Plaintiff v First Defendant

Sum recovered in the litigation - Sum recovered subject to the secured creditor's charge - Liquidator asserts priority over secured creditors - Application of Re Universal Distributing Co. Ltd principle - Whether consent of secured creditor to the action required - Whether benefit must be shown - Corporations Act 2001 (Cth) s 564

1 This is an appeal by the defendants from a decision of an Associate Judge and proceeds as a rehearing de novo.[1] The plaintiff's application before the Associate Judge was an appeal under s 1321 of the Corporations Act 2001 (Cth) ("the Act") against the decision of the first defendant, James Henry Stewart ("the liquidator"), the liquidator of the second defendant, Newtronics Pty Ltd ("Newtronics") to pay an unsecured creditor, Seeley International Pty Ltd ("Seeley"), a sum of money ($1.25 million) that Newtronics received from the partial settlement of litigation in this Court. The plaintiff ("Atco") claimed that the proceeds of the litigation were secured by a charge held by it over Newtronics' assets, and that the proceeds should have been paid to it under that charge. The Associate Judge allowed Atco's appeal and ordered the liquidator (amongst other things) to pay $1.25 million to Atco by 18 May 2011. The money was paid into a trust account pending the outcome of this appeal.

**2 Atco is a secured creditor of Newtronics and is owed approximately $8.75m. Atco appointed receivers to Newtronics in January 2002, shortly after Newtronics had lost a Federal Court case brought against it by Seeley. On 26 February 2002, Newtronics was wound up by order of the Federal Court on the petition of Seeley and the liquidator was appointed liquidator. Seeley is the major unsecured creditor of Newtronics and is owed approximately $13.9 million arising out of its judgment against Newtronics. Other unsecured claims against Newtronics total $54,466.

3 On 3 April 2006, Newtronics commenced a proceeding in this Court against Atco alleging that certain "letters of support" that Atco had provided to Newtronics gave rise to a contractual obligation on Atco's part to provide ongoing financial support to Newtronics and not to call upon its secured debt. Newtronics claimed that Atco was "not entitled to the repayment to it of the money secured by the mortgage debenture or to enforce the mortgage debenture" by reason of its alleged promise of support. In December 2006 Newtronics joined the receivers as a defendant to the proceeding, alleging against the receivers that their appointment was void by reason of the alleged promise of support. Newtronics claimed damages against the receivers for trespass, alternatively conversion. The Newtronics action was funded by Seeley under an agreement to indemnify the liquidator, amongst other things, for his costs and expenses in pursuing the claim against Atco and the receivers.

4 Newtronics was successful in its claim against Atco but unsuccessful against the receivers. Atco appealed the decision against it, and Newtronics appealed the decision concerning the receivers. On the day the appeals were due to be heard by the Court of Appeal, Newtronics and the receivers settled on terms that entailed the receivers paying an amount of $1.25 million to Newtronics ("the settlement sum"). Newtronics received the settlement sum on or about 22 September 2009. On 24 September 2009, and without informing Atco, the liquidator paid the money to Seeley, as Seeley had funded its costs and expenses under the indemnity agreement. Atco, on the other hand, pursued its appeal and was successful. The judgment of the Court of Appeal was delivered on 21 October 2009. On 29 October 2009, Atco's solicitors demanded payment of the settlement sum to it. Newtronics' (then) solicitors replied on 5 November 2009, asserting an equitable lien over the settlement sum and foreshadowing an application to the High Court for special leave to appeal from the decision of the Court of Appeal. That application was made but in due course special leave was refused.**

**5 Atco's appeal under s 1321 of the Act was filed out of the prescribed 21 day time period[2] and required an order of the Associate Judge extending the time in which to appeal, which was granted. As this appeal is a rehearing de novo, an extension of time is again required. The liquidator did not oppose the making of this order and the order should be made.

6 The relevant principles applicable when determining whether to grant an extension of time were set out by Austin J in Derwinto Pty Ltd (in liq) v Lewis[3]:**

[47] Tamberlin J referred to the judgment of Kirby J in Jackamarra v Krakouer [1998] HCA 27; (1998) 195 CLR 516 at 539-43; [1998] HCA 27; 153 ALR 276 at 294-7 (see also, by analogy, Kabushiki Kaisha Universal v Aristocrat Leisure Industries Pty Ltd (1998) AIPC para 91-396 (Branson J) affirmed Kabushiki Kaisha Universal v Aristocrat Leisure Industries Pty Ltd (unreported, Fed C of A, Tamberlin J, No O 333/98, 20 March 1998, BC9801192)), and said that the factors relevant to an application for an extension of time include the following:

• that the discretion to grant an extension is broad and flexible;
• whether it is just in all the circumstances to grant an extension;
• whether the time limits are of a substantive or procedural nature;
• whether the case is arguable;
• respective prejudice to the parties;
• length of delay;
• responsibility and reasons for the delay;
• whether the delay was unintentional or the result of a bona fide mistake; and
• whether the delay was caused by the litigant or legal advisers.

[48] Counsel for the plaintiffs submitted that the principal factors might usefully be grouped under the headings:

(a) delay - including the length and nature of the delay, and the responsibility and reasons for it;

(b) prejudice to the respective parties; and

(c) whether the claim is arguable.

I am content to adopt this approach.[4]

7 The Associate Judge referred to this passage in Derwinto Pty Ltd (in liq) v Lewis and reasoned as follows in concluding that an extension of time should be granted:

[16] Avitus Thomas Fernandez, liquidator for Atco Controls, has deposed that on 5 October [2009] he received a copy of the settlement agreement from his solicitors. He did not believe it was appropriate for him to issue proceedings to claim the settlement amount until judgment had been handed down by the Court of Appeal.

[17] On 21 October 2009, the Court of Appeal handed down its reasons and on 29 October [2009], Atco Controls' Solicitors, Middletons, demanded that the settlement amount be paid to Atco Controls. On 5 November [2009], Newtronics' solicitors wrote back stating that they had instructions to apply to the High Court for special leave to appeal from the decision of the Court of Appeal. Mr Fernandez states that he did not believe it was appropriate to issue proceedings to claim the settlement sum until the outcome of the special leave application had been determined.

[18] On 23 April 2010, the special leave application was heard and refused by the High Court. Following the decision of the High Court, Mr Fernandez instructed his solicitors to commence preparing the application and supporting material required in this proceeding. The proceeding could not be commenced immediately because he needed to ensure that Atco Controls had sufficient indemnity to cover the costs of bringing the proceeding. The originating process in this proceeding was filed on 26 August 2010 by which time he had received a sufficient indemnity to commence the proceeding.

[19] Mr Stewart opposes the plaintiff's application for extension of time. He submits that the application is well out of time and that Atco Controls had every opportunity to bring any appeal within time.

[20] In my view, any appeal prior to the determination of the special leave application to the High Court would have been premature. It took the plaintiff approximately four months to file the originating process after the special leave application had been determined. The delay is explained by the fact that Mr Fernandez needed sufficient funding to commence the proceeding. If there is no prejudice to the defendant and a claim is arguable, then the four-month delay is no reason to refuse leave pursuant to rule 14.1.

[21] Mr Stewart has sworn that after completing public examinations in or about September 2004, he identified claims against Newtronics directors and former directors, its former solicitors and also Atco Controls, arising out of the letter of support. He caused Newtronics to embark on a number of distinct recovery actions in the Supreme Court when funding was available.

[22] Mr Stewart submits that those actions were ongoing matters which are the subject of an indemnity. The money that was realised had been paid to Seeley. Seeley has remained as an indemnifier in respect to those actions. The receipt of the money by Seeley is said to have dictated and influenced decisions that were made in relation to the other actions.

[23] There is no evidence before me that Seeley would not continue to fund those actions if it had not received the payment of $1.25 million. There is no demonstrable prejudice to Newtronics, nor to Mr Stewart, if an extension is granted.

[24] The three factors raised by Austin J in Derwinto for extension of time to be granted have been met. The delay has been explained and is no longer than four months and, on the evidence, there was no prejudice to Mr Stewart nor Newtronics and the case is arguable (as will be seen later in these reasons). The extension of time within which to file an appeal will therefore be granted.[5]

I agree with His Honour's reasoning and for the same reasons given by the Associate Judge consider that an extension of time should be given.

8 It was not in dispute that the terms of Atco's charge extended to the settlement sum but the liquidator contended that he held an equitable lien over the whole of the settlement sum for his remuneration and the expenses of the Newtronics action against Atco and the receivers, which realised the settlement sum. The liquidator relied on the longstanding principle set out in Re Universal Distributing Co Ltd (in liquidation).[6] In Re Universal Distributing, Dixon J said:

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets (In re Marine Mansions Co. (1867) L.R. 4 Eq. 601, at p. 611). The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it (In re Oriental Hotels Co.; Perry v. Oriental Hotels Co. (1871) L.R. 12 Eq. 126). The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suit (cf. In re Regent's Canal Ironworks Co.; Ex parte Grissell (1875) 3 Ch. D. 411, per James LJ, at p. 427; and see Batten v. Wedgwood Coal and Iron Co. (1884) 28 Ch. D. 317, per Pearson J, at p. 325).[7]

The principle is that a liquidator who incurs expenses in a winding up to care for, preserve or realise property is entitled to a first ranking charge for those expenses against any fund thereby created, or the property itself, in priority to any other claimant including a secured creditor. Where the principle applies, an equitable lien is implied by operation of law over the fund or property so that if the principle applies in this case, the liquidator will have priority of payment over Atco out of the settlement sum.

**9 The liquidator further contended that the lien secured the entirety of that settlement sum, as his legal costs and expenses referable to the preservation, realisation and getting in of that settlement sum were in excess of the money recovered.

10 It was argued on behalf of Atco before the Associate Judge, and on appeal, that the liquidator's claim to the equitable lien could not be sustained in this case, notwithstanding the wealth of cases applying the principles in Re Universal Distributing.[8] Six grounds were relied on:

(a) First that this is not the typical case where the secured creditor stands by while the liquidator realises a secured asset. It was pointed out that the relevant realisation involved adversarial litigation by Newtronics (the chargor) against the secured creditor (Atco) and the receivers appointed by it. The litigation was defended by Atco and hard fought. Atco incurred considerable costs in defending the litigation, a significant portion of which it will not recover having regard to the difference between party/party and solicitor/client costs. Further, that the litigation did not concern an ordinary chose of action, but sought to impugn Atco's charge as either wholly invalid or as operating in a manner that precluded Atco from enforcing it, or even demanding repayment of the money that it secured, until all of Newtronics' debts were paid. It was submitted that by asserting the equitable lien, the defendants sought "the perverse outcome of casting against the settlement sum the costs of suing the very person claiming the entitlement to it (i.e. Atco); worse still, the costs of a suit which sought - unsuccessfully - to impugn the very security on which the entitlement is founded (i.e. Atco's charge)"[9];

(b) The second ground was derived from Deane J's formulation in Hewett v Court[10] of the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances were identified as:

i. That the party who is the owner of the property has an actual or potential indebtedness to the other party to the contract;

ii. That the property is specifically identified and appropriated to the performance of the contract;

iii. That the relationship between the actual or potential indebtedness and the identified and appropriated property is such that "the owner would be acting unconscientiously or unfairly if he were to dispose of the property ... to a stranger without the consent of the other party or without the actual or potential liability having been discharged".**

Deane J stated that whether the circumstances exist that are sufficient for the implication of an equitable lien should be determined by reference to the substance of the transaction rather than its form. It was argued for Atco that the circumstances identified by Deane J did not exist in the present case because in substance this was litigation between Seeley (through Newtronics) as plaintiff and Atco and the receivers as defendants.

(c) The third ground was derived from the principle applied by Bowen LJ in Falcke v Scottish Imperial Insurance Co[11] that a person who expends money or effort in respect of property of another person, without being requested expressly or impliedly by that other person, is not entitled to a lien on that property for the expenditure. The principle was expressed by Bowen LJ as follows:

The general principle is, beyond all question, that work and labour done or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will. [12]

Consistent with this principle, courts have refused to hold that a person who has conferred an unsought benefit on another is thereby entitled to a right of recoupment or a lien.[13] It was argued that there was nothing unconscientious about Atco's claim to the settlement sum because it had not consented to the litigation nor was the litigation commenced by the liquidator at the express or implied request of Atco. Atco also supported the finding of the Associate Judge that:

Had the work not been done, [Atco] would have been better off. There is no substantial benefit to the trust property. [Atco] was required to defend the litigation, incur legal costs which it will not recover and would not have done the work to obtain such a fund. The work was done for the benefit of Seeley, not for the benefit of [Atco]. The litigation involved a challenge to the security held by [Atco].[14]

(d) The fourth ground was that an equitable lien arises to secure the discharge of an actual or potential indebtedness. It was argued that the liquidator had no indebtedness to secure, as his expenses and remuneration were met by Seeley under the funding agreement. Atco supported the finding of the Associate Judge that:

On reading the indemnity agreements, I note that there is no provision that imposes an obligation on [the liquidator] to pay any funds to Seeley. He has no indebtedness to Seeley and there is therefore nothing upon which a lien can attach because there is no indebtedness.[15]

**(e) Next, reliance was placed on s 564 of the Act. Where property has been recovered by a liquidator indemnified by a creditor for costs and expenses in relation to the recovery of that property, s 564 allows the Court to "make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them".[16] The funding agreement expressly provided that the liquidator would make an application to the Court under s 564 for orders that Seeley be given priority over Newtronics' other creditors. It was argued for Atco that the liquidator had his statutory remedy and should be held to that statutory remedy, which was the bargain he made with Seeley, and that the liquidator did not have "clean hands" (as understood by the law of equity) in his claim of an equitable lien because he has not approached the Court pursuant to section 564 of the Act to seek orders that the Court afford Seeley priority;

(f) Finally, that in order to be entitled to an equitable lien the particular cost or expense must relate exclusively to the property in question. The property in question is the settlement sum that was paid by the receivers but here, it was argued, the liquidator has claimed an equitable lien for the entire cost of the proceeding, that is the cost of the proceeding against both Atco and the receivers.

11 Dixon J in Re Universal Distributing explained that the fund created by the realisation of property "must bear the cost of the realization" just as the secured creditor would have received its costs out of the fund had the secured creditor realised the charged property itself.[17] Numerous cases have applied these principles not only in the case of a liquidator giving the liquidator priority over claims of a secured creditor, but with respect to receivers,[18] receiver and managers,[19] provisional liquidators[20] and administrators.[21]

12 Many of the authorities which have considered Re Universal Distributing were analysed by Robson J in Re S&D International Pty Ltd (in Liq) (rec & man apptd).[22] Robson J stated:**

From these authorities the following principles referable to a liquidator may be stated:

1. a. At equity, an equitable lien arises in favour of a liquidator over the funds realised from the sale of company property for the costs he incurs for the care, preservation and realisation of the property in priority to those otherwise interested in the fund...
2. b. The costs include those that the liquidator fairly incurs in the discharge of his duty to care, preserve and realise the property ...

1. c. The lien may arise whether or not the ultimate sale is affected (sic) by the liquidator and entitles the liquidators to be paid in priority out of the fund whether or not he is in possession of the fund...

1. d. The costs and expenses secured by the lien must be incurred exclusively for the care, preservation or realisation of the property and not otherwise expended in the general administration of the mortgagor...
2. e. The costs and expenses include the liquidator's reasonable remuneration. [23]

**Those principles are uncontroversial. In my opinion, the principles apply in the present case.

13 First and foremost the settlement sum arose out of litigation commenced by the liquidator in the course of, and for the purposes of, winding up the company's affairs. The fund created out of the recovery of the monies from that litigation should in the ordinary way "bear the cost of the realization".[24] The unusual circumstances of this case do not alter the fact that the settlement sum was the proceeds of litigation instituted by the liquidator in the discharge of his duty to get in the assets of the company which, in this case, were comprised wholly or substantially of choses in action. The settlement sum has only been recovered, and only forms part of the pool of property of the company secured by Atco's charge, as the result of the liquidator's actions. In other words, the settlement sum was realised in the winding up, in consequence of which the liquidator is entitled to his costs, expenses, and remuneration, for the work done for the exclusive purpose of recovering the settlement sum as an asset of the company.

14 Secondly, the substance over form argument is not apt in the present case where the liquidator recovers property in the course of a winding up, performing his statutory duties. The submission that the litigation was brought in substance by Seeley is rejected. The submission was based upon the fact that Seeley was Newtronics' major unsecured creditor and that in the litigation Newtronics sought declaratory relief that Atco was not entitled to demand repayment under its charge, or enforce the charge, until all Newtronics' debts to Seeley had been paid. Atco also pointed to "the extent to which" Seeley's officers and its own lawyers were involved in the prosecution of the litigation, and the funding agreement between Seeley and the liquidator that provided that the liquidator could not appoint solicitors or counsel to act in the litigation without Seeley's prior consent. There was however no cross examination of the liquidator and in my view no imputation of "substance" over "form" can, or should, be made based on the material that was before the Court. There is no proper basis for forming any view other than that the liquidator was discharging his statutory obligations in determining to pursue the litigation against Atco.

15 Furthermore, I do not consider Atco's reliance on the principle applied in Falcke v Scottish Imperial Insurance Co[25] as apt in this case. Atco's argument was that it did not consent to the litigation against it, or the receivers. But the line of cases which have applied the principle in Falcke v Scottish Imperial Insurance Co were in a different context to the circumstance where a liquidator undertakes work and labour to preserve or realise property in the course of his or her position as, and in discharge of his or her obligations as, a liquidator and an officer of the Court. This is not a matter of a do-gooder gratuitously bestowing some benefit on another's property and then seeking to establish an entitlement to recovery out of that property. The salient question is whether the costs and expenses were properly incurred by the liquidator in the winding up of the company. It would be unconscientious for Atco to take advantage of the fund created by the liquidator in the course of the performance of his duties as liquidator, without entitling the liquidator to his costs and expenses out of that fund, regardless of whether Atco consented or not. The Full Federal Court in Shirlaw v Taylor[26] cited Re Universal Distributing for the proposition that:**

[W]here a party has by his efforts brought into court a fund in which various parties are interested, his costs and expenses should be a first claim upon the fund.[27]

The principle is that those taking the benefit of the administration should not escape bearing the burden of the proper cost of it.[28]

The underlying principle is that it is inequitable to claim the benefit of the creation or realisation of a valuable asset without recognising the costs, expenses and fees incurred in producing the assets. The principle applies with equal force to a secured creditor seeking to take the benefit of the liquidator's work even though the secured creditor may have opposed the action taken by the liquidator.[29]

**16 Next, the fact that Atco may not receive a benefit from the Newtronics action is not a reason for the equitable lien not to arise by implication of law. What is necessary is that the liquidator has incurred expense in realising assets of the company. It is not necessary that a fund was actually created that would benefit the secured creditor. It is immaterial that the realised fund will be insufficient to meet Atco's claim after deduction of the liquidator's fees and expenses. In Re Universal Distributing the realised assets were insufficient to pay the debenture debt, after deducting the cost of realisation. In Moodemere Pty Ltd (in liq) v Waters,[30] the Full Court held that the principle applies "even if the fund is insufficient to pay the just costs of the receiver and the debt owed to the debenture holder"[31] and that "there is nothing to be made of this".[32] Here the liquidator has "preserved and augmented an asset of the company which will be available (subject to deduction of his costs and expenses) to meet all relevant claims"[33] including Atco's claims as secured creditor. The fact that the proceeds are unlikely to be adequate to meet Atco's claims is not a ground for denying the equitable lien.

17 Next, I reject the submission that there is no indebtedness which the lien can secure because the liquidator's expenses were funded by an indemnifying creditor. Seeley's funding of the liquidator is a matter between the liquidator and Seeley. That agreement does not preclude the implication of an equitable lien.[34] The indemnity agreement does not mean that the liquidator has not incurred costs and expenses related to the litigation. The fact that he was indemnified for those costs and expenses by Seeley as indemnifier means that the liquidator has an obligation to account to Seeley out of any recovery of those costs and expenses. This obligation arises as a necessary incident of the contract of indemnification.[35] No express term is necessary in the funding agreement to create that obligation and the right of the indemnifier to be reimbursed is protected by a right of subrogation to all receipts, rights and remedies of the indemnified party.[36] In Burnand v Rodocanachi Sons & Co,[37] Lord Blackburn said:**

The general rule of law (and it is obvious justice) is that where there is a contract of indemnity... and a loss happens, ... and if the indemnifier has already paid it, then, if anything which diminishes the loss comes into the hands of the person to whom he has paid it, it becomes an equity that the person who has already paid the full indemnity is entitled to be recouped by having that amount back.[38]

**Seeley is subrogated to the liquidator's right of recoupment, and the remedy to support it (the liquidator's lien), for the purpose of it being exercised for the benefit of Seeley. Equity treats the original debt as still extant for the purposes of recoupment by the liquidator and subrogation by Seeley.[39] Further the right of subrogation is not inconsistent with the express agreement of the liquidator to invoke s 564 of the Act - s 564 enables Seeley to obtain the Court's approval for a greater than pro rata share of net assets in recognition of its efforts as funder.

18 Next, I reject the submission that the equitable lien is excluded because the liquidator has the statutory right, and contracted to exercise the statutory right, to apply to the Court for orders under s 564 of the Act. That provision is concerned with the distribution of the dividend to a funder over and above the recovery of costs and expenses borne. It does not displace the equitable lien.[40] Moreover I do not consider that the fact that the liquidator has not pursued a s 564 order makes it unconscionable for the liquidator to assert the equitable lien. The rights co-exist, they are not mutually exclusive.

19 Finally, on the quantum, it is clear on the authorities that the equitable lien extends only to the liquidator's costs, expenses and remuneration exclusively in realising the assets. It was accepted for the liquidator that the liquidator's general costs are not secured by any equitable lien over the proceeds. It was argued for Atco that the liquidator claims all legal costs of the proceeding in circumstances where the settlement sum was received only out of the claim against the receiver. For the liquidator it was argued that the claim against Atco was a necessary, but not sufficient, element of the claim against the receivers. In other words, that the claim against Atco provided the foundation for the claim that the receivers had not been validly appointed. It was argued further that a test analogous to that undertaken by the Court under s 564 applies. In Tolcher v National Australia Bank Ltd[41] Barrett J allowed the costs and expenses of liquidator's examinations which provided the foundation for litigation which in due course produced a compromise amount in settlement of the proceedings. See too Re Kyra Nominees Pty Ltd[42] where the settlement of earlier litigation provided the moneys to fund a later claim and was held to have "protected and preserved" the funds realised in the second action.[43] In my view it would be artificial not to include the liquidator's costs related to the claim against Atco. I accept the submission that the claim against Atco was necessary to provide the foundation for the claim against the receiver.

20 The liquidator has accepted that some items that he has claimed may have been included in error. He also states that not every expense or item has been included in his estimate of legal costs and expenses of the proceeding. Further the figures put forward did not include the liquidator's remuneration and costs of the liquidator's examination attributable to the proceeding. There will be need for the liquidator to verify the actual costs, expenses and remuneration which will be secured by an equitable lien over the proceeds.

21 In summary, the right of indemnity by way of an equitable lien over the proceeds arises because the costs and expenses were necessarily incurred by the liquidator in the Newtronics action in the course of the discharge of his duties as liquidator to collect in and realise the assets of the company. The position is not made any different because of the circumstance that the litigation producing the settlement sum was against Atco and the receiver that Atco appointed under its charge. Atco now claims the benefit of the proceedings and is in no different a position than if the litigation had been brought against some independent third party. The settlement sum is available only because of the efforts of the liquidator.[44] Moreover, there is in my view, no significance in the fact that the liquidator was unsuccessful against Atco or in the fact that Atco incurred costs in defending the proceedings brought against it. Atco opposed the claim but nonetheless the litigation was otherwise successfully concluded as against the receivers, which brought the proceeds into being. There is no reason in principle why the costs, fees and expenses of realisation should not give rise to a first charge on the proceeds, consistent with the long standing principle in Re Universal Distributing, because the litigation sought to impugn the secured creditor's right to call up its debt and to appoint the receiver.[45]**

22 It follows that the appeal will be allowed. Subject to argument from the parties, I propose to order that the plaintiff pay the defendants' costs of this appeal and of the appeal before the Associate Justice. I will also direct the liquidator to file and serve an affidavit verifying the costs, expenses and remuneration claimed and list the matter for a directions hearing.

[1] Supreme Court (General Civil Procedure) Rules 2005, r 77.06(7).

[2] Supreme Court (Corporations) Rules 2003, r 14.1(2).

[3] [2002] NSWSC 731; (2002) 42 ACSR 645.

[5] Atco Controls Pty Ltd v James Henry Stewart (In his capacity as liquidator of Newtronics Pty Ltd (In Liquidation)(ACN 061 493 516) & Anor (Unreported, Efthim As J, 20 April 2011) [16]-[24].

[6] [1933] HCA 2; (1933) 48 CLR 171 ('Re Universal Distributing').

[8] [1933] HCA 2; (1933) 48 CLR 171.

[9] Plaintiff's Outline of Submissions (17 June 2011), 9.

[10] [1983] HCA 7; (1983) 149 CLR 639.

[11] (1887) LR 34 Ch D 234.

[13] See generally R.P. Meagher, D. Heydon and M. Leeming (eds), Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (4th ed, 2002) [9-010], [9-095] and [9-110] and the cases there cited; P.W. Young C. Croft and M.L. Smith, On Equity (2009) [12.490].

[14] Atco Controls Pty Ltd v James Henry Stewart (In his capacity as liquidator of Newtronics Pty Ltd (In Liquidation)(ACN 061 493 516) & Anor (Unreported, Efthim As J, 20 April 2011), 12 [41].

[16] Corporations Act 2001 (Cth).

[18] Court Appointed receiver: Re Oriental Hotels Co; Perry v Oriental Hotels Co (1871) LR 12 Eq 126, 132; Re Lawrenson Light Metal Die Casting Pty Ltd [2004] FCA 1792; (1999) 53 ACSR 288; Re Application of Central Commodities Services Pty Ltd [1984] 1 NSWLR 25, 26-27; Bertrand v Davies [1862] EngR 968; (1862) 54 ER 1204; Batten v Wedgewood Coal & Iron Co (No 1) (1884) LR 28 Ch D 317; receiver out of Court: Hill v Venning (1979) 4 ACLR 555; Moodemere Pty Ltd v Waters [1988] VicRp 31; [1988] VR 215, 229-230; Dean-Wilcocks v Nothintoohard Pty Ltd [2005] NSWSC 357; (2005) 53 ACSR 587.

[19] Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 71 ACSR 250 [46].

[20] Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222, 228-31, Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (No 2 ) (1986) 5 NSWLR 227, 230.

[21] Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64; Weston v Carling Constructions Pty Ltd (in prov liq) [2000] NSWSC 693; (2000) 35 ACSR 100; Coad v Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; (2009) 71 ACSR 250 [96]-[97]; Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222, 228-31 (Court appointed); Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622.

[22] [2009] VSC 225

[25] (1887) LR 34 Ch D 234.

[26] [1991] FCA 415; (1991) 31 FCR 222.

[29] Batten, Proffitt &Scott v Dartmouth Harbour Commissioners (1890) 45 Ch D 612; ASIC v GDK Financial Solutions Pty Ltd (No 3) [2008] FCA 448; (2008) 246 ALR 580

[30] [1988] VicRp 31; [1988] VR 215.

[31] Ibid 221 (per Murphy J, Kaye J agreeing).

[32] Ibid 223 (per Murphy J, Kaye J agreeing).

[33] Westpac Banking Corporation v ITS Taxation Services [2004] NSWSC 50; (2004) 22 ACLC 229, 235 (Austin J).

[34] Moodemere Pty Ltd (in liq) v Waters [1988] VicRp 31; [1988] VR 215, 221

[35] Burnand v Rodocanachi Sons & Co (1881-1882) LR 7 App Cas 333, 339; Castellain v Preston (1882-1883) LR 11 QBD 380, 386, 393, 403-4; Morris v Ford Motor Co [1973] 2 All ER 1084, 1089-90, 1093-1095, 1100.

[36] Morris v Ford Motor Co [1973] 2 All ER 1084, 1100.

[37] (1881-1882) LR 7 App Cas 333.

[39] Ghana Commercial Bank v Chandiram [1960] AC 732, 745.

[40] Weston v Carling Constructions Pty Ltd v Waters [2000] NSWSC 693; (2000) 35 ACSR 100 (Austin J); ASIC v John McKenney Consulting [2002] VSC 527; (2002) 43 ACSR 458, [32]-[34], [41] (Warren J); Coad v Wellness Pursuit Pty Ltd (2009) FLR 91.

[41] (2004) 48 ASCR 741.

[42] (1987) 11 ACLR 767.

[43] Similarly Deputy Commissioner of Taxation v Currockbilly Pty Ltd [2002] NSWSC 1061; (2003) 21 ACLC 136.

[44] Wright v Kirby [1857] EngR 379; (1857) 53 ER 182; Australian Securities and Investments Commission (ASIC) v GDK Financial Solutions Pty Ltd (in liq )(No 3) [2008] FCA 448; (2008) 246 ALR 580, 584.

[45] Cf Batten, Proffitt & Scott v Dartmouth Harbour Commissioners (1890) 45 Ch D 612.