By Notice of Motion filed on 24 July 2020, CWCN Pty Ltd (in liq) ("CWCN") by its liquidator, Mr Sprowles, sought a number of orders. One of those orders was that his reasonable costs, expenses and remuneration incurred, if appointed as receiver of certain assets ("Assets"), including the reasonable costs and expenses of and incidental to the realisation of the Assets and the reasonable costs and expenses of certain public examinations which he proposed to conduct in certain proceedings in the Federal Court of Australia, be paid in priority from the Assets.
On 1 September, 2020, I made orders appointing Mr Sprowles as receiver ("Receiver"), in respect of the sale of particular trust property. I made those orders after it was accepted by the current trustee, which has become the registered proprietor of the property in place of CWCN, that the basis on which it had previously opposed those orders, namely that other steps could be taken to address certain liabilities of CWCN in respect of the property, was no longer tenable. I did not then deal with the further question of payment of reasonable costs, expenses and remuneration incurred by the Receiver, in circumstances where an issue as to priority had emerged, namely that a financier, Adelphi, had lent funds on the property, for which it had not registered a mortgage but lodged a caveat, and the Supreme Court of Queensland had made orders under the Proceeds of Crimes Act in respect of Adelphi's interest as lender in respect of the property.
Mr Sprowles now seeks further orders, although it emerged in the course of the application that those orders have similar complexities to those which he had sought previously. Initially, Mr Sprowles sought an order that he is justified and/or authorised to pay, from the realisation of the Assets, costs and expenses (including legal costs) and remuneration approved or fixed by the Court of investigating who are the proper beneficiaries of the net realisation of the Assets, including by conducting examinations and seeking production of documents pursuant to Pt 5.9 of the Corporations Act 2001 (Cth) and obtaining an opinion from counsel as to specified matters. I pause here to note that this order was not framed as seeking judicial advice, but as an order authorising payment from the realisation of Assets and, obviously enough, once the amount has been paid, it would no longer be available to other claims, including Adelphi's claim as creditor. That result plainly raised the issue of priority which was not previously resolved and which Mr Sprowles did not seek to resolve in this application. Mr Stack, who appears for CWCN, and Mr Sprowles, then reformulated the application as seeking something closer to a form of direction recognising, in principle, Mr Sprowles' right to remuneration, subject to the issue of priority.
Mr Sprowles relies, in respect of the application, on the affidavit of his solicitor dated 7 September 2020, which refers to his having given notice of the application to affected parties, including the solicitors for Adelphi and the solicitors acting for the Official Trustee in Bankruptcy, which now has control of Adelphi's interest as lender. The solicitors for the Official Trustee in Bankruptcy have indicated that they neither consent to nor object to the minutes of order that have been sought, but they have expressly done so on the basis that the powers and duties of the Official Trustee are to preserve Adelphi's security and that it is not authorised to subordinate the priority of the security.
Mr Sprowles has, of course, two capacities in the application, one as a liquidator who will conduct liquidator's examinations and the other receiver of trust assets appointed by the Court. Mr Stack made clear, in oral submissions, that the claim to the order for costs of the examinations, or to a form of direction as to the status of the costs to be incurred, is directed to costs incurred by Mr Sprowles as liquidator in the liquidator's examinations. At the Court's invitation, Mr Sprowles also identified, in order to seek to give a greater degree of specificity to the application, what are described as "proposed topics" for the public examination and orders for production, which include questions of the debt properly owing by CWCN to Adelphi; the capacity in which it entered into a particular document; which document established and governed the operation of CWCN unit trusts, and the available assets of those trusts. There is no doubt that these are properly topics for a liquidator's examination in respect of CWCN.
Mr Stack refers to well established principles that a liquidator of a corporate trustee may recover reasonable remuneration, costs and expenses from the assets of a trust, where there are no corporate assets available to pay his remuneration, costs and expenses, and even if the corporate trustee did not act solely as the trustee. Mr Stack also refers to a former trustee's right of exoneration, secured by a charge and a lien over the assets of the trust, and refers to the recognition of that right in Re French Caledonia Travel Service Pty Ltd (In Liq) (2003) 59 NSWLR 361; [2003] NSWSC 1008. He also refers to the Court's inherent equitable jurisdiction to allow a trustee remuneration and submits that that power can be exercised where a liquidator performs work concerned with the trust. Mr Stack also points out, again correctly, that the case law allows a liquidator, acting reasonably, to indemnity out of trust assets for remuneration, costs and expenses, notwithstanding that the trustee is or may be a former trustee of the trust, who no longer holds assets of the trust, or holds such assets only as bare trustee of the trust: see, for example, ASIC v Primelife Corporation Ltd [2007] FCA 1874. Mr Stack also refers to the observations of Gleeson JA in Re Houben Marine Pty Ltd (in liq) [2018] NSWSC 745, dealing with the position where a claim for remuneration should be allowed in favour of the liquidator of a former trustee who continued to hold trust property as a bare trustee. Mr Stack also refers, in a somewhat more distant situation, to the circumstances in which a former trustee can recover costs and expenses in respect of work undertaken after the loss of the trustee's office, for example, in providing documents of the trust to the new trustee of the trust: Hancock v Rinehart [2019] NSWSC 1451.
I accept that, in principle, the costs of an examination conducted by a liquidator of a former trustee, for the general purposes to which Mr Stack refers and, in particular, to determine how to distribute the assets of the former trustee, or to identify or bring in the assets of the former trustee, may in an appropriate case give rise to a right of indemnity against trust assets. I recognise that a liquidator, in these circumstances, may well wish to know whether he or she will be entitled to access trust assets, as an alternative to, for example, seeking third party funding for the examination or devoting his or her own resources to the examination. I also recognise that, as Mr Stack points out, a liquidator is under no obligation to undertake an act for which he or she is not funded. I will assume that in some cases, and possibly this case, examinations will not take place if the liquidator is not satisfied as to the availability of funding for them.
However, it does seem to me that the Court cannot make an order of the kind presently formulated by Mr Sprowles, or some lesser order by way of a direction, or at least it should not do so in the proper exercise of its discretion. The order sought has the difficulty that it authorises, in advance, the payment of the costs and expenses and remuneration attached to the examination, from trust assets, by reference to an intended list of topics of the examination expressed with a degree of generality, without determining the competing claims to priority in respect of payments out of the assets of the trust, including Adelphi's claim to which I have referred above, and in advance of the examination, so that it cannot presently be known whether the examination as conducted will reflect wholly, largely, or partly, the foreshadowed list of matters to be covered at it. So far as something less than an order for payment is sought, amounting to, in effect, an expression of the Court's opinion that an indemnity is likely to be available in those circumstances, it seems to me that the Court should not express that view in advance.
Mr Stack was unable to identify any case where an application of this kind had been brought, or such a direction given in the past, in advance of an examination. I accept, of course, that the fact that something has not been done before does not mean it cannot now be done. However, the fact that something has not been done before may mean that there are good reasons why it should not now be done. Here, it seems to me that those good reasons include the fact that a direction given, in advance of the examination, has a degree of hypotheticality about it, because what will actually occur at the examination is unknown. Second, it seems to me that such a direction involves an undesirable use of public resources, including the community's resources in respect of the Court system, by the multiplication of Court applications. This approach seems to contemplate that, successively, (1) an application will be made to a Court to order examinations, which will require that Court, possibly by a registrar, to exercise a discretion as to whether those examinations will be ordered; (2) the liquidator will approach the Court, possibly with a list of proposed topics for examination, to seek an advice as to whether, if the examination is conducted, or is conducted in accordance with those proposed topics, it would fall within the scope of the right of indemnity. Presumably, in this case and other cases, that might require examination, topic by topic, as to whether the relevant topic has a sufficient nexus with the affairs of the trust, to warrant the availability of an indemnity; and (3) if such a direction were given, it may then be necessary, after the fact, to determine whether the examination had been conducted in a manner that largely reflected the list of topics, because the direction that had been given would only be of utility if the examination took the form that was proposed.
If there was then a contest, after the event, as to whether an examination did take the form that was foreshadowed, and whether the right of indemnity was properly exercised in the particular circumstances, the fact that the Court had given such a direction at an earlier stage might well cause embarrassment, in the strict sense, to a judicial officer who was later asked to determine whether the right of indemnity should be available in respect of that examination. To put that proposition in another way, it would at least appear unfortunate if, after a Court had indicated that a right of indemnity would be available, or might be available, in respect of a particular list of topics, the same or a different judicial officer were then to have to find that it was not available, in respect of the circumstances in which the examination was ultimately conducted. All of these difficulties are reflections of the same fundamental difficulty, namely that what is sought here is advice, ex ante, in respect of a proposal as to how the examinations will be conducted, rather than ex post when the Court can examine how they were conducted in order to determine these matters.
For all of these reasons, I am satisfied that the Court should not make an order in the form that was sought, namely an order for payment of the relevant costs, where that would again raise difficulties in respect of the priority of other claimants to moneys that were expended. I am also satisfied that an order should not be made, in respect of a list of the proposed topics for the examination, in anticipation of the ultimate conduct of the examination. If the consequence is that, in some cases, liquidators do not conduct examinations because they are not able to be satisfied as to their recovery of costs, and not able to obtain third party funding, and are not prepared to devote their own resources to the conduct of the examinations, then it seems to me that that is a result that must be accepted.
Mr Sprowles also sought an order, as originally formulated, that his reasonable remuneration, costs and disbursements incurred in exercising the powers granted to him should be paid, in a specified order of priority. Mr Stack did not press the application for an order in that form, which again raised questions of priority which Mr Sprowles did not seek to have determined. Mr Stack instead sought a form of order of the kind made in Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 to the effect that the reasonable costs, expenses and remuneration incurred by the receiver, as receiver of the Assets, including the reasonable costs and expenses of and incidental to the application, be paid in priority from the Assets. Particular aspects of Mr Sprowles' costs and disbursements, including legal costs, have already been addressed in orders made on 1 September 2020, which dealt with payment of Mr Sprowles' reasonable costs and disbursements (including legal costs) incurred in respect of the sale of trust property and his reasonable costs of and incidental to his Notice of Motion dated 24 July 2020. Those orders also reserved liberty to Mr Sprowles apply for a determination or fixing of his remuneration at an appropriate point.
I am also not persuaded that the further order sought by Mr Sprowles should now be made, while I recognise that a similar order was made in Re Glenvine above. This is a more complex position, because of the issues as to priority which I have referred above. Not all parties are present today. There is, as I understand it, no contest as to the proposition that a receiver appointed by the Court will ordinarily be allowed his or her reasonable costs, quite apart from the application of principles such as those recognised by the High Court of Australia in Re Universal Distributing Co Ltd [1933] HCA 2; (1933) 48 CLR 171. It does not seem to me that an order, in the general form that was made in Glenvine, has any utility in the present circumstances. For that reason, I would not now make that order.
I should note that the current trustee, Southern Sydney Services Pty Ltd, was represented in this application, by Mr McDonald, but I did not need to hear him. At this stage, my preliminary view is that there should be no order as to the costs of this application, or possibly an order that the liquidator's costs of the application be costs in the liquidation. It is not apparent to me that, as events have developed, this could be said to be a case in which the liquidator has been unsuccessful, in any contest with the current trustee. Rather, this is a case in which difficulties have arisen, in respect of a novel issue, and the liquidator has for that reason not obtained the orders that he sought. However, I will hear the parties as to the costs of the application.
Mr McDonald did not put submissions in opposition to the preliminary view which I had expressed as to costs. The only order that I will make as to the costs of the application is that the liquidator's costs of the application be costs in the liquidation.
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Decision last updated: 30 September 2020