Scott & Scott (No. 2)

Case [2021] FamCA 50

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…

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Scott & Scott (No. 2) [2021] FamCA 50
Case
[2021] FamCA 50
Decision Date

CaseChat Overview and Summary

In *Scott & Scott (No. 2)*, Austin J of the Family Court of Australia considered applications by an applicant receiver concerning the payment of a judgment debt owed to former receivers and the applicant's own fees and expenses. The dispute involved the use of funds held by a corporate trustee, E Pty Ltd, to satisfy a debt for which the respondents, a married couple, were personally liable. The applicant also sought orders regarding his own costs and the costs of the proceedings.

The court was required to determine whether it had the power to authorise or direct the use of funds held by E Pty Ltd to discharge a judgment debt owed personally by the respondents. Additionally, the court needed to consider the applicant's entitlement to recover his fees and expenses incurred during his receivership from the property of E Pty Ltd, and the assessment of the costs of and incidental to the proceedings.

Austin J reasoned that the court lacked the power to authorise or direct the use of funds held by E Pty Ltd to pay a judgment debt owed personally by the respondents, as the debt was not an obligation of the corporate trustee. The applicant's role was limited to managing E Pty Ltd's assets and paying its debts. However, the court found that the applicant was entitled to recover his approved fees and expenses from the property of E Pty Ltd, as he held an equitable lien over those assets and there was no impediment to him satisfying these approved costs.

The court ordered that the applicant's fees and expenses incurred between 16 June 2020 and 9 November 2020, assessed at $82,265 plus GST, could be recovered from the property of E Pty Ltd. The question of the applicant's costs of and incidental to the proceedings was reserved for four months. Otherwise, the applications filed by the applicant and the respondents were dismissed.

Orders

Orders of the court

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).

Background

Background to the litigation

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Evidence

Evidence Before The Court

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.

Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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