Reported Decision : 61 ACSR 236 New South Wales Supreme Court CITATION : Onefone Pty Ltd v One.Tel Ltd (in liquidation) & 2 Ors [2006] NSWSC 1434 HEARING DATE(S) : 17 & 27/11/06 JUDGMENT DATE : 28 November 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 11/28/2006 DECISION : 1. Make orders in accordance with paragraphs 1(a), (b), (d) and (e) of the amended interlocutory process; 2. Make an order in terms of paragraph 5; 3. Order that the proper costs and expenses of the applicant in making this application be paid out of the assets of the company. CATCHWORDS : CORPORATIONS – Winding-up – Liquidators – Examinations by liquidator – Special purpose liquidator appointed to investigate renounceable rights issue by company now in liquidation – Application by special purpose liquidator for orders permitting public examination of such persons as special purpose liquidator considers appropriate – Whether special purpose liquidator justified in applying for issue of examination summonses – Where substantial sums have already been paid to special purpose liquidator by way of remuneration and reimbursement – Where issue of examination summonses likely to result in further substantial expense – Where special purpose liquidator able to rely on information emanating from other proceedings in conduct of investigation – Where evidence in support of application scant – Application refused. LEGISLATION CITED : Corporations Act 2001 (Cth) Fair Trading Act 1987 (NSW) Onefone Australia Pty Ltd v One.Tel Limited (2006) 57 ACSR 279 Onefone Australia Pty Ltd v One.Tel Limited (2006) 58 ACSR 466 CASES CITED : Murdoch v Weston (as special purpose liquidator of One.Tel Ltd (in liq) (2004) 49 ACSR 166 ASIC v Rich [2005] NSWSC 706 ASIC v Rich [2006] NSWSC 266 Onefone Pty Ltd PARTIES : v One.Tel Ltd (in liquidation) & 2 Ors FILE NUMBER(S) : SC 5291/03 COUNSEL : Applicant: N Cotman SC SPL: R Glasson SOLICITORS : Applicant: N/A SPL: N'OT Lawyers IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Tuesday, 28 November 2006 5291/03 Onefone Pty Ltd v One.Tel Ltd (in liquidation) & 2 Ors JUDGMENT 1 HIS HONOUR: This is a further application by Mr Paul Weston, the special purpose liquidator of One.Tel Limited (In liq.). 2 The principal questions on the present application are whether a direction should be given that he is justified in applying for orders for the public examination of such persons as he considers appropriate, and whether a direction should be given that the general liquidators of One.Tel are justified in paying $990,000 for expenses, principally legal costs and disbursements, incurred by the special purpose liquidator after 30 September 2006, and to be incurred. 3 The background of the present application can be seen from my judgment of 26 April 2006 (Onefone Australia Pty Ltd v One.Tel Limited (2006) 57 ACSR 279) and Barrett J's judgment of 15 August 2006 (Onefone Australia Pty Ltd v One.Tel Limited (2006) 58 ACSR 466). However, I will repeat some of that background. 4 Mr Weston was appointed as the special purpose liquidator of One.Tel on 23 December 2003 for the purpose of his considering and making recommendations to the creditors of One.Tel whether any rights of action exist arising from the cancellation on 29 May 2001 of what had previously been announced as an underwritten renounceable rights issue ("RRI"). He was appointed because it was apprehended that one of the general liquidators might face a conflict in relation to that claim. 5 In March 2004, Mr Weston proposed to examine 32 persons in connection with his investigation. Many of the proposed examinees were persons associated with Publishing and Broadcasting Limited ("PBL"), Consolidated Press Holdings Limited ("CPH"), or News Limited ("News"). 6 On 6 April 2004, orders were made by consent for examination summonses addressed to those persons to be discharged. In return, PBL, CPH and News, and certain proposed examinees associated with them, agreed to consent to the extension of the limitation period under subs 588F(3) of the Corporations Act 2001 (Cth), from three years to six years, and agreed not to plead a limitation defence to any proceedings which might be brought under the Fair Trading Act 1987 (NSW), if proceedings were commenced by One.Tel, or the special purpose liquidator, within six years of the accrual of any cause of action. 7 On 8 April 2004, Windeyer J discharged examination summonses addressed to three partners of Minter Ellison, solicitors, and three partners of Ernst & Young, chartered accountants. His Honour said (Murdoch v Weston (as special purpose liquidator of One.Tel Ltd (in liq) (2004) 49 ACSR 166 at [9]-[11]): " 9. Now that the special purpose liquidator has obtained an extension of time for the bringing of actions against the PBL and News Limited subsidiaries, if that becomes appropriate, so far as their being involved in an uncommercial transaction is concerned, or in terms of s 588FF(c), benefiting from that transaction, there is no need for anybody to be examined at this time in connection with that matter. ... 11 ... As it is no longer necessary to commence any claim for an uncommercial dealing by [29 May 2004], in my view there is no purpose that would justify the expenditure of what appears to be vast sums of money on the examinations at this stage. " 8 On 16 April 2004, Windeyer J gave a direction that Mr Weston was justified in not conducting further investigations into the circumstances surrounding the cancellation of the RRI without further order of the Court. 9 At that time, it was anticipated that the question of One.Tel's solvency as at 29 May 2001, and other issues relating to the cancellation of the RRI, would be made clear in proceedings between the Australian Securities Investments Commission ("ASIC"), and Mr Jodee Rich and others. Those proceedings are still pending for reasons apparent from the judgments in ASIC v Rich [2005] NSWSC 706 and [2006] NSWSC 266. 10 On 26 April 2006, I made orders varying the orders appointing Mr Weston as special purpose liquidator, so as to enable him to make recommendations to the creditors of One.Tel as to whether any rights of action exist in relation to the cancellation of the RRI, and whether proceedings should be commenced without his being required to make assumptions as to the solvency of One.Tel. I also directed that Mr Weston was justified in performing work of the following nature: " (a) Liaising with the parties to the ASIC v Rich proceedings, and their legal advisors, to obtain access to: (i) transcripts of evidence given, or to be given, in the ASIC v Rich proceedings; (ii) documents tendered or to be tendered as evidence in, or marked for identification or to be marked for identification in, the ASIC v Rich proceedings; (iii) affidavits and witness statements filed, or to be filed, in the ASIC v Rich proceedings; (iv) documents discovered, in the ASIC v Rich proceedings; (v) documents produced, or to be produced, under Subpoenas for Production and Notices to Produce, in the ASIC v Rich proceedings; and (vi) the written submissions to be filed by the parties to the ASIC v Rich proceedings at the conclusion of the evidence in the ASIC v Rich proceedings (collectively "the ASIC v Rich Documents"). (b) Making such application, as may be necessary, to Austin J, as the trial Judge in the ASIC v Rich proceedings, for orders entitling the SPL to be given access to the ASIC v Rich Documents; (c) Reviewing the ASIC v Rich Documents and carrying out all work incidental thereto including liaising with the parties to the ASIC v Rich proceedings and their legal advisors for the purpose of: (i) determining whether the SPL is then in a position to express a concluded view, and make appropriate recommendations to creditors of One.Tel, as to whether any rights of action exist surrounding the cancellation of the RRI; or (ii) determining whether the SPL should conduct further investigations, including public examinations, and if so the nature and extent of those investigations and examinations, so as to then be in a position to express a concluded view, and make appropriate recommendations to creditors of One.Tel, as to whether any rights of action exist surrounding the cancellation of the RRI. (d) Retaining such advisors, including legal advisors, to assist the SPL in performing the work referred to in sub-paragraphs (a), (b) and (c) above. (e) Reporting to, and making recommendations to, the members of the Committee of Inspection of One.Tel and, if appropriate, the creditors of One.Tel, in relation to the work referred to above. " 11 These orders did not extend to Mr Weston's applying for the examination summonses. In my reasons for judgment, I made it clear that the work to be done should cover the review of the materials adduced in the ASIC v Rich proceedings. I also said (at [31]): " The orders to be made include an order that Mr Weston is justified in reviewing the ASIC v Rich documents and doing incidental work thereto for the purposes of determining whether he should conduct further investigations, including public examinations. However, nothing in these reasons is to be taken as being indicative of whether any such course may be appropriate. Clearly, different considerations would apply if Mr Weston, following a review of the materials which might become available to him, determined that such further investigations, including public examinations, should occur. " 12 On 17 November 2005, Mr Weston filed in Court an interlocutory process seeking orders that: " 1. An order that the SPL is justified in performing work of the following nature: (a) continuing the work referred to in Order 2(a) made in these proceedings on 26 April 2006; (b) making such application, as may be necessary, to Justice Austin, as the trial Judge in the ASIC v Rich proceedings, for further orders entitling the SPL to be given access to ASIC v Rich Documents not yet in his possession, including the written submissions of the parties to the ASIC v Rich proceedings, when available; (c) conducting public examinations of such persons as the SPL determines appropriate; (d) retaining such advisers, including legal advisers, to assist the SPL in performing the work referred to in sub-paragraphs (a), (b) and (c) above; and (e) reporting to, and making recommendations to, the members of the Committee of Inspection of One.Tel and, if appropriate, the creditors of One.Tel, in relation to the work referred to above. 2. A direction that Peter Walker and Steven Sherman in their capacity as the liquidators of One.Tel Limited (In Liquidation) (" One.Tel ") are justified in paying to Paul Gerard Weston, in his capacity as SPL of One.Tel, from the assets of One.Tel, the sum of $990,000, which sum is to be identified to Mr Weston as paid to him to enable him to pay expenses (including, but not limited to, legal costs and disbursements) properly incurred by him after 30 September 2006, in performing the functions required to be performed by him as SPL in conformity with orders of the Court, with no part of that sum being applied towards the remuneration of the SPL. 3. A direction that Paul Gerard Weston, as SPL, is justified in receiving the sum of $990,000 from Mr Sherman and Mr Walker, as liquidators, and in applying that sum in and towards payment of expenses (including, but not limited to, legal costs and disbursements) properly incurred by him after 30 September 2006 in performing the functions required to be performed by him as SPL in conformity with orders of the Court, with no part of that sum being applied towards the remuneration of the SPL. 4. An order granting leave to the SPL to make application for further funds to be paid to him by the liquidators, from the assets of One.Tel, in respect of his expenses when the sum referred to in Order 3 above is expended. 5. An order granting leave to the SPL to apply, in these proceedings, to extend further the purposes for which the SPL is appointed, and generally. " 13 The most significant variation to the scope of work which Mr Weston should be permitted to perform is in the proposed order 1(c) that he be justified in conducting public examinations. I declined to deal with this application until it had been considered by One.Tel's Committee of Inspection. On the return of the application on 27 November 2006, an amended interlocutory process was filed, which sought an order that Mr Weston was justified in "(c) applying for orders for public examinations for such persons as the SPL determines appropriate". 14 No amendment was sought to orders 2 and 3. Hence, on the face of the application, Mr Weston submits that $990,000 should be made available to pay expenses (not his own remuneration) incurred after 30 September 2006 to perform the tasks of completing the review of the materials in the ASIC v Rich litigation, and applying for orders for the public examination of such persons he determines to be appropriate. 15 Very substantial sums have been paid by way of remuneration and reimbursement of legal expenses to date. The special purpose liquidator has been paid remuneration of $382,391.76 for work done to 31 July 2006. A further $28,176.03 is claimed, and I assume, payable, for the work done by him up to 30 September 2006, and a further $25,278.32 will become owing to him for unbilled remuneration for the month of October 2006. 16 One.Tel has paid legal expenses incurred by Mr Weston pursuant to the orders made by Windeyer J, up to 30 June 2004, totalling $651,370. 17 As was expected, following my orders of 26 April 2006, further substantial legal expenses have been incurred in the review of the materials in the ASIC v Rich litigation. Although only a summary of the invoices rendered and paid was provided on this application, it appears that on 25 May 2006, Mr Weston's solicitors, NOT Lawyers, rendered an invoice for legal fees of $141,992.63, plus $19,658.65 for counsel's fees for work done for a period from 30 July 2004 to 23 May 2006. These have been paid. Further invoices were rendered on 31 August 2006 and 23 October 2006 for legal costs totalling $259,606.82. These amounts have been paid. 18 In summary, $1,455,020 has been paid to date following the appointment of the special purpose liquidator for his remuneration and his expenses, including legal costs, and that does not include expenses incurred after 30 September 2006. 19 It is against this background that I must consider the application that Mr Weston would be justified in carrying out further work, which includes applying for the issue of summonses for the public examination of proposed examinees, and the application that a further $990,000 be made available for this purpose, and for the purpose of continuing the review of materials in the ASIC v Rich litigation. I understand that the estimate of $990,000 includes a component of about $180,000 to cover legal expenses which have already been incurred. 20 The estimate was also based upon examinations being conducted, rather than merely covering the making of applications for the issue of examination summonses. 21 The estimate also covers the cost of continuing to review the materials in the ASIC v Rich litigation. There is no precise break-up in the estimate between the two areas of work. However, a substantial part of the estimate relates to the proposed conduct of public examinations. 22 The estimate includes an allowance of $265,200 to cover counsel's fees for the proposed examinations, and a like allowance for costs associated with preparing for the examinations. These figures do not make allowance for costs which may be incurred if applications are made by the PBL, CPH or News interests to set aside any examination summonses which may be issued. 23 Given that such an application was made in 2004, and given that the ASIC v Rich proceedings are still unresolved, it is at least on the cards that such further expenses would be incurred if applications were made for the issue of examination summonses. 24 On 25 October 2006, Mr Weston held a meeting of the members of the Committee of Inspection of One-Tel. A confidential and privileged report was provided to the Committee. The Committee unanimously resolved: " That subject to the COI being provided with the SPL's estimated future remuneration and expenses, the SPL applies to the Court to extend his powers to conduct further investigations, including public examinations, so as then to be in a position to express a concluded view and make appropriate recommendations to creditors of One Tel as to whether any rights of action exist surrounding the cancellation of the RII. " 25 The present application was made before the Committee of Inspection had the opportunity to consider and discuss Mr Weston's estimated future remuneration and expenses. Accordingly, I adjourned the application to yesterday so that the Committee could consider it. 26 On 21 November 2006, the Committee of Inspection resolved that: " (a) It has reviewed the summary of the Special Purpose Liquidator's ("SPL") estimated fees and costs (excluding legal costs) for the period November 2006 to April 2007, totalling $155,047.20 (including GST); (b) it has reviewed the NOT Lawyers estimate of legal costs of dated 13 November 2006, for the period November 2006 to April 2007, totalling $803,440 (including GST); (c) it is has reviewed the SPL's interlocutory process dated 14 November 2006 and filed on 17 November 2006; (d) it supports the Orders and Directions sought by the SPL in the Interlocutory Process. " 27 The view of the Committee of Inspection is entitled to substantial weight on this application. However, I must also take into account the view of the special purpose liquidator, as stated by his solicitor, Mr O'Neill, to the Committee, that: " MFO explained that in all liquidations, including the administration of the SPL and the GPL, the Committee's statutory role is to approve the SPL's remuneration and not expenses. MFO then explained that in the circumstances that the SPL's administration, the SPL has consulted the Committee in relation to its legal expenses and will continue to do so. MFO advised the Committee members, therefore, that the purpose of this meeting was for the Committee members to review the SPL's estimated budget in the context of the SPL's interlocutory application adjourned 27 November 2006 ." 28 In other words, the Committee was told that its role in relation to the reasonableness of the proposed further legal expenses relating to the conduct of public examinations was a consultative one, but that it was not its role to approve or reject the liquidator's expenses. 29 An important factor on the present application is that on 22 September 2006, the solicitors for PBL and CPH advised that those companies and their respective subsidiaries, and also Messrs Peter Yates and James Packer, were prepared to agree to extensions of the relevant limitation periods to six months after judgment is handed down in the ASIC v Rich proceedings. On 26 September 2006, Allens Arthur Robinson advised that News and Messrs Lachlan Murdoch and Peter McCourt were willing to agree to the same proposal on substantially the same conditions. 30 It will be recalled that on 8 April 2004, Windeyer J said that the expenditure of vast sums of money on public examinations could not be justified when there was no urgent reason to commence proceedings in relation to the cancellation of the RRI. 31 Since then, the evidence in the ASIC v Rich proceedings has been taken and Mr Weston and his legal advisors have been able to read and to analyse that evidence. 32 Although no arrangements for the extension of the limitation period have been finalised with PBL, CPH and News, it appears that those companies, and certain individuals associated with them, are willing to agree not to rely on limitation defences if proceedings are commenced within six months of judgment being delivered in the ASIC v Rich proceedings. 33 Mr Weston has not sought to identify before me any specific reason as to why it is necessary that any person be examined before he is in a position to advise the creditors of One.Tel whether proceedings should be brought against any person in relation to the cancellation of the RRI. That may be because his view is based on confidential and privileged material made available to the Committee of Inspection. Nonetheless, the position remains that I have no better reason than did Windeyer J to think that the expenditure of vast sums of money on public examinations would be well spent. It is true that I have the benefit of the view of the Committee of Inspection, but I do not know on what materials the Committee based its view. 34 The events surrounding the liquidation of One.Tel have already been the subject of extensive investigation. The general liquidators have conducted examinations, although I was told that their investigations did not cover the ground which Mr Weston would seek to cover. I was told that ASIC had conducted s 19 examinations, and I understood from counsel's submissions that the special purpose liquidator has been given access to the transcripts. Of those examinations, of course, detailed evidence has been given in the ASIC v Rich proceedings which are presently part-heard before Austin J. I was told by counsel for Mr Weston that whilst this material covers, and may resolve, a number of issues, nonetheless, there are other issues which have not been covered, or not covered sufficiently for Mr Weston's purposes. I was told that there will be gaps still to be covered from persons who have been examined, or who have given evidence to date. I was told there are other persons, who have not been examined or given evidence, whom Mr Weston would wish to examine. 35 However, I have no specific material as to why such examinations are thought necessary at this stage. I am not prepared to act on such a generalised description. It is of some concern that the proposed examinations were described by Mr O'Neill in preparing his estimate of costs as being "lengthy", and apparently were projected to extend for at least twenty days. 36 The present regime is intended to allow the special purpose liquidator, and his legal advisors, to acquaint themselves with the detail of the evidence and the submissions in the ASIC v Rich proceedings. This will put Mr Weston in a position to move swiftly after judgment is given in those proceedings if it appears to him that the company has causes of action arising from the cancellation of the announced RRI, which should be pursued. 37 It is expected that the special purpose liquidator and his legal advisors will take advantage of the work done by others in the ASIC v Rich litigation and not cover the same ground with substantial costs to creditors. 38 It was submitted that the question of whether it is premature to conduct further public examinations, and whether the proposed examinations would be properly confined, were questions which should be dealt with on the application to issue the examination summonses. However, a Registrar, acting under s 596B of the Corporations Act on an application for the issue of the examination summonses, would not be expected to weigh the question of costs to creditors of the examinations proceeding against the projected benefits of that course. 39 In my view, provided Mr Weston secures a binding agreement with the potential defendants to an extension of the limitation period, the current regime, whereby he confines himself to a review of relevant materials in the ASIC v Rich litigation, should not be changed. In any event, I am not prepared, on the present materials, to give the Court's imprimatur to the proposed expenditures on the conduct of examinations. I would need to be persuaded by far more specific evidence than is currently before me that the proposed course is necessary to enable Mr Weston to express a concluded view on whether rights of action exist in relation to the cancellation of the RRI. This is particularly so, at the present time, when judgment has not been given in the ASIC v Rich proceedings. 40 Accordingly, I decline to make the order sought in paragraph 1(c) of the amended interlocutory process. The remaining parts of paragraph 1 of the interlocutory process provide for continuation of the work referred to in order 2 made on 26 April 2006. Whilst it is not clear to me that it is necessary to make the orders sought in paragraphs 1(a), (b), (d) and (e), as I would have thought that work was already covered by the existing orders, for the sake of clarity, I will make the orders sought in paragraphs 1(a), (b), (d) and (e). 41 Paragraphs 2-4 of the interlocutory process were premised upon the making of the order in paragraph 1(c). As the suggested justification of the payment of $990,000 for future legal costs was based upon the special purpose liquidator conducting possible examinations, I would not be prepared to make the orders sought in paragraphs 2 and 3. The special purpose liquidator may, however, seek further orders as to whether the general liquidators are justified in paying lesser sums to cover legal costs incurred in relation to the continuation of the work to be done under the orders of 26 April 2006, as modified today. The present evidence does not permit an assessment of what would be a proper amount to be allowed in respect of that work. 42 Mr Weston deposes that his remuneration and expenses, including legal expenses for the month of October 2006, total $228,161.45. At the moment, there is only a sum of $15,393.17 remaining from the fund of $275,000 deposited into Mr Weston's liquidator's bank account, pursuant to the orders made by Barrett J on 21 August 2006. 43 The interlocutory process does not seek an order as to whether the general liquidators would be justified in paying the remuneration and expenses of the special purpose liquidator as claimed for the month of October 2006. Nor does the interlocutory process seek any orders to establish a future regime to deal with the special purpose liquidator's ongoing expenses and remuneration. 44 As I understood the submissions of senior counsel for Mr Weston, he contends that Mr Weston should be put in the same position as if he were the liquidator of the company, such that he could have recourse to the company's assets to pay expenses as they arise, and that the question of whether the expenses were properly and reasonably incurred should be dealt with, if it arises, on any application by an interested party seeking an assessment of the legal costs, or challenging the reasonableness of his remuneration. That may well be the correct position, particularly having regard to the observations of Barrett J in his judgment of 15 August 2006, where his Honour said that it was inappropriate that the general liquidators have any control over expenditures by the special purpose liquidator (at [13]). 45 However, there is no application presently before me for directions in relation to the funding of further costs, save for the directions in paragraphs 2, 3 and 4 of the amended interlocutory process. Those paragraphs, in turn, are premised upon estimate of future costs based on the holding of public examinations. Certainly, no direction has been sought to implement a regime for funding the special purpose liquidator of the kind which counsel submitted would be appropriate. 46 In the present circumstances, the Committee of Inspection has assumed a consultative role in relation to the legal expenses of the special purpose liquidator. I would expect that the Committee of Inspection would be consulted in relation to any application, which the special purpose liquidator may seek to bring, to establish a new regime for the funding of his expenses. 47 Counsel also submitted that, notwithstanding the relief was not presently sought in the interlocutory process, I should direct that the general liquidators would be justified in paying the accounts for the month of October 2006, to the extent that there are insufficient funds available in the special purpose liquidator's account to pay such remuneration and expenses. 48 It does not appear to me that those accounts have been considered by the Committee of Inspection. The resolution of the Committee of 21 November 2006, which I have quoted earlier in these reasons, does not state that the Committee has reviewed the special purpose liquidator's fees and costs for the month of October 2006. 49 I am not in a position to assess the reasonableness of those costs, even assuming that it would be proper for me to embark upon such an exercise. Accordingly, the special purpose liquidator will need to make a further application in that regard, after those costs have been considered by the Committee. I expect that such an application would also seek to put in place a regime for the further funding of the special purpose liquidator, which will avoid the necessity for repeated applications. 50 I make orders in accordance with paragraphs 1(a), (b), (d) and (e) of the amended interlocutory process. I also make an order in terms of paragraph 5. 51 Application is also made for an order for the proper costs and expenses of Mr Weston in making this application. This application has been substantially unsuccessful. However, I do not think that it was an improper application to have been brought. The special purpose liquidator is entitled, and should be encouraged, to seek directions from the Court as to the conduct of the liquidation. To deprive the special purpose liquidator of his costs in making such an application, if it is unsuccessful, would be to deter him from taking that course. Accordingly, I order that the proper costs and expenses of the applicant in making this application be paid out of the assets of the company. 52 The interlocutory process also sought an order that the proper costs and expenses of the special purpose liquidator in performing proper work referred to in paragraph 1 of the interlocutory process be paid out of the assets of One.Tel. I do not pause to consider how that order, if it were made, would sit with the other orders which were sought in the amended interlocutory process. Counsel did not press the application for that order. ****** 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.