Paul's Retail Pty Ltd v Morgan - [2010] NSWCA 217

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Paul's Retail Pty Ltd v Morgan [2010] NSWCA 217

FILE NUMBER(S):
2010/040930

HEARING DATE(S):
30 July 2010

JUDGMENT DATE:
1 September 2010

PARTIES:
Paul's Retail Pty Ltd (First Applicant)
Paul Andrew Dwyer (Second Applicant)
John Maxwell Morgan (Respondent)

JUDGMENT OF:
Campbell JA Macfarlan JA Sackville AJA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
6211/08

LOWER COURT JUDICIAL OFFICER:
Barrett J

LOWER COURT DATE OF DECISION:
13 November 2009

LOWER COURT MEDIUM NEUTRAL CITATION:
[2009] NSWSC 1222

COUNSEL:
M Ashhurst SC (First and Second Applicant)
S Golledge (Respondent)

SOLICITORS:
W Lawyers (First and Second Applicant)
Blake Dawson Lawyers (Respondent)

CATCHWORDS:
CORPORATIONS – deed of company arrangement – remuneration of administrator – whether administrator estopped from seeking a review of his remuneration under s 449E(2) of the Corporations Act 2001 (Cth) – effect of an agreement to “cap” administrator’s fees – whether the administrator demonstrated a need to inquire into the originally determined quantum of remuneration.

LEGISLATION CITED:
Civil Procedure Act 2005, s 7
Supreme Court Act 1970, s 101
Corporations Act 2001 (Cth), ss 435C, 436A, 436E, 439A, 443D, 444A, 449E
Corporations Amendment (Insolvency) Act 2007 (Cth)
Supreme Court (Corporations) Rules 1999, r 9.2A

CATEGORY:
Principal judgment

CASES CITED:
Dwyer v Morgan [2009] NSWSC 1343
Foran v Wight [1989] HCA 51; 168 CLR 385
Green v AMP Life Ltd [2005] NSWCA 354
Legione v Hateley [1983] HCA 11; 152 CLR 406
Re Gidley [2006] FCA 102; 150 FCR 345
Waltons Stores (Interstate) Pty Ltd v Maher [1988] HCA 7; 164 CLR 387
Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; 66 ACSR 229

TEXTS CITED:
Meagher Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, 2002)

DECISION:
1. Leave to appeal granted.
2. Appeal dismissed.
3. Applicant to pay the respondent's costs of the application for leave to appeal and of the appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 2010/040930
CAMPBELL JA
MACFARLAN JA
SACKVILLE AJA
1 September 2010

PAUL’S RETAIL PTY LTD & ANOR v MORGAN

Judgment

CAMPBELL JA: I agree with Sackville AJA.
MACFARLAN JA: I agree with Sackville AJA.
SACKVILLE AJA: This is an application for leave to appeal, pursuant to s 101(2)(r) of the Supreme Court Act 1970, against interlocutory orders made by a Judge of the Court (Barrett J). The respondent (“Administrator”) is the administrator of the first applicant (“Pauls”), a company subject to a deed of company arrangement entered into pursuant to Part 5.3A of the Corporations Act 2001 (Cth) (“Corporations Act”). The second applicant (“Mr Dwyer”) is the sole shareholder and sole director of Pauls.
The primary Judge identified two issues raised by the parties in the proceedings before him. The first was whether the Administrator was estopped from seeking a review under s 449E(2) of the Corporations Act of his remuneration as approved and capped by resolutions passed by a creditors’ meeting held on…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] NSWCA 217
Decision Date: 1 September 2010

CaseChat Overview and Summary

This case concerned an appeal from a decision of the primary judge regarding the remuneration of a deed administrator. The parties were Paul's Retail Pty Ltd (the applicant) and the administrator of the company under a deed of company arrangement (the respondent). The dispute arose when the administrator sought a review of his remuneration, which had been determined by creditors, and Paul's Retail argued that the administrator was estopped from seeking such a review due to an agreement to "cap" his fees. The appeal was heard by Campbell and Macfarlan JJA and Sackville AJA.

The legal issues before the court were whether the administrator was estopped from seeking a review of his remuneration under section 449E(2) of the *Corporations Act 2001* (Cth) despite an agreement to cap his fees, and whether the administrator had demonstrated a need to inquire into the originally determined quantum of remuneration. The court also considered the nature of an administrator's right to indemnity and the company's liability for remuneration under a deed of company arrangement.

The court's reasoning affirmed the primary judge's finding that the administrator's application was a claim for review under section 449E(2) of the *Corporations Act*. The primary judge rejected the estoppel argument, holding that the administrator had a statutory right to seek a review of remuneration fixed by creditors, and that the aim of such a review was to determine if the initial fixing process had resulted in unreasonable remuneration. The court noted that the assessment of reasonableness would consider all relevant circumstances, including those not known or foreseen at the time of the initial fixing.

Leave to appeal was granted, but the appeal was ultimately dismissed. Paul's Retail Pty Ltd was ordered to pay the respondent's costs of the application for leave to appeal and of the appeal.

Orders

Orders of the court

1. Leave to appeal granted.

2. Appeal dismissed.

3. Applicant to pay the respondent's costs of the application for leave to appeal and of the appeal.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

His Honour noted that the Administrator’s application, although framed as a claim to have his remuneration “fixed” by the Court, was “really” a claim under s 449E(2) of the Corporations Act to have the Court review the remuneration already determined by creditors. His Honour also noted (at [89]) that the Administrator’s application for review had been made in accordance with the requirements of the Supreme Court (Corporations) Rules 1999, r 9.2A. The parties did not dispute his Honour’s characterisation of the Administrator’s application.THE PRIMARY JUDGMENT The primary Judge noted that a voluntary administrator has a right conferred by s 443D of the Corporations Act to be indemnified out of the company’s property for his or her remuneration as fixed by s 449E. However, his Honour, following his own judgment in Wellnora Pty Ltd v Fiorentino [2008] NSWSC 483; 66 ACSR 229, at 235-236 [23]-[26], said that an administrator of a DOCA did not have a statutory right to be indemnified but did have an equitable right to an indemnity enforceable against the company’s assets. The primary Judge recognised (at [17]) that a company subject to a DOCA is not liable to pay the deed administrator’s remuneration, as quantified under s 449E, unless the liability is created by the DOCA itself. However, the DOCA executed by Pauls had made it clear that the company was subject to such a liability. The primary Judge dealt first with the applicants’ claim that the Administrator was estopped from seeking review of his remuneration pursuant to s 449E(2) of the Corporations Act. His Honour rejected the estoppel argument. I shall return to that issue later. The primary Judge noted (at [74]) that there were two competing applications under s 449E(2). The application by Pauls was a nullity as it had no standing to apply. However, Mr Dwyer, as an officer and the sole member of Pauls, did have standing. His Honour observed (at [76]) that the question posed by s 449E(4) was whether the remuneration of the Administrator already fixed was reasonable, or was unreasonable because it was either too high or too low. His Honour continued as follows (at [76]-[77]):“Thus, although the statute says nothing about the aim of the initial remuneration fixing process, the objective has been accepted by the courts as that of producing a reasonable remuneration. It must follow, in my view, that the aim of the review process is to determine whether the initial fixing process has miscarried, in the sense that the initially fixed remuneration can be seen to be not reasonable remuneration and, if it has, to substitute a reasonable remuneration for that originally fixed. …The assessment whether the initially fixed sum is fair and reasonable will be made in the light of all relevant circumstances brought to the court’s attention upon the review. These may include circumstances that were not known or foreseen at the time the remuneration was fixed. They may include the circumstance that some work actually done was outside the proper performance of the administrator’s functions or was unnecessary …”

Ratio Decidendi

Legal Principle Established

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