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[2011] NSWSC 164
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In the matter of International Art Holdings Pty Ltd (admin apptd); International Art Holdings Pty Ltd (admin apptd) & ors v Adams & ors [2011] NSWSC 164 (7 March 2011)
Last Updated: 8 November 2011
This decision has been amended. Please see the end
of the decision for a list of the amendments.
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Case Title:
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In the matter of International Art Holdings Pty Ltd
(admin apptd); International Art Holdings Pty Ltd (admin apptd) & ors v
Adams
& ors |
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Medium Neutral Citation:
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Hearing Date(s):
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Decision Date:
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Jurisdiction:
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Before:
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Decision:
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Judicial advice given as to manner in which
different categories of artworks may be dealt with by administrator and
declaration as
to statutory or equitable lien over artworks for administrator's
remuneration costs and expenses. |
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Catchwords:
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JUDICIAL ADVICE - application by administrator of
company for judicial advice and directions under ss 447D and 447A of the
Corporations Act 2001 (Cth) - in the alternative, application for directions
under ss 63 and 81 of the Trustee Act 1925 (NSW) to the extent that
administrator is a bare trustee - HELD - it was appropriate for judicial advice
to be given under s 447D
as to the manner in which the assets of the company
should be dealt with by the administrator and the administrator's claim for
remuneration
- it was inappropriate for orders to be made which would determine
competing parties' claim to the artworks in question - EQUITY
- whether
statutory lien or equitable lien to be imposed over artworks that are property
of investors, not company - whether imposition
of equitable lien over assets of
a regulated self-managed superannuation fund will result in those assets losing
their 'complying
fund status' under reg 13.14 of the Superannuation Industry
(Supervision) Regulations 1994 (Cth) - whether amount of work undertaken by the
administrator in the administration of the company was excessive or unnecessary
- HELD - statutory lien over artworks the subject of lease to the company -
equitable lien imposed to secure reimbursement of administrator's
reasonable
costs and expenses - reg 13.14 not applicable to an equitable lien imposed by
the court - work undertaken by administrator
was reasonable in the
circumstances |
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Legislation Cited:
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Cases Cited:
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Texts Cited:
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Austin & Black's Annotations to the Corporations
ActJacobs' Law of Trusts in Australia (7th edn) McClintock, Handbook of
the Principles of Equity (2nd edn) Palmer, Bailment (2nd edn) Stuart
Jones' Australian Superannuation Handbook, 2010-11 The Law of Superannuation
in Australia |
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Category:
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Parties:
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International Art Holdings Pty Ltd (admin apptd)
(First Plaintiff) GD Rentals Pty Ltd (admin apptd) (Second
Plaintiff) Hunter Capital Pty Ltd (admin apptd) (Third Plaintiff) Hunter
Holdings (Australia) Pty Ltd (admin apptd) (Fourth Plaintiff) Sule Arnautovic
in his capacity as administrator of the First to Fourth Plaintiffs (Fifth
Plaintiff) Lynne & Mark Adams and the other persons described in Schedule
1 to the Plaintiffs' Further Amended Originating Process (Defendants) |
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Representation
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DR Stack (Plaintiffs) G O'Mahoney (Miss D
Williams) |
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- Solicitors:
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ERA Legal (Plaintiffs) LE Drolz (as trustee of
the Drolz Superannuation Fund)(30th Defendant) (self represented) E Uri
(116th Defendant) (self represented) |
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File number(s):
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Publication Restriction:
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JUDGMENT
- Before
me for hearing on 24 February 2011 was an application by Mr Sule Arnautovic, in
his capacity as the administrator of the first
to fourth plaintiffs
(collectively, the corporate plaintiffs), for judicial advice and directions
under section 447D (together with section 447A) of the Corporations Act 2001
(Cth) or, to the extent that Mr Arnautovic is a bare trustee, under sections
63 and 81 of the Trustee Act 1925 (NSW) . Consequential orders are
also sought.
- The
particular issue in respect of which the advice is sought relates to the manner
in which the administrator should deal with several
artworks which are currently
in the possession of the first plaintiff (International Art Holdings) and to
resolve the administrator's
claim for remuneration and expenses incurred in
dealing with the said artworks.
- In
summary, International Art Holdings carried on business principally as an art
dealer and investment company. Together with GD Rentals,
it operated a business
whereby artwork was purchased and sold to clients (described as 'investors') and
assistance was then provided
to enable those investors to enter into rental
arrangements whereby the artwork was leased to third parties. (The third and
fourth
plaintiffs, Hunter Capital and Hunter Holdings, are companies related to
or associated with the principal of the first and second
plaintiffs - the
former, in the business of the provision of consultancy services; the latter,
being the ultimate parent company
of International Art Holdings and GD Rentals.)
- Mr
Cameron Hall is the sole director of the corporate plaintiffs. On 7 October 2010
he resolved in that capacity to appoint Mr Arnautovic
as the administrator of
those (and other related) companies pursuant to Part 5.3A of the Corporations
Act .
- In
the course of his administration of International Art Holdings, Mr Arnautovic
has investigated the ownership of the artwork in
its possession and has
classified that artwork within three categories:
(a) artworks in respect of which there is more than one person or entity
claiming ownership or a proprietary interest (and which Mr
Arnautovic does not
believe belong to International Art Holdings), such artworks being identified in
Schedule A to the Further Amended
Originating Process filed in court on 24
February 2011 and since then updated in an Amended Schedule A; (I refer to these
artworks
collectively as the "disputed artworks".)
(b) artworks in respect of which Mr Arnautovic has identified the owner (and
there is no competing claim to ownership) but where the
owner has refused to pay
a levy sought to be imposed by Mr Arnautovic to cover a portion of the fees and
expenses of dealing generally
with the artworks, such artworks being identified
in Schedule B to the Further Amended Originating Process and also since then
updated
in an Amended Schedule B; (I refer to these artworks collectively as the
"levy artworks".)
(c) artworks in respect of which Mr Arnautovic has been unable to identify
any third party as the owner (and as to which he is uncertain
whether the
artworks are the property of International Art Holdings, though they are in its
possession), such artworks being identified
in Schedule C to the Further Amended
Originating Process. (I refer to these artworks collectively as the "unclaimed
artworks".)
- In
Mr Arnautovic's most recent affidavit of 23 February 2011, which was filed in
court at the commencement of the hearing of this
application, Mr Arnautovic
explained that there had been changes in the Schedules from those attached to
the original process to
reflect the fact that in the course of his ongoing
investigations there has been some change in the classification of the artworks.
(For example, if a competing claim had been resolved after the preparation of
the initial Schedules, the Schedules would be amended
so that the artwork in
question was removed from Schedule A and, presumably only where the identified
owner had refused to pay the
levy, added to Schedule B. Consequential changes
were made to the schedule of defendants). As I understand it, the persons or
entities
listed in the schedule of defendants are those with a competing claim
to a disputed artwork and those who have refused to pay the
levy in respect of a
levy artwork.
- In
respect of artwork currently rented out to a third party by GD Rentals or
International Art Holdings for an investor, Mr Arnautovic
deposes that he does
not believe the company has any interest in the artwork and he has notified
investors of the whereabouts of
the artwork and left it to them to make
arrangements for the ongoing rental or return of that artwork. Similarly, where
artwork was
in the process of being framed or repaired at the time of Mr
Arnautovic's appointment (and the framers have claimed a lien or other
security
interest in the artwork as a consequence of moneys claimed to be owing to them),
Mr Arnautovic has again notified the particular
investors of the whereabouts of
the artwork and left it to them to resolve the claims of the framers. Artworks
referred to in this
paragraph do not form any part of the present application.
- For
completeness, I note that the first meeting of creditors of the corporate
plaintiffs was held in accordance with the requirements
of s 436E of the
Corporations Act on 19 October 2010 and the second meeting was held in
accordance with the requirements of s 439A of the Corporations Act on 11
November 2010. The creditors of each of the companies on each occasion resolved
that the meetings be held concurrently. The
second meeting of creditors has been
adjourned. On 16 December 2010, Barrett J ordered that the period of adjournment
allowed under
s 439B(2) be extended to 14 March 2011.
- In
relation to the three categories of artwork, Mr Arnautovic has proposed that
they be dealt with as follows:
Schedule A - disputed artworks
that Mr Arnautovic be appointed as the receiver of each of the disputed
artworks with powers of the kind set out in s 420(2)(a),(b),(c),(e) and (g) of
the Corporations Act ;
that Mr Arnautovic's remuneration as receiver of the disputed artworks be
calculated in accordance with the Scale of Rates of Jirsch
Sutherland (the
accounting firm of which he is a partner) and apportioned amongst each of the
disputed artworks as a percentage sum
in accordance with a proposed formula;
that there be a declaration that Mr Arnautovic have a lien over the artworks
for the percentage sum so calculated; and
that after the sale of the disputed artworks and payment of the percentage
sum, the monies remaining be paid in equal shares to each
of the defendants who
have demonstrated to Mr Arnautovic's reasonable satisfaction that they have a
legitimate claim to ownership
of that specific artwork.
Schedule B - levy artworks
that there be a declaration that International Art Holdings, GD Rentals and
Mr Arnautovic have an equitable lien over the respective
levy artworks in a
specified amount (varying by reference to the specified value of the particular
artworks in the administrator's
current catalogue);
that Mr Arnautovic be appointed as the receiver of each of the levy artworks
with powers of the kind set out in s 420(2)(a) and (e) of the Corporations
Act ;
that Mr Arnautovic notify each of the persons recorded in Schedule B as the
owner of the respective works of his intention to sell
the artwork and pay the
levy from the proceeds of sale (and then to pay the surplus sale proceeds to
that person) unless payment
of the levy is received within a specified time;
that on payment, within a specified time, of the levy from a person recorded
in Schedule B as the owner of an artwork Mr Arnautovic
release that art work to
that person;
that in relation to artwork not so released, Mr Arnautovic, as receiver of
the remaining artworks identified in Schedule B, have powers
of the kind set out
in s 420(2)(b), (c) and (g) of the Corporations Act ;
that on and from 21 days after the making of such orders, Mr Arnautovic 's
remuneration as receiver of the remaining levy artworks
be calculated in
accordance with the Scale of Rates of Jirsch Sutherland (the accounting firm of
which he is a partner) and apportioned
amongst each of the remaining levy
artworks as a percentage sum in accordance with the proposed formula;
that Mr Arnautovic have a lien over the remaining levy artworks for the said
percentage sum.
Schedule C - unclaimed artworks
that there be a declaration that the unclaimed artworks are the property of
International Art Holdings and may be dealt with in the
ordinary course of the
administration of that company.
- Orders
were made by Barrett J last year in relation to the mode of service of the
Originating Process in this matter. On the hearing
before me only three persons
claiming an interest in any of the artworks attended or were represented for the
purpose of making submissions:
(i) Ms Louise Drolz, who has filed an appearance on behalf of the
superannuation fund "Drolz Superannuation Fund" of which she is
a trustee and
who has affirmed an affidavit on 7 February 2011 in relation to the matter
(there being 6 levy artworks of which Ms
Drolz as trustee of the said fund is
acknowledged to be the owner);
(ii) a Miss Donna Williams (or an entity associated with her) was represented
by Mr O'Mahoney of Counsel, who ultimately made no submission
as to the advice
and orders sought by Mr Arnautovic (his client having received an undertaking
that the levy artwork of which Miss
Williams or an entity controlled by her is
acknowledged to be the owner would not be sold without notice to her); and
(iii) Mr Erik Uri, who was self-represented and who claims an entitlement to
one of the disputed artworks. He attended with documentation
to support his
claim.
- No
notices of appearance for Miss Williams or Mr Uri appear to have been filed but
no issue was taken as to this.
Background Facts
- As
noted earlier, International Art Holdings carried on business as an art dealer,
offering artworks for sale and then assisting (either
itself or with GD Rentals)
with the placement of those artworks for rent by third parties. An example of
the rental arrangements
can be found in Exhibit B (from p 166 of which is a copy
of a rental agreement entered into with GD Rentals by an investor who was
not
represented on this application) and Exhibit 1 (which includes a copy of a
rental agreement signed by Ms Drolz and her co-trustee
of the Drolz
Superannuation Fund, but not by any other party, in which International Art
Holdings, defined as "Smith & Hall",
is named as a party). Although no
counterpart agreement signed by International Art Holdings was in evidence, in
her affidavit affirmed
7 February 2011 Ms Drolz deposed to the circumstances in
which, as trustee of the fund, she purchased on behalf of the fund an "art
portfolio" through International Art Holdings and signed a rental agreement in
relation to that portfolio.
- Under
the terms of the rental agreements which were in evidence, the relevant investor
agreed to lease specified artworks to GD Rentals
or International Art Holdings,
as the case may be, and that entity in turn agreed to take the specified
artworks on lease for the
lease period and to pay the rent stipulated in the
agreement (clause 2). Clause 2 further provided that the company was entitled
to
lease those artworks to its customers. Pausing there, it can be seen that clause
2 of the respective rental agreements in its
terms confers a leasehold (and thus
proprietary) interest in the artworks on the relevant entity (GD Rentals or
International Art
Holdings) - a matter relevant when considering whether the
artworks in question constitute part of the property of either of those
companies. Somewhat confusingly, however, the agreement goes on to refer to the
company as a bailee.
- It
seems that the rental agreements used by the first and second plaintiffs were in
standard terms (and that seemed also to be the
thrust of Ms Drolz' submission).
- Under
the Rental Agreement signed by Ms Drolz (and there is a corresponding provision
in the GD Rentals agreement tendered by Mr Arnautovic),
International Art
Holdings warranted, among other things, under clause 6, that:
(c) it will not use the Artworks for any illegal purpose; or do anything to
the Artworks as to cause or result in a breach of the
Superannuation Industry
(Supervision) Act 1993 ('SIS Act') or the Superannuation Industry (Supervision)
Regulation 1994 or that would result in the Owner losing its complying status
nor shall Smith & Hall lease the Artworks to a 'related party' as that term
is defined in the SIS Act;
...
(e) subject to the Owner's indemnity as to Smith & Hall's costs Smith
& Hall will act as the Owner's attorney in all matters
reasonably required
for the protection of the Owner's rights necessitated by the fact that the Owner
is not a party to any lease
agreement between Smith & Hall and its
customers;
...
(g) that it will not in any way encumber the Artworks including sell,
exchange, pledge, mortgage, charge, grant a lien over any of
the Artworks
without the prior written consent of the Owner.
- Ms
Drolz places considerable emphasis on those warranties. In her affidavit she
deposes to conversations in which she says stressed
the need for the inclusion
of a clause to the effect of that in 6(g). The relevance of this is in the
context of Ms Drolz' submission
that an equitable lien should not be imposed
over the levy artworks of which she is acknowledged to be the owner. Ms Drolz
believes
this will result in the assets losing their 'protected' status under
the superannuation legislation. I consider this submission in
due course.
- Under
the terms of the Rental Agreement put in evidence by Ms Drolz (and the
corresponding GD Rentals agreement tendered by the administrator),
International
Art Holdings further acknowledged that it was a "lessee" of the artworks from
the owner, that the owner retained title
thereto "and that Smith & Hall has
rights to possess the Artworks as a mere bailee only subject only to Smith &
Hall's right
to lease the Artworks to its customers" (clause 7). (The apparent
contradiction between International Art Holdings being acknowledged
to be a
lessee and at the same time being said to have a right to possess those works as
a "mere bailee" for the purpose of what
would seem to be an on-lease or
sub-lease to its clients is not explained.)
- As
noted earlier, the corporate plaintiffs were all placed into administration on 7
October 2010, following a resolution of the sole
director, Mr Hall. (I note that
it would seem the business model followed by Mr Hall had some flaws in that he
had also been a director
of Heritage Fine Wines Pty Limited, the liquidation of
which seems to have given rise to not dissimilar problems as those besetting
this administration. I was referred in that regard to the ex tempore judgment of
Campbell J, as his Honour then was, in Application of Crouch [2005] NSWSC
1122 at [1], in which his Honour noted the appointment (of the liquidator of
that company) as the receiver and manager of the assets there in
question,
namely wine in the possession of the company. His Honour there commented that
the appointment of the liquidator as receiver
of the wine was in the context
that there was a realistic prospect that some or perhaps all of the wine in
question in the possession
of the company might not be the property of the
company but might be held by it as bailee for individual investors.)
- Mr
Arnautovic has deposed to the steps that were taken in the course of his
administration in relation to the artworks. In particular,
he disclosed that the
books and records for International Art Holdings and GD Rentals had recorded
that those companies were in possession
of 1141 works of art but that only 980
of those had been located (and that those artworks had been located at a number
of different
places) (paragraphs 33-34 of Mr Arnautovic's affidavit sworn 16
December 2010). Mr Arnautovic caused all of the artworks to be stored
at one
location, a storage facility at Mascot, in part due to the requirement of his
insurers that the artwork be stored in a specialised
storage facility (paragraph
35 of Mr Arnautovic's 16 December affidavit).
- According
to Mr Arnautovic, at the time of the administration the books and records of the
corporate plaintiffs were incomplete and
this made it difficult to identify the
artworks and to determine which works were owned by which investors (paragraph
37 of Mr Arnautovic's
16 December 2010 affidavit). He deposed to the process in
which he had engaged of identification of the artworks and to the steps
taken in
an endeavour to determine ownership of the artworks, which he said had been a
time consuming process involving the retention
of Grays Auctioneers to catalogue
the artworks; the review of the books and records of the company; notification
by way of circular
of persons that it was thought might have an interest in the
artwork; the placement of advertisements in the Australian newspaper
on 9
October 2010 and 4 November 2010 and an article in the Australian Financial
Review on 12 October 2010; the creation of various
schedules and update of the
artworks catalogue; and the issuing of a general press release. He estimated
that not less than 431 hours
(or 60% of the total time working on the
administration) of his staff's time had been spent in identifying and
cataloguing the artwork.
- Mr
Arnautovic expressed his concern (not shared by Ms Drolz based on her own
enquiries) that in some instances the same artwork appeared
to have been sold to
more than one investor (Ms Drolz was dismissive of this and referred to her
review of information contained
on a CRM spreadsheet provided to her by a
creditor). Nevertheless, I was taken by Counsel for the plaintiffs (Mr Stack) to
material,
by way of example, which indicated that artwork of the same title and
by the same artist ('Resolve and General VIII' by Jasper Knight)
might well have
been the subject of two separate transactions involving two investors (and I was
informed by him that even as late
as the morning of the application before me
the administrator had become aware of a third party claiming an interest in a
particular
work in respect of which the administrator had previously known of
only two claimants).
- Ms
Drolz, both in her affidavit and in oral submissions during the hearing, was
critical of the work carried out by or on behalf of
the administrator (which she
illustrated by reference to instances in which her own investigations into the
whereabouts of certain
artwork or as to the rightful owner of artwork had, she
considered, been conducted more efficiently than the administrator's
investigations).
Among other things, Ms Drolz criticised the inventory prepared
by Grays as "sloppy, hastily prepared and ... of a poor standard"
(something for
which I note that the administrator cannot have been directly responsible as he
had engaged a firm of auctioneers
to prepare the inventory). She also criticised
various matters in relation to the preparation of the administrator's Schedules
and
as to his manner of communication with investors as to the levy (said to
have caused creditor confusion and hostility). Mr Arnautovic
has responded to
various of the criticisms in his later affidavit of 23 February 2011. (I
consider Ms Drolz' criticisms in relation
to the work carried out by the
administrator and his staff in due course when considering the issue of the
equitable lien in relation
to the levy artworks.)
- Mr
Stack, quite fairly, indicated that although objection could be made, based on
relevance, to much of the material in Ms Drolz'
affidavit, the administrator
would not object to the material being put before the court for such relevance
as it might be perceived
to have. I have read carefully Ms Drolz' affidavit (in
which she comments on the efficacy of the steps taken by the administrator
and
his staff and relays complaints conveyed to her from others) and those matters
which represent her conclusions as to matters
outside her direct knowledge or
her opinions, I have read as being in the nature of submissions.
- Mr
Arnautovic has explained in both his affidavits the basis on which he formed the
view that it was appropriate to charge a levy
in relation to the levy artworks
(those being the artworks in which no more than one investor had claimed an
interest in the artwork
and where Mr Arnautovic had formed the view that the
investor was entitled to ownership of the artwork). He expressed the concern
that, 'as the artwork was not the property' of any of the corporate plaintiffs,
the creditors of those plaintiffs should not have
to pay the costs of dealing
with those artworks in circumstances where they could have no interest in the
recovery of the artwork.
- Mr
Arnautovic assessed the costs and estimated the expenses of completing what he
termed the "Non-Creditor Work", ie of dealing with
the issues relating to the
levy artwork, initially at $290,000 and subsequently at a lesser amount of about
$200,000. He explained
the basis on which he had considered it impractical (if
not indeed impossible) to work out the actual cost referable to each item
of
artwork. Mr Arnautovic also explained why he did not consider it fair to charge
a flat levy to all owners (since in some cases
the levy would be more than the
particular artwork was worth). Mr Arnautovic has therefore proposed a sliding
scale, based on the
value of the artwork, for the setting of the levy. Mr
Arnautovic says that the calculation of the levy has the effect that a
relatively
small amount of time is attributed as having been referable to each
piece of artwork (although recognising that the time involved
in determining
issues in relation to some pieces would well exceed the time involved in dealing
with others). He also explained the
basis on which he had later revised the levy
for artworks of lesser value (and had refunded the difference to those who had
already
paid a higher amount than the now revised levy). As at December last
year, some 159 people had paid the levy. Those that have refused
to do so
(including Ms Drolz) are listed in Schedule B.
- As
noted earlier, Ms Drolz appeared before me on the application and has affirmed
an affidavit in support of her position. Ms Drolz,
whose profession is that of
financial adviser, says that she acquired, as co-trustee of her superannuation
fund, eight artworks with
the intention of leasing them out to earn an income
from the fund. Two artworks have not been able to be located (and Ms Drolz says
that they may never have been consigned by the company in the first place). It
is not clear whether Ms Drolz has asserted any claim
against the company in that
regard but it does indicate that, in taking account the creditors of the
respective companies, the administrator
may need also to take into account the
contingency of such claims.
- In
essence, Ms Drolz has two complaints in relation to the proposed imposition of
an equable lien (having indicated that her issue
is not with the amount of the
levy itself, which she described as 'relatively trivial' in the case of her
artworks). First, in circumstances
where the levy artworks in her name are
assets held by her as co-trustee of a superannuation fund, Ms Drolz maintains
that she cannot
allow a lien of any kind to be asserted over the assets.
Secondly, insofar as the rationale for the imposition of such a lien (or
a
discretionary factor to take into account in deciding whether such a lien should
be imposed) is the benefit gained by the work
carried out by the administrator,
Ms Drolz takes issue with the proposition that there has been any
incontrovertible benefit gained
by her from the administrator's efforts (and Ms
Drolz suggests that she could have carried out the necessary work at her own
expense
more efficiently and more cheaply).
- Mr
Uri's position is different from that of Ms Drolz in that he falls into the
category of those having a claim in respect of disputed
artworks and I consider
his particular position in that context later in these reasons.
Legal principles
- Section
447D (1) of the Corporations Act , relevantly, provides:
The
administrator of a company under administration, or of a deed of company
arrangement, may apply to the Court for directions about
a matter arising in
connection with the performance or exercise of any of the administrator's
functions and powers.
- This
is similar in essence to the provisions contained in ss 479(3) and 511 of the
Corporations Act and, as Mr Stack points out, applications under s 447D
are in general determined in much the same way as applications under those other
provisions (reference being made to Editions Tom Thomspon v Pilley (1997)
77 FCR 141 at 149 ; Re Ansett Australia [2001] FCA 1439; (2001) 39 ACSR 355 at [58] to
[59] ; Dean- Willcocks v Soluble Solution Hydroponics (1997) 42 NSWLR 209
at 212 ; Crawford v Oswald Park [2006] NSWSC 987 at [10] ; and
S&D International v MIG Property Services [2010] VSC 336 at [7]) .
- Mr
Stack notes that in Ansett at [59], Goldberg J cited, with approval, the
observations of McLelland J (as his Honour then was) in Re G B Nathan &
Co (1991) 24 NSWLR 674 in relation to the genesis and legislative history of
s 479(3) of the Corporations Law . In Re G B Nathan , McLelland J
said, at 679 to 680:
Modern Australian authority confirms the view that s 479(3) 'does not enable
the court to make binding orders in the nature of judgments' and that the
function of a liquidator's application
for directions 'is to give him advice as
to his proper course of action in the liquidation; it is not to determine the
rights and
liabilities arising from the company's transactions before the
liquidation.
...
It should be observed that there are instances where a court has, in
proceedings commenced as a liquidator's application for directions,
gone on to
make orders declaratory of substantive rights, clearly intended to be of binding
effect on the parties to the proceedings
.... The procedures of the court are
sufficiently flexible to enable proceedings commenced as an application for
directions to be
changed into proceedings for the determination of substantive
rights, and this is sometimes a convenient course in order to avoid
the need to
commence further proceedings involving additional cost and delay .... However it
is important that the distinction between
the two kinds of proceedings be not
lost sight of or blurred, and such a fundamental change should not be permitted
unless the court
is satisfied that those affected either consent to that course
..., or will not suffer injustice in consequence of the alteration
to the status
of the proceedings.
Goldberg J noted that the position stated in the first paragraph extracted
above had been adopted in a number of subsequent cases
and expressed in the
context of s 477D of the Corporations Law in Editions Tom Thompson
.
- In
Ansett , Goldberg J also considered the interaction between ss 447A and
477D, noting that the power conferred upon the court by s 447A (to make such
order as the court thinks appropriate about how Part 5.3A is to operate in
relation to a particular company) empowered the court to make an order that the
directions which the court may give
to an administrator pursuant to s 477D of
the Act include a direction approving an agreement entered into by the
administrators (that
agreement being the subject matter of an application for
directions), his Honour observing that in so doing what the court was doing
was
making it clear that it was appropriate for the administrators enter into the
agreement in the specific terms in which it was
executed and that they thereby
have the protection of the court in having done so.
- In
Crawford v Oswald Park [2006] NSWSC 987 at [12], Austin J applied the
reasoning in Re G B Nathan & Co in the context of a determination as
to whether the company should proceed with a distribution of the net balance of
the company's
surplus funds in accordance with the liquidator's draft plan of
distribution, although this involved a determination as to whether
certain
amounts were owing to the company (and thus went beyond the giving of directions
and amounted to a determination of substantive
rights) in circumstances where
not to do so would, his Honour said, "be sending them [the parties] away without
the 'just and beneficial'
exercise of the power that s 511(2) contemplates.
- The
alternative basis on which the present application is brought arises if it were
to be found that the administrator is a bare trustee
of some or all of the
artworks. In that case the application is made under section 63 of the
Trustee Act or otherwise under the inherent or implied jurisdiction of
the Court.
- It
is by no means apparent that Mr Arnautovic, as administrator of the corporate
plaintiffs, does hold any of the artworks as a trustee
(bare or otherwise) of
those artworks. The rental agreements in evidence suggest that unless the
artwork in question remained the
property of International Art Holdings (say,
because it had not been sold to an investor by the time the company went into
administration)
it is likely that one or other of the first and second
plaintiffs entered into an agreement with an investor under which they were
the
lessee (or at least the bailee) of those artworks the subject of such
agreements. There seems no basis for the imposition of
a trust where the
relationship is governed by a contract that itself makes provision for the basis
on which the goods are held by
those companies.
- Assuming
for the moment that Mr Arnautovic were to be a bare trustee of at least some of
the artworks, s 63(1) would permit him as trustee to apply to the Court for an
opinion, advice or direction on any question respecting the management or
administration of the trust property, or respecting the interpretation of the
trust instrument. Here it is said that the questions
arise in the management or
administration of the trust property.
- Mr
Stack referred to the statement of general principles relevant to applications
of under s 63 to be found in Macedonian Orthodox Community Church v His
Eminence Petar the Diocesan Bishop of the Macedonian Orthodox Diocese of
Australia and
New Zealand [2008] HCA 42; (2008) 237 CLR 66 at [54] to [75] and, in
particular, to the recognition by the High Court (at [70] to [71]), that the
proper purpose for seeking judicial
advice includes relief aimed at resolving
legitimate doubts held by the trustee as to the proper course of action and
protecting
the trust and those entitled to it.
- As
a general rule, however, (see Jacobs' Law of Trusts in Australia (7 th
edn) [at 2134]), where the question concerns the respective rights of
beneficiaries or their identity, it is not considered
appropriate to give a
trustee opinion or advice under s 63; rather the proper procedure is by way of
originating summons where all parties are served and have the opportunity to be
heard (the
authors there referring to Re Kirkegaard [1950] St R Qd 144;
Re Petersen [1920] St R Qd 42).
- In
the Macedonian Church case, in the Court of Appeal [2006] NSWCA 277,
Beazley and Giles JJA said that:
... An application for judicial
advice is an inappropriate process to resolve disputes between trustees or to
settle disputes between
parties to a trust. If the Court is of the view that
determining an application would determine a dispute it may refuse the
application
outright. ( Harrison v Mills [1976] 1 NSWLR 42, [44 - 45];
Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 )
- This
seems to me to pose a difficulty on the present application since what is sought
would in effect permit the administrator to
make a determination as to rights or
entitlements of competing claimants in respect of the disputed artworks in
circumstances where
those claimants had not had an opportunity to have their
claim heard in the appropriate forum. That makes the exercise of power under
s
63 (or for that matter s 479(3) of the Corporations Act ) inappropriate
in my view at least for the making of orders as sought in relation to the
disputed artworks, although it does not
mean that no directions can usefully be
made in order to facilitate the resolution of disputes as to their ownership in
the most
expeditious and least costly way, in the interests of the overall
administration of the corporate plaintiffs.
- With
the above principles in mind, I turn then to the particular classes of artwork
in respect of which the administrator seeks advice.
Schedule A - Disputed artworks
- When
the matter was before me for hearing there were 100 artworks in respect of which
Mr Arnautovic had identified that two or more
persons had claimed or might be in
a position to claim ownership of the artwork. (One of those persons is Mr Uri.)
Mr Arnautovic
deposed to a concern that if he were to return the artwork to the
wrong person, he might incur a liability. (Since the hearing, competing
claims
in relation to some 19 of those 100 artworks have, as I understand it, been
resolved and my associate was informed that those
artworks had been removed from
Schedule A and now appear in a further updated Schedule B. That does not affect
the nature of the
issues raised on the present application but an application
for leave to file amended schedules when this judgment is handed down
has been
foreshadowed.)
- Mr
Stack notes that it may well be that the application of section 28 of the
Sale of Goods Act 1923 (NSW) and section 5 of the Factors (Mercantile
Agents) Act 1923 (NSW) would determine the question of title to the disputed
artworks (such that the subsequent purchaser for value, in good faith
and
without notice, would have the better title to the relevant artwork), but
concedes that this determination requires a consideration
of both fact and law.
- The
"just, quick and cheap resolution" to this issue is said to be to appoint the
administrator as receiver of the artworks with a
view to selling the artworks
and distributing the net proceeds amongst the claimants in equal shares (where
the administrator is
satisfied that each of the claimants has an interest in the
artworks in question). However, to the extent that the proposal contemplates,
in
effect, conferring power on Mr Arnautovic to determine whether a claimant has
established an interest in the property. I am not
satisfied it is appropriate to
do. It cannot be, for example, that successive investors are in a position to
establish equal title
to the artworks - the interest of one must as a matter of
law prevail over the other (unless they purchased in a joint capacity and
thus
had an interest as joint owners). While I accept that there is much to be said
for a practical solution that enables an expeditious
and cheap resolution of
competing claims, it must also be one that produces a just result.
- I
do not consider it appropriate to exercise power under the relevant sections of
the Corporations Act and Trustee Act in order to determine
ownership disputes as between competing claimants where those claimants have not
had (or may not have appreciated
that they had) an opportunity to be heard on
the question.
- Mr
Uri, for example, attended the Court in person with paperwork in order to
demonstrate his title to the artwork in question. He
tendered (Exhibit 2) a copy
of the claim he had made to an artwork identified as "Flinders Ghost edition
20/45" (but said to have
been wrongly listed on the initial catalogue of the
artwork simply as "Ghost"). Mr Uri produced an artwork sales report (showing
that there were 3 editions of the said "Flinders Ghost" artwork - one, edition
20/45 listed as having been sold to him, one "tbc/45"
listed as having been sold
for the same price to a "veronica" - her surname having been redacted on the
copy in evidence and one
being "available"); an order form in relation to that
purchase dated 6 January 2011; and a tax invoice dated 9 October 2009 but making
reference to the order number in the 2011 tax invoice referring to Flinders
Ghost. He also produced a redacted copy of an order form
of the same date to
'veronica' in which, among the listed items, is the same description of the
Flinders Ghost artwork but with the
reference (tbc/45) and a tax invoice again
redacted to 'veronica and dated 15 October 2009.
- Mr
Uri attached copies of photos described as having been taken during the viewing
at the gallery of the artwork (though there identifying
it as edition 20/65) and
an inventory in which the artwork 20/45 was listed.
- On
the face of the documentation produced, Mr Uri clearly has a reasonable basis to
claim an interest in the artwork. There is nothing
to suggest that he did not,
as the company's records appear to state, acquire the artwork for the amount
stated in the tax invoice.
However, there is uncertainty as to the status of any
claim by 'veronica' to that same artwork. (It may be that the reference 'tbc',
which I assume to mean 'to be confirmed' indicates that there was another
edition number - and hence a different piece of artwork
was assigned to her;
alternatively, it may be that the same actual piece of artwork was assigned to
her - giving rise to potential
claims as to whose claim should prevail). It is
said by Mr Uri that 'Veronica' would have an incentive wrongly to assert a claim
to ownership of this piece of artwork if, by so doing, she can share equally in
the proceeds of sale of the artwork and recover more
than she would otherwise be
able to do. (Of course, there may be an incentive to make such a claim whether
or not the administrator's
proposed method of distribution between competing
claimants were to be adopted.)
- Relevantly,
also, Mr Uri (not unreasonably) says that he does not want the artwork to which
he says he can prove title to be sold
(which is what the administrator's
proposal contemplates in the absence of an agreement being reached between the
competing claimants).
- I
do not consider it appropriate to determine (in the absence of a contested
hearing) the entitlements as between Mr Uri and 'Veronica'
(or as between any
other of the disputants) to the disputed artworks. I appreciate that this gives
rise to the prospect of what may
be numerous relatively small claims (with the
consequential cost and delay in finalising the administration of the corporate
plaintiffs
that this would involve). However, that does not seem to me to
overcome the problem that the making of orders of the kind sought
would deprive
persons who may have a valid claim to the property (that being property in which
the company does not assert any ownership
interest) without a fair hearing.
- I
am, however, also conscious that it cannot be in the interests of creditors for
the administration to be prolonged pending a succession
of what may well be
relatively small cases (in which the administrator's only interest would be the
recovery of the costs of storage
and the like), in order to determine the true
owner of the disputed artworks.
- It
seems to me that the practical solution is put in place a regime to ensure that
competing claimants who wish to assert rights to
any of the disputed artwork
(and who do not wish that artwork to be sold before their claims are determined)
be required to provide
security for the costs of storage and insurance of the
artwork pending the determination of the dispute. In effect, if the
administrator
then would be no more than a bare custodian of the artwork pending
determination of the dispute, then the position of creditors and
contributories
of the company should not be prejudiced by the delay in the determination of the
administration. (If agreement were
able to be reached between competing
claimants as to a regime for storage of the disputed artwork that permitted the
administrator
to release it to some other stakeholder, that would also seem to
me to be a reasonable way in which equitably to balance all of the
interests at
stake.) Further, if it transpired later that a person had pursued a baseless
claim to an interest in the disputed artwork
(which seems to be what is feared
by Mr Uri) that could potentially be dealt with by reference to costs orders at
the end of the
day.
- That
said, it seems to me that if none of the competing claimants to a disputed
artwork is prepared, pending determination of the
dispute between themselves, to
provide security for the storage/insurance costs of the specific artwork over
which they have competing
claims, then the administrator should be appointed as
receiver to sell the artwork and the proceeds (after deduction of the
administrator's
costs of dealing with it) should be paid to a stakeholder or the
court pending determination of the question as to who (as between
the competing
claimants) as a matter of law had the better title to the artwork.
- The
first step in this exercise should be to ensure sufficient notification to the
competing claimants of the process that is to be
adopted in relation to the
artwork in order to afford them an opportunity to preserve the painting (rather
than to have it sold and
then to have a dispute as to who was entitled to the
proceeds).
- In
Mr Uri's case, as I endeavoured to make clear during the hearing last week, I do
not consider that it is appropriate for me to
determine his claim to ownership
of the Flinders Ghost 20/45 edition in the absence of the identified competing
claimant ('veronica')
having an opportunity to put forward such case as she may
have in relation to this particular artwork.
- Finally,
I note that Ms Drolz proffered the suggestion that if the administrator were to
be the person looking at the legitimacy of
competing claims (and, as noted
above, I do not think that it is his function to make any binding determination
as to those matters)
then this should be done before any sale of the artwork (as
I understand it, on the basis of her view that this would perhaps "avoid
a sale
at fire sale rates"). (It is not apparent to me that a sale of disputed artwork
would be at 'fire sale' rates but, in any
event, in balancing the interests of
all the parties the question as to who should bear the ongoing storage and
insurance costs pending
determination of the disputed ownership issues would
inevitably arise and it is that concern that leads me to conclude that the
administrator
should be appointed as receiver to the assets for their sale if
those costs are not met by the competing claimants.)
Schedule B - Levy artworks
- There
were, as at the hearing, 121 artworks where the owner of the artworks has been
identified but the artworks have not yet been
returned to the owner (these being
listed in schedule B to the Further Amended Originating Process). (That number
has increased as
the number of artworks listed as disputed artworks has
decreased.) Mr Arnautovic does not assert any claim to these items but does
assert an entitlement to a lien (either equitable or statutory) over those
artworks for the costs and expenses associated in collecting
and protecting
those artworks and in attempting to identify the owner of those artworks.
- The
striking of a levy was the means by which the administrator sought to recover
those costs and expenses in what he (not unreasonably)
considered to be an
equitable way as between the various owners. As indicated earlier, the amount of
the levy was struck on a sliding
scale in accordance with the value of the
relevant artworks and it is, in that sense, relatively arbitrary. in the case of
the artworks
with a specified value of $5,000 or more, a levy of $500 was
notified; for artworks with a specified value of between $1,500 and
$4,999.99, a
levy of $300 was struck; and for artworks with a specified value of less than
$1,500, a levy of $100 was charged. It
was described, at least in some
communications (as highlighted in Ms Drolz' affidavit) as a voluntary levy,
although Mr Arnautovic
has not been prepared to release artworks to acknowledged
owners until the levy is paid (and hence there is an element at least of
some
practical compulsion on those who seek recovery of the levy artwork).
- In
the absence of agreement being reached with all of the owners of artworks in
this category, Mr Arnautovic seeks a declaration that
he has either an equitable
or a statutory lien over these artworks (for his costs and expenses of dealing
with the artworks); and
orders for his appointment as receiver of the levy
artworks and entitling him to sell those artworks) where the levy is not paid
within 21 days of the making of such orders (and to deduct the amount referable
to his remuneration before remitting the surplus
funds to the owners).
- Such
a regime, in a practical sense, would compel an owner of levy artwork to pay the
levy or else accept the balance of the proceeds
of sale on what might be seen to
be a forced sale by the administrator (in his then capacity of receiver of the
goods).
- When
an administrator is appointed, he or she can usually look to the assets of the
company in administration in order to meet his
or her proper remuneration and
liabilities properly incurred. Section 443D of the Corporations Act gives
an administrator an entitlement to be indemnified out of the 'company's
property' for his work and this indemnity is secured
(pursuant to s 443F) by way
of a 'statutory lien' over the 'company's property'. Thus the administrator has
a statutory indemnity over the assets of the
company and as such is entitled to
a lien. The lien covers not only remuneration, but also the administrator's
costs and expenses
properly incurred ( Re Application of Central Commodities
Services Pty Ltd [1984] 1 NSWLR 25 at [27] per Needham J). This principle
may also apply to a privately appointed receiver (Austin & Black's
Annotations to the Corporations Act at [5.425]).
- Whether
Mr Arnautovic can rely upon a statutory lien over the levy artwork for
the costs and expenses of dealing with that artwork turns on whether the
artworks in his possession
are the "property" of the company for the purposes of
the statutory provision.
- While
Mr Arnautovic has not asserted any property in the sense of a right to ownership
of the levy artworks, it seems to me that,
at least in relation to artworks
governed by a leasing arrangement of the kind Ms Drolz relies on in relation to
her superannuation
fund, the company does have a proprietary right insofar as it
is described as a lessee of the artworks.
- Section
9 of the Corporations Act defines "property" to mean:
Any legal or equitable estate or interest (whether present or future and
whether vested or contingent) in real or personal property
of any description
and includes a thing in action.
- Mr
Stack notes that in ASIC v Carey (No 6) [2006] FCA 814; (2006) 58 ACSR 141, French J (as
his Honour then was) said, at [29], that this "definition and its various
elements should not ... be narrowly construed".
- If
International Art Holdings is in fact the lessee of any of the artworks in
question, then it has property in the sense of a leasehold
interest in them and
this is property over which the administrator's statutory lien could then
attach. The position is less clear
where it is a mere bailee.
- It
is submitted by Mr Stack that the interest which a bailee ordinarily has in a
chattel is an interest which satisfies the wide definition
of "property" in the
Corporations Act , noting that at common law, the bailee, as the
possessor of a chattel, has a better title as against the rest of the world save
the
true owner. (So, for example, a bailee's possession entitles the bailee to
exercise any and all remedies of a true owner - so as
to recover the full value
of the chattel damaged by a third party, or to sue in trespass or for
conversion, Mr Stack referring in
this regard to Specialised Transport v
Domimak (1989) 16 NSWLR 657 at 663F and Bailment (Palmer) 2nd edition
at 308 . )
- It
is also noted that where a bailee has the benefit of a lien over chattels, the
bailor is required to honour that lien and cannot
recover the chattels unless
and until the lien has been satisfied ( Standard Electric Apparatus
Laboratories Ply Ltd v Stenner (1960) WN (NSW) 833 at 836; [1960] NSWR 447
at 450-451).
- Thus
Mr Stack asserts a statutory lien in respect of the administrator's costs and
expenses charged against the artworks even if the
administrator is no more than
a bailee of those artworks.
- (In
the context of the bailment argument, Ms Drolz argued that, as a bailee,
International Art Holdings could have no greater priority
of title or rights
than those attaching to her rights as trustee of the superannuation fund (and
that those rights did not extend
to a right to grant a lien over the artwork).
This argument was put as being a very strong public policy reason against the
imposition
of a lien in the present case.
- As
I understand her submission, Ms Drolz contends that because she, as trustee of a
superannuation fund, cannot allow a lien to be
asserted over the assets of the
fund, this has the effect that the administrator cannot seek to have such a lien
imposed (an argument
sought to be illustrated by reference to the analogy of an
administrator asserting title to a house including a granny flat if there
were
in fact no granny flat there T 19.15-18; and an analogy of an administrator of
an insolvent manufacturing company that had leased
premises refusing to return
the premises to the owner unless the owner had paid the cost of removing the
equipment on the property
- T 19.36). Ms Drolz expressed concern at the prospect
that "the locus of the assets that an administrator can access in this kind
of
situation continues to spread", by which I understood her to be suggesting that
there was a public policy concern in not permitting
the administrator to be able
to seek the imposition of a lien over assets in the possession of the company if
the owner of the assets
could not itself have created such a lien. I consider
these submissions later in the context of whether an equitable lien should
be
imposed. However, for present purposes I do not consider that the fact that a
bailor might be prohibited from granting a lien
over the property bailed to a
bailee (assuming that is the case here) precludes the bailee asserting a lien
over the property in
its possession by reference to circumstances that have
arisen during the course of the bailment and I have found no authority to
that
effect.
- As
noted earlier, I consider that the interest as lessee of artwork the subject of
a rental agreement is an interest in property to
permit the creation of a
statutory lien. I am not satisfied that even giving the definition of property a
broad scope, it would mean
that a possessory interest was sufficient. However,
nothing ultimately turns on this as I consider that even if the interest of
International
Art Holdings in the artworks does not satisfy the definition of
the "company's property" for the purposes of a statutory lien, Mr
Arnautovic is
able to maintain his claim for an equitable lien. In this regard, Mr Stack
relies on the authorities that have held
that the statutory lien provided under
section 443F does not replace or prevent an equitable lien ( Commonwealth
Bank v Butterell (1994) 35 NSWLR 64 at 71; Weston v Carling Constructions
Pty Ltd [2000] NSWSC 693; (2000) 35 ACSR 100 at [18]; Lockwood v White [2005] VSCA 30; (2005) 11 VR 402
at [34]; and Coad v Wellness Pursuit Pty Ltd [2009] WASCA 68 at [60] to
[64].)
- An
equitable lien has been described as "an equitable remedy, created by the court,
regardless of the intent of the parties , as a remedial device to protect
a party against some inequitable loss" (McClintock, Handbook of the
Principles of Equity (2 nd edn) p 118 (my emphasis), as quoted in
Stephenson Nominees Pty Ltd v Official Receiver (1987) 16 FCR 536 per
Gummow J, then sitting in the Federal Court, at [554]).
- An
equitable lien does not depend upon either contract or possession. It arises by
operation of law under equitable doctrine as part
of a scheme of equitable
adjustment of mutual rights and obligations ( Hewett v Court [1983] HCA 7; (1983 46 ALR
87 at [90] per Gibbs CJ and Davies v Littlejohn [1923] HCA 64; (1923) 34 CLR 174 at
[185] per Isaacs J). It is a right against property that arises automatically by
implication of equity to secure the discharge of an actual
or potential
indebtedness ( Hewett v Court at [104] per Deane J). In Coad v
Wellness Pursuit Pty Ltd (in liq) [2009] WASCA 68; 71 ACSR 250 (paragraph 4) it was said that
an equitable lien arises in any circumstances where equity considers that
fairness dictates.
- It
has been said that an equitable lien "makes the administrator a secured
creditor" and, to the extent that it attaches, gives the
administrator priority
over the secured creditors referred to in s 556 of the Corporations Act (
Hamilton v Donovan Oates Hannaford Mortgage Corporation Ltd [2007] NSWSC
10; (2007) 61 ACSR 82 at [26]; Shirlaw v Taylor [1991] FCA 415; (1991) 31 FCR 222;
Weston v Carling Constructions Pty Ltd [2000] NSWSC 693; (2000) 35 ACSR 100).
- The
rationale for the imposition of an equitable lien in this context was considered
by the Full Federal Court in Shirlaw v Taylor . Sheppard, Burchett and
Gummow JJ there said at [228] that:
"[I]n addition to equitable liens arising from contractual dealings in
property, equity may impose liens based either upon general
considerations of
justice or upon the principle that he who seeks the aid of equity in enforcing
some claim, for example in the administration
of assets, must admit the
equitable rights of others directly connected with or arising out of the same
subject matter.
- In
the present case, the equitable lien sought is of the kind described in Re
Universal Distributing Co Ltd (in liq) [1933] HCA 2; (1933) 48 CLR 171 by Dixon J, namely,
a lien to which an official who has incurred expenses in assembling a fund for
the benefit of creditors is entitled,
in relation to the fund, to priority over
a secured creditor who derives benefit from the assembling of the fund. As
Barrett J stated
in Hamilton v Donovan Oates Hannaford Mortgage Corporation
Ltd at [18]: "[t]he lien arises from the principle that the fund itself must
bear the costs of realisations and other actions involved
in its creation, with
those costs being satisfied out of the fund before striking the balance
available to the secured creditor and
thereafter to creditors generally."
- Similarly,
in Re Application of Central Commodities Services Pty Ltd Needham J noted
that the powers of the court to impose an equitable lien in this context are
derived from the general equitable principle
that such an administrator or
receiver, as an officer of the court, working for the benefit of all who have
legitimate interests
in the assets, is entitled to look to the assets of the
company of which he is an administrator to meet his remuneration and his
liabilities and outgoings (see also, for example, Moodemere Pty Ltd (in liq)
v Waters [1988] VicRp 31; [1988] VR 215 at [229-30] per Tadgell J and Clark
Equipment Credit of Australia Ltd v Como Factors Pty Ltd (1988) 14 NSWLR 552
at [568 ] per Powell J). Sir John Romilly MR in Bertrand v Davies [1862] EngR 968; (1862)
54 ER 1204 at [1207] similarly said:
Where a receiver or manager is
appointed by the court, in a suit properly constituted, such manager is to be
considered as appointed
on behalf of all persons interested in the property, and
he is entitled to his ordinary commission and allowance, and also to a lien
on
the estate, as against all persons interested in it, for the balance, whatever
it may be, that shall be found due to him on taking
his accounts.
- In
Shirlaw v Taylor, Sheppard, Burchett and Gummow JJ observed at [560]
that, in addition to the anxiety of the court to protect the position of its
officer
(particularly lest there be in the future an absence of persons willing
to take such appointments), the claims of the officer under
a court appointed
administration may be seen as in the nature of "salvage":"The principle is that
those taking benefit of the administration
should not escape bearing the burden
of the proper cost of it." (see also, for example, Matter of Tharp [1852] EngR 659; (1852)
65 ER 533).
- Again
in re Berkeley Applegate (Investment Consultants) Ltd (in liq); Harris v
Conway [1988] 3 All ER 71, Edward Nugee QC, sitting as Deputy Judge of the
High Court, stated at [83] that there was:
... a general principle that where a person seeks to enforce a claim to an
equitable interest in property, the court has a discretion
to require as a
condition of giving effect to that equitable interest that an allowance be made
for costs incurred and for skill
and labour expended in connection with the
administration of the property. It is a discretion which will be sparingly
exercised ; but factors which will operate in favour of its being
exercised include the fact that, if the work had not been done by the person
to
whom the allowance is sought to be made , it would have had to be done
either by the person entitled to the equitable interest (as in Re
Marine Mansions Co (1867) LR 4 Eq 601 and similar cases) or by a receiver
appointed by the court whose fees would have been borne by the trust property
(as in Scott v Nesbitt [1808] EngR 39; 14 Ves Jun 438); and the fact that the work
has been of substantial benefit to the trust property and to the persons
interested in it in equity (as in Phipps v Boardman [1964] 1 WLR
993). (my emphasis)
- It
seems to me that this reasoning is not limited to the position of an
administrator or receiver appointed by the court but should
extend to a person
performing the function of an administrator appointed under the provisions of
the Corporations Act . (The safeguard for those on whom the burden of the
lien falls is that the costs and expenses of one who has by his efforts brought
into court a fund for administration must be reasonably and properly incurred.)
- As
noted by Mr Stack, an equitable lien arises in a "diversity of cases" where the
"general principles of justice" support such a
lien ( Hewett v Court
[1983] HCA 7; 149 CLR 639 at [7], page 646) and examples of cases where such
a lien will arise when a person has employed a material part of his/her time and
energy
for the "care, preservation and realisation of the property" are numerous
(for example , Re Universal Company Ltd [1933] HCA 2; 48 CLR 171 at 174;
Shirlazv v Taylor ( [1991] FCA 415; 1991) 31 FCR 222; 5 ACSR 767 at 776; Commonwealth
Bank v Butterell (1994) 35 NSWLR 64 at 70; Re Application of Sutherland
[2003] NSWSC 1008; (2003) 59 NSWLR 361 at 422ff; Grossman v E Katz Manufacturing Jewellers
[2004] NSWSC 1224; (2004) 213 ALR 373 at [6] ff; Dean-Willcocks v Nothmtoolmrd [2006]
NSWCA 311 at [9] and [62] to [65]; and Coad v Wellness Pursuit Pty Ltd
[2009] WASCA 68 at [60] ff).
- Do
the interests of justice in this case warrant the imposition of an equitable
lien? As noted earlier, Ms Drolz has argued against
the imposition of an
equitable lien on two bases - first, that it will operate to her detriment in
depriving her superannuation fund
of its protected status (having assets
unencumbered by any such lien) and, secondly, on the basis that she disputes
having obtained
any real benefit from the administrators' efforts in relation to
the preservation of the artworks and identification of claims thereto.
- I
address those issues as follows.
Effect on superannuation status of fund
- I
am not satisfied that the concerns Ms Drolz has raised as to the consequences of
the imposition of a lien on her superannuation
fund, are soundly based.
- Ms
Drolz referred to regulation 13.14 of the Superannuation Industry
(Supervision) Regulations 1994 (Cth) (the SIS Regulations) and submitted
that this regulation precludes her, as trustee of the superannuation fund, from
allowing
a lien to be imposed on the assets of the fund. Regulation 13.14
provides that:
For the purposes of subsections 31(1) and 32(1) of the Act, it is a standard
applicable to the operation of regulated superannuation
funds and approved
deposit funds that, subject to regulations 13.15 and 13.15A, the trustee of a
fund must not give a charge over,
or in relation to, an asset of the fund.
- Section
31 of the SIS Act gives the power to prescribe standards applicable to the
operation of regulated superannuation funds, by the making of regulations.
The
operating standards are, in effect, a set of rules governing the operation of
regulated superannuation funds (and other funds).
Compliance with the standards
is necessary to achieve the status of a complying fund and hence to qualify for
income tax concessions
available to complying funds. Section 34 of the SIS Act
requires each trustee of a superannuation entity to ensure that the prescribed
standards applicable to the operation of the superannuation
fund are complied
with at all times.
- Regulation
13.14, in its terms requires trustees of regulated superannuation funds (and
approved deposit funds) not to give any charges
over or in relation to, fund
assets. This is a standard that must be complied with for 'complying fund
status' to be afforded to
the superannuation fund. ( The Law of
Superannuation in Australia at [81,250]). I assume that when Ms Drolz refers
to the superannuation fund assets losing their "protected status" upon the
imposition
of an equitable lien, she is referring to their 'complying fund
status' in the context of regulation 13.14.
- From
the time a regulated fund lodges its election to become a superannuation fund,
it must ensure that it meets all of the requirements
and prudential standards of
the SIS Act.
- As
noted, it is 'complying superannuation fund status' under Pt 5 ss 37 - 50 of the
SIS Act that qualifies the fund for income tax concessions. Broadly speaking, a
complying superannuation fund is a fund that has received
an unrevoked notice
from the Regulator (APRA or the Tax Office) stating that the fund is a complying
superannuation fund in relation
to the income year and has not subsequently
received a notice that it is not a complying fund ( Australian Superannuation
Handbook, 2010-11, Stuart Jones, at [2,400]).
- Section
42(1) of the SIS Act provides that a fund (other than a self-managed fund) is a
'complying superannuation fund' in relation to a particular year of income
if
the following conditions are satisfied:
(a) either:
(i) the entity was a resident regulated superannuation fund at all times
during the year of income when the entity was in existence;
or
(ii) the entity was a resident regulated superannuation fund at all times
during the year of income when the entity was in existence
other than a time,
before it became a resident regulated superannuation fund, when the entity was a
resident approved deposit fund;
and
(b) either of the following conditions is satisfied:
(i) no trustee of the entity contravened any of the regulatory provisions in
relation to the entity in respect of the year of income;
(my emphasis)
(ii) both: (A) a trustee of the entity contravened one or more of the
regulatory provisions in relation to the entity in respect of
the year of income
on one or more occasions; and (B) the entity did not fail the culpability test
set out in subsection (1A) in relation
to any of those contraventions; and
(c) the entity was not a self-managed superannuation fund at any time during
the year of income .
- Ms
Drolz' superannuation fund, according to the materials contained in Exhibit 1,
is a regulated self-managed fund with 'complying'
status.
- Under
s 42(1)(b)(i) of the SIS Act, a contravention of any of the regulatory
provisions by the trustee will result in the superannuation fund losing its
'complying
fund status' for the respective income year.
- Ms
Drolz' submission, as I understand it, is that if she, as trustee, "allows" an
equitable lien to be imposed over the superannuation
fund assets, she will be in
contravention of regulation 13.14 of the SIS Regulations and will not satisfy
the requirement in s 42(1)(b)(i) of the SIS Act. Her submission is thus that the
superannuation fund of which she is trustee will thereby lose its 'complying
fund status' if an
equitable lien is imposed over its assets.
- However,
regulation 13.14 in its terms applies only to the imposition of a charge or lien
by the trustee of a superannuation fund. It seems to me that this is
distinguishable from the situation in which the court imposes an equitable lien
or a statutory lien arises as a matter of law.
- The
SIS Act and Regulations do not address the situation where the court in the
exercise of its discretion imposes an equitable lien on the assets
of a
superannuation fund. It does not seem to me that there is in that instance any
basis on which it might be said that the trustee
had 'allowed' the creation of a
charge over the assets of the fund (and, were that to be the case, then it could
hardly be said that
Ms Drolz has 'allowed' something that occurs over her
objection).
- Of
course, there might conceivably be an argument that Ms Drolz has 'allowed' a
situation to occur in which a lien is later imposed
by the court by refusing to
pay the levy imposed by the administrator. It seems to me that this would be
drawing a very long bow.
(However, if there were a reasonable basis for such a
concern it would be met by not imposing the lien until after a period in which
Ms Drolz would have the opportunity to pay what she says is the relatively
trivial amount required to be paid by way of levy.)
- Ms
Drolz submits that it is not in the public interest or good public policy for an
equitable lien to be imposed over assets of a
superannuation fund. I am not
satisfied that there is anything in the SIS Act that compels the conclusion that
a statutory lien arising under the Corporations Act or an equitable lien imposed
in the general interests of justice would be against public policy.
- Therefore,
the only question is whether it is appropriate to do so in the circumstances. I
have considered the general principles
in that regard above and, subject to
consideration of the second issue raised by Ms Drolz, I am satisfied that it is
appropriate
to do so.
- For
completeness I note that Ms Drolz also submitted that under clause 6(g) of the
Rental Agreement, International Art Holdings is
prohibited from granting a lien
over any of the artworks in its possession. I have set out clause 6(g) earlier.
I do not accept that
this operates as a contractual matter to preclude
International Art Holdings from seeking the imposition of an equitable lien in
the circumstances that have arisen or that it precludes it from invoking a
statutory lien arising from the operation of the provisions
in the
Corporations Act .
Benefit from administrator's efforts
- In
the alternative, Ms Drolz submits that even if it is, in the circumstances,
appropriate for the Court to impose an equitable lien
over the artworks held in
the possession of the administrator (in order to reflect the work undertaken to
recover and identify the
artworks to which the investors have a claim), the
amount of work that has been undertaken by the administrator is excessive and
unnecessary.
- Ms
Drolz claims that the present circumstances can be differentiated from those in
Crouch Re: Heritage Fine Wines [2007] NSWSC 1055; (2007) 214 FLR 244 and
Coad , in that the body of work undertaken by the administrators in those
cases was very substantial and technical, and required hours
of labour which
directly benefited the people involved. She submits that the level of work
undertaken by the administrators was vitally
necessary in those cases, and not
something that an ordinary person could do. Ms Drolz contends that the present
circumstances can
be distinguished in that an ordinary person could have
completed the tasks of the administrator, and she asserts that such a person
could have done so in a significantly more efficient and effective manner.
- Ms
Drolz provides examples of particular enquiries made by the administrator in
respect of the location of artworks belonging to the
superannuation fund of
which she is trustee. She claims that the process undertaken to make those
enquiries was far too cumbersome
and unnecessary. She contends that when she
herself attempted to make the same enquiries herself, the work involved was very
minimal.
Ms Drolz does not believe that the administrator should be indemnified
out of the assets of the fund on the basis of what she submits
was, more often
than not, futile work.
- Ms
Drolz seems to have been actively involved in the investigation of competing
claims, as a member of the Committee of Creditors
and has a firm view as to the
usefulness of the tasks undertaken by the administrator. However, I do not
accept that the procedures
undertaken by Mr Arnautovic and his staff were not
properly engaged in by them (and ultimately the responsibility lies with the
administrator
not the Committee of Creditors - in that regard I note the
consideration given by Barrett J to the role of the committee in the context
of
a liquidation in the case of the winding up of OneTel - see Onefone Australia
Pty Ltd v One Tel Ltd [2010] NSWSC 1120).
- Ms
Drolz deposed in her affidavit (and expanded on this from the bar table) to
investigations and inquiries that had been carried
out by her (such as her
review of a CRM spreadsheet provided to her by a particular investor) and
suggested that the steps that had
been taken by the administrator had been
unreasonable and excessive. Ms Drolz says that the level of work was work
carried out by
the administrator was either not required or was work which could
have been dealt with much more efficiently.
- In
particular, Ms Drolz submits that the factors that worked to elevate the
administrator's claim to an equitable lien in the Coad case are not
relevant in the present case (namely that, there, the people who benefited from
the administrator's work had known that
the administrator was going to be
appointed and could have prevented this, thus acquiescing in his conduct, and
that had the administrator
had not done the work then they would have had to pay
someone to do it for them). Ms Drolz submits that here there was not much effort
involved in placing the items in storage and there was not anything done by the
administrator that she could not have done herself.
(She dismisses the efforts
of the administrator in resolving retention of title claims from unpaid artists
on a similar basis). Ms
Drolz also criticised the cursory nature of the
investigations she said had taken place (by reference to an example as to
failure
to check inventory tags, which Ms Drolz submits establishes that some of
the disputed artwork claims had no substance).
- As
to this issue, it seems to me not surprising that in an administration of this
complexity there may be instances when there were
omissions from schedules or
misdescriptions of artwork or the like. To the extent that errors may have been
attributable to Grays
Auctioneers, it is difficult to see that the administrator
should bear the cost of those by being deprived of compensation for his
efforts.
- Further,
I do not accept that someone in Mr Arnautovic's position, with responsibilities
of the kind he has as an administrator, can
be criticised for being careful to
ensure that the artworks were identified, located and preserved pending a
determination as to
who had an interest in those artworks. I do not think it
likely that the overall task was as simple as Ms Drolz suggests or as it
may
indeed have been in the case of individual pieces of artwork. It could not have
been open to Mr Arnautovic, for example, simply
to rely on what he may have been
told by particular investors as to their entitlements or to accept at face value
what he might have
been told by Mr Hall or his staff - he was required to verify
information given to him by them and by the company and its officers.
As Mr
Stack submits, the fact that ultimately the administrator was satisfied as to Ms
Drolz' entitlement to the artworks in question
(and that there was no competing
claimant thereto) does not mean that he should not have carried out the exercise
in the first place.
- Ms
Drolz directed my attention to Crouch v Lynne Adams [2006] NSWSC 1029 in
which White J gave directions to the liquidator pursuant to s 511 of the
Corporations Act as to the basis on which he would be justified in dealing with
certain vending machines in the company's possession. In that case
there were
various categories of vending machine (not unlike the existence of the different
categories of artwork in the present
case, though there more numerous) depending
on whether an owner could be identified or whether there were multiple
purchasers or
whether the machines sold were not capable of identification or
were the subject of buy-back arrangements or, finally, were not the
property of
any investor or investors. In relation to the first category, his Honour said
that the liquidator was justified in acting
on the basis that he was "entitled
to a lien for reasonable remuneration for work done in the identification,
preservation, or realisation
of the property" and that such a lien was
enforceable against the property that have been identified preserved or realised
notwithstanding
that it belonged to the investors and not to the company (at
[20]). (His Honour also considered it appropriate to provide the advice
under s
511 notwithstanding that in many cases the directions so made might well have
the practical effect of dictating the course of the liquidation
and the amounts
received by different classes of investors).
- His
Honour expressly held that the liquidator (who there also had proposed raising
voluntary levies) would be justified in not delivering
the machines to investors
if the investor had not agreed to pay the levy and that the liquidator in such a
case might apply for an
order authorizing him to sell the machine to give effect
to the lien. His Honour was satisfied as to the reasonableness of the costs
and
expenses on the basis of which the levy had been calculated.
- Ms
Drolz sought to distinguish that case on the basis that she considered his
Honour (when noting that the lien was enforceable against
property belonging to
the investors not the company) had not implied that the issue as to whether or
not the property was that of
the company was irrelevant but should be understood
as meaning that this was a factor to be weighed against the body of work done
and the benefit produced to the property owner by the party asserting the lien.
Ms Drolz asserted that where, as in the case of the
levy artworks, the property
was not that of the company then the work to be done by the administrator in
order to prove any right
to a certain lien had to be substantially more than if
the property were not that of the company. I do not read his Honour's judgment
as suggesting that there has to be a quantitative or qualitative increase in the
burden of work performed by the administrator in
order to justify a lien over
property belonging to investors. Rather, his Honour in approving the
liquidator's remuneration had regard
to the time consuming nature and complexity
of the work there involved and was satisfied that the remuneration claimed was
reasonable
(as am I in this case) and went on to note (at [59]) that the
liquidator was entitled to remuneration not only from the company's
property but
also from the property of investors which he had identified and preserved and
which he may realise (and had an equitable
lien to secure that entitlement).
There are obvious similarities between the issues there considered and those in
this case (albeit
that the property there in question was not as unique as the
artwork in this case - that distinction being a factor that has led
me to
consider that there should be a further process of advertisement in relation to
the unclaimed artworks before any sale and
that claimants to the disputed
artworks should have an opportunity to preserve the subject matter of the
dispute).
- I
do not accept that it was not for the benefit generally of investors that the
administrator carry out the tasks required in order
properly to satisfy himself
as to the identification of the artwork and the determination of those parties
with an interest or claimed
interest therein. Mr Stack points out that Mr
Arnautovic was obliged to consider matters such as retention of title claims
from artists,
liens asserted by framers and the like (and notes that Ms Drolz
herself has acknowledged the difficulty of identification of some
of the
indigenous artworks).
- It
seems to me that the criticisms made by Ms Drolz are largely made with the
benefit of hindsight and having regard to her own conclusions
as to what should
have happened. There may be instances in which her criticism is justified. I am
not satisfied, however, that in
the overall scheme of things there was no
benefit to owners of the levy artwork of the exercise in which the administrator
was necessarily
required to engage in order to identify and preserve artwork and
to determine potential claims in relation to the artwork before
acceding to
their claims to particular items of artwork (nor am I satisfied that there was
so little benefit as to warrant the view
that there should be no equitable lien
imposed on the artworks to secure the recovery of the administrator's costs and
expenses).
I do not accept that the tasks performed by the administrator were
all ones that an individual investor could have performed - the
fact that some
of them may have been is not to the point. I also consider that the evidence
establishes the reasonableness of the
amount of the proposed levy and the
fairness of the basis on which it has been calculated.
- In
summary, therefore, I consider that a statutory lien in respect of the
administrator's costs has arisen over such of the artworks
in respect of which
International Art Holdings has a leasehold interest. I have more difficulty in
seeing a possessory interest in
the artworks as "property" in this context even
having regard to the breadth of the definition in s 9 of the Corporations Act
. Ultimately, however, nothing turns on this because even in cases where
International Art Holdings is no more than a bailee of the
artworks, I am
satisfied that an equitable lien should be imposed on those artworks to secure
the reimbursement to Mr Arnautovic
of what I accept have been his reasonable
costs and expenses of dealing with the artworks.
Schedule C - Unclaimed artworks
- Schedule
C lists artworks where no claim of ownership has been made. There are some 76
items of artwork in this category. Mr Arnautovic
expressed surprise at the
number of items in respect of which no claim has been made on the basis that the
books and records he has
reviewed show only 16 artworks owned by International
Art Holdings and it was not the company's core business to purchase artwork
in
its own right. For what it is worth, Mr Arnautovic notes that Mr Hall maintains
that the books and records are accurate (though
given that they are said to be
incomplete I doubt that much assistance can be gained from this).
- Mr
Stack notes that possession of a chattel is prima facie evidence of ownership,
referring to what was said in Gatward v Alley (1940) 40 SR (NSW) 174 by
Jordan CJ at 180 :
De facto possession of a chose in possession is prima facie evidence of
ownership, and also of itself creates a legal right to possess
which is
enforceable against anyone who cannot prove that lie has a superior right to
possess: any person who interferes with this
legal right, without being able to
prove a superior right, is therefore a wrongdoer.
and also to Standard Electric Apparatus Laboratories at 450-451 (for
the proposition that if there is a lien attaching to artworks then the fact that
International Art Holdings is a bailee
does not preclude it holding onto its
artwork against the bailor) ; Perpetual Trustees & National Executors of
Tasmania Ltd v Perkins (1989) Aust Torts Reports 80-295 at 69,201-69,204;
Flack v Chairman, National Crime Authority (1997) 80 FCR 137; and
Hoath v Connect Internet Services [2006] NSWSC 158 at [152]).
- However,
Mr Arnautovic, not unreasonably, has expressed the concern that if he were to
sell a piece of artwork where no claim is currently
made then he may later be
sued by an investor who can establish ownership to that piece of artwork. He has
deposed to the belief
that if such artwork is not sold by him then he will have
no alternative but to disclaim interest in the artwork and that this may
also
give rise to claims by investors with costs incurred to the detriment of the
creditors of the company.
- It
cannot be in the interest of creditors for the unclaimed artworks to be
disclaimed (if there is no person asserting a better title
to them than the
administrator) or stored indefinitely at a cost to the company pending any such
claim being made. Whether the point
has been reached at which an investor may be
said to have abandoned any such claim is not, however, clear.
- Mr
Stack notes that s 442C(2)(c) has the effect that there can be a disposal by the
administrator of property in the possession of the company in administration,
but of which someone else is owner or lessor, if the leave of the court is
obtained (but sub-s (3) provides that the court may only
give such leave if
satisfied that arrangements have been made adequately to protect, relevantly,
the owner).
- Here
the difficulty is that it is not clear whether all of the unclaimed artworks
belong to the company or whether there is any person
with better title to the
unclaimed artworks. The orders proposed by the administrator would not enable me
to be satisfied as required
by s 442C(2)(c), if it were to be the case that the
rightful owner was a third party.
- It
seems to me that, provided there is adequate publication of the intention of Mr
Arnautovic to sell the unclaimed artwork (such
that the court can be confident
that all reasonable steps have been taken to draw to the attention of persons
who may consider they
have a claim to the artwork in question the need to
articulate such a claim), the view could properly be taken that there is no
other
person with better title than the company (or any such person has
abandoned any such claim).
- Therefore
in my view the appropriate course is to give directions for there to be a
further process of advertisement in relation to
the unclaimed artworks in order
to provide a final opportunity to ascertain if there is any legitimate claimant
to those artworks.
I note that Mr Arnautovic himself (see paragraph 59 of his
first affidavit) seemed to accept that there should be a further process
of
advertising the artwork in order to give the public a final opportunity to
notify of any claims to the artwork in question.
- In
Commonwealth v ABC2 Group Pty Ltd [2008] NSWSC 1383; (2008) 69 ACSR 229,
Barrett J (having noted that the court may appoint a receiver in a wide range of
circumstances and, notably,
whenever the interests of justice so warrant) said:
Appointments are most often made to protect the subject matter of legal
proceedings pending determination of those proceedings by
the court. But the
jurisdiction is wider than that. ...A receiver may be appointed to hold property
affected by a lien pending a
judicial sale.
- I
was also taken to what was said by Brereton J, in explaining the relevant
principles concerning a trustee's right of indemnity against
trust assets, in
relation to an equitable lien in Lemery Holdings v Reliance Financial
Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 (at [18]), namely that "..being an
equitable lien, the security is enforceable by the trustee only by judicial sale
or appointment of a receiver and not by foreclosure nor by sale out of
Court" (his Honour citing, inter alia, Hewett v Court and Davies v
Littlejohn ).
- I
am not satisfied that I should make a declaration as to the ownership of the
unclaimed works given the objective unlikelihood that
the company had retained
ownership of such a large collection of artworks (ownership thereof not being
recorded in the books) and
in circumstances where I am not satisfied that at
common law a claimant would be said by this stage to have abandoned any interest
in the goods (even though I accept that International Art Holdings has de facto
possession and there has been no other potential
owner identified as yet).
- I
consider that the appropriate course is to appoint Mr Arnautovic as the receiver
of all of the unclaimed works and to make orders
that will permit him (after
further advertisement of the artworks) to sell any remaining unclaimed artworks
and, after discharge
of the lien, to deal with the balance of the proceeds in
the ordinary course of the administration so as to facilitate the expeditious
completion of the administration. (If an owner is identified and able to
establish a claim to an unclaimed artwork in the period
following the further
advertisement of the unclaimed artworks, then the procedure in relation to the
levy artworks should apply.)
Orders
- For
the reasons set out above, I propose to make the following orders. However, as
they encapsulate a slightly different regime from
that proposed by the
administrator, I will hear any further submissions as to the actual orders to be
made to reflect my reasons.
In particular, I will hear submissions as to whether
the orders made should permit the administrator to sell any items of disputed
artworks in respect of which proceedings to determine the title to the artwork
has not been commenced within a particular period
of time.
Schedule A artworks - disputed artworks:
1. Order that Sule Arnautovic of Jirsch Sutherland, level 4, 55 Hunter
Street, Sydney, registered official liquidator, be appointed
as Receiver of each
of the artworks identified in the Amended Schedule A ("Schedule A ") to
the Further Amended Originating Process .
2. Order that, subject to the directions made in 3 - 4 below, Sule
Arnautovic, as Receiver of each of the artworks identified in the
Amended
Schedule A, has, in relation to those artworks, powers of the kind set out in
section 420 (2) (a), (b), (c), (e) and (g) of the Corporations Act.
3. Direct that, before any sale by the Receiver of the artworks identified in
the Amended Schedule A, Sule Arnautovic notify the claimants
to the disputed
artworks of his intention to sell the disputed artworks and that any person
claiming an interest in a disputed artwork
and who does not wish the artwork to
be sold pending a determination as to the title to the artwork must provide
security to the
reasonable satisfaction of the administrator within 21 days for
the cost of storage and insurance of the claimed artwork.
4. Order that if security is not provided within 21 days of the notification
referred to in 3 above for the cost of storage and insurance
of artwork
identified in the Amended Schedule A, the Receiver would be justified in selling
the artwork and in holding the proceeds
of sale (less the Receiver's
remuneration) pending the determination of proceedings by the persons claiming
an interest in the artwork
to establish that interest.
5. Order that the remuneration ("the Schedule A Remuneration") of Sule
Arnautovic, as Receiver of each of the artworks identified in the Amended
Schedule A, be calculated in accordance with the
Scale of Rates of Jirsch
Sutherland, a copy of which is attached to the Consent of Receiver.
6. Order that the Schedule A Remuneration shall be apportioned amongst each
of the artworks identified in the Amended Schedule A,
on the basis that each of
the artworks shall bear that percentage ("the Schedule A Percentage Sum")
of the Schedule A Remuneration calculated by the percentage determined by
dividing the sum paid for that art by the sum paid for all
of the artworks
(by way of example, if the Schedule A Remuneration totals $1,000, and the
relevant artwork sells for $5,000 and all of the artwork
sells for $50,000, then
the relevant art work will bear 10% of the remuneration being $100).
7. Declare that Sule Arnautovic has a lien over the artworks identified in
the Amended Schedule A for the Schedule A Percentage Sum.
8. Direct that after the sale of the artworks referred to in the Amended
Schedule A, and after payment of the Schedule A Percentage
Sum, the monies
remaining shall be paid in accordance with any agreement between the parties
claiming an interest in the said artwork
or any determination by a court or
tribunal as to the person who, at the time of the sale, had the better title to
the said artwork.
Schedule B artworks - levy artworks
9. Declare that in respect of any of the artworks identified in the Amended
Schedule B ("Schedule B") to the Further Amended Originating Process in
respect of which the Levy referred to below is not paid to the administrator
within
14 days, the First, Second and Fifth Plaintiffs have a lien (being a
statutory lien over the artworks the subject of rental agreements
under which
the First or Second Plaintiff is a lessee and, in the case of other artworks an
equitable lien) to secure the amount
(Levy) of the administrator's reasonable
costs and expenses of dealing with the artworks, calculated as follows:
(a) in the case of the artworks with a specified value in the Administrator's
current catalogue of more than $5,000, a Levy of $500
in respect of each
artwork;
(b) in the case of the artworks with a specified value in the Administrator's
current catalogue of between $1,500 and $5,000, a Levy
of $300 in respect of
each artwork; and
(c) in the case of the artworks with a specified value in the Administrator's
current catalogue of less than $1,500, a Levy of $100
in respect of each art
work.
10. Order that Sule Arnautovic of Jirsch Sutherland, level 4, 55 Hunter
Street, Sydney, registered official liquidator, be appointed
as Receiver of each
of the artworks identified in the Amended Schedule B.
11. Order that Sule Arnautovic, as Receiver of each of the artworks
identified in the Amended Schedule B, has, in relation to those
artworks, powers
of the kind set out in section 420(2) (a) and (e) of the Corporations Act.
12. Direct that within 7 days of these orders, Sule Arnautovic send by
pre-paid ordinary post, a letter substantially in the form
of that in tab 17 to
Exhibit A in these proceedings (being Exhibit "SA-1" to the first affidavit of
Mr Arnautovic), with such modification
as necessary to reflect declaration 9
above, to each of the persons recorded in the Amended Schedule B as the owner of
each of the
artworks.
13. Direct that in the event that Sule Arnautovic receives payment of the
Levy from a person recorded in the Amended Schedule B as
the owner of an artwork
within 21 days of these orders, Sule Arnautovic release that artwork to that
person.
14. Order that in relation to the artworks ("the Remaining Schedule B Art
Works") identified in the Amended Schedule B which have not been released in
accordance with the direction referred to in paragraph 13 above,
Sule
Arnautovic, as Receiver of each of the artworks identified in the Amended
Schedule B, shall have, without more, powers of the
kind set out in section 420
(2) (b), (c) and (g) of the Corporations Act.
15. Order that on and from 21 days after these orders, the remuneration
("the Schedule B Remuneration") of Sule Arnautovic, as Receiver of the
Remaining Schedule B Art Works, shall be calculated in accordance with the Scale
of Rates of
Jirsch Sutherland, a copy of which is attached to the Consent of
Receiver.
16. Order that the Schedule B Remuneration shall be apportioned amongst each
of the Remaining Schedule B Art Works, on the basis that
each of the art works
shall bear that percentage ("the Schedule B Percentage Sum") of the
Schedule B Remuneration calculated by the percentage determined by dividing the
sum paid for that art by the sum paid
for all of the art works (by way of
example, if the Schedule B Remuneration totals $1,000, the relevant artwork
sells for $5,000 and all of the artwork sells
for $50,000, then the relevant
artwork will bear 10% of the remuneration being $100).
17. Declare that Sule Arnautovic has a lien over the Remaining Schedule B Art
Works for the Schedule B Percentage Sum.
Schedule C artworks - unclaimed artworks
18. Direct that Sule Arnautovic advertise in a newspaper with national daily
circulation the unclaimed artworks listed in Schedule
C to the Further Amended
Originating Process, notifying his intention to sell the said artworks and that
any person claiming an interest
in any of the unclaimed artworks should notify
that claim in writing within 21 days.
19. Direct that in respect of any artworks listed in Schedule C in respect of
which no notification of a claim is received within
21 days of the advertisement
above, Sule Arnautovic would be justified in treating the artworks as the
property of International
Art Holdings Pty Ltd (Administrator Appointed) and in
treating any claim by any other person in relation thereto as having been
abandoned;
and that he would be justified in selling the artworks and
distributing the proceeds of sale in the ordinary course of the administration
of the company.
20. Direct that if notification of a claim in respect of any of the hitherto
unclaimed the artworks is received within 21 days of
the advertisement in
accordance with 18 above (or prior to the sale of the artwork), such artwork is
to be treated as an Amended
Schedule B or Amended Schedule A artwork (depending
on whether any competing claim is made in relation to the said artwork and on
whether any identified owner at that stage pays the Levy) and the orders and
directions made in respect of that category of artwork
shall apply as if the
Schedule C artwork had been listed in Amended Schedule B or Amended Schedule A
as the case may be.
- Finally
I propose to order that the costs of the plaintiffs be met out of the
administration of the said plaintiffs and that no order
as to costs otherwise be
made. I direct that short minutes of order be prepared in accordance with these
reasons.
**********
Amendments
28 Oct 2011 amended paragraph numbering Paragraphs: 10 - 130
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URL: http://www.austlii.edu.au/au/cases/nsw/NSWSC/2011/164.html
