Honest Remark Pty Ltd v Allstate Explorations NL - [2006] NSWSC 735

No judgment structure available for this case.

Reported Decision:
58 ACSR 234
201 FLR 456
(2006) 24 ACLC 936

New South Wales

Supreme Court

CITATION: Honest Remark Pty Limited v Allstate Explorations NL & ors [2006] NSWSC 735

HEARING DATE(S): 22/9/05, 21/10/05

JUDGMENT DATE :
21 July 2006

JURISDICTION: Equity Division

JUDGMENT OF: Brereton J

DECISION: Application for appointment of special purpose administrator dismissed with costs.

CATCHWORDS: CORPORATIONS – External administration – administration under deed of company arrangement – special purpose administrator – whether court has power to appoint special purpose administrator to investigate conduct of original administrators – nature and role of special purpose administrator – whether investigation and supervision of administrator is part of administration - whether order appointing special purpose administrator to investigate conduct of original administrators is an order as to how Part 5.3A is to operate in a particular case under s 447A – whether duty of liquidator or administrator extends to investigating own conduct in the administration – where no allegation that corporation would be better off if investigation conducted – whether failure to perform such investigation could be relevant prejudicial management for purposes of s 447E – whether court has inherent jurisdiction to appoint special purpose administrator for purpose of investigating conduct of deed administrator - whether power to appoint special purpose administrator, if it exists, could appropriately be exercised on the plaintiff’s case taken at its highest – where special purpose administrator inapt remedy and other appropriate and orthodox statutory remedies are available – held, taking plaintiff’s claim at its highest, no power to grant relief sought, but if there were power, it would be manifestly unreasonable to grant that relief - (Cth) Corporations Act, 2001, ss 236, 237, 241, 447A, 447E, 536, 1321.

LEGISLATION CITED: (Cth) Corporations Act 2001, ss 180, 181, 236, 237, 241, 247A, Part 5.3A, 435C(2)(a), 436A, 436B, 436C, 436D, 436E, 436F, 436G, 437A, 436A 438A, 444G(b), 445D, 445G, 447A, 447D, 447E, 449B, 473(8), 506(4), 536, 1321
(Cth) Trade Practices Act 1974, ss 52, 80
(NSW) Civil Procedure Act 2005, s 56(3)
(NSW) Supreme Court Act 1970, s 23
(NSW) Uniform Civil Procedure Rules, r 13.4

CASES CITED: ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197
Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230
Re AFG Insurances Limited (2002) 20 ACLC 1588
Agar v Hyde (2000) 201 CLR 552
Apple Computer v Wily [2003] NSWSC 719
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270
Australian Securities and Investments Commission v McDougall [2006] FCA 427
Belvista Pty Limited v Murphy (1993) 11 ACSR 628
Re Biposo Pty Ltd (1995) 120 FLR 399
Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937
Re Charnley Davies Limited (No. 2) [1990] BCLC 760
Commercial Banking Co of Sydney Limited v Pollard [1983] 1 NSWLR 74
Cresvale Far East Limited (in liq) v Cresvale Securities Limited (No 2) (2001) 39 ACSR 622
Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594
Re a Debtor [1949] Ch 236
Dey v Victorian Railway Commissioner (1949) 78 CLR 62
Domino Hire Pty Ltd v Pioneer Park Pty Ltd (2003) 21 ACLC 1330
Eastern Properties Pty Limited & The Companies Act [1981] 1 NSWLR 499
Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (in liq) (1994) 15 ACSR 502
Fiduciary Limited v Morning Star Research Pty Limited [2005] NSWSC 442
Foster v Australian Competition and Consumer Commission [2006] FCAFC 21
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Re George A Bond & Company Limited (1932) 32 SR (NSW) 301
Gibbons v Liberty One (in liq) (2002) 41 ACSR 442
Re GIGA Investments Pty Ltd (admin appointed) (No. 2) (1995) 17 ACSR 547
Hill v David Hill Electrical Discounts Pty Limited (in liq) (2001) 37 ACSR 617
Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365
House v the King (1936) 56 CLR 499
Jackson v Sterling Industries Limited (1987) 162 CLR 612
Kirwan v Cresvale Far East Limited (in liq) (2002) 44 ACSR 21
Lam Soon Australia Pty Ltd v Molit (1996) 70 FCR 34; (1996) 22 ACSR 169
McDonald v Dare (2001) QSC 405
In Re Maidstone Palace of Varieties Limited [1909] 2 Ch 283
Mamone v Pantser (2001) 36 ACSR 743
Re Midland Land & Investment Corporation (1997) WN (Eng) 58
Milankov Nominees Pty Ltd v Roycol Limited (1994) 52 FCR 378; 124 ALR 39; 14 ACSR 296
Mulvaney v Rob Wintulich Pty Ltd (1995) 60 FCR 81; 18 ACSR 384
Mutual Life & Citizens Assurance Co Limited v Evatt (1970) 122 CLR 628
Naumoski v Parbery (2002) 171 FLR 332
Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544
Re Newtel Limited (in liq) (2004) 210 ALR 270
Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; (1989) 1 ACSR 79; 8 ACLC 39
Re Obie Pty Limited (in liq) (No. 4) (1984) 8 ACLR 967
Onefone Australia Pty Ltd v One.Tel Limited (in liq) (2003) 48 ACSR 562
Pannizutti v Trask (1987) 10 NSWLR 531
Re Pasminco Limited (No 2) (2004) 49 ACSR 470
Penthouse Publications Limited v McWilliam (NSWCA, 14 March 1991, unreported), BC9102223
Rajski v Powell (1987) 11 NSWLR 522
Re Siromath Pty Ltd (No. 3) (1991) 25 NSWLR 25
Re Spedley Securities Limited (in liq) (1991) 4 ACSR 555
Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313
Sydlow Pty Limited (in liq) v TG Kotselas Pty Limited (1996) 65 FCR 234
Tampion v Anderson [1973] VR 321
Walton v Gardiner (1993) 17 CLR 378
Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534
Ritchie’s Uniform Civil Procedure, [13.1.5]

PARTIES: Honest Remark Pty Limited (plaintiff)
Allstate Explorations NL (first defendant)
Michael Ryan (second defendant)
Antony Woodings (third defendant)

FILE NUMBER(S): SC 2625/05

COUNSEL: G C Lindsay SC w M B J Lee (plaintiff)
M A Pembroke SC w J R Clarke (defendants)

SOLICITORS: Piper Alderman (plaintiff)
Mallesons Stephen Jaques (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

Friday, 21 July 2006

2625/05 Honest Remark Pty Limited v Allstate Explorations NL & ors

JUDGMENT

1 HIS HONOUR: The plaintiff Honest Remark Pty Limited, which holds about 0.1% of the shares in the first defendant Allstate Explorations NL, a company now in deed administration of which the second defendants Michael Ryan and Antony Woodings (“the Administrators”) are the deed administrators, claims an order appointing a special purpose administrator for the purpose of investigating certain transactions entered into by the Administrators and reporting to the court. By interlocutory process, the defendants move for summary dismissal of the claim, and alternatively to have the whole or parts of the statement of claim struck out.

2 Although there is a preliminary question as to whether the court should entertain the claim for summary dismissal, the main issues are:

· Whether the court has jurisdiction (or perhaps more accurately, power), under Corporations Act, s 477A or 477E, or inherent power, to make the orders sought by Honest Remark; and

· If so, whether the discretion to make such an order could only reasonably be exercised by refusing to do so.

Summary Dismissal

3 The summary dismissal of proceedings is authorised by Uniform Civil Procedure Rules, r 13.4, where proceedings are frivolous or vexatious, and/or disclose no reasonable cause of action, and/or constitute an abuse of the process of the court. The power summarily to dismiss proceedings is attracted if, inter alia, they can clearly be seen to be “foredoomed to fail” [Walton v Gardiner (1993) 17 CLR 378, 393]. A high degree of certainty is required before a party is deprived of the opportunity to have its claim determined at trial [Agar v Hyde (2000) 201 CLR 552, 576], as is illustrated by the various expressions which have been used to describe the test, such as “so obviously untenable that it cannot possibly succeed”, “manifestly groundless”, “so manifestly faulty that it does not admit of argument”, “cannot succeed”, or “under no possibility can there be a good cause of action” [General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129; Pannizutti v Trask (1987) 10 NSWLR 531, 536; Rajski v Powell (1987) 11 NSWLR 522, 524; Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534; Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937, 942; Ritchie’s Uniform Civil Procedure, [13.1.5]]. Thus the power summarily to dismiss proceedings is exercised only where the defect in the plaintiff’s claim is clearly established [General Steel, 129].

4 Although they have tendered a substantial quantity of evidentiary material, the defendants have not sought to establish that they have incontrovertible defences of fact. Although not quite exclusively, the arguments which they advance depend essentially on examination of the pleadings. An order for summary dismissal will be made on the examination of the pleadings only if it is apparent that the case is absolutely hopeless, or that there is no possibility of the facts pleaded giving rise to a good cause of action [Dey v Victorian Railway Commissioner (1949) 78 CLR 62, 90; Tampion v Anderson [1973] VR 321, 325], and that the pleading is beyond saving by legitimate amendment [Mutual Life & Citizens Assurance Co Limited v Evatt (1970) 122 CLR 628, 639; Penthouse Publications Limited v McWilliam (NSWCA, 14 March 1991, unreported), BC9102223; Brimson v Rocla Concrete Pipes, 942]. In such a case, the applicant for summary dismissal must accept the truth of all allegations in the opposing pleading, including the ranges of meaning that the assertions of fact in it are reasonably capable of bearing [Penthouse Publications Limited v McWilliam]. In other words, the application must be determined on the footing that the truth of the allegations of fact in the statement of claim, taken at their highest, is assumed.

5 Where the substantive proceeding is for discretionary relief, it is inappropriate to embark on an application for summary dismissal that requires an examination of the whole of the merits to determine whether a discretion could possibly be exercised in favour of the plaintiff [Commercial Banking Co of Sydney Limited v Pollard [1983] 1 NSWLR 74]. However, a court is not precluded from making an order for summary dismissal where, taking the plaintiff’s case at its highest, it is apparent that the plaintiff must fail. Thus if it can be shown that any exercise of discretion in favour of granting the relief sought by the plaintiff would involve error of the kind described in House v the King (1936) 56 CLR 499, 505, then the case is one in which summary dismissal may be granted, notwithstanding that discretionary relief is involved. Such a conclusion may be reached either because, on the plaintiff’s case taken at its highest, some essential pre-condition to jurisdiction or power to grant the relief sought is absent, or because, even though there is power to grant the relief, the court’s discretion could only reasonably be exercised by declining it.

6 Accordingly, the present application is to be approached by considering whether, taking Honest Remark’s case as pleaded at its highest, there is no power to grant the relief that it seeks, or whether, if there were such power, it would be manifestly unreasonable to grant it, and bearing in mind the caution that a first instance court should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause will lie [Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365; Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (in liq) (1994) 15 ACSR 502, 507-508].

The Plaintiff’s Case

7 What follows is a summary of the facts that Honest Remark asserts and which I assume for the purposes of this application. Given that they involve potentially serious imputations against the Administrators, it is important to appreciate that they are not findings of fact, but assumptions for the purposes of this application.

8 Allstate has two wholly owned subsidiaries (“the Allstate Subsidiaries”): ACN 070 164 653 Pty Ltd (“ACN”), and Allstate Prospecting Pty Ltd (“APL”). The shares in Allstate are held approximately as to 26% by Beaconsfield Gold NL (“BCD”), as to 17% by the public (including Honest Remark), and as to 57% by Otter Gold Mines Limited (“Otter”), which in turn is controlled by Normandy NFM Limited (“Normandy”) and ultimately by Newmont Limited (“Newmont”).

9 On 19 October 1992, the Allstate Subsidiaries (as to 51.5%) and BCD (as to 48.5%) became participants in a joint venture to mine the Beaconsfield gold mine near the Tamar River, north of Launceston, in Tasmania (“the Joint Venture”). Under the Joint Venture agreement, Allstate was the manager of the Joint Venture, and as manager, was entitled to a lien over the Joint Venture assets, which in early June 2001 were valued at $6.689 million.

10 On 19 September 2000, Allstate renegotiated its $19.5 million loan facility with Macquarie Bank Limited (“Macquarie”), as a result of which no principal was repayable until June 2001, when a quarterly repayment of $1.25 million became due, and all moneys owing were repayable on 31 December 2004. The facility was secured by a fixed and floating charge over the assets of Allstate, fixed and floating charges over the assets of the Allstate Subsidiaries, fixed charges over the interests of the Allstate Subsidiaries in the Joint Venture property, and mortgages by the Allstate Subsidiaries over mining tenements. Allstate had on-lent the $19.5 million that it had borrowed from Macquarie, to the Allstate Subsidiaries.

11 As at about 1 June 2001, Allstate also had a contingent exposure of approximately $12 million to Macquarie under a gold hedged contract.

12 In early June 2001, Macquarie initiated contact with the Administrators, to ascertain their availability to act as voluntary administrators of Allstate. On 7 June 2001, Macquarie conferred with the Administrators for that purpose, and proposed to Allstate’s directors that the Administrators be appointed. Macquarie provided to the Administrators an indemnity in respect of claims that might be made against them for acting in that capacity. On the afternoon of 7 June 2001, Macquarie informed Allstate’s directors that its continued support of Allstate was conditional upon Allstate going into administration, and that it would not otherwise roll over the loan facility after 30 June 2001.

13 As a result, on 8 June 2001 Allstate’s directors resolved (pursuant to Corporations Act 2001, s 436A) to go into voluntary administration, and appointed the Administrators jointly and severally as administrators of Allstate. The first meeting of creditors, convened pursuant to s 436E, was held on 18 June 2001.

14 On 25 June 2001, BCD’s secured creditor, BankWest, appointed Garry Trevor of Ferrier Hodgson’s Perth office as receiver and manager of BCD.

15 On 24 September 2001, the Administrators reported to creditors, expressing an opinion that creditors should accept a deed of company arrangement proposed by them. On 4 October 2001, at the second meeting of creditors, convened pursuant to s 439A, the creditors resolved, pursuant to s 439C, that Allstate execute the proposed deed of company arrangement, and the Administrators thereupon became deed administrators. Allstate executed the deed on 12 November 2001.

16 The deed provided that the deed administrators might continue to trade for so long as in their absolute discretion it was in the best interests of the creditors to do so, and the deed administrators were authorised to realise assets of Allstate. The Administrators and Mr Trevor had originally decided to continue to operate the mine until a purchaser could be found, but by mid-November 2001 they had decided instead to continue to operate the mine under the Joint Venture agreement. By that time, cash flow from the Joint Venture had significantly improved, and its profitability thereafter continued to grow steadily and significantly.

17 By about September 2001, the Administrators had received legal advice, from Mallesons Stephen Jaques, that the secured creditors of the joint venture (Macquarie and BankWest) ranked behind unsecured creditors to the extent of the manager’s lien for unpaid calls. The mine was and remained cash flow positive, with a quarterly positive net cash flow of $2.713 million for the September quarter and with neither secured creditor having to provide any funding for the mine to operate. The cost of gold mined was decreasing, and the price of gold was increasing, which had a detrimental effect on Macquarie’s hedge book, unless gold continued to be produced by the mine. The secured creditors’ mine sale process was tending to show that the sale price would not be suitable to Macquarie or BankWest, even if any purchaser assumed environmental liabilities associated with the mine. The choice for the secured creditors was between selling or trading on: closure of the mine was not a commercial or practical option due to the terms of the joint venture agreement, environmental liabilities, the terms of the mining licence, and the fact that any money from a sale would be better than nothing, as on closure the mining tenement would revert to the State. At least so long as it was cash positive, it was in the secured creditors’ interests to permit the mine to continue operating, at least until it was sold or a further call was necessary to be made by the manager.

18 By 25 September 2001, the Administrators had surrendered, or “sold”, the manager’s lien, secured by assets valued at $6.689 million - which would have been sufficient to satisfy in full the claims of Allstate’s unsecured creditors - to Macquarie and BankWest, for a deferred payment of $500,000, to be made as a contribution to the unsecured creditors (“the lien sale”).

19 On 5 March 2002, the Administrators reported to creditors recommending further variations to the deed; on 19 March 2002 a meeting of creditors resolved to vary the deed again, and (with Macquarie abstaining) resolved to assign, to Macquarie, the intercompany debts owed to Allstate by the Allstate Subsidiaries - which then amounted to $77.458 million, and included the $19.5 million which Allstate had originally borrowed from Macquarie and on-lent to its subsidiaries, plus interest - for a price of $300,000. At the time of this transaction (“the loan assignment”), Allstate’s exposure to Macquarie under the loan facility was already secured by a fixed and floating charge over the assets of the Allstate Group. The loan assignment had the effect of converting an internal debt owed to Allstate by its subsidiaries, into an external debt owed to Macquarie not only by the Allstate subsidiaries but also by Allstate itself, to increase significantly the debt that Macquarie was entitled to recover from Allstate, and to give Macquarie priority over Allstate’s shareholders and unsecured creditors for the first $77 million of distributions that Allstate might receive from the Joint Venture. The further varied deed was executed on 28 March 2002.

20 Following completion of capital raisings by BCD and the restructure of its debt facilities with BankWest, Mr Trevor retired as its receiver on 12 March 2004.

21 Honest Remark contends that the practical consequence of the lien sale and the loan assignment was to pass effective commercial control of Allstate’s interest in the mine, including its right to manage the mine, to Macquarie, so that Macquarie’s control now continues in circumstances where, but for the lien sale and the loan assignment, Allstate would now be out of external control, and Allstate’s debt to Macquarie would have been repaid in full.

22 The lien sale is said to have been apparently uncommercial, as it involved surrender of the manager’s lien for $500,000, paid effectively by the secured creditors of the Joint Venture for the benefit of unsecured creditors of Allstate out of cash flow of the mine, when the lien could have been enforced against assets then available and valued at $6.689 million, in which event unsecured creditors could have been paid in full, without further delay. It is said that by surrendering the lien to the secured creditors, the Administrators forestalled the possible appointment of a receiver by Macquarie which if made would have jeopardised the loan assignment transaction, as a receiver appointed by Macquarie could not have sold Allstate’s intercompany debts to Macquarie. Honest Remark contends Allstate (and in particular unsecured creditors and contributories) were prejudiced by the Administrators’ failure to make calls upon BCD for its share of Allstate’s indebtedness to unsecured creditors, and/or to enforce such calls by reliance upon the manager’s lien.

23 The loan assignment is said to have been without apparent reasonable commercial justification, as it was effected at a time when public statements of BCD demonstrate that the Joint Venture was cash flow positive and profitable and steadily and increasingly so. A significant effect of the loan assignment is said to have been to prolong the administration of Allstate, to the advantage of the Administrators - particularly when compared to the experience of BCD in extracting itself from the BankWest receivership.

24 The Administrators commended the lien sale and the loan assignment transactions to Allstate’s creditors on the basis that they were necessary to secure the continued financial support from Macquarie to enable the mine to remain open. This was an important consideration for unsecured creditors, and for employees, who lived in the local community. The Administrators appear not to have disclosed to creditors, or at least to have clearly brought home to them, that the commercial imperatives for the secured creditors were such that it was in Macquarie’s interests to ensure that the mine did not close, and that even if neither of the lien sale or the loan assignment proceeded, Macquarie was likely to continue the financial support necessary for the mine to remain open, at least while the joint venture remained cash flow positive.

25 At the times of the lien sale and the loan assignment (between June 2001 and about March 2002), the Administrators had, or upon proper investigation should have had, information that the Joint Venture was cash-flow positive, and was or would within a short time become profitable; that there was a commercial imperative for each of Macquarie and BankWest to allow the Joint Venture to continue to trade, so long as it was cash flow positive; that the lien sale – for $500,000 or at all – was neither necessary for the continued operation of the joint venture nor commercially prudent; and that the loan assignment was neither necessary for the continued operation of the joint venture nor commercially prudent. Statements made by the Administrators in their report to creditors dated 24 September 2001, and at the second meeting of creditors held on 4 October 2001, in respect of the lien sale, are said to have been apparently factually incorrect in suggesting that, if Allstate sought to enforce its lien, the mine would have to be closed; that enforcement of the lien was procedurally impracticable; and that the lien had a maximum value of $2.5 million. Likewise, statements and assumptions conveyed by the Administrators to creditors in a circular to creditors in a circular to creditors dated 5 March 2002 and at a meeting of creditors on 19 March 2002, in relation to the loan assignment, are said to have been incorrect, particularly in suggesting or conveying that there was a real risk that the mine would close.

26 Honest Remark contends that these apparent inaccuracies in the statements made in respect of both the lien sale and the loan assignment cast doubt on whether the Administrators properly performed their duties, or engaged in misleading and deceptive conduct, and that in commending the lien sale and loan assignment to creditors, the Administrators made representations to creditors and Allstate about future matters – particularly, the future performance of the joint venture and whether Macquarie would continue financial support for the mine to remain operational – in respect of which doubt attends whether there was a reasonable foundation, it being said that the increasing profitability of the mine following September 2001, and the experience of BCD in extracting itself from receivership, suggests that there was no such foundation.

27 Further, Honest Remark contends that the lien sale and loan assignment cast doubt upon whether the Administrators have properly discharged their duties under Corporations Act, s 438A, to conduct an investigation and to form opinions, in light of the circumstances that it was under pressure from Macquarie that on 8 June 2001 the Allstate directors resolved to appoint the Administrators as such; it was by Macquarie that the Administrators were nominated for that role; it was at the request of and upon an indemnity from Macquarie that the Administrators accepted their appointment; there was no apparent reason for Macquarie to promote a voluntary administration process, in preference to enforcing its existing securities, if it wished to recover its indebtedness; in the result, Macquarie obtained significant commercial advantages from the lien sale and the loan assignment; the speed with which the lien sale and the loan assignment were effected; and the failure of the Administrators to bring home to creditors that it was a commercial imperative for Macquarie to continue financial support for the mine to remain operational.

28 In that context, Honest Remark contends that it entertains a bona fide concern that the Administrators, in their dealings with Macquarie, might have acted (and, insofar as they are unwilling or unable to investigate the possibility that they are liable to compensate Allstate for negligent or misleading conduct, might be continuing to act) in a manner prejudicial to the interests of members and unsecured creditors of Allstate, by preferring their own interests (in prolonging the administration of Allstate) and those of Macquarie to the interests of members and unsecured creditors of Allstate, and may have been negligent in their performance of the duties owed by them to Allstate (in contravention of Corporations Act, ss 180 and/or 181, their common law duty of care, or their fiduciary obligations), and may have engaged in misleading conduct, in promoting the lien sale and the loan assignment to creditors of Allstate (in contravention of Trade Practices Act, 1974 (Cth), s 52 and equivalent provisions).

29 Further, Honest Remark contends that the personal interests of the Administrators in avoiding any liability to Allstate are in conflict with their duty as officers of Allstate to investigate whether for any of those reasons they have caused compensable damage to Allstate, and accordingly that it is necessary for an independent person to be appointed as special purpose administrator to conduct such investigation - the object being to ascertain:

· whether there are reasonable grounds for the institution of proceedings by Allstate against the Administrators to recover compensation;

· whether there are reasonable grounds for an application to be made (under, at least, Corporations Act ss 445D, 447A or 449B) for an order that the deed be terminated or that the Administrators be removed as deed administrators; and

· whether there are reasonable grounds for the making by Allstate of any (and if so what) claims for relief against parties other than the Administrators (presumably, Macquarie).

30 Thus the essential elements of Honest Remark’s case are, first, that the information presently available raises issues about whether Allstate has entitlements to relief against the Administrators (and, incidentally, against Macquarie) which might constitute an asset available to members and unsecured creditors of Allstate, and which therefore ought to be investigated; secondly, that the Administrators’ are inappropriate investigators due to conflict of interest and duty; and thirdly, that the Court can and should appoint a special purpose administrator to investigate those issues on behalf of Allstate, under the supervision of the court.

31 Although an enormous amount of documentary evidence has been tendered on this application, in part by Honest Remark (no doubt to show that its contentions were reasonably arguable), and in part on behalf of the Administrators, I did not understand Mr Pembroke SC, who appeared for the Administrators, to contend that the allegations made by Honest Remark, as summarised above, which found the first of the three elements just summarised, were not sufficiently arguable to survive an application of the type presently under consideration. In any event, consistent with the approach to applications for summary dismissal explained above, for the purposes of this application I assume them to be correct. In particular, taking Honest Remark’s case at its highest, I proceed on the basis that it will be able to establish at the final hearing of its application for appointment of a special purpose administrator that there are issues pertaining to the conduct of the Administrators in their capacity as such, by reason of which they might be liable to compensate Allstate, and that those issues are such as reasonably to warrant investigation.

32 It is essentially on the second and third element that, for the purposes of this application, issue is joined. The defendants submit (1) that there is no true conflict, because the Administrators have no duty to investigate the conduct of their administration, particularly where all that is alleged is a possibility of potential liability; (2) that in the circumstances, there is no power to appoint a special purpose administrator for the purpose of conducting the proposed investigation; or alternatively (3) that to do so would be manifestly unreasonable.

33 Before considering those submissions, it is necessary to address whether the application for summary dismissal should be entertained at all.

Should the Court Decline to Entertain the Application?

34 Mr Lindsay SC, who appears for Honest Remark, has submitted, in effect if not in terms, that the court should not entertain the application for summary dismissal, particularly having regard to what is said to be the “adjectival” character of the application for final relief, namely the appointment of a special purpose administrator to conduct an investigation and to report to the court. He submits that pursuit of the present interlocutory application is inimical to the just and quick resolution of the real issues in the proceedings, contrary to Civil Procedure Act, s 56(3), and that the summary dismissal application is unnecessary, as the same issues will need to be or at the very least can be reviewed in the different curial context of a final hearing.

35 The Administrators say that if the matter goes to final hearing, they will seek to adduce evidence on four main topics. The first topic is the commercial prudence and necessity of the impugned transactions, and the propriety of their conduct seen in the contemporaneous circumstances, rather than in hindsight. The purpose of such evidence would be to demonstrate the absence as a matter of fact of any grounds for criticism of them, so as to show by affirmative defence that an investigation would be futile. The second topic is the impact of the transactions in their contemporaneous circumstances, including the actual expectations and motives of Macquarie, the creditors and the Administrators, so as to show whether Allstate’s position would have been better or worse had the Administrators not entered into the lien sale and loan assignment. The purpose of this evidence would be to demonstrate that Allstate would probably have been in an inferior position, with the result that there was not a reasonable basis for anticipating that an action against the Administrators or Macquarie would result in the award of any damages; again, ultimately, that goes to showing that an investigation would be futile.

36 The third topic would be the disruptive and invasive consequences of a parallel investigation into the Administrators’ conduct (including the undermining of their authority), while they are continuing to conduct the business of a functioning deep underground gold mine employing 130 people in a small community that is highly reliant on its efficient and on-going successful operation, from which they would be distracted by the investigation. The fourth topic would be the scope and extent of the ASIC investigation, presumably in order to show that the matters had already been thoroughly investigated. The third and fourth topics would potentially be relevant to the exercise of the court’s discretion to grant or refuse the relief that Honest Remark seeks.

37 There is no reason to doubt that the Administrators would seek to adduce evidence on these issues as it has said, and it cannot be said that they would not be entitled to do so. Particularly for the purposes of demonstrating that an investigation would futile, whether by reason of the Administrators’ conduct being within the legitimate ambit of their commercial judgment, or by reason of no loss being demonstrable, a substantial evidentiary contest can be anticipated. The final hearing of Honest Remark’s application for appointment of a special purpose liquidator is likely to be a substantial one. If, taking Honest Remark’s case at its highest, the relief it seeks could not be granted, or as a matter of discretion no court acting reasonably would grant it, then it would be an unnecessary and unjustifiable use of the resources of the parties and the court to embark on such a hearing. For that reason, there is in my opinion utility in the application for summary dismissal, and I would not decline to entertain it.

38 However, it would be inappropriate to embark on this application on a review of the whole of the merits and all the discretionary considerations, to determine whether a discretion could possibly be exercised in favour of the plaintiff [Commercial Banking Co of Sydney Limited v Pollard]. The distinction is that, if what is involved is a question of power, or a fatal discretionary factor, summary dismissal may be appropriate; but if a complete review and weighing of all the discretionary factors is required, the exercise is not appropriate. That enables at least three of the Administrators’ arguments to be set aside at this point.

39 The first arises from the circumstance that the issues which Honest Remark seeks to agitate against the Administrators have already been the subject of an investigation by ASIC, which over a period of twelve months examined witnesses, required production of relevant documents, and obtained the advice of senior counsel, before deciding to take no further action in relation to the matters investigated. The Administrators seek to characterise ASIC’s decision as an exoneration, and contend that what is sought is another investigation of the matters already investigated by ASIC, in the absence of proof of error in ASIC’s investigation. Honest Remark, on the other hand, puts that there has been no exoneration, nor even an investigation of the matters the proposed special purpose administrator would be charged with investigating.

40 It was not ASIC’s function to determine whether Allstate had a cause of action against the Administrators sounding in damages, or whether an application should be made for an order terminating the deed of company arrangement, or that the Administrators be removed as deed administrators. ASIC itself has said that “it would be a mistake for anyone to draw any conclusions of guilt, liability, exoneration, vindication or otherwise from the mere fact of the investigation’s conclusion” [letter from ASIC to Piper Alderman dated 11 August 2005].

41 Now is not the time to resolve conclusively whether the circumstance that related issues have been investigated by ASIC is ultimately relevant to Honest Remark’s claim for the appointment of a special purpose administrator. It may be, but it is at least arguable that, if Honest Remark were otherwise entitled to have its concerns investigated by a special purpose administrator, the circumstance that ASIC has already investigated those concerns should not deprive it of that remedy. On this application, and without determining whether or not the ASIC investigation would be a relevant consideration on any ultimate hearing of Honest Remark’s claim for appointment of a special purpose administrator, I do not consider that the fact and outcome of the ASIC investigation shows or tends to show that Honest Remark’s claim is untenable. Accordingly, for the purposes of this application, I disregard it.

42 The second matter which may be set aside is the Administrators’ submission that Honest Remark’s Statement of Claim does not allege facts that demonstrate that the appointment of a special purpose administrator would be for the general advantage of persons interested in the administration of Allstate - not only because, so it is said, there is no basis for supposing that a special purpose administrator would likely reach a conclusion different to that at which ASIC arrived, but also because facts are not alleged which might demonstrate that Allstate would have been any better off but for the loan assignment and the continuing financial support of Macquarie, nor that the commercial judgment of the Administrators might reasonably be impugned.

43 Both of these issues are, I think, premature. One of the purposes of the proposed investigation is to ascertain whether there is a viable cause of action, which in turn will involve examination of whether or not the Administrators’ conduct falls within the legitimate ambit of commercial judgment or not, and whether it has been productive of loss or not. On Honest Remark’s application in these proceedings, it will not be necessary for it to prove that the Administrators’ conduct falls outside the legitimate ambit of commercial judgment, nor that there has been loss: if it could already do so, any such investigation would be unnecessary. It may well be that if the Administrators can show in their defence that the investigation would be futile, because there was no loss and because the Administrators acted within the legitimate ambit of commercial judgment, Honest Remark’s application would fail. But that is another step down the track from the present application, and on the material presently before the court it cannot be said that, on that account, Honest Remark’s application is doomed to fail.

44 The third matter which may be set aside is the minority nature of Honest Remark’s interest. While the extent of support for the application amongst the contributories and unsecured creditors might be relevant on the final hearing, Honest Remark’s claim would not be doomed to fail just because it had a small minority interest, even if it was unsupported by any other contributory or creditor, and I disregard this factor for the purpose of this application.

No true conflict?

45 The Administrators have submitted that the second element in Honest Remark’s case – that their position as potential investigators is compromised – cannot be established, because there is no true conflict of interest and duty, they having no duty to investigate allegations against them in respect of their conduct of the administration, especially when those allegations do not reach the level of asserting a serious question to be tried:

might”

“might”

“create”

46 Elaborating on this, the Administrators submit that for an administrator to be removed for want of impartiality or conflict of interest, there must be an apprehension on the part of a creditor that the administrator would be impeded or inhibited by such matter, and that any such apprehension must be reasonably held [Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, 232-233 (Santow J); Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594, 600 (Sundberg J); Onefone Australia Pty Ltd v One.Tel Limited (in liq) (2003) 48 ACSR 562] and must be such that the removal of the administrator would be conducive to the better conduct of the administration [Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544, 550-551 (Hayne J)], and for the general advantage of the persons interested in the administration of the company [Advance Housing v Newcastle Classic Developments, 232]. The Administrators submit that for the plaintiff to establish a real possibility of conflict, Honest Remark must at least assert that there is a serious question to be tried that the Administrators are liable to Allstate, which it expressly refrains from doing.

47 In Re George A Bond & Company Limited (1932) 32 SR (NSW) 301, relied on by the Administrators, the entire undertaking and assets of the company in voluntary liquidation had been transferred to a new company formed for their acquisition. Contributories alleged that the sale was at an undervalue, and applied for the removal of the liquidator. The liquidation had been entirely completed, except in regard to the prosecution of the claims against the liquidator (and the executors of a deceased co-liquidator) relating to the allegedly negligent sale of the company’s undertaking and assets at an undervalue. Long Innes J held that while actual proof of misconduct by a liquidator as such would always justify removal, because it was evidence of personal unfitness, a prima facie case of misconduct might require removal in some, though not necessarily all, cases: if, for example, there were reason for thinking that the interests of the creditors or contributories would be imperilled if the liquidator were to remain in office, removal might be justified, not because of personal unfitness, but as a method of insurance to protect the interests of those interested in the liquidation against possible and not necessarily probable loss. His Honour observed that where the claim was against the liquidator himself for alleged misconduct in the discharge of his office – particularly where he was practically a bare trustee, and neither believed or ought to believe that the claim had any reasonable prospect of success, or that any useful purpose would be served by its prosecution – his duty as liquidator did not exceed a passive duty to take no advantage of his position as such to impede the prosecution of the claim, and an active duty to take such action as would permit of such prosecution.

48 Re Bond therefore supports the proposition that a liquidator (or administrator) does not have a duty to investigate allegations against himself or herself of alleged misconduct in the discharge of the office of liquidator. In that sense, it supports the Administrators’ submission that there is no true conflict of duty and interest, because they have no duty to conduct the proposed investigation, a matter not without relevance to other issues to which I shall in due course come. But as I apprehend Honest Remark’s case, it does not depend upon a “true” conflict of duty and interest. In distinction to the position in Re Bond, the present plaintiff does not apply for the removal of the Administrators. It alleges that there is a matter calling for investigation, and that the Administrators’ capacity to investigate it is compromised, because it concerns their own potential liability. The gravamen of the second element in Honest Remark’s case is the unsurprising proposition that the Administrators are not the appropriate persons to conduct the proposed investigation, because they are to be the subject of the investigation. It is self-evident that in investigating the possibility that their own conduct might have occasioned loss to Allstate, and that there might be a cause of action against them, the position of the Administrators would be compromised by their own interest in the outcome. That is most definitely not to say that a case for their removal has been made. Nor that they have a duty to investigate the matter. But it does show that, if the matter is to be investigated, they are inappropriate persons to perform the investigation.

49 Accordingly, and consistent with the approach which I have outlined above, taking Honest Remark’s case at its highest, I proceed on the basis that it will be able to establish at the final hearing of its application for appointment of a special purpose administrator that because the matters calling for investigation pertain to the conduct of the Administrators and their potential liability, they are not appropriate persons to conduct any such investigation. It will be appreciated that what I have just expressed does not involve acceptance that the Administrators themselves have a duty to conduct any such investigation.

The power to appoint a Special Purpose Administrator

50 In the present proceedings, the issue is not whether there is power to appoint a special purpose administrator simpliciter, but whether there is power to appoint a special purpose administrator for the purpose of investigating and reporting to the court on the original administrators’ conduct of their administration.

51 The law relating to the appointment of a special purpose administrator has its origin in the decision of Chitty J in Re Midland Land & Investment Corporation (1997) WN (Eng) 58, that in a liquidation, whether compulsory or under supervision, the court has jurisdiction to give the conduct of any particular matter arising in the course of the liquidation to one of several liquidators. With great respect, it is not apparent that this entirely accurately states the position, if the reference to a liquidation “under supervision” was intended to include a voluntary liquidation; as Needham J pointed out in Eastern Properties Pty Limited & The Companies Act [1981] 1 NSWLR 499, Chitty J – at least if what Needham J rightly called the “meagre” report is accurate – appears to have equated two sections which make different provision in respect of windings-up by the court and voluntary windings-up. The power of the court to appoint a special purpose liquidator in a winding-up by the court appears to have been founded on statute, now Corporations Act, s 473(8); in the case of a voluntary winding up, it was a power of the creditors or members as the case may be, not the court; the current provision is Corporations Act, s 506(4) [Eastern Properties].

52 In Re Obie Pty Limited (in liq) (No. 4) (1984) 8 ACLR 967, there was a summons for directions as to whether an additional liquidator should be appointed to investigate whether a company in liquidation should institute proceedings against a large firm of accountants, of which the two existing liquidators were a partner and former partner. Thomas J, with reference to Re Midland, held that the court had power to appoint a further liquidator at any stage in the winding up if it was desirable to do so, including to carry out defined tasks in the liquidation. In passages upon which Honest Remark understandably relies, Thomas J said:

It is not for me to say what the company's chances of success would be in such a claim. Such a decision will eventually have to be taken by a liquidator after assessing the available evidence, the strength of the material available to the other side, and the probable economic advantage or disadvantage to the company. In short, it will be the sort of decision that liquidators frequently have to make in the course of a winding up. It will require commercial judgment as well as legal advice. Because of the nexus between the present liquidators and the firm against which the claim is said to exist, it is obviously desirable that such a decision should be made by an alternate liquidator appointed for this specific task. That is the basis of the present application.

…

Ought the jurisdiction be exercised? The alleged conflict of interest is purely hypothetical. It depends on the premise that the company has a good claim that ought to be pursued against Binder Hamlyn & Co. The material before me shows that the premise is at least questionable. It requires a legal and commercial decision. It is the sort of decision which liquidators make almost daily, with or without a committee of inspection. It seems to me that the reference of this issue to an independent liquidator can only assist the liquidation. In the first place it is the proper thing to do. In the second place it may reduce the issues between the liquidators and the Lewises in the removal proceedings. If the appointee decides not to pursue the claim, there is no conflict in the administration. If he decides to pursue it, this can be done quite independently of the present liquidators, and he will have full power to do so. I do not prejudge the result, but I do say that if the claim is plainly a hopeless one, the sooner this is recognised the sooner the air will be cleared of much pollution. If it is a good claim, all the more reason why the independent liquidator should be immediately appointed. The maintenance of a ground of complaint raised by the Lewises against the present liquidators is not a reason for delaying the appointment.

53 Nonetheless, it is important to understand that the claim against the firm in which the existing liquidators were or had been partners was one that arose from advice allegedly given by that firm to the company prior to the liquidation. It was not a claim arising out of the liquidation, and did not involve scrutinising the conduct of the original liquidator in the liquidation. As will become apparent, this is an important distinction.

54 In Re Spedley Securities Limited (in liq) (1991) 4 ACSR 555, the original liquidator’s firm were auditors of a company which was allegedly indebted to the company in liquidation, and the liquidator sought the appointment of an additional liquidator to oversee that aspect of the liquidation. Young J, as the Chief Judge then was, with reference to Re Midland, Re Eastern Properties and Re Obie, appointed an additional independent liquidator with defined powers. Once again, the claim against the third party pre-existed the liquidation, and the course adopted did not involve any examination of the conduct of the liquidation.

55 In Hill v David Hill Electrical Discounts Pty Limited (in liq) (2001) 37 ACSR 617, following termination of a deed of company arrangement, the company went into liquidation and the deed administrator became the liquidator. In the liquidation, a question arose as to whether the deed administrator was in breach of duty in his capacity as deed administrator. Santow J held that, in light of the findings of a referee, there was an urgent need for an impartial liquidator with no interest in the outcome to investigate whether action should be brought against the deed administrator for insolvent trading, and that the original liquidator (who had been the deed administrator in question) should be removed and replaced. Although the conduct in question arose in the course of the deed administration, it was a claim that arose preceding the liquidation, and did not involve examination of the liquidator’s conduct in the liquidation, but his conduct as deed administrator before the liquidation.

56 In Onefone v One.Tel, the original liquidators had been administrators of One.Tel since May 2001, and liquidators since July 2001. One of them had attended meetings of the company’s directors in May 2001 at which he gave some advice about the company’s financial position, following which the directors resolved to cancel a renounceable rights issue and to appoint the administrators. Two creditors applied for an order appointing a special purpose liquidator to investigate the cancellation of the rights issue and whether any action should be commenced against any party in relation to it. Windeyer J appointed a special purpose liquidator for that purpose, observing that the original liquidators might be joined to the prospective litigation, which would place them in an almost impossible position. Again, the potential claim arose out of advice given before the liquidation, and in this case, also before the antecedent administration; it did not pertain to the conduct of the liquidators in the liquidation.

57 In McDonald v Dare (2001) QSC 405, Mullins J refused an application for removal of liquidators for apprehended bias in their dealing with a claim for breach of statutory duty against them, the refusal being founded on the liquidators’ recognition of the perception of bias, and their proposal that investigation of the claim be dealt with by the appointment of a third (special purpose) liquidator for that specific purpose. However, there were two categories of potential claims against the liquidators. The first was for alleged breaches of duty arising in the course of performing their duties as liquidators. Her Honour observed that the leave of the court was required before such a proceeding could be commenced [see Sydlow Pty Limited (in liq) v TG Kotselas Pty Limited (1996) 65 FCR 234, 241; Mamone v Pantser (2001) 36 ACSR 743, 746], and, for that amongst other reasons, that that claim, and any perceived need for the liquidators to make decisions relative to whether the company became a party to it, was not part of the context for considering whether the liquidators should be removed [27]. The second claim involved allegations arising apart from the liquidation, which gave rise to a potential conflict. It was in respect of this claim that the liquidators offered to consent to the appointment of a special purpose liquidator [47]-[50]. Thus this case does not provide any support for the view that a special purpose liquidator may be appointed to investigate allegations against the original liquidator in respect of the conduct of the liquidation.

58 Accordingly, while Honest Remark’s submission that special purpose liquidators have been appointed in circumstances where the potential claim was against the liquidator [Plaintiff’s Supplementary Submissions on Summary Disposal Application, par 7] is in terms correct, no case has been discovered in which a special purpose liquidator has been appointed to investigate the conduct of one of the original liquidators in the conduct of the relevant liquidation. Rather, they have been appointed to investigate or conduct claims arising apart from the liquidation, in respect of which the liquidator has or may have a conflict of interest and duty.

59 There are very good reasons why this is so. The investigation of the conduct of a liquidator qua liquidator is not part of the matters entrusted to a liquidator; it is a supervisory function of the court. The court does not readily embark on or permit inquiries into the conduct of liquidators, in the absence of conduct liable to attract sanctions or control for what might broadly be described as disciplinary reasons [Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; (1989) 1 ACSR 79; 8 ACLC 39, 43; Belvista Pty Limited v Murphy (1993) 11 ACSR 628, 630]. As the cases referred to by Mullins J in McDonald v Dare show, courts protect their liquidators by refusing to allow them to be the subject of proceedings without leave. As Young J has said [in Re Biposo Pty Ltd (1995) 120 FLR 399, 403]:

Re Siromath Pty Ltd

60 And in Naumoski v Parbery (2002) 171 FLR 332, the same judge, holding that the court should not interfere with the exercise of a liquidator’s statutory powers, a fortiori where the decision was one of commercial judgment, cited the words of C E Harman J in Re a Debtor [1949] Ch 236, 241, that “administration in bankruptcy would be impossible if the trustee must answer at every step to the bankrupt for the exercise of his powers and discretions in the management and realisation of the property”. In Re Siromath Pty Ltd(No 3) (1991) 25 NSWLR 25, McLelland J (as he then was) referred to the principle expressed in In Re Maidstone Palace of Varieties Limited [1909] 2 Ch 283, 286, that the court would not allow its officer to be subject to an action in another court with reference to his conduct in the discharge of the duties of his office, whether right or wrong, the proper remedy for anyone aggrieved by his conduct being to apply to the court in the action in which he was appointed. His Honour explained that the court’s control over the circumstances in which and the extent to which its own officers were to be subjected to personal liability in respect of the performance of their official duties fell within the concept of the protection by the court of its own processes.

61 A special purpose liquidator is appointed to co-exist with the existing liquidators, to fulfil a specific purpose which would otherwise form part of the responsibilities of the original liquidator, but which is carved out from those usual responsibilities because of difficulties in the original liquidator performing it. Because the investigation of the conduct of a liquidator is not part of the matters entrusted to a liquidator, but a supervisory function of the court, an investigation by one of several liquidators into the conduct of another in the liquidation does not involve carving out of the liquidation a part of the ordinary responsibilities of the liquidator. To the contrary, it involves circumventing the ordinary and proper procedures for supervision of liquidators, and the protections that attend them.

62 In my opinion, there is no power to appoint a special purpose liquidator for the purpose of investigating the conduct of the original liquidator as such. As has been seen, it is not the duty of a liquidator (or one of several liquidators) to investigate allegations against themselves or some of them: Re Bond. Such an investigation is not part of the administration, and it cannot therefore be carved out of the administration and given to a special purpose liquidator. In the terms used by Chitty J, it is not a matter arising in the course of the liquidation, conduct of which can be allocated to one of several liquidators. In the terms of Corporations Act, s 473(8), it is not a thing required or authorised by the Act to be done by a liquidator.

63 Is the position any different in respect of an administrator? In principle, it is difficult to see why it should be. That provides important context for the consideration of the three sources of power which Mr Lindsay invokes for appointment of a special purpose administrator: Corporations Act, s 447A, Corporations Act, s 447E, and Supreme Court Act, s 23 and/or the inherent power of the Court.

Section 447A

64 Honest Remark relies primarily on Corporations Act, s 447A, for the power to appoint a special purpose administrator. That section provides as follows:

General power to make orders

447A (1) [Orders as to operation of Part] The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

(2) [Example of order] For example, if the Court is satisfied that the administration of a company should end:
(a) because the company is solvent; or
(b) because provisions of this Part are being abused; or
(c) for some other reason;
the Court may order under subsection (1) that the administration is to end.

(3) [Orders subject to conditions] An order may be made subject to conditions.

65 The Part to which 447A(1) refers, and of which it forms part, is Corporations Act, Part 5.3A. In Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, the High Court said that there was nothing on the face of s 447A suggesting that it should be read down, and that it could be used to make orders departing from or varying, for the future, other express provisions of Part 5.3A (at 279). Although s 447A is not confined to curing defects or remedying the consequences of some departure from the scheme set out in the other provisions of Part 5.3A, and permits orders to be made that alter how the parties are to operate in relation to a particular company in particular circumstances, it is not right to characterise it as a general source of power to which resort cannot be had to “circumvent” the more limited and particular powers contained elsewhere in Part 5.3A. The legislative intention was to allow s 447A to be used to alter the way other provisions of Part 5.3A operate [Australasian Memory; Gibbons v Liberty One (in liq) (2002) 41 ACSR 442, [27]-[33] (Austin J)].

66 However, an order under s 447A must have a nexus with how Part 5.3A is to operate in relation to a particular company [Re Newtel Limited (in liq) (2004) 210 ALR 270, [7] (RD Nicholson J)]. Such an order may modify the operation of a statutory provision, insofar as it already operates or in the future will operate, provided that the provision in question is located in Part 5.3A. But before any order can properly be made under s 447A, it is necessary to identify the provision in Part 5.3A the operation of which is to be modified and to articulate the proposed modification [Re AFG Insurances Limited (2002) 20 ACLC 1588, [23] (Barrett J)].

67 In Re Pasminco Limited(No 2) (2004) 49 ACSR 470, Finkelstein J considered an application by administrators (under deeds of company arrangement), for guidance, pursuant to Corporations Act, s 447D(2), in fixing the price for the sale of an asset in circumstances where the administrators thought that they were unable to exercise their discretion because they were concerned about the determination of the price which the company should be paid and they were concerned that they had a potential conflict of interest. The court acceded to the application, but first noted the general reluctance of courts to accept the surrender of a liquidator’s or administrator’s discretionary power in relation to a business decision. In doing so, his Honour suggested, obiter, that the practice of appointing a special purpose liquidator could be extended to an administration, perhaps by amending the deed of company arrangement, if there were one (at [22]):

Re Obie Pty Ltd (in liq) (No 4)

Re Midland Land and Investment Corporation

Onefone Australia Pty Ltd v One.Tel Ltd (in liq)

68 That the court may vary a deed of company arrangement by an order made under Corporations Act, s 447A, is supported by authority [Milankov Nominees Pty Ltd v Roycol Limited (1994) 52 FCR 378, 383; 124 ALR 391, 397; 14 ACSR 296, 301 (Lee J); Re GIGA Investments Pty Ltd (admin appointed) (No. 2) (1995) 17 ACSR 547, 549 (Branson J); Mulvaney v Rob Wintulich Pty Ltd (1995) 60 FCR 81, 83; 18 ACSR 384, 386 (Branson J); Re Pasminco, 481 [35] (Finkelstein J)]. For present purposes, I accept that the Court may vary a deed of company arrangement, even by appointing an additional deed administrator with specific responsibilities in connection with the deed administration. It does not follow that it can appoint an additional administrator for the purpose of investigating and reporting on the conduct of the administration by the other administrators, and it would be inconsistent with the position that pertains in respect of liquidators if it did.

69 Honest Remark has suggested that provisions of Pt 5.3A, Div 2 (dealing with the mode of appointment of administrators) and Div 3 (dealing with administrators assuming control of a company’s property) could be the subject of its proposed s 447A order. But as the Administrators point out, Honest Remark has not explained what specific provisions might be modified in their operation by such an order. Div 2 provides for the appointment of an administrator by the company (s 436A), by a liquidator or provisional liquidator (s 436B), or a chargee (s 436C). It makes provision for the convening of the first meeting of creditors (s 436E) and the functions of a committee of creditors (s 436F) and the membership of such committee (s 436G). All that has already happened. Division 3 provides for the administrator’s assumption of control of the company’s affairs. It provides that while a company is under administration the administrator has control of the company’s business, property and affairs, may carry on that business and manage that property and those affairs, may terminate or dispose of all or part of that business and may dispose of any of that property, and may perform any function and exercise any power that the company or any of its officers could perform or exercise if it were not under administration (s 437A). It may well be that an order could be made under s 447A, where there are multiple administrators, that one or other of them have particular responsibilities of those referred to in s 437A, or even that an additional administrator be appointed to perform certain of them. But those responsibilities do not include reviewing the conduct of the deed administrator, who ex hypothesi (while Divs 2 and 3 operate) has not yet even been appointed.

70 Allstate is now in deed administration, under Div 10, not voluntary administration under Divs 2 and 3. The voluntary administration has come to an end, pursuant to s 435C(2)(a). Divisions 2 and 3 are spent. It is not apparent how the proposed order would affect how any provision of Division 10 is to operate.

71 Honest Remark puts that the effect of making the order which it seeks would be to modify the operation of Part 5.3A in two ways: by bifurcation of responsibility, in that the investigative task in relation to part of Allstate’s affairs is to be undertaken by a person other than the Administrators (namely, the special purpose administrator); and temporarily, in that that investigation is to be undertaken notwithstanding that one of the normal outcomes of administration (the execution of the deed) has already taken place. However, this overlooks that the investigative task of administrators in a voluntary administration under s 438A does not extend to investigating their own conduct of the administration [Re Bond].

72 In my opinion, an order appointing a special purpose administrator for the purpose proposed is not an order “about how this Part is to operate” in relation to Allstate. While s 447A may be broad, it is not in my opinion so broad as to authorise orders appointing persons to investigate the conduct of a deed administrator. The investigation of and reporting upon the conduct a deed administrator does not have anything to do with how Part 5.3A operates in relation to a particular company; it is not part of a voluntary administration or of a deed administration; it is not a matter entrusted to an administrator or a deed administrator. To make the orders sought would not in any way vary or modify how Part 5.3A operates in relation to Allstate, and would be inconsistent with protections that the law affords liquidators and administrators.

73 The circumstances are very and relevantly different to those in Re Pasminco, where there was a proposed sale of assets of the company in deed administration, which unquestionably was an aspect of the administration. Giving responsibility for that transaction to a special purpose administrator would have excised from the deed administration an aspect of the administration that would otherwise have been the responsibility of the original administrators. That might well be a modification of how the deed is to operate in relation to the particular company. But the investigation of the deed administrators’ own conduct is quite a different matter, because it is not part of the deed administration, and giving responsibility for it to a special administrator does not excise from the administration something that would otherwise form part of it.

74 Accordingly, an order appointing a special purpose administrator for the purpose of investigating and reporting on the conduct of a deed administrator is not authorised by s 447A.

75 It is therefore unnecessary to consider in detail Mr Pembroke’s alternative submission that a member, as distinct from a creditor, does not have standing to apply under s 447A, save to note that I do not accept that a member, such as Honest Remark cannot be a “interested person” with standing to apply under that section. Indeed, as the company’s members are bound by the deed (s 444G(b)), they clearly may be “interested”. They are also interested because of the impact of a deed upon their interest as contributories in the company.

76 However, standing to apply under s 447A is not enough. An order appointing a special purpose administrator for the purpose proposed is not an order about how Part 5.3A is to operate in relation to Allstate, and could not be made under s 447A.

Section 447E

77 Honest Remark also invokes s 447E, which makes provision for the supervision of the administrator of a company or of a deed of company arrangement, as follows:

Supervision of administrator of company or deed

(a) has managed, or is managing, the company’s business, property or affairs in a way that is prejudicial to the interests of some or all of the company’s creditors or members; or

(b) has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;

the Court may make such order as it thinks just.

…

78 Honest Remark submits that s 447E has wide operation, for which it cites Kirwan v Cresvale Far East Limited (in liq) (2002) 44 ACSR 21, in which the Court of Appeal upheld Austin J [Cresvale Far East Limited (in liq) v Cresvale Securities Limited (No 2) (2001) 39 ACSR 622] in utilising s 447E to make orders disentitling an administrator to an indemnity from assets of the company for costs associated with the proceedings (to which indemnity the administrator was otherwise entitled). Young CJ in Eq observed that orders for costs were supportable under s 447E and added (at [442]) that it was a general section, empowering the court to supervise administrators and having its equivalent, although not an exact equivalent, so far as liquidators are concerned, in s 536. I accept, as Mr Lindsay submits, that the equivalence is far from exact, because the grounds for relief are somewhat broader [cf s 536(1)(a), which has as a precondition that a liquidator be not “faithfully performing” a function], and the relief is not limited to an inquiry, but extends to any order “the court thinks just” – although on an inquiry under s 536, the powers of the court are very wide.

79 Nonetheless, the orders that the court may make are not unlimited. First, there is a pre-requisite to exercise of the power: before the power to make any such order arises, one of the grounds referred to in s 447E(1) must be established. That requires satisfaction of the court that the administrator has managed or is managing the company’s business property or affairs in a way that is prejudicial to the interests of some or all of the creditors or members, or has done or proposes to do an act or omission that is or will be prejudicial to such interests. It is insufficient that the conduct might be prejudicial; establishment of the ground for exercise of power under s 447E requires proof of conduct or proposed conduct that is or would be prejudicial – not that might be prejudicial.

80 Honest Remark submits that if, as it contends, the conduct of the Administrators suggests that they may have been negligent in performance of their duties to Allstate and/or engaged in misleading conduct in promoting to creditors of Allstate the lien sale and the loan assignment and/or acted in breaches of their duties under the Act and at law as officers of Allstate, then insofar as they are unwilling or unable to investigate the possibility that they are liable to compensate Allstate, they are continuing to act in a manner prejudicial to the interests of members and unsecured creditors of Allstate, and that this omission causes continuing prejudice and should be remedied. However, in the present proceedings Honest Remark does not undertake to prove (and it does not allege in its pleadings) that the Administrators have acted in a manner which was negligent, or misleading, or in breach of their duties under the Act – as distinct from alleging merely that there is reason to suspect those they may have so acted. Honest Remark’s case unambiguously limits the prejudicial management relied upon as founding relief under s 447E for present purposes to the Administrators’ omission to investigate that suspicion.

81 The omission to investigate a suspicion of liability is not prejudicial management of the type referred to in s 447E. As administrators are under no duty to investigate allegations concerning their own administration [Re Bond], mere failure to do so, even assuming that there are matters which reasonably warrant investigation, cannot amount to prejudicial management or conduct. The allegation of prejudicial management rests on the erroneous assumption that it is the duty of the Administrators to investigate. A failure to investigate by itself cannot be prejudicial management in the absence of there being a duty to investigate.

82 Moreover, demonstration of prejudice requires a comparison between the actual position of the creditors or members, and their hypothetical position assuming that the relevant prejudicial conduct does not occur [cf Lam Soon Australia Pty Ltd v Molit (1996) 70 FCR 34, 48; (1996) 22 ACSR 169, 186]. In this case, that means a comparison of their position if there be no investigation, with that if there be an investigation. While it is conceivable that an investigation would establish that Honest Remark’s concerns are well-founded, and even that there are prospects of obtaining substantial compensation, that is at this stage, and will at the final hearing remain, speculative; there is and will then be the alternative prospect that an investigation would result in the expenditure of further assets and resources of Allstate, for no productive benefit. The pleading does not assert, and Honest Remark does not undertake to prove at the final hearing, that creditors and/or members would be better off were an investigation to take place. In my opinion, Honest Remark’s case, taken at its highest, by expressly eschewing any requirement to prove that the position of creditors and/or members would be better as a result of an investigation, must fail to establish prejudice within s 447E. Accordingly, taking Honest Remark’s case at its highest, it does not allege facts capable of sustaining prejudice for the purposes of s 447E.

83 The second limitation on the orders that may be made under s 447E is the contextual limitation within s 447E: the power to grant an injunction is enlivened by certain conduct of the administrator, and there must be a nexus between the order, and that conduct. This requirement was enunciated, in the context of the similarly wide power to “grant an injunction in such terms as the Court determines to be appropriate” in (CTH) Trade Practices Act, s 80, by Merkel J in ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 (at 202):-

The width of the power conferred by s 80 and its public interest character obviously give the Court great amplitude in determining appropriate injunctive orders in a particular case. However there are limitations on the Court's power under the section. Confinement of the power by reference to the scope and purpose of the TPA, and in particular s 80, is one limitation on the power. However, there are at least two further limitations. The power to make orders under s 80 is only enlivened in a proceeding which alleges that there has been a contravention of a provision of Pt IV, IVA or V of the TPA. As was said by Gummow J in ICI at 267, the terms of an injunction granted under s 80 must, on their face, operate upon a range of conduct which has ‘the relationship required by s 80 with contravention of the Act. Irrespective of whether the injunction is sought or granted under s 80(1) or 80(1AA) there must be a nexus between the conduct alleged or found to constitute the relevant contraventions and the injunctions granted.’

84 It was explained and applied to the equivalent power in Corporations Act, s 1321, by Young J of the Fededral Court in Australian Securities and Investments Commission v McDougall [2006] FCA 427:

[69] It is implicit in Merkel J’s judgment that an injunction under s 80 may extend beyond the specific conduct proven to constitute a contravention by s 80 and may, in appropriate cases, extend to conduct of the same kind or class. There must, however, be a sufficient nexus or relationship between the conduct that is the subject of the restraint and the conduct that was alleged to constitute a contravention of the Act. As French J pointed out in ACCC v Real Estate Institute (WA) (1999) 95 FCR 114 at 131, the question whether there is a sufficient nexus between the orders sought and the contraventions alleged involves an evaluative judgment by the Court which will depend heavily upon the circumstances of the particular case.

85 His Honour referred to Foster v Australian Competition and Consumer Commission [2006] FCAFC 21, in which the Full Court of the Federal Court (Ryan, Finn and Allsop JJ) said (at [30]–[31]):

In our view, a more helpful guide to resolving the question of construction is afforded by this observation, also from ICI v Trade Practices Commission , of Lockhart J (with whom French J agreed) at 256:

In my opinion subss (4) and (5) are designed to ensure that once the condition precedent to the exercise of injunctive relief has been satisfied (ie contraventions or proposed contraventions of Pt IV or V of the Act), the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly.

This approach of Lockhart J accords with the view often expressed by the High Court that discretions or powers entrusted to Courts should be read liberally for the relevant statutory purpose, without making implications or imposing limitations not found in the express words: Australian Memory Pty Ltd v Brien (2000) 200 CLR 270 at [77] and see generally for the cases Hewlett Packard v GE Capital (2003) 203 ALR 51 at [187].

86 Young J then continued:

[71] The issue in Foster was whether an injunction that restrained the fourth respondent from being directly or indirectly knowingly concerned in the promotion or conduct of a business of a specified kind for a period of five years went beyond the power conferred by s 80 of the TPA. As the Full Court explained, this turned on the existence of a sufficient nexus between a contravention that enlivened the Court’s power under s 80 and the conduct that was restrained by the injunction:

In our view, the need, suggested by the authorities, for a nexus between the contravention of the Act which the Court has found and the terms of the restraint which it then decides to impose is a specific reflection of Lockhart J’s insistence that the power be exercised ‘judicially and sensibly’. It goes to the appropriateness of the relief contemplated by the concluding words of s 80(1), not to the extent of the power to grant it. If the Court considers that a complete prohibition, whether permanently or for a specified period, on a respondent’s engaging in a particular field of commercial activity or industry is required to protect the public from conduct of the kind which constituted the contravention, s 80 is wide enough to support such a prohibition as a matter of power. This analysis of s 80 conforms, we consider, with that recently undertaken by Goldberg J in Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) 215 ALR 482 at 504 [110].

The Full Court held that there was an appropriate nexus, as the evidence and the trial judge’s findings at first instance gave rise to a real fear that the fourth respondent would, unless restrained, commit further conduct of the same general kind. In these circumstances, it was appropriate to cast the injunction more widely in order to catch conduct which was similar to the established contravention: at [34] and [38].

87 Although s 477E is in different terms, the same considerations apply. An order under s 477E must have a sufficient nexus with the administrator’s prejudicial behaviour, for example by regulating or remedying or compensating it, or preventing its repetition, or prohibiting conduct of a similar nature. I do not suggest that this list is exhaustive. If, contrary to my view, failure to conduct an investigation were relevant prejudicial management, then an order appointing an alternative administrator to conduct that investigation would have a sufficient nexus with the impugned conduct of the Administrators.

88 As Honest Remark’s case taken at its highest does not involve establishing the type of prejudice referred to in s 447E, relief of the kind claimed cannot be granted under that section.

Inherent Power

89 In submissions in reply, Honest Remark contends that, if it were concluded that the court could not make the orders sought under Corporations Act, ss 447A and/or 447E, there are alternative sources of jurisdiction in Supreme Court Act 1970, s 23, or in the inherent powers of the court.

90 Supreme Court Act, s 23, which provides that the court shall have all jurisdiction necessary for the administration of justice in New South Wales, confirms, without increasing, the inherent power of the court [Jackson v Sterling Industries Limited (1987) 162 CLR 612, 617 (Wilson and Deane JJ)]. Most instances of the inherent power pertain to the conduct of proceedings in the court, the protection of its proceedings and processes and participants in them, and the prevention of abuses of process (asset preservation orders are within this category); some involve supervision of proceedings in other tribunals, and others involve supervision and protection of the Court’s officers. This list is far from exclusive, but conveys a general flavour of the nature of the inherent jurisdiction.

91 The judgment of Needham J in Re Eastern Properties shows that the power referred to by Chitty J in Re Midland was statutory, under the 1862 English Companies Act, and not inherent, although I would not exclude the possibility that there was inherent point to appoint a special purpose liquidator where the liquidator was an officer of the court. However, this possible basis for inherent jurisdiction does not apply in the case of a deed administrator, who is not an officer of the court but derives authority and power from the contractual terms of the deed - even though the court has a supervisory role, through its statutory jurisdiction, to give directions, make supervisory orders, terminate or set aside the deed, and dismiss the administrator, under ss 445D, 445G, 447A, 447D, 447E and 449B [Cresvale Far East v Cresvale Securities (No 2), [23]]. The whole concept of voluntary administration and deed administration is a creature of statute, and the Court’s powers in respect of it are to be found in the statute.

92 I do not accept that the court has power under s 23 - assuming that there is no constitutional objection to its invocation in Federal proceedings - or as an incident of its inherent power, to appoint a special purpose administrator to investigate and report on the conduct of a deed administrator under Part 5.3A. The inherent power, and the power under s 23, is concerned with things necessary for the administration of justice. It is not a grant of power to do anything that might possibly lead to justice, especially in the context where there are no proceedings pending for a remedy. The conduct of an investigation by a special purpose administrator is not part of the administration of justice. It would be entirely novel for inherent jurisdiction to be invoked as a basis for the court to order an investigation, which is what is effectively sought here. That is unsurprising, because it is neither in the inherent nature or role of courts of law, nor an aspect of judicial power, to conduct or direct investigations.

Discretion

93 If, contrary to the views I have expressed above, any of the suggested sources of power – including inherent power – were available to grant the relief sought, in my opinion no court acting reasonably would grant that relief.

94 First, the same reasons that inform my conclusion that there is no power under s 447A to appoint a special purpose liquidator for the proposed purpose – and, in particular, that the function of a special purpose liquidator or administrator is to attend to specified aspects of the administration, excised from the general administration, and not to investigate the administration of the original liquidators or administrators – is also a reason for concluding that to make such an appointment would be a manifestly unreasonable exercise of the power, as is the inconsistency of such an order with the attitudes which courts take to actions against insolvency administrators. The appointment contemplated would not be for the purpose of excising from the general administration, and allocating to the special purpose administrator, part of what the Administrators would otherwise do, but to appoint a person to investigate the conduct of the Administrators in the instant administration. That is not the function of a special purpose liquidator or administrator. And it would be inconsistent with the restraint with which the courts permit actions against liquidators and trustees in bankruptcy.

95 Secondly, to grant such relief, when there are other statutory remedies apt for the circumstances, would circumvent the safeguards that the law and the legislature have put in place in respect of proceedings against liquidators and administrators. The Corporations Act provides orthodox remedies for the present circumstances: to inspect company documents (s 247A), to bring a derivative action (s 236), to appeal from the administrator’s decision (s 1321), and to seek an order regulating or remedying prejudicial acts or omissions of the administrator (s 447E).

96 In connection with a derivative action under s 236 - including on an application under s 237 for leave to bring such an action - the court may appoint an independent person to investigate and report on the facts or circumstances that gave rise to the cause of action the subject of the proceedings [Corporations Act, s 241(1)(d)]. Thus on such an application, Honest Remark could seek the appointment of an independent person to investigate and report on the matters about which it has concerns. This is an apt remedy, but Honest Remark eschews it in favour of a special purpose liquidator – apparently largely on the basis that the latter might not be confined in access to Allstate’s privileged material.

97 Leave is required to bring a derivative action, and to obtain such leave an applicant must satisfy the court of the various criteria set out in s 237(2), including that the applicant is acting good faith, that the proceedings to be brought are in the best interests of the company, and that there is serious question to be tried. The requirement for leave is intended to maintain a balance between facilitating the bringing of appropriate derivative actions, and protecting the company from too ready and unwarranted interference in its internal management, by preventing potentially vexatious or unmeritorious derivative actions [Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313, 318 [22] (Palmer J); Fiduciary v Morning Star Research [2005] NSWSC 442 [12] (Austin J)]. Honest Remark’s application circumvents those protections and safeguards.

98 As has been seen, leave is required to bring an action against liquidators [McDonald v Dare; Sydlow Pty Limited (in liq) v TG Kotselas Pty Limited; Mamone v Pantser; Re Siromath; Re Biposo]. The purpose of this requirement is to prevent harassment of the court’s officer and interference with the administration by unmeritorious claims. On an application for such leave, the court would require, at least, that a prima facie case be established [Re Siromath; Re Biposo]. Honest Remark’s present application outflanks that protection.

99 If Honest Remark were aggrieved by any act, omission or decision of the Administrators, it was entitled to appeal to the court, whereupon the court could confirm, reverse or modify the act or decision or remedy the omission [Corporations Act, s 1321]. This is the appropriate course where the essential complaint is about the commercial appropriateness of the decision [Apple Computer v Wily [2003] NSWSC 719 [37] (Barrett J); Domino Hire Pty Ltd v Pioneer Park Pty Ltd (2003) 21 ACLC 1330 (Austin J)]. If Honest Remark alleges that the Administrators have engaged on a course of conduct of managing the company’s affairs in a manner prejudicial to the interests of creditors or members, or have done some act or made some omission prejudicial to those interests, it may invoke the court’s power under s 447E, though this is not an appropriate course where there is a challenge to a decision apparently made in good faith, as distinct from an allegation of misconduct [Belvista Pty Limited v Murphy, 630 (McLelland J); Re Charnley Davies Limited (No. 2) [1990] BCLC 760, 782-784 (Millet J)].

100 Given this range of available remedies, which are attended with safeguards and protections, it would be wholly inappropriate to appoint a special purpose administrator to investigate the administration, in which he would be one of the administrators, albeit with a limited role. If there is a case for an inquiry, or a review of the Administrators’ decision, it should be undertaken pursuant to one of the provisions of the Corporations Act which were intended to provide for review of administrators’ decisions and conduct, and not by a mechanism which was never intended to serve that function. Courts have emphasised the importance of claiming the appropriate remedy and invoking the appropriate proceeding in cases that involve supervision of liquidators and administrators [Belvista Pty Limited v Murphy, 630 (McLelland J); Re Charnley Davies Limited (No. 2), 784 (Millet J)]. While I appreciate that this is an application for summary dismissal, in my view it is so clear that the remedy which Honest Remark seeks and the proceedings which it has invoked are - having regard to the functions of a special purpose liquidator/administrator, and the statutory scheme, and the Court’s and the legislature’s concern to control derivative actions and claims against liquidators and administrators - quite inapt, and would circumvent the conditions and protections that attend the several appropriate remedies, that no court acting reasonably could grant the relief sought.

Conclusion

101 My conclusions may be summarised as follows.

102 Where the court appoints a special purpose liquidator or administrator, it excises from the general administration an aspect that would otherwise fall within the responsibility of the original administrators, and entrusts that aspect of the administration to the special purpose administrator.

103 Investigation and supervision of the conduct of a liquidator or administrator is not part of the role of the liquidator or administrator. Such supervision is a matter for the court, under s 447E (in the case of an administrator), s 536 (in the case of a liquidator), or s 1321 (in the case of both).

104 An order appointing a special purpose administrator to investigate the conduct of the original administrators is not an order as to how Part 5.3A is to operate in a particular case. Such an order would not affect the operation of Part 5.3A. Accordingly, such an order cannot be made under s 447A.

105 As the duty of an administrator does not extend to investigating his or her own conduct in the administration, failure to perform such an investigation could not be relevant prejudicial management for the purposes of s 447E. Even if it could be prejudicial management, where the plaintiff does not allege that Allstate would (not might) be better off as a result of the investigation, prejudice under s 447E cannot be established. In those circumstances, Honest Remark’s case, taken at its highest, does not support relief under s 447E.

106 The inherent jurisdiction of the court does not confer power to appoint a special purpose administrator for the purpose of investigating the conduct of a deed administrator under Corporations Act, Part 5.3A.

107 Even if there were any available source of power, on the facts alleged in Honest Remark’s case, taken at their highest, it would be manifestly unreasonable to make the orders sought. Courts have emphasised the importance of claiming the appropriate remedy and invoking the appropriate proceeding in cases that involve supervision of liquidators and administrators. The remedy which Honest Remark seeks and the proceedings which it has invoked are, having regard to the functions of a special purpose liquidator/administrator, and the statutory scheme, and the Court’s and the legislature’s concern to control derivative actions and claims against liquidators and administrators, quite inapt, and would circumvent the conditions and protections that attend the several appropriate remedies for the supervision of administrators and review of their decisions, under s 236 (and ss 237 and 241), s 447E and s 1321. No court acting reasonably could grant the relief sought.

108 Accordingly, taking Honest Remark’s claim in these proceedings at its highest, there is no power to grant the relief it seeks. If there were power, it would be manifestly unreasonable to grant that relief. The claim is therefore without reasonable prospects of success. It ought not proceed to trial. In the light of that conclusion, it is unnecessary to consider the alternative application to have particular allegations in the Statement of Claim struck out. Nor is it necessary to consider the application to have subpoenas set aside.

109 My orders are:

2. Order that the plaintiff pay the defendants’ costs of the proceedings.

3. Order that upon the undertaking of the parties respectively to return them to the Court if required for the purposes of any appellate proceedings, the exhibits be returned.

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Citations

Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735

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Cases Cited

39

Statutory Material Cited

5

Agar v Hyde [2000] HCA 41

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69

CITATION:	Honest Remark Pty Limited v Allstate Explorations NL & ors [2006] NSWSC 735
HEARING DATE(S):	22/9/05, 21/10/05
JUDGMENT DATE :	21 July 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	Brereton J
DECISION:	Application for appointment of special purpose administrator dismissed with costs.
CATCHWORDS:	CORPORATIONS – External administration – administration under deed of company arrangement – special purpose administrator – whether court has power to appoint special purpose administrator to investigate conduct of original administrators – nature and role of special purpose administrator – whether investigation and supervision of administrator is part of administration - whether order appointing special purpose administrator to investigate conduct of original administrators is an order as to how Part 5.3A is to operate in a particular case under s 447A – whether duty of liquidator or administrator extends to investigating own conduct in the administration – where no allegation that corporation would be better off if investigation conducted – whether failure to perform such investigation could be relevant prejudicial management for purposes of s 447E – whether court has inherent jurisdiction to appoint special purpose administrator for purpose of investigating conduct of deed administrator - whether power to appoint special purpose administrator, if it exists, could appropriately be exercised on the plaintiff’s case taken at its highest – where special purpose administrator inapt remedy and other appropriate and orthodox statutory remedies are available – held, taking plaintiff’s claim at its highest, no power to grant relief sought, but if there were power, it would be manifestly unreasonable to grant that relief - (Cth) Corporations Act, 2001, ss 236, 237, 241, 447A, 447E, 536, 1321.
LEGISLATION CITED:	(Cth) Corporations Act 2001, ss 180, 181, 236, 237, 241, 247A, Part 5.3A, 435C(2)(a), 436A, 436B, 436C, 436D, 436E, 436F, 436G, 437A, 436A 438A, 444G(b), 445D, 445G, 447A, 447D, 447E, 449B, 473(8), 506(4), 536, 1321 (Cth) Trade Practices Act 1974, ss 52, 80 (NSW) Civil Procedure Act 2005, s 56(3) (NSW) Supreme Court Act 1970, s 23 (NSW) Uniform Civil Procedure Rules, r 13.4
CASES CITED:	ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 Re AFG Insurances Limited (2002) 20 ACLC 1588 Agar v Hyde (2000) 201 CLR 552 Apple Computer v Wily [2003] NSWSC 719 Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Australian Securities and Investments Commission v McDougall [2006] FCA 427 Belvista Pty Limited v Murphy (1993) 11 ACSR 628 Re Biposo Pty Ltd (1995) 120 FLR 399 Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937 Re Charnley Davies Limited (No. 2) [1990] BCLC 760 Commercial Banking Co of Sydney Limited v Pollard [1983] 1 NSWLR 74 Cresvale Far East Limited (in liq) v Cresvale Securities Limited (No 2) (2001) 39 ACSR 622 Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594 Re a Debtor [1949] Ch 236 Dey v Victorian Railway Commissioner (1949) 78 CLR 62 Domino Hire Pty Ltd v Pioneer Park Pty Ltd (2003) 21 ACLC 1330 Eastern Properties Pty Limited & The Companies Act [1981] 1 NSWLR 499 Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (in liq) (1994) 15 ACSR 502 Fiduciary Limited v Morning Star Research Pty Limited [2005] NSWSC 442 Foster v Australian Competition and Consumer Commission [2006] FCAFC 21 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Re George A Bond & Company Limited (1932) 32 SR (NSW) 301 Gibbons v Liberty One (in liq) (2002) 41 ACSR 442 Re GIGA Investments Pty Ltd (admin appointed) (No. 2) (1995) 17 ACSR 547 Hill v David Hill Electrical Discounts Pty Limited (in liq) (2001) 37 ACSR 617 Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365 House v the King (1936) 56 CLR 499 Jackson v Sterling Industries Limited (1987) 162 CLR 612 Kirwan v Cresvale Far East Limited (in liq) (2002) 44 ACSR 21 Lam Soon Australia Pty Ltd v Molit (1996) 70 FCR 34; (1996) 22 ACSR 169 McDonald v Dare (2001) QSC 405 In Re Maidstone Palace of Varieties Limited [1909] 2 Ch 283 Mamone v Pantser (2001) 36 ACSR 743 Re Midland Land & Investment Corporation (1997) WN (Eng) 58 Milankov Nominees Pty Ltd v Roycol Limited (1994) 52 FCR 378; 124 ALR 39; 14 ACSR 296 Mulvaney v Rob Wintulich Pty Ltd (1995) 60 FCR 81; 18 ACSR 384 Mutual Life & Citizens Assurance Co Limited v Evatt (1970) 122 CLR 628 Naumoski v Parbery (2002) 171 FLR 332 Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 Re Newtel Limited (in liq) (2004) 210 ALR 270 Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; (1989) 1 ACSR 79; 8 ACLC 39 Re Obie Pty Limited (in liq) (No. 4) (1984) 8 ACLR 967 Onefone Australia Pty Ltd v One.Tel Limited (in liq) (2003) 48 ACSR 562 Pannizutti v Trask (1987) 10 NSWLR 531 Re Pasminco Limited (No 2) (2004) 49 ACSR 470 Penthouse Publications Limited v McWilliam (NSWCA, 14 March 1991, unreported), BC9102223 Rajski v Powell (1987) 11 NSWLR 522 Re Siromath Pty Ltd (No. 3) (1991) 25 NSWLR 25 Re Spedley Securities Limited (in liq) (1991) 4 ACSR 555 Swansson v R A Pratt Properties Pty Ltd (2002) 42 ACSR 313 Sydlow Pty Limited (in liq) v TG Kotselas Pty Limited (1996) 65 FCR 234 Tampion v Anderson [1973] VR 321 Walton v Gardiner (1993) 17 CLR 378 Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534 Ritchie’s Uniform Civil Procedure, [13.1.5]
PARTIES:	Honest Remark Pty Limited (plaintiff) Allstate Explorations NL (first defendant) Michael Ryan (second defendant) Antony Woodings (third defendant)
FILE NUMBER(S):	SC 2625/05
COUNSEL:	G C Lindsay SC w M B J Lee (plaintiff) M A Pembroke SC w J R Clarke (defendants)
SOLICITORS:	Piper Alderman (plaintiff) Mallesons Stephen Jaques (defendants)