[1933] HCA 2
Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274
Silvia v Brodyn Pty Ltd [2007] NSWCA 55(2007) 25 ACLC 385
Walker v Walker [2006] 1 WLR 2194
BARRETT AJA: In the course of a brief hearing on 10 March 2017 to settle the form of orders to give effect to my decision of 28 February 2017 (In the matter of MINMXT Holdings Pty Ltd [2017] NSWSC 156), a point of some importance was debated. It concerns treatment of costs ordered against a liquidator or receiver.
The proceeding determined by the judgment of 28 February 2017 concerned the right of Mr Preiner, as liquidator of MINMXT Holdings Pty Ltd and receiver of the trust assets of the MINMXT Holdings Trust, to be indemnified out of those assets for his remuneration and expenses and the priority of that right as against the rights of secured creditors of the trustee. The decision was, in essence, that Mr Preiner is entitled to full indemnity out of the trust assets for his remuneration and expenses but that priority over secured creditors is enjoyed only in respect of remuneration and expenses for recovery, care and preservation of trust property within the principle in Re Universal Distributing Co Ltd (In Liq) (1933) 48 CLR 171; [1933] HCA 2. As to the balance of the remuneration and expenses, the right of recovery out of trust assets ranks after such rights as secured creditors might establish but in priority to the rights of the trust beneficiaries.
The case is one in which a person holding dual offices as liquidator and receiver initiated a proceeding in order to obtain quantification of his remuneration and a determination that he was justified in drawing that remuneration and his expenses from the trust property in his hands. He achieved those aims, as well as a determination that part of the remuneration and expenses enjoyed first priority in accordance with the Universal Distributing principle. A separate aspect of the proceeding involved a contention by the office-holder that his right to resort to trust assets beyond the amount within the Universal Distributing principle was superior, in point of priority, to the rights of secured creditors. Persons claiming to be secured creditors (and joined by the office-holder as respondents) did not oppose the first aspect of the application; but they successfully opposed the second.
Given that outcome, Mr Preiner does not seek to resist an order that he pay the costs of the respondents who successfully argued that his first-ranking priority is limited to the Universal Distributing component. He maintains, however, that his liability for the costs of the respondents should be limited to the extent of the trust assets and that, if those costs exceed the assets remaining after priority claims have been met in full, he should not be personally liable for the excess.
In submitting that Mr Preiner's liability to the respondents for their costs of the proceeding should be limited to trust assets available after satisfaction of both his own first ranking right under the Universal Distributing principle and the rights of secured creditors as eventually established, Mr Narayan pointed to the following passage in the judgment of Emmett J in Wilson v Official Trustee in Bankruptcy [2000] FCA 1251 (at [56]-[57]):
"A trustee in Bankruptcy is governed by the general law relating to trustees except in so far as the position of a trustee is modified by the Bankruptcy Act or the rules and regulations made under that Act. The Act confers no right on a trustee to be reimbursed in respect of the costs, charges or expenses incurred in the administration of the estate. The trustee's right to indemnity is provided under the general law. Under that law a trustee is entitled, as of right, to a full indemnity under the trust estate against all costs, charges and expenses properly incurred by the trustee - see Adsett v Berlouis (1992) 37 FCR 201 at 210.
The expenses that a trustee might incur in the present context are of two kinds. First the trustee might incur a liability pursuant to an order of the Court. That is, if the trustee is unsuccessful in some proceeding he might be ordered to pay the costs of the successful party. However, the trustee would not be personally liable to that party. He would only be liable to the extent of the assets available in the estate being administered. On the other hand he would be entitled to be indemnified out of the estate to that extent."
In contending that the court should not impose the limitation Mr Preiner seeks (and that he should be fully liable for costs but entitled to indemnity from the assets, as far as they extend, according to the priority already mentioned), Mr Young SC referred to a number of cases. One is the decision of the Court of Appeal in Silvia v Brodyn Pty Ltd [2007] NSWCA 55; (2007) 25 ACLC 385, a case concerning a liquidator. It is appropriate to quote the following passage at [50] - [54] in the judgment of Hodgson JA (with whom Ipp and Basten JJA agreed):
"If proceedings are brought by a liquidator in relation to a company's affairs, generally an order for security for costs will not be made; but if those proceedings are unsuccessful, then an order for costs will generally be made against the liquidator personally: Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274. In that case, at 285, Oliver J said this:
'I think that a review of the authorities does disclose that a clear dichotomy between the case where the liquidator is sued and the case where the liquidator initiates proceedings, is established, and indeed it seems me to be a perfectly reasonable one. I cannot at the moment see why it should be contended that a liquidator who takes it on himself to institute proceedings, to bring parties before the court, to subject them to costs, and as against whom it is quite clearly established that no order for security can be made, should then be entitled to plead that he is not responsible beyond the extent of the assets in his hands. I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other litigants. A trustee or a personal representative who institutes proceedings no doubt has a right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk and so, in my judgment, it should be with the liquidator, and the authorities which point that way seem to me, if I may say so respectfully, to be completely reasonable.
I can quite see that there may be very powerful reasons of policy for a rule that a liquidator, when carrying out his functions and thus subjecting himself to the possibility of proceedings against him by parties who are discontented with the way in which he has carried out those functions, must be entitled to defend himself without being subjected to the risk of having costs awarded against him personally, because of course he cannot protect himself against claims being made. Unless there were some such rule it might be very difficult to get persons to take on the heavy responsibility of the liquidation of companies. It seems to me that it is quite a different matter where the liquidator himself takes it on himself to institute proceedings, whether they be proceedings in the winding-up or otherwise.'
The liquidator would generally be entitled to an indemnity from the assets of the company, although that may be denied if the liquidator has acted unreasonably: In Re Silver Valley Mines (1882) 21 Ch D 381.
If proceedings brought against the liquidator are successful, generally a costs order will be made in such a way that the liquidator does not incur any personal liability. This is in accordance with the passage from Re Wilson Lovatt quoted above, and is supported by Re Bonang Gold Mining Co Ltd (1893) 14 NSWLR (Equity) 262, Re Beuna Vista Motors Pty Ltd (in liq) [1971] 1 NSWLR 72; Irons v Merchant Capital Ltd (1994) 116 FLR 204 at 209-10, and Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21. I generally agree with the discussion of the authorities by White J in Mendarma Pty Ltd (in liq) (No 2) [2007] NSWSC 99 at [13]- [34].
The result indicated by those authorities may be achieved by ordering that the company in liquidation pay the costs (if the company is also a defendant), or by ordering that the liquidator's liability for costs be limited to the amount of assets of the company available for that purpose.
However, if the liquidator has acted unreasonably in defending the litigation, the liquidator may be made personally liable: In Re Beddoe [1893] 1 Ch 547; Mead v Watson; Re Network Welding Pty Ltd (in liq) (No 2) [2001] NSWSC 809."
Mr Preiner's application for quantification of remuneration and the dispute about priority arose in the due course of administration. His own costs and expenses of the application are properly payable out of the estate - and it is not disputed that the costs awarded against him are likewise properly to be borne by the estate. The question is who should suffer financially if the estate is insufficient to pay the costs awarded against Mr Preiner: the persons entitled to have him pay those costs or Mr Preiner himself?
The answer, to my mind, lies in something said by Oliver J in the passage from Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274, at 285 quoted by Hodgson JA in Silvia v Brodyn Pty Ltd (above):
"I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other litigants. A trustee or a personal representative who institutes proceedings no doubt has a right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk and so, in my judgment, it should be with the liquidator."
The same thinking, as it applies to a case obviously more extreme than the present, emerges from the judgment of Chadwick LJ in Walker v Walker [2006] 1 WLR 2194; [2005] EWCA Civ 247 at [23]:
"The stance adopted on behalf of the liquidator is that it is perfectly proper to bring proceedings against a defendant for a claim which can never be met having regard to the assets available to meet it; to pursue that claim until all those assets have been expended by the defendants in defending that claim, perfectly properly; and then to walk away on the basis that the defendants are left to bear all their own costs. If that is what the law permits or requires, then I am bound to say I find that startling."
Mr Preiner took it upon himself to institute proceedings against the putative secured creditors by making them respondents to his application in relation to remuneration and expenses. Issue was joined on the question of the priority attracted by Mr Preiner's claim for the balance of remuneration and expenses. The court determined the competing claims of Mr Preiner and the respondents in relation to application of the fund. Mr Preiner's claim that his personal right to remuneration and expenses beyond the Universal Distributing component was superior to the respondents' secured creditor rights (as ultimately established) was determined adversely to him. Whatever may be the import of the statement in Wilson v Official Trustee in Bankruptcy about a trustee in bankruptcy quoted above, there is no reason why Mr Preiner should be shielded in the way he seeks from the full force of the adverse costs order related to determination of his personal right.
The orders in consequence of the decision of 28 February 2017 are as follows:
Order that Adam Bernard Preiner, as liquidator of MINMXT Holdings Pty Ltd and receiver of the trust property of the MINMXT Holdings Trust under the Court's order of 1 August 2016, pay the costs to date of the third, fourth, fifth and sixth respondents of and incidental to the interlocutory process filed on 2 December 2016 and heard on 22 February 2017.
Order that the remuneration and recoverable expenses of Adam Bernard Preiner as such liquidator and receiver (exclusive of the costs the subject of Order 1) are determined to be $138,621.48 inclusive of GST together with Adam Bernard Preiner's costs of and incidental to the interlocutory-process filed on 2 December 2016 and heard on 22 February 2017.
Declare that Adam Bernard Preiner was justified in retaining out of the assets of the MINMXT Holdings Trust reimbursement of his out-of-pocket expenses in the sum of $6,281.04 (being part of the sum of $138,621.48 referred to in Order 2).
Declare that Adam Bernard Preiner is entitled to be indemnified out of the assets of the MINMXT Holdings Trust for the remuneration and recoverable expenses referred to in Order 2 and the costs the subject of Order 1:
(a) as to $60,323 (before GST) of remuneration and $8,274.47 of expenses, in priority to any other application of those assets; and
(b) as to the balance:
(i) after satisfaction of such entitlements (if any) of the respondents to the said interlocutory process and other persons as may hereafter be determined by the Court to enjoy priority over the interests of the beneficiaries of the MINMXT Holdings Trust in those assets, but
(ii) in priority to the interests of those beneficiaries.
Declare that Adam Bernard Preiner is justified in retaining for his own use out of the said assets the sums referred to in Order 4(a) and that so much of those assets as is not so retained be paid by him into court to abide the determination envisaged by Order 4(b)(i).
Order that upon making payment into court in accordance with Order 5, Adam Bernard Preiner be discharged as receiver of the trust property of the MINMXT Holdings Trust.
Direct that any person other than Adam Bernard Preiner and the third, fourth, fifth and sixth respondents who claims any part of the money paid into court under Order 4 file and serve an interlocutory process and supporting affidavit by Monday 10 April 2017.
Direct that any affidavits or further affidavits to be relied on by Adam Bernard Preiner or any of the third, fourth, fifth and sixth respondents in support of a claim to the money paid into court be filed and served by Monday 10 April 2017.
Direct that the proceedings (including any interlocutory process filed and served under Order 7 be placed in the Corporations Judge's list on Monday 1 May 2017 for directions.
[3]
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Decision last updated: 14 March 2017