Gusdote Pty Limited v North Queensland Land Development Pty Limited

REASONS FOR JUDGMENT 1 This is yet another episode in the long and drawn out dispute that has already given rise to several decisions (see [2011] FCA 202, [2011] FCA 608, [2012] FCA 280, [2012] FCA 759 and [2012] FCA 783). In these reasons I shall use terms as they were defined in my earlier reasons. 2 The original dispute was concerned with the affairs of Gusdote and arose out of the transfer by Gusdote to North Queensland of land situated in Townsville, Queensland (the Townsville Land). The Townsville Land was transferred to North Queensland by Gusdote in circumstances that led to a declaration by the Court that North Queensland was a constructive trustee in respect of the Townsville Land (see Demetriou v Gusdote Pty Limited [2010] FCA 581). Cowdroy J concluded that the execution of an instrument of transfer of the Townsville Land to North Queensland by Gusdote involved a breach of fiduciary duty then owed to Gusdote by a director of Gusdote and that the Court should declare that North Queensland had received and held the Townsville Land upon a constructive trust for Gusdote. On the basis of those findings, the Court declared that North Queensland holds its legal title to the Townsville Land upon a constructive trust for Gusdote and ordered North Queensland to account to Gusdote, in accordance with Division 6 of Part 5.6 of the Corporations Act 2001 (Cth) (the Act), for all benefits and moneys received by North Queensland as a consequence of the transfer of the Townsville Land to North Queensland. An account was subsequently taken by the Registrar. 3 In the meantime, part of the Townsville Land was sold by North Queensland. There has been no evidence as to the circumstances of that sale. In particular, there has been no evidence as to why part of the Townsville Land was sold or who gave instructions for the sale. However, it appears to be common ground that, on settlement of the sale, the balance of the proceeds of sale, after paying a sum to secured creditors of North Queensland, was paid into the trust account of Messrs Preston Law, who are the solicitors for the Liquidators.. The sum of $65,000, presently held in the trust account of Preston Law (the Fund), represents the balance of those proceeds. 4 On 13 July 2012, the Liquidators filed an interlocutory application in the proceeding, seeking a declaration that they are entitled to an equitable lien on the Fund. They claim the lien as security for fees for work done and for expenditure incurred by them in the preservation, care, maintenance and realisation of some or all of the Townsville Land. They also claim a declaration that they are entitled to retain from the Fund, and appropriate and apply for their own use and benefit, so much of the Fund as the Court determines represents the fees and expenditures incurred by them in the preservation, care, maintenance and realisation of the Townsville Land. Finally, they seek an order that they are also entitled to retain from the Fund, and appropriate, and apply for their own use and benefit, the costs of their interlocutory application of 13 July 2012. 5 While North Queensland was the defendant in this proceeding, the Liquidators had not been joined as parties. Accordingly, there was a question as to the competence of the interlocutory application of 13 July 2012, brought by the Liquidators on their own personal behalf in the proceeding. On 10 August 2012, in order to save the costs of a further substantive proceeding, leave was given by consent for Gusdote to file an amended originating application joining the Liquidators as defendants in this proceeding. By the amendment, Gusdote now seeks declarations that the Liquidators have no entitlement to any lien and are not entitled to retain any part of the Fund for their own use and benefit. 6 I have now received written submissions on behalf of Gusdote and the Liquidators on the questions raised by the Liquidators' interlocutory application and by Gusdote's amendment to the originating application. The parties have requested that the questions be resolved on the papers, without any further oral argument. 7 The Liquidators were appointed, under s 436A of the Act, as administrators of North Queensland on 1 April 2010. They were subsequently appointed as liquidators of North Queensland, on 4 June 2010, following a resolution of the creditors of North Queensland. 8 The principal business activity of North Queensland had been the operation of a golf course on the Townsville Land. It appears to be common ground that the Liquidators performed professional services and incurred expenditure exclusively and directly in connection with the Townsville Land in relation to the following: the sale of part of the Townsville Land; insurance of the Townsville Land; reporting to, and dealing with, secured creditors, of North Queensland who held security over the Townsville Land; liaising with the golf professional who occupied, and was the caretaker of, the Townsville Land; dealing with claims against the Townsville Land; assessing the nature of the holding by North Queensland of the Townsville Land; and dealing with valuers of the Townsville Land. The Liquidators have not been paid any part of the fees for the professional services or reimbursed for the expenditure. The Liquidators' fees and expenses amount to $71283.76 (the Claimed Amount). 9 The Liquidators claim to be entitled to an equitable lien in respect of the Fund, on the footing that it was through their work and expenditure that the proceeds of the sale of the Townsville Land were produced. Therefore, they say, the Claimed Amount should be thrown upon the Fund, which represents the balance of the proceeds. They assert that, as Gusdote is taking the benefit of their work and expenditure, Gusdote should not escape the burden of the proper cost of those efforts. They rely on the general principle that, where a person seeks to enforce a claim to an equitable interest in property, the Court has a discretion to require, as a condition of giving effect to that equitable claim, that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property in question (Shirlaw v Taylor (1991) 31 FCR 222). 10 The Liquidators accept that the items that make up the Claimed Amount were claimed in the name of North Queensland in the course of the account taken by the Registrar. They say, however, that that creates no impediment to the assertion by them of a personal claim to an equitable lien for the yet unreimbursed work and expenditure concerned with the care, preservation and realisation of the Townsville Land, and the production of the Fund. The Liquidators were not in control of North Queensland at the time of the events that gave rise to the constructive trust and had no involvement with North Queensland at the time of those events. They say, therefore, that, their consciences are not tainted by those events or the equities that bind North Queensland. Further, they say, they are not subject to the same offsetting claims and allowances that must be brought into account as between Gusdote and North Queensland. 11 Gusdote characterises the Liquidators' claim as equivalent to a claim by a trespasser while the trespasser remains in possession, in defiance of the demand of the true owner for the return of possession. However, that characterisation ignores the fact that the Liquidators had nothing to do with the breach of duty. It may be a good answer to a claim on behalf of North Queensland, but no additional claim is being advanced on behalf of North Queensland. 12 Gusdote contends also that the Liquidators are privies of North Queensland for the purpose of the account and are bound by the orders made, just as much as North Queensland itself is bound. Alternatively, Gusdote says, the claim by the Liquidators at this stage is an abuse of process, in so far as they seek to reopen issues that were decided by the orders made on 20 April 2012. Gusdote says that the Liquidators themselves elected to use the taking of accounts as the occasion on which to advance the claim for an allowance for expenses incurred in preserving, maintaining and improving the Townsville Land. It says that it is now too late for the Liquidators to differentiate themselves from North Queensland and re-agitate issues already decided. However, the proceeding has not yet been finally disposed of. Accordingly, it may well be that any necessary adjustment could still be made to the accounting to ensure that North Queensland is credited only with the realisation of the Townsville Land that is actually available for Gusdote. Of course, the Liquidators would have to bear the costs thrown away by the adoption of such an adjustment. 13 Alternatively, Gusdote contends, any claim by the Liquidators should be limited to the work expended and the costs incurred in relation to the Fund itself. The lien could not extend to work expended and costs incurred in relation to any part of the Townsville Land that had nothing to do with the generation of the Fund. 14 There is no more detailed evidence of the matters described above. Thus, for example, it is not clear what claims against the Townsville Land were dealt with by the Liquidators. Nor is it clear what was entailed in assessing the nature of the holding of the Townsville Land by North Queensland. It may be no more than considering Gusdote's claims in respect of the Townsville Land. There is no evidence of the work done by valuers or why that work was necessary. 15 Thus, Gusdote contends that there is no basis for any allowance for any work and expenses incurred in: completing the sale of part of the Townsville Land, which was a perfecting of a breach of trust; reporting to and dealing with secured creditors of North Queensland; dealing with claims against the Townsville Land, the nature of which is unspecified; assessing the nature of the holding of the Townsville Land by North Queensland; or dealing with valuers. 16 The Fund is part of the proceeds of the realisation of part of the Townsville Land. The whole of the Townsville Land was held on constructive trust by North Queensland. It follows that the Fund is held by North Queensland on the same constructive trust. To the extent that the sale of part of the Townsville land and the realisation of proceeds in cash benefitted Gusdote, costs reasonably incurred in doing so should be a charge on the Fund. However, the evidence does not indicate whether any part of the Claimed Amount is directly attributable to the realisation of the Fund. The evidence is quite unclear as to precisely how the Fund was generated. Further, there is no evidence to indicate that Gusdote, as the beneficial owner of the Townsville Land, has benefitted from the sale of the part of the Townsville Land. 17 Gusdote accepts that work and expenditure concerning insurance of the Townsville Land and liaising with the golf professional, who occupied and was the caretaker of the Townsville Land, might properly be described as actions directed to the preservation, maintenance and improvement of the Townsville Land on behalf of Gusdote. However, it does not accept that the work and expenditure in relation to the sale of part of the Townsville Land, reporting to and dealing with secured creditors, dealing with claims against the Townsville Land, assessing the nature of the holding of Townsville Land or dealing with valuers has anything to do with realisation and preservation of the Fund. 18 On the basis of the evidence presently before me, I am not satisfied that the work and expenditure that make up the Claimed Amount relate to the care, preservation, maintenance and realisation of the Fund. While some of the work and expenditure may have related to the preservation, care, maintenance of the Townsville Land, it does not relate to the generation of the Fund. 19 In any event, the Liquidators acted at all times only in the capacity of administrators or liquidators of North Queensland. They would have a preferred claim as against the unsecured creditors of North Queensland. However, as against a secured creditor of North Queensland, they would have no priority in respect of the secured property. Similarly, they would have no priority in respect of property held by North Queensland on a bare trust for a third party. Their claim can rise no higher than that of North Queensland. 20 In those circumstances, I do not consider that the Liquidators have brought themselves within the relevant principle. The work done by the Liquidators was done by them in their capacity as administrators, and subsequently in their capacity as liquidators, of North Queensland. The expenditure in question was incurred in the same capacity. There is no evidence that the Liquidators, independently of North Queensland, expended work, skill and labour and incurred expenditure in connection with the administration of the Townsville Land. The evidence does not enable me to make a finding that the work they performed or the expenditure they incurred benefitted Gusdote as the beneficial owner of the Townsville Land. In those circumstances, Gusdote is entitled to a declaration that the Liquidators have no claim on the Fund in respect of the Claimed Amount. The Liquidators' interlocutory application should be dismissed. The Liquidators should pay Gusdote's costs of the argument concerning the Fund. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.