Barnes v Addy

RE: TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED) (ACN 000 609 601)

TIETYENS INVESTMENTS PTY LTD (RECEIVER AND MANAGER APPOINTED) (ACN 000 609 601) v HIGHBURY GARDENS PTY LTD (CONTROLLER APPOINTED) (ACN 070 705 789)

CAMCOR PTY LTD (IN LIQUIDATION) (ACN 058 064 716) & ORS v TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED) (ACN 000 609 601) & ORS

RE: TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED) (ACN 000 609 601)

BETWEEN: TIETYENS INVESTMENTS PTY LTD (RECEIVER AND MANAGER APPOINTED) (ACN 000 609 601)

AND: HIGHBURY GARDENS PTY LTD (CONTROLLER APPOINTED) (ACN 070 705 789)

BETWEEN: CAMCOR PTY LTD (IN LIQUIDATION) (ACN 058 064 716)

AND: TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

In proceedings No VG 3352 of 1997 and No VG 3353 of 1997

THE COURT ORDERS THAT: 1. Each application brought pursuant to s 477(2A) of the Corporations Law seeking approval of the compromise of a debt be dismissed. 2. The Court directs, pursuant to s 479(3) of the Corporations Law, that Mr David Lombe, as liquidator of Tietyens Investments Pty Ltd (In Liq), being satisfied in reliance upon the advice of Mr RM Garratt QC that it would not be in the best interests of the Tietyens investors to implement the settlement agreement arrived at on 26 May 1998, may act upon that advice and not implement that agreement.

THE COURT ORDERS THAT:

1. The application be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

RE: TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

BETWEEN: TIETYENS INVESTMENTS PTY LTD (RECEIVER AND MANAGER APPOINTED)

AND: HIGHBURY GARDENS PTY LTD (CONTROLLER APPOINTED)

BETWEEN: CAMCOR PTY LTD (IN LIQUIDATION) (ACN 058 064 716)

AND: TIETYENS INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED)

REASONS FOR JUDGMENT The proceedings before the Court 1 There are before the Court two notices of motion, each dated 1 September 1998, in proceedings VG 3352 of 1997 and VG 3353 of 1997. Mr David Lombe, the liquidator of Tietyens Investments Pty Ltd (In Liq) ("TI") and of Highbury Gardens Pty Ltd (In Liq) ("HG") seeks the approval of the Court pursuant to s 477(2A) of the Corporations Law for the compromise of a debt said to be owing by various interests associated with Mr Darren Moses to TI. In the alternative, Mr Lombe seeks directions from the Court pursuant to s 479(3) of the Corporations Law in relation to the compromise of that debt. These proceedings may be described as "the liquidator's applications". 2 By application filed on 25 November 1998 in proceeding VG 3383 of 1998 various individuals and corporate entities associated with Mr Moses ("the Moses interests") seek declaratory and injunctive relief against each of Mr Lombe, TI, HG and various others. That relief, if granted, would be tantamount to the Court granting approval to the proposed compromise, or directions being given to that effect, in the liquidator's applications. The application by the Moses interests was brought essentially because there was doubt as to whether those interests have standing to be heard in the liquidator's applications. If such standing were to be accorded, and the Court's sanction of the compromise obtained, it is unlikely that there would be any real purpose in maintaining this application as a separate proceeding.

The background to the liquidator's applications 3 The factual background to the liquidator's applications is extremely complex. What follows is no more than a broad synopsis which summarises in a general sense some of the matters which are relevant to those applications. A number of these matters are contentious and, in the narrative which follows, it should not be assumed that I have made any findings whatsoever in relation to any facts which are in dispute. 4 In broad terms what appears to have occurred is as follows. TI was incorporated in New South Wales under a different name on 7 February 1968. It became TI on 11 November 1993. Its registered office was that of a firm of solicitors known as Tietyens Solicitors. Its directors were Peter Sharp, Geoffrey Romero and Paul Robb, all of whom were partners in that firm. Tietyens Solicitors had operated in Albury for almost 100 years. 5 Mr Lombe is a partner in the firm of Deloitte Touche Tohmatsu, Chartered Accountants. He was originally appointed receiver of the property of Messrs Sharp, Romero and Robb by the Supreme Court of New South Wales on 19 December 1996 on the application of the Law Society of New South Wales. He was appointed receiver and manager of TI on 23 December 1996 by that same Court. On 10 March 1998 he was appointed liquidator of each of TI and HG by the Federal Court. Since his appointment as receiver and manager of TI, Mr Lombe has conducted extensive investigations into the affairs of Tietyens Solicitors, and into the affairs of TI. 6 Tietyens Solicitors had, for many years, operated a mortgage lending practice. That practice had, in recent years, expanded substantially. Loans on behalf of clients/investors were made through TI which held the relevant mortgage securities on trust for the various investors. TI did not have its own bank account. It conducted its transactions through a trust account operated by Tietyens Solicitors. 7 As a result of his investigations, Mr Lombe has concluded that those who invested funds with TI ("the TI investors"), of whom there were about 1,000, are owed approximately $46 million. An amount of $12 million has been recouped by the sale of TI's immediately realisable assets. That leaves $34 million outstanding. 8 TI's only remaining asset is a debt which is owed by a company now known as Highbury Gardens Pty Ltd (In Liq), or HG. That company was incorporated originally in New South Wales on 11 August 1995 under the name Tally Ho Towers Pty Ltd ("THT"). It changed its name on 14 May 1996 to Tally Ho Village Pty Ltd ("THV"). It changed its name again on 12 December 1996, this time to HG. HG's debt to TI was, at one time, secured by a series of first mortgages. TI effectively relinquished those mortgages in circumstances which are set out below. 9 In order to understand how HG came to owe this vast sum to TI, it is necessary to go back to May 1993. In that month, TI lent $650,000 to a group of companies associated with a Mr Steven McLean. That loan was secured by a first mortgage over certain vacant land at Narooma, on the south coast of New South Wales. This land was considered appropriate for subdivision. Mr Lombe has concluded that TI had no authority to lend its investors' money for such development purposes. It acted in breach of written lending authorities. He has also concluded that virtually all loans which were subsequently made by TI to the McLean group were in breach of these lending authorities. 10 The amount lent by TI in connection with the Narooma land soon increased. By August 1993 it had grown to $2,395,000. At about this time, a McLean entity, South Pacific Premier Projects Pty Ltd ("SPPP"), acquired a block of vacant land at "Lot 4" of what is described as the "Tally Ho site", at East Burwood, in Melbourne. It was intended to subdivide that lot into residential allotments. The purchase price was $1.8 million. The money was provided by TI. The loan was secured by a first mortgage over the property. 11 In subsequent months further funds were advanced to the McLean group by TI. Those funds came from the TI investors. The McLean group applied these funds to the subdivision at Narooma, and to the development works at Lot 4. They were also used to pay interest on the earlier loans. 12 Towards the end of 1994 SPPP purchased "Lot 5" at the corner of Springvale Road and Highbury Road in Melbourne. The price was $1 million. Once again, this sum was provided in full by TI. The loan was secured by a first mortgage. Lot 5 consisted of vacant land. It was considered by the McLean group to be appropriate for the development of a retirement village. 13 By the end of 1994 SPPP's debt to TI was $12,276,000. At that stage, none of the relevant real estate projects had generated any revenue to enable payment of interest. Such interest as had been paid came from deductions from further capital advances. 14 At around that time a dispute had arisen between TI and SPPP. The Narooma land had been neither subdivided, nor sold. TI had received nothing from that project. It had determined that it would discontinue providing funds for the development of Lot 4, and it notified SPPP of that fact. 15 SPPP then found a new financier. This was Newlite Investments Pty Ltd ("Newlite"), a company controlled by Mr Moses. Newlite indicated that it would provide funding for the development of Lot 4 provided TI relinquished in favour of Newlite its security over that block. TI agreed to do so, and Newlite advanced the sum of $4,261,484 to SPPP. This particular development was successful. Virtually all residential lots were sold. Newlite was repaid all monies which it had advanced, together with the sum of $1,452,800 as fees and interest. Substantial fees were paid to Tietyens Solicitors. Some small amounts were paid to TI as well. 16 Following the completion of the development and sale of Lot 4, on 26 June 1995 TI, Newlite, SPPP and various other individuals and corporate entities, entered into an agreement designed to deal with the development of Lot 5. Included among the parties to that agreement were a Mr and Mrs Needham. They lived in the Albury area. They agreed to make available $4 million for the development of Lot 5. That agreement was not, however, implemented, for reasons which are set out below. 17 SPPP continued its development activities throughout 1994 and 1995. On 9 August 1994 it entered into a contract with the Australian Broadcasting Commission ("the ABC") to acquire the Radio Australia Building located on Burwood Highway near the corner of Springvale Road. This was "Lot 1". The purchase price was $7,150,000. TI once again provided the deposit. SPPP was unable, however, to complete the contract because TI, as a result of its dispute with SPPP, declined to provide the balance of the purchase price. The ABC rescinded the contract. Subsequently, TI decided to acquire Lot 1 itself for the purpose of refurbishing it, and converting it into retirement apartments. THT was the corporate vehicle used for that acquisition. On 16 August 1995, it agreed to acquire the property for $5,850,000. The contract was settled on 12 October 1995. The entire purchase price was provided to THT by TI. 18 Following THT's acquisition of Lot 1 the question arose as to how to finance its development. On 3 December 1995, TI, THT, SPPP and Camcor Pty Ltd ("Camcor") (a company also associated with, and controlled by, Mr Moses) entered into a written agreement ("the December 1995 agreement"). The object of that agreement was for the lenders, TI and Camcor, to provide development funds to THT. TI would advance the sum of $12,183,000. This was described in the agreement as the "Tietyens Investments Input". The agreement also referred to the sum of $12,276,000 (which had previously been advanced by TI to SPPP to develop the Narooma land, and to develop Lot 4) as the "Tietyens Investments Advance". THT was to assume responsibility for repaying TI the sum of $12,276,000 by using what was described as the "Net Project Surplus" (meaning other funds made available by the lenders). SPPP was precluded from taking any further part in the future development of any of these projects. Mr McLean's poor reputation in the Retirement Village industry had become a liability and it was perceived that there was a need to conceal, or disguise, his involvement. SPPP was to be paid the sum of $100,000 per month to refrain from any further involvement with these development projects. 19 Also under the December 1995 agreement Camcor covenanted to make available a contribution not exceeding $1 million ("the Camcor Input"). It was to receive $1 million in return for this covenant. On one view of this agreement, this sum was payable to Camcor irrespective of whether or not it actually advanced any money. In addition, a fee of $2,750,000 was to be paid by THT to Camcor ("the Camcor Fee"). There were also overheads payable to Camcor fixed at $25,000 per month ("the Camcor Supervisory Overheads"). 20 The December 1995 agreement made provision for the payment of an amount of $6 million. This was termed the "Tietyens Investments Fee". The liquidator contends that this $6 million was intended to be paid to the partners of Tietyens Solicitors, to be retained for their personal benefit. 21 The development project was financed ultimately exclusively by TI. Camcor provided no funds. The practice was for monthly draw down notices to be sent by THT (later known as THV, and finally HG) to TI, often for large amounts of up to $2 million. TI would, in turn, procure money from the TI investors in order to arrange payment of the sums drawn down. The project at no stage generated any revenue. From each capital advance made by TI large amounts were deducted as retention of interest, fees to various parties, payments to Camcor, and payments to Tietyens Solicitors. Amounts retained from monthly draw downs were applied in payment of interest to the TI investors whose funds were being provided to the Tally Ho project. They were also applied in payment of interest to the original TI investors who had provided the sum of $12,276,000 in relation to the Narooma development. These latter investors were, of course, in no way involved in the development of the Tally Ho site. 22 The liquidator contends that between November 1995 and December 1996 the following fees were paid to Camcor, or at its direction. (a) Camcor Supervisory Overheads - From November 1995 to December 1996 - $350,000. (b) Camcor Input - between July 1996 and December 1996 - $595,000. (c) Camcor Fee - between November 1995 and December 1996 - $700,000. (d) Other payments - Newlite is said to have owned a residential property (occupied by Mr Moses and his family) at 66 Glyndon Road, Camberwell. It also owned a property situated at Bright, in north-eastern Victoria. These properties were generally renovated and furnished in 1996. The aggregate cost was $536,550. All invoices for these works were sent to HG, and paid by that company, from funds advanced by TI in the course of its monthly payment of draw down notices. (e) Legal fees of $102,732 were paid to Mr Moses. (f) Although the December 1995 agreement was not executed until 3 December 1995, some payments were paid to Newlite prior to that date, apparently in anticipation of that agreement. Camcor replaced Newlite as the relevant Moses corporate entity when the agreement came to be executed. The amount paid to Newlite prior to that date was $102,000. 23 An obvious drain on the project was the large monthly payments to SPPP. HG received no apparent benefit from these payments other than procuring the absence of the McLean interests from the project. The total amount paid out to SPPP from November 1995 to late 1996 was $1,075,000. Bearing in mind that no revenue was being generated, the payment of this amount, and the other large fees set out above, meant that the project had little prospect of being successful. 24 By the middle of 1996 there were further disputes between the McLean group on the one hand and the TI/HG/Camcor group on the other. Mr McLean apparently believed that TI had acted improperly in taking the Lot 1 project from him by declining to make funds available to enable his group to complete the purchase. It will be recalled that when the ABC rescinded the contract, TI had itself, through THT, purchased Lot 1. 25 Eventually, it was agreed to permit the McLean group to sever all ties with the entire project on the basis that TI was paid a total of $2.3 million. In exchange for this sum, TI would release SPPP, and all associated parties, from all guarantees. It would also discharge all mortgages over the Narooma property together with mortgages over a small number of lots remaining unsold out of Lot 4. The monthly payments to SPPP would, of course, cease. In effect, this agreement involved TI accepting $2.3 million in settlement of a first mortgage secured debt of $12.276 million. 26 Pursuant to these arrangements a formal agreement was entered into on 15 November 1996. The parties were TI and THV, as it was then known. That agreement purportedly imposed upon THV a secured obligation to pay TI the balance of the SPPP debt - namely $9.976 million, the difference between $12.276 million, and $2.3 million. 27 The liquidator notes that the authenticity of this agreement has been challenged. Mr John Caines, the project manager, and a director of THV at the time, denies ever having executed the agreement on behalf of that company. 28 Throughout 1997 Mr Lombe, in his capacity as receiver and manager of TI, conducted a public examination into the affairs of that company pursuant to the provisions of the Corporations Law. Some twenty persons were examined. Mr Lombe says that throughout 1997 both the public examination, and his general investigation into the affairs of TI, were opposed by the Moses interests. Mr Moses expressed the view at that time that the Law Society had acted precipitately, in December 1996, in appointing a receiver and manager to TI. 29 By the end of 1997 the Lot 1 development was well advanced, but not complete. Mr Lombe received advice from Richard Ellis Estate Agents that he should not endeavour to complete that development, but put it up for sale. In other words, TI should cease providing development funds to HG, and simply sell up. 30 There were immediate objections from the Moses interests. Mr Moses indicated that he would not withdraw Camcor's caveat over the property unless his terms were met. Not surprisingly, Lot 1 proved difficult to sell. Camcor claimed to be a creditor of HG in the sum of approximately $1,947,000. That represented the balance allegedly owing to Camcor under the December 1995 agreement as part of the Camcor Input and the Camcor Fee. The liquidator received written advice concerning Camcor's claims in May 1997 from Mr RM Garratt QC and Mr SP Gardiner of counsel. He rejected those claims upon the basis of that advice. Nonetheless, he had to find a method of overcoming the impasse which was preventing Lot 1 from being sold. 31 In order to enable that sale to take place, Mr Lombe told Mr Moses that he was prepared to withhold from the proceeds of any sale, and to lodge in a joint account, an amount sufficient to cover Camcor's claims, provided that Mr Moses would cooperate in withdrawing the Camcor caveat. An agreement along these lines was arrived at in late September 1997. 32 In effect, the liquidator agreed to withhold from the proceeds of the sale of Lot 1 the amount of $1,947,000 plus $150,000 costs, a total of $2,097,000, provided Camcor withdrew its caveat, and undertook not to do anything which might interfere with the sale. The agreement also provided that, after the sale had been settled, Mr Lombe would provide Camcor with his reasons, in writing, for denying the validity of Camcor's claims. It was agreed that Camcor would then respond in writing. If an agreement could not be reached, the liquidator would institute proceedings to have the question of those claims determined by the Court. 33 Lot 1 was sold in November 1997 for $10,594,889.44. The sale settled in February 1998. In accordance with the terms of the September 1997 agreement an amount of $2,097,000 was placed on deposit with the Commonwealth Bank of Australia in the joint names of TI and Camcor. 34 On 2 March 1998 Mr Lombe's solicitors, Messrs Cornwall Stodart, wrote to Mr Moses setting out the liquidator's reasons for denying Camcor's claim. On 20 May 1998 Mr Moses wrote to Cornwall Stodart providing Camcor's response. This correspondence was annexed to Mr Lombe's affidavit of 31 August 1998 in support of the liquidator's applications. It sets out in considerable detail the competing contentions regarding the claims made by Camcor arising out of the December 1995 agreement. Importantly, it does not traverse any wider issues concerning the possible liability of the Moses interests for the alleged misfeasance of the partners of Tietyens Solicitors. This is a matter to which I shall return.

The compromise agreement of 26 May 1998 35 On 19 May 1998 a conference was held between Mr Garratt QC, Mr Gardiner of counsel, and Mr Eather of Cornwall Stodart with a view to considering, among other things, a forthcoming conference between Mr Lombe and the Moses interests. The purpose of the forthcoming conference was to see whether the dispute concerning the claims made by Camcor under the December 1995 agreement could be settled. Mr Lombe did not attend the conference of 19 May 1998. However, he was told by Mr Eather that neither counsel suggested that there was any fundamental objection to settling with the Moses interests. 36 The settlement conference was held on 26 May 1998 at the offices of Cornwall Stodart. The Moses interests were represented by Mr Moses, Mr M Sifris of counsel, and Mr Kenneth Stout, who is a registered liquidator, and a partner in Ernst & Young. Mr Lombe attended together with Mr Gardiner and Mr Eather. 37 Mr Lombe has outlined in his affidavit of 31 August 1998 his recollection of the course of events at the settlement conference. He states that early on in the discussions Mr Moses made a settlement offer to the effect that, of the $2,097,000 held in the joint account of TI and Camcor, TI should receive $1,650,000 plus all interest accrued on the total sum, and Camcor the balance. Mr Lombe rejected this offer. He told Mr Moses that he considered that TI should receive the entire amount held in the joint account. He also told Mr Moses that there should be a further payment by Camcor in respect of the payments which it had received under the December 1995 agreement. After many hours of further discussion, and negotiation, an agreement was finally reached between the parties later that day. The terms of that agreement are set out below. 38 Mr Moses has a somewhat different recollection of the earlier sequence of events. His version is set out in his affidavit of 18 November 1998. It is supported, in general, by Mr Stout. During the first hour of discussions, the advisers acting for both sides advanced legal arguments in relation to all matters in contention. Mr Moses says that each of the liquidator's contentions in Mr Eather's letter of 2 March 1998 concerning alleged breaches of trust by Newlite and Camcor, and the supposed applicability of the rule in Barnes v Addy (1874) LR 9 Ch App 244 in respect of payments received by each company, was specifically rejected, just as they had been in Mr Moses' letter to Mr Lombe of 20 May 1998. 39 Mr Moses accepts that after this opening salvo he made the initial offer of settlement to which reference was made by Mr Lombe. That offer, as Mr Lombe stated, had been rejected. After further lengthy negotiations, Mr Moses and Mr Lombe finally agreed that Camcor would retain only $250,000 of the amount of $2,097,000, plus accrued interest, held on joint deposit. The consideration for Camcor relinquishing its claim to the balance of the money would be the execution of absolute releases for Camcor, Newlite and Mr Moses from all alleged, or potential, claims by TI and HG. The consideration for Mr Lombe's agreement that Camcor retain the sum of $250,000 was to be the execution of absolute releases for TI, HG and Mr Lombe himself from all claims which Camcor might maintain against each of those parties. 40 Mr Moses stated: "The final settlement was primarily delayed due to discussions in respect to (sic) Newlite. Mr Lombe stated that his Counsel believed, in view of breach of trust arguments, that Newlite should actually repay some of the amounts it had received. Mr Lombe argued that this could be done by offset. He suggested that if Newlite was prepared to accept a separate liability to repay $250,000, then the overall matter could be settled by Tietyens simply retaining the full amount of $2,097,000 held on joint deposit. I stated to Mr Lombe that we had been through the breach of trust and Barnes v Addy arguments relating to Newlite, both earlier that day and in previous discussions, and that they were not accepted by Mr Sifris or myself. I reiterated that in any event, the strength of those arguments as perceived by Mr Sifris, Mr Stout and myself had been taken into account and allowed for when formulating Camcor's agreement to relinquish approximately $1,750,00 of its claim. Mr Lombe then said, "…yes, okay, we've never really believed we could get up on Newlite anyway …". At that point Mr Lombe stated that he wished to confer further with his legal advisers. Approximately 15 minutes later, Mr Lombe returned to the room and said that he would settle without the requirement of any actual or offset payment from Newlite. However, he again requested that Camcor retain a lesser amount from the funds held on joint deposit. I refused. After several more minutes of discussion, Mr Lombe stated that he would now agree to the settlement which I had proposed …" 41 Mr Moses said that, at the end of the settlement conference, when agreement was reached, Mr Eather, at the request of Mr Lombe, drafted the terms of settlement. 42 Mr Stout said in his affidavit of 18 November 1998 that it was only after the first draft had been reviewed that Mr Lombe stated that he required a clause to be inserted to deal with the provision of financial information. According to Mr Stout, this was the first time that this issue was raised. Mr Stout said that Mr Lombe then stated, also for the first time, that he required the settlement agreement to be subject to Court approval. Mr Stout said that he queried the need for Court approval with Mr Lombe. He said that he told Mr Lombe that, in his professional view, the settlement was not a debt compromise arrangement. It did not, therefore, require Court approval. Mr Stout said that Mr Lombe stated that he needed to be protected, and required the settlement agreement therefore to be subject to Court approval. The first version of that agreement was signed by Mr Lombe, and by Mr Moses, on 26 May 1998. It was witnessed by their respective counsel. 43 Mr Stout's position is that the agreement reached on that date was, and is, in the interests of the TI investors. He stated in his affidavit: "From the perspective of an experienced Court Liquidator, I am aware on the basis of the legal opinion which Mr Moses has received, that Mr Lombe would face an extended and difficult Court battle in any attempt to recover the benefits arising out of the allegations which he has made. I have not sought my own legal opinion nor attempted to better estimate both the costs and time frame in which those allegations may be resolved. However, my preliminary estimate is that no Court result would be achieved under 2 years and that the legal costs may well exceed $500,000 for each side, excluding the costs of the Liquidator himself. The settlement as reached on 26 May 1998 would release immediately to the Liquidator almost $2,000,000 without further legal battle and costs. Given the figures set out by Mr Lombe in his affidavit sworn on 31 August 1998 I believe that the benefit to the creditors of Tietyens in accepting the existing settlement, would approximate the benefit to be gained if the claims which have been alleged by the Liquidator are successful. On balance, I cannot see at first glance how the Liquidator stands to obtain any better outcome in financial terms than that which he obtained under the settlement of 26 May 1998." Mr Stout continued: "I am aware that this Honourable Court has asked for a submission as to why the current motion brought by Mr Lombe is in the best interests of creditors. I can only say that if the motion is not approved, then Mr Lombe will be subjected to a long, costly and difficult Court process in order to extract monies for investors who I know, from the public meeting which I attended in Albury on 20 December 1997, have been seeking certainty as to when they can expect to receive payment from Mr Lombe. As Joint Liquidator of Camcor, I would also be compelled to consider, given my knowledge of, and strength of, senior legal opinion which Camcor has received to date, whether action should be taken by the company against Mr Lombe to seek either enforcement of the Settlement Agreement or recovery of the full amount of almost $2,000,000 currently held in the joint names of Camcor and Tietyens with the Commonwealth Bank of Australia. I would also be compelled to consider whether to pursue the other allegations which gave rise to Camcor's loss, as raised against Tietyens and others, including Mr Lombe. A refusal of the current application before this Honourable Court is not, in my professional view and in the knowledge which I hold in relation to this matter, in the best interests of the creditors of Tietyens or of Highbury. However, that result may ultimately be in Camcor's best interests." 44 The agreement executed on 26 May 1998 contained very general mutual releases covering each of Camcor, Newlite and Mr Moses. Clause 10 provided that: "… The parties shall execute a formal agreement as soon as is possible, which shall be the agreement to be produced to the Court on the application for compromise but this agreement otherwise remains binding on the parties." 45 A formal agreement was executed on 29 June 1998 to give effect to this requirement. It did not differ in any significant respect from the first version signed on 26 May 1998. Clause 7 of the 26 May 1998 agreement provided that the agreement was: "… subject to Mr Lombe obtaining the approval of the Court to the terms hereof." 46 Mr Moses claimed in his affidavit of 18 November 1998 that there was no suggestion at the settlement meeting of 26 May 1998 that any further advice from Mr Garratt, or anyone else, would need to be obtained in order to approve the compromise. He stressed the fact that Mr Gardiner, a very experienced counsel who had been involved in the affairs of Tietyens Solicitors for a substantial period of time, had attended the settlement meeting as counsel. He said that it was at Mr Lombe's insistence that the agreement was signed on 26 May 1998 though there had been nothing to prevent Mr Lombe from awaiting Mr Garratt's views before he signed it. Mr Moses pointed out that Mr Lombe could have insisted that the agreement contain a clause making it conditional upon obtaining Mr Garratt's approval to its terms, but that had not been done. He said that both Mr Lombe and Mr Gardiner had made it plain at the conclusion of the settlement conference that they considered the agreed settlement to be in the best interests of the TI investors. Mr Moses stated that he had considered the application for Court approval to be little more than a formality. 47 Mr Lombe, in an affidavit in reply filed on 25 November 1998, disagreed with certain aspects of this account of the events of 26 May 1998. He said that during the course of the settlement discussions, both he and Mr Eather had stated explicitly that they would need to obtain the opinion of Mr Garratt in relation to the proposed settlement, as that opinion would need to be placed before the Court. According to Mr Lombe, it was made abundantly clear that Mr Garratt, and not Mr Gardiner, would be providing the opinion. There was no dissent by Mr Moses, Mr Stout, or Mr Sifris from this proposed course. Mr Lombe also said that the pressure for the agreement to be executed immediately on 26 May 1998 came from Mr Moses, and not from himself. 48 Mr Lombe stated that during the settlement meeting he had not considered any possible claims which TI might have against Newlite, Camcor, and Mr Moses, unrelated to the December 1995 agreement. Nor, he had been informed, had Mr Gardiner or Mr Eather. Mr Lombe noted, in this regard, that the letter written by Cornwall Stodart to Mr Moses on 2 March 1998 stated in its first paragraph that it related to Camcor's claim to its entitlement to the money in the joint account. It was that issue, and no other, which Mr Lombe said he had addressed during the settlement conference. 49 Mr Lombe did not seek the opinion of Mr Garratt in respect of the compromise agreement until after it had been signed. He reiterated, however, that he had informed the Moses group at the conference that he would obtain Mr Garratt's opinion, and that Mr Garratt's opinion would be placed before the Court. Having now received that opinion, Mr Lombe was satisfied that the compromise agreement was not in the best interests of the TI investors. Mr Gardiner had informed Mr Lombe that, having considered Mr Garratt's opinion, he now shared Mr Garratt's views. 50 It is clear that the agreement of 26 May 1998 provided that, subject to approval by the Court, TI was to receive from the joint account the amount of $1,847,000 plus accrued interest. Camcor was to receive $250,000, being the balance. After annexing a copy of the final agreement dated 29 June 1998 to his affidavit of 31 August 1998, Mr Lombe stated: "At the time of entering into this conditional Agreement, I was of the opinion that the settlement represented a reasonable compromise in all the circumstances. The factors which I took into account in forming that view included: (a) The fact that a substantial amount of money would be immediately released to my absolute control and could be used by me, for the purpose of an interim distribution to creditors. The question of reconciling the differing interests and claims of creditors and contributors is not easy and will require an application to the Court for directions. (b) Resolving matters with the Camcor interests would leave me free to pursue other parties against whom claims exist. (c) From a commercial point of view I considered that it was in the best interests of the administration to have immediate access to the substantial sum of $1,847,000 plus interest as opposed to seeing the sum "frozen" for perhaps two years or more pending the outcome of complex litigation." 51 Mr Lombe acknowledged that the releases contained in both the 26 May 1998 and 29 June 1998 versions of the agreement were understood by him, and by his legal representatives, to release Camcor, Newlite and Mr Moses from any and all claims which might be made against them arising out of the events leading to the liquidation of TI. Mr Lombe says, however, that at the time that he entered into the compromise agreement, it was his belief that any claims which TI might have against any of those entities did not extend beyond the question of Camcor's own claims, and Camcor's potential liability, under the December 1995 agreement. It had simply not occurred to Mr Lombe that Newlite (as distinct from Camcor and Mr Moses) might, in some way, be derivatively liable for the vast losses sustained by the TI investors resulting from the breaches of trust said to have been committed by the partners of Tietyens Solicitors, or that its liability might extend beyond the parameters of the December 1995 agreement. 52 Mr Lombe subsequently received a detailed opinion in writing from Mr Garratt. It appears that this opinion was provided on, or shortly before, 4 September 1998. The effect of Mr Garratt's opinion was that the potential liability of Newlite, Camcor, and Mr Moses to TI may be far greater than he had previously advised. 53 Mr Lombe was cross-examined upon his various affidavits. He was asked to explain why he no longer considered the compromise agreement to be in the best interests of the TI investors. He confirmed that it was only after he had received Mr Garratt's detailed written opinion in September 1998 that he understood, for the first time, that Mr Moses, together with Newlite and Camcor, might be liable for the whole of the $34 million losses incurred by the TI investors. 54 A copy of Mr Garratt's opinion dated 4 September 1998 is annexed to Mr Lombe's second principal affidavit of 16 September 1998, filed in support of the motions before the Court. This was done to assist me in understanding why Mr Lombe now believed that the compromise settlement was not in the best interests of the TI investors. That advice has been treated as a privileged document. It has not been seen by the Moses interests, or their legal representatives. 55 Although he has not had an opportunity to see the advice, Mr Nettle QC, who appeared for the Moses interests, was given considerable latitude in cross-examining Mr Lombe, in broad terms, about its general nature. What emerged from that cross-examination was that Mr Garratt had apparently told Mr Lombe shortly after the meeting of 26 May 1998 that he had reservations concerning the terms of the compromise. However, it was not until Mr Garratt provided his opinion, that Mr Lombe had before him, for the first time, a detailed explanation of why Mr Garratt now considered that it would not be in the interests of the TI investors to proceed with the compromise. In essence, the general releases in favour of the Moses interests, which had to be given pursuant to the agreement, gave up too much for too little. 56 Mr Lombe conceded that his enquiries in relation to the financial standing of both Camcor and Mr Moses suggested that there was little likelihood that TI, even if it were successful against those parties, would recover from them any significant sums of money. Camcor had been placed into voluntary liquidation. Although solvent at the time, it appeared to have no assets with which to satisfy any judgment against it. Mr Lombe acknowledged also that Mr Moses appeared to have no significant assets with which to satisfy any judgment against him. Mr Lombe stated expressly that he considered that, in relation to each of Camcor and Mr Moses, he had made adequate enquiries concerning their financial situation. 57 The position regarding Newlite was, however, somewhat more complex. Mr Lombe, in his affidavit of 31 August 1998, stated as follows: "No financial information in respect to Newlite is available, as there is no obligation on Newlite to supply same pursuant to the Agreement which is exhibit L12 [viz the agreement of 29 June 1998] and Newlite has not provided any such information." 58 Mr Lombe did not state in that affidavit, as he had in relation to Camcor and Mr Moses, that he considered that he had made adequate enquiries concerning the financial position of Newlite. He was, however, cross-examined about this matter. He indicated that it was his understanding that Newlite had available to it certain valuable assets which could be recovered in satisfaction of any judgment against it. He noted, in particular, that Newlite owned the property occupied by Mr Moses and his family at 66 Glyndon Road, Camberwell. It also owned property situated at Bright in north-eastern Victoria. These properties were unencumbered. As noted earlier, they had been renovated and furnished in 1996 at a total cost of $536,550, from monies advanced by TI to HG, and then paid on behalf of Camcor. It may reasonably be inferred from the large sum expended upon them that these properties are of considerable value. Mr Lombe stated in evidence before the Court that he thought them to be worth "millions".

The issues before the Court 59 The issues which must be resolved in the liquidator's applications are: 1. Whether the Moses interests have standing, or should otherwise be heard, in relation to each of the liquidator's applications before the Court? 2. Whether the monies said to be owing by the Moses interests to TI amount to a "debt" within the meaning of s 477(2A) of the Corporations Law? 3. If the answer to question 2 be Yes, whether notwithstanding the fact that the liquidator has now formed the view that it would not be in the interests of the TI investors to go forward with the compromise agreement, the Court should nonetheless approve that compromise? 4. If the answer to question 2 be No, whether notwithstanding the fact that the liquidator has now formed the view that it would not be in the interests of the TI investors to go forward with the compromise agreement, the Court should nonetheless give directions under s 479(3) of the Corporations Law which may have the effect of protecting the liquidator from liability if he were to proceed with that compromise? 5. Whether, irrespective of the answer to question 2, the Court should act upon the present views of the liquidator, based upon the advice of senior counsel, that the compromise entered into between the Moses interests and himself is not in the best interests of the TI investors and, accordingly, withhold its approval, or so direct? 6. Whether, in the alternative, the Court should find that the material placed before it by the liquidator in each of the liquidators' applications is inadequate, and direct that the liquidator supplement that material by carrying out further enquiries, and that he obtain the advice of senior counsel other than Mr Garratt QC?

The question of standing 60 Mr Nettle submitted that the Moses interests qualified for standing, and should be granted leave to be heard, on three separate bases. These were: · The Moses interests were affected by the application for approval of the compromise. Having regard to the nature of the liquidator's applications which were, in effect, administrative proceedings involving the exercise of the supervisory jurisdiction of the Court, natural justice required that those interests be afforded an opportunity to be heard. · As amicus curiae. The intervention of the Moses interests was apt to assist the Court. It was in the interests of all parties, including the creditors of TI, that those views be represented. · The compromise agreement was subject to a condition subsequent which required that the Court's approval for the liquidator's entry into the agreement be obtained. There was an implied condition that the liquidator would do all that was reasonably necessary to obtain the Court's approval. The Moses interests had standing in seeking to ensure that the liquidator complied with that implied condition. 61 It may be noted that the third of these three bases for standing for which Mr Nettle contended involves almost exactly the same considerations as underlie the separate application by the Moses interests for declaratory and injunctive relief in proceeding VG 3383 of 1998. 62 Mr Nettle submitted that an application to the Court for directions pursuant to s 479(3) of the Corporations Law was, in substance, administrative and non-adversarial in nature. It involved the Court in the exercise of supervisory jurisdiction over one of its own officers. He referred to the decision of McLelland CJ in Eq in Re BPTC Ltd (1996) 14 ACLC 845 at 846 in support of this contention. His Honour there stated: "It is to be emphasised that an application for directions under s 379(3) of the Companies Code (or s 479(3) of the Corporations Law) is an administrative non-adversary proceeding, and a direction given pursuant to that section has no effect on the substantive rights of persons external to the winding up." 63 Mr Nettle submitted that authorities such as Annetts v McCann (1990) 170 CLR 596; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 and Aussie Airlines Pty Ltd v Australian Airlines Ltd (1996) 68 FCR 406, by analogy, justified the Court in granting leave to the Moses interests to be heard because of the real commercial interest which Mr Moses and his associated corporate entities had in the compromise agreement being approved. Mr Nettle referred also to Allan v Development Allowance Authority (1998) 152 ALR 439 which dealt with standing to seek review of a decision under the Development Allowance Authority Act 1992 (Cth) and the meaning of the expression "person affected" under s 119 of that Act. 64 Mr Nettle then drew attention to the decision of the Queensland Court of Appeal in Coats v Southern Cross Airlines Holdings Ltd (in liq) (1998) 16 ACLC 1393. There the liquidator of Southern Cross Holdings Ltd determined, on the basis of legal advice, that there was an arguable case against the company's former auditors and directors, who were already being sued by the company, that they may have been liable for losses suffered by the contributories. The liquidator was advised that he was under a duty to notify shareholders of their potential claims. As those claims would expire in a matter of months, he should notify them within sufficient time for them to commence proceedings, if they so desired. The liquidator approached the Court seeking directions under s 479(3) of the Corporations Law to be able to notify the shareholders. He proposed that the costs of notifying the 8,300 contributories of the company by post, together with the costs of obtaining legal advice, be paid from the proceeds of the realisation of the company's assets. 65 The former auditors and directors appealed from an order of the Chamber Judge in which he directed that it was a step properly taken in the administration of the winding-up of the company for the liquidator to give notice for the purpose of enabling the shareholders to avoid loss. On the appeal, the liquidator argued that the Chamber Judge's direction was not an order, and could not therefore be the subject of an appeal. That contention was rejected by the Court of Appeal. It is important to note that there was no apparent issue taken with the right of the appellant auditors and directors to be heard. Fitzgerald P at 1395 noted that: "On 6 May 1998, the respondent applied in the Trial Division of this Court for directions, relying on subsection 479(3) of the Corporations Law. He asked that the Court authorise and direct him to notify the company's shareholders of potential claims they might have against the appellants and some other information relating thereto. The applicants were notified of the respondent's application and, apparently without objection, all appeared at the hearing before the Chamber Judge, and, in his Honour's words "strenuously opposed the liquidator giving the proposed notification". (emphasis added) 66 Fitzgerald P went on to observe that the respondent had questioned whether an appeal lay to the Court of Appeal from the Chamber Judge's order, but did not dispute that, if an appeal lay, the appellants were entitled to appeal. 67 His Honour noted that the Court's power under s 479(3) was expressed in very wide terms. It did not follow that the Court could, or should, give a direction whenever asked to do so by a liquidator, irrespective of the circumstances. He continued at 1400: "Various factors are material, many of which are referred to in the cases. A liquidator has, and is expected to exercise, his or her discretion, especially perhaps on commercial or "practical" issues. He or she has access to legal advice, and can ascertain the wishes of creditors and contributories, although, even then, free to make and act on his or her own decisions. Importantly, the primary purpose of the Court's directions to a liquidator, namely the protection of the liquidator from allegations that he or she has acted improperly or unreasonably or has caused actionable loss, imports its own inevitable limitation. It is ordinarily inappropriate for a direction to be given which will adversely affect identifiable legal rights or interests of other persons or will entitle the liquidator to do so with impunity." His Honour referred to Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 680; and Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (1994) 49 FCR 334 at 346 per Northrop J. In the latter case, Northrop J observed at 352: "In proceedings brought by a liquidator under s 479(3) I can see no reason why binding orders cannot be made where the parties affected have been given the opportunity the opportunity to be heard …" (emphasis added) 68 Both McPherson JA and Thomas J appear to have accepted that, in the particular circumstances of Coats v Southern Cross Airlines Holdings (supra), it had been appropriate to serve the auditors and the directors with the liquidator's application, and for the Chamber Judge to have heard their submissions contesting the propriety of the direction sought. McPherson JA observed at 1403: "In these circumstances, it does not appear to me to lie with the liquidator to challenge the power of this Court to hear an appeal against it." All members of the Court of Appeal agreed that the liquidator had sought directions under s 479(3) for a purpose that was extraneous to the proper carrying out of the winding-up, and that the Chamber Judge should have declined to give the direction which he did. The liquidator was ordered to pay the appellant's costs of and incidental to the application to the Chamber Judge, and of the appeal. 69 Mr Nettle contended, with considerable justification, that the judgment in Coats v Southern Cross Airlines Holdings (supra) provided support for his submission that the Moses interests should be given leave to be heard. Some further support for that submission may perhaps be found in Re GB Nathan & Co Pty Ltd (supra) in which a liquidator sought directions from the Court under s 479(3) of the Corporations Law. The application was made by notice of motion with no named respondents. However, in response to a circular letter from the liquidator inviting them to do so, numerous clients of GBN were represented before his Honour, and participated in the hearing of the applications. See also Murdoch v Crawford [1986] VR 97. 70 Mr Nettle then dealt with the issue of amicus curiae. Hereferred to a note by Mr Justice PW Young entitled "Intervention by Third Parties" (1996) 70 ALJ 882 in support of his contention that the Moses interests should be granted leave to appear amicus curiae. In that note, Mr Justice Young made reference to National Australia Bank Ltd v Hokit Pty Ltd (unreported, 17 June 1996) in which the New South Wales Court of Appeal set out the principles governing intervention by amicus curiae. Mahoney P stated: "Whether leave to intervene should be granted must be decided having regard to all the circumstances of the instant case. However, ordinarily four matters at least require consideration: whether the intervention is apt to assist the court in deciding the instant case; whether it is in the parties' interest to allow the intervention; whether the intervention will occupy time unnecessarily; and whether it will add inappropriately to the costs of the proceeding." 71 Mr Nettle submitted that the Moses interests should be granted leave to address arguments to the Court as amicus curiae because they satisfied each of the criteria set out above. It should be noted that the principles governing intervention as amicus have been considered recently by Brennan CJ in Levy v State of Victoria (1997) 189 CLR 579 at 600-605. 72 Finally, Mr Nettle submitted, leave should be granted to the Moses interests to be heard in relation to the liquidator's applications because the compromise agreement contained a condition subsequent requiring Court approval to be obtained for the liquidator's entry into the agreement. The existence of that condition subsequent imposed upon the liquidator an implied obligation to do all that was reasonably necessary to obtain the Court's approval. Mr Nettle submitted that it is a fundamental principle of contract law that when there is a condition subsequent to a contract, the party for whose benefit it enures is bound to use all reasonable endeavours to satisfy that condition. He cited in support of this proposition Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 541 per Gibbs CJ, at 552-3 per Mason J and at 559 per Wilson J; Meehan v Jones (1982) 149 CLR 571 at 581 per Gibbs CJ, at 588 per Mason J and at 597 per Wilson J; and Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 190-193 per Finn J. He recognised that the first two of these cases involved contracts for the sale of land, and were not therefore directly in point. He submitted, however, that the principles underlying these judgments were applicable, by analogy, to the instant case. Mr Nettle also submitted that the same duties of good faith and of fair dealing, which Finn J had found to be implied in relation to contractual performance in the Hughes Aircraft case, should likewise be found to bind the liquidator in his dealings with the Moses interests. 73 Mr Garratt submitted that the Moses interests should not be given leave to be heard in the liquidator's applications. He referred to a decision of Senior Master Mahony of the Supreme Court of Victoria - Re Geelong Building Society (in liq) (1996) 14 ACLC 334 in which it was held that upon a liquidator's application for authority to compromise a claim against certain debtors, those debtors had not been entitled to receive notice of the application, and were not entitled to be heard in the application. 74 The liquidator of the Geelong Building Society ("GBS") had, in that case, applied pursuant to s 377(1)(d) of the Companies (Victoria) Code for approval by the Court to compromise claims in relation to debts said to have been owed by a company named Tagni Pty Ltd ("Tagni"), and said to have been guaranteed by individual guarantors. Assuming GBS's claims to be valid and enforceable, it appeared that, as at 28 June 1995, Tagni owed it $1,315,495.27. 75 In 1993, the liquidator of the GBS began winding up proceedings against Tagni, and debt recovery proceedings against the guarantors. On 1 November 1993 both proceedings were "settled" subject to certain conditions. Most, but not all, of those conditions were met. Accountants' reports were obtained by the liquidator indicating that in the accountants' opinions, the compromise proposal was preferable to winding up Tagni, and bankrupting the guarantors. 76 The liquidator brought the "compromise proposal" to the Court for "approval" but did not seek to support it as being in the interests of the creditors. As does Mr Lombe in the instant case, the liquidator of GBS considered himself contractually obliged to make the application to the Court. One of the issues which the Senior Master had to determine was whether it was appropriate for the Court to authorise a liquidator to compromise a claim when, in his opinion, the compromise was not in the interests of the creditors. The Senior Master observed at 336: "The other (and very unusual) issues which have arisen before me concern the role (if any) which the debtors are entitled to play with respect to the liquidator's application and with respect to the alleged compromise; and, in particular, whether the debtors are entitled to notice of the liquidator's application and to leave to appear on the hearing of that application, and whether, assuming that the liquidator will not obtain authority from the court if he does not support the compromise, they may apply for the court's approval of the compromise." 77 Senior Master Mahony continued at 336: "This gave rise to the question whether, in substance, the application was under s 377(1)(d) of the Code at all. In the circumstances, it appeared to be an application under s 379(3) for directions. This would be a significant distinction for, in this Court, at least, a Master is not empowered to make any order under the latter section." The Senior Master referred to the distinction between s 477(2A) and s 479(3) of the Corporations Law as discussed in Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85 and in State Bank of New South Wales v Turner Corporation Ltd (1994) 14 ACSR 480 at 483. He referred also to Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115. 78 It appears that the proceeding was adjourned to enable the liquidator to consider whether or not he wished to amend his application to one for directions rather than court approval. At the next hearing, counsel attended seeking leave to appear for the debtors and seeking also an order that they be joined as parties to the liquidator's application. The matter was again adjourned. On the next return date, the liquidator made it plain that he persisted with his application for approval under s 377(1)(d) of the Code, and was not seeking directions. Counsel for the debtors again attended once more seeking leave to appear at the hearing of the liquidator's application. Counsel indicated that he wished to be heard in support of a contention that the agreement to compromise be approved by the Court under s 377(1)(d) of the Code. The liquidator's position remained as it had previously been. He did not seek to support the compromise because, in the absence of certain information having been provided, he was unable to recommend the compromise as being in the interest of the creditors. 79 Senior Master Mahony dealt initially with the principles which govern Court approval of proposed compromises of debts in circumstances where the liquidator has concluded that he cannot recommend the compromise as being in the creditors' interest. He then turned to the question whether the debtors could be regarded as having the requisite interest in the outcome of the liquidator's application to justify their being heard in an effort to save the liquidator's application. He stated at 340-1: "I do not consider that the debtors can be regarded as having the requisite interest in the outcome of the liquidator's application [to be heard]. That application cannot produce an order constituting a compromise; nor can it result in an order compelling the liquidator to effect the compromise. Such orders would or could affect the debtors because they would be the other parties to the compromise. The only "relief" to which the liquidator's application could lead, however, is the conferring of authority on the liquidator to effect the compromise. At least usually, it is a matter for the liquidator alone whether he seeks such authority or determines to commence or proceed with litigation … How, then, can GBS' adversaries in litigation, the debtors, have an interest in supporting or opposing such an order? If they have, then the same would surely be true of a defendant to a proceeding by or on behalf of a person under disability on application to the court for sanction of a compromise of that proceeding. An application by a liquidator for authority to effect a compromise is as personal to the liquidator as an application for sanction of a compromise of the claim of a person under disability is personal to the plaintiff and his or her litigation guardian. Such applications are necessarily made ex parte. The adversarial party, the company's debtor or the defendant to the proceeding by the person under disability, not only has no standing to be heard on the merits of the application but is excluded from the hearing of the court while the application proceeds. This is so that the applicant can communicate freely but confidentially to the court matters which may be prejudicial to the outcome of the claim against the adversarial party and therefore supportive of the compromise to which the application relates. Should the compromise not be approved the adversarial party, if able to hear such matters, could use them to the prejudice of the company or the individual plaintiff. In these circumstances, it was not surprising that Mr Sutherland informed me that he and Mr Hurley had not found any authorities directly supporting the entitlement of an insolvent company's debtor to seek notice of or leave to appear on the liquidator's application for authority to effect a compromise with the debtor. The debtors, because of their self-interest, could not attempt the task of showing that the compromise is in the interest of the creditors. That self-interest, well expressed by Mr Sutherland as the basis on which they would or could be affected by the outcome of the application … means that they are less able than the court to assess the commercial and other advantages or disadvantages of the compromise to the creditors. The guarantors are counterclaimants against GBS in the proceeding between them, but, even if capable of being characterised in some situations as contingent creditors of GBS, for present purposes they are to be regarded as debtors not competent to present a case for the creditors as a whole … Since it would not be possible for the debtors to make any significant contribution to the liquidator's application, it would be idle to grant them leave to appear or to provide them with the entitlement to be heard…. Indeed, because of the nature and purpose of that application, it would be wholly contrary to principle to make any such order." 80 I accept that the reasoning of Senior Master Mahony in Re Geelong Building Society (in liq) (supra) provides persuasive authority in support of Mr Garratt's submission that the Moses interests should not be heard in the liquidator's applications. I have concluded, however, that in the unusual circumstances of the present case, I should accede to Mr Nettle's submission that the Moses interests be permitted to address the Court in these applications. 81 The question whether leave should be granted to a non-party to address submissions to the Court is plainly a matter of discretion. That discretion must, of course, be exercised judicially. However, the manner of its exercise is dependent upon the particular circumstances which prevail in any given case. 82 The material before the Court in the present proceedings reveals what I consider to be a most unusual state of affairs. Unlike the position before Senior Master Mahony, Mr Lombe, the liquidator in the present case, initially concluded, with the full benefit of legal advice from experienced junior counsel and from his instructing solicitor, and without any apparent reservations, that it would be in the interests of the TI investors to enter into the compromise agreement which he concluded on 26 May 1998. He remained of that view for a considerable time thereafter. He signed a formal version of that agreement on 29 June 1998. He did so even after he had learned that Mr Garratt harboured some reservations about its terms. It was not until on, or shortly before, 4 September 1998, when Mr Garratt finally provided a comprehensive written opinion setting out in detail his doubts as to whether the agreement was in the interests of the TI investors, that the liquidator changed his mind. He then decided that he could no longer support the agreement. Mr Lombe acknowledged under cross-examination that, were it not for Mr Garratt's opinion, he would not have departed from his original view. 83 Another feature of the present case which distinguishes it from Re Geelong Building Society (in liq) (supra) is that there is before the Court the written opinion of Mr Garratt. That opinion sets out the considerations which led him, ultimately, to conclude that for reasons not earlier apparent to him, the compromise agreement should not be brought into effect. Mr Nettle has not, of course, seen that opinion. He has, however, gleaned something of its nature through his cross-examination of Mr Lombe. I have had the considerable benefit of Mr Nettle's submissions as to what such an opinion, when placed before a Court in an application for approval of a compromise of a debt, should contain. I have also had the benefit of his criticisms of what he submits, necessarily somewhat speculatively, are the defects in Mr Garratt's opinion. 84 I do not accept the proposition that merely because the Moses interests are motivated by self-interest in supporting the compromise agreement, nothing that Mr Nettle might have to say can assist the Court in determining whether that agreement is in the interests of the TI investors. To take but one example, let it be assumed that Mr Nettle was able to place before the Court incontrovertible evidence that there were no prospects of recovering any significant sum by way of damages against any of the Moses interests, that would be a most relevant matter in determining whether the compromise agreement should be approved. A compromise agreement, or settlement, may be in the interests of both sides to a dispute, though for quite different and contradictory reasons. 85 It is because the liquidator (and his legal advisers) have done such a complete and unexpected about turn in their assessment of the compromise agreement, that I propose to grant the leave sought by Mr Nettle to appear in the liquidator's applications. The Moses interests should be heard in relation to this issue. I should emphasise, however, that my decision in this regard should not be taken as indicating any disagreement with the reasoning of Senior Master Mahony in Re Geelong Building Society (in liq) (supra). The general tenor of that reasoning I regard as correct. The present case is, however, significantly different from that case. It involves, in my opinion, a most unusual set of circumstances, and calls for a departure from what would ordinarily be the appropriate course to be followed.

The competence of the application pursuant to s 477(2A) 86 Mr Nettle submitted that the application under s 477(2A) of the Corporations Law is incompetent, and should therefore be dismissed. 87 In Re Luxtrend Pty Ltd (in liq) [1997] 2 Qd R 86 Moynihan J dealt with the construction of s 477(2A) of the Corporations Law. The application before his Honour raised the question whether a proposed settlement of proceedings commenced under s 565 of the Corporations Law claiming more than $20,000 required the sanction of the Court by reason of the operation of s 477(2A). 88 Proceedings had been commenced to recover $65,462.25 as a preference. The proceedings were being defended. Counsel's advice had been obtained by the liquidator to the effect that the liquidator's prospects were no better than even. The parties were prepared to compromise on the basis that the respondent pay the applicant $10,000. 89 After setting out ss 477(1) and 477(2A) of the Corporations Law, and comparing those provisions with ss 377(1) and (2) of the Companies Code Moynihan J observed at 87-9: "The power contained in s. 477(1)(d) of the Law is sufficiently widely expressed to encompass settlement of a preference claim. The question which then arises is whether such a claim is a debt in terms of subsection (2A). Generally speaking, a debt is a chose in action founding an action for debt; Ogdens Ltd v. Weinberg (1906) 95 L.T. 567 (H.L.) (H). The characteristic of a debt is that it is a sum of money which is immediately payable or which, by reason of a present obligation, will become payable in the future; Webb v Stenton (1883) 11 Q.B.D. 518 at 526; Re ANZ Savings Bank [1972] V.R. 690 at 692. In the latter case it was held there was no debt because there was no present obligation to pay; for that to arise required performance of a condition precedent - presentation of a passbook and a completed withdrawal slip. It may be doubted that a preference payment constitutes a debt in the sense referred to in this case. A preference action is characteristically an action for monies had and received … An action for moneys had and received was traditionally brought on an indebitatus count rather than in debt … A payment said to constitute a preference is, at the time at which it is made, a valid discharge of the debt. Whether a liquidator is entitled to avoid a payment as a preference is subsequently determined by the court. The considerations being those adverted to, I am of the view that a preference payment is not a debt in the sense I have been discussing. The question then is whether "debt" has any wider or different meaning in the context of the Law when it is used in s. 477(2A). In the context of s. 556 of the Code (now s. 592 of the Law) the New South Wales Court of Appeal has held that "debt" included an undertaking to pay a sum of money at a future time even though the undertaking was conditional and the amount uncertain. It thus covered obligations under a guarantee - Hawkins v. Bank of China (1992) 26 N.S.W.L.R. 562, 570-572, 576-578 (CA) …This was explained in Re Beckwith (1993) 43 F.C.R. 256, 271 as being limited to a conditional but unavoidable obligation to pay a sum of money (as on a guarantee). In Hawkins it was said to the effect that "debt" must be construed wherever it appears in the Corporations Law "in a practical and commonsense fashion, consistent with the context and with the statutory purpose." Even so, it was difficult to conclude that an amount recovered in the preference action is a conditional but unavoidable obligation in the sense used in Hawkins. It may be argued that the statutory purpose of s. 477(2A) is to restrict the power of compromise so that the company does not forgo large sums which might otherwise be available for the benefit of creditors: State Bank of New South Wales v. Turner Corporation Ltd (1994) 14 A.C.S.R. 480 at 483. That case was not however concerned with the meaning of debt in s. 477(2A). Cases under the Code appear to be of little relevance because of the difference between s. 477(2A) of the Law and s. 377(2) of the Code referred to earlier. Finally it may be noted that s. 477(2A) of the Law refers only to "debt", whereas s. 477(1)(d) refers to debt and other forms of liability. This arguably suggests that "debt" in s. 477 is restricted to its more traditional meaning; there would otherwise be no reason to refer in s. 477(1)(d) to "calls". … While regard can be had to the purpose of a statutory provision to gauge the meaning of a word or phrase, the construction of a provision turns primarily on the words used. I am of the view that a preference action is not a debt in terms of s. 477(2A) so as to require an approval as contemplated by the section." 90 Various causes of action have been identified by Mr Lombe as being available to TI against the Moses interests. They are essentially actions seeking equitable damages based upon accessorial liability by Newlite, Camcor and Mr Moses for breaches of trust said to have been committed by the partners of Tietyens Solicitors. The primary cause of action so identified is, in substance, what is known as a Barnes v Addy claim - see Barnes v Addy (supra). 91 The principles enunciated in that case have been considered often in recent years, and, it has been suggested, modified to some degree - see Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378. See also Humphris & Anor v Jenshol & Anor (1997) 25 ACSR 212; International Alpaca Management Pty Ltd v Ensor (1995) 133 ALR 561; News Limited v Australian Rugby Football League Ltd (1996) 58 FCR 447; Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd [1998] 1 VR 188; and Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544. The general principle underlying these authorities is that a third party will be liable for the breach of trust of another if he assists or procures that breach of trust in circumstances where his conduct, given his actual circumstances and state of mind, is seen to be objectively dishonest. 92 Whether or not Mr Moses, or any of his corporate entities, can be fixed with the requisite state of mind to enable Mr Lombe to make good his Barnes v Addy cause of action is, of course, a matter which will have to be determined if he proceeds with the litigation which he has foreshadowed. However, even unassisted by the authority of Re Luxtrend Pty Ltd (in liq) (supra), the claims which the liquidator has identified do not seem to me to be claims for "debt" within the ordinary and natural meaning of that term in s 477(2A) of the Corporations Law. I can see no reason why any other meaning should be ascribed to that term. 93 In my opinion the principles set out by Moynihan J in Re Luxtrend Pty Ltd (supra) correctly state the scope and operation of s 477(2A). Those principles accord broadly with the approach taken by Hansen J in Farrow Finance Co Ltd (in liquidation) v A.N.Z. Executors and Trustees Co Ltd [1998] 1 VR 50 at 74. There his Honour dealt with the question whether claims of breaches of fiduciary duty by a trustee and company auditor, and allegations of conduct which was misleading or deceptive were to be regarded as tantamount to claims in debt. The measure of damages which would flow from establishment of liability equated to the losses sustained by the plaintiff company's noteholders. His Honour held that no relevant common debt existed. The claims against the defendants were not, in any relevant sense, grounded in debt. 94 Mr Nettle's submission that the compromise agreement presently before the Court does not involve the compromise of a "debt" within the meaning of s 477(2A) of the Corporations Law should be accepted. It follows that the application under that subsection is incompetent, and should be dismissed. What directions, if any, should be given pursuant to s 479(3) of the Corporations Law? 95 In Re Geelong Building Society (in liq) (supra) Senior Master Mahoney observed at 338-9: "In the case of any company being wound-up on the ground that it cannot pay its debts (or, under the Corporations Law as amended in 1993, being wound-up in insolvency) the paramount consideration for the court in determining whether the liquidator should be authorised to compromise its claim against a debtor is whether the compromise is in the interest of the creditors; Spedley (supra) 9 ACSR at p 85; State Bank v Turner Corporation (supra) 14 ACSR at p 483." 96 He continued: "Save in an unusual case, however, the best informed with respect to the commercial interests of the creditors of an insolvent company is the liquidator. In that unusual case, there may be a conflict between the liquidator and some of the creditors; and the latter may make it appear to the court that there has been "some lack of good faith, error in law or principle, or some real or substantial ground for doubting the prudence of the liquidator's proposal"; State Bank v Turner Corporation 14 ACSR at p 483 per Tamberlin J citing Spedley 9 ACSR at 85-86. The onus of establishing such a proposition, however, is not light; cf Re Mineral Securities Australia Ltd (In Liq) and the Companies Act (1973) 2 NSWLR 207 at 230-232. Generally, as I have mentioned, it is the liquidator who is best placed to assess a compromise proposal with regard to the interests of the creditors, just as it is the liquidator who is entitled to determine whether, as an alternative to a proposed compromise, litigation should be commenced or continued; see Scarel v City Loan & Credit Corporation Pty Ltd (No 2) (1988) 12 ACLR 730 at p 736; 6 ACLC 219. In the usual case, then, while the court certainly does not "rubber stamp" whatever is put forward by a liquidator, it is necessarily "confined" in the task of "second guessing" him … It follows that unless the debtors are able to intervene to save the liquidator's application, it must be dismissed simply because the liquidator is in the best position to assess the interests of the creditors of GBS and he has concluded that he cannot recommend the compromise as in their interest." 97 As indicated earlier these observations were made in the context of an application under s 377(1)(d) of the Companies Code for authority to compromise a debt claimed by the liquidator to be owing to GBS by Tagni, and to be guaranteed by individual guarantors. I have already indicated that I do not regard the claims foreshadowed by Mr Lombe against Newlite, Camcor and Mr Moses as involving the compromise of a "debt" to TI within the meaning of that term in s 477(2A) of the Corporations Law. It was not disputed before me, however, that the liquidator could apply to the Court pursuant to s 479(3) of the Corporations Law for directions in relation to the proposed compromise. That compromise plainly arises "under the winding-up" of TI. The principles to which Senior Master Mahony referred in Re Geelong Building Society (in liq) (supra) are relevant to the determination whether the Court should give directions concerning the compromise agreement, and if so, what form those directions should take. 98 In Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 Giles J in the Equity Division of the Supreme Court of New South Wales dealt with applications by the liquidators of several companies who moved the Court for: (a) authority to compromise claims by and against those companies in proceedings in the Court, and (b) directions that they were justified in entering on behalf of the companies into the transactions recorded in the deeds which set out the compromises. 99 The applications were made pursuant to s 377(1) and s 379(3) of the Companies (NSW) Code. 100 The liquidators' opinion was that the compromises were the best available bearing in mind the forecast prospects of success in the various claims by and against the companies, the delay and expense of resolving the claims by litigation, including the likelihood of appeal, and the extent of recovery available from those against whom the companies had claims, or their insurers. Opinions of counsel and solicitors put before the Court broadly confirmed the prospects of success which the liquidators forecast in relation to the major claims. 101 Unlike the present case, the liquidators who appeared before Giles J supported the compromise agreements which had been reached. The proceedings before his Honour were far greater in number, complexity, length and attendant expense than those presently before this Court. Hundreds of millions of dollars were in issue. 102 Giles J considered the relevant provisions governing the applications before the Court, and stated at 85: "The powers given to a liquidator, either directly by s 377(2) or upon authorisation pursuant to s 377(1), are directed to achieving the efficient winding up of the company, that is, the collection and distribution of its assets for the general benefit of its creditors (Re Walker Hare Pty Ltd [1968] VR 447). (I put aside the question of contributories because in the present case the evidence demonstrates that there is no realistic prospect of a surplus for contributories). In controlling the exercise of the liquidator's powers … the court looks to the interests of creditors (Scarel Pty Ltd v City Loan and Credit Corporation Pty Ltd (1988) 12 ACLR 730; 6 ACLC 213), and where a compromise is in question it must be asked whether it is in the interests of those concerned in the winding up - here the creditors … The same question must be asked when deciding whether to confer authority to enter into the compromise. While the court will seek to ensure that a minority of creditors who do not agree with the compromise will not be treated unfairly … even if some creditors have not assented it may be found that the compromise is for the benefit of all concerned … Directions given to a liquidator pursuant to s 379(3) fulfil a different function from authorisation pursuant to s 377(1). Authorisation empowers the liquidator to do what he would otherwise not have power to do, or at least, would not have power to do beyond s 377(2) or authority given by the Committee of Inspection or a resolution of creditors. The nature and scope of an application for directions is fully expounded in Re G B Nathan & Co Pty Ltd (1991) 5 ACSR 673, such an application being essentially a means whereby the liquidator may be guided in the conduct of the liquidation and protected against allegations of breach of his duty. It is generally not appropriate in an application for directions to make the liquidator's commercial decisions for him where he has full power to act (Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115), and the liquidator should not seek directions as a kind of insurance that he has made the right commercial decision. It is nonetheless common for a liquidator to seek directions as to whether he is justified in entering into a particular compromise, but in the present case I doubt that there is really any separate issue in relation to directions pursuant to s 379(3). If the liquidators are given the authority for which they ask it will follow that they are justified in exercising the power they will then have." His Honour then went on to say: "In any application pursuant to s 377(1) the court pays regard to the commercial judgment of the liquidator (Re Chase Corporation (Australia) Equities Ltd (1990) 8 ACLR 1118). That is not to say that it rubber stamps whatever is put forward by the liquidator but, as is made clear in Re Mineral Securities Australia Ltd [1973] 2 NSWLR 207 at 231-2 the court is necessarily confined in attempting to second guess the liquidator in the exercise of his powers, and generally will not interfere unless there can be seen to be some lack of good faith, some error in law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct. The same restraint must apply when the question is whether the liquidator should be authorised to enter into a particular transactions the benefits and burdens of which require assessment on a commercial basis. Of course, the compromise of claims will involve assessment on a legal basis, and a liquidator will be expected (as was made plain in Re Chase Corporation (Australia) Equities Ltd) to obtain advice and, as a prudent person would in the conduct of his own affairs, advice from practitioners appropriate to the nature and value of the claims. But in all but the simplest case, and demonstrably in the present case, commercial considerations play a significant part in whether a compromise will be for the benefit of creditors." 103 In Re Spedley the compromises had been put before meetings of creditors of the companies. Motions authorising the liquidators to make the compromises, and to give effect to the transactions recorded in the deeds, had been passed, without dissent. That fact persuaded Giles J that he could approach the applications with some confidence in the liquidators' judgment. 104 His Honour was also fortified in arriving at that conclusion by the fact that the evidence showed that the compromises had been negotiated over a period of months in the course of a mediation conducted by Sir Laurence Street, a former Chief Justice of New South Wales. His Honour concluded that it was reasonable to expect that the compromises were the result of a process in which full regard was had to the competing legal and commercial considerations. 105 Giles J went on to state at 87: "Opinions of counsel and solicitors put before me broadly confirm the prospects of success which the liquidators forecast in relation to the major claims, it being remembered that there were a great many different claims in question with a whole spectrum of prospects and inevitable uncertainty. The time and expense can readily be accepted, and actual recovery, as distinct from theoretical entitlement, must always be considered. I see no reason to doubt the liquidator's assessment." 106 Mr Garratt submitted that, if it be relevant, there was nothing to suggest that Mr Lombe was acting other than in good faith in no longer supporting the compromise agreement. His present view was based upon the advice which he had received, and he had no ulterior purpose in mind. I did not really understand Mr Nettle to contend otherwise. Mr Garratt submitted that the principles enunciated by Giles J in Re Spedley Securities Ltd (in liq) (supra), were, in general terms, applicable to the present case. He submitted that the Court should not second guess the liquidator's commercial judgment that the compromise agreement was not in the best interests of the TI investors. 107 Mr Garratt contended that the claim by the Moses interests to the amount of approximately $1.94 million under the December 1995 agreement was plainly untenable. It was highly unlikely that equity would lend its assistance to that claim. There were any number of defences available to the liquidator should Camcor be minded to pursue it against TI. 108 In relation to the causes of action which the liquidator had available against each of Newlite, Camcor and Mr Moses, Mr Lombe gave the following evidence: MR NETTLE: In the affidavit, in the advice which Mr Garratt gave you in final form on 4 September 1998, did he detail each of the claims which would be open to you to make against the Moses interests? - He did, yes. He explained that and described the nature of each of those claims? - Yes. Including claims for receipt of monies as constructive trustee? - He certainly dealt with claims against Newlite as breaches of trust, yes. Barnes v Addyclaims? - Yes, as I recall. Claims of the kind about which Mr Moses was cross-examined for some days during the course of the public examination? - The Barnes v Addy issue was certainly raised at the public examination, yes. Did Mr Garratt express to you any opinion or a view as to the chances of success in each of those pieces of litigation which he proposed? - Yes, he did. In terms of a probability of success? - Not in terms of one out of ten or nine out of ten, but certainly in terms of a strong case. A strong case in each case against each of the Moses interests? - Yes I believe so. So a strong case against Newlite? - Yes. (Transcript of 27 November 1998 at p 20) 109 Later in the course of Mr Nettle's cross-examination, Mr Lombe gave the following evidence: "MR NETTLE: Do you contend that you have any other claims against Newlite or other entities within the Moses interests? - Subsequent to that period I've received general advice that Newlite may be responsible for the total losses that have been incurred. Newlite is responsible for which total losses that have been incurred? - The fact that there are disappointed creditors in the order of 33, 34 million. Newlite is responsible for the 33 or 34 million which Tietyens lost? - Yes because of breaches of trust and Newlite was on notice that Tietyens themselves, the partners of Tietyens, were breaching their duties to the contributors …. And the advice you've received is that you have a strong chance of success to recover from Newlite $34 million for the knowing participation in breach of trust, is it? - My recall, yes. It remains your view, does it, that you have a strong chance of recovering from Newlite not only the $5 million to which you've referred but also the additional 34 to which you now refer? - Based on my legal advice, that is my view. … If follows that your reason for preferring to pursue claims rather than giving effect to the compromise is because of your belief in a strong claim against Newlite for $39 million? - It is solely based on the counsel's advice that I have received subsequent to that agreement. No, whatever the reason, your state of mind is that it's better for creditors to pursue this advisedly strong claim for $39 million than it is to have the $2 million certain from the fund? - It is my view, yes, based on legal advice." (Transcript p 24-6) 110 It will be recalled that Mr Lombe conceded that there was little likelihood that either Camcor or Mr Moses had any assets which might be available to satisfy a judgment against them if TI were successful in the contemplated litigation. The cross-examination upon this subject is illuminating: "MR NETTLE: It remains your view that it would be very, very difficult to recover any substantial money from Camcor? - It's gone into voluntary liquidation but my view is that, yes, it would be. Similarly, although as you rightly pointed out, Mr Moses is not technically insolvent, you believe, based upon your investigations, that he has no significant assets, do you not? - That's my understanding, yes. And thus that it would be very, very difficult, if not impossible, to recover any substantial amount of money from him? - I suspect that would be the position, yes. That leaves Newlite? - That's correct. You've undertaken a detailed investigation into the assets of Newlite, have you? - I have made enquiries, yes. Have you ascertained the assets which it holds? - I've ascertained some assets. Formed the view that it has millions of dollars of assets which might be available for execution? - Yes, I have. When were those enquiries undertaken? - Those enquiries were undertaken probably three or four months ago." 111 When pressed further about the matter of Newlite's assets, Mr Lombe indicated that he did not believe that he could take his enquiries much further. However, it was clear that Newlite owned two significant properties. 112 Mr Lombe testified that he had considered the likely costs of including the Moses interests in any proceedings which might be brought against the partners of Tietyens Solicitors, having received advice about this matter from Cornwall Stodart. He had also undertaken a consideration of the likely costs of executing against the assets of the Moses interests if TI were successful in obtaining a judgment against those interests. He stated that he had worked out how he proposed to fund the litigation which he believed would cost something of the order of $200,000 or $300,000 insofar as the Moses interests were concerned. He claimed that he had undertaken an analysis of the costs of pursuing the litigation. He had compared that with the potential benefits thereof. Though there was no single document which took the form of a cost benefit analysis, there were documents that, when put together, gave a view as to whether or not the litigation should be pursued. In the end, the liquidator's commercial judgment was strongly based on Mr Garratt's advice. There were commercial issues present, but the paramount issues, so far as he was concerned, were of a legal nature. 113 It should be noted that Mr Lombe testified that he is an experienced liquidator. He is also an experienced litigator used to prosecuting Supreme Court actions of great complexity. He bluntly disagreed with the view of Mr Stout, who represented the Moses interests, that it was in the interests of the TI investors that the compromise be approved. 114 Mr Nettle submitted that the material placed before the Court on behalf of the liquidator in seeking directions under s 479(3) of the Corporations Law was deficient in several critical respects. He submitted that there should be, at the very least, a cost benefit analysis prepared in relation to the litigation. Moreover, the liquidator had no business commencing what were likely to be complex and hard fought proceedings without having thoroughly investigated the asset position of Newlite. Mr Nettle obtained instructions from his clients that Newlite would be prepared to disclose to the liquidator its complete asset holdings. Mr Nettle noted that this was an invitation which Mr Garratt was not inclined, at this stage, to accept. Mr Nettle also noted that to the extent that Mr Garratt's advice was predicated upon a concern that a failure to include Newlite, Camcor and Mr Moses as defendants in the proceedings contemplated against the partners of Tietyens Solicitors might be detrimental, or even fatal, to any such proceedings, such a concern was misconceived, as a matter of law. 115 Mr Nettle relied upon certain observations of Young J of the Supreme Court of New South Wales in Re Lemon Tree Passage & Districts RSL & Citizens Club Co-operative Ltd (1988) 6 ACLC 24. There a liquidator sought directions from the Court as to whether to commence proceedings. The application was made under s 379(3) of the Companies Code. The liquidator provided to the Court a draft statement of claim and a substantial body of other relevant documents. 116 The questions before the Court were: · Was the Court bound to give advice? · If the Court was so bound, was it obliged to determine the chances of success of the proposed proceedings? · Should the Court comment on the draft statement of claim before it? 117 Young J stood the matter over in order to enable the liquidator, if he wished to continue with the proceedings, to obtain the requisite material which should have been placed before the Court in the first place. His Honour noted that he had been handed by the solicitor who appeared for the liquidator a bundle of documents about one metre high. On even the most cursory reading of that material his Honour could perceive difficulties associated with the manner in which it was proposed to conduct the case. 118 Young J stated at 26: "What should the Court do when asked to give advice under s 379 of the Code as to whether the liquidator should commence proceedings?" 119 His Honour observed that the Court had a discretion as to whether or not it would determine a question on directions if that be hypothetical. The status of a liquidator in a winding up by the Court was very special. To a great extent the liquidator was delegated with the authority of the Court to determine, at first instance, questions which arose in the winding up, subject to the supervision of the Court. The liquidator did administratively, what in earlier ages, was done by officers of the Court within the Court system. His Honour concluded, that apart from very rare cases, such as those involving purely hypothetical questions, the Court should not leave one of its officers floundering when its assistance was sought. If the liquidator asked for advice, then advice and directions should ordinarily be given. 120 His Honour continued at 27: "Ordinarily … a question as to whether a liquidator should commence proceedings or settle proceedings which involve questions of law and procedure, are proper cases for the court to consider under s 379(3) of the Code." 121 His Honour then referred to Re Atkinson (deceased) [1971] VR 612 at 615-616 per Gillard J and then continued: "On the material that I have adverted to so far, it would seem to me that the liquidator has, against someone, an arguable case, so that the matter is certainly not in the class of fruitless cases that the liquidator should be advised not to take. That being so, the question is whether the chances of success and the expense involved make it a worthwhile course for the liquidator to pursue the litigation? There is insufficient material before the Court to enable this question to be answered, despite the meter high pile of material. Although the Court has, I believe, an obligation to answer the liquidator's questions, those representing the liquidator have an obligation to place before the Court the necessary materials for the Court to be able to fulfil its function. In cases of this nature, it is not of great assistance to supply the Judge with the evidence that the liquidator has unless it can be set out within a small compass. What is required is that the court have material to enable it to assess (a) the reasonable chances of the liquidator succeeding; (b) the estimated cost of the litigation; and (c) how the litigation is to be funded in the first instance. The first requirement will usually be satisfied by the court being given an opinion from senior counsel, or at least very experienced counsel who has reviewed the evidentiary material and who has researched the legal points involved, and who can give some indication as to the prospects of success." 122 No such material had been placed before Young J in Re Lemon Tree Passage. That is manifestly not the case in the liquidator's applications before me. 123 A comprehensive written opinion from senior counsel, who is very experienced in this area, and who has been involved for a considerable time in considering the various matters associated with Tietyens Solicitors, and in the liquidation of TI, has been placed before the Court. The liquidator has formed the view, as he seems to me to be entitled to do, that the advice provided to him by Mr Garratt is competent, and advice upon which he may properly act. He has considered the prospects of success. He has been advised by Mr Garratt that those prospects are strong. He has considered the strength of the claims made against TI by the Moses interests, and he has concluded that those claims are likely to be defeated. There are assets available which the liquidator believes may be worth millions of dollars to satisfy, in part at least, any judgment which TI obtains against Newlite. 124 The liquidator's decision to decline to support the compromise agreement because he does not, in the exercise of his commercial judgment, regard it as being in the best interests of the TI investors, is a decision which, in my opinion, is properly open to the liquidator to make. I cannot see why the Court should not, having so determined, provide to the liquidator such protection as may be afforded by directions being given pursuant to s 479(3) of the Corporations Law. 125 I cannot accept Mr Nettle's submission that there is, in effect, a fixed minimum standard, or threshold, which an application for directions under that section must meet in every case, including the preparation of a properly prepared cost-benefit analysis. I do not consider that any of the authorities to which I have been referred requires me to approach the matter in that rigid way. 126 Nothing in Re Lemon Tree Passage (supra), or in Re Chase Corporation (Australia) Equities Pty Ltd (1990) 8 ACLC 1118 (upon which Mr Nettle also relied) indicates that the liquidator's applications in the present case are insufficiently supported by such material as is necessary to enable me to give such directions as I regard appropriate in accordance with the requirements of the Act. I do not believe that it would be productive to give directions requiring the liquidator to provide to the Court a single document containing a cost benefit analysis of the proposed litigation. Nor do I think that it is necessary to give directions requiring the liquidator to carry out further investigations into the financial affairs of Newlite. That is a task which, as Mr Garratt contends, might be both extremely difficult, and very time consuming, having regard to the apparent complexity of Newlite's financial affairs. It is sufficient that Mr Lombe has established, to his satisfaction, and it seems upon reasonable grounds, that Newlite has substantial assets worth, he believes, "millions". 127 Finally, I reject Mr Nettle's submission that I should direct the liquidator to obtain the advice of some other senior counsel, entirely independent of the parties, because of the possibility that Mr Garratt may have permitted his judgment to become clouded by his close involvement with this case over a long period of time. There is nothing in any of the material which I have seen, or in the manner in which Mr Garratt has conducted the present proceedings, which causes me to have any concerns at all about his professional judgment, or his objectivity. The principles discussed by Mandie J in Grimwade v Meagher [1995] 1 VR 446 patently have no application to this case. 128 The orders of the Court in proceedings No VG 3352 of 1997 and No VG 3353 of 1997 are as follows: 1. Each application brought pursuant to s 477(2A) of the Corporations Law seeking approval of the compromise of a debt be dismissed. 2. The Court directs, pursuant to s 479(3) of the Corporations Law, that Mr David Lombe, as liquidator of Tietyens Investments Pty Ltd (In Liq), being satisfied in reliance upon the advice of Mr RM Garratt QC that it would not be in the best interests of the Tietyens investors to implement the settlement agreement arrived at on 26 May 1998, may act upon that advice and not implement that agreement. 129 I will hear the parties in relation to the costs of those proceedings. 130 As regards proceeding No VG 3383 of 1998, it follows from my conclusions in the liquidator's applications, and from the evidence of Mr Lombe concerning the need to obtain the advice of Mr Garratt before seeking Court approval of the compromise, that I do not regard either version of the agreement reached between the applicants and the respondents, whether on 26 May 1998, or alternatively 29 June 1998, as constituting a binding agreement to settle all of the claims between the parties on the terms set out in that agreement. Moreover, even assuming that the liquidator was subject to an implied obligation under the settlement agreement of 26 May 1998 to do all that was reasonably necessary to obtain the Court's approval of the compromise reached on that date, that obligation does not extend to seeking the implementation of an agreement which the liquidator does not now regard as being in the interests of the Tietyens investors. I would refuse the declaratory and injunctive relief sought, and dismiss that application with costs. I certify that the preceding one hundred and thirty (130) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Associate: Dated: In proceedings No VG 3352 of 1997 and No VG 3353 of 1997 Counsel for the Applicant: Mr RM Garratt QC and Mr S Gardiner

Solicitor for the Applicant: Cornwall Stodart In proceeding No VG 3383 of 1998 Counsel for the Applicants: Mr GAA Nettle QC and Mr ML Sifris

Counsel for the Respondents: Mr RM Garratt QC and Mr SP Gardiner

Date of Hearing: 13 and 28 October, 27 November 1998