Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham [2012] NSWSC 795

Supreme Court New South Wales

Medium Neutral Citation: Dolores Correa and The Spanish Club Limited (subject to Deed of Company Arrangement) v Kenneth Michael Whittingham [2012] NSWSC 795 Hearing dates: 13-16, 20-23, 27-28 March 2912 Decision date: 15 March 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Question disallowed Catchwords: PRACTICE AND PROCEDURE - Question by cross-examiner objected to - Whether question asked can be supported in respect of the matters raised in the Points of Claim in the proceedings - Whether question should be allowed Category: Interlocutory applications Parties: Dolores Correa (First Plaintiff) The Spanish Club Limited (subject to Deed of Company Arrangement) (Second Plaintiff) Kenneth Michael Whittingham (Defendant) Representation: Counsel: V.R.W. Gray/M. Stevens (Plaintiffs) S.D. Robb QC/N. Bearup (Defendants) Solicitors: Somerset Ryckmans (Plaintiffs) Norton Rose (Defendants) File Number(s): 09/290732

Judgment - EX TEMPORE 1A question was raised in cross-examination of Mr Whittingham, to which objection was taken, immediately before the luncheon adjournment. That question and the objection to it have raised an issue as to the scope of the matters in issue in proceedings 2009/290732 ("2009 proceedings"). The question and objection also potentially raise an issue which I had addressed briefly in ruling on an earlier objection to another question in respect of proceedings 2010/40769 ("2010 proceedings"). I consider I should now say something further as to that issue in circumstances that the issue is potentially raised again. I should acknowledge that Mr Gray who appears for the Plaintiffs has properly acknowledged the fact that my earlier ruling may well have determined the position in the 2010 proceedings. 2I will first deal with the narrower question whether the question asked of Mr Whittingham can be supported in respect of the matters raised in the Amended Points of Claim in the 2009 proceedings as amended at the commencement of the hearing pursuant to leave which I then granted. 3The question which was asked of Mr Whittingham went, in broad terms, to whether Mr Whittingham could have proposed a Deed of Company Arrangement at an earlier time contemplating the likely sale of one or both of the properties and providing for payment to creditors and any surplus being paid back to the Club. I asked Mr Gray to formulate, and he did formulate, the criticism of Mr Whittingham's conduct to which that question was directed which was: "By failing to produce a proposed Deed of Company Arrangement in terms that were inevitable and perceived to be inevitable at an early stage in the report to creditors dated 11 December 2008 and specifically paragraph 13.1, Mr Whittingham continued to trade during the period of administration up to the Deed of Company Arrangement ultimately adopted by creditors on 16 March 2009 with the consequence that for two-and-a-half months Mr Whittingham continued the administration and losses, which were unreasonable and excessive and prejudicial to the interests of the client as alleged in paragraph 117 of the Points of Claim. 4I should note that paragraph 13.1 of the Report to Creditors provides that: "The details of which have been generally provided are outline hereunder: That a Deed fund be set up to receive proceeds from the rationalisation of company property holdings; The control and stewardship of the company remain with the Deed Administrator until the election of a new board of directors; and A contribution to the Deed Fund of an amount which will ensure a dividend of 100 cents in the dollar to admitted claims of ordinary unsecured creditors." 5It will be noted there is a significant difference between the way in which the proposition was formulated by Mr Gray, which contemplates an obligation on Mr Whittingham, and the way it is formulated in paragraph 13.1 in the Report to Creditors which is directed to an indication by the directors that they wish to propose a DOCA. 6Mr Gray identified two matters in the Amended Points of Claim which he contends support the proposition which I have set out above. The first is that paragraphs 18(a) and (b) provide that: "On 11 December 2008, the Administrator wrote to members of the Club and stated that he intended during the period of the administration to do the following: (a)to continue to trade the business of the Club; (b)to receive and finalise a deed of company arrangement." 7I regard that paragraph as a pleading of a material fact, namely, the contents of a communication between the administrator and members of the Club. While the formulation of the contents of that communication may or may not be controversial, it is simply a pleading of the content of the communication and not an allegation as to the deficiency in what was sought by it. 8Mr Gray also relies upon paragraph 117 of the Amended Points of Claim, which provide that: "The remuneration incurred and claimed by the Administrator from and after 17 November 2008 was and is: (a)unreasonable and excessive and involved the performance of work which was not necessary for the proper conduct of the administration; (b)related to work performed in trading the Club's business despite the fact that a manager had been retained b the Administrator at significant cost to manage on-going trading of the Club." 9The first of those allegations is confined by the reference to the "reasons pleaded aforesaid". It is a conclusory allegation that follows from the pleadings of fact and the pleadings of conduct and omissions which appears previously in the Amended Points of Claim. The second allegation is specific and relates to the performance of work by the administrator, which it is said to have duplicated work by the manager appointed to run the Club. Neither of those aspects seem to me to support the claim that Mr Gray articulated. 10Mr Gray also relied on a passage from an expert report of Mr Silvia on which the Plaintiffs rely in the proceedings. That report in paragraph 7.3.8 contends that: "... there seems to be no explanation for why the Administrator was unable to ensure that the directors formulated a DOCA proposal during the initial Voluntary Administration period and to have had the proposal available at the second creditors' meeting held on 22 December 2008." 11There are difficulties with reliance on Mr Silvia's report to advance the contention formulated by Mr Gray. First, the Court in this matter has ordered that the matters proceed by Points of Claim, given the complexities involved in the matter. This is a means of identifying the matters in issue and affording procedural fairness to the Defendant consistent with the requirements of ss 56 - 58 of the Civil Procedure Act. In my view, the Defendant should not be expected to review the Plaintiff's expert reports with the intent of identifying matters which might have formed part of the Plaintiff's case, although not raised either by the original Points of Claim or the Points of Claim as amended on the first day of the hearing. I would therefore not regard Mr Silvia's report as expanding the matters raised by the Points of Claim. Second, returning to a matter which I noted earlier, the criticism advanced by Mr Silvia is that Mr Whittingham did not "ensure" that the directors formulated the DOCA proposal, although Mr Sylvia does not explain how Mr Whittingham was to "ensure" that the directors took that course. By contrast, the Plaintiff's claim as formulated by Mr Gray was that Mr Whittingham should himself have formulated the proposal rather than ensuring that the directors do so. That is, in any event, a different claim from that which was raised by Mr Silvia in his report. In these circumstances, I do not consider this matter is raised by the Points of Claim as amended on the first day of the hearing and I disallow the question on that basis. 12No application was made to further amend the Amended Points of Claim. Had such an application been made it seems to me it would have faced significant difficulties, by reason of ss 56 - 58 of the Civil Procedure Act and the fact that the claim now made raises significant new factual matters. The first is whether it would be the usual practice of the administrators to themselves formulate such proposals without reference to stakeholders. The second, if one adopted Mr Silvia's approach, is whether the administrators have the capacity to "ensure" that the directors formulate such a proposal. The third is whether the deed of company arrangement formulated in that manner would in fact have been approved by members at the meeting on 22 December 2008. It is reasonable to infer that Mr Whittingham would have sought to lead further evidence as to these matters had the issue which Mr Gray now seeks to raise been previously identified in the Points of Claim or the Amended Points of Claim. 13I should finally say something about the 2010 proceedings in which I dealt briefly in dealing with an objection to a question prior to the luncheon adjournment. Mr Gray has pointed out that the 2010 proceedings did not themselves involve Points of Claim or pleadings of any kind. In those proceedings, Mr Whittingham under s 449E of the Corporations Act and 9.2 of the Supreme Court (Corporations) Rules, Mr Whittingham seeks approval for remuneration initially for the period 22 July 2009 to 22 August 2010 and by amendment for the period from 23 August 2010 to the conclusion of the proceedings by affidavit in the matter contemplated by the Corporations Rules. 14The 2010 proceedings are listed for hearing together with the 2009 proceedings before me. It seems to me inevitable that the parties and the Court have assumed, to the extent that the Club (which is party to the 2010 proceedings and now also to the 2009 proceedings) opposes the application for remuneration, it does so on the basis articulated in the 2009 proceedings. That assumption seems to me to be a reasonable one in circumstances that paragraph 117 of the Points of Claim as amended pleads that the remuneration claimed by the administrator from and after 17 November 2008 was and is unreasonable and excessive for the reasons pleaded above in the Points of Claim. 15It is therefore not surprising that the Court did not require further Points of Claim to be filed in the 2010 proceedings so as to repeat the allegations made in paragraph 117 of the Points of Claim in the 2009 proceedings. Had there been any contemplation that the issues raised in the 2010 proceedings might differ from those in the 2009 proceedings, I expect that the Court would have ordered Points of Claim in the 2010 proceedings. It has not done so because there was no suggestion that the issues are not the same. 16In those circumstances it seems to me there is no scope for the 2010 Proceedings to expand the matters raised in the 2009 Proceedings. The 2009 proceedings is likely to in turn create an issue estoppel between the parties as to matters raised in them. When a registrar or referee deals with the question of Mr Whittingham in the 2010 proceedings, that will be done with the benefit of the Court's determination in the 2009 proceedings which will bind the relevant parties.