Scott & Scott (No. 2)
[2021] FamCA 50
•17 February 2021
FAMILY COURT OF AUSTRALIA
Scott & Scott (No. 2) [2021] FamCA 50
File number(s): CRC 105 of 2016 Judgment of: AUSTIN J Date of judgment: 17 February 2021 Catchwords: FAMILY LAW – COSTS – COURT-APPOINTED RECEIVERS – Interlocutory Application – Where the applicant seeks an order authorising the use of funds held by a corporate trustee to pay a judgment debt owed to former receivers by the respondents – Where the former receivers were appointed by the Court to manage the property of the respondents – Where the Court lacks power to authorise or direct the use of funds by a corporate trustee to discharge a judgment debt owed personally by the respondents – Application dismissed.
FAMILY LAW – COSTS – COURT-APPOINTED RECEIVERS – Where the applicant seeks an order authorising the use of funds held by a corporate trustee to pay fees and expenses incurred during his receivership – Where the applicant was appointed to specifically manage the property of the corporate trustee – Where the applicant contends he holds an equitable lien over the assets – Where there is no impediment to the applicant’s use of the resources to satisfy approved fees and expenses – Ordered the applicant may recover the sum from the property of the corporate trustee.
FAMILY LAW – COSTS – Where the applicant seeks costs of and incidental to the proceedings – Where there is disagreement over the assessment of those costs – Order made reserving the question of costs for four months.
Cases cited: Harris v Caladine (1991) 172 CLR 84;[1991] HCA 9
Scott & Scott (No.3) [2019] FamCA 936
Scott & Scott [2020] FamCA 414
Number of paragraphs: 44 Date of hearing: 9 February 2021 Place: Newcastle Counsel for the Applicant: Mr Hynes Solicitor for the Applicant: Henry William Lawyers Solicitor for the First Respondent: Litigant in person Counsel for the Second Respondent: Mr Carolan Solicitor for the Second Respondent: Green & McKay ORDERS
CRC 105 of 2016 BETWEEN: MR FELTOS
Applicant
AND: MS SCOTT
First Respondent
MR SCOTT
Second Respondent
ORDER MADE BY:
AUSTIN J
DATE OF ORDER:
17 FEBRUARY 2021
THE COURT ORDERS THAT:
1.The applicant’s fees and expenses incurred in his receivership in the period between 16 June 2020 and 9 November 2020 are assessed at $82,265 (plus GST), which sum may be recovered by the applicant from the property of E Pty Ltd.
2.The applicant’s costs of and incidental to these proceedings are reserved for four months from the date of these orders.
3.Otherwise:
a)The Application in a Case filed by the applicant on 9 November 2020 is dismissed;
b)The Response to an Application in a Case filed by the husband on 18 December 2020 is dismissed; and
c)The Response to an Application in a Case filed by the wife on 22 January 2021 is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Scott & Scott has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN J
On 2 June 2020, orders were made between the respondent spouses for the appointment of receivers to aid the resolution of their corporate affairs and thereby ease the implementation of their binding financial agreement (Scott & Scott [2020] FamCA 414 at [78]–[106]). In earlier proceedings, over the wife’s objection, the financial agreement was found to be binding upon the spouses (Scott & Scott (No.3) [2019] FamCA 936).
Pursuant to the orders made on 2 June 2020, the applicant in these particular proceedings was duly appointed by the spouses as the receiver of the property of E Pty Ltd, a corporation owned and controlled by them.
On 9 November 2020, the applicant filed an Application in a Case seeking various orders affecting the spouses. The Application was returnable before the Court on 30 November 2020 but, at that time, there was some disagreement over the recency of the spouses’ service with the initiating process and so the Application was listed for hearing on 9 February 2021 and procedural orders were made to ensure the readiness of the dispute for hearing.
The husband filed his Response to an Application in a Case on 18 December 2020 and the wife filed her Response to an Application in a Case on 22 January 2021.
The parties’ respective applications evolved prior to and during the hearing on 9 February 2021.
The applicant pressed for orders endorsing his authority to pay out the spouses’ judgment debt to their former receivers (Order 1), approving the amount and payment of a portion of his own costs and disbursements in his receivership (Orders 2(a) and 3), and the payment of his costs of prosecuting this application (Order 6). The remaining applications were abandoned (Orders 2(b), 4 and 5).
The husband consented to some of the applicant’s residual applications (Orders 1, 2(a) and 3), but opposed the application for costs (Order 6). The husband abandoned his application for the proposed supplementary orders (Orders 2–9 in the Response).
The wife opposed all of the relief sought by the applicant. In addition, she sought in her Response: orders extending the applicant’s receivership remit and directing him to discharge his function in certain specific ways (Orders 2 and 3); an order for the spouses to bear the fees and expenses of both the applicant and the former receivers in equal shares, once the binding financial agreement is implemented (Order 4, but compare to Order 6); an order compelling the husband to pay the applicant’s costs of this application (Order 5); an order requiring the husband to indemnify her against the full amount of the applicant’s assessed fees and expenses in his receivership (Order 6, but compare to Order 4); the discharge of a former costs order made against her in the husband’s favour (Order 7); and the retention of her own designate as the accountant for the parties’ self-managed superannuation fund to “assist” the applicant to implement the binding financial agreement (Order 8). The husband opposed the supplementary relief sought by the wife, whereas the applicant was equivocal.
Once the applicant had abandoned his application for an order terminating his receivership, the wife’s application for an order compelling the applicant’s complete compliance with the orders made in June 2020 (Order 1) became otiose.
The evidence
The applicant relied upon:
(a)his affidavit filed on 9 November 2020, the exhibit to which was separately tendered (Exhibit 1); and
(b)the affidavit of his solicitor, Mr Faraday, filed on 4 February 2021, the exhibit to which was separately tendered (Exhibit 2).
The husband relied upon his affidavit filed on 18 December 2020.
The wife relied upon her affidavit filed on 22 January 2021.
None of the parties was required for cross-examination.
Payment of the former receivers
The orders made on 2 June 2020 (Scott & Scott [2020] FamCA 414 at [3]–[50]) rendered the spouses personally liable for the costs and disbursements of their former receivers in the sum of $358,397.60 (inclusive of GST) and charged the debt against the spouses’ real and personal property. While the spouses’ liability for the debt is joint and several, they were ordered to indemnify one another to the extent of one-half of the debt.
The applicant sought an order directing (or at least authorising) him to use E Pty Ltd’s funds to pay the debt owed to the former receivers by the spouses. While the husband agreed, the wife opposed such an order.
The wife’s opposition to such an order was sound because the debt is owed by the spouses personally – not by E Pty Ltd. The applicant’s role under the orders made in June 2020 is limited to bringing in the assets of E Pty Ltd and paying E Pty Ltd’s debts. The applicant’s counsel was eventually impelled to concede the Court has no power to authorise or direct his use of E Pty Ltd’s funds to discharge a judgment debt owed jointly and severally by the spouses. Indeed, the applicant suspected as much, because he deposed:
60.On my review of the June Orders, I am concerned that I may not have the power to pay the Judgment Debt [to the former receivers] from the surplus proceeds from the sale of the Property [held by E Pty Ltd]…
E Pty Ltd is the corporate trustee of two trusts. The spouses are the joint directors of and equal shareholders in E Pty Ltd, but they are not the only beneficiaries of the two trusts. E Pty Ltd only holds the legal title in various assets for the benefit of the trusts. The spouses’ beneficial entitlements to the corpus of the trusts might eventually prove to be largely equivalent when the corpus is finally distributed, but unless their eventual entitlements are exactly equal then the current use of E Pty Ltd’s funds to pay the debt for which they alone are equally liable would not ensure their equal liability for the former receivers’ fees and would distort their ultimate proportional shares of the trusts’ corpus. The applicant realises that to be correct because he deposed to his uncertainty about the spouses’ ultimate shares in these terms:
67.Whilst pursuant to the June Orders, I consider I have the power to pay out the creditors of E Pty Ltd, I do not have the power to make any distribution thereafter. In any event, in circumstances where:
(a)at this stage I am unable to substantiate with source documents the current unitholding of the F Trust and the current beneficiaries of the SFT;
(b)any amounts payable to related party creditors would likely be affected by a determination of this Court in respect of the division of debts and assets between the parties; and
(c)accordingly, I cannot ascertain how the Surplus should be distributed amongst the related party creditors and the beneficiaries of the F Trust and SFT,
I seek that the Surplus be paid into Court.
In order to secure the release of a caveat registered over E Pty Ltd’s parcel of real property and enable its sale to be finalised, the applicant appeased the former receivers with an undertaking to pay their judgment debt, but such private arrangements between the applicant and the former receivers do not affect the determination of the application. An absence of power to make an order cannot be cured consensually (Harris v Caladine (1991) 172 CLR 84 at 133), but in any event, the wife would not consent to the proposed order.
The dismissal of the applicant’s application will likely have immediate consequences for the spouses. If the former receivers’ debt cannot be paid by the applicant from E Pty Ltd’s resources then the debt will likely be enforced, without further delay, by the former receivers against the spouses personally. The wife’s realisation of that eventuality did not engender any separate agreement with the husband and the applicant about how the former receivers might be promptly paid. The order proposed by the wife (Order 4) was not the answer because the former receivers are unlikely to wait until the spouses’ entitlements under the binding financial agreement are finally distributed before they execute their judgment against them. The former receivers are free to execute the judgment whenever they like.
The applicant’s costs and expenses of the receivership
The applicant quantified his costs and disbursements of the receivership for the period between 16 June and 9 November 2020 at $82,265 (plus GST). Neither spouse contested that assessment for the given period.
The husband was content for the debt to be borne equally between the parties (as the orders made in June 2020 provide) and for the debt to be paid from E Pty Ltd’s resources before the spouses’ eventual entitlements under the binding financial agreement are finally settled.
The wife opposed payment of the debt from E Pty Ltd’s resources. She instead proposed that the debt be met from the spouses’ own resources in equal shares (Order 4), though she adduced no evidence and made no submission about when the debt would or could then be paid. Moreover, she sought a contrary order requiring the husband to indemnify her to the full extent of the applicant’s fees and expenses (Order 6).
On 2 June 2020, orders were made to ensure the spouses’ equal liability for the applicant’s fees and disbursements of the receivership. The orders provided:
11.The parties shall be jointly and severally liable to the receiver for his or her professional fees and disbursements and shall pay the receiver’s monthly accounts in equal shares within 14 days of receipt.
12.The parties shall indemnify one another to the extent of one-half of the receiver’s professional fees and disbursements.
The wife’s application to instead impose exclusive liability upon the husband for the payment of the applicant’s costs and expenses (Order 6) would necessarily entail the discharge of those orders. Her reasoning seemed to be simply this: the applicant is needed to receive property as an intermediate step in the progression towards the spouses’ implementation of the binding financial agreement, which was wrongly found to be binding upon the spouses over her objection, and so the husband, who insisted the financial agreement was binding, should now bear the costs incurred to implement it.
Suffice to say, the wife brought no appeal from either the orders characterising the financial agreement as binding (Scott & Scott (No.3) [2019] FamCA 936) or the consequential orders enabling the appointment of the applicant as receiver (Scott & Scott [2020] FamCA 414). The wife cannot belatedly complain about those orders now and so her application to change the spouses’ proportional liability for the applicant’s fees and expenses should be dismissed.
The objective of the orders made in June 2020 imposing equal liability upon the spouses for the applicant’s fees and expenses was to ensure the applicant’s regular interim payment as the work of the receivership progressed. It was common ground in this hearing that the applicant did not render any interim invoices between June and November 2020, at which point the Application in a Case was filed. Up until the hearing in February 2021, the implication arising from the wife’s Response was that she opposed the applicant’s assessment of fees and expenses. Although she conceded the assessment at the hearing, neither she nor the husband said they could or would pay the assessed sum forthwith.
As the spouses were at pains to point out, the applicant’s swift completion of the receivership and the subsequent distribution of their property in accordance with the terms of the binding financial agreement is desirable, but that aim is liable to be frustrated unless the applicant is promptly paid for his work. The applicant understandably wants to be paid for work done. In the absence of any reassurance from the spouses’ about their present capacity to promptly pay the applicant’s fees and expenses then, if also deprived of payment from E Pty Ltd’s resources, the applicant would probably apply afresh for permission to withdraw from the receivership. Neither spouse wants that. In fact, the wife sought an order in her Response compelling the applicant to finish the job (Order 1).
Unlike the former receivers, who were appointed in May 2018 to manage the spouses’ property, the applicant was appointed in June 2020 to specifically manage E Pty Ltd’s property, albeit for the spouses’ ultimate benefit. Since the applicant was appointed as the receiver of E Pty Ltd’s property, there should be no impediment to the applicant’s use of E Pty Ltd’s resources to satisfy its approved fees and expenses. Neither spouse took issue with the applicant’s contention that he enjoys an “equitable lien” over E Pty Ltd’s assets, of which assets he is the receiver.[1]
[1] Applicant’s affidavit filed 9/11/20, para 61
Expansion and direction of the applicant’s duties
The wife applied for orders which:
a)extend the applicant’s role beyond its present limits to additionally require the wind-up of the two trusts administered by E Pty Ltd (Order 2); and
b)extend the applicant’s role even further by requiring him to implement the binding financial agreement between the parties in accordance with the wife’s notion of fairness (Order 3).
The wife advanced no cogent reason why the applicant’s receivership should be extended beyond its current limits, which limits were explained when the orders were made in June 2020 (Scott & Scott [2020] FamCA 414 at [91], [102]–[103] and [105]). The wife was anxious to avoid incurring any unnecessary further expense, but that would surely be caused by the unnecessary expansion of the applicant’s role. Her application for these orders is dismissed. The applicant has not yet finished the work necessary to fulfil his role under the existing orders.
Discharge of the former costs order
On 2 June 2020, an order was made that the wife pay a portion of the husband’s costs of the substantive proceedings concluded in December 2019 in these terms:
5.Order 1 made on 22 August 2019 is discharged and, in lieu thereof, the applicant shall pay the respondent’s party/party costs of and incidental to the proceedings under Part VIIIA of the Family Law Act 1975 (Cth) from 27 May 2019 until 6 December 2019 in the sum agreed or assessed.
Reasons were delivered for the order in the terms it was made (Scott & Scott [2020] FamCA 414 at [51]–[77]) and there was no appeal from it.
The wife sought the discharge of that order (Order 7), but she could not sensibly articulate why. Her application should be dismissed.
Appointment of the wife’s accountant
The wife sought an order (Order 8) to achieve three objectives: first, the “retention” of her chosen accountant as the accountant for the spouses’ self-managed superannuation fund; secondly, that her accountant “assist” the applicant to manage the superannuation fund and implement the binding financial agreement in so far as it affects the spouses’ superannuation interests; and thirdly, to ensure the accountant’s proper remuneration.
The application should be dismissed.
There is no evidence that the wife’s chosen accountant is already retained as the accountant for the self-managed superannuation fund. If he does not already occupy that role, there is no point served by an order for him to “continue in his role”, as the wife proposed.
Even so, the wife’s chosen accountant is unacceptable to the husband, which was the reason why he was previously disqualified from any further involvement in the spouses’ joint financial affairs (Order 6(a)(i) made on 2 June 2020; Scott & Scott [2020] FamCA 414 at [87], [92] and [98]). The spouses’ self-managed superannuation fund is administered by a corporate trustee, of which the spouses are the joint directors and equal shareholders. The husband can lawfully use his corporate power to veto the appointment of the wife’s accountant to provide financial services for the trustee or the superannuation fund.
The wife’s accountant can do nothing at all to “assist” the applicant with management of the superannuation fund or the implementation of the binding financial agreement, since the applicant’s role is confined to calling in the assets and paying the debts of E Pty Ltd. The applicant’s appointment was expressly confined to E Pty Ltd and not extended to any other corporation or property (Scott & Scott [2020] FamCA 414 at [91], [102]–[103] and [105]). He has nothing to do with either the superannuation fund or its corporate trustee.
Since the wife’s accountant has no role to play, there is no need to consider arrangements for his proper remuneration.
The costs of these proceedings
The applicant sought his costs of prosecuting these consequential proceedings, which were estimated at “not more than $45,000”.
The wife did not quibble with the sum. While she initially applied for the husband to meet such costs in their entirety (Order 5), she asserted in submissions the husband should bear two-thirds and she one-third.
The husband objected to the applicant’s assessment and, in any event, asserted the applicant should only partly recover costs because he brought the proceedings prematurely and eventually abandoned some aspects of his application.
The husband asked for the question of costs to be reserved for four months, to which suggestion both the applicant and the wife acceded. An order is made in those terms. Any application in respect of the costs will lapse if not brought within that period.
Conclusion
Otherwise, any outstanding applications are dismissed.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Austin. Associate:
Dated: 17 February 2021
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