Combis and Staatz as Joint and Several Liquidators of RB Hospitality Holdings Pty Limited (In Liquidation) v Lee

[2020] NSWSC 1727

Supreme Court

New South Wales

Medium Neutral Citation:

Combis and Staatz as Joint and Several Liquidators of RB Hospitality Holdings Pty Limited (In Liquidation) v Lee [2020] NSWSC 1727

Hearing dates:

16 November 2020

Date of orders:

3 December 2020

Decision date:

03 December 2020

Jurisdiction:

Common Law

Before:

Johnson J

Decision:

See answer to separate questions at [106].

Catchwords:

REAL PROPERTY – mortgagee claim for possession of land arising from alleged default under mortgage – contractual arrangement between parties secured by mortgage – where former director of company requested liquidators to continue trading hotel business and provided detailed indemnity to liquidators as part of the contractual arrangement – determination of separate questions – whether liquidator fees are covered or caught by contractual arrangement and whether amount is indemnified – whether any cash surplus owed by the Defendant is covered or caught by contractual arrangement and whether amount is indemnified – where Defendant’s contractual commitments to Plaintiffs are exhaustive and clear under terms of the contractual arrangement – held that liquidator fees and cash surplus are covered or caught by contractual arrangement and that both amounts are capable of being indemnified against – whether there can be an inquiry in Possession List proceedings as to the reasonableness of liquidator fees – held that contractual arrangement involved complete and immediate indemnity so that inquiry cannot take place as part of Possession List proceedings – responses given to separate questions

Legislation Cited:

Corporations Act 2001 (Cth)

Civil Procedure Act 2005 (NSW)

Insolvency Law Reform Act 2016 (Cth)

Real Property Act 1900 (NSW)

Supreme Court (Corporations) Rules 1999 (NSW)

Uniform Civil Procedure Rules 2005 (NSW)

Cases Cited:

Catalyst Provisional Lending Pty Limited and Ors v Dick-Telfar and Anor [2020] NSWSC 79

Combis & Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation) v Lee [2020] NSWSC 960

Coca-Cola Financial Corporation v Finsat International Ltd [1998] QB 43

Commonwealth Bank of Australia v MLD Financial Services & Management Pty Ltd [2015] NSWSC 1476

Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The “Fedora”, The “Tatiana” and The “Eretrea II”) [1986] 2 Lloyd’s Rep 441

Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd t/as Betta Machinery Sales [2000] QSC 50

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82

In the matter of Octaviar Administration Pty Ltd (In Liquidation) [2020] NSWSC 927

Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1972] HCA 74

Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387

McVeigh v National Australia Bank (2000) 278 ALR 249; [2000] FCA 187

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

Norman v FEA Plantations Ltd (2011) 195 FCR 97; [2011] FCAFC 99

O’Brien v Bank of Western Australia Ltd (2013) 16 BPR 31,705; [2013] NSWCA 71

Oswal v Commonwealth Bank of Australia Ltd [2013] WASCA 58

Perpetual Trustees Victoria Ltd v English (2010) 14 BPR 27,339; [2010] NSWCA 32

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52

Texts Cited:

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Category:

Procedural and other rulings

Parties:

Nick Combis and Steven Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation) (Plaintiffs)
Richard Andrew John Lee (Defendant)

Representation:

Counsel:
Mr DK Smith (Plaintiffs)
Mr M Bennett (Defendant)

Solicitors:
Patane Lawyers (Plaintiffs)
Navado Lawyers and Solicitors (Defendant)

File Number(s):

2018/391580

Publication restriction:

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Judgment

1. JOHNSON J: On 29 July 2020, Davies J, the Possession List Judge, made an order pursuant to Rule 28.2 Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) that certain questions in these proceedings be determined separately and prior to the final hearing of the proceedings: Combis & Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation) v Lee [2020] NSWSC 960 (“Combis and Staatz v Lee”).

The Proceedings

2. These proceedings were commenced by Statement of Claim filed in the Possession List of the Common Law Division on 20 December 2018. The Plaintiffs, Nick Combis and Steven Staatz as joint and several liquidators of RB Hospitality Holdings Pty Ltd (In Liquidation), sought possession of land contained in two folios situated at Sapphire Road, Gunning (“the Gunning property”). The Statement of Claim also sought an order that the Defendant, Richard Andrew John Lee, pay to the Plaintiffs the sum of $293,643.87.

3. By Amended Defence filed on 3 January 2020, the Defendant denied the Plaintiffs’ claim for relief.

4. The crystallisation of the real issues in dispute between the parties has given rise to the identification of separate questions to be determined by the Court ahead of any final hearing.

Factual Background

5. The factual background to these proceedings is not in dispute.

6. On 20 February 2015, RB Hospitality Holdings Pty Ltd (“the Company”) was ordered to be wound up by the Supreme Court of Queensland and the Plaintiffs were appointed as liquidators.

7. The Defendant was the sole director and 50% shareholder of the Company, which carried on a hotel business under the name “O’Neill’s of Dickson”.

8. The Defendant objected to the winding up and asked the Plaintiffs to allow the Company to continue to trade the hotel business. To that end, a General Deed of Indemnity was entered into between the Plaintiffs and the Defendant on 5 March 2015.

9. The General Deed of Indemnity was varied by a Deed of Variation on 23 April 2015, with a view to facilitate the consideration by creditors of a Deed of Company Arrangement.

10. On 23 April 2015, the Defendant also granted the Plaintiffs a Mortgage over the Gunning Property to support any liabilities under the General Deed of Indemnity and the Deed of Variation.

11. In due course, the Plaintiffs asserted that the Defendant was obliged to pay to the Plaintiffs the sum of $293,643.87 made up in the following way:

1. $183,019.54, being unpaid professional fees and expenses due to the Plaintiffs as liquidators of the Company (including the staff to whom the Plaintiffs delegated aspects of the external administration of the Company) for the period from 20 February 2015 to 24 August 2015 (“Liquidator Fees”); and

2. $110,624.33, being missing and/or unpaid cash generated from the trading of the Company between 20 February 2015 to 5 August 2015 (“Cash Surplus”).

12. The Defendant denies that he is liable to the Plaintiffs for these sums.

Application for Determination of Separate Questions

13. By Notice of Motion filed 10 June 2020, the Defendant sought an order under Rule 28.2 UCPR for separate determination of certain questions.

14. The hearing of the Notice of Motion proceeded before Davies J on 25 June 2020 and 24 July 2020.

15. The parties agreed that the issues to be determined separately could be considered by reference to three identified documents – the General Deed of Indemnity, the Deed of Variation and the Mortgage.

16. Davies J determined that an order under Rule 28.2 UCPR should be made for the following reasons (Combis and Staatz v Lee at [29]-[30]):

“29   …First, there are only two heads of claim made in the statement of claim. If neither of them is indemnified, there will be judgment for the defendant. If only one is indemnified, the plaintiffs will be entitled to judgment for possession of land because the mortgage makes it an event of default if the defendant fails to pay any money that must be paid under any agreement made between the plaintiffs and the defendant. Secondly, and relatedly, if the defendant is unsuccessful in demonstrating that the claimed amounts do not fall within the indemnity, there is a strong likelihood of a settlement of the amounts owing. This is because, as I have said, the mortgage secures any amount owing to the plaintiffs.

30   Thirdly, if the answer to question (f) is in the negative, the plaintiffs will be entitled to judgment for possession of the land. Further, the question is a question of law only. Fourthly, the parties agree that a final hearing will take three days. The hearing on the separate questions will take no more than one day and probably less, with consequent costs saving. If a reference to a referee is required to deal with the quantum of any claims at any final hearing, particularly in relation to the reasonableness of the liquidator’s fees, further costs will be incurred. Finally, the plaintiff now accepts that the construction argument can be dealt with by reference only to the three documents identified. In any event, the essential surrounding circumstances would appear to be made clear by the recitals to the Deed of Indemnity and the Deed of Variation.”

Separate Questions for Determination

17. The separate questions for determination by the Court are as follows:

Question 1   Whether on the proper construction of the Mortgage and clause 2 of the Deed of Indemnity as varied by the Deed of Variation, such Deeds being considered as a whole, the amount of $183,019.54 claimed at paragraph 12(a) of the Statement of Claim is covered or caught by either or both of:

(a)   the Deed of Indemnity as varied by the Deed of Variation; and

(b)   the Mortgage.

Question 2   Whether the amount of $183,019.54, being the amount claimed at paragraph 12(a) of the Statement of Claim, is an amount which is capable of being indemnified against.

Question 3   Whether there is a requirement under the Deed of Indemnity as varied by the Deed of Variation for the Defendant to account to the Plaintiffs for any unpaid cash surpluses generated from the trading of RB Hospitality Holdings Pty Ltd (In Liquidation) (‘Company’) by the Plaintiffs.

Question 4   Whether on the proper construction of the Mortgage and clause 2 of the Deed of Indemnity as varied by the Deed of Variation, such Deeds being considered as a whole, the amount of $110,624.33 claimed at paragraph 12(b) of the Statement of Claim is covered or caught by either or both of:

(a)   the Deed of Indemnity as varied by the Deed of Variation; and

(b)   the Mortgage.

Question 5   Whether the amount of $110,624.33, being the amount claimed at paragraph 12(b) of the Statement of Claim, is an amount or thing which is capable of being indemnified against.

Question 6 Whether there can be an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration in this proceeding where a resolution was passed by creditors of the Company on 30 October 2015 approving that remuneration pursuant to section 473(3) of the Corporations Act 2001 (Cth).

Hearing of the Separate Questions

18. The hearing of the separate questions proceeded before me on 16 November 2020. Mr DK Smith of counsel appeared for the Plaintiffs and Mr M Bennett of counsel appeared for the Defendant.

19. As agreed before Davies J, the evidence was documentary only and comprised:

1. letter dated 31 July 2020 from Navado Lawyers & Solicitors to the Court setting out the agreed separate questions for determination (Exhibit A);

2. General Deed of Indemnity dated 5 March 2015 (Exhibit B);

3. Deed of Variation dated 23 April 2015 (Exhibit C); and

4. Mortgage dated 23 April 2015 (Exhibit D).

20. Counsel had furnished written submissions in advance of the hearing and oral submissions were made with respect to the issues arising for determination.

Extracts from the Critical Documents

21. Before moving to submissions made, it is appropriate to set out relevant parts of the documents which fall for consideration and construction in this judgment.

General Deed of Indemnity

22. The General Deed of Indemnity dated 5 March 2015 was between the Defendant (as the “Indemnifier”) and the Plaintiffs (as the “Indemnified Party”).

23. The General Deed of Indemnity contained the following Recitals:

“A.   The Indemnifier is a director of the business RB Hospitality Holdings Ry Ltd (In Liquidation) (the Business).

B.   The Indemnified Party has been appointed jointly and severally as Official Liquidators of the Business.

C.   The Indemnifier objects to the winding up of the Business and asserts that the business is solvent.

D.   The Indemnifier has requested that the Indemnified Party allow the Business to remain trading.

E.   The Indemnified Party has agreed to facilitate the continued trading of the Business subject to the Indemnifier indemnifying the Indemnified Party against any and all costs, expenses, liabilities, claims and losses, howsoever generated, arising from the continued trading of the Business activity and in respect of which the Indemnified Party would otherwise bear personal liability in addition to the Indemnified Party's remuneration and costs arising from the continued trading of the Business.”

24. Clause 2 of the General Deed of Indemnity is of particular significance in its original and varied form. In its original form in the General Deed of Indemnity, Clause 2 provided as follows:

“Indemnity

The Indemnifier unconditionally and irrevocably indemnifies the Indemnified Party against any and all costs, expenses, liabilities, claims and losses, howsoever generated, arising from the continued trading of the Business activity and in respect of which the Indemnified Party would otherwise bear personal liability in addition to the Indemnified Party's remuneration and costs arising from the continued trading of the Business which must be paid to the Indemnified Party immediately on demand.

This indemnity continues until the activity generating the risk to the Indemnified Party comes to an end and thereafter until all claims arising under the indemnity are paid.

The Indemnifier's obligation is a primary obligation and the Indemnified Party is not obliged to proceed against any other person before making a demand for payment hereunder.”

25. It is not necessary to refer to any other part of the General Deed of Indemnity for the purpose of considering the separate questions.

Deed of Variation

26. The Deed of Variation and the Mortgage were each dated 23 April 2015. As will be seen, the two documents should be considered together.

27. Clause 2.1 of the Deed of Variation amended the Recitals to read as follows:

“A.   The Indemnifier is a director of RB Hospitality Holdings Pty Ltd (In Liquidation) ACN 166 980 534 (‘the Company’).

B.   The Company carries on a hotel business under the name and style of ‘O'Neill's of Dickson’ (‘the Business’).

C.   On or about 20 February 2015 the Indemnified Party was appointed as joint and several Official Liquidators of the Company pursuant to an Order made in the Supreme Court of Queensland on that date.

D.   The Indemnifier objects to the winding up of the Company and asserts that the Company is solvent.

E.   The Indemnifier has requested that the Indemnified Party continue trading the Business with a view to facilitating the consideration by creditors of a Deed of Company Arrangement.

F.    The Indemnified Party is willing to facilitate the continued trading of the Business, with a view to creditors considering a Deed of Company Arrangement upon the basis, amongst other things, that the Indemnifier enter into this Deed.”

28. The General Deed of Indemnity did not contain definitions. However, Clause 2.2 of the Deed of Variation introduced a series of definitions of which the following have particular significance to the determination of the separate questions:

“…

Claims   includes (as the context permits) a claim, notice, demand, action, proceeding, litigation, investigation, award, damage, right of action, cause of action, loss (including economic loss), cost or expense, howsoever arising, whether present, unascertained, immediate, future or contingent, whether based in contract or tort or statute and whether involving a third party or party to the Deed, this Deed of Variation or otherwise.

Company   means the RB Hospitality Holdings Pty Ltd (in Liquidation) ACN 166 980 534.

…

Indemnified Party includes any and all of the following:

(a)   Nick Combis and Steven Staatz in their personal capacity both jointly and each of them severally;

(b)   The Liquidators;

(c)   If creditors resolve to appoint the Liquidators or either one of them as Administrators of the Company and the Liquidators agree to accept that appointment, or a court order is made for the appointment of the Liquidators or either one of them as Administrators of the Company, the Liquidators in their capacity as Administrators of the Company; and

(d)   If creditors resolve that the Company execute a Deed of Company Arrangement, and the Liquidators or either one or either of them agree to accept appointment as Deed Administrator of the Deed of Company Arrangement, the Liquidators in their capacity as joint and several Deed Administrators of the Deed of Company Arrangement.

…

Liabilities   means all Remuneration, liabilities, losses, damages, interest, costs, fees, penalties, fines, assessments, forfeitures, expenses and/or disbursements (including legal costs on a full indemnity basis) of whatever description.

Liquidators   means Nick Combis and Steven Staatz in their capacity as joint and several Official Liquidators of the Company.

…

Remuneration   includes the professional fees of the Indemnified Party calculated in accordance with the rates of charge issued from time-to-time by the Indemnified Party in respect of the time spent by them and/or their partners, staff and agents, together with all other costs, outlays, disbursements and expenses properly incurred by the Indemnified Party in connection with or arising out of:

(a)   The Company;

(b)   The Business, including but not limited to the trading of the Business;

(c)   The Winding Up and/or Administration of the Company, including the Administration of the Company subject to any Deed of Company Arrangement; and/or

(d) The Lease.

…”

29. Of critical importance to the separate questions is the amendment to Clause 2 of the General Deed of Indemnity as effected by Clauses 2.4, 2.5 and 2.6 of the Deed of Variation. Those clauses stated:

“2.4   The first paragraph of clause 2 of the Deed is amended to read:

‘The Indemnifier unconditionally and irrevocably agrees to indemnify and keep indemnified the Indemnified Party and their legal representatives, partners, staff and/or agents from and against all Claims and Liabilities of every description incurred by the Indemnified Party arising out of or in connection with, or as a direct or indirect result of:

(a)   The Company;

(b)   The Business, including but not limited to the trading of the Business;

(c)   The Winding Up and/or Administration of the Company, including the administration of the Company subject to any Deed of Company Arrangement;

(d)   The Lease; and/or

(e)   Any and all other matters in respect of which the Indemnified Party would otherwise bear personal liability in addition to the Indemnified Party's Remuneration arising from the matters referred to in subclauses (a) to (d) above.

The Indemnifier must pay the Indemnified Party immediately upon demand any amounts due to the Indemnified Party under this Deed as a liquidated debt without any set-off, counterclaim or (unless required by law) deduction or other withholding.’

2.5   The second paragraph of clause 2 of the Deed is amended to read:

‘The indemnity referred to in this clause is a continuing indemnity and continues until any and all Claims made and/or amounts due to the Indemnified Party under the Deed are paid.’

2.6   The third paragraph of clause 2 of the Deed is amended to read:

‘The obligation of the Indemnifier to indemnify the Indemnified Party under this Deed is a primary obligation. The Indemnified Party is not obliged to proceed against any other person or property, demand payment from any other person, make any payment and/or incur any expense before enforcing that right of indemnity’.”

The Consolidated Indemnity Clause

30. It is helpful at this point to set out Clause 2, the indemnity clause, as it stood after the amendments made by the Deed of Variation. Clause 2 then stated:

“The Indemnifier unconditionally and irrevocably agrees to indemnify and keep indemnified the Indemnified Party and their legal representatives, partners, staff and/or agents from and against all Claims and Liabilities of every description incurred by the Indemnified Party arising out of or in connection with, or as a direct or indirect result of:

(a)    The Company,

(b)    The Business, including but not limited to the trading of the Business;

(c)    The Winding Up and/or Administration of the Company, including the administration of the Company subject to any Deed of Company Arrangement;

(d)    The Lease; and/or

(e)    Any and all other matters in respect of which the Indemnified Party would otherwise bear personal liability in addition to the Indemnified Party’s Remuneration arising from the matters referred to in sub-clauses (a) to (d) above.

The Indemnifier must pay the Indemnified Party immediately upon demand any amounts due to the Indemnified Party under this deed as a liquidated debt without any set-off, counterclaim or (unless required by law) deduction or other withholding.

The indemnity referred to in this clause is a continuing indemnity and continues until any and all Claims made and/or amounts due to the Indemnified Party under the Deed are paid.

The obligation of the Indemnifier to indemnify the Indemnified Party under this deed is a primary obligation. The Indemnified Party is not obliged to proceed against any other person or property, demand payment from any other person, make any payment and/or incur any expense before enforcing that right of indemnity.”

Other Amended Clauses

31. Clause 4 of the General Deed of Indemnity concerned the provision of security by the Defendant. In its amended form after the Deed of Variation, Clause 4 provided that, as security for performance of the Defendant’s obligations under the Deed, he granted to the Plaintiffs a mortgage over his interest in the Gunning property.

32. Clause 5 of the General Deed of Indemnity dealt with default. After amendment by the Deed of Variation, Clause 5 read as follows:

“1.    It is an event of default under this deed if the Indemnifier:

(a)    Fails to strictly comply with any of his obligations under this Deed, including but not limited to paying any amount to the Indemnified Party in accordance with the terms of this deed; and/or

(b)   Acts in a manner which, in the sole opinion of Indemnified Party:

(i)    is contrary to the proper and orderly Winding Up and/or Administration of the Company and/or the Business; or

(ii)    is prejudicial to and/or not in the interests of the creditors of the Company.

2.    If an event of default occurs under this deed the Indemnified Party may, without limitation and at their absolute discretion, require the Indemnifier to remedy the default and/or exercise any of their rights and remedies under this Deed or at law or in equity.”

33. Other amendments were made to the General Deed of Indemnity by the Deed of Variation, but it is not necessary to refer to them for the purpose of determining the separate questions.

Mortgage

34. The Mortgage dated 23 April 2015 contained provisions to which the Court was taken by the parties. Clause 1.1(a) related to the Defendant’s “Money Obligations” and said:

“(a)   Pay Secured Money and Interest

You must pay us:

•   the secured money and

•   any other money payable by you under any agreement between you and us

in the way set out in any written agreement between you and us.”

35. Clause 12.1 of the Mortgage contained a number of definitions, including the following:

“In the mortgage, unless the context otherwise requires:

…

'Deed’ means the General Deed of Indemnity entered into between you and us on or about 5 March 2015;

…

'secured money’ means:

•   all moneys that you owe us or that may become owing by you to us under any agreement between you and us now or in the future, including under the Deed; and

•   all moneys that you owe us under any security, and

•   all moneys that you have guaranteed or in the future guarantee to us will be paid; and

•   all money that any agreement says is secured money, and

•   interest on those moneys.

It does not include any amount that exceeds the amount payable under any agreement secured by the mortgage plus reasonable expenses of enforcing the mortgage.

…”

36. The Mortgage was registered under the Real Property Act 1900 (NSW).

Relevant Legal Principles

37. There was no dispute concerning the principles to be applied in construing the relevant documents for the purpose of answering the separate questions.

38. When construing a contract, the inquiry is what a reasonable person, in the position of the parties, would have considered the clause to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [35]-[36] and [40]. This is to be determined from the natural and ordinary meaning of the words used in light of the document as a whole: Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510; [1986] HCA 82.

39. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, French CJ, Nettle and Gordon JJ said at [46]-[47] (footnotes omitted):

“46   The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

47   In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood the terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.”

40. In McVeigh v National Australia Bank (2000) 278 ALR 249; [2000] FCA 187 at [30], Finkelstein J said with respect to the construction of any instrument:

“In some cases it is also permissible to have regard to other instruments. Thus, where several instruments are made as part of one transaction they will be construed together and each will be construed with reference to the other. In Smith v Chadwick (1882) 20 Ch D 27, Jessel MR said (at 62-63):

‘that when documents are actually contemporaneous, that is, two deeds executed at the same moment, a very common case, or within so short an interval that having regard to the nature of the transaction the Court comes to the conclusion that the series of deeds represents a single transaction between the same parties, it is then that they are all treated as one deed; and, of course, one deed between the same parties may be read to show the meaning of the sentence, and be equally read, although not contained in one deed, but in several parchments, if all the parchments together in the view of the Court make up one document for this purpose.’

The rule applies whether the documents are executed contemporaneously or at different times: see Norton on Deeds 2nd ed (1928) at p 87-89 and the cases there cited. The reason for the rule is that when a series of documents is necessary to give effect to a single transaction each is executed on the faith of the others being executed and each is intended to operate only as part of that transaction and therefore, as a matter of substance, they should be regarded as one: Manks v Whiteley [1912] 1 Ch 735 at 754.”

41. Whether, or the extent to which, the Mortgage grants a security interest that can be enforced against the Gunning property involves a question of construction: Perpetual Trustees Victoria Ltd v English (2010) 14 BPR 27,339; [2010] NSWCA 32 at [112].

42. The construction of the Mortgage requires consideration of the system of title by registration effected by the Real Property Act 1900 (NSW). In accordance with s.41(1) of that Act, upon registration of a mortgage, the land becomes "liable as security in manner and subject to the covenants, conditions, and contingencies set forth and specified" in the Mortgage.

43. In Perpetual Trustees Victoria Ltd v English, Sackville AJA (Allsop P and Campbell JA agreeing) said at [68]:

“Since neither party disputed the primary Judge’s statement of the relevant principles, the submissions did not canvass the case law in detail. However, the submissions implied that the parties did not take issue with the following principles:

1.    Registration of a mortgage does not transfer the fee simple estate, but the mortgage takes effect as a security over the land: RP Act , s 57(1). Upon registration, the land becomes liable as security in manner and subject to the covenants set forth in the mortgage: RP Act, s 41(1); Provident Capital v Printy at [25], per Basten JA (with whom Tobias and McColl JJA agreed).

…

6.    It is necessary to construe the terms of a mortgage to determine the scope of the estate or interest in respect of which indefeasibility is conferred by registration of the mortgage: Yazgi v Permanent Custodians, at [22].

…

7.    Generally speaking, if the mortgagee specifies a sum of money (plus interest) as the amount secured by the mortgage, the charge created by the mortgage will secure the amount so specified even if the document creating the indebtedness is void under general law principles: Small v Tomasetti.

8.    However, if as a matter of construction, the mortgage does not take effect as a security over the land in relation to a claimed debt or obligation, registration of the mortgage will not entitle the mortgagee to exercise remedies, such as the power of sale, to enforce any such claimed debt or obligation: Provident Capital v Printy, at [50]-[52]; Yazgi v Permanent Custodians, at [25]ff. The question of construction may be particularly difficult where the registered mortgage refers to antecedent documentation which is not incorporated in the Torrens register and which may be invalid on general law principles.”

44. Counsel for the Defendant referred to the final sentence of the last mentioned paragraph (Perpetual Trustees Victoria Ltd v English at [68](8)). It was submitted that this principle had particular application in this case.

45. It is appropriate to consider firstly Questions 1 and 2 (concerning Liquidator Fees) before turning to Questions 3, 4 and 5 (concerning Cash Surplus) and then to Question 6 (concerning an inquiry into reasonableness of remuneration in these proceedings).

Questions 1 and 2 - Liquidator Fees

Submissions for Plaintiffs Concerning Questions 1 and 2

46. Mr Smith submitted that the resolution of Questions 1 and 2 required construction of the Deed of Variation and the Mortgage. He submitted that it was necessary to read together the amendment made by Clause 2.4 of the Deed of Variation and the definitions of “Liabilities” and “Remuneration” as contained in Clause 2.2 of the Deed of Variation.

47. Counsel submitted that, when read together, the Deed of Variation provided unambiguously that the Liquidator Fees were covered so that the Plaintiffs may seek to recover them in the way sought in the Statement of Claim.

48. With respect to the commercial purpose of the Deed of Variation, Mr Smith observed that the Defendant had asserted that the Company was solvent and, for that reason, that he should be permitted to continue operating its business. In that circumstance, Mr Smith submitted that it was no surprise that the creditors and the liquidators should require a complete indemnity for their financial risk and that the Defendant should be willing to provide that complete indemnity.

49. Counsel for the Plaintiffs submitted that the liquidator’s power to continue trading under s.477(1)(a) Corporations Act 2001 (Cth) required them to ensure that the business of the Company was being carried out for the beneficial disposal or winding up of the business. In those circumstances, it was submitted, a full indemnity was necessary to ensure that this duty was observed.

50. With respect to a submission made for the Defendant that Clause 2.4 should be construed as indemnifying all claims and liabilities which arise out of the Plaintiffs’ remuneration, but not the remuneration itself, it was submitted for the Plaintiffs that this construction was quite inconsistent with the clear words contained in Clause 2.4 (as amended) and the definitions of “Liabilities” and “Remuneration” in Clause 2.2.

51. Counsel for the Plaintiffs submitted that the Liquidator Fees were caught by the contractual arrangements between the parties so that Questions 1 and 2 should be answered in the affirmative.

Submissions for the Defendant Concerning Questions 1 and 2

52. Mr Bennett submitted that Clause 2.4, as amended, operated to indemnify the Plaintiffs from any claim or liability incurred by them at the hands of some third party. Counsel submitted that Clause 2.4 ought not be construed as allowing the Plaintiffs to recover sums such as Liquidator Fees directly from the Defendant. It was submitted that the use of the words “incurred by the Indemnified Party” in Clause 2.4 was inconsistent with recovery of remuneration which the Plaintiffs say they were entitled to recover directly from the Defendant by way of Liquidator Fees. It was submitted that liquidator’s professional fees are not “incurred”, but are “generated” with this being an important distinction in the construction of the clause.

53. It was submitted for the Defendant that the professional fees and expenses of the Plaintiffs were not incurred by them (as the Indemnified Party), but were fees generated by them (as the Indemnified Party). The sum represented remuneration to, and not an expense or cost of the Indemnified Party.

54. It was submitted for the Defendant that the entire regime of the carefully drafted agreements involving the General Deed of Indemnity, the Deed of Variation and the Mortgage, was to indemnify the Plaintiffs for claims made against them or liabilities that they owed to others.

55. Viewed in this way, it was submitted that the sum of $183,019.54 did not fall within that class of claim.

Decision on Questions 1 and 2

56. The amendments made by the Deed of Variation of 23 April 2015 included a more comprehensive form of indemnity, which incorporated by reference definitions of the terms “Claims” and “Liabilities” which had not been in the General Deed of Indemnity.

57. It is necessary to consider these terms together in construing the indemnity clause which applied from 23 April 2015. The Defendant had asserted that the Company was solvent and, for that reason, that he should be permitted to continue operating its business. The Plaintiffs were prepared to allow this to occur, with a carefully crafted contractual arrangement intended to provide a complete indemnity for their financial risk, and with the Defendant to provide that indemnity. In the circumstances of this case, that indemnity extended to “Remuneration” which included the professional fees of the Plaintiffs.

58. The submission advanced for the Defendant requires the term “Remuneration” (and its definition) to be effectively ignored in construing Clause 2.4. Clause 2, as amended, required the Defendant to indemnify the Plaintiffs with respect to a very broad category of financial obligation, with “Liabilities” including “Remuneration” which included “the professional fees of” the Plaintiffs.

59. It is clear that Clause 2 was intended to operate in a manner which constrained the Defendant in a number of respects, and required him to meet a closely defined class of monetary obligations by means of the indemnity clause in Clause 2.

60. I do not accept the Defendant’s submission that the use of the word “incurred”, instead of the word “generated”, gives rise to a meaningful distinction in this case. The word “incurred” accommodates reasonably the Defendant’s liability for the professional fees of the Plaintiffs.

61. During the course of submissions, I observed that the Defendant’s submission appeared to contend that Clause 2 operated as a shield for the Plaintiffs to guard against any form of liability at the hands of a third party, but not as a sword or basis upon which the Plaintiffs could seek to recover monies (such as Liquidator Fees) from the Defendant. Counsel for the Defendant adopted that analogy in support of his submissions for the Defendant.

62. The difficulty with the Defendant’s submission is that it does not sit comfortably with the clear and extensive provisions contained in Clause 2 and the definitions introduced by the Deed of Variation with particular application to the amended Clause 2.4. The Defendant’s submission would require, in effect, the Court to disregard terms within the contract which, I am satisfied, have clear application to the present circumstances. I do not accept the Defendant’s submission in this respect.

63. I am satisfied that the proper construction of Clause 2 of the Deed of Variation extends that provision to Liquidator Fees in the sum of $183,019.54.

64. For these reasons, I propose to answer Questions 1 and 2 in the affirmative.

Questions 3, 4 and 5 - Cash Surplus

Submissions for the Plaintiffs Concerning Questions 3, 4 and 5

65. The premise of Questions 3, 4 and 5 is that the Defendant has retained the Cash Surplus (money generated from operating the Company’s business) for himself rather than pay it to the Company or to the Plaintiffs as liquidators.

66. The Court was informed that there was some controversy concerning this issue. However, for the purpose of determination of the separate questions, the Court was invited to proceed upon the basis that there was a Cash Surplus retained by the Defendant.

67. Mr Smith submitted that the term “Claims” was defined in the widest possible terms, including many concepts “howsoever arising”. It was submitted that the Plaintiffs had a claim to the Cash Surplus in the following way:

1. when the Defendant was operating the business under the General Deed of Indemnity, he was doing so as an agent and officer of the Company;

2. under s.483 Corporations Act 2001 (Cth), the Court may require an agent or officer to pay to the liquidators any money to which the Company is prima facie entitled; and

3. this power is delegated to the Plaintiffs (as liquidators) under s.488(1)(b) Corporations Act 2001 (Cth) and Rule 7.10 Supreme Court (Corporations) Rules 1999 (NSW).

68. It was submitted that the Plaintiffs’ right to require that the Defendant pay the Cash Surplus to them under s.483 Corporations Act 2001 (Cth) fell within the definition of the term “Claims” in Clause 2.2 of the Deed of Variation. It was submitted that the term “Claims” is not limited to claims that third parties may bring against the Plaintiffs as liquidators as argued by the Defendant.

69. The Plaintiffs submitted that there is nothing in the text of the contractual documents that limited the term “Claims” in the way suggested by the Defendant. Rather than limiting the term to claims against the liquidators, it was submitted for the Plaintiffs that claims of every description are included. It was submitted that “Claims” and “Liabilities” are different and that, if it was intended that claims be limited to claims against the liquidators, the term “Claims” could have been included in the definition of “Liabilities” rather than being dealt with separately in the contract.

70. It was submitted for the Plaintiffs that the Defendant’s argument that there was a distinction between claims brought by the liquidators and claims brought against the liquidators was highly artificial.

71. Accordingly, counsel for the Plaintiffs submitted that the claim for the Cash Surplus fell within the contract so that Questions 3, 4 and 5 should be answered in the affirmative.

Submissions for the Defendant Concerning Questions 3, 4 and 5

72. Mr Bennett submitted that the claim by the Plaintiffs for the Cash Surplus was not an amount, or an activity giving rise to an amount, that was contemplated by the contractual arrangements between the parties. Counsel submitted that Clause 2 of the Deed of Variation imposed obligations to pay by way of an indemnity, but that nowhere else did the Deed require the Defendant to make payments to the Plaintiffs or to anyone else. He submitted that the contract was a deed of indemnity which did not apply to any obligation to account which arose independently of the Deed.

72. Counsel for the Defendant submitted that the Cash Surplus, if it exists, is not a claim against or liability to the Plaintiffs as Indemnified Party. At best, it is a pool of funds to which the Company itself may pursue by legal recourse; that is, it is a potential asset of the Company. To fall within the indemnity, it was submitted, it must be an actual liability of the Plaintiffs as Indemnified Party. As the alleged Cash Surplus is a potential asset (rather than a liability) and it is the Company’s asset (rather than the Indemnified Party’s), then the Cash Surplus is not caught by paragraph 12(b) of the Statement of Claim.

73. It was submitted further for the Defendant that the Cash Surplus does not fall within the Mortgage because the Company’s potential claim is not one of the constituent elements of the “secured moneys” definition in the Mortgage. Accordingly, the Defendant submitted there was no scope for the Mortgage to cover the Cash Surplus.

Decision Concerning Questions 3, 4 and 5

75. Once again, it is appropriate to construe the contractual documents which operate as between the Plaintiffs and the Defendant, including the Mortgage, which is a related document.

76. The Defendant’s liability under the Mortgage extends to “secured money” under the “Deed” which, it was accepted, included amendments made by the Deed of Variation of 23 April 2015.

77. It is necessary to keep in mind the context in which the contractual arrangement between the Plaintiffs and the Defendant came about and were varied on 23 April 2015. Upon the basis that the Defendant was to be permitted to continue operating the business of the Company, he was required to provide an exhaustive contractual commitment to protect the Plaintiffs as liquidators including an agreement to pay all claims (without restriction and however arising) which the Plaintiffs made against the Defendant.

78. The claim for the Cash Surplus is one connected with the operation of the business so that there is a linkage to the subject matter which concerned both the Plaintiffs (as liquidators) and the Defendant.

79. I accept the submission for the Plaintiffs (at [67] above) as to the way in which the Defendant was liable to pay the Cash Surplus to the Plaintiffs. The requirement to pay the Cash Surplus to the Plaintiffs fell within the broad definition of “Claims” and was caught by Clause 2 as amended by the Deed of Variation.

80. I am satisfied that the claim in the sum of $110,624.33 by way of Cash Surplus was maintainable by the Plaintiffs against the Defendant under their contractual arrangement and that this fell within the definition of “secured money” in the Mortgage. In this way, it is open to the Plaintiffs to claim for the Cash Surplus against the Defendant in the manner utilised in the Statement of Claim.

81. For these reasons, each of Questions 3, 4 and 5 should be answered in the affirmative.

Question 6 - Inquiry into Reasonableness of Remuneration in these Proceedings

82. By Notice of Motion filed on 13 March 2020, the Defendant sought a reference to a referee for an inquiry into the reasonableness and proportionality of the Liquidator Fees being the sum of $183,109.54 referred to in Questions 1 and 2. An issue arose as to whether there can be an inquiry in these proceedings as to the reasonableness of the Liquidator Fees in circumstances where the remuneration has already been approved by the creditors pursuant to s.473(3) Corporations Act 2001 (Cth).

83. The reference for inquiry is sought as the Defendant wishes to dispute the quantum of the Liquidator Fees. Question 6 raises the question as to whether there can be an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration in these proceedings where there has already been a resolution passed by the creditors on 30 October 2015.

Submissions for the Plaintiffs Concerning Question 6

84. Mr Smith noted that the Plaintiffs seek an order for possession of the Gunning property under the Mortgage as relief sought in the Statement of Claim. He submitted that a dispute as to the amount owing under a mortgage is no answer to a claim for possession under the Mortgage: Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161; [1972] HCA 74.

85. Counsel for the Plaintiffs submitted that the Defendant’s position is more difficult again as Clause 2 of the Deed of Variation requires the Defendant to pay to the Plaintiffs any sum “immediately” and “without any set-off, counter claim or (unless required by law) deduction or other withholding”.

86. Mr Smith submitted that there is no doubt that clauses of this kind are enforceable: Oswal v Commonwealth Bank of Australia Ltd [2013] WASCA 58 at [45]; Coca-Cola Financial Corporation v Finsat International Ltd [1998] QB 43 at 50; Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou (The “Fedora”, The “Tatiana” and The “Eretrea II”) [1986] 2 Lloyd’s Rep 441 at 444 (The “Fedora”).

87. Counsel submitted that a virtually identical clause was considered in Commonwealth Bank of Australia v MLD Financial Services & Management Pty Ltd [2015] NSWSC 1476, where the defendant had raised an equitable set-off, with the Court holding that the equitable set-off could not be raised in those proceedings with summary judgment being granted for possession. See also Catalyst Provisional Lending Pty Limited and Ors v Dick-Telfar and Anor [2020] NSWSC 79 at [25]-[29].

88. Mr Smith noted that the issue was whether the attempt to review the liquidator’s remuneration fell within the description “set-off, counterclaim or (unless required by law) deduction or other withholding”.

89. He submitted that this clause is to be construed in accordance with business common sense: O’Brien v Bank of Western Australia Ltd (2013) 16 BPR 31,705; [2013] NSWCA 71 at [82]; Oswal v Commonwealth Bank of Australia Ltd at [53]; Norman v FEA Plantations Ltd (2011) 195 FCR 97; [2011] FCAFC 99 at [197]-[199].

90. Counsel submitted that the commercial purpose of clauses such as these is so that the mortgagee should be paid quickly: The “Fedora” at 444; O’Brien v Bank of Western Australia Ltd at [97]. The clause is not to be construed contra proferentem: Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd t/as Betta Machinery Sales [2000] QSC 50 at [17].

91. Mr Smith noted that the Defendant sought the referral because he considered that the quantum of the Liquidator Fees was too high and this does not rise as high as a set-off or a counter claim. He submitted that the term “deduction” is a flexible term and its meaning is dependent on context: Norman v FEA Plantations Ltd at [185].

92. It was submitted for the Plaintiffs that the assertion that the Liquidator Fees should be reduced constituted an attempt to apply a deduction. Mr Smith submitted that the meaning of the clause here was unambiguous - the full amount demanded must be paid as a liquidated debt. A reference to enquire into the quantum of the Liquidator Fees was impermissible on the proper construction of the General Deed of Indemnity and the Deed of Variation. Counsel submitted that this was precisely the sort of delay that the clause was intended to prevent.

93. Counsel for the Plaintiffs submitted that it remained open to the Defendant to seek a review of the liquidator’s remuneration and that the effect of the clause is only that he may not do so in these proceedings: Oswal v Commonwealth Bank of Australia Ltd at [48]; The “Fedora” at 444.

Submissions for the Defendant Concerning Question 6

94. Mr Bennett noted that the Insolvency Law Reform Act 2016 (Cth) governs the process of review of a liquidator’s remuneration. All liquidators appointed before the commencement of the Insolvency Law Reform Act 2016 (Cth) in 2017 continue to use the old insolvency rules under the Corporations Act 2001 (Cth): In the matter of Octaviar Administration Pty Ltd (In Liquidation) [2020] NSWSC 927 at [1].

95. Mr Bennett submitted that s.473(5) and (6) Corporations Act 2001 (Cth) gave the Court the power to review a liquidator’s remuneration and to confirm, increase or reduce the remuneration. Reference was made to Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387, where Barrett J (as his Honour then was) referred to factors identified in s.473(10) Corporations Act 2001 (Cth) when undertaking a review.

96. Mr Bennett submitted that the Court possesses the power to conduct an inquiry into the reasonableness of the Liquidator Fees after a resolution of the creditors and that the process of referral to a referee is the efficient way to deal with the question. He submitted that clear words would be needed to exclude the power of inquiry by the Court in these proceedings and that this test was not satisfied in this case.

Decision Concerning Question 6

97. It is common ground between the parties that it is open to the Defendant to seek an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration. The issue raised by Question 6 is whether the inquiry may take place in these proceedings or only by way of separate application.

98. The claim by the Plaintiffs against the Defendant in these proceedings arises from the detailed contractual arrangement between them under the General Deed of Indemnity, the Deed of Variation and the Mortgage, by which the Defendant provided a complete indemnity to the Plaintiffs as noted earlier in this judgment.

99. I have already held that the Liquidator Fees, which are the subject of Questions 1 and 2, are able to be claimed against the Defendant in these proceedings.

100. The contractual arrangement between the Plaintiffs and the Defendant provided for the Plaintiffs to recover against the Defendant “immediately” and “without any set-off, counter claim or (unless required by law) deduction or other withholding”. In the same way as an equitable set-off does not constitute a basis to resist an application for summary judgment for possession in mortgage default proceedings, I do not consider that the capacity to seek an inquiry into the reasonableness of Liquidator Fees should have that effect in this case.

101. The clause presently under consideration forms part of the detailed commercial arrangement between the Plaintiffs and the Defendant with the view to achieving avoidance of delay in enforcing the contractual arrangement, including a claim for possession of the Gunning property under the Mortgage.

102. I am satisfied that the outcome of an inquiry into the reasonableness of the Liquidator Fees, if conducted as part of the present proceedings in the Possession List if it was successful for the Defendant, would constitute (at best for the Defendant) a deduction (as expressly prohibited in Clause 2). I consider that it is not open to the Defendant to seek such an inquiry as part of these proceedings.

103. I am conscious that this approach may result in separate proceedings between the parties being the present claim for possession by the Plaintiffs and a separate claim by the Defendant for an inquiry into the reasonableness of the Liquidator Fees. This may not sit comfortably with the overriding purpose in s.56 Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in the proceedings.

104. However, I am satisfied that the real issues in the present proceedings are confined in the manner which I have described as a result of the detailed contractual arrangement between the Plaintiffs and the Defendant, which included the giving of security under the Mortgage. The principles in Inglis v Commonwealth Trading Bank of Australia have application to this case so that, under the contractual arrangement between the Plaintiffs and the Defendant, the Defendant would have no arguable defence to the claim for possession arising from his desire to dispute the quantum of the Liquidator Fees.

105. I propose to answer Question 6 in the negative.

Responses to Separate Questions

106. For the above reasons, I answer the questions posed in the following way:

Question 1:

Whether on the proper construction of the Mortgage and clause 2 of the Deed of Indemnity as varied by the Deed of Variation, such Deeds being considered as a whole, the amount of $183,019.54 claimed at paragraph 12(a) of the Statement of Claim is covered or caught by either or both of:

(a)   the Deed of Indemnity as varied by the Deed of Variation; and

(b)   the Mortgage.

Answer:

The amount of $183,019.54 is covered or caught by the General Deed of Indemnity, the Deed of Variation and the Mortgage.

Question 2:

Whether the amount of $183,019.54, being the amount claimed at paragraph 12(a) of the Statement of Claim, is an amount which is capable of being indemnified against.

Answer:

The amount of $183,019.54 is capable of being indemnified against.

Question 3:

Whether there is a requirement under the Deed of Indemnity as varied by the Deed of Variation for the Defendant to account to the Plaintiffs for any unpaid cash surpluses generated from the trading of RB Hospitality Holdings Pty Ltd (In Liquidation) (‘Company’) by the Plaintiffs.

Answer:

There is such a requirement.

Question 4:

Whether on the proper construction of the Mortgage and clause 2 of the Deed of Indemnity as varied by the Deed of Variation, such Deeds being considered as a whole, the amount of $110,624.33 claimed at paragraph 12(b) of the Statement of Claim is covered or caught by either or both of:

(a)   the Deed of Indemnity as varied by the Deed of Variation; and

(b)   the Mortgage.

Answer:

The amount of $110,624.33 is covered or caught by the General Deed of Indemnity, the Deed of Variation and the Mortgage.

Question 5:

Whether the amount of $110,624.33, being the amount claimed at paragraph 12(b) of the Statement of Claim, is an amount or thing which is capable of being indemnified against.

Answer:

The amount of $110,624.33 is capable of being indemnified against.

Question 6:

Whether there can be an inquiry by the Court into the reasonableness of the Plaintiffs’ remuneration in this proceeding where a resolution was passed by creditors of the Company on 30 October 2015 approving that remuneration pursuant to section 473(3) of the Corporations Act 2001 (Cth).

Answer:

There cannot be such an inquiry in these proceedings.

Costs and Other Issues

107. At the conclusion of the hearing on 16 November 2020, I indicated to the parties that I would answer the separate questions and then provide a further opportunity for the parties to make submissions concerning costs and outstanding procedural issues after reading this judgment of the Court.

108. By 4.00 pm on 10 December 2020, the parties should furnish to my Associate by email (and exchange) written submissions on costs and any outstanding procedural issues.

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Decision last updated: 03 December 2020