Crawford v Oswald Park Pty Ltd

Background 3One.Tel was a telecommunications company which commenced operations in the mid-1990s. In or about 1999, companies associated with the Packer family and the Murdoch family made a substantial investment in One.Tel, following which the major shareholders in One.Tel were News Limited ("News") and Publishing and Broadcasting Limited ("PBL") (now Consolidated Media Holdings Limited ("CMH")), and James Packer and Lachlan Murdoch became directors. By early 2001, in addition to Mr Packer and Mr Murdoch, the other directors of One.Tel were John David Rich, Bradley Keeling, John Greaves, Mark Silbermann, Kevin Beck and Rodney Adler. Peter Howell-Davies and Pirjo Kekalainen-Torvinen were appointed to the board in March 2001, and Peter Macourt and Peter Yates became directors on 17 May 2001. 4In April 2001, it became apparent to the directors of One.Tel that it had cash flow difficulties. In April 2001, Darren Miller and Martin Green, on behalf of PBL, conducted an investigation into One.Tel's cash position, and on about 7 May 2001 they reported to Mr Packer that One.Tel required a cash injection of $126 million to achieve a cash flow break even, including a cash buffer of $50 million. 5On 17 May 2001, the directors of One.Tel resolved to implement a one­for-one renounceable rights issue at 5 cents per share, to raise $132 million ("the Rights Issue"). The Rights Issue was to be fully and unconditionally underwritten by CMH, Consolidated Press Holdings Pty Limited ("CPH"), News and their subsidiaries. The directors also resolved to make an announcement to the Australian Stock Exchange ("ASX") regarding the Rights Issue, as soon as possible, and on the same day PBL, News and One.Tel announced to the ASX that a subscription and underwriting agreement had been entered into and that One.Tel would undertake the Rights Issue. The underwriting was described as unconditional. However, no written underwriting agreement was ever prepared by lawyers or executed by the parties. 6At a meeting of the board on 28 May 2001, the directors resolved to appoint Brian Long of Ernst & Young to provide advice to One.Tel in relation to its financial position. Mr Long completed his report ("the EY Report") on about 29 May 2001, concluding that absent the proceeds of any asset sales, One.Tel required between $120 million and $170 million to meet its then current obligations, and between $120 million and $150 million to meet its ongoing operations over the next six months: in other words, that One.Tel had total cash needs of between $240 million and $320 million. 7At a board meeting on 29 May 2001, following the presentation by Mr Long of the EY Report, Mr Howell-Davies, Mr Kekalainen-Torvinen, Mr Beck and Mr Silbermann voted in favour of a resolution not to proceed with the Rights Issue, on the basis that One.Tel would or would be likely to become insolvent even after raising $132 million ("the Abandonment Resolution"). Mr Packer, Mr Murdoch, Mr Macourt and Mr Yates participated in the board deliberations, but abstained from voting. In addition, the directors unanimously resolved to appoint Steven Sherman and Peter Walker of Ferrier Hodgson as voluntary administrators. On 24 July 2001, the creditors of One.Tel resolved that One.Tel be wound up and that Messrs Sherman and Walker be appointed as liquidators ("the GPLs"). On the same day, a committee of inspection was constituted ("the Committee"). 8On 23 December 2003, on the application of certain creditors of One.Tel, the Court appointed Mr Paul Gerard Weston as special purpose liquidator ("the Former SPL"), for the sole purpose of investigating and if appropriate prosecuting any causes of action relating to the Abandonment Resolution. On 25 May 2007, the Former SPL instituted in this Court proceedings 255083/2007 (formerly 2902/2007) ("the Original Proceedings"), against eighteen defendants, namely Mr Packer, Mr Yates, Mr Murdoch and Mr Macourt; PBL/CPH, News and the subsidiary companies through which they conducted their dealings with One.Tel; the other four directors of One.Tel as at 29 May 2001; and certain professional advisers to One.Tel. The statement of claim was not served at the time of filing, and six extensions of time for its service were subsequently granted. 9On 7 May 2010, the Former SPL executed an agreement with a litigation funder ("the Funder") to fund the Original Proceedings ("the Funding Agreement"). On 20 and 21 May 2010, Barrett J (as his Honour then was) delivered a confidential judgment in closed court giving reasons for advising that the Former SPL was justified in entering into the Funding Agreement, and a further judgment in open court giving reasons for advising that the Former SPL was justified in entering into the Funding Agreement without the prior approval of the Committee or the creditors of One.Tel, and without giving notice of the application to the Committee or the creditors. His Honour also made orders granting the sixth and final extension of time to serve the statement of claim in the Original Proceedings. 10In September 2010, the statement of claim having been served, the defendants applied to set aside the six extensions of time for service. On 13 May 2011, Ward J (as her Honour then was) declined to set aside the orders granting the first four extensions of time, but under UCPR r 12.11(1)(e) discharged the fifth and sixth extension orders, and consequently dismissed the Original Proceedings and made orders that the Former SPL pay the defendants' costs. On 12 April 2012, the Court of Appeal granted leave to appeal but dismissed the appeal from her Honour's judgment, and ordered the Former SPL to pay the respondents' costs of the appeal. On 7 September 2012, the High Court of Australia refused special leave to appeal. 11Meanwhile, on 12 October 2011, the Former SPL executed an Amending Agreement with the Funder to fund the proposed Equitable Proceedings, referred to below, conditional upon a direction or order of the Court that the Former SPL was justified in entering into and being bound by the Amending Agreement. On 21 December 2011, Barrett J made an order permitting the Former SPL to enter into the Amending Agreement. 12On 28 May 2012, on the application of the Former SPL, I made orders expanding his powers, to permit him to commence, serve and prosecute new proceedings on behalf of One.Tel. On 6 June 2012, One.Tel at the direction of the Former SPL commenced proceedings 2012/179407 ("the Equitable Proceedings") against Mr Packer, Mr Murdoch, CMH, CPH, Robbdoc Pty Limited, Toranaga Pty Limited, Cavalane Holdings Pty Limited, News and Leteno Pty Limited ("the CMH/News Parties"). In the proceedings, One.Tel claims equitable compensation for alleged breaches by Mr Packer and Mr Murdoch of their fiduciary duties to One.Tel. In outline, the basis for the claim is that (1) Mr Packer was a director of some of the corporate entities that had agreed to underwrite any shortfall in the Rights Issue (the "Associated Entities") and was under a duty to act in their best interests; (2) Mr Murdoch was a director of other Associated Entities and was under a duty to act in their best interests; (3) Mr Packer and Mr Murdoch were under a duty to act in the best interests of One.Tel; (4) it was in One.Tel's interests to proceed with the rights issue (even if One.Tel would have been insolvent after obtaining $132 million); (5) it was in the Associated Entities' interests to extract themselves from the underwriting agreement so that they would not be required to pay money to an insolvent company; (6) Mr Packer and Mr Murdoch were therefore in a position of conflict of interest and duty; (7) as a result, Mr Packer and Mr Murdoch breached the duties they owed to One.Tel by preferring the interests of the Associated Entities and their own personal interests to the interests of One.Tel; (8) the directors should not have passed the Abandonment Resolution; and (9) the directors should have appointed administrators and allowed the administrators to deal with the rights issue and the underwriting agreement. Against the Associated Entities, it is alleged that they participated in, assisted or procured the alleged breaches of duty by Mr Packer and Mr Murdoch. One.Tel claims the loss of $132 million, compensation for the loss of the opportunity to have a profitable business, and an account of profits (being the gains allegedly made by the defendants from the alleged breaches). 13The CMH/News Parties deny any wrongdoing and liability. The issues in the proceedings include (but are by no means limited to) whether there was a binding underwriting agreement; if so, whether it could be rescinded because One.Tel misled the underwriters as to its true financial position (it being alleged by the defendants that the position was in truth materially worse than had been represented); whether Mr Packer and Mr Murdoch breached their fiduciary duties by participating in the board deliberations on the Abandonment Resolution, notwithstanding that they abstained from voting; and whether the claim is barred by laches, or by analogy with the six-year limit imposed by Corporations Act, s 1317K. 14On 19 June 2012, Bergin CJ in Eq made orders removing the Former SPL as special purpose liquidator of One.Tel and appointing Mr Parbery in his place ("the SPL"). Between the date of his appointment and his removal, the Former SPL incurred costs of approximately $14 million [SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674, [169]]. 15Following Mr Parbery's appointment as SPL, he made applications for the variation of the confidentiality orders regarding the Funding Agreements, to permit him to disclose them to the members of the Committee. However, they remain subject to confidentiality orders that prevent him or his legal advisers from disclosing them to anyone else. 16On 30 August 2013, Rein J set the Equitable Proceedings down for trial to commence on 13 October 2014 for 10 weeks, to resume on 2 March 2015 for a further two weeks, and made directions for the preparation of the matter for trial, including for the defendants to serve any expert evidence on which they rely on or before 31 March 2014. One.Tel and its legal advisors have continued to undertake work in order to comply with those directions and otherwise to prepare the Equitable Proceedings for hearing. That work has required, and will continue to require, One.Tel and its funder to incur significant expense: One.Tel's estimated costs from this point to the conclusion of the trial are approximately $5 million, and of any appeal to the Court of Appeal approximately a further $700,000. 17On or around 14 February 2014, the SPL - having formed the view that there were significant risks in continuing to prosecute the Equitable Proceedings and that a settlement, if one could be achieved, would likely produce a more favourable outcome for One.Tel's creditors than prosecuting the Equitable Proceedings to finality (including any appeals) - retained Mr Zwier, solicitor of Arnold Bloch Liebler to act for him for the purposes of attempting to resolve the Equitable Proceedings consensually, and to facilitate discussions to that end between the defendants to the Equitable Proceedings, the GPLs and the SPL. Mr Zwier in turn retained the Hon Ray Finkelstein QC. As a result of the negotiations that ensued, on 9 April 2014 the parties executed the Deed of Settlement, the approval of which is sought in these proceedings ("the Deed"). 18The Deed provides that the settlement and the consequential dismissal of the Equitable Proceedings is wholly conditional upon certain approvals being obtained from the Court within a prescribed timeframe of 30 days, or waiver of that condition by the SPL. The settlement resolves all matters as between One.Tel and the CMH/News Parties arising from or related to the circumstances giving rise to the Rights Issue, with no admissions as to liability. One.Tel and the CMH/News Parties release each other and other named persons, including the GPLs, from any Claims in relation to the Settled Matters. One.Tel and the GPLs release the SPL and his advisers from any claims One.Tel may have against them arising from the SPL's role as special purpose liquidator of One.Tel generally, and in entering into the Deed in particular. Further assurance is provided by One.Tel and the CMH/News Parties in relation to third party claims. The CMH/News Parties will pay the Settlement Sum, of $40 million, to One.Tel. The CMH/News Parties also agree not to prove in the liquidation of One.Tel. The Equitable Proceedings will be dismissed, by consent, with no order as to costs, and the $4 million held by way of security for costs released. The parties agree to keep the terms of the settlement confidential and are not permitted to disclose them, except in specific circumstances set out in the Deed. On satisfaction or waiver of the condition precedent for court approval, the parties will make a media announcement in the form attached to the Deed. 19The SPL has been advised (by the GPLs) that One.Tel has approximately $338 million of ordinary unsecured creditors; that to date, the liquidators have distributed approximately 23 cents in the dollar to the ordinary unsecured creditors; and that each further distribution to the ordinary unsecured creditors of One.Tel of 1 cent in the dollar "costs" between $3.25 million and $3.5 million. 20However, distribution of the Settlement Sum is governed, in the first instance, by the Funding Agreement, pursuant to which the beneficial interests in the trust of the Net Proceeds are the SPL and One.Tel as to 25%, and the Funder as to 75%, as the settlement has been reached 36 months after the date of Court approval of the Funding Agreement, and subject to the "three times rule" referred to below. Accordingly, the Settlement Sum will be distributed: (1)to reimburse the Funder for all costs paid or to be paid for funding the Original and Equitable Proceedings; (2)to refund the Funder GST; (3)$5 million to the creditors. This will generate a further dividend of approximately 1.5 cents in the dollar; (4)the remainder is the Net Proceeds, and must be distributed to the Funder as the Funder would otherwise receive in total less than three times the total sum paid by it for funding the Original Proceedings and the Equitable Proceedings. 21The only scenario under which ordinary unsecured creditors would receive any further dividend would be if the Settlement Sum were to increase by a further $40 million.

The relief sought 22The SPL and the GPLs seek approval of the Deed pursuant to Corporations Act, s 477(2A) and (2B), and directions pursuant to s 511. 23Section 477(2A) provides that except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not compromise a debt to the company if the amount claimed by the company is more than $100,000. The winding up of One.Tel is a creditor's voluntary winding up, and s 477(2A) applies to the liquidators and the special purpose liquidator by operation of s 506(1A). 24Section 477(2B), provides that, except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf if the term of the agreement may end, or obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance, more than 3 months after the agreement is entered into (even if the term may end, or the obligations may be discharged, within those 3 months). This section also applies to the liquidators and the special purpose liquidator by operation of s506(1A) [Onefone Australia Pty Ltd v One.Tel Ltd (2010) 78 ACSR 163, [4], [7]; Re S&D International Pty Ltd (in liquidation) (No 7) [2012] VSC 551, [63]; see also In the matter of 7 Steel Distribution Pty Limited (in liq) (receivers and managers appointed) [2013] NSWSC 669, [16] (where Black J assumed, without deciding, that s 477(2B) applies in a creditor's voluntary winding up)]. 25There are obviously enough common features to the two provisions. As Barrett J (as his Honour then was) explained in Re HIH Insurance Ltd [2004] NSWSC 5 (at [15]): Although the two provisions deal with different aspects of a liquidator's powers, both are concerned to ensure that the court exercises some oversight of the liquidator's actions and, in effect, confers or completes the necessary power only where it sees that a case for exercise of the power in the particular circumstances has been sufficiently shown. The court's assessment must be made in light of the purposes for which liquidators' powers exist. One overriding purpose is to serve "the interests of those concerned in the winding up - here the creditors" (Re Spedley Securities Ltd (1992) 9 ACSR 83 per Giles J); the other is to do whatever needs to be done "for the proper realisation of the assets of the company" or to assist its winding up (Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308 per Young J). 26The principles applied to applications for approval under s 477(2B) have been helpfully summarised by Gordon J in Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 (at [26]) and by Hasluck J in Re The Bell Group Ltd (in liq) [2009] WASC 235 (at [57]-[58]), in terms that are equally applicable to applications under s 477(2A). The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. Importantly, the Court's approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval confers, or completes, the liquidator's power to enter into the transaction, but does not amount to the court approving the transaction itself. The distinction is material, because it means that - unlike a direction under s 479(3) or s 511 - an approval under s 477(2A) or (2B) alone does not exonerate the liquidator from personal liability. 27However, while it has been said that the approach under each provision is "much the same" [Re United Medical Protection Ltd [2003] NSWSC 237; Re HIH Insurance Ltd, [15]; Re S&D, [83]], the two provisions deal with different aspects of a liquidator's powers [Re HIH Insurance Ltd, [15]], and this means that the relevant considerations under each provision differ. 28Section 477(2A) is concerned with the compromise of debts due to the company, which would otherwise be assets in the administration, and has the effect that the liquidator cannot compromise substantial debts without the approval of the committee of inspection, the creditors, or of the Court. Essentially, its purpose is to ensure that the interests and wishes of those affected by a compromise, chiefly the creditors, are a major consideration in making such a compromise. As Giles J said in Re Spedley Securities Ltd (1992) 9 ACSR 83: The court pays regard to the commercial judgment of the liquidator. 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 a 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. 29Thus while the court does not exhaustively or closely consider the commercial merits or otherwise of the transaction [Re CIC Insurance Ltd (2001) 38 ACSR 181], which it largely entrusts to the liquidator, some examination of the merits of the compromise cannot be avoided [In the Matter of 246 Arabella Investments Pty Ltd (In Liq) [2012] NSWSC 1212]. However, if the liquidator expresses the opinion that it is an appropriate commercial compromise, and there does not appear to be any such lack of good faith, error in law or principle, or real or substantial ground for doubting the reasonableness of the liquidator's view (as referred to in Re Mineral Securities Australia Ltd (in liq) [1973] 2 NSWLR 207), the court will generally give its approval [In the Matter of Adscaff Pty Ltd [2013] NSWSC 1081, [5]]. 30Section 477(2B), on the other hand, is concerned with long-term agreements which might protract the liquidation, and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the Court. Its rationale is that that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation that could interfere with the expeditious completion of the winding up [Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308; Re CIC Insurance Ltd; Re HIH Insurance Ltd, [15]]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation, and whether that is, in all the circumstances, reasonable in the interests of the administration [Re Opel Networks Pty Ltd [2013] NSWSC 1245]. 31Section 511(1)(a) provides that a liquidator may apply to the Court to determine any question arising in the winding up of a company, and s 511(2) provides that the Court, if satisfied that the determination of the question will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just. 32Applications under s 511 are of the same nature as applications in a court ordered winding up under s 479(3) [Dean-Willcocks v Soluble Solution Hydroponics (1997) 42 NSWLR 209, 212; Crawford v Oswald Park Pty Ltd (in liq) [2006] NSWSC 987, [10]; S & D International v MIG Property Services [2010] VSC 336, [7]; In the matter of Ian James Purchas as liquidator of Astarra Asset Management Pty Ltd (in liq) [2011] NSWSC 91, [33]; 7 Steel Distribution, [20]]. The jurisdiction is analogous to the judicial advice jurisdiction under (NSW) Trustee Act, s 63. The effect of a direction under s 511 is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty [Purchas, [36]; Re Timbercorp Limited (in liq) [2011] VSC 189, [3]; Re S&D, [88]]. 33While the ability of a liquidator to approach the Court for directions is intended to facilitate the liquidator's functions and should be interpreted widely to give effect to that intention [Re One-Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83], it is insufficient to justify giving such directions that the liquidator wants reassurance about a commercial decision; some such issue as a question of law or procedure, of power, propriety or reasonableness, is required to justify approaching the court for directions, as was explained by Goldberg J (in the context of a voluntary administrator's application for directions under s 447D) in Re Ansett Australia Limited and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433, [65]: The prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. 34In Sanderson v Classic Car Insurances Pty Limited (1985) 10 ACLR 115, Young J said (at 117) that the cases in which directions might properly be given fell into four categories, namely guidance on matters of law, guidance on questions of legal procedure, whether a liquidator should postpone a sale in order to achieve a better price, and where there are two competing offers for assets and a liquidator wishes to gain court directions in order to avoid a subsequent allegation that he or she has acted improperly in choosing one over the other. However, these categories are not exhaustive, and as Giles J said in Re Spedley Securities (at 85), immediately after noting that a Court will not make a liquidator's commercial decision for him, "It is nonetheless common for a liquidator to seek directions as to whether he is justified in entering into a particular compromise". 35Thus, while the Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision, or where no legal issue is raised and there is no attack on the propriety or reasonableness of the liquidator's decision, it may do so in the context of a proposed compromise [Re Spedley Securities, 85], and/or where the decision is likely to be contentious [Re Ansett, [65]; 7 Steel Distribution, [20]; Re S&D, [58]-[59]]. But the fact that a direction under s 511 - unlike an approval under s 477(2A) or (2B) - exonerates the liquidator from personal liability, means that a closer examination of the liquidator's decision is required than under s 477. In short, the court should not make a direction the effect of which is to exonerate the liquidator from personal liability in respect of a commercial judgment that the liquidator is concerned may prove contentious, unless satisfied that the liquidator's decision is, in all the circumstances, a proper one. 36Accordingly, I do not agree that the court will give a direction that a liquidator is justified in pursuing a certain course of action unless there is a lack of good faith, an error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct (as might be suggested by Re The Bell Group Ltd (at [47])). While the court's function under s 511 does not involve it in reconsidering every factor that has informed the liquidator's decision, let alone developing alternatives or deciding whether the court would have made the same decision, the court needs to be satisfied, before making a direction, that the decision is proper and reasonable; at least usually, this will necessitate consideration of the liquidator's reasons, and the process by which the decision has been reached. Because this is a wider inquiry than is required by s 477(2A) and (2B), it is convenient to address it first.

The s 511 application 37In substance, the question is whether the liquidators are justified in entering into and procuring One.Tel to enter into and perform the Deed. 38Mr Parbery holds the view that the entry into the Deed is in the best interests of One.Tel and its creditors, for the following reasons: (1)The uncertainty of the outcome of the Equitable Proceedings, having particular regard to the opinions provided by the Hon. Ray Finkelstein QC and Ian Jackman SC; (2)The certain albeit small return for the ordinary unsecured creditors; (3)Even if One.Tel succeeds in the Equitable Proceedings, the creditors of One.Tel will not receive any distribution unless One.Tel recovers a further $40 million from the defendants to those proceedings; (4)The costs and time associated with a lengthy trial and any appeals even though the Funder must bear them; (5)The (confidential) expert opinion recently obtained by the liquidator; (6)The likelihood of an appeal by the CMH/News Parties if the Equitable Proceedings are decided in One.Tel's favour, which would increase the litigation and liquidation costs, any further delay distributions to creditors. 39At the heart of these reasons is the first, namely the uncertainty of the outcome of the Equitable Proceedings. The quantum of the settlement sum, relative to the amount of the claim, implies a judgment that while the proceedings are not devoid of prospects of success, they are attended by very considerable risk. In my view, significant risk, to a greater or lesser extent, attends One.Tel's case in at least the following respects. 40First, that there never was a concluded subscription and underwriting agreement. It appears clear that there was no written agreement. While - having regard to the announcement to the ASX - it is arguable that there was nonetheless an agreement, this issue could defeat One.Tel's case at the outset. 41Secondly, that the defendants were misled about the true state of One.Tel's financial position, and on that account were entitled to rescind the subscription and underwriting agreement, if there was one. A key issue concerns the financial position of One.Tel at the time the Abandonment Resolution was passed. The SPL has been advised that, since 17 May 2001 (the date on which the directors of One.Tel resolved to undertake the Rights Issue), a number of third party advisors, including Ernst & Young and Pricewaterhouse Coopers, have prepared reports in relation to the financial position of One.Tel and have estimated that at the time of the resolution to conduct the Rights Issue, in order to remain solvent, One.Tel had cash requirements of between $240 million and $332 million - significantly more than was represented at the time of the Rights Issue. In this respect, I have also taken into account what is said by Mr Jackman SC and attributed (by Mr Parbery) to Mr Lipman, the solicitor with the carriage of the Equitable Proceedings, to be the effect of the further (confidential and privileged) expert evidence obtained by the SPL for the proceedings. 42Thirdly, that Mr Packer and Mr Murdoch did not breach their fiduciary duty, because they abstained from voting on the Abandonment Resolution. Establishing a breach will depend upon showing that despite their abstention from the vote, their participation in the preceding discussions was somehow such as to constitute a breach. 43Fourthly, the limitation defence: in my view there is significant risk that the court would apply the six-year limitation period in section 1317K of the Corporations Act by analogy [cf Gerard Cassegrain & Co Pty Limited v Cassegrain [2011] NSWSC 1156; In the Matter of Auzhair Supplies Pty Ltd (in liq) [2013] NSWSC 1; (2013) 272 FLR 304; (2013) 92 ACSR 554]. 44While there are also, to a greater or lesser extent, answers to at least some of these matters, the cumulative risk associated with the four amply warrants an assessment that the proceedings are attended by a high degree of risk for One.Tel. 45The settlement is the result of a process of negotiation between commercially astute and informed parties. While the settlement sum is very much lower than the SPL's previous (without prejudice) negotiating position, it is also much higher than offers previously made (also without prejudice) by the defendants. 46The liquidator has obtained advices from Mr Jackman SC (who appears for One.Tel in the Equitable Proceedings), and the Hon Ray Finkelstein QC. Those advices have been tendered on this application, but on the basis that they remain privileged. For present purposes it suffices to say that both strongly endorse the settlement of the Equitable Proceedings as an appropriate one in the circumstances. 47On 10 April 2014, the Committee unanimously approved the compromise of the Equitable Proceeding. Members of the Committee were also advised that if any opposed the compromise and wished to be heard on this application, they should contact Mr Zwier. None has done so. 48Against that, Mr Parbery's concern that he may be criticised for having compromised the Equitable Proceedings on the terms of the Deed is informed, in particular, by two potential arguments. The first is that the Funder bears all costs and risks associated with the Equitable Proceedings, and thus on one view the creditors of One.Tel are only exposed to the upside of the litigation, in circumstances where the compromise set out in the Deed will produce for them only a further 1.5 cents in the dollar. However, the creditors are also exposed to the risk that the litigation may wholly fail, in which case they would receive nothing; the modest dividend that this settlement will produce is preferable. The second is that the legal and other costs associated with both the Original Proceedings and the Equitable Proceedings exceed $40 million, which means that the proceedings will have generated no net benefit to the creditors once account is taken of all the associated costs. However, while that may, with the benefit of hindsight, cast doubt on the benefit of instituting the proceedings, it affords no reason for continuing to prosecute them. Moreover, both those arguments are significantly impacted by the circumstance that only by improving on the offer by a further $40 million would any additional benefit to creditors be gained. 49However, the potential for those arguments demonstrate that Mr Parbery's concerns, that the reasonableness, if not the propriety, of his decision may be called into question, are legitimate. Moreover, the decision of Mr Parbery and the GPLs involves more than the making of a commercial decision, but also the exercise of legal judgment, namely assessing the merits of the settlement against the prospects of success in the proceedings to determine whether it is appropriate to compromise One.Tel's claims. I am therefore satisfied that, having regard to the principles discussed earlier, this is a proper case for judicial advice, notwithstanding that it also involves questions of commercial judgment. 50I have been troubled by clause 12 of the Deed, by which the GPLs and One.Tel release the SPL and his Advisers from any Claims One.Tel may have against them arising from the SPL's role as Special Purpose Liquidator of One.Tel generally, and in entering into the Deed in particular. This provision means that there is a personal benefit for the SPL in entering into the Deed, and one that goes well beyond the protection that the SPL would gain from a s 511 direction that he is justified in entering into the settlement with the CML/News Parties (not least because it extends to his role as SPL generally). I cannot perceive any consideration moving from the SPL for, nor benefit to One.Tel from, that release. 51On the other hand, the release quells the possibility of further disputation and litigation protracting the administration. There is nothing to suggest that there are any viable claims against the SPL or his advisers. This is because, even if the hindsight view that instituting the Original Proceedings and the Equitable Proceedings produced no net benefit for creditors be sustained, that would not of itself bespeak negligence in instituting or prosecuting them. Moreover, it was the Former SPL, not Mr Parbery, who instituted the proceedings, and he had a well-reasoned opinion from senior counsel that the Equitable Proceedings had reasonable prospects of success; in any event, the Former SPL is not released by the Deed. By the time of Mr Parbery's appointment, the costs of the Original Proceedings had already been incurred, and the Equitable Proceedings were on foot, and the issue for him was not whether they should be instituted, but how to achieve the optimal result in them, in the interests of the creditors. Ultimately, I am mindful that the release is given by the GPLs, who are commercially astute and independently advised. 52Accordingly, though not without reservations, I have concluded that the inclusion of clause 12 in the Deed, and the circumstance that it involves a personal benefit for the SPL, does not render his entry into the Deed inappropriate. 53In my judgment, given (1) the risks attendant upon the Equitable Proceedings, (2) the process of commercial negotiation between well-advised parties that has led to the settlement, (3) the advice of senior counsel, (4) the benefits to creditors of a prompt settlement and a certain if small dividend, (5) the Committee's approval of the compromise, (6) the circumstance that under the Funding Deed, there would be no additional benefit to creditors unless the outcome exceeded the settlement sum by a further $40 million, and (7) that the release of the SPL by the GPLs does not appear to involve the release of any viable claim against the SPL, the liquidators would be justified in entering into and performing the Deed, and in procuring One.Tel to do so. 54However, the particular directions under s 511 sought in the originating process go beyond that, and are to the effect: (a)that the SPL and GPLs were justified in entering into and in procuring that One.Tel enter into and perform the Deed; (b)that the SPL and GPLs otherwise acted properly and reasonably in entering into the Deed and in procuring the One.Tel to enter into the Deed; (c)approving the SPL and GPLs proceeding under the Deed; (d)approving the Deed; and (e)that the terms of clause 2.1 of the Deed (which provides that the settlement of all Claims, and the dismissal of the Proceeding, in the terms provided for in the Deed, is wholly conditional upon the Court Approvals being obtained or the requirement to obtain the Court Approvals being waived) are satisfied. 55As with judicial advice to trustees, the court is usually conservative in the advice it gives to liquidators under s 479(3) and s 511, and such advice is conventionally expressed in terms that "the liquidator would be justified" in adopting a particular course of action. The jurisdiction to give such directions is concerned with affording protection to the liquidator in connection with proposed future action, not with ratifying action that the liquidator has already taken. This view of the jurisdiction is supported by the following observations of McLelland J, as he then was, in Re GB Nathan & Co Pty Ltd (1991) 5 ACSR 673, (at 678): ... the only proper subject of a liquidator's application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or propitiatory form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the directions. 56In Re Bell Group Ltd (in liq); Ex parte Antony Leslie John Woodings as Liquidator of the Bell Group Ltd (in liq) [2013] WASC 409, Allanson J was confronted with an application in terms not dissimilar to the present, as said: [43] I have some reservations whether it would be a proper exercise of the power under s 479(3) to give a direction that each plaintiff "was" acting properly and justifiable in entering into the settlement deed. The function of directions is to advise the liquidator as to the proper course for him to take in the liquidation. It is essentially concerned with future action: Re Murphy & Allen; Re BPTC Ltd (in liq) (1996) 19 ACSR 569. With an agreement that is subject to a condition precedent, the distinction between what was done in entering it, and before satisfaction of the condition, and what will be done in performing it, may not always be neatly compartmentalised into past and future. I have had regard to the condition precedent in the settlement deed, both the way in which it operates and the wording of the approvals and directions it requires. I am not sure why the wording of the relevant clause in the settlement deed has not been followed. I will make directions that, in substance, meet the requirements of that clause. I am not satisfied that requires an order in the terms of the minute. 57It would not conform with the principles and practice applicable to s 511 to make direction (c) (in terms "approving the Deed"), or direction (d) (approving the liquidators proceeding under the Deed"), even if there were jurisdiction to do so. A direction that the liquidators are justified in entering into and implementing the Deed is all that is necessary to confer on them the requisite protection, and all that is appropriate. 58It would also be entirely inappropriate to make a direction, on an application under s 511, that the condition precedent contained in clause 2.1 of the Deed has been satisfied. Whether such approvals as the court may give satisfy that condition could potentially be the subject of dispute between the parties to the Deed and could only properly be resolved in inter-partes litigation. 59It would not (in the terms of s 511(3)) be just and beneficial to determine the questions involved in directions (c), (d) and (e), none of which are contemplated by the Deed, which describes the approvals upon which it is expressed to be conditional (in addition to those under s 477(2A) and (2B)), in the terms: Directions under s 479(3) or s 511 of the Corporations Act (as the case may be) to the effect that the SPL and the Liquidators have acted, and will continue to act, properly and are justified in: (A) entering into, and causing One.Tel to enter into, this deed; and (B) performing, and causing One.Tel to perform, their respective obligations under this deed; ... 60The Deed has already been executed. However, I agree, with respect, with the view expressed by Allanson J in the passage cited above, that in the case of an agreement that is subject to a condition precedent, the distinction between what was done in entering it and before satisfaction of the condition, and what will be done in performing it, may not always be neatly compartmentalised into past and future. As the Deed is conditional upon the Court's giving directions under s 511, a direction that the liquidators are justified in entering into and implementing it does not involve ratifying past acts, as in the absence of such a direction there will be no relevant act, the condition precedent having, on that hypothesis, failed. 61It would not, however, be consistent with the principles and practice to which I have referred, to make direction (b) in terms "that the SPL and GPLs otherwise acted properly and reasonably in entering into the Deed and in procuring the One.Tel to enter into the Deed". What the court does is to provide advice as to whether the liquidator is justified in taking a particular course of action (ie entry into the Deed), not declaring that he has otherwise generally acted properly in doing so. To make the direction sought would necessarily involve a much wider inquiry into the whole of the liquidator's conduct in and about the negotiation and procuring of the Deed, and would be quite unsuited to a s 511 inquiry, such that it would not (in the terms of s 511(3)) be just and beneficial to determine that question. 62Like Allanson J, I have had regard to the terms of clause 2.1 of the Deed and the approvals for which it stipulates. In my view, however, in so far as it goes beyond a direction that the liquidators are justified in entering into and implementing the Deed, to seek a direction to the effect that they have acted and will continue to act properly in doing so, it goes beyond the proper and appropriate scope of a s 511 direction of this nature. That the parties have stipulated for such an approval cannot make it appropriate for the Court to give it. It may well be that the parties will accept the direction that I propose to give as satisfying the intent of clause 2.1, and/or that the SPL will waive any requirement for a further direction, but lest they do not there will be liberty to apply.

The section 477(2A) application 63Section 477(2A) applies only in relation to a "debt" strictly so called [Re Luxtrend Pty Ltd [1997] 2 QdR 86; Re Tietyens Investments Pty Ltd (1999) 31 ACSR 1; Re HIH Insurance Ltd, [12]; Re S&D, [66]]. If the relevant claim is unquestionably not a "debt" as such, the correct approach is to dismiss any application under s 477(2A) as unnecessary [Re Luxtrend; Re Tietyens Investments; Re HIH Insurance Ltd, [12]; cf Re Oliver Davey (Pacific) Pty Ltd [1999] VSC 241]. However, the course of dismissing a s 477(2A) application on the basis that the particular claim is not, strictly speaking, a "debt" should be followed only in a clear cut case [Re HIH Insurance Ltd, [12]; Re Timbercorp, [17]-[18]]. 64The Equitable Proceedings do not involve a claim for debt, and their compromise is not the compromise of a debt. The main subject matter of the Deed is not a debt, but a claim for damages or equitable compensation the compromise of which not require approval under s 477(2A). However, approval under s 477(2A) is sought out of an abundance of caution, given the broad definition of "Claims" in the Deed of Settlement. If the Deed did no more than compromise the Equitable Proceedings, the approval of the court would be unnecessary. However, it also involves releases of "all Claims", thus including debts. 65The question for the court under s 477(2A) is whether insofar as the Deed involves the compromise of the debt, that compromise is in all the circumstances a proper and reasonable step for the liquidator to take. That is a different question from whether the compromise of the Equitable Proceedings (which do not involve a claim for debt) is proper and reasonable, though not unconnected to it. Because what is prohibited without the Court's approval is the compromise of a debt, the Court's main concern under s 477(2A) is the compromise of the debt, not the other matters covered by the Deed - although the other terms may obviously bear on the reasonableness of the compromise of the debt [cf 246 Arabella Investments, [10]]. 66There is nothing to suggest that there is any debt, properly so called, owed by any defendant to One.Tel. Insofar as the deed compromises all debts owed by the defendants, it appears to compromise nothing of value. Releases of "all claims" are a common feature of settlements, in order to minimise the risk of future litigation and to ensure that all outstanding issues are included in the compromise. That is a very small price to pay to secure the settlement of the Equitable Proceedings in the terms of the Deed, and in the context of the Deed as a whole the compromise of debts is proper and reasonable. 67While approval under s 477(2A) (and (2B)) should normally be obtained in advance of the exercise of the power in question, it is now settled that the court can give approval that has retrospective effect [Empire (Aust) Nominees Pty Ltd v Vince [2000] VSC 324; (2000) 35 ACSR 167 (a s 477(2B) case); Re HIH Insurance Group Ltd [2001] NSWSC 308; Registrar of Aboriginal Corporations v Bibelmen Mia Aboriginal Corp [2001] FCA 136; Re HIH Casualty & General Insurance Co Ltd [2002] NSWSC 1036, [9]-[14]; Re Read [2007] FCA 1985; (2007) 164 FCR 237; Re Bell Group, ex parte Woodings, [34]. Moreover, where the operation of the relevant agreement is subject to conditions precedent of the kind contained in clause 2.1 of the Deed, that is sufficient to justify the conclusion that, pending its satisfaction or waiver, the act of agreement with which s 477(2A) is concerned should be regarded as not having occurred [see Re HIH Casualty; Re FAI Traders Insurance Co Pty Ltd [2002] NSWSC 1080; Re HIH Insurance Ltd, [3]]. 68As the Committee has approved the compromise, Court approval - which is an alternative to the approval of the committee of inspection or a resolution of creditors - for the liquidators to compromise the debts included in it is unnecessary. However, there is no reason why a liquidator cannot rely on multiple sources of authority under s 477(2A). While the Court discourages unnecessary applications, in this case an application to the Court under s 511 would have been necessary in any event; and as clause 2.1 of the Deed stipulates for a Court approval under that section, there may be utility in giving that approval. 69Approval should be given under s 477(2A) to the liquidator compromising debts in conformity with the terms of the Deed, insofar as it includes a compromise of debts.

The section 477(2B) application 70Approval is sought under s 477(2B) because some of the obligations under the Deed of Settlement are continuing obligations which will only be discharged by performance more than three months after the deed was entered into. The obligations in this class are in the nature of releases, discharges, covenants not to sue, and confidentiality obligations. The persistence of those obligations will not unduly protract the liquidation and are not inconsistent with its expeditious completion. 71The discussion of retrospective approval in connection with s 477(2A) is equally applicable to s 477(2B). 72Approval of the Court under s 477(2B) appears to be unnecessary, as the Committee of Inspection has approved the Deed. However, for the reasons explained in connection with s 477(2A), there is likewise no harm, and there may be utility, in giving such approval. 73Approval should be given under s 477(2B) to the liquidators entering into the Deed on One.Tel's behalf notwithstanding that obligations of a party to the Deed may, according to the terms of the Deed, be discharged by performance, more than 3 months after the Deed is entered into.

Conclusion 74My conclusions may be summarised as follows: 75Given (1) the risks attendant upon the Equitable Proceedings, (2) the process of commercial negotiation between well-advised parties that has led to the settlement, (3) the advice of senior counsel, (4) the benefits to creditors of a prompt settlement and a certain if small dividend, (5) the Committee's approval of the compromise, and (6) the circumstance that under the Funding Deed, there would be no additional benefit to creditors unless the outcome exceeded the settlement sum by a further $40 million, the liquidators would be justified in entering into and performing the Deed of Settlement, and in procuring One.Tel to do so. It would be just and beneficial to give the liquidators directions under Corporations Act, s 511, to that effect. However, it would not be just and beneficial, nor consistent with the principles and practice that apply to applications for directions under s 511, to give the additional directions sought in the originating process. 76Approval for the liquidators to enter into the Deed under s 477(2A) and (2B) appears to be unnecessary, as the Committee of Inspection has already approved the Deed. However, there is no objection to a liquidator having multiple sources of authority under s 477(2A) and (2B), and as clause 2.1 of the Deed stipulates for a Court approval under those provisions, there may be utility in giving those approvals. Insofar the Deed involves a compromise of debts due to One.Tel, the compromise is proper and reasonable. That some obligations under the Deed (in the nature of releases, discharges, covenants not to sue, and confidentiality obligations) are continuing obligations which will persist more than three months after the deed was entered into will not unduly protract the liquidation and are not inconsistent with its expeditious completion. It is appropriate therefore to approve the SPL and the GPLs entering into the Deed under s 477(2A) and (2B). 77Accordingly, the Court orders that: (1)Pursuant to (Cth) Corporations Act 2001, s 511, the first plaintiff, second plaintiff and third plaintiff are justified in entering into and performing, and in procuring that the fourth plaintiff enter into and perform, the deed which is at Tab 8 of confidential Exhibit SJP-2 to the affidavit of Stephen James Parbery sworn on 11 April 2014 ("the Deed"); (2)Pursuant to (Cth) Corporations Act 2001, s 477(2B) (as applied by s 506(1A)), the first plaintiff, second plaintiff and third plaintiff have the approval of the Court to enter into the Deed on behalf of the fourth plaintiff, notwithstanding that obligations of a party to the Deed may, according to the terms of the Deed, be discharged by performance more than 3 months after the Deed is entered into. (3)Pursuant to (Cth) Corporations Act 2001, s 477(2A) (as applied by s 506(1A)), the first plaintiff, second plaintiff and third plaintiff have the approval of the Court to compromise all debts owing to the fourth plaintiff that are referred to in the Deed, upon the terms contained in the Deed. (4)Pursuant to (NSW) Court Suppression and Non-publication Orders Act 2010, s 8(1)(a), publication or disclosure of Exhibit SJP-2 to the affidavit of Stephen James Parbery sworn on 11 April 2014, and of any information which would directly or indirectly reveal or tend to reveal any of the contents of that exhibit, other than in conformity with paragraphs 10 or 24 of the Deed, is permanently prohibited. Pursuant to s 11(2), this order applies throughout the Commonwealth of Australia. (5)The plaintiffs' costs of the application be costs in the liquidation of the fourth plaintiff. (6)The plaintiffs have liberty to apply for further directions.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 April 2014