(d) an order setting aside those examination summonses and the order for production (paragraphs 4 and 2).
3 The first contention of Apple is therefore that it is not appropriate that Mr Wily be permitted to continue as the liquidator of Buzzle and that the court should so find. Short of that, Apple contends that Mr Wily's conduct as liquidator has been of such a kind as to warrant inquiry by the court and that such an inquiry should accordingly be instituted. The final fall-back position of Apple is that the examination summonses and order for production should be set aside or, at the least, curtailed.
Basis of Apple's claims
4 Apple's complaints against Mr Wily are, in effect, that he has adopted, in the winding up, a partisan position inconsistent with the impartiality among creditors that a liquidator must maintain and that actions he has taken were not the product of his independent judgment and decision-making but, rather, were taken under the influence of and for the benefit of certain directors of Buzzle or, at least, interests associated with them.
5 The actions Apple challenges on this basis are those involved in the decision to seek the issue of the examination summonses and the order for production, the implementation of that decision and things done in relation to the examinations (or intended examinations - none has yet occurred) after issue of the summonses. Indeed, those actions represent substantially the whole of the actions of Mr Wily as liquidator to date, apart from some consideration of other recovery possibilities. There are no funds available to the liquidator.
The rise and fall of Buzzle
6 It is necessary to recite briefly the history of Buzzle and its relationship with Apple. Apple imports and distributes computer equipment which is distributed through entities known as "resellers". They on-sell and may provide maintenance and repairs. In the first half of 2000, seven of Apple's resellers decided to combine their businesses in a new company with a view to floating that company on the stock exchange. These plans were pursued with the knowledge and co-operation of Apple which, it was envisaged, would be a major creditor of the new company in the ordinary course. Apple made it clear that it would require security for the new company's indebtedness in the form of a general charge over the assets of the new entity and directors' guarantees. Arthur Andersen Corporate Finance played an advisory and co-ordinating role in relation to the merger proposal.
7 A clear need faced by the new entity was for a computer program suited to the reselling operations. One of the participating resellers, Nexbyte, had a system known as "Navision" that had been specially adapted for the particular kind of business. It was intended that that system be available to the new entity but, in the end, Nexbyte was not a participant and its adapted version of Navision was not available. Instead, an unmodified version of Navision was introduced. Deloitte Growth Solutions Pty Ltd ("Deloitte") played a role in the selection and commissioning of the computer system.
8 On 13 September 2000, formal documents creating the merger were executed and the new company - Buzzle - commenced operations. Buzzle created a general charge in favour of Apple which also received guarantees from directors of Buzzle in respect of Buzzle's indebtedness to Apple from time to time.
9 Within a very short time, Buzzle was experiencing difficulties. The Navision system was a problem and there were many complaints from resellers about it. Sales were seriously under forecast. Things did not improve. By March 2001, the debt owing to Apple had reached $22 million and Buzzle was in default. On 30 March 2001, Apple, exercising powers conferred by its charge, appointed receivers and managers of the assets and undertaking of Buzzle. Those receivers are still in office, although it appears likely that their functions are substantially completed.
10 The applicants for the appointment of a provisional liquidator of Buzzle were Aircent Pty Ltd ("Aircent") and Choice Connections Pty Ltd ("Choice"), creditors associated with two of the principals of resellers, Mr Hartono and Mr Liu. There were, at that time, two directors of Buzzle, in addition to Mr Hartono and Mr Liu, being Mr Mekrizis and Mr McComb. The prospective plaintiffs, in the ordinary course, approached Mr Wily to determine his willingness to act as provisional liquidator and liquidator. Upon his giving the appropriate consent, the plaintiffs in those proceedings sought and obtained, on 19 December 2001, orders that Buzzle be wound up provisionally and that Mr Wily be appointed provisional liquidator.
The Commercial List proceedings
11 Before the order for provisional winding up was made - in fact, in April 2001 - Apple had commenced proceedings in the Commercial List of this Division seeking judgment against thirteen defendants for moneys due under guarantees given by them in respect of indebtedness of Buzzle. By the time those proceedings came to trial, the proceedings had been settled except as to certain of the defendants, being Mr Hartono, a relative of his, Mr Liu and two other persons. Those remaining defendants pursued cross-claims against Apple seeking to avoid liability under the guarantees on the basis of, inter alia, unconscionability and misleading and deceptive conduct on the part of Apple.
12 The existence of the Commercial List proceedings and the stage they had reached played a part in the decision of Aircent and Choice to seek the appointment of a provisional liquidator to Buzzle. They took the view that it may be of benefit to creditors of Buzzle, including themselves, that Buzzle become a party to the Commercial List proceedings since it might be in a position to assert and pursue causes of action based on the matters in respect of which the remaining defendants had mounted their cross-claims.
13 The defendants/cross-claimants in the Commercial List proceedings advanced various allegations against Apple. They said that it had, as against Buzzle, engaged in "channel stuffing", that is, a practice of insisting that Buzzle take stock it did not want or need as a "price" for being able to obtain from Apple stock it did need. They also said Apple had supplied defective and obsolete goods to Buzzle; also that Apple had been guilty of misleading the Buzzle promoters in the pre-incorporation phase. There was also a claim that the debt Apple alleged to be owing to it by Buzzle was inflated.
14 In their affidavit in support of the application for the appointment of a provisional liquidator of Buzzle, Mr Hartono and Mr Liu outlined the above potential claims of Buzzle against Apple. They also referred to potential claims against Deloitte (the supplier of the Navision system) and Arthur Andersen Corporate Finance. Also flagged in the affidavit was the possibility of insolvent trading claims against directors of Buzzle (including, perhaps ironically, the deponents themselves), with special reference to the possibility of such a claim against Apple as a de facto or "shadow" director of Buzzle. The affidavit concludes with a statement of the deponents' belief that, because of the proximity of the dates fixed for hearing of the Commercial List proceedings, it is "vital" for a provisional liquidator to be appointed as soon as possible.
Mr Wily's activities as liquidator
15 Mr Wily was appointed provisional liquidator of Buzzle on 19 December 2001. Before the application came on for hearing (in fact, by fax sent on 13 December 2001), Clayton Utz, the solicitors for Apple, informed Surry Partners, the solicitors for the applicants, that their client intended to oppose the nomination of Mr Wily as provisional liquidator by the court and would be "happy to liaise with you" regarding some other choice, assuming that an appointment was made. The ground of opposition to Mr Wily was stated to be, "amongst other reasons", the "close referral relationship" between Mr Wily's firm and the solicitors who had acted for all Buzzle directors "in and about the affairs of the company". The letter concluded by asking that, if the appointment of Mr Wily was to be pressed, he be present in court "so he may be examined on the Certificate of Independence that he has provided to you and the Court".
16 Mr Wily was nevertheless appointed as provisional liquidator. Following his appointment on 19 December 2001, there was a meeting on the same day between Mr Wily, his senior manager Mr Sampson and Messrs Hartono and Liu. Hartono and Liu outlined to the others their concerns about the various matters involving Apple and gave Mr Wily and Mr Sampson a quantity of documents about "channel stuffing". On the next day or soon thereafter, Mr Wily and Mr Sampson went to the office of Surry Partners and spent several hours (almost a full day) reviewing numerous documents made available to them, including books and records of Buzzle and its contractual and security arrangements with Apple. Copies of certain documents were requested and given. These were perused by Mr Sampson following his return to work in mid January 2002 after the Christmas break.
17 On 25 January 2002, Mr Wily and Mr Sampson met with two representatives of Clayton Utz, Apple's solicitors, being Mr Cowling and Ms Ball. An account of the meeting is set out in an affidavit of Ms Ball and, there being no real dispute about it, may be accepted as an accurate record of the substance of the meeting:
"The First Defendant: 'What we are interested in is that something went wrong and we need to know what happened and whether we can sue someone. We have already considered suing Deloittes with respect to the Navison system but are concerned as to what is the damage.'
Mr Cowling: 'The Directors of Buzzle have been complaining about Deloittes from day one. Basically, Buzzle failed because of them. What I'm more concerned about is ensuring that there is no delay with the commercial list proceedings commenced by Apple.'
The First Defendant: 'We're looking at it. It's the fourth job we've been appointed to urgently by directors and we are considering our position.'
Mr Cowling: 'Do you have copies of the pleadings and affidavits?'
The First Defendant: 'We have some but not all.
Mr Cowling: 'We can send you a complete list of documents and you can tell us what you need and we will provide copies to you. It is our suspicion that those directors, Hartono and Liu, only appointed you to get rid of the hearing date on 8 April 2002. We know that they are desperate to avoid that hearing date.'
The First Defendant: 'I understand you have settled with some parties.'
Mr Cowling: 'Not with your appointors.'
The First Defendant: 'The other claim is in relation to "channel stuffing" which I see to be a huge problem for Apple where Apple, as manufacturer, forces its resellers to take a product.'
Mr Cowling: 'That allegation has been made and you, as the provisional liquidator, can take that claim on. It would be a matter for you. They have not got any evidence to support that claim and, in any event, Apple took back what was not sold and gave full credit to those resellers. I do want to emphasise that we do not want to lose the hearing date and want to be in a position where you are fully up-to-date with the proceedings.'
The First Defendant: 'I will have to decide whether to get involved.'
Mr Cowling: 'What I would suggest is that you apply to be added as a party subject to any question of costs.'
The First Defendant: 'It would no doubt take a long time to generate evidence. Nothing obviously will happen until I am appointed as liquidator, however, at this time I would say there would be a fairly remote chance of any joinder.'
Mr Cowling: 'We are happy to give you details of the Receivers' investigations with respect to any potential preference claims or other actions that may be commenced on behalf of Buzzle. If you do intend to seek to join the proceedings, we will move heaven and earth to get you up to speed and provide you with any pleadings and affidavits in addition to the Receivers' reports. What we will do is drop you a line with respect to what claims or preferences the Receivers have investigated are potentially there. We have also subpoenaed Andersons' files who have said that they need to speak with you in relation to that.'
The First Defendant: ' I have not looked at them.'
Mr Cowling: 'Apple may well consider funding any of the actions that the Receivers have mentioned that we have talked about.'
The First Defendant: 'I understand that there is also a claim against Apple for shadow directors.'
Mr Cowling: 'That claim has not been pleaded although it has been briefly raised in an affidavit in the commercial list proceedings. In any event, we have looked at that claim and it is nonsense. I do not believe that the directors have any standing for that claim and, in any event, it is not a claim that can go to setting aside the guarantee given by them in favour to Apple. We will write and let you know what the Receivers have noted as potential actions for a liquidator and Apple may look at funding you to further investigate those matters.' "
18 By the time this meeting took place, Apple's Commercial List proceedings had been fixed for hearing for two weeks commencing on 8 April 2002. The relative proximity of the hearing days and Apple's strong desire not to lose them would explain Apple's willingness to "move heaven and earth", in Mr Cowling's words, to get Mr Wily "up to speed" should he be interested in having Buzzle joined as a party.
19 In the period of about six weeks after the meeting on 25 January 2002, Clayton Utz wrote at least four letters to Mr Wily updating him on matters related to the Commercial List proceedings and generally encouraging him to become involved. He did not reply.
20 The defendants in the Commercial List proceedings did not share Apple's desire to keep the hearing dates in early April 2002. Indeed, Mr Brott, a Melbourne solicitor acting for the defendants in those proceedings who retained Surry Partners as his Sydney agent, had an entirely different objective. In a judgment of 9 April 2002 on an adjournment application in the Commercial List proceedings, Bergin J referred to correspondence of early March from Mr Brott to Mr Russell of Surry Partners and to counsel in which he referred quite openly to a need to "derail" the proceedings. A file note of a conversation Mr Sampson had with Mr Brott on 19 March 2002 shows (and Mr Sampson confirmed in cross-examination) that Mr Brott told Mr Sampson of Mr Brott's desire to "derail proceedings". Significantly, in the view of Apple, that was said in the course of a conversation in which Mr Brott and Mr Sampson were discussing examination by Mr Wily, as liquidator, of executives of Apple.
21 Ms Ball of Clayton Utz deposed to a telephone call on 15 March 2002 in which Mr Wily asked her for help in working out the amount of the debt owed by Buzzle to Apple. Ms Ball told Mr Wily that the amount owed at the date of the merger was about $15 million but she did not know how much had been recovered by the receivers appointed by Apple under its charge. Mr Wily refers to this conversation in his affidavit and says he did not receive any information from Clayton Utz and believed that they and therefore Apple were being obstructive and were unwilling to provide the information. That, it seems to me, was an inappropriate conclusion to draw from what Ms Ball had said. Mr Wily later obtained information about the Apple debt from the receivers. Mr Wily and Mr Sampson had had a meeting with the receivers on 31 January 2002 at which they had obtained information about the business and activities of Buzzle.
22 Another matter concerning the charge given by Buzzle to Apple must be mentioned. Mr Sampson said in his affidavit that, after seeing a copy of the charge document made available by Surry Partners, he became suspicious because it appeared that the receivers were appointed six months and two weeks after the ostensible date of the charge, but the date on the document appeared to have been changed. He says that the original date was within the six months period and raised the possibility that the charge may have been void. He is obviously referring here to the possibility arising under s.267 of the Corporations Act.
23 Mr Sampson also gave evidence that, in mid-February 2002, he recommended to Mr Wily that Apple personnel should be examined. He was, at that time, of the view that there was no similar need in relation to the directors or former directors of Buzzle since some of them were co-operating and providing information (including Mr Mekrizis, despite his failure to furnish a formal report as to affairs), added to which he considered at least two of them likely to become bankrupt. He did not rule out the possibility of proceedings against some directors, however. Nor did he rule out the possibility of proceedings against Arthur Andersen Corporate Finance, Andersen Legal or the receivers.
24 On 26 March 2002, Mr Wily swore an affidavit in support of his application for the issue of the examination summonses and order for the production of documents. In that affidavit, he outlined the various matters into which he wished to inquire. There are, of course, constraints of confidentiality in relation to such an affidavit stemming from s.596C(2) and the general principle that a liquidator is entitled to keep from a prospective examinee details of the areas to be investigated, the procedure for examinations being "predicated on the premise that the examinee is not to be forewarned": Re Excel Finance Corp Ltd; Application of England (1993) 10 ACSR 255 at 282. It is sufficient to say that Mr Wily outlined an intention to inquire into a number of matters the nature of which is predictable in the context and reference to which here in general terms will not compromise confidentiality, particularly in light of the content of Bergin J's judgment in the Commercial List proceedings. These include the date when Buzzle could be said to have become insolvent, the effectiveness of Apple's charge, the possible status of Apple as a de facto or "shadow" director of Buzzle and possible causes of action against Apple. The persons to be examined were not only six Apple employees but also three former officers of Buzzle.
25 There is in evidence an email from Mr Russell of Surry Partners to Mr Sampson dated 19 March 2002 with which were transmitted ten Microsoft Word documents. The email reads:
"Please find attached the draft affidavit for Andrew and 9 x examination summons - 3 x ex-Buzzle staff and 6 x Apple staff.
I have not included a schedule of documents in any summons for any person to produce because I do not believe that anyone will have any documents (which they own) that would be relevant. I suspect that you will need to serve a Subpoena to Produce on Apple and possibly the receivers to obtain relevant material. Also, you could apply for an order that documents produced by Apple in our case be available for use in the examination.
As discussed, we are eager for Andrew to file the application for a public examination ASAP - and certainly this week. Anthony McLellan wants to be able to get something moving this week re: media.
Would you please discuss with Andrew and let me know what's happening. I have a couple of messages for Andrew to call me back."
26 Mr Sampson gave evidence that, upon receipt of this email, he forwarded the ten documents to MBP Legal, the solicitors acting for Mr Wily in relation to the Buzzle liquidation. He also testified that he instructed MBP Legal to prepare the form of affidavit and summonses used in Mr Wily's application of 26 February 2002. He said that he did not "retain" Surry Partners to produce the drafts sent with their email, in the sense of paying that firm to do that work. It is clear, however, that the drafts were prepared by Surry Partners with Mr Sampson's knowledge and concurrence. It may, I think, be safely inferred that the ten drafts Mr Sampson received from Surry Partners were used by MBP Legal in some way when they prepared the documents Mr Sampson instructed them to prepare. Just how they were used cannot be said.
27 The email of 19 March 2002 contains a reference to "Anthony McLellan". He was a media consultant employed by the defendants in the Commercial List proceedings to help with publicity matters.
28 Mr Russell of Surry Partners spoke to Mr Sampson by telephone on 22 March 2002. Mr Sampson was unable to remember much about the conversation but his file note records details which are consistent with Mr Russell's having given him some guidance as to how to go about obtaining the issue of examination summonses. In addition, however, Mr Sampson wrote, with double underlining, "Chris Perry" followed by "docs sent up". Ms Christine Perry is one of the solicitors at MBP Legal engaged on the Buzzle matter for Mr Wily.
29 On 3 April 2002, Mr Russell wrote Mr Wily a letter to which Mr Wily replied on 5 April 2002. The evidence suggests that the exchange of correspondence was agreed in a prior conversation between Mr Russell and Mr Sampson. By the 3 April letter, Mr Russell asked for details of the examinations Mr Wily proposed to undertake (dates, persons, subjects and possible future action). Mr Wily's reply of 5 April 2002 gave the requested information in brief form.
30 Among the information thus given by Mr Wily to Mr Russell was the fact that the examination dates that had been obtained were 9, 10 and 11 July 2002. That fact had already appeared in press reports published in The Sydney Morning Herald, the Age and the Australian Financial Review on 28 March 2002, from which I infer that it had been given by Mr Wily or Mr Sampson (probably the latter) to Mr Russell orally - before the exchange of letters on 3 and 5 April 2002. There is nothing in the evidence to suggest that Mr Wily or anyone on his behalf ever had contact with Mr McLellan, the media consultant retained by the defendants in the Commercial List proceedings.
31 Each of the press articles published on 28 March 2002 was mainly about the Commercial List proceedings but contained at the end a brief reference to Mr Wily's move to examine parties associated with Buzzle. The examination dates were mentioned in two of the articles. A statement of Mr Wily that he was of the view that Buzzle had been "insolvent from day one" and that there were "other major problems" appeared in all three. On the day before publication of these articles, Clayton Utz wrote to Mr Wily saying that Ms Ball of that firm had been phoned by a journalist who had said that he or she had been speaking with Mr Wily about his proposed examinations, they having been mentioned in court that morning by counsel for defendants in the Commercial List proceedings. Clayton Utz said:
"Frankly, we are astounded at the lack of courtesy that you have extended to this office and our client in advising litigants in an adversary position to our client as well as the media of the existence of public examinations, without first notifying us or our clients."