ASIC v Macks (No 4) - [2020] SASC 209

Supreme Court of South Australia
(Civil)
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v PETER IVAN MACKS (NO 4)
[2020] SASC 209
Judgment of The Honourable Justice Doyle
29 October 2020
CORPORATIONS - WINDING UP - LIQUIDATORS - SUPERVISION OF LIQUIDATORS
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - FIDUCIARY AND RELATED STATUTORY DUTIES - OF CARE, SKILL AND DILIGENCE
CORPORATIONS - MANAGEMENT AND ADMINISTRATION - DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION - OFFICERS OF INSOLVENT CORPORATIONS - GENERALLY
The defendant, Mr Macks, is a registered liquidator and an official Liquidator pursuant to the provisions of the Corporations Act 2001 (Cth) (the Act). At all relevant times, Mr Macks practised as a principal of the firm Prentice Parbery Barilla (PPB). By its second originating process filed on 12 March 2019, the plaintiff, ASIC, sought an inquiry under s 536(1) of the Act into two aspects of Mr Macks’ conduct as the liquidator of Bernsteen Pty Ltd (Bernsteen) and Newmore Pty Ltd (together, the Companies), which had been the subject of findings of both the Supreme Court of South Australia and the Full Court of the Supreme Court. On 21 February 2019, it was ordered that this inquiry take place.
The first aspect of the inquiry concerns the findings made by the trial judge in the Supreme Court proceedings, in relation to the creation of two memoranda (the Memoranda) provided by Mr Macks to ASIC on 26 February 2010, in response to a notice to produce issued by ASIC to Mr Macks on 27 January 2010 regarding an investigation into his conduct as the liquidator of the Companies. It is alleged by ASIC that, on or about 25 February 2010, Mr Macks fabricated the Memoranda with the intention of passing them off to ASIC as either original documents created on the dates they bore, or true photocopies of the originals, and forged on them the initials of other persons working at PPB. ASIC alleges that Mr Macks did so dishonestly, and for the purpose of deceiving ASIC in the course of its investigation into Mr Macks’ conduct.
The second aspect of the inquiry concerns the finding of the Full Court that Mr Macks, as the liquidator of Bernsteen, contravened s 180(1) of the Act by reason that from 28 April 2006 he failed to exercise the degree of care and diligence required of him as an officer of Bernsteen in applying its funds: in pursuing and, as the case may be, defending proceedings collectively known as the “Bernsteen proceedings”; and pursuant to an indemnity in favour of Ms Heidi George, by which Mr Macks indemnified Ms George against her liability for the costs of steps and proceedings collectively known as the “George proceedings”. ASIC alleges that, from, at the latest, 28 April 2006 onwards Mr Macks continued the Bernsteen proceedings and continued to indemnify Ms George in respect of the costs of the George proceedings in circumstances where no reasonable person in his position would have done so.
Held (per Doyle J):
1. ASIC has established that on or about 25 February 2010, Mr Macks fabricated the Memoranda, and placed on them the initials of other persons working at PPB. The Memoranda were created with the intention of passing them off to ASIC as either original documents created on the dates they bore, or as true photocopies of those originals. Mr Macks engaged in the above conduct dishonestly and for the purpose of deceiving ASIC in the course of its investigation of his conduct as the liquidator of Bernsteen.
2. ASIC has failed to establish that Mr Macks failed to exercise the degree of care and diligence required of him as an officer of Bernsteen in applying Bernsteen’s funds in his pursuit of the Bernsteen or George proceedings after April 2006, or that he otherwise acted unreasonably in his pursuit of those proceedings after that date.
Corporations Act 2001 (Cth) ss 180, 181, 182, 473(8), 477(2B), 500(2), 511, 536(1), 588F, 588FGA(2), 588G, 596A, 596D, 1322(4); Australian Securities and Investments Commission Act 2001 (Cth) ss 19, 30 ; Insolvency Law Reform Act 2016 (Cth), referred to.
Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251; Viscariello v Macks (2014) 103 ACSR 542; Macks v Viscariello (2017) 130 SASR 1; Australian Securities and Investments Commission v Wily (2019) 137 ACSR 1; Commissioner for Corporate Affairs v Harvey [1980] VR 669; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137; Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387; Australian Securities and Investments Commission v McDermott [2016] FCA 1186; BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558; Leslie v Hennessy [2001] FCA 371; Hollington v F Hewthorn & Co Ltd [1943] KB 587; Macks (as liquidator of Bernsteen Pty Ltd) v Commissioner of Taxation (2005) 243 LSJS 45; Hamilton-Smith v George (2006) 247 FCR 238; Hamilton-Smith v George (No 2) [2006] FCA 1841; Re Bernsteen Pty Ltd (In Liq) [2018] SASC 76; Australian Securities and Investments Commission v Macks (No 3) [2019] SASC 104; Briginshaw v Briginshaw (1938) 60 CLR 336; Eustice v Channel Seven Adelaide Pty Ltd [2020] SASC 4; Fleming v Advertiser-News Weekend Publishing Co Pty Ltd [2016] SASCFC 109; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; Spence v Demasi (1988) 48 SASR 536; R v H, ML [2006] SASC 240; R v Helps (2016) 126 SASR 486; Nguyen v The Queen (2020) 380 ALR 193; Jones v Dunkel (1959) 101 CLR 298; Blatch v Archer (1774) 1 Cowp 63 ; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559; Ho v Powell (2001) 51 NSWLR 572; Payne v Parker [1976] 1 NSWLR 191; Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466; Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2001) 115 FCR 442; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; Weissensteiner v The Queen (1993) 178 CLR 217; Tran v Kodari Securities Pty Ltd [2019] FCA 968; Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 5) (2017) 122 IPR 279; Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No 4) (2011) 280 ALR 97; Manassen Holdings Pty Ltd v Commercial & General Corporation Pty Ltd [2019] SASC 171 ; Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485; Asden Developments Pty Ltd (in liq) v Dinoris [2017] FCAFC 117; Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651; Re Imobridge Pty Ltd (in liq) (No 2) [2000] 2 Qd R 280; Hall v Poolman (2009) 75 NSWLR 99; R v Quist (2017) 127 SASR 471, considered.

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v PETER IVAN MACKS (NO 4)
[2020] SASC 209
Civil
DOYLE J:
PART A:      INTRODUCTION
PART B:      SCOPE AND NATURE OF THE INQUIRY
The two aspects to the scope of the inquiry
The nature of an inquiry under s 536(1) of the Corporations Act
Status of the findings in the Viscariello proceedings
The conduct of the inquiry
Structure of these reasons
PART C:      NARRATIVE OF FINDINGS
Background to the liquidations
Events during 2002
Events during 2003
The Luigi Viscariello proceedings
Events during 2004
The Bernsteen action during 2005
The Bernsteen bankruptcy action
The George indemnity
Arrangements in relation to Minter Ellison’s fees
The George proceedings
Progress of the bankruptcy actions
The declaratory proceedings and stay application
Committees of inspection meeting in November 2005
The fourth party claim in the ATO proceedings
Progress of the George proceedings
April 2006 and Minter Ellison’s concerns
The Viscariello proceedings
The Bar Chambers meeting on 28 April 2006
Adjournment of the trial in the Bernsteen action
Mr Macks’ concerns about Minter Ellison’s fees arrangement
Committees of inspection meeting in May 2006
Application to stay the costs allocaturs in Bernsteen’s favour
Finalisation of the declaratory proceedings and stay application
Sequestration order in the George bankruptcy action
Progress of the April 2006 strategy
Communications between PPB and Minter Ellison
Appointment of the special purpose liquidators
Supreme Court appeal against dismissal of the declaratory proceedings
Federal Court appeal against the sequestration order
Continuation of the George bankruptcy action in late 2006 and early 2007
Further adjournment of the trial of the Bernsteen action
Resolution of the Bernsteen and George proceedings
Events subsequent to settlement
Abandonment of the insolvent trading claim against Mr Viscariello
PART D:      SOME ADDITIONAL MATTERS
Professional fees incurred by Minter Ellison and PPB
The watching brief
Investigation of Mr Macks’ conduct by ASIC
Examination in December 2009
Production of documents (including the Memoranda) in early 2010
Further examination in May 2010
Remedial action required by ASIC to address its concerns
ASIC’s subsequent investigation relating to the Memoranda

Trial of the Viscariello proceedings
Appeal in the Viscariello proceedings
ASIC’s application for an inquiry
PART E: APPROACH TO THE EVIDENCE
Standard of proof
Admissions and mixed statements
The failure to call witnesses
PART F: ALLEGED FABRICATION OF THE MEMORANDA
The location and content of the Memoranda
Mr Macks’ explanation for the creation of the Memoranda
Evidence-in-chief
Cross-examination
Approach to Mr Macks’ explanation

Existence and non-production of the original memoranda
The post-it notes
Expert evidence as to creation of the Memoranda
Timing and circumstances of the creation of the Memoranda
Conclusion as to allegation of fabrication
PART G: ALLEGED FAILURE TO EXERCISE REASONABLE CARE
The standard of care expected of a liquidator
The value and merit of Bernsteen’s claim
The George indemnity
Costs orders
Considerations of recoverability
Disclosure to Bernsteen committee of inspection
Legal advice and settlement attempts prior to 28 April 2006
Costs incurred and forecast as at 28 April 2006
Advice and strategy as at 28 April 2006
Implementation of the April 2006 strategy
Potential witnesses not called
Conclusion as to the allegation of unreasonable conduct
PART A: INTRODUCTION

The defendant (Mr Macks) is a registered liquidator and an official Liquidator pursuant to the provisions of the Corporations Act 2001 (Cth) (the Act). At all relevant times, Mr Macks practised as a principal of the firm Prentice Parbery Barilla (PPB).
By its second originating process filed on 12 March 2019, the plaintiff (ASIC) sought an inquiry under s 536(1) of the Act into the conduct of Mr Macks as the liquidator of Bernsteen Pty Ltd and Newmore Pty Ltd (together, the Companies).
On 22 February 2019, for the reasons set out in Australian Securities and Investments Commission v Macks (No 2),[1] I ordered that there be an inquiry by the Court under s 536(1) of the Act into the aspects of Mr Macks’ conduct identified in the second originating process. I also directed the filing of points of claim and defence setting out the parties’ respective cases in relation to the matters the subject of the inquiry.
[1] Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251.
ASIC’s case is pleaded in its second points of claim dated 19 July 2019 (the Claim), and Mr Macks’ defence is in his second points of defence dated 2 August 2019 (the Defence).
The parties were agreed that I should conduct the inquiry, and publish my findings in relation to the matters the subject of the inquiry, before then inviting further submissions as to what, if any, orders might be made in respect of those findings.
I have now held the inquiry, and am in a position to make findings. My findings, and the reasons for them, follow.
PART B: SCOPE AND NATURE OF THE INQUIRY
ASIC’s application for an inquiry arose out of investigations it commenced in 2009 and 2013 into suspected breaches by Mr Macks of ss 180-182 of the Act in his conduct as the liquidator of the Companies, and as a result of certain of the findings of this Court made both at first instance in Viscariello v Macks,[2] and on appeal in Macks v Viscariello[3] (the Viscariello proceedings).
[2] Viscariello v Macks (2014) 103 ACSR 542.
[3] Macks v Viscariello (2017) 130 SASR 1.
In its second originating process, ASIC sought an inquiry into two aspects of Mr Macks’ conduct that had been the subject of findings of this Court in the Viscariello proceedings.
The two aspects to the scope of the inquiry
The first aspect of the inquiry concerns the findings made by the trial judge in the Viscariello proceedings in relation to the creation of two memoranda provided by Mr Macks to ASIC on 26 February 2010, being a memorandum referred to as “the covering note” dated 26 May 2002 (the 2002 Memorandum) and a memorandum referred to as “the Monksfield memorandum” dated 3 August 2004 (the 2004 Memorandum) (collectively, the Memoranda). The Memoranda were amongst a bundle of documents provided by Mr Macks to ASIC in response to a notice to produce it issued on 27 January 2010 in the course of its investigation into his conduct as the liquidator of Bernsteen and Newmore.
In paragraphs 15 and 16 of the Claim, ASIC pleads:
[15]On or about 25 February 2010 the Defendant fabricated the Memoranda with the intention of passing them off to the Plaintiff as either original documents created on the dates they bore or true photocopies of the originals.
[16]In addition to fabricating the Memoranda, the Defendant forged on them the initials of other persons working at PPB.
And then in paragraph 18 of the Claim, ASIC pleads:
[18]The fabrication of the Memoranda, the forging of the initials on them and their submission to the Plaintiff by the Defendant was:
(a)     for the purpose of deceiving the Plaintiff in the course of its investigation about his conduct as liquidator of Bernsteen; and
(b)     dishonest.
Particulars
By fabricating the documents and forging the initials, the Defendant sought to create the false impressions:
(i)      that he had satisfied himself that Hamilton-Smith had sufficient assets to justify the institution and maintenance of legal proceedings against her; and
(ii)that this had the concurrence of others at PPB.
The second aspect of the inquiry concerns the finding that Mr Macks, as the liquidator of Bernsteen, contravened s 180(1) of the Act by reason that from 28 April 2006 he failed to exercise the degree of care and diligence required of him as an officer of Bernsteen in applying its funds:
(i)in pursuing or, as the case may be, defending the following proceedings (collectively, the Bernsteen proceedings):
a.      a claim for recovery of a debt from Ms Tanya Hamilton-Smith in action 10039/2002 in the Magistrates Court of South Australia;
b.      the counterclaim brought by Ms Hamilton-Smith in those proceedings;
c.     an application by Ms Hamilton-Smith, in action ADG 94/2005 in the Federal Magistrates Court of Australia, for an order setting aside a bankruptcy notice dated 7 April 2005 prepared on behalf of Bernsteen and served on Ms Hamilton-Smith;
(ii)pursuant to an indemnity in favour of Ms Heidi George (the George indemnity) by which Mr Macks indemnified Ms George against her liability for the costs of the following steps and proceedings (collectively, the George proceedings):
a.      the pursuit by Ms George of a bankruptcy notice against Ms Hamilton-Smith;
b.      the defence by Ms George of Ms Hamilton-Smith’s application in the Federal Magistrates Court of Australia to set aside Ms George’s bankruptcy notice (action ADG 159/2005);
c.      the pursuit by Ms George of a creditor’s petition against Ms Hamilton-Smith in the Federal Magistrates Court of Australia (action ADG 237/2005);
d.      the defence by Ms George to an application by Ms Hamilton-Smith in the Magistrates Court of South Australia for a declaration that she had discharged the judgment debt forming the subject of Ms George’s bankruptcy notice and creditor’s petition (action 9644/2005);
e.      the pursuit of, or response to, the appeals associated with the above proceedings.
In its Claim, ASIC pleads the various steps and events in the Bernsteen and George proceedings, including the attempts to settle those proceedings, the costs incurred in those proceedings and the legal advice received by Mr Macks in connection with those proceedings. The detail of these matters is addressed later in these reasons.
In paragraph 66 of the Claim, ASIC pleads:
From, at the latest, the end of April 2006 onwards the Defendant continued the Bernsteen Proceedings and continued to indemnify George in respect of the costs of the George Proceedings in circumstances where:
(a) no reasonable person in his position as liquidator of Bernsteen, in Bernsteen’s circumstances, would have continued the Bernsteen Proceedings or have continued to indemnify George having regard in particular to:
(i)the amounts at stake in those proceedings;
(ii)the legal costs already incurred in those proceedings;
(iii)the estimated further legal costs likely to be incurred in those proceedings;
(iv)the legal advice received concerning those proceedings;
(v)the failure to obtain approval of the Committee of Inspection to the expenditure of funds in the Bernsteen Proceedings or the indemnity to George;
(vi)the attitude of Hamilton-Smith in defending the Bernsteen Proceedings and the George Proceedings; and
(vii)the opportunities to settle the proceedings.
In its second originating process, ASIC seeks an inquiry into whether, as a consequence of these two aspects of Mr Macks’ conduct:
(i)he should continue as the liquidator or controller of the Companies in which he holds that office (as identified in a schedule to the second originating process);
(ii)he is a fit and proper person to be registered as a liquidator and has capacity to adequately and properly perform his duties; and
(iii)the Court should cancel his registration as a liquidator.
In both the second originating process and the Claim, ASIC seeks relief in the form of orders removing Mr Macks as liquidator of the companies identified in the schedule to the second originating process, and cancelling his registration as a liquidator (or in the alternative, prohibiting him from holding the office of liquidator or controller for such period as the Court considers appropriate).
The nature of an inquiry under s 536(1) of the Corporations Act
Section 536(1) of the Act provides for the Court (or ASIC) to inquire into the conduct of a liquidator in connection with the performance of his or her duties, and for the Court to then take such action as it thinks fit.[4] It is in the following terms:
[4] Section 536 was repealed by the Insolvency Law Reform Act 2016 (Cth), but remains applicable for the purposes of the present proceedings by reason of the transitional provisions under that legislation.
(1)     Where:
(a)     it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:
(i)a requirement of the Court; or
(ii)a requirement of this Act, of the regulations or of the rules: or
(b)     a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;
the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.

As I explained in my earlier reasons in this matter,[5] the Court’s jurisdiction under s 536(1) is an aspect of its supervisory and disciplinary jurisdiction over liquidators. Authority suggests that proceedings under s 536(1) will normally involve three stages: [6]
The first stage involves the Court deciding, upon an application being made, whether an inquiry into a liquidator’s conduct is warranted. If found to be warranted, an inquiry is ordered to take place. The task of the Court at the second stage is to make a judgment about the liquidator’s conduct, viewed in light of the whole of the circumstances relevant to the particular winding up and liquidator. If the Court decides that the liquidator’s conduct was in some way deficient, it then embarks upon the third stage and decides whether or not to make an order in respect of that conduct.
[5] Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251 at [48]-[51]; see also Australian Securities and Investments Commission v Wily (2019) 137 ACSR 1 at [27]-[29].
[6] Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251 at [52]; see also Australian Securities and Investments Commission v Wily (2019) 137 ACSR 1 at [34].
Having earlier made an order that there be an inquiry, I have now held that inquiry, being the second of the three stages referred to in the passage above. The parties are agreed that I should set out my findings in respect of that second stage before embarking upon the third stage. I have acceded to this approach.
As to the nature and scope of the inquiry constituting the second stage, I said the following in my earlier reasons in this matter:[7]
As to the nature of the inquiry to be conducted, the Court retains a broad discretion as to the procedure to be adopted.[8] While pleadings, and other processes akin to those commonly utilised in ‘ordinary’ inter partes litigation, will sometimes be appropriate,[9] that may not always be so. What is appropriate in respect of any particular inquiry will depend very much upon the particular circumstances, including the nature of the conduct to be inquired into, and the nature and extent of the available evidence and any previous investigation or consideration of that conduct.
While the Court is entitled to be satisfied upon the hearing of any inquiry that all available and admissible material is before it, it is acknowledged that it is not equipped to arrange the presentation of the evidence, to investigate its availability, or to effect the calling of witnesses. It has therefore been held to be appropriate that the corporate regulator assist the Court with these matters as the representative of the public interest.[10] Indeed, despite the process being described in s 536(1) as an “inquiry”, it is accepted that it is intended to be structured so as to be adversarial rather than inquisitorial in nature, with the liquidator enjoying all the usual safeguards and protections.[11]
As to the scope of an inquiry under s 536, this also lies within the discretion of the Court. However, in most cases the inquiry will be confined to the specific subject of the complaint (or matters identified as warranting inquiry in the application for the inquiry). Certainly the section does not contemplate a detailed investigation of the whole of the liquidator’s conduct simply because a specific allegation of misconduct has been made.[12] In the case of inquiries where it is appropriate to require that the basis for the inquiry (or the scope of the intended inquiry) be articulated in pleaded form, the pleadings will no doubt guide, if not dictate, the scope of the inquiry.[13]
[7]    Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251 at [58]-[60].
[8]    Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 687-688; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 at [77]-[79].
[9]    Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [36]; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 at [78].
[10] Australian Securities and Investments Commission v McDermott [2016] FCA 1186 at [12]; Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 687; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 at [77].
[11] Commissioner for Corporate Affairs v Harvey [1980] VR 669 at 687; Australian Securities and Investments Commission v Edge (2007) 211 FLR 137 at [77]; BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 at [43].
[12] Leslie v Hennessy [2001] FCA 371 at [8].
[13] BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 at [42].
Consistently with the concluding sentence of the second paragraph above, and the balance of those earlier reasons, I have conducted the present inquiry in the manner of an ordinary adversarial trial, and in accordance with the Claim and the Defence filed by the parties. And, as elaborated upon later in these reasons, I have approached the issues in the inquiry on the basis that the applicable standard of proof is the ordinary civil standard of proof.
Status of the findings in the Viscariello proceedings
As described, ASIC has articulated both aspects of the scope of the inquiry by reference to findings made by this Court in the Viscariello proceedings. In particular, ASIC’s allegations in relation to the fabrication of the Memoranda reflect findings which were made by Kourakis CJ at first instance, and which were not challenged on appeal. And ASIC’s allegations to the effect that Mr Macks acted in breach of his obligation under s 180(1) of the Act, by failing to exercise the degree of care and diligence required of him as a liquidator of Bernsteen, reflect findings made on appeal by the Full Court.
At the outset of these proceedings, ASIC sought to rely upon these findings as evidence in this inquiry. However, relying upon the rule in Hollington,[14] I ruled against ASIC on this issue,[15] and upheld Mr Macks’ contention that those findings were inadmissible. As such, those findings have not been received as evidence in this inquiry, and I have not otherwise had regard to them in reaching the conclusions I have as to matters of fact.
[14] Hollington v F Hewthorn & Co Ltd [1943] KB 587.
[15] Australian Securities and Investments Commission v Macks (No 2) (2019) 133 SASR 251.
Further, to the extent that there are differences between my findings and the findings made by Kourakis CJ and the Full Court in the Viscariello proceedings, that is entirely unsurprising given that the evidence I received not only differed significantly from the evidence presented in the Viscariello proceedings, but also fell to be considered in a different forensic context and contest more generally. I have identified some of these evidential and forensic differences later in these reasons.
The conduct of the inquiry
The case presented by ASIC (and Mr Macks) in the inquiry before me was predominantly a paper case. The parties tendered, and I received in evidence, a large number of documents relating to Mr Macks’ conduct of the Bernsteen and George proceedings, and ASIC’s investigation into that conduct and into the circumstances of the creation of the 2002 and 2004 Memoranda. This included some excerpts from Mr Macks’ evidence during the Viscariello proceedings, as well as the transcript of his examinations by ASIC. I have explained later in these reasons the use I have made of this evidence of statements made by Mr Macks on earlier occasions.
In addition to its documentary case, ASIC called evidence from four witnesses. The first was Vincent Geneste, who is an officer of ASIC and gave evidence primarily in relation to the investigations undertaken by ASIC, and largely by reference to his review of the relevant documents as opposed to any personal knowledge of relevant matters. The second was Michael Basedow, who became the liquidator of the Companies following the removal of Mr Macks as liquidator, and whose evidence was confined to a summary of the costs incurred in the pursuit of the Bernsteen and George proceedings. The third and fourth witnesses called by ASIC were Dr Stephen Banham (expert typographer) and John Morgan (expert in IT forensics). Their evidence was relevant only to the circumstances of the creation of the Memoranda.
The only witness called by Mr Macks was Jean-Pierre du Plessis (expert in IT forensics), whose evidence was also relevant only to the circumstances of the creation of the Memoranda.
While the significance of some aspects of the evidence of the above witnesses was a matter of contest, there was no challenge to their honesty or general reliability. I am satisfied that each of them were honest and reliable witnesses. I have outlined the relevance of their evidence, and the use I have made of it, during the course of my reasons.
Mr Macks did not give evidence in the inquiry before me. I have addressed the significance of his decision not to give evidence, and indeed the absence of evidence from other people who may have been able to give relevant evidence (such as the lawyers involved in giving Mr Macks advice in respect of the Bernsteen and George proceedings, and Mr Macks’ colleagues from PPB), later in these reasons.
Structure of these reasons
In setting out the findings I have made based upon the evidence in the inquiry, and the reasons for them, I propose to commence with a chronological narrative of various of the findings that I have made. I have then addressed some other more general topics; namely, the costs incurred, the “watching brief,” the investigation of Mr Macks’ conduct by ASIC, and the trial and appeal in the Viscariello proceedings.
Against that background, and after addressing some matters of principle relevant to my consideration of the evidence, I will then turn to address the two aspects of Mr Macks’ conduct the subject of this inquiry, namely (i) whether he fabricated the Memoranda in the manner and for the purpose contended by ASIC; and (ii) whether he contravened s 180(1) of the Act by reason that from 28 April 2006 he failed to exercise the degree of care and diligence required of him as an officer of Bernsteen in applying its funds in his conduct of the Bernsteen and George proceedings.
PART C: NARRATIVE OF FINDINGS
The following is a narrative of the findings I have made in this inquiry as to the conduct of the liquidations of the Companies. Most of the findings emerge from the documents in evidence and are uncontroversial. The matters of controversy relevant to this inquiry are addressed in later sections of these reasons.
The findings that follow in relation to the liquidations and litigation are not intended to be comprehensive. Indeed, they are far from it. They do not address several significant aspects of the liquidations and the work done by Mr Macks and his staff and advisors. In part, this is because they were not addressed in any detailed way in the evidence before me. In part it is also because I have endeavoured to focus upon those matters that the parties have contended are of particular relevance to the issues the subject of this inquiry.
Background to the liquidations
Bernsteen was incorporated in June 1988, and Newmore was incorporated in June 1992. From their incorporation through to their liquidation in December 2001, Bernsteen and Newmore carried on business as retailers of manchester. Bernsteen did so under the name “Bedroom Mazurka”, and Newmore did so under the name “Faulty Towels and Sheets”. They traded through some 33 retail outlets, primarily in the Adelaide metropolitan area.
Mr Viscariello was the sole director, principal shareholder and effective controller of the Companies. He also claimed to be a creditor.
By late 2001, the Companies were experiencing significant financial difficulties. On 5 December 2001, Mr Viscariello determined that the Companies were insolvent or likely to become insolvent in the near future, and Mr Macks was appointed as their voluntary administrator.
Mr Viscariello anticipated that the Companies would each enter into a deed of company arrangement or ‘DOCA’. However, when agreement was not able to be reached, and Mr Macks informed the creditors that there was no proposal to rescue the Companies, the creditors resolved to wind them up. On 21 December 2001, Mr Macks was appointed liquidator of both Bernsteen and Newmore.
Mr Macks engaged the firm Minter Ellison to provide legal advice and services to him and the Companies in relation to the winding up of the Companies. The solicitors from Minter Ellison with the primary involvement in the provision of advice and other legal services were Ray Mansueto, Natasha Riach and Tyneil Flaherty. Minter Ellison in turn engaged counsel (Mark Livesey QC[16]) to assist in various respects.
[16] Mr Livesey commenced his retainer as junior counsel, but took silk in 2006.
Mr Macks was assisted in his conduct of the liquidation by several of his colleagues from PPB. Those mentioned in the documents include Tim Clifton (another principal of PPB), Paul McCulloch, Andrew Magers and Kerry Billings.
It is apparent from the minutes of meetings and reports to the committees of inspection that the liquidations of Bernsteen and Newmore were complex. Issues that needed to be addressed:
·    issues arising in relation to the numerous tenancies and distraints by landlords;
·    disputed claims as to the ownership of stock, such as whether it was held on consignment or subject to retention of title claims;
·    creditors having security over assets of the Companies, including certain stock and plant and equipment;
·    employee entitlement claims, including through the Government Employee Entitlements and Redundancy Scheme;
·    the need to sell stock and plant and equipment for the various stores, some of which were located in regional South Australia, Victoria and the Northern Territory;
·    numerous unfair preference claims, which ultimately resulted in the recovery of approximately $534,000 for Bernsteen and $200,000 for Newmore;
·    the investigation of a potential insolvent trading claim against Mr Viscariello; and
·    the pursuit of litigation for the recovery of contractual debts.
As will become clear from my description of some aspects of the liquidations relevant to this inquiry, Mr Macks encountered significant difficulties by reason of Mr Viscariello’s conduct and involvement. Mr Viscariello disagreed strongly with the decision to place the Companies into liquidation, as he had anticipated that DOCAs would be put in place. He took issue with Mr Macks’ conduct as voluntary administrator, particularly in connection with the creditors’ resolution to wind the companies up. He also took issue with several aspects of Mr Macks’ conduct as liquidator. Mr Viscariello came to litigate many of his grievances in the Viscariello proceedings that were issued in February 2006. It is also apparent that Mr Viscariello had a significant level of involvement in the various other pieces of litigation in which Mr Macks and Bernsteen became embroiled.
Events during 2002
As at the date of liquidation, Tanya Hamilton-Smith was an employee of the Companies and the partner of Mr Viscariello. While Mr Macks had some concerns about the terms and authenticity of Ms Hamilton-Smith’s employment, this was not a matter explored in the evidence in this inquiry.
Following the commencement of the liquidations, Mr Macks made arrangements for much of the Companies’ stock to be sold to the large South Australian furniture retailer, Le Cornu.
In mid-January 2002, Mr Macks caused Bernsteen to enter into an agreement with Ms Hamilton-Smith to sell to her certain stock and shop fit-outs for an amount of about $35,000. The agreement provided for Ms Hamilton-Smith to pay for this stock in weekly instalments. Ms Hamilton-Smith made several of the weekly payments during the period February to April 2002; however, by May 2002 she had fallen into default under the sale agreement.
There were meetings of the Bernsteen and Newmore committees of inspection on 26 February 2002.[17] Mr Macks, as Chairman, presented a written report at the meetings. The report disclosed the sales of stock to Le Cornu and Ms Hamilton-Smith. The report, and the minutes of the meetings more generally, also described several other aspects of the liquidations to that point in time. They included reference to concerns that Mr Macks had with Mr Viscariello’s actions in connection with the liquidations; the possibility of insolvent trading investigations in relation to Mr Viscariello; and the assertion of a charge held by Mr Viscariello’s father (Luigi Viscariello) but that was not registered with ASIC. After referring to the significant unpaid employee entitlements, which Mr Macks noted would rank before the secured creditors, the minutes record Mr Macks stating that “[i]t would be unlikely that a dividend would be paid to the secured creditors.”
[17] It appears that the committees of inspection meetings of the two Companies were held in tandem, with the minutes of each in relevantly identical terms.
By letter dated 24 May 2002 from Mr Macks to Ms Hamilton-Smith, Mr Macks made a demand on behalf of Bernsteen for payment of the $27,667 outstanding under the agreement between Bernsteen and Ms Hamilton-Smith.
I note at this point that the 2002 Memorandum from Mr Macks to Mr Clifton, which is the subject of the first aspect of the inquiry, was dated 26 May 2002. I address the issue of whether this was a re-creation or fabrication later, in Part F in these reasons. Its terms are set out in full in that part of my reasons. It related to Ms Hamilton-Smith, and included an instruction to Mr McCulloch of PPB to do an “up to date LTO search think she owns land in hills”. It went on to note that “we need to talk to committee re recovery of debt”; that Ms Hamilton-Smith had the “benefit of stock sales, still has stock”; that she had “[e]arnt approx $80,000 last year from employment Mazurka”; and that Mr Macks was “not aware of any reason we should not seek to recover – simple debt recovery”.
According to Mr Macks, this memorandum formed part of what he described as “the watching brief”, which appears to have been a collection of documents obtained by PPB that might assist in any future enforcement of a judgment debt against Ms Hamilton-Smith. I address later the absence of any evidence of any apparent response to this memorandum, and in particular the absence of any contemporaneous LTO search in relation to property owned by Ms Hamilton-Smith. Certainly there is nothing in the watching brief itself of that nature until the following year.
On 27 June 2002, at the next meeting of the committees of inspection for the Companies, Mr Macks reported generally in relation to the conduct of the liquidations. The minutes again included reference to the potential for an insolvent trading claim against Mr Viscariello, adding in that context:
Mr Mansueto explained that at this stage it is a paper warfare and if the Liquidator continues with explaining all of Mr Viscariello’s letters then it will consume resources and reduce the available funds for the creditors of the company.
In relation to Ms Hamilton-Smith, the minutes recorded that:
Mr Clifton advised the committee that Ms Tanya Hamilton-Smith had purchased a quantity of stock via part payments and that it will be the liquidator’s intention to pursue the remainder of the debt.
The minutes included reference to the amount outstanding from Ms Hamilton-Smith being approximately $27,000.
On 28 June 2002, Mr Macks wrote to Minter Ellison, confirming the amount that remained outstanding by Ms Hamilton-Smith, attaching a bundle of the documents establishing the existence of the debt and the amounts that had been paid, and instructing Minter Ellison to seek recovery from Ms Hamilton-Smith.
On 6 August 2002, Mr Macks (through Minter Ellison) caused Bernsteen to commence proceedings against Ms Hamilton-Smith in the Magistrates Court of South Australia (action 10039/2002) (the Bernsteen action). In those proceedings, Bernsteen sought to recover the sum of $27,733.29 plus interest and costs, being the balance owing in respect of the stock sold to Ms Hamilton-Smith by Bernsteen under the sale agreement referred to above.

On 27 August 2002, Ms Hamilton-Smith filed a defence and counterclaim in the Bernsteen action, which not only denied the existence of any binding sale agreement, but also included allegations of misleading and deceptive conduct by Bernsteen (through Mr Macks) in connection with the sale of stock under the sale agreement.
Ms Hamilton-Smith was represented by the firm of solicitors, Gretsas Chrzaszcz. Mr Viscariello was a legal practitioner working with that firm, and indeed represented Ms Hamilton-Smith at a number of the hearings that followed. Roger Sallis was engaged to appear as counsel for Ms Hamilton-Smith. As for Bernsteen, it was represented by Ms Riach at a number of the hearings that followed. On occasions, others including Mr Livesey appeared for Bernsteen.
On 17 September 2002, Mr Macks caused Bernsteen to file an offer to consent to judgment in the Bernsteen action, in settlement of both its claim and the counterclaim, in the sum of $20,000 inclusive of interest plus costs.
At a directions hearing on the same day, Magistrate Myers ordered that the parties provide discovery within 28 days, and that Ms Hamilton-Smith file a foreshadowed amended defence and counterclaim with 21 days.
On 4 November 2002, Magistrate Bolton granted Ms Hamilton-Smith a 21 day extension of the time to make discovery, and to file the amended defence and counterclaim. The Magistrate also ordered that Ms Hamilton-Smith pay Bernsteen’s costs, fixed in the amount of $50.
On 12 December 2002, Magistrate Rogers granted Ms Hamilton-Smith a further 21 day extension of time to make discovery, and to file the amended defence and counterclaim. The Magistrate again made an order that Ms Hamilton-Smith pay Bernsteen’s costs, fixed in the amount of $80.
Events during 2003
On 2 January 2003, Ms Hamilton-Smith filed her amended defence and counterclaim.
There was an annual meeting of the creditors of Bernsteen on 21 January 2003. The minutes indicate that a number of topics were canvassed at the meeting. They included reference to investigations into insolvent trading by Mr Viscariello, as well as potential preference claims. The minutes added in this context:
The Chairman informed that any dividends paid in the administration are dependent on the result of any litigation he may pursue.
Ms Tregloan asked how the Liquidator’s remuneration is paid if there is a lack of funds. The Chairman responded that he will not get paid for this period if there are no funds. The Chairman advised that the remuneration for the Liquidator is dependent on any successful litigation undertaken by him.
The minutes also record a number of queries and concerns raised at the meeting by Mr Viscariello, leading to several exchanges between him and Mr Macks. In the course of these exchanges, Mr Macks made reference to “a current legal action against Ms Tanya Hamilton-Smith seeking recovery of a debt in regards to stock sold to her.” The minutes then record:
Mr J Viscariello asked if all legal fees had been paid. The Chairman advised that they have but there may be some after 17 December 2002 that are yet to be paid. Mr J Viscariello asked if there was any arrangement between the Liquidator and the solicitor. The Chairman responded that there was.
During the annual meeting of creditors of Newmore held on the same day, the minutes record further exchanges between Mr Viscariello and Mr Macks. The topic of legal fees was again raised, and the minutes record:
Mr Viscariello asked as to the nature of the relationship between the Liquidator and the solicitor in respect of outstanding fees. The Chairman responded that there was an arrangement in place between the Liquidator and the Liquidator’s solicitor. Mr Viscariello asked a further question as to whether the Chairman was paying the solicitor personally. The Chairman advised that he was not. Mr Viscariello then asked if the Chairman was able to advise what this arrangement was. The Chairman responded that he was not able to advise or elaborate on the matter, especially to the director of the company.
On 28 January 2003, Bernsteen filed its reply and defence to counterclaim in the Bernsteen action.
The evidence includes emails from Ms Riach to Mr Clifton and Mr Magers of PPB dated 29 January 2003 and to Mr Magers (copied to Mr Macks and Mr Clifton) dated 11 February 2003. Both included updates on discussions she had had with Mr Chrzaszcz. While it appeared from her discussions that Mr Chrzaszcz was not across the detail, he seemed amenable to settlement.
It appears from an email of 11 February 2003 from Mr Magers to Mr Chrzaszcz that there may have been some telephone discussions around this time between Mr Macks and Mr Chrzaszcz. The evidence does not reveal the content of those discussions.
On 12 February 2003, Magistrate Bolton ordered that Ms Hamilton-Smith provide discovery within seven days. There was no attendance on this occasion by Ms Hamilton-Smith, and the Magistrate made a further order that she pay Bernsteen’s costs.
On 26 February 2003, Magistrate O’Connor ordered that Ms Hamilton-Smith provide discovery within 28 days. Her Honour reserved the costs of the hearing.
On the same day, Ms Hamilton-Smith issued proceedings in the Supreme Court (action 262/2003), seeking leave to proceed with her counterclaim against Bernsteen in the Bernsteen action pursuant to s 500(2) of the Act. The application was not opposed by Bernsteen, and a fortnight later, on 12 March 2003, Judge Kelly granted Ms Hamilton-Smith leave to proceed with her counterclaim. His Honour ordered that there be no order as to costs.
Also on 26 February 2003, Ms Riach emailed Mr Magers updating him as to the progress of the court proceedings, but also adding that Mr Chrzaszcz had advised her that he was still awaiting instructions “from John and Tanya” regarding their offer.
By email dated 12 March 2003, Ms Riach informed Mr Magers that Mr Chrzaszcz had told her that he was “close to putting a further offer to us, which will involve all claims, including Luigi Viscariello. Unfortunately, he seems unable or unwilling to get instructions to settle this matter separately.”
On 23 April 2003, there was a further hearing in the Magistrates Court in the Bernsteen action. Ms Hamilton-Smith had not made discovery and did not attend the hearing. Magistrate Hiskey struck out Ms Hamilton-Smith’s defence and counterclaim and ordered default judgment in favour of Bernsteen, with Bernsteen’s costs to be agreed or taxed.
On 30 April 2003, Ms Hamilton-Smith filed a notice of change of solicitors in the Bernsteen action, advising that Gretsas Chrzaszcz was no longer acting for her, and had been replaced by McNamara Business and Property Law (MBPL). At some point, presumably around this time, Mr Viscariello had left Gretsas Chrzaszcz and commenced working with MBPL.
On 26 May 2003, Ms Hamilton-Smith filed an application to set aside the default judgment that had been entered against her in the Bernsteen action on 23 April 2003.
The hearing of the application to set aside the default judgment was adjourned on several occasions, due in part to issues and arguments that arose in relation to the filing of further affidavit material, the attendance of Ms Hamilton-Smith to be cross-examined on her affidavit, and issues in relation to waiver of legal professional privilege. Substantive argument on the application occurred over several days spread across the period from June to October 2003, with Magistrate Hiskey ultimately reserving his decision on 16 October 2003.
On 5 December 2003, Magistrate Hiskey made an order setting aside the default judgment that he had entered against Ms Hamilton-Smith, and reinstated Ms Hamilton-Smith’s defence and counterclaim. The issue of costs was adjourned to a hearing on 13 February 2004.
The Luigi Viscariello proceedings
On 1 September 2003, the father of Mr John Viscariello, Mr Luigi Viscariello, issued proceedings in the Supreme Court (action 1210/2003) (the Luigi Viscariello proceedings) against Bernsteen, seeking leave to proceed under s 500(2) of the Act. His proposed claim involved seeking recovery of monies that he had advanced to Bernsteen, on the basis of an alleged trust over those monies that had failed.
On 15 January 2004, Judge Kelly refused Mr Luigi Viscariello’s application for leave to proceed, and made an order for costs in Bernsteen’s favour.
Mr Luigi Viscariello brought an application for leave to appeal from Judge Kelly’s refusal of leave to proceed. On 6 April 2004, Vanstone J dismissed that application, and made a further order for costs in Bernsteen’s favour.
Mr Luigi Viscariello then sought leave to appeal Vanstone J’s decision from the Full Court of the Supreme Court. On 13 August 2004, the Full Court (Doyle CJ, Besanko and White JJ) refused the application, and made a yet further order for costs in Bernsteen’s favour.
Events during 2004
On 13 February 2004, there was a hearing in the Bernsteen action before Magistrate Hiskey. His Honour heard argument on the costs of the set aside application, before adjourning the matter to 19 March 2004 to permit further written submissions. On 19 March 2004, his Honour further adjourned the matter to 25 March 2004.
On 25 March 2004, Magistrate Hiskey published his reasons on the costs argument, ordering that Ms Hamilton-Smith pay 80 per cent of Bernsteen’s costs of the set aside application, to be taxed on a party/party basis at 90 per cent of the Supreme Court scale.
On the same day, Ms Hamilton-Smith filed an application in which she sought an order that Bernsteen, or in the alternative Mr Macks, provide security for her costs of the Bernsteen action.
On 2 April 2004, Magistrate Hiskey listed the matter for a trial commencing on 20 September 2004. Four and a half days were set aside. His Honour indicated that he considered himself disqualified from hearing the trial, but listed the security for costs application for hearing before himself on 29 April 2004.
On 8 April 2004, Ms Hamilton-Smith filed an appeal in the Supreme Court (action 403/2004) seeking an extension of time and leave to appeal against the costs order made by Magistrate Hiskey on 25 March 2004 (the Costs Appeal).
At the hearing of the security for costs argument before Magistrate Hiskey on 29 April 2004, Ms Hamilton-Smith made an application that Magistrate Hiskey disqualify himself from hearing that application. His Honour reserved judgment on that issue, and adjourned the matter to 5 May 2004.
On 5 May 2004, Magistrate Hiskey dismissed the application that he disqualify himself from hearing the security for costs application, and listed the application for hearing on 7 May 2004.
On 7 May 2004, the matter was adjourned to 19 May 2004, with an order that Ms Hamilton-Smith pay Bernsteen’s costs of attendance, certified fit for counsel.
On 19 May 2004, Magistrate Hiskey heard argument on the security for costs application, and reserved his decision (subject to Mr Sallis, counsel for Ms Hamilton-Smith, having liberty to file further written submissions within 14 days).
The evidence in this inquiry includes an email from Ms Riach to Mr Magers (copied to Mr Macks and Mr Clifton) dated 9 June 2004. In this email, Ms Riach referred to the written submissions filed on behalf of Ms Hamilton-Smith, explaining that as they went beyond the leave granted, she and Mr Livesey considered a response was required. She attached a copy of those responsive submissions. After noting an approaching hearing before Anderson J in the Costs Appeal, Ms Riach wrote:
As discussed with you and Peter, the commerciality of the proceedings has always been concerning. If the security application is decided in our favour, Mr Sallis has advised he has instructions to appeal.
As you know, the counterclaim would have remained for determination even if we elected to opt out of the proceedings. However, the undertaking given in the defendant’s submission to not pursue the counterclaim if security is ordered and not provided raises for the first time some hope that a discontinuance could be negotiated.
It may be however that you consider it is important to pursue the claim, to vindicate the company’s rights, particularly when a broken contract was made through you as liquidator. This issue could be raised with the committee or the main creditors privately for their views.
We can discuss this further once the security decision is handed down.
On 17 June 2004, Anderson J heard the applications in the Costs Appeal. His Honour reserved his decision. On 22 July 2004, his Honour delivered his reasons for dismissing the Costs Appeal. He also ordered that Ms Hamilton-Smith pay Bernsteen’s costs of the Costs Appeal, certified fit for counsel.
On 5 August 2004, Ms Hamilton-Smith made an application for leave to appeal against Anderson J’s dismissal of her applications in the Costs Appeal. His Honour dismissed this application on 17 August 2004.
On 27 August 2004, there was a further hearing in the Bernsteen action before Magistrate Hiskey. There was no appearance by Ms Hamilton-Smith. The Magistrate delivered his reasons on the security for costs application, and made orders (i) that Bernsteen provide security for costs in the Bernsteen action in the amount of $6,000; (ii) that Ms Hamilton-Smith pay Bernsteen’s costs of her unsuccessful disqualification application, fixed in the amount of $500; (iii) that Ms Hamilton-Smith respond to Bernsteen’s request for further and better disclosure that had been made by letter dated 29 March 2004; and (iv) that any expert reports be filed within 28 days. The Magistrate vacated the trial that had been listed to commence on 20 September 2004, and adjourned the matter to a further directions hearing on 10 September 2004.
On 31 August 2004, Ms Hamilton-Smith applied for leave to appeal against Anderson J’s decision to refuse her leave to appeal from the 25 March 2004 costs decision by Magistrate Hiskey.
On 3 September 2004, Bernsteen paid $6,000 into court by way of security for costs, and on 10 September 2004, Magistrate Hiskey both relisted the matter for trial on 17 January 2005 (with five days set aside) and disqualified himself from hearing the trial. Later that month Magistrate Hiskey varied the start date for the trial to 24 January 2005.
By letter dated 24 December 2004, Stephen McNamara of MBPL wrote to Mr Macks, Mr Clifton and Mr Hall, as partners of PPB, foreshadowing a claim by Mr Viscariello against PPB by reason of Mr Macks’ conduct as administrator of Bernsteen and Newmore. The allegations related to Mr Macks’ conduct in connection with the DOCA that Mr Viscariello had anticipated would have been agreed. The allegations made in this letter reflect some of the allegations subsequently made in the Viscariello proceedings against Mr Macks. The letter was in the nature of a pre-action letter under the Supreme Court Rules 1987 (SA), and demanded an amount of $1 million in full and final satisfaction of Mr Viscariello’s claim.
The Bernsteen action during 2005
The trial in the Bernsteen action commenced before Magistrate Fahey on 24 January 2005. It continued for five days before, on 28 January 2005, it was adjourned part-heard to 6 June 2005.
Shortly following the trial, by letter to Mr Macks dated 8 February 2005, Ms Flaherty of Minter Ellison foreshadowed the need to vary the proposed date for the resumption of the trial because of the potential unavailability of a witness. Under the heading “Commerciality and Costs”, Ms Flaherty then made some observations about potential settlement, and the potential use of the Bernsteen action by Mr Viscariello to support his claim against PPB. Ms Flaherty wrote:
We refer to conversations had between Ms Riach and Mr Magers on 9 June 2004 and between Mr Livesey, the writer, yourself and Mr Magers on Friday 28 January 2005.
We confirm that Mr Livesey and Ms Riach have raised the cost and commerciality of this litigation. We confirm that given the statements made by Mr Sallis before Mr Hiskey SM during the security for costs argument last year, and before Magistrate Fahey on 24 January 2005, you still have the option of withdrawing your claim on the basis that the defendant will withdraw her counterclaim. You could thereby limit your exposure to future costs.
However it is clear that the $20,000.00 offer you made in September 2002 is reasonable. You should succeed with the claim, at least to that extent. You will obtain further costs orders for the one and a half days lost arguing the failed adjournment, security and discovery applications.
In addition it seems clear enough that Mr Sallis and Mr Viscariello intend to use this action to support Mr Viscariello’s claims against the PPB partnership. It is possible that some of the costs of continuing the litigation may be claimable under your professional indemnity insurance policy on the basis that the information elicited from cross-examination of Mr Viscariello could be of use in your defence of Mr Viscariello’s latest claim.
We recommend that you contact your indemnity insurer to see if they are prepared to contribute to your costs incurred in connection with this litigation.
On 2 March 2005 there was a meeting of the Bernsteen and Newmore committees of inspection. The minutes record that Mr Macks discussed the various legal claims involving the liquidations, with the first of these being the claim against Ms Hamilton-Smith. They also record that Mr Mansueto provided the meeting with a summary of the claim.
On 1 April 2005 there was an unsuccessful attempt to resolve the Bernsteen action at a settlement conference convened at Minter Ellison’s offices.
By letter dated 5 April 2005 from MBPL to Minter Ellison, Mr McNamara referred to the settlement conference that had occurred on 1 April 2005. He confirmed that Ms Hamilton-Smith had offered to pay $5,000 in full and final settlement (subject to her being able to obtain those funds through a third party), and that Mr Macks rejected that offer. Mr McNamara referred to what he said were difficulties with Mr Macks’ claim, and “the inordinate amount of time the continuation of this matter will incur”, before then offering to settle the matter on the basis that “both sides discontinue their actions including discontinuing any enforcement of any current orders for costs, with each bearing their own costs”. The offer was expressed as open until 8 April 2005.
On 6 April 2005, Ms Riach emailed a copy of this letter to Mr Macks and Mr Magers. She attached a draft proposed response, which included offers to resolve both the substantive claims and outstanding costs orders in Bernsteen’s favour. On the topic of costs, Ms Riach also noted that she had received two sealed interim allocaturs that had been issued in Bernsteen’s favour by the Court, and that she would arrange for a bankruptcy notice to be served upon Ms Hamilton-Smith.
Minter Ellison responded to MBPL by letter dated 6 April 2005. In that letter, Ms Riach expressed concern about the position that had been taken by Ms Hamilton-Smith at the 1 April 2005 settlement conference in circumstances where Mr McNamara had earlier told her that in light of Mr Macks’ filed offer of $20,000 the parties “were close” and that “it was definitely worth getting together.” Ms Riach said that Mr Macks maintained his position as to the merit of his claim, and mentioned Ms Hamilton-Smith’s liability for costs orders “in the amount of $27,726.79 on our calculation, or at least $10,000 on your calculation.” Against that background, Ms Riach wrote that she was instructed to reinstate the offer of $20,000 in full and final satisfaction of all outstanding matters. Finally, Ms Riach also indicated her client’s preparedness to settle the substantive action and costs claim independently. To that end Ms Riach communicated two further (independent) offers:
· in respect of the substantive action, the parties to each discontinue their claim and counterclaim and bear their own costs; and
· in respect of the costs claim, Ms Hamilton-Smith to pay $20,000 in respect of the bills of costs that had been prepared in respect of the costs orders in the Bernsteen action in the Magistrate Court, and the costs orders in the Costs Appeal in the Supreme Court.[18]
[18] Ms Riach indicated that the offer of $20,000 was based upon an attribution of $11,000 in respect of the former and $9,000 in respect of the latter, which were also capable of being accepted as independent offers.

All offers in this letter were expressed as open until 20 April 2005, and thereafter withdrawn.
On 8 April 2005, Magistrate Fahey further adjourned the resumption of the trial. His Honour relisted it for a further 13 days, commencing on 10 October 2005.
It would seem that this allotment of time was based upon an estimate given by Ms Hamilton-Smith’s counsel. In circumstances where the trial had already taken five days, I find it quite extraordinary that what appears to have been a relatively simple set of proceedings was permitted this allocation of court time. This occurred against a background of an already lengthy and costly interlocutory history, including, as mentioned above, an application to set aside a default judgment that had occupied several days of hearing spread over a period of five months. While I am not privy to the detail, and so cannot be too definitive in my criticism, it seems to me that it ought to have become clear to the Court by this point in time that it needed to take some level of control over the progress of the Bernsteen action. As will be seen, Ms Hamilton-Smith’s legal advisors continued to use the threat of time and cost as a lever in the settlement discussions between the parties.
By email dated 27 April 2005 from Ms Riach to Mr Macks and Mr Magers, Ms Riach reported that she had attended the hearing of Ms Hamilton-Smith’s application for leave to appeal Anderson J’s decision in the costs appeal dated 22 July 2004. After expressing confidence that the decision would be in Bernsteen’s favour, Ms Riach added that she had taken the opportunity to update Mr Sallis on the settlement proposals that had been put on behalf of Bernsteen and that she had encouraged him to communicate his opinion that it was in Ms Hamilton-Smith’s interest to accept them.
On 26 May 2005, the Full Court of the Supreme Court dismissed Ms Hamilton-Smith’s application for leave to appeal from Anderson J’s decision, and ordered that Ms Hamilton-Smith pay Bernsteen’s costs.
In reporting this outcome to Mr Macks and Mr Magers in an email dated 26 May 2005, Ms Riach said that when attending to collect judgment she had taken the opportunity to raise settlement with Mr Sallis, who undertook to discuss it with Mr McNamara.
By letter dated 27 May 2005 from MBPL to Minter Ellison, Mr McNamara communicated an offer on behalf of Ms Hamilton-Smith, to pay Bernsteen $10,000 in full and final settlement (including all costs orders, and the bankruptcy proceedings referred to in the next section of these reasons). However, the offer was one that involved deferred payment, namely that Ms Hamilton-Smith would pay $2,000 upon execution of a deed of settlement, and thereafter eight monthly instalments of $1,000 each. The letter then said:
If no agreement is reached, our instructions are to:
1.   In relation to the costs order, file a Notice of Appeal to the High Court against the decision of the Full Court.
2.   In relation to the Bankruptcy Action;
a.contest the date of service and produce affidavits in support
b.apply to extend the time for compliance of the Bankruptcy Notice on the basis that if our client succeeds on her counterclaim in the Magistrates Court, the order will far exceed your client’s costs order the subject of the Bankruptcy
3.   We are also instructed to put your client on notice that if our client fails on the substantive hearing in the Magistrate Court that she will instruct us to appeal the decision to higher courts, which of course will cost both parties further monies but will delay any potential recovery by your client.
On 30 May 2005, Ms Riach emailed Mr Macks and Mr Magers about this offer from Ms Hamilton-Smith of “$10,000 payable in instalments (compared to her previous lump sum offer of $5,000).” There were obvious concerns about any resolution involving payment by instalments given that the Bernsteen action was itself a product of Ms Hamilton-Smith having already defaulted on such an arrangement. Ms Riach wrote:
Given the new costs order in our favour, Ray and I consider that your position should increase from your previous offer of $20,000. A draft counter proposal to this effect is enclosed for your consideration.
The enclosed counter proposal was in the form of a letter from Minter Ellison to MBPL, stating that Bernsteen was not interested in a settlement involving instalments (given that Ms Hamilton-Smith’s failure to meet a payment schedule had led to the litigation), referring to Bernsteen’s further costs order in respect of the application for leave to appeal to the Full Court (which it was prepared to fix at $5,000), and offering to accept $25,000 from Ms Hamilton-Smith in full and final settlement of all outstanding issues. The letter also included independent offers of $11,000 for the Magistrates Court costs, $9,000 for the Supreme Court costs, $5,000 for the Full Court of the Supreme Court costs, and a discontinuance of the claim and counterclaim in the Bernsteen action (with each party bearing their own costs).
On 31 May 2005, Mr Magers communicated Mr Macks’ instructions to Ms Riach to make a response in the proposed terms, and the draft letter from Minter Ellison to MBPL was sent that same day.
A response from MBPL to Minter Ellison came by letter dated 6 June 2005. In that response Mr McNamara noted that the costs orders relied upon by Bernsteen would not be enforceable until finalisation of the Bernsteen action; that Ms Hamilton-Smith considered she had a good chance of winning that action; and that while she was prepared to settle on the basis of “commerciality” and “to get this out of her life”, she was not in a financial position to offer a lump sum. Mr McNamara added:
The hearing of the substantive action is going to impact on your client far more than ours in terms of time and costs in relation to witnesses, and should our client lose the action, there is every chance that she will have to go bankrupt, and accordingly your client will recover nothing on behalf of creditors. Alternatively, given her recent practice, she is likely to appeal the matter which will result in further delays and costs.
The email concluded with Mr McNamara re-stating his client’s offer in the letter of 27 May 2005, and asked that Minter Ellison’s client “consider this seriously, as the consequence of not settling are a long, tedious and costly trial, with little or no prospect of return.”
On 14 June 2005, Ms Hamilton-Smith filed an application for special leave to appeal to the High Court (action A33/2005) against the Full Court’s dismissal of her application for leave to appeal from Anderson J’s decision of 22 July 2004. (While out of chronological sequence, I note that the application for special leave that was listed for 10 February 2006 was adjourned. It was subsequently discontinued on 2 March 2007, as a result of the settlement that was ultimately reached at the mediation on 26 February 2007.
By letter dated 27 June 2005 from MBPL to Minter Ellison, Mr McNamara made reference to the bankruptcy proceedings (see below) taking on a life of their own and requiring additional legal costs, before making an offer of $10,000 in settlement of all matters. The $10,000 was to be payable as to $3,300 upon execution of a settlement deed, with two further monthly instalments of $3,300 and $3,400.
By letter dated 4 July 2005, Minter Ellison rejected this offer on behalf of Bernsteen. The letter reiterated Bernsteen’s lack of interest in a settlement involving instalments; mentioned Mr McNamara’s earlier acknowledgment of costs entitlements which he had valued at $10,000; noted the absence of any attempt to value Ms Hamilton-Smith’s counterclaim; and suggested Ms Hamilton-Smith’s position “does not represent a realistic assessment of the parties’ exposure in the litigation, nor a commercial outcome for our client.” The letter concluded with Minter Ellison restating its client’s offer to accept $25,000 in full and final settlement of all outstanding issues. The offer was made open for seven days, with the settlement sum to be paid within 14 days of acceptance.
On 12 August 2005, Magistrate Fahey further adjourned the part-heard trial of the Bernsteen action, to a hearing commencing on 15 May 2006. Once again, it was listed for a further hearing of 13 days, which, as I have said, seems an extraordinary allotment of time.
The Bernsteen bankruptcy action
By April 2005, Bernsteen had obtained numerous costs orders in its favour in the Bernsteen proceedings. Several of these had been the subject of short form bills of costs, and in some cases allocaturs.
On 3 April 2005, Bernsteen served Ms Hamilton-Smith with a bankruptcy notice in respect of two unpaid allocaturs in its favour in the Bernsteen action. The amount claimed was $4,118.57, and the date for compliance was 3 May 2005.
On 4 May 2005, Ms Hamilton-Smith filed proceedings in the Federal Magistrates Court (action ADG94/2005), seeking to set aside the Bernsteen bankruptcy notice on the basis that she had a counterclaim that exceeded the amount claimed in that notice.
At a hearing on 17 June 2005, Registrar Christie granted Ms Hamilton-Smith leave to file further affidavit evidence and submissions in support of her application to set aside the Bernsteen bankruptcy notice.
As explained later, Registrar Christie ultimately made an order setting aside the Bernsteen bankruptcy notice on 31 August 2005 on the basis that Ms Hamilton-Smith was pursuing a counterclaim against Bernsteen.
The George indemnity
As is apparent from the above, by mid-2005, Bernsteen’s position in relation to the litigation against Ms Hamilton-Smith was a difficult one. Significant legal costs had been incurred in the Bernsteen action itself, in the Costs Appeal and more recently in the Bernsteen bankruptcy action. None of these avenues was showing any sign of resulting in a significant return, and settlement negotiations had not given rise to any opportunity to exit the litigation on terms that Mr Macks considered commercially acceptable.
It was in this context that an alternative strategy emerged. The alternative strategy involved the potential for bankruptcy proceedings in the name of Heidi George against Ms Hamilton-Smith. It was anticipated that such proceedings in the name of Ms George might result in the bankruptcy of Ms Hamilton-Smith (and the interposition of an independent trustee in bankruptcy who could be expected to take a more reasonable approach to settlement), without becoming complicated by the existence of the Bernsteen action (and, in particular, Ms Hamilton-Smith’s counterclaim in those proceedings) in the way that Bernsteen’s own application to bankrupt Ms Hamilton-Smith had become complicated. It is apparent that this alternative strategy was an idea that emanated from Minter Ellison, and not Mr Macks or anyone else from PPB.
Ms George was a judgment creditor of Ms Hamilton-Smith, having obtained a Magistrates Court judgment in her favour against Ms Hamilton-Smith in the amount of $4,329. The judgment had been entered by Magistrate Cannon on 25 August 2003 in action 720/2002, and related to monies lent by Ms George to Ms Hamilton-Smith. Ms Hamilton-Smith had unsuccessfully challenged the judgment in the District Court.
By letter dated 7 June 2005, Minter Ellison approached Ms George to ascertain her interest in assisting their client to bankrupt Ms Hamilton-Smith. The letter invited her to telephone to discuss.
The evidence in the inquiry includes a file note of a conversation between Ms Flaherty from Minter Ellison and Mr Macks on 14 June 2005. It is not clear from the file note who said what, but it refers to Ms George having a debt which had not been satisfied; to costs and disbursements of $2,000; and to “suggesting meet ½ costs capped at $2k”. Ms Flaherty’s note of the conversation then includes:
In your interest in terms of time/costs if can avoid trial in Oct.
You agree – excellent suggestion. Happy to pay $1k towards. Will try to get it issued by Friday.
By letter dated 28 June 2005, Minter Ellison wrote to Ms George referring to their discussions and thanking her for her instructions. The letter then set out Minter Ellison’s terms of engagement. It included an estimate of the legal fees and disbursements that “you will incur” in the order of $2,000, adding that it was only a “best estimate” and not a fixed quote; and that the final amount would depend upon factors not readily anticipated or controlled. Under the heading “Indemnity for legal fees”, the letter stated:
We confirm that Mr Peter Macks of PPB will fund the bankruptcy proceedings to the value of $2,000. As previously discussed, should funds become available in the bankrupt estate of Ms Tanya Hamilton-Smith or should your debt be paid by Ms Tanya Hamilton-Smith, Mr Peter Macks will be repaid the funds made available for your legal costs in the matter to the value of $1,000.
On 1 July 2005, Minter Ellison served Ms Hamilton-Smith with a bankruptcy notice on behalf of Ms George. The notice sought an amount of $4,079.80 within 21 days.
By letter dated 1 July 2005, Minter Ellison wrote to Mr Macks. After updating Mr Macks in relation to the Bernsteen bankruptcy action, the letter turned to the topic of the George bankruptcy notice. The letter confirmed the issue and service of the George bankruptcy notice, adding:
We confirm that you have agreed to indemnify Ms George by payment of Minter Ellison’s legal fees in applying for a sequestration order against Ms Hamilton-Smith’s estate based on Ms George’s judgment.
Ms George has agreed to repay you a fixed sum of $1,000, should she make any recovery of the judgment amount.
We will keep you informed as to the progress of this matter.
It is apparent from the above that Mr Macks acceded to Minter Ellison’s suggestion that he fund Ms George’s attempt to bankrupt Ms Hamilton-Smith. While there is reference in Ms Flaherty’s notes to the value of the indemnity being “capped” at $2,000, it was subsequently treated by Minter Ellison as an open-ended indemnity.
Arrangements in relation to Minter Ellison’s fees
It appears from the documents that on 1 July 2005, Mr Mansueto and Ms Riach met with Mr Macks to discuss Minter Ellison’s work-in-progress and fees in relation to the various matters they were handling for him.
By letter dated 6 July 2005 from Minter Ellison to Mr Macks, Mr Mansueto summarised the position as follows:
I refer to my meeting with you on 1 July 2005 with Natasha Riach providing you with an update on the status of the various files and our strategy for the future conduct of the litigation.
I confirm having provided you at that meeting with our letter dated 1 July 2005 setting out the amount of work in progress and outstanding invoices incurred to date in acting for you in the administration.
In view of the level of work which has been undertaken and for which payment has not been received, and is unlikely to be recovered, it was appropriate that we review our arrangements for the ongoing work which is required.
As to the claim by John Viscariello, we will continue to render monthly accounts. I confirm that we will also render monthly accounts in respect of the Supreme Court Action instituted against you personally by Luigi Viscariello following the determination of the summary judgment / strike out action, (which as a show of support we had agreed to do on the basis we would receive payment from any costs recoveries from Luigi Viscariello or from the insurer). Both of these actions are the subject of a claim for indemnity against your insurer.
We also confirm that we have been engaged by Heidi George to pursue bankruptcy proceedings against Ms Hamilton-Smith on the basis that you will indemnify her in respect of our fees and disbursements. Accounts will be rendered to her monthly on this matter also, and will be forwarded to you for payment. In the event Ms George recovers funds in respect of her judgment debt, then she has agreed to reimburse you $1,000 towards the amount indemnified.
As to the other files, we will continue to act on a speculative basis. If and when recoveries are made, for example, from the ATO, Charles Parsons or Ms Hamilton-Smith, then we confirm that agreement will be reached at that time as to the apportionment of those recoveries between PPB and Minter Ellison having regard to each firm’s level of work in progress.
Please do not hesitate to call me should you wish to discuss further.
It appears from the penultimate paragraph of this letter that, as at July 2005, Minter Ellison had agreed to undertake their work in the Bernsteen action on a speculative basis.
The George proceedings
On 21 July 2005, Ms Hamilton-Smith issued proceedings against Ms George in the Federal Magistrates Court (action ADG 159/2005), seeking to set aside the George bankruptcy notice. She relied in this respect upon an affidavit assertion that she had already paid the judgment debt, and that the bankruptcy notice was an abuse of process based upon her belief that Ms George’s costs were being paid by Mr Macks.
At a hearing on 1 August 2005, Registrar Christie granted Ms Hamilton-Smith an adjournment to enable her to file a further affidavit in support of her application to set aside the George bankruptcy notice.
On 11 August 2005, Ms Hamilton-Smith filed an affidavit in support of the application to set aside the George bankruptcy notice on the basis that the judgment debt had already been paid. She claimed it had been satisfied by her providing Ms George with manchester to the value of $6,000. Mr Viscariello also filed an affidavit supporting the existence of a ‘settlement’ of the judgment debt. And on 16 August 2005, Ms George filed a responding affidavit denying that the judgment debt had been satisfied. She denied any arrangement of the type deposed to by Ms Hamilton-Smith or Mr Viscariello. Ms George also relied upon an affidavit of Ms Riach denying that there was any abuse of process.
There was a further hearing on 17 August 2005. Ms Flaherty appeared with Mark Douglas (also from Minter Ellison) with the intention that he cross-examine Ms Hamilton-Smith on her affidavit. It would seem that Minter Ellison had instructions from Ms George that Ms Hamilton-Smith’s affidavit was untrue, and that indeed Ms George had been the bridesmaid at her cousin’s wedding on the day she was alleged to have collected the stock. While counsel for Ms Hamilton-Smith attended the hearing, Ms Hamilton-Smith did not. In the circumstances, the matter was adjourned to 9 September 2005, with a direction that Ms Hamilton-Smith attend for cross-examination on that occasion.
By letter dated 25 August 2005, Minter Ellison wrote to Mr Macks, updating him in relation to the above and referring to Mr Douglas’ view that as Ms Hamilton-Smith had not placed any corroborating evidence before the Court, “it is likely that the Court will find in Ms George’s favour. However this will depend on the evidence that Ms Hamilton-Smith will give on 9 September 2005.”
The letter then addressed the costs that had been incurred. After noting Mr Macks’ agreement to indemnify Ms George, and that Minter Ellison had “estimated the fees of an uncontested Creditors Petition to be in the amount of $2,000 plus GST at that time”, the letter continued that “[i]n view of the unexpected opposition to the Bankruptcy Notice, the adjournments to the proceedings, and the affidavit and oral evidence now required to be presented, our work in progress has escalated to $11,000 (excluding GST).” The letter estimated a further half day for both Mr Douglas (at $280 plus GST per hour) and Ms Flaherty (at $225 plus GST per hour) to prepare and attend on 9 September 2005. The letter continued:
Would you please contact us immediately if you do not wish to continue to indemnify Ms Heidi George in relation to the current Bankruptcy Notice against Ms Hamilton-Smith and/or if you would like to further discuss the existing arrangements in place. Please bear in mind that if you do not continue to indemnify Ms Heidi George, she will have no option but to abandon the claim and the proceedings. This in turn could entail an adverse costs order against her, for which she would seek indemnity.

ASIC also criticise Mr Macks’ reference during the course of the Bar Chambers meeting to the “main game” being the Viscariello proceedings. I refer in this respect to my earlier finding that Mr Macks expressed the view during the course of that meeting that the “main game” was the Viscariello proceedings, and that a settlement with Ms Hamilton-Smith would give Mr Viscariello more determination to go forward. The Viscariello proceedings, whilst relating to Mr Macks’ conduct in connection with the Bernsteen and Newmore liquidations, were ultimately proceedings against him personally, rather than against either of those companies. As such, I accept that Mr Macks needed to be careful that his approach to the Bernsteen proceedings was not unduly influenced by considerations that reflected his personal interests rather than the interests of Bernsteen. However, I do not think that Mr Macks was required to entirely put those proceedings out of his mind when considering the way forward in the Bernsteen and George proceedings. Indeed, as reflected in my earlier findings in relation to the Bar Chambers meeting, there was discussion to the effect that Mr Viscariello was pursuing the Viscariello proceedings against Mr Macks for the very purpose of trying to interfere with Mr Macks’ conduct of the liquidation of Bernsteen. In other words, in circumstances where there was reason to believe that Mr Viscariello was pursuing his claims against Mr Macks with a view to interfering with the liquidation of Bernsteen, I do not think it was unreasonable or inappropriate for Mr Macks to at least have regard to the existence of those claims when determining Bernsteen’s approach to the proceedings involving Ms Hamilton-Smith.
On the state of the evidence, I do not think that the reference by Mr Macks to the Viscariello proceedings is a basis for impugning my view that the April 2006 strategy struck at the Bar Chambers meeting was a reasonable one. While it would appear that Mr Macks had broader considerations in mind (including not only the Viscariello proceedings, but also the ATO proceedings and the insolvent trading proceedings), I do not think there is a basis for me to find that they resulted in him adopting an unreasonable strategy.
For completeness on this topic, I note that a consequence of Mr Macks’ decision not to give evidence in the inquiry before me is that he has not given evidence to explain his reference to the “main game” and the extent to which it influenced the strategy he adopted. However, given his statements on this topic in his May 2010 examination by ASIC, and in circumstances where I consider that the strategy in fact agreed upon was a reasonable one in all the circumstances, I do not think there is any scope for the operation of the principle in Jones v Dunkel to assist in drawing any inference of unreasonableness on the part of Mr Macks.
Implementation of the April 2006 strategy
In addition to my conclusion that the April 2006 strategy adopted at the Bar Chambers meeting was a reasonable one, the evidence also suggests that for the period immediately following that meeting, the strategy seemed to be working.
First, and most significantly in this respect, the junior counsel who had by then been retained to appear for Bernsteen was successful in having the trial of the Bernsteen action adjourned to December 2006, thus avoiding (or at least delaying) the need to incur the estimated $88,000 in costs that the resumption of that trial would have occasioned. Bernsteen also obtained a further costs order in its favour.
Next, after a series of hearings before Magistrate O’Connor in late May and June 2006, Bernsteen was successful in obtaining an order dismissing Ms Hamilton-Smith’s declaratory proceedings; that is, the proceedings seeking a declaration intended to impugn the judgment in favour of Ms George that formed the basis of her creditor’s petition seeking the bankruptcy of Ms Hamilton-Smith. Unfortunately for Bernsteen, the dismissal of those proceedings was only achieved after further interlocutory skirmishing initiated by Ms Hamilton-Smith, and was soon followed by an attempt to appeal. The initial attempted appeal by Ms Hamilton-Smith was dismissed as incompetent, but a competent appeal in the Supreme Court was ultimately commenced and came on for hearing before Gray J several times in late 2006. However, for present purposes, it is significant that as at June 2006, the declaratory proceedings had been determined in Bernsteen’s favour, thus potentially clearing the way for progress on the bankruptcy front.
Turning to the bankruptcy front, on 20 June 2006, after dismissing an application for further discovery by Ms Hamilton-Smith, Registrar Christie made a sequestration order against Ms Hamilton-Smith in the George proceedings. Mr Scott was appointed as Ms Hamilton-Smith’s trustee in bankruptcy. Registrar Christie declined to order any stay of the sequestration order, and also made an order that Ms George’s costs be taxed and paid from Ms Hamilton-Smith’s bankrupt estate.
True to form, Ms Hamilton-Smith brought an application to review Registrar Christie’s decision to make a sequestration order. However, this review was heard and dismissed by Federal Magistrate Raphael in July 2006, albeit that his Honour ordered a stay of the order. This stay was then confirmed by Mansfield J pending an appeal by Ms Hamilton-Smith that was ultimately heard by Besanko J in October 2006.
In summary, as at July/August 2006, it seemed that the April 2006 strategy was working. The trial of the Bernsteen action had been adjourned, and a sequestration order had been obtained (albeit stayed) against Ms Hamilton-Smith in the George proceedings. A result of the latter was that the conduct of the Bernsteen action, and in particular Ms Hamilton-Smith’s counterclaim, was no longer within the exclusive control of Ms Hamilton-Smith. Subject to the complications arising from the stay order, and the pending appeals to Besanko J and Gray J, the Bernsteen action was now controlled by Mr Scott as Ms Hamilton-Smith’s trustee in bankruptcy.
Indeed, in Minter Ellison’s letter of 1 August 2006 to Mr Macks seeking to reach a resolution of the tensions that had emerged between Minter Ellison and PPB in relation to Minter Ellison’s legal fees, Mr Mansueto referred to their success in having carried out “the agreed strategy”, and having achieved “an excellent outcome” and “the desired outcome”. While the costs had continued to escalate even under the April 2006 strategy, Minter Ellison and PPB had several communications during August and September 2006 with a view to resolving their differences, and finding a way to ensure that the work that was necessary to attend to the litigation was undertaken.
The evidence does not reveal any attempts by Mr Macks or Minter Ellison during the months of September or October 2006 to progress any attempts to settle the Bernsteen proceedings. It seems to me that this would have been a sensible time to resume the earlier attempts to resolve the proceedings given the recent progress from Bernsteen’s perspective. However, I do not think I am in a position to conclude that Mr Macks acted unreasonably in not doing so at that stage. There were no communications or advice from Minter Ellison during this period suggesting or encouraging any further attempts by Mr Macks to try and achieve a settlement. In my view, it was reasonable to assume that for so long as Ms Hamilton-Smith had the outstanding appeals before Besanko J and Gray J, she was unlikely to agree any sensible resolution of the Bernsteen proceedings. It was reasonable to think that the two appeals would soon be determined, and if determined against Ms Hamilton-Smith, as Minter Ellison appeared confident would occur, then that would be an opportune time to resume the attempts to settle.
However, as detailed in my earlier narrative of findings, this is not how events transpired. The appeal before Gray J became complicated, and resulted in several hearings during late 2006 without any decision being reached. Further, and significantly, on 21 November 2006, Besanko J allowed Ms Hamilton-Smith’s appeal. While a number of Ms Hamilton-Smith’s grounds of appeal were rejected, his Honour remitted the matter for further hearing in relation to the issues raised in the affidavit of Mr Gawronski (being the allegation of abuse of process associated with the involvement of Minter Ellison and Mr Macks in the George proceedings). While the sequestration order made by Registrar Christie remained in place, it was plain that the outcome before Besanko J was a very significant set back from the perspective of Bernsteen, and its pursuit of the April 2006 strategy.
In my view, by the end of 2006, it was apparent that it would be necessary to undertake significant further work, and incur significant further costs, in order to even hold onto the sequestration order. The litigation landscape by that point in time was such that there was no way forward from Bernsteen’s perspective without significant further costs. As such, I think that by this time Mr Macks had no alternative but to settle even on a basis that he would not to that point have regarded as sensible. But, on the evidence, it appears that Mr Macks appreciated as much, and took appropriate steps to pursue and indeed achieve settlement of the Bernsteen proceedings.
I have earlier recounted the settlement discussions that appear to have commenced at the hearing before Federal Magistrate Raphael on 30 January 2007, and to have culminated in the successful mediation that took place on 26 February 2007. It is not necessary for me to repeat, or even summarise, the detail of those steps. It is enough for present purposes to note that Mr Macks did pursue and achieve an overall settlement of the litigation involving Bernsteen, Ms George and Ms Hamilton-Smith in the early part of 2007.
It is significant, in my view, that the apparent breakthrough in settlement attempts coincided with the involvement of new counsel for Ms Hamilton-Smith, namely Mr Bigmore QC. In my view, it is likely that the involvement of fresh independent counsel was a factor in the ability to achieve the settlement that was achieved. To put it another way, I do not think it can be inferred from the fact that the proceedings were resolved during the February 2007 mediation on terms that involved small payments by Ms Hamilton-Smith to Bernsteen and Ms George, that an equivalent settlement (or indeed any sensible settlement) could have been achieved in the second half of 2006.
Potential witnesses not called
I mention again that Mr Macks did not give evidence during the inquiry before me. I have already addressed the significance of this in relation to the first aspect of the inquiry (that is, the allegation that Mr Macks fabricated the Memoranda). In my view, it has a similarly limited significance in respect of this second aspect of the inquiry.
As Mr Macks could have given evidence, the foundation for a Jones v Dunkel inference exists. However, it does not follow that I should ignore or discount the evidence as to the explanations for his conduct, both in the contemporaneous documentation to which I have referred and in the explanations proffered by him for his conduct when examined by ASIC in December 2009 and May 2010.
While I can, and should, infer that any evidence given by him in the inquiry would not have assisted him (in the sense of adding to those explanations that are in evidence, or supporting other explanations not identified in the evidence), I have been careful to keep sight of the fact that the onus lies on ASIC to establish its allegation that Mr Macks acted unreasonably. I have been careful not to use Mr Macks’ failure to give evidence to diminish the significance of the evidence that has been adduced, or to fill the gaps in that evidence in a manner adverse to Mr Macks.
In approaching this aspect of the inquiry, I am conscious that I also have not heard evidence from a number of other people who played some role in the relevant events, and may have been able to provide some assistance in my consideration of what was ultimately a largely documentary case presented by ASIC. Most notably in this respect, and unlike the Court in the Viscariello proceedings, I did not hear any evidence from any of Mr Macks’ legal advisors, despite the fact that they may have been able to provide some additional insight into their advice to, and discussions with, Mr Macks about the litigation against Ms Hamilton-Smith. But there are also others (for example, Mr Macks’ then colleagues from PPB) who may also have been in a position to provide relevant evidence.
Given the effluxion of time, it is reasonable to doubt whether any of these potential witnesses could reliably have added much to the contemporaneous documentary record that exists and is in evidence. To take one significant example, while the terms of the discussion that occurred at the Bar Chambers meeting on 28 April 2006 form an important aspect of my consideration of ASIC’s allegations, it is difficult to see how any of the attendees at that meeting could, some 14 years later, reliably add to the quite detailed contemporaneous notes of that meeting that are in evidence.
In any event, for the reasons explained earlier, I do not think it can be said that either party was naturally to be expected to call any of these people as witnesses. Given the absence of any ongoing commercial or professional relationship between Mr Macks and his former colleagues from PPB or the lawyers from Minter Ellison to whom reference has been made, I do not think Mr Macks was naturally to be expected to call them as witnesses. And even though ASIC carried the onus in these proceedings, it had no obligation to call any of these people as witnesses. It was entitled to rely upon the documentary evidence adduced during the trial, albeit that, in accordance with my earlier discussion of the decision of Austin J in Australian Securities and Investments Commission v Rich,[109] success in that reliance will ultimately turn upon whether those documents provide a sufficient basis to draw the inferences upon which ASIC’s case depends.
[109] Australian Securities and Investments Commission v Rich (2009) 236 FLR 1.
I should also mention the submission on behalf of Mr Macks that, in the absence of any evidence from Ms Hamilton-Smith (or those advising or influencing her, such as Mr Viscariello), I should not infer that any attempt to resolve the proceedings in the period of time soon after the Bar Chambers meeting would have been successful. To the extent that this submission assumes that any Jones v Dunkel inference should be drawn from ASIC’s failure to call any of these people to give evidence, I would reject it. However, the absence of any oral evidence on this topic does not prevent me drawing any inference as to the likely course of any settlement attempts during this period. A fortiori, it does not stand in the way of me declining to draw the inference upon which ASIC seeks to rely; namely, that there was a sufficient likelihood of utility in such attempts that it was unreasonable of Mr Macks to not take immediate steps to pursue that course in late April 2006.
Conclusion as to the allegation of unreasonable conduct
Having addressed the detail of the various aspects of the evidence relied upon by ASIC in support of its allegation that Mr Macks acted unreasonably in his continuation of the Bernsteen and George proceedings after April 2006, and Mr Macks’ responses to the same, it remains for me to reach a conclusion as to whether that allegation has been made out.
Earlier in these reasons I set out the reasons of the Full Court in the Viscariello proceedings for characterising Mr Macks’ conduct after April 2006 as unreasonable,[110] the essence of which was their view that Mr Macks had “failed to rationally review his position”; that he thereafter set about “vigorously pursuing” the Bernsteen and George proceedings; and that he did so rather than attempting to negotiate a settlement of all matters, or otherwise taking steps to finalise the proceedings. This reflects the substance of ASIC’s ultimate submissions in this inquiry.
[110] Macks v Viscariello (2017) 130 SASR 1 at [559]-[562].
While I am bound by, and have earlier summarised and adopted, the Full Court’s statement of the relevant legal principles as to the standard of conduct expected of a liquidator, I am not bound by their findings of fact, or conclusions as to the application of this standard to the conduct of Mr Macks. As explained earlier, those findings and conclusions are not admissible in this inquiry, and hence have no evidential status. Further, and in any event, it would not be surprising if my findings and conclusions differed from those set out in the Full Court’s reasons given that the evidence I received not only differed significantly from that presented in the Viscariello proceedings, but also fell to be considered in a different forensic context and contest more generally.
By way of elaboration upon these differences, ASIC’s case on this aspect of the inquiry was one confined to the documents (with the limited exception of Mr Basedow’s evidence). While ASIC relied upon a large number of contemporaneous documents (as summarised in my narrative of findings), its case ultimately relied upon a series of relatively general inferences that it contends could be drawn from the documents. Unlike the Court in the Viscariello proceedings, I did not receive oral evidence from any of the participants in the relevant events.
Thus, at one level, the evidence in this inquiry was of a more general and documentary nature than the evidence in the Viscariello proceedings. On the other hand, given the way in which ASIC framed its case – which confined the allegation to one of unreasonable conduct after the end of April 2006 – there was also a different, and more narrow, temporal focus in the evidence I received, and hence in the forensic contest upon which I am required to adjudicate. While I received a significant volume of documentary evidence by way of explanation of how Mr Macks and Bernsteen came to be in the position they found themselves in April 2006, the focus of the forensic contest was very much upon the reasonableness of Mr Macks’ decision-making and conduct from late April 2006.
While it is nevertheless relevant to consider the Full Court’s reasoning, I consider that there are difficulties with applying that reasoning to the circumstances of the present inquiry, given the evidence I have received and the factual findings I have made. In short, I consider that an application of that reasoning to the issue I must address in this second aspect of the inquiry would be to overlook the significance of the April 2006 strategy that Mr Macks devised with the support of his legal team at the Bar Chambers meeting on 28 April 2006, and to mischaracterise his subsequent attempts to implement (and initial success in implementing) that strategy. It would also involve an oversimplification of the difficulties confronting Mr Macks as at the end of April 2006 and the limited alternatives available to him.
As to the significance of the April 2006 strategy, I have already summarised my reasons for concluding that this was a reasonable strategy to adopt in the circumstances as they existed at the time of the Bar Chambers conference. The strategy involved an attempt to avoid the very significant expense of the impending resumption of the trial of the Bernsteen action prior to the conclusion of the attempt to obtain an order for Ms Hamilton-Smith’s bankruptcy in the George proceedings. It was recognised that there would need to be a review of the position following the attempt to implement those steps. In my view, not only was this a reasonable strategy to adopt, but its adoption was the product of a rational review of Bernsteen’s position by Mr Macks, and was supported by Mr Macks’ legal advisors.

In thereafter implementing this strategy, I do not think it can be said that Mr Macks set about “vigorously pursuing” the Bernsteen or George proceedings. While intending to see the George proceedings through to the point of obtaining an order for Ms Hamilton-Smith’s bankruptcy, his intention was in fact to avoid any further material costs in the Bernsteen action by seeking to have that trial adjourned and essentially halting the preparation for it in the interim. And, as I have observed, in the initial few months following the Bar Chambers meeting, it appeared that this strategy had succeeded. Certainly that is how Minter Ellison characterised the progress that had been achieved in their letter of 1 August 2006.
As to the difficulties confronting Mr Macks, and the limited alternatives available to him, I have explained why Mr Macks was entitled to be pessimistic about the prospects of him achieving any sensible resolution of the proceedings as at the end of April 2006. By reason of the numerous earlier unsuccessful attempts to resolve the proceedings, and the continued combative and at times vexatious approach of Ms Hamilton-Smith, he was reasonably entitled to think any resumption of settlement discussions at that point in time would be futile. It was reasonable for him to think that it would be preferable to see whether he could first secure the adjournment of the trial of the Bernsteen action, and an order for Ms Hamilton-Smith’s bankruptcy. Further, given the likelihood, if not inevitability, of a very significant adverse costs order, and the continuation of Ms Hamilton-Smith’s counterclaim, it was reasonable for him to reject any unilateral discontinuance of the Bernsteen and George proceedings as a sensible way forward. I do not think Mr Macks needed any estimate of the costs likely to be associated with this course for him to reject it.
Finally, I would add that once the initial success in implementing the April 2006 strategy began to unravel in late 2006, Mr Macks did move to resume settlement discussions. As it happens, he was fairly soon able to resolve both sets of proceedings in a mediation that occurred in February 2007. However, as I have also mentioned, I do not think it was a coincidence that this mediation occurred, and was successful, soon after Ms Hamilton-Smith came to be represented by fresh and independent counsel (Mr Bigmore QC). I do not think that it can be inferred from this outcome in February 2007, that the same outcome could reasonably be expected to have been achieved in April 2006. Certainly this is not a case where there was an obvious opportunity to settle on reasonable terms that was not taken.
In my view, ASIC has not established that Mr Macks acted unreasonably by continuing his pursuit of the Bernsteen and George proceedings after April 2006. For the reasons I have explained, I do not consider that ASIC was obliged to call any oral evidence in support of its case, or that any inference should be drawn from its failure to do so. At the same time, I do not accept that this is a case where the inferences, and ultimate conlcusion, contended for by ASIC have been established by the documents relied upon.
I accept that legitimate criticisms can be made of Mr Macks’ conduct along the way, in the sense that he (and Minter Ellison) could have been more proactive in their attempts to monitor and manage the cost and progress of the litigation in its earlier stages, and in their attempts to settle the proceedings later in the litigation. No doubt different decisions could, and perhaps should, have been made along the way that would have produced a better outcome (in the sense of an outcome that reduced the ultimate level of professional fees). However, it does not follow that Mr Macks acted in breach of his statutory duties in continuing the litigation beyond the point identified by ASIC (namely, late April 2006). To the contrary, I do not think this has been established.
In reaching this conclusion, I am of course conscious of the extraordinary level of professional fees that were ultimately incurred during the four and a half year spent pursuing the Bernsteen and George proceedings. Those fees were already well out of proportion to the amounts at stake by the time of the Bar Chambers meeting, and significantly increased after that point in time. With the benefit of hindsight, the fees incurred plainly reflect an unsatisfactory outcome. In a general sense the level of fees incurred reflect poorly upon the professionals (including Mr Macks) who were controlling the litigation on behalf of Bernsteen, and indeed upon our legal system’s ability to ensure proportionate outcomes in litigation. Unfortunately, it is all too common an occurrence in modern litigation that the costs become disproportionate to the issues and amounts at stake.
However, I consider it important not to reason backwards from this unsatisfactory outcome to an assumption that the proceedings either should not reasonably have been commenced, or should not reasonably have been continued beyond a particular point in time. It is important not to assume from an unsatisfactory outcome that there must have been some reasonably available alternative course that would have avoided that outcome. I have endeavoured to explain why, in my view, despite the disproportionate fees that had already been incurred by late April 2006, it has not been established that it was unreasonable for Mr Macks to adopt the strategy he did in the circumstances as they progressed and unfolded.
In concluding that ASIC has not proved that Mr Macks’ conduct was unreasonable, I have been conscious that the conduct of litigation often involves difficult strategic decisions, the outcomes of which are notoriously difficult to predict. Moreover, in the circumstances of the present case there was the added dimension of the combative and at time vexatious approach adopted by Ms Hamilton-Smith (and those advising and influencing her) in resisting the Bernsteen and George proceedings. This approach not only caused a large proportion of the legal fees that were incurred, but also added to the dilemma faced by Mr Macks in deciding an appropriate way forward at various stages in the litigation.
While Mr Macks must have realised by April 2006 that this difficult approach on the part of Ms Hamilton-Smith would likely continue, and make a sensible commercial resolution difficult to reach, I do not think Mr Macks was required to yield or capitulate too readily to such a tactic.
As mentioned in my earlier review of the authorities, particularly by reference to the decision of the New South Wales Court of Appeal in Hall v Poolman,[111] the law recognises that there is often an element of public interest in the pursuit of recovery actions by liquidators, and that this may justify the pursuit of legal proceedings beyond the point where there is a realistic prospect of recovery by creditors and hence to a point where the only beneficiaries of success in the litigation will be the professionals who have incurred fees in its pursuit. While the present case involved the pursuit of a claim based upon a post-liquidation contract, rather than a claim arising out of some pre-liquidation misconduct by a company officer, this element of public interest remains a relevant consideration.
[111] Hall v Poolman (2009) 75 NSWLR 99.
Of course, there are limits to the significance of this consideration. Proportionality remains a guiding consideration. A liquidator cannot ignore the position of creditors, and cannot simply engage in what the Court in Hall v Poolman described as “churn and burn” litigation.[112] However, I do not think that it can be said that Mr Macks was engaged in an attempt to exploit an opportunity to generate fees. To the contrary, it would seem that he was generally concerned to keep the fees that were being generated to a minimum. Indeed, he expressed this concern to his legal advisors on several occasions during the progress of the litigation.
[112] Hall v Poolman (2009) 75 NSWLR 99 at [154].
In my view, similar considerations apply – perhaps with added force – in the situation of recovery proceedings in which the liquidator is faced with resistance of the combative and vexatious nature that Mr Macks was forced to confront in the present case. It would be unfortunate if an intransigent defendant, particularly one with access to a sympathetic person with legal qualifications, could force a liquidator to abandon a meritorious recovery action by adopting an abusive approach to the conduct of their defence of that action. As the Full Court in the Viscariello proceedings acknowledged,[113] in circumstances where a liquidator is faced with a defendant who resists recovery proceedings in a manner calculated to cause maximum expense and delay, the courts must be astute to ensure that they do not provide a charter to recalcitrant defendants. Rather, a liquidator should, in my view, be afforded a degree of latitude in their response to a defendant who deploys such a tactic.
[113] Macks v Viscariello (2017) 130 SASR 1 at [512].
I do not mean by this to suggest that a liquidator should be entitled to take a bloody-minded approach to litigation when confronted with a difficult defendant. However, I do accept that it will sometimes be appropriate to permit a liquidator some latitude to adopt a robust approach in such circumstances, and to continue that approach past the point where there is any likelihood of a recovery which will go further than to meet the fees associated with the pursuit of that litigation. In my view, that latitude is all the more appropriate in a case, such as the present, where the liquidator cannot unilaterally abandon the litigation in question without incurring significant (and potentially ongoing) costs.
Of course, where a liquidator is spending funds that would otherwise go to creditors, then he or she may have significantly less scope to continue with legal proceedings that have become uncommercial. However, for the reasons explained earlier, that was not the case here. In the circumstances of the present case, the continuation of the proceedings after April 2006 was not in diminution of any expected recovery by creditors. The commercial impact of continuing the proceedings was one that would almost inevitably be borne by Minter Ellison and PPB, both of whom had taken the risk of conducting the litigation on the basis that a significant portion of their fees would not be paid unless a recovery were to be made.
For all of these reasons, and bearing in mind the Briginshaw principle, I do not think ASIC has made out the allegation that is at the centre of the second aspect of the inquiry that I have conducted. I am not satisfied that ASIC has established that Mr Macks failed to exercise the degree of care and diligence required of him as an officer of Bernsteen in applying Bernsteen’s funds in his pursuit of the Bernsteen or George proceedings after April 2006, or that he otherwise acted unreasonably in his pursuit of those proceedings after that date.