In the matter of Peak Invest Pty Ltd

These reasons concern an application by the liquidators of four companies for declarations concerning the proper construction of certain contracts entered into by the four companies. For the reasons that follow, the terms of the declarations sought by the liquidators do not reflect the proper construction of the relevant contracts and declarations to the contrary effect will be made.

The four companies in liquidation operated solely as the trustees of four unit trusts. The liquidators also seek orders fixing their remuneration in their capacity as administrators and liquidators of the companies and receivers of the assets that were held by the companies as trustee. For the reasons that follow, the remuneration claimed by the administrators, liquidators and receivers is a fair and reasonable reward for work properly done in the course of the administration, liquidation and receivership and orders will be made in the terms sought.

The following matters are drawn from the affidavits of one of the liquidators, Mr McCabe, sworn on 7 December 2021, 23 June 2022, 12 August 2022 and 1 September 2022, together with copies of hotel management agreements and other relevant contracts that were tendered at the hearing on 8 September 2022.

Each of the four companies in liquidation (in its capacity as trustee of the relevant unit trust) owned a parcel of land on which a hotel was situated and gaming machine entitlements used at the hotel. Each hotel was operated by a separate company. The four companies, unit trusts and hotels and operating entities are:

Mr Joseph Hayes and Mr Andrew McCabe were appointed as joint and several administrators of Peak Invest, Five Islands, Surry Hills and Four by Four (collectively, the Companies) on 24 November 2021 following a resolution of the sole director of the Companies, Mr Damien Kelly, pursuant to s 436A of the Corporations Act 2001 (Cth).

The investigations undertaken by Messrs Hayes and McCabe following their appointment as administrators established that each of the Companies operated and carried on business solely in its capacity as trustee of the relevant unit trust as referred to above at [2].

The Court made orders on 22 December 2021 appointing Messrs Hayes and McCabe as receivers and managers of the property, assets and undertaking of each of the four unit trusts referred to above (collectively, the Trusts), with powers including a power of sale but subject to a requirement that the receivers and managers not distribute the proceeds of sale without further order or direction of the Court. [1]

On 23 December 2021, Mr Sule Arnautovic and Mr John Vouris were appointed as joint and several administrators of each of the four operating entities referred to in the table above (collectively, the Operating Entities) pursuant to s 436A of the Corporations Act.

At the time of the appointment of Messrs Arnautovic and Vouris, the following hotel management agreements were on foot in respect of the four hotels referred to in the table above:

Pursuant to each of those four agreements, J&P Marlow (No. 2) Pty Ltd and Blue Marlin Pty Ltd (collectively, the Marlow Group) were appointed as “the Hotel Manager” to provide specified “Services” in relation to the relevant hotel in consideration for payment of the “Fees” set out in Schedule 2 to the agreement, being a “Base Fee”, a “Bonus Fee” and a “Capital Gains Bonus Fee”. Clause 14.1 of each of the four agreements provided that the agreement will terminate on (relevantly) the date on which “the Company” has an administrator appointed. The four agreements were therefore terminated on 23 December 2021 upon the appointment of Messrs Arnautovic and Vouris as joint and several administrators of each of the four Operating Entities.

In his affidavit sworn on 23 June 2022, Mr McCabe deposed that on 24 December 2021, he and Mr Hayes (in their capacity as receivers of the assets of the Trusts) secured the support of Messrs Arnautovic and Vouris to market and sell the land together with the business for each of the four hotels.

On 28 December 2021, the following hotel management agreements were entered into (collectively, the 2021 HM Agreements):

Pursuant to each of the 2021 HM Agreements, the Marlow Group entities were appointed as “the Hotel Manager” to provide specified “Services” in relation to the relevant hotel in consideration for payment of the “Fees” set out in Schedule 2 to the agreement, being a “Base Fee”, a “Bonus Fee” and a “Capital Gains Bonus Fee”. Clause 5.3 of each agreement provided that “[t]he Company and the Landowner agree to sell both the Property and the Hotel as one package and as a going concern”.

On 31 December 2021, the second meeting of creditors of the Companies (held concurrently) resolved to wind up each of the Companies. Messrs Hayes and McCabe were appointed as joint and several liquidators.

The Liquidators’ and Receivers’ investigations revealed that Five Islands is a creditor of the Operating Entity Corrimal Pub Pty Ltd in the amount of $3,511,797 and Surry Hills is a creditor of the Operating Entity Surry Hills Pub Pty Ltd in the amount of $5,831,374. In light of this and the complexities involved in selling the Companies’ land together with the Operating Entities’ hotel businesses together, the Receivers (on behalf of the Companies) submitted to the Deed Administrators on 17 January 2022 a proposal for a deed of company arrangement in respect of the Operating Entities for consideration by the creditors of the Operating Entities (the Landlord DOCA). The features of the Landlord DOCA included effectively pooling the assets of each Company and Operating Entity associated with each particular hotel so as to remove any potential uncertainty by interested purchasers during the sale process and to avoid any dispute about the apportionment of the sale proceeds.

The Landlord DOCA was not accepted by the creditors of the Operating Entities, who resolved on 9 February 2022 to enter into a different DOCA that did not provide for pooling of the assets of each Company and Operating Entity. Messrs Arnautovic and Vouris became the deed administrators under that DOCA, which was executed on 28 February 2022 (the Deed Administrators).

In these reasons, I refer to Messrs Hayes and McCabe as the Receivers, Administrators or the Liquidators as appropriate to the context.

The four properties and hotels were sold in a marketing campaign conducted in two tranches, with each tranche involving the sale of one city hotel and one regional hotel.

Tranche one involved a five week marketing campaign that commenced on 25 January 2022. Mr McCabe has deposed that, following that campaign, the Receivers exchanged contracts on 6 March 2022:

Tranche two involved a four week marketing campaign that commenced on 10 March 2022. Mr McCabe has deposed that, following that campaign, the Receivers exchanged contracts on 13 April 2022:

The sale of the Corrimal Hotel was settled on 19 April 2022.

The sale of the Rose and Crown Hotel was settled on 20 April 2022.

The sale of the North Nowra Tavern was settled on 27 June 2022.

The sale of the Crown Hotel is expected to be completed on 13 October 2022.

The total gross sale price of all four hotels is $126.4 million.

Commonwealth Bank of Australia is a secured creditor of each of the four Companies.

The Liquidators have made preliminary adjudications in respect of proofs of debt submitted by various unsecured creditors in the winding up of each of the four Companies.

The Marlow Group has lodged proofs of debt in the winding up of Peak Invest, Five Islands and Four by Four claiming to be entitled to a “Capital Gains Bonus Fee” (CGBF) under the 2021 HM Agreements on the basis that the “Net Sales Price” component of the CGBF calculation includes the sale price of the relevant land and the sale price of the hotel business under the contracts referred to at [19] and [20] above (the Marlow Group Claims). The Liquidators anticipate that the Marlow Group will submit a proof of debt in the winding up of Surry Hills claiming a CGBF calculated on the same basis upon completion of the sale of the land and the Crown Hotel business on 13 October 2022.

The Liquidators are of the view that the Marlow Group is entitled under each 2021 HM Agreement to be paid the CGBF calculated on the basis that the “Net Sales Price” component of the calculation includes the sale price of the relevant land and hotel business (as opposed to be being limited to the sale price of the land). That would result in the Marlow Group’s proofs of debt being admitted:

Because the adjudication of the Marlow Group Claims essentially involved the proper construction of the 2021 HM Agreements, the Liquidators sought a direction from the Court that they would be justified in admitting the Marlow Group Claims in the amounts referred to above in the winding up of Peak Invest, Five Islands and Four by Four. At the commencement of the hearing on 8 September 2022, that application was abandoned and substituted with an application for declaratory relief concerning the proper construction of the CGBF provisions of the 2021 HM Agreements, as explained below.

By amended interlocutory process filed on 18 August 2022, Messrs Hayes and McCabe sought:

As referred to above, the Liquidators’ application for directions in prayers 2 to 3A of the amended interlocutory process turned on the construction of the provisions of the 2021 HM Agreements concerning the CGBF.

Prior to the filing of the amended interlocutory process, the Court had made orders made on 18 July 2022 granting leave to the following parties to be heard in relation to the interlocutory process:

The Marlow Group wished to be heard in support of the directions sought by the Liquidators, which were based on the relevant provisions of each of the 2021 HM Agreements being construed as entitling the Marlow Group to a CGBF calculated by including the sale price of the land and the sale price of the hotel business in the calculation of the “Net Sales Price” for the purpose of then calculating the CGBF.

The Contradictors are unit holders in one or more of the Trusts who wished to be heard in support of the contrary position.

No other unit holder or creditor had expressed a desire to be heard in relation to those matters.

It was apparent from the written submissions served by the Liquidators, the Marlow Group and the Contradictors prior to the hearing on 8 September 2022 that the Liquidators intended to leave it to the Marlow Group and the Contradictors to make their competing submissions about the proper construction of the 2021 HM Agreements and to limit their own role to making such further submissions as may be of assistance to the Court.

Prior to the hearing on 8 September 2022, I caused my Associate to write to the solicitors for the Liquidators, the Marlow Group and the Contradictors questioning why the Court should entertain the application for directions in circumstances where it would be open to any unitholder or creditor to appeal any adjudication made by the Liquidators in respect of the Marlow Group Claim, even if that adjudication was consistent with the Court’s directions. In short, there was a risk that the Court would be asked to determine the same substantive issue twice.

That resulted in the Liquidators filing a further amended interlocutory process at the commencement of the hearing on 8 September 2022 and, subsequently, a second further amended interlocutory process during the course of that hearing. The principal effect of those amendments was to replace the Liquidators’ application for directions with an application in prayers 2 to 3C of the second further amended interlocutory process for declaratory relief to the effect that, on proper construction of each of the 2021 HM Agreements, the amount of the CGBF payable to the Marlow Group by the relevant “Landowner” is calculated on the basis that the “Net Sales Price” component of the calculation includes the sale price of the land and the sale price of the hotel business. The terms of the declarations sought in relation to Peak Invest, Five Islands and Four by Four also extend to quantification of the amount of the CGBF, being the amounts calculated by the Liquidators and referred to at [29] above.

An order was made joining the Marlow Group as the fifth and sixth defendants in the proceedings.

Orders were made joining the Contradictors to the proceedings as the first to fourth defendants and appointing Batiha Pty Ltd (now the first defendant) to represent all unitholders in the Trusts and the unsecured creditors of Peak Invest. The Court was informed that unsecured creditors of the other Companies would have no interest in being heard because there are sufficient funds in those Companies to pay all unsecured creditors irrespective of the outcome of the Marlow Group Claims and certain other outstanding issues in the winding up of those Companies.

Although the unsecured creditors of Peak Invest and the unitholders of the Trusts (other than the Contradictors) had not previously sought to be heard in relation to the Marlow Group Claims, I considered that they should be given the opportunity to revisit their positions upon being notified of the representative order referred to above, the Liquidators’ claims for declaratory relief in the second further amended interlocutory process, and the fact that they would be bound by the Court’s determination of those claims by reason of the representative order. Orders were therefore made requiring the Liquidators to notify the unsecured creditors of Peak Invest and all unitholders of those orders and to provide them with the second further amended interlocutory process, all evidence read or tendered at the hearing on 8 September 2022, the transcript of that hearing and certain other materials. Liberty was reserved to the unsecured creditors of Peak Invest and the unitholders to apply to decouple themselves from the representative order and be heard in their own right, with any such application to be made by 23 September 2022. Judgment was reserved at the conclusion of the hearing on 8 September 2022 and the matter was listed for directions on 26 September 2022, by which time it would be known whether any application had been made by any unsecured creditor of Peak Invest or by any unitholder.

At the directions hearing on 26 September 2022, the Liquidators adduced evidence of their compliance with the orders referred to immediately above. Whilst some unitholders had responded to the communications from the Liquidators by indicating their subject views about the Marlow Group Claims, no unitholder made an application to have the representative order set aside insofar as it affected them and to be heard in relation to the Liquidators’ claims for declaratory relief.

At the conclusion of the hearing on 8 September 2022, counsel for the Liquidators, Applicants and Receivers indicated that he would not be in a position to advance the remaining claims for relief in the second further amended interlocutory process until the Court had determined the claims for declaratory relief relating to the Marlow Group Claims. Orders were then made for the claims in prayers 12 to 14D of the second further amended interlocutory process (being the claims relating to the distribution of the net assets of the Companies as trustee of the respective Trusts and the dispensation sought in relation to the notice of the Liquidators’ intention to declare a dividend) to be determined separately from and after the determination of the other claims in second further amended interlocutory process.

Accordingly, these reasons deal only with the claims for declaratory relief concerning the proper construction of the 2021 HM Agreements and the remuneration application.

The relevant provisions of each of the four 2021 HM Agreements are in the same terms, save for the address of the land referred to in the definition “Property”, the name of each hotel in the definition of “Hotel” and the amount of the “Purchase Price” specified in that component of the CGBF calculation set out in Schedule 2 to the agreement. It suffices to refer below to the provisions of the 2021 HM Agreement in respect of the Rose and Crown Hotel (the RC Agreement). All counsel appearing at the hearing on 8 September 2022 accepted that the construction of the relevant provisions in that agreement would apply equally to the other three agreements.

As I have noted earlier in these reasons, the parties to the RC Agreement were:

The Recitals to the RC Agreement stated (emphasis added):

Clause 1.2(k) of the RC Agreement provided that the recitals form part of the Agreement.

Consistently with Recital B, clause 16.2 of the RC Agreement provided (emphasis added):

Clause 16.9 provided that the RC Agreement was governed by and was to be construed in accordance with the laws of New South Wales.

Pursuant to clauses 2.1 and 3.1 of the RC Agreement, “the Hotel Manager” was appointed to provide “the Services” and agreed to provide “the Services” in accordance with the terms of the Agreement.

Schedule 1 to the RC Agreement describes “the Services”, which include:

Clause 1.1 of the RC Agreement defined the term “Property” as meaning “the property located at 11 Victoria Road, Parramatta NSW 2150”. The term “Hotel” was defined as meaning “the Crown Hotel, operated from the Property”. The term “Business” was defined as meaning:

The definitions in clause 1.1 of the RC Agreement also included the following:

Clause 5 of the RC Agreement was entitled “Obligations of the Company”.

Clause 5.3 provided:

Under the heading “General obligations”, clause 5.1 included an obligation for “the Company” to pay “the Hotel Manager” all moneys promptly in accordance with the RC Agreement “whether as Fees (Base Fee, Bonus Fee and Capital Gains Bonus Fees) or reimbursements”. As will be seen below, the specific provisions of the RC Agreement concerning “Fees” required “the Landowner” (not “the Company”) to pay the “Capital Gains Bonus Fee”.

Clause 6.1 provided that “the Hotel Manager” was entitled to receive “the Fees” in consideration of the services provided under the RC Agreement. The term “Fees” was defined in clause 1.1 as meaning the fees set out in Schedule 2.

Item 1 of Schedule 2 provided for a “Base Fee” of $325,000 per annum, increasing annually by 3% or in line with Consumer Price Index increases. As referred to above, clause 5.1 of the RC Agreement required “the Company” to pay the Base Fee.

Item 2 of Schedule 2 provided that, if the “Bonus Fee Conditions” (as defined) were satisfied, “the Hotel Manager” was entitled to receive a “Bonus Fee” calculated as 15% of the amount by which “Net Income” (as defined) exceeded the “Preferred Return” (as defined). The “Bonus Fee Conditions” related to the investors being entitled to receive “the Preferred Return”, “the Company” paying the “Base Rent” under the terms of the Lease and “the Hotel Manager” not being in breach of the RC Agreement. As referred to above, clause 5.1 of the RC Agreement required “the Company” to pay the “Bonus Fee”.

Item 3 of Schedule 2 provided (emphasis added):

Evidence adduced at the hearing establishes that the amount of $13,719,854 in the definition of “Purchase Price” exceeds the total amount paid by Peak Invest for the land at 11 Victoria Road, Parramatta and by RC One Pty Limited for the business of the Rose and Crown Hotel in 2014. Evidence to the same effect was adduced in relation to the amounts specified in the definition of “Purchase Price” in the CGBF provisions of each other 2021 HM Agreement. That evidence did not explain how the amount of the “Purchase Price” in each of those definitions had been calculated but I accept the submissions made by senior counsel for the Marlow Group that the amount must be referable to the purchase of the relevant land and hotel because the amount is defined as the “Purchase Price” and materially exceeds the purchase price of the land in each instance.

The obligations of “the Company” under clause 5.1 of the RC Agreement to pay “Fees … or reimbursements promptly in accordance with this Agreement” (emphasis added) do not extend to payment of the CGBF by reason of the specific provision in item 3(b) of Schedule 2 that the CGBF is payable by “the Landowner”.

In addition to payment of the “Fees” set out in Schedule 2, the Marlow Group was entitled under clause 6.2 of the RC Agreement to be reimbursed by “the Company” for “all fees, costs, expenses, charges, fines, penalties and outlays … it properly and reasonably incurs in connection with the operation of the Business”.

There is no dispute that the Marlow Group is entitled to a CGBF calculated in accordance with each 2021 HM Agreement.

Taking into account all of the written and oral submissions, the issue in dispute comes down to whether, on the proper construction of the 2021 HM Agreements, the “sale price of the Property”, which forms the starting point for ascertaining the amount of the “Net Sales Price” for the purpose of calculating the CGBF:

The principles applicable to the construction of commercial contracts are well established.

As the majority of the High Court said in Electricity Generation Corporation v Woodside Energy Ltd: [2]

In Cherry v Steele-Park, [3] Leeming JA (with whom Gleeson and White JJA agreed) conducted an extensive review of relevant authority and concluded that it is not necessary to pass through an “ambiguity gateway” before regard may be had to surrounding circumstances when construing a contract. [4] However, “[t]he starting point and the ending point of the construction of a written commercial contract is the language chosen by the parties to record their bargain” and so there is “limited scope for evidence of surrounding circumstances to detract from the contractual text”. [5]

By way of illustration, Leeming JA referred [6] to the following statement of Gleeson JA (with whom Basten and Meagher JJA agreed) in Newey v Westpac Banking Corporation: [7]

By way of further illustration, Leeming JA referred [8] to the following statement of Bathurst CJ (with whom Macfarlan JA and Sackville AJA agreed) in McGrath v Sturesteps: [9]

Leeming JA concluded (with the agreement of Gleeson and White JJA) that:

The analysis in Cherry v Steele-Park and the other authorities referred to above was principally concerned with the contextual relevance of the surrounding circumstances known to both parties in the construction of commercial contracts. It is uncontroversial that the language of the clause or part of a commercial contract that falls to be construed must be considered in the context of the surrounding words and the contract as a whole.

Where the Court is satisfied to a high level of conviction that the literal meaning of the contractual words contains an absurdity or inconsistency and it is self-evident what the objective intention is taken to have been, ordinary processes of contractual construction operate so that the absurd literal meaning is displaced by a legal meaning. Historically, this has been referred to as “rectification by construction”, although that terminology is now eschewed in order to avoid confusion with the equitable doctrine of rectification. In recent cases, the Court of Appeal has stated that there is much to be said for the view that a “clear mistake” (as opposed to absurdity or inconsistency) is sufficient to engage the first limb. However, the Court of Appeal has not yet found it necessary to determine whether a clear mistake falling short of absurdity or inconsistency will suffice: see James Adam Pty Ltd v Fobeza Pty Ltd. [13]

Having considered all of the parties’ written and oral submissions, I have determined that, on the proper construction of the 2021 HM Agreements, the words the “sale price of the Property” within the definition of the term “Net Sales Price” in item 3 of Schedule 2 means the sale price of the land at which the relevant hotel is located (including the hotel building affixed to the land) and does not include the sale price of the hotel business operated from that land by the relevant Operating Entity (being “the Company” referred to in the relevant 2021 HM Agreement).

The terms “Property” and “Hotel” are defined separately in the 2021 HM Agreements.

As senior counsel for the Marlow Group submitted, the building comprising each hotel is a fixture that forms part of “the Property”. That accounts for the description of the leased premises in the definition of “Lease” as “the Property (including the Hotel)”. It also accounts for references to “the Hotel” in the provisions concerning the Marlow Group’s obligation to advise “the Company” (being the Operating Entity and the leaseholder under the Lease) and “the Landowner” in relation to “capital works opportunities for the Hotel”.

However, as senior counsel for the Marlow Group acknowledged, the language used by the parties in the definition of “Hotel” – “the [name] Hotel, operated from the Property” – describes not just a building but something that is being operated, i.e. a business.

The “Property” is owned by “the Landowner” and leased by “the Company”. The “Hotel” is operated by “the Company” which utilises the “Services” provided by the “Hotel Manager”.

The surrounding circumstances known to all parties when they entered into each of the 2021 HM Agreements were that:

Contrary to the Marlow Group’s submission, the fact that the hotel is both a business and a building affixed to the land does not mean there is no relevant distinction between the land and the hotel business. Nor does it mean that the term “Property”, which the parties have expressly defined by refence to the street address of the land, should be construed as including the hotel business. That is particularly so in circumstances where it is clear from the terms of the 2021 HM Agreements that the land and the hotel business have different owners. I accept the submission made by counsel for the Liquidators that the definition of “Property” cannot be rewritten in the manner suggested by the Marlow Group.

Clause 5.3 of the 2021 HM Agreements provides for the sale of “the Property” and “the Hotel” as one package. In my opinion, the word “Hotel” in that clause is clearly a reference to “the Company’s” business of operating the hotel. It would not otherwise have been necessary to make provision for the sale of “the Property” and “the Hotel” as one package. It was not necessary to obtain the agreement of “the Company” for the sale of “the Landowner’s” land including the hotel building affixed to it. The fact that “Business” is a defined term does not detract from the construction of the word “Hotel” in clause 5.3 as meaning the hotel business. The definition of “Business”, which is set out at [54] above, includes but is not limited to the hotel business. The definition also extends to any other business activities as agreed between “the Company” and the Marlow Group, with the effect that the provisions of the 2021 HM Agreements would apply to any future business activities agreed to be undertaken by the Marlow Group for “the Company” that may extend beyond the management of the relevant hotel.

The parties must be taken to have contemplated that “the Landowner” and “the Company” would be vendors in the transactions by which the land and the hotel business were sold as one package. The parties must also be taken to have contemplated that the price for the sale of the land and the hotel business would be apportioned between the two, with “the Landowner” receiving the price for the land and “the Company” receiving the price for the hotel business. It was in the context of the intended package sale provided for in clause 5.3 that the parties defined the “Capital Gains Bonus Event” in item 3 of Schedule 2 by reference to the sale of “the Property” only. The parties defined the “Net Sales Price” used to calculate the CGBF as the sale price of “the Property” only “under a contract signed by the Landowner as the seller” and imposed on “the Landowner” alone the obligation to pay the CGBF.

In my opinion, the reasonable businessperson in the position of the parties would understand the critical words in the “Net Sales Price” definition (“the sale price of the Property under a contract signed by the Landowner as the seller”), read in the context of the 2021 HM Agreements as a whole, as meaning the sale price of the land (including the hotel building affixed to the land) that was payable to “the Landowner”. The reasonable businessperson would not have understood those words as including the sale price payable to “the Company” for its hotel business sold together with the land and hotel building. That is a construction that strains against the ordinary meaning of the words, including the words used to define the terms “Property” and “Hotel”.

As counsel for the Contradictors submitted, the words in parentheses in the definition of “Net Sales Price” – “(which may include the Company as the seller of the Business)” – do not support a different construction of that definition. Those words merely reflect the possibility that the land and hotel building will be sold as one package together with the hotel business as contemplated by clause 5.3, with “the Company” being a necessary party to the sale contract as the seller of that business and “the Landowner” being a necessary party as the seller of the land.

The amounts to be deducted from “the sale price of the Property” in order to reach the “Net Sales Price” are adjustments, taxes, fees, legal costs and agents’ commissions “payable by the Company and the Landowner in connection with its sale or disposition of the Property and otherwise in connection with the operation of the Business” (emphasis added).

The Marlow Group submitted that the emphasised words support the construction of the “Net Sales Price” as including the price of the hotel business because there would otherwise be “no reason for it to be reduced by matters relating to the business”. The substance of the Marlow Group’s submission was that the words “the sale price of the Property” were an absurdity or inconsistency with the emphasised words and that this should be rectified in the process of construction by reading the “Net Sales Price” definition as if it included the sale price of the hotel business.

I reject that submission, which obfuscated that this would involve reading into the “Net Sales Price” definition the additional words “the sale price of the Property plus the sale price of the Business”, notwithstanding that the parties have chosen language which specifies that the sale price is to be ascertained by reference to “a contract signed by the Landowner as the seller” and have provided for the CGBF to paid wholly by “the Landowner”.

There is an obvious inconsistency within the “Net Sales Price” definition, but it lies in the inclusion of the reference to “the Company” in the phrase “payable by the Company and the Landowner in connection with its sale or disposition of the Property and otherwise in connection with the operation of the Business”. The inclusion of “the Company” is inconsistent with the grammar of that phrase (“its sale”) and with the fact that the words do not cover adjustments, taxes, fees, legal costs and agents’ commissions payable in connection with the sale of the hotel business as opposed to the operation of that business.

I am satisfied with the requisite high degree of conviction as to the existence of that inconsistency and as to what the objective intention is taken to have been. In my opinion, the reasonable businessperson would understand the reference to adjustments, etc, “payable … in connection with the operation of the Business” as capturing any and all adjustments, taxes, fees, legal costs and commissions payable by “the Landowner” upon the sale of the land that are not directly referable to the sale of the land but that are connected with the hotel business that has been operated from the land. The reasonable businessperson, knowing that “the Landowner” owned the land and gaming machine entitlements, would understand these adjustments as potentially including any amounts payable by “the Landowner” in respect of any gaming machine tax referable to the gaming activities connected with the hotel business operated on the land.

Even if I had not identified the inconsistency and self-evident objective intention of the parties referred to at [90]-[91] above, I would not have been satisfied with the requisite degree of conviction that the legal meaning of the “Net Sales Price” definition for which the Marlow Group contends is self-evident. There is no rational basis for imputing to the parties an intention that “the Landowner” would be solely responsible for the payment of a CGBF calculated as including an amount referable to the sale price of the Operating Entity’s hotel business.

In circumstances where the parties expressly agreed that the 2021 HM Agreements entirely replaced, superseded and extinguished their previous hotel management agreements (which had been terminated in any event), [18] the terms of those earlier agreements do not represent the genesis of the transaction recorded in the 2021 HM Agreements. Rather, the genesis of the 2021 HM Agreements was the parties’ decision recorded in Recital B and clause 16.2 to enter into a new agreement that would embody their entire agreement and supersede and extinguish their previous agreements. The terms of the previous agreements referred to at [9] above do not inform the construction of the 2021 HM Agreements in accordance with the principles summarised at [68]-[74] above. That observation applies with even greater force to agreements that had been entered into as early as 2014 and had been replaced by the previous agreements which had then been replaced by the 2021 HM Agreements. I reject the submissions made by the Marlow Group to the contrary.

The Marlow Group’s submissions emphasised that the parties have provided for the CGBF to be calculated as a percentage of the amount by which the sale price of “the Property” exceeds “the Purchase Price”, with “the Purchase Price” being something more than the aggregate amount that “the Landowner” and “the Company” had paid for the land and the hotel business. It was submitted that this supported a construction of the words “the sale price of the Property” in the definition of “Net Sales Price” as including the sale price of the hotel business. Given the plain meaning of the words “the sale price of the Property” and the omission of any express reference to the sale price of “the Hotel” or “the Business”, that submission essentially relied on the proposition that it would be an absurd outcome or commercial nonsense if the CGBF were to be calculated by reference to the sale price of the land only. This was said to be an outcome that would deprive the Marlow Group of any bonus fee reflecting the increase in the value of the hotel business achieved by reason of its management of the relevant hotel.

I do not consider that such an outcome is absurd or uncommercial and I reject the Marlow Group’s submissions referred to above. It is clear from the terms of the 2021 HM Agreements that the Marlow Group managed the hotels at the expense of the Operating Entities. It will be recalled that each Operating Entity (“the Company”) was obliged to reimburse the Marlow Group for the fees, costs, expenses and other outlays reasonably incurred by the Marlow Group. [19] After being reimbursed for those expenses, the Marlow Group was entitled to its “Base Fee” (which was not subject to any conditions) and an additional “Bonus Fee” if the hotel business achieved a net income above the stipulated “Preferred Return”. Those fees were payable by the relevant Operating Entity. On my construction of the CGBF provisions, the Marlow Group was also entitled to an additional bonus payable by “the Landowner” if the value of the land increased to such an extent that the land alone was sold for a sum in excess of the aggregate amount that had been paid by “the Landowner” and the relevant Operating Entity to acquire the relevant land and hotel business (respectively). There is nothing absurd or uncommercial about the “the Landowner” not being required to pay to the Marlow Group a percentage of any increase in the value of the Operating Entity’s hotel business, particularly in circumstances where the hotel business has been managed by the Marlow Group at the Operating Entity’s expense in consideration for the “Base Fee” and (where applicable) the “Bonus Fee” paid to the Marlow Group by the Operating Entity. In substance, the Marlow Group seeks a judicial re-writing of the 2021 HM Agreements to overcome the language that the parties chose to record their agreement at the time so as to achieve an outcome that the Marlow Group considers to be more convenient and “fair”. The Court is not permitted to engage in such an exercise.

For those reasons, the Court will not make declarations in the terms sought in in prayers 2 to 3C of the second further amended interlocutory process referred to at [39]. Counsel for the Liquidators submitted at the hearing on 8 September 2022 that, in that event, the Court should make declarations as to the proper construction of the CGBF provisions of the 2021 HM Agreements rather than simply dismissing prayers 2 to 3C of the second further amended interlocutory process. The Court will therefore make a declaration in relation to each of the 2021 HM Agreements to the effect that, on the proper construction of the agreement, the words, “sale price of the Property under a contract signed by the Landowner as the seller (which may include the Company as the seller of the Business)” within the definition of the term “Net Sales Price” in item 3 of Schedule 2 mean the sale price of the land referred to in the definition of “Property” (including the hotel building constructed on that land) and do not include the sale price of the hotel business operated from that land.

The evidence that was adduced by the parties does not permit the Court to make any declaration as to the amount payable to the Marlow Group in respect of the CGBF under each 2021 HM Agreement so construed. That is because the contracts for sale of land and business referred to at [19]-[20] above were not tendered, Mr McCabe’s evidence about the apportionment of the purchase price payable by the purchaser under those contracts does not stipulate the price for the land alone (as opposed to the land plus gaming machine entitlements), gaming machine entitlements are not included in the definition of “Property” in the 2021 HM Agreements and no party made any submission to the effect that gaming machine entitlements were part of the land comprising the “Property” as a matter of law.

The Receivers are entitled to such remuneration as may be fixed by the Court: Uniform Civil Procedure Rules 2005 (NSW), r 26.4. The Court’s inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets extends to the Receivers who have been controlling the Trust assets and to the Administrators and Liquidators who, for practical purposes, have been controlling each of the four Companies whose sole business has been to act as trustee of the relevant Trust: Re North Food Catering Pty Ltd; [20] Re IMF Global Australia Ltd (in liq) (No. 2). [21]

As counsel for the Liquidators submitted, the principles applicable to the inherent equitable jurisdiction referred to above are those summarised in In the matter of BBY Ltd (receivers and mgrs. apptd) (in liq): [22]

Evidence was adduced at the hearing of the second further amended interlocutory process that the Liquidators’ firm issued circulars to the creditors of each of the Companies and the unitholders of each of the Trusts on 24 June 2022 and 19 August 2022 attaching or containing a link to the interlocutory process and amended interlocutory process together with Mr McCabe’s affidavits sworn on 23 June 2022 and 12 August 2022.

The further amended interlocutory process and the second further amended interlocutory process did not amend the orders sought in relation to the remuneration of the Administrators, Liquidators and Receivers. Mr McCabe’s affidavit sworn on 1 September 2022 was not relevant to the remuneration application.

Evidence was adduced at the hearing of the second further amended interlocutory process that the Liquidators’ firm had not received any objection or substantive enquiry concerning the remuneration application from any creditor or unitholder.

The creditors comprising the Contradictors did not seek to be heard in opposition to the remuneration application.

Mr McCabe has given detailed evidence in his affidavit sworn on 23 June 2022 in relation to the work done by the Receivers, Administrators and Liquidators, the manner in which that work has been performed (including the identity and level of experience of the personnel who performed and supervised that work) and the hourly rates applied to that work which form the basis of the amounts of remuneration now claimed.

Mr McCabe has deposed that there has been a substantial overlap in the duties and responsibilities of the Administrators and Liquidators on the one hand and the Receivers on the other hand. Mr McCabe has described the fees, expenses and remuneration of the Administrators, Liquidators and Receivers as having been incurred in obtaining, caring for, preserving and realising what he describes as the “Hotel Assets”, being the land and gaming machine entitlements in respect of each of the four hotels, and attending to statutory tasks.

Notwithstanding the overlap, remuneration was separately recorded for each of the four Companies under separate reporting codes for the Administration, Liquidation and Receivership. Where common work was done for the four Companies (e.g. reporting to creditors and convening concurrent meetings of creditors), the time spent on the work was apportioned equally between the four Companies and/or the four Hotel Assets.

Mr McCabe has deposed that the steps taken to realise the Hotel Assets has been a complex and time-consuming process. Mr McCabe has described the work as including:

Mr McCabe has deposed that tasks were allocated to particular staff members and/or handled by him and Mr Hayes personally depending on the perceived complexity of the task and the level of experience required by the task. Mr McCabe has also adduced evidence of a detailed file note setting out the manner in which different tasks were undertaken. I have reviewed that file note and am satisfied that the work described in it was properly carried out in the course of the administration, liquidation and receivership with an appropriate approach to resourcing and delegation. By way of example, the sale campaign for the Hotel Assets was managed by two partners with the assistance of a senior analyst. By contrast, the adjudication of creditor claims was managed by a manager with the assistance of a senior analyst and oversight by a partner. Whilst work was delegated, this appears to have been done in an efficient manner that would have retained knowledge of the matter within a relatively small team of personnel working on the matter. There is evidence that all of the work for the administration and liquidation of each of the Companies was undertaken by the same seven to nine people, comprising two partners (being Messrs McCabe and Hayes), two managers, one assistant manager, two senior analysts and one support person (noting that a different support person worked on the administration and the liquidation). The same team worked on the receivership, supplemented by one additional partner.

The total amount of remuneration claimed is $993,922.50. That total amount is broken down between the four Companies and Trusts and is further broken down to differentiate between work performed by the Administrators prior to and after their appointment as Receivers, work performed by the Liquidators and work performed by the Receivers. That breakdown is set out in the following table included in Mr McCabe’s affidavit sworn on 23 June 2022:

The remuneration amounts in the “Approved” column in the table above are amounts that the second concurrent meeting of creditors of the Companies resolved to approve on 30 December 2021 in respect of the remuneration of the Administrators and the Liquidators. It was not open to the creditors to make any resolution in relation to the Receivers’ remuneration.

Mr McCabe has deposed that the remuneration amounts in the table above have been calculated on a time costed basis in accordance with the time actually spent working on the matter as recorded by staff in the firm’s computerised system. He considered time-based charging to be the most appropriate basis for calculating remuneration because the nature and extent of the work that would be required of the Administrators, Liquidators and Receivers was inherently uncertain. Mr McCabe has deposed that the firm’s time records accurately reflect and describe the work carried out by the Administrators, Liquidators and Receivers.

The hourly rates charged range from $580 per hour for partners to $155 per hour for support personnel. Mr McCabe has given evidence that these rates represented a discount to his firm’s standard hourly rates. I accept Mr McCabe’s evidence that the hourly rates charged are comparable to rates charged by other insolvency practitioners in the market.

Mr McCabe has deposed that, based on his review of the time records, the total time costs incurred, his knowledge of the work involved and his experience as a liquidator, he believes that all of the work done was reasonably necessary and properly performed by appropriately qualified people, the work was performed in an efficient and timely manner and the remuneration claimed is fair and reasonable having regard to all relevant circumstances.

The breakdown of remuneration in the table at [109] above is reflected in the terms of the orders sought for remuneration in respect of each Company and Trust, save that the two categories for work performed by the Administrators prior to and after their appointment as Receivers are conflated into one category.

The total remuneration sought in relation to each Company and the Trust of which it is the trustee is:

On the basis of all of the evidence referred to above and my broad review of the computerised time records referred to in Mr McCabe’s 23 June 2022 affidavit and tendered at the hearing on 8 September 2022, I am satisfied that the work done by Messrs Hayes and McCabe in their capacities as Administrators, Receivers and Liquidators during the period up to 5 June 2022 is work that was properly done in the due course of the receivership and/or the external administration, that the time taken and the amount charged for the work are proportionate to the complexity of the tasks and that the amount of remuneration claimed is a fair and reasonable reward for that work, both considered on a global level looking at the four Companies and Trusts as a whole and considered separately in respect of each Company and each Trust. I note that the amount of remuneration claimed in respect of each Company and the corresponding Trust represents a relatively small proportion of the value of the assets realised by that work for the benefit of creditors and unitholders.

Orders will therefore be made in terms of prayers 4, 6, 8 and 10 of the second further amended interlocutory process in relation to the remuneration of the Administrators, Liquidators and Receivers in respect each of the four Companies and Trusts.

In prayers 5, 7, 9 and 11 of the second further amended interlocutory process, Messrs McCabe and Hayes sought orders that their remuneration in the amounts fixed by the Court, together with their costs and expenses, be paid out of the assets of the four Trusts. Subject to one qualification, those orders are appropriate in circumstances where each Company’s sole business was conducted as trustee of the relevant Trust and the Company held no assets other than Trust assets.

The qualification is that, insofar as those orders relate to costs and expenses, they will be limited to reasonable costs and expenses properly incurred. No evidence was adduced in relation to the nature or quantum of the costs and expenses, although I would infer that they would include legal costs, valuation fees and marketing fees. It will be a matter for Messrs McCabe and Hayes to scrutinise the costs and expenses to ensure that they have been properly incurred and are reasonable in amount before paying them out of the assets of the relevant Trust.

The Contradictors’ contentions in relation to the proper construction of the CGBF provisions of the 2021 HM Agreements have been accepted. It is appropriate that there be an order that their reasonable costs of and incidental to the hearings on 8 and 26 September 2022 be paid out of the assets of the Trusts on the ordinary basis, as agreed or assessed.

Senior counsel for the Marlow Group indicated at the hearing on 8 September 2022 that they would not be seeking an order for costs in their favour, irrespective of the outcome of the issues concerning the Marlow Group Claims.

It is appropriate that the Liquidators’ reasonable costs of and incidental to the hearings on 8 and 26 September 2022 be paid out of the assets of the Trusts.

The parties are to bring in short minutes of order giving effect to these reasons within 7 days.