Lucantonio v Benscrape Pty Ltd

Supreme Court of NSW|2020-08-20|Before: Williams J, Re J

Respondent) John Peter Salvestro (Second Defendant/Fourth Respondent) Representation: Counsel: Mr D R Stack (Applicant) Mr B Hancock (Defendants/Third and Fourth Respondents)

Solicitors: Piper Alderman (Applicant) Cornwalls Law (Plaintiffs/First and Second Respondents) Creevey Russell Lawyers (Defendants/Third and Fourth Respondents) File Number(s): 2017/00288492 Publication restriction: N/A

Applicable principles

The applicable principles were summarised by Brereton J (as his Honour then was) in Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [6] (footnotes omitted): [1] "The remuneration of court-appointed receivers is provided for by (NSW) Uniform Civil Procedure Rules 2005, r 26.4 which provides that a receiver is to be allowed such remuneration (if any) as may be fixed by the Court. Founding on on what Young CJ in Eq said in Ide v Ide, but drawing on the qualifications expressed in later cases, the relevant principles may be restated as follows: (1) A receiver is entitled to the costs, charges and expenses properly incurred in the discharge of the receiver's ordinary duties, or in the performance of extraordinary services that have been sanctioned by the Court. (2) The ultimate question is what amount of remuneration is 'reasonable', and this involves considering whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and whether the amount claimed for it is a fair and reasonable reward for it. The objective is to award a sum or devise a formula which will reasonably and fairly compensate the receiver for the time and trouble expended in the execution of his or her duties and the responsibility he or she has assumed. (3) The receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them. (4) Remuneration may be allowed on the basis of a fixed salary, a commission on receipts, or a quantum meruit having regard to the time, trouble and responsibility involved. It is a matter for the Court to determine what basis is appropriate in the particular case, having regard to the principle that the remuneration must be reasonable. (5) If a time-based approach is adopted, the Court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work. The Court will usually act on time sheets created in the receiver's office, provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades on his or her staff. (6) By analogy, the task involves consideration of the matters referred to in Corporations Act, s 425(8), which applies to receivers appointed under an instrument, namely: (a) the extent to which the work performed by the receiver was reasonably necessary; (b) the extent to which the work likely to be performed by the receiver is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the receiver; (d) the quality of the work performed, or likely to be performed, by the receiver; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the receiver; (f) the extent (if any) to which the receiver was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the receiver was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the receiver; (i) whether the receiver was, or is likely to be, required to deal with: (i) one or more other receivers; or (ii) one or more receivers and managers; or (iii) one or more liquidators; or (iv) one or more administrators; or (v) one or more administrators of deeds of company arrangement; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis: (i) the time properly taken, or likely to be properly taken, by the receiver in performing the work; and (ii) whether the total remuneration payable to the receiver is capped; (l) any other relevant matters. (7) Many of those factors - in particular, pars (d) - (e) and (g) - (h) - have as their unifying theme the concept of proportionality (being the relationship of the work done and the remuneration claimed to the value of the estate), which is an important consideration in determining reasonableness. (8) It will rarely be appropriate for a Judge to review a decision of a Registrar on remuneration on an item-by-item basis. (9) In respect of disbursements, no Court approval or specific order is necessary in the absence of a challenge, although receivers should scrutinise them to ensure that they are reasonable and properly payable, and the Court has an inherent jurisdiction to review receivers' disbursements as they are officers of the Court. However, a receiver may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement."

The Receiver's experience and time-based charging method

The Receiver is a registered liquidator and partner of Brooke Bird, a specialist firm providing advisory and insolvency services. She is a life member of the Australian Restructuring Insolvency & Turnaround Association (ARITA), a Fellow of CPA Australia and a member of Chartered Accountants Australia New Zealand (CAANZ). The Receiver has been working in the insolvency industry for over 30 years.
The Receiver's extensive experience is no doubt the principal reason why the parties approached her to accept the appointment in May 2018 when they were in the process of negotiating the consent orders appointing a receiver over the Assets.
As I have referred to above, the Receiver sought orders pursuant to UCPR r 26.4 approving and fixing her remuneration in a specified sum for the period 17 May 2018 to 14 August 2020 and fixing her future remuneration as an amount capped at a further specified sum for the period 17 August 2020 to 16 November 2020. Counsel for the receiver informed me that 16 November 2020 is the Receiver's current estimate of the date by which all work that remains to be done in order to finalise the receivership will be completed.
The plaintiffs and defendants neither consented to nor opposed the orders sought in relation to past remuneration and future remuneration.
The sums specified in the Receiver's notice of motion are based on the application of hourly rates charged by the Receiver and staff of Brooke Bird. The Receiver submitted, and I accept, that time-costing was the appropriate basis of charging in this case because the Receiver was required, for an unknown but clearly substantial period of time, to maintain the Assets and operate the Business.
The Receiver provided a schedule of those hourly rates to the parties before the May 2018 Orders were made. The rates have changed slightly during the course of the receivership. At the commencement of the receivership, the hourly rate for the Receiver was $525.00. That rate increased to $550.00 at some time during the receivership. The Receiver submitted that the hourly rates are objectively reasonable, and the parties did not make any submission to the contrary. I accept that the hourly rates applied were reasonable, having regard to the complexity of the work that was required during the receivership, which I will describe in more detail below.

Remuneration in respect of the period from 17 May 2018 to 14 August 2020

The Receiver was appointed in respect of the Assets identified in order 1 of the May 2018 Orders, as set out in [4] above. There was no evidence before the Court about the value of those Assets. However, the Receiver gave the following evidence about the nature of the Assets.
The commercial sheds and land located at 16-24 Whybrow Street, Griffith, New South Wales is known as "Whybrow Estate". It is an industrial complex comprised of 28 tilt slab factory units of various sizes across three buildings. The units are rented out to tenants conducting various types of businesses, including hairdressing, children's dancing schools, wholesale operations and agricultural supply businesses.
The leasing of the units at Whybrow Estate is the business referred to in Order 1(b) of the May 2018 Orders. There are 31 separate tenancies. The maintenance of the units is necessarily one of the activities carried out as part of the Business.
Orders 6 and 7 of the May 2018 Orders required the Receiver to appoint Ms Tania Bazzacco to manage the Business (subject to reserving a right to the Receiver to terminate Ms Bazzacco's appointment for reasonable cause and to appoint an alternative manager). The Receiver gave evidence confirming that she has engaged Ms Bazzacco to manage the Business throughout the receivership.
The plant and equipment referred to in Order 1(c) of the May 2018 Orders, to the extent that it was able to be located by the Receiver, comprised a forklift and parts, some air conditioning systems and parts, some floor and wall coverings, a scissor lift, formwork and some steel and ducting. A very small proportion of the remuneration claimed by the Receiver relates to the work in order to locate these assets at the outset of the receivership.
In relation to the bank accounts in Order 1(d) of the May 2018 Orders, Order 5 of the May 2018 Orders provided: "(5) Order that: a. The Receiver and Manager open a new bank account for the purposes of managing the Business (Operating Account); b. The Receiver and Manager transfer the balance of the funds in the Westpac Account and the NAB Account to the Operating Account and, upon doing so, close the Westpac Account and the NAB Account; and c. The Receiver and Manager provide the Plaintiffs and the First Defendant with copies of the bank statements for the Operating Account upon receipt of them by the Receiver and Manager."
The Receiver gave evidence that, upon her appointment, she opened a bank account for the purpose of the Operating Account and wrote to Westpac and to National Australia Bank requesting them to freeze the accounts referred to in order 1(d) of the May 2018 Orders, continue to accept deposits into those accounts and to transfer all credit funds in those accounts to the Receiver for banking into the Operating Account. The receipts and payments summary exhibited to the Receiver's affidavit recorded that $24,562.50 and $262,776.61 had been paid into the Operating Account from the National Australia Bank and Westpac accounts respectively.
During the period since 17 May 2018 (approximately two years and three months), the Receiver has collected total rent of $719,692 from the Whybrow Estate tenants, notwithstanding that not all units were leased as a result of the maintenance and planning issues to which I refer in more detail below. This equates to an average annual rental of approximately $320,000. I infer from this evidence that the Assets comprising the Whybrow Estate and the Business are of significant value.
The Receiver gave evidence that planning matters, Council issues and the development and oversight of a maintenance program for the Whybrow Estate have occupied the majority of the time of the Receiver and the staff of Brooke Bird working with her.
Upon her appointment, the Receiver was advised by Ms Bazzacco and a planning consultant then working with her that there were concerns about whether the Whybrow Estate complied with Council requirements and building laws and regulations. The concerns included termite infestation of buildings, ongoing leaks causing water damage to tenanted units, potential non-compliance of building structures with Council and building law requirements and concerns about whether the buildings were structurally sound.
The Receiver commenced discussions with the Council within weeks of being appointed. Those dicussions continued following the Council issuing a Notice of Intention to Serve Orders on 12 June 2018. The Receiver embarked on a program of works including termite assessment and control works, asbestos inspection, electrical safety inspection, fire safety inspection, and repairs and maintenance to tenancies. The Receiver engaged Luxmoore Project Management (Luxmoore) to assist with Council and planning issues as well as the ongoing maintenance program.
As at the date of the hearing of the notice of motion, Luxmoore was continuing to liaise with the Council to understand the basis of the Council's concerns relating to fire safety, ceiling heights, ventilation and building works not having been carried out in accordance with approvals, and to ascertain the extent of the work required to address the Council's concerns. During the course of these discussions, the Receiver has learned that the Council has not issued an occupation certificate for some units.
The Receiver and her staff have performed a wide range of work in relation to tenancy matters, including: 1. reviewing the tenancy arrangements and rental status for each tenant; 2. liaising with tenants concerning extensive repairs and alterations required to units in order to comply with building code and Council requirements; 3. liaising with tenants concerning tenants' requests for other repairs and maintenance; 4. liaising with Ms Bazzocco regularly in relation to day-to-day tenancy requirements, such as general repairs and maintenance; and 5. liaising with tenants seeking rent relief or to vacate their tenancies, particularly following the downturn in business caused by the COVID-19 pandemic, and obtaining legal advice in relation to those issues.
The Receiver and her staff have also attended to the administration requirements of the Business, including attending to Business Activity Statement requirements on a quarterly basis, reconciling bank accounts, payment of trading and receivership expenses, reviewing insurance arrangements annually, undertaking an occupational health and safety review and working with consultants to prepare and implement a risk management framework.
The Receiver sought an order approving payment of her remuneration in respect of the period from 17 May 2018 to 14 August 2020 in the amount of $247,755.75 (including GST) based on time-charging by the Receiver and staff of Brooke Bird, in accordance with the hourly rates to which I have referred earlier in these reasons. The GST-exclusive amount is $225,232.50.
As I have already mentioned, the plaintiffs and defendants neither consented to nor opposed the order sought in relation to past remuneration.
In addition to giving the evidence that I have summarised above concerning the nature of the work undertaken during the course of the receivership to date, the Receiver has exhibited to her affidavit: 1. a schedule setting out the total number of hours worked by the Receiver and each member of her team and the hourly rates charged by each person for that work; 2. a schedule breaking down the overall totals to which I have referred immediately above into five categories - "Trade On Management", "Investigations and Legal", "Administration", "Assets" and "Creditors"; and 3. an itemised time-charging record for the period from 17 May 2018 to 14 August 2020 describing each item of work performed and date on which it was performed, the person who performed the work, the level of seniority of that person, the time taken to perform the work, and the amount charged for the work based on that person's hourly rate.
Almost half of the GST-exclusive amount of $225,232.50 relates to work done in the "Trade On Management" category, which principally involved the work that I have described above relating to tenancies, and maintenance and other works carried out on the Whybrow Estate. In this category of work, the Receiver performed approximately 31% of the work done, with staff charging at lower rates performing the balance of the work. The total amount of work done by the Receiver and all staff for this category equates to an average of approximately 3.62 hours per week during the receivership to date [2] and the total amount of work done by the Receiver herself for this category equates to approximately 1 hour per week.
In my opinion, the total amount of time spent by the Receiver and her team during the period since 17 May 2018 in relation to this category is reasonable having regard to the nature of the work that I have described above and proportionate to the extent of the problems that the Receiver has been required to address. The time-based remuneration proposed for this category of work, being based on reasonable hourly rates, is also reasonable.
The next largest category of fees relates to "Investigations and Legal" and accounts for approximately one quarter of the GST-exclusive amount of $225,232.50 of total remuneration for the period up to 14 August 2020. This category relates principally to the work required to address the legal and regulatory issues arising from tenancy matters and Council and planning matters to which I have referred above. The total amount of work done by the Receiver and all staff for this category equates to an average of approximately one hour per week during the receivership to date, and most of that work was done by the Receiver personally.
In my opinion, the total amount of time spent by the Receiver and her team during the period since 17 May 2018 in relation to this category is reasonable having regard to the nature of the work that I have described above. The time-based remuneration proposed for this category of work, being based on reasonable hourly rates, is also reasonable. The legal issues affecting tenancies that arose as a result of the COVID-19 pandemic and the extent of the issues raised by the Council in relation to the Whybrow Estate were very complex and put the entire foundation of the Business at risk. Those issues therefore required careful attention at the most senior level. The Receiver and her team provided this attention in an efficient way, with the benefit of appropriate external advisers and experts.
In coming to these conclusions about the two largest categories of remuneration, I have taken into account that the Receiver has had the benefit of the services of Ms Bazzocco, as manager of the Business, and the project management services of Luxmoore.
The evidence discloses that Ms Bazzocco has charged a total amount of $23,968.75 for her services over the period since 17 May 2018, which is described in the receipts and payments summary exhibited to the Receiver's affidavit as "site management and book keeping services". I infer from this relatively modest charge that the routine site management and business management matters were attended to by Ms Bazzocco whilst the more complex matters were attended to by the Receiver and her team. In my view, this represents an appropriate allocation of resources and expertise.
The project management fees charged by Luxmoore over the course of the receivership amount to $56,930.38. Again, I consider these charges for professional services addressing complex issues which threatened the ongoing operation of the Business to be reasonable. I infer that the outsourcing of these services has reduced the remuneration that would otherwise have been payable for the services of the Receiver and her staff.
The next largest category of fees relates to "Administration", which concerns preparation of Business Activity Statements and attending to other taxation matters, banking, preparation of accounts, attending to insurance matters and other administrative tasks. The time-based remuneration sought in relation to these matters accounts for approximately 20 per cent of the GST-exclusive amount of $225,232.50 of total remuneration for the period up to 14 August 2020. The total amount of work done by the Receiver and all staff for this category equates to an average of approximately one and a half hours per week during the receivership to date, and most of that work was done by staff other than the Receiver.
The final two categories of fees - "Assets" and "Creditors" - relate to securing the Assets of the partnership, many of which could not be located based on the information provided by the parties as I have already mentioned above, and dealing with the Australian Taxation Office as a creditor of the Business. The total remuneration sought in these categories is $802.50 for "Assets" and $846 for "Creditors". All of the work in relation to "Assets", save for approximately half an hour, was done (appropriately, in my view) by a paraprofessional within the Receiver's team. Most of the work in relation to "Creditors" (again, appropriately in my view) was done by the Receiver personally.
In my opinion, the total amount of time spent by the Receiver and her team during the period since 17 May 2018 in relation to these last three categories of work is also reasonable and the time-based remuneration proposed for this category of work, being based on reasonable hourly rates, is also reasonable. These categories of work are of a kind that is an inherent aspect of the operation of any business, and Receiver and her team appear to have attended to it efficiently.
I add that, whilst I have not undertaken a line-by-line review of the itemised time-charging records exhibited to the Receiver's affidavit, I have reviewed them in a broad way. [3] They appear to me to be consistent with the other evidence adduced by the Receiver in support of the application for approval of remuneration in respect of the period up to 14 August 2020. In particular, my review disclosed a general pattern of the nature of the work described in the time-charging records being recorded as having been carried out by a person of an appropriate level of seniority within the Receiver's team.
I also note that the Receiver has confirmed in paragraphs 88 and 95 of her affidavit that she has reviewed the claim for remuneration and considers that the work done was necessary and proper, and that the remuneration claimed for that work is proper, having regard to the length of the receivership and the difficulties encountered in managing the Whybrow Estate and the Business.
For those reasons, I am satisfied that the work undertaken by the Receiver during the period up to 14 August 2020 was reasonably undertaken and that the amount of remuneration for that work for which the Receiver seeks approval is a fair and reasonable reward for that work. I therefore made the orders referred to in [15] above at the conclusion of the hearing on 20 August 2020.

Remuneration in respect of the period from 17 August 2020 to 16 November 2020

The Receiver submitted, and I accept, that the Court's power to fix remuneration includes a power to fix future remuneration: see, for example, HN QCV Bottle Tree Village Pty Ltd v QCV Bottle Tree Village Pty Ltd (No 2) [2019] NSWSC 433; Macquarie Bank Ltd v Two Eagles Pty Ltd [2014] NSWSC 367.
The Receiver seeks an order approving the Receiver's remuneration from 17 August 2020 until the conclusion of the receivership, up to an amount capped at $21,991.75 (including GST).
As I have already mentioned, the plaintiffs and defendants neither consented to nor opposed the order sought in relation to future remuneration.
The nature of the work that the Receiver considers will need to be done after 17 August 2020 is described in paragraph 97 of her affidavit. That description is necessarily in general terms, but the work involves two main components: 1. work required to file and prepare for the hearing of the Receiver's notice of motion that is the subject of these reasons; and 2. work required to prepare and lodge Business Activity Statements and income tax returns for the Business.
In relation to the first component, much of that work has been done in a very short timeframe in the week commencing 17 August 2020, it is not covered by the order concerning past remuneration and falls into the future remuneration category.
In relation to the second component, the Receiver stated in paragraph 73 of her affidavit that she is responsible for lodging the taxation returns of the partnership under the provisions of s 254(1)(a) and (b) of the Income Tax Assessment Act 1936 (Cth).
Section 254(1)(a) and (b) of that Act provides: "(1) With respect to every agent and with respect also to every trustee, the following provisions shall apply: (a) He or she shall be answerable as taxpayer for the doing of all such things as are required to be done by virtue of this Act in respect of the income, or any profits or gains of a capital nature, derived by him or her in his or her representative capacity, or derived by the principal by virture of his or her agency, and for the payment of tax thereon. (b) He or she shall in respect of that income, or those profits or gains, make the returns and be assessed thereon, but in his or her representative capacity only, and each return and assessment shall, except as otherwise provided by this Act, be separate and distinct from any other."
Section 6 of that Act defines "trustee" as including, relevantly, a receiver.
Counsel for the Receiver informed the Court on the hearing of the notice of motion that this obligation continues for tax returns relating the period of the receivership, even after a receiver's appointment has been terminated. No submission to the contrary was made on behalf of the plaintiffs or defendants.
The Receiver gave evidence that she has been unable to lodge tax returns for the Business to date, because the plaintiffs and first defendant have been unable to agree on the share of profit to be distributed to each partner in the partnership. The Receiver has been corresponding with the Australian Taxation Office about this situation.
I accept that it is necessary for the Receiver to undertake the work set out in paragraph 97 of her affidavit in order to finalise the receivership in an orderly fashion and in accordance with her obligations under s 254(1)(a) and (b) of the Income Tax Assessment Act.
I also accept that it is difficult for the Receiver to estimate accurately in advance the amount of work and time that will be required to attend to these tasks, and so the amount sought to be approved for future remuneration can be no more than an estimate. However, given that the Receiver described it in paragraph 97 or her affidavit as a capped amount, I need not be troubled by whether the amount is overstated. Having regard to the reasonable and proper manner in which the Receiver has undertaken the work necessary for the receivership to date, I have no reason to be concerned about whether a reasonable and proper approach will be taken to this future work necessary to finalise the receivership.
As submitted by counsel for the Receiver, the making of orders in respect of future remuneration now avoids the time and cost that would be involved in an additional application in the future to approve that remuneration after the work has been done.
If the receivership were to be terminated immediately upon the orders made giving effect to the settlement between the plaintiffs and the defendants, there would be practical difficulties in making the orders sought by the Receiver approving the future remuneration and permitting her to pay it out of the Operating Account. However, this difficulty does not arise because, for the reasons addressed below, I am satisfied that it is appropriate to make orders that will have the effect of continuing the receivership in respect of the Operating Account only in order to facilitate the orderly finalisation of the receivership.
For those reasons, I am satisfied that a capped amount of $21,991.75 (including GST) is a fair and reasonable reward for work that is necessary to be undertaken in order to conclude the receivership. I consider that it is appropriate to make an order substantially in the terms of paragraph 1(b) of the Receiver's notice of motion, subject to the terms of that order making it clear that the amount is a maximum or capped amount. I am also satisfied that it is appropriate to make an order permitting the Receiver to pay an amount up to that capped amount out of the Operating Account as and when the work to which the payment relates is performed.

Internal disbursements

There is no requirement for a Court-appointed receiver to seek the Court's approval for the payment of disbursements or expenses, in the absence of a challenge to those disbursements. No such challenge has been made, but the Receiver seeks the Court's approval in respect of those disbursements that are internal charges made by her firm, Brooke Bird, as a matter of abundant caution and because those internal charges may contain some element of profit for the firm.
The orders sought relate to internal charges of $4,999.69 already incurred, and a further $550.00 to be incurred in the future. Both amounts include GST. The evidence discloses that the past charges relate principally to printing, with some additional charges for parking and travel, telephone conferences, stationery and similar matters. I was informed at the hearing of the notice of motion that the future charges are expected to relate to the archiving of the files concerning the receivership, together with some minor bank charges, printing and stationery charges.
The plaintiffs and defendants neither consented to nor opposed the orders sought in past and future internal disbursements.
In my view, the amounts of the past and future internal disbursements are modest having regard to the period of more than two years over which they have been made, and are the very kind of charges likely to be incurred in the course of a receivership that involves the ongoing operation of a business.
I am therefore satisfied that it is appropriate to make an order in terms of paragraph 3 of the Receiver's notice of motion, together with an order permitting the Receiver to pay the internal disbursements out of the Operating Account.

PARTIAL TERMINATION OF THE RECEIVERSHIP

As I have already referred to, the Receivers appointment under the May 2018 Orders does not continue beyond the determination of the proceedings. Ordinarily, the orders expected to be made on 25 August 2020 giving effect to the settlement between the plaintiffs and the defendants would bring the proceedings to an end.
However, because the Receiver is operating the Business as a going concern in discharging her obligations under the May 2018 Orders, and has ongoing obligations in relation to taxation matters for the reasons explained above, the sudden resolution of the dispute between the plaintiffs and defendants has occurred at a time when the Receiver: 1. has incurred, but not yet paid, certain costs and liabilities in the course of discharging her duties and exercising her powers as receiver; 2. will be required to incur expenses in the near future in order to discharge her obligations in relation to the taxation matters referred to above and the legal costs incurred in connection with the notice of motion that is the subject of these reasons; and 3. may also incur certain other expenses in the near future in relation to insurance.
Paragraphs 91 to 92 of the Receiver's affidavit identify the liabilities that have been incurred, but not yet paid, as costs for rectification works to the units at the Whybrow Estate (including repairing termite damage, and roof leaks, and works relating to the emergency exit system), the preparation of "as constructed" drawings (which I infer are required in order to obtain occupation certificates from the Council so that the premises can continue to be occupied and leased) and services provided by Luxmoores during the month of August 2020. The works schedule in exhibit RLE-41 to the affidavit lists all of these works, together with other works and services that had been commissioned but that have been cancelled by the Receiver where practicable to do so in order to leave those matters to the parties given the imminent termination of the receivership. The liabilities that have been incurred, but not yet paid, total $76,904.50 and there may be some additional costs relating to urgent repairs arranged through Ms Bazzacco in respect of which the Receiver is waiting to receive invoices.
In paragraph 96 of the affidavit, the Receiver deposed that the estimated costs of the notice of motion are $36,174 (including GST), comprising: 1. the filing fee of $424; 2. solicitor's costs up to and including the hearing capped at $22,000 (including GST); and 3. counsel's fees up to and including the hearing of $13,750 (including GST).
As I have mentioned earlier, the Receiver seeks an order fixing her costs of the notice of motion in the gross sum of $36,174 (including GST).
Counsel for the Receiver referred to the applicable principles, as recently summarised by Black J in Re Beverage Freight Services Pty Ltd [2020] NSWSC 797 at [19]: "…s 98(4) of the Civil Procedure Act 2005 (NSW) relevantly provides that the Court may make an order to the effect that a party to whom costs are to be paid is entitled to a specified gross sum instead of assessed costs. … that power is commonly exercised where costs have been incurred in a lengthy or complex case, but it is not limited to such a case: Simone Starr-Diamond v Talus Diamond (No 4) [2013] NSWSC 811 at [8] . … the power to make a gross sum costs order should only be exercised where the Court considers it can do so fairly between the parties, including achieving an appropriate sum on the materials available to it, and the Court typically applies a discount in assessing costs on a gross sum basis: Ritchie's Uniform Civil Procedure NSW [s 98.65]; Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 . A gross sum costs order may also be made to avoid the expense, delay and aggregation involved in litigation arising out of an assessment: Harrison v Schipp [2002] NSWCA 213; (2002) 54 NSWLR 738 . Where a gross costs order is to be made, the Court is not required to undertake a detailed examination of the kind which would be undertaken in a cost assessment, in determining a gross sum payable, and will apply "a broad brush" approach: Hadid v Lenfest Communications Inc [2000] FCA 628 at [35] ; Harrison v Schipp above at [22]."
The plaintiffs and the defendants did not oppose the gross sum costs order in the amount proposed by the Receiver. It may be that, in the absence of the order, the plaintiffs and the defendants would have agreed to the Receiver being paid that amount out of the Assets in respect of the costs of the notice motion. Alternatively, it may be that they recognised that the Receiver would be likely to achieve a similar or better result on assessment and wished to avoid the expense and delay of assessment.
In my opinion, the Court is well placed to make a broad brush determination of the Receiver's legal costs in relation to the notice of motion. The notice of motion and supporting evidence was prepared and heard within a very short timeframe, the Court is familiar with all of the evidence and submissions made by the Receiver and the manner in which the hearing was conducted. The hearing was able to be conducted efficiently in less than one hour, as a result of the detailed and well presented evidence and the helpful written submissions that were prepared by the Receiver in advance of the hearing and the lack of opposition from the plaintiffs and the defendants. I infer that the lack of opposition was, at least to some extent, due to discussions between the Receiver and her legal representatives and the parties and their legal representatives prior to the hearing, when the preparation of the Receiver's evidence or an advanced draft thereof had been provided to the parties.
Having regard to range of hourly rates typically charged by solicitors and counsel experienced in receiverships and similar matters, the extent of the work that would have been required in order to prepare the detailed evidence adduced in support of the notice of motion and formulate the orders sought, and the time that would have been required for discussions with the parties prior to the hearing, I consider that the amount of $36,174 in paragraph 3 of the notice of motion (including GST) is a fair and appropriate sum to fix as a gross sum in respect of the Receiver's legal costs of the notice of motion.
Assuming that the costs agreement between the Receiver and her solicitors contains terms of the usual kind, the Receiver will have incurred the liability to pay the legal costs by the conclusion of the hearing of the notice of motion, although the costs will not be payable until the solicitor issues a bill.
However, the remaining expenses that the Receiver expects to incur, and that I am satisfied it is proper to incur, in relation to insurance and in discharging her taxation obligations in relation to the Business have not yet been incurred and are not even contingent liabilities at this stage.
It is well settled that a Court appointed receiver is entitled to be indemnified out of the assets in respect of which he or she is appointed for remuneration, liabilities and costs properly incurred in his or her capacity as receiver, and has an equitable lien over those assets to secure payment: see Macquarie Bank Ltd v Two Eagles Pty Ltd (supra) at [30] and the authorities there cited, including Shirlaw v Taylor (1991) 31 FCR 222; [1991] FCA 415 at [29]-[31].
The equitable lien covers actual, as distinct from contingent, liabilities. It survives termination of the receiver's appointment and continues notwithstanding the return of the assets that were the subject of the receivership to the parties entitled to them: Shirlaw v Taylor (supra) at [32]; Australian Securities and Investments Commission v Lawrenson Light Metal Die Casting Pty Ltd (1999) 158 FLR 307; [1999] VSC 500 at [47]; Re Jackgreen (International) Pty Ltd [2010] NSWSC 817 at [48]-[50]; Banning v Lean (No 3) (2019) 54 WAR 259; [2019] WASCA 30 at [146]-[147]; see also T Robinson and P Walton, Kerr & Hunter on Receivers and Administrators (20th ed, Sweet & Maxwell, 2018) at [10-8].
Although the lien is not dependent on the receiver's possession of the assets, a receiver may resist removal and delivery up of assets in her possession whilst a claim to be indemnified for which the lien stands as security remains unsatisfied: Re Jackgreen (International) Pty Ltd (supra) at [50]-[53] and the authorities there cited; Banning v Lean (No 3) (supra) at [146]-[147].
It follows that, to the extent that the costs referred to in [76] above represent actual liabilities already incurred but not paid, the Receiver would be entitled if the receivership terminated now to resist returning to the parties funds in the Operating Account up to the total amount of those costs. The Receiver would then be entitled to pay those costs out of the Operating Account as when they become due and payable.
However, this does not apply in relation to the expenses that are merely contingent or potential future liabilities. The Receiver presently has no equitable lien over the Assets in respect of the estimated amounts of those expenses, and would have no right to retain part of the Assets in order to cover those expenses as and when she becomes liable for them in the future. Because those potential future liabilities relate principally to the preparation of Business Activity Statements and income tax returns for the Business, it is not possible for the Receiver to avoid incurring those expenses.
The solution to this problem proposed by the Receiver, and not opposed by the plaintiffs and defendants, is that the receivership should be terminated with immediate effect insofar as it relates to the Assets other than the Operating Account, and continue in relation to the Operating Account only until such time as the Receiver has paid all debts, expenses, outgoings and other liabilities incurred in the discharge of her duties and powers as receiver of the Assets. In that scenario, the Receiver will have a right of indemnity in respect of the future expenses as and when they are incurred, and that right of indemnity will be secured by an equitable lien over the Operating Account.
Counsel for the Receiver submitted, and I accept, that this not only provides the Receiver with the ability to be paid for those future expenses but also benefits the parties by ensuring that the Receiver remains an officer of the Court and the Receiver's conduct in incurring and paying those expenses is subject to the control and supervision of the Court.
The orders sought by the Receiver to give effect to this proposal are set out in paragraphs 5 to 9 of the notice of motion: "(5) An order that subject to the order in paragraph 6 below, the appointment of the Applicant as the receiver and manager of the assets identified in paragraphs 1a, 1b and 1c of the Orders, be terminated forthwith. (6) An order that the order in paragraph 5 above, shall not: a. remove or otherwise terminate the appointment of the Applicant, under the Orders, as the receiver and manager of the Operating Account; b. deprive the Applicant from having, and continuing to have the benefit of the orders set out in paragraphs 8, 9 and 10 of the Orders; and c. prevent the Applicant from completing all documentation required of her by the Australian Taxation Office, as a consequence of her appointment as the receiver and manager of the Assets, including taxation returns on behalf of the partners of the Whybrow Estate Partnership for the period from 17 May 2018 to 20 August 2020. (7) A declaration and/or order that the Applicant is indemnified and continues to be indemnified out of the Assets and the Operating Account for all debts, expenses and other liabilities incurred by her in the discharge of her duties and powers as the receiver and manager of the Assets, including any debts, expenses and liabilities that arise after 20 August 2020. (8) A declaration and/or order that the Applicant is and continues to be justified in paying from the Operating Account all debts, expenses and other liabilities incurred by her in the discharge of her duties and powers as the receiver and manager of the Assets, including any debts, expenses and liabilities that arise after 20 August 2020. (9) An order that upon the payment of all debts, expenses and other liabilities incurred by the Applicant in the discharge of her duties and powers as the receiver and manager of the Assets: a. the appointment of the Applicant as the receiver and manager of the Operating Account, pursuant to the Orders, be terminated, without further order; and b. the Applicant remit to the First Defendant the balance of the monies held in the Operating Account."
I note that the present balance of the Operating Account is $549,234, prior to deduction of the Receiver's past remuneration of $247,755.75 (including GST) approved on 20 August 2020, past internal disbursements, future remuneration and disbursements and future expenses in an amount exceeding $113,000 (including the expenses of $76,904.50 incurred but not yet payable and the costs of the notice of motion in the gross sum amount of $36,174).
Initially, I had reservations about the continuation of the receivership in respect of any of the Assets, given that the dispute between the plaintiffs and defendants that gave rise to the appointment of the Receiver has been resolved. However, having regard to the nature of the accrued liabilities and future liabilities and expenses, and the impossibility of the Receiving avoiding the need to incur the future taxation-related expenses even if the receivership is terminated immediately, I am persuaded that the course proposed by the Receiver is the most appropriate way to facilitate the orderly termination of the receivership within a relatively short period of time.
As I indicated during the hearing of the notice of motion, it is my view that the terms of proposed order 9 do not provide sufficient certainty for the parties as to the time at which the receivership has been terminated and the first defendant is entitled to receive the balance of the Operating Account. I consider that is appropriate to make orders in substantially the same terms as paragraphs 5 to 7 of the notice of motion, and to adjourn the further hearing of the notice of motion to 16 November 2020, by which time the Receiver expects to have paid all debts, expenses, outgoings and other liabilities incurred in the discharge of her duties and powers as Receiver. Orders can then be made terminating the appointment of the Receiver and requiring the Receiver to remit the balance of the Operating Account to the first defendant (consistently with the terms of the settlement agreement as between the plaintiffs and the defendants). Those orders will also bring these proceedings to an end. The parties and the Receiver should have liberty to apply in the meantime in respect of any matter arising in relation to the receivership.
I do not consider that it is necessary or appropriate to make the declaration sought in paragraph 8 of the notice of motion. The Receiver does not require the Court's approval to pay debts, expenses and outgoings properly incurred in the discharge of her duties and powers as Receiver of the Assets. Given that the receivership is continuing insofar as it concerns the Operating Account, the Receiver's position is adequately covered by the May 2018 Orders, in my view.

PROPOSED DECLARATION CONCERNING CONDUCT OF THE RECEIVERSHIP

The Receiver also sought the following order in paragraph 10 of the notice of motion: "(10) A declaration that the actions taken and decisions made by the Applicant in the discharge of her duties and powers as the receiver and manager of the Assets, including the decisions and actions taken and advice sought in relation to the works described as the Tenancy Matters, Planning and Council Issues and Development and Oversight of Maintenance Program as referred to in paragraphs 13, 28, 36, 37, 50-71, 91 and 98 of the affidavit of Robyn Lee Erskine sworn on 17 August 2020 and all costs and expenses incurred in relation to those matters including legal costs, were proper, reasonable and necessary."
In my opinion, it is not appropriate for the Court to make such a declaration for several reasons.
First, it is clear from paragraph 99 of the Receiver's affidavit that the declaration is sought because the Receiver has been unable to obtain the agreement of the plaintiffs and the defendants in relation to the scope of rectification works to the Whybrow Estate, and says that she has "therefore been restricted to undertaking the necessary minimal work in order to ensure that the buildings on the Property are safe and reasonably maintained". There is no evidence to suggest that the plaintiffs, the defendants or any other person has foreshadowed or threatened to make any claim against the Receiver relating to the extent of work undertaken or the manner in the work has been undertaken. The declaration, if made, would be a declaration as to a mere matter of fact and would not formally determine any legal state of affairs. The Court does not make declarations for that purpose: see, for example, Sutton v NRS(J) Pty Ltd [2020] NSWSC 826 at [21].
Second, even if the Court were prepared to make a declaration concerning factual matters, the terms of the declaration do not clearly identify all of the relevant works, the meaning of "proper", "necessary" and "reasonable" is unclear and there are no legal standards against which those concepts could be applied in the absence of an existing legal dispute.
Third, the evidence was addressed principally to the work that was done and the reasonableness of the proposed remuneration in respect of that work. The evidence was not addressed to what further work could have been done, but was not done. The Court is therefore not in a position to evaluate all of the factual matters raised by the proposed declaration.

CONCLUSION AND ORDERS

For the reasons above, I make the following orders and declarations in addition to the orders made on 20 August 2020: 1. Pursuant to rule 26.4 of the Uniform Civil Procedure Rules 2005 (NSW), the Court orders that the applicant on the notice of motion filed on 19 August 2020 (the Notice of Motion), in her capacity as receiver and manager of the assets identified in the orders made by the Court in this proceeding on 17 May 2018 (the Receiver, the Assets and the Orders), is entitled to receive and recoup from the Assets remuneration for the period from 17 August 2020 to 16 November 2020 (or such earlier date on which the Court makes orders terminating the Receivership in respect of all of the Assets) in a sum up to but not exceeding $21,991.75 (including GST). 2. The Court declares that the Receiver would be justified in receiving and recouping from the Assets internal disbursements in the sum of: 1. $4,999.69 (including GST) for the period from 17 May 2018 to 17 August 2020; and 2. $550.00 (including GST) for the period from 17 August 2020 to 16 November 2020 (or such earlier date on which the Court makes orders terminating the Receivership in respect of all of the Assets). 1. The Court orders that the Receiver's costs of and incidental to the Notice of Motion be fixed in the sum of $36,174.00 (including GST). 2. The Court orders that the Applicant is permitted to pay from the Operating Account (as defined in paragraph 5 of the Orders): 1. the remuneration referred to in Order (1) above, as and when the Receiver's work in respect of which that remuneration is payable is performed during the period from 17 August 2020 until 16 November 2020 (or such earlier date on which the Court makes orders terminating the Receivership in respect of all of the Assets); 2. the internal disbursements referred to in Order (2) above, forthwith; and 3. the costs referred to in Order (3) above, forthwith. 1. The Court orders that, subject to Order (7) below, the appointment of the Receiver as receiver and managing of the Assets identified in orders (1)(a), (1)(b) and (1)(c) of the Orders is discharged forthwith. 2. The Court declares that Order (5) above does not and shall not: 1. remove or otherwise terminate or discharge the appointment of the Receiver as receiver and manager of the Operating Account; 2. deprive the Receiver from having, and continuing to have, the benefit of Orders (8), (9) and (10) of the Orders; 3. prevent the Receiver from completing all documentation required of her by the Australian Taxation Office in accordance with the law as a consequence of her appointment as Receiver of the Assets, including taxation returns on behalf of partners of the Business (as defined in Order 1 of the Orders) for the period from 17 May 2018 to 20 August 2020. 1. The Court orders that the Receiver be indemnified and continue to be indemnified out of the Assets and the Operating Account for all debts, expenses and liabilities properly incurred by her in the discharge of her duties and powers as receiver and manager of the Assets (including, for the avoidance of doubt, such debts, expenses and liabilities incurred during the period of the Receivership after 20 August 2020). 2. The Court orders that paragraphs 8 and 10 of the Notice of Motion are dismissed. 3. The Court orders that the Notice of Motion is otherwise adjourned to 16 November 2020 at 9.30am before Williams J. 4. The Court grants liberty to the parties and the Receiver to apply on 48 hours' notice, such liberty to be exercised in the first instance by email to the Associate to Williams J.

Endnotes

See also Re Gondon Give Pty Ltd and Cui Family Asset Management Pty Ltd [2019] NSWSC 469 at [34]-[35]; Re J & Lee Property Investment Group Pty Ltd (in liq) [2019] NSWSC 927 at [28]-[32].
Approximately 117 weeks.
Adopting the approach of Black J (on remitter from the Court of Appeal) in In the matter of Sakr Nominees Pty Ltd [2017] NSWSC 668 at [29]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 August 2020

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