Re PBS Building (Qld) Pty Ltd [2024] QSC 108 (10 June 2024)

whether the Building Industry Fairness (Security of Payment) Act 2017 (Qld) precludes recovery of the liquidators' remuneration, costs and expenses from the funds held on trust

• whether the funds held on trust are property of the company for the purposes of the Corporations Act 2001 (Cth) - whether the legislative regime excludes any right of indemnity being exercised by a trustee under equitable principles or the application of the Court's inherent jurisdiction in equity to provide for remuneration of a trustee

Corporations Act 2001 (Cth) ss 443D, 443F, 437B, 545, 555, 556, sch 2

Building Industry Fairness (Security of Payments) Act 2017

(Qld), ss 3, 7, 8, 11B, 12, 18, 20, 20A, 20B, 20C, 21, 31B, 32,

33A, 34, 36, 37, 51, 51A, 51C, 51E, 51G, 56, 56A, 56B

Trusts Act 1973 (Qld) ss 72, 96, 97, 101

Australian Securities and Investment Commission v Marco (No 9) (2021) 399 ALR 735; [2021] FCA 1306, considered

Australian Securities and Investments Commission v Marco (No 15) [2024] FCA 347, cited

Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; [2019] HCA 20,

Lane v Federal Commissioner of Taxation (2017) 253 FCR 46; [2017] FCA 953, cited

Park v Whyte (No 2) [2018] 2 Qd R 413; [2017] QSC 229,

Park v Whyte (No 3) [2018] 2 Qd R 475; [2017] QSC 230,

Re Adaman Resources Pty Ltd (Administrators Appointed) (No 4) [2021] FCA 644, cited

Re All Class Insurance Brokers Pty Ltd (in liq) [2014] NSWSC 475, considered

Re Berkeley Applegate (Investment Consultants) Ltd (in liq)

[1989] Ch 32, considered

Re MF Global Australia Ltd (in liq) [2012] NSWSC 1426, considered

Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99, considered

Re Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798,

Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171; [1933] HCA 2, considered

Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234; [1996] FCA 233, considered

• [1] The present case raises important questions for external administrators of a building company which has become insolvent and where monies are held in trust accounts pursuant to the terms of the Building Industry Fairness (Security of Payments) Act 2017 (Qld) (BIF Act).

• [2] PBS Building (Qld) Pty Ltd (PBS (Qld)) entered into two building contracts, one for the Bokarina project on the Sunshine Coast and the other for the Latitude project in Hervey Bay. Both contracts were for the construction of homes and required PBS (Qld) to open project trust accounts and a retention trust account as required under the BIF Act. After entering into those contracts and payments being made into the project trust accounts and retention trust account (the trust accounts), PBS (Qld) had external administrators appointed and became the subject of external administration, first being placed into administration and then, subsequently, liquidation. The particular question for the Court is whether or not the applicant is entitled to remuneration for the work carried out as administrators and then liquidators from the trust accounts, or whether the BIF Act precludes such remuneration being paid out of those funds or at least until the obligations to subcontractors have been paid. If that is the effect, the applicants in the present case have indicated they may elect not to administer the trust accounts given the lack of funds available to carry out such work.

• [3] The Queensland Building and Construction Commissioner (QBCC) was joined by consent as an interested party. The QBCC has oversight powers of project trusts and retention trusts under the BIF Act. While the QBCC did not take a directly adversarial position on all aspects of the originating application as amended, it has sought to apprise the Court of all matters that may assist the Court to properly construe the BIF Act and determine the relevant issues raised by the originating application. It does not support the construction proposed by the applicants. As such, it acts to a certain extent as a proper contradictor to the relief sought by the applicants.

• [4] The applicants only seek limited relief compared to the vast array of relief sought under the originating application, with the remainder of relief sought being adjourned.

• [5] The questions for the court arising out of this hearing were identified by the application as being 1(a), 1B (with an amendment changing "declaration" to "direction") and, if needed, the general catch-all in paragraph 3 of the originating application. The relief otherwise sought in the originating application was adjourned to a date to be fixed.

• [6] The applicants identified the critical question for determination as being whether they are entitled to remuneration for its work carried out as administrators and liquidators from the trust accounts, or whether the BIF Act prevents such remuneration until all subcontractors had been paid.

• [7] The applicants contend that, in the event the Court construes the BIF Act such that the relevant provisions prevent the administrator and liquidator from being reimbursed for administering the trust accounts from the trust funds, then the provisions would be in conflict with the Corporations Act 2001 (Cth) (Corporations

Act) and the Insolvency Practice Schedule (Corporations) (IPS). In such an event, the applicant contends that, pursuant to s 109 of the Constitution, the Corporations Act should prevail to the extent of any inconsistency. As a result, notices pursuant to s 78B of the Judiciary Act 1903 (Cth) were required to be served on the Commonwealth Attorney-General and the various State and Territory Attorneys- General. The QBCC provided affidavit evidence which shows that the Attorneys- General of the Commonwealth, States and Territories had been served and all had stated that they did not intend to intervene, other than New South Wales (NSW) and the Australian Capital Territory (ACT). I was satisfied that a reasonable time had been provided to allow NSW and the ACT to respond prior to the hearing and determined that the application could proceed, notwithstanding the lack of response from NSW and the ACT.

• [8] The facts relevant to the present issues for determination by the Court were not controversial.

• [9] PBS (Qld) is a building company which carried out building work in Queensland. It entered into the contract for construction of homes for the Latitude project on or about 15 August 2022 for a contract sum of approximately $41,085,937 (exclusive of GST).

• [10] On 29 April 2022, PBS (Qld) had entered into a contract with respect to the Bokarina project for the construction of civil landscaping, streetscapes and homes, the contract sum being $16,459,378.14.

• [11] Both the Latitude contract and Bokarina contract were "eligible contracts" and required a project trust under ss 12 and 14 of the BIF Act.

• [12] Three trust accounts were duly opened in the name of PBS Building (Qld) Pty Ltd:

(a) the Latitude account, which was a project trust account;

(b) the Bokarina account, which was a project trust account; and

(c) the PBS Building (Qld) Pty Ltd - Retention Trust Account.

• [13] Administrators were appointed to the PBS group of companies, which included PBS (Qld) on 7 March 2023.

• [14] On 16 June 2023, the applicant commenced this proceeding by way of originating application.

• [15] On or about 6 September 2023, the creditors resolved to wind up PBS (Qld) and accordingly, it entered into liquidation on that date.

• [16] As at 6 October 2023, PBS (Qld) had $1,985.11 cash at the bank. The trust account balances, which had not changed after the commencement of the proceedings, contained:

(a) Latitude account - $35,424.36;

(b) Bokarina account - $2,516.35; and

(c) Retention account - $352,920.59.

• [17] As at 6 October 2023, the costs incurred by the applicants as administrators and then liquidator were:

(a) $115,084.65 in legal fees;

(b) $41,687.39 in subcontractor communication costs;

(c) $32,245.50 in relation to Mr Herrett's time in respect of commission, correspondence and other work in respect of statutory obligations under the BIF Act and these proceedings.

• [18] Given the costs already incurred to date by the external administrators, it may be reasonably inferred that there is a real risk that unless the applicants can access funds in the trust accounts, there will be insufficient funds to meet their remuneration, costs and expenses, although it depends on recovery from various debtors of PBS (Qld).

• [19] In 2020 the BIF Act was amended by the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020 (Qld) (2020 Amendment Act). A number of amendments were made to the BIF Act which followed recommendations being made by a panel who had been appointed to carry out a review of the BIF Act.1
• [20] Chapter 2 of the BIF Act was inserted by the 2020 Amendment Act. It introduced a trust regime which is unique to Queensland and, as at the date of this hearing, had not been adopted by other states.

• [21] Section 7 of the BIF Act states that the purpose of chapter 2 is to:

"[E]nsure that funds paid to the contracted party for particular contracts are held in a trust to protect the interests of subcontractors". (emphasis added).

• [22] According to the Explanatory Note accompanying the third reading speech in July 2020, the amendments were to "implement the new trust framework through a phased implementation", and to introduce "reforms to further enhance the effectiveness of the payment process".2
• [23] Two types of trusts are provided for in chapter 2 of the BIF Act: a project trust3 and a retention trust.4 The provisions which govern each type of trust, including those provisions which are common to both trust types, are outlined below.

• [24] Section 12 of the BIF Act sets out when a project trust is required, particularly s 12(2). Under s 12(4), the requirement to have a project trust continues to apply until the project trust is dissolved under s 21. Section 17 of the BIF Act provides that a project

1 See Building Industry Fairness (Security of Payment) Act 2017 (Qld) s 200A (BIF Act).

1. Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 2.

trust is established once one of the payments referred to in paragraphs (a)-(c) has been made.

• [25] As the head contractor for each of the Bokarina and Latitude contracts, PBS (Qld) was the "contracted party" within the meaning of s 8 of the BIF Act. Accordingly, PBS (Qld) was obliged to open and maintain two project trust accounts pursuant to ss 12 and 18 of the BIF Act.

• [26] Section 11B of the BIF Act provides that a subcontractor under a contract has a beneficial interest in an amount the subcontractor is entitled to be paid under its subcontract. The contracted party, who in this case is PBS (Qld), also has a beneficial interest in the remainder of the trust pursuant to s 11B(1)(b) of the BIF Act. Whether that interest results in receipt of any funds depends on all amounts to which subcontractor beneficiaries are entitled to be paid in connection with their subcontracts having been paid.

• [27] Division 4 of part 2 to chapter 2 contains the provisions that apply to the administration of project trust accounts. Section 20(2) of the BIF Act provides that a contracted party "may only pay" an amount they are liable to pay to a subcontractor beneficiary "from the project trust account", and "by depositing the amount into the account of the financial institution nominated by the beneficiary".

• [28] Section 20A(1) of the BIF Act provides that:

"(1) A trustee must not withdraw an amount from the project trust account for any purpose other than─

(a) paying a subcontractor beneficiary an amount the contracted party is liable to pay the beneficiary in connection with its subcontract; or

(b) paying the trustee, as the contracted party, an amount the contracting party is liable to pay the contracted party for contracted work but only to the extent the contracted party is not also liable to pay a subcontractor beneficiary for the same work; or

(c) returning an amount paid in error by the contracting party; or

(d) depositing a retention amount into a retention trust account; or

(e) making payment relating to the contract in accordance with an adjudication under chapter 3, part 4; or ..."

• [29] Sections 20B and 20C of the BIF Act provide for the order of priority of payments, including when a trustee can withdraw an amount from the project trust account to pay itself, and what is to occur when there are insufficient funds to pay two or more subcontracted beneficiaries at the same time.
• [30] Under s 20B:

"A trustee must not withdraw an amount from the project trust account to pay itself or make another payment prescribed by regulation, unless there would still be a sufficient amount available in the account after the withdrawal to pay all amounts the contracted party is liable to pay subcontractor beneficiaries at the time of the withdrawal".

"(1) This section applies if -

(a) a project trust is established for a contract; and

(b) the contracted party is liable to pay 2 or more subcontractor beneficiaries (each a claimant) an amount at the same time; and

(c) the total amount held in the project trust account is insufficient to satisfy in full all of the amounts liable to be paid to the claimants; and

(d) when an amount liable to be paid to a claimant is due to be paid, the contracted party has not complied with its obligation under section 51 to cover the insufficient amount.

(2) The amount to be paid by the contracted party to each claimant is to be reduced in proportion to the amounts liable to be paid to each.

Example - If one subcontractor beneficiary is to be paid $50,000 and another subcontractor beneficiary is to be paid $30,000 but only $40,000 is available, the beneficiaries are to be paid $25,000 and $15,000 respectively...".

• [32] Unlike a retention trust, a project trust may be dissolved even if there are still beneficiaries, provided that the only remaining work to be carried out under the contract is maintenance.5
• [33] Presently, there is insufficient evidence before the Court to demonstrate whether or not there will be any amounts still held in project trusts, after subtracting all amounts that subcontractor beneficiaries are entitled to be paid in connection with their subcontracts under the Bokarina project and Latitude project from the Bokarina project trust account and Latitude project trust account respectively. Thus, it remains uncertain whether PBS (Qld) will have any beneficial interest in any remainder under the project trust accounts.

• [34] Part 3 of chapter 2 applies to retention trusts. Sections 32 and 34 of the BIF Act set out when a retention trust is required. PBS (Qld)'s obligation to open and maintain a retention trust account under ss 32 and 34 arose as an incident of PBS (Qld)'s position as the direct "contracting party" to the first-tier subcontracts, pursuant to which retention was withheld on the Bokarina and Latitude projects.

• [35] While PBS (Qld) is the "contracting party" for the purposes of the retention trust provisions, it is simultaneously the "contracted party" in relation to the project trust provisions because it is also the party which is required to (directly or indirectly) perform works under the relevant head contracts, notwithstanding that it is trustee of both retention and project trusts. Subcontractors are generally beneficiaries of both trusts and I will refer to them as "subcontractor beneficiaries".

• [36] Division 4 provides for the administration of the retention trust. The BIF Act establishes a separate retention trust for each subcontract in respect of which a retention has been withheld, however s 34(3) provides that the monies can be held in a single retention trust account. Section 37(1) of the BIF Act provides that the trust may be dissolved only upon all of the retention being released to the parties entitled to it under the contract. That may include not only a subcontractor but the contracting party depending on the circumstances.

• [37] Section 31B of the BIF Act provides that beneficiaries of a retention trust have beneficial interests in the retention trust. For a contracted party (namely, a subcontractor) that interest attaches to all retention amounts held in the trust that were withheld from payment to the contracted party. The contracting party has a beneficial interest in all amounts held in trust after the subtracting of the beneficial interests of the contracted parties. There is, however, provision for the contracted parties' beneficial interest in a retention amount to end if and when the contracting party becomes entitled to be paid the amount under the relevant contract and to the extent the contracting party becomes entitled to be paid the amount under the relevant contract.

• [38] Thus, whether the contracting party, in this instance PBS (Qld) as trustee, becomes entitled to be paid any amount of a retention under a given subcontract will depend upon the terms of that signed contract and whether the facts have arisen which give rise to that entitlement.

• [39] PBS (Qld) presently appears to be the trustee of 36 retention trusts. It is not evident presently on the basis of the available evidence whether or not PBS (Qld) will become entitled to be paid some or all of the retention under a given subcontract in accordance with s 31B(2) of the BIF Act.

• [40] The particular provisions which are said to give rise to the uncertainty which has caused the applicants to make the present application are contained in division 2 of part 4 of chapter 2 which contains common provisions for project trusts and retention trusts. Those provisions include ss 51A, 51C and 51E, which are in the following terms:

"51A Amounts in trust account unavailable for trustee's debts

trust account under this chapter cannot be─

(a) used to recover a debt owed to a creditor of the trustee; or

(b) attached or taken in execution under a court order or process for the benefit of a creditor of the trustee.

(a) applies in relation to the trustee, whether in the capacity of trustee or otherwise; and

(b) ceases to apply to an amount once lawfully withdrawn from the trust account; and

(c) does not apply to the extent it would interfere with the right of a beneficiary under this Act.

beneficiary, of a trust account, does not include a beneficiary who is also the trustee for the account.

51C Trustee not entitled to payment for administration of trust or fees

(a) the administration of a project trust or retention trust; or

(b) fees payable in relation to a project trust or retention trust.

(2) The trustee for the project trust or retention trust is not entitled to recover the costs from a beneficiary or the funds held in trust for a beneficiary.

beneficiary, of a project trust or retention trust, does not include a beneficiary who is also the trustee for the trust.

(1) This section applies if the trustee for a project trust or retention trust employs, or otherwise engages, a person (an "agent") to do any act relating to the trust on behalf of the trustee.

(2) The trustee is liable for all acts and defaults of its agent as if the acts and defaults were the trustee's own acts and defaults.

(3) The costs of employing or engaging the agent are not recoverable from funds held in trust for the project trust or retention trust or from any beneficiary of the trust, other than the trustee."

• [41] Under s 51 of the BIF Act, a trustee is liable to deposit into a trust account an amount equal to a shortfall in the trust account where there is an insufficient amount available to pay an amount due to be paid to a beneficiary of the trust immediately.

• [42] Under part 4 of the BIF Act, division 3 sets out the requirements for trust records and bank reconciliations, division 4 provides for oversight powers of the QBCC Commissioner, and division 5 provides for the QBCC Commissioner to exclude a person from undertaking a review of trust accounts and preparing account review reports.

• [43] Division 7 within part 4 contains a number of provisions clarifying the relationship between the BIF provisions and other legislation.

• [44] Section 56 provides for a project trust or retention trust to be declared a statutory interest to which s 73(2) of the Personal Property Securities Act 2009 (Cth) applies and that they have priority over all security interests in relation to all funds held in trust for the project trust or retention trust.

• [45] Section 56A excludes the application of the Trusts Account Act 1973 (Qld) and Trusts Act 1973 (Qld) to both retention trusts and project trusts, a trust account or a trustee or beneficiary of a project trust or retention trust.

• [46] Section 56B provides that a principle of equity relating to trusts applies for a project trust or retention trust "except to the extent the principle is inconsistent with this Act". Subsection 56B(2) provides that nothing in chapter 2 affects a court's inherent jurisdiction to supervise a project trust or retention trust as a trust.

• [47] The applicants' primary contention is that, in considering provisions in chapter 2 of the BIF Act, the Court should:

(a) construe "trustee" to refer only to the party responsible for establishing the project trust and retention trust, namely the contracted party and contracting party respectively, which in this case is PBS (Qld). They particularly contend this to be the case in relation to ss 20A, 36, 51C and 51E; and

(b) construe the reference to "agent" in s 51C as narrower than the usual provision scope for identifying an agent, such that "agent" should be not construed as

extending to an external administrator on the basis that they are not employed by or engaged by the trustee.

• [48] The applicants contend that, if they are correct in their construction, it follows that there is no inconsistency between the application of equitable principles and the BIF Act. Accordingly, they submit that s 56B of the BIF Act does not create any impediment to the administrator and liquidator being able to recover their remuneration from the trust accounts on the basis of general equitable principles.

• [49] At the hearing, the applicants accepted the strength of the QBCC's analysis with respect to the "property of the company" or "company property" under the Corporations Act, as had been discussed by the High Court in Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth6 (Carter Holt). In that decision, the High Court confirmed that property held on trust by an insolvent company or bankrupt individual are generally excluded from division among the creditors of the company or a bankrupt; a liquidator's power over the rights of an insolvent company and the statutory assignment of rights in bankruptcy have always been concerned with those rights that enure in law for the benefit of the personal estate of the bankrupt or insolvent person.7 However, as the High Court noted, there is an exception insofar as a trustee can benefit personally from the trust on the basis of the trustee's power to use the trustee's rights to indemnify itself from liability (the right of exoneration).8 Counsel for the applicant, Mr Matthews, quite properly accepted the principles of Carter Holt. However, he contends that there is still a possibility of a stand-alone right of entitlement to be paid remuneration which is not expressed to be limited to company property exceptions in s 443D and s 443F of the Corporations Act could extend to trust assets pursuant to s 60-5 of the IPS, relying on comments by McKerracher J in Australian Securities and Investment Commission v Marco (No 9)9 (ASIC v Marco (No 9)) which, for the reasons discussed below, I reject.

• [50] Mr O'Brien KC, on behalf of the QBCC, submits that the proposed construction put forward by the applicants is not supported by the terms or purpose of chapter 2 of the BIF Act on the basis that:

(a) the administrator is expressly designated as an agent of the company pursuant to s 437B of the Corporations Act and, while the liquidator's legal status has been said not to be capable of easy definition,10 the position has been described as "a hybrid composite with elements of fiduciary, trustee, agent, officer of the corporation and (in some instances) 'officer' of the Court".11

(b) in carrying out the work, the liquidator clearly is acting and carrying on business as PBS (Qld) and therefore acting as trustee or the agent of the trustee;

(c) the BIF Act does not support a construction that somebody other than a trustee could actually deal with the money or receive money in a way not provided for by the Act, and such a construction goes against the whole grain of the Act. The QBCC contends that the BIF Act expressly provides that the trustee will

6 [2019] HCA 20; (2019) 268 CLR 524 (Carter Holt).

7 Carter Holt at 541-2 [27] per Kiefel CJ, Keane and Edelman JJ.

9 [2021] FCA 1306; (2021) 399 ALR 735 (ASIC v Marco (No 9)).

1. McPherson's Law of Company Liquidation (Thomson Reuters (Westlaw Online) last updated 2 October 2023) at [8.20].

11 Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 at 238 per Tamberlin J.

control the money and the trustee will only deal with the money in particular ways. The only way the applicants, either as administrators or as liquidators, could in fact be administering the accounts must be through acting on behalf of PBS (Qld). The administrators and liquidators were not appointed to the trust property, but rather to the trustee company; and

(d) the administrators and liquidator must be acting as agent of PBS (Qld), which belies the contention of the applicants that the reference to "agent" in s 51E should be read down.

• [51] The QBCC further contends that the BIF Act imposes a strict regime by its terms which excludes either PBS (Qld) or the administrators or liquidators from having a right of exoneration, given that:

(a) Sections 20A and 36 of the BIF Act do not permit the withdrawal of funds for the purposes other than those identified in the provision, and those purposes do not include remuneration or reimbursement of PBS (Qld) or a liquidator or administrator;

(b) Section 33A(2) of the BIF Act provides that, in relation to the retention trust, the contracted party (i.e. a subcontractor beneficiary) has a charge over the retention amount in their favour for securing release of the amount to when it becomes entitled to that amount. Section 33A(5) provides that "[a]n act done to defeat, or purporting to operate so as to defeat, the charge is of no effect against the contracted party". The QBCC contends that an order permitting a liquidator to be remunerated from retention funds in preference to the beneficiary's entitlements would likely purport to defeat the charge contrary to s 33A(5);

(c) Section 51A of the BIF Act does not permit the funds in either the project or retention trusts to be used to recover a debt owed to a creditor of the trustee and there is no support in the text for construing the provisions so as to exclude an insolvency practitioner who, by reason of undertaking to act for the trustee company, has become a creditor; and

(d) Sections 51C and 51E do not permit the costs of administering the trust to be recovered by the trustee or its agents and, in circumstances where the applicants' capacity to administer the trust accounts is as agent of and standing in the shoes of the officers of PBS (Qld), it would be unnecessarily narrow to read those provisions down so as not to apply to a liquidator. Such an interpretation would permit payment of a liquidator to be in preference to the beneficiaries, which would be contrary to the purposes of the Act identified in ss 3 and 7.

• [52] To the extent that McKerracher J suggests in ASIC v Marco (No 9) that the right to remuneration in s 60-5 of the IPS is not limited to company property,12 the QBCC contends that this Court should decline to follow the decision on the basis that it is inconsistent with both s 443D of the Corporations Act and the underlying reasoning in Carter Holt.

12 ASIC v Marco (No 9) at 751-2 per McKerracher J.

• [53] While counsel for the QBCC properly conceded that there is a real possibility that there has been an oversight in drafting chapter 2 and a failure by the legislature to consider the implications of external administrators being appointed to a building company who is a trustee of project trust accounts and retention trust accounts, it contends that the above is the effect of chapter 2 of the BIF Act. The QBCC did, however, raise one possible avenue by which external administrators could seek payment for administering the accounts; namely, pursuant to the principles outlined in Re Universal Distributing Co Ltd (in liq)13 (Universal Distributing) or Re Berkeley Applegate (Investment Consultants) Ltd (in liq)14 (Berkeley Applegate).15
• [54] The applicants, in reply, referred to the case of Re All Class Insurance Brokers Pty Ltd (in liq) (All Class Insurance)16 as supporting their contention that there is a distinction between a liquidator and a trustee for whom no provision is made for payment in provisions prescribing the priority of payments support their contention that the BIF provisions should not be construed as excluding payments to administrators or liquidators notwithstanding that there is no express provision for payment. Further, the applicants contends that it would be contrary to the terms and purpose of the BIF Act if no one was able to administer the trust accounts, given the money would ultimately become vested in the Commonwealth upon the company becoming deregistered and therefore unavailable to subcontractors.

• [55] On the day of the hearing, the applicants sought to obtain directions from the Court, as opposed to seeking a declaration. In that regard, they relied on s 51G of the BIF Act, a curious provision which allows a trustee to seek directions:

"(1) The trustee for a project trust or retention trust may apply to the Supreme Court for directions about -

(a) an amount held in trust; or

(b) the administration of the trust; or

(c) the exercise of a power by the trustee.

(2) A copy of the application must be given to all beneficiaries for the trust unless otherwise directed by the Supreme Court".

• [56] The power to seek directions would presumably have been inserted as a result of the exclusion of the Trusts Act 1973 (Qld) (Trusts Act), including the provision for directions,17 by s 56A of the BIF Act. While s 51G of the BIF Act was included, no provision has been included of similar purport to s 97 of the Trusts Act, which offers protection to a trustee who acts under directions. The absence of such protection is perplexing and limits the purpose served by s 51G of the BIF Act.

13 [1933] HCA 2; (1933) 48 CLR 171 (Universal Distributing).

14 [1989] Ch 32 (Berkeley Applegate).

1. This proposed approach was mentioned in oral submissions, modifying the QBCC's written submissions.

16 [2014] NSWSC 475 per White J.

17 Trusts Act 1973 (Qld) s 96.

• [57] However, given the terms of s 51G of the BIF Act and its reference to the seeking of directions similar to the seeking of judicial advice under s 96 of the Trusts Act, the principles that govern the obtaining of judicial advice by a trustee18 would be applicable by analogy such that :

(a) the Court will have a discretion as to whether to give directions;

(b) it is a summary procedure;

(c) the Court engages in determining what ought to be done in the interests of the trust estate and not in determining the rights of adversarial parties;

(d) a person served with the application for directions is not a "party" to the application but is entitled to make submissions;

(e) the Court's orders are permissive and usually in the form that the trustee is "justified" in doing something on the basis of a specified state of affairs or assumptions;19

(f) an order for judicial advice does not carry with it the usual consequences of an order made by the Court in adversarial proceedings and does not finally determine the rights of parties, although it may affect the rights of parties given notice.20 It is generally in the nature of private advice because its function is to protect the trustee personally, although such protection is not afforded under the BIF Act.

• [58] Judicial advice is generally procedural in nature and, at least in terms of a trustee, the Court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.21 The power in s 51G would appear to be similarly intended to empower the Court to provide directions which are in the best interests of the trust estate. However, given the absence of a similar provision to s 97 of the Trusts Act, the personal protection of the trustee would not appear to be relevant, notwithstanding that would presumably be one of the matters which would cause a trustee to seek directions. It may, however, be relevant if the trustee was alleged to have breached its duty in taking a particular course.

• [59] The alternative basis is pursuant to chapter 5, part 5.3A, division 9 of the Corporations Act, the powers of which have been now largely replaced by s 90-15 of the IPS.

18 The principles have largely been set out by the High Court in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at 89-90 [58]- [59] per Gummow ACJ, Kirby, Hayne and Heydon JJ.

19 See for example Re Application by NGS Super Fund Pty Ltd (as trustee of NGS Super) [2021] NSWSC 1694 at [60] per Henry J.

20 Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar, the Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand [2006] NSWCA 160; (2006) 66 NSWLR 112 at 122

21 Re QSuper Board [2021] QSC 276 at [9] per Kelly J, where his Honour referred to Marley v Mutual Security Merchant Bank and Trust Co Ltd [1990] UKPC 44; [1991] 3 All ER 198 at 201 per Lord Oliver and Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 237 CLR 66 at 89 [58] per Gummow ACJ, Kirby, Hayne and Heydon JJ.

• [60] According to Banks-Smith J in Re Adaman Resources Pty Ltd (Administrators Appointed) (No 4):22

"Where judicial advice is sought in the context of an administration, the only statutory constraint on the exercise of that power is the need to consider whether or not the provision of that advice advances the objects of Part 5.3A set out in s 435A of the Corporations Act and is not inconsistent with the objects of the IPS. Section 90-15(3)(a) accommodates the determination of substantive rights, provided appropriate notice has been afforded to potentially affected parties".

• [61] As set out above, the applicant narrowed the scope of what was sought before the Court and sought directions as to whether or not the applicants are entitled to be remunerated or paid costs and expenses out of the trust accounts. The directions sought by the applicants in paragraph 1 of the originating application is in the following terms:

"1. Pursuant to section 51G(1) of the Building Industry Fairness (Security of Payment) Act 2017 [the BIF Act] or the inherent jurisdiction of the Court, the Court give directions to the Applicants about:

(a) the amounts held in, the administration of and the exercise of a power by the trustee of the following trust accounts:

(i) PBS Building (Qld) Pty Ltd - QD149 Project Trust Account CBA 064-000 1620 1870 [the Latitude PTA];

(ii) PBS Building (Qld) Pty Ltd - QD196 Project Trust Account (CBA 064-000 1607 5034) [the Bokarina PTA]; and

(iii) PBS Building (Qld) Pty Ltd - Retention Trust Account [the RTA]

(iv) [together the Latitude PTA, the Bokarina PTA and the RTA are the Trust Accounts]; ...".

• [62] Paragraph 1B of the originating application (as amended) is in the following terms: "1B. A direction that, pursuant to Chapter 5, Part 5.3A, Division 9 of

the Corporations Act 2001 (Cth) and, or in the alternative Schedule 2 of the Corporations Act 2001 (Cth) or the inherent jurisdiction of the Court, the Applicants are entitled to:

(a) be paid their reasonable remuneration, expenses and costs incurred in the administration of the Trust Accounts (in an amount to be determined by the Court) from the proceeds of the Trust Accounts; or

(b) further or in the alternative, an indemnity from and lien over the proceeds of the Trust Accounts for their reasonable remuneration,

1. [2021] FCA 644 at [37], citing Re Hill, Autocare Services Pty Ltd (Administrators Appointed) [2021] FCA 167 at [44] per Farrell J.

expenses and costs incurred in the administration of the Trust Accounts (in an amount to be determined by the Court). ..."

• [63] The QBCC originally submitted it would not be appropriate to grant relief by way of a declaration in paragraph 1B, and submitted at the hearing a number of the problems it identified remained even if the terms of relief as framed sought 'directions' rather than a declaration. There is weight in that criticism. It is not appropriate for the Court, in the context of making directions, to make directions which effectively determine questions of entitlement of the applicants to be paid or to an indemnity or lien in the absence of any evidence of the amounts incurred23 and which may affect the rights of subcontractor beneficiaries where the affected parties have not been served. However, the courts have been prepared to make directions as to whether or not liquidators are entitled to claim remuneration and costs from particular company property or in some circumstances from property held in trust by a company.

• [64] The applicants also rely, to the extent necessary, on the general catch-all in paragraph 3 of the Originating Application.

• [65] A question arises as to whether the matter should be able to proceed, even with the more limited relief being sought, since all subcontractor beneficiaries may not have been served. While some 111 subcontractors have been served, who are potential beneficiaries of the funds in the trust accounts, the applicants indicated that they have not been able to carry out the task required to clarify whether all the potential subcontractors who may have claims have been served. As to those who have been served only 7-9 responded, some of which asserted that have claims that could be made on the trust accounts but none of whom appeared. The lack of response resulted in the QBCC being joined as a party by consent. According to the applicants, and particularly the applicants as liquidators, they are in a position where they can only justify carrying out the administration of the trust accounts if there is likely to be enough funds in the trust accounts such that PBS (Qld) will have access to a surplus of funds after deducting beneficiaries' entitlement and the applicants' reasonable reimbursement for administering the trust accounts. The applicants consider that there is unlikely to be sufficient funds to cover their costs and remuneration from funds of PBS (Qld) outside of trust assets, including any surplus trust monies to which the PBS (Qld) may be entitled. The alternative course which the applicants submit is available to them under the BIF Act, is that the applicants are entitled to deduct their remuneration and costs for administering the trust accounts from the funds in the trust accounts before disbursing the remaining funds to individual beneficiaries. If that is not the case, the applicants consider they will be unable to justify the incurring of any costs in carrying out the trust administration tasks, and would not be obliged to do so given s 545 of the Corporations Act.24 In that event, the funds are likely to remain in the accounts until PBS (Qld) is de-registered, in which case the funds will be paid to ASIC25 and arguably never paid to the subcontractor beneficiaries.

23 Deputy Commissioner of Taxation v Starpicket Pty Ltd (no 2) [2013] FCA 699 at [63] per Gordon J.

24 Unless a creditor seeks an order that the liquidators incur a particular expense, in which case the Court or ASIC may direct the liquidator to incur the expense on the proviso that the creditor indemnifies the liquidator.

25 Corporations Act 2001 (Cth) s 544.

• [66] QBCC submitted it held a true interest in the proceedings, having frozen the trust accounts, and will need to be satisfied the funds will be dealt with as required by the BIF Act in carrying out her regulatory function. While the QBCC did not act as an adversary, it did act as a proper contradictor.

• [67] In the absence of any guidance by the Court as to whether the liquidators and administrators are precluded from claiming any costs, expenses or remuneration from the trust account, while the funds remain subject to the subcontractor beneficiaries continuing to hold a beneficial interest, no decision can be made by the liquidators and creditors as to whether they should proceed to administer the retention or project trusts. It is in the interests of the trust and creditors that they are given guidance as to the position. In those circumstances, and where the applicants did not pursue the making of any declarations, I determined it was appropriate to grant leave to the applicants under s 51G of the BIF Act and/or s 90-15 of the IPS to seek directions, notwithstanding all beneficiaries or creditors may not have been served.

• [68] However, the fact that all subcontractor beneficiaries have not been served is a factor to which I have regard in determining whether to make the directions sought or any directions.

• [69] Prior to considering the question of the correct construction of the BIF Act, it is important to briefly consider:

(a) the relationship between the applicants (both as administrators and as liquidators), PBS (Qld), and the beneficiaries of the project and retention trusts;

(b) the nature and source of rights that are available to the applicants under statute and general law in relation to their rights of reimbursement and remuneration and that property available from which they may be recovered and in what priority;

(c) whether any of those rights in (b) continue to apply to trustees of project and retention trusts under the BIF Act;

Relationship between the applicants, PBS (Qld) and the trust beneficiaries

• [70] The applicants as administrators, when exercising their functions, are taken to be acting as the company's agent, as provided for by s 437B of the Corporations Act. Although Ford, Austen & Ramsay's Principles of Corporations Law describes a liquidator's relationship to the company as being that of an agent for it,26 a liquidator's position has also been described as more diverse, potentially being "a hybrid composite with elements of fiduciary, trustee, agent, officer of the corporation and (in some instances) 'officer' of the court".27 In formulating the above description in Sydlow, Tamberlin J referred to Loose on Liquidators, where the authors observed that "[t]he liquidator differs from the normal agent, however, in that he himself

26 LexisNexis, Ford, Austin & Ramsay's Principles of Corporations Law (online at March 2024) VII External Administration, '27 Winding Up' [27.150], citing Corporate Affairs Commission (Vic) v Harvey [1980] VicRp 64; [1980] VR 669 at 695 per Marks J.

27 Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 at 238 per Tamberlin J, which also accords with the discussion of Marks J in Corporate Affairs Commission (Vic) v Harvey [1980] VicRp 64; [1980] VR 669 at 695.

controls the actions of his principal, ie the company. Furthermore his duties as agent of the company are subject to his overriding statutory duties to apply the comp'ny's assets in paying creditors and to distribute any surplus amongst the members". In administering the project trust and retention trust accounts as required under the BIF Act, the applicants are acting as agents of PBS (Qld).Where a liquidator is appointed to wind up a company's affairs, which includes the affairs of a trust, the liquidator may need to administer the trust to identify and protect the trust's assets and liabilities, and their value, and also may need to ascertain the company's rights and liabilities as trustee in relation thereto.28 In doing so, the liquidator will be acting as the trustee, whether as agent or by virtue of the fact that the liquidator controls the trustee.

Recovery of costs and remuneration under the Corporations Act

• [71] The applicants contend that they are entitled to be paid their reasonable remuneration, expenses and costs incurred in the administration of the trusts accounts from the proceeds of the trust accounts pursuant to chapter 5, part 5.3A Division 9 and part 5.6 of the Corporations Act as administrators and then as liquidators or alternatively an indemnity from and lien over the proceeds of the trust accounts for the work done and costs incurred in the administration of the trust accounts. The applicants originally contended that the funds in the trust accounts were available, under the provisions of the Corporations Act, as funds which could be used in priority to pay the liquidators and administrators over other creditors. However, as submitted on behalf of the QBCC, that contention fails to take into account the fact that the Corporations Act provisions only apply to property of a company and do not themselves confer any right of remuneration from assets held on trust by a company for another person. The applicants subsequently conceded, in light of Carter Holt, that trust property was not company property (which was the subject of the Corporations Act provisions) and property from which their remuneration could be claimed subject to an argument raised under s 60-5 of the IPS.

• [72] Where a company holds property on trust in which it has no beneficial interest, it is well established that property is not available to be used for the payment of the company's creditors. In Carter Holt, the High Court reiterated that trust property for which a company is trustee is not property of the company.29 However, the High Court also observed that trust property may be available through the company's right of indemnity as trustee.30
• [73] In Carter Holt, Kiefel CJ, Keane and Edelman JJ stated:31

"[26] The Corporations Act contains a similarly broad definition of 'property' to the bankruptcy legislation but it does not contain an equivalent express exclusion of property held by a company on trust for another person. However, the same 'elementary, and fundamental' principle that generally precludes distribution of trust property from distribution among creditors has been consistently applied in Australia to

1. Irvine v Australian Sharetrading and Underwriting Ltd (in liq) (1996) 22 ACSR 765 at 783 per Mandie J.

29 Carter Holt at 541 [26] per Kiefel CJ, Keane and Edelman JJ.

trustee companies. It has been said that, as a general proposition, it would be 'extraordinary, in the context of insolvency law, if 'property of the company' included property of which it was a trustee and in which it had no beneficial interest'. Hence, as the Court of Appeal correctly observed, the exclusion of property held on trust from the property of a trustee, while express in bankruptcy, applies 'by undisputed analogy in the case of corporations'.

• [27] The reason that rights held on trust by an insolvent company or bankrupt individual are generally excluded from division amongst the creditors of the company or of the bankrupt individual is that a liquida'or's power over the rights of an insolvent company and the statutory assignment of rights in bankruptcy have always been concerned only with those rights that enure in law 'for the benefit of' the 'personal estate' of the bankrupt or insolvent person, even if in some cases that legal benefit might not be a 'practical benefit'. By contrast, other than as permitted by rules of law or the terms of the trust, the trustee owes a 'personal obligation to deal with the trust property for the benefit of the beneficiaries, and this obligation must be annexed to the trust property'. The trustee does not generally have any entitlement to deal with the rights held on trust for the trus'ee's own benefit. Courts of law took notice of the trust because 'it would be absurd' for rights to have vested in bankruptcy 'for no other purpose but in order that there may be a bill in equity brought against [the trustee in bankruptcy]'. Hence, rights held on trust were, and are, generally excluded from inclusion in the statutory concepts of the 'property' of the bankrupt or the 'property' of the insolvent company.
• [28] However, the general principle that excludes those rights held on trust from division among creditors does not apply to the extent to which a trustee is permitted to benefit personally by 'deriv[ing] any benefit' from the rights held on trust. One means by which a trustee can benefit personally from the trust rights is the trus'ee's power to use those trust rights to indemnify itself from liabilities. The existence of that 'right of indemnity' means that, to the extent of the power, the trust rights are 'no longer property held solely in the interests of the beneficiaries of the trust'". (footnotes omitted and emphasis added).
• [74] The point was summarised in a slightly different way by Bell, Gageler and Nettle JJ (with whom Gordon J agreed, but delivered separate reasons), who stated:32

"[95] The position under the Corporations Act is comparable. The liquidator of a company assumes control of the company's assets subject to equities, and, accordingly, must deal with assets held by the company as trustee in accordance with the terms of trust. But to the extent that company has a beneficial interest in the trust assets, as it has by reason of the company's right of indemnity in respect of properly incurred trust obligations, the trust assets are property of the company available for the payment of creditors...". (footnotes omitted and emphasis added).

• [75] While the reasoning in Carter Holt was in connection with consideration of whether property held on trust for another person was "property of the company" for the purposes of s 433D of the Corporations Act, the reasoning has been applied in the context of statutory priority provisions which apply to liquidation.33
• [76] Section 443D of the Corporations Act provides for an entitlement of the administrator to be indemnified "out of the company's property". Section 556(1)(a) of the Corporations Act similarly provides for liquidators to have priority in respect of their expenses "properly incurred ... in preserving, realising or getting in property of the company or in carrying on the company's business" . Section 555 of the Corporations Act makes it clear that that right is in respect of the "property of the company".

• [77] For the reasons outlined below, I consider that PBS (Qld), as trustee, did not enjoy any right of indemnity in respect of the funds in the trust accounts that could become property of the company as a result of the BIF Act, which effectively abrogates such a right by a trustee in relation to either the project trust or retention trust.

• [78] The applicants however, sought to argue that, notwithstanding the limitations of the Corporation provisions to company property, s 60-5 of the IPS conferred a right to claim remuneration from trust property held by a company and administered by a liquidator or administrator. This was on the basis of discussion by McKerracher J in ASIC v Marco (No 9); In that case his Honour found that the administrators did not have an entitlement to remuneration under the company's right to exoneration as trustee, since that right and indemnity was in the possession of the receivers,34 His Honour went on to consider whether the administrators had a right to remuneration under s 60-5(1) of the IPS, which he stated was secured by a statutory indemnity and lien over the company's property by ss 443D and 443F.35 However, his Honour stated that ..the corollary of this reasoning "is that this indemnity and lien does not touch the Property held on trust (or trusts) for the investors".36 The reference to the "company's

32 Carter Holt at 568 [95] per Bell, Gageler and Nettle JJ.

1. See for example Federal Commissioner of Taxation v Lane (2020) 283 FCR 448 at [60] per Allsop CJ (with whom Perram and Farrell JJ agreed).

34 ASIC v Marco (No 9) at 759-8 [64]-[66] per McKerracher J.

property" in those sections refers only to property beneficially owned by the company.37

• [79] Justice McKerracher noted that the language in s 60-5 provided an entitlement to remuneration independently of any determination by the court as to the quantum of remuneration. His Honour stated "[t]he language of s 60-5 does not condition an administrator's entitlement by reference to the availability of a company's assets or the discretion of the Court".38 His Honour subsequently made an order that the administrators were entitled to be remunerated out of the property, being the assets legally owned by the company in liquidation.

• [80] The applicants contend this was a recognition by his Honour that the administrators could, under s 60-5, claim remuneration from the property held in trust by the company. I don't consider that is necessarily what his Honour was meaning. It is unclear what is meant by "property" in that case, given an earlier observation by his Honour that, while the parties had agreed on the properties of which the company was legal owner and that the assets were the only assets "from which the Administrators could draw an entitlement (if any) to remuneration". The parties also agreed the property was held on trust in circumstances where "the exact nature of the trust on which the Property was actually held is disputed".39 It is unclear whether his Honour anticipated that the administrators might have the benefit of the right of exoneration held by the receivers becoming company property, given his reference to s 60-5 not being constrained by any security interest. It does not seem his Honour's comments were generally directed to property otherwise the subject of trusts, given his other statements recognising that was not company property. The right to remuneration in section 60-5 of the IPS, in broad terms, is in relation to administrators and is derived from s 443D of the Corporations Act, which provides for an administrator to be indemnified out of the company's property for the remuneration to which he or she is entitled under division 60 of schedule 2. While s 60-5, therefore, provides for a right of remuneration, it does not extend that right beyond the company's property. If his Honour suggested otherwise I would disagree and decline to follow it.

• [81] I note that Feutrill J in Australian Securities and Investments Commission v Marco (No 15)40 similarly did not construe the reasons of McKerracher J in the broad way which the applicants contend. His Honour analyses paragraph [73] of McKerracher J's decision in ASIC v Marco (No 9) in the following way:41

"[251] It follows that the reasons in Marco (No 9) do not specifically address the parties' written submissions on the power of the Court to order that an administrator's remuneration and expenses be paid out of trust property of an insolvent company. However, McKerracher J alludes to that power (at [71]) and

1. ASIC v Marco (No 9) at 759 [69], citing Carter Holt at 541-2 [25]-[28] per Kiefel CJ, Keane and Edelman JJ.

40 [2024] FCA 347.

41 Australian Securities and Investments Commission v Marco (No 15) [2024] FCA 347 at [251]- [253], citing Re Fearndale Holdings Pty Ltd (in liq) [2020] NSWSC 901 per Black J and Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 per Kennedy and Ipp JJ (with whom Wallwork J agreed).

refers directly (at [70]) to the judgment of Black J in Fearndale Holdings in which he approved an application under s 60-5 and s 60-12 of the IPSC. In Fearndale Holdings, Black J made separate orders in respect of remuneration and expenses. The remuneration was determined under s 60-10 of the IPSC, but as to expenses he said (at [30]) 'the amount claimed from the trust property ... also extends to costs and disbursements which do not require the Court's approval under s 60-10 of the [IPSC]'.

• [252] Reading the reasons as a whole and against the background of the references to Fearndale Holdings, the point that McKerracher J makes in Marco (No 9) (at [71]) is that the Court has no discretion to order the payment of remuneration from trust property because there is an entitlement to payment of remuneration out of the property of a company (whether or not held on trust). None of the reasons are directed specifically to the question of entitlement to be paid costs, expenses or disbursements out of trust property. The reference to entitlement pursuant to s 60-5 of the IPSC refer only to an entitlement 'to be remunerated out of the Property' or similar expressions: Marco (No 9) (at [73], [74]).
• [253] The entitlement of the administrators to be reimbursed for costs and disbursements could not have been in doubt: Venetian Nominees (at 101). The only reference to disbursements in the reasons is a reference to an amount sought for disbursements: Marco (No 9) (at [77]). Therefore, there is no express explanation in the reasons for the order for payment of costs and disbursements out of trust property."

• [82] Any right of an administrator or liquidator to claim an entitlement to be paid out of trust property held by a company in trust does not derive from the provisions of the Corporations Act but may arise as a result of rights conferred by statute, the trust instrument or in equity, including a right of indemnity (either a right of exoneration or reimbursement). A trustee's right of indemnity is "property of the company". The power of exoneration which entitles a trustee to use trust funds to discharge debts properly incurred by a trustee in the course of trust business, confers a proprietary interest and takes priority over those interests of the beneficiary.42 It is company property available for the payment of creditors. In Carter Holt, Kiefel CJ, Keane and Edelman JJ observed that when control of a trustee's rights pass to a liquidator, the liquidator is limited by the terms of the power of exoneration in the exercise of control over trust rights in the same way a trustee's ability to exercise its power of exoneration is limited.43

42 Carter Holt at 544 [32] per Kiefel CJ, Keane and Edelman JJ

• [83] Given the limitations of the Corporations Act provisions relied upon by the applicants, there is no inconsistency between the BIF Act and the Corporations Act in terms of the liquidators' right of remuneration and no question arises for the Court's consideration under s 109 of the Constitution.

Other pathways to recovery of costs and remuneration

• [84] Notwithstanding that the Corporations Act does not confer a right over trust property for the costs and remuneration of administrators and liquidators other pathways that have been recognised generally by the application of equitable principles which permit an administrator or liquidator to access trust property to recover their remuneration, costs and expenses in administering a trust as part of the exercise of winding up a company. As was recognised by Derrington J in Lane v Federal Commissioner of Taxation (Lane), the question of an insolvency practitioner being paid their costs, expenses and remuneration is unquestionably a most significant matter.44
• [85] In Lane, Derrington J identified three pathways whereby an insolvency administrator may recover their costs, expenses and remuneration from trust assets, although, as his Honour indicated, it is a vexed area and there is not a neat delineation in the cases between them, particularly the second and third categories. His Honour identified the categories of cases in the following terms:45

"[160] A trichotomy has formed in the various authorities concerning the rights of insolvency administrators to recover their costs, expenses and remuneration from trust assets. The first category of cases are those which attempt to discern something within the relevant insolvency regime which might permit the use of trust property or the right of exoneration to satisfy the entitlements of the liquidators or bankruptcy trustees in priority to other creditors. The decision of King CJ in Re Suco Gold falls into that category. There, the Chief Justice held that s 292 of the Companies Act 1962 (SA) gave the liquidator's costs, expenses and remuneration priority by, first, "regarding" them as trust debts and, second, by holding that s 292 applied to the payment of trust debts...

• [161] The second category of cases rely upon the inherent or statutory supervisory power of the courts over trustees and trusts to justify the payment of costs, expenses and remuneration to the insolvency administrator. The power relied upon is said to arise from the general law of equity which enabled the courts to vary the rigid principle that trustees were to act voluntarily where the circumstances warranted the paying of remuneration. Whilst, that general power to authorise the payment of remuneration may be appropriate in the regulation of

44 [2017] FCA 953; (2017) 253 FCR 46 at 96 [158] (Lane).

the rights of trustees and beneficiaries inter se on the basis that it would be unconscientious for the beneficiaries to obtain the benefit of any exceptional voluntary exertions of the trustee, the same cannot be said of the alteration of rights as between the liquidator of a trustee and creditors of that trustee. Another difficulty with this approach is that it directs the payment of costs, expenses and remuneration to the insolvency administrator rather than to the trustee of the trust. This tends to significantly broaden the scope of power purportedly being exercised...The power relied upon is said to arise from the general law of equity which enabled the courts to vary the rigid principle that trustees were to act voluntarily where the circumstances warranted the paying of remuneration; (Re Freeman's Settlement Trusts [1887] UKLawRpCh 211; (1887) 37 Ch D 148; Nissen v Grunden [1912] HCA 35; (1912) 14 CLR 297); or from the powers in various State statutes conferring a similar authority (s 101 of the Trusts Act 1974 (Qld) is relevant in this particular case). The decision of Black J in MF Global Ltd (in liq) (No 2) [2012] NSWSC 1426 is an example of this as is the decision of Campbell J in Re Appln of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297.

• [162] The third category of cases are those which justify the appropriation to the liquidator or bankruptcy trustee of trust funds to meet their entitlements by reason of the benefit derived by the trust creditors from the exertions of the insolvency administrators. The cases in this category include, Berkeley Applegate and Re Universal Distributing and those which have followed them, not in the least of which are the decisions of Black J in Re Trio Capital Ltd (in liq) [2012] NSWSC 597; (2012) 88 ACSR 700 and Re Dungowan Manly Pty Ltd (in liq) [2015] NSWSC 491; (2015) 105 ACSR 648. It can be readily accepted that this category consists of two parallel principles, one being equitable (Berkeley Applegate) and the other (Re Universal Distributing) probably originating at common law...
• [163] Whilst these three disparate strands of reasoning appear in the authorities, it is not infrequently the case that the differences between them, and in particular, between the second and third categories is not always maintained. Indeed, resort is often had to the principles in Berkeley Applegate and Re Universal Distributing to support conclusions which are primarily reached on basis of the first and second categories". (citations omitted).
• [86] The distinctions between the varying rights are of some importance to the present matter since some of the rights, such as a trustee's right of indemnity, are not personal to a liquidator; 46 whereas the right to an allowance by payment out of trust property under the Berkeley Applegate principle is a personal right of the liquidator, if engaged.47 Thus, to the extent the BIF Act operates to restrict or exclude any right of indemnity being exercised by the trustee, an external administrator who exercises powers as trustee may similarly be excluded from relying on the trustee's right of indemnity, absent an exception being made, but that would not necessarily extend to recovery on the basis of Universal Distributing or Berkeley Applegate.

• [87] The right of indemnity of a trustee includes a right of exoneration and a right of recoupment or reimbursement from trust assets. While such a right exists in equity and is said to be a necessary incident of the office of trustee,48 it is also commonly provided for in legislation. In Queensland, s 72 of the Trusts Act provides for a statutory right of indemnity and s 101 of the Trusts Act provides for a trustee's remuneration. Provision for such a right is also often made in a trust instrument but that is not the case in the present, given the trusts are a creation of the BIF Act.

• [88] A right of recoupment, which arises where the trustee has paid a trust debt using its own money, is the trustee's own property absolutely; whereas a right of exoneration permits the trustee to meet liabilities out of trust property for the purposes of paying expenses of a trust.49A trustee who has rights of exoneration has a proprietary interest in the trust assets to the extent required to meet that right of exoneration.50 Where there is such a right, the trust assets are subject to competing proprietary rights in order of priority of the trustees and beneficiaries, where the trustee's rights take precedence over the those of the beneficiaries.51
• [89] PBS (Qld) was not solely a trustee but, rather, acted as trustee pursuant to statutory provisions. Thus, prima facie, it has other rights and liabilities which are outside the administration of the project or retention trusts. That is significant in terms of the extent to which the administrators or liquidators may access trust assets. The right of indemnity of a trustee of a trading trust over the trust assets is a right to be exonerated by using trust assets only to pay those creditors whose debts were incurred in the proper administration of the trust and not the trustee's creditors generally.52 A right of indemnity out of trust assets is supported by an equitable lien over those assets and has priority over the interests of the beneficiaries.53 Generally, a trustee is entitled to exercise any right of indemnity by reimbursing itself out of trust assets and by applying the trust funds in direct satisfaction of trust liabilities, supported by the equitable lien. While there are authorities which recognise that a liquidator (or administrator) may directly claim payment and remuneration and expenses from trust property, where the only business of the company is to carry on business as trustee of

1. Park v Whyte (No 3) [2017] QSC 230; [2018] 2 Qd R 475 at 509 [160] per Jackson J, citing Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99 per King CJ (Re Suco Gold).

47 Park v Whyte (No 3) [2017] QSC 230; [2018] 2 Qd R 475 at 509 [161].

1. Chief Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 236 at 246 [49] per Brennan CJ, Toohey, Gaudron, McHugh and Gummow JJ.

51 Carter Holt at 544 [32] per Kiefel CJ, Keane and Edelman JJ.

52 See Re Suco Gold, which was endorsed by the High Court in Carter Holt.

1. LexisNexis, Ford, Austin & Ramsay's Principles of Corporations Law (online at March 2024) VII External Administration, '27 Winding Up' [27.370.9].

a trust, that would not apply in the present case, notwithstanding the small amount of assets so far identified by the applicants which are not the subject of project retention trusts.54 If work done by a liquidator is solely concerned with the winding up, and not with the performance of duties as trustee, the costs are not ordinarily chargeable against trust assets, although it is often difficult to draw such bright-line distinctions and it has been recognised that some activities may be for both purposes or that, if the trust assets are the only assets, the costs are indistinguishable.55 If there is more than one trust, any indemnity would be confined to the costs incurred and remuneration for work undertaken in relation to each trust. If there are no non-trusts assets they are apportioned between the trusts.56

• [90] In Lane, Derrington J provides a detailed exposition of the principles and complexities that arise in respect of a trustee's right of indemnity, which it is unnecessary to address in any detail for the purposes of this decision.

• [91] However, as recognised by Derrington J in Lane and Jackson J in Park v Whyte (No 2),57 some formulations of the right of liquidators or administrators to recover the costs and remuneration rely on the entitlement to indemnity for remuneration for activities of the company as trustee, whereas other formulations tie it to costs and expenses that would have had to be incurred in any event. As Jackson J in Park v Whyte (No 2) also observed: 58

"In Australia, more recent cases would appear to reinforce a liquidator's right to indemnity from the property of the trust for remuneration or expenses of the administration of the winding up when the only business of the company was acting as trustee of a private trust".

• [92] In Re Suco Gold Pty Ltd (in liq) (Re Suco Gold), King CJ (with whom Jacobs and Matheson JJ agreed) considered an application by a liquidator of the trustee company who applied for directions as to the use of trust assets including whether the liquidator could have recourse to trust assets for the purpose of discharging costs and expenses of the winding up and the liquidator's remuneration as priority debts over unsecured debts under the Companies Act provisions. King CJ considered the power of exoneration could be used in each case to pay creditors of each of the two trusts of which the company was trustee and that as the liquidator's remuneration and the costs and expenses of winding up to be given priority over those unsecured creditors, the liquidator was entitled to have recourse to the property of each trust for that remuneration and those costs, so far as they were incurred in relation to each trust. King CJ relied on the alternative bases to permit recovery by a liquidator for work done and costs incurred in administering a trust for which the company was trustee:59

"As the company's obligation as trustee to pay the debts incurred in carrying out the trust cannot be performed unless the

54 As discussed in Park v Whyte (No 2) [2017] QSC 229; (2018) 2 Qd R 413 at 428-32 [75]- [89] per Jackson J.

1. Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 687 per McLelland J; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) [1999] FCA 144; (1999) 30 ACSR 377 at 385 per Finkelstein J.

57 [2017] QSC 229; [2018] 2 Qd R 413 at 432 [89].

58 [2017] QSC 229; [2018] 2 Qd R 413 at 431 [84].

59 Re Suco Gold at 110; His Honour's analysis was approved by Kiefel CJ, Keane and Edelman JJ in

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., be prepared to rely on the principle enunciated by Dixon J. in In re Universal Distributing Co. Ltd. (In Liquidation)." (footnotes omitted).

• [93] Re Suco Gold is generally authority for the first category discussed by Derrington J in Lane.

• [94] In relation to the second and third category, in Re MF Global Australia Ltd (in liq), Black J recognised that renumeration, costs and expenses incurred by a person such as a liquidator in preserving, recovering and realising a fund on behalf of others should be paid out and are secured by an equitable lien over the fund.60 His relied upon amongst other cases Universal Distributing. His Honour also considered the question of the recovery more generally of liquidators remuneration, costs and expenses of the administration and liquidation, observing that "[t]he court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, which extends to a person such as a liquidator which is for practical purposes controlling a trustee".61 His Honour cited, amongst other cases, Campbell J in Re Sutherland,62 which is a case particularly relied upon by the applicants in the present. His Honour noted that the liquidators acknowledged authority that the jurisdiction may not be exercised where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators' remuneration, costs and expenses and whether the work done by the liquidator in relation to trust assets may be properly be treated as done for the purpose of winding up the company's affairs. His Honour did not however consider that it was appropriate at that time to make an order in this regard in the circumstances of that case.63
• [95] In Universal Distributing, Dixon J stated:64

"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

In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which

60 [2012] NSWSC 1426 at [50] and [54].

61 [2012] NSWSC 1426 at [55].

62 [2004] NSWSC 798.

63 [2012] NSWSC 1426 at [60].

enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate". (citations omitted).

• [96] In Berkeley Applegate, Mr Edward Nugee QC, sitting as a Deputy High Court Judge described a similar, but broader, principle to Universal Distributing: 65

"The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest... or by a receiver appointed by the court whose fees would have been borne by the trust property... and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity...". (citations omitted).

• [97] In Park v Whyte (No 2), Jackson J accepted that the principles that apply to recovery by liquidators for an order for payment of their remuneration from the trust property apply equally to claims by administrators for an order for payment of their remuneration and expenses from the trust property.66

• [98] The present application does not require the Court to specifically consider the question of whether PBS(Qld) when acting as trustee could have recourse to the assets of the project trust and retention trust by reason of it being able to exercise a trustee's right of indemnity. The present application is whether the administrators and/or liquidator can exercise a right of indemnity in carrying out work to administer the project trust and retention trust in the future. However the effect of the BIF Act in relation to such a right of indemnity is relevant to whether the applicants as administrators and/or liquidators have a right of indemnity in administering the trust. The applicants however contend that any limitations that limit the rights of PBS(Qld) to access trust assets for costs incurred or work done administering the trusts do not extend to work done by administrators or liquidators administering the trusts.

66 [2017] QSC 229; [2018] 2 Qd R 413 at [109].

• [99] For the reasons set out below, PBS (Qld) has no right of indemnity as trustee and the "property" of PBS (Qld) in the project or retention trust accounts is confined to:

(a) funds which are the subject of PBS (Qld)'s residual beneficiary interest in project trust funds, namely the amount that remains after subtracting all amounts subcontractor beneficiaries are entitled to be paid in connection with their subcontracts;67 and

(b) funds the subject of PBS (Qld)'s residual beneficial interest in retention trust funds which are confined to:

(i) amounts (if any) held in the trust after subtracting all retention amounts withheld from payment to a subcontractor by way of retention;68 and

(ii) retention amounts (if any) to which PBS (Qld) has become entitled to be paid under a given subcontract.69

• [100] These residual amounts to which PBS (Qld) is entitled under the terms of the BIF Act would be beneficially owned by PBS (Qld) and not subject to ss 51A or 51C. Accordingly, these funds would be company property which are available to meet the applicant's costs and remuneration in accordance with the terms of the Corporations Act.

• [101] There is little dispute between the parties that the trustee's right of indemnity has been effectively abrogated by the terms of the BIF Act. That the legislature intended to exclude such a right being exercised by a trustee is evident from the terms of chapter 2, including the confining of its operation to the trust accounts by the terms of the BIF Act and confining of the application of equitable principles. The trustee's right of indemnity under s 72 of the Trusts Act and Court's power to make orders as to a trustee's remuneration under s 101 of the Trusts Act have been effectively excluded by s 56A of the BIF Act. To the extent that it may be said such a right of indemnity still exists under the unwritten law, that has effectively been excluded by ss 20, 36, 51A , 51C and s 51E of the BIF Act. Payments of fees and expenses may be made when the trustee, is entitled to access the funds in their own right under the BIF Act. Of course, at that stage, the funds in the trust accounts no longer remain subject to the interests of other beneficiaries. That is consistent with the stated purpose of using statutory trusts to protect the interests of subcontractor70 and to help ensure that they are paid for the work they do;71 funds are protected and preserved in trust accounts until the subcontractor beneficiaries are paid their entitlements held in the accounts or, in the case of retention trust accounts, no longer have any such entitlement due to the operation of the contract and the contracting party is entitled to be paid the amount under the relevant contract.

• [102] In the present application, the applicants contend that the intention of the legislature in chapter 2 was not to make the external administrators such as administrators or liquidators appointed to a trust subject to the terms of the BIF Act in relation to the recovery of their remuneration, costs and expenses. In particular they contend that the reference to "trustee" should be construed as being confined to the original head

building contractor who is the trustee under the BIF Act or its "agent" in the sense of s 51E. This would in the applicants' submission permit them to recover their remuneration, costs and expenses consistent with the equitable principles described in Re Suco Gold and the inherent jurisdiction discussed by Black J in Re MF Global Australia Ltd (in liq).72 Even if that is not the case, the applicants contend that the Berkeley Applegate principle is not excluded by the terms of the BIF Act.

• [103] In construing the BIF Act, the Court must prefer the interpretation which will best achieve the purpose of the Act.73 It is appropriate to have regard to extrinsic material in terms of considering the provisions in chapter 2 their context,74 as well as assisting the Court resolve questions of construction in accordance with s 14B of the Acts Interpretation Act 1954 (Qld).

• [104] The overall purpose of the BIF Act, set out in s 3(1), is to "help people working in the building and construction industry in being paid for the work they do". One of the mechanisms by which the purpose of the BIF Act is to primarily be achieved is "requiring the use of statutory trusts for particular contracts related to the building and construction industry".75 That is effectively reaffirmed in s 7 of the BIF Act, which provides that the main purpose of chapter 2 "is to ensure that funds paid to the contracted party for particular contracts are held in a trust to protect the interest of subcontractors".

• [105] The purpose of creating statutory trusts is reflected by the provisions contained in chapter 2, which were intended to strengthen the provisions originally contained in chapter 2 in the 2017 BIF Act by the 2020 Amendment Act through the creation of trusts to protect beneficiary subcontractors' entitlements or, in the case of retention trusts, potential entitlements.

• [106] The provisions in chapter 2 are extensive and prescriptive. They operate to:

(a) prescribe when a statutory trust will arise;76

(b) limit the monies which can be paid into and out of the trust accounts and where such accounts can be held;77

(c) prescribe the beneficial interests that are held in the funds in the account;78

(d) prescribe the order of priority of payments;79

(e) prescribe the matters for which the funds can be used;80

(f) impose penalties if certain provisions are not complied with by the relevant party.81

• [107] Section 20B of the BIF Act provides that:

72 [2012] NSWSC 1426 at [55].

73 Acts Interpretation Act 1954 (Qld) s 14A.

74 R v A2 [2019] HCA 35; (2019) 269 CLR 507 at 520-2 [32]- [34] per Keifel CJ and Keane J.

77 BIF Act ss 18A, 19, 20, 20A, 34A, 35, 35A and 36.

"A trustee must not withdraw an amount from the project trust account to pay itself, or make another payment prescribed by regulation, unless there would still be a sufficient amount available in the account after the withdrawal to pay all amounts the contracted party is liable to pay subcontractor beneficiaries at the time of the withdrawal". (emphasis added).

• [108] Consistent with the purpose of chapter 2, ss 51A, 51C and 51E of the BIF Act:

(a) prevents funds in a trust account under chapter 2 from:

(i) being used to recover a debt owed to a creditor of the trustee; or

(ii) being attached or taken in execution under a court order or process for the benefit of a creditor of the trustee,

although these prohibitions do not apply to the extent of any interference with the rights of a beneficiary under the BIF Act other than a trustee;

(b) prevent a trustee of a project or retention trust from recovering costs from a beneficiary, or funds held in trust for a beneficiary, for the administration of the trusts or fees payable in respect of the trusts, but not insofar as the beneficiary is the trustee; and

prevent a trustee from seeking costs of employing or engaging an agent to administer the trusts on behalf of the trustee from funds held in either of the trusts or from any beneficiary of the trust, other than the trustee.

• [109] Section 51A of the BIF Act extends the prohibition against trust monies being used to recover a debt owed to a creditor of the trustee such that the prohibition applies whether the monies are owed to the trustee "in the capacity of the trustee or otherwise". However, that language does not assist the applicants' proposed construction of s 51C as only applying to a "trustee" in the sense of a head contractor and not an external administrator. It is intended to prevent a creditor or trustee being able to claim that the debt was incurred outside of administering the trust, rather than to demonstrate that "trustee" was not intended to be construed only as the head contractor in the position of "trustee" and not those who control it when under external administration. Section s 51C(2) provides that the trustee is not entitled to recover costs from the beneficiary or the funds held in trust for a beneficiary, where s 51C expressly applies to costs incurred for "the administration of a project trust or retention trust" or "fees payable in relation to a project trust or retention trust". Section 51E extends that prohibition to anyone employed or engaged by the trustee to administer the trust which is clearly intended to ensure that a trustee cannot circumvent the prohibition in s51C by using the services of another to administer the trusts.

• [110] The effect of ss 51A, 51C and 51E is twofold:

(a) PBS (Qld) has no right of indemnity by recoupment of trust assets out of the trust accounts (or which may be the subject of the project trust or retention trust) for debts incurred in administering the trust. In the circumstances, its entitlement to the monies is limited to the circumstances set out in the BIF Act, which gives primacy to the beneficial interests of subcontractor beneficiaries being discharged first out of the trust accounts; and

(b) to ensure that a trustee who is responsible for the administration of a project trust or a retention trust cannot recover costs for the administration of the trust or fees payable in relation to the project trust or retention trust from either the beneficiary or funds held in trust for a beneficiary. To the extent there would be any doubt as to whether the trustee was discharging that role, s 51E extended that prohibition to anyone employed by the trustee.

• [111] These provisions, together with the exclusion of the Trusts Act in relation to project and retention trusts and limiting the application of equitable principles to only applying to the extent there is no inconsistency with the BIF Act, make clear that the trustee has no right of indemnity from trust assets under general law while the subcontractor continues to hold a beneficial interest in them. They are supported by the prescriptive provisions as to when and what payments may be made from the trust accounts and the limited circumstances when a trustee will be entitled to the surplus funds in the project trust account or the funds in the retention trust account, after the beneficial entitlements of subcontractor beneficiaries have been paid or in the latter case lost by operation of the provisions of the contract.

• [112] Although the 2020 Amendment Act replaced chapter 2, the original chapter 2 of the Building Industry Fairness (Security of Payment) Act 2017 (Qld) as passed in 2017 (2017 Act) provided for project bank accounts and retention bank accounts. According to the Explanatory Note, the 2017 Act provided for "Project Bank Accounts" which were:82

"...trust accounts where progress payments and retention monies are safely held in trust, independent of the head contractor and principal. [Project Bank Accounts] are intended to provide greater security in events such as insolvency, where money within the account is effectively quarantined for subcontractors who are beneficiaries to the trust".

• [113] According to the Explanatory Note to the 2020 Amendment Act, the newly inserted s 51A mirrors s 39 of the 2017 Act, but updates it with the new trust framework and terminology.83 The Explanatory Note to the 2017 Act therefore has some relevance to the context of the present provision and its construction. According to the Explanatory Note to the 2017 Act:84

"[Section 39] is to ensure that the subcontractor beneficiary's money in the trust account cannot be used otherwise than for the benefit of the subcontractor beneficiary. In this way subcontractors should receive their entitlements".

• [114] Similarly, s 51C of the BIF Act essentially mirrors s 43 of the 2017 Act, in relation to which the Explanatory Note to the 2017 Act stated that it:85

".. provides that the head contractor is not entitled to payment from the [Project Bank Accounts], or from the subcontractor

82 Explanatory Note, Building Industry Fairness (Security of Payment) Bill 2017 (Qld) 3.

1. Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 50.

84 Explanatory Note, Building Industry Fairness (Security of Payment) Bill 2017 (Qld) 19.

85 Explanatory Note, Building Industry Fairness (Security of Payment) Bill 2017 (Qld) 30.

beneficiary for any amount relating to the administration of the [Project Bank Accounts] by the head contractor or fees payable for the [Project Bank Accounts]".

• [115] The intention of the legislature in relation to the provisions in chapter 2 of the 2017 Act, prior to the 2020 Amendment Act, was therefore to protect subcontractors in particular.

• [116] The Explanatory Note to the 2020 Amendment Act stated that the amendments followed a review of the legislation and, in relation to the security of payment reforms relevant to chapter 2, states:86

"The policy objectives of the Bill in relation to security of payment are to be achieved by amending the BIF Act to implement the Panel recommendations. The 20 recommendations can be grouped into three themes: simplify the framework, improve protections and oversight, and manage the financial transition.

To 'simplify the framework', amendments in the Bill will:

• simplify the operation of PBAs
• require that only one project trust account be established by the head contractor for every eligible contract
• allow for one retention trust account per contractor or eligible principal to be established to protect retention monies
• remove the requirement to establish a disputed funds trust account and instead introduce other protective measures". (emphasis added)

• [117] The Explanatory Note further states:87

"The policy objectives relating to the security of payment reforms can only be achieved through legislative amendment.

The building and construction industry has higher rates of insolvency and instances of non-payment than almost all other industries in Australia. Ways of addressing the structural causes of these issues have been the subject of many inquiries and reports both in individual states and nationally. In response to this, Queensland introduced security of payment legislation in 2017 including the requirement to establish [Project Bank Accounts]. To improve the [Project Bank Account] framework and to further address the occurrence of insolvency and non- payment, the BIF Act requires legislative amendment". (emphasis added).

1. Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 5.
2. Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 9.

• [118] The applicants, however, contend that even if the Court reached the view that the provisions of the BIF Act prevent PBS (Qld) as trustee from having any priority over the beneficiaries of the trust accounts and payment for administration of the trust, the Court should construe the BIF Act such that the applicants, as administrators or liquidators, are not bound by that limitation and that they are entitled, through the exercise of the Court's equitable jurisdiction, to an apportionment of their remuneration in dealing with each separate trust account and to deduct any costs of administration. They base this submission on the reasoning of King CJ in Re Suco Gold88 and Campbell J Re Sutherland.89
• [119] The cases relied upon by the applicants in relation to a trustee's right of exoneration,90

which extrapolate the right of external administrators to be indemnified out of trust assets when carrying on the business of a trust, do not apply to circumstances such those under the BIF Act; the purpose of and terms of statutory provisions within in chapter 2 supported by the context of the provisions, demonstrate a clear a statutory intention to remove any such right and maintain the priority of the beneficiaries over trustee until the subcontractor beneficiaries have received payments in respect of their beneficial interests or are no longer entitled to that beneficial interest. To construe the term "trustee" in the manner which the applicants contend would be provide the administrators and liquidators with a right which the trustee does not enjoy under the BIF Act. That would be contrary to the approach in the authorities such as Carter Holt where Kiefel CJ, Keane and Edelman JJ that "just as a trustee's ability to exercise its power of exoneration for personal benefit is limited to the terms of the power of exoneration, so too is the ... liquidator limited by the terms of the power of exoneration in the exercise of control over the trust rights".91

• [120] In this regard, I do not consider the statements by Brereton J in Re AAA Financial Intelligence Ltd (in liq)92 stated that " [w]here the company is trustee of a trading trust and has no other activities, the liquidators are entitled to be paid their costs and expenses, whether for administering the trust assets or for 'general liquidation work', out of the trust assets" assist the Applicants. As was discussed by Derrington J in Lane, while Brereton J's statement is broadly true, his Honour does not identify the juridical boundaries of such a statement. In my view, Derrington J was correct in stating that:93

"The terms in which the first principle are stated suggest that liquidators of a trustee company which had no right of exoneration would, nevertheless, be entitled to recover their claims for their work in the winding up out of the trust assets. It would be most unusual were the first principle to extend that far and no case suggests that the beneficial interest of beneficiaries in trust assets ought to be applied in this manner".

• [121] In carrying on business of the company and administering the trusts, the administrators and liquidator exercise the powers and rights of the trustee under the

89 See [2004] NSWSC 798; (2004) 50 ACSR 297 at [11]- [12].

1. Such as such as Re Suco Gold and AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1004 per Brereton J.

92 [2014] NSWSC 1004 at [13].

BIF Act and are subject to the limitations contained in the BIF Act which have effectively excluded any right of indemnity and particularly a right of exoneration from the funds in the trust accounts. That would in my view extend to any exercise of the inherent jurisdiction of the Court based on equitable principles discussed by Black J in Re MF Global Australia Ltd (in liq)94 and Campbell J in Re Sutherland.95

• [122] I do not find that the applicants' argument that "trustee" in ss 51C and 51E is limited to building head contractor or people employed or engaged by it and is not to be construed to extend to administrators or liquidators is supported by the terms of the BIF Act and the statutory intention of the BIF Act:

(a) It would be inconsistent with the abrogation of the trustee's right of indemnity by the terms of the BIF Act under which the trusts are created and administered,96 and the absence of any provisions or extrinsic evidence supporting the re-enlivening of that right for the benefit of external administrators administering the trust;

(b) It is evident from the extrinsic material referred to above that the legislature did seek to protect the subcontractor in the event of insolvency and sought to preserve the monies in the trust accounts for the benefit of the relevant subcontractor. While that may not have extended to the present situation with which the administrators and liquidators are faced, namely that there appear to be virtually no funds in the general assets of the company to meet their remuneration, costs and expenses, such that the trusts may not be administered by them at all, the administrators and liquidators are stepping into the shoes of the trustee in administering the trusts, The approach propounded by the applicants that they would not be included within the term "trustee" under s 51C and s 51E but otherwise would be, would lead to inconsistencies in the operation of chapter 2 and also, even accepting the applicants construction, require the Court to read the other constraints upon a trustee on payments in and out of the trusts accounts as not excluding the right to and priority of administrators or liquidators to payment of their remuneration, costs and expenses

(i) The legislature intended that subcontractors should have a priority interest over monies contained in a retention trust account in the event that a head contractor becomes insolvent, with the Explanatory Note to the 2020 Amendment Act providing that the newly inserted s 33A "gives the contracted party priority interest over the amount for which the charge applies should the contracting party become insolvent".97

(ii) It would provide a right to administrators and liquidators not enjoyed by other creditors given the terms of s 51A of the BIF Act. The current project trust and retention trust regime evolved from the "project bank account" regime which was first implemented to protect subcontractors

94 [2012] NSWSC 1426 at [55].

95 [2004] NSWSC 798 at [15]- [17].

1. Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 45.

in the event of a head contractor's insolvency. The first reading speech to the 2017 Act provided:98

"One of the most important things about a [project bank accounts] is that in the event of the head contractor's insolvency, money in the [project bank accounts] will be protected from other creditors. This means that progress payments in the [project bank accounts] are protected, retention monies in the [project bank accounts] are protected and payment in dispute in the [project bank accounts] are protected".

(iii) As noted above, the policy objective of the 2020 Amendment Act is to address the disproportionately "higher rates of insolvency and instances of non-payment" in the building industry.99 Under s 7 of the BIF Act, the stated purpose of the new statutory trust regime in chapter 2 is to "protect the interests of subcontractors". When the express purpose of the trust regime is read in the context of its policy objectives, it is clear that statutory trusts were introduced to "protect the interests of subcontractors" against, inter alia, the mischief of endemic insolvency in the building industry by giving priority to the beneficial interests of those subcontractors in monies held in project and retention trusts. At the very least, that supports the BIF Act not being construed to provide rights to administrators and liquidators that run counter to that intention.

(c) In administering the trust accounts and exercising the rights of exoneration, the external administrators, whether acting as administrators or liquidators, are acting as agent or controller of the trustee, not in their personal capacity.100 That is consistent with the provisions of the BIF Act in chapter 2 under which the trustees who can hold and pay the money. While s 51E does not contemplate the appointment of external administrators, at least insofar as they are appointed by the court, it does not assist the applicants construction insofar as it is addressing a different situation premised on the actions of the trustee, rather than recognising that administrators or liquidators act as agents who are entitled to be paid their costs, expenses and remuneration when they are acting as trustee in administering the trustee;

(d) Even if the administrator or liquidator is appointed by the court and they were not regarded as the trustee or an agent of the trustee, s 51A(1)(a) would exclude the costs, expenses and remuneration incurred by the administrator or liquidator being able to be recovered against the funds given they would at least constitute a debt owed to a creditor of the trustee (in the capacity of the trustee or otherwise).

(e) The applicants sought to contend that the removal of s 54 from the BIF Act by the 2020 Amendment Act, which had provided for the principal to step in as trustee where the head contractor had an external administrator appointed,

98 Queensland, Parliamentary Debates, Legislative Assembly, 22 August 2017, 2285 (Mick de Brenni, Minister for Housing and Public Works).

99 Explanatory Note, Building Industry Fairness (Security of Payment) and Other Legislation Amendment Bill 2020 (Qld) 9.

100 Berkeley Applegate at 44, referred to by Young CJ in Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301 at 303 [17] as being clear recognition that, if a trustee company is in liquidation, the trustee remains the same, there is merely a change in control of the trustee.

favoured its interpretation. However, it is difficult to construe that removal as demonstrating that the legislature intended to allow liquidators and administrators to carry out their functions and be remunerated in accordance with the ordinary principles in equity in the absence of any statutory provision to that effect. The absence of provision for another party to step in as trustee supports the fact that the legislature acknowledged the general position at law and that the external administrators appointed to the trustee would stand in the shoes of the trustee and administer the trust accounts, given no express statutory provision was inserted to address that event. But that does not support a construction that that implicit recognition also carries the implication that the external administrators would be paid from the trust accounts, which on the applicants construction would be a right which could be exercised for remuneration, costs and expenses in administering a trust even where the company otherwise had sufficient general assets to meet those costs;

(f) It would be inconsistent with s 33A(2) of the BIF Act providing for a subcontractor beneficiary to hold a charge over their retention to secure release of the amount when they become entitled to the amount and s 33(5) providing that "an act done to defeat or purporting to defeat the charge is of no effect against the contracted party".

(g) Such a construction would not mean that administrators or liquidators would have no avenue for recovery of their remuneration, costs and expenses because for the reasons set out below the provisions of the BIF Act do not exclude the ability of the liquidators or administrators to seek recovery on the basis of the personal right recognised by the principles in Universal Distributing and Re Berkeley Applegate, in the event that the company has insufficient assets to otherwise meet the administrator or liquidator's costs of remuneration.

• [123] The above construction is supported by the fact that no provision in the BIF Act as to payments that a trustee is permitted to make out of project trust or retention trust accounts in ss 20A and 36, respectively. The applicants however contend that consistent with the decision of White J in All Class Insurance,101 those provisions should not be construed as excluding payments for remuneration. Costs and expenses of an external administrator such as an administrator or liquidator.

• [124] In All Class Insurance, White J considered regulation 7.8 of Corporations Regulations 2001 (Cth), which did not provide for the remuneration and expenses of the liquidators to be paid out of the trust account in which client funds of the Australian Financial Services Licence holders were held, the only asset of the company.102 Under the Corporations Act, the monies were required to be paid into a trust account and were taken to be held on trust for the benefit of the client. Regulation

7.8.03 regulated the payment of monies from the account. The regulation expressly applied even in the case of the licensee becoming insolvent and was subject to arrangements where an administrator has been appointed or the licensee is being wound up.

• [125] Justice White noted that a liquidator is entitled to be paid from the trust account, in priority to other claimants, his reasonable remuneration and reimbursement or

101 [2014] NSWSC 475.

102 [2014] NSWSC 475.

exoneration for reasonable expenses incurred in administering the trust property, including handling and determining claims of creditors necessary to determine who is entitled to moneys in the account.103 Regulation 7.8 provided for the priority in which monies were to be paid out of the account and, while it provided any surplus that remained be paid to the licensee beneficiaries, there was no provision for remuneration and expenses of administrators or liquidators. Regulation 7.8 replaced s 28(4) of the Insurance (Agents and Brokers) Act 1984 (Cth), which was materially in the same terms and in respect of which Young CJ in Eq in Re Greater West Insurance Brokers Pty Ltd104 held that the terms of the provision were not strong enough to make him think that the Act intended that liquidator's costs were not recoverable. Young CJ in Eq held that the remuneration was recoverable based on the principle that, where someone has an equitable claim to a fund, the claimant must meet the reasonable administration costs of administering the claim.105 Regulation 7.8 was passed with the legislature knowing of the interpretation given to s 28(4) and was intended by the legislature not to be construed differently. White J stated that, relevant to the present case, "[i]f there were no right to remuneration and recovery expenses no liquidator or administrator could be expected to carry out the work that would be needed to recover moneys that should have been in the trust account or handle claims to moneys in the trust account, or to distribute money from the trust account" and held such an inconvenient construction should not be adopted if an alternative construction was open. His Honour stated that the right of remuneration and reimbursement as exoneration is implied by law. His Honour therefore followed the decision of Young CJ in Eq.

• [126] Unlike the present case, the Regulation did not carry the same prohibitions as contained in ss 51A and 51C of the BIF Act, which are broader than provisions regulating the priority of payments. As the applicants conceded, if the Court does not find ss 51A, 51C and 51E only apply to the head contractor acting as trustee, its contention that ss 20A and 36 should be construed consistently with All Class Insurance would largely fall away. In the circumstances, I find that All Class Insurance Brokers does not support the applicants' argument given the different terms of the BIF Act and the fact that, unlike the situation in All Class Insurance, the BIF Act was not passed against the backdrop of a decision of the Court previously construing a provision in the same terms as not excluding payment of liquidator's remuneration and expenses.

• [127] In Re Sutherland, Campbell J stated that the court's "inherent jurisdiction" to allow remuneration to a trustee is "wide". 106 His Honour referred to the authorities which permitted remuneration to a liquidator who administers trusts and found that "[t]hose cases implicitly accept that the inherent jurisdiction of the court to allow remuneration in connection with the administration of a trust fund is one which can apply so as to allow remuneration not only to a trustee, but also to someone who is for practical purposes controlling a trustee".107 An immediate problem for the applicants in the present case is that as discussed by Black J in Re MF Global Australia Ltd (in liq): there is a question whether the authorities to which Campbell J referred would apply

1. [2014] NSWSC 475 at [29], where his Honour cited a number of authorities including Universal Distributing at 174-5 and Berkeley Applegate at 50-51.

104 [2001] NSWSC 825 at [22].

105 [2001] NSWSC 825 at [19].

106 [2004] NSWSC 798; (2004) 50 ACSR 297 at 300 [12].

107 Re Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297 at 300-1 [14].

at all given PBS (Qld) did not solely act as a trustee.108 Putting that aside, given that inherent jurisdiction to which his Honour refers relies on the liquidators or administrators controlling the trustee to execute their role, the exercise of that jurisdiction would be inconsistent with the BIF Act for the reasons outlined above and would not, to that extent, apply by operation of s 56B of the BIF Act, which provides that "[a] principle of equity relating to trusts applies for a project trust or retention trust except to the extent the principle is inconsistent with this Act". Sections 51A, 51C and 51E of the BIF Act, as well as ss 20A, 33A and 36, are inconsistent with the application of the Court's inherent jurisdiction in this regard in favour of the trustee and would not form a basis for the Court exercising that jurisdiction in relation to a liquidator or administrator administering the trusts.

(a) on its proper construction, the BIF Act excludes any right of indemnity being able to be exercised by a trustee under equitable principles or the application of the Court's inherent jurisdiction in equity to provide for remuneration of a trustee; and

(b) the reference to "trustee" in ss 51C and 51E of the BIF Act is not confined to the head building contractor and would extend to the administrators and liquidators administering the trust. In any event, even on the applicants' proposed construction, the liquidator or administrator would be a creditor of the trustee and precluded from claiming its remuneration, costs and expenses by s 51A(1) of the BIF Act;

• [129] As recognised within the authorities discussed above and by the QBCC, there is in the authorities a recognition that liquidators and administrators have a personal right109 to costs and remuneration realising benefits for the subcontractor beneficiaries which could attach to funds payable to the subcontractor beneficiaries the subject of the project or retention trust through the application of principles discussed in Universal Distributing and Berkeley Applegate. The right of remuneration or costs does not attach to the administration of trusts or the trust accounts and relate to the administrators or liquidators acting as trustees. In my view while there are hurdles to be overcome in the legislation in order to be able to claim such costs and remuneration, such a claim is not extinguished or prohibited by the BIF Act. Such a claim is based on the work done by the liquidator to give effect to and realise the beneficiaries' entitlement. That is on the basis that the liquidators and administrators may recover their remuneration and costs incurred for the purpose of realisation of the interests of the beneficiaries as opposed to the carrying on and administration of the trusts which is generally broader and it falls outside the terms of ss 51C and 51E. It is only when the applicants have identified the monies to be paid to the subcontractor beneficiaries, that they can then claim the costs and remuneration for the work done to realise that benefit under the principles of Berkely Applegate or, alternatively, that the applicants were required to undertake work which would have had to be undertaken by the beneficiaries themselves or a receiver under the principles set out by Dixon J in Universal Distributing. By that stage, the

108 [2012] NSWSC 1426 at [55].

109 Park v Whyte (No 3) [2017] QSC 230; [2018] 2 Qd R 475 at [158]- [161] per Jackson J.

applicants will no longer be prevented from making such a claim and the claim does not fall foul of ss 20A, 33A and 36 of the BIF Act as the monies will have been realised for the subcontractor beneficiaries before being subject to the claim, nor would it expose the beneficiary to paying for work not incurred in realising the benefit under the particular trust which applied.

• [130] Construing the BIF Act as not affecting the personal right for recovery by administrators or liquidators under these principles does not defeat the purpose of the BIF Act insofar as, while it potentially will have the effect of reducing the amount received by subcontractor beneficiary, it does so in relation to the work done to enable the subcontractor beneficiary to realise the benefit in circumstances where it may otherwise be left to ASIC to address because administrators or liquidators will otherwise be unpaid for the work done. Given the preconditions that would have to be satisfied to successfully make a claim on this basis and the narrower base for such recovery, it is not a matter of mere technicality that such a claim would be permissible, where the nature of the right is different from the liquidators or administrators being able to rely on rights that arise from them acting on behalf or in place of the trustee as opposed to the beneficiaries themselves.

• [131] However, such a process of calculating the costs of work to identify the work done to realise the beneficial interest will not necessarily be an easy one and would not be claimable until work has been actually done. Thus, while I consider a claim on this basis is not excluded by the terms of BIF Act, the process for making such a claim is not necessarily an easy one and may be burdensome to the applicants. I note that the QBCC submitted the process would have to be that monies to which the subcontractors' beneficiaries are entitled would have to be paid to the subcontractor beneficiary nominated account and then the external administrators would have to obtain an injunction to restrain the dissipation of funds until they are paid for the work done as declared by the Court. The applicants had not at the time of submissions had the opportunity to consider whether they believed that was the course that had to be adopted so it is a matter which would have to be further addressed at the time the applicants sought to obtain a declaration as to their entitlement.

• [132] Notwithstanding the above, even though on the above view the administrators and liquidators would not be precluded from seeking payment for work done by them to realise the benefits in favour of the subcontractor beneficiaries, consistent with the purpose of the BIF Act, it is potentially a cumbersome and expensive process in circumstances where the liquidators and administrators are undertaking the role due to a company's insolvency and there will presumably otherwise insufficient general assets of the company to meet their costs and remuneration.. Nor will it necessarily prevent liquidators forming the view they will not proceed to administer the trust accounts on the basis of s 545 of the Corporations Act, although of course it would be open to a creditor to seek the administration of the trust on the condition of funding the work of liquidators if there were otherwise insufficient general assets in the company to meet the liquidators expenses. It is a matter which may do well to be the subject of a review by the legislature in order to avoid the potential of no benefits being realised for subcontractor beneficiaries, by making provision in the BIF Act as to what will occur if the trustee becomes insolvent, particularly if there are insufficient funds to pay the external administrators for administering the project trust account or retention trust account, insofar as if the accounts are not administered and the company is wound up the money will fall into Commonwealth revenue. That would

clearly be an outcome contrary to t the intent of chapter 2 of the BIF Act which gives primacy to realising the benefits to which subcontractors are entitled.

• [133] While it may be that the Court could appoint a receiver and manager to administer the trust accounts, which would permit the Court to make provision for the payment of the receiver's costs pursuant to r 269, that is not an attractive option to add another set of costs to the external administration of PBS (Qld).

• [134] While there appears to be insufficient funds held by PBS (Qld) outside of that held in the trust accounts, the true financial position of PBS (Qld) does not appear to be known. The liquidator is not obliged to continue to carry out work for which they may not be remunerated and, in that event that they do not proceed, it may fall on QBCC or the subcontractor beneficiaries themselves to apply to the court for a receiver to be appointed. It would be premature for the Court to make such an order until the position in relation to the applicants has been clarified. It may be that subcontractor beneficiaries apply for the liquidator to incur the expense of administering the trust accounts under s 545 of the Corporations Act, which would be conditioned on the payment of the liquidators expenses.

• [135] In the circumstances, it is not appropriate for the Court to make either of the directions sought under [1] or [1B] of the amended Originating Application. The Court cannot determine any entitlement of the applicants at this stage to orders under the principles of Universal Distributing or Berkeley Applegate, which will need to be the subject of evidence and submissions as to the application of the relevant principles. Notice would also need to be given to the subcontractors. It does not, therefore, seem any direction is appropriately given at this stage. I will give the parties seven days to consider the reasons and address me as to any appropriate directions or other orders that they contend should be made. The QBCC quite properly stated it did not seek its costs in relation to this matter. I will hear the applicants in relation to the costs.

• [136] I order that:
  1. the application for directions under paragraphs [1] and [1B] of the amended Originating Application is refused;
  2. The amended Originating Application is otherwise adjourned;
  3. The parties are to request to relist the matter within seven days if they seek any direction from the Court in light of the reasons for judgment;
  4. I will hear the applicants as to costs.