Djordjevich v Rohrt
[2022] VSCA 84
•10 May 2022
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCI 2021 0053
S EAPCI 2021 0071
| DAVID DJORDJEVICH | Applicant |
| v | |
| RICHARD TRYGVE ROHRT (in his capacity as liquidator of ACN 091 518 302 PTY LTD (in liq) ACN 091 518 302) | Respondent |
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| JUDGES: | KENNEDY and WHELAN JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 21 March 2022 |
| DATE OF JUDGMENT: | 10 May 2022 |
| MEDIUM NEUTRAL CITATION: | [2022] VSCA 84 |
| JUDGMENTS APPEALED FROM: | [2021] VSC 178 (Delany J) Djordjevich v Rohrt [No 2] (Unreported, Supreme Court of Victoria, Delany J, 3 June 2021) |
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CORPORATIONS – Insolvency – Application for investigation into liquidation – Court’s powers to order inquiry – Grounds for appellate intervention – Whether judge wrong to adopt ‘three-stage process’ under current provisions – Whether also wrong to consider public interest factors – Whether new matters raised on appeal – New matters without substance in any event – Corporations Act 2001 (Cth), sch 2, cls 90-5, 90-10, 90-15, 90-20, s 536 (repealed) – ASIC vWily (2019) 137 ACSR 1, BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558, Hall v Poolman (2009) 75 NSWLR 99, considered – House v The King (1936) 55 CLR 499, applied – Leave to appeal granted on grounds 3 and 4 only – Appeal dismissed.
COSTS – Order made that costs to follow event on standard basis up to 15 December 2020 and thereafter on an indemnity basis – Application seeking leave to appeal costs order – No reviewable error in costs decision – Leave to appeal costs order refused.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr JG Levine | Maciel Pizzorno & Co |
| For the Respondent | Mr S Maiden QC with Ms C Gobbo | Mills Oakley |
TABLE OF CONTENTS
Introduction
The relevant legislation: the current provisions and their predecessor
The procedure under section 536 of the Act
The new matters raised on the application for leave to appeal
Grounds for appellate intervention
Relevant authorities on the new provisions
Nature of the applicant’s application and the course the applicant adopted
Consideration of proposed grounds 3 and 4 and the new issues raised
The Pinnacle proceeding
The Reasons
Other proposed grounds of appeal
Consideration of remaining proposed grounds of appeal
Conclusion
Application for leave to appeal the costs order
KENNEDY JA
WHELAN JA:[1]
Introduction
[1]The President determined this to be a matter in which two Judges of Appeal constitute and may exercise all the jurisdiction and powers of the Court of Appeal pursuant to s 11(1A) of the Supreme Court Act 1986.
The applicant instituted this proceeding seeking an order that the Court conduct an investigation into the liquidation of a company, ACN 091 518 302 Pty Ltd, formerly named Pinnacle Investments Pty Ltd (‘Pinnacle’), as well as orders that the liquidator, Mr Rohrt (the respondent), cease being the liquidator of that company, and that the respondent pay compensation.
The respondent’s administration of Pinnacle is Pinnacle’s second liquidation. It was placed in liquidation for the first time in 2003. That liquidation ended in 2009 and the company was deregistered in 2010.
The applicant was a minority shareholder in Pinnacle, and claims to be a creditor. He successfully applied for Pinnacle to be reinstated in 2016. The respondent was appointed as liquidator.
The applicant’s object in having the company reinstated was to pursue a cause of action he believed that the company had against Westpac Banking Corporation (‘Westpac’) as the successor in law of St George Bank Limited (‘St George’). He and his legal advisors had discussed this objective with the respondent prior to the company’s reinstatement and the respondent’s appointment as liquidator.
The process directed at enabling the applicant to pursue the cause of action against Westpac did not go well. The applicant and his legal advisers became dissatisfied with the approach of the respondent and his legal advisers.
A generally indorsed writ was issued on the respondent’s instructions naming as defendants Westpac and two solicitors who had formerly acted (or purported to act) for Pinnacle. The writ was issued on 16 August 2017, the day before what was believed to be the expiry of a relevant limitation period. The writ was never served.
Because of his dissatisfaction with the respondent, the applicant sought leave to continue the proceeding against Westpac and others in the name of the company as a derivative proceeding. That application was unsuccessful before Connock J.[2]
[2]In the matter of ACN 091 518 302 Pty Ltd (in liq) (formerly Pinnacle Investments Pty Ltd) [2019] VSC 699 (the ‘derivative judgment’).
Extensions of time for service of the writ were obtained until 10 February 2020, when it became stale. By then, this proceeding had been instituted.
In this proceeding the applicant made many complaints about the respondent’s administration.
The proceeding was heard and determined in the Trial Division before Delany J.[3] He reviewed the conduct of the liquidation in detail, based upon affidavits which had been filed and the documentary record. He did not permit cross-examination. In his judgment, the trial judge said that after considering all the evidence and the submissions, he was in no doubt that the application for an inquiry must be refused, and he dismissed the proceeding.
[3]Djordjevich v Rohrt [2021] VSC 178 (‘Reasons’).
The applicant now seeks leave to appeal from the trial judge’s order made on 15 April 2021 dismissing the proceeding, and, in a separate application, seeks leave to appeal from an order the trial judge made as to costs.[4]
[4]The order as to costs was authenticated on 27 May 2021. The order purports to have been made on 15 April 2021. The ruling concerning costs is dated 3 June 2021. No point about the disconformity in dates was taken.
In the hearing before us, counsel for the applicant focused his submissions on two new matters. They each concerned the construction of the relevant provisions of the Corporations Act 2001 (Cth) (the ‘Act’). They relied upon the contrast between the provisions under which the application had been made, and a prior provision of the Act which those provisions had replaced. We explain below why we characterise these matters as ‘new’.
The relevant legislation: the current provisions and their predecessor
The legislation under which the application was made is contained in sub-div B of div 90 of pt 3 of sch 2 of the Act – The Insolvency Practice Schedule (Corporations).
The relevant provisions are as follows:
90-5 Court may inquire on own initiative
(1)The Court may, on its own initiative during proceedings before the Court, inquire into the external administration of a company.
…
90-10 Court may inquire on application of creditors etc.
(1)The Court may, on the application of a person mentioned in subsection (2), inquire into the external administration of a company.
(2)Each of the following persons may make an application for an inquiry:
(a)a person with a financial interest in the external administration of the company;
(b)an officer of the company;
(c)if the committee of inspection (if any) so resolves—a creditor, on behalf of the committee;
(d)ASIC.
…
90-15 Court may make orders in relation to external administration
Court may make orders
(1)The Court may make such orders as it thinks fit in relation to the external administration of a company.
Orders on own initiative or on application
(2)The Court may exercise the power under subsection (1):
(a)on its own initiative, during proceedings before the Court; or
(b)on application under section 90-20.
Examples of orders that may be made
(3)Without limiting subsection (1), those orders may include any one or more of the following:
(a)an order determining any question arising in the external administration of the company;
(b)an order that a person cease to be the external administrator of the company;
(c)an order that another registered liquidator be appointed as the external administrator of the company;
(d)an order in relation to the costs of an action (including court action) taken by the external administrator of the company or another person in relation to the external administration of the company;
(e)an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;
(f)an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.
Matters that may be taken into account
(4)Without limiting the matters which the Court may take into account when making orders, the Court may take into account:
(a)whether the liquidator has faithfully performed, or is faithfully performing, the liquidator’s duties; and
(b)whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and
(c)whether an action or failure to act by the liquidator is in compliance with an order of the Court; and
(d)whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and
(e)the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.
…
Orders to make good loss sustained because of a breach of duty
(6)Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:
(a)the external administrator is personally liable to make good some or all of the loss; and
(b)the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.
Section does not limit Court’s powers
(7)This section does not limit the Court’s powers under any other provision of this Act, or under any other law.
90-20 Application for Court order
(1)Each of the following persons may apply for an order under section 90-15:
(a)a person with a financial interest in the external administration of the company;
(b)if the committee of inspection (if any) so resolves—a creditor, on behalf of the committee;
(c)ASIC;
(d)an officer of the company;
(e)if the application is in relation to a company that is a friendly society within the meaning of the Life Insurance Act 1995 and which may be wound up voluntarily under subsection 180(2) of that Act—APRA.
What might be termed the ‘predecessor’ to the provisions set out above, was s 536 of the Act.[5]
[5]Section 536 of the Act was repealed by item 177 of sch 2, pt 2 to the Insolvency Law Reform Act 2016 (Cth). Section 536 was replaced by ss 90-10 and 90-15 of the Insolvency Practice Schedule (Corporations) being sch 2 of the Act, commencing 1 September 2017.
Section 536 of the Act relevantly provided:
536 Supervision of liquidators
…
(1) Where:
(a)it appears to the Court or to ASIC that a liquidator has not faithfully performed or is not faithfully performing his or her duties or has not observed or is not observing:
(i) a requirement of the Court; or
(ii)a requirement of this Act, of the regulations or of the rules; or
(b)a complaint is made to the Court or to ASIC by any person with respect to the conduct of a liquidator in connection with the performance of his or her duties;
the Court or ASIC, as the case may be, may inquire into the matter and, where the Court or ASIC so inquires, the Court may take such action as it thinks fit.
The procedure under section 536 of the Act
It was well settled that an application under s 536 of the Act involved a three-stage process. Sloss J described that three-stage process in Westpoint Corporation Pty Ltd (in liq) v Yeo (‘Westpoint’).[6] She relied in particular upon the analysis of the provision by the New South Wales Court of Appeal in Hall v Poolman (‘Hall’),[7] which had been summarised by Barrett J in the New South Wales Supreme Court in BL & GY International Co Ltd v Hypec Electronics Pty Ltd (‘BL & GY International’).[8]
[6](2018) 57 VR 652, 681–2 [301]; [2018] VSC 705 (‘Westpoint’).
[7](2009) 75 NSWLR 99; [2009] NSWCA 64 (‘Hall’).
[8](2010) 79 ACSR 558, 569–70 [42]–[46]; [2010] NSWSC 959 (‘BL & GY International’).
At the first stage the court decided whether an inquiry into the liquidator’s conduct was warranted. There did not need to be a prima facie case of lack of faithful performance or observance of requirements, but the applicant did need to establish something about the liquidator’s conduct that constituted a sufficient basis for ordering an inquiry.
The decision as to whether to conduct an inquiry was discretionary. Brereton J in the New South Wales Supreme Court in ASIC vWily (‘Wily’) cited the relevant authorities.[9] One consequence of that was that appellate intervention was subject to the principles set out by the High Court in House v The King.[10]
[9](2019) 137 ACSR 1, 9 [37]; [2019] NSWSC 521 (‘Wily’).
[10](1936) 55 CLR 499, 504–5; cited and applied in this context in Hall (2009) 75 NSWLR 99, 131–2 [110]–[114]; [2009] NSWCA 64.
If the court determined to order an inquiry, the proceeding then moved to the second stage, which was the conduct of the inquiry itself. This second stage was required to be structured as an adversarial proceeding. It involved the court making a judgment in relation to the liquidator’s conduct.
If the court determined that the liquidator’s conduct was in some relevant way deficient, the court then embarked on the third stage which involved determining whether to make an order. The court’s power was to ‘take such action’ as to the court thought fit. Under s 536 the court could not take substantive action except as a consequence of an inquiry.
The process provided for in s 536 was directed at the regulation, supervision, discipline and correction of liquidators; the relevant interest to be served being the public interest and not, in any direct way, the ‘vindication of private rights’.[11] Barrett J in BL & GY International traced the history of s 536 and explained why this was so.[12] This consideration was potentially relevant to the exercise of the court’s discretion under s 536 as to whether to conduct an inquiry, as Brereton J explained in Wily.[13]
[11]Westpoint (2018) 57 VR 652, 676–8 [285]–[286]; [2018] VSC 705.
[12](2010) 79 ACSR 558, Appendix; [2010] NSWSC 959.
[13]Wily (2019) 137 ACSR 1, 10 [37]; [2019] NSWSC 521.
The new matters raised on the application for leave to appeal
In the application before him, the trial judge adopted the three-stage process. He also proceeded on the basis that public interest considerations were relevant to the exercise of the discretion as to whether to order an inquiry.[14]
[14]This latter aspect of his judgment was obiter, as addressed below.
Before us, the applicant contended that the trial judge had been wrong to proceed in the way in which he did in relation to those two matters. As we will demonstrate below, those were not contentions which had been advanced to the trial judge. They were advanced before us under proposed grounds of appeal 3 and 4, which are as follows:
3.The primary judge failed to construe Schedule 2 of the Corporations Act by reference to the text, purpose and content thereof.
4.The primary judge failed to provide proper reasons for his construction of Schedule 2 of the Corporations Act.
As to the adoption of the three-stage process, counsel for the applicant submitted before us that the legislation no longer required that there be an inquiry before making an order for compensation, as had been the case under s 536. Thus, it was submitted, the three-stage process which had been applicable under s 536 was no longer applicable. This meant that the judge had embarked upon an erroneous process. And, it was submitted, this had also led to additional errors. The judge had erroneously refused to allow cross-examination. After rejecting the application for an inquiry, he had dismissed the application for compensation in circumstances where that application was no longer contingent on the undertaking of an inquiry and ought to have been dealt with as a discrete and separate matter.
Anticipating a submission that the applicant had himself contended below that the three-stage process was applicable, it was submitted that the applicant had had to ‘accept’ the three-stage process after the judge had ruled that cross-examination would not be permitted.
As to the judge’s treatment of considerations concerning public interest and ‘vindication of private rights’, it was submitted that there was no legislative justification for the continued relevance of those considerations. It was submitted that the maintenance of those considerations was inconsistent with the power which the court had to order compensation which, under the provisions as they now apply, was no longer contingent on an order for, and the conduct of, an inquiry.
Grounds for appellate intervention
As indicated, under s 536 of the Act, appellate intervention was constrained by the principles set out by the High Court in House v The King. The respondent submitted that the position is the same under s 90-10. We agree.
The provision uses the word ‘may,’ and enables the court to make a choice (by reference to the relevant considerations) as to whether or not to hold an inquiry. Whether the inquiry is undertaken on the court’s own motion under s 90-5, or upon application under s 90-10, the inquiry is the court’s inquiry. The decision as to whether an inquiry should be held is discretionary under s 90-10, in the same way as it was discretionary under s 536. Before us, the applicant made no submission to the contrary.
The New South Wales Court of Appeal in Hall, addressed the principles in House v The King in the context of s 536 in the following terms:
Where what is at stake is the exercise of discretionary powers by a trial judge, the grounds for appellate intervention are found in a well-known passage in the judgment of Dixon J, Evatt J and McTiernan J in House v The King (1936) 55 CLR 499 at 504–505:
It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.[15]
[15]Hall (2009) 75 NSWLR 99, 131 [110]; [2009] NSWCA 64.
The Court of Appeal then referred to authorities concerning intervention on the basis that a result was unreasonable or plainly unjust, and continued:
The propositions that emerge from these cases include the following:
·An appellate court is not justified in substituting its own judgment for that of the primary judge unless it is clearly satisfied that the judgment of the primary judge was erroneous, as there is a strong presumption in favour of the correctness of the decision appealed from, so that the decision should be affirmed unless the court is satisfied that it is clearly wrong;
·An appellate court may reach the requisite degree of satisfaction that the discretion has been exercised wrongfully if there has been an error which consists of acting on a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts.[16]
[16]Hall (2009) 75 NSWLR 99, 131 [112]; [2009] NSWCA 64.
The applicant’s proposed grounds of appeal, with a few exceptions, substantially concern complaints as to factual findings or conclusions reached by the trial judge. The strong presumption in favour of the correctness of the trial judge’s decision, and the limited grounds upon which appellate intervention is warranted in relation to a decision of this kind, represent significant obstacles to success on many of the applicant’s proposed grounds. Proposed grounds 3 and 4 and the new submissions made in relation to them are the principal exceptions. They raise matters which, if accepted, would mean the judge had acted on a wrong principle and had allowed an irrelevant matter to guide or affect him.
In the circumstances, it is convenient to address proposed grounds 3 and 4, and the new submissions, first. To do so it is necessary to refer to some relevant authorities on the new provisions, to review the nature of the applicant’s application and the course which the applicant adopted before the trial judge, and to then consider proposed grounds 3 and 4 and the new issues raised.
Relevant authorities on the new provisions
A review of the relevant authorities on the provisions introduced by the Insolvency Practice Schedule (Corporations), replacing s 536 of the Act, may begin with Brereton J’s decisions in Wily[17] and In the matter of Colombia Private Holdings Pty Ltd and other Companies (‘Columbia’).[18]
[17](2019) 137 ACSR 1; [2019] NSWSC 521.
[18][2017] NSWSC 1859 (‘Columbia’).
Wily was decided under s 536 of the Act. The case was argued in September 2017, but the decision was not handed down until May 2019. Although the new provisions commenced on 1 September 2017, the relevant transitional provisions operated in such a way that s 536 applied to the application. Brereton J gave a detailed exposition of the three-stage process under s 536, where orders could be made only as a consequence of an inquiry.[19] Shortly after hearing the application in Wily (but before deciding it), Brereton J heard and determined an application to replace a liquidator, who was elderly and in poor health, in Columbia. That application was brought under s 90-15. The matter was not straightforward because specific provisions which had existed in the Act concerning replacement of a liquidator had been repealed, and it was accordingly necessary to rely on the broad power in s 90-15. In the course of dealing with that matter, Brereton J described s 90-15 as providing a ‘plenary power’.[20] He said that the exercise of this ‘plenary power’ is ‘not confined to orders that can be made consequent upon an inquiry under s 90-5 or s 90-10’.[21]
[19]Wily (2019) 137 ACSR 1, 7–11 [27]–[38]; [2019] NSWSC 521.
[20]Columbia [2017] NSWSC 1859, [3].
[21]Ibid [4].
In late 2018, White J in the Federal Court decided Borg v de Vries (Trustee), in the matter of the Bankrupt Estate of David Morton Bertram (‘Borg v de Vries’).[22]
[22][2018] FCA 2116 (‘Borg v de Vries’).
Borg v de Vries concerned an application for replacement of trustees of a bankrupt’s estate. The application was brought pursuant to s 90-15 of the Insolvency Practice Schedule (Bankruptcy) which is in the same terms as the equivalent provision in the Insolvency Practice Schedule (Corporations). Under the previously applicable bankruptcy provision (s 179(1) of the Bankruptcy Act 1966 (Cth)), a two-stage approach was adopted, which was essentially the same as the three-stage approach adopted under s 536 of the Act. In bankruptcy, stages two and three were treated as one.
Dealing with the application made before him, White J observed as follows:
In contrast with the former s 179(1), s 90-15 does not require a two stage consideration. An applicant seeking the removal of a trustee does not have to establish proper grounds for an inquiry. The power to remove and replace is not made subject to conditions such as proof of error, misfeasance, negligence or other poor conduct by a trustee.
Section 90-15 was introduced into the Bankruptcy Act by the Insolvency Law Reform Act 2016 (Cth) (the Law Reform Act). The effect of the Law Reform Act was, amongst other things, to create common rules applicable to personal and corporate insolvencies. It did so by inserting into the Corporations Act 2001 (Cth) and the Bankruptcy Act schedules with substantially common provisions. In the Bankruptcy Act, it is the Bankruptcy Schedule and in the Corporations Act, it is the Insolvency Practice Schedule (Corporations) (the Corporations Schedule). Section 90-15 in the Corporations Schedule is in common form with s 90-15 of the Bankruptcy Schedule.
…
Section 90-15 in the respective Insolvency Practice Schedules does not replicate exactly the former s 503 but it does, in substance, contemplate a liquidator or trustee, as the case may be, being removed “on cause shown”. That being so, some assistance as to the application of the powers of removal and replacement of a trustee in bankruptcy may be derived from the authorities concerning s 503 and its predecessors. Those authorities indicated that the power to remove and replace a liquidator was not confined to circumstances of demonstrated error or shortcomings by a liquidator. Instead the power was exercised by reference to the interests of the liquidation.[23]
[23]Ibid [24], [25] and [28] (the use of italics is as per the published judgment).
Section 90-15 was the subject of obiter consideration in the New South Wales Court of Appeal in Glenfyne International Holdings Ltd v Glenfyne Farms International AU Pty Ltd (‘Glenfyne’).[24]
[24](2019) 101 NSWLR 358; [2019] NSWCA 304 (‘Glenfyne’).
The issue before the Court of Appeal concerned the exercise of a casting vote at a creditors’ meeting. The case was decided under provisions of the legislation specifically governing the exercise of a casting vote, but obiter observations were made by the court concerning s 90-15. Bell P (with whom Bathurst CJ and Macfarlan JA agreed) referred to statements which had been made by the primary judge that some failure on the part of the liquidator to attend to their relevant duties should be found before an order ought to be made under s 90-15. Bell P, in obiter observations, did not agree, and cited with approval what White J had said in Borg v de Vries that an application for an order under s 90-15 did not require a two-stage consideration. Bell P went on to observe that it would be inappropriate to read into s 90-15 limitations which are not found in the express words.[25]
[25]Ibid [58]–[61].
The next decision of relevance is that of Charlesworth J in the Federal Court in ACN 153 364 419 Ltd (in liq) v GP No 1 Pty Ltd (in liq), in the matter of GP No 1 Pty Ltd (in liq) [No 3] (‘ACN 153’).[26] There, a creditor of a company in liquidation sought an inquiry under s 90-10. The proposed inquiry related to two issues, the fees and disbursements of the liquidator, and the liquidator’s treatment of a proof of debt lodged by the Australian Taxation Office.
[26][2020] FCA 694 (‘ACN 153’).
The application in that case sought an inquiry and specified the particular matters to be inquired into. The application also made a claim for financial relief and, again, specified particulars of the relief sought. Charlesworth J said that the claim for financial relief was ‘in the form of orders to be made at the conclusion of any investigation’.[27] There was also a claim for declaratory relief.[28]
[27]Ibid [33]–[35].
[28]Ibid [39].
Charlesworth J referred to the authorities which had been decided under s 536 in relation to the circumstances in which an inquiry would be ordered.[29] She then observed:
These observations apply equally to the power conferred by s 90.10 of Sch 2. Whilst the existence of some subject matter appearing to warrant an inquiry is no longer an express precondition to the exercise of the power, it will be a factor to be weighed in the Court’s discretion together with other considerations of the kind referred to by the Full Court in Hennesy.[30]
[29]Ibid [40]–[41].
[30]Ibid [42].
The reference to the Full Court in Hennesy, was a reference to Leslie, in the matter of the Aboriginal Councils and Associations Act 1976 v Hennesy,[31] where the Full Court of the Federal Court had held that an applicant for an inquiry had to show ‘a sufficient basis’ for making such an order, that there was then a discretion which the court had to exercise, and that among the relevant factors in the exercise of that discretion were the strength and nature of the allegations, any answers offered by the liquidator, other available remedies, the stage to which the liquidation had progressed, the likely amounts of money involved, the availability of funds to pay for any inquiry, the likely benefit to be derived from it, and the legitimate interest of the applicant in the outcome.[32]
[31][2001] FCA 371.
[32]Ibid [6].
Charlesworth J then observed that ‘like s 536’ an inquiry under s 90-10 ‘ordinarily’ involves three stages.[33]
[33]ACN 153 [2020] FCA 694, [43].
After considering the various matters raised by the applicant, Charlesworth J declined to order an inquiry. Amongst the considerations which she took into account was the fact that, as a matter of practical utility, she could not see that any benefit would ultimately flow to the company’s creditors, and that the applicant was essentially pursuing matters going to the vindication of its private rights.[34]
[34]Ibid [60]–[64].
The reported judgment ended with Charlesworth J’s conclusion that an inquiry would not be ordered and a statement that she would hear the parties as to costs.[35] From that it may be assumed that upon the determination not to order an inquiry, the other relief claimed fell away.
[35]Ibid [64]–[65].
Finally, reference should be made to a recent decision of Wigney J in the Federal Court in Shaw v The Official Trustee in Bankruptcy of the Australian Financial Security Authority [No 3] (‘Shaw’).[36]
[36][2021] FCA 1569 (‘Shaw’).
Before Wigney J was an application by a bankrupt (appearing in person) against his trustee. The application sought five orders, none of which involved the conduct of an inquiry, although specific reference was made to s 90-10 as well as s 90-15 and s 90-20.[37]
[37]Ibid [5] and [8].
Wigney J accepted that the court had jurisdiction to entertain the applicant’s claims for the orders which he sought. The trustee submitted that a two-stage process ought to be undertaken, in accordance with the practice which had existed under s 179 of the Bankruptcy Act, and which was essentially the same as the three-stage process under s 536 of the Act.
Mr Shaw’s attitude to this submission was not without ambiguity. It seems that he did not oppose that approach and approached the hearing on the basis that what was being undertaken was the first stage of a two-stage process whereby he was required to demonstrate that an order for an inquiry ought to be made. The judge observed that Mr Shaw’s application had not expressly sought an order for an inquiry, but that it had referred to s 90-10. The judge then said that ‘most of the orders sought’ by Mr Shaw appeared to have been sought under s 90-15.[38]
[38]Ibid [17]–[18].
The judge referred to the fact that s 90-15 was different in terms to the former provision of the Bankruptcy Act and that ss 90-10 and 90-15 do not expressly require a two-stage process. Citing Borg v de Vries, the judge observed that orders under s 90-15 may be made without the need for any inquiry.[39]
[39]Ibid [19]–[20].
Wigney J then observed:
It does not necessarily follow, however, that the Court cannot, or should not, approach some applications for orders pursuant to s 90-15 of the Schedule on the basis that, before embarking on a full hearing and consideration of a case involving allegations of breaches of duty against a trustee and claims that the trustee should compensate the estate for losses arising from those breaches, the Court must first be satisfied that there are grounds for conducting an inquiry into the administration of the bankrupt’s estate; that a two-stage process similar to that required under the former s 179 of the Bankruptcy Act is appropriate. Such an approach may be appropriate where the orders sought by the applicant are based on broad allegations of misfeasance, neglect or other error in the conduct of the administration of the estate by the trustee, particularly where those allegations effectively encompass almost every aspect of the administration of the estate.[40]
[40]Ibid [21].
Wigney J also said that ‘as a matter of principle’ the two-stage process may be appropriate so as not to unduly interfere with the day-to-day administration of a bankrupt estate.[41]
[41]Ibid [22].
In the case before him, Wigney J said that the approach to be adopted made little, if any, difference because, having been given a full opportunity to adduce his evidence and to make submissions, Mr Shaw had failed to demonstrate any misfeasance, neglect or other error in the conduct of the administration.[42]
[42]Ibid [24].
We are not bound by any of these single judge decisions, or by the obiter observations of the New South Wales Court of Appeal, but, with one qualification, we agree with the analysis in the decisions to which we have referred. In particular:
·We agree with Brereton J in Columbia, White J in Borg v de Vries and the Court of Appeal in Glenfyne that the Court’s power to make an order under s 90-15 is not confined to a circumstance where an inquiry has been ordered and undertaken under either s 90-5 or s 90-10. In this respect, the new provisions differ from s 536 of the Act.
·We agree with the observations of Charlesworth J in ACN 153 (reflecting those of White J in Borg v de Vries in the context of s 90-15) that when considering whether to exercise the power to order an inquiry under s 90-10, the considerations which were relevant under s 536 remain relevant. Although under s 90-10 the order is made on application, as opposed to s 90-5 where the order is made on the court’s own motion, the inquiry remains the court’s inquiry, and the power to order an inquiry is discretionary.
·Consistent with the approach of Charlesworth J, ordinarily, a court would not exercise its discretion to institute its own inquiry where what was sought was no more than the vindication of private rights and where no public interest purpose would be served by such an inquiry. The fact that an application is brought in order to vindicate private rights remains relevant to the exercise of the discretion to order an inquiry. Of course, the vindication of private rights may well be in the public interest in the circumstances of a particular case.[43]
·We agree with Charlesworth J in ACN 153 and Wigney J in Shaw that, if an applicant seeks an inquiry and orders consequent upon such an inquiry, reflecting what was the position under s 536, it is appropriate under s 90-10 and s 90-15 for the Court to proceed in that manner.
[43]Even under s 90-15 the specific requirement in s 90-15(4)(e) to consider the effect of any action or failure to act on public confidence in liquidators as a group reflects the continuing relevance of public interest considerations.
The qualification to which we have referred is that we do not express any view on Wigney J’s suggestion in Shaw that a staged process might be undertaken even if an applicant had applied under s 90-15 without seeking an inquiry, if his Honour’s observations are to be interpreted that way. We express no view on that possibility. It has not been addressed in submissions before us.
We turn then to the nature of the applicant’s application and the course he adopted in this case.
Nature of the applicant’s application and the course the applicant adopted
In the proceeding below, the applicant contended that the Court should adopt the three-stage process.
The proceeding began with an originating motion and an affidavit in support. The first order sought in the originating motion was as follows:
An order for the Supreme Court to conduct an investigation into the liquidation of [Pinnacle] pursuant to cl 90-10, 90-15 and 90-20 of Schedule 2 of the Corporations Law.
Orders were then sought that the respondent ‘cease being the liquidator’ and that he be ordered ‘to pay compensation’. In the originating motion as issued the compensation order sought in paragraph 3 was that compensation be paid to the applicant himself. In contrast to the orders sought in ACN 153, the originating motion contained no detail of the compensation sought.
The affidavit in support of the originating motion was sworn by the applicant on 6 January 2020. The first substantive paragraph of the affidavit began, ‘I am seeking an investigation into the conduct of Richard Rohrt of Hamilton Murphy (Rohrt) as liquidator of the company because …’
The affidavit set out many complaints about the liquidator. It concluded by referring to the orders that were sought in the originating motion. It contained no detail of the compensation sought, and no evidence on the basis of which compensation might be calculated and a compensation order made.
The way the relief was framed, and the absence of any detail as to the compensation sought, strongly suggested that what was sought was compensation consequent upon an inquiry, as is the case in the three-stage process. If there was any doubt about it, the position became clear during the interlocutory steps, and at the hearing itself.
On 13 March 2020 at a directions hearing, McDonald J ordered the applicant to file and serve an outline of submissions ‘setting out the basis that the plaintiff claims the relief set out in paragraph 3 of the originating process’. Paragraph 3 was the paragraph which sought an order for compensation payable to the applicant himself. In response to that order, the applicant filed an outline of submissions dated 27 March 2020 which began by stating that the plaintiff sought leave to add a claim for compensation payable to Pinnacle. The submission went on to state that the application was made under sch 2 of the Act (a reference to The Insolvency Practice Schedule (Corporations)) and that the cases to be cited in the submission concerned repealed provisions of the Act (an obvious reference to s 536) which, it was submitted, ‘provide guidance but are not binding in interpreting Schedule 2’.
Under the heading ‘Investigation’ the submission continued:
An application under Schedule 2 involves three stages;
(a)The first stage is the determination on whether to conduct an inquiry into the conduct of the liquidator;
(b)The second stage is the inquiry into the conduct of the liquidator;
(c)The third stage is the determination of the appropriate orders.
The submission went on to expand upon the three stages, citing and relying upon authorities concerning s 536, including Westpoint, Wily, and BL & GY International. In relation to the first stage, the submission stated:
The liquidator’s conduct must provide a sufficient basis for making an order for an inquiry, there must be something that requires an inquiry, but a prima facie evidential case need not be established.
The submission stated the court had a discretion as to whether or not to order an inquiry.
The submission then referred to the second stage which would be ‘an adversarial hearing’, and to the third stage at which orders might be made ‘including an order the liquidator pay any loss the company has sustained’.
In addressing the position generally, the submission stated:
The court in interpreting Schedule 2 should take into account its purposes and objects. The purposes and objects of Schedule 2 are wider than the repealed provisions which dealt with primarily the regulation, supervision, discipline and correction of liquidators in the honest and efficient conduct of liquidations and was primarily focussed on the public interest. The purposes and objects of Schedule 2 have been expanded to include the interests of creditors in the liquidation and to confer upon the creditors, greater control of the liquidation and enable creditors to have access to information which will facilitate their active role in a liquidation.
Before the final hearing, a contested issue arose concerning the production of documents on a notice to produce. The applicant filed an outline of submissions on that issue dated 7 September 2020. The first two paragraphs of that submission read as follows:
The plaintiff refers to and relies upon the outline of submissions filed on 27 March 2020.
The first stage of the plaintiff’s application is for an inquiry into the conduct of the defendant in his capacity as liquidator … which can involve:
(a) the issue of subpoenas and notices to produce;
(b) cross-examination of witnesses.
The submission later repeated that ‘the first stage of the plaintiff’s application can involve the cross-examination of witnesses’. Specific reference was made to Barrett J’s decision in Wily in support of a submission that ‘the nature of the function of the first stage of an inquiry into a liquidation serves functions somewhat similar to a preliminary hearing or committal hearing’.
Unsurprisingly, the defendant also approached the application on the basis that the applicant was pursuing the first stage of a three-stage process. The defendant’s outline of submissions dated 7 September 2020 began:
By amended originating motion filed 8 May 2020, the plaintiff seeks orders for the Supreme Court to conduct an investigation into the defendant pursuant to cl 90-10, 90-15 and 90-20 of Schedule 2 …
The defendant’s submission went on to address the three-stage process in detail, quoting extensively from authorities under s 536, including Wily.
The plaintiff filed points of claim dated 22 September 2020. The points of claim were essentially a list of the complaints made as to the liquidator’s conduct. The points of claim concluded as follows, ‘By reason of the abovementioned matters, the conduct of the liquidator should be investigated.’
On the first day of the hearing, 28 January 2021, the trial judge dealt with the issue of whether the applicant’s counsel should be permitted to cross-examine the liquidator. The trial judge asked counsel for the applicant the following question: ‘Are there any of the cases that are referred to by either party where leave has been given to cross-examine on a first-stage inquiry application?’
Counsel replied to that query referring to a number of authorities which he contended were relevant. He never suggested that what was being undertaken was not ‘a first-stage inquiry application’. Indeed, he clearly accepted that that was what was occurring. At one point the following interchange occurred:
HIS HONOUR: Those matters would clearly be matters that would arise if an inquiry was ordered, and if an inquiry is ordered, one would certainly anticipate in the ordinary course if the liquidator files evidence that the liquidator would be cross-examined on it. But the –––
[Counsel]:Well, if your Honour – sorry.
HIS HONOUR: The nature of this hearing is a preliminary one, and the Court would not be looking, for example, to try and make any findings about credit. The Court simply on the cases needs to be persuaded of some actual apprehension or mistrust. That’s the criteria, isn’t it, essentially?
[Counsel]:Well, that’s the criteria, but there are such general sweeping statements in the affidavit material of the liquidator, and his defence is that he did nothing because he wasn’t funded.
Counsel for the defendant resisted cross-examination on the basis that the relevant hearing was ‘to determine if there ought to be an inquiry, not the inquiry itself’. Counsel for the applicant replied and did not dispute the assertion that what was in issue was a hearing to determine whether there should be an inquiry.
In the course of final submissions counsel for the applicant, when addressing the unsuccessful derivative leave application, said:
It doesn’t obviate the need for an inquiry. If the liquidator has not performed their duties properly then there should be an inquiry and the remedies and relief that’s provided is a matter for the judicial officer hearing it.
In the light of the above, our conclusions as to the nature of the applicant’s application and the course he adopted in the application are as follows.
First, the applicant’s counsel did not submit to the trial judge that the three-stage process was inappropriate, nor did he submit that the judge was required to deal with the claim to compensation as a separate and discrete matter. The applicant’s counsel positively contended that the trial judge should proceed in the way in which he did, as a three-stage process where any orders for compensation would be made at the conclusion of an inquiry, if such an inquiry were ordered and conducted.
Secondly, the suggestion that the applicant had had to ‘accept’ a three-stage process because of the judge’s ruling on cross-examination is without foundation. The applicant’s counsel adopted the three-stage process well before the issue of cross-examination was determined, and he argued the issue of cross-examination on the basis that what was being undertaken was the first stage of that three-stage process.
Thirdly, while counsel for the applicant submitted that the considerations relevant to the question of whether an inquiry ought to be ordered had been broadened under the new provisions, he did not submit that considerations of the public interest were no longer relevant to the exercise of the discretion as to whether to order an inquiry.
Consideration of proposed grounds 3 and 4 and the new issues raised
For the reasons set out, the matters argued by the applicant under proposed grounds 3 and 4 are new. There are cogent reasons why a party should not be permitted to raise new points on appeal.[44]
[44]Whisprun v Dixon (2003) 77 ALJR 1598, 1608; [2003] HCA 48.
In this case, however, the new matters raised are without substance, in any event.
Under the new provisions, an applicant might make a discrete and separate application for orders under s 90-15, but an applicant also might pursue the well-recognised three-stage process seeking an inquiry under s 90-10 and consequential orders under s 90-15. In this case the applicant took the three-stage course. He positively submitted to the trial judge that that was the appropriate course. He never suggested that the trial judge was bound to treat the application for compensation as a separate and discrete application.
Further, if a separate and discrete application for compensation under s 90-15 had been advanced before the trial judge, it would have had to fail because it had no proper evidentiary basis. There was no evidence upon which an order for compensation could have been made. Counsel for the applicant implicitly accepted before us that the evidentiary basis for a compensation order was lacking. He submitted that to address the compensation claim separately from the inquiry application, it would have been necessary to adjourn the proceeding and to have a further hearing. That was never done, and the judge was never asked to do it, because the compensation order was sought as a consequence of an inquiry, in accordance with the three-stage process for which the applicant had repeatedly and consistently contended.
Similarly, the applicant never submitted to the trial judge that public interest considerations were irrelevant. He submitted that additional considerations had been introduced.
Before us counsel for the applicant submitted that the fact that compensation could be ordered under s 90-15 was inconsistent with an approach whereby the ‘vindication of private rights’ was a factor militating against an order for an inquiry. The submission does not assist, however. The position was relevantly the same under s 536. An order for compensation was one of the actions a court might take consequent upon an inquiry.
In any event, the trial judge did not rely on the fact that he considered the plaintiff was seeking to ‘vindicate private rights’ in determining not to order an inquiry. The judge determined not to order an inquiry because he found all of the plaintiff’s complaints to be without substance. He then observed that, even if they had been found to be sufficient to support an order for inquiry, in the exercise of discretion he would have refused it because an inquiry would not have served the public interest and in reality the application was seeking to ‘vindicate private rights’.[45]
[45]Reasons, [188]–[189].
For the reasons previously given, in our opinion, considerations of public interest, and, in that context, whether the application has been brought to ‘vindicate private rights’, remain a relevant consideration in the exercise of the discretion.
On proposed grounds 3 and 4, we will grant leave to appeal, notwithstanding that they raise matters not contended for before the trial judge. The appeal on those grounds will, however, be dismissed.
Before turning to the Reasons and the remaining proposed grounds of appeal, it is necessary to say something about the subject matter of the dispute between the applicant and his legal advisers, on the one hand, and the respondent and his legal advisers, on the other.
The Pinnacle proceeding
At the heart of the dispute between the applicant and the respondent is the proceeding which the applicant wished to pursue, or have Pinnacle pursue, against Westpac and two solicitors, Michael Gaylard and Richard Flory. A generally indorsed writ was issued naming Pinnacle as plaintiff and Westpac, and Messrs Gaylard and Flory as defendants (the ‘Pinnacle proceeding’).
In order to understand the positions taken by the respective parties, it is necessary to have some understanding of the allegations made, and proposed to be made, in the Pinnacle proceeding.
In August 2017, counsel for the applicant drew what was described as a proposed statement of claim for the Pinnacle proceeding. The applicant’s solicitors, Maciel Pizzorno & Co, forwarded that document to the respondent’s solicitors, Mills Oakley, on 4 August 2017. The respondent, as liquidator, authorised the applicant’s solicitors to issue the writ with the proposed statement of claim as a general indorsement. This authorisation was prompted by a perception that a relevant limitation period was to expire on 17 August 2017.
For reasons set out below, the decision to issue the proceeding treating the proposed statement of claim as a general indorsement was an appropriate one.
The relevant transactions set out in the general indorsement cover the period between February 2000 and July 2003 (notwithstanding presumably erroneous references to transactions in ‘November 2011’). The allegations concern the acquisition by Pinnacle of a property in Bulla, agreements as to the operation of the property as a landfill facility, agreements as to the shareholding in Pinnacle, and finance facilities with St George.
It is alleged that at the relevant times the shareholders in Pinnacle were a company controlled by Dr Boman Irani, named Shalridge Pty Ltd as to 75 per cent, and a group of individuals, including the applicant, as to 25 per cent. At the relevant times the directors of Pinnacle are alleged to have been Dr Irani and one Luke Edward Gracias.
The acquisition of the property at Bulla was financed by a bill facility with St George in the sum of $3,575,000. The focus of complaint in the general indorsement is an additional facility of $1.88 million provided by St George under a letter of offer in November 2001. Complex arrangements between Shalridge and a number of other companies, in particular a company named Tranteret Pty Ltd (‘Tranteret’), are referred to. As a result of these arrangements, it is alleged that Tranteret procured a $2 million Westpac bank guarantee as security for the $1.88 million advance.
The claim against St George in the general indorsement is that it made fraudulent representations to Tranteret (not to Pinnacle). It is alleged to have represented that Pinnacle was not in default, that relevant agreements had been ‘validly executed’ by Pinnacle, and that the ‘monies provided’ would be used for the ‘purposes of Pinnacle’. Particulars are provided of the representation that Pinnacle was not in default. No particulars are provided of the other allegedly fraudulent representations.
The basis upon which it is alleged that the documents were not validly executed is that both directors had not consented to the transactions; that is, that Dr Irani had done it alone, without Mr Gracias.
It is alleged in the general indorsement that Pinnacle suffered loss and damage as a result of St George’s fraudulent misrepresentations to Tranteret because Pinnacle ‘was made subject to the obligations’ in relation to the $1.88 million facility and related agreements.
Mr Gaylard and Mr Flory are also alleged to have been fraudulent because they represented that they were acting for Pinnacle when they knew that Mr Gracias had not approved the relevant transactions.
Finally, it is alleged that St George committed a ‘further fraud’ when it realised securities it held in July 2003. This fraud is alleged to be constituted by entering into a contract of sale when St George knew that relevant agreements had been entered into without the consent of one of the directors and doing so ‘in order to conceal its fraudulent misrepresentations’.
The allegations in the general indorsement are difficult to follow and, given the fraud allegations, inadequately particularised. There are apparent errors as to dates. If the proceeding had been issued with that document as a statement of claim it would have been vulnerable to a strike out application. The articulation of the claims obviously required considerable further work. For these reasons, the decision to issue the proceeding using the proposed statement of claim as a general indorsement was an appropriate one.
When the applicant sought leave to continue the Pinnacle proceeding before Connock J, a new version of the claims to be pursued in the Pinnacle proceeding was produced. Connock J described what occurred as follows:
The claims made and causes of action sought to be relied upon were not clear from the terms of the Writ, and the Court and the Pinnacle Proceeding Defendants were left to speculate somewhat as to what particular causes of action were being pursued. Consequently, it was ordered that the plaintiff file and serve a document specifying and separately identifying each cause of action said or sought to be pleaded on behalf of Pinnacle against each of the Pinnacle Proceeding Defendants. The plaintiff filed and served that document during the course of the hearing of this proceeding on 25 February 2019 (Pinnacle Claims Document).
The Pinnacle Claims Document recorded that the ‘causes of action against’ each of the Pinnacle Proceeding Defendants were said to be for the tort of deceit and ‘Barnes v Addy’ causes of action (collectively, Causes of Action).
The deceit claims were described as: ‘acting in concert to implement a dishonest and fraudulent design intended to covertly misappropriate the assets of the company’, and ‘participating in an underhand scheme designed to cheat the company of its assets’.
The Barnes v Addy claims common to all of the Pinnacle Proceeding Defendants were described as: ‘knowingly participating in a dishonest and fraudulent breach of fiduciary duty’; and ‘knowingly participating in assisting a fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in conduct that is in breach of fiduciary duty’. The claims against Mr Gaylard and Mr Flory included what was said to be a further Barnes v Addy claim that was described as: ‘fraudulently misrepresenting that they were acting on behalf of Pinnacle’.[46]
[46]Derivative judgment, [5]–[8].
The claims made in the general indorsement were not Barnes v Addy claims. Whilst the factual substrata of the claims appears to have remained substantially the same, namely, that Dr Irani had entered into the relevant obligations alone and without Mr Gracias’ consent, the legal characterisation of the claims had altered significantly.
In relation to the likely costs and risks associated with the Pinnacle proceeding, Connock J said the following:
having regard to the nature, scale, and likely factual and other complexity of the Pinnacle Proceeding if it is to proceed, the evidence regarding the likely costs, duration and expenses associated with the proceeding was limited and it cannot at this stage be concluded with sufficient confidence that the plaintiff’s financial position is or will be sufficient to address the costs and expense risks associated with the litigation for Pinnacle, even if it is assumed that the equity in the property referred to by the plaintiff is able to be provided by way of security in the way the plaintiff described. To some extent, this point is also underscored by the time, cost and expense connected with this application alone.[47]
[47]Ibid [158].
The reference to ‘equity in the property referred to by the plaintiff’ is a reference to security for the costs of the action which the applicant had proposed, being a third party owned property in which there was said to be equity of about $380,000.
On the material before him, Connock J was not satisfied that the Pinnacle proceeding had ‘a solid foundation or a reasonable prospect of success’, or that it raised a serious question to be tried.[48]
[48]Ibid [168].
Connock J went on to observe:
Whilst, as was conceded, the evidence gave rise to a solid foundation for alleging that the Pinnacle Proceeding Defendants had knowledge that Pinnacle had two directors that had been and were in dispute, that is not sufficient. The evidence did not go so far as to establish that there was a solid foundation for alleging, or reasonable prospect of establishing, that any of Westpac, Mr Gaylard or Mr Flory had knowledge of the kind referred to in Baden categories one, two, three or four in respect of the relevant alleged dishonest and fraudulent designs on the part of Mr Irani.
With respect to the ‘additional’ ‘Barnes v Addy’ claim against Mr Gaylard and Mr Flory, it was not easy to discern quite how this was put, further reinforcing that it had not been established that the claim had a solid foundation or a reasonable prospect of success. In any event, insofar as it rested upon the alleged knowledge that Pinnacle was a two-director company with the directors being in dispute, this did not on the evidence before the Court establish that there was a solid foundation for alleging, or a reasonable prospect of establishing, that Mr Gaylard or Mr Flory, had knowledge of the kind referred to in any of Baden categories one to four in respect of the alleged dishonest and fraudulent design of Mr Irani.[49]
[49]Ibid [173]–[174].
In relation to the deceit claims, Connock J reached similar conclusions. Relevantly, he said:
Having regard to the terms of the Writ and the manner in which the deceit claims were expressed, and the evidence, the plaintiff did not establish that there was a solid foundation for alleging, or a reasonable prospect of establishing, that the following elements of the deceit claims could be made out against any of the Pinnacle Proceeding Defendants: the existence or making of false representations to Pinnacle; the making of false representations with knowledge of, or recklessness or carelessness as to, falsity; the required intent that Pinnacle rely on the relevant false representations; reliance by Pinnacle on false representations; or the suffering of loss caused by such reliance.
Further, and to use the language employed by the plaintiff in the Pinnacle Claims Document in the context of the deceit causes of action, to the extent that it may be said to be relevant, it was not established on the evidence that there was a solid foundation for alleging, or a reasonable prospect of establishing, that any of the Pinnacle Proceeding Defendants, with each other (or others), acted ‘in concert to implement a dishonest and fraudulent design intended to covertly misappropriate the assets of the company’.[50]
[50]Ibid [175].
When assessing the position taken by the liquidator and his legal advisers in their dealings with the applicant and his legal advisers, the following aspects of the Pinnacle proceeding are important, in our opinion:
·The proposed statement of claim, which became a general indorsement, contained claims of fraud by a bank and by two solicitors which were difficult to follow and inadequately particularised, and which contained apparent errors as to dates.
·The claims as articulated before Connock J were different to those in the general indorsement, and were assessed by Connock J as being without a solid foundation or a reasonable prospect of success.
·On any view, litigation of the proposed claims, whether as in the general indorsement or as articulated before Connock J, would be very complex and expensive. The defendants could be expected to defend the proceeding and to be well resourced to do so. It was highly likely that very substantial costs would have to be incurred on behalf of the plaintiff, and very substantial risks as to costs if the claims were to fail would have to be assumed.
Given that position, two further matters, as to which there is no controversy, are also important.
First, there were no assets of Pinnacle to which the liquidator could have recourse for the purpose of pursuing the Pinnacle proceeding or meeting any liability thereby incurred. The only resource the liquidator had was not from the assets of the company, but rather from the applicant. The applicant paid the sum of $23,200 into the trust account of the respondent’s solicitors, Mills Oakley, shortly prior to the issue of the writ. At that time, the sum of $23,200 was calculated on the basis that the liquidator would incur $13,200 in obtaining advice from Mills Oakley on the merits of the claim, on the value of the claim for the purpose of an assignment to the applicant, and on ongoing risks arising from that assignment; and $10,000 was allowed for the liquidator’s remuneration and other disbursements.
In that context, s 545(1) of the Act is relevant. Section 545(1) of the Act provides:
Subject to this section, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property.[51]
[51]Subsections (2) and (3) of s 545 provide that a liquidator might be directed to incur a particular expense upon being indemnified, and that the section does not relieve the liquidator of any obligation to lodge a document with ASIC by reason only that the liquidator would be required to incur expense in order to perform that obligation.
The second matter concerns the books and records available to the liquidator. As indicated, the respondent’s administration of Pinnacle was its second liquidation. The first liquidation had concluded in 2009. The respondent sought any books and records of Pinnacle from the prior liquidators. He obtained nothing.[52]
[52]He was given, and he read, three folders of material obtained from the applicant.
The actions of the liquidator must accordingly be considered against a background where, notwithstanding that there were no assets or records, and the liquidator was entitled to refuse to take any step which involved the incurring of expense, the applicant wished to pursue an expensive, complex cause of action which had not been demonstrated to have any reasonable prospect of success.
The Reasons
The trial judge began the reasons by outlining the applicable principles, referring to Hall, Westpoint, Wily, BL & GY International, and a judgment of Dodds-Streeton J in ASIC v Edge.[53]
[53](2007) 211 FLR 137; [2007] VSC 170.
The judge stated, as was the fact, that ‘the parties were in agreement both as to the three-stage process described by Sloss J in Westpoint and as to the task to be undertaken at the first stage as described by Brereton J’ in Wily.[54]
[54]Reasons, [16] (citations omitted).
The trial judge recorded that the applicant advanced a large number of complaints about the conduct of the respondent’s administration, not all of which were to be found in the points of claim, the affidavits relied upon, or in the written submissions. The judge identified the following ‘areas of complaint’:
(a)failure by the Liquidator to comply with the reporting obligations in s 533 of the Act;
(b)the alleged improper delegation by the Liquidator of his work and functions to his solicitors, [Mills Oakley, who the judge referred to as ‘MO’];
(c)complaints concerning allegedly unnecessary and excessive costs and expenses of MO and of the Liquidator’s remuneration, together with complaints concerning the alleged failure to provide details of costs, and failure by MO to comply with the Legal Profession Uniform Law (‘LPUL’), and various complaints concerning the sum of $23,200 paid by the plaintiff to MO;
(d) the Liquidator’s failure to report to, or meet with, creditors;
(e)failure by the Liquidator to learn at an earlier point in time of the existence of Westpac Banking Corporation Limited (‘Westpac’) as a secured creditor to whom the Company remained indebted;
(f)failure by the Liquidator to take appropriate steps to preserve the Company’s assets by refusing to prosecute [the Pinnacle proceeding];
(g)failure by the Liquidator to act in good faith in relation to the plaintiff’s application for derivative leave [before Connock J];
(h)failure by the Liquidator to act in good faith to assign the cause of action in the [Pinnacle proceeding].[55]
[55]Ibid [23].
The judge then reviewed in considerable detail, the events that had occurred during the liquidation. There was little room for factual controversy as to what had occurred because almost everything relevant was contained within correspondence between the respective firms of solicitors, Maciel Pizzorno & Co for the applicant, and Mills Oakley for the respondent.
There were some discussions which were not recorded in writing, which were relevant, but they were very few. One was a discussion prior to the applicant’s application to reinstate the company. The respondent met with the applicant and his legal advisers in August 2016, prior to the company’s reinstatement. The evidence of the liquidator was that he was asked to consent to his appointment as liquidator, was told that the company had a potential cause of action against Westpac and that, if the respondent were appointed liquidator, the applicant wanted him to assign that cause of action to him. In response, the respondent said that it was unlikely that he as liquidator would pursue the proposed claim as he would not have funding to do so, that he would need to obtain independent advice about the claim and about valuing the claim for the purpose of an assignment, and that he estimated that his remuneration as liquidator, assuming the assignment was ‘straight forward’, would not exceed $20,000.[56]
[56]Ibid [28].
The judge set out the circumstances in which the proposed statement of claim was provided (13 days before the expected limitation date) and the generally indorsed writ was issued.[57]
[57]Ibid [33]–[41].
He then referred to the fact that after the writ was issued the liquidator had become aware that Westpac was still a secured creditor of Pinnacle for an amount of approximately $1 million.[58]
[58]Ibid [42].
There were two potential consequences that arose out of that discovery. The first was that, under the security documents, Westpac’s consent would be required, or might be required, before the cause of action could be assigned. The second was that unless the validity of Westpac’s security was impugned, any amount recovered up to the outstanding debt would be payable to Westpac.
When Mills Oakley raised problems with the proposed assignment with the applicant’s solicitors, and suggested the possibility that the applicant might advance his objective by pursuing a deed of company arrangement at a projected cost of $100,000, the response of the applicant’s solicitors by a letter dated 1 February 2018 was, in the judge’s words, ‘combative’.[59] At that comparatively early stage, the applicant’s solicitors made the first of what became repeated assertions of breach of duty by the liquidator. The letter also alleged that Mills Oakley had a conflict of interest, and demanded that the liquidator resign, refund the amount which the applicant had paid prior to the issue of the writ which had been ‘unnecessarily incurred’ (including any amount expended on Mills Oakley’s legal costs), and pay an additional sum of $25,000 for the applicant’s costs. The letter threatened to bring an application seeking an inquiry into the conduct of the liquidation.
[59]Ibid [48].
The judge observed that relations ‘continued to deteriorate’ thereafter.[60] He set out the relevant correspondence, in which, amongst other things, the solicitors for the applicant almost invariably asserted breach of duty by the liquidator, combined with advice as to the various court applications which they proposed to make against the respondent.
[60]Ibid [51].
The judge referred to the extension of the period of validity of the writ, and to the derivative leave application made by the applicant that was dealt with by Connock J.
Shortly prior to the hearing of the trial of the derivative leave application, by a letter dated 13 February 2019, the respondent’s solicitors, Mills Oakley, invited any interested party to make an offer to take an assignment of the claims advanced in the Pinnacle proceeding on terms requiring a purchase price in excess of $126,500, being the liquidator’s remuneration, costs and expenses up to that point.[61]
[61]Ibid [64].
The judge referred to events after the dismissal of the application for leave to continue the proceeding as a derivative proceeding (on 23 October 2019), culminating in the applicant’s solicitors advice to Mills Oakley in February 2020 that the applicant had no interest in entering into a funding agreement concerning the Pinnacle proceeding with the liquidator.[62]
[62]Ibid [71]–[72].
The judge’s account of the relevant events concluded on 11 February 2020, when the period of validity of service of the writ expired.[63]
[63]Ibid [74].
The judge then addressed individually, and in some detail each of the ‘areas of complaint’ which he had identified, at the conclusion of which he summarised his findings as follows:
In this case the applicant for the inquiry has failed to establish that there is something that needs to be investigated concerning the liquidation of the Company. He has failed to establish that there is any, let alone any sufficient basis to constitute a ‘complaint’ in relation to the Liquidator’s conduct of the liquidation of the Company. As a result, there is no jurisdiction to order an inquiry.
The complaint relying upon s 533 fails. First, because I consider that on the facts of this case the reporting obligation in s 533(1)(d) arising by reason of s 533(1)(c) had no application to the Liquidator. Second, because even if it did have application, the absence of a report by the Liquidator 13 years after the Company was wound up, a liquidator appointed seven years after the First Liquidation concluded cannot be the cause of any detriment to creditors, to ASIC, or to the public. Despite appropriate enquiries, the Liquidator had no information or documents to provide to ASIC that might be relevant to the purposes s 533 is intended to serve.
There is no substance to the complaint of improper delegation of work to solicitors. Section 477(2)(b) expressly contemplates that a liquidator may appoint a solicitor. The Liquidator did so. The work performed by the solicitors was legal work.
There is also no substance to the multi-faceted complaints about unnecessary and excessive costs and expenses. Given the work required to be performed, including legal work responding to the plaintiff and his solicitors and appropriate albeit limited participation in the Derivative Leave Proceeding, I am not satisfied there is evidence of unnecessary or excessive costs. The disclosure obligations in the LPUL [a reference to the Legal Profession Uniform Law] have no application to legal practitioners engaged on behalf of a liquidator. Nonetheless, both MO [a reference to Mills Oakley], the legal practitioners and the Liquidator have made disclosure of their actual and anticipated costs and remuneration as appropriate. There is no substance to the various complaints concerning the sum of $23,200 paid to MO on 11 August 2017. In relation to his own remuneration, and also in relation to costs and disbursements, the Liquidator acted reasonably, diligently and in the interests of creditors. MO remains significantly out of pocket for its costs and disbursements; the Liquidator has not been paid at all.
The complaint of failure to report to creditors and of failure to call a meeting of creditors has no merit. The section relied upon for reporting has no application to the Liquidator. There is no statutory obligation to call a meeting of creditors. There is no requirement for the Liquidator to meet personally with creditors. Here, the creditor who complains of failure to meet in person routinely communicated via his solicitors and counsel.
The plaintiff complained about the Liquidator’s failure to be aware of the continued existence of Westpac as a secured creditor at an earlier time in the administration. The plaintiff could himself, or by his solicitors and counsel, have provided that information much earlier — at the very first meeting in August 2016. He did not do so. The liquidator investigated the position after the generally endorsed writ was issued. That was an appropriate time for him to do so.
There is no substance to the complaint the Liquidator failed to prosecute the [Pinnacle proceeding]. He authorised the issue of the [Pinnacle proceeding] to ensure the claim did not become statute barred. The allegations, including fraud, were serious. To pursue the claim consistent with his duties as a liquidator and his obligations under the CPA [a reference to the Civil Procedure Act 2010], the Liquidator would first have needed to carefully investigate and evaluate the merits of the claim. He was without funds to do so. Further, for the period until February 2018, the plaintiff was seeking an assignment of the proceeding, not the pursuit of it by the Liquidator. When the plaintiff expressed willingness thereafter to fund the Liquidator, that ‘offer’ was accompanied by unfounded allegations that the plaintiff’s solicitors, MO, were conflicted and complaints about the Liquidator’s own conduct. From mid-2018 until the decision in the Derivative Leave Proceeding, once again, the plaintiff’s preferred course was that he control and pursue the claim against Westpac. After the decision of Connock J in October 2019 where his Honour said he did not consider the claim to have reasonable prospects of success, the Liquidator was still without funds. Once again there can be no valid criticism of the Liquidator for his not prosecuting the proceeding after October 2019. There is nothing about the failure to prosecute complaint that supports an order for an inquiry.
The complaint about the Liquidator’s involvement in the Derivative Leave Proceeding is also without substance. Connock J expressly found that the Liquidator acted responsibly in assisting the Court.
There was no lack of good faith involved in the Liquidator’s request in the 13 February 2018 letter from his solicitors that his remuneration costs and expenses be paid as part of any assignment of the chose in action. There was no request that those costs and remuneration be taxed or assessed. There is nothing to suggest that upon a request for taxation or assessment that the Liquidator would have opposed such a course of action. By reason of s 566 of the Act, only after the Liquidator’s proper remuneration costs and expenses were paid would there be any money for creditors.
Each of the complaints made by the plaintiff in support of an order for an inquiry has been found to be without substance.[64]
[64]Ibid [179]–[188].
Other proposed grounds of appeal
The remaining proposed grounds of appeal are as follows:
1.The Primary Judge erred in failing to permit the cross examination of the liquidator.
2.The Primary Judge erred in holding the bills, letters of retainer and other documents relating to the costs of Mills Oakley, were not sufficiently relevant to permit the Notice to Produce dated 13 January 2021 to be called upon.
…
5.The Primary Judge erred in refusing to order an inquiry on the basis of a lack of satisfaction or that there was no prima facie case.
6.The Primary Judge misapprehended the following facts:
a)On 16 August 2017, Hannah Carne of Mills Oakley admitted the firm could not prosecute the cause of action against the Westpac Bank because the firm had a conflict of interest which was not denied by her in correspondence or in an affidavit.
b)The Plaintiff failed to assert a basis for the conflict of interest of Mills Oakley and it was unfounded and baseless.
c)The Plaintiff delayed in providing a statement of claim for the liquidator.
d)The liquidator and Mills Oakley had provided proper disclosure of their future costs.
e) Mills Oakley provided a proper breakdown of their costs.
f)Mills Oakley would have been willing to have their costs taxed.
g)The Liquidator was not provided with the identity of the creditors of the Company in liquidation.
h)The liquidator would have acceded to a request for their costs and that of Mills Oakley to be taxed.
i)There had not been proper disclosure of Mills Oakley’s costs in the liquidator’s affidavit dated 1 August 2020 as the disclosure related to costs incurred as opposed to that in future.
7.The Primary Judge erred in holding Mills Oakley were engaged by the liquidator in his personal capacity and was a commercial government client to whom Part 4.3 of the Legal Profession Uniform Act (Vic) 2014 did not apply.
8.The Primary Judge erred in holding the liquidator was entitled to pay the costs of Mills Oakley without being approved by the creditors or if approval is not forthcoming taxed.
9.The bills of costs of Mills Oakley had to be taxed before payment, as there was no contract between Mills Oakley and the Liquidator.
10.The Primary Judge erred in holding the Plaintiff did not make a monetary offer to the Liquidator in exchange for an assignment of the chose in action.
11.The Primary Judge erred in holding that there was no substance to the complaint that the liquidator failed to convene creditors’ meetings.
12.The Primary Judge erred in holding that a cause of action was not property within s 568 of the Corporations Act.
13.The Primary Judge erred in holding that if the liquidator disclaimed the cause of action that the property would vest in ASIC.
14.The Primary Judge erred in holding that there was no substance to the complaint that the Liquidator failed to prosecute the cause of action.
15.The Primary Judge erred in permitting Mills Oakley to act on behalf of the liquidator.
16.The Primary Judge erred in failing to make a decision on the liquidator’s conduct in negotiating a funding agreement with the Plaintiff.
17.The Primary Judge denied the Plaintiff natural justice by refusing leave to cross examine the liquidator.
Consideration of remaining proposed grounds of appeal
The remaining proposed grounds of appeal seek to identify errors of fact or law as a basis for overturning the trial judge’s dismissal of the application before him. The grounds themselves, and the submissions made in support of them, fail to adequately address two fundamental issues.
The first is that what is in issue is a discretionary decision to which the principles in House v The King apply. The proposed grounds and the submissions made in support of them invariably merely sought to re-argue issues determined by the trial judge, asserting error but without relating what were alleged to be errors to the principles in House v The King.
The second is that all of the dealings in question have to be assessed in the context of the nature of the Pinnacle proceeding as we have described it earlier; and in the context of the fact that there were no assets in the liquidation (as a consequence of which the liquidator was relevantly entitled to refuse to take any step which involved the incurring of expense); and that the liquidator could obtain no books or records of the company from the former liquidators.
In that context, having ourselves reviewed the correspondence and the limited affidavit material which relevantly supplemented it, even if particular criticisms or technical shortcomings had been found, in our opinion the liquidator’s approach was generally cautious and reasonable. If anything his approach was, at times, overly generous towards the applicant. In our opinion the applicant’s criticisms were misplaced and unjustified.
We nevertheless address the remaining individual proposed grounds.
By proposed grounds 1 and 17, the applicant contends the trial judge erred in failing to permit cross-examination.
In the applicant’s written case, authorities are referred to supporting the proposition that cross-examination may be permitted on an application such as this.
The trial judge’s ruling on the issue was delivered orally.[65]
[65]Transcript of Proceedings (28 January 2021) 12–16.
In his ruling, the judge accepted that he had power to order a deponent to attend for the purposes of cross-examination. The judge then referred to the nature of the hearing then before him, being a hearing to determine, first, whether the applicant had established a ‘need’ for an investigation and, secondly, whether the discretion to order an inquiry should be exercised. The judge referred to the fact that no case had been cited to him where cross-examination had been permitted as part of the ‘first stage’ application. The judge referred to the matters relied upon by the applicant, being ‘concerns’ as to the liquidator’s credit, what was said to be ‘factual inaccuracies’ in the liquidator’s affidavit, alleged inconsistencies between affidavits filed by the liquidator, the intention to cross-examine the liquidator on the meaning and effect of correspondence, and what was asserted to be a lack of particulars in the liquidator’s defence. The judge then referred to the fact that the parties had filed affidavits, points of claim and defence, and detailed submissions. The judge concluded:
From those materials, it’s clear the parties are in a position to advance their competing positions on this application by reference to the chronology of events that occurred, the communications that took place as referred to in the affidavits and as recorded in the exhibits to those affidavits.
In those circumstances, I consider that a fair hearing and determination of the application does not require the grant of leave to cross-examination the liquidator, and for those reasons, I propose to refuse leave.
There is no error in this approach, and certainly none of the kind referred to in House v The King. In our opinion, the judge’s ruling was well-founded. It was a decision concerning the conduct of the hearing which was clearly open to him.
Leave to appeal on proposed grounds 1 and 17 will be refused.
By proposed ground 2, the applicant advances a somewhat similar complaint to that advanced in proposed grounds 1 and 17 concerning what is said to be the trial judge’s error in refusing to require certain documents to be produced under a notice to produce dated 13 January 2021. The documents in question concerned Mills Oakley’s costs.
The judge heard argument about the notice to produce on the first day of hearing, 28 January 2021. There was an interchange between the judge and counsel as a consequence of which some documents were produced. The judge then indicated that he would hear the submissions that day before determining what further documents, if any, he should order be produced. That is the procedure he then followed.
The trial judge gave a written ruling on the notice to produce on 1 February 2021.[66] The judge’s concern in relation to the documents that remained in issue was whether they were sufficiently relevant, given the nature of the inquiry he was then undertaking. He was concerned that, even if an inquiry was ordered, such an inquiry should not become a ‘roving commission’. He determined that the outstanding documents which remained in issue ‘could only be relevant to a wide ranging inquiry into the relationship between the liquidator and Mills Oakley’. He said that he would not permit that to occur. He ruled that it was not warranted by the evidence, nor justified by the points of claim or the submissions advanced by the plaintiff.[67]
[66]Djordjevich v Rohrt (Unreported, Supreme Court of Victoria, Delany J, 1 February 2021).
[67]Ibid [12].
Again, the applicant failed to demonstrate any error, and certainly none of the kind referred to in House v The King. In substance, as was the case in relation to proposed grounds 1 and 17, the applicant sought to persuade this Court that we should take a different view. We do not take a different view, but, even if we did, that would not satisfy the requirements for appellate intervention of a decision of this character.
Leave to appeal will be refused on proposed ground 2.
Proposed ground 5 does not assert any relevant error by the trial judge. It simply asserts that the judge ought to have come to a different conclusion. Leave to appeal will be refused on proposed ground 5.
Proposed ground 6 concerns what are contended to be ‘misapprehensions’ of the trial judge concerning the facts.
As indicated previously, the relevant factual matters were contained in the exhibited correspondence. The judge reviewed that correspondence in detail. We have each undertaken the same review. Consequent upon our review of the correspondence, in our opinion, the judge’s factual analysis does not contain any error of the kind referred to in House v The King. Further, in our opinion, the judge’s fundamental conclusions were entirely correct. The applicant failed to establish that there was anything that needed to be investigated concerning this liquidation.
We nevertheless will address the enumerated alleged factual errors in proposed ground 6.
The alleged error particularly emphasised in oral submissions before us was that contained in sub-paras (a) and (b) concerning Mills Oakley’s asserted conflict of interest.
We previously referred to the letter of 1 February 2018 sent by the applicant’s solicitors to the solicitors for the respondent in response to the respondent’s solicitors having pointed out the problems with the proposed assignment created by the existence of the Westpac security and having suggested, as an alternative to an assignment, a deed of company arrangement. The trial judge accurately described the response in that letter as ‘combative’. The first matter set out in the response was to refer to a telephone conversation said to have occurred approximately five months earlier, and not referred to previously, between the writer of the letter, Sam Angelatos, and Hannah Carne from Mills Oakley. The letter stated:
We were advised in the abovementioned telephone call that the scope of your retainer with the liquidator would be limited to a discrete issue, being the assignment of the Supreme Court proceeding in order to prevent a conflict of interest arising from your firm’s relationship with [Westpac].
The letter went on to assert that ‘the reason for the failure of the liquidator to prosecute the Supreme Court proceeding, was entirely due to your firm’s conflict of interest’.
In a response the next day, the relevant partner of Mills Oakley, Ariel Borland, stated:
I was not a party to your conversation with Hannah Carne in August 2017, however I wish to make it clear that Mills Oakley does not have any conflict in acting against [Westpac]. Mills Oakley is not on Westpac’s legal panel and accordingly, does not receive instructions to act for Westpac.
Ms Carne has never addressed the assertion that she had said there was a conflict of interest. In substance, the applicant submitted to us (and to the trial judge) that this substantiated the existence of the asserted conflict of interest.
The trial judge considered that no basis for the asserted conflict of interest was identified. There was no error in such an approach, nor was there any error of the kind described in House v The King.
In any event, the issue simply does not have the significance which the applicant attributes to it. The suggestion that Ms Carne’s statement as to a conflict of interest in August 2017 provided the explanation for the liquidator’s ‘failure to prosecute’ the Pinnacle proceeding is without foundation. The liquidator’s ‘failure to prosecute’ the Pinnacle proceeding was, in the circumstances, the only course he could have taken. Indeed, in our opinion, if he had ‘prosecuted’ that proceeding in the circumstances which we have described in relation to the nature of the claim, the assets in the liquidation and his access to records, that might well have constituted a sound basis for instituting an inquiry.
The alleged factual error in sub-para (c) (delay in providing a statement of claim) was not an error. There was delay.
The factual errors asserted in sub-paras (d) and (e) are said in the written case to be based upon a paragraph in the reasons where the judge deals with the Legal Profession Uniform Law (Victoria) (‘LPUL’). That matter is the subject of proposed ground 7.
The asserted factual errors in sub-paras (f), (h) and (i) concerning the liquidators’ legal costs all inaccurately state the judge’s findings. In the written case they are said to be based upon the following paragraphs of the reasons:
The 2020 Rohrt Affidavit exhibited a breakdown of the Liquidator’s remuneration, $36,164.70, by employee and by number of hours from 14 October 2016 to 9 July 2020. In light of this evidence, there can be no complaint about non-disclosure of the Liquidator’s remuneration. There was no obligation on the Liquidator to provide such information. The quantum of the remuneration for work over nearly four years appears modest. Nothing about the quantum of the Liquidator’s unpaid remuneration supports an order for an inquiry.
…
A consideration of the many communications between MO and MPC does not provide support for an inference that there would have been any reluctance on the part of MO or on the part of the Liquidator to have their costs and remuneration independently scrutinised and/or determined.
…
I accept as submitted on behalf of the Liquidator that it was open to the plaintiff to request taxation of costs and an assessment of the Liquidator’s remuneration as a condition of assignment. The plaintiff did not do so. There is no evidence to suggest that, had a request been made, the Liquidator would have resisted appropriate scrutiny. His approach to disclosure and that of MO makes it likely that, if asked, the Liquidator would have agreed to have his remuneration scrutinised.[68]
[68]Reasons, [105], [114], [176] (citations omitted).
There is no error in the making of these findings which were careful and considered. The applicant has again not demonstrated any error of the kind referred to in House v The King in those paragraphs.
Finally, the error alleged in sub-para (g) (identity of the creditors) is also without foundation. In particular, the applicant did not identify that there was any response to the letter from the liquidator dated 24 January 2018 which sought details of creditors. In such circumstances, the judge’s conclusion was both open and appropriate.
Leave to appeal will be refused on proposed ground 6.
Proposed ground 7 concerns the application of pt 4.3 of the LPUL. The LPUL is sch 1 to the Legal Professional Uniform Application Act 2014.
Before the trial judge, the applicant relied on the provisions of pt 4.3 of the LPUL. This part regulates legal costs generally and provides for disclosure and other obligations. The trial judge held as follows:
The problem for the plaintiff is that none of the statutory requirements in Part 4.3 apply to the Liquidator who, by s 170 of the Legal Profession Uniform Law Application Act 2014 (Vic), is a ’commercial government client’ to whom Part 4.3 does not apply. Because the requirements of Part 4.3 of the LPUL has no application to the relationship between the Liquidator and MO, the absence of a fee agreement and disclosure statement cannot provide a basis for complaint concerning either the Liquidator or MO.[69]
[69]Reasons, [109] (citations omitted).
Section 170 of the LPUL relevantly provides that the part does not apply to a ‘commercial or government client’. The section goes on to provide that a commercial or government client includes ‘a liquidator’. Section 6 of the LPUL defines the term ‘client’. Client is defined as including ‘a person to whom or for whom legal services are provided’. Thus, where legal services are provided to or for a liquidator, pt 4.3 does not apply.
In our opinion, the judge’s construction of the relevant provisions was correct.
The applicant contends it was incorrect relying upon a passage from Re National Safety Council of Australia Victorian Division (in liq) [No 2] (‘Re National Safety Council’)[70] where JD Phillips J observed that a liquidator engaging solicitors does so as agent for and on behalf of the company in liquidation.
[70][1992] 1 VR 455 (‘Re National Safety Council’).
In our opinion, even if the liquidator does engage the solicitors as agent for the company in liquidation, the liquidator still falls within the definition of a ‘client’ in the LPUL, as the judge held.
In any event, the issue is inconsequential, given that no assets of Pinnacle have been expended on any legal costs. The only legal costs that have been paid have been paid out of the sum paid to Mills Oakley by the applicant. Pinnacle itself has no assets out of which any legal costs might be met.
Leave to appeal will be refused on proposed ground 7.
Proposed ground 8 (entitlement to pay costs without taxation) asserts an error on the basis of a finding by a trial judge which, in our opinion, was not made.
In support of that asserted error, reliance is again placed on a statement of JD Phillips J in Re National Safety Council. That statement was to the effect that before any payment can be made ‘out of the assets of the company in liquidation’, there must be a bill of costs and that bill must be taxed. In this case no payment has been made ‘out of the assets of the company in liquidation’.
Proposed ground 9 was abandoned in the hearing before us.
Leave to appeal will be refused on proposed grounds 8 and 9.
Proposed ground 10 relies upon the following passage in the Reasons:
There is no evidence as to the value of the chose in action. The plaintiff made no monetary offer to the Liquidator in exchange for an assignment, and nor did Westpac.[71]
[71]Reasons, [174].
The basis upon which it is contended that the judge made an error in stating that ‘no monetary offer’ to the liquidator had been made in exchange for an assignment, was ‘without prejudice’ correspondence which had been exhibited to the applicant’s affidavit sworn 6 January 2020 without the respondent’s consent.[72]
[72]The respondent confirmed that the correspondence had been exhibited without his consent, but, that having occurred, he did not object to reliance upon the ‘without prejudice’ material.
In substance, what occurred was that by a letter dated 9 April 2019 from the applicant’s solicitors to the respondent’s solicitors headed ‘Without Prejudice Save as to Costs’, the applicant offered to pay ‘$125,000 all in’ for the cause of action in the Pinnacle proceeding, ‘subject to the court accepting that the said causes of action can be assigned’ without Westpac’s consent. By a letter also headed ‘Without Prejudice Save as to Costs’ the next day, Mills Oakley made what was described as a ‘counter offer’ involving a payment of $130,000 and other terms. No agreement was reached.
When read in context, the judge’s remarks (at para 174) appear to be directed to the applicant making an offer in respect of the letter dated 13 February 2019. Thus, the judge was concerned with whether the liquidator’s invitation to submit offers to take an assignment by the letter of 13 February 2018, was, in some sense, improper. (The judge held that it was not, given the liquidator’s priority under s 556 of the Act, and we agree.) In any event, whether the judge was strictly accurate in asserting that ‘no monetary offer’ in exchange for an assignment was made because of the ‘all in’ offer in the ‘without prejudice’ correspondence or not, the issue is of no significance.
If there was an ‘error’, it was inconsequential. We will refuse leave to appeal on proposed ground 10.
Proposed ground 11 concerns what is said to be an error by the trial judge in holding that there was no substance to the complaint that the liquidator had failed to convene creditors’ meetings. It was accepted by the applicant that there was no legal obligation to hold creditors’ meetings.
In our opinion the judge made no error, and again there was no error of the kind described in House v The King. Leave to appeal on proposed ground 11 will be refused.
Proposed grounds 12 and 13 concern s 568 of the Act and the following passage in the judgment:
Separately, the plaintiff contended that the Liquidator should have disclaimed the Westpac Claim.
Responding to this allegation, the Liquidator submitted that the Westpac Claim does not fall within the categories of property of a company that can be disclaimed by a liquidator under s 568 of the Act. Further, that even if the Westpac Claim was property that could be disclaimed, the effect of doing so would be to vest the Westpac Claim in ASIC. The plaintiff’s counsel did not seek to contradict these propositions during the hearing of the application.[73]
[73]Reasons, [177]–[178].
What the judge said was correct. He did not make any finding on the point because the applicant did not contest the submissions made on behalf of the liquidator. In any event, the issue is inconsequential. There was no relevant error. Leave to appeal will be refused on proposed grounds 12 and 13.
Proposed ground 14 is a general assertion that the trial judge erred in failing to hold that there was substance in the complaint that the liquidator had failed to prosecute the cause of action. In our opinion it was the only conclusion that could reasonably have been reached upon the material. Certainly, there is no error of the kind described in House v The King. Leave to appeal on proposed ground 14 will be refused.
Proposed ground 15 raises a matter which was not raised before the trial judge. We will not permit it to be raised now. Leave to appeal will be refused.
Proposed ground 16 raises a matter which was not one of the complaints in the points of claim. In any event, the trial judge’s detailed account of the facts clearly reveals that he did not consider there was any relevant failing on the part of the liquidator in relation to the correspondence concerning a possible funding agreement with the applicant. Having reviewed the correspondence ourselves, we agree. Leave to appeal will be refused on proposed ground 16.
Conclusion
We will grant leave to appeal on proposed grounds 3 and 4, but the appeal on those grounds will be dismissed.
We otherwise refuse leave to appeal on the application for leave to appeal from the trial judge’s decision made on 15 April 2021.
Application for leave to appeal the costs order
After seeking written submissions as to costs, the trial judge delivered a written ruling on 3 June 2021.[74] For the reasons he set out, he ordered that the applicant pay the respondent’s costs of the proceeding, including reserved costs, up to and including 15 December 2020 on the standard basis, and from that date on an indemnity basis.[75]
[74]Djordjevich v Rohrt[No 2] (Unreported, Supreme Court of Victoria, Delany J, 3 June 2021) (‘Costs Reasons’).
[75]Rule 63.30 and r 63.30.1 provide for the two types of order. On the standard basis all costs reasonably incurred are recoverable, whereas on the indemnity basis all cost incurred are recoverable unless the party ordered to pay establishes that the costs are unreasonable.
This is a matter where costs on the standard basis had to follow the event. The fundamental reason why the judge made the indemnity costs order was his conclusion that the application had been without merit and that the applicant ought to have known it was without merit by 15 December 2020.
The applicant advanced a large number of proposed grounds to challenge the judge’s costs decision which may be grouped in various categories as follows:
·the judge erred in making a special costs order given there was uncertainty in the construction of cls 90-10, 90-20 and 90-30 of sch 2 (proposed grounds 1-3);
·a complaint that the judge erred in finding that there was an onus upon the plaintiff to put forward material which prima facie satisfied the court to conduct an inquiry (proposed ground 4);
·a number of grounds which sought to attack the primary decision rather than the costs decision (proposed grounds 5, 6, 7 and 9);
·an allegation that the judge erred in making a special costs order by failing to take the applicant’s evidence ‘at its highest’ (proposed ground 8).
In relation to the first category, the judge considered that there was no significant contest as to the applicable principles, with the result that any legal issue did not materially impact the costs of the application.[76] We agree.
[76]Costs Reasons, [20].
In relation to proposed ground 4, as we have explained above,[77] the applicant did need to establish something about the liquidator’s conduct that constituted a sufficient basis for ordering an inquiry. The judge’s use of the term ‘prima facie’[78] should also be understood in the light of the judge’s earlier distillation of the correct principles (in the primary decision).[79]
[77]See above [18].
[78]Costs Reasons, [24].
[79]Reasons, [16]–[17].
Proposed grounds 5, 6, 7, and 9 do not establish any reviewable error in respect of the costs decision. Nor does proposed ground 8. In any event, the applicant did not establish that the judge rejected any of his evidence, nor that there was some ‘obligation’ to accept that evidence.
The proposed grounds therefore do not raise any issue of substance in respect of the costs decision. However, even if there was some merit in any of the proposed grounds, there has long been a reluctance to entertain appeals against costs orders. Prior to the introduction of the requirement for leave to appeal in all civil matters, there was a specific statutory requirement for leave to appeal in relation to costs orders.[80] The disinclination to entertain such appeals continues under the current procedure.[81]
[80]Supreme Court Act1986, s 17A(1)(b) (now repealed).
[81]AFP v Opal Storm Pty Ltd [2018] VSCA 301, [25]–[27].
Costs are quintessentially a discretionary decision. No error as described in House v The King has been demonstrated in the exercise of the costs discretion here. The trial judge’s fundamental reason for the costs order he made was a finding which was both open and appropriate.
Leave to appeal the costs order will be refused.
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