A rather unsatisfactory situation is developing in the nation’s federal and state superior courts in their exercise of shared jurisdiction under the Corporations Act. This concerns the way that these courts determine the remuneration of corporate insolvency practitioners, about which too much has already been written. There is not only an inconsistency of approach, but the respective courts are ignoring each others’ decisions such that no inconsistency even arises. When this happened before, the High Court intervened, as school headmaster, to bring into line its squabbling pupils. That may be necessary again.
The law as applied in one instance, all things being equal, should produce the same result in another. The broader fundamental issue raised here, beyond liquidator’s remuneration, is that “(e)very legal system must provide its citizens with a recognised and certain judicial method or approach to the resolution of disputes that gives rise to reasonable predictability of outcomes and transparent decision-making …”: see The role of the Intermediate Appellate Court after Farah Constructions (FCA)  FedJSchol 27, Justice Steven Rares.
In the case of liquidators’ remuneration, reasonable predictability of outcomes is not happening.
Australia suffers in many ways from being a federation, certainly where politicians are involved, and parochial and unpredictable state and territory interests prevail. Australia should not suffer the same in respect of the judiciary, even if they are likewise federated.
Some members of the judiciary from the federal courts and the various state courts appear to have a bias in favour of their own court decisions. But it goes further. The judges’ apparent bias extends to disdainfully, or ineptly, ignoring each others’ court decisions, or certain of them, in the interpretation of a law applying nationally.
The High Court attempted to resolve such an issue before, in the matter of Goldsborough Gold Mines, with its principles discussed below.
Without revisiting all the recent remuneration cases, this analysis will start with a remuneration decision of the Victorian Supreme Court of September 2016: Re Traditional Values Management Ltd (In Liq) (No 4)  VSC 520.
That Court has in its past decisions applied useful and consistent principles for determination of liquidators’ remuneration. In this latest case, the Court referred to its earlier decision in the same matter, two earlier VSC decisions, a Western Australian Supreme Court decision, and one from the Federal Court of Australia. It did not refer to any remuneration decisions from the NSWSC even though there is a series of six of its decisions on remuneration.
In that series of recent decisions of the NSWSC, by far the majority of decisions relied upon were those from that Court, and the same Judge. Another NSWSC Judge then gave a decision relying upon those NSWSC decisions, and two from the WASC, and some others besides: David Lewis Clout in his capacity as Liquidator of Mainz Developments Pty Ltd (in liquidation)  NSWSC 1146.
In the latest case, yet another judge of the NSWSC has also relied upon earlier NSWSC decisions, including one “unreported”: In the matter of GPJ Investments Pty Limited and in the matter of Angelides Investments Pty Limited  NSWSC 1173. Other recent FCA decisions on remuneration are not mentioned: ACN 104 635 369 Pty Ltd (in liq) (formerly Total Plant Services Pty Ltd) v Hamilton  FCA 1219; Smith, in the matter of Oceanic Asset Management Pty Ltd  FCA 644.
In the meantime, a significant 2015 decision on the remuneration of receivers of the Full Federal Court, ASIC v Templeton  FCAFC 137, on remittal, is not cited by any of these NSWSC decisions. (One exception is that Templeton was applied in In the matter of Wine National Pty Limited  NSWSC 4, perhaps only because that case also involved receivers). Templeton was usefully applied in the decision of the SASC in Macks v Maka  SASC 200.
Further cases will only confuse.
The point is that there is nothing in Chapter 5 of the Corporations Act to say that its application or interpretation should be different depending on the State or Territory in which the company is wound up, or where the liquidator is based. A liquidator can apply for orders from a Supreme Court even if the company is wound up in the Federal Court, and vice versa; as can a creditor. A liquidator applying for approval of remuneration should expect the same approach be taken from whatever court; as should a creditor or any litigant.
This problem has some history, now being revisited.
When the Corporations Law was shared between the states and the Commonwealth in the late 1980s, nine superior courts (the eight Supreme Courts of the states and territories and the Federal Court) began to interpret the new law. By as early as 1992, there was already a divergence of interpretation at the intermediate appellate level. In the important case involving Marlborough Gold Mines Ltd, there had been conflicting interpretations of s 411 of the Corporations Law in relation to schemes of arrangement and of the corresponding previous provision.
- A single judge of the Supreme Court of Victoria had decided one way. He had followed a decision of a judge of the Supreme Court of the Northern Territory
- A judge of the Supreme Court of South Australia had however disagreed and declined to follow those decisions.
- The Full Federal Court also disagreed, following the reasoning in the decision of the Supreme Court of South Australia, in Windsor v National Mutual Life Association of Australasia Ltd.
- The approach of the Full Federal Court was followed in the Supreme Court of Victoria in Re Kakadu Resources Ltd, the Court not following its earlier decision.
The crisis point – Marlborough Gold
In Marlborough Gold Mines, a Commissioner of the Supreme Court of Western Australia declined to follow the Full Federal Court in Windsor. The Full Court of the Supreme Court of Western Australia affirmed the Commissioner’s decision.
Therefore, at that point in time, the interpretation of s 411 of the Courts in Victoria, South Australia, and nationally (the Federal Court), differed in the interpretation of the same section of the courts of the Northern Territory and Western Australia.
On appeal, the High Court, noting the conflicting decisions, said:
Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation … is a sufficiently important consideration to require that an intermediate appellate court — and all the more so a single judge — should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.
Adherence to this principle is, of course, necessary if uniform legislation is to be truly uniform in its practical application. This means that the decisive interpretation of federal law, in instances where the jurisdiction of a federal court is not exclusive, may not derive from a decision of any federal court. The value placed upon uniformity overrides everything else unless the interpretation in question is ‘plainly wrong’.
See ASC v Marlborough Gold Mines Ltd  HCA 15; (1993) 177 CLR 485.
There is a common law of Australia rather than a common law of each Australian jurisdiction, and so the principle emphasised in Marlborough Gold Mines applies also to the interpretation of the common law.
Back in 2001, the Australian Law Reform Commission also examined the issue in respect of inconsistent Federal Court appeal decisions, in particular in the context of migration and refugee law, both solely within the federal courts’ preserve: The Judicial Power of the Commonwealth: A Review of the Judiciary Act 1903 and Related Legislation  ALRC 92.
The consequences listed by the ALRC are as much applicable here, that inconsistency:
- creates injustice in individual cases because it offends against the principle that like cases should be treated alike;
- makes it difficult for legal practitioners to give correct and reliable advice to clients;
- increases costs and delays in disposing of cases, occasionally requiring five judge appellate benches or a High Court decision; and
- damages perceptions about the administration of justice and the reputation of courts generally.
That report was confined to consistency within the Federal Court.
In later discussions about Marlborough Gold, one suggestion was that that the best way to ensure consistency of interpretation of particular federal laws was by conferring exclusive (at least appellate) jurisdiction for their interpretation on a single court. And former Chief Justice Michael Black suggested the Federal Court: The Federal Court of Australia: The First 30 Years – A Survey on the Occasion of Two Anniversaries  MelbULawRw 38; (2007) 31(3) Melbourne University Law Review 1017.
That has not occurred, for practical and probably political reasons. In any event, that is not the answer, that one court – the Federal Court – deal with all matters or all appeals. There is no reason what any judge or appeal court cannot treat another judge’s decision as needing to be followed. To suggest otherwise relegates the courts to an unseemly political level.
In any event, it was the Federal Court that some time ago had a similar unseemly conflict between its own judges, no less than 18, in relation to the treatment of defects in bankruptcy notices. See Bankruptcy notices: professional mistakes, judicial confusion and legislative complexity, (2001) 1(6) INSLB 99, Michael Murray.
In a series of decisions, eleven single judges took a particular view of their validity. Seven other judges took another view, those including two Full Federal Courts, one disagreeing with the other.
The issue was important. If a bankruptcy notice is too readily set aside as invalid, the consequence will be that the bankruptcy may not happen at all, or if it does, it will occur later, and although the person might be insolvent, their transactions adversely impacting creditors may escape scrutiny.
The matter did go to the High Court from a decision of a specially constituted five member bench of the Federal Court. That court split three-two. The High Court’s decision – Adams v Lambert  HCA 10 – quietened the situation down.
In relation to liquidator’s remuneration, we are back to the days of pre-Marlborough Gold.
Those providing judicial services should see the position from their consumers’ viewpoint. A liquidator simply wants and is entitled to have their remuneration approved by the court, whatever court, whatever judge. If one judge wants to take a very different approach based on the facts of the case, that may well be proper, as long as reasons are given, and cases relevant, from whatever court, are offered and distinguished.
But what we have here appears to be a steadfast refusal to even acknowledge another court’s decision let alone rising to disagree with it.
A behavioural economist might suggest that in these circumstances, judges unconsciously, or perhaps patently, will favour decisions of their own court. The answer would be to have all court decisions issued anonymously, as to the judge and the court.
This would not be accepted but that it even needs to be raised is not satisfactory.
But as I have said, largely removing this role from the courts, as could result from the reforms in the Insolvency Law Reform Act 2016, may be the best solution.
An intermediate state court of appeal is another option; with the High Court remaining in reserve. (Criticism of the High Court’s own views of the law of precedent is noted but is not discussed here: see for example The High Court and the Doctrine of Precedent in Opinions on High (18 July 2013), Matthew Harding, University of Melbourne).
Need for consistency between personal and corporate insolvency
There is still the issue of the need for consistency between personal insolvency and corporate insolvency. We will need to address what may develop as the same silo mentality between the bankruptcy and the corporate insolvency processes, the general consequences of which since the Harmer Report we are still paying for: see The alignment of the laws of personal and corporate insolvency (2009) 9(5) INSLB 78, Michael Murray.
In a limited way, this consistency will be required by the largely comparable criteria for determining remuneration in personal insolvency (s 90-21) as in corporate insolvency (s 60-12), and the statutory obligation of ASIC and AFSA to “co-operate” where there the same trustee and liquidator is involved: s 10-5.
But a more effective way of ensuring consistency will be to require, through the Insolvency Practice Rules, that published reasons for decision be given by those determining liquidators’ or trustees’ remuneration – judges, AFSA and ASIC. Common guidelines, as under the ARITA Code, and APES 330, should also be provided. The Code will need to address remuneration determinations in a broader perspective to take account of the debates presently being raised.
Court rules on remuneration
We do know that the Council of Chief Justices of Australia and New Zealand is examining liquidator’s remuneration in the context of the various court rules. One of the Council’s objects is to “advance and maintain the principle that Australian Courts together constitute a national judicial system operating within a federal framework”. Its website notes simply that “outputs of the Council’s Harmonisation of Rules Committee will be published here shortly”. The Judges are limited in what their rules can do, but the judiciary is necessarily important in this debate.
In so far as the Council includes the Chief Justice of the Supreme Court of New Zealand, there will be input from that jurisdiction. The NZ High Court’s approach taken in its decision in Roslea Path Limited  NZHC 2318 and Medforce Healthcare  NZLR 145 appears to have proved successful and might usefully be considered.
As to proportionality, the decision in a major NZ financial collapse, Five Star Debenture Nominee Limited (in liq) v Five Star Finance Limited (in rec’p)  NZHC 142 is instructive. The Court found that “while there was no tangible advantage to the creditors as a result of the efforts of the liquidators”, whose remuneration exceeded NZ$330,000, their work was properly undertaken.
“The liquidators represented the only prospect of the creditors receiving any appreciable recovery. It was in their interests that extensive efforts were made to investigate the affairs of the company and to review all possibilities of actions to recover the company’s money. That nothing came of those efforts is not in any way a matter for which the liquidators are to be criticized”.
The Court also noted the “strong public policy requirement that there be a proper investigation of the affairs of the company” and that the liquidators’ work was commensurate with that need.
At the other end of the spectrum, the Supreme Court of New Zealand has refused liquidators’ application for leave to appeal in failed recovery proceedings. This was in a case where although the company’s debt on insolvency was around $132,000, the amount sought by the liquidators totaled just under $600,000, that amount including $280,000 in their costs, with further costs to be incurred. As the Supreme Court said, “given the level of the company’s indebtedness and the amounts awarded … there is clearly an issue of proportionality”: Vivien Judith Madsen-Ries v Darrell Warren Karaneihana Petera  NZSC 94.
Liquidators’ remuneration is not the only area of inconsistency. The law of insolvent trust companies is another area warranting attention. It is significant that the issue of Australia’s confusing and inconsistent law in relation to trusts was raised before the Productivity Commission as being an inhibition on the export of professional services by Australia: Barriers to Growth in Service Exports, November 2015.
The lack of an ‘Australian law’ in many areas that remain the preserve of the States is also said to be an adverse factor of international significance, in terms of attracting jurisdiction, and business. As I have written, Singapore is reported to be putting itself forward as a regional restructuring hub with a wide jurisdictional reach.
These and other issues will be the subject of an insolvency conference in October 2016 comparing, among other topics, the processes of assessment of liquidator’s remuneration in each of Singapore and Australia.
References to articles and decisions in this commentary, save the unreported NSWSC, can be supplied on request. And any comments are invited.