In the matter of Australian Investment Corp Ltd (in liq) Wallace-Smith, Simon Alexander & Anor [In their capacity as the Liquidators of Australasian Investment Corp Ltd (in liq)] v Boland, Frederic
[1996] FCA 692
•8 AUGUST 1996
CATCHWORDS
CORPORATIONS LAW - liquidation - application by liquidators for directions - whether money held by the company can be traced by creditor - whether amount part of general pool of funds for distribution.
PRACTICE AND PROCEDURE - costs - whether parties' costs should be drawn from specific fund or general pool.
Corporations Law, s 479(3)
Australian Securities Commission v Melbourne Asset Management Nominees Ltd and Wallace-Smith v Andrews (1994) 49 FCR 334
Re Buckton; Buckton v Buckton [1907] 2 Ch 404
Re Halston; Ewen v Huston [1912] 1 Ch 435
Windsor Mortgage Nominees Pty Ltd v Cantwell (1979) ACLC 32,195
SIMON ALEXANDER WALLACE-SMITH and RICHARD GELL MANSELL [In their capacity as the Liquidators of AUSTRALASIAN INVESTMENT CORPORATION LIMITED (ACN 055 663 806) (In Liquidation)] v FREDERIC BOLAND
NO VG 3430 of 1995
NORTHROP J
MELBOURNE
8 AUGUST 1996
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION VG No 3430 of 1995
IN THE MATTER of AUSTRALIAN INVESTMENT CORPORATION LIMITED
(In Liquidation)
(ACN 055 663 806)
AND
IN THE MATTER of an Application under Section 479(3) of the Corporations Law
B E T W E E N :
SIMON ALEXANDER WALLACE-SMITH
and RICHARD GELL MANSELL [In their capacity
as the Liquidators of AUSTRALASIAN INVESTMENT
CORPORATION LIMITED (ACN 055 663 806) (In Liquidation)]
Applicants
and
FREDERIC BOLAND Respondent
COURT: NORTHROP J
PLACE: MELBOURNE
DATE: 8 AUGUST 1996
MINUTES OF ORDER
THE COURT ORDERS AND DECLARES THAT :
The following question raised by the Application dated 7 August 1995 is determined as follows:-
(a)QUESTION
Whether all or any and, if so, what part of the Funds referred to in paragraph 34 of the affidavit of Richard Gell Mansell sworn 4 August 1995 and filed herein being the sum of $67,673.44 paid to the Applicants on 31 March 1995 and interest accrued thereon after that date is the property of:
(i) the Respondent; or
(ii)Australasian Investment Corporation Limited (ACN 055 663 806) (In Liquidation) ("the Company") ?
(b) ANSWER
(i)As to the capital sum of $60,000.00 - the Respondent;
(ii)As to the sum of $7,673.44 being interest accrued on the capital sum up to 31 March 1996 -
(A) as to $4,263.03 thereof - the Respondent;
(B) as to $3,410.41 thereof - the Company;
(iii)As to interest accrued on the sum of $67,674.44 since 31 March 1995 -
(A)as to 94.96 per centum thereof - the Respondent;
(B)as to 5.04 per centum thereof - the Company.
It is unnecessary to answer any other question raised by the Application."
The costs and expenses of the Respondent be taxed on a solicitor and client basis and be paid by the Applicants as part of their costs and expenses in the winding up of Australasian Investment Corporation Limited (In Liquidation).
The costs and expenses of the Applicants, as Liquidators, be costs in the winding up of Australasian Investment Corporation Limited (In Liquidation).
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION VG No 3430 of 1995
IN THE MATTER of AUSTRALIAN INVESTMENT CORPORATION LIMITED
(In Liquidation)
(ACN 055 663 806)
AND
IN THE MATTER of an Application under Section 479(3) of the Corporations Law
B E T W E E N :
SIMON ALEXANDER WALLACE-SMITH
and RICHARD GELL MANSELL [In their capacity
as the Liquidators of AUSTRALASIAN INVESTMENT
CORPORATION LIMITED (ACN 055 663 806) (In Liquidation)]
Applicants
and
FREDERIC BOLAND Respondent
COURT: NORTHROP J
PLACE: MELBOURNE
DATE: 8 AUGUST 1996
REASONS FOR JUDGMENT
On 11 October 1994 in matter VG 3368 of 1994, Australasian Investment Corporation Limited ("the Company") was ordered to be wound up. Simon Alexander Wallace-Smith and Richard Gell Mansell ("the Liquidators") were appointed jointly and
severally the liquidators of the Company. Previously the Liquidators had been appointed receivers of the property of the Company and later provisional liquidators of the Company. Questions arose during the course of the winding up of the Company as to who was entitled to the sum of $60,000.00 received by the Liquidators being moneys that were repaid pursuant to a loan agreement and mortgage entered into by a Ms Lewis and a Mr Burns. To resolve those questions, the Liquidators brought this application under sub-section 479(3) of the Corporations Law. That sub-section provides:-
"(3)The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up."
No satisfactory explanation was given why this matter was not brought by way of motion on notice in Matter VG 3368; see generally Australian Securities Commission v Melbourne Asset Management Nominees Ltd and Wallace-Smith v Andrews (1994) 49 FCR 334 ("the MAM Case"). By their application, the Liquidators sought answers to some six questions. The only respondent to the application was Frederic Boland who claimed to be entitled to the $60,000.00. No other person who could possibly have had an interest in that sum was joined. During the course of the hearing, for reasons then given, the Court ordered that notice of the application need not be given to any other person; see O 71 r 9 and r 10 of the Federal Court Rules. In essence the reason was that the Liquidators and Mr Boland were true contradictors, the Liquidators claiming that the money formed part of the assets of the Company while Mr Boland claimed the money belonged to him.
The Liquidators have had trouble in obtaining material describing the nature of the activities being carried on by the Company. During the course of the hearing, the parties agreed that the nature of the business was that described in an undated letter on the letterhead of the Company and signed by its managing director. The parties agreed that Mr Boland gave moneys to the Company after reading a letter in similar form and for the purposes set out in the letter. The letter is as follows:-
"MORTGAGE FUNDS INVESTMENTS
Thank you for your recent enquiry in relation to our Mortgage Investment Fund for you and if applicable, your clients.
There is little doubt that the forgotten segment of the community are those retirees, superannuants or investors who have liquid assets to invest. Their disposable income has been virtually cut by two thirds over the last 18 months - 24 months and our initiative is in response to this circumstance.
Our investors will be protected by First Mortgage Security with advances of no more than 66.6% of the Sworn Valuation of the property so secured. In addition, each borrowing request will be reviewed carefully to establish viability. This is for your protection, your client's protection, as well as safeguarding our reputation as Investment Managers. With our principals having 45 years experience in accountancy/finance and banking fields, we believe we can "do the job" properly.
From the time the respective mortgage transaction is put in place we will guarantee 10% p.a. return to your clients. We are able to do this as a result of charging the borrower between 11% and 12% p.a., the difference being our management fees.
When we have settled, you or your investor will have the opportunity to peruse the full file of the borrower, subject only to the making of an appointment.
There are two forms of mortgage investment:
(A)One-on-one match up of lender against borrower. In this case the investor's name will appear on the mortgage, as will ours, as managers of the fund.
(B)A Contributory Mortgage with other similar investors. In this case, we will act as mortgagee with your respective interest in the mortgage denoted by way of legal agreement.
Australasian Investment Corporation Limited is pleased to announce that Solicitors Herman Mirabella and Accountants Rose and Associates have become Shareholders/Directors of Australasian Investment Corporation Limited.
In addition through the services of Accountants Artenstein & Co., Mr. Martin Artenstein is the Auditor of Australasian Investment Corporation Limited. As a
public company (unlisted) we are committed to operating in a thoroughly ethical way ensuring the safety of your investment."
From the evidence before the Court it is clear that the Company did not perform its obligations as set out in the letter. It did not set up a Mortgage Investment Fund. It did not open a separate trust fund account into which it paid moneys received from persons seeking to invest moneys. The Company had one bank account only into which it paid all moneys received and from which it withdrew moneys for its personal use and for other purposes. There was a complete intermingling of all moneys in a way similar to what happened in the MAM Case. Under these circumstances a similar result would be expected to follow where tracing was impossible and all moneys held by the Liquidators for distribution among those entitled under the Mortgage Funds Investments would be paid on a pro rata basis having regard to the amount invested by each.
By chance, Mr Boland is very fortunate. He was the first "investor" with the Company. Most of the money he paid the Company can be traced to the $60,000.00, the subject of this application. The essential issue between the parties is whether the subsequent intermingling of moneys prevents Mr Boland tracing his money.
The parties have agreed, in my opinion correctly, that moneys received by the Company pursuant to the terms of the Mortgage Funds Investments letter were held by it in a fiduciary capacity in favour of the person making the payment. As in the MAM Case, the fiduciary relationship arose from the nature of the dealings between the Company and each investor. The passage in the MAM Case commencing at 358 under the heading "11.Priority between investors and creditors" has equal application to the facts of this case.
The facts relevant to the question before the Court are simple. The Company opened a bank account in its name with the ANZ Bank, East Melbourne Branch, in July 1992. Until April 1993 moneys belonging to the Company only were paid into and withdrawn from that account.
On 15 April 1993 the bank account was in overdraft debit by $37.35. On 15 April 1993 Mr Boland paid $90,000 to the Company to be dealt with pursuant to the terms of Mortgage Funds Investments letter. This sum was paid into the bank account. On the same day the Company paid $30,000.00 from the bank account to a company, Informed Sources Finance Pty Ltd. The sum of $30,000.00 has been lost and cannot be traced. On 16 April 1993 the Company withdrew $60,000.00 from the bank account and paid it into a term deposit account in the Company's name. Following these transactions, the bank account showed an overdraft debit of $37.35.
Thereafter further charges were added to the overdraft debit of the account. On 7 June 1993 a joint investor, a Mr and Mrs Bloomberg, paid $10,000.00 to the Company. The Company paid this amount into the bank account. The overdraft debit amounted to $96.95. As a result of the payment of $10,000.00. The bank account was $9,903.05 in credit.
The next transaction on the bank account occurred on 15 June 1993. The $60,000.00 which had been on the term deposit account was repaid together with $357.57 interest. This resulted in the Company's bank account being $70,260.62 in credit. On the next day $60,000.00 was withdrawn from the account by means of two cheques one in the sum of $47,586.18 in favour of David J Greenwood & Co. and the other in the sum
of $12,413.82 in favour of Informed Sources Finance Pty Ltd. After these withdrawals, the balance in the bank account was $10,260.62, an amount greater than the $10,000.00 invested by Mr and Mrs Bloomberg. Thereafter the bank account fluctuated but this fact does not, in my opinion, affect the tracing of the $60,000.00 claimed by Mr Boland.
On 11 June 1993 an agreement in writing had been entered into between the Company and Mr Boland as lenders and Ms Lewis and Mr Burns, an engaged couple, as borrowers, by which the borrowers agreed to borrow $60,000.00 from the lenders to complete the purchase by Ms Lewis of a property in Queensland. The loan was to be for six months with an option for a further six months, when the loan was due to be repaid. The borrowers agreed to sign a mortgage over the property. Interest was at the rate of 1.5% per month ($900.00) until settlement, a rate of 18% per year. The borrowers were to pay all the expenses connected with the loan and mortgage. The loan agreement was signed by Mr Boland. On 16 June 1993, Mr Burns signed a guarantee for the repayment of the moneys to be lent.
On 16 June 1993 Ms Lewis executed a Bill of Mortgage in conformity with the law of the State of Queensland by which she mortgaged the property in Queensland as security for the $60,000.00. In the Bill of Mortgage the Company and Mr Boland are described as the mortgagees and as holding the mortgage as tenants in common. Mr Boland signed the Bill of Mortgage. The $60,000.00 was to be repaid on 16 June 1994. The Bill of Mortgage was not registered.
David J Greenwood & Co. was the solicitor acting for Ms Lewis with respect to the purchase and mortgage of the property in Queensland. There is no evidence
identifying Informed Sources Finance Pty Ltd or why the sum of $12,413.82 was paid by the Company to it by the cheque dated 15 June 1993. The two cheques, payable to David J Greenwood & Co and Informed Sources Finance Pty Ltd respectively, were cleared and debited to the Company's Bank account on 16 June 1993. There seems little doubt that the total of $60,000.00 was appropriated to the use of Ms Lewis. The Court so finds. In due course the $60,000.00 was repaid to the Liquidators by Ms Lewis who, by then, was Ms Burns. That sum has been deposited by the Liquidators in a separate bank account pending the outcome of this application.
The Company did not pay Mr Boland the interest received by it with respect to the $60,000.00 placed in the term deposit account. Nor did it pay to Mr Boland the interest at the rate of 18% per year on the $60,000.00 lent to Ms Lewis. This interest was paid to the Company and later to the Liquidators until the $60,000.00 was repaid. From the time of receipt of the $90,000.00 paid by Mr Boland to the Company on 15 April 1993, the Company paid interest on that amount at the rate of 10% per year in conformity with the terms of the Mortgage Funds Investment letter. The last payment was made on 27 July 1994 for the period ending 30 June 1994 on the basis of $2250.00 per quarter. The first payment was pro rata for the period 15 April 1993 to 30 June 1993 being $1,873.97.
On these facts, counsel for Mr Boland contended that the $60,000.00 could be traced and that as between the Company and Mr Boland, the Liquidators could not permit the wrongdoing of the Company to overcome the beneficial interest of Mr Boland. The fiduciary relationship prevented this. Counsel referred to and contended that the discussion appearing in the MAM Case commencing at 363 under the heading "14. The case for the Class B investors" applied here but that on the facts of this case the
$60,000.00 could be traced. There the Class B investors, being two in number, paid $100,000.00 to MAM. On the very same day $100,000.00 was advanced by MAM to borrowers secured by a mortgage in favour of the Class B investors. Eventually the $100,000.00 was repaid to the liquidator of MAM who held the money in trust. The question was whether the $100,000.00 advanced by the Class B investors had been appropriated to the mortgage with the result that they were entitled to that amount held by the liquidator. The Court said at 364-5:-
"The solicitor for Mr Bates and Mr Goldsmith submitted that, on the particular facts of this transaction, the $100,000.00 supplied by Mr Bates and Mr Goldsmith was withdrawn by MAM and appropriated to the Hume mortgage and entitled these two investors to the benefit of the Hume Mortgage.
There are difficulties with this submission. When the $100,000.00 was paid into the "trust account", even before the proceeds of the cheques had been cleared, that sum became intermingled with other funds in the "trust account". Thus, taking into account the existing credit balance and the other credits of 23 October, the credits of the "trust account" then stood at $486,741.40. This was a mixed fund in which it was impossible to identify which funds represented which interests. One thing, however, is clear; a fiduciary relationship arose between MAM and the two investors.
On the normal application of the principle in Clayton's case, first in first out, there is great difficulty in identifying what sum was paid out first. Reference can be made to Re British Red Cross Balkan Fund; British Red Cross Society v Johnson [1914] 2 Ch 419. The problem is made more complex since, having regard to normal bank practices, it is not clear whether the bank allowed the funds to be drawn upon before the cheques totalling $100,000.00 had been cleared. Because of the striking effect of the facts surrounding this particular transaction, there is a tendency to jump to a conclusion that the money can be traced. The detail illustrates the meticulous research and care undertaken by the Liquidator in administering the affairs of the two companies. That initial reaction should not be allowed to obscure the true position.
Reference has been made already to the chaos theory. This transaction is an illustration of that theory. The fact that the moneys were advanced by the two investors on the very day that the loan was advanced to the Humes is merely fortuitous. This is not a case where MAM acted as a mere conduit, compare Re Veli; Ex parte AE Developments Pty Ltd v Scott (1988) 18 FCR 204. The transaction was part of a far larger operation and relied upon the existence of the "trust account" and all the deficiencies of the scheme as carried out in practice.
The fortuitous circumstances of those two investors should not entitle them to a benefit denied to other investors. The submissions on behalf of the Class B investors are rejected."
Counsel for the Liquidators did not dispute the principles of law to be applied. He contended that on the facts there had been such a degree of intermingling of funds that it was impossible to trace the $60,000.00 so as to enable the conclusion to be drawn that $60,000.00 of the $90,000.00 invested by Mr Boland had been appropriated to the mortgage given by way of security by Ms Lewis for the loan of $60,000.00. He referred to the transactions set out in the Company's bank account between 15 April 1993 and 16 June 1993, and the investment of $10,000.00 by Mr and Mrs Bloomfield. He referred to the interest payments made to Mr Boland being based on the terms of the Mortgage Funds Investment letter and being based on an investment of $90,000.00.
In my opinion none of these facts prevent the clear tracing of the $60,000.00 from part of the $90,000.00 invested by Mr Boland. The factual situation here is very different from that in the MAM Case. Subsequent events cannot prevent the tracing.
In the result, the Court determines that the $60,000.00 held by the Liquidators is held by them for the benefit of Mr Boland and does not form part of the funds of the Company.
At the conclusion of the hearing of the application on 24 June 1996, the Court announced that it was of the opinion that Mr Boland was entitled to the $60,000.00 and would publish its reasons at a later stage. Submissions were made with respect to the
orders to be made including costs. The Court directed that written submissions be prepared. These have been received.
Counsel for the parties are in dispute with respect to the order for costs but are in agreement with respect to the substantive order to be made. The Court accepts the order proposed which is as follows:-
"THE COURT ORDERS AND DECLARES THAT :
1.The following question raised by the Application dated 7 August 1995 is determined as follows:-
(a)QUESTION
Whether all or any and, if so, what part of the Funds referred to in paragraph 34 of the affidavit of Richard Gell Mansell sworn 4 August 1995 and filed herein being the sum of $67,673.44 paid to the Applicants on 31 March 1995 and interest accrued thereon after that date is the property of:
(i) the Respondent; or
(ii)Australasian Investment Corporation Limited (ACN 055 663 806) (In Liquidation) ("the Company") ?
(b) ANSWER
(i)As to the capital sum of $60,000.00 - the Respondent;
(ii)As to the sum of $7,673.44 being interest accrued on the capital sum up to 31 March 1995 -
(A) as to $4,263.03 thereof - the Respondent;
(B) as to $3,410.41 thereof - the Company;
(iii)As to interest accrued on the sum of $67,673.44 since 31 March 1995 -
(A)as to 94.96 per centum thereof - the Respondent;
(B)as to 5.04 per centum thereof - the Company.
2.It is unnecessary to answer any other question raised by the Application."
The dispute as to costs relates to the source from which the costs should come, the $60,000.00 in dispute, in which case Mr Boland is liable for all costs, or from the general assets of the company, in which case all the investors, including Mr Boland, share the liability for costs.
It was reasonable for the Liquidators to bring this application. Pursuant to their obligations the Liquidators had received the $60,000.00. At issue was whether the $60,000.00 formed part of the assets of the company to be distributed pro-rata among all investors of the company or whether it was held in trust for Mr Boland. The Liquidators, in these circumstances, are entitled to their costs and expenses as part of the winding up or at least to be indemnified for their costs on a solicitor and client basis. They were performing their obligations as Liquidators. Since no other creditor was involved to be a contradictor to Mr Boland, the Liquidators appeared as an interested party to oppose the claim by Mr Boland. In taking this course, the Liquidators avoided additional expenses being incurred. The principles of law to be applied in cases of this type are discussed at length in Adsett v Berlouis (1992) 37 FCR 201. That case involved a trustee in bankruptcy but the principles have equal application to liquidators of companies.
Applying these general principles, counsel for the Liquidators contested that the only fact in dispute was the $60,000.00 received from Ms Lewis, that this had been paid into a separate bank account pending the determination of the claim by Mr Boland and that accordingly the costs of the Liquidators should be paid out of that fund. On this
basis, the costs of Mr Boland should be paid out of the same fund but in practical terms, this would mean that he would be liable to pay his own costs.
Counsel for Mr Boland contended that the only issue before the Court was whether the $60,000.00 could be traced as part of the $60,000.00 invested by him with the company. To a major extent this is correct but it must be remembered that the loan of $60,000.00 to Ms Lewis was pursuant to an agreement in writing in which Mr Boland and the Company were said to be lenders and the Bill of Mortgage described the Company and Mr Boland as holding the mortgage as tenants in common. Counsel contended that in reality the proceeding was one where the Liquidators and Mr Boland were adverse litigants, the Liquidators representing the general body of investors with the result that the costs should follow the event. This meant, so it was contended, that the Liquidators should pay Mr Boland's costs on a solicitor and client basis and that these costs should form part of the Liquidators' costs and expenses of the winding up with the appropriate priority of payments. He relied on the form of order made in the MAM Case; see page 366.
In support of his contention, counsel relied upon two authorities as to costs in proceedings involving the construction of wills. In Re Buckton; Buckton v Buckton [1907] 2 Ch 404. There, the plaintiff, who was not the executor of the will, brought proceedings against the executors and a third person seeking the determination of a question of construction which did not affect immediate rights but could arise in the future. The Court found in favour of the plaintiff. Commencing at 413, Kekewich J discussed principles relating to costs in cases of this kind. He identified three classes of case. The first was where the executor applied to the Court for directions to determine
questions arising in the administration of the estate or the trust. There, the costs of all parties are incurred for the benefit of the estate and normally are to be based on a solicitor and client basis and paid out of the estate.
The second class is where a third person commences the proceeding where the real issue is similar to that in the first class. There the same result as to costs applies.
The third class was described at 415 as follows:-
"There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has bought before the Court."
Three comments are made. First, this authority does not consider the question raised in the present case, namely which fund should bear the costs. Second, his Honour held that the case before him came within the second class with the result that the costs of all parties were ordered to be taxed as between solicitor and client and come out of the estate. Third, if the trustee is ordered to pay the costs of a successful plaintiff as illustrated in the third class, then normally the trustee would be entitled to an indemnity out of the assets of the estate.
In Re Halston; Ewen v Huston [1912] 1 Ch 435, Eve J held that in a case where the executor had brought a trustee summons to determine a question in issue between two persons who were named as respondents to the summons. The question was limited to an item of real estate.
On the question of costs Eve J said at 439:-
"Then arises the question how the costs of this application ought to be borne. Those of the executors have been provided for by arrangement, but there remains to be dealt with those of the devisee and the lady who claims adversely to him as one of the co-heiresses of this testator. By the consent of all parties the case has been argued on the footing that the Court has jurisdiction to deal on this summons with the question involved, and it has been treated as though it were a summons by executors having the legal estate vested in them under the Land Transfer Act, 1897, asking the opinion of the Court as to the person entitled to require a transfer. Even on this footing the case seems to me to fall entirely within the decision of Kekewich J. in In re Buckton [1907] 2 Ch 406, 415. The respondent John Robert Halston asserts his right to possession - the other respondents with one exception concede his right. He has now established his right; if I give costs out of the estate, that is to say out of this real estate, I shall be making the successful party in what is really adverse litigation pay the costs of the unsuccessful party, and if I say no costs I shall still be imposing on the successful litigant a burden which in justice he ought not to have imposed on him. I think, therefore, I am bound to order his costs to be paid by the unsuccessful respondent."
Two comments are made. First, the order for costs was against one respondent, not the executor as applicant. Second, reference was made to that part of the estate from which, under the normal order, the costs would be paid, namely the real estate in issue, not the estate generally. This is pertinent to the facts of this case.
There is force in the comment made by Eve J that if the costs are to be paid out of the property the subject of the summons, on the facts of that case, the successful party
would suffer an injustice. Regard is given to this insofar as it is relevant to the facts of the present case.
The real issue in this case is the source from which the costs of the parties are to be paid. The Liquidators, in many respects, in exercising their powers are acting as officers of the Court which made the winding up order. Section 479 of the Corporations Law empowered the Liquidators to apply to the Court for directions in relation to any particular matter arising under the winding up. The particular matter was to determine who was entitled to the $60,000.00. A number of persons had invested in the scheme being conducted by the Company. Those investors, with the exception of Mr Boland with respect to $60,000.00 of the $90,000.00 invested by him, are unable to trace the money invested. All investors, including Mr Boland, have suffered loss in relation to the capital invested. According to the principle applied in the MAM Case, each investor, including Mr Boland, should receive a pro-rata payment from the assets in the hands of the Liquidators. The Liquidators sought directions of the Court as to how the $60,000.00 should be treated. This arose under the winding up, but it arose with respect to the $60,000.00 only. That was the subject matter of the question.
Should the costs of the Liquidators come from that fund or not ? In my opinion they should not.
This case is very different from the MAM Case and Windsor Mortgage Nominees Pty Ltd v Cantwell (1979) ACLC 32,195 and referred to in the MAM Case. There, no identifiable asset was considered separately from the totality of the assets recovered by the Liquidators. In the present case, the proceedings, though appearing to be adversarial as between the Liquidators and Mr Boland, raised the question with respect to a particular sum only: did the $60,000.00 form part of the assets of the company available for distribution among the investors ?
This is a finely balanced position. The Liquidators, quite rightly, were seeking the directions of the Court. Their costs are costs in the winding up. On balance, and on the analysis of the first class enunciated by Kekewich J in Re Buckton at 414, this case comes within that class which was expressed as follows:-
"In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned."
Having regard to all the circumstances of this case, the Court, in the exercise of its discretion under s 43 of the Federal Court of Australia Act 1976 determines that the costs of the parties should be treated as costs of the winding up to be spread between all investors but with the priority afforded to those costs. Accordingly it is ordered that:-
3.The costs and expenses of the Respondent be taxed on a solicitor and client basis and be paid by the Applicants as part of their costs and expenses in the winding up of Australasian Investment Corporation Limited (In Liquidation).
4.The costs and expenses of the Applicants, as Liquidators, be costs in the winding up of Australasian Investment Corporation Limited (In Liquidation).
I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice R M Northrop.
Associate:
Date:
ATTACHMENT
Counsel for the applicants: Mr P Bornstein
Solicitors for the applicants: Purves Clarke Richards
Counsel for the respondent: Mr S Gardner
Solicitors for the respondent: Cornwall Stodart