Application of Weston
[2011] NSWCA 250
•12 September 2011
Court of Appeal
Supreme Court
New South Wales
Medium Neutral Citation: Application of Weston [2011] NSWCA 250 Hearing dates: 22 June 2011 Decision date: 12 September 2011 Before: Giles JA at [1], McColl JA at [61], Basten JA at [62] Decision: Applications for leave to appeal dismissed.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: CORPORATIONS - Winding up - validity and validation of resolution purporting to fix remuneration of liquidator - effect of resolution - rulings as to work within liquidator's functions - leave to appeal refused. Legislation Cited: Corporations Act 2001 (C'th)
Corporations Amendment (Insolvency) Act 2007Cases Cited: Australian Securities and Investments Commission v Piggott Wood & Baker [2006] FCA 1774;
Mirror Group Newspapers Plc v Maxwell (No 2) (1998) 1 BCLC 638;
Re Vanfox Pty Ltd [1995] 2 Qd R 445; (1994) 13 ACSR 209.Category: Principal judgment Parties: Paul Gerard Weston (Special Purpose Liquidator of One.Tel Limited (In Liq)) - Applicant Representation: N Cotman SC & R Glasson - Applicant
D L Cook - Australian Securities and Investments Commission (Amicus curiae)
O'Neill Partners - Applicant
File Number(s): CA 2003/86446 Decision under appeal
- Citation:
- Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 401, [2010] NSWSC 1120, [2011] NSWSC 59
- Before:
- Barrett J
- File Number(s):
- 2003/00086446
Judgment
GILES JA : The applicant is the special purpose liquidator of One.Tel Ltd. His remuneration would ordinarily be fixed by the committee of inspection pursuant to s 499(3) of the Corporations Act 2001 (C'th) ("the Act") as it stood prior to the amendments by the Corporations Amendment (Insolvency) Act 2007. He contended that fixing his remuneration pursuant to s 499(3) had proved unworkable, and applied to the Court for determination of his remuneration under s 511 of the Act as a question arising in the winding up.
The applicant applied for leave to appeal from decisions given on his remuneration application, one given on 7 May 2010 ( Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 401) and the other given on 1 October 2010 ( Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120). The applications were heard on full submissions as if appeals, so that the appeals could be decided without further submissions if leave to appeal were granted.
In the absence of a contradictor, ASIC appeared as amicus curiae. The assistance provided by ASIC is appreciated, and should be acknowledged.
The course of the remuneration application
The application was for an order determining the applicant's remuneration at $261,135 plus GST for the period of four months from 1 July 2009 to 31 October 2009 and $182,199 plus GST for the period of four months from 1 November 2009 to 28 February 2010. It was made by an interlocutory process filed on 15 February 2010. An amended interlocutory process was filed on 29 March 2010.
There was a hearing on 12 and 29 April 2010. On the latter date a further amended interlocutory process was filed, and submissions were made also in relation to the additional matter it raised. Three of the five members of the committee of inspection appeared and opposed the remuneration application.
The reasons of 7 May 2010 dealt with the remuneration application only in part. Relevantly to the application for leave to appeal, they were concerned with the validity of a purported resolution of the committee of inspection ("the resolution") pursuant to which 75 per cent of the remuneration claimed for the period from 1 July 2009 to 31 October 2009 had been paid to the applicant. The primary judge held that the resolution was not a valid resolution fixing the applicant's remuneration. His Honour said that the applicant had been paid money to which he had no legal entitlement.
No substantive order was made. The primary judge determined that further consideration of the remuneration application, including the question of validation of the resolution by an order pursuant to s 1322 of the Act raised by amendment on 29 April 2010, should be deferred so that ASIC could consider whether it wished to intervene or otherwise be heard. The hearing of the application was adjourned, with directions for notice to ASIC.
The remuneration application was further heard by the primary judge on 29 July 2010. ASIC appeared as amicus curiae.
The reasons of 1 October 2010 were relevantly concerned first, with whether the resolution could and should be validated by an order pursuant to s 1322 of the Act; and secondly, with whether six categories of work in respect of which remuneration was claimed were necessary for or properly incidental to the conduct of the applicant's administration. The primary judge held that s 1322 was not available to validate the resolution. His Honour considered the six categories of work, as to five of them coming to conclusions adverse to the applicant.
Having expressed his conclusions as to the categories, the primary judge gave attention to the form in which the applicant had put material before the court and the capacity of that material to make clear the work which had actually been done. His Honour considered that it was not possible for the necessary task of quantifying the applicant's remuneration to be undertaken by the Court, due to "the method of presentation and the problems it creates for seeing, first, precisely what was done and, second, how what was done forms part of the functions of the special purpose liquidator" (at [78]). He said that the applicant should re-present the material and re-formulate his claim, that the members of the committee of inspection and ASIC should have the opportunity to consider the material and the claim, and that when any remaining matters of principle that they might wish to raise had been determined by the Court there would be referral to a Registrar "to deal with the details of assessment and quantification" (at [80]) and report back to the Court.
The only order made by the primary judge was a direction that short minutes be provided "to put in place the regime I have described". It is not clear what was done in that respect.
The remuneration application was before his Honour again on 17 February 2011, resulting in reasons of 22 February 2011 ( Onefone Australia Pty Ltd v One.Tel Ltd [2011] NSWSC 59). The primary judge recorded at [1] of the reasons of 22 February 2011 that the applicant said that he had revised his remuneration claim -
" ... in a way that takes account of the delineations stated in the decision of 1 October 2010 and so as to eliminate items referable to time spent on matters which it was there said did not attract an entitlement to remuneration. The revision has also involved the re-statement of the material in order to clarify and amplify matters that had previously not been adequately explained or particularised."
His Honour made an order referring the revised claim to a Registrar, as earlier proposed. When the applications for leave to appeal were heard, the Registrar's assessment had not concluded.
Do appeals lie?
In one draft notice of appeal the applicant asserted an appeal from "the whole of the decision" given on 7 May 2010, with three grounds of appeal challenging the holding that the resolution was not a valid resolution fixing his remuneration and one ground of appeal alleging error in "holding" that he had been paid money to which he had no legal entitlement. He claimed orders that the appeal be allowed and "Judgment of the court below set aside", but no other substantive order.
In the other draft notice of appeal the applicant asserted an appeal from "part of the decision" of 1 October 2010, identifying and with grounds of appeal challenging the holding as to s 1322 of the Act and the conclusions as to three out of the five categories of work. He claimed declarations and orders validating the resolution and upholding entitlement to remuneration for the three categories of work.
With some doubt as to the categories of work, since the primary judge's observations as to the presentation of material left his conclusions at a level of principle and short of finally resolving the applicant's entitlement, it could be said that the primary judge decided issues raised in the remuneration application. However, the remuneration application has not yet concluded by determination of the applicant's remuneration. Appeal relevantly lay from a judgment or order: Supreme Court Act 1970 , s 101(1). What was or were the judgment(s) or order(s)?
The applicant did not identify judgment(s) or order(s) which would carry the proposed appeals. He suggested that the relevant order was that made on 17 February 2011 referring to a Registrar for assessment the applicant's revised claims for remuneration, presumably on the basis that the assessment would be carried out in accordance with the primary judge's decision of the issues.
As will appear, and apart from the doubt as to categories of work, the issues concerning the validity and validation of the resolution and its fixing of remuneration were false issues in the remuneration application. Neither any decision of those issues nor the observation concerning payment of remuneration to which the applicant was not entitled went to the Court's determination of the applicant's remuneration. However, even if the decisions of issues raised in the remuneration application were or became bases for judgment(s) or order(s), for the reasons below leave to appeal should be refused.
It is appropriate to remind the profession that, subject to s 101(1)(b) of the Supreme Court Act , a judgment or order must be identifiable, and preferably identified, as the foundation of an appeal from a judge in a Division.
The reasons of 7 May 2010: the resolution
The validity of the resolution as a resolution fixing the applicant's remuneration came into the remuneration application in the following manner.
From the evidence put before the primary judge by the applicant, his request that remuneration for the period 1 July 2009 to 31 October 2009 be fixed had been considered by the committee of inspection at meetings on 4 and 8 December 2009. The primary judge said at [10] -
" ... No resolution fixing remuneration at $261,135 plus GST or any other sum was passed while members of the committee were in the course of consulting together at either meeting. It is said by the special purpose liquidator, however, that the committee adopted a 'circular resolution' as follows on 14 December 2009:
'THAT the SPL be entitled to receive payment of 75% (seventy-five percent) of his remuneration claim for the period 1 July 2009 to 31 October 2009 being $195,851, plus GST. The SPL is to apply to Court for determination of his entire remuneration for the period 1 July 2009 to 31 October 2009 in the sum of $261,135, plus GST. Noted that in the event that the Court determines the SPL's remuneration payable is less than 75% (seventy-five percent) of his total remuneration claim for the period, then the SPL is to repay the difference.'"
This was the resolution. The practice was that the applicant was paid his remuneration, after it had been fixed, by the general purpose liquidators. The remuneration application claimed a direction that the general purpose liquidators pay "the balance owing ... being the amount of $247,483.00 plus GST". This reflected that the applicant had been paid the $195,851 plus GST. In accordance with the resolution, in February 2010 the applicant made the remuneration application.
It was relevant for the applicant to explain his attempts to have the committee of inspection fix his remuneration, including proposals which resulted in the resolution, in order to show that fixing remuneration pursuant to s 499(3) of the Act had proved unworkable and enliven the Court's power under s 511. It was also appropriate to explain that $195,851 plus GST had already been paid to the applicant, so that he claimed a direction for payment only of the balance of the claimed remuneration.
However, the applicant sought to put the resolution to further use. He submitted to the primary judge that it fixed his remuneration at 75 per cent of the claimed remuneration subject to its later increase or decrease as the Court determined.
In the course of argument the primary judge was not receptive to this submission. His Honour questioned the power of the committee of inspection to fix the remuneration conditionally, and questioned whether the resolution even fixed remuneration at 75 per cent of the claimed remuneration.
In the reasons of 7 May 2010 the primary judge first addressed the validity of the resolution and held that it had not been validly passed. His Honour rejected the applicant's argument, more fully described in the reasons, to the effect that there was an "act" of the committee of inspection within s 549(3) of the Act when it specified an e-mail circular method of dealing with the proposed resolution, so that the result of that method was itself an "act" of the committee of inspection. His Honour held also that the resolution did not fix the applicant's remuneration, because it contemplated that the remuneration was to be fixed by the Court. His Honour said that the special purpose liquidator had received payment of $215,436.10 (this figure includes GST) to which he was not legally entitled.
The primary judge also said -
"34 If, as counsel for the special purpose liquidator suggested, the circular resolution (assuming, contrary to my finding, that it was a resolution) "fixed" remuneration for the particular period at the 75% figure (that is $215,436.10), there would be an entitlement to receive that sum. But there would then be no question for the court to answer under s 511. The remuneration fixing mechanism would have produced a result and there would therefore be no basis for the court to make the determination the resolution envisages."
This was correct. The validity of the resolution as a resolution fixing the applicant's remuneration was a false issue in the remuneration application. In its own terms, the resolution called for the applicant to apply for determination of his entire remuneration for the period 1 July 2009 to 31 October 2009. He had applied. The matter for the Court was fixing his remuneration for the period. The validity of the resolution did not come into that matter; if the resolution fixed the applicant's remuneration, there was no matter arising in the liquidation whereby the Court should fix it.
That is sufficient for refusal of leave to appeal. It may be added that the primary judge's consequential observation that the applicant had been paid money to which he had no legal entitlement was not susceptible of appeal. No order for repayment was made, although the Court was informed that the applicant had repaid the $215,436.10 to the general purpose liquidators, presumably shortly after 7 May 2009. The false issue and the absence of any question of repayment may explain the inadequacy in the relief claimed in the draft notice of appeal.
There are further reasons for refusing leave to appeal.
First, the resolution did not fix the applicant's remuneration for the period in question. The "entitle[ment] to receive payment" was subject to the Court's determination of his remuneration, including that if the Court determined a lesser sum than 75 per cent of the claimed $261,135, the excess was to be repaid. The committee of inspection purported only to authorise a payment on account. The primary judge was correct, and there is no arguable basis for an appeal in this respect; in particular, the applicant's submission that s 499(3) authorised fixing remuneration conditionally on the Court fixing the remuneration is without substance.
Secondly, by an order made as part of the reasons of 22 February 2011 the primary judge authorised payment to the applicant of $264,524, being two-thirds of the applicant's revised claim, plus GST, upon an undertaking as to repayment when the Court had determined his remuneration. If the resolution had provided a basis for payment to the applicant, at stake on appeal would be his loss of use of $215,436.10 for about 19 months, perhaps of a further $20,000 or so reflecting the difference between 75 per cent and 66.6 per cent for that period and until the Court determines his remuneration. The amount at stake is not large, of the order of $40,000, and there was no evidence of particular need for some additional amount.
The applicant submitted that there was a matter of significance in the ability to pass a circular resolution in the manner the committee of inspection had purported to come to the resolution. The course taken by the committee of inspection in this unusual administration does not call for wider consideration, the three members of the committee of inspection (out of five) who appeared in April 2010 did not support that course, and there must be few administrations still governed by the pre-2007 Act. There is insufficient utility, if any utility at all, in addressing on appeal whether or not the resolution was a valid resolution.
The reasons of 1 October 2010: validating the resolution
By the amendment to the remuneration application made on 29 April 2010, it seems against the prospect that his argument as to the validity of the resolution would not be accepted, the applicant claimed an order validating the resolution and the payment to him of the $215,436.10. He submitted that the invalidity came from a "procedural irregularity" within s 1322(2) of the Act, alternatively that there had been a purported act or proceeding within s 1322(4)(a). The primary judge rejected both submissions.
The reasons given in relation to the validity of the resolution sufficiently explain why leave to appeal in relation to its validation should be refused.
The reasons of 1 October 2010 - the categories of work
The primary judge said that he started from the position that a liquidator is entitled to fair and reasonable remuneration, but that it is for the liquidator to establish that entitlement. He identified factors to which regard should be had and principles relevant to the fixing of remuneration of court appointed receivers. He said that the question was whether the activities for which remuneration was claimed were within the scope of the liquidator's functions, although "qualitative assessment of activities" (at [31]) within the scope of the liquidator's functions was appropriate. Nothing of what his Honour said in these respects was sought to be challenged on appeal.
Six "categories of work" were identified as activities contested by the three members of the committee of inspection. They were -
"1. Briefing of and attendances on a media advisor.
2. Dealings with 'alleged defamation' of the special purpose liquidator.
3. Discussions with members of the press.
4. Transfer of the special purpose liquidator from Deloitte to Pitcher Partners.
5. Investigations into associations of members of the committee of inspection.
6. Certain contacts with ASIC."
Leave to appeal was sought with respect to the primary judge's conclusions as to categories 3, 5 and 6.
(a) Category 3
The primary judge dealt with categories 1, 2 and 3 as related items "in that each concerns the 2009 annual general meeting of creditors which was the occasion of widely publicised acrimony between the special purpose liquidator and the committee of inspection" (at [37]). His Honour considered that category 2 was "properly incidental to the performance of the special purpose liquidator's functions" (at [40]), but -
"41. Items 1 and 3 stand in a different light. It is true that the meeting of creditors attracted media interest. But that was of no concern to the special purpose liquidator, so far as the due performance of his functions was concerned. His ability to do what he was required to do would be in no way affected by anything the press might report. Whether he and his activities as special purpose liquidator received favourable media coverage, unfavourable media coverage or neutral media coverage was irrelevant to the tasks that it was his duty to perform. It was likewise irrelevant that the media might misunderstand some aspect of the administration or have some incomplete understanding. In short, it was of no consequence to the administration to which the special purpose liquidator was committed that media coverage might take any particular line. Any concern that the special purpose liquidator had to ensure that he was dealt with by the media in a particular way was a personal concern."
The amount at stake under categories 1 and 3 was about $3000. There was no evidence that the widely publicised acrimony had been repeated on other occasions whereby similar category 3 work would again arise for consideration.
The applicant took issue with the last two sentences in [41]. He submitted that the primary judge had failed to recognise an entitlement to charge for responding to legitimate media enquiries and ensuring accurate media reporting, in the interests of the creditors and the public.
His Honour did not rule out all dealings with the media. The evidence of work within categories 1 and 3 did not clearly distinguish between the categories of work, and was at a general level. In circumstances of acrimony, it was not within the applicant's functions as special purpose liquidator to put his own position through the media. Those were the circumstances with which the primary judge was concerned. As to those circumstances, left at their general level, there is little prospect of showing error, and given the amount at stake leave to appeal as to category 3 should be refused.
(b) Category 5
The primary judge said at [45] that "[t]he relevant expenditure of time and effort by the special purpose liquidator related to his investigation of certain associations of members of the committee of inspection". His Honour described work of two kinds. One was inquiries into whether a Mr Garry Phillips was a proper person to remain on the committee of inspection, including reviewing Mr Phillips' role as a business associate of another person followed by an unsuccessful motion for Mr Phillips' removal. The other was described by the applicant in his affidavit -
"There was an issue as to the time that I had spent determining whether there was a conflict of interest as a result of representatives of Optus attending COI meetings concerning the SPL Proceedings when Optus had a substantial commercial relationship with 2 of the major defendants. In my view, this work was necessary as neither Optus nor its COI nominee had disclosed the details of the relationship when requested by me and I considered it critically important to be aware of potential conflicts when dealing with commercially sensitive confidential and privileged information."
The primary judge said at [46] that the category "thus reflects a view of the special purpose liquidator that it was part of his function to be concerned with the composition of the committee of inspection and to become actively involved in moves to change it".
His Honour then described the relationship between the committee of inspection and the applicant. A committee of inspection had no statutory power to direct, nor was there a statutory requirement for consultation. A committee of inspection had the power to fix the liquidator's remuneration, but otherwise "the liquidator is free to simply by-pass the committee altogether, if that is what the liquidator thinks is the desirable course" (at [47]). In the particular administration, the Court had specified certain of the applicant's functions in a way that required him to consult with the committee of inspection. His Honour observed that the Court's wish or hope expressed from time to time that the applicant and the committee of inspection might work constructively together had not been realised, and said at [49] -
"That being so, it is open to the special purpose liquidator, if he chooses to do so, virtually to ignore the committee except in relation to specific matters on which the court has directed consultation (a requirement, it may be noted, that entails nothing more than consultation) and in relation to the matter of remuneration which is something that will certainly arise for consideration from time to time and in which the committee has a clear statutory role to play. That course of minimal contact has, in fact, always been available to the special purpose liquidator."
His Honour then asked at [50] how it was any part of the function of the applicant in the administration "to spend time delving into associations of the committee of inspection". He answered the question -
"51 The answer, to my mind, is not obviously such as to make it part of the special purpose liquidator's incidental function (it is certainly not part of his specifically conferred functions) to spend remunerated time inquiring into those matters, given that the committee's functions lie within the very limited compass I have mentioned. Because the predominant function of a committee of inspection in a creditors voluntary winding up is to fix the liquidator's remuneration, one might expect a liquidator in such a winding up to be wary of taking an active role in matters potentially related to re-constitution of the committee lest it be thought that he or she was attempting to exert undue influence in relation to the fixing of remuneration. And, bearing in mind that the court has, to a limited extent, required consultation by the special purpose liquidator with the committee, there is no apparent reason why he should see it as within his functions to seek to influence the composition of the body with which the court has required him to consult."
The amount at stake under category 5 was not clear, but was part only of approximately $41,000 for all six categories and can not have been large. According to the applicant's affidavit, "This issue related largely to legal expenses incurred which are not the subject of this application". What legal expenses there might have been, and their relationship with the work, was not explained.
The applicant submitted that awareness of potential conflicts of interest on the part of members of the committee of inspection was important to his performance of his functions, so that he could appropriately maintain the integrity of commercially sensitive, confidential and privileged material. (The inquiries into Mr Phillips were conspicuously not the subject of submissions supporting charging for that work.)
The evidence as to protection from potential conflicts of interest was limited, little more than the asserted importance. There is some force in the submission that his Honour may not have sufficiently perceived a legitimate interest of the applicant, as special purpose liquidator, in awareness of the relevant commercial associations of members of the committee of inspection so that he might prudently manage the disclosure of information when consulting with the committee of inspection, even in the minimal contact to which his Honour referred. However, the primary judge had almost no evidence fleshing out the existence of commercially sensitive, confidential or privileged information or the concern over disclosure to members of the committee; and none meaningfully explaining why inquiries were needed, what their result was, or how the applicant's conduct of the liquidation was affected. The applicant plainly already knew that the representatives of Optus were representatives of a creditor with a substantial commercial relationship with two of the major defendants in the proceedings which brought his appointment as special purpose liquidator.
All the primary judge ruled out was work "delving into associations of the committee of inspection", it seems in the context of composition of the committee of inspection. It is not surprising that the primary judge saw no obvious occasion for the applicant to inquire further, in a manner not revealed in any detail in the evidence, into the commercial relationship and the associations of members of the committee of inspection. His Honour was correctly conscious that the applicant's functions did not include attempting to influence the constitution of the committee of inspection.
The amount at stake is not clear, but is not large; the significance, if any, for recovery by the applicant of legal expenses, themselves in an unknown quantity, is unclear; the applicant did not present satisfactory evidence to the primary judge; and the conclusion to which the primary judge came does not have significant application outside the circumstances before his Honour. Leave to appeal as to category 5 should be refused.
(c) Category 6
The primary judge accepted that due performance of a liquidator's functions entailed contact with ASIC, through routine statutory requirements and "extraordinary ASIC matters" (at [52]) such as the applicant having lodged with ASIC a report under s 533 of the Act .
It is appropriate to set out the balance of the primary judge's reasons as to this category -
"53 The particular matter to which item 6 relates is, however, not of this kind. It relates to a requirement imposed by ASIC through s 30 of the Australian Securities and Investments Commission Act 2001 that the special purpose liquidator produce to ASIC all documents recording or identifying his remuneration and expenses incurred since appointment. This was preceded by correspondence quoted at paragraphs [41] and following of 7 May 2010. It is clear from that correspondence - I refer, in particular, to ASIC's letter to the special purpose liquidator dated 11 September 2009 in which there is reference to a meeting to discuss 'your role' as special purpose liquidator - that the subject matter of ASIC's review is the special purpose liquidator's own conduct in the matter of his incurring of expenses and his claiming of remuneration - in other words, matters related to his personal performance as a practitioner, as distinct from any element of the administration itself.
54 This aspect cannot be related directly to any aspect of the assigned functions of the special purpose liquidator. It cannot be said that, by spending time on ASIC's request for information about his actions as a practitioner, the special purpose liquidator did anything relevant to those functions. If a solicitor acting on the purchase of a house gives an undertaking which he then allegedly dishonours, he cannot charge his purchaser client for time spent on dealing with any allegation of professional misconduct that follows. That is, in a somewhat blas sense, an overhead of the solicitor's practice. So too here, in my view, the ASIC request of the special purpose liquidator for information about his remuneration and expenses is an overhead of the special purpose liquidator's practice. Just as he must file an income tax return that includes his remuneration from his several appointments and maintain his registration as a liquidator to be able to continue those appointments, so he must deal with periodic audits and the like to which he is subjected, whether or not it is a particular administration that prompts them."
The amount at stake appears to have been about $18,000. It was not shown whether or not the ASIC review was continuing and there would be further work in this category.
The applicant submitted that a "blanket exclusion" of the work in this category as work concerning only his personal performance was not appropriate. He submitted that ASIC required information concerning the administration, and that the work of providing the information "would in the ordinary course of things attract a right to remuneration in relation to providing that material unless there is some clear and pressing reason why that would not be the case". He relied on Mirror Group Newspapers Plc v Maxwell (No 2) (1998) 1 BCLC 638 and Australian Securities and Investments Commission v Piggott Wood & Baker [2006] FCA 1774.
The applicant's submissions included that there was "no overt complaint" or other matter making ASIC's request for information personal to his performance of the administration, but the primary judge's description of the subject-matter of ASIC's review as the applicant's "own conduct in the matter of incurring of expenses and his claiming of remuneration" is borne out by the correspondence preceding the s 30 request. That is an important distinction from the cases on which the applicant relied.
In Mirror Group Newspapers Plc v Maxwell (No 2) the receivers provided information to a Select Committee of the House of Commons and to the Serious Fraud Office; Ferris J said that at least their initial response to the Select Committee and probably the entirety of their dealings with the Serious Fraud Office were acts done in the course of the receivership, but reserved his opinion so far as their work satisfying the Select Committee "may have been attributable to the receivers defending their conduct from criticism rather than merely providing information" (at 668). In Australian Securities and Investments Commission v Piggott Wood & Baker ASIC did not allege any improper conduct by the liquidator, and there was an express obligation under the winding-up order, for which ASIC itself had applied, to keep ASIC informed of the progress of the liquidation; its further requests for information "were but extensions of that obligation" (at [29]).
The argument against the primary judge's characterisation of ASIC's review, and its consequences for the category 6 work, is of little substance. Having regard also to the amount involved, leave to appeal should be refused as to category 6.
Orders
ASIC submitted, rather faintly, that if it were considered that the application for leave to appeal should not have been brought, an order should be made whereby the applicant could not recover his costs as expenses of his administration. There was reference to UCPR 42.25, but the submissions went no further. I express no view on the matter, one way or the other. Any question of the reasonableness of the applicant's conduct can be resolved in determining his remuneration.
I propose that the applications for leave to appeal be dismissed.
McCOLL JA : I agree with Giles JA's reasons and the orders his Honour proposes.
BASTEN JA : Mr Paul Gerard Weston, the special purpose liquidator of One.Tel Ltd (in liq) has filed applications for leave to appeal from two judgments of Barrett J, dated 7 May 2010 and 1 October 2010 respectively: Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 401 and Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120. For the reasons given by Giles JA, I agree that each application should be dismissed. There being no active respondent to the applications, it is neither necessary nor appropriate to make any order as to costs, the real issue being whether the liquidator is entitled to his costs from the assets of One.Tel Ltd, a matter not before this Court.
There are two aspects of the reasons for refusing leave upon which some amplification may be appropriate. The first concerns the operation of s 549 of the Corporations Act 2001 (Cth) in relation to proceedings of a committee of inspection. The second concerns the availability of a declaration under s 1322(4) of the Corporations Act that any resolution purportedly passed pursuant to s 549, which was invalid, due to an irregularity of a procedural nature, may be declared "not invalid". Although the provisions to be applied were those in operation before the amendments made by the Corporations Amendment (Insolvency) Act 2007 (Cth), effective from 31 December 2007, but not in respect of liquidations which commenced before that date, the variations to s 549 were not significant and similar questions could arise under the amended legislation. If, as appears below, the arguments raised on behalf of the liquidator lacked substance, it is appropriate to explain why that is so.
Resolution varying committee's procedure
There is, as explained by Giles JA, sound reason to conclude that the legal issues raised by the liquidator do not arise at all in the way in which they were propounded. Thus, the "circular resolution" purportedly adopted by a meeting of the committee on 14 December 2009, did not, as the liquidator contended, fix his remuneration for the period in question. It did not fix remuneration at all: see [28] above. At best, from the point of view of the liquidator, it authorised a payment on account which was apparently made, and then refunded by the liquidator after the primary judge held that the payment was unauthorised.
The liquidator presented a further argument, apparently in support of his primary argument, but potentially having broader ramifications. It concerned the application of s 549, which, as then in force, provided:
" 549 Proceedings of committee of inspection
(1) A committee of inspection must meet at such times and places as its members from time to time appoint.
(2) The liquidator or a member of the committee may convene a meeting of the committee.
(3) A committee may act by a majority of its members present at a meeting, but must not act unless a majority of its members are present."
The committee of inspection had five members. The liquidator convened a meeting for 4 December 2009, which was adjourned until 8 December 2009. On each occasion, members participated by telephone, which his Honour assumed to be an acceptable form of meeting: [2010] NSWSC 401 at [7]. At the meeting of 8 December, a quorum, being three out of five members, was present by telephone. Minutes of the meeting of 8 December 2009 contained the following record - see [2010] NSWSC 401 at [13]-[14]:
"There being no further questions, the SPL [the special purpose liquidator] proposed to put the resolution concerning his remuneration, however COI [committee of inspection] members present expressed a preference for the resolution to be put by email circular to give GP and BS, who were not present, the opportunity to vote.
Adjournment of Meeting
Having dealt with the general business and there being no further issues, the SPL indicated he would circulate the resolution concerning his remuneration, seeking a response within twenty four hours.
At 12.55pm, the SPL declared the meeting adjourned."
In response to the email, three members replied by email disapproving the resolution which was declared "not carried". Three days later (on 11 December) a further compromise resolution was circulated, including an alternative, with a request that members "submit their email vote on the two resolutions by 1.00pm on 14 December 2009". At noted by his Honour at [20], the minutes continued:
"By circular email to COI members sent at 7.29pm on 14 December 2009, the SPL advised that in respect of the Compromise Resolution ..., JD voted against, SL abstained and BS voted in favour.
The SPL declared the Compromise Resolution had not passed.
In respect of the Alternative Resolution ..., JD voted against, SL and BS had voted in favour.
The Alternative Resolution was therefore declared passed by the majority of COI members voting."
In order to place reliance on the alternative resolution, the liquidator contended that the mechanism by which it had been approved had been a mechanism adopted by the committee members at a valid meeting. That contention failed in point of fact and law.
As a matter of fact, all that had been proposed at the valid meeting was that "the resolution", being that before that meeting, was to be put by email circular to all members, including those not present, so that each could vote. No approval was given to any broader mechanism for determining remuneration. It followed that, once the resolution was rejected, the mechanism had served its express purpose.
In point of law, the contention also failed. The liquidator's argument was that because, pursuant to s 549(3), a committee may "act" in a certain way, it follows that it may adopt a particular procedure for dealing with the business of the committee. Accordingly, once it has determined that members need not be "present at a meeting" for it to act in the future, that part of s 549(3) no longer operates.
The submission assumes that the committee has certain functions, one function being to determine its own procedure. No specific statutory provision was relied on in support of that conclusion. Nevertheless, it may be inferred that a committee has such a function, by implication from relevant aspects of Part 5.6. Such an implied function will not, however, arise in defiance of express terms of the legislation. No principle of statutory construction was identified which would permit the implication of a power to override the express requirements of the statute. Accordingly, any resolution passed by a committee which purported to vary the operation of s 549(3) would be ineffective.
Declaration by court
If unsuccessful in his first contention, the liquidator retreated to a second position. That submission involved reliance upon s 1322, which so far as relevant read as follows:
" 1322 Irregularities
(1) In this section, unless the contrary intention appears:
(a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to:
(i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii) a defect, irregularity or deficiency of notice or time.
(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
...
(4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act ...;
...
(6) The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
...
(iii) that it is just and equitable that the order be made; and
...
(c) in every case - that no substantial injustice has been or is likely to be caused to any person."
Counsel for the liquidator did not contend that what was involved was a "procedural irregularity" which would have been validated by s 1322(2) absent a court order to the contrary, but accepted that there was a substantive issue, albeit "essentially of a procedural nature" for the purposes of sub-s (6)(a)(i), capable of validation under sub-s (4)(a). Alternatively, counsel contended that, each of the sub-paragraphs of sub-s (6)(a) being in the alternative, the invalidating factor did not need to be procedural at all.
Given that the submission has failed at more than one earlier stage, it is inappropriate to resolve the further difficulties which arise in respect of the application of s 1322 to the circumstances which might have arisen in this case. The operation of the equivalent provision under the Corporations Law gave rise to differences of opinion, discussed, for example, in Re Vanfox Pty Ltd [1995] 2 Qd R 445; (1994) 13 ACSR 209 at 216-217 (Thomas J). However, it is tolerably clear that the purpose of s 1322 is not to validate the exercise by a particular body of a function which it does not possess. Accordingly, s 1322 cannot be relied upon to obtain an order validating a purported act of a committee conferring upon itself a power or function not conferred by the Corporations Act .
Conclusion
Without seeking to diminish the force of the reasons given by Giles JA for rejecting the suggested points of principle, on the basis that they did not arise in the present case, the points themselves are not reasonably arguable. The applications for leave may properly be described as hopeless. They must be refused.
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Decision last updated: 12 September 2011
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