Ross v Gippsreal

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE
COMMERCIAL COURT

S CI 2015 00665

DAVID ANTHONY ROSS & RICHARD ALBARRAN	Plaintiffs
v
GIPPSREAL LIMITED (ACN 005 443 292)	Defendant

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JUDGE:	CAMERON J
WHERE HELD:	Melbourne
DATE OF HEARING:	7, 8 June and 27 July 2016
DATE OF JUDGMENT:	7 December 2016
CASE MAY BE CITED AS:	Ross v Gippsreal
MEDIUM NEUTRAL CITATION:	[2016] VSC 753

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COMPANIES – Receivership – Contract – Construction of deeds – Is there a cap limiting the amount of remuneration that the Receivers can incur – Waiver – Whether by conduct of the appointor, it would be unconscionable for the appointor to rely on the cap – Adverse inference drawn for not calling key witness – Jones v Dunkel.

EQUITY – Receivers’ lien – Whether Receivers entitled to an equitable lien in priority to the secured creditor over the proceeds of sale of the underlying property – Whether fees incurred for steps leading up to the realisation of the underlying property are subject to a lien.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr A Kirby	Evans Ellis Lawyers
For the Defendant	Mr J Evans (now SC)	Oakleys Legal Practitioners

HER HONOUR:

What is the case about?

The plaintiffs in this case are Mr Ross and Mr Albarran (the ‘Receivers’). They were appointed as receivers and managers of Action Cycles Pty Ltd (‘Action Cycles’), by the defendant, Gippsreal Limited (‘Gippsreal’) pursuant to a standard charge document dated 15 April 2010 (the ‘Charge’).[1] The Receivers retired on or about 28 February 2012.[2]
[1]Exhibit P2.
[2]Transcript, 8 June 2016, 140.

The Receivers claim payment from Gippsreal for their professional costs and expenses in connection with the receivership. Their claim is based on an indemnity given by Gippsreal to them and, in the alternative, under an equitable lien. The Receivers’ claim is in the order of $200,000.

Gippsreal says that the Receivers’ fees are capped at $15,000 plus GST (the ‘cap’). So, Gippsreal argues, it has no obligation to pay the Receivers any fees to the Receivers above that amount. Gippsreal has paid the Receivers $16,500 ($15,000 plus GST).

Gippsreal also says that the Receivers are required under agreement to exhaust all their rights in respect of their outstanding fees against third parties first (which Gippsreal says the Receivers have not done), and only then, can they seek to claim their fees against Gippsreal. One of the avenues Gippsreal contends that the Receivers failed to pursue was in relation to the bicycle assets.

Gippsreal argues that the bicycles became the Receivers’ to deal with after their retirement and they failed to pursue their rights in relation to the bicycles. A second avenue available to the Receivers that the Receivers failed to pursue, so says Gippsreal, is the cost orders against Action Cycles and the Gellies (Mr Darren Lionel Clifford Gellie and Mrs Lorelle Leigh Gellie, Director and Secretary of Action Cycles/ joint owners of Action Cycles) in a previous proceeding in this court.[3]
[3]Orders of the Honourable Justice Croft made on 7 August 2012 in S CI 2012 02626, [3].

Gippsreal further says there is no basis for the recognition of an equitable lien in favour of the Receivers.

Some background

The Receivers were initially engaged to provide an investigating accountant’s report for Action Cycles.[4] Mr Ross’ staff went to the premises of Action Cycles and discovered that it had been closed for business. Soon after that, the Receivers were appointed to Action Cycles by Gippsreal.[5] The Receivers changed the locks on the leased premises of Action Cycles, where the assets of the business, including bikes, bike parts and clothing, remained (‘stock’).[6] Valuers were engaged to assess the value of the business. Mr Ross said that, at the time, the retail value of the stock was about $180,000.[7] Valuation for the stock in a forced liquidation was $20,000 whereas the valuation in an orderly liquidation was about $40,000.[8] Advertisements for offers for the stock were sent to bike shops.[9] Of the nine interested parties, the Receivers received only one offer of $10,000 for the stock, which was significantly lower than the liquidation value.[10] Another key asset in the receivership was the land situated at 34-45 Stradbroke Avenue, Cowes (‘the Cowes property’). The settlement of the sale of the Cowes property was in June and July 2016, long after the Receivers’ retirement in February 2012.[11]
[4]Transcript, 8 June 2016, 122-23.
[5]Ibid 124-25.
[6]Ibid 125.
[7]Ibid 126.
[8]Ibid 126, 127.
[9]Ibid 126.
[10]Ibid.
[11]Transcript, 27 July 2016, 227.

Subsequent to their appointment, the Receivers were involved in two proceedings in relation to the receivership. The first proceeding (S CI 2011 04416, the ‘first proceeding’)[12] was between Action Cycles, the Gellies, Gippsreal and the Receivers. The parties reached a conclusion when they entered into a Deed of Settlement dated February 2012 (the ‘Deed of Settlement’). The settlement sum in the Deed of Settlement comprised principle, interest, default interest and costs. Most significantly, the settlement sum included uncapped Receivers’ remuneration.
[12]See Exhibit D3.

Relevantly, the Deed of Settlement provides that the Receivers were to retire on 28 February 2012 and deliver certain property of Action Cycles which they had in their possession in anticipation of a settlement payment sum to Gippsreal by 28 April 2012. It is stipulated in the Deed of Settlement that property not collected by Action Cycles after 14 March 2012 was to be deemed to have been abandoned and the Receivers were entitled to dispose of it as they saw fit.[13]
[13]Exhibit P20.

The Receivers did retire on or before 28 February.[14] However, much difficulty was experienced in coordinating the delivery of Action Cycles’ bicycles before 14 March 2012. The delivery did not occur until mid-May.[15] Action Cycles subsequently defaulted under the Deed of Settlement and commenced a second proceeding (S CI 2012 02626, the ‘second proceeding’) challenging the validity of the Deed of Settlement, claiming that the deed was entered into under duress. Action Cycles was not successful in that proceeding.[16]
[14]Transcript, 8 June 2016, 140.
[15]Ibid 141.
[16]Orders of the Honourable Justice Croft made on 7 August 2012 in S CI 2012 02626.

The Receivers’ claim can be split into three parts. The first part includes remuneration and disbursements incurred prior to 2 September 2011 (when an injunction was put in place preventing Gippsreal from taking any steps to sell the business or the assets of Action Cycles) totalling around $76,000. The second part includes amounts incurred between 3 September 2011 and 28 February 2012 (when the Receivers retired) totalling around $61,000. The third portion is amounts incurred after the retirement of the Receivers being around $66,000.[17]
[17]Transcript, 8 June 2016, 93.

Gippsreal having now paid the Receivers the disbursements incurred in relation to the receivership, the Receivers’ total claim is reduced by around $5,000.[18]
[18]Transcript, 27 July 2016, 237-38.

Governing documents

The Receivers’ claims principally arise from two documents executed by them and Gippsreal, both of which dated 21 July 2011: a document headed ‘Appointment of Receivers and Managers’ (the ‘Appointment’),[19] and a document headed ‘Receiver’s and Manager’s Indemnity’ (the ‘Indemnity’).[20] I will refer to these two documents collectively as ‘the deeds’. The relevant clauses of the deeds are extracted below.
[19]Exhibit P4.
[20]Exhibit P5.

Clause 4 of the Appointment provides:

The Mortgagee shall pay to the Receivers all reasonable charges, costs, fees and expenses (other than remuneration or professional fees of the Receivers or the Receivers’ firm, Hall Chadwick) payable too [sic] or incurred by the Receivers in relation to the appointment to the extent to which the Receivers do not apply moneys available to them for that purpose.
The Receivers shall be entitled to apply moneys available to them, subject to the consent of the Mortgagee in the appointment in payment of all remuneration (at the rates specified in the Schedule) payable to the Receivers in relation to the appointment from the assets of the Mortgagor, up to an amount of $15,000 (exclusive of GST).[21]

[21]Exhibit P4.

Clause 1 of the Indemnity is titled ‘Indemnity’ and it provides:

The Mortgagee shall, subject to the provisions of clause 2 of this deed, indemnify the Receivers against liabilities for or arising out of all actions, proceedings, claims, suits and demands, and all payments, costs and expenses (all included in the word Liabilities) incurred by the Receivers in or arising out of the due exercise or purported exercise of any of the rights, powers, discretions or authorities vested or purported to be vested in the Receivers by virtue of the Deed of Appointment, or otherwise incurred or to be incurred in the due course of their conduct of the appointment, including specifically:
(a)all Liabilities arising out of any defect in the Charge or any invalidity or unenforceability of the Charge or the appointment pursuant to the Deed of Appointment;
(b)all Liabilities consequent upon any bona fide mistake, omissions, oversight, error of judgment or want of prudence on the part of the Receivers;
(c)all Liabilities incurred or threatened in respect of any matter or thing done or omitted to be done by the Receivers in exercise of the Receivers’ rights, powers, discretions or authorities in the appointment; and
(d)all Liabilities and obligations of any nature incurred by the Receivers in the course of or directly or indirectly resulting from the appointment.[22]
[22]Exhibit P5 (emphasis original).

Clause 2 of the Indemnity is titled ‘Exclusion from Indemnity’ and it provides:

The indemnity in the preceding clause shall not extend to:
(a)any liability arising out of the wilful default, dishonesty or gross negligence of the Receivers or any of the Receivers’ agents or employees in the performance or exercise or purported performance or exercise of the Receivers’ rights, powers, discretions or authorities or as a result of the Receivers or the Receivers’ agent or employees knowingly exceeding the scope of the Receivers’ rights, powers, discretions and authorities; or
(b)any liability admitted by the Receivers without the prior written consent of the Mortgagee, other than any liability incurred by the Receivers in the ordinary course of the business of the Security Provider.
(c)any liability arising out of the remuneration incurred by the Receivers during the course of the appointment.[23]
[23]Ibid.

Clause 3 of the Indemnity is titled ‘Expenses and Fees’ and it provides:
(a)The Receivers shall be entitled to apply moneys available to him [sic] in the Receivership in payment of all remuneration (at the rates specified in the Schedule) payable to the Receivers in relation to the appointment from the assets of the Security Provider up to an amount of $15,000 plus GST subject to approval from the Mortgagee. The Receivers are entitled to reasonable costs and expenses incurred in relation to the appointment.[24]
[24]Ibid.
Clause 5 of the Indemnity is titled ‘Receivers’ Obligations’ and it provides:

The Receivers undertake and agree with the Mortgagee that:
…
(b)if so requested by the Mortgagee, the Receivers shall (at the expense of the Mortgagee) defend any such claim, and for that purpose shall, if required by the Mortgagee, employ solicitors nominated by the Mortgagee and co-operate fully with the Mortgagee and the nominated solicitors in the conduct of such defence;

…
(e)provided it is not prohibited under the terms of any contract of insurance between the Receivers and the Receivers’ professional indemnity insurer, the Receivers shall not invoke this indemnity against the Mortgagee until the Receivers have exhausted all claims the Receivers may have to a payment, contribution, guarantee or indemnity from others.[25]

…

[25]Ibid.

Clause 6 of the Indemnity is titled ‘Limit of Liability’ and it provides:
(a)a liability arising under or in connection with this Deed is limited to and can be enforced against the Mortgagee only to the extent to which it can be satisfied out of property of the Security Provider out of which the Mortgagee is actually indemnified for the liability. This limitation of the Mortgagee’s liability applies despite any other provision of this Deed and extends to all liabilities and obligations of the Mortgagee in any way connected with any representation, warranty, conduct, omission, deed or transaction related to this Deed.
(b)a party to this Deed other than the Mortgagee may not sue the Mortgagee personally or seek the appointment of a liquidator, administrator, receiver or similar person to the Mortgagee or prove in any liquidation, administration or arrangement of or affecting the Mortgagee.[26]
…
[26]Ibid.

The loan between Gippsreal and Action Cycles is governed by the Charge.[27]
[27]Exhibit P2.

Clause 12(4) of the Charge provides:

Costs and Expenses
(4) Remuneration
The creditor, any receiver and any attorney shall be remunerated by the chargor for any services rendered by them in relation to the exercise of any right under this document and the rate of remuneration and the manner of payment will be that determined by the creditor.[28]
[28]Ibid.

The Receivers’ submissions

The Receivers submit that they were validly appointed by Gippsreal to be the receivers of Action Cycles and have incurred professional costs and expenses in the course of the receivership. On the facts, it appears that the Receivers also incurred costs after their retirement, but in connection with the receivership. The validity of the Receivers’ appointment is not contested in this proceeding and their professional costs and expenses are supported by their invoices and timesheets. Those amounts are not challenged by Gippsreal.

The Receivers claim that their costs and expenses incurred for the receivership should be paid in full and not be subject to the cap on which Gippsreal sought to rely. The Receivers submit that under the Indemnity, they are entitled to be indemnified by Gippsreal after they have exhausted all avenues to recover their expenses and costs, which they say they did.

Relying on cl 1 of the Indemnity, the Receivers submit that there is a general indemnity for the Receivers’ costs and expenses as part of the definition of ‘Liabilities’. In particular, clause 1(d) states that the liabilities include those incurred by the Receivers ‘in the course of or directly or indirectly resulting from the appointment’.[29]
[29]Plaintiffs, Outline of the Plaintiffs’ Closing Submissions, 5 August 2016, 1[5] (emphasis original).

The Receivers also rely on cl 5(b) of the Indemnity, which, they say, creates a separate obligation for Gippsreal to pay litigation costs and expenses where the Receivers were requested to defend the claim.[30]
[30]Ibid 4 [10].

The cap

The Receivers further submit that the words ‘reasonable costs and expenses’ in the second sentence of cl 3 of the Indemnity should be read as an overriding provision to the cap stipulated in that clause.[31]
[31]Ibid 2 [6], [8(a)].

The Receivers submit that the cap stipulated in cl 3 of the Indemnity does not apply to bar the full recovery of their professional costs and expenses. It was submitted that the clause only imposes restriction on the ‘monies made available to the Receivers during the receivership’.[32] As no moneys were made available to the Receivers before their retirement, the clause was simply not relevant in the context of recoupment of professional costs.
[32]Ibid 2 [8(b)] (emphasis original).

The Receivers further submit that the application of the cap is subject to the approval by Gippsreal. Gippsreal, by its conduct, it was said, approved the higher costs and expenses incurred by the Receivers. In essence, Gippsreal ‘requested further work be done, knew of the higher costs and acquiesced in and encouraged the incurring of those higher fees without protest’.[33]
[33]Ibid 2 [8(c)].

The Receivers also argue that Gippsreal has waived the cap on the basis that Gippsreal chose not to rely on the cap which was solely for its benefit. In summary, the Receivers submitted that Gippsreal acted on the basis as if the cap did not apply for the following reasons:

(a) It was Gippsreal who requested the Receivers to defend the first proceeding brought by Action Cycles against the Receivers and Gippsreal. In that proceeding, Action Cycles sought, inter alia, a declaration that the appointment of the Receivers was invalid and that the Receivers be restrained from acting upon or giving effect to the purported appointment;

(b) Despite continuous disclosure of costs and expenses provided on request to Mr Morton-Pedersen of Gippsreal, its most senior employee, the Receivers were never told to stop work;

(c) On 10 February 2012, in response to an email from Mr Morton-Pedersen, the Receivers set out their costs and expenses of $209,844.37. This information was conveyed to Mr Morton-Pedersen prior to the mediation of the first proceeding;

(d) The first proceeding brought by Action Cycles settled and the Deed of Settlement was entered into on or about 1 March 2012. The Receivers’ uncapped costs and expenses in the amount of $209,844.37 formed part of the Deed of Settlement and was relied upon by Gippsreal at mediation to calculate the total settlement sum payable by Action Cycles to it.[34]

[34]Ibid 3 [9].

Other avenues to recover costs and expenses by the Receivers

The Receivers submit that they had no viable avenues available to them to recover their costs and expenses incurred for the receivership, pursuant to cl 5(e) of the Indemnity. This submission is contrary to Gippsreal’s claim that the Receivers have not exhausted their potential claims against the Gellies and Pickles Auctions.[35]

The Gellies

[35]Ibid 6 [20].

It was submitted by the Receivers that the Gellies were impecunious and had no assets in respect of which they would be able to claim.[36]
[36]Ibid 6 [21].

Mr Gellie was bankrupted on 18 February 2014. The Receivers acknowledged that there is a parcel of land co-owned by Mr and Mrs Gellie (now by Mr Gellie’s trustee in bankruptcy). However, the Receivers submit that they would not be able to recover any amount from that parcel of land because it was subject to prior encumbrances in favour of the National Australia Bank Limited (NAB) and caveats lodged by a number of other parties. The unsecured interest of the Receivers over the land ranks beneath, at the very least, the NAB.[37]
[37]Ibid 7 [22].

The Receivers submit that the Indemnity does not require them to embark on expensive and speculative litigation to enforce an unsecured costs order against the Gellies.[38]

Pickles Auctions

[38]Ibid 7 [26].

During the course of and subsequent to the receivership, Pickles Auctions was engaged to deal with assets of Action Cycles. The assets retained by Pickles Auctions included bikes and associated parts (‘the assets’), which were valued at $10,250 by the Receivers on the commencement of the receivership in August 2011.[39]
[39]Ibid 8 [31].

The Receivers submit that they had no power or authority to deal with the assets of Action Cycles since their retirement on 28 February 2012.[40]
[40]Ibid 8 [28]-[29].

Not long after the retirement of the Receivers, Action Cycles and its company officers defaulted under the Deed of Settlement dated February 2012 and judgment was entered into in favour of Gippsreal and the Receivers in the amount of $2,336,782.74. This amount included costs and expenses of the Receivers in the amount of $209,844.37.

Following the default, on 20 August 2012, the Receivers wrote a letter to Pickles Auctions advising that Gippsreal retained its security interest in the assets and accordingly, no proceeds of sale of the assets should be distributed in the absence of notice from Gippsreal or the Receivers. Pickles Auctions acknowledged receipt of such instruction. The Receivers say that the fact that Gippsreal has not taken any action after 20 August 2012 to deal with the assets should give rise to an inference that the assets are of negligible value.[41]
[41]Ibid 8 [28].

It was further submitted by the Receivers that it was the former officers of Action Cycles, not the Receivers, who retained Pickles Auctions. Therefore, it is said, the Receivers do not have a viable cause of action against Pickles Auctions and if anyone were to take action, it should be Gippsreal as the secured lender.[42]
[42]Ibid 8 [30].

Equitable lien

The Receivers submit that they are, in the alternative, entitled to an equitable lien over the Cowes property.[43]
[43]Ibid 8 [32].

The Receivers were appointed over the assets and undertaking of Action Cycles, which principally included the Cowes property. It is submitted that the lien arises in this case because firstly, the work of the Receivers was carried out in respect of the Cowes property. Secondly, the work done was in relation to the ‘care, preservation and realisation’ of that property.[44]
[44]Ibid 10 [34]–12[40].

The precise work completed by the Receivers that would give rise to an equitable lien was summarised by the Receivers as follows:

(a) Being appointed to preserve, secure and sell Action Cycles’ assets in circumstances where the borrowers had defaulted and the Gellies were being difficult and were in real financial trouble;

(b) Taking control and possession of Action Cycles’ business and assets, valuing the Cowes property, making arrangements to sell the business and Cowes property by obtaining sale proposals from real estate agents;

(c) Identifying assets and liabilities of Action Cycles;

(d) Protecting the assets by defending the first proceeding brought in this court by Action Cycles’ company officers in which the Receivers were named as parties; and

(e) Communicating and liaising with Mr Morton-Pedersen of Gippsreal, the Action Cycles company officers and their representatives and other third parties concerning the receivership and the proceedings.[45]

[45]Ibid 11 [35].

Gippsreal’s submissions
Contractual claim

Gippsreal submits that conduct of the parties subsequent to the parties entering into the Appointment and the Indemnity should not be considered in ascertaining the meaning of the deeds.[46]
[46]Defendant, Outline of Defendant’s Closing Submissions, 8 August 2016, 3 [9].

In relation to the cap, Gippsreal submits that there is little or no extrinsic evidence that would assist in the interpretation of the deeds. As such, the provisions in the deeds should be construed based on the text of the deeds.[47]
[47]Ibid 4 [14].

In Gippsreal’s submission, there is a cap on the remuneration of the Receivers by operation of clause 3 of the Indemnity and clause 4 of the Appointment. The remuneration of the Receivers should therefore, it is submitted, be limited to the cap.[48]
[48]Ibid 5 [16].

Gippsreal further submits that, by clause 6(a) of the Indemnity, the Receivers’ remuneration is limited to the extent to which the proceeds of sale property of Action Cycles is sufficient to satisfy any amount due.[49]
[49]Ibid 7 [21].

Separately, Gippsreal contends that the Receivers are bound to exhaust all claims they have prior to invoking the Indemnity against Gippsreal. Because the Receivers were in a position to deal with the bicycle assets after 14 March 2012, it is said, and failed to pursue Pickles in respect of their rights over these assets, they have not exhausted all other avenues.[50] In addition, Gippsreal submits that the Receivers had further rights against Mrs Gellie in respect of payment of costs in the second proceeding instigated against them.[51] It follows, on Gippsreal’s submission, that the Receivers were not entitled to claim remuneration from Gippsreal.
[50]Ibid 8 [23].
[51]Ibid 9 [24].

Equitable lien

Gippsreal submits that there is no basis for the Receivers to claim an equitable lien over the land in relation to their claim of remuneration.[52]
[52]Ibid 9 [25].

In Gippsreal’s submission, to establish an equitable lien, it must be unconscientious for a party to assert its strict legal rights against the claiming lienor.[53] Because the parties in this proceeding are sophisticated in commercial dealings, parties are entitled to rely on the deeds voluntarily entered into by the parties where there has not been a variation. Thus, it is said, there is no unconscientious conduct to support the claim of a lien.
[53]Ibid 9 [27].

Gippsreal further submits that a lien for liquidators is limited to remuneration and costs where the work done was for the ‘exclusive purpose of raising the fund’.[54] Gippsreal contends that the vast majority of the work done by the Receivers was not for the exclusive purpose of raising the fund.[55]
[54]Ibid.
[55]Ibid 11 [31].

Gippsreal submits, also, that an equitable lien may exist if the work performed produced an ‘incontrovertible benefit which ultimately enured for the benefit of the secured creditor’.[56] However, Gippsreal argues that such a lien ranks behind a registered mortgagee. The only asset secured by the Receivers was the Cowes property, proceeds of the sale of which were received by Gippsreal in June and July 2016.[57] And because Gippsreal is a registered mortgagee, any equitable lien, if established, would rank behind the interests of Gippsreal.
[56]Ibid 10 [27 (4)].
[57]Ibid 11 [29].

Evidence in the proceeding

Evidence was given by Mr Ross, the first plaintiff in the proceeding, on behalf of the Receivers.

The defendant relied on the evidence of Mr Rickard, the managing director of Gippsreal.

Mr Morton-Pedersen was the lending manager and the most senior employee of Gippsreal. He had been working for Gippsreal for nearly ten years and was primarily responsible for receiving and undertaking due diligence for loan applications and for documenting and handling approved loans.[58] On the evidence, it was Mr Morton-Pedersen who conducted all dealings with the Receivers on behalf of Gippsreal.[59] He was not called to give evidence in the proceeding. Mr Rickard deposed that he had not attempted to contact Mr Morton-Pedersen.[60]

What did Mr Ross say?

[58]Transcript, 27 July 2016, 214.

[59]Ibid 214-17.

[60]Transcript, 27 July 2016, 289.

Mr Ross deposed that individuals in his firm have acted as receivers and managers on a number of matters for Gippsreal prior to the engagement in relation to Action Cycles. In the course of those receiverships, Mr Ross has only dealt with and received instructions from Mr Morton-Pedersen.[61]
[61]Transcript, 8 June 2016, 122.

In relation to the Cowes property, Mr Ross said that the Receivers were involved in obtaining property and market appraisals for the Cowes property from real estate agents.[62] Mr Ross consistently maintained that there were ongoing discussions with Mr Morton-Pedersen in relation to the progress of sale of the Cowes property.
[62]Ibid 128.

During the process of selling the Cowes property, Mr Ross was notified that the former company officers of the Action Cycles intended to bring an application in this court seeking an order that the Receivers cease all activities.[63] Mr Ross deposed that Mr Morton-Pedersen gave instructions to the Receivers to continue to conduct the receivership, which they did.[64]
[63]Ibid 129.
[64]Ibid.

At the time of appointment, Mr Ross said that the receivership was expected to be similar to any other receivership for them to secure and realise the assets, pay out the proceeds to the secured creditor and retire. However, this receivership was ‘very unusual’ according to Mr Ross.[65] The Receivers did not expect to be involved in a ‘long drawn [out] litigation’.[66]
[65]Ibid 133-34.
[66]Ibid 133.

On 24 November 2011, in preparation of the mediation of the first proceeding, the Receivers sent an email attaching an outstanding costs and an estimated future costs to Mr Morton-Pedersen. It was Mr Ross’ evidence that should the proceeding settle, the attachment to the email would, in effect, be the Receivers’ costs and they would retire.[67] Mr Ross recalled that the Receivers tried to keep their role to a minimum, on the advice of counsel.[68]
[67]Ibid 137-38.
[68]Ibid 139.

It was also part of the settlement of the first proceeding that the bikes be released to the former company officers of Action Cycles.[69] Mr Ross said that the Receivers, after they retired, advised the former company officers of Action Cycles of the storage location of the bikes for collection.[70] However, from Mr Ross’ recollection, the bikes were not collected by Action Cycles on or before 14 March 2012 as required by the Deed of Settlement. The bikes were eventually picked up by Pickles Auctions, representing the former company officers of Action Cycles, in mid May 2012.[71]
[69]Ibid 141.
[70]Ibid.
[71]Ibid.

Mr Ross gave evidence that the delay in Action Cycles getting access to the bikes may have contributed to financial difficulties for them to meet the terms of the Deed of Settlement. This issue was also agitated in the second proceeding.[72]
[72]Ibid 144.

Despite the Receivers’ retirement pursuant to the Deed of Settlement, Mr Ross gave evidence that when the second proceeding settled in early August 2012, the Receivers gave instruction to Pickles Auctions via email, which Pickles Auctions apparently followed, not to disburse any proceeds from sale of the assets to any parties without notice from the Receivers or Gippsreal.[73] From February to August 2012, Mr Ross said that the Receivers were not appointed by Gippsreal in any capacity.[74]
[73]Ibid 146.
[74]Ibid 147.

In cross-examination, Mr Ross did not recall any discussions regarding the terms of the Indemnity with any other person prior to executing the Indemnity himself.[75] Mr Ross also could not recall if the Receivers had taken steps towards selling the Cowes property after 2 September 2011.[76]

What did Mr Rickard say?

[75]Ibid 176-77.

[76]Ibid 188.

Mr Rickard, the managing director of Gippsreal Limited, was the only witness called by Gippsreal. His evidence travelled much of the territory to which I have already referred; however, in my opinion, it is instructive to summarise his evidence, notwithstanding the risk of some repetition.

Mr Rickard gave evidence that the Receivers were initially engaged to make some inquiries because Gippsreal was unfamiliar with realising properties where the borrower is a business.[77] The cap was imposed, it was said, because Gippsreal wanted to limit its maximum exposure. In signing the deeds, Mr Rickard was very conscious of the existence of the cap.[78]
[77]Transcript, 27 July 2016, 217.
[78]Ibid 220.

Mr Rickard said that after the legal action between Gippsreal and Action Cycles and the Gellies was resolved in August 2012, Gippsreal attempted to sell the Cowes property by auction prior to Christmas 2012 with no success.[79] Gippsreal was only able to sell the Cowes property after subdivision of the land was completed in 2014, but for significantly less than it was owed; it only received the proceeds in June and July 2016.[80]
[79]Ibid 225.
[80]Ibid 226-27.

On 26 July 2016, Mr Rickard sent an email enclosing a default schedule which set out the calculation of the $2,336,782 amount. The default schedule states that this $2,336,782 amount included the amount of $209,844 which is ‘Receivers and Managers costs incl legal’.[81]
[81]Exhibit P35.

In relation to whether Gippsreal encouraged the Receivers to defend the two proceedings brought by Action Cycles, Mr Rickard said that he did not personally give any encouragement, that it was a decision for the Receivers to make.[82]
[82]Transcript, 27 July 2016, 254.

When asked why Gippsreal included the $209,844 amount in its claim against the borrower but insisted on the cap in relation to the Receivers, Mr Rickard’s evidence was to the effect that Gippsreal was willing to insist upon payment of the full cost and would pay the Receivers the $209,844 amount had the full $2,336,782 amount been paid by the borrowers.[83] However, as I noted above, the borrowers defaulted and did not pay this amount.
[83]Ibid 234-35.

Legal principles
Construction of contract

The approach of the court in a matter such as this requires a construction of the contractual arrangements between the parties.

In National Australia Bank Ltd v John Albert Rose, the Court of Appeal said:

72.This case requires this Court to determine the scope of the cl 28.4(a) obligation. However, it is not to ignore cl 28.5 in doing so. It is well established that the terms of a contract are to be interpreted in the light of the contract as a whole. In Australian Broadcasting Commission v Australasian Performing Right Association Ltd, Gibbs J stated:
It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another.

73.In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd, Barwick CJ stated that in searching for the parties’ contractual intention, ‘no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements.’
74.More recently, in Electricity Generation Corporation v Woodside Energy Ltd, a majority of the High Court stated:
[T]his Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.[84]

[84][2016] VSCA 169 (citations omitted); see also Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99, 109.

Important also to the construction of the contract is the well-established parole evidence rule articulated by Mason J in Codelfa Construction v State Rail Authority of NSW.[85] His Honour said:

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.[86]
[85](1982) 149 CLR 337.
[86]Ibid at 352.

Waiver

It is trite law that where a term in a contract establishes a right which is for the sole benefit of a party, that party is taken to have waived that right if it chooses not to rely on it.[87]
[87]See Sandra Investments Proprietary Limited v Booth (1983) 153 CLR 153; Commonwealth v Verwayen (1990) 170 CLR 394; Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570.

The use, or misuse, of the term ‘waiver’ is subject to much debate.[88] As Mason CJ pointed out in Commonwealth v Verwayen, ‘waiver’ is often used to describe different legal concepts including election and estoppel.[89]
[88](1990) 170 CLR 394, 406-07; see also Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 586-88; Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850.
[89]Commonwealth v Verwayen (1990) 170 CLR 394, 406.

In my opinion, the waiver on which the Receivers seek to rely in this case is more akin to an estoppel.

In Grundt v Great Boulder Pty Gold Mines Ltd, Dixon J described the requirement for the party asserting an estoppel in the following terms:

[The asserting party] must have so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption.[90]

[90](1937) 59 CLR 641, 674.

Dixon J further said:

… [T]he real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it. So long as the assumption is adhered to, the party who altered his situation upon the faith of it cannot complain.[91]

Rule in Jones v Dunkel

[91]Ibid.

Given the decision of the defendant not to call Mr Morton-Pedersen, the rule in Jones v Dunkel warrants serious consideration.

It is well established that where there is an unexplained failure by a party to call a witness who the party is reasonably expected to call, the rule in Jones v Dunkel permits an inference to be drawn that the evidence the uncalled witness would give would not have helped the party.[92]
[92](1959) 101 CLR 298; see also J D Heydon AC, Cross on Evidence (LexisNexis, 10^th ed, 2014) 37-45 [1215].

In drawing such an inference, there must be evidence before the court supporting the inference. Where there is a gap in the evidence, it is not open to the court to draw an inference so as to fill the gap.[93]
[93]Jones v Dunkel (1959) 101 CLR 298, 308, 312, 320-21; O’Donnell v Reichard [1975] VR 916, 929.

Equitable lien

As is identified in Re Universal Distributing Co Ltd (in liq), subject to any agreement, the reasonable costs, expenses and remuneration incurred by a receiver in caring for, preserving and realising the assets of a company will be secured by an equitable lien (sometimes referred to as an ‘equitable charge’) over the funds realised, in priority to those otherwise interested in the fund.[94] An equitable lien can apply in respect of any type of property and it does not depend on contract or possession.[95]
[94](1933) 48 CLR 171 (Universal Distributing); see also, eg, Moodemere Pty Ltd (In liq) v Waters [1988] VR 215 (‘Moodemere’); Thackray v Gunns Plantations Ltd (2011) 85 ACSR 144 (‘Thackray v Gunns’); Re S & D International Pty Ltd (in liq) (rec & mgr apptd) [2009] VSC 225; Stewart v Atco (2014) 252 CLR 307, 320, 325; Re Dungowan Manly Pty Ltd (in liq) (2015) 105 ACSR 648, [85].
[95]See Stewart v Atco (2014) 252 CLR 307.

This principle is sometimes referred to as the ‘salvage’ principle, that ‘those taking the benefit of the [receivership] should not escape bearing the burden of the proper cost of it’.[96]
[96]Shirlaw v Taylor (1991) 31 FCR 222, 230; See also, eg, Thackray v Gunns (2011) ACSR 155.

It should be noted, however, that an actual benefit need not be shown. It is sufficient that a nexus with the salvage objective is demonstrated.[97]
[97]Thackray v Gunns (2011) 85 ACSR 144, 158.

Stewart v Atco is the most recent High Court decision reviewing the principles in Universal Distributing, albeit in the context of a liquidator.[98] After reviewing the principles, the High Court held that:

… [A] secured creditor may not have the benefit of a fund created by a liquidator’s efforts in the winding up without the liquidator’s costs and expenses, including remuneration, of creating that fund being first met. To that end, equity will create a charge over the fund in priority to that of the secured creditor.
The circumstances in which the principle will apply are where: there is an insolvent company in liquidation; the liquidator has incurred expenses and rendered services in the realisation of an asset; the resulting fund is insufficient to meet both the liquidator’s costs and expenses of realisation and the debt due to a secured creditor; and the creditor claims the fund. In these circumstances, it is just that the liquidator be recompensed. To use the language of Deane J in Hewett v Court, it might be said that a secured creditor would be acting unconscientiously in taking the benefit of the liquidator’s work without the liquidator’s expenses being met. However, such a conclusion is avoided by the application of the principle stated in Universal Distributing.[99]

[98](2014) 252 CLR 307.

[99]Stewart v Atco (2014) 252 CLR 307, 320 (footnote omitted).

This case has subsequently been cited in the Victorian Court of Appeal to support the proposition that ‘proceeds recovered are subject to an equitable lien or charge in favour of the liquidators for expenses reasonably incurred in the care, preservation and realisation of [the company’s] property’.[100]
[100]Timbercorp (in liq) v Tones [2015] VSCA 322 [27].

A distinction should also be drawn between general administration costs and the costs of the preservation of property. As Young J said in Commonwealth Bank of Australia v Butterell:

If something falls within the general costs of administration because its sole purpose was not to preserve the property or to realise the property, then the secured creditor takes in priority to the person whose efforts brought about the production of the fund. Thus Dixon J said, in the Universal Distributing case (at 175): ‘I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.’[101]

[101](1994) 35 NSWLR 64, 71.

In Thackray v Gunns, Davis J said, after referring to Universal Distributing:

It is clear on the authorities that the equitable lien will extend only to the receivers’ costs, expenses and remuneration incurred ‘exclusively’ in the care, preservation and realization of the property and assets of the [company] in question. Furthermore, that those costs, expenses and that remuneration must be referrable to the particular scheme against which the claim is made. The lien will not extend to the general receivership costs or costs, expenses and remuneration referable to the care, preservation and realisation of the property and assets of any other scheme or schemes.[102]
…
These cases demonstrate that, as a matter of principle, the fact that the receivers’ remuneration and expenses related to the administration of more than one scheme does not disentitle the receivers from recouping that remuneration or its expenses out of the lienable property of the schemes. However, for that purpose, the receivers must not treat the schemes as a single scheme but must apportion the remuneration and their expenses amongst the various schemes. The evidence was that the receivers have undertaken that task and, where applicable, have used different methodologies for allocation based on particular categories of expenses and remuneration. This evidence is considered below under the heading ‘The Evidence’.[103]

[102]Thackray v Gunns (2011) 85 ACSR 144, 155 [42].

[103]Ibid, [47]. (emphasis added).

In addition, where a receiver is appointed by a creditor, the receiver’s lien is subject to the extent of the interest the person appointing the receiver has in the borrower:

Both a receiver appointed by the Court and (subject to the terms of his appointment) a receiver appointed out of Court have a right to resort for their proper out-of-pocket expenses and remuneration to the proceeds of realisation of the fund that they are required to realise. In either case, it seems, the right may be characterised as a lien on the relevant fund; and it is limited by reference to the interest in the fund that is enjoyed by the beneficiary or beneficiaries for whom the realisation is made or attempted. So, where a receiver is appointed by the Court and is working for the benefit of all who have a legitimate interest in the fund, his lien may be correspondingly more extensive than it is in the case where the receiver is appointed out of Court by an individual creditor whose interest in the fund is limited. It must be appreciated, however, that the limitation is expressed not in terms of the quantum of the individual's debt but in terms of his interest in the fund that affords the security for the debt.[104]

[104]Moodemere [1988] VR 215, 229.

Further, a receiver’s lien, once established, is not lost if the receiver is not in possession of the underlying assets.[105]
[105]Australian Securities and Investments Commission v Lawrenson Light Metal Die Casting Pty Ltd and Anor (1999) 158 FLR 307, 312.

It is important to note, also a legal bedrock, that the doors of equity are not closed. As Spigelman CJ said in Ronald John Dean-Willcocks v Nothintoohard Pty Ltd, equity can intervene where it is unconscientious for a party to assert its strict legal rights.[106] His Honour further said:

Sometimes, unconscientiousness will lead to the legal right being extinguished. More frequently it leads to some qualification of the legal right, relevantly, by insisting upon compensation for the person who has incurred expenditure for the benefit of the person entitled to the right. Factual circumstances so characterised may lead to an equitable estoppel or an equitable lien or the declaration of a constructive trust or some other form of equitable relief. There is no reason why, in an appropriate case, a receiver appointed out of court is not entitled to relief of this character.[107]

[106]Ronald John Dean-Willcocks & Anor v Nothintoohard Pty Ltd & Ors [2006] NSWCA 311 [6].

[107]Ibid [7].

As discussed by Heydon, Leeming and Turner, a party with a legal interest may cede its priority to a party with a subsequent equitable interest in the following circumstances:
(1)where the owner of the legal estate has himself created the subsequent equity by some assurance, declaration of trust or agreement;
(2)where the legal owner fraudulently connives at the creation of the subsequent equity;
(3)where the legal owner failed to get in his title deeds from his conveyor, thereby enabling his vendor to hold himself out to a third party as the legal owner of the land or (at least) as authorised to deal with it; and
(4)where the legal owner has given to another authority to deal with a third party and such authority has been exceeded.[108]
[108]J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths Australia, 5^th ed, 2015) 8-220.
Last but not least, an equitable lien is capable of being modified by agreement. In Moodemere, Murphy J agreed with Tadgell J and held that the indemnity may be subject to agreements made by the receiver:

… [W]here a person duly appointed to realise the assets, the subject of the charge, performs his duty and incurs costs, charges and expenses in the realisation, as well as earning just remuneration, he should be entitled (in the absence of any contrary agreement made by him) to deduct and retain such sums out of the fund realised, whether he is appointed by the court or duly appointed by the debenture holder. He is entitled to do this in priority to payment to the debenture holder from the fund of the debenture debt itself.[109]

[109]Moodemere [1988] VR 215, 222.

Similarly, in Hewett v Court Deane J determined that the equitable lien could be ‘precluded or qualified by express or implied agreement of the parties’.[110]
[110](1983) 149 CLR 639, 663.

Analysis
Contractual claim

It is not disputed that but for the operation of the cap that Gippsreal seeks to rely on, the Receivers are entitled to the fees it claims. This includes the portion of fees that the Receivers claim which were incurred after the retirement of the Receivers.

Clause 2(c) of the Indemnity carves out ‘liability arising out of the remuneration incurred by the Receivers during the course of the appointment’ from the general indemnity clause, cl 1.[111]
[111]Exhibit P5.

A similar exclusion clause exists in the first limb of cl 4 of the Appointment, excluding ‘remuneration or professional fees of the Receivers or the Receivers’ firm, Hall Chadwick’ from Gippsreal’s liability under that clause.[112]
[112]Exhibit P4.

The effect of these clauses is that no clause other than the second limb of cl 4 of the Appointment and cl 3 of the Indemnity deal with Gippsreal’s liability to pay remuneration to the Receivers.

The Receivers contend that cl 5(b) of the Indemnity creates a separate liability for Gippsreal to bear costs incurred by the Receivers in defending the legal claims. In my view, this is correct. Clause 1 of the Indemnity expressly creates a liability for Gippsreal to ‘indemnify the Receivers against liabilities for or arising out of all actions, proceedings, claims, suits and demands …’ (emphasis added).[113] Clause 5(b) creates a separate liability for Gippsreal to pay the Receivers’ remuneration in the circumstances contemplated by that clause. This provision specifically provides for the payment of remuneration of the Receivers in the event that they are required to defend legal claims.
[113]Ibid.

For convenience, the wording of cl 5(b) is extracted again below:

if so requested by the Mortgagee, the Receivers shall (at the expense of the Mortgagee) defend any such claim, and for that purpose shall, if required by the Mortgagee, employ solicitors nominated by the Mortgagee and co-operate fully with the Mortgagee and the nominated solicitors in the conduct of such defence;

It is clear that the language of this clause envisages two separate sources of liabilities, namely, expense for the receivers (their remuneration) to defend claims and the expense incurred by them to employ solicitors nominated by the Mortgagee. In separating these two sources, and in adding the words ‘at the expense of the Mortgagee’ within ‘the Receivers shall defend any such claim’, the effect of this clause must be that the Mortgagee, or Gippsreal, should bear the cost of the remuneration of the Receivers to defend ‘any such claim’.

The remaining question is whether the cap applies in the way Gippsreal claims it does.

The Cap

The principal dispute between the parties is whether the cap is enforceable.

The cap stipulated in cl 4 of the Appointment and cl 3 of the Indemnity is similar and I will consider these together. The wording of these clauses is crucial in ascertaining whether the cap applies in the way Gippsreal says it does.

As is well established, a term of a commercial contract is to be given a construction that is ‘businesslike’. This entails giving words ordinary meanings in a commercial environment.

Terms such as ‘expenses’, ‘charges’, ‘costs’ and ‘remuneration’ are frequently used commercially. The terms ‘expenses’, ‘charges’ and ‘costs’, in a commercial environment, include items such as third party disbursements, administrative costs and other disbursements such as company or title searches. At times, they can also include professional fees and remuneration. However, from the plain and ordinary language of the deeds, it is clear that the parties do not use the terms ‘expenses’, ‘charges’ and ‘costs’ to mean professional fees and remuneration.

Both cl 3 of the Indemnity and cl 4 of the Appointment make a clear distinction between the term ‘remuneration’ and the terms ‘costs and expenses’. The first paragraph of cl 4 of the Appointment deals exclusively with Gippsreal’s obligation to pay the Receivers ‘charges, costs, fees and expenses’. Importantly, this paragraph expressly excludes remuneration. The second paragraph of this clause then goes on to deal with Gippsreal’s obligation to pay remuneration to the Receivers, but with a proviso attached.

The position is similar in cl 3 of the Indemnity. In this clause, it is clear that the first sentence deals with remuneration of the Receivers and the second sentence with ‘costs and expenses’. These terms are used in both cl 3 of the Indemnity and cl 4 of the Appointment.

The clear choice of words in the deeds demonstrates an intention for the two concepts to be separate. Whilst commercially, terms such as ‘expenses’ and ‘fees’ can mean professional fees, in this context, they should be construed as third party professional fees such as professional fees of the lawyers engaged by the Receivers to defend the relevant proceedings, and, in my view, do not include professional fees of the Receivers. Professional fees of the Receivers are described by the word ‘remuneration’ in the deeds.

In my view, read together, these clauses do impose a numerical limit (the cap) on the amount of remuneration the Receivers may claim, but do not qualify the amount of costs and expenses (which does not include the Receivers’ remuneration) the Receivers can claim if they are ‘reasonable’.

From the plain language of the deeds, therefore, the cap limits Gippsreal’s liability to pay remuneration to the Receivers in relation to the receivership to the amount of $15,000 plus GST, provided moneys are available in the Receivers’ hands.

Waiver

It is said that Gippsreal has waived its right to rely on the cap when it encouraged the Receivers to defend the first and second proceedings. This formed the basis of submissions and, therefore underpinned the order sought for a declaration that the Receivers are entitled to a lien over the Cowes property to secure the fees and the costs.

Three elements are critical in assessing Gippsreal’s conduct surrounding the mediation of the first proceeding.

Firstly, it was Gippsreal who requested the Receivers to defend the first proceeding.[114] Although there is no direct evidence as to whether Gippsreal also requested the Receivers to participate in the second proceeding. The second proceeding, being a challenge to the Deed of Settlement in the first proceeding, may arguably present the receivers with a duo purpose of, on the one hand, protecting their own interest in relation to their entitlement to remuneration and, on the other, protecting and preserving Gippsreal’s interest in relation to the relevant assets.
[114]See, eg, Defendant, ‘Defence’, 2 April 2015, [10].

It is noted that the evidence in relation to the remuneration of the Receivers in relation to the second proceeding is less detailed than that in relation to the first.

However, it is a compelling conclusion that Gippsreal benefitted from the Receivers’ participation in the second proceeding, and the second proceeding did result in the care, preservation and ultimate realisation of the assets for Gippsreal. notwithstanding that there may have been some collateral benefit for the Receivers.

Secondly, there was frequent communication between the Receivers and Gippsreal (through Mr Morton-Pedersen) comprising updates of costs and expenses in the course of the receivership and the first proceeding. Gippsreal was therefore well aware of the fees incurred throughout the process, but it never asked the Receivers to stop work in relation to the first proceeding. The evidence in relation to the second proceeding is less clear in terms of updates of the Receivers’ fees to Gippsreal. Indeed, it may be, as I have observed, that the motivation for the Receivers in participating in the second proceeding was, in part, protecting their own interests. I have taken this matter into consideration in the context of my determination concerning the existence of a lien.

Having said this, I make no finding, and it does not form the basis of my decision, that Gippsreal had a positive obligation to direct the Receivers to stop work. In my opinion, it is sufficient that their conduct encouraged and facilitated a certain state of affairs, at least in relation to the first proceeding.

Thirdly, and critically in my opinion, Gippsreal included the full amount of the Receivers’ claimed remuneration in the Deed of Settlement.[115]
[115]Exhibits P14, P16, P17, P18, P19, P21.

In relation to Gippsreal’s inclusion of an amount equivalent to the Receivers’ full remuneration in the Deed of Settlement, the Receivers argue that if the cap was to apply as Gippsreal says, the borrowers should have received some form of benefit in relation to the settlement sum agreed to in the Deed of Settlement under the principle in Boman Irani v St George Bank.[116]
[116]Plaintiffs, Outline of the Plaintiffs’ Closing Submissions, 5 August 2016, 5 [14]; Boman Irani Pty Ltd & Ors v St George Bank Ltd (2008) 22 VR 135 (‘Boman Irani’).

Boman Irani concerns a volume rebate arrangement the bank had with its solicitors. Under this arrangement, the bank was entitled to a rebate based on the amount of fees paid by the bank to the solicitors in the relevant year. However, the bank failed to give credit to debtors for a proportion of the rebate it received. In that case, the Court of Appeal found that the bank had wrongfully charged its debtors by not refunding the appropriate credit back to them.[117]
[117]Boman Irani (2008) 22 VR 135, 147; see also Kermani v Westpac Banking Corporation (2012) 6 VR 130.

In this case, Gippsreal’s inclusion of the full cost to the Receivers in the Deed of Settlement against the borrowers is entirely inconsistent with its purported reliance on the cap as against the Receivers. Had the borrowers complied with the Deed of Settlement, Gippsreal should be prevented from seeking to rely on the cap against the Receivers under the principles of Boman Irani. As Mr Rickard admitted himself, had the borrowers paid the full amount under the Deed of Settlement, Gippsreal was content to forward the relevant amount to the Receivers.[118]
[118]Transcript, 27 July 2016, 235.

However, regardless of whether the borrowers had in fact complied with the Deed of Settlement, Gippsreal’s inclusion of the full cost manifested a clear position that it did not wish to rely on the cap, which is for Gippsreal’s sole benefit, against the Receivers at the time. In my opinion therefore, there is no other conclusion than it is unconscionable for Gippsreal to then seek to rely on the cap at a later point.

During the mediation of the first proceeding, the Receivers updated Gippsreal of the balance of their remuneration frequently, often at the request of Mr Morton-Pedersen.[119] This further reinforces the implication that Gippsreal did not wish to rely on the cap in relation to the Receivers’ remuneration up to the end of the first proceeding.
[119]Exhibit P14, P16, P18.

In my view, therefore, Gippsreal has, by its conduct, waived its entitlement to rely on the cap in relation to the Receivers’ remuneration up to the end of the first proceeding.

Furthermore, with regards to Gippsreal’s relevant conduct, Mr Morton-Pedersen’s evidence would no doubt have been of great assistance going to the heart of the question of the conduct of Gippsreal surrounding the receivership.

As apparent from Mr Ross’ evidence, Mr Morton-Pedersen was the representative of Gippsreal, with whom the Receivers were regularly dealing. Given Mr Morton-Pedersen’s extensive involvement in instructing the Receivers during and after their retirement, it is natural to expect him to be called to give evidence. During the trial, the fact that Mr Morton-Pedersen was not called as a witness was raised multiple times.[120] It was even more curious, and troubling, that Mr Rickard made no efforts to contact him. Mr Rickard’s evidence was that Gippsreal did not consider that Mr Morton-Pedersen was a relevant witness.[121] I disagree.
[120]Transcript, 7 June 2016, 41; Transcript, 27 July 2016, 219.
[121]Transcript, 27 July 2016, 289.

In Wilson Parking Australia 1992 Pty Ltd v Leda Holdings Pty Ltd,[122] the general manager who was actively involved in the process of negotiation of an agreement was not called to give evidence in relation to his knowledge of a key term in the agreement.[123] The court drew an adverse inference for the unexplained failure to call the general manager to give evidence.
[122]Wilson Parking Australia 1992 Pty Ltd v Leda Holdings Pty Ltd and Anor [1996] FCA 982 (13 November 1996).
[123]Ibid.

Given the above and the evidence to which I referred in relation to the conduct surrounding the mediation, a strong negative inference should be drawn under the rule in Jones v Dunkel from the fact that Mr Morton-Pedersen was not called as a witness to give evidence in this proceeding given that he was clearly the representative of Gippsreal in all dealings with the Receivers.

Accordingly it is he, and he alone, who is in a position to give evidence as to the course of dealings between the Receivers and Gippsreal and whether the cap was intended to be relied upon by Gippsreal.

Exhaustion of avenues

Gippsreal contends that an avenue the Receivers could have pursued to obtain funds was from the Gellies.

However, the evidence does not support this proposition.

The only property Mrs Gellie owns is a piece of land she jointly owns with her bankrupt husband in Chum Creek.[124] As shown on the title search, this property is encumbered to the National Australia Bank Limited and is subject to a caveat from Gippsreal as well as a caveat in favour of a large number of partners at Holding Redlich.[125] In any event, as Mr Rickard admitted himself, this property is not of any significant value.[126]
[124]Transcript, 27 July 2016, 281.
[125]Exhibit P25.
[126]Transcript, 27 July 2016, 282.

In fact, Mr Rickard himself formed the view that the Gellies were impecunious and that the only viable option to recover funds from them was from the Cowes property.

In an affidavit Mr Rickard sworn on 17 August 2011, after setting out particulars of a review of Gippsreal’s security position, he concluded that: ‘[f]rom the above analysis it appears that [Action Cycles] is insolvent and Mr & Mrs Gellie impecunious’.[127] Furthermore, in an email from Mr Rickard sent to Mr Ross on 22 May 2013, Mr Rickard stated that ‘Accordingly the only opportunity to recover directly from the borrowers is from realisation of the Cowes property’.[128]
[127]Exhibit P37.
[128]Exhibit P31.

As such, the Gellies cannot be viewed as an alternative avenue for the Receivers to recover their professional fees.

Gippsreal contends, also, that a further alternative avenue for the Receivers to recover funds is from the sale of the bicycles.

Clause 9.4.4 of the Deed of Settlement stipulates that the Receivers were to ‘make available for collection by Action Cycles any property of Action Cycles that they may have in their possession’.[129] If the property was not collected by 14 March 2012, it was deemed to have been abandoned.[130] However, there was some delay in the delivery of the assets and the bicycles were not delivered until May 2012.[131]
[129]Exhibit P20.
[130]Ibid.
[131]Transcript, 8 June 2016, 141.

Following an order made by Croft J in the second proceeding, the Receivers wrote to Pickles Auctions advising them not to release any proceeds of any sale of the bicycle assets without notice from the Receivers or Gippsreal.[132] Mr Ross’ evidence was that the Receivers did not subsequently hear from Pickles Auctions about the bicycles.[133]
[132]Exhibit P29.
[133]Transcript, 8 June 2016, 147.

Given the Receivers had retired at that point, they were not in the position to enforce any rights over the bicycle assets. In any event, as I have observed above, the only offer received for the bicycle assets at the commencement of the receivership was $10,000.

Equitable lien

Having determined that Gippsreal has waived its right to rely on the cap in relation to the Receivers’ remuneration up to the end of the first proceeding, the next question is whether and to what extent the amount the Receivers claim is protected by equitable lien over the Cowes property.

An equitable lien affords priority to the Receivers over the relevant amount claimed in recognition of their efforts in creating the benefit of the fund in the receivership for Gippsreal.[134]
[134]See Stewart v Atco (2014) 252 CLR 307, 320.

In this case, the lien being sought only over the Cowes property, the scope of the lien should prima facie be limited to work related to the Cowes property.

To avoid doubt, it should be noted that the issue of the Receivers’ entitlement to their remuneration and the issue of whether the remuneration is subject to an equitable lien are quite separate. It may well be that whilst the Receivers are entitled to their remuneration, not all of their remuneration takes priority over Gippsreal’s right over the proceeds of the sale of the Cowes property.

The court received a detailed spreadsheet breaking down the fees the Receivers are claiming.[135] Short descriptions of the nature of the work have been given for each item. However, the information in the spreadsheet is insufficient for the court to draw a conclusion on the exact scope of any lien.
[135]Exhibit P1.

The Receivers’ claims can be broken down into three categories, namely, assets related, general administration and litigation.[136]
[136]See Exhibit P1A.

Assets related costs and general administration costs

As I have observed above, although the cap does operate to limit the amount of remuneration the Receivers can claim given the express terms of the deeds, Gippsreal has by its conduct waived the right to rely on the cap.

Prior to the Receivers’ retirement in February 2012, it appears from the evidence that the vast majority of the work performed in this period directly relates to the handling of the assets of Action Cycles. The work included, for example, making inquiries in relation to the relevant property, taking steps to obtain and securing the relevant property.[137] Parties also do not dispute the amounts or the calculation of the claim.[138]
[137]Exhibit P1A.
[138]Transcript, 8 June 2016, 93–97.

Gippsreal referred to Dean-Willcocks v Nothintoohard Pty Ltd (in liq) in its submissions to argue that if the Receivers did not in fact realise the asset, they are not entitled to a lien in priority to Gippsreal.[139] I do not agree with this view.
[139]Defendant, Outline of Defendant’s Closing Submissions, 8 August 2016, 10 [27].

In refusing to recognise the lien in that case, Barrett J said:

It is unnecessary, however, to come to any firm conclusion whether such a claim is properly available as a matter of principle. This is because I am satisfied that none of the outlays to which the plaintiffs point can be said to have protected or preserved the property or enhanced its value in a way that produced ‘incontrovertible benefit’ that ultimately enured to the advantage of the second defendant and the sale it effected. The various items are detailed in Mr Shepard’s affidavit of 30 March 2005. He speaks of attendances upon the third defendant and its solicitors, the obtaining of marketing proposals from estate agents, commissioning of valuations, retaining of selling agents, reporting to Australian Securities and Investments Commission, correspondence about an unregistered strata plan, the obtaining of leasing proposals in relation to a billboard on the property, the obtaining of an environmental report, the obtaining of insurance, the obtaining of advice from a property consultant and a town planning expert, efforts to have chattels removed from the property (which chattels, incidentally, were ultimately removed as a result of proceedings initiated by the second defendant), the service of lapsing notices on a caveator and subsequent proceedings by that caveator seeking extension of the caveat, litigation concerning ownership of certain intellectual property and preparation of a draft contract for sale. All these expenditures were directed simply to putting the plaintiffs in a position where they might sell — which, of course, in the long run they did not do.[140]

[140]Dean-Willcocks & Anor v Nothintoohard Pty Ltd & Ors (in liq) (2005) 53 ACSR 587, 593 [23]. (emphasis added).

However, from the Court of Appeal judgment in that case, it is clear that special circumstances in that case warranted such a finding by His Honour. That is, in that case, there were two secured creditors. The plaintiffs in that case were appointed as receivers by the second ranking creditor. The two secured creditors were pursuing ‘separate paths’ in selling the relevant asset.[141] Eventually, it was the first ranking creditor who sold the relevant asset exercising its own right to sell.[142] Also, because, inter alia, the receivers in that case failed to provide the valuation in time, the first ranking creditor had to appoint a separate agent to sell the relevant property and that agent had to repeat many of the steps already undertaken by the plaintiff. The work done by the receiver in that case was therefore not beneficial to the secured creditor.[143]
[141]Dean-Willcocks & Anor v Nothintoohard Pty Ltd & Ors (in liq) [2006] NSWCA 311, [40].
[142]Ibid [24]-[44].
[143]Ibid [111].

That case should be distinguished from the case before this court. In this case, there is no evidence that Gippsreal needed to repeat the steps the Receivers had taken.

It should be noted also, that in obiter, the High Court in Stewart v Atco rejected ‘incontrovertible benefit’, which has its roots in the law of restitution, as a correct test for the establishment of an equitable lien, albeit in the context of a liquidator:

The decision in Falcke has no bearing on a case involving work undertaken by a liquidator in a winding up. The decision stands for the proposition that a stranger who carries out work or services, or otherwise confers a benefit on another, without a request, actual or implied, to do so, is not entitled to payment or compensation. In similar terms, in Lumbers v W Cook Builders Pty Ltd (In liq), by reference to Falcke, it was said that ‘the bare fact of conferral of [a] benefit or provision of [a] service does not suffice to establish an entitlement to recovery’.
The propositions in Falcke and Lumbers are uncontroversial. In the context of claims for work or labour, they are concerned with whether indebtedness on the part of a person receiving the benefit of the work can arise, absent a request on their part for the work. They have no application to work undertaken in the realisation of assets as part of a liquidator’s statutory duties.[144]

[144]Stewart v Atco (2014) 252 CLR 307, 326-27 (footnotes omitted).

To my mind, the process of realising assets of companies is a continuous one involving numerous steps. Rome was not built in a day. It is unrealistic and uncommercial to look only to the placing of the final brick which completed the city. It is equally unrealistic and uncommercial, in the context of a receivership, to deny all efforts leading up to the eventual realisation of an asset and acknowledge only the last step.

In my view, to the extent it can be shown that steps taken by the Receivers, whilst may not be solely attributable to the actual sale transaction of the Cowes property, are nevertheless reasonable preparatory steps enabling the eventual sale of the Cowes property from which Gippsreal benefitted,[145] then they should be protected by an equitable lien.
[145]See above [82].

For example, in my opinion, the following clearly fall outside of a lien over the proceeds of sale of the Cowes property:

(a) Enquiries made to ascertain the value of the bicycle assets;

(b) Attempts made to sell the business;

(c) Communications in relation to the lease of Action Cycles’ business premises;

(d) Communications in relation to the transfer of the bicycle assets; and

(e) Any actions directed to the preservation of the Receivers entitlement to remuneration or otherwise the protection of their position.

On the other hand, in my view, by way of example, the following clearly should be subject to a lien over the proceeds of sale of the Cowes property:

(a) Ascertaining the value of the Cowes property;

(b) Communication in relation to the sale of the Cowes property; and

(c) Any work carried out in the care, preservation or realisation of the Cowes property.

I note that there may be some work of an overhead nature which may be related to both the Cowes property and other property of Gippsreal. Where possible, apportionment should be made.[146]
[146]Monks v Poynice Pty Ltd (1987) 8 NSWLR 662; see also Thackray v Gunns (2011) 85 ACSR 144, 157.

After the Receivers’ retirement, only two items totalling $172.50 were claimed in relation to the category of ‘assets’. To the extent it can be shown that these items are incurred ‘in caring for, preserving and realising’ the Cowes property, or are reasonable steps towards its realisation from which Gippsreal benefitted, a lien should also be granted over this amount.

Litigation costs

As I observed above, Gippsreal has a separate obligation to remunerate the Receivers in relation to the litigation under cl 5(b) of the Indemnity.

The first proceeding was in relation to the validity of the appointment of the Receivers. Although work performed by the Receivers defending this proceeding may be argued to not be incurred in ‘care, preservation and realisation’ of the Cowes property, had the Receivers not defended that proceeding, Gippsreal may not have obtained any funds at all to satisfy its security. In this sense, Gippsreal did enjoy the benefit of a fund created by the Receivers’ efforts.

The second proceeding was a challenge to the validity of the Deed of Settlement of the first proceeding. Here, again, Gippsreal did benefit from the Receivers’ efforts in defending the proceeding which ensured that Gippsreal retained its interest in the various assets of Action Cycles, including the Cowes property in the end.

To my mind, however, the evidence presented requires further and more detailed analysis. Many of the narrations provided in the spreadsheet are ambiguous. Under the category of ‘litigation’, there are items such as ‘Disc orders with LL’, ‘Discussions with Patrick of Leonard Legal re. outcome’, ‘Meeting with Leonard Legal prior to mediation’ and ‘Telepheon [sic] attendance upon Patrick of Leonard Legal’.

There is little doubt that certain costs associated with the proceedings would properly be the subject of an equitable lien, whether or not the Receivers formally retired prior to incurring the relevant fees. In my view, the Receivers’ fees (their remuneration) that go to the substance of the litigation should be subject to an equitable lien. Items such as ‘Discussion with Pat Dunell regarding the settlement terms’ and ‘Meeting outside of office with LL & Tristan : update on litigation’ fall under this category.

Equally however, some may not. Remuneration incurred in seeking legal advice on the Receivers’ private exposure, rather than the position of the receivership, should not be subject to an equitable lien.

So it falls upon the court, in the appropriate way, to properly and meticulously analyse the individual entries and determine whether they reflect endeavours to care, preserve or realise the fund.

Conclusion

It is clear from my observations in relation to the legal principles to be employed, the facts as presented to the court and the evidence given by the parties that:

(a) The Receivers are entitled to remuneration in the amount (at least) claimed in the Deed of Settlement; and

(b) The extent to which a lien exists in relation to that remuneration requires further consideration; it is not possible, on the evidence before the court, for a determination to be made concerning the precise quantum and character of individual items claimed by the Receivers. This exercise – to be fair and accurate – requires further analysis.

For that reason, I consider it the most appropriate course for the matter to be referred to an Associate Judge for determination of the outstanding amounts properly subject to the lien, which I have found exists.

I will hear the parties on the final form of the orders and the question of costs.

[2016] VSC 753

7 December 2016