to reasonable remuneration: Re Fine Food Distributors Pty Ltd (1993) 9 ACSR 599. Matters said to amount to or involve misconduct will be relevant only to the extent to which they cause the amount claimed not to be reasonable. 23 It cannot be said, as Mr Mann contends, that proceedings under s.536 are the only (or even most) appropriate avenue for the pursuit of allegations of satisfactory conduct and that such matters should be pursued in that way divorced altogether from the question of remuneration. Indeed, it is suggested in the judgment of Drummond J in Leslie v Hennessy [2000] FCA 1532 that once the court has fixed a liquidator's remuneration under s.473(3)(b)(ii), it may not thereafter review that determination except upon appeal from the original order or on the ground that that order was obtained by fraud. The review of remuneration under s.536 in Burns Philp Investment (above) occurred in a context where the original remuneration had been agreed in a voluntary winding up, not where it had been fixed by order of the court under s.473(3)(b)(ii). 24 I am satisfied that alleged misconduct by a liquidator applying for a determination under s.473(3)(b)(ii) should be addressed in the context of that application and that the court should apply the principles to which I have referred in considering whether the alleged misconduct affects the remuneration sought. Such an approach seems to me to be correct as a matter of principle. A court charged with the duty of determining the amount of the remuneration to which a fiduciary is entitled could never be deaf to allegations that the fiduciary responsibility had not been faithfully performed. 25 Considerable care must, however, be exercised. A liquidator has, as I have said, an entitlement to be remunerated and it would not be right for all and any complaints of misfeasance to stand in the way of that unless there were seen to be substance to them. There must be an appropriate balancing of the right to remuneration against the need for investigation of the alleged misfeasance, with recognition of the position of an official liquidator as an officer of the court who conducts the winding up ordered by the court. It is clear that findings of wrongdoing on the part of such an officer will not be lightly made and would necessarily be based on facts established by evidence adduced, tested and scrutinised in the usual way. 26 This highlights the practical problem that the core tasks in fixing liquidators' remuneration are not suitable to be dealt with in the same way as the trial of alleged misfeasance. In the ordinary course, the core tasks to which I have referred are approached in a summary way and without strict regard to all the rules that would apply in an action: see the description and discussion in Venetian Nominees Pty Ltd v Conlan [1998] WASCA 273. The matter is dealt with in a quasi-administrative way by registrars and deputy registrars who, by dint of experience and familiarity with market trends and practices, are better equipped than most judges to make the necessary decisions. Judgments in relation to alleged misfeasance and its consequences, on the other hand, are more appropriately the province of a judge. (I note in passing that the powers of masters set out in Schedule D to the Supreme Court Rules do not extend to inquiries into liquidators' actions under s.536). 27 In the present case, it will not be appropriate to order that paragraphs 1 and 2 of Mrs Anderson's notice of objection be struck out, even assuming that it is a "pleading" as defined by Pt 1 r 8 of the Supreme Court Rules and amenable to the jurisdiction to strike out, whether under Pt 15 r 26 or otherwise. The application to strike out paragraphs 1 and 2 will be dismissed. What is appropriate is that suitable measures be put in place to deal with the determination of Mr Mann's remuneration in the light of Mrs Anderson's objections. This leads me to the question of directions for the further conduct of the proceedings initiated by Mr Mann's interlocutory process filed on 7 January 2002, that being the second matter raised in Mr Mann's interlocutory process filed on 24 April 2002. 28 The appropriate way forward has two stages. The first stage will entail attention to Mr Mann's claim by a registrar who will determine the amount of reasonable remuneration in the usual way, but ignoring the merits or otherwise of the matters in paragraphs 1 and 2 of Mrs Anderson's notice of objection. The matters in those paragraphs will, however, be taken into account by the registrar to the limited extent necessary to ensure that the assessment of appropriate remuneration made without reference to their merits nevertheless clearly and separately records the areas of work or the time periods (or both) to which Mrs Anderson's complaints relate, with allocation to each such area of work or time period of the applicable part of the overall quantification. 29 The registrar will be able to make these allocations only if there are available, first, a concise description of each separate activity and each separate time period in relation to which Mrs Anderson says that the liquidator's conduct was unsatisfactory in a way relevant to determination of remuneration; and, second, particulars from Mr Mann's records of the time spent on various items of work sufficient to enable the registrar to ascribe a separate figure to each of the several activities and time periods to which Mrs Anderson's complaints relate. Something resembling a solicitor's detailed bill of costs is needed. 30 The second part of the process will entail consideration by a judge of the objections advanced in paragraphs 1 and 2 of Mrs Anderson's notice of objection. Because the first stage will have concentrated on aspects relevant to quantification in the usual way - including vouching, as necessary, time spent and any argument about applicable rates and scales - the product of that first stage will represent a prima facie basis for determination which will be expected to prevail unless it is shown that any of the paragraph 1 and 2 objections is made out to such an extent to warrant some reduction in accordance with the principles to which I have referred. Mrs Anderson will face the task of making good to the necessary extent the allegations she has seen fit to make regarding the conduct of the liquidator. The outcome of the second stage will be an evaluation by the court (constituted by a judge) of the impact, if any, that findings made by the judge in relation to the matters the subject of those allegations are to have on the prima facie position with respect to remuneration emerging from the first stage. 31 As a formal matter, the s.473(3)(b)(ii) determination will be made wholly by the judge. To ensure that matters are put on a proper procedural footing, the preliminary (or first stage) assessment process I have described as being appropriately undertaken by a registrar will be referred to a registrar as contemplated by item 30 of Part 2 of Schedule E to the Supreme Court Rules. 32 It is to be hoped that the parties can agree some of the practical aspects needed to progress determination of Mr Mann's remuneration in accordance with the regime I have outlined. I therefore direct that they attempt to agree short minutes of orders and directions to implement that regime and that any agreed form be filed by delivery to my Associate within 14 days from today. If agreement is not achieved so as to enable that, each party must, within 21 days from today, file by delivery to my Associate the form of short minutes for which he or she contends. The proceedings will then be re-listed for the making of orders and directions. **********

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