He declared, at 97-98, that
"the fund now available for distribution ought to be distributed amongst all the persons who during their employment by Hobourn Aero Components, Ltd, contributed to the fund at any time after December 12 1940, in proportion to the total amount contributed by them respectively to the fund, each such person bringing into hotchpot any amount received by him by way of benefit out of the fund."
182 The appeal concerned only the question of whether the fund was charitable, not the manner in which it should be distributed once it was decided it was not charitable.
183 The manner of distribution supports the view that all the contributors have a charge over the fund in which their contributions are mixed, to support their interest in the fund by way of a contingent resulting trust if the committee were not to exercise its discretion and distribute the entire fund. As contributions are made week by a week, so the interest of each contributor increases; as the fund is expended, so the interest of each contributor is proportionately decreased. Further, the requirement to bring into hotchpot benefits received from the fund is an illustration of a personal equity which results in the charge which one contributor has being held to be of lower priority than the charge which another contributor has, though with the possibility of becoming of equal ranking if one of the chargees performed an action which he had no obligation to perform, but the performance of which was a precondition to his charge being accorded equal rank.
184 The appropriate way of dividing available assets between beneficiaries whose money has been mixed in an account might also depend upon what other remedies in rem the various beneficiaries have. If there is a situation where the money of A and B is mixed in an account, some of it is withdrawn and used to purchase an asset, and then the money of C is placed in the account, and both the asset, and the account, are available at the time of trial, a liquidator might be directed to administer the fund in accordance with principles of marshalling, so that A and B satisfied themselves from the asset (which only they could trace into) to the extent that they could, leaving C to claim a higher percentage of his claim from the account balance than A and B are permitted to claim from the account balance. In Re Global Finance Group Pty Ltd [2002] WASC 63; (2002) 26 WAR 385 McLure J held that, on the facts of the case before her, a division of available monies pari passu between all claimants was inappropriate.
185 These examples show how it cannot be said that, as a matter of law, a fund in which assets of several beneficiaries have become mixed should always be distributed amongst all beneficiaries, pro rata to their claims.
Tracing Principles Applied to Classes
186 As Crace-Calvert's Case and Sinclair v Brougham show, it is possible for there to be tracing which does not depend upon identifying the transmogrifications which the assets of a particular beneficiary have gone through. Sometimes, a liquidator seeking to administer a fund will know nothing more than that the fund is held on trust, and that there are a number of potential claimants to the fund, whose merits he cannot on any rational basis distinguish between. In such a situation, it may be appropriate for the court to direct a liquidator that he is justified in distributing the fund amongst the claimants proportionately to their claims. It is relevant to this that in Sinclair v Brougham the fact of monies being mixed was enough for the House to decide that there should be a pro rata distribution, and the paucity of evidence meant that there was no reason to depart from a pro rata distribution.
187 Sometimes, however, there might be facts which show that claimants fall into particular classes, such that the amount of the charge which one class has on the assets which remain is likely to be a smaller proportion of the amount of their money which went in than is the case with another class. If, for instance, there was a time when a trust account was completely depleted, beneficiaries whose money went into that trust account before the day of depletion could not have any equitable right at all to the sum which stands in the account at the date of trial. If the account in which the mixing occurred at any time reached a particularly low level, it may be that those people whose money was paid into the account before that low level was reached ought be accorded a smaller dividend on the amount of their claim than people whose money was paid in after that low level was reached. In carrying out such calculations, estimation and inference can be appropriate if precise evidence is not available.
188 Sometimes, likewise, there might be facts which showed that claimants fall into particular classes such that one class has a higher priority for the charge it can establish than does the other class.
189 While a liquidator must distribute funds of the company, or under his control through the company being trustee of trusts, in accordance with legal entitlements of people to those funds, the Court's findings about what legal entitlements exist depend upon the evidence which is placed before the Court, and inferences properly drawn from that evidence. When distribution of a fund is made by reference to classes of claimants, the available evidence is frequently evidence about the nature of a fund and the types of contribution which have gone into it. It is because the evidence is at this level of generality that the court reaches conclusions about the beneficial ownership of the fund by saying that it is divided amongst claimants in some particular way. If ever the court is able to give a remedy founded on tracing some individual claimants, it is because evidence is available which enables the property of those individual claimants to be more specifically traced. It should not be a cause for surprise that evidence of these different types can lead to different types of conclusion.
190 It is possible to recognise that, on the basis of evidence of a liquidator's investigations taken to a certain stage, distribution among claimants proportionately to their claims is proper, while at the same time recognising the theoretical possibility that further investigation might turn up facts which showed, in some way, inequality amongst the various claims. If ever a liquidator is in significant doubt about whether he ought conduct further investigations to see whether any such facts emerge, he can always ask the Court for directions on that topic.
191 In Law Society of Upper Canada v Toronto-Dominion Bank (1998) 169 DLR (4th) 353 the Ontario Court of Appeal held that beneficiaries whose money had been mixed in an account, and wrongly depleted, should share whatever balance remained in the account pro rata to their contributions, without regard to the "lowest intermediate balance rule". One reason for this conclusion was pragmatic - that performing the calculations required to identify the proportions in which the fund was held following each deposit or withdrawal would be extremely complicated in principle, and often not achievable in fact. The second was that the fund was a blended fund, and when it was wrongly depleted it was the fund as a whole which was wrongly depleted, not any particular beneficiary's contributions.
192 I do not accept that either of these reasons leads to a conclusion that, always and regardless of the facts of the individual case, the lowest intermediate balance rule has no part to play in deciding how a mixed fund of several beneficiaries should be distributed in specie. As to the first reason, whether performing the calculations to carry out a full tracing exercise is complicated, or achievable, will depend upon the particular case being considered. Further, it is not as though the only available alternatives are full analysis of every transaction in the account, and dividing between all claimants equally. As to the second reason, while it is true that, when a depletion occurs from a fund, it is the fund as a whole, as it exists at that time, which is depleted, accretions to the fund after that time are, self evidently, not affected by that depletion.
193 In the present case, the liquidator puts no facts before the Court which lead to a conclusion that the various claimants ought be divided into various classes which are given different dividends. There is no reason to believe that there are any assets purchased from the accounts, into which some beneficiaries can trace but not others. The funds available are comparatively small, and likely to be completely, or substantially, depleted by the liquidator's own costs if the liquidator tried to carry out a more extensive analysis of the accounts. In these circumstances, the liquidator is justified in distributing amongst all the claimants, proportionately to their claims as assessed by him.
PART F - LIQUIDATOR'S COSTS
194 The liquidator seeks an order that he is entitled to recoup all of his costs and expenses (including his remuneration) of acting, initially as administrator, and thereafter as liquidator of the Company, from the trust accounts and prior to any distributions to any beneficiary. The Company has no assets whatsoever available for distribution to its general creditors - all the assets it held which were not subject to trusts have been taken by the secured creditor under its security.
195 Section 556(1) Corporations Act 2001 provides:
"Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business;
(b) if the Court ordered the winding up - next, the costs in respect of the application for the order (including the applicant's taxed costs payable under section 466);
(c) next, the debts for which paragraph 443D(a) entitles an administrator of the company to be indemnified (even if the administration ended before the relevant date) except expenses covered by paragraph (a) of this sub-section and deferred expenses …
(de) next, the deferred expenses …"
196 Section 556(2) defines "deferred expenses" in a way which includes the remuneration of a relevant authority. It also defines "relevant authority" as including both a liquidator, and an administrator.
197 In some circumstances, a liquidator is able to recover some remuneration, and some reimbursement of expenses, even from property which is the subject of a security. Section 561 Corporations Act 2001 provides that certain amounts payable by a liquidator may be paid in priority over the claims of a chargee in relation to a floating charge created by the company. Those amounts are, broadly, amounts payable to employees of the Company, whether incurred before or after the commencement of the winding up.
198 As well, a liquidator can have an equitable right to be paid expenses and remuneration in carrying out some of his activities, which has priority over even a secured creditor. Such an equitable right arises in two types of cases. The first is where the liquidator has realised the mortgaged property, in which case certain costs of realisation are payable from the mortgaged property (In Re Marine Mansions Company (1867) LR 4 Eq 601 at 611-612, where there was no objection to the liquidator being paid; In Re Oriental Hotels Company; Perry v Oriental Hotels Company (1871) LR 12 Eq 126 at 132-133, where allowance of the costs of realisation was not consented to; In Re Regent's Canal Ironworks Company; Ex parte Grissell (1875) 3 ChD 411 at 422, 423; Re Universal Distributing Co Ltd (1933) 48 CLR 171 at 175 per Dixon J; Moodemere Pty Ltd (in liquidation) v Waters [1988] VR 215 at 221 per Murphy J, 229-230 per Tadgell J (same principle applied to a receiver)). As well, sometimes, if a liquidator incurs costs of preserving mortgaged property (which is such things as "… the repairing of property, paying rates and taxes, which would be necessary to prevent any forfeiture, or putting a person in to take care of the property" - In Re Regent's Canal Ironworks Company; Ex parte Grissell (1875) 3 ChD 411 at 427) the liquidator can recover those expenses in priority to a security holder. Subject to those limited exceptions, the expenses of a winding up and liquidator's remuneration must be paid from whatever assets of the company are left after secured creditors who choose not to surrender their securities have realised those securities.
199 Section 545 Corporations Act 2001 provides:
"(1) Subject to this section, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property."
200 The exceptions which are brought in by the words "subject to this section" are that a liquidator can be directed to incur a particular expense if a creditor or contributory requests the Court or ASIC to direct the liquidator to do so, and indemnifies the liquidator for the amount expended, and that in all events the liquidator must lodge all documents (including reports) which the Act requires him or her to lodge with ASIC. Thus, subject to these exceptions, if a liquidator does not have assets from which his fees and expenses can be paid, he is not obliged to continue to carry out the work involved in the liquidation.
201 When a company which carries on no activities other than being the trustee of a trading trust goes into liquidation, the proper costs and expenses of the liquidator can be met from the assets of the trust: In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99. King CJ reached this conclusion on the basis that a trustee had a personal right to be indemnified from the trust assets for expenses the trustee has incurred in the administration of the trust, and a lien over the trusts assets to secure that right of indemnity. The trustee also has a personal right to resort to the trust property and pay expenses of administration of the trust from the trust assets, without first paying those expenses himself. When a trustee which is a corporation goes into liquidation, those personal rights, and that lien, are assets which are divisible in the liquidation. (King CJ says they pass to the liquidator - page 104, 105, 107, 109. This is not, with respect, strictly correct, as the rights of the company remain with the company, and the liquidator acquires powers to deal with the assets of the company in lieu of the directors, but this detail does not affect the validity of the main thrust of his Honour's argument.) The liquidator can, by using those personal rights and that lien, resort to the trust property to discharge all liabilities which the trustee incurred in administration of the trust before winding up supervened. Because those liabilities are in law the liabilities of the trustee, section 292 Companies Act (now section 556 Corporations Act 2001) requires those pre-liquidation liabilities to be discharged in the order of priority there laid out, thus giving the liquidator a priority over pre-liquidation creditors of the trust business.
202 The question of the priority of the liquidator's costs, expenses and remuneration over the beneficiaries of the trust King CJ dealt with as follows, at 110
"It is part of the duty of the trustee company to incur debts for the purposes of the trust businesses and, of course, to pay those debts. Upon winding up those debts can only be paid in accordance with the provisions of the Companies Act . This requires necessarily that there be a liquidator and that he incur costs and expenses and be paid remuneration. Section 292 provides that there be paid the costs and expenses of winding up, the taxed costs of the petitioner, and the remuneration of the liquidator "in priority to other unsecured debts" (italics mine). The expression " other unsecured debts " appears to imply that the costs and expenses of winding up, the petitioner's costs and the liquidator's remuneration are regarded by the statute as debts of the company. As the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the liquidation proceeds, it seems to me to be reasonable to regard the expenses mentioned above as debts of the company incurred in discharging the duties imposed by the trust and as covered by the trustee's right of indemnity. If that reasoning is wrong, I would, like Lush J in Re Enhill Pty Ltd (1982) 7 ACLR 8) be prepared to rely on the principle enunciated by Dixon J in In Re Universal Distributing Co Ltd (in liquidation) (1933) 48 CLR 171 at pp 174-175."
203 This reasoning remains applicable under the Corporations Act 2001. Section 556 of that Act, setting out the order of priority of payments, contains the critical word "other" - section 556(1) says "Subject to this Division, in the winding up of a company, the following debts and claims must be paid in priority to all other unsecured debts and claims …"
204 Jacobs J reached the same conclusion as a matter of construction of certain provisions of the Companies Act 1962 (SA) relating to liquidations. He relied upon the provision establishing priority of debts (section 292, analogous to section 556 Corporations Act 2001), the provisions enabling a liquidator to be appointed by the Court (section 221, 222 and 231 Companies Act 1962 (SA), analogous to section 459P, 461 and 472 Corporations Act 2001), and provisions entitling the court-appointed liquidator to remuneration (section 232 Companies Act 1962 (SA), analogous to section 473 Corporations Act 2001). His Honour says, at 113, that pre-liquidation creditors of the trust,
"… are persons entitled to prove for and receive dividends out of the trust assets of the company, because the trustee has a right of recourse to those assets to exonerate his personal liability … But it is important to notice that the right of the trust creditors to prove in such a case is expressed to be "subject to section 292" , which provides for the liquidator's remuneration."