LEE J:
1 This is a duty judge application by the first plaintiff (Mr Pascoe), the liquidator of the second plaintiff (Matrix), by which he seeks orders under ss 477(2A) and 477(2B) of the Corporations Act 2001 (Cth) (Act) in relation to the proposed resolution of separate litigation currently being conducted in the Supreme Court of New South Wales (Supreme Court proceeding).
2 Matrix is the plaintiff in the Supreme Court proceeding, in which it seeks relief against a former director of Matrix, Mr Garrick Hawkins, and a related entity of Mr Hawkins, Pegela Pty Ltd (Pegela). It is unnecessary to detail at any length the factual background to the Supreme Court proceeding, other than to note that Matrix carried on business as Trustee of the Matrix Finance Group Unit Trust (Trust) and it is alleged that Mr Hawkins engaged in fraudulent and dishonest misappropriation of Trust property and breached his fiduciary duties. Matrix seeks an order that Mr Hawkins: (a) restore the amount of the Matrix receipts to the Trust, plus compound interest; (b) pay equitable compensation in the amount of the misappropriated funds plus compound interest; or (c) account for the misappropriated funds as a constructive trustee. The relief claimed against Pegela is: (a) a declaration that it is liable to account to Matrix as constructive trustee in the amount of $15,000,000; and (b) orders for the restoration of that sum to the Trust together with compound or statutory interest.
3 Mr Pascoe has received an offer to resolve the whole of the Supreme Court proceeding upon terms which are unnecessary to recount for the purposes of this judgment (Offer). Most relevantly, the Offer contemplates performance, in the form of a series of payments over a period which extends beyond three months, and which involves a compromise of the equitable claims against Mr Hawkins and Pagela in exchange for that series of payments. The Offer is made conditional upon Mr Pascoe obtaining the necessary approvals the subject of the present interlocutory process. The matter has some urgency as the Offer expires on 30 April 2021 and the expiry date has already been the subject of a number of extensions.
4 The necessity of approval arises in unusual circumstances. It is occasioned because Mr Pascoe has been twice unable to obtain a quorum to hold a meeting of creditors to approve the Offer. There are only two creditors in the liquidation of Matrix: (1) the Deputy Commissioner of Taxation, for an amount in excess of $15 million; and (2) Mr Oates, who has been granted leave to appear and be heard on the current application, in the amount of $200,748. In short, the Deputy Commissioner of Taxation wants Mr Pascoe to accept the Offer, but the evidence discloses that Mr Oates has not attended two creditors' meetings convened for the purposes of seeking approval, and thus the process of obtaining creditors' approval has been unable to be successfully invoked.
5 It will be necessary to return briefly to s 477(2A) of the Act below, but it is appropriate first to deal with the relevant principles. These were explained comprehensively by White J in Re Lewis (as liquidators of Concrete Supply Pty Ltd (in liq)) [2020] FCA 841; (2020) 145 ACSR 459 (at 463 [16]):
The principles which the Court applies when considering an application for approval are well settled:
(a) the Court makes its assessment having regard to the purposes for which liquidators' powers exist, including the serving of the interests of those concerned in the winding up, the achievement of what is necessary for the proper realisation of the assets of the company, and assisting in its winding up;
(b) a primary consideration is the impact of the agreement on the duration of the liquidation and whether that is, in all of the circumstances, reasonable in the interests of the liquidation;
(c) the Court's approval is not an endorsement of the proposed agreement but merely constitutes permission for liquidators to exercise their commercial judgment;
(d) again, generally, the Court does not refuse an approval unless there can be seen to be some lack of good faith, some error in law or principle or some real and substantial grounds for doubting the prudence of the liquidator's conduct;
(e) a court may also refuse approval if the terms of the proposed agreement are unclear;
(f) the role of the Court is to grant or deny approval to the liquidator's proposal. It is not to develop some alternative proposal which might [seem] preferable; and
(g) nevertheless, the Court does not simply "rubber stamp" whatever is put forward by a liquidator.
(Citation omitted).
6 The liquidator's application made under s 477(2B) is made under that provision only; it is not an application for orders under s 90-15 of the Insolvency Practice Schedule (Corporations), being Sch 2 to the Act, or for judicial advice that Mr Pascoe be justified in accepting the Offer. This means that Mr Pascoe is not seeking the protection that such advice can give, but is only seeking the judicial approval necessary to complete the power conferred on him under s 477(2)(m) of the Act to enter into those agreements constituted and contemplated by the Offer. Nor does the application seek the approval for performance of obligations under (and nor, of course, could such approval be given under) s 477(2B) of the Act.
7 I am satisfied that approval should be given for five partly interrelated reasons. They are as follows:
(1) Mr Pascoe holds the view that acceptance of the Offer is in the best interests of the creditors of Matrix. Advice has been obtained by two experienced senior counsel in relation to the acceptance of the Offer, whereby the merits and considerations both for and against the acceptance of the Offer have been considered in careful detail. There is no reason to doubt the prudence of Mr Pascoe's judgment in this respect.
(2) Importantly, the Offer has the support of the Deputy Commissioner of Taxation, by far the major creditor in the liquidation.
(3) Relatedly, the application for court approval under s 477(2B) was only made necessary, as indicated above, by reason of the failure to achieve a quorum at a meeting of creditors (due to Mr Oates' absence) convened for 24 March 2021 (and adjourned to 31 March 2021), at which a resolution under s 477(2B) would have been considered. The inference is available, and I draw it, that in the event of any deadlock, if a meeting had occurred, Mr Pascoe would have exercised his casting vote consistently with his views on the Offer in favour of the resolution with the consequence that the resolution would have been carried.
(4) As noted above, no question of merits review of the Offer arises, but there is certainly nothing about the material I have seen which would suggest that there is any basis for considering that the Offer is one which is not capable of acceptance by Mr Pascoe in accordance with his obligations.
(5) The resolution of the Supreme Court proceeding is in the interest of bringing the liquidation of Matrix to an end in an expeditious fashion.
8 Further, it is necessary to deal with a point made by Mr Oates during the course of his oral submissions. The Offer contemplates that Pegela will grant Matrix a mortgage over property to secure payment, with such mortgage to be made upon terms acceptable to Mr Pascoe acting reasonably. The term "Property" is defined in the recitals (as amended) as:
[R]eal estate held by Pegela or an associated entity in New South Wales or such other security which is acceptable to the Liquidator acting reasonably.
9 The point made by Mr Oates was that this obligation is insufficiently clear. I do not accept that submission. Plainly, the terms of the deed, upon entry, will oblige Pegela to grant a mortgage over real estate, which is held by either it or an associated entity. Although it might be more precise, there is no reason in my view why such an obligation would not be able to be the subject of an application for specific performance in the event that a mortgage was not granted.
10 Finally, I am satisfied that an order approving Mr Pascoe entering into the deed is of some utility, as it gives some specificity to the transactions the subject of the application for approval.
11 This leaves two matters which are of some significance.
12 First, is the separate approval sought under s 477(2A) of the Act. That provision provides that:
(2A) 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:
(a) if an amount greater than $20,000 is prescribed - the prescribed amount; or
(b) otherwise - $20,000.
(Emphasis added).
13 As I indicated above, the relief sought in the Supreme Court proceeding is purely equitable in nature. The plaintiffs' submissions talk in terms of "damages". The use of such a term should be deprecated in proceedings of the type that have been commenced. As was noted by PJ Millett in 'Equity's Place in the Law of Commerce' (1998) 114 Law Quarterly Review 214 (at 225):
It is misleading to speak of breach of trust as if it were the equitable counterpart of breach of contract at common law; or to speak of equitable compensation for breach or fiduciary duty as if it were common law damages masquerading under a fancy name. Forty years ago, the Chancery Judges bore down heavily on such solecisms. Woe betide a Chancery Junior who spoke of "damages for breach of trust" or "damages for breach of fiduciary duty". The judges knew that misuse of language often conceals a confusion of thought. Nowadays these misleading expressions are in common use. It is time that the usage was stamped out.
14 The nature of the claim, as Street J explained in Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] NSWR 211 (at 216), is an obligation to make restitution, which courts of equity have, from very early times, imposed on defaulting trustees and other fiduciaries. In this regard, the distinction between common law damages and equitable relief of a compensatory nature against the defaulting trustee is both fundamental and stark. The Supreme Court proceeding is not an action for the recovery of a debt.
15 Accordingly, given that I have reached the conclusion that there is no presently owing debt, but rather an equity to seek relief in the nature of equitable compensation or, put another way, to seek an order to require restoration of trust assets deprived by reason of an equitable delinquency, I do not consider that there is power to make an order under s 477(2A) of the Act. Although such an approval was sought, it cannot be a necessary approval for the liquidator to obtain, because it cannot be given in accordance with legal and equitable principle.
16 Secondly, is the question of the confidentiality orders sought in relation to the application. A submission was made, relying on the decision in Deputy Commissioner of Taxation, in the matter of ACN 154 520 199 Pty Ltd (in liq) v ACN 154 520 199 Pty Ltd (in liq) (No 2) [2017] FCA 755, that a confidentiality order should be made pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) (FCA Act) over a very extensive affidavit and corresponding exhibit filed by Mr Pascoe, the affidavit filed by Mr Oates, and the plaintiffs' written submissions. The basis for the order was that an array of documents are either privileged or are sensitive and confidential.
17 It is important to recognise the particular requirement imposed by s 37AE of the FCA Act, namely, in deciding whether to make a suppression order the Court "must take into account that a primary objective of the administration of justice is to safeguard the public interest in open justice". The principle of open justice means that courts are fully exposed to public and professional scrutiny and criticism, with interested observers able to follow and comprehend the evidence, the submissions and the reasons for judgment. Indeed, as Gibbs J (as his Honour then was) noted in Russell v Russell (1976) 134 CLR 495 (at 520):
… the public administration of justice tends to maintain confidence in the integrity and independence of the courts. The fact that courts of law are held openly and not in secret is an essential aspect of their character.
18 In the exercise of Chapter III judicial power, there are quite properly very limited exceptions to the principle of open justice. Confidentiality orders which seek the suppression of material which could not on any view be regarded as truly confidential, however expedient or pragmatic that course might appear, should not be sought - nor should they be made. Such a circumstance is simply insufficient to engage the carefully limited power to make such orders under s 37AF of the FCA Act. As I said in Smith v Commonwealth of Australia (No 2) [2020] FCA 837 (at [14]), open justice is an essential feature of the judicial process. I therefore decline to make the wide-reaching confidentiality orders sought.
19 I did make an interim confidentiality order during the course of the hearing pursuant to s 37AI of the FCA Act and I will continue that order for 48 hours so that the plaintiffs' solicitors may bring in a schedule which identifies, with specificity, those parts of the material labelled confidential which, in truth, are confidential. If I am satisfied the proposed revised order is "necessary" in the administration of justice (remembering, as the High Court said in Hogan v Australian Crime Commission [2010] HCA 21; (2010) 240 CLR 651 (at 664 [30] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ), "necessary is a strong word"), I will make it in chambers.
20 Otherwise, I will make the orders that I have indicated.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Lee.