Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (in Liq) (Receiver and Manager Appointed) (Supervisor Appointed)
[2006] WASC 36
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION -v- ROWENA NOMINEES PTY LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) (SUPERVISOR APPOINTED) [2006] WASC 36
| Link to Appeal : |
[2008] WASCA 61 (S) |
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 36 | |
| Case No: | COR:131/1999 | 7 APRIL, 14 JUNE, 6 & 7 SEPTEMBER 2004, 28 JUNE 2005 | |
| Coram: | MASTER SANDERSON | 8/03/06 | |
| 23 | Judgment Part: | 1 of 1 | |
| Result: | Remuneration approved | ||
| B | |||
| PDF Version |
| Parties: | AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION ROWENA NOMINEES PTY LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) (SUPERVISOR APPOINTED) (ACN 008 818 273) |
Catchwords: | Liquidator's remuneration Assessment Large liquidation Proper approach to assessment |
Legislation: | Corporations Act 2001 (Cth), s 479(3) Finance Brokers Control Act 1975 (WA), s 73, s 75 Legal Practitioners Act 1893 (WA), s 58E |
Case References: | Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (2003) 45 ACSR 424 Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) v Registrar of Titles (2001) 24 WAR 299 Ide v Ide [2004] NSWSC 751 Lane v Conlan [2004] WASC 15 Mirror Group Newspapers v Maxwell (No 2) (1998) 1 BCLC 638 Patroni v Conlan [2004] WASC 16 Re Berkeley Applegate (Investment Consultants) Ltd (No 3) (1989) 5 BCC 803 Re Crest Realty Pty Ltd (No 2) (In Liq) [1977] 1 NSWLR 664 Re Independent Insurance Co Ltd (in provisional liquidation) (No 2) (2003) 1 BCLC 640 Re Oakleigh Acquisitions Pty Ltd (In Liq); Ex Parte Mark Anthony Conlan (As Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75 Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430 Re Trustees and Executors and Agency Co Ltd (Receivers and Managers Appointed) (1984) 9 CLR 497 Re Vassis (1986) 9 FCR 518 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 Waldron v MG Securities (A/Asia) Ltd [1979] ACLC 40-541 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (In Liq) (1999) 30 ACSR 377 Harmer v The Commissioner of Taxation of the Commonwealth of Australia (1991) 173 CLR 264 Re Rose & Co Ltd (1897) 3 ALR (CN) 65 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Applicant
AND
ROWENA NOMINEES PTY LTD (IN LIQ) (RECEIVER AND MANAGER APPOINTED) (SUPERVISOR APPOINTED) (ACN 008 818 273)
Respondent
Catchwords:
Liquidator's remuneration - Assessment - Large liquidation - Proper approach to assessment
(Page 2)
Legislation:
Corporations Act 2001 (Cth), s 479(3)
Finance Brokers Control Act 1975 (WA), s 73, s 75
Legal Practitioners Act 1893 (WA), s 58E
Result:
Remuneration approved
Category: B
Representation:
Counsel:
Applicant : No appearance
Respondent : No appearance
Liquidator : Mr G R Donaldson SC
By Leave of the Court : Mr D H Solomon & Mr B R Gannon for persons listed in amended notice to appear dated 15 January 2003
Karri Oak Pty Ltd (In Liq) : Mr K J Mony de Kerloy
Solicitors:
Applicant : No appearance
Respondent : No appearance
Liquidator : Clayton Utz
By Leave of the Court : Solomon Brothers
Karri Oak Pty Ltd (In Liq) : Freehills
Case(s) referred to in judgment(s):
Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (2003) 45 ACSR 424
Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) v Registrar of Titles (2001) 24 WAR 299
(Page 3)
Ide v Ide [2004] NSWSC 751
Lane v Conlan [2004] WASC 15
Mirror Group Newspapers v Maxwell (No 2) (1998) 1 BCLC 638
Patroni v Conlan [2004] WASC 16
Re Berkeley Applegate (Investment Consultants) Ltd (No 3) (1989) 5 BCC 803
Re Crest Realty Pty Ltd (No 2) (In Liq) [1977] 1 NSWLR 664
Re Independent Insurance Co Ltd (in provisional liquidation) (No 2) (2003) 1 BCLC 640
Re Oakleigh Acquisitions Pty Ltd (In Liq); Ex Parte Mark Anthony Conlan (As Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75
Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430
Re Trustees and Executors and Agency Co Ltd (Receivers and Managers Appointed) (1984) 9 CLR 497
Re Vassis (1986) 9 FCR 518
Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96
Waldron v MG Securities (A/Asia) Ltd [1979] ACLC 40-541
Case(s) also cited:
13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (In Liq) (1999) 30 ACSR 377
Harmer v The Commissioner of Taxation of the Commonwealth of Australia (1991) 173 CLR 264
Re Rose & Co Ltd (1897) 3 ALR (CN) 65
(Page 4)
1 MASTER SANDERSON: This is the application of Mark Anthony Conlan ("Conlan") for approval of remuneration in his role as the liquidator of Rowena Nominees Pty Ltd (Receiver and Manager Appointed) (In Liquidation) ("Rowena"). The amount claimed by Conlan is $597,968.58. This remuneration is sought for the period from 21 July 1999 to 31 August 2003.
2 The amount of the claim by Conlan is made up in the following way. An amount of $2700 is claimed for the period 21 July 1999 to 22 July 1999. This was the one day that Conlan was the liquidator of Rowena before his appointment as supervisor under the Finance Brokers Control Act 1975 (WA). There is then an amount sought of $122,000 for the period 23 July 1999 to 31 July 2002. This is for the period that Conlan was not only liquidator of Rowena, but was also supervisor of the company (in circumstances which I will detail below). A further amount of $442,000 is claimed for the period 1 August 2002 to 31 August 2003. There is an additional amount of $31,268.58 which relates back to the period when Conlan was both liquidator and supervisor of Rowena. This amount was belatedly included in the claim without objection by either of the objectors.
3 This application is yet another chapter in what is generally known as the finance broker's scandal. Rowena was a trading company controlled by one Graeme Grubb ("Grubb"). Rowena accepted funds from investors on the understanding that the funds would be invested in mortgage securities providing the investor with a steady stream of income from interest payments. In fact, Grubb was a rogue. The affairs of Rowena were a complete mess. Some of the money was not invested, some of the investors did not have their names on mortgage security, some of the funds paid over by investors were used to pay interest due to other investors and so it goes on. The full extent of the catastrophe has been detailed in a number of decisions made in cases stemming from the collapse of Rowena. Perhaps the most informative is the decision of Owen J in Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) v Registrar of Titles (2001) 24 WAR 299.
4 Conlan's involvement with Rowena began when he was appointed as the "independent accountant" pursuant to an enforceable undertaking extracted by the Australian Securities and Investments Commission ("ASIC") from Grubb and Rowena on 19 May 1999. ASIC has been concerned about the activities of Rowena and Grubb and were only prepared to allow Rowena to continue to trade provided certain undertakings were given. Conlan commenced work and it quickly
(Page 5)
- became apparent that the position of Rowena was rather more desperate than was anticipated. Conlan was appointed provisional liquidator of Rowena on 24 May 1999 and official liquidator on 21 July 1999. He was then appointed as supervisor of Rowena under the provisions of the Finance Brokers Control Act 1975 (WA) on 23 July 1999. I will return to the terms of that appointment later in these reasons. Pursuant to his appointment as supervisor the Government of Western Australia ("GWA") was responsible for Conlan's fees as supervisor from the date of his appointment until that appointment was terminated on 1 August 2002. Since that date GWA has continued to fund Conlan in certain actions he is taking seeking to recover funds from various parties. However, his activities are no longer being funded on the basis he is a supervisor. As at the date of the hearing, Conlan remained as the liquidator of Rowena.
5 It is immediately apparent that, as liquidator of Rowena, Conlan is in a different position to most liquidators. Rowena's business was to accept funds from investors with the intent that those funds be secured by mortgage security. Accordingly, Rowena was acting as a trustee. Doubtless it incurred debts while running its business which resulted in creditors. Those creditors would presumably have been paid out of the commission received by Rowena consequent upon its investment activities. But it had no claim to money paid to it for the purposes of investment. Equally, it had no right or entitlement to any funds it received consequent upon the realisation of mortgage securities. This money was to be passed back to investors.
6 Looking at Conlan's obligations as a liquidator in classical terms, there was very little for him to do. Rowena had no assets of its own and few liabilities. In different circumstances Conlan may have seen that there was little or nothing to be done by him and conducted a low-key liquidation. But the position when Conlan took over was difficult. Many thousands of investors had lost many millions of dollars as a consequence of Rowena's activities. No-one was entirely sure who was entitled to what. So Conlan set about trying to untangle the affairs of Rowena and in the process establish what assets were available and who were entitled to those assets. No-one doubts that was a difficult and time-consuming task. It is also beyond question that, in undertaking that task, Conlan acted appropriately.
7 Inevitably the question arose as to the basis upon which Conlan would be remunerated for his efforts. He was clearly aware that what he was doing was not, strictly speaking, the work of a liquidator. He was, in effect, acting as a trustee. To resolve this uncertainty he sought directions
(Page 6)
- from this Court. The result was the decision of Pullin J in Australian Securities and Investments Commission v Rowena Nominees Pty Ltd (2003) 45 ACSR 424. This decision repays reading. It sets out the history of Conlan's appointment and details tasks that he undertook pursuant to that appointment. The question was whether Conlan's remuneration for the work that he had done could be paid out of what was trust funds. His Honour framed the question this way (at 88):
"There is also a question about whether a liquidator in these circumstances should be able to seek to deduct his remuneration costs and expenses from trust moneys if these relate to the general administration work concerning the winding up of the company as well as those related to the administration of the trusts."
"In my view, the whole of the costs of the liquidator of Rowena should be charged on the trust assets because, as I have said, the trust creditors will have personal claims against Rowena … as well as claims as beneficiaries to the trust property. That being so, the general administration associated with winding up Rowena will concern creditors, and this includes trust creditors."
9 Having reached that conclusion, his Honour then gave the following directions under s 479(3) of the Corporations Act 2001 (Cth) (at 99 and 100):
"I direct that Conlan, in his capacity as liquidator of Rowena, may if the assets of Rowena are insufficient for the purpose, deduct moneys from the trust moneys in the nominated bank accounts to pay his just and reasonable remuneration (as is first determined pursuant to s 473 of the Corporations Act 2001).
I also direct that the liquidator's 'costs charges and expenses' (as distinct from 'remuneration') may be deducted from the same accounts if they were incurred in relation to his duties as liquidator, and if the assets of Rowena are insufficient for that purpose."
(Page 7)
10 The basis upon which a liquidator's remuneration is to be assessed was considered by the Full Court in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96. The Full Court began by setting out two matters of principle. First, they said it was implicit in s 473(2) (and by implication s 473(3)) that the remuneration must be fair and reasonable. Second, the remuneration to which a provisional liquidator or liquidator is entitled includes compensation for work done for the provisional liquidator or liquidator by employees of that person's firm. In support of that latter proposition the Court referred to Re Trustees and Executors and Agency Co Ltd (Receivers and Managers Appointed) (1984) 9 CLR 497. Neither of these two statements of principle is controversial and both were accepted by all parties to this application.
11 As to the procedure to be followed in assessing the remuneration, the Court took the opportunity in the Venetian case (supra) to set out in some detail the procedure that ought be followed. It would appear that the directions given by the Full Court in Venetian (supra) are the only statements made by an intermediate appellate court. As such, they are directions that must be followed. Although lengthy, I will quote in full the relevant parts of the Full Court's decision (pages 102 - 104):
"The procedure by which the remuneration is to be determined is not made clear by the relevant legislation. As Young J observed in Burns Philp Investment Pty Ltd v Dickens (No 2) at 288, when dealing with the remuneration to which liquidators are entitled, 'the principles to be applied [are] in some respects obscure'. Essentially, however, the procedure generally applicable is that long utilised in the passing of accounts (see Re Universal Distributing Co Ltd (In liq) (1933) 48 CLR 171) as set out in O 45 r 4. For example, in Burns Philp Investment Pty Ltd v Dickens(No 2), Young J ordered an inquiry before a Master and said (at 288):
'The contents of the directions should be a matter for the Master but I would consider they would have to involve some process whereby the plaintiffs set out the expenses claimed by the liquidator which they attack, the liquidator could file detailed accounts as to those items, there would be vouching out of court on those items and the Master would then settle the questions of principle.'
It is to be borne in mind that a summary procedure is involved, not unlike that applicable to the taxation of solicitors' costs,
(Page 8)
- which is not necessarily subject to all the rules that would apply in an action: Symphony Group Plc v Hodgson [1994] QB 179 at 193.
Some guidance can indeed be derived from the taxation of solicitors' costs as solicitors, like provisional liquidators, are officers of the court whose costs are fixed as part of the supervisory function of the court. In particular, it is to be observed that the rules of evidence are ordinarily not strictly observed in the taxation of solicitors' costs. As Sir Robert Megarry V-C said in Computer Machinery Co Ltd v Drescher [1983] 1 WLR 1379 at 1385; 3 All ER 153 at 158:
'My recollection over the last 15 years is that it is common enough for the parties, without objection, to refer to correspondence and other documents when costs come to be argued after judgment has been given; and this has not been limited to correspondence before action brought, or to correspondence or other documents which have been put in evidence during the trial.'
His Lordship went on to say (at 1385 - 1386; 158):
'The matter, I think, is one for determination by the judge when considering how to exercise his discretionary power to determine by whom and to what extent the costs are to be paid.'
As a starting point, in our view, the onus is on the provisional liquidator to establish that the remuneration claimed is fair and reasonable. It is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues. The initial task is to consider whether, prima facie, the provisional liquidator has made out a case for the determination of the amounts claimed. The fact that there may be no person who objects to the claim, or any part of the supporting testimony, or that objectors advance unsustainable arguments, or do not properly formulate their objections, cannot detract from the court's duty in this respect. The judicial officer conducting an inquiry under s 473(2) is required to make an independent determination of the remuneration claimed, even if there is an absence of objectors, or appropriately detailed objections, or
(Page 9)
- objections advanced on arguable grounds. Of course, once the court is satisfied that the provisional liquidator has made out a prima facie case that the remuneration claimed should be allowed, the absence or inappropriateness of points taken by objectors becomes relevant.
Should the provisional liquidator fail to provide adequate evidentiary material to enable the court to determine whether the amounts claimed are fair and reasonable, no order should be made: Re Solfire Pty Ltd (In liq) (No 2). Thus, for example, the mere listing of the persons who performed the work, the hours worked by each, and the amounts claimed, may well be insufficient material for the court to come to a proper decision: Re Reiter Bros Exploratory Drilling Pty Ltd.
Ordinarily, to commence the proceedings, the provisional liquidator will provide the court with a statement of account reflecting in appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly. The statement of account should also reflect in appropriately itemised form the expenses incurred by the provisional liquidator, accompanied where necessary by voucher proof. Sufficient detail should be provided to enable the court to determine whether the disbursements were reasonably incurred and that the amounts claimed are reasonable.
The statement of account should be verified by affidavit. When the remuneration claimed involves work carried out by the provisional liquidator and his staff, the verifying affidavit need state merely that the work described in the statement of account was done by the provisional liquidator or under his personal supervision, and that from personal knowledge or from the records kept by the provisional liquidator or his firm, or from some other appropriate source, he believes that the information contained in the statement of account is correct. When disbursements are claimed, the affidavit should verify that they were incurred and, if necessary, why they needed to be incurred.
In Re Solfire Pty Ltd (In liq)(No 2), Shepherdson J said (at 1,164):
- 'In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the bill of costs in taxable form provided by a solicitor to his client ... He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisional liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which document should be open to inspection by persons entitled to see them.'
- In our opinion, however, it is, with respect, unnecessary to lay down an absolute rule, in such detailed terms, concerning the statement of account to be provided by a provisional liquidator. It may well be that in a particular case information particularised as suggested by Shepherdson Jwould be appropriate. In other cases less detailed information may be required. Every case depends on its own circumstances. But the overriding principle remains: sufficient information must be provided to the court to enable it to perform its function under s 473(2).
If the Master were to be satisfied that the statement of account was sufficiently detailed to enable the remuneration to be determined, but there were objections to the account, special directions should be given in regard to the mode in which the account is to be taken or vouched. The procedure set out in O 45 should as far as possible be adopted. If, for example, the objector challenges whether a particular item of work was in fact done, or whether the person alleged to have done the work spent the time alleged in doing it, it may be necessary for the provisional liquidator to call direct evidence establishing the correctness of the allegations made: see generally Gava v Grljusich (unreported; FCt SCt of WA; Library No 970492; 19 September 1997).
Notice should be given of the points on which the provisional liquidator will be cross-examined (if cross-examination is allowed). The notice of objection should be supported by
(Page 11)
- affidavit. Cross-examination of the provisional liquidator and the objecting party may then occur. But care should be taken to follow the admonition of Sir Robert Megarry V-C in Computer Machinery Co Ltd v Drescher (at 1386), namely:
'It would not be right to allow anything resembling a trial of the action to take place in the guise of an argument on costs.' "
13 In approaching this matter, I was conscious of the Full Court's cautionary words about not allowing "anything resembling a trial". The assessment of remuneration is after all a summary procedure. However, this matter is rather unique and for all intents and purposes the application proceeded as if it were a trial - albeit a trial without pleadings. As will become apparent from what follows, there really was no other way to deal with the application. As a consequence, Conlan was extensively cross-examined at large without notice being given to him of matters upon which he was to be cross-examined. The approach adopted seemed to me to be the best option in all the circumstances. Counsel for Conlan agreed. While the approach did not conform entirely with that set out in Venetian (supra), it is to be remembered that the Court did say that the case did not lay down "an absolute rule". The unique circumstances of this case required variation from the general principles.
14 In support of his application Conlan relied on six affidavits. The first was an affidavit of 12 December 2002 originally filed in the Conlan (as Liquidator of Oakleigh Acquisitions Pty Ltd) case (supra). The remaining affidavits were sworn respectively 4 December 2003, 9 January 2003, 2 April 2004, 7 May 2004 and 31 August 2004. These six affidavits, together with their annexures, ran into many hundreds of thousands of pages. To satisfy the requirement to establish that the remuneration claimed should be allowed Conlan produced extensive time-costing records for himself and his staff. These documents made up the bulk of the material filed with the Court. The way in which the time
(Page 12)
- recording was carried out was explained by Conlan in his affidavit of 4 December 2003. He says (at par 9):
"The method of time recording with respect to my appointment can be summarised as follows:
(a) Every member of the staff and partners of the Firm maintained an electronic daily timesheet with respect to time spent on various administrations that was recorded on that timesheet on the basis of six minute units.
(b) Every month the electronic daily timesheets were posted to the computer records of the Firm.
(c) The time details of the liquidation to which the Application relates have been extracted from those computerised records. The origin of the information for the computerised records is the electronic daily timesheets referred to in paragraph 6(a)."
16 In par 11 of his affidavit of 4 December 2003 Conlan sets out what he says he did which would justify the remuneration claimed. It is worth quoting that paragraph in full:
"The main tasks completed during my appointment as Liquidator can be summarised as follows:
(a) ensuring compliance with the relevant provisions of the Corporations Act;
(b) notifying all known unsecured creditors (including trust creditors) of my appointment and matters arising
- generally in connection with the liquidation of the Company;
- (c) identifying, securing and preserving the assets of the Company;
(d) arranging appropriate insurance policies with respect to the Company's assets;
(e) commissioning independent valuations of the Company's land and buildings;
(f) corresponding with the directors' trustee in bankruptcy;
(g) investigating the financial history of the Company;
(h) presenting a report to this Honourable Court in accordance with the Orders of this Honourable Court for my appointment as Liquidator;
(i) causing tax returns to be completed;
(j) negotiating with the Australian Taxation Office in respect of taxation treatment of interest earned on trust funds;
(k) implementing strategies to realise the assets of the Company and assets held in trust by the Company;
(l) attending to written and telephone enquiries from the creditors of the Company;
(m) causing the Company to obtain interim injunctions to prevent dealings in connection with land in which the Company had been involved in procuring loans;
(n) defending various Court applications brought against the Company by creditors of the Company and other interested parties;
(o) making an application to this Honourable Court in CIV 2076 of 1999 for directions, in my capacity as Liquidator of Oakleigh, concerning, inter alia, whether mortgages in favour of certain mortgagee investors in respect of land held by Hardie Developments Pty Ltd
- constituted an indefeasible interest on the part of those particular mortgagee investors;
- (p) following the decision of this Honourable Court in CIV 2076 of 2076 [sic] on 3 August 2001, distributing proceeds from the sale of various parcels of land to various registered mortgagees;
(q) applying to this Honourable Court for leave to fund my activities as Liquidator of the Company from trust monies held by the Company;
(r) convening and holding meetings of creditors of the Company on 4 November 1999 and 21 November 2003;
(s) preparing and distributing various circulars to creditors of the Company;
(t) preparing and distributing reports to creditors in July 2001, July 2002, June 2003 and November 2003; and
(u) attending to general administrative and secretarial duties."
17 That paragraph really says everything and says nothing. In one sense, it simply sets up a series of tasks which any liquidator in a sizeable liquidation would be required to undertake. It does not talk in specifics. But to be fair to Conlan, there is probably no other way that he could express in summary form what he actually did. It must be borne in mind that this was a very difficult, complicated and extremely messy liquidation. What can be said then is that based upon his affidavit evidence Conlan appears to have undertaken his task as liquidator with diligence and with attention to detail. He also appears to have recorded all of the time taken by he and his staff to perform the tasks in the liquidation. But that is not the end of the matter.
18 As I have indicated above, on 23 July 1999 Conlan was appointed supervisor of Rowena under s 73 of the Finance Brokers Control Act. It seems that Conlan was appointed supervisor after discussions with the Finance Brokers Supervisory Board. The Board issued a letter of instruction to Conlan which contained the following direction (annexure "MAC7" to the affidavit of Conlan sworn 12 December 2002):
(Page 15)
- "1. The Supervisor is required to perform the following services:-
(a) To process all entries to the trust account bank account;
(b) To reconcile the trust account bank account;
(c) To determine the trust account deficiency by:
(i) Reconciling the trust account ledger to the trust account bank account;
(ii) The verification of entries to the trust account bank account by reference to the trust account ledger and supporting documentation; and
(iii) The determination and processing of appropriate accounting entries to trust account ledgers.
(d) To facilitate and assist the proper registration of investors' interests in mortgaged property;
(e) To determine the quantum of the trust account's financial interest in advances to borrowers whether or not supported by a registered mortgage (eg Sandgate Corporation Pty Ltd);
(f) To introduce and maintain a certificate of title register for all real property certificates of title in the custody of Rowena;
(g) To determine the trust account's financial interest in mortgages as a consequence of Rowena's funding of interest payments (ie 'cash flow guarantee' policy) due but not paid from non-performing mortgages;
(h) To protect the trust account's interest in mortgages, including the registration of caveats;
(i) To produce circulars to borrowers and investors from time to time;
(j) To convene and conduct information meetings for borrowers and investors from time to time;
(Page 16)
- (k) To maintain Rowena's existing agency contracts with investors and the determination of the contracts where considered appropriate;
(l) To maintain the trust account during the period of the Supervisor's appointment, including the deposit of monies to the trust account bank account, to maintain accounting records and the orderly disbursement of monies from the trust account to the extent permitted by section 73(4)(a) of the Act;
(m) To update and maintain existing client files, including the filing of all documents in appropriate files, the answering of all outstanding and current correspondence, the documenting and storage of records not required on a day to day basis;
(n) To meet and obtain information from various parties (eg former employees, borrowers, investors etc) to the extent necessary to conclude or dispose of outstanding matters;
(o) To discharge statutory obligations for the production of trust account information and liaise with statutory bodies in this respect;
(p) To receive and respond to telephone calls and correspondence from investors and their solicitors; and
(q) To carry out such other duties and exercise such other powers as may be conferred by the Act or an order of the Court and agreed on between the Board and the Supervisor from time to time.
('the Services')
2. The Services shall not include any work that is solely referable to or reasonably incidental to any of the duties of the liquidator of Rowena or Oakleigh Acquisitions Pty Ltd (in liquidation) ('Oakleigh')."
19 At the time no-one appeared to have given any consideration to whether or not the supervisor had powers under the Finance Brokers Control Act to perform the tasks referred to in the correspondence. It is now clear that he did not. This was one of the issues which was
(Page 17)
- canvassed by Owen J in Conlan v Registrar of Titles (supra). His Honour considered s 75 of the Finance Brokers Control Act and after referring to s 58E of the Legal Practitioners Act 1893 (WA) said (at 365):
"However, Parliament has chosen language that seems to me to restrict the ambit of the powers that a supervisor may employ. The analogy with the Legal Practitioners Act reinforces my view that the powers and duties of a supervisor do not extend to the type of activity here in question. The sorting out of the trust account and the assessment of competing claims on it are, it seems to me, the province of an external administrator rather than a person appointed to carry on business so as to complete matters already in train."
21 It is apparent both from the initial letter of appointment and from subsequent correspondence that GWA were concerned to ensure that the costs of Conlan's services were controlled. For that purpose they appointed what is referred to as probity auditors. The procedure was that Conlan would render an account to GWA and that account would be subject to scrutiny by the probity auditor. An amount would then be paid to Conlan which the probity auditor thought was reasonable for the work undertaken. Conlan incurred costs in producing these accounts rendered to GWA. He also incurred costs negotiating with the probity auditors as to the amount to be paid in relation to each account. Conlan has included in his claim for remuneration these costs associated with the preparation of the accounts and the negotiating with the probity auditors.
22 It does not emerge directly from the affidavit evidence filed by Conlan precisely how much he was paid by GWA for his services as supervisor. It may be that buried within the morass of documentation that accompanied the affidavits there are the accounts to GWA and it would be possible to work out just how much he was paid. I have been unable to locate those documents. So the exact figure remains unclear. During cross-examination it was put to Conlan that he had been paid "somewhere in the order of $5.7 million" (transcript page 1469). Conlan was unsure if that was the amount he was paid. But he did not seriously dispute the
(Page 18)
- estimate. So Conlan's present claim for $122,000 for the period between July 1999 and August of 2002 is for work done in relation to accounts paid by GWA and work done as liquidator over and above the work that was done as supervisor.
23 It was the position of the objectors that Conlan should not be paid anything for the work done in relation to the accounts rendered to GWA. It was submitted that this was not part of his functions as liquidator of Rowena and was not sufficiently incidental thereto as to require payment. They further maintained that in reality there was no extra work done by Conlan as liquidator over and above the work he undertook as supervisor. Furthermore, it was submitted that if any further work was done, it was so closely related to his work as supervisor that there could be no justification for imposing upon the creditors any further charge.
24 There was a further more positive argument put by counsel who appeared for the objectors. It was to the effect that much of what Conlan did was of no real benefit to the creditors. It was submitted that many of the actions taken were misconceived or unnecessary. It was further submitted Conlan had used what was referred to by counsel as "a Rolls Royce approach"; that is, it was said that unnecessary costs were run up by Conlan, particularly in relation to the litigation he conducted when a prudent liquidator would have acted so as to minimise the costs incurred.
25 The thrust of counsel's submissions can be illustrated by reference to Conlan's actions in relation to a claim in the Karri Oak liquidation. This was of particular concern to counsel who appeared for the liquidator of Karri Oak. But it does illustrate the thrust of what was put by both counsel for the objectors. It is instructive to follow the course of events.
26 On 6 June 2000 Conlan lodged a proof of debt in the Karri Oak liquidation on behalf of Rowena in an amount of $18,024,735.26, together with an undetermined amount of interest. It was put to Conlan during the course of cross-examination that he was aware that a proof of debt of that relatively enormous size would prevent the liquidators of Karri Oak making any distribution to their own creditors until the issue was resolved. Conlan conceded - as he necessarily had to do - that this was the case. The proof of debt was rejected in full on 15 September 2000. Conlan then instituted an appeal in the Supreme Court against that decision. On 15 December 2000 the liquidators of Karri Oak by Mr Bryan Kevin Hughes filed an answering affidavit setting out in detail the reasons why the proof was rejected. Affidavits were also filed by, among others, Grubb and these affidavits contained evidence supporting
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- the rejection of the proof. Notwithstanding this, Conlan pressed on with the appeal.
27 On 13 February 2001 the matter came before Steytler J who entered the matter for trial and made orders for the filing of further affidavit evidence by Conlan. Conlan did not comply with these orders. The matter was called over before Anderson J on 28 September 2001. The appeal was listed for hearing on 21 January 2002. At the callover Conlan's counsel indicated to the Court that in order to substantiate his claims in the appeal Conlan needed to, and intended to, file further affidavit material. The trial was listed in January 2002 to accommodate this request. No such material was ever filed.
28 Conlan's counsel conceded before Anderson J that on the material filed with the Court Conlan had no prospect of success. Anderson J expressed concern that Conlan was proceeding with an appeal in circumstances where there appeared to be no evidence to support it. Shortly before the appeal was to be heard Conlan discontinued the appeal and paid costs of $18,249.55 to the liquidators of Karri Oak.
29 It must be said that this was an unhappy event. I appreciate that in the context of a large and complex liquidation seizing on one particular act is apt to be misleading - perhaps even unfair - in circumstances where the liquidator is not entirely sure which parts of his claim for remuneration are to be attacked. But under cross-examination Conlan was unable to provide any reasonable explanation for taking the actions he did. Furthermore, given that counsel for the liquidator of Karri Oak gave notice well in advance of his intention to appear, one might have expected, if Conlan had reasonable grounds for taking the action he did, then they would have been explained. But they were not and that gives rise to a concern. The concern is whether or not Conlan did actually conduct this litigation in a cost-effective way.
30 By far the bulk of the remuneration claimed by Conlan relates to the period after 1 August 2002 when GWA withdrew Conlan's funding. It is to be remembered that GWA were still funding certain actions - in particular, Rowena's claims against St George Bank and their former auditors. But the rest of the activities undertaken by Conlan were clearly part of the liquidation. It would appear that Conlan was then doing those things referred to in par 11 of his affidavit of 4 December 2003 which I have quoted above. Once again Conlan is able to supply all of the time records which show that he and his staff spent the time as claimed.
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31 But again there are aspects of Conlan's conduct which are of concern. In his affidavit evidence he refers to a number of "test cases" which he conducted and which he says were necessary to obtain directions as to the conduct of the liquidation: see Conlan's affidavit of 2 April 2004, par 10. He refers to three cases - Re Oakleigh Acquisitions Pty Ltd (In Liq); Ex Parte Mark Anthony Conlan (As Liquidator of Oakleigh Acquisitions Pty Ltd) & Ors [2003] WASC 75, Lane v Conlan [2004] WASC 15 and Patroni v Conlan [2004] WASC 16. With respect, none of these cases would seem to me to fit into the category of what might be called a "test case". For instance, the Oakleigh Acquisitions (supra) matter involved a particular charge which Conlan conceded at trial was valid. In the course of his judgment Pullin J said ([36]), "I am … somewhat puzzled by the continued existence of these proceedings." Clearly his Honour did not think that the action was a test case and clearly it is not.
32 Assessment of a liquidator's remuneration, particularly when the amount claimed is substantial and the liquidation is large and complex, presents considerable difficulties both practically and in matters of principle. The practical difficulties can be illustrated by reference to the so-called test cases that I have referred to above. I find it difficult to see why the Oakleigh Acquisitions (supra) case was brought because it is not apparent what it was likely to achieve in the context of the liquidation. That is a judgment made on the limited evidence available. It may be that Conlan, in taking the steps he did, was relying on legal advice. But even assuming that the action was unnecessary, how are the costs in the liquidation associated with that unnecessary action to be excised from the other costs properly claimed? It is an impossible task to sort through the tens of thousands of pages of time-costing records to tease out all the costs associated with one particular court action. That necessitates, I think, the adoption of a broad-brush approach - and perhaps means that the bigger and more complex the liquidation, the broader the brush has to be.
33 As a matter of principle it is clear that a liquidator's remuneration has to fall somewhere between two extremes. On the one hand, liquidators should not be so confined in relation to their fees that individuals will be discouraged from taking on difficult liquidations. It must be remembered that Conlan was here faced with a daunting task - hopeless or non-existent financial recording on the part of the company; thousands of creditors, most of whom were greatly distressed; a most unusual form of liquidation with all the activities of the liquidator conducted under the harsh light of public scrutiny. Further, Conlan is a seasoned professional with a large staff. It is to be expected that his costs will be high. He has to be
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- adequately remunerated. On the other hand, creditors have to be protected from a liquidator adopting what might be called "the snout in the trough" approach. For a liquidator to proceed without having any regard whatever as to what benefits are likely to be obtained as a result of the costs incurred is patently unfair to the creditors. It is incumbent upon a liquidator to exercise his professional judgment and to take only those actions which are necessary and are beneficial to the interests of the creditors.
34 This concept of rewarding a liquidator for value not indemnifying him against costs is taken up by Young CJ in Eq in Ide v Ide [2004] NSWSC 751 at 46. His Honour refers to the judgments of Ferris J in Mirror Group Newspapers v Maxwell (No 2) (1998) 1 BCLC 638 at 652 and Re Independent Insurance Co Ltd (in provisional liquidation) (No 2) (2003) 1 BCLC 640. His Honour then adds the cautionary note that adoption of such a principle does not mean the receiver is only remunerated if he is successful in adding value to the assets: see Waldron v MG Securities (A/Asia) Ltd [1979] ACLC 40-541.
35 There is one final point that I should mention. This application was made after the creditors of Rowena declined to approve Conlan's remuneration. Counsel for the objectors made much of this refusal - citing it as an indication that the creditors did not believe such remuneration could be justified. Counsel for Conlan submitted that the attitude of the creditors was irrelevant. Conlan was entitled to make an application for remuneration under the Corporations Act and he had done so. The principles to be applied said nothing about the attitude of the creditors. To my mind, the attitude of the creditors cannot be ignored. It is they who are best placed to assess what value has been added to their position by the activities of the liquidator. Having said that, their views could never be decisive. Their rejection of the liquidator's claim for remuneration is but one fact to be taken into account in assessing that remuneration.
36 In the end, as I have said, it seems to me that there is no alternative but to adopt a broad-brush approach. That is what was done by Zeeman J in Re Reiter Brothers Exploratory Drilling Pty Ltd (1994) 12 ACLC 430. His Honour there was dealing with a claim for remuneration of $56,871. This is an entirely different case, but it seems to me that the principles set out by his Honour are equally applicable.
37 It was the submission of counsel for the objectors, particularly counsel for the liquidators of Karri Oak, that the claim by Conlan was
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- unsatisfactory because the liquidator had not established that his claim for remuneration was fair and reasonable. Counsel submitted that Conlan should be sent back to further explain what he had done and why, with particular reference to time-cost entries and particular staff who had undertaken particular activities. With respect, that position seems to me to be unrealistic. There must be a limit to the amount of detail Conlan can be expected to provide. The costs of Conlan analysing his time records and the like in the manner suggested by counsel would be prohibitive. In any event, the same problem would arise. Conlan may be called upon to justify each particular time-cost record for him and each particular employee and place that in the context of the liquidation - all of that against the background of GWA funding. It seems to me far preferable that the remuneration be fixed now.
38 I have determined that an appropriate remuneration for Conlan would be an amount of $200,000. I acknowledge that, in settling on that figure, I am making an assessment of what seems to me to be reasonable in all the circumstances. By way of further explanation, I should say that I would allow Conlan nothing for the period he was acting as supervisor and was paid by GWA. I am not satisfied that the costs incurred in preparing accounts for, and dealing with, the probity auditor are costs properly payable by the creditors. Nor am I satisfied that there was sufficient extra work undertaken by Conlan over and above his work as supervisor which should be charged to the creditors.
39 It is then a question of what amount is reasonable for the period subsequent to his termination as supervisor. That claim, I think, must be looked at with the background that Conlan has been paid millions of dollars by GWA for the work that he has undertaken. I would accept that there can be no doubt that the work he has undertaken since the termination of his position as supervisor is the work of a liquidator. But I am by no means satisfied that the work has been conducted in a way that is of benefit to the creditors. The Oakleigh Acquisitions case (supra), for instance, is difficult to explain. Furthermore, Conlan is being paid by GWA in relation to two actions at least. Those two actions would appear to be the main activities the liquidator needs to undertake to benefit the creditors. Otherwise it is difficult to see precisely what Conlan is doing and what he hopes to achieve. That is not in any way to be critical of his activities. It is a view I have formed after reviewing all of the evidence, hearing Conlan in cross-examination and attempting to establish what is a fair and reasonable remuneration in all the circumstances.
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40 On that basis then, I would approve Conlan's remuneration in an amount of $200,000. I will hear the parties as to the costs of this application and as to the precise form of orders.
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