Nicobar Pty Ltd v Abrokiss Pty Ltd

Nicobar Pty Ltd applied to the Federal Court of Australia for an order compelling Abrokiss Pty Ltd, the receivers of a company in liquidation, to pay over a surplus from the proceeds of the sale of the company’s assets before fixing their fees. The dispute arose because Nicobar, a secured creditor, contended that the receivers were obliged to distribute the surplus to other secured creditors before deducting their fees, while Abrokiss argued that it was entitled to retain the surplus until their fees were determined. The court was required to determine whether the receivers could legally withhold the surplus and whether Nicobar's claim was founded on a breach of trust or on a cause of action in contract.

The court held that the receivers were not entitled to retain the surplus before determining their fees, as the proper construction of the mortgage deed indicated that the receivers’ fees were not secured by the mortgage. The court further reasoned that while it was typical for receivers’ fees to be paid out of the surplus, there were exceptional circumstances where the fees could be considered secured by the mortgage. In this case, the deed did not provide for the fees to be secured, and therefore, the receivers could not lawfully withhold the surplus. The court found that Nicobar's claim was based on the breach of a constructive trust imposed by the mortgage deed, rather than a contractual obligation. This distinction was crucial as it determined the appropriate remedy and the legal basis for the court's intervention.

The court granted Nicobar's application, ordering Abrokiss to pay over the surplus to the other secured creditors. The decision highlighted the importance of the specific wording of the mortgage deed in determining the rights of receivers and secured creditors. The court emphasised that the general principle was that a mortgagee's internal costs, including receivers' fees, were not secured by the mortgage unless explicitly stated otherwise. The final orders required Abrokiss to transfer the surplus to the other secured creditors without delay, thereby resolving the immediate dispute over the distribution of the sale proceeds.