FEDERAL COURT OF AUSTRALIA

Gusdote Pty Limited v North Queensland Land Development Pty Limited (No 5) [2012] FCA 783

THE COURT ORDERS THAT:

1.    The plaintiff’s application for an order that its costs of the proceeding be paid personally by the liquidators of the defendant be dismissed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1    In these reasons, I shall use terms as defined in earlier reasons published by me in this proceeding (see Gusdote Pty Limited v North Queensland Land Development Pty Limited (No 3) [2012] FCA 280 (Gusdote No 3)). I shall also refer to my reasons in Gusdote Pty Limited v North Queensland Land Development Pty Limited (No 2) [2011] FCA 608 (Gusdote No 2) and Gusdote Pty Limited v North Queensland Land Development Pty Limited [2011] FCA 202 (Gusdote No 1). The relevant background is set out in those reasons.

2    Gusdote says that this proceeding is an instance of liquidators litigating a cause for their own personal financial interests. Gusdote contends that, in the proceeding, North Queensland is merely a corporate front for the personal interests of its liquidators (the Liquidators). Gusdote therefore now asks the Court to make an order that the Liquidators personally pay its costs of and incidental to the proceeding, but without prejudice to any right of indemnity that the Liquidators may have from and out of the assets of North Queensland.

3    Under s 545 of the Corporations Act, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property. Under s 545(2), the Court may, on the application of a creditor or a contributory, direct a liquidator to incur a particular expense on condition that the creditor or contributory indemnifies the liquidator in respect of the recovery of the amount expended and, if the Court so directs, gives security to secure the amount of the indemnity as the Court thinks reasonable.

4    It appears that the Liquidators have no funds available to them in the winding up of North Queensland. Nevertheless, they chose to contest the claims made by Gusdote in the proceeding. Gusdote asserts that that course was chosen not for the benefit of the unsecured creditors of North Queensland, but because it was in the personal interest of the Liquidators. For that reason, it says, the Liquidators should be ordered to pay Gusdote’s costs of the proceeding personally.

5    Prior to the commencement of the proceeding, the Liquidators asserted that North Queensland had no obligation to transfer the Disputed Parcel to Gusdote. They asserted that Gusdote was simply entitled to prove as an unsecured creditor in the winding up of North Queensland, ranking behind all other unsecured creditors. In the defence filed in the proceeding, which was prepared by counsel and solicitors on instructions of the Liquidators, the position was maintained that North Queensland had no obligation to transfer the Disputed Parcel to Gusdote.

6    On 30 May 2011, in the course of oral argument, the position that North Queensland had no obligation to cause title to the Disputed Parcel to be transferred to Gusdote was abandoned. North Queensland asserted that it was entitled to a lien over the Disputed Parcel for costs and expenses incurred by it in holding the Disputed Parcel. No effort had been made to identify or quantify the costs and expenses that it was claimed had been expended in preserving or maintaining the Disputed Parcel, so as to give rise to such a lien.

7    On 30 May 2011, the Court made an order for the taking of accounts, thereby giving the Liquidators an opportunity to identify the costs and expenses claimed to have been incurred by North Queensland in holding the Disputed Parcel. The account was to be taken as between trustee and beneficiary, in order to quantify the costs and expenses properly incurred in the execution of the trust.

8    The Liquidators produced a statement of receipts and payments (the Statement). The Statement was said to relate to all benefits received by North Queensland and all outgoings and expenses incurred or paid by North Queensland in connection with the acquisition and holding of the Disputed Parcel. It included all costs and expenses of the liquidation of North Queensland. The Statement asserted that there was a net balance payable by Gusdote to North Queensland of some $413,611, which included claims for the Liquidators’ fees and legal costs totalling $230,302. However, the Statement ignored the fact that North Queensland had granted mortgages over the Disputed Parcel to secure advances in excess of $3 million made to third parties. Those mortgages are still registered, and continue to secure sums in excess of $3 million. Gusdote asserts that the Statement could not be accepted as an accounting by professional liquidators honestly setting out the sums that they claimed were properly incurred in the execution of the trust by North Queensland, which are the only moneys in respect of which they could claim a lien.

9    In the course of the taking of accounts before the Registrar, it was asserted on behalf of North Queensland that the Registrar should not take into account the question of whether the amounts claimed as being subject to a lien were properly incurred in the execution of the trust. It was asserted that, if the mortgages granted by North Queensland did not in fact yield cash that passed into the hands of North Queensland, North Queensland, as trustee, had no obligation to bring into account the money advanced on the security of the mortgages.

10    In the course of review of the Registrar’s decision by the Court, the Liquidators maintained the position, on behalf of North Queensland, that the order for taking accounts, as between trustee and beneficiary, did not require the Registrar to consider whether the sums claimed as costs and expenses were properly incurred in the execution of the trust, and said that there was no occasion to bring into account the moneys advanced on the security of the mortgages over the Disputed Parcel that had not in fact been received by North Queensland. It was also asserted, at least in the first instance, that the order of 30 May 2011 for the taking of accounts was a final order, which could not subsequently be varied.

11    Gusdote has incurred costs in pursuing its ultimately successful assertion that North Queensland was obliged, upon demand, to transfer to it the fee simple estate in the Disputed Parcel, and that North Queensland had no legitimate claim to a lien for any costs and expenses in an amount sufficient to justify refusing forthwith to transfer the fee simple in the Disputed Parcel. Gusdote says that the costs are not insignificant, and have been substantially increased because of the varying positions adopted by North Queensland during the course of the proceeding. Throughout the proceeding, the Liquidators have been responsible for the decision-making processes of North Queensland. However, the various forensic positions adopted were ultimately either abandoned or unsuccessful.

12    North Queensland apparently has no funds with which to pay costs that it has been ordered to pay in the proceeding. For the most part, those costs have been incurred because the Liquidators caused North Queensland to assert rights against Gusdote, originally the right to retain proprietorship of the Disputed Parcel and subsequently the right to assert a lien over the Disputed Parcel. Gusdote asserts that the Liquidators did so for their own personal benefit in order to enable recovery of their fees and expenses in connection with the winding up.

13    Gusdote relies on s 22 of the Federal Court of Australia Act 1976 (Cth), which provides that the Court is to give all remedies to which any party appears to be entitled upon such terms and conditions as the Court thinks fit. Gusdote says that that applies to an order for costs under s 43. Further, it says, the Court has jurisdiction to order the Liquidators personally to pay costs of the proceeding (see Gore v Justice Corp Pty Ltd (2002) 119 FCR 429). They say that, in the circumstances of this proceeding, the only just order is that the Liquidators be ordered to pay Gusdote’s costs of the proceeding personally, without prejudice to any right of indemnity that they may have from any assets of North Queensland.

14    In an earlier proceeding, the Court, on 11 June 2010, declared that North Queensland held its legal title to the Disputed Parcel upon a constructive trust for Gusdote (see Demetriou v Gusdote Pty Limited [2010] FCA 581). The Court also ordered that North Queensland account to Gusdote in accordance with Division 6 of Part 5.6 of the Corporations Act for all benefits and moneys received by North Queensland as a consequence of the transfer of the Disputed Parcel to North Queensland. However, the Court did not make orders requiring the conveyance of the Disputed Parcel. Gusdote sought that relief in the present proceeding.

15    I would have been disposed to dismiss this proceeding, as it was initially constituted (see Gusdote No 1 at [32]). As at 3 March 2011, North Queensland did not dispute Gusdote’s entitlement to the value of its beneficial interest in the Disputed Parcel. Rather, North Queensland merely asserted an entitlement to allowances for costs and expenditure incurred in connection with the maintenance and preservation of the Disputed Parcel (see Gusdote No 1 at [33]). Any funds so realised would be available for distribution in accordance with the provisions of the Corporations Act. Orders were subsequently made permitting Gusdote to reconstitute the proceeding as a claim to set aside the transfer of the Disputed Parcel and any contract relating to it.

16    Following the exchange of pleadings, at a further hearing on 30 May 2011, North Queensland acknowledged that Gusdote was entitled to the value of the Disputed Parcel, subject to just allowances for the amount of the purchase price paid by North Queensland to Gusdote and for amounts expended on the preservation and improvement of the Disputed Parcel (see Gusdote No 2 generally and Gusdote No 3 at [8]). The Court then ordered that an account be taken of all benefits received by North Queensland and all outgoings and expenses, including purchase price, incurred or paid by North Queensland from a certain date in connection with the acquisition and holding of the Disputed Parcel.

17    In the taking of the account, the Registrar focused on two issues, namely, whether or not each receipt or outgoing asserted and objected to was:

    sufficiently vouched for or substantiated by North Queensland; and

    shown to have been made or incurred in connection with the acquisition or holding of the Disputed Parcel.

Approaching the matter on that footing, the Registrar concluded that the outgoings and expenses incurred or paid by North Queensland exceeded the benefits received by North Queensland by the sum of $380,089.

18    The Court subsequently concluded that, apart from the failure to address the question of the amount advanced on the security of the mortgages over the Disputed Parcel, the Registrar made no error in the approach that he took. However, it was a matter for the Court to determine questions as to what receipts or expenditures ought to have been received or made (see Gusdote No 3 at [35]). The Court subsequently considered, and determined afresh, various disputed items of receipt and expenditure, for the most part adversely to North Queensland.

19    The Liquidators now accept that, in so far as it was asserted that Gusdote was only entitled to prove as an unsecured creditor in the winding up of North Queensland, ranking behind other unsecured creditors, that assertion was wrong. They say, however, that they were doing their best to interpret and apply the order made in the earlier proceeding that North Queensland account to Gusdote in accordance with Division 6 of Part 5.6 of the Corporations Act. They say that, insofar as they caused North Queensland to resist Gusdote’s demand for an immediate conveyance of the Disputed Parcel, that was an appropriate course for them to adopt.

20    The entitlement of a beneficiary in respect of assets held by a trustee, which constitute property to which a beneficiary is entitled in equity, is to be distinguished from the assets themselves. A trustee cannot be compelled to surrender trust property to a beneficiary until any claim by the trustee for reimbursement or exoneration out of the trust property has been satisfied. Until the extent of the trustee’s right to reimbursement or exoneration for expenses and liabilities properly incurred in the administration of the trust has been determined, it is impossible to say what the trust fund is (see Chief Commissioner of Stamp Duties v Buckle (1998) 192 CLR 226 at [47] and [48]). The Liquidators say, therefore, that, insofar as they caused North Queensland to resist the demand for re-conveyance of the Disputed Parcel prior to the taking of the necessary account, that was not an inappropriate course for them to take.

21    The Liquidators further say that they took that action with the assurance of a direction by an order of the Supreme Court of Queensland that they were justified in doing so. An application was made to the Supreme Court of Queensland under s 96 of the Trusts Act 1973 (Qld), or alternatively s 479(3) of the Corporations Act, for judicial guidance as to whether North Queensland had a reasonable basis for resisting the relief sought in this proceeding by Gusdote. On 17 November 2010, the Supreme Court made an order that North Queensland would be justified in doing all things necessary or incidental to opposing the orders sought by Gusdote in this proceeding.

22    In its reasons, the Supreme Court of Queensland observed that North Queensland contended that the nature of the constructive trust declared in the earlier proceeding was not proprietary in nature, such as to provide a basis for Gusdote to claim an entitlement to the Disputed Parcel. Rather, North Queensland characterised the constructive trust as one that involved holding the property, with a personal liability to account. The Supreme Court observed that, to the extent that Gusdote was relying on the declaration of a constructive trust being of a proprietary nature, North Queensland wished to challenge that characterisation. The Liquidators say that it was on the footing of that judicial advice that they caused North Queensland to defend this proceeding, as originally constituted, and to deny that Gusdote was entitled at any time to terminate the trust and to require North Queensland, as trustee, to transfer the legal title to the Disputed Parcel to Gusdote.

23    The Liquidators contend that the involvement of North Queensland in the process of taking accounts was necessary, in a practical sense, because they had, by then, assumed custody and control of the books and records of North Queensland in the exercise of their statutory responsibilities. They say that the taking of an account between Gusdote and North Queensland was necessitated by the order made on 11 June 2010 in the earlier proceeding. They say that the account was integral to the crystallisation of Gusdote’s beneficial interest in the Disputed Parcel under the constructive trust then declared. They say that they have consistently caused North Queensland to resist Gusdote’s demands for an immediate transfer, pending the taking of that account, and that that resistance was appropriate, pending the taking of the account.

24    The Liquidators say that they have acted in the hope that they might ultimately produce a fund that would yield a dividend for distribution amongst the unsecured creditors of North Queensland. They say that they acted in the discharge of their obligation to wind up North Queensland, and that their resistance to the orders sought by Gusdote was not unreasonable. The Liquidators contend that they have, during the course of the proceeding, specifically declined to take procedural points that, if taken, might have occasioned unnecessary costs and inconvenience to all concerned. They say that they have done so in order to facilitate resolution of the real issues in dispute at minimal expense and inconvenience. The Liquidators claim that they have, at all material times, acted properly in the discharge of their statutory responsibilities as liquidators, and they deny that they have acted or conducted themselves on their own behalf or that they have acted solely or substantially for their own benefit. They say that their conduct, as contradictors, has afforded assistance to the Court,

25    There is a recognised public interest against the imposition of personal liability on the Liquidators, insofar as they have acted on behalf of an insolvent company. Gusdote has identified nothing in their conduct that would justify the exceptional order now sought. I do not consider that Gusdote has established a proper basis for the making of orders that would render the Liquidators personally liable for Gusdote’s costs.

26    I am not persuaded that the material before me leads to the conclusion that the Liquidators have been motivated by personal interest in their conduct of this proceeding on before of North Queensland. The positions that they have caused North Queensland to adopt have been erroneous. Nevertheless, I do not consider that the positions adopted have been so unreasonable as to suggest that the Liquidators have been motivated by personal interest rather than the interests of unsecured creditors. I consider that the present application by Gusdote should be rejected. I propose to make orders accordingly.

Associate:

Dated:    30 July 2012