Fraser v Australian Securities & Investments Commission, In the Matter

(b) a receiver, or a receiver and manager, of property of a corporation; or … may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.' 4 As explained at [41] of his reasons, French J regarded it as open to him under that section to treat the applications by Lanepoint and Bowesco as appeals against the refusals by the respective receivers of those companies to advance moneys out of the funds under their control to enable the companies to defray the legal costs and expenses in question.

Background facts 5 As a background to the exercise of the discretion conferred by s 1321, French J noted that two sets of receivers had been appointed in respect of Lanepoint, the first being John Cronin and Shaun Fraser, by Suncorp-Metway Limited ("Suncorp-Metway") pursuant to a company charge and mortgage over a residential apartment development at Rivervale in Western Australia known as Regent Apartments. The second set of receivers of the assets of Lanepoint was appointed by Perpetual Nominees Limited ("Perpetual") pursuant to a fixed and floating charge over; 'all the chargor's interest in all of its property anywhere (real and personal and present and future) including all its uncalled capital and its called but unpaid capital and all the present and future rights, property and undertaking of the charger of whatever kind.' Because of the prior appointment of the receivers by Suncorp-Metway, the Perpetual receivers have not gone into possession of any of Lanepoint's assets. Messrs Cronin and Fraser were also appointed the receivers of the property of Bowesco, again by Suncorp-Metway, on 3 April 2006.

Orders sought 6 The orders which Lanepoint and Bowesco asked French J to make were in the following identical terms: '2. The Receivers and Managers of the Respondent be directed to make provision for the funding of legal costs for the purposes of legal advice and representation relating to solicitor/client costs and expenses for: a. $50,000 for the defence of action WAD 177 of 2006 ("the Bowesco Proceedings") pursuant to Liberty to Apply; b. $50,000 for the defence of action WAD 152 of 2006 ("the Lanepoint Proceedings") pursuant to Liberty to Apply; c. $80,000 for an appeal against the decision of Justice French made 14 September 2006 in the Bowesco Option Dispute proceedings in WAD 83 of 2006 ("the Bowesco Option Dispute"); d. $50,000 for advice in relation to the asset preservation proceedings in WAD 83 of 2006 in relation to Bowesco ("the Asset Preservation Proceedings")' and e. $15,000 for tax advice in relation to Lanepoint; f. $10,000 for advice in relation to the costs and conduct of the Receivers and Managers of the Respondent; and g. $7,500 for the bringing and prosecution of this application. 3. The Receivers and Managers of the Respondent be directed to provide the Respondent with a statement of the current financial position of the Company. 4. The costs of this application, including any reserved costs, be paid by the Receivers and Managers of the Respondent.'

The evidence below 7 As recounted by French J, the evidence before his Honour disclosed that two requests by Ms Carey-Hazell on behalf of Lanepoint and Bowesco to defray the various legal expenses to be incurred on their behalf had been refused by Mr Fraser as one of the receivers of Lanepoint. That refusal was explained, first, by pointing to the fact that the Regent Apartments then under construction comprised Lanepoint's principal asset and that Suncorp-Metway had advanced $350,000 from its own funds to enable the development to be completed. The first request was for $50,000 to enable Lanepoint to defend the winding up application. The second, cumulative, request was for $140,000 in respect of defending the winding up applications and for prosecuting the application for leave to appeal in respect of what has been called the "Bowesco Option Dispute". That request elicited this reply from the solicitors for the receivers: 'Your letters seek an amount of $140,000 from our clients to enable Ms Carey-Hazell to defend the winding-up proceedings commenced by the Australian Securities and Investments Commission (ASIC) against the Companies. As our clients have previously indicated, they are not prepared to defend the proceedings nor are they prepared to fund the defence of them. To do so would be a breach of our clients' duties to their appointor, Suncorp-Metway Ltd (Suncorp) and the other debenture holder. Our clients are obliged to protect the interests of Suncorp and the other debenture holder. In circumstances where the Companies remain indebted to Suncorp and the other debenture holder, our clients cannot be required to provide funds to your client in priority to the secured creditors.' 8 Subsequent correspondence disclosed that the receivers of Bowesco had calculated that, as at 4 October 2006, Bowesco remained indebted to Suncorp-Metway in a sum of approximately $1.5 million, plus accrued interest pursuant to a guarantee which it had given of the repayment of debts due from Lanepoint to Suncorp-Metway. As well, it was indicated that the receivers intended to account from funds under their control to the Deputy Commissioner of Taxation in respect of tax payable on profits derived from the realisation of any assets during the receivership. As of 27 October 2006, Lanepoint remained indebted to Suncorp-Metway in the sum of $1,578,507.67 inclusive of interest for which Bowesco also remained collaterally liable under the guarantee. 9 It was further asserted in an affidavit sworn 27 October 2006 by Mr Fraser, one of the Suncorp-Metway receivers, that $972,749 had been applied from the realisation of some of Bowesco's assets in part satisfaction of its liability under the guarantee of repayment of Lanepoint's debts to Suncorp-Metway. It was accepted that Bowesco would be subrogated to that extent to Suncorp-Metway's claims to the proceeds of the realisation of Lanepoint's assets. The same affidavit disclosed that Mr Fraser estimated that Lanepoint's liability to the second ranking debenture holder, Perpetual, to be in excess of $6 million. However, Counsel for Lanepoint and Bowesco disputed that estimate and contended that on a "best case scenario", Lanepoint's exposure to Perpetual was only $2.2 million. 10 The effect of Mr Fraser's second affidavit was summarised in these terms by French J at [29] of the reasons below: 'The receivers and managers, with funding assistance of $355,000 from Suncorp-Metway, completed the Lanepoint Regent Apartments development. As at 27 October 2006 they had sold 36 units, realising $9,310,250 less expenses, GST and sales commissions. As at 24 October 2006 they held the sum of $4,902,612.31 in interest bearing deposits. That sum, they said, was to be applied to:

1. The repayment of $1,578,507.67 to Suncorp-Metway.

2. Provisions to cover contingent debts arising from the conduct of the receivership being: (a) legal fees and other costs which may be incurred in relation to litigation threatened against the receivers and managers by Mr Norman Carey - $650,000; (b) GST payable by the receivers - $45,173; (c) income tax payable by the receivers - estimated $1,500,000; (d) other costs arising from the receivership estimated at $260,000. Any balance would go to the other secured creditors including, no doubt, Bowesco. Mr Fraser said that, based on his experience as an insolvency practitioner and his involvement in proceedings in the Supreme Courts of Western Australia and New South Wales and the Federal Court, his estimate for legal fees and associated costs was reasonable.

In relation to Bowesco, the receivers hold the sum of $6,804.78 in interest bearing deposits. Suncorp-Metway is presently owed $50,000 by Bowesco. Other contingencies for which provision is being made comprise legal fees arising out of apprehended threats of action, again in the amount of $650,000, income tax payable by the receivers of $1,200,000 and other receivership costs of $120,000.'

Reasoning at first instance 11 His Honour considered that it was open to him to treat the applications before him as appeals against the refusals by the receivers of Lanepoint and Bowesco to make provision out of the funds of those companies for the purposes sought on their behalf by Ms Carey-Hazell. That approach has not been suggested on the appeal by either appellant or by the second respondent, ASIC, which supports the appeal, to have been wrong. 12 As to the provision of $650,000 reserved in each receivership against possible future legal costs of the receivers in defending actions against them, his Honour concluded at [49]-[50] of his reasons; 'In my opinion it was within the power of the receivers and managers in this case to retain a provision out of the fund charged against the threatened legal action by Lanepoint and by Bowesco.

The nature of the threats gave little indication of the scope of any proceedings that might be brought. It may reasonably be anticipated however, that any such proceedings would involve commercial litigation of some complexity. It is common knowledge that such litigation is very expensive. The sum of $650,000, while it seems high, cannot be faulted on the basis that it reflects some error in principle on the part of the receivers and managers. It was not said by the companies to involve any gross over estimate. There is, however, an element of risk assessment involved in making such a provision. There is also necessarily an element of error in endeavouring to predict the extent of potential exposure. Where the likely error range would easily encompass the quantum of funding sought by the company for a legitimate purpose in its own interests, then a question arises whether the refusal to make such funding available is reasonable. In my opinion, there was sufficient flexibility in the range of a reasonable provision against threatened legal action to accommodate at least part of the amount sought for the cost of defending the winding up proceedings and the reasonable costs of Bowesco in prosecuting the appeal.'

13 His Honour arrived at a similar conclusion in relation to the respective provisions made for discharging the receivers' liability on expected tax assessments, saying, at [57]; '… It is sufficient, in my opinion, that the receivers were entitled to take the view that they were obliged to make appropriate provisions against tax liabilities.' 14 The learned primary Judge then observed, at [58]; 'In the event, it is reasonably clear that the combination of the allowance for legal expenses and the provision for tax liabilities dwarfs the quantum of funding sought by the companies in this case. That and the necessary error in estimating such provisions was, in my opinion, a relevant consideration for the receivers and managers to take into account when considering a request for funding to defend a winding up application in relation to each of the companies and, in the case of Bowesco, to prosecute an appeal about a valuable asset.' 15 However, his Honour drew a distinction between the position of Bowesco and that of Lanepoint. As to the former, he "did not consider the refusal of the receivers to provide funding out of its assets for the purpose of legal representation and advice unreasonable". On the contrary, he made a positive finding that it had been "a reasonable position to adopt". Not unnaturally, neither the appellants nor ASIC has taken issue on the appeal with that conclusion. 16 In respect of Lanepoint, his Honour differentiated between the request for funds to resist the winding up of that company itself, and the request, on behalf of Bowesco, for funds to prosecute its application for leave to appeal and to resist the application for its own winding up. As to the request on behalf of Lanepoint, his Honour said, at [60]; '… Having regard to the uncertain extent of its liability to Perpetual, I do not consider that I should make any order for the payment of any funds out of Lanepoint to defend the winding up application or otherwise. …' Again, no challenge has been made on the appeal to that conclusion. 17 The conclusion which is the sole focus of attack by the appellants and ASIC has been expressed in these terms in the last paragraph of the reasons below; '… On the other hand, Bowesco is a preferred creditor subrogated, by reason of payments made pursuant to its guarantee, to the rights of Suncorp-Metway. That is to the extent of a figure in excess of $900,000. On that basis it can properly claim to be a person aggrieved by the refusal of the Lanepoint receivers to make funds available to it for the purpose of opposing its winding up application and prosecuting its appeal. In my opinion the receivers ought to have allowed Bowesco funding for that purpose out of the assets of Lanepoint having regard to the small quantum of funding sought. The sum of $50,000 to oppose the winding up application and $7,500 for the costs of this application would have been a reasonable allocation. The sum of $80,000 for the cost of prosecuting the appeal seems high. I would allow $50,000 as reasonable for that purpose. The sums allocated would constitute a maximum figure in each case, the final payment to be either agreed or taxed if there is a dispute. In my opinion the receivers would be permitted to make a reasonable interim payment in relation to the prosecution of the appeal and the defence of the winding up application. The costs of Bowesco in prosecuting the present application can hopefully be agreed up to a maximum of $7,500. I propose to make orders accordingly.' 18 That last conclusion was reflected in the first four paragraphs of the order of 10 November 2006, which recited; '1. The receivers and managers of the respondent do make provision out of its assets for the payment to Bowesco Pty Ltd (Receiver and Manager Appointed) of: (a) legal expenses reasonably incurred by it in opposing the winding up application brought by the Australian Securities and Investments Commission in WAD 177 of 2006 to a maximum figure of $50,000, the quantum of such payment to be taxed by a Registrar of the Court if not agreed; (b) legal expenses reasonably incurred by Bowesco Pty Ltd (Receiver and Manager Appointed), in connection with its application, in these proceedings, for the provision of such funds, to a maximum of $7,500 to be taxed by a Registrar of the Court if not agreed 2. Upon the filing and service by Bowesco Pty Ltd (Receiver and Manager Appointed) of an application seeking an order pursuant to s 1321 of the Corporations Act 2001 (Cth) appealing against the refusal by the receivers and managers of the respondent to make provision for Bowesco's legal expenses in connection with proceedings relating to an option assigned to Bowesco by Westpoint Corporation Pty Ltd, the receivers and managers of the respondent make provision for the payment of Bowesco's reasonable legal expenses in connection with the prosecution of an application for leave to appeal and any consequent appeal from the decision of this Court in Australian Securities & Investments Commission, In the Matter of Richstar Enterprises Pty Ltd v Carey (No 9) [2006] FCA 1425 to a maximum of $50,000, the sum to be paid to be taxed by a Registrar of the Court if not agreed. 3. The application filed pursuant to the preceding order shall be allocated to a separate court file and a copy of this order and the reasons for judgment placed on that file. 4. In complying with the preceding orders the receivers and managers of the respondent may make interim payments out of the funds provided from time to time.' As a result, it is only his Honour's treatment of Bowesco's request in WAD 152 of 2006 for funding, to the extent that it was successful, which has been challenged on appeal.

The appellants' contentions 19 In the course of their written outline of submissions on the appeal, the appellants indicated that, as the receivers of Lanepoint, they had available $4,902.612 held on interest bearing deposit. That amount represented, as we understand it, the net proceeds from the sale of apartments in the Regent Apartments complex. From that amount they considered themselves obliged or entitled to defray the following actual or contingent liabilities:- $1,500,000 - estimated liability of receivers for income tax under s 254 of the Income Tax Assessment Act 1936 (subsequently quantified by Ernst & Young on 6 November 2006 at $1,286,067). $ 45,173 - GST payable by the receivers. $ 260,000 - other costs arising from the receivership of Lanepoint. $ 650,000 - provision for receivers' legal expenses to be incurred in defending litigation threatened by Mr N Carey in respect of the conduct of the receivership of Lanepoint. $1,578,507 - balance of debt owed to Suncorp-Metway secured by first mortgage and first charge over the assets of Lanepoint. $ 972,749 - payable to Bowesco subrogated to the rights of Suncorp-Metway as a result of payment made by Bowesco as guarantor of payment of Lanepoint's debt to Suncorp-Metway. $5,007,429

20 It can be seen from that indication that, on the information available to the learned primary Judge, there would have been a small excess of liabilities over assets if the receivers had been in a position on 10 November 2006 to finalise the receivership after making the provision which they proposed for the contingent liabilities for tax and the costs of defending the threatened legal proceedings. Had the provision for payment of tax been confined to the estimate of $1,286,067, which later became available from Ernst & Young, there would have been a small cash surplus after discharging or providing for all the actual and contingent liabilities. 21 Counsel for the appellants contended that, although an appeal under s 1321 of the Act involves a hearing de novo, the Court is not entitled to substitute for that of the receivers its own discretion or assessment of what would be a prudent business judgment. Rather, the Court will only overturn the decision of the receiver if satisfied that it had been arrived at unreasonably or in bad faith, or had been founded on an error of law or a significant factual error. In the present case, the receivers' decision, as reflected in their solicitors' letter reproduced at [7] above, was not vitiated by unreasonableness, bad faith or any error of law or fact. On the contrary, it was informed by a correct perception of the legal duties of receivers and managers and the limits on their discretion in relation to assets under their control. 22 Counsel for the appellants contended that the learned primary Judge had erred by failing to identify and take into account the rights and duties of the receivers of Lanepoint as may arise from the relationship between those receivers and Bowesco, Lanepoint itself, Suncorp-Metway and other creditors (presumably of Bowesco). A proper appreciation of those rights and duties, so the argument went, would have led his Honour to recognise that Bowesco's only claim to be paid any moneys arising from the receivership of Lanepoint was as a creditor of Lanepoint. Any entitlement in that capacity would arise only after payment of expenses and discharge of liabilities incurred in realising the assets of Lanepoint and payment of all moneys owing by Lanepoint to Suncorp-Metway. The fact that Bowesco by virtue of the right of subrogation would stand in the shoes of Suncorp-Metway to the extent of $972,748 did not alter any of the relevant rights and duties of the receivers. For the receivers to make a payment to Bowesco to enable it to meet the identified legal expenses, would be in breach of their duty to Suncorp-Metway. 23 A further argument advanced on behalf of the appellants was that the floating charge over all its property which Bowesco had given to Suncorp-Metway extended to future property including the chose in action which Bowesco acquired when it paid $972,748 under the guarantee in reduction of Lanepoint's debt to Suncorp-Metway. That gave Suncorp-Metway an equitable proprietary interest in the chose in action immediately upon Bowesco's acquiring it. That meant that the receivers of Bowesco, if they were to receive the $972,748 or any part of it from the receivers of Bowesco, were obliged, after defraying the costs of the receivership, to apply it to extinguish or reduce Bowesco's debt to Suncorp-Metway. They could not apply it to defray legal expenses incurred in resisting an application to wind up Bowesco or seeking leave to appeal in relation to the Bowesco Option Dispute. 24 A further illustration of the error imputed by the appellants to the learned primary Judge was said to be his concentration, in the passage quoted at [12] above, on the perceived "sufficient flexibility" in the range of what would be a reasonable provision for the receivers' costs of defending the threatened litigation to allow provision to be made for Bowesco's costs of resisting its own winding up and prosecuting the Bowesco Option Dispute. According to the appellants, there was no insufficiency of funds which would preclude the receivers of Lanepoint from paying most of the $972,749 to the receivers of Bowesco. The focus should have been on the rights of those latter receivers to disburse the money which were primarily to meet the expenses of their receivership and pay the creditors of Bowesco. Their rights did not extend to meeting, in priority to those payments, other expenses to be incurred by Bowesco in its own interests.

Contentions of ASIC 25 ASIC, which was the first respondent, supported the appeal. It submitted that, in the absence of express words to the contrary, s 1321 of the Act should not be construed as conferring on the Court a discretion to interfere with property rights; ASIC, In the matter of GDK Financial Solutions Pty Ltd v GDK Financial Solutions Pty Ltd [2006] 60 ACSR 447 citing, at 459, Clunies-Ross v The Commonwealth (1984) 155 CLR 193, at 201-202. 26 According to ASIC, the reasons below do not evince a belief that s 1321 of the Act confers a general power in the Court to regulate receivers and other corporate controllers nominated in the section. Nor did his Honour purport to impose on receivers any obligation which did not arise out of the security documents pursuant to which they have been appointed. It would therefore be inappropriate to direct receivers to take action which would impinge on the property rights of other persons who were not represented on the application under s 1321. 27 It was said that central to the phrase "any person aggrieved" in s 1321 (see [3] above) is the notion that the act, omission or decision complained of has, or will have, a negative impact on the applicant's property. In the present case, because the right to which Bowesco has been subrogated is caught by Suncorp-Metway's floating charge, it is Suncorp-Metway, rather than Bowesco, which can claim to be aggrieved by the delayed payment of the surplus to arise from the Lanepoint receivership. 28 ASIC adopted the analysis advanced by the appellants, as summarised at [21] above, of the approach to be taken by a court entertaining an appeal under s 1321. Counsel for ASIC stressed that the Court will not, simply to substitute its own differing opinion, interfere with a commercial decision of a receiver or liquidator which should be accorded great weight. 29 The real "aggrieved person" in this case, according to ASIC, is the receiver of Bowesco and not Bowesco itself. Accordingly, in the absence of evidence of a likely surplus in the hands of that receiver, there was no error by the receivers of Lanepoint in declining to provide the funds which had been requested by Bowesco's sole director. Indeed, it was said that French J had recognised this when he said, at [43] of his reasons; '… In each case the receivers justified their refusal by reference, inter alia, to a need to make provisions against certain contingencies. The companies said these were provisions they were not entitled to make and absent which there could be no proper basis for the receivers and managers to refuse to make funding available to advance the legitimate interests of the companies. That is to say, absent the contingency provisions there would be a notional surplus from which the sums sought could safely be made available to the companies.' 30 By corollary, Bowesco, by its sole director, could not be an "aggrieved person" within s 1321 until the secured creditor's debt had been satisfied. In those circumstances, there being no finding of mistake of fact or law, bad faith or unreasonableness by the receivers, it was an error of principle for the primary Judge to have substituted his own view of whether it was reasonably open to make the provision for funding which the director of Bowesco had sought.

Submissions of the second respondent 31 Ms Carey-Hazell, on behalf of Bowesco filed written submissions but did not appear on the hearing of the appeal. She instanced various circumstances which had changed since the making of the orders which are the subject of these appeals. In particular, she relied on the fact that Bowesco had offered a written undertaking to release and discharge; '…the Receivers from (other than acts of fraud) all and any actions, suits, claims and demands whether at law or in equity or arising under any statute which but for this undertaking the Respondent may have against the Receivers arising in anyway out of the receivership of the Respondent conducted by the Receivers.' 32 In relation to the provision which the receivers of Lanepoint had made in respect of tax liabilities, Ms Carey-Hazell relied on a letter dated 8 February 2007 from the accountants for Bowesco as trustee of the Dyson Family Trust. So far as is relevant, that letter recited; 'As requested, I hereby confirm we have lodged the following income tax returns for The Dyson Family Trust -

· 2004 · 2005 · 2006 Accordingly the Trust's Income Tax Return lodgement obligations are now fully up to date.

Further I can confirm we expect no income tax liability to arise for the Trust in relation to the lodged returns.

I can also confirm there are currently no outstanding Activity Statements for the Trust.

In relation to the Trust's ATO Integrated Account, I can advise the current outstanding balance is $20,016.71.'

33 Ms Carey-Hazell's written submissions then went on to indicate that the receivers of Lanepoint had, on 27 March 2007, paid Suncorp-Metway in full and had partially retired as receivers. A letter dated 12 April 2007 from those receivers to Ms Carey-Hazell contained these paragraphs; 'As a result of Suncorp being repaid in full, Bowesco Pty Limited (Receivers and Managers Appointed) ("Bowesco") became entitle to a subrogated claim against Lanepoint for funds applied by Suncorp (from the proceeds of sale of the Warnbro Liquor store) to Lanepoint's principal debt, pursuant to the guarantee provided by Bowesco (the "Subrogated Claim"). Bowesco's Subrogated Claim including Interest as at 4 April 2007 was $1,072,511. An amount of $965,535 has been paid to Bowesco in relation to the Subrogated Claim.

In accordance with the Orders of French J of the Federal Court of Australia, we have withheld an amount of $107,500 as the Receivers and Managers of Lanepoint against Bowesco's subrogated claim. I advise that in accordance with Orders made by Siopis [J] of the Federal Court on 17 November 2006, $20,524 was paid by Lanepoint to the director of Bowesco to defend the winding up proceedings against Bowesco.'

34 In the light of those subsequent events and the absence of any order staying the disbursement of funds ordered by French J and implemented by the further order of Siopis J of 17 November 2006, Ms Carey-Hazell contended that; '… the outcome of the appeal in relation to the orders made by French J is irrelevant to whether the funds being held by the Receivers will be paid to Bowesco. Whether the appeal is successful or not the fund (unilaterally) withheld by the Receivers will be paid to Bowesco.' 35 The appeal was therefore said to be entirely academic save for issues raised by the costs which the appellant receivers had continued to incur. In a related way, it was contended that, by delaying in making the payments contemplated by the orders of French J and by taking "highly technical points", the receivers had been the cause of Bowesco's legal representatives' ceasing to act in resisting ASIC's application to wind up that company and had caused a considerable portion of the funds received to be expended on dealing with issues as to costs rather than for the purposes contemplated by the orders below. Accordingly, the second respondent's submission concluded, except for a contention as to the costs of the appeal, with this paragraph; '4.6 The Receivers should be ordered or directed to immediately pay to Bowesco the $107,500 which the Receivers have unilaterally withheld and the Receivers should be directed to use that fund to pay the legal costs Bowesco has incurred and were to be paid under the Funding Orders.'

Disposition of the appeal 36 In our view, the receivers of Lanepoint had no power to make a payment to Bowesco out of the proceeds from the sale of assets under their management on condition that Bowesco apply the payment in defraying its costs of resisting its own winding up or of prosecuting its application for leave to appeal in relation to the Bowesco Option Dispute. The principal duty of the receivers was to get in the assets of Lanepoint and apply the proceeds in discharge of the debt due from Lanepoint to their appointor, Suncorp-Metway. Thus, in In re B Johnson & Co (Builders Ltd [1955] Ch 634 in a passage approved by the Privy Council in Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 at 313, Jenkins LJ observed, at 661; '… The primary duty of the receiver is to the debenture holders and not to the company. He is receiver and manager of the property of the company for the debenture holders, not manager of the company. The company is entitled to any surplus of assets remaining after the debenture debt has been discharged, and is entitled to proper accounts. But the whole purpose of the receiver and manager's appointment would obviously be stultified if the company could claim that a receiver and manager owes it any duty comparable to the duty owed to a company by its own directors or managers.' See also Bank of New South Wales v Federal Commissioner of Taxation (1979) 145 CLR 438 at 443-444 per Barwick CJ, and at 449-450 per Gibbs J. In the latter passage his Honour said, at 450; '… Under the deed, the receivers were in no way concerned with any creditors of the company other than the bank. By s 196 of the Companies Act they were placed under a duty to pay the employees mentioned in that section. However, in the absence of any statutory duty to pay any debt due for tax, and if no liquidation had supervened, the receivers would have been bound to pay to the company the surplus remaining after the employees and the bank had been paid, and costs, charges, expenses, outgoings and remuneration had been met.' 37 Of particular relevance in the present context is the statement by Mason J in the same case where his Honour pointed out, at 453-454; '… The sub-clause did not authorize the payment of debts. It required the receivers, after payment of the secured creditor's principal and interest, to pay to the company the surplus remaining.

Consequently, the receivers are bound to deal with the moneys coming into their hands in accordance with sub-cl 3(viii) of the mortgage which represents the formal bargain made between the company and the secured creditor. The receivers cannot use the moneys for the payment of general creditors or otherwise deal with them at the direction of the company. So to do would involve a contravention of the sub-clause.'

38 We are prepared to assume, without deciding, that receivers may have a discretion, once they are satisfied that they will have a surplus of funds after their secured creditor has been paid in full and after all the costs and expenses of the receivership have been met, to make a payment in advance of their retirement to the mortgagor company. That discretion is apparently qualified by the duty owed to second or subsequent mortgagees or other encumbrancers of the company's assets which has been identified by Finkelstein J in his separate reasons at [53] below; see Re Thomson's Mortgage Trusts [1920] 1 Ch 508 and the other authority there cited. However, even if there were no second mortgagee or subsequent secured creditor of whom the receivers had notice, they would not be entitled to pay funds under their control to the mortgagor company on the condition that it apply those funds in a certain way or for some specified purpose. Such a condition could potentially cut down the rights of secured creditors of whom the receivers had no notice or of any unsecured creditors and might, if it matters, constitute a preference. As identified earlier in these reasons the amount of $972,749, and the right to obtain those moneys, to which Bowesco was entitled by way of subrogation was properly subject to a charge by Bowesco itself in favour of Suncorp-Metway. Further, Perpetual was also a second mortgagee to the property of Bowesco. As Mason J was at pains to point out in the passage quoted at [37] above, the receivers cannot otherwise deal with funds passing from their control "at the direction" (or, we would add, the request) "of the company". 39 That an excess of power of just this kind has infected the orders made on 10 November 2006 is illustrated by the subsequent orders made by Siopis J on 20 November 2006 by way of implementing or enforcing the earlier orders. Those subsequent orders are the subject of the separate appeal numbered WAD 358 of 2006 which is also before this Full Court. Those orders of Siopis J were, so far as is relevant, in these terms; '2. The Respondents do pay to Hammond Worthington, as solicitors for Bowesco Pty Ltd (Receiver and Manager Appointed) by 4 pm (Western Standard Time) on Wednesday 22 November 2006. 2.1 Counsel's fees in the sum of $7000; 2.2 Federal Court filing fee in the sum of $1762 payable on the filing of the appeal by Bowesco Pty Ltd (Receiver and Manager Appointed); 2.3 The filing fee for the application pursuant to section 1321 of the Corporations Act 2001 (Cth) appealing against the refusal by the Receivers and Managers of the Respondent to make provision for Bowesco's legal expenses; 2.4 Photocopying expenses of $2000; 2.5 Hammond Worthington's fees of $8000; 3. The Respondents do pay the costs of this application.'

40 The appellants by their notice of appeal in WAD 358 of 2006 seek an order, amongst others; 'That Ms Karen Carey repay to the appellants the sum of $20,524.' That claim for relief was pressed by Mr O'Donnell QC for the appellants on the hearing of the appeal. 41 On 30 August 2006, French J had made orders that Ms Carey-Hazell as the sole director of each company, be entitled to defend in the name of the company applications by ASIC that Lanepoint and Bowesco respectively be wound up as insolvent. As a result of those orders, Ms Carey-Hazell became the agent of each company for the purpose of ASIC's application against it. It follows that the payments made by the receivers of Lanepoint pursuant to the orders of Siopis J to solicitors retained by Ms Carey-Hazell and to this Court by way of filing fees were made on her behalf as agent of Lanepoint and Bowesco. They were not made for her personal benefit and, in our view, she cannot properly be ordered to reimburse from her own personal funds to the receivers of either Lanepoint or Bowesco the moneys so paid. It is unlikely that Bowesco itself will ever be able to refund the sum of $20,524 which has been disbursed in accordance with the orders of Siopis J but which we consider the receivers of Bowesco had no power to pay in the manner directed.

Conclusion 42 For the reasons which we have endeavoured to explain, the appeal should be allowed and the orders of 10 November 2006 should be set aside. Like Finkelstein J, we would make no order as to the costs of any party either of the proceedings below or of the appeal. I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan and the Honourable Justice Gilmour.

WESTERN AUSTRALIA DISTRICT REGISTRY WAD 345 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

IN THE MATTER OF LANEPOINT ENTERPRISES PTY LTD (Receivers and Managers Appointed) (aCn 110 693 251) BETWEEN: SHAUN ROBERT FRASER and JOHN PATRICK CRONIN

AND: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

LANEPOINT ENTERPRISES PTY LTD (Receivers and Managers Appointed) (ACN110 693 251)

REASONS FOR JUDGMENT FINKELSTEIN J: 43 The judge made an order that the appellants, the receivers appointed by Suncorp Metway Ltd under a real property mortgage and a first debenture issued by Lanepoint Enterprises Pty Ltd, provide up to $50,000 to Lanepoint's parent, Bowesco Pty Ltd, for the express purpose of paying the "legal expenses incurred by [Bowesco] in opposing [a] winding up application brought by the Australian Securities and Investments Commission" and up to an additional $7,500 for the "legal expenses reasonably incurred by [Bowesco] in connection with its application … for the provision of [the $50,000]." When the receivers refused to pay Bowesco any part of the $50,000 another judge ordered the receivers to pay $20,524 directly to Bowesco's solicitors on account of their fees and disbursements incurred up to the time of the order. The receivers now appeal from both orders. If the first order is set aside the second, which is dependent on the first, must also go. 44 The relevant facts are in a very narrow compass. In April 2005 Suncorp provided what it described as a "Development Finance Facility" for $5,875,900 to Lanepoint for it to acquire and develop 40 residential apartments on a parcel of torrens title land at Rivervale in Western Australia. The apartments are known as the Regent Apartments. By way of security Suncorp was granted a real property mortgage over the land, a first debenture over Lanepoint's undertaking and a guarantee from Bowesco. 45 The mortgage contained the usual provisions found in such instruments. Included was a power to appoint receivers in the event of default. The mortgage also provided that any money received by Suncorp from exercising its power as mortgagee was "subject to Legislation" to be applied: (a) towards satisfaction of any current instalment; (b) towards satisfaction or reduction of the arrears specified in [Suncorp's notice of intention to exercise its powers under the mortgage]; and (c) in such manner to ensure satisfaction of the moneys secured as [Suncorp] in its absolute discretion and without notice to [Lanepoint] decides." "Legislation" was defined in the mortgage as "the law … and any act, statute, by-law, regulation or ordinance." 46 The principal piece of legislation dealing with the application of the proceeds of sale of mortgaged land in Western Australia is the Transfer of Land Act 1893 (WA). Section 109 of that Act provides that the proceeds are to be applied, first, in payment of the costs and expenses of the sale; second, in payment of the money due on the mortgage; third, in payment of the money due on subsequent mortgages and charges; and finally, in payment of the surplus to the mortgagor. 47 The debenture also specified how funds obtained from the sale of the charged property should be applied. They were to be applied the same way as under the mortgage. 48 In May 2005 Lanepoint granted a second debenture to Perpetual Nominees Limited. The debenture is not in evidence. It seems it was granted to secure a loan to a related company. The quantum of the debt secured by the second debenture is in dispute. Perpetual claims approximately $6 million. Lanepoint contends that only about $2.2 million is owing. 49 It is also necessary to note a "Property Investment Facility" granted by Suncorp to Bowesco. The facility is for $1,530,000 and is secured by real property mortgages over land owned by Bowesco, a debenture over its undertaking and a guarantee from a director. 50 Lanepoint defaulted on its obligations to Suncorp. On 3 March 2006 Suncorp appointed the appellants as receivers both under the real property mortgage and the debenture. According to the receivers the "principal asset of Lanepoint to which the Receivers were appointed" was the Regent Apartments. The receivers have not identified any other asset that has come under their control. 51 When the receivers were appointed the Regent Apartments had not been completed. Suncorp advanced further funds to enable the receivers to complete the development. The apartments were then sold for $9,310,250. After payment of all expenses and the debt due to Suncorp the receivers will hold a large surplus. There are two claimants to the surplus. One is Bowesco which had paid Suncorp $972,749 under the guarantee of Lanepoint's debt. The other claimant is Perpetual, the holder of the second debenture. 52 Bowesco is a claimant because it is entitled to be subrogated to Suncorp's securities once the debt to Suncorp has been paid in full. For that purpose the securities must be kept alive: Ghana Commercial Bank v Chandiram [1960] AC 732. As Millet LJ pointed out in Boscawen v Bajwa [1996] 1 WLR 328, 335, subrogation is an equitable remedy fashioned to prevent unjust enrichment. See also Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221. Although Bowesco cannot be subrogated to Suncorp's securities until the debt to Suncorp has been paid in full (provided, of course, the receivers are not improperly withholding payment), Bowesco is, contrary to the receivers' submissions, a creditor of Lanepoint in respect of the amount so far paid under the guarantee: Re A Debtor [1937] Ch 156; Anson v Anson [1953] 1 QB 636. This common law right is distinct from the equitable right of subrogation: Morris v Ford Motor Co Ltd [1973] QB 792. 53 Perpetual is a claimant because of the common law rule that once a receiver has paid the amount due to his principal he must account for the surplus to second and subsequent mortgagees before any funds are paid to the mortgagor: Re Thomson's Mortgage Trusts [1920] 1 Ch 508; Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222, 228. It could also rely on s 109 of the Transfer of Land Act. 54 Let us now analyse the effect of the first order. The evidence shows that the order operated solely on the surplus produced by the sale of the Regent Apartments. The order required the receivers to make a payment out of that surplus, which is a payment the receivers would not be permitted to make even if they were of opinion that it was desirable to advance money to Bowesco to fund the defence of the winding up application. The receivers would not be permitted to make the payment because it would be inconsistent with both s 109 of the Transfer of Land Act and the mortgage instrument. Thus the first effect of the order was to require the receivers to make a payment which was both in breach of statute and in breach of the mortgage. 55 Next the order required the payment to be made to Bowesco, I assume in partial discharge of Lanepoint's indebtedness to it as guarantor - for I do not believe the judge intended the payment to be a gift, and limited the use to which the money could be put. Ordinarily money received by Bowesco would fall under the control of the receivers who had been appointed by Suncorp in its capacity of secured creditor to take control of Bowesco's assets. Here, the form of the order prevented the money being taken by the receivers. Indeed, if the money had been taken by the receivers they would have been cited for contempt. So the second effect of the order was to confiscate property belonging to Suncorp. 56 At the hearing below both the judge and the parties assumed that s 1321 of the Corporations Act conferred power on the judge, if the circumstances permitted, to require the receivers to make the payment to Bowesco. Section 1321 relevantly provides that: "A person aggrieved by any act, omission or decision of: … (b) a receiver, or a receiver and manager, of property of a corporation; … may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit." 57 The first thing to notice about this section, as well as Part 5.2 of the Corporations Act, is that it is by no means clear whether the sections apply to a receiver appointed under a real property mortgage. Indeed the assumption that they do was questioned by Young J in Prioris Pty Ltd v Inscorp Holdings Ltd (unreported, 4 February 1994, Supreme Court of New South Wales). This is a difficult issue and should not be determined in the absence of argument and there has been none on the point. Secondly, for the purpose of the present appeals, it is necessary to look closely at the extent of the power conferred by s 1321. Three broad categories of decision-making can be challenged under this section. First there are those decisions that I would describe as "managerial" or discretionary decisions: see generally Duffy v Super Centre Development Corporation Ltd [1976] 1 NSWR 382, 383. Second, the section can be invoked when a receiver refuses to act in a way that he is required to act. Finally, the section is available when a receiver acts in a way that he should not act. 58 It is, I think, fair to say that the judge treated the application as an appeal against a discretionary decision of the receivers. That is, the judge assumed, or should be taken to have assumed, that the receivers could chose whether or not to fund Bowesco's defence of the winding up application and the appeal was an appeal from their choice not to provide that funding. 59 In reality the appeal was not from a discretionary decision. The judge was being asked to order the receivers to do something they were prohibited from doing by statute and were not authorised to do by the mortgage instrument under which they were appointed. Section 1321 is not available for that purpose. It cannot be used to nullify statutes. It is not available to rewrite mortgages. Thus the order made by the judge was beyond power. 60 It follows that I would allow the appeals, set aside the orders made below and dismiss the application. 61 The receivers also ask for an order that Ms Carey, a director of Bowesco, repay the $20,524 that was paid to Bowesco's solicitors. They are not entitled to that order. The principle that is applied by courts whenever they reverse a decision for error is to restore all the property and rights that have been lost on the erroneous judgment. That, however, is not what is sought here. Ms Carey did not receive anything under the impugned order. The first order was made in favour of Bowesco itself and the second order in favour of its solicitors. What the receivers really want from Ms Carey is damages. But they have no cause of action against her. Indeed there is no cause of action known to the law for loss suffered by reason of an erroneous judgment, save for an action for abuse of process and that could hardly be alleged here. 62 As to the costs both on the appeals and below, in my view they should lie where they fall. First of all, the judge was not afforded the assistance he was entitled to expect from the parties on the issues raised by the application. If the case had been properly argued I have no doubt the first order would not have been made. Secondly, the receivers are fortunate indeed to have been permitted on appeal to raise arguments not put below. Ordinarily that is not allowed. But here the issues raised are of some importance and it is best they were dealt with. In the circumstances it would be wrong to award any costs to the appellants. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 8 June 2007 Counsel for the Appellant: Mr B O'Donnell QC

Solicitor for the Appellant: Allens Arthur Robinson

Solicitor for the First Respondent: Mr T T Palmer, Australian Securities and Investment Commission