FEDERAL COURT OF AUSTRALIA
Morgan, in the matter of Brighton Hall Securities Pty Ltd (in liq) [2013] FCA 970
IN THE FEDERAL COURT OF AUSTRALIA | |
IN THE MATTER OF BRIGHTON HALL SECURITIES PTY LTD (IN LIQUIDATION) ACN 096 576 868
RUSSELL HARRY MORGAN IN HIS CAPACITY AS LIQUIDATOR OF BRIGHTON HALL SECURITIES PTY LTD (IN LIQUIDATION) ACN 096 576 868 Plaintiff |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. Within 14 days the Plaintiff file and serve a minute of answers and orders which reflects these reasons (Minute).
2. If either the Australian Securities and Investments Commission (ASIC) or State Trustees Ltd (State) oppose the form of the Minute and if such opposition cannot otherwise be agreed, ASIC or State are to file and serve short submissions within 10 days.
3. Within 10 days ASIC and State file and serve any submissions not exceeding two pages on costs.
4. Thereafter within a further 10 days the Plaintiff file and serve submissions in reply to any submissions filed in accordance with orders 2 and 3.
5. Final orders and costs be determined on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
WESTERN AUSTRALIA DISTRICT REGISTRY | |
GENERAL DIVISION | WAD 98 of 2013 |
IN THE MATTER OF BRIGHTON HALL SECURITIES PTY LTD (IN LIQUIDATION) ACN 096 576 868
BETWEEN: | RUSSELL HARRY MORGAN IN HIS CAPACITY AS LIQUIDATOR OF BRIGHTON HALL SECURITIES PTY LTD (IN LIQUIDATION) ACN 096 576 868 Plaintiff
|
JUDGE: | MCKERRACHER J |
DATE: | 27 SEPTEMBER 2013 |
PLACE: | PERTH |
REASONS FOR JUDGMENT
INTRODUCTION
1 Mr Morgan, liquidator for Brighton Hall Securities Pty Ltd (in liquidation) (the Company) seeks advice from the Court as to the manner with which proceeds under an insurance policy should be dealt. (Ordinarily the Court does not have jurisdiction to give advisory opinions but s 511 of the Corporations Act 2001 (Cth) (CA) in effect creates an exception.) Under the policy, Allianz Australia Insurance Limited (the Insurer) paid $2 million to the Company in settlement of the Company’s liability to third parties. The third parties are competing for access to the proceeds of the policy held by Mr Morgan as liquidator.
2 There are two proceedings in this Court constituting the basis of claims made by third parties on the insurance proceeds. One claim is pursued by the Australian Securities and Investments Commission (ASIC) in the name of Katherine Elizabeth Lawrence in the Western Australia District Registry of this Court (the Lawrence Proceeding). It is a representative proceeding. There is also a claim in this Court by State Trustees Limited ACN 064 593 148 (State) arising as a cross-claim in proceedings VID 162 of 2008 (the Casey Proceeding). This is also a representative proceeding.
3 There are substantially more individual group members in the Lawrence Proceeding than in the Casey Proceeding but State argues that the proceeds of the insurance policy should be evenly split between the two proceedings. ASIC disagrees. For reasons expressed below, I agree with ASIC on this key point of dispute. I agree with Mr Morgan’s submissions as to his entitlement to remuneration.
THE QUESTIONS
4 There are other questions arising. On the basis of the facts as expressed in supporting affidavits, Mr Morgan seeks determination of certain questions which require examination of the nature of the two sets of proceedings and the insurance policy itself. Each of them is dealt with in detail below but as to the policy, two particular subclauses are the topic of questions raised. Clause 4.4 concerns deductibles and aggregation of claims while cl 14.2 deals with the limit of indemnity. A final topic is the question of Mr Morgan’s expenses and remuneration. The questions in Mr Morgan’s s 511 application are posed as follows:
1. Ignoring clauses 4.4 and 14.2 of the [policy], are claims made in the [Lawrence Proceeding] one ‘claim’ or multiple ‘claims’ within the meaning of the [policy]?
2. If the answer to 1 is multiple claims, are the claims made in the [Lawrence Proceeding] “claims that arise [or claims arising] from any one act, error or omission, or series of related acts, errors or omissions” for the purposes of either clause 4.4 or clause 14.2 of the [policy]?
3. Ignoring clauses 4.4 and 14.2 of the [policy], are the claims made in the [State] Proceedings one “claim” or multiple “claims” within the meaning of the [policy]?
4. If the answer to 3 is multiple claims, are the claims made in the [State] Proceedings “claims that arise [or claims arising] from any one act, error or omission, or series of related acts, errors or omissions” for the purposes of either clause 4.4 or clause 14.2 of the [policy]?
5. If the answer to 1 and 3 is multiple ‘claims’, are the claims made in the [Lawrence Proceeding] and the [State] Proceedings “claims that arise [or claims arising] from any one act, error or omission, or series of related acts, errors or omissions” for the purposes of either clause 4.4 or clause 14.2 of the [policy]?
6. Is [Mr Morgan] required to call for informal proofs of debt and make decisions (whether final or preliminary) admitting (or rejecting) the claims made in the ASIC proceedings and the [State] Proceedings, prior to seeking directions?
7. Does section 562 of the [CA] entitle [Mr Morgan] to deduct, from the Insurance Proceeds, [Mr Morgan’s] fees and expenses (including remuneration) incurred in determining the validity of claims in connection with the distribution of the Insurance Proceeds (including calling for and adjudicating on proofs of debts) and incurred in distributing the Insurance Proceeds to the rightful claimants?
The s 511 application also seeks the following relief:
8. [Mr Morgan’s] costs of and incidental to this application be paid from the Insurance Proceeds.
9. Such further or other orders as the Court considers appropriate.
BACKGROUND
5 By affidavit, Mr Morgan explains that there are no significant assets available for distribution other than the proceeds of the policy. The policy was a professional indemnity insurance policy.
6 The Company provided financial services to investors. On various occasions between late 2001 and late 2005, the Company advised at least 171 clients to invest in property development schemes developed and marketed by the Westpoint Group of companies. The holding company was Westpoint Corporation Pty Ltd (receivers and managers appointed) (in liquidation) (Westpoint).
7 From late 2005, a number of the companies in the Westpoint Group were placed under external administration. Clients who had invested in Westpoint products made claims against the Company for its advice after the Westpoint Group collapsed. They contended that the advice had been negligent or misleading and that they had invested in reliance on the advice of the Company, suffering loss and damage.
8 As at 31 May 2006, the Company had received written communications from approximately 24 of its clients who asserted claims. Following receipt of the claims, in accordance with the terms of the policy the Company gave written notice of them to the Insurer. The Company’s broker also gave written advice to the Insurer of potential claims and sought indemnity under the policy.
9 By reason of the claims, the Company was unable to renew its professional indemnity insurance policy when it matured in May 2007. As a consequence, the Company was unable to continue to hold its financial services licence and to operate as a provider of financial services.
10 On 7 September 2007, Mr Morgan (along with a Mr McMaster and Mr James) were appointed as joint and several liquidators of the Company. Mr McMaster and Mr James retired from those positions in January 2011. Mr Morgan has remained the sole liquidator.
11 Amongst the investments to which the Company’s clients were directed were ‘Market Street Mezzanine Notes’ issued by Market Street Mezzanine Ltd, one of the companies in the Westpoint Group. State was the trustee for the holders of the Mezzanine Notes under the terms of a deed of trust entered into between State and Market Street Mezzanine Ltd in 2002.
12 On 20 March 2008, ASIC caused the Casey Proceeding to be commenced against State on behalf of Mr Casey and Mrs Casey, Westpoint investors. The Casey Proceeding was brought pursuant to s 50 of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The Casey Proceeding was a representative proceeding commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA) on behalf of the Mezzanine Noteholders.
13 On 16 March 2009, the Court granted State leave in the Casey Proceeding to commence a cross-claim against the Company seeking an indemnity and/or contribution from the Company in respect of those group members in the Casey Proceeding. Leave was subject to the condition that no further step was to be taken in relation to the Proceeding without further order of the Court. The cross-claim was commenced on 19 March 2009. This led, amongst other things, to a mediation and to the Casey Proceeding being settled as between the applicant and State pursuant to a Deed of Settlement dated 8 December 2009. Justice Gordon made orders in the Casey Proceeding on 26 February 2010. This settlement was achieved by the payment by State of $13.5 million to ASIC, being approximately 71% of the capital invested by Mezzanine Noteholders.
14 Despite the settlement of the Casey Proceeding, State’s cross-claim remains on foot. Mr Morgan, as liquidator, does not hold any funds with which to instruct solicitors to act on the Company’s behalf in relation to that proceeding. Accordingly, the Company has taken no steps to defend the proceeding.
15 In the meantime, on 7 October 2009, ASIC caused the Lawrence Proceeding to be commenced against the Company on behalf of Ms Lawrence, a Westpoint investor. Again, this was a representative proceeding under Pt IVA FCA on behalf of particular clients of the Company other than the Mezzanine Noteholders. Again, leave was granted on 20 November 2009 pursuant to s 500(2) CA for the Lawrence Proceeding to begin and proceed under s 50 of the ASIC Act. Leave was, again, granted on condition that ASIC was prohibited from enforcing any judgment against the Company without the leave of the Court: see Lawrence v Brighton Hall Securities Pty Ltd (in liq) [2009] FCA 1425. The Company has not entered an appearance or filed a defence to the proceeding. As with the Casey Proceeding, the claims brought against the Company have not been admitted. Further notification was given to the Insurer of each set of proceedings.
16 It is common ground that in or about August 2010 the liquidators, as they were at that time, on behalf of the Company and the Insurer entered into a settlement agreement pursuant to which the parties agreed to settle any claim by the Company or the liquidators on behalf of the Company for indemnity pursuant to the policy by the Insurer paying to the Company the sum of $2 million, being the full amount payable to the Company under the policy. Pursuant to the terms of the settlement agreement, the liquidators acknowledged and agreed that the proceeds were received as an amount in respect of the Company’s liability to third parties within the meaning of s 562 CA, that the insurance proceeds would be applied by the liquidators in accordance with s 562 CA and that in the event the insurance proceeds were not required to discharge the claims, then the balance of the proceeds would be paid to the Insurer. (Part of this settlement agreement was said to be confidential but I do not see that this aspect is or should be confidential.)
17 The total claim of the Western Australian group members in the Lawrence Proceeding exceeds $14.7 million. In the case of State, the maximum possible claim against the Company is a little under $5.3 million. It is clear then that the claims by ASIC and State significantly exceed the amount of the insurance proceeds. In addition, there may also be other Company clients whose interests have not been represented in either the Lawrence Proceeding or in the Casey Proceeding. Mr Morgan seeks to provide notification at an appropriate time to all persons with a potential claim on the proceeds.
18 It is uncontroversial that the claims under consideration have arisen during the currency of the policy with notification of them being given within any time requirements under the policy.
19 Mr Morgan’s intention, subject to orders of the Court, is to deal with the insurance proceeds in accordance with the terms of the settlement agreement under s 562 CA by:
(a) first, paying all costs and expenses he is entitled to deduct under s 562 CA and as otherwise permitted by the Court; and
(b) secondly, following an assessment of proofs of debt and taking into account the Court’s directions in the matter, payment to those third parties whose proofs are accepted for payment from the insurance proceeds.
20 Directions from the Court are sought on the basis that they will assist Mr Morgan in resolving in an efficient manner the method by which to distribute the insurance proceeds.
the policy
21 The limit of indemnity under the policy is $1 million pursuant to cl 3.1 and Item 4 in the Schedule. There is one reinstatement of the limit of indemnity (cl 14 with Item 4 in the Schedule). There is a deductible of $25,000 applicable to each claim (pursuant to cl 4.1 and Item 5 in the Schedule). The general insuring clause appears in cl 1.1 as clarified by cl 1.2 in these terms:
1.1 General
We agree to indemnify you against all civil liability arising from any claim that is first made against you during the period of cover in respect of your conduct of the professional business.
1.2 Clarification
For the sake of clarity, the civil liability referred to in subclause 1.1 includes, but is not restricted to civil liability:
(a) under the Trade Practices Act 1974 (Commonwealth), the Fair Trading Act 1987 (NSW), the Fair Trading Act 1985 (Victoria) or similar legislation enacted by the other States or Territories of the Commonwealth of Australia or the Dominion of New Zealand; or
(b) for defamation; or
(c) for infringements of copyrights, trade marks, registered designs or patents or any plagiarism or breach of confidentiality; or
(d) in respect of any activity in which you are engaged as a joint venturer, although we are not liable to indemnify your joint venturer or joint venturers.
(Modified formatting.)
22 In the policy, provision is made for payment of defence costs (cl 2) and a limit of indemnity (cl 3) which is in addition to the defence costs. Clause 4 is in the following terms:
4. Deductible
4.1. General
We are only liable to indemnify you against that part of your civil liability in respect of each claim that exceeds the deductible. You must bear the deductible in respect of each claim.
4.2. Our investigation costs
Any costs and expenses that we incur to determine whether we are liable to indemnify you under this policy are not subject to the deductible. We agree to bear any such costs and expenses.
4.3. Your defence costs
Where your civil liability arising from any claim is less than the deductible, your must bear all defence costs associated with the claim, unless we notify you in writing that we agree to bear the defence costs. Furthermore, where the deductible is expressed in Item 5 of the schedule to be inclusive of defence costs, you must pay all defence costs up to the amount of the deductible that we incur in the engagement of advisers that we consider necessary to determine your liability and to resolve the claim.
4.4. Claims
For the purposes of this clause, all claims that arise from any one act, error or omission, or series of related acts, errors or omissions are deemed to constitute one claim.
23 There are exclusions from liability under Pt 4 of the policy.
24 Part 7 of the policy contains various definitions and, in particular, cl 39 provides that unless the context requires otherwise:
(a) Claim means:
(i) a written or verbal demand by a third party for compensation or damages; or
(ii) a civil proceeding brought by a third party for recovery of compensation or damages,
in respect of an actual or alleged breach of professional duty, wherever committed.
25 By cl 14 of the policy, provision is made for reinstatement of the limited indemnity in these terms:
14.1. General
If the limit of indemnity is exhausted as a result of a claim made against you during the period of cover, we agree to reinstate the limit of indemnity in clause 3. However unless we specify otherwise in Item 9 of the schedule, we agree to reinstate the limit of indemnity in respect of the total of all claims made against you during the period of cover for an amount equal to the limit of indemnity.
14.2. Limit of indemnity
We are only liable to indemnify you under this clause against civil liability arising from any one claim, and in the aggregate in respect of all claims arising from any one act, error, or omission or series of related acts, errors or omissions, up to the limit of indemnity.
26 Clause 14.3 provides that subject to the Insurance Contracts Act 1984 (Cth), the reinstatement of the limit of indemnity in the clause only applies in excess of the total cover provided by any policy or policies that apply in excess of the policy.
27 By cl 16 it is provided:
Prior or pending claims
We are not liable to indemnify you in respect of any claim:
(a) directly or indirectly based upon, attributable to, or in consequence of, any circumstance of which you first became aware prior to the commencement of the policy and which you knew or ought reasonably to have known, had the potential to give rise to a claim under this policy or under any previous policies; or
(b) that was first made prior to the commencement of the policy
28 There are other exclusions such as fraud and dishonesty by cl 18.
THE POSITION OF THE INSURER
29 The Insurer did not appear at the hearing although it confirmed by letter of 14 June 2013 that it had received the parties’ submissions for the purpose of considering the respective arguments. The view of the Insurer was that in respect of questions 1 to 5, both the Lawrence Proceeding and the Casey Proceeding were constituted by multiple claims which could not be aggregated under the terms of the policy. The parties have referred to cl 4 of the policy concerning deductibles under the policy. As noted (in [22]) above, subcl 4.4 provides an aggregation mechanism in the following terms:
For the purposes of this clause, all claims that arise from any one act, error or omission, or series of related acts, errors or omissions, are deem to constitute one claim.
30 The Insurer expressed the view that an ‘act, error or omission or series of related acts, errors or omissions’ cannot be identified and thus the claims cannot be aggregated: Lloyds TSB General Insurance Holdings v Lloyds Bank Group Insurance Co Ltd [2003] All ER 43. The view of the Insurer was that the insured was to bear a deductible of $25,000 in respect of each such claim. As there are some 170 Lawrence claims and at least 60 Casey claims, the Insurer was keen to impress upon the parties that it was a term of the settlement agreement that in the event that any amount of the payment referred to was not required to be applied to the settlement or discharge of the investors’ claims, such amount would be paid to the Insurer. The Insurer was of the view that the payment of the funds to either ASIC or State could only be made after the precise amount required to resolve the claims arising in the Lawrence Proceeding or the Casey Proceeding was determined.
31 The Insurer for its part did not oppose or object to Mr Morgan taking any steps which may be required to take in the discharge of his role as liquidator to call for other creditors of the Company. However, the insurance proceeds held by Mr Morgan were only to be applied in accordance with s 562 CA and in accordance with the terms of the settlement agreement to discharge settlement claims which would fall for cover within the terms of the policy and for which the Company is or may be liable. The Insurer made no submissions concerning Mr Morgan’s entitlement to deduct fees and expenses (including remuneration) from the insurance proceeds.
QUESTIONS 1 TO 5
32 It is convenient to deal with questions 1 to 5 together. They all relate to the number of claims, whether the claims in the respective proceedings are one or multiple claims, either within the respective proceedings or taken together.
33 State’s position as to questions 1 to 5, in summary, is as follows:
1. The Lawrence Proceeding constitutes a single claim for the purposes of the policy.
2. Alternatively, the multiple claims made in the Lawrence Proceeding arise from a series of related acts, errors or omissions.
3. The Casey Proceeding constitutes a single claim.
4. Alternatively, the multiple claims made in the Casey Proceeding arise from one act, error or omission or from a series of related acts, errors or omissions.
5. Alternatively, to answers 1 and 3, the claims made in the Lawrence Proceeding do not arise out of the same act, error or omission nor from a series of related acts, errors or omissions as the claims made in the Casey Proceeding.
34 State argues that under the policy, the definition of ‘claim’ has four elements:
1. There must be either a civil proceeding or a written or verbal demand.
2. The proceeding or demand must be by a third party.
3. The proceeding or demand must be for compensation or damages.
4. The proceeding or demand must be in respect of actual or alleged breach of professional duty.
35 The parties are agreed that determination of these questions requires close examination of the wording of the policy. They also agree that the answer to be given should not simply be an answer on the basis of form but, rather, on the basis of substance taking into account practical considerations.
The character of the proceedings
36 Before examination of the terms of the policy, it is necessary to consider the nature of each of the two sets of representative proceedings. The governing statutory provisions set out in Pt IVA FCA are central to this consideration.
(1) Subject to this Part, where:
(a) 7 or more persons have claims against the same person; and
(b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and
(c) the claims of all those persons give rise to a substantial common issue of law or fact;
a proceeding may be commenced by one or more of those persons as representing some or all of them.
(2) A representative proceeding may be commenced:
(a) whether or not the relief sought:
(i) is, or includes, equitable relief; or
(ii) consists of, or includes, damages; or
(iii) includes claims for damages that would require individual assessment; or
(iv) is the same for each person represented; and
(b) whether or not the proceeding:
(i) is concerned with separate contracts or transactions between the respondent in the proceeding and individual group members; or
(ii) involves separate acts or omissions of the respondent done or omitted to be done in relation to individual group members.
(1) A person referred to in paragraph 33C(1)(a) who has a sufficient interest to commence a proceeding on his or her own behalf against another person has a sufficient interest to commence a representative proceeding against that other person on behalf of other persons referred to in that paragraph.
(2) Where a person has commenced a representative proceeding, the person retains a sufficient interest:
(a) to continue that proceeding; and
(b) to bring an appeal from a judgment in that proceeding;
even though the person ceases to have a claim against the respondent.
(1) An application commencing a representative proceeding, or a document filed in support of such an application, must, in addition to any other matters required to be included:
(a) describe or otherwise identify the group members to whom the proceeding relates; and
(b) specify the nature of the claims made on behalf of the group members and the relief claimed; and
(c) specify the questions of law or fact common to the claims of the group members.
(2) In describing or otherwise identifying group members for the purposes of subsection (1), it is not necessary to name, or specify the number of, the group members.
(1) The Court must fix a date before which a group member may opt out of a representative proceeding.
(2) A group member may opt out of the representative proceeding by written notice given under the Rules of Court before the date so fixed.
(3) The Court, on the application of a group member, the representative party or the respondent in the proceeding, may fix another date so as to extend the period during which a group member may opt out of the representative proceeding.
(4) Except with the leave of the Court, the hearing of a representative proceeding must not commence earlier than the date before which a group member may opt out of the proceeding.
41 Section 33N provides for an order that the proceeding not continue as representative proceeding where costs are excessive etc. It provides:
(1) The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:
(a) the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or
(b) all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or
(c) the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or
(d) it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.
(2) If the Court dismisses an application under this section, the Court may order that no further application under this section be made by the respondent except with the leave of the Court.
(3) Leave for the purposes of subsection (2) may be granted subject to such conditions as to costs as the Court considers just.
42 Under s 33P, where the Court makes an order under ss 33L, 33M or 33N that a proceeding no longer continue under this Part:
(a) the proceeding may be continued as a proceeding by the representative party on his or her own behalf against the respondent; and
(b) on the application of a person who was a group member for the purposes of the proceeding, the Court may order that the person be joined as an applicant in the proceeding.
(1) If it appears to the Court that determination of the issue or issues common to all group members will not finally determine the claims of all group members, the Court may give directions in relation to the determination of the remaining issues.
(2) In the case of issues common to the claims of some only of the group members, the directions given by the Court may include directions establishing a sub-group consisting of those group members and appointing a person to be the sub-group representative party on behalf of the sub-group members.
(3) Where the Court appoints a person other than the representative party to be a sub-group representative party, that person, and not the representative party, is liable for costs associated with the determination of the issue or issues common to the sub-group members.
(1) In giving directions under section 33Q, the Court may permit an individual group member to appear in the proceeding for the purpose of determining an issue that relates only to the claims of that member.
(2) In such a case, the individual group member, and not the representative party, is liable for costs associated with the determination of the issue.
One or multiple claims?
45 The central question for each proceeding is whether there is one claim or many claims for the purposes of the policy.
46 In McCarthy v St Paul International Insurance Co Ltd (2007) 157 FCR 402 the Full Court (Kiefel, Stone, Allsop JJ) emphasised that the proper construction of the policy was paramount and that the meaning of the word claim ‘depends on the context and the form of the policy’ per Allsop J (as his Honour then was) (at [75]) with whom Kiefel and Stone JJ agreed. In making the assessment, it is generally necessary to focus on the underlying facts rather than the legal form (also at [75]). The relevant passage (from [74]-[77]) is as follows:
74 ... The meaning of the word “claim” depends, of course, on the proper construction of the policy. The policy contemplates that there may be more than one claim arising from one act or omission or one set of circumstances: see the proviso to the insuring clause and general exclusion 5(a). That, however, does not mean that every assertion, factual and legal, and every construct of the complaint, is a separate claim. The meaning of the word “claim” can be discerned from the insuring clause. It refers to “claim or claims” first made during the Period of Insurance. This is a “claims made policy”: that is, the policy covers claims made within the period of insurance, and the cover does not remain open after its expiry to cover later made claims that may be notified. It does not attach to acts or omissions done or omitted to be done in the relevant period, rather it attaches to and gives cover to claims made in the relevant period. In this context, if “claim” meant the individual factual or legal assertions made by the third party, the policy would only cover those assertions made during the Period of Insurance. That this cannot be the construction is reinforced by other provisions of the policy. One example is clause 4(b) in the General Conditions. This usual clause, which provides for the notification of circumstances to fix a claim later made by a third party outside the Period of Insurance as falling within the purview of the cover, would also be problematic in its operation if one limited the notion of claim to how the assertion was framed at that time.
75 An examination of the cases on insurance law dealing with the word “claim” reveals that the meaning of the word depends on the context and the form of the policy. These cases also show that in making an assessment of whether there is one claim or there are more than one claim it is generally necessary to focus on the underlying facts, not the legal form in which the matter is constructed or pleaded. See generally West Wake Price & Co v Ching [1956] 2 Lloyd's Rep 618 at 627-628; Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd's Rep 241 at 255; Walton v National Employers' Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 at 83-84; Trollope & Colls Ltd v Haydon [1977] 1 Lloyd's Rep 244 at 249-50; Transport Industries Insurance Co Ltd v NSW Medical Defence Union Ltd (1986) 4 ANZ Insurance Cases 60-736 at 74,419-23; Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd's Rep 7 at 11-12; Haydon v Lo & Lo [1997] 1 WLR 198 at 204-206; Murphy v Swinbank [1999] NSWSC 934 at [491]-[494]; Citibank NA v Excess Insurance Co Ltd [1999] 1 Lloyd's Rep IR 122 at 127-28; Rouleston Clarke Pty Ltd v FAI General Insurance Company Ltd (1999) 11 ANZ Insurance Cases 61-465 at 75,337-38; and Mabey & Johnson Ltd v Ecclesiastical Insurance Office plc [2004] Lloyd's Rep IR 10 at 13-14.
76 At an early stage of any complaint a claim may be inarticulately expressed as a general assertion of the insured's responsibility for a disadvantageous position of the claimant. By the time of attempted vindication in court, the claim may be the subject of sophisticated alternative or cumulative foundation and expression in pleadings drafted by learned and skilled lawyers.
77 Here, each of these applicants claimed that he, she or it had been misled in some way by information provided, and representations made, by MDRN or for which they were responsible about a loan to Rivett Project Results Pty Ltd (“Project Results”). The misleading was said to have occurred from a number of documents — the newsletters, the brochure and the investment summary. A multitude of errors and inaccuracies were pointed to. All formed part of a complex body of assertions as to the misleading state of the information given to the applicants. The applicants asserted that, in reliance on the accuracy of the information that they were individually given, they invested moneys in the loan. Two applicants also claimed that they relied on certain statements of an employee of MDRN other than Mr Blackadder. Each said that he, she or it had lost a sum of money from being so misled by the failure of Project Results and the inadequacy of the security for the loan. The responsibility of MDRN was put in a number of ways, including breach of duty and misleading or deceptive conduct. The claim of each was to recover compensatory damages for the loss allegedly suffered. The applicants asserted that as a consequence of the conduct of MDRN each had suffered a loss. The conduct complained of and the factual controversy do not reveal more than one claim for each applicant. Each applicant had, in my view, one claim for compensation by MDRN. That each applicant had a claim for damages based on various causes of action can be seen from an examination of the amended statement of claim.
(emphasis added)
47 Although both State and ASIC rely upon McCarthy, State emphasises that unlike the policy in McCarthy, the policy in the present case contains a definition of the word ‘claim’. State argues that subpara (i) and subpara (ii) of the definition are alternatives, that is, something asserted to be a claim can either be a written or verbal demand of the relevant kind or it may be a civil proceeding of the relevant kind. State’s position is that the Lawrence Proceeding is clearly a civil proceeding and one civil proceeding.
48 The Lawrence Proceeding is advanced only to the position of the application, the statement of claim, consent orders concerning mediation, a letter from ASIC to the Registry concerning mediation and Mr Morgan’s evidence in relation to the proceeding. From those factors, State argues that the Lawrence Proceeding is brought by a single third party, namely, Ms Lawrence as applicant who brings the Proceeding to recover compensation or damage as a result of alleged breaches of professional duty. That is sufficient, State argues, to satisfy each element of the definition of claim. It is one claim and one claim only because, State argues, for the Lawrence Proceeding to comprise more than one claim, it would be necessary to identify in the evidence concerning that proceeding other facts which independently satisfy the definition of ‘claim’. This cannot be done because only one civil proceeding exists. State argues that the fact that the Lawrence Proceeding is a representative proceeding under Pt IVA does not alter that fact. The reasoning of the Full Court, State argues, was that there were 36 separate claims, one by each applicant but, importantly in McCarthy, there were actually multiple applicants as distinct from a group or representative proceeding under Pt IVA, such as the Lawrence Proceeding. Under the Rules applicable at the time of instituting the Lawrence Proceeding, there was a single applicant and a single claimant for relief. The Rules governing joint applicants in McCarthy did not preclude two or more persons being joined as applicants in relevantly similar circumstances so that there could be separate claims for relief by multiple applicants in similar circumstances.
49 The key points of distinction, State says, between McCarthy and the Lawrence Proceeding is that the policy in McCarthy did not define ‘claim’ at all let alone by reference to ‘a civil proceeding’ as the policy does. Secondly, the position in McCarthy was that there were 36 separate ‘claimants for relief’.
50 State contends that this is more than mere form and is substantive. There is presently a single proceeding with a single claimant for relief because:
Where a qualifying group exists, as in accordance with the criteria set out in s 33C(1), the proceeding is commenced by one of the persons.
By s 33H the application must ‘specify the nature of the claims made on behalf of the group members and the relief claimed’. Thus the word ‘claim’ in that statutory context does not determine the meaning given in an insurance policy.
Section 33H makes it plain, consistently with Court Rules, that the claimant for relief in a group proceeding is the applicant who asserts causes of action and seeks relief on behalf of group members.
By reference to s 33N, there is support for the proposition that a group proceeding is a single proceeding sought by the applicant, not a proceeding brought or conducted by group members. In a real sense, the single applicant conducts the proceeding. This is even to the point that in some circumstances the Court may order that the proceeding not continue under Pt IVA. If, for example, the Court is satisfied that ‘the cost that would be incurred if a proceeding were to continue as a representative proceeding are likely to exceed the cost that would be incurred if each group member conducted a separate proceeding’. Thus, State says, s 33N distinguishes between a proceeding continuing as a group proceeding on the one hand and ‘each group member conducting a separate proceeding’ on the other.
Similarly, in s 33P, where an order is made that a proceeding no longer continue under Pt IVA, a former group member may apply to be joined as applicant to assert his or her own claim for relief.
51 Notwithstanding this, State accepts that a group or representative proceeding is a vehicle for the bringing of ‘claims of group members’ as that expression is used throughout Pt IVA. Such a group proceeding arises only where seven or more persons ‘have claims against the same person’. What State stresses, however, is that use of ‘claim’ in that context cannot be confused with the defined use of ‘claim’ in the policy. In the former instance, State draws on the Commentary in LexisNexis High Court and Federal Court of Australia Practice & Procedure (at [38,820.40]):
[34,820.40] “Claims”
There are five "tolerably clear" requirements inherent in the word "claims" in s 33C(1)(a). The claims must be claims recognised by law. They need not be confined to claims for relief "as of right", since s 33C(2)(a)(i) shows a claim for discretionary equitable relief can qualify. "Claims" have an existence independent of, and antecedent to, the commencement of the proceeding, since it is only if seven or more persons have claims against the same person that a proceeding under Pt IVA may be commenced by one or more of them. "Claims" is different to a "right" or "entitlement" to relief, being matters which cannot be known until a final hearing. It is not required that the persons who have claims be aware of, or have asserted, the claims: Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1998) 84 FCR 512; 156 ALR 273; (1998) ATPR 41-648; King v GIO Australia Holdings Ltd [2000] FCA 617 at [33]. ‘The word “claim” has been described as “encompass(ing) everything that might lawfully be brought before the court for a remedy”: see Finance Sector Union of Australia v Commonwealth Bank of Australia (1999) 94 FCR 179 at 187 and the discussion in an earlier judgment in this matter at (2000) 100 FCR 209 at 221–223 … it is a word of wide meaning and is not limited to a cause of action”: King v AG Australia Holdings Ltd [2002] FCA 1560 … at [10] per Moore J. This view was (it appears) indorsed by the majority in Bray v F Hoffman-La Roche Ltd (2003) 130 FCR 317; 200 ALR 607; [2003] FCAFC 153: see Carr J at [119] but note commentary at [34,820.75] .
52 The distinction State draws is that the use of ‘claim’ in the statutory context invites attention to the alleged existence of some sort of underlying right rather than the actual assertion of the right. Under the policy, however, the opposite is true. The first element of the definition is the making of a demand or the bringing of a proceeding. In short, State argues, that there is nothing in the evidence to suggest that the Lawrence Proceeding is anything other than a single proceeding brought by a single applicant, albeit that Ms Lawrence brings her case on behalf of others in a manner controlled by Pt IVA.
53 Perhaps more importantly, State argues that this conclusion is consistent with the commercial purposes of the policy. The concept of what constitutes a claim is significant in a number of ways. The making of the claim:
(a) triggers the Company’s obligation to notify (by cl 26);
(b) gives the Insurer the right to take over and conduct the Company’s defence (by cl 27.1); and
(c) gives the Company certain rights in relation to defence costs and settlement (by cl 2).
54 State argues that the culmination of those provisions means that the policy responds to assertions against the insured persons, that is, demands or proceedings for compensation. It argues that is an essential element of professional indemnity and other ‘claims made’ insurance. The demand or proceeding acts as a ‘trigger’ to cover with important temporal consequences (such as creating an entitlement to defence costs).
55 Accordingly, State contends that it was for sound commercial reasons that the definition of ‘claim’ focuses on matters of form in the first instance (that is, a demand or a proceeding), limited by type (seeking compensation for breach of professional duty). For the same reasons, State necessarily argues that the Casey Proceeding is also a single claim.
Aggregation?
56 Even if the claims within the Lawrence Proceeding and/or the Casey Proceeding are multiple rather than single, State contends that they should be aggregated under cl 4.4 or cl 14.2 of the policy. State relies on the decision of the House of Lords in Lloyds TSB where the clause which was cited in the speech of Lord Hoffmann (at [12]) was in the following terms:
If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible.
57 Lord Hoffmann said (at [14]-[15] and [17]):
[14] Moore-Bick J said ([2001] 1 All ER (Comm) 13 at 24 (para 24)) that the purpose of an aggregation clause was:
'... to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind.'
[15] That seems to me a fair description. The unifying factor is often a common origin in some act or event specified by the clause. But much will turn upon the precise nature of the act or event which, for the purposes of aggregation, the clause treats as a unifying factor. The more general the description of that act or event, the wider the scope of the clause. For example, in Municipal Mutual Insurance Ltd v Sea Insurance Co Ltd [1998] Lloyd's Rep IR 421 the unifying cause was expressed in very general terms: '... all occurrences of a series consequent on or attributable to one source or original cause ...'
…
[17] The choice of language by which the parties designate the unifying factor in an aggregation clause is thus of critical importance and can be expected to be the subject of careful negotiation; as Lord Mustill observed in the AXA case [1996] 3 All ER 517 at 526, [1996] 1 WLR 1026 at 1035, among players in the reinsurance market 'keen interest [is] shown ... in the techniques of limits, layers and aggregations'.
(emphasis added)
58 In construing the meaning under the policy of the expression ‘act, error or omission’ and the expression ‘series of related acts, errors or omissions’, State argues that the unifying factor is that the claim (that is the demand or proceeding) arises from a single act, error or omission. It draws on Lloyds TSB (at [23]) where Lord Hoffmann said:
Thus far I respectfully agree with the Court of Appeal. The language of the aggregation clause, read with the definition of 'act or omission', shows that the insurers were not willing to accept as a unifying factor a common cause more remote than the act or omission which actually constituted the cause of action. An act or omission could qualify as a unifying factor in respect of more than one loss only if it gave rise to civil liability in respect of both losses. In the present case, the act or omission which gave rise to the civil liability in respect of each claim (failure to give best advice to that investor) was different from the acts or omissions giving rise to the other claims.
59 However, State submits that the construction given to the expression ‘series of related acts or omissions’ in Lloyds TSB does not assist in considering that limb of the clause in the present case because the House of Lords gave that expression a construction cognate with the narrow construction of the balance of the aggregation clause. This is a construction that cannot presently apply because of the different structure of the policy.
60 State draws, in particular, on the word ‘series’ and relies on the context of aggregation discussed in The Distillers Company Bio-Chemicals (Australia) Pty Ltd v Ajax Insurance Company Ltd (1974) 130 CLR 1 where Stephen J said (at 21):
The meaning of ‘series’ in the proviso is, I think, that of a number of events of a sufficiently similar kind following one another in temporal succession. By the express words of the proviso, relevant occurrences must have ‘one source or original cause’ and must, by the operation of par. (b) of the proviso, occur within a relatively short time span. Since any number of distinct events will, unless by coincidence they occur simultaneously, necessarily occur in a temporal sequence, the only remaining attribute of the concept of a ‘series’ to be satisfied is that the events should be, in a sufficient degree, similar in nature.
The characteristic of the similarity of events which may form a series I take from those dictionary meanings of series which refer to the concept of being “of one kind” or of having some “characteristic in common” - Shorter Oxford English Dictionary…
61 While the policy in that case was different (being an occurrence based liability policy, rather than a professional indemnity policy), the statement of principle set out in the judgment of Stephen J (at 21) is of persuasive force where his Honour said ‘The meaning of ‘series’ in the proviso is, I think, that of a number of events of sufficiently similar kind following one or another in temporal succession’. The series of events in Distillers was the supply to and ingestion by many thousands of pregnant women of the drug Thalidomide leading to harmful effects on each foetus. In that case, the High Court held that from the similarity of those events, there was a series of events.
A unifying factor?
62 By comparison, State argues that the Lawrence Proceeding is a group proceeding under Pt IVA so it may be assumed that there are multiple claims ‘all in respect of or arising out of the same, similar or related circumstances giving rise to substantial common issues of law or fact’. That is clear, State says, from the application and statement of claim in the Lawrence Proceeding that all of the group members were clients of the Company and received advice from it or a representative. They all invested in similar promissory notes issued by various subsidiaries of a single group of companies on advice from the Company. They all suffered loss as a result. Those common features defined group membership. The application goes on, State argues, to identify 39 common factual and legal issues with more than 20 of the common issues concerning conduct either by the Company internally to it or between it and its authorised representatives or between it and the Westpoint Group. It is argued that reading the pleadings as a whole, it is difficult to see them as an amalgam of separate alleged acts, errors or omissions or if separate, then unrelated to each other in the sense discussed in Distillers. Specifically the alleged breach of statutory duty appearing at [20] and [22] of the statement of claim (SC) is in the following terms:
BREACH OF STATUTORY DUTY
20. Further, and in the alternative, on and after 1 September 2003 (when the [Company] became the holder of the [Australian Financial Services Licence (AFSL)]), in:
(a) placing certain Westpoint Products on its [Approved Product List (APL)], namely, Bayview Heritage Promissory Notes, Market Street Promissory Notes and York Street Promissory Notes;
(b) orally, and/or by conduct impliedly, authorising its representatives to recommend the Westpoint Products to clients of the [Company]; and
(c) advising, or permitting or encouraging its representatives to advise, the Applicant and the Group Members to invest in one or more of the Westpoint Products;
the [Company] failed to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently and fairly, in breach of section 912A(1)(a) [CA].
Particulars
There was no reasonable basis for having any of the Westpoint Products on the APL or otherwise authorising its representatives to recommend the Westpoint Products to clients of the [Company], or for the [Company], by representatives, recommending that the Group Members invest in any of the Westpoint Products.
This is because the structure and characteristics of each of the Westpoint Products provided little security for investors and provided for a return that was not sustainable and therefore each of the Westpoint Products represented a very significant risk, which was rewarded by a moderate return.
Accordingly, by having the Westpoint Products on the APL, or otherwise authorising its representatives to recommend the Westpoint Products to clients of the [Company], and by recommending that the Group Members invest in the Westpoint Products, the [Company] by itself and through its representatives did not do all things necessary to ensure that the financial services covered by the AFSL were provided efficiently and fairly.
21. If the Westpoint Products had not been placed on the APL, or otherwise authorised as products that could be recommended by its representatives to clients of the [Company], and the [Company], by its representatives, had not recommended that the Group Members invest in one or more of the Westpoint Products, the Group Members would not have invested in one or more of the Westpoint Products.
22. As a result of the Respondent’s breach of section 912A [CA] alleged in paragraph 20 above, the Group Members have suffered loss and damage.
Particulars
The Group Members invested in one or more of the Westpoint Products.
As a result of the financial collapse and subsequent external administration of Westpoint, the Westpoint Entities and the Guarantors, the Group Members will receive little or no return on their investment.
Further particulars of each Group Member’s loss and damage will be given prior to trial.
63 The essence of each claim is that the Company:
(a) placed certain Westpoint products on its APL;
(b) authorised its representatives to recommend Westpoint products to its clients;
(c) permitted its representatives to advise the applicant and the group members to invest in the Westpoint products in breach of s 912A(1)(a) CA as there was no reasonable basis for having any of the Westpoint products on the APL. That section of the CA provides as follows:
912A General obligations
(1) A financial services licensee must:
(a) do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly; …
64 It is pleaded (at SC [21]) that the group members would not have invested if the Company had not engaged in that conduct. The alleged loss as a result of a breach in SC [20] arose from the collapse of the Westpoint Group (at SC [22]). The allegation of breach in SC [20] is an essential element of the cause of action pleaded ‘by’ or on behalf of all group members (at SC [22]).
65 The ‘no reasonable basis’ allegation in SC [20] is expanded in other parts of the pleading including an alleged failure to carry out what was impliedly represented, namely, the undertaking of the reasonable, careful and prudent review of each of the products on the APL.
66 All those matters do not concern any individual position of individual group members, it is argued, but are concerned with the Company’s general dealings with Westpoint products. According to State, the failure to properly analyse the Westpoint products is the underlying route which can be characterised as a single act or omission. State argues that apart from the list of different products in the introduction to the application and the statement of claim, there is little, if any distinction drawn between the Westpoint products in the Lawrence Proceeding. The general complaint was, according to the statement of claim that:
the structure and characteristics of the Westpoint Products provided little or no security for investors and provided for a return that was not sustainable and, therefore, the Westpoint Products represented a very significant risk, which risk was rewarded by relatively modest return.
67 In relation to all of the products complaint is made of the structure and characteristics being deficient.
68 State accepts that the same must also apply to the Casey Proceeding.
69 As to the possibility of aggregating the Lawrence Proceeding and the Casey Proceeding, State argues that there is no unifying cause of a kind contemplated by cl 4.4 and cl 14.2 and this does not appear to be in dispute. The financial products concerned are entirely different. Further, the role of State was to act as trustee for Mezzanine Noteholders issued by one Westpoint company under a prospectus. The structure and characteristics of the debenture product, a single product, which is the subject of the Casey Proceeding (including registration and issue of a prospectus and the appointment of a trustee and other supervisory requirements of Ch 2L CA) was quite different from the multiple products the subject of the complaint in the Lawrence Proceeding. There is a generally different factual sub-stratum involving a financial product with a different structure. Additionally an essential element of the claim by State for contribution in the Casey Proceeding is its own liability as trustee to a large number of individuals who were not group members in the Lawrence Proceeding as ascertained by settlement.
70 State argues that the Casey Proceeding involves a different legal regime, that is to say, claims under the Wrongs Act 1958 (Vic). While there are commonalities it is not in dispute that the matters under the two sets of proceedings do not arise out of either the same single acts, errors or omissions or the same series of related acts, errors or omissions.
CONSIDERATION
71 Part IVA FCA was introduced in 1992 by the Federal Court of Australia (Amendment Bill 1991 (Cth), supported by a second reading speech which explained that Pt IVA was intended to provide a mechanism where many people each suffering a loss may still recover a judgment even though it would not be economically viable to pursue individual actions. Although it operates by way of a group proceeding, there is no doubt that it collects multiple claims.
72 Significantly, as noted by Moore J in King v GIO Australia Holdings Ltd (2000) 100 FCR 209 (at 21-22) ‘claim’ in s 33C has been interpreted broadly. It is not limited to a cause of action. It encompasses ‘everything that might lawfully be brought before the Court for a remedy’: see also Finance Sector Union of Australia v Commonwealth Bank of Australia (1999) 94 FCR 179 (at [20]). There is no requirement under s 33C that the claimants have ‘the same claim’ so long as they satisfy the requirements of the section: King (at [29]) and see the discussion per Lindgren J in Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1998) 84 FCR 512 (at 523).
73 In the Lawrence Proceeding, ASIC was, of course, not a party. Ms Lawrence is the representative party for ‘group members’ who satisfy the description in para [3] of the application and who have not opted out. Under s 33H(1)(b) FCA, the originating process must described ‘the nature of the claims made on behalf of the group members and the relief claimed’.
74 It seems to me that the whole essence of the representative claim is that there are multiple claims before the Court. The character of each claim is not changed by the proceeding which embraces it. The representative proceeding is simply designed to facilitate an efficient and cost-effective way to resolve multiple individual claims. Those claims, being made in a proceeding in Court, constitute proceedings.
75 Although the second limb of the definition of ‘claim’ refers to civil proceedings which are brought by a third party for recovery of compensation or damages in respect of breach of professional duty, if a person sues, amongst other things, on behalf of another in a representative proceeding, even if the group member is not named, that unnamed group member nevertheless has brought proceedings.
76 In my view that is sufficient to deal with the first question but, in any event, in evidence is a letter from ASIC to Mr Morgan of 13 January 2012 by which ASIC provided particulars of each individual claim of each individual group member claimant including particulars of the amount claimed. This is sufficient to constitute a written demand by each group member for compensation or damages. Again, it does not matter who writes the letter. The issue turns on who seeks to be compensated. That letter also indicates the claims, both in relation to the amounts claimed and the circumstances surrounding each individual claim. But, in any event, it is plain from the nature of representative proceedings that there are numerous claims. In my view, in the Lawrence Proceeding, there is a separate claim made by each group member, thus a total of 170 claims.
77 In relation to the second question, it is necessary to identify a ‘unifying factor’ sufficient to invoke the aggregation provisions of cl 4.4 and cl 14.2. It is not sufficient, in my view, to identify that there are common features of the claims. If there were not, a representative proceeding would not have been possible in the first place. Although it might be said that inclusion of the Westpoint products on the APL or even orally recommending those products consistently to clients of the Company might be a common feature, there were different products, different clients, different times of investment, different circumstances of taking advice, different levels of investment and perhaps most importantly, different circumstances and times and amounts of sustaining loss. Without the loss, there can be no cause of action in each instance.
78 For those reasons I do not consider that the multiple claims arose out of any one act, error, or omission.
79 For similar reasons, I am disinclined to accept the argument that each of the separate decisions to approve the seven products could be said to satisfy the requirement of being a ‘series’. It seems more probable on the evidence such as it is that each decision would be brought about by different circumstances.
80 As to question 3, in my view the same approach is required. Although ASIC emphasises that in the Casey Proceeding, State was the respondent to representative proceedings brought by Mr and Mrs Casey as representatives of group members under Pt IVA FCA. There is another difference between the two proceedings in that the Casey Proceeding concerns only the issue of the Market Street Mezzanine Notes rather than several different other financial products.
81 The essence of the complaint is that if State had discharged its statutory duties reasonably and exercised reasonable care, the Mezzanine Notes would not have been issued or continued to be issued and therefore the group members would have not suffered loss through their investment in them.
82 However, it is State’s cross-claim against the Company which falls for consideration. The nature of the cross-claim is for relief by way of indemnity and/or contribution pursuant to s 23B of the Wrongs Act 1958 (Vic), further or alternatively s 7(1)(c) of the Law Reform (Contributory Negligence and Tortfeasers’ Contribution) Act 1947 (WA). They respectively provide as follows:
23B. Entitlement to contribution
(1) Subject to the following provisions of this section, a person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with the first-mentioned person or otherwise).
(2) A person shall be entitled to recover contribution by virtue of subsection (1) notwithstanding that that person has ceased to be liable in respect of the damage in question since the time when the damage occurred provided that that person was so liable immediately before that person made or was ordered or agreed to make the payment in respect of which the contribution is sought.
(3) A person shall be liable to make contribution by virtue of subsection (1) notwithstanding that that person has ceased to be liable in respect of the damage in question since the time when the damage occurred unless that person ceased to be liable by virtue of the expiry of a period of limitation or prescription which extinguished the right on which the claim against that person in respect of the damage was based.
(4) Subject to section 24(2B), a person who in good faith has made or agreed to make any payment in settlement or compromise of a claim made against that person in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not the person who has made or agreed to make the payment is or ever was liable in respect of the damage provided that that person would have been liable assuming that the factual basis of the claim against that person could be established.
(5) Subject to section 24(2B), a judgment given in an action brought by or on behalf of the person who suffered the damage in question against any person from whom contribution is sought under this section shall be conclusive in the proceedings for contribution as to any issue determined by that judgment in favour of the person from whom the contribution is sought.
(6) References in this section to a person's liability in respect of any damage are references to any such liability which has been or could be established in an action brought against that person in Victoria by or on behalf of the person who suffered the damage and it is immaterial whether any issue arising in any such action was or would be determined (in accordance with the rules of private international law) by reference to the law of a place outside Victoria.
7. Rules applicable if there are 2 or more tortfeasors
(1) Subject to Part 1F of the Civil Liability Act 2002, where damage is suffered to any person as the result of a tort -
…
(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is or would if sued have been liable in respect of the same damage whether as a joint tortfeasor or otherwise but so that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability for which contribution is sought.
…
83 In the Casey Proceeding, in reality and substance, there are numerous claims brought against the trustee. On the same reasoning as the Lawrence Proceeding, there are numerous claims brought against the trustee which, in turn, seeks contribution or indemnity from the Company in respect of each of those claims. It may be inferred that each of those claims is different on the same reasoning applicable to the Lawrence Proceeding.
84 The further question is whether Mr Morgan should treat the claim for contribution or indemnity from the Company in respect of all of those claims as falling within the definition of claims under the policy meaning:
(i) a written or verbal demand by a third party for compensation or damages; or
(ii) a civil proceeding brought by a third party for recovery of compensation or damages, in respect of an actual or alleged breach of professional duty, wherever committed.
85 State is a third party. Its claim for a contribution or indemnity arguably is not a claim for damages but it may well be a claim for compensation within the meaning of the first limb of the definition of ‘claim’ under the policy. Within the second limb, there are civil proceedings brought by the various group members through Mr Casey for recovery of compensation or damages in respect of an alleged breach of professional duty.
86 The definition clause does not, either in the first or second limb, stipulate that the claim must be a direct claim brought immediately against the Company.
87 If the Company would be liable for contribution to the damages or indemnification for the damages by reason of a judgment obtained by the group members in respect of which State seeks contribution or indemnity, it is difficult to see how this would not satisfy in respect of each and every claim, the description or definition of ‘claim’ under the policy. (I note incidentally that appears to be the view of the Insurer.)
88 An extended meaning of compensation or damages (as distinct from contribution or indemnity) would accord with the approach taken by the New South Wales Court of Appeal in National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 where Glass JA (with whom Moffitt P and Samuels JJA agreed), took the view that the words ‘liability to pay any damages’ extended to an order for contribution pursuant to s 5 of the Law Reform Miscellaneous Provisions Act 1946 (NSW). ‘Liability’ should be treated as a comprehensive term including not only primary liability to a third party but also a secondary liability to other tortfeasors. This, even though an amount due under a contribution is payable by way of debt. In Genders v Government Insurance Office of New South Wales (1959) 102 CLR 363 (at 379-380) the Court said:
it is all a liability to pay compensation for the same loss and damage and that loss and damage is in respect of the death of or bodily injury to a person caused by or arising out of the use of the insured motor vehicle. To argue that in a case of a claim for contribution it is not a liability in respect of such death or bodily injury but in respect of the judgment or other ascertainment of the claimant’s liability is to overlook the fact that the obligation to contribute is the consequence of the liability in respect of the death or bodily injury which the insured who is called upon to contribute incurred and that contribution is only a method of realising that liability or, in other words, of enforcing it to the extent of the due proportion to be borne.
89 In my view that reasoning applies to the present question, to bring the claim by State in the Casey Proceeding within the definition of the claim under the policy in respect of every one of the at least 60 claims brought against it and for which it seeks indemnity.
Question 4
90 I would adopt the same approach in respect of aggregation as in relation to the Lawrence Proceeding. In my view, the claims would not be aggregated.
Question 5
91 Similarly, there would be no aggregation between these claims.
Question 6
92 It will be recalled that question 6 is whether Mr Morgan is required to call for informal proofs of debt to make decisions, whether final or preliminary, admitting or rejecting the claims made in the Lawrence Proceeding and the Casey Proceeding prior to seeking directions.
93 In relation to this question, Mr Morgan makes the point that he has not yet advertised a call for proofs of debt because, save for the insurance proceeds, there are no funds to distribute and distribution of the insurance proceeds has not been realistically possible pending the outcome of this application.
94 ASIC has expressed the view in correspondence to Mr Morgan in October 2012 that prior to seeking directions from the Court under s 511, a liquidator should:
(a) make a determination on the Company’s liability to the various noteholders (by their admission to proof); and
(b) make decisions (whether final or preliminary) admitting (or rejecting) the claims of the group members in the Lawrence Proceeding and the claims in the Casey Proceeding.
95 State objects to that process.
96 Ordinarily a liquidator, in this case Mr Morgan, would call for any creditors with debts payable by, or claims against, the Company and notify them as to whether he requires a debt or a claim to be proved formally or informally: see s 553D CA. In relation to those debts or claims in respect of which an informal proof is required, the liquidator would normally give notice in accordance with reg 5.6.39 of the Corporations Regulations 2001 (Cth) (the Regulations) fixing a day for creditors to submit details of their debt or claim to the liquidator. He would then either admit or reject each informal proof. If the debt or claim were rejected, then he would notify the creditor of the grounds of rejection requiring the formal proof be submitted: see reg 5.6.47.
97 In relation to debts or claims for which formal proof is required, the liquidator would give notification in accordance with reg 5.6.48 fixing a day for creditors of the Company whose debts or claims have not been admitted to formally prove their debts or claims. The liquidator would ultimately admit or reject each formal proof and within seven days of a rejection of all or part of a formal proof would notify the creditor of the grounds for rejection and the creditor’s rights in relation to appealing that decision: reg 5.6.54.
98 The decision by Mr Morgan to either accept or reject a proof of debt or claim may be appealed by the creditor or by another creditor as a person aggrieved under s 1321 CA. For the purpose of standing under that provision, a creditor is a ‘person aggrieved’ if a liquidator rejects his or her proof or accepts the proof of another creditor. At all times in the winding up process the liquidator is required to act in a ‘quasi judicial capacity’ with a duty to distribute the assets in his hands or under his control among the creditors truly entitled: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 per Brennan and Dawson JJ (at 338-339).
99 Mr Morgan seeks guidance in the winding up of the Company as to whether he is required to follow the usual proof of debt process in circumstances where there is a dispute between ASIC and State as to whether the liquidator is required to call for and determine the validity of proofs of debt from ASIC and State, giving rise to the risk that any decision made by Mr Morgan may be the subject of an appeal.
100 Mr Morgan’s view is that calling for proofs of debt ought not be dispensed with altogether. He proposes a compromise. Although it is unlikely that there are other potential creditors whose claims fall to be determined in the context of access to the insurance proceeds, it is possible that they exist and, in his view, there is no real reason for deny them the rights they would otherwise have to lodge a claim and have it determined.
101 Although there have previously been debates about this aspect of the matter, there does not now appear to be any objection in the end to Mr Morgan taking this course. In any event, in my view, it is appropriate. There is no further capacity for the Insurer to be prejudiced. It has paid the amount equivalent to its maximum exposure under the policy to Mr Morgan. It is clear that the totality of the claims will very substantially exceed the amount paid by the Insurer. The payment by the Insurer meant that it was not exposed to defence costs in defending the proceedings.
102 As yet there is no established liability under either sets of proceedings but the sum paid by the Insurer has been treated as being capable of distribution in accordance with s 562 CA which provides as follows:
562 Application of proceeds of contracts of insurance
(1) Where a company is, under a contract of insurance (not being a contract of reinsurance) entered into before the relevant date, insured against liability to third parties, then, if such a liability is incurred by the company (whether before or after the relevant date) and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability, or any part of that liability remaining undischarged, in priority to all payments in respect of the debts mentioned in section 556.
(2) If the liability of the insurer to the company is less than the liability of the company to the third party, subsection (1) does not limit the rights of the third party in respect of the balance.
(3) This section has effect notwithstanding any agreement to the contrary.
(emphasis added)
103 Equally, ASIC and State are, by dealing with the fund on that basis limiting their further financial exposure in pursuing either sets of proceedings.
104 It seems to me that all parties are proceeding on the assumption that for the purposes of each of the sets of proceedings there may be liability to the respective group members in the case of the Lawrence Proceeding and liability to State in the Casey Proceeding but subject to Mr Morgan being satisfied as to the entitlement of each particular claimant.
105 It follows that the course proposed by Mr Morgan is appropriate.
Questions 7 and 8
106 I will deal with these two questions together. For convenience, I repeat them:
7. Does [s 562 CA] entitle [Mr Morgan] to deduct, from the Insurance Proceeds, [his] fees and expenses (including remuneration) incurred in determining the validity of claims in connection with the distribution of the Insurance Proceeds (including calling for and adjudicating on proofs of debts) and incurred in distributing the Insurance Proceeds to the rightful claimants?
8. [Mr Morgan’s] costs of and incidental to this application be paid from the Insurance Proceeds.
107 As I understand it, there is no dispute to an affirmative answer being given to para [8] of the application. The insurance proceeds, of course, are the only asset of the Company, so that is the only source for payment of Mr Morgan’s costs in relation to this application in respect of which he is entitled to be indemnified.
108 The main area of dispute insofar as ASIC is concerned (but not insofar as State is concerned as it makes no submissions) is the remuneration question.
109 First, it would be helpful to outline the scope of the issue. I have referred to s 562 CA above.
110 It is common ground, as I understand it, that s 562 CA, in effect for insurance policy proceeds, overrides the usual distribution regime specified in s 556 CA which is unnecessary to set out.
111 The evidence discloses that there are differing heads of costs and expenses relevant to the application. The first being, costs and expenses of and incidental to this application which are not contentious. The second is, costs and expenses of and incidental to ‘getting in’ the insurance proceeds (from s 562 CA) and, thirdly, to the extent they are not covered by the second description, costs and expenses associated with the assessment and distribution of the insurance proceeds.
112 Mr Morgan accepts that his remuneration is not encompassed by the word ‘expenses’: Re Beni-Felkai Mining Company Ltd [1934] 1 Ch 406 and Kardiasmenos v Pioneer Management Pty Ltd [2010] NSWSC 683 (at [39]). However, the argument is advanced that the costs and expenses fall within the expression ‘the expenses of or incidental to getting in [the insurance proceeds]’.
113 Mr Morgan relies upon a decision of Young J in Butterell v The Douglas Group Pty Ltd (2000) 35 ACSR 398 in which a liquidator commenced proceedings to determine how reinsurance moneys should be dealt with pursuant to s 562A CA which provides:
562A Application of proceeds of contracts of reinsurance
(1) This section applies where:
(a) a company is insured, under a contract of reinsurance entered into before the relevant date, against liability to pay amounts in respect of a relevant contract of insurance or relevant contracts of insurance; and
(b) an amount in respect of that liability has been or is received by the company or the liquidator under the contract of reinsurance.
(2) Subject to subsection (4), if the amount received, after deducting expenses of or incidental to getting in that amount, equals or exceeds the total of all the amounts that are payable by the company under relevant contracts of insurance, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay the amounts that are so payable under those contracts of insurance.
(3) Subject to subsection (4), if subsection (2) does not apply, the liquidator must, out of the amount received and in priority to all payments in respect of the debts mentioned in section 556, pay to each person to whom an amount is payable by the company under a relevant contract of insurance an amount calculated in accordance with the formula:
where:
particular amount owed means the amount payable to the person under the relevant contract of insurance.
reinsurance payment means the amount received under the contract of reinsurance, less any expenses of or incidental to getting in that amount.
total amount owed means the total of all the amounts payable by the company under relevant contracts of insurance.
(4) The Court may, on application by a person to whom an amount is payable under a relevant contract of insurance, make an order to the effect that subsections (2) and (3) do not apply to the amount received under the contract of reinsurance and that that amount must, instead, be applied by the liquidator in the manner specified in the order, being a manner that the Court considers just and equitable in the circumstances.
(5) The matters that the Court may take into account in considering whether to make an order under subsection (4) include, but are not limited to:
(a) whether it is possible to identify particular relevant contracts of insurance as being the contracts in respect of which the contract of reinsurance was entered into; and
(b) whether it is possible to identify persons who can be said to have paid extra in order to have particular relevant contracts of insurance protected by reinsurance; and
(c) whether particular relevant contracts of insurance include statements to the effect that the contracts are to be protected by reinsurance; and
(d) whether a person to whom an amount is payable under a relevant contract of insurance would be severely prejudiced if subsections (2) and (3) applied to the amount received under the contract of reinsurance.
(6) If receipt of a payment under this section only partially discharges a liability of the company to a person, nothing in this section affects the rights of the person in respect of the balance of the liability.
(7) This section has effect despite any agreement to the contrary.
(8) In this section:
relevant contract of insurance means a contract of insurance entered into by the company, as insurer, before the relevant date.
114 In Butterell v Douglas Group, Young J observed (at [64]):
Finally, there is the question of costs of these proceedings. As Mr Gleeson points out, the costs of the present application to the court by the liquidator for directions and orders are not strictly an “expense of or incidental to” the getting in of the reinsurance payments. I agree with that submission. However I consider that this matter is notorious enough not to be ousted by the words of the definition, and courts traditionally have the power to order that the costs of people bona fide disputing as to the distribution of a fund be paid out of that fund. It follows from this that the costs of the liquidator and the costs of the first defendant as representative defendant should be paid out of the fund. ...
115 In my view the reasoning of Young J is, with respect, correct. (Further, there is no reason, on this aspect, to distinguish an application under s 562 CA from an application under s 562A CA.) For those reasons, in my view, Mr Morgan should have costs of and incidental to the application.
116 The costs and expenses of ‘getting in’, assessing and distributing the insurance proceeds is more difficult. There was also a discussion of that question in Butterell v Douglas Group (at [55]-[62]).
117 The practical problem is that the getting in of the funds has already occurred and the real work to be undertaken is analysing the respective claims and deciding whether the claims, both within the group proceedings and potentially dormant unrepresented claims, should be treated pro rata.
118 ASIC and Mr Morgan have filed lengthy submissions on the topic of Mr Morgan’s claim for remuneration from the insurance funds. (As the approach taken by Mr Morgan to this issue differed slightly on the hearing of the application, the parties were permitted the opportunity to file and serve submissions on the issue arising under s 562 CA.) The last of these submissions was received on 6 August 2013.
119 It is common ground that ordinarily ‘expenses’ would not include ‘remuneration’. In Kardiasmenos, Barrett J noted (at [39]) that the distinction between a liquidator’s remuneration and expenses that he or she incurs is clear and well recognised. The issue in that case (as indicated by Mr Morgan) was the distinction between remuneration and disbursements incurred by a liquidator, the former requiring approval but not the latter.
120 Mr Morgan argues that ‘expenses’ in the context of s 562 CA set out above is broad enough to encompass costs and charges by way of disbursements and actual remuneration. In support of that argument, reliance is placed on the structure of s 556 CA dealing with priority payments which, like s 562 CA, falls within subdiv D of Pt 5.6 headed ‘Priorities’. Section 556(1)(a) provides:
556 Priority payments
(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company’s business;
…
121 It can be seen from s 556 CA that ‘deferred expenses’ means by reference to s 556(1C)(2) CA to include a relevant authority’s remuneration. From this, Mr Morgan argues that it is clear that ‘expenses’, where used in s 556(a) would, but for the express exclusion of ‘deferred expenses’, include remuneration. If that were not so, it is argued, the carve out and deferral of priority of remuneration by the definition of ‘deferred expenses’ would be unnecessary. Mr Morgan argues that the cases relied upon in Kardiasmenos do not support an interpretation of ‘expenses’ in s 562 CA which would exclude remuneration. That is because those cases are concerned with whether the power to approve remuneration includes the power to approve disbursements. In each instance the focus is on the distinction between remuneration and other costs in the nature of disbursements which, on occasions, are, it is said, ‘loosely’, referred to as ‘expenses’. Thus in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 it was held that the provisional liquidator’s disbursements were not considered to be part of his remuneration and did not fall within the provision for court approval of remuneration. In Onefone Australia Pty Ltd v One Tel Ltd (2008) 69 ACSR 290 it was held that a committee of inspection had a role with respect to remuneration but did not in relation to disbursements. In Re Timeshare Resort Club Ltd (in liq) (2010) 187 FCR 13 Barker J held (at [41]-[44]) that the Court can only determine remuneration of the administrator under s 449E(1)(c) CA and such a concept does not include disbursements.
122 As noted above, in Onefone Barrett J used the word ‘expenses’ when referring to ‘disbursements’ but did (at [48]-[49]) note the proper ambit of ‘expenses’ as distinct from ‘disbursements’ under s 556(1) CA.
123 It follows therefore, according to Mr Morgan, that ‘expenses’ in s 562 CA should have a similarly broad ambit such that it includes remuneration. It is argued that nothing in s 562 CA suggests ‘expenses’ is to be given any narrower an ambit than it is given in s 556(1). Therefore, ‘expenses of or incidental to getting in that amount’ means remuneration and disbursements. Although the expression ‘remuneration’ is not used in Butterell v Douglas Group, nothing in the reasoning in that decision conflicts with the position that ‘expenses’ includes remuneration.
124 It is important, from a policy perspective, that it is clear that remuneration must be approved at some point as required by s 499(3) CA. In contrast, issues of quantum of expenses are not matters addressed by the Court at this stage. For those reasons, Mr Morgan argues that for the purpose of question 7, ‘expenses’ as that expression is used in s 562 CA includes the remuneration of the liquidator and staff.
125 This submission is strenuously opposed by ASIC.
126 ASIC argues that given that the word ‘expenses’ is to be given a meaning it would not normally have, it is necessary to consider statutory context, including the general purpose and policy of the provisions. In particular, the mischief that they are seeking to remedy. To do so, that the history of the particular provisions assists in working out the intended mischief that it is sought to be overcome. ASIC relies on the history of s 556 CA from Austin & Black’s Annotations to the Corporations Act (LexisNexis), Ch 5 External Administration Pt 5.6 Winding Up Generally, Div 6 Proof and Ranking of Claims, subdiv D Priorities, where the learned authors say:
History and explanatory materials
[The] predecessors of this section include Companies Act 1929 (UK) s 264, Companies Act 1948 (UK) s 319, UCA s 292 (which was amended by the Companies (Amendment) Act 1971 to reverse aspects of the High Court’s decision in Stein v Saywell (1969) 121 CLR 529; [1969] ALR 481; (1969) 43 ALJR 183…and further amended by the Companies (Amendment) Bill 1973 to confirm the priority of employees’ right to payment in lieu of leave when a company goes into liquidation: see McEvoy v Incat Tasmania Pty Ltd (2003) 130 FCR 503; 46 ACSR 392; [2003] FCA 810…at [8] ff, CC s 441 and CL s 556. This section was amended by the CLRA 1992 to provide for ranking of the various components of the costs, charges and expenses of a winding up, implementing a recommendation of the ALRC General Insolvency Inquiry (Harmer Report); and s 556(1)(e) was amended by the CLRA 1992 to include a reference to superannuation contributions, to ensure that superannuation contributions were given the same priority as wages for the purpose of priority payments under s 556 (EM to the CLR Bill 1992 [905]–[906], [920]). As to s 556(1)(g), the ALRC General Insolvency Inquiry (Harmer Report) noted that the “reason generally put forward to support the priority given to debts due to employees is that they are in a particularly vulnerable position if their employer becomes bankrupt or is wound up” and that there was strong support for the retention of that priority ([721]–[727]). The terms “deferred expenses”, “non-priority day”, “official manager”, “relevant authority”, “spouse” and “superannuation contributions” were introduced in s 556(2) by the CLRA 1992: see EM to the CLR Bill [935]–[940].
Section 556(1)(ba) was introduced by the Corporations Amendment (Insolvency) Act 2007: see EM to the Corporations Amendment (Insolvency) Act [7.225]–[7.226]. Section 556(1)(e) was amended by the Corporations Amendment (Insolvency) Act 2007 to include the superannuation guarantee charge as well as superannuation contributions. Prior to that amendment, Superannuation Guarantee (Administration) Act 1992 s 52 (now repealed) provided for priority of the superannuation guarantee charge in a liquidation but did not confer the same priority on the superannuation guarantee charge as superannuation contributions had under s 556(1)(e): DP Excavation and Haulage Pty Ltd v Commissioner of Taxation (2005) 190 FLR 198; 54 ACSR 274; [2005] NSWSC 533… . Following the Corporations Amendment (Insolvency) Act 2007, the $2000 limit in s 556(1A) applies to the superannuation guarantee charge in respect of excluded employees as well as to wages and superannuation contributions, reversing the position in Deputy Commissioner of Taxation v Rathner (2004) 211 ALR 316; 50 ACSR 533; [2004] VSC 352… . The Corporations Amendment (Insolvency) Act 2007 also introduced s 556(1)(da) and 556(1AA); and introduced ss 556(1AB)–(1AF) to resolve uncertainty as to whether a superannuation guarantee charge arising after the date of a liquidator’s appointment should be treated as having priority with post-appointment debts under s 556(1)(a) or with employee entitlements under s 556(1)(e).
127 ASIC starts with the history of the Australian Companies Legislation under the Companies Act 1961 (Cth) (the 1961 Act), s 292(1) which identified a priority for unsecured debts in an order that included:
(a) Firstly, the costs and expenses of the winding up including the taxed costs of a petitioner payable under s two hundred and twenty four, the remuneration of the liquidator and the costs of any audit carried out pursuant to section two hundred and eighty one …
128 ASIC stresses that what is important to the subsection it is the collocation of words ‘the costs and expenses of the winding up’ to which the extended definition was given, including ‘remuneration of the liquidator’ from which it may be taken that the liquidator’s remuneration was something separate to the costs and expenses of the winding up. In terms of the regime in s 292(1) and its successor, s 441 of the Companies Code, the important change occurred following the recommendations of the Australian Law Reform Commission’s General Insolvency Inquiry (Report No 45, 1988) (Harmer Report). At this time s 441(a) was in the same form as s 292(1) of the 1961 Act. The Harmer Report discussed the separation and reprioritising the costs, charges and expenses of administration using different expressions for the various terms. Following this the Public Exposure Draft and Explanatory Paper for the Corporate Law Reform Bill 1992 made specific reference to recommendations of the Harmer Report (at 550-552) and the recommendation that the exclusion of ‘deferred remuneration’ be defined separately and accorded later priority. It is suggested that ‘deferred remuneration’ was defined in terms to have an intended effect to exclude remuneration payable directly and indirectly to the liquidator, provisional liquidator or administrator, including professional fees of their partners and the salary or other costs incurred by them in paying their employees. There was a minor amendment to the terminology when it appeared on publication of the Explanatory Memorandum to the Company Law Reform Bill 1992 changing ‘deferred remuneration’ to ‘deferred expenses’. The Explanatory Memorandum provided as follows:
Proposed paragraph 556(1)(a)
908. Proposed paragraph 556(1)(a) accords first priority to the expenses properly incurred by the ‘relevant authority’ (to be defined in subsection 556(2) as amended by paragraph 96(b) to mean a liquidator, a provisional liquidator, an official manager, an administrator of a company or an administrator of a deed of company arrangement) in preserving, realising or getting in the assets of the company or in carrying on the business of the company. Excluded from the priority to be accorded by paragraph (l)(a) will, however, be ‘deferred expenses’ (to be defined in subsection 556(2), as amended by paragraph 96(b) to mean remuneration or fees for services payable to the ‘relevant authority’; expenses incurred by the relevant authority for the services of his or her partnership, employees or painters [sic]; and expenses incurred by the relevant authority that it is reasonable to expect that relevant authority or his or her partnership, employee or partner could have instead supplied). The effect of the exclusion will be to exclude remuneration payable directly and indirectly to a liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement, including the professional fees of their partners and the salary or other costs incurred by them in paying their employees or the employees of ‘service’ companies or other entities that may be interposed between them and the company that is being wound up.
909. However, the term ‘expenses’ is otherwise intended to have a wide meaning, to include all payments properly made by the liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement including the payment of the fees of persons such as solicitors, real estate agents and stocktaking agents who are independent of the liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement and who are engaged by them for the purposes of preserving, realising or getting in the assets of the company or carrying on the business of the company.
…
Proposed paragraph 556(1)(dd)
916. Priority is next accorded to any other expenses (other than deferred expenses) properly incurred by the liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement.
Proposed paragraph 556(1)(de)
917. Priority is next accorded to ‘deferred expenses’, namely the remuneration excluded from priority under proposed paragraph (l)(a).
…
‘deferred expenses’
935. ‘Deferred expenses’ will be defined to mean remuneration or fees for services payable to the ‘relevant authority’ (also to be defined in subsection 556(2)); expenses incurred by the relevant authority for the services of his or her partnership, employees or partners; and expenses incurred by the relevant authority that it is reasonable to expect that relevant authority or his or her partnership, employee or partner could have instead supplied). The effect of the definition will be to classify as ‘deferred expenses’ remuneration payable directly and indirectly to a liquidator, provisional liquidator, official manager, administrator of a company or administrator of a deed of company arrangement, including the professional fees of their partners and the salary or other costs incurred by them in paying their employees or the employees of ‘service’ companies or other entities that may be interposed between them and the company that is being wound up.
129 From all of this detailed historical analysis, ASIC argues that history demonstrates that from time to time there have been adjustments in terminology to better suit a reordering of priorities that had hitherto existed in the 1961 Act and was reflected in s 441 of the Code. The connections between ‘expenses’ and ‘remuneration’ and various forms of expression have been specifically directed at facilitating the policy response to that priority issue. This was unaffected by the change from state based to federal based legislation following Re Wakim; Ex parte McNally (1999) 198 CLR 511.
130 ASIC refers to the Full Court decision in Adsett v Berlouis (1992) 37 FCR 201 where the Full Court (Northrop, Wilcox and Cooper JJ) said (at 209-210) in relation to a similar provision dealing with a trustee in bankruptcy:
A trustee in bankruptcy is governed by the general law relating to trustees save where the position of the trustee is modified by the Bankruptcy Act or Rules: see Re Ladyman (1981) 55 FLR 383 at 394-396. The Act confers no right on a trustee to be reimbursed in respect of the costs, charges or expenses incurred in the administration of the estate. The trustee's right to an indemnity is provided under the general law. Under that law a trustee is entitled as of right to a full indemnity out of the trust estate against all costs, charges and expenses properly incurred by the trustee: see Turner v Hancock (1882) 20 Ch D 303 at 305; Re Love,· Hill v Spurgeon (1885) 29 Ch D 348
at 350; Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 558.
A trustee's right to remuneration for his or her own efforts, as distinct from reimbursement of outgoings, is not conferred by the general law. A trustee, generally speaking, has no right to remuneration. Neither does the right to remuneration arise out of the indemnity in respect of "costs, charges or expenses". That collocation of words does not include the value of services provided by the trustee in administering the estate. The concepts of remuneration and outgoings are distinct. It is true that in some statutory provisions - for example, s 109 of the Bankruptcy Act - the trustee's remuneration is specifically included amongst the "costs, charges and expenses of the administration of the bankruptcy". But such special provisions, giving an extended meaning to "costs, charges and expenses", do not remove the conceptual dichotomy between remuneration and outgoings. Rather, they group the two concepts for the limited purposes of the relevant sections.
(emphasis added)
131 On the topic of the role of the liquidator specifically in relation to insurance proceeds which might be used to meet claims against a company by third parties, ASIC points to the joint judgment of Kirby and Hayne JJ in AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd (in liq) (2006) 225 CLR 331 (at [79]-[80]) where their Honours said:
79 When this problem was first revealed, by the decision in In re Harrington Motor Co Ltd; Ex parte Chaplin, legislation was enacted to produce a different result. The Third Parties (Rights against Insurers) Act 1930 (UK) provided that the insolvent company's rights against the insurer under the contract in respect of the liability were transferred to and vested in the third party to whom the liability was incurred. Reinsurance arrangements were explicitly excluded from the operation of this provision. Section 1(5) of the Third Parties (Rights against Insurers) Act provided that:
“For the purposes of this Act, the expression ‘liabilities to third parties,’ in relation to a person insured under any contract of insurance, shall not include any liability of that person in the capacity of insurer under some other contract of insurance.”
80 Australian companies legislation took a different path from that taken by the Third Parties (Rights against Insurers) Act. Rather than proceed by vesting the insolvent company's rights against the insurer in the third party to whom the liability was incurred, provision was made in the companies legislation for preferential treatment of such a liability. Thus, s 297(5) of the Companies Act 1936 (NSW) provided that:
“(a) Where the company is, under a contract of insurance, insured against liabilities to third parties, then in the event of any such liability being incurred by the insured (either before or after the commencement of the winding up) the amount of the liability so incurred shall upon being received by the liquidator be held by him in trust and be paid by him to the third party to whom such liability was incurred to the extent necessary to discharge any liability remaining undischarged.
(b) If the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this subsection shall limit the rights of the third party in respect of the balance.
(c) The provisions of this subsection shall take effect notwithstanding any agreement to the contrary entered into after the commencement of this Act.”
Provisions of this kind were to be found in Australian companies legislation until 1992. In 1992, the Corporate Law Reform Act 1992 (Cth) made two changes to the Corporations Law that are immediately relevant. First, it amended s 562 of the Corporations Law by excluding contracts of reinsurance from the reach of that provision. Secondly, it inserted s 562A. That section, in its terms, deals with contracts of reinsurance.
(footnotes omitted)
132 So ASIC submits that it would be a peculiar result if ‘expenses’ were to be read as remuneration for the purposes of the CA. Section 562 does not itself create any entitlement to payment but only for priority. It is necessary to look elsewhere in the CA, it is argued, for the creation of the entitlement to remuneration should ‘expenses’ have the meaning that Mr Morgan contends for.
133 As this was a creditors’ voluntary winding up commencing before the Corporations (Amendments Insolvency) Act 2007 (Cth) on 31 December 2007, the entitlement to remuneration is to be found in s 499(3) CA as it stood prior to that date. The result is that where there is a committee of inspection in office, the task of fixing the liquidator’s remuneration is for it alone. Only if there is no committee in office may the creditors as a body fix the remuneration: s 499(3) CA as it stood prior to 31 December 2007. The Court has no role in fixing the remuneration under s 499(3) CA apart from the process under s 499(3) breaking down or there being no committee or the committee failing to agree in which case there may be recourse under subs 511(1)(a) or (b) CA.
134 As ASIC notes, in terms of incurring ‘expenses’, Mr Morgan is in a fiduciary relationship with the Company’s creditors. The committee of inspection approval route for remuneration under s 562 CA has a strange effect on the fiduciary relationship. Consent to the fiduciary’s remuneration is not required from the very persons that are most directly affected by it. It would follow that if the argument advanced for Mr Morgan is correct, one would have to attribute intention to the legislature of a conflict laden process for the fixing of remuneration for the purposes of s 562 CA.
135 ASIC relies upon observations of Needham J in Saltergate Insurance Co Ltd and the Companies Act (No 2) [1984] 3 NSWLR 389, not referred to by Young J in Butterell v Douglas Group but referred to with apparent approval in Young, PW, Croft, C, Smith, ML, On Equity (Lawbook, 2009 at p 1012) without criticism. In Saltergate, Needham J dealt with a submission that the sum payable under s 292(5) could not be decreased in any way except for the deduction referred to in the subsection. It will be recalled that the deduction was for ‘any expenses of or incidental to getting in such amount’. Justice Needham noted that the section included the words ‘be paid by the liquidator to the third party in respect of whom the liability was incurred to the extent necessary to discharge that liability or any part of that liability remaining undischarged …’ (emphasis added). Justice Needham considered (at 393) that the equitable principle in Cherry v Boultbee (1839) 4 My & Cr 442 is applicable when one comes to consider what is ‘necessary to discharge the liability’ which is the subject of the claim by the policy holder.
136 ASIC suggests that there is a distinction between s 562 and s 562A CA because the words ‘to the extent necessary’ (which appeared in s 292(5)) remain in the present version of s 562 CA but do not appear in s 562A CA. This would be explained by the complexity of reinsurance arrangements which prompted the need for s 562A CA in the first place. Instead of including the expression ‘to the extent necessary’, subs 4 and subs 5 of s 562A CA set out a separate statutory regime for adjustment based upon a ‘just and equitable’ criteria. Accordingly, ASIC argues that Butterell v Douglas Group is distinguishable. If it is authority for s 562A CA, it is not authority in respect of the operation of s 562 CA.
137 ASIC also contends that the more recent judgment of Barrett J in Re HIH Casualty and General Insurance Ltd (2005) 215 ALR 562 (at [100]-[102]) cast doubt on either the applicability or correctness of Butterell v Douglas Group. ASIC argues that Barrett J appears to have accepted that the principle in Re Universal Distributing Company Ltd (In Liq) (1933) 48 CLR 171 could be adopted by analogy in respect of the creation of funds for the purpose of s 562A CA such that Mr Morgan would be entitled to receive reasonable remuneration and expenses incurred with the assembling and preservation of the fund. There would remain the important distinction between remuneration and costs of the administration generally and those for assembling and preserving the subject property. Remuneration and costs of the administration generally would not fall within this principle. The liquidator could only claim in respect of work necessary for remuneration and costs reasonably incurred where there was a sufficient nexus with the salvage objective. Consistent with this, ASIC emphasises that the words ‘getting in’ point to the taking of possession of assets or proceeds which are in the possession of someone else: Australian Industry Development Corporation v Co-operative Farmers & Graziers Meat Supply Ltd (1978) 3 ACLR 543 (at 549).
138 ‘Incidental’ would not be broad enough to extend to remuneration for work carried out after the ‘getting in’. As a matter of ordinary English usage, ASIC points to the fact that incidental means, amongst other things, ‘happening or likely to happen in fortuitous or subordinate conjunction with something else’ or ‘occurring or liable to occur in fortuitous or subordinate conjunction with something else of which it forms no essential part; casual’. In other words, it must be referrable at least to the object of ‘getting in’ the proceeds. Nothing in the words ‘incidental to’ would extend to the consideration of and disbursement of insurance moneys once they had been ‘got in’.
Consideration
139 Despite the detailed and careful arguments for ASIC, I favour the arguments expressed for Mr Morgan. In particular, as a matter of general law, in my view he would be entitled to fair remuneration in the circumstances of this case.
140 Mr Morgan contends that he ought be entitled to payment out of the insurance proceeds and accrued interest his costs and remuneration relating to the getting in of the fund and all inquiries and assessments necessary to ascertain the parties to whom payment is to be made and distributing the funds. Mr Morgan argues that there are two mechanisms for achieving this end. The first is by exercise of a lien. There is a difficulty in the way of the argument for Mr Morgan on this topic in the decision of Butterell v Douglas Group but Mr Morgan argues that the decision is distinguishable or incorrect. The alternate method is in accordance with the words of s 562 CA by extending the ordinary meaning of ‘expenses’ to include remuneration.
A lien
141 In so far as a lien is concerned, equity (leaving the statute aside) recognises that there may be a right to an indemnity for costs and expenses including remuneration secured by an equitable lien. Such an equitable lien may extend to certain officers including receivers appointed both by the Court or under an instrument or otherwise, voluntary administrators, provisional liquidators, liquidators in a court ordered winding up and liquidators in a creditors winding up (applicable in the present circumstances). In respect of a creditors winding up authority for the applicability of an equitable lien may be found in Re S&D International Pty Ltd (No 5) [2011] VSC 30 (at [27] and [271]).
142 In my view, the observations of Dixon J in Universal Distributing are particularly apt to the present circumstances where his Honour said (at 174-175):
In applying this principle, only those expenses appear to have been thrown against the fund belonging to the debenture-holders which have been reasonably incurred in the care, preservation and realization of the property. In the present case the liquidator has employed a material part of his time and energies in recovering moneys, both uncalled capital and debts, which enure for the debenture-holder, and in so far as these services increase the remuneration which he receives, I see no reason why the burden should not be thrown upon the proceeds. The question is not whether moneys available for unsecured creditors should be relieved at the expense of the security. In such a case it may be said that the service of collecting enough to discharge the debenture must in any event be performed in order that a surplus may then arise in which the unsecured creditors may participate. The question in the present case is whether the liquidator can charge against the fund passing through his hands as between himself and the person to whom it is payable, so much of the remuneration fixed for work done in the winding up as is referable to the calling in and conversion of the assets producing the fund. I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.
143 For the present circumstances there would be additional work involved beyond ‘raising the fund’.
144 Further, as noted by Warren CJ in Atco Controls Pty Ltd (in liq) v Stewart (in his capacity as liquidator of Newtronics Pty Ltd) [2013] VSCA 132 (at [32]):
I am of the view that the principle as articulated in Universal Distributing does not apply in the particular circumstances of this case. This, in itself, is not sufficient to prevent a lien arising in favour of Stewart since a lien may be conferred on a broader basis than that articulated by Dixon J.
(emphasis added)
And also Redlich JA (at [153] and [173]):
153 It is convenient to now briefly summarise the competing arguments. The liquidator submitted on behalf of both respondents that he had an equitable lien incurred in the preservation and realisation of the chose in action in Newtronics’ claim against the receivers. He relied upon one of the exceptions to the rule that a corporate administrator’s costs and expenses do not have priority over a fixed charge, namely the equitable principle formulated by Dixon J (as he then was) in Universal Distributing. Although the parties focussed upon whether the liquidator fell within that exception, for the reasons that follow, the circumstances of the case required recourse to overarching equitable principles including the equity arising from unconscientiousness conduct. These considerations are central to the question whether an equitable lien arose.
…
173 However, the circumstances in which equity may consider that justice requires the recognition of the existence of a lien are not confined to those categories of exception to which I have referred. The exceptions may be regarded as illustrations of an overarching equitable principle. It was therefore not critical to the establishment of a lien that the liquidator bring himself within circumstances analogous to those in the Universal Distributing exception, or any other exception. The liquidator did submit in the alternative, in passing, in his written case, citing Hewett v Court, that if it is necessary to resort to more general expressions of equitable principles in order to support the lien, they are in any event satisfied. However, he did not amplify this contention or seek to demonstrate why it was that equity should on some broader basis come to his assistance.
(footnotes omitted)
145 Warren CJ in Atco (at [29]), citing Buss JA in Coad v Wellness Pursuit Pty Ltd (in liq) (2009) 40 WAR (at 80-81), said:
In Coad v Wellness Pursuit Pty Ltd (in liq) Buss JA analysed the relevant authorities in some detail and observed that:
My examination of the case law concerning the right of indemnity and equitable lien of a receiver, receiver and manager, provisional liquidator or liquidator appointed by the court, the equitable lien of an administrator appointed under Pt 5.3A, and the rule in Ford v Earl of Chesterfield (No 3) (1856) EngR 292; (1856) 21 Beav 426; 52 ER 924 reveals that the rationale for the existence of the right of indemnity or equitable lien, as the case may be, of these officers has not been articulated on a consistent legal basis. It is unnecessary, however, in the present appeal, to endeavour to reconcile the case law.
Buss JA concluded that a non-exhaustive test of when an equitable lien will be given priority over a prior charge was whether the holder of the charge ‘would be acting unconscionably if it were to assert priority over the assets realised ... without the relevant remuneration, costs and expenses having been discharged.’
(footnotes omitted)
146 Similarly, Spigelman CJ observed in Dean-Willcocks v Nothintoohard Pty Ltd (in liq) (2007)25 ACLC 109, a question arises therefore as to whether the assertion of a right to the funds in priority to or to the exclusion of a liquidator’s entitlement to remuneration in getting in and distributing the funds is conscionable. As a matter of policy, there is a public interest in encouraging liquidators to actively pursue the entitlements of the company concerned, not only in the interests of the creditors and also and directly in the interests of the members of the company. See the discussion in Atco (per Warren CJ (at [79]-[87]).
147 As Mr Morgan submits, it is clear in this instance that the claimants will undoubtedly receive a benefit to which they would not be likely to achieve as a result of his labours. As observed by Warren CJ in Atco (at [93]), this is certainly a relevant factor in considering whether or not it would be unconscientious for claimants to assert a right to the settlement sum or insurance proceeds, in this instance, without recognising the costs, expenses and fees incurred in producing that sum. It may also be argued that ‘[t]hose who seek to take the benefit of the administration should not escape the burden of its proper cost’: see Atco per Redlich JA (at [169]-[170]) and the detailed discussion of the rule in Ford v The Earl of Chesterfield (No 3) (1856) 52 ER 924 in Australian Securities and Investments Commission v GDK Financial Solutions Pty Ltd (in liq) (No 3) (2008) 246 ALR 580 per Finkelstein J (at [10]-[19]).
148 Although the claimants are not secured creditors as in Universal Distributing, the legislation by reference to s 562 CA does recognise that they have an interest in the fund and its proper administration and distribution.
149 As Mr Morgan contends, it is difficult to see any policy reason depriving Mr Morgan of remuneration in circumstances where:
(a) each creditor sought leave and obtained leave to proceed against the Company;
(b) each creditor did so with knowledge of the insurance policies as the purpose of proceeding the Company and being the means of satisfying a contribution to their alleged losses;
(c) each claimant has depended upon Mr Morgan to pursue claims on and to recover claims from the Insurer; and
(d) each claimant, subject to verification, is entitled to the benefit from the substantive statutory provision under s 562 CA which applies only to the circumstances of a liquidation and evinces a policy intent to cater for third party claimants in whose favour, benefits can only be achieved at the instance of the efforts of Mr Morgan, albeit that it might be argued that Mr Morgan is obliged to pursue such remedies.
150 As recognised by Dixon J in Universal Distributing, the question is not whether Mr Morgan would derive some windfall from carrying out these functions. There are proper constraints on the means by which and for which work a liquidator can be remunerated so it is difficult to describe it as a windfall. Such constraints would be recognised both ordinarily and in the context of resolution of the current matter.
151 Further a discussion by Warren CJ in Atco on this point is, in my respectful view, persuasive where her Honour says (at [86]):
The policy against allowing recovery for the costs of conferring an unrequested benefit is weaker in the case of a liquidator than an officious bystander. The liquidator was not seeking to advance his own interests. Further, there is a public interest in encouraging successful interventions of this kind by liquidators. I observe that the courts would not be served by creating a situation where qualified persons will be reluctant to accept office as a liquidator.
152 There will always be the important question as to the scope of the lien. But as indicated, that alone should not stand in the way of recognising that a liquidator should be entitled to be remunerated for conferring this benefit on claimants. As Mr Morgan points out, should the Court be satisfied that an equitable lien is available to him, any issues which cannot be resolved between the parties as to its scope and the nature of work undertaken by him can be dealt with separately if required. He can and has undertaken to present accounts and apply to the Court if and as required.
153 There is a question as to whether ordinary concepts of equity are excluded by operation of provisions of the CA. Generally speaking, in the absence of a clear intention, statutes are interpreted as being consistent with principles of equity: Minister for Lands and Forests v McPherson (1991) 22 NSWLR 687 (at 696). As noted by Young J in Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64 (at 71), the Corporations Law should not be construed as excluding equitable liens which would otherwise be held to exist by a court of equity were it not for specific provisions of Pt 5.3A CA. His Honour was of the view that the Corporations Law should not be read as overriding pre-existing rights unless it says so with some clarity.
154 There seems no policy reason and no express terms suggesting that the legislators intended that a liquidator ought conduct a task, effectively of salvage, for the benefit of particular creditors but be denied the benefit of equity’s intervention in circumstances where there would be scope for unconscionability. Butterell v Douglas Group, in considering similar wording in s 562A CA, is authority for the proposition that there was no sufficient ambiguity. In that decision, Young J came to the view that in respect of that section, equity was ousted and his Honour declined to find a lien. Mr Morgan submits that in relation to this issue, his Honour erred in that there are no ‘clear words’ excluding a right to a lien. Accordingly, the decision can properly be departed from insofar as it may concern the scope for operation of an equitable lien in the context of s 562 CA.
155 I need not concern myself with that contention as Butterell v Douglas Group is not a binding authority in the context of consideration of s 562 CA. It is common ground that there are significant differences between the two sections such that the conclusion reached may be applicable to s 562A CA but not in respect of s 562 CA. The parties are agreed, at least, that there are grounds for distinction between the sections.
statutory entitlement
156 Although it is unnecessary in light of the conclusion already expressed, I turn then to consider the statutory interpretation question. This involves this construction of the meaning ‘expenses’ taken in the context of s 562 CA. In this context it refers to payment of ‘expenses’ of the liquidator. It is not defined but it is common ground that ‘expenses’ does not usually include ‘remuneration’. On the other hand, there is nothing within the wording of s 562 CA which confines the meaning of ‘expenses’. To the extent the word is described as distinct from confined, it is ‘any expenses of or incidental to getting in’. These concepts are, arguably, expansive rather than limiting. Looking at the purpose (most of this having been discussed under the topic of equitable liens), it seems unlikely that the legislature would have any reason for expecting that the liquidator should go to work, the value of which is properly reviewable in order to achieve a benefit for creditors without, in turn, being remunerated.
157 Put another way, there would be, in practice, no saving and possibly an increase in cost to the creditors if Mr Morgan paid someone else to do that work, which work could then properly be described as an expense.
158 Although not necessary to support my conclusion based on a lien, I am inclined to accept the argument for Mr Morgan that this construction appears to be supported by examination of the sections themselves within Div 6 of Pt 5.6 CA entitled ‘Priorities’. This is where s 556 and s 562 CA are to be found. Section 556(1) CA provides as follows:
556 Priority payments
(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
(a) first, expenses (except deferred expenses) properly incurred by a relevant authority in preserving, realising or getting in property of the company, or in carrying on the company’s business;
(b) if the Court ordered the winding up—next, the costs in respect of the application for the order (including the applicant’s taxed costs payable under section 466);
(ba) if:
(i) during the period of 12 months ending when the winding up commenced, an application (the first application) was made under section 459P for the company to be wound up in insolvency; and
(ii) when the first application was made, the company was not under administration; and
(iii) the company began to be under administration at a time after the first application was made; and
(iv) the first application was not withdrawn or dismissed before the administration began; and
(v) the Court did not, in response to the first application, make an order under section 459A that the company be wound up in insolvency;
next, the costs in respect of the first application;
(c) next, the debts for which paragraph 443D(a) or (aa) entitles an administrator of the company to be indemnified (even if the administration ended before the relevant date), except expenses covered by paragraph (a) of this subsection and deferred expenses;
(da) if the Court ordered the winding up—next, costs and expenses that are payable under subsection 475(8) out of the company’s property;
(daa) if the company resolved by special resolution that it be wound up voluntarily—next, costs and expenses that are payable under subsection 446C(8) out of the company’s property;
(db) next, costs that form part of the expenses of the winding up because of subsection 539(6);
(dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority;
(de) next, the deferred expenses;
(df) if a committee of inspection has been appointed for the purposes of the winding up—next, expenses incurred by a person as a member of the committee;
(e) subject to subsection (1A)—next:
(i) wages, superannuation contributions and superannuation guarantee charge payable by the company in respect of services rendered to the company by employees before the relevant date; or
(ii) liabilities to pay the amounts of estimates under Division 268 in Schedule 1 to the Taxation Administration Act 1953 of superannuation guarantee charge mentioned in subparagraph (i);
(f) next, amounts due in respect of injury compensation, being compensation the liability for which arose before the relevant date;
(g) subject to subsection (1B)—next, all amounts due:
(i) on or before the relevant date; and
(ii) because of an industrial instrument; and
(iii) to, or in respect of, employees of the company; and
(iv) in respect of leave of absence;
(h) subject to subsection (1C)—next, retrenchment payments payable to employees of the company.
(emphasis added)
159 Section 556(1)(dd) CA provides as follows:
556 Priority payments
(1) Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:
…
(dd) next, any other expenses (except deferred expenses) properly incurred by a relevant authority; …
160 The payment of a liquidator’s remuneration is permitted but is deferred, deferred expenses being defined in s 556(2) CA to include a relevant authority’s remuneration or fees for services. Where expenses in this context under the meaning of ‘deferred expenses’ appears, it confirms that remuneration (and fees for services) fall within the ambit of the word ‘expenses’. If expenses did not include remuneration, the exclusion of remuneration by the definition of ‘deferred expenses’ would have been unnecessary. There is no obvious reason why expenses in this context (within s 556 CA) would not include fees for services and remuneration.
161 To reach that conclusion it is unnecessary to review prior statutory provisions or the history of the matter. If one does so, however, it does appear that prior to the 1993 amendments, liquidators operated under a regime where ‘remuneration’ was expressly included in the expression ‘costs, charges and expenses’. There is no compelling reason why that should not have continued after the 1993 amendments subject always to the overriding rights of review as to appropriateness and quantum.
162 Again, it does not seem to me to be necessary to refer to history or to refer to other extrinsic materials. The meaning of the words in their context taken with apparent legislative purpose appears to support Mr Morgan’s argument that expenses in this context includes remuneration. Reliance upon bankruptcy cases is fraught with difficulty due to the different wording used in the two statutes. Moreover, I accept the submission for Mr Morgan that in the case of Adsett, the difference under consideration was between remuneration and outgoings, rather than remuneration and expenses. In the end though, it is a matter of looking at the broader statutory context.
163 I can discern no policy why the word ‘expenses’ in s 562 CA should be given different meaning to the word ‘expenses’ in s 556(1) CA. Section 562 follows shortly after s 556 within the same topics of discussion in subdiv D of Pt 5.6 dealing with priorities. When one reads s 562 CA it would be presumed that s 556 CA has been read first. There is no definition of ‘expenses’ in either of the sections but most importantly, there is nothing in the consequences of the interpretation of expenses as including remuneration which produces an unusual anomaly. To the contrary, in my view, it accords with the statements of principle by Dixon J in Universal Distributing. The clear purpose of s 562 CA is to see that creditors with valid claims are paid.
Review of charges
164 As indicated at the outset, since the hearing of this matter, quite extensive additional submissions have been supplied as well as other communications exchanged.
165 In particular, there have been communications about whether or not, if the Court took the view that Mr Morgan was entitled to remuneration arising by way of an equitable lien, Mr Morgan would make application to the Court as distinct from any committee of inspection or creditors for approval of remuneration.
166 In the interests of simplifying matters the parties have, in substance, agreed that ‘subject to any further order’, Mr Morgan will apply to the Court for approval of his remuneration.
167 That is the nature of the order that I propose should be made.
168 At this stage, I do not propose making any further orders other than that Mr Morgan should within 14 days file and serve a minute of answers and orders which reflects these reasons. If either ASIC or State oppose the form of the minute and if such opposition cannot otherwise be agreed, short submissions should be filed accompanying the opposition within 10 days and within a further 10 days there should be a response from Mr Morgan. ASIC and State should also make any submissions not exceeding two pages on costs. Those issues will be determined on the papers.
I certify that the preceding one hundred and sixty-eight (168) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. |
Associate:
