Murdoch v Weston

[2004] NSWSC 316

Reported Decision: 49 ACSR 166

Supreme Court

CITATION:	Murdoch & Ors v Weston; Special Purpose Liquidiator of One.Tel Limited [2004] NSWSC 316 revised - 22/04/2004
HEARING DATE(S):	6 and 8 April 2004
JUDGMENT DATE:	8 April 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Windeyer J at 1
DECISION:	Examination summonses discharged
CATCHWORDS:	CORPORATIONS - winding up - examination summonses issued by special purpose liquidator - no benefit in examinations at this stage
LEGISLATION CITED:	Corporations Act, s588FB, s588FF Corporations Law, s995(2) of Div 2 of Pt 7.11 Fair Trading Act 1987, s42
PARTIES :	In 2051 of 2004 Lachlan Keith Murdoch (First Plaintiff) Peter John Macourt (Second Plaintiff) John Hartigan (Third Plaintiff) Ian Philip (Fourth Plaintiff) News Limited (Fifth Plaintiff) Paul Gerard Weston as Special Purpose Liquidator One.Tel Limited (In Liquidation) (Defendant) In 1781 of 2004 One.Tel Limited (In Liquidation) by its Special Purpose Liquidator, Paul Gerard Weston (Plaintiff) One.Tel Limited (In Liquidation) (Defendant) Leigh Brown, Bart Oude-Vrielink, John Steven, Brian Long, Peter Shear, David Simmons (Applicants on Interlocutory Process) One.Tel Limited (In Liquidation) by its Special Purpose Liquidator, Paul Gerard Weston (Respondent to the Interlocutory Process)
FILE NUMBER(S):	SC 2051 of 2004; 1781 of 2004
COUNSEL:	In 2051/74 Mr J Halley (Plaintiffs) Mr RJ Ellicott, QC with him Mr N. Cotman SC and Mr R Glasson (Defendant) In 1781/04 Mr J.E. Thompson (Applicants on Interlocutory Process) Mr RJ Ellicott, QC with him Mr N. Cotman SC and Mr R Glasson (Respondent to Interlocutory Process)
SOLICITORS:	In 2051/74 Allens Arthur Robinson (Plaintiff) NOT Lawyers (Defendant) In 1781/04 Minter Ellison (Applicants) NOT Lawyers (Respondent

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THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

THURSDAY 8 APRIL 2004

2051/04 - LACHLAN KEITH MURDOCH & ORS v PAUL GERARD WESTON
SPECIAL PURPOSE LIQUIDATOR ONE.TEL LIMITED (IN LIQUIDATION)

1781/04 – ONE.TEL (IN LIQUIDATION) IN THE MATTER OF, BY ITS SPECIAL PURPOSE LIQUIDATOR

JUDGMENT – ON APPLICATION FILED 22 MARCH 2004 BY MR BROWN & ORS

1 HIS HONOUR: This matter arises in the liquidation of One.Tel Limited. On 23 December 2003 I appointed Mr Weston as a special purpose liquidator for the purpose of considering and making recommendations to creditors as to whether any rights of action exist in respect of which there is a limitation period for the commencement of such action of less than six years and, if necessary, whether any action should be against any person in relation to any such rights of action and whether the special purpose liquidator should apply to extend the limitation period of any such action.

2 The matter now before the Court is raised by an interlocutory process filed on 22 March 2004 by six persons in respect of whom examination summonses were issued for their attendance to be examined in connection with the examinable affairs of One.Tel. While there is some complaint about that, there would have been no problem in ensuring that the examinable affairs, so far as this inquiry would have been concerned, would be limited to the matters in respect of which the special purpose liquidator was appointed.

3 These proceedings were heard at the same time as a number of other proceedings, the evidence in one being evidence in the other. Those other proceedings have now been resolved on a basis that allowed for an extension of time for the special purpose liquidator to bring claims against the interests, which might be described as the PBL and News Limited interests for orders under s 588FF of the Corporations Act based on a claim that the cancellation of the renounceable rights issue, described in my earlier judgment, and if necessary, events leading up to that cancellation amounted to an uncommercial transaction within the meaning of s588FB of the Corporations Act.

4 The applicants, who are examinees under the examination of summonses, the subject of this interlocutory process, are, in the case of three of them, partners of the firm of Minter Ellison, Solicitors, and, in the case of the other three, partners of the firm Messrs Ernst & Young, Chartered Accountants. That firm were advisers to One.Tel. The solicitors were not advisers to One.Tel, but were advisers to the PBL interests. All of those persons were present at some of the meetings, which took place from time to time over a relatively short period, which gave rise in the first instance to arrangements for the issue by One.Tel of new shares by means of a renounceable rights issue to shareholders, which for the purposes of this judgment, it can be taken was agreed to be underwritten by subsidiary companies involved with PBL or News Limited.

5 It is not suggested that each of the six persons was present at each meeting, but clearly enough, each of them was present at some meetings where discussions took place as to the renounceable rights issue, and subsequently as to the resolution of the board not to proceed with that issue.

6 When the matter was before me on the application for the appointment of a special purpose liquidator, and it was suggested a right of action could be lost as a result of the expiration of a limitation period of less than six years, it was clear this was because there may be a claim for an order resulting from a decision that the cancellation of the renounceable rights issue was a voidable transaction under the Corporations Act. Any sensible perusal of my judgment would have made that perfectly clear.

7 I should also say that any consideration of the terms of the order upon which Mr Weston was appointed, would, I think, have made that clear as well, because the assumption that the company became insolvent as a result of the cancellation of the renounceable rights issue was clearly related to the question of whether the cancellation amounted to an uncommercial transaction.

8 Be that as it may, the special purpose liquidator is not to be blamed for considering whether or not there might be some other right of action in respect of which there was a limitation period less than six years, because that is one of the things that he was to consider. Nevertheless, he was to consider it on the basis of the assumption and not outside that assumption.

9 Now that the special purpose liquidator has obtained an extension of time for the bringing of actions against the PBL and News Limited subsidiaries, if that becomes appropriate, so far as their being involved in an uncommercial transaction is concerned, or in terms of s588FF(c), benefiting from that transaction, there is no need for anybody to be examined at this time in connection with that matter.

10 It is put by counsel for the special purpose liquidator that in any event it would be desirable to conduct the examinations now because memories tend to fade, evidence tends to be lost, witnesses may not be available at a later stage, and that therefore, the evidence, which might be useful in some claim related to obtaining a declaration that there was an uncommercial transaction revolving around the cancellation of the rights issue, might be lost.

11 I do not think that would be a sufficient reason to allow the examinations to take place at this stage, because the terms upon which the special purpose liquidator was appointed in any event really rely upon there being some cause of action that might be commenced before 29 May 2004. As it is no longer necessary to commence any claim for an uncommercial dealing by that date, in my view there is no purpose that would justify the expenditure of what appears to be vast sums of money on the examinations at this stage.

12 It is fair to say the amount involved is now substantially less because the examinations of people, who are really principal players in this matter, for which it was thought very substantial sums of money would be required to pursue their examinations, are no longer to be examined. Thus the expenditure is not as important a matter as it was at an earlier stage.

13 The special purpose liquidator, having obtained advice, has concluded that there may be some claim under s42 of the Fair Trading Act 1987 as to misleading or deceptive conduct on the part of a number of necessarily unidentified persons, which may have led to damage to One.Tel, and thus be actionable if commenced within three years of 29 May 2001. It is not possible to obtain an extension of time for actions under the Fair Trading Act.

14 So far as the News Limited and PBL interests are concerned, that problem has been overcome because they have agreed to waive their rights to plead a limitation defence. It is not necessary to go into the details of that further.

15 The examinees under the present summonses have not been prepared to agree to give such a waiver for reasons that I think are quite proper. It is not suggested by counsel for the special purpose liquidator that all six or any particular one of the six were involved in misleading or deceptive conduct. Neither, for that matter, is it suggested or accepted that they were not, but if they were not, what he says is that nevertheless, as they were present at various meetings, they may be able to give evidence relevant to those questions, because they would be able to give evidence as to what was said at various meetings.

16 The special purpose liquidator really does not know at the present time whether there is any conduct which might or might not have been misleading or deceptive. Although that is put forward as a ground of objection, it is not really, in my view, a proper ground of objection to examinations taking place, because one of the purposes of such examination is to see whether or not a company in liquidation has or may have an asset that might become available for distribution to creditors. It is not necessary to identify, at least with any precision, the action to which questions might be directed but they must be directed having some purpose in mind.

17 It has always been clear, I think, and has been made perfectly clear by the letter written by the solicitors for the special purpose liquidator on 6 April 2004, that the purpose of the investigation was directed to the cancellation of the rights issue, which was announced on 17 May and, in essence, cancelled on 29 May, and the participation of the PBL and News Limited companies in relation to that; and advice, or lack of advice, given to the board of One.Tel by directors of that company during that period; and representations made to the board by any director or directors of One.Tel concerning the financial position of the company.

18 In addition it is apparent that at least the last of those inquiries is not directed solely to the directors associated with the PBL and News Limited interests but may extend to conduct of various advisers. The fact is, however, that any possible claim under s42 of the Fair Trading Act is directed to the cancellation of the rights issue. There could be no damage resulting from that decision unless the company was solvent on 29 May or, if you like, became insolvent as a result of the cancellation of the renounceable rights issue. That is what this is all about.

19 Thus, for any examination to have any purpose at all for the purpose of a claim under s42, it would have to be directed to the question of solvency. That is what my judgment made clear was not to take place. That is what the assumption makes clear was not to take place. If the special purpose liquidator had wished to go outside the assumption then he would have to come back to the Court and ask for an extended appointment, which he has not done.

20 As counsel for the six examinees points out, there is no basis upon which it would be possible for the special purpose liquidator to recommend to the creditors that an action should be commenced under the Fair Trading Act because there is no possible basis, without looking into the question of solvency that he would be able properly to certify that an action under the Fair Trading Act had reasonable grounds of success, as damage is essential for such action. An action cannot be commenced without such a certificate.

21 I should add that there is no possible way, in my view, in which the position could arise that such evidence as to solvency would be obtained by 21 May, when nobody seems to have suggested that the special purpose liquidator has any such credible information available to him at this stage. That is not in any way to determine the issue that will be determined before Austin J in the ASIC v Rich proceedings. All it is to say is that if the special purpose liquidator had any such evidence, then one would have expected that to be before this Court in these proceedings, if necessary, in a confidential way, to justify the course of action that he now wishes to take.

22 There is another reason why I do not think the examination should proceed. Counsel for the applicant examinees has raised or adopted an argument that was put forward by counsel for some of the other proposed examinees, in respect of whom examinations have currently been stayed: that is that s42 of the Fair Trading Act has no application because any proceedings in respect of the cancellation of the renounceable rights issue and any conduct in connection with it is covered by s995(2) of Div 2 of Pt 7.11 of the Corporations Law, applicable as at May 2001, which provides that:

“A person must not in connection with:

(a) any dealings in securities or,

(b) without limiting the generality of paragraph (a):

(i) the allotment or issue of securities

...

(iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any other matter referred to in subparagraph (i), or engage in conduct that is misleading or deceptive or that is likely to mislead or deceive.”

23 Section 995A provided that Division 2 operated in relation to dealings in securities in this jurisdiction to the exclusion of proceedings of the Fair Trading Act.

24 Conduct in relation to the issue or allotment of securities, in my view, must also embrace conduct in connection with a decision having been made to abandon a renounceable rights issue the subject of an earlier decision to proceed with such an issue to bring new capital to the company; and subparagraph (iv) in the same way could relate to the events that it is proposed to cover in the examination.

25 The argument, however, of the counsel for the special purpose liquidator is that the matters set out in s995(2)(b) are not necessarily matters encompassed by the phrase “dealing in securities” and therefore they are not all covered by the exclusion of s42 or by s995A. I accept that to be so but in relation to the particular matters involved here, it is, in my view, the position that s995(2)(a) applies and that therefore s995A applies. The difficulty is that this is not a matter really raised as a clear issue for determination, but I consider that to be the position. However, it remains my view that if I were wrong in that, the examination which the special purpose liquidator wishes to carry out in respect of misleading and deceptive conduct, involves an investigation beyond the terms of his appointment, and therefore ought not to take place.

26 I am also of the view that what I have said in relation to obtaining evidence at this stage, which might support some later action, which as I said could not be an action under s42, because that would be time barred, but would be an action under s995(2) of the Corporations Law, which would not be time barred, is not justified at this stage.

27 I should add the interlocutory process originally sought an order that the affidavit, which was sworn by the special purpose liquidator in support of the application for the summonses, should be made available. That matter was not really argued before me and that application was never pressed in respect of the interlocutory process filed on 22 March 2004 under which Messrs Brown, Oude-Vrielink, Steven, Long, Shear and Simmons are the applicants.

28 I order that the summonses for examinations served on each of those applicants be discharged.

29 I order the respondent to pay the applicants’ costs of the interlocutory process.

30 I stand over the balance of the special purpose liquidator’s interlocutory process filed on 6 April 2004 to Friday 16 April 2004 at 9.30 am.

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Last Modified: 04/23/2004