Elks v Melgear Pty Ltd & Ors (No 2) [2023] QSC 207

SUPREME COURT OF QUEENSLAND CITATION: Elks v Melgear Pty Ltd & Ors (No 2) [2023] QSC 207 PARTIES: ALEXANDER JASON ELKS (applicant) v MELGEAR PTY LTD ACN 056 330 646 (first respondent) DARRYL EDWARD KIRK AND MATTHEW LESLIE JOINER IN THEIR CAPACITY AS RECEIVERS FOR MRV METALS PTY LTD ACN 610 100 402 (IN LIQUIDATION) (RECEIVERS APPOINTED) (second respondents) PHILIP ANTHONY FEITELSON (third respondent) FILE NO: BS No 12986 of 2021 DIVISION: Trial Division PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 11 September 2023 DELIVERED AT: Brisbane HEARING DATE: Head on the papers. Submissions filed by the respondents on 18 August 2023. Submissions filed by the applicant on 22 August 2023. Submissions in reply filed by the respondents on 28 August 2023. JUDGE: Cooper J ORDERS: 1. By 11 December 2023, the second respondents must determine the entitlements of all claimants to the fund held by them (fund) in accordance with: (a) these orders; (b) the reasons for judgment of Cooper J dated 14 July 2023; (c) the transaction documents (as that term is defined in the Security Trust Deed of the Moreton Security Trust dated 24 May 2017); and (d) any other legal or equitable claim to the fund. 2. The second respondents must: -- 1 of 9 -- 2 (a) provide notice to the applicant and the third respondent of the determinations made pursuant to paragraph 1 of these orders within seven (7) days from the making thereof; (b) distribute the fund in accordance with the said determinations within twenty-one (21) days from the making thereof. 3. The second respondents have liberty to apply to the court on 3 days’ notice for directions or judicial advice in respect of the determinations referred to in paragraph 1 of these orders or the distributions referred to in paragraph 2(b) of these orders. 4. Subject to paragraph 5 of these orders, the first and second respondents’ costs of the proceeding are to be paid on an indemnity basis out of the fund. 5. The first and second respondents’ costs payable in accordance with paragraph 4 of these orders are to be borne first by the share of the fund to which the applicant is entitled and, secondly, if that share is exhausted, by the applicant. 6. The applicant is to pay the third respondent’s costs of the proceeding on the standard basis to be assessed if not agreed. CATCHWORDS: CORPORATIONS – RECEIVERS, CONTROLLERS AND MANAGERS – PRIORITY OF DEBTS – GENERALLY – where judgment was delivered ordering that the originating application be dismissed – where directions were made for the parties to file written submissions as to the form of directions – whether the directions should prescribe timeframes for the receivers to take various steps – whether the directions should prescribe the manner in which a sum is to be distributed – whether the directions should require, upon distribution of the fund, steps to be taken to cause the trust to vest – whether the directions should provide for the receivers to have liberty to apply for further directions and judicial advice PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – COSTS – INDEMNITY COST – RELEVANT CONSIDERATIONS GENERALLY – where directions were made for the parties to file written submissions as to the question of costs – whether the first and second respondents’ costs of the proceeding should be paid on an indemnity basis out of the fund – whether the first and second respondents’ costs payable should be borne first by the share of the fund to which the applicant is entitled and, secondly, if that share is exhausted, by the applicant – whether the -- 2 of 9 -- 3 applicant should pay the third respondent’s costs of the proceeding on the standard basis COUNSEL: A J H Morris KC, with C M Thwaites, for the applicant G A Thompson KC with A G Psaltis for the respondents SOLICITORS: Irish Bentley Lawyers for the applicant Colin Biggers & Paisley for the respondents [1] I delivered my judgment in this matter on 14 July 2023.1 On that occasion, I ordered that the originating application be dismissed. I directed that I would hear further from the parties as to the form of a direction to be given to the Receivers and any further orders the parties considered were necessary to give effect to the reasons I published on that date, as well as to costs. [2] The parties have now filed written submissions addressing those issues. These are my reasons for the further orders I will make. In these reasons, I have adopted the defined terms used in my earlier reasons. The form of the direction to the Receivers [3] Mr Elks’ position is that the Receivers should be directed to: (a) within 14 days, determine any claims to liens in relation to the Security Trust, determine the entitlements of all claimants to the funds held by them as receivers in accordance with the further orders and my earlier reasons, and calculate the distribution to be made to the debenture holders pursuant to the transaction documents (as defined in the Security Trust Deed); (b) within 7 days of making such determinations and calculations, notify Mr Elks and Mr Feitelson of the same; (c) within 21 days of making such determinations and calculations, make payment in accordance with the same; (d) within 30 days of making payment in accordance with their determinations and calculations, take all steps and do all things necessary to vest the Moreton Security Trust. [4] Mr Elks also seeks a specific direction as to the distribution of the sum of $690,903.80 received from settlement of the DES Claim as set out in [118] of my earlier reasons. [5] The respondents propose directions that the Receivers: (a) determine the entitlements of all claimants to the fund held by them in accordance with the further orders, my earlier reasons, the transaction documents (as defined in the Security Trust Deed) and any other legal or equitable claims to the funds; and (b) distribute the fund in accordance with their determinations. 1 Elks v Melgear Pty Ltd & Ors [2023] QSC 150. -- 3 of 9 -- 4 [6] The respondents also propose that the Receivers be granted liberty to apply to the court for further directions or judicial advice in respect of the determinations and distributions they are required to make. [7] Having regard to these competing positions, the issues for consideration are whether the direction to the Receivers should: (a) prescribe timeframes by which the Receivers are required to take various steps; (b) prescribe the manner in which the sum received from the settlement of the DES Claim is to be distributed; (c) upon distribution of the fund, require steps to be taken to cause the Moreton Security Trust to vest; (d) provide for the Receivers to have liberty to apply for further directions and judicial advice. [8] As to the first issue, I accept Mr Elks’ submission that a timeframe should be imposed for the Receivers to determine the entitlements of claimants to the fund. However, I do not accept that the timeframe which Mr Elks has proposed is realistic. [9] The evidence read on the hearing of the originating application indicated that, as long ago as August 2021, Mr Feitelson had instructed Melgear, as security trustee, to ask the Receivers to undertake the task of calculating the entitlements of claimants to the fund. By 30 January 2023, when Mr Kirk (one of the Receivers) swore an affidavit in the proceeding, some work had been done to progress the determination of entitlements. Although no updated evidence has been filed which addresses the current status of that work, it appears from the respondents’ written submissions in reply that the completion of this work was deferred pending the determination of Mr Elks’ application. [10] I accept that this was a reasonable course for the Receivers to take. I also accept that the nature of the work involved, which might require that the Receivers seek judicial advice in relation to claims made against the fund by First Samuel and Jadar, means that it is unrealistic to expect that the Receivers could complete that work within a period of 14 days. [11] Further, I accept that the Receivers’ determination of claimants’ entitlements will need to take account of costs orders made in this proceeding. If the quantum of the costs payable under such orders cannot be agreed, the costs will need to be assessed. Again, it is not realistic to suggest that a costs assessment could be completed within a period of 14 days. [12] Although the respondents were opposed to the imposition of any timeframe, they submitted in reply that the appropriate course, if the court was minded to impose a timeframe which could be met, would be to require the Receivers to report to the court within two months as to their progress so that further directions may then be able to be made. [13] I propose to fix a date by which the Receivers will be required to determine the entitlements of claimants to the fund. Having regard to the matters set out above, I consider three months to be a reasonable period in which to complete the work -- 4 of 9 -- 5 required to make those determinations. If ultimately the Receivers are unable to comply with this timeframe, whether due to the need for costs of the proceeding to be assessed or for them to seek judicial advice or for any other reason, they will need to apply for an extension explaining the need for further time and the further period required. [14] There seems to me to be no reason why the further directions sought by Mr Elks, set out in [3](b) and [3](c) above, should not be made as part of the further orders. The times proposed for those further steps do not commence until the Receivers have determined the entitlements of claimants to the fund and appear to me to be reasonable. [15] As to the second issue, I accept that where the Receivers are to be directed to determine the entitlements in accordance with my earlier reasons it would be superfluous to make a further direction expressing what is set out in [118] of those earlier reasons. [16] As to the third issue, I am not satisfied that it would be appropriate to make a direction that, after distributing the fund in accordance with the respective entitlements of claimants, the Receivers should take steps to cause the Moreton Security Trust to vest. [17] The respondents submitted that this form of direction would not be appropriate until the Receivers have calculated all of the claims to the secured assets of MRV and determined whether there is a shortfall. That is because, in the respondents’ submission, if there is ultimately a shortfall then the Moreton Security Trust is not at an end and the Receivers, who are also appointed as receivers of the secured property of Moreton Resources, may be able to realise further amounts which would be the subject of the trust. [18] Mr Elks did not address this issue in his written submissions. Nor did he identify any material which would permit me to form the view that there is unlikely to be a shortfall. In those circumstances, I am not prepared to make the direction he seeks. [19] The issue of the vesting of the Moreton Security Trust is one which the parties should seek to resolve by agreement once the Receivers have determined whether the funds held are sufficient to meet all claims to the secured assets of MRV. [20] As to the fourth issue, I can see no reason why the Receivers should not have liberty to apply for further directions or to seek judicial advice in the event they form the view, upon appropriate advice, that they should take such a course. As the respondents submitted, the Receivers arguably have a right to seek further directions under s 424 of the Corporations Act 2001 (Cth) in any event. I am satisfied it is appropriate to put the question beyond doubt by making the direction the respondents have proposed. Costs [21] It was common ground between the parties that the costs of the proceeding incurred by both Melgear and the Receivers should be paid on an indemnity basis out of the fund held by the Receivers. I accept that it is appropriate to make orders to that effect, for the reasons set out in paragraphs 11 to 13 of the respondents’ submissions filed on 18 August 2023. -- 5 of 9 -- 6 [22] The parties are in dispute, however, as to how the liability for those costs should be borne as between the beneficiaries of the Moreton Security Trust. [23] The respondents submitted that the liability to pay the costs of Melgear and the Receivers should be borne out of the share of the fund to which Mr Elks is entitled and, if that share is exhausted, by Mr Elks personally. They relied upon the principle that where a trustee is successful in proceedings brought against it by some, but not all, of the beneficiaries of the trust then the indemnity to which the trustee is entitled for its costs should be given effect to in such a way as to make the burden fall upon the beneficiaries equitably having regard to the circumstances in which the costs were incurred.2 Having regard to those authorities, I am satisfied that orders for payment of costs arising from unsuccessful litigation against trustees from the shares of the beneficiaries responsible for such litigation are well established. [24] In the circumstances of this case, the fact that Mr Elks was unsuccessful on his originating application is a sufficient basis to order that he should ultimately bear the burden of the indemnity costs to be paid to Melgear and the Receivers. This is because Mr Elks’ application constituted adversarial litigation in which he sought relief which would improve his entitlement to the assets of the Moreton Security Trust relative to the other beneficiaries. In my view, there is no reason why any part of the indemnity to be afforded to Melgear or the Receivers upon successfully resisting the application should be borne by those other beneficiaries. [25] The parties are also in dispute as to the costs of both Mr Elks and Mr Feitelson. [26] Mr Elks submitted that his costs and the costs of Mr Feitelson should be paid on the standard basis out of the fund held by the Receivers. [27] The respondents submitted that Mr Elks is not entitled to any award of costs in his favour and that he should be ordered to pay Mr Feitelson’s costs on the standard basis. [28] Mr Elks submitted that clauses 9.1 and 14 of the Secured Debenture Deed prescribe how the issue of costs is to be addressed. [29] Clause 9.1 of the Secured Debenture Deed provides that: “9.1 Guarantee and indemnity Each Guarantor, separately and independently, unconditionally and irrevocably: (a) guarantees to each Debentureholder and the Security Trustee the due and punctual performance and observance by the Issuer of all of the obligations contained in or implied under this document that must be performed and observed by the Issuer (Guaranteed Obligations); and (b) indemnifies each Debentureholder and the Security Trustee against, and must pay on demand amounts equal to, all loss or 2 National Trustees Executors & Agency Company of Australasia Ltd v Barnes (1941) 64 CLR 268, 279; Northey v Juul [2014] NSWSC 464, [146]–[149]. See also Segal v Osborne (No 2) [2016] NSWSC 1328, [41]–[42]. -- 6 of 9 -- 7 damage suffered by a Debentureholder or a Security Trustee in relation to: (i) any Guaranteed Obligation (or anything which would be or become a Guaranteed Obligation if enforceable, valid and not illegal) being or becoming unenforceable, invalid or illegal; (ii) the Issuer failing, or being unable, to pay any amount or to perform any of its Guaranteed Obligations in accordance with this document; or (iii) any amount that the Issuer is required to pay in respect of its Guaranteed Obligations under this document not being recoverable from the Issuer, in each case, for any reason and whether or not the Debentureholder or Security Trustee knew or ought to have known about those matters.” [30] Clause 14 of the Secured Debenture Deed provides that: “14 Indemnity (a) The Issuer indemnifies the Debentureholder against any Loss which the Debentureholder pays, suffers, incurs or is liable for, in respect of any of the following: (i) the occurrence of any Event of Default; (ii) a Debentureholder or the Security Trustee exercising its Powers consequent upon or arising out of the occurrence of any Event of Default; (iii) the non exercise, attempted exercise, exercise or delay in the exercise of any Power; and (iv) any act or omission of the Issuer or any of its employees or agents. (b) Any amount payable under this indemnity is payable on demand.” [31] It is not clear from the terms of these clauses themselves, or from Mr Elks’ submissions concerning them, how it is said that the indemnities which are conferred on Mr Elks (and on Mr Feitelson) as a Debentureholder extend to a right to recover his costs of the proceeding from the fund held by the Receivers. [32] As to cl 9.1(a), Mr Elks has not identified any clause of the Secured Debenture Deed (save for cl 14(a) which I will come to) which obliges Moreton Resources as Issuer to pay costs which Mr Elks incurs in litigation of the type he commenced here. I cannot find any such obligation contained in or implied by the Secured Debenture Deed. As the payment of Mr Elks’ costs of the proceeding falls outside the scope of the Guaranteed Obligations, cl 9.1(a) does not assist him in this regard. -- 7 of 9 -- 8 [33] As to cll 9.1(b) and 14(a), the indemnities are broadly expressed. Nevertheless, I am not satisfied that, on their proper construction, those terms extend to a right on the part of a Debentureholder to recover, from the secured assets, its costs of bringing or defending proceedings which are principally concerned with the respective entitlements of the different Debentureholders as between themselves to distribution of the secured assets. I am not persuaded that the reasonable businessperson would have understood the parties to have intended that the costs of such litigation should be included within the “loss or damage” which is referred to in cl 9.1(b) or the “Loss” (as defined in cl 1.1) which is referred to in cl 14(a). [34] I will not make an order that the costs of either Mr Elks or Mr Feitelson be paid out of the fund held by the Receivers. [35] Instead, I am satisfied that as between Mr Elks and Mr Feitelson there is no reason to depart from the usual rule that costs should follow the event. As Mr Elks was unsuccessful in his application he should pay Mr Feitelson’s costs on the standard basis. Conclusion [36] For these reasons, the orders I will make are: 1. By 11 December 2023, the second respondents must determine the entitlements of all claimants to the fund held by them (fund) in accordance with: (a) these orders; (b) the reasons for judgment of Cooper J dated 14 July 2023; (c) the transaction documents (as that term is defined in the Security Trust Deed of the Moreton Security Trust dated 24 May 2017); and (d) any other legal or equitable claim to the fund. 2. The second respondents must: (a) provide notice to the applicant and the third respondent of the determinations made pursuant to paragraph 1 of these orders within seven (7) days from the making thereof; (b) distribute the fund in accordance with the said determinations within twenty-one (21) days from the making thereof. 3. The second respondents have liberty to apply to the court on 3 days’ notice for directions or judicial advice in respect of the determinations referred to in paragraph 1 of these orders or the distributions referred to in paragraph 2(b) of these orders. 4. Subject to paragraph 5 of these orders, the first and second respondents’ costs of the proceeding are to be paid on an indemnity basis out of the fund. 5. The first and second respondents’ costs payable in accordance with paragraph 4 of these orders are to be borne first by the share of the fund to which the applicant is entitled and, secondly, if that share is exhausted, by the applicant. -- 8 of 9 -- 9 6. The applicant is to pay the third respondent’s costs of the proceeding on the standard basis to be assessed if not agreed. -- 9 of 9 --