In the matter of Jacks Corner Pty Ltd (in liquidation)

[2023] NSWSC 1340

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Jacks Corner Pty Ltd (in liquidation) [2023] NSWSC 1340

Hearing dates:

30-31 October and 3 November 2023

Date of orders:

8 November 2023

Decision date:

08 November 2023

Jurisdiction:

Equity - Commercial List

Before:

Williams J

Decision:

See orders at [116] below.

Catchwords:

CORPORATIONS – Liquidators of former trustee of unit trust apply to be appointed as receivers and managers of trust assets by way of enforcement of equitable charge security right to be indemnified out of trust assets – Current trustee opposes appointment on grounds that, inter alia, the costs of winding up the former trustee were occasioned by a breach of trust and the liquidators were therefore not entitled to have their remuneration paid out of trust assets – receivers and managers appointed.

CIVIL PROCEDURE – Pleadings – Amendment – Late application for amendment – Where applications made late on first day and early on second day of two-day hearing – Where grant of leave would be inconsistent with overriding purpose and dictates of justice and just resolution of proceedings – Leave refused –

No question of principle.

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 56, 58, 64, 64(2)

Corporations Act 2001 (Cth), ss 420, 420(3), 436A, 439C, 471B, 500, schedule 2 ss 5-30, 90-15, 90-20, 90-20(1)(a)-(e), 90-20(2)(a)

Evidence Act 1995 (NSW), ss 136, 144

Supreme Court Act 1970 (NSW), s 67

Trustee Act 1925 (NSW), s 59(4)

Cases Cited:

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; (2009) 83 ALJR 951; (2009) 258 ALR 14; [2009] HCA 27

Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; (2019) 93 ALJR 807; (2019) 368 ALR 390; (2019) 17 ABC(NS) 1; [2019] HCA 20

Gatsios Holdings v Kritharas Holdings (in liq) [2002] ATPR 41-864; [2002] NSWCA 29

In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99; (1983) 7 ACLR 873; (1983) 1 ACLC 895

John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; (2010) 84 ALJR 446; (2010) 266 ALR 462; (2010) 2 ASTLR 553; (2010) 4 BFRA 701; [2010] HCA 19

Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310; (2018) 354 ALR 436; (2018) 124 ACSR 568; (2018) 36 ACLC 18-017; (2018) 70 AILR 102-937; [2018] FCAFC 40

King Investment Solutions v Hussain (2005) 1 BFRA 577; [2005] NSWSC 1076

Nolan v Collie (2003) 7 VR 287; [2003] VSCA 39

Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) (2016) 305 FLR 222; (2016) 34 ACLC 16-004; (2016) 11 BFRA 355; [2016] NSWSC 106

Re Indopal Pty Ltd (1987) 12 ACLR 54; (1987) 5 ACLC 278

Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; (1979) 4 ACLR 54; [1979] CLC 40-531

Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17; (2014) 103 ACSR 401; (2014) 32 ACLC 14-065; (2014) 9 BFRA 663; [2014] NSWSC 1484

Ross v Lane Cove Council (2014) 86 NSWLR 34; (2014) 199 LGERA 298; [2014] NSWCA 50

Texts Cited:

JD Heydon, MJ Leeming, and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis, 5th ed, 2015)

Category:

Principal judgment

Parties:

Originating Process:
CR Operations Pty Ltd ACN 656 001 008 (Plaintiff)
Jacks Corner Pty Ltd (in liquidation) ACN 645 673 981 (First Defendant)
John Vouris in his capacity as liquidator of the first defendant (Second Defendant)

Interlocutory Process filed on 21 November 2022:
Jacks Corner Pty Ltd (in liquidation) ACN 645 673 981 (First Applicant)
John Vouris in his capacity as liquidator of the first defendant (Second Applicant)
CR Operations Pty Ltd ACN 656 001 008 (Respondent)

Representation:

Counsel:
Mr AG Martin (Plaintiff/Respondent)
Mr EA Walker (Defendants/Applicants)

Solicitors:
CharterLaw Legal (Plaintiff/Respondent)
Piper Alderman (Defendants/Applicants)

File Number(s):

2022/188051

Publication restriction:

N/A

Judgment

Introduction

1. These reasons concern a claim by the liquidators of a company that was formerly the trustee of a unit trust to be appointed as the receivers and managers of the property, assets, and undertaking of the trust, the legal title to which is now vested in the new trustee, and for an order that their remuneration as receivers be paid out of the assets of the trust.

2. The new trustee of the unit trust opposes the appointment of the liquidators of the former trustee as the receivers and managers of the property, assets, and undertaking of the trust.

3. For the reasons that follow, I have determined to appoint the liquidators of the former trustee as receivers and managers, by way of enforcement of the equitable charge that supports the right of the former trustee (which has now vested in its liquidators) to be indemnified out of the trust assets against liabilities and expenses incurred in the execution of the trust, including the costs of winding up the former trustee which carried on no business other than as trustee of the trust.

Salient facts

4. I have considered all of the evidence adduced by the parties in preparing the following summary of the factual matters relevant to the determination of these proceedings.

5. Mr Timothy Clark is the sole director and shareholder of Opposite Group Pty Ltd, which was incorporated on 17 January 2019 (Opposite Group).

6. During 2019 and 2020, Mr Clark and Mr Christopher Ristevski discussed Mr Clark’s ambition to develop a “wellness accommodation concept”, and his proposal for Mr Ristevski to fund the acquisition of a country property on which Opposite Group would develop and operate the wellness facility. Mr Ristevski has given evidence that he did not want to be an active participant in the proposed wellness business, but that he and Mr Clark discussed Mr Ristevski investing in the project through his investment vehicle, Guzzi Enterprises Pty Ltd (Guzzi).

7. Mr Ristevski is the sole director and shareholder of Guzzi, which is the trustee of the Guzzi Enterprises Trust that was established by Deed of Trust dated 23 May 2005 (the Guzzi Trust). Mr Ristevski is also the primary beneficiary of the Guzzi Trust.

8. From about 1 July 2019 until about February or March 2021, the Guzzi Trust lent funds to Opposite Group for the purpose of progressing that company’s wellness accommodation concept.

9. By about July 2020, Mr Clark had identified a property at 903B Jacks Corner Road in Kangaroo Valley, New South Wales, as a suitable site for the Opposite Group’s wellness accommodation concept (the Property). Mr Ristevski agreed that the Guzzi Trust would assist with the acquisition of the Property. Mr Ristevski and Mr Clark discussed how the proposed wellness accommodation business would be conducted. They agreed that a new company would be incorporated to purchase and hold the Property, funded by moneys to be raised from investors, and that Opposite Group would establish, manage, and operate the business on the Property. By the time they reached that agreement, Guzzi had entered into a call option to purchase the Property, and intended to nominate the proposed new company as the purchaser of the Property if the call option was exercised.

10. Mr Ristevski has given evidence that, before the new company was incorporated, he had a conversation with Mr Clark, in which Mr Clark said to him words to the following effect:

“Chris, I know you would prefer to not give a personal guarantee which the vendor says he requires when we sign the contract. I have nothing much to lose financially, so I’ll act as the sole director and shareholder until the contract is signed and once signed, you became an equal shareholder and co-director.”

11. Mr Ristevski has given evidence that he agreed with Mr Clark’s proposed structure of the new company, and told Mr Clark that he would instruct his solicitor to structure the company on that basis.

12. Jacks Corner Pty Ltd (in liquidation) ACN 645 673 981 was incorporated on 5 November 2020, with Mr Clark as its sole director and shareholder (the Company). Pursuant to a Deed of Settlement dated 16 November 2020, the Company was appointed as the trustee of the Jacks Corner Property Trust (the Trust and the Trust Deed).

13. The Trust is a unit trust. Clause 5.5 of the Trust Deed recorded that the initial units were issued to Guzzi as trustee of the Guzzi Trust (10 units) and to Mr Clark as trustee of the Timothy Clark Trust (10 units). Clause 5.6 provided that additional units in the Trust would be created as and when the Trustee accepted additional money or property as part of the Trust Fund in accordance with clause 2.2. Clause 5.6 required the Trustee to determine the number of additional units to be issued by applying a formula of the market value of the additional money or property divided by the “Benchmark Price”. Clause 1.1(b) defined the “Benchmark Price” as the price of a unit determined on the basis of the net asset value of the Trust Fund, according to Australian accounting principles, immediately prior to the creation of the additional units.

14. Immediately after the establishment of the Trust on 16 November 2020, each of the Guzzi Trust and the Clark Trust paid $175,000 into the Trust in order to subscribe for 175,000 additional units. The Clark Trust borrowed its subscription moneys of $175,000 from the Guzzi Trust. As will become apparent below, the additional units were not issued to the Guzzi Trust and the Clark Trust at that time.

15. On 18 November 2020, the Company in its capacity as trustee of the Trust entered into a contract to purchase the Property for the price of $7,281,250, including a deposit of $375,000. The Company applied the $175,000 subscription funds received from each of the Guzzi Trust and the Timothy Clark Trust to fund the $350,000 required to pay the deposit, after deducting a $25,000 option fee that Guzzi had paid when it entered into the call option. The contract provided for completion one year after exchange, on 18 November 2021.

16. The Company’s only business was to act as trustee of the Trust, and the whole of the property, assets, and undertaking of the Company were held on the terms of the Trust. The Property is the primary asset of the Trust.

17. As at March 2021, Opposite Group had failed to raise funds from third party investors for the wellness accommodation business, including for the design and development application costs. Mr Ristevski told Mr Clark that Guzzi was not prepared to advance further funds to Opposite Group. Guzzi had lent a total amount of approximately $400,000 to Opposite Group as at 25 March 2021.

18. The Company’s purchase of the Property was completed on or about 7 December 2021, funded by a loan of $5,000,000 from Prime Capital Securities that was secured by registered mortgage over the Property, and funding from Guzzi and two other investors—Nikola and Dusanka Tomic, and Agnes Chan.

19. On 13 December 2021, CR Operations Pty Ltd ACN 656 001 008 (CR Operations) was incorporated with Mr Ristevski as its sole director and shareholder.

20. Correspondence tendered in these proceedings refers to Guzzi having issued “numerous demands” to Mr Clark after 7 December 2021 for the Company to issue further units in the Trust to Guzzi. The number of units that Guzzi demanded varied between 2,506,320 and 2,578,748 units.

21. On 19 April 2022, Guzzi served on the Company a written requisition for a meeting of unitholders of the Trust to consider the removal of the Company as trustee and the appointment of CR Operations as trustee of the Trust. On 6 May 2022, Guzzi’s solicitors wrote to Mr Clark stating that the Company was required by the Trust Deed to requisition the meeting by 11 May 2022. Mr Clark replied to Guzzi’s solicitors by email on 10 May 2022, stating (emphasis in original):

“The Trustee will be calling a meeting of the unitholders for Wednesday 18 May 2022 to discuss a number of urgent financial matters that have arisen. Your client will shortly receive the meeting invitation and material.

As previously advised, the exact percentage of the unitholding of Guzzi Enterprises Pty Limited (Guzzi) still needs to be verified. The Trustee has never received verification or a breakdown of the payments made by Guzzi in connection with the Trust and the creation of the Trust assets that would warrant the unitholding despite numerous requests. Indeed, the percentage has often changed albeit always hovering around 70%. Therefore the written requisition has been issued too early in the Trustee’s view. That said, the Trustee is currently arranging a meeting of the unitholders so the wish to have a meeting held will be satisfied in any case.”

22. The urgent financial matters referred to in Mr Clark’s email included that, on 6 May 2022, Prime Capital Securities had issued a notice of default and demand to the Company, and a notice pursuant to s 57(2)(b) of the Real Property Act 1900 (NSW). The notice of default stated that the Company had failed to pay amounts totalling approximately $260,366. The s 57(2)(b) notice required the Company to remedy that default within one month, failing which the mortgagee would exercise its power of sale.

23. The evidence adduced in these proceedings includes a trading, profit and loss statement for the trust which shows that the interest payable by the Company on the loan secured against the Property far exceeded the Company’s income, which consisted only of rent earned from the Property.

24. Mr Tony Tighe is an accountant who appears to have been advising the Company, Opposite Group, and Mr Clark. On 10 May 2022, Mr Tighe sent an email to Mr Vouris stating that the sole director of the Trustee Company had “kicked this can down the road as far as possible”, that “[t]he secured creditor has been fair in communications and the trade creditors have seen enough”, and that there had been “positive involvement from several investors” but that “none have materialised”. Mr Tighe’s email suggested that the appointment of administrators be made the following day, “in favour to the other unitholder taking charge”.

25. Mr Clark did not follow Mr Tighe’s suggestion at that time. The Administrators were not appointed the following day. What did happen on the following day was that the Plaintiff served a creditor’s statutory demand on Opposite Group.

26. On 12 May 2022, Mr Tighe sent an email to Mr Clark referring to the statutory demand, and stating that “it forces you to appoint [Mr Vouris] to [the Company] in response to this demand”. Mr Tighe’s reasons for advising that the statutory demand issued to Opposite Group “forces” the appointment of the Administrators to the Company are not recorded in the email, and are not apparent from the evidence adduced in these proceedings. Counsel for the Liquidators did not submit that the advice was correct, but did place some reliance on the email as advice that was in fact given to the Company in its capacity as trustee.

27. On 17 May 2022—the day before the meeting of unitholders of the Company was due to be held—Mr Clark, as sole director of the Company, appointed Mr John Vouris and Ms Kathleen Vouris as joint and several administrators of the Company pursuant to s 436A of the Corporations Act 2001 (Cth) (the Administrators). Mr Clark, as sole director of Opposite Group, appointed Mr John Vouris and Ms Kathleen Vouris as voluntary administrators of that company on the same date.

28. In the days and weeks immediately after the appointment of the Administrators, the solicitors acting for Guzzi exchanged correspondence with the Administrators’ solicitors providing details of the financial contributions that Guzzi claimed to have made to the Trust Fund and the number of units that it claimed it was entitled to be issued in consideration for those contributions. Guzzi’s solicitors demanded that the Administrators cause the Company to issue those units to Guzzi.

29. On 1 June 2022, Mr Vouris, in his capacity as Administrator of the Company, resolved to revoke a resolution made by him on 31 May 2022, and to issue:

1. 175,000 additional units in the Trust to Guzzi in consideration for $175,000, with an effective acquisition date of 16 November 2020;

2. 175,000 additional units in the Trust to Mr Clark as trustee for the Clark Trust in consideration for $175,000, with an effective acquisition date of 16 November 2020;

3. 2,391,258 units in the Trust to Guzzi in consideration for $2,391,258, with an effective acquisition date of 6 December 2021;

4. 250,000 units in the Trust to Nikola Tomic and Dusanka Tomic in consideration for $250,000, with an effective acquisition date of 6 December 2021; and

5. 500,000 units in the Trust to Agnes Chan in consideration for $500,000, with an effective acquisition date of 6 December 2021.

30. The revoked 31 May 2022 resolution—which had been passed by Mr Vouris as Administrator at the urging of the solicitors acting for Mr Ristevski, Guzzi, and the Plaintiff—was in very similar terms to the resolution that he passed on 1 June 2022. However, the number of units issued to Guzzi increased in the 1 June 2022 resolution compared to the 31 May 2022 resolution. Contemporaneous correspondence records that this change resulted from the solicitors for Mr Ristevski, Guzzi, and the Plaintiff revising and correcting their calculations of the monies paid by Guzzi, and the number of units to which Guzzi therefore claimed to be entitled.

31. A meeting of unitholders of the Trust was held on 13 June 2022. Mr Ristevski attended the meeting as agent for Guzzi. No other unitholder was present at the meeting in person or by proxy. Mr Ristevski, voting as agent for Guzzi, appointed himself as the Chairman of the meeting. It was resolved to remove the Company, and to appoint the Plaintiff, as trustee of the Trust.

32. The minutes of that meeting, which were signed by Mr Ristevski as Chairman, recorded an allegation that the appointment of the Administrators had been “unlawful” “in circumstances where insolvency was avoidable because financial assistance was available to [the Company] on the removal of Clark as director of [the Company] or the removal of [the Company] as trustee of [the Trust].”

33. There was no evidence before the Court in these proceedings that Mr Ristevski, Guzzi, or the Plaintiff communicated any allegation to the Administrators that Mr Clark had not held the opinion that the Company was insolvent, or likely to become insolvent, when he resolved to appoint the Administrators pursuant to s 436A of the Corporations Act on 17 May 2022, or that the appointment of the Administrators had otherwise been “unlawful”. On the contrary, the solicitors acting for Mr Ristevski, Guzzi, and the Plaintiff engaged with the Administrators in a manner that was consistent only with their acceptance that the Administrators had been validly appointed. In particular, the solicitors acting for Mr Ristevski, Guzzi, and the Plaintiff demanded that the Administrators cause the Company to issue to Guzzi the additional units to which it claimed to be entitled. There is no evidence that the Administrators had any cause to question the validity of their appointment.

34. In their report to creditors dated 14 June 2022, the Administrators stated that, based on legal advice, they were of the opinion that the Company had a right of indemnity against the Property, being an asset of the Trust.

35. On 22 June 2022, the Administrators were appointed as the Liquidators of the Company pursuant to a resolution of creditors under s 439C of the Corporations Act (the Liquidators). Mr Vouris and Ms Vouris were appointed as liquidators of Opposite Group on the same date.

36. On 28 June 2022, CR Operations commenced these proceedings against the Company (the first defendant) and one of the Liquidators (Mr Vouris—the second defendant) seeking an order vesting the Property in it as the new trustee of the Trust, or, alternatively, orders requiring the Company to transfer the Property to it as the new trustee. It is curious that CR Operations chose to join only one of the Liquidators as a defendant to the proceedings, but nothing turns on that as they are joint and several liquidators. It is convenient to refer to CR Operations as the Plaintiff, and to the Company and Mr Vouris as the Defendants.

30. On 30 June 2022, the Court made orders noting the Defendants’ agreement to do all things necessary to transfer the Property to the Plaintiff as the new trustee of the Trust, subject to:

1. the Plaintiff’s undertaking to consent to the lodgement by the Company of a caveat prepared by the Liquidators claiming an equitable interest in the Property arising from the Company’s right of indemnity as the former trustee of the Trust; and

2. the Plaintiff undertaking that it accepts that the Company’s equitable interest in the Land, which arises from its right of indemnity as former trustee of the Trust, is earlier in time and takes priority over any interest arising in favour of the Plaintiff or any other person or party who pays the sum of approximately $550,000 to the registered mortgagee of the Property on or after 30 June 2022.

38. On 30 June 2022, Mr Ristevski paid approximately $551,000 of the amount owing by the Company to Prime Capital Securities under the loan that was secured by registered mortgage against the Property. I infer that this payment was made in order to cure the default under that mortgage.

39. It appears that the transfer of the Property to the Plaintiff was delayed while the Plaintiff applied for a stamp duty concession or exemption. The transfer was ultimately registered on 1 November 2022. The historical title search records that the existing mortgage was discharged, and that the caveat that had been lodged by the Administrators was withdrawn, immediately prior to the registration of the transfer to the Plaintiff. Immediately after the registration of that transfer, a new mortgage was registered in favour of National Australia Bank, and a new caveat was lodged by the Liquidators.

40. I infer from the above dealings that the Plaintiff took out a loan from National Australia Bank to pay out the debt owing by the Company to Prime Capital Securities, and that the new loan was secured by the mortgage in favour of National Australia Bank. There is no evidence before the Court about the amount of the debt that is presently secured by that mortgage.

41. The caveat lodged by the Liquidators was not in evidence, but I infer from the Administrators’ report referred to at [34] above, and from the terms of the orders made by the order on 30 June 2022 referred to at [37] above, that the caveat claims an interest in the Property by way of an equitable lien securing the Company’s right as the former trustee of the Trust to be indemnified out of the Trust assets in respect of all expenses and liabilities incurred in execution of the Trust and its powers as trustee.

42. After consenting to the transfer of the Property to the Plaintiff on 30 June 2022 on the terms set out above, but before the registration of that transfer on 1 November 2022, the Defendants had filed an interlocutory process in these proceedings on 18 August 2022 seeking orders pursuant to s 67 of the Supreme Court Act 1970 (NSW) appointing the Liquidators as receivers of the property, assets, and undertaking of the Trust, with powers including a power of sale of the property, assets, and undertaking, and an order that their remuneration and expenses be paid out of the assets of the Trust.

43. On 3 April 2023, the Plaintiff amended its originating process in these proceedings to seek:

1. an order pursuant to s 471B of the Corporations Act 2001 (Cth) granting leave to the Plaintiff to commence the proceedings against the Company in liquidation;

2. declarations that the Company is not entitled to be indemnified out of the assets of the Trust “for having acted as trustee of the Trust”;

3. a declaration that the Liquidators are not entitled to recover any remuneration or expenses of the liquidation (and of the earlier voluntary administration) from the assets of the Trust; and

4. an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act that the Liquidators’ decision to admit proofs of debt submitted by certain persons claiming to be creditors of the Company be reversed, and that those proofs of debt be rejected.

44. The Plaintiff subsequently filed Amended Points of Claim, and the Defendants filed Points of Defence, in accordance with directions made by the Court. Persons in respect of whom the Plaintiff sought an order reversing the Liquidators’ admission of their proof of debt were served with the Plaintiff’s Amended Points of Claim.

45. The Liquidators have called for, and adjudicated on, proofs of debt submitted in the winding up of the Company. In his affidavit sworn on 31 July 2023, Mr Vouris gave evidence about the determinations made by the Liquidators in relation to each proof of debt. Mr Vouris deposed that the Liquidators had rejected, in whole or in part, eight proofs of debt submitted in the winding up of the Company because they had determined that the amounts claimed in those proofs related to work performed for Opposite Group, and not to work performed for the Company. Mr Vouris referred to those rejected proofs of debt as the Opposite Group Claims. Mr Vouris deposed that he has not yet called for formal proofs of debt in the winding up of Opposite Group, and that:[1]

    1. Pursuant to s 136 of the Evidence Act 1995 (NSW), paragraphs 51 and 52 were read as evidence of Mr Vouris’ state of mind only.

“50.   Each of the Opposite Group Claims appear to relate to work performed at or in relation to the Property, which … is a property the Company was the registered proprietor of as trustee of the Trust before it was transferred to the plaintiff.

51.   My investigations into the affairs of the Company and of the Opposite Group, including:

51.1   the above claims of creditors which refer to work performed at the Property; and

51.2   my review of the books and records from each company generally,

indicate to me that the Opposite Group Claims arise from an arrangement whereby, regardless of which of the Company or Opposite Group engaged the creditor and is liable to pay the creditor, the work was performed by the creditor in relation to the Property, and therefore benefitted the Company.

52.   In the event the Opposite Group Claims which I rejected in the liquidation of the Company become the subject of proofs lodged in the liquidation of Opposite Group when proofs of debt are formally called upon (or beforehand) and those proofs are ultimately accepted in the liquidation of Opposite Group, I believe that could leave the Company in a position whereby it has a liability to Opposite Group to the extent those claims are accepted in the liquidation of Opposite Group either in contract or for a quantum meruit. That would then require me, in my capacity as liquidator of Opposite Group, to lodge a proof of debt in the liquidation of the Company for the sum admitted in the liquidation of Opposite Group. If that was to happen, then there may be more creditors in the liquidation of the Company than there presently is. It would put me in a position whereby I would be expected to adjudicate on a proof of debt in the liquidation of the Company that I caused Opposite Group to lodge. In those circumstances, I anticipate it may be necessary for me to apply for the appointment of a special-purpose liquidator to the Company to adjudicate on the proof of debt. …”

46. In about late July or August 2023, the Plaintiff listed the Property for sale. At the time of the hearing on 30 and 31 October 2023, the Property remained on the market for sale.

Summary of the parties’ competing claims

47. The only parties to the proceedings were the Plaintiff (being the current trustee of the Trust), the Company (the first defendant), and the Liquidators (the second defendant). The persons in respect of whom the Plaintiff’s Amended Originating Process sought an order reversing the Liquidators’ admission of their proof of debt, and who had been served with the Plaintiff’s Amended Points of Claim in accordance with the directions referred to at [44] above, did not appear and seek leave to be heard at the hearing on 30 and 31 October 2023.

48. As I have referred to earlier in these reasons, the Liquidators filed an interlocutory process in these proceedings on 18 August 2022 seeking orders appointing them as receivers of the property, assets and undertaking of the Trust, and an order that their remuneration and expenses be paid out of the assets of the Trust.

49. As I have already explained, the Plaintiff opposed the appointment of the Liquidators as receivers of the property, assets, and undertaking of the Trust on the grounds set out in its Amended Originating Process filed on 3 April 2023, and Amended Points of Claim filed on 15 May 2023.

50. The grounds of the Plaintiff’s opposition to the appointment of the Liquidators as receivers, and the reasons why the Plaintiff contends that the Liquidators are not entitled to payment of their remuneration and expenses out of the assets of the Trust, narrowed somewhat prior to the commencement of the hearing, and shifted constantly as the hearing progressed.

51. At the commencement of the hearing on 30 October 2023, only the following claims for relief were pressed by the Plaintiff:

1. the claim for an order pursuant to ss 471B and/or 500 of the Corporations Act granting leave to the Plaintiff to commence the proceedings against the Company in liquidation;

2. claims for declarations to the effect that the Company is not entitled to be indemnified out of the assets of the Trust in respect of any expenses or liabilities incurred (if any) in acting as trustee of the Trust;

3. a claim for a declaration that the Liquidators are not entitled to recover any remuneration or expenses of the liquidation (and of the earlier voluntary administration) from the assets of the Trust;

4. a claim for an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) in Schedule 2 of the Corporations Act that the Liquidators’ decision to admit a proof of debt submitted by A H Tighe & Associates Pty Ltd in the winding up of the Company be reversed, and that the proof of debt be rejected; and

5. a claim for an order pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) that the Liquidators’ decision to admit a proof of debt submitted by Xlantic Group Limited in the winding up of the Company be reversed, and that the proof of debt be rejected.

52. The Plaintiff’s application for leave to commence these proceedings against the Company was not addressed in the submissions of any party. In my opinion, it is appropriate to grant leave in order to facilitate the Plaintiff—the current trustee of the Trust—being heard in relation to the Liquidators’ application to be appointed as the receivers of the property, assets, and undertaking of the Trust. Procedural fairness requires that the current trustee should be heard.

53. By the conclusion of the hearing on 31 October 2023, the Plaintiff no longer pressed its claims for the declarations referred to at [51(2)] above.

54. The Plaintiff continued to press its claim for the declaration referred to at [51(3)] above, but on a more confined basis than had been pleaded in the Plaintiff’s Amended Points of Claim. By the conclusion of the hearing on 31 October 2023, the Plaintiff’s claim for the declaration referred to at [51(3)] above was based on:

1. the Plaintiff’s allegation that the Company had breached its duties as trustee of the Trust by refusing to issue to Guzzi an unspecified number of units in the Trust for which Guzzi had subscribed, thereby preferring the Company’s interests over the interests of Guzzi by:

“… allowing and promulgating the creation of a situation where the beneficiaries of the trust (as unregistered holders) could not resolve to remove [the Company] as trustee, a resolution which Guzzi supported and which would have passed on a poll;

Particulars: For so long as the units demanded by Guzzi were not issued, the unitholding in [the Trust] remained equally divided between Ristevski and Clark with 10 units each, such that neither would have a majority position and where [the Trust Deed] did not provide a deadlock mechanism”.

2. the Plaintiff’s allegation that Mr Clark had resolved to place the Company into voluntary administration on 17 May 2022 “knowing that such resolution would defeat, delay or prevent the unitholder meeting (which [the Company] had convened for 18 May 2022) from occurring”—being the meeting about which the Plaintiff complains that a resolution to remove the Company as trustee could not have been passed in circumstances where the Company had not issued the additional units to which Guzzi claimed to be entitled;

3. the Plaintiff’s contention that the Company would not have gone into administration and then liquidation—and would therefore not have incurred any winding up costs—but for the Company’s alleged breach of trust in allegedly refusing to issue units to Guzzi; and

4. the Plaintiff’s contention that, by its alleged breach of trust in allegedly refusing to issue units to Guzzi and/or by reason of the alleged causal connection between that alleged breach and the appointment of the Administrators on 17 May 2022, the Company was not entitled to be indemnified out of the assets of the Trust in respect of the remuneration and expenses of the Administrators and Liquidators.

55. By the conclusion of the hearing on 31 October 2023, the Plaintiff no longer pressed its claims for the orders referred to at [51(4)] and [51(5)] above. The Plaintiff accepted that it lacked standing under s 90-20 of the Insolvency Practice Schedule (Corporations) to seek those orders under s 90-15 because the Plaintiff is not an applicant referred to in any of sub-ss (a)-(e) of s 90-20(1) of the Insolvency Practice Schedule (Corporations). [2]

    2. The Plaintiff initially placed some reliance on s 90(2)(a) of the Insolvency Practice Schedule (Corporations), before accepting that it is not a “person with a financial interest in the external administration of the company” as defined in s 5-30 of the Insolvency Practice Schedule (Corporations).

56. I rejected an application made by the Plaintiff at the end of its closing submissions to amend its originating process to claim declarations to the effect that A H Tighe & Associates Pty Ltd and Xlantic Group Limited are not creditors of the Company. My reasons for rejecting that application, and two other informal applications for leave to amend that were made by the Plaintiff during the course of the hearing, are explained later in these reasons for judgment. [3]

    3. See below at [93]-[112].

57. After I rejected the Plaintiff’s application to amend to seek declarations in relation to A H Tighe & Associates Pty Ltd and Xlantic Group, counsel for the Plaintiff confirmed that the claims referred to at [51(4)] and [51(5)] above were not pressed, and informed the Court that the Plaintiff undertook to the Liquidators to pay within 30 days the amounts for which the Liquidators have admitted those creditors’ proofs of debt in the winding up of the Company, subject to those creditors issuing an invoice for those amounts to the Plaintiff. The Plaintiff relied on that undertaking in the manner explained below.

58. The Plaintiff’s position at the conclusion of the hearing on 31 October 2023 may be summarised as follows:

1. the Plaintiff’s primary contention is that no receiver should be appointed to the property, assets, and undertaking of the Trust because:

1. the Liquidators are not entitled to have their remuneration and expenses paid out of the Trust assets for the reasons outlined at [54] above;

2. by reason of the undertaking referred to at [57] above, the Company will have no remaining liability to A H Tighe & Associates Pty Ltd and Xlantic Group in respect of which it might be entitled to be indemnified out of the Trust assets; and

3. the Company has not incurred any liability to Opposite Group in its capacity as Trustee, and, contrary to Mr Vouris’ evidence referred to at [45] above, there is no prospect of the Company seeking in future to exercise a right of indemnity out of the Trust assets in respect of any liability to Opposite Group;

2. alternatively, if the Court does not accept the Plaintiff’s primary contention, the Plaintiff submits that the Court should not exercise its discretion to appoint any receivers and managers of the property, assets, and undertaking of the Trust; and

3. alternatively, if the Court determines to appoint receivers and managers to the property, assets, and undertaking of the Trust, the Court should not appoint the Liquidators, and should instead appoint Geoffrey Trent Hancock of Hamilton Murphy Advisory, who signed a consent to be appointed by the Court and to act as the receiver of the assets of the Trust on 30 October 2023.

Consideration and determination

Principles

59. The relevant legal principles were not in dispute by the conclusion of the hearing, and may be summarised as follows.

60. A trustee is personally liable for liabilities and expenses incurred in the execution of the trust, but is entitled to be indemnified out of the trust assets against those liabilities and expenses (whether by recoupment or exoneration). The trustee’s right of indemnity takes priority over the beneficiaries’ claim on the trust assets. A court of equity will assist the trustee to realise trust assets in order to satisfy the trustee’s right of indemnity, and it is therefore said that the trustee has an equitable charge or lien over the trust assets. That charge or lien is a proprietary interest in the trust assets, which has been described as being in the nature of a floating charge over all of the trust assets that secures the balance of the account as between trustee and beneficiary from time to time. [4]

    4. Trustee Act 1925 (NSW), s 59(4); Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524; (2019) 93 ALJR 807; (2019) 368 ALR 390; (2019) 17 ABC(NS) 1; [2019] HCA 20 (Carter Holt) at [29]-[33] (Kiefel CJ, Keane and Edelman JJ); [80], [83]-[85] (Bell, Gageler, and Nettle JJ); [128]-[142] (Gordon J); Re Independent Contractor Services (Aust) Pty Limited (in liq) (No 2) (2016) 305 FLR 222; (2016) 34 ACLC 16-004; (2016) 11 BFRA 355; [2016] NSWSC 106 at [24] (Brereton J); Re Stansfield DIY Wealth Pty Limited (in liq) (2014) 291 FLR 17; (2014) 103 ACSR 401; (2014) 32 ACLC 14-065; (2014) 9 BFRA 663; [2014] NSWSC 1484 (Stansfield) at [19] (Brereton J).

61. Where the trustee is removed and replaced, the outgoing trustee retains its right of indemnity and its equitable charge over the trust assets in respect of liabilities and expenses that the former trustee incurred by reason of acting as trustee. [5]

    5. Stansfield at [10], and the authorities referred to.

62. The assistance that a court of equity will give to a trustee or former trustee to realise trust assets to satisfy the right of indemnity is in the form of an order for judicial sale or the appointment of a receiver with a power of sale. [6]

    6. Stansfield at [10].

63. Upon the winding up of a company that is, or was formerly, the trustee of a trust, the right of indemnity of the trustee or former trustee, and its equitable charge over the trust assets, vest in the liquidator. The liquidator can exercise that right of indemnity in respect of liabilities and expenses that were incurred by the company as trustee, including the costs of the winding up—the liquidator’s remuneration and expenses. [7] One course of action available to the liquidator of a former trustee is to seek appointment as a receiver of the trust assets, by way of enforcement of the equitable charge that supports the former trustee’s right of indemnity. [8]

    7. Carter Holt at [92] (Bell, Gageler, and Nettle JJ); Jones v Matrix Partners Pty Ltd; Re Killarnee Civil & Concrete Contractors Pty Ltd (in liq) (2018) 260 FCR 310; (2018) 354 ALR 436; (2018) 124 ACSR 568; (2018) 36 ACLC 18-017; (2018) 70 AILR 102-937; [2018] FCAFC 40 at [100]-[101] (Allsop CJ); In Re Suco Gold Pty Ltd (in liquidation) (1983) 33 SASR 99; (1983) 7 ACLR 873; (1983) 1 ACLC 895 at 7 ACLR 877 and 881-883 (King CJ); Re Indopal Pty Ltd (1987) 12 ACLR 54; (1987) 5 ACLC 278 at 12 ACLR 57 (McLelland J); Stansfield at [6]-[7].

    8. Stansfield at [31]-[33].

59. The right of indemnity referred to above may not apply in respect of a liability or expense that the trustee or former trustee incurred by acting in breach of the trustee’s duties. It is not necessary in the present case to consider the different opinions that have been expressed in the authorities about the extent or character of the breach that may result in the loss of the right to indemnity. [9] It suffices to say that there must be some causal connection between the alleged breach of duty and the liability or expense in respect of which indemnification is denied. [10]

    9. Gatsios Holdings v Kritharas Holdings (in liq) [2002] ATPR 41-864; [2002] NSWCA 29 (Gatsios); Nolan v Collie (2003) 7 VR 287; [2003] VSCA 39.

    10. Re Staff Benefits Pty Ltd [1979] 1 NSWLR 207; (1979) 4 ACLR 54; [1979] CLC 40-531 at 1 NSWLR 214 (Needham J); Gatsios at [18] (Spigelman CJ).

Application of the principles: Plaintiff’s primary contention

65. Applying the principles to the present case, the Plaintiff has not established any basis for the declaration sought that the Liquidators are not entitled to recover their remuneration and expenses (including their remuneration and expenses as Administrators) out of the assets of the Trust. [11] The Company carried on no business, and held no assets, other than in its capacity as trustee of the Trust. [12] The costs of winding up the Company immediately following its replacement as trustee—including the remuneration of the Administrators and Liquidators, and the expenses properly incurred by them in their capacity as such—are therefore costs that were incurred, and that are being incurred, by the Company by reason of having been the trustee of the Trust. As explained above, the Company’s right to be indemnified out of the Trust assets in respect of those winding up costs vested in the Liquidators immediately upon their appointment. [13]

    11. See [51(3)] and [54] above.

    12. See [16] above.

    13. See [63] above.

66. I reject the Plaintiff’s submissions that the right of indemnity does not apply, or has been lost, in respect of the winding up costs.

67. First, contrary to the Plaintiff’s submissions, the evidence does not establish that the Company acted in breach of trust by failing to issue the additional units claimed or demanded by Guzzi at some time before the appointment of the Administrators on 17 May 2022. The contemporaneous evidence referred to above shows that the number of units claimed by Guzzi was fluctuating. This continued even after the Administrators were appointed. This corroborates Mr Clark’s statement in his 10 May 2022 email to Guzzi’s solicitors that the number of units to be issued to Guzzi needed to be verified before the units were issued. [14]

    14. See [20]-[21] and [28]-[30] above.

68. Second, even if the breach of trust alleged by the Plaintiff had been established, the evidence does not support the Plaintiff’s contention that the Company would not have gone into external administration—and therefore would not have incurred the winding up costs—but for the alleged breach. It is clear from the contemporaneous correspondence, and from the Plaintiff’s submissions made in these proceedings, that Guzzi intended to pass a resolution to remove the Plaintiff as trustee of the Trust as soon as Guzzi became the holder of the majority of the units. [15] In that hypothetical counterfactual, the new trustee would have called for the Property to be transferred to it (as the Plaintiff in fact did), and this would have left the Company with no assets, no source of income, and no means of paying as and when they fell due the debts that it had incurred as trustee (in respect of which the Liquidators have now admitted two proofs of debt). The Company would have needed to exercise its right of indemnity against the Trust assets that had been transferred to the new trustee in order to put itself in a position to pay those debts (as is now the case). Given the time and legal costs involved in exercising that right of indemnity by seeking a court order for sale or the appointment of receivers to the Trust assets, it would have been open to the director of the Company to form the opinion that the Company was, or was likely to become, insolvent, and to appoint administrators pursuant to s 436A of the Corporations Act.

    15. See [21] and [54] above.

69. It is neither necessary nor appropriate to consider whether the alleged breach was of a kind that might have disentitled the Company to the right of indemnity in respect of winding up costs, if the alleged breach of trust and the alleged causal connection with the winding up costs had been established (which they were not).

70. That disposes of the first of the three elements of the Plaintiff’s primary contention referred to at [58(1)] above.

71. I reject the second element of the Plaintiff’s primary contention. A conditional undertaking offered by the Plaintiff to pay the two debts that the Liquidators have determined to date to have been incurred by the Company as trustee of the Trust is no substitute for the Company’s right of indemnity and supporting equitable charge over the Trust assets.

72. I also reject the third element of the Plaintiff’s primary contention, which urges the Court to make findings that would preclude the Liquidators from exercising the right of indemnity vested in them in respect of any liability that the Liquidators may in future determine that the Company incurred to Opposite Group. The potential creditor (Opposite Group) has not yet made any claim in the winding up of the Company, and is unlikely to be in a position to do so unless and until the liquidators of Opposite Group determine claims that may be made by creditors of Opposite Group in the winding up of that company. If the Court were to make the findings for which the Plaintiff contends, this would have the practical effect of defeating any future claim by Opposite Group in the winding up of the Company before the liquidators of Opposite Group have even made such a claim, and before they have even received the possible claims in the winding up of Opposite Group which (if made) will inform the decision to be made the liquidators of Opposite Group about whether to make a claim in the winding up of the Company. In my opinion, there is presently no sound basis for the Court to make any finding about a potential future claim by Opposite Group in the winding up of the Company.

73. For those reasons, there will be an order dismissing the Plaintiff’s claim for a declaration that the Liquidators are not entitled to recover their remuneration and expenses out of the assets of the Trust. Orders will also be made dismissing the Plaintiff’s other claims for relief that were no longer pressed by the conclusion of the hearing on 31 October 2023.

Applying the principles: Should the Liquidators be appointed as receivers of the Trust assets in this case?

74. This is the central question raised by the Liquidators’ interlocutory process and by the Plaintiff’s alternative contention referred to at [58(2)] above.

75. I heard submissions from the parties about the factors relevant to the exercise of the discretion to appoint the Liquidators as receivers during the hearing on 30 and 31 October 2023. After judgment was reserved, I identified some matters that had not been addressed in those submissions that I considered may be relevant to the exercise of the discretion. I identified those matters in an email that my Associate sent to the solicitors and counsel for the parties, and I convened a short hearing on 3 November 2023 at which counsel for the Plaintiff and counsel for the Defendants made submissions in relation to those matters.

76. It was submitted on behalf of the Plaintiff that the Court should not exercise its discretion to appoint the Liquidators as receivers by way of enforcement of the equitable charge securing the Company’s right of exoneration out the Trust assets because:

1. the interests of the registered mortgagee of the Property would be affected by an order appointing receivers and managers with a power of sale, and no such order should be made in circumstances where the mortgagee had not been joined as a party to the proceedings and had not otherwise been afforded an opportunity to be heard, and in circumstances where there was no evidence of the mortgagee’s attitude to the potential appointment of receivers and managers;

2. the appointment of receivers and managers would be an event of default under the terms of the mortgage, which would render the Plaintiff liable for default interest under the terms of the mortgage, and which would also entitle the mortgagee to exercise its power of sale under s 58 of the Real Property Act, subject to compliance with s 57 of that Act;

3. there is therefore a real risk of the competing claims for possession, and of the exercise of competing powers of sale of the Property, by the mortgagee and by the proposed receivers and managers;

4. in addition, the Plaintiff is already marketing the Property for sale, and a sale by receivers and managers would have an adverse effect on the sale price compared to if the Property was sold by the Plaintiff; and

5. the Liquidators’ rights in respect of their remuneration and expenses are adequately protected by the caveat they have lodged against the title to the Property.

77. In relation to (1) above, I was initially troubled by the effect of appointing receivers with a power of sale in respect of the Property, in circumstances where that Property is subject to a registered mortgage, having regard to the learned judgment of Campbell J (as his Honour then was) in King Investment Solutions v Hussain concerning the matters that arise for consideration on an application by an unregistered second mortgagee or equitable chargee for an order for judicial sale of a property that is subject to a registered first mortgage. [16]

    16. (2005) 1 BFRA 577; [2005] NSWSC 1076 at [81]-[82] and [86]-[99].

78. However, the Defendants do not seek an order for judicial sale that would permit the Liquidators to sell the Property as equitable chargees. The Defendants seek an order for the appointment of the Liquidators as receivers and managers with powers equivalent to those set out in s 420 of the Corporations Act, including a power to enter into possession and take control of the Trust assets, and a power to sell those assets. As counsel for the Defendants submitted, those powers would not affect any rights of any other person in respect of the Trust assets. [17] Receivers and managers appointed by the Court by way of enforcement of the former trustee’s right of indemnity that has vested in the Liquidators would be officers of the Court, empowered to get in and sell the Trust assets for the benefit of all persons with an interest in the assets. [18] Those persons include the mortgagee, the Company (to the extent of its right of indemnity as former trustee that has vested in the Liquidators), and the beneficiaries of the Trust whose claim on the Trust assets is subject to the rights of indemnity of the former and current trustees. The orders sought by the Defendants would not empower the proposed receivers and managers to terminate the mortgagee’s interest in the Property. The receivers and managers would be unable to complete any contract for sale of the Property unless the mortgage was discharged. The receivers and managers would be unable to procure the discharge of the mortgage unless they were in a position to pay to the mortgagee out of the sale proceeds a sum sufficient to repay the debt secured by the mortgage, or such other sum as the mortgagee may agree. On reflection, I consider that these are important distinctions between orders appointing receivers and managers with a power of sale by way of enforcement of the former trustee’s right of indemnity, on the one hand, and orders for judicial sale at the suit of an equitable chargee, on the other hand. I accept that an order appointing the Liquidators as receivers and managers in this case would not affect the rights of the mortgagee so as to require it to be a party to these proceedings. The Defendants accept that any order appointing receivers and managers should expressly acknowledge the mortgagee’s interest in the Property and require the proceeds of sale of the Property to be applied first in the discharge of the registered mortgage.

    17. Corporations Act 2001 (Cth), s 420(3).

    18. See JD Heydon, MJ Leeming, and PG Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis, 5th ed, 2015) at [29-145].

79. In relation to (2) above, I accept that it is relevant to the exercise of the discretion that the appointment of receivers and managers to the assets of the Trust would constitute an event of default under the mortgage insofar as that order concerned the Property. In the circumstances of this case, that is the consequence of there being no other Trust assets available to satisfy the former trustee’s right of indemnity that has vested in the Liquidators, and of the Plaintiff as the current trustee having made no alternative arrangements to satisfy that right of indemnity. The Plaintiff has instead contended that the former trustee and the Liquidators have no right of indemnity. I have rejected that contention for the reasons explained above. I reject the Plaintiff’s contention referred to at (5) above that the Liquidators’ caveat adequately protects the right of indemnity. As counsel for the Defendants submitted, that caveat does not confer on the Liquidators any ability to enforce the right of indemnity unless and until either the Plaintiff chooses to sell the Property or the mortgagee exercises a power of sale. The caveat does not protect the former trustee from the risk of the Plaintiff deciding to discontinue its current campaign to sell the Property, or of failing to pursue a sale in a reasonably expeditious manner. In those circumstances, the enforcement of the right of indemnity may be significantly delayed. The Plaintiff adduced no evidence of its intentions in relation to the current sale campaign.

80. In relation to (3) above, I accept the submission made by counsel for the Defendant that the risk of competing claims for possession and competing exercises of powers of sale is more theoretical than real, in circumstances where the receivers and managers would be required by the nature of their office to exercise their powers for the benefit of all persons with an interest in the Property, including the mortgagee. [19]

    19. As explained at [78] above.

81. In relation to (4) above, counsel for the Plaintiff submitted that the Court should take judicial notice of the “fact” that a sale by receivers and managers would achieve a lower price for the Property than if it was sold by the Plaintiff. This submission was not supported by any evidence concerning the nature of the market and potentially interested buyers for the Property. I do not consider that it is a matter of common knowledge that is not reasonably open to question that a sale of the Property by receivers and managers would achieve a lesser sale price than a sale by the Plaintiff. [20]

    20. Evidence Act 1995 (NSW), s 144.

82. Related to (4) above, counsel for the Plaintiff also submitted that, if the Liquidators were to be appointed as receivers and managers, they would become personally liable to service the debt secured by the mortgage, and that they would therefore have to conduct a fire sale of the Property at a considerable discount to its market value because there are no funds in the winding up of the Company that they could draw on to make the mortgage payments. I reject that submission. The appointment of receivers and managers with powers in respect of the Property would not render them liable for the debt owing pursuant to a loan between the Plaintiff and the mortgagee that is secured by the mortgage against the Property. That liability would remain with the Plaintiff, and the powers exercised by the receivers and managers would not affect the mortgagee’s rights for the reasons that I have explained above.

83. In addition to the submissions that I have addressed above, counsel for the Plaintiff submitted that the application for the appointment of receivers and managers was premature, and that any sale of the Property by receivers and managers would be premature, because the Liquidators have not quantified the amount for which they claim to be entitled to be indemnified out of the assets of the Trust. I reject that submission. For the reasons explained at [60] above, a trustee’s right of indemnity is conditional upon quantification of the amount of the relevant expenses. The fact that expenses are continuing to be incurred (including in these proceedings) and will continue to be incurred (including by taking the further steps required to complete the winding up of the Company and apply for, or participate in, any costs assessment process arising out of these proceedings) is no impediment to equity assisting the Liquidators of the former trustee to satisfy the right of indemnity by appointing receivers and managers to get in the Trust assets out of which they are entitled be exonerated as and when their claims are quantified.

84. For all of those reasons, I do not consider that any matters relied on by the Plaintiff—including the matters that I raised for further submissions on 3 November—warrant the Court declining to exercise the discretion to appoint receivers and managers by way of enforcement of the former trustee’s equitable charge securing its right of indemnity, that has vested in the Liquidators.

The Plaintiff’s proposed alternative receivers and managers

85. As referred to at [58(3)] above, the Plaintiff’s final contention is that, if the Court decides to appoint receivers and managers, it should appoint the Plaintiff’s nominee—Geoffrey Trent Hancock of Hamilton Murphy Advisory—rather than appointing the Liquidators.

86. Counsel for the Plaintiff submitted that the Court should appoint Mr Hancock rather than the Liquidators for three reasons:

1. the hourly rates charged by Mr Hancock and his firm are approximately $40–$50 cheaper per hour than the rates charged by the Liquidators’ firm;

2. if Mr Hancock were appointed, this would remove the need for a special purpose liquidator to be appointed to adjudicate on any proof of debt submitted on behalf of Opposite Group in the winding up of the Company; [21] and

3. Mr Hancock does not intend to charge or recover any remuneration as receiver and manager until the Property is sold.

   21. See Mr Vouris’ evidence at [45] above.

87. I reject those submissions.

88. As counsel for the Defendant submitted, the difference in the hourly rates between the Liquidators’ firm and Mr Hancock’s firm is likely to offset by the efficiencies that the Liquidators would be able to bring to the discharge of the appointment by reason of the knowledge that they have already developed about the Trust. The difference of rates is therefore a neutral factor in determining who is the more appropriate appointee.

89. If Mr Hancock is appointed as receiver and manager of the Trust assets, the Liquidators will continue to hold the offices of liquidators of the Company and of Opposite Group. It is the Liquidators, and not Mr Hancock, who would be required to adjudicate any proof of debt in the winding up of the Company that may be submitted by Opposite Group. The conflict of interest identified in Mr Vouris’ evidence at [45] above would still need to be addressed. The Plaintiff’s submission to the contrary is misconceived.

90. The evidence adduced in these proceedings discloses no source of funds for the payment of the remuneration of receivers and managers other than the proceeds of the future sale of the Property. Accordingly, any person or persons appointed as receiver(s) and manager(s) will not be able recover their remuneration until after the Property has been sold. Mr Hancock’s expressed intention not to seek to recover his remuneration at an earlier time is therefore irrelevant to determining who are the more appropriate persons to be appointed as receivers and managers.

87. The Liquidators have the advantage of existing knowledge of the Trust and its assets. The Plaintiff did not contend that the Liquidators lack the necessary skills and experience to discharge the responsibilities of receivers and managers of those assets. The Plaintiff’s proposal that Mr Hancock be appointed in lieu of the Liquidators emerged only on the final day of the hearing, leaving the Defendants with no time to consider any issues that they may wish to raise about his suitability for appointment.

88. For those reasons, I consider that the Liquidators, rather than Mr Hancock, should be appointed as the receivers and managers of the Trust assets.

Reasons for rejecting the Plaintiff’s three informal applications for leave to amend made during the course of the final hearing

93. It remains to explain my reasons for rejecting the Plaintiff’s three amendment applications made during the course of the hearing. I rejected each application at the time it was made, after hearing submissions from both parties, on the basis that my reasons for doing so would be recorded in these reasons for judgment.

Applicable principles

94. When determining an application by a party for leave to amend its pleadings , the Court must exercise the discretion under s 64 of the Civil Procedure Act 2005 (NSW) in a manner that seeks to give effect to the overriding purpose of facilitating the just, quick, and cheap resolution of the real issues in the proceedings. [22] The provision in s 64(2) that all necessary amendments are to be made for the purpose of determining the real questions raised by or depending on the proceedings is subject to s 58, which requires the Court to seek to act in accordance with the dictates of justice. In determining what are the dictates of justice in the particular case, s 58 requires the Court to have regard to the overriding purpose, and permits the Court to have regard to a range of matters that include the degree of difficulty or complexity to which the issues in the proceedings give rise, the degree of expedition with which the parties have approached the proceedings (including interlocutory activities), the extent to which any lack of expedition by a party is attributable to that party or to circumstances beyond that party’s control, and the degree of injustice that would be suffered by the parties as a consequence of leave to amend being granted, or being refused.

    22. Civil Procedure Act 2005 (NSW), s 56.

95. A just resolution of the proceedings is the paramount objective. [23]

    23. Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; (2009) 83 ALJR 51; (2009) 258 ALR 14; [2009] HCA 27 at [98] (Gummow, Hayne, Crennan and Kiefel JJ).

96. A just resolution of the proceedings does not require that a party be permitted to raise any arguable case, at any stage of the proceedings, subject to an order requiring it to pay the other parties’ costs thrown away by the amendment. An order for costs does not always ameliorate the prejudice that those other parties suffer by reason of a late amendment, particularly if the proposed amendment would cause the hearing to be adjourned part-heard, or if the proposed amendment would cause the hearing dates to be vacated at a time when the proceedings were otherwise ready for trial.

97. As Gummow, Hayne, Crennan, Kiefel and Bell JJ said in Aon Risk Services Australia Limited v Australian National University:[24]

“[111]   An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. …

[112]   A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.

[113]   In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.”

24. (2009) 239 CLR 175; (2009) 83 ALJR 951; (2009) 258 ALR 14; [2009] HCA 27 at [111]-[113] (references omitted); see also [96]-[103].

The first amendment application

98. On the afternoon of the first day of the hearing on 30 October 2023, the Plaintiff applied to amend its Amended Points of Claim by introducing the allegations that: [25]

    25. The proposed amendments were recorded only in an email from counsel for the Plaintiff to counsel for the Defendants sent at 1:45pm on 30 October 2023, which was marked for identification as MFI 4.

1. as the sole director of the Company that was the trustee of the Trust until 13 June 2022, Mr Clark owed fiduciary duties to unitholders to act in the best interests of unitholders at all times;

2. Mr Clark had breached those duties by appointing the Administrators “with the intention to deliberately frustrate the ability of unitholders to meet to consider a resolution to remove the first defendant as trustee”;

3. that alleged breach of duty by Mr Clark was the sole reason for the Company having incurred any external administration costs, because Mr Clark’s alleged breach had prevented the unitholder meeting from occurring; and

4. the Company “as a result of the behaviour of its sole director and controlling mind, cannot avail itself of its right of indemnity with respect to the expenses incurred as a result of the voluntary administration and liquidation of the first defendant”.

99. The application was opposed by the Defendants.

100. It was submitted on behalf of the Plaintiff that the proposed amendments merely “teased out” issues that were “standing behind” the existing points of claim, and that the proposed amendments spelled out the “natural result” of matters referred to in the points of claim in order to “complete a cause that’s already been pleaded there, just not pleaded as fully as it should have been”. I reject those submissions. The proposed amendments would have introduced an entirely new issue into the Plaintiff’s case about whether the appointment of the Administrators was made for an improper purpose rather than on the basis of Mr Clark’s opinion recorded in the resolution that the Company was, or was likely to become, insolvent. That would have raised questions about the validity of the Administrators’ appointment, and about the validity of their appointment as Liquidators by resolution at a meeting of creditors that they convened as Administrators. As I have mentioned earlier in these reasons, there is no evidence of the Plaintiff or its associates having raised such issues with the Administrators at the time they were appointed. [26] The Plaintiff adduced no evidence in support of the application for leave to amend explaining its delay in seeking to introduce these issues into the proceedings. An explanation was called for, in circumstances where the proceedings have been on foot since 28 June 2022, the Plaintiff had had sufficient opportunity to identify the issues that it wished to agitate and to articulate those issues in the points of claim that it had been required to file in accordance with the Court’s directions, and, as counsel for the Defendants submitted, a grant of leave would have required the Defendants to revisit the forensic decisions made in their conduct of the proceedings, and to consider whether they would need to adduce further evidence relating to the new issues. Amongst other things, Mr Clark was neither a party to, nor a witness in, the proceedings, and the Defendants would need to consider whether to call him as a witness if the proposed amendments were allowed. I took the view that the hearing would need to be adjourned part-heard in order to allow the Defendants an opportunity to meet the proposed amendments, if leave were granted.

     26. See [33] above.

101. For those reasons, I determined that it would be inconsistent with the overriding purpose and with the dictates of justice to allow the proposed amendments, and I refused the Plaintiff’s informal application for leave to amend.

102. After making the decision to refuse leave to amend, it became clear to me from the conduct of the hearing as a whole that the very late amendment application was attributable to the Plaintiff’s abandonment—between its opening submissions on the morning of the first day of the hearing and the resumption of the hearing after lunch that afternoon—of the principal contention that had underpinned the Plaintiff’s case. That contention was that the Company’s alleged breaches pleaded in the Amended Points of Claim—which were not alleged to have caused the Company to incur any expenses or liabilities—had disentitled the Company to the right of indemnity out of the assets of the Trust in respect of any and all expenses or liabilities that the Company incurred as trustee, including the winding up costs. Counsel for the Plaintiff did not expressly abandon that contention until closing submissions on the second day of the hearing. In my opinion, he was correct to do so. [27] The amendment application appears to have been driven by the realisation accompanying that decision that it would be necessary to plead, and to seek to prove, a causal link between one or more of the alleged breaches of trust by the Company, the appointment of the Administrators, and the subsequent winding up of the Company. [28] The Plaintiff is entirely responsible for the manner in which its case was conducted. That is a further matter that I would have considered favoured a refusal of leave to amend, had I been cognisant of it at the time that I made the decision to refuse leave.

     27. See [64] above.

     28. Tcpt, 30 October 2023, pp 7-8,10, 18-19, 48(29-31), and 75 (10-11 and 36-45).

The second amendment application

103. Immediately after I refused leave in respect of the amendments referred to above, counsel for the Plaintiff sought a short adjournment for the purpose of taking instructions in relation to matters arising from that decision. I granted that adjournment. When the hearing resumed later that afternoon, the Plaintiff made a second informal application for leave to amend by introducing two additional paragraphs into the points of claim in terms that he read aloud to the Court. [29] This iteration of the proposed amendments would have introduced new allegations that the Company breached its obligations under the Trust Deed by preventing the unitholder meeting from occurring by appointing the Administrators, and that this breach of duty resulted in the Company becoming liable for external administration expenses, including the remuneration of the Administrators and the Liquidators, that the Company would not otherwise have incurred.

     29. Tcpt, 30 October 2023, pp 52-54.

104. This second informal amendment application was also opposed by the Defendants. I considered that it gave rise to all of the same problems as the first amendment application referred to above, and I refused leave to amend for the same reasons.

The third amendment application

105. On the second day of the hearing, the Plaintiff made a third informal application to amend. This application concerned a proposed amendment to its originating process by deleting the claims for orders pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations), reversing the Liquidators’ adjudication of the proofs of debt submitted by A H Tighe & Associates Pty Ltd and Xlantic Group Ltd, and introducing claims for declarations that each of those companies “is not a creditor of [the Company]”.

106. The Defendants opposed this third application for leave to amend.

107. Counsel for the Plaintiff informed the Court that the amendments were proposed in order to “cure the standing problem”. That “standing problem” was that the Plaintiff did not fall within any of the classes of person upon whom s 90-20 of the Insolvency Practice Schedule (Corporations) confers standing to apply for an order under s 90-15. [30] The “standing problem” had been pleaded by the Defendants in their points of defence filed on 30 June 2023, and had also been referred to in their written submissions served on the plaintiff prior to the hearing. Counsel for the Plaintiff had declined to address the issue when I raised it with him in opening submissions. [31] The timing of the amendment application was entirely attributable to the Plaintiff’s failure to appreciate the “standing problem” when framing its claims for relief, which was compounded by its failure to promptly confront the problem after it was drawn to the Plaintiff’s attention in the points of defence.

     30. Including because the Plaintiff is not a person with a financial interest in the external administration of the company, as defined in s 5-30 of the Insolvency Practice Schedule (Corporations).

     31. Tcpt, 30 October 2023, p 61(25-27).

108. As counsel for the Defendants submitted, the creditors whose rights against the Company would be affected by the proposed declarations would need to be joined as defendants to the proceedings, and would need to be afforded an opportunity to be heard, if the amendments were to be allowed. That would have necessitated adjourning the proceedings part-heard at a time when the hearing was otherwise about to conclude.

109. I rejected the submission made by counsel for the Plaintiff that those creditors were not prejudiced by not being notified of the Plaintiff’s proposed claims for declaratory relief, and by not being joined to the proceedings in which the Plaintiff now sought to introduce those claims, because they had previously been served with the points of claim that included the Plaintiff’s claims for orders under s 90-15 of the Insolvency Practice Schedule (Corporations) reversing the Liquidators’ adjudication of their proofs of debt. Notifying those creditors of claims that the Plaintiff plainly had no standing to make does not absolve the Plaintiff from joining those creditors to the proceedings if the Plaintiff is to be permitted to make different claims for declaratory relief affecting those creditor’s rights.

110. I also rejected the alternative submission made by counsel for the Plaintiff that any prejudice caused to those creditors by entertaining the proposed claims for declaratory relief would be cured by reserving leave to the creditors to apply in the event that the declarations were made and the creditors wished to set them aside. If the proposed declarations were to be made in these proceedings without the creditors being joined as defendants, the creditors would have a right to have the declarations set aside. It does not follow, however, that it would not be necessary to join the creditors as defendants to these proceedings if the proposed amendments were allowed. The creditors would be necessary parties. [32]

     32. John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1; (2010) 84 ALJR 446; (2010) 266 ALR 462; (2010) 2 ASTLR 553; (2010) 4 BFRA 701; [2010] HCA 19 at [131]-[138] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ); see also Ross v Lane Cove Council (2014) 86 NSWLR 34; (2014) 199 LGERA 298; [2014] NSWCA 50 at [51]-[63] (Leeming JA, Meagher JA and Tobias AJA agreeing).

111. As I have explained above, the Plaintiff had sufficient opportunity prior to the hearing to formulate the claims for the declarations that were the subject of this amendment application, and to join the affected creditors as defendants to the proceedings in sufficient time to facilitate the hearing commencing and concluding on the two days for which it had been listed on 30 and 31 October 2023.

112. For those reasons, I determined that it would be inconsistent with the overriding purpose and with the dictates of justice to allow the proposed new claims for declaratory relief, and I refused the Plaintiff’s informal application for leave to amend.

Costs of these proceedings

113. The Defendants’ submissions addressed the question of the costs of the proceedings. The Plaintiff’s submissions did not address costs, and counsel for the Plaintiff did not indicate that the Plaintiff would wish to be heard separately on the question of costs following the determination of the substantive issues in these proceedings.

114. I accept the Defendants’ submission that the Plaintiff should be ordered to pay the Defendants’ costs of defending the Plaintiff’s claims. It is appropriate that those costs should follow the event. I note that almost all of the hearing time on 30 and 31 October 2023 was occupied with claims and contentions that the Plaintiff ultimately abandoned.

115. In relation to the Defendants’ claim for the Liquidators to appointed as receivers and managers of the property, assets and undertaking of the Trust, I accept the Defendants’ submission that the costs of the application should be paid out of the assets of the Trust.

Conclusion and orders

116. For the foregoing reasons, the orders of the Court are as follows:

1. Grant leave to the Plaintiff pursuant to ss 471B and/or 500 of the Corporations Act 2001 (Cth) nunc pro tunc to commence these proceedings, and to prosecute the claims for relief in the Amended Originating Process filed on 3 April 2023, against the First Defendant.

2. Order that prayer 2E of the Plaintiff’s Amended Originating Process filed on 3 April 2023 is dismissed.

3. Order that Prayers 2C, 2D, 2F, 2G, and 2H of the Plaintiff’s Amended Originating Process filed on 3 April 2023, being those claims that the Plaintiff did not press at the hearing on 30 and 31 October 2023, are dismissed.

4. Order pursuant to s 67 of the Supreme Court Act 1970 (NSW) that the Second Defendant and Kathleen Vouris be appointed receivers and managers, without security, of the property, assets and undertaking of the Jacks Corner Property Trust (the Assets, the Trust and the Receivers).

5. Order that the Receivers have the following powers:

1. the powers set out in s 420 of the Corporations Act 2001 (Cth) as if references to the corporation therein were references to the Trust;

2. to do all things necessary or convenient to effect the sale of the Assets; and

3. to apply the net proceeds of sale of the Assets (after paying selling costs and discharging registered mortgage AS590480) to pay dividends to creditors of the First Defendant whose debts were incurred by the First Defendant in its capacity as trustee of the Trust, subject to order 7 below.

6. Subject to order 7 below, order that the Receivers are to be paid remuneration on a time-spent basis to be calculated at the standard rates of Hall Chadwick that are referred to in the affidavit of the Second Defendant sworn on 18 August 2022.

7. Order that the Receivers are not to draw any amount in respect of the Receiver’s remuneration, and as not to pay any amount in respect of remuneration claimed by the Second Defendant and Ms Kathleen Vouris as liquidators of the First Defendant, out of the net proceeds of sale of the Assets, without further order of the Court.

8. Order that the Plaintiff is to pay the Defendants’ costs of and incidental to the Originating Process and the Amended Originating Process filed on 3 April 2023 on the ordinary basis, in such amount as may be agreed or assessed.

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Endnotes

Decision last updated: 08 November 2023