Stewart & Anor v Atco Controls Pty Ltd (In Liquidation) [2014] HCATrans 39 (6 March 2014)

Last Updated: 6 March 2014

[2014] HCATrans 039

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M141 of 2013

B e t w e e n -

JAMES HENRY STEWART IN HIS CAPACITY AS LIQUIDATOR OF NEWTRONICS PTY LTD (IN LIQUIDATION)

First Appellant

NEWTRONICS PTY LTD (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 061 493 516)

Second Appellant

and

ATCO CONTROLS PTY LTD (IN LIQUIDATION) (ACN 005 182 481)

Respondent

CRENNAN J
KIEFEL J
BELL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 6 MARCH 2014, AT 10.17 AM

Copyright in the High Court of Australia

MR A.J. MYERS, QC: May it please the Court, I appear with MR P.G. WILLIS for the appellants. (instructed by Gadens Lawyers)

MR P.D. CRUTCHFIELD, SC: If the Court pleases, I appear with MR C.T. MOLLER for the respondent. (instructed by K & L Gates)

CRENNAN J: Yes, Mr Myers.

MR MYERS: Mr Stewart, the liquidator of Newtronics, brought proceedings against receivers of the assets and undertaking of Newtronics and those proceedings were compromised by payment of a sum of $1.25 million to the liquidator. The liquidator says that he is entitled to retain out of the fund thus recovered by him his costs of doing so. Atco says that it is entitled to the whole of the $1.25 million without deduction under the terms of its security.

It is not disputed that the liquidator was acting properly in the discharge of his duties in maintaining the proceeding against the receivers. Justice Davies, at the second level of the proceedings below, adverted to this matter. If your Honours would be good enough to look at the appeal book, page 485, paragraph 13. It is line 37 or 38 that I look to in particular:

The unusual circumstances of this case do not alter the fact that the settlement sum was the proceeds of litigation instituted by the liquidator in the discharge of his duty to get in the assets of the company which, in this case, were comprised wholly or substantially of choses in action. The settlement sum has only been recovered, and only forms part of the pool of property of the company secured by Atco’s charge, as the result of the liquidator’s actions.

KEANE J: What was the asset of the company?

MR MYERS: I am sorry, I did not hear what your Honour - - -

KEANE J: Mr Myers, what was the asset of the company that the liquidator was seeking to realise in the application – in the suit against the receivers?

MR MYERS: He was - - -

KEANE J: Was that action not simply that – was the basis of that action not simply that essentially the receivers had converted all the assets of the company by intermeddling with them?

MR MYERS: That is so.

CRENNAN J: The asset that has been got in is the cause of action, is it not, against the receivers – the company’s cause of action?

MR MYERS: Indeed, well, the asset that was got in in the end was the fund of money - - -

CRENNAN J: That is right.

MR MYERS: - - - the 1.25 million. But the nature of the proceedings against – I do not know if I am answering your Honour’s question, but the nature of the proceedings against the receivers was based, ultimately, on an allegation of invalidity of the security which Atco had and relies upon still. It was said that the receiver’s appointment was void because of the invalidity of the security and that, as your Honours said, their actions in taking control of the assets of the company – I do not know what they were precisely, it was a manufacturing company – amounted to trespass and conversion of those assets.

KIEFEL J: The business of the company was sold, was it not, and Atco received the proceeds of the sale of that from the receivers?

MR MYERS: It did.

GAGELER J: There is no dispute that the asset that you describe as the “fund of money” acquired by the liquidator, constitutes an asset which is the subject of the charge.

MR MYERS: None at all, no. The charge has been upheld and it is an asset which is covered by the charge, to use that expression.

CRENNAN J: Just while we are talking about non-contested matters, looking at page 602 of volume 2, in the judgment of Justice Cavanough, he describes at about point 12, or a bit above that, that Atco has been paid certain costs, presumably under the funding agreement and basically will be:

out of pocket for the difference between its taxed or agreed costs –

that is at line 39 –

and its actual costs.

MR MYERS: That is so.

CRENNAN J: Recognising that the major part of the indebtedness pursuant to the security was satisfied by the sale of the business.

MR MYERS: It was, and Atco was ultimately successful in the proceedings in which its security was challenged. It did not settle. It persisted with its appeal against the decision of Justice Pagone and was successful in the Court of Appeal and it received its taxed costs. Its complaint here is that overall it has lost some money because the difference between its taxed costs and its actual costs is quite a lot of money. We do not know exactly what, but quite a lot of money. Its real - - -

CRENNAN J: Well, I suppose - - -

MR MYERS: I am sorry, your Honour.

CRENNAN J: I suppose on one view Atco did not come into the liquidation because it had its own receiver there and its own receiver sold the business but now that there is a fund available, in a sense, it wants to come in at this point.

MR MYERS: I will go to that in a moment, but the answer to your Honour is, yes, we agree with that, with respect. While we are dealing with uncontested matters, there is a matter which has just really come to my attention since I saw our learned friends’ speaking notes and they assert there a practice of those who appoint receivers to indemnify receivers. Well, there may be that practice but if it is important, there was no evidence in this matter that, in fact, Atco was indemnifying the receiver and that it paid, as it were, the 1.25 million which the receivers paid to settle the claim. That is not the subject of evidence. There was a silence on that subject.

KIEFEL J: What relevance would it have, in any event?

MR MYERS: I am not sure that it has any but my mind was distracted – as it ought not to have been, perhaps – by this discussion of what is uncontested. On page 530 of that appeal book – if your Honours still have it – in paragraph 99 of the reasons for decision of the learned Chief Justice:

Whilst no criticism of the liquidator’s conduct in commencing proceedings which aimed to get in the assets of the company is warranted –

et cetera. So the actions of the liquidator in getting in the assets, including the 1.25 million is, as the Chief Justice said there, not able to be criticised. Justice Davies did not determine what are the costs and expenses properly deductible on her decision from the amount of $1.2 million and it is important to note that. If your Honours would be good enough to look at page 491, paragraph 22 of her Honour’s reasons for decision under the conclusion:

It follows that the appeal will be allowed. Subject to argument –

make an order as to costs:

I will also direct the liquidator to file and serve an affidavit verifying the costs, expenses and remuneration claimed and list the matter for a directions hearing.

So, whether in fact those costs and expenses are greater than 1.25 million, equal to 1.25 million or some lesser figure has not been determined and the precise figure of course remains to be determined by the court.

CRENNAN J: So it would have to be referred back if you win?

MR MYERS: It would to be referred back, yes. At all three levels of adjudication below, the appellants relied upon the statement of principle of Mr Justice Dixon in Re Universal Distributing Co Ltd and that is case one on the lists and the passage that I wish to refer to at page 174 of the 48th volume of the Commonwealth Law Reports is set out, if your Honours do not want to go to the actual report, in our notes of argument:

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets . . . The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it . . . The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it –

that is the property, the fund – the property I think in the context –

is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of realization just as if they had begun a suit for its realization or had themselves realized it without suit.

CRENNAN J: Well, now, that is the principle and at the bottom of the page I think his Honour draws out the question on the facts.

MR MYERS: The question in the present case?

CRENNAN J: Yes, and at the top of page 175 his Honour directs attention to the:

work done in the winding up as is referrable to the calling in and conversion of the assets producing the fund.

MR MYERS: Correct.

CRENNAN J: The same question here, I take it?

MR MYERS: Yes, it is. The work that was done here is the proceedings undertaken against the receivers and the compromise of those proceedings.

CRENNAN J: That bears I think on Justice Keane’s question just before, seeking to identify the assets being called in.

MR MYERS: Yes.

CRENNAN J: It is the cause of action, the proceedings, is it not, that generate the fund that the company could have - - -

MR MYERS: Correct.

CRENNAN J: - - - yes, brought?

MR MYERS: Correct. In the end, it is the liquidator’s work in maintaining the proceedings that has realised the fund, in this case, of $1.25 million, not by order of the court but by a compromise of the proceeding. The question is whether that fund is burdened with those specific costs or not. That is the only question in the proceeding.

CRENNAN J: What about Mr Crutchfield’s point that Atco, in a sense, never consents to these steps being taken – that is to say, the calling in and conversion of the asset producing the fund? That seems to be a major theme in the argument.

MR MYERS: It is a major theme in the argument, but those observations are, we say, beside the point. The question is it claims the fund, and the fund was produced by some work and the costs of that work must be borne by the fund. It is as simple as that in the end.

CRENNAN J: I suppose they are drawing on the law in relation to strangers.

MR MYERS: They are but, of course, that law has nothing to do with this case because in this case we have a liquidator properly discharging his duties and bringing into existence a fund which the secured creditor wants to take for itself and, as is said in Universal Distributing, yes, of course, if your security covers it then you can have it, but subject to the costs of getting it in.

KEANE J: I am not sure that this matters, but in terms of the formulation of the principle by Sir Owen Dixon, the principle is formulated in terms that the liquidator is realising a fund out of the assets of the company, those assets being charged to the secured creditor, as well as being available to other creditors.

MR MYERS: Yes.

KEANE J: You say the liquidator’s work produced the fund in that a compromise payment was made. But it is right, is it not, to say that there was not the realisation of any assets of the company? I am not sure where it goes, but is not the correct analysis that there was, at least between Atco and your client, given the ultimate conclusion of the litigation between them, it cannot be said that what the liquidator was doing was realising a cause of action of the company because the security was good, and your case was that it was bad. So strictly speaking, and maybe this is a pedantry that does not matter, it is not right to say that this money is a fund produced by the realisation of a cause of action that the company had. It is right to say, as you say, it is money produced as a result of the work of the liquidator in suing the receiver. My difficulty is in seeing how it is the realisation of an asset of the company because, at least as between Atco and you, there was no asset.

MR MYERS: The property which is realised in the statement of principle of Sir Owen Dixon is the 1.25 million. That is the property that is realised. That is the property that is made real, it is existent.

KEANE J: It is money that has been extracted from the receiver to make the case go away as against the receiver. The case goes on against Atco and Atco wins.

MR MYERS: Yes.

KEANE J: So that the compromise moneys that have been extracted represent the receiver – the price the receiver pays to get rid of proceedings that were brought against it.

MR MYERS: Which we can say with the benefit of hindsight, I am perhaps helping my friend by saying this, your Honour may think, which we can say with the benefit of hindsight would have failed because ultimately the attack on the receiver’s actions, the actions for trespass and conversion, and so on, depended upon whether or not the security of Atco was valid.

KEANE J: So that is not the strength of Mr Crutchfield’s argument not just that they did not – that Atco did not ask you to do this, or indeed even in that they opposed you doing it, but rather it is that this money was the proceeds of litigation which as between his client and yours, without foundation.

MR MYERS: I would contest the last – without foundation, no. After all, at first instance, for example - - -

KEANE J: I am not saying it was unreasonably broad. I am just looking at how the cards fell and at the end of the day it is the case that the claim failed as against Atco.

MR MYERS: We say simply it does not matter, it is beside the point. What was realised was a sum of money. What was brought into existence was this fund.

KIEFEL J: That fund was referable to the chose in action regardless of whether or not legally it is - - -

MR MYERS: It was referable – a chose in action and referable to the existence of the business that was – and chattels - - -

KIEFEL J: It was not a gift. It arose out of a chose in action. At the time the settlement occurred the chose in action was in existence.

MR MYERS: That is so, but whether it was a chose in action which was correctly identified or not also is beside the point because what the outcome of the liquidator’s work was the realisation of an asset of the company, $1.25 million, a fund. That was what was brought into existence by the liquidator and the secured creditor can have that if the secured creditor pays the costs and expenses of creating it. Those costs and expenses have not been determined yet, as I have pointed out. That is the only point.

Now, the liquidator – I am sorry, Atco is unhappy that it was sued. At the bottom of all this is its complaint: we are a secured creditor, you liquidator should not have been suing us and you lost and that cost us a lot of money so we should not have to pay your expenses of realising this asset that you realised from the receivers. At the bottom, that is what their complaint is.

KIEFEL J: That explains the original claim, was it not, was for the liquidator’s breach of duty to it as a secured creditor?

MR MYERS: Yes.

KIEFEL J: And that claim failed.

MR MYERS: Yes.

KIEFEL J: The other issues about the equitable lien only came in when the liquidator put in a defence and reply. The reply then created issues about it.

MR MYERS: That is so. What we say very simply, and I do not want to labour the point, is that this is a simple, clear case of the realisation of a fund in a winding up and the liquidator is entitled to the expenses of realising it out of the fund in priority to the secured creditor by virtue of the equitable lien. It is a right of recoupment of the liquidator for his costs of realising it out of the assets realised.

In the Court of Appeal – perhaps I should say this before I go on. We say that the amount of the $1.25 million was realised in the winding up within the meaning of the statement of principle of Sir Owen Dixon and the secured creditor became, in the words of Sir Owen Dixon, a party to the winding up by claiming the amount in the appeal under section 1321 of Corporations Law, and section 1321 is attached to our submission.

GAGELER J: It is not simply by being aggrieved by an act of the liquidator in the winding up. You say it is the commencement of the proceedings, is it, that gives the secured creditor that status?

MR MYERS: In this case, I do not need to answer that question because the secured creditor really did make sure that it came in, but any claim of the secured creditor would amount to a coming in, a claim made against the liquidator for this sum because it is a sum of money that was realised in the liquidation, so the liquidator is coming in by making the claim. In this case we point out 1321 but accept what your Honour says. Below, the learned Chief Justice in appeal book page 516 at paragraph 45, expressed her conclusion on this issue that I have been addressing:

The issue of whether Atco’s claim for the settlement sum constitutes coming in to the winding up is more difficult. On one view, Atco, in claiming the settlement sum, is not merely resting on its security since it could not have realised the settlement sum without the actions of the liquidator.

That is true.

Whilst there is some force in this submission, I do not accept it as being sufficient to establish that Atco has ‘come into’ the winding up. Atco at all times opposed the means by which Stewart obtained the settlement sum; it also opposed Stewart’s incurring of costs, which were not incurred to benefit Atco.

All that is true but they are antecedent matters. The coming in occurs in connection with the claim for the sum:

Its claim to the settlement sum flows from its pre-existing security –

Yes, it does, but it also flows from the fact that the sum has been realised by the liquidator in the winding up –

which it did not seek to have determined in the winding up, and was not altered by the winding up. In my view, the force in Stewart and Newtronics’ submission that Atco’s claiming of the settlement sum involves more than merely resting on its security does not go to its willingness to participate in the winding up, but rather to the claim that if Atco is entitled to the settlement sum, Stewart will have conferred an incontrovertible benefit on Atco. I will explore this shortly.

So, in a sense, the learned Chief Justice does not really come down one way or the other on this question whether there is a coming in to the liquidation in the sense used by Sir Owen Dixon. She puts the one hand and the other. We are inclined to think that she is really saying that there is not a coming in. But, at the end, she says the crucial issue is whether:

Stewart will have conferred an incontrovertible benefit on Atco –

something that I will deal with later in these submissions.

CRENNAN J: Her Honour seems to be saying that coming in – which a claim on the fund would appear to be – was not, in her view, enough.

MR MYERS: Yes. If that is what she is truly saying, your Honour, then her judgment is consistent with those of Justices Redlich and Cavanough. If I could just, quickly, take your Honours to them. As to Justice Redlich, would your Honours be good enough to go to page 565 of the appeal book to paragraph 203:

The liquidator contends that according to 19th century Chancery practice and its statutory successors, Atco could not enforce its charge against the receivers and itself without the aid of the court by its officer, the liquidator who did so. Be that as it may, Atco does rely on and seeks the benefit obtained by the liquidator.

We say that is the correct formulation:

When it steps forward to claim the Settlement Sum from the liquidator it ‘comes into’ the liquidation.

Justice Cavanough – appeal book 597, paragraph 284 – I can read from line 12, just the conclusion:

Hence, strictly speaking, the sum of $1.25 million was realised in the winding up of Newtronics and, in a way, Atco has now “come in” to the winding up in order to claim that sum.

And, again, we say that is a correct statement.

KEANE J: This idea of “coming in” is, really, just a shorthand way of saying that the secured creditor cannot approbate and reprobate.

MR MYERS: Correct, correct. It has an echo in language that was used in Chancery Practice at the beginning of the 19th century, one gathers, from some of these cases. But, that echo does not really determine the real substance of the principle which, if one goes to that statement on page 174 of Universal Distributing, really is. But, if it – the property – the asset – is realised in the winding-up, “the proceeds must bear the cost of the realization”. That is, in substance, what is said.

Now, I should like to point out that in our written submissions on page 8, footnote 14, which refers to the matters that I have just been identifying in the judgments of the Chief Justice and Justices Redlich and Cavanough, almost every footnote is, I am sorry to say, wrong; the references are wrong. If your Honours would just note footnote 14: it was correctly held by Justice Redlich at 203, not 205, and Justice Cavanough at 284, not 248, at page 597, not page 583. I do apologise for that.

We say that we are comfortably within – plainly within – the principle enunciated by Sir Owen Dixon. Why then did the Court of Appeal decide as it did? A thread that runs through all of the judgments is that unconscientiousness in making a claim is the basis upon which an equitable lien may exist, so if it would be unconscientious in this case for Atco to make a claim without allowing for the costs, then that is the basis of the equitable lien.

That leads all members of the court below to make a wide examination of the circumstances in which this claim is made and then in the end to say well, there is no equitable lien because Atco did not get an incontrovertible benefit. That is some learning derived from the unrequested benefit provided by strangers, in particular some academic writing, that Atco did not consent to the proceeding from which the sum was realised by compromise, that Atco suffered the questioning of its security when it should not have been questioned.

But all these matters are beside the point. It may be that a theory of conscientious or unconscientious behaviour at one deep level underlies the various categories of equitable liens, but it does not mean that in every case where there is a claim for an equitable lien, according to an established principle or rule of law, one has to look at a broad range of behaviour and make a judgment about whose behaviour is more conscientious than someone else’s behaviour or whose behaviour is unconscientious.

In the end, the general principle of unconscientiousness is embedded in the very principle that Sir Owen Dixon enunciated. If you claim the benefit of a fund that the liquidator has derived in the liquidation, you can only have that if you pay the costs of it being derived.

CRENNAN J: It is the unconscientiousness, is it not, of the legal owner of the property wanting to take it free of that charge?

MR MYERS: Correct.

CRENNAN J: It is quite a narrow notion, in a sense.

MR MYERS: It is, and we should not be in, with respect to the learned judges below, this discourse about unconscientiousness. I will develop it a little further. We have got a clear and certain rule of law, well established, it certainly has not been questioned according to our researchers in the 80 years in this country since Sir Owen Dixon stated it so clearly in Universal Distributing, applied every day in liquidations and other sorts of administrations in insolvency and it is that rule which is to be given effect to, not some wider examination of what other relative merits of the parties in connection with the litigation out of which the fund was created.

CRENNAN J: Well, I suppose it seems, it might seem a distraction or there might be some other way to describe it but the fact is an unsuccessful challenge to a secured creditor’s security could not, on any view, be described as calling in and converting the assets and producing a fund because there is never a fund in those circumstances. But, as I understand it, Mr Crutchfield does rely on M.C. Bacon as standing for the proposition that an unsuccessful challenge to a secured creditor does not give rise to a claim to a lien.

But the point there, I suppose, is that a lien has to attach to property. If there is no fund there – the unusual aspect of this case, and I think Justice Cavanough was right to describe it as “unusual”, is there is an unsuccessful attack on the secured creditor’s security but, as it happens, there is a fund realised from the receivers. One could not say that is a common or garden example.

MR MYERS: No, there will be many, many different instances where a liquidator’s actions realise a fund and this is, admittedly, unusual. However, that does not change the operation of the principle because a fund is realised by the liquidator and if you want the fund you have to pay the costs of realising it. It is as simple as that. Now, M.C. Bacon which your Honour Justice Crennan has referred to was a great part, one gathers, of the submissions below. It occurs in our learned friend’s written submissions before this Court but it is not even on their list of authorities.

They must have thought better of it and correctly so because in M.C. Bacon there was an unsuccessful attack on the security of a secured creditor by a liquidator and the liquidator said I am entitled, nonetheless, to my costs against the secured creditor and the Court said, no you are not. It has got nothing to do with this case at all. There was no fund brought into existence. M.C. Bacon is concerned with a different state of affairs altogether and moreover with the construction, ultimately, of the provision of the English companies law.

But, taking it at a broader level, it is not authority for any proposition in relation to equitable liens because there was no fund brought into existence. In this case, if the liquidator had not succeeded in getting a compromise payment from the receivers and managers, he could not have turned to the secured creditor and said, “I want my costs”. The next thing about this is this. It is an everyday occurrence for liquidators to challenge the security of secured creditors or persons who claim to be secured creditors for the benefit of the creditors as a whole.

Sometimes they are successful and sometimes they are not. But if there is no fund that comes into existence as a result of that litigation, the costs will go against the unsuccessful party. It will be the usual rule – woe to the vanquished. The learned Chief Justice deals generally with this question of unconscientiousness, particularly I think at page 522 of the book in paragraphs 63 and 65. In 63 she sets out Atco’s submissions:

Atco submits that the appropriate test is that set out by Buss JA in Coad and submits that the onus is upon the person that asserts an equitable lien to show that it would be unconscientious for the person with the prior right to the property to assert their right over that property.

Then in 65 she says:

Whilst in each case the inquiry as to unconscientiousness must turn on its own facts, the authorities provide content and structure to the inquiry. When the test is framed in terms of unconscientiousness, it becomes apparent that in assessing the conduct of the parties, regard must be had to nature of the litigation and the context in which it occurred. Atco submits that when all these matters are considered, it can be seen that the litigation was, in substance, brought by Seeley.

We say, with respect, that those observations have nothing to do with the availability of the equitable lien of the kind that we are concerned with; simply nothing to do.

KEANE J: Would they have been relevant, Mr Myers, if the matter were being considered under section 564 of the Corporations Act?

MR MYERS: It may be. The question there would have been a different one though. It would not be this matter because under section 564 you would not get to this question because it would not be a sum – the sum that the court would be dealing with would be a sum that was net of the liquidator’s costs of deriving that sum. But there may be the possibility of a wider inquiry, but it would be a different one. Justice Cavanough at one point said that - - -

KEANE J: Certainly the existence of an indemnity between Atco and the receiver would have been relevant to that inquiry.

MR MYERS: Yes, it would have been, but - - -

KEANE J: But that never happened.

MR MYERS: No, it did not happen. I will come to that in due course. We will have to have a look at the indemnity agreement. This general question of unconscientiousness is dealt with by Justice Redlich at appeal book 554 to 564 in paragraphs 174 to 199, and Justice Cavanough at appeal book 598 to 601, paragraphs 287 to 292.

In the end, we make the same answer in each case: the general question of unconscientiousness does not arise. The rule is clearly stated and if one wants to examine things in terms of what is conscientious or unconscientious behaviour, the answer is that if you claim a fund which had cost the liquidator some money to create, you can only take the fund net of that. The liquidator is entitled to recoup his expenses out of the fund before he hands it over to the secured creditor. Then the question is asked by the Chief Justice, and this is asked by the other judges:

Was the litigation, in substance, between Seeley and Atco?

This is a puzzling question because the litigation was between the liquidator and the receivers and Atco also. This is a case of the liquidator acting properly in the discharge of his duties, whereby he brought into existence of a fund which he held for the creditors in the liquidation according to their priorities after the costs of realisation of the fund are taken into account. The Chief Justice dealt with this at paragraphs 67 to 71:

Given the way the trial judge framed the salient question, her Honour’s conclusion is understandable. However, that the liquidator was acting reasonably in the discharge of his duty is not inconsistent with finding that the liquidator was acting in Seeley’s interests and against the interests of Atco.

Only in a sense: the liquidator, in discharging his duty, is acting in the interests of the general body of creditors. It is not contested that the liquidator was acting properly. Now, a particular proceeding which calls in question a secured creditor’s security, of course, is at one level an action against the interests of the secured creditor. That is not the point. The point is the liquidator is acting properly in the discharge of his duty to act for the benefit of the generality of creditors. Then her Honour says:

It is relevant that it was Seeley who appointed the liquidator –

with respect, why –

and Seeley who indemnified the liquidator for the costs and expenses incurred in the proceedings against Atco.

Again, with respect, why?

CRENNAN J: The indemnifying creditor must accept that a liquidator is acting on behalf of all creditors, surely.

MR MYERS: Of course. There is no suggestion in this case that the liquidator was not. It may turn out that much less than the 1.25 million constitutes the proper costs and expenses of the liquidator in getting in this sum of money. We do not know the answer to that yet. But whether it be more or less, in the end, does not matter if the liquidator was acting properly in the discharge of his duties.

BELL J: In that respect the liquidator applied to the Federal Court and obtained the court’s approval of the agreement with Seeley.

MR MYERS: That is so.

It was agreed under the terms of the indemnity that the liquidator would approach the court to seek that Seeley be given priority over any funds recovered by the liquidator.

I will come to that.

It was also a term of the indemnity that the liquidator could not appoint solicitors or counsel to act in the litigation without Seeley’s consent.

And so on, but these observations are all beside the point in the end, these observations.

It is also relevant that Atco, at the time proceedings were commenced, did not stand to benefit from the litigation.

Of course not, it was the secured creditor whose security was being attacked.

These features lead to the conclusion that the liquidator, in bringing proceedings against Atco and its receivers, was acting at all times in the interests of Seeley and against the interest of Atco.

We contest that. At one level, it may be true that if the proceedings are successful, Atco will lose the benefit of its security and Seeley will, with other creditors who have priority as unsecured creditors, be entitled to claim in the liquidation for its very large debts. But, what does this have to do with the existence of an equitable lien to secure right of recoupment where an asset has been brought into existence?

Justice Redlich, at appeal book page 565 and following, paragraphs 205 to 216, analysed this question in the same way, in substance, as the learned Chief Justice, and Justice Cavanough did likewise at appeal book 597 to 598 at paragraphs 285 to 286. I do not need to go to them because the same issue arises – in different words, it is the same analysis. Then, the question is asked by the learned Chief Justice – if your Honours still have page 524 open, you will see the question:

Did Atco benefit from the realisation of the settlement sum?

In paragraph 77, the learned Chief Justice, I think – this is on page 525 – answered the question, no, I think:

The associate justice found that:

Had the work not been done –

that is to say, had the proceedings not been brought – the entirety of the proceedings against Atco and against the receivers –

Atco Controls would have been better off. There is no substantial benefit to the trust property.

Well, that is the secured creditor, perhaps:

Atco Controls was required to defend the litigation, incur legal costs which it will not recover –

it will not recover wholly, it certainly recovered the tax costs –

and would not have done the work to obtain such a fund.

This finding was not overturned by the trial judge. No material was provided to this Court that would justify disturbing it.

Even if it be accepted that all that is true, it is beside the point. The fund, here, in question, is the fund that was realised – the $1.25 million.

CRENNAN J: What is the benefit? Mr Crutchfield contends, I think, that the lien should not take priority over Atco’s interests because for that to happen, the work done by the litigator would have to have been done in the service of Atco’s interests.

MR MYERS: No. The work done by the liquidator has to be done in the proper discharge of the liquidator’s duties to all the creditors.

CRENNAN J: Well, it just seems to me that one has to identify, I think, the benefit that one is talking about. Is the benefit the fund?

MR MYERS: The fund.

CRENNAN J: Or, is the benefit something else?

MR MYERS: The benefit is the fund. The benefit is the fund. The question – can you come in and claim the benefit – that is the fund – if you do not bear the costs of bringing it into existence. The fact that there was a whole lot of other costs associated with the liquidation – indeed, the very proceedings against another person which brought into existence the fund – does not deny that there has been a fund brought into existence by the liquidator acting for the interests of the general body of creditors in the liquidation and if the secured creditor wants to claim it in the liquidation, the secured creditor has to allow the costs of bringing the fund into existence.

Now, those costs do not include any costs except those that are exclusively referrable to the bringing into existence of the fund and what those costs are has to be decided by an officer of the Supreme Court of Victoria in due course.

CRENNAN J: Does that mean we should not be troubled here about an argument about exclusively incurring the cost for bringing in the fund which I thought at some point one of the – possibly the Chief Justice says it was not an issue. No one challenged on the appeal what Justice Davies had said on that point, which was that the Atco litigation was the foundation for the action against the receiver. I am just asking you whether we do not have to be concerned with that point.

MR MYERS: No, you definitely do not have to, and I hope I made that clear at the beginning of my address by taking you to the last paragraph of - - -

CRENNAN J: Yes, got to be sent back.

MR MYERS: - - - the reasons for decision of Justice Davies. The question what are the costs has not yet been answered. Then there is a lot of learning about Falcke, F-a-l-c-k-e. I am not sure whether I am pronouncing it in the proper English/German way; Falcke, I would say. There were several strands involved in the reasoning there. The learned Chief Justice deals with these matters at paragraph 82 and following on page 526, through to about 95. Justice Redlich deals with it at paragraphs 174, which is on page 554, through to 199, which is on page 563. Justice Cavanough deals with it on pages 603 to 604 at paragraph 297.

Now, Falcke was a case where an officious bystander conferred an unrequested benefit. There is nothing of that kind in the present matter. Mr Stewart was a liquidator doing his duty. The circumstances in which the particular lien here arise, contrary to what the Chief Justice says at paragraph 85 on page 527, is not a case where the principles upon which equitable liens may be imposed may be informed by unjust enrichment cases. This is not an unjust enrichment case. This is not a case of the conferral of an unrequested benefit. This is a case of a liquidator performing his statutory duties as an officer of the court bringing into existence of a fund which a secured creditor chooses to claim.

KIEFEL J: Do the cases to which the Chief Justice refers, footnoted at footnote 70, proceed upon the basis that unjust enrichment is a freestanding principle?

MR MYERS: I cannot answer that question, I am sorry. If I may do so, in reply, I will. At paragraph 87, the Chief Justice says:

However, the liquidator’s duty only stretches so far and it cannot be said that the action in this case was necessary to the liquidator fulfilling his duty.

Well, again, with respect to the learned Chief Justice, that is an irrelevant observation. The question is whether it was a proper exercise of the responsibilities of the liquidator. It does not have to be a necessary exercise, whatever that means in the context. Then at paragraphs 93 and 95, the learned Chief Justice says this:

In my view, the authorities support the principle that it would be unconscientious for Atco to assert a prior right to the settlement sum without recognising the costs, expenses and fees incurred in producing that sum if to do so would confer on Atco an incontrovertible benefit.

Well, again, this language of “incontrovertible benefit” which has occurred especially in an academic context in relation to unjust enrichment cases, especially the officious bystander problem that so vexes law students and their teachers, does not arise here. But even if it did, Atco does have an incontrovertible benefit, the right to claim whatever of this fund is leftover after the costs and expenses of deriving it.

KEANE J: Is there not underlying what the Chief Justice is saying there, her Honour’s reliance on the finding of fact at first instance, which is to the effect that – and whether it is right or whether it is wrong I am not sure but it is said to be uncontroverted – that Atco is not incontrovertibly benefited because even with this money it is not better off than if it had not been sued because of what it has had to spend?

MR MYERS: That is so, but that raises the question whether one is taking into account in this question of whether the liquidator is entitled to recoupment the costs that Atco incurred in fighting its part of the action which the liquidator brought. Now, the liquidator paid Atco’s taxed costs. The difference between its taxed costs and what it - - -

KEANE J: - - - and a real indemnity.

MR MYERS: - - - and a real indemnity may have been substantial but that is beside the point, we say respectfully, in considering whether the claiming of this fund is an incontrovertible benefit.

KEANE J: But if you start from the proposition that this is a fund produced by the liquidator’s work in bringing the litigation, it is created by the litigation and all that we need to know is that Atco claims that therefore it should recognise what the liquidator spent to get it. That is looking at it rather narrowly if the reality is that Atco was forced to spend more than it has recovered in order to get access to a full indemnity.

MR MYERS: The first thing I would like to say - - -

KEANE J: In the sense that there is just something unrealistic about saying that it is better off because it has been sued and made to spend all this money.

MR MYERS: I am certainly not saying that and I regret deeply saying that, in any event, even though this reference to incontrovertible benefit is not relevant on the authorities, there was an incontrovertible benefit here because I have allowed myself to be sucked into a debate which is irrelevant, but accepting, since I ventured onto that slippery slope, accepting that, the action against Atco was lost by the liquidator. The consequences of that according to the law have been worked out.

There was an order for costs and the costs were paid, and that is the end of the matter. Liquidators are allowed to sue secured creditors if they are acting at least in the interests of the general body of creditors, and secured creditors might suffer in their pocket over that because they might not get back, even if they win, all the costs that they expended in defending the action. It is commonplace.

In this litigation there were some other parties sued as well and they paid a sum of money to compromise the claim against them and that sum of money is in the liquidator’s hands. The question is what costs and expenses, if any, is the liquidator entitled to throw against that sum. Universal Distributing says the liquidator is only entitled to throw against that sum the costs of deriving that sum. It is not all the costs of the litigation. Seeley – I am sorry, Atco are not going to be burdened twice with the costs of the litigation by this rule, so no injustice has been done to them.

What has happened to them is just the ordinary working out of the rules concerning costs and litigation. There is no warrant, we say, with respect, to overturn the established law on equitable liens of this kind just because in a proceeding in the liquidation the secured creditor suffered some losses. What if there had been two separate proceedings - just suppose – and in each of those separate proceedings the question of the liquidators – I am sorry, the secured creditors’ security had arisen?

The costs of the first of those proceedings which did not yield any sum, how would they be dealt with? The liquidator would simply have to pay those costs and if there was a deficit between tax costs and the costs actually incurred that is something the liquidator would suffer – I am sorry, the secured creditor would suffer. I beg your Honours’ pardon.

CRENNAN J: There was no application for solicitor/client costs, I take it, or anything of that kind?

MR MYERS: No, there was not. There are three threads I have attempted to demonstrate running through the Chief Justice’s reasons: first, that the matter that she is considering is informed by the unjust enrichment cases; secondly, that the liquidator’s actions although proper were not necessary; and thirdly, the result of the litigation taken as a whole has not conferred an uncontrovertible benefit on Atco.

We say each of those considerations is misplaced and irrelevant to the matter before the Court. This notion of an incontrovertible benefit has cropped up in a few of the cases but it is confined to unjust enrichment cases and I notice, reading Lumbers, which is one of the High Court authorities referred to, Justice Gummow, in argument, stopped counsel and said, “Incontrovertible benefit is just a slogan”. With respect, we adopt it. What it means is by no means clear.

CRENNAN J: The cases to which you refer which contain mention of incontrovertible benefit, did they concern court appointed liquidators?

MR MYERS: No. Justice Redlich dealt with the same matters I have pointed out at paragraphs 174 to 199. If I could just go to paragraph 174 and show the similarity of the reasoning – he says:

Atco relied upon the principle stated in Falcke -

and then he refers to -

the notion of ‘unconscientiousness’ -

and so on. Then at 176 he says -

The rule in Universal Distributing exemplifies the concept of salvage, which itself applies as an exception to the principle in Falcke. An examination of the principle in Falcke, and the exception carved out by the concept of salvage illuminates the content of the principle in Universal Distributing.

Well, it illuminates it only in the sense that the principle in Universal Distributing is a clear rule of law concerning where a particular equitable lien arises and it can be seen as deriving from general principles of equity because someone who comes into the liquidation and claims a sum of money has to pay the costs of the realisation of that sum of money. That theme recurs in the reasons for decision of Justice Redlich on page 556 at the bottom of paragraph 180:

The concept of salvage informs the application of the Universal Distributing principle and is an exception to the principle stated in Falcke.

And, yet again, his Honour emphasises that at page 558, paragraph 187:

The application of the Universal Distributing principle is illustrative of the concept of ‘salvage’ and is an exception to the rule in Falcke.

All that may be accepted but it does not help one determine what is the scope of the rule in Universal Distributing. It is a clear principle given effect to by the courts over a very long period of time. It is a particular lien. There is no additional requirement of a general examination of unconscientiousness. If there were, it would render the operation of that rule hopelessly uncertain.

This adding of a question of unconscientiousness, or incontrovertible benefit, is unsupported by any relevant authority – to go back to what your Honour the presiding Judge asked me a moment ago. In any event, we say it would be unconscientious to take the fund without bearing the costs of the creation of the fund. Now, if I could move onto to something else, a question that was asked by the Chief Justice at page 531 is this:

Was there an indebtedness for the lien to secure?

At page 106 the Chief Justice said:

I am of the view that there was no indebtedness at the time Stewart received the settlement sum for the lien to secure.

Justice Redlich, appeal book 573 at paragraph 224 under the heading:

The absence of indebtedness –

says:

An equitable lien arises to secure an actual or potential indebtedness.

Then he goes on to decide that there is no indebtedness. Justice Cavanough takes a difference view at appeal book 604 to 605, under the heading indebtedness – paragraphs 299 to 302, and at the bottom of 301 on page 605 says:

and in my respectful opinion rightly, that the existence of an equitable lien is not affected by the fact that the costs of getting in the fund have been incurred by a person other than the liquidator.

Now, can one just go back to the beginning? This search for an indebtedness is simply misguided.

CRENNAN J: The indebtedness - - -

MR MYERS: The lien does not secure an indebtedness, it supports a right of recoupment.

CRENNAN J: Is not the indebtedness being spoken about, that referred to by Justice Deane in Hewett’s Case - - -

MR MYERS: Of course, your Honour, and it has nothing - - -

CRENNAN J: The indebtedness of the owner of the legal interest to the person who realises the asset that is the subject of the legal interest, the chargee’s legal interest. Is that - - -

MR MYERS: The learned judges - - -

CRENNAN J: Is that not the indebtedness though?

MR MYERS: The learned judges have looked at some dicta of Justice Deane in Hewett which was a case dealing with purchase money liens, where there is an indebtedness. Here, there is no indebtedness. It is a recoupment. I do not know that one can say any - - -

KEANE J: It is a recoupment of an expense.

MR MYERS: Yes, but it does not mean there is an indebtedness.

KEANE J: No, no - - -

CRENNAN J: No.

KEANE J: - - - but is the question not whether there is an expense when you have an indemnity?

MR MYERS: That may be another question, but that is not the question that was asked, in any event.

KIEFEL J: But that was the question raised by the pleadings in the reply, paragraph 3, whether or not, because the liquidator’s expenses had been paid, there was nothing for the lien to operate upon.

MR MYERS: Yes. The right of recoupment is not lost because someone is indemnifying. I state it almost as something that is obvious and cannot really submit to much elaboration.

CRENNAN J: Is the right of recoupment in section 564, are they quite consistent matters?

MR MYERS: There is no right of recoupment dealt with in 564, strictly speaking, I think. Can I just put 564 to one side for a moment?

CRENNAN J: But you will deal with Mr Crutchfield’s waiver point at some point?

MR MYERS: Yes, I will. I hope I do. The entitlement of recoupment exists although the liquidator has a right of indemnity and, indeed, although the liquidator is indemnified there is no reason to deny the right of recoupment because someone has indemnified the liquidator. The solution that the law adopts of course is to allow, if it be necessary, the indemnifier to be subrogated to the rights of the person who has the entitlement to recoup. It would be an astonishing thing if liquidators lost their right of recoupment if they entered into an agreement for an indemnity. In paragraph 112 the learned Chief Justice recognises this in a way where she says:

Whilst an implied right of subrogation typically arises in a contract of indemnification in order to prevent the unjust enrichment of the person indemnified, express terms of a contract may operate to alter this prima facie position.

and cites Morris v Ford Motor Co. We say that it is a correct statement of the law that the right of indemnity arises typically in a contract of indemnification.

Now, can I deal with the indemnity agreement and section 564? Would your Honours be good enough to go to appeal book page 404? The deed that was operative at the relevant time was the deed of 27 March 2006, the first page of which is on page 406. It is between Seeley International Pty Ltd and Mr Stewart in his capacity as Liquidator of Newtronics. This deed was amended from time to time, as appears from the index of the appeal book, but the amendments extend or alter the subject matter of the indemnity for different actions or other actions than this document deals with, but they do not alter or amend the important provision. The recitals there one can see at a glance and there is nothing in the recitals about the equitable lien. The indemnity is set out over several clauses – 2, 3, 4, 5. Clause 2(a):

Seeley will indemnify the Liquidator and his staff in respect of all costs and expenses reasonably incurred by the Liquidator . . . in carrying out such work in the liquidation of Newtronics as is encompassed within the scope of the works more particularly described in clause 5 below –

and that is elaborated on. Clause 5 is at page 410; the scope of the works are set out.

KIEFEL J: Mr Myers, was there any issue below that this took effect as an indemnity?

MR MYERS: No.

KIEFEL J: No issue appears to have been joined on the pleadings as to that?

MR MYERS: No, no. Then if one can go to clause 12 and this is an important provision. “Section 564”, it is headed, and it provides:

The Liquidator will make application to the Court for orders that if any assets or damages are recovered which occurs as a result of the work performed as set out in clause 5.2 of the Indemnity Agreement or as a result of performing the Scope of Works set out in clause 5 above then Seeley be given priority ahead of all other creditors of Newtronics:

(i) for the recovery of the costs incurred by Seeley under the Indemnity Agreement and this indemnity (including the costs of providing the security referred to in clause 9 above); and

(ii) for payment of Seeley’s debt including costs and interest on the judgment sum.

The clause follows the terms of section 564 which provides:

Where in any winding up:

(a) property has been recovered under an indemnity for costs of litigation given by certain creditors, or has been protected or preserved by the payment of money or the giving of indemnity by creditors; or

(b) expenses in relation to which a creditor has indemnified a liquidator have been recovered;

the Court may make such orders, as it deems just with respect to the distribution of that property and the amount of those expenses so recovered with a view to giving those creditors an advantage over others in consideration of the risk assumed by them.

At the outset, a question of construction is said to arise in relation to clause 12. Two of the judges in the Court of Appeal, the learned Chief Justice and Justice Redlich decided that as a matter of construction clause 12 extinguished - extinguished is my word – extinguished the equitable lien.

KIEFEL J: Or modified it, I think.

MR MYERS: Or modified. The Chief Justice dealt with this at appeal book 533 to 535, particularly in paragraphs 113, 114 and 118. Justice Redlich dealt with it at some length, appeal book – I am sorry, I have got the paragraph numbers, paragraph 240 to 259, 240 beginning on page 581 to 59 on 588. In paragraph 118, in particular, the Chief Justice expressed her conclusion:

Whilst in my view this broad discretion could, as a matter of principle, co-exist with an implied obligation to account, I consider as a matter of construction that the application under s 564 was intended by the parties to exhaustively provide for the means by which Seeley would recover the funds provided under the indemnity agreement.

I take that to be a statement that as a matter of construction clause 12 has the effect that the liquidator’s equitable lien and/or the right of subrogation of the indemnifying party are modified or extinguished so that the only way that the indemnifying party can receive any recoupment for its expenses through the liquidator or that the liquidator can receive any recoupment of expenses under the equitable lien is through an application under section 564. That is a complex sentence, but the way in which the learned Chief Justice has expressed it is, with respect, not entirely clear.

KIEFEL J: There was no issue on the pleadings about this, was there?

MR MYERS: No.

KIEFEL J: Nor could there be because Seeley was not a party.

MR MYERS: Seeley was not a party. That was my final point. This is an agreement between Seeley and the liquidator. How on earth does Atco get any rights under that agreement? Justice Redlich’s view was expressed – or his conclusion expressed – in paragraph 255:

Whether a liquidator’s obligation to make a s 564 application and the fund provider’s right of subrogation co-exist will depend upon the terms of the indemnity. An indemnity agreement may provide for both the right of subrogation and a right by the liquidator to apply to the Court under s 564 to give priority to the fund provider. In the present case, however, cl 12 expressly modified any other fund provider’s right of recovery . . . The clause expressly applies to both the recovery of costs incurred by Seeley under the indemnity agreement and the payment of Newtronics’ judgment debt to Seeley. The liquidator had no contemplation that Seeley could obtain recoveries by means of subrogation to an equitable lien. The relief for which they bargained and which is evidenced by the agreement was an application under s 564 for the specific purpose of benefiting the indemnifying creditor.

What we say about clause 12 of the agreement is, first, that neither it nor any other provision of the agreement purports to modify, or affect, the liquidator’s right of recoupment and the equitable lien. Indeed, the equitable lien, as far as I can see, is not even mentioned and it is undoubted – as all the judges below agreed – that the equitable lien and section 564, or the entitlements under section 564, can co-exist. So if they can co-exist and there is not a word in the document about modifying, or excluding, either the equitable lien or the right of subrogation that is the end of the matter.

CRENNAN J: No mention, maybe, for a Codelfa style reason.

MR MYERS: Who knows? There is no mention. If the document does not – if the agreement does not mention it, it does not mention it. So no amount of construing can import into an agreement something that is not there.

KIEFEL J: And there was no question raised that section 564, in some way, obliged the liquidator to take that path even in the face of an indemnity.

MR MYERS: None at all. Then we ask what commercial sense would there be in construing this agreement as diminishing Seeley’s rights of subrogation. That was not the purpose of this agreement. It was to give Seeley enlarged rights, not to diminish rights. What purpose would a provision restricting, or modifying, or extinguishing, the liquidator’s right of recoupment and the equitable lien, in an agreement such as this? It does not serve either party’s interests. Finally, we say that Atco is a third party to this agreement and does not acquire any rights under it.

BELL J: Justice Davies dealt with this at 488 and 489 - - -

MR MYERS: She did.

BELL J: - - - in paragraphs 17 and 18. You adopt that analysis?

MR MYERS: I do. Indeed, I can say this. We adopt the analysis of Justice Davies throughout. I say that, I think, in the final paragraph of the speaking notes that have been provided to the Court. Again, perhaps I am going further than I need to, but as a matter of construction of clause 12, it provides:

The Liquidator will make application to the Court for orders that if any assets or damages are recovered . . . then Seeley be given priority ahead of all other creditors of Newtronics:

(i) for the recovery of the costs incurred by Seeley under the Indemnity Agreement . . . and

(ii) for payment of Seeley’s debt –

Now, there is a nice question whether the reference to assets or damages recovered include the net amount after the recoupment by the liquidator, in the present case, or the gross amount. We would say, with respect, it is plainly the net amount because there is nothing in this document which diminishes the liquidator’s right of recoupment. If your Honours please, they are the submissions on behalf of the appellants.

CRENNAN J: Yes, Mr Crutchfield.

MR CRUTCHFIELD: If the Court pleases, I think the Court has our outline of oral submissions. Before we work our way through those, could I just perhaps first deal with an issue raised by Justice Kiefel, which is this question of the pleading of the breach of duty by the liquidators. There was no case prosecuted at the hearing before Associate Justice Efthim – or anywhere else – that the liquidator was in breach of duty.

What happened was, and one can see it from the appeal book, is we pleaded it – we certainly pleaded it – and then four days before the hearing the liquidator filed the second affidavit, which appears at AB 339 and following. That affidavit has the exhibits, including the legal advice that the liquidator obtained, that said the liquidator had an equitable lien.

In light of that, and for other reasons, we did not pursue that case, so there was no issue – and Mr Myers is right about this, with respect – there has never been an issue in this case that the liquidator, in bringing the claim against the receiver or Atco, was acting in breach of duty. There was on the pleading an issue as to whether or not there was a breach of duty in passing the money back to Seeley - - -

KIEFEL J: Without bringing an application to the court.

MR CRUTCHFIELD: Exactly, and we did not plead it was a breach of duty – we pleaded that was a breach of duty, we did not prosecute that part of the claim. But what we have prosecuted all the way along is that it is relevant in determining whether or not a lien that is sought by the liquidator arises. That the liquidator told the creditors and the Federal Court in an affidavit one thing and then went ahead and paid the money to Seeley, to a third party, without telling Atco and, we say, very importantly, without telling the Federal Court. That has always been in issue in the case and your Honours will see that from the reasons.

We say that is, we continue to say that is a highly relevant matter when our friends are seeking equity, that courts all around the country rely upon official court-appointed liquidators to tell them the position. Here what has happened is the liquidator told the court one thing and then went ahead and did another and did not seek directions, did it on legal advice.

KIEFEL J: Could I just ask you two things there? Firstly, just going back to the question of breach of duty, do I take it then that the findings of the primary judge that there was no impropriety on the part of the liquidator in bringing the proceedings was uncontroversial?

MR CRUTCHFIELD: Absolutely, absolutely.

KIEFEL J: In relation to this second point, this argument about not bringing the matter back before the court as it had been promised, does that find expression in the judgments in the Court of Appeal?

MR CRUTCHFIELD: Yes, it does, yes, it does in all three of the judges. I will give your Honours the reference.

KIEFEL J: To what end? I mean, is it actually for a basis - - -

MR CRUTCHFIELD: Well, Justice Cavanough, with respect, seemed to view it in the same way as seemed to be embedded in your Honour’s questions to Mr Myers, what does it matter to Atco? It is not a party to the agreement and your Honour will find that in the reasons. Justice Redlich and the Chief Justice, more so Justice Redlich but both those two judges saw it more in the way in which I have just submitted. That is, and we always put it as a matter of clean hands and we accept that the doctrine of clean hands like a lot of this area is amorphous to some extent.

We accept that the lack of clean hands has to relate to the equity that is sought but we always said that it did relate here and Justice Redlich was with us on this, his Honour was with us. Chief Justice Warren – I will give your Honours the reference, I just wanted to first address this point though. Chief Justice Warren said it was a relevant discretionary matter. Justice Cavanough kept saying to - - -

KIEFEL J: I am sorry, to what discretion?

MR CRUTCHFIELD: To whether or not a court of equity would allow an official liquidator who is seeking the assistance of equity to claim a lien in circumstances where on any view of the matter, we submit, on any view of the construction of what the Federal Court was told, the liquidator should have gone back and made that application under 564. In our written submissions, we put in evidence the transcript of what happened before Associate Justice Efthim, we have referred to the transcript.

What happened was that Newtronics turned up before the Associate Justice and said well, we say we have an equitable lien but even if we do not we will just go over to the Federal Court and seek our section 564 and we said you are not entitled to do that. The point is, and we argued creditors were told one thing, that this is the way Seeley would get recovery, and the Court was told one thing and if Seeley wanted a recovery they should have gone back under section 564. There would have been a debate on that 564 application.

No doubt they would have run the equitable lien case, presumably, before the Federal Court that had authorised the funding agreement in the first place, so it is put against me, well, the arguments would be exactly the same. But we submit that is not so obvious because other creditors – because the Seeley entity was seeking 100 per cent uplift, was seeking the whole lot of the money.

There were other creditors, a very minor part of them. Our friends, we respectfully submit, cannot have it both ways. They cannot say this was not in substance for Seeley it was for Newtronics and then in the same breath say but we did not need to go back to the Federal Court and make the application under 564 and allow other creditors to be heard on that application.

GAGELER J: Does section 564 cover secured property?

MR CRUTCHFIELD: Well, we would submit that it did not, that 564 could not trump us anyway – if that is your Honour’s question?

GAGELER J: No. Would it cover the property at all? That is my question.

MR CRUTCHFIELD: Well, we have said that and we would have said this fund that has come into Newtronics is ours because it is covered by our charge and, therefore, the 564 application cannot trump us. The only way they can trump us is through an equitable lien.

CRENNAN J: But does not that serve to make the point that they are distinct and it would be a waste of money to proceed under section 564?

MR CRUTCHFIELD: As Justice Redlich said, there was emphatic language used in the indemnity agreement and the liquidator said on oath, we will come back to the Federal Court if we pay any money to Seeley. Because the money comes into Newtronics and, then, without – the Court of Appeal case has just finished a week after the settlement agreement was entered into – I will take your Honours to the file notes of the solicitors for Mr Seeley and the Seeley entity – when I say Seeley I really mean the Seeley entity – and the liquidator’s solicitors where one can clearly see that this idea of an equitable lien and not having to go back to court came from Seeley’s solicitors and then they just go and pay the money across the border. It could have gone to an insolvent entity and never come back. That is one scenario.

We say, in those circumstances, when someone comes along to a court of equity and has told the Federal Court one thing, the court relies upon official liquidators. It was incumbent upon the official liquidator. We do not say it was a breach of duty but we say it is highly relevant to whether or not a court ought to grant an equitable remedy to somebody in those circumstances.

GAGELER J: Mr Crutchfield, I may be wrong here, but if you look at section 564 and you read it as following on from section 556, 556 is concerned with the priority of payments of unsecured debts and claims.

MR CRUTCHFIELD: Yes.

GAGELER J: Is 564 concerned with the re-arrangement of that priority in respect of unsecured claims or does it have a wider operation?

MR CRUTCHFIELD: I cannot give your Honour an answer to that question. I apologise. We will think about that and try and give an answer over lunch. The point, though, is – my only point for present purposes is – liquidator seeking equitable remedy from the court and one can see the terms of the - - -

KIEFEL J: Is an equitable lien an equitable remedy?

MR CRUTCHFIELD: Yes. Yes, it is. We submit it is, and we want to say something about the history of this provision which we have said in our submissions that shows, contrary to what our friends say, they say it comes from Marine Mansions. It comes from a long way before that. Clause 12 of the indemnity agreement, your Honour Justice Gageler, that clause provided that the liquidator will make application to the court for orders that if any assets or damages are recovered. That is what it said. Our only point here – I do not want to delay the Court – is assets and damages were recovered by Newtronics, no application to the Court. That is a factor that goes in the mix as to whether or not a court order could grant an equitable remedy that is being sought.

KIEFEL J: This is under the general unconscionability approach where - - -

MR CRUTCHFIELD: No, it is not.

KIEFEL J: I am just having a little difficulty seeing how it actually resolves the matter in any meaningful way.

MR CRUTCHFIELD: We submit it is our friends – they have chopped and changed. They have accused us of being in the area of restitution. But we have put in our submissions the way in which they put this case before Associate Justice Efthim and Justice Davies that they are the ones who speak in the language of restitution. This whole case, we submit, unless one can say there is something magical about a liquidator, this is a paradigm example of the top-down reasoning that this Court has constantly eschewed. They say benefit/burden.

When one looks at the equitable principles, it is just wrong, and it is inconsistent also with American authority and English authority. We would be riding, we respectfully submit – making the same sort of errors, we would respectfully say, that your Honour Justice Kiefel identified in your Honour’s article on change of position. It is top-down reasoning.

CRENNAN J: Are you contending that it is wrong to characterise the benefit here as the fund?

MR CRUTCHFIELD: No, we accept that. Could I go to paragraph 7 of the reply submissions? That test expressed in that way is a test of a restitutionary principle which this case has got nothing to do with. Can I, your Honours, then please, just before I address this in some sort of logical order, go back to our friends’ submissions in-chief?

KIEFEL J: Is it not only really saying that an equitable lien reflects well-known equitable principles?

MR CRUTCHFIELD: That is what I wanted to come to.

KIEFEL J: But if you want to take that into your area of restitution.

MR CRUTCHFIELD: I do not.

KIEFEL J: Equitable principles underlie restitutionary theory, at least in this country anyway.

MR CRUTCHFIELD: Yes, absolutely; Bofinger says that, yes. Can I go, please, to paragraph 30 of their submissions in-chief? It is the way our friends put it today. Their case – paragraph 30 – rises or falls, we submit, on whether or not there is a self-contained or sui generis species of equitable lien coming from Universal Distributing in the cases referred to. We are going to seek to demonstrate that there is no such sui generis principle and, even if there is, it does not apply on the facts of this case.

The presiding judge, Justice Crennan, asked our friends: is this principle just a court-appointed liquidator principle? I am not sure what the answer is, but we ask rhetorically what is the answer? This case that it is sui generis and it relates to the fund, to some extent these two points have assumed great prominence after the special leave application. All the way along our friends have said two fundamental things: first, that this equitable lien that arises arises for all insolvency practitioners. One sees that – so you can be an administrator who is not appointed by the court, you can be a receiver under a charge, you can be a court-appointed receiver, you can be a liquidator or a voluntary liquidator. That has always said that.

CRENNAN J: What about an invalidly appointed receiver?

MR CRUTCHFIELD: What about an invalidly - - -

CRENNAN J: Or perhaps do not let me detain you - - -

MR CRUTCHFIELD: Well, it is interesting your Honour says that because when one looks at this case, if I can say respectfully, one of the most unusual cases one can sort of think of, and you can get it in a Kafkaesque sort of world because your Honour’s question – our friends are right that the receivers here have not called on the indemnity that we gave them. That is right.

In the settlement agreement though, which Mr Seeley was a party to and the Seeley entity, the settlement agreement that led to the 1.25 million, there is a clause in there – I will take the Court to it – where what was said was, the receivers, the Seeley entities and Newtronics acknowledge that the receivers had the right to come back against Atco under the deed of indemnity for the 1.25 million that the receivers paid to Newtronics. So the receivers had that right to come against us. They have not done it. The limitation period has not run out but I am not suggesting they are going to do it. I am not suggesting that at all, but the Court has to decide this case by reference to principle.

CRENNAN J: But none of this was canvassed before Justice Davies.

MR CRUTCHFIELD: No, it was all in the evidence and your Honour will see from Justice Cavanough’s reasons we put, one has to decide this case at the point when I am trying to answer your Honour’s question: would the invalidly appointed receiver have an indemnity.

In this case, the charge makes clear, the charge that we have, that they had before they sued us, says, if the receiver makes any payment to any third party that has got anything to do with this company, that gets added to the charge debt. They knew that which is why their solicitor in the file note that I will take your Honours to does seem to express some concern, well, what happens if Atco win in the Court of Appeal and the charge is valid? He realises it is going to be covered by the charge. The settlement agreement refers to the deed of indemnity with Atco and says, the receivers can claim back from us not just the 1.25 million that they pay to our friends, but also all their costs and expenses. This is my Kafkaesque point.

The evidence shows their 1.3 million. So that is up to, potentially, I am not saying in this case but as a matter of principle, because there is an initial unintended consequence, if our friends succeed in this case. That means we are up to $2.5 million that the receivers can claim back from us. What is the situation there? How could anyone in their right minds say in that situation there was a windfall? But the relevant point here – what I wanted to get out of 30, is they need to demonstrate there is a sui generis equitable lien in this case, which applies, we think, to all insolvency practitioners. We assume so.

Can I just deal with a few other questions from the Bench? The question of Justice Keane about what was claimed from the receivers. I will just give your Honours the reference; the prayer for relief, appeal book 114, claimed damages from the receiver of $13 million-odd dollars. That was appeal book 114.

KIEFEL J: Does that represent this proceeds of sale of the business to - - -

MR CRUTCHFIELD: Exactly.

KIEFEL J: - - - of which Atco got the benefit?

MR CRUTCHFIELD: Exactly, yes, together with alternately conversion, damages for trespass, conversion, plus damages for loss of the use of the money. While I am in this pleading, your Honours, could I just point out at page 115, J, number 2, the liquidator sought a specific declaration that the debts owing by us – that the debts owing by the plaintiff to Seeley, specifically including the taxed costs of the litigation in Adelaide, be paid before we get paid. So what they were seeking was to invalidate our security. The claim against the receivers of course was an afterthought. It came in well after. They were seeking to chop us – ablate our security, or if they failed to chop it down, to invalidate it completely, they wanted a subordinator, so we went from the top to the bottom.

Justice Crennan asked a question about out of pocket and I think your Honour was taken to the reasons of Justice Cavanough at 295 where I think Justice Cavanough gives an estimate of Atco being out of pocket for the joy of having been sued by this liquidator, $815,000 already as at the Court of Appeal stage, and of course we are still here. We are still going. We had the special leave in the High Court.

So, now, can I then go to our propositions? In paragraph 2 we have made the point that is mentioned in the first sentence. What we say, your Honours, if your Honours go to the four decisions that Justice Dixon is referring to in Universal Distributing - I will not take your Honours to them today, but your Honours have them in part B of the list of authorities, the four decisions that Justice Dixon relies upon. We submit they repay careful reading because in those cases, and it is the same – we extracted Ashburner as well.

The quote from Ashburner is in our written submissions. I will get the reference. If one looks at that quote from Ashburner carefully, we submit it is pretty clear that Justice Dixon had Ashburner before him when he was writing his judgment in Universal Distributing. It is paragraph 34, we set out the quote, of our submissions. It is page 9 of our submissions. Now, your Honours will see the language that the learned author uses at paragraph 34 of our submissions:

Where debenture-holders come in under the winding-up, or where they take proceedings to enforce their security, and the liquidator under the winding-up is appointed receiver, and the property is realized –

et cetera. The Court will see:

the debenture-holders are entitled to their principal, interest, and costs out of the fund realized, subject to the expenses of realization –

So there is quite a narrow carve-out from the secured creditor’s right, and the learned author quotes three cases there: re Marine Mansions, re Oriental Hotels and re Regent’s. When your Honours look at those cases, in three of them, those three cases, all use the language “coming in”. In one of them it says “came in”, but they use the language of “coming in”, which is the language of course also used in the Judicature Act which we have referred to in our submissions.

The Batten v Wedgewood Case that Justice Dixon relies upon is not mentioned, but it does not use the language of “coming in”, but it uses similar language. I will not go to it, but what we say is what our friends have done is inverted the logic of Sir Owen Dixon because what is happening in those cases is the person who has the security needs the assistance of the court, of a court of equity, in Universal Distributing because they needed the liquidator to call the uncalled capital.

CRENNAN J: There was also an attack on the validity of the security, was there not?

MR CRUTCHFIELD: Yes. But a careful reading of Universal Distributing shows the principal reason that the secured creditor came in was because - - -

CRENNAN J: Calling.

MR CRUTCHFIELD: Yes. That is true, there were those two points, and the learned authors of Ford go into that. In these earlier cases what is happening is Chancery - there was an advertisement for creditors to come in and prove in whatever the administration was, and the secured creditor could stay outside of the liquidation and go and enforce the security - - -

CRENNAN J: Take his own proceedings.

MR CRUTCHFIELD: Exactly.

CRENNAN J: Have his own bill.

MR CRUTCHFIELD: Exactly, and what a lot of the early cases say, sometimes selfishly, they use this language of selfishly the secured creditor goes off and does that, but the other option was to come in, so you have, a bit like a very early Chapter 11 or voluntary administration, it puts a freeze on everything through – the Court of Chancery can issue an injunction to anybody. Everybody has to come in - - -

CRENNAN J: It is not hard to understand, I do not think, that Atco did not come in in the early days. They had their own receiver and they had a sale of the business. But once there is a claim on a fund is that not it coming in once there is a claim on a fund?

MR CRUTCHFIELD: But that is my point about their inverting the logic, because first there has to be a coming in - - -

CRENNAN J: But there can be a late coming in, can there not? It does not matter when someone comes in.

MR CRUTCHFIELD: We say it is logically absurd, with respect, to say we have come in when all we have done is say, “You know that money you have recovered from Newtronics, clause 7.11 of our charge says any money that is paid by a receiver gets added to the secured property. We want that money, please”. They say no. We then appeal that decision.

KIEFEL J: No, they say, but we spent a lot of money bringing that in - - -

CRENNAN J: They say yes.

KIEFEL J: - - - and you cannot have it until you pay us for the costs of bringing it in.

CRENNAN J: Subject to the charge.

MR CRUTCHFIELD: That is right, that is what they say, and we say in response to that the whole purpose of the proceeding was to knock over the secured debt. This proceeding was not in any sense – did not constitute the type of coming in that Sir Owen Dixon is speaking of. The coming in here is only to collect what has been recovered as a result of action antithetical to our interests. In none of these early cases was that the case. The secured creditor was coming in because the secured creditor needed the - it did not need, wanted the assistance of equity.

CRENNAN J: But you want the fund.

MR CRUTCHFIELD: Yes, because it is covered by a charge, a prior charge. Just think about it for a moment - - -

KIEFEL J: But you could have never got it by bringing your own proceeding. Only the liquidator could have brought that money into existence.

MR CRUTCHFIELD: Our friends say - - -

KIEFEL J: It is covered by your charge when it comes into existence - - -

MR CRUTCHFIELD: Yes.

KIEFEL J: - - - but it did not exist until the liquidator brought the action and there was settlement upon it.

MR CRUTCHFIELD: Yes. Our friends in their written submissions – I think I put it orally, slightly differently. They say, this lien arises – paragraph 51 – if there is “potential for the action taken to have benefitted creditors”. So a lien arises even if nothing is recovered from a third party. If one thinks about the equity of the situation, Atco is out of pocket because this proceeding was fundamentally about destroying our charge.

Metaphors are usually not very useful and dangerous but they have tried to chop the tree down. They have failed. They have left the property and someone can come in and prove that the fruit that has been generated as a result of their failed effort to chop down the tree would never have been generated but for their effort to chop down the tree. Who gets the fruit? That is really this case. We are out of pocket, not just for our expenses, but we indemnify the receiver, and there is the potential for the receiver to come back and say, “Well, I have entered into a reasonable Rocco Pezzano settlement.

KIEFEL J: That is not relevant for our purpose, is it?

MR CRUTCHFIELD: It is in stating the principle because liquidators will, as I think I said to your Honour – this principle applies as the potential for recovery. If the potential for recovery applies if a bank, for example, has a full fixed and floating charge, liquidators appointed, gets legal advice, there is a possibility of setting the charge aside, attacking it, sues, uses the bank’s money because it is sitting on the money, loses and at the end writes the bank a cheque for five cents and says, “Sorry about that, we lost but we did it in good faith”, and - - -

CRENNAN J: But one difficulty with your argument, I think, Mr Crutchfield, I am bound to point it out, is you do not, at any point, or in any way, say there is any misconduct on the part of the liquidator, do you?

MR CRUTCHFIELD: No, and that really comes full circle back to paragraph 7. They have to say that there is something special about a liquidator performing a statutory duty.

CRENNAN J: Well, is not the analysis that the liquidator is, in Sir Owen Dixon’s words, realising the asset and converting the realised asset to a fund?

MR CRUTCHFIELD: Yes.

CRENNAN J: That is the conception, is it not?

MR CRUTCHFIELD: Yes. But, do your Honours have Universal Distributing?

CRENNAN J: Yes.

MR CRUTCHFIELD: Page 174. It is the sentence that starts:

If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up –

So that is why I say there is the anterior coming in. If you do that, then you are entitled – if it is realised in the winding up but you still have to come in and have your rights decided in the winding-up, which we have never done, we did not do that - we have not had our rights decided in the winding up at all. We were a stranger to the winding-up.

KIEFEL J: Yes, you did in the sense that the liquidator denied your claim.

MR CRUTCHFIELD: Well, we say - - -

KIEFEL J: You came in with the claim, the liquidator denied it and you brought proceedings on the basis of his refusal to hand the funds over.

MR CRUTCHFIELD: Yes, but we respectfully submit that is not what Sir Owen Dixon is speaking of. He is speaking of coming in to a winding up which is going to benefit, directly or indirectly, or potentially benefit, the person who is coming in. That is not this case, not even close to this case. We were a stranger to the winding up and they say, notwithstanding the fact you were a stranger to the winding-up, if you want the benefit, you have to pay the burden and we say why, on what principle? What equitable principle leads to that result - certainly not these cases.

We also say that it is a cautious approach that equity is taking in this area and one gets that from 175. Our friends seem to say it operates automatically, as soon as you have a fund generated and someone coming in, lien arises. That is not the way it works. In every case, it is an assessment of all the facts and circumstances. It is a cautious approach and Sir Owen Dixon says:

I see no reason why remuneration for work done for the exclusive purpose of raising the fund should not be charged upon it.

Re Regent’s Canal is one of the cases that Sir Owen Dixon refers to. I will just give your Honours the reference to where the liquidators were denied an indemnity. The only indemnity that the liquidators receive there was a very narrow one in respect of the costs of realisation and I will just give your Honours the references. It is page 426 of the Chancery Division report. What Lord Justice James says - this was the case of the colliery – the business had been carried on for about nine years and the evidence was that as a result of the liquidator’s efforts the debenture holders had stood outside of the winding up. They had not come in.

CRENNAN J: But the fund they wanted was the sale proceeds of the machinery and plant and so on.

MR CRUTCHFIELD: Yes, that is right.

CRENNAN J: The liquidator had nothing to do with that, had he?

MR CRUTCHFIELD: No, that is right. But one can see – what we would ask the Court to do is if our friends are right in this case, we submit, 426 to 428 must be wrong. We must end up with a different result because the liquidators who had, in effect, acted for the benefit of the receivers and managers by carrying on the colliery for 9 years. There is a finding that it probably was in the debenture holders’ interest to sit by and acquiesce, if you like – acquiesce in the liquidators continuing to carry on the business because it had been sold earlier, it likely would have been sold for a lot less money because I think they say it was 1866 or somewhere around then. They say that was a very bad year for the economy, but they only get the particular costs of the realisation.

None of these cases have got anything to do with the situation where a liquidator is acting antithetically to a receiver and as Justice Cavanough pointed out, the other case, the Batten, Profitt Case that our friends rely upon, the Court in Batten, Profitt Justice Kekewich made it clear that where you are acting in your own interests, you do not get a lien. They did not get a lien for that part of their claim. They only got a lien for where they were acting in everybody’s benefit.

CRENNAN J: But you are both saying no misconduct here. You accept a liquidator was acting on behalf of all the creditors but are you saying – but really in truth he was only acting on behalf of Seeley.

MR CRUTCHFIELD: We say, in substance, he was acting on behalf of Seeley but, we say, ultimately it is not our best point, if I can put it that way. If he is acting for Seeley or for Newtronics, it does not, at the end of the day, really matter because he is acting for the unsecured creditors of Newtronics in a war with a secured creditor. He loses the way because their case is they have to knock over the charge to win. They lose that war but yet they are allowed to take off the spoils because their case, contrary, I think, to what our learned friend said, the way this case has always been conducted our friends have always eschewed any notion that they can only claim the costs of suing the receiver. They say they are entitled to all the costs of suing Atco and the receiver. They have always eschewed any notion that they have to – they are limited only to the costs of suing the receiver.

Now, if one views this as the creation of a fund type case, as your Honour the presiding judge Justice Kiefel been putting to me, then one would expect they would be saying, well, all right, it is the production of a fund, it is the costs and expenses incurred exclusively in the generation of that fund, but they have never put the case that way. They say it is the costs and expenses of suing us plus the costs and expenses of suing the receiver, and we say in that circumstance they are not entitled, the principle that they have produced the fund and we want the benefit does not apply. They cannot have it both ways again because the whole purpose of the litigation was to destroy the charge and they have failed in that endeavour.

KIEFEL J: But they are not seeking costs in relation to – the question of costs in the proceedings against Atco have been resolved, have they not?

MR CRUTCHFIELD: Yes, we have our tax costs from the proceedings below. They are seeking, though, all of their costs of suing us plus the costs of suing the receiver.

KIEFEL J: In any event, is not the issue about what costs and expenses they are entitled to in the realisation of the property a matter to be determined by the court below under the order of Justice Davies?

MR CRUTCHFIELD: Well, can I take your Honour to Justice Davies’ reasons, page 490. I think the Court was taken to page 491, could I go back one more – yes, paragraph 19 on 489, I am sorry, third sentence:

It was argued for Atco that the liquidator claims all legal costs of the proceeding in circumstances where the settlement sum was received only out of the claim against the receiver. For the liquidator it was argued that the claim against Atco was a necessary, but not sufficient, element of the claim against the receivers. In other words, that the claim against Atco provided the foundation for the claim –

et cetera. Skipping over the page, last two sentences:

In my view it would be artificial not to include the liquidator’s costs related to the claim against Atco. I accept the submission that the claim against Atco was necessary to provide the foundation for the claim against the receiver.

Then paragraph 20:

The liquidator has accepted that some items that he has claimed may have been included in error. He also states that not every expense or item has been included in his estimate of legal costs and expenses of the proceeding. Further the figures put forward did not include the liquidator’s remuneration and costs of the liquidator’s examination attributable to the proceeding.

which he seems to be saying they should have been obviously:

There will be need for the liquidator to verify the actual costs, expenses and remuneration –

So, it is everything, and it is plain as a pikestaff it is going to exceed $1.25 million.

BELL J: But coming back to the essence of her Honour’s reasons at 490, essential to proof of the case against the receiver was establishing the case against Atco.

MR CRUTCHFIELD: Yes, that is right.

BELL J: Now, what is wrong with that aspect of the reasons?

MR CRUTCHFIELD: Nothing. We have always accepted that.

BELL J: Well, then, I am not quite sure where this aspect of your argument goes.

MR CRUTCHFIELD: If one focuses just on the fund, the production of a fund, the argument is this: it is our notice of contention, in effect. It is what Justice Cavanough found, appeal ground 10 below.

CRENNAN J: Well, just on that if I may, page 543, 149, it is in Justice Redlich’s decision, he deals with this point. I think the Chief Justice deals with it in a similar way.

MR CRUTCHFIELD: Yes, I think that is right.

CRENNAN J: He says, “This was not put in issue on the appeal.” I appreciate it is in your notice of contention, but do you accept that?

MR CRUTCHFIELD: No, there are two separate points. We accept the liquidator’s point that they needed to succeed against us in order to succeed against the receiver. That is the first point.

CRENNAN J: So you accept provided the necessary foundation, as Justice Bell put to you?

MR CRUTCHFIELD: Yes, we do; we always have accepted that. What we say, though – and perhaps it is easier if I go to Justice Cavanough’s reasons; it is at 607, paragraph 310:

In my view, the disputed work of the liquidator was not done for the ‘exclusive purpose of raising the fund’. The receivers were not even made parties to the litigation until December 2006. Until then, the only purposes of the work were to postpone Atco to Seeley and to extract damages from Atco, all in the interests of Seeling.

Our friends are saying sotto voce the costs only start then, when the receivers joined. One would have thought that were right, but what we are telling the Court with 100 per cent certainty is that it is never the way our friends have put the case. We probably never would have been here if they were only saying it was a cost referrable to the receiver. They say - - -

KIEFEL J: That would have to follow from the primary judge’s findings.

MR CRUTCHFIELD: Yes, and we put in a notice. We appealed that and said we accept it was a necessary foundation that they had to sue Atco to get to the receiver. They failed against Atco. They sued Atco first. The principal purpose of the claim was to knock over the charge. The receivers were an afterthought. Therefore, all of the costs and expenses in suing us, me, are not exclusively referable to the fund. We have lost that at every stage of this litigation, other than we had victory in Justice Cavanough’s reasons.

CRENNAN J: Although Justice Cavanough does not seem to agree with what you said to me just before, which is that you have always accepted that the Atco litigation was the necessary foundation. He seems to think that is an overstatement or not quite accurate.

MR CRUTCHFIELD: I do not think, with respect – his Honour is saying that it is only the costs that are exclusively referrable to the fund. That is the language of Justice Dixon. We have always said, yes, you had to knock us over in order to get to the receiver. You did not knock us over, therefore, it is our fruit, in my not very useful, perhaps, metaphor.

CRENNAN J: So the cost incurs - - -

KIEFEL J: It is not very legalistic, no.

MR CRUTCHFIELD: I am sorry?

KIEFEL J: It is not very legalistic.

MR CRUTCHFIELD: It is not; I accept that. I will not use it again. We said the costs of suing us – it is only the costs exclusively referrable to producing the fund, and that is just the costs suing the receiver, and they have never run that case.

CRENNAN J: I do understand.

MR CRUTCHFIELD: They have eschewed it. They have never put on an alternative case, so if they lost – if your Honours were with me on that there is nothing to send back because they have always said it is everything. They have gone for gold, as it were. They never sought to divide it up. Their submission before Justice Davies was it was everything.

CRENNAN J: But they have said if they win it needs to be sent back, but would that not leave open some of these issues?

MR CRUTCHFIELD: Absolutely not, no. What Justice Davies was referring to is there are a few little errors here and there. You have to go off to a taxing master and work out what the figure is. It has always been the entire fund. All the way along, that is the way the case has been run. There is absolutely no question about that. Our ground of appeal in the Court of Appeal is at 501 of the appeal book, paragraph 10.

BELL J: So, on this analysis, one looks to what Justice Cavanough characterises as the circumstance that the claims against Atco remained the principal claims and that getting rid of Atco’s status remained what his Honour describes as the main purpose of the litigation.

MR CRUTCHFIELD: Yes.

BELL J: Does this involve, in relation to a fund that is realised as the result of litigation, an inquiry into the liquidator’s motivation with respect to the proceedings? Once one accepts that necessary in order to realise the fund produced as the result of the suit against the receivers was proof of the case against your client, what is the principal basis for considering whether the liquidator’s prime purpose at the outset was succeeding against you or not?

MR CRUTCHFIELD: Only this, your Honour, it is not a subjective inquiry. We are first in time, we have a charge, and unless you get rid of that charge, the charge covers the fund that comes in. So, the fund is covered by our charge and so the costs and expenses – you cannot claim the costs and expenses of suing Atco, unsuccessfully suing Atco, as part of the costs of generating that fund. That is all. That is our notice of contention that we put on. That is the simple point. It is exclusively referrable and it is consistent with these old equity cases that one proceeds cautiously. You do not just lump everything against the fund. It has to be exclusively referrable.

BELL J: But you are after the fund.

MR CRUTCHFIELD: Yes.

BELL J: Yes. I am just having difficulty understanding the point of principle that you are - - -

MR CRUTCHFIELD: Well, we support the reasons of Justice Cavanough. We say it is wrong to view this case as the generation of a fund - this case on these particular facts – when the person who is entitled to the fund is still alive and breathing, being the secured creditor, and the whole purpose of the litigation was to knock over the secured creditor. They failed in that endeavour.

CRENNAN J: Yes, but the receiver paid the settlement monies, you see. I mean, it is an unusual concatenation of circumstances, but there you have it.

MR CRUTCHFIELD: Can I go to the settlement agreement then, your Honours? I will just take your Honours to it. It is at appeal book 117 in volume 1. The Seeley entities were a party to the settlement agreement.

KIEFEL J: Sorry, what page was it again?

MR CRUTCHFIELD: Page 117 in volume 1.

KIEFEL J: Thank you.

MR CRUTCHFIELD: Sorry, 119 it starts at, 119 and following. Your Honour Justice Kiefel made an observation in discussion with our learned friend that the Seeley entities were not a party to the proceeding; the proceeding that we brought in court under 1321. That is true. They were not. What the Court needs to understand, however, is that our friends asserted an equitable lien in favour of Seeley.

They pleaded that, in the alternative. They said that, look, if we do not have the lien, Seeley does. Seeley was not a party but they said Seeley is entitled to an equitable lien and indeed, that is in their pleading. I will not, unless the Court wants, I will not give the reference but it is in there. I think it is paragraph 5(b) or 6(b). Paragraph 7(b) on page 17.

CRENNAN J: You can pick it up from the judgments in the Court of Appeal in any event.

MR CRUTCHFIELD: Yes, because Justice Redlich makes this point, I think. But that raises the question, what would be the position if, and they abandoned that case. They had said, Seeley; it is not an equitable lien in favour of Seeley and – let us take the situation where the chose in action represented by Newtronics’ cause of action against Atco and the receiver. Assume that was a sign to Seeley, take that example, liquidator can do that under 477(2). He can just sign causes of action.

What we ask rhetorically is the situation there? Seeley sues and the same fact situation loses, gets a settlement from the receiver but the charge is still standing. What happens in that situation? Does Seeley claim an equitable lien and we ask rhetorically why? He is not performing a statutory duty. He is just in a very bitter fight with another entity and, in the settlement agreement, the Seeley entities are parties to that agreement. It is at 122 – you can see the Seeley is a party – and clause 7.1(e), page 126.

KIEFEL J: Is that partly because the Seeley interests as indemnifiers had to, in effect, approve the settlement?

MR CRUTCHFIELD: Probably, yes.

KIEFEL J: So, they are there to protect – they are joined to the settlement agreement to protect the liquidator.

MR CRUTCHFIELD: Probably, yes. There is 7.1(e) – so, the receivers paid the money to Newtronics and this clause is reserving the receiver’s rights to come back to Atco to recover from Atco the settlement sum that it has paid – the 1.25, get it from me – plus costs of about 1.3 million, the solicitor/client costs and the Court gets that from appeal book 142 is the reference to the solicitor/client costs, the estimated solicitor/client costs of the receiver. While we are in this bundle, can I just point out the clause of the charge, clause 7.11, page 48 of the appeal book, which says:

That all payments made by the Receiver. . . shall be added to the moneys hereby secured –

and Newtronics knows that, obviously, because they are a party – the liquidator knows that – Newtronics is obviously the party to the charge. Yes, if I could perhaps go to our outline, paragraph 6? I will not read it. We accept the quote from Ford really begs the question that is before your Honours, what does “coming in” mean, because the learned authors say:

in the sense of not being an object of the administration, either originally or by coming under it –

and that is the question, have we come in by coming forward and saying, that is our money, can we have it please.

GAGELER J: Do I understand you correctly? You say to come in, in the relevant sense, the liquidator has to be somehow acting on your behalf in getting in the relevant property?

MR CRUTCHFIELD: Yes, precisely.

GAGELER J: And the mere fact that you have a claim to the property once it has got in is not good enough; is that it?

MR CRUTCHFIELD: Exactly, that is it in a nutshell. The only thing I would respectfully add to that is the modern cases for the benefit of – you can take quite a wide view of it so it does not necessarily require consent, it can be acquiescence. It is the sort of conduct that could lead to an estoppel, a standing by and letting somebody else perform work on your behalf and then you come in and say, well, I would like that please, you have to pay the reasonable costs. Yes, that it is in a nutshell.

GAGELER J: That is a stark difference in the principle, as you state it, as distinct from the way in which your opponent states it?

MR CRUTCHFIELD: Precisely, and when one goes and rereads the old equity cases and the old equity textbooks, we respectfully submit they are our way, not our friend’s way. It is really sort of as simple as that, in a sense.

GAGELER J: There are a lot of metaphors floating around – coming in and trees and fruit.

MR CRUTCHFIELD: Yes, I know I am going to regret that.

CRENNAN J: Paragraph 52 of your written submissions, that is really the key to your position, is it not?

MR CRUTCHFIELD: Paragraph 52?

CRENNAN J: Paragraph 52, yes. I raised this with Mr Myers, yes, and footnote 65.

MR CRUTCHFIELD: Exactly. It is paragraph 52 plus what we say at 27 and following of what “coming in” means. For our friends to succeed, we submit, it has to be a new test, a new equitable test because it is not the test that they say it is and they have always hoisted themselves on the coming in, the Justice Dixon test. We submit that their construction of those words is utterly belied by the history of the action which is dealing with the sort of situation that your Honour Justice Gageler said and it really is an application of the maxim, he who seeks equity must do equity, if one wants to put it in terms of labels. We do not necessarily encourage that.

GAGELER J: The difficulty with that is that it is at such a level of generality, either position can be justified by it.

MR CRUTCHFIELD: Yes, exactly. So, we submit, the way to proceed is by reference to principle and precedent.

CRENNAN J: But in a way it is having the cake and eating it too. To stay outside the liquidation, have your own receiver, sell up, take the profits of the sale, reserve your position about being out-of-pocket over any litigation, so your debenture still has got life in it. Then, when there is a fund – I have the greatest difficulty accepting that that is not a late coming in.

MR CRUTCHFIELD: Our answer to that is please leave us alone. We did not ask to come in; we were dragged in; we were forced in.

CRENNAN J: You get into your – we did not consent to being - - -

MR CRUTCHFIELD: It is more than did not consent.

CRENNAN J: Well, we were sued as an adverse party by the liquidator.

MR CRUTCHFIELD: Yes. What is unconscientious, I ask rhetorically, about us claiming that money when we were dragged in? They were seeking to set aside our charge and we have spent years of time and money in litigation, and we are still going. What is unconscientious about claiming the fund? It does, we submit, lead to the possibility – it really is a decision our friend’s way is something that would be of great assistance to liquidators. We submit liquidators do not need that assistance. Section 545, I think, says you do not have to – the section specifically says you do not have to take any proceeding unless you fund it. They were funded.

GAGELER J: Would your position be any different if the fund was brought into existence by a suit by the liquidator against an unrelated third party? You stay outside the liquidation, the claim is brought, it bears fruit – to add another metaphor – you have not authorised it in any sense. Can you come in and get it?

MR CRUTCHFIELD: In your Honour’s example, this is a claim that is covered by the charge, and we have appointed a receiver, and the liquidator goes off and does that off his own steam. The position would be the same. That is a bit like Nothintoohard.

CRENNAN J: So no fund brought in by the liquidator is - - -

MR CRUTCHFIELD: I think in Justice Gageler’s example there would be a fund brought in.

GAGELER J: Funds brought in by the liquidator.

CRENNAN J: No, you did not listen to the end of the question.

MR CRUTCHFIELD: I apologise.

CRENNAN J: There would be no fund brought in by the liquidator, on your scenario, which would be charged with the costs of realising the fund.

MR CRUTCHFIELD: Yes, I apologise, your Honour. That is correct.

MR MYERS: Unless with your consent.

MR CRUTCHFIELD: Unless, as Mr Myers said, with our consent or acquiescence or some other qualifying reason as to why they ought to get their costs. But, yes, that is correct. We would say that is the position.

GAGELER J: A brooding presence over the liquidation.

MR CRUTCHFIELD: But they do not have to do it. We have got our receiver. Yes, if they do it, they do it at their peril, in effect.

CRENNAN J: Your receiver, I think, opposed the appointment of the liquidator; is that right? Perhaps it does not matter.

KIEFEL J: But your receiver would be saved the costs of doing it. It would probably be a quantum meruit case at the very least.

KEANE J: It would squarely be Falcke - - -

MR CRUTCHFIELD: We would be right back into the Falcke - - -

KEANE J: Falcke is the answer.

MR CRUTCHFIELD: We would be right back into Falcke. It is like someone comes in and paints my house and I sell it at auction and they have done a great job and we get another $100,000 and I do not have to pay them. It would be that sort of situation. That is right. The Court has our outline.

CRENNAN J: Perhaps that is a convenient time. How much longer do you think you will be, Mr Crutchfield?

MR CRUTCHFIELD: I just want to deal with this indemnity agreement; maybe 10 or 15 minutes.

CRENNAN J: The Court will adjourn until 2 pm.

AT 12.44 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 1.59 PM:

CRENNAN J: Yes, Mr Crutchfield.

MR CRUTCHFIELD: If the Court pleases. Just a few other points – before I do those, can I just go back to your Honour Justice Gageler’s example of third party. I may not have made myself clear. I gave the example of Nothintoohard which is in Part B of our material. I think, in that case, the realisation of the asset was found not to have the necessary link with the work of the liquidator because the mortgagee came in – came in in a sense of appointed its own, exercised its own power of sale. So, not “came in” in the way we are using it in this case. By reason of that fact, there was an insufficient link such that the court declined to allow an equitable lien – at least of the kind that was being asserted.

What we say is one needs some sort of disqualifying conduct. If the receiver knows – the receiver and the bank knows the liquidator has gone out there and is recovering a debt or other chose in action that is covered by the charge and the liquidator tells the receiver that, stands by, allows that to happen, acquiesces, then a lien is likely to arise in favour of the liquidator. It is always a factual inquiry. Nothintoohard, on one view of the matter, was pretty tough on the liquidator. We submit that again reinforces it is not an easy exercise to show a lien. Of course, we say, that your Honour’s example has got nothing to do with this case because here they sued us. They were not suing a third party.

GAGELER J: I am glad you clarified that because when you said Nothintoohard I did not realise you were referring to a case.

MR CRUTCHFIELD: I apologise. It sounds almost like the name of a racehorse too, your Honour. I apologise, I should have made that clear. It is in part B of our authorities. I will not go to it. It is case 15 in part B of our authorities.

GAGELER J: Thank you.

MR CRUTCHFIELD: It is interesting because in that case Justice McColl says – her Honour was not satisfied that a court appointed – her Honour said:

In such circumstances there is no need to consider whether an equitable lien for remuneration, costs and expenses may be asserted by a receiver appointed out of court –

so her Honour doubts whether this lien principle does apply, at least to receivers appointed out of court. Chief Justice Spigelman uses the language of unconscientiousness and refers with approval to the decision in Tanwar in that regard, a decision – a judgment, paragraph [21] that your Honour Justice Kiefel, I think, was part of.

BELL J: It might just be noted that it is Dean-Willcocks v Nothintoohard (2006) 13 BPR 24,245.

MR CRUTCHFIELD: Thank you, your Honour. Can I correct a reference I gave? At AB 142 I gave a reference to the receiver’s costs in the promise of support proceeding, as it was called. Could I go to that please, 142? It is a letter that Seeley’s solicitors wrote, Johnson Winter & Slattery. They may have also been the solicitors for the liquidator at that time; I am not sure. But in any event – can I just point out from this letter, if one looks at 143, in the second paragraph:

In addition to the costs and expenses incurred in respect of the POS Action . . . the Liquidator incurred costs and expenses –

et cetera, and then one sees the two bullet points –

Investigations included the conduct of public examinations . . .

in the conduct of the appeals . . . the claims against Atco and the Receivers were inextricably linked, so was Newtronics’ defence . . . Significant costs had already been incurred in respect of both appeals before settlement was reached with the Receivers –

Then:

In summary therefore, the equitable lien over the Settlement Sum extends to the fees and expenses of the Liquidator incurred in respect of his investigations of the claims against Atco and the Receivers, and the conduct of the POS Action –

which is the claim against both, Atco and the receiver –

and Appeal Actions. It should be abundantly clear to you and your client that such fees and expenses well exceed the Settlement Sum –

To repeat myself, we agree.

I should qualify one thing though. Our written outline says, I think, that the receivers – the liquidators seek to cast against the settlement sum all of the costs of the public examinations. That is what this letter says as well. We accept that that probably still is open before Justice Davies for her Honour to say, well, insofar as those public examinations had nothing whatsoever to do with Atco or Newtronics but, for example, had to do with an insolvent trading claim against the directors, you cannot get that. I should make that clear. We accept that.

But the fulcrum around which their case turns is suing Atco and they say it is all of those costs which put the public examinations to one side. The costs of suing us are going to consume the 1.25 million, far and away. They say they are entitled to those. They do not have to split it up and sue in respect of the costs of the receiver. They have never run that case. I am repeating myself to say it is all or nothing for them.

Your Honour, the reference that I should have given to the receiver’s costs is at page 188 of the appeal book. It is a letter from the receiver’s solicitors of Minter Ellison on 22 December. Page 188, it is the fourth paragraph:

As previously advised, our clients’ total costs of the Proceeding were approximately $1.3 million.

So I would just point that out to the Court. Can I just make an observation about Chief Justice Warren’s judgment? Reference was made by our learned friends to the Monks v Poynice, the Justice Young decisions, but her Honour also, in footnote 66, on page 526 of the appeal book, dealing with Falcke and then footnote 66, after referring to Mahoney v McManus, refers to Meagher, Heydon and Leeming - Meagher, Gummow and Lehane and Justice Young and Justice Croft’s book, On Equity, and those passages in there, in the sections of those books dealing with subrogation, dealing with an equitable remedy of subrogation and the learned authors point out, you do not get a subrogation right where you are a stranger, where the work has not been requested. So we submit that Chief Justice Warren’s analysis of this was entirely orthodox.

Then, can I just go to the court approved indemnity agreement and make two points about that? This is in paragraphs 11 and 12 of our outline. We do submit that the indebtedness being spoken of in Hewett v Court by Justice Deane, is the indebtedness of the liquidator, relevantly in this case. We do submit that, and we say there is no relevant indebtedness that is secured, because the liquidator is not owed any money. The liquidator was made whole by Seeley which explains why the equitable lien was sought by Seeley, at least initially in - - -

CRENNAN J: Was his Honour not talking about a vendor’s lien where a purchaser had paid certain funds? Was he not using indebtedness in that context?

MR CRUTCHFIELD: Well, we say it was not just limited to that context. It is a lien that secures indebtedness – it actually exposes the real flaw in this case and sort of comes back to why, substance over form, this really is Seeley because there is not indebtedness that is being secured. But saying that, that is not to cast aspersions on the liquidator in doing what the liquidator did in terms of taking the action, but it takes one back to the example again - chose in action covered by our charge plainly when the money comes in.

If there were an assignment to Seeley, it is obviously subject to the charge. Seeley incurs all the expenses - sues in the name of Newtronics, incurs all the expenses, pays for them. Would anyone seriously say that Seeley has a lien in those circumstances? Our friends would say no because it would not fall within the sui generis category. We have not come in to Mr Seeley.

KIEFEL J: But it is common in these circumstances where the liquidator is wishing to pursue funds but has not the funds from the company to do so, and a person who is offering an indemnity will pay the funding of the litigation upfront. But that does not alter the nature of the right which accrues, which is that the moneys paid will be returned if the liquidator is able to have recourse to another fund, because the whole notion of an indemnity is only to make good a loss and the loss is only what accrues after - - -

MR CRUTCHFIELD: Yes.

KIEFEL J: - - - the liquidator looks to all this is available at the appropriate time.

CRENNAN J: And has his charge on the fund.

MR CRUTCHFIELD: Yes. We would say that takes one into the area of subrogation though, and Seeley being subrogated to the rights of the liquidator, which then takes one squarely, as Meagher, Gummow and Lehane say and Justice Young and Justice Croft say, into the Falcke territory because we are a stranger and it is not just simplistic benefit burden.

The second element of this is we do say it was clear from the reasons in the Federal Court and what the liquidator told the creditors that if any money came in to Newtronics, if that money left Newtronics and was paid away to somebody else, that needed an application under section 564. Can I just go briefly to the file note that I said I would take your Honours to which I think is in volume 2 of the appeal book? Can I just remind your Honours they did not plead a right of subrogation or recoupment by Seeley? That is not the case that was pleaded. They then ran that - - -

KIEFEL J: Sorry, whose right of subrogation?

MR CRUTCHFIELD: That Seeley was subrogated to the right of the liquidator.

KIEFEL J: Well, I suppose, putting it the correct way around, the liquidator was obliged to have recourse to any funds it could and return the moneys.

MR CRUTCHFIELD: Yes, yes. But they did not plead that. They said it was the liquidator’s equitable lien or, alternatively, it was Seeley’s lien. That is what was pleaded. Justice Redlich in his judgment deals with that. This last point, this conference call - - -

BELL J: What page of the appeal book?

MR CRUTCHFIELD: Page 443, I am sorry.

KIEFEL J: What are we looking at on 443?

MR CRUTCHFIELD: This is the note of a conference call which then leads to the legal advice that the liquidator receives that there is an equitable lien.

KIEFEL J: What is the relevance of this?

MR CRUTCHFIELD: Our friends seem to be saying that the indemnity agreement does not exclude an equitable lien. We submit that clause 12 makes it clear that the remedy was to come back to the Federal Court if you are going to pay any money away from Newtronics. The equitable lien was an afterthought and one can see it here. The first two people – David Proudman and Toni Vozzo – are the solicitors.

KIEFEL J: It does not matter what they thought. The question is how does the law operate and how do you deal with the proposition that whatever the rights between the liquidator and Seeley were pursuant to the agreement how do you take advantage of it, even if you are right about something arising from the terms of the agreement and whether recourse should have been had to the courts.

MR CRUTCHFIELD: Sure. This is the last plea. It is not so much that we take advantage of it. It is the point I was making before lunch. This is a discretionary remedy. As we have said in paragraph 12, the Federal Court was told by a court-appointed liquidator what would happen. Now, the liquidator seeks the aid of equity - and I interpolate that is not something we ever did except in a very technical sense by commencing our 1321 application - the liquidator seeks the aid of equity, asserts an equitable lien and we say it is highly relevant to that that everybody was told, including the creditors, that there would be an application made back under section 564 to get the money out to Seeley.

That did not happen and the creditors were not notified. The court was not notified. We were not notified. Those factors are all highly relevant. The creditors might have wanted to turn up on a 564 application and say, well, “I did not fund the liquidator because of X, Y, Z reason. I do not want all of the money to go to Seeley. Seeley should only get 90 per cent of the money”.

KIEFEL J: How can that detract from the operation of the indemnity in its terms? There is no denial that it operates as an indemnity as I understand.

MR CRUTCHFIELD: There is no denial that as between Seeley and the liquidator it operated as an indemnity, but they are not seeking a remedy under section 564. They are seeking an equitable lien. They are seeking the court’s assistance.

CRENNAN J: On one view they do not have to approach the court under section 564 to assert the lien. I know what was said in the Federal Court. I am only raising with you that that does not seem to carry with it a necessary express undertaking that whatever they do about a fund they are going to approach the court under section 564.

MR CRUTCHFIELD: Well, if any assets or damages are recovered by Newtronics, is what they said, and damages or assets were recovered by Newtronics, then they would make an application to the court. They did not do that, and we submit it would be a passing strange outcome for a court-appointed liquidator to be entitled to a remedy in equity in circumstances where the court-appointed liquidator has not come back to the court and said - - -

KIEFEL J: Well, it certainly would if there was a statutory obligation for them to come to the court. That would go without saying. But what you are talking about is a statement of present intention. They are not making a promise upon which parties are obviously going to act and persons in a position where the court would need to protect them. You cannot identify circumstances like that where the court would act upon this. All you are talking about are the liquidator and Seeley speaking of the present intention to return to the court.

MR CRUTCHFIELD: Well, we submit that is not the proper construction of what happened. It is not what was found. If we go to Chief Justice Warren’s decision, page 530 at the bottom of the page:

the liquidator explained that:

In funding the litigation, Seeley is not seeking to obtain a proportion of any moneys recovered. Rather it has simply been agreed that I will approach the Court pursuant to section 564 of the . . . Act - - -

CRENNAN J: Is that not just a reference to what litigation funders sometimes do? The litigation funder will sometimes say we are going to take 20 per cent of moneys raised. I had thought that all was being done there was giving an indication that Seeley, unlike, say, a professional litigation funder, is not seeking to take a proportion of the moneys raised.

MR CRUTCHFIELD: It goes further than that. Look at 101, your Honour:

If any assets or damages are ultimately recovered, I will make an application to the Court for Orders –

The submission really is this, that, as I said earlier today, all around the country everyday courts are being told things by official liquidators. Our friends say this is a sui generis category that applies to court-appointed liquidators and in - - -

CRENNAN J: But that is about priority in relation to the recovery of costs where they are left of out of pocket.

MR CRUTCHFIELD: Sure, I understand that, but - - -

CRENNAN J: But if they recoup through the equitable lien - - -

MR CRUTCHFIELD: Let us say they were wrong about the equitable lien and the money has gone across to Seeley. Assume that for the moment, assume that the Court of Appeal has upheld and the money has gone from Newtronics. The liquidator has not protected that fund. It was covered by our charge.

CRENNAN J: There was no equitable lien.

MR CRUTCHFIELD: No equitable lien. Money paid away and assume it was paid away to somebody who subsequently became insolvent. Why would that not be a breach of duty by a liquidator to allow that to occur because what liquidators – in Macedonian Church, in those situations, trustees, I mean to come to court if there is any uncertainty about it. Here we are years later still arguing about it. I do not want to – this is my last point and it is just discretionary.

CRENNAN J: But all that has happened - in a practical, commercial sense all that has happened is the liquidator has been given cash flow in respect of the litigation and Seeley as a normal commercial indemnifying creditor, why would they not expect that (a) they would have recoupments through the equitable lien and then also, quite independently, have an ability under section – there would be an ability for the liquidator under section 564 to disturb the normal priority of Seeley as an unsecured creditor in relation to still being out of pocket over the cash flow provided to the liquidator.

MR CRUTCHFIELD: We submit that might be a perfectly reasonable thing for Seeley to think, what your Honour has put to me. The question is whether it was appropriate for the liquidator to pay that money away in circumstances where it is clear from this file note that the solicitor for the liquidator well knew that if – because we lost before Justice Pagone and the charge had been set aside. In the file note the solicitor says “I agree with you if that decision is upheld” but there is this pregnancy in the air about, well, what if it is not upheld. It is clear that they realise this money is still covered by our charge but yet the liquidator has paid the money away to a third party and the money may never come back if they were wrong.

The question is, in those circumstances, when no one is told about that, nobody, should – is that relevant? Do you put that in the mix in terms of a discretionary factor if a liquidator otherwise has an equitable lien, is that relevant? That is all. It is certainly not at the forefront. We say you do not get an equitable lien when you are trying to – you have gone to war with a secured creditor and you lose the war, otherwise we are going to create a lot more wars. That is our principal point and that is at paragraph 52 of our submissions.

The other thing, this indemnity agreement was altered many times as your Honours know – there are various versions in the court book. Both parties were represented legally and there is nothing in there. No provision made for an indemnity. All the way along Mr Seeley and the liquidator had agreed that the route by which Mr Seeley would be repaid was through a 564 application. That is what the creditors were told as well, importantly. The creditors would have standing on that application in the Federal Court. In the indemnity agreement there is not even an obligation to repay. The liquidator has no obligation to repay Seeley.

KIEFEL J: I thought it was said that there was no issue that it took effect as an indemnity in its terms?

MR CRUTCHFIELD: No, I mean an obligation to repay the money that Seeley has paid. I thought your Honour Justice Kiefel’s question was whether or not there was any issue about whether or not the liquidator was being indemnified along the way, whether that was working as an indemnity, and there is no issue about that.

KIEFEL J: No, whether it took effect as an indemnity in its terms with all of the legal consequences of an indemnity; that is, that if a person is being advanced moneys by the indemnifier, they repay them if they have other recourse.

MR CRUTCHFIELD: That raises the issues about - - -

KIEFEL J: Because the indemnifier is entitled to the receipts.

MR CRUTCHFIELD: Well, that raises the issues about subrogation and whether or not that right of indemnity that your Honour is saying that Seeley had, whether that is being excluded by the 564 agreement and at least - - -

KIEFEL J: You are not denying that there would be a right of indemnity. You are just saying that clause 12 excludes it. Is that how you are approaching it?

MR CRUTCHFIELD: Yes, on the proper construction of the agreement it was excluded, and that is what Justice Redlich found, yes. I am sorry; I did not make myself clear. Unless there is anything else, they are our submissions.

CRENNAN J: Thank you, Mr Crutchfield. Yes, Mr Myers.

MR MYERS: Two matters. First, your Honour Justice Kiefel asked me a question about footnote 70 on page 527 of the appeal book. I am almost apologetic for raising it. We in fact deal with this footnote in paragraph 57 of our written submissions, and I cannot usefully add to them.

KIEFEL J: Did you say a footnote?

MR MYERS: It was footnote 70 on page 527 you asked me about, and you asked me about the effect of those cases.

KIEFEL J: I see. You deal with it at paragraph 57.

MR MYERS: We deal with the effect of those cases explicitly and at a little length in paragraph 57 of our written submissions and - - -

KIEFEL J: Yes, thank you.

MR MYERS: - - - I refer to them. The other issue I wish to deal with in reply arises out of an observation of Justice Gageler concerning section 564 and whether it affects property that is subject to a security. We say that section 564 is part of a scheme for regulating amounts available for distribution among unsecured creditors. So it does not affect property that is subject to a security, to put it another way.

There are three cases to which I wish to refer that I have had a brief look at over the luncheon adjournment: Australia and New Zealand Banking Group Ltd v TJF EBC Pty Ltd [2006] NSWSC 25; (2006) 56 ACSR 570, a decision of Justice Barrett of the Supreme Court of New South Wales. As far as I could discern, his Honour is of the opinion that section 564 does not deal with property that is subject to the rights of secured creditors.

When I began to deal with this point I formulated a proposition - it is part of a scheme, et cetera. That is derived from Jarbin Pty Ltd v Clutha Ltd [2004] NSWSC 28; (2004) 208 ALR 242 at page 260 and in paragraph 68 on page 260 Justice Campbell says more or less what I have paraphrased, rather succinctly and elegantly, if I may say so. There is an older New Zealand decision that we came across dealing with a New Zealand statutory provision which is very similar in terms to section 564. It is In re Willis C Raymond Ltd (1928) NZLR 115. It also supports that proposition.

CRENNAN J: So section 564 is an exception to the equality of treatment of unsecured creditors.

MR MYERS: Correct. If the Court pleases.

CRENNAN J: The Court will reserve its decision. Adjourn the Court until 10.15, Tuesday next, 11 March.

AT 2.28 PM THE MATTER WAS ADJOURNED