In the matter of Stream Customised Claims Pty Ltd (recs & mgrs apptd) (in liquidation)

By Amended Originating Process filed on 16 August 2018, the Plaintiffs, Messrs Heesh and Thaggard as joint and several receivers (“Receivers”) of Stream Customised Claims Pty Ltd (recs & mgrs apptd) (in liq) (“SCC”) seek directions under s 424 of the Corporations Act 2001 (Cth) and in the Court’s inherent jurisdiction in relation to the distribution of money received by them as receivers and managers of SCC. The Defendants to the proceedings are Mr Park and Ms Trenfield as joint and several liquidators (“SGA Liquidators”) of Stream Group Aust Pty Ltd (in liq) (“SGA”), who appeared and put a contrary position to that for which the Receivers contended; Mr Clout and Ms Talty as joint and several liquidators of SCC, who are without funds in the liquidation and did not seek to appear; and SGA and SCC, pursuant to leave to pursue the proceedings against those entities granted on 13 August 2018 pursuant to s 500 of the Corporations Act.

In particular, the Receivers seek a direction whether any part of money (“Westpac Money”) received by them as receivers and managers of SCC from Westpac General Insurance Ltd (“WGIL”) on or around 5 July 2016 is held on trust for the benefit of SGA and/or is not property of SCC for the purposes of the Corporations Act. The Court’s power to give directions under s 424 of the Corporations Act corresponds with its power to give directions to voluntary administrators under former s 447D and to liquidators under former ss 479 and 511 of the Corporations Act and the corresponding power in Div 90 of the Insolvency Practice Schedule (Corporations), and similar principles apply: Re One.Tel Network Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83. I am satisfied that the Court has jurisdiction to make the order sought under that section and that this is a proper case to make such a direction so as to assist the Receivers to resolve the legal issue in dispute.

The Receivers relied on the affidavit dated 26 June 2018 of Mr Heesh, which identified the issues as to which a direction is sought, the circumstances in which the Receivers were appointed to SCC and the documentary history of the dealings between SCC, SGA and WGIL. The SGA Liquidators relied on the affidavits of Mr Park dated 2 July 2018 and 3 September 2018 which referred to SGA’s, and Mr Park’s, dealings with SCC in respect of the relevant matters. I have drawn on those affidavits in setting out the factual background to the application below. I have also drawn on a helpful schedule prepared by Mr Neggo, who appears for the Receivers, setting out the facts which they contended should be found. Mr McKechnie, who appears for the SGA Liquidators, did not identify any contest as to those facts. I also refer below to the contemporaneous correspondence between SCC, SGA and WGIL which is relevant to whether the trust for which the SGA Liquidators contend is established.

All the shares in each of SCC and SGA were held by Stream Group Holdings Pty Ltd and those companies had a single director, Mr Donald McKenzie, at all relevant times (Ex P4, 144-153, 154-160). Prior to 11 February 2015, an entity in the Stream Group of Companies, most likely SCC, purchased the operations of Cerno Ltd (“Cerno”), including in relation to an Assessors Services Agreement (Ex P4, 30-53) under which Cerno provided claims assessment services to WGIL. The original term of that agreement was from 30 September 2013 until 30 September 2015. On 11 February 2015, Westpac, Cerno and SGA entered into a Novation Agreement relating to the Assessors Services Agreement (Ex P4, 67, 72). The parties have not been able to locate a copy of that Novation Agreement, which is not held by the SGA liquidators and was not produced by WGIL on subpoena.

From around 11 February 2015, WGIL began to allocate claims assessment services to SCC, it appears that that work was invoiced by SCC to WGIL (although, I interpolate, the invoices in evidence are headed “Stream Customised Claims” and do not identify a particular company) and WGIL paid those invoices to SCC’s bank account. The relevant work was done by employees of SGA, and SCC paid SGA for the work done by SGA’s employees (Ex P2; Ex P4, 58, 65, 71-73). On 24 February 2015, administrators were appointed to Cerno and that company was placed in liquidation on 31 March 2015 (Ex P3). Subsequently, on 25 September 2015, WGIL wrote to “Stream Customised Claims” referring to the Assessors Services Agreement between SGA and WGIL and agreed to extend the term of that agreement to 30 June 2016 (Ex P4, 54). On 15 December 2015, WGIL wrote to SGA terminating the Assessors Services Agreement (Ex P4, 57) on the basis that it reasonably understood that SGA was at risk of becoming subject to insolvency administration. On 16 December 2015, administrators were appointed to SGA (Ex P4, 144–153).

On 5 January 2016, the director of SGA and SCC, Mr McKenzie, advised Mr Park, then one of SGA’s administrators, (Ex P4, 58–59) that the contract with WGIL “turns out to have been with [SGA]” but the claims assessment work for WGIL was allocated to, and done by, SCC; SCC had issued invoices to WGIL and WGIL had paid on those invoices; and claims assessment work had been done by employees of SGA, for which SCC paid SGA. Mr McKenzie also advised that SCC would have paid SGA for work done by SGA’s employees referable to invoices which had been sent to WGIL but not yet paid, but SCC would not yet have paid SGA for work in progress that was yet to be invoiced to WGIL. He suggested that:

On 6 January 2016, Mr McKenzie emailed Mr Dixon, the chief executive officer of the Stream Group), (Ex P4, 64–65), setting out a draft letter to WGIL which stated that:

On 6 January 2016, Mr McKenzie also wrote to Mr Park (Ex P4, 67–68) advising that:

The SGA Liquidators rely, in submissions, on Mr McKenzie’s acknowledgement in this email that “if it is established that these invoices were the property of SGA (noting that they have always been in the name of SCC, and paid to SCC) then we would then have to remit these to you.” That, however, recognises the position if that matter is established, contrary to Mr McKenzie’s observations as to the way in which the parties conducted themselves, and does not itself establish that matter.

Later on 6 January 2016, Mr McKenzie wrote to Mr Park (Ex P4, 67) advising that:

Also on 6 January 2016, WGIL wrote to Mr Dixon (Ex P4, 71–72) requesting:

On 2 February 2016, SGA was placed into liquidation (Ex P4, 144–153).

On 24 February 2016, Mr McKenzie emailed Mr Park (Ex P4, 78) advising that:

On 14 March 2016, Mr McKenzie wrote to Mr Park (Ex P4, 80) identifying two potential mechanisms for invoicing WGIL, stating that:

On 18 March 2016, Mr Park wrote to WGIL (Ex P4, 86) stating, inter alia, that:

On 13 April 2016, SCC and the SGA Liquidators agreed that the arrangement would be varied so that legal costs incurred by SCC in dealing with WGIL would be reimbursed to SCC before a distribution to SGA and SCC (Ex P4, 94–95).

On 20 June 2016, the Receivers were appointed to SCC (Ex P4, 98-104). Also in June 2016, WGIL and SCC entered into a Deed of Settlement and Release (Ex P4, 105-110) which provided for WGIL to pay a Settlement Sum of approximately $287,000 to SCC. The recitals to the Deed recorded that WGIL denied any liability to SGA in relation to the “WIP Claims” and the document contained a warranty by SCC (expressly relied upon by WGIL) that SCC was the only entity and the correct entity entitled to receive payment for any amounts constituting a compromise of the “WIP Claims”. SGA was not named as a party to the Deed which also did not refer to payment being made by WGIL to SCC as agent for SGA. On 29 June 2016, SCC was placed in liquidation (Ex P4, 154–160). On 6 July 2016, WGIL paid the Settlement Sum to the Receivers (Heesh 26.6.18 [33]).

The SGA parties were in general agreement regarding the legal principles to be applied, and the primary question is whether the parties’ agreement involved an intention (objectively assessed) on the part of the parties to create a trust. Mr Neggo fairly accepted that a trust may be implied, inferred or imputed on the basis of an assumed intent, referring to Korda v Australian Executor Trustees (SA) Limited [2015] HCA 6; (2015) 225 CLR 62. French CJ there (at [5]) referred to a summary of the requirements for an express trust in JD Heydon and MJ Leeming, Jacobs’ Law of Trusts in Australia, (7th ed, 2006, LexisNexis Butterworths) at [306], where the learned authors note that an intention to create a trust may be found based on language which expressly or impliedly expresses that intention, or from the conduct of the parties concerned, but that no trust will be established if there is any uncertainty as to that intention. Hayne and Kiefel JJ also there noted (at [72]) that whether a trust should be found to exist depends on the proper construction of the documents which record the parties’ intention, and Gageler J observed (at [109]) that whether recognition and enforcement of a trust is appropriate is to be determined according to ordinary principles of contractual construction.

The parties also referred to In Walker v Corboy (1990) 19 NSWLR 382, where Priestley JA observed (at 386) that, where there is no express agreement, whether a trust is established will depend upon the expectations of the parties implicit in their dealings with one another in the commercial milieu in which the particular dispute has arisen. His Honour there observed (at 387) that the parties there:

Clarke JA there also referred (at 390) to the caution which should be exercised when deciding whether an intention to impose trust obligations should be inferred from the complex circumstances which often attend the commercial relationship of parties who have traded together for a long period of time and also pointed (at 392) to the significant disruption to the course of trading by the imposition of trust obligations. Meagher JA observed (at 395–396) that:

The approach adopted in Walker v Corboy above, was followed in Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 at 423 per Beaumont and Sackville JJ, with whom Jenkinson J agreed, and that approach was also applied in Orica Ltd v Commissioner of Taxation [2010] FCA 197 at [76]–[77] and in Georges (in his capacity as joint and several liquidator of Sonray Capital Markets Pty Ltd (in liq)) v Seaborn International Pty Ltd (as trustee for the Seaborn Family Trust) [2012] FCAFC 140; (2012) 206 FCR 408 at [40].

Mr Neggo points out that, in this case, the original commercial relationship between SCC and SGA does not provide any real support for a trust where, irrespective of the terms of the Novation Agreement, the parties’ practice was for SCC to issue invoices to WGIL and for WGIL to pay SCC, which then paid SGA for the use of its employees who carried out the claims assessment work. Mr Neggo acknowledges that the letter dated 18 March 2016 from Mr Park to WGIL stated that SGA (or at least its administrators) had appointed SCC as their agent to negotiate with WGIL and to receive payment. However, he submits that the fact that an agent receives money from a third party on behalf of their principal does not necessarily make the agent a trustee of that money for the benefit of the principal.

Mr Neggo also points out that there is no direct suggestion in any of the communications that it was intended that SCC would hold any part of the Westpac Money on trust for SGA; that the email dated 24 February 2016 from Mr McKenzie (on behalf of SCC) to Mr Park did not use language referring to a trust or, I would add, contemplate that monies received by SCC would be segregated between those to which it was entitled and those to be paid to SCC; and that Mr McKenzie’s email of 14 March 2016 proposed that SCC would remit 30% of the received money to the SGA Liquidators within three days of receipt, and did not refer to that money being held on trust, or, I again add, contemplate any segregation of that money. Mr Neggo also points out that the Deed between WGIL and SCC did not suggest that WGIL was making any payment of money for SCC to hold on trust for SGA, although he rightly recognises that is not determinative, particularly where SGA was not a party to the Deed. Mr Neggo submits that, in these circumstances, the Receivers incline towards the view that there is no trust, although they have no interest in the outcome other than to ensure that the Westpac Money is dealt with in the proper way.

Mr McKechnie submits that SGA rather than SCC was party to the Assessors Services Agreement and that SGA was owed money by WGIL relating to work in progress pursuant to the Assessors Services Agreement and SCC, pursuant to a prior agreement with SGA, was entitled to be paid for outstanding invoices (Park 2.7.18 [8]–[9]). The former submission presumably depends on the Novation Agreement, since neither SCC nor SGA were party to the Assessors Services Agreement in its original form. The latter submission depends on conclusory statements in Mr Park’s affidavit evidence as to the results of unidentified investigations, and I give it little weight. Mr McKechnie also relies on Mr Park’s characterisation of the agreement formed on 24 February 2016 as one by which “the funds owing to SGA by WGIL for work in progress under the Assessors Services Agreement would be recovered by SCC and that SGA would be entitled to 30% of those funds” (Park 2.7.18 [11]). I am not persuaded by the premise of that characterisation, that the Novation Agreement establishes that monies were owing to SGA rather than SCC, where the parties’ practice was that SCC invoiced and received payment of the relevant amounts and paid lesser, although substantial, amounts to SGA referable to the work done by its employees in providing those services. Mr McKechnie also submits that the 24 February agreement created an express trust such that the money is not the property of SCC.

Mr Neggo also submits that, where the arguments for an implied intention are finely balanced, this raises “a cautionary concern” about the certainty of that intention, and that the imposition of trust relationships may defeat the interests and expectations of creditors: Korda v Australian Executor Trustees (SA) Limited above at [10]; Re Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 404 per Brereton J at [19]. Mr McKechnie responds that the “cautionary concern” raised in relation to inferring a trust relationship in a commercial context should not be applied universally. He distinguishes between a trading relationship where a Court should be reluctant to infer a trust and a single isolated transaction and relies on the observation of Meagher JA in Walker v Corboy above at 396 that:

That observation directs attention to the question of rights in an underlying asset. As I have noted above, it does not seem to me that question is determined by the Novation Agreement where all parties adopted a different invoicing and payment practice, and the 24 February arrangement contemplated that SCC would receive the Westpac Money at least in the first instance, subject to the sharing of that money contemplated by it, and did not confer any prior right to that money on SGA. Mr McKechnie also submits that this case is analogous to cases where an agent sells property of a principal and receives money, and that the Court can take assistance from principles applied in such cases. I do not accept that submission, which depends on SGA having a prior right to receive the Westpac Money which has not been established.

Both parties recognise the relevance of the way in which the Westpac Money was to be treated by SCC, although they give different weight to that matter. Mr Neggo submits that the fact that an agent receives money from a third party on behalf of their principal does not make the agent a trustee of that money for the benefit of the principal: Walker v Corboy above; Parker v Higgins [2012] NSWSC 1516 at [55]–[56]; Jacobs’ Law of Trusts in Australia, 7th Edition at [210]. Mr Neggo also submits that whether a party is obliged to keep any money separate from its own money is “often decisive” as to whether a trust exists: McManus RE Pty Ltd v Ward [2009] NSWSC 440 at [25].

Mr McKechnie in turn refers to the observations of Channell J in Henry v Hammond [1913] 2 KB 515 at 521 that:

Mr McKechnie submits that, although any requirement that a trustee should be obliged to keep any money separate from their own money is relevant to the question to be asked by the Court, it is not decisive or determinative. He refers to Puma Australia Pty Ltd v Sportsman’s Australia Limited above at 162, where McPherson ACJ observed that:

It seems to me that the balance of the case law indicates that any requirement to keep funds separate is a substantial consideration, not least because a party’s ability to mix monies with its own funds is generally inconsistent with a trust. It also seems to me that the inquiry as to whether a separate account was to be maintained is a useful one, despite the observations of McPherson ACJ in Puma Australia Pty Ltd v Sportsman’s Australia Limited (No 2) quoted above. In particular, a request for or implementation of such an arrangement may suggest that the parties intended that a trust exist and the absence of such a request may suggest the contrary, while leaving open a possibility that the arrangement was not maintained in breach of trust.

I have addressed several aspects of Mr McKechnie’s submissions above, but I should also deal specifically with the six reasons why he submits that a trust is established. First, he submits that SGA was the party to the Assessors Services Agreement and was legally entitled to be paid under that agreement, and the fact that SCC issued invoices in its name (or, I interpolate, in the business name “Stream Customised Claims”) does not change this fact. He submits that this case is analogous with cases of an agent selling property belonging to the principal, and that, absent other factors, the law will recognise a trust in such a case. As I have noted above, I do not accept that submission or that analogy, where the parties had conducted themselves in a different manner by SCC issuing invoices and receiving payment of them and it them paying SGA for its employee costs for the work done.

Second, Mr McKechnie submits that the intention to create a trust can be inferred from the language used by Mr McKenzie on behalf of SCC in the 24 February email, and that the words “FTI won’t have to do anything, it will just get 30% of whatever is recovered into the SGA accounts” support a clear inference that SGA (or the administrators) had a beneficial proprietary interest in the amount recovered. Mr McKechnie submits that those words carry a clear inference of an automatic entitlement to the funds on account and that is consistent with a trust existing and not with a debt arrangement. I also do not accept that submission, since the words seem to me to do no more than recognise the result of the agreement being performed, which is equally consistent with a contractual arrangement rather than a trust.

Third, Mr McKechnie submits that the uncertainty which may have existed regarding the proper party to the Assessors Services Agreement is consistent with the SGA parties’ case, and the focus of the parties upon who has property in accounts payable under the Assessors Services Agreement is consistent with a trust arrangement rather than a simple debtor-creditor relationship. I am not persuaded by that submission, since the uncertainty as to that issue weakens any claim to a trust arising from that agreement and is consistent with the parties’ wish to reach agreement as to how to share the Westpac Money, but does not indicate that agreement contemplated a trust rather than contractual obligations.

Fourth, Mr McKechnie submits that, although there is no express requirement for SCC to keep the Westpac Money separate, there is also nothing in the emails which indicate that SCC was free to deal with the money as it wished. Mr McKechnie submits that the email of 14 March 2016 which proposes the remission of the 30% within three days appears to be contradictory to any freedom of SCC to deal with the funds as it pleases and then pay an equivalent amount. I am not persuaded by that submission, since the absence of a requirement to keep the funds separate at least suggests that the parties did not recognise its existence, and the remission arrangement is consistent with SCC being able to mix with the funds with its own funds and use them for its purposes until the time they were due to be remitted to SGA.

Fifth, Mr McKechnie submits that the agreement was an isolated transaction concerning specifically identifiable property and was not part of the ordinary course of an ongoing trading relationship such that many of the concerns which occupied the Court of Appeal in Walker v Corboy do not apply. While I broadly accept that submission, it does not support any positive finding that a trust is established. Finally, Mr McKechnie submits that there can be no concern about this case involving a “straw company” and accordingly the Court need not be concerned that the arrangement is designed to defeat creditors. I do not accept that submission, where the existence of a trust would have the necessary effect, if not the subjective intent, of promoting the interests of SGA over the interests of other creditors of SCC.

It seems to me that the arrangement between SCC on the one hand and SGA and its administrators on the other was contractual in character rather than establishing a trust. In summary, and as I have noted above, there was no reference in the correspondence to an intent to create a trust or a proprietary interest in the Westpac Money in favour of SGA and SGA’s administrators did not then refer to any risk of insolvency of SCC which may have led them to wish to obtain such an interest. There was no suggestion that SCC was bound to, or did, keep the Westpac Money separate from its other funds and the parties’ correspondence contemplated there would be a delay, albeit of short duration, between SCC’s receipt of payment and the payment of SGA’s share of that amount to the SGA Liquidators. It seems to me that, adopting the language of Henry v Hammond above, SCC was obliged to hand over an amount corresponding to 30% of the Westpac Money, after it was paid that amount, rather than to hold that portion of the amount it received on trust for SGA. Accepting that SCC was, at least in a sense, SGA’s agent to receive that payment, the absence of any other indication to create a proprietary interest in the Westpac Money in favour of SGA on receipt and the absence of separation of such funds does not support a finding that a trust was intended.

Directions should therefore be made in accordance with the findings that I have recorded above. The Receivers also seek an order that the costs of this application be paid out of the Westpac Money. I will make such an order in respect of the Receivers’ costs of the application. It is not immediately apparent why such an order should extend to the costs incurred by the SGA Liquidators in respect of the application, but I will hear the parties if they wish to be heard further in that regard. The parties should bring in orders to give effect to this judgment, including as to costs, within 7 days.