Hall v Poolman [2009] - Harbour Litigation Funding
Hall v Poolman [2009] - Harbour Litigation Funding
Hall v Poolman [2009] - Harbour Litigation Funding
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
[Home] [Databases] [WorldLII] [Search] [Feedback]<br />
Supreme Court of New South Wales - Court of<br />
Appeal<br />
You are here: AustLII >> Databases >> Supreme Court of New South Wales - Court of Appeal >> <strong>2009</strong> >> [<strong>2009</strong>] NSWCA 64<br />
[Database Search] [Name Search] [Recent Decisions] [Noteup] [Download] [LawCite] [Context] [No Context]<br />
[Help]<br />
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
Last Updated: 1 April <strong>2009</strong><br />
NEW SOUTH WALES COURT OF APPEAL<br />
CITATION:<br />
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64<br />
FILE NUMBER(S):<br />
40030/08<br />
HEARING DATE(S):<br />
28 November 2008<br />
JUDGMENT DATE:<br />
31 March <strong>2009</strong><br />
PARTIES:<br />
Gregory Winfield <strong>Hall</strong> (First Applicant)<br />
Phillip Patrick Carter (Second Applicant)<br />
Peter Renwick <strong>Poolman</strong> (First Respondent)<br />
Malcolm Geoffrey Irving (Second Respondent)<br />
Constance Helen <strong>Poolman</strong> (Third Respondent)<br />
John Giske Martini (Fourth Respondent)<br />
Sandra Lee Yates (Fifth Respondent)<br />
JUDGMENT OF:<br />
Spigelman CJ Hodgson JA Austin J<br />
LOWER COURT JURISDICTION:<br />
Supreme Court<br />
LOWER COURT FILE NUMBER(S):<br />
SC 2032/04<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
LOWER COURT JUDICIAL OFFICER:<br />
Palmer J<br />
LOWER COURT DATE OF DECISION:<br />
23 November 2007<br />
LOWER COURT MEDIUM NEUTRAL CITATION:<br />
<strong>Hall</strong> v <strong>Poolman</strong> [2007] NSWSC 1330<br />
<strong>Hall</strong> v <strong>Poolman</strong> (No 2) [2007] NSWSC 1494<br />
<strong>Hall</strong> v <strong>Poolman</strong>, Supreme Court of New South Wales, Palmer J, 15 February 2008<br />
COUNSEL:<br />
T F Bathurst QC, J Williams (Applicants)<br />
SOLICITORS:<br />
Allens Arthur Robinson (Applicants)<br />
CRS Warner Sanderson (First Respondent)<br />
Addisons (Second Respondent)<br />
SBA Lawyers (Fourth Respondent)<br />
Deacons (Fifth Responent)<br />
CATCHWORDS:<br />
APPEAL AND NEW TRIAL – appeal – general principles – interference with discretion of court below – reexercise<br />
of discretion<br />
CORPORATIONS – winding up – winding up voluntarily – liquidators – supervision of liquidators by the court –<br />
inquiry under s 536(1)(a) Corporations Act 2001 (Cth) – faithful performance of duties<br />
CORPORATIONS – winding up – winding up voluntarily – liquidators – supervision of liquidators by the court –<br />
inquiry under s 536(1)(b) Corporations Act 2001 (Cth) – complaint – whether a complaint was made<br />
CORPORATIONS – winding up winding up voluntarily – liquidators – supervision of liquidators by the court –<br />
inquiry under s 536(3) Corporations Act 2001 (Cth) – liquidators to answer an inquiry<br />
CORPORATIONS – winding up – liquidators – duties and liabilities – in voluntary winding up – factors relevant to<br />
the discretion to ordering an inquiry under s 536 Corporations Act 2001 (Cth) – size of anticipated return to<br />
creditors – position of creditors – proportionality between cost and recovery – failure to apply for directions before<br />
commencement of the proceedings – litigation funding<br />
STATUTES – acts of parliament – interpretation – s 536(1)(a), s 536(1)(b), s 536(3) Corporations Act 2001 (Cth)<br />
LEGISLATION CITED:<br />
Australian Securities and Investments Commission Act 2001 (Cth)<br />
Bankruptcy Act 1914 (UK)<br />
Bankruptcy Act 1966 (Cth)<br />
Civil Procedure Act 2005<br />
Companies Act 1896 (Vict)<br />
Companies Act 1936<br />
Companies Code<br />
Companies (Winding Up) Act 1890 (UK)<br />
Corporations Act 2001 (Cth)<br />
Supreme Court (Corporations) Rules 1999<br />
Uniform Civil Procedure Rules 2005<br />
Uniform Companies Act 1961<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
CASES CITED:<br />
Andjelic v Marsland [1996] HCA 55; (1996) 186 CLR 20<br />
Anstella Nominees Pty Ltd v St George Motor Finance Ltd [2003] FCA 466; (2003) 21 ACLC 1347<br />
Arthur Yates & Co Pty Ltd v Vegetable Seeds Committee (1945) 72 CLR 37<br />
Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9; (2008) 232 CLR 314<br />
Australian Coal & Shale Employees' Federation v Commonwealth [1953] HCA 25; (1953) 94 CLR 621<br />
Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137<br />
Australian Securities and Investments Commission v Forestview Nominees Pty Ltd (recrs & mgrs apptd) [2006]<br />
FCA 1530; (2006) 236 ALR 652<br />
Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (in liq) [2002] NSWSC 491; (2002) 169 FLR 111<br />
Bacich v Australian Broadcasting Corporation (1992) 29 NSWLR 1<br />
Belvista Pty Ltd v Murphy (1993) 11 ACSR 628<br />
Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357<br />
Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272<br />
Burns Philp Investments Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280<br />
Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386<br />
Clutha Ltd (in liq) v Millar (No 5) [2002] NSWSC 833; (2002) 43 ACSR 295<br />
Duke of Portland v Topham [1864] EngR 339; (1864) 11 HL Cas 32; 11 ER 1242<br />
Galloway v London Corporation (1866) LR 1 HL 34<br />
General Assembly of the Free Church of Scotland v Lord Overtoun; Macalister v Young [1904] AC 515<br />
Gray v Bridgestone Australia Ltd (1986) 10 ACLR 677<br />
<strong>Hall</strong> v <strong>Poolman</strong> [2007] NSWSC 1330; (2007) 65 ACSR 123<br />
<strong>Hall</strong> v <strong>Poolman</strong> (No 2) [2007] NSWSC 1494<br />
<strong>Hall</strong> v <strong>Poolman</strong>, Supreme Court of New South Wales, Palmer J, 15 February 2008, unreported<br />
House v The King [1936] HCA 40; (1936) 55 CLR 499<br />
IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [<strong>2009</strong>] FCAFC 9<br />
Leigh, re King Bros [2006] NSWSC 315<br />
Leslie v Hennessy [2001] FCA 371<br />
Lovell v Lovell [1950] HCA 52; (1950) 81 CLR 513<br />
Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101<br />
Magarditch v Australia and New Zealand Banking Group Ltd [1999] FCA 35; (1999) 30 ACSR 265<br />
Meadow Springs Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2008] FCA 471; (2008) 245 ALR 726<br />
Montreal Trust Co v Abitibi Power Co [1937] 4 DLR 369<br />
Moore v Macks [2007] FCA 10<br />
Naumoski v Parbery [2002] NSWSC 1097; (2002) 171 FLR 332<br />
Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434<br />
O’Toole v Mitcham (1977) 2 ACLR 471<br />
Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651<br />
PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service [1995] HCA 36; (1995) 184 CLR<br />
301<br />
Re ACN 076 673 875 Ltd (in liq) [2002] NSWSC 578; (2002) 42 ACSR 296<br />
Re Ah Toy (1986) 10 FCR 356; 10 ACLR 630<br />
Re Alafaci, Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262<br />
Re Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 742<br />
Re Day & Dent Constructions Pty Ltd (1984) 32 NTR 13; 9 ACLR 319<br />
Re English Scottish & Australian Chartered Bank [1893] 3 Ch 385<br />
Re Feasty’s Family Restaurant Pty Ltd (1996) 14 ACLC 1058<br />
Re Fermoyle Pty Ltd (in liq); Commonwealth v Brown (1992) 6 ACLR 640<br />
Re Fox Home Loans Pty Ltd (in liq) [2005] NSWSC 1050<br />
Re Gault; Gault v Law [1981] FCA 167; (1981) 57 FLR 165<br />
Re Glowbind Pty Ltd (in liq); Takchi v Parbery [2003] NSWSC 1190; (2003) 48 ACSR 456<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
Re Imobridge Pty Ltd (in liq) (No 2) [1999] QSC 342; [2000] 2 Qd R 280<br />
Re Silver Valley Mines (1882) 21 Ch D 381<br />
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83<br />
Re Tavistock Ironworks Co (1871) 24 LT 605<br />
Re Timberland Ltd (in liq); Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669<br />
Re Tosich Construction Pty Ltd (1997) 73 FCR 219; Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583<br />
Registrar in Bankruptcy v Bradley [1983] FCA 304; (1983) 72 FLR 231<br />
Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115<br />
Star v Silvia (1994) 12 ACLC 600<br />
State Bank of New South Wales v Turner Corporation Ltd (1994) 14 ACSR 480<br />
Stewart, re Newtronics Pty Ltd [2007] FCA 1375<br />
The Queen v Toohey; ex parte Northern Land Council [1981] HCA 74; (1982) 151 CLR 170<br />
Turner v Official Trustee in Bankruptcy (Federal Court of Australia, Burchett, Drummond and Sackville JJ, 27<br />
November 1998, unreported)<br />
UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (No 2) [1997] 1 VR 667; (1996) 21 ACSR 251<br />
Vines v Australian Securities and Investments Commission [2007] NSWCA 126; (2007) 63 ACSR 505<br />
Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30<br />
Vink v Tuckwell [2008] VSCA 204; (2008) 68 ACSR 265<br />
Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285<br />
Wilson v Commonwealth of Australia [1999] FCA 219<br />
Wong v Silkfield Pty Ltd [1999] HCA 48; (1999) 199 CLR 255<br />
TEXTS CITED:<br />
DECISION:<br />
1. Leave to appeal granted.<br />
2. Orders 1(a)-(d) made by his Honour Justice Palmer on 15 February 2008 set aside.<br />
JUDGMENT:<br />
IN THE SUPREME COURT<br />
OF NEW SOUTH WALES<br />
COURT OF APPEAL<br />
CA 40030/08<br />
SPIGELMAN CJ<br />
HODGSON JA<br />
AUSTIN J<br />
Tuesday 31 March <strong>2009</strong><br />
FACTS<br />
- 79 -<br />
Gregory Winfield <strong>Hall</strong> v Peter Renwick <strong>Poolman</strong><br />
The liquidators of two companies in voluntary winding up sought to commence legal proceedings against two<br />
directors of the companies. The Committees of Inspection approved a litigation funding agreement between the<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
liquidators and a litigation funder to pursue the proceedings. The liquidators disclosed to the Committees of<br />
Inspection that returns to creditors from the proceedings were likely to be very low.<br />
The liquidators were successful in the proceedings and the costs of proceedings and liquidator’s fees were settled.<br />
In the course of defending the claims against them, the directors argued under s 1317S and s 1318 of the<br />
Corporations Act 2001 (Cth) that they should not be held liable when the bulk of the proceeds of the litigation<br />
would go to the liquidators and litigation funders, with negligible return to the creditors. This argument was<br />
rejected by the trial judge. However the trial judge considered that, in the circumstances, the actions of the<br />
liquidators warranted further inquiry, and accordingly ordered an inquiry pursuant to ss 536(1)(a), 536(1)(b) and<br />
536(3) of the Corporations Act.<br />
The liquidators appeal from the decision to order an inquiry. The liquidators contend that the trial judge did not<br />
apply a proper construction of s 536, and did not properly exercise the discretion under s 536.<br />
The appeal proceeded without a contradictor.<br />
HELD<br />
(The Court)<br />
The interpretation of s 536<br />
1 Section 536 does not require that there be a prima facie evidentiary case of lack of<br />
faithful performance or observance of requirements [56]–[60][79][84]<br />
2 An applicant must demonstrate something about the liquidator’s performance of duties<br />
or observance of requirements that is a sufficient basis for making an order for inquiry.<br />
The court then has a discretion which it must exercise. [58]–[59]<br />
Leslie v Hennessy [2001] FCA 371 followed.<br />
Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272; Re Glowbind Pty Ltd (in<br />
liq); Takchi v Parbery [2003] NSWSC 1190; (2003) 48 ACSR 456; Burns Philp<br />
Investments Pty Ltd v Dickens (No 2) (1993) 31 NSWLR 280 applied.<br />
Re Timberland Ltd (in liq); Commissioner for Corporate Affairs v Harvey [1980] VicRp<br />
64; [1980] VR 669; Magarditch v Australia and New Zealand Banking Group Ltd [1999]<br />
FCA 35; (1999) 30 ACSR 265; Re Fox Home Loans Pty Ltd (in liq) [2005] NSWSC 1050;<br />
Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30 referred to.<br />
3 Where there is a statutory authority extending to liquidators, there should be no lesser<br />
degree of supervision of liquidators by virtue of the fact that they are not court-appointed<br />
liquidators. [64]–[65]<br />
4 The court’s supervisory role discussed. [66]–[68]<br />
Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; Re<br />
Glowbind Pty Ltd (in liq); Takchi v Parbery [2003] NSWSC 1190; (2003) 48 ACSR 456;<br />
Leslie v Hennessy [2001] FCA 371; Australian Securities and Investments Commission v<br />
Forestview Nominees Pty Ltd (recrs & mgrs apptd) [2006] FCA 1530; (2006) 236 ALR<br />
652; Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007)<br />
211 FLR 137; Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30 referred to.<br />
Jurisdiction under s 536(1)(a)<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
5 It was open to the trial judge to hold that there was sufficient basis to order an inquiry.<br />
[82] [87]<br />
Interpretation of s 536(1)(b)<br />
6 Having regard to the text, structure and history of the section, the range of complaints<br />
under s 536(1)(b) is not confined by s 536(1)(a). [89]–[90]<br />
Vink v Tuckwell [2008] VSC 100; (2008) 66 ACSR 30 not followed.<br />
(Per Hodgson JA and Austin J, Spigelman CJ dissenting)<br />
(Per Spigelman CJ)<br />
7 A complaint had been made for purposes of s 536(1)(b). [93] [101] [106]<br />
8 Section 536(1)(b) does not require that the complaint be a formal initiation of an inquiry<br />
under s 536. All that is needed is that there be criticism expressed to the court, in any<br />
context, with respect to the conduct of a liquidator connected to performance of the<br />
liquidator's duties. [94]–[97]<br />
9 Rule 7.11(1) of the Supreme Court (Corporations) Rules 1999 does not dictate the form<br />
of complaint where the complainant is already before the court. [98]<br />
10 A complaint under s 536(1)(b) requires a formal request to the court to take steps to<br />
inquire into something done by a liquidator. [100]–[101]<br />
11 Alternatively, r 7.11(1) of the Supreme Court (Corporations) Rules 1999 imposes a<br />
mandatory process for making a complaint under s 536(1)(b) by way of originating<br />
process. [102]<br />
Interpretation of s 536(3)<br />
12 The wording, structure and history of sections 536(1) and 536(3) indicate that they are<br />
separate sources of power and are not to be construed by reference to one another. [106]–<br />
[107]<br />
O’Toole v Mitcham (1977) 2 ACLR 471; Re Fermoyle Pty Ltd (in liq); Commonwealth v<br />
Brown (1992) 6 ACLR 640; Australian Securities and Investments Commission v Edge<br />
[2007] VSC 170; (2007) 211 FLR 137 applied.<br />
Trial judge’s exercise of the discretion to order an inquiry under s536<br />
13 Factors relevant to the exercise of the discretion to order an inquiry under s 536(1)(a)<br />
or s 536(1)(b) or s 536(3) discussed. [117] [121] [128]–[129] [137] [140] [173]<br />
Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386;<br />
Re Tosich Construction Pty Ltd (1997) 73 FCR 219; Re Addstone Pty Ltd (in liq) (1998)<br />
83 FCR 583; Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357; Re Imobridge<br />
Pty Ltd (in liq) (No 2) [1999] QSC 342; [2000] 2 Qd R 280; Re ACN 076 673 875 Ltd (in<br />
liq) [2002] NSWSC 578; (2002) 42 ACSR 296; Anstella Nominees Pty Ltd v St George<br />
Motor Finance Ltd [2003] FCA 466; (2003) 21 ACLC 1347; Leigh, re King Bros [2006]<br />
NSWSC 315; Stewart, re Newtronics Pty Ltd [2007] FCA 1375; UTSA Pty Ltd (in liq) v<br />
Ultra Tune Australia Pty Ltd (No 2) [1997] 1 VR 667; (1996) 21 ACSR 251; Re Feasty’s<br />
Family Restaurant Pty Ltd (1996) 14 ACLC 1058; Meadow Springs Fairway Resort Ltd<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
(in liq) v Balanced Securities Ltd [2008] FCA 471; (2008) 245 ALR 726; IMF (Australia)<br />
Ltd v Meadow Springs Fairway Resort Ltd (in liq) [<strong>2009</strong>] FCAFC 9 referred to.<br />
14 A liquidator may legitimately and in accordance with his or her duties pursue litigation<br />
with the aid of a litigation funder even if there is little or no likelihood of recovery going<br />
beyond recovery of his or her own costs and expenses and the funder's fees, so long as<br />
certain provisos are met. [150]–[151]<br />
Re Imobridge Pty Ltd (in liq) (No 2) [1999] QSC 342; [2000] 2 Qd R 280; Pegulan Floor<br />
Coverings Pty Ltd v Carter (1997) 24 ACSR 651 referred to.<br />
15 A prima facie view by the trial judge that the costs of the proceedings were<br />
disproportionate to the maximum possible recovery and that the proceedings could have<br />
been conducted for a significantly lower cost is an adequate foundation, along with other<br />
matters upon which his Honour relied, for ordering and inquiry on the ground that there is<br />
something warranting further investigation. [160]<br />
The public interest as a relevant consideration<br />
16 The public interest in the liquidators pursuing proceedings against the directors is a<br />
relevant factor in the exercise of the discretion. [128]–[129]<br />
Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357; Re ACN 076 673 875 Ltd<br />
(in liq) [2002] NSWSC 578; (2002) 42 ACSR 296; Pegulan Floor Coverings Pty Ltd v<br />
Carter (1997) 24 ACSR 651 referred to.<br />
17 The trial judge did not give weight to this public interest consideration and,<br />
accordingly, the exercise of the discretion miscarried. [130]<br />
Failure to apply to the court for approval of litigation funding agreement<br />
18 The decision by a liquidator to enter a litigation funding agreement is not purely a<br />
commercial decision. When approached for directions, a court may be less likely to defer<br />
to a liquidator’s judgment. Whether to give directions or decline to give them will depend<br />
upon the nature of the directions sought and the facts of the instant case, and in particular<br />
the extent to which the particular litigation funding agreement that is before the court, and<br />
the circumstances in which recovery proceedings are contemplated, raise issues capable of<br />
affecting the administration of justice. [170] [172]<br />
19 There is no obligation upon liquidators to apply to the court for directions as a matter<br />
of course before entering into a litigation funding agreement. The decision whether to do<br />
so is informed by the liquidator’s duties of skill, care and diligence. [175] [178]<br />
20 The trial judge erred in suggesting that liquidators should routinely approach the courts<br />
before entering into a litigation funding agreement. This was a factor material to his<br />
decision to order an inquiry and, accordingly, the exercise of the discretion miscarried.<br />
[176] [179] [180]<br />
Re-exercise of the discretion<br />
21 There does not appear to be any utility in ordering the inquiry. The costs of the<br />
proceedings and liquidator’s fees have been settled, which removes the purpose of the<br />
inquiry as stated by the trial judge, namely making a costs limiting order under s98 of the<br />
Civil Procedure Act 2005. The refusal of the Australian Securities and Investments<br />
Commission to take up the invitation to appear in the proceedings indicates that no further<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
regulatory purpose would be served by such an order. [195] [198] [199]<br />
IN THE SUPREME COURT<br />
OF NEW SOUTH WALES<br />
COURT OF APPEAL<br />
CA 40030/08<br />
SPIGELMAN CJ<br />
HODGSON JA<br />
AUSTIN J<br />
Tuesday 31 March <strong>2009</strong><br />
Gregory Winfield <strong>Hall</strong> v Peter Renwick <strong>Poolman</strong><br />
Judgment<br />
1 THE COURT: The Reynolds Wines Group went into voluntary administration in August 2003 and into<br />
liquidation in November 2003. The liquidators within that group, Reynolds Wines Ltd and Reynolds Vineyards Pty<br />
Ltd ("the companies") are Gregory Winfield <strong>Hall</strong> and Phillip Patrick Carter.<br />
2 The liquidators seek leave to appeal from an order made by Palmer J on 15 February 2008, and if leave is<br />
granted, they seek on appeal to set aside Palmer J's order. By that order, his Honour directed that there be an<br />
inquiry by the Court into their conduct, pursuant to s 536 of the Corporations Act 2001 (Cth). The conduct related<br />
to legal proceedings commenced and prosecuted by the applicants with the assistance of a litigation funder.<br />
The application for leave to appeal<br />
3 The applicants contend that the facts and circumstances relied upon by Palmer J are not capable, as a matter of<br />
law, of providing a basis for ordering an inquiry under s 536(1)(a), s 536(1)(b) or s 536(3), which are the three<br />
provisions relied upon by his Honour. Their submissions raise important questions about the proper construction of<br />
s 536, and about whether his Honour properly invoked that provision in making his orders. They also raise<br />
important issues about the circumstances in which it may be proper for a liquidator to embark upon and prosecute<br />
recovery proceedings with the assistance of a litigation funder, if it is apparent that there is no prospect of any<br />
worthwhile recoupment for creditors and the only potential beneficiaries of the litigation are the funder, the<br />
liquidator and the lawyers.<br />
4 If the applicants' arguments are correct, the foundation for the inquiry in the present case is misconceived as a<br />
matter of principle. An inquiry under s 536 is undertaken in circumstances where the liquidator's conduct may<br />
attract "sanctions or control for what might broadly be described as disciplinary reasons": Northbourne<br />
Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 438, per McLelland J; Belvista Pty Ltd<br />
v Murphy (1993) 11 ACSR 628 at 630, per McLelland J. The applicants submitted that, bearing in mind this<br />
connection with disciplinary action, the very convening of an inquiry under the section is likely to have an adverse<br />
effect on their professional standing as liquidators. On the view we take, an order for an inquiry under s 536 does<br />
not involve any prima facie finding of failure to discharge duties or to comply with legal requirements, and the<br />
outcome of the inquiry may be that the liquidator is wholly exonerated. Accordingly, ordering an inquiry does not<br />
necessarily reflect adversely on the liquidator's professional standing. Nevertheless, there is a sufficient risk that in<br />
the present case the ordering of an inquiry on the grounds stated by Palmer J might have this consequence that this<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
is a reason for granting leave to appeal before an inquiry is held.<br />
5 The applicants also submitted that an inquiry is likely to involve a significant imposition on their time at the<br />
expense of other liquidations, and to expose them to substantial costs that will probably be unrecoverable. We<br />
accept those submissions; while they are not compelling in themselves they contribute to the overall case for<br />
granting leave.<br />
6 For the reasons set out at [3]-[5], leave to appeal should be granted.<br />
Constitution of the appeal<br />
7 The parties to the proceedings below have been joined as respondents to the appeal and the application for leave,<br />
on the basis that they may have an interest in maintaining his Honour's decision, although none of them is directly<br />
affected by it. At a directions hearing on 10 April 2008, Mason P asked whether, in the absence of any appearance<br />
by the parties, a natural contradictor should be invited to appear, and he noted that the Australian Securities &<br />
Investments Commission was the most likely candidate for that role. Pursuant to his Honour's request, by letter<br />
dated 4 August 2008, the appellants' solicitors invited ASIC to intervene in the appeal. On 11 September 2008<br />
ASIC replied, stating without reasons that it did not wish to intervene.<br />
8 It is regrettable that ASIC has not been represented at the hearing of the appeal. Section 536 confers supervisory<br />
powers on both ASIC and the court which in our view are an important part of the regulatory system governing<br />
corporate liquidation, a matter of vital importance for the Australian economy. As we have said, this case raises<br />
important questions about the scope of s 536, and the use by liquidators of litigation funding to pursue litigation<br />
that will not produce any significant return for creditors. These are matters upon which the regulator can<br />
reasonably be expected to have an informed view. Indeed, with respect to two of the three bases upon which<br />
Palmer J ordered an inquiry, ASIC has the same statutory power as the court. In the absence of an appearance by<br />
ASIC, not only has the appeal proceeded without any contradictor, but the Court has not had the benefit of the<br />
regulator's view on some important matters.<br />
The proceedings below<br />
9 There were three proceedings below, only two of which are relevant now. In proceedings No 2032/04 ("the Main<br />
Proceedings") the present appellants were the active plaintiffs, in their capacity as liquidators of the companies.<br />
The defendants were two directors of the companies, Mr <strong>Poolman</strong> (now a bankrupt) and Mr Irving. The plaintiffs<br />
sought to recover from those directors damages of approximately $6 million for loss suffered by creditors as a<br />
result of the company's trading whilst insolvent, under s 588M of the Corporations Act. The plaintiffs also sought a<br />
declaration against Mr <strong>Poolman</strong> under s 37A of the Conveyancing Act 1919 in respect of a transfer by him of<br />
property to his wife. Mr Irving made cross-claims against other directors for equitable contribution, and one of the<br />
cross-defendants claimed contribution from another director. Mr Irving also claimed indemnity from Reynolds<br />
Wines Ltd pursuant to an indemnity and access deed, and sought to set off the amount to which he would be<br />
entitled by way of indemnity against any amount he might be ordered to pay to the liquidators in respect of the<br />
claim for insolvent trading.<br />
10 In proceedings No 2685/04 ("the Unfair Preference Proceedings"), which were heard together with the Main<br />
Proceedings, the liquidators as plaintiffs claimed recovery, as unfair preferences, of payments made to the<br />
Commissioner of Taxation ("ATO"). The ATO claimed an indemnity from various directors for any amounts that it<br />
might be ordered to pay the liquidators, under s 588FGA(2). The amount claimed from Mr Irving was $537,100.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
11 The hearing lasted for about four weeks, with subsequent written submissions, and Palmer J delivered his<br />
principal judgment on 23 November 2007 ( <strong>Hall</strong> v <strong>Poolman</strong> [2007] NSWSC 1330; (2007) 65 ACSR 123; "the<br />
Main Judgment"). He held that Mr <strong>Poolman</strong> and Mr Irving were liable to pay compensation under s 588M(2) with<br />
respect to debts incurred by the companies during stated periods and he upheld claims by Mr Irving and other<br />
directors for equitable contribution. He also upheld the claim under the Conveyancing Act and made orders<br />
accordingly. He directed that the amounts of damages and contribution for which the parties were liable were to be<br />
ascertained by reference under r 20.14 of the Uniform Civil Procedure Rules 2005, or by a court-appointed expert.<br />
He upheld the liquidators' unfair preference claim against the ATO but declared that Mr Irving and certain other<br />
directors were liable to indemnify the ATO. He upheld Mr Irving's claim to be indemnified by Reynolds Wines Ltd<br />
and ordered that the amount payable on the indemnity be set off against Mr Irving's liability to Reynolds Wines Ltd<br />
for insolvent trading (Main Judgment at [557]).<br />
12 Appeals were lodged against his Honour's orders and, pending resolution of the appeals, no assessment of<br />
compensation or contribution was undertaken. At the hearing of the present appeal, the Court was informed that the<br />
Main Proceedings had been settled. The precise terms of settlement were not conveyed to the Court but, in broad<br />
terms, they involved the ATO paying to the liquidators the amount of the unfair preference and Mr Irving paying<br />
the ATO in respect of the indemnity under s 588FGA. Mr Irving also paid the liquidators what was described as "a<br />
small amount" that he was able to contribute in addition to his payment under the indemnity. There is no<br />
outstanding question of costs to be resolved by the Court.<br />
Mr Irving's defence under s 1317S and s 1318<br />
13 In his Main Judgment, Palmer J found (at [14]-[17]), under the heading "The beneficiaries of this litigation",<br />
that:<br />
· the collapse of the Reynolds Group resulted in a shortfall of over $30 million to secured creditors;<br />
· there were no assets available for unsecured creditors, whose claims amounted to just under $99 million, and<br />
insufficient funds even to pay the costs of the voluntary administration and winding up;<br />
· the only potential assets to be realised were the recovery of voidable preference payments made to the ATO and<br />
the recovery against the directors for insolvent trading;<br />
· the liquidators had no funds to pursue those claims and so in 2004 they entered into a funding agreement with a<br />
litigation funder;<br />
· the total amount that the liquidators sought to recover from the directors and the ATO was approximately $9.6<br />
million including interest and costs;<br />
· even if the liquidators were to recover the full amount of their claims, including costs and interest, after payment<br />
of the litigation funder's costs and "success fee" and the costs of the liquidators and their solicitors, unsecured<br />
creditors would receive no more than a fraction of a cent in the dollar of their claims;<br />
· the true beneficiaries of the litigation were the litigation funder, the liquidators and their lawyers, not the<br />
creditors.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
14 These findings arose by reason of the way in which Mr Irving pursued a claim for relief under s 1317S(2) or s<br />
1318 of the Corporations Act. Those provisions, broadly to similar effect, authorise the court to relieve a defendant<br />
director in civil proceedings, including (in the case of s 1317S(2) and perhaps also s 1318) insolvent trading<br />
proceedings, from liability where the defendant has acted honestly and having regard to all the circumstances of<br />
the case, ought fairly to be excused for the contravention. Mr Irving contended that he had acted honestly and that<br />
he ought fairly to be excused having regard to several matters, including the fact that creditors would not derive<br />
any significant benefit from the litigation.<br />
15 Palmer J found that Mr Irving had acted honestly for the purposes of the defence (at [339]) but he declined to<br />
grant relief in respect of the period after 5 February 2003 because in his view, Mr Irving had not shown that in all<br />
the circumstances he ought fairly to be excused from liability. His Honour found that up to the time of a meeting<br />
on 5 February 2003, Mr Irving had acted as other reasonable, commercially experienced directors might have acted<br />
in the circumstances, and therefore he ought to be excused from any liability up to that time (at [339]). However,<br />
after the meeting on that day, he ought to have appreciated that there was no reasonable prospect of the companies<br />
being able to realise assets quickly enough to pay their debts as they fell due, and he ought to have immediately<br />
recommended to the boards of the companies that administrators be appointed (at [335], [337]). In his Honour's<br />
opinion, it could not be said, with respect to the period after 5 February 2003, that in all the circumstances of the<br />
case he ought fairly to be excused from contravention of the insolvent trading provisions.<br />
16 Palmer J rejected Mr Irving's submission that the unlikelihood of any dividend to creditors was relevant to his<br />
defence under s 1317S and s 1318. His Honour said that the circumstances of the litigation funding in the case and<br />
what he called the "derisory return to creditors" afforded no right of complaint to Mr Irving, and that a nil or<br />
negligible return to creditors as a result of a successful prosecution of the claim under s 588M was not to be taken<br />
into consideration as affording a discretionary defence (at [379]). Palmer J's findings of fact relevant to this issue,<br />
and his Honour's reasoning, are considered in the next two sections of this judgment.<br />
Relevant findings of fact by the trial judge<br />
17 Palmer J made the following relevant findings of fact, which are not challenged in this Court. The minutes and<br />
report to which he referred are before the Court on the appeal.<br />
18 The appellants became liquidators as a result of decisions taken at the second meetings of creditors of the<br />
companies in voluntary administration, held on 25 November 2003. It follows that the liquidations of the<br />
companies are creditors’ voluntary liquidations by virtue of s 446A. On the same day, Committees of Inspection<br />
were appointed comprising a total of five creditors, and the Committees, in a combined meeting, approved an<br />
agreement between the liquidators and Insolvency <strong>Litigation</strong> Fund Pty Ltd, a subsidiary of IMF (Australia) Ltd, to<br />
fund the cost of further investigations and public examinations (the litigation funder will be referred to here as<br />
"IMF").<br />
19 In a further combined meeting on 11 March 2004 the Committees approved a funding agreement with IMF for<br />
insolvent trading and unfair preference proceedings. In February 2006 IMF offered to provide additional funding in<br />
relation to the insolvent trading litigation, and a draft agreement was provided to the Committees for their<br />
combined meeting on 23 February 2006. The draft had proposed that IMF would be entitled to a success fee of<br />
60% post-trial or 50% if the proceedings were settled before trial, but the liquidators' staff and the Chairman of the<br />
Committees (Mr <strong>Hall</strong> , the first plaintiff) negotiated a reduction to a success fee of 45% both pre- and posttrial.<br />
The Chairman said that to date, the total outstanding costs of the liquidator and his solicitors were<br />
approximately $1 million, and that IMF had incurred costs of about $1 million and this was likely to reach about<br />
$2 million by the conclusion of the proceedings.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
20 The liquidator explained to the meeting that total recoveries could be in the order of $5.9 million plus interest,<br />
as well as the unfair preference claim against the ATO. He said that the broad outcomes would be within the<br />
following range:<br />
· $2 million recovery - IMF's costs covered;<br />
· $3 million recovery - IMF's costs and a substantial portion of their success fee covered;<br />
· $4 million recovery - IMF's costs and success fee covered, and approximately $400,000 of the liquidators' and<br />
their solicitors' costs covered;<br />
· $5 million recovery - IMF's costs and success fee covered, and a substantial portion of the liquidators' and their<br />
solicitors' costs covered;<br />
· $6 million recovery - IMF's costs and success fee covered, liquidators' and their solicitors' costs covered, plus<br />
approximately $500,000 available for creditors.<br />
21 One of the creditor representatives at the meeting expressed the opinion that the assets of the directors were<br />
unlikely to exceed $2 million, that is, the lowest of the spectrum of outcomes. Another member of the Committees<br />
said he thought it was reasonable for the liquidators to continue their action to recover their and their solicitors'<br />
costs. The Committees voted to approve the amended litigation funding agreement under s 477(2B) of the<br />
Corporations Act.<br />
22 During the cross-examination of Mr <strong>Hall</strong> at the trial, Palmer J asked some questions about the matters<br />
considered at the meeting of the Committees, and he reproduced those questions and Mr <strong>Hall</strong> 's answers in<br />
his Main Judgment (at [348]). His Honour inquired as to how many cents in the dollar creditors would receive in<br />
the best scenario ($6 million recovery and $500,000 available for the creditors), and Mr <strong>Hall</strong> said it would be<br />
a very, very low dividend, less than one cent in the dollar. Then the following exchange occurred:<br />
"Palmer J: Can you tell me what is the purpose of these proceedings?<br />
Mr <strong>Hall</strong> : To recover costs incurred.<br />
Palmer J: For what?<br />
Mr <strong>Hall</strong> : <strong>Funding</strong> creditors in pursuing actions for example your Honour.<br />
Palmer J: Costs in, explain that?<br />
Mr <strong>Hall</strong> : A liquidator has incurred costs with a funder seeking recovery and a lot of<br />
the costs that have been incurred have been incurred in costs with these proceeding<br />
something in the order of $2 million. It is an extraordinary amount of costs. It does not<br />
make me feel particularly comfortable about it but that is the position we find ourselves in<br />
and I found myself in this position for the last year or so with a funder who is prepared to<br />
continue to fund the proceedings. So, those numbers are still fundamentally the same as<br />
they were twelve months ago or whenever that exit meeting was held."<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
23 His Honour established through further questioning that the liquidators had identified the prospect of bringing<br />
recovery proceedings for about $6 million soon after their appointment and they made an estimate of the cost of<br />
proceedings, which was a very considerable under-estimate as is always the case. And then:<br />
"Palmer J: Did you do an exercise to work out what benefit to creditors that could possibly<br />
mean and whether it was worthwhile?<br />
Mr <strong>Hall</strong> : Your Honour, we also considered at those early stages there were still<br />
potential claims against a variety of people and indeed that is still a possibility following<br />
the completion of these proceedings. For example, there are advisors and other parties that<br />
were involved in the past with Reynolds Wines where there is potentially good claims.<br />
That is complicated by the circumstances we also find ourselves in where there is a<br />
receiver. There was the first receiver and then a subsequent receiver who has a first claim<br />
to those claims and let's say these matters are dealt with and finalised successfully, IMF<br />
may be prepared to fund some other action and some of those things came out of the<br />
public examination that we did in '03, '04.<br />
Palmer J: I am looking at this claim, insolvent trading claim, and I am wondering did you,<br />
at an early stage of the liquidation do an exercise to calculate whether the conduct of this<br />
litigation and the incurring of the costs necessarily involved would be worthwhile for the<br />
benefit of the creditors?<br />
Mr <strong>Hall</strong> : In the early stages, yes.<br />
Palmer J: What decision did you come to as to cents in the dollar that creditors may hope<br />
to receive from the successful conclusion of this action?<br />
Mr <strong>Hall</strong> : Again it would be relatively small and if you like one of the early actions<br />
we took is to pursue the preference against the ATO and we took that without doing a lot<br />
of work on solvency reports and so forth because we thought that may be an early success<br />
and there is cash and other options to pursue a return to creditors and the same with the<br />
funder and that is what we are really looking into in the event there was a settlement.<br />
The funder is prepared to keep funding this and I feel I have a duty on the funder's behalf<br />
to keep funding this to try and recover a return where I believe it is a good action. After<br />
all, there have been attempts with both the tax office and with the directors to seek some<br />
sort of settlement. This could have been settled, well, early. Indeed most of the time for all<br />
the reasons we are discussing we resolve those differences and it is very difficult once you<br />
start to back off. We either stop or you keep funding it because certainly, as Mr Jackman<br />
was raising, I owe the duty to my partner not to incur fees so the ongoing pursuit of this<br />
matter is funded by IMF so the exercise, as you are pointing out, clearly in terms of<br />
recovery is first for the benefit of the funding creditor."<br />
24 Palmer J referred quite extensively to the liquidators' annual report to creditors and shareholders dated 22<br />
February 2007 ("the Report"). By that time the trial had commenced but had not concluded, and Mr <strong>Hall</strong> had<br />
given evidence (including answering questions from Palmer J).<br />
25 First, his Honour noted that in the Report the liquidators referred to the combined meeting of the Committees of<br />
Inspection on 11 March 2004 at which the funding agreement with IMF for insolvent trading and unfair preference<br />
proceedings was considered. The Report said:<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
"The likely return to creditors from such actions was discussed. Notwithstanding the<br />
prospect of a low or nil return, the Committees of Inspection approved the further funding<br />
agreement with IMF, it being recognised that any recovery actions would not require a<br />
funding commitment from creditors but that creditors had an opportunity to benefit from<br />
any successful outcome."<br />
26 As his Honour observed (at [354]), the statement shows that as early as March 2004 the liquidators had<br />
recognised that the proceedings could result in a nil return to creditors, and that the liquidators and the Committees<br />
took the view that anything coming to creditors in the proceedings would be a windfall.<br />
27 His Honour referred to the part of the Report that contains details of fees and expenses incurred in the litigation<br />
and in the liquidation. The components of fees and expenses according to the Report were:<br />
(i) legal costs and expenses funded by IMF, which had projected that the total amount<br />
would be approximately $1.9 million by the time of completion of the trial, assuming there<br />
was no appeal;<br />
(ii) additional costs incurred by the liquidators' solicitors outside the funding agreement<br />
(including costs of some other recovery actions and costs incurred in connection with the<br />
voluntary administration), not recoverable except if sufficient funds became available (the<br />
Report did not purport to quantify these costs);<br />
(iii) the liquidators' fees in relation to matters outside the proceedings (including fees in<br />
relation to the voluntary administration), and also the liquidators' fees in relation to the<br />
proceedings but not covered by the funding agreement.<br />
28 In the course of argument on the appeal the Court invited the appellants to clarify the proportion of costs<br />
referable to compulsory examinations and other pre-commencement investigations. By supplementary submissions<br />
dated 19 November 2008, the appellants explained that the costs estimated by IMF to be $1.9 million included the<br />
cost of compulsory examinations conducted in late 2003 and in early 2004 prior to the commencement of the<br />
proceedings. They said the evidence before the trial judge did not disclose the breakdown of the figure of $1.9<br />
million between pre-commencement investigatory costs and the costs of the conduct of the proceedings, but that<br />
breakdown was disclosed in a single page annexure to the amended IMF funding agreement entered into in<br />
February 2007. The appellants tendered that page, which has been received and marked Exhibit B. It appears from<br />
that document that the total amount of legal costs and expenses to be funded by IMF was $1,938,184.22 (including<br />
GST). Of that total amount:<br />
· $448,571.84 was the amount of liquidators' fees relating to the public examinations and the proceedings that IMF<br />
agreed to fund, and $1,489,612.38 was the amount of legal costs of the proceedings that IMF agreed to fund; and<br />
· $378,844.22 was the amount of all costs (liquidators' fees and legal costs) incurred prior to the commencement of<br />
the proceedings (principally relating to the public examinations) that IMF agreed to fund, and the total costs related<br />
to the proceedings (legal costs and liquidators fees) that IMF agreed to fund were $1,559,340.<br />
29 Exhibit B does not tell the whole story because there were, according to the Report as summarised at [27](ii)<br />
and (iii) above, other fees incurred by the liquidators' solicitors, who under the funding agreement were reimbursed<br />
by IMF only for a portion of their costs of the proceedings. The amount of those additional solicitors' fees is not<br />
quantified in the Report but presumably at least part of them would be recoverable in a costs assessment. There<br />
were also liquidators' fees in addition to the amounts that IMF agreed to fund. The Report gives some figures<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
concerning the liquidators' fees: the liquidators' time costs up to 31 December 2006 were a total amount of<br />
$1,364,596, of which $1,143,346 had been approved by creditors, $604,150 had been paid and $760,446 remained<br />
outstanding. According to the Report these figures included the liquidators' fees in relation to the proceedings<br />
covered by the funding agreement, and also fees in relation to matters outside the recovery proceedings (such as<br />
fees relating to the voluntary administration) and fees in relation to the proceedings but not covered by the funding<br />
agreement. It seems likely that the bulk of the fees incurred in 2005 and 2006 was related to the proceedings.<br />
Therefore in addition to the total costs funded by IMF in relation to the proceedings, $1,559,340, there was an<br />
additional unquantified sum for further solicitors' fees and an additional substantial sum for further liquidators' fees<br />
related to the proceedings. The total amount, including these additional fees, may well have been in the order of $2<br />
million.<br />
30 As set out above, in answer to a question by Palmer J, Mr <strong>Hall</strong> referred to costs "in the order of $2<br />
million". In the Main Judgment, his Honour said that "the Liquidators' costs of the proceedings will be in the order<br />
of $2M", and on that basis he expressed concern that the costs were an excessive amount out of proportion to the<br />
maximum possible recovery (at [381], [384]). During the hearing of the appeal senior counsel for the appellants<br />
submitted that his Honour's criticism of the costs of the proceedings did not have a factual foundation. But the<br />
figure of $2 million was given in evidence by Mr <strong>Hall</strong> and the evidence comprising the Report and Exhibit<br />
B, taken together, does not disprove that figure. We therefore reject the submission that the evidence did not<br />
support the figure for costs used by Palmer J in his criticism of the costs of the proceedings.<br />
31 The Report referred in some detail to amendments that had been made to the funding agreement. Palmer J<br />
extracted the following part of the Report in his Main Judgment (at [356]):<br />
"It was intended that outstanding costs be recouped from any proceeds of recovery actions<br />
including the Proceedings, after making the payments required under the funding<br />
agreement, however any recoupment has now been capped pursuant to an amendment to<br />
the funding arrangements as discussed in (a) below.<br />
(a) Amendment to <strong>Funding</strong> Agreement<br />
In our previous report to creditors, we advised creditors that recoveries from the<br />
Proceedings alone would not be likely to result in any significant returns to creditors.<br />
However, it was recognised that such recoveries could fund further actions, the cumulative<br />
effect of which may be to the benefit of creditors. Such further actions are mentioned in<br />
Section I and VIII of this report.<br />
In light of the increased complexity of the case, the longer than anticipated trial and, in<br />
particular, the inability to achieve a settlement prior to the significant costs of the trial<br />
being incurred, the Liquidators recently approached IMF to negotiate an amendment to the<br />
funding agreement regarding the distribution of any successful recovery from the<br />
Proceedings. In particular, the Liquidators wished to secure, if possible, a revised<br />
agreement which would have the potential to provide a greater return to the unsecured<br />
creditors of Wines and Vineyards than would otherwise occur under the pre-existing<br />
funding agreement.<br />
The amendment which has now been agreed by the Liquidators with IMF reflects, in their<br />
view, a more appropriate funding agreement in the current climate of significantly<br />
increased costs, a 4-6-week trial and no prior settlement. The Liquidators and IMF have<br />
agreed a cascading arrangement whereby any proceeds recovered from the proceedings<br />
(Recovery Sum) are to be paid in a priority which differs to that set forth in Section 556 of<br />
the Act and elevates the entitlement of unsecured creditors to payment of a dividend of an<br />
agreed amount, dependent on the quantum of the Recovery Sum. The amendment which<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
has been agreed is confidential and accordingly, summary details only are provided in this<br />
report to creditors, to advise the effect of the amendment and in particular, the manner in<br />
which the amendment may benefit creditors.<br />
The amended agreement defers:<br />
· payment of most of the legal costs and Liquidators' fees which have not been indemnified by IMF;<br />
· IMF's entitlement to be paid its success fee and other fees due under the funding agreement.<br />
IMF retains its priority entitlement to be reimbursed the costs it has actually paid in the<br />
proceedings.<br />
Pursuant to the amendment:<br />
· 50% of any return which exceeds IMF's costs (which are approximately $1.9 million subject to any appeal) will<br />
be set aside for the unsecured creditors of Wines and Vineyards, to be paid to them by way of a dividend, subject<br />
however to that pool of funds being at least $500,000;<br />
· 50% of any return exceeding IMF's costs will be distributed in satisfaction of the [Liquidators' and the solicitors']<br />
unpaid costs related directly to the Proceedings, capped at $80,000 each, and IMF's success and other fees to which<br />
it is entitled.<br />
Practically, this arrangement requires a return of $2.9 million or greater for there to be a<br />
payment to creditors. The Liquidators note that this threshold is much improved on the<br />
pre-existing funding agreement. The threshold of $500,000 has been agreed because, given<br />
that the quantum of unsecured creditors in Wines and Vineyards is high (combined over<br />
$100 million), any return by way of a dividend distribution of an amount less than<br />
$500,000 will approximate zero rendering the distribution futile. The Liquidators'<br />
necessary fees and costs associated with dealing with proofs of debt and making payment<br />
of dividends will be deducted from the pool of funds available to creditors prior to<br />
distribution."<br />
32 In a further passage under the heading "Likelihood of Return to Creditors" extracted by Palmer J, the Report<br />
said that if a favourable judgment were to be obtained and recovered in the insolvent trading proceedings, funds<br />
might become available for distribution to creditors but as an approximate indication, any dividend would not be<br />
likely to exceed three cents in the dollar. Under the heading "Likelihood of Return to Shareholders", the Report<br />
raised the possibility of an action against third parties for compensation in respect of losses by shareholders who<br />
had invested in the Reynolds Group in a capital raising in June 2002, but the Report said that although IMF had<br />
expressed interest in the matter, it had not been taken further.<br />
33 Palmer J sought further clarification of the returns that might be available to creditors under the amended<br />
funding agreement, and was provided with a schedule, Appendix A to the Main Judgment, which he summarised<br />
and discussed at [357]-[364]. The schedule showed that on the highest return case, which assumed recovery of<br />
$5,562,751.17 on the insolvent trading claim and full recovery on the unfair preference claim, the liquidators would<br />
recover $9,653,689.28 (including interest and legal costs of the proceedings), and after deducting IMF's costs and<br />
success fee and the liquidators' costs, the amount available for distribution to creditors would be $3,726,844.64,<br />
giving them a distribution of 2.85 cents in the dollar. The comparable figures on the medium return case were<br />
$3,200,000 for recovery on the insolvent trading claim, total recovery of $6,468,475, net received by the liquidators<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
for distribution to creditors of $2,134,237.50, and a distribution of 1.63 cents in the dollar. The comparable figures<br />
on the lowest return case were $825,000 for recovery on the insolvent trading claim, total recovery of<br />
$3,255,717.88, net received by the liquidators for distribution to creditors of $527,858.94, and a distribution of 0.4<br />
cents in the dollar. Palmer J inferred that the liquidators could readily have calculated the information in the<br />
schedule before the proceedings were commenced (at [367]).<br />
34 Although the Court was not supplied with figures for the settlement sum, we were informed at the hearing of the<br />
appeal that the amount recovered is insufficient for the payment of any dividend to creditors.<br />
Palmer J's reasoning: (a) were litigation funding and lack of benefit to creditors relevant to Mr Irving's<br />
defence?<br />
35 Palmer J considered the relevance of the unlikelihood of a dividend to creditors in his Main Judgment at [367]-<br />
[379]. An important question for his Honour was whether it was relevant under s 1317S and s 1318 that the<br />
proceedings were financed by a litigation funder who stood to benefit from the plaintiffs' success, in circumstances<br />
where those who really suffered loss (the creditors) would receive nothing or a derisory return. That led him to<br />
consider the judgment in the High Court in Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41;<br />
(2006) 229 CLR 386. In that case a litigation funder sought to encourage tobacco retailers to claim a refund of<br />
tobacco licence fees from wholesalers by persuading them to join in litigation controlled by the funder, and the<br />
funder instituted proceedings purportedly brought as a representative action under the Supreme Court Rules 1970.<br />
One of the issues raised by the appellants was whether, assuming that the proceedings had been properly<br />
constituted as a representative action, they were nevertheless contrary to public policy and an abuse of process<br />
because they were champertous and constituted maintenance. Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ<br />
found that the proceedings did not constitute an abuse of process by reason of the involvement of the litigation<br />
funder, and they were not contrary to public policy. Callinan and Heydon JJ dissented on that issue.<br />
36 Palmer J quoted from the minority judgment and said (at [374]) that several factors indicated to the minority<br />
that the litigation in that case was an abuse of process:<br />
· the funder's motive was to derive a profit from a speculative investment rather than to assist those who could not<br />
afford justice;<br />
· the funder sought out the plaintiffs;<br />
· but for the funder, the persons who suffered loss would not have thought it financially worthwhile to sue;<br />
· on the other hand, the gain to the funder was potentially enormous and the funder had control of the proceedings.<br />
37 His Honour observed that some of those factors (in fact, all but the second) were present in the case before him<br />
(at [375]):<br />
· IMF's involvement in the proceedings was not due to altruistic concern to vindicate the rights of creditors of the<br />
companies but, rather, was an investment driven by a profit motive;<br />
· if access to justice for the creditors were a justification for the proceedings, the justification failed in<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
circumstances where the creditors would be lucky to get anything at all or the amounts they would receive would<br />
be derisory, and in those circumstances creditors would not think it financially worthwhile to sue;<br />
· IMF would, if successful, profit "to the tune of millions of dollars".<br />
38 He said that many judges had voiced strong objection to the notion of claims to justice being treated as<br />
investment opportunities (at [376]), and he deplored the prospect of trading in what he described as "litigation<br />
derivatives" (at [377]). He said the facts of the case were extreme "in showing how a mammoth piece of litigation<br />
can be instigated, perhaps to the ruin of a defendant, with negligible 'access to justice' for those who have suffered<br />
a wrong but with lucrative reward for those who make a business of investing in law suits" (at [378]).<br />
39 These parts of the judgment suggest the view that litigation funding is incompatible with the demands of justice.<br />
On that view, the very fact that Mr Irving faced claims driven by litigation funding and motivated by profit and not<br />
on behalf of those who suffered loss would be a factor suggesting that he ought to be excused from liability. But<br />
Palmer J clearly and expressly did not subscribe to that view, however much he may have sympathised with it. He<br />
also quoted (at [371]) and summarised (at [372]) the reasoning of Gummow, Hayne and Crennan JJ, with whom<br />
Gleeson CJ agreed; acknowledged that their Honours' observations were considered observations that must be<br />
accorded obedience (at [372]); and applied their Honours' views (at [379]).<br />
40 In his summary, his Honour derived the following propositions from the majority judgment:<br />
· the justification for litigation funding is that it offers access to justice to those who could not otherwise afford to<br />
vindicate their legal rights;<br />
· the fact that a litigation funder has sought out proceedings in which to invest for profit is not objectionable as a<br />
matter of public policy;<br />
· the terms upon which litigation is funded may be so onerous and unreasonable as between the litigant and the<br />
funder as to be unenforceable between them, but that is no concern of other parties to litigation and does not of<br />
itself make the prosecution of the proceeding by the funder an abuse of process;<br />
· if the funder, driven by the profit motive, attempts to interfere with or manipulate due process in the litigation, or<br />
if the funder's lawyers commit breaches of professional duties, the court has sufficient power to deal with those<br />
matters without staying the litigation.<br />
41 His Honour’s conclusion was that Mr Irving could not say, merely because of the involvement of a litigation<br />
funder and the derisory return to creditors, that the proceedings were an abuse of process or frowned upon by the<br />
policy of the law, or that the law would pay any regard to the fact that the proceeds of the judgment against him<br />
would not go to those persons whom the legislature intended to be the beneficiaries of the suit (at [379]).<br />
42 Senior counsel for the appellants placed some emphasis on what his Honour had said about the minority<br />
judgment in Campbells Cash & Carry at [374]-[378] of his judgment, for the purpose of developing his case that<br />
the Court's discretion to order an inquiry under s 536 had miscarried. In our view that involves a misreading of<br />
Palmer J's judgment. Palmer J did not adopt and apply that reasoning. Indeed, he expressly rejected it.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
Palmer J's reasoning: (b) the liquidators' conduct and the grounds for an inquiry<br />
43 In pars [380]-[397] of his Main Judgment, Palmer J made some critical observations about the conduct of the<br />
liquidators with respect to the proceedings. His Honour had received some relevant submissions from senior<br />
counsel for Mr Irving, who told the Court "these proceedings are a money making exercise for the litigation funder,<br />
the Liquidator and his lawyers, rather than seeking to compensate creditors in any meaningful way" (quoted at<br />
[368]). But the submissions were directed to Mr Irving's defence, whereas the issues to which Palmer J turned (at<br />
[380]) were whether there had been any abuse of process in fact, and whether the liquidators had failed to<br />
discharge their responsibilities, matters that it was open to the Court to consider, according to the majority in<br />
Campbells Cash & Carry.<br />
44 Palmer J identified the following matters as considerations going to whether the liquidators had discharged their<br />
responsibilities:<br />
(a) the extent and cost of the litigation, which were excessive (at [381]-[383]);<br />
(b) the liquidators were seeking to throw the whole burden of those costs (including the<br />
liquidators' costs of the proceedings which, he said, were in the order of $2 million) on to<br />
the defendants (at [381];<br />
(c) the liquidators' costs of $2 million were "quite out of proportion" given that the<br />
proceedings were brought to recover a possible maximum of $6 million (at [384]);<br />
(d) the liquidators should have approached the Court for directions under s 511(1)(a) as to<br />
whether they were justified in commencing the litigation in view of the terms of the<br />
proposed funding agreement, the likely return to creditors, and the costs of the proceedings<br />
generally (at [385]);<br />
(e) in circumstances where the liquidators' funding arrangements provided no more than a<br />
token benefit to the creditors, an issue arose as to whether they were in truth a means for<br />
the litigation funder and the liquidator to profit handsomely (at [388]);<br />
(f) the absence of information before the Court as to whether ASIC was willing to<br />
prosecute breaches of the insolvent trading laws, information that would have been<br />
appropriate to give to the Court in an application for directions (at [390]);<br />
(g) the position of liquidators appointed by the court as officers of the court, with the<br />
consequence that the court has the duty to see that all liquidators are performing their<br />
responsibilities in a prudent and proper manner (at [394]);<br />
(h) the liquidators' duty to salvage as much is possible for the benefit of creditors, which<br />
has the consequence that if a proposed course of action is not likely to produce a<br />
worthwhile benefit for creditors, liquidators should not undertake it simply because it will<br />
generate enough to pay the liquidator's fees (at [395]);<br />
(i) Mr <strong>Hall</strong> 's feeling of discomfort about the amount of costs, to which he admitted<br />
in answer to Palmer J's questions (at [396]).<br />
45 His Honour said that the Court was not powerless to correct what had happened, if it formed the view that the<br />
liquidators had acted improperly. He drew attention to the Court's power under s 98(4) of the Civil Procedure Act<br />
2005 to make an order limiting recoverable costs (at [391]). He also noted the Court's power to inquire into the<br />
liquidators’ conduct under s 536(1)(a), a power that the Court may exercise of its own motion (at [393], [394]). He<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
said that when he came to deal with costs, he would wish to make some further inquiry from Mr <strong>Hall</strong> under<br />
s 536(1)(a), which would include inquiring as to why Mr <strong>Hall</strong> was uncomfortable about the costs<br />
expenditure, why he did not apply to the Court for directions, and why he thought it necessary to spend up to $2<br />
million in costs when a quarter of that sum might well have been sufficient to prosecute the liquidators' case<br />
properly (at [396]). He said Mr <strong>Hall</strong> would be given the fullest opportunity to meet the concerns that he had<br />
expressed in his judgment, and he expressly contemplated that the answers he received might show the liquidators'<br />
costs to have been reasonable in view of the positions adopted by the defendants, but he warned that if he came to<br />
the conclusion that the liquidators' expenditure on costs was unjustified and improper, he would give consideration<br />
to whether a costs limiting order should be made under the Civil Procedure Act s 98(4) (at [397]).<br />
46 Importantly, Palmer J envisaged that the inquiry he had in mind would be conducted by him during the costs<br />
hearing and would lead, if at all, to a costs limiting order. His Honour did not appear to have in mind any general<br />
disciplinary investigation. At the end of the Main Judgment he said:<br />
"[560] Pursuant to CA s 536(1)(a), I will enquire into the conduct of the Liquidators in:<br />
- entering into a funding agreement and commencing these proceedings when<br />
they were aware that there was a substantial risk that the creditors would<br />
receive no, or very little, dividend;<br />
- permitting costs to amount to approximately $2M;<br />
- failing to obtain the directions of the Court before proceeding.<br />
[561] I will formulate questions for the Liquidators after submissions from the parties and<br />
I will give directions as to how the enquiry is to proceed.<br />
[562] Questions of costs will be reserved until my enquiry into the Liquidators' conduct is<br />
concluded and the amounts payable as between the parties are ascertained."<br />
The Second Judgment and the order for an inquiry<br />
47 The observations at the end of the Main Judgment were a statement of intention, and no order for an inquiry<br />
was made at that stage. Senior counsel and solicitors were instructed to appear for the liquidators solely with<br />
respect to the proposed inquiry under s 536. Submissions were received, and his Honour delivered a further<br />
judgment that addressed, amongst other things, the issue under s 536 ( <strong>Hall</strong> v <strong>Poolman</strong> (No 2) [2007]<br />
NSWSC 1494, 20 December 2007; "the Second Judgment"). There was a further hearing at the request of the<br />
liquidators for the purpose of settling the orders, which were made on 15 February 2008 ( <strong>Hall</strong> v <strong>Poolman</strong>,<br />
Supreme Court of New South Wales, Palmer J, 15 February 2008, unreported; "the Third Judgment").<br />
48 In the Second Judgment Palmer J dealt with s 536 as follows:<br />
"[12] The Liquidators submit that I should not order any further investigation into their<br />
conduct, as foreshadowed in paragraph 396 of my judgment. Mr Bathurst QC, who<br />
appears for the Liquidators on this issue alone, submits that there is no foundation for an<br />
enquiry under CA s 536(1)(a) because I cannot yet be satisfied that the Liquidators have<br />
not faithfully performed, or are not faithfully performing, their duties.<br />
[13] I do not think that CA s 536(1)(a) requires that the Court be satisfied to some<br />
particular degree of certainty of improper conduct by a liquidator before it enters into an<br />
enquiry under the section. The power may be exercised where it 'appears' that the<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
liquidator has not performed his or her duties faithfully – i.e. there must be some factual<br />
basis to suggest improper conduct and the circumstances generally must be sufficiently<br />
serious to justify putting the liquidator to the expense and trouble of an enquiry.<br />
[14] In the present case, I have indicated at some length in the judgment the factual basis<br />
which suggests improper conduct by the Liquidators. As I have said in the judgment, the<br />
enquiry may dispel the appearance of improper conduct. However, as matters presently<br />
stand, I would not be prepared to ignore what has happened. As I have noted in the<br />
judgment, it seems to me that the Court should know more about how the Liquidators<br />
could have let costs of the proceedings run up to some $2M, although feeling some<br />
disquiet about it and not seeking directions. In my view, a sufficient basis is made out for<br />
an enquiry under CA s 536(1)(a).<br />
[15] The Court is not circumscribed in its supervisory power over liquidators. An inquiry<br />
under CA s 536(1)(b) could be conducted where a complaint has been made. A complaint<br />
is not required to be in any particular format. In my opinion, the submissions of Mr Irving<br />
as to the Liquidators' conduct, as I have summarised in my reasons for judgment, amount<br />
to a complaint for the purposes of s 536(1)(b).<br />
[16] I should add that the Court has a general power to require answers by a liquidator<br />
under s 536(3) and that power does not depend upon the existence of circumstances falling<br />
within s 536(1) or (2). I would exercise the power under s 536(3) in the present case.<br />
[17] I have made it clear to the parties that I do not propose myself to conduct the inquiry<br />
under s 536. In view of the comments which I have made in the judgment, I think it is<br />
wiser that the enquiry proceed before another Judge, and that I consider that Judge's report<br />
when making final costs orders in these proceedings."<br />
49 Palmer J's principal order was as follows:<br />
"1. Pursuant to sections 536(1)(a), 536(1)(b) and 536(3) of the Corporations Act, there be<br />
an inquiry by the Court into whether Mr Gregory Winfred <strong>Hall</strong> and Mr Phillip<br />
Patrick Carter (Liquidators) failed faithfully or properly to perform their duties or a<br />
requirement of the Corporations Act 2001 (Cth), regulations or rules by:<br />
(a) Entering into funding agreements with Insolvency <strong>Litigation</strong> Fund Pty<br />
Limited in relation to Reynolds Wines Limited (Wines) and Reynolds<br />
Vineyards Pty Limited (Vineyards);<br />
(b) Commencing and prosecuting proceedings No 2032 of 2004 (Insolvent<br />
Trading Proceedings) having regard to the potential return to creditors of<br />
Wines and Vineyards;<br />
(c) Commencing the Insolvent Trading Proceedings without first seeking<br />
directions from the Court that they were justified in doing so; and<br />
(d) Incurring costs in the Insolvent Trading Proceedings and related<br />
proceedings (No 2685 of 2004 and No 4870 of 2005) in the amounts incurred<br />
in prosecuting those proceedings."<br />
50 There was no order specifying with more particularity the issues or questions to which the inquiry would be<br />
directed, or the procedure for conducting it. These matters were left for determination by the judge who would<br />
conduct the inquiry. His Honour stayed the operation of his order pending the plaintiffs' foreshadowed application<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
for leave to appeal, with liberty to apply following judgment in the appeal.<br />
51 At the hearing of the appeal it was submitted that subpar (d) of the order was limited to legal costs and<br />
disbursements and did not encompass the liquidators' own fees. Palmer J's central concern was about the lack of<br />
any significant return to creditors from the proceedings. The liquidators' fees, as well as legal costs and<br />
disbursements, would reduce the amount of any verdict available for distribution to creditors. Moreover, as we<br />
have explained, a component of the "Liquidators' costs of the proceedings ... in the order of $2 million" (Main<br />
Judgment at [381]) was the liquidators' own fees. Nevertheless, it appears to us that the order for an inquiry, on its<br />
proper construction, was limited to costs of the proceedings and did not include the liquidators' own fees. This is<br />
because in the Main Judgment, Palmer J made it plain that he would deal with the question of ordering an inquiry<br />
when dealing with the question of costs of the proceedings. The outcome that he envisaged in the event that further<br />
inquiry showed that the liquidators' expenditure on costs was unjustified and improper was the making of a limiting<br />
order on the costs of the proceedings under s 98(4) of the Civil Procedure Act, not an order about the liquidators'<br />
own fees (Main Judgment at [391], [397]).<br />
The interpretation of 536<br />
52 Section 536 of the Corporations Act is in the following terms:<br />
"Supervision of liquidators<br />
536 (1A) In this section:<br />
liquidator includes a provisional liquidator.<br />
(1) Where:<br />
(a) it appears to the Court or to ASIC that a liquidator has not faithfully<br />
performed or is not faithfully performing his or her duties or has not observed<br />
or is not observing:<br />
(i) a requirement of the Court; or<br />
(ii) a requirement of this Act, or the regulations or of the rules; or<br />
(b) a complaint is made to the Court or to ASIC by any person with respect to<br />
the conduct of a liquidator in connection with the performance of his or her<br />
duties;<br />
the Court or ASIC, as the case may be, may inquire into the matter and, where the Court<br />
or ASIC so inquires, the Court may take such action as it thinks fit.<br />
(2) ASIC may report to the Court any matter that in its opinion is a misfeasance, neglect<br />
or omission on the part of the liquidator and the Court may order the liquidator to make<br />
good any loss that the estate of the company has sustained thereby and may make such<br />
other order or orders as it thinks fit.<br />
(3) The Court may at any time require a liquidator to answer any inquiry in relation to the<br />
winding up and may examine the liquidator or any other person on oath concerning the<br />
winding up and may direct an investigation to be made of the books of the liquidator."<br />
53 The court must bear in mind the place of s 536 in the regulatory system established under Australia's<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
corporations legislation when construing the section. It must be recognised that this section, together with the<br />
virtually identical provision applicable to controllers of the property of a corporation in s 423, is a broadly<br />
expressed supervisory jurisdiction over the conduct of persons in control of the affairs of a corporation, in<br />
circumstances where normal market forces and the exercise by shareholders of their rights to control are attenuated<br />
or non-existent. These powers are one part of a range of regulatory powers conferred on the court and/or ASIC to<br />
ensure the lawful, orderly and efficient conduct of the affairs of corporations during such a period. The detailed<br />
regulatory scheme found in the Corporations Act manifests in this, as in so many other respects, the central<br />
significance of corporate conduct for the economic and social life of the nation.<br />
54 Powers that can be characterised in this way are not to be narrowly construed, nor confined by fine distinctions.<br />
Where a statute grants a power to a superior court to deploy as the circumstances of the case necessitate, it is a<br />
basic rule of statutory interpretation that the grant should not be narrowly construed or cut back unless there are<br />
very clear reasons for doing so: PMT Partners Pty Ltd (in liq) v Australian National Parks & Wildlife Service<br />
[1995] HCA 36; (1995) 184 CLR 301 at 313 per Brennan CJ, Gaudron and McHugh JJ, 316 per Toohey and<br />
Gummow JJ; Andjelic v Marsland [1996] HCA 55; (1996) 186 CLR 20 at 39 per McHugh and Gummow JJ; Wong<br />
v Silkfield Pty Ltd [1999] HCA 48; (1999) 199 CLR 255 at [11] per Gleeson CJ, McHugh, Gummow, Kirby and<br />
Callinan JJ; Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Ltd [2008] HCA 9; (2008) 232 CLR 314<br />
at [41], per Kirby J. A fortiori, where the powers in question are an important component of a regulatory scheme<br />
of fundamental economic and social significance.<br />
55 Notwithstanding the plenary nature of the powers conferred by s 536, the case law has developed a number of<br />
principles bearing on the exercise of the court's discretion to order an inquiry. It is pertinent to mention four<br />
matters in the present context, which we shall address under the headings:<br />
· the "prima facie case" submission;<br />
· the court's supervisory role over the conduct of liquidators;<br />
· the relevance of alternative remedies;<br />
· the analogy with inquiries into the conduct of trustees in bankruptcy.<br />
The "prima facie case" submission<br />
56 In Burns Philp Investments Pty Ltd v Dickens (1993) 11 ACLC 272, upon which the appellants relied in their<br />
written submissions, Young J said (at 273) that "the court must be given some material to suggest that it would be<br />
in the public interest to conduct an inquiry", and this meant that the party seeking an inquiry "must put forward<br />
material which prima facie satisfies the court of that matter". These observations were applied by Burchett AJ in<br />
Re Glowbind Pty Ltd (in liq); Takchi v Parbery [2003] NSWSC 1190; (2003) 48 ACSR 456, the other case relied<br />
upon by the appellants. The appellants contended that the precondition is not met unless the court is satisfied that<br />
there is a prima facie case of failure to perform duties or observe requirements, suggesting some relatively onerous<br />
evidentiary burden for the person seeking an inquiry under subpar (1)(a).<br />
57 However, Young J did not say that there must be a case of failure faithfully to perform duties or observe<br />
requirements proven to a prima facie evidentiary standard. That is plain from Burns Philp Investments Pty Ltd v<br />
Dickens (No 2) (1993) 31 NSWLR 280, where his Honour accepted a submission to the effect that the barrier over<br />
which the plaintiffs would have to pass to have an inquiry mounted was not a very high one, and that "all that was<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
necessary for his clients to show was that there was a prima facie case that something needed to be investigated" (at<br />
287).<br />
58 The Full Court of the Federal Court dealt with a similar submission in Leslie v Hennessy [2001] FCA 371 at<br />
[6]. In a joint judgment, on appeal from Drummond J, Ryan, Dowsett and Hely JJ said:<br />
“[6] ... [W]e believe that both Young J [in the Burns Philp Investments (No 2) case] and<br />
Drummond J were describing something less formal than a prima facie case according to<br />
some evidential burden of proof. Their Honours both meant only that an applicant must<br />
show a sufficient basis for making an order, that there is something which requires<br />
inquiry. The Court then has a discretion which it must exercise. Many factors will be<br />
relevant to that exercise. They include the strength and nature of the allegations, any<br />
answers offered by the liquidator, other available remedies, the stage to which the<br />
liquidation has progressed, the likely amounts of money involved, the availability of funds<br />
to pay for any inquiry, the likely benefit to be derived from it and the legitimate 'interest'<br />
of the applicant in the outcome.” [Emphasis added]<br />
(See also Magarditch v Australia and New Zealand Banking Group Ltd [1999] FCA 35; (1999) 30 ACSR 265 at<br />
287 per Einfeld J; Re Fox Home Loans Pty Ltd (in liq) [2005] NSWSC 1050 at [8] per Barrett J; Vink v Tuckwell<br />
[2008] VSC 100; (2008) 66 ACSR 30 at [76]- [77] per Robson J; application for leave to appeal dismissed: [2008]<br />
VSCA 204; (2008) 68 ACSR 265.)<br />
59 We agree with these observations, subject to a qualification that we take to be implied in their Honours'<br />
remarks, namely that the "sufficient basis" for making the order must relate to the matters concerning faithful<br />
performance of duties or observance of requirements that are stated in subpar (1)(a). Of course, the list of relevant<br />
factors set out in this passage does not purport to be comprehensive.<br />
60 In Re Timberland Ltd (in liq); Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669<br />
at 683, Marks J expressed concern that if subsection (1)(a) were construed to mean that the court only had<br />
jurisdiction if the matters stated in the subparagraph were first shown to exist, such a construction would "produce<br />
the curious result that the subject of the inquiry would be something that has happened rather than whether and to<br />
what extent it has happened". The answer to that conundrum is that under subpar (1)(a) the court is empowered to<br />
inquire as to whether and to what extent something has happened or is happening of the kind described in the<br />
subparagraph, provided only that there is a sufficient basis for ordering an inquiry in the sense articulated by the<br />
Full Federal Court in Leslie v Hennessy.<br />
The court's supervisory role over the conduct of liquidators<br />
61 The powers conferred by s 536 have a common element, namely that they are powers of a regulatory nature<br />
concerned with the supervision of liquidators of all kinds. The court has a long-established role in the supervision<br />
of court-appointed liquidators, and s 536 confers a statutory supervisory jurisdiction in respect of liquidators of all<br />
kinds.<br />
62 In a compulsory winding up by the court, the liquidator's office stems from the appointment by the court. The<br />
winding up is conducted by the court and the decisions the liquidator makes from time to time are in effect made<br />
under the authority of the court by the liquidator as an officer of the court: Re Timberland Ltd (in liq);<br />
Commissioner for Corporate Affairs v Harvey, supra at 696 per Marks J. On the other hand, voluntary winding up<br />
is a statutory process and the liquidator is not an officer of the court carrying out tasks on the court's behalf: Clutha<br />
Ltd (in liq) v Millar (No 5) [2002] NSWSC 833; (2002) 43 ACSR 295 at [13]- [18], per Austin J; Australian<br />
Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (in liq) [2002] NSWSC 491; (2002) 169 FLR 111 at [60] per<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
Bergin J. The distinction is reflected in r 42.3(2)(g) of the Uniform Civil Procedure Rules, which permits the court<br />
to make an order for costs in the exercise of its supervisory jurisdiction over its own officers, including courtappointed<br />
liquidators but not liquidators appointed in a voluntary winding up.<br />
63 The liquidators in the present case hold office under a deemed creditors' voluntary winding up, consequent upon<br />
termination of the administration of the companies: s 446A. They are not liquidators in a compulsory winding up.<br />
They are therefore not officers of the court. Nevertheless they are subject to the applicable provisions of the<br />
Corporations Act, which include not only the statutory duties of officers of corporations (liquidators of all kinds<br />
being within the definition of "officer" in s 9; see also s 179(2)), but also statutory provisions of a supervisory kind<br />
where those provisions extend to liquidators generally. Importantly, s 536 is one of those provisions.<br />
64 Although in some respects the court has a greater supervisory role over the conduct of a court-appointed<br />
liquidator, in our view there is no proper basis for exercising a lesser degree of supervision over liquidators in a<br />
creditors' voluntary winding up under a statutory authority that extends to those liquidators. As Palmer J remarked<br />
(Main Judgment at [394]), "all liquidators act in the public interest; accordingly the court has not only the power,<br />
but also the duty, to see that liquidators are performing their duties in a prudent and proper manner".<br />
65 Nowadays liquidation preceded by a voluntary administration is the most common form of liquidation, and it is<br />
treated under the Act as a creditors' voluntary winding up, as in the present case. If the court were to adopt a less<br />
active approach to its statutory supervisory role in the case of a creditors' voluntary winding up than in the case of<br />
a compulsory winding up, it would be stepping back from the role in the most common case, notwithstanding the<br />
legislature's conferral of the supervisory role on the court for all liquidations. Therefore, when it comes to<br />
exercising powers under s 536, our view is that there should be no reduction of supervision by virtue of the fact<br />
that the appellants are not court-appointed liquidators; conversely, if an inquiry under the section would have been<br />
appropriate had the appellants been court-appointed liquidators, such an inquiry is likely to be appropriate to them<br />
in their current status.<br />
66 It is pertinent to recognise that the powers conferred by s 536(1) are vested in both the court and the regulator,<br />
and therefore that the court is performing a regulatory role, in the sense that its function under s 536, like the<br />
function of ASIC under the section, is supervisory. Although the power conferred by s 536(3) is conferred on the<br />
court alone, it is of the same supervisory nature. As predecessors to s 536(1) said expressly, the court is to "take<br />
cognizance of the conduct of liquidators ...": Companies Act 1896 (Vict) (60 Vict No 1482), s 146; Companies Act<br />
1936 (NSW), s 235; Uniform Companies Act 1961, s 278; see O’Toole v Mitcham (1977) 2 ACLR 471 at 473, per<br />
Young CJ (Gillard and McGarvie JJ agreeing); nothing in the explanatory memorandum to the Companies Bill<br />
1981 suggests that the change of wording introduced in the Companies Code was intended to alter the court's role.<br />
67 The court's supervisory role is recognised in the frequently cited observations of McLelland J in Northbourne<br />
Developments (supra, at 438), where his Honour said of the predecessor to s 536 that it:<br />
“ ... is concerned with aspects of the conduct of liquidators which are liable to attract<br />
sanctions or control for what might broadly be described as disciplinary reasons.”<br />
(For subsequent applications of this approach, see eg, Re Glowbind, supra at [217], per Burchett AJ; Australian<br />
Securities and Investments Commission v Forestview Nominees Pty Ltd (recrs & mgrs apptd) [2006] FCA 1530;<br />
(2006) 236 ALR 652 at [15]; Leslie v Hennessy, supra at [4]; Australian Securities and Investments Commission v<br />
Edge [2007] VSC 170; (2007) 211 FLR 137 at [48] per Dodds-Streeton J; Vink v Tuckwell, supra (Robson J).)<br />
68 The characterisation of the basis for intervention as “disciplinary reasons” is, as McLelland J said, "broadly"<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
apt. Particularly with respect to the unfettered power in s 536(3), it is not appropriate to limit the power to a<br />
concept of impropriety. It extends at least to the full range of “duties” referred to in s 536(1)(a). Questions of skill<br />
and diligence, as well as questions of improper conduct or improper purpose, can give rise to “disciplinary<br />
reasons” in the sense that McLelland J was applying the concept (see eg the duties in ss 180, 181, 182 and 183 of<br />
the Act).<br />
The relevance of alternative remedies<br />
69 One of the considerations relevant to the exercise the discretion under each of the powers in s 536 is whether or<br />
not there is another appropriate remedy: see Leslie v Hennessy, supra at [6]. Accordingly, where an issue is raised<br />
as to whether a decision made by a liquidator should be reversed or modified, the appropriate procedure is under s<br />
1321: see Belvista Pty Ltd v Murphy, supra at 630, per McLelland J; Re Glowbind, supra at 465 [21], per Burchett<br />
AJ. Section 536 should not be used to assist a person engaged in litigation with a liquidator akin to discovery, at<br />
any rate where the litigation does not involve the kind of supervisory issues characterised by McLelland J as<br />
“disciplinary reasons”: see Re Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 742 per Barrett J.<br />
The analogy with inquiries into the conduct of trustees in bankruptcy<br />
70 By reason of the historical origins of statutory regulation of corporate insolvency in general bankruptcy<br />
legislation, it has always been the case that the development of case law with respect to the supervision of<br />
liquidators has drawn upon the parallel case law arising in the courts' supervision of trustees in bankruptcy. Thus,<br />
the exercise of the powers in ss 536 and 423 of the Corporations Act can be informed by the case law for s 179 of<br />
the Bankruptcy Act 1966 (Cth).<br />
71 That section relevantly provides:<br />
“179(1) The Court may, on the application of the Inspector-General, a creditor or the<br />
bankrupt, inquire into the conduct of a trustee in relation to a bankruptcy ...”<br />
72 The s 179 case law sets out a broadly equivalent set of principles to that authoritatively established for s 536 by<br />
the Federal Court decision in Leslie v Hennessy as quoted above. One of the most frequently cited statements in<br />
this regard is that of Riley J in Re Alafaci, Registrar in Bankruptcy v Hardwick (1976) 9 ALR 262, where his<br />
Honour said at 268:<br />
“ ... [T]here is a preliminary question to be decided by the court – namely on the grounds<br />
and facts before it, has a case been made for inquiry into the trustee’s conduct? If the<br />
answer to that question is 'yes', the next question is – what is to be the scope of the<br />
inquiry? It may be that the material already before the court sufficiently defines the scope<br />
of the inquiry; on the other hand, the court may find it necessary to define the subjects for<br />
inquiry – eg in the form: 'Did the trustee do (or fail to do) so and so?' – and to give<br />
directions before proceeding to inquire. In any event, the court will seek to inquire into<br />
specific matters, and to ensure that the trustee is given proper opportunity to prepare and<br />
present his case on those matters ...”<br />
73 Subsequently, in Re Gault; Gault v Law [1981] FCA 167; (1981) 57 FLR 165, Ellicott J, after referring to Re<br />
Alafaci, said at 173:<br />
“ ... the court should be loath to order an inquiry unless it considers that on the evidence<br />
before it there are substantial grounds for believing that the trustee erred in his<br />
administration. If the court considers that an inquiry is unlikely to reveal misconduct it<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
should not make an order and put the respondent and possibly the creditors to the expense<br />
and trouble involved. It should also be borne in mind that a debtor applicant may have<br />
other remedies to pursue, for example, in an action for breach of trust.”<br />
74 These passages have been applied on numerous occasions: see, eg, Registrar in Bankruptcy v Bradley [1983]<br />
FCA 304; (1983) 72 FLR 231 at 232; Turner v Official Trustee in Bankruptcy (Federal Court of Australia,<br />
Burchett, Drummond and Sackville JJ, 27 November 1998, unreported); Wilson v Commonwealth of Australia<br />
[1999] FCA 219 at [44]; Macchia v Nilant [2001] FCA 7; (2001) 110 FCR 101 at [48]. Their similarity with the<br />
law governing s 536, especially as stated authoritatively by Full Federal Court in Leslie v Hennessy (supra at [6]),<br />
is striking.<br />
75 One example of how the s 179 case law can inform s 536 is Wilson, supra. The Court refused to order an<br />
inquiry under s 179 in circumstances where there had been a judicial determination by a court of the matters sought<br />
to be opened by means of the inquiry. The principle of finality in litigation was applied to refuse an inquiry in such<br />
circumstances (see at [169]).<br />
76 In Macchia, supra, French J, as his Honour then was, discussed the statutory history of s 179 back to the<br />
Bankruptcy Act 1914 (UK). His Honour referred to the earlier case law and said in a passage which is generally<br />
applicable to s 536:<br />
“[50] Section 179 operates in aid of the Court’s supervision of trustees who are its officers.<br />
That operation, however, is subject to restraint against undue interference and to<br />
discretionary considerations including the practical benefit likely to be derived from the<br />
conduct of any inquiry. Like s 178, it may be invoked by a bankrupt after discharge and in<br />
part for the same reason, namely that the trustee’s powers continue in the various ways<br />
referred to by Merkel J at first instance in Cheesman. It may also be the case that the<br />
trustee should be held to account for conduct in the administration of the estate which has<br />
affected the bankrupt in some way. As is the case with s 178, it is not a vehicle for<br />
pressing claims for common law damages under the general law. That is a matter for a<br />
court of appropriate jurisdiction. In addition the court will also have in such cases the<br />
discretion to determine the utility of an inquiry and its likely outcomes. For 'although the<br />
court is given a broad discretion under s 179 of the Act, that discretion must be exercised<br />
in the interests of the orderly administration of the bankrupt’s estate': Re Challen (a<br />
Bankrupt); Ex parte Brown v Bendeich (unreported, Federal Court, Beaumont J, No QB<br />
1548 of 1993, 23 April 1996) cited with approval by Merkel in Cheesman at first instance,<br />
at [(1997) 143 ALR 78] 114.”<br />
(See also Moore v Macks [2007] FCA 10 at [29]–[30].)<br />
The Appellants' jurisdictional contentions<br />
77 The appellants' central submission was that the matters relied upon by Palmer J to justify ordering an inquiry<br />
under s 536 of the Corporations Act are not capable, as a matter of law, of providing a foundation for such an<br />
order. That was in part a claim that his Honour misconstrued s 536, and in part a claim that the exercise of the<br />
Court's discretion under that section miscarried. We shall consider those two elements in this and the next parts,<br />
respectively.<br />
78 In his order and in the reasoning in the Second Judgment, Palmer J invoked ss 536(1)(a), 536(1)(b) and 536(3)<br />
as sources of jurisdiction to order an inquiry. The appellants submitted in writing that the threshold articulated in s<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
536(1) also applies where the court proceeds under s 536(1)(b) or s 536(3): that is, the power to order an inquiry<br />
under any of those provisions is conditional upon the court being satisfied that there is a prima facie case that the<br />
liquidator has not faithfully performed his duties or has failed to observe a requirement of the court, the Act,<br />
regulations or rules (citing Burns Philp Investments Pty Ltd v Dickens, supra per Young J, and Re Glowbind, supra<br />
at 55 ([21]), per Burchett AJ).<br />
79 Contrary to the appellants' contention in their written submissions, we have decided at [56]-[60] above that none<br />
of the powers conferred by s 536 depends upon there being a prima facie evidentiary case of failure faithfully to<br />
perform or to observe legal requirements. The fundamental issue to be addressed under each of the three provisions<br />
upon which his Honour relied is, as stated in Leslie v Hennessy, supra, whether there is a sufficient basis for<br />
making an order, whether there is something which requires an inquiry.<br />
80 The other part of the appellants' written submission, namely that the limiting words of s 536(1)(a) should also<br />
be applied to s 536(1)(b) and s 536(3), was partly withdrawn in oral submissions, when the appellants conceded<br />
that s 536(3) has always been a separate power not governed or limited by the wording of s 536(1)(a). The<br />
remaining question is whether the limiting words of s 536(1)(a) should be extended to s 536(1)(b). We shall<br />
consider that question below, along with the other issues raised by the appellants with respect to subpar (b).<br />
81 The appellants' principal contention of a jurisdictional character, namely that the matters relied upon by Palmer<br />
J were not capable, as a matter of law, of justifying an order for an inquiry under any limb of s 536, must be<br />
assessed in light of our analysis of the content and the scope of s 536 and the application of the test in Leslie v<br />
Hennessy, supra.<br />
82 We have set out at [44] above the findings of fact upon which Palmer J relied. With respect to (g), we have<br />
considered (at [62]-[65]) the position of liquidators who are not officers of the court. With respect to (d) we will<br />
consider below (at [165ff]) the proposition that the appellants should have approached the Court for directions.<br />
Setting aside these matters, the other findings upon which Palmer J relied were, in our opinion, capable of<br />
supporting the conclusion that his Honour reached. In particular, in our opinion the following matters were, taken<br />
together, a foundation for the Court to decide that there should be further inquiry:<br />
· the extent and costs of litigation (Main Judgment at [381]-[383]);<br />
· the lack of balance or proportionality between the liquidators' costs of $2 million and a possible maximum<br />
recovery of $6 million (at [384]);<br />
· the fact that the proceedings would produce, at best, only a token benefit to creditors, and the possibility that the<br />
proceedings may have been commenced and prosecuted for the benefit of the liquidators and the funder rather than<br />
for the benefit of creditors (at [388]); and<br />
· the fact that one of the liquidators gave evidence expressing discomfort about the amount of costs (at [396]).<br />
83 There were some additional submissions made, to the effect that his Honour gave weight to extraneous matters<br />
and failed to give weight or sufficient weight to material matters. These submissions will be addressed below, in<br />
the context of dealing with the appellants' alternative submission that the exercise of each discretion miscarried.<br />
We first proceed to consider the appellants' other jurisdictional submissions.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
Subsection 536(1)(a)<br />
84 The power conferred by s 536(1)(a) contains specific preconditions to the exercise of the power, which are<br />
capable of giving rise to jurisdictional issues, namely that it appears to the court that a liquidator:<br />
· "has not faithfully performed or is not faithfully performing his or her duties"; or<br />
· "has not observed or is not observing" requirements of the court, the Act, the regulations or the rules.<br />
We have explained that in our view, these words do not require that there be a prima facie evidentiary case of lack<br />
of faithful performance or observance of requirements before subpar (a) is available (see [56]-[60]).<br />
85 In contrast with subpar (1)(b), subpar (1)(a) does not require that a complaint be made to the court or to ASIC.<br />
The court may, if the jurisdictional requirements are met, act of its own motion to initiate an inquiry, although<br />
more usually it will respond to an application by the Commission or an interested person.<br />
86 As noted above, in his Second Judgment at [13] Palmer J took the approach that subpar (a) does not require the<br />
court to be satisfied of improper conduct by a liquidator before it enters into an inquiry, since the power may be<br />
exercised where it "appears" that the liquidator has not performed his or her duties faithfully (or, one would add,<br />
that the liquidator has not observed or is not observing a requirement of the court, the Act, the regulations or<br />
rules). His Honour interpreted the word "appears" to mean that there must be "some factual basis to suggest<br />
improper conduct and the circumstances generally must be sufficiently serious to justify putting the liquidator to<br />
the expense and trouble of an inquiry". When his attention was drawn to that statement in the Second Judgment,<br />
senior counsel for the appellants said he did not disagree with it, except that the second part of it (relating to the<br />
expense and trouble of inquiry) went to discretion rather than jurisdiction.<br />
87 Section 536(1)(a) was available to support Palmer J's order for an inquiry provided that the test articulated in<br />
Leslie v Hennessy was satisfied on the facts. For the reasons given at [82] above, our view is that Palmer J made<br />
findings that were capable of supporting his decision to order an inquiry under, inter alia, s 536(1)(a).<br />
Section 536(1)(b)<br />
88 Like subs (1)(a), subs (1)(b) contains a precondition to the exercise of power. Section 536(1)(b) requires that<br />
there be a “complaint ... with respect to the conduct of a liquidator in connection with the performance of his or<br />
her duties”.<br />
89 The appellants submitted that the threshold in s 536(1)(a) also applies to s 536(1)(b). This submission receives<br />
some support from some remarks of Robson J in Vink v Tuckwell. His Honour said (at [86]) that "[a] complaint<br />
under s 536(1)(b) with respect to the conduct of the liquidator in connection with the performance of his or her<br />
duties should be confined to the liquidator's failure to observe the matters referred to in s 536(1)(a) ...". If his<br />
Honour intended by that observation to import into subpar (1)(b), as a matter of construction, the limiting words of<br />
subpar (1)(a), so that a complaint would not enliven the court's power under subpar (1)(b) unless it was a complaint<br />
that the liquidator had not faithfully performed or was not faithfully performing his or her duties or had not<br />
observed or was not observing the requirements of the court, the Act, the regulations or the rules, then we would<br />
respectfully disagree.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
90 In its terms subpar (1)(b) applies if a complaint is made to the court or ASIC with respect to "the conduct of the<br />
liquidator in connection with the performance of his or her duties", wide words which would cover complaints<br />
about incompetence or lack of diligence as well as complaints about failure to perform duties faithfully. We see no<br />
reason to read down those words by reference to another subparagraph expressed as an alternative to subpar (1)(b).<br />
His Honour's construction may well have had force if s 536(1) had retained the structure and language of s 278(1)<br />
of the Uniform Companies Act 1961, for in the latter provision the power to order an inquiry when a complaint was<br />
made was not in a separate subparagraph and it applied to a complaint made by any creditor or contributory or by<br />
the Board "in regard thereto". But when the Companies Code was introduced in 1981, the provision was widened to<br />
allow "any person" to make the complaint, and there is nothing in the Explanatory Memorandum for the Bill, or<br />
otherwise, to justify the belief that the power to act if a complaint was made was intended to be constrained by the<br />
language of subpar (1)(a) (see, especially, Explanatory Memorandum to the Companies Bill 1981, at [973]).<br />
91 In the present case a submission was made to Palmer J by senior counsel for Mr Irving that the proceedings<br />
were a moneymaking exercise for the litigation funder, the liquidators and the lawyers, rather than seeking to<br />
compensate creditors in any meaningful way (Main Judgment at [368]). The full text of the submissions made on<br />
behalf of Mr Irving is not before the Court on the appeal, but it is plain that the submission was critical of the<br />
liquidators' conduct in the litigation, in connection with the performance of their duties. The submission was made<br />
for the purposes of the discretionary defence under s 1317S and s 1318, and was not couched as, or intended by<br />
counsel to be, a complaint for the purposes of s 536(1)(b). At the time of the Main Judgment, his Honour's<br />
attention was focused only on s 536(1)(a), which he invoked of his own motion (see at [393], [394], [396]), and s<br />
536(1)(b) came into play only in the course of the further consideration that led to the Second Judgment.<br />
92 Palmer J held that senior counsel's submission constituted a complaint for the purposes of s 536(1)(b),<br />
observing that a complaint under the subparagraph "is not required to be in any particular format" (Second<br />
Judgment at [15]). The appellants submitted that there needs to be a formal complaint about a matter identified in s<br />
536, which we understand to mean (according to the appellants' submission) that there must be some form of<br />
communication requesting the court or ASIC (as the case may be) to take some step to rectify or respond to the<br />
liquidator's conduct. Plainly a submission to the court made for the purpose of excusing a defendant from liability<br />
for breach of duty is not a "complaint" in the sense advocated by the appellants, because it does not invite the court<br />
to take any steps to rectify or respond to the liquidator's conduct.<br />
93 In the opinion of Hodgson JA and Austin J, Spigelman CJ disagreeing on this point, Palmer J was right in<br />
finding that a complaint had been made for the purposes of s 536(1)(b), for three reasons.<br />
94 First, in terms s 536(1)(b) requires only that there be a "complaint" made to the court or ASIC by a person, and<br />
that the complaint be "with respect to the conduct of a liquidator in connection with the performance of his or her<br />
duties", and then the court or ASIC may inquire into "the matter". The statutory language conveys the idea that<br />
there must be some form of communication to the court or ASIC critical of a liquidator's conduct in connection<br />
with performance of his or her duties, but it does not require that the complaint be directed to the initiation of an<br />
inquiry under s 536 or, indeed, that it should urge or request the court or ASIC to respond to the liquidator's<br />
conduct. The word "complaint" does not of itself, in its primary and general meaning, include the notion of<br />
requesting that steps be taken in response. The Macquarie Dictionary (Revised Third Edition) defines the word as<br />
"an expression of grief, regret, pain, censure, resentment or discontent; lament; fault-finding" or "a cause of grief,<br />
discontent, lamentation, etc". According to the Macquarie Dictionary, it is only in the law that "complaint" can<br />
mean "information in written form giving details of an alleged criminal offence" or "(in certain jurisdictions) the<br />
means by which various civil matters are initiated", implying in that special context that the complainant requires<br />
that something be done about the matters complained of. There is no persuasive reason for giving the word<br />
"complaint" its narrow technical legal meaning, in a context where the word is used to provide a basis for the<br />
initiation of an inquiry on broadly disciplinary grounds. That being so, the statutory language is wide enough to<br />
apply to submissions to the court critical of the conduct of liquidators in the performance of their duties with<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
respect to commencement and prosecution of recovery proceedings (and hence constituting a "complaint"), even<br />
though the submissions are made for the purpose of excusing a defendant in the liquidators' litigation from liability,<br />
rather than for the purpose of any action or inquiry being taken in respect of the liquidators' conduct.<br />
95 That conclusion is supported by the fact that under s 536(1)(b), "any person" may make a complaint. In the<br />
Northbourne Developments case (supra at 438-9) McLelland J noted that those words should be taken to have their<br />
literal meaning. That question was left open by the Court of Appeal of the Supreme Court of Victoria in Vink v<br />
Tuckwell (supra at [45]), but in our view McLelland J's construction is correct having regard to the statutory<br />
language and legislative history. McLelland J proceeded to observe that "the legislature may well have taken the<br />
view that it is not in the public interest to limit the class of persons who might bring a complaint to the court of<br />
misconduct by liquidator". If the class of persons who might bring a complaint to the court is not to be limited,<br />
then for the same policy reasons there should be no restriction on the manner in which or the purposes for which a<br />
complaint is made.<br />
96 Secondly, s 536(1)(b) confers jurisdiction on ASIC when a "complaint" is made to it, as well as the court where<br />
a complaint is made to the court, and so the word "complaint" must be given a meaning that fits both occasions. If<br />
a complaint is made to ASIC about the conduct of a liquidator, there is every prospect that the complaint will be at<br />
large and not directed to acting under s 536(1)(b). ASIC has a large armoury of powers to deal with liquidators in<br />
response to complaints, including (without attempting to be comprehensive) its powers to conduct investigations<br />
under Pt 3 of the Australian Securities and Investments Commission Act 2001 (Cth), or to initiate an examination<br />
under Pt 5.9 Div 1 of the Corporations Act, or to bring misfeasance provisions under Pt 5.9 Div 2, or to bring a<br />
complaint before the Companies Auditors and Liquidators Disciplinary Board under Pt 9.2. In those circumstances<br />
it is unlikely that the legislature intended to limit the word "complaint" in s 536(1)(b) to a complaint directed to<br />
one of ASIC's many powers, namely the power of inquiry under subpar (b). Further, it is unlikely that the<br />
legislature intended to prevent ASIC from inquiring into a communication critical of the conduct of a liquidator<br />
simply because the communication was made incidentally to some other purpose and the person making it did not<br />
ask ASIC to take some steps to respond to the liquidator's conduct. Therefore the court should not read into s<br />
536(1)(b) a limitation that would confine "complaints" to "formal" complaints requesting the court or ASIC to<br />
respond to the liquidator’s conduct.<br />
97 Thirdly, just as it is unlikely that the legislature would have intended to restrict ASIC's use of the inquiry power,<br />
so also it is unlikely that any equivalent restriction would have been intended in the case of the court. Such a<br />
restriction would tend to fetter the discharge of the court's supervisory role. If the court receives a complaint about<br />
the conduct of a liquidator in connection with performance of the liquidator's duties, by "any person" and (one<br />
adds) whatever that person's purpose and the context and circumstances of the complaint, it should be open to the<br />
court to take the matter further forthwith in the public interest. All that is needed, on this construction, is that there<br />
be criticism expressed to the court, in any context, with respect to the conduct of a liquidator connected to<br />
performance of the liquidator's duties.<br />
98 Senior counsel for the appellants drew the Court's attention to r 7.11(1) of the Supreme Court (Corporations)<br />
Rules 1999. According to that rule, a complaint under s 536(1)(b) must be by interlocutory process seeking an<br />
inquiry if the winding up is by the court, or by originating process seeking an inquiry in the case of a voluntary<br />
winding up (as in the present case). In our view the rule does not support the argument that a complaint under s<br />
536(1)(b) must in all cases be a complaint directed towards enlivening that subparagraph or requesting the court to<br />
respond to the liquidator's conduct. Rule 7.11 simply informs the complainant of the correct procedure in the event<br />
that he or she wishes to bring a complaint before the court in circumstances where there is no existing application<br />
before the court. It does not preclude the complainant from voicing a complaint if he or she is already before the<br />
court. In any event, r 7.11 may be waived in an appropriate case: Civil Procedure Act, s 14.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
99 Paragraphs [93]-[98] represent the views on this issue of Hodgson JA and Austin J. The immediately<br />
succeeding pars [100]-[103] represent the dissenting views of Spigelman CJ.<br />
100 Section 536 constitutes part of the armoury of the supervisory jurisdiction of the court with respect to<br />
liquidators. The approach identified by McLelland J in Northbourne Developments, supra, to the effect that such<br />
supervision is in a general sense, “disciplinary” is applicable. In my opinion, a complaint under s 536(1)(b)<br />
requires some form of communication requesting the court to take steps to rectify or review something that had<br />
been done by a liquidator. A plea to exercise a statutory power to excuse default on the part of a former officer of<br />
the company, by reason of the conduct of the liquidator in pursuing litigation against him or her, is not such a<br />
request.<br />
101 In my opinion, the submissions made to Palmer J on behalf of the defendants before him did constitute a<br />
“complaint” in a colloquial sense of that term, but did not constitute a “complaint” within the meaning of s<br />
536(1)(b). The appellants’ submission that what is required is some kind of “formal complaint” should be upheld.<br />
102 Alternatively, I would independently apply the express words of r 7.11 of the Supreme Court (Corporations)<br />
Rules, which were relied upon in this Court but which were not referred to before Palmer J. That rule states<br />
expressly that a complaint “must be made ... in the case of a voluntary winding up – by an originating process<br />
seeking an inquiry”. In my opinion this mandatory provision requires the formality of the specified character.<br />
103 As the joint judgment of Hodgson JA and Austin J notes, s 14 of the Civil Procedure Act empowers the court<br />
to dispense with the requirement of a rule, but to do so “by order”. There has been no such order, not least because<br />
the rule was not drawn to the attention of Palmer J. In my opinion the mandatory words of the rule are applicable.<br />
104 In the result, the majority opinion of this Court is that Palmer J had jurisdiction to make an order for an<br />
inquiry under s 536(1)(b) because a complaint had been made to the Court by a person with respect to the conduct<br />
of the liquidators in connection with performance of their duties. There being jurisdiction, the issues for the Court<br />
to address were explained in Leslie v Hennessy, supra, the general question being whether there is a sufficient basis<br />
for making an order, that is, something which requires inquiry.<br />
Section 536(3)<br />
105 The power conferred by s 536(3) does not contain any precondition of a jurisdictional character. However,<br />
jurisdictional issues are capable of arising in the light of the scope, purpose and subject matter of the legislative<br />
scheme as a whole. As explained below, it is a general limitation upon the powers of the court and ASIC under s<br />
536 that they are supervisory powers over the conduct of liquidators. Although the wide-ranging and relevantly<br />
unfettered power in s 536(3) is conferred only on the court, and not on ASIC, the court is still performing a<br />
supervisory role when acting under that subsection.<br />
106 Subsections (1) and (3) are separate sources of power, and consequently neither is to be construed by reference<br />
to the statutory language employed in the other. Historically subse (3) evolved separately from subsection (1): as a<br />
separate subsection in the Companies (Winding Up) Act 1890 (UK), s 25, and in the Companies Act 1896 (Vict)<br />
(60 Vict No 1482), s 146, and as a separate section in the Companies Act 1936, s 235. The present wording and<br />
structure of the section indicate that the powers are separate from one another and therefore to be separately<br />
construed.<br />
107 As far as case law is concerned, in O'Toole v Mitcham, supra at 473, per Young CJ (with Gillard and<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
McGarvie JJ agreed) observed that s 278(3) (predecessor of s 536(3)) was not in terms dependent in any way upon<br />
subs (1); see also Re Fermoyle Pty Ltd (in liq); Commonwealth v Brown (1992) 6 ACLR 640 at 650, per Crockett<br />
J; Australian Securities & Investments Commission v Edge, supra at 160 [89], per Dodds-Streeton J.<br />
108 Palmer J said in his Second Judgment (at [16]) that the power under subs (3) is a general power to require<br />
answers by a liquidator, not depending upon the existence of circumstances falling within subs (1) or (2), and that<br />
he would exercise that power in the present case. In our view his description of the subsection is accurate.<br />
109 Given that the appellants have abandoned their contention that the introductory words of s 536(1)(a) apply to s<br />
536(3), the only jurisdictional submission relevant to the latter subsection is the contention that, as a matter of law,<br />
the factors relied upon by Palmer J were not capable of justifying an order for an inquiry. We have rejected that<br />
submission above. Nevertheless, a number of the specific submissions made in that regard are pertinent to the<br />
alternative contention that the exercise of the discretion miscarried. We deal with them in that context below.<br />
Did the exercise of the jurisdiction to order an inquiry miscarry?<br />
110 Where what is at stake is the exercise of discretionary powers by a trial judge, the grounds for appellate<br />
intervention are found in a well-known passage in the judgment of Dixon, Evatt and McTiernan JJ in House v The<br />
King [1936] HCA 40; (1936) 55 CLR 499, at 504-5:<br />
"It is not enough that the judges composing the appellate court consider that, if they had<br />
been in the position of the primary judge, they would have taken a different course. It<br />
must appear that some error has been made in exercising the discretion. If the judge acts<br />
upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect<br />
him, if he mistakes the facts, if he does not take into account some material consideration,<br />
then his determination should be reviewed and the appellate court may exercise its own<br />
discretion in substitution for his if it has the materials for doing so. It may not appear how<br />
the primary judge has reached the result embodied in his order, but, if upon the facts it is<br />
unreasonable or plainly unjust, the appellate court may infer that in some way there has<br />
been a failure properly to exercise the discretion which the law reposes in the court of first<br />
instance. In such a case, although the nature of the error may not be discoverable, the<br />
exercise of the discretion is reviewed on the ground that a substantial wrong has in fact<br />
occurred."<br />
111 The circumstances in which an appellate court will infer that a discretion has been improperly exercised on the<br />
ground that the result is unreasonable or plainly unjust have been explained in later cases: especially Lovell v<br />
Lovell [1950] HCA 52; (1950) 81 CLR 513 at 532, per Kitto J; Australian Coal & Shale Employees' Federation v<br />
Commonwealth [1953] HCA 25; (1953) 94 CLR 621 at 627, per Kitto J; Vines v Australian Securities and<br />
Investments Commission [2007] NSWCA 126; (2007) 63 ACSR 505 at [10]- [13], per Spigelman CJ.<br />
112 The propositions that emerge from these cases include the following:<br />
· An appellate court is not justified in substituting its own judgment for that of the primary judge unless it is clearly<br />
satisfied that the judgment of the primary judge was erroneous, as there is a strong presumption in favour of the<br />
correctness of the decision appealed from, so that the decision should be affirmed unless the court is satisfied that it<br />
is clearly wrong;<br />
· An appellate court may reach the requisite degree of satisfaction that the discretion has been exercised wrongfully<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
if there has been an error which consists of acting on a wrong principle, or giving weight to extraneous or<br />
irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as<br />
to the facts.<br />
113 In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of The<br />
Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42; (2008) 82 ALJR 1425 at [157],<br />
Gummow ACJ, Kirby, Hayne and Heydon JJ emphasised that according to the majority judgment in the House<br />
case, appellate interference with discretionary judgments on the ground that a consideration was left out of account<br />
depends on establishing that the judge did not take into account some material consideration.<br />
114 The question to be considered is whether Palmer J's reasons for ordering an inquiry under ss 536(1)(a),<br />
536(1)(b) and 536(3) were deficient in any of these ways: that is, whether he acted on a wrong principle, took into<br />
account extraneous or irrelevant matters, mistook the facts, failed to take into account a material matter, or his<br />
decision was unreasonable or plainly unjust.<br />
115 The appellants' submissions may be organised in five groups under the following headings:<br />
· size of anticipated return to creditors;<br />
· the position of creditors;<br />
· proportionality between cost and recovery;<br />
· failure to apply for directions before commencement of the proceedings;<br />
· litigation funding.<br />
Size of anticipated return to creditors<br />
116 The appellants submitted that Palmer J erred in assessing the propriety of the liquidators' decision because he<br />
drew attention to the size of the recovery relative to the total value of the claims on the estate (Summary of<br />
Argument at [13]). The appellants' argument was that it should be irrelevant to the liquidator's decision to pursue a<br />
claim that the amount to be recovered was equivalent to, say one cent in the dollar of creditors' claims rather than<br />
50 cents. Were it otherwise, the appellants claimed, a liquidator would be prevented from pursuing available<br />
recovery actions in any large insolvent winding up, where the total value of creditors' claims was very high; and<br />
therefore most preference claims in large insolvencies would be excluded on Palmer J's approach.<br />
117 We agree that the anticipated dividend rate for creditors (that is, the comparison on a pro-rata basis between<br />
the amount of the anticipated total recovery and the amount owed to creditors) is not, of itself, relevant to the<br />
decision of a liquidator to commence or prosecute recovery proceedings. It is the anticipated total recovery for<br />
creditors and the range of amounts to be distributed to individual creditors that a liquidator should consider in<br />
deciding whether to take or continue with proceedings, for these amounts may show that bringing and prosecuting<br />
the proceedings will be justified in the interests of creditors as a whole even if creditors who are owed small<br />
amounts will receive only a tiny payment by way of dividend. It may be proper for liquidators to pursue a recovery<br />
action that will bring in a significant amount for distribution to creditors, even if the total value of creditor claims is<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
so high that the dividend in cents per dollar will be very low. Recovery of, say, $10 million for creditors is likely to<br />
be worthwhile and proper even if total creditor claims amount to $1 billion and so the dividend will be no more<br />
than one cent in the dollar.<br />
118 In his reasoning on the question whether to order an inquiry, his Honour did not specifically refer to the value<br />
of the claims on the estate (Main Judgment at [380]-[397]; Second Judgment at [13]-[16]). Clearly he was<br />
influenced by the prospect of little or no return to creditors (at [393], [395]), and he dealt in some detail with the<br />
schedule that set out the figures for the highest, medium and lowest returns, but it was principally in his questions<br />
to Mr <strong>Hall</strong> that he focused on the "cents in the dollar" that creditors would receive.<br />
119 His Honour gave consideration to the overall adequacy of return at [343] of the Main Judgment, where he<br />
referred to the possibility that the whole or the vast majority of the fruits of the insolvent trading claim would go<br />
not to those who had suffered, namely the creditors, but rather to those who had made an investment in conducting<br />
the litigation. His Honour drew attention to the total recoveries anticipated in the lowest, medium and highest<br />
return cases (at [359]-[360]). While he noted the amount per dollar that the lowest, medium and highest returns<br />
would bring, he expressed the returns in total amounts and gave the total amount of recovery for the largest<br />
creditor as well as that creditor's debt (at [361]-[363]), and he noted that the creditors would receive nothing if the<br />
insolvent trading claim were to result in a judgment of less than $825,000 (at [364]). His Honour said that one of<br />
the factors that indicated to the minority judges in Campbells Cash & Carry that the proceedings in that case were<br />
an abuse of process was that in the absence of litigation funding, the persons who suffered loss would not have<br />
thought it financially worthwhile to sue at all, and he commented that in the present case creditors would be lucky<br />
to get anything or the amounts they would receive would in most cases be derisory (at [374]-[375]). He referred to<br />
the "derisory return" and the "nil or negligible return" to creditors (at [379]).<br />
120 In our opinion, his Honour did not allow the extraneous matter of the dividend rate, as such, to guide or affect<br />
him in exercising his discretion. His Honour referred to the dividend rate as a way of expressing the paucity of the<br />
anticipated return. It was not a separate criterion.<br />
The position of creditors<br />
121 The appellants submitted that in determining the propriety of their conduct it was relevant that under the<br />
funding agreement the costs were borne by the funder, there was no risk to the creditors so that they stood only to<br />
gain, the Committees of Inspection were aware of the likely return to creditors and approved the funding<br />
arrangements, and after the commencement of the trial the liquidators renegotiated the funding arrangements to<br />
increase the distribution to unsecured creditors.<br />
122 We agree that all of these factors are relevant to the assessment of the objective propriety of use of the<br />
liquidators' position. All those matters are reflected in the findings of fact in his Honour's judgment. There is<br />
nothing to indicate that Palmer J disregarded them or failed to give them due weight. But those matters are to be<br />
weighed up in the assessment against other factors that might point to impropriety, including the factors listed at<br />
[82] above. The central issue to be addressed by his Honour was not whether there was a prima facie case of<br />
impropriety but whether there was a sufficient basis for making an order, something that required inquiry.<br />
Proportionality between costs and recovery<br />
123 An important component of Palmer J's reasoning was that the potential return to creditors would, on any<br />
scenario, be insufficient to justify the cost of the proceedings, in circumstances where the real beneficiaries of<br />
litigation were the funder, the liquidators and their lawyers. The appellants made six points in response.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
(a) Public interest<br />
124 First, the appellants referred to the public interest in bringing directors to account for allowing the company to<br />
trade whilst insolvent. They submitted, and we accept, that in the absence of litigation funding the liquidators could<br />
not have conducted public examinations and could not have pursued the Main Proceedings.<br />
125 The appellants relied on some cases dealing with approval of a liquidator's funding agreement of more than<br />
three months' duration under s 477(2B) or s 506(1A). In Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR<br />
357, for example, the issue was whether the court should approve a funding agreement that would permit the<br />
liquidators to investigate the affairs of the company, with the possibility of subsequent proceedings concerning a<br />
large loan by the company to its majority shareholder and perhaps alleging breach of directors' fiduciary duties.<br />
One of the considerations that persuaded Hodgson CJ in Eq (as he then was) to grant approval, notwithstanding<br />
opposition from the majority of creditors, was that it was in the public interest that possible breaches of duty<br />
involving losses of great magnitude be investigated, even though the funder would have the option of taking 75%<br />
of any return (at 364).<br />
126 The public interest was also taken into account in Re ACN 076 673 875 Ltd (in liq) [2002] NSWSC 578;<br />
(2002) 42 ACSR 296 at [33] and [39]. In that case, although the premium for the funder was 15% in the first phase<br />
of the investigation rising to 40% if proceedings were taken, the court took the view that the public interest in<br />
bringing directors to account for allowing the company to trade while insolvent, along with other factors including<br />
the potential benefit for unaligned creditors and the creditor's own view, provided grounds for approval of the<br />
funding arrangements.<br />
127 Pegulan Floor Coverings Pty Ltd v Carter (1997) 24 ACSR 651 addressed the public interest in liquidators'<br />
recovery proceedings in a different context. There a magistrate made an order under s 588FF(1) for the recovery of<br />
an unfair preference payment even though the repayment would be absorbed by the liquidator's costs and other<br />
expenses of the liquidation and would confer no benefit on creditors. It was argued on appeal to Doyle CJ (sitting<br />
as a single judge of the Supreme Court of South Australia) that the magistrate should have exercised his discretion<br />
to deny relief in those circumstances. But Doyle CJ rejected the argument, saying that the benefit to creditors was<br />
the benefit of having the affairs of an insolvent company properly investigated and administered (at 659). That<br />
appears to imply a finding that, for the purposes of the exercise of the relevant discretion, the public interest in<br />
proper investigation and administration of the affairs of the insolvent company was sufficient to outweigh the<br />
circumstance that any amount recovered in the proceedings would be absorbed by costs and expenses and would<br />
not benefit creditors.<br />
128 These cases confirm the general proposition that there is a public interest in liquidators bringing recovery<br />
proceedings, such as proceedings against directors for breach of duty or insolvent trading and proceedings for<br />
recovery of unfair preferences. The public interest in the liquidators in the present case taking the Main<br />
Proceedings and the Unfair Preference Proceedings was consequently a relevant factor for Palmer J to take into<br />
account in exercising his discretion to order an inquiry under s 536.<br />
129 The public interest in the prosecution of insolvent trading and unfair preference proceedings is one important<br />
factor to be considered in the exercise of the court's discretion under s 536, along with the other matters identified<br />
by the Full Federal Court in Leslie v Hennessey, supra, and in the present reasons for judgment. However, the<br />
public interest is not so overwhelming as to extinguish all other considerations.<br />
130 We have reached the conclusion that Palmer J did not give weight to the question of public interest and, on<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
this ground, his order for an inquiry should be set aside. His Honour referred to the main cases upon which the<br />
appellants relied on the question of public interest, the Buiscex and Re ACN 076 673 875 cases (Main Judgment at<br />
[385]), as part of a list of cases to support the proposition that applications to the court by liquidators for directions<br />
as to whether funded litigation should be commenced are frequent. But he did not make any point about the<br />
observations in those cases on the question of public interest. He noted the court's interest, on an application for<br />
directions, in assessing whether the proposed litigation would be conducted in a manner consistent with justice to<br />
all concerned (at [386]) and in that regard, he listed the factors that the court may take into account in determining<br />
whether the liquidator is justified in proceeding. But he did not mention the public interest, even though one of the<br />
cases he cited was the Re ACN 076 673 875 case. He expressly referred to the need for all liquidators to act in the<br />
public interest (at [394]), evidently to support the proposition that the court has not only the power but also the duty<br />
to see that all liquidators (not only court-appointed liquidators who are officers of the court) are performing their<br />
duties in a prudent and proper manner. But he did not refer to the fact that recovery proceedings may serve the<br />
public interest.<br />
(b) Palmer J's analysis of Campbells Cash & Carry<br />
131 Secondly, the appellants attacked Palmer J's reasoning on the ground that it misapprehended the effect of<br />
Campbells Cash & Carry, supra. They submitted that the state of the law at present is that there is no over-arching<br />
policy against litigation funding. That is true, and it is also a matter expressly acknowledged by Palmer J (at [372],<br />
[379]). The submissions continued:<br />
"The Applicants cannot fail in the faithful performance of their duties by entering into a<br />
funding agreement simply because it transfers part of the fruits of the action to the<br />
funder".<br />
That is also true, but at no stage did Palmer J suggest that the mere fact that the funding agreement transferred part<br />
of the fruits of the litigation to the funder was the basis for objection.<br />
132 The appellants submitted that none of the matters relied upon by his Honour would make the funding<br />
agreement in the present case more objectionable than the agreement considered and approved in Campbells Cash<br />
& Carry. That may be true but the point is irrelevant. The main issue addressed by his Honour in the Main<br />
Judgment, when he came to consider the need for an inquiry, was whether there was a factual basis for inquiry into<br />
the faithful performance by the liquidators of their duties. The issue was not about the intrinsic acceptability of the<br />
funding agreement, but rather the circumstances in which the agreement was entered into and the proceedings were<br />
commenced and prosecuted.<br />
(c) The commercial judgment of creditors<br />
133 Thirdly, the appellants submitted that the question whether the potential return to the creditors was sufficient to<br />
justify the proceedings was a matter best left to the commercial judgment of the creditors, on the ground (citing the<br />
Buiscex case at 359) that the courts recognise that creditors are better judges than courts of their own commercial<br />
interests. This submission is based on the approval given by the meeting of the Committees of Inspection to the<br />
continuation of the proceedings after disclosure to them of the probabilities of success and further disclosure, after<br />
this issue had been raised by Palmer J during the course of the proceedings, of the amended litigation funding<br />
agreement. In our view a proper assessment of this submission requires some dissection of the commercial<br />
judgments involved in a litigation funding proposal.<br />
134 The statutory scheme of supervision of liquidators includes a requirement that they should not enter into certain<br />
kinds of agreements without approval (see especially ss 477(2A) and 477(2B) for court-appointed liquidators and<br />
ss 506(1A) and 511 liquidators in a voluntary winding up). The approval in question can be given by the court, by<br />
a committee of inspection or by resolution of the creditors. In exercising their power to approve the liquidators<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
entering into an agreement of more than three months' duration, the creditors (unlike a court) can be expected to<br />
take into account their own economic interests, and also (since for the most part creditors have some commercial<br />
experience) to make a commercial assessment of the terms of the proposed transaction. If, for example, the<br />
proposal is for the realisation of assets of the company, the creditors will give consideration to the commercial<br />
terms of the proposal as regards such matters as sale price and the terms of payment, and they will assess how<br />
these matters will affect the quantum and timing of distributions in the winding up. Generally equivalent<br />
considerations arise where the proposal relates to some other purely commercial agreement, such as a lease by or to<br />
the company or an agreement for the conduct of some business activity. A proposal by liquidators for a litigation<br />
funding agreement for the purpose of recovery proceedings is similar to such purely commercial proposals in that<br />
the creditors can be expected to evaluate the proposal by considering whether it is in their economic interests and<br />
also by making a commercial assessment of the terms of the proposed agreement; but a litigation funding proposal<br />
has some special elements that distinguish it from other commercial arrangements.<br />
135 Where the creditors or the committee of inspection have approved the liquidators' proposed transaction under s<br />
477(2B)/506(1A), there is of course no occasion to seek the approval of the court under that provision. However in<br />
the Buiscex case the converse occurred: the creditors unanimously passed a resolution rejecting a proposal by the<br />
liquidator to enter into a litigation funding agreement, and subsequently an application was made for the court's<br />
approval under s 477(2B). Hodgson CJ in Eq referred to the observation of Lindley LJ in Re English Scottish &<br />
Australian Chartered Bank [1893] 3 Ch 385 at 409, that "if the creditors are acting on sufficient information and<br />
with time to consider what they are about and are acting honestly, they are, I apprehend, much better judges of<br />
what is to their commercial advantage than the court can be". That passage was quoted with approval by Giles J in<br />
Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83. However, notwithstanding his support for that proposition,<br />
Hodgson CJ in Eq concluded on balance that the court's approval should be granted, having regard to various<br />
factors including the public interest. That decision suggests that, while the opinion of creditors is a relevant factor<br />
to be taken into account under s 477(2B)/506(1A), and also when the court exercises other discretions concerning<br />
matters addressed by creditors, the creditors' opinion is by no means determinative.<br />
136 Lindley LJ's observation was about the creditors' judgment of their own interests, rather than their commercial<br />
assessment of the terms of the proposal. Where the issue before the court relates to a commercial transaction such<br />
as the realisation of assets or the conduct of a business, the court is likely to be influenced, though not necessarily<br />
conclusively, by the creditors' commercial judgment and also by their judgment of their own economic interests.<br />
However, if the issue before the court relates to a litigation funding agreement, the creditors' approval of the<br />
agreement may be of little or no significance for the court, for the following reasons.<br />
137 As regards the creditors' own economic interests, the agreement may have the effect (as in this case) that the<br />
creditors' downside risk is removed and they have the possibility of an enhanced distribution if the litigation is<br />
successful. In those circumstances the creditors' favourable opinion is almost inevitable. The statutory scheme and<br />
the case law deferring to the commercial judgments of creditors is based on the assumption that the creditors have<br />
something to lose: ie that they have made a judgment that involves an assessment as to whether the prospective<br />
return to them is worth the costs and delay involved in the transaction. Where they are not responsible for the<br />
downside of litigation, their approval of the arrangement lacks the weight that their decision would bear if they had<br />
something at stake, both as to their judgment of their own economic interests and as to the commercial assessment<br />
of the proposal.<br />
138 In a sense, under such arrangements the creditors' commercial function is assigned to the funder and in<br />
particular, it will often be the funder rather than the creditors who will thereafter make decisions about the<br />
commencement and prosecution of the proceedings contemplated by the agreement. In our view, the opinion of a<br />
litigation funder about the prospects of success of the recovery proceedings contemplated by its funding agreement<br />
is unlikely to have significant weight before a court that is asked to make a discretionary decision under s 536.<br />
Nothing in Campbells Cash & Carry, supra, requires the court, in the context of the nature, scope and purpose of<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
the statutory scheme as a whole, to accept or give way to the litigation funder's opinion in such a context.<br />
139 It may be that in some respects the position of a litigation funder is similar to the position that can and does<br />
arise when a creditor decides to take upon itself the risks of litigation, under an arrangement for a share in the<br />
proceeds and priority for its costs and expenses in the legal proceedings. But the position of a creditor who has<br />
taken an additional risk in pursuing recovery is given express recognition in the statutory scheme in s 564. That<br />
section empowers the court to make an order giving creditors who have given an indemnity for litigation or with<br />
respect to the protection or preservation of property or of expenses, an advantage over other creditors “in<br />
consideration of the risk assumed by them”. This express statutory provision recognises the particular role of such<br />
creditors. A litigation funder has no such recognised statutory position.<br />
140 In summary, the creditors' approval of a litigation funding proposal is a factor relevant to a discretionary<br />
decision by a court relating to the assessment of that proposal (including a decision to initiate an inquiry into the<br />
liquidators' conduct in making and implementing the agreement). However, the weight to be given to that factor<br />
depends on the circumstances and in many cases it will not be a significant factor. The litigation funder's<br />
commercial assessment of the proposal and the prospects of success in the litigation is not, in our opinion, a factor<br />
entitled to weight.<br />
(d) Whether liquidators may bring and pursue recovery proceedings where the return to creditors is negligible and<br />
only the professionals and the funder will benefit<br />
141 Fourthly, the appellants relied on the Re Imobridge Pty Ltd (in liq) (No 2) [1999] QSC 342; [2000] 2 Qd R 280<br />
for the proposition that even if the potential return to creditors is negligible and the most likely outcome of<br />
litigation will benefit only the professionals and the funder involved in the winding up, it cannot be said that the<br />
proceedings are improper.<br />
142 This submission in effect invites the Court to identify the relevant duty of liquidators who bring recovery<br />
proceedings, particularly where litigation funding is used.<br />
143 Palmer J's general concern was whether, by their conduct in and about the proceedings and the litigation<br />
funding, the liquidators had discharged and were discharging their duties in that office. A specific duty to which he<br />
referred was the duty "to salvage as much as possible for the benefit of creditors" (Main Judgment at [395]).<br />
144 The liquidator's duty to salvage the company's property for the benefit of creditors is an aspect of the broader<br />
duty to collect the assets of the company: A Keay, McPherson's Law of Company Liquidation, 4th ed (1999) LBC<br />
Information Services, at 5. Wide powers are available to the liquidator to discharge this duty, including the power<br />
to bring any legal proceeding in the name of and on behalf of the company: ss 477(2)(a) and 506(1)(b); see Bacich<br />
v Australian Broadcasting Corporation (1992) 29 NSWLR 1 at 10. As Brownie J pointed out in that case (at 11),<br />
citing Gray v Bridgestone Australia Ltd (1986) 10 ACLR 677, a liquidator is not obliged to seek the authority of<br />
the court or creditors before instituting proceedings on behalf of the company, even though the proceedings will be,<br />
in effect, at the creditors' expense; but the liquidator is obliged to make the relevant decisions with the skill and<br />
care appropriate to his or her office, and the negligent exercise of the power to bring proceedings may lead to the<br />
liquidator being deprived of costs (see also Ford's Principles of Corporations Law (LexisNexis, looseleaf) at<br />
[27.171]-[27.172]).<br />
145 The author of McPherson's Law of Company Liquidation says (supra at 365), while "the liquidator is bound to<br />
do all that can be done to augment the disposable assets of the company", nevertheless:<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
"Legal proceedings should only be commenced after careful thought. Risks should not be<br />
taken by the liquidator with funds of the company by engaging in costly litigation where<br />
there is no real prospect of success."<br />
The cases cited in support of these propositions (Re Tavistock Ironworks Co (1871) 24 LT 605; Re Silver Valley<br />
Mines (1882) 21 Ch D 381; Montreal Trust Co v Abitibi Power Co [1937] 4 DLR 369; Re Day & Dent<br />
Constructions Pty Ltd (1984) 32 NRE 13; 9 ACLR 319, affirmed in Re Ah Toy (1986) 10 FCR 356; 10 ACLR 630<br />
do not give clear support to them, but it seems to us that the author's statements are correct as an application of the<br />
duty of care of liquidators to their assessment of whether to bring and prosecute legal proceedings.<br />
146 For the most part, the law concerning the duty of liquidators to collect assets by taking recovery proceedings<br />
was developed before commercial litigation funding became widely available in Australia. But courts have had<br />
occasion to consider the impact of the availability of litigation funding in various contexts, most notably in<br />
applications for judicial approval of funding agreements of more than three months' duration under s 477(2B) or s<br />
506(1A) and in applications for judicial directions under s 479(3) or 511. Some cases that have countenanced<br />
liquidators commencing proceedings with litigation funding were listed by Palmer J (Main Judgment at [385]): Re<br />
Tosich Construction Pty Ltd (1997) 73 FCR 219; Re Addstone Pty Ltd (in liq) (1998) 83 FCR 583; Buiscex supra;<br />
Imobridge supra; Re ACN 076 673 875 Ltd supra; Anstella Nominees Pty Ltd v St George Motor Finance Ltd<br />
[2003] FCA 466; (2003) 21 ACLC 1347; Leigh, re King Bros [2006] NSWSC 315; Stewart, re Newtronics Pty Ltd<br />
[2007] FCA 1375. We would add to the list UTSA Pty Ltd (in liq) v Ultra Tune Australia Pty Ltd (No 2) [1997] 1<br />
VR 667; (1996) 21 ACSR 251; Re Feasty’s Family Restaurant Pty Ltd (1996) 14 ACLC 1058; Meadow Springs<br />
Fairway Resort Ltd (in liq) v Balanced Securities Ltd [2008] FCA 471; (2008) 245 ALR 726 at [140]- [152],<br />
reversed on other grounds sub nom IMF (Australia) Ltd v Meadow Springs Fairway Resort Ltd (in liq) [<strong>2009</strong>]<br />
FCAFC 9.<br />
147 The overall effect of the cases, especially when read in the light of Campbells Cash & Carry, is that there is no<br />
per se objection in terms of legal policy to liquidators entering into litigation funding arrangements that will share<br />
the fruits of litigation with the funder, provided that any necessary approval of creditors or of the court is obtained<br />
under s 477(2B)/506(1A), and provided that the arrangements in fact made are consistent with the liquidator's<br />
statutory and other duties. By those cases the courts are developing criteria to distinguish funding arrangements<br />
which they will accept from funding arrangements that they will regard as unacceptable, although the approach in<br />
the cases which preceded Campbells Cash & Carry must be treated with care.<br />
148 It is not necessary to deal comprehensively with the criteria emerging from the cases, and it is probably unwise<br />
to do so given that the present appeal was without a contradictor. But there is one issue that should be addressed,<br />
namely whether it is ever permissible for liquidators to commence or continue with proceedings where there is no<br />
prospect that a successful outcome will permit a substantial distribution to creditors.<br />
149 Generally speaking, liquidators seeking to discharge their duty to collect the assets of the company by recovery<br />
proceedings should do so with costs and benefits clearly in view, the relevant benefits primarily being benefits to<br />
creditors. The liquidator's statutory powers (including the exercise of statutory powers such as those conferred by s<br />
477(2)(a) and s 506(1)(b)) must be exercised bona fide for the purpose for which they were conferred; i.e. for the<br />
purpose of collecting the assets of the corporation for, relevantly, the benefit of creditors. This is a principle of<br />
private law deriving from the doctrine of fraud on a power, which has a close analogy in public law (see, eg<br />
General Assembly of The Free Church of Scotland v Lord Overtoun; Macalister v Young [1904] AC 515 at 695;<br />
Duke of Portland v Topham [1864] EngR 339; (1864) 11 HL Cas 32; 11 ER 1242 at 1251; Galloway v London<br />
Corporation (1866) LR 1 HL 34 at 43; Arthur Yates & Co Pty Ltd v Vegetable Seeds Committee [1945] HCA 55;<br />
(1945) 72 CLR 37 at 67-68, 82-83; The Queen v Toohey; ex parte Northern Land Council [1981] HCA 74; (1982)<br />
151 CLR 170 at 186-187; Whitehouse v Carlton Hotel Pty Ltd ; [1987] HCA 11; (1987) 162 CLR 285 at 288-294).<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
150 However, if:<br />
· liquidators have incurred costs in preliminary investigations and in creditors' meetings, and<br />
· they consider that the prospective benefits to creditors justify further investigation in which they will incur more<br />
costs and expenses, and<br />
· there are then no assets, in the absence of litigation, to pay the costs already incurred;<br />
then in our view the liquidators may legitimately and in accordance with their duties pursue litigation with the aid<br />
of a litigation funder, and they may do so even if there is little or no likelihood of recovery going beyond recovery<br />
of their own costs and expenses and the funder's fees.<br />
151 There are some provisos to this proposition:<br />
· the pre-litigation costs must have been either necessary or reasonably considered to be justified because of the<br />
prospective benefits to creditors;<br />
· the litigation costs themselves must have been reasonably incurred and proportionate to the prospective benefits<br />
(including not only possible direct benefits to creditors but also the benefits derived through the reimbursement of<br />
the liquidator's fees and expenses); and<br />
· the litigation funding agreement must not be on manifestly unreasonable terms.<br />
152 Issues of fact and degree, and issues of timing, clearly arise. Nevertheless, we adopt this proposition, subject to<br />
these provisos, because in our opinion there is a public interest in liquidators making preliminary investigations into<br />
matters that appear to them to warrant investigation, even when there are no assets available to fund their doing so.<br />
Liquidators may be discouraged if it were held to be improper per se for liquidators to try to recover the costs of<br />
their investigations by legal proceedings that would not directly benefit creditors.<br />
153 Our approach is consistent with the decision of Doyle CJ in the Pegulan Floor Covering case, supra. It is also<br />
consistent with the Imobridge case, supra. There, in an application for approval to enter into a funding agreement<br />
under s 477(2B) of the Corporations Law, the most likely outcome of litigation was that it would benefit only the<br />
professionals involved in the winding up. Fryberg J (at 296-7) observed that this was not necessarily a reason to<br />
stifle the litigation, and he continued:<br />
"If costs have been properly incurred in the winding up and a preference is available to be<br />
recovered, it is not unreasonable that proceedings should be brought to recover it and so<br />
fund those costs. That there is also some chance of a benefit for the unsecured creditors<br />
without any detriment to them to some degree reinforces the case for bringing the<br />
proceedings."<br />
154 On the other hand, one can readily envisage cases where the conditions we have articulated are not met and<br />
consequently a question arises as to whether the pursuit of litigation is in proper discharge of the liquidators' duty,<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
or represents a bona fide exercise of the liquidators' powers for the purpose of which they were conferred. An<br />
extreme case would be where the liquidators have embarked upon "churn and burn" tactics, to use Palmer J's<br />
language. A complete assessment of the propriety of the liquidators' conduct will often depend on matters going<br />
beyond the simple fact that the litigation, if successful, will recoup the liquidators' costs and expenses already<br />
incurred.<br />
155 In the present case Palmer J took the view, having regard to a variety of circumstances and in particular<br />
matters listed at [44] above, that it was appropriate to conduct an inquiry. That did not imply that in his Honour's<br />
view the appellants had failed to perform their duty, but only that there was a sufficient basis for making an order<br />
for an inquiry; that is, there was something about the matter requiring further investigation. In our view, to the<br />
extent that it reflected the matters we have identified at [82] above, this aspect of Palmer J's reasoning did not<br />
disclose any error warranting appellate intervention.<br />
156 In his Main Judgment at [395] Palmer J said:<br />
"If a proposed course of action - whether it be a legal proceeding or a commercial<br />
transaction - is not likely to produce a worthwhile benefit for creditors, the liquidator<br />
should not undertake it simply because it will generate enough to pay the liquidator's fees<br />
in undertaking that very transaction or litigation - a practice which is familiarly known in<br />
the market place as 'churning and burning'."<br />
157 While it is plain that liquidators should not "churn and burn", in the sense of pursuing litigation simply in order<br />
to generate fees without any view to the interests of creditors or the public interest, we disagree with this passage if<br />
and to the extent that it is intended to convey that liquidators are never entitled to bring proceedings where the only<br />
prospect of recovery is reimbursement of the liquidators' own fees and expenses. The position, as we understand it,<br />
is set out above. However, on balance we think it would be wrong to read Palmer J's observations as conveying this<br />
incorrect proposition, having regard to his Honour's general approach to the factors relevant to his decision. His<br />
quoted observation appears to be directed to a case of "churning and burning" and his Honour made no finding,<br />
even at the level of "appearance", that that may have occurred in the present case.<br />
(e) The possibility of further claims<br />
158 Fifthly, the appellants contended that the proceedings had the potential to identify further claims against third<br />
parties that might benefit creditors, as identified by Mr <strong>Hall</strong> in his evidence (Main Judgment at [348]). There<br />
is only limited evidence before the Court on the appeal as to the prospect of identifying further claims, and it may<br />
well have been that no better evidence was available to Palmer J. This is just the kind of issue that can be clarified<br />
by the conduct of an inquiry under s 536. The mere suggestion that there could be potential further claims was not<br />
enough to prevent Palmer J from exercising the Court's jurisdiction under the section to order that any inquiry take<br />
place.<br />
(f) The extent and costs of the proceedings<br />
159 Sixthly, the appellants submitted that Palmer J had made a material error of fact in regarding the liquidators'<br />
costs of the proceedings as in the order of $2 million when in truth part of that figure included pre-commencement<br />
examinations and the correct cost of the proceedings was $1,559,340. We have concluded that the appellants'<br />
submission is not supported by the facts (see [27]-[30] above).<br />
160 The appellants objected to Palmer J's "general concerns" about the cost of the proceedings and his view that<br />
they could have been conducted for significantly lower cost. They said that such general concerns could not<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
provide a foundation for the view that the appellants had not faithfully performed their duties. That may be so, but<br />
a prima facie view by an experienced judge that the costs of the proceedings were disproportionate to the<br />
maximum possible recovery and that the proceedings could have been conducted for a significantly lower cost is,<br />
in our opinion, an adequate foundation, along with other matters upon which his Honour relied, for ordering and<br />
inquiry on the ground that there is something warranting further investigation.<br />
161 The appellants complained that no particular conduct on their part had been identified that unreasonably<br />
contributed to the length or cost of the proceedings, and they said there are many reasons why litigation can end up<br />
costing more than one might expect, not the least of which is the attitude of one's opponents. They contended that<br />
the proceedings were conducted on their behalf by reputable solicitors and experienced and highly regarded<br />
counsel, and they noted that his Honour thanked counsel at the conclusion of the hearing for the efficient conduct<br />
of the proceedings (on 28 February 2007).<br />
162 We do not regard his Honour's expression of appreciation to be a matter of significance to the threshold issue<br />
of whether an inquiry should be ordered: the fact that the proceedings were conducted efficiently by counsel and<br />
solicitors for the liquidators in court is not incompatible with the proposition that the case was unduly lengthy and<br />
costly. His Honour's lack of specificity about any particular conduct on the part of the appellants does not remove<br />
the foundation for an inquiry, an exercise that can fairly be expected to determine whether there was any conduct<br />
of which criticism could be made.<br />
163 Additionally, the appellants contended that the question whether costs were reasonably incurred is a question<br />
for a costs assessor, and in the absence of a prima facie case of misconduct, the Court should not embark on what<br />
is effectively a costs assessment. But the issue that Palmer J thought worthy of investigation, in his Main<br />
Judgment, was an issue about the faithful discharge of the liquidators' duties. That is not the same as the question<br />
whether the costs that were incurred were fair and reasonable and is not a matter for a costs assessor.<br />
164 This submission misapprehends the test to be applied in determining whether an inquiry should be ordered. An<br />
inquiry might reveal that the appellants had done nothing unreasonable to contribute to the length or cost of the<br />
proceedings, but the facts found by his Honour entitled him to form the view that there was enough to warrant<br />
further investigation.<br />
Failure to apply for directions before commencement of the proceedings<br />
165 In their written submissions the appellants criticised Palmer J for taking the view that they should have applied<br />
to the court for directions as to whether they were justified in commencing the proceedings (Main Judgment at<br />
[385], [388]). They submitted that:<br />
"Entry into a funding agreement without first seeking the direction of the court could only<br />
constitute a lack of faithful performance of a liquidator's duties if a liquidator is under an<br />
obligation in all cases to make such an application."<br />
166 On the construction of s 536 we have taken, it was not necessary for Palmer J to identify a prima facie case of<br />
lack of faithful performance of duties. The question to be addressed is whether there was a basis for ordering an<br />
inquiry; that is something requiring further investigation. In any event, the reference to "lack of faithful<br />
performance of a liquidator's duties" refers only to s 536(1)(a), not to s 536(1)(b) or s 536(3).<br />
167 The appellants further submitted that the right to seek directions is a right to be availed of as the liquidator<br />
sees fit, and that a failure to do so cannot constitute a prima facie case of misconduct (a submission which, on the<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
view we take of the appropriate test, should be understood as a submission that the failure was not a relevant<br />
consideration, or not a consideration entitled to weight, when determining whether there was a basis for ordering<br />
an inquiry). They further submitted that it is not obvious that any such application would have been granted,<br />
because of the policy of the court not to make a liquidator’s commercial decisions where the liquidator has full<br />
power to act. Reference was made to Re Spedley Securities Ltd (in liq), supra at 85, per Giles J.<br />
168 There is a well-established proposition that courts will not generally interfere with the bona fide exercise of<br />
powers by a liquidator, including those involving commercial decisions. It reflects a similar principle of restraint<br />
applied by courts with respect to trustees in bankruptcy. The approach is evident in numerous judgments.<br />
169 It is sufficient for present purposes to refer to the analysis by McLelland J in Northbourne Developments supra<br />
at 439-440 and specifically his Honour’s citation with approval of the judgment of Young J in Sanderson v Classic<br />
Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117 where his Honour said:<br />
“ ... [T]hough there is wide jurisdiction given to the court under s 379(3) of the Code [a<br />
predecessor of s 479(3)], it is usually only proper to exercise that power where the matter<br />
involves guidance to the liquidator on matters of law or principle or to protect him against<br />
accusations of acting unreasonably. The court does not usually consider it proper to<br />
intervene and make the liquidator’s commercial decision for him.”<br />
(See also Naumoski v Parbery [2002] NSWSC 1097; (2002) 171 FLR 332 at [14] and Star v Silvia (1994) 12<br />
ACLC 600 at 604.)<br />
170 The question in the present case is whether a proposal to enter into a litigation funding agreement should be<br />
treated as a commercial proposal of a kind with respect to which the liquidators would usually be left to exercise<br />
their own judgment without judicial interference, or as a matter raising other considerations rendering the court less<br />
reluctant to give directions.<br />
171 There is an analogy with an application to the court for the approval of an agreement of more than three<br />
months' duration under s 477(2B)/506(1A). In that context, if the subject matter of the agreement is purely<br />
commercial, the court will usually respect the liquidators' commercial judgment in favour of the proposal, and will<br />
generally not interfere (and therefore will grant approval) in the absence of evidence of bad faith, error of law or<br />
principle, or some real or substantive ground for doubting the prudence of the proposal: State Bank of New South<br />
Wales v Turner Corporation Ltd (1994) 14 ACSR 480 at 483 per Tamberlin J; Re Spedley Securities Ltd (in liq), at<br />
85 per Giles J. Where, however, the proposed agreement is a litigation funding agreement, the decision to enter into<br />
it is not treated as a purely commercial decision because it affects the administration of justice and the efficient<br />
winding up of companies, and so the court may be less likely to defer to the liquidators' judgment. The factors that<br />
may influence the court's decision on an application for approval of a litigation funding agreement under s<br />
477(2B)/506(1A) or in an application for directions under s 479(3)/511 can be seen in the cases listed at [146]<br />
above.<br />
172 The matters taken into account in an application for approval of a funding agreement under s 477(2B)/506(1A)<br />
and in an application for judicial directions under s 479(3)/511 are essentially the same, although additional<br />
questions will arise in an application for judicial directions concerning the appropriateness of the court acceding to<br />
the application (a question comprehensively explored by the High Court in the Macedonian Church case supra).<br />
The common criteria were set out by Palmer J (Main Judgment at [386]), and in the Buiscex case and Re ACN 076<br />
673 875. We agree with that reasoning.<br />
173 That being so, we do not agree with the proposition that the court would be likely to decline to give directions<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
to liquidators concerning a litigation funding agreement on the ground that it is not appropriate for the court to<br />
make a liquidator's commercial decisions for him or her. The question whether to give directions or decline to give<br />
them will depend upon the nature of the directions sought and the facts of the instant case, and in particular the<br />
extent to which the funding agreement and the contemplated recovery proceedings raise issues capable of affecting<br />
the administration of justice.<br />
174 In our view there were some matters of fact in this case upon which his Honour could form the conclusion that<br />
further inquiry by the Court was appropriate and, therefore, that there was a basis for making an order under s 536.<br />
Those matters are listed at [82] above. It is relevant to the exercise of the discretion that the liquidators did not<br />
obtain or seek the Court's directions. If they had done so and had acted in accordance with those directions it is<br />
difficult to conceive that the Court would have seen any reason to order an inquiry. To the extent that Palmer J<br />
merely took into account the absence of an application for directions as a factor to be weighed in the exercise of<br />
the judicial discretion conferred by s 536, we do not detect any error justifying intervention on appeal.<br />
175 However, Palmer J attributed significance to the lack of an application for directions that we regard as undue.<br />
He said that a liquidator proposing to enter into a litigation funding agreement should apply to the court for<br />
directions "as a matter of course" (Main Judgment at [388]). The appellants submitted that this statement is<br />
incorrect. As we have said, they contended that the right of liquidators to seek directions is one to be availed of as<br />
they see fit.<br />
176 In our opinion, there is no obligation upon liquidators to apply to the court for directions as a matter of course<br />
before entering into a litigation funding agreement. The decision to do so is not, however, solely a matter for the<br />
liquidators' discretion, because they have a duty of skill, care and diligence and on some occasions (identified in<br />
the cases cited by Palmer J at [385]-[386]) and in these reasons for judgment at [146], obtaining the court's<br />
directions will be a prudent course.<br />
177 As the appellants emphasised, this is not a case where the liquidators were required to obtain the court's<br />
approval under s 477(2B)/506(1A), because here the approval requirement was satisfied by the alternative means of<br />
creditor approval. A duty to approach the court "as a matter of course" cannot be derived from or by analogy with<br />
that section. His Honour's reasoning suggests that liquidators should routinely approach the court for directions<br />
under s 479(3)/511 before entering into a litigation funding agreement that has been already approved by creditors.<br />
In our opinion, his Honour erred in this regard.<br />
178 When considering the duty of liquidators to collect the company's assets we referred to Bacich v Australian<br />
Broadcasting Commission, supra at 11, where Brownie J, citing Gray v Bridgestone Australia Ltd, supra, said that<br />
liquidators are not obliged to seek the authority of the court or creditors before instituting proceedings on behalf of<br />
the company, even if the proceedings will be at the creditors' expense. Numerous analogous authorities could be<br />
referred to.<br />
179 By parity of reasoning, a liquidator is not obliged on every occasion to seek the court's directions before<br />
entering into a litigation funding agreement that will lead to the institution of proceedings without expense to the<br />
company or the creditors. But as Brownie J observed, the liquidator is obliged to make the relevant decisions with<br />
the skill, care and diligence appropriate to his or her office. In some but not all circumstances the proper discharge<br />
of the liquidators' duty may involve an application to the court for directions. It is likely to be prudent to seek the<br />
court's directions in a case where, if the court's approval were required under s 477(2B)/506(1A), there would be<br />
substantial uncertainty as to whether approval would be granted.<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
180 It does appear that his Honour, taking the general view that an application for directions should be made as a<br />
matter of course, approached the exercise of the Court's discretion under s 536 on the basis that the liquidator ought<br />
to have approached the Court for directions with respect to the proposed funding agreement prior to the institution<br />
and/or the further conduct of the proceedings. The matter that he took into account was not the mere absence of an<br />
application for directions but a perceived duty to seek directions as a matter of course. In this regard, in our<br />
opinion, his Honour took into account a factor that was extraneous to the exercise of the discretion to order the<br />
inquiry. That leads to the question whether the erroneous matter was material to his Honour's decision.<br />
181 Arguably the central issue in the present case was not that there was a litigation funder, but that the<br />
proceedings continued at a time when the prospect of any return to creditors was regarded as low and, perhaps,<br />
non-existent. The material before the Court does not enable a judgment to be made as to the point of time that the<br />
disproportionate nature of the cost of the litigation, against the possible return, could or should have become<br />
apparent. There does not appear to be any basis for stating that it should have been apparent at the commencement<br />
of the proceedings. Indeed it is this difficulty that led his Honour to prefer that an inquiry be held, rather than an<br />
immediate further hearing on the issue of costs. Nevertheless an inquiry would need to investigate the whole<br />
process of engaging a litigation funder and commencing and then continuing the proceedings. It seems to us that<br />
his Honour's reference to the absence of judicial directions was material to the making of an order for inquiry into<br />
all of those matters. That is sufficient for this Court to uphold the challenge by the appellants and re-exercise each<br />
of the three discretions that his Honour did exercise.<br />
<strong>Litigation</strong> funding<br />
182 There are some other aspects of the submissions on the subject of litigation funding, which the Court should<br />
consider.<br />
183 In their written submissions, the appellants challenged the opinion expressed by Palmer J that the law only<br />
countenances litigation funding because it provides access to justice (Main Judgment at [388]). They submitted that<br />
this proposition imports a restriction on litigation funding which is not consistent with the reasoning of the High<br />
Court in Campbells Cash & Carry, supra (citing the judgment of Gummow, Hayne and Crennan JJ at [91]).<br />
184 Palmer J's statement does appear to be an unnecessarily restrictive approach in one respect. In the Campbells<br />
Cash & Carry case Gummow, Hayne and Crennan JJ referred to two kinds of consideration that had been<br />
proffered as founding a rule of public policy, namely fears about adverse effects on the processes of litigation and<br />
fears about the "fairness" of the bargain struck between the funder and the intended litigant (at 434 [90]). Their<br />
Honours continued (at 434 [91]):<br />
"Neither of these considerations, whatever may be their specific application in a particular<br />
case, warrants formulation of an overarching rule of public policy that either would, in<br />
effect, bar the prosecution of an action where any agreement has been made to provide<br />
money to a party to institute or prosecute the litigation in return for a share of the proceeds<br />
of the litigation, or would bar the prosecution of some actions according to whether the<br />
funding agreement met some standards fixing the nature or degree of control or reward the<br />
funder may have under the agreement. To meet these fears by adopting a rule in either<br />
form would take too broad an axe to the problems that may be seen to lie behind the<br />
fears."<br />
185 Palmer J did not assert a proposition of the kind identified and rejected in this passage. His proposition was<br />
that litigation funding is permitted because it facilitates access to justice (see Main Judgment at [372], as well as<br />
[388]). That proposition does not emerge from the passage just cited but it was identified by their Honours at 425<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
[65], evidently with support, and seems to underlie their observations at 435 [95]. But for the use of the word<br />
"only", his Honour's interpretation of the joint judgment would be open on a fair reading of the joint judgment. It is<br />
not, however, apparent that the word "only", which is too restrictive, provides a basis for intervention on the<br />
principles in House v The King, supra.<br />
186 The appellants were critical of Palmer J's statement (at [388]) that if the liquidators' funding arrangements<br />
provide no more than a token benefit to the creditors and are in truth a means for the litigation funder and the<br />
liquidator to profit handsomely, the liquidator should be directed not to proceed. We do not detect error in that<br />
proposition, since his Honour seems to have in mind a case where the purpose of the liquidator and litigation<br />
funder is to generate profit for themselves without any substantial benefit to creditors. That should be distinguished<br />
from a case where, though creditors are unlikely to obtain any substantial benefit from the litigation, a successful<br />
outcome will recoup properly and reasonably incurred costs and expenses of the liquidator (see at [150]-[151]).<br />
The statement by his Honour to which objection was taken did not purport to be a finding of fact in the case before<br />
the Court. There is no basis for interfering with the exercise of the discretion in this respect.<br />
Conclusions<br />
187 We have concluded that, while many of the challenges to Palmer J's order under s 536 are unsuccessful, the<br />
appellants' submissions identified two grounds for appellate intervention. His Honour failed to take into account or<br />
give sufficient weight to a material matter, namely the public interest in the bringing and prosecution of recovery<br />
proceedings, and he took into account an extraneous matter that he regarded as material, namely his view that the<br />
liquidators should have sought judicial directions as a matter of course before entering into the litigation funding<br />
agreement. In our view, these grounds constitute a sufficient basis for this Court to set aside Palmer J's order and<br />
re-exercise the discretion under s 536.<br />
188 The matters relied upon by Palmer J as justifying an order for an inquiry were, on the whole, concerns that<br />
should support an order for further investigation. We have found that his Honour erred in two respects but he may<br />
well have reached the same conclusion had those matters been correctly addressed. Our findings on appeal have<br />
not undermined the major part of his Honour's reasoning.<br />
189 This Court is not in a position to determine that the precondition to the exercise of the power in s 536(1)(a) is<br />
made out: i.e. that "it appears to the that a liquidator has not faithfully performed ... his or her duties ...". We have<br />
not been addressed on this issue. In this respect, the refusal of ASIC to intervene makes any further analysis<br />
problematic, given the Court's obligation to accord procedural fairness to the appellants.<br />
190 We note that in his judgment, Palmer J did not identify with precision the duty or duties that appeared to him<br />
not to have been performed. There was no suggestion that the second limb of s 536(1)(a), namely failure to observe<br />
a pertinent requirement, was engaged. It may be that what his Honour had in mind was the liquidator’s duty of<br />
skill, care and diligence, reflected in part in s 180, in the latter case requiring attention to the business judgment<br />
rule. It may be that he had in mind the liquidator's duty to the court only to instigate or continue proceedings for<br />
proper purposes. It may be that he had in mind the liquidator's general law duty to exercise a power for the purpose<br />
for which it was conferred, reflected in s 181(1)(b). It may be that he had in mind the general law duty of a<br />
liquidator as fiduciary not to improperly use his or her position to gain advantage, reflected in s 182.<br />
191 His Honour's failure to identify the duty or duties involved was not one of the grounds of appeal. Nevertheless,<br />
as a general rule, some specification of the jurisdictional precondition to the exercise of the power in s 536(1)(a)<br />
appears to us to be necessary and, in any event, desirable. Absent any submissions on the matter, in a hearing at<br />
which only the applicants/appellants appeared, this Court could not exercise the discretion and would be obliged to<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
remit.<br />
192 With respect to s 536(1)(b), Hodgson JA and Austin J, as noted, are of the view that this power is available.<br />
There does not appear to be the same difficulty of identifying the relevant "conduct of the liquidator" with respect<br />
to this power.<br />
193 With respect to s 536(3), the power is not relevantly confined. However, the power is not expressed in the<br />
same way as the power in s 536(1). It is not a power to "inquire". It is a power to "require" an "answer" to "any<br />
inquiry". Although this is not a ground of appeal, it may well be that s 536(3) requires a degree of specificity in the<br />
formulation of issues and/or questions in the order itself. It is not necessary or appropriate to decide this issue in<br />
the present case.<br />
194 The inquiry that Palmer J had in mind responded to what he called the "fait accompli" of the liquidators'<br />
expenditure in the proceedings (Main Judgment at [391]). He said that the Court was not powerless to correct what<br />
had happened, because s 98 of the Civil Procedure Act 2005 (NSW) gave it a wide discretion with respect to the<br />
costs of proceedings (Main Judgment at [391]; see [45] above). He warned that if he came to the conclusion that<br />
the liquidators' expenditure on costs was unjustified and improper, he would give consideration to whether a costs<br />
limiting order should be made under s 98(4) (at [397]). Nothing in his Honour's reasons for judgment suggests that<br />
he contemplated the possibility of some other remedy such as a remedy for breach of any statutory duty under the<br />
Corporations Act or a disciplinary proceeding.<br />
195 In those circumstances this Court should not, in deciding whether to re-exercise the discretion under s 536, or<br />
to remit the matter, do so with a view to an outcome of a different kind, except to the extent that such a different<br />
outcome was contemplated in submissions. Procedural fairness requires no less. There were no such written<br />
submissions, although as noted below, the oral submissions made on behalf of the appellants adverted to some<br />
other possible outcomes.<br />
196 The proceedings that were before Palmer J were settled after he made an order under s 536 and before the<br />
hearing of the appeal against that order. The appellants did not provide this Court with the full terms of settlement<br />
but we were informed, relevantly to the present question, that under the terms of settlement payments have been<br />
made in settlement of the costs of proceedings and the liquidators' own fees. Senior counsel for the appellants told<br />
the Court that in light of the terms of settlement there were no longer any outstanding costs orders to be made by<br />
the Court and therefore no prospect of the Court making a costs limiting order under the Civil Procedure Act. We<br />
accept that submission, which has the consequence that the purpose of the inquiry envisaged by Palmer J has gone.<br />
197 In oral submissions there was some discussion contemplating the possibility of an inquiry directed to reviewing<br />
the liquidators' own fees. As we have said at [51] above, on its proper construction Palmer J's order for an inquiry<br />
did not extend to the liquidators' own fees, but only to costs of the proceedings. While it is conceivable that upon<br />
the re-exercise of discretion under s 536 the Court could order an inquiry directed towards reviewing the amount of<br />
the liquidators' fees recovered under the terms of settlement, that is not a course we would favour, for several<br />
reasons.<br />
198 First, review of the liquidators' fees was not an outcome envisaged by Palmer J when he made the order for an<br />
inquiry and the order did not cover the liquidators' fees, as we have noted. Secondly, the possibility of such an<br />
inquiry was not fully addressed in submissions. Thirdly, the Corporations Act contains statutory provisions for the<br />
fixing and review of the remuneration of a liquidator in a creditors' voluntary winding up. The fixing of the<br />
remuneration is a matter for the creditors or the committee of inspection (s 499). While the Court has the power to<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]
<strong>Hall</strong> v <strong>Poolman</strong> [<strong>2009</strong>] NSWCA 64 (31 March <strong>2009</strong>)<br />
review the amount of the remuneration (s 504), and may do so even after the remuneration has been paid to the<br />
liquidators, the exercise of that power depends upon an application by a member or creditor or the liquidator, and<br />
there is no such application here. Assuming (without deciding) that the Court has some residual power of review, it<br />
is unlikely that such a power would be exercised in view of the availability of review under the statutory scheme.<br />
199 Senior counsel for the appellants conceded that, notwithstanding the settlement, an inquiry could possibly lead<br />
to a reference of some matter to the regulator, ASIC. But there is nothing to indicate any interest in this matter on<br />
the part of ASIC, which (as we noted at [7]-[8] above) has chosen not to appear on the appeal. In the absence of<br />
any appearance or other interest on the part of ASIC, the Court is entitled to infer that ASIC would not participate<br />
actively in any inquiry ordered for the purpose of considering whether to refer any matter to it. There is no basis<br />
for this Court to conclude that it is at all likely that ASIC would take up any reference to it in consequence of an<br />
inquiry.<br />
200 In these circumstances there does not appear to be any utility in ordering an inquiry.<br />
201 The consequence is that we shall make orders setting aside the order for an inquiry made on 15 February 2008<br />
by Palmer J under ss 536(1)(a), 536(1)(b) and 536(3) of the Corporations Act, and upon our re-exercise of the<br />
Court's discretion under those provisions no order will be made.<br />
Orders<br />
202 The orders of the Court are:<br />
1 Leave to appeal granted.<br />
2 Orders 1(a)-(d) made by his Honour Justice Palmer on 15 February 2008 set aside.<br />
*********<br />
LAST UPDATED:<br />
31 March <strong>2009</strong><br />
AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback<br />
URL: http://www.austlii.edu.au/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html<br />
http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWCA/<strong>2009</strong>/64.html?stem=0&synonyms=0&query=<strong>Hall</strong>[20/12/2011 14:25:30]