In the matter of Condor Blanco Mines Ltd (No 2)

[2016] NSWSC 1304

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Condor Blanco Mines Ltd (No. 2) [2016] NSWSC 1304
Hearing dates:	6 September 2016
Decision date:	16 September 2016
Jurisdiction:	Equity
Before:	Barrett AJA
Decision:	1.Order that the defendant pay one-half of the plaintiff’s costs of the proceedings 2.Applications for costs orders otherwise dismissed
Catchwords:	PROCEDURE – costs – departing from the general rule – proceedings brought by a company to determine the validity of appointment of voluntary administrator of that company – where the court declared that the appointment was invalid – role of purported administrator in such proceedings –CORPORATIONS – liquidators and administrators – role in proceedings brought by another challenging appointment – duty of essential neutrality, to provide relevant facts and to assist determination on the merits – whether such duty discharged in the circumstances of the case.
Legislation Cited:	Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Doulaveras v Daher [2009] NSWCA 58; 253 ALR 627 Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147 In re Buckton; Buckton v Buckton [1907] 2 Ch 406 In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196 In the matter of Mendarma Pty Ltd (No 2) [2007] NSWSC 99; 61 ACSR 601 Korea Asset Management Corp v Daewoo (Singapore) Pte Ltd [2004] SGHC 25; [2004] 1 SLR 671 Silvia v Brodyn Pty Ltd [2007] NSWCA 55; 25 ACLC 385 Souster v Carman Construction Co Ltd [2000] BPIR 371 Weatherford Global Products Ltd v Hydropath Holdings Ltd [2014] EWHC 3243
Texts Cited:	Code of Professional Practice for Insolvency Practitioners (third edition, as amended 18 August 2014) published by Australian Restructuring Insolvency and Turnaround Association
Category:	Costs
Parties:	Plaintiff – Condor Blanco Mines Ltd Defendant – Domenic Calabretta
Representation:	Counsel: Plaintiff – Mr DA Smallbone with him Mr J Wheeldon Defendant – Mr S Golledge   Solicitors: Plaintiff – W Advisers Pty Limited Defendant – Piper Alderman
File Number(s):	2016/226585
Publication restriction:	Nil

JUDGMENT

1. BARRETT AJA: I am dealing with the question of costs, as between the plaintiff (“Condor”) and the defendant (“Mr Calabretta”), in consequence of my judgment of 30 August 2016 (the “principal judgment”). [1] An interlocutory process by which Condor seeks an order with respect to costs against a non-party is not currently before me. [2]

   1. In the matter of Condor Blanco Mines Ltd [2016] NSWSC 1196

   2. Condor has filed an application seeking such an order against Glen Darby, a former director.

2. Written submissions on costs were filed as directed. I heard supplementary oral submissions on 6 September 2016. Mr Calabretta’s position is that Condor should be ordered to pay his costs in full (with part assessed on an indemnity basis). Condor says that Mr Calabretta should be ordered to pay one-half of its costs.

3. These competing applications are made in circumstances where the court made a declaration that the appointment of Mr Calabretta as voluntary administrator of Condor under Part 5.3A of the Corporations Act 2001 (Cth) was invalid, void and of no effect. In the reasons of 30 August 2006, the court recorded certain findings relevant to the issue of costs. Further evidence adduced and submissions made in the course of the subsequent costs hearing necessitate further findings.

The approach to the costs issues

4. The general rule with respect to costs is that, unless there is good reason to make some other order, the court is to order that costs follow the event: Uniform Civil Procedure Rules 2005 (NSW), rule 42.1. Subject to that (and to any other applicable provisions), costs are in the discretion of the court: Civil Procedure Act 2005 (NSW), s 98(1).

5. The rule that costs follow the event is predicated on an assumption that, as to a whole controversy or parts of it, one party will be successful in achieving an outcome against the opposition of another party. In a narrow sense, the “event” in this case was the making of the declaration of invalidity which, in turn, flowed from the conclusion that one of the directors of Condor who was party to the purported s 436A(1) resolution of 4 July 2016 (Mr Stops) did not, as at that date, hold a genuine opinion, formed in good faith, that Condor was insolvent or likely to become insolvent at some future time. That conclusion meant that the statutory pre-condition to appointment of an administrator prescribed by s 436A(1)(a) was not satisfied. The conclusion was one that Condor pressed upon the court. Mr Calabretta, according to his formal stance, did not advocate any contrary position.

6. In contending for a result that would see Mr Calabretta’s appointment as administrator defeated by an order of the court, Condor pursued a number of arguments in addition to that to which I have referred. On some of those, it enjoyed success; on others it suffered failure. Thus, had the declaration not been made on the basis on which it was in fact made, an order to like practical effect would have been made on the basis that the directors of Condor were guilty of abuse of process in resorting to Part 5.3A for an improper purpose but such relief would not have been granted on either the factual ground going to the question whether Mr Stops signed the relevant resolution or the ground that the board of directors of Condor could not function because it had fewer than three members. As to each of these additional arguments, Mr Calabretta’s formal stance was again one of neutrality.

7. Each party accepts that this is not a case in which it is appropriate to approach the question of costs according to any narrow concept of “event” or by reference to success or failure on discrete aspects or issues. Condor refers to an acknowledged exception to the ordinary rule on costs, being an exception that applies to a liquidator, administrator or trustee in bankruptcy who is joined as a defendant and acts “appropriately”[3] – and, conversely, that such an official who acts unreasonably in defending litigation may be made personally liable for costs[4] . I did not understand the principles on which Mr Calabretta relied to be different.

   3. In the matter of Mendarma Pty Ltd (No 2) [2007] NSWSC 99; 61 ACSR 601 at [32].

   4. Silvia v Brodyn Pty Ltd [2007] NSWCA 55; 25 ACLC 385 at [54].

8. Central to the exception applying to a liquidator, administrator or trustee in bankruptcy acting “appropriately” is the proposition that such an official is not personally concerned in the “event” and merely plays in the litigation a role that is commensurate with the responsibilities attaching to the office itself. [5] Relevant principles, as they apply to a liquidator, are illustrated by cases in which a liquidator in a voluntary winding up is confronted by an application for compulsory winding up – a move, of course, that involves displacing of that liquidator.

   5. As was noted at [154] of the principal judgment, the question whether an administrator has been validly appointed or the appointment is susceptible to being terminated is one in which the administrator has a clear personal interest distinct from the interest of the company; and the administrator’s position as a fiduciary imposes a duty to avoid situations in which interest and duty conflict.

9. The role of the liquidator in circumstances of that kind was described in Souster v Carman Construction Co Ltd [2000] BPIR 371 (at 372) in this way:

“It is well understood that the role of the voluntary liquidator in a position like this is that of neutrality to assist the court. He should not be partisan and should not become involved in arguing the merits for or against the making of a winding up order.”

10. Similarly instructive are observations in a Singapore case of the same kind. In Korea Asset Management Corp v Daewoo (Singapore) Pte Ltd [2004] SGHC 25; [2004] 1 SLR 671, V K Rajah JC said (at [72]):

“The liquidators in this case ought not to have conscientiously opposed in their affidavit the granting of leave to the applicants to commence proceedings that might possibly displace them. This is jarringly at odds with what is expected of them in such an application. It is incumbent upon them in the circumstances merely to recite the relevant facts and to leave it to the court to decide the matter on its merits. The role of a liquidator in legal proceedings must be one of pure and utter impartiality.”

11. Thus, where a liquidator in a voluntary winding up is confronted by an application for an order for winding up by the court and the installation of another liquidator in his or her place, the appropriate course is to adopt a stance of essential neutrality which assists the court, particularly by the volunteering of relevant facts. [6]

    6. If it is alleged in the proceedings that a liquidator is guilty of misconduct, the landscape is different. That was not the position in this case.

12. Condor emphasises that, as is recognised by the declaration the court made, Mr Calabretta was, in reality, never the administrator of Condor, with the result that principles with respect to costs applicable to such officials do not strictly speaking apply. But I did not understand counsel for Condor to dispute that a valid analogy could be drawn for costs purposes, given that the only issue in the case was whether Mr Calabretta was (or should remain) in office as voluntary administrator.

13. At the same time, however, the fact that Mr Calabretta was never the administrator of Condor means that he does not enjoy, in respect of expenses and outgoings, either the statutory indemnity created by s 443D (and the related lien under s 443F) or any general law right of recoupment and lien – except, as regards the latter, to such extent, if any, that he may be able to show conferral of some incontrovertible benefit on Condor. The significant point, for present purposes, is that none of these matters has anything to do with the questions now before the court, being questions as to how the burden of the costs of the litigation should be borne as between the parties to it.

14. Among the findings recorded in the principal judgment is a finding that Mr Calabretta was not under any obligation to seek from the court a decision as to the validity of his appointment. He was without funds. Also, his fiduciary position would have precluded his adopting any adversarial stance in favour of the proposition that he had been validly appointed. That being so, there was necessarily an expectation that he should cooperate in a non-adversarial way once it became clear that Condor itself had decided to approach the court.

15. Since, as I have said, both parties were content to see the costs questions assessed by reference to an analogy with the case of a liquidator, administrator or trustee in bankruptcy joined as a defendant (and since submissions concentrated overwhelmingly on the reasonableness of various aspects of Mr Calabretta’s conduct), I approach the matter of costs on the basis that, if Mr Calabretta acted in and about the litigation in a way that constructively facilitated resolution of the important issue of Condor’s status and, in so doing, did not abandon a position of essential neutrality in favour of some partisan role[7] , there is a case for making a costs order in his favour; but if he is seen to have overstepped that mark, it will be necessary to address the question whether, as Condor seeks, he should be ordered to pay personally some part of Condor’s costs.

    7. In terms preferred by Kekewich J in In re Buckton; Buckton v Buckton [1907] 2 Ch 406, the issue is whether Mr Calabretta assisted the court and enabled Condor to obtain a decision on its status.

Aspects of Mr Calabretta’s conduct relied on by Condor

16. Mr Calabretta’s position, as stated to the new directors of Condor immediately after their election on 5 July 2016, was that he did not intend to institute proceedings to test the validity of his appointment as administrator and whether it was susceptible to being set aside. At the same time, however, it was said in his solicitors’ letter of 18 July 2016 that if proceedings were commenced “by ASIC or anyone else”, Mr Calabretta would give all necessary evidence and would neither consent to nor oppose the making of the orders sought (save as those orders might impact on him personally). On paper, therefore, his stance was one of neutrality. The question is whether Mr Calabretta’s conduct conformed to that norm.

17. In a broad sense, Condor alleges against Mr Calabretta two kinds of overstepping of the boundaries of essential neutrality: first, that he adopted a partisan position in the litigation; and, second, that he did not make full and timely disclosure of all information in his possession relevant to the determination of the proceedings. Because of his failings in those respects, it is said, Mr Calabretta adopted an adversarial role that carried with it a costs risk. The particular allegations are as follows:

1. Mr Calabretta did not cooperate with Condor in bringing the matter to court but rather threatened its directors with the “hazard of criminal liability”.

2. From the outset, Mr Calabretta affirmatively and repeatedly insisted on the validity of the appointment which the court ultimately held to be invalid.

3. In making such assertions of validity, Mr Calabretta indicated that, if the validity of his appointment was ultimately upheld by the court, he might seek to have Mr Wilson (Condor’s solicitor) made personally liable for costs of the proceedings and would seek to have Mr Farquhar (one of the new directors and the executive chairman) made so liable.

4. Mr Calabretta made a series of assertions that, if there were invalidity, it should be cured by an order under s 447A, given Condor’s insolvency; but ultimately made no application for such an order (except in relation to the essentially technical matter of s 201A(2) non-compliance).

5. Mr Calabretta raised the “Minesweeper issue” as an obstacle to Condor’s claims in the proceedings and thereby deserted any position of neutrality.

6. Mr Calabretta raised issues concerning superannuation and PAYG instalments by way of an “implicit argument” that Condor should abandon the proceedings and in that way further departed from a position of neutrality.

7. Mr Calabretta did not provide to Condor all information in his possession in a timely way so as to assist the resolution of the situation. In particular, Mr Calabretta did not give disclosure of his knowledge of events on 4 July 2016 until service of his affidavit of 16 August 2016 and, even then, his cross-examination showed that that disclosure was not a full disclosure

8. Mr Calabretta exhibited lack of caution in not seeking indemnity from Mr Darby and Mr Stops at the time of accepting appointment.

9. The fact that Mr Calabretta seeks costs against Condor confirms his adversarial approach.

18. I shall deal with these matters in turn, using the same numbering.

Item (1) – the “hazard of criminal liability”

19. Item (1) refers to a matter noticed in the principal judgment at [132] and [135], that is, that Mr Russell (Mr Calabretta’s solicitor) pointed out in a letter of 14 July 2016 to Mr Farquhar that s 437C causes officers’ powers to be suspended during voluntary administration and that contravention of the section by an officer is a criminal offence of strict liability carrying, on conviction, a penalty of up to six months imprisonment. Mr Russell also said that Mr Farquhar was not to issue any further correspondence on Condor letterhead or otherwise under the company’s name.

20. At one level, Mr Russell’s statement was no more than a reminder of a legal point. But the reminder was couched in terms that some might regard as officious. Perhaps it was no more than a desire to ensure that the full legal position was explained that caused references to the penalty of imprisonment and the strict liability nature of the offence to be included in what could have been simply a low-key reminder that the powers of officers are suspended during voluntary administration. In any event and as I noted in the principal judgment, Mr Farquhar took particular exception to that part of Mr Russell’s letter.

21. Before Mr Russell raised s 437C, Mr Farquhar had said in a letter of 14 July 2016 (to which Mr Russell’s of the same date was a response), that Condor and its directors considered that Mr Calabretta had not been validly appointed as administrator. The letter referred to Mr Calabretta as the “purported administrator” and demanded that he cease holding himself out as administrator. Furthermore, the assertion that Mr Calabretta had not been validly appointed and was not Condor’s administrator was repeated by Mr Farquhar in a letter of 25 July 2016. That letter described Mr Calabretta’s stance on the matter as “preposterous”. The letter also took issue with the notion that s 437C precluded issue of further correspondence on company letterhead and pointed to several sections (including s 447C) which, as interpreted by Mr Farquhar, contemplate the possibility of action by a company through its directors despite the existence of Part 5.3A administration.

22. In relation to the matter raised with particular bluntness by Mr Russell on 14 July 2016, the clear position of Condor and its directors was thus, first, that no Part 5.3A administration was in place so that s 437C was not operative and, second, that even if that were not the case the section did not preclude various forms of action by Condor at the behest of its directors, including resort to s 447C under which the company itself is a competent applicant for a declaratory order that an administrator has or has not been validly appointed. On its own assessment of matters, therefore, the Condor board did not see Mr Russell’s reminder concerning s 437C as any form of obstacle. Their conviction that the company was not “under administration” (the words used in s 437C) meant that they did not see the section as having the slightest impact on their conduct in resolving the important issue of Condor’s status. Far from being cowed or shaken by Mr Russell’s reference to s 437C, the directors continued to act on the footing that no administration was in place and that the section was simply irrelevant.

23. In any event, Mr Russell’s message about s 437C and its implications was delivered before any proposal for proceedings by Condor itself had developed. As at 14 July 2016, Mr Farquhar was demanding strongly that Mr Calabretta himself seek resolution of the matter by an appropriate application to the court. Section 437C and its effect were of no relevance to that course.

24. On the evidence, therefore, something that Condor’s submissions on costs paint as “the hazard of criminal liability” was not something that indicated unwillingness of Mr Calabretta to act cooperatively in seeing the question of the validity of his appointment determined by the court.

Item (2) – Mr Calabretta’s insistence that he was validly in office

25. I referred in the principal judgment to the debate in pre-trial correspondence on the question whether it was in any sense incumbent upon Mr Calabretta to initiate proceedings (under s 447C or otherwise) when funds to do so were not available to him. I do not need to repeat here the reasons for the conclusion that it was not. Nor do I need to restate reasons for the conclusion that Mr Calabretta could not simply vacate the field as Condor continually pressed him to do.

26. Mr Calabretta’s stance that he was in office as administrator unless and until the court otherwise determined was, in the circumstances, a reasonable stance. Condor pressed upon him in pre-trial correspondence a number of propositions relevant to the central issue, in particular, that Mr Darby and Mr Stops “could not possibly have formed a concluded opinion about the company’s solvency prior to purporting to appoint you as administrator”. In the result, the decision of the court was that it had been shown that Mr Stops had not formed a s 436A(1)(a) opinion but that it had not been shown that Mr Darby had not formed such an opinion. It was also urged upon Mr Calabretta that Mr Darby and Mr Stops “did not hold a valid meeting of directors to consider the purported appointment” and that the new directors had seen only “a copy of the purported appointment resolution” – a reference, it seems, to the document held at [48] of the principal judgment to have effect under Condor’s constitution as if a resolution had been passed at a meeting of directors.

25. In these ways (perhaps in addition to others), Condor urged upon Mr Calabretta propositions that, while no doubt embraced conscientiously by Condor’s new directors, were, upon the kind of analysis that legal proceedings are particularly apt to produce, shown to represent no sound basis for a conclusion that the appointment was invalid.

26. Mr Calabretta’s continuing adherence in the pre-trial correspondence to the proposition that his appointment was unimpeachable was, in context, no more than a statement of opinion that the material placed before him by the new directors was insufficient to warrant a clear-cut conclusion of invalidity.

27. At the same time, however, Mr Calabretta was aware of at least the possibility of a problem. In the course of cross-examination, he accepted that he was aware of the possibility that the urgent move by the directors to impose voluntary administration was in some way connected with the circumstance that there might well be a spill of the Condor board and the installation of Mr Farquhar and his colleagues as directors. The point made in the pre-trial correspondence by Mr Russell on Mr Calabretta’s behalf was that there was “presently insufficient evidence to conclude that the only reason he was appointed was” the improper purpose postulated by Mr Farquhar (original emphasis).

28. The position was thus that, while Mr Calabretta did not consider evidence “presently” available to be sufficient to support a finding of improper purpose, he acknowledged in his own mind the possibility that improper purpose may have been at work. In the pre-trial correspondence, he referred to the first matter but not to the second. That caused that correspondence to convey an unbalanced account of his position.

Item (3) – foreshadowed costs applications

31. Condor commenced the proceedings on 27 July 2016. On the following day, Mr Russell wrote to Condor’s solicitors, W Lawyers. The letter was marked “Attention: Mark Wilson”. It noted that “you” had “chosen to take the risk of purporting to commence these proceedings in the company’s name” and said:

In the event it is determined that our client’s appointment is valid, it will necessarily follow that you have commenced these proceedings without the plaintiff’s authority.

In such case, the administrator and the company may seek to recover any costs incurred by them in dealing with these proceedings (including the fees charged by this firm and by counsel) from you personally.”

32. Subsequently, in the course of email correspondence attempting to find a consensual resolution, Mr Russell wrote to Mr Wilson on 10 August 2016:

“If it is determined that the administrator’s appointment was valid (as has consistently been maintained), the administrator would not consider it desirable to burden the company/creditors with the costs incurred in respect of the unmeritorious application, and would therefore look to Mr Farquhar (personally), as the instigator of the action, for reimbursement for his costs, by way of an application for a costs order against Mr Farquhar (personally) under section 98 of the Civil Procedure Act 2005 (NSW)”.

33. By both these communications, Mr Russell made it clear that, if the litigation commenced by Condor in order to determine Mr Calabretta’s status and that of Condor itself resulted in a conclusion that Mr Calabretta was validly in office as administrator, moves could well be made to obtain recovery of costs from the personal assets of Mr Wilson and Mr Farquhar.

34. The basis for the warning issued to Mr Wilson was no doubt a view that, if the outcome of the proceedings was that Mr Calabretta was validly in office, the directors who instructed Mr Wilson on behalf of Condor would be seen to have been acting without authority because s 437C had caused their powers to be suspended, so that Mr Wilson had no valid retainer from Condor. The basis for the warning issued to Mr Farquhar was presumably a view that he had, in some relevant sense, caused or controlled proceedings which, although brought in the name of the company, served his own interests and were brought without risk to himself.

35. These were, in my opinion, high-handed approaches. While the allegations in Condor’s letters in support of the contention that the appointment was invalid or should be terminated were not such as to require that Mr Calabretta simply vacate the field, they did indicate, at the least, that there were serious questions to be tried. Mr Calabretta had come close to acknowledging this by his statement in the 18 July 2016 letter that, if ASIC “or anyone else” commenced proceedings, he would give all necessary evidence and neither consent to nor oppose the grant of the relief sought. And, as already noted, he had acknowledged in his own mind at least a possibility that an improper purpose may have brought about his appointment.

36. There was no reason for the potential costs consequences of either any lack of valid retainer by Mr Wilson or Mr Farquhar’s dominant role in the initiation of proceedings to be raised when it was raised. On Mr Calabretta’s view of matters, the validity of Mr Wilson’s retainer turned on the very question the litigation was intended to resolve. A solicitor whose retainer is challenged in such circumstances has no way of knowing whether the challenge is well-founded, with the result that the retainer issue as a whole (including its costs consequences) may appropriately be left until the central question is determined. [8] Nor was it necessary that there be early notification of an intention to make the kind of costs application that was foreshadowed in respect of Mr Farquhar. [9]

    8. Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147; Doulaveras v Daher [2009] NSWCA 58; 253 ALR 627.

    9. Weatherford Global Products Ltd v Hydropath Holdings Ltd [2014] EWHC 3243.

37. Having adopted, at least on paper, the constructive stance indicated in the letter of 18 July 2016, Mr Calabretta abandoned it by his solicitor’s subsequent notifications that he might (in the case of Mr Wilson) and would (in the case of Mr Farquhar) seek to obtain recourse against individuals’ personal assets if the litigation in which he had said he would cooperate should result in his continuing to be administrator. The notifications issued to Mr Wilson and Mr Farquhar were warnings that, if they continued on the course of running that litigation and a particular result emerged, they should anticipate that Mr Calabretta could ask the court to compel them to pay money from their own pockets. Such warnings (or threats) are standard issue weapons deployed by lawyers engaged by clients to run hard-fought adversarial litigation. By having his solicitor bring those weapons to bear as and when he did, Mr Calabretta obviously intended that the individuals should re-assess their commitment to the litigation. He thereby distorted the process in which he had originally said he would cooperate. He adopted an unambiguously adversarial stance.

Item (4) – foreshadowed s 447A application

38. Condor points here to several occasions on which Mr Calabretta foreshadowed an application for curative orders under s 447A on the basis that, if some defect in the appointment were found, the fact that the company was “demonstrably insolvent” would justify voluntary administration in any event and a court would recognise that. No such application was made by Mr Calabretta, except for the application made towards the end of the hearing in relation to the matter of s 201A(2) non-compliance (a matter that had not been raised by Condor in the pre-trial correspondence).

39. The essential message in this part of the parties’ correspondence was that what Mr Calabretta regarded as the company’s clear insolvency was, as it were, a complete practical answer to questions about the validity of the appointment or its susceptibility to be set aside; and that, since a curative order could confidently be expected, there was no real point in Condor’s initiating and continuing the proceedings.

40. The point Condor makes is that Mr Calabretta thus introduced an issue with which Condor found it necessary to engage in the preparation of its case, only to find that the point was not ultimately pressed because Mr Calabretta did not initiate a s 447A application in the nature of a cross-claim.

41. In my opinion, it was not remiss of Mr Calabretta to communicate to the directors his opinion that the company was insolvent and, for that reason, appropriately in the hands of an administrator. But he went further. He said, in effect, that if the new directors persisted with the litigation, he might well counter with an application under s 447A for a curative order reversing what would be the outcome in the absence of such an order. That not only made it necessary for Condor to make preparations towards meeting such a cross-claim but also involved a departure from a position of essential neutrality.

Item (5) – raising of the Minesweeper issue

42. Some time in the week commencing 1 August 2016, a senior associate in Mr Russell’s firm (Stefano Calabretta) told Mr Wilson that “limited notice” had been received of a new claim relating to an agreement to purchase shares (this is the description given by Mr Wilson in an email of 8 August 2016). Stefano Calabretta later sent Mr Wilson certain documents that had been found among the company’s records. He then gave his view of the apparent effect of the documents, namely, that shares in Condor were to be transferred to Minesweeper Ltd in consideration of Minesweeper’s assuming debts of a Condor subsidiary. He added that the shares “are currently in lock down and have been the subject of ASX/ASIC intervention in recent months” and that, according to a preliminary analysis (by no means definitive), Minesweeper could “potentially have a claim” against Condor if shares were not transferred.

43. Mr Wilson replied on 10 August 2016 by asking for elaboration of the nature of the Minesweeper claim and suggesting that Mr Calabretta and his solicitors might not be aware that all shares referred to in Stefano Calabretta’s email had already been transferred to the intended recipients and were “clearly recorded” in the share register. Mr Wilson also drew attention to the Takeovers Panel proceedings in respect of these shares (which were part of an issue of 45 million shares referred to at [26] and following of the principal judgment). A Takeovers Panel media release sent with Mr Wilson’s email made it clear that, among the relief sought by ASIC in respect of the shares, was an order divesting the holder of certain of them. [10]

    10. The media release referred to ASIC’s contention that Minesweeper and another person had a relevant interest in shares held by Beaufort Securities Ltd and that the final orders sought included an order divesting Beaufort Securities Ltd of 5,800,083 shares so that a transaction resulting in contravention of s 606 was “effectively unwound”.

44. In his affidavit of 16 August 2016, Mr Calabretta referred to the Minesweeper transaction as the source of a potential contingent liability of up to some $650,000. He did not refer to the fact that pending Panel proceedings might have a significant impact on the relationship between Condor and Minesweeper.

45. This omission is said by Condor to bespeak a lack of frankness on Mr Calabretta’s part in that he sought to suggest that there might be a substantial contingent liability even though also aware of circumstances calling into question the integrity of the relevant transaction. This attitude was taken, it is said, in pursuance of a strategy of putting potential obstacles in the way of Condor’s attempt to obtain a ruling from the court on the question whether the appointment as administrator was invalid or susceptible to being set aside.

46. It may be accepted that Mr Calabretta did not, in his affidavit, refer to matters that might tell against the existence of the potential contingent liability he identified. But the reality was that Condor’s new directors and its solicitor were already fully apprised of the situation. It was Mr Wilson who had pointed out to Stefano Calabretta the implications of ASIC’s interest and the Panel proceedings. Mr Farquhar said in an affidavit of 11 August 2016 that he did not consider there to be any possibility of a legitimate claim arising from Minesweeper. By raising the matter in his affidavit in the incomplete way he did, Mr Calabretta did not introduce anything in the nature of a newly discovered potential obstacle to pursuit by Condor of its purpose of obtaining through the proceedings a decision on the central matters that were of crucial importance to Condor and Mr Calabretta himself.

Item (6) – raising of taxation issues

47. On 15 August 2016, Mr Calabretta wrote to Mr Farquhar saying that he had “identified that the company may have unpaid and unreported PAYG withholding and SGC obligations”. He enclosed an email of Ms Waterhouse of the company’s auditors dated 4 February 2015 addressed to Mr Darby, Mr Dunoon (the company secretary) and another person containing certain advice. He said that it was his understanding, based on his review of company records, that PAYG withholding and superannuation contributions ceased in July 2012. The letter went on to set out amounts disclosed by published accounts as paid to company officers for salary and bonuses in years ended 30 June 2013, 2014 and 2015. Then followed an estimate of amounts for which the company “may be liable” by way of PAYG withholding, superannuation guarantee charge (or SGC), interest and penalties. The total of the estimates was $797,974.27.

48. Mr Calabretta then referred to the fact that, under the statutory regime with respect to director penalty notices, new directors of a company can become personally liable for unpaid liabilities for PAYG withholding and SGC obligations that became due for discharge by the company before their appointment (he did not add that the liability might be avoided by placing the company in liquidation or voluntary administration). The letter concluded:

“Would you please as a matter of urgency, by Tuesday 16 August 2016, advise if the new directors dispute that any amounts are in fact owing to the Australian Taxation Office for PAYG withholding and superannuation contributions obligations, and also provide the reasons.”

49. This letter was sent on Monday 15 August 2016, that is, three days before the day appointed for the hearing of the proceedings. The day by which a reply was sought was two days before the appointed hearing date.

50. A questionnaire administered by Mr Calabretta to Mr Darby had inquired about PAYG and SGC matters. Mr Darby’s response dated 28 July 2016 was “Refer to company secretary”, that is, Mr Dunoon. Mr Calabretta gave evidence that he had not in fact asked Mr Dunoon about these matters but his staff had had them in mind as they went through the company’s books and records. It was on 12 August 2016, according to Mr Calabretta, that his staff found the advice from Ms Waterhouse and it was that discovery that prompted him to write at once to Mr Farquhar.

51. Ms Waterhouse’s advice did not concern in any direct way Condor’s taxation obligations. It was advice to Mr Darby about his personal position and tax effective ways in which services of Mr Darby might be provided to Condor through an interposed company with favourable taxation consequences for him and it. The letter did, however, make a preliminary observation that Mr Darby, as Condor’s managing director, would be regarded as an employee and payments to him would be subject to PAYG withholding and SGC obligations. It was from that starting point that the letter of advice proceeded to canvass ways in which the interposed company might achieve tax efficiencies in respect of payments it received for supplying Mr Darby’s services to Condor.

52. It may well be that discovery of Ms Waterhouse’s advice focussed Mr Calabretta’s attention (or that of his staff) on the general area of PAYG withholding and SGC obligations. But the advice contained no revelation that could of itself have been the pretext for the 15 August 2016 letter to Mr Farquhar. The data used by Mr Calabretta to arrive at the estimate of $797,974.27 were extracted from published annual reports. The fact that payment of PAYG withholding and superannuation contributions had ceased in July 2012 was also extracted from company records. It was no secret that the several persons mentioned had been company officers. The assumption that they were, for tax purposes, employees was uncontroversial. Ms Waterhouse’s advice did not bring to light anything of relevance to the issue of possible exposure of new directors to adverse personal financial consequences unless the company were in liquidation or voluntary administration.

53. The circumstances I have described raise a strong objective probability that the issue of PAYG withholding and SGC obligations was raised by Mr Calabretta on 15 August 2016 in order to cause the new directors of Condor to think that their own financial interests might be best served by having Condor abandon the attempt to overturn the voluntary administration. There was no good reason why Mr Calabretta should wish to know immediately whether the new directors disputed the company’s liability to the Australian Taxation Office. They had been in office for only a little more than a month and obviously had no first hand knowledge of relevant past circumstances. If Mr Calabretta continued as administrator, the issue would be one entirely between him and the taxation authorities so that any opinion of the new directors would not be relevant in any way; whereas, if he were no longer administrator after conclusion of the proceedings, it would not concern him at all.

54. As at 15 August 2016, the matter did not possess, from either Mr Calabretta’s viewpoint or that of Condor, any significance that it had not previously had. Beyond a desire to instil in the new directors apprehension about their own positions (something that had an obvious capacity to affect their attitude to the continuation of the proceedings due to be heard in three days time), there was simply no reason for Mr Calabretta to raise the matter as and when he did and to demand immediate attention to it.

55. I am satisfied that this was another aspect of failure by Mr Calabretta to maintain essential neutrality.

Item (7) – lack of timely disclosure of facts

56. Condor complains that Mr Calabretta did not make timely disclosure of relevant matters within his exclusive knowledge and thereby hindered Condor’s attempts to obtain a ruling on the central issue in a prompt and efficient way.

57. Particular complaint is made about the fact that no affidavit evidence of Mr Calabretta was forthcoming until service on 16 August 2016 (two days before the appointed hearing date) of his affidavit of the same date. Indeed, there is nothing to show that he made any disclosure about factual matters relevant to the central issue until service of his affidavit.

58. One aspect of the case that Condor says could have been simplified by earlier disclosure by Mr Calabretta concerns the involvement of Mr Kukulovski and the possibility that that that involvement might have been relevant to whether Mr Darby was pursuing an improper purpose. From Condor’s perspective when preparing its case, Mr Kukulovski first entered the picture when he was referred to in Mr Loone’s affidavit of 10 August 2016. That affidavit made it clear that Mr Darby and Mr Kukulovski had been in discussions from at least 26 July 2016 and perhaps before 6 July 2016. But Mr Calabretta did not disclose anything about Mr Kukulovski until referring to him in his affidavit of 16 August 2016 and, as Mr Calabretta’s cross-examination showed, that disclosure did not extend to the fact that Mr Kukulovski had been brought by Mr Darby to the meeting with Mr Calabretta at the Bligh Street restaurant on 4 July and had travelled with Mr Darby and Mr Calabretta to meet Mr Stops at the Empire Hotel so that he was physically present at the place at which the administrator appointment documents were signed. It was only at the end of Mr Calabretta’s cross-examination that Condor had been able to obtain any relatively clear picture of Mr Kukulovski’s involvement.

56. The same complaint is made in relation to the actions and involvement of Mr Stops. The fact that Mr Calabretta had met with Mr Stops (as well as Mr Darby) at the Empire Hotel on 4 July 2016 was not volunteered by Mr Calabretta until he served his affidavit of 16 August 2016, two days before the appointed start of the hearing. Before that disclosure, Condor had been in a position where:

1. it knew from Mr Calabretta’s declaration of independence, relevant relationships and indemnities dated 14 July 2016 that Mr Calabretta had had a thirty minute meeting with “one of the directors, Mr Glen Darby” on 4 July 2016 before the purported appointment; [11]

2. there was no reference to any pre-appointment meeting with Mr Stops;

3. it knew from an email dated 4 July 2016 from Mr Darby to Michael Stafford, solicitor, produced in response to a notice to produce that, according to Mr Darby, Mr Stops “looks to be on his deathbed” and would not be able to chair the general meeting to be held on 5 July 2016; and

4. Mr Stops had deposed in his affidavit of 15 August 2016 that he had not signed the administrator appointment documents and had never met Mr Calabretta.

   11. Counsel for Condor submitted that this disclosure was incomplete and misleading, given that Mr Calabretta had also met with Mr Stops on 4 July 2016. That submission cannot be accepted. In discharging his obligation to make a declaration as required by s 436DA of the Corporations Act, Mr Calabretta chose to follow guidance provided in the Code of Professional Practice for Insolvency Practitioners (third edition, as amended 18 August 2014) published by Australian Restructuring Insolvency and Turnaround Association. That was an appropriate course. In the relevant part of his declaration, he was dealing with the section of that guidance concerned with “the number of meetings and time period over which advice was provided to the . . . officers of the insolvent . . prior to appointment”. Mr Calabretta’s disclosure in that respect correctly referred to the meeting with Mr Darby alone at the Bligh Street restaurant. He gave no advice at the subsequent meeting at the Empire Hotel with both Mr Darby and Mr Stops when appointment documents were signed.

60. The point Condor makes is that, if Mr Calabretta had disclosed at a much earlier stage the facts about Mr Stops ultimately communicated by his 16 August 2016 affidavit, Condor would have been spared appreciable effort and expense in the preparation of its case. When, at trial, Mr Stops’ affidavit evidence was supplemented by cross-examination and Mr Calabretta’s evidence of events at the Empire Hotel, Condor did not press with any vigour the submission that Mr Stops had not signed the documents. Cooperation by Mr Calabretta in making full and frank disclosure of facts at a much earlier stage would have enabled Condor to reach that position at a time which permitted the issue to play a much reduced role in the proceedings or even to be eliminated.

61. There is substance in Condor’s complaints. The duty of the impartial liquidator, administrator or trustee in bankruptcy “merely to recite the relevant facts and to leave it to the court to decide the matter on its merits” [12] extends also to the pre-trial phase. There were no pleadings in this case. That mechanism for distilling factual issues was therefore not at work. But Mr Calabretta, in accordance with his duty, should have recognised that the avoidance of surprise is something to be sought in all litigation. He did not play his part adequately in promoting that objective.

    12. See Korea Asset Management Corp v Daewoo (Singapore) Pte Ltd (above)

Item (8) – not seeking indemnity from the directors

62. Condor maintains that Mr Calabretta’s conduct was deficient because he did not seek from either or both of Mr Darby and Mr Stops indemnity that might have caused him to be in funds so that he could have pursued his own application to the court rather than leaving it to Condor to do so.

63. I am not satisfied that Mr Calabretta acted inappropriately in that respect. It would be dangerous to postulate some kind of duty for a practitioner contemplating acceptance of appointment as voluntary administrator to seek indemnity from anyone. There is no statutory or other warrant for any such gloss.

Item (9) – Mr Calabretta’s application for costs

64. It is said by Condor that Mr Calabretta’s application for an order that Condor pay his costs indicates abandonment of a position of essential neutrality. I do not accept that submission. After the court had determined the substantive question, it was in no sense improper for the person who had been found not to be duly appointed as voluntary administrator to submit that the costs incurred by him in the proceedings which produced that outcome should be paid out of the assets of the company of which he had thought himself to be the administrator.

Assessment

65. I am satisfied that Mr Calabretta did not adopt in relation to the proceedings a stance of essential neutrality so as to assist the court, particularly by volunteering relevant facts.

66. His insistence that his appointment was securely based and that he would not himself commence proceedings was, of itself, unobjectionable, given that he was without funds and had indicated that, if ASIC or anyone else commenced proceedings, he would give all necessary evidence and neither consent to nor oppose the making of substantive orders. When he gave that assurance, Mr Calabretta was aware of at least a possibility that voluntary administration had been imposed for an improper purpose, even though he did not think that the available evidence of which he was aware would enable that to be proved. That awareness was consistent with his attitude that attempts by any other competent party to overturn the administration would warrant his cooperation.

67. But having taken a cooperative stance on paper in his letter of 18 July 2016, Mr Calabretta did not adhere to it. Condor itself commenced proceedings on 27 July 2016. Mr Calabretta’s assurances of 18 July 2016 applied to those proceedings. But he neither volunteered in a timely way relevant facts within his own knowledge nor desisted from conduct that could only be regarded as opposition to the due progress of the matter to determination by the court.

68. Affidavits read in Condor’s case included those sworn or affirmed on 28 July 2016 (Mr Wilson), 10 August 2016 (Mr Loone), 11 August 2016 (Mr Farquhar, Mr Dunoon), 12 August 2016 (Mr Farquhar, Mr Wilson) and 15 August 2016 (Mr Stops, Mr Wilson). The progress of the matter from commencement to final hearing was extremely swift (27 July 2016 to 18 August 2016). That was a reflection of the urgency of the matter. In circumstances calling for prompt action, Mr Calabretta did not volunteer any factual material until 16 August 2016 and, when he did so, he disclosed some matters which, if they had been communicated earlier, might well have alleviated the need for investigation and proof undertaken by Condor while ignorant of what Mr Calabretta could contribute (I have referred, in particular, to facts concerning Mr Kukolevski and Mr Stops). Also, he continued virtually throughout to leave Condor under the impression that he might counter with a s 447A application with which Condor would then have to contend. Mr Calabretta’s solicitors asked as late as 10 August 2016 whether all of Condor’s evidence had been served and at the same time gave notice that they might wish to cross-examine all or any of the witnesses making affidavits in support of Condor’s application (a notification that, curiously, was immediately followed by a statement that it should not be interpreted as suggesting that Mr Calabretta intended to take an active role in the proceedings). In all these ways, Mr Calabretta did not assist the orderly and efficient preparation and progress of the litigation.

69. In making the threats that personal costs orders might be sought against Mr Wilson and Mr Farquhar if Condor were unsuccessful in the litigation, Mr Calabretta acted in a highly partisan and adversarial way. The threats were calculated to cause individuals intimately concerned in the preparation of Condor’s case to consider whether they should, in the interests of self-preservation, abandon their efforts. There was, in that respect, a clear and grave desertion of the position of essential neutrality that it was Mr Calabretta’s duty to adhere.

70. The raising of the PAYG withholding and SGC contribution issues three days before the appointed hearing date stands in the same light. As outlined above, nothing had happened which might legitimately have caused Mr Calabretta to think that he should put the new directors of Condor on notice of potential personal liability for corporate taxation defaults. The discovery of the advice from Ms Waterhouse was a mere (and quite irrelevant) pretext. Again, the identification of personal liability that might be sheeted home to the new Condor directors if the administration were declared void or terminated but would be avoided if it remained in place was something calculated to cause the individuals responsible for the pursuit of Condor’s case to consider whether they should, in the interests of self-preservation, abandon their efforts.

71. Mr Calabretta did not act in and about the litigation in a way that constructively facilitated resolution of the important matter of Condor’s status. He abandoned a stated position of essential neutrality in favour of a partisan and adversarial role.

Consequences

72. Two things follow. First, Mr Calabretta should not have any order for payment of his costs of the proceedings by Condor. [13] Secondly, it is necessary to decide whether Condor should have a costs order against Mr Calabretta.

    13. This conclusion makes it unnecessary to consider various offers of compromise on which Mr Calabretta sought to rely in support of an application that costs awarded to him should, as to part, be assessed on an indemnity basis.

73. As to that second matter, my firm conclusion is that Condor should have a costs order against Mr Calabretta. In the absence of his uncooperative conduct, the litigation would necessarily have proceeded more smoothly and efficiently. Condor’s submission is that Mr Calabretta should be order to pay one-half of Condor’s costs. That, in the circumstances, is a just outcome.

Orders

74. The orders are:

Order that the defendant pay one-half of the plaintiff’s costs of the proceedings.

Applications for costs orders otherwise dismissed.

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Endnotes

Decision last updated: 16 September 2016