FEDERAL COURT OF AUSTRALIA Australian Securities & Investments Commission v Piggott Wood & Baker [2006] FCA 1774 WINDING UP – liquidator's costs and expenses of responding to requests for information by ASIC – winding up order providing that costs of liquidator to be confirmed by District Registrar Held: 1. Confirmation by District Registrar reviewable by rehearing de novo 2. Liquidator entitled to be paid costs of providing information Corporations Act 2001 (Cth) ss 473(3) and (5), 536(1)(a), 601EE(1) Legal Profession Act 1993 (Tas) s 108(2)(a)(iii) Federal Court of Australia Act 1974 (Cth) s 35A(1)(h) Federal Court (Corporations) Rules 2000 (Cth) r 16.1(1),(2) Schweppes Ltd v Archer (1934) 34 SR (NSW) 178 at 183 distinguished Harris v Caladine (1991) 172 CLR 84 cited Cachia v Westpac Financial Services Limited [2003] FCA 817 at [18]-[24] cited Mazukov v University of Tasmania [2004] FCAFC 159 at [21]-[24] cited Pantzer v Wenkart (2006) 153 FCR 466 at [44] discussed Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 at 102-106 discussed Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424 discussed Ide v Ide (2004) 50 ACSR 324 discussed Australian Securities and Investment Commission v Atlantic 3 Financial (Aust) Pty Ltd [2004] QSC 133 discussed Mirror Group Newspapers plc v Maxwell [1988] 1 BCLC 638 discussed AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v PIGGOTT, WOOD & BAKER (A FIRM) TAD 42 OF 2001 HEEREY J 18 DECEMBER 2006 MELBOURNE (HEARD IN HOBART) IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY tAD 42 OF 2001 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant AND: PIGGOTT WOOD & BAKER (A FIRM) Respondent JUDGE: HEEREY J DATE OF ORDER: 18 DECEMBER 2006 WHERE MADE: MELBOURNE (HEARD IN HOBART) THE COURT ORDERS THAT: 1. Barry Keith Hamilton is entitled to be paid $85,639.65 by the Solicitors Trust. 2. The interlocutory application of the applicant dated 5 December 2006 is dismissed. 3. The parties are to file and serve written submissions as to costs by 10.00 am on Wednesday 20 December 2006. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY TAD 42 OF 2001 BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant AND: PIGGOTT WOOD & BAKER (A FIRM) Respondent JUDGE: HEEREY J DATE: 18 DECEMBER 2006 PLACE: MELBOURNE (HEARD IN HOBART) REASONS FOR JUDGMENT 1 This interlocutory application raises the question whether a liquidator's remuneration for services in a winding up by the Court should include payment for work done and reimbursement for expenses incurred in responding to requests for information by the Australian Securities and Investments Commission (ASIC) concerning the liquidation. The Winding Up Order 2 Mr Barry Kenneth Hamilton (the Liquidator) is the liquidator of the Piggott, Wood & Baker Managed Investment Scheme (the Scheme), having been so appointed by order of Sundberg J on 13 December 2001 on the application of ASIC. 3 The Scheme was an unregistered managed investment scheme conducted by the Hobart legal firm Piggott, Wood & Baker. The Scheme involved the receipt of funds from Investors and the lending out of those funds on security of mortgages over real estate. Sundberg J ordered that the Scheme be wound up pursuant to s 601EE(2) of the Corporations Act 2001 (Cth) with the Liquidator having all the powers that a liquidator of a company would have under s 477 of the Corporations Act, including certain powers specified in the Order. 4 One of those powers, as provided in par 2(b)(xi) of the Order, was the power "to receive remuneration for services in an amount equal to the cost of the time actually spent in the performance of such services by the Liquidator or any partner in or employee of the firm to which the Liquidator is attached, calculated at the standard rates of the firm from time to time for work of that nature, together with all reasonably [sic] out of pocket expenses, provided that such rates do not exceed the rates recommended as at 1 July 1999 from time to time by the Insolvency Practitioners Association of Australia plus GST if applicable, such remuneration to be paid from the proceeds of the winding-up and/or such sources as may be available." 5 Subsequent to Sundberg J's order the Legal Profession Act 1993 (Tas) was amended by the insertion of s 108(2)(a)(iii), which provided that the Solicitors Trust (the Trust), a statutory corporation (see s 95) administering the Guarantee Fund (see ss 97, 107), "must apply the funds of the Guarantee Fund (a) in the payment of any (i) … (ii) … (iii) remuneration payable to, and costs incurred by, a liquidator appointed under s 601EE of the Corporations Act 2001 of the Commonwealth, to wind up an unregistered managed investment scheme operated by a firm, … on the application of the Australian Securities and Investment Commission …" 6 In consequence of that amendment, and on the application of ASIC, I made an order on 20 August 2002 (i) amending the order of Sundberg J by removing the words "the proceeds of the winding-up and/or such sources as may be available" and replacing them with the words "the Guarantee Fund pursuant to section 108(2)(a)(iii) of the Legal Profession Act 1993" and (ii) inserting the following: "Prior to the liquidator obtaining payment of his remuneration, costs and expenses from the Guarantee Fund pursuant to section 108(2)(a)(iii) of the Legal Profession Act 1993, the District Registrar review the liquidator's remuneration, costs and expenses and confirm, increase or reduce that remuneration, cost and expenses." 7 The Order makes provision for the reporting by the Liquidator as to the progress of the winding up. Under par 2(e) of the Order the Liquidator is required no later than 21 days after the date of the Order to send to Investors in the Scheme notice of his appointment, the estimated timetable for winding up, the "proposed two-monthly report to each Investor referred to in subparagraph (g) [sic, presumably (f)] below and a contact address for the Liquidator". 8 By par 2(f) the Liquidator is required, before the expiry of two months after the sending of the letter referred to, and on a two-monthly basis thereafter, to "prepare and send a newsletter to each Investor and to ASIC detailing: (i) actions taken in relation to particular loans during the previous two months; and (ii) actions anticipated to be taken during the following two months." 9 By par 2(g) the Liquidator is to send to each Investor "a quarterly account, including a statement setting out the fees, costs and disbursements (including anticipated remuneration of the Liquidator as yet not approved by the Court) allocated to the particular loan or loans in which the Investor has an interest". Monthly bills submitted 10 Pursuant to the Order as amended, the Liquidator submitted monthly bills to the District Registrar for the months of December 2005 to August 2006 both inclusive. The District Registrar confirmed the bills. The Trust paid the Liquidator the amounts of the bills but after deducting the Liquidator's fees and expenses in responding to enquiries from ASIC amounting to $85,639.65. The present applications 11 The Liquidator has brought the present application under s 479(3) of the Corporations Act and par 2(c) of the Order seeking directions that the Liquidator is entitled to be paid by the Trust the sum of $85,639.65. 12 In the course of hearing ASIC was given leave to file an application under s 477(6) of the Corporations Act and pursuant to par 2(c), for a direction "that the Liquidator not exercise his power to receive remuneration or recover expenses for or relating to his responses to the ASIC enquiries initiated by its letter dated 20 December 2005, which responses concluded with the Liquidator's letter dated 7 August 2006 to ASIC, other than remuneration or expenses for or relating to (a) work which would have been done in any event, or (b) work which added value to the liquidation." 13 There is no issue as to quantum. ASIC accepts that the work in question has in fact been done by the Liquidator and charged for at the appropriate rate and the expenses incurred. Either expressly or by necessary implication ASIC's case is that the work is not "services" within the meaning of par 2(b)(xi) of the Order. ASIC does not allege any improper conduct on the part of the Liquidator. Nor is there any criticism of the District Registrar. Complaints by Trust to ASIC 14 On 21 February 2005 the Trust wrote to ASIC referring to another administration which involved an application to this Court relating to the level of fees and their reasonableness and "wonder(ing) whether ASIC might hold similar concerns in the context of the PWB matter". The letter expressed "concerns for the quantum of fees and the seemingly endless and questionable cost benefit of some of the steps being taken by the liquidator". Copies of some earlier correspondence between the Liquidator's solicitors and the Trust were enclosed. 15 On 2 May the Trust wrote again thanking ASIC for the opportunity to discuss several matters concerning the Scheme, commending the Liquidator for his actions in relation to another matter concerning the Scheme, which is not relevant for present purposes, but noting that there remained "matters of concern" which had been discussed. 16 On 27 May the Trust wrote to ASIC enquiring as to the reasonableness of the legal costs and expenses of investigating possible proceedings against a valuer. 17 On 9 August the Trust sent an email to ASIC noting total costs and expenses paid to the Liquidator and also those concerned with the possible action against the valuer, and enquiring whether ASIC was "intending to do anything about these matters". 18 On 19 October the Trust wrote to ASIC complaining about the payments to the Liquidator in respect of the Scheme liquidation and two other similar liquidations. ASIC requests information from Liquidator 19 On 20 December 2005 ASIC by its Special Counsel – Enforcement Tim Honey wrote to the Liquidator as follows (formal parts omitted): "Thank you for the copies of the Creditor Reports you provided on 8 December 2005 in relation to the above matter. Whilst those reports provide some information about the matters currently being pursued in this liquidation, ASIC would like to receive more detailed information about those matters. In particular, ASIC would like to understand the benefits and cost of the work currently being undertaken. I would appreciate it if you would provide a further report that covers the following issues: 1. A list of all creditors. 2 The total amount of money recovered from the liquidator to date and the total amount of money still outstanding to each creditor. 3. A summary of all litigation that is current or contemplated. 4. In relation to each piece of litigation (whether current or contemplated), the following information: a. A description of that litigation. b. An assessment of your prospects in that litigation. c. The amount of money potentially recoverable should that litigation prove successful. d. The identity of the investors who stand to benefit from that litigation and the aggregate amount still outstanding to those investors. e. Your fees and expenses incurred to date in pursuing that litigation. f. Any information you have regarding the viability of the litigation being undertaken (for example, the ability of the defendant to satisfy any judgment that may be obtained). g. An estimate of future fees and expenses to be incurred. 5. A description of any other tasks or matters that remain outstanding in this administration. 6. In relation to the litigation or proposed litigation against the valuer, Robert Jones: a. Whether, and when, you obtained any approval from the Court to commence that litigation. b. If that litigation has been commenced, copies of all court documents in that litigation. c. If that litigation has not been commenced, the reasons for this delay. d. [Deleted]. e. Details of your dealings with the former partners of Piggott Wood and Baker or their trustees in bankruptcy in relation to this litigation. I would appreciate it if this report could be provided to me by 20 January 2005 [sic]. If you do not believe you are able to do this within that time, I would be happy to discuss alternate arrangements. Please telephone me on (03) 9280 3442 should you wish to discuss any aspect of this matter." 20 On 25 January 2006 the Liquidator replied to ASIC. The letter enclosed annexures providing: · A list of creditors as at 5 December 2005; · A statement of asset realisations and payments; · A summary of all litigation current or contemplated; · Information about each piece of litigation (current or contemplated) including the Liquidator's assessment of prospects, the amounts potentially recoverable, the identity of Investors who stand to benefit, fees and expenses incurred and estimated and information regarding the viability of the litigation; · Matters presently outstanding or requiring further investigation; · Information about the litigation against the valuer. 21 On 21 March the Liquidator met with ASIC officers. On 10 April ASIC wrote making a number of comments. ASIC noted the particular role of the Trust in the light of its "unusual" obligations under the Legal Profession Act. It should, in ASIC's view, be kept informed as a creditor and "consulted on important decisions". If the Trust does not have an interest in any steps then these steps "must be reasonable and your general duties as a liquidator observed". The letter stressed that these were "general observations only and no inference is intended that you have acted inappropriately". It was said: "ASIC is concerned that communications between you and the Trust are strained and need to be urgently repaired. Given the importance of this relationship, ASIC expects you to make all necessary efforts to ensure the Trust is kept fully informed of developments and actively involved in the progress of the liquidation wherever possible." 22 As to the future conduct of the litigation, the letter requested that the Liquidator "give consideration" to a number of matters, including the provision of monthly reports to creditors, including the Trust and ASIC, convening meetings of creditors and sending copies of monthly bills to ASIC at least 14 days before they are to be considered by the District Registrar. The letter concluded: "In ASIC's view, it is not appropriate to seek payment of your time cost and other charges relating to these inquiries from the funds held in the liquidation or from the trust. Please confirm that you will return any funds already obtained and not make such a claim in the future." 23 On 22 May the Liquidator replied. After responding to some of the criticism by the Trust, and complaining of the Trust's own actions and decisions in some respects, the Liquidator provided information about existing litigation. He said that it was not cost-effective to provide monthly reports to creditors but he was "quite content" to provide a monthly report to the Trust and ASIC. He agreed to provide his bills to ASIC, but at the same time as submitting them to the District Registrar. He noted that some of the tasks undertaken by his solicitors and himself would have to have been completed in any event when reviewing the current status of the litigation and determining what steps should be taken. 24 ASIC replied on 2 June confirming that the Liquidator had agreed to send monthly creditor reports to ASIC and the Trust and to "generally keep the Trust informed as to the conduct of the litigation". However, ASIC did not agree that the Trust was "liable to remunerate (the Liquidator) for the time and other charges incurred in responding to ASIC inquiries in relation to (his) conduct in this matter". 25 On 7 August the Liquidator wrote to ASIC noting that he had adopted the practice of requesting the District Registrar not consider the bills until 14 days after they were provided to him. The letter reported on current litigation. Some procedural issues 26 Mr Tree SC, senior counsel for the Liquidator, said his primary position was that the District Registrar had confirmed the Liquidator's bills and that was the end of the matter. It was only out of politeness that the present application had been made rather than suing for a debt. 27 Alternatively, Mr Tree submitted that review by the Court was constrained in the same way as courts are upon a review of a taxation of costs. In such a case it is said that the Court will only interfere on an error of principle or, on a matter of discretion, "where the taxing officer's discretion appears not to have been exercised at all, or to have been exercised in a manner which is manifestly wrong; and where the question is one of amount only, will do so only in an extreme case": Schweppes' Ltd v Archer (1934) 34 SR (NSW) 178 at 183. 28 Neither submission should be accepted. The power of the District Registrar to determine or review (or "confirm, increase or reduce") the Liquidator's remuneration and expenses comes from the Court's powers under s 473(3) and (5) of the Corporations Act. A power of the Court may be delegated to a Registrar by Rules of Court: Federal Court of Australia Act 1974 (Cth) s 35A(1)(h). The powers in question were delegated by r 16.1(1) of the Federal Court (Corporations) Rules 2000 (Cth), see sch 2, Pt 1, item 54. The exercise of a power so delegated may be reviewed by the Court or a Judge: r 16(2). For constitutional reasons (see Harris v Caladine (1991) 172 CLR 84), the review of a Registrar's decision must be a hearing de novo: Mazukov v University of Tasmania [2004] FCAFC 159 at [21]-[24] (Kiefel, Weinberg and Stone JJ). For that reason, reviews of taxation of costs in this Court are not limited as in the Schweppes' rule: Cachia v Westpac Financial Services Limited [2003] FCA 817 at [18]-[24] (Hely J). "Services" of the Liquidator 29 In the present case there was an express obligation imposed on the Liquidator by the Winding Up Order to keep ASIC informed of the progress of the liquidation: see par 2(f) of the Order quoted in [8] above. Such further requests for information as ASIC made, whether ad hoc or by the agreed provision of more frequent and/or more detailed reports, were but extensions of that obligation. ASIC was the applicant for the Winding Up Order. Although not an Investor or otherwise a creditor of the Scheme, ASIC had standing to apply for the winding up of the Scheme by virtue of s 601EE(1)(a) of the Corporations Act. While the Investors themselves were to receive reports as well, ASIC was the body which had the responsibility of looking after their interests. To discharge its own responsibilities ASIC needed to know how the liquidation, a complex one involving litigation, was progressing. 30 In that setting, the provision of information by the Liquidator to ASIC about the progress of the winding up was part and parcel of the "services" which the Liquidator was authorised and required by the Winding Up Order to perform. The Liquidator would surely have been open to criticism if he had refused to supply any information to ASIC, or any information beyond the bare requirements of the Winding Up Order. 31 ASIC sought information about the progress of the winding up. ASIC was at pains, both in its enquiries and in the present application to the Court, to make it clear that it was not alleging or suspecting wrongdoing by the Liquidator. It may be doubted that ASIC was exercising its power of enquiry under s 536(1) of the Corporations Act. It never stated that it was. It has never claimed that the Liquidator, in terms of s 536(1)(a), had not "faithfully performed his duties" or had not "observed a requirement of the Court or of the Corporations Act or of the regulations or the rules". It did not make the Liquidator aware that it was acting as a result of communications from the Trust until 21 March 2006. But in any event, there is no question that ASIC had power to act as it did. Rather the point is whether in responding to ASIC's queries the Liquidator was providing the services contemplated by the Winding Up Order. Put another way, was the provision of information to ASICan incident of the Liquidator acting as such, charged with the responsibility of winding up the Scheme (cf Pantzer v Wenkart (2006) 153 FCR 466 at [44]). In my opinion, both questions must be answered in the affirmative. 32 Mr Abbott, counsel for ASIC, relied on a number of authorities. In Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 the Full Court of the Supreme Court of Western Australia set aside a Master's approval of a provisional liquidator's remuneration. However, this was on the ground that the provisional liquidator had not provided "adequate evidentiary material" to enable the Court to determine whether the amounts claimed were fair and reasonable: at 102-106. In the present case, as noted above, quantum is not in issue. 33 Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424 (Finkelstein J) was concerned with the validity of resolutions fixing administrators' fees. His Honour also discussed the basis on which the quantum of administrators' and liquidators' remuneration should be assessed. Again, such questions do not arise in the present case. 34 Ide v Ide (2004) 50 ACSR 324 was concerned with (hopefully) very unusual circumstances, far removed from the present case. A receiver of a partnership attended at the partnership property. In the course of an argument the defendant fired a rifle and killed the daughter of the plaintiff. The receiver's time spent in assisting police with their enquiries was held by Young CJ to be part of his "greater civic duty" and not recoverable as remuneration. 35 Australian Securities and Investment Commission v Atlantic 3 Financial (Aust) Pty Ltd [2004] QSC 133 involved claims for remuneration by investigating accountants appointed by order of the Supreme Court of Queensland to investigate certain managed investment schemes and report to the Court. Mullins J heard detailed objections to the accountants' claims. One claim disallowed (at [26]) was for attending a meeting with ASIC to explain the report. This was on the basis that the obligation of the accountants was to report to the Court and the subsequent conference with ASIC was a matter for ASIC and "cannot be characterised as part of the supervision required to be undertaken by the accountants or as part of the work in preparing the report". Also disallowed (at [35]) were work undertaken on certain loan schemes when the accountants knew the schemes had already been wound up by the date of their appointment. These were purely questions of fact and provide no analogy to the present case where the Liquidator reported to ASIC, pursuant to his obligations under the Winding up Order, express or implied, as to the progress of the winding up. 36 Mirror Group Newspapers plc v Maxwell [1988] 1 BCLC 638 supports the conclusion I have reached. The Court appointed receivers of the estate of the notorious Robert Maxwell. Questions rose over the remuneration of the receivers, including their costs of time spent in responding to a report of a committee of the House of Commons, the Select Committee on Social Security. The committee had been investigating pension funds. When it became apparent, soon after Mr Maxwell's death, that pension funds of companies associated with Mr Maxwell had been "plundered to the extent of hundred of millions of pounds" (at 658) the committee turned to investigate the receivers and other sets of administrators of the affairs of Mr Maxwell and his companies. The receivers devoted substantial amounts of time and incurred substantial expenditure in dealing with the requirements of the committee (at 659). They also spent time dealing with enquiries from the Serious Fraud Office in connection with the prosecution of Mr Maxwell's son. Ferris J said (at 659-660): "These activities are highly unusual ones for receivers to have become involved in. But they would not have arisen but for the fact that the receivers held the office to which the court had appointed them. Moreover the participation of the receivers was not initiated by them, nor was attendance before the select committee and the provision of information to it voluntary in any true sense, because physical, as well as moral, sanctions might have been applied if the receivers had ignored the requests for assistance made by the select committee. My present view is, therefore, that at least the initial response of the receivers to the requirements of the select committee and probably the entirety of their dealings with the Serious Fraud Office were wholly proper, even if also extraordinary, acts done in the course of the receivership. So far as I have residual doubts, these are attributable to the absence of full information about what has been done. In particular I am concerned that a significant part of the time and effort which the receivers have devoted to satisfying the requirements of the select committee may have been attributable to the receivers defending their conduct from criticism rather than merely providing information. If this were the case I would wish to give further consideration to the question whether the cost (whether in the form of remuneration for time spent by the receivers themselves or in disbursements paid to third parties) is properly to be paid out of the estate." 37 The present case is stronger in that the provision of information to ASIC was not extraordinary but rather an obligation expressly required by the Winding Up Order itself and indeed the very sort of obligation one would expect when a winding up occurs on the application of ASIC. Further, given the tenor of ASIC's enquiries, and particularly its letter of 20 December 2005, the essence of the Liquidator's response was the provision of information, not justification or answers to accusations. 38 In Pantzer the Full Court of this Court upheld a claim for remuneration by a trustee in bankruptcy. In his capacity as a former trustee the appellant had been drawn into litigate to assert a claimed amount which the respondent had not challenged by seeking taxation. Nothing in the judgment of the Full Court would appear to be inconsistent with the conclusion I have reached. Mr Tree was correct in submitting that (i) Pantzer provides no support for an additional requirement that to qualify for remuneration a liquidator's work must also "add value" to the liquidation, and (ii) the present case is stronger in that the Liquidator's work was not just "unavoidable, in a practical sense" albeit for his own benefit (at [43]-[44]) – he was lawfully compelled by the Winding Up Order to perform it. Orders 39 There will be an order that Barry Keith Hamilton is entitled to be paid by the Solicitors' Trust the sum of $85,639.65. ASIC's application will be dismissed. 40 The parties should file and serve before 10 am on Wednesday 20 December 2006 written submissions as to how the costs of this application should be dealt with. The alternatives seem to be that the costs of all parties be paid out of the proceeds of the winding up, or from the Guarantee Fund, or that ASIC and the Trust pay the Liquidator's costs. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey . Associate: Counsel for the Applicant: P Tree SC Solicitors for the Applicant: Toomey Maning & Co Counsel for the Respondent: A Abbott Solicitor for the Respondent: Australian Government Solicitor Counsel for the Solicitors Trust: M Daly Solicitors for the Solicitors Trust: Page Seager Date of Hearing: 5 December 2006 Date of Judgment: 18 December 2006 Dated: