Westpoint Corp v Yeo

[2018] VSC 705

57 VR 652

WESTPOINT CORPORATION PTY LTD (in liq) v YEO Supreme Court of VictoriaSloss J 9 April 2018, 16 November 2018[2018] VSC 705Companies — Winding up — Liquidators — Control of liquidators — Court’s statutory jurisdiction to inquire into conduct of liquidators — Application by creditor for inquiry into conduct of liquidators — Corporations Act 2001 (Cth) s 541(1)(b).Companies — External administration — Liquidators — Liquidator’s remuneration — Where liquidator’s remuneration was approved by creditors — Whether court should undertake a review — Corporations Act 2001 (Cth) s 504(1).

Westpoint Finance Pty Ltd (WPF) was part of the Westpoint group of companies (Westpoint Group). The operations of the Westpoint Group included property development and financing. WPF was the entity responsible for the marketing and sale of properties as investments to potential purchasers. It also offered mortgage broking services. The plaintiff, Westpoint Corporation Pty Ltd (WPC), was the major unsecured creditor of WPF (in liquidation), having lodged a proof of debt which was admitted in the amount of $28,663,909. WPC was the main operating company of the Westpoint Group. At all relevant times throughout the liquidation of WPF, there were receivers and managers appointed to WPC (the receivers).

The proceeding concerned the conduct of the liquidators of WPF (Liquidators) and the remuneration claimed by them. The gist of WPC’s complaint was that the Liquidators had failed to properly perform their duties, incurring legal costs of approximately $600,000 and accruing remuneration in excess of $455,000 in pursuit of sales commission of $562,432 (later amended to $739,205) allegedly payable to WPF (real estate commissions). Separate proceedings were commenced and conducted in Victoria, Western Australia and Queensland for the recovery of real estate commissions in circumstances where WPF did not hold a requisite estate agent’s licence and there were statutory provisions in each state prohibiting the recovery or retention of reward in respect of services performed by an unlicensed agent. WPC contended that by the Liquidators pursuing three such claims, the amount available for distribution to creditors of WPF was diminished by approximately $1 million.

WPC also complained about other conduct of the Liquidators, including their conduct in rejecting a proof of debt and in unsuccessfully contesting an appeal in respect of that rejection.

In addition, WPC contended that the information that the Liquidators provided to creditors during the course of the liquidation was insufficient.

With respect to the Liquidators’ remuneration, WPC contended that the remuneration approved and paid to the Liquidators, totaling $1.4 million (plus GST), was disproportionate to the sums recovered by the Liquidators in the winding up.

WPC sought orders that the Court conduct an inquiry into the conduct of the Liquidators pursuant to s 536(1)(b) of the Corporations Act 2001 (Cth)(Corporations Act), and a review of the Liquidators’ previously approved remuneration, pursuant to subsection 504(1) of the Corporations Act.

Section 536(1)(b) of the Corporations Act relevantly provided that, where a complaint was made to the Court by any person with respect to the conduct of a liquidator in

doi: 10.25291/VR/57-VR-65257 VR 653

connection with the performance of his or her duties, the Court might inquire into the matter and take such action as it thought fit. Section 504(1) provided:

Any member or creditor, or the liquidator, may at any time before the deregistration of the company, apply to the Court to review the amount of the remuneration of the liquidator, and the decision of the Court is final and conclusive.

Held, granting WPC’s applications for relief in part and otherwise dismissing the applications:

Inquiry into conduct of liquidators

• (1)

  Section 536 of the Corporations Act conferred powers upon the court of a regulatory nature, exercisable in the public interest to ensure the orderly and efficient conduct of the affairs of a company in liquidation. (a) An application for such an inquiry involved a three-stage process, the first of which required the court to decide whether the inquiry was warranted.

• (b)

  For that purpose, the applicant needed to point to something about the liquidator’s conduct that was a sufficient basis for making an order for inquiry before the court’s discretion was enlivened.

• (c)

  Generally, the court was reluctant to order an inquiry where the subject matter concerned matters of the liquidator’s commercial judgment and the indifference of other creditors to the application was a relevant discretionary factor.

[285]–[287], [301]–[306].

Vink v Tuckwell (2008) 216 FLR 309, 323[82] ; 66 ACSR 30, 43–4[82] applied.Leslie v Hennessy [2001] FCA 371[6]; GIS Electrical Pty Ltd v Melsom (2002) 172 FLR 218, 228[49], 233[66]; Hall v Poolman (2009) 75 NSWLR 99, 119[53], 121[61], 122[66], 123[69], 127[90], 129[100]; BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558, 569-570[41]–[46]; Oswal v Carson (No 3) (2013) 93 ACSR 645, 661[96]–[97] followed.Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434, 438 considered.

• (2)

  Only one aspect of the Liquidators’ conduct provided a sufficient basis for the Court to make an order for an inquiry—namely, continuing to pursue the third proceedings for more than four years following the adverse determination of an earlier similar claim and after rejection of a settlement offer. [317], [326], [329]–[333].

• (3)

  The other conduct of WPC complained did not warrant an inquiry being undertaken or would not be likely to attract disciplinary sanctions or require that supervisory orders be made. [318], [322], [325], [328], [342].

• (4)

  No discretionary matters (either alone or collectively) operated to render the case one that was not appropriate for an inquiry into the Liquidators’ conduct. [343]–[352].

Review of remuneration

• (5)

  The court’s power under s 504 of the Corporations Act was discretionary and involved a two-stage process. The relevant test was whether there was some demonstrated need to inquire into the originally determined quantum. The

57 VR 654

• (5)

  court would pay close attention to a number of factors connected with the task faced by the liquidator. While the liquidator was entitled to reasonable remuneration, the liquidator bore the onus of establishing that the remuneration claimed was fair and reasonable. [358]–[369], [389]–[393].

  Paul's Retail Pty Ltd v Morgan (2009) 76 ACSR 26, 46[79]; Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387[70]; Re Mema Developments Pty Ltd [2011] NSWSC 1340[12]; Re Bestcare Foods Ltd [2014] NSWSC 1630[55]; Re AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270[26]; Sanderson v Sakr (2017) 93 NSWLR 459, 470[54], 471-472[55], [57]–[60], 473[71]; Re Cardinal Project Services Pty Ltd [2017] NSWSC 920[15], [27] followed.
• (6)

  WPC had demonstrated a sufficient basis for the Court to review the quantum of the remuneration paid to the Liquidators for work performed in respect of the three legal proceedings for the recovery of real estate commissions. No wider review of the Liquidators’ remuneration was warranted. The fact that the remuneration in question was earlier approved by creditors did not prevent the Court reviewing the remuneration. This was especially so where it was difficult to characterise the creditors’ approval of the relevant work as being based on ‘informed’ consent on the creditors’ part. [395]–[400].

  Paul's Retail Pty Ltd v Morgan (2009) 76 ACSR 26, 46[76]–[77]; Re Bestcare Foods Ltd [2014] NSWSC 1630[57]–[59] followed.

Application

This was an application by WPC seeking, first, an inquiry into the Liquidators’ conduct and, secondly, a review into the Liquidators’ remuneration. The facts are stated in the judgment.

Reserved judgment.D G Collins QC with B Carew for the plaintiff. P D Corbett QC with E J Batrouney for the defendants. Introduction655Background658Legal proceedings commenced by the Liquidators658The three proceedings seeking recovery of commissions658Correspondence from Clavey Legal in May 2006660The Liquidators join in proceedings commenced by ASIC661The Liquidators commence three proceedings for the recovery of real estate commissions661The proceeding against KIS Realty in Victoria661The proceeding against Primelight in Western Australia664The proceeding against PRD Realty in Queensland666The appeal concerning the KIS Realty proof of debt670The Liquidators' pursuit of a GST refund from the ATO672The uncommercial transactions regarding BAS refunds payable673Other key recoveries and realisations: the mortgage trail book and ongoing trail commissions674Conduct of the liquidation and information provided to creditors67457 VR 655Application for an inquiry into the Liquidators' conduct675Section 536 confers powers of a regulatory nature concerned with the supervision of liquidators675Section 536(1)(b) complaints require a request that the court take steps to rectify or review something that has been done by a liquidator677WPC reformulated its complaint prior to the hearing677An inquiry under s 536 involves a three-stage process680The `first stage' of the process: whether an inquiry into the liquidator's conduct is warranted681The gist of WPC's complaint regarding the Liquidators' pursuit of the three legal proceedings for recovery of real estate commissions683The Liquidators contend that WPC's complaint is one that calls into question their commercial judgments and thus is `wholly unsuitable for an inquiry'686WPC's response686Has WPC demonstrated a sufficient basis for making an order for inquiry?687The complaint concerning the three legal proceedings for recovery of real estate commissions687The complaint concerning the KIS Realty proof of debt issue693Are there other `discretionary matters' that would militate against the Court exercising its discretion to order an inquiry?695Application for a review of the Liquidators' remuneration697Section 504 – relevant principles699A liquidator is entitled to receive `reasonable remuneration'702The Liquidators' remuneration was fixed by resolution of the creditors702WPC's submissions703Submissions made by the Liquidators705Has WPC demonstrated a need to inquire into the appropriateness of the originally determined quantum of the Liquidators' remuneration?705Disposition712SLOSS J

Introduction

1This proceeding, commenced by Westpoint Corporation Pty Ltd (receivers and managers appointed1) (in liquidation) (WPC), concerns the conduct of the liquidators of Westpoint Finance Pty Ltd (WPF or the Company), Messrs Andrew Yeo and Giuseppe Rambaldi (Liquidators), and the remuneration claimed by them.2WPC is the major unsecured creditor of WPF.2 By way of amended originating process filed on 14 February 2017, the receivers of WPC seek orders that 1

Messrs Mark Anthony Korda, David Winterbottom and Oren Zohar, all of the firm of KordaMentha, were appointed as the receivers and managers of WPC (the receivers of WPC). Mr Zohar has since retired as a receiver.

2

WPC lodged a proof of debt which has been admitted in the amount of $28,663,909.

57 VR 656the Court conduct:3

• (a)

  an inquiry into the conduct of the Liquidators, pursuant to s 536 of the Corporations Act 2001 (Cth) (the Corporations Act); and

• (b)

  a review of the Liquidators’ previously approved remuneration, pursuant to s 504 of the Corporations Act.

3In so far as the conduct of the Liquidators is concerned, the gist of WPC’s complaint is that the Liquidators ‘failed to properly perform their duties in incurring legal costs of approximately $600,000, and accruing liquidator’s remuneration in excess of $455,000, ... pursuing [three legal] claims for commission in respect of the sale of real estate’ in circumstances where WPF did not hold the requisite licence and there were statutory provisions prohibiting the recovery or retention for reward in respect of services performed by an agent who did not hold a licence. WPC contends that by pursuing the three legal claims for commissions (totalling $562,432), the amount available for distribution to creditors of WPF was diminished by an amount of approximately $1 million.4As to the complaint concerning the Liquidators’ remuneration, WPC contends that the remuneration approved and paid to the Liquidators thus far, totalling $1,403,305.50 (plus GST) (referable to the period from 27 March 2006 to 2 October 2011), is disproportionate to the sums recovered by the Liquidators in the winding up (as at 24 April 2017, a total of $3,899,726). In essence, WPC seeks a review of the Liquidators’ remuneration referable to the three legal proceedings commenced by them (referred to above) and the remuneration incurred in actively defending an appeal from the Liquidators’ rejection of a proof of debt lodged by KIS Realty Pty Ltd (KIS Realty) (other than work necessary to oppose such an appeal on the grounds that the debt was not secured and that no interest was due on the principal sum claimed).5It should be noted that the Liquidators’ remuneration of $1,403,305.50, which was the subject of successive approvals by creditors of WPF, is not the entirety of the remuneration the Liquidators seek in respect of work performed by them during the liquidation. In a separate proceeding4 that was commenced by the Liquidators on 3 May 2016 (in advance of the present proceeding), they seek approval for their remuneration referable to work performed in the period from 3 October 2011 to 3 May 2015 in an amount of $305,784 (plus GST). The Liquidators have also foreshadowed seeking approval for their remuneration for the period from 4 May 2015 to 15 May 3

Section 536 of the Corporations Act was repealed by item 177 of Sch 2, Pt 2 to the Insolvency Law Reform Act 2016 (Cth). Section 504 was repealed by item 165 of Sch 2, Pt 2 of that same act. Both provisions were replaced by the Insolvency Practice Schedule (Corporations) (Sch 2 of the Corporations Act), commencing 1 September 2017: see ss 90-10 and 90-15. Counsel accepted that ss 504 and 536 remained applicable in this case. That is correct, given that ss 504 and 536 continue to apply as the proceeding was commenced prior to the commencement day: see s 1617 of the Corporations Act.

4

S CI 2016 01627.

57 VR 6572017 in an amount of $336,667 (plus GST).6The hearing of WPC’s applications on 9 April 2018 proceeded against the background of an agreed position reached between the parties to the effect that the Court should determine, on a preliminary basis, whether an inquiry into the Liquidators’ conduct is warranted and also whether the Court should conduct a review of the Liquidators’ remuneration in respect of the period between 26 March 2006 and 2 October 2011. Orders to that effect were made by Sifris J on 8 December 2017.57WPC’s application is supported by three affidavits of Mr Russell Morgan sworn 15 July 2016 (first Morgan Affidavit), 2 September 2016 (second Morgan Affidavit) and 28 March 2018 (third Morgan Affidavit). In turn, the Liquidators rely on three affidavits of Mr Andrew Yeo sworn on 3 May 2016 (first Yeo Affidavit),6 24 April 2017 (second Yeo Affidavit) and 22 March 2018 (third Yeo Affidavit). At the hearing on 9 April 2018, each of these affidavits was taken as read, but as the procedure agreed between the parties required the Court to make a determination on a preliminary basis, none of the deponents was cross-examined.8For the reasons that follow, I have found that:

• (a)

  in respect of WPC’s application made pursuant to s 536(1)(b) of the Corporations Act, the Court will hold an inquiry into the Liquidators’ conduct, confined to their conduct in pursuing the PRD Realty litigation in the Queensland District Court on and from 16 June 20117 through to the settlement reached in late April 2015; and

• (b)

  in respect of WPC’s application made pursuant to s 504(1) of the Corporations Act, the Court will review and consider the reasonableness of the remuneration paid to the Liquidators during the period from 26 March 2006 to 2 October 2011 for work performed in respect of the three legal proceedings for recovery of real estate commissions.

9Otherwise, WPC’s applications for relief pursuant to ss 504(1) and 536(1)(b) of the Corporations Act should be dismissed.5

Order 1 of the orders made by Sifris J on 8 December 2017 provided that: The proceeding be set down for hearing (on an estimate of one day) ... to determine: (a) whether the Court should conduct an inquiry under s 536(1)(b) of the Corporations Act) and, if appropriate, the terms of such an inquiry; and (b) whether the Court should conduct a review pursuant to s 504(1) of the Corporations Act of the remuneration paid to the defendants in respect of the period between 26 March 2006 and 2 October 2011 and, if appropriate, the terms of any such review. At the hearing, the parties referred to the process set out by Barrett J in BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 at [42]–[46] concerning the Court’s jurisdiction to conduct an inquiry under s 536(1)(b).

6

Filed in (related) proceeding S CI 2016 01627.

7

Being the date of the fifth annual meeting of creditors at which Mr Yeo informed creditors to the effect that, following the dismissal of the Company’s claim in the Primelight proceeding on 15 October 2010, and with the recent settlement of the KIS Realty proceeding, he would now seek to negotiate a ‘commercial outcome’ in the PRD Realty proceeding.

57 VR 658

Background

10On 28 February 2006, Andrew Yeo and Giuseppe Rambaldi were appointed as joint and several external administrators of WPF. Mr Yeo deposes that at the second meeting of the Company under administration, held on 27 March 2006, WPF’s creditors voted that the company be wound up in liquidation and that he and Mr Rambaldi be appointed as liquidators.811Mr Yeo deposes that, at the time of their appointment, WPF had the following liabilities to unsecured creditors, totalling approximately $40 million:

• (a)

  a debt in the sum of $28,663,909 to WPC;

• (b)

  a debt in the sum of $8,724,609.91 to QBE Insurance;

• (c)

  a debt in the sum of $1,019,867 to Westpoint Money Management Pty Ltd;

• (d)

  a debt in the sum of $402,425 to Network Company Pty Ltd; and

• (e)

  about $500,000 in other debts to a variety of other creditors.

12Prior to entering into liquidation, WPF was part of the Westpoint group of companies controlled by Mr Norm Carey (Westpoint Group). The operations of the Westpoint Group included property development and financing. WPF was the entity responsible for the marketing and sale of properties as investments to potential purchasers. It also offered mortgage broking services.13The plaintiff, WPC, was the main operating company of the Westpoint Group. As noted above, it was also the major unsecured creditor of WPF, having lodged a proof of debt which has been admitted in the amount of $28,663,909. At all relevant times throughout the liquidation of WPF, the receivers of WPC were represented by an experienced insolvency practitioner from KordaMentha, Mr Russell Morgan.

Legal proceedings commenced by the Liquidators

The three proceedings seeking recovery of commissions

14On 9 May 2007, the Liquidators commenced three proceedings for the recovery of ‘service fees’ or commissions in relation to the sale of real estate allegedly totalling $562,431.82, which they said should have been paid to WPF. The background to the Liquidators bringing those proceedings is described by Mr Yeo at some length in his second affidavit, and summarised 8

In his second Affidavit, Mr Yeo deposes that: ‘On or about 27 March 2006, the creditors of the Company resolved, pursuant to section 439C(c) of the Corporations Act 2001 (Cth) (Act) that the Company be wound up and Mr Rambaldi and I were appointed joint and several liquidators of the Company by Creditors’ Voluntary Liquidation.’ However, this resolution does not appear to be formally recorded in the copy of the minutes of the 27 March 2006 meeting included in the court book.

57 VR 659below.15WPF generated sales of property through wealth creation marketing campaigns that were targeted to the general public. The primary purpose of these campaigns was to identify and source prospective purchasers or investors to whom such real estate could be sold as investments. Neither WPF nor any of its officers or employees held a real estate licence. Rather, its modus operandi was to enter into arrangements with several licensed real estate agents whereby it agreed to perform services for them, including by way of introducing clients to property investment and assisting them by arranging finance as a broker for property purchases. Those licensed real estate agents included KIS Realty in Victoria, PRD Realty Pty Ltd (PRD Realty) in Queensland and PRD Nationwide which operated through Primelight Pty Ltd (Primelight) in Western Australia (together, the licensed entities).16Under the arrangements in place between WPF and each of the licensed entities, the licensed entity was required to collect commissions on the sales of properties and share them with WPF for each sale that WPF had procured. In this way, the licensed entity was effectively required to pay WPF a commission (at times, styled as a ‘service fee’) upon the sale of a property.17Following the demise of the Westpoint Group, the arrangements between WPF and the licensed entities became the subject of litigation. Mr Yeo deposed that ‘[m]ost commission monies on sales ceased being paid to the Company after [his] appointment’ and accordingly, one of the first tasks that the Liquidators gave consideration to was ‘the most efficient and cost effective way of recovering commissions owed to the Company by the licensed entities (and particularly the monies owed by Westpoint Realty9).’ To that end, the Liquidators engaged solicitors, and in due course senior and junior counsel, to assist.18Mr Yeo said that, at the time, he considered any legal action brought to recover outstanding commissions owed to the Company by the licensed entities ‘would be straightforward’, mainly because:

• (a)

  there was no doubt that WPF had provided the services in question to each of the licensed entities and therefore should be recompensed or remunerated for those services;

• (b)

  there was a history of each licensed entity paying commissions to WPF in accordance with the relevant arrangements;

9

‘Westpoint Realty’ was a company within the Westpoint Group, and a holder of a real estate agent’s licence. In the correspondence forwarded to the Liquidators (and described below), the solicitors for Westpoint Realty recorded they were instructed that ‘Westpoint Realty is the holder of a real estate licence and is the only entity legally entitled to receive any property sales commission in regard to [the Grosvenor properties]’. Mark Korda, Oren Zohar and Brian McMaster of KordaMentha were appointed receivers and managers of Westpoint Realty on 20 April 2006. It subsequently went into liquidation at a later date.

57 VR 660

• (c)

  the commission payable by the licensed entities in respect of each sale was payable as 50% on the signing up of a client and the remaining 50% on settlement; and

• (d)

  the outstanding commissions mainly concerned property sales that had not settled as at the date of the Liquidators’ appointment, but had subsequently settled.

19Mr Yeo noted that correspondence sent out by the Liquidators’ solicitors had succeeded in recovering monies totalling $162,918.25, which were being held by the solicitors and quarantined in their trust account.Correspondence from Clavey Legal in May 2006 20On 4 May 2006, the Liquidators were copied in to a facsimile from PRD Nationwide (Primelight) to the receivers and managers of Westpoint Realty. From that correspondence, the Liquidators became aware that Primelight was holding commissions on sales of the ‘Grosvenor properties’ in Western Australia and were informed that Primelight had no intention of paying those monies to any party until the matter of WPF’s share of the commission for these sales had been resolved. Primelight also stated that:10

...

On 1st May ‘06 the attached letter was received demanding payment and threatening legal action.

...

... We would probably not defend any action brought against us unless [WPF] offered to meet the costs of this defence. ...

Your further advice regarding this mischievous threat of legal action would be appreciated so that the funds can rightfully be paid to [WPF] ...

21Mr Yeo said the Liquidators viewed this correspondence as an ‘acknowledgement’ by Primelight that WPF had a claim on these monies.22Three letters from Clavey Legal, the solicitors acting for Westpoint Realty, were included in that facsimile from Primelight. In their letters, Clavey Legal drew attention to the fact that WPF was a finance broker and did not hold a valid real estate sales licence in Western Australia. Clavey Legal pointed out that Westpoint Realty was, at all relevant times, the registered agent under the Real Estate Agents and Brokers Act 1978 (WA) (REBA Act) and, on that basis, they maintained that if sales a commission was paid to an entity who demanded payment in contravention of s 60, Primelight may be seen to be aiding and abetting the commission of the offence provided by the section.10

In a facsimile dated 4 May 2006, Primelight: (a) acknowledged that WPF was appointed as sub–agent to sell the Grosvenor Properties, that the sale of those properties had settled, that Primelight was holding WPF’s share of the commission for these sales and that WPF had a claim on these monies; and (b) stated that Primelight had no intention on paying those monies to any party until the resolution of the issue of which party has entitlement to the monies.

57 VR 661The Liquidators join in proceedings commenced by ASIC 23In early May 2006, the Liquidators took steps to join WPF into proceedings the Australian Securities & Investments Commission (ASIC) had earlier commenced in the Federal Court (No WAD 83 of 2006), as a means of raising WPF’s claims with respect to the commission monies. A notice of appearance was filed, points of claim were drafted and counsel appeared at a number of directions hearings. However, Mr Yeo said that ultimately, after consultation with his lawyers, he ‘decided to extricate the Company from the Federal Court Proceedings and to pursue separate claims against the licensed entities in the state courts’.The Liquidators commence three proceedings for the recovery of real estate commissions 24It was against this background that, on 9 May 2007, the Liquidators commenced three separate proceedings for the recovery of ‘service fees’ or commissions that they alleged the respective licensed entities should have paid to WPF. Those claims can be summarised as follows (collectively referred to in these reasons as the legal proceedings for the recovery of real estate commissions):

Defendant	Jurisdiction	Date commenced	Amount claimed
KIS Realty Pty Ltd	County Court of Victoria	9 May 2007	$188, 864.77
Primelight Pty Ltd	District Court of WA	9 May 2007	$209,742.50
PRD Realty Pty Ltd	District Court of Qld	9 May 2007	$163,824.55
Total $562,431.82

25Initially, the Liquidators engaged Madgwicks, a firm of solicitors based in Melbourne, to deal with the three proceedings, and Madgwicks in turn engaged counsel11 and local agents in Brisbane and Perth to conduct the litigation.26The litigation concerning the recovery of the commissions was pursued, but as is discussed further below, it became protracted and turned out to be a costly and not at all ‘straightforward’ exercise.The proceeding against KIS Realty in Victoria 27KIS Realty was, at all material times, and remains, a company controlled by Mr Carey.1228Following the commencement of the Company’s proceeding in the County Court of Victoria, KIS Realty filed an appearance but then failed to file a 11

Mr Rod Randall of the Victorian Bar.

12

KIS Realty was also a company within the Westpoint Group, that was controlled by Mr Carey.

57 VR 662defence in a timely way. Eventually, a defence dated 19 October 2007 was filed, in which KIS Realty asserted that WPF did not provide the services as alleged in the claim, and that KIS Realty as the licensed agent rather than WPF (which was not a licensed agent) was entitled to the commissions in question. The defence also alleged that WPF was indebted to KIS Realty for the sum of $2,200,000, further particulars of which were to be provided at a later stage. After the defence was filed, a timetable was fixed for the remaining interlocutory steps, and the matter was set down for trial on 7 April 2008.29In March 2008, the trial date was vacated because KIS Realty had sought to file an amended defence and a counterclaim. The County Court then set a new trial date of 18 August 2008. Eventually KIS Realty filed an amended defence (without the foreshadowed counterclaim) dated 11 June 2008 in which it pleaded that the commissions in question were actually earned by KIS Realty and that KIS Realty had a right of set–off against WPF (pursuant to a loan account for monies loaned by KIS Realty to WPF that remained unpaid) in the sum of $2,282,321.75, which was provable as against WPF. Several further trial dates were scheduled and later vacated, and timetables in the proceeding were reset in August 2008, November 2008, February 2009 and May 2009. Mr Yeo deposes that these vacations and adjournments ‘occurred principally because of the failure by KIS Realty to make discovery and to respond to the requests on behalf of the Company to participate in a mediation of the dispute’. A mediation was eventually held on 20 May 2009, but no offers were made and no settlement was reached.30On 3 June 2009, KIS Realty issued a third party notice joining each of the Liquidators personally as third parties to the KIS Realty proceeding. KIS Realty alleged that the Liquidators, by taking possession of the cheques for commission monies and depositing them into a trust account of the firm Madgwicks in March 2006, had converted them. KIS Realty sought to have funds held in Madgwicks’ trust account released to it. In view of the allegations made, the Liquidators instructed new solicitors, Frenkel Partners, to act for them and take over the conduct of the proceeding on behalf of WPF. These events led to the Court again resetting the existing timetable.31Mr Yeo deposes that after consulting with counsel following the unsuccessful mediation, consideration was given to amending the claim ‘to include allegations against Mr Carey that he breached his duties as director by establishing inter-company arrangements that did not comply with the Estate Agents Act 1980 (Vic)’. He said this proposed amendment was primarily based on an advice found in the books and records of WPF from the law firm, Deacons. Deacons had advised Mr Carey about deficiencies with respect to the licensing arrangements in the Westpoint Group structure, which Mr Carey had set up involving KIS Realty and WPF. Subpoenas to produce documents were issued and responded to by Deacons. Following inspection of those documents, and after consultation with counsel and solicitors, the 57 VR 663Liquidators decided to include an alternative claim against Mr Carey in the KIS Realty proceeding.13 Leave to amend was sought and given on 18 May 2010, and a new timetable was set for the filing of further pleadings, further discovery and also refixing the trial date to 15 November 2010.32Later in 2010, the case was further delayed because KIS Realty and Mr Carey issued a summons to vacate the November 2010 trial date, following which the trial date was reset for 24 February 2011.33In February 2011, KIS Realty and Mr Carey issued 11 subpoenas and made a further application to vacate the 24 February 2011 trial date, on the basis that Mr Carey had been denied access to documents he required for the trial, which had been seized by ASIC. That application was granted and the case was listed for a further administrative mention on 8 March 2011.34In the meantime, on Monday 4 October 2010, the trial of the Company’s Primelight proceeding (discussed below) commenced before Judge Wisbey in the District Court of Western Australia. The trial ran for two days and, on 15 October 2010, his Honour delivered judgment, dismissing WPF’s claim.35Against the background of the adverse decision in the Primelight proceeding, the Liquidators, in consultation with their legal team, worked towards preparing a proposed further amended statement of claim in the KIS Realty proceeding to include alternative claims for losses against Mr Carey personally in relation to the commissions that WPF was unable to recover in the Primelight proceeding.36Mr Yeo deposes that the proposed further amended statement of claim was delivered to Mr Carey’s lawyers, but ultimately it was never filed because the KIS Realty proceeding was settled shortly thereafter, with the parties having effectively agreed to split between them the monies held on trust by Madgwicks. Mr Yeo said the decision to settle was driven predominantly by commercial considerations, in circumstances where it was apparent that the trial would be lengthy and expensive. He considered that ‘the settlement of the proceeding on those terms was in the best interests of creditors in order to avoid incurring extensive further legal and other expense in pursuing this claim to trial and beyond’.37Terms of settlement were prepared and executed in May 2011. Consent orders disposing of the KIS Realty proceeding were filed with the Court in June 2011. A cheque in the sum of $106,420.12, being one half of the funds Madgwicks held in their trust account (including the monies deposited there in 2006 and interest accrued thereon), was forwarded to KIS Realty.13

The claim against Mr Carey was based on the following: (a) Mr Carey was advised by Deacons about the compliance issues associated with the real estate agents’ licence; and (b) Mr Carey ignored that advice from Deacons and allowed the Company: (i) to carry out all the work alleged in the pleadings filed in the KIS Realty Proceedings, the PRD Realty Proceedings and the Primelight Proceedings; and (ii) to incur the expense in doing so.

57 VR 664The proceeding against Primelight in Western Australia 38Following the commencement of the Primelight proceeding in the District Court of Western Australia, little progress was made between August 2007 and mid-2009. Mr Yeo deposes that this was primarily due to the fact that, following receipt of the fax from Primelight in May 2006 (containing an ‘acknowledgement’ by Primelight that WPF had a claim on the commission monies resulting from the sales of the ‘Grosvenor properties’), ‘the parties had engaged in without prejudice discussions in an attempt to resolve the dispute’. However, when Primelight filed its defence on or about 5 June 2009, it adopted a different stance. Rather than ‘acknowledging’ WPF’s claim, Primelight pointed to WPF’s failure to hold a real estate agent’s licence and, amongst other things, relied on the relevant provisions of the REBA Act as a bar to WPF’s claim. The Liquidators subsequently moved to have Frenkel Partners replace Madgwicks in the matter, but maintained the same counsel and town agent, ‘in order to maintain continuity of representation in the various proceedings’.39In July and August 2009, which was around the time when the subpoenas to produce documents were issued to Deacons in the KIS Realty proceeding, the Liquidators and their legal team gave consideration as to whether they should seek to join Mr Carey to the Primelight proceeding on the same basis that he was ultimately joined to the KIS Realty proceeding. Ultimately, however, they decided not to do so.40On 26 February 2010, the Primelight proceeding was adjourned to a further directions hearing on 22 March 2010. In the meantime the parties were required to exchange and file written submissions concerning a preliminary issue raised by Primelight as to whether the REBA Act operated as a bar to WPF’s claim. Both parties filed their submissions on 19 March 2010.41The proceeding was listed for a special appointment/pre-trial conference on 17 May 2010. On that day, each party was represented by solicitors and counsel, and the matter proceeded as a mediation. Mr Yeo deposes that ‘[w]hilst the parties explored the issues that would arise at a trial, the dispute over the monies was not resolved’. He said that a few days later, and with assistance from counsel, he made a without prejudice offer to resolve the Primelight proceeding, however, the offer was rejected.42By letter dated 13 July 2010, Primelight’s lawyers wrote to the liquidators of Westpoint Realty inviting them to press their claim against Primelight and/or WPF in relation to the commission monies. This led to Mr Yeo lodging a complaint with the Registrar of the Real Estate and Business Agents Advisory Board about the conduct of Primelight, essentially because the monies the subject of Primelight proceeding were no longer held on trust by Primelight, despite an assurance received from its solicitor on 16 November 2006.57 VR 66543On 30 August 2010, a call-over hearing was held in the District Court at which further orders were made to prepare the case for trial. The next day, 31 August 2010, Primelight’s lawyers sent a letter making a without prejudice offer to settle the proceeding. The offer was considered by the Liquidators, in consultation with their legal team, and consideration was given to putting a counter-offer to Primelight. In a without prejudice letter dated 10 September 2010, the Liquidators rejected the offer made by Primelight and made a counter-offer to settle the proceeding. That offer was not accepted by Primelight and, after further call-overs on 14 and 17 September 2010, the case was set down for trial. In the meantime, Primelight had twice amended its defence in the lead up to trial.44The trial commenced on 4 October 2010 before Judge Wisbey and ran for two days. In essence, WPF contended that s 60 of the REBA Act14 did not operate to prevent WPF recovering the sums it alleged were due to it. Secondly, WPF submitted that even if the Court were to determine that (prima facie) s 60 applied, it did not prevent recovery. This was because, so WPF argued, Primelight would be estopped from alleging that it was entitled to withhold payment, or that it was entitled to rely upon s 60 of the REBA Act to withhold payment. Alternatively, WPF submitted, the gravamen of s 60 was such as not to preclude recovery by it on a restitutionary basis or on a quantum meruit basis.45Primelight rejected WPF’s submissions. In its submissions, counsel for Primelight set out the reasons why it contended that WPF would not be entitled to recover the commissions, and cited the relevant authorities relied on in support of that position.46On 15 October 2010, Judge Wisbey delivered judgment dismissing WPF’s claim against Primelight, on the bases that WPF was unlicensed and that s 60 of the REBA Act precluded its contractual claim.15 His Honour found that s 60 operates ‘not only to invalidate the agency contract, but to preclude absolutely the recovery of any benefit thereunder’.16 Accordingly, he said ‘[t]here is no basis for a restitutionary claim’17 and he found that ‘[i]n the context of the legislation there is no room for the application of estoppel’.1847Notwithstanding the adverse outcome for WPF, Mr Yeo says he ‘remained of the view that [WPF] had provided, at its own expense, the services in 14

Section 60(1)(a) of the REBA Act provides: (1) An agent is not entitled to receive any commission, reward, or other valuable consideration in respect of his services in that capacity unless — (a) he is licensed in that capacity and he holds a current triennial certificate in respect of his licence when he renders the services; and (b) he has a valid appointment to act in that capacity which is in writing signed by the person for whom the services are or are to be rendered or by some other person lawfully authorised to sign on behalf of the person for whom the services are or are to be rendered.

15

Westpoint Finance Pty Ltd (in liq) v Primelight Pty Ltd[2010] WADC 159[25]–[40].

16

Ibid[37].

17

Ibid.

18

Ibid[40].

57 VR 666question to Primelight that generated the property sales which assisted Primelight [to] receive its share of a sale commission from its developer client and therefore the Company was entitled to be remunerated for those services’. However, having considered whether WPF should appeal the decision, the Liquidators ultimately decided against it, essentially because ‘the size of the claim could not justify the further expense that would be required to pursue that matter further through the Western Australian courts’. Mr Yeo said he ‘formed the view that the more cost effective option available to the Company at that time to pursue those monies lost to Primelight, was to claim them against Mr Carey in the KIS Realty Proceeding, which was on foot at that time’.48Thereafter, the parties argued about costs until finally an agreement was reached, on Mr Yeo’s instructions, that the costs payable to Primelight be fixed at $100,000. Orders were made accordingly, by consent, on 11 February 2011.The proceeding against PRD Realty in Queensland 49Following the commencement of the PRD Realty proceeding in the District Court of Queensland, PRD Realty filed and served its notice of intention to defend the claim and its defence on 29 August 2007. PRD Realty’s defence was essentially a bare denial, in which it denied its liability to pay the Company any monies.50As with the Primelight proceeding, the PRD Realty proceeding remained in abeyance for a large period of time throughout 2007 to 2009 whilst the KIS Realty proceeding was being progressed. Meanwhile, in July and August 2009, Mr Yeo retained Frenkel Partners as solicitors to take over the conduct of the matter from Madgwicks, and they continued to use the existing Brisbane town agent in this matter.51By email dated 24 December 2009, PRD Realty made a without prejudice offer to settle the claim by paying WPF a nominal sum inclusive of the claim, interest and costs. Mr Yeo deposes that he ‘decided not to accept the offer because, in addition to the unusual timing of the offer, we had evidence that PRD Realty had paid (prior to our appointment) over half of the commissions in respect of services provided by the Company the subject of the proceeding’. Therefore, he said, after consultation with his lawyers, he instructed them to reject the offer.52Following the outcome of the Primelight Proceeding in Western Australia in October 2010 and the settlement of the KIS Realty Proceeding in Victoria in May 2011, Mr Yeo instructed the Liquidators’ lawyers to engage in without prejudice discussions with PRD Realty’s lawyers in an attempt to resolve the proceeding. As noted earlier, while Mr Yeo remained of the view that WPF should be remunerated for the services it provided, his strategy was ‘to negotiate a commercial settlement of the claim by extracting the best 57 VR 667settlement possible for the benefit of the creditors of the Company’. Further, he says he had communicated this strategy and intention to the receivers and managers of WPC by letter dated 20 July 2011.1953By letter dated 13 September 2011, the Liquidators made a without prejudice offer to PRD Realty’s lawyers, but neither PRD Realty nor its lawyers responded. The Liquidators’ solicitors followed up on the offer between October 2011 and April 2012, but to no avail. Given the lack of a response, the Liquidators instructed their lawyers ‘to re-activate the case for the purposes of bringing about a mediation’. Mr Yeo deposed that he ‘did not want to simply discontinue the claim, particularly given the potential adverse costs consequences to the Company that would be associated with doing so’. In his view, WPF’s claim ‘had value’ because ‘the Company was entitled to be remunerated by PRD Realty for the services it had provided’. He said he believed that mediation was the best forum for promoting a commercially sensible approach to settlement negotiations by both parties and was likely to result in the best possible settlement being achieved for the benefit of the creditors of the Company.54A mediation was conducted on 17 August 2012 by Mr Richard Douglas SC of the Queensland Bar. Mr Yeo attended the mediation on behalf of WPF, along with senior counsel.20 During the mediation, PRD Realty made a settlement offer which was inclusive of the claim, interest and costs. Mr Yeo discussed the matter with counsel and ‘concluded that the matter could be settled for more than that amount, somewhere in the region between $55,000 and the total amount of our claim which was by that stage, according to [his] calculations, in the region of $165,000 for the claim plus $100,000 in interest’. The claim did not settle at the mediation, but Mr Yeo said ‘the discussions were positive and both parties agreed to continue settlement discussions following the mediation’.55Mr Yeo deposed that the main areas of difference between the parties at that point in time were:

(a)which entity within the Westpoint Group was entitled to commissions/remuneration for services, PRD Realty’s apparent concern being that it may be exposed to a claim from Westpoint Realty in respect of the commissions; and

(b) the quantum of commissions payable.

56In those circumstances, and in an attempt ‘to avoid incurring substantial legal costs whilst pursuing a settlement’, Mr Yeo wrote to the liquidator of Westpoint Realty by letter dated 18 September 2012 ‘informing the liquidator of the current status of the PRD Realty proceeding and requesting that 19

This letter is referred to at [174]–[179] below.

20

Mr Leslie Glick QC was engaged as senior counsel. Junior counsel retained in the matter, Mr Rod Randall, had recently been appointed as an Associate Justice of the Supreme Court of Victoria.

57 VR 668he provide a release in order to assist the settlement of the PRD Realty proceeding on the basis that the Company pay a portion or proportion of any settlement monies to Westpoint Realty’. He then instructed his lawyers to prepare a deed of assignment of the chose in action by Westpoint Realty to the Company in respect of any claim Westpoint Realty may have over the commission monies that were the subject of the claim against PRD Realty. The deed of assignment was then executed by the liquidators of Westpoint Realty and forwarded to PRD Realty’s solicitors, Holman Webb.57As no response was forthcoming, the Liquidators’ solicitors contacted PRD Realty’s solicitors in March 2013 to ascertain PRD Realty’s position. What transpired is deposed to by Mr Yeo as follows:

It subsequently emerged (in a discussion between Mr Lambros of Frenkel Partners and Mr Roberts of Holman Webb on 7 March 2013) that whilst PRD Realty was satisfied about the Deed of Assignment executed by Westpoint Realty, it was planning on relying on provisions of the Property Agents and Motor Dealers Act 2000 (Qld) (PAMDA) to defend the Company’s claim. This issue in relation to the PAMDA was not raised in PRD Realty’s pleadings. Accordingly, after consulting my lawyers, I formed the view that PRD Realty had changed its approach and was no longer bona fide in its intentions to try and resolve the matter sensibly at that time, contrary to its position both before and after the mediation in August 2012.

58Further, he said:

At that time in early March 2013, my lawyers and I were unaware that Mr Morgan [of KordaMentha, who was the representative of the receivers and managers of WPC] had had a telephone discussion with Mr Roberts of Holman Webb about the claim in the PRD Realty Proceeding on 5 March 2013, only two days before Mr Lambros’ [of Frenkel Partners] discussion with Mr Roberts. The first time I became aware of this discussion between Mr Morgan and Mr Roberts was in mid–2016 after I read about it in Mr Morgan’s affidavit sworn 15 July 2016 and filed in Victorian Supreme Court proceeding numbered S CI 2016 1627. I was aware that Mr Morgan had spoken to PRD’s lawyers at some point in time before 23 August 2013 because he stated that he had done so in his email to my staff dated 23 August 2013 ... However, at that time in 2013 I was not aware of exactly when that discussion occurred, who it was between or what was discussed.

The Company’s lawyers wrote to Holman Webb under cover of letter dated 19 April 2013 seeking clarification of the position of PRD Realty in relation to the issues it was proposing to rely upon with respect to the PAMDA that were not in the pleadings.

...

In the meantime, the parties continued to engage in without prejudice communications. I continued to believe that I could achieve a better outcome for the Company and its creditors than a walk–away position, particularly given that the Company had the Deed of Assignment from Westpoint Realty. My strategy at that time continued to be to achieve a settlement of the claim before trial with a significant return to the Company and its creditors. I was prepared to accept

57 VR 669

a sensible offer from PRD Realty but there was none forthcoming at that time. I therefore considered ways of strengthening the Company’s claim, using the Deed of Assignment recently obtained from Westpoint Realty, to obtain the best outcome for creditors.

59Against the background of the apparent reversal of position by PRD Realty, and the fact that pursuit of the litigation would likely involve matters of practice and procedure in Queensland, local counsel21 was engaged to assist and advise.60At about this time, Mr Morgan informed one of Mr Yeo’s staff, Ms Elissa Hall, by email dated 23 August 2013, that he had been having discussions with PRD Realty’s lawyers about the claim in the PRD Realty proceeding. In his email, Mr Morgan indicated that he was happy to continue those discussions with them. This notification led to Mr Yeo writing to Mr Korda of KordaMentha in the following week, informing him, amongst other things, ‘about the manner in which [he] preferred Mr Morgan to discuss the claim with PRD Realty’s representatives’. Mr Yeo said that at the request of Mr Morgan, he put on hold the prosecution of the claim in the PRD Realty proceeding pending the outcome of discussions between Mr Morgan’s office and the office of PRD Realty. Those discussions continued throughout the following months in 2013 and Ms Susan Sing from Mr Morgan’s office kept Mr Yeo’s staff and his lawyers in Queensland informed about the status of those discussions.61Arrangements were made for a proposed amended pleading to be prepared by local counsel and once finalised, the application was filed on 1 July 2014. The application was heard by Judge Rackermann on 21 July 2014. His Honour gave the Company leave to amend its claim and set a timetable for filing of the amended claim, defence and any reply throughout the rest of July and into August 2014. However, the issue of joinder of Westpoint Realty to the PRD Realty proceeding was not determined at that time and his Honour listed the case for further directions on 2 September 2014.2262Subsequently, the amended claim was filed and PRD Realty filed a defence. At the further hearing on 8 September 2014, junior counsel appeared on behalf of the Company. Judge Rackermann reserved his decision on both the joinder of Westpoint Realty and whether to grant the Company leave to rely on its amended statement of claim.63On 12 December 2014, his Honour handed down a judgment dismissing the Company’s application for joinder.23 That application was dismissed because his Honour found that the assigned claims were statute-barred and there had been no satisfactory explanation for the delay.24 The deed of 21

Mr Phillip Tucker of the Queensland Bar.

22

Mr Yeo deposes that senior counsel was retained at this point in time on behalf of the Company to assist Mr Tucker.

23

Westpoint Finance Pty Ltd (in liq) v PRD Realty Pty Ltd [2014] QDC 284.

24

Ibid[38]–[48].

57 VR 670assignment had been entered into on 13 January 2013, which was after the limitation period applicable to Westpoint Realty’s claim against PRD Realty had expired.25 Judge Rackermann noted that:

the plaintiff did nothing to join any other party or to amend its pleading until some 7 years after institution of the proceeding.26

64Following delivery of judgment, the Liquidators sought advice about the decision and possible next steps. Thereafter, Mr Yeo instructed the Company’s lawyers to have further discussions with PRD Realty’s lawyers to explore a settlement of the case, and settlement offers were subsequently exchanged between the parties. Mr Yeo deposes that after considering the position in consultation with his lawyers, he ‘instructed them to accept an offer made by PRD Realty to settle the claim for $10,000 inclusive of the claim, interest and costs and the PRD Realty Proceeding was subsequently discontinued on that basis’.

The appeal concerning the KIS Realty proof of debt

65Following their appointment, the Liquidators issued proof of debt forms for completion by WPF’s creditors. In June 2012, approximately one year after the legal proceeding against KIS Realty seeking recovery of real estate commissions had settled, the Liquidators received a formal proof of debt claim dated 20 June 2012 for the sum of $2,282,321.75 from Mr Carey, on behalf of KIS Realty. On 30 June 2012, KIS Realty submitted a revised formal proof of debt to the Liquidators claiming the amount of $5,738,389.21 as a creditor of WPF (the KIS Realty proof of debt).66The Liquidators continued to retain Frenkel Partners, and a new junior counsel was also retained,27 to advise in relation to the KIS Realty proof of debt. Mr Yeo deposes that after consultation with the lawyers, he spoke with Mr Carey about the matter in late 2012, informing him that he had sought legal advice and was likely to reject the proof of debt in due course.67Mr Yeo said the Liquidators deferred formally making a decision about whether to accept or reject the KIS Realty proof of debt, largely because of other more pressing matters. By letter dated 25 May 2015, however, KIS Realty’s lawyers, Metaxas and Hager, wrote to the Liquidators and requested them to make a determination on the proof of debt and inform KIS Realty of the decision. Mr Yeo instructed Frenkel Partners to respond, which they did by letter dated 28 May 2018, confirming that the Liquidators would not make any dividend payments to creditors without giving KIS Realty 7 days’ prior notice.68The KIS Realty proof of debt was rejected by the Liquidators by notice dated 4 June 2015. On 12 June 2015, the Liquidators received correspondence 25

Ibid[43].

26

Ibid[2].

27

Mr Carl Möller of the Victorian Bar.

57 VR 671from KIS Realty’s solicitors notifying them that they would be appealing the decision.69On 18 June 2015, KIS Realty filed an originating process with the Supreme Court of Western Australia,28 seeking orders to extend the time within which it may appeal against the Liquidators’ determination to reject its proof of debt claim.70On 31 August 2015, KIS Realty commenced a further proceeding in the Supreme Court of Western Australia. In this proceeding (numbered COR 215 of 2015), KIS Realty made an application to appeal against the rejection of the KIS Realty proof of debt and sought orders that the Liquidators’ decision to make that rejection be set aside and that its claim be admitted as a secured debt (or alternatively an unsecured debt) for the sum of $5,738,389.21. The Liquidators engaged Gadens Lawyers in Perth to act for them in both of those proceedings.71Mr Yeo deposed that the Liquidators, after consultation with their lawyers, considered that it was in the best interests of creditors to both reject the proof of debt and contest KIS Realty’s appeal. He explained that this was because KIS Realty claimed that it was a secured creditor, which would give it priority over the unsecured creditors. Further, KIS Realty’s claim included about $3.5 million worth of interest that had accrued post appointment, contrary to s 563B of the Corporations Act (interest only being payable after all other creditors receive payment in full). The Liquidators also took the view that the claim had been compromised by the settlement of the KIS Realty proceeding in May/June 2011.72The appeal was listed for hearing on 17 February 2016 in the Supreme Court of Western Australia. On 19 May 2016, Sanderson M handed down his decision,29 allowing KIS Realty’s appeal against the rejection of the proof of debt. Relevantly, the Master accepted KIS Realty’s claim for unpaid ‘Services Fees’ under an agreement entered into between KIS Realty and WPF called the ‘Services Agreement’. The Master upheld KIS Realty’s argument that WPF was estopped from asserting that KIS Realty was not entitled to claim for the recovery of ‘Service Fees’ from WPF, as WPF had previously warranted that it held all necessary licences.30 Furthermore, the Master found that the 28

Proceeding numbered COR 136 of 2015.

29

KIS Realty Pty Ltd (in liq) v Yeo & Rambaldi[2016] WASC 149.

30

Ibid[19]–[21]. WPF and KIS Realty had entered into an agreement whereby KIS Realty granted WPF a licence to act as its authorised agent and to conduct the ‘WPF Business’, which was said to be ‘the business of selling residential/commercial real estate to investors’. As consideration for the agreement, KIS Realty was to receive the ‘Service Fees’ (defined in Sch 2 to the Services Agreement). Clause 4.1 provided that ‘[s]ubject to the provisions of cl 5 and payment of the Service Fee pursuant to cl 3.2, KIS grants WPF a right, title and licence to use the KIS Licence to conduct the KIS Business’. Under cl 8.2 of that agreement, WPF warranted that it had obtained, and would maintain, all necessary licences to conduct the WPF Business. The Liquidators asserted, inter alia, that the contract was illegal as it contravened statutory provisions concerning the transfer of relevant licences. On that basis, the Liquidators claimed that KIS Realty ought not be entitled to the ‘Service Fee’: at [14]–[18].

57 VR 672terms of settlement did not operate to release the claim the subject of KIS Realty’s proof of debt.3173Mr Yeo deposes that the Liquidators, in consultation with the lawyers, considered the prospects of an appeal, but decided that an appeal was not in the best interests of creditors.74On 8 November 2016, Sanderson M delivered a supplementary judgment32 dealing with other outstanding issues, being the existence and amount of the debt claimed by KIS Realty and the right of KIS Realty to claim interest on the debt since the time of appointment of the Liquidators (as administrators). The Master maintained the view that the licence fee claimed by KIS Realty was payable, and therefore the amount claimed by it should be admitted as a proof of debt, but he also accepted the Liquidators’ submission that interest was not payable from the date the Company was placed in administration (and thus the amount of the proof of debt was limited to the service charges with no allowance for interest).75The issue of costs, and which party was obliged to pay them, had not been resolved at the time when Mr Yeo swore his second affidavit in this proceeding. No agreement had been reached between the parties, with each party seeking a costs order in its favour. Following the filing of Mr Yeo’s second and third affidavits, Mr Morgan deposed that the Liquidators were subsequently ordered to pay KIS Realty’s costs of that appeal, including any reserved costs. He says further that the Liquidators paid $19,000 to KIS Realty on or about 14 December 2017, by consent and in settlement of that costs order.76In March 2017, KIS Realty commenced a further proceeding against the Liquidators in the Supreme Court of Western Australia by originating process (numbered COR 55 of 2017), seeking an order for payment of an equalising dividend to KIS Realty in the sum of $42,351.44, to be paid to it from the remaining assets of the Company.

• •

  Attendance upon and correspondence and meetings with solicitors and barristers in relation to commission claims.

• •

  Review discovered documentation in relation to commission claims.

• •

  Attendance at mediation regarding preference payments and commission claims.

  ...

• •

  Attendance upon and correspondence to solicitors in relation to various filings in various matters.

386In like manner, Annexure C to the Liquidators’ report to creditors dated 26 May 2011, headed ‘WIP Analysis for the period 26 July 2010 to 22 May 2011’ and Annexure C to the Liquidators’ report to creditors dated 20 October 2011, headed ‘WIP Analysis for the period 26 July 2010 to 2 October 2011’, provided a similar form of report on the liquidator’s remuneration accrued in respect of each of the legal proceedings for recovery of real estate commissions. In each case, Annexure D to the report provided a summary of the ‘Litigation’ tasks undertaken during the relevant period in relation to ‘commission claims’, as follows:

• (a)

  For the period from 26 July 2010 to 22 May 2011:

  • •

    Attendance upon and correspondence and meetings with solicitors and barristers in relation to commission claims.

  • •

    Review discovered documentation in relation to commission claims.

  • •

    Attendance at mediation regarding commission claims.

    ...

  • •

    Attendance upon and correspondence to solicitors in relation to various filings in various matters.

  • •

    Liaise with solicitors and barristers in relation to Primelight trial.

  • •

    Attendance at Primelight trial in Western Australia.

57 VR 708

• (b)

  for the (expanded) period from 26 July 2010 to 2 October 2011:

  • •

    Attendance upon and correspondence and meetings with solicitors and barristers in relation to commission claims.

  • •

    Review discovered documentation in relation to commission claims.

  • •

    Attendance at mediation regarding commission claims.

    ...

  • •

    Attendance upon and correspondence to solicitors in relation to various filings in various matters.

  • •

    Liaise with solicitors and barristers in relation to Primelight trial.

  • •

    Attendance at Primelight trial in Western Australia.

387The information contained in the annexed summaries was supplemented by, and to be read in the context of, the more detailed information contained in the body of the reports headed ‘Summary of Legal Proceedings’ (referred to in the chronology above).388As will be apparent, the Liquidators’ remuneration in the present case has been charged on a time-cost basis from the outset, at the rates notified to the creditors, and all of the remuneration which WPC now seeks to review is remuneration that was approved by the creditors many years ago. In considering the threshold question of whether the remuneration charged is ‘reasonable’, one issue that arises is whether work undertaken and charged at the standard hourly rates provides the proper measure of ‘reasonable remuneration’.389Time-based charging as a measure of remuneration has long been the subject of criticism, and its shortcomings noted, in many of the decided cases in England and Australia. In the recent case of Sanderson as liquidator of Sakr Nominees Pty Ltd v Sakr,107 much of the debate before the Court of Appeal of New South Wales centred on the respective merits of time-based charging and ad valorem remuneration. In the leading judgment, Bathurst CJ (with whom Beazley P, Gleeson and Barrett JJA and Beach AJA agreed) referred to those oft-cited criticisms of time-based charging, namely that the time spent represents not a measure of value of the services rendered but of the costs of rendering them, and that time spent is only one of a number of factors to be considered, and acknowledged that there is force in them. His Honour then continued, stating:

However, it remains the responsibility of the court to fix reasonable remuneration on the evidence before it, taking into account the matters referred to in s 473(10) [which is the counterpart of s 504(2)108]. That must include, in my opinion, considering the work done by the liquidator, whether it was reasonable to carry

107

(2017) 93 NSWLR 459 (Sakr Nominees).

108

Earlier in his judgment Bathurst CJ had noted ((2017) 93 NSWLR 459, 463[12]): ‘Section 504(2) provides for the same matters to be taken into account as those referred to in s 473(10). Similar provisions are made in respect of the court’s power to fix the remuneration of receivers and administrators (s 425(8) and s 449E(4)). It is well established that the same principles are to be applied in fixing remuneration under each provision: Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545, 553[28]’.

57 VR 709

it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, does not seem to me to be beyond the competence of the Court.

Further, it should not be concluded from what I have written that a time based calculation will always be appropriate. The task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10). Thus for example, the ‘Lodestar’ approach explained by Finkelstein J in Re Korda [; in the matter of Stockford Ltd (2004) 140 FCR 424, 442 ] at [47], may in some circumstances be an appropriate method of undertaking the task: see also Clout [v Stoddart (SE Queensland) Pty Ltd (2016) 115 ACSR 459, 480–1 ] at [134]–[135].109

390In his judgment, Bathurst CJ provided some helpful guidance as to the way in which the court carries out its function of determining what is reasonable remuneration for a liquidator in any particular case. First, noting that the onus is on the liquidator to establish that the remuneration claimed is reasonable, Bathurst CJ said ‘it will be expected that the liquidator in supplying material to enable the Court to assess whether a remuneration claim was reasonable, would supply material by reference to the matters referred to in s 473(10)’ (in these circumstances, s 504(2)).110 Secondly, his Honour agreed that the issue of ‘proportionality’ is, as the Full Court of the Federal Court said in Templeton v ASIC,111 a ‘well-recognised factor’ in considering the question of reasonableness and the matters set out in the statutory provisions such as ss 473(10) and 504(2). He observed that in Templeton, the Full Court:

recognised (at [32]) that the question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness. The court also stated (at [33]), endorsing the observations of McLure JA in [Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) 65 ACSR 521, 533[47]], that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed, stating that that is what is encompassed in assessing the value of the services rendered.112

391Further, his Honour also referred with approval to the observation made by Black J in Re Idylic Solutions Pty Ltd,113 that ‘evidence as to the percentage that remuneration constitutes of realisation, will at least provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect’.114392To these matters, Bathurst CJ added two additional, and important, 109

Sakr Nominees(2017) 93 NSWLR 459, 471–2[59]–[60].

110

(2017) 93 NSWLR 459, 470[54].

111

(2015) 108 ACSR 545 (Templeton).

112

(2017) 93 NSWLR 459, 471[55].

113

(2016) 115 ACSR 581, 598[50].

114

(2017) 93 NSWLR 459, 471[56].

57 VR 710observations:

First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in [Warner, Re GTL Tradeup Pty Ltd (2015) 104 ACSR 633, 653[71]] it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it.

Secondly, there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. Indeed, as was pointed out in Hall v Poolman(2009) 75 NSWLR 99, 134–5[128]–[129] there is a public interest in liquidators bringing recovery proceedings such as proceedings against directors for breach of duty or insolvent trading and proceedings for recovery of unfair preferences. However, the liquidator is obliged to make any decision to bring such proceedings with care, and negligence in the exercise of the power to bring proceedings may lead to a liquidator being deprived of costs: Hall v Poolman at [144]–[145].115

393Each of the other judges agreed with Bathurst CJ’s reasons. Barrett AJA, in doing so, added the following comment, however, thereby reinforcing the notion that in each case what is reasonable remuneration will turn on its particular facts:116

it is, in my view, impossible to say, as a general proposition, that any given basis – whether according to time, value, extent of recoveries, size of company, nature of company or any other factor – merits any claim to precedence over any other in the matter of determination of liquidators’ remuneration.117

394In the context of the present case, WPC points to the Liquidators’ claim for remuneration incurred in relation to the three legal proceedings for the recovery of real estate commissions as one calling for close scrutiny. That is because, as WPC notes, at least $455,000 in liquidator’s remuneration was approved and paid as part of the Liquidators’ pursuit of commissions totalling $562,431.82, with the result that the Liquidators appear to be one of the main beneficiaries of that exercise.395In my view, having reviewed and considered all of the material before the Court, WPC has demonstrated a sufficient basis for the Court to review the quantum of the remuneration paid to the Liquidators for work performed in respect of the three legal proceedings for recovery of real estate commissions. I am not satisfied, however, that any wider review of the Liquidators’ remuneration is warranted.396In the case of the legal proceedings for recovery of real estate commissions, they have been conducted by the Liquidators over a long period of time 115

(2017) 93 NSWLR 459, 471[57]–[58] (emphasis added).

116

Ibid 473[71].

117

Ibid 471–72[59]–[60].

57 VR 711and have incurred significant legal costs, and produced an outcome which Mr Yeo agreed was a ‘disappointing’ one. It is clear that the Liquidators have carried out many hours of work in relation to that litigation over a long period of time. However, what is not made clear in the Liquidators’ reports to date is what tasks were performed by them and their staff and why, in circumstances where much of the legal work and associated tasks were being performed by their respective legal advisers. That is to say, the summary descriptions given in the various reports referred to above do not enable the Court to form any view about whether the (unspecified) work performed by the Liquidators, their partners and staff, was necessary to be undertaken or justified in the sense that the time taken to perform it was proportionate to the difficulty and importance of that task in the context of the respective proceedings. Having said that, however, if the Liquidators can demonstrate that the work carried out by them was necessary or justified, or otherwise reasonable for them to have undertaken in the context of that litigation, then there is no reason why they should not recover reasonable remuneration for undertaking that work.397The fact that the remuneration in question was earlier approved by creditors does not prevent the Court reviewing the remuneration. In that regard, I share the view expressed by Black J in Re Bestcare Foods Ltd, that even where the remuneration has been approved by creditors after inspecting documentation provided by the administrators, that approval does not operate as an absolute bar to review by the court.118 In the present case, and particularly in 2011 following the adverse decision in the Primelight proceeding, it is difficult to characterise the approval given by the creditors to the work done by the Liquidators, and referable to three proceedings, as being based on ‘informed’ consent on their part.398In Paul's Retail Pty Ltd v Morgan, Barrett J in dealing with an application for review of an administrator’s or deed administrator’s remuneration under s 449E said:

although the statute says nothing about the aim of the initial remuneration fixing process, the objective has been accepted by the courts as that of producing a reasonable remuneration. It must follow, in my view, that the aim of the review process is to determine whether the initial fixing process has miscarried, in the sense that the initially fixed remuneration can be seen to be not reasonable remuneration and, if it has, to substitute a reasonable remuneration for that originally fixed. So much was accepted by Bredmeyer M in GIS Electrical Pty Ltd v Melsom[2001] WASC 314 at [68] when he said that a person seeking review must show that the remuneration initially fixed is not fair and reasonable.

The assessment whether the initially fixed sum is fair and reasonable will be made in the light of all relevant circumstances brought to the court’s attention upon the review. These may include circumstances that were not known or foreseen at the time the remuneration was fixed.119

118

[2014] NSWSC 1630[57]–[59].

119

(2009) 76 ACSR 26, 46[76]–[77].

57 VR 712399In the present case, the review to be conducted by the Court is one focussed on the work performed by the Liquidators, their partners and their staff in relation to the proceedings for recovery of real estate commissions during the period from 26 March 2006 to 2 October 2011.400In my view, contrary to the Liquidators’ submission, for the Court to conduct a review of this kind would be consonant with, and not be contrary to, the furtherance of the overarching obligations in the Civil Procedure Act 2010 (Vic). As the Court is satisfied that a basis for review of that discrete component of the Liquidators’ remuneration has been made out, the Liquidators will be required to provide material justifying the reasonableness of the remuneration claimed. As noted above, the aim of the review process will be to determine whether the remuneration that was initially fixed and approved by creditors can be seen to be ‘not reasonable’ remuneration when viewed in the context in which it was incurred.

Disposition

401It follows from the conclusions I have reached that:

• (a)

  in respect of WPC’s application made pursuant to s 536(1)(b) of the Corporations Act, the Court will hold an inquiry into the Liquidators’ conduct, confined to their conduct in pursuing the PRD Realty litigation in the Queensland District Court on and from 16 June 2011 through to the settlement reached in late April 2015; and

• (b)

  in respect of WPC’s application made pursuant to s 504(1) of the Corporations Act, the Court will review and consider the reasonableness of the remuneration paid to the Liquidators during the period from 26 March 2006 to 2 October 2011 for work performed in respect of the three legal proceedings for the recovery of real estate commissions.

402Otherwise, WPC’s applications for relief pursuant to ss 504(1) and 536(1)(b) of the Corporations Act are dismissed. I will hear from the parties on the appropriate form of orders.Solicitors for the plaintiff: Corrs Chambers Westgarth. Solicitors for the first and second defendants: Frenkel Partners. R J BOADLEBARRISTER-AT-LAW