Perpetual Nominees Limited v Pascoe
[2007] FMCA 529
•3 April 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| PERPETUAL NOMINEES LIMITED v PASCOE | [2007] FMCA 529 |
| BANKRUPTCY – Application for preferential distribution of funds recovered by the trustee – whether there are compelling reasons to depart from an equal treatment of creditors considered – terms of indemnity offered by the applicant and accepted by the trustee considered – whether the applicant creditor was at risk under the indemnity considered. |
| Bankruptcy Act 1966 (Cth), ss.109, 139ZQ |
| Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Rodolfo Severio Pastro v Pastro [2004] FCA 713 Re Bavistock (1946) 14 ABC 30 |
| Applicant: | PERPETUAL NOMINEES LIMITED |
| Respondent: | SCOTT DARREN PASCOE |
| File Number: | SYG3883 of 2006 |
| Judgment of: | Driver FM |
| Hearing date: | 3 April 2007 |
| Delivered at: | Sydney |
| Delivered on: | 3 April 2007 |
REPRESENTATION
| Counsel for the Applicant: | Mr M Aldridge, SC |
| Solicitors for the Applicant: | Gadens Lawyers |
| Solicitors for the Respondent Trustee: | Mr D McCrostie Turks Legal |
| Counsel for the Opposing Creditor: | Mr M Dawson |
| Solicitors for the Opposing Creditor: | Deacons |
ORDERS
Pursuant to s.109(10) of the Bankruptcy Act 1966 (Cth) the trustee respondent is to distribute to the applicant creditor 60 per cent of the money in his hands paid by Andrew Grant-Taylor as at 1 May 2007, pursuant to orders made by consent on 27 April 2006 in Federal Magistrates Court of Australia proceedings BRG809 of 2005.
The costs of the applicant, Mr Grant-Taylor and the trustee in relation to this application be paid from the estate of Ronald Philip Jamieson.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG3883 of 2006
| PERPETUAL NOMINEES LIMITED |
Applicant
And
| SCOTT DARREN PASCOE |
Respondent
REASONS FOR JUDGMENT
(revised from transcript)
I have before me on referral from a registrar an application made under s.109(10) of the Bankruptcy Act 1966 (Cth) (“the Bankruptcy Act”), seeking a distribution to the applicant of all moneys presently in the hands of the trustee at the bankrupt estate of Ronald Philip Jamieson being moneys recovered by the trustee pursuant to orders made by consent on 27 April 2006 by this Court in other proceedings. The application seeks such further moneys as may be received or, alternatively, such preferential dividend as the Court sees fit, and costs.
The application is opposed by a substantial creditor[1] who was, perhaps coincidentally, the person responsible for the payment of the funds to the trustee now the subject of the dispute. The background, in relation to the matter, is somewhat detailed. It is set out reasonably conveniently in two affidavits which I received as evidence, those being the affidavits of Craig Robert White, on behalf of the applicant, and Andrew Grant-Taylor on behalf of the respondent. I incorporate, as background for the purposes of this judgment, with necessary amendments, the following facts derived from paragraphs 1 through to 16 of Mr White’s affidavit and paragraphs 5 to 16 of Mr Grant-Taylor’s affidavit.
[1] I have not been able to identify an order joining Mr Grant-Taylor as a respondent to the application but he has at all times had leave to appear as an opposing creditor.
Mr White is a Director of:
a)(a) MFS Investment Management Limited, the Responsible Entity for the MFS Premium Income Fund (formerly MFS Capital Insured Income Fund);
b)(b) McLaughlins Financial Services Ltd, the former Responsible Entity of the MFS Premium Income Fund, and the former Responsible Entity of the Leveraged Investment Trust; and
c)(c) MFS LIT Pty Ltd, the current trustee of the MFS Leveraged Investment Trust.
(collectively referred to as "MFS").
The applicant is described as the Custodian of the MFS Premium Income Fund and former Custodian of the MFS Leveraged Investment Trust. The applicant is also the agent of the MFS entities referred to in paragraphs 3(a), (b) and (c) above.
Mr Grant-Taylor (like the applicant) is a creditor of the Bankrupt Estate of Ronald Phillip Jamieson. Judgment in his favour in the sum of $2,023,640 was entered on 16 October 2002 in the Supreme Court of Queensland proceeding S7183 of 2002.
Pursuant to an order made in these proceedings on 8 July 2003, Scott Darren Pascoe (the trustee) was appointed as trustee of Mr Jamieson's estate.
On 23 June 2006, Mr Grant-Taylor lodged with the trustee a proof of debt in the sum of $1,673,729.09. The trustee has not rejected the proof of debt.
The trustee made a first report to creditors on 25 August 2003.
Mr Grant-Taylor was the plaintiff in proceedings 12977 of 2002 issued in the Common Law Division of the Supreme Court of New South Wales. As a result of those proceedings, he was a judgment creditor of the Bankrupt in the sum of $530,000. In consequence of the Order, Mr Grant-Taylor received a payment from Court in the sum of $526,791.43 on or about 17 February 2003.
On or about 2 March 2004, the trustee appointed Gadens Lawyers to act for him in respect of the potential for recovery of the property of the bankrupt estate. Sims Partners wrote to Gadens Lawyers on 2 March 2004.
On the application of the trustee, on 31 August 2005 the Insolvency and trustee Service of Australia ("ITSA") issued notices pursuant to section 139ZQ if the Bankruptcy Act 1966 to Andrew Grant-Taylor, Jennifer Jamieson, Emerald Logic Pty Limited and Kallisti Charters Pty Limited.
David McIntosh of Gadens Lawyers sent an email to Chris Stride of MFS dated 9 September 2005.
Chris Stride of MFS sent an e-mail to David McIntosh of Gadens Lawyers dated 9 September 2005.
Simon Lipp of Gadens Lawyers sent an e-mail to Ray South of Sims Partners dated 27 September 2005.
On 11 November 2005, Andrew Grant-Taylor gave notice that he intended to dispute the notice issued to him by ITSA and made an application in the Federal Magistrates Court to set aside the section 139ZQ notice ("Grant-Taylor Proceedings").
On 16 December 2005, Mr Grant-Taylor instructed his solicitors, Deacons Lawyers, to make an application in this Court to set aside the Notice, which they did.
The trustee wrote to Gadens Lawyers on 19 December 2005 asking that they approach the MFS group seeking an indemnity.
MFS wrote to the trustee on 3 March 2006 offering an indemnity.
David McIntosh of Gadens Lawyers sent an e-mail to Chris Stride of MFS dated 3 April 2006, together with an attachment. The attachment is an invoice from Gadens Lawyers' Brisbane office which was paid by MFS according to it.
The trustee made a second report to creditors dated 10 April 2006. On page 3 of that report, the trustee indicated that MFS had indemnified him in respect of the Grant-Taylor Proceedings and invited all other creditors to indemnify him in similar terms. Apparently none did so.
On or about 27 April 2006 the trustee compromised the Grant-Taylor Proceedings on the basis that Andrew Grant-Taylor pay the bankrupt estate instalments totalling $475,000. Consent orders were made on 15 May 2006.
Application under section 109(10) of the Bankruptcy Act 1966 (Cth)
On about 6 March 2007, Mr Grant-Taylor received notice of the present application by the applicant creditor. Since that date, there has been an exchange of correspondence between his solicitors, the trustee and the Applicant’s solicitors (Gadens).
The application is opposed by Mr Grant-Taylor on several bases which are set out in an outline of submissions presented in Court this afternoon. In short, Mr Grant-Taylor submits there is no compelling reason to upset the principle of equal treatment of creditors; that there was no action on the part of the trustee in reliance of the claimed indemnity, which resulted in the recovery realisation, or recovery of property of the bankrupt; that the trustee did not take up the offer of the indemnity prior to settling the Grant-Taylor proceedings in this Court; that the applicant did not assume any significant risk in respect of the dispute and the solicitors for the trustee were willing to undertake the matter on a speculative basis; that the indemnity was of very limited scope and did not extend to solicitor’s costs or the trustee’s costs; that to the extent the indemnity may have been accepted it was for a small sum of $1,197.70; that the present application is not supported by the trustee and that the application, therefore, does not discharge the significant burden that an applicant carries in an application of this type.
In addition to the two affidavits that I have referred to, I also received as evidence, a handwritten statement of the estimate of available funds in bankruptcy at what I thought was the present time[2], which is marked as exhibit R1 and two bundles of documents marked as exhibits R2 and R3.
[2] It later transpired that this document included an estimate of certain anticipated future payments.
I have had regard to the terms of s.109(10) of the Bankruptcy Act:
(10) Where in any bankruptcy:
(a)property has been recovered, realized or preserved under an indemnity for costs of litigation given by a creditor or creditors; or
(b)expenses in relation to which a creditor has, or creditors have, indemnified a trustee have been recovered;
the Court may, upon the application of the trustee or a creditor, make such orders as it thinks just and equitable with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving the indemnifying creditor or creditors, as the case may be, an advantage over others in consideration of the risk assumed by creditor or creditors.
I was taken to a number of authorities by the counsel for the applicant and Mr Grant-Taylor. The essential principles, however, set out in the decision of the former Court of Bankruptcy in Re Bavistock (1946) 14 ABC 30. The headnote to the reported judgment states:
Where an indemnity has been given under s.84 [the then applicable section of the Bankruptcy Act] the Court in exercising its discretion as to the distribution of those assets with a view to giving the indemnifying creditors an advantage over other creditors, will be guided by a consideration of the amount of the risk run, the amount recovered, the proportion between the debts of indemnifying creditors and the non-indemnifying creditors and all other like matters.
More recently, in Official Trustee in Bankruptcy as Trustee of the Bankrupt Estate of Rodolfo Severio Pastro v Pastro [2004] FCA 713, Mansfield J established several pertinent principles. The first is that the discretion under s.109(10) is unqualified and, in the circumstances, the Court has the power to order that the whole of the amount recovered by relevant litigation be distributed among the indemnifying creditors. Secondly, the policy behind s.109(10) is to encourage creditors to indemnify trustees to pursue claims and to reward creditors who do so, so that the property of the bankrupt will be available to creditors. Thirdly, the way in which the discretion under s.109(10) should be exercised depends upon the facts of the particular case and is often, ultimately, a matter of impression. Other authorities that I was taken to by counsel for the respondent do not detract from those principles.
In the present case, the applicant creditor is a very substantial creditor in the bankrupt estate to the order of about 70 per cent of the proofs of debt so far lodged. The opposing creditor is also a significant creditor who has lodged a proof of debt of in excess of one million dollars. A possible curiosity, apart from the fact that Mr Grant-Taylor, as well as being a creditor, was the subject of a notice issued under s.139ZQ of the Act, is that there is a relationship between the applicant and another entity which is explained in the material.
A question arose in argument whether any distinction should be drawn between the applicant and the other entity, McLaughlins Financial Services Limited, one of a group of companies known collectively as MFS. It does not appear to me that the trustee drew any distinction between them for the purposes of seeking and accepting an indemnity. It does appear to me that MFS and Perpetual have acted in common cause in relation to the issue of the indemnity and that, although they have lodged separate proofs of debt, there is no relevant distinction between them for the purposes of the present proceeding. I note from exhibit JK to the affidavit of Mr White, being a letter dated 3 March 2006 to the trustee from MFS in which the indemnity was given, that MFS stated that Perpetual had entered into various loan agreements with a company called Bassward Pty Limited and did so as custodian and agent for MFS. Mr Ronald Jamieson guaranteed the loans. A debt was due by Mr Jamieson pursuant to those guarantees to MFS.
As the dominant creditor (with the applicant) of the bankrupt estate, MFS offered an indemnity to the trustee which was accepted and reported to creditors in the second report issued by the trustee dated 10 April 2006. The trustee and Mr Grant-Taylor had instituted negotiations in the Grant-Taylor proceedings in this Court at around the same time as the indemnity was sought and offered.
Those discussions commenced before the fact of the indemnity was notified to creditors by the trustee but continued after that notification. On the terms of the indemnity offered and accepted, MFS placed itself at risk in relation to an adverse costs order as well as giving an admittedly qualified indemnity in relation to disbursements, including counsel’s fees, incurred by the trustee in the litigation. Significantly, MFS offered no indemnity in relation to solicitor and own client costs incurred by the trustee or in relation to the trustee’s own expenses.
It is difficult to judge from the material what impact the fact of the indemnity had on the resolution of the litigation stemming from the s.139ZQ notice. I do not accept that the funds recovered were recovered on the notice itself. They were recovered as a result of settlement of the litigation instituted by Mr Grant-Taylor seeking to have that notice set aside. I think it likely that the existence of the indemnity from MFS had some impact on the resolution ultimately achieved. The trustee and hence, MFS, was at some risk in the litigation and ultimately the trustee elected to settle for a lesser amount than was sought in the notice. There is always a risk in litigation and although the trustee may have been victorious without the indemnity and was, to some extent, prepared to proceed on a speculative basis, the indemnity probably helped in the resolution.
Weighing the matter as a whole I have formed the view that the applicant creditor should receive preference over other creditors, but to a limited degree.
Exhibit R1 establishes as best can be estimated that $196,880 is, or will soon be, available for distribution to creditors after payment of expenses. I accept that those funds have come from Mr Grant-Taylor as a result of the settlement of the Grant-Taylor litigation. That establishes sufficiently, in my view, the connection with the conditions precedent in s.109(10)(a) and (b). I have concluded that the applicant creditor should receive a preference of 60 per cent of the available funds. I would have preferred to specify a particular amount but, as exhibit R1 assumes payments that have not yet been received, that would be unwise. A further payment is due at the end of April and the applicant creditor should receive preference out of the funds on hand after that payment.
I will not grant order 1B, also sought by the applicant creditor in relation to such further moneys as may be received. Accordingly, this is a once only preference in favour of the applicant creditor.
I heard submissions from the parties in relation to costs and accept that the costs of both the applicant and Mr Grant-Taylor should be paid from the bankrupt estate of Mr Jamieson as, indeed, should the costs of the trustee who appeared to assist the Court and who did neither opposed nor supported the present application. I will so order.
I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 16 April 2007
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