Cadwallader v Bajco Pty Ltd - [2002] NSWCA 328

No judgment structure available for this case.

CITATION: Cadwallader v Bajco Pty Ltd & Ors [2002] NSWCA 328 revised - 14/10/2002

FILE NUMBER(S): CA 40190/02

HEARING DATE(S): 28, 29 August 2002

JUDGMENT DATE:
26 September 2002

PARTIES :

Alan Cadwallader (Appellant)
Bajco Pty Ltd (First Respondent)
Keith William Skinner and David John Franke Lombe (Second Respondents)
David Ewart Cadwallader and Marilyn Alice Wintzloff (Third Respondents)

JUDGMENT OF: Heydon JA at 1; Santow JA at 275; Gzell J at 276

LOWER COURT JURISDICTION : Supreme Court

LOWER COURT
FILE NUMBER(S) : ED 1347/98

LOWER COURT
JUDICIAL OFFICER : Austin J

COUNSEL: Mr J B Whittle SC/Mr J T Svehla (Appellant)
Mr D J Hammerschlag SC/Mr C R C Newlinds (Second Respondents)
Mr J W J Stevenson (Third Respondent)

SOLICITORS: A R Conolly & Company (Appellant)
Tress Cocks & Maddox (First and Second Respondents)
Watson & Watson (Third Respondent)

CATCHWORDS: Corporations - directors' duties - breach - company placed in administration - whether directors' purpose in so doing improper - propriety of directors' resolution to pay themselves increased fees - Corporations - administration - meetings - notice - whether valid - Corporations - administrators - whether administrators knew of directors' improper purpose in seeking to place company in administration - accessorial liability - relevance - Remedies - general law and statutory remedies - setting aside of company resolutions - whether appropriate in circumstances - whether company should be taken to have entered voluntary administration - Corporations Law s 447A - Evidence - drawing of inferences - rule in Jones v Dunkel - application - requirements - Equity - waiver - Equity - discretionary defences - unclean hands - D

LEGISLATION CITED: Corporations Law
Trade Practices Act 1974 (Cth)

CASES CITED:
Abalos v Australian Postal Commission (1990) 171 CLR 167
Barnes v Addy (1874) LR 9 Ch App 444
Barclays Bank plc v Boulter [1997] 2 All ER 1002
Bradshaw v McEwans Pty Ltd (High Court of Australia unreported 1951)
Browne v Dunn (1893) 6 R 67
Commonwealth v Verwayen (1990) 170 CLR 394
Cook v Cook (1986) 162 CLR 376
Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Coulton v Holcombe (1986) 162 CLR 1
Cousins v International Brick Co Ltd [1931] 2 Ch 90
Devries v Australian National Railways Commission (1993) 177 CLR 472
DPC Estates Pty Ltd v Grey and Consul Developments Pty Ltd [1974] 1 NSWLR 443
Giorgianni v R (1985) 156 CLR 473
Hambro v Burnand [1904] 2 KB 10
Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Harrigan v Brown [1967] 1 NSWR 342
Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) ATPR 41-831
House v R (1936) 55 CLR 449
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
Jenyns v Public Curator (Q) (1953) 90 CLR 113
Jones v Dunkel (1959) 101 CLR 298
Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108
Luxton v Vines (1952) 85 CLR 352
Mason v Clarke [1954] 1 QB 460
Minister v Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1
Payne v Parker [1976] 1 NSWLR 191
Richard Brady Franks Pty Ltd v Price (1937) 58 CLR 112
Rosenberg v Percival (2001) 205 CLR 434
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Shum Yip Properties Development Pty Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619
Smith v Samuels (1976) 12 SASR 573
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588
Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348
Tame v New South Wales; Annets v Australian Stations Pty Ltd [2002] HCA 35
Twinsectra Ltd v Yardley [2002] 2 AC 164
Yorke v Lucas (1985) 158 CLR 661
Wentworth v Lloyd (1864) 33 LJ (Eq) NS 688

DECISION: See paragraph 274

CA 40190/02
ED 1347/98

HEYDON JA
SANTOW JA
GZELL J
26 September 2002

ALAN CADWALLADER v BAJCO PTY LTD & ORS

Corporations – directors’ duties – breach – company placed in administration – whether directors’ purpose in so doing improper – propriety of directors’ resolution to pay themselves increased fees

Corporations – administration – meetings – notice – whether valid
Corporations – administrators – whether administrators knew of directors’ improper purpose in seeking to place company in administration – accessorial liability – relevance
Remedies – general law and statutory remedies – setting aside of company resolutions – whether appropriate in circumstances – whether company should be taken to have entered voluntary administration – Corporations Law s 447A
Evidence – drawing of inferences – rule in Jones v Dunkel – application – requirements
Equity – waiver
Equity – discretionary defences – unclean hands

a. rejected the evidence of four witnesses about the purpose for which D and M sought to place Bajco Pty Ltd in administration;

b. dismissed the defence of waiver raised by A;

c. dismissed the unclean hands defence raised to prevent recovery by A in the event that he was entitled to relief;

d. found that Mr Cardwell at least ought to have known of the directors’ improper purpose in seeking to place Bajco Pty Ltd in administration;

e. found the administrators’ Report with notice of the second creditors’ meeting deficient;

f. made orders having the effect of putting Bajco Pty Ltd into liquidation instead of setting aside the 27 November 1997 resolutions as void ab initio;

g. formulated orders in relation to remuneration and costs as they affected the administrators.

Held

1. The trial judge’s reasoning demonstrated no error in relation to:

a. the rejection of evidence adduced to prove that M and D knew that B no longer intended to vote in favour of the proposed resolutions of the meeting requisitioned for 11 November 1997: [104]-[106];

b. the finding that D and M acted for an improper purpose in seeking to place Bajco Pty Ltd in administration: [118]-[127].

2. As to the pleaded defence of waiver:

a. The trial judge adequately “dealt with” and gave reasons for dismissal of the defence: [142]-[143];

b. On the evidence the conclusion that A’s vote in favour of the deed of company arrangement was cast not in his private capacity but on behalf of Cadwallader Engineering (NSW) Pty Ltd was open to the trial judge: [148], [150]-[151];

c. Even if A voted in his private capacity, any waiver could be of his private rights only, not those of the company: [152];

Cousins v International Brick Co Ltd

d. Even if “waiver”, “election”, “acquiescence”, “delay” or “unconscionable” conduct could be relied on in an attempt to deny A relief, the examination of the mental state of the person against whom those doctrines are invoked required by them was not satisfied: A lacked crucial material knowledge, and his conduct could not be described as “unconscionable”: [153], [158]-[160], [162];

Sargent v ASL Developments Ltd

Commonwealth v Verwayen

e. Any delay was far too short to constitute delay in the absence of any prejudice, and no prejudice was alleged or established: [161];

f. Estoppel could not be founded because there was no detriment: [163].

3. As to the pleaded defence of unclean hands:

a. It was not demonstrated that the trial judge erred in finding that the evidence did not support the proposition that A requisitioned the members’ meeting of 11 December 1997 with the intention of having the proceedings discontinued. The conclusion that the defence was not made out remained sound: [178];

b. Even if the trial judge’s reasoning were wrong because of some appellable factual error, arguably the directors would still not have made out the defence, since arguably the defence of “unclean hands” applies only where the actual conduct of a plaintiff has been improper, but not where a plaintiff prepares or intends to do it.: [179]-[181];

Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Lty Ptd

Mason v Clarke

Harrigan v Brown

4. Though the trial judge was unquestionably correct that Mr Cardwell at least ought to have known of the directors’ improper purpose, and though that finding would suffice if the doctrine of bona fide purchaser for value without notice, or some analogous doctrine, were relevant on the basis that Mr Cardwell’s constructive notice is not be imputed to his employers, the administrators, the trial judge was not correct to regard the mental state of Mr Cardwell and the administrators as material to whether the relevant transactions should be avoided ab initio. It was not material as a matter of law, and even if it were, the failure of the administrators to plead the point or otherwise make it an issue at the trial disables them from relying on it now: [229]

Barnes v Addy

Hambro v Burnand

Richard Brady Franks Ltd v Price

Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL

DPC Estates Pty Ltd v Grey and Consul Developments Pty Ltd

Consul Developments Pty Ltd v DPC Estates Pty Ltd

Cook v Cook

Coulton v Holcombe

Barclays Bank plc v Boulter

Yorke v Lucas

Giorganni v R

Royal Brunei Airlines Sdn Bhd v Tan

Twinsectra Ltd v Yardley

5. In the circumstances of this case, once A had established an entitlement on the part of Bajco Pty Ltd to set aside the transactions of 27 and 28 November 1997 under the general law, there was no material factor pointing against the grant of that relief, which was the primary relief sought. The circumstances did not require that the company be considered to have entered voluntary administration under Corporations Law s 447A: [251]

6. Nothing whatever in the trial judge’s reasoning suggested that he arrived at the orders relating to fees and expenses with a punitive motive. In all the circumstances the administrators had not pointed to any error in the trial judge’s reasoning which led him to the orders he made in relation to fees and expenses: [257]-[258]

7. The administrators did not demonstrate any error by the trial judge in the task of arriving at just costs orders in this case: [267].

Discussion of the drawing of Jones v Dunkel (1959) 101 CLR 298 inferences in civil proceedings: [95]-[101].

O R D E R S

The Court:

1. Allows the appeal.

2. Sets aside orders 3-7 made by the trial judge on 18 February 2002 and orders 1-4 made by the trial judge on 12 March 2002.

3. In lieu of orders 3-7 made by the trial judge on 18 February 2002, makes the orders and declarations set out in paragraphs 4-6 below.

(a) each of the resolutions of the third defendants as directors of the first defendant passed on or about 27 November 1997 to the effect that:

(i)(A) in the opinion of the directors voting for the resolution, the first defendant was insolvent or was likely to become insolvent at some future time;

(B) an administrator of the first defendant should be appointed;

(ii) the first defendant execute under seal of the first defendant notice that it desires to appoint an administrator of the first defendant as soon as possible;

(b) each of the resolutions of the third defendants as directors of the first defendant passed on or about 28 November 1997 to the effect that:

(i) pursuant to s 436A of the Corporations Law, an administrator be appointed to the first defendant;

(ii) pursuant to that resolution or the resolutions of 27 November 1997, Mr David Cadwallader follow up on the matter and that any two of K W Skinner, C R Campbell or D J F Lombe, being partners of Deloitte Touche Tohmatsu, be appointed as administrators of the first defendant provided they consent to being appointed;

(c) the document purporting to be a deed made on or about 28 November 1997 whereby the first defendant purported to appoint the second defendants as administrators of the first defendant;

(d) the document purporting to be a deed of company arrangement made between the first and second defendants on or about 12 January 1998,

is voidable at the instance of the first defendant and hereby avoids each of them ab initio.

5. Declares that at no time since 28 November 1997 have the second defendants been the administrators of the first defendant.

6. Dismisses the second defendants’ Notice of Cross-Appeal filed on 26 March 2002.

7. Dismisses the third defendants’ Second Notice of Cross-Appeal filed on 28 May 2002.

8. Orders the second defendants to pay the costs of the appeal of the plaintiff.

9. Orders the second defendants to pay the costs of the Cross-appeal of the plaintiff and of the third defendants.

10. Orders the third defendants to pay the costs of the Second Cross-appeal of the plaintiff and the second defendants.

11. Orders that costs payable by the second defendants in any capacity under these orders, and the costs incurred by the second defendants in this appeal (including the costs of cross-appeals) are not recoverable from the assets or funds of the first defendant on any basis.

***

CA 40190/02
ED 1347/98

HEYDON JA
SANTOW JA
GZELL J

26 September 2002

ALAN CADWALLADER v BAJCO PTY LTD & ORS

Judgment

1 HEYDON JA: All happy families are alike. All unhappy families are unhappy in their own way.

2 The Cadwallader family has been unhappy, and many of its affairs have been in a state of turbulence, at least since the death of Mr Eric Cadwallader in 1975. He and his wife Mrs Jean Cadwallader had six children: Mr Alan Cadwallader, Mr Bruce Cadwallader, Mrs Jeanine Hatton, Mr David Cadwallader, Mrs Marilyn Wintzloff and Mr Glynn Cadwallader. For the better part of three decades these siblings have been at war. This case concerns one aspect of the struggles of the first, second, fifth and sixth of these siblings. It took ten days to try. The trial judge was put to prodigious trouble in preparing his judgment thereafter. The appeal took two days to hear. Yet there was no evidence at the trial suggesting that the value of the assets in dispute exceeded $400,000. No member of the family is likely to gain any significant monetary advantage, though there will be considerable disadvantages as a result of costs orders. The principal potential beneficiaries of this litigation are lawyers and accountants, the former class at present being significantly more successful.

Background

3 Mr Eric Cadwallader formed a company in 1967. It was then called Cadwallader Engineering Pty Ltd. Since 1979 it has been called Bajco Pty Ltd. Until 1979 that company made electrical transformers at an industrial site in Concord West. In that year the business was sold to a new company, Cadwallader Engineering (NSW) Pty Ltd. Thereafter the latter company carried on the business, and leased the Concord West premises from Bajco Pty Ltd. Cadwallader Engineering (NSW) Pty Ltd also carried on a business at Gosford. From 1994 Mr Alan Cadwallader, who was not on good terms with Mr Bruce Cadwallader, ran the Gosford business while Mr Bruce Cadwallader ran the Concord West business.

4 Until 1996 Mr Alan Cadwallader was a director of Bajco Pty Ltd: in that year he was replaced by Mr David Cadwallader. Until 1997 Mr Bruce Cadwallader was the other director: in that year he was replaced by Mrs Marilyn Wintzloff.

5 In the 1990s there were disputes between Mr Alan Cadwallader and Mr Bruce Cadwallader. There were also disputes between them on the one hand and Mr David Cadwallader and Mrs Marilyn Wintzloff on the other hand. The latter contended, inter alia, that the 1979 transaction had unduly favoured Mr Alan Cadwallader and Mr Bruce Cadwallader, that the rent of $3,000 per month paid by Cadwallader Engineering (NSW) Pty Ltd to Bajco Pty Ltd was too low and that the lease was too informal.

6 These disputes led to the following events.

7 On 29 April 1997, after a directors’ resolution by Mr David Cadwallader and Mrs Marilyn Wintzloff to that effect, Bajco Pty Ltd filed a Summons commencing proceedings in the Equity Division, Supreme Court of New South Wales, against Mr Alan Cadwallader, Mr Bruce Cadwallader and Cadwallader Engineering (NSW) Pty Ltd. In those proceedings it was alleged that the personal defendants had effected the 1979 transfer of the business from Bajco Pty Ltd to Cadwallader Engineering (NSW) Pty Ltd in breach of their fiduciary duties.

8 On 17 July 1997 Mr David Cadwallader and Mrs Marilyn Wintzloff as directors of Bajco Pty Ltd resolved to offer the Concord West premises for sale.

9 On 20 October 1997 Mr David Cadwallader and Mrs Marilyn Wintzloff as directors of Bajco Pty Ltd resolved to pay themselves directors’ fees of $2,000 per quarter, backdated to July 1997. These fees were higher than before, and the trial judge held them to have been “excessive” in view of the limited amount of work involved in being a director of Bajco Pty Ltd. Shortly before the company was placed in administration in late November 1997, as described below, the directors drew cheques for their fees up to 27 November 1997 even though they were not then due and payable.

10 On or about 24 October 1997 Mr Alan Cadwallader and Mr Bruce Cadwallader, despite the fact that they were not on good terms, served a requisition for a meeting of the members of Bajco Pty Ltd “to be held as soon as practicable”. The object of the meeting was to consider the removal of Mr David Cadwallader and Mrs Marilyn Wintzloff as directors, and their replacement by Mr Alan Cadwallader and Mr Bruce Cadwallader. This had been foreshadowed as early as 18 September 1997. The 932 issued shares in Bajco Pty Ltd were held as to 366 by Mr Alan Cadwallader (100 of which he regarded as being held in trust for Mrs Jeanine Hatton beneficially), as to 266 by Mr Bruce Cadwallader, as to 100 by Mr David Cadwallader, as to 100 by Mrs Marilyn Wintzloff and as to 100 by Mr Glynn Cadwallader. It followed that the two requisitionists had the voting power to pass the resolutions referred to in the requisition.

11 Mr David Cadwallader and Mrs Marilyn Wintzloff, who had prior knowledge of the plan to requisition the meeting, viewed it so seriously that they engaged the services of a firm of solicitors, McCabes, who in turn engaged counsel; counsel advised that the directors were obliged to convene the meeting. Accordingly, on 31 October 1997 Mr David Cadwallader, as director and secretary of Bajco Pty Ltd, responded to the requisition by giving notice of an extraordinary general meeting of Bajco Pty Ltd to be held in Goulburn at 9.30am on 11 December 1997 to consider the resolutions referred to in the notice of requisition.

12 On 27 November 1997 at 9.15am Mr David Cadwallader met Mr Ronald Cardwell, a senior insolvency manager of Deloitte Touche Tohmatsu, who had had earlier dealings with the Cadwallader family, including Mr David Cadwallader and Mrs Marilyn Wintzloff. At 11am he and Mrs Marilyn Wintzloff conducted a meeting of directors by telephone in which they resolved that:

“(a) in the opinion of the directors voting for the resolution, the company was insolvent, or was likely to become insolvent at some future time; and

(b) an administrator of the company should be appointed.”

13 On 3 December 1997 the first creditors’ meeting of Bajco Pty Ltd was held.

14 On 11 December 1997 Mr Alan Cadwallader attended the requisitioned meeting of members in Goulburn of which Mr David Cadwallader had given notice on 31 October 1997, but no-one else attended; he was informed that the booking had been cancelled the previous day by Mrs Wintzloff, and no meeting took place.

15 On 19 December 1997 the administrators gave notice convening a second meeting of creditors of Bajco Pty Ltd on 29 December 1997. Attached to the notice was their “Report to Creditors”, which had been prepared by Mr Cardwell. It proposed that the planned sale by auction in mid-February 1998 of the Concord West premises continue.

16 At the second creditors’ meeting on 29 December 1997, it was resolved that Bajco Pty Ltd enter a deed of company arrangement and that the administrators be appointed administrators of the deed.

17 On 12 January 1998 the deed of company arrangement was executed. It provided that the administrators should continue with the sale of the Concord West premises.

18 On 20 January 1998 the administrators purportedly became liquidators of Bajco Pty Ltd.

The proceedings

19 On 10 February 1998 Mr Alan Cadwallader instituted these proceedings. On that day Windeyer J restrained the administrators from proceeding further with the deed of company arrangement and from taking any further steps in relation to the sale of the Concord West property.

20 The primary allegation in Mr Alan Cadwallader’s Further Amended Statement of Claim was that the resolutions of 27 November 1997, by which Mr David Cadwallader and Mrs Marilyn Wintzloff, the third defendants, resolved that Bajco Pty Ltd was insolvent or was likely to become insolvent at some future time, and that an administrator of Bajco Pty Ltd should be appointed, and the execution of the 28 November 1997 Deed appointing Messrs Skinner and Lombe, the second defendants, administrators of Bajco Pty Ltd, were voidable on the ground that, to the knowledge of Mr David Cadwallader and Mrs Marilyn Wintzloff, Bajco Pty Ltd was solvent, and that those directors were motivated by a desire to place Bajco Pty Ltd in the hands of the administrators as a means of preventing their own removal on 11 December 1997 by Mr Alan Cadwallader and Mr Bruce Cadwallader at the requisitioned members’ meeting. That is, Mr Alan Cadwallader, inter alia, charged the directors with fraud in equity. He also invoked various provisions of the Corporations Law in relation to the persons acting as administrators on the ground of their providing false or misleading information about Bajco Pty Ltd’s business, property, affairs or financial circumstances in the notice convening a meeting of creditors. He sought, inter alia, termination of the deed of company arrangement pursuant to ss 445D(1) and 447A of the Corporations Law and on the basis that s 439A(4)(c) had not been complied with, in that its statement to creditors did not set out “details” of the proposed deed.

The judgment

21 After a trial conducted on 1, 5-7 and 12 December 2000 and 4-7 and 25 June 2001, Austin J delivered a careful, lengthy and detailed judgment on 24 December 2001. He found that Mr Alan Cadwallader’s principal allegation against the directors was established. The main contention advanced against it by Mr David Cadwallader and Mrs Marilyn Wintzloff was that before their decision to place Bajco Pty Ltd into administration they had learned that Mr Bruce Cadwallader had changed his mind and had decided not to support Mr Alan Cadwallader in the plan of removing Mr David Cadwallader and Mrs Marilyn Wintzloff as directors at the requisitioned meeting on 11 December 1997. The significance of that change of mind was that if it had occurred and been communicated, it would have made it unnecessary for the directors to seek to prevent the meeting on 11 December 1997 from proceeding to business. Despite the fact that this contention found some support in the evidence of Mr Bruce Cadwallader, Mr David Cadwallader, Mrs Marilyn Wintzloff and Mr Cardwell, was confirmed by apparently contemporaneous diary notes in Mr David Cadwallader’s handwriting, and was not contradicted by any witness called by the plaintiff or by any other party, the trial judge rejected the contention, concluding that neither Mr Cardwell nor anyone else believed that Mr Bruce Cadwallader had decided to vote against the removal resolution. Further, the trial judge found that as at 27 November 1997 Bajco Pty Ltd was neither insolvent nor likely to become insolvent at some future time. He found that Mr David Cadwallader and Mrs Marilyn Wintzloff were aware of this. He found that in purportedly forming the opinions about insolvency recorded in the 27 November 1997 resolution they acted in bad faith. He found that the dominant, and probably the sole, purpose of their decision to appoint administrators was to preserve themselves in office, and this was a misuse of the fiduciary power of directors whose resolution in terms of s 436A(1) of the Corporations Law was a prerequisite to the exercise of the power to appoint an administrator. Hence the resolutions were voidable unless, according to the trial judge, a third party had acquired rights without notice of the impropriety. The trial judge found that Mr Cardwell, though ignorant of the directors’ bad faith, knew or ought to have known what their purpose was. He was thus on notice of the impropriety, and the resolutions were voidable against his employers, the administrators.

22 The trial judge next found that the second creditors’ meeting was convened one day late, but made an order pursuant to s 1322 of the Corporations Law curing that defect. He also found that the notice of the meeting was defective because it was not accompanied by any statement of the “details” of the proposed deed of company arrangement, contrary to s 439A(4)(c). The trial judge declined to make any curative order. He also found that the administrators’ report which accompanied the notice of meeting had other serious deficiencies.

23 The trial judge concluded by deciding and ordering not only that the deed of company arrangement should be terminated, but there should be the additional consequence that pursuant to s 447A of the Corporations Law Bajco Pty Ltd be taken to have resolved to go into voluntary liquidation, the administrators becoming the liquidators. He also made orders declaring that the administrators were entitled to their fees and expenses from 27 November 1997 to 19 December 1997, and were entitled to a lien on and an indemnity out of the assets of Bajco Pty Ltd.

The structure of the appeal

24 Mr Alan Cadwallader appealed. His posture was to treat as correct almost every step in the trial judge’s reasoning up to the section on remedies, but to contend that the trial judge ought not to have put Bajco Pty Ltd into liquidation. Rather he contended that equitable relief should have been granted which would take the company out of administration and return it to its pre 27 November 1997 position.

25 The administrators filed a Notice of Cross-Appeal. They contended that the trial judge erred in finding that they, through Mr Cardwell, were on notice of the misconduct of Mr David Cadwallader and Mrs Marilyn Wintzloff. They also contended that the trial judge erred in finding that the Report to Creditors was false or misleading. They contended that the trial judge had failed to deal with a defence which they had propounded below to the effect that Mr Alan Cadwallader’s decision to vote at the second meeting of creditors in favour of the deed of company arrangement amounted to a waiver sufficient to debar him from any relief. They also complained of errors in the trial judge’s orders as to their expenses and as to costs.

26 Mr David Cadwallader and Mrs Marilyn Wintzloff also filed a Notice of Cross-Appeal. They contended that the trial judge had erred in rejecting the evidence of the four witnesses supportive of the proposition that Mr Bruce Cadwallader had changed his mind before their decision to appoint the administrators. They also contended that the trial judge had erred in failing to uphold an unclean hands defence and the waiver defence just referred to.

27 It follows that in theory there are seven main areas of dispute on the appeal.

(a) Was the trial judge right to reject the evidence of the four witnesses? Even if he was right in that course, in the alternative, was he right to reject the evidence of the directors that their purpose was to avoid insolvent trading? This was a contest in which Mr David Cadwallader and Mrs Marilyn Wintzloff attacked the trial judge and Mr Alan Cadwallader defended him. The administrators said nothing either way. Success for Mr David Cadwallader and Mrs Marilyn Wintzloff would result in the Further Amended Statement of Claim being dismissed, and the administrators remaining in place as administrators under the deed of company arrangement, subject to arguments which they advanced in support of the proposition that they should continue as liquidators.

(b) Should the trial judge have upheld the waiver defence? Mr David Cadwallader and Mrs Marilyn Wintzloff contended that he should have. So did the administrators. Mr Alan Cadwallader contended that the trial judge was correct in not upholding it. Success for the critics would result in dismissal of the Further Amended Statement of Claim, and would leave the administrators in place as above, subject to their argument that they should continue as liquidators (in which they were briefly supported by the directors).

(c) Should the trial judge have upheld the unclean hands defence? Mr David Cadwallader and Mrs Marilyn Wintzloff contended that the trial judge should have. Mr Alan Cadwallader contended that he was right not to. The administrators said nothing on this issue. Success for the critics would result in dismissal of the Further Amended Statement of Claim, and would leave the administrators in place as above, subject to their argument that they should continue as liquidators (in which they were briefly supported by the directors).

(d) Were the trial judge’s findings that Mr Cardwell at least ought to have known of the directors’ improper purpose correct? Even if correct, were the findings sufficient to make the resolutions of 27 November 1997 invalid against the administrators? Here the critics were the administrators, while Mr Alan Cadwallader contended that the findings were irrelevant, but that if they were relevant, they were correct and sufficient. Mr David Cadwallader and Mrs Marilyn Wintzloff were silent on this issue.

(e) Was the administrators’ Report enclosed with the notice of the second creditors’ meeting deficient as the trial judge found? The administrators said it was not; Mr Alan Cadwallader said it was. Mr David Cadwallader and Mrs Marilyn Wintzloff were silent on this issue. Success for the administrators would improve their position in contending for more favourable orders in relation to expenses and costs, but would undercut the parts of the trial judge’s reasoning which resulted in their appointment as liquidators, and hence was adverse to what was apparently perceived by the administrators as an important aspect of their self-interest.

(f) Was the trial judge right to make orders having the effect of putting Bajco Pty Ltd into liquidation, or should he have set aside the 27 November 1997 resolutions ab initio? The administrators defended him while Mr Alan Cadwallader attacked him. Mr David Cadwallader and Mrs Marilyn Wintzloff were silent on this issue, apart from a very brief indication of support for the administrators in consequence of their waiver and unclean hands defences.

(g) Were the trial judge’s orders in relation to remuneration and costs as they affected the administrators correct? The administrators said they were not, Mr Alan Cadwallader said they were, and Mr David Cadwallader and Mrs Marilyn Wintzloff were silent.

Where an Equity Division judge experienced in the field to which the litigation relates delivers a long, detailed and careful judgment which attracts so much hostile fire from so many quarters, it may be inferred that it is probably correct in every respect: cf Tame v New South Wales; Annets v Australian Stations Pty Ltd [2002] HCA 35 at [70] per McHugh J. While in fact there are a few errors in the reasoning of the trial judge in this case, most of them induced by one or other of the parties, it has not in fact been shown that it was incorrect in any material respect except one.

The position of the administrators on the appeal

28 The trial judge said:

“While the proper contradictor in proceedings for termination of a deed of company arrangement is the company under administration, acting through the administrator, it is sometimes appropriate for the plaintiff to join the administrators personally as defendants… . In the present case it was appropriate to join the second defendants as parties because the plaintiff sought to restrain them from acting as administrators of the first defendant and from proceeding with the sale of the company's property.”

29 At the trial counsel and solicitors appearing for the administrators (the second defendants) also appeared for Bajco Pty Ltd (the first defendant). On the appeal they did not appear for Bajco Pty Ltd, only for the administrators.

30 At the trial the administrators did not have to face any pleaded allegation of participation by Mr Cardwell in the conduct of Mr David Cadwallader and Mrs Marilyn Wintzloff, and did not themselves advance any pleaded allegation of non-participation. However, the administrators had a legitimate interest in defending their employee against various attacks which Mr Alan Cadwallader made on him and various other attacks which the directors made on him. They also had a legitimate interest in defending the validity of their conduct in relation to the notice summoning the second creditors’ meeting and in defending the enclosed report from the numerous criticisms advanced in the Further Amended Statement of Claim. The Defence of the first and second defendants pleaded that Mr Alan Cadwallader lacked clean hands and had waived his rights. This was legitimate in relation to the first defendant, but for the second defendants to have intervened directly in the dispute between the plaintiff and the third defendants in this way was perhaps of more questionable legitimacy.

31 At the trial the second defendants relied on an Amended Cross-Claim which sought to vindicate the validity of all relevant transactions for which they were responsible in the December 1997-January 1998 period, sought s 1322 orders so far as there was any invalidity, and sought a declaration of entitlement to indemnity in respect of their services, together with a lien. The orders sought, as orders, were reasonable. Mr David Cadwallader and Mrs Marilyn Wintzloff sought relief against the administrators on a cross-claim: it rested on the contention that Mr Cardwell was in breach of duty in advising Mr David Cadwallader and Mrs Marilyn Wintzloff to appoint administrators, and it was legitimate for the administrators to resist that contention, which they succeeded in doing.

32 The administrators also proceeded on a cross-claim against Mr David Cadwallader and Mrs Marilyn Wintzloff. That cross-claim rested on the proposition that those directors had breached their duties not to appoint the administrators for an improper purpose. It failed because of the trial judge’s findings about Mr Cardwell’s notice of the directors’ improper purpose.

33 Neither in that Cross-Claim nor in the Amended Cross-Claim did the administrators contend that Bajco Pty Ltd was or should be put into liquidation on the grounds stated by the trial judge. The Amended Cross-Claim, in paragraphs 3 and 4 of the prayers for relief, sought orders based on the theory that the deed of company arrangement had not been properly executed, that Bajco Pty Ltd had therefore not executed it within the twenty-one day period contemplated by s 444B(2)(b) of the Corporations Law and hence that Bajco Pty Ltd was taken to have passed a special winding up resolution pursuant to s 446A(2)(b), with the result that the administrators were liquidators. But the trial judge recorded in his reasons for judgment the proposition that that contention was not pressed. The written submissions of the administrators to the trial judge contended that the plaintiff’s claim should fail, which would leave the administrators in office as administrators. They did very briefly suggest that the company should be wound up on the just and equitable ground, but the point was wholly undeveloped by argument and it was not the basis on which the trial judge acted. On appeal the issues for consideration are narrower than those which had to be determined by the trial judge. So far as it was relevant to do so in view of the narrower range of issues on appeal, the administrators maintained on appeal the positions they were adopting at the close of the trial. But in addition they took a new tack: to contend with vigour and in detail that the company should remain in liquidation and that they should remain the liquidators. There were faint foreshadowings of this in the administrators’ written submissions on appeal. Paragraph 1(d) said: “the order for winding up was and is … appropriate”. Paragraph 47 said: “This was … an appropriate case for the Company to go into liquidation … .” Paragraph 43(b) even suggested that this had been a goal of the administrators at the trial, since it said:

“ … the Administrators succeeded substantially:

…

(b) they are liquidators.”

34 This contention, which was put at the very start of the oral address, was prefaced by the following remarks offered in answer to a question from the court about whether the administrators had an interest in resisting Mr Alan Cadwallader’s appeal as distinct from propounding arguments supportive of their own cross-appeal:

“Not as strong an interest. From our point of view as the liquidators, and at the trial we occupied in a sense a neutral position. It does not matter to the liquidators – and they were then administrators – whether the administration came to an end or did not come to an end, or whether they continue in their office as liquidators. That is a matter between Mr Whittle and Mr Stevenson. I wish to be of assistance to your Honours in relation to that. We are the liquidators and we think we have something to contribute to your Honours’ understanding of what happened.

…

As between Mr Stevenson and I, he would make the same submissions but I am going to save time in doing it because it is within our sphere as liquidators to assist your Honours with this matter.”

“I am the liquidator and I do have a duty to assist your Honours.”

35 Parties who see themselves as having a role of assisting the court in some respects cannot easily also occupy the role of parties advancing positive self-interested claims in other respects – particularly where the arguments advanced by way of assistance to the court are also strongly in the self-interest of those advancing them. Sacro egoismo is not a quality which a statutory office holder can easily claim. The submissions advanced on behalf of the administrators pursuant to their “duty” as liquidators were not noticeably more restrained, in volume and fire, than those otherwise advanced. The result was that the submissions fairly advanced by the administrators in support of the personal conduct of Mr Cardwell and of themselves suffered by association with other submissions. It detracted a little from the dignity of the administrators’ entrance on the appellate scene that the submissions just referred to were accompanied by necessarily mercenary arguments about expenses and costs, but that dignity was affected much more by the advancing of arguments in support of the continuation of the liquidation. In reality, as counsel said in the passage quoted above and elsewhere, it should be a matter of indifference to liquidators in the position of the second defendants in this case whether they remain liquidators, whether they revert to being administrators, or whether they give up all office in the company.

What did Mr David Cadwallader and Mrs Marilyn Wintzloff know of any change of mind on the part of Mr Bruce Cadwallader?

The trial judge’s reasoning

36 The reasoning of the trial judge on this subject is as follows:

“David and Marilyn knew from 18 September 1997 or shortly afterwards, that Alan and Bruce were contemplating the convening of a meeting of members to consider their removal as directors of Bajco. To their knowledge, Alan's solicitor had written to Madgwicks requesting that such a meeting be convened. By the time of their board meeting of 20 October 1997, they knew it was likely that since they had not voluntarily convened the proposed meeting, they would receive a requisition requiring them to do so. They became aware of the notice of requisition by Alan and Bruce on or shortly after 24 October 1997, and Marilyn was aware on or shortly after 31 October 1997 that David had convened a meeting to be held on 11 December 1997. In my opinion, in light of the written evidence and the oral evidence of David and Marilyn, they did not want to be removed from the board and regarded the avoidance of this consequence as part of their struggle against Alan.

The following matters lead me to this conclusion. First, in his affidavit of 19 February 1998, Bruce said he decided it would be wrong to vote in favour of the proposed resolutions, but he did not say he had any conversation with David on the matter. He gave evidence of the conversation only at the hearing. He realised that evidence of the conversation would be important for David and was not able to give any satisfactory explanation for omitting the conversation from his affidavit.

Secondly, correspondence that is in evidence is inconsistent with Bruce having told David that he would vote against the proposed resolutions. The draft Deed of Agreement sent by Alan's solicitor to Bruce's solicitor on 14 October 1997 provided (in clause 6) for the requisitioning of a meeting of members to consider removal of the directors. Bruce's solicitor first replied to the draft on 22 October 1997 noting some proposed amendments but not commenting on clause 6. On 11 November 1997 Bruce wrote to his solicitor proposing the removal of clause 6 because ‘this (ie Bruce & Alan being appointed Directors) cannot happen’ since the requisitioned meeting had been convened. Although the language of the letter is obscure, it probably means that Bruce and Alan could not be appointed as directors (that is, by board appointment) because a process was in train for their election by the members.

Bruce's solicitor wrote to David and Marilyn's solicitor again on 18 November 1997, in a letter that expressly contemplated that David and Marilyn would be replaced by Alan and Bruce at the meeting to be held on 11 December 1997. Bruce said in his oral evidence that he thought his solicitor was taking licence in saying this. But the letter was copied to Bruce and there is no evidence that he took steps to ensure that any false impression was corrected. On 18 November 1997 Bruce's solicitor also sent a letter to the barrister, Garth Blake, in which he said that Alan and Bruce would vote to replace the minority directors. Bruce admitted in cross-examination that the views expressed in the letter were his. [In this Court it was contended that the last statement was incorrect.]

Bruce's solicitor wrote to Mr Blake on 21 November 1997, again anticipating the replacement of the directors on 11 December 1997. Bruce's evidence was that he would probably have informed his solicitor of his change of mind soon after he had made his decision. Since it appears from the letter of 21 November that Bruce had not spoken to his solicitor by that time, it is likely that he did not change his mind about voting until around 21 November (assuming that he did at all) and consequently that his conversation with David (if it occurred) was no earlier than 21 November.

On 1 December 1997 Bruce's new solicitors, Hunt & Hunt, wrote to Alan's solicitor repeating the proposal that clause 6 should be deleted. But there was no suggestion that the subsequent clauses, dealing with what would happen after Alan and Bruce had become directors, should be removed. This letter was written only after Bruce gave instructions to Hunt and Hunt in conference. If by that time Bruce had decided to vote against the removal of the directors and therefore to cause the proposed resolutions to fail, one would have expected him to instruct Hunt & Hunt accordingly, and for Hunt & Hunt to seek further amendments to the draft Deed of Agreement rather than merely the deletion of clause 6. In my opinion it is likely, in light of this evidence, that any conversation between David and Bruce, and any change of mind on Bruce's part, did not occur until at least 1 December 1997. Of course, by that time David and Marilyn had purported to appoint administrators.

David's evidence about his conversation with Bruce is also unsatisfactory. He did not mention any such conversation in his first affidavit in this case, notwithstanding the obvious importance of such evidence. [It was not correct to say that the conversation was not mentioned in the first affidavit. The source of the error was a submission of counsel for Mr Alan Cadwallader in his written submissions to the trial judge, as that counsel frankly conceded on the appeal.] In his second affidavit he gave evidence of the conversation but did not annex any supporting documentation. His notebook, said to corroborate his and Bruce's evidence of their conversation, was produced at the hearing.

The question arises whether the entries in the notebook should be regarded as credible corroborative evidence. The notes of the phone conversations with Bruce and Bajco's solicitor on 17 November were added at a later time, according to David's evidence, and in a different pen. When he referred to the conversation with Bruce in his affidavit, he said that the conversation was in ‘early November’, as did Marilyn. David appeared in the witness box as a meticulous person who made the notes of a great many conversations with estimates of the time taken in them, presumably to substantiate claims against Bajco for fees and disbursements. If he had a note of his conversation with Bruce in the notebook, one would have expected him to identify the date of the conversation with more precision in his affidavit. 17 November is not ‘early November’. In cross-examination he was confused as to whether he mentioned his conversation with Bruce in the first or second conversation he had with his solicitor at that time, and he conceded that the note of his first telephone conversation with his solicitor might have been inserted outside the temporal sequence of the calls. He did not make a note of passing on to Marilyn the information about Bruce's intention when he spoke to her that day.

David denied that his entries in the notebook concerning his conversation with Bruce and with his solicitor were made well after 17 November. I have decided not to accept this denial. I found David to be an unsatisfactory witness in various ways. Overall, he seemed defensive and reluctant to concede obvious points, and he tended to prevaricate. In light of his oral evidence, his affidavit evidence to the effect that Alan would not sign the lease for the Property was misleading. He did not give a satisfactory explanation for terminating McCabes' retainer. He was not convincing when explaining why he had used the words ‘early November’ in his affidavit, when his notebook recorded that the conversation with Bruce was on 17 November. My opinion, based on my assessment of David in the witness box and the matters going to the reliability of the notebook to which I have referred, is that, notwithstanding David's denial, the entries in the notebook concerning David's conversation with Bruce and with his solicitor on 17 November were made well after that date and are unreliable evidence.

Marilyn gave affidavit evidence that David told her of his conversation with Bruce, on 17 November 1997. This was admitted on the limited basis of proving the fact of the conversation rather than the truth of its contents. But her evidence was unsatisfactory, in my opinion. As I have mentioned, she admitted to making a false statement of claim to the administrators of Bajco for $15,000, knowing she was not entitled to make it. This cast a shadow over her credibility generally. In cross-examination she changed her evidence on the subject of Bruce's change of mind, saying she had just remembered in the witness box a conversation with Bruce in which he told her directly he would be voting in her favour at the meeting. But she was most unconvincing when cross-examined about this sudden recollection, in circumstances leading me to conclude that the direct conversation between her and Bruce, not deposed to by Bruce or referred to in any affidavits including her own, did not occur.

However, I accept her evidence, being in effect evidence against her interest, that at some time prior to 27 November she said to David that ‘Bruce will say one thing right up to the last moment and then change his mind’. The history of the family disputes, recounted above, tends to reinforce that view.

Mr Cardwell gave oral evidence that David had told him he had a conversation in which Bruce said he would vote in favour of the directors at the meeting on 11 December. However, his contemporary notes do not bear this out. He gave implausible evidence in cross-examination in which he eventually suggested that his contemporary notes (Exhibit P11, p 164)) recorded the information about Bruce's change of mind in the two quotation [sic: scil “question”] marks that appear in his notes. He gave no satisfactory explanation for his failure to record his conversation with David about Bruce’s change of mind in his affidavit evidence.

In summary, the evidence relied on by the defendants to support the claim by David and Marilyn that Bruce had told David, on 17 November or at some other time before 27 November, that he would vote in favour of the existing directors at the proposed meeting on 11 December, is quite unconvincing. I find that no such conversation occurred.

In my opinion David and Marilyn were well aware, prior to 27 November, that if Bruce voted with Alan at the meeting of members, they would be removed from office. The fact that Bruce was one of the parties who requisitioned the meeting provided a basis for them to believe that he would vote for their removal, even though they both realised that Bruce was prone to change his mind. I find they regarded it as at least possible, and in fact likely, that they would be removed as directors if the meeting of members went ahead.

I also find that David and Marilyn were determined to prevent their removal from the Bajco board. The evidence as a whole strongly points to the view that they regarded the prosecution of the 1997 proceeding as a matter of great importance, to rectify what they saw as an injustice that they had deeply resented for a long time. In my opinion Marilyn's observation to Mr Cardwell, in her letter of 29 March 1998, that ‘we intend to win - losing isn't in the picture’ was an accurate reflection of her state of mind and the state of mind of her brother some four months earlier, when the decision to appoint the administrators was taken.

I find that Mr Cardwell was aware that David and Marilyn regarded prosecution of the 1997 proceeding as a matter of great importance, and that they wished to avoid being removed as directors. His own advice to them led to their belief that if they resolved in favour of voluntary administration, the requisitioned meeting of 11 December 1997 would not be held. As to the evidence of Bruce's change of mind, I find for the reasons I have given that Mr Cardwell did not believe (notwithstanding his evidence to the contrary) that Bruce had decided to vote against the removal resolution.”

37 The trial judge eventually concluded in the light of those findings that the directors’ purpose of blocking their removal by appointing administrators was “primary”, “central” and “dominant”, and that any other purposes were “peripheral”.

The directors’ arguments: general

38 The oral argument of Mr J W Stevenson on behalf of Mr David Cadwallader and Mrs Marilyn Wintzloff in criticism of the trial judge’s reasoning, considering some of the difficulties facing a critic of it, showed admirable skill and tact. It also showed frankness consistent with the highest professional traditions in making adverse concessions, even though the matters conceded might otherwise have escaped the attention of Mr Alan Cadwallader’s legal team or the court.

39 Counsel submitted that the case was not one involving a conflict of oaths in the sense that witnesses called by one party swore one thing and witnesses called by another swore another. Leaving aside matters of detail, the evidence was broadly consistent. Mr David Cadwallader said that Mr Bruce Cadwallader rang him and said that he had changed his mind and would vote against the resolutions to be put to the 11 December 1997 meeting. Mr Bruce Cadwallader said he rang Mr David Cadwallader and told him of his change of mind. Mrs Marilyn Wintzloff said Mr David Cadwallader had rung her to inform her of the change of mind; and that Mr Bruce Cadwallader also telephoned her and told her of his change of mind. Mr Cardwell, an independent professional with no reason to lie about the matter, said that on 27 November at the 9.15am meeting Mr David Cadwallader told him that Mr Bruce Cadwallader had told him that he had changed his mind.

40 It was submitted that the trial judge’s errors stemmed from an error of approach; that he took each witness quite separately, and having regard to specific factors rejected each separately, without paying attention to the cumulative and mutually confirmatory effect of the evidence.

The directors’ arguments: Mr Bruce Cadwallader

41 In Mr Bruce Cadwallader’s affidavit dated 19 February 1998, sworn nine days after the proceedings started and filed by the solicitors for the first and second defendants, he said:

“I had decided that at the meeting of members on 11 December 1997 I would vote against the resolution to remove David and Marilyn as directors.”

“Q. And nowhere in this affidavit that you mention that you spoke to David, do you?

A. Did I need to?

…

Q. Yet you failed to mention the fact that you communicated your views to David, is that right?

A. I didn’t think it was necessary.

Q. You didn’t think it at all important that you told David that you would be voting if you went to the meeting?

A. I think it was important for him.

Q. You were making this affidavit in these proceedings to assist, as you saw it, him and Marilyn, weren’t you?

A. That’s right, yes.

Q. So if you thought it was important to him, you didn’t think it was important to mention it in your affidavit?

A. Probably not, otherwise I would have.”

42 The full version of Mr Bruce Cadwallader’s evidence was given orally in chief:

“Q. Can I direct your attention to last sentence of that paragraph, the one which commences ‘I had decided that’?

A. Right.

Q. The question I ask did you communicate that decision to David or Marilyn?

A. Yes, I did.

Q. How did you do that, orally or in writing?

A. Yes, over the phone.

Q. Do you recall, was it to David or Marilyn?

A. To David.

Q Can you tell his Honour what the substance of what you said to him?

A. I told him I would support them at the meeting of the shareholders meeting.

HIS HONOUR: Q. This is before 11 December?

A. Yes, yes.”

43 His evidence in cross-examination was:

“Q. It has been suggested in these proceedings that you telephoned Mr David Cadwallader and told him that you were going to vote in favour of he and Marilyn remaining directors of Bajco at the meeting on 11 December 1997?

A. Yes.

Q. You gave evidence of that yourself yesterday, didn’t you?

A. Yes.

Q. Are you able to tell his Honour when it was that you had that telephone conversation?

A. Not really.

Q. I am sorry?

A. Not really, no. Sorry, probably if you asked David, he would know. He used to notate down everything.

Q. I put it to you that in fact that conversation didn’t take place at all, you never had such a conversation with Mr David Cadwallader?

A. I think you’re wrong. Why are you saying that because, yeah, that’s an untruth.

Q. If it did take place, it took place very late in November, didn’t it?

A. I don’t know. I’ve already said I don’t know, but obviously it took place some time in that area of the –“

44 In re-examination he said:

“Q. Now are you able to say when in relation to the time that negotiations between you and Alan broke down you decided not to sign the deed?

A. There seemed to be a flurry of documents around the 17th, now that I’ve looked at all of these, so I would say probably a few days before this.

Q. When you say ‘this’ you mean a few days before 21 November 1997?

A. Yes, Mmm.

…

Q. Are you able to say when in relation to the time that negotiations between you and Alan broke down that you decided not to vote with Alan in favour of the resolutions proposed for 11 December 1997?

A. Despite what Mr Manning has put in here, I would have said that it would have been around that time.

Q. What do you mean by ‘that time’?

A. Well, around 21 November obviously.

Q. Are you able to say when in relation to the time that negotiations between you and Alan broke down you communicated to David your decision not to vote with Alan?

A. I don’t remember. It’s three years ago, I have difficulty remembering exact dates. I’m sort of not a – you know, I don’t have perfect recall.”

45 It was submitted that despite this vagueness it could be inferred that the conversation in which Mr Bruce Cadwallader told Mr David Cadwallader of his change of mind was a few days before 21 November.

46 Much of the argument, and much of the trial judge’s reasoning, turned on correspondence in which Mr Bruce Cadwallader’s solicitor, Mr Brendan Manning of Mills & Associates, kept stating or assuming that the directors would be removed at the 11 December 1997 meeting even after 17 November 1997. In understanding this correspondence, it is necessary to bear in mind that from May 1997 on Mr Alan Cadwallader and Mr Bruce Cadwallader were negotiating with a view to executing a deed settling disputes between them. These efforts became intense in October. Thus on 14 October 1997 Mr Alan Cadwallader’s solicitors sent a letter to Mr Bruce Cadwallader’s solicitors enclosing a draft deed dealing with the sale of Cadwallader Engineering (NSW) Pty Ltd’s business (clause 1), the requisitioning of a members’ meeting of Bajco Pty Ltd to remove the existing directors and replace them by Messrs Alan Cadwallader and Bruce Cadwallader (clause 6), the possible discontinuance of the proceedings relating to the 1979 transactions (clause 7), and the possible sale of the Concord West premises (clause 11). Clauses 7, 8, 10 and 11 contemplated the appointment of Mr Alan Cadwallader and Mr Bruce Cadwallader as directors of Bajco Pty Ltd, an outcome which was only achievable if they both voted in favour of the resolutions presented at the meeting eventually arranged for 11 December 1997. To some extent events overtook the draft Deed: thus the contemplated clause 6 became unnecessary once the requisitioning of a members’ meeting on or about 24 October 1997 and the calling of it on 31 October 1997 for 11 December 1997 took place. However, the negotiations continued up to 21 November 1997 and, on one view, up to 1 December 1997. They were conducted, and various other aspects of the disputes between the four siblings and their companies were dealt with, in part through solicitors. Throughout the relevant period Mr Manning of J E Mills & Associates acted for Mr Bruce Cadwallader. He was dealing with Mr Stephen Moss at McCabes, the solicitors for Mr David Cadwallader and Mrs Marilyn Wintzloff. Mr Alan Cadwallader was represented by A R Conolly & Co. Mr Bruce Cadwallader terminated Mr Manning’s retainer on 26 November 1997, and replaced him with Hunt & Hunt.

47 Mr Bruce Cadwallader contended that the negotiations between himself and Mr Alan Cadwallader broke down around 21 November 1997, though on one view they were revived on 1 December 1997 by Mr Bruce Cadwallader. It is clear that relations between Mr Bruce Cadwallader and his solicitor Mr Manning broke down by 26 November 1997, when the retainer was terminated by Mr Bruce Cadwallader. But it is less clear whether those latter relations had broken down earlier.

48 It was submitted for Mr Bruce Cadwallader that while on their face the letters of November revealed a belief by Mr Manning that the requisitionists would vote together on 11 December 1997 to remove the directors, that was a belief of Mr Manning which did not reflect either Mr Bruce Cadwallader’s state of mind or his instructions to Mr Manning. Because of the disharmony between Messrs Manning and Bruce Cadwallader, the latter did not inform the former of his change of heart in time to influence the terms of the letters. The trial judge was said to have erred in failing to give sufficient weight to Mr Bruce Cadwallader’s explanations along these lines.

49 Mr Bruce Cadwallader said that the period 17-18 November was “probably the time when everything fell over with Mr Manning, I told him to get lost.” He was asked about a letter of 17 November 1997 from Mr Manning to McCabes which was copied to him and which threatened an application for urgent injunctions to prevent the sale of the Concord West property by Bajco Pty Ltd – a stance incompatible with Mr Bruce Cadwallader’s having changed his mind about the 11 December 1997 meeting. His evidence was:

“Q. That was your attitude at the time, wasn’t it?

A. That may have been Mr Manning’s attitude, I don’t know if it was mine.

Q. It was copied to you?

A. I don’t know what my response was but I know about – obviously you’ve pinpointed the date when Mr Manning and I ceased dealing with each other, so –“

50 On 18 November 1997 Mr Manning wrote to Mr Moss at McCabes and said:

“1. We request that you obtain instructions from the Directors of Bajco Pty Limited to stop all action to sell the premises at 3 King Street, Concord West.

2. We note that the present Directors are minority shareholders in Bajco Pty Limited and will be replaced at the Meeting held on the 11th December, 1997.”

“Q. That was what you instructed Mr Manning to say, wasn’t it?

A. I don’t know.

Q. You have no recollection, do you?

A. I believe that Mr Manning was taking licence at this time and that was why he was eventually dismissed.”

“that Mr Manning was doing things contrary to his instructions, or he was not listening to his instructions, or he was writing letters expressing his belief as to his instructions without express instructions from his client.”

“Q. I would put to you that Mr Manning here was acting on your instructions when he wrote this letter, wasn’t he?

A. I can’t say that.”

51 On 18 November 1997 Mr Manning wrote to Mr Blake, a barrister who was briefed by Mr Manning to advise on urgent injunction proceedings:

“The action by the Directors of Bajco Pty Limited to place 3 King Street, Concord West on the market for sale, considering that there will be a Directors’ Meeting on the 11th December, 1997 at which time the current Directors will be replaced by Bruce and Alan Cadwallader, who will then most likely cease instructing McCabes Lawyers, seems an inflammatory action by the Directors of Bajco.”

“Q. Now again, Mr Cadwallader, you’d discussed these matters with Mr Manning at the time that the letter was written, hadn’t you?

A. Obviously we must have broached this subject many times, but I wouldn’t – well, I don’t really know.”

52 The next passage of the letter was:

“We are not certain as to how fast the property would be sold, but if there was an auction arranged before the 11th December, 1997, that could cause irreparable damage to the sale price that could be obtained by Cadwallader Engineering in that they will have to move all their equipment to the Gosford office and that would substantially effect not only the costs, but also the Goodwill.”

“Q. Then it is suggested that if the property is sold before 11 December, it will cause irreparable damage, do you see that?

A. Yes, I can see that.

Q. That was your view at the time, wasn’t it?

A. It certainly was Mr Manning’s, they are his words.

Q. Mr Cadwallader, they were your views too, weren’t they?

A. I guess so, yes.”

53 Counsel for the directors submitted to this Court that the trial judge erred in saying “Bruce admitted in cross-examination that the views expressed in the letter were his”. It was submitted that that statement was true of the second paragraph quoted above, but not true of the first. The submission is sound, but not decisive.

54 On 21 November 1997 Mr Manning wrote to Mr Blake in the following terms:

“Further to the above matter we advise you of the following:-

1. all negotiations have broken down between Alan and Bruce Cadwallader.

2. no agreement has been reached or is likely to be reached in the near future.

You are instructed to prepare whatever documents are necessary to place Cadwallader Engineering Pty Limited into hand of a administrator or into a hands of a receiver manager which ever you feel is appropriate.

If you require any information or a conference please do not hesitate to contact the writer.

In respect of Bajco Pty Limited there is a shareholders meeting on 11 December 1997. We anticipate the following will occur at that meeting:-

1. the current directors will be replaced with Alan and Bruce Cadwallader.”

“Q. … that was still your instructions you were giving to Mr Manning as at 21 November 1997, wasn’t it?

A. According to Mr Manning anyway. That may not have been my sentiment.”

55 On 26 November 1997 Mr Bruce Cadwallader orally terminated Mr Manning’s retainer, and he was succeeded by Hunt & Hunt. They proposed changes to the contemplated deed between Mr Alan Cadwallader and Mr Bruce Cadwallader in a letter of 1 December 1997 to A R Conolly & Co, the solicitors for Mr Alan Cadwallader. The letter said in part:

“We note our client’s former solicitor advised you of some proposed changes to the Deed by letter dated 17 November 1997.

We note that as we now act on behalf of Mr Bruce Cadwallader the Deed should be amended to correctly reflect this position. We also confirm our client’s instructions that he proposes the following amendments to the Deed:”

“We trust the above clearly sets out the amendments to be made in order to finally resolve the dispute between our client and your client.

2 December 1997

56 It was submitted that Mr Bruce Cadwallader “probably” only told Mr Manning of his change of mind after 21 November 1997. The evidence was:

“Q. You see, Mr Cadwallader, up to and including at least 21 November 1997 it was your intention still to go and vote at the meeting at Goulburn and to replace David and Bruce as directors of Bajco, wasn’t it?

A. David and Marilyn you mean?

Q. I am sorry, David and Marilyn. I do beg your pardon.

A. I don’t believe so, but anyway.

Q. Certainly the correspondence I’ve taken you through --

A. Yes, the correspondence suggests that, yes.

Q. And you would have told Mr Manning if you’d changed your views on that subject, wouldn’t you?

A. I think I eventually did.

Q. Will you agree with me from what’s been written in those letters, it would appear that if you did tell him that, you told him after 21 November?

A. Yes, I probably did.

Q. And you wouldn’t have waited around for a long time before you told Mr Manning, would you, after you’d made up your mind?

A. Don’t know, I think that’s -

Q. I am sorry?

A. I wouldn’t think so but possibly I could have.

Q. Because, as you told his Honour a few moments ago, at this particular stage in this unfortunate dispute, communications with the solicitors were taking place on a pretty regular basis, weren’t they, I mean so far as you were concerned?

A. They were in a bit of a flurry, yes.”

57 But whether or not Mr Bruce Cadwallader ever told Mr Manning of his change of mind, counsel for the directors did not point to an explanation in the evidence for why Mr Bruce Cadwallader’s change of mind, if it occurred, was not communicated to his new solicitors Hunt & Hunt, with whom he was presumably on satisfactory terms, by 1 December 1997. In cross-examination he said:

“Q. Did you give instructions to Messrs Hunt and Hunt to write that letter as far as you can recall?

A. I guess I did.”

“Q. So it would seem there that you were still trying to negotiate some changes to that deed, weren’t you?

A. I was trying to negotiate. I would say I was being – all the time, every step I took I was trying to negotiate a settlement of the proceedings between my whole family and I was endeavouring to do anything and everything that I could for us not to end up in court like we are now and this dispute had been going on for seven years and I tried everything that I could possibly do.”

“Q. You will agree with me, would you, that with that [one] exception, the amendments suggested in the letter of 17 November by Mills and Co and the letter of 1 December by Hunt and Hunt are pretty much identical?

A. Yes, I’d accept.

Q. And there is no suggestion in the Hunt and Hunt letter of 1 December that any clauses about what you and your brother Alan might do if you were elected as directors of Bajco be deleted from the deed, is there?

A. If we were elected directors, there’s no reference in this letter, you mean?

Q. Yes?

A. No, there isn’t, but obviously we’d cease the proceedings against us?

Counsel for the second defendants also emphasises that I made no finding of misconduct on the part of the second defendants, whom I have held to be appropriate to continue as liquidators of the company. It is true that there were no findings of misconduct by the second defendants, but there was a finding that they had notice of the third defendants' improper purpose at an early stage, prior to preparing and distributing their report, as well as findings about the inadequacy of their report and unfavourable findings about Mr Cardwell's evidence.

My findings with respect to Mr Cardwell are relevant to my conclusion as to costs. The day-to-day conduct of the administration of the company on behalf of the second defendants was undertaken by Mr Cardwell. I found that Mr Cardwell's evidence was unsatisfactory in various ways. Thus, I rejected the evidence of Mr Cardwell that Bruce Cadwallader had told him that he had changed his mind as to voting for the removal of the directors (paragraphs 204-205). I found, contrary to his evidence, that Mr Cardwell did not believe that Bruce Cadwallader would change his vote (paragraph 209). I found that, although Mr Cardwell was not implicated in the bad faith of the third defendants, who had adopted a resolution about the solvency of the company that they knew to be false (paragraph 189), his advice to them about the solvency of the company (paragraph 89) was wrong (paragraph 181).

His advice that the appointment of voluntary administrators would mean that the requisitioned meeting would not be held (paragraph 91) was also wrong (paragraph 107). Counsel for the second defendants submits that although the Court found that Mr Cardwell's advice on this point was wrong in principle, in fact the meeting was held but there was no quorum, and so the incorrect opinion ultimately had no effect. In my view the principal significance of Mr Cardwell's incorrect advice is that it provided part of the basis for the third defendants' decision, improperly motivated, to appoint voluntary administrators. I have found that Mr Cardwell knew, or ought to have known, of their improper purpose.

The plaintiff says that I should order the second defendants to pay his costs without limitation to the assets of the company. In Cresvale (No 2) (39 ACSR at 634, paragraph [64]) I expressed the opinion that the normal costs order against a deed administrator as unsuccessful defendant is an order that the administrator pay the successful party's costs, without limitation to the company's assets. I see no reason to depart from that normal order in this case.

In Cresvale (No 2) at paragraph [65] I indicated that it may be relevant, in the exercise of the Court's discretion with respect to costs orders, to consider whether the administrator would have a right of indemnity against the company with respect to costs of another party, ordered to be paid by the administrator. The second defendants submitted that the question was not properly before me. I agree that no occasion has arisen for me to make any orders directly recognising the existence of a right of indemnity on the part of the second defendants against the company or an equitable lien against its assets. However, it seems to me relevant to take the matter into account in deciding on an appropriate order for costs. All of the parties before me have had the opportunity to address the question, in light of my observations in the Cresvale (No 2) case. It is true that the interests of the first and second defendants were at odds on this question, although they were represented by the same counsel, but I am satisfied that the company's point of view has been adequately represented by the plaintiff.

I have held that the second defendants are entitled to be indemnified out of the company's property for their remuneration and expenses incurred as administrators up to the distribution of their report on 19 December 1997, but not thereafter (paragraph 278). As counsel for the second defendants points out, the question whether they are entitled to a lien or indemnity from the company for the costs of these proceedings is a different question from their entitlement to recover their remuneration and expenses out of the company's property. The question of indemnity with respect to costs raises the issue whether the second defendants behaved prudently and reasonably in defending the deed of company arrangement against challenge and in defending themselves against removal and other claims.

City & Suburban Pty Ltd v Smith

Cresvale (No 2)

The administrators’ submissions

255 The administrators submitted that the only respect in which the trial judge had made findings adverse to them related to the deficiencies in the documents accompanying the notice for the second creditors’ meeting. They submitted that those findings were wrong, but that even if they were not wrong there had been no finding adverse to Mr Cardwell; numerous attacks on Mr Cardwell and on the administrators’ had failed; the administrators had been found to be personally fit to be liquidators; and the materials accompanying the notice of the second creditors’ meeting had not been shown to have actually misled anyone. It was submitted that the trial judge’s refusal to allow fees and expenses after 19 December 1997 was punitive.

Conclusion

256 In order to decide this issue of fees and expenses, it is not necessary to decide whether the trial judge erred in relation to the documents accompanying the notice of the second creditors’ meeting. If his reasoning on that subject is put on one side, the question is whether the balance of his reasoning supports his orders. There is something to be said for the view that the trial judge was unduly generous to the administrators in relation to their fees and expenses and the lien and indemnity which the trial judge granted them. That view would rest on the trial judge’s findings that Mr Cardwell ought to have known of the directors’ improper purposes in putting the company into liquidation. But since the appellant did not urge that view, its merits need not be considered.

257 Nothing whatever in the trial judge’s reasoning suggests that he arrived at the orders relating to fees and expenses with a punitive motive. The fact is that the administrators did not proceed satisfactorily after 18 December 2001. It was conceded that notice of the second creditors’ meeting was issued one day late, and had to be saved by a s 1322 order. The trial judge concluded that inadequate details of the deed of company arrangement had been supplied with the notice of meeting and in that he appears to have been right even if the administrators’ criticisms of some of his conclusions from that finding had arguable force. The trial judge made numerous findings adverse to the employee of the administrators, Mr Cardwell, who had the carriage not only of the administration but also of the activities of Deloittes in the period leading up to the administration. His evidence about Mr David Cadwallader telling him of Mr Bruce Cadwallader’s change of mind was rejected. He gave the directors of Bajco Pty Ltd erroneous advice about the insolvency of the company, a matter which he could have overcome by pressing the directors for more details of their “debts” and of the company’s affairs generally. Whether or not he had time to do that before 28 November, he certainly had ample time by 19 December. He gave erroneous advice about whether the appointment of administrators prevented the holding of the requisitioned meeting. If he had performed his duties properly, he would have appreciated the directors’ improper purpose and he would not have advised them that the administration would have prevented the requisitioned meeting. In either event the administration may have been prevented.

258 In all the circumstances the administrators have not pointed to any error in the trial judge’s reasoning which led him to the orders he made in relation to fees and expenses.

Costs

259 The trial judge made the following costs orders:

“1. The Second and Third Defendants to pay the Plaintiff’s costs of the proceedings except, in the case of the Second Defendants, costs relating to the evidence of Mr Watson and, in the case of the Third Defendants, costs relating to the evidence of Mr Watson and Mr Love.

2. The Third Defendants to pay the Second Defendant’s costs of the proceedings, including costs of the Plaintiff ordered to be paid by the Second Defendants but excluding costs relating to the evidence of Mr Watson and Mr Love.

3. The First Defendant to pay costs of the Second Defendants (Cross Claimants) of the First Cross Claim.

4. The Third Defendants (Cross Claimants on the Second Cross Claim) to pay the costs of the Cross Defendants of the Second Cross Claim.

5. The Second Defendants (Cross Claimants on the Third Cross Claim) to pay the costs of the Third Defendants (Cross Defendants) of the Third Cross Claim.

6. Subject to order (3) and except for costs incurred up to 19 December 1997, costs payable by the Second Defendants in any capacity under these orders, and the costs incurred by the Second Defendants in these proceedings (including all Cross Claims) are not recoverable from the assets or funds of the First Defendant on any basis.”

260 The administrators submitted that these costs orders were motivated by an impermissible desire to punish them. They pointed out that the appellant had failed in getting the affairs of the company returned to the pre 27 November 1997 position, and this was signified by his status as appellant. He had failed to obtain any monetary relief. He had failed in what were described as “all the technical grounds relied upon” except those to do with the materials accompanying the notice for the second creditors’ meeting. Even that had no effect on the outcome because the bad faith of the directors was the central issue in the case and it preceded the Report in time. The trial judge ordered the injunction obtained by the appellant from Windeyer J to be dissolved. There had been no findings of misconduct against the administrators, and they had been found fit to be liquidators. Finally, three submissions were advanced in conclusion. The first was “the Company is in liquidation which is precisely the outcome prayed in the Amended Cross-Claim”. The second was that the “Administrators succeeded substantially” because “their lien (albeit only for a limited period) was upheld”. The third was that they “succeeded substantially” because “they are Liquidators”.

261 In short, the administrators submitted that even if all their substantive submissions failed, the trial judge’s costs orders were wrong; and to the extent that their substantive submissions succeeded, that success was further justification for different and more favourable costs orders.

262 The primary answer to the administrators’ arguments is that even if the appellant had only limited success at the trial, he did have very substantial success in establishing that the appointment of the administrators arose because of the directors’ improper purpose and failure to act in good faith, of which Mr Cardwell ought to have known. The appellant also enjoyed success in the form of the numerous factual findings adverse to Mr Cardwell which were set out above. The findings of the trial judge in relation to the materials sent out with the notice of the second creditors’ meeting, assuming them to be correct, were scarcely of a “technical” character. And even if those findings were not correct, the other findings of the trial judge sustain the costs orders. Further, there is nothing punitive in the costs orders.

263 It is convenient to turn to the three specific concluding complaints, which are of a remarkable character.

264 First, it is true but misleading to say that “liquidation” is “precisely the outcome prayed in the Amended Cross-Claim”. It was prayed as part of an argument based on s 446A described in [33] above, but that claim for relief was abandoned during the trial, as the trial judge noted.

265 Secondly, to refer to the degree of success achieved by the administrators in obtaining a lien as “substantial” is to ignore the very critical observations of the trial judge set out above.

266 Thirdly, for the administrators to claim “substantial success” on the ground that they have become liquidators is to misconceive the nature of both offices. Counsel for the administrators in the course of oral argument more than once professed an indifference on the part of his clients for whether they were administrators, liquidators or not office-holders in the company at all, and also offered argument to the court of a supposedly non-adversarial kind in order to assist it. That stand is contradicted by the third of the administrators’ concluding arguments on costs.

267 The administrators have not demonstrated any error by the trial judge in the task of arriving at just costs orders in this case, difficult as that case was.

Leave

268 No party contended that either the appeal or any cross-appeal was incompetent on the ground that leave was needed. The complexity of the substantive issues calling for attention by the parties and the court in the relatively limited time available caused those threshold questions to be put aside. The appeal is competent. It was not demonstrated – no attempt was made to demonstrate – that either cross-appeal was incompetent. It may be that both were. However, even if leave for either is needed, it should be granted. The first cross-appeal potentially raised important legal issues, though it has not been necessary to decide them. Though the second cross-appeal has been found not to be soundly based, if it had been it would have highlighted an injustice to the directors meriting the grant of leave.

Orders

269 The appellant is entitled to orders of the type set out in paragraphs 1-6 of the orders proposed below. The orders relating to the avoiding of the transactions of 27 and 28 November 1997 flow from the directors’ improper purpose or failure to act in good faith. The orders relating to the avoiding of the Deed of Company Arrangement of 12 January 1998 follow from the voidability of the transactions of 27 and 28 November 1997: the Deed was consequential upon and equally tainted by the directors’ improper purpose and lack of good faith. If the acts leading to the administration are voidable, acts done during the administration, such as the Deed of Company Arrangement, are equally voidable. Those orders do not follow precisely either the orders in the First Amended Statement of Claim or the orders in the Notice of Appeal, and to some extent their form is difficult to formulate in view of the lack of precision in the resolutions and other activities of the directors on 27 and 28 November 1997. It is proposed to grant liberty to apply to any party who desires to argue that the orders do not conform on formal grounds to the reasoning set out above.

270 The orders dismissing the cross-appeals flow from the reasoning set out above.

271 Since the main issue in the appeal was between the appellant and the administrators, they should pay the appellant’s costs. In view of the support, brief though it was, which the directors gave to the position of the administrators, there should be no costs order in favour of the directors in relation to the appeal.

272 The main issue in the first cross-appeal was between the administrators and the appellant, but the directors are entitled to costs occasioned by the administrators having joined them. Similarly the main issue on the second cross-appeal was between the directors and the appellant, but the administrators are entitled to costs occasioned by the directors having joined them.

273 It is desirable that there be an order for the costs of the appeal corresponding to order 6 made by the trial judge for the costs of the trial. Though his reasons for that order were correct, that type of order is appropriate in relation to the appeal for different reasons. The administrators brought their cross-appeal and opposed the appeal in order to defend their interests. Had they desired not to defend their interests, but been content to accept the reasoning and orders of the trial judge, they could have filed a submitting appearance and, by not participating actively in the hearing of the appeal and of the third defendants’ cross-appeal, reduced their costs exposure to the minimum, as the first defendant, which was under their control, did. Since they have adopted a different course, their personal exposure to conventional costs orders, and their inability to recover solicitor-own client costs from the assets of the first defendant, should be recognised in the orders (see proposed order 11). It would not be right to permit the second defendants to have played the role they did in this appeal entirely harmless as to the risk of costs payments – protected by a costs order against the appellant if they succeeded, and protected by recourse to the company’s assets if they failed. The first outcome, in itself a just one, would have caused one shareholder to be the funder of the administrators/liquidators; the second would cause all shareholders to play that role. The latter role is more justly played by the administrators/liquidators personally.

274 The following orders and declarations are proposed. The court: