Mr Brian Murdoch and Mr Robert Murdoch are the sole directors and equal shareholders of Mudgee Dolomite & Lime Pty Ltd (in liq) (MDL). MDL conducts a quarrying business at two sites.
On 28 October 2020, Black J delivered judgment in these proceedings and three other related proceedings to which MDL was a party: Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510.
His Honour made orders giving effect to his reasons for judgment on 24 November 2020. Those orders included an order made in these proceedings winding up MDL pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) and appointing Ms Jennifer Nettleton and Mr Rahul Goyal as joint and several liquidators of MDL (the Liquidators).
Proceeding 2016/84283 is one of the four related proceedings that was the subject of Black J's judgment and orders. This was a derivative action brought by Mr Brian Murdoch on behalf of MDL against Mr Robert Murdoch, his son Mr Stephen Murdoch and companies associated with them including RK Murdoch Pty Ltd (RKM) and Tilecote Farm Pty Ltd which was formerly known as Bright Pear Pty Ltd (BPPL) (collectively, the Robert Murdoch Interests). Proceeding 2016/84283 was referred to by the parties as the First Derivative Proceeding and I will adopt the same terminology in these reasons.
There were two aspects to the First Derivative Proceeding. The first aspect concerned revenue derived by RKM and BPPL from a mine known as the Cadia mine (the Cadia Claim). The second aspect related to the acquisition by the Robert Murdoch Interests of a mine situated at Timboon in Victoria (the Timboon Claim).
MDL's claim in relation to the Cadia mine succeeded. Black J held that: [1]
"… Robert, in breach of statutory and fiduciary duties, made a series of decisions in conflict of duty and interest and duty and duty which deprived MDL of the opportunity to undertake substantial work at the Cadia mine and delivered substantial profits to RKM and BPPL, and Stephen was knowingly involved in those breaches and RKM and BPPL are liable as Robert's and Stephen's alter egos in respect of those breaches of duty. … MDL is entitled to compensation (although it has not established that it has suffered any loss) or an account of profits, at its election, and the circumstances of this breach do not warrant any allowance for effort by Robert, Stephen, RKM or BPPL beyond the deduction of actual costs incurred which has already been reflected in determining the relevant profits made by RKM and BPPL from the work at the Cadia mine."
Black J held that MDL had not established loss because it had not proved the costs that it would have incurred if it had undertaken the work that was performed by RKM and BPPL at the Cadia mine. [2] However, his Honour held that RKM and BPPL had made a profit of $4,358,106 on the work undertaken at the Cadia mine. [3] Accordingly, if MDL elects to pursue an account of profits, it will be entitled to this amount together with interest.
MDL's claim in relation to the Timboon mine failed. Black J held that: [4]
"This claim fails because the business of MDL and associated companies had been conducted, for a considerable time, on the basis that Brian, Robert and their sons could and did acquire quarries outside MDL, and the opportunity to acquire the Timboon quarry did not come to Robert or Stephen in any capacity associated with MDL. The acquisition of this mine was not within the scope of the duties owed by Robert and Stephen to MDL."
Although the Timboon Claim was not established, Black J addressed the evidence concerning the loss and damage that MDL claimed to have suffered in relation to the Timboon mine. [5] His Honour noted that it was common ground between the parties' expert witnesses that profits derived from the Timboon mine since the date of its acquisition and prior to the hearing were $2,356,910. His Honour summarised the competing evidence concerning the present value of future profits without expressing a view about the value of those profits. [6]
On 24 November 2020, his Honour made the following declarations and orders giving effect to his reasons for judgment in relation to the First Derivative Proceeding:
"6. Declare that, at the election of the Company, by its liquidators, the Company is entitled as against RK Murdoch Pty Limited (RKM) and Tilecote Farm Pty Limited (previously known as Bright Pear Pty Limited) (BPPL) to:
(a) an account of the profits earned by RKM and BPPL from the work done by those companies at the Cadia mine, as that term is used in the judgment dated 28 October 2020 (Cadia Work); or
(b) compensation for any loss by reason of the Cadia Work.
7. Declare that the Company is entitled as against Robert Murdoch and Stephen Murdoch to compensation in a sum equal to the account of profits in Order 6(a) or the compensation in Order 6(b), according to the election in Order 6 to the intent that RKM, BPPL, Robert Murdoch and Stephen Murdoch shall be jointly and severally liable for the same sum.
8. Grant liberty to the Company, by its liquidators, to apply generally, including in relation to any claim for interest and the entry of judgment pursuant to Orders 6 and 7.
9. Otherwise dismiss the First Derivative Proceedings.
10. Except so far as costs are the subject of previous costs orders (save for the costs order made on a preliminary basis in respect of Brian Murdoch obtaining leave to bring the First Derivative Proceedings), RKM, BPPL, Robert Murdoch and Stephen Murdoch pay, jointly and severally, 30% of the costs of the Company and Brian Murdoch of the First Derivative Proceedings (including in respect of his application for leave to bring the First Derivative Proceedings), as agreed or assessed, on the ordinary basis.
11. Grant liberty to the liquidators of the Company to apply, including in respect of the question of any election between remedies and in respect of interest."
The Liquidators have not yet exercised the liberty to apply granted in orders 8 and 11 above.
On 7 December 2020, the Robert Murdoch Interests filed a notice of appeal against Black J's judgment and orders in the First Derivative Proceeding. In the notice of appeal the Robert Murdoch Interests seek leave pursuant s 471B of the Corporations Act to proceed with the appeal against the Company and, if leave is granted, orders setting aside orders 6 to 11 made on 24 November 2020 or, alternatively, a declaration that any account of profit be taken with just allowances for capital and risk (the Appeal).
Mr Brian Murdoch, his son Mr Scott Murdoch, B Murdoch Pty Ltd and a related company Stoneco Pty Ltd (collectively, the Brian Murdoch Interests) wish MDL to pursue a cross-appeal against the dismissal of the Timboon Claim (the Cross-Appeal). Mr Brian Murdoch has filed an application in the Appeal Proceedings for an order granting him leave to do so on the basis that he bears the costs of doing so (in the first instance and subject to such other order as the Court of Appeal may make in relation to the costs of the Cross-Appeal) and he indemnifies MDL in respect of any adverse costs order made in respect of the Cross-Appeal.
These reasons for judgment relate to the following applications made by the Liquidators by interlocutory process filed on 26 March 2021: [7]
1. an application for an order pursuant to s 90-15 of the Insolvency Practice Schedule [8] (the IPS) that, in the circumstances set out in the affidavits of Mr Rahul Goyal affirmed on 26 March and 30 March 2021 (the Goyal affidavits), the Liquidators would be acting properly and would be justified in causing MDL to defend the Appeal (prayer 3 of the interlocutory process);
2. an application for an order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal Affidavits, the Liquidators would be acting properly and would be justified in not opposing Mr Brian Murdoch's application for leave to bring the Cross-Appeal on behalf of MDL in the event that:
1. one or more of the Brian Murdoch Interests agree, on terms acceptable to the Liquidators, to fully indemnify MDL and the Liquidators in respect of any fees, costs (including adverse costs orders), expenses and liabilities incurred in connection with the cross-appeal; and
2. the Brian Murdoch Interests agree to provide security to the Liquidators and to MDL for the abovementioned indemnity, on terms acceptable to the Liquidators;
1. (prayer 5 of the interlocutory process, as amended during the hearing);
2. an application for an order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal affidavits, the Liquidators would be acting properly and would be justified in engaging the same solicitors and counsel who acted for MDL in the First Derivative Proceedings to act for MDL in defending the Appeal, and an order pursuant to s 477(2B) of the Corporations Act 2001 (Cth) approving the Liquidators, in the circumstances set out in the Goyal affidavits, entering into a retainer agreement on behalf of MDL with the solicitors (prayers 7-8 of the interlocutory process);
3. an application for an order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal affidavits, the Liquidators would be acting properly and would be justified in not exercising the liberty granted by order 8 made on 24 November 2020 until after the Appeal (and, if it proceeds, the Cross-Appeal) has been determined (prayer 9 of the interlocutory process, as amended during the hearing); and
4. an order that the Liquidators' costs of this application be costs in the liquidation of MDL (prayer 10 of the interlocutory process).
The Liquidators relied on the Goyal affidavits, and the exhibits to those affidavits, in support of these applications. At the commencement of the hearing, orders were made under the Court Suppression and Non-publication Orders Act 2010 (NSW) preventing the publication or disclosure of Mr Goyal's affidavit affirmed on 30 March 2021 and the exhibit to that affidavit. That affidavit exhibits a confidential legal opinion obtained by the Liquidators' solicitors from counsel. The Liquidators' counsel and solicitors are independent of the solicitors and counsel who appeared for MDL at the hearing of the First Derivative Proceeding and the three related proceedings before Black J.
The Brian Murdoch Interests were represented by senior counsel on the hearing of the interlocutory process. Having regard to the comprehensive submissions made on behalf of the Liquidators and the evidence tendered by the Liquidators concerning the proposed Cross-Appeal, senior counsel for the Brian Murdoch Interests made no substantive submissions in relation to the Liquidators' applications.
There was no appearance for the Robert Murdoch interests. The Liquidators tendered a letter from the solicitors for the Robert Murdoch interests dated 8 April 2021 stating that they did not consider that their clients had standing to be heard on the interlocutory process.
I made an order dispensing with the requirement under rule 2.8 of the Supreme Court (Corporations) Rules 1999 (NSW) for the Australian Securities and Investments Commission to be notified of the application for orders under s 90-15 of the IPS. I considered that order to be appropriate in circumstances where all parties interested in the Appeal and potential Cross-Appeal had been notified of the Liquidators' applications and had the opportunity to be heard.
Consideration and determination
Defence of the Appeal and retainer of solicitors and counsel for that purpose
Section 90-15(1) of the IPS provides:
"The Court may make such orders as it thinks fit in relation to the external administration of a company."
The principles applicable to an application under s 90-15(1) for directions of the kind sought in this case were summarised by Black J in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9] and by Gleeson JA in Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 at [6]-[8].
The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion. Directions will typically not be given in relation to the making and implementation of a business or commercial decision in respect of which no particular legal issue is raised and there is no attack on the propriety or reasonableness of the proposed decision. However, directions may be given where the decision is likely to be contentious: Re Octavia, supra, at [7] and the authorities there cited; Re Kerr (as special purpose liquidator of Octavia Ltd (in liq)) (2019) 139 ACSR 192; [2019] FCA 1614 at [69], citing Re One.Tel Ltd (2014) 99 ACSR 247; [2014] NSWSC 457 at [32]-[35] and [55].
As Black J said in Re Octavia, supra, at [9] (referring to authority), the Court's power to give judicial advice and directions is intended to facilitate the performance of a liquidator's functions and should be interpreted widely to give effect to that intention, so that the Court may give such advice or give such a direction where it is advantageous to the liquidation to do so.
One matter in respect of which liquidators may obtain orders pursuant to s 90-15(1) is whether they would be justified in instituting or defending proceedings: see, for example, Re Kerr, supra, at [70]-[71]; see also Re Accord Pacific Land Pty Ltd [2012] NSWSC 1283 (application for directions under s 511 of the Corporations Act). I am not aware of any case in which a liquidator has applied to a court for an order pursuant to s 90-15 to the effect that they would be justified in prosecuting or defending an appeal from an earlier judgment of the court. There are, however, a small number of cases in which trustees or receivers have sought judicial advice concerning the commencement or continuation of appeal proceedings. In my opinion, those cases provide guidance as to the matters to be considered in determining whether to make the order sought by the Liquidators under s 90-15 concerning the defence of the Appeal in the present case: LM Investment Management Ltd (receiver apptd) in liq) v Drake [2020] QSC 265, especially at [23]-[27], [30]-[33]; Application by Muhammad Elias Attia [2020] NSWSC 94, especially at [18], [91]; Frost and Fallon [2011] NSWSC 591, especially at [69]-[72].
In the present case, it seems to me that the following matters are relevant to that determination:
1. whether there is a reasonably arguable basis on which the Appeal may be defended;
2. the nature and value to MDL of the judgment of Black J if the Appeal is successfully defended;
3. the known means of the Robert Murdoch Interests to satisfy the judgment and orders of Black J if the Appeal is successfully defended; and
4. the potential downside to MDL of defending the Appeal, namely the potential for the assets of MDL available to creditors and contributories in the winding up of MDL to be depleted by the amount of any costs order against MDL if its defence of the Appeal fails.
In considering whether there is a reasonably arguable basis on which the Appeal may be defended, I do not express any view about the merits or prospects of the Appeal. I am concerned only with whether there is a reasonably arguable basis upon which to defend the Appeal such that it would be proper and appropriate for the Liquidators to cause MDL to do so.
In considering that question, I have taken into account Black J's remarks that the judgment in relation to the First Derivative Proceedings and the three related proceedings turned on the application of well-established principles to facts. [9]
That is evident from a review of the whole of the 137 pages of the reasons for judgment, in which his Honour:
1. describes the claims to be determined in the four proceedings; [10]
2. the nature of the affidavit evidence relied on by the parties and his Honour's observations of each witness bearing on the credibility of their evidence; [11]
3. describes the nature of the expert evidence; [12] and .
4. sets out a detailed chronology of relevant events based on the pleadings and evidence; [13]
before addressing the claims in each of the four proceedings.
In relation to the Cadia Claim in the First Derivative Proceeding, Black J's reasons for judgment set out a detailed account of the pleaded issues [14] followed by a summary of the evidence relevant to those issues (supplementing the summary of evidence in the chronology of relevant events to which I have referred above). [15] His Honour then addresses each cause of action and defence raised in the Cadia Claim by applying established legal principles to the evidence and facts as found and considers issues raised by the parties' submissions in relation to each claim and defence. [16]
I have not undertaken any independent review of the pleadings and evidence for the purpose of determining the Liquidators' applications. Nor is it necessary or appropriate for me to do so. However, it is plain on the face of the reasons for judgment that his Honour's summaries of the claims, defences and evidence have been prepared with great care, with each statement in the reasons supported by citations of specific paragraphs in the pleadings or specific affidavit or exhibit references. I note that there is no point taken in the Notice of Appeal that his Honour failed to have regard to relevant matters or evidence.
The Notice of Appeal is directed to:
1. an alleged error in relation to one finding of fact; [17]
2. various matters of fact or mixed fact and law that it is said that his Honour should "should have held"; [18]
3. challenges to his Honour's findings in relation to causation; [19] and
4. an alternative challenge of failure to make allowances for capital and risk in the taking of any account of profits. [20]
It appears that challenges to his Honour's factual findings, based on his detailed assessment of the evidence, are central to most, if not all, of the grounds of appeal.
For example, the Robert Murdoch Interests contend in appeal ground 6 that the primary judge should have held that there was no breach of fiduciary or statutory duty or knowing involvement in any breach by the appellants or any of them in relation to the undertaking of work at the Cadia mine.
This appears to relate to what counsel for the Liquidators submitted was the central factual issue upon which the outcome of the Cadia Claim turned, namely the question whether the scope of Mr Robert Murdoch's fiduciary duties and statutory duties under ss 180-183 of the Corporations Act owed to MDL had been narrowed by an arrangement made at a meeting in November 2009 at which it was allegedly resolved that MDL was to be split up and that the Robert Murdoch Interests and Brian Murdoch Interests were free to pursue new business opportunities, including business of the same or similar kind to that carried out by MDL, independently of MDL. [21]
Black J assessed the evidence of what occurred at the November 2009 meeting, including that no attempt had been made to identify how such a split would be implemented and who would take what assets. His Honour held on the basis of this evidence, that "it was never seriously arguable that a discussion of a split of the Murdoch Group, where the manner in which it was to be implemented was not resolved and where it was not in fact implemented, gave rise to any narrowing of the duties owed to the companies by Robert or Brian, or by Scott or Stephen as employees of the companies". [22]
On appeal, challenges to findings of fact, and particularly those based in part on an assessment of the credibility of the evidence given by relevant witnesses, will be approached bearing in mind the "natural limitations" on an appellate court proceeding wholly or substantially on the record that have been referred to in many cases, and are conveniently summarised in ET-China.com International Holdings Ltd v Cheung [2021] NSWCA 24 at [181]-[188] (Bell P, Bathurst CJ and Leeming JA agreeing).
Taking into account the reasons for judgment of Black J, the nature of the issues raised by the Grounds of Appeal, and the confidential and privileged opinion obtained by the Liquidators from Mr James Hutton and Mr Bradley Smith of counsel, I am satisfied that there are reasonably arguable grounds for defence of each ground of appeal raised by the Robert Murdoch Interests. I have relied heavily on the confidential opinion, which includes an analysis of the grounds of appeal articulated by the Robert Murdoch Interests and the passages within Black J's reasons for judgment to which each ground of appeal appears to be directed. [23] As I have already noted, Messrs Hutton and Smith are independent of the counsel who appeared for MDL at the hearing before Black J and are briefed by the Liquidators' solicitors, who are independent of the solicitors who appeared for MDL at that hearing.
As I have already referred to, the orders made by Black J entitle MDL to elect to pursue an account of profits of some $4,358,106, together with interest, in respect of the Cadia Claim. [24] Mr Goyal has deposed that the Liquidators understand that the Robert Murdoch Interests have the financial means to pay the amount that will be owing to MDL if it elects to pursue an account of profits. That understanding is informed by the Liquidators' assessment that Mr Robert Murdoch will receive a substantial distribution as a member of MDL on the winding up of MDL. [25] The money available to be recovered by pursuing that remedy, if not disturbed on Appeal, will be a significant asset that will be available to creditors and contributories of MDL in the winding up.
Mr Goyal has deposed that the Liquidators believe that it is consistent with their statutory and fiduciary duties as liquidators of MDL to cause MDL to defend the Appeal to the fullest extent possible in order to preserve for the benefit of the stakeholders in MDL the prospective recovery of $4,358,106. That belief is sound, in my opinion.
The potential downside of defending the Appeal is, of course, the risk of an adverse costs order against MDL if the Appeal is successful. There was no evidence of the amount of costs expected to be incurred in defending the Appeal. However, counsel for the Liquidators assured me that the estimated costs will be considerably less than the approximately $4.35 million value of MDL's right to elect to pursue an account of the profits earned by RKM and BPPL for work at the Cadia mine. Mr Goyal deposed that he expected that significant economies in the preparation and presentation of the defence of the Appeal would be achieved, with corresponding significant cost savings, if the Liquidators were to retain to act on behalf of MDL the same solicitors and counsel that acted on behalf of MDL in the First Derivative Proceedings at first instance (being the solicitors and counsel instructed by the Brian Murdoch Interests who prosecuted the First Derivative Proceedings on behalf of MDL). [26]
For all of the reasons explained above, I am satisfied that it is in the best interests of MDL for the Liquidators to cause MDL to defend the Appeal. That is so, irrespective of whether there is a saving in the legal costs of defending the Appeal by retaining the solicitors and counsel who acted for MDL in the First Derivative Proceedings. I will return to the Liquidators' application for orders concerning that proposed retainer shortly.
As counsel for the Liquidators acknowledged, the amount at stake and the nature of the issues raised by the Appeal might ordinarily mean that the decision to defend the Appeal lacks any element of controversy that might warrant an order under s 90-15 of the IPS. Counsel for the Liquidators submitted that an order is warranted in this case because the Cadia Claim succeeded against (and the Appeal is to be defended against) one of two equal stakeholders in MDL. In those circumstances the Liquidators sought the orders to ensure that a decision to defend the Appeal is not seen as compromising their independence as Liquidators of MDL. I accept the submissions that these features of this case make it appropriate to make the order sought under s 90-15 in relation to the Liquidators' decision to defend the Appeal.
In the proceedings before Black J, Mr Bedrossian of senior counsel, Mr Jaireth of counsel and McPhee Kelshaw (Solicitors) (BMI Legal Team) acted on behalf of the Brian Murdoch Interests, including acting in the interests of MDL in the First Derivative Proceedings that the Brian Murdoch Interests had been granted leave to bring in the name of and on behalf of MDL.
In his affidavit affirmed on 26 March 2021, Mr Goyal deposed that the Liquidators are inclined to the view that it would be in MDL's best interests to engage the BMI Legal Team to defend the Appeal, on the basis that the Liquidators will engage their own independent solicitors and counsel to advise and act on behalf of the Liquidators in relation to the Appeal to the extent necessary.
Mr Goyal's affidavit explains that the Liquidators have formed this view because the BMI Legal Team have an in-depth knowledge of the proceedings before Black J, which were lengthy and covered complicated matters based on detailed factual backgrounds spanning decades, as well as the evidence adduced at first instance that will be relevant to the determination of the Appeal. Significant costs would be incurred by MDL if it were to engage new counsel and solicitors with no prior background knowledge or experience with the proceedings to undertake all of the work required to defend the Appeal.
I accept the submission made by counsel for the Liquidators that, the retainer of the BMI Legal Team is in the best interests of MDL and its stakeholders having regard to the significant costs that would be incurred in retaining new solicitors and counsel and in circumstances where the Liquidators will retain independent oversight of the defence of the Appeal by retaining their own solicitors and counsel.
The extent of that oversight is made clear from the terms of the proposed costs agreement between MDL and McPhee Kelshaw, to which I refer below. As I understand the terms of that agreement, the Liquidators will be making decisions concerning the defence of the Appeal on the basis of advice received from their own solicitors (Clayton Utz), who will consult with and draw on the detailed knowledge and experience of McPhee Kelshaw in formulating that advice. McPhee Kelshaw may be required to advise in addition to assisting and consulting with Clayton Utz. It is proposed that Clayton Utz, rather than McPhee Kelshaw, will be responsible for briefing Mr Bedrossian SC and Mr Jaireth to appear for MDL in defending the Appeal.
I accept the submission made by counsel for the Liquidators that these arrangements are in the best interests of MDL as they will enable the Liquidators to ensure that the defence of the Appeal is conducted with the independent oversight of the Liquidators but with the benefit of the case-specific expertise of McPhee Kelshaw and the senior and junior counsel briefed by them previously. Of course, the need to maintain independence and appearance of independence of liquidators is something that requires ongoing attention in any winding up, and the Liquidators will need to address that as the Appeal proceedings progress.
As counsel for the Liquidators submitted, an order under s 90-15 to the effect that the Liquidators would be justified in retaining the BMI Legal Team is appropriate in circumstances where the retainer might otherwise be the subject of controversy given that the Appeal is being prosecuted by one of two stakeholders in MDL and the Liquidators must be and appear to be independent.
The Liquidators also seek an order under s 477(2B) of the Corporations Act approving their entry into a costs agreement with McPhee Kelshaw in the form annexed to the affidavit of Ms Jillian Robertson affirmed on 14 April 2021. The costs agreement is addressed to MDL. The work is described in clauses 1 and 7 as advising, assisting and consulting with the Liquidators' solicitors (Clayton Utz) in the defence of the Appeal, including providing any assistance directly to counsel to be briefed on the Appeal. Clause 8 provides that Clayton Utz will be instructing counsel to appear for MDL on the Appeal. Clauses 3 and 7 set out the hourly rates at which fees will be charged for work performed under the costs agreement and an estimate of the range of total fees likely to be charged. I consider both the hourly rates and the estimate to be reasonable, and I note Ms Robertson's evidence that the Liquidators consider the terms and fees to be consistent with those in which the Liquidators have engaged solicitors in a similar capacity on other matters to undertake work of the kind contemplated in the costs agreement.
The need for approval under s 477(2B) of the Corporations Act arises because the Liquidators are of the view that it is likely to take more than three months for the Appeal to be heard and determined having regard to factual and legal complexity of the proceedings at first instance. In my opinion, the Liquidators' view is reasonable taking into account also the breadth of the grounds of appeal which counsel for the Liquidator appropriately described as an "all grounds appeal" in relation to the Cadia Claim. It is inherently unlikely in my view that McPhee Kelshaw's obligations under the costs agreement will be discharged within three months of entry into the costs agreement.
I accept the submission made by counsel for the Liquidators that the better view is that the costs agreement to be entered into by the Liquidators in the name of and on behalf of MDL is an agreement to which s 477(2B) applies: Re Lewis (as liquidators of Concrete Supply Pty Ltd (in liq)) (2020) 145 ACSR 459; [2020] FCA 841 at [17]-[20]; Frigger v Kitay (in his capacity as liquidator of Computer Accounting and Tax Pty Ltd (in liq) (2020) 143 ACSR 655; [2020] FCA 497 at [44]-[51].
I accept the Liquidators' submission that the principles applicable to the question whether to grant approval under s 477(2B) are those set out in Re Lewis, supra, at [16]. I respectfully adopt that summary by White J, which I set out in full below:
"16. The principles which the Court applies when considering an application for approval are well settled:
(a) the Court makes its assessment having regard to the purposes for which liquidators' powers exist, including the serving of the interests of those concerned in the winding up, the achievement of what is necessary for the proper realisation of the assets of the company, and assisting in its winding up: Re HIH Insurance Ltd [2004] NSWSC 5 at [15]; Stewart, Re Newtronics Pty Ltd [2007] FCA 1375 at [26(6)];
(b) a primary consideration is the impact of the agreement on the duration of the liquidation and whether that is, in all of the circumstances, reasonable in the interests of the liquidation: Re Opel Networks Pty Ltd [2013] NSWSC 1245 at [7]; Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 at [30];
(c) the Court's approval is not an endorsement of the proposed agreement but merely constitutes permission for liquidators to exercise their commercial judgment: Re Bell Group Ltd (in liq); Ex parte Woodings (as liquidator of Bell Group Ltd) (in liq) [2009] WASC 235 at [58];
(d) again, generally, the Court does not refuse an approval unless there can be seen to be some lack of good faith, some error in law or principle or some real and substantial grounds for doubting the prudence of the liquidator's conduct: Re Spedley Securities Ltd (in liq) (1992) 10 ACLC 1742 at 1745;
(e) a court may also refuse approval if the terms of the proposed agreement are unclear: Re United Medical Protection (No 4) [2002] NSWSC 516; (2002) 20 ACLC 1647 at [45];
(f) the role of the Court is to grant or deny approval to the liquidator's proposal. It is not to develop some alternative proposal which might seems preferable: Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 16 ACLC 1642 at 1649; and
(g) nevertheless, the Court does not simply "rubber stamp" whatever is put forward by a liquidator: Re Stewart; Newtronics, at [26(1)]."
For the reasons already canvassed at [25]-[50] above, I consider that entry into the costs agreement on behalf of MDL is consistent with the purpose of the Liquidators' powers and is a prudent exercise of those powers in good faith in the circumstances of this winding up.
The costs agreement will not impact on the duration of the liquidation. The Appeal has been commenced by the Robert Murdoch Interests. In circumstances where the Liquidators have formed the view that it is in the best interests of the stakeholders of MDL to cause MDL to defend those Appeal proceedings, the duration of the winding up will be extended by the duration of the Appeal proceedings, irrespective of whether the costs agreement is entered into.
The terms of the costs agreement are clear and comply with the disclosure requirements in s 174 of the Legal Profession Uniform Law (NSW).
I am therefore satisfied that it is appropriate to make an order approving the entry into the costs agreement with McPhee Kelshaw in the form of Annexure A to Ms Robertson's affidavit. I note that this does not address any retainer of counsel to defend the Appeal.
[2]
Cross-Appeal
By a notice of motion filed in the Appeal proceedings on 31 March 2021, Mr Brian Murdoch sought the following relief:
1. an order pursuant to the Court's inherent jurisdiction granting him leave to bring the Cross-Appeal (prayers 1 and 2 of the notice of motion);
2. alternatively, an order pursuant to s 477 of the Corporations Act that the Liquidators cause MDL to pursue the Cross-Appeal (prayer 3 of the notice of motion);
3. an order joining him as a respondent to the Notice of Appeal and permitting him to be named as a Second Cross-Appellant in respect of any Notice of Cross-Appeal filed on behalf of MDL so as to permit him to apply for an order for payment of his costs incurred in prosecuting the Cross-Appeal on behalf of MDL if the Cross-Appeal is successful (prayer 4 of the notice of motion);
4. if he is granted leave to pursue the Cross-Appeal on behalf of MDL, an order that the costs incurred on behalf of MDL in the Cross-Appeal be born in the first instance by him subject to further order of the Court in relation to the costs of the Cross-Appeal, and an order that he indemnify MDL in respect of any adverse costs order in respect of the Cross-Appeal on the condition that Brian shall be entitled to nominate the solicitors and counsel appearing on behalf of MDL (prayer 5 of the notice of motion);
5. if the Liquidators are ordered to cause MDL to pursue the Cross-Appeal, an order that he indemnify MDL and the Liquidators in respect of the costs of the Cross-Appeal and any costs order made against MDL in respect of the Cross-Appeal, on condition that he is entitled to nominate the solicitors and counsel to appear on behalf of MDL on the Cross-Appeal (prayer 6 of the notice of motion); and
6. an order extending the time for filing and service of the proposed Notice of Cross-Appeal (prayer 7 of the notice of motion).
Mr Brian Murdoch's application for leave to pursue the Cross-Appeal in the name of MDL (prayers 1 and 2) relies on inherent jurisdiction of the Court of Appeal because s 237 of the Corporations Act does not apply to a company in liquidation: Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780; [2008] NSWCA 52 at [124].
Subject to the orders that the Court may make pursuant to s 90-15 of the IPS, the Liquidators do not wish to oppose the relief sought in prayers 1 and 2 and the related prayers 4 and 5 of the notice of motion.
The Liquidators do oppose the alternative relief sought in prayer 3 and the related prayer 6 of the notice of motion because s 477 of the Corporations Act does not appear to confer power on the Court to make such an order in the terms sought in prayer 3. The Liquidators do not oppose the ancillary and procedural orders in prayer 7 and following of the notice of motion.
I accept the Liquidators' submission that the principles articulated by Barrett J (as his Honour then was) in Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577; [2008] NSWSC 551 at [23]-[37] will be relevant to the determination of the notice of motion filed in the Appeal proceedings. After reviewing the caselaw in detail, his Honour considered that there were three main matters to be considered when the court is invited to exercise its discretion in an application for leave to pursue proceedings on behalf of a company in liquidation (at [34]):
"1. The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success.
The attitude of the liquidator to the question whether the proceedings should be pursued.
The question whether 'practical considerations support the initiation of the proceedings', with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security."
It is not for me to determine or express any view about the merits of the application for leave to commence the Cross-Appeal on behalf of MDL. The question for me is whether to make an order under s 90-15 of the IPS that the Liquidators would be justified in not opposing that application (being the relief sought in prayers 1, 2, 4, 5 and 7-9 of the notice of motion filed in the Appeal proceedings).
Counsel for the Liquidators submitted that the order sought under s 90-15 should be made because:
1. it is appropriate that the Court determine whether the Liquidators' proposed course is justified in circumstances where that involves not opposing leave being granted for the prosecution of the proposed Cross-Appeal for the benefit of MDL by one of two equal stakeholders in MDL against the other equal stakeholder, and the Liquidators' non-opposition might be contentious or relied on as lacking the appearance of independent if not the subject of an order under s 90-15;
2. the detailed draft grounds of cross-appeal demonstrate that the cross-appeal has a solid foundation in the sense described in Carpenter v Pioneer Park, supra; and
3. if the Court of Appeal grants leave, this will facilitate the Cross-Appeal being pursued for the benefit of MDL with the prospect of recovering an additional sum of at least $2.3 million (being the past profits of the Timboon mine), at no cost or risk to MDL having regard to the indemnities incorporated in the orders sought in the notice of motion and the security requirement in the orders sought by the Liquidators under s 90-15.
I accept the first and third of those submissions. In relation to the second submission, I note that the draft notice of cross-appeal, which has been prepared by experienced solicitors and counsel, appears to have been carefully prepared and identifies the precise passages in Black J's reasons for judgment said to be affected by error and the manner in which that is said to have affected his Honour's reasoning and ultimate conclusion in relation to the Timboon Claim. In my opinion, that is a sufficient basis to conclude that the Liquidators would be acting properly in not opposing Mr Brian Murdoch's application for leave to bring the Cross-Appeal on behalf of MDL, which will require him to persuade the Court of Appeal hearing the application that the Cross-Appeal has a solid foundation. Whilst the Liquidators do not consider that their duties compel them to pursue the Cross-Appeal, it does not follow that it is improper for them not to oppose a stakeholder seeking leave to do so on behalf of MDL at no cost or risk, and considerable potential benefit, to MDL.
For those reasons, I am satisfied that it is appropriate to make the order sought by the Liquidators that they would be acting properly and would be justified in not opposing Mr Brian Murdoch's application for leave to bring the Cross-Appeal on behalf of MDL in the event that the indemnity and security referred to in prayer 5 of the Liquidators' interlocutory process are provided.
Deferral of exercise of liberty to apply
As referred to at [14] above, the Liquidators also seek an order pursuant to s 90-15 of the IPS that they would be acting properly and would be justified in not exercising the liberty granted by order 8 made on 24 November 2020 until after the Appeal (and, if it proceeds, the Cross-Appeal) has been determined.
In his affidavit affirmed on 26 March 2021, Mr Goyal deposed that the Liquidators consider that exercising the liberty to apply before the Appeal proceedings are determined will not result in an earlier distribution to be made to creditors and will require the incurring of costs that may turn out to be wasted in the event that the Appeal succeeds. This is sound reasoning and I accept that it is appropriate to make the order sought under s 90-15 having regard to the significant sum of money involved.
Costs of these applications
For all of the reasons above, the Liquidators' applications have been made in the proper performance of their duties and there is no reason why the costs of the applications should not be costs in the winding up of MDL.
Conclusion and orders
For all of the reasons above, I make the following orders:
1. Order pursuant to s 90-15 of the Insolvency Practice Schedule in Schedule 2 to the Corporations Act 2001 (Cth) (the IPS) that, in the circumstances set out in affidavits of Mr Rahul Goyal affirmed on 26 March and 30 March 2021 (the Goyal affidavits), the Applicants in their capacity as joint and several liquidators of Mudgee Dolomite & Lime Pty Ltd (in liq) ACN 076 313 034 (the Company and the Liquidators) would be acting properly and would be justified in causing the Company to defend the appeal filed in the New South Wales Court of Appeal case number no. 2020/346991 (the Appeal).
2. Order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal Affidavits, the Liquidators would be acting properly and would be justified in not opposing the relief sought by Mr Brian Murdoch in prayers 1, 2, 4, 5 and 7-9 of the notice of motion filed on 31 March 2021 in the Appeal proceeding in the event that:
1. one or more of Mr Brian Murdoch, B Murdoch Pty Ltd, Mr Scott Murdoch and Stoneco Pty Ltd (the Brian Murdoch Interests) agree, on terms acceptable to the Liquidators, to fully indemnify the Company and the Liquidators in respect of any fees, costs (including adverse costs orders), expenses and liabilities incurred in connection with the proposed cross-appeal; and
2. the Brian Murdoch Interests agree to provide security to the Liquidators and to the Company for the abovementioned indemnity, on terms acceptable to the Liquidators.
1. Order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal affidavits, the Liquidators would be acting properly and would be justified in engaging on behalf of the Company the same solicitors and counsel who acted for the Company in proceeding 2016/84283 (the First Derivative Proceedings), to act for the Company in defending the Appeal.
2. Order pursuant to s 477(2B) of the Corporations Act 2001 (Cth) approving the Liquidators, in the circumstances set out in the Goyal affidavits, entering into a retainer agreement with the solicitors referred to in order 3 above in the form of Annexure A to the affidavit of Ms Jillian Robertson affirmed on 14 April 2021.
3. Order pursuant to s 90-15 of the IPS that, in the circumstances set out in the Goyal affidavits, the Liquidators would be acting properly and would be justified in not exercising the liberty granted by order 8 made in these proceedings on 24 November 2020 until after the Appeal (and, if it proceeds, the cross-appeal referred to in order 2 above) has been heard and determined.
4. Order that the Liquidators' costs of the interlocutory process filed on 26 March 2021 be costs in the liquidation of the Company.
[3]
Endnotes
[2020] NSWSC 1510 at [3], and see also [76]-[190].
[2020] NSWSC 1510 at [169].
[2020] NSWSC 1510 at [190]-[191].
[2020] NSWSC 1510 at [4] and [211]-[217].
[2020] NSWSC 1510 at [220]-[221].
[2020] NSWSC 1510 at [222]-[233].
Prayers 4 to 6 of the Interlocutory Process were not pressed at the hearing on 12 April 2021 and were stood over to a later date.
Schedule 2 to the Corporations Act 2001 (Cth).
[2020] NSWSC 1510 at [1].
Ibid at [3]-[6].
Ibid at [7]-[37].
Ibid at [38].
Ibid at [39]-[75].
Ibid at [76]-[81].
Ibid at [82]-[98].
Ibid at [99]-[192].
Notice of Appeal, Ground 1.
Notice of Appeal, Grounds 2-6.
Appeal Grounds 7-8.
Appeal Ground 10.
[2020] NSWSC 1510 at [125]-[126].
[2020] NSWSC 1510 at [52]-[54], [127].
See Application by Muhammad Elias Attia [2020] NSWSC 94 at [18].
[2020] NSWSC 1510 at [190]-[191].
Mr Goyal's affidavit affirmed on 26 March 2021, paragraph 20.
Mr Goyal's affidavit affirmed on 26 March 2021, paragraphs 20(c) and 21-27.
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Decision last updated: 19 April 2021