Macdonald v Quancorp Pty Ltd

[2020] WASC 65

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   MACDONALD -v- QUANCORP PTY LTD [2020] WASC 65

CORAM:   MASTER SANDERSON

HEARD:   31 OCTOBER 2019

DELIVERED          :   5 MARCH 2020

FILE NO/S:   COR 276 of 2001

BETWEEN:   KENNETH DUNCAN MACDONALD

GRAEME ORIEL MORRIS

EDWARD JOHN HALL

BRYAN ALFRED ELLIS

JAMES GORDON MITCHELL

FRANCIS MARK BETHWAITE

KEITH EDWARD FAULKENER

PETER JOHN HOUSDEN

CUDGEN RZ LTD

Plaintiffs

AND

QUANCORP PTY LTD

Defendant

LAWDOC PTY LTD

P & A CAIN INVESTMENT TRUST

PETER MICHAEL CAIN

Interested parties

Catchwords:

Corporations law - Application by liquidator for directions and for approval of remuneration - Turns on own facts

Legislation:

Corporations Act 2001 (Cth)
Insolvency Practice Rules (Corporations) 2016
Rules of the Supreme Court 1971 (WA)
Supreme Court (Corporations) (WA) Rules 2004
Trustees Act 1962 (WA)

Result:

Order made - remuneration approved - directions given

Category:    B

Representation:

Counsel:

Plaintiffs	:	I M O Matthews
Defendant	:	No appearance
Interested parties	:	R Scanangas

Solicitors:

Plaintiffs	:	Chew & Matthews
Defendant	:	No appearance
Interested parties	:	Irongroup Lawyers

Case(s) referred to in decision(s):

Apostolou v VA Corporation of Australia Pty Ltd (2010) 77 ACSR 84

Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2019] HCA 20

Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) ACSR 521

Jennings v Mather [1902] 1 KB 2

Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344

Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd [No 2] (1986) 5 NSWLR 227

Re Killarnee Civil and Concrete Contractors Pty Ltd (In liq) (2018) 354 ALR 436

Re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99

Thackray v Gunns Plantation Ltd (2011) 85 ACSR 144

Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96

Yeo (in their capacity as former liquidators of Nissand Pty Ltd (in liq)) v Nissand Pty Ltd [in liq] [2019] VSC 280

MASTER SANDERSON:

1. By amended interlocutory process filed 30 July 2019, the liquidator and former liquidator of Quancorp Pty Ltd seek certain orders (I will refer to the liquidator and former liquidator as the applicants). Before detailing the orders sought, it is necessary to provide some background to what has been a lengthy liquidation process.  The background facts which follow are taken largely from submissions filed by the applicants on 1 October 2019.  They are uncontroversial.

2. From its incorporation in 1984, Quancorp Pty Ltd (the Company) has been owned by Peter Michael Cain (Peter Cain) and his then spouse, Anne Christine Cain (Anne Cain).  Peter Cain has been a director of the Company at all material times.  Anne Cain ceased to be an officer of the Company in 1996 and has been separated from Peter Cain since about 2007.  The Company was the initial trustee of the P & A Cain Family Trust (family trust) which was established in 1984.  It was also the initial trustee of the P & A Cain Investment Trust (investment trust) which was established in 1995.

3. In February 1998 the Company purchased a residential property at Unit 1, 21 Pine Avenue, Elwood, Victoria (Pine Avenue Elwood property).  In June 1999 the company purchased a 50% interest in a residential property at Lot 2217 Volantis Crescent, Roxburgh Park, Victoria (Roxburgh property).  The applicants believe that each of the property interests were purchased by the Company in its capacity as trustee of the investment trust.

4. In 1994 the Company and Kamanga Pty Ltd commenced carrying on business as the Davis Samuel Partnership.  In 1998 the Company and Kamanga Pty Ltd became shareholders in Davis Samuel Pty Ltd.  In 1999 the Commonwealth government sued Davis Samuel Pty Ltd and numerous other defendants, including the Company.  These proceedings continued until 2017 and resulted in a judgment against the Company of approximately $13 million.  Orders were also made charging the Pine Avenue Elwood property in favour of the Commonwealth government and another party to secure $475,000.

5. The Company was placed into liquidation in September of 2001.  Alden Jon Halse was appointed as its liquidator and remained so until 2018.  He was then replaced by Wayne Anthony Rushton.  Against that background, the applicants sought the following order (the marking up of the amended application has been omitted):

   On the facts stated in the supporting affidavits, the Plaintiffs apply for the following orders:

   1.An order pursuant to rule 1.3(3) of the Supreme Court (Corporations) (WA) Rules 2004 (Corporations Rules) that the Corporations Rules apply to this application instead of Order 81G of the Rules of the Supreme Court 1971 (WA) (as at the date of winding up of the Second Plaintiff).

   2.An order that the obligation to comply with rules 9.4(3), (4), (5) and (6) of the Corporations Rules be dispensed with on the condition that a copy of this application and supporting affidavits be served on the persons specified in rule 9.3(3) and any objections to the First and Third Plaintiffs' claims for remuneration received within 21 days thereof be noted in a further affidavit to be sworn by the First Plaintiff; alternatively an order that the time for service of the notice required by rule 9.4(3) of the Corporations Rules be abridged so that the notice may be served at any time prior to the interlocutory process in respect of this application being filed.

   3.An order pursuant to s.473(3)(b)(ii) of the old act fixing the remuneration of the Third Plaintiff for the period from 13 November 2003 to 18 October 2018 in the amount of $105,005 (plus GST).

   4.An order pursuant to s.473(3)(b)(ii) of the old act fixing the remuneration of the First Plaintiff for the period from 19 October 2018 to 30 April 2019 in the amount of $11,115.50 (plus GST).

   5.An order pursuant to s.473(3)(b)(ii) of the old act approving future remuneration of $20,000 (inclusive of GST).

   6.A declaration pursuant to s.1322(4)(a) of the Act that the application to fix the remuneration of the liquidators pursuant to s.473(3)(b)(ii) of the old act is not valid notwithstanding that the proposal to creditors to approve such remuneration was made pursuant to section 75-40 of Schedule 2 of the Insolvency Practice Schedule and not Part 5.6 of the Corporations Regulations 2001.

   7.A direction pursuant to s 90-15 of the Insolvency Practices Schedule that the liquidators of the Second Plaintiff are and will be justified and acting properly in dealing with:

   a)the Escrow Amount (as that term is defined in the orders made by Family Court of Australia in proceedings MLC11881/2018 dated 16 January 2019), representing part proceeds from the sale of the property formerly registered in the name of the Second Plaintiff situated at 21 Pine Avenue, Elwood, Victoria; and

   b)the Second Plaintiff's interest as tenant in common as to 1 of a total of 2 equal undivided shares in the property situated at 31 Volantis Crescent Roxburgh Park, Victoria, being the whole of the land described in Lot 2207 on Plan of Subdivision 406268T comprised in Certificate of Title Volume 10381 Folio 676 (Roxburgh Property),

   on the basis that they are assets of the P&A Cain Investment Trust (Investment Trust).

   8.An order that, pursuant to s 90-15 of the Insolvency Practice Schedule and s 63 of the Trustee Act 1958 (Vic), alternatively s 8(1) of the Trustees Act 1962 (WA), the Second Plaintiff, acting by its liquidator, be permitted to sell its interest in the Roxburgh Property, in the course of the winding up.

   9.A declaration pursuant to s 90-15 of the Insolvency Practice Schedule that the First and Second Plaintiffs are entitled to an indemnity secured by an equitable lien over the assets of the Investment Trust (including the proceeds of any sale pursuant to order 8 of its interest in the Roxburgh Property) for any debts or liabilities incurred by the Second Plaintiff in its capacity as trustee or bare trustee of the Investment Trust.

   10.A declaration pursuant to s 90-15 of the Insolvency Practice Schedule that the First and Third Plaintiffs are entitled to an indemnity secured by an equitable lien over the assets of the Investment Trust (including the proceeds of any sale pursuant to order 8 of its interest in the Roxburgh Property) for any costs and expenses of the winding up (including remuneration) to the extent that those costs and expenses are properly referable to the Second Plaintiff's capacity as trustee or bare trustee of the assets of the Investment Trust while they were respectively liquidators of the Second Plaintiff.

   11.An order pursuant to s 90-15 of the Insolvency Practice Schedule that any costs and expenses incurred by the Plaintiffs in realising any assets of the Investment Trust and otherwise protecting and maintaining those assets be costs in the winding up.

   12.An order pursuant to s 90-15 of the Insolvency Practice Schedule that the First and Third Plaintiffs' entitlement pursuant to order 10 be satisfied in part by payment to the First Plaintiff of the Escrow Amount (as that term is defined in the orders made by Family Court of Australia in proceedings MLC11881/2018 dated 16 January 2019) (or such proportion of the Escrow Amount as this Honourable Court thinks fit) within 7 days of the date of this order.

   13.An order pursuant to s 90-15 of the Insolvency Practice Schedule that the costs of the application be costs in the winding up and that the Plaintiffs be indemnified in respect of fifty percent of those costs from the assets of the Investment Trust.

   14.Such further or other orders as this Honourable Court thinks fit.

6. The applicants relied on four affidavits.  Two were sworn by Mr Rushton on 16 July 2019.  These two affidavits are referred to respectively as the 'first Rushton affidavit' and 'second Rushton affidavit'.  There is a further affidavit of Mr Rushton sworn on 6 August 2019.  That is referred to as the 'third Rushton affidavit'.  Finally, there is an affidavit of Louis Lut-Yiu Lee sworn 1 October 2019.  On 23 July 2019 directions were made requiring the applicants to give notice of the application to creditors and other interested parties.  That has been done.  The P & A Cain Investment Trust as a creditor, Lawdoc Pty Ltd (Lawdoc) as an interested party and Peter Michael Cain as an interested party and a creditor (collectively, the respondents) have filed a notice of appearance.  No other person has given notice of an intention to appear.  Peter Cain filed two affidavits sworn 25 September 2019 and 1 November 2019.  On 2 October 2019 submissions were lodged on behalf of those parties who had entered an appearance.  At the hearing of this matter, those parties were represented by counsel.

7. Dealing first with proposed order 1, the Supreme Court (Corporations) (WA) Rules 2004 (Rules) apply to a proceeding in a court under the Act commencing on or after the commencement of the rules (r 1.3(1)(a)). Unless the court otherwise orders, the rules in force in respect of corporations matters prior to the rule continue to apply to proceedings commenced before the rules came into operation: r 1.3(3). An application in respect of a liquidator's remuneration must be made by interlocutory process in a winding up proceeding: r 9.4(2)(a). Order 81G of the Rules of the Supreme Court 1971 (WA) as applicable in September 2001 (the former rules) contains the rules applicable to corporations matters at that time. On their face, it is those rules which apply to this application. The applicants point out that these rules do not appear to be materially different to the present rules. However, for the convenience of the parties and the court, given the passage of time since the former rules ceased to be regularly used in corporations matters, the applicants took the view an order should be made in the court's discretion to confirm the current rules apply. The respondents took no objection to this course and it is clearly a sensible approach. Accordingly, there will be an order in terms of the proposed order 1.

8. Order 2 is largely mechanical.  No objection was taken by the respondents to the making of an order in these terms.  Accordingly, there will be an order in terms of proposed order 2, with the alternative removed.

9. Peter Cain was declared bankrupt on 11 August 2016.  On 7 September 2019 he was discharged from bankruptcy:  see affidavit of Peter Cain sworn 1 November 2019.  The respondents objected to orders sought in pars 3 - 13 of the amended interlocutory process.  I will deal with specific objections taken by the respondents when dealing with each of the proposed orders.  However, in summary, it was the respondents' position that the liquidator had no right of indemnity against the assets of the investment trust.  This was said to be the case for four reasons.  First, the Commonwealth government has not submitted a proof of debt against the investment trust.  Second, there is no personal judgment debt against the investment trust.  Third, the proceedings in the Australian Capital Territory are final and, feeding on from that, fourthly, the statute of limitations prevents a future claim.

10. It is convenient at this point to deal with proposed order 6. The remuneration application is brought under s 473 of the old Corporations Act (Old Act). Although s 473 of the Old Act has been repealed and replaced by provisions contained in the practice schedule, it continues to apply to appointments made prior to the 'commencement date', being 1 September 2017. The former liquidator was appointed on 6 September 2001 and, accordingly, s 473 applies.

11. Mr Rushton has deposed that he sought approval from the creditors of the company for the liquidator's remuneration by resolution without a meeting under s 75-40 of the practice schedule and s 75-130 of the Insolvency Practice Rules (Corporations) 2016. That course is sanctioned because s 1581(2) of the Corporations Act 2001 (Cth) (the Act) provides that if, under subdiv F of div 3 of Pt 10.25 of the Act, div 75 of the practice schedule rather than the Old Act would apply to a meeting that deals with the remuneration of an external administrator of a company who is appointed before the commencement date, div 75 of the practice schedule applies to that meeting and s 1601(1) within subdiv F of div 3 of Pt 10.25 of the Act provides that div 75 of the practice schedule applies in relation to an ongoing external administration of the company.

12. After Mr Rushton sought approval from creditors without a meeting he became aware of an argument that a proposal without meeting under s 75‑130 of the practice rules can only be used to pass a mere 'resolution' for the purpose of the practice schedule.  If a resolution is required under a provision of any part of the Act (or Old Act) other than the practice schedule, then the amended definition of 'resolution' in s 9 of the Act appears to require a meeting to take place.

13. To guard against that possibility, by proposed order 6 the applicants seek a declaration under s 1322(4)(a) of the Act.  That section provides, in effect, that the court may declare any act, matter or thing purported to have been done under the Act is not invalid by reason of any contravention of a provision of the Act.  Further, s 1322(6) of the Act provides an order under s 1322 must not be made unless, in the case of an order referred to in s 1322(4)(a), the Act, matter or thing is essentially procedural, or the person party to the contravention acted honestly, or that it is just and equitable that an order be made.  In each case, there is a requirement that no substantial injustice has been caused.

14. In my view, this case satisfies all those requirements.  I am satisfied the action was essentially procedural, the liquidator acted honestly, and that it is just and equitable that an order be made.  Clearly, no substantial injustice has been caused or is likely to be caused.  Accordingly, there will be an order in terms of the proposed order 6.

15. Dealing then with proposed orders 3, 4 and 5, it is a precondition found in s 473(3)(b)(ii) of the Old Act that a resolution in respect of remuneration proposed to the creditors has not been passed. In this case, that requirement has been satisfied. Dealing then with proposed orders 3 and 4, the plaintiffs adopt the relevant principles set out in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 as expanded in Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) ACSR 521 and Thackray v Gunns Plantation Ltd (2011) 85 ACSR 144. I will not repeat the principles. Suffice it to say that what is required is a 'two stage' process, with the first stage involving a determination by the court as to whether the liquidator's remuneration claim is prima facie reasonable. Further, after Venetian was decided, s 473(10) was added to the old Act and the criteria was that they are to be taken into account by the court in its prima facie assessment.

16. Paragraphs 23 - 30 of the submissions filed by the applicants deal with the remuneration issue.  These submissions were not really challenged by the respondents and what follows is largely taken from those submissions.  The applicants begin by making a number of points.  First, the winding up has been ongoing since 2001 and the protracted nature of the winding up has not been caused in any way by the liquidators.  They were paid just under $31,000 in 2003 and have not received any remuneration since.  There is claim for remuneration between November 2003 and July 2012.  The nature of the tasks undertaken by the liquidators is described by reference to date ranges.  The matters requiring the liquidator's attention are described for each date range and may, in most cases, be referenced against matters that have been described in detail in the first Rushton affidavit.

17. The liquidators say they commenced to incur substantial time costs after the publication of the Davis Samuel proceedings liability judgment in August 2013 and then orders in those proceedings in 2014.  Essentially, from then until 30 April 2019 the liquidators have been attempting to resolve the competing claims in relation to various properties.  In relation to the Pine Avenue Elwood property, competing claims were made by the Commonwealth, Peter Cain and interests associated with him, Anne Cain and the Company.  With respect to the Roxburgh property, claims were made by Peter Cain and interests associated with him and the Company.  With respect to the investment trust generally, all of the above parties.  I accept it has been a complicated, time consuming liquidation process.

18. The applicants have provided a detailed timesheet setting out the names of the staff who have undertaken tasks, the tasks undertaken, the time those tasks have taken and the time costs associated with those tasks.  There is, of course, the usual difficulty associated with relying on time costing records.  It is not possible for me, looking at those records, to know whether the time spent on a particular task was time well spent or whether, indeed, the task was strictly necessary.  That is a limitation which plagues every assessment of the remuneration of a liquidator, even at the preliminary stage.  But here there is nothing to suggest that work has been undertaken which was unnecessary or that unnecessary time has been spent on that work.

19. It is also worthy of note that throughout this liquidation the applicants have been unfunded.  The applicants have accepted very considerable risk in that legal costs have been incurred over that period.  While not directly relevant to determination of the matters in issue, it certainly demonstrates the bona fides of the applicants.

20. In all the circumstances, I am satisfied that the applicants' claims in respect of past remuneration are prima facie reasonable and, therefore, it is appropriate to make orders in terms of proposed orders 3 and 4.

1. In relation to the former liquidator, Mr Halse, the court has the power to determine remuneration claims notwithstanding the third applicant is no longer liquidator of the company:  see Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd [No 2] (1986) 5 NSWLR 227 and Yeo (in their capacity as former liquidators of Nissand Pty Ltd (in liq)) v Nissand Pty Ltd (in liq) [2019] VSC 280.

2. In relation to proposed order 5, a liquidator is entitled to apply to the court under s 473 of the Old Act for approval of future remuneration provided that the work likely to be performed is likely to be reasonably necessary and future remuneration is prima facie reasonable. In the first and second Rushton affidavits the tasks remaining to be completed have been described. The rates applied to future remuneration are rates as at 2013. The first applicant has declared that he is satisfied the future remuneration claimed in respect of work is necessary in the conduct of the litigation. The applicants say the court can be comfortably satisfied the liquidators' claim for approval of future remuneration is reasonable and prima facie suitable for approval.

3. As I understand the respondents' position, they essentially say there is nothing left for the liquidator to do and, therefore, it is inappropriate to approve any provision for future remuneration.  On balance, I am satisfied Mr Rushton has made good his position.  The evidence he gives as to what needs to be done in the future is convincing and logically consistent.  By way of contrast, the respondents have not established how this liquidation is to be finally concluded.  Accordingly, I am satisfied the proposed order 5 ought be made.

4. As to proposed order 7, the applicants say the escrow amount represents part proceeds of the sale of the Pine Avenue Elwood property.  The Company was the registered proprietor of that property until early 2019.  The company remains a registered proprietor of a 50% interest in the Roxburgh property.  Mr Rushton is of the view that each property interest was an asset of the investment trust for reasons set out in pars 15, 18, 19 and 61 of the first Rushton affidavit.  It is difficult to see how a contrary view could be advanced.  There has, however, been vigorous debate on the issue:  see first Rushton affidavit at pars 64 - 81.  Mr Rushton asserts that questions of the parties' respective entitlements to the assets and the question of whether the investment trust, the family trust or the company in its own right are entitled to the assets is a central question in the liquidation and determination of those issues puts the liquidator at risk.  In those circumstances, it is appropriate for Mr Rushton to seek directions as to how to deal with the trust assets and their proceeds.

5. I am satisfied that the orders in proposed order 7 are proper and appropriate.  I am satisfied the position as put by Mr Rushton is correct.  Insofar as the respondents take a different view (and it is very difficult to see just what that opposing view might be), I am not satisfied their position is arguable.  Accordingly, there will be an order in terms of the proposed order 7.

6. It is convenient to take proposed orders 8 and 12 together.  By proposed order 12 the applicants seek specific recourse to an asset of the investment trust (or, in this case, its proceeds) to partially satisfy the various rights of indemnity and exoneration.  That asset is the amount of $62,500 (escrow amount) which represents a portion (less than 4%) of the proceeds of sale of the Pine Avenue Elwood property as sanctioned by the orders of the Family Court.

7. It is the applicants' submission that the escrow amount should be paid to them as sought in proposed order 12 in light of, first, the other proposed orders, second, the relevant legal principles and, third, other factual matters which I have referred to above.  In par 45 of their submissions the applicants highlight nine matters which they say are relevant.  First, they say that pursuant to orders 3 and 4 they are entitled to past remuneration of $127,732.  Second, they note in this remuneration they have deducted costs incurred between July 2012 and August 2013 to eliminate any suggestion these costs were not related to the company's role as trustee of the investment trust or the family trust.  Third, the applicants have deducted from their past remuneration costs incurred after the Family Court orders were made.  This was done to avoid any argument that costs after that date should not be thrown against the Pine Avenue Elwood property because different persons may be interested in the residual equity arising out of the disposal of that property and the Roxburgh interests.  Fourth, the adjustments referred to in items 2 and 3 above resulted in past remuneration of $118,433.70.  This is referred to in the submissions as the 'first adjusted figure'.

8. Fifth, from the first adjusted figure the applicants have deducted a further 10% in respect of arguably non-trust related activity.  That gives an amount referred to as the 'second adjusted figure' of $106,590.33.

9. Sixth, the applicants have apportioned the second adjusted figure 75% as to the investment trust and 25% to the family trust.  This reflects the fact all of the trust assets were in the investment trust but the trust liabilities were spread across both trusts with controversy centring on the extent of liabilities attributable to the investment trust.  That produces an amount of $79,942.75 which is referred to as the 'third adjusted figure'.

10. Seventh, the applicants have incurred legal expenses of $44,433 and applying the apportionment principles, $33,324.75 is attributable to the investment trust.  When that amount is added to the third adjusted figure the sum is $113,267.50.  That amount is referred to as the 'adjusted investment trust figure'. 

11. Eighth, the proper apportionment of costs and expenses between the Pine Avenue Elwood property and the Roxburgh interest required the applicants to calculate the amount of equity available in each after payment of prior ranking secured creditors and apportion the adjusted investment trust figure accordingly in proportions of 75% to Pine Avenue Elwood property and 25% to the Roxburgh interest.  That produces an amount of $84,951 which is defined as the 'final adjusted figure'. 

12. Ninth, and finally that figure comfortably exceeds the escrow amount.  Accordingly it is proper to make an order in terms of proposed order 12.

13. In relation to proposed order 8, the applicants note the authorities support the proposition that a former trustee in the present circumstances has a right to retain trust assets as against a replacement trustee to the extent necessary to vindicate the former trustee's rights of indemnity and exoneration.  There has been some difference of judicial opinion in relation to this issue.  King CJ in Re Suco Gold Pty Ltd (In liq) (1983) 33 SASR 99 followed the English decision in Jennings v Mather [1902] 1 KB 2. His Honour held the right of possession of the trustee, until his right of indemnity is exercised, is superior to those of a new trustee or the beneficiaries. Furthermore, the rights conferred by the lien passed to a liquidator. Brereton J in Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344 declined to follow Re Suco Gold.  However, Finkelstein J in Apostolou v VA Corporation of Australia Pty Ltd (2010) 77 ACSR 84 after considering Lemery concluded that 'there is no doubt that a retiring trustee can hold trust property to secure his right of reimbursement against both the beneficiaries and a new trustee'.  In my view that is the preferred position.  It is also clear that a former or bare trustee has a power of sale to vindicate its rights of indemnity even in the absence of a court order:  see Re KillarneeCivil and Concrete Contractors Pty Ltd (In liq) (2018) 354 ALR 436 per Allsop CJ at [45].

14. The Roxburgh property is worth approximately $470,000.  50% of the Roxburgh property which is not owned by the Company is owned by a company controlled by Kate Cain, Peter Cain's sister.  The property is encumbered by a mortgage securing approximately $78,000.  Hence the value of the 50% interest in the property held by the Company is approximately $196,000.  As the Roxburgh interest is the property of the investment trust it is subject to the Company's rights of indemnity and exoneration from the trust assets in respect of the Company's liabilities attributable to the investment trust and the remuneration and expenses of the liquidator of the Company attributable to the investment trust and more particularly the Roxburgh interest.

15. The Commonwealth was granted a charge over the Pine Avenue Elwood property as a result of the Davis Samuel proceedings which were satisfied upon sale of that property.  However the Commonwealth did not confine its claims against the investment trust to that secured claim.  It has asserted a potential claim based on the 'Catalina Yacht transactions' of $132,000.  Further it has asserted that the applicants should not deal with the assets of the Company without unqualified legal advice.  The applicants have not had the means to obtain such advice.  In opposition to the Commonwealth's position, Peter Cain has demanded that the applicants transfer the Roxburgh interest to Lawdoc and asserted in effect that the Commonwealth's rights in respect of the investment trust are confined to its secured interests in the Pine Avenue Elwood property.

16. The applicants' dilemma is obvious.  Transferring the Roxburgh interest to Lawdoc would have the result that the Commonwealth may have a claim against the liquidators.  Refusing to do so leaves them open to a claim by Lawdoc.  In these circumstances, Mr Rushton sees no alternative but to seek an order permitting him to cause the Company to sell the Roxburgh interest.  The court has the power to make that order under s 90‑15 of the Practice Schedule and under s 89(1) of the Trustees Act 1962 (WA).

17. In my view the proper order here is to grant Mr Rushton the power of sale.  If that power is exercised, the liquidator will have funds to ascertain the extent of the further liabilities of the Company in its capacity as former trustee of the investment trust.  It may then seek further directions from the court as to the distribution of the remaining funds held by the Company.  However, as is noted in the first Rushton affidavit, it is entirely possible the parties will reach agreement.  It is to be hoped they do.  But as matters stand at present the first step is to grant the liquidator the power of sale.

18. It is convenient to take together the proposed orders 9, 10 and 11.  These orders cover the entitlements of the applicants, the trust beneficiaries and trust creditors in respect of assets of investment trusts.

19. The company was the duly appointed trustee of the investment trust until either it was replaced prior to the appointment of Mr Halse in September 2001 or it was disqualified from holding the office of trustee when it was placed into liquidation.  That occurred by operation of the investment trust deed.  A new trustee may or may not have then been appointed.  Peter Cain submitted to Mr Halse that the company had been replaced by Lawdoc as trustee of the investment trust prior to his appointment.  Mr Halse was not entirely sure that was correct.  There was no contemporaneous evidence of that step being taken.  Furthermore, the 'declaration' provided to him by Peter Cain in 2015 and said to evidence the change of trustee referred to a non‑existent clause in the trust deed.  Clause 13(1)(c) of the trust deed which requires the appointment of a new trustee to replace a disqualified trustee requires a resolution of unitholders.  That requirement had not been satisfied. 

20. Subsequent to the filing of the affidavit, further material came to light.  That material suggests that a declaration was made in 2002 which may have satisfied the requirements of cl 13(1)(c).  But really determination of that question is not necessary.  For so long as it continued to hold trust assets the company was a bare trustee of those assets.  A long line of authority, including Re Killarnee, confirms that to be the case.  Furthermore, the trustee has a right of indemnity and exoneration from the trust assets secured by an equitable lien:  see Carter Holt Harvey Woodproducts Australia Pty Ltd v The Commonwealth of Australia [2019] HCA 20. These rights apply to liabilities of the trustee incurred in its capacity as trustee. In the case of an insolvent corporate trustee these rights extend to the liquidated costs and expenses of winding up and dealing with the trust assets and continue after the removal of the trustee. Where the insolvent corporate trustee is trustee of more than one trust the liquidator is entitled to have recourse to the property of each trust for the purpose of meeting the costs and expenses of winding up: see Re Suco Gold.

21. Accordingly it is proper to make the proposed orders 9, 10 and 11.  The proposed orders are no more than statements declaring the applicants' legal rights in connection with the investment trust and do not in and of themselves entitle Mr Rushton to take or disburse any funds to any person including himself or Mr Halse.  The orders relate only to the debts and liabilities and the costs and expenses referable to the investment trust.  The quantum is not addressed.  What is important is that the liquidator's legal rights are clarified with the hope again that the relevant parties may reach agreement.

22. That leaves order 13.  It is standard practice for the costs of a proper application for directions by a liquidator be costs in the winding up of the relevant company and where a corporate trustee is concerned be paid from the assets of the trust.  Trustees are generally entitled to their costs of any application to the court as part of the general right to indemnity and will only lose that right by misconduct.  Here there has been no misconduct.  The application was properly made.  It is arguable the entirety of the remuneration and expenses of the applicants should be paid out of the trust assets.  However, the applicants only seek an order for 50% of the costs to be paid out of the assets of the investment trust.  In my view that order is both proper and reasonable.

23. For these reasons I will make orders in terms of paragraphs 1 through to 13 of the amended interlocutory process.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CB
Associate to Master Sanderson

5 MARCH 2020