Elfic Ltd v Macks

[2001] QCA 219

SUPREME COURT OF QUEENSLAND

CITATION:

Elfic Ltd  & Ors v Macks & Ors [2001] QCA 219

PARTIES:

ELFIC LIMITED (ACN 007 606 206)
(first plaintiff/first appellant)

LENSWORTH PROPERTIES PTY LTD (IN LIQUIDATION) (ACN 007 520 649)

(second plaintiff/second appellant)

GLENMORE PARK ESTATE LIMITED
(ACN 007 533 888)
(third plaintiff/third appellant)

FOSTER’S BREWING GROUP LIMITED
(ACN 007 620 886)
(fourth plaintiff/fourth appellant)
KINGLINGSTON PTY LTD
(ACN 068 499 874)
(fifth plaintiff/fifth appellant)
CALOUNDRA DOWNS PTY LTD
(ACN 068 356 525)
(sixth plaintiff/sixth appellant)
CABOOLTURE WATERS PTY LTD
(ACN 068 499 810)
(seventh plaintiff/seventh appellant)
MANGO HILL DEVELOPMENT PTY LTD
(ACN 068 244 762)

(eighth plaintiff/eighth appellant)
JOHN FRANCIS O’GRADY
(ninth plaintiff/ninth appellant)
JOHN DANIEL CROSBY
(tenth plaintiff/tenth appellant)

v
PETER IVAN MACKS

(first defendant/first respondent)
EMANUEL MANAGEMENT PTY LTD (IN LIQUIDATION)
(ACN 007 840 913)
(second defendant/second respondent)
SEGACIOUS PTY LTD (IN LIQUIDATION)
(ACN 010 748 544)
(third defendant/third respondent)
MEKA SECURITIES PTY LTD (IN LIQUDATION)
(ACN 007 724 629)
(fourth defendant/fourth respondent)
COFORDO 251 PTY LTD (IN LIQUIDATION)
(ACN 010 683 584)
(fifth defendant/fifth respondent)

GRANGEVILLE PTY LTD (IN LIQUIDATION)
(ACN 008 104 854)
(sixth defendant/sixth respondent)
EMANUEL (NO. 14) PTY LTD (IN LIQUIDATION)
(ACN 008 080 206)
(seventh defendant/seventh respondent)
P.B.R.S. PTY LTD (IN LIQUIDATION)
(ACN 007 799 546)
(eighth defendant/eighth respondent)
PATERSON & CO PTY LTD (IN LIQUIDATION)
(ACN 007 679 763)
(ninth defendant/ninth respondent)
GIUSEPPE NOMINEES PTY LTD (IN LIQUIDATION)
(ACN 007 771 486)
(tenth defendant/tenth respondent)
LONSDALE STAGE 2 PTY LTD (IN LIQUIDATION)
(ACN 007 812 928)
(eleventh defendant/eleventh respondent)
EMANUEL PROPERTIES PTY LTD (IN LIQUIDATION)
(ACN 007 740 123)
(twelfth defendant/twelfth respondent)
EMANUEL (NO. 4) PTY LTD (IN LIQUIDATION)
(ACN 008 036 995)
(thirteenth defendant/thirteenth respondent)
EMANUEL (RUNDLE MALL) PTY LTD (IN LIQUIDATION)
(ACN 007 983 851)
(fourteenth defendant/fourteenth respondent)
VILLA-CAIRNS PTY LTD (IN LIQUIDATION)
(ACN 010 633 459)
(fifteenth defendant/fifteenth respondent)
ADDSTONE PTY LTD (IN LIQUIDATION)
(ACN 010 764 977)
(sixteenth defendant/sixteenth respondent)
ANTLIA PTY LTD (IN LIQUIDATION)
(ACN 010 688 776)
(seventeenth defendant/seventeenth respondent)
CENTAURUS PTY LTD (IN LIQUIDATION)
(ACN 010 688 767)
(eighteenth defendant/eighteenth respondent)
CLOUDLAND INVESTMENTS PTY LTD (IN LIQUIDATION)
(ACN 010 319 730)
(nineteenth defendant/nineteenth respondent)
COFORDO 260 PTY LTD (IN LIQUIDATION)
(ACN 010 685 775)
(twentieth defendant/twentieth respondent)

DERWENT WATER PTY LTD (IN LIQUIDATION)
(ACN 010 688 721)
(twenty-first defendant/twenty-first respondent)
EMANUEL (NO. 7) PTY LTD (IN LIQUIDATION)
(ACN 008 053 352)
(twenty-second defendant/twenty-second respondent)
LASCIVIOUS PTY LTD (IN LIQUIDATION)
(ACN 010 749 032)
(twenty-third defendant/twenty-third respondent)
LEOMINOR PTY LTD (IN LIQUIDATION)
(ACN 010 688 758)
(twenty-fourth defendant/twenty-fourth respondent)
LIVILLA PTY LTD (IN LIQUIDATION)
(ACN 010 748 571)
(twenty-fifth defendant/twenty-fifth respondent)
SAROON PTY LTD (IN LIQUIDATION)
(ACN 010 633 548)
(twenty-sixth defendant/twenty-sixth respondent)
WOODVILLE INDUSTRIAL PARK PTY LTD
(IN LIQUIDATION)
(ACN 008 037 018)
(twenty-seventh defendant/twenty-seventh respondent)
AIRLIE BEACH PTY LTD (IN LIQUIDATION)
(ACN 008 203 218)
(twenty-eighth defendant/twenty-eighth respondent)

NAVICIO PTY LTD

(ACN 010 616 690)
(twenty-ninth defendant/twenty-ninth respondent)
AIRLIE BAY DEVELOPMENTS PTY LTD
(IN LIQUIDATION)
(ACN 010 177 232)
(thirtieth defendant/thirtieth respondent)
ELIZABETH HOUSE PTY LTD (IN LIQUIDATION)
(ACN 007 548 487)
(thirty-first defendant/thirty-first respondent)
ADDSTEAD PTY LTD (IN LIQUIDATION)
(ACN 010 764 931)
(thirty-second defendant/thirty-second respondent)
BRONSTEAD PTY LTD (IN LIQUIDATION)
(ACN 010 906 745)
(thirty-third defendant/thirty-third respondent)
CARMINA BURANA PTY LTD (IN LIQUIDATION)
(ACN 010 672 849)
(thirty-fourth defendant/thirty-fourth respondent)
CARSIM PTY LTD (IN LIQUIDATION)
(ACN 007 760 116)
(thirty-fifth defendant/thirty-fifth respondent)

CC LOT 1 PTY LTD (IN LIQUIDATION)
(ACN 008 037 063)
(thirty-sixth defendant/thirty-sixth respondent)
CC LOT 4 PTY LTD (IN LIQUIDATION)
(ACN 008 037 036)
(thirty-seventh defendant/thirty-seventh respondent)
DANGIER PTY LTD (IN LIQUIDATION)
(ACN 010 731 012)
(thirty-eighth defendant/thirty-eighth respondent)
EMANUEL (NO. 8) PTY LTD (IN LIQUIDATION)
(ACN 008 053 343)
(thirty-ninth defendant/thirty-ninth respondent)
EMANUEL (NO. 9) PTY LTD (IN LIQUIDATION)
(ACN 008 053 334)
(fortieth defendant/fortieth respondent)
EMANUEL (NO. 13) PTY LTD (IN LIQUIDATION)
(ACN 008 080 180)
(forty-first defendant/forty-first respondent)
EMANUEL (NO. 15) PTY LTD (IN LIQUIDATION)
(ACN 010 748 606)
(forty-second defendant/forty-second respondent)
EMANUEL (MALLTOWN) PTY LTD (IN LIQUIDATION) (ACN 007 885 403)
(forty-third defendant/forty-third respondent)
EMANUEL (QLD) PTY LTD (IN LIQUIDATION)
(ACN 008 100 810)
(forty-fourth defendant/forty-fourth respondent)
EMANUEL (SOUTH AUST) PTY LTD (IN LIQUIDATION) (ACN 007 963 466)
(forty-fifth defendant/forty-fifth respondent)

EMANUEL CONSTRUCTIONS PTY LTD (INN LIQUIDATION) (ACN 007 639 438)

(forty-sixth defendant/forty-sixth respondent)
EMANUEL ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 007 838 691)
(forty-seventh defendant/forty-seventh respondent)
EMANUEL HOLDINGS PTY LTD (IN LIQUIDATION)
(ACN 007 653 974)
(forty-eighth defendant/forty-eighth respondent)
EMANUEL INVESTMENTS PTY LTD (IN LIQUIDATION) (ACN 007 743 400)
(forty-ninth defendant/forty-ninth respondent)
EMANUEL PROJECTS PTY LTD (IN LIQUIDATION)
(ACN 007 683 418)
(fiftieth defendant/fiftieth respondent)

ESTABLISHMENT HOLDINGS PTY LTD (IN (IN LIQUIDATION) (ACN 007 736 218)
(fifty-first defendant/fifty-first respondent)

ETRUSCAN PTY LTD (IN LIQUIDATION)
(ACN 010 731 058)
(fifty-second defendant/fifty-second respondent)
HAVANA PTY LTD (IN LIQUIDATION)
(ACN 008 119 999)
(fifty-third defendant/fifty-third respondent)
HENDON INDUSTRIAL PARK PTY LTD (IN (IN LIQUIDATION) (ACN 007 890 708)
(fifty-fourth defendant/fifty-fourth respondent)
HERIOT PTY LTD (IN LIQUIDATION)
(ACN 010 731 021)
(fifty-fifth defendant/fifty-fifth respondent)
HONDEL PTY LTD (IN LIQUIDATION)
(ACN 007 901 144)
(fifty-sixth defendant/fifty-sixth respondent)
JOE EMANUEL PTY LTD (IN LIQUIDATION)
(ACN 007 623 690)
(fifty-seventh defendant/fifty-seventh respondent)
LIBRA PTY LTD (IN LIQUIDATION)
(ACN 007 588 490)
(fifty-eighth defendant/fifty-eighth respondent)
MARVIEW PTY LTD (IN LIQUIDATION)
(ACN 008 272 615)
(fifty-ninth defendant/fifty-ninth respondent)
MOLINARA PASTORAL COMPANY PTY LTD
(IN LIQUIDATION) (ACN 007 705 062)
(sixtieth defendant/sixtieth respondent)
ROCLIN ENTERPRISES PTY LTD (IN LIQUIDATION)
(ACN 007 841 161)
(sixty-first defendant/sixty-first respondent)
SAYER PROPERTIES PTY LTD (IN LIQUIDATION)
(ACN 007 714 927)
(sixty-second defendant/sixty-second respondent)
SOUTH AUSTRALIAN MANUFACTURING PARK  pty PTY LTD (IN LIQUIDATION) (ACN 008 265 058)
(sixty-third defendant/sixty-third respondent)
SURENT PTY LTD (IN LIQUIDATION)
(ACN 008 178 434)
(sixty-fourth defendant/sixty-fourth respondent)
TROMBONE PTY LTD (IN LIQUIDATION)
(ACN 010 633 557)
(sixty-fifth defendant/sixty-fifth respondent)
WORANDO TRUST PTY LTD (IN LIQUIDATION)
(ACN 007 511 739)
(sixty-sixth defendant/sixty-sixth respondent)

GIO INSURANCE LIMITED

(ACN 052 179 647)
(sixty-seventh defendant/sixty-seventh respondent)

COMMONWEALTH BANK OF AUSTRALIA  LIMITED (ACN 123 123 124)

(sixty-eighth defendant/sixty-eighth respondent)

FILE NO/S:

Appeal No 2407 of 2000
SC No 7360 of 1999

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

6 June 2001

DELIVERED AT:

Brisbane

HEARING DATES:

13-16 November 2000

JUDGES:

McMurdo P, Davies JA and Cullinane J
Separate reasons for judgment of each member of the Court, each concurring as to the order made

ORDER:

Appeal dismissed with costs to be assessed

CATCHWORDS:

TORTS – MISCELLANEOUS TORTS – CHAMPERTY AND MAINTENANCE – WHAT CONSTITUTES – MAINTENANCE – CHAMPERTY – whether a funding arrangement enabling the liquidator to pursue claims on behalf of companies in liquidation involved maintenance or champerty – whether the arrangement was unenforceable as contrary to public policy – whether s 477(2)(c) of the Corporations Law authorises arrangements that might otherwise constitute maintenance or champerty – whether a disposition of property under s 477(2)(c) of the Corporations Law is an exception to the principles of maintenance and champerty – whether a solicitor's potential conflict of interest and terms of remuneration and disposee’s control over the action resulted in the arrangement becoming an abuse of process

CORPORATIONS – s 477(2)(c) – whether the arrangement provides for a sale or disposition of property within s 477(2)(c) of the Corporations Law – whether a purported disposal of the future proceeds of an action is a disposal within the meaning of s 477(2)(c) – whether s 477(2)(c) authorises a disposal of a share of the future proceeds of litigation on terms which allow significant control of the action to the intended disposee

CORPORATIONS – WINDING UP – GENERALLY - whether proceeds of an action recovered pursuant to s 565, s 588FF and s 588M of the Corporations Law are the ‘property’ of the company for the purposes of s 477(2)(c)

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF LIQUIDATION - whether the arrangement purports to distribute proceeds of a claim under s 565 of the Companies Code to parties other than creditors

CORPORATIONS – WINDING UP – LIQUIDATORS - RIGHTS AND POWERS – whether the arrangement was entered into in good faith and in the best interests of the creditors as a whole – whether the liquidator acted in the interests of the winding up in entering the arrangement

CORPORATIONS – WINDING UP – LIQUIDATORS – RESIGNATION OR REMOVAL – whether there was an error in failing to order the removal of the liquidator – whether the liquidator deliberately misled the court

CORPORATIONS – WINDING UP – LIQUIDATORS - DUTIES AND LIABLITIES – whether the non-disclosure of material facts in an ex parte application under s 479(3) Corporations Law for directions as to liquidator's power to enter into the arrangement should result in the order being set aside – obligations of a party making such an ex parte application

Bankruptcy Act 1966 (Cth), s 134(1)(a)
Companies Code, s 565, s 565(2)
Corporations Law, s 9, s 473, s 477, s 477(2B), s 477(2)(c), s 477(6), s 479(3), s 503, s 564, s 564(a), s 565, s 588FF, s 588M, s 588M(2)
Federal Courts (State Jurisdiction) Act 1999 (SA), s 10
Federal Courts (State Jurisdiction) Act 1999 (Qld), s 10
Legal Practice Act 1996 (Vic), s 99
Property Law Act 1974 (Qld), s 199
Queensland Law Society Act 1952 (Qld), s 48D

A H Toy v Registrar of Companies (NT) (1987) 72 ALR 107, referred to
Abraham v Thompson [1997] 4 All ER 362, considered
Addstead Pty Ltd (In Liq) v Liddan Pty Ltd (1997) 70 SASR 21, referred to
Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, applied
Bang & Olufsen (UK) Ltd v Ton Systeme Ltd (unreported, 16 July 1993, Court of Appeal (Civil Division) Transcript No 834 of 1993), considered
Bell Group Ltd (In Liq) v Westpac Banking Corporation (1996-7) 18 WAR 21, considered
Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561, considered
Buiscex Ltd v Panfida Food Ltd (In Liq) (1998) 28 ACSR 357, referred to
Citicorp  Australia Ltd v Official Trustee in Bankruptcy (1996-7) 71 FCR 550, referred to
Clyne v New South Wales Bar Association (1960-1) 104 CLR 186, considered
Commissioner for Corporate Affairs v Harvey [1980] VR 669, referred to
Commissioner of Police v Tanos (1958) 98 CLR 383, distinguished
Corporate Affairs Commission v ASC Timber Pty Ltd & Ors (1998) 29 ACSR 109, considered
Cotterill v Bank of Singapore (Australia) Ltd (1994-5) 37 NSWLR 238, considered
DJL v Central Authority (2000) 74 ALJR 706, considered
Emanuel Management Pty Ltd (In Liq) v Fosters Brewing Group Ltd (1998-9) 73 SASR 303, referred to
Faryab v Smyth [1998] EWCA 3503, considered
Giles v Thompson [1994] 1 AC 142, considered
Glegg v Bromley [1912] 3 KB 474, referred to
Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80, considered
Guy v Churchill [1889] 40 ChD 481, considered
In re Exchange Travel (Holdings) Ltd (In Liq) (No 3) [1997] 2 BCLC 579, considered
In re Park Gate Waggon Works Company [1881] 17 ChD 234, considered
Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1996-7) 72 FCR 261, considered
Martell v Consett Iron Co Ltd [1955] Ch 363, considered
N A Kratzmann Pty Ltd (In Liq) v Tucker (No 2) (1970-1) 123 CLR 295, considered
Octavo Investments Pty Ltd v Knight (1979-80) 144 CLR 360, considered
Owners of the SS Kalibia v Wilson (1910) 11 CLR 689, distinguished
Re Addstone Pty Ltd (In Liq) (1998) 83 FCR 583, considered
Re Allebart Pty Ltd (In Liq) and the Companies Act [1971] 1 NSWLR 24, referred to
Re Daniel Efrat Consulting Services Pty Ltd (In Liq); ex parte Hawke (1999) 162 ALR 429, considered
Re Feasty's Family Restaurants Pty Ltd (In Liq) (1996) 14 ACLC 1058, considered
Re Fresjac Pty Ltd (In Liq) (1995-6) 65 SASR 334, considered
Re Gasbourne Pty Ltd [1984] VR 801, distinguished
Re Movitor Pty Ltd (In Liq) (1996) 64 FCR 380, considered
Re Oasis Merchandising Services Limited [1998] Ch 170, considered
Re South Downs Packers Pty Ltd [1984] 2 QdR 559, referred to
Re Starkey [1994] 1 QdR 142, considered
Re Tosich Construction Pty Ltd (1997) 73 FCR 219, considered
Re Wakim; ex parte McNally (1999) 73 ALJR 839, considered
Re William Felton &Co Pty Ltd (1998) 16 ACLC 1294, considered
Re Yagerphone Limited [1935] Ch 392, considered
Roux v Australian Broadcasting Commission [1992] 2 VR 577, referred to
Sa v Latreefers Inc [2000] EWCA 17, considered
Thermax Limited v Schott Industrial Glass Limited [1981] Fleet Street Reports 289, considered
UTSA Pty Ltd (In Liq) v Ultratune Australia Pty Ltd (1996) 14 ACLC 1262, considered

COUNSEL:

P A Keane QC, with J C Sheahan SC and J D McKenna for the appellants
E J P F Lennon QC, with R M Derrington for the first to sixty-sixth respondents
A J H Morris QC, with M M Stewart SC for the sixty-seventh respondent
A J Meagher SC with D C Andrews for the sixty-eighth respondent

SOLICITORS:

Clayton Utz for the appellants
Bennett & Philp (Brisbane) acting as Town Agents for Ward & Partners (Adelaide) for the first to sixty-sixth respondents
Barwicks Wisewoulds for the sixty-seventh respondent
Ryrie A Bridges for the sixty-eighth respondent

1. McMURDO P:  Some of the appellants, companies in the Elders Group (now under the control of Foster's Brewing Group Limited) lent substantial amounts to some of the respondent companies ("the Emanuel companies").  Before being placed into liquidation for unpaid debts of $304 million, some of the Emanuel companies and their directors, members of the Emanuele family, entered into transactions with some of the appellant companies.  The liquidator of the Emanuel companies, the first respondent ("Macks"), questions the legitimacy of these transactions in proceedings against the appellants and Coopers & Lybrand (the Emanuel companies' auditors) to recoup benefits allegedly obtained by some of the appellant companies from some of the Emanuel companies through breaches of the Corporations Law ("the Law") and Companies Code ("the Code").  If Macks were fully successful in these claims ("the main action"), he could recover many millions of dollars on behalf of the Emanuel companies. 

1. In order to fund the litigation, Macks entered into an arrangement ("the funding arrangement") with the 67th respondent, GIO Insurance Limited ("GIO") and the 68th respondent, the Commonwealth Bank of Australia Limited ("CBA").

1. The main action was commenced in the Supreme Court of South Australia. Macks sought and obtained the approval of Mansfield J in the Federal Court of Australia in South Australia to enter into the funding arrangement under s 479(3) of the Law: see Re Addstone Pty Ltd(In Liq).[1]

   [1](1998) 83 FCR 583.

1. The main action was then cross-vested by Debelle J to the Supreme Court of Queensland: see Emanuel Management Pty Ltd (In Liq) v Fosters Brewing Group Ltd.[2]

   [2](1998-9) 73 SASR 303.

1. The appellants contend that the funding arrangement is champertous. They brought an action in the Trial Division of the Supreme Court of Queensland seeking a declaration that the funding arrangement was void, as contrary to public policy, not authorised by s 477(2) of the Law and not entered into by Macks bona fide in the interests of the Emanuel companies or their creditors. They also sought an injunction to restrain the respondents from performing the funding arrangement; an order for the removal of Macks as liquidator of the Emanuel companies and an order setting aside the order of Mansfield J or, alternatively, an order under s 10 Federal Courts (State Jurisdiction) Act 1999 (Qld) and s 10 Federal Courts (State Jurisdiction) Act 1999 (SA) that the rights and liabilities of the parties in respect of the orders of Mansfield J be set aside and revoked to the same extent as if those orders had been set aside.

1. This appeal is from the dismissal of that action by Williams J (as he then was).

1. The appellants no longer seek an injunction as a tortious remedy as they accept they have not established special damage: see Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd.[3]  Their request for an injunction is now based solely on the court's power to prevent an abuse of its process: see Grovewood Holdings Plc v James Capel & Co Ltd;[4] Abraham v Thompson,[5] Faryab v Smyth[6] and Sa v Latreefers Inc.[7]

The facts

[3](1996-7) 72 FCR 261, 267.

[4][1995] Ch 80, 87-89.

[5][1997] 4 All ER 362, 372-374.

[6][1998] EWCA 3503, 28 August 1999, [26].

[7][2000] EWCA 17, 9 February 2000.

Background

1. The Emanuel companies engaged in property development and in 1987 Emanuel Management Pty Ltd acquired an extensive area of land north of Brisbane ("the APM lands") which was to be financed through one of the appellant companies.  In May 1987 Lensworth Properties Pty Ltd offered a $43 million facility to Emanuel Management Pty Ltd to be secured by guarantees from other Emanuel companies, company charges and real property mortgages.  The offer was accepted and a Deed of Master Agreement was signed on 12 June 1987 which formalised the loan facility and acknowledged receipt of $43 million.  The debt was secured by a mortgage debenture by Emanuel Management Pty Ltd; a mortgage debenture and bill of mortgage over the APM lands by Emanuel (No 14) Pty Ltd and guarantees by Emanuel (No 14) Pty Ltd and some other Emanuel companies.  Later, mortgage debentures were given by a further five Emanuel companies.  The validity of the $43 million debt and the original securities have not been challenged.  The securities have not been enforced or realised. On 11 April 1991, Lensworth Properties Pty Ltd and EFG Finance Limited assigned various interests, including the APM lands, to Elfic Limited. [8]

   [8]Elfic Limited (known as Elders Finance & Investment Co Limited), Lensworth Properties Pty Ltd (known as Arrow Properties Pty Ltd) and EFG Finance Limited (now Glenmore Park Estate Limited) are referred to as "the EFG group" for the purposes of later transactions.

1. On 11 March 1993, Emanuel Management Pty Ltd and their guarantors acknowledged their default under this and other facilities.  The EFG Group and 27 of the Emanuel companies executed a Deed of Orderly Realisation of Securities in which they acknowledged a debt to the EFG Group of $153,144,910.58.  The EFG Group issued a specially endorsed writ of summons seeking recovery of $182,272,193.97 against the 27 Emanuel companies, which entered an appearance and defence to the writ.

1. On 27 February 1995, Thomas J (as he then was) entered summary judgment in favour of the EFG Group against Guiseppe Emanuele and 27 companies in the Emanuel Group for $186,880,302.71. 

1. On 17 March 1995, 29 companies in the Emanuel group entered into a Deed of Forebearance and Release ("DOFR") with the EFG Group.  The DOFR transferred 131 properties to nominees of the appellants for consideration of approximately $47,800,000.  It is claimed in the main action that this transfer of property was at an undervalue and that in return the EFG group paid about $6 million to those associated with the Emanuel group.

1. From June 1995 orders were made for the compulsory winding up of companies in the Emanuel group.  Macks was appointed as liquidator of each company.

1. In September 1995 Macks issued notices to creditors of 16 of the 65 companies in the Emanuel group (but not Emanuel (No 14) Pty Limited), convening meetings and inviting formal proofs of debt.  Proofs of debt were executed and lodged in respect of 11 of the 16 Emanuel companies, including Emanuel Management Pty Ltd.  These proofs were in identical form and stated the debt owing to the appellant companies as $146,390,078.34, and that no satisfaction or security had been had or received for this sum.

1. The meeting of creditors of these 16 Emanuel companies was held on 10 October 1995.  Macks advised creditors that he had commenced proceedings to recover the payments made by the EFG group to one of the Emanuel companies, Simionato.  The largest creditors were the EFG Group ($146 million for each company) and the Australian Taxation Office ("ATO") (sums varying from $1,360 up to $14.7 million).   Macks noted that the EFG Group's proofs of debt were objected to and admitted them, for voting purposes only, at a deemed value of $1.  Mr Thomas, as proxy for the EFG Group, advised that they were holding no security.  Macks asked creditors to advise him within 14 days whether they would indemnify him for the costs of various items, including the conduct of public examinations.  A committee of inspection was appointed with a representative from the appellants and the ATO.

1. On 27 October 1995, the EFG Group attempted to clarify the treatment of their proofs of debt.

1. On 30 October 1995 Macks wrote to the EFG Group seeking particulars of the assets of the Emanuel group over which security was held.  During 1995 and 1996 Macks conducted a series of public examinations over a six month period at an approximate cost of $800,000; he was indemnified for part only of this amount by the ATO.

1. From about March 1996 Macks attempted to obtain funding from creditors other than the appellants for a proposed action against the appellants.  Formal requests were made at meetings of creditors at which the appellants were present.  The ATO funded investigations to $1.48 million but declined further funding after April 1997.

1. On 12 March 1996 Macks issued a notice to the creditors of the 16 Emanuel companies of a further meeting of creditors to be held on 28 March 1996 to consider indemnifying Macks in relation to some recovery proceedings.  At the meeting which took place on 28 and 29 March, Macks requested indemnities for various costs, including costs of the claim against the appellants.  Mr Byrne, on behalf of the EFG group, described their claim on the 16 Emanuel companies as "unsecured"; no dissent is recorded in the minutes of the meeting which refer to a discussion of the effect of the DOFR as extinguishing the appellants' debt.

1. During May 1996 public examinations resumed.  During an examination of an officer of an appellant company, Macks' counsel stated:

"Can I also indicate for the benefit of my learned friends that whilst at the end of it [this examination] I will be asking for the adjournment of the examinations, if the liquidator should, between now and October, be advised and decides to issue proceedings … of the sort my learned friend indicated there would of course be no attempt to pursue an officer of [the appellants] or their solicitors by further examination."

1. On 4 and 10 December 1996 Macks issued further notices to creditors requesting an indemnity to pursue recovery actions and foreshadowing an application to the court to give the ATO priority as a creditor for providing an indemnity in some actions.

1. The solicitors for the EFG group wrote to Macks on 11 December 1996 requesting reasonable notice of any such application to the court as a major creditor of the Emanuel companies who would be affected by such an order.  The EFG group repeated that request two days later.  On Friday, 20 December 1996 Macks gave the EFG group notice that the application was to be heard the following Monday. 

1. On 24 December 1996 Macks issued proceedings (the 1996 proceedings) against the EFG group and Coopers & Lybrand in the Supreme Court of South Australia.  Macks obtained an ex parte order suppressing the existence of those proceedings until 24 March 1997 to allow Macks to confidentially continue investigations and pursue funding.  Macks obtained subsequent orders in similar terms extending the suppression until March 1998. 

1. Macks issued a separate action against the appellants on 20 March 1998 (the 1998 proceedings).  This was not served until June 1998.

1. On 15 January 1997, the solicitors for the EFG group wrote to Macks:

"We would also seek your confirmation on one further matter, that is, that you will provide us with reasonable notice (a minimum of seven days) of any further application which the liquidator (or other person) may bring that concerns or may concern the interests of creditors (and in particular, any application pursuant to s 564 of the Corporations Law). It is clear from your material that any such application has the potential to significantly impact upon our client's rights as a creditor. We do not want a recurrence of the position in relation to this application where notwithstanding that the Indemnity Agreement was apparently entered into on 4 December 1996, the application to court was not made until 20 December 1996 on virtually no notice to our client. Could you please confirm that our client will be given reasonable notice of any such application."

1. Macks responded:

"We note your request for at least seven days notice of any future applications that may concern the creditors of the companies in liquidation.  We undertake to give you such notice where possible."

The Funding Arrangement

1. In 1996 following the decision in Re Movitor Pty Ltd (In Liq)[9] Mr Charles, a member of the firm  Phillips Fox, drafted documents to create a scheme for funding liquidators' litigation.  Mr Charles approached GIO and encouraged it to become involved in this area of business.  Mr Charles developed the precedent documents to be used by GIO in the commercial funding of liquidators' litigation, acted as their legal adviser and also undertook extensive promotion of the litigation insurance scheme.  In about February 1997 Mr Charles left Phillips Fox and became a consultant at Ebsworth & Ebsworth.  Later he became a member of the firm Charles Fice. 

[9](1996) 64 FCR 380.

1. On 27 June 1997 Macks commenced negotiations with GIO through their solicitor, Mr Charles.  The precedent documents provided for Mr Charles to receive an additional service fee to the fees charged by others for their legal work.  It was elsewhere  proposed that Mr Charles, through Liquidators' Expense Insurance Pty Ltd ("LEI"), would receive a copyright licence fee, calculated by reference to a share of the proceeds of the litigation.

1. Macks, represented by solicitors, Ward & Partners, met and negotiated with Mr Charles, GIO's representative, in November 1997.

1. At the time the funding arrangement was negotiated, Mr Charles was to receive a licence fee for the copyright documents used in the funding arrangement to be paid out of the brokerage fee paid by GIO to the broker.  Macks was unaware of this until he received a facsimile from Mr Charles on 11 March 1998.  In that letter, Mr Charles advised Macks that he was a shareholder and director of LEI and the licence or copyright fee, calculated by reference to a share of the proceeds of the litigation, would be paid to LEI; although he would resign his interest his family may retain or acquire a controlling interest; if so, he may have a conflict of interest. 

1. Later Mr Charles' wife became sole director and shareholder of LEI.  The copyright claimed on the funding arrangement was in the name of Mr Charles.  There is no evidence of any documented sale for proper value of Mr Charles' rights under the licence agreement to LEI. 

1. By 21 December 1998 the terms of the licence agreement between LEI and Mr Charles had been re-negotiated so that, in return for CBA and GIO using Mr Charles' documents, GIO was to pay LEI licence fees of 10 per cent of premiums received by GIO from the claims.

1. Macks gave evidence at the trial that he believed Mr Charles had divested himself of all interest in LEI before the funding arrangement documents were executed.

1. Williams J found it was impossible on the evidence to determine what fees would be paid to either LEI or Mr Charles, who did not give evidence before him.

1. GIO saw the role of Mr Charles and his firm "to promote the product [of litigation insurance], review proposals, provide advice to GIO on the prospects of success, act for the liquidator (providing the liquidator is agreeable) and monitor work done by other firms where [Mr Charles'] firm is not acting for the liquidator."  Macks knew that Mr Charles was working for GIO as a major promoter of GIO's litigation insurance.  The solicitor-client relationship between Mr Charles and GIO continued after the funding arrangement became operational.

1. GIO's offer to fund the main action was conditional upon receipt of legal advice that there was no prior ranking charge over the proceeds of the claim against the appellants and Macks' obtaining a court order that the arrangements contemplated in the funding arrangement were lawful.

1. GIO was concerned about the potential effect on the funding arrangement of the EFG Group's mortgage debentures over the six Emanuel companies (including Emanuel (No 14) Pty Ltd).

1. On 9 December 1997, two companies in the EFG group submitted proofs of debt and claimed as security a mortgage debenture from Emmanuel (No 14) Pty Ltd, despite the contrary statements made on their behalf at the creditors' meetings on 10 October 1995[10] and 28 and 29 March 1996.[11]

   [10]These reasons [14]

   [11]These reasons [18]

1. On 2 February 1998 Macks wrote directly to one of the EFG group (not its lawyers) on behalf of each of the six Emanuel group companies over which the EFG Group had a mortgage debenture, referring to those proofs of debt and requesting completion of Corporations Law form 312[12] to update records of the Australian Securities Commission.  Macks knew that the EFG group claimed to be secured creditors of Emanuel (No 14) Pty Ltd.  Macks did not disclose to the EFG group that the existence of the securities was a concern to GIO because of its involvement in the funding arrangement.  Macks conceded, perhaps with hindsight, that forwarding the proofs of debt direct to the appellant companies instead of their lawyers was "somewhat unwise" but maintained he had acted in good faith.  The six Emanuel companies did not execute the forms.

   [12]Notification of Discharge or Release of Property from a Charge.

1. The funding arrangement between Macks, GIO and CBA was executed on 18 March 1998.  Macks did not seek the approval of the creditors of the Emanuel companies beforehand.

Terms of the Funding Arrangement

1. The funding arrangement comprised a loan and guarantee facilities agreement, a deed of charge, an insurance policy, solicitor-client agreement and agency agreement, all of which were copyrighted to Mr Charles. 

Loan and guarantee facilities agreement

1. Under the loan agreement CBA agreed to advance funds to Macks to pursue the main action, to remunerate Macks so that he could pursue the action and defend any applications brought against him and to pay Macks' legal costs and expenses, including those he might be ordered to pay.  CBA also agreed  to advance Macks the $80,000 premium payable to GIO to insure against the risk that the loan to CBA may not be repaid at the conclusion of the litigation.[13]  Macks was to repay CBA its advance from the proceeds of any successful litigation[14] at commercial rates of interest[15] and in return CBA was given a fixed charge over the claim and was protected by GIO's insurance policy.[16]  The loan agreement would end if, inter alia, any provision in the insurance policy was declared void. 

   [13]Loan and guarantee facilities agreement, cl 2.

   [14]Loan and guarantee facilities agreement, cl 15.

   [15]Loan and guarantee facilities agreement, cl 11.

   [16]Loan and guarantee facilities agreement, cl 25.

Deed of charge

1. The deed of charge gave CBA security over the claim for all moneys owing to CBA under the loan facility.  The security was fixed and rated as a first charge.

Insurance policy

1. Under the insurance policy GIO insured CBA against the risk of non-payment and Macks against liability for his own legal expenses and any legal expenses ordered against him.  In return, GIO was to be paid the initial $80,000 premium by CBA and if the litigation was successful would receive approximately 35 per cent of net recoveries as a risk premium.[17]  In addition, Macks was to give GIO a share of the proceeds of the claim sufficient to pay or reimburse GIO for the amounts to which it is entitled under the policy.[18]  Macks was required to obtain GIO's approval before applying for a trial date (including filing a certificate of readiness for trial); briefing counsel on trial; settling or discontinuing the claim or the legal proceedings and appealing against a final judgment.  Failure by GIO to give written approval within a reasonable time enabled Macks to require GIO to join in choosing an independent senior counsel to advise whether the proposed action should be taken; that advice would be binding on the parties.[19]

   [17]Op cit fn 1, 589-590; Elfic Limited & ors v Peter Ivan Macks & ors SC 7360 of 1999, 25 February 2000, [20]; insurance policy cl 1 and schedule item 5.

   [18]Insurance policy, cl 15.

   [19]Insurance policy, cl 16.

1. The insurance policy required Macks to conduct the claim in a proper and responsible way, to obtain professional advice when asked by GIO as to the prospects of success of the claim and whether it should be pursued, compromised or discontinued; to contact GIO immediately upon receiving professional advice to compromise or discontinue the claim or upon becoming aware of anything that significantly affected the risk of not recovering the total amount outstanding and to pay full regard to the professional advice received.[20]

   [20]Insurance policy, cl 8.

Solicitor-client agreement

1. Under the solicitor-client agreement Macks appointed Mr Charles' firm as solicitors in the main action.[21]  The agreement could be terminated if either party committed a serious breach of the agreement.[22]  Mr Charles' firm, at Macks' expense, was required to give GIO any advice, information or documents it reasonably required on the main action.[23]

   [21]Solicitor-client agreement, cl. 1.

   [22]Solicitor-client agreement, cl 18.

   [23]Solicitor-client agreement, cl 17.

Agency agreement

1. Under the agency agreement Mr Charles' firm appointed Ward & Partners (Macks' solicitors) to act in the day to day running of Macks' claims but significant matters, including applying for a trial date, briefing counsel on trial, discontinuance of the claim or appeal against a final judgment or settlement, could not be undertaken without the written instructions of Mr Charles' firm;[24] Ward & Partners must not act contrary to any written instruction from Mr Charles' firm; Mr Charles' firm was able to terminate Ward & Partners appointment for any reason on 30 days notice; Ward & Partners could terminate the appointment of Mr Charles' firm only if there was a serious breach of the agreement or if they had a conflict of interest.[25]  Ward & Partners were required to engage as a consultant Mr Rosenzweig, an erstwhile consultant with Mr Charles' firm.[26]

   [24]Agency agreement, cl 4.

   [25]Agency agreement, cl 19.

   [26]Agency agreement, cl 9-11.

Court Approval of the Funding Arrangement

1. By February 1998 Macks' pursuit of legal action on behalf of the Emanuel companies had resulted in $2.5 million in unpaid fees to him and $1.1 million in legal fees.

1. On 17 February 1998 in Adelaide Macks applied to Mansfield J in the Federal Court of Australia under s 479(3) of the Law for directions as to whether Macks had power to enter into the funding arrangement. The appellants and other creditors were not given notice of this application. On 20 February 1998, Mansfield J approved Macks' participation in the funding arrangement and ordered that the application be heard ex parte; the affidavits be sealed;[27] the notice of motion be heard in camera with the transcript remaining confidential; a true copy verified by affidavit be filed upon execution of the document and the liquidator, creditors and contributories of the companies be given liberty to apply.  Mansfield J directed that the affidavits and transcript be sealed and remain confidential.

   [27]Pre-trial directions given by Williams J in this action allowed much of the transcript of the hearing to be disclosed at the trial.

1. Macks disclosed to Mansfield J the undertaking given to the appellants[28] but submitted that it was not appropriate to give notice because the appellants were the proposed defendants in the action.  Mansfield J found there had not  been any breach of the undertaking and expressed satisfaction as to the bona fides of the liquidator.

   [28]See these reasons [24] and [25].

1. Macks did not disclose to Mansfield J Mr Charles' relationship as solicitor for both GIO and Macks or that Mr Charles was to receive, through LEI, a percentage of the proceeds of the action against the appellants.[29]

   [29]But see these reasons [29]-[33].

1. On 11 March 1998, Macks sought a variation of the funding arrangement to extend the limitation period for actions brought under s 588FF of the Law. Mansfield J granted the orders sought and additionally gave liberty to apply to the liquidator, creditors and contributories and any party against which proceedings are brought under s 588FF at any time within two months after service upon it of such proceedings.

1. Macks sought legal advice about the matters raised by Mr Charles in his facsimile of 11 March 1998.[30]  On 17 March 1998 Macks was advised by senior counsel that "ultimately it is not a matter of concern to you how GIO choose to distribute the premium they make from this facility.  In the circumstances we believe that you need take no further action in relation to the arrangement Mr Charles has".  Macks did not inform Mansfield J of Mr Charles' fee arrangements or potential for conflict of interest; by 11 March 1998 the varied order had not been taken out and Mansfield J's final judgment had not been entered.

   [30]See these reasons [29].

1. The funding arrangement documents were exhibited to an affidavit filed in the Federal Court on 29 May 1998, pursuant to Mansfield J's earlier directions.  Mansfield J's judgment approving the funding arrangement was delivered on 9 June 1998: see Re Addstone Pty Ltd (In Liq).[31] 

   [31](1998) 83 FCR 583.

Subsequent Events

1. Macks served EFG Finance with the 1996 preference share action on 23 March 1998 after the funding arrangement had been executed.  On 9 April 1998 the solicitors for EFG Finance wrote to Macks' solicitors advising they were acting in those proceedings and were arranging for an appearance to be filed; they served a request for documents referred to in the pleading.

1. At the end of May 1998 CBA commenced funding under the agreement, after receipt of satisfactory legal advice.

1. On 4 June 1998 Macks wrote to the solicitors for Mr O'Grady and Mr Crosby  asking whether they had instructions to accept service in the 1998 proceedings against the appellant companies.  On 10 June 1998 the solicitors advised that they had instructions to accept service on behalf of Mr O'Grady and Mr Crosby. On 12 June 1998 The Financial Review published an article about Mansfield J's approval of the funding arrangement, quoting Macks' statement that it was "probably the largest litigation funding approved by a court in Australia".  On 15 June 1998 Macks wrote to the appellants' solicitors advising that the appellants Mr O'Grady and Mr Crosby had already been served with the 1998 proceedings.  On 29 June 1998, without giving prior notice, Macks caused judgment in default of appearance to be entered against the appellants in the 1998 proceedings.  Macks informed the appellants' solicitors of this on 30 June 1998 and on 1 July 1998 the appellants applied for an urgent stay of the judgment.  The default judgment was set aside on 3 July 1999 with a costs order in favour of the appellants. 

1. On 26 February 1999 Debelle J ordered the consolidated main action be transferred to the Supreme Court of Queensland.[32] 

   [32]Op cit fn 2.

1. In March 1999 Macks applied ex parte for orders to publicly examine individuals associated with the appellants.

1. On 7 July 1999 two of the appellant companies applied in the Federal Court to set aside inter alia the orders of Mansfield J approving the funding arrangement; the application was served on Macks on 9 July 1999. 

1. The decision of the High Court in Re Wakim; ex parte McNally[33] which held invalid Commonwealth legislation purporting to confer State jurisdiction on federal courts, was delivered on 17 June 1999.  The Federal Court application to set aside the funding arrangement was adjourned by consent to 20 August 1999.  On 13 August 1999 the appellants filed the claim in this action. 

   [33](1999) 73 ALJR 839.

1. By 12 October 1999 CBA had advanced over $3.3 million under the funding arrangement.

Maintenance and champerty

1. This funding arrangement was to conduct civil litigation through the provision of financial assistance by GIO to Macks in return for the receipt by GIO of a  proportion of the proceeds.  Such an arrangement is prima facie maintenance and champerty.

1. The essence of the civil tort of maintenance is "… the officious intermeddling in and supporting litigation in which the maintainer has no legitimate interest, the invasion of a person's right not to be harried in courts of justice by litigation".[34]

   [34]Neville v London "Express" Newspaper Ltd [1919] AC 368, Lord Atkinson at 395.

1. Any person who without lawful justification assists a litigant in civil proceedings to which that person is not a party, resulting in damage to the plaintiff, commits the tort of maintenance.[35]  Champerty is a particular form of maintenance in which a share of the proceeds is the consideration for the assistance given.[36]

   [35]Ibid, 379.

   [36]Balkin and Davis, "Law of Torts", Butterworths 1991, 783; J C Scott Constructions v Mermaid Waters Tavern Pty Ltd [1984] 2 QdR 413, 429.

1. The historical reasons for the development of the crime and civil wrong of maintenance and champerty[37] in medieval times have little relevance today but the courts must remain vigilant to ensure in the interests of public policy that there is no trafficking in litigation or speculating in causes of action for improper gain.[38]  On the other hand, the courts also recognise the need for innovative but responsible ways of increasing access to justice for the impecunious: see the comments of Danckwerts J in Martell v Consett Iron Co Ltd.[39]

   [37]See Winfield, "The History of Maintenance and Champerty", 1919, 35 LQR 50.

   [38]Roux v Australian Broadcasting Commission (1992) 2 VR 577, 606.

   [39][1955] Ch 363, 386-387.

1. If a funding arrangement involves maintenance or champerty it will ordinarily be illegal as contrary to public policy even in those jurisdictions, like Victoria,[40] where the criminal offence and civil tort of maintenance and champerty have been abolished.[41]  The fact that an action is illegally maintained and against public policy may make the agreement void and unenforceable as between the parties, but it is no defence to the action which has been commenced: Skelton v Baxter.[42]  However, the court has the power to stay proceedings if satisfied they constitute an abuse of process: Grovewood Holdings Plc v James Capel & Co Ltd.[43]

   [40]The law of Victoria is the law governing the documents constituting a funding arrangement.

   [41]Roux v Australian Broadcasting Commission (1992) 2 VR 577, 605; Re Movitor Pty Ltd (In Liq) (1996) 64 FCR 380, 387; Faryab v Smyth (1998) EWCA 3503, [19].

   [42][1916] 1 KB 321, 326.

   [43][1995] Ch 80.

1. The mere fact that proceedings are financed by third parties with no interest in the outcome other than repayment and profit from the litigation is not itself sufficient to invoke the jurisdiction of the court.  Courts should be careful not to use that power to deny access to justice to a party who has sought to fund bona fide proceedings in a way which may be contrary to public policy unless that which has been done amounts to an abuse of the court's own process: Abraham v Thompson,[44] Faryab v Smyth[45] and most recently in Sa v Latreefers Inc[46] where the Court of Appeal of England and Wales noted:[47]

   [44][1997] 4 All ER 362, 372-374.

   [45][1998] EWCA 3503, 28 August 1999, [26].

   [46][2000] EWCA 17, 9 February 2000.

   [47]Ibid, [59]-[61].

"There are many commonplace and unobjectionable circumstances in which modern litigation is funded by those who are not the nominal parties to it.  Obvious examples of this are funding by insurers, trade unions or lawyers engaged on legitimate conditional fee arrangements.  If an agreement of this general kind is held to be contrary to public policy, it may be unenforceable.  That may have a variety of consequences.  A claim which depends on the assignment of a bare right of action may fail because the assignment is ineffective.  A person who has funded an action champertously may fail to enforce recovery of the agreed proportion of the spoils.  A person who has secured a champertous agreement to fund his litigation may be unable to enforce payment of the agreed funds.  But the fact that a funding agreement may be against public policy and therefore unenforceable as between the parties to it is by itself no reason for regarding the proceedings to which it relates or their conduct as an abuse.

… the question whether the courts' process is affected or threatened by an agreement for the division of spoils is one to be considered in the light of the facts in each case.

…

Abuse of the courts' process can take many forms and may include a combination of two or more strands of abuse which might not individually result in a stay.  Trafficking in litigation is, by the very use of the word "trafficking", something which is objectionable and may amount to or contribute to an abuse of the process.  We think that it is undesirable to try to define in different words what would constitute trafficking in litigation.  It seems to us to connote unjustified buying and selling of rights to litigation where the purchaser has no proper reason to be concerned with the litigation.  'Wanton and officious intermeddling with the disputes of others in which they [the funders] have no interest and where that assistance is without justification or excuse' may be a form of trafficking in litigation.  … A large mathematical disproportion between any pre-existing financial interest and the potential profit of funders may in particular cases contribute to a finding of abuse but is not bound to do so."

1. In concluding that there was no abuse of process, the court in Sa took into account that the funders had undertaken responsibility for the costs of what had already become very expensive litigation and that the conduct of all legal proceedings and settlement negotiations were in the hands of experienced lawyers; the funders therefore had no opportunity to abusively influence the conduct of any proceedings.

1. The appellants have not sought a stay of these proceedings but have sought an injunction to restrain the respondents from performing the funding arrangement claiming the funding arrangement constitutes an abuse of process.

1. The trial judge refused to grant this injunction or any other relief sought.

1.Does s 477(2)(c) of the Law authorise arrangements which might otherwise constitute maintenance or champerty? 

1. Section 199 of the Property Law Act 1974 (Qld) and its earlier equivalents permit the statutory assignment of choses in action including assignments which would have been enforced in equity.[48]  The present position is that an assignment may not ordinarily be made of a bare right of action to someone with no genuine pre-existing commercial interest in that right who assists or encourages the litigation (maintenance) in return for a share in the proceeds of the action (champerty).[49]

   [48]In re Pain; Gustavson v Haviland [1919] 1 Ch 38, 44-45; Trendtex Trading Corporation v Credit Suisse [1980] QB 629; [1982] AC 679; Federal Commissioner of Taxation v Everett (1979-80) 143 CLR 440, 447 and Trading Corporation v Credit Suisse [1982] AC 679, 702.

   [49]Giles v Thompson [1994] 1 AC 142, 161.

1. Mansfield J, in approving the funding arrangement, concluded that it was not champertous because it came within a long established exception based on the power of a trustee in bankruptcy or liquidator to dispose of property pursuant either to s 134(1)(a) of the Bankruptcy Act 1966 (Cth) or s 477(2)(c) of the Law. Williams J also accepted that proposition.[50]

   [50]Elfic Limited and ors v Peter Ivan Macks and ors SC No 7360 of 1999, 25 February 2000 at [59]-[67].

1. Provisions such as s 134(1)(a) Bankruptcy Act 1966 provide a statutory exception to the law of maintenance authorising the trustee in bankruptcy to sell a cause of action: Seear v Lawson[51]; Citicorp Australia Ltd  v Official Trustee in Bankruptcy.[52]

   [51][1880] 15 ChD 432, 432-433.

   [52](1996-7) 71 FCR 550, 557-558.

1. The appellants claim that the reasoning in bankruptcy cases does not apply to company liquidations; under the bankruptcy scheme title to all property of the bankrupt vests in the trustee in bankruptcy who has power to sell this property; by contrast, the statutory regime for company liquidations gives the liquidator the right to control the assets of the corporation, including the power of sale but does not automatically divest the company of its property without a specific order. 

1. Section 477(2)(c) of the Law relevantly provides:

"… a liquidator of a company may:
…(c)     sell or otherwise dispose of, in any manner, all or any part of the property of the company."

1. The appellants argue that without clear words authorising conduct which would otherwise be unlawful, the Law does not authorise a liquidator to be a party to champerty and maintenance; s 564 of the Law, which permits the court to give priority to a creditor who has been given an indemnity for the costs of litigation, supports a narrow construction of the words in s 477(2)(c) as not permitting champerty and maintenance.

1. There is a substantial body of authority which accepts that the statutory power of a liquidator of a company under s 477(2)(c) of the Law to "sell or otherwise dispose of … all or any part of the property of the company" empowers the liquidator to enter into funding arrangements which might otherwise offend the rules against maintenance and champerty: see, for example, In re Park Gate Waggon Works Company;[53] Re Movitor Pty Ltd (In Liq);[54] UTSA Pty Ltd (In Liq) v Ultratune Australia Pty Ltd;[55] Re Tosich Construction Pty Ltd[56] and  Re Daniel Efrat Consulting Services Pty Ltd (In Liq); ex parte Hawke.[57]

   [53][1881] 17 ChD 234, 239.

   [54](1998) 64 FCR 380.

   [55](1996) 14 ACLC 1262.

   [56](1997) 73 FCR 219.

   [57](1999) 162 ALR 429.

1. The funding arrangement here does not assign the causes of action as in UTSA but requires Macks to dispose to GIO "a share of the proceeds of the claim … sufficient to pay or reimburse [GIO] for all amounts to which [GIO] is entitled" under the insurance policy.[58]  This disposition is subject to the rights of CBA and Mr Charles' firm  to payment.  In return, GIO insured CBA against its risk of nonpayment by Macks; Macks and the respondent companies for their legal costs; and Macks for his personal liability for the appellants' or third party costs. 

   [58]Insurance policy, cl 15.

1. The appellants rely on Templeman J's comments in Bell Group Ltd (In Liq) v Westpac Banking Corporation.[59]

"The word 'property' is defined in s 9 of the Corporations Law to mean:
'Any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.'
It is to be noted that the words 'present or future' qualify the words 'estate or interest': not 'property'.  The section therefore relates only to property which is presently in existence."

[59](1996-7) 18 WAR 21, 28.

1. Bell involved an application under s 564 of the Law by creditors funding litigation on behalf of the company in liquidation to receive priority over other creditors in relation to property or expenses to be recovered in the future. Templeman J understandably distinguished the line of cases I have mentioned in [77] as not directly relevant to applications under s 564 of the Law.[60] 

   [60]Bell Group Ltd (In Liq) v Westpac Banking Group, [31]-[32].

1. Whilst the words in parentheses in s 9 relate to "estate or interest", the "estate or interest" is "in real and personal property"; the words in parentheses therefore relate to "Any legal or equitable estate or interest … in real and personal property". This definition of "property" is broad and encompasses an interest in a cause of action and the fruits of such an action. By contrast, s 564 applies only where "… property has been recovered" (my emphasis). Templeman J's comments on s 9 must be read as applying to the meaning of "property" as qualified by the words of s 564; in s 477(2)(c) "property" retains its broad meaning.

1. Bell does not throw doubt on the well-established acceptance by the courts[61] that s 477(2)(c) of the Law confers power upon a liquidator to enter into transactions on behalf of the company which might otherwise be contrary to public policy and illegal as involving maintenance. As Hayne JA (as he then was) said in UTSA:

"In my view there is no warrant for reading down the general words of the law.  The reference to sale or disposal "in any manner" makes plain that it is the intention of the legislature that the powers of the liquidator are to be ample.  If a liquidator is to realise the assets of the company in liquidation to the best advantage, it would be surprising indeed if the liquidator were able to sell a particular form of the company's assets (its rights of action) to only a limited class of persons – those who are already interested in the outcome of the action concerned.  Especially is this so when it is to be assumed that the provisions about realisation of the company's assets are to be read in light of the long established rule in relation to bankruptcy which permits the trustee in bankruptcy to sell the bankrupt's rights of action to a third party: see Seear v Lawson (1880) 15 ChD 426; Guy v Churchill (1889) 40 ChD 481; Ramsay v Hartley [1977] 2 All ER 673; 1 WLR 686; Stone v Angus [1994] 2 NZLR 202; Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238. In my view nothing turns on the different treatment of property of the bankrupt and a company in liquidation in the bankruptcy and companies legislation. In the former case, the property vests in the trustee but in the latter does not, without special order, vest in the liquidator.

I do not accept that section 477 is to be read, as counsel for the appellant contended, as doing no more than identifying the circumstances in which a liquidator can exercise powers which otherwise would rest in the company. Such a construction wholly ignores that the liquidator is to wind up the affairs of the company and distribute its property: cf s 477(2)(m). The liquidator is not appointed simply as a particular agent or controller of the company who is to set about carrying on the business and affairs of the company as if winding up had not intervened. The liquidator is there to wind up the company's affairs."[62]

[61]See  Re Movitor (In Liq) (1998) 64 FCR 380, 391, 395; Re Tosich Construction Pty Ltd (1997) 73 FCR 233, 236.

[62]UTSA, 463-464.

1. Section 477(2)(c) of the Law authorises a liquidator to enter into transactions which would have otherwise constituted maintenance or champerty, to sell or dispose of all or part of the property of the company.

2.Do the terms of this funding arrangement provide for a sale or disposition of property within s 477(2)(c) of the Law? 

1. The appellants submit that a promise to share the proceeds which may be realised through pending litigation cannot properly be characterised as a sale or other disposition of property of the company within s 477(2)(c); even if the definition of "property" in s 9 of the Law includes the disposition of a cause of action or the entire fruits of the action, the funding arrangement does not purport to do this; it gives GIO only a share of the future proceeds of the action.

1. As has been noted,[63] bankruptcy statutes give the trustee in bankruptcy the statutory power to assign a bare right of action: see Seear v Lawson.[64]  Companies legislation also permits the assignment of the company's choses in action by the liquidator: see In re Park Gate Waggon Works Company,[65] Grovewood Holdings Plc[66] and UTSA Pty Ltd (In Liq) v Ultratune Australia Pty Ltd.[67]

   [63]These reasons [73].

   [64][1880] 15 ChD 426, 433.

   [65][1881] 17 ChD 234, 239.

   [66][1995] Ch 80, 84-86.

   [67]21 ACSR 457, Hayne JA (as he then was), 463-464. See also [77] of these reasons and the cases there cited.

1. This principle has been extended to allow the trustee in bankruptcy to assign the cause of action on terms that the assignee will account to the liquidator or trustee for a share of the fruits of the action: see Guy v Churchill;[68] Cotterill v Bank of Singapore (Australia) Ltd.[69] In other cases, the liquidator's power to assign to a third party a share of the proceeds recovered in the action in return for assistance with litigation has been recognised: Re Movitor Pty Ltd (In Liq),[70] Re Tosich Construction Pty Ltd,[71] Re William Felton & Co Pty Ltd[72] and Re Oasis Merchandising Services Limited.[73] 

   [68][1889] 40 ChD 481.

   [69](1994-5) 37 NSWLR 238.

   [70](1996) 64 FCR 380, 393.

   [71](1997) 73 FCR 219.

   [72](1998) 16 ACLC 1294.

   [73][1998] ChD 170.

1. Lightman J, in Grovewood Holdings Plc,[74] concluded that the provisions of the English Insolvency Act did not extend the statutory exemption for sales of bare causes of action to sales of the fruits of litigation with provision for the purchaser to fund the litigation.  Grovewood was considered but not followed in Australia in  Re Movitor, Re Tosich and Re William Felton. It was also considered and doubted by the English Court of Appeal in In Re Oasis Merchandising Services Limited;[75] whether the stautory exemption extends to sales of part of the future fruits of litigation with provision for the purchaser to fund the litigation must always be a question of construction of the statutory power of sale. 

   [74][1995] ChD 80, 87.

   [75][1998] Ch 170, 179-180.

1. Here s 477(2)(c) of the Law allows a liquidator to "dispose of, in any manner, all or any part of the property of the company"; under s 9 property means "any legal or equitable estate or interest … (whether present or future …) in real or personal property of any description and includes a thing in action". The plain meaning of those words authorises the liquidator to assign to a third party a share of the future proceeds of the companies' cause of action in return for funding litigation.

3.Are proceeds from causes of action under s 565 of the Law "property" under s 477(2)(c) of the Law? 

1. Section 565 of the Law makes preference payments by a company void as against the liquidator. The main action includes claims under s 565 of the Law.

1. There is some judicial support for the proposition that when such payments are recovered they do not become part of the property of the company but are held by the liquidator in trust for the creditors.  In Re Yagerphone Limited[76] Bennett J said:

"The right to recover a sum of money from a creditor who has been preferred is conferred for the purpose of benefiting the general body of creditors, … the sum of money, when recovered by the liquidators … did not become part of the general assets of Yagerphone, Ld., but was a sum of money received by the liquidators impressed in their hands with a trust for those creditors amongst whom they had to distribute the assets of the company."

[76][1935] Ch 392, 396.

1. In N A Kratzmann Pty Ltd (In Liq) v Tucker (No 2),[77] McTiernan, Taylor and Menzies JJ said, considering Yagerphone, that where one company in liquidation was recovering preferences against another company in liquidation:[78]

"… although the moneys paid as a preference were at the time of payment subject to the charge, the moneys recovered by the trustee are not the same moneys and that they do not, by virtue of payment to the trustee, become moneys of the bankrupt or in any way subject to the charge; when recovered they become the moneys of the trustee and his title to them does not depend upon his succession to any title which the bankrupt had.  It was, we think, in this sense that Bennett J meant …" [his words quoted in [90]]

[77](1970-1) 123 CLR 295, 302.

[78]At 301.

1. In Re Starkey[79] McPherson JA, with whom Pincus JA agreed, said Bennett J's use of the word "trust" does not have its full legal meaning. In Re Fresjac Pty Ltd (In Liq),[80] Doyle CJ, with whom Matheson J agreed, adopted those comments of  McPherson JA.

McPherson JA in Re Starkey added:

"… while proceeds of payments recovered as preferences in winding up do not become the property of the company, nor the property of unsecured creditors they do form part of the general assets of the company under the administration and control of the liquidator that are available for payment of the costs and expenses of winding up and the claims of unsecured creditors…".

[79][1994] 1 QdR 142, 154.

[80](1995-6) 65 SASR 334, 335, 348.

1. I do not understand McPherson JA's statement, that recovered preference payments do not become part of the property of the company, in context, to mean that such payments are not property within s 477 of the Law. There is nothing in the provisions of the Law to suggest that moneys recovered under s 565 of the Law are to be held by a liquidator on terms different to those on which the liquidator holds the general assets of the company. To decide otherwise would be to leave a liquidator with no power to dispose of property other than money recovered by way of a s 565 action. Such a conclusion is also supported by the terms of the order made by the High Court in Octavo Investments Pty Ltd v Knight[81] which required that the moneys recovered on a voidable preference claim be paid to the company not the liquidators.  See also Re Fresjac.[82]

   [81](1979-80) 144 CLR 360, 372-373; see also Re Fresjac at 343 but cf Starkey at 155.

   [82]At 343. But compare Starkey at 155.

1. Williams J rightly concluded that proceeds from actions brought under s 565 of the Law constitute property within s 477(2)(c) Law.

4.The status of proceeds from claims under ss 558FF and 588M of the Law 

1. Similarly, the appellants contend that proceeds received from claims under ss 588FF and 588M of the Law belong to the company, even though the causes of action are vested in the liquidator.

1. In Re Movitor, Drummond J found that the expected proceeds of an action under s 588M are part of the property of the company for the purposes of s 477(2)(c).[83] This conclusion is consistent with the plain meaning of the words used in s 588M(2): "a debt due to the company". Re Movitor has been followed in subsequent Australian cases. 

   [83](1996) 64 FCR 380, 392.

1. In Re Tosich Construction Pty Ltd[84] Lindgren J applied similar reasoning to the proceeds of an action under s 588FF. Again, the conclusion that proceeds from claims under s 588FF are property of the company under s 477(2)(c) is supported by the plain words of the section which enable an order to be made directing payments or transfer of property "to the company".

   [84](1997) 73 FCR 219, 235.

1. Since those decisions, the English Court of Appeal has considered a similar issue in In Re Oasis Merchandising Services Ltd,[85] deciding that 'the company's property' in the English companies legislation did not include the fruits of litigation brought by the liquidator arising from rights of action accruing after the liquidation.  The court in Oasis noted the distinction between s 214 of the English companies legislation and s 588M of the Law. The latter allows the liquidator to recover "as a debt due to the company an amount equal to the amount of the loss or damage" [my emphasis] resulting from insolvency.  That is not the language used in s 214 which provides:

   [85][1998] Ch 170.

"… the court, on the application of the liquidator may declare that that person is to be liable to make such contribution (if any) to the company's assets as the court thinks proper".  [my emphasis]

The different words are significant and plainly justify the different decisions in the two jurisdictions.

The primary judge correctly concluded that any proceeds from claims under ss 588FF and 588M of the Law become part of the property of the company for the purposes of s 477(2)(c) of the Law.

5.Does the funding arrangement purport to distribute proceeds of claims under s 565 of the Companies Code to persons other than creditors? 

1. Under s 565(2) of the Companies Code ("the Code") a director who wilfully pays or permits to be paid any dividend out of what he knows are not profits is liable to the creditors of the company for that amount which may be recovered by the creditors or the liquidator suing on behalf of the creditors. The proceeds recovered are the property of the creditors, not the company and therefore cannot be disposed of by the liquidator under s 477(2)(c) of the Law. Proceeds of claims under s 565 of the Code must be excluded from any disposition to GIO under the funding arrangement but part of GIO's premium is to be calculated by reference to a percentage of all sums recovered in the action by the liquidator, including claims under s 565 of the Code.

1. The insurance policy refers to s 565 claims "for the purpose of calculating … the premium"; it does not and cannot require that proceeds recovered under s 565 of the Code be used to pay the premium.

1. Counsel for the appellants, Mr Keane QC, points out that a difficulty could arise if 65 per cent or more of the total proceeds of the main action resulted from claims under s 565 of the Code.

1. This potential difficulty is resolvable: the insurance policy then has the effect that GIO would only receive an amount up to its entitlement under the insurance policy, always exclusive of recoveries under s 565. The funding arrangement does not purport to distribute proceeds of claims under s 565 of the Code to persons other than creditors. The calculation of GIO's premium by reference to s 565 does not make the funding arrangement invalid, against public policy or an abuse of process.

6.Is the funding arrangement an abuse of process or against public policy because it confers significant control of the main action on GIO? 

1. A transaction under s 477(2)(c) should not be approved if it is against public policy. A court has the power to stay the proceedings to which the funding arrangement relates if the funding arrangement constitutes an abuse of process, although here the appellants ask for an injunction not a stay. The appellants submit the terms of the funding arrangement confer too much control on GIO and diminish the important role of the liquidator as an officer of the court.

1. This funding arrangement gives GIO some significant rights to interfere in the conduct of the litigation by subjecting the liquidator to its decisions in matters which the law contemplates would ordinarily be dealt with solely by the liquidator: see Glegg v Bromley;[86] In Re Oasis Services Merchandising Ltd[87] and Re Tosich Construction Pty Ltd.[88] Whilst there are often good reasons to allow funding arrangements, for example, to provide access to justice for companies in liquidation and their creditors, it is not in the interests of public policy to encourage such insurers to actively or aggressively participate in the litigation because of the potential for abuse. 

   [86][1912] 3 KB 474, 485, 488-489.

   [87][1988] ChD 170, 186.

   [88](1997) 73 FCR 219, 236.

1. The cause of action was not sold to GIO and Macks remains responsible under the Law for its conduct. The role of liquidator carries onerous legal responsibilities and is one which must be exercised by the liquidator personally and independently; it must be unfettered and is largely non-delegable but for the exceptions under the Law: A H Toy v Registrar of Companies (NT);[89] Commissioner for Corporate Affairs v Harvey[90] and Re Allebart Pty Ltd (In Liq) and the Companies Act.[91]

   [89](1987) 72 ALR 107, 113.

   [90][1980] VR 669, 691.

   [91](1971) 1 NSWLR 24, 30.

1. On the other hand, in funding such expensive and complex litigation it is not unreasonable that GIO would want some input into its conduct: Buiscex Ltd v Panfida Food Ltd (In Liq).[92]  Loss of some control does not necessarily make the transaction an abuse of process: see Re Movitor.[93]

   [92]28 ACSR 357, 363.

   [93](1996) 64 FCR 380, 449.

1. In this case, the conduct of all proceedings and settlement negotiations is in the hands of experienced lawyers who can be expected not to act improperly or abusively: see Sa.[94]  This funding arrangement was in many ways similar to that approved by Drummond J in Re Movitor.  Regardless of the funding arrangement, Macks can apply to the court for directions at any time.[95] Under the Law any substantial compromise requires approval of the court, committee of inspection or resolution of the creditors.[96] Under the funding arrangement, any dispute between Macks and GIO is to be resolved by an independent senior counsel.[97]  Mansfield J was satisfied that ultimate control of the litigation under the funding arrangement remained with the liquidator.[98]

   [94][2000] EWCA 17, 9 February 2000, [62].

   [95]Section 479(3) the Law.

   [96]Section 477(2A) the Law.

   [97]Insurance policy, cl 6.

   [98]Re Addstone Pty Ltd (In Liq), 597.

1. A funding arrangement which leaves greater control of the action with Macks would have been preferable, but I am not persuaded that GIO's potential for limited control of the action under this funding arrangement is against public policy; on the established facts it is not an abuse of process.  The learned judge correctly refused the relief sought.

7.Should non-disclosure in an ex parte application for directions under s 479(3) of the Law of Mr Charles' pecuniary interest in the outcome of litigation and his potential for conflict of interest have caused Williams J to set aside the order of Mansfield J? 

1. The appellants submit that non-disclosure of Mr Charles' percentage pecuniary interest in the outcome of the litigation in an ex parte application for directions unders s 479(3) of the Law has the result that Mansfield J's order should be set aside. Macks knew of Mr Charles' interest on 11 March 1998, before Mansfield J entered the varied order approving the funding arrangement and long before the delivery of Mansfield J's final judgment approving it on 9 June 1998. The appellants claim this non-disclosure should be treated in the same way as non-disclosure on any other ex parte application and the order should be set aside.

1. There is an obligation on a liquidator as an officer of the court applying for orders under s 479(3) of the Law to give full and frank disclosure.

1. The primary judge rightly noted that the application by Macks under s 479(3) of the Law was not strictly an ex parte application in the traditional sense. The appellants were not a party to the application; nor was any order made against them; they had no right to be heard as prospective defendants to the main action; the application did not determine substantive rights: see Bank of Melbourne Ltd v HPM Pty Ltd.[99] On the other hand, as creditors they had a real interest in the outcome of the application. Mansfield J attempted to protect the interests of creditors by giving liberty to apply, but this was of limited use because the appellants were not made aware of the order for four months.

   [99](1998) 16 ACLC 427.

1. Williams J noted it was not possible on the evidence to determine what fees would be paid to either LEI or Mr Charles, who did not give evidence before him.  There is, however, evidence which suggests that Mr Charles, a solicitor, was to be remunerated through LEI, which was controlled by his wife, by reference to the calculation of a percentage of the proceeds of the fruits of the action received by GIO.  Whilst the exact position remains unclear, there is a danger that such a scheme could amount to maintenance or offend professional practice rules: see Clyne v New South Wales Bar Association;[100] s 48D Queensland Law Society Act 1952 (Qld) and s 99 Legal Practice Act 1996 (Vic).[101]

   [100](1960-1) 104 CLR 186, 203.

   [101]The law of Victoria was the governing law of the various agreements constituting the funding arrangement.

1. In addition, the appellants emphasise that Mr Charles has a potential conflict of interest between the maintenance of his commercial relationship with GIO, and his role assisting Macks under the funding arrangement and that this was not plainly disclosed to Mansfield J.

1. Senior counsel for Macks acknowledged before Mansfield J that GIO's solicitor, Mr Charles, would provide a member of staff to Macks' instructing solicitors so that the insurer was kept informed as to how the proceedings were conducted and have an opportunity to participate.

1. Williams J considered both issues which were not fully disclosed to Mansfield J. His Honour noted that had those matters originally been raised before Mansfield J, modifications could have been made to the funding arrangement; the liquidator's failure to place these matters before Mansfield J caused him concern. Williams J decided that there should be no interference with Mansfield J's order because a very substantial sum of money has already been expended under the funding arrangement; the true position of Mr Charles had by then been fully exposed so that all parties were aware of the potential for conflict; and Mr Charles' will be subject to the scrutiny of Macks and the appellants who can use the Law to invoke the court's supervisory role.

1. Portions of this funding arrangement were not ideal.  Although it is not possible on the evidence to ascertain the terms of Mr Charles' remuneration, I, too, am concerned that Mr Charles, a solicitor, may be remunerated, even indirectly, by reference to a percentage of the proceeds of the main action.  Depending on the precise terms of the remuneration, it is possible that such conduct may amount to maintenance and may offend professional conduct rules.  It may be against public policy if it brings the justice system into disrepute through congesting the courts with an unjustified proliferation of cases; or increases the risk that practitioners will place their desire to win litigation and make profits above their professional duties to their client, the court and other practitioners; or is likely to reduce public confidence in the administration of justice.  But it is impossible to reach a firm view on the propriety of Mr Charles' remuneration on the evidence here.  

1. The funding arrangement does raise the risk that because of Mr Charles' personal interest in the outcome of the litigation which is linked with those of GIO, then, for reasons which may arise during the litigation, these interests may not always be the same as the interests of Macks or the respondent companies. On the other hand, both Mr Charles and Macks are officers of the court who are now aware of the potential for conflict under the funding arrangement.  In the absence of any evidence to the contrary, the Court is entitled to presume they are acting ethically.  It seems certain the appellants will be vigilant in this and other respects and will not be slow in seeking the intervention of the court where they believe it is warranted.

1. This appeal is not an appeal from the decision of Mansfield J but from Williams J's refusal to go behind Mansfield J's perfected order.  The circumstances in which a court will re-open its orders are very limited and were recently considered by the High Court in DJL v Central Authority.[102]  They include cases where an order obtained in the absence of an interested party will be set aside for material non-disclosure: see, for example, Re South Downs Packers Pty Ltd[103] and Garrard v Email Furniture Pty Ltd.[104]  It is by no means clear that this is such a case.  The directions given by Mansfield J do not bind or substantively affect the rights of the appellants; they protect the liquidator who has made full and fair disclosure to the court of the material facts, from liability for any alleged breach of duty as liquidator to a creditor, a contributory or the company in respect of anything done in accordance with the directions: see ReG B Nathan & Co Pty Ltd (In Liq);[105] Re Movitor[106]and Re Efrat.[107]  Mansfield J's order has provided protection to the liquidator whilst acting in accordance with the approved directions.  There may be cases where the liquidator's failure to make full and fair disclosure of material facts at the application for directions warrants the liquidator losing that protection.  On the established facts, this case is not one of them.

   [102](2000) 74 ALJR 706.

   [103][1984] 2 QdR 559.

   [104][1993] 32 NSWLR 662, 674.

   [105][1991] 24 NSWLR 647, 679-680.

   [106](1996) 64 FCR 380, 383.

   [107](1999) 162 ALR 429, 434-435.

1. In these circumstances, Williams J was right to refuse to set aside Mansfield J's order. 

8.Was Mansfield J deliberately misled by Macks so as to conclude that Thomas J's judgment was a consent order 

1. The appellants also claim that Macks deliberately misled Mansfield J into concluding that Thomas J's order for summary judgment was a consent order.  The transcript and counsel's submissions before Mansfield J do not support that contention which was rightly rejected by the primary judge.

9.Does Mr Charles' interest in the outcome of litigation, his potential conflict of interest and GIO's control over the main action collectively result in the funding arrangement becoming an abuse of process? 

1. If the funding arrangement constitutes an abuse of process, the proceedings may be stayed pending the parties entering into an amended or new acceptable funding arrangement which does not raise potential conflicts of interest; risk a solicitor being remunerated by a percentage share of the proceeds of the litigation or give the funder too much control of the main action.  The appellants have not sought a stay but seek an injunction on that basis to restrain the respondents from performing the funding arrangement.  I have already dealt separately with Mr Charles' pecuniary interest in the outcome of the litigation, his potential conflict of interest and GIO's control over the main action.

1. Nothing in any of these documents, in my opinion, prevented or impeded the liquidator from prosecuting the proposed claims in a way which was in the best interests of the creditors as a whole. Clauses 6, 7 and 8 of the insurance policy reflect the insurer's interest in ensuring that the proposed litigation was conducted in accordance with appropriate legal advice. But there is no reason to think that the senior counsel selected to give advice on any of the matters referred to in cl 6 of the insurance policy would give advice other than in the best interests of the creditors as a whole. Nor is there any reason to think that, if the liquidator requested Ward and Partners or Charles to obtain advice from independent counsel on the proposed claims, they would not do so or would not be obliged to. Nor is there anything in these provisions or in any other provision of the insurance policy or solicitor-client agreement inhibiting the right of the liquidator, at any time, to seek directions of the court pursuant to s 479(3).

1. There is, in any event, no reason to think that the interests of the insurer and Charles are not the same as those of the creditors as a whole.  All are concerned to pursue the claims so long as there are reasonable prospects of a substantial nett return.  Indeed GIO, and Charles' wife, are dependent on the success of the creditors in that endeavour.  And the more that the creditors recover, the greater is the amount which GIO and Charles' wife will receive.  Indeed it is only the liquidator who would have any interest in, for example, compromising for a smaller sum, thereby ensuring payment for work which he had already done;  and he could not do that without approval of the court or the creditors.[170]

   [170]Corporations Law s 477(2A).

1. Much was sought to be made by the appellants of what was said to be impropriety in Charles' wife receiving, albeit indirectly, a share in the proceeds of successful litigation notwithstanding that it was to be paid, not by the liquidator for whom Charles was conducting the litigation, but by GIO out of its premium, that it was not to be paid to Charles but to a company in which his wife was sole shareholder and that it was not to be paid for legal work performed in the conduct of the litigation which legal work was to be paid for at hourly rates.  The appellants contend that this was a matter which, if it had been fully disclosed, would have been a reason for refusing to make the order which Mansfield J made and is now a reason for preventing the further performance of the arrangements.  The reason for this is said to be the public policy against a solicitor receiving a share in the proceeds of any litigation in which he or she is involved.

1. However, as Lord Mustill pointed out in Giles v Thompson[171] the rule which forbids a solicitor from accepting payment for professional services on behalf of a plaintiff, calculated as a proportion of the sum recovered from the defendant, is now in the course of attenuation.  In the form in which it relevantly bound Charles, the current statutory provision provides:

"A legal practitioner or firm must not enter into a costs agreement under which the amount payable to the legal practitioner or firm under the agreement, or any part of that amount, is calculated by reference to the amount of the award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates."[172]

The attenuation to which Lord Mustill referred can be seen in other sections of the same Act which permits costs to be conditional on success[173] and permit such costs to exceed by 25 per cent the costs otherwise payable.[174]

[171][1994] 1 AC 142 at 153.

[172]Legal Practice Act 1996 (Vic) s 99(1); and cf Queensland Law Society Act 1952 (Qld) s 48D.  Charles was a Victorian solicitor and, although it is not clear, it seems to have been assumed by the parties that the agreement between GIO and Liquidator's Expense Insurance Pty Ltd was made in Victoria.

[173]Section 97.

[174]Section 98.

1. The agreement between GIO and Liquidator's Expense Insurance Pty Ltd plainly does not come within the prohibition of the above section.  Nor was any attempt made to prove that, in some other way, the making of this agreement involved Charles in professional misconduct or unprofessional conduct.  Nor was any attempt made to prove that this agreement was part of the arrangements to which the liquidator was a party or that those arrangements were in any way dependent upon the making of that agreement.  I do not think that this was a matter which, if it had been disclosed, would have required Mansfield J to refuse approval or that the learned primary judge erred in refusing to grant relief upon its disclosure to him.

1. Nor do I think that the failure by the liquidator to disclose to Mansfield J the indirect financial interest of Charles' wife in the outcome of this action or the extent of Charles' involvement with GIO showed a lack of good faith justifying the granting of relief of the kind sought.  In hindsight it would have been better to disclose both.  But he acted, in respect of the first, on counsel's opinion which did not, in the circumstances, seem unreasonable, and he was apparently not fully aware of the extent of Charles' continued involvement with GIO.

1. In the end the learned primary judge had to decide whether, on the facts disclosed to him, there was such a risk that the liquidator might not act in the best interests of the creditors as a whole that the further performance of the arrangements should be halted.  In reviewing his Honour's conclusions in that respect this Court must take into account the findings of honesty, forthrightness and reasonableness made by his Honour in respect of the liquidator, the extent to which, by the time the matter came before his Honour, the liquidator had been made fully aware of that risk and the extent to which, by that time, the arrangements had been performed including by the expenditure of considerable sums of money advanced by CBA.  I do not think that the arrangements vis-à-vis, either GIO or Charles require a conclusion that his Honour erred.

(c)the prospects of success in the action  

1. Mr Keane accepted that it was not for Mansfield J to "reconsider all of the issues which have been weighed up by the liquidator" but that the court's function was

"... simply to review the liquidator's proposal, paying due regard to his ... commercial judgment and knowledge of all the circumstances of the liquidation, satisfying itself that there is no error of law or ground for suspecting bad faith or impropriety, and weighing up whether there is any good reason to intervene in terms of the 'expeditious and beneficial administration' of the winding up."[175]

Moreover he was, in this respect also, faced with the learned trial judge's findings of frankness and honesty on the part of the liquidator and the fact that Mansfield J had had placed before him several opinions of counsel as to the prospects of success of the action.  Nevertheless he submitted that a minimum level of informed scrutiny upon an inter partes application would have revealed that the litigation to be promoted by the arrangements was vexatious and improper and that that ought to have been appreciated by the learned primary judge.

[175]Corporate Affairs Commission v ASC Timber Pty Ltd & Ors (1998) 29 ACSR 109 at 118. See also Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85 – 86.

1. The learned primary judge was, of course, considering whether, a year and a half after approval had been granted by Mansfield J and after the arrangements had been partly performed including the expenditure, in good faith, of substantial money by CBA, relief should now be granted in respect of acts done pursuant to that approval.  Nevertheless if the proposed action is plainly without substance it would be appropriate to grant such relief as would prevent its continuation.

1. The principal attack by the appellants in this Court upon the main action was in respect of that part of it which claimed an account of profits in respect of land ("the Northern Corridor lands") transferred by companies in the Emanuel group to companies in the Fosters group in 1995 pursuant to an arrangement between those groups.  There is no doubt that, before Mansfield J, this was put on the liquidator's behalf as a substantial part of the proposed claim.  It was said, and subsequently alleged in the statement of claim in the main action, that the Northern Corridor lands were transferred at a substantial undervalue, they being worth substantially more than the consideration passing from the Fosters group, which was $47M.  Further, it was said and alleged, in effect, in the statement of claim that the Fosters group paid a further $6M to interests associated with directors of the Emanuel group by way of bribe for this transaction.

1. It is necessary to put these transactions in their historical context as alleged by the respondents in their statement of claim in the main action.  In the first place they acknowledge that, in 1987, a company in the Fosters group, the second appellant, Lensworth Properties Pty Ltd, ("Lensworth") lent to a company in the Emanuel group, the second respondent Emanuel Management Pty Ltd ("Management") $43M secured by a bill of mortgage and a mortgage debenture by Emanuel (No 14) Pty Ltd ("No 14").  There were also guarantees by a number of other Emanuel companies one of which also granted a bill of mortgage to secure the loan.  The money was advanced primarily for the purpose of the purchase of the Northern Corridor lands.

1. The statement of claim then alleges that, by a series of agreements made between 1988 and 1994 between Lensworth, Management, No 14 and the guarantors, at a time when all of the Emanuel companies were insolvent and under the effective control of the Fosters group, the parties agreed that further loans would be made by Lensworth and that the existing securities and guarantees would secure all monies lent and obligations thereunder.  And by a deed of collateralization dated 5 March 1992 between a number of Fosters companies, including Lensworth, and a large number of the Emanuel companies, including Management, No 14, and the guarantors, it was agreed that the above securities were to be security for all debts and obligations, past, present and future, of all of those Emanuel companies.  Part of the proceeds of these loans was used to pay dividends on preference shares of the Fosters group in the Emanuel group and to redeem those shares contrary to law and to the Articles of the Emanuel companies.

1. The statement of claim further alleges that by an arrangement made between the Fosters group and the Emanuel group between 1992 and 1995, called "the 1995 Scheme", it was agreed that the Emanuel group would transfer the Northern Corridor lands to a nominee of the Fosters group at an arbitrary and improper valuation at less than market value;  the Emanuel companies would release the Fosters companies from liability arising out of past dealings between them;  an amount of $186.8M would be fixed as a debt due by the Emanuel group to the Fosters group, supported by a judgment, to enable the Fosters group to dominate meetings of creditors of the Emanuel group;  and the Fosters group would pay amounts totalling approximately $6M to nominees of directors of the Emanuel group.  The scheme was implemented by that transfer, release, judgment and payment and by the execution by the parties of a Deed of Forbearance and Release dated 17 March 1995.

1. If the allegations made in the last two paragraphs are correct the Foster group over the period from 1988 to 1995 sought to dishonestly secure a financial advantage for itself at the expense of the other creditors.  Consequently it was liable to refund all monies and property received and to have the agreements and securities which gave effect to that scheme set aside;  and in the alternative to setting aside the transfer of the Northern Corridor lands, an account of profits in respect of the subsequent development thereof.

1. Mr Keane's criticism of the claim for an account of profits is that the asserted undervalue at which it was said the lands were transferred was either non-existent or substantially less than the amount which the liquidator's counsel put to Mansfield J which was the difference between $47M and $100M.  Mr Keane sought to do this by reference to estimates of value of land included in an internal document of Fosters which, he submitted, was the document relied on by the liquidator for the assertion of this undervalue.  And he sought to show, by reference to that document, that the value of the Northern Corridor lands transferred was only about $54M.  There are, however, it seems to me, several fallacies in his analysis.

1. In the first place he arrived at the sum of $54M by including, as the value of one of the parcels of land transferred, $20M when the document upon which he relied included it at $35M.  Mr Keane reduced that to $20M because the document valued the land at $35M on the assumption of rezoning and approvals in accordance with the concept plan within a period of two years which, he submitted, did not occur.  It may be accepted that they did not occur prior to the transfer.

1. However the land was subsequently rezoned and it may be reasonably assumed from that, that at the time of transfer it had the potential for development which it was, at the time, thought it had.  Indeed the same document stated that the appellants had instructed the valuer who had arrived at the values of $20M and $35M "to analyse the project using more commercial assumptions" and that that analysis showed a land component of $40-$50M on "assumptions ... not considered unrealistic or remote".  Subsequent events may well have borne out such higher values for counsel for the liquidator before Mansfield J told his Honour that that land subsequently became the subject of a development proposal by the Fosters group and another for $1 billion.  Even if that $15M (the difference between $20M and $35M), or some substantial part of it, is added back in, it can be seen that the property was transferred at a substantial undervalue and, even without it, at an undervalue.

1. Secondly Mr Keane's analysis pays no regard to the alleged bribe paid, in effect, to directors of the Emanuel companies by the Fosters group as part of the scheme which included the transfer to the Fosters group of the Northern Corridor lands.  In proceedings against the Emanueles and entities associated with them $1M of this money has been recovered, the balance being irrecoverable from them.  But there is reason to think that there is substance in the assertion that the money paid was a bribe.[176]  This strengthens the contention that the scheme was intended to fraudulently deprive the other creditors of their rights.  Consequently the prospects of recovery of a very substantial amount of money in a claim for an account of profits in respect of the Northern Corridor lands is a very real one, irrespective of whether the transfer thereof was at an undervalue, on the assertion to Mansfield J, which remains undisputed, that they are the subject of a development proposal by the appellants and another for $1 billion.

   [176]See the judgment of Perry J in Addstead Pty Ltd (in liq) v Liddan Pty Ltd (1997) 70 SASR 21 at 43 to which the learned primary judge referred at par [119].

1. It is true that, as initially framed, the action by the respondents against the appellants did not seek to set aside the judgment of $186.8M obtained on 27 February 1995.  However the respondents asserted in their statement of claim that this judgment was obtained pursuant to the 1995 scheme and asserted a right to go behind it for reasons already referred to but also because it was alleged that, on any view, that amount was exaggerated.[177]  Before the learned primary judge an application was made and acceded to for leave to amend to claim that relief.

   [177]Mansfield J was told that the liquidator estimated it at about $100M.

1. The other basis for the submission made to this Court that the action was plainly without substance relied on the advance of $43M made in 1987 for which the mortgages and a debenture had been given as security.  It was submitted that, accepting that the land the subject of the specific mortgages had since been disposed of, the debenture by No 14 remained intact and secured the advance of $43M together with interest from that date.  It was submitted that, on any view, that amounted to several hundred million dollars which equalled or exceeded the amount which the action was likely to recover and that, consequently, except possibly for the payments which would have to be made to the liquidator, CBA and GIO, the balance recovered would be payable to one or more members of the Fosters group pursuant to the debenture by No 14.  Consequently, it was submitted, there could be no benefit to the creditors in pursuing the action.

1. This contention assumes that, after the performance of the 1995 scheme by, amongst other things, the execution of the Deed of Forbearance and Release, the transfer of the Northern Corridor lands to the Fosters group and the realization of other lands and payment of the proceeds of sale to the Fosters group, that debt remained unpaid and the securities given for it, including the debenture of No 14, remained in force.  There is reason to think that, for a number of reasons that was not or at least arguably was not so.

1. In the first place the effect of the 1995 scheme may well have been to extinguish the earlier debt and with it any security therefor.  Discussion at the creditors' meeting of a number of the Emanuel companies on 28 March 1996, at which the Fosters' representative was present, appeared to assume that it did so.

1. Secondly there are a number of reasons for thinking that the total amount paid and value transferred to the appellants pursuant to the 1995 scheme may well have exceeded the amount then properly owing to them.  The first is that the respondent alleged that $186.8M was an exaggerated estimate of the nett amount advanced together with interest up to 27 February 1995.  There is reason to think that the directors of the Emanuel companies, if they were being paid a bribe by the Fosters group, would have had no interest in ensuring that the amount for which judgment was obtained was no more than was in fact owed by those companies.  And it is unclear how much of that sum was said to be in respect of the original loan of $43M and interest thereon, for which the debenture was security, and how much in respect of subsequent loans and interest which, on the respondents' allegations, were not secured by the debenture.  The second is that some part of the monies advanced by the Fosters group to the Emanuel group had, according to the respondents' statement of claim, been advanced for the purpose of and been used to pay dividends on and to redeem preference shares of the Fosters group in the Emanuel group contrary to law and to the Articles of the Emanuel companies and at a time when the Fosters group knew that the Emanuel group was unable to pay its debts as they fell due.

1. According to the allegations in the respondents' statement of claim, the appellants, in consequence of the 1995 scheme, received $45M being the proceeds of lands sold pursuant to the scheme, held lands pursuant to the scheme for immediate sale which were valued at over $12M and received the Northern Corridor lands which, on its own valuation were worth between $20M and $50M.  That total may well have exceeded the amount which the debenture validly secured.

1. Mr Keane's contention also assumes that, even if the amending agreements made between 1988 and 1994 and the deed of collateralization made in 1992, which purported to increase the amounts for which the debenture of No 14 was security, are set aside, the debenture will remain as a valid security for the original loan of $43M and interest thereon at the contractual rate.  That proposition is by no means beyond argument.

1. It was unnecessary for Mansfield J to analyse all of these matters in great detail.  He had before him a number of opinions of senior counsel upon which the liquidator relied for the purposes of bringing the main action and entering into the arrangements.  The proposal for development of the Northern Corridor lands being pursued by the Fosters group at the time of the hearing before Mansfield J showed that there was a realistic possibility that the amount which could be recovered in an action for an account of profits, whilst it could not be accurately quantified, might well be very much higher than the maximum sum which could realistically have been due to any member of the Fosters group after implementation of the 1995 scheme.  Accordingly I would not accept Mr Keane's submission that a minimum level of scrutiny by Mansfield J would have shown or that it has now been shown that the litigation to be promoted by the arrangements is vexatious or improper.

(d)the other reasons advanced  

1. Of the other reasons advanced for granting relief the financial interest of the liquidator in pursuing the action was self evident and all facts relevant to that were before Mansfield J;  I have already said sufficient to dispose of the contention that the creditors should have been served and even if Mansfield J was in error in concluding that the judgment of 27 February 1995 for $186.8M was by consent, it was, on the respondents' contentions in their statement of claim, one colluded in by dishonest directors of the Emanuel companies at a time when those companies were under the effective control of the Fosters group, and, for that reason, even more likely to be set aside.[178]  It follows that the appellants must fail in their appeal from the learned primary judge's refusal to grant relief other than by removing the liquidator.

   [178]The learned primary judge found that Mansfield J was not told by the liquidator's counsel that it was by consent and this appears to be correct.  That finding does not appear to be disputed by the appellants.

1. I turn now to the last question which arises in this appeal which is whether the learned primary judge erred in failing to order the removal of the liquidator.[179]  We were informed by Mr Keane that this issue occupied by far the greater proportion of the time of hearing before the learned primary judge.  That is not surprising when one has regard to the time occupied by the lengthy and rigorous cross-examination of the liquidator by the appellants' counsel and the number of grounds upon which, before the learned primary judge, it was urged that cause was shown for his removal.

7.Whether the learned primary judge erred in refusing to remove the liquidator   

[179]Corporations Law s 473 and s 503.

(a)the relevant principle and the grounds of appeal  

1. The relevant principle is not in doubt.  The question is whether there is a real risk of the liquidator not being able to act impartially or objectively in the winding up.[180]  In this case that question must be considered in the light of the following facts:

   [180]McPherson, The Law of Company Liquidation, 4th ed (1999) at 311 – 314 and the authorities there referred to.

1.          the appellants are defendants in an action instituted by the liquidator which they would very much like to stop.  It would be unrealistic to think that they are pursuing any aspect of these proceedings, including the application to remove the liquidator, having in mind the interests of the creditors as a whole.

2.          None of the other creditors support this application.  It may therefore be assumed that they are content to retain the liquidator and with his conduct of this action.

3.          Substantial work has already been done by the liquidator in the winding up generally and, in particular, with respect to this action.

4.          As I have already mentioned, the learned primary judge, after seeing and hearing the liquidator being cross-examined rigorously and at considerable length made findings in his favour of honesty, forthrightness and reasonableness.

1. The principal ground relied on before the learned primary judge for an order removing the liquidator, and in this Court for the submission that the learned primary judge erred in refusing to remove the liquidator involved the conduct of the liquidator with respect to the proof of debt by the first appellant, Elfic, in the winding up of No 14 which, it was submitted, indicated a deliberate attempt to deprive the appellants of a valuable security.

1. Other grounds relied on, but not further expanded upon either in written or oral argument, were:

1.          the conduct of the liquidator in entering judgment by default against one of the appellants in circumstances in which, it was submitted, it was inappropriate to do so;

2.          failing to seek the approval of creditors for the arrangements, particularly in circumstances where the liquidator had a conflict of duty and interest;

3.          failing to disclose to the court the true role of Charles and his interest in the outcome of the proceedings;

4.          failing to give creditors like Kleinwort Benson and Westpac the opportunity of entering into a similar funding arrangement;

5.          failing to take into account the significance of the original $43M advance and the security given by No 14 for that advance in assessing whether the litigation and the funding arrangements were in the interests of creditors;

6.          consenting to an arrangement which required the terms of the funding arrangements to be kept confidential from creditors;  and

7.          making the approval application ex parte, significantly for the reason that he expected that there would be substantial opposition to it.

The reason why grounds 2, 3, 5 and 7 were not further expanded on is that they were expanded on in argument on earlier issues.  In view of what I have said there it is unnecessary to say anything further in respect of them.  Nor, in view of the appellants' failure to advance further argument on them is it necessary to discuss grounds 1, 4 or 6.  In addition to what I have said earlier, and what I say below, I rely on his Honour's reasons for rejecting all of those grounds, separately and together.  There were, in addition, a number of grounds argued before the learned primary judge which were not pursued before this Court.

(b)whether the liquidator deliberately attempted to deprive Elfic of its security  

1. At the outset it is important to record the finding of the learned primary judge, after seeing and hearing the liquidator in the witness box over a lengthy period during which he was subjected to a rigorous cross-examination.  His Honour said:

"The liquidator was subjected to a lengthy and intensive cross examination, and allegations of improper conduct were put to him.  He answered all questions in a forthright manner, and I was impressed with his honesty.  He is in an extremely difficult situation. ... Despite those pressures he has maintained a steadfast and reasonable view, backed by the opinion of senior counsel, that the causes of action against the Fosters Group are open and ought to be pursued."

1. As already appears, one of the bases upon which the appellants contended that it ought to have been apparent to Mansfield J that the proposed action by the liquidator and the respondents against the appellants was without foundation was that, subject possibly only to the claims of the liquidator, CBA and GIO, any amount recovered would go to the appellants, or at least to the second appellant, Lensworth, the original grantee, or the first appellant, Elfic, the assignee from the second appellant, of the debenture by No 14.  I have already mentioned some reasons why that contention may well not be correct.  But it is arguable and the possibility that it may be correct would be a sufficient basis for an argument that the liquidator, knowing of that possibility, deliberately attempted to cause the appellants to release that security, an argument which must now be considered.  In order to do so it will be necessary to consider not only the conduct of the liquidator but the conduct of the appellants on which he was entitled to rely.

1. The original loan of $43M in 1987 was made to Management on the security of, amongst others, a debenture (registered charge 9650/23) from No 14.  When the lender appellant, Lensworth, and Elfic to whom it had purported to assign the debenture in 1991,[181] submitted their proofs of debt in the winding up of Management on 9 October 1995 they claimed no security for their debt which they each claimed to be $146,390,078.34 said to be "Judgment of Supreme Court of Queensland on 28.02.95.  Calculation of debt from date of judgment until 30.08.95."  A proof of debt in similar form was submitted by the third appellant, then known as EFG Finance Limited ("EFG").  Moreover at a meeting of creditors of Management and some other Emanuel companies on 10 October 1995 a representative of Lensworth, Elfic and some other Fosters companies said that they were holding no security for their debt.  This was reaffirmed by their representative at a further meeting of creditors of Management on 28 March 1996. Moreover, it is clear that, at that meeting, the Fosters' representative exercised voting rights as a creditor for the whole of the above amount.[182]

   [181]We were told that Lensworth assigned or purported to assign its interest in that and other securities to Elfic on 11 April 1991.

   [182]At that meeting the creditors, including the Fosters group, were informed of potential causes of action by the liquidator against the Fosters companies in respect of the preference shares and the transfer of property at an undervalue.

1. However on 9 December 1997 Elfic and EFG, but not Lensworth, submitted further proofs of debt in the winding up of Management, No 14 and a number of other Emanuel companies for a smaller sum, $137,980,723.05, based on the same judgment and claimed as security a mortgage debenture by No 14 dated 12 June 1987 to Elfic at an estimated value of $15,348,000.00 based on the value of some timber agreements.  There had been no debenture granted by No 14 to Elfic but the reference seems plainly to be to the debenture already referred to.  No explanation for this claim, or the earlier assertion by them that no security was claimed, was advanced and the question whether the appellants, by their earlier conduct, had elected to surrender their security was not argued before the learned primary judge or in this Court.  Nor was it a matter which was required to be resolved in these proceedings.  However it is relevant to a consideration of the liquidator's state of mind when he wrote to those companies in respect of those proofs of debt on 2 February 1998.

1. On 2 February 1998 the liquidator wrote to those Fosters companies in respect of the liquidation of No 14 and a number of other Emanuel companies but not, apparently, including Management, a letter in the following terms:

"I refer to your formal proof of debt of 9 December 1997.  I request that you complete the enclosed form 312 so that I may update the records of the Australian Securities Commission."

The form was a notification of discharge or release of property from a charge.  In the form sent in respect of No 14, the charge was described as having original registered charge number 14777/1, ASC registered charge number 241651 and having been created on 12/6/87.  That was the date on which the debenture from No 14 to Lensworth was created although neither of the registered numbers given coincides with the registered number which the respondents allege in their statement of claim the debenture created on that date bore.  Then under the heading "Details of the discharge or release of property" there was stated:

"All property other than:–

-Amounts payable under timber sales agreement with Softwoods (Qld) Pty Limited;

-Instalments yet to be received from Qld State Government on term sale of land."

1. It was in this context, with the addition of three further facts, that the learned primary judge was asked to infer that the liquidator, by his letter of 2 February 1998, was attempting to deny the appellants and to conceal from them the existence of a valuable right, namely the right of Lensworth or Elfic, as the holder of a mortgage debenture from No 14, and of other appellants pursuant to the deed of collateralization, to the proceeds of any action which the liquidator might successfully bring against the Fosters group.  Those further facts were that only shortly beforehand, on 6 January 1998, the liquidator had received a letter of offer from GIO which made funding conditional upon satisfactory advice from senior counsel that no charges over the Emanuel group property would take priority over the rights of CBA;  that the liquidator said in an answer in the course of his very long cross-examination that he understood that the appellants still maintained their rights to security over the assets of No 14;  and that he had already commenced proceedings against the Fosters group but had not served those proceedings.

1. The liquidator denied that his purpose was as alleged and said that he relied on counsel's advice.  He was, he said, attempting to clarify the position.  It is plain that the learned primary judge accepted him.  And the realistic likelihood of the Fosters companies being held entitled to an interest in the proceeds of a successful action against them for dishonest conduct and of their being held entitled to rely, as security therefor, on the debenture granted by No 14 in 1987 may well have been considered to be remote in the light of the allegations made in the statement of claim and what had occurred at creditors' meetings of the Emanuel companies.

1. Moreover, the intention of the liquidator to commence proceedings against the Fosters group in respect of the dividends on and redemption of the preference shares and in respect of the transfer of land to the Fosters companies at an undervalue, if sufficient funds could be obtained for that purpose, had been discussed as early as the creditors' meeting of 28 March 1996 which the Fosters' representative attended.  And there was no secret that thereafter the liquidator was looking for a source of funding for such an action.  The only question which could ever have been in doubt, in the minds of the appellants, was as to whether the liquidator would obtain sufficient funding to enable such a substantial action to proceed to trial.  They plainly knew that the liquidator thought he and the Emanuel companies had valuable causes of action against the appellants.

1. Notwithstanding his Honour's acceptance of the liquidator's honesty, forthrightness and reasonableness Mr Keane submitted that his Honour erred in accepting that the liquidator, when he wrote the letter of 2 February 1998, had good reason for believing that the Fosters companies had surrendered any security for the debt founded on the loan to Management of $43M in 1987.  The error arose, Mr Keane submitted, because his Honour was looking at what occurred in the winding up of Management, not of No 14, and that the liquidator must have known that security was claimed for that debt in the winding up of No 14.

1. However if the debenture was claimed as security for that debt it must have been security for that debt in the winding up of Management as much as in the winding up of No 14 for the original loan was made to Management on the security of that debenture.  No 14's liability for that debt arose because it guaranteed Management's payment of it.  His Honour was therefore correct, in my opinion, in concluding that the statements and conduct of the Fosters' representatives in the creditors' meetings of Management justified the liquidator in thinking that, in the winding up of that company, the Fosters companies could no longer credibly assert that they had security for amounts said to arise from loans made to Management.  It should be added that the liquidator said, and his Honour accepted, that he took legal advice at that stage.  The appeal from his Honour's refusal to remove the liquidator should therefore be refused.

8.Orders   

1. It follows, in my opinion, that the appeal must be dismissed with costs.  Each of the respondents filed a notice of contention but, in view of that opinion, I find it unnecessary to deal with any of the matters raised therein.  The orders which I would make are accordingly as follows:  Appeal dismissed with costs.

1. CULLINANE J:  For the reasons given by Davies JA, I agree with both of my colleagues that the appeal should be dismissed with costs.

ORDER:

Appeal dismissed with costs to be assessed.