SingTel Optus Pty Ltd v Weston - [2012] NSWSC 674

Supreme Court

New South Wales

Medium Neutral Citation: SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674
Hearing dates: 5, 6, 7, 8, 22 March 2012 and 26 April 2012
Decision date: 19 June 2012
Jurisdiction: Equity Division - Corporations List
Before: Bergin CJ in Eq
Decision:
Order for removal of special purpose liquidator

Catchwords: [LIQUIDATORS] - Application to remove special purpose liquidator under s 503 of the Corporations Act 2001 (Cth)
Legislation Cited: Corporations Act 2001 (Cth)
Cases Cited: Aboriginal & Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liq) (1992) 10 ACSR 121
Adsett v Berlouis and Others (1992) 37 FCR 201; (1992) 109 ALR 100
AMP Music Box Enterprises Ltd v Hoffman and Another [2002] BCC 996
Apple Computer Australia Pty Ltd v Wiley (2003) 46 ACSR 729; [2003] NSWSC 719
Application of Weston [2011] NSWCA 250
ASIC v Rich [2009] NSWSC 1229;
(2009) 236 FLR 1
City & Suburban Pty Ltd and Others v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) and Another (1998) 28 ACSR 328
Clutha Ltd (in liq) v Millar and Others (No 5) (2003) 43 ACSR 295; [2002] NSWSC 833
Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669
Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2000) 18 ACLC 13; [1999] NSWSC 1046
Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2003) 21 ACLC 1330; [2003] NSWSC 496
Independent Cement and Lime Pty Ltd v Brick and Block Co Ltd (in liq) (recs and mgrs appted) and Others (2010) 267 ALR 613; [2010] FCA 352
In re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 Ch D 299
In re Contract Corporation (1871-72) LR 7 Ch App 207 ('Gooch's Case')
In re George A Bond & Co Ltd (1932) 32 SR (NSW) 301
In re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692
In the matter of Cobar Mines Pty Ltd (in liquidation); Hall as liquidator of Cobar Mines Pty Ltd (Unreported, Supreme Court of New South Wales, Santow J, 22 June 1998)
McGrath & Anor re HIH Insurance Ltd & Ors
[2006] NSWSC 385
McAuliffe v Lidia Perin Memorial Hospital Pty Ltd (2006) 58 ACSR 666; [2006] ACTSC 88
Multi-Core Aerators Limited v Dye and Rennie [1999] VSC 205
Northbuild Construction Pty Ltd v ACN 103 753 484 Pty Ltd (2008) 26 ACLC 893; [2008] QSC 182
Onefone Australia Pty Ltd v One.Tel Ltd (2003) 48 ACSR 562; [2003] NSWSC 1228
Onefone Australia Pty Ltd and Another v One.Tel Ltd (in liq) and Others (2006) 57 ACSR 279; [2006] NSWSC 349
Onefone Australia Pty Ltd and Others v One.Tel Ltd (in liq) and Others (2006) 58 ACSR 466; [2006] NSWSC 815
Onefone Australia Pty Ltd v One.Tel Ltd (in liq) and Others (2006) 61 ACSR 236; [2006] NSWSC 1434
Onefone Australia Pty Ltd & Ors v One.Tel Limited (In Liquidation) & Ors [2006] NSWSC 1447
Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2008) 69 ACSR 290; [2008] NSWSC 1335
Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 822
Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 865
Onefone Australia Pty Limited and Others v One.Tel Ltd (in liq) and Others; Re Appln Weston (2009) 74 ACSR 716; [2009] NSWSC 1231
Onefone Australia Pty Ltd and Others v One.Tel Limited and Others (2010) 78 ACSR 98; [2010] NSWSC 401
Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120
Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399
Re Edennote Ltd; Tottenham Hostpur plc and others v Ryman and another [1996] 2 BCLC 389
Re Giant Resources Ltd [1991] 1 Qd R 107
Re Keypak Homecare Ltd [1987] BCLC 409; (1987) 3 BCC 558
Re Obie Pty Ltd (in liq) (No 3) (1984) 8 ACLR 774
Re Walker and Another (in their capacity as joint liquidators of One.Tel Ltd) (2009) 262 ALR 150; [2009] NSWSC 1172
Tracker Software International Inc v Smith (1997) 24 ACSR 644
Weston (in his capacity as special purpose liquidator of One.Tel (in liq) and Another v Publishing and Broadcasting Ltd (now known as Consolidated Media Holdings Ltd) and Others (2011) 83 ACSR 206; [2011] NSWSC 433
Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79
Texts Cited: BH McPherson and J O'Donovan (ed), McPherson's Law of Company Liquidation (Thomson LawBook Co., 3rd ed, 1987)
Category: Principal judgment
Parties: SingTel Optus Pty Limited (1st Plaintiff)
Optus Networks Pty Limited (2nd Plaintiff)
Optus Mobile Pty Limited (3rd Plaintiff)
Optus Vision Pty Limited (4th Plaintiff)
Optus Insurance Services Pty Limited (5th Plaintiff)
Paul Gerard Weston (Defendant)
Representation: JC Sheahan SC/ RCA Higgins (Plaintiffs)
N Cotman SC/R Glasson (Defendant)
Baker & McKenzie (Plaintiffs)
O'Neill Partners (Defendant)

File Number(s): 2010/71799

Judgment

SingTel Optus Pty Limited, the first plaintiff, Optus Networks Pty Limited, the second plaintiff, Optus Mobile Pty Limited, the third plaintiff, Optus Vision Pty Limited, the fourth plaintiff, and Optus Insurance Services Pty Limited, the fifth plaintiff, (collectively "Optus") are members of a single corporate group. The first plaintiff is the parent company of each of the second to fifth plaintiffs. The second to fifth plaintiffs are creditors of One.Tel Limited (in liquidation) (One.Tel) and have been admitted to proof in its liquidation.

On 23 December 2003 the defendant, Paul Gerard Weston, was appointed as the special purpose liquidator (SPL) of One.Tel by order of this Court. The purpose of the appointment as ordered was for the defendant to consider and make recommendations to creditors as to whether any causes of action existed, and whether any action should be commenced against any person, in relation to the cancellation of a renounceable rights issue on 29 May 2001 (the RRI), which had been announced by One.Tel to the market on 17 May 2001.

By the Further Amended Originating Process filed in Court on 13 February 2012, the plaintiffs seek an order pursuant to s 503 of the Corporations Act 2001 (Cth) (the Act), that the defendant be removed as SPL of One.Tel, and that Stephen James Parbery, official liquidator, be appointed in his place. The plaintiffs also seek an order "further and in the alternative" pursuant to s 536 of the Act that an inquiry be held into the defendant's conduct.

The proceedings were commenced on 22 March 2010. There were numerous interlocutory applications until 21 September 2011 when the matter was listed for hearing for 5 days commencing on 5 March 2012. The proceedings were in fact heard on 5, 6, 7, 8 and 22 March 2012, and 26 April 2012. Mr JC Sheahan SC leading Ms RCA Higgins, of counsel, appeared for the plaintiffs. Mr N Cotman SC, leading Mr R Glasson, of counsel, appeared for the defendant.

GENERAL BACKGROUND

Much of the general background is not in dispute and it is convenient to outline some of those matters at this stage. It will be necessary to deal later with more specific matters upon which the plaintiffs rely in support of their application for the defendant's removal.

One.Tel Liquidation

One.Tel was established in 1995, following the deregulation of the Australian telecommunications industry. It carried on business providing retail consumers with fixed long distance telephone services, mobile telephone services and internet services. In November 1997, it was listed on the Australian Stock Exchange.

On 17 May 2001, the Board of One.Tel resolved to offer to its shareholders the RRI on a one for one basis at a subscription price of 5 cents per share in order to raise $132 million. The RRI was to be underwritten by entities associated with Publishing and Broadcasting Limited (PBL) and News Limited (News).

On 29 May 2001, the Board of One.Tel resolved not to proceed with the RRI. On the same date, the Board of One.Tel resolved that Steven Sherman and Peter Walker of Ferrier Hodgson be appointed as voluntary administrators in accordance with Pt 5.3A of the Act.

On 24 July 2001, at a meeting convened in accordance with s 439A of the Act, the creditors resolved that One.Tel be wound up and that Messrs Sherman and Walker be appointed as Liquidators (the GPLs). One.Tel accordingly proceeded into a creditors' voluntary liquidation. On the same day a Committee of Inspection of One.Tel (the COI) was constituted.

Appointment of the SPL

After One.Tel went into liquidation, it emerged that a substantial cause of action might exist against a number of parties in relation to the cancellation of the RRI. A small group of One.Tel creditors approached the Court seeking the appointment of a special purpose liquidator to investigate and, if appropriate, prosecute any cause of action relating to the cancellation of the RRI.

On 23 December 2003, the defendant was appointed as SPL of One.Tel by order of the Court: Onefone Australia Pty Ltd v One.Tel Ltd (2003) 48 ACSR 562; [2003] NSWSC 1228. The appointment was made "because of a well-grounded apprehension" that the GPLs were not, or might not be, in a position "to exercise fully dispassionate decision-making in respect of a particular matter that had arisen in the winding up": Onefone Australia Pty Ltd and Others v One.Tel Ltd (in liq) and Others (2006) 58 ACSR 466; [2006] NSWSC 815 at [13].

The orders made by Windeyer J included the following:

1. Order that Paul Weston be appointed a Special Purpose Liquidator of One.Tel Ltd (In Liquidation) (the "Company") for the purposes set out in order 2.

2. On the assumption that the Company became insolvent as a result of the cancellation of the Renounceable Rights Issue, the Special Purpose Liquidator consider and make recommendations to the creditors as to whether:

(a) any rights of action exist in respect of which there is a limitation period for the commencement of any such action of less than six years; and if received,

(b) any action should be commenced against any person in relation to any such rights of action referred to in (a) above; and

(c) the Special Purpose Liquidator should apply to extend the limitation period of any such action.

From time to time since his appointment on 23 December 2003, the purposes of the defendant's appointment and/or his powers have been varied by Orders of the Court.

Between 2003 and 2006 the assumption that was built into the orders was that One.Tel became insolvent as a result of the cancellation of the RRI (the Assumption). That Assumption would have saved the creditors the costs of having the defendant investigate the solvency of One.Tel at the time of the RRI. There was a presumption that the question of One.Tel's solvency would be made clear in the civil penalty proceedings brought by the Australian Securities and Investments Commission (ASIC) against Mr Rich, a director of One.Tel (ASIC v Rich) referred to below. The question of solvency was significant because if at 29 May 2001, when the RRI was cancelled, One.Tel was insolvent and would have remained so even with a capital injection of $132 million, the rights issue could not have proceeded and there would be no claim against the directors of One.Tel arising from the cancellation.

There were delays in the ASIC v Rich proceedings and the defendant made an application to the Court to vary the terms of his original appointment. That variation was to remove the requirement that he make the Assumption and that he be authorised to review the materials prepared or obtained in the ASIC v Rich proceedings with a view to deciding whether any right of action existed in relation to the cancellation. That application was granted: Onefone Australia Pty Ltd and Another v One.Tel Ltd (in liq) and Others (2006) 57 ACSR 279; [2006] NSWSC 349. The Assumption was removed and the defendant was authorised to perform work including liaising with the parties to the ASIC v Rich proceedings and their legal advisers and obtaining access to transcripts, documents, affidavits and written submissions in those proceedings. The defendant was also authorised to make any such application, as he thought necessary, to the trial judge in those proceedings for access to such documents. The Orders also authorised the defendant to review the documents and carry out all work incidental thereto to determining whether he was then in a position, inter alia, to express a concluded view and make appropriate recommendations to the creditors of One.Tel as to whether any rights of action existed surrounding the cancellation of the RRI. Those orders included that the defendant was "justified" in reporting to, and making recommendations to, the members of the COI and, if appropriate, the creditors of One.Tel, in relation to the work referred to above. This would appear to be the first time that there was reference to the COI in the orders of appointment.

In late 2006 the COI "assumed a consultative role in relation to the legal expenses" of the defendant. The Court indicated that it expected that the COI would be consulted in relation to any application that the defendant may seek to bring to establish a new regime for the funding of his expenses: Onefone Australia Pty Ltd v One.Tel Ltd (in liq) and Others (2006) 61 ACSR 236; [2006] NSWSC 1434. In December 2006 the Court ordered that the GPLs would be justified in paying the defendant from the assets of One.Tel such amounts as the defendant certified:

(a) are legal costs and disbursements properly incurred and payable by him in performing the functions required to be performed by him as special purpose liquidator, in conformity with orders of the Court; and

(b) has been approved for payment or not objected to by the majority of the Committee of Inspection, after the provision to all members of the Committee of the bills of costs or memoranda of fees for which payment is sought (not including disclosure of information to which client legal privilege or legal professional privilege attaches), and such other information as the Committee required.

Onefone Australia Pty Ltd & Ors v One.Tel Limited (In Liquidation) & Ors [2006] NSWSC 1447 at [17].

After ex parte orders were made on 22 October 2008 the "purpose of the SPL's appointment" was described in the following terms by Barrett J in Onefone Australia Pty Ltd and Others v One Tel Ltd and Others (2008) 69 ACSR 290; [2008] NSWSC 1335 at [9] as being to:

(i) consider and make recommendations to the creditors of One.Tel as to whether:

(a) any rights of action exist in relation to the cancellation of the RRI;

(b) any rights of action exist in relation to the decision to appoint voluntary administrators to One.Tel on 29 May 2001.

(c) any action should be commenced against any persons in relation to any such rights of action referred to in sub-paragraphs (a) and (b) above;

and

(ii) in the event that the SPL recommends to the COI that an action within Order 3(i)(c) above be commenced and the COI, by majority, accepts or does not oppose that recommendation, to commence any such proceedings in the name and on behalf of One.Tel in the manner in which the SPL thinks fit.

(iii) perform such work as the SPL considers necessary to advise the COI concerning such proceedings on or before 28 September 2007 or any adjourned date of the meeting of the COI of 28 September 2007, notwithstanding the filing of proceedings by the SPL on 25 May 2007 in relation to the cancellation of the RRI;

(iv) perform such work as the SPL considers necessary to

make final recommendations to the COI in accordance with these orders, including but not limited to the following:

(a) to apply for a 6 month extension of time from 25 November 2007 to 25 May 2008, or such other extension as the SPL considers necessary, for service of the Statement of Claim in the Proceedings.

(b) to amend the Statement of Claim in the proceedings as the SPL considers necessary including by way of application to the Court for leave if required;

(c) to take all necessary steps to obtain funding to prosecute the Proceedings;

(d) to take all necessary steps to continue with the restored public examinations of Messrs Darren Miller and Martin Green;

(e) to make application to a Corporations Judge for the issue of further examination orders to such persons as the SPL considers necessary;

(f) to instruct his lawyers to prepare an advice on evidence regarding the Proceedings;

(g) to apply for a further 6 month extension of time from 25 May 2008 to 25 November 2008, or such other extension as the SPL considers necessary, for service of the Statement of Claim in the Proceedings.

(h) to participate in negotiations to settle the Proceedings; and

(j) to apply for a further 6 month extension of time from 25 November 2008 to 25 May 2009, or such other extension as the SPL considers necessary for service of the Statement of Claim in the Proceedings.

These orders were subsequently further amended to include the purpose and/or power to apply for further extensions of time within which to serve the Statement of Claim.

The appointment of the defendant by the Court did not change the nature of the winding up. It remained "a creditors voluntary winding up, albeit one in which one of the liquidators has been appointed by a process different from that which caused the other liquidators to be in office": Onefone Australia Pty Ltd v One.Tel Ltd (2008) 69 ACSR 290 at 297; [2008] NSWSC 1335 at [26].

The Committee of Inspection (COI)

Part 5.6, Division 5 of the Act governs the appointment of a committee of inspection, vacancies in office and the proceedings of a committee of inspection. Relevantly, the Act confers powers and functions upon the committee in a creditors' voluntary winding up, including in respect of fixing a liquidator's remuneration: s 499(3).

The current members of the One.Tel Committee of Inspection (COI) are Barbara Galloon, Ben Sharma, John Deloughery and Kevin Beck. There have been appointments to and resignations from the COI over the years. Alex Roth was appointed to the COI in August 2007 and resigned on or about 10 November 2009. On 10 November 2009, Ben Sharma and Sue Laver were appointed to the COI. Sue Laver resigned on 11 March 2010. Kevin Beck was appointed to the COI on 26 August 2010. Mr Phillips' office became vacant on or about 14 November 2011. Stuart Salier, general counsel for Optus, was invited to sit on the COI as an observer.

ASIC v Rich

After the collapse of One.Tel the ASIC v Rich proceedings were instituted. Notwithstanding the promptitude with which ASIC commenced the proceedings on 12 December 2001, for various reasons upon which it is not necessary to dwell, the substantive matters were not concluded for eight years. Judgment was delivered in November 2009 dismissing ASIC's claim against Mr Rich: ASIC v Rich [2009] NSWSC 1229; 236 FLR 1.

The RRI proceedings

The RRI proceedings were commenced on 25 May 2007 when the defendant filed a Statement of Claim in this Court. There were amendments to that Statement of Claim and the final pleading was a Further Amended Statement of Claim (the pleading). The defendant sought and was granted six extensions of time within which to serve the pleading on the defendants (the RRI defendants). It was served on 23 August 2010.

The RRI defendants included PBL, News, associated companies and individuals. The pleading has been described as containing "very serious" claims including that:

PBL and News, on and from 25 May 2001, determined to undertake such steps as might be necessary to procure One.Tel to release them from an agreement which included the terms of the RRI and a commitment by PBL and News to subscribe for their full entitlement in the share offer and to underwrite any shortfall in subscriptions (par 85);

PBL and News, on and from 25 May 2001, determined to undertake a course of conduct designed to convince the directors, officers and advisers of One.Tel that PBL and News had not been fully informed or had been misled when they determined that a capital raising of $132 million was sufficient to keep One.Tel solvent (par 86(ii));

PBL and News withheld information from the board and independent directors of One.Tel that might have suggested that One.Tel had practical prospects available to it, as an alternative to insolvent administration (par 86(xv));

PBL and News asserted to the directors and advisors of One.Tel that the underwriting and subscription agreements to which PBL and News were parties were conditional on satisfactory due diligence when, to their knowledge, they were not (par 86(xxiii));

pursuant to the determination between PBL and News, PBL represented to the solicitors and auditors of One.Tel that the future cash requirements of One.Tel could be assessed by reference to past expenditure when, to their knowledge, the circumstances of the business had materially changed (par 95); and

PBL and Mr Packer "feigned" an interest in securing capital from a third party to maintain One.Tel's solvency, when PBL well knew that the third party would require time to consider and obtain approvals for any such investment (pars 96, 97).

Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79 at [23].

The RRI defendants successfully challenged the last two extensions of time for service of the pleading and the RRI proceedings were dismissed on 13 May 2011: Weston (in his capacity as special purpose liquidator of One.Tel (in liq) and Another v Publishing and Broadcasting Ltd (now known as Consolidated Media Holdings) and Others (2011) 83 ACSR 206; [2011] NSWSC 433. The defendant's appeal in respect of that dismissal was dismissed on 12 April 2012: Weston in his capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79.

At the trial it was common ground that I should assume that there will be further costs incurred in the special purpose liquidation in relation to the RRI proceedings, in particular, in considering whether leave should be sought to amend the pleadings and to pursue the RRI defendants for equitable remedies.

After judgment in this matter was reserved, the defendant (with the plaintiffs' consent) notified the Court on 7 June 2012 that: (a) on 10 May 2012 the defendant filed an application for special leave to appeal to the High Court of Australia from the NSW Court of Appeal judgment dismissing the appeal from the dismissal of the RRI proceedings; and on 6 June 2012 One.Tel Limited (in liquidation) filed fresh proceedings in this Court "against the PBL and News defendants based on equitable causes of action" (the RRI equitable claims).

SPECIFIC BACKGROUND

Having regard to the fact that the defendant chose not to give evidence in these proceedings and relied upon the documentary material in evidence as a chronicle of his administration, it is appropriate to refer to many of the documents in more detail than would have otherwise been necessary.

It appears that in the early years after the defendant was appointed, his relationship with the COI and the defendant was reasonably harmonious. However things became more complex over the years. The COI members complained that, amongst other things, they were not kept "fully informed". By late 2007 members of the COI claimed that they had "lost confidence" in the defendant and his lawyers "and their ability to handle" the "very complex matter" of the RRI proceedings. The members of the COI expressed concern about "constant delays, excessive fees" and "lack of accountability".

One matter that was causing frustration not only to the COI but also to the defendant was the delay in obtaining funding for the litigation. The defendant had decided not to serve the pleading on the RRI defendants until he had funding in place to conduct the RRI proceedings together with insurance cover to protect him against any adverse costs orders. The frustration in respect of delay in obtaining the funding and the insurance, and the consequent delay in service of the pleading, was exacerbated by the different approaches between the defendant and the COI as to whether (and when) settlement negotiations should occur. The COI was keen for settlement negotiations to occur as soon as possible. The defendant was reticent to commence settlement negotiations until he had funding and insurance in place.

Late 2007

At a meeting of the COI on 2 October 2007 the COI requested that the defendant provide an estimate of future costs including the provision of a budget for preparing an advice on evidence in respect of the RRI proceedings. The COI also requested that the defendant obtain further expressions of interest or proposals from litigation funders by 18 October 2007.

The defendant produced a "Remuneration Budget" dated 19 October 2007 in which he provided "an estimate of the likely fees" to be incurred by him and his staff in "supervising and providing the necessary assistance to the lawyers acting" on his behalf in the RRI proceedings. In summary, the defendant estimated the lower range of $2.275 million increasing to a maximum amount of $4.8 million. However he expressed the view that it was "unlikely" that the higher range of $4.8 million would be incurred. That document referred to liaising with litigation funders but made no mention of any steps relating to proposals to settle the proceedings.

On 25 October 2007 Mr Rich approached the defendant's solicitor, Mr O'Neill, and suggested there was a "window of opportunity" to settle the RRI proceedings before Christmas 2007. It is apparent that Mr Rich offered to act as an intermediary in any settlement discussions. On 1 November 2007, Mr Lindholm, a principal of one of the prospective litigation funders, Phoenix Capital Partners Pty Ltd, approached Mr O'Neill with a proposal that he, Mr Lindholm, act as an intermediary.

A further meeting of the COI was held on 21 November 2007, the agenda of which included "settlement discussions". At this meeting the COI requested that by 12 December 2007 the defendant provide the advice on evidence, any amendments to the pleading and firm offers from litigation funders. On 29 November 2007 the defendant advised the COI that the advice on evidence could not be completed in that timeframe but that the amendments to the pleading would be completed by 12 December 2007. The defendant also advised of the recent communications with a number of prospective funders. A further meeting of the COI was to occur on 14 December 2007.

On 7 December 2007 the defendant's lawyers wrote to Mr Rich and Mr Lindholm declining their invitations to act as intermediaries to settle the proceedings and advising that he would personally conduct any settlement discussions.

On 12 December 2007 Ms Galloon, who was employed by Optus Administration Pty Ltd, wrote to Paul O'Sullivan, the Chief Executive Officer of Optus, referring to Mr Salier's discussion with him the previous week "re proposing a person to potentially negotiate a settlement" with PBL in the new year. That communication included the following:

Without any prior discussions with the committee members, Paul Weston, the SPL, contacted PBL today to organise a meeting with them early next week to discuss a potential settlement and has requested that a committee member attend with him as an observer. He has requested that I attend with him as the committee representative.

I have spoken to Stuart and he supports my attendance and thinks that if any committee member does attend it should be me firstly because of the size of Optus's debt and secondly because the other committee members have been quite emotional and recently a little irrational about what has been transpiring with the pending proceedings. Given Optus's relationship with PBL, I wanted to know whether you had any issues with me attending the meeting next week in representing the committee?

It is apparent that the defendant telephoned executives of PBL and was informed that there was no imperative to settle the RRI proceedings before Christmas.

The COI meeting of 14 December 2007 included on its agenda the item "Settlement proposal". It is apparent that at this meeting there was discussion about a possible "window of opportunity" of settlement of the RRI proceedings prior to Christmas. At this meeting the COI were apparently informed of the approaches by Messrs Rich and Lindholm in relation to settlement of the RRI proceedings. It is also apparent that at this meeting the COI directed the defendant to retain Mr Lindholm to pursue settlement discussions.

In a letter to the COI dated 18 December 2007 the defendant advised that following the meeting on 14 December 2007, he had met with his legal team in relation to matters including the "direction" given to him by the COI at the meeting "concerning the nature and proposed terms of a retainer of Mr Lindholm to conduct settlement discussions". The defendant advised that, "having regard to legal advice" that he had received he was convening an urgent meeting of the COI on 21 December 2007 and urged all members of the COI to attend. That letter included the following:

The Rich/Lindholm involvement

On 25 October 2007, Mr Rich met with Michael O'Neill, as all COI members are aware, advising of the opportunity to settle the litigation before service, emphasising the opportunity to settle may only exist prior to Christmas. A week or so later, Mr Lindholm made a similar approach to Mr O'Neill, followed shortly thereafter by Mr Phillips, a COI member, also urging settlement discussions to take place.

I know that I informed all Committee members present at last Friday's meeting that I have spoken over the telephone with, firstly, Mr Ashok Jacob of Consolidated Press Holdings and, subsequently, Mr Guy Jalland, legal counsel for PBL (now called CMH), both senior executives of those companies. My discussions with those persons indicate to me that PBL was approached by an "honest broker" regarding a potential settlement, rather than the other way round. Further, I was told that there was no urgency on the part of PBL to engage in settlement discussions prior to the Christmas break.

The events of recent months have led to much discussion at COI level as to how to expedite the future work to be performed so as to best be in a position to conduct settlement discussions.

...

Timing of settlement discussions

At the outset, I note my view has always been that it is in the best interests of creditors that the litigation be resolved by way of an early settlement. Having said that, the issue was all about timing. When is the best time to approach PBL to discuss settlement?

At Monday's meeting with my legal team, I was reminded by my Counsel that it is likely I will only "get one shot at it". Counsel's comments are consistent with those of COI members at recent COI meetings. It is simply not the case that I can keep coming back to PBL suggesting settlement.

It is the firm view of Counsel that the best time to approach PBL for settlement is when PBL is "at risk", and not before. PBL will only be "at risk" after conduct of the Miller and Green further examinations and when I am in a position to tell PBL that I am ready to serve the Statement of Claim, that funding is in place and that the litigation has the full support of the COI.

...

The proposed retainer of Mr Lindholm

I have discussed the COI's preferred course of retaining Mr Lindholm at length with my legal advisers, and my concerns about entering into such an arrangement with Mr Lindholm.

Firstly, I am advised that I do not presently have the power to enter into an arrangement as proposed by the COI at last Friday's meeting, meaning that I would need to make an application to the Corporations Judge to extend my powers before I am in a position to enter into such an agreement. This application would need to be made in the first week of the 2008 Court year, namely, in the week commencing 29 January 2008.

Further, this application would need to be supported by an affidavit sworn by me disclosing all relevant facts and circumstances, including:

Mr Lindholm has executed a confidentiality agreement as a prospective funder, and thereafter been provided with a large amount of confidential material including a series of legal opinions of Counsel;

I strongly suspect Mr Lindholm has thereafter, without notice to me, improperly and in my view in breach of his confidentiality agreements, approached PBL to propose settlement and offered to act as my intermediary;

Mr Lindholm is in discussion with Mr Rich, who has put forward Mr Lindholm as the proposed negotiator of the settlement with PBL;

Mr Lindholm has made it clear to Mr O'Neill that, whilst he remains an interested funder, he does not presently have in place the necessary funds (ie. any funding agreement to be signed by Mr Lindholm is "subject to finance");

Mr Lindholm's draft funding agreement contains a clause entitling him to terminate the funding agreement at his election - Mr Lindholm has indicated he will so elect to terminate if the matter is not settled prior to service of the Statement of Claim;

Mr Lindholm intends to approach PBL on the basis that he is the "funder" of the litigation, when he is not;

The proposed retainer of Mr Lindholm will involve me authorising Mr Lindholm to represent to PBL that he is funding the litigation, when he is not;

As an officer of the Supreme Court of New South Wales, I am being asked to authorise Mr Lindholm to conduct settlement negotiations on my behalf and to misrepresent to PBL that he is funding the litigation;

The terms of Mr Lindholm's retainer are uncommercial - he is to be offered a significant percentage of any settlement fees for performing a relatively small amount of work, without contributing any funding and totally without risk, in circumstances where I am personally able to conduct such negotiations at my usual charge out rate and in circumstances where I have recommended to the COI that I personally conduct any settlement negotiations with PBL;

I am concerned that Mr Lindholm is, at the same time, seeking to act on behalf of Mr Rich (in respect of his claim against PBL and others) and he may seek a fee from PBL itself, a possibility raised by Mr Lindholm to Mr O'Neill at their last meeting;

My view, and those of my legal advisers, is that any settlement approach to PBL is best made when PBL is "at risk", and that PBL is simply not "at risk" in early February 2008;

For all the reasons outlined above, I do not recommend to the creditors of One.Tel that I proceed down the path suggested by the COI.

There was then reference to the COI's refusal to approve the defendant's fees and those of his lawyers for work performed in November 2007. It included the expression of the defendant's opinion that the refusal was not on a "proper or reasonable basis". It also included a request to the COI to reconsider approving the fees and expenses and the indication that failing such approval, the defendant would have to approach the Court for appropriate orders. The letter included reference to the "practical consequences" of the "current impasse", including instructing counsel to perform no further work until the fee position was clarified and the possible "disastrous" consequence for "potential settlement discussions" if the examinations under the Act of Messrs Miller and Green (officers of One.Tel) were unable to proceed. The defendant noted that it would also be "disastrous" if there were a need to make a further application to extend the time within which to serve the pleading beyond 25 May 2008. It concluded as follows:

Confidentiality Issues

All members of the COI are requested to treat this communication in the strictest confidence, as it is clearly "Confidential Information", as defined in the Confidentiality Undertakings signed by all COI members.

I am concerned to ensure that the PBL interests or any other defendant do not learn of the issues the subject of this letter. Should PBL learn of the fact that there is tension existing between the SPL and the COI, of the nature described in this letter, PBL will undoubtedly use this to their advantage.

I am equally concerned to ensure the contents of this privileged communication are not communicated to Mr Rich or his advisers including Mr Star or Star Corporate nor to Mr Lindholm.

January to July 2008

The defendant met with Mr Lindholm on 17 January 2008. It is apparent that the defendant formed the view during that meeting that the substance of his letter of 18 December 2007 to the COI concerning Mr Lindholm had been disclosed to him Mr Lindholm. It is also apparent that during the course of that meeting Mr Lindholm advised the defendant that the COI was "leaking like a sieve".

In March 2008 Mr Lindholm contacted Alex Roth of the COI and requested a meeting as he was concerned that matters that he had previously put to the defendant were not being communicated to the COI. The members of the COI agreed to meet with Mr Lindholm to be held "strictly on the basis" that Mr Lindholm did not expect to receive any information from any member of the COI about any aspect of the special purpose liquidation.

On 13 March 2008 a meeting was held between Mr Lindholm and the COI. On the same day Mr Lindholm's solicitors, Piper Alderman, emailed a proposal for settlement to the members of the COI. That proposal included a payment of $14.25 million to One.Tel subject to the entry into a Deed of Company Arrangement with various releases. The COI then met with Mr Bruce Hambrett, a partner of the law firm of Baker & McKenzie, to discuss the proposal that had been forwarded by Mr Lindholm.

It is apparent that Mr Lindholm wanted some form of documentation that he could provide to the RRI defendants in any meetings in relation to possible settlement of the RRI proceedings. A draft document was negotiated by Baker & McKenzie and Mr Lindholm's solicitor in the form of a letter from Baker & McKenzie to Mr Lindholm. Mr Lindholm's solicitor was concerned to impose a restriction on the COI members from reporting the arrangements to the defendant or his solicitor without notice to Mr Lindholm, through his solicitors.

On 24 April 2008 Mr Hambrett wrote to Mr Lindholm advising that Baker & McKenzie acted for the COI and that they had been consulted in relation to the RRI proceedings. It was noted that the RRI proceedings had been commenced but not served and that the defendant had until 25 May 2008 to serve the RRI defendants unless the deadline for that service was extended. The letter also referred to s 479(1) of the Act pursuant to which the COI could give directions to a liquidator including in relation to settlement. That letter continued:

Against the above background, we are instructed to confirm the following:-

(a) The Committee of Inspection supports your seeking to elicit an offer of settlement from the defendants in the Proceedings on the basis that any discussions giving rise to an offer occur before 15 May 2008.

(b) If an offer acceptable to the Committee of Inspection is received, the Committee of Inspection will recommend that to the Special Purpose Liquidator and invite him to seek directions to the effect that he would be justified in accepting that offer.

(c) If the Special Purpose Liquidator refuses to follow the direction from the Committee of Inspection to settle the proceedings then, as presently instructed, we understand that the Committee of Inspection will request the Special Purpose Liquidator to seek appropriate directions failing which the Committee of Inspection members themselves would bring an appropriate application.

(d) The discussions between you and the defendants are to be kept confidential and are not to be disclosed to the SPL without the Committee of Inspection first giving you, through your solicitors, 48 hours prior notice.

At the COI meeting on 5 May 2008 the defendant reported that there were a number of parties with whom he was having discussions in respect of litigation funding. In that regard it was noted that Mr Lindholm was "still interested". It is not in issue that at this meeting there was no disclosure to the defendant that the COI, through its solicitors Baker & McKenzie, had supported Mr Lindholm seeking to elicit an offer of settlement from at least one or some of the defendants in the RRI proceedings.

In a letter to the COI of 9 May 2008 the defendant confirmed the following:

At the meeting of 5 May 2008, I reported to COI members as to the current status of my negotiations with the potential local and overseas litigation funders. I advised that there were a number of interested funders and the prospects of obtaining funding were good. I advised that it was possible, but unlikely, that I would have a firm proposal of funding, capable of acceptance, prior to the expiry date of the time to serve the statement of claim (25 May 2008) and therefore it would be necessary to make a court application to extend the time for service.

Following discussion of the proposed extension application, it was the unanimous view of the COI that, contrary to my stated position, I should forthwith proceed to serve the statement of claim, without agreement having been reached with the litigation funder to fund the proceedings or other adequate sources of funding having been secured. COI members were of the view that I should proceed to serve the statement of claim on the Packer and Murdoch interests, together with Freehills and the independent directors, all of whom were found by counsel to have reasonable prospects on various causes of action (despite commercial and strategic reasons for not proceeding against the latter two groups of defendants). John Deloughery was of the view that the independent directors should not be served as they are "men of straw".

During the course of discussion, COI members noted that there were unallocated funds held by the general purpose liquidators ("GPL's"), and available to fund the first stage of the litigation and that in these circumstances I should serve the statement of claim, monitor the costs and my exposure to any adverse costs order, whilst I continue with my negotiations with the litigation funders. In the event that I fail to secure litigation funding, I would discontinue the proceedings and use the remaining unallocated GPL funds to pay the adverse costs orders (of at least four law firms) as well as my own fees and costs.

The defendant then set out his position as to the service of the pleading and advised that he could not be certain as to the delay in obtaining funding. He also advised that the "Packer and Murdoch interests" were closely monitoring his administration and would quickly learn of the fact that he did not have litigation funding. He suggested that they would inevitably seek security for costs. He expressed concern that he was a plaintiff in his "personal capacity" and that he had legal advice of strong prospects of obtaining an order extending the time for service. He also suggested that if he were to accede to the course suggested by the COI he would begin to incur very significant legal costs and expenses in circumstances "where the COI had withheld approval of significant amounts" of remuneration and legal expenses for reasons that he considered "unsatisfactory". He advised that in those circumstances he was not prepared to take the course of serving the pleading suggested by the COI.

On 13 May 2008 Mr Hambrett wrote to Mr Lindholm's solicitor advising that he had been instructed to give the 48 hours notice referred to in his letter of 24 April 2008. That communication included the following:

The COI has not yet decided what it will do, but would like to be free to have a frank discussion with the SPL in the near future, should the need arise, hence the reason for the notice.

On 30 May 2008 Ms Galloon on behalf of the COI wrote to the defendant to "raise an issue" for the defendant's attention in advance of the COI meeting planned for 4 June 2008. Ms Galloon confirmed that the COI had been "enormously concerned by the ever-increasing amount of fees incurred in the special purpose liquidation". It was suggested that, to resolve the "impasse" over the outstanding fees and to attempt to save the cost of an application to the Court, the invoices and associated materials for March and April 2008 be provided to Mr Hambrett and that his firm would conduct a review and advise the COI if the amounts of the invoices were reasonable. It was also proposed that if Baker & McKenzie advised that the invoices were reasonable the COI would approve payment of those invoices forthwith. However if Baker & McKenzie did not regard the invoices as reasonable they would give their reasons to the COI, the defendant and his advisers and the parties would agree to have further "good faith discussions" to try to resolve the issue before any application to the Court was made.

On 2 June 2008 the defendant responded to the proposal for the review with a number of concerns and suggesting that there needed to be an understanding as to the parameters of any review to be undertaken by Mr Hambrett.

At the COI meeting on 4 June 2008, 50% of the defendant's fees and expenses, including legal expenses, for March and April 2008 were approved on the basis that the defendant would use his "best endeavours" not to exceed a monthly budget of $50,000 for his fees and expenses for the months of June and July 2008. It was also agreed that Mr Hambrett would conduct a "high-level review" of the defendant's March and April 2008 fees and expenses. The defendant advised the COI that he and his solicitor, Mr O'Neill, were prepared to meet with Mr Hambrett to give him a background briefing to assist his review although the COI members did not think that would be necessary. The defendant advised the COI that he had serious reservations about being able to stay within the budget of $50,000 per month but would endeavour to do so.

In confirming these arrangements that were reached at the meeting on 4 June 2008 the defendant noted in a letter to the Committee on 6 June 2008:

I also bear in mind the very significant funds which have already been expended in my administration and I will use my best endeavours to obtain litigation funding on the best terms available and in the most cost effective way, bearing in mind my overriding duty to all creditors and the Court pursuant to my appointment. If this requires me to go beyond the suggested budget, I will do so. I am happy to inform Committee members if the $50,000 mark for each of June and July is to be exceeded.

I note that the Committee wishes me to set a deadline of 25 June for interested funders to provide term sheets and for me to report to the Committee on 25 July. I will also use my best endeavours to meet this timetable, applying my discretion as I see fit if I consider a funder to be a good prospect but requiring further time for good reason.

On 25 June 2008 Mr Lindholm wrote to Mr Salier in terms that included the following:

Given the recent meetings between PBL and the SPL, PBL withdrew their original offer. I now have them back on track and they are still prepared to contribute $15M with releases from ALL other defendant parties including J Rich.

News feel the most aggrieved of the parties but are willing to contribute $2M with the same releases as PBL. They were initially unwilling to contribute anything so I have made some headway in procuring an offer from them.

J Rich originally wanted $5M out of the above to give his release. I have been able to negotiate this figure down to $2M.

After my facilitation fee of 5% or $850,000 on $17M and the Rich fee this leaves $14.15m for distribution to creditors.

I am advised by the parties that this offer is valid until next Friday 7 July and that they have expressed the view that all bets are off thereafter with regard to any subsequent approach, ie - they are calling the committee and SPL's bluff.

On 27 June 2008 Mr Hambrett and Mr Salier met with the defendant and Mr O'Neill. The defendant was advised of the "settlement offer". Mr Hambrett suggested that Mr Lindholm had set about to "divide and conquer" the COI and the defendant. Mr O'Neill suggested that Mr Lindholm was a commission agent of Mr Rich and that he could not be trusted to act as an intermediary for the defendant representing creditors. Mr Hambrett suggested that the offer was insufficient and that the creditors would not agree with Mr Rich getting $2 million out of the funds. Mr O'Neill and the defendant advised that they had "no knowledge at all" of the dealings with Mr Lindholm and expressed their "grave concern" in relation to the developments. Mr Hambrett gave the defendant a letter from the COI to him dated 27 June 2008 that was in the following terms:

The Committee of Inspection needs to raise several issues with you for your attention.

The COI has received an offer from two of the prospective defendants (PBL and News) to settle the proceedings which are filed with the Supreme Court, but not yet served. The details of the offer will be outlined in a meeting that Messrs Hambrett and Salier have with you and your legal advisers today, but they include a term that the offer will lapse on 7 July 2008.

The offer was received via a third party, Mr Paul Lindholm. Mr Lindholm has assured the COI that he has been to the highest levels within each of PBL, News, Freehills and Ernst & Young in order to secure the offer.

Three issues are of immediate concern to the COI.

First, the COI understands that Mr Lindholm has been involved in discussions with your office and/or the office of your lawyers, in connection with the funding of the proposed litigation. It is the view of the COI that in view of the settlement offer having been received by Mr Lindholm, he (Mr Lindholm) is in a position of conflict and neither your office nor your lawyer's office should have any further dealings with Mr Lindholm in connection with any aspect of the funding negotiations. The COI does not believe that Mr Lindholm can constructively add anything to what you have already achieved: in fact he could be a hindrance to the overall strategy.

Second, from the COI's perspective, one of the troubling aspects of the offer is that it provides insufficient time to the COI to give proper consideration. One of the critical factors influencing the COI's consideration of the offer is the extent to which funding might be available, an issue which we know you are focused on as a priority. The COI therefore proposes to ask Mr Lindholm to try to secure from PBL and News additional time to the offer to remain open for acceptance.

Thirdly, based on comments made to us by Mr Lindholm, the COI has serious concerns that, were you or your legal representatives to become involved in the current settlement negotiations, they may be jeopardised. The COI would go as far as to say that it is concerned that if you or your legal advisers do attempt to make contact with any of the proposed defendants over the next few weeks, there is a serious likelihood that the offer currently on the table would be withdrawn. We would therefore appreciate your undertaking that you will not get involved in the settlement negotiations unless and until the COI has been consulted first. Of course, the COI will keep you abreast of the negotiations and, in any event, cannot commit One.Tel's creditors to a settlement, as you cannot, without Court approval.

We understand that you and your legal team are making good progress with the various potential litigation funders that you have identified and whose terms sheets are in the process of being received and considered. Consequently, and as discussed at the most recent COI meeting, we expect you will be in a position shortly to make a firm recommendation to the COI on your preferred funder.

The COI is therefore strongly of the view that a two-pronged short-term strategy is in the best interests of all One.Tel creditors. The strategy involves you and your legal team concentrating exclusively on finalising litigation funding in the order of $20 million. The second leg of the strategy is to have the COI try to finalise the settlement figure (via Mr Lindholm) which maximises the return to all One.Tel creditors. It is in this area of settlement negotiation that the COI must insist that Mr Lindholm utilises his high level contacts and network to extract the maximum possible offer, which will be further enhanced by you and your legal team having secured litigation funding.

The Committee requests that if you do not agree to provide an undertaking as outlined above and instead decide that you must get directly involved in the settlement negotiations, that you and/or your advisers will give the Committee advance notice of that decision. Given the delicacy of the negotiations, we trust that the undertaking is forthcoming.

In the meantime, we assume that you will redouble your efforts to secure funding so that all available options are open to the creditors.

On 30 June 2008 Mr O'Neill, on behalf of the defendant, wrote to Mr Hambrett referring to the meeting on 27 June 2008 at which Mr Hambrett "first advised" of the "COI's direct dealings with Lindholm (without the knowledge or authority of the SPL)". That communication called for the provision of information and material by no later than 6pm the following day, 1 July 2008, as follows:

1. copies of all written communications between the COI (or any representative) and Lindholm regarding any matter concerning One.Tel at any time;

2. file notes or other records of any telephone or other oral communications between the COI (or any representative) and Lindholm regarding any matter concerning One.Tel at any time;

3. if no record was kept of oral communications, a summary of the nature and substance of such communication, including the date and participants;

4. copies of any written material received by the COI (or any representative) from any of the defendants to the SPL's Proceedings;

5. details of the PBL "original offer" referred to in the e-mail from Lindholm to Stuart Salier above, including when the COI (or any representatives) first became aware of it.

Upon receipt and consideration of the requested information, the SPL will promptly provide the COI with his views as to recent events and a response to the COI's letter dated 27 June 2008.

We are instructed, however, to remind the COI that the SPL is at a critical stage of negotiations with a number of funders, working to the COI's timetable proposed at the last meeting. The fact that settlement negotiations have apparently been taking place, without the knowledge or authority the SPL, is a matter that may need to be disclosed to potential funders to avoid any suggestion of misleading conduct by the SPL. It is therefore absolutely critical that the SPL urgently be apprised of all relevant facts and matters relating to such apparent settlement negotiations.

Further, for the same reason, we are instructed to request that the COI and any representatives not give any further directions or instructions to Lindholm before the SPL has received the above information and given his response. We expect our response to be within 24 hours of receiving information.

Finally, we are instructed to make it absolutely clear to the COI that Lindholm does not act with the authority of the SPL or One.Tel, and that the SPL's position in relation to Lindholm as an intermediary remains as advised to the COI in the SPL's letter of 18 December 2007, a copy of which is attached.

Mr Hambrett responded on 1 July 2008 advising, amongst other things, that he would seek instructions and get back to Mr O'Neill as soon as he could. That communication included the following:

Generally speaking, in the context of a matter in which close to $7.0M of creditors' funds, including almost $5.0M on legal fees, have already been on spent on proceedings which are yet to be served, the COI will understandably be concerned that further costs and expenses are not incurred unnecessarily.

Further, it is not correct to say that "settlement negotiations have apparently been taking place", as you suggest. Stuart Salier and I were at pains at our meeting on Friday last to stress that, in fact, no negotiations have taken place between the (sic) anyone on behalf of OneTel and any of the defendants, apart from the SPL's unsuccessful negotiations a few months ago. Rather, an offer has been made to the COI, which the COI has quickly passed on to the SPL, and which the SPL must now consider.

You must rest assured, as we explained to you on Friday, that the COI will not be giving directions to Mr Lindholm, without discussing them with the SPL first, although we have told you the view, which is held very strongly by the COI, as to how those negotiations should proceed, bearing in mind the unsuccessful discussions to-date between the SPL and the defendants, and the risk that the offer may be jeopardised if not responded to correctly. Of vital importance is the need to seek an extension of time, for reasons discussed last Friday. It seems to us that the offer may lapse this Friday, unless extended.

On 2 July 2008 Mr Hambrett wrote to Mr O'Neill observing that his request for information from the COI members had not identified any proper basis upon which the demand could be made for the materials and therefore the materials would not be provided. Mr Hambrett suggested that the defendant's focus on "historical matters" caused the COI to have "great concern" because it was time wasting and would inevitably lead to the defendant incurring totally unnecessary expense on matters that were both irrelevant to the key issues and likely to be outside the scope of his powers.

Mr Hambrett complained about the "adversarial" and "counterproductive" tone of Mr O'Neill's communications and suggested it was "most unfortunate" and "that it hardly augurs well for the upcoming weeks and months which could be pivotal to a possible resolution of this matter". Mr Hambrett advised that some members of the COI had lost confidence in the defendant and others were increasingly losing confidence in the defendant to represent the best interests of creditors. The matters referred to for this loss of confidence included the defendant's and his legal advisers' "extraordinarily high fees" and the defendant's refusal to engage with Mr Lindholm. Mr Hambrett suggested that the defendant and his team were being distracted by false issues and requested Mr O'Neill to approve the "two-pronged" strategy raised in the COI's letter of 27 June 2008 or alternatively to arrange a further meeting.

On 3 July 2008 Mr Hambrett wrote to Mr O'Neill advising that he had concluded his "high-level" review of the costs and expenses incurred by the defendant for March and April 2008. He advised that in carrying out this review he had the "benefit" of the meeting packs prepared by the defendant for the meetings of the COI on 8 April 2008 and 4 June 2008; two white folders of materials entitled "SPL Advices"; a discussion with Mr O'Neill and his colleague Mr Popper; discussions with the members of the COI; and the judgments which had been delivered following various applications to the Court by the defendant. Mr Hambrett advised:

Overall, I have very serious concern at the high level of fees and expenses (more than $7.2M) which have been incurred by the SPL when the proceedings, which are at the heart of the "special purpose", while having been filed, have not even been served. To my way of thinking, this is an extraordinary sum.

Turning to the March and April 2008 invoices, on the material which I have seen to date, I am not persuaded that they are reasonable for the following reasons:-

1. While the SPL may have indicated the range of work which was to have been undertaken in those months, I understand that the precise amount to be spent was not indicated to the COI and to the extent that amounts were mentioned, those amounts have been exceeded by a wide margin.

2. Directions from the COI seemed to have been ignored. For example, on my instructions, the SPL was directed to seek from counsel summary opinions only, yet that direction seems to have been ignored with the result that fees totalling $324,125.00 were incurred with counsel in March and April, for the provision of very long and detailed advices.

Loss of Confidence

The evidence relied upon by the plaintiffs included the evidence of Mr King (Optus), Gary Alan Phillips (representing a former director of One.Tel), Ms Galloon (Optus), Mr Salier (Optus), Ms Laver (Telstra), Benjamin Kumar Sharma (Roadhound Electronics Pty Ltd) and David Sieu Huy Lam (Cisco Systems Capital (Australia) Pty Ltd). Each of these witnesses claimed inter alia to have lost confidence in the defendant. Each was cross-examined. In circumstances where the defendant decided not to give evidence in these proceedings, the cross-examiner was somewhat constrained. However, the general thrust of the cross-examination was to establish the reasonableness of the defendant's conduct and to challenge the bases of the claims for the witnesses' lack of confidence in the defendant.

The plaintiffs contend that the defendant's conduct in investigating the relationships between the members of the COI and others and the relationships between some of the creditors and the RRI defendants justifies the loss of confidence in the defendant. The defendant spent time and money researching the relationship between some of the members of the COI and Mr Rich. It is apparent that the defendant had formed the view that Mr Deloughery was effectively doing Mr Rich's bidding, although there was no evidence as to what it was that Mr Deloughery was alleged to be trying to achieve for Mr Rich.

The members of the COI felt that they had to defend themselves at the AGM against the allegation that they were the "stooges" of Mr Rich. Indeed, in cross-examination Ms Galloon gave evidence that she had no reason to believe that Messrs Roth, Deloughery or Phillips were "stooges" of Mr Rich. She agreed that she accepted as truthful their denials of any "relationship or engagement" by Mr Rich (tr 210-213). The defendant relied upon a number of tax invoices that Mr Deloughery forwarded to Mr Star, an adviser to Mr Rich. Those invoices described Mr Deloughery's services as including "Accounting and Administrative Services" in connection with the liquidation of One.Tel including arranging proxies for the AGM and a "follow up report" to creditors following the AGM. The defendant also relied upon a document apparently prepared by Mr Deloughery that includes references in February and March 2008 to "telephone calls J Rich" (Ex 5). This was, of course, at around the time that the COI was dealing with Mr Lindholm and pursuing the prospect of settlement negotiations.

The defendant relied upon this material to suggest that his suspicions that there was a relationship between at least one of the members of the COI and Mr Rich were justified. It is obvious that Mr Deloughery was in communication with Mr Rich and was apparently paid for some services that may have included his work on the COI. It appears that he had some relationship with Mr Rich through Mr Star and although his claim at the 2009 AGM that he had not seen Mr Rich for three years might have been accurate, he had certainly spoken to Mr Rich on the telephone a number of times within that period. However that does not establish that Mr Deloughery was infecting the processes of the COI by reason of his communications with Mr Rich, notwithstanding that Mr Rich was attempting to obtain at least $2 million in the proposed settlement.

Barrett J provided some guidance in relation to the approach the defendant had been adopting in relation to alleged breaches of confidentiality in Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 865 extracted at paragraph [94] above. Notwithstanding this guidance, the defendant maintained his attack on the members of the COI. Accepting that the defendant was justified in his criticism of the COI for approaching Mr Lindholm without his knowledge and in the face of a request not to do so, the continuation of the defendant's claims against the members of the COI seem to me to be out of all proportion to what had occurred. This lack of proportionality led the defendant into the erroneous course of investigating members of the COI and also investigating the relationship between creditors and the RRI defendants. There was no justification for spending hours on these investigations. The nature of the relationship between Optus and PBL through Foxtel was apparently in the public domain. Mr King described it quite candidly in his correspondence. However it appears that the defendant thought that it was of some relevance to his administration to spend time and money on investigating this relationship. A far better course would have been to accept that the relationship existed, either as disclosed by Mr King or in some other form, and proceed from that premise in whatever steps he took in the liquidation. It may be that if the COI had suggested a particular settlement should occur, the defendant could have taken into account that one or other creditor represented by the members of the COI might be propounding a particular settlement for their own commercial comfort and/or advantage. Ultimately the defendant would have an obligation to achieve a settlement in the best interests of the creditors as a whole. The fact that one or other creditor might have a direct or indirect commercial relationship with one or more of the RRI defendants that they may wish to continue, notwithstanding the RRI proceedings, is but a factor to be taken into account in considering whether any proposed settlement may be in the best interests of the creditors as a whole.

The language used by the defendant in his presentation at the AGM on 10 November 2009 was insulting to the members of the COI. The use of the term "flip flops" is quite demeaning of professional people attempting to assist as best they could with the process of the special purpose liquidation. By this time the defendant had already besmirched the reputations of the members of the COI by making allegations that they had tried to derail his work and had breached their fiduciary obligations. Obviously a liquidator must perform his duties robustly and with independence. However the defendant's conduct, in particular between August 2009 and November 2009, in his attacks on the COI demonstrates that he wished to damage the standing of the members of the COI to persuade the general body of creditors that some of the members of the COI should be removed. His attacks in this regard seem also to have been made in support of his resistance to the motion of no confidence. These claims failed to persuade the creditors that they should remove the members of the COI. They also failed to convince the creditors not to support the motion of no confidence. In my view the evidence of Ms Laver was very balanced and impressive. The change in approach to the motion of no confidence was as a direct result of the perceived inflammatory language used by the defendant. I am satisfied that such a change was justified in all the circumstances.

Mr Sharma's memory of the location of a meeting with the defendant and Mr O'Neill seemed to be erroneous and there was some uncertainty in relation to a business arrangement that he had for the delivery of $6 million worth of handsets. It was suggested to him in cross-examination that he informed the defendant and Mr O'Neill that the contract for the handsets came from Optus and that it was just before the 2009 AGM in circumstances where he had not done business with Optus prior to that time. Mr Sharma denied this conversation. He also denied the suggestion that Mr Salier had telephoned him to solicit his vote in support of the no confidence motion at the 2009 AGM. In this regard it should be said that Mr Salier was not cross-examined to suggest that he had sought to solicit Mr Sharma's vote. Neither the defendant nor Mr O'Neill gave evidence and, in these circumstances, irrespective of what Mr Sharma might have said to the defendant or Mr O'Neill, I am not persuaded that Mr Sharma's evidence in relation to his lack of confidence in the defendant should not be accepted. When pressed in cross-examination about his attitude to the Court approving the defendant's remuneration he gave the following evidence (tr 178):

Q. You don't accept that the court is able to assess the proper remuneration of the special purpose liquidator at all?

A. No, it's not that. I was just frustrated that the people that are paying the bill, the creditors are not able to do something like dismiss the special purpose liquidator. That was my frustration. In the commercial world you can hire and fire people. Here, you cannot do that. You just have to live with it. A third party will decide whether you can fire that person or not, in the meantime you just bleed and pay and shut up.

I am not satisfied that the veracity of the evidence of the plaintiffs' witnesses has been successfully challenged in cross-examination. The irresistible conclusion from the evidence is that the creditors and the members of the COI have lost confidence in the defendant. The manner in which the defendant attacked the members of the COI, when I have no doubt that they were seeking to discharge their obligations honestly and diligently, provides justifiable grounds for them to have no confidence that the defendant can bring a dispassionate mind to bear on matters of importance in the liquidation and the manner in which limited resources should be used.

The defendant submitted that a mere loss of confidence, without more, does not justify removal of a liquidator. In this regard the defendant relied upon what Warren J (as her Honour then was) said in Multi-Core Aerators Limited v Dye and Rennie [1999] VSC 205 at [48] as follows:

However, in my view it is not sufficient that a court remove a liquidator merely because of levels or feeling and rancour between parties especially where the hostility has at all times emanated from the party seeking the removal of a liquidator. To do so would provide a creditor with an opportunity to manipulate the liquidation of the company.

I regard those observations as inapt to the circumstances of this case. There were certainly levels of feeling and rancour between these parties. However the "hostility" in this case, evidenced by the defendant's intensely adversarial approach to both the COI and to the creditors, emanated from him.

Failure to give evidence

The plaintiffs submitted that in contrast to their officers giving evidence and being exposed to cross-examination, the defendant has declined the opportunity to give an account of his stewardship (tr 280). It was submitted on the defendant's behalf that it was "not necessary" for the defendant to give evidence because there was no factual dispute as to the basis of the progress of the administration with which the Court is dealing in this case. It was submitted that when one looks at the factual matrix, it is perfectly uncontroversial (tr 313). However the plaintiffs submitted that there are a number of matters that required explanation from the defendant. For instance, why it was that he framed the Media Release in the way that he did in August 2009; why it was that he used such inflammatory language at the AGM; and why it was that he was opposed to the appointment of an independent chairman of the AGM on 10 November 2009 when the motion of no confidence was to be propounded.

One matter that I regarded as calling for an explanation was why it is that the defendant wishes to retain his appointment as special purpose liquidator when he has concluded and admitted at the AGM that the relationship between him and the COI is "unworkable" and that it "cannot continue". It is all very well to rely upon the terms of the various judgments that have been published in respect of the various applications that have been made to justify minimal contact with the COI (for instance, Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 at [49]). However when it was conceded on the defendant's behalf during the course of this case that the relationship between the COI and the defendant lacked civility (tr 300), the absence of any explanation from the defendant as to why this should be tolerated in a liquidator tends to support the finding pressed for by the plaintiffs that the defendant has reached the point where he is now unable to dispassionately assess the true interests of the creditors in this administration and how limited resources should be spent (tr 278). Apart from this observation I have not drawn any adverse inference against the defendant by reason of his absence from the witness box. Rather I have reviewed his conduct from the whole of the circumstances disclosed in the evidence.

That there is a pervasive perception amongst the creditors that the defendant lacks the capacity to dispassionately deal with the interests of the creditors is a significant factor to be taken into account with all the other relevant circumstances. Indeed I am afraid it is more than a perception. The defendant's conduct satisfies me that he has lost objectivity and the capacity to properly and dispassionately focus on the purposes for which he was appointed. That is why he embarked on inappropriate investigations that have cost thousands of dollars that should not have been claimed in this liquidation.

Other matters

It was submitted on the defendant's behalf that his removal would not be in the best interests of the liquidation because his wealth of knowledge would be lost to the process and additional costs would be incurred in the process: McGrath & Anor re HIH Insurance Ltd & Ors [2006] NSWSC 385 at [11]-[12]. The submission that the wealth of knowledge will be lost to the liquidation seems to me to be somewhat inconsistent with the defendant's explanation as to why it was unnecessary for him to give evidence; that is, that his conduct during his administration can be gleaned from the documentary evidence. There is no doubt that there will be additional cost incurred in replacing the defendant. However most of the purposes of the special purpose liquidator's appointment are no longer extant. Those that presently remain are the prosecution of the RRI equitable claims and the application for special leave to appeal to the High Court in respect of the dismissal of the RRI proceedings. This was another factor relied upon by the defendant as to why he should not be removed. It was submitted that now that there is little or less need for communication with the COI the Court could have confidence that the special purpose liquidation can proceed more efficiently and effectively. I am not satisfied that the absence of the need for such communication assists the defendant at this stage.

I am conscious that the defendant is a very experienced liquidator and that his removal may have serious professional consequences. Towards the conclusion of the trial and in response to discussions during final submissions, the defendant expressed the view through his Senior Counsel that he had "no objection to working with Mr Parbery, in a joint appointment or something of that nature" (tr 334). This was an alternative outcome that had not been propounded in any of the evidence or written submissions. Nor was it suggested to any of the plaintiffs' witnesses. It was taken no further than a suggested alternative and there was no evidence called to support a finding that it would be cost effective or efficient (let alone workable) or that it would be in the best interests of the liquidation. Indeed the plaintiffs submitted that it would be a "disaster" (tr 335).

Another alternative that was discussed was the termination of the special purpose liquidation. However in the circumstances that the RRI equitable claims have now been commenced and the application for special leave to appeal to the High Court in respect of the dismissal of the RRI proceedings has been made, it is not appropriate to terminate the special purpose liquidation. However the special purpose orders will require amendment to reflect the circumstances that now pertain.

The defendant has both prior to and during the proceedings contended that the creditors' loss of confidence in him is not enough to justify his removal. Rather he has contended that there must be some serious misconduct, conflict of interest or lack of independence. The authorities referred to earlier establish that serious misconduct is not a pre-requisite to the exercise of the Court's power under s 503 of the Act. In any event it has certainly been demonstrated that the creditors have lost confidence in the defendant's capacity to bring a dispassionate mind to bear in exercising his powers in the liquidation. I am satisfied that their loss of confidence is justifiable. The vast amounts of money that have been expended, at least $14 million to 2011 and in particular some $5 million in the two year period 2009 to 2011, cause real concern that appropriate mechanisms to control expenditure are not in place. There have been inappropriate investigations into the relationships of the members of the COI with third parties and inappropriate investigations of the creditors' relationships with some of the RRI defendants, with consequential unjustified claims for fees and expenses. The defendant's reaction to the misguided conduct of the COI in dealing with Mr Lindholm was out of all proportion to the conduct of the COI. The publication of the Media Release on 7 August 2009 and the refusal to remove it from his website (other than in the usual course of business) demonstrated a serious lack of judgment and objectivity.

It is true that the wishes or views of the creditors may be taken into account but they are not decisive. The Court must look at "the overall picture": Re BiposoPty Ltd; Condon v Rodgers at 405. As Bowen LJ made clear, "fair play to the liquidator himself must not be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation": In re Adam Eyton Ltd; Ex parte Charlesworth at 306.

Conclusion

I am satisfied that it is in the best interests of this liquidation for the defendant to be removed as special purpose liquidator and for Mr Parbery to be appointed in his place. The defendant is to meet with Mr Parbery and provide him with any advice, documents or other assistance sought by Mr Parbery so that he may be in a position to pursue the remaining purposes of the special purpose liquidation in the most cost efficient manner.

I am conscious that ASIC's review of the defendant's remuneration and fees has effectively been put on hold pending the outcome of these proceedings. I am satisfied that it is appropriate to defer any ruling in relation to conducting an inquiry under s 536 of the Act until ASIC's review has concluded. It may be that, having regard to the defendant's removal and/or the outcome of ASIC's review, the plaintiffs may no longer wish to press for such an inquiry.

Orders

The orders are:

1. Paul Gerard Weston is forthwith removed as Special Purpose Liquidator of One.Tel Limited (in liquidation).

2. Stephen James Parbery is appointed as Special Purpose Liquidator of One.Tel Limited (in liquidation) in place of Paul Gerard Weston.

3. Paul Gerard Weston is to provide such assistance to Stephen James Parbery in the special purpose liquidation of One.Tel Limited (in liquidation) as reasonably required by Stephen James Parbery.

4. I grant leave to the parties and to Mr Parbery to bring in Short Minutes of Order with any further orders necessary to facilitate the transition to Mr Parbery.

5. The matter is listed at 10am on 22 June 2012 for the making of any further orders and for directions in relation to any argument as to costs.

6. These orders are to be entered forthwith.

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Decision last updated: 19 June 2012

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Citations

SingTel Optus Pty Ltd v Weston [2012] NSWSC 674

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Statutory Material Cited

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Onefone Australia Pty Ltd v One.Tel Ltd [2003] NSWSC 1228

Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 815

Onefone Australia Pty Ltd v One.Tel Ltd [2003] NSWSC 1228

Medium Neutral Citation:	SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674
Hearing dates:	5, 6, 7, 8, 22 March 2012 and 26 April 2012
Decision date:	19 June 2012
Jurisdiction:	Equity Division - Corporations List
Before:	Bergin CJ in Eq
Decision:	Order for removal of special purpose liquidator
Catchwords:	[LIQUIDATORS] - Application to remove special purpose liquidator under s 503 of the Corporations Act 2001 (Cth)
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	Aboriginal & Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liq) (1992) 10 ACSR 121 Adsett v Berlouis and Others (1992) 37 FCR 201; (1992) 109 ALR 100 AMP Music Box Enterprises Ltd v Hoffman and Another [2002] BCC 996 Apple Computer Australia Pty Ltd v Wiley (2003) 46 ACSR 729; [2003] NSWSC 719 Application of Weston [2011] NSWCA 250 ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 City & Suburban Pty Ltd and Others v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) and Another (1998) 28 ACSR 328 Clutha Ltd (in liq) v Millar and Others (No 5) (2003) 43 ACSR 295; [2002] NSWSC 833 Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669 Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2000) 18 ACLC 13; [1999] NSWSC 1046 Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2003) 21 ACLC 1330; [2003] NSWSC 496 Independent Cement and Lime Pty Ltd v Brick and Block Co Ltd (in liq) (recs and mgrs appted) and Others (2010) 267 ALR 613; [2010] FCA 352 In re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 Ch D 299 In re Contract Corporation (1871-72) LR 7 Ch App 207 ('Gooch's Case') In re George A Bond & Co Ltd (1932) 32 SR (NSW) 301 In re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692 In the matter of Cobar Mines Pty Ltd (in liquidation); Hall as liquidator of Cobar Mines Pty Ltd (Unreported, Supreme Court of New South Wales, Santow J, 22 June 1998) McGrath & Anor re HIH Insurance Ltd & Ors [2006] NSWSC 385 McAuliffe v Lidia Perin Memorial Hospital Pty Ltd (2006) 58 ACSR 666; [2006] ACTSC 88 Multi-Core Aerators Limited v Dye and Rennie [1999] VSC 205 Northbuild Construction Pty Ltd v ACN 103 753 484 Pty Ltd (2008) 26 ACLC 893; [2008] QSC 182 Onefone Australia Pty Ltd v One.Tel Ltd (2003) 48 ACSR 562; [2003] NSWSC 1228 Onefone Australia Pty Ltd and Another v One.Tel Ltd (in liq) and Others (2006) 57 ACSR 279; [2006] NSWSC 349 Onefone Australia Pty Ltd and Others v One.Tel Ltd (in liq) and Others (2006) 58 ACSR 466; [2006] NSWSC 815 Onefone Australia Pty Ltd v One.Tel Ltd (in liq) and Others (2006) 61 ACSR 236; [2006] NSWSC 1434 Onefone Australia Pty Ltd & Ors v One.Tel Limited (In Liquidation) & Ors [2006] NSWSC 1447 Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2008) 69 ACSR 290; [2008] NSWSC 1335 Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 822 Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 865 Onefone Australia Pty Limited and Others v One.Tel Ltd (in liq) and Others; Re Appln Weston (2009) 74 ACSR 716; [2009] NSWSC 1231 Onefone Australia Pty Ltd and Others v One.Tel Limited and Others (2010) 78 ACSR 98; [2010] NSWSC 401 Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399 Re Edennote Ltd; Tottenham Hostpur plc and others v Ryman and another [1996] 2 BCLC 389 Re Giant Resources Ltd [1991] 1 Qd R 107 Re Keypak Homecare Ltd [1987] BCLC 409; (1987) 3 BCC 558 Re Obie Pty Ltd (in liq) (No 3) (1984) 8 ACLR 774 Re Walker and Another (in their capacity as joint liquidators of One.Tel Ltd) (2009) 262 ALR 150; [2009] NSWSC 1172 Tracker Software International Inc v Smith (1997) 24 ACSR 644 Weston (in his capacity as special purpose liquidator of One.Tel (in liq) and Another v Publishing and Broadcasting Ltd (now known as Consolidated Media Holdings Ltd) and Others (2011) 83 ACSR 206; [2011] NSWSC 433 Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79
Texts Cited:	BH McPherson and J O'Donovan (ed), McPherson's Law of Company Liquidation (Thomson LawBook Co., 3rd ed, 1987)
Category:	Principal judgment
Parties:	SingTel Optus Pty Limited (1st Plaintiff) Optus Networks Pty Limited (2nd Plaintiff) Optus Mobile Pty Limited (3rd Plaintiff) Optus Vision Pty Limited (4th Plaintiff) Optus Insurance Services Pty Limited (5th Plaintiff) Paul Gerard Weston (Defendant)
Representation:	JC Sheahan SC/ RCA Higgins (Plaintiffs) N Cotman SC/R Glasson (Defendant) Baker & McKenzie (Plaintiffs) O'Neill Partners (Defendant)
File Number(s):	2010/71799