JGM Nominees Pty Ltd v Australvic Pty Ltd

Supreme Court of Victoria|2010-03-31|Before: Daly AsJ

FUNDS IN COURT - Liquidator unsuccessful in establishing entitlement to funds - claim upon fund by liquidator for remuneration and legal costs - Calderbank offer after the hearing concluded.

1 On 4 December 2009, I delivered my judgment in the substantive proceeding (see JGM Nominees v Australvic[1]), where I found that, subject to any claim by the liquidator of Australvic Pty Ltd ("liquidator") for his costs and expenses, the third plaintiff, Mr Rocco Calderone, was entitled to be paid the full amount of the funds in court, (being $123,649.09) on the basis that Australvic Pty Ltd held the relevant property (23 Oxford Street, Oakleigh) on trust for him pursuant to a Memorandum of Agreement and Declaration of Trust executed prior to the appointment of Mr McCann as liquidator of Australvic. In the alternative, I found that the property was subject to a charge in favour of the first plaintiff, JGM Nominees Pty Ltd, as agent for a company controlled by Mr Calderone.

2 On 15 December 2009, the liquidator issued a summons seeking the following:

1. From the funds in court, be paid the liquidator's costs and expenses; and

The liquidator's costs of this proceeding be paid out of the funds in court and be taxed and paid from the fund on a solicitor-client basis.

3 The summons was supported by an affidavit sworn by the liquidator on 14 December 2009, verifying the timesheets kept by his firm, which recorded time spent by him and his staff between 19 March 2009 and 8 December 2009 attributed to a file designated "23 Oxford Street". The amount claimed with respect to the liquidator's remuneration was $40,041.50 (excluding disbursements, which are yet to be quantified). No evidence was tendered with respect to the liquidator's legal costs of this proceeding. However, given that the hearing of the substantive dispute took place over three sitting days, I can safely infer that if I acceded to the orders sought by the liquidator in his summons, a substantial proportion of the funds in court would be exhausted by the liquidator's remuneration and legal costs. It appears from the timesheets put forward in evidence that the bulk of the claimed remuneration is for time spent in providing instructions in relation to this proceeding.

4 It was common ground between counsel that the question of the quantum of the liquidator's remuneration would not be in my power to determine, as the liquidator was appointed by the Federal Court. Any disputes between the parties as to whether the items referred to in the timesheets were properly incurred or referable to the property at 23 Oxford Street would therefore need to be agitated in the Federal Court.

5 The submissions in support of the liquidator's application can be summarised as follows:

the authorities provide that a liquidator of a company which is a trustee is generally entitled to be indemnified out of trust assets for his costs and expenses including the costs of defending or prosecuting litigation, even unsuccessfully;
furthermore, s.556 of the Corporations Act 2001 (Cth) provides that a liquidator is entitled to be paid in priority to all other unsecured debts and claims and expenses properly incurred "in preserving, realising or getting in property of the company, or in carrying on the company's business";
alternatively, the position of the liquidator in this proceeding was in many respects analogous to the position of an executor of a deceased estate: in the absence of any disentitling conduct, an executor would ordinarily receive their costs and expenses out of the estate in any dispute regarding the entitlement to the estate; and
the position of the liquidator in defending this proceeding was reasonable in the circumstances. None of the plaintiffs' claims to the funds in court were clear cut, and my judgment in the substantive proceeding referred to some suspicious circumstances surrounding the execution of the documents relied upon by the plaintiffs, including the documents regarding the trust arrangements upon which Mr Calderone was ultimately successful in the substantive proceeding.

6 In response, counsel for the plaintiffs submitted that the present case was on its facts materially different from those authorities relied upon by counsel for the liquidator, in that the liquidator had not expended time, effort and resources upon identifying and realising trust assets for the benefit of the beneficial owner, but had, instead, in the course of defending the proceeding, sought to withhold the asset from the rightful owner or owners. He noted that 23 Oxford Street was sold by the first mortgagee on 5 May 2007, during the period in which the order appointing Mr McCann as liquidator was stayed, and the funds were also paid into court during the period of the stay. Therefore, neither the liquidator's remuneration nor his legal costs in this proceeding were referable to "the care, preservation and realisation of the property" (see Universal Distributing Company Ltd (In Liquidation)[2]). Further, Mr Calderone's solicitor, in his letter of 5 February 2007, had terminated the joint venture agreement with Australvic, so that Australvic was required to transfer the properties (including 23 Oxford Street) to a new trustee. By failing to do so, (and by reason of its conduct generally) Australvic was in breach of its duties as trustee, a breach which was not rectified after the appointment of the liquidator. Finally, the finding in Re Enhill Pty Ltd[3] that the liquidator of a company which was a trustee of a trading trust had the right to receive remuneration in priority to other creditors of a trading trust was inapplicable in this case, because the trust in the current case is not a trading trust, and the liquidator has not been able to establish the value of any liabilities incurred by him which would give him a right of indemnity over the trust assets.

7 In response to the liquidator's submissions that the liquidator's position in this proceeding is analogous to that of the executor of a deceased estate, counsel for the plaintiffs submitted that the liquidator's conduct in defending the proceeding disentitled the liquidator from receiving his costs, and that the liquidator should be personally liable for Mr Calderone's costs in this proceeding (on the basis that any costs order made against Australvic would be unproductive). Such conduct included accusing Mr Calderone of entering into sham transactions, and acting generally unreasonably in opposing the plaintiffs' claims, of which he had been aware since at least on or about 25 February 2008, when the liquidator's solicitors were forwarded a letter sent by the plaintiffs' solicitors to Tulip Investments Pty Ltd. Counsel for the plaintiffs relied upon the decision of the Full Federal Court in Bent v Gough and Anor,[4] in which the Court held that the discretion of the Court to order costs against a non-party extended to a liquidator in appropriate circumstances.

8 Finally, counsel relied upon a Calderbank letter sent by the solicitors for the plaintiffs to the solicitors for the liquidator on 20 October 2009, a few days after the hearing had concluded, but prior to my delivering judgment. In this letter, the plaintiffs offered to receive $100,000 from the funds in court, with the balance to be paid to the liquidator.

9 Therefore, the issues which need to be determined are as follows:

(a) whether the liquidator is entitled to his costs and expenses on the basis that he has secured and preserved trust assets (or some other similar basis);

(b) if the answer to (a) is no, whether the usual principles applying to orders for costs out of a fund should apply;

(d) if the appropriate order is that costs follow the event, whether the liquidator should be required to bear the plaintiffs' costs personally.

Does the liquidator have a right of indemnity out of trust assets?

10 In my view, the liquidator has no automatic right of indemnity for his remuneration and legal costs out of the funds in court. The liquidator has not had to undertake any work to realise or protect the assets: the funds have been safely held in court since before he commenced his duties as liquidator. He has not expended any effort in returning the assets to their true owner: on one view, he has taken active steps to prevent the return of the funds to the true owner. As such, the principles in Re Universal Distributing Company Ltd do not apply. This is also a different case than that of Re Enhill, where the liquidator's right to indemnity was derived from the insolvent trustee's own right of indemnity or lien in respect of the trust assets in respect of liabilities incurred by the trustee in the carrying on of the business of a trading trust. In this case, neither the trustee (Australvic) or the liquidator have been able to identify any liabilities they have incurred as trustee for 23 Oxford Street from which they are entitled to be indemnified from the trust assets: the liquidator's remuneration and expenses have been solely referable to undertaking investigations for the purposes of the defence of the plaintiffs' claims.

Is the liquidator entitled to be treated as equivalent to an executor of a contested deceased estate?

11 The contention that the liquidator should be treated as being in a position analogous to the executor of a deceased estate where there is a contest between beneficiaries and/or potential beneficiaries has some merit. In this proceeding, the liquidator is representing the interests of unsecured creditors of a company which is the registered proprietor of a property which was the subject of a number of claims (from, at least initially, each of the three plaintiffs, and, until around May 2009, Tulip Investments Pty Ltd). The liquidator had a responsibility to properly evaluate each of the competing claims to put available and relevant information before the court to assist the court in making an appropriate determination, particularly while Tulip Investments remained as an active party. Any decision with respect to costs needs to take these matters into account.

12 However, during the course of the proceeding, the role of the liquidator shifted from being an independent evaluator and arbiter of competing claims to that of a competing beneficiary. It vigorously resisted the claims advanced by each of the plaintiffs in circumstances where the claims of two of the plaintiffs were established on the basis of the objective documentary evidence.

13 Accordingly, any order with respect to the parties' costs (including the liquidator's remuneration) needs to take into account the different roles and positions adopted by the liquidator during the course of the proceeding.

14 On 20 October 2009, the solicitors for the plaintiffs sent a letter to the solicitors for the liquidator offering to divide the funds in court between the plaintiffs and the liquidator, with the plaintiffs to receive $100,000 and the liquidator the balance. The letter traversed the issues which were the subject of evidence and submissions during the course of the hearing of the substantive proceeding, and also canvassed a new claim which emerged from the course of the hearing: that is, a potential claim by Mr Calderone as an unpaid vendor of the property at 23 Oxford Street.

15 The issue which arises out of the service of the letter is as follows: was it unreasonable for the liquidator to reject the offer at the relevant time? In my view, the service of the letter will be more significant to any application with respect to the costs of the liquidator's summons than to the determination of the liquidator's summons.

the liquidator's costs and expenses, including his legal costs of the proceeding, up to and including 17 July 2009, be paid from the funds in court;
the liquidator pay the plaintiffs' costs of the proceeding (save for the costs of the plaintiff's security for costs application filed on 18 September 2009); and
there be no order as to the parties' costs of the plaintiffs' security for costs application.

17 From a review of the chronology of the proceeding (a copy of which is annexed as a schedule to this judgment), I consider that a different approach should be taken to the role of the liquidator over the course of the proceeding.

18 At the time the proceeding was commenced, there were a number of parties claiming an interest in the funds in court (the plaintiffs and Tulip Investments Pty Ltd) relying upon a range of contractual and security documentation. In those circumstances, it was entirely proper for the liquidator to consider and evaluate the competing claims to the funds in court, without necessarily coming to a final view as to whether any of the parties had a better claim to the funds than he did.

19 While the liquidator filed and served defences to the points of claim, the affidavit in response to the plaintiffs' claims (sworn 4 May 2009) focussed upon putting relevant documentation before the court (including an executed copy of the Memorandum of Agreement relied upon by Mr Calderone which was not previously in the plaintiffs' possession). While this affidavit was somewhat argumentative in nature, in the circumstances it was appropriate for the liquidator to put into evidence what he considered to be relevant to the court's determination of the ownership of the funds.

20 However, the situation changed with the withdrawal of the claims made by Tulip Investments Pty Ltd in the lead up to mediation (which was held on 15 July 2009, shortly after the plaintiffs filed their amended points of claim). During this period, it was incumbent upon the liquidator to take steps to dispassionately evaluate the plaintiffs' claims and his own position in the proceeding. I note that the time sheets exhibited to the liquidator's affidavit of 14 October 2009 record a number of attendances upon Michael Kyriackou (the former General Manager of Australvic) over the course of June 2009, presumably with respect to the validity of the claims of the respective plaintiffs. It is apparent from the timesheets that a substantial amount of work was done in preparation for the mediation, presumably substantially focussed upon the strengths and weaknesses of the plaintiffs' and the liquidator's claims.

21 It is apparent from the correspondence between the parties after the mediation that the respective parties' positions were no different to that of adversarial parties to litigation generally. For example, in their letter of 27 July 2009 to the solicitors to the plaintiffs,[5] the solicitors for the liquidator stated:

As you are aware, our client disputes that your client has any entitlement

Your client's (sic) claim is weak and is unlikely to be successful.

22 These statements were made on the context of discovery having been completed in a proceeding where two of the plaintiffs were ultimately successful on the basis of the objective documentary evidence. Mr Calderone's position was not one of recent invention. The solicitors for the liquidator had been informed of the plaintiffs' claims as early as February 2008. The liquidator's court book included an affidavit sworn by Mr Calderone on 24 April 2008 in a proceeding in this court (although there is no evidence as to when it came to the liquidator's attention) which referred to the Declarations of Trust over the various properties transferred by Mr Calderone and his associated entities to Australvic.

23 Accordingly, while in the early stage of the proceeding it might be reasonable for the liquidator's role to be considered analogous to that of an executor of a deceased estate, defending the fund against claims by competing beneficiaries, at least by the time that the mediation was concluded, it was apparent that the liquidator was an active protagonist in the litigation. In those circumstances, it is difficult to see why the liquidator should receive the costs and expenses of adopting what ultimately proved to be an unsuccessful position.

24 Accordingly, I have determined that the liquidator should receive his costs and expenses, including his legal costs, up to and including 15 July 2009, but not after that date. While the choice of the mediation date may appear a little arbitrary, it is clearly not too early (by this stage, Tulip Investments Pty Ltd had renounced any claim to the funds), but in circumstances where the plaintiffs had foreshadowed amending their points of claim, and did not provide them until 12 July 2009, it seems an appropriate date given that the court had ordered mediation take place, thereby giving the parties the opportunity to resolve their differences without further litigation.

25 Where does that leave the plaintiffs' costs? In my view, the first and third plaintiffs should have their costs of the proceeding (including costs incurred by them prior to 15 July 2009), and those costs should be paid by the liquidator personally.

26 It is apparent from Bent v Gough that while the court should be cautious to order costs against a liquidator personally when they are unsuccessful in litigation, such caution cannot be allowed to fetter a court's discretion with respect to costs in the case before it. At 219, Northrop and Ryan JJ stated:

We do not understand his Honour to have given himself any direction other than that the discretion should be exercised sparingly, not by way of punishing an imprudent liquidator, but only where circumstances make it just or appropriate for the successful party to be indemnified against his or her costs. We regard that approach as unexceptional.

27 In this case, is it just or appropriate that the first and third plaintiffs be indemnified against their costs? In my view, it is. The plaintiffs have been successful in a hard-fought case over a modest sum.

28 It is noteworthy that the original letter from the plaintiffs' solicitor of 25 February 2008 to Tulip Investments Pty Ltd (provided to the solicitors for the liquidator shortly afterwards) put the plaintiffs' claims in substantially the same terms as was put in this proceeding (although my findings differed slightly from the manner in which the plaintiffs' case was put, the first and third plaintiffs' claims were ultimately successful). Relevantly, the letter states:

We act on behalf of JGM Nominees Pty Ltd (JGM), Seventh Asteroid Pty Ltd (Asteroid) and Mr R A Calderone (Calderone).

The above properties were sold by mortgagees auction last year and after the discharge of all monies owing to the First Mortgagee the residue was paid into Court.

A total of $123,649.09 was paid into Court on 29 August 2007.

We have been instructed on behalf of our clients to make application to the Court to recover the monies so paid in.

As a Caveator to the land prior to its sale by the Mortgagee you may consider that you have an interest in these monies.

However, JGM Nominees Pty Ltd as the second secured lender to Australvic Pty Ltd under an Agreement dated 25 September 2006 claims first priority to the residue. Its debt as at 25 October 2007 stood at $129,042.65.

Its secured interest was protected under Caveat AE736857Y lodged 20 November 2006, and its entitlement therefore extinguishes all remaining interests.

Although, in the circumstances, it is largely academic, we set out the position of our other clients.

Next in priority is the interest of Asteroid under a Charge given 19 May 2005.

Finally, Calderone claims an interest in the money as a beneficial owner of the property pursuant to a Declaration of Trust made by Australvic Pty Ltd made on 12 August 2005.

All of these parties' interests were protected by Caveats lodged against the Title long prior to the Caveat lodged on your behalf on 7 May 2007.

Could you please therefore confirm that you make no claim in the monies paid into Court.

Should we not here [sic] from you within 7 days we will assume that you do make such a claim and accordingly Tulip Investments Pty Ltd will be named as a Defendant in the proceedings to be instituted by our client for the recovery of the monies and this letter produced to the Court on the question of costs."

29 While there were some inconsistencies in Mr Calderone's evidence, and the rationale for the original arrangements between Mr Calderone and Australvic upon which Mr Calderone ultimately succeeded was arguably commercially disreputable, the plaintiffs' position was unwavering during the course of the proceeding. It is apparent from the timesheets exhibited to the liquidator's affidavit of 14 December 2009 that the liquidator and his staff undertook investigations into the plaintiffs' claim (including consulting with Mr Kyriackou), but the results of these investigations did not result in evidence being uncovered which negated the first and third plaintiffs' claims. While the liquidator was defending the proceeding, he was of course making his own implied claim to the funds, despite not formally issuing a counterclaim. The liquidator's decision not to file and serve a counterclaim deprived the plaintiffs of the opportunity to protect themselves from a claim by an impecunious claimant to make a successful application for security for costs.

30 Finally, even after the trial had concluded, the liquidator failed to take an opportunity to resolve the matter by accepting the plaintiffs' offer of 20 October 2009, which was less favourable to the plaintiffs than the outcome of the substantive hearing, after having had the benefit of hearing the evidence. Instead, from my review of the timesheets annexed to the liquidator's affidavit of 14 December 2009, the liquidator apparently continued investigating the plaintiffs' claims, focusing upon a further potential claim which had emerged during the course of the proceeding, that is, Mr Calderone's claim to a lien over the funds in court as an unpaid vendor.

31 In the light of these circumstances, including the erroneous assessment of the liquidator that the plaintiffs' case was "weak and unlikely to be successful", I will order that the liquidator be personally liable for all costs incurred by the first and third plaintiffs on a party-party basis. I see no reason to carve out the costs incurred by the first and third plaintiffs prior to the mediation, or to order costs be paid on anything other than a party party basis. I will hear the parties on the question of the costs of the liquidator's summons filed 15 December 2009.

5/2/07 Letter from John Matthies & Co purporting to terminate joint venture agreement with Australvic.

5/5/07 Perpetual sells 23 Oxford Street at mortgagee auction.

25/2/08 Letter from John Matthies & Co to Goldsmiths re funds in court.

25/2/08 Letter from John Matthies & Co to Tulip Investments re funds in court. (copied to Goldsmiths)

24/4/08 Affidavit of Rocco Calderone, sworn in proceeding no 2056 of 2007.

13/3/09 Proceeding issued (inc Tulip Investments as first defendant). First affidavit of Rocco Calderone filed and served.

19/3/09 First recording of time on liquidator's "23 Oxford St" file.

3/4/09 (approx) Plaintiffs file and serve points of claim.

4/5/09 Liquidator serves response to points of claim.

21/5/09 First defendant confirms it makes no claim to the funds in court.

18/6/09 Attendances on Michael Kyriackou by liquidator's staff.

15/7/09 Plaintiffs file and serve amended points of claim (deleting claims against Tulip Investments Pty Ltd).

27/7/09 Letter from Goldsmiths to John Matthies & Co in response to claim for security for costs.

4/12/09 Judgment delivered in substantive proceeding

8/12/09 Last reference on liquidator's time sheets.

[5] Exhibit "PEF-8" to the affidavit of Philip Fox sworn 17 September 2009.

At a glance

Court

Decision date

Before

Source

Judgment (66 paragraphs)

Parties

Cases Cited (2)