Re West Australian Gem Explorers Pty Ltd

[1994] FCA 124

ALORIDGE PTY LIMITED (PROVISIONAL LIQUIDATOR APPOINTED) v. WEST AUSTRALIAN GEM
EXPLORERS PTY LIMITED and GEORGE CHRISTIANOS and OTHERS
Nos. NG3210 and NG3216 of 1993
FED No. 124/94
Number of pages - 7
Corporations
(1994) 12 ACLC 256
(1994) 13 ACSR 104

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BURCHETT J

CATCHWORDS

Corporations - appointment of provisional liquidator - appearance of bias or partiality - person proposed as provisional liquidator had previously been appointed, by one party to a dispute involving the company, to be administrator of an associated company, and had also been appointed administrator of the company - conflict of duty and interest - as companies were litigating, administrator would have been on both sides of the record - duty of impartiality of provisional liquidator - effect of counsel's advice as an excuse for questionable action.

Andrews v. Hawley (1857) 26 LJ Ex. (N.S.) 323

Re National Safety Council of Australia, Victorian Division (1989) 7 ACLC 602

Re Club Superstores Australia Pty Limited (in liquidation) (1993) 11 ACLC 751

Re Queensland Stations Pty Ltd (in liq.) (1991) 9 ACLC 1,341

Aboriginal and Torres Strait Island Commission v. Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liquidation) (1993) 11 ACLC 319

In re Contract Corporation. Gooch's Case (1872) 7 Ch. App. 207

HEARING

SYDNEY, 10 September 1993
#DATE 17:3:1994

Counsel for the Applicant in Mr D.P.F. Officer QC
NG 3210 and 3216 of 1993: with Mr D.L. Warren

Solicitors for the Applicant in Messrs N.G. Cassim and Company
NG 3210 and 3216 of 1993:

Solicitor for the Respondent Mr S. O'Reilly of
in NG 3210 of 1993: Messrs Phillips Fox

Counsel for the First and Second Mr M.P. Workman
Respondents in NG 3216 of 1993:

Solicitors for the First and Messrs Pullinger Sanderson
Second Respondents in NG 3216 and Workman
of 1993:

Counsel for the Third Respondent Mr H.K. Insall
in NG 3216 of 1993:

Solicitor for the Third Mr James Ride
Respondent in NG 3216 of 1993:

JUDGE1

BURCHETT J These applications, by consent, were heard together. In the one, Aloridge Pty Limited (provisional liquidator appointed), which I shall call Aloridge, sought an order that West Australian Gem Explorers Pty Limited, which I shall call W.A. Gems, be wound up, and that in the meantime a provisional liquidator be appointed. In the other, Aloridge sought, under s. 447A of the Corporations Law, an order that the administration of W.A. Gems by B. Putnin as administrator end. All parties reached an agreement that the administration should end, and that the company should continue in provisional liquidation. I had, on 5 August 1993, appointed Victor Charles Court to be provisional liquidator. The question which remained to be litigated was whether Mr Court should continue as provisional liquidator, or whether Mr B. Putnin should be appointed provisional liquidator in his stead.

1. Mr Putnin gave lengthy evidence, and was cross-examined. On behalf of George Christianos and Maria Christianos, who are directors of W.A. Gems, submissions were made in favour of the appointment of Mr Putnin as provisional liquidator. At the conclusion of the hearing, I made orders continuing the appointment of Mr Court, with powers which I specified, until further order of this Court, and I ordered that the costs of the provisional liquidator of Aloridge be paid by George Christianos and Maria Christianos. I reserved my reasons, which I now deliver.

2. These matters have quite a long history. Some of the background has been recited in my reasons for judgment in Aloridge Pty Limited (Provisional Liquidator Appointed) v. Christianos and Putnin, which will be delivered at the same time as these reasons. But it will be convenient if I set out here a short chronicle of some events. On 5 August 1993, Mr Christianos purported, as a person entitled to enforce an appropriate charge, to appoint Mr Putnin, under s. 436C of the Corporations Law, to be administrator of Aloridge. On 9 August 1993, I ordered that that administration end, reserving my reasons. On 11 August 1993, Mr Putnin accepted a purported re-appointment by Mr Christianos as administrator of Aloridge. There had been no change in the situation which had led to my order. On 23 August 1993, I ordered, by consent, that the second administration of Aloridge be stayed until further order of the Court. On the same date as the first of these appointments, 5 August 1993, upon an ex parte application by Aloridge, I appointed Mr Court to be provisional liquidator of W.A. Gems. On that very day, and before he accepted appointment by Mr Christianos as administrator of Aloridge, Mr Putnin accepted a separate appointment, by virtue of a resolution of the directors of W.A. Gems, as administrator of that company. The question has been raised whether, after the order appointing a provisional liquidator, they retained power to make and carry out a resolution under s. 436A of the Corporations Law; however it is unnecessary to resolve that question in these proceedings.

3. Pursuant to the appointment of Mr Putnin as administrator of W.A. Gems, and an interlocutory order of the Court made on 24 August 1993, Mr Putnin prepared and filed a report to the Court concerning W.A. Gems. It was particularly on that report that he was cross-examined.

4. I do not think it is an over simplification to say that the competing arguments, as to whether Mr Putnin or Mr Court should be provisional liquidator of W.A. Gems, came down to the proposition, in favour of Mr Putnin's appointment, that he had the advantage of having done already some thousands of dollars' worth of work on the affairs of the company, and, in favour of Mr Court, that he was totally independent, whereas Mr Putnin had, either in reality or at least in appearance, become compromised. Counsel for Aloridge contended that Mr Putnin had shown bias, or the appearance of bias, in favour of the interests of Mr Christianos, who had purported to appoint him as administrator also of Aloridge, and that that appointment had placed him, knowingly, in a position of conflict of interest. At the time of his acceptance of the two appointments, on 5 August 1993, there was serious litigation between the two companies, and he was aware of that fact. Thus he allowed himself to be put in a situation where, for a few days until I made an order ending his administration of Aloridge, he was claiming to be entitled to instruct on both sides of the record in that litigation. What is more, despite the order of the Court ending his administration of Aloridge, he joined in an attempt to re-establish that situation made by Mr Christianos on 11 August 1993.

5. It is fair to note, as regards the acceptance by Mr Putnin of an immediate re-appointment as administrator of Aloridge, after the Court had made an order ending his administration of that company, that Mr Putnin claimed he was acting on the advice of senior counsel. But the terms of this advice, and the material on which it was based, were not put into evidence. In Andrews v. Hawley (1857) 26 LJ Ex (NS) 323 at 325, Bramwell B pointed out, of a contention that counsel's advice excused a wrong committed by the defendant: "(E)verything depends on the case laid before counsel, as to which there was here no evidence". And he added the sardonic remark: "(I)t does not appear that counsel would have given such advice had he known all that the defendant knew." I have considerable difficulty in accepting that counsel was given anything like the complete picture, which would have revealed the stark conflict of interest and duty involved in the control or potential control of both sides of the litigation between Aloridge and W.A. Gems.

6. So far as the question of bias is concerned, it goes without saying that an officer of the Court, appointed to act as provisional liquidator of a company, should be above suspicion. There must not be any bias, and there must not be any appearance of bias. Where there are circumstances which might predispose a person to favour particular interests, those circumstances must be taken into account, and the possibility of unconscious partiality should not be overlooked. As Sheppard J said in In the matter of Stadbuck Pty Limited (unreported, 18 May 1993):
   

"Unquestionably there is a risk that an accountant may, however subconsciously, tend to favour those who have originally consulted him and may, the more readily, fall in with arrangements already made prior to the filing of an application for winding up. ... (T)he appearances need to be considered."

I shall return to the authorities, but note here that the fundamental consideration upon which Aloridge relies is the appearance of identification of Mr Putnin with the interests of Mr Christianos to such an extent that Mr Putnin was prepared, at the behest of Mr Christianos, to put himself in a position of conflict of interest as administrator of both Aloridge and W.A. Gems.

1. In evidence before me, under cross-examination, Mr Putnin provided further reason to think that he was showing partiality towards the interests of Mr Christianos. For example, he was asked whether a company Goddard and Hill Limited was "another Christianos company", and replied: "I believe there are outside directors." This answer followed a series of questions about documents relating to W.A. Gems, in the course of which it had been elicited that Goddard and Hill Limited kept the books and records of W.A. Gems. The answer I have quoted can only have been intended to protect Mr Christianos from any suggestion that the integrity of the records was suspect, as being totally at his mercy. But, on that basis, it certainly appears to have been a very misleading answer. For, on being pressed: "Did you find out who the directors of Goddard and Hill were?" Mr Putnin answered: "Yes, there's another gentleman there, a Mr Jason Saleb, I believe." To further questions, he agreed that the other directors were George, Maria and Tonia Christianos. He said he did not know who the shareholders were. Thus, the persons described by Mr Putnin as "outside directors" came down to just one, Mr Saleb. But that is not the end of the matter. This evidence was adduced in the morning, and after the luncheon adjournment counsel returned to the topic, when the following evidence was given:
   

Question: "Mr Putnin, did you know that Jason Saleb, the director of Goddard and Hill is George Christianos' brother-in-law?"

Answer: "Yes, so I found out recently." Question: "When did you find that out?" Answer: "About two and a half, three weeks ago."

Regretfully, I can only conclude that Mr Putnin had allowed himself to reveal a partiality which extended, whether or not he was fully conscious of the fact, to the giving of misleading evidence.

1. In his report, Mr Putnin, almost as an aside, and not with direct reference to any issue central to the report, makes the comment that a director of Aloridge, George Loukas, "has mislead (sic) the court" in relation to a particular matter. Mr Loukas is a major party opposing Mr George Christianos in the plethora of litigation involving Aloridge and W.A. Gems. But while Mr Putnin thought it appropriate to draw a conclusion adverse to the credit of Mr Loukas about a detail of one of the disputes between him and Mr Christianos, he failed to refer to an extremely pertinent fact about a substantial asset claimed by the company of which he had been appointed administrator, W.A. Gems. An issue in part of the litigation was whether a quantity of chrysoprase (a precious stone), said to be worth $145,000, belonged to Aloridge, or whether (as W.A. Gems claimed) it had been forwarded to Aloridge upon consignment only, and remained the property of W.A. Gems. Mr Putnin had looked for documentation to confirm the stand taken by W.A. Gems in the dispute, and had been unable to find any. This was a fact plainly contrary to the interests of Mr Christianos, who was the dominant person in W.A. Gems. Mr Putnin did not put this matter in his report. When asked: "Why did you not set out in your report the fact that you had looked for and had not found any documentation one way or the other - why did you not set that out?" he replied: "I don't know."

2. A matter which had been raised on behalf of Aloridge in its application for the appointment of a provisional liquidator of W.A. Gems was an allegation that a Mr Calzada, who appeared to be a disqualified person, was involved in the management of the company. The allegation having been made, Mr Putnin dealt with it in his report. He reported that Mr Calzada had been "employed as a personal assistant to the Christianos family". He added: "It appears that Calzada had held himself out to have asked (sic - scilicet acted) in various capacities on behalf of the Company ... . I am informed that this was due to misunderstandings." He also reported: "As far as the public were concerned, it appears that Calzada may have described himself as a person managing the Company", and he annexed a copy of a newspaper article supporting that. He also annexed a self serving statement by Mr George Christianos, prepared after the event, which included the following: "Mr Calzada is not involved in any way or form in the management or control of any body corporate. His duties are always performed under my personal direction and supervision." It is noteworthy that the report, which had descended to detail in order to make a serious and gratuitous allegation against Mr Loukas, when it came to deal with an issue that was relevant to the basis on which the company had been put into provisional liquidation, said nothing of the criminal conviction, imprisonment and terms of parole grounding the complaint about Mr Calzada, but contented itself with a mixture of statements that did little more than repeat allegations already on affidavit and statements apparently exculpatory of Mr Christianos. In cross-examination, Mr Putnin agreed that he had now been informed "Mr Calzada went to prison for misappropriating solicitors' trust funds". Asked: "And do you understand that it is Mr Calzada's job to maintain the books of account of W.A. Gems, do you understand that?" he answered: "I understand, yes, Mr Calzada had put entries into the books of account." Pressed: "No, no, Mr Calzada - read the letter again - `is responsible for maintenance of books of account', do you understand that it is Mr Calzada who is responsible for the maintenance of books of account of W.A. Gems?" he conceded: "That's what it says here."

3. Mr Putnin was also asked: "Indeed, Mr Putnin, you know, do not you, that Mr Calzada's activity, at least in portraying himself as an administrator of W.A. Gems, was a matter in direct breach of his parole conditions, do not you?" He answered: "Yes, well, that will be in the report to the ASC." It was not in his report filed in this matter, nor was any conclusion drawn from the failure of Mr Christianos, as a director of W.A. Gems, to do anything about the representations made publicly by Mr Calzada. In cross-examination, Mr Putnin conceded that Mr Christianos had told him "he hadn't directed his mind to it". Mr Putnin's treatment of the allegations about Mr Calzada can only be seen as contrasting strongly with his treatment of Mr Loukas, especially as he had given Mr Christianos an opportunity to explain, which he had not done in relation to Mr Loukas.

4. In my opinion, the evidence leads to a clear conclusion that Mr Putnin has displayed at least the appearance of bias in favour of Mr Christianos, who is a party with a major interest and intimately involved in the rather tangled and much litigated affairs of W.A. Gems. In that situation, it would not be appropriate for the Court to substitute Mr Putnin for the provisional liquidator appointed under the original ex parte order.

5. The law in this area was examined by the Full Court of the Supreme Court of Victoria in Re National Safety Council of Australia, Victorian Division (1989) 7 ACLC 602. In the joint judgment of Young CJ, Murphy and Marks JJ, consideration was given to the question whether a Mr Humphris, who had been provisional liquidator of a company, should be appointed its liquidator. Their Honours said (at 607):
   

"It is true that as provisional liquidator he will have acquired useful knowledge but it is necessary to weigh the benefit of that knowledge against the possibility that a conflict of interest and duty may arise. ... Nothing here suggests that there will necessarily be such a conflict but the relationship between Ernst and Whinney (the firm to which Mr Humphris belonged) and the company at a critical time and the purpose of the retainer of Ernst and Whinney is sufficient. The liquidator should not be put in a position where his independence might be open to challenge."

Their Honours allowed an appeal against the appointment of Mr Humphris, notwithstanding that what they were dealing with was a discretionary decision in the making of which the trial judge had not been shown to have misunderstood the relevant principles. But they said (at 607-608):

"Further, his Honour appears to have given too much weight to the loss of Mr Humphris' knowledge as provisional liquidator and insufficient weight to the necessity for it to appear that there is no conflict of duty and interest arising from the relationship of Mr Humphris' firm with the company. The learned Judge seemed to attach weight to the fact that there was only a possibility that Ernst and Whinney's professional work might have been carried out unskilfully and might have caused damage. It is indeed no more than a possibility but the point is that the liquidator must necessarily be free to investigate the relationship just as he would be able to investigate any other relationship between consultants to the company and the company."

In so holding, their Honours were applying (as they made clear at 607) the statement in McPherson on Company Liquidations (3rd ed.) at 209:

"The guiding principle in the appointment by the Court of a liquidator is that he must be independent and must be seen to be independent."

1. The decision in Re National Safety Council of Australia has been applied in many cases since. Thomas J applied it in Re Club Superstores Australia Pty Limited (in liquidation) (1993) 11 ACLC 751, where (at 754-755) he made a number of citations in order to
   

"illustrate both the principle and the care with which courts act in order to ensure that (their) officers in company liquidation retain the confidence of those who may be affected by their actions."

Among these citations was the statement of Ryan J in Re Queensland Stations Pty Ltd (in liq.) (1991) 9 ACLC 1,341 at 1,344:

"There is no suggestion that the liquidator would not perform his duties with complete integrity and to the best of his ability. But a liquidator must be independent and must be seen to be independent."

Another case where the same point was made is Aboriginal and Torres Strait Island Commission v. Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liquidation) (1993) 11 ACLC 319, a decision of Asche CJ. His Honour referred (at 322) to "the appearance of partiality or conflict of duty", and (at 324) he concluded:

"In my view, therefore, there is sufficient here to justify the removal of the liquidator, not, as I stress again, for any reasons derogatory to him, but simply because there is sufficient suspicion of appearance of partiality or conflict of duty which would make it proper that another liquidator be appointed; and I do that in the knowledge that this will cause further expense, ... and that Mr Jackson has become well acquainted with the business and affairs of the company and that the process of winding up has proceeded some substantial way. But it seems to me that while those are matters I must take into consideration the overall principle cannot be denied."

I took a similar view in R.K. Newson Pty Limited (provisional liquidator appointed) (unreported, 26 March 1993). See also Re Giant Resources Ltd (1991) 9 ACLC 1,418 at 1,426.

1. Although the authorities I have been citing are recent, the principle they illustrate is not new. Well over a century ago, the position of a liquidator was stated in emphatic terms, upon which the modern cases have not improved. In In re Contract Corporation. Gooch's Case (1872) 7 Ch App 207 at 211, Sir W.M. James LJ, delivering the judgment of the Court of Appeal, said:
   

"In truth, it is of the utmost importance that the liquidator should, as the officer of the Court, maintain an even and impartial hand between all the individuals whose interests are involved in the winding-up. He should have no leaning for or against any individual whatever. It is his duty to the whole body of shareholders, and to the whole body of creditors, and to the Court, to make himself thoroughly acquainted with the affairs of the company; and to suppress nothing, and to conceal nothing, which has come to his knowledge in the course of his investigation, which is material to ascertain the exact truth in every case before the Court."

1. Applying the law, as stated in the decisions, to the facts found by me in this matter, I reached the conclusion that I should make the orders recorded above, which I did make at the hearing.