Grossman v E Katz Manufacturing Jewellers

The first intervener is the Commissioner for Fair Trading of the Department of Commerce, who is responsible amongst many other things for the administration of the Property Services Compensation Fund under Part 10 of the Property, Stock and Business Agents Act . The Commissioner received many claims against the Compensation Fund by persons to whom Propestate had failed to account for money which if there had been compliance with the legislation by the licensee would have been found in a trust account when the administration commenced, but was not. Many of these claims were for a balance of several thousand dollars, which probably related to collection of rent, but there were several for considerably larger amounts which probably relate to deposits. A schedule shows 78 claims, most of which were paid in full, some of which were paid in part, the total of the payments being $444,739.38. 8 Under section 177 the Crown is subrogated to all the rights and remedies of a claimant against a company or against any other person. This of course, places the Crown in a position (at the lowest) of an unsecured creditor in the liquidation in respect of claims which have been paid, but it also entitles the Crown to any equitable proprietary interest which could be shown to exist in the funds derived from the trust accounts now held. The Commissioner is not attempting or proposing to embark on proving subrogation to any equitable propriety entitlement. I infer that this should be attributed to an understanding that if the Commissioner devoted time and money he is unlikely to find out any more about ownership of the fund than the applicants have been able to do in the course of their activities since February 2008. If this is the view that is taken, it is hardly surprising. There are other powers conferred by the Act on the Commissioner which could in concept have been exercised: the Commissioner is empowered by Part 9 of the Act to appoint a manager for a licensee's business where there may have been a failure to account, and may apply to the court for the appointment of a receiver under Part 9, Division 3. It was open to the Commissioner to take these courses but left control of the trust accounts, and resolution of the problems relating to them, were left in the hands of the applicants: as well the Commissioner might do. The other intervener Cashflow Advantage Pty Ltd, formerly Paidonexchange.com.au Pty Ltd was the smaller creditor of the two factoring companies and claims entitlement over commissions earned on the sale of seven properties which the Company assigned to Cashflow Advantage. Where money is held in the trust account as a deposit and a commission accrues due, Cashflow Advantage could claim that the money in the trust account representing the commission was held in trust for it, under an assignment which formed part of its factoring arrangements. However Cashflow Advantage does not undertake to identify an interest of its own in any part of the funds out of which the applicants seek remuneration. 9 Leave to intervene in proceedings is discretionary: there was no entitlement or right to be heard as a matter of procedural justice. The intervenors do not undertake to prove any entitlement. 10 The first contention on behalf of the Commissioner was to the effect that the work relating to the trust accounts when properly analysed was undertaken in general administration of the voluntary administration and liquidation, and should be remunerated under the general administration. I do not accept this because evidence on behalf of the applicants shows that, subject to examination in detail, there is much work which related only to the trust accounts and to identification and protection of interests in the trust accounts and I see no reason why the trust accounts should not bear the burden of any work identifiably related to them. 11 It was then contended that for discretionary reasons the liquidators should not be granted the relief they seek. In relation to the plaintiff's claim, and the discretionary considerations put against it, I was referred to a number of authorities in which the allowance of remuneration to trustees has been considered. Several of these decisions relate to remuneration of an administrator or liquidator where the applicant has actually administered trust funds. These are Re G B Nathan & Co Pty Limited (In Liq.) (1991) 24 NSWLR 674 (McLelland J) where his Honour said to the effect that it will normally be appropriate to make an allowance to the liquidator out of trust assets, and referred to Re Berkeley Applicate (Investment Consultant Centre) Ltd (In Liq.) [1988] 3 All ER 71 (Deputy Judge Nugee QC). 12 In deciding as he did, Deputy Judge Nugee followed modern English authority about remuneration out of trust property, which had departed from a much older position of great reluctance to make allowances to trustees. A detailed review of the approach of courts, in England and New South Wales, was made in Re Application of Sutherland [2004] NSWSC 796 (Campbell J). Relatively greater readiness of the court in New South Wales to allow remuneration is of very long standing, the oldest authority referred to being a decision of the year of 1870. 13 The conclusions reached by Campbell J are held generally; see Grossman v E Katz Manufacturing Jewellers (ACT) Pty Ltd and Ors (2004) NSWSC 1224 (Barrett J), Shannon and Anor v JMA Accounting Pty Ltd (2005) QSC 240 (Wilson J). Reality requires ready acceptance of the need to allow remuneration to professional persons who act as trustees. Leaving to one side simple cases of sheer benefaction, trusts in any commercial context are better handled by professional people such as chartered accountants, solicitors or trustee companies than left to people who undertake the work without being paid for it. Specifically where liquidators incur trust liabilities by managing trust funds held by companies in liquidation, the interest of whoever may be entitled to the trust funds, and the interests of good administration of trust assets require that the court not have a disposition against remunerating them. If liquidators are left to work for nothing, or think they may be, trust funds are unlikely to be managed properly. No-one would be happy to hear that the administrators had learnt that the bank accounts were trust accounts and just left them alone and done nothing about them. I would not be. 14 In Re Lord (as Liq of Maureen Michael Management Pty Ltd (in Liq) (2005) 55 ACSR 539, Young CJ in Eq considered the remuneration of a liquidator who comes to administer trust assets. His Honour recognised the discretionary nature of the court's power and discussed some matters relevant to the exercise of discretion. In my opinion the judgment illustrates that the court acts with care, considers appropriate discretionary matters and does not follow unconsidered routine: but there is no hostility or general reluctance to paying liquidators for work they do. 15 Counsel contended that it was an adverse consideration that the application was not made early in the administration of the trust. This is a consideration adverse to the application, but not one of much weight, in my judgment. The administration was not one which was to continue for some years, and a better course was to attend to the practicalities about people's entitlements. 16 Counsel also contended that when I have regard to section 86(1)(a), allowance of remuneration competes with the policy of that provision. Section 86(1)(a) provides 86 Trust money to be paid into trust account (1) Money received for or on behalf of any person by a licensee in connection with the licensee's business as a licensee: (a) is to be held by the licensee or if the licensee is employed by a corporation) by the corporation, exclusively for that person, The direction that the money is to be held exclusively for that person is a legislative direction to the licensee who is to hold it. It is not a statutory exemption of the money from the general powers of the court in exercising its jurisdiction over trusts and trustees: Counsel did not content that it is. The whole question of the costs of management by a trustee who succeeds to a licensee is not dealt with by section 86(1)(a). 17 Counsel also contended to the effect that the proportionality of the burden on the money in the trust account with the remuneration claimed is an adverse consideration. The remuneration claimed exceeds the amount of money now in the fund derived from the trust account. However, it does not exceed the whole fund, the greater part of which has been distributed to those of the beneficial owners who are identifiable. It is not surprising that the burden of expense was heavy, having regard to the disordered state of affairs which the administrators found at the outset. There were also observations adverse to the quality of the applicants' work and inquiries for which I do not see any just basis in the evidence. 18 Any question of proportionality which calls for consideration relates to this topic. The only part of the trust account moneys left is the part of which the owners can not be identified: all of it, or as much as the Registrar assesses, will be used for remuneration, while none of the burden of remuneration will fall upon those who were entitled to funds, were identified and received their funds. I see the significance of proportionality, but in the present case it is outweighed by pragmatism; the burden is to fall on part of the fund for which no owner has been identified and no one offers to prove entitlement: no one can be identified who is disadvantaged by the absence of this proportionality. 19 The probable outcome of only allowing a proportion of the remuneration against this part of the fund would be that a residue fund would remain unclaimed for many years to be dealt with eventually as unclaimed moneys. I see no advantage in this course. 20 Submissions by the solicitor for Cashflow Advantage presented a further review of considerations said to be adverse to a discretionary decision in favour of the application. These contentions followed a generally similar course to those put on behalf of the Commissioner, except that they were presented with markedly more pejorative tone and expression. 21 Overall my conclusion is that the allowance of remuneration to the applicants is appropriate, and further it is appropriate that their remuneration should be charged against the remaining balance so far as it extends. I do not find anything in what the applicants have done which is significantly adverse to an allowance of remuneration: if anything my conclusion is that their attention to the trust fund and their energy should be commended. 22 I propose to make the orders claimed. Orders: 1. Orders 1 to 10 inclusive in the Originating Process. 2. Liberty to apply **********

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