Thackray & Ors v Gunns Plantations Limited & Ors [2011] VSC 380

Supreme Court of Victoria|2011-08-11|Before: DAVIES J

CORPORATIONS - Receiver claims entitlement to indemnity secured by equitable lien for costs and expenses of receivership of the Responsible Entity of Managed Investment Schemes - "Salvage" principle in Re Universal Distributing applied - Equitable allowance principle in Re Berkeley Applegate applied - Process for determining the reasonableness of the amount claimed - Venetian Nominees applied - Standard of proof required to a prima facie level - Provision for objection process - Prima facie claim for an indemnity with respect to the remuneration, costs and expenses referrable to each scheme established

No appearance by or on behalf of the Second and Third Defendants

1 This application has proceeded with some urgency. It was heard on 25 and 26 July 2011 and on 3 August 2011 I pronounced orders in this proceeding in the terms set out in Annexure B but stated that I would deliver my reasons later. I now set out my reasons for the orders pronounced.

2 The plaintiffs ("the receivers") are the receivers and managers of Great Southern Managers Australia Limited (receivers and managers appointed) (in liquidation) ("GSMAL"), which was the responsible entity ("RE") of forty five managed investment schemes ("MIS") at the time of their appointment. This is an application by the receivers to establish their entitlement to be indemnified out of the scheme property ("the lienable property") of ten of those MIS[1] (collectively "the 1997 to 2006 schemes"), secured by equitable lien upon the lienable property, for their remuneration for work performed, and expenses reasonably incurred, in taking steps for the care, protection, preservation and realisation of the assets and property of the 1997 to 2006 schemes. The receivers have calculated their remuneration and expenses to total $13,927,795, of which approximately $8m relates to direct expenses, $4m relates to legal costs and $2m is remuneration. The claim represents about 2.25% of the estimated value of the lienable property.

3 The receivers are not seeking to have their remuneration fixed, or expenses approved, by the Court as they were privately appointed and were funded in their work under an indemnity provided by the banks that appointed them. Rather, the claim for an indemnity is made under the "salvage" principle in Re Universal Distributing Company Limited (In Liquidation),[2] entitling a person who has incurred expenses in caring for, preserving or realising assets to an indemnity for those expenses out of, and secured by an equitable lien over, the resulting asset pool. In the alternative the receivers ask the Court to exercise its inherent jurisdiction applying the principle in Re Berkeley Applegate (Investment Consultants) Ltd (No. 1)[3] to require an allowance to be made for the costs incurred for beneficial work done by them as insolvency practitioners in relation to the lienable property of the 1997 to 2006 schemes, before enforcing the interests of the members of the schemes.[4]

4 It is uncontroversial that these equitable principles can entitle the receivers to recover their remuneration and expenses out of the lienable property.[5] Relevantly, the Court has already given directions that the receivers are entitled to an indemnity for their reasonable expenditure and reasonable remuneration in the care, preservation, protection and/or realisation of lienable property.[6] The key issue here is the application of the principles, and notably whether the remuneration and expenses that the receivers have identified as secured by the lien come within the ambit of these principles. The application has complexity and raises a number of issues for consideration by the Court. Amongst other things, the receivers' entitlement to an indemnity secured by lien must be scheme specific, so that a global claim cannot be made and the receivers must justify for each MIS in question, the work done and the remuneration and expenses which they seek to recoup out of the lienable property of that particular MIS.

5 The receivers have approached the application on the basis that the principles and procedure applied by the Courts in the exercise of the Court's statutory jurisdiction to fix the remuneration of insolvency practitioners should apply, so that it is incumbent on the receivers initially to make out a prima facie case that they are entitled under these principles to be indemnified out of the lienable property for the amounts claimed and, if successful, for the Court then to allow for a procedure which enables interested stakeholders to object to the receivers' claim.[7] This approach was supported by counsel who appeared for Gunns Plantations Limited ("Gunns") (the first defendant) which is the new RE of the 1998 to 2006 schemes in replacement for GSMAL, and for Mr Burns, a grower representative who was given leave to appear. The third defendants are the liquidators of GSMAL (the second defendant). The receivers have relinquished control of GSMAL as the RE of the 1997 scheme in favour of the liquidators. However the liquidators did not appear and made no submission to the Court.

6 The receivers have filed extensive affidavits the contents of which, they submitted, were sufficiently detailed for the Court to determine that the receivers have made out, to a prima facie level, their claim for an indemnity with respect to the remuneration and expenses referrable to each scheme that they have itemised. The function of the Court, at this initial stage, is to make an assessment of that material to determine whether the receivers' claim is supported to a prima facie level. This determination involves legal questions as well as factual considerations.

7 Before turning to the matters that the Court must consider, it is helpful to set out the context in which the application is made.

8 These background facts are taken from the affidavits of James Gerard Thackray sworn in this proceeding.

9 On 16 May 2009, voluntary administrators were appointed pursuant to s 436A of the Corporations Act 2001 (Cth) ("the Act") over each entity within the Great Southern Group, including GSMAL. On 18 May 2009, ANZ Fiduciary Services Pty Ltd ("ANZ Fiduciary Services"), in its capacity as security trustee for Australia New Zealand Banking Group Limited, Commonwealth Bank of Australia Limited, Mizuho Corporate Bank Limited and Bank of Western Australia Limited (collectively, "Club Banks") appointed the plaintiffs and Simon Andrew Read as joint and several receivers and managers of GSMAL. On 19 November 2009, GSMAL was placed into liquidation at the second meeting of creditors. On 20 July 2010, Simon Read retired as a receiver and Shaun Robert Fraser and Murray Campbell Smith were appointed as joint and several receivers and managers (with the plaintiffs) of GSMAL.

10 GSMAL is currently the RE of the Great Southern Plantations 1997 scheme ("1997 scheme"). The receivers controlled the office and position of RE of the 1997 scheme from the time of their appointment over GSMAL until on or about 2 March 2010, when ANZ Fiduciary Services amended the terms of the receivers' appointment to exclude from the appointment the role of controlling the office of the RE. The liquidators of GSMAL now control the office and position of the RE in relation to the 1997 scheme.[8]

11 On 31 December 2009, the first defendant ("Gunns") replaced GSMAL as RE of the 1998 to 2005 Great Southern Plantations schemes and, on 5 January 2010, Gunns replaced GSMAL as the RE of the 2006 scheme. Gunns is the current RE of the 1998 to 2006 schemes ("the Gunns schemes").[9]

12 At the time that the receivers were appointed, the Great Southern Group had a significant market presence in the Australian MIS agricultural sector. In particular, the Great Southern Group:

(a) employed 372 employees across all States and the Northern Territory;

(b) managed MIS assets for over 52,000 investors, 44,169 of which were investors in the 1997 to 2006 Schemes;

(c) managed 623 forestry plantations comprising approximately 174,000 hectares of net plantable area ("NPA") (being the planted areas and potential plantable areas on a plantation, not including fallow land), either in its own right or in the operation of MIS; and

(d) had total annual expenditure of approximately $512 million.[10]

13 The MIS forestry plantations were situated on more than 240,000 hectares across Australia, including:[11]

(a) 100,000 hectares of pulpwood in Western Australia;

(b) 71,000 hectares of pulpwood in the 'Green Triangle' region in Southeast South Australia and Southwest Victoria;

(e) 5,000 hectares of pulpwood in Gippsland, Victoria;

(h) 28,000 hectares of pulpwood in the Tiwi Islands;

(i) 2,600 hectares of teak at Douglas Daly in the Northern Territory;

(j) 2,600 hectares of mahogany in Far North Queensland; and

(k) 11,000 hectares of softwood in New South Wales and undeveloped land in the Northern Territory.

14 At the time of the appointment of the receivers, there were no sets of documents or financial records available to them to assist them to understand the MIS business quickly.[12] The Great Southern Group based its accounts on corporate divisions,[13] not individual MIS. The only financial records kept on an individual MIS basis related to investor income and expenditure (i.e. net proceeds of sale, grower insurance and RE fees).[14] The operational maps for the forestry MIS identified operations by planting year, rather than by scheme.

15 The structure of the Great Southern Group's records made the task of investigating each scheme difficult and complex, and meant that the receivers were required to review the Groups' books and records, as well as the head leases[15] and scheme documents[16] for each scheme, on a scheme by scheme basis, in order to determine:

(a) whether each scheme was commercially viable; and

(b) if the scheme was viable, what information a potential replacement RE would want or need to know before deciding whether to agree to or assume the role of RE of the relevant schemes.

Steps required to care for, preserve and realise assets

16 There were a number of key steps undertaken by the receivers in order to care for, preserve and realise the assets of the 1997 to 2006 schemes.[17]

17 From the time of their appointment on 18 May 2009, the receivers took steps to investigate, amongst other MIS, the 1997 to 2006 schemes, including the books and records of the Great Southern Group and the schemes it controlled. They located the assets of the schemes. They took steps to secure them by keeping them insured, conducting essential maintenance work on the properties where they were located, and undertaking fire protection work. They continued harvest and marketing operations in respect of schemes which were ready to be harvested. They also reviewed the operations of Great Southern Limited ("GSL"), GSMAL's parent, and maintained the minimum staff, premises and equipment necessary to support the preservation and realisation activity. GSL employed the staff retained in the Great Southern Group and engaged all of its contractors, save for a few.

18 As part of the identification process, the receivers reviewed the scheme documents and head leases. Where land was leased from third parties and it was economically desirable to maintain them, the receivers negotiated rent moratoriums where possible. In order to understand their powers and obligations, in particular as regards the implementation of care, preservation and realisation steps, the receivers reviewed GSMAL's rights and obligations as RE, and their own rights and obligations in relation to the office of RE. They liaised with the administrators and then the liquidators of GSMAL when exercising their rights.

19 The receivers also discharged necessary regulatory tasks required of them to maintain their obligations as RE and as receivers. They managed ASIC statutory notices and enquiries, including queries regarding the exercise of the functions and powers of GSMAL as the RE of the scheme and the receivership.

20 A further significant step was to undertake an appraisal of each scheme to make a recommendation as to whether a new RE should be appointed, or whether the scheme should be wound up. That process involved preparing financial forecasts and engaging experts to review financial models.

21 It was also necessary to maintain the schemes' functions with respect to Growers' interest in the assets.[18] This task included maintaining communications with Growers in relation to the preservation of assets, including the possible replacement of the RE of the schemes, and the Growers' rights to take action to preserve the assets independently of the receivers, such as by insuring their interests or by finding their own replacement RE. The tasks included preparing Grower circulars, setting up a webpage on the McGrathNicol website and GSL's website to respond to shareholder, creditor and Growers' queries, allocating Grower debtor receipts against scheme accounts, setting up a consultative committee of growers to assist them in forming their views and recommendations for the purpose of resolving the position of each of the schemes, together with the administrators/liquidators setting up a toll free telephone enquiry line for Growers.

22 Preservation of the assets included the need to maintain the scheme accounts. The relevant functions were significant in scope as, essentially, the receivers continued certain operations to a limited extent. The accounting tasks required to maintain scheme accounts included:

(a) accounting for receipts and costs, debt collection supervision and pursuing outstanding invoices from suppliers;

(b) performing necessary weekly reconciliations to appropriately account between schemes, and for 16 bank accounts, holding funds of circa AUD $17 million at the time of appointment;

(d) checking MYOB data entry of receipts and payments for the MIS and reconciling purchase orders;

(f) processing fortnightly EFT payment runs for trading costs and wages.

23 An important part of the preservation process was to identify a replacement RE and transition the schemes to that RE if possible. The receivers dealt with stakeholder groups in relation to the preservation and realisation of the assets, and called and held meetings of the members of the schemes to consider proposals to change the RE. They developed a communications strategy to address enquires from media, members, creditors, employees and shareholders. In due course the receivers conducted an expression of interest process (including preparing a data room for proponents) and staged meetings of members of the schemes, by which Gunns was selected as the new RE of the 1998 to 2006 schemes. All of these steps were organised by the receivers, as well as the transition process to Gunns as RE.

24 During the receivership, and whilst the receivers were in control of the office of RE, the receivers caused GSMAL to perform some of its functions as RE of the MIS. As GSMAL was insolvent and had insufficient funds to perform its MIS functions, the receivers incurred costs and were remunerated for tasks performed in relation to GSMAL's RE functions.

25 The receivers were funded by three of the Club Banks through a loan facility dated on or about 11 June 2009, referred to as the Omnibus Facility.[19] The receivers are personally liable (on a limited recourse basis) to repay all amounts drawn down under the Omnibus Facility, together with interest and costs. As a matter of practice, the Club Banks approved cash flow forecasts prepared by the receivers for the funding of particular categories of expenditure before the receivers drew down funds under the Omnibus Facility.[20] Pursuant to Deeds of Indemnity between the receivers and the Club Banks, the receivers are required to reimburse the Club Banks any monies recovered from their indemnity and lien over MIS assets.[21]

26 Until 30 September 2009, the receivers paid for critical maintenance and rental obligations to third party landlords in respect of the forestry MIS.[22] In early September 2009, the Club Banks informed the receivers that, with the exception of limited funding costs for work required to be undertaken to ensure compliance with statute and insurance obligations, they were no longer prepared to fund the receivers via the Omnibus Facility to cause GSMAL to operate the MIS after 30 September 2009.[23]

27 On 1 October 2009, all head leases for the forestry MIS situated in the Tiwi Islands were terminated after the receivers (in their capacity as receivers and managers of the immediate tenant, Sylvatech Limited (in liquidation)(receivers and managers appointed)) ("Sylvatech") notified the landlord that they would no longer cause Sylvatech to use or occupy the leased property and (in accordance with s 419A of the Act) that they would not be responsible for rent after 30 September 2009. [24] Some of this land was used for the 2005 and 2006 schemes.

28 On 30 September 2009, the receivers also informed the landlords of seven properties, situated in South Australia, Victoria and Western Australia and used for the 2004 and 2005 schemes, that they would not be responsible for rent after 30 September 2009 and that the relevant Great Southern entity would cease to use or occupy the leased property.[25] In each case the liquidators also disclaimed the properties and the landlords terminated the leases.

29 Any rent paid and direct and indirect operating costs referable to the forfeited land have been excluded from the receivers' claim. Where head leases have been terminated and the basis of allocation of a particular expense is by NPA, the receivers' claim has been proportionately reduced to reflect the smaller NPA of the relevant scheme due to the forfeiture of the land.[26]

30 The receivers continued to fund rental obligations under the head leases for the remaining third party leased properties used in respect of the Gunns schemes until Gunns was appointed as RE of those schemes.[27]

31 There were several earlier applications to this Court that are relevant to this proceeding.

32 On 29 May 2009, the receivers applied to the Court in proceeding 6861 of 2009 (the "first proceeding") for directions relating to the funding of the Great Southern Group's insurance obligations. Judd J made directions pursuant to s 424 of the Act that:[28]

(a) the receivers were authorised or otherwise entitled to effect or contribute towards the payment of instalments under the insurance funding contract;

(b) the receivers were authorised or otherwise entitled to be indemnified for and to the extent that the portion of the insurance funding payments related to the insurance of trees, vines, olives, grapes or almonds out of:

(i) the said trees, vines, olives, grapes or almonds; and

(ii) the proceeds of sale of any of the said trees, vines, olives, grapes or almonds, or their produce, should a sale be effected by the receivers or any person; and

(iii) the proceeds of any insurance claims that relate to the said trees, vines, olives, grapes or almonds,

such indemnity to be supported by an equitable charge or equitable lien over the trees, vines, olives, grapes or almonds and any resultant sale proceeds; and

(i) the said trees, vines, olives, grapes or almonds;

(ii) the proceeds of sale of any of the said trees, vines, olives, grapes or almonds, or their produce, should a sale be effected by the receivers or any person, and

(iii) the proceeds of any insurance claims that relate to the said trees, vines, olives, grapes or almonds,

33 In August 2009, the receivers applied to the Court in proceeding number 8168 of 2009 (the "second proceeding") that they were justified, amongst other things:

(a) in seeking to care for, protect and preserve MIS property;

(b) in carrying on their duties as receivers, if they incurred reasonable costs and reasonable remuneration in the care, protection and/or realisation of MIS property, to be entitled to an indemnity for their costs out of the MIS property and the product thereof, and to secure the same in priority to all other charges thereon; and

34 On 19 August 2009, Robson J gave directions in the second proceeding to the effect that the receivers were justified in proceeding on the basis that, if they did so, they would be entitled to an indemnity from the scheme assets.[29]

35 In November 2009, the receivers applied to the Court in proceeding number 10266 of 2009 ("Approval Proceeding") for directions about holding Grower meetings to effect the change of RE for the Gunns schemes. The existence of the receivers' indemnity and lien were disclosed to the Court during the Approval Proceeding. In particular, the Grower Meeting Booklets, which were in evidence before the Court, stated that the receivers estimated that the total expenditure for the 1998 to 2006 schemes for the period to 30 September 2009 was approximately $7.5 million.[30] On 27 November 2009, Davies J made orders and gave directions in relation to the Grower meetings.[31]

36 After the Grower meetings for the Gunns schemes were held on 23 December 2009, the receivers applied to the Court in proceeding number 10745 of 2009 ("Implementation Proceeding") for directions that they were justified and acting reasonably in implementing the outcome of the Grower meetings and whether the constitutional amendments were permissible pursuant to s 601GC of the Act. On 24 December 2009, Davies J made orders and gave directions in relation to the implementation of the outcome of the Grower meetings.[32]

37 The originating process and affidavits in support were served on Gunns, GSMAL, the liquidators of GSMAL and on a representative of the members of the schemes, Mr Burns, who is a committee member of Save My Trees Inc. The liquidators did not appear at the hearing. However, the existence of the proceeding has been notified on the liquidators' website with a reference to the Gunns website and details of all affidavits and exhibits have been uploaded onto the Gunns website, so that members of the schemes who are interested will know about it, and have access to the Court documents.

38 In the second proceeding, Robson J made the direction that the receivers were justified in carrying out their duties as receivers and managers and proceeding on the basis that they would be entitled to a lien over the lienable property preserved or protected by their reasonable expenditure, including their reasonable remuneration. His Honour reasoned that the receivers, by operation of equitable principles, would be entitled to a lien in priority to all other charges and securities in respect of the expenditure that they reasonably incurred in protecting and preserving the lienable property and assets. His Honour observed that "this right is not governed by any direction [he] may give. It simply arises from the expenditure". [33]

39 The receivers' claim to an indemnity secured by an equitable lien is well founded in case law. Whilst the principles are not in doubt, it is necessary to refer to them in some detail to identify what must be established by the receivers on this application in order for the Court to make the orders that the receivers seek.

Salvage Principles - Re Universal Distributing

40 The seminal case is Re Universal Distributing Co Ltd (in liquidation)[34] in which Dixon J (as he then was) stated:

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

In applying this principle, only those expenses that 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 ensure 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. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it."[35]

The principle enunciated by Dixon J was that a person who works and incurs expenses to care for, preserve or realise property to create a fund is entitled to a charge against the fund or the property (if no fund is created)[36] in priority to any other claimant. The principle is sometimes referred to as "salvage" in the case law.[37]

41 Many of the principal authorities which have developed and explored the Re Universal Distributing principle were the subject of close analysis by Robson J in Re S & D International Pty Ltd (in liq) (rec & mgr apptd).[38] Robson J stated:

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

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

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

d. The costs and expenses secured by the lien must be incurred exclusively for the care, preservation or realisation of the property and not otherwise expended in the general administration of the mortgagor. ...
e. The costs and expenses include the liquidator's reasonable remuneration. ..." [39]

His Honour also noted that in Re Universal Distributing:[40]

Dixon J speaks of the expenses as being "thrown against the fund." The equitable claim is against the fund irrespective of those claiming an interest in the fund. The expenses incurred must have contributed to the funds realization, care or preservation. Dixon J recognised that this right against the fund is independent of any conduct of others laying claim to the fund which might otherwise have given rise to some claim as between the parties."

Although Robson J analysed the principles "referable to a liquidator", the existence of the lien does not depend on the status of the person claiming it. The categories of persons to whom the principle may apply are not closed.[41] For present purposes it is sufficient to note that the principle has been applied with respect to receivers[42] and receivers and managers.[43] The underlying principle in each case is that it would be inequitable for the person who has created or realised a valuable asset, in which others claim an interest, not to have his or her costs, expenses and fees incurred in producing the asset paid out of the fund or property created.[44]

42 It is clear on the authorities that the equitable lien will extend only to the receivers' costs, expenses and remuneration incurred "exclusively" in the care, preservation and realization of the property and assets of the ten MIS in question. Furthermore, that those costs, expenses and that remuneration must be referrable to the particular scheme against which the claim is made. The lien will not extend to the general receivership costs or costs, expenses and remuneration referable to the care, preservation and realization of the property and assets of any other scheme or schemes.[45]

43 The evidence from the receivers is to the effect that they have excluded claims for remuneration and expenses that may be described as general receivership expenses.[46] However, it was acknowledged by the receivers that some of the work done for which remuneration is claimed and some of the expenses related to more than one fund or had multiple purposes. A legal question that arises here is whether the "exclusive purpose" criterion was satisfied in the circumstances.

44 It was submitted that in the many cases that have considered the principles to be taken from Re Universal Distributing, no line of authority has emerged to the effect that an expenditure with a mixed purpose cannot be claimed under salvage principles, such as where the expenditure has a salvage benefit to two or more funds (and so must be allocated between them), or where the expenditure has two or more purposes, one of which is for salvage purposes and one or more of which are not. The cases have established that an apportionment will be necessary in those circumstances, not that the claim is not allowable under the salvage principle.

45 In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq),[47] Finkelstein J dealt with an application for an indemnity by an external administrator out of trust assets. The applicant had first been a court-appointed receiver to the respondent's assets, which it held on trust for investors in certain joint ventures, then a provisional liquidator, and finally liquidator of a company which had carried on business as a trustee. The proceedings concerned the applicant's application to have his costs, charges and expenses paid out of the assets held on trust by the respondent. His Honour had no difficulty deciding that the applicant was entitled to an indemnity out of trust assets for his costs as receiver and provisional liquidator although His Honour considered that it was more complicated regarding his costs as liquidator because those costs and expenses related to "general liquidation" matters that did not fall within the Re Universal Distributing "salvage" principle. His Honour stated as follows:

The position is a little more involved as regards work done and expenses incurred in what may be described as general liquidation matters. If that work is unrelated to the beneficiaries and their claims it is difficult to see how the cost could be charged against their assets. In the case of a company that has carried on the business of trustee it might be that much of the work involved in the liquidation is chargeable against trust assets if it can be shown that the liquidation is necessary for the proper administration of the trust. But it is unlikely that this will be so where the company did not act solely as trustee or at least did not act in that capacity to a significant extent. In that event, the liquidator will be required to estimate those of his costs that are attributable to the administration of trust property and only those costs will be charged against the trust assets.[48]

Finkelstein J held that it was necessary for the liquidator to prepare proper accounts "to justify" his claim against the trust assets. His Honour also went on to hold that in so far as the liquidator's claim related to cost and expenses in carrying out trust activities, as distinct from general liquidation activities, and as the respondent was trustee of more than one trust, the liquidator had to "estimate the costs and expenses incurred insofar as they relate to each trust and only charge those costs to the trust on whose behalf the work was performed."[49] If that was not possible then a pari passu distribution was required.[50] Finkelstein J followed Re Suco Gold Pty Ltd (in liq).[51] His Honour concluded that if some of the work performed by the liquidators was for investors for whom no property was held on trust, the liquidator could not look to the trust assets for the costs and expenses of that work unless in accordance with the principles enunciated in Re Universal Distributing and Re Berkeley Applegate "the liquidator is entitled to charge those assets with a proportionate share of the costs. That would be so if the costs and expenses are not divisible".[52]

46 Other cases have considered that a single claim with a mixed purpose can be allocated and on the basis of an estimate as to what is fair and reasonable. In Monks v Poynice Pty Ltd[53] Young J said:

So far as the costs, charges and expenses in acting as manager are concerned, again these would have to be analysed; there would have to be a proof lodged by the receiver and those costs, charges and expenses as were incontrovertibly beneficial to the company would be allowed and the others not. Some of those costs may be in the nature of overheads and doubtless the liquidator will do the best he can in fairness to apportion these, if he is not allowing the full amount.[54]

In Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd[55], the Court stated that if the trustee cannot apportion the costs claimed with some accuracy between the various trusts, 'the maxim that equality is equity should provide the solution to the problem of apportionment'.[56]

47 These cases demonstrate that, as a matter of principle, the fact that the receivers' remuneration and expenses related to the administration of more than one scheme does not disentitle the receivers from recouping that remuneration or its expenses out of the lienable property of the schemes. However, for that purpose, the receivers must not treat the schemes as a single scheme but must apportion the remuneration and their expenses amongst the various schemes. The evidence was that the receivers have undertaken that task and, where applicable, have used different methodologies for allocation based on particular categories of expenses and remuneration. This evidence is considered below under the heading "The Evidence".

48 The cases that have applied the Re Universal Distributing principles also demonstrate that there is no limit on the type of expense or work done for which remuneration is claimed that may be the subject of an equitable lien, other than that the expenditure and remuneration must be referable to the care and protection of, or calling in and conversion of the assets producing the fund. In 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq),[57] Finkelstein J, after reviewing relevant authorities, stated that these cases established "clearly enough in [his] opinion" that:

... provided a liquidator is acting reasonably he is entitled to be indemnified out of the trust assets for his costs and expenses in carrying out the following activities: identifying or attempting to identify trust assets; protecting or attempting to recover trust assets; realising or attempting to realise trust assets; protecting or attempting to protect trust assets; distributing trust assets to the persons beneficially entitled to them.[58]

Another way of putting it is to ask the question whether the work done and expense incurred was necessary to the salvage objective. An actual benefit from the receivers' work and expenditure does not have to be demonstrated. The nexus with the salvage objectives is sufficient.[59]

49 Examples of the diverse types of expenses to which the principles have been applied include:

(a) the cost of having someone take care of the property;[60]

(b) expenses paid to prevent forfeiture of assets;[61]

(c) the payment by the claimant of a debt which contributes to the pool of assets, for example by securing control of the property;[62]

(d) the expense involved in maintaining and carrying on a business so it could be sold as a going concern;[63]

(e) liability for an amount to a litigation funder in respect of litigation of a cause of action which is itself an asset;[64]

(f) costs and expenses in prosecuting such litigation;[65]

(g) costs and expenses in resisting litigation, in circumstances where the claim arises out of earlier action by a receiver to secure assets.[66]

50 The receivers have directions from the Court to the effect that their obligations and duties as receivers and managers of GSMAL required them "to protect and preserve the assets [of the MIS] until such steps are taken to relieve GSMAL of its obligation to act as the [RE] [of the MIS]".[67] They have submitted that all of the amounts they have claimed were necessarily incurred to care for, preserve or realise the assets of the 1997 to 2006 schemes and therefore fall under ordinary salvage principles enunciated by Dixon J in Re Universal Distributing. Reasonable expenditure associated with taking reasonable steps to protect and preserve the scheme assets, and the receivers' reasonable remuneration in relation to such steps have already been confirmed by the Court as justified.[68] Furthermore the Court has already made specific orders directing that the receivers were justified in expending sums on insurance,[69] in protecting and preserving the lienable property[70] and in calling growers' meetings to implement the change of RE from GSMAL to Gunns in respect of the 1998 to 2006 schemes.[71] The receivers by this application seek to confirm their entitlement to be indemnified out of lienable property (1) in respect of the categories of costs, expenses and remuneration listed in Schedule B to these reasons for judgment; (2) in the amounts claimed in those categories; and (3) that the principles by which they have allocated those costs expenses and remuneration amongst the 1997 to 2007 schemes are fair and reasonable. In the first instance, the issue will be whether the receivers have demonstrated that the expense incurred or work performed related to the care, preservation or realisation of the assets of the 1997 to 2006 schemes[72] and was reasonable.[73]

51 It will not be relevant that the receivers may have an alternative contractual right of indemnity against the Club Banks. In Moodemere Pty Ltd (in liq) v Waters[74] Murphy J stated:

There may be private contracts made between the receiver and the debenture holder and between the debenture holder and the company. No doubt such private contracts should, as a matter of prudence, always be made. For the fund may be insufficient even to pay the receiver's costs, etc. But these contracts would not as a rule affect the receiver's non-contractual rights.[75]

The authorities make it clear that the equitable lien does not depend on the source of the claimant's entitlement.[76]

Inherent Jurisdiction of the Court Requiring an Allowance

52 The Court also has an inherent power to require an allowance to be made for the costs incurred for beneficial work done by an insolvency practitioner, in relation to the trust property, before enforcing the interests of the trust beneficiaries: Re Berkeley Applegate.[77] The receivers have claimed that to the extent any of their claims fall outside salvage principles, then an equitable allowance should be made by the Court for those claims.

53 The issue in Re Berkeley Applegate was whether a liquidator was entitled to an order for the payment to him of remuneration, costs and expenses out of the assets of the company held on trust. Mr Nugee QC sitting as Deputy High Court Judge held that the liquidator could look to the trust assets on the 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 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 (as in In re Marine Insurance Mansions Co., LR 4 Eq 601 and similar cases) or by a receiver appointed by the court whose fees would have been borne by the trust property (as in Scott v Nesbitt, [1808] EngR 39; 14 Ves. Jun. 438); and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity (as in Phipps v Boardman [1964] 1 W.L.R. 993). In my judgment this is a case in which the jurisdiction can properly be exercised. [78]

The Court reasoned that the allowance of fair compensation to the liquidator was a proper application of the rule that he who seeks equity must do equity.[79]

54 In Trio Capital Ltd (Admin App) v ACT Superannuation Management Pty Ltd,[80] a claim was made by a voluntary administrator for an equitable allowance out of the assets of the trust of which the company in administration was trustee. Palmer J explained the policy behind equity making an allowance to an insolvency practitioner in that position:

The Trio administration is, and will continue to be, extremely complex and difficult. It is in the interest of members of all schemes that highly experienced and capable insolvency practitioners, such as the administrators, be willing to undertake the administration. Insolvency practitioners will only do so if they are adequately remunerated and are not left out of pocket when means to pay them might be found out of assets under administration. [81]

Whereas the right to recoupment under the salvage principle arises by implication of law, an entitlement to an equitable allowance out of trust assets requires an exercise of discretion by the Court and as the cases indicate, it is a discretion that the Court will exercise sparingly and only in exceptional circumstances.[82]

55 Matters which may be relevant to the exercise of discretion include that:

(a) if the work claimed for had not been done by the claimant, it would have had to be done either by the person who claimed the assets or by a Court appointed receiver whose fees would have been borne by the trust property;[83]

(b) the complexity and difficulty of the work done;[84]

56 It was argued for the receivers that the Court should exercise its discretion to make an equitable allowance for their costs expenses and remuneration, if those items are not covered by the salvage principle. The receivers argued that they were in an analogous position to a liquidator appointed over a company that holds trust property who is under the duty to act in a responsible way in the administration of the trust in the name of the company. In Re G B Nathan and Co Pty Ltd (in liq)[86] Mclelland J said that:

What the duty to "act in a responsible way" will involve and what degree of "administration" of the trust is necessary must depend upon the particular circumstances. In some cases an application to the court for the appointment of a new trustee may be the appropriate course; in other cases an application for the appointment of a receiver and manager of the trust assets may be warranted.[87]

In Irvine v Australian Sharetrading and Underwriting Ltd (in liq),[88] Mandie J said:

"The duty of a liquidator is to wind up the affairs of the company and distribute its property ... . In the light of the cases to which I have referred, the affairs of the company, for this purpose, include the affairs of the trust to the extent that the liquidator may need to administer the trust in a particular case to identify the trust's assets and liabilities and their value and protect the same and also to ascertain the company's rights and liabilities as trustee in relation thereto.

In my view, in a case where a company has acted as trustee, the liquidator's duty will include in an appropriate case, such matters as the identification of the trust's constituent document, the ascertainment of the nature and value of the trust assets and trust liabilities, the investigation of the financial relationship between the trustee and the trust, the identification of the trust's creditors and beneficiaries and any matters necessary to determine appropriate action to be taken in relation to the trust on behalf of the trustee including action to preserve and protect assets or to wind up the trust where appropriate and there is express power to do so. However in this regard it must be noted that a liquidator's "duty" is not absolute because he is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property ...[89]

The liquidator who "acts in a responsible way" in the administration of the trust may look to the assets of the trust out of which to meet his or her costs and remuneration where the work done is referable to the winding up of the company but the assets of the company are insufficient to meet the liquidator's claim for costs.[90]

57 In Re Great Southern Managers (Australia) Ltd[91] Robson J, after reference to Re G B Nathan and Co Pty Ltd (in liq) and Irvine v Australian Sharetrading and Underwriting Ltd (in liq) said that he was of the view that the obligations of the receivers in relation to the scheme assets held on trust by GSMAL for the members[92] should be guided by similar considerations.[93] Robson J also thought that there were statutory obligations imposed on the receivers as officers of GSMAL. His Honour referred to s 601FD of the Act which provides that an officer of a RE must act in the best interests of the members and must also exercise the degree of care and diligence that a reasonable person would exercise if they were in the officer's position.[94] Robson J stated that it was not appropriate that he define the "full extent of the duties and obligations of the receivers" in relation to the lienable property, noting that it was:

... sufficient to say that until another [RE] is appointed or some other action is taken to relieve GSMAL of its obligation to manage the MIS, the receivers have a duty to act in a responsible way in the administration of the trust in the name of GSMAL. This duty includes taking action to protect and preserve the assets until such steps are taken to relieve GSMAL of its obligation to act as the [RE].[95]

58 In view of the orders made by Robson J in Re Great Southern Managers (Australia) Ltd and based on his conclusion that the receivers were duty bound to act in a responsible way in relation to the lienable property, I accept that the equitable allowance principle enunciated in Re Berkeley Applegate would apply to the receivers if, in "acting in a responsible way" in the administration of the schemes, they had incurred costs and remuneration that are not claimable under the salvage principle.

59 The receivers have the burden of establishing their entitlement to an indemnity for the amounts claimed. They have argued that the procedure by which they are to establish their entitlement should be the same as the procedure which applies when a liquidator asks the Court to determine his or her remuneration under s 473(3) of the Act. No party objected to this course and it seems to me to be a sensible approach to take.

The Court must be satisfied there is a Prima Facie entitlement

60 In Venetian Nominees Pty Ltd v Conlan[96] the Full Court of Western Australia set out the general principles applicable to the Court's assessment of a liquidator's remuneration. Those principles were summarised by the Court of Appeal in Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams[97] as follows:

(a) A summary procedure is involved, not unlike that applicable to the taxation of solicitors' costs, which is not necessarily subject to all the rules that would apply in an action;

(b) The initial task of the Court is to consider whether the liquidator has made out a prima facie case on the evidence before the Court that the remuneration claimed is fair and reasonable. The Court must make that assessment "bringing an independent mind to bear on the relevant issues" even though at that point there is no objector.

(c) There is no absolute rule regarding the amount of detail required to support a remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.

(d) If the liquidator establishes a prima facie case, the Court should allow for an objection procedure to enable objections to be made;

(e) If there are objectors to the claim or any part, the Court should then establish the validity of those objections. [98]

61 The receivers rely on the four affidavits of Mr Thackray as their evidence. Due to the sheer volume of the documents supporting the claim, the receivers have prepared summaries of financial records set out in spreadsheets and supporting their claims for remuneration and reimbursement of expenses, in lieu of putting all source documents into evidence. The receivers have sought to rely on those summaries under s 50 of the Evidence Act 2008 (Vic) as proof of the amounts claimed by the receivers. The summaries are:

(a) the 'Lien Summary' which contains a listing and breakdown of each category of expense or remuneration claimed by the receivers, both in total and as allocated to each of the 1997 to 2006 schemes;

(b) the 'Legal Fees Summary' which contains details of the legal costs incurred by the receivers in payment to their principal lawyers, Minter Ellison. Details of the hours worked by each solicitor, the applicable charge out rate, a description of the work performed for each time entry, and an allocation of that time amongst various categories of cost are included; and

(c) the 'Receivers' Remuneration Summary' which contains details of the remuneration earned by the receivers in relation to the 1997 to 2006 schemes. Details of the hours worked by each receiver and by their employed staff, the applicable charge out rate, a description of the work performed for each time entry, and an allocation of that time amongst various categories of cost are included.

From these summaries, a "ready reckoner" (which is Annexure A to these reasons for judgment) was prepared.

62 It is to be noted from the description of the contents of the summaries that they were not just summaries as the receivers, in preparing those summaries, also allocated amongst the schemes the remuneration and expenses that related to more than one scheme. Mr Thackray in his affidavits explained the methodology for the allocation of costs and remuneration amongst the schemes. Amongst other things, the Court has been asked to state whether the allocation methods were fair and reasonable. The application for the s 50 order and the question of whether the allocation methods were fair and reasonable are the subject of separate consideration below.

63 The receivers argued that the standard of proof on their application cannot be higher than the standard on insolvency practitioners for the purposes of s 473(3) of the Act, which is to establish that the remuneration claimed is fair and reasonable.[99] They argued that the standard is lower, if anything, because they were privately appointed and have claimed amounts under equitable principles and do not seek to have their remuneration fixed, or their expenses approved, by the Court. They argued that the Court's primary interest in that circumstance is to determine that their claim is not excessive.[100] Nevertheless, the receivers accepted that the principles set out Venetian Nominees Pty Ltd v Conlan are persuasive and that they should put sufficient evidence before the Court to enable the Court to determine that the amounts claimed are fair and reasonable. That involved providing sufficient detail of the work that was done and the expenses claimed for the Court to assess the reasonableness of the remuneration claimed for that work and the reasonableness of the expenses incurred by the receivers.[101] The reasonableness of remuneration may be adduced by evidence for example of an appropriate benchmark, such as the Insolvency Practitioners Association of Australia rates, for comparative work by persons with the relevant status and qualifications for that kind of work[102] and justification of the hours spent.[103] That amount can then be adjusted up or down to reflect other factors including:

(a) complexity above the norm for the kind of work involved;

64 The Court is looking for evidence of overcharging.[105] Excessive charging may be indicated if there is a lack of proportionality between the cost of the work done relative to the value of the services provided.[106] But there is no universal approach applicable in all circumstances by which the "reasonableness" of remuneration claimed or expenses incurred should be measured. The size, importance and complexity of the tasks performed are all factors to be taken into account. What is needed is sufficient information for the Court and any objector to have a clear view about what was done so that an assessment can be made about the reasonableness of the claim.[107]

E. SECTION 50 OF THE EVIDENCE ACT

65 The Court has a discretion under s 50 of the Evidence Act 2008 (Vic)[108] to allow evidence to be adduced in the form of a summary of documents if the Court is satisfied that:

(a) it would not otherwise be possible conveniently to examine the evidence because of the volume or complexity of the documents; and

(b) a reasonable opportunity has been given to any other party to the litigation to examine or copy the documents in question.

66 The section is intended to achieve the purpose of permitting summary evidence in the event that the Court is satisfied that it would not otherwise be possible conveniently to examine the evidence because of the volume or complexity of the documents in question, so long as the other party has seen the summary and been given a reasonable opportunity to examine or copy the documents.[109]

67 The first matter for consideration is whether the summaries that the receivers seek to adduce by way of evidence are summaries for the purposes of s 50. In Gate Gourmet Australia Pty Ltd (in liq) v Gate Gourmet Holding[110] Einstein J considered the equivalent provision in the Evidence Act 1995 (NSW) and accepted that a summary need not include every detail or fact or feature of the underlying documents:

...there is a misconception in the proposition that a party adducing evidence of the contents of two or more documents in the form of the summary must include in the summary every detail or fact or feature of the document purported to be summarised. Clearly enough the section is intended to achieve the purpose of permitting summary evidence in the event that the Court is satisfied that it would not otherwise be possible conveniently to examine the evidence because of the volume and complexity of the documents in question, as long as the other party had been served with a copy of the summary and given a reasonable opportunity to examine or copy the documents.[111]

In Beattie & Sutherland v Osman (No 3),[112] White J took a different view, stating that:

A summary of the contents of two or more documents to fall within s 50 should, I think, be an abstract or compendium or epitome or a brief statement of the facts or matters set out in the documents.[113]

Beattie & Sutherland v Osman was a later NSW decision but it appears that Gate Gourmet Australia Pty Ltd (in liq) was not cited to the Court. In Odgers' text on the section in Uniform Evidence Law, the learned author expressed his view that White J had adopted:

... an unduly narrow approach to the provision, particularly bearing in mind the policy behind it and the fact that the provision refers to adducing evidence of the contents of documents 'in the form of a summary'.[114]

It appears that no other courts have considered s 50 (or its equivalent). I prefer the view of Einstein J in Gate Gourmet Australia Pty Ltd (in liq). I do not think that s 50 should be construed restrictively to require a summary of each document in question. In my view, a 'summary' for the purposes of s 50 is intended to be a summary of the evidence sought to be extracted from the documents. But if I am wrong, the summaries that the receivers seek to rely on as evidence do contain an epitome of each source document, since the key transaction data such as amount, date, expense description, supplier and payment details for each is recorded in the pages of the spreadsheets.

68 The next matter for consideration is whether it would not otherwise be possible conveniently to examine the evidence which has been summarised because of the volume or complexity of the documents in question. The evidence is that the source documents which are summarised include the business records of the Great Southern Group and in particular the forestry division of that group. They also include source documents recording the time spent by the receivers and their solicitors in working on the receivership, including time sheets, monthly invoices and evidence of expenses incurred. The documents make up 30 archive boxes of documents, 15 archive folders, a large volume of electronically stored records and source documents for the legal expenses the subject of the claim. Some examples of the documents include:

(a) 3,000 supplier invoices and 3,000 purchase orders relating to forestry maintenance from which approximately 15,000 transactions have been extracted to the accounts kept by the receivers. These documents are in hard copy and contained in 9 archive boxes;

(b) bank statements and bank authorities, leases for office equipment and vehicles and invoices rendered by BMW Finance;

69 I accept the submission for the receivers that having regard to these matters, it is not conveniently possible to adduce the evidence of the receivers' claim from the source documents. The sheer volume of the documents makes it impractical to adduce the evidence before this Court in a way that has probative value. An analysis and summary of the documents would have been required in any event.

70 Finally it is necessary to consider whether there has been compliance with s 50(2). The evidence was that on 15 June 2011, the receivers' solicitors wrote to the solicitors for the other parties to the litigation. The letter identified the author of the summaries, Mr Cooper, and stated the receivers' intention to rely on the summaries in accordance with s 50(1) to adduce evidence. The other parties to the litigation were given the opportunity to meet with Mr Cooper and Minter Ellison, the solicitors for the receivers, to discuss how the summaries were compiled and what they contained, as well as an opportunity to examine and copy the documents. Meetings took place with the first defendant's representatives on 27 June 2011 and with Mr Burns' representatives on 28 June 2011. Representatives of the receivers, including Mr Thackray, and Mr Cooper, the author of the summaries, explained how the summaries had been prepared from the source documents. A further opportunity to examine and copy the source documents was also given. I am satisfied on the basis of that evidence that the summaries may be admitted into evidence under s 50 as to the contents of the documents which are summarised (but not for the purpose of establishing that the method of allocation of expenses and remuneration amongst the schemes was fair and reasonable).

71 Accordingly, the receivers' application under s 50(1) is granted.

72 The receivers' claim is broken down into the categories and sub-categories shown in the ready reckoner in Annexure A. The categories are: (1) operational costs; (2) legal costs; (3) receivers' remuneration. In the "operational costs" category there are 12 sub-categories. In the "legal costs" category there are 18 sub-categories and in the "receivers' remuneration" category there are 16 sub-categories. The information in the ready reckoner is a reconciliation or compilation of the summaries that Mr Cooper prepared. It was submitted that the summaries constitute sufficient evidence that the quantum of the claims in the various categories are mathematically correct, on the balance of probabilities, not just on a prima facie basis. I agree with that submission as I have admitted the summaries into evidence.

73 The evidence is contained in four affidavits of Mr Thackray in which he gives evidence in detail about:

74 Having considered that evidence I am satisfied that:

(a) the receivers are entitled to an indemnity secured by equitable lien either under the Re Universal Distributor principles or the Re Berkeley Applegate principles for their work and expenses incurred with respect to each of the categories and sub-categories which make up their claim;

(b) that there is sufficient evidence regarding each item of claim to make out a prima facie entitlement to an indemnity secured by equitable lien for the specific expenses or remuneration claimed.

75 Specifically, I am satisfied on a prima facie basis in relation to each claim that:

(a) the receivers have demonstrated that the expenses incurred or work performed for which remuneration is claimed related only to the care, preservation or realisation of the assets of the 1997 to 2006 schemes and/or the administration of those schemes;

(b) the work was necessary and the receivers were acting reasonably in incurring the expenses and in performing the work;

(c) sufficient explanation has been provided to the Court to enable the Court to assess that the amount claimed is reasonable;

(d) the receivers exercised commercial judgment in relation to the work that was done and the cost attaching to that work;

(e) the amounts claimed were proportionate to the value of the services provided by the receivers, given the size, importance and complexity of the tasks performed; and

(f) the principles by which the receivers have allocated the expenses and remuneration amongst the 1997 to 2007 schemes are fair and reasonable. Those principles were: (1) if the expense or remuneration related to a specific scheme, it was applied directly to that scheme; (2) if applicable to some schemes only or all of the schemes, then it has been allocated across the relevant schemes either on a proportionate basis or, if the expense or work done was of general application, it has been allocated equally to those schemes.[115]

76 In relation to the 1997 scheme and the 1998 to 2000 schemes, there are funds available from the proceeds of the sale of timber following the harvest. In relation to the 2001 to 2006 schemes, harvests have not yet occurred. The receivers have estimated that the total value of the proceeds of harvests of the 1997 to 2006 schemes (net of stumpage) will be $614,879,097. It is also noted that the lienable property also includes insurance claim proceeds in respect of fire damage to lienable property. It is appropriate to consider the schemes where there is no fund realised, alongside the schemes where there is a fund, because the same issues of principle arise whether the property has been reduced to a fund or not.[116]

77 In relation to the 1998 to 2006 schemes, the receivers propose to assign their entitlement to indemnities and liens to Gunns, the current RE, so that Gunns may enforce those rights, both against the existing fund for the 1998 to 2000 schemes, and in future when a fund is created for the 2001 to 2006 schemes. The receivers will use the proceeds of the assignment to repay an advance made by three of the Club Banks to the receivers in their personal capacity, which enabled them to fund their remuneration and expenses. In relation to the 1997 scheme, the recovery by the receivers will be applied to repaying the funding Club Banks. The Court at the next hearing will be asked to consider whether the receivers are justified and otherwise acting reasonably in proceeding on the basis that the assignment to Gunns will be effective to vest its rights and entitlements in Gunns and to entitle Gunns, as assignee, to exercise those rights and entitlements applying any lienable property relating to the Gunns schemes in satisfaction of the indemnity and equitable lien.

78 I now consider each of the categories and sub-categories of claim made by the receivers analysed with reference to the evidence but without restating the findings that I have made above.

Preliminary issue - Capturing Operational Costs

79 The receivers took a number of steps to ascertain and record necessary costs reasonably incurred for the care, preservation, realisation or administration of MIS assets, and to properly record those costs against the relevant scheme. These processes are set out in detail in the affidavit of James Thackray, sworn on 2 June 2011 ("Second Thackray Affidavit") and summarised under each of the cost categories.

80 All costs incurred by the receivers during the receivership went through a costs approval process described in the affidavit of James Thackray sworn 14 April 2011 ("First Thackray Affidavit"). In summary, any proposed forestry-related expenditure was required to be put into the form of an Expenditure Approval Request and approved, rejected or revised by a director of McGrathNicol (the receivers' firm). Once a request was approved, a purchase order was raised with the suppliers. Where the expense related to more than one property or MIS, separate purchase orders were created for each property or MIS respectively. External supplier invoices were matched against the purchase orders and reviewed by a senior manager or director of McGrathNicol under the supervision of the receivers prior to actual payments being authorised.

81 During the receivership, details of all purchase orders and supplier invoices, and therefore details of all direct costs incurred during the receivership, were entered into the Great Southern Group's specialised accounting software called Navision.[117] The Navision software incorporated key data on the Great Southern forestry properties sourced from Great Southern's Forestry Management System - "ForMS".[118] The data included the net plantable area ("NPA") of each property and the scheme or schemes that the property was used for. Where a property was used for more than one scheme, the NPA applicable for each scheme was also recorded. All MIS-related costs were allocated to either a specific MIS or across more than one MIS as appropriate. Any plantation-specific maintenance work or expenditure was allocated to a plantation code. The ForMS data relied on by the Navision system identified the NPA for all MIS associated with that particular code, allowing the costs to be allocated to the relevant MIS or GSL forestry plantation based on the NPA of those plantations.[119] All expense transactions were downloaded from Navision in Excel format each month and reviewed by the receivers' staff and GSL staff using a checklist.

82 The receivers' claim does not include any amounts paid from the Maintenance Reserve Fund of each of the schemes.

Category 4: External Head Leases - Head Lease Expenses

83 The receivers have claimed that they are entitled to an indemnity secured by a lien for the total amount of $2,175,576 for rent paid to third party landlords in respect of the 1997 to 2006 schemes.

84 These expenses secured the tenancy of land used in the schemes where the anticipated harvest proceeds from the sale of woodchips (net of harvesting, haulage and chipping costs) was expected to be sufficient to pay the rent and also to provide a return to the relevant scheme. The amount of rent paid corresponded to amounts required to be paid under the relevant head lease. Absent such a payment, it was open to the respective landlords to forfeit the head lease. Where funding to pay rent could not be secured from the funding Club Banks, the receivers caused the tenant under the relevant head lease to cease occupying the relevant land, resulting in termination of the relevant leases. The receivers acted after obtaining a direction from this Court in the second proceeding that they were justified in seeking to care for, protect and preserve lienable property, and in doing so they were justified in incurring reasonable costs and remuneration which would be borne by an indemnity out of the lienable property.

85 The receivers allocate the rent paid to the particular scheme using the land. Where more than one scheme used land subject to a single head lease, the receivers have apportioned rent among those schemes according to the share of NPA used by each scheme regarding the property in question. In other words, proportionate to the use of the land for forestry purposes. The same approach was used where the land was used by a scheme and for non scheme purposes by other entities in the Great Southern group.

86 I am satisfied that the receivers have established a prima facie entitlement to an indemnity secured by equitable lien for the third party lease costs.

87 The receivers have claimed that they are entitled to an indemnity secured by a lien for the total amount of $2,603,194 for insurance premium funding instalments paid to the insurance financier, BMW Finance, on a range of insurance policies. The policies themselves relevantly preserved or protected the 1997 to 2006 schemes.

88 When the receivers were appointed there was a combination of insurance policies in place, from different insurers, to cover the various risks of the entire Great Southern Group.[120] The premiums were financed by BMW Finance under an insurance funding contract and were payable by periodic instalments. The premiums under finance for the policies were significant: an annual premium cost of $18,664,037.70. Of this amount, instalment payments of $6,578,028 were due after the receivers' appointment. The receivers paid these instalments after obtaining a direction from this Court in the first proceeding that they were justified to effect or contribute towards the payment of the instalments under the insurance funding contract and that they would be indemnified out of certain lienable property for the cost.

89 The expense secured the continuity of existing insurance coverage over the following risks: standing timber (also known as forestry and crop insurance), industrial and special risks, motor vehicles, public liability, directors and officers/professional indemnity. Credit charges were incurred in relation to finance provided by BMW Finance.

90 The amount of the premium instalments reflected amounts due under insurance funding contracts that were in place prior to the receivers' appointment. The receivers took advice from their insurance broker and had determined that to switch insurance coverage to an alternative insurer was not economic, because of the financial penalties in changing insurers before the end of the term.

91 The receivers allocated the instalment amounts payable for each policy type differently depending on the nature of the benefits given by the policy type. The receivers used the following allocation methods for each policy type:

(a) Standing Timber (Forestry and Crop Insurance) - the sum of $2,190,959 is claimed in respect of the 1997 - 2006 schemes. The insurance covered the trees and/or crops on all of the land owned or controlled by the Great Southern Group, including but not limited to land within the control of the receivers. The receivers allocated the cost of the insurance proportionately to the insured value of the trees and/or crops standing on the insured land and then allocated the insurance cost relating to the 1997 to 2006 schemes proportionately to the insured value of the forestry within each scheme. The receivers excluded from the claim the insurance cost allocated to the value of trees and/or crops grown for non scheme purposes or which did not form part of the 1997 to 2006 schemes. This method of allocating the expense was reasonable, given the benefits to each scheme of the insurance relate to the insured value of its trees;

(b) Industrial and Special Risks Insurance - the sum of $116,995 is claimed in respect of the 1997 - 2006 schemes. The insurance covered the assets used by the Great Southern Group, such as buildings, contents and fencing, which were used in operating the schemes, carrying out maintenance and other activities in regional locations. The cost was based on the insured value of the assets. The receivers allocated the cost of the insurance proportionately to the NPA of the land under their control, and then allocated the insurance cost, relating to the 1997 to 2006 schemes, proportionately to the NPA of each scheme. The receivers excluded the insurance cost allocated to the land used for non MIS purposes or for schemes other than the 1997 to 2006 schemes from their claim. This method of allocating the expense was reasonable, given that protecting the assets benefits each scheme proportionately to the scale of each scheme;

(c) Motor Vehicle Insurance - the sum of $22,307 is claimed in respect of the 1997 - 2006 schemes. The insurance covered the motor vehicles used by GSL staff in the course of maintaining the MIS and carrying out maintenance and other activities in regional locations. The cost was based on the insured value of the vehicles. The receivers allocated the cost of the insurance between scheme and non scheme purposes, and amongst the 1997 to 2006 schemes, in the same manner as with the Industrial and Special Risks Insurance costs. This method of allocating the expense was reasonable, given that the protected vehicles were used by staff to benefit each scheme proportionately to the scale of each scheme;

(d) Public Liability Insurance - the sum of $110,124 is claimed in respect of the 1997 - 2006 schemes. The insurance provided public liability cover for the operations of Great Southern controlled by the receivers as well as a range of processes and activities they engaged in. The receivers allocated the cost of the insurance equally amongst all plantations they controlled and then allocated the cost within each plantation according to the proportionate NPA used by each scheme. The receivers excluded the cost of the insurance insofar as the relevant plantations were used for non MIS purposes, or for a scheme other than the 1997 to 2006 schemes. This method of allocating the expense was reasonable, given there was no direct relationship between public liability risk and a variable measure like NPA or crop value;

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Cases Cited (10)