Toy, L.C.A. v Registrar of Companies for the Northern Territory

Re: LAURENCE CHEONG AH TOY
And: REGISTRAR OF COMPANIES FOR THE NORTHERN TERRITORY
No. NTG 1 of 1985
Companies - Practice

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Toohey J.
Morling J.
Wilcox J.

CATCHWORDS

Companies - Liquidation - Inquiry into conduct of liquidator - Propriety of general delegation by liquidator of his duties - Whether liquidator acted deceptively in relation to delegation - Application by liquidator for appointment of provisional liquidator of creditor company - Whether application was necessary and proper - Whether material placed before Court in support of application was misleading - Decision to appeal to High Court against decision of Full Federal Court disallowing claim by liquidator - Appeal filed after advice from counsel that an appeal was "justified" - Whether liquidator acted negligently in not seeking from counsel more detailed advice concerning conflicting relevant authorities - Alleged failure of liquidator to obtain advice regarding possible claims of beneficial ownership by company of shares in another company or to recover $10,000 improperly debited to company - Whether liquidator was negligent in failing to perceive the existence of possible claims - Whether loss occasioned - Debit to company's accounts of penalty fees for late lodgment of statutory returns - Whether this constituted a fraud upon the creditors of the company - Payment by liquidator of accountancy fees - Liquidator a member of the firm to whom payment made during part of the period of work - Whether fees properly paid in absence of taxation.

Practice - Reproduction of material irrelevant to issues arising on appeal - Special order for costs in relation thereto - Inclusion of unnecessary references in lists of authorities to be cited.

Companies Act (N.T.) ss.236, 278.

Commissioner for Corporate Affairs v Harvey (1980) VR 669, Re Bridal Centre Co Pty Ltd (1985) 59 ACTR 1, Re Stewden Nominees No.4 Pty Limited (1975) 1 ACLR 185, Re Photo Holdings Pty Limited (1976) 2 ACLR 117, Re Intercontinental Properties Pty Limited (in liq.) (1977) 2 ACLR 488, Re Nickel Mines Limited (1978) 3 ACLR 686, Snook v London and West Riding Investments Ltd (1976) 2 QB 786, Mahony v Commissioner of Taxation (1967) 41 ALJR 232, Dunlop v Woollahra Municipal Council (1982) AC 158, Perpetual Trustee Co v Watson (No.2) (1927) 28 SR (NSW), National Trustees Co of Australasia v General Finance Co of Australasia (1905) AC 373, In re Windsor Steam Coal Company (1901) Limited (1928) 1 Ch. 609, Ex parte James, In re Condon (1874) 9 Ch App 609, Re Ayoub: Ex parte Silvia (1983) 67 FLR 144, In re Clark; Ex parte The Trustee v Texaco Ltd (1975) 1 WLR 559, Re Docker; Ex parte Official Receiver (1938) 10 ABC 97, Scranton's Trustee v Pearse (1922) 2 Ch. 87, Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liquidation) (1948) 76 CLR 463, Re Chemical Plastics Ltd (1959) VR 570 referred to.

HEARING

DARWIN

#DATE 11:6:1986

Counsel for the Appellant: Mr G Downes QC with Mr M Huntington.

Solicitors for the Appellant: Messrs Waters James & O'Neil

Counsell for the Respondent: Mr F Davey with Mr G Hiley

Solicitors for the Respondent: Crown Solicitor for the Northern Territory

ORDER

1. The findings of the Supreme Court of the Northern Territory that:

(a) it was wrong and unnecessary to place Northern Australia Properties Pty Limited in provisional liquidation;

(b) it was imprudent to the point of negligence for the appellant to persist with an appeal to the High Court in respect of the claim against Northern Australia Properties Pty Limited without asking counsel to give more detailed consideration to the matter;

(c) the appellant erred in failing to take legal advice as to possible claims against Mr and Mrs Day with respect to the beneficial ownership of their shares in Northern Australia Properties Pty Limited; and

(d) the act of the appellant in charging to the estate of Day & Dent Constructions Pty Limited the cost of penalty fees for the late filing of certain statutory returns was reprehensible and a fraud upon the creditors.

be set aside.

2. The orders of the Supreme Court of the Northern Territory that the appellant repay to the estate of Day & Dent Constructions Pty Limited the sums of $3,504.54 and $21,840.88 be set aside.

3. The order of the Supreme Court of the Northern Territory granting liberty to each of the respondent and the appellant to bring the inquiry on again on 7 days' notice be set aside.

4. The respondent pay to the appellant one half of his costs of the appeal, including the costs of the motion relating to competency determined on 5 July 1985 provided however that, if the taxing officer is of the opinion that material reproduced for the purposes of the appeal was unnecessarily reproduced and at the insistence of the respondents, the respondent pay to the appellant the whole of his costs in respect of that material.

5. Otherwise the appeal be dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an appeal by Laurence Cheong Ah Toy, who was for some years the liquidator of Day & Dent Constructions Pty Limited ("Day & Dent"), against certain findings and orders made by the then Chief Justice of the Northern Territory, Forster CJ, in the course of an inquiry held under s.278 of the Companies Act (NT). His Honour's reasons for judgment are reported at (1984) 32 NTR 13.

Relevantly, s.278 provides:

"278. (1) The Court shall take cognizance of the conduct of liquidators and, if a liquidator does not faithfully perform his duties and observe the prescribed requirements, the requirements of the rules or the requirements of the Court or if any complaint is made to the Court by any creditor or contributory or by the Board in regard thereto, the Court shall inquire into the matter and take such action as it thinks fit.

(2) The Registrar or the Board may report to the Court any matter which in his or its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss which the estate of the company has sustained thereby and make such other order as it thinks fit.

(3) ..."

The section is unusual in two respects. First, it provides for an inquiry the scope of which is not necessarily confined to issues raised by the participants. We agree with the comment made by Marks J, in Commissioner for Corporate Affairs v Harvey (1980) VR 669 at p.689 that "once the Court is apprised of any matter bearing on the conduct of a liquidator it has jurisdiction to inquire into that conduct and the ambit of the inquiry is for the Court to determine". Secondly, the powers of the Court are not confined to making substantive orders. The Court may "take such action as it thinks fit". This power is sufficiently wide to include the making of findings regarding the conduct of the relevant liquidator; findings which, in a practical sense, may be of considerable significance to the liquidator notwithstanding that they do not involve the payment of any money. In this regard we refer again to the judgment of Marks J in Harvey, also at p.689.
In the present case the learned Chief Justice made both substantive orders for the repayment of money and findings. The substantive orders required the appellant to pay to the estate of the company in liquidation three sums of money -- respectively $21,840.88, $3,504.54 and $20,554.69 -- said to have been lost to the estate by his fault. The findings included criticisms of certain acts and omissions of the liquidator and also of certain other persons who were involved in the liquidation. The notice of appeal, as originally filed, challenged all the findings but not, in any direct manner, the orders for payment of the three sums of money. However, during the course of the hearing of a motion by the respondent -- the Registrar of Companies for the Northern Territory -- to strike out the appeal as incompetent, leave was granted to the appellant to amend his notice of appeal so as to challenge directly those orders. The motion was allowed to the extent that certain sub-paragraphs of the notice of appeal, relating to the conduct of persons other than Mr Ah Toy, were struck out as incompetent: see (1985) 61 ALR 583.
Counsel for the appellant put a general submission that the primary findings made by the Chief Justice did not justify any adverse criticism of their client or any finding that he had been guilty of misfeasance, neglect or omission, within the meaning of s.278(2), so as to found any order for payment of money. Nothing in the argument turns upon the meaning of the words "misfeasance, neglect or omission". Both parties accept the interpretations of these words suggested in Harvey at pp.689-691 and, in particular, that the concepts are not mutually exclusive, that "(e)ach concept contemplates that the facts said to constitute it might be single or conglomerate acts or omissions". The submission on behalf of the appellant, quite simply, is that he has done nothing wrong, whether by way of act or omission.
The live allegations against the appellant involve six largely discrete issues. We say "live" because some of the allegations made at the inquiry were found not to have been made out and have not been raised before us by way of cross-appeal. These issues involve some overlap, particularly in relation to one matter of complaint: the extent to which Mr Ah Toy delegated the performance of his duties as liquidator. However, it is not possible to deal with the question of Mr Ah Toy's conduct in any overall manner; the six issues must be separately addressed. Nevertheless it is desirable first to outline such of the history of the company and of its liquidation as is relevant to the questions with which we need to deal.
The history of Day & Dent
Day & Dent was incorporated on 6 June 1971, 500 shares being allotted to each of Kenneth Leonard Day and Robert Bruce Dent. A few months after incorporation Mr Dent transferred his shares to Mr Day who thereafter alone controlled, and beneficially owned, the company. Upon the transfer one share was allotted to Christine Pollock, a nominee of Mr Day. Mr Day and Ms Pollock served as directors of the company until some time in 1974 when the share held by the nominee was transferred to a new nominee, Mr Day's accountant Mr O'Dea, who became a director in her place.
In October 1972 the company purchased land in Coonawarra Road, Darwin and proceeded to erect upon it two warehouse buildings. Money was borrowed for these purposes, mortgages being given over the land.
On 8 May 1973 a second company, Northern Australia Properties Pty Limited ("NAP"), was incorporated. Only two shares (each of $1) were initially allotted, in favour respectively of Mr Day and his solicitor, Mr P D James.
Towards the end of 1974 Mr Day determined to raise additional funds for Day & Dent. The funds were apparently intended to be used in connection with certain construction contracts then on foot. Mr Day negotiated a complex transaction involving Day & Dent, NAP and two financiers, Perkins Nominees Pty Ltd and Goleco Nominees Pty Ltd. Day & Dent was to sell the Coonawarra Road properties, subject to the existing mortgages, to NAP at a price which would provide a cash return to Day & Dent, finance for that purpose being provided to NAP by Perkins Nominees and Goleco Nominees. By way of greater assurance the shares held by Mr Day and his solicitor in NAP were to be transferred to Perkins Nominees and Goleco Nominees and additional shares were to be allocated to the former. However, an option was to be granted to Mr Day entitling him, not later than 30 June 1975, to repurchase for $10,000.00 the whole of the share capital in NAP. If this option were exercised, the financiers would receive $10,000.00 -- over and above the interest payable on their loan to NAP -- by way of consideration for their provision of finance.
The transaction as negotiated was consummated in November 1974. Mr Day and his solicitor then resigned as directors of NAP. However, on 2 June 1975 Mr Day exercised his option to reacquire the whole of the issued share capital of NAP and, apparently, he then re-took full control of NAP, although moneys remained owing to Perkins Nominees and Goleco Nominees for some time. The Coonawarra Road land remained registered in the name of NAP, which company apparently received the rents of the buildings erected on that land and made payments under the various mortgages.
In November 1976 Esanda Limited agreed to advance to Day & Dent the sum of $100,000.00 upon the security of certain properties owned by NAP, including the Coonawarra Road land. This sum was, by direction of Day & Dent, paid for the use and benefit by NAP. By the mortgage documents Day & Dent undertook personal liability for repayment of the loan, with interest. NAP executed guarantees in favour of Esanda for repayment of the loan.
By early 1978 Mr Day had formed the opinion that Day & Dent had liquidity problems. He consulted Mr Richard Barber, a chartered accountant who had since 1974 managed the Darwin office of the accountancy firm of Price Waterhouse & Co.. By 1978 Mr Barber was a partner in the firm but he was not registered under the Companies Act as a liquidator; nor was he an official liquidator appointed under the Act. Although the figures given by Mr Day to Mr Barber indicated a small surplus of assets over liabilities, Mr Barber formed the view -- subsequently amply confirmed -- that there was a deficiency of assets over liabilities. At that time, as it later became common ground, the company was insolvent in the sense that it was unable to pay its debts as they fell due.
Mr Day consulted Mr Barber because he wanted to formulate a scheme of arrangement with creditors which, with a moratorium and the injection of funds from other sources by himself and his wife, would enable all creditors to be paid in full. Mr Barber thought it essential to obtain time and to avoid possible liability by Mr Day for insolvent trading. He advised that Day & Dent should go into provisional liquidation as a first step and that details of a scheme could then be considered. Mr Day accepted this advice.
On 31 January 1978 Mr Barber saw Mr Ah Toy, the appellant. Mr Ah Toy is a chartered accountant. He practised on his own account in Darwin until 1 March 1979 when he became a partner in Price Waterhouse. Whilst practising on his own account, his office was in the same building as that of Price Waterhouse, with whose Darwin personnel he had a close association. Mr Ah Toy was a registered liquidator and had, since 1971, been an official liquidator appointed under s.231 of the Companies Act.
Mr Barber informed Mr Ah Toy of the advice he had furnished to Mr Day. He enquired whether Mr Ah Toy would accept an appointment as a provisional liquidator. Mr Ah Toy agreed; but the arrangement was made upon the basis that Price Waterhouse would do all the work connected with the provisional liquidation, much of which was likely to occur during a period of one month from mid-March to mid-April when Mr Ah Toy planned to be overseas. On 22 February 1978 Mr Ah Toy signed a consent to act as provisional liquidator of Day & Dent. On 23 February he was appointed as provisional liquidator of the company on the application of a creditor, Construction Materials (Australia) Ltd, which on that day presented a winding up petition.
In fact nothing came of the proposed scheme of arrangement. Instead, on 18 May 1978, Muirhead J ordered that Day & Dent be wound up and that Mr Ah Toy be appointed as liquidator. He retained that office until 15 September 1983 when he resigned as liquidator. Mr F D Johnston was subsequently appointed in his place.
Delegation
A major complaint made by the Registrar against the appellant is that he improperly delegated the duties of his office, both as provisional liquidator and as liquidator, to Price Waterhouse. There is no question about the facts. On 23 February 1978, the day of his appointment as provisional liquidator, Mr Ah Toy wrote to Price Waterhouse informing that firm of his appointment and continuing: "As Provisional Liquidator, I hereby appoint you my agents for the purposes of such Provisional Liquidation and for all matters incidental thereto".
On 19 May 1978, the day after the winding up order, Mr Ah Toy wrote a similar letter to Price Waterhouse in reference to his appointment as liquidator, concluding "As Liquidator, I hereby appoint you my agents for the purposes of such Liquidation and for all matters incidental thereto".
The evidence shows that Mr Ah Toy played little part in the conduct of either the provisional liquidation or the winding up. He did attend some meetings of creditors or of the committee of inspection, but he delegated almost all of the duties of his office. Major decisions pertaining to the conduct of the liquidation, including most of the decisions concerning the matters of present complaint, were made without his involvement. The de facto provisional liquidator was Mr Barber. Mr Barber left Darwin in May 1978. He was replaced, as person in charge of the Darwin office of Price Waterhouse, by Mr Reginald Webb, a qualified chartered accountant who became a partner in the firm on 30 June 1978. Mr Webb, like Mr Barber, was not a registered or official liquidator. But, in a practical sense, he was the person in charge of the liquidation from the date of the winding up order until his departure from Darwin on 1 May 1981. Upon his departure Mr Ah Toy belatedly assumed responsibility for the liquidation; but by that time most of the work had been done.
The Companies Act contains no provision for the delegation of the functions of a provisional liquidator. In relation to liquidators there is a limited provision. Section 236(2)(j) provides that a liquidator may "appoint an agent to do business which the liquidator is unable to do himself". That provision falls well short of authorizing the type of wholesale delegation undertaken in this case. The purpose of s.236(2)(j) is to enable the delegation of specific tasks which the liquidator, for one reason or another, is not able to undertake. The scheme of the Act is that the liquidator remains generally responsible to the Court and to the creditors and contributories of the company for the conduct of the liquidation. We agree with the comment by Marks J, made in relation to a similar general delegation in Harvey at p.754, that if a liquidator is so disabled in some way that he cannot perform the duties to which he has been appointed, his duty is not to appoint an agent but to seek leave to resign his office. See also the acceptance by Kelly J, in Re Bridal Centre Co Pty Ltd (1985) 59 ACTR 1 at p 14 of the words "alarming and improper" as a description of the delegation by a liquidator of the whole of his functions as liquidator to his firm.
There was, in the present case, no question of any inability by Mr Ah Toy to perform his duties. His recruitment by Mr Barber as provisional liquidator, and subsequently as liquidator, was simply a means whereby Price Waterhouse, having nobody in its Darwin office qualified to accept these offices, could accept the work attached to them. The Chief Justice was highly critical of the course which was taken. He described what was done as having been done "with a clear intention of circumventing the system which is designed to ensure that ... approved qualified people are appointed by the court to liquidation work". He said that it led "to inexperienced unqualified persons carrying out the work to be expected of Ah Toy". We agree. Provisional liquidators and liquidators are appointed to their office as individuals and upon the strength of their personal qualifications. The identity of a particular appointee may be important; cf Re Stewden Nominees No 4 Pty Limited (1975) 1 ACLR 185 at p 187, Re Photo Holdings Pty Limited (1976) 2 ACLR 117 at p 118, Re Intercontinental Properties Pty Limited (in liq.) (1977) 2 ACLR 488 at pp 491-492 and Re Nickel Mines Limited (1978) 3 ACLR 686 at p 688-689. The selection is not to be circumvented by a general delegation whereby the liquidator places the affairs of the company in other hands. Appointees are personally accountable for the conduct of the provisional liquidation or liquidation. In their work they must rely to some extent upon others but it is important that they bring their personal skills and experience to all significant aspects of the liquidation.

One circumstance of the present case excited particular criticism from the Chief Justice. It appears that the Deputy Registrar of Companies became aware that Mr Ah Toy had appointed Price Waterhouse to be his agents in the liquidation. On 13 June 1978 he wrote to Mr Ah Toy a letter in which he stated:

"It is noted that you have appointed Price Waterhouse & Co. as your agent and I would appreciate your advice on the relevant authority under the Companies Ordinance for your action and whether the Court has been informed or issued a direction in this regard.

Records at this office do not disclose Price Waterhouse & Co. as being on the list of official liquidators for the Northern Territory."

Mr Ah Toy responded, on 13 July 1978, by sending on his own letterhead a letter which had been drafted by an interstate officer of Price Waterhouse. The letter read:

"I acknowledge your letter of 13 June 1978 and advise that as liquidator of Day & Dent Constructions Pty Limited I have appointed Price Waterhouse & Co to act as my agents in respect of certain matters in connection with the liquidation.

Price Waterhouse & Co and myself share office premises and there is an association between us which includes the interchange of ideas and advice and also Price Waterhouse & Co supplies staff to assist me in the carrying out of my client work and the administration of my practice.

Mr Richard Barber, partner in charge of Price Waterhouse & Co Darwin, applied in April 1978 for registration as a liquidator in the Northern Territory and he was advised that he should reapply after the conclusion of certain liquidations that he was involved with, which included Day & Dent Constructions Pty Limited.

The court was aware that Price Waterhouse & Co were agents of mine during the provisional liquidation. The court has since issued orders in connection with the liquidation on instructions from Price Waterhouse & Co, as my agents.

I believe that I am properly carrying out my duties as liquidator and that the appointment of Price Waterhouse & Co as my agents is in accordance with the Companies Ordinance."

(emphasis added)

The Chief Justice described this letter as "entirely misleading" in speaking of Price Waterhouse having been appointed as Mr Ah Toy's agents "in respect of certain matters in connection with the liquidation". His Honour commented that "the whole conduct" of the liquidation and of the provisional liquidation had been handed over to Price Waterhouse.
It is clear that the Registrar of Companies was aware, by July 1978, that there had been at least a substantial delegation of his functions by Mr Ah Toy. The evidence does not disclose why he did not follow up the matter. It may be that, at some stage, the Registrar became aware of the true extent of the delegation. Those facts do not excuse the sending of a letter which seriously mis-stated the position. The reference to "certain matters" was obviously intended to convey the impression that Mr Ah Toy had the general conduct of the liquidation, delegating selected functions to Price Waterhouse. That was not the case. The general conduct of the liquidation was in the hands of Price Waterhouse, Mr Ah Toy apparently being asked to attend only to those formalities which the officers of Price Waterhouse thought it necessary for him to effect personally. As will emerge in connection with proceedings by Day & Dent against NAP, not even all of the matters which should have been done in his name were so done.
The matter of delegation is raised by the appellant in para 1(c) and (d) of his Supplementary Notice of Appeal, whereby he challenges so much of the decision of the Chief Justice as contains the following findings:

"(c) That no power was given in the Order appointing the Appellant as the Provisional Liquidator of the company to appoint Messrs Price Waterhouse, chartered accountants, as his agent.

(d) That it was wrong of the Appellant as the Liquidator of the company to appoint Messrs Price Waterhouse as his agent."

The Supplementary Notice of Appeal is not happily worded in respect of these matters. Counsel for the appellant do not challenge the proposition that no power was given in the order appointing Mr Ah Toy as provisional liquidator to appoint Price Waterhouse as his agents. There was no such provision in the order. Nor is it suggested that such a power was conferred upon Mr Ah Toy from some other source. In relation to the liquidation itself, an attempt was made at one stage to justify what had been done by reference to s.236(2)(j) of the Act. But, in the end, counsel for the appellant conceded that this paragraph did not authorize the type of general delegation which occurred in this case. They conceded that the appointment was wrong, in the sense of being unauthorized.
It follows that counsel accept that the propositions referred to in paras.(c) and (d) are in fact correct. Nonetheless they complain that some of the comments made by the Chief Justice in respect of the matter of delegation were unjustified and unfair. We have already set out some of those comments. Another observation, which was strongly challenged, was that the arrangement to delegate the conduct of the liquidation was "a deceptive sham".
It would have been desirable for the appellant to seek leave to amend the Supplementary Notice of Appeal so as to specify those comments which are under challenge. If the selected comments could properly be described as findings regarding the conduct of the appellant, it would have been consistent with the view expressed above, and with our reasons in relation to competency (61 ALR at p.589), for the Court to entertain such a challenge. No application for amendment was in fact made.
Notwithstanding the failure to amend, bearing in mind that the comments are critical of Mr Ah Toy's professional conduct and having regard to the fact that the matter of delegation has been comprehensively examined in argument, we have considered for ourselves the criticisms made in this respect by the Chief Justice. We have already indicated our agreement with some of them.
In relation to the description "deceptive sham", it is fair to say that what was done, in respect of both the provisional liquidation and the liquidation, was a sham in the colloquial sense although perhaps not in the legal sense: see Snook v London and West Riding Investments Ltd (1967) 2 QB 786 at p.802, Mahony v Commissioner of Taxation (1967) 41 ALJR 232 at p.237. Mr Ah Toy held the offices of provisional liquidator and liquidator but he did not act in those offices. Instead he allowed others to act, making decisions and fulfilling functions which he ought to have undertaken himself.
The extent to which people were deceived by the sham is unclear. The creditors seem to have been in no doubt that Mr Webb was in charge of the liquidation. At the first meeting of creditors Mr Ah Toy introduced Mr Webb and handed over to him the chairmanship of the meeting. Price Waterhouse communicated directly with creditors. The disclosure to official agencies was less complete. Reference has already been made to the misleading letter from Mr Ah Toy to the Deputy Registrar of Companies of 13 July. In two affidavits filed in connection with the appointment of a provisional liquidator of NAP, Mr Webb described himself as an employee of "the duly appointed agents of the liquidator" of Day & Dent, having "the conduct of this matter on the liquidator's behalf". (emphasis added)
We think that it goes too far to apply the epithet "deceptive" to the arrangement as a whole. But the arrangement was a "sham", in respect of which there was one attempt at deception and in other respects a lack of the candour which a court is entitled to expect from an official liquidator and from persons who undertake functions on his or her behalf. However it may be described, what was done reflects no credit upon those involved.
Provisional liquidation of NAP
At the time of the appointment of Mr Ah Toy as provisional liquidator of Day & Dent, the loan of $100,000.00 made by Esanda through Day & Dent to NAP had not been repaid. According to records of Day & Dent, there were other moneys owing by NAP to Day & Dent upon current account. During March 1978 Mr Day discussed these debts with Mr Gort of Price Waterhouse and he offered to undertake not to dispose of any assets of NAP provided that he could have their day to day control. Mr and Mrs Day did in fact offer an undertaking along those lines at a hearing before Gallop J on 28 April 1978 of an application for an adjournment of the winding up petition against Day & Dent. The duration of the undertaking was not specified but it would probably not have been operative after the winding up order was made on 18 May 1978. Mr Day was annoyed that a winding up order had been made. He made a comment to his solicitor, which was passed on by him to Mr Webb, that the creditors "had done their dough". He twice refused to reveal to Mr Webb the whereabouts of a Daihatsu truck with an attached concrete mixer belonging to Day & Dent.
Mr J B Waters, the solicitor acting on behalf of Mr Ah Toy although upon the instructions of Price Waterhouse personnel, advised Mr Webb that Day & Dent had a valid claim against NAP in relation to the sum of $100,000.00 received from Esanda. On 6 June 1978 Mr Webb served upon Mr Day a notice of demand signed by himself on behalf of Price Waterhouse requiring the payment by NAP to Mr Ah Toy of $114,514.00 -- the $100,000.00 Esanda loan together with $14,514.00 representing various advances prior to 18 May 1978 -- claimed to be owing to Day & Dent. Mr Day said he would not pay. On 7 June 1978 NAP obtained an ex parte injunction from Forster CJ restraining the presentation on behalf of Day & Dent of a winding up petition but this order was dissolved upon the following day.
On 9 June 1978 the first meeting of creditors of Day & Dent was held. Mr Webb chaired the meeting, at the invitation of Mr Ah Toy, and referred to the claim by Day & Dent against NAP. At Mr Webb's request Mr Waters elaborated, informing the meeting that it was intended to apply to the court for the appointment of a provisional liquidator of NAP. The minutes of this meeting show that Mr Day, who apparently attended the meeting on behalf of a creditor known as Daycon Industries Pty Ltd, was refused permission to comment on the matter. There was no other discussion. The meeting was not asked to express any view about the desirability of the proposed action. It may have been unrealistic to expect any useful opinion from the creditors at that early stage.
Later the same day a winding up petition against NAP, a summons for an order appointing a provisional liquidator and a supporting affidavit sworn by Mr Webb were filed. The documents were prepared by Mr Waters, upon the instructions of Mr Webb, after Mr Waters advised him that the application should be made. Because Mr Webb's affidavit was the subject of criticism by the Chief Justice in his inquiry, it is desirable to set out the material parts:

"3. I verily believe that on the basis of the information contained herein North Australian Properties Pty. Ltd. is unable to pay its debts and that it is just and equitable that the company be placed into provisional liquidation to facilitate the orderly disposal of the assets of the company and their distribution to creditors.

4. Now produced and shown to me marked 'RW1' is a photocopy of the Statement of Affairs duly certified by Mr. Kenneth Leonard Day, a director of both Day & Dent Constructions Pty. Ltd. and North Australian Properties Pty. Ltd. This Statement discloses debts due by North Australian Properties Pty. Ltd. to Day & Dent Constructions Pty. Ltd. of $14,514.00 on current account and $102,917.00 on 'advance account'.

...

7. Now produced and shown to me marked 'RW2' is a photocopy of a Memorandum of Contract for Loan which was executed by Day & Dent Constructions Pty. Ltd. on the 18th. day of October 1976. I have spoken with representatives of Esanda Limited who assured me that on their records, the advance was made to Day & Dent Constructions Pty. Ltd. and not to North Australian Properties Pty. Ltd. In this regard I refer to the affidavit of Kenneth Leonard Day filed herein in Supreme Court Action number 386 of 1978 sworn and filed herein on the 7th. day of June 1978. Paragraph 16 thereof confirms that the advance of $100,000.00 was made by Esanda Limited to Day & Dent Constructions Pty. Ltd.

8. The monies advanced to Day & Dent Constructions Pty. Ltd. pursuant to the Contract for Loan ('RW2') were advanced by Day & Dent Constructions Pty. Ltd. to North Australian Properties Pty. Ltd. and are repayable upon demand. This demand has been made."

Mr Webb proceeded to express his belief that the creditors of Day & Dent would be severely prejudiced if an order for provisional liquidation was not made promptly in respect of NAP. He gave reasons, including the failure of Mr Day to supply certain information to the liquidator of Day & Dent -- in reality to himself on behalf of the liquidator -- his failure to reveal the whereabouts of the Daihatsu truck and concrete mixer, his understanding that a purchaser had been found for the Coonawarra Road property and the possibility of compensation moneys, payable following the acquisition by the Commonwealth of certain land of NAP, being applied without regard to the interests of the creditors of NAP. Mr Webb referred to a schedule of assets and liabilities of NAP supplied to him by Mr Day which indicated a potential surplus of $41,000.00 but he added that current income was insufficient to satisfy the company's creditors.
The winding up petition referred to the service of the notice of demand for "repayment of debts totalling $114,512.00" and alleged that NAP had failed to pay these debts as they fell due. However, the only ground advanced in the petition for the making of a winding up order was: "In the circumstances it is just and equitable that the company should be wound up".
The application for the appointment of a provisional liquidator came before Muirhead J late in the afternoon of 9 June 1978. It is not clear whether Mr Waters had originally intended to make an ex parte application. But, whatever the position in that regard, Mr C A Black, solicitor, in fact appeared upon the hearing of the application on behalf of NAP upon the instructions of Mr Day. Mr Black made it clear that the claim of indebtedness, at least in respect of the sum of $100,000.00, was in issue and that the directors of NAP denied that the company was insolvent. Nonetheless, Muirhead J made an order appointing Mr M J Mount as provisional liquidator of the company with powers limited to the taking under his control and securing of all property of the company, the carrying on of the business of the company so far as was necessary for the immediate beneficial winding up thereof, the recovery of debts due to the company and the operation of bank accounts of the company.
The provisional liquidation of NAP continued for over two years; until 7 August 1980 when the winding up petition was ultimately heard by Gallop J. In the meantime one application for discharge of the order appointing a provisional liquidator was made and refused.
Gallop J dismissed the winding up petition. His Honour's reasons appear only from the transcript report of discussions between himself and Mr Waters; but it appears that the major reason actuating this decision was that the petitioner was Mr Webb. Not being the liquidator of the alleged creditor, or a person otherwise referred to in s.221 of the Companies Act, Mr Webb had no standing to present a petition. However, there are indications that his Honour was concerned also at the appropriateness of the ground relied upon, the "just and equitable ground", in a claim made on behalf of a creditor whose case was that the company was insolvent.
The cost to the estate of Day & Dent of the appointment of a provisional liquidator of NAP was $3,504.54. The Chief Justice found that it was "both wrong and unnecessary" for the appellant as liquidator of Day & Dent -- more accurately for Mr Webb on his behalf -- to place NAP in provisional liquidation on 9 June 1978 and that this action amounted to misfeasance on the part of the appellant causing loss to the estate of the company of $3,504.54. His Honour ordered that this sum be repaid by the appellant to the company. The appellant challenges both the finding (Supplementary Notice of Appeal ground 1(b)) and the order.
In his reasons for judgment (32 NTR at pp.37-38) the Chief Justice explained the basis for his finding in this manner:

"The application to place N.A.P. in provisional liquidation is said to be wrong because at the time Webb was by no means sure that the debt was owing to Day & Dent as is proved by his statement to a committee of inspection that the claim was a 'may be'. Webb said in evidence that he knew that there is a legal principle that a company should not be placed in liquidation on the basis of a disputed debt. The petition to wind up N.A.P. was finally dismissed by Gallop J. as being incompetent. It is also said that Webb's affidavit in support of the application to place N.A.P. in provisional liquidation was misleading, and so it was, in that it alleged that N.A.P. was unable to pay its debts when all that Webb knew was that N.A.P. through Day refused to pay the debt. The affidavit also concealed the true nature of the transaction from N.A.P. and Day & Dent and gave the impression that there was a simple debt of $100,000. I agree with the Registrar's contention that it was wrong to place N.A.P. in provisional liquidation.

It was also unnecessary to place N.A.P. in provisional liquidation if the only reason for doing so was to preserve the assets of the company because Day & Dent might eventually be found to have a claim against it for $100,000 or some other sum. The most substantial assets of N.A.P. were real property which was subject to a mortgage to Esanda and to other mortgages so that the directors would have some difficulty in disposing of or dissipating them. In addition, the liquidator could have obtained an injunction to preclude the directors from disposing of or dissipating the assets of N.A.P. I would not anticipate that there would have been much difficulty about obtaining such an injunction. In the course of the inquiry Day gave an undertaking not to dispose of any assets of N.A.P. until the conclusion of this inquiry or until further order. An injunction thus obtained could have been protected by caveat.

I consider that to place N.A.P. into provisional liquidation was both wrong and unnecessary. I also conclude that it amounted to a misfeasance. The loss to N.A.P. because of this provisional liquidation is outside the terms of this inquiry but the legal costs and liquidation fees involved to Day & Dent which total $3,504.54 are a loss to the estate of the company caused by the misfeasance of Price Waterhouse on behalf of the liquidator."

Counsel for the appellant challenge almost every step in these reasons. The ultimate fate of the petition is, they say, irrelevant to the question whether it was appropriate, under the conditions existing on 9 June 1978, to seek the appointment of a provisional liquidator. They point out that the transcript of proceedings reveals that, when he made the order of appointment, Muirhead J was aware both of the nature of the claims -- and especially that the claim of $100,000.00 was both unusual and contested -- and that Mr Webb was not himself the liquidator of Day & Dent but was purporting to act on his behalf.
Counsel dispute the finding that Mr Webb's affidavit was misleading "in that it alleged that NAP was unable to pay its debts". They point out that para.3 of the affidavit contained merely a statement of Mr Webb's belief of the inability of NAP to pay its debts "on the basis of the information contained herein". Paragraphs 4, 7 and 8 then set out the relevant material, thus enabling evaluation of the matter by the Court itself. Counsel challenge his Honour's reference to the affidavit having "concealed the true nature of the transaction". They point to paras.7 and 8 which evidence an advance by Esanda to Day & Dent which was on-loaned to NAP, repayable on demand; an analysis of the position which has not been contested. In relation to the necessity to place NAP in provisional liquidation, counsel point to the argument before Muirhead J as to the desirability of various courses of action. They deny the appropriateness of obtaining an injunction to preclude the directors of NAP from disposing of the assets of that company, contending that the accepted method of dealing with a situation such as this is to procure the appointment of a provisional liquidator to take charge of the assets.
In our view, and with respect to the Chief Justice, the criticisms made of his findings on this issue are justified. With hindsight it may appear that there was not such a likelihood that assets of NAP would in fact be dissipated as to warrant the expenditure of Day & Dent funds to procure the appointment of a provisional liquidator of NAP. But this must have been much less apparent on 9 June 1978. All that Mr Webb knew, at that time, was that the claims of Day & Dent against NAP were easily the most significant assets of Day & Dent, that NAP was controlled by Mr Day and that Mr Day had adopted an attitude of non-co-operation, even of hostility, to himself. It was the duty of the liquidator to take effective action to protect the creditors of Day & Dent against any risk of dissipation of the assets of NAP. Mr Ah Toy would have been exposed to serious criticism if prompt action had not been taken and it is correct, as counsel submit, that the courts have traditionally taken the view that the appropriate method of protecting creditors of a company against a possible dissipation of assets is to appoint a provisional liquidator. The making of a Mareva-type injunction is a possible modern alternative, but such an order has significant disadvantages where a business needs to be carried on. Further, contrary to the comment of the Chief Justice, such an injunction would not have created a caveatable interest, so as to support the retention of a caveat upon the land titles register; although, no doubt, an injunction might have extended to the Registrar of Titles.
It appears to us that the short answer to all of the criticisms made of the course taken by Mr Webb is that the matter was fully ventilated in a hearing before Muirhead J at which NAP was represented by a solicitor instructed by Mr Day. That solicitor put to Muirhead J various matters which, he submitted, made it inappropriate or inconvenient to deal with the situation by appointing a provisional liquidator. Muirhead J, entertaining concern about the possible dissipation of assets, rejected those submissions. Upon the material then before the Court, this order cannot properly be criticised. Nor, in our opinion, can the decision to seek such an order.
The accuracy of the material placed before Muirhead J is, of course, a separate matter but in this respect also we disagree with the Chief Justice. It appears to us that there was nothing misleading about what was said in the affidavit upon the question of insolvency. Mr Webb did not simply assert insolvency. He deposed to a belief formed upon the basis of identified documentary evidence. It appears never to have been suggested that he did not in fact have the belief to which he deposed; nor can it be said that the documents were inadequate to justify such a belief. The documents included the Day & Dent statement of affairs as at 23 February 1978, certified by Mr Day, in which NAP was claimed as a debtor of Day & Dent in the respective sums of $14,514.00 for current account and $102,917.00 for advance account. It is true that a liability of Day & Dent of $102,917.00 was also claimed but it was by no means clear that this would preculde the recovery by Day & Dent from NAP of the stated debts. The statements in the documents exhibited to the affidavit did not, of course, conclude the matter. It remained possible that the indebtedness of NAP might effectively be denied. But Mr Webb did not, in his affidavit, suggest the contrary. He merely put the situation before the Court. The Court, knowing that the debt was disputed, thought it nonetheless appropriate to appoint a provisional liquidator.
In his evidence before the Chief Justice Mr Ah Toy described the application to appoint a provisional liquidator as "part of the strategy to get the debt repaid". Counsel for the respondent submit that this description indicates that the application was made for an improper purpose, that the application was not motivated by a genuine desire to protect the assets of NAP but rather by a desire to put such pressure upon that company that it would pay out the claim, whether or not it was owed. In aid of that submission reference is made to the delay in actually commencing recovery procedures.
In our view this submission is not open to the respondent. No suggestion of improper purpose was made to either Mr Ah Toy or Mr Webb in the course of their respective cross-examinations. The reference to "part of the strategy" was not followed up by the cross-examiner. The Chief Justice made no finding of lack of bona fides or improper purpose. Such findings as were made were to the opposite effect. His Honour accepted Mr Ah Toy as a witness who was "doing his best to tell the truth", and that -- with one presently immaterial exception -- Mr Webb did not act dishonestly.
In any event the reference to "part of the strategy" without further investigation of what was meant by that description, would not justify a finding of improper purpose. It was not suggested that Mr Webb was motivated by any altruistic purpose in applying to the Court for the appointment of a liquidator; he was interested in obtaining payment of the debt to NAP. In the judgment he made, it was a necessary part of procuring the payment of the NAP debt to Day & Dent that the assets be protected against possible dissipation. That entirely proper purpose can properly be described as "part of the strategy" to obtain payment.
It follows from what we have already said about the matter of delegation that the decision to approach the Court for the appointment of a provisional liquidator should have been taken by Mr Ah Toy personally, rather than by Mr Webb. The petition should have been filed in his name, and not in the name of Mr Webb. It is unlikely that any expense flowed from the fact that Mr Webb, rather than Mr Ah Toy, made the decision to seek the appointment of a provisional liquidator. Given Mr Waters' advice, it seems to us to be extremely likely that Mr Ah Toy would have made exactly the same decision. The evidence of Mr Ah Toy was that he was aware in advance of the intention to approach the Court. It is true that, if the petition had been in the name of Mr Ah Toy rather than of Mr Webb, it would not have been dismissed upon the ground that the petitioner lacked standing. But as, at that time, the claim for $100,000.00 had been rejected in the Supreme Court, it would probably have been dismissed on other grounds. In any event the ultimate fate of the petition has nothing to do with the earlier expenditure of $3,504.54 in connection with the appointment of a provisional liquidator.
In our opinion, the comments just made are the only matters of legitimate criticism in relation to the application to appoint a provisional liquidator of NAP. With respect to the Chief Justice, we cannot agree that it was either wrong or unnecessary for the application to be made, that the affidavit was, in any respect, misleading or that it concealed any relevant information. On the contrary, we are of the opinion that the making of the application was, under the then prevailing circumstances, a step desirable to be undertaken and that the material placed before the Court in support of the application fully and frankly disclosed the position as known to Mr Webb. The findings of the Chief Justice, critical of the appellant, in relation to this matter and his Honour's order for repayment of the sum of $3,504.54 should both be set aside.
Appeal to the High Court
Notwithstanding the appointment of a provisional liquidator of NAP, there was some delay in the institution of legal proceedings on behalf of Day & Dent against NAP.
On 15 September 1978 Mr Webb sought advice upon the recoverability of the $100,000.00 Esanda advance from Sydney solicitors, Holman Webb & Co. This advice was supplied by telex dated 26 September and amplified by letter dated 29 September 1978. On 26 September 1978 Mr Webb had communicated to a meeting of the committee of inspection a preliminary view of Holman Webb and commented that "verbal advice indicates a maybe". According to the oral evidence of Mr Webb before the Chief Justice the committee "supported whatever action was possible if there was a satisfactory claim".
Upon receipt of the advice of Holman Webb, Mr Webb discussed the matter with Mr Waters. Mr Waters apparently discussed the matter with Adelaide counsel before -- on 4 January 1979 -- submitting to Mr Webb a written opinion in which he advised that Day & Dent was entitled to claim the $100,000.00 advance from NAP and that NAP could not set off against that claim any moneys which it might be required to pay Esanda. Reasons were given. The opinion concluded with a recommendation that proceedings be instituted against NAP at the earliest opportunity.
On 1 February 1979 the Supreme Court granted leave to the appellant to institute proceedings against NAP and a writ was issued on 6 February 1979. In its Defence NAP put in issue a number of allegations made on behalf of Day & Dent in its amended Statement of Claim and also asserted an entitlement to set off its liability to Esanda. The action came on for hearing before Gallop J on 15-17 October 1979, when his Honour reserved his decision. On 7 December 1979 NAP applied to re-open its case so as to prove that, since the hearing and in exercise of its power of sale as mortgagee, Esanda had sold land of NAP and had retained out of the proceeds of the sale the balance of the moneys owed to Esanda by Day & Dent. Gallop J acceded to the application and admitted evidence of these matters. On 19 March 1980 his Honour gave judgment dismissing the action on the ground that NAP was entitled to set off the amount recovered by Esanda: see (1980) 5 NTR 22.
Mr Webb sought advice from Sly & Russell, solicitors in Sydney, as to whether the liquidator should appeal against the decision of Gallop J. By telex dated 3 April 1980 that firm advised that the "matter is not entirely free from doubt" but, in substance, recommended that an appeal proceed. The solicitors expressed the view that there could be no set-off in this case because on 18 May 1978, the date of the winding up order in respect of Day & Dent, there was no debt due by Day & Dent to NAP. Mr Webb discussed the matter with Mr Waters who advised an appeal to this Court. Notice of Appeal was filed on 8 April 1980. Two days later the committee of inspection met and resolved unanimously to proceed with the appeal.
The appeal to the Federal Court failed. In judgments delivered on 18 February 1981 -- see (1981) 34 ALR 595 -- Forster and McGregor JJ held that, Esanda having been paid, NAP was entitled to set off the amount paid by it as surety against the claim made by Day & Dent. Sheppard J dissented, holding -- in reliance upon English authorities -- that set off was not available in a case where, as here, the surety (NAP) had not paid off the principal creditor (Esanda) before the commencement of the winding up of the principal debtor (Day & Dent).
Shortly after the judgments of this Court became available, Mr Webb had a discussion with Mr Waters in which Mr Waters advised that Mr Webb should consider a further appeal, to the High Court of Australia. On 23 February the committee of inspection was informed of the result of the appeal. Asked to comment, Mr Waters told the meeting that he rated the possibility of success in the High Court at 50/50. The meeting was informed that funds then on hand amounted to $27,390.95, that legal fees incurred by the liquidator or awarded against him would approximate $11,300 and that further appeal costs to the High Court would be approximately $5,500. Not surprisingly, given that information, the committee decided that, "Subject to a second legal opinion to be sought from Sly & Russell on the basis of the appeal being favourable the Liquidator is to proceed to appeal to the High Court".
In accordance with the decision of the committee of inspection the matter was referred back to Sly & Russell. That firm sought advice, as a matter of urgency, from two barristers, Messrs A M Gleeson QC and P G Hely. In a joint advice they briefly analysed the differences between the views expressed by Forster and McGregor JJ on the one hand and Sheppard J on the other by saying that the majority regarded the outcome of the appeal as governed by certain dicta in the High Court whereas Sheppard J had -- albeit with misgivings -- regarded himself as "virtually bound to follow" a decision of the English Court of Appeal. The advice concluded:

"Plainly the relevant law on the subject is uncertain and the uncertainty can only be resolved in this country by a decision of the High Court. Further, the appellant is supported by a decision of the English Court of Appeal and there is no authoritative Australian decision to the contrary. Its prospects of success might therefore be regarded as reasonable.

On that basis we consider that the liquidator of the appellant would be justified in prosecuting an appeal. Draft Grounds of Appeal is attached. The affidavit as to competency is settled as drafted.

Our advice has been sought as a matter of urgency. If it is desired that we give more detailed consideration to whether in our opinion the decision of the English Court of Appeal is correct and should be followed by the High Court, we would be happy to do so, but would require further time."

Mr Webb discussed this advice with Mr Waters, who saw no need for more detailed advice from counsel and who recommended that the appeal proceed. It did so; but failed. On 30 April 1982 the High Court unanimously dismissed the appeal, holding that s.86 of the Bankruptcy Act 1966 permits the set-off of a debt which is merely contingent at the date of the commencement of a liquidation but which subsequently becomes a fixed liability: see (1982) 150 CLR 85.

Unfortunately, the estimate of the costs of an appeal to the High Court proved to be widely astray. The actual cost to Day & Dent of the unsuccessful appeal to that Court was $21,840.88, this sum representing both the appellant's own costs and the taxed costs of the respondent.
In the judgment now under appeal the Chief Justice held that the appellant was negligent in appealing to the High Court "without the support of a firm opinion from Mr Gleeson QC and Mr Hely of counsel" and he ordered him to repay to the estate of the company the costs of $21,840.88. The appellant challenges before us both this finding (Supplementary Notice of Appeal para.1(a)) and order.
In his reasons for judgment (32 NTR at p.37) the Chief Justice noted that, at the time of the decision whether to appeal to the High Court, "three judges, including the trial judge, had found against the appellant as against one in its favour". He continued:

"The legal advice in favour of appealing was that of Waters and Messrs. Gleeson Q.C. and Hely. The latter opinion was given in haste and was qualified by its authors. The costs of and associated with the appeal to the High Court could have been estimated in advance at something approaching $20,000. I consider that it was imprudent to the point of negligence to persist with this appeal without asking Messrs. Gleeson Q.C. and Hely to give more detailed consideration to the matter. Had this more detailed consideration resulted in a confirmation of the opinion already expressed, the position would no doubt have been different, but as it is I conclude that by negligently pursuing the appeal to the High Court the liquidator has caused a loss to the estate of $21,840.88."

In criticising this finding, counsel for the appellant point to the early history of the claim: the opinions expressed by various legal advisers before the proceedings were commenced and the fact that leave was given to institute the proceedings by the Supreme Court. In our view these matters are not material. The situation was fundamentally altered by the discharge of the liability to Esanda in late 1979. The first real dilemma for the liquidator, in the light of that new situation, was whether to appeal to the Federal Court from the order of Gallop J dismissing the claim. As to that matter, Mr Webb took and acted upon the advice of experienced commercial solicitors and the Chief Justice found himself "unable to say that Webb was imprudent to launch this appeal, indeed as much was finally conceded by counsel for the registrar before the inquiry".
The gist of the finding of the Chief Justice upon this matter was that it was "imprudent to the point of negligence" for Mr Ah Toy -- or, more accurately, for Mr Webb on his behalf -- to persist with the appeal without asking counsel "to give more detailed consideration to the matter". That finding was apparently based upon a view that the advice previously given by counsel "was given in haste and was qualified by its authors".
The written joint advice of counsel was, they said, given as a matter of urgency. The circumstances of urgency apparently precluded a detailed consideration of the cogency of the reasoning of the English Court of Appeal and of the possible acceptance of that reasoning by the High Court. In that sense the advice may be said to have been given "in haste". However, as we read what was written, the advice cannot properly be described as "qualified". The advice was that the relevant law was uncertain, that the prospects of success were reasonable and that the liquidator of Day & Dent would therefore be justified in prosecuting an appeal.
Even if counsel had reached the view that the English decision was less persuasive than the view expressed in the earlier High Court dicta, they may well have given exactly the same advice. Upon a question as open as that involved in the prospective appeal, more precise prediction would probably have been impossible; there could be no assurance that the High Court would share the reaction of counsel. But, more importantly, the extent of the necessary analysis was a matter for counsel. If they felt able, as they did, to offer advice about the prospects of success without having first carried out a detailed analysis of the authorities, it cannot fairly be laid at the door of the lay client that he did not see the necessity to have them make that analysis, and confirm their advice, before acting in accordance with their view.

The evidence of Mr Webb is that he considered the advice of Messrs Gleeson QC and Hely and discussed it with Mr Waters. Both men were of the opinion that no further advice was required before proceeding. Mr Webb was entitled to rely upon Mr Waters on that matter. In effect Mr Ah Toy has been held culpable in failing to take a step, in relation to the obtaining of legal advice, not thought to be necessary by the solicitor advising him in connection with the matter and who, to his knowledge, was fully conversant with the case. Mr Waters had argued the matter before both Gallop J and the Federal Court. It will be a rare case in which a lay client will be guilty of negligence in acting upon the advice, in respect of a legal question, of a competent solicitor known by him to be fully and accurately informed of the facts of the matter. To adapt the words of the Judicial Committee of the Privy Council in an analogous case, Dunlop v Woollahra Municipal Council (1982) AC 158 at p.171, "What more could (the liquidator) be reasonably expected to do than to obtain the advice of qualified solicitors whose competence (he) had no reason to doubt?".
In Perpetual Trustee Co v Watson (No.2) (1927) 28 SR (NSW) 43 a question arose whether the trustees of a deceased estate had been guilty of "wilful neglect and default" in failing to invest funds in their hands, thereby losing for the estate the income that would have been earned. The trustees had failed to invest the funds because they had been advised by counsel -- erroneously, as it was held -- that they lacked power to do so. Harvey CJ in Eq. held that the trustees were not liable for the loss saying, at p.47: "It cannot be said that they wilfully were guilty of neglect or default in their trust when they acted on the advice of responsible counsel who advised them on a matter of law". Section 278(2) of the Companies Act speaks of "a misfeasance, neglect or omission on the part of the liquidator". In relation to a failure to take a step reasonably required in the conduct of a liquidation, those words are not different in effect to "wilful neglect or default". We are of the opinion that proof that the omission was a product of legal advice from a competent lawyer, properly instructed, furnishes an answer to the complaint.
Counsel for the respondent relies upon cases in which trustees have been held liable to make good misapplications -- in the sense of making payments to the wrong persons -- of trust funds. In such cases it has been said that liability is not avoided by the fact that the trustee acted upon the advice of an apparently competent lawyer because public policy requires that, in such a situation, the trustee, rather than the beneficiary, must suffer: see National Trustees Co of Australasia v General Finance Co of Australasia (1905) AC 373 at p 379, In re Windsor Steam Coal Company (1901) Limited (1928) 1 Ch 609 at pp 612-613. However, in our view such cases are clearly distinguishable from cases arising under s.278(2) in which some element of personal fault -- whether by act or omission -- is required before an order may be made requiring the liquidator to make good a loss to the estate of the company. In a case where personal fault is a prerequisite to liability, a person is not to be held liable merely because the legal advice received turns out to be unsound or inadequate.
Three further points should be made in respect of the High Court appeal. The first is that, in considering the advantages and disadvantages of appealing to the High Court, Mr Webb was entitled to act upon the estimate of costs given to him by Mr Waters. As the event showed, that estimate was wide of the mark. But the appellant should be judged by reference to the information available to him at the relevant time. Upon the basis of Mr Waters' estimate of costs and of the prospects of success, a decision to prosecute the appeal was almost inevitable. This leads to the second comment: that although, once again, the critical decision appears to have been taken by Mr Webb rather than by Mr Ah Toy, it is most unlikely that this circumstance made any difference to the result. Mr Ah Toy did, in fact, attend the meeting of the committee of inspection on 23 February 1981 which decided, subject to the obtaining of a second opinion, to proceed with the appeal. There is nothing to suggest that he would have reacted any differently from Mr Webb to the advice given by Mr Waters relating to the adequacy of the joint advice of Mr Gleeson QC and Mr Hely. Accepting, as we do, the submission made on behalf of the respondent that Mr Ah Toy was at fault in not personally considering whether to proceed, in the light of this joint advice, no loss has been shown to have been thereby occasioned.
Our final comment relates to two submissions not dealt with by the Chief Justice but by virtue of which the respondent seeks to sustain his Honour's finding and order: first, that the liquidator is personally liable for the costs of the appeal because he chose to proceed with the appeal without obtaining a prior indemnity as to costs from the creditors, or alternatively appropriate directions from the Court; and, secondly, that the prosecution of the appeal after the discharge of the debt to Esanda was in breach of the principle relating to the conduct of liquidators propounded in Ex parte James, In re Condon (1874) 9 ChApp 609.
As to the first matter, the reality of the situation was that the only prospect of there ever being sufficient funds to pay to creditors anything more than a small dividend lay in the successful pursuit of the claim against NAP. There were sufficient moneys available, without recourse to the creditors, to fund the appeal to the High Court. The committee of inspection was kept fully informed of the progress of the claim against NAP. It unanimously supported the taking of each step in the prosecution of that claim, including the appeal to the High Court. In effect, the attitude of the creditors was that they were prepared to place at risk such funds as were available, and which would have provided a small dividend, in the hope of obtaining a result which would yield them a substantial dividend. In cases of division of opinion amongst creditors as to the desirability of pursuing some legal action or in situations where the fruits of any victory are likely to benefit creditors disproportionately it is, no doubt, wise for a liquidator to consider the desirability of seeking from particular creditors an indemnity as to costs. But the present case did not fall within either of these categories. There was no reason for seeking an indemnity from any particular creditor. All the creditors had a similar interest in success. All were apparently willing to risk their small dividend in pursuit of a greater one.
In relation to an application for directions, it is true that this course might have been taken. The Court might have suggested that the liquidator obtain the more detailed advice referred to by Mr Gleeson and Mr Hely. But, in the end, it is highly likely that the Court would have thought it reasonable for the liquidator to act upon the basis of the advice of these two experienced commercial counsel, especially given the attitude of the creditors.
The rule in Ex parte James arises out of the circumstance that trustees in bankruptcy and liquidators are officers of the court. In Ex parte James itself it was held that the status of the applicant trustee meant that he ought not to retain in his hands moneys which in equity belonged to someone else; James LJ commenting at p.614 that "the Court of Bankruptcy ought to be as honest as other people". Since that time the rule has been applied in numerous cases, both in England and Australia, but mostly in situations in which the question was whether the trustee or liquidator should retain moneys which he was legally entitled to retain but to which someone else had a claim in conscience: see the cases collected in Re Ayoub; Ex parte Silvia (1983) 67 FLR 144 at pp 147-148. However, the principle is not so restricted. It has been applied to cause the Bankruptcy Court to direct a trustee not to sue for the recovery of property: see In re Clark, Ex parte The Trustee v Texaco Ltd (1975) 1 WLR 559 in which, at pp 563-565, Walton J set out the conditions for the operation of the rule. See also Re Docker; Ex parte Official Receiver (1938) 10 ABC 97 at p 112. However, it appears that the circumstances under which a trustee or liquidator will be in breach of the rule, in suing to recover property to which the estate is legally entitled, are fairly limited: see Scranton's Trustee v Pearse (1922) 2 Ch. 87 and the comment upon that case made by Latham CJ in Downs Distributing Co Pty Ltd v Associated Blue Star Stores Pty Ltd (In Liquidation) (1948) 76 CLR 463 at p.476.
There is a particular problem about applying the rule to exclude a trustee or liquidator from prosecuting a statutory claim. As Lord Sterndale MR pointed out in Scranton's Trustee at pp.123-124, a court can hardly be put in the position of having to determine whether particular legislation fits some preconceived notion of desirable general policy. In the present case the claim made against NAP was a claim made pursuant to the power given to the liquidator by s.236(2)(a) of the Companies Act to enforce a chose in action given into his control by s.233(1) of that Act. The validity of the claim depended upon the proper application to the case of s.86 of the Bankruptcy Act, which was made relevant by s.291(2) of the Companies Act. The Commonwealth Parliament having addressed itself, in s.86, to the proper resolution of problems of mutual credits and debts, and the Northern Territory legislature having adopted that solution, it is difficult to see how a court, or the liquidator himself, could act otherwise than in accordance with s.86. To adopt some different solution to the problem of mutual credits and debts posed by the case would be to prefer a personal opinion as to the desirable position, based upon a subjective assessment of commercial morality, to the result intended by the legislature; cf Re Chemical Plastics Ltd (1959) VR 570 at pp 575-576. There was here no extraordinary situation such as in Re Clark, where petrol was fortuitously delivered to the bankrupt after the date of the receiving order and used by him to the benefit of his estate.
For these reasons it appears to us to be doubtful that Ex parte James had any relevance to the claim against NAP. But it is not necessary to decide that question. Prior to the hearing before us nobody suggested that, in obedience to the rule in that case, the liquidator should stay his hand. It appears that the matter was never raised with Mr Ah Toy, or with his agents, either by his own advisers or on behalf of NAP. It must be remembered that the advice from Mr Gleeson and Mr Hely was that the liquidator would be justified in prosecuting an appeal to the High Court. This is the antithesis of the breach of duty necessary to support a finding of misfeasance and so give rise, in the case of a positive act, to liability under s.278(2).
Each of the submissions of the respondent in support of the finding of the Chief Justice in respect of the High Court appeal, and of his consequential order for the repayment of the money expended in costs, should be rejected. Both the finding and the order should be set aside.
Shares in NAP
The respondent argued before the Chief Justice that, instead of pursuing the High Court appeal, the appellant should have investigated the possibility of claiming for Day & Dent the beneficial entitlement to the shares in NAP registered in the names of Mr and Mrs Day. The suggestion was that a claim may have lain on either of two bases: that Day & Dent provided the original $2.00 subscription funds and thus became the beneficial owner of the initial two shares upon their allotment; or that the result of the Perkins Goleco transaction was that, upon re-transfer of the shares in NAP to Mr and Mrs Day, the shares became the beneficial property of Day & Dent. Alternatively, it was said that the sum of $10,000.00 paid by Day & Dent at or about the time of the re-transfer should have been required to be repaid by Mr Day to Day & Dent. The specific criticism made by the Registrar against Mr Ah Toy was not that he failed actually to institute appropriate proceedings but rather that he failed to obtain legal advice about the possibility of prosecuting successfully one or more of those claims. The Registrar relied upon evidence given before the Chief Justice by Mr Ian Ferrier, an experienced liquidator, to the effect that, having regard to certain entries in the books of the company, the proper and prudent course would have been for the liquidator to obtain legal advice regarding the availability of those claims.
The Chief Justice found "without difficulty" that the appellant or his agents should have sought legal advice "as to the possible claims against the Days with respect to the NAP shares". He referred to the fact that the present liquidator, Mr Johnston, had instituted such proceedings in the Supreme Court. At the time of his Honour's judgment those proceedings were still awaiting trial so that it was impossible for him to determine what loss (if any) had been sustained by the estate of the company as a result of the alleged failure of the liquidator to obtain advice. Because of the pendency of that action his Honour thought it undesirable to comment upon the merits of the prospective claims other than by saying that there was, in his view, "a strong prima facie case that a claim against Day and Mrs Day with respect to these NAP shares might succeed". The Chief Justice reserved liberty to both the Registrar and Mr Ah Toy to apply to resume the inquiry in respect of this matter. For reasons which have not been explained to us, the action by the present liquidator has still not been heard.
The ground of appeal relating to this matter is that set out in para.1(g) of the Supplementary Notice of Appeal which challenges the primary judge's finding: "That the Appellant as Liquidator of the company should have sought legal advice as to possible claims against a Mr and Mrs Day with respect to the shares held in the issued capital of NAP". Although the ground is thus limited, counsel for the appellant put submissions -- without objection from the respondent -- challenging his Honour's finding insofar as it may be read as accepting the submissions made on behalf of the respondent regarding the matter of the payment of the $10,000.00 and we will deal also with that matter.
We have been taken by counsel for the present parties through several documents, said respectively to demonstrate and to negative the proposition that the NAP shares are beneficially owned by Day & Dent. The documents are also said to show that Mr Day improperly debited to the company, Day & Dent, the sum of $10,000.00 which was paid to Mr Perkins and Mr Gole by way of consideration for the re-purchase by him in June 1975 of the NAP shares. It was not made clear to us whether any claim is made by Mr Johnston in the pending Supreme Court proceedings in relation to this sum.
The question whether Mr Ah Toy was guilty of any misfeasance, neglect or omission in respect of a possible claim against Mr and Mrs Day is distinct from the question whether such a claim will in fact succeed. There may be occasions upon which a liquidator, confronted with particular evidence, will be guilty of a neglect or omission in failing to procure legal advice even though, upon more detailed investigation or a hearing by a court, it is ultimately determined that the claim cannot succeed. Conversely, there may be occasions upon which the liquidator will not be guilty of any default -- although the claim is a good one -- because the material in his or her possession would not have indicated to a reasonable and prudent liquidator the possibility of a successful claim. It is, therefore, unnecessary for us to say anything about the likely result of the current proceedings. Having regard to the facts that those proceedings still await a hearing and that we have no detailed knowledge, either of the manner in which the claim is put or the evidence that is available to support it, it is also undesirable that we say anything upon that subject.
Two questions arise in relation to the matter under present consideration: whether, upon the material before him, the liquidator should have sought legal advice; and whether he in fact did so, in an appropriate manner. It is undesirable that we make any detailed comment about the first matter. Such a comment necessarily involves an analysis of transactions which, as we understand the position, are likely to be considered in the Supreme Court. It is enough to say that the documents to which we have been referred do not suggest to us that the shares in NAP were, at any time, owned beneficially by Day & Dent. There may, of course, be additional material and we emphasise that we say nothing about what should be the result of the Supreme Court action. However, and with respect to the differing view of the Chief Justice, Mr Ah Toy ought not to be criticized because, on the material apparently then available to him, he did not seek advice regarding the possibility of legal action over the shares.
While there is no evidence that the liquidator sought advice regarding the possibility of legal action over the shares, the question of the shares was raised by Mr Gort. The material in the appeal books includes the liquidator's file relating to the examination of Mr Day under s.249 of the Companies Act. Notes prepared by Mr Gort for Mr Waters, who appeared for the liquidator on the examination, mention the purchase of the shares and also the adequacy of the consideration for the transfer of land to NAP. In the course of Mr Waters' examination, the following exchange took place between him and Mr. Day, as reported at p.97 of the transcript of that examination:

"Q. Then when you transferred the shares, the shares were transferred back to you and your wife, not back to Day & Dent Constructions, you then say that a demand was made on Day & Dent Constructions ---?

A. Hang on, hang on - the shares were never owned by Day & Dent Constructions. The shares in North Australian Properties were always owned by myself, and I transferred them back to myself and my wife. So why should I transfer them back to Day & Dent? That is suggesting an innuendo of the like that I did the wrong thing".

The matter does not appear to have been followed up by Mr Waters and Mr Day's answer, apparently accepted, would be a reason for not pursuing any further the question of ownership of the shares.

The alternative claim relates to two sums totalling $10,000.00, paid to Mr Perkins and Mr Gole at the time when Mr Day exercised his option to re-purchase the NAP shares. The two sums were paid by Day & Dent but the cost was debited, in the company's books, to the loan account of Mr Day; reducing his credit balance to $9,952.00. No criticism can be made of this. The cost was borne by Mr Day. However, some three months later this debit was reversed. Mr Day's loan account credit was restored to $19,648.27; the difference of $303.73 being attributable to another item. The company's journal -- which was apparently not made available to the liquidator or to Price Waterhouse until after the commencement of the inquiry before the Chief Justice -- showed how this came about. The accounts of Day & Dent were debited with the sum of $10,000.00 for "interest", explained as being "interest on loan from Perkins Nominees" and the loan account of Mr Day was credited with the same amount.

It is difficult to see the justification for the company being required to bear the cost of the re-purchase by Mr and Mrs Day of the shares issued by NAP. The transaction with Perkins Nominees and Goleco Nominees had, no doubt, been undertaken because Day & Dent was short of available funds. However, part of the transaction was that NAP should purchase the Coonawarra Road land of Day & Dent, at actual value, as an investment upon its own account. NAP needed finance to carry out this transaction, which finance it obtained from Perkins Nominees and Goleco Nominees. The payment of $10,000.00 can be regarded as a cost of obtaining finance -- perhaps, using the word loosely, "interest" -- but it was a cost incurred directly for the benefit of NAP and indirectly for the benefit of Mr and Mrs Day as the shareholders of NAP. There is no apparent justification for Mr Day's having required Day & Dent to bear this cost.
The legitimacy of the reversal of the original $10,000.00 entry does not appear to have been considered by the liquidator, or by Price Waterhouse on his behalf, at any time. Mr Webb gave evidence that he thought that "Mr Day was endeavouring to get a tax deduction". No questions were asked of Mr Day concerning this matter at his examination under s.249 of the Companies Act. Perhaps the reason was that the journal, which made clear the position, was not then in the possession of the liquidator, a situation for which the Chief Justice attached no blame to him. But it is surprising, even in the absence of the journal, that a reversal of a significant debit to the loan account of the controlling director of the company, at a time when its financial position was difficult, should have attracted no investigation by the liquidator. Perhaps this matter was a casualty of the delegation by the liquidator of his responsibilities to unqualified and inexperienced people.
However, it seems unlikely that any loss has been sustained by the estate of the company by reason of the failure to investigate the matter of the $10,000.00. Mr Day did not, at any subsequent stage, withdraw the balance of his loan account from the company. According to a proof of debt submitted by him on 8 June 1978, the company was indebted to him at the date of the winding up for various items including the balance of his loan account in the sum of $7,427.00. In addition he claimed amounts due under various personal guarantees totalling $23,080.39. Apparently Mr Webb rejected the proof of debt and the matter was not resolved; presumably because it appeared after the loss in the High Court that there would be no significant dividend in any event. It is, therefore, not possible unequivocally to state the position as between Mr Day and the company. But it appears that, leaving aside this adjustment, he would have been entitled to prove debts exceeding $10,000.00. It follows that a reduction of his loan account credit by $10,000.00 would still leave him as a net creditor of the company. Although, as we say, the matter is not entirely free from doubt we do not think that the uncertainty, or the scale of any possible claim against the appellant, is such as to warrant leaving open any further inquiry in relation to this matter. To do so is to invite the further expenditure of time and money, probably to no useful purpose.
The finding of the Chief Justice concerning a possible claim in respect of the beneficial ownership of the shares and the order granting liberty to the parties to apply for a resumption of the inquiry in relation to possible claims against Mr and Mrs Day should both be set aside.
Penalty fees
The Chief Justice criticized the appellant for debiting to Day & Dent two sums, totalling $127.00, which were required to be paid to the Registrar as penalty fees for the late filing of certain statutory returns. The only evidence about this matter was contained in a letter from Waters, James & O'Neil, solicitors, to the Registrar on 27 April 1984, a few days before the commencement of the inquiry before his Honour. The letter dealt with two matters: remuneration during the period of provisional liquidation and the penalty fees. The relevant part was as follows:

"It has come to our attention that Mr Barber of our client's firm, Price Waterhouse, when acting as the agent of Mr Ah Toy, may honestly and mistakenly have had remuneration relating to the provisional liquidation paid to Price Waterhouse without the requisite approval in 1978.

In addition on the same footing, penalty sums for late lodgements of documents at the Companies Office were included as a disbursement in the accounts rendered by Price Waterhouse."

A cheque was enclosed which included $67.20 penalty lodgment fee charged in March 1979, $59.10 charged in March 1980 and $94.41 for interest on those payments.

The matter of the penalty fees was not taken up with any witness at the inquiry before the Chief Justice. Nevertheless his Honour (32 NTR at pp.25-26) made findings upon the matter which were strongly critical of the appellant. He said:

"The liquidator charged the estate of the company with a total of $127 being for penalty fees exacted by the Registrar for late filing of statutory returns in connection with the liquidation. This was most reprehensible. Although the total amount is small it must have been clear to the liquidator that he had no right whatsoever to charge the estate of the company for fees exacted because of his own negligence. This was a fraud on the creditors, small but important, as indicating serious impropriety. The money was ultimately repaid to the estate with interest at 12 per cent and there has thus been no permanent loss to the estate of the company."

Counsel for the appellant submit that the findings made by the Chief Justice in respect of this matter were not justified by the evidence. The appellant (Supplementary Notice of Appeal para.1(i)) seeks to have set aside the finding of fraud on the creditors.

No doubt circumstances could arise in which it would be accurate to characterize a debit to the estate of penalty fees as a "fraud on the creditors", but only where the penalty fees had been incurred as a result of the neglect or omission of the liquidator. There was, in the present case, no evidence as to the circumstances under which these penalty fees had become payable. The fault may have lain with the appellant, or with Price Waterhouse, but the delay in lodgment equally may have been caused by circumstances outside the control of the liquidator and his agents. A finding of fraud, especially against a professional person in relation to his or her professional activities, should only be made upon the basis of clear evidence and after the person concerned has had the opportunity to deal with the matter. Neither of these requirements was satisfied in the present case. The finding of the Chief Justice in relation to this matter must be set aside.
Fees paid to Price Waterhouse
The final specific matter complained of by Mr Ah Toy is a finding by the Chief Justice that fees totalling $20,554.69 were improperly paid to Price Waterhouse in respect of the work done by them as agents for the liquidator, together with a consequential order that the appellant make good that loss to the estate of the company.
The committee of inspection, in decisions made from time to time, approved each of the payments which comprised the $20,554.69 but his Honour held that it had no power to do so. At 32 NTR pp.43-44 he said:

"Pursuant to s.232(3) of the Companies Act the liquidator is entitled to receive such salary or remuneration by way of percentage or otherwise as is determined by agreement between the liquidator and the committee of inspection. The liquidator in the present case received no remuneration at all but his agents, Price Waterhouse, wrongly appointed as I have found, received $20,554.69 by agreement between that firm and the committee of inspection. Price Waterhouse was not the liquidator, neither, of course, were Barber or Webb. I do not consider that the committee of inspection had any power to agree that remuneration should be paid to Price Waterhouse, nor did that firm have the legal capacity to receive remuneration approved in this way.

...

It seems to me that the position of Price Waterhouse is governed by Rule 174(1) which is as follows:

'174.(1) No payments in respect of bills or charges of solicitors, managers, accountants, auctioneers, brokers or other persons, other than payments for costs and expenses incurred and sanctioned under Rule 89, and payments of bills which have been taxed and allowed under orders made for the taxation thereof, shall be allowed out of the assets of the company without proof that the same have been considered and allowed by the taxing officer: Provided that ...'.

The provisos are irrelevant to the present situation as also is Rule 89. The only way in which Price Waterhouse could become entitled to remuneration with respect to work done in and about the liquidation would be if their bills were considered and allowed by the taxing officer. This has not been done and I must find that the sum of $20,554.69 has been wrongly paid out of the assets of the company to Price Waterhouse and must be returned to the present liquidator."

Counsel for the appellant do not concede the correctness of the view of the Chief Justice in respect of any part of the fees paid to Price Waterhouse. But they put no substantial argument in relation to that portion of the total fees -- amounting in all to $16,943.70 -- which accrued due in the period before Mr Ah Toy was admitted as a partner in that firm. This was, in our opinion, realistic. Prior to his admission as a partner, the relevant relationship between Mr Ah Toy and Price Waterhouse was merely that of principal and agent; his personal closeness was immaterial. Price Waterhouse were retained as accountants, so that the payment fell directly within the terms of r.174. No doubt some of the functions they undertook would not have been required to be carried out by accountants; but, even if it is appropriate to divide up their employment in that way, this makes no difference since the rule also applies to the employment of "other persons".
Counsel argue that the situation changed when Mr Ah Toy became a partner in Price Waterhouse. He was not then employing strangers but directing the work to a firm of which he was a member. But in our opinion this makes no difference. The firm continued to be employed as accountants by himself as liquidator. The major consequence of the fact that Mr Ah Toy became a member of the firm was that there was created a situation of conflict between his duty as liquidator to minimise expenditure on accounting services and his interest as a partner in the employed firm in maximising that firm's income.
In Harvey it was conceded on behalf of the liquidator that fees paid by a liquidator to the firm of which he was a member were required to be taxed by a proper officer of the Court, as required by the relevant Rules of Court. The correctness of that concession was accepted by Marks J; see pp.754-755. We agree with what his Honour said in connection with this matter. In our opinion each of the payments made by the present appellant to Price Waterhouse, whether in respect of work before or after he became a member of the firm, was made in breach of r.274. The finding and order made by the Chief Justice in regard to this matter were correct and should be affirmed.
Orders
For the reasons we have set out, the following findings made by the Chief Justice should be set aside:

(a) that it was wrong and unnecessary to place NAP in provisional liquidation;

(b) that it was imprudent to the point of negligence for the appellant to persist with an appeal to the High Court in respect of the claim against NAP without asking counsel to give more detailed consideration to the matter;

(c) that the appellant erred in failing to take legal advice as to possible claims against Mr and Mrs Day with respect to the beneficial ownership of their shares in NAP; and

(d) that the act of the appellant in charging to the estate of Day & Dent the cost of penalty fees for the late filing of certain statutory returns was reprehensible and a fraud upon the creditors.

We propose also to set aside his Honour's orders for repayment by the appellant to the estate of the company of the sum of $3,504.54, being the costs of the appointment of a provisional liquidator, and of the sum of $21,840.88, being the cost of the appeal to the High Court and granting liberty to apply in relation to the matter of ownership of the NAP shares. Otherwise the appeal will be dismissed.
This leaves the question of costs; a matter not easy to resolve since each of the parties has met with some success before us. Bearing in mind not only the respective successes of the parties but also the extent to which particular issues occupied time at the hearing, it seems to us that substantial justice would be done if the respondent were ordered to pay to the appellant one-half of his costs. This order should extend to the costs of the motion relating to competency determined last year. We say nothing about the costs of the inquiry before the Chief Justice. This will be a matter for his Honour if an appropriate application is made.
There are two other comments we should make. The first is relevant on costs but also important in its own right. It relates to the amount of material which was reproduced for the purposes of this appeal. The whole of the oral evidence before the Chief Justice, seven volumes containing 1756 pages of transcript, was reproduced in the appeal books. At the most we were taken to 20 pages of that evidence. Eleven volumes containing 226 exhibits -- many of them lengthy -- were reproduced on behalf of the appellant. Those volumes were supplemented by two other volumes of additional exhibits prepared on behalf of the respondent. Only a tiny fraction of this body of material was referred to by counsel during the hearing. This is not surprising because a huge proportion of the material could have had no possible bearing upon the issues raised by the Supplementary Notice of Appeal. Given the quantity of material before his Honour, it was appropriate to make a careful analysis of the evidence in order to select the material arguably relevant to the issues to be determined. The omission of that elementary but important step has not only unnecessarily encumbered the Court but has visited upon the parties significant wasted expense. We do not know where lies the responsibility for what has occurred but we indicate that, in taxing costs, allowance ought to be made for the photocopying only of such material as was arguably germane to one of the issues under consideration or whose reproduction was forced upon the appellant by the request of the respondent or the requirement of the Registrar. If the taxing officer is of the opinion that unnecessary material was reproduced by the appellant at the insistence of the respondent, the appellant should have the whole of his costs of that reproduction.
The lack of selectivity in relation to relevant factual material was carried through to legal references. Counsel for each of the parties to the appeal supplied a lengthy list of authorities but only referred to a small proportion of the listed cases. The list submitted by counsel for the respondent included 116 references, most of which had to be photocopied to provide a copy for each member of the Court. This involved an enormous amount of work for the Court staff and considerable expense; most of which was wasted. We were taken to no more than a dozen of those cases.
We appreciate that it will not always be easy, especially for a respondent, to predict the course of argument. It is no doubt better to err on the side of caution and to come to court with too many, rather than too few, authorities. But our complaint is that -- as with the assembling of evidentiary material -- no attempt was made to relate the references to the live issues in the case. Most of the cases included on the lists of authorities are authority merely for propositions which were not in issue at the appeal, and which could not possibly have been in issue. It is reasonable for the Court to expect greater selectivity from counsel.

[1986] FCA 240

11 JUNE 1986