Deloughery & Ors v Weston

LEGISLATION CITED: Corporations Act 2001,ss 477(2B) and 511

Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 Elfic Ltd v Macks [2001] QCA 219 CASES CITED: Hall v Poolman [2009] NSWCA 64 Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335 UTSA Pty Ltd v Ultra Tune Australia Pty Ltd [1997] 1 VR 667

Applicants: John Deloughery Barbara Galloon Gary Phillips SingTel Optus Pty Ltd PARTIES: Optus Mobile Pty Ltd Optus Networds Pty Ltd Optus Vision Pty Ltd Optus Insurance Services Pty Ltd

Respondent: Paul Gerard Weston

COUNSEL: C R C Newlinds SC & R Higgins - Applicants N Cotman SC & R Glasson - Respondent

SOLICITORS: Baker & McKenzie - Applicants O'Neill Partners - Respondent

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT MEDIUM NEUTRAL CITATION: [2010] NSWSC 498

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 86446/03

SPIGELMAN CJ GILES JA HANDLEY AJA

CORPORATIONS - winding up - court approval for liquidator's litigation funding agreement - ex parte hearing - confidentiality orders - right to be heard - major creditors - committee of inspection - creditor seeking removal of liquidator.

NATURAL JUSTICE - right to be heard - necessity for relevant right, interest or expectation - must exist in fact - no freestanding right to be heard. HEAD NOTE

A Judge heard in closed court an ex parte application by a liquidator for approval for a litigation funding agreement, granted approval, and made confidentiality orders in relation to the application, the evidence, the agreement and his reasons for granting approval. He directed that the relevant documents be placed in a sealed envelope which was only to be opened by the order of a Judge. Three of the four members of the committee of inspection, and some major creditors sought to set aside the ex parte orders in order to obtain access to the litigation funding agreement. The application was referred to the Court of Appeal. At the close of the hearing the Judges opened the sealed envelope and read the confidential documents in private. HELD: (1) The applicants were only entitled to be heard on the liquidator's application if they had a relevant right, interest or expectation that would or could be affected by the order of the Court; (2) Without a collective decision individual members of the committee of inspection did not have standing to challenge the orders; (3) The committee of inspection, the creditors generally, and individual creditors with a substantial interest in the winding up had no general right to be heard on the liquidator's application; (4) The pending proceedings for the removal of the liquidator did not confer on the applicants a special interest which entitled them to be heard on the application; (5) The Judge had been entitled to entertain the liquidator's ex parte application in closed court, grant the approvals, and make the confidentiality orders because the committee of inspection, the creditors, and the applicants in the removal proceedings did not have a relevant right, interest or expectation that would or could be affected by the order of the Court. ORDERS

(2) The interlocutory application by the special purpose as liquidator heard by Barrett J on 14 May 2010 is remitted to the Equity Division.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 86446/03

SPIGELMAN CJ GILES JA HANDLEY AJA

Judgment 1 SPIGELMAN CJ: I agree with Giles JA and Handley AJA. 2 GILES JA AND HANDLEY AJA: These proceedings were referred to this Court under UCPR Pt 1.21, by White J ([2010] NSWSC 586), on 27 May. In substance they are an appeal by parties claiming to have a relevant interest, who were not heard, from ex parte orders of Barrett J on 20 May. 3 On 14 May Barrett J made confidentiality orders and heard in closed court an application by Mr Weston, the special purposes liquidator (SPL) of One.Tel Ltd for orders under ss 477(2B) and 511 of the Corporations Act 2001. 4 Following a Pt 5.3A administration the creditors of One.Tel resolved on 24 July 2001 on a creditor's voluntary winding up and appointed the general purpose liquidators (GPL). On 23 December 2003 the SPL was appointed by Windeyer J for the purpose of considering and following up potential causes of action One.Tel might have against Publishing & Broadcasting Ltd, News Ltd and others in relation to the cancellation of a renounceable rights issue and the appointment of voluntary administrators by the Board of One.Tel on or about 29 May 2001 (the causes of action). The SPL's powers defined by the order of 23 December 2003 have been varied several times. 5 Section 477(2B) relevantly provides: "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: (a) without limiting paragraph (b), the term of the agreement may end; or

(b) 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." 6 Section 511(1) relevantly provides: "The liquidator … may apply to the Court: (a) to determine any question arising in the winding up of a company; or

(b) to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court." 7 Section 506(1A) makes s 477(2B) applicable in a creditors' voluntary winding up. 8 The Judge's confidentiality orders made on 14 May, as amended by him under the slip rule on 28 May, were: "(1) The SPL's application dated 14 May 2010 be heard in the absence of any other party and in closed court.

(2) The interlocutory process, affidavits of Paul Gerard Weston sworn 14 May 2010, Exhibit PGW and Exhibit PGW1 thereto, the transcript, chronology, written submissions and Exhibits A and B be kept confidential and not be disclosed to any persons other than the SPL and his lawyers without the order of a Judge." 9 On 20 May the Judge gave reasons and made orders which included: "Until further order (made on the application of, or with at least two business day's notice to, the Special Purpose Liquidator of One.Tel Limited), the reasons delivered on 20 May 2010 to the Special Purpose Liquidator in the absence of the public: (a) remain in the Court file in a sealed envelope marked "Confidential";

(c) not be posted on the Caselaw New South Wales website." 10 The interlocutory process issued by the SPL on 14 May relevantly sought the following orders: "5. An order approving the SPL's entry into and/or a direction that the SPL is justified in entering into the following agreements: (a) in the form at pages 78-81 of Exhibit PGW to the affidavit of Paul Gerard Weston sworn 14 May 2010 (the "Release"); and

(b) in the form of Exhibit "A" (the "Agreement"). 6. A direction that the SPL is justified in entering into the Release and Agreement without the prior approval of the COI [Committee of Inspection] or the creditors of One.Tel.

7. A direction that the SPL is justified in not providing to the COI or creditors of One.Tel details of the identity of the parties to the release and agreement (other than One.Tel and the SPL)." 11 On 20 May Barrett J published separate reasons dealing with an aspect of the application which was not made the subject of confidentiality orders. His Honour held ([2010] NSWSC 498) that the SPL was justified in making the application under s 477(2B) ex parte, and neither the COI or the general body of creditors had any right or interest that would be affected by the application, the orders of the Court, or by any steps that might be taken thereafter by the SPL pursuant to the approval of the Court granted on 20 May. 12 His Honour's separate reasons concluded par [17]: "There were therefore directions pursuant to section 511(1A) and 511(2) to the effect that the special purpose liquidator is justified in entering into the agreements the subject of the s 477(2B) approval without the prior approval of the committee of inspection or the creditors and in not providing to the committee or the creditors details of the identity of the parties thereto (other than One.Tel and the special purpose liquidator)." 13 On 20 May the SPL advised members of the COI that Barrett J had given judgment in confidential applications he had made the previous week. 14 On 26 May three of the four members of the COI and SingTel Optus Limited, which claimed to be a creditor of One.Tel (the applicants), applied for orders which relevantly included: "5. The applicants be granted immediate access to the Court file in this proceeding for the purposes of identifying what current and past orders had been made by the Court.

6. The applicants be granted immediate access to the evidence put before the Court on the application filed in this proceeding on 14 May 2010, on such confidentiality arrangements as the Court thinks appropriate.

7. The applicants be granted immediate access to the reasons delivered to the special purpose liquidator in the absence of the public on 20 May 2010, on such confidentiality arrangements as the Court thinks appropriate.

8. Until further order, the orders made in the proceedings by his Honour Justice Barrett on 20 May 2010 be stayed.

9. The orders made in the proceedings by his Honour justice Barrett on 20 May 2010 be set aside." 15 The application, on notice to the SPL, came before White J on 27 May. 16 Under UCPR Pt 36.16(2)(b) the Court can set aside or vary a judgment or order after it has been entered if it was given or made in the absence of a party. 17 White J held that the application was in substance an appeal from the decision of Barrett J that the COI and the creditors of One.Tel were not entitled to be heard on the SPL's application. 18 Since it was not clear that the applicants had standing to appeal from the orders of Barrett J, White J ordered that the SPL's interlocutory application of 14 May and the applicants' interlocutory application of 26 May be removed into this Court, and he discharged any confidentiality order covering the SPL's interlocutory application. 19 The applicants obtained an order for expedition and the matter was heard by the Court, as presently constituted, on 11 June. The only order for which the applicants asked was order 6: para [14]. 20 In the meantime, because it appeared that SingTel Optus might not be a creditor the applicants amended their interlocutory application to add as additional applicants Optus Mobile Pty Ltd, Optus Networks Pty Ltd, Optus Vision Pty Ltd and Optus Insurance Services Pty Ltd (the Optus subsidiaries). There was evidence in the affidavit of Heather Sandell of 4 June that Optus Mobile Pty Ltd had proved in the winding up for $81,549,761, Optus Networks Pty Ltd, Optus Mobile Pty Ltd and Optus Vision Pty Ltd had jointly proved for $11,053,136, and Optus Insurance Services Pty Ltd had proved for $661,621. 21 These proofs had been admitted to rank for $65,570,148 (AB 99) representing about 19% in value of the admitted creditors. A further $28,133,350 awaits a final decision from the GPL. 22 In his non-confidential reasons published on 20 May, [2010] NSWSC 498, Barrett J. held that the subject matter of SPL's application "was of a commercially confidential and sensitive kind" relating to the funding of litigation that any plaintiff would take care to keep from the other parties. 23 He also held that the public interest in the proper administration of the estates of insolvent companies for the benefit of creditors and in the due administration of justice in the litigation, warranted a hearing in closed court. 24 The SPL's powers included power to consider and make recommendations to the creditors of One.Tel about the commencement of proceedings to enforce the causes of action. He was given power to commence such proceedings if the COI accepted or did not oppose his recommendation to that effect. 25 On 24 May 2007 a meeting of the COI resolved to accept or not oppose his recommendation that proceedings be commenced to enforce the causes of action (the proceedings) but service was not to be effected at that stage. 26 The proceedings were commenced on 25 May 2007 (No 2982 of 2007). The Court has authorised the SPL to apply for extensions of the time for service and the necessary orders have been made. On 20 May 2010 Barrett J granted a further extension until 25 August: [2010] NSWSC 499 27 The SPL was also given power (para 3(iv)(c)) "to take all necessary steps to obtain funding to prosecute the proceedings." The SPL's ex parte application to Barrett J on 14 May related to litigation funding negotiated pursuant to this authority. 28 Barrett J considered in his non-confidential reasons whether the COI or creditors generally "had any right or expectation that would be compromised if the [SPL] … took the steps approved by the Court … without consultation with [them]" para [11]. His Honour held that they had no such right or expectation. He said para [12]: "The Court, the committee of inspection and the general body of creditors are alternative approving authorities under s 477(2B). Each may act independently of the other … Where, as here, a liquidator approaches the court and the court grants approval, there is no requirement or expectation that the committee of inspection be consulted in advance of the application or after the approval has been granted." 29 His Honour cited in support of the first sentence Elfic Ltd v Macks [2001] QCA 219, [2003] 2 Qd R 125, 146 [111], 158 [163], 159 [165] and 182 [260]; and Hall v Poolman [2009] NSWCA 64, 71 ACSR 139, 173 [134-135], and in support of the second sentence UTSA Pty Ltd v Ultra Tune Australia Pty Ltd [1997] 1 VR 667 at 696-8, to which may be added Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, 213. 30 Mr R C Newlinds SC, who appeared with Ms R Higgins for the applicants, did not challenge the first sentence, but took issue with the second. 31 The Judge rejected other possible bases for holding that the COI or the creditors had a relevant right or expectation which entitled them to be heard. He held that approval for a litigation funding agreement was not within the statutory powers of a COI, that in a voluntary winding up a COI had no power to give binding directions to the liquidator and he referred to his decision in Onefone Australia Pty Ltd v One.Tel Ltd [2008] NSWSC 1335 paras [27-29], [38-45]. 32 Mr Newlinds did not challenge these propositions. 33 The central issue at the hearing concerned para [15] of his Honour's reasons: "… members of the committee of inspection and individual creditors [do] not occupy any position attracting the protection of the principles of procedural fairness associated with Cameron v Cole [1944] HCA 5, 68 CLR 571 and BP Australia Ltd v Browne [2003] NSWCA 216, 58 NSWLR 322. They were not, in the context of the liquidator's application for section 477(2B) approval and related guidance, persons against whom 'a claim or charge is made' (to use the language of Rich J in the former case) or 'likely to be adversely affected by the order of the Court' (in the words of Spigelman CJ in the latter case) so as to attract a right to be heard."

A right to be heard on whether there is a right to be heard 34 Order 4 made by Barrett J on 20 May declared that the SPL was justified in entering into the Release and the Agreement without the prior approval of the COI or the creditors of One.Tel. Order 5 declared that the SPL was justified in not disclosing the identity of the other parties to those agreements. 35 Mr Newlinds submitted that Barrett J had considered whether the COI and the creditors had any relevant interest in the proceedings, and determined that question without giving them an opportunity to be heard. In the circumstances they had a right to be heard on the question whether they had a right to be heard. 36 This submission must be rejected. The right to be heard by a judicial officer before an order is made depends on the existence in fact of a relevant right, interest, or expectation that would or might be affected by the order. Where this is doubtful a judicial officer may err on the side of caution and allow the party or parties concerned to be heard. However if the judicial officer decides, correctly, that such a party has no relevant right, interest or expectation that partly has no right to be heard. The right depends on the existence in fact of a relevant right, interest or expectation. There is no such thing as a free standing right to be heard. 37 On 12 April 2010 Baker & McKenzie wrote to the solicitors for the SPL on behalf of the three members of the COI, who became applicants in these proceedings, to advise that their clients "may wish to be heard" on any further application to extend the time for service of the statement of claim. They asked for their clients to be provided with notice and copies of any such application. 38 They also asserted a right in their clients, as members of the COI, to be provided with details of any litigation funding agreement and with notice and copies of any application by the SPL under s 477(2B). 39 There was no response to this letter until 20 May when the solicitors for the SPL advised Baker & McKenzie that the letter of 12 April had been disclosed to the Court. If the members of the COI had no relevant right, interest or expectation their claim to be heard which was brought to the attention of the judicial officer, cannot generate a free standing right to that effect and the letter of 12 April takes the matter no further. There was no claim at that stage on behalf of SingTel Optus as the applicant in the removal proceedings, or on behalf of the Optus subsidiaries as creditors.

The COI 40 The applicants did not challenge the general principle that the COI has no right or expectation which could be affected by an application of the kind heard by Barrett J. Mr Newlinds argued for a limited exception in the special circumstances of this case. 41 There was no evidence that the COI had met to consider the SPL's application, the confidentiality orders, or an application for access to the documents protected by the orders of Barrett J. In the absence of a collective decision the individual applicants, although a majority, do not represent the COI. 42 The individual applicants are presumably representatives of major creditors, but are not themselves creditors. Their status is that of members of the public lacking any right, interest or expectation which could be affected by the SPL's application or the orders of the Court. Mr Newlind's submissions resting upon the relationship between SPL and the COI under the authority granted to the SPL must be rejected.

The Optus subsidiaries 43 The original applicants included SingTel Optus Ltd which claimed to be a creditor of One.Tel. The Optus subsidiaries were joined because of doubts about the status of SingTel Optus as a creditor. 44 Mr Cotman SC, who appeared with Mr Glasson for the SPL, submitted that creditors as such were not necessary parties to the application by the SPL because they had no right, interest or expectation which was, or could be, affected by the orders. Mr Newlinds acknowledged that, as a general rule, a creditor did not have a right, interest or expectation entitling it to be heard, but argued that the Optus subsidiaries had a special interest because they were substantial creditors and were or would become applicants in pending proceedings for the removal of Mr Weston as SPL.

(a) Substantial creditors 45 The Optus subsidiaries proved for debts totalling $93,254,518, comprising some 28% of all pre-liquidation claims. They are substantial creditors in the winding up. 46 The applicants relied upon the existence of "free cash" in the hands of the GPL potentially available for distribution to creditors. Exhibit A, the applicants' tender bundle, included an affidavit by Murray King, the Chief Financial Officer of SingTel Optus sworn 19 March 2010 which annexed the GPLs' report of 5 August 2009. This disclosed that they were holding "free cash" of approximately $9 million. The fund was subject to large disputed claims by the SPL for his remuneration and legal and other expenses for which he is seeking the approval of the Court. 47 Mr Newlinds submitted that the interests of the Optus subsidiaries in the "free cash" could be prejudiced if the Agreement committed those funds as security for the defendants' costs or for the SPL's legal expenses in the proceedings.

(b) Removal proceedings 48 The relationship between the SPL, the COI, and some of the major creditors has broken down. The adjourned 2009 annual meeting of the creditors held on 10 November 2009 passed a vote of no confidence in the SPL, with 15 creditors claiming to have proved for $126,350,218 voting in support, and no creditor voting against: 49 On 19 March 2010 SingTel Optus commenced proceedings (71799 of 2010) for the removal of Mr Weston as SPL or in the alternative for an enquiry under s 536 of the Corporations Act into his conduct as SPL (the removal proceedings). They were listed before Barrett J for further directions on 21 June (AB 76). There was no suggestion that he was not aware of these proceedings when he made the confidentiality orders under challenge. 50 Mr Newlinds initially submitted that SingTel Optus, as the applicant in the removal proceedings, had the necessary special interest in the application by the SPL. When it appeared that it may not have the necessary standing as a creditor, he informed the Court that the Optus subsidiaries would seek to be added or substituted as applicants. We assume that this order will be made in due course. 51 Mr Newlinds submitted that the special interest of SingTel Optus and the Optus subsidiaries in the removal proceedings could be prejudiced if the Agreement effectively "entrenched" Mr Weston as SPL. It could do this if his removal would prejudice the continued existence of the Agreement or have other detrimental consequences in the winding up. Such matters might be discretionary reasons for refusing to remove Mr Weston. 52 Mr Cotman tendered the order of Barrett J of 16 July 2009 which became Exhibit 3. This established a regime for the payment by the GPL of the SPL's legal costs and disbursements incurred on or after 1 July 2008. On 20 May 2010 Barrett J dealt with this matter in the following order: "6. The orders of 16 July 2009 concerning the payment of the SPL's legal expenses do not apply to any legal expenses to be paid under the Agreement." 53 This disposed of Mr Newlinds' submissions based on the legal costs to be incurred by the SPL in the proceedings. 54 The remaining issues relate to the possible entrenchment of Mr Weston as SPL, and the possibility that the Agreement committed the "free cash" to the provision of security for the defendants' costs of the proceedings. 55 Barrett J's finding recorded in para [33] above that the COI and individual creditors were not likely to be affected by the orders covered the remaining matters relied on by Mr Newlinds. After this Court reserved judgment on 11 June the envelopes sealed under the orders of Barrett J were opened by the Judges in private and they read the confidential documents. 56 The SPL has not made or foreshadowed claims against the Optus subsidiaries. They are subject to the SPL's conduct of his allotted functions. The substantive orders made by Barrett J are protective of the SPL, and could affect the Optus subsidiaries (and all other creditors) to that extent, but that does not give them a right to be heard. Whether the orders affect the 'free cash' or the continuation of the SPL in office, and if so whether these matters required the Optus subsidiaries to be heard, involve findings of fact based on the terms of the Agreement. 57 Barrett J found that the Optus subsidiaries were not likely to be adversely affected by the substantive orders. He was aware of the existence of the 'free cash' and the removal proceedings. He must have been satisfied that entry into the Agreement would not generate claims on the 'free cash', or affect the outcome in the removal proceedings. These are factual assessments. 58 Having read the confidential documents, we are satisfied that Barrett J's finding was correct, and that he was entitled to determine the application by the SPL without hearing SingTel Optus or the Optus subsidiaries. 59 Mr Newlinds' submissions included that, if hearing the Optus subsidiaries was discretionary in the light of their commercial and special interests, Barrett J had erred because he had failed to properly exercise the discretion. If the decision was discretionary, we would exercise the discretion in the same manner.

The relief claimed 60 The applicants only sought order 6 at this stage and said that, having seen the Agreement, they could decide whether to go further. That is misconceived. The basis for their application was that Barrett J's orders were vitiated because they had been denied their right to be heard. If that were so, the orders would be set aside, as was claimed in order 9, and the SPL's application would have to be reheard. The SPL could withdraw it, or ask the court to mould a confidentiality regime. Had the applicants' submissions been upheld, the result would not have been an order for immediate access to the Agreement. 61 The application was not in form or in substance made under the liberty to apply reserved in the orders of 20 May (para [9] above). Any such application should be made to Barrett J. 62 In our judgment the interlocutory application referred to this Court by White J fails and should be dismissed with costs. The interlocutory application determined by Barrett J on 20 May should be remitted to the Equity Division. ORDERS

(2) The interlocutory application by the special purpose as liquidator heard by Barrett J on 14 May 2010 is remitted to the Equity Division.

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.