Dixon (Liquidator), in the matter of Victoria Project Pty Ltd v Austhome Group Pty Ltd
[2023] FCA 42
•1 February 2023
FEDERAL COURT OF AUSTRALIA
Dixon (Liquidator), in the matter of Victoria Project Pty Ltd v Austhome Group Pty Ltd [2023] FCA 42
File number(s): VID 105 of 2021 Judgment of: MCELWAINE J Date of judgment: 1 February 2023 Catchwords: CORPORATIONS – application by liquidator pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) – liquidator remuneration – interpretation of deed of settlement and release - meaning of the phrase “costs of the liquidation”
CONSUMER LAW – claim for misleading or deceptive or unconscionable conduct pursuant to the Australian Consumer Law – where liquidator made representations as to the remuneration for his appointment as liquidator – whether liquidator had reasonable grounds for making the remuneration representations
Legislation: Competition and Consumer Act 2010 (Cth) Sch 2 (Australian Consumer Law) ss 4, 18, 21
Corporations Act 2001 (Cth) ss 232, 233, 491, 494, 495, Sch 2 (Insolvency Practice Schedule (Corporations)) ss 60-10, 90-15
Federal Court Rules 2011 (Cth) rr 28.62-28.67
Australian Restructuring Insolvency and Turnaround Association (ARITA) Code of Professional Practice, 3rd edition from 1 January 2014 Cases cited: Australia Pacific LNG Pty Ltd v Sooner Insurance Company [2021] QSC 43
Australian Competition and Consumer Commission v ACM Group Ltd (No 2) [2018] FCA 1115
Australian Competition and Consumer Commission v Henry Kaye and National Investment Institute Pty Ltd [2004] FCA 1363
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133; [2021] FCAFC 40
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54
Australian Competition and Consumer Commission v Woolworths Group Ltd (formerly called Woolworths Limited) (2020) 281 FCR 108; [2020] FCAFC 162
Australian Competition and Consumer Commission v Woolworths Ltd [2019] FCA 1039
Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (2019) 140 ACSR 561; [2019] FCA 1932
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44
Brown v Gould [1972] 1 Ch 53
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429
Good Living Company Pty Ltd v Kingsmede Pty Ltd (2021) 284 FCR 424; [2021] FCAFC 33
Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1
Harvard Nominees Pty Ltd v Tiller (2020) 282 FCR 530; [2020] FCAFC 229
In the matter of RMGA Pty Ltd [2012] NSWSC 678
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631; [2018] FCAFC 155
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189
Division: General Division Registry: Victoria National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 163 Date of hearing: 24-26 October 2022, 7 November 2022 Counsel for the Plaintiffs: Mr CR Brown Solicitor for the Plaintiffs: CLH Lawyers Counsel for the First and Second Defendants: Mr L Currie Solicitor for the First and Second Defendants: Aitken Partners Counsel for the Third, Fourth, Fifth, Sixth and Seventh Defendants: Mr AA Segal Solicitor for the Third, Fourth, Fifth, Sixth and Seventh Defendants: Hunt & Hunt Lawyers Counsel for the Cross-Defendants: Ms CM Pierce Solicitor for the Cross-Defendants: Moray & Agnew ORDERS
VID 105 of 2021 IN THE MATTER OF VICTORIA PROJECT PTY LTD (IN LIQUIDATION)
BETWEEN: STEPHEN ROBERT DIXON AS LIQUIDATOR OF VICTORIA PROJECT PTY LTD (IN LIQUIDATION) (ACN 142 329 155)
First Plaintiff
VICTORIA PROJECT PTY LTD (ACN 142 329 155) (IN LIQUIDATION)
Second Plaintiff
AND: AUSTHOME GROUP PTY LTD (ACN 091 589 089)
First Defendant
DAVID WU
Second Defendant
LING & YU PTY LTD (ACN 126 062 833) (and others named in the Schedule)
Third Defendant
AND BETWEEN: XUE BIN (DAVID) WU (and another named in the Schedule)
First Cross-Claimant
AND: STEPHEN ROBERT DIXON (and another named in the Schedule)
First Cross-Defendant
ORDER MADE BY:
MCELWAINE J
DATE OF ORDER:
1 FEBRUARY 2023
THE COURT ORDERS AND DECLARES THAT:
1.Upon a proper construction of the deed of settlement and release dated 29 August 2019 made between:
(a)Victoria Project Pty Ltd (ACN 142 329 155);
(b)Xin Zhang;
(c)Xue Bin Wu;
(d)Wei Jing Lin;
(e)Fei Wen;
(f)Yu Zheng;
(g)Austhome Group Pty Ltd (ACN 091 589 089);
(h)Rising Fortune Pty Ltd (ACN 141 982 738);
(i)Jia Wen Su;
(j)Ling & Yu Pty Ltd (ACN 126 062 833);
(k)Australia Morning Pty Ltd (ACN 126 644 086));
(l)Winston & Glen Zheng Pty Ltd (ACN 141 136 656); and
(m)Jia Feng Pty Ltd (ACN 148 196 196);
the costs of the liquidation of Victoria Project Pty Ltd (the company) at clauses 2(j), (k) and (l) is limited to the remuneration, costs and expenses of the liquidator and the costs of any third party engaged by the liquidator whether for or on behalf of the company or in his capacity as liquidator incurred in consequence of the appointment of Mr Stephen Robert Dixon as liquidator of the company on 23 October 2019 and does not include expenses, costs or other liabilities that the company would have incurred in any event in the conduct of its business as a property developer and landlord if a liquidator not been appointed, even where such expenses are incurred during the period of the liquidation.
2.The cross-claim is dismissed.
3.The matter is adjourned for further submissions or hearing, if necessary, of all questions of consequential orders and relief, including costs.
4.The parties have leave to file submissions limited to 3 pages as to consequential orders and relief, including costs, by 4pm on 15 February 2023.
5.Subject to any further order of the Court, the determination of all consequential orders will proceed on the papers.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MCELWAINE J:
This proceeding began life on 9 March 2021 as an orthodox application for judicial advice and for determination of remuneration by Stephen Dixon as liquidator of Victoria Project Pty Ltd (in liquidation) (VPPL) pursuant to ss 90-15 and 60-10 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act 2001 (Cth) (Insolvency Practice Schedule). Thereafter it underwent a metamorphic transformation. Orders were made by consent on 23 April 2021 for the joinder of parties and for separate determination of the liquidator’s remuneration claim by a judicial registrar. The result was that on 8 October 2021, Judicial Registrar Allaway fixed the remuneration claim in the amount of $273,584.50 plus GST for the period 14 January 2020 to 31 October 2020. That left unresolved larger issues between the parties concerning the construction of a deed of settlement and release dated
29 August 2019 (the Deed), claims that Mr Dixon had agreed to cap his fees for the liquidation at $50,000 plus GST and disbursements and the potential liability of some of the parties to indemnify other parties for costs of the liquidation in excess of $60,000 plus GST.
On 24 November 2021, further orders were made by consent to facilitate resolution of the broader disputes by pleadings. From those orders the parties, with considerable enthusiasm, have put in issue the construction of the indemnity clauses of the Deed, together with a cross-claim for misleading or deceptive conduct or unconscionable conduct by Mr Dixon in making certain representations in relation to his fees.
The genesis of the dispute is that the directors and shareholders of VPPL had a falling out in 2014. VPPL was established as the vehicle for a joint venture to undertake the development of a residential apartment complex at 212 Victoria Street, Carlton, Victoria (development), comprising 283 residential apartments, 4 retail shops, 63 car spaces and 22 storage cages. The joint venture participants are:
(a)Xin Zhang, a director of VPPL (Mr Zhang);
(b)Xue Bin Wu, a director of VPPL (Mr Wu);
(c)Wei Jing Lin, a director of VPPL (Mr Lin);
(d)Fei Wen, a director of VPPL (Ms Wen);
(e)Yu Zheng, a director of VPPL (Mr Zheng);
(f)Austhome Group Pty Ltd, a shareholder of VPPL which is controlled by Mr Wu (Austhome);
(g)Rising Fortune Pty Ltd, a shareholder of VPPL;
(h)Jia Wen Su, a shareholder of VPPL;
(i)Ling & Yu Pty Ltd, a shareholder of VPPL;
(j)Australia Morning Pty Ltd, a shareholder of VPPL;
(k)Winston & Glen Zheng Pty Ltd, a shareholder of VPPL; and
(l)Jia Feng Pty Ltd, a shareholder of VPPL.
In these reasons it is convenient to refer to each of the parties, save for Mr Wu and Austhome, as the majority shareholders.
The development progressed and was completed. VPPL was profitable. But there were disputes which resulted in Austhome, on 5 December 2014, making an application to the Supreme Court of Victoria to resolve claims relating to the operation of VPPL and payment of outstanding project management fees. Austhome engaged the jurisdiction to make orders upon a finding of oppressive conduct at ss 232 and 233 of the Corporations Act. Certain offers of compromise were made and accepted in that proceeding with the result that on
10 February 2017, orders were made that the proceeding be struck out, with a right of reinstatement in the event of default in compliance with the terms of the compromise and for VPPL to pay certain costs to, inter alia, Mr Wu and Austhome, to be taxed in default of agreement.
Regrettably, those orders did not resolve the dispute about costs. On 24 April 2018, VPPL filed a summons in the Supreme Court of Victoria to progress the taxation. Further procedural orders were made upon that application, but they did not result in a taxation. There were other legal proceedings. In April 2015, a Ms Agelakis commenced a proceeding in the Supreme Court of Victoria concerning the enforceability of a contract of sale for a shop within the development. She, as the purchaser, sought specific performance. Mr Wu, Austhome and VPPL were joined as parties to that proceeding. In February 2017, Ms Agelakis and Mr Wu accepted an offer to resolve that proceeding on certain terms whereby Mr Wu, or his nominee, would purchase the shop. The parties became disputants as to the performance of certain terms of that compromise.
Eventually, the parties agreed in principle to settle each of their disputes and ultimately did so (or so they thought) in the form of the Deed. Inter alia, the Deed required that following a declaration of solvency, the members would meet for the purpose of considering and voting upon a special resolution in accordance with s 491 of the Corporations Act that VPPL be wound up and that Mr Dixon be appointed as liquidator pursuant to s 495. Assuming the passing of those resolutions, the Deed provides for Mr Dixon, at the request of the relevant parties, to conduct an in specie distribution of the unsold lots in the development in order to achieve an “equitable distribution” amongst the members of their share entitlements.
The Deed includes a clause which is central to the construction question raised upon this application. It concerns the “costs of the liquidation” of VPPL. The Deed provides for a cost cap of $60,000 plus GST payable by VPPL. If the costs of the liquidation exceed that, Mr Wu and Austhome become responsible for them, must indemnify VPPL to that extent and are obliged to pay the excess to the liquidator. The parties are in dispute as to what is meant by “costs of the liquidation.”
In addition, and separately, Mr Wu and Austhome as cross-claimants contend that certain oral and written representations were made to them by Mr Dixon to the effect that his and his firm’s fees, in the event that he were to be appointed as liquidator of VPPL, would be capped at $50,000 plus GST and disbursements (the remuneration representations). In reliance upon those representations, Mr Wu and Austhome contend that they agreed in principle to the terms of settlement and then entered into the Deed. Their case is that but for those representations, they would not have acted to their detriment in this way by accepting the indemnity obligation. They frame their cross-claim as one for misleading or deceptive or unconscionable conduct contrary to ss 18 and 21 of the Australian Consumer Law, being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL).
As finally resolved, and in broad compass, the issues for determination are:
1.What is the correct meaning and scope of the phrase “costs of the liquidation” at clauses 2 (j), (k) and (l) of the Deed, and is the meaning so uncertain that the clause is void;
2.Did Mr Dixon engage in misleading or deceptive conduct in making the remuneration representations;
3.Did Mr Dixon engage in unconscionable conduct in making the remuneration representations;
4.Did Mr Wu act in reliance upon any misleading or deceptive or unconscionable conduct of Mr Dixon and if so, did he and/or Austhome suffer damage in consequence and, if so, what remedy should they receive; and
5.Did Mr Wu and/or Austhome fail to take reasonable steps to mitigate any damage that they did suffer?
Mr Brown appeared for Mr Dixon upon the trial instructed by CLH Lawyers. Ms Pierce also appeared for Mr Dixon, not with Mr Brown and separately instructed by Moray & Agnew Lawyers. Despite my drawing attention to that unusual method of representation, no party objected. It would seem a common assumption that the interests of Mr Dixon and his firm Hamilton Murphy Advisory Pty Ltd (Hamilton Murphy) as respondents to the cross-claim are sufficiently distinct so as to permit, and indeed require, separate representation. In the absence of any objection, I was content to allow the division of responsibility in that way whereby Mr Brown assumed carriage of the construction question and Ms Pierce dealt with the cross-claim. However, it should not be generally understood that proceeding in this way is appropriate. As noted by Bowskill J in Australia Pacific LNG Pty Ltd v Sooner Insurance Company [2021] QSC 43 (which contains a pellucid summary of the case law), leave may be granted for separate representation as an exception to the general rule that a party may only be singly represented. Dual representation “ought only be permitted when the interests of justice require it”: [14]. What is obvious is that a professional indemnity insurer has responded to the cross-claim against Mr Dixon and Hamilton Murphy. For future noting, leave should have been applied for in this matter.
Mr Currie appeared for Mr Wu and Austhome and Mr Segal appeared for the majority shareholders. The Court is grateful to each counsel for their efficient presentation of the respective cases.
It is not an easy task to move straight to the construction question as much reliance is placed by the majority shareholders upon the background factual matrix that is said to have been known to the parties. It is permissible to refer to this material, as plainly the Deed is ambiguous: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352, Mason J (Stephen and Wilson JJ concurring).
THE ESSENTIAL FACTS
The trial evidence comprised several affidavits made by Mr Dixon (some portions of which were not read) respectively dated 18 December 2020, 23 February 2021, 31 March 2021,
23 April 2021, 21 June 2021 and 1 July 2022, an affidavit of Mr Milne made on 16 June 2021, two affidavits of Mr Wu made on 28 May 2021 and 14 July 2022, two affidavits of Mr Scott made on 18 June 2021 and 5 May 2022 and an electronic court book of agreed documents. Each of Mr Dixon and Mr Wu were cross-examined. Mr Milne and Mr Scott were not. Save for the content of discussions between Mr Dixon and Mr Wu and the state of mind of each as to the scope of the task to be performed by Mr Dixon, there is broad agreement as to the material facts. What follows are my findings of fact, unless otherwise indicated.
VPPL was incorporated on 1 March 2010 as the joint venture vehicle to undertake the development. Practical completion was achieved in March 2014. Of the 283 residential apartments, 37 remained unsold as at 18 December 2020. From March 2014, VPPL conducted business as a property developer (to effect a sale of lots within the development) and as a landlord of components of the development. The combined shareholding of the majority shareholders is 65% and the shareholding of Austhome is 35% of the issued capital of VPPL. Mr Wu is the sole director of Austhome and at all material times was and is a director of VPPL together with Mr Zhang, Ms Lin, Mr Ling and Mr Zheng. Disputes first arose between the directors and shareholders of VPPL in 2014. Various proceedings were commenced in the Supreme Court of Victoria which are summarised in the recitals to the Deed and earlier in these reasons. Those disputes were brought to a head, so to speak, when on 20 December 2017, Austhome commenced a proceeding in the Supreme Court of Victoria and sought, amongst other things, that VPPL be wound up. That application was opposed by each of the majority shareholders.
In March 2018, Mr Wu had a brief introductory telephone discussion with Mr Dixon. In general terms, he informed Mr Dixon that the shareholders of VPPL were considering a proposal that it be wound up and that a liquidator be appointed. He requested an appointment with Mr Dixon to discuss the matter in more detail.
On 16 April 2018, Mr Wu met with Mr Dixon at the offices of Grant Thornton, the firm with which Mr Dixon was then associated. The recollection of what was discussed by the participants differs. The evidence in chief from Mr Wu as set out in his affidavit of 28 May 2021 is:
10.On 16 April 2018, at approximately 2:00pm, I met with the Liquidator at the offices of Grant Thornton. The meeting lasted approximately one hour, during which I explained in detail VPPL’s history, the various disputes between its shareholders, and why the potential winding up was being considered. While I cannot recall the exact words exchanged during this meeting, the topics we discussed included the following:
(a) VPPL’s ownership of 37 residential units, 7 car parks and 15 storage units, which needed to be sold and/or distributed amongst the shareholders;
(b) the key complaints made by Austhome and me against Mr Zhang (another director of VPPL), Rising Fortune Pty Ltd (the Fourth Defendant in this proceeding) (Rising Fortune) and VPPL in the Austhome Proceeding (as that term is defined in Recital D of the Second Deed of Settlement):
(c) my opinion that the other directors of VPPL may have breached their duties and caused loss to VPPL, both by the conduct which precipitated the Austhome Proceeding and in causing VPPL to defend the Austhome Proceeding unreasonably;
(d) my need to access the records of VPPL to investigate potential claims against the other directors of VPPL breaches of their duties;
(e) the fact that Austhome Proceeding resolved in February 2017, save for the quantification of costs payable by VPPL to Austhome (and the other plaintiffs), which were required to be taxed in default of agreement. The parties to the Austhome Proceeding had not agreed on the quantum of costs payable;
(f) the issues I expected the Liquidator would need to deal with if he were appointed to VPPL, including:
(i) the sale and/or distribution of the unsold lots, carparks and storage units;
(ii) the settlement of disputes in respect of Shop 1, which related to the payment of a commission, an acknowledgment required from Consumer Affairs Victoria, and the return of a deposit and interest paid by the first purchaser (my wife);
(iii) the resolution of a dispute regarding the settlement of Shop 2, which related to its size;
(iv) complaints regarding potential building defects made against VPPL as the building developer;
(v) obtaining VPPL’s books and records from the other directors; and
(vi) investigating potential claims against the other directors for breaches of their duties to VPPL.
11. At the conclusion of this meeting, I said to the Liquidator words to the effect of “what will be your fee for the appointment?”. The Liquidator then said words to the effect of “$50,000 plus GST and disbursements”.
(Original emphasis.)
Mr Dixon did not address that discussion in his affidavits of 18 December 2020, 23 February 2021 or 23 April 2021. Despite the criticisms of Mr Currrie, his omission is explicable by the fact that the importance of this meeting was not first raised until Mr Wu made his affidavit on 28 May 2021, and nor was it sharply brought into focus until the first iteration of the cross-claim of Mr Wu and Austhome as filed on 23 December 2021. Mr Dixon in his affidavit of
21 June 2021 first dealt with this conversation as follows:
4. In response to paragraph 10 of Wu’s affidavit I say:
4.1My recollection is that the meeting lasted for approximately
30 minutes.
4.2I don’t agree that we discussed the Austhome proceeding.
4.3I don’t recall the specifics of the discussion.
4.4I regularly meet with prospective directors or shareholders with respect to possible appointments. I rely on what I am told by the prospective client for the purposes of providing any estimated quote of my fees.
5.In response to paragraph 11 of Wu’s affidavit, I agree that I estimated fees at $50,000 plus GST plus Disbursements based upon information that I had been provided with until that point in time.
6.In response to paragraph 12 of Wu’s affidavit, I had understood from Mr Wu that quotes from other Liquidators would be obtained.
(Original emphasis.)
Mr Dixon gave a more detailed account of his recollection of the meeting in his affidavit of
1 July 2022, together with his recollection of the earlier telephone discussion in March 2018:
4. I did not know of and had not met Mr Wu before he telephoned me in late March 2018 to discuss the proposed voluntary winding up of Victoria Project Pty Ltd (VPPL).
5. During our telephone conversation, Mr Wu told me to the effect that there had been a dispute between the directors of VPPL and that he wanted a liquidator for a voluntary winding up to distribute its assets among the shareholders, and that the lawyers at Mills Oakley and another firm at the time had recommended me to him. Towards the end of the conversation, I made an appointment to meet with Mr Wu. I did not ask him to send me any documents in advance of the meeting and he did not send me any documents.
My first meeting with David Wu on 16 April 2018
6. I refer to the Wu affidavit at [10] to [12] and to my affidavit in response at [4] to [6]. I elaborate on that response below.
7. My first meeting with Mr Wu occurred at Grant Thornton’s offices at around 2:00 pm on 16 April 2018. The meeting lasted around half an hour. Mr Wu brought no documents with him to the meeting.
8. Mr Wu told me to the effect that VPPL owned a building in Carlton in which some apartments, shops and car spaces remained unsold. Mr Wu told me that he wanted to appoint a liquidator to VPPL. Mr Wu told me that he wanted a liquidator to distribute the assets of VPPL to its shareholders. Mr Wu did not say that VPPL had any liabilities. I understood this to mean that he wanted a liquidator to make in specie distribution of the company’s assets to the shareholders. Mr Wu said to the effect that the shareholders had had a conversation about making a distribution of VPPL’s assets to its shareholders.
9. In response, I told Mr Wu to the effect that distributing the assets of VPPL to its shareholders through an in specie distribution was a relatively straightforward process, involving distributing the assets of the Company in proportion with the shareholding to the shareholders and that depending on the shareholding, tax liability and the level of cash at bank, it could be done by selling none (or the minimum required number to enable an in specie distribution) of apartments and/or car spaces.
…
15. Mr Wu told me to the effect that the directors and shareholders of VPPL were involved in a dispute and asked me what my powers as liquidator were to investigate matters related to a company or its directors. I told Mr Wu to the effect that I did not have authority to investigate those matters; and that in a solvent liquidation, my role was not to investigate but to realise assets, distribute assets and walk away. I also told Mr Wu to the effect that there was a difference between a members’ voluntary winding up and an insolvent winding up and that, in an insolvent winding up, the liquidator had the power to investigate certain matters where there might have been breaches of duty owed to a company.
16. I do not recall the specifics of the discussion I had with Mr Wu, in the sense that I cannot recall exactly the detail of the words spoken by him and me, but I recall what topics were discussed, including the topics I have described above in paragraphs 8, 9, 14 and 15. I am confident that Mr Wu did not mention the existence of a dispute in relation to Shop 2, because had Mr Wu told me during our first meeting that there were disputes ongoing in relation to the shops to be sold, I would have become concerned that there were more issues than what he was telling me; I would have asked for more background information before I proposed a fee for the conduct of the members’ voluntary winding up.
17. I am confident that Mr Wu did not tell me to the effect that an issue for me to investigate as liquidator was the presence of defects in the property. Had Mr Wu said words to that effect, this would have raised significant concerns for me because of the complexity it would add to the liquidation process, including: complexities with valuing the assets to determine the in specie distribution; the complexity associated with the liquidator engaging builders and/or tradespeople to rectify defects; having to have the building works certified; and having to obtain insurance to cover any defects liability period.
18. Based on Mr Wu telling me to the effect that VPPL wanted to appoint me to make an in specie distribution of the assets of VPPL under a members’ voluntary winding up, as there had been litigation between directors and shareholders of the company, I understood that the in specie distribution was the basis upon which the parties to the litigation had agreed to settle their dispute and bring an end to their involvement with VPPL.
19. It is also my practice at every first meeting with a prospective client for a voluntary winding up to ask for the name of the external accountant of the relevant company, as I know that I will need to deal with that person in relation to the company’s financial statements and final income tax returns. In accordance with that practice, I asked Mr Wu who was in charge of the company’s financial accounts and Mr Wu replied to the effect that a fellow director, Mr Zhang, took care of that. To the best of my recollection, Mr Wu also told me the name and location of the company’s external accountant. Mr Wu did not say anything about the state of the company’s financial accounts.
Mr Currie submits that I should find in accordance with the evidence of Mr Wu and that I should reject the conflicting evidence of Mr Dixon as implausible, a convenient reconstruction and, in part, contradicted by contemporaneous documents. My task of resolving conflicts in this evidence was not greatly assisted in that Mr Dixon was not directly challenged in cross-examination about his recollection of this specific meeting. As an introductory question it was put to Mr Dixon, and he accepted, that “a prudent and responsible insolvency practitioner” when requested to provide a fee estimate would first take steps to be satisfied that he or she had received all relevant information in order to give an accurate estimate. Having laid that foundation, counsel limited his cross-examination about Mr Dixon’s recall of this meeting to one matter: whether Mr Dixon had incorrectly stated to Mr Wu that, if appointed as liquidator in a solvent liquidation, he would not have the authority to investigate disputes between the directors and shareholders. In answer, Mr Dixon accepted that this statement was contrary to his then understanding of the powers of a liquidator, his advice was wrong and given mistakenly.
At an earlier point, counsel challenged Mr Dixon’s recollection of several discussions with Mr Wu between August 2018 and April 2019 as mistaken in part, not supported by contemporaneous records and that as a consequence:
I suggest to you, Mr Dixon, that the Court and his Honour can have no confidence in your recollection of what was said during your communications with Mr Wu and the majority shareholders in that nine-month period.
Although no objection was taken to that question, I intervened:
HIS HONOUR: Well, that’s a matter for me, isn’t it? You can put [to] me a submission about that, but whether the witness thinks I can have confidence in his evidence or not doesn’t help me, Mr Currie.
MR CURRIE: I will withdraw it.
Counsel then moved to another topic, being the experience and knowledge acquired by Mr Dixon in his 25-year career as an insolvency practitioner. Whether I should have confidence in the evidence of Mr Dixon turns largely on resolving conflicts in his evidence with that of Mr Wu, which is ordinarily assisted by direct questioning and challenge in cross-examination. Proceeding in that way is forensically distinct from an ultimate submission that evidence should not be accepted. I do not, therefore, accept the submission that was put in closing that counsel did not perform that task either because of my interjection or that, by reason of the filing and service of affidavits, Mr Dixon was on notice of the competing evidence.
The difficulty with the way in which the cross-examination was conducted is that Mr Dixon was not distinctly challenged in his evidence that at the meeting on 16 April 2018:
(a)Mr Wu did not disclose that VPPL had any liabilities;
(b)Mr Wu said to the effect that the shareholders had discussed a distribution of the assets of VPPL amongst themselves;
(c)Mr Wu did not mention building defects;
(d)Mr Dixon told Mr Wu to the effect that an in specie distribution of assets amongst shareholders would be a relatively straightforward process and that, depending upon their shareholdings and any tax liability and cash at bank, it could be achieved without selling any of the apartments or by limiting the sale to the minimum required to enable the distribution to occur;
(e)Mr Dixon told Mr Wu to the effect that a members voluntary winding up involves valuing the assets and distributing them and preparing and lodging financial statements and final income tax returns;
(f)Mr Wu did not mention the existence of disputes in relation to shops 1 or 2 or potential claims arising out of building defects; and
(g)Mr Dixon asked Mr Wu as to who was in charge of the financial accounts of the company and was informed that it was Mr Zhang.
In contrast, the evidence of Mr Wu about this meeting was directly challenged by Ms Pierce in her cross-examination, which also probed the inconsistency of his evidence with subsequent documents that he authored about which I make separate findings of fact later in these reasons. Presently, focusing on the meeting of 16 April 2018, Mr Wu accepted that he told Mr Dixon that the shareholders proposed to settle their disputes by the appointment of an independent liquidator with the intent of having that person distribute the assets of VPPL to its shareholders. He told Mr Dixon that the shareholders were not in dispute that the assets of VPPL should be distributed. He initially denied the proposition that Mr Dixon said that a distribution of assets “would be a relatively straightforward process”, responding in part: “I actually told Dixon it is quite a simple process, because if no one [disputes it], it bears on the proportion of the shareholding”.
Further, Mr Wu accepted that Mr Dixon told him that his fees would be $50,000, excluding GST and disbursements, “fixed at that point in time”, but he was unable to recollect if this was put on the basis of a fee cap. He was then questioned to the effect that he told Mr Dixon that a distribution to shareholders would be a relatively simple process but if there were disputes relating to the shops that would complicate the process. In a non-responsive answer, he said: “I actually briefed what’s the dispute for shop 1, what are the dispute for shop 2, and shop 1 is – everyone had mentioned a lot already.” Counsel refocused the attention of the witness on her question, and it was put again and Mr Wu agreed. Next it was put to him that if the development suffered from building defects that too would complicate a distribution process to which his answer was: “not exactly”. On the evidence of Mr Wu, building defects were a matter for the builder and not the developer.
He was next questioned about the extent of financial liabilities of VPPL. He accepted that liabilities of that sort might also complicate the distribution process answering: “only if it’s identified. If it’s not identified, you cannot be assuming there is a liability there”. Later in the cross-examination, Mr Wu accepted that he did not inform Mr Dixon of potential liabilities relating to building defects.
Overall, I accept the evidence of Mr Dixon and I find accordingly, as to what was discussed with Mr Wu at the meeting on 16 April 2018. Whilst Mr Dixon is criticised for stating in his affidavit of 21 June 2021 that he did not “recall the specifics of the discussion” but later, in his affidavit of 1 July 2022, he was able to recall the discussion in considerable detail, I find his explanation given in cross-examination to the effect that he had more time to “think about what had happened” plausible. I am not prepared to make findings of fact inconsistent with his evidence on matters that were not challenged in cross-examination, despite the fact that much was made in opening submissions that his evidence should be regarded as an unreliable reconstruction. At no point in the cross-examination was that fairly put to Mr Dixon.
Further, and as I explain below, the evidence of Mr Wu as to the content of the discussion on 16 April 2018 is difficult to reconcile with his later correspondence that was prepared after Mr Dixon had informed him that his fees would greatly exceed $50,000 plus GST and disbursements. As I will demonstrate, I have concluded that the contemporaneous documents and subsequent conduct of Mr Wu is inconsistent with his evidence that he told Mr Dixon during the meeting about the “key complaints” which he had against Mr Zhang and Rising Fortune Pty Ltd, his concern that other directors of VPPL may have breached their duties and had caused loss to the company, that the scope of work would include the investigation of potential claims against those persons, that disputes existed in relation to shops 1 and 2 which required resolution and that there were potential liabilities flowing from building defects.
In part I also base my acceptance of the evidence of Mr Dixon in preference to that of Mr Wu, where there is inconsistency, upon my assessment of their respective demeanour in the witness box. Mr Dixon presented as a careful witness who answered questions directly and who was prepared to make concessions. I find that his evidence was truthful and reliable. I do not find that Mr Wu was untruthful. Although on many occasions he requested that relatively straightforward questions be put again before providing his answer that is not a matter which counts against the reliability of his evidence in that it is explicable by the fact that English is not his first language. However, he clearly embellished a portion of his evidence when told by Mr Dixon in writing on 13 January 2020 that the fee would exceed the fee cap. I analyse this evidence in chronological order below and explain why I reject the evidence of Mr Wu, but in brief Mr Wu contended that he had informed Mr Dixon, prior to April 2019, that the scope of work included the seven stages of tasks that he listed in a memorandum prepared on or about 20 January 2020. When pressed, he accepted that the first time he had mentioned this evidence was in the course of his cross-examination. He denied doing so in order to have me accept that the advised scope of work was far broader “than it really was”, and is a recent invention, but which denials, as I explain, I do not accept.
This was not peripheral or inconsequential evidence. Central to the cross-claim is whether Mr Wu made full disclosure to Mr Dixon of all that he knew as relevant to the fee cap, if he did not, whether in that circumstance the fee cap representations made by Mr Dixon were objectively misleading or deceptive or unconscionable and whether I should accept that Mr Wu and Austhome relied upon those representations in their decision to enter into the Deed and with it to accept the fee indemnity obligation. That Mr Wu would claim before me that the scope of the work that he informed Mr Dixon about was as extensive as the seven stages that he subsequently identified causes me to doubt the credibility of his evidence as to his knowledge of the issues that Mr Dixon would likely need to deal with if appointed as liquidator, the extent to which Mr Wu disclosed that knowledge to Mr Dixon and, more particularly, what in fact was disclosed to Mr Dixon at the initial meeting on 16 April 2018 and subsequently. My overall conclusion is that where the evidence of Mr Dixon and Mr Wu conflicts on these issues, I prefer Mr Dixon as the more reliable and intuitive witness. And as I further explain below, his evidence is more consistent with the contemporaneous documents which I assess as more reliable than the recollection of oral discussions some years after the relevant events.
It is not in issue on the pleadings that Mr Dixon said during the meeting of 16 April 2018 that if he were to be appointed as liquidator of VPPL his remuneration would be capped at $50,000 plus GST and disbursements. My acceptance of the evidence of Mr Dixon as to what occurred during that meeting extends to my further finding that I also accept the basis on which he calculated his fee. That is, he assessed it based on the scope of work that Mr Wu disclosed to him and then proceeded as follows (which he explained in chief in his affidavit of 1 July 2022):
10. In my experience, undertaking an in specie distribution of VPPL’s assets would be a relatively simple process for me and my staff, as there would be either no need to engage in marketing campaigns for each of the properties or to engage lawyers for conveyancing purposes, or if there was such a need, only for a limited number of properties. Rather, I understood that a liquidator would need to engage a valuer on behalf of VPPL to provide a sworn valuation of the properties to determine their value as part of the step outlined in (d) below. Based on the information provided by Mr Wu during our telephone conversation in March 2018 and our meeting on 16 April 2018, the tasks required of a liquidator to undertake an in specie distribution for a company such as VPPL are as follows:
(a) Confirm the company’s shareholding and the distribution rights;
(b) Deal with cash at bank including any term deposits;
(c) Deal with relevant parties regarding the discharge of security interests registered against the company (if applicable);
(d) Determine and value the company’s asset base;
(e) Arrange for the company’s accountant to prepare financial accounts and lodge income tax returns for the period up to the date of liquidation and for the liquidation period (if taxable income will be derived) and thereafter seek an exemption from lodging any further income tax returns;
(f) Obtain a clearance from the ATO for the distribution of the surplus assets to the company’s shareholders;
(g) Calculate the distribution to the members by way of cash and/or distribution in specie;
(h) Distribute the assets and provide shareholders with the Liquidator’s Minute and the Distribution and Appropriation the Surplus Assets of the winding up of the company; and
(i) Complying with the Corporations Act 2001 (Cth) in finalising the liquidation.
11. Based on my previous experience, I expected that a valuation of the property required for the step outlined in 10(d) above would cost around $3,000 or $4,000 because all lots (units, shops and car spaces) could be inspected on the one occasion, and because the properties within each category would be similar. My practice is to disburse the valuer’s fees to the company. To the best of my recollection, I did not tell Mr Wu that this expense would be disbursed.
12.In the course of my career up to early 2018, I had conducted around 25-30 members voluntary windings up. It was common for me when at Grant Thornton, and remains common for me now that I am at Hamilton Murphy Advisory, to charge around $5,000 for a members’ voluntary winding up. For a fee in that amount or close to that amount, my staff and I attend to various tasks which include preparing a Form 520 for its directors to complete; filing that form with the ASIC; preparing resolutions of shareholders to give effect to the winding up based on precedent forms maintained by the firm; and overseeing the lodgement of final tax returns. In estimating a fee of around $5,000, I would expect the company to have a clean balance sheet, by which I mean that it would have minimal (if any) outstanding liabilities.
13.As a number of lots within the property owned by VPPL would need to be valued and final accounts and tax returns completed, I considered that $50,000 would be an appropriate figure to propose for my fees of the winding up, as it reflected around ten times what I would ordinarily charge to conduct a members’ voluntary winding up, as set out above.
The fee advised by Mr Dixon was not immediately acted upon by Mr Wu. There were two brief telephone discussions on 21 June 2018, during which Mr Wu provided an update as to the progress of the proceedings in the Supreme Court of Victoria so that, in accordance with Mr Wu’s account, Mr Dixon if appointed “would not have to waste time getting up to speed”. Mr Wu does not say that he then provided any additional information as to the scope of the likely work that may be required to be undertaken by Mr Dixon if he were to be appointed as the liquidator of VPPL. I find that he did not.
On 3 August 2018, Mr Dixon received a telephone call from Mr Scott, a solicitor from the firm Hall & Wilcox, then acting for the majority shareholders. Each was known professionally to the other. They conversed for approximately 10 minutes. Mr Scott disclosed the clients for whom his firm acted, confirmed that VPPL was solvent, stated that the shareholders and directors were in dispute but had agreed upon an in specie distribution of the corporate property pursuant to a deed of settlement which would conclude the litigation. They discussed the possible appointment of Mr Dixon as liquidator should the members resolve to wind up VPPL. Mr Scott told Mr Dixon that he would provide a memorandum containing more information which he asked Mr Dixon to consider and respond to in due course.
At 10.20 am that day, Mr Scott sent an email to Mr Dixon and copied it to a number of other legal practitioners, including those then acting for Mr Wu and Austhome. Mr Wu accepts that he received it and read it on or about 3 August 2018. The email simply read: “Please find attached Memorandum and enclosures for your attention.” The memorandum is an important document. It is dated 1August 2018 and reads:
To Mr Stephen Dixon
Date 1 August 2018
Subject Victoria Project Pty Ltd
You have been nominated to act as liquidator in the event the members of Victoria Project Pty Ltd (VPPL) resolve that it be wound up.
1 VPPL
1.1VPPL purchased and developed land situated at 212 Victoria Street, Carlton, Victoria (The Vic). The Vic involved the construction of an 18-level apartment building comprising approximately 280 residential units and four shops. Construction of the Vic commenced in March 2012 and was completed in March 2014.
1.2 Attached are-
(a) an ASIC search of VPPL; and
(b) plan of the development.
1.3There are 37 residential units, 14 storage lots, 9 car spaces, and two shops (Shop 1 and Shop 2) which remain unsold (Remaining Units). Each of Shop 1 and Shop 2 are subject to a contract of sale, however settlement has not occurred. The units have sold for amounts ranging between approximately 296,000 - $745,000.
2 Proceedings
2.1 On 20 December 2017, Austhome Group Pty Ltd commenced proceedings (S ECI 2017 00294) in the Supreme Court of Victoria seeking orders including that VPPL be wound up.
2.2 The parties agreed to settle the proceeding on terms including that the members consider a resolution that VPPL be wound up. Relevantly, the notice of meeting must be sent to members by no later than 1 August 2018. A copy of the deed of settlement is enclosed for your information. We note that the parties have agreed to keep the terms of the deed of settlement confidential until the conditions in clauses 7.2 and 8.2 have been satisfied. Accordingly, we request that you not distribute a copy of the deed of settlement to, or discuss its terms with, any other person until the aforementioned conditions have been satisfied.
2.3 Prior to the notice of meeting, the directors of VPPL must convene a meeting to consider and declare they have enquired into the company's affairs and formed the opinion that the company can pay its debts in full within 12 months from the commencement of the members' voluntary winding up.
2.4 The declaration of solvency must include an estimate of the expenses of winding up.
3 Estimate of Costs
3.1 The directors require an estimate of the likely costs of a winding up.
3.2 It is envisaged that you will be tasked with:-
(a)arranging the distribution, sale and settlement of the Remaining Units;
(b)conducting proceeding Supreme Court of Victoria Costs Court proceeding S Cl 2018 01517, being a proceeding issued by the company on 23 April 2018; and
(c)conducting such further tasks and enquiries as the liquidator, acting reasonably, deems necessary to complete the winding up of VPPL.
4 Information and contact
4.1If you require further information or wish to meet with the parties to assist in your deliberations, please notify all contacts copied to the covering email.
Dated: 1 August 2018
The memorandum references attachments, one of which was a copy of a deed of settlement between the parties dated 19 July 2018. That deed provided for a settlement of the various proceedings between the parties by, inter alia, the passing of a resolution to voluntarily wind up VPPL and the appointment of Mr Dixon as liquidator. It contained two conditions precedent: that Mr Dixon or another named individual is appointed as liquidator and for dismissal of the winding up proceeding. In the events that occurred, the members ultimately failed to pass the required resolution with the consequence that the settlement lapsed.
The extensive recitals to that deed mention the Agelakis proceeding (and record its resolution), the winding up proceeding, the commencement and resolution of the 2014 Supreme Court proceeding and records the agreement of the parties:
…without any admission of liability, to settle the [winding up proceeding], and release all Claims in any way arising out of or in relation to each of Victoria Project Pty Ltd, its business, and the development at 212 Victoria Street, Carlton, in the manner and on the terms and subject to the conditions and exclusions set out in this Deed.
The Deed provides for covenants not to sue and for releases from all claims in the usual form. Mr Dixon said that when he considered this document, he understood it as “a deed of settlement that was going to settle everything”, that “the legal proceedings were going to finish” and that the legal proceedings “had nothing to do with…my remuneration…” Mr Dixon was correct to make those assessments, based on the Deed.
Notably, that Deed makes no reference to disputes about shops 1 and 2, save for settlement of the Agelakis proceeding; building defect claims; disputes about the keeping of company records and importantly, it does not contain any reference to the fees for the liquidation or an indemnity from Mr Wu and Austhome for liquidation costs. Mr Dixon did not become aware of the liquidation costs and indemnity clauses, which find expression in the Deed, until after his appointment as liquidator on 23 October 2019.
The final paragraph of the memorandum invites inquiry from Mr Dixon should he require further information. Mr Dixon did not seek further information from Mr Scott. Why is explained in his affidavit of 1 July 2022: he had known Mr Scott professionally for approximately 10 years and he considered him a competent and honest practitioner. Further, he still considered that a fee of $50,000 for professional remuneration was appropriate because what Mr Scott had told him, and the memorandum, were consistent with the scope of work that Mr Wu had earlier advised. Mr Dixon was cross-examined on this evidence, although limited to acceptance of the general proposition that a prudent and responsible insolvency practitioner, if asked to give a fee estimate, would first need to be satisfied that he or she had all relevant information so as to provide an informed and accurate estimate. He was not challenged as to his stated reason, which I accept
At 11:15 am on 3 August 2018, Mr Scott sent another email to Mr Dixon and requested that he provide “an estimate of the costs of the winding up as a matter of urgency”. Mr Dixon responded by email on 6 August 2018 at 9:51 am. He wrote:
Hi Graeme
Thanks for your email.
I advise that my remuneration for this particular appointment will be capped at $50,000 plus out of pocket expenses and GST.
I further advise that if there is some form of litigation involving myself this sum may change. This would obviously require further approval of the parties involved and would be discussed with all the parties if and when this occurs.
Please call me if you have any queries.
Thank you for the opportunity.
There was no further contact until 23 November 2018, when Mr Wu telephoned Mr Dixon and they spoke for approximately 10 minutes. Although Mr Wu cannot recall the precise words used, the substance of his evidence is that Mr Dixon said he had met with the other shareholders, had discussed the scope of the work, including the need to arrange the sale of rented units, car spaces and storage cages, the resolution of disputes regarding the settlement of shop 1 concerning a commission claim and the return of the deposit paid by the first purchaser, the wife of Mr Wu, the resolution of the dispute regarding the settlement of shop 2 related to its size, the resolution of a claim for costs by Austhome in relation to various legal proceedings and that he would still cap his fees at $50,000 plus GST and disbursements.
Mr Dixon does not specifically recall what was discussed during that telephone call. However, his evidence is that it was “unlikely” there was a discussion about the disputes for shops 1
and 2 for the reason that he did not have information about those disputes at that stage. When cross-examined, Mr Dixon affirmed that he does not recall this conversation. However, the relative weight of this evidence is diminished by several considerations. Mr Wu was not present at the meeting between Mr Dixon and some of the majority shareholders. He cannot therefore be taken to have relied on the content of the discussion. His evidence as to how Mr Dixon related the matters discussed is expressed without the benefit of the context in which each subject matter was discussed, particularly the extent of factual disclosure made by the shareholders who were present. Mr Wu’s evidence is also inconsistent with the content of detailed correspondence sent by Mr Dixon to Mr Wu dated 20 January 2020 (which I set out below) in which, inter alia, Mr Dixon listed, and I find truthfully, a number of matters of which he became aware after his appointment, which significantly differed from the pre-appointment disclosure that had been made. Those matters included building defect claims, the management of the business of VPPL as a trading enterprise, issues that prevented the timely completion of the sale of shops 1 and 2 and the finalisation of the outstanding year end accounts and tax returns. In my assessment of the whole of the evidence, that contemporaneous document is reliable evidence as to the detail of disclosure made to Mr Dixon prior to his appointment.
Although Mr Wu was not directly challenged on his evidence about this telephone discussion, it does not follow that I must accept his evidence uncritically. For the reasons I have given, I do not attribute significant weight to it.
Mr Wu attended a meeting of shareholders on 28 November 2018 and proposed a resolution that VPPL be wound up and that a liquidator be appointed. That resolution was put to a vote but did not carry. There is hearsay evidence (that was not objected to) to the effect that Mr Ling advised that he and the other shareholders would not vote in favour of the resolution because they were concerned about the likely fee of the liquidator as extending only “to the current legal proceedings”, which fee may increase if there were new disputes.
Mr Wu had another telephone discussion with Mr Dixon on 29 November 2018. Mr Wu says they spoke for approximately 15 minutes, and although he cannot recall the exact words used, he advised Mr Dixon that the resolution to wind up VPPL did not pass the previous day because other shareholders were concerned that the fees might exceed the fee cap. In response, Mr Dixon said to the effect that “there was no reason for the shareholders to be concerned” in that his fee would only be $50,000 plus out-of-pocket expenses and GST and the current disputes between the shareholders were “factored into his fee cap”. The fee would only be exceeded if new proceedings were issued against him personally and that he could only increase his fee if he obtained approval from a majority of the shareholders.
In his first response to this evidence, Mr Dixon in his affidavit of 21 June 2021 acknowledged that he had a discussion with Mr Wu on 29 November 2018, denied that he had said there was no reason for the shareholders to be concerned and that his fee would only be $50,000 plus disbursements and GST and further denied that the current disputes between the shareholders had been factored into that fee. He did not deny advising that his fee would increase if proceedings were commenced involving him personally and nor did he dispute that he could only increase his fee with approval from a majority of the shareholders.
In his second response to this evidence of Mr Wu, Mr Dixon in his affidavit of 1 July 2022, “elaborated” on his earlier evidence stating that he “would not have” told Mr Wu that the current shareholder disputes were factored into his fee because “it was not part of [his] role as liquidator in a members voluntary winding up to investigate disputes between shareholders”. Further, he set out his understanding, based on his discussions with Mr Wu and Mr Scott, that a winding up of VPPL including an in specie distribution would “finalise the settlement of the dispute between the shareholders pursuant to a deed of settlement”.
As I have explained, Mr Dixon accepted in cross-examination that his powers as liquidator, as he then understood them, did permit him to investigate disputes between shareholders in a voluntary winding up and that he made a mistake when he told Mr Wu that he could not do so. Beyond that, Mr Dixon was not challenged in cross-examination on this evidence.
Mr Wu was cross-examined on his recollection of this discussion. He denied an understanding on his part that the agreed fee of Mr Dixon had been determined based on the settlement terms of 19 July 2018 and the memorandum of 3 August 2018. He accepted he did not say to Mr Dixon that there might be a need to increase his fee dramatically because of disputes relating to the shops, adding: “at that point of time, Dixon is already aware of that issue”. Counsel then directly challenged his evidence that these disputes had been disclosed prior to or during the discussion on 29 November 2018, which Mr Wu disputed.
The foundation for that challenge was laid a little earlier in the cross-examination. Mr Wu was taken to the minutes of the shareholders meeting of 23 November 2018. The original minutes are written in Mandarin. Mr Wu, at some point in time, prepared an English translation. He confirmed that he had taken care in preparing the translation and that it is accurate. He also accepted that he was concerned to ensure that the minutes were an accurate record of what was discussed. The translation reads (without correcting for spelling or grammar):
Translation of Victoria Project Pty Ltd (CAN 142 329 155) general Meeting Minutes held on 28 November 2018 translated by David Wu
Discussion
Bill Ling spoke first and he briefly told the shareholders about the discussions held at Dixon Office on Wednesday 21 November 2018. Bill is concerned about Dixon’s service fee. He was satisfied with Mr Dixon’s response in relation to his fixed fee with current matters at $50,000; but he understood $50,000 only covering “the current Legal proceedings” (as my understanding referred to “current matters”). In another word, any new matter raised in the future could cause the dramatic increase in fee.
Under current VPPL’s circumstances, what Bill especially concerned about was the liquidator’s fee might increase dramatically if one of member starts the new proceeding and raises new disputes after Dixon is appointed. Bill did not agree to appoint the liquidator at present.
Bill also stated he would agree to vote in favour to appoint Dixon if there was a shareholder agreement which all shareholders agreed whatever who causes the new disputes (mew proceedings and issues) will pay Dixon’s service fee over $50,000.
Bill also stated he wish VPPL to sell or distribute unsold lots and distribute all proceeds to shareholders except keeping approx. $1.2 m for payment of David Wu’s legal cost and other legal cost & service fee. After completing the distribution, Bill would reconsider his position in relation to the appointment of liquidator to winding up VPPL.
Linda agreed with Bill’s all statement including his proposal above. David Wu disagree for his proposal.
Voting results: David Wu 35%, Derrick Zhang 34% in favour to appoint the liquidator.
Bill Ling 16%, Linda Lin 10% agaist.
Outcome
David Wu’s motion failed.
Meeting was closed at 6:45pm 28 Nov.2018
Minutes submitted by: Bill Zheng Ling
Signed as correct record
Derrick Zhang
Chair
The minutes do not mention disputes about the shops as a matter affecting the advised fee. They confirm that the majority shareholders’ concern as expressed to Mr Dixon at the meeting on 21 November 2018 related to a fixed fee in the context of the current legal proceedings and not extending to any new proceedings. Nor do the minutes record any discussion regarding disputes relating to Shops 1 and 2. The evidence of Mr Wu that he did not mention the disputes relating to the shops during his discussion on 29 November 2018 because Mr Dixon was already aware of those disputes, is contrary to my findings as to what was disclosed to Mr Dixon to that point in time and Mr Wu was not questioned in re-examination as to the basis for this evidence. For these reasons, I reject his evidence to this extent. I accept, however, his evidence that Mr Dixon did say, to the effect, that the shareholders should not be concerned about his fee and that the current disputes had been taken into account in setting it, for the reason that this evidence is consistent with earlier evidence of Mr Dixon, which I have accepted, to the effect that he believed that the extant disputes between the shareholders would be resolved entirely in accordance with the deed of 19 July 2018 and by reason of the fact that there is no mention of any continuing disputes that required resolution in the memorandum of 1 August 2018.
On 13 December 2018, Mr Wu sent an email to each of the other shareholders, called for a meeting to be held that day and which, omitting formal parts, reads (without correcting for spelling and grammar):
There are serious concerns in relation to proposed resolution of distribution or sale of the unsold lots of VPPL. The background of this proposal is the minority shareholder just rejected appointment of independent liquidator to do exactly the same job armed with overall knowledge of company and independent power to act. The main concerns are as below:
1. What is the possible liability (reserve) of the company?
(a)VPPL currently involved three legal proceedings and the cost & possible payout (claim and compensation) of these proceedings are unknown. Especially current oppression proceeding it is possible VPPL will pay the proceeding on indemnity basis as VPPL had breached its deed of settlement.
(b)Defects liability of the Vic is unknown, many repairs and underground water leaking are not repaired yet (as I know). The cost of repair is unknown.
(c)May have other claim against VPPL by other party in relation to breach of contract terms.
2.For last five years, there is no detailed company information provided to its directors or to me at least including all financial information. We need independent liquidator to go through all documents to give a proper closure to VPPL.
3.Without independent liquidator's auditing, I will not agree on any distribution to shareholders unless there is agreed reserve and terms that overpaid distribution can be called back. Future court appointed liquidator's decision in relation to overpayment and damage caused due to any director's negligence can be enforced (agree to pay back).
4.“engaging an independent third party to conduct in specie distribution”, what kind third party is this and what is their legal right and responsibility? Does he have the power that is the same as liquidator and required insurance?
5.With all the above concerns, Wish all directors consider this matter seriously with duty of care.
This email is clear evidence that as at 13 December 2018, Mr Wu was concerned about a number of aspects of the business of VPPL which had not, to that date, been disclosed by him to Mr Dixon. Those matters were the building defects liability claim and the associated cost of repair, claims by VPPL against third parties for breach of contract, a failure to provide detailed company information to the directors including all financial information for five years and the need for the liquidator to examine “all documents” in order to provide “proper closure” to the affairs of VPPL. He did not copy this email to Mr Dixon and did not separately email him in order to alert Mr Dixon to its content, which is difficult to understand. Why, for example accepting the detailed knowledge of Mr Wu as to the scope of the disputes as set out in this email, did he not make disclosure to Mr Dixon, as material clearly relevant to the scope of the tasks that a liquidator would be required to undertake? No satisfactory explanation for this failure was given by Mr Wu.
On 17 December 2018, Mr Wu spoke with Mr Dixon by telephone. He cannot recall the precise words used, but he said words to the effect that the shareholders had recently passed a resolution to distribute the unsold lots in the development and that his solicitors had filed an application to wind up VPPL. In response, Mr Dixon said to the effect that if appointed as liquidator, he would make the company records available to each of the directors, as they had a right to receive them under the Corporations Act, he would ask Mr Wu to help him identify possible breaches of duty or negligence by the directors and that:
If a director was found to have acted dishonestly or negligently, he could potentially deduct the loss suffered by VPPL from any distribution. However, if all of the assets of VPPL were distributed, it would be very hard for him to claw back those losses from the directors. And so I should apply for an injunction to stop the distribution to prevent this outcome.
Mr Dixon in his first response to this evidence agreed that he said he would make the company records available to the directors, but denied the other statements attributed to him. To his recollection, he told Mr Wu that any allegations against the other directors would need to be in writing and supported by evidence. In his second response to this evidence, he confirmed his denial that he would seek the assistance of Mr Wu to identify possible breaches of duty or negligence by the directors, stated that it was Mr Wu who had advised that he was thinking of applying for an injunction and elaborated upon his denial that he did not say that he, as liquidator, could deduct loss suffered in consequence of a breach of duty by a director from any component of the proposed in specie distribution to a shareholder. Amongst other things, Mr Dixon made the obvious point (which is really an argument but was not objected to) that he did not have power to make determinations of that character and he does not give legal advice.
Apart from brief cross-examination of Mr Dixon to the effect that he did not disclose this conversation in earlier affidavits, he was not challenged on this evidence and nor was Mr Wu challenged on his version of this conversation, which makes my task of fact-finding somewhat difficult. I find that Mr Wu did tell Mr Dixon about the resolution passed by the shareholders and the fact that his solicitors had filed an application to wind up VPPL as these matters were not disputed by Mr Dixon. I further find that Mr Dixon told Mr Wu that if appointed he would make the company records available to the directors for inspection as that is also not disputed by Mr Dixon. I reject Mr Wu’s evidence that Mr Dixon told him that he would request Mr Wu to assist him to identify possible breaches of duty or negligence by the directors. That evidence does not objectively withstand scrutiny. I cannot accept that Mr Dixon, as a registered liquidator of considerable standing, would enlist one director to assist him in investigating negligence or breach of duty by another. And further, it is preposterous that Mr Dixon told Mr Wu that he could potentially deduct loss suffered by reason of dishonesty or negligence on the part of the director, from any distribution to a shareholder, an exercise of judicial power not possessed of a liquidator. That evidence substantially undermines Mr Wu’s credibility as to what was said in the entirety of this discussion, and I reject the balance of his evidence as to this discussion.
Between January and early April 2019, Mr Wu gives evidence of further short telephone discussions with Mr Dixon, the dates and precise content of which he is not able to recall save for general evidence to the effect that he informed Mr Dixon on or about 27 March 2019 that he had applied for an injunction to prevent the distribution of the assets of VPPL and that in early April 2019, the Supreme Court had made certain orders permitting inspection of the records of VPPL. Mr Dixon does not deny these conversations. The fact that they occurred is not said to be material by any party in this proceeding.
The winding up proceeding was the subject of a procedural directions hearing before Justice Sifris on 5 April 2019. His Honour made an order referring the parties to mediation, which occurred on 24 April 2019. It is not in dispute that during the course of the mediation Mr Wu agreed to settle various disputes in principle, that he requested Mr Dixon confirm in writing that if appointed liquidator his fee would be $50,000 plus disbursements and GST and that Mr Dixon provided that confirmation in writing. I will return to the detail of this evidence later in these reasons. An issue of significant importance that arose in the trial concerns the state of mind of Mr Wu as to the scope of the work that was likely to be required to be performed by Mr Dixon, whether that scope had materially altered since the first meeting between Mr Wu and Mr Dixon on 16 April 2018 and, perhaps more importantly, since the memorandum of 1 August 2018 and Mr Dixon’s response thereto. Ms Pierce submits that I should make a number of findings as to what concerns were held by Mr Wu between December 2018 and the conduct of the mediation on 24 April 2019.
The first is that Mr Wu, despite his position as a director, did not know the liability position of VPPL and was concerned about the possible extent of liabilities. The evidence relied upon commences with a transcript of submissions made for Mr Wu by his then counsel in the wind up proceeding before Sifris J on 5 April 2019. It was submitted that a mediation should only be ordered if Mr Wu and each of the other shareholders were fully informed as to the financial position of VPPL. It was put to the court that Mr Wu did not know the basis for an estimated tax liability, asserted that no tax returns had been filed for the financial years 2017 or 2018 and that Mr Zhang, who was responsible for running the company, was “making it up as he goes along in terms of what the liabilities of the company are”. It was further put that Mr Wu did not understand how the company could have an estimated loss for the financial years 2017 and 2018 when it was receiving a rental income of $700,000 per annum; a loss which “beggars belief”. It was also put that Mr Zhang had not been forthcoming in disclosing the financial position of the company.
These submissions were the subject of cross-examination of Mr Wu. He was taken to the transcript. Mr Wu accepted that these submissions were made with his authority. He did not say that those submissions were falsely put on his instructions. Accordingly, I find that as at 5 April 2019, Mr Wu was concerned about the financial position of VPPL, did not know the extent of its liabilities (and in particular the extent of potential taxation liabilities), believed that Mr Zhang had not been forthcoming in making full disclosure of the financial position of the company to his fellow directors and could not understand the apparent disconnect between gross revenue and the assertion that the company had made net losses.
The second is that Mr Wu had not seen the financial statements of VPPL for the year ended 30 June 2017. That fact was also put in submissions by counsel for Mr Wu to Sifris J and I find according to it.
The third is that Mr Zhang had not disclosed to Mr Wu the 2017 financial year income tax returns and financial statements. That submission was also made to Sifris J and I find accordingly.
The fourth is that as at April 2019, Mr Wu was not in a position to reliably inform Mr Dixon as to the liabilities of VPPL, the evidence for which is to be found in the cross-examination. Mr Wu accepted that as at 24 April 2019, his concerns about the records of the company, its financial position and his inability to access information had not been addressed. He accepted that he knew that no tax returns had been filed for the 2017 and 2018 financial years because he had not been provided with those documents. When questioned as to whether in April 2019 he was in a position “reliably to tell anybody what the financial position of the company was”, he answered: “I would say I’m not confident to tell anybody at that point in time what exactly company financial position are”. When pressed further as to that answer, he acknowledged that he was concerned about the financial position but denied that he was greatly or gravely concerned “because nothing I can do about it, whether I concerned or not concerned. There’s not much I can do.” Unsurprisingly, he was challenged on that answer. Counsel reminded Mr Wu that he commenced a proceeding in the Supreme Court of Victoria alleging oppressive conduct, including by denial of access to financial records and sought an order that VPPL the wound-up.
Mr Wu further accepted that as at April 2019 his relationship with Mr Zhang was “a little bit strained” and had been so since 2013. He accepted that he was concerned that Mr Zhang had been untruthful and not open in providing information as to the financial position of the company. He further accepted that he could not state as at April 2019 whether the company had in fact incurred losses or made profits in the 2017 and 2018 financial years.
Based on this evidence, I find that Mr Wu was not in a position to reliably provide information to Mr Dixon as to the financial position of VPPL in April 2019 or earlier in April 2018 and further that he held material concerns about the management and operation of the company, from at least 20 December 2017 when he caused to be commenced the winding up proceeding based on oppressive conduct, including the withholding of financial information.
The fifth is that as at April 2019, Mr Wu, given his other concerns about the affairs of VPPL, was then concerned about the accuracy of the fee as advised by Mr Dixon. Returning to the transcript of submissions before Sifris J, counsel for Mr Wu in addressing his Honour as to the difficulties caused by the failure to provide the 2017 financial statements and taxation estimates and the asserted fact that Mr Zhang had caused the company to incur costs exceeding $200,000 in connection with the wind up proceeding said:
And the concern about fees, Your Honour – we haven’t got to this, but the liquidator has agreed to cap his fees at $50,000.
Mr Segal: No, he hasn’t. There’s no evidence of that, Your Honour.
His Honour: Very well.
Mr McAloon: I take your Honour to the evidence and that’s what I intended to do when I thought the matter was going to be heard today.
Mr Wu was taken to these submissions in cross-examination and he gave the following evidence:
MS PIERCE: So, Mr Wu, what’s happening here is that your barrister and Austhome’s barrister is identifying to a judge of the Supreme Court that one of the concerns that arises because of the uncertainties with VPPL’s financial position is that there’s a liquidator who has agreed to cap his fees. So the concern arises precisely – that is, the concern about the fee cap arises precisely because of the lack of information available about the state of affairs of VPPL and that’s what your barrister, I suggest to you, was expressing on your behalf and Austhome’s behalf, to Sifris J.
HIS HONOUR: Well, do you agree that that? Yes, I agree to that.
MS PIERCE: And so because you held that concern about the fee cap in circumstances where the financial circumstances of VPPL were unknown to you, you were not in a position to say, reliably, whether a fee cap of $50,000 was accurate or in any way within the realm of something likely to reflect the work needed to be done. You just couldn’t have known that, could you, and that’s the concern that your barrister expressed to Sifris J, wasn’t it?---I don’t agree barrister is concerned liquidator’s fee of 50,000.
Yes?---Barrister’s concern is he – we don’t know the financial situation of the company but he didn’t express here – I don’t read it that way – he concern the fee for liquidator is not adequate.
Well - - -?---I don’t read that way.
All right. You well knew, when you asked in April 2019, two weeks after this hearing, that Mr Dixon confirm his fee cap, that there were great uncertainties about the financial accounts; yes?---Sorry. What’s your question?
You well understood, on 24 April 2019, when asking Mr Dixon to confirm his fee cap, that there were concerns about the financial accounts and their accuracy?---Sorry. I’m still confused your question.
That’s all right. Okay?---You’re asking me - - -
So I don’t mean to confuse you?---You’re asking me is Dixon concerned - - -
No. I’m not asking you - - -?--- - - - or - - -
HIS HONOUR: Rather than. “You well knew”, why don’t you say, “Did you know”.
MS PIERCE: Your Honour – sorry. Thank you.
Mr Wu, I’m asking you to turn your mind back to 24 April 2019?---Okay.
That’s the day of the mediation?---Yes.
And that’s when you asked Mr Wu to cap his fees at $50,000. What I’m suggesting to you, when you asked him to confirm the fee cap when you were at the mediation – you sent the text messages. When you did that, you knew that you and Austhome had concerns about the uncertainty of the financial accounts?---Yes.
And the uncertainty about status of tax returns for 2017 and 2018?---Yes.
And - - -?---We’re concerned we don’t the details of any of that.
Yes. That’s right. You didn’t know the details of any of that?---Yes.
And so you couldn’t tell Mr Dixon anything concrete about the financial position of the company?---Yes. He know that.
Well, no. That’s not quite what I’m putting to you?---Okay.
You didn’t know about the financial position of the company; that’s quite clear?---That’s clear.
And so you couldn’t tell anybody else about the financial position of the 35 company?---Yes.
And you couldn’t certainly tell Mr Dixon about the financial position of the company?---Yes.
In accordance with this evidence I find that as at 24 April 2019, Mr Wu was concerned about the accuracy and reliability of the fee proposed by Mr Dixon, based on his uncertainty as to the financial position of the company, the failure of Mr Zhang to provide financial information to his satisfaction, the failure to lodge income tax returns for the 2017 and 2018 financial years and his overall concern as to why, apparently, the company was not profitable given its gross income. And I further find that as at 24 April 2019, Mr Wu was not in a position to advise
Mr Dixon as to the financial position of the company or its then current state of affairs and did not do so.
The sixth is that Mr Wu did not disclose to Mr Dixon prior to 24 April 2019, liabilities that may arise due to potential building defects and relatedly company funds held on trust. In cross-examination, Mr Wu accepted that as an experienced property developer he knew that building defect claims may create a potential liability for a developer, but which liability he characterised as “very unlikely”. Despite that qualification, he thought it sufficiently concerning to mention it in a memorandum that he provided to his fellow shareholders on
13 December 2018. In any event, he accepted that he did not inform Mr Dixon of potential building defect liabilities before 24 April 2019. As to money held on trust, there was limited exploration of this matter in submissions. There is evidence from Mr Dixon that funds were held in trust by two law firms, which fact was not disclosed to Mr Dixon prior to his appointment. Those funds were held pending the resolution of claims made by purchasers of apartments in the development. In any event, Mr Wu clearly understood that trust money was held and volunteered in his cross-examination that the existence of the fund was not disclosed to Mr Dixon before his appointment.
I now turn to the evidence as to what occurred during the course of the mediation on
24 April 2019, which is not disputed. Mr Wu’s evidence in chief as to his exchanges with Mr Dixon was:
36. The text messages I exchanged with the Liquidator were as follows:
10:12am (me to Liquidator): Hi Stephen, Can you please confirm that your fees for being appointed as liquidator for VPPL will be capped at $50,000 plus out of pocket disbursements and GST provided that you will not be involved in litigation in relation to the liquidation?
I'm in a mediation of the VPPL matter at the moment so your prompt response would be good.
Liquidator to me: David I confirm that I will charge $50,000 plus any out of pockets plus GST, I will fix this at this sum, it will only change if litigation is pursued against me only thanks Stephen
me to Liquidator: Can you also confirm whether you will distribute the unsold lots to the shareholders (as opposed to sale) without the need for court approval if majority of shareholders agree to this course
Liquidator to me: Yes I will, as long as shareholders agree
11:57am (me to Liquidator): Stephen, can you cap your out of pocket disbursements of the liquidation assuming that there will not be a challenge to your decisions by the shareholders? If so, what is the cap?
Liquidator to me: Happy to cap at $5,000, in case of legal fees, otherwise $1,000
[3:01 pm] (me to Liquidator): Thanks Stephen. Can you please send me an email confirming the capping of your fees and disbursements and the in specie distribution with shareholder approval? My email is [email protected]. Please let me know when you’ve sent the email as I’m waiting on it to settle the VPPL dispute
Liquidator to me: I will send it now
A copy of this text message exchange is at pages 103 of DW-1.
37. A few hours later, I received an email from the Liquidator which stated (emphasis added):
David
I refer to your call earlier this afternoon.
I confirm I am willing to limit my professional costs to $50,000 plus gst and disbursements to $5,000 for legal and other out of pocket expenses. This will only change if l am litigated against personally.
l am also willing to agree to an in specie distribution to the shareholders of the assets on the basis of their consent to same.
Please call if you need to clarify anything.
Thanks and Regards
A copy of the email from the Liquidator dated 24 April 2018 is at pages 108 of DW-1.
What is in issue is whether this was misleading or deceptive or unconscionable conduct and whether Mr Wu’s evidence that he relied on this advice, together with the earlier statements of the fee made by Mr Dixon, in his decision-making to agree in principle to the settlement that was negotiated at the mediation and which included an obligation to the effect that Mr Wu and Austhome must indemnify the company for liquidation costs in excess of $60,000 plus GST, which reliance continued until the terms of the settlement were documented and signed by the parties in the form of the Deed on 29 August 2019.
It took some time for the parties to document the settlement that was discussed at the mediation but which was not agreed to in principle until 9 May 2019. The solicitors exchanged drafts of a deed of settlement until resolving its final form in early August 2019. It was signed on
29 August 2019. Clause 2 of the Deed provides that within three business days of execution, Mr Wu will issue a notice to each of the other directors to attend a meeting for the purpose of making a declaration of solvency in accordance with s 494 of the Corporations Act and to nominate one of their number to lodge that document as required by s 494(3)(b). It further provides that within three business days of the declaration of solvency having been lodged with ASIC, the members will meet for the purpose of considering and voting upon a special resolution in accordance with s 491 that the company be wound up voluntarily and that Mr Dixon be appointed as the liquidator pursuant to s 495. Those steps were taken. The resolution was passed, and Mr Dixon was appointed on 23 October 2019.
All of that may be accepted, indeed one might consider that this was a matter of good professional conduct without the Code, but it does not undermine the basis that Mr Dixon in this particular case calculated his fee and whether, objectively, that was reasonable. It must not be overlooked that s 4 of the ACL operates only as to require Mr Dixon to adduce evidence as to what were his reasonable grounds and that the onus falls on the cross-claimants to prove that Mr Dixon did not have reasonable grounds to make the calculation based on the information as supplied to him. They did not call expert evidence as to reasonable, prudent or accepted professional practice amongst insolvency practitioners at the time as to what, if anything, further should have been done. The reliance that they place on the general provisions of the Code does not answer the reasonableness question in the particular circumstances of this case.
The other is that in response to the invitation contained in the final paragraph of the memorandum of 1 August 2018, Mr Dixon should have sought further information from Mr Scott. I reject that submission. Whilst it was open to Mr Dixon to seek further information, his explanation, which I accept, is that he did not consider it necessary to do so in that he believed, and I find reasonably, that all material facts relevant to his estimate of likely costs had been disclosed in the memorandum. Mr Dixon was provided with a detailed memorandum from a competent solicitor which he was entitled to assume set out all material facts relevant to the question asked. That he did so is further evidence adduced as to his reasonable grounds for confirming his earlier advised fee.
The issue is, based on the entirety of the evidence relevant to the matters relied on by Mr Dixon in calculating the fee, whether I am satisfied first that Mr Dixon relied on this material, and I most certainly am, and secondly whether those facts, at the time of making of each of the representations, were: “sufficient to induce in the mind of a reasonable person a basis for making the representation, which is to be assessed objectively and not merely by reference to the maker’s subjective state of mind”: Australian Competition and Consumer Commission v ACM Group Ltd (No 2) [2018] FCA 1115 at [173], Griffiths J.
Based on my findings as to the matters discussed between Mr Dixon and Mr Wu, the material facts that I have found were known to Mr Wu and which were not disclosed to Mr Dixon, the methodology of the calculation and the formal nature of the request to provide a fee estimate as set out in the memorandum of 1 August 2018 with its attachments, I am satisfied that Mr Dixon has adduced evidence of his reasonable grounds for calculating and providing the fee estimate. And I am further satisfied that the cross-claimants have not discharged the onus of establishing that reasonable grounds did not exist at the relevant times.
In reaching that conclusion, I should add that I reject the submission made by Mr Currie to the effect that Mr Dixon is confined by the terms of the pleadings to the two particulars pleaded to paragraph 9 of the second further amended defence to the cross-claim. That submission overlooks where the ultimate onus lies: Mr Dixon does not carry the onus to prove that he had reasonable grounds for making the remuneration representations: s 4(3)(b). Further, no objection was made by Mr Currie to adducing all of the evidence of reasonable grounds relied upon by Mr Dixon and as his obligation was limited to adducing evidence, it was not necessary to plead paragraph 9 in the way that it was.
The submissions of Mr Currie proceed only by reference to the contention that Mr Dixon failed to establish reasonable grounds for making the remuneration representations, with the consequence that the deeming effect of s 4 is sufficient to establish misleading or deceptive conduct on the cross-claim. Given my findings, it is not necessary that I decide that point although I observe that there is authority (pursuant to the predecessor provision) to the effect that the phrase “is taken… to be misleading” does not deem a representation as to a future matter to be misleading or deceptive conduct contrary to the statutory mandate.: Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189 at 205-206, Lee J (Neaves and Burchett JJ not deciding); Australian Competition and Consumer Commission v Henry Kaye and National Investment Institute Pty Ltd [2004] FCA 1363 at [133]-[135], Kenny J.
Properly understood, the pleaded case of the cross-claimants is not confined to reliance on the effect of s 4 of the ACL, although the submissions of Mr Currie did not emphasise the distinction that is drawn. The second aspect to the case is that by making the remuneration representations, Mr Dixon engaged in conduct that was misleading or deceptive or likely to mislead or deceive and that “further or alternatively” the remuneration representations were made with respect to a future matter within the meaning of s 4. This invites close attention to all of the conduct of Mr Dixon and to the relevant circumstances viewed objectively as a whole: Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 at [109], McHugh J.
As Hayne J has explained in Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435; [2013] HCA 1 at [92]-[94], one must focus on the conduct that is said to be misleading or deceptive:
Much more often than not, the simpler the description of the conduct that is said to be misleading or deceptive or likely to be so, the easier it will be to focus upon whether that conduct has the requisite character It will often be possible to identify the relevant conduct as the making of one or more representations, but it is necessary to bear in mind that s 52 was not confined to the prohibition of misrepresentations. It follows that a claim of contravention of s 52 need not be pleaded or argued by reference to the making of some representation. “It suffices that [the conduct] leads or is likely to lead into error”.
Melding the two issues of conduct and characterisation is apt to distract and confuse. Especially is that so if the melding is achieved by using the language of misrepresentation to give a single composite description of both the conduct and its character. Describing the alleged misleading or deceptive conduct as “making a misrepresentation” is distracting and confusing for at least three reasons.
First, it paraphrases the statutory words in language redolent of a body of legal principle which is not engaged. The dangers of doing that are self-evident.
(Footnotes omitted.)
In this case it is necessary to distinguish between conduct that is considered at a high level of analysis, such as where it concerns the general public and conduct that is focused upon an individual or an identified small group of individuals. The analysis proceeds in the manner summarised by O’Bryan J in Australian Securities and Investments Commission v Dover Financial Advisers Pty Ltd (2019) 140 ACSR 561; [2019] FCA 1932 at [99]:
In assessing whether conduct is likely to mislead or deceive, the courts have distinguished between two broad categories of conduct, being conduct that is directed to the public generally or a section of the public, and conduct that is directed to an identified individual. As explained by the High Court in Campomar, the question whether conduct in the former category is likely to mislead or deceive has to be approached at a level of abstraction, where the Court must consider the likely characteristics of the persons who comprise the relevant class of persons to whom the conduct is directed and consider the likely effect of the conduct on ordinary or reasonable members of the class, disregarding reactions that might be regarded as extreme or fanciful (at [101]-[105]). In Google Inc v ACCC (2013) 249 CLR 435, French CJ and Crennan and Kiefel JJ (as her Honour then was) confirmed that, in assessing the effect of conduct on a class of persons such as consumers who may range from the gullible to the astute, the Court must consider whether the “ordinary” or “reasonable” members of that class would be misled or deceived (at [7]). In the case of conduct directed to an identified individual, it is unnecessary to approach the question at an abstract level; the Court is able to assess whether the conduct is likely to mislead or deceive in light of the objective circumstances, including the known characteristics of the individual concerned. However, in both cases, the relevant question is objective: whether the conduct has a sufficient tendency to induce error. Even in the case of an express representation to an identified individual, it is not necessary (for the purposes of establishing liability) to show that the individual was in fact misled...
I do not read the final sentence in that paragraph as displacing the necessity to establish that, objectively assessed, the impugned conduct in this case induced or was capable of inducing error in Mr Wu as this is an essential element to establish liability: see for example Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [39] and [49], French CJ, Crennan, Bell and Keane JJ. The conduct of Mr Dixon viewed objectively “generally requires consideration of whether the impugned conduct viewed as a whole has a tendency to lead a person into error”: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 at [25], French CJ.
I am not satisfied on the facts that I have found that the remuneration representations, viewed individually on each occasion that they were made, or collectively, were objectively misleading or deceptive in that they did not have a tendency to, nor did they in fact, lead Mr Wu into relevant error: specifically a belief that all of the tasks required to be performed in the administration of VPPL would be within the scope of the advised fee. Mr Wu did not disclose all material facts that were known to him as relevant to the fee assessment when he met with Mr Dixon on 16 April 2018. He did not at any time between that meeting and 24 April 2019 disclose material facts of which he was aware from time to time as relevant to the likely scope of work to be undertaken and relevant to the fee assessment. Some matters were discussed at a meeting between Mr Dixon and representatives of the majority shareholders (at which Mr Wu was not present) on 12 November 2018, however as I have explained, I do not place material weight on this evidence in my overall assessment of all of the evidence. Mr Wu’s solicitor was copied into the email from Mr Scott to Mr Dixon of 3 August 2018 which attached a memorandum of 1 August 2018. Mr Wu became aware of the content of that memorandum on or about that day. The disclosure of relevant facts in that memorandum was incomplete, and I find that Mr Wu knew it was incomplete. The extent of the matters relevant to the conduct of the liquidation, and therefore the assessment of the fee, that were not known to Mr Dixon is as set out in his correspondence to the shareholders sent after his appointment on
20 January 2020. In accordance with my earlier findings, I am satisfied that Mr Dixon truthfully summarised the material matters that were not disclosed to him before he advised his fee in April 2018 and confirmed it in August 2018 and April 2019. Each is clearly relevant to scope of the work required to be undertaken and the calculation of his remuneration and estimate of likely disbursements.I find that the matters not disclosed were not only known to Mr Wu, but that he was aware that they were important, which is evidenced by the detailed manner in which Mr Wu addressed the issues in his memorandum prepared on or about 20 January 2020 and which he repeated in his memorandum prepared for the meeting of 10 February 2020. It follows that objectively assessed, in all of the circumstances, the making of the remuneration representations either singularly or collectively throughout the relevant period, was not misleading or deceptive conduct on the part of Mr Dixon for the reason that Mr Wu knew that the fee estimate had been calculated on a limited set of information, he knew that the tasks required to be undertaken by Mr Dixon were materially greater in extent and complexity than he disclosed and that in consequence he was not induced into error in thinking and believing that all of the required tasks were capable of being performed by Mr Dixon at a remuneration fee of no more than $50,000 plus disbursements and GST.
For these reasons, the claim for misleading or deceptive conduct fails.
Separately, there is the unconscionable conduct claim pursuant to s 21 of the ACL. The amended statement of cross-claim pleads the claim as follows:
21. Further or alternatively, when making the Remuneration Representations on 24 April 2019, Dixon was aware that Wu and Austhome:
(a) were engaged in litigation with the Majority Shareholders regarding (among other things) the management of VPPL (Shareholder Dispute);
(b) were in negotiations with the Majority Shareholders regarding the potential resolution of the Shareholder Dispute;
(c) were considering the appointment of Dixon as liquidator of VPPL as part of a potential resolution to the Shareholder Dispute;
(d) would rely upon the Remuneration Representations in negotiating and settling the Shareholder Dispute.
22. Dixon’s conduct as pleaded in paragraphs 5 and 6 above was conduct engaged in by Dixon in trade or commerce in connection with the supply or possible supply of services to Wu, Austhome and/or VPPL within the meaning of section 21 of the Australian Consumer Law.
23. By reason of the matters pleaded in paragraphs 21 and 22 above, Dixon’s conduct as pleaded in paragraph 6 above was unconscionable within the meaning of section 21 of the Australian Consumer Law.
24. By reason of the matters pleaded in paragraph 20 above, Dixon contravened section 21 of the Australian Consumer Law (Dixon Unconscionable Conduct Contravention).
It is to be noticed that this claim turns only upon the representations made by Mr Dixon on
24 April 2019 and the knowledge attributed to him at that time. The defence to this aspect of the cross-claim consists of a series of denials and repetition of the contentions that Mr Dixon made the remuneration representations in reliance upon the information provided by Mr Wu and the consequences which flow therefrom.Section 21 of the ACL provides:
Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a)the supply or possible supply of goods or services to a person; or
(b)the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
(2)This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a)institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b)refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3)For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
Although it is not admitted that the conduct of Mr Dixon was in connection with the supply or possible supply of services, clearly it was: the prospective professional services of Mr Dixon and his firm in the conduct of a contemplated liquidation. The statutory concept of unconscionable conduct within the meaning of s 21 is not, unlike s 20, limited to the unwritten law: Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133; [2021] FCAFC 40 at [78]-[79] and [83], Allsop CJ, Besanko and McKerracher JJ. Consideration of this claim requires analysis of all of the relevant connected circumstances and is evaluative. As Allsop CJ has recently explained in Good Living Company Pty Ltd v Kingsmede Pty Ltd (2021) 284 FCR 424; [2021] FCAFC 33, the “technique of equity” is employed, and it is not necessary to identify a pre-existing disability or vulnerability that is exploited: [2] and [7]. At [6], his Honour repeated the reasoning of the Full Court in Unique International College Pty Ltd v Australian Competition and Consumer Commission (2018) 266 FCR 631; [2018] FCAFC 155 (Unique International) at [155] where he, Middleton and Mortimer JJ said:
…To behave unconscionably should be seen, as part of its essential conception, as serious, often involving dishonesty, predation, exploitation, sharp practice, unfairness of a significant order, a lack of good faith, or the exercise of economic power in a way worthy of criticism. None of these terms is definitional. The Shorter Oxford Dictionary on Historical Principles (1973) gives various definitions including “having no conscience, irreconcilable with what is right or reasonable”. The Macquarie Dictionary (1985) gives the definition “unreasonably excessive; not in accordance with what is just or reasonable”. (The search for an easy aphorism to substitute for the words chosen by Parliament (unconscionable conduct) should not, however, be encouraged: see Paciocco at 266 [262]). These are descriptions and expressions of the kinds of behaviour that, viewed in all the circumstances, may lead to an articulated evaluation (and criticism) of unconscionability. It is a serious conclusion to be drawn about the conduct of a businessperson or enterprise. It is a conclusion that does the subject of the evaluation no credit. This is because he, she or it has, in a human sense, acted against conscience. The level of seriousness and the gravity of the matters alleged will depend on the circumstances. Courts are generally aware of the character of a finding of unconscionable conduct and take that into account in determining whether an applicant has discharged its civil burden of proof. We see no reason to doubt the primary judge was conscious of this: so much is apparent from some of the passages in his Honour’s reasons to which we have earlier referred. We reject Unique’s invitation to make some broader statement of principle about Briginshaw in the context of alleged contraventions of s 21…
Mr Currie submits that a consideration of all of the relevant circumstances requires the conclusion that the conduct of Mr Dixon on 24 April 2019 “offended or was against the norms of acceptable commercial behaviour” so as to justify the label of unconscionable conduct within the meaning of the statutory provision. He emphasises three particular matters.
First, that Mr Dixon knew that Mr Wu and Austhome would rely upon his representations in negotiating and resolving the various disputes with the majority shareholders. In evidence Mr Dixon denied this. When questioned about this evidence in cross-examination, Mr Dixon accepted that he knew that the parties were involved in litigation, but qualified this answer by observing that his understanding was that the deed of settlement as then disclosed to him would “settle everything”. When pressed further, he accepted that he knew Mr Wu and Austhome were in negotiations with the majority shareholders to potentially resolve their disputes.
He accepted that he knew that a component of the proposed resolution was that the members would resolve to wind up VPPL, and thereupon that he would most likely be appointed as the liquidator. He emphatically denied the direct proposition, put in the form of a question that he was aware on 24 April 2019 that Mr Wu and Austhome would rely upon his representations in negotiating and settling the shareholder dispute, answering: “No. No one told me that”. I do not accept that evidence. It is certainly the case that Mr Dixon was not informed about the intention of the parties to include a liquidation Costs Cap in their settlement agreement and nor was he informed about the indemnity required of Mr Wu and Austhome in the event that the cap was exceeded. These matters were not expressed in the earlier deed of settlement attached to the memorandum of 1 August 2018 and there is no suggestion that Mr Wu disclosed these facts to Mr Dixon subsequently.
However, it is clearly the case that Mr Dixon was aware that Mr Wu made contact with him on 24 April 2019 during the course of a mediation with the majority shareholders and about their disputes. It follows that Mr Dixon was aware that it was at least likely that his response to
Mr Wu would be relied upon in the context of negotiating a settlement of those disputes.When I raised these matters with Ms Pierce during her closing address, she accepted that her strongest submission on this point is that I should find that Mr Dixon did not know that Mr Wu intended to bind himself and Austhome “to a fairly open-ended indemnity”. Conformably with my reasoning, I so find. But that does not result in rejection of the more general reliance proposition in support of the claim of unconscionable conduct.
Secondly, Mr Currie submits that the failure of Mr Dixon to follow the guidance contained in the Code is supportive of a conclusion of unconscionable conduct. I have found that non-compliance with the guide to good practice as relevantly set out in the Code does not undermine the basis on which Mr Dixon calculated his likely fee and disbursements and more so, does not affect the conclusion that he had a reasonable basis for doing so on 16 April 2018 and, as relevant to this claim, 24 April 2019. This is not a negligence case where the issue is whether Mr Dixon failed to exercise a reasonable degree of skill, care or competence in the way in which he calculated the fee. I accept the submission of Mr Currie that this case is not assisted by drawing fine distinctions between the concepts of fixing and capping fees. The text message that Mr Dixon sent to Mr Wu on 24 April 2019 employs direct language: “I will fix this at this sum” and the subsequent email confirms: “I am willing to limit my professional costs”. When cross-examined on this topic, Mr Dixon accepted that “a prudent and responsible insolvency practitioner”, if requested to give an estimate of fees, would first need to be satisfied that he or she “had all of the relevant information”. In retrospect, what is clear in this case is that Mr Dixon did not have all of the information relevant to the scope of the work that was likely to be required upon his appointment as liquidator for the reason that Mr Wu did not make full disclosure of all material matters that were known to him. The analysis is not, however, retrospective.
It must not be overlooked that this claim is limited to the written representations made by text message and email sent and received between Mr Dixon and Mr Wu on 24 April 2019. The primary source of relevant information that Mr Dixon relied upon remained the memorandum of 1 August 2018. Mr Dixon gave evidence that he then believed that the scope of the required work was as stated in that memorandum. He received no information to the contrary between 1 August 2018 and 24 April 2019. In the particular circumstances of this case, any failure by Mr Dixon to apply the good practice guidelines of the Code is not evidence from which one may find that he acted unconscionably.
The third matter relied upon is advice from Mr Dixon to Mr Wu at a meeting on
21 January 2020 at which Mr Wu gave evidence that Mr Dixon said words to the effect that he would not resign as liquidator but “he would find a way to deal with the liquidation costs so I would not have to carry the cost of the indemnity”. Mr Dixon does not deny this though he does deny that he was requested to resign. Mr Wu emphasised this conversation several times in cross-examination and was not directly challenged on it, save for the resignation request, which he adamantly maintained. This is certainly evidence that Mr Dixon, after the event, felt at least a degree of sympathy for the position in which Mr Wu had found himself. However, this hindsight reflection of Mr Dixon is not evidence that in the circumstances as they were known to him on 24 April 2019, his conduct was contrary to standards of what was right or reasonable so as to be unconscionable.This claim and the submissions in support of it must be considered in the light of my findings that Mr Wu did not disclose material matters that were known to him as relevant to the fee assessment, the memorandum of 1 August 2018 did not disclose all relevant facts and
Mr Dixon, in consequence, calculated and estimated his professional fee and likely disbursements based on his overall understanding that the matters in dispute between the shareholders would be resolved by a deed of settlement and that his task, if appointed as liquidator, would be relatively straightforward. Understood in this way, I am not satisfied that the cross-claimants have established to the civil standard that the conduct of Mr Dixon was unconscionable as a serious departure from acceptable standards of commercial behaviour, and it most certainly does not attract any of the characterisations exampled in Unique International at [155]. Accordingly, this claim fails.For these reasons, the cross-claim must be dismissed.
CONCLUSION AND ORDERS
On Mr Dixon’s application for judicial advice, the appropriate remedy is a declaration as to the proper meaning of the phrase “the costs of the liquidation” pursuant to the Deed. Thereafter, as foreshadowed in closing submissions, it would seem appropriate to make further orders appointing a registrar of this Court to act as a referee to inquire and report as to which particular claims for remuneration and disbursements are costs of the liquidation within the meaning of the Deed and which are not. The parties should have an opportunity, upon considering these reasons, to make further submissions as to the form of those orders together with any consequential orders, including as to costs. The cross-claim should be dismissed.
Accordingly, I declare and order as follows:
1.Upon a proper construction of the deed of settlement and release dated 29 August 2019 made between:
(a)Victoria Project Pty Ltd (ACN 142 329 155);
(b)Xin Zhang;
(c)Xue Bin Wu;
(d)Wei Jing Lin;
(e)Fei Wen;
(f)Yu Zheng;
(g)Austhome Group Pty Ltd (ACN 091 589 089);
(h)Rising Fortune Pty Ltd (ACN 141 982 738);
(i)Jia Wen Su;
(j)Ling & Yu Pty Ltd (ACN 126 062 833);
(k)Australia Morning Pty Ltd (ACN 126 644 086));
(l)Winston & Glen Zheng Pty Ltd (ACN 141 136 656); and
(m)Jia Feng Pty Ltd (ACN 148 196 196);
the costs of the liquidation of Victoria Project Pty Ltd (the company) at clauses 2(j), (k) and (l) is limited to the remuneration, costs and expenses of the liquidator and the costs of any third party engaged by the liquidator whether for or on behalf of the company or in his capacity as liquidator incurred in consequence of the appointment of Mr Stephen Robert Dixon as liquidator of the company on 23 October 2019 and does not include expenses, costs or other liabilities that the company would have incurred in any event in the conduct of its business as a property developer and landlord if a liquidator not been appointed even where such expenses are incurred during the period of the liquidation.
2.The cross-claim is dismissed.
3.The matter is adjourned for further submissions or hearing, if necessary, of all questions of consequential orders and relief, including costs.
4.The parties have leave to file submissions limited to 3 pages as to consequential orders and relief, including costs, by 4pm on 15 February 2023.
5.Subject to any further order of the Court, the determination of all consequential orders will proceed on the papers.
I certify that the preceding one hundred and sixty-three (163) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine. Associate:
Dated: 1 February 2023
SCHEDULE OF PARTIES
VID 105 of 2021 Defendants
Fourth Defendant:
RISING FORTUNE PTY LTD (ACN 141 982 738)
Fifth Defendant:
JIA WEN SU
Sixth Defendant:
AUSTRALIA MORNING PTY LTD (ACN 126 644 086)
Seventh Defendant:
JIA FENG PTY LTD (ACN 148 196 196)
Eighth Defendant:
WINSTON & GLEN ZHANG PTY LTD (ACN 141 136 656)
Cross-Claimants
Second Cross-Claimant:
AUSTHOME GROUP PTY LTD (ACN 091 589 089)
Cross-Defendants
Second Cross-Defendant
HAMILTON MURPHY ADVISORY PTY LTD
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