Martin v Kachirski and Auricht No. DCCIV-99-195 Judgment No. D105

James Stanley George Martin v William Jacob Kachirski and Richard Ernest Auricht
[1999] SADC D105

Judge Sulan
Civil

The plaintiff, James Stanley George Martin, is a registered company liquidator whose practice substantially involves insolvency work.
On the 6th January 1998, he and William Jacob Kachirski, the first defendant, entered into a deed (“the deed”), under which the first defendant appointed the plaintiff as the receiver and manager of Peoplecare Products Pty Ltd (“the company”) pursuant to a debenture granted in favour of the Commonwealth Bank of Australia (“the bank”) on the 29th October 1992. The debenture is an equitable mortgage debenture being both a fixed and floating charge. The bank assigned all monies secured by the debenture, all its rights and powers and remedies under the debenture and all its estate and interest in the property described in the debenture, to the first defendant. The first defendant warranted and represented to the plaintiff that the recitals to the deed are accurate. The deed provided that the plaintiff had relied upon the recitals in accepting the appointment as receiver and manager. The recitals warranted, inter alia, that the debenture had been validly assigned, that the first defendant had complied with the relevant requirements of the Corporations Law, and that notice of the assignment of the debenture had been given to the Australian Securities Commission. Further, the first defendant represented and warranted that there had been default by the company under the debenture and that monies had fallen due and payable pursuant to the debenture and that he was entitled to appoint a receiver and manager over the assets and undertaking of the company.
Clauses 10, 11 and 13 of the deed provide as follows :
“10. The Mortgagee will at all times on and from the date specified in Item A of the Schedule hereto hold harmless and indemnify and keep indemnified the Receiver from and against:-
10.1         All and any liabilities incurred by the Receiver in the course of the discharge of the Receiver’s duties pursuant to the Debenture, the Instrument of Appointment and this Deed;
10.2 All the Receiver’s liability (if any) under section 419(1) of the Corporations Law for or in respect of debts properly incurred by the Receiver in the course of the receivership or possession or control of the Mortgaged Property or otherwise in pursuance of the Debenture, the Instrument of Appointment or this Deed and that such indemnity shall extend but not be limited to all debts and liabilities incurred by the Receiver for services rendered (professional and otherwise) goods purchased and property hired leased used or occupied and including any moneys borrowed and interest thereon;
10.3 (Without limiting the generality of Clauses 10.1 and 10.2 hereof) All the Receiver’s liability (if any) for or in respect of debts properly incurred by the Receiver in the course of the receivership or possession or control of the Mortgaged Property or otherwise in pursuance of the Debenture, the Instrument of Appointment or this Deed additional to those mentioned in Section 419(1) of the Corporations Law including any moneys borrowed and interest thereon and all contracts or arrangements adopted or entered into by the Receiver.
10.4         All actions, proceedings, accounts, claims, notices, demands, losses, damages, costs, charges and expenses howsoever arising out of the receivership or possession or control of the Company or the possession (whether actual or constructive) of any of the Mortgaged Property or otherwise under the Debenture, the Instrument of Appointment or this Deed which may be taken, claimed or made on or against the Receiver by any Aggrieved Person and including and against all costs, charges and expenses incurred by the Receiver in respect thereof; and
10.5         To the extent of all amounts chargeable and disbursements referred to in Clauses 3 and 4 hereof, if for any reason such amounts chargeable and disbursements shall not be paid from the monies received by the Receiver as receiver and manager of the Mortgaged Property.
11. The indemnities contained in Clause 10 hereof shall extend to all acts and omissions of the Receiver notwithstanding that such acts or omissions may be negligent or in excess of the powers vested in the Receiver pursuant to the Debenture, the Instrument of Appointment or this Deed or otherwise in relation thereto PROVIDED HOWEVER that the Receiver shall not be entitled to indemnity in respect of or arising out of any negligent act or omission wilfully committed or omitted by the Receiver or any act or omission done or omitted by the Receiver otherwise than in the bona fide performance of the Receiver’s powers as receiver and manager pursuant to the Debenture, the Instrument of Appointment and this Deed.
13. The contract of indemnity herein contained shall further extend to all actions, proceedings, accounts, claims, notices, demands, losses, damages, costs and all liability whatsoever and howsoever arising out of or consequent upon the Receiver’s appointment as receiver and manager of the Company in the event that such appointment as made by the Mortgagee is:-
13.1         Determined to be invalid, or unenforceable or defective or ineffective or void for any reason whatsoever; or
13.2         Overturned, rescinded or terminated by any Court; or
13.3         Is terminated by any means other than the Mortgagee terminating the Receiver’s appointment.”
The date specified in Item A of the Schedule is the 6th day of January 1998. The Mortgaged property is defined as meaning :
“The Mortgaged property means all and singular the undertaking and property of the Company and all its assets whatsoever and wheresoever both present and future including its uncalled capital for the time being AND all and singular the undertaking property and all the assets whatsoever and wheresoever both present and future held by the Company as trustee of the P.C.C. Trust under a Deed of Trust made the 30th day of September, 1991.”
Prior to his appointment as receiver and manager, the plaintiff had advised the first defendant in respect of various matters relating to the affairs of the company. He wrote to the first defendant on the 7th November 1997 advising the first defendant that his charge out rate was $150 per hour and that his fee for services of a manager within the practice was $120 per hour and an accountant/bookkeeper, was $60 per hour. The plaintiff gave evidence that the first defendant agreed that the fee rates were acceptable and that he, the plaintiff, acted upon that basis. His fee rates increased on the 1st July 1998, as it did for all clients. The plaintiff gave evidence that his charge out rate throughout the period when he acted as receiver and manager was less than the scale recommended by the Insolvency Practitioners Association of Australia.
The plaintiff’s appointment was terminated on the 8th February 1999. The second defendant, Richard Ernest Auricht, was appointed in place of the plaintiff.
On the 10th February 1999, the plaintiff wrote to the first defendant claiming that his position as receiver and manager had been compromised and prejudiced by the conduct of the first defendant. He sought payment of various amounts, including his costs and disbursements, fees of solicitors Messrs Pearce and Meister who had been engaged by him and performed certain work for him in his capacity as receiver and manager, and other fees, charges and disbursements. He claimed that the amounts were owing to him under the indemnity given by the first defendant pursuant to the deed.
He sought assurances that the second defendant, as the new receiver and manager, would promptly settle any liabilities arising from employee entitlements, superannuation entitlements and other trade creditors who had been engaged by him in his capacity as receiver and manager.
No response was received. Proceedings were issued on the 16th February 1999, seeking orders against the first and second defendants. On that day, interim injunctions were obtained restraining the first defendant from dealing in any manner whatsoever with his interest in certain land. Orders were also sought and obtained against the second defendant. An interlocutory injunction in similar terms was granted on the 22nd February 1999. The first defendant had been served with the proceedings on the 17th February 1999, and was represented by a solicitor at the hearing of the interlocutory injunction application on the 26th February 1999. The first defendant has not filed an appearance or defence to the proceedings. The second defendant defended the action. He and the plaintiff have resolved their dispute. On the 2nd August 1999, when the matter first came before me, I made a number of consent orders as between the plaintiff and the second defendant.
The first defendant attended the trial on the 2nd August 1999. I granted his solicitor, Mr Weir, leave to appear. Mr Weir sought an adjournment of the proceedings. I adjourned the application for an adjournment to the 3rd August 1999, to enable the first defendant to file an affidavit in support of the application. Prior to the matter resuming on the 3rd August 1999, the first defendant terminated Mr Weir’s instructions and he then appeared before me in person. I heard further submissions and considered an affidavit of the first defendant sworn on the 3rd August 1999 in support of the application for an adjournment. I refused that application and refused the first defendant leave to file an appearance. I gave judgment in default of appearance in favour of the plaintiff. Extempore reasons for refusing the application were given at that time and are contained in a separate ruling.
The matter then proceeded in order for the plaintiff to prove his claim. The plaintiff, in the statement of claim, seeks against the first defendant the following :
“25.1 A declaration that the first defendant is liable to indemnify the plaintiff for the fees, disbursements and liabilities set out in paragraph 11 hereof.
25.2 An order that the first defendant pay to the plaintiff the sum of $138,734.94 plus interest in respect of the liabilities set out in paragraphs 11.1-11.4 hereof.
25.1 An order that the first defendant do forthwith pay or caused to be paid all employee entitlements, superannuation entitlements and trade creditors of the receivership.”
In support of the claim the plaintiff has particularised the amounts claimed and orders sought as follows :
“Schedule of amounts claimed from W.J. Kachirski
Unpaid receiver’s fees to 8 February 1999  $        72,958.99
Unpaid legal fees of Morris, Pearce & Meister/
Pearce & Meister to 8 February 1999  $        52,509.31
Unpaid disbursements of
Pearce & Meister to 8 February 1999  $            997.95
Unpaid account of Chilman Bila Pty Ltd  $        10,000.00
Unpaid account of Maris Rudaks  $          1,878.00
Amount owed to Teslta (sic) Corporation Limited $          1,430.90
Amount claimed by Australian Taxation Office
in respect to PAYE tax deductions  $          9,957.00
_____________
Total quantifiable  $      149,732.15
Plus indemnity from any claims by employees
and other creditors of the receivership.
Plus continuing indemnity in respect to costs
and expenses associated with the receivership.
Plus interest from 10 February 1999.
Plus costs of action.”
The plaintiff gave evidence in support of the claim. Documents including time sheets and ledgers were tendered to support the various claims.
I am satisfied that the time spent by the plaintiff and his employees and contractors, as claimed and detailed in extracts of ledgers and time sheets (exhibit “P4”), were proper and reasonable. I am satisfied that the rates charged for work done were proper and reasonable. I accept the plaintiff’s evidence that the fees and disbursements were incurred in furtherance of the receivership, and accordingly the claim for outstanding receiver’s fees up to the 8th February 1999, in the sum of $75,958.99 is made out.
During the period of the receivership, the plaintiff engaged others to carry out certain work. As part of the conduct of the receivership, the company was placed into voluntary administration. The plaintiff agreed to indemnify the administrator up to an amount of $5,000 in respect of the voluntary administration. Mr Maris Rudaks, an accountant, was engaged and appointed as voluntary administrator. He incurred fees and expenses of $1,878. I am satisfied that the fees and disbursements were reasonable and I accept the plaintiff’s evidence in respect thereof. I accept that they were properly incurred as part of the expenditure of the receivership and I accept that the plaintiff is primarily liable for those fees. I uphold his claim for indemnity in respect thereof.
In the course of the administration, the plaintiff sought to sell the business of the company. Messrs Chilman Bila Pty Ltd, business agents, were engaged to undertake the sale. An agency agreement was entered into on the 1st March 1998, pursuant to which the plaintiff as receiver and manager, agreed to pay professional fees to Messrs Chilman Bila Pty Ltd based on the total gross purchase price at the rate of 10% for the first $50,000 and 5% thereafter. A sale of the business to Comfy Chairs Pty Ltd was completed on the 10th July 1999. Comfy Chairs Pty Ltd defaulted in the arrangements. The company was subsequently placed into liquidation. I accept the evidence of the plaintiff that there will be no dividend to unsecured creditors. The plaintiff is liable to Chilman Bila Pty Ltd in the sum of $10,000 in respect of the sale and purchase of the business to Comfy Chairs Pty Ltd. I am satisfied that the agents’ fee has been properly incurred and that it is reasonable. The plaintiff is entitled to be indemnified by the first defendant in respect thereof.
A further liability of $1,430 for telephone and other charges was incurred by the plaintiff whilst acting as receiver and manager of the company. I am satisfied that those charges were properly and reasonably incurred and that the plaintiff is entitled to be indemnified in respect thereof.
A further amount of $9,957 is owed by the plaintiff to the Australian Tax Office in respect of outstanding PAYE deductions. Comfy Chairs Pty Ltd had agreed to make payment of all monies due to the Australian Tax Office in respect of PAYE deductions. As a consequence of the default by Comfy Chairs Pty Ltd, the outstanding amount has not been paid and Comfy Chairs Pty Ltd is unable to make the payment. The Australian Tax Office has claimed the amount from the plaintiff. I accept the plaintiff’s evidence that the liability was incurred by him in his capacity as receiver and manager of the company. I find he is entitled to be indemnified in respect of that liability by the first defendant.
The plaintiff engaged Messrs Pearce and Meister, solicitors, to act for him in respect of a number of matters arising out of the receivership. Christopher John Pearce, a partner of that firm, gave evidence about the work done by him and his partner, Mr Meister. I accept Mr Pearce’s evidence that all work was charged in accordance with the Supreme Court scale of charges and that it was proper and reasonable for Messrs Pearce and Meister to charge in accordance with that scale. The total costs outstanding to the solicitors amount to $52,509.31. The ledgers and relevant cost sheets were tendered in evidence. A substantial amount of the costs, so far unpaid, relate to an action in the District Court of South Australia, arising out of the sale referred to earlier. The charges for legal fees in respect of that action total $35,368.07. I accept Mr Pearce’s evidence that they were charged according to the scale provided by the rules and that they were reasonable and appropriate.
It was necessary for the plaintiff to defend the claim, which was eventually resolved after the matter had proceeded for three days. I accept the plaintiff’s and Mr Pearce’s evidence in respect of all legal charges. The charges were properly and reasonably incurred. The plaintiff is entitled to indemnity in respect of them. The total amount claimed is $149,732.15. I conclude the plaintiff is entitled to judgment for that amount.
The plaintiff claims interest at the rate of 6% per annum for the period 10th February 1999 to the date of judgment. The amount of interest claimed is in accordance with the third schedule to the Supreme Court Rules. For the period 10th February 1999 to 6th August 1999, I allow the sum of $2,140 interest.
The plaintiff gave evidence that he is potentially liable for any outstanding claims by employees and creditors of the company while he was the manager and receiver and conducted the business, and further, any outstanding costs and expenses associated with the receivership (if any), details of which he is currently unaware. He seeks declarations of indemnity in respect thereof. I conclude he has made out his claim.
The plaintiff is therefore entitled to judgment in respect of the claim and I enter judgment for the plaintiff in the amount of $151,872.15 which includes interest, fixed at $2,140.
The Court further declares that the first defendant is liable to indemnify the plaintiff in respect of :
(i) any employee entitlements (including employee superannuation entitlements) and any trade debts for which the plaintiff may be or may be found liable during the period from 6 January 1998 to 8 February 1999 as a result of the plaintiff acting as receiver and manager of Peoplecare Products Pty Ltd (Receiver & Manager Appointed) (In Liquidation) which employee entitlements and trade debts have not at the date of this Order been notified to the plaintiff;
(ii) any future costs or expenses (including legal expenses) of or incidental to the said receivership which the plaintiff may hereafter properly incur or charge.
I order that the plaintiff be at liberty to apply for an inquiry as to any amounts payable by the first defendant to him, pursuant to the said declaration. The plaintiff is to have costs of the action against the first defendant, to be taxed or agreed.

[1999] SADC 105

6 August 1999