Supreme Court New South Wales Medium Neutral Citation: Hebbel Constructions Pty Limited v Bitar Pty Limited and Anor [2018] NSWSC 758 Hearing dates: 10 May 2018 Decision date: 25 May 2018 Jurisdiction: Equity Before: Black J Decision: No order for discharge of the Court-appointed receiver is made. No basis for an interim distribution by the Court-appointed receiver to Bitar Pty Limited is established. Catchwords: PRACTICE AND PROCEDURE – application under r 26.6 of the Uniform Civil Procedure Rules 2005 (NSW) for the discharge of a Court-appointed receiver – whether it is just and convenient for the receiver to remain in office. Legislation Cited: - Corporations Act 2001 (Cth) s 477 - Evidence Act 1995 (NSW) s 136 - Home Building Act 1989 (NSW) Cases Cited: - ACN 151 726 224 Pty Ltd (in liq) formerly Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 - Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 - MLW Investments Pty Ltd v Tacsum Pty Ltd [2006] NSWSC 1256 Category: Procedural and other rulings Parties: Hebbel Constructions Pty Limited (Plaintiff) Bitar Pty Limited (First Defendant) Hebbel Constructions Pty Ltd & Bitar Pty Ltd (Second Defendant) Representation: Counsel: P Wiggins (Solicitor – Plaintiff) P E King (First Defendant) S Golledge (Court Receiver) Solicitors: Paramonte Legal (Plaintiff) Priest Legal (First Defendant) Yates Beaggi (Court Receiver) File Number(s): 2014/269117 (012) Judgment Nature of the application and applicable principles 1. By Notice of Motion filed on 24 April 2018, the First Defendant, Bitar Pty Ltd ("Bitar"), applies for an order under r 26.6 of the Uniform Civil Procedure Rules 2005 (NSW) for the discharge of Mr Frisken, the Court-appointed receiver of the assets of a partnership of Hebbel Constructions Pty Ltd ("Hebbel") and Bitar ("Partnership") and the shares in Bitar Hebbel Constructions Pty Ltd ("BHC"). I will refer to Mr Frisken, in that capacity, by name or as "the Receiver" in this judgment. Mr King, who appeared for Bitar, advanced numerous criticisms of the Receiver's conduct in support of the application for his discharge, which I will address below. 2. The circumstances in which the Court will remove a receiver that it has appointed were identified by Campbell J in MLW Investments Pty Ltd v Tacsum Pty Ltd [2006] NSWSC 1256 at [27], to which Mr Wiggins, who appeared for Hebbel, referred in submissions at the hearing, as follows: "In deciding whether it is appropriate for a court appointed receiver to be removed, the Court has a wide discretion. Reasons for removal can include demonstrated illegal or unprofessional conduct by the receiver, bias, lack of independence, incompetence, or any other unfitness for office. The reasons for removal are in that respect similar to those referred to by Austin J in Domino Hire v Pioneer Park [2003] NSWSC 496 at [58] for removal of a liquidator. However, the discretion is wide and a leading factor that the Court takes into account is whether removal of the receiver is needed to enable the broad objective that was sought to be obtained by the appointment of the receiver in the first place to be obtained." 1. Campbell J there referred to the observations of Austin J in Domino Hire Pty Ltd v Pioneer Park Pty Ltd above at [58], where his Honour had observed that: "The words "cause shown" indicate that a liquidator is not to be removed unless there is some ground for removal, and the ground must be established by evidence. However, "cause shown" is not a narrow concept. It is open to the applicant for removal to point to any conduct or inactivity on the liquidator's part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office. But the concept of "cause shown" is not limited to matters relating to the unfitness of the liquidator to hold office. In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299, speaking of a statutory formulation where the words used were "due cause shown" rather than "cause shown", Bowen LJ said (at 306): "In many cases ... unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shown. In order to define 'due cause shown' you must look wider afield, and see what is the purpose for which the liquidator is appointed. … 'due cause' is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation." 1. I also summarised the relevant principles applicable to the removal of a liquidator in ACN 151 726 224 Pty Ltd (in liq) formerly Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 as follows: "… The matters relevant to an application for removal of a liquidator include not only whether that course would be for the benefit of the liquidation, and the body of persons interested in it, but also the need for confidence in the integrity, objectivity and impartially of the winding up. In Multi-Core Aerators Ltd v Dye [1999] VSC 205 at [48] ; (1999) 17 ACLC 1172, which was quoted by Bergin CJ in Eq in SingTel Optus Pty Ltd v Weston [2012] NSWSC 674 ; (2012) 90 ACSR 225, although held not to be applicable in that case, Warren J (as her Honour then was) noted that "rancour" between the parties would not be sufficient to require removal of a liquidator, particularly if hostility had emanated from the party seeking the removal, rather than from the liquidator, where removal on that basis "would provide a creditor with an opportunity to manipulate the liquidation of the company". Nonetheless, I proceed on the basis that a loss of confidence based on reasonable grounds by the creditors may, although it will not necessarily, justify removal of a liquidator: City & Suburban Pty Ltd v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq) (1998) 28 ACSR 328 at 338; Re St Gregory's Armenian School (in liq) [2012] NSWSC 1215 ; (2012) 92 ACSR 588 at [30]. In AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, in a passage that was also quoted with apparent approval by Bergin CJ in Eq in SingTel Optus Pty Ltd v Weston above at [164], Neuberger J (as his Lordship then was) observed that: "On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications … by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay." … In Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719 ; (2003) 46 ACSR 729 at [37], Barrett J (as his Honour then was) referred to Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) above and observed that: "It is thus clear that 'cause shown' is a broad concept concerned not so much with a search for particular instances of wrong or inappropriate conduct (although a particular event of that kind may be sufficient) but with a more general enquiry into what is for the benefit of the administration and the body of persons interested in it, as well as the maintenance of confidence in the integrity, objectivity and impartiality of that administration. Removal is warranted, in a situation such as the present, if, taken as a whole, the conduct of the liquidator can be seen to be such as to ground in the mind of a reasonable observer a perception of lack of impartiality as among the interests he is committed to serve and lack of objectivity in serving those interests. In Re St Gregory's Armenian School (in liq) above Brereton J referred to AMP Music Box Enterprises Ltd v Hoffman above and SingTel Optus Pty Ltd v Weston above at [164] and observed (at [24]) that the onus of showing cause for removal of a liquidator is not "lightly discharged" and that: "… it should not be seen to be easy to remove a liquidator merely because it can be shown that in one or possibly even more respects, his or her conduct has fallen short of the ideal. Otherwise, applications for removal by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled, would be encouraged… ." His Honour also referred (at [25]) to the proposition, well established by the several authorities noted by his Honour, that an order for removal will only be made if it is demonstrated that it would be for the better conduct of the liquidation or "to the general advantage of persons interested in the winding up" or "in the best interests of the liquidation". It is also important that the Court should not overlook the professional consequences for a liquidator of an order for removal: SingTel Optus Pty Ltd v Weston above at [229]; Re St Gregory's Armenian School (in liq) above at [26]. It will be harder to establish a case for removal of a liquidator where a liquidation is well advanced and he or she has become acquainted with the company's affairs: Re Biposo Pty Ltd (1995) 17 ACSR 730 at 734; SingTel Optus Pty Ltd v Weston above at [165]. … There is also authority that "cause" for the removal of a liquidator will generally require more than a single decision of the liquidator, since (as I note below) an appeal to the Court would properly be brought in respect of a particular decision of the liquidator, even if the substance of the complaint is that that decision demonstrates incompetence, bias or unfitness for office: Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) above at [66]; Re St Gregory's Armenian School above at [25]." 1. Mr King submitted that the circumstances relating to a removal of a liquidator was different from that relating to a removal of a receiver, or at least was different to this case. It seems to me, however, that the authorities are correct in recognising that the principles that relate to a removal of a liquidator provide a useful guide in an application for removal of a receiver. 2. Bitar also seeks an order appointing a real estate agent to sell three units which are presently property of the Partnership and under the Receiver's control, orders for the finalisation of the receivership accounts and an interim order for a distribution to Bitar pending final distribution on the ground of hardship. In the course of oral submissions, Mr King sought an alternative order, not raised in the Notice of Motion, for the appointment of another receiver, although Bitar had not identified any such other receiver or obtained a consent of such other receiver to appointment. Background and affidavit evidence 1. By way of background, by his judgment delivered on 4 July 2017 ([2017] NSWSC 917 at [7]), Rein J noted the agreement between the parties that Hebbel and Bitar were partners, and that BHC was formed for the purpose of the Partnership; that Hebbel and Bitar had contributed equally to the purchase of the land for the relevant development; that the Partnership ought to be dissolved and wound up; and that there had been serious deficiencies in the Partnership's recordkeeping for a development project that it had undertaken. His Honour also noted (at [23]) that Hebbel contended that a receiver should be appointed and that Bitar did not want a receiver to be appointed "claiming that there is not much left to do". Bitar again makes that submission, now combined with criticisms of the Receiver's conduct, in this application. Rein J also identified (at [79]) several reasons why he was persuaded that a receiver should be appointed, as follows: "(1) There has been an extensive history of disagreement and conflict between the parties. (2) There are ten units to be sold, one of which is currently occupied by Mr Taouk's daughter. (3) The units have a combined value of at least $5 million. (4) It is difficult to imagine that there will be no occasion when instructions would be required in connection with the sale of ten units and I have no confidence that the process will not be productive of conflict, even though there seems to be a person whom both sides regard as a suitable real estate person. (5) The woeful record keeping of the partnership leads me to have no confidence that all claims upon the partnership will be properly identified by the parties themselves." The reference in this paragraph to Mr Taouk is to a director of Hebbel. There is no suggestion that the disagreement and conflict between the parties to which Rein J referred has abated, and there could be no suggestion that the parties could now cooperate in giving instructions to a real estate agent in respect of a sale. 1. Rein J then made orders appointing the Receiver to the Partnership's assets and ordered, inter alia, that the Receiver be entitled to take possession of, collect and get in and realise the Partnership's assets and also that he: "have power to carry on the said Partnership business (of managing the remaining units owned and leased by the Partnership) and be given the powers in relation to the said business as are given to a liquidator pursuant to the provisions of section 477 of the Corporations Act 2001." Those orders also provided for the Receiver to make inquiries and advertise to ensure that all debts and obligations of the Partnership were ascertained and dealt with, including debts and obligations owed to the Australian Taxation Office, and to ascertain from the Department of Fair Trading what obligations BHC, and/or Hebbel and Bitar, may have to purchasers of units in a project developed by the Partnership and what amounts, if any, should be set aside as contingencies in connection with the project and in respect of any breach by Hebbel, Bitar and BHC of the Home Building Act 1989 (NSW). When the Receiver, was appointed, the Partnership assets consisted of five residential units, being units 1, 4, 11, 25 and 26 of a property at Petersham, five commercial units and shares in BHC (Frisken 9.5.18 [3]). 1. Bitar relied on two affidavits of its solicitor, Mr Brigden, dated 24 April 2018 and 7 May 2018 in support of the application, which identified several matters on which Bitar relied to submit the Receiver ought to be removed. Mr Brigden's first affidavit also set out Bitar's understanding of the development of the receivership since 4 July 2017, noting that assets other than units 11, 25 and 26 had been sold or were under contract. Mr Brigden referred to the entry by Mr Katter, who is a director of Bitar, into a contract to purchase units 25 and 26 but noted that the Receiver had terminated that contract. That termination took place after Mr Katter's cheques paid for the deposit on those properties were dishonoured by the bank. Mr Brigden also noted that the Receiver held proceeds of sale and rental income in an amount of approximately $1.8 million and referred to information previously provided by Counsel for the Receiver to the Court that the receivership was approximately 70% complete. 2. By his second affidavit dated 7 May 2018, Mr Brigden led evidence, again on the basis of instructions he had received from Mr Katter, in response to the Receiver's report dated 3 May 2018. Mr Brigden there again identified numerous concerns that Bitar held in relation to the receivership, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) that it was to be treated as a submission only, to the extent that it went beyond matters established by documents tendered by Bitar. It should also be noted that much of Mr Brigden's evidence as to these matters, to which I will refer below, reversed the onus of proof, complaining of the Receiver's failure to explain or justify particular matters, without recognising that this was Bitar's application to remove the Receiver and that Bitar had the onus of establishing at least the factual matters on which it relied to support the orders that it sought. 3. Hebbel read the affidavit of its solicitor, Mr Wiggins, dated 7 May 2018 which indicated that it did not consent to the orders sought in Bitar's Notice of Motion. Mr Wiggins also referred, in that affidavit, to a question whether a claim should be brought by the Partnership in respect of Mr Katter's breach, or alleged breach, of contracts to purchase units 25 and 26. It is not necessary to address that question in order to determine this application. 4. Mr Frisken provided a report dated 3 May 2018 (Ex R1), in accordance with orders made by Rein J on 23 April 2018, as to the conduct, present circumstances of and remaining tasks to be completed in the receivership. That report addressed the conduct of the receivership from July 2017 through to April 2018, summarised the position in respect of the sale of the commercial and residential units, and identified the remaining tasks to complete the receivership, which included lodgement of outstanding tax returns, lodgement of business activity statements for the Partnership and payment of associated tax obligations, calling for proofs of debt from and discharging liabilities to creditors of the Partnership, and coordinating with the Department of Fair Trading to confirm funds to be set aside for contingent liabilities, as required by the orders by which Mr Frisken was appointed. Mr Frisken there estimated the remaining tasks of the receivership could take until August 2018 to complete, and that the passing of his accounts and remuneration application could then be completed within 4–6 weeks. 5. Mr Frisken also read his affidavit dated 26 October 2017, which set out the circumstances of his appointment and the work that he had carried out, on a monthly basis, from July 2017 until October 2017. That affidavit was supported by an affidavit exhibiting documents relating to that work (Ex R2). Mr Frisken also read his affidavit dated 6 November 2017 and its exhibit (Ex R3), his affidavit dated 21 December 2017 and its exhibit (Ex R4), his affidavit dated 16 February 2018 and its exhibit (Ex R5) and his affidavit dated 12 April 2018 and its exhibit (Ex R6). By his further affidavit dated 9 May 2018, Mr Frisken responded to the matters raised in Mr Brigden's affidavits dated 24 April 2018 and 7 May 2018. Mr Frisken was cross-examined at some length, and Mr King took Mr Frisken to a number of aspects of the conduct of the receivership. There was little factual dispute as to many of those matters, and Mr King put that aspects of the conduct of the receivership were unsatisfactory. Not surprisingly, Mr Frisken did not accept that proposition, and Mr King's cross-examination did not otherwise establish its correctness. Delay 1. By his first affidavit dated 24 April 2018, Mr Brigden records Bitar's concern about a delay of approximately 11 months since the Court appointed the Receiver on 4 July 2017. I will refer to matters which have contributed to that delay below. Mr Brigden's evidence in his first affidavit (admitted with a limiting order under s 136 of the Evidence Act as limited to Bitar's understanding and not as proof of the fact) was that Bitar felt that the properties should have been sold by November 2017. That fact was not otherwise proved. Any complaint by Bitar as to that matter is also undermined by Mr Katter's failure to pay the deposit on his purchase of units 25 and 26, as a result of which the sale of those units failed. Mr Brigden's evidence was also that the market had fallen away substantially since November 2017, but that matter was sought to be established only by a publication of a real estate agent that was of little probative value. 2. Mr King submitted that the Receiver had failed to effect sales of Partnership properties within a reasonable time, and that sales could and should have occurred before 2018. Not surprisingly, Mr Golledge, who appeared for the Receiver, pointed to the oddity that Bitar complained in respect of delays in the sale of units 25 and 26, where its principal, Mr Katter, had defaulted in respect of his contracts to purchase the units. Mr Golledge pointed out, rightly, in submissions that any suggestion of a general fall in the market had not been established by evidence. As I noted above, Mr Wiggins indicated that Hebbel also had some concerns about the length of time taken to complete the receivership, but submitted that replacing the Receiver at this stage was likely to cause further delays rather than expedite the process. 3. It does not seem to me that this criticism has been established by the evidence, still less in respect of units 25 and 26 where the sale miscarried by reason of Mr Katter's failure to pay the deposit. This criticism is also undermined by Mr Frisken's evidence, which I accept, that a staged process of sale of the relevant units is commercially desirable as a means of maximising their value in the relevant circumstances. In any event, as Mr Wiggins pointed out, any delay to date would be magnified, not mitigated, by now removing the Receiver when, on Bitar's case, little remains to be done and, on the evidence, the receivership is well-advanced. 4. An associated complaint, and the second matter identified in Mr Brigden's affidavit dated 7 May 2018, admitted with a limiting order under s 136 of the Evidence Act as submission only, is that the Receiver did not correspond with Bitar until 28 July 2017, about three weeks after his appointment. I am not satisfied that unreasonable delay has been established in that respect, still less that that matter that would, itself or combined with other matters, warrant the removal of the Receiver. Bitar's concern as to caveats lodged by the Receiver 1. Mr Brigden's second affidavit dated 7 May 2018 identified Bitar's concern that the appointment of the Receiver was "without security" and the Receiver had "taken security" over the Partnership's assets, by lodging caveats that had inhibited Bitar's ability to secure finance from commercial lenders. The premise of that complaint appears to be that Bitar should have been free to raise finance for its own purposes on the Partnership's assets, implicitly without Hebbel's consent which would plainly not have been provided in the circumstances. Mr Golledge responded that an order that the Receiver be appointed "without security" was directed to whether the Receiver was required to provide security, not to whether the Receiver was to be deprived of any right of indemnification, or an associated lien. 2. The appointment of a receiver "without security", so that the receiver is not required to give security for the performance of its duties, does not prevent a receiver lodging a caveat over assets that are properly within the scope of the receivership. Bitar did not seek to establish the caveats were not properly lodged, or that it had any entitlement to secure Partnership assets in respect of its own financing requirements. This matter does not, alone or together with other matters, warrant the removal of the Receiver. Bitar's concern as to delay in obtaining certificates of title and discharge of mortgage 1. The third matter identified in Mr Brigden's affidavit dated 7 May 2018, admitted with a limiting order under s 136 of the Evidence Act as a submission only, is that the Receiver has not "sufficiently explained or justified" the basis for delays associated with obtaining certificates of title and discharges from the Commonwealth Bank of Australia. Mr Brigden asserted Bitar's knowledge that all pre-existing obligations have been met, but that matter was not established by admissible evidence. These matters are addressed in the Receiver's report at length and, in his affidavit dated 9 May 2018 and supporting documents (Ex R7), the Receiver explained the matters which had led to delays in obtaining certificates of title and discharges from the Commonwealth Bank of Australia, including a claim for a lien by the Partnership's former solicitors over the relevant documents. I am not satisfied that Bitar has established that there was unreasonable delay in that respect, still less that that delay resulted from any fault on the part of the Receiver and would, alone or combined with other matters, warrant his removal. Bitar's concern as to sale of residential units 1 and 2 1. Fourth, Mr Brigden's affidavit dated 7 May 2018 identified a complaint, admitted with a limiting order under s 136 of the Evidence Act as a submission only, that the Receiver had not sufficiently explained or justified his suggested delays in selling residential units 1 and 4, and a submission that those units were sold under an August 2017 valuation. 2. In his affidavit dated 9 May 2018, the Receiver addressed the position in respect of the sale of residential units 1 and 4 by auction on 19 February 2018. The sale price achieved at the auction was marginally less than updated valuations which the Receiver had obtained the day before, but it seems to me that he could reasonably conclude, as he did, that the best possible prices had been obtained at the completion of the auction marketing campaign. The Receiver also explained that a staged process had been adopted for sale of the relevant units, so that they were not all on the market at the same time. While that has no doubt extended the period of the receivership, it seems to me to be within the scope of a proper commercial judgment. These matters do not, alone or together with other matters, provide any basis for the Receiver's removal. Matters relating to Mr Katter's purchase of and default in respect of units 25 and 26 1. In his first affidavit, Mr Brigden also identified concerns raised by Bitar (or Mr Katter) as to the circumstances in which Mr Katter came to bid at the auction in November 2017 which led to his purchasing units 25 and 26, and then defaulting on his obligation to pay the deposit in respect of those properties. Quite apart from the fact Mr Katter did not give direct evidence of those matters, it seems to me that Mr Katter's suggestion that he was "forced" to bid at that auction because an associate of Hebbel proposed to bid at that auction (although, I interpolate, he either did not have capacity to or did not intend to meet his obligations under contracts to purchase the units) is wholly unpersuasive. Mr Brigden also referred to matters on which Mr Katter relied to oppose the termination of the purchase contracts with him in relation to units 25 and 26, by reason of his apparent breach of his obligations under those contracts. Those matters were also admitted with a limiting order under s 136 of the Evidence Act and did not prove the relevant facts. Mr Brigden's affidavit dated 7 May 2018 also identified a concern, admitted with a limiting order under s 136 of the Evidence Act as a submission only, that the Receiver had not "adequately explained or justified" his refusal to accept a proposal put forward by Bitar and Mr Katter in respect of units 25 and 26 or the delay between Mr Katter's "alleged breach" of the contracts and termination of those contracts. 2. By his affidavit dated 9 May 2018, the Receiver led evidence in response to Mr Katter's criticism of the sale process in respect of units 25 and 26, and properly recognised that Mr Katter could not properly seek to set-off his liabilities for breach of contract against monies potentially payable by the Partnership to Bitar, which is a separate corporate entity, or a release from claims that may be brought against him to the detriment of the Partnership. 3. It does not seem to me that any credible basis has been established that, where Mr Katter was in breach of the contracts to purchase these units shortly after he executed them, when his deposit cheques were dishonoured, the Receiver should have negotiated a different arrangement with him, rather than terminating the contracts for breach, particularly where the proposed arrangement did not distinguish between the different entities, Bitar and Mr Katter. The question when the Receiver should have terminated those contracts is otherwise a matter of commercial judgment. It has not been established that his judgment was in error, or that the course he took provided any basis, alone or combined with other matters, for his removal. Occupation of unit 11 by Ms Anna Taouk 1. In his first affidavit, Mr Brigden identified Bitar's concern as to the occupation of unit 11 by Ms Anna Taouk, who is the daughter of the director of Hebbel, which was rent free for a considerable period. The sixth matter identified in Mr Brigden's affidavit dated 7 May 2018, admitted with a limiting order under s 136 of the Evidence Act as submission only, is also that the Receiver had not "adequately explained or justified" a suggested failure to deal with unit 11 in accordance with the Court's orders or to address Bitar's request for information about that unit. Mr Brigden repeated Bitar's concern that the unit was occupied by Ms Taouk, and had been occupied by her rent free without Bitar's consent for a substantial period; that Hebbel continues to receive the benefit of the unit; and identified a concern that Bitar's request for information and action has not been adequately addressed by the Receiver. 2. This issue arises from a matter that was addressed in Rein J's judgment by which the Receiver was appointed. Rein J had noted the position in respect of Ms Taouk's occupancy of unit 11 in his judgment delivered on 4 July 2017 (at [21]) as follows: "A further dispute centered on what occurred after the building was completed. Mr Taouk permitted his daughter Anna to reside in one of the apartments rent free. Mr Taouk did not obtain Mr Katter's agreement to such a course and Mr Katter points to that conduct as indicative of how Mr Taouk viewed this project. Hebbel (through Mr Taouk) accepts that it must account for the lost rent for the period that Anna occupied the unit free of charge." Rein J also recorded (at [93]) the parties' agreement that Hebbel must give credit for the rent foregone by Ms Taouk's occupation of unit 11, and the only question that remained to be determined by a referee was the amount of the weekly rent. The dispute as to the weekly rental amount was subsequently determined by that referee and the accounting to which Rein J referred will bring about reimbursement of the Partnership for the amount of rent foregone by Ms Taouk's occupancy of unit 11. 1. By his report dated 3 May 2018, Mr Frisken noted that unit 11 remained tenanted by Ms Taouk, who had been paying rent of $700 per week since February 2018; that he had received offers from Ms Taouk to purchase the unit; that he was seeking an updated valuation for the unit, and feedback from the agent as to likely sale values; and that, if those inquiries supported sale of the unit to Ms Taouk, he would be in a position to exchange contracts for the sale of the unit within seven days, resulting in a saving to the Partnership of marketing costs of approximately $2,750 and commissions exceeding $15,000. The Receiver's affidavit dated 9 May 2018 also responded to the criticisms made of the position in relation to the occupancy of unit 11 by Ms Taouk and noted that Ms Taouk has maintained rental payments from 1 March 2018. 2. Mr King submitted that the Receiver appeared to have done "nothing substantial" about unit 11, which had been occupied by Ms Taouk rent free and without Bitar's knowledge and consent. In oral submissions, Mr King submitted that the Court should remove the Receiver because he had failed to take steps to remedy the wrong found by Rein J in respect of Ms Taouk's continuing occupancy of unit 11. Mr Golledge responded that Rein J had found a breach of duty by Hebbel in respect of Ms Taouk's occupancy of the premises and that the Court orders provided that any loss arising from that arrangement was to be taken up in the taking of the Partnership accounts, so that Hebbel would be required to make good that loss. Mr Golledge also pointed out that since the referee determined the rent payable in respect of the unit, Mr Frisken has taken steps to require Ms Taouk to pay that rent, while arrangements for the sale of the unit are pursued. 3. It seems to me that, once Rein J had determined that Hebbel must bear the costs of Ms Taouk's occupancy of unit 11, the Receiver could properly then take a course that would maximise the value of unit 11 for the Partnership, and there is no reason to think that the course adopted by Mr Frisken was not a reasonable course to achieve that objective. Mr King also submitted that the Receiver should have sought a direction from the Court as to what was to be done in respect of unit 11, occupied by Ms Taouk. I also do not accept that submission, because this matter seems to me to be a matter of commercial judgment, which would not properly, or at least not reasonably, have been a matter for a direction by the Court. 4. I am not persuaded that, at present, this matter warrants the removal of the Receiver, alone or together with other matters. As I have noted above, the position in respect of unpaid rent for the unit is addressed by the judgment delivered by Rein J, and Hebbel's acceptance of liability for that rent; rent has been paid by Ms Taouk since early 2018; and the evidence establishes that the Receiver is progressing arrangements for sale of that property. I will, however, reserve liberty to Bitar to apply, since there may well be cause for complaint, and possibly cause for the Receiver's removal, if the present position is permitted to continue for any substantial period without completion of a sale of unit 11 to Ms Taouk or, if she does not promptly complete that sale, to a third party. Bitar's complaint as to registration of a strata plan over the commercial units 1. Mr Brigden's evidence in his second affidavit, again admitted with a limiting order under s 136 of the Evidence Act as a submission only, was that: "The [R]eceiver has not sufficiently explained or justified the basis for delays in selling the commercial properties. The receiver has wasted time and money obtaining and attending to the registration of a strata plan over the commercial units. The basis of the receiver obtaining a strata plan was to facilitate individual sales and achieve higher sale prices. The strata plan did not achieve a higher sale prices [sic]. The commercial units were marketed and sold together and were sold at a price lower than the valuation. In this case the strata plan was not registered until 1 March 2018. The commercial units were sold to [Hebbel] under their August 2017 valuations, and in circumstances where there was another potential purchaser willing and possibly to pay [sic] a substantially higher price for commercial unit 5." 1. In his affidavit dated 26 October 2017, Mr Frisken pointed to a valuer's recommendation that a strata plan be registered over the commercial units to allow them to be sold separately as strata units and achieve their full market value (Frisken 26.10.17 [46]). In his affidavit dated 9 May 2018, Mr Frisken also addressed the circumstances of the sale of the commercial units at auction on 21 March 2018, and noted that Hebbel was the highest bidder for those commercial units at that auction, and had purchased them for a price significantly above the updated valuation which he had obtained for the units on the day of the action. He also pointed out that he had followed the valuer's advice in proceeding to register the strata plan for the commercial units. 2. The factual basis of Bitar's criticism of these matters has not been established. First, the steps taken by the Receiver to obtain a strata plan were taken in accordance with valuation advice, in order to allow the options of selling the commercial units in a single line or separately so as to achieve the highest possible sale price. A valuation on which Bitar relied, provided by Statewide Valuations Pty Limited and dated 21 August 2017, distinguished between a "freehold in line sale", and expressed the view that the asset would not reach its full market value, and the position where a strata plan was registered where a potential market was larger (Ex R2, tab 29). In the event, the commercial units were sold to Hebbel in a single line, but it does not follow that the Receiver acted unreasonably in registering the strata plan to allow the prospect of the sale of the commercial units separately. The proposition that the commercial units were marketed and sold together was not established, because in fact they were marketed and sold on the basis that they would be sold either as a single line or separately, allowing the prospect of obtaining the highest sale price available from either course. A potential purchaser which had previously indicated an interest in commercial unit 5 had withdrawn prior to the action. Although Bitar raised questions as to the circumstances in which it had done so, and whether it may have reached a private arrangement with Hebbel, that matter was not established by evidence. Even if it had been established, the Receiver would still have acted reasonably in selling to the highest bidder at the auction, rather than failing to complete a sale of the commercial units and, implicitly, putting himself in a position where he then had to recommence the sale process, further delay the receivership and incur further costs in that regard. 3. In oral submissions, Mr King also submitted that the Receiver should have sought the Court's direction as to whether to sell the commercial units in a single line or separately. I also do not accept that submission, where that matter seems to me to be a matter of commercial judgment, or a kind that is properly made by an experienced insolvency practitioner, and as to which the Court would likely have declined to give a direction in any event. Assignment of lease of commercial unit 4 1. In oral submissions, Mr King raised a new criticism of the Receiver, which had not been addressed in evidence led by Bitar or in his outline of submissions, relating to the assignment of a lease of commercial unit 4 in the relevant premises. Mr Frisken explained the circumstances in which that assignment took place in his affidavit dated 26 October 2017 (Frisken 26.10.17 [22]). Mr King submitted that the Receiver ought to have sought the Court's approval under s 477(2B) of the Corporations Act 2001 (Cth) for the assignment of the lease relating to that commercial unit. That section provides that, except with the approval of the Court, a committee of inspection or a resolution of creditors, a liquidator must not enter an agreement where its term may end, or obligations under it may be discharged by performance, more than three months after the agreement was entered into. That section would only apply if, as a matter of construction, the conferral on the Receiver of the powers under s 477 of the Corporations Act, by order 3(b) of the orders made by Rein J on 4 July 2017, had the consequence that s 477(2B) of the Corporations Act also applied to the Receiver's conduct. There is also a question as to whether the Receiver's approval of the relevant assignment would fall within the scope of that section, if it applied. It is not necessary to determine either question, because the orders made by Rein J separately conferred on the Receiver the power to take possession of, collect, get in and realise the Partnership assets, and to carry on the Partnership business (of managing the remaining units owned and leased by the Partnership) and the power to deal with the assignment of the lease of commercial unit 4 seems to me to fall within, or at least be incidental to, that power. That power was not confined by any requirement for Court approval under s 477(2B) of the Corporations Act. Manner of communication between the Receiver and Bitar 1. The eighth matter raised in Mr Brigden's further affidavit dated 7 May 2018, admitted with a limiting order under s 136 of the Evidence Act as submission only, is that Bitar has concerns regarding the Receiver's "reluctance to communicate" with Bitar about the conduct of the receivership, except through its lawyers or pursuant to Court orders. There is no basis for the criticism that the Receiver has been "reluctant" to communicate with Bitar's lawyers except through the Receiver's lawyers, where it would be improper for Bitar's lawyers to communicate directly with him, at least in respect of controversial matters, where he is legally represented. Mr King also submits that Mr Frisken has failed, despite the "reasonable requests" of Bitar, to provide information regarding the conduct of the receivership. I do not accept that submission, where information has been provided to Bitar and the Receiver may properly seek to limit costs of disputatious correspondence with Bitar in that respect. This matter does not warrant, alone or together with other matters, the Receiver's removal. Costs of the receivership 1. In his first affidavit, Mr Brigden identified a concern that the amounts claimed by the Receiver for legal fees and disbursements were excessive. That evidence was also admitted subject to a limiting order under s 136 of the Evidence Act and that proposition was not established as a matter of fact. The ninth matter raised in Mr Brigden's further affidavit dated 7 May 2018, again admitted with a limiting order under s 136 of the Evidence Act as a submission only, repeats Bitar's concern about legal costs incurred by the Receiver that are asserted to be "manifestly excessive and disproportional". No attempt was made to establish that matter by admissible evidence, and that matter will in any event be addressed in the Receiver's application for approval of his remuneration and passing his accounts, which is to be determined by Rein J. 2. Mr King also raised concerns in submissions that legal fees and disbursements incurred by the Receiver were in excess of $217,000 and were "excessive", by reference to an assertion, not established by evidence, that the Partnership had no major creditors and was otherwise solvent. Mr Wiggins indicated that Hebbel also had some concerns about the length of time taken to complete the receivership, but submitted that replacing the Receiver at this stage was likely to cause further delays rather than expedite the process, and that concerns as to the Receiver's costs should be addressed through the process of passing his accounts and dealing with his application for remuneration. Mr Golledge responded in submissions, rightly, that there was no cross-examination of Mr Frisken to establish any failure in his engagement of his legal advisers, or in his review of the fees that they had rendered. This matter does not warrant removing the Receiver, either alone or together with other matters. Bitar's concern as to delay as to BHC and other matters 1. The tenth matter identified in Mr Brigden's affidavit dated 7 May 2018, again admitted with a limiting order under s 136 of the Evidence Act as a submission only, relates to delays in the Receiver's selling the shares in BHC, a suggested delay in making calls to creditors, and a delay in ascertaining from the Department of Fair Trading the obligations that BHC and/or Hebbel and Bitar may have to purchasers of the units in the development project. These issues were within the Receiver's responsibility under the orders made by the Court appointing the Receiver. Mr King submitted that Mr Frisken had not taken substantive steps in respect of BHC, beyond a request for its financial records, and had been "idle" in that respect. Mr King also submitted that Mr Frisken has "done substantial[ly] nothing" about dealings with creditors, other than to ascertain a tax liability for the Partnership, and has been "idle" in this respect. Mr King submits that the Receiver has also "done nothing substantial" in respect of the Department of Fair Trading, and has been "idle" in this respect. 2. Mr Frisken's evidence, in his affidavit dated 9 May 2018, is that he has not received financial reports that he has requested from BHC and has received only draft financial reports from the Partnership's external accountants, and is not presently in a position to value the shares in BHC. There is no suggestion that Bitar or Mr Taouk has taken any active step to facilitate the completion of those steps, to avoid or reduce the delay of which Bitar complains. Mr Frisken's evidence is also that he is addressing claims against the Partnership's real property assets, including for strata fees, water rates, council rates and land tax, before calling for proofs of debts from creditors of the Partnership, and I can see no error in that approach. Mr Frisken's evidence is that he has sought clarification from the Department of Fair Trading as to Hebbel and Bitar's obligations to purchasers of units in the project and the amounts that should be set aside as contingencies and in respect of any breach of the Home Building Act, since 10 July 2017, and has followed up on that request, but has not received any response. It is difficult to see how Mr Frisken can finalise that matter, without a response by the Department of Fair Trading. No doubt, it will be open to Rein J to vary the orders that he made in respect of this issue if such a response cannot be achieved. Bitar's concern as to draft Partnership tax returns 1. The eleventh matter identified in Mr Brigden's affidavit dated 7 May 2018, again admitted with a limiting order under s 136 of the Evidence Act as a submission only, raised a concern as to draft Partnership tax returns that were provided by the Receiver to Bitar and Hebbel for comment, which suggested that Hebbel introduced a greater amount than Bitar into the project and that Hebbel had introduced substantial amounts of capital into the project in 2013 and 2014. Mr Brigden points out that those suggestions are likely inconsistent with a finding made by Rein J in his judgment delivered on 4 July 2018 that each party had contributed equally to the project, or at least to the purchase of the relevant land. 2. A letter dated 17 April 2018 from the Receiver to Hebbel and Bitar (Brigden, 7.5.16, Annexure "E") noted that his appointment required that he ensure that debts and obligations of the Partnership to the Australian Taxation Office were ascertained and dealt with. He indicated that the Partnership's accountant had been tasked to complete outstanding lodgements to the Australian Taxation Office and that the draft Partnership tax returns had been prepared by that accountant for the financial years ending 30 June 2011 to 30 June 2017, and also enclosed electronic copies of financial statements for those periods. He requested that Hebbel and Bitar review the draft Partnership tax returns and inform him, or another member of his staff, of any objections and went on to observe that: "Should no response be received, please be advised that I intend to lodge the outstanding lodgements with the ATO after twenty-one (21) days of this correspondence." 1. By letter sent three days before the hearing of this application, on 7 May 2018, Mr Brigden advised the Receiver of Bitar's objection to the draft tax returns, referring to the judgment of Rein J given on 4 July 2018; identifying a criticism of the treatment of capital recorded as contributed by Hebbel in the 2013 and 2014 years; and asserting that tax records must reflect Rein J's rulings, without troubling otherwise to identify how Bitar contended these matters should be reflected in those tax returns. 2. Mr Frisken addresses the position in respect of the draft tax returns that he circulated on 17 April 2018 in his affidavit dated 9 May 2018. Those draft tax returns were not prepared by the Receiver but by the Partnership's accountant and were provided to Bitar and Hebbel for their comment, albeit on the basis that they would be lodged in the absence of such comment. Bitar has now commented, drawing attention to the findings of Rein J, and there is no suggestion that the Receiver would proceed to lodge the tax returns without regard to those comments or on a basis that is inconsistent with Rein J's findings. 3. Mr King advanced submissions in criticism of the Receiver's provision of draft Partnership tax returns and referred to the concerns raised in Mr Brigden's letter dated 7 May 2018 dealing with that issue. I am not satisfied that the circulation of draft tax returns for comment, in this manner, would warrant the removal of the Receiver, whether alone or together with other matters, although I may have taken a different view had the Receiver proceeded to lodge the tax returns, even in the absence of comment by Bitar, on a basis that was potentially inconsistent with the findings made by Rein J. Response to other matters in the Receiver's report 1. The twelfth matter raised in Mr Brigden's affidavit dated 7 May 2018, again admitted with a limiting order under s 136 of the Evidence Act as a submission only, was a response to certain matters set out in the Receiver's report. Those matters were not addressed in submissions by Mr King, and I do not understand them to be propounded as a basis for the removal of the Receiver. Dispute as to claim by Hebbel and other matters 1. The thirteenth matter raised in Mr Brigden's affidavit dated 7 May 2018, again admitted with a limiting order under s 136 of the Evidence Act by way of submission only, is that the Receiver's report did not contain sufficient detail concerning Hebbel's claim for an amount of $45,040 for works conducted prior to the Receiver's appointment and that claim "may be an attempt to recover sums through the accounting process" that were not allowed pursuant to the judgment of Rein J. This matter appears to be directed to a challenge to that claim which the Receiver has not yet allowed. Bitar may raise that challenge directly with the Receiver, or in the balance of the proceedings before Rein J. The existence of a dispute as to that matter does not seem to me to provide a basis, alone or together with other matters, for the removal of the Receiver. 2. Mr King also submitted that the Receiver had breached orders made by Rein J on 7 March 2018; that order was subsequently vacated, and it does not seem to me that that matter could possibly support, alone or together with other matters, an order for removal of the Receiver. A second alleged breach of order related to the service, one day late, of the Receiver's report and nothing turns upon that matter. Other submissions and conclusion as to removal of Receiver 1. I have addressed the matters raised by Mr King as supporting the removal of the Receiver above. Mr King also submitted, in oral submissions, that Mr Frisken was now in a position of conflict, because he might have to account for his actions to the Partnership (T29). I do not accept that submission, which it seems to me would allow a party to bring about the removal of a receiver, at will, by making allegations against that receiver, which may or may not be found to be well-founded, to which the receiver will need to respond. I also do not accept that that conflict is material in the present case, where I have addressed the substance of the criticisms advanced by Bitar above. It is not necessary to determine whether Mr King's submission that a "not unrealistic possibility" of conflict, which may or may not equate to a realistic possibility of conflict, would be sufficient to provide reason for removal of a receiver, where a conflict of that character has not been established in this case. 2. Mr Wiggins submitted that Hebbel also had some concerns about the length of time taken to complete the receivership and the costs incurred, but submitted that replacing the Receiver at this stage was likely to cause further delays rather than expedite the process, and that concerns as to the Receiver's costs should be addressed through the process of passing his accounts and dealing with his application for remuneration. Mr Wiggins submitted, and I accept, that several matters which Rein J had identified as supporting the appointment of a receiver to the Partnership, as I noted above, support the continuance of the receivership, namely that issues of disagreement and conflict between the parties had not been resolved; three units remained to be sold; the Receiver holds substantial funds in his trust account, which properly should be under independent control, at least until the debts of the Partnership are paid; a real estate agent appointed to sell the remaining units would require instructions; and the recordkeeping of the Partnership remains an issue. Mr Wiggins also submits that Bitar's criticisms of the Receiver largely fall into the category identified in the case law, as "things that could have been done better, or things that could have been done earlier", but do not warrant the removal of the Receiver. 3. Mr Wiggins also pointed out, with substantial force, that Bitar's proposal that a real estate agent be appointed to sell the units would not provide for completion of the balance of the Receiver's duties in respect of the winding up of the Partnership. Mr Wiggins also points out that, to the extent that a claim is or may be available to the Partnership for Mr Katter's breach of contract in respect of the purchase of units 25 and 26, the real estate agent appointed to sell those units would not be able to pursue that claim. I recognise that Bitar sought to address that difficulty by ultimately proposing the replacement of the Receiver, with another receiver yet to be identified. 4. Mr Golledge properly recognised that the Receiver was appointed by the Court; was not a party to the principal proceedings between Hebbel and Bitar; and whether it remained just and convenient for him to remain in office was a matter for the Court's determination. Mr Golledge made submissions in response to several of the criticisms made of the Receiver's conduct, but properly made no submission as to the ultimate question whether he should be discharged. Mr Golledge also submitted that this application was not a proper forum to consider the Receiver's past conduct, which he submitted was a matter to be addressed in the context of passing the Receiver's accounts, consideration of his claim for remuneration or any inquiry into his conduct, and that the only question in this application was whether it remained "just and convenient" for the Receiver to remain in office. It seems to me that the Receiver's conduct can and should at least be addressed to the extent that, if the criticisms made of that conduct are not persuasive, then it is more likely that it would remain just and convenient for the Receiver to remain in office. Mr Golledge also pointed out, in oral submissions, that the majority of the complaints raised by Bitar were not supported by evidence to establish their factual basis. 5. As I noted above, Bitar initially sought an order that the Receiver now be discharged and directions be given for the sale of the remaining three properties and a specified real estate agent be appointed for that purpose. I am not satisfied that such an order could or should be made, where that course would not bring about the lodgement of the Partnership's outstanding tax returns in respect of the Partnership or payment of unpaid tax, nor would there be any mechanism for the giving of instructions to the real estate agent, where there is every reason to think that the parties could not and would not agree a joint position in that regard. I am also not satisfied, for the reasons noted above, that the matters on which Bitar relies warrant the removal of the Receiver, with the likely result of further delay in the receivership and wasted costs. Whether an interim distribution should be made to Bitar 1. In his first affidavit, Mr Brigden also referred to several matters that were said to support an interim distribution by the Receiver to Bitar, including that Bitar was "unable to invest in further projects" pending conclusion of the receivership and its receipt of the proceeds of that receivership and that Mr Katter had been required to advance funds to Bitar which had caused him personal hardship and placed Bitar at risk of insolvency. Mr Wiggins submitted that any inability of Bitar to invest in development projects did not amount to hardship, rightly pointed out that Bitar had led no evidence to establish its assertion that it was at risk of insolvency and submitted that Bitar should not be provided an interim distribution until the completion of the receivership. 2. The evidence on which Bitar relied to establish these matters was insufficient to establish them and Bitar led no evidence to establish that an interim distribution of the amount it proposed, in the amount of $500,000, could be made without prejudicing payment of the Partnership's creditors, including the Australian Taxation Office, and the Receiver in respect of his claim to remuneration and expenses. I am not satisfied that the basis for an interim distribution has been established. Orders and costs 1. For these reasons, I order that Bitar's Notice of Motion filed on 24 April 2018 be dismissed. However, I reserve liberty to apply on 2 business days' notice in respect of the matter concerning unit 11 noted in paragraph 31 above. 2. Mr Wiggins submitted that the Receiver's costs of responding to the Notice of Motion should be borne by Bitar and that Hebbel's costs of the application should be borne by Bitar on a party/party basis for the reasons set out in MLW Investments Pty Ltd v Tacsum Pty Ltd above at [37]ff, where his Honour observed that: "The plaintiff seeks the costs of today's Notice of Motion. The plaintiff seeks those costs on the basis that the costs of the plaintiff, on a party/party basis, be paid by the defendant, and that the costs of the receiver, on the indemnity basis, be paid by the defendant. The plaintiff's reason for making the latter application is that if the receiver were to receive an order for costs only on a party/party basis he would, prima facie, be entitled to recover the difference between his actual costs, and the party/party costs from the partnership assets, and it would be the plaintiff who would thereby end up bearing half of that difference. The defendant opposes that order on the basis that the reason why the matter needed to come to Court at all was because the parties have, between them, caused the process to miscarry. I do not accept that submission of the defendant. While it is true that the plaintiff did not meticulously adhere to the Court timetable, the defendant is the one that has changed its mind about whether an offer would be submitted or not, and as well the defendant has made applications for orders, beyond the direction that I have made, where those applications have not succeeded. It seems to me that the basis upon which the special order in relation to the order of the costs of the receiver is sought is right in principle. I order the defendant to pay the costs of the plaintiff of the Notice of Motion on a party/party basis. I order the defendant to pay the costs of the receiver of the Notice of Motion on an indemnity basis." 1. My preliminary view is that Bitar should pay the Receiver's costs of and incidental to the application, on an indemnity basis, and should pay Hebbel's costs of and incidental to the application on an ordinary basis. However, I will allow the parties a short opportunity to be heard. ********** Amendments 08 June 2018 - Amended to correct case number. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 June 2018