In the matter of Gondon Five Pty Ltd and Cui Family Asset Management Pty Ltd

[2019] NSWSC 469

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Gondon Five Pty Limited and Cui Family Asset Management Pty Limited [2019] NSWSC 469
Hearing dates:	6 June, 3 July, 7 August, 30 November, 8 December 2017, 28 March 2018; written submissions closed 13 April 2018
Date of orders:	29 April 2019
Decision date:	29 April 2019
Jurisdiction:	Equity - Corporations List
Before:	Brereton J
Decision:	Remuneration of the applicant as receiver of CFAM fixed at $11,000 (GST inclusive); remuneration of the applicant as receiver of Gondon fixed at $33,000 (GST inclusive); applicant would be justified in reimbursing himself in respect of expenses (being the legal costs paid or payable by him in his capacity as Receiver of Gondon to his solicitors Piper Alderman) to the extent of $7,037.42 (GST inclusive); the applicant would be justified in drawing the amount of $51,037.42 from the money remaining in his trust account to the credit of the respondents.
Catchwords:	CORPORATIONS – external administration – receivers – remuneration – functions and scope of appointment of interim receivers – expenses
Legislation Cited:	(CTH) Corporations Act 2001, s 420, s 425(8), s 1323 (NSW) Companies (New South Wales) Code, s 573(1) (NSW) Legal Profession Uniform Law, s 170 (NSW) Uniform Civil Procedure Rules 2005, r 26.4
Cases Cited:	AAA Financial Intelligence Ltd (in liquidation), In the matter of [2014] NSWSC 1004 AAA Financial Intelligence Ltd (in liquidation), In the matter of (No 2) [2014] NSWSC 1270 Anderson Group, Re (2002) 20 ACLC 1607; [2002] NSWSC 764 Anglican Development Fund Diocese of Bathurst (receivers & managers appointed), In the matter of [2015] NSWSC 440 Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (2003) 44 ACSR 503; [2003] NSWSC 130 Australian Securities and Investments Commission v Commercial Nominees of Australia Ltd (as trustee for Confidens Investment Trust) (2002) 42 ACSR 240; [2002] NSWSC 576 Australian Securities and Investments Commission v Lawrenson Light Metal Die Casting Pty Ltd (1999) 158 FLR 307; (1999) 33 ACSR 288; [1999] VSC 500 Banksia Securities Ltd (in liq) (receivers and managers appointed), In the matter of [2017] NSWSC 540 Brenner v Rose [1973] 1 WLR 443 Cape v Redarb Pty Ltd (1991) 32 FCR 407 Comyn v Smith (1823) 1 Hog 81 Condor Blanco Mines Ltd (No. 2), In the matter of [2016] NSWSC 1304 Corporate Affairs Commission v Smithson [1984] 3 NSWLR 547 Corporate Affairs Commission v Transphere Pty Ltd (No 2) (1985) 3 ACLC 470 Custom Card (NSW) Pty Limited, Re [1979] 1 NSWLR 241 Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 Duffy v Super Centre Development Corporation Ltd [1967] 1 NSWR 382 GDK Financial Solutions Pty Ltd, In the matter of (2006) 236 ALR 699; [2006] FCA 1415 Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (Supreme Court (NSW), Young J, 30 April 1998, unreported BC9801774) Gondon Five Pty Ltd, In the matter of [2016] NSWSC 1401 Gondon Five Pty Ltd, In the matter of [2016] NSWSC 1584 Harold Meggitt Ltd v Discount & Finance Ltd (1938) 56 WN (NSW) 23 Ide v Ide (2004) 184 FLR 44; [2004] NSWSC 751 Idylic Solutions Pty Ltd (as trustee for Super Save Superannuation Fund), In the matter of (2016) 115 ACSR 581; [2016] NSWSC 1292 Interior Marble Pty Ltd v Mondo Stone Pty Ltd [2004] NSWSC 918 Ireland v Eade (1844) 7 Beav 55; 49 ER 983 Korda, Re; in the matter of Stockford Ltd (2004) 140 FCR 424; [2004] FCA 1682 Kraft v Kupferwasser (1991) 23 NSWLR 236 Manchester & Milford Railway Co, Re; Ex parte Cambrian Railway Co (1880)14 Ch D 645 Mariconte v Batiste (2000) 48 NSWLR 724; [2000] NSWSC 288 Marshall v South Staffordshire Tramways Co [1895] 2 Ch 36 Merchant Nurseries Pty Ltd, Re; Corporate Affairs Commission (SA) v Rowley (1985) 10 ACLR 143 Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638 Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) [2006] NSWSC 4 Nangel v Lord Fingal (1824) 1 Hog 142 National Trustees Executors & Agency Co of Australasia Ltd v Barnes (1941) 64 CLR 268; [1941] HCA 3 Newdigate Colliery Ltd, Re [1912] 1 Ch 468 Parker v Dunn (1845) 8 Beav 497; 50 ER 195 Price v Price (1904) 29 VLR 719 Rondahl, Re; Henderson v Executor Trustee Australia Ltd (2005) 93 SASR 337; (2005) 226 ALR 475; [2005] SASC 477 Sakr Nominees Pty Ltd, In the matter of [2017] NSWSC 668 Sakr Nominees Pty Ltd, In the matter of [2016] NSWSC 709 Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 343 ALR 524; [2017] NSWCA 38 Say Enterprises Pty Ltd, In the matter of [2018] NSWSC 396 Souster v Carman Construction Co Limited [2000] BPIR 371 Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; [2015] FCAFC 137 Timeshare Resort Club Ltd (in liq), Re (2010) 187 FCR 13; [2010] FCA 673 Universal Distributing Co Ltd (in liq), Re (1933) 48 CLR 171; [1933] HCA 2 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 Warner, in the matter of GTL Tradeup Pty Ltd (in liq) (2015) 104 ACSR 633; [2015] FCA 323 Wenkart v Pantzer (2005) 223 ALR 384; [2005] FCA 1572 Windschuegl v Irish Polishes Ltd [1914] 1 Ir R 33 Wine National Pty Ltd, In the matter of [2016] NSWSC 4 Yunghanns v Candoora No 19 Pty Ltd [2000] VSC 387
Texts Cited:	Daniell’s Chancery Practice (7th ed, 1901, Stevens & Sons) O’Donovan J, LBC Information Services, Company Receivers and Administrators Walton R, Kerr on the Law and Practice as to Receivers and Administrators (17th ed, 1989, Sweet & Maxwell)
Category:	Principal judgment
Parties:	Tracy Cui (Plaintiff) Cui Family Asset Management Pty Limited (First Defendant / First Respondent) Gondon Five Pty Limited (Second Defendant / Second Respondent) Jinsong Cui (Third Defendant) Dominic Calabretta (Applicant)
Representation:	Counsel: V Whittaker w L Hulmes (Applicant) D R Pritchard SC w L Chapman (Respondents)   Solicitors: Piper Alderman (Applicant) Marsdens (Respondents)
File Number(s):	2016/254904

Judgment

1. The applicant Dominic Calabretta (“the Receiver”) – who was on 2 December 2016 appointed, on the motion of the plaintiff Tracy Cui, to be interim receiver and manager of the respondent companies Cui Family Asset Management Pty Ltd (“CFAM”) as trustee for the Cui Family Trust, and its wholly owned subsidiary Gondon Five Pty Limited (“Gondon”), and remained in office as such receiver no longer than 21 days – applies, by interlocutory process filed on 3 May 2017, for orders fixing his remuneration as receiver at $107,278.51 (being $99,005.42 plus GST), and approving payment of his expenses (being the legal costs of his solicitors Piper Alderman) in the sum of $73,904.75. The Receiver also seeks orders authorising him to draw such remuneration and expenses from funds of the companies which remain in his trust account; requiring the respondents’ solicitors Marsdens to transfer the balance approved from $100,000 retained by them pending determination of his remuneration; and costs of the application, also to be paid from the funds retained by Marsdens. The plaintiff has agreed to the Receiver’s remuneration claim, but the respondent companies (“the Companies”) have not.

Background

2. The Cui Family Trust was a discretionary family trust of which each of Tracy and her brother, Jinsong Cui, were beneficiaries; Jinsong was also the appointor, and the sole shareholder in CFAM, which was the trustee. In its trustee capacity, CFAM was the sole shareholder in Gondon, which was undertaking a property development in North Ryde. CFAM was also the sole shareholder in Australian Blue Mountains Group Pty Limited (“ABMG”), which operated a spring water business under its trade name Blue Mountains Natural Spring Water; Tracy was the sole director of ABMG. Arise Constructions Pty Limited was a building company, owned and controlled by Jinsong, which was retained by Gondon to construct the North Ryde development.1

The freezing orders

3. By late 2016, the North Ryde development was nearing completion, and sales of the units in it were underway; many had been sold, and many of the sales had been completed. Tracy as plaintiff commenced the substantive proceedings against CFAM, Gondon and Jinsong as defendants, and on 13 September 2016, obtained freezing orders against CFAM and Gondon, in the following terms: [1]

(1) Until further order the second defendant Gondon Five be restrained from by itself, its servants and agents, alienating, encumbering or otherwise adversely dealing with the units at 1-9 Allengrove Crescent, North Ryde or the proceeds of their sale, otherwise than in selling and/or completing the sale of the units, paying proper adjustments on completion of any sale, paying legal expenses agents' commission and selling costs in respect of any such sale, paying to the relevant taxation authority any taxation liability properly payable, repaying to any lender the outstanding amount of its loan (where such repayment is made with the prior written agreement of the plaintiff), repaying to the first defendant CFAM the amount outstanding in respect of its loan, and remitting the balance to CFAM by way of dividend or return of capital.

(2) Until further order the first defendant CFAM be restrained from by itself, its servants and agents, alienating, encumbering or otherwise adversely dealing with any amount received by it henceforth from Gondon Five, whether by way of loan repayment, dividend or return of capital, up to the total of $2,704,005 plus one-third of the amount so received (“the preserved sum”), provided that it is not a contravention of this order for CFAM to make repayments and/or distributions to the plaintiff, including from the proceeds of sale of any of the reserved units referred to in the letter agreement dated 5 September and executed 16 October 2015, and in the event that any such repayment or distribution is made to her, the preserved sum shall be reduced by the amount so paid or distributed to her.

1. The background to the substantive proceedings is set out more fully in In the matter of Gondon Five Pty Ltd [2016] NSWSC 1401; see also In the matter of Gondon Five Pty Ltd [2016] NSWSC 1584.

4. Those orders were made for reasons which were summarised as follows: [2]

43 To summarise, it seems to me that Tracy has an arguable case to recover from CFAM her loan of $2.407 million. She has an arguable case for removal and replacement of CFAM as trustee, founded on apparent lack of impartiality. She has no arguable case – at least as presently formulated – against the third defendant Jinsong personally, and there is no evidence that trust assets can be traced into his hands, or that he is otherwise liable to her, and there is no basis for any injunction against him personally.

44 Although it is not the strongest case of risk of dissipation, there is a reasonable basis for apprehension that assets of the trust, including in particular its entitlements against Gondon, may not be preserved or pursued. There is no hardship in requiring Gondon Five not to adversely deal with its relevant assets; all that it will be required to do is to comply with what are in any event are its legal obligations.

2. In the matter of Gondon Five Pty Ltd [2016] NSWSC 1401.

5. In respect of the risk of dissipation, the following observations were made: [3]

40 Two things, however, are of some troubling nature. The first is that to which I have already referred: the wanton conduct of the defendants in inflicting economic damage on Tracy and/or on trust assets through their interference with the ABMG business and its contracts. The second is that there is evidence of substantial ongoing expenditure from the Gondon Five business account. The personal expenditure for the defence of an apprehended violence order is of itself de minimis, and expenditure of a proprietary company's funds on personal matters is not unusual in the context of private companies, and it may well be accounted for on loan account. But unexplained ongoing expenditure of large round sums from that account, at a time when the project is in the phase of selling assets, occasions some concern that Gondon Five's assets are in some jeopardy.

3. In the matter of Gondon Five Pty Ltd [2016] NSWSC 1401 at [43]-[44].

Appointment of receiver

6. The Receiver was appointed on the plaintiff’s ex parte application on Friday 2 December 2016, essentially because it appeared that the freezing orders had been ineffective to prevent adverse dealings with the Companies’ assets. He was appointed, without security, initially only until Monday 5 December 2016 (which was the next business day), and expressly with the powers referred to in (CTH) Corporations Act 2001, s 420, but subject to the proviso that no distribution was to be made of any assets without the leave of the Court. The order of the Court was in the following terms:

Upon the plaintiff by her counsel giving to the court the usual undertaking as to damages THE COURT ORDERS THAT until and including 5 December 2016 Domenic Calabretta be appointed without security as receiver and manager of Cui Family Asset Management Pty Limited as trustee for the Cui Family Trust ACN 159 692 752 and Domenic Calabretta be appointed without security as receiver and manager of Gondon Five Pty Limited ACN 156 206 692, in each case with the powers set out in s 420 of the Corporations Act 2001 provided that no distribution is to be made of any assets without the leave of the court.

7. The application returned before the Court on 5 December 2016, when the appointment was continued until 21 December 2016 and directions made with a view to an interlocutory hearing on that day to determine whether the appointment would continue thereafter:

1. The appointment of Domenic Calabretta as receiver and manager of Cui Family Asset Management Pty Ltd as trustee for the Cui Family Trust and of Gondon Five Pty Ltd under the order of 2 December 2016 continue until and including 21 December 2016.

2. The receivership referred to in order 1 does not affect the powers of the directors of Cui Family Asset Management Pty Ltd or Gondon Five Pty Ltd to commence, continue or defend legal proceedings, including in particular these proceedings, proceedings 2016/306081 (the Weng proceedings) and proceedings 2016/302763 (the Wang proceedings).

3. By 9 December 2016 the defendants serve:

(a) any affidavit evidence to be relied upon by them in opposition to the further continuation of order 1 and otherwise in relation to the notice of motion of the plaintiff filed 2 November 2016;

(b) an affidavit identifying the sale price of all apartments at the property 1–9 Allengrove Crescent, North Ryde sold, and the date of completion of such sales, whether such completion has already occurred or is yet to occur, and those apartments at the property that have not yet been sold.

4. By 15 December 2016, the plaintiff serve any further affidavits to be relied on in support of the continuation of order 1 and otherwise in relation to her notice of motion filed 2 December 2016.

5. The hearing of the notice of motion filed 2 December 2016 be fixed for hearing before me on 21 December 2016 at 10am.

6. Liberty to apply on 24 hours' notice, any such notice to specify the issues to be raised and the relief to be sought.

7. Plaintiff's submissions to be lodged with my associate and served by 16 December and defendant’s by 20 December.

8. The notices to produce served by the plaintiff on CFAM and on Gondon Five be adjourned to the Registrar's List on Thursday, 8 December 2016 at 9am.

Re-listing on 15 December 2016

8. The Companies became concerned at the extent of the work which the Receiver, his staff and solicitors appeared to be undertaking, and challenged his approach – and in particular his stated intention to prepare a “report” for the Court – pointing out that the appointment was an interim one, that the Court had not directed preparation of any such report, and that preparation of a report would incur significant costs. At the Receiver’s request, the proceedings were re-listed on 15 December 2016, when the Receiver sought clarification of the purpose and scope of his appointment, and the Court confirmed that the purpose of the appointment was to take custody of and secure the assets of the companies and prevent further dealings with them:

Well, in a nutshell I think the purpose was to take custody of and secure the assets and undertaking of the corporations in question and prevent there being any further dealing with them until the interlocutory hearing.

9. In response to a query from Senior Counsel for the Receiver concerning the need for a formal report, I said:

I think the short answer to that Ms Collins is on the one hand I have got no doubt we would be assisted by it but it wasn't part of the relief sought when the receiver was appointed. I didn't include it in the directions and I think if someone wants a report they can seek that next Wednesday rather than pursuing it at this stage. I don't think it was expressly envisaged by the directions previously made so probably the safest course is not to go down that route just yet.

10. The Court also directed that the Receiver would be justified in completing any property sales entered into by either company in respect of which contracts had been exchanged prior to the appointment date. In addition, variations were made to the timetable in connection with the interlocutory hearing appointed for 21 December. The formal orders of the Court were:

1.   The date for service of the defendant's evidence in opposition to the further continuation of the appointment of the receiver and otherwise in relation to the Notice of Motion of the plaintiff filed 2 December 2016 is extended nunc pro tunc to 14 December 2016.

2.   The date for service of the plaintiff's further evidence in relation to the Notice of Motion is extended to 19 December 2016.

3.   Parties are to serve and lodge with my Associate outlines of submissions by 20 December 2016.

4.   Order 7 of the orders of 5 December 2016 is vacated.

5.   The plaintiff have leave to issue and serve not later than 15 December 2016 subpoenas addressed to the following subpoena recipients, such subpoenas to be returnable on 20 December 2016 at 9.00am before the Registrar:

(a)   Juris Cor Legal;

(b)   Arise Construction Pty Ltd;

(c)   Bank of China Limited;

(d)   National Australia Bank Limited;

(e)   Westpac Banking Corporation

and time for service of such subpoenas is abridged to today.

6.   The plaintiff have leave to serve a Notice to Produce on the second defendant returnable on 20 December 2016 at 9.00am, such Notice to Produce to be served not later than today.

The receivers may have leave to file in Court the affidavit of Thomas Russell of 14 December 2016.

THE COURT FURTHER DIRECTS THAT the receiver would be justified in carrying to completion any contracts for sale of units which have presently been exchanged.

Discharge of the Receiver

11. On 21 December, after the hearing of the interlocutory application commenced, it was stood down while the parties negotiated. Late in the day, the Court was informed that the substantive proceedings had been settled, and with them the interlocutory application had also been resolved. The proceedings were adjourned to 23 December 2016, for short minutes.

12. On 23 December 2016, orders were made, by consent, that the Receiver be discharged. He was authorised to retain until further order the sum of $150,000, and also to maintain caveats on two units in the North Ryde development on account of and as security for his remuneration, costs and liability for tax. Subsequently, by agreement, those caveats were withdrawn on 7 February 2017, and instead the Companies’ solicitors Marsdens undertook to hold $100,000 in trust pending the determination of the Receiver’s remuneration.

13. On 16 February 2017, the solicitors for the Receiver sought approval from the solicitors for the plaintiff and the Companies for their remuneration and expenses in the total amount of $181,183.26 (GST inclusive). The plaintiff agreed to the Receiver’s remuneration claim, but the Companies did not.

The remuneration application

14. The Receiver’s remuneration application was first listed for hearing before me on 6 June 2017, pursuant to directions made on 10 March 2017 for filing and service of an interlocutory process, affidavit evidence and outlines of submissions, by the Receiver by 7 April 2017, and by any objecting party by 12 May 2017.

15. In support of his application, the Receiver belatedly served an affidavit of Domenic Calabretta sworn 2 May 2017 (“first affidavit”), and lodged written submissions dated 11 May 2017. The Receiver’s first affidavit summarised the work performed by the Receiver and his staff under ten headings, or “issues”, across which he approximately allocated his total remuneration claim of $99,005.42, of which $77,603.42 relates to the Gondon receivership, and $21,377 to the CFAM receivership. This description and allocation by the Receiver provides a useful overview of the work in respect of which remuneration is claimed, and is summarised in the following paragraphs. The amounts referred to are exclusive of GST.

16. 1 - Books and records. The Receiver took steps to obtain possession of the books and records of both companies. For this he claimed remuneration of $9,000 to $11,000, which was later refined to $8,813 for Gondon and $1,841 for CFAM.

17. 2 - Status of sales. The Receiver sought and obtained information concerning the status of sales of the units in Gondon’s North Ryde development, and endeavoured to reconcile what he considered to be discrepancies in the information obtained. For this he claimed remuneration of $11,000 to $13,000, which was later refined to $11,632 for Gondon and $385 for CFAM.

18. 3 - Caveats. The Receiver conducted searches of real property owned by Gondon and instructed his solicitors to lodge caveats over the 61 units in Gondon’s name. His solicitors lodged a single caveat covering the 44 titles which remained in Gondon’s name (the sale of the others having been completed) – in which the interest claimed was a charge for the Receiver’s remuneration and expenses – and subsequently engaged in correspondence with the Companies’ solicitors Marsdens about the validity of the caveat. For this he claimed remuneration of $2,000 to $3,000, later refined to $2,640 for Gondon.

19. 4 - ABMG. The Receiver was notified by the plaintiff’s solicitors that Jinsong and one Rong Chen had attempted to effect a “lockout” of ABMG’s business premises, interfering with the operation of ABMG’s business, and instructed Piper Alderman to correspond with Marsdens in relation to this. For this he claimed remuneration of $2,000 to $2,500, later refined to $2,398 for CFAM.

20. 5 - Subpoena. In connection with the interlocutory hearing, the Receiver was served with a subpoena, issued at the request of the Companies, to produce documents, and incurred time in considering and responding to it, including in obtaining advice from his solicitors. For this he claimed remuneration of $3,000 to $4,000, later refined to $2,713 for Gondon and $880 for CFAM.

21. 6 - Investigation of transactions. The Receiver investigated transactions made from the bank accounts of Gondon in the period 1 August 2016 until 2 December 2016. This involved reviewing the bank statements, and liaising with the plaintiff’s solicitors and the Bank. He also investigated a payment made to Marsdens on 28 October 2016. For this he claimed remuneration of $6,500 to $7,500; this was later refined to $6,675 for Gondon and $148 for CFAM.

22. 7 - Litigation. The Receiver prepared for, attended at and reviewed, and instructed solicitors in relation to, all proceedings “related to but not limited to the scope of my appointment”. This included attending (with multiple members of his staff, and solicitors) the hearings on 5 December, 21 December 2016 and 23 December 2016, and making his own application for directions (with senior counsel) on 15 December 2016. For this he claimed remuneration of $23,000 to $25,000, later refined to $16,935 for Gondon and $7,118 for CFAM.

23. 8 - Execution of contracts for sale of units A206 and B206. Having obtained advice from his solicitors that he was entitled to do so, the Receiver authorised the exchange of contracts for the sale of units A206 and B206, for a total price of $1,519,000, and instructed and liaised with his solicitors in connection with the execution of the contracts. For this he claimed remuneration of $4,000 to $5,000, which was later refined to $4,816 for Gondon.

24. 9 - Other work necessary for effective performance as receiver. The Receiver performed other work said to be necessary to fulfil his function. For this he claimed remuneration of $20,000 to $22,000, later refined to $16,460 for Gondon and $4,954 for CFAM.

25. 10 - Mandatory work. The Receiver performed what was said to be mandatory work required of a receiver, of an administrative nature, which did not relate directly to securing or preserving assets. For this he claimed remuneration of $7,500 to $8,500 for Gondon and $3,000 to $4,000 for CFAM; this was later refined to $7,849 and $3,655 respectively.

26. In his first affidavit, the Receiver also described the tasks undertaken by him (and his staff) in the receiverships. These comprised 16 tasks undertaken in relation to CFAM; 32 tasks undertaken in relation to Gondon; and 5 tasks undertaken after his discharge. These tasks are explained later in this judgment.

The initial hearing

27. The respondents’ submissions of 2 June 2017 raised three main issues: the first was that the Receiver had failed to adduce sufficient evidence to establish that his remuneration and expenses were fair and reasonable; [4] the second was that much of the work performed was outside of the scope of the appointment and ought not to be allowed; and the third was that the Receiver had conducted himself in a manner inconsistent with his duty of impartiality. The respondents proposed that, consistent with the course that had been taken by Black J in Sakr Nominees, the Court should permit the Receiver, if so advised, to adduce further evidence particularising the work undertaken, and in particular to produce a schedule which effectively subcategorised each of the ten “issues” across the 53 “tasks”.

    4. In the matter of Gondon Five Pty Ltd [2016] NSWSC 1401 at [40].

28. In the light of those submissions, the Receiver sought and was granted an adjournment, and the application was adjourned to 3 July 2017, with directions for the service of further evidence.

Receiver’s further evidence and submissions

29. The Receiver served a further affidavit of Domenic Calabretta, sworn 23 June 2017 (“second affidavit”), and further submissions dated 27 June 2017. The second affidavit included revised remuneration reports, providing considerably greater detail of the work in respect of which remuneration was claimed. The submissions included a proposal for referral of the matter to an insolvency practitioner as an expert.

Directions hearing 3 July 2017

30. At the directions hearing on 3 July 2017, directions were made for service of evidence in reply by the respondents. I did not accede to the Receiver’s proposal for what was in effect a reference to an insolvency practitioner, and indicated that if the receiver wished to adduce expert evidence, a formal application would be required. No such application was made. The proceedings were adjourned to 7 August 2017.

Directions hearing 7 August 2017

31. At the directions hearing on 7 August 2017, the Receiver foreshadowed that he had instructed his solicitors to have his legal costs – which he claimed as expenses – submitted for costs assessment. The proceedings were fixed for hearing on 8 December 2017, with an agreed one day estimate; the Court offered a date in September, but the later date was fixed to accommodate the convenience of counsel. The respondents lodged supplementary submissions on 21 August 2017.

Application for costs assessment

32. On 17 October 2017, the Receiver filed, with the Manager Costs Assessment, the foreshadowed application for assessment, as between client and practitioner, of the costs which had been rendered by Piper Alderman, and which constituted the out-of-pocket expenses which he sought to recover from the Companies. On 30 November 2017, on the application of the Companies, that application was stayed pending the hearing of the remuneration application, essentially because – for reasons which will appear – it could not resolve all the issues in respect of the Receiver’s expenses, and also the respondents could not reasonably be expected to deal with it in the short time that remained before the final hearing.

The final hearing

33. The hearing of the present application commenced on 8 December 2017, but the Receiver was still in cross-examination at the end of the day and the proceedings were adjourned, part heard, to 28 March 2018. On that day, the cross-examination of the Receiver was completed, and further written and oral submissions received. Following the hearing, written submissions in reply were lodged by the Receiver on 6 April 2018, to which the respondents responded on 13 April 2018.

Issues

34. The remuneration of court-appointed receivers is provided for by (NSW) Uniform Civil Procedure Rules 2005, r 26.4, which states that a receiver is to be allowed such remuneration (if any) as may be fixed by the Court. The Court has a very wide discretion in fixing the basis and level of remuneration. [5] Founding on what Young CJ in Eq said in Ide v Ide,[6] but drawing on the qualifications expressed in later cases, [7] the relevant principles may be restated, so far as they are relevant to the present case, as follows: [8]

    5. In the manner contemplated in In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 at [18].

    6. Re Universal Distributing Co Ltd (in liq) (1933) 48 CLR 171; [1933] HCA 2; In the matter of AAA Financial Intelligence Ltd (In liq) [2014] NSWSC 1004 at [18].

    7. (2004) 184 FLR 44; [2004] NSWSC 751.

    8. Wenkart v Pantzer (2005) 223 ALR 385; [2005] FCA 1572 (Branson J); Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) [2006] NSWSC 4 at [9] (Barrett J), Anderson Group, Re (2002) 20 ACLC 1607; [2002] NSWSC 764 at [12] (Barrett J); Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 343 ALR 524; [2017] NSWCA 38 (Bathurst CJ, Beasley P, Gleeson JA, Barrett AJA, Beach AJA); In the matter of Banksia Securities Ltd (in liq) (receivers and managers appointed) [2017] NSWSC 540 at [37]-[46] (Gleeson JA).

1. A receiver is entitled to the costs, charges and expenses properly incurred in the discharge of the receiver’s ordinary duties, or in the performance of extraordinary services that have been sanctioned by the Court.

2. In fixing remuneration, the objective is to award a sum or devise a formula which will reasonably and fairly compensate the receiver for the time and trouble expended in the execution of his or her duties and the responsibility he or she has assumed.

3. The ultimate question is what amount of remuneration is ‘reasonable’, and this involves considering (a) whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and (b) whether the amount claimed for it is a fair and reasonable reward for such work. On those questions, the receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them.

4. By analogy, the task involves consideration of the matters referred to in Corporations Act, s 425(8), which applies to receivers appointed under an instrument, [9] namely:

   9. I considered the remuneration of receivers, and in particular interim receivers, in In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396 at [6], which was decided after argument concluded in this case, on which this summary is based.

(a) the extent to which the work performed by the receiver was reasonably necessary;

(b) the extent to which the work likely to be performed by the receiver is likely to be reasonably necessary;

(c) the period during which the work was, or is likely to be, performed by the receiver;

(d) the quality of the work performed, or likely to be performed, by the receiver;

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the receiver;

(f) the extent (if any) to which the receiver was, or is likely to be, required to deal with extraordinary issues;

(g) the extent (if any) to which the receiver was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;

(h) the value and nature of any property dealt with, or likely to be dealt with, by the receiver;

(i) whether the receiver was, or is likely to be, required to deal with:

(i) one or more other receivers; or

(ii) one or more receivers and managers; or

(iii) one or more liquidators; or

(iv) one or more administrators; or

(v) one or more administrators of deeds of company arrangement;

(j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;

(k) if the remuneration is ascertained, in whole or in part, on a time basis:

(i) the time properly taken, or likely to be properly taken, by the receiver in performing the work; and

(ii) whether the total remuneration payable to the receiver is capped;

(l) any other relevant matters.

5. Many of those factors – in particular, pars (d)-(e) and (g)-(h) – have as their unifying theme the concept of proportionality (being the relationship of the work done and the remuneration claimed to the value of the estate), which is an important consideration in determining reasonableness. [10]

6. Remuneration may be allowed on the basis of a fixed salary, a commission on receipts, or a quantum meruit having regard to the time, trouble and responsibility involved. It is a matter for the Court to determine what basis is appropriate in the particular case, having regard to the principle that the remuneration must be reasonable.

7. If a time-based approach is adopted, the Court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work. The Court will usually act on time sheets created in the receiver’s office, provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades of his or her staff.

8. In respect of disbursements, no Court approval or specific order is necessary in the absence of a challenge, although receivers should scrutinise them to ensure that they are reasonable and properly payable. [11] However, the Court has an inherent jurisdiction to review receivers’ disbursements as they are officers of the Court. [12] Further, a receiver may seek a direction that he or she would be justified in paying certain disbursements, in order to obtain prior protection in respect of such a disbursement. [13]

   10. Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; [2015] FCAFC 137 (Besanko, Middleton and Beach JJ); In the matter of Wine National Pty Limited [2016] NSWSC 4 at [15] (Black J); In the matter of Banksia Securities Limited (in liq) (receivers and managers appointed) [2017] NSWSC 540 at [42] (Gleeson JA).

   11. Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137 at [31] (Besanko, Middleton and Beach JJ); Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; (2017) 343 ALR 524; [2017] NSWCA 38 at [55] (Bathurst CJ).

   12. Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 100-101 (Kennedy and Ipp JJ); Re Timeshare Resort Club Ltd (in liq) (2010) 187 FCR 13; [2010] FCA 673 at [36]-[37] (Barker J); In the matter of Wine National Pty Ltd [2016] NSWSC 4 at [12] (Black J).

   13. Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [21] (Gordon J).

35. The Court expects an applicant for remuneration to produce sufficiently detailed evidence of the work in respect of which remuneration is claimed as to enable the amounts claimed for the various tasks performed to be dissected and identified. [14] Although, on an application of this kind, it is not the function of the Court to undertake a taxation of the receiver’s bill on an item-by-item basis – the exercise involves a more impressionistic, evaluative and “broad-axe” approach – such a requirement would serve no purpose if the Court did not have regard, to some extent at least, to the detail. The categorising of work done according to tasks in the administration enables the Court to ascertain and allow (in whole or in part) – or disallow – the total amount of remuneration claimed in respect of a particular task, according to whether such task was (wholly or partly) – or was not – reasonably undertaken within the proper scope of the administration.

    14. Re Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8]; although that was a case about a liquidator, there is no reason why the same principles should not apply.

36. Opposition to the Receiver’s remuneration claim was not founded on any dispute as to the reasonableness, according to professional standards or otherwise, of the rates charged by the Receiver for his time. Nor was it submitted that, in the context of this appointment, a commission or percentage-based approach should be adopted. The fundamental disputes are whether, having regard to the nature, object and outcomes of the appointment, substantial parts of the work done by the Receiver for which he claims remuneration were not reasonably performed, and/or the total amount claimed and work done was not reasonably proportionate.

37. The evidence and submissions raise a number of issues of general principle, the resolution of which will inform consideration of the detail of the Receiver’s claim. Those issues may be summarised as follows:

1. To what extent does the evidence adduced by the Receiver sufficiently prove the work done and its value? Associated with this is a particular issue as to whether the Receiver’s staff member Mr Ngo performed the work attributed to him in respect of which remuneration is claimed.

2. To what extent was the work in respect of which remuneration is claimed reasonably undertaken in the due course of the receivership, having regard to the nature and object of the appointment? Associated with this are particular issues as to whether it was reasonable for the Receiver to embark on investigations concerning transactions which preceded his appointment, and whether the Receiver acted other than impartially; whether it was reasonable for the Receiver to incur the time and cost of preparing for and attending at the hearings on 5, 21 and 23 December 2016; whether it was reasonable for the Receiver to incur the time and cost of making the application for directions on 15 December 2016; and to what extent it was reasonable for the Receiver to incur the time and cost of engaging solicitors to act for him; and whether the Receiver is entitled to remuneration for certain work done after termination of his appointment.

3. To what extent is the total amount claimed for work properly done a fair, reasonable and proportionate reward for it, having regard in particular to the nature, object and outcomes of the appointment?

4. To what extent were the expenses paid or payable to his solicitors Piper Alderman reasonably incurred by the Receiver, having regard to the nature and object of the appointment?

The Receiver’s evidence

38. The respondents submitted that the Receiver did not adduce sufficient evidence – conformably with the requirements of In the matter of Sakr Nominees Pty Limited [15] – to enable the Court to be satisfied that the remuneration and expenses claimed were fair and reasonable. In Sakr Nominees, Black J observed that it was not the Court’s role to review chronological work in progress schedules to endeavour to deduce which tasks related to which matters, where the insolvency practitioner did not adduce adequate evidence to facilitate the exercise.

    15. See In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 at [8].

Adequacy of the evidence of work done

39. In his second affidavit, the Receiver provided detailed evidence of the work undertaken by him and his staff, through reports produced from the time recording system "CORE IPS”. These showed, for each item of work claimed, the date, duration and a narrative description of the work performed (drafted by the relevant fee earner at the time of making the entry), and a reference to the relevant ARITA work category. [16] The Receiver also explained how time spent was recorded in CORE IPS, including that the entries are made directly by the relevant staff member contemporaneously with doing the work, or if they do not have immediate computer access, as soon as reasonably practicable thereafter.

    16. [2017] NSWSC 668 at [28].

40. In addition, the Receiver produced additional schedules, for each Company, which categorised and sub-categorised the time entries in various ways, including according to the ten “Issues” described above; the six “ARITA Categories” to which work was allocated as entered into the time recording system; and (as the respondents had requested) the 53 “Tasks” identified in the first affidavit. The Receiver deposed as to why each task was undertaken. The Receiver’s third affidavit, sworn 7 December 2017, provided some minor corrections to the allocations as to company, issue and task.

41. The Receiver – who is an experienced insolvency practitioner, and a member of ARITA who says that he observes the ARITA Code of Professional Practice – deposed that he regularly reviewed work in progress, to ensure that work being performed was appropriate, that a reasonable amount was being charged, and that he did not identify any work that was unreasonable to perform, was performed by an inappropriate person, or seemed to have taken an unreasonable period of time.

42. Whatever the deficiencies might have been in the evidence initially adduced by the Receiver, measured against the standard indicated by Sakr Nominees, the effect of the second affidavit and accompanying schedules produced by the Receiver is that the evidence now provides, in respect of each time entry for which remuneration is claimed, the date on which the work was performed; a description of the work by the fee earner who performed it; the name of the fee earner; the professional grade or seniority of the fee earner; the amount of time incurred; the amount charged for it; the ARITA category to which it was assigned; the “issue” to which it primarily relates; and the “task” to which it primarily relates. This evidence, extracted from the Receiver’s time records, proves, at least prima facie, that the work recorded was done, the time that was spent on it, and the staff member who performed it. The schedules enable the work done to be analysed chronologically, by ARITA category, by “issue” and by “task”, by fee earner, and by issue subcategorised by task and timeframe. In my view, this evidence is ample to enable assessment of a remuneration claim, based on the work done and recorded in the Receiver’s time recording system.

Credit issues

43. The Receiver was cross-examined, and the respondents advanced submissions critical of his credit. Some, though not all, of those criticisms are well-founded. In particular, I am unable to accept as creditworthy the Receiver’s claim that the communications between Piper Alderman and himself about removing Marsdens were confined to their role in acting for Gondon as vendor in the conveyance of units (the circumstances and communications simply do not permit that interpretation); [17] nor his evidence that there was no work done in respect of preparation of a report which he would not in any event have undertaken even had he not misapprehended that a report was required (notwithstanding that until as late as 15 December 2017 he was contemplating preparing a report for the Court in advance of the 21 December hearing, for which preparation must necessarily have by 15 December been well-advanced); nor that he would have investigated certain matters which he was asked by the plaintiff to investigate regardless of whether she had asked him to do so (notwithstanding that his staff first asked the plaintiff whether she wished them to investigate those matters); [18] nor that he thought he might be required to prepare a report by Corporations Act, s 422 (in cross-examination he suggested that an issue on 15 December was “my obligations under section 422” (to report contraventions to ASIC), and that this was a reason for seeking the Court’s directions; he then said that it was a “side issue” – in fact it was not referred to in the application on 15 December at all, and it had never previously been mentioned). These were explanations, advanced to explain away issues raised with the Receiver, which the circumstances did not objectively accommodate.

    17. The categories approved by the Australian Restructuring Insolvency and Turnaround Association (ARITA), namely Administration, Investigations, Assets, Creditors, Trade-on, and Dividend.

    18. See [80]-[82] below.

44. On the other hand, I accept that, notwithstanding that it described the interest claimed as a charge for the Receiver’s remuneration and expenses, the caveat in respect of Gondon’s units was lodged primarily for the purpose of securing the assets, and that the reference to the Receiver’s remuneration was, on advice, a means for ensuring that a valid caveatable interest was claimed. The Receiver says that that was his primary purpose, and that the caveat was drafted as it was on his solicitor’s advice; the contemporaneous communications between the Receiver and his solicitor corroborate him in both respects.

45. Ultimately, however, questions of credit are of only slight significance in the resolution of the issues. The evidence of what work was done is provided by contemporaneous business records. In the result, as will become apparent, acceptance or rejection of the Receiver’s contentions that the work would have been done in any event (regardless of whether he believed that a report was required, or whether the plaintiff requested it) has not been determinative. On the issue on which credit might have been determinative – namely, the purpose of the caveat – I have accepted the Receiver.

Mr Ngo’s time

46. The respondents submitted that 39.4 hours claimed for work done by the Receiver’s co-director Mr Ngo ought not be allowed. This submission was originally advanced on the basis that the only work attributed to Mr Ngo was “delegating”, and that in circumstances where the Receiver himself charged a total of 47.6 hours, it was unreasonable for his co-director Mr Ngo to have incurred 39.4 hours merely “delegating”. However, once evidence emerged that tended to show that Mr Ngo’s work was not limited to “delegating”, the basis of the submission shifted to a contention that the entries into the time recording system in respect of Mr Ngo were irregular and unreliable.

47. Mr Calabretta, who was the sole appointee as Receiver, is one of three directors of the firm Mackay Goodwin, the others being Messrs Ngo and Ward. I do not accept the respondents’ submission that the Receiver described Mr Ngo’s role as limited to assisting in “delegating work to a staff member(s) of appropriate seniority”. That submission was founded on para [106] of the first affidavit, which on no fair reading says that; rather, in the context of explaining his practice in respect of the distribution of work between members of his staff, the Receiver deposed:

106 I also, in the usual course of appointments including this one, regularly ask my fellow directors, such as Andrew Ngo, to assist in delegating work to a staff member of the appropriate seniority.

48. The Receiver’s evidence was that in this receivership, in conformity with the structure usually adopted by the Receiver for an administration – which utilised a lead appointee, a manager and analysts – Mr Ngo performed the role of a manager. Because Mr Ngo’s time was charged at a rate $55 per hour less than the Receiver’s own time, economies were to be achieved from his engagement, at least if it did not result in duplication. That he was engaged in such a role, and not merely in “delegation”, is confirmed by the nature of the work attributed to Mr Ngo in the time records, examples of which include:

1. 15 units on 6 December 2016 for:

tele conf with Thomas, Jonathan from Piper Alderman regarding outstanding issue re gain access to the premises, information requested from the defendant, options as to the possibility to trace funds;

2. 5 units on 7 December 2016 for:

review corr from Marsdens regarding the sale of A206 and B206, instruct JC to prepare file note to ensure the sale price is at market price;

3. 4 units on 8 December 2016 for:

update plaintiff’s solicitor regarding the progress of investigation;

4. 5 units on 9 December 2016 for:

review contract between Gondon Five and Arise Constructions (related party);

5. 15 units on 9 December 2016 for:

review the settlement summary of the North Ryde project provided by Marsdens;

6. 3 units on 13 December 2016 for:

discussion with LL regarding the uncooperation [sic] of the external accountant Ken Li and review letter prepared by Piper to accountant;

7. 5 units on 13 December 2016 for:

seek advice from Piper re the Receiver’s authority to sell property and instruct LL;

8. 15 units on 14 December 2016 for:

review Affidavit prepared by Hai Yan Cui and Jing Song Cui dated 13 December 2016; and

9. 6 units on 15 December 2016 for:

review email from Piper summary of the meeting with Judge and instruct LL steps going forwards.

49. It was suggested that at least some work in respect of which Mr Ngo’s time is claimed was not “posted” in the system until 22 December 2016 and 25 January 2017, these being the dates on which the remuneration report records those entries as having been “added”. In particular, work said to have been done by him on 5 December in attending Court was shown as “added” on 25 January 2017, and work done on 7 December 2016 was shown as added on 22 December 2016 and on 25 January 2017, and did not appear in a WIP report produced on 20 December. Upon this, and the absence of any affidavit from Mr Ngo personally, the respondents’ submissions hint that perhaps these entries were ex post facto reconstructions rather than contemporaneous – though they do not explicitly contend that the work attributed to Mr Ngo was not done.

50. At this point, the issue is not whether the work attributed to Mr Ngo was reasonably performed, but whether it was performed at all. On this issue, I do not accept that the absence of an affidavit from Mr Ngo is a matter of significance. In an application of this kind it is not expected that each person who has worked on the matter will swear an affidavit describing the work they have done. Such a requirement would disproportionately increase the costs of such applications, to the detriment of the estate. The Receiver has tendered the time records, which contain the more-or-less contemporaneous entries of every staff member who worked on the matter. Those documents, which are admissible pursuant to (NSW) Evidence Act 1995, s 69, evidence that the work was done as recorded in the time sheets, and provide a sufficient basis for the Court, and the defendants, to assess the reasonableness of the remuneration claim. Moreover, the challenge in respect of Mr Ngo’s time arose for the first time in cross-examination of the Receiver on 8 December 2017.

51. The Receiver explained that it was possible that Mr Ngo’s time had been “entered” contemporaneously but not “posted” until later, and that it would not become “work in progress” until it was “posted”; but he also accepted that it may not even have been “entered” – or amended – until as late as 22 December 2016 or 25 January 2017, as the case may be. Some support for this is provided by the 20 December WIP report, which includes Mr Ngo’s entries for 5 December – even though they are shown in remuneration report as “added” on 22 December. There is also corroboration of Mr Ngo’s work on 5 December, as the questioned entries in his time sheets assert, in Mr Narayan’s entry for 5 December:

Attend court and meeting solicitors and disc with LL and AN re appointment.

52. Even if Mr Ngo did not enter all his work time in the system immediately, and entered or amended some of it on 22 December 2016 or 25 January 2017, I see no reason to doubt that his entries faithfully recorded work that he had done. I accept that Mr Ngo did perform the work attributed to him, and I therefore do not accede to the respondents’ submission that time attributed to him should be disallowed globally. That is not to say that it will ultimately be allowed in full: in particular, to the extent that it was outside the scope of the receivership, or involved unnecessary duplication, it may be disallowed on those grounds.

The Receiver’s opinion

53. The Receiver has deposed that he has not identified any work that was unreasonable to perform, or was performed by an inappropriate person, or seemed to have taken an unreasonable period of time. Although the opinion of the insolvency practitioner to this effect is a relevant consideration, [19] the evidence of a claimant for remuneration in those terms is more than a little self-serving. Perhaps unsurprisingly, I am yet to encounter an insolvency practitioner who deposes that he has identified any work that was unreasonable to perform, was performed by an inappropriate person, or seemed to take an unreasonable time. In my judgment, while requiring an applicant for remuneration to depose to those matters serves the prophylactic purpose of at least requiring that attention be directed to them, its self-serving nature means that in the face of contention it cannot be afforded much weight.

    19. See [78] below.

The scope of the appointment

54. By far the most significant issue in this case concerns the scope of the Receiver’s appointment: to what extent was the work in respect of which remuneration is claimed reasonably undertaken in the due course of the receivership. The respondents submit that much of the work performed by the Receiver was not reasonably undertaken for the purposes of the attainment of the objectives for which he was appointed, and that he should not be allowed remuneration in respect of that work, nor reimbursement of related disbursements. This issue turns on the nature of the Receiver’s appointment, and the scope of work that was reasonable to achieve its purpose.

55. The Receiver was appointed as an interim receiver and manager. This is manifest from the orders appointing the Receiver, and continuing the appointment, because the appointment was always limited in time, and for that matter, a very short time. The Receiver’s initial appointment, by the 2 December 2016 order, was for one business day, “until and including 5 December 2016”. That appointment was continued, for a further 13 business days, by the 5 December 2016 order, “until and including 21 December 2016”. It is plain from the orders of 5 December that whether the appointment would continue beyond 21 December, even on an interlocutory basis, was contested and was to be resolved at an interlocutory hearing on that date. This was also apparent from the directions of 15 December. The appointment was therefore at all times an interim one, limited to a specified date. Moreover, on 15 December what had been understood by the Receiver from the outset was confirmed, namely that the purpose of the appointment was to take custody of and secure the assets of the companies and prevent further dealings with them.

56. The Receiver was given the powers in Corporations Act, s 420, which provides as follows:

(1) [Powers generally] Subject to this section, a receiver of property of a corporation has power to do, in Australia and elsewhere, all things necessary or convenient to be done for or in connection with, or as incidental to, the attainment of the objectives for which the receiver was appointed.

(2) [Specific powers] Without limiting the generality of subsection (1), but subject to any provision of the court order by which, or the instrument under which, the receiver was appointed, being a provision that limits the receiver's powers in any way, a receiver of property of a corporation has, in addition to any powers conferred by that order or instrument, as the case may be, or by any other law, power, for the purpose of attaining the objectives for which the receiver was appointed:

(a) to enter into possession and take control of property of the corporation in accordance with the terms of that order or instrument; and

(b) to lease, let on hire or dispose of property of the corporation; and

(c) to grant options over property of the corporation on such conditions as the receiver thinks fit; and

(d) to borrow money on the security of property of the corporation; and

(e) to insure property of the corporation; and

(f) to repair, renew or enlarge property of the corporation; and

(g) to convert property of the corporation into money; and

(h) to carry on any business of the corporation; and

(j) to take on lease or on hire, or to acquire, any property necessary or convenient in connection with the carrying on of a business of the corporation; and

(k) to execute any document, bring or defend any proceedings or do any other act or thing in the name of and on behalf of the corporation; and

(m) to draw, accept, make and indorse a bill of exchange or promissory note; and

(n) to use a seal of the corporation; and

(o) to engage or discharge employees on behalf of the corporation; and

(p) to appoint a solicitor, accountant or other professionally qualified person to assist the receiver; and

(q) to appoint an agent to do any business that the receiver is unable to do, or that it is unreasonable to expect the receiver to do, in person; and

(r) where a debt or liability is owed to the corporation — to prove the debt or liability in a bankruptcy, insolvency or winding up and, in connection therewith, to receive dividends and to assent to a proposal for a composition or a scheme of arrangement; and

(s) if the receiver was appointed under an instrument that created a security interest in uncalled share capital of the corporation:

(i) to make a call in the name of the corporation for the payment of money unpaid on the corporation's shares; or

(ii) on giving a proper indemnity to a liquidator of the corporation — to make a call in the liquidator's name for the payment of money unpaid on the corporation's shares; and

(t) to enforce payment of any call that is due and unpaid, whether the calls were made by the receiver or otherwise; and

(u) to make or defend an application for the winding up of the corporation; and

(w) to refer to arbitration any question affecting the corporation.

57. Those powers "encompass virtually every type of power which a receiver could conceivably need", [20] and s 420 “... gives a receiver of property of the corporation the specific statutory powers listed in the subsection, "subject to any provision of the court order by which … the receiver was appointed, being a provision that limits the receiver's powers in any way"”. [21] Thus, subject to the two provisos mentioned in the orders – namely that no distribution could be made of any assets without leave of the Court, and that the directors of both Companies retained their powers to commence, continue and defend legal proceedings – the Receiver had all the powers referred to in Corporations Act, s 420, which include, among other things, the power to take into possession and take control of the property of the corporation and the power to carry on any business of a corporation.

    20. In the matter of Idylic Solutions Pty Ltd (as trustee for Super Save Superannuation Fund) (2016) 115 ACSR 581; [2016] NSWSC 1292 at [57].

    21. Re Merchant Nurseries Pty Ltd; Corporate Affairs Commission (SA) v Rowley (1985) 10 ACLR 143 at 149 (Lunn AJ).

58. However, as s 420(1) makes clear, the powers referred to in the section are conferred not in a vacuum, but for the purpose of the attainment of the objectives of the appointment. That the Receiver had all the powers referred to in s 420 does not mean that it was necessarily reasonable or appropriate to invoke them, especially in the context of an interim appointment. An interim receiver – and an interim receiver and manager – is no equivalent of a provisional liquidator. The function of a receiver is to serve as a repository of the assets to which the receiver is appointed, and while a manager admittedly has more extensive functions [22] – in particular, the power to carry on the business of the company [23] – the function of a receiver and manager remains essentially to preserve the status quo. [24] While Corporations Act, s 420(2)(h), largely removes any distinction between the powers of a receiver and those of a manager, and although the function of “management” involves being more than a mere repository, it does not alter the fundamental purpose of the appointment, which – ordinarily – is preservation of the assets and undertaking in respect of which the appointment is made.

    22. Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (2003) 44 ACSR 503; [2003] NSWSC 130 at [16] (Austin J).

    23. Re Manchester & Milford Railway Co; Ex parte Cambrian Railway Co (1880)14 Ch D 645 at 653, 659; Harold Meggitt Ltd v Discount & Finance Ltd (1938) 56 WN (NSW) 23; Marshall v South Staffordshire Tramways Co [1895] 2 Ch 36; Re Newdigate Colliery Ltd [1912] 1 Ch 468.

    24. Re Custom Card (NSW) Pty Limited [1979] 1 NSWLR 241 at 248 (Needham J); see also Re Rondahl; Henderson v Executor Trustee Australia Ltd (2005) 93 SASR 337; (2005) 226 ALR 475; [2005] SASC 447 at [46] (Debelle J).

187. The second question ordinarily arises upon the taking of accounts, or upon a misfeasance summons. [60] However, in some circumstances liquidators or receivers may seek a direction in the Court’s advisory jurisdiction that they would be justified in paying certain disbursements, and in that way obtain prior protection in respect of such disbursements. [61] The Receiver’s application in this case is of that character, and in circumstances where the Receiver has been discharged and a Court order is necessary to facilitate reimbursement of his expenses, and the nature and quantum of the disbursements are controversial, it is appropriate for him to invoke the advisory jurisdiction.

     60. Mirror Group v Maxwell [1998] 1 BCLC 638 at 662; Venetian Nominees v Conlan (1998) 20 WAR 96 at 100; In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [14].

     61. Mirror Group v Maxwell [1998] 1 BCLC 638 at 662; Venetian Nominees v Conlan (1998) 20 WAR 96 at 100; In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [14].

188. As to the Court’s approach to such matters, in AAA Financial Intelligence Ltd (in liquidation) (No 2), [62] I explained:

14 … Although the Court will generally be supportive of liquidators who have incurred disbursements and paid them out of the estate in the exercise of their commercial judgment, albeit without the prior approval of the Court - as liquidators are to be encouraged to use their commercial judgment and not to make applications for directions in respect of comparatively trivial matters - the liquidators bear the onus of justifying their disbursements, and since they can only recoup from the estate if they have acted properly in instructing and paying third parties (such as solicitors), they should subject the bills received from them to critical scrutiny [Mirror Group v Maxwell, 661-2]. The following observations of Finkelstein J in Re Stockford Ltd warrant repetition (at 296-7):

[50] To this point I have said nothing about disbursements. The reason is that s 449E is concerned solely with remuneration. (In Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 100 the court finally laid to rest the erroneous view that a liquidator's remuneration included disbursements.) The right to be indemnified for properly incurred expenses is covered by ss 443A and 443D. Nevertheless, I wish to make one or two observations about disbursements, particularly legal fees which are often the largest component of an administrator's costs. My observations derive from the comments of Ferris J in Mirror Group Newspapers Plc v Maxwell (No 2) [1998] 1 BCLC 638 and Lightman J in an article entitled "Office Holders' Charges - Costs Control and Transparency" (1998) 11 Insolvency Intelligence 1.

[51] An insolvency practitioner stands in a fiduciary relationship with the creditors. He must act with the same care as a prudent businessman would act in his own affairs at his own cost and risk. A prudent businessman will run litigation as a last resort and when he embarks upon litigation he will keep it under close scrutiny. A prudent businessman will shop around to ensure that he obtains the services of good lawyers (solicitors and counsel) at the best possible rate. Personal relationships should not obscure the practitioner's duty. The sole selection criteria should be the benefit to him as a litigant. So he will avoid cosy relationships with solicitors and counsel. He will negotiate over fees with both solicitors and counsel. He will closely monitor the fees as they are incurred. (In some jurisdictions contingency fees are permitted and where they are they should be exploited.) Overall, this approach is likely to cause disquiet among the profession. Lightman J said that the requirement of adopting the perspective of the insolvency practitioner expending his own money in place of the perspective of spending his client's money is a "sea change". If made it is a change that will restore public confidence in this area of commercial life.

15 As Ferris J and Finkelstein J make clear, in this respect legal costs are no different from other liquidator's disbursements, save that the court has available to it mechanisms for itself determining legal costs between liquidators and their lawyers (the first question), as well as to what extent the liquidator may be allowed those costs out of the estate (the second question).

62. In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [16]; In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8].

191. As to the particular claim for legal costs in that case, I said: [63]

21 $19,989.13 was paid to Norton Rose Fulbright, solicitors, for legal advice in respect of the trust funds. Norton Rose rendered seven separate invoices, ranging over the period from 9 April 2013 to 28 February 2014. Those invoices provide no detail at all of the work done or the charge rates. They do not enable scrutiny by the Court, and could not have enabled the close scrutiny they should have received from the liquidators. The only evidence to justify this disbursement is Mr Tonks' assertion [Tonks, 15/8/14, para 19(c)] that the services performed by Norton Rose "relate to legal advice in respect of the Adviser Funds and Stockbroker Funds and these proceedings". However, the invoices significantly predate the current application and the costs of these proceedings are the subject of more recent invoices [Goldman, para 4, 5] and are the subject of a separate claim referred to below; although it would seem (from the liquidators' time records) that some preliminary advice was provided earlier. Notwithstanding the Court's disposition to be supportive of liquidators who have incurred disbursements in the exercise of their commercial judgment, something more than the mere incurring and payment of a disbursement is required to justify it. In the circumstances of this case, it may well have sufficed if the Norton Rose invoices included a short description or narrative of the services rendered, but there is nothing to that effect. This disbursement has not been justified.

22 That said, and although on a strict view I should probably disallow this disbursement in toto, l accept that legal advice was reasonably required to enable the liquidators to determine how to deal with the trust funds, in connection with preparation of the notices to advisers and stockbrokers, and as to the making of the present application. With some reservations, I am prepared to allow $11,000 (inclusive of GST) on that account, notwithstanding the deficiency of appropriate evidence.

63. [2014] NSWSC 1270 at [14]-[15].

192. The following guidelines may be extracted from the authorities discussed above. Although those authorities were in the context of liquidations, not receiverships, for present purposes there is no relevant distinction, and they are as applicable to receivers as they are to liquidators:

1. liquidators (and receivers) bear the onus of justifying their disbursements;

2. the Court will generally be supportive of liquidators (and receivers) who have incurred disbursements and paid them out of the estate in the exercise of their commercial judgment;

3. liquidators (and receivers) should ensure that they obtain legal services of appropriate quality at the best possible rate; and

4. liquidators (and receivers) should subject the bills received from their lawyers to critical scrutiny.

193. The Receiver’s evidence in support of the application for approval of the legal costs payable to Piper Alderman was, in substance, that he has previously engaged Piper Alderman in respect of insolvency matters and has always been satisfied with the work they have performed; that he considered that the rates to be charged by them were reasonable and in line with market rates; and that he reviewed their invoices and considered that they were appropriate and reasonable and was satisfied that the work performed was in accordance with his instructions and necessary for the purposes of the receivership.

194. The respondents submitted this was inadequate to justify the expenses, and in particular that while the Receiver’s evidence went into some detail in justification of Mackay Goodwin’s professional fees (including by reference to ARITA codes, work categorisation and tasks), the same could not be said of Piper Alderman’s fees; and there was no affidavit from anyone at Piper Alderman.

195. I do not accept – as is implicit if not explicit in the respondents’ submissions – that the Court scrutinises expenses in the same way as it does remuneration, and requires the same type of evidence. It is correct, as the Receiver submitted, that remuneration and disbursements in this context are not the same thing; as appears from the authorities discussed, the exercise is different. In particular, I do not regard the absence of an affidavit from Piper Alderman as significant; the issues to which it is necessary to direct evidence in respect of disbursements, as just identified, are more in the province of the Receiver than his solicitors. Detailed bills of costs have been provided, based on contemporaneous time records, which identify the work done and the charges for it, and enable the Court to scrutinise them.

196. However, the circumstance that the Receiver has not identified a single dollar to object to is a matter of concern; it suggests that that degree of critical scrutiny to which Finkelstein J referred in Stockford Ltd has not been brought to bear. That is particularly so where there are, on any view, some fairly obvious areas for objection, including that time is claimed for the attendance at court on 15 December of two solicitors with senior counsel, again for the attendance of two solicitors at court on 21 December (notwithstanding that there was no formal appearance on behalf of the Receiver), and yet again on 23 December (when the matter was listed for short minutes only). That concern is fortified by aspects of the costs assessment application filed by the Receiver, no doubt with the intention that any such concern could be mitigated by referring the lawyers’ bills for assessment. The Receiver’s application was prepared and filed by his solicitors – the very firm whose costs were to be assessed. The application form identifies the total amount claimed by the law practice claimed as $78,340.71, and in answer to the requirement to state how much the client contended was proper, the Receiver stated “$78,340.71” – that is, the full amount. In answer to the requirement to state how much was objected to, the response was “None”. Further information included:

The Costs Applicant was appointed by the Supreme Court of NSW as Receiver and Manager of Gondon Five Pty Ltd (Gondon) and Cui Family Asset management Pty Ltd (CFAM). The Costs Applicant is seeking a determination from a costs assessor to determine whether the legal costs are fair and reasonable. The Costs Applicant does not have any objections to the amount claimed however; Gondon, CFAM and Jinsong Cui may have an interest in the determination of this costs assessment and may wish to submit their own objections and submissions.

197. As instructions were first given after 1 July 2015, the (NSW) Legal Profession Uniform Law applies in respect of the costs assessment. The facility for the assessment of costs as between client and solicitor is found in Division 7, ss 196 to 205, of Part 4.3 of the Uniform Law. Section 170, in Division 1 of Part 4.3, provides:

170   Commercial or government clients

(1)  This Part does not apply to—

(a)  a commercial or government client; or

(b)  a third party payer who would be a commercial or government client if the third party payer were a client of the law practice concerned—

but this section and sections 181(1), (7) and (8), 182, 183 and 185(3), (4) and (5) do apply to a commercial or government client referred to in paragraph (a) or a third party payer referred to in paragraph (b).

(2)  For the purposes of this Law, a commercial or government client is a client of a law practice where the client is—

(a)  a law practice; or

(b) one of the following entities defined or referred to in the Corporations Act—

(i)  a public company, a subsidiary of a public company, a large proprietary company, a foreign company, a subsidiary of a foreign company or a registered Australian body;

(ii)  a liquidator, administrator or receiver;

…

198. Although this is an extraordinary and presumably unintended result, prima facie this has the effect that receivers are not entitled to apply for assessment of costs rendered to them by their solicitors. However, if a concern that appropriate scrutiny had not been brought to bear was the only issue, this difficulty could be addressed by referring the matter of Piper Alderman’s costs to a costs assessor as a referee for inquiry and report.

199. However, that concern is not the only issue. To the extent that I have concluded above that the Receiver was not justified in retaining external solicitors, except in respect of limited matters, it necessarily follows that he is not entitled to reimbursement of his legal expenses paid or payable by him to them, because those expenses were not reasonably and properly incurred. Assessment will resolve only the first question (the amount for which the receiver is liable to his solicitors, which prima facie would include all work which he instructed them to do, whether or not properly within the scope of the receivership), and not the second (the amount for which the Receiver is entitled to be indemnified, which would not include work that it was not reasonable and proper for him to instruct the solicitors to do).

200. It would be an option to refer, for inquiry and report, the amount of Piper Alderman’s costs that were attributable to the issues I have identified as those in respect of which it was reasonable for the Receiver to engage them. However, that would visit additional costs on the parties and protract their dispute. Piper Alderman’s bills are in sufficient detail, although they are not the subject of categorisation into Issues or Tasks, that it is possible to obtain from them, without undertaking a line-by-line examination, an approximation of the costs attributable to the caveat and contract issues.

201. There are items which refer to work associated with lodging or withdrawing the caveat that total $3,610.50. Many of them include other work, and some involve internal conferences between solicitors in the same firm. I regard an allowance of $3,000 as more than ample to cover what should reasonably have been required. In addition, I would allow disbursements for property search fees ($79.85), and registration fees for the caveat ($408.90) and withdrawal of caveat ($408.90).

202. Entries totalling $2,728.50 which potentially relate in whole or in part to the contract issue can be identified; again, some involve internal conferences, and some relate to multiple issues. $2,500 is ample to cover what should reasonably have been required.

203. Accordingly, expenses totalling $6,397.65 (plus GST) were reasonably incurred in the due course of the receivership. As I have foreshadowed, this determines only the amount for which the Receiver is entitled to be indemnified; it does not determine the amount to which Piper Alderman are entitled as against the Receiver. If necessary – but subject to the jurisdictional issue to which I have referred – that can be determined on assessment, but as the Receiver does not dispute Piper Alderman’s charges, that would now appear unnecessary.

Conclusion and orders

204. My conclusions may be summarised as follows:

205. The work for which the Receiver claims remuneration was in large part not reasonably undertaken in the course of a short-term interim appointment as receiver and manager for the purpose of securing assets. In particular, work in relation to investigation of pre-appointment transactions, the substantive litigation and the directions application, and the ABMG lockout, was not justified; and the amount claimed in respect of ascertaining the status of sales, and what the Receiver called “other necessary work” and “mandatory work” was excessive. Bearing in mind that the Receiver bears the onus of proving the reasonableness of the work done and his remuneration for it, I am not persuaded that his remuneration should exceed $10,000 (plus GST) for CFAM, and $30,000 (plus GST) for Gondon. That represents $2,850 per day for the 14 business days that the appointment was in place.

206. The Receiver was not justified in instructing solicitors to act for him, except in relation to the lodgement and withdrawal of the caveat, and the contracts for sale of two units. His lawyers’ reasonable costs and disbursements for that work, for which the Receiver is entitled to be indemnified, do not exceed $6,397.65 (plus GST).

207. The Court orders that:

1. the remuneration of the applicant as receiver of CFAM be fixed at $11,000 (GST inclusive);

2. the remuneration of the applicant as receiver of Gondon be fixed at $33,000 (GST inclusive);

3. the applicant would be justified in reimbursing himself in respect of expenses (being the legal costs paid or payable by him in his capacity as Receiver of Gondon to his solicitors Piper Alderman) to the extent of $7,037.42 (GST inclusive); and

4. the applicant would be justified in drawing the amount of $51,037.42 from the money remaining in his trust account to the credit of the respondents.

208. I will hear the parties on the question of costs of the application, pending which it would be premature to determine the destination of the balance remaining in the Receiver’s trust account. If there is any issue about the moneys retained by Marsdens on their undertaking, that can be addressed in connection with the question of costs, and liberty to apply in that respect, and in respect of any other consequential matter, is reserved.

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Endnotes

Decision last updated: 29 April 2019