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.