Dreiberg & Anor v Bettles and Carter as liquidators of Corindi Beach... [2007] NSWSC 1204 | Case summary

2515/06 Frederick Dreiberg & Anor v Jason Bettles and Susan Carter as liquidators of Corindi Beach Developments Pty Ltd & 5 Ors JUDGMENT 1 HIS HONOUR: The first defendants in these proceedings are the liquidators of Corindi Beach Developments Pty Ltd (in liquidation) ("CBD"). The plaintiffs challenged the decision of the first defendant to admit proofs of debt submitted by the second, third, fourth, fifth, sixth and seventh defendants at a second meeting of creditors of CBD pursuant to which it was resolved that CBD be wound up. Challenges were also made to the first defendant's refusal to admit other proofs and to admit in full proofs of debt of the plaintiffs. Relief was sought to set aside the resolution of creditors that CBD be wound up. In its place, the plaintiffs sought an order that a resolution put by the plaintiffs that, CBD enter into a deed of company arrangement, should be passed, and the first defendants should be directed to enter into such a deed of company arrangement. Other alternative orders were sought in relation to the plaintiffs' attempt to have the company enter into the deed of company arrangement they proposed. Alternatively, an order was sought for the termination of the winding-up of CBD. 2 By a further amended originating process dated 21 November 2006, the plaintiffs also sought orders in relation to the registration of a transfer of shares in favour of the second plaintiff, an order that CBD be removed as trustee of a trust known as the Corindi Cabin Developments Unit Trust ("the Cabins Trust") and that Shezanne Pty Ltd be appointed as trustee of the Cabins Trust, or, alternatively, an order that the Corindi Shopping Centre Development Pty Ltd ("CSCD") be appointed trustee of the Cabins Trust. In a further alternative, the plaintiffs sought an order that Mr Ian Purchas be appointed trustee of the Cabins Trust. By a further amended originating process filed in court pursuant to leave given on 19 July 2007, the plaintiffs sought an alternative order that Mr Purchas be appointed as receiver, or receiver and manager, of the Cabins Trust. After argument (and apparently negotiation), the plaintiffs ultimately sought an order that CBD be removed as trustee of the Cabins Trust and that the liquidators be appointed as trustees of the Cabins Trust in their personal capacity. 3 This order was not opposed by any party. After the last hearing, I was provided with consents of the liquidators to be so appointed. 4 It is undesirable for an insolvent company in liquidation to remain as trustee (Global Funds Management (NSW) Ltd v Burns Philp Trustee Co Ltd (in prov liq) (1990) 3 ACSR 183 at 185; Jacobs, Law of Trusts in Australia, 7th ed (2006) Chatswood, LexisNexis Butterworths at [1551]). The plaintiffs, with the support of the liquidators, initially proposed that Mr Purchas be appointed as receiver and manager, or that he be appointed as trustee in the place of CBD. This was opposed by the second, third, fourth, fifth, sixth and seventh defendants because of the cost implications of overlapping administrations. In Grime Carter & Co Pty Ltd v Whytes Furniture (Dubbo) Pty Ltd [1983] 1 NSWLR 158, McLelland J (as his Honour then was) said (at 162): " In general it seems to me that whether liquidators of a company should accept appointment to another office, or having been appointed should retain both offices, must depend on whether there is any real prospect of a conflict of duties, or a conflict of duty and interest, arising from their holding both offices. ... if, having accepted such appointment the liquidators should in the future find a position of conflict arising, they should not continue to retain both offices. " 5 There is a possibility that if the liquidators are appointed as trustees of the Cabins Trust, there will be a conflict between their duty as liquidators of CBD and their duties as trustees of the Cabins Trust to the beneficiaries of the trust. CBD was established to carry out a residential sub-division on land adjacent to the land held by CBD in its capacity as trustee of the Cabins Trust. It appears that CBD carried out work in its capacity as trustee of the Cabins Trust such as fencing the Cabins' land and obtaining relevant approvals from the council. It will be entitled to an indemnity from the trust assets in respect of liabilities incurred in that regard. There was some unspecific evidence that at the time the work was done, expenditure was not dissected into whether the work was done in relation to residential land owned by CBD in its own right, or whether the work was done in relation to the Cabins Trust land. There would have to be an allocation of expense which may give rise to a potential for conflict. There is also some confusion and a possible mistake as to the title to the relevant land. 6 It is not clear that the conflicts are real as distinct from potential. For example, there was no evidence that there could be a genuine dispute as to the allocation of particular expenses. There was merit in the contentions of the defendants that it would be undesirable to subject the parties, who have roughly, but not exactly, similar interests as shareholders in CBD as they have as beneficiaries in the Cabins Trust, to two sets of costs of independent professionals. I understood the parties ultimately to be agreed that it would be desirable for the liquidators to be appointed as trustees of the Cabins Trust so that they could bring their knowledge in their capacity as liquidators of CBD to bear on any complications that might arise if there has been an intermingling of the affairs of the Cabins Trust with the affairs of CBD in its own right. Whilst the possibility of there being a real prospect of a conflict of duties cannot be discounted, it should not be assumed. It will be open to the liquidators, both in their capacity as liquidators and in their capacity as trustees, to seek directions if such difficulties arise. 7 Ultimately, the parties were on common ground that the liquidators should be appointed as trustees of the Cabins Trust. Notice was given to the beneficiary of the Cabins Trust, who was not represented in the proceedings before me, of the application for removal of the trustee. There was no appearance for that beneficiary. 8 There is no question as to the power to appoint the liquidators as new trustees in substitution for CBD (Trustee Act 1925 (NSW), s 70(1), (2) and (3)). I will make a consequential vesting order to vest the property held by CBD in its capacity as trustee of the Cabins Trust in the liquidators to be held by them on the trusts of the Cabins Trust (s 71(1)). 9 The only other outstanding issue concerns the costs of the second, third, fourth, fifth, sixth and seventh defendants in proceedings 2515 of 2006. They were joined by an order made by Barrett J on 29 June 2006. His Honour directed that the amended originating process be further amended to join as defendants all persons whose proofs of debt were challenged in the proceedings. Those defendants took an active role in opposing the relief sought by the plaintiffs. They submit that the effect of the settlement between the plaintiffs and the liquidators is that the plaintiffs effectively failed in their claims. The substantial claims challenging the validity of the resolutions at the second meeting of creditors have been dismissed. 10 Although the plaintiffs did not pursue their claims, and consented to the dismissal of the relevant paragraphs of the originating process, it was clear from the evidence adduced that there were at least substantial questions as to the accuracy of proofs of debt lodged on behalf of the second, third, fourth, fifth, sixth and seventh defendants at the second meeting of creditors. The Court will not try the case to determine questions of costs. I am not in a position to decide, and I was not invited to decide, how the action would have fallen out had matters been litigated to a conclusion. I do not conclude that the plaintiffs acted unreasonably in instituting the proceedings, just as I do not conclude that the defendants acted unreasonably in defending them. The proper exercise of the discretion as to costs in such circumstances is usually that there be no order as to costs of the proceedings (Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624-625). 11 This position is qualified where one party has effectively capitulated to the demands of the other (One.Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548 at 553 [6]). 12 I do not consider that I should treat the orders consented to by the plaintiffs as a capitulation or surrender. Circumstances may have changed from the institution of the proceedings simply by the passage of time. The plaintiffs could reasonably have taken the view that what they sought to achieve by the deed of arrangement which they propounded could in substance be achieved by the liquidators using the information that emerged in evidence in the course of the proceedings. 13 In my view, this is not a case in which departure from the general rule that there should be no order as to the costs of the proceedings where both parties have acted reasonably in commencing and defending proceedings and their conduct continued to be reasonable until the litigation was settled. 14 For these reasons I make the following orders:

Dreiberg & Anor v Bettles and Carter as liquidators of Corindi Beach Developments Pty Ltd & 5 Ors

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