Background
Following the sale of a Mosman property, surplus proceeds were held in an interest-bearing controlled monies account. In an earlier judgment, the Court held that Great Lands Investment Pty Ltd’s mortgage was void against Mr Gu’s bankruptcy trustee, while Great Lands retained a fixed statutory payment entitlement of $2,193,209.62. It also held that i-Prosperity Pty Ltd (in liquidation) (IPPL) had a $280,000 subrogated entitlement and a separate equitable proprietary interest arising from its contribution to acquiring the property.
The parties could not agree on all orders required to implement that judgment. Their disputes concerned receivers’ remuneration, the calculation and earnings treatment of IPPL’s resulting-trust interest, interest on IPPL’s subrogated claim, and whether IPPL should receive indemnity costs because the Hu parties had rejected settlement offers.
The Court’s Holding
Justice Cheeseman held that receivers’ remuneration is deductible from the sale proceeds only to the extent it was reasonably incurred in caring for, preserving or realising the property. Property-related work may be a common deduction; work directed solely to enforcing Credit Suisse’s mortgage or administering the receivership is to be borne by Mr Gu’s share. The parties were directed to calculate or agree the appropriate apportionment from the receivers’ records.
IPPL’s resulting-trust percentage must be calculated against the surplus fund as it stood at completion, before deducting Great Lands’ statutory entitlement. But Great Lands’ fixed entitlement is excluded when allocating interest earned on the controlled monies account, so the Hu parties do not receive earnings attributable to that amount. IPPL was entitled to contractual compound interest on its $280,000 subrogated claim until the mortgage was discharged on 26 February 2021, producing a completion entitlement of $325,961.24; thereafter it receives simple interest at Federal Court pre-judgment rates, not a share of account earnings. The Court ordered the Hu parties to pay 50% of IPPL’s costs on the ordinary basis, rejecting indemnity costs.
Key Takeaways
- A receiver’s remuneration has priority only insofar as it is connected to preserving or realising the relevant property.
- A fixed statutory bankruptcy payment does not reduce a pre-existing proprietary percentage of sale proceeds, although it may be excluded for allocating later account earnings.
- Rejected Calderbank offers did not justify indemnity costs where they involved unresolved litigation risks or incomplete settlement terms.
Why It Matters
The decision carefully separates proprietary interests, statutory compensation rights and subrogated mortgage rights when distributing a mixed fund after an insolvent owner’s property is sold. That distinction determined both capital distribution and entitlement to interest earned while the proceeds were held.
The ruling also underscores that a commercially attractive settlement offer is not enough for indemnity costs: the rejecting party’s conduct must have been unreasonable when assessed against the offer’s actual terms and the litigation risks then known.