New South Wales Supreme Court CITATION : Gregory Winfield Hall v Peter Francis Malone & ORs [2005] NSWSC 625 HEARING DATE(S) : 17/06/05 JUDGMENT DATE : 20 June 2005 JUDGMENT OF : White J DECISION : Make orders in accordance with paragraphs 1, 2 and 3 of the interlocutory process filed on 10 January 2005.; Exhibits may be returned. CATCHWORDS : PRACTICE AND PROCEDURE - Application to transfer proceedings to another state - Liquidator's claim against directors for insolvent trading - Liquidator is in NSW - Finance and management functions of company performed in Western Australia - Likely witnesses resident in WA - Liquidator contends case against directors is largely documentary - Corporations Act ss 588G, 1337H, 1337L, 1337M - Proceedings in NSW would cause substantial personal hardship to the applicant defendants - Held that justice is best served by transferring the proceedings to WA. LEGISLATION CITED : Corporations Act 2001 (Cth) CASES CITED : Re Dstore Ltd (Receivers & Managers Appointed) (In Liq); Dwyer & Anor v Hindal Corporate Pty Ltd (2005) 52 ACSR 335 Gregory Winfield Hall in his Capacity as Official Liquidator of New Tel Ltd (In Liquidation) PARTIES : v Peter Francis Malone & Ors FILE NUMBER(S) : SC 6710/04 Plaintiff: R A Dick, P Flynn COUNSEL : 1st & 2nd Defendants: Dr A J Bell 5th Defendant: A Phipps (sol) Plaintiff: Blake Dawson Waldron SOLICITORS : 1st & 2nd Defendants: Sparke Helmore 5th Defendant: Gilbert & Tobin Lawyers LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Monday, 20 June 2005 6710/04 Gregory Winfield Hall in his capacity as official liquidator of New Tel Ltd (In Liq) v Peter Francis Malone & Ors JUDGMENT 1 HIS HONOUR: This is an application by the first and second defendants under sections 1337M and 1337H of the Corporations Act for the proceedings to be transferred to the Supreme Court of Western Australia. 2 The proceedings have been brought by the liquidator of New Tel Ltd (in liquidation), against the directors of New Tel Ltd under s 588G of the Corporations Act for allegedly allowing New Tel to incur debts when it was insolvent, when the directors were aware or should have been aware that there were grounds for suspecting that New Tel was insolvent or would become insolvent if the debts were incurred. The amount claimed is in excess of $24 million. 3 The question on the present application is whether it appears, having regard to the interests of justice, that it is more appropriate for the proceedings to be determined in the Supreme Court of Western Australia rather than in this Court. 4 In considering that question, it is necessary to have regard to the matters in s 1337L. There is no question that both courts have jurisdiction to deal with the proceedings. 5 New Tel was incorporated in Western Australia. It was a publicly listed company whose principal business was re-selling fixed wire and mobile telephony services. The majority of its customers, employees and core business processes were in Sydney, but its head office was in Perth. 6 Both the first and second defendants are residents in Western Australia. 7 The third defendant is resident in Hong Kong. 8 The fourth and fifth defendants are resident in Arizona. 9 Only the first, second and fifth defendants have entered an appearance. 10 New Tel was placed in voluntary administration on 10 December 2002 by a creditor, Optus Mobile Pty Ltd, pursuant to s 436C of the Corporations Act. 11 On 13 January 2003, the creditor voted to place the company in liquidation. 12 The plaintiff was appointed official liquidator on 3 March 2003. The liquidation has been conducted from the offices of PricewaterhouseCoopers in Sydney. 13 These proceedings were instituted in December 2004. 14 The plaintiff, the liquidator, says that his case is essentially a documentary one. He claims that New Tel was insolvent on at least 30 June 2002, and that the directors contravened s 588G(2) of the Corporations Act by allowing the company to incur debts up to the appointment of the administrator on 10 December 2002. 15 He will rely principally on documents prepared by the company's accounting and finance staff as to its cash-flow and financial position, on the fact that the company could not obtain an audit sign-off for the half-year accounts to 31 December 2001, and on a report provided to the Board by the auditors on 26 July 2002 in relation to cash-flow forecasts for the company. 16 The liquidator points to the fact that the company's sales and marketing operations, daily functions, its call centre, its technical practices and general accounting functions were conducted from Sydney. Most of its customers and most of its creditors are in New South Wales. Importantly, the liquidation is being conducted by PricewaterhouseCoopers in Sydney, and the liquidator has retained the Sydney office of Blake Dawson Waldron as his solicitors to advise and assist him. 17 In terms of s 1337L, the plaintiff submits that the company's principal place of business was in New South Wales. Insofar as it could be said that the company currently has a principal place of business, he submits that that place is Sydney where he is conducting the winding-up. 18 He says that most of the debts in respect of which the directors are sued were incurred in New South Wales. 19 There are 417 boxes of documents now under the control of the liquidator in Sydney. If the proceedings are transferred to Western Australia, copies of many of these documents will have to be transferred to PricewaterhouseCoopers' offices in Western Australia. He says, and I accept, that it would be more expensive for the plaintiff to conduct the litigation in Western Australia than New South Wales, and that this would be to the detriment of creditors. 20 The plaintiff's evidence will include a liquidator's report. If the proceedings are transferred to Western Australia it will be necessary for the liquidator and perhaps some of his staff to travel to Western Australia for the hearing, and presumably also to travel for the purpose of pre-trial preparation. 21 The plaintiff also points to the fact that proceedings have been brought in this Court against a company called Ledge Finance Limited in which the liquidators seek to void certain alleged voidable transactions entered into between Ledge Finance Limited and New Tel. 22 An issue in those proceedings will be whether New Tel was insolvent as at 11 and 14 October 2002. This is part of the period in respect of which the liquidator in these proceedings claims that New Tel was insolvent. 23 The plaintiff says that a reason for not transferring the proceedings is to avoid the risk of inconsistent findings on insolvency. If both proceedings remain in this Court, the plaintiff will seek an order that questions of insolvency be determined separately, and that that question be heard in the two proceedings together. If the proceedings continue in different courts, there may be inconsistent findings on insolvency. 24 This is a relevant consideration: (Re Dstore Ltd (Receivers & Managers Appointed) (In Liq); Dwyer & Anor v Hindal Corporate Pty Ltd (2005) 52 ACSR 335 at 343. There Debelle J said: "In my view, as a general rule once a Court is seized of an issue relating to the administration of a company in liquidation, it is desirable that that Court should hear and determine all actions involving that issue. That principle is dictated not only by considerations of comity and courtesy between courts, but also, and more importantly, to ensure that inconsistent orders are not made." 25 The plaintiff also submitted that to overturn his choice of forum, the first and second defendants needed to point to some subjective factor which makes it possible to say that the interests of justice would be better served by the transfer, than by leaving the proceedings in this Court. 26 In a practical sense it is, no doubt, true to say that some reason must be shown for making an order for transfer. It is not necessary to show that New South Wales is a clearly inappropriate forum. The question posed by the statute is simply whether, having regard to all factors relevant to the interests of justice, including those in s 1337L, it is more appropriate that the proceedings are determined in Western Australia rather than in this Court. This is a "nuts and bolts" management decision. 27 I have considered all of the matters raised by the plaintiff and by the fifth defendant, but I consider that the counterveiling considerations raised by the first and second defendants show quite clearly that the proceedings should be heard in Western Australia. 28 I have already referred to the fact that head office functions of New Tel were located in Perth. The first and second defendants are resident there. Whilst the first defendant spent much of his time as Managing Director of New Tel commuting to New South Wales, he was always a resident of Perth. Except for three directors' meetings held in Sydney, it seems that most of the senior management or Board decisions were made in Western Australia. 29 In relation to s 1337L(b), the events that are the subject of the proceedings are the alleged failure of the defendants to prevent the company from incurring debts after 30 June 2002. 30 As the head office function was in Western Australia, it is at least as likely that the alleged failures occurred in Western Australia, as in New South Wales. 31 More important are the personal factors affecting the first and second defendants. In both cases their insurers have declined indemnity so they are obliged to defend the proceedings themselves. 32 Whilst the first defendant has some assets, it does appear those assets may be insufficient to fund the defence of a substantial claim for insolvent trading. Just as it will be more expensive for the plaintiff to have to litigate in Western Australia, so it will be more expensive for the first and second defendants to have to litigate in New South Wales. 33 However, there is no suggestion that the plaintiff will be unable to conduct the litigation in Western Australia. PricewaterhouseCoopers has an office in Perth as their solicitors, Blake Dawson Waldron. 34 On the other hand, there are grounds for real concern that at least the first defendant may not be able to defend the proceedings if they are conducted in this State. 35 The first and second defendants have engaged the services of a Mr Macnish, a solicitor and barrister of the Supreme Court of Western Australia, and they have spent or incurred in excess of $200,000 in legal costs since his engagement following the collapse of New Tel. 36 The matters in which he has been engaged include acting for them in connection with examinations conducted by the Australian Securities and Investments Commission. Mr Macnish says, and I have no reason to doubt, that he has acquired reasonably extensive knowledge of the roles of these defendants in relation to the company, and some knowledge of the company's affairs. He does not have an office in Sydney. 37 Sparke Helmore, who are the solicitors for the applicants on the present application, have not been retained in the proceedings generally and have been instructed only as agent. 38 I accept that the expenditure incurred in or towards Mr Macnish's acquiring background knowledge would be substantially wasted if new solicitors had to be retained for the first and second defendants. 39 There are other personal considerations. The first defendant's family and business are in Perth. To have to conduct the litigation in Sydney would necessitate some, possibly extensive, absences which could prejudice his business interests. 40 Of greater significance is the fact that the second defendant is 76. He and his wife live in a retirement complex in Western Australia. He is under regular medical supervision. It would be a substantial personal hardship for him to have to litigate this claim in Sydney. 41 The plaintiff says that the extent of this hardship would depend on the length of the proceedings. He says that his claim is concise and documentary. 42 The defendants say they may wish to call up to 23 witnesses who reside interstate. There was extended speculation in the evidence about whether all, or a substantial number, of those witnesses would be needed. Whatever the position may be, if the plaintiff is right and the case is a confined one, essentially a documentary case, the corollary is that the additional expense to creditors from having to litigate in Western Australia would not be excessive. If the plaintiff is wrong, and the hearing is an extended one, the plaintiff is much better able to bear the costs of an extended hearing in Western Australia than would be the first and second defendants to defend such proceedings in Sydney. 43 There is substance to the first and second defendants' claim that most of the likely relevant witnesses are in Western Australia. This is because the company's auditors, its external accounting advisers and the finance and corporate departments were located in Perth. The authors of the memoranda on which the liquidator will rely reside in Western Australia. It is not sufficient for the plaintiff to say that he does not intend to call the witnesses in his case. It is on the cards that either the defendants will call them, or that the plaintiff may call them in a case in reply if the defendants seek to explain, rebut, qualify or supplement the documents upon which the plaintiff will rely. 44 There is also a real chance that the defendants may wish to call witnesses from their accounting advisers, Deloitte, who were advising the Board before and during the period in question. The plaintiff does not claim that these advisers warned the directors that the company was insolvent. He says that Deloitte's work did not constitute an insolvency review. Whether that is so or not, it is on the cards that its involvement will be the subject of evidence. 45 The first and second defendants also refer to some major transactions which were proposed or implemented in 2002 which they claim are relevant to New Tel's actual and likely solvency. It says that the advisers involved in those transactions were primarily located in Western Australia, an assertion which the liquidator disputes. I have not found it necessary to speculate on these matters. 46 The principal focus of the proceedings will be what was the financial position of New Tel during the relevant period, and what the directors knew or should have known about that. 47 As the finance and management functions of the company were conducted in Western Australia, I accept that the natural forum for the resolution of these issues is Western Australia. 48 On that basis, and having regard to the personal position of the first and second defendants and the very real risk that they would be unable to defend the proceedings if they were heard in New South Wales, I think it is clear that it is appropriate, in the interests of justice, that the proceedings be transferred to Western Australia. 49 I have not overlooked the risk of inconsistent findings on issues of solvency in the current proceedings, and in the proceedings against Ledge Finance Limited. However, even if the proceedings against Ledge Finance Limited remain in New South Wales, I do not consider that that risk displaces the other factors which point to the desirability of those proceedings being heard in Western Australia. Nor do I assume that the proceedings against Ledge Finance Limited will remain in New South Wales. The defendant in that case is based in Western Australia and it has joined Deloitte apparently through its Western Australian office as cross-defendant. 50 I express no view as to whether those proceedings should be transferred, but I do not accept that I should assume that the natural forum of those proceedings is New South Wales. 51 Finally, I refer to the position of the fifth defendant. He opposes the transfer of the proceedings to Western Australia because he has already retained a firm of solicitors in Sydney to act for him. That firm of solicitors does not have an office in Perth. There is no evidence of how much legal costs he has incurred which may be wasted. I do not consider that his position, when considered with the plaintiff's position, outweighs the considerations advanced by the first and defendants. I also take into account that at all times the fifth defendant has been on notice of the present application, so that he could not properly have assumed that the proceedings would remain in New South Wales in deciding how much to invest in his Sydney solicitors. 52 These proceeding are still at a very early stage. The application for transfer was brought promptly. I do not know why it has taken about five months for it to come on for hearing, but there is nothing to suggest that the first and second defendants have been guilty of any relevant delay. 53 For these reasons, I make orders in accordance with paragraphs 1, 2 and 3 of the interlocutory process filed on 10 January 2005. 54 The exhibits may be returned. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.