Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd

[2009] NSWSC 688

CITATION:	Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd [2009] NSWSC 688
HEARING DATE(S):	29/05/09 Written submissions: 02/07/09
JUDGMENT DATE :	23 July 2009
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	Matters for separate determination determined as stated at paragraph 35.
CATCHWORDS:	CORPORATIONS - winding up - conduct and incidents of winding up - determination of separate questions - liquidator concedes that costs awarded against company in liquidation are expenses with s 556(1)(a) - costs neither agreed nor assessed - whether court should order company in liquidation to pay the costs already ordered to be paid by the company - whether court should order liquidator personally to pay the costs already ordered to be paid by the company
LEGISLATION CITED:	Corporations Act 2001 (Cth), ss 500(3) 536(1), 536(3), 554A, 556(1), 1321(1) Legal Profession Act 2004, s 368(5)
CATEGORY:	Principal judgment
CASES CITED:	Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451 Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139 Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438 Re Universal Distributing Co Ltd [1933] HCA 2; (1933) 48 CLR 171) Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd [2005] NSWSC 989 Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd [2005] NSWSC 1334
PARTIES:	Singleton Earthmoving Equipment Hire Pty Limited - Plaintiff Singleton Earthmoving Pty Limited - First Defendant Stuart Karim Ariff - Second Defendant
FILE NUMBER(S):	SC 5905/07
COUNSEL:	Ms S M Foda - Plaintiff Second Defendant in Person
SOLICITORS:	Moray & Agnew - Plaintiff Second Defendant in Person

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

THURSDAY 23 JULY 2009

5905/07 SINGLETON EARTHMOVING EQUIPMENT HIRE PTY
LIMITED v SINGLETON EARTHMOVING PTY LIMITED & ANOR

JUDGMENT

1 The plaintiff, Singleton Earthmoving Equipment Hire Pty Ltd (“Hire”), sues two defendants. They are Singleton Earthmoving Pty Ltd, a company in liquidation (which I shall call “Singleton”) and its liquidator, Mr Ariff. Hire’s claims are set out in its further further amended originating process filed on 4 August 2008. The claims are expressed to be:

(a) a claim for an order “pursuant to section 536(3) and 1321 of the Corporations Act 2001” that both Singleton and Mr Ariff “answer the following inquiries” (thirteen questions or demands are then set out, designated (a) to (m));
(b) a claim for a declaration that a costs order made in favour of Hire and against Singleton in certain proceedings determined in 2005 “has priority of payment afforded by section 556(1)(a) of the Corporations Act 2001”;
(c) a claim for:
“An order that the First Defendant [Singleton] pay the Plaintiff [Hire] the costs order”.
(d) a claim for an order:
“In the alternative, that the Second Defendant [Mr Ariff] pay the Plaintiff [Hire] the costs order”.
(e) a claim for:
“An order that the Second Defendant [Mr Ariff] appear before the Court to be examined on oath in relation to the matters in sub-paragraphs (a) to (m)” referred to in item (a) above.

2 On 23 March 2009, it was ordered by consent that the claims in prayers 2, 3 and 4 of the further further amended originating process be determined as a separate question and that the separate question be listed for hearing on 29 May 2009. The claims in prayers 2, 3 and 4 are the claims summarised in paragraphs (b), (c) and (d) above.

3 When the hearing of the separate question came before the court on 29 May 2009, Ms Foda of counsel appeared for Hire and Mr Ariff appeared in person. Mr Ariff conceded the matter of central concern to Hire, that is, that, in the winding up of Singleton, costs awarded to Hire and against Singleton in 2005 formed part of what s 556(1)(a) of the Corporations Act 2001 (Cth) describes as:

“expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company's business.”

4 Ms Foda then took me to a large quantity of documentary material by reference to which, it was submitted, the court should conclude that Mr Ariff, as liquidator of Singleton, had wrongly recognised claims as secured by equitable liens on the property of Singleton in the hands of Mr Ariff as liquidator or wrongly recognised claims as within s 556(1)(a) or committed both those errors.

5 Ms Foda also took me to the source of Hire’s entitlement, being an order made by Windeyer J on 16 December 2005 in proceedings 1251/05 between Hire as plaintiff, Singleton as first defendant and Mr Ariff as second defendant:

“First defendant to pay plaintiff’s costs of the proceedings.”

6 Windeyer J said in his judgment of that date (Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd [2005] NSWSC 1334):

“As the plaintiff has succeeded on both claim and cross-claim it should have an order for costs against the first defendant as the liquidator was acting as agent for the company in liquidation and his conduct was not improper. The order for costs should be against the company and not against the liquidator personally.”

7 The 2005 proceedings concerned rights to possession of certain items of earthmoving equipment. Windeyer J determined that Hire had a right to possession superior to that of Singleton in each case: see Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd [2005] NSWSC 989. At the later stage, damages for wrongful detention in the sum of $121,726.33 were awarded to Hire and against Singleton.

8 The costs the subject of the order made by Windeyer J on 16 December 2005 have been neither agreed nor assessed. The point has therefore not been reached where the costs have been quantified; much less has a deemed judgment for a quantified amount of costs arisen under s 368(5) of the Legal Profession Act 2004. It appears from the evidence that Hire “claims costs in the sum of $125,092.37” but such a “claim” is no more than that.

9 It is also relevant to note that the costs order was made after the commencement of the winding up in proceedings that occurred after that commencement. The liability for costs was therefore not provable in the winding up and does not attract the operation of provisions allowing a claim of uncertain amount to be taken into account at an estimated value: see s 554A and Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [67]. Hire’s claim is made on the basis that the costs were “expenses … properly incurred” by Mr Ariff as liquidator within s 556(1)(a). That being so, it is possible to deal with them only on the basis of some appropriately quantified amount.

10 Having obtained Mr Ariff’s concession that the costs awarded by Windeyer J fall within s 556(1)(a) in the winding up of Singleton, Ms Foda was asked what order should be made in these proceedings, assuming that wrong classification of items (see paragraph [4] above) had brought about a result that items standing on lower rungs of the s 556(1) priority ladder (or not reaching even the bottom of those rungs) had been paid without any provision or allowance being made for the costs awarded to Hire and their s 556(1)(a) ranking (and no funds remain in the administration). Her answer was that the court should either:

(a) make orders “clawing back” moneys from the persons to whom payments had been made in respect of lower ranking items; or

(b) order that Mr Ariff personally pay the costs in question – or, as it is put in the further further amended originating process (see item (d) at paragraph [1] above), “that the Second Defendant [Mr Ariff] pay the Plaintiff [Hire] the costs order”.

11 The first of these propositions was advanced by reference to s 500(3) of the Corporations Act:

“The Court may require any contributory, trustee, receiver, banker, agent, officer or employee of the company to pay, deliver, convey, surrender or transfer forthwith or within such time as the Court directs to the liquidator any money, property or books in his, her or its hands to which the company is prima facie entitled.”

12 Ms Foda did not explain how the several recipients of payments made by Mr Ariff as liquidator came within any part of the description “contributory, trustee, receiver, banker, agent, officer or employee of the company”. Nor did she explain how money paid to the various recipients and presumably accepted by them in good faith was money in the recipient’s hands “to which the company is prima facie entitled”.

13 Ms Foda did accept, however, that the court could not properly make an order requiring any such recipient to disgorge money without the recipient having been heard. It is obvious that the present proceedings are not constituted in such a way as to make it possible to make orders against those persons. Nor, of course, is any such claim made in the further further amended originating process or included among the matters for separate determination with which I am now dealing.

14 That leaves Ms Foda’s alternative proposition, that is, that Mr Ariff should be compelled to pay out of his own pocket and direct to Hire the full amount of the costs awarded to Hire in the 2005 proceedings (this is item (d) at paragraph [1] above). By leave, Ms Foda furnished written submissions on that question. These were received on 2 July 2009.

15 An immediate practical problem with the alternative proposition is that, as I have said, the costs have not been agreed or assessed, with the result that no quantified sum is payable to Hire by Singleton. There is accordingly at this stage no liquidated sum that Mr Ariff could be ordered to pay to Hire if Ms Foda’s alternative proposition were otherwise accepted.

16 But there are more fundamental difficulties associated with that alternative proposition. Ms Foda’s submissions identify two provisions of the Corporations Act as supporting the making of the order “that the Second Defendant [Mr Ariff] pay the Plaintiff [Hire] the costs order”. The first is s 1321(1):

“A person aggrieved by any act, omission or decision of:
(a) a person administering a compromise, arrangement or scheme referred to in Part 5.1; or
(b) a receiver, or a receiver and manager, of property of a corporation; or
(c) an administrator of a company; or
(ca) an administrator of a deed of company arrangement executed by a company; or
(d) a liquidator or provisional liquidator of a company;
may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, as the case may be, and make such orders and give such directions as it thinks fit.”

17 The other provision on which reliance is placed is s 536(1):

“Where:
(a) it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:
(i) a requirement of the Court; or
(ii) a requirement of this Act, of the regulations or of the rules; or
(b) a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;
the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.”

18 To the extent that Hire relies on s 1321(1), it must identify a particular “act, omission or decision” of Mr Ariff as liquidator. That is not done with precision in the submissions, although it is tolerably clear that the complaint is about the disbursement of all moneys available in the winding up without making provision or allowance on account of the costs ordered by Windeyer J to be paid by Singleton and, quite possibly, with amounts deserving equal and inferior ranking having been taken into account and paid in full. That, of course, opens up the question whether other claims co-ordinate with (or even superior to) that of Hire might have been inappropriately dealt with – indeed, the possibility that the whole of the financial aspects of the administration might need to be re-assessed.

19 That leads to a consideration of s 536(1). It was said by the Court of Appeal in Hall v Poolman [2009] NSWCA 64; (2009) 71 ACSR 139 at [69] that, where an applicant’s real concern is to have a decision of the liquidator reversed or modified, resort should be had to s 1321(1). The message is that applications under s 1321(1) and s 536(1) are alternatives, with the former apt to correct a particular wrong decision or omission, and the latter appropriate for cases of “liable to attract sanctions or control for what might broadly be described as disciplinary reasons”. These are the words of McLelland J in Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438 quoted by the Court of Appeal in Hall v Poolman (above).

20 There is pending in this court in proceedings 3788/2008 an application by Australian Securities and Investments Commission for a range of orders against Mr Ariff, including an order that the court conduct an inquiry pursuant to s 536 into the conduct of Mr Ariff as liquidator of Singleton. Arrangements have been made for those proceedings to be heard over six weeks from 17 August 2009. At a directions hearing on 1 December 2008, Ms Foda suggested that these present proceedings should be heard by the same judge on the last day of the six week period. That, of course, was before the consent order for separate determination was made on 23 March 2009, but the original proposal no doubt continues to have merit as to the balance of Hire’s claims in these proceedings.

21 In view of what I have just said, I do not consider determination of the separate questions now before me` to be the occasion for any inquiry under s 536. Particularly in light of the involvement of Australian Securities and Investments Commission in the other proceedings, the desirable course is that any s 536 aspect of the present proceedings be dealt with as part of the balance to be addressed at the end of the six week hearing.

22 Reverting, therefore, to the separate determination of the claims referred to in items (b), (c) and (d) at paragraph [1] above and to Hire’s reliance on s 1321(1), the position is that

· Mr Ariff has conceded the entitlement of Hire to a declaration that the costs order obtained by Hire against Singleton “has priority of payment afforded by section 556(1)(a) of the Corporations Act 2001”;

· there is no utility in an order “that [Singleton] pay [Hire] the costs order” since that would do no more than to re-state the costs order itself and this would be pointless; and

· it remains to consider the claim for an order “that [Mr Ariff] pay [Hire] the costs order”.

23 In pursuing Hire’s claim in respect of the costs order, Hire’s solicitors engaged in correspondence with Mr Ariff’s solicitors (and, in the later stages, with Mr Ariff himself) over a long period following the making of the costs order on 16 December 2005. The correspondence referred at several points to recoveries Mr Ariff had achieved for Singleton through settlement of claims made against Bernard Wood and Valda Johnson, who were apparently directors of Singleton. A sum of $85,000 was said to have been received from Wood and a sum of $50,000 from Johnson.

24 Hire’s solicitors maintained (on a basis that does not seem to have been explained) that Hire’s costs order should be satisfied out of these moneys and that the moneys should be set aside and retained in a solicitor’s trust account accordingly – in other words, that those particular moneys in the liquidator’s hands should be earmarked specifically for Hire. Mr Ariff’s position was, however, that he had a lien over the recoveries (apparently on the basis discussed in Re Universal Distributing Co Ltd [1933] HCA 2; (1933) 48 CLR 171) and that the solicitors and counsel who had acted in the litigation against Wood and Johnson had a “fruits of the action” lien (the correspondence mentioned Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451 in that connection).

25 Hire’s solicitors accepted the proposition concerning a “fruits of the action” lien and asked for details of the costs and disbursements of relevant solicitors and counsel.

26 After correspondence extending over more than a year, Mr Ariff informed Hire’s solicitors in September 2007 that the legal fees incurred in the proceedings against Wood and Johnson were $38,292.50 and $35,560.00 respectively. The former does not tally with a document purportedly prepared by Mr Ariff’s firm at some undefined point referring to solicitors’ fees of $35,487.50 and counsel’s fees of $14,025.00 for the Wood litigation (the document does not deal with the Johnson litigation).

27 I pause at this point to make a rough analysis. Assume the following (little of which, I might say, is sufficiently established by the evidence):

1. Hire is entitled to recover $125,092.37 under the costs order made against Singleton (in liquidation).
2. After allowing for liens for legal fees associated with recovery, the net recoveries from Wood and Johnson were $35,487 and $14,440 respectively – a total of $49,927.
3. Other sums received by Mr Ariff as liquidator of Singleton after the making of the costs order were as stated in paragraph 5.5 of the annexure to the affidavit of Mr Tolcher of 23 May 2008 (to be mentioned in greater detail presently), that is, unspecified refunds of $7,403, a Telstra refund of $416 and reimbursements of $65 – a total of $7,884.
4. Hire’s claim of (assumed) $125,092.37 was the only claim entitled to s 556(1)(a) priority.

28 On these assumptions (imperfect as they are), funds of $57,811 would have been available for application in respect of the claim of $125,092.37.

29 I should now refer to the expert report of Mr Tolcher annexed to his affidavit of 23 May 2008. The report refers to the fact that Hire “claims costs in the sum of $125,092.37”. Mr Tolcher appears to take at face value that quantification, for the purposes of his report. It is appropriate to quote the following extract from the report:

“5.1 I have examined documents provided to me which I have assumed are the Liquidators trust account receipts and payments, attached as Annexures ‘C’ and ‘D’ respectively.
5.2 I conclude that following the date costs orders were granted, there was no remuneration paid to the Liquidator. The Administrator’s remuneration was approved by creditors in the sum of $199,294.00. This was paid on 23 December 2004. Mr Ariff had the benefit of a statutory indemnity under section 443D for his Administration remuneration and expenses which survived his appointment as Liquidator.
5.3 The Liquidators summary of receipts and payments appears to include all transactions during the Administration and Liquidation period. Since total receipts equal total payments, I assume that there is now no balance remaining in the Liquidators Trust account.
5.4 From the date of the costs order, payments made from the Liquidators trust account described as legal fees and disbursements totalled $161,595.00.
5.5 From the date of the costs order, receipts to the Liquidators trust account totalled $142,884.00, and were made up of:

$
11 August 2006 Settlement from Johnson	50,000
31 August 2006 Settlement from Wood	85,000
135,000
10 March 2006 to 1 August 2006 GST Refunds	7,403
Telstra Refund	416
Reimbursements	65
Total	142,884

5.6 I do not know why the payments made after the date of the costs did not equal the receipts during the same period, however one explanation might be that there was a balance in the liquidators trust account as at the date of the costs order.
5.7 However I did total the receipts and payments during the period prior to the date of the costs order, and this indicated that there was $309,880 in receipts compared with $338,048 in payments. It is unlikely that the administrators trust account would have been overdrawn at any time, so I assume the difference might relate to the dating of transactions.
5.8 I conclude therefore that the Liquidator applied the funds available in his Liquidators trust account to the payments of his legal fees and disbursements, but not in payment of the costs ordered, and indeed no provision appears ever to have been made for the costs order.
5.9 I note that the Liquidator likely incurred costs and expenses in negotiating the settlements received from Johnston and Wood in September 2006. In my opinion the Liquidator would be entitled to an equitable lien over those settlement proceeds, only in respect of the costs incurred directly in bringing about those settlements. From my review of the legal disbursement accounts provided to me, I am unable to determine which accounts relate to those settlements. I am instructed however that the legal costs associated with those settlements were minimal.
5.10 The balance of funds, after the costs directly relating to the Johnston and Wood settlements, should have been applied in payment of both the Liquidators costs and disbursements and the costs order of these proceedings.
5.11 Subject to the issue raised in relation to a possible equitable lien above, I have calculated that the Plaintiff should have been paid $70,420, as follows:

Available funds after the costs order	x	Costs order
Cost order + Liquidators other disbursements and costs
161,595	x	125,092	=	70,420
161,959 + 125,092	“

30 Mr Tolcher thus concludes – albeit on the basis of imperfect information and certain untested assumptions – that, if Mr Ariff had conducted the administration on the basis Mr Tolcher considers to have been the correct and appropriate basis, $70,420 would have been available towards Hire’s costs entitlement assumed to be $125,092.

31 It is thus clear that, whether one takes the result at paragraph [28] above based on one set of imperfect assumptions or the result reached by Mr Tolcher (based perhaps on a more comprehensive approach but still dependent on imperfect assumptions), a sum substantially less than the assumed entitlement of $125,092 would have been available to be applied towards satisfaction of that entitlement. On the first basis ($57,811), the entitlement would have attracted a payment at the rate of some 46 cents in the dollar. On the second basis ($70,420), the payment would have been of the order of 56 cents in the dollar.

32 Yet Hire asks the court to make an order:

“that the Second Defendant [Mr Ariff] pay the Plaintiff [Hire] the costs order”.

33 This claim is, clearly enough, a claim that Mr Ariff be ordered to pay 100 cents in the dollar of the costs as ultimately assessed, whatever they may be (whether the assumed $125,092 or some other figure). But the plain fact is that Hire has not shown that correction of any failure by Mr Ariff to afford s 556(1)(a) ranking to the liability represented by the costs order or correction of any other errors that Mr Ariff may have made would, in the whole of the circumstances of the winding up, have resulted in a rectified scheme of administration under which all claims enjoying

s 556(1)(a) ranking were satisfied in full (that is, to the extent of 100 cents in the dollar). There are many imponderables, including questions of when moneys became available to the liquidator and when expenses were incurred. Singleton’s winding up commenced in the second half of 2004. The costs order was made in December 2005. Much must have been done by way of collection of assets and incurring of expenses and claims before the liability represented by the costs order emerged. And as I have said more than once, there has still been no quantification of that liability.

34 An order that Mr Ariff pay in full the amount of the costs order obtained by Hire could conceivably be made if several matters were established. One is his misapplication of the order of priorities or some other failure on his part properly and regularly to administer the winding up. Another is that, if the priorities had been properly applied and the winding up had been duly administered, 100 cents in the dollar would have eventuated in respect of all claims enjoying s 556(1)(a) ranking in company with the claim under the costs order obtained by Hire – and that this would have been so after allowing for prior ranking claims, including any the subject of “fruits of the action” liens and any lien of the liquidator. Even apart from the obvious problem arising from lack of quantification of Hire’s entitlement under the costs order, the material before the court and the submissions made in relation to it simply do not show how the court could reach the conclusion thus essential to the particular order sought, that is:

“that the Second Defendant [Mr Ariff] pay the Plaintiff [Hire] the costs order”.

35 In the result, therefore, the matters for separate determination are determined as follows:

Claim in paragraph 2 of the further further amended originating process: Make the declaration sought.

Claim in paragraph 3 of the further further amended originating process: Dismiss the claim.

Claim in paragraph 4 of the further further amended originating process: Dismiss the claim.

36 These results with respect to the claims in paragraphs 3 and 4 of the further further amended originating process do not, of course, imply anything about the propriety and regularity of Mr Ariff’s overall administration as liquidator of Singleton. That is something that may be expected to be examined in the separate proceedings under s 536 initiated by Australian Securities and Investments Commission and the balance of these present proceedings.

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