Hall v Sherman
[2001] NSWSC 810
•14 September 2001
Reported Decision:
(2001) 40 ACSR 40
[2001] NSWSC 810
[2001] ACL Rep 120 NSW 149
(2002) 20 ACLC 339
New South Wales
Supreme Court
CITATION: Hall v Sherman [2001] NSWSC 810 CURRENT JURISDICTION: Equity FILE NUMBER(S): SC 4169/01 HEARING DATE(S): 11 September 2001 JUDGMENT DATE:
14 September 2001PARTIES :
Gregory Winfield Hall as Receiver and Manager of One.Tel Networks Holdings Pty Limited & 4 other companies (P)
Steven John Sherman and Peter Murray Walker as Liquidators of One.Tel Limited, One.Tel Networks Holdings Pty Limited and 4 other companies (D)JUDGMENT OF: Austin J
COUNSEL : M R Ellicott (P)
P M Wood (D)SOLICITORS: Dibbs Barker Gosling (P)
Freehills (D)CATCHWORDS: COMPANY LAW - receiver appointed under Deed of Charge to some but not all companies in Group - companies in Group in voluntary administration, and subsequently liquidation - difficulty in classifying masses of documents as documents belonging to companies in receivership or to other group companies - receiver's claim to possession or inspection of all documents in possession of companies subject to charge - whether declaratory and other relief should be made reflecting receiver's claim LEGISLATION CITED: Corporations Act 2001 (Cth) ss 9, 420, 424, 431, 530B, 1321, 1324 CASES CITED: Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334
Expo International Pty Ltd v Chant [1979] 2 NSWLR 820
Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd (2001) 38 ACSR 282
Re Jet Corporation of Australia Pty Ltd [1985] VR 719
Re Landmark Corporation Ltd (in liq) (1968) 88 WN (Pt 1) (NSW) 195
Re Magadi Soda Co Ltd (1925) 41 TLR 297
Re Simersall (1992) 108 ALR 375DECISION: Originating process dismissed
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
4169/01
FRIDAY 14 SEPTEMBER 2001
AUSTIN J
GREGORY WINFIELD HALL AS RECEIVER AND MANAGER OF ONE.TEL NETWORKS HOLDINGS PTY LIMITED & 4 OTHER COMPANIES V STEVEN JOHN SHERMAN AND PETER MURRAY WALKER AS LIQUIDATORS OF ONE.TEL LIMITED, ONE.TEL NETWORKS HOLDINGS PTY LIMITED & 4 OTHER COMPANIES
JudgmentThe proceeding
His Honour:
1 This case began by originating process filed on 23 August 2001. The plaintiff, who is the receiver and manager of assets of certain subsidiaries ("the Network Group") of One.Tel Ltd ("OTL"), seeks either a declaration that he is presently entitled to the possession of all "books" (as defined in s 9 of the Corporations Act 2001 (Cth)) which were in the possession of the Network Group on the day of his appointment as receiver, 6 June 2001 (paragraph 1 of the originating process), or a declaration that the defendants, who are the liquidators of OTL and its relevant subsidiaries (including the Network Group) are obliged to allow the plaintiff to inspect all books of the Network Group, including books in the possession of the Network Group as of 6 July 2001 (paragraph 2 the originating process).
2 Paragraphs 3 to 6 of the originating process seek to set up a regime in which the defendants would be ordered to serve on the plaintiff a document specifying the locations where the books of the whole One.Tel Group are held, and allow the plaintiff to inspect copies of books of the One.Tel group at the locations so identified, after which the plaintiff would be required to serve on the defendants a list of documents which it contends to be books of the Network group. Then within 14 days the defendants would be required to serve on the plaintiff a document identifying books which they contend are not books of the Network Group, and the factual basis upon which they make that contention in respect of each document.
3 As an alternative to orders 3 to 6, the plaintiff seeks an order that the defendants forthwith allow the plaintiff to inspect all books of the Network Group.
4 The application for this relief is said to be made under ss 424 (1), 1321, 1324 (1) and 1324 (2) of the Corporations Act 2001.
5 The originating process obviously seeks a determination by the Court of the receiver's right to take possession of or inspect certain books of companies within the One.Tel Group, as against the liquidators. The question arises in a context in which the receiver and the liquidators are in dispute on many fronts. The parties do not want the Court to resolve all of their other disputes in the present proceeding, but simply wish to have a determination of the plaintiff's rights of inspection and access to documents and records. They have conducted the hearing on a limited basis, which has not sought to adduce comprehensive evidence of the various substantive disputes between them with respect to particular assets.
6 In order to protect their respective positions, the parties have by agreement produced a document which has been tendered in evidence. The document is reproduced as Appendix 1 to these reasons for judgment.
OTL and the start-up of the Network Group
7 OTL is the parent company of a group that carried on business from May 1995 until June 2001. OTL itself carried on business primarily as a telecommunications re-seller. Other members of the group carried on business in related fields. For example, One.Net Pty Ltd operated as an Internet service provider, and One.Card Pty Ltd operated as a seller of pre-paid telephone cards. I shall use the expressions "the One.Tel Group" and "the Group" to refer to OTL and all of its Australian subsidiaries, including the five subsidiaries (specified below) that comprise the Network Group.
8 From about 1998 plans were made and implemented to enable the One.Tel Group to acquire and operate its own mobile telecommunications network, the "Next Generation" network. Five wholly owned subsidiaries of OTL, called the "Network Group", were to conduct various aspects of the New Generation network. One.Tel Networks Holdings Pty Ltd was the direct holding company of the four other network companies. One.Tel Networks Finance Pty Ltd had the function of procuring finance for the development of the network. One.Tel GSM Spectrum Pty Ltd was to hold the Spectrum licences required to operate the network. One.Tel GSM 1800 Pty Ltd was to hold the subscriber (customer) base for the network. One.Tel Networks Pty Ltd was to hold the physical infrastructure of the network.
9 In 1999 a series of complex contracts was entered into with Lucent Technologies Australia Pty Ltd ("Lucent Australia") and its American associates, Lucent Technologies International Inc and Lucent Technologies World Services. I shall refer to the Lucent companies together as "Lucent". The Network Group commenced to carry on business in a material sense in about March 2001, when Lucent substantially completed the Adelaide network and transferred it to the Network Group.
10 As part of the agreement between the Network Group and Lucent for the development of the network, One.Tel Networks Pty Ltd was required to ensure that OTL assigned certain Spectrum licences, initially acquired in the name of OTL, to One.Tel GSM Spectrum upon completion of the various networks. There was also an interim service provider agreement under which OTL was to provide services to customers, on the basis that customers would ultimately be transferred to One.Tel Networks on completion of the networks in the respective cities in which the customers were based.
11 An agreement, referred to as "the Prepaid Advertising Agreement", was entered into between News Ltd, Publishing and Broadcasting Ltd and OTL for the provision to OTL of certain advertising rights. There was a partial assignment of rights under the Prepaid Advertising Agreement by OTL to One.Tel Networks.
12 Lucent substantially guaranteed a syndicated bank facility for $1.15 billion to finance the building and testing of the network and the purchase of the necessary goods and materials. To secure repayment of sums due under the bank facility, the Network Group companies each charged certain of their assets in favour of Lucent. Neither OTL nor any of the other companies in the One.Tel Group gave security to Lucent or the bank lenders in respect of the network project.
The insolvent administration and receivership
13 On 29 and 30 May 2001 the defendants were appointed joint voluntary administrators of OTL and most of the One.Tel companies, including the Network Group. They became joint liquidators on 24 July 2001, when the creditors of the relevant companies resolved that they be wound up.
14 On 6 June 2001 the plaintiff was appointed by Lucent as receiver and manager of the Network Group. He was not appointed receiver and manager of OTL or any other subsidiaries of the Group, and does not claim that his appointor has any charge over the assets of any One.Tel companies other than the Network group.
15 The plaintiff's evidence is that, in order to discharge his functions as receiver and manager of identifying and valuing the assets subject to his appointor's security and formulating a plan to realise them, his staff would ordinarily attend at the offices of the companies and take possession of all documents and computers at those premises, and make inquiries as to the location of other documents. He says that normally he would arrange to take possession of corporate records within days of his appointment. However, in this case he decided to allow a certain latitude to the defendants, having regard to the scale and complexity of their administration. He has attempted to gain access to the books and records of the Network Group ever since the defendants issued their report to creditors on 12 July 2001.
Intermingling of books and records
16 For several reasons, it is much more difficult than usual to determine whether any given document belongs to OTL or to another company within the One.Tel Group. Generally, it must be borne in mind that there is an enormous volume of documents, comprising over 1400 boxes.
17 Before the defendants were appointed voluntary administrators on 29 May 2001, the business and affairs of the One.Tel Group were managed in a fashion that did not distinguish between the Network Group and other entities. OTL conducted the administrative, accounting, staffing and all other office functions for the Group, and all staff were employed by OTL, even where they worked principally in relation to one of the Group's distinct business units. There were no separate accounting systems maintained for any of the subsidiaries. Instead, OTL maintained within its computerised accounting system management accounts for various business units, one of which was the Network Group. The business units did not mirror the Group's corporate structure. For example, in the management accounts for March 2001, leased assets were disclosed in the Network Group accounts but no lease liability was recorded there, and the total lease liability was recorded against OTL.
18 The offices of the Group were organised on an "open plan" basis. A single letterhead was used for Network and non-Network matters, bearing the name and ACN of OTL and no other company in the Group, together with the logo and the words "One.Tel 100% telephone co". Third parties corresponding with the different companies in the Group would often address their letters simply to "One.Tel" or to a named person at "One.Tel".
19 There is evidence of intermingling of financial records prior to the appointment of the voluntary administrators. For example, debtors relevant to network subscribers were intermingled with OTL debtors in an accounting system called the One.Bill system. Intercompany loan balances were recorded in the financial records of OTL. The cash flow for the Group was largely consolidated through OTL, which in effect operated a treasury function for the Group.
20 After the defendants took up their appointment, all records for Group companies were boxed without separation of the records of the Network Group, until the plaintiff pressed for inspection. Shortly after the commencement of the voluntary administration, the Australian Securities and Investments Commission raided OTL's premises and removed large qualities of documents. That has presented difficulties for the defendants in readily locating and identifying documents.
21 The registered and business offices of each entity of the One.Tel Group contain a large number of boxes and papers, and premises are guarded by security personnel who allow access only with the defendants’ approval. Other documents are held by various firms of solicitors including the defendants' solicitors and solicitors who formerly acted for the One.Tel Group. Some documents are held by the Office of State Revenue, and there are over 1000 boxes of archived documents stored with Access Storage.
22 The defendants have sorted some of the documents to extract those identified as documents of the Network Group, but approximately 1400 boxes of documents have not yet been "vetted" in this way.
The plaintiff's access to books and records
23 At no time since his appointment has the plaintiff had unrestricted access to the business premises of the Network Group or to the books and records in the possession of that Group. Instead, he says, such access as he has received has been given by approval of the defendants or their solicitors. However, his staff and solicitor inspected several boxes of documents at the offices of the defendants' solicitors on the four days from 31 July to 3 August 2001. Copies of seven lever arch files of documents were provided by the defendants' solicitors to the plaintiff's solicitors, at their request, on 7 August 2001. On 10 and 13 August 2001 a member of the plaintiff's staff and his solicitor went to the defendants' offices to inspect records. A representative of the defendant stayed in the room while they did so. There was another inspection, at the Group's offices, on 17 August. The defendants' staff have provided the plaintiff with a CD-ROM containing general ledger and trial balance "dumps" of items on the accounting system referable to the Network Group. However, the plaintiff's requests to inspect documents in various categories remain outstanding.
24 As I shall explain, the defendants have proceeded on the basis that the plaintiff is entitled to inspect some documents, but is not entitled to inspect others and ought not to be allowed to do so, and they have insisted on reviewing and classifying particular documents before making them available for inspection.
The plaintiff's complaints about deficiencies of information
25 The plaintiff says that because he has not had access to adequate records, he has been unable to prepare and lodge with the Australian Securities and Investments Commission the report as to the affairs of the companies for which he is receiver and manager, as required by s 421A of the Corporations Act.
26 The plaintiff has identified specific subject areas in which he wishes to obtain access, through inspection of documents, to more information. Broadly, the areas identified by the plaintiff in evidence correspond with the areas of dispute between the parties summarised in Appendix 1.
27 Amongst the matters he wishes to investigate are the value of One.Tel Networks' entitlement in respect of the Prepaid Advertising Agreement, and the state of intercompany loan balances (as to which there are large discrepancies in the documents he has seen), and entitlement to the proceeds of sale of the subscriber base.
28 Additionally, the plaintiff has been unable to form a view as to the total number and value of the Spectrum licences owned by One.Tel GSM Spectrum. The defendants' report to creditors in respect of the One.Tel Group attributed a book value to Spectrum licences in OTL of $492,663,000. However, there are inconsistencies between certain "legal accounts" (that is, corporate entity accounts as opposed to management accounts of business units) of One.Tel GSM Spectrum and the contents of the general ledger for that company. The book value attributed to the Spectrum licences in the "legal accounts" of the company as at 30 May 2001 was $12.673 million whereas the value attributed in the “legal accounts” as at 31 December 2000 was $9.491 million. A member of the plaintiff's staff was told that the general ledger for the One.Tel Group contains only one Spectrum ledger account attributing the value of all Spectrum licences, in excess of $500 million, to One.Tel GSM Spectrum. Transfers for two Spectrum licences from OTL to One.Tel GSM Spectrum appear to have been lodged with the Australian Communications Authority, but were then withdrawn by OTL. A document indicates there is a possible dispute as to the ownership of Spectrum licences between OTL and One.Tel GSM Spectrum.
29 Additionally, such records as the plaintiff has seen appear to give inconsistent information about whether title has passed from Lucent to One.Tel Networks with respect to the Brisbane and Adelaide networks.
The defendants' position
30 The defendants say they recognise, and have throughout been prepared, and remain willing, to give effect to the plaintiff's legal entitlement as receiver and manager of the Network Group. But they point out that the plaintiff was appointed receiver and manager under charges granted by the Network Group companies, and not under any charge to which OTL or any non-Network Group company was a party. They say that the terms of the charges under which the plaintiff was appointed do not purport to confer on him any rights over property belonging to anyone other than the chargors.
31 With the assistance of their solicitors, they have identified three categories of documents. Category 1 documents are documents that belong to the Network Group - for example, the statutory records of Network Group companies. The defendants acknowledge the plaintiff's entitlement to access to those documents.
32 Category 2 documents are documents that do not belong to the Network Group - for example, the statutory records of another subsidiary such as One.Card or the minutes of board meetings of OTL. The defendants do not believe that the plaintiff is entitled to access to, or possession of, Category 2 documents. They say this is so, regardless of whether the documents relate to one or more Network Group companies or are in the possession or joint possession of the Network Group. However, they are prepared to entertain requests by the plaintiff for access to specific Category 2 documents where the plaintiff gives reasons for access which they regard as adequate.
33 Category 3 documents are documents that neither clearly belong to the Network Group nor clearly do not belong to the Network Group. Typically, these are documents which relate to the network, or the affairs of the Network Group, but which appear on their face to belong to OTL or bear no indication as to ownership or were located with other documents belonging to OTL. This category includes documents to which both a Network Group and a non-Network Group One.Tel company were parties. An example is the assignment deed relating to pre-paid advertising. As to Category 3 documents, the defendants say they have taken a "responsible and practical attitude". In order to minimise disputes and costs, they are prepared to give the plaintiff access to these documents even though it is unclear whether they belong to the Network Group or not.
34 The defendants say that the documents made available to the plaintiff for inspection have been Category 1 and Category 3 documents, but Category 2 documents have been removed. They say that where requests have been made in correspondence for copies of specific documents, they have provided or taken steps to locate the documents where the documents fall within Category 1 or Category 3, but if the documents have fallen within Category 2, the plaintiff has been advised and invited to put forward reasons why he should nonetheless be permitted access. It seems, however, that the defendants have not fully responded to some requests for classes of documents, where the individual documents have not been specified in a manner that would enable the defendants to decide whether any of them are in Category 2.
35 The defendants say that of the more than 1000 boxes of documents that have been archived, an examination of the list of contents of the boxes suggests that it is likely that the contents of many of the boxes will have nothing to do with the Network Group. On 23 August 2001, the defendants' solicitors invited the plaintiff's solicitors to identify those boxes from the list of archived documents which the plaintiff would like to inspect, in order that the defendants could then consider whether the contents fell within Categories 1 or 3. The defendants say that the plaintiff has not yet responded to that invitation.
36 The defendants have expressed some concerns about allowing the plaintiff access to documents in Category 2, to which (they say) he is clearly not entitled. They have not allowed the plaintiff free access to the One.Tel offices because OTL is the sole lessee of the premises, they are continuing with run-off business activities, principally in respect of the collection of debtors, there are limited staff resources, and substantial quantities of the documents on the premises belong to companies other than the Network Group.
37 Moreover, the defendants say that Lucent, the plaintiff's appointor, has two distinct roles. On the one hand, Lucent is a secured creditor of the Network Group enforcing its security over the charged assets (certain assets of the Network Group) through the plaintiff. On the other hand, Lucent claims to be a major unsecured creditor of OTL. It asserts claims against OTL in respect of guaranteed interest and foreign exchange differences, originally quantified at $244 million but now reduced to less than $100 million. It also asserts that it has a claim for damages for misleading and deceptive conduct against OTL for more than $1 billion.
38 Lucent has provided the defendants with three schedules which itemise Lucent's claim against the Network Group companies, and give an indication of the basis of Lucent's claim against OTL. In addition, there are other areas of potential dispute between Lucent and One.Tel, for example concerning ownership of Spectrum licences and intercompany indebtedness.
39 The defendants say that they are concerned to ensure, in the interest of creditors as a whole, that documents are obtained by potential claimants only by proper means and for proper purposes.
The receiver's rights to obtain or inspect documents under the deed of charge
40 The deed of charge is between the Network Group and Lucent Technologies Australia Pty Ltd. By clause 2.1 each chargor, as beneficial owner of the "Charged Property", charges all of its right, title and interest in the Charged Property to the chargee as security for the due and punctual payment of the "Secured Moneys". By clause 2.3, the charge is a fixed charge over all of the chargor's right, title and interest derived from any of a list of categories of assets which forms part of the Charged Property. The list includes some documents, but not documents generally.
41 By clause 5.3, on his appointment the receiver has various powers including the power to manage, enter into possession or assume control of any of the Charged Property (clause 5.3(a)), a power to have access to any of the Charged Property, the premises at which the business of a chargor is conducted and any of the administrative services of the business of a chargor (clause 5.3 (j)), and a power to do anything necessary or incidental to the exercise of any other power (clause 5.3 (aa)). By clause 5.5, the receiver's powers continue notwithstanding the winding up of a chargor, and if a receiver ceases to be the agent of a chargor by virtue of a resolution being passed for the winding up of that chargor, then the receiver immediately becomes the agent of the chargee.
42 The definition, in clause 1.1, of "Charged Property" is of critical importance. "Charged Property" means, in respect of each chargor,
- "all of the Chargor's present and future undertaking, assets and rights including all real and personal property, choses in action, goodwill and uncalled and called but unpaid capital but does not include any present undertaking, assets, rights or property (other than any Carrier Licence) which, at the date of this deed, is or are situated in a Relevant Jurisdiction or taken for the purposes of any stamp duty law to be situated in a Relevant Jurisdiction but does include any other asset or property specified as "Charged Property" for the purposes of this deed in any oral notice given from time to time (but after the date of this deed) by or on behalf of a Chargor to the Chargee."
43 There is evidence that oral declarations have been made from time to time, but it does not appear that there is any declaration relevant to the issues in this case. Therefore any assets (including documents) which existed on 1 July 1999, the date of the deed, and were situated in a "Relevant Jurisdiction" (an Australian State) are excluded from the definition of Charged Property.
44 According to the definition, documents of the kind claimed by the plaintiff are "Charged Property" if they fall within "the Chargor's present and future undertaking, assets and rights". This raises, as a matter of construction of the definition, the question whether at the time of the plaintiff's appointment any of the companies in the Network Group owned, or had a proprietary interest (such as to be part of the undertaking, or an asset or right) in, the documents in question.
The plaintiff's entitlement to possession of documents as receiver
45 Prayer 1 in the originating process seeks a declaration that the plaintiff "is presently entitled to possession of all Books which were in the possession of the One.Tel Network Group of 6 June 2001". The word "Books" is defined in the originating process by reference to the definition in s 9 of the Corporations Act. The prayer for relief raises the question whether the plaintiff was, at that time and as against the defendant liquidators, "entitled to possession" of all the documents in the possession of the Network Group.
46 Section 530B (1) (a) of the Corporations Act says that a person is not entitled, as against the liquidator of a company, to retain possession of books of the company. However, s 530B (2) says that subparagraph (1) (a) does not apply in relation to books of which a secured creditor of the company is entitled to possession, but the liquidator is entitled to inspect and make copies of such books at a reasonable time. It is clear that Lucent was a secured creditor for the purposes of this provision.
47 Section 530B creates a "pecking order" in which the receiver's claim to possession of company documents has priority over a liquidator's claim. However, it is particularly important in the present case to pay attention to the precise wording of s 530B. The liquidator's right to obtain or retain possession of books, as against other persons, is confined to "books of the company". As a matter of natural meaning, those words refer to books which belong to the company, and may extend to books to which the company has some lesser but proprietary interest. The liquidator's right is subject to the right of a secured creditor of the company, to the extent that a secured creditor is "entitled to possession" of the relevant books. It is not necessary for the secured creditor to have a proprietary interest in the books - an entitlement to possession will do.
48 Section 530B is generally confirmatory of the previous law. In Re Landmark Corporation Ltd (in liq) (1968) 88 WN (Pt 1) (NSW) 195, speaking of the admittedly more general provisions of s 233 (1) of the Companies Act 1961 (NSW), Street J (as he then was) referred (at 198) to the "well-settled" law that a receiver of the assets of a company appointed by a debenture holder is entitled to the custody and control of the assets covered by that debenture. He said that the receiver's right is superior to the statutory right of a liquidator to take the company's property into his custody and under his control. He held that it was unnecessary for the receiver to make an application to the Court for authorization before taking possession of the company's property.
49 Therefore the question is whether Lucent, and the plaintiff as its appointed receiver, was "entitled to possession" of the documents which the plaintiff claims, as at the date of appointment. The rights of Lucent as secured creditor are defined by the deed of charge. The plaintiff as receiver has two sources of the power to take possession of documents.
50 The first is s 420 of the Corporations Act. Subsection 420 (2) confers statutory powers on the receiver, in addition to any powers conferred by the instrument under which the receiver was appointed, but subject to any limitation in that instrument. The powers include:
- "(a) to enter into possession and take control of property of the corporation in accordance with the terms of that … instrument".
51 There is no relevant limitation on this power in the deed of charge dated 1 June 1999. The availability of the power depends upon whether the documents claimed are "property of the corporation". Section 420 does not confer on the receiver the power to take possession of documents that were in the possession of the corporation but were not "property of the corporation".
52 The second source of power is the terms of the instrument itself. As I have mentioned, clauses 5.3(a) and 5.3(j) confer on the receiver the power to enter into possession or assume control of any of the Charged Property, and to have access to any of the Charged Property. The availability of those powers, and the incidental power in clause 5.3(aa), depends upon whether the documents claimed are "Charged Property". As I have said, this raises the question whether any of the companies of the Network Group owned the relevant documents, or had a proprietary interest constituting part of the undertaking, or an asset or right of the company, with respect to the documents.
53 Thus, while the ultimate question is whether the receiver has an entitlement to possession of the documents, the answer to that question does not depend, under the deed of charge, upon whether the company to whose assets the receiver was appointed had an entitlement to possession of the documents. The receiver's right to possession is restricted to documents which, at the relevant date, were the property of a company in the Network Group, and may extend to documents in which one or more of those companies had a proprietary interest.
54 It is unnecessary for me to decide, in the present case, whether a receiver is entitled to possession of books in which the company had a proprietary interest falling short of ownership. Although the receiver's right would have priority over the right of the liquidator, the receiver's entitlement to possession as against other holders of proprietary interests in the documents may depend upon the nature of those other interests.
55 Prayer 1 in the originating process does not recognise the limitations to the receiver's entitlement to possession of documents. It seeks a declaration extending to all Books which were in the possession of the Network Companies at the date of the receiver's appointment. Relief that kind is too broad in two respects.
56 First, to the extent that Books were in the possession of a Network Group company which did not own and had no proprietary interest in them, the plaintiff had no statutory or contractual entitlement to possession of them, having regard to the terms of s 420 and the definition of Charged Property in the deed of charge.
57 Secondly, to the extent that some of the Books may have been property of a Network Group company specifically excluded from the definition of Charged Property, the deed of charge thereby contained a provision that limited the receiver's powers, thus excluding those Books from the power in s 420 (2) (a) to take possession and control of property of the company. As I have said, the definition of Charged Property has the effect of excluding all property, including documents, of a Network Group company situated in any of the Australian States on 1 July 1999, in the absence of a subsequent oral notice specifying further property to be charged. The only such oral notices that are in evidence do not appear to extend to documents at all.
58 It follows that the plaintiff is not entitled to a declaration as wide as the one sought in prayer 1. If it were of practical value or utility, a declaration could be made that the plaintiff is presently entitled to possession of all Books which were owned by any company in the Network Group on 6 June 2001. A declaration extending to documents in which a Network Group company had a proprietary interest falling short of ownership may be difficult, because it would affect the interests of the holders of other proprietary interest in the documents, who are not before the Court. It seems to me, however, that there is no practical value or utility in any such declaration, even if it is confined to cases where the company owns the documents.
59 As I have indicated, the defendants have taken the view that the plaintiff is entitled to the possession of documents belonging to the Network Group (Category 1 documents). The defendants have been prepared to go further. They are prepared to allow the plaintiff access to documents which may or may not belong to the Network Group (Category 3 documents). They refuse the plaintiff possession of, or access to, only those documents that do not belong to the Network Group (Category 2 documents). In my opinion this approach correctly reflects the respective entitlements of the parties to possession of documents.
60 Lying behind the question of principle there is a question of practicality. There is a vast quantity of documents. The defendants say that, to the extent that is necessary for their solicitors to locate and copy documents, the plaintiff should pay the solicitors' costs on doing so. The plaintiff says that the defendants have placed themselves or their solicitors in the position of arbiters of the plaintiff's entitlement to access to specific documents, without any entitlement to do so, and have even claimed that the costs incurred in discharging their illegitimate function be paid by the plaintiff.
61 I shall return to this practical dilemma. I refer to it at the present time in order to make the point that a declaration of the kind which might be made in favour of the plaintiff would make no contribution to resolving the practical problem. In fact, it would make matters worse, because it would reinforce by judicial order the correct approach as a matter of principle without in any way resolving how to adjudicate on particular documents.
62 The defendants submit that in those circumstances, a declaration which does no more than state the plaintiff's right to possession of documents belonging to Network Group companies would not be a "judicial determination" as envisaged by the Full High Called in Bass v Permanent Trustee Company Ltd (1999) 198 CLR 334. I agree. As their Honours said at 355, the notion of a judicial determination "includes a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy". The real controversy between the parties in this case, in my opinion, is not at all about whether the plaintiff is entitled to possession of documents belonging to Network Group companies; it is about the practical problem of how to classify documents, given the mass of documents involved, and who is to pay for the cost of doing so.
63 In my opinion, a declaration in terms of prayer 1 would not make any contribution to resolving this dispute, and it would therefore be futile.
The plaintiff's right to inspect documents as receiver
64 Prayer 2 of the originating process seeks, as an alternative to prayer 1, a declaration that the defendants are obliged to allow the plaintiff to inspect all Books of the Network Group, including all Books in the possession of the Network Group as of 6 June 2001. Prayer 7 seeks an order that the defendants forthwith allow the plaintiff to inspect all Books of the Network Group.
65 This relief relies upon s 431 of the Corporations Act, which is in the following terms:
- "A controller of property of a corporation is entitled to inspect at any reasonable time any books of the corporation that relate to that property and a person must not fail to allow the controller to inspect such books at such a time."
66 It is accepted that the plaintiff is a "controller" for the purposes of this section. It is clear that the word "books" has the wide definition given to that word in s 9, which in turn takes one to the wide definition of "document" in the Acts Interpretation Act 1901 (Cth).
67 The critical question is whether the Books to which the plaintiff seeks access fall within the description of "books of the corporation [of the property of which the plaintiff is controller] that relate to that property". In particular, there is contention between the parties as to the meaning of the words "books of the corporation".
68 The plaintiff contends that the books "of" the corporation include books which are owned by the corporation and also books which are possessed by the corporation at the time of the receiver's appointment. In other words, the plaintiff contends that the word "of" in s 431 extends not only to ownership but also to possessory rights. The plaintiff relies on the dictionary definition of "of". For example, the definition in the Shorter Oxford English Dictionary (3rd ed) p 1360 includes "in the sense of belonging or pertaining to; expressing possession and its converse". The Macquarie Dictionary definition includes "belonging or possession, connection or association: the property of all".
69 While dictionary definitions are frequently useful for determining the legal meaning of words, a dictionary definition must yield to decided cases. In Re Jet Corporation of Australia Pty Ltd [1985] VR 719, receivers of the assets of two companies took proceedings under s 329A of the Companies (Victoria) Code, which is indistinguishable from the present s 431, for orders compelling the auditors of the companies to permit them to inspect photocopies of accounting records that had been provided to the auditors by the companies. The principal issues in the case were whether the photocopies became the property of the auditors when they were handed over and annotated by the auditors, and whether the auditors' lien for unpaid fees entitled them to resist inspection.
70 Gobbo J found that the receiver had a right of inspection, on the ground that the photocopies had remained the property of the companies after they were handed over to the auditors, and the auditors' lien did not entitled them to interfere with the receiver's statutory right of inspection. On the question of construction of the section, his Honour said (at 717):
- The plain meaning of the words used "books of the corporation" is that the books must belong to the company. The alternative meaning is that the books need not be the property of the company but must simply relate to the affairs of the corporation. The difficulty with this latter interpretation is that the section itself speaks of books of the corporation that relate to the property of the corporation. Moreover, there are other provisions in the Code that give powers as to books of the corporation and other books relating to the affairs of the corporation. See, for example, s 295 (1) of the Code. It is not correct therefore to read "of" as equivalent to "relating to". The wider reading would also give rise to the difficulty that documents relating to the corporation but also clearly intended to be in the ownership of a third party such as the records held by an assignee of book debts or by a mortgagee of the company would be liable to inspection by the company's receiver. There may well be a case for giving such a wide variety of inspection but the words used, in my view, do not achieve the result contended for."
71 These remarks were an important component of his Honour's reasoning and conclusion in the case. The decision has stood for over 15 years and, no doubt, commercial lenders and borrowers have organised their affairs on the basis of it. Therefore, even if I were not fully convinced by his Honour's reasoning on the question of construction, I would be disposed to apply it. In fact, however, I accept his Honour's reasoning and conclusion. His point about s 295 of the Code is not quite matched by the current investigation provisions, now found in the ASIC Act, but in all other respects his reasoning seems to me to be of continuing relevance.
72 The plaintiff contended that the case was distinguishable because the question whether "books of the corporation" extended to books in the possession of the corporation was not before the Court. That is true, but his Honour's reasoning is inconsistent with the proposition for which the plaintiff contends.
73 The plaintiff also submitted that the reasoning in the case should not be applied where the issue arises between a receiver and a liquidator, since the case was concerned with a contest between a receiver and a third party in possession of the books, namely the auditors. However, I can see no material distinction between the receiver's right of inspection vis-a-vis the liquidator and vis-a-vis a third party, and s 431 provides no basis for any such distinction.
74 The plaintiff also relies on Re Simersall (1992) 108 ALR 375. In that case, the applicant was a trustee in bankruptcy who served notice under the Bankruptcy Act on the respondent, an accountant, for inspection of trust account records. Under the Bankruptcy Act, if books of an associated entity of the bankrupt are in the possession of a person with whom the associated entity of the bankrupt is or has been associated (for example, by that person being trustee of a trust under which the associated entity is capable of benefiting), and the books may relate to the bankrupt or the bankrupt's examinable affairs, the person is an examinable person and production of the books may be required (see at 382).
75 It appeared that the respondent was an agent appointed by a company associated with the bankrupt to sell containers and hold the proceeds in a deposit account. The records sought by the trustee in bankruptcy were trust account records for that account. The critical question for Gummow J was whether, in the context of the statutory structure that I have described, the trust account records were books "of" the associated entity which was the beneficiary of the trust. It was argued that the books were owned by the respondent, and therefore were not books "of" the beneficiary of the trust. But Gummow J held that books may be "of" an associated entity, within the meaning of the relevant provisions of the Bankruptcy Act, if the associated entity claims under a trust for which the relevant books are "trust documents" within the general law doctrine, according to which a beneficiary has a proprietary right with respect to such documents (at 382).
76 Essentially, my view is that Re Simersall is irrelevant to the issue before me. The statutory context was quite different from the statutory context of s 431. However, to the extent that an analogy can be drawn, the decision is quite consistent with Re Jet Corporation. Because of the beneficiary's acknowledged proprietary right, the books of the trustee can be regarded as "of" the beneficiary, but that does not mean that books in respect of which a person has a merely possessory right are, for the purposes of s 431, books "of" that person.
77 It follows that prayers 2 and 7 of the originating process seek relief based upon a claimed entitlement to inspection which is wider than s 431 allows. A narrower declaration, reflecting the true legal position, would be futile and not a proper judicial determination within the principles discussed in Bass v Permanent Trustee Company Ltd, mentioned above. Nor would it be appropriate, by declaration or order, to impose on the liquidators the duty, either immediately or in the future, of trawling through tens of thousands of documents to ascertain which documents were books of the corporation to which the plaintiff's statutory right would attach.
78 Perhaps most importantly, the evidence shows that the defendants have adopted a position which is essentially both reasonable and correct in law, and under which the plaintiff was afforded rights of inspection not only to Category 1 documents, but also to Category 3 documents, in excess of the plaintiff's legal entitlement conferred by s 431.
Prayers 3 to 6 of the originating process
79 These paragraphs of the originating process seek to set up a procedure for resolving disputes about documents. The proposed procedure involves the court ordering the defendants to serve on the plaintiff a document listing specific locations of all of the books of the One.Tel Group, and allowing the plaintiffs thereafter to inspect copies of all of the books at the locations so identified. Then, the plaintiff would serve on the defendants a list of the documents which it contends are books of the Network Group, and the defendants would respond to that list setting out the books which they contend are not books of the Network Group and the factual basis upon which those contentions are made.
80 It seems to me that the vice in these orders is the assumption or recognition in them that the plaintiff has some right of access to and inspection of all of the books of the One.Tel Group, rather than simply the books of the Network Group, if only for the purpose of making an assessment of which books truly fall within this right of inspection. The orders would, therefore, extend the plaintiff's rights, without any proper juristic foundation for doing so.
81 The originating process invokes s 424, which merely empowers the court to give directions to the receiver, and s 1321, which allows a person aggrieved by a decision of a liquidator to appeal to the Court for a review of that decision. Neither of those provisions provides a basis for extending the receiver's rights in the fashion sought by the orders. Nor does the general injunction provision of s 1324.
82 Quite apart from the absence of a legal right in the receiver to inspect the documents of the whole Group, and obtain information about the affairs of the Group, there is a good reason in the present case for declining to permit that general inspection, to the extent that there may be a discretion to allow it. The plaintiff owes his position as receiver to Lucent and under the terms of the deed of charge, clause 5.5 (noted above), he is now the agent of the chargee. Lucent is entitled to the information obtained by the receiver in the course of his receivership: Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd (2001) 38 ACSR 282; Re Magadi Soda Co Ltd (1925) 41 TLR 297, 300; Expo International Pty Ltd v Chant [1979] 2 NSWLR 820, 834.
83 As I have mentioned, Lucent asserts a claim for damages in excess of $1 billion against OTL. To make the kind of orders sought by the plaintiff would be to give Lucent access to a great deal of information of a kind that may seriously prejudice OTL as its opponent in proposed litigation. The deed of charge does not purport to vest any proprietary interest in Lucent or the plaintiff with respect to documents in which the Network Group has no proprietary interest. Moreover, the definition of "Charged Property" has the effect of excluding documents of the Network Group created before 1 July 1999.
84 My conclusion, therefore, is that the relief sought in prayers 3 to 6 is inappropriate.
Other relief
85 Perhaps appreciating the weakness of the prayers for relief in paragraphs 3 to 6 of the originating process, the plaintiff submits that this is a case where the prayer for "such further or other orders as [the Court] sees fit to make" (paragraph 8) is of real significance. The plaintiff invites the Court to make orders which would ensure that he is able to gain access to the documents which is entitled to inspect or possess, of a kind that the Court considers appropriate, if the Court decides that the orders for which the plaintiff applies are inappropriate.
86 There may be cases where it is appropriate for the Court to be inventive in this way. In the present case, it is plain that the parties have been in intense negotiations to make arrangements to enable each of them to carry out their functions without unduly inconveniencing the other, in a context where there are masses of documents and a huge amount of work is needed simply to classify them into the three categories that the defendants have identified. I have held that the plaintiff is not entitled to access to all of the documents of the One.Tel Group for the purpose of making his own classification, and that there are good reasons for not exercising any relevant discretion, to permit wide inspection in the plaintiff's favour. Further, although there appear on the evidence to be some unanswered requests by the plaintiff with respect to certain classes of documents, on the whole it seems to me that the defendants have acted in a reasonable and legally correct manner. In those circumstances, it would be unwise and dangerous for the Court to embark upon the design of a regime for inspection that goes beyond the strict rights involved.
Conclusion
87 It follows that the plaintiff is not entitled, in my view, to any of the relief sought. At the hearing, the plaintiff invited me to give a judgment on matters of principle to enable the parties to consider, and if necessary agree, the relief which would flow from the judgment, including an appropriate regime for inspection. I see no point in doing so, since I have concluded that there is no merit in the plaintiff's case. The appropriate order, therefore, is that the originating process should be dismissed.
88 I shall stand the matter over to allow the parties to make submissions, if they wish, on the question of costs.
APPENDIX 1
It is agreed between the parties that these proceedings and any judgment given in these proceedings (including on any appeal) are without prejudice to the Defendants’ rights
1 to challenge the validity or extent of the charges under which the Plaintiff claims to have been appointed receiver and manager or any associated security documentation;
2 to challenge the validity of the Plaintiff’s appointment as such receiver and manager;
and that neither these proceedings nor any such judgment will found and the Plaintiff will not seek to raise any claim of res judicata, estoppel, issue estoppel or any similar plea relating to the above matters.
For the purposes of determining the claims made in the Plaintiff’s Originating Process dated 23 August 2001 the Court is invited to make the assumptions set out below.
The parties agree that these assumptions are correct, but this agreement binds the parties only in respect of these proceedings (No 4169 of 2001), including any appeal.
The assumptions are:
1. That a dispute exists between One.Tel Ltd (in liquidation) (OTL) on the one hand and One.Tel GSM Spectrum Pty Ltd (in receivership and liquidation) (OTS) on the other concerning the validity of the transfer of spectrum from One.Tel Ltd to One.Tel GSM Spectrum Pty Ltd.
This spectrum (Transferred Spectrum) is said by the Defendants to have been transferred in the first quarter of 2001 and is shown in the Report as to Affairs prepared by the directors of OTL as having a value of approximately $13 million.
The broad nature of the dispute is as follows: the transfers were effected at a time when OTL may have been insolvent and the transfers may thus be voidable.
2. That there is a dispute between OTL on the one hand and OTS on the other hand concerning ownership of spectrum of which OTL remains the registered owner (Retained Spectrum).
Retained Spectrum is shown in the Report as to Affairs prepared by the directors of OTL as having a book value of approximately $493 million.
The broad nature of the dispute is as follows: OTS asserts or may assert that the Retained Spectrum belongs to it.
3. That there is a dispute between OTL on the one hand and One.Tel Networks Pty Ltd (OTN) on the other hand concerning pre-paid advertising.
Under two subscription agreements News and PBL agreed to subscribe for shares in OTL. Part of the consideration provided for the issue of the shares being subscribed for was that News and PBL would each make available to OTL certain advertising space/time which was to be treated as having been paid for. On 12 March 2001 OTL executed a document expressed to be an assignment to OTN of $50 million worth of this pre-paid advertising.
The broad nature of the dispute is as follows: the transfer was effected at a time when OTL may have been insolvent and the transfer may thus be voidable.
4. That there is a dispute between OTL on the one hand and One.Tel GSM 1800 Pty Ltd (OT1800) on the other hand about whether any and if so how much of the Next Generation mobile telephone subscriber base was transferred from OTL to OT1800 and if any, whether the same was transferred when OTL was insolvent and may thus be voidable.
5. That there are disputes between OTL on the one hand and OT1800 on the other hand concerning the entitlement to the proceeds of sale of subscribers to Telstra (presently held in an escrow account under the joint control of the Plaintiff and the Defendants) and the liability for the costs of generating income from those subscribers prior to their transfer.
The broad nature of these disputes is as follows: OTL entered into an agreement with Telstra under which Telstra paid a sum for the purchase of the subscriber base. OT1800 claims to be entitled to some of the monies paid or payable by Telstra under this agreement. By agreement between the Plaintiff and the Defendants the monies have been placed on joint deposit pending resolution of the question of entitlement.
OTL claims to have incurred expenditure for the benefit of OT1800 prior to the transfer of the subscribers and to be entitled to reimbursement of the amount of that expenditure from OT1800 or, if OT1800 has a valid claim against OTL, to set off that entitlement.
6. That there is a dispute between OTL and One.Tel Networks Finance Pty Ltd (OTNF) as to whether OTNF is a creditor of OTL in any sum.
7. That there is a dispute between OTL on the one hand and each of the Network Group companies concerning the precise level of indebtedness of each of the Network Group companies to OTL.
8. The Plaintiff contends that he has not been in a position to determine the ambit of all disputes as he contends that he has not had full access to the books and records of the Network Group companies relating to the above disputes.
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Counsel for the Plaintiff Counsel for the Defendants
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