Elfic Limited (ACN 007 606 206) & Ors v Peter Ivan Macks & Ors and GIO Insurance Limited (ACN 052 179 647) and The Commonwealth Bank of Australia Limited (ACN 123 123 124) [2000] QSC 18 (25 February 2000)

Elfic Limited (ACN 007 606 206) & Ors v Peter Ivan Macks & Ors and GIO Insurance Limited (ACN 052 179 647) and The Commonwealth Bank of Australia Limited (ACN 123 123 124) [2000] QSC 18

LENSWORTH PROPERTIES PTY LTD (IN LIQUIDATION) (ACN 007 520 649)

ESTABLISHMENT HOLDINGS PTY LTD (IN LIQUIDAITON)

HENDON INDUSTRIAL PARK PTY LTD (IN LIQUIDATION)

CORPORATIONS LAW - s 479 - approval of funding arrangement to enable liquidator to prosecute recovery proceedings - whether arrangement champertous - whether order for approval should be set aside for non-disclosure - whether order should be set aside because creditors not called on to approve arrangements - whether orders should be set aside because of funder's capacity to control proceedings.

CORPORATIONS LAW - champerty - whether conduct of liquidator amounted to tort or champerty in Queensland - public policy considerations discussed.

CORPORATIONS LAW - removal of liquidator - allegation not acting impartially - allegation acting with improper motive in pursuing creditor - consideration of various acts of liquidator held not to constitute grounds for removal.

Bankruptcy Act 1966: s 120(2)

Corporations Law ss 201, 423, 477, 479,554E, 564, 565, 588FF, 588M, 598, 1317HD

Corporations (Queensland) Act 1990

Corporations (South Australia) Act 1990

Criminal Law Consolidation Act 1935 (SA)

Federal Court (State Jurisdiction) Act 1999 (Qld))

Wrongs Act 1958 (Vic) s 32

Addstead Pty Ltd v Liddan Pty Ltd [1997] SASC 6727; (1997) 70 SASR 21

Alcatel Australia Limited v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349

Bell Group N V v Aspinall (1998) 19 WAR 561 at 570

Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357

Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238

G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674

Giles v Thompson [1993] UKHL 2; (1994) 1 AC 142 at 153-4 and 162-164

Glegg v Bromley (1912) 3 KB 474

Grovewood Holdings PLC v James Capel & Co Ltd (1995) Ch 80

Guy v Churchill (1888) 40 Ch D 481

Health and Life Care Ltd v South Australian Asset Management Corporation (1995) 16 ACSR 453 at 458-9

International v Airservices Australia [1997] FCA 558; (1997) 146 ALR 1 at 36

J C Scott Constructions v Mermaid Waters Tavern Pty Ltd (1984) 2 Qd R 413 at 431,

Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 267-9

Martell v Consetti & Co Ltd (1955) Ch 363 at 386-7

Moor v Anglo-Italian Bank (1879) 10 Ch D 681 at 689-90

Movitor Pty Ltd (1996) 64 FCR 380 at 383, 386-7

N A Kratzmann Pty Limited v Tucker [1968] HCA 44; (1968) 123 CLR 295

Neville v London "Express" Newspaper Limited (1919) AC 368.)

Norglen Ltd v Reeds Rains Prudential Ltd (1999) 2 AC 1 at 11

Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 372

Renard Constructions (NE) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 255

Re: Daniel Efrat Consulting Services Pty Ltd [1999] FCA 412; (1999) 162 ALR 429 at 434-5

Re: Douglas Homes Qld Pty Ltd (1980) Qd R 528

Re: Exchange Travel (Holdings) Ltd (1997) 2 BCLC 579.

Re: Feastys Family Restaurants Pty Ltd (1996) 14 ACLC 1058 at 1059;

Re: Fresjac Pty Ltd [1995] SASC 5378; (1995) 65 SASR 334 at 348.

Re Helmar Pty Ltd (1992) 8 ACSR 301

Re: Movitor Pty Ltd (1996) 64 FCR 380

Re: Oasis Merchandising Services Ltd (1995) 2 BCLC 493, 504-5] and on appeal (1998) 2 Ch 170

Re: Terranora Leisure Time Resort Management Ltd (unreported, Queensland Supreme Court, No 91 of 19 judgment 1/11/1999

Re: Tosich Construction Pty Ltd (1997) 73 FCR 220

Re: Wakim ex parte McNally (1999 ) [1999] VSC 227; 73 ALJR 839

Re: William Felton & Co Pty Ltd (1998) 16 ACLC 1294at 1297-8

Re William Felton & Co Pty Ltd (1998) 16 ACLC 1294 at 1301-2

Re Yagerphone Limited (1935) Ch 392

Roux v Australian Broadcasting Commission [1992] VicRp 87; (1992) 2 VR 577 at 605

Seear v Lawson (1880) 15 Ch D 426

Stein v Blake [1995] UKHL 11; (1996) A C 243

Stevens v Keogh [1946] HCA 16; (1946) 72 CLR 1 at 28

UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (1997) 1 V R 667 and on appeal (1997) 21 ACLR 457

Mr P A Keane QC, Mr J Sheahan SC and Mr J McKenna for plaintiffs

Mr E Lennon QC and Mr R Derrington for first to sixty-sixth defendants

Mr B O'Donnell QC and Mr M Stewart for sixty-seventh defendant

Mr A J Meagher SC and Mr D Andrews for sixty-eighth defendant

Bennett & Philp as Town Agents for Ward & Partners for first to

[1] Williams J: The companies named as the second to sixty-sixth defendants herein formed a corporate group known as the "Emanuel Companies". All are now in liquidation except the twenty-ninth defendant, Navicio Pty Ltd; that company has made an assignment of relevant rights so that the liquidator of the other Emanuel Companies, the first defendant Macks, effectively has control of all relevant litigation on its behalf. A number of the Emanuel Companies first went into voluntary liquidation in 1991, but winding up orders were made by courts with respect to all in 1995- 6. It is not necessary for present purposes to give more specific dates.

[2] After extensive investigations, including numerous lengthy public examinations, the liquidator concluded, after considering several lengthy advices from senior counsel, that he and the Emanuel Companies had substantial causes of action against certain companies in the Fosters Group and also the firm of accountants, Coopers & Lybrand, who had been auditors to the Emanuel Companies. In 1987 the Emanuel Companies had borrowed $43M from companies which were then in the Elders Group but are now under the control of Fosters' Brewing Group Limited. It is convenient to refer to those companies as the Fosters Group. (I include in that description two individuals, O'Grady and Crosby, who were associated with those companies and have been joined as parties along with the companies in relevant litigation.) After the initial loan there were various dealings between the Emanuel Companies and the Fosters Group which are relevant to the liquidator's claims.

[3] The liquidator commenced proceedings in the Supreme Court of South Australia against the Fosters Group and the auditors but the action has been cross-vested to this court. The main action (to use the expression adopted in argument) is now Action S3723 of 1999 in this court. The first to sixty-sixth defendants in this action (Macks and the Emanuel Companies) are the plaintiffs therein and the plaintiffs in this action (the Fosters Group) together with Coopers & Lybrand and two individuals associated with that firm are the defendants therein. The cross-vesting order was made by Justice Debelle on 26 February 1999; until that time most proceedings with respect to the liquidation of the Emanuel Companies had taken place in South Australia. The liquidation is still principally being conducted there and it is where the liquidator has his principal place of business.

[4] There were insufficient funds in the liquidation to allow the liquidator to prosecute the main action. A significant creditor had made funds available to the liquidator for the purpose of conducting public examinations and taking some other recovery proceedings, but no creditor was prepared to provide funds for the prosecution of the main action. Against that background the liquidator had negotiations with the sixty-seventh defendant, GIO Insurance Limited (GIO), and the sixty-eighth defendant, Commonwealth Bank of Australia Limited (CBA), with a view to entering into a "funding arrangement". Once some details had been worked out the liquidator applied to Mansfield J in the Federal Court in South Australia by notice of motion filed 17 February 1998 for an order that he and the Emanuel Companies had "power under the Corporations Law to enter into the proposed arrangements and transactions in the terms of, or substantially in the terms of, the documents" placed before the court. The application was made pursuant to s 479(3) of the Corporations Law ("the Law") which provides that a liquidator may apply to the court for directions in relation to any particular matter arising under the winding up. No other party was served with the notice of motion. The principal hearing before Mansfield J took place on 20 February 1998 and he then intimated that he was prepared to make the order sought. His initial order of 20 February 1998 was varied on 11 March 1998. The various documents which comprised the funding arrangement were subsequently executed by the parties thereto and the final order of Mansfield J was made on 9 June 1998; it referred to those executed documents. His Honour's reasons for making those orders on those dates are now reported at 83 FCR 583 sub. nom. Re Addstone Pty Ltd. (Addstone is one of the Emanuel Companies).

[5] Thereafter a consolidated statement of claim in the main action was delivered. That document, without schedules, extends for over 200 pages and makes detailed substantial allegations against the Fosters Group and the auditors. If completely successful it is said that the plaintiffs therein could recover some hundreds of millions of dollars.

[6] After the South Australian Supreme Court cross-vested the main action to this court, primarily because claims made therein necessitated going behind an earlier judgment of this court (see reasons for judgment Debelle J), the decision of the High Court in Re: Wakim ex parte McNally [1999] VSC 227; (1999) 73 ALJR 839 was handed down. Thereafter legislation was passed both in South Australia and Queensland dealing with the consequences of that decision (Federal Court (State Jurisdiction) Act 1999 (SA) and Federal Court (State Jurisdiction) Act 1999 (Qld)).

[7] The Fosters Group thereafter wished to challenge the validity of the funding arrangement approved by Mansfield J, and in consequence commenced the present action in this court. The plaintiffs in this action are the Fosters Group defendants in the main action, and the defendants in this action are the plaintiffs in the main action together with the GIO and CBA.

[8] It was submitted by counsel for GIO that this court did not have jurisdiction pursuant to the remedial legislation in 1999 to set aside the order of Mansfield J which should now be treated as an order of the Supreme Court of South Australia. Alternatively, it was submitted that for reasons of comity this court ought not entertain such an application. However as the matter was fully argued before me on the merits and I propose to deal firstly with the substantive arguments.

[9] The relief claimed in the present action by the Fosters Group as detailed in the statement of claim is:

(i) void on the ground that it is contrary to public policy;

(ii) is not authorised by s 477(2) of the Corporations Law;

(iii) was not entered into by Macks bona fide in the interests of the Emanuel Companies or the creditors thereof;

(b) an injunction to restrain the defendants from performing the Funding Agreement;

(c) an order for the removal of Macks as liquidator of the Emanuel Companies;

(d) an order setting aside the Order of Mansfield J of 20 February and 11 March 1998;

(da) alternatively to (d) an order pursuant to s 10 of the Federal Courts (State Jurisdiction) Act 1999 (Qld) and s 10 of the Federal Courts (State Jurisdiction) Act 1999 (SA) that the rights and liabilities of the parties to this action given effect by those Acts in respect of the orders of Mansfield J of 20 February 1998 and 11 March 1998 be set aside and revoked to the same extent as if those orders had been set aside.

[10] Before dealing specifically with those issues it is desirable that I set out briefly the terms of the funding arrangement and the reasons given by Mansfield J for making the orders which he did.

[11] It should be noted that the defendants objected to the disclosure of certain details contained in the funding arrangement; indeed the order of Mansfield J included a confidentiality provision. It was contended by the defendants that if certain particulars were disclosed to the plaintiffs that would give them an unfair advantage in the main action. Those issues were raised at preliminary hearings, and I gave directions which had the effect of requiring the defendants to disclose the documents comprising the funding arrangement but with the proviso that certain defined matters could be masked. The trial proceeded on that basis; in other words I was never informed of certain particulars contained in the documents executed in accordance with the order of Mansfield J. However it is clear that the funding involved many millions of dollars; by October 1999 in excess of $3.3M had been advanced. Thus the risk exposure of GIO was substantial.

[12] The funding arrangement was comprised of five agreements (exhibit 9 tab 85):

(1) A Loan and Guarantee Facilities Agreement between CBA of the one part and the liquidator and the Emanuel Companies of the other part;

(2) A Deed of Charge executed by the Emanuel Companies and the liquidator in favour of CBA;

(3) An Insurance Policy issued by GIO in favour of the liquidator and the Emanuel Companies;

(4) A Solicitor-Client Agreement between the liquidator and Ebsworth & Ebsworth;

(5) An Agency Agreement between Ebsworth & Ebsworth and Ward & Partners.

[13] Suffice it to say that on or about 31 March 1998 a Deed of Novation was executed by the liquidator, Ebsworth & Ebsworth, Ward & Partners, and one Charles, a solicitor, whereby Charles was substituted for Ebsworth & Ebsworth in the solicitor/client agreement and in the agency agreement.

[14] The loan agreement provided that the CBA would loan to the liquidator and the Emanuel Companies an amount up to an undisclosed maximum for the purposes of:

(a) enabling payment of a premium of $80,000 with respect to the policy of insurance issued by GIO;

(b) the payment of the legal and related expenses in prosecuting the main action;

(c) meeting legal costs that the liquidator might be ordered to pay in the main action and related proceedings;

(d) paying any amount that may have to be provided by way of security for costs with respect to the main action;

(e) paying remuneration and expenses of the liquidator in relation to preparing the claims;

(f) paying remuneration and expenses of the liquidator with respect to certain specified matters;

(g) paying interest charges, fees and similar payments required to be paid pursuant to the loan agreement.

[15] Clause 15 of that agreement was in these terms:

"You must pay us an amount equivalent to everything you recover in relation to the claim, up to the combined amount of the total amount outstanding under the loan facility and the total amount of our contingent liabilities under all guarantees issued under the guarantee facility. Unless prevented by law, you must do so immediately you recover anything."

[16] By the Deed of Charge the liquidator and the Emanuel companies "charge and convey the claim" to the CBA to secure payment of all moneys owing under the loan agreement. "The claim" is defined as "all causes of action which the liquidator and the companies ... have" against the Fosters Group and Coopers and Lybrand. In terms of the Deed the charge is fixed and ranks as a first charge. Clause 5 provides: "We irrevocably appoint you as our attorney to do anything either of us could have done that you think desirable in relation to enforcing the security. This includes taking over the conduct of the claim." The creation of the charge was probably a disposition within s 477(2)(c) of the Law (cf Re Helmar Pty Ltd (1992) 8 ACSR 301), but the significance, if any, of that was not raised either in the proceedings before Mansfield J or in these proeedings.

[17] Pursuant to the insurance policy GIO insured the CBA against the risk that the liquidator and the Emanuel Companies did not repay to the bank the amounts due to it under the loan agreement. The policy also insured the liquidator and the Emanuel Companies against liabilities for legal and related expenses that they might reasonably incur pursuant to the solicitor/client agreement which had not been discharged under the loan agreement when the loan agreement came to an end. It also insured the liquidator against certain personal liability. The initial premium was $80,000.

[18] For purposes of the insurance policy "the claim" was defined as "all causes of action which the liquidator [and the plaintiff companies in the main action]" had against the defendants in that action. That was the definition which applied to the expression "the claim" in the disposition provision cl 15 which is quoted later.

[19] The following clauses of that insurance policy are of significance for present purposes:

"6. The liquidator and the companies must obtain our approval before doing any of the following:

* applying for a trial date (including filing a certificate of readiness for trial);

* settling or discontinuing the claim or the legal proceedings;

* If we do not give our written approval within a reasonable time, the liquidator and the companies may require us in writing to join them in choosing an independent senior counsel to advise whether the proposed action should be taken. The advice will be binding on all of us.

7. The liquidator and the companies must inform us in writing immediately they become aware of a change in any of the information given us before we entered into this contract. This includes the addition of a party to the legal proceedings and the making of a counter claim. They must also:

* give us any other information in relation to the progress of the claim that we reasonably ask for at any time;

* allow us to inspect any documents they are entitled to allow us to inspect;

* give us quarterly reports in writing, beginning one month after the date of this policy, on the progress of legal proceedings to enforce the claim; and

* give us daily oral reports, and if requested by us reports in writing, on the progress of any trial to enforce the claim.

8. The liquidator and the companies must conduct the claim in a proper and responsible way. In so doing, they must:

* obtain professional advice when we ask them to, as to the prospects of the success of the claim and whether it should be pursued, compromised or discontinued.

* contact us immediately they receive professional advice that they should compromise or discontinue the claim, or if they become aware of anything that significantly affects the risk of not recovering the total amount outstanding under the facilities.

* pay full regard to the professional advice that they receive."

[20] In addition to the initial premium of $80,000 there was also a "risk premium" payable. The section of the policy dealing with the risk premium was substantially masked but exhibit 28 provided some more information. However, one can best see what was in the policy by reading what Mansfield J said about it at 589-90 of his reasons. The risk premium was payable out of the amount recovered in the litigation after the repayment to the CBA of the monies lent and after making other specified payments. As Mansfield J pointed out the "risk premium is approximately 35% of net recoveries"; one can only give an approximation because there is a weighting in the calculation depending upon the quantum recovered. I will not repeat the detail set out at 590 of the reasons of Mansfield J.

[21] Reference should however be made to the following passage in the section dealing with the calculation of the premium: "For the purpose of calculating that part of the premium in 2 and 3 above: any sum recovered by the liquidator under s 565 of the Companies Code shall be treated (without limitation) as included in any amount the liquidator or the companies received from the enforcement of the claim ...". The significance of that provision will be considered later.

[22] The liquidator also warranted "that no person will obtain an order under s 564 of the Corporations Law which will give that person an advantage over [GIO] in the recovery of the amounts to which we are entitled ...".

[23] Finally clause 15 of the policy should be noted; it provided:

"The liquidator disposes to us a share of the proceeds of the claim specified ... sufficient to pay or reimburse us for all amounts to which we are entitled under clauses ... of this policy."

It was accepted that amounted to a disposition within s 477(2)(c) of the Law.

[24] In summarising the Solicitor-Client Agreement and the Agency Agreement I will deal with the position after the novation.

[25] By the Solicitor-Client Agreement the liquidator appointed Charles to be his solicitor in relation to the bringing of the main action and defending certain specified matters associated therewith, including any application for his removal as liquidator. At the time the funding arrangement was entered into Ward & Partners, solicitors of Adelaide, were the solicitors retained by the liquidator. The solicitor-agreement provided that Charles could appoint Ward & Partners to be his agents to run the main action "with any assistance or supervision from [Charles] that [Charles] consider advisable". It then provided that: "The legal practitioners who will primarily perform the work are Solomon Rosenzweig (a consultant to Ward & Partners), James Cudmore (principal of Ward & Partners) and Graham Dart (an associate of Ward & Partners)". Clause 5 provided that Ward & Partners "will report to [Charles] directly on all matters concerning the claim" and also obliged the liquidator to copy all correspondence between himself and Ward & Partners to Charles. There followed a number of clauses dealing with fees, expenses, estimate of costs, and accounts. There is no need to refer to those matters in detail. Finally, reference should be made to clause 17 which relevantly provides:

"You [Charles] must also (at my expense) give GIO Insurance Limited:

* any advice it reasonably requires on any aspect of the claim; and

* any information or copies of documents it reasonably requires in exercising its rights under the insurance policy ...".

[26] By the agency agreement Charles appointed Ward & Partners to be his agents in relation to the bringing of the main action on behalf of the liquidator and defending certain other specified matters. Ward & Partners warranted that, inter alia, they would act "with reasonable skill, care and diligence in pursuing the claim". They were to be responsible for the day to day running of the proceedings, but were obliged to send copies of certain documents and correspondence to Charles. There was a clause which provided that the work would primarily be done by Rosenzweig, Cudmore and Dart and that Charles would "provide such direction or assistance to you as [he] consider advisable".

[27] There followed a series of clauses obliging Ward & Partners to engage Solomon Rosenzweig as a consultant on terms specified in the agreement. Charles was obliged to pay a monthly amount during the period Rosenzweig was engaged as a consultant. Charles was also obliged to reimburse Ward & Partners for the cost of Rosenzweig's admission as a solicitor in South Australia and his obtaining a practising certificate with associated expenses.

[28] Then came provisions in relation to fees and expenses, including those occasioned by the retaining of counsel.

[29] It should also be noted that each of the agreements compromising the funding arrangements was expressly said to be "governed by the law of Victoria". The loans were made in Victoria, and Charles was based there.

[30] In an affidavit before Mansfield J on 11 March 1998, it was stated that a company under the control of Charles claimed property rights in the documents. The front cover page of each of the agreements had in the bottom right hand corner a notation that Charles claimed copyright in the document. As already noted, Mansfield J deferred making the final order until after the documents had been executed. In his reasons at 598 he states that he "required the liquidator to file an affidavit exhibiting the final and executed copies of all the documents comprising the Funding Arrangement". He went on to note that such affidavit had been filed on 29 May 1998 and accordingly he pronounced the final order. In those circumstances Mansfield J was aware of the claim Charles made to copyright.

[31] In his reasons Mansfield J summarised the proposed claims against both the Fosters Group (in his reasons referred to as EFG) and Coopers & Lybrand. He did so because, as he said at 585, "it is necessary to identify the nature of the proposed claims to ensure that, to the extent to which the proposed funding arrangements sell or dispose of the proceeds ..., that sale or disposition is of "property" of the Emanuel Group under s 477(2)(c)." It is not necessary for present purposes to quote all that his Honour said in that regard at 585-588, but given submissions made here it is necessary to summarise some of the claims in the main action. The paragraph references are taken from Part 6 of the Consolidated Statement of Claim in the main action. For easier reference later I will number each of the relevant claims.

[32] Claim 1 made in paragraph D is pursuant to s 565 of the Companies Code ("the Code") and s 201 of the Law. It seeks an order that specified defendants pay to one of the plaintiff companies an amount by which dividends paid on certain shares exceeded the profits of that plaintiff company.

[33] Claim 2 made in paragraph F is pursuant to s 542 of the Code and s 598 of the Law. It seeks an order that an amount equal to moneys paid by way of dividend be repaid; alternative orders dealing with the same factual situation are also sought. Paragraph 128 of the Statement of Claim makes it clear that the order sought is for payment to the plaintiff company which suffered the loss and damage in the alleged circumstances.

[34] Claim 3 made in paragraph H is pursuant to s 565 of the Law and s 120(2) of the Bankruptcy Act 1966. It seeks a declaration that certain payments were void as preferences and for a consequential order that the relevant defendant company pay to the appropriate plaintiff company an amount equal to the payments declared void.

[35] Claim 4 made in paragraph N is for a declaration that certain transactions which took place between 1988-1994 are void as against the liquidator on a variety of grounds including duress, unconscionability, undue influence and voidable preference. The impugned conduct generally occurred before the liquidation. The statement of claim makes it clear that recovery is being sought by the relevant plaintiff company.

[36] Claim 5 made in paragraph R is pursuant to s 542 of the Code and s 598 of the Law. It seeks an order that specified defendants pay to specified corporate plaintiffs an amount equal to profits made by the defendants.

[37] Claim 6 made in paragraph S is pursuant to s 588M(2) of the Law. It seeks an order that nominated defendants pay to each plaintiff company that incurred a debt after 23 June 1993 an amount equal to the loss or damaged suffered by each creditor in relation to that debt because of the company's insolvency. The amount is claimed as a debt due to the plaintiff company.

[38] Claim 7 made in paragraph T is pursuant to s 1317HD of the Law. It seeks orders that the defendant companies pay to the plaintiff companies as a debt due to those companies amounts equal to the profits made by the defendant companies or to the loss and damage sustained by the plaintiff companies in the alleged circumstances.

[39] Claim 8 made in paragraph U is pursuant to s 588FF of the Law. In the circumstances alleged orders are sought that specified defendants pay amounts to or transfer property to the relevant plaintiff company.

[40] Claim 9 made in paragraph CC is pursuant to s 1317HD of the Law. It seeks orders for payment of money to the plaintiff companies.

[41] Claim 10 is made in paragraphs DD and EE and is based on s 588FF of the Law. Relevantly it seeks orders that the defendant companies pay sums of money to or transfer property to the plaintiff companies.

[42] Finally claim 11 made in paragraph FF is pursuant to s 423 of the Law. Orders are sought that the defendants make good losses sustained by the plaintiff companies.

[43] I turn now to some of the reasons of Mansfield J for approving the arrangement. His Honour noted that the application was for directions as to whether the liquidator had power under s 477(2)(c) of the Law to enter into the proposed arrangements with a view to procuring funding.

[44] Because a statement on page 586 is central to one of the principal arguments addressed to me on behalf of the plaintiffs it is necessary to quote the following (I will deal with relevance to the present argument later):

"The liquidator proposes to allege that those various claims came about because certain members of the EFG group participated in an active way in the affairs of the Emanuel group specifically, at least in part, to manage its "exposure" to the Emanuel group when it was otherwise vulnerable to substantial losses in the event of the failure of the Emanuel group, and that it then "propped up" the Emanuel group over a period of time whilst it restructured its advances and its securities so as to put itself in a favourable position at the expense of other creditors of the Emanuel group. ... The process of restructuring the security supporting the loans by the EFG group, and advancing further monies to prop up the Emanuel group, was (it is to be alleged) upon terms which led improperly to the creation of an extremely large debt upon inappropriate terms, whilst the EFG group was effectively controlling the operations of the Emanuel group. In 1994, the further provision of funds ceased and the loans were called up. That led to a dispute, ultimately compromised, including by a consent judgment in favour of EFG for $182M as an alleged debt, and later in March 1995 by Deed of Forbearance and Release whereunder ... . That Deed is alleged to be the culmination of that improper course of conduct on the part of the EFG group, as well as being itself an improper instrument designed to enhance the EFG group interests at the expense of other creditors of the Emanuel group."

[45] After detailing the claims being made by the liquidator his Honour observed that his task was "to ascertain their nature sufficiently to be satisfied that the dealings of the liquidator with respect to them under the Funding Arrangement ... constitute dealings in "property" of the Emanuel Group so as to entitle the liquidator under s 477(2)(c) of the Law to undertake those dealings." Specifically he went on to say that: "Although relief under Pt 5.7B of the Law is granted upon the application of the liquidator: s 588 FF(1) ... amounts so recovered are the property of the company". In his view the various causes of action related to and produced "property" within the definition in s 9 of the Law: "any legal or equitable estate or interest ... in real or personal property of any description and includes a thing in action ...". Later (at 592) speaking of s 477(2)(c) he said: "It is not only the sale or disposition of the cause of action itself, but the sale of the fruits or part of the fruits of such an action that fall under its aegis." Here the disposition was not of the causes of action themselves, but rather of the fruits of those causes of action as in Glegg v Bromley (1912) 3 KB 474.

[46] Thereafter the reasons contain a summary of the contents of the documents comprising the funding arrangement. He expressly noted the risk premium of approximately 35% of net recoveries but also observed that "there was, in the liquidator's view and on the material before me, a significant prospect of a very considerable sum ultimately becoming available to the creditors of the Emanuel group."

[47] He then noted that the Insurance Agreement "specifically provides that the liquidator disposes to the insurer the share of the proceeds of the proposed claim to meet the premium payable. That provision makes it clear that there is a "sale or disposition" of the proceeds of the proposed claim to cause the transaction to fall under s 477(2)(c) of the Law".

[48] He also specifically quoted clauses 6-8 of the Insurance Agreement dealing with the involvement of the insurer in the litigation. That segment of the reasons concludes with the following passage:

"There is nothing of particular significance in the Solicitor Client Agreement and in the Agency Agreement ... for the purpose of considering the application. Under the Solicitor Client Agreement and the Agency Agreement, the principal solicitors and the agent solicitors will be the solicitors on the record as, and will be acting as, solicitors for the liquidator. Their responsibilities will be to the liquidator rather than to any third party to the proposed proceedings."

[49] I will not at this stage refer to the various authorities cited by Mansfield J in his reasons; it will be necessary to refer to them in more detail later. I will however summarise the legal reasoning for the purpose of indicating the issues addressed by him in arriving at his conclusion. He considered that there was a long established exception to the rule against maintenance or champerty, namely that a trustee in bankruptcy or liquidator may assign causes of action or the fruits thereof pursuant to the power available to a liquidator under s 477(2)(c) in circumstances which but for such statutory approval would be champertous. His conclusion was that the disposition of all or part of the prospective recoveries in the main action fell within s 477(2)(c) and such a transaction did not breach the rule against maintenance or champerty.

[50] His Honour accepted that the liquidator had taken legal advice to the effect that there were good prospects of recovering substantial damages and that there were no available funds to prosecute the main action other than from an arrangement of the type the liquidator wished to enter into. He was prepared to conclude that the liquidator had taken all necessary steps to arrive at the funding arrangement most favourable to, and in the best interests of, the creditors and members of the companies in liquidation. He also pointed out that the court's function was not to "second guess" the liquidator's judgment but rather to determine whether the proposed funding arrangement was in reality an exercise of the liquidator's statutory power of sale.

[51] Next he considered whether the liquidator was acting bona fide under s 477(2)(c) in disposing of part of the proceeds to be received from the conduct of the main action. He noted that the liquidator had not sought approval of creditors to his entering into the proposed arrangement and went on: "I do not think that general creditor approval is necessarily a condition precedent to the Court being satisfied that the exercise of the power of sale or disposition is exercised bona fide." Specifically he said at 594-5:

"There will be obvious cases where consulting with, or seeking the approval of, creditors as a body is inappropriate, e.g. where they include significant creditors who may also be potential respondents to proceedings. This may be such a case."

[52] There followed a discussion of five matters which established to the judge's satisfaction the liquidator's bona fides. They were:

1. The liquidator had consulted with some major creditors with a view to obtaining funding. The Australian Taxation Office had provided significant financial support for other proceedings but was not prepared to provide the funding necessary for the main action. Nor was any other major creditor prepared to do so. None of the creditors had sought to discourage or deter the liquidator from pursuing the claims in the main action.

2. The creditors of the Emanuel Group were no doubt aware of the general investigations of the liquidator; that was reasonably clear from the public examinations conducted.

3. The claims the subject of the main action would not be pursued unless the court gave the approval sought.

4. The proposed funding arrangement did not represent any detriment to the creditors of the Emanuel Companies or to the companies themselves.

5. There was detailed legal advice from senior counsel as to the prospects of success both on liability and damages.

[53] Thus in his Honour's view the liquidator had negotiated a funding option reasonably available to him after he had conscientiously explored with creditors the question whether they would provide that funding. He then went on (596):

"In those circumstances, although the Funding Arrangement has not been presented to the creditors of the Emanuel group as a body for their consideration and approval, I do not regard that matter as one tending to indicate a lack of good faith on the part of the liquidator, or as militating in some other way against his eligibility for the direction sought."

[54] Shortly thereafter, importantly for present purposes, the learned judge noted:

"The limited rights of the insurer under clauses 6-8 of the Insurance Policy in the liquidator's conduct in the proceedings do not raise any issue as to whether that might deprive the disposition of its character under s 477(2)(c) so as to qualify for exemption from the law against maintenance and champerty, as ultimate control of the proceeding remains with the liquidator and those rights are no more than the right to be kept informed and to invoke the advice and conciliation/mediation procedures provided."

[55] The judgment also contained the following passage which is important in the light of submissions made in this action:

"The liquidator has also disclosed to the Court that, by letter of 6 January 1997, his solicitors wrote to solicitors for the EFG on certain matters and included therein the following:

"We note your request for at least 7 days notice of any future applications that may concern the creditors of the companies in liquidation. We undertake to give you such notice where possible."

He deposes that, as various members of the EFG group are to be defendants in the proposed action, his advice is that it would not be appropriate to have given notice of this application. He has not done so. Those matters also do not cause me to reach any different view as to the bona fides of the liquidator in the exercise of his power under s 477(2)(c) nor do they otherwise cause me to conclude that I should not exercise the power available under s 479(3) of the Law."

[56] In his conclusion Mansfield J recited that there was nothing apparent to him to "reflect a desire on the part of the liquidator to engage in vexatious or improper litigation". In all of the circumstances he was therefore prepared to make an order "that the liquidator as liquidator of the Emanuel group has power under the Law to enter into the Funding Arrangement, being the arrangement and transactions identified in the documents annexed to the affidavit of the liquidator ...". Finally he ordered that the annexure to that affidavit be confidential and not be available for inspection of any person except by leave of the Court or a judge.

[57] It was accepted by counsel for the Fosters Group that this was not an appeal from the decision of Mansfield J. The argument was formulated primarily on the basis that the Fosters Group had not been heard on the initial application and they were now in a position to present additional facts and submissions to the court which would justify an order setting aside that made by Mansfield J. Such additional material was said to establish non-disclosure by the liquidator at the original hearing. My approach is that findings of fact and exercises of discretion by Mansfield J must be accepted unless the plaintiffs in this action establish a proper basis for setting them aside. In my view an application by a liquidator for directions pursuant to s 479(3) of the Law not served on any other party is not strictly an ex parte application in the traditional sense. Even if it were the effect of non-disclosure would have to be considered in the light of the observations in Bell Group N V v Aspinall (1998) 19 WAR 561 at 570.

[58] Essentially there were two issues which Mansfield J had to consider in determining whether or not the order sought by the liquidator should be made. Firstly, was the funding arrangement champertous? Prima facie (as he recognised) the answer was yes, because the insurer was entitled to a percentage of the amount recovered in the event the litigation was successful. The real question was therefore whether or not this particular arrangement was within a recognised exception to the basic principle and therefore regarded by the law as falling outside the scope of prohibited conduct. Secondly, if the arrangement was not champertous, was there any other good reason for withholding approval in the exercise of the court's discretion. In circumstances such as this that latter question would involve at least an assessment of whether the proposal was in the best interests of the creditors and the companies, and whether the liquidator was acting bona fide in making the application. But the exercise of discretion would also involve consideration of whether or not, though the agreement was strictly not champertous, it would be contrary to public policy to approve of it.

[59] Mansfield J concluded that the funding agreement in this case was not champertous because it came within "a long established exception" based on the power of a trustee in bankruptcy or liquidator to dispose of property pursuant either to s 134(1)(a) of the Bankruptcy Act or s 477(2)(c) of the Law. There is now a very long line of authority which supports the proposition that there is such an exception, at least where the disposition is of property of the company which existed as at the date of liquidation. Though it is by no means exhaustive the following indicates the extent to which such a proposition has been recognised:

Seear v Lawson (1880) 15 Ch D 426

Guy v Churchill (1888) 40 Ch D 481

Cotterill v Bank of Singapore (Australia) Ltd (1995) 37 NSWLR 238

Stein v Blake [1995] UKHL 11; (1996) A C 243

Grovewood Holdings PLC v James Capel & Co Ltd (1995) Ch 80

Re: Movitor Pty Ltd (1996) 64 FCR 380

UTSA Pty Ltd v Ultra Tune Australia Pty Ltd (1997) 1 V R 667

and on appeal (1997) 21 ACLR 457

Re: Tosich Construction Pty Ltd (1997) 73 FCR 220

Buiscex Ltd v Panfida Foods Ltd (1998) 28 ACSR 357

Re: Addstone Pty Ltd (1998) 83 FCR 583 - the judgment in this matter

Re: Oasis Merchandising Services Ltd (1995) 2 BCLC 493 and on appeal (1998) 2 Ch 170

Re: William Felton & Co Pty Ltd (1998) 16 ACLC 1294

(unreported, Queensland Supreme Court, No 91 of 1994 judgment 1/11/1999, de Jersey CJ)

Norglen Ltd v Reeds Rains Prudential Ltd (1999) 2 A C 1

[60] Despite that line of authority Mr Keane QC for the plaintiffs submitted that there was no such valid exception and that s 477(2)(c) did not authorise a liquidator to dispose of any company property on terms which were champertous. He contended that logically there was nothing in s 477(2)(c) which could be taken to authorise such conduct. His submission was that the statutory provision was in general terms and it should be read as authorising conduct not prohibited by a long standing principle of common law, such as the law against maintenance and champerty. He also submitted that company law had been subjected to numerous and ongoing statutory revisions over many years and the legislature had never seen fit to expressly permit a liquidator to enter into what would otherwise be an agreement tainted with champerty. On that argument s 564 of the Law provided the only narrow exception to the application of the law against maintenance and champerty.

[61] Those arguments have been addressed to the courts before and have been rejected. Robert Walker J in Re: Oasis Merchandising Services at first instance [(1995) 2 BCLC 493 at 504-5] said:

"It is, I think, the reference to "special statutory exemption" which lies at the heart of my difficulty. Although there is no doubt in one sense a special statutory exemption, it is not an express exemption. Schedule 4, para 6 says nothing about maintenance and champerty, nor did any of its statutory antecedents or parallel provisions in the law of personal insolvency. What has happened is that since 1880 the court has repeatedly held, and Parliament in successive reviews of the insolvency legislation must be taken to have accepted, that the statutory powers of sale conferred on liquidators and trustees in bankruptcy may be validly exercised without any breach of the rules of public policy covering maintenance and champerty.

In these circumstances it seems to me that it is a question, not of extending or declining to extend a statutory exemption, but of construing the statutory power of sale. If ... an agreement to assign a share of future recoveries (or fruits of litigation) is a sale within the meaning of Schedule 4, para 6, then I would be inclined to conclude that it too must be authorised by that provision, notwithstanding the rules of public policy as to maintenance and champerty."

[62] To similar effect are observations by Bryson J in Re: William Felton & Co Pty Ltd at 1297-8:

"A well established exception to the law relating to Maintenance and Champerty exists where statutes dealing with bankruptcy or liquidation authorise the assignment of causes of action. ... This view was debatable when it originated, and susceptible of more detailed consideration and exposition; conferral of a power to do something does not necessarily overcome all problems of the legality of agreeing to perform it, and supposed illegality would usually require detailed consideration of the intended effect of the statutory authorisation. However, it has become well established that dispositions of rights of action under powers in statutes dealing with bankruptcy and liquidation are effective."

[63] Finally in this context reference should be made to a passage in the judgment of Hayne JA in UTSA v Ultra Tune at 463:

"In my view there is no warrant for reading down the general words of the law. The reference to sale or disposal "in any manner" makes plain that it is the intention of the legislature that the powers of the liquidator are to be ample. If a liquidator is to realise the assets of the company in liquidation to the best advantage, it would be surprising indeed if the liquidator were able to sell a particular form of the company's assets (its right of action) to only a limited class of persons - those who are already interested in the outcome of the action concerned. Especially is this so when it is to be assumed that the provisions about realisation of the company's assets are to be read in the light of the long established rule in relation to bankruptcy which permits the trustee in bankruptcy to sell the bankrupt's rights of action to a third party ... . In my view nothing turns on the different treatment of property of the bankrupt and a company in liquidation in the bankruptcy and companies legislation."

[64] Given the reasoning in the authorities cited, the force of the observations by the three judges in the passages just quoted, and in particular the reasoning and conclusion of Mansfield J on the issue, I am of the view that it is not appropriate for a judge at first instance to conclude that Mansfield J erred in holding that in principle a liquidator could validly dispose of property of a company pursuant to s 477(2)(c) of the Law on terms which might otherwise be held to be champertous. However, in putting the matter that way, I should not be taken as casting any doubt on the validity of the reasoning in question. Given the public interest considerations associated with the insolvency of companies and the consequential losses to innocent creditors where there has been improper trading or unfair conduct on the part of directors and others, and the resulting necessity for the liquidator to recoup assets wherever possible, the public policy justification for holding champertous agreements to be void loses much of its force.

[65] As long ago as 1946, Dixon J, speaking of the "law of maintenance" said: "The law of maintenance is founded not so much on general principles of right and wrong or a natural justice as on considerations of public policy ... . Notions of public policy are not fixed but vary according to the state and development of society and conditions of life in a community." (Stevens v Keogh [1946] HCA 16; (1946) 72 CLR 1 at 28). That statement applies with equal force to the law of champerty. In an age when few can afford the luxury of litigation even where fundamental rights are involved, if the rule of law is to be upheld and rights of individuals protected then funding assistance for litigation within certain bounds becomes a matter of public interest and importance.

[66] There are now a number of authorities in which it is recognised that a litigation funding agreement enabling a liquidator to conduct litigation for the benefit of the winding up stands outside public policy considerations which might otherwise result in the arrangement being held to be void as champertous. Byrne J in Roux v Australian Broadcasting Commission [1992] VicRp 87; (1992) 2 VR 577 at 605 said: "This public policy is not that of medieval times, but a modern public policy which must have regard to litigation and its funding in the contemporary world." That is the approach which should be adopted in considering whether or not a funding agreement such as that in issue here is unenforceable or void because it is contrary to public policy. I adopt without quoting what was said by Byrne J at 606 on this issue. Of course, the courts would prevent trafficking or speculating in causes of action, but this is not such a case.

[67] The sentiments just expressed accord with reasoning in the following cases:

Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 at 267-8; Martell v Consetti & Co Ltd (1955) Ch 363 at 386-7 per Danckwerts J; Movitor Pty Ltd (1996) 64 FCR 380 at 386-7; Giles v Thompson [1993] UKHL 2; (1994) 1 AC 142 at 153-4 and 164 per Lord Mustill; Re William Felton & Co Pty Ltd (1998) 16 ACLC 1294 at 1301-2 per Bryson J; Re Feastys Family Restaurants Pty Ltd (1996) 14 ACLC 1058 at 1059; Norglen Ltd v Reeds Rains Prudential Ltd (1999) 2 AC 1 at 11 per Lord Hoffman;

[68] In saying earlier that there was a long line of authority supporting the proposition that a liquidator could lawfully dispose of property of the company on terms which might otherwise be held to be champertous, I made the qualification that that applied at least where the disposition was of property of the company which existed as at the date of liquidation. That qualification was made in the light of decisions such as Re Oasis Merchandising Services Ltd (1998) 2 Ch 170. Such considerations gave rise to a substantial argument addressed to the court by senior counsel for the plaintiffs. Essentially that submission was that property recovered by a liquidator pursuant to statutory provisions empowering a liquidator to prosecute proceedings to recover or obtain money or property was not "property of the company" for purposes of s 477(2)(c) of the Law, but was property of the liquidator to be used for purposes of the winding up. This submission was primarily directed to the 11 claims made in the main action which have been particularised above.

[69] The submission on behalf of the defendants was that the proceeds of successful claims by a liquidator became property of the company for purposes of s 477(2)(c); that was so unless the statute provided otherwise (eg s 565 of the Code).

[70] These rival submissions are of particular relevance to the proceeds of a claim by a liquidator to recover an amount paid out by a company in circumstances which constituted it a voidable preference (s 565 of the Law and s 120(2) of the Bankruptcy Act) and proceeds recovered by a liquidator suing on behalf of creditors pursuant to s 565 of the Code. Claims 1, 3 and 4 as detailed above involve a claim pursuant to one of those provisions.

[71] The commencing point of the argument put forward by counsel for the plaintiffs is the decision of Bennett J in Re Yagerphone Limited (1935) Ch 392. There the liquidators of a company subject to a voluntary winding up recovered a sum of money paid to a creditor of the company by way of fraudulent preference. A debenture holder sought an order that the amount so recovered should be paid to the receiver appointed pursuant to the debenture. The order was refused on the ground that the money recovered did not become part of the general assets of the company. The principal ground upon which Bennett J decided the case was that at the time when the security crystallised the sum of money in question was not the property of the company. (395) His Lordship went on: "The right to recover a sum of money from a creditor who has been preferred is conferred for the purpose of benefiting the general body of creditors ... . ... the sum of money, when recovered by the liquidators ... was a sum of money received by the liquidators impressed in their hands with a trust for those creditors amongst whom they had to distribute the assets of the company." (396)

[72] That decision was considered by the High Court in NA Kratzmann Pty Limited v Tucker [1968] HCA 44; (1968) 123 CLR 295. The Court at 300 expressed the view that the fact that the charge had not crystallised at the time of payment was of no consequence, but nevertheless they considered the conclusion of Bennett J to be correct. At 301 the Court emphasised that the moneys recovered by the liquidator were not the same moneys originally paid by the company to its creditor; in consequence the court was of the view that moneys so recovered did not become moneys of the insolvent company subject to the charge. It was said, "when recovered they become the moneys of the trustee [liquidator] and his title to them does not depend upon his succession to any title which the bankrupt [company] had." The court considered that that was the sense of the passage quoted above from the reasoning of Bennett J.

[73] The point was then taken up by the Queensland Court of Appeal in Re Starkey (1994) 1 Qd R 142. The question in that case was whether or not the Commissioner of Taxation was entitled, pursuant to s 221P of the Income Tax Assessment Act 1936, to priority with respect to moneys recovered by a liquidator as preferences in a winding up. McPherson JA (with whom the Pincus JA agreed) referred to the decisions in Yagerphone and Kratzmann and went on at 153:

"If money representing proceeds of preference payments that have been avoided are, in the hands of the liquidator, to be considered not as part of the general assets of the company but as being impressed with the trust for the unsecured creditors among whom they are to be distributed, then for the purposes of s 221P they must, it was contended, be regarded as property belonging to the creditors. As such they are, it was submitted, outside the scope of the provisions of that section which ... requires payment to the Commissioner only from property of the company and not property belonging to someone else.

The argument suffers from several difficulties. In the first place, although in Kratzmann ... the High Court accepted the correctness of the decision in Re Yagerphone Limited, it is by no means clear that their Honours adopted everything that was said by Bennett J in support of his decision in that case. A close reading of the reasons of their Honours leaves some doubt whether they approved the proposition that the preference money received by the liquidators was impressed in their hands with a `trust' for the unsecured creditors. What their Honours plainly did accept was a line of authority holding that a secured creditor cannot himself assert a claim to set aside a dealing as a preference, with the consequence that `a trustee ought not to assert such a claim where the resultant benefit would accrue only to a secured creditor'. ...

If a secured creditor may not set in motion for his own benefit a procedure for avoiding preference that exists for the benefit of the unsecured creditors, it is a logical consequence that he should not be able to claim the proceeds of avoiding such a preference when recovered. But it is another matter to say that the liquidator holds those proceeds in trust for the unsecured creditors if what is meant by that is a `trust' in the full sense of the word, under which the unsecured creditors are equitable owners of the assets in winding up."

[74] That reasoning of McPherson JA was expressly adopted by Doyle CJ (with whom Matheson J agreed) in Re Fresjac Pty Ltd [1995] SASC 5378; (1995) 65 SASR 334 at 348.

[75] The fact that the proceedings must be brought in the name of the liquidator and must remain under the control of the liquidator has given rise to debate as to the appropriate form of order when the liquidator is successful. In Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 at 372, the majority (Stephen, Mason, Aickin and Wilson JJ) said:

"However, a question remains as to the propriety of the relief granted by Connolly J and affirmed by the Full Court. The applicants, being the liquidators, sought and obtained inter alia an order that Octavo pay to them the amount of the preference. As we have already said there is no question in this case of the property of Coastline vesting in the liquidators. To order the moneys to be paid to the liquidators tends to confuse their position with that of a trustee in bankruptcy. Payment should therefore be made to Coastline, notwithstanding that the practical result may be regarded as substantially the same because the liquidators are in control of the assets of the company, having vested in them all the powers of the board of directors."

[76] In Starkey McPherson JA, who had been counsel in Octavo, made the following observation at 155:

"In reaching this conclusion I ought perhaps to add that I have not found it necessary to rely on the penultimate paragraph of the joint reasons in Octavo ... . In dismissing the appeal against an order for payment of preference moneys to the liquidator in that case, the High Court of its own motion substituted an order for payment to the company. To that extent the order on appeal in Octavo tends to support the argument for the Commissioner in the present appeal; but the order that was substituted in that case was, I understand, introduced by the High Court after the hearing without calling on counsel for submissions on the question."

In my respectful view the High Court was correct in the order it made. The moneys so recovered form part of the property of the company in liquidation and resort may be had to those moneys to meet the costs and expenses of winding up as well as for the purpose of providing funds for distribution amongst the unsecured creditors. Making the order in that way does not mean, for example, that the moneys would be caught by a charge over all the assets of the company. As McPherson JA pointed out earlier in his reasons in Starkey, the moneys are not recoverable at the instigation of the secured creditor and therefore must be regarded as property outside the scope of the charge.

[77] After considering authorities including Yagerphone, Kratzmann, Octavo and Starkey, Doyle CJ in Fresjak concluded at 343 that "the appropriate order in such a case is for the payment of money recovered to the company"; he expressly followed the High Court in Octavo. Finally in this regard I would refer to the decision of the Court of Appeal in Re Exchange Travel (Holdings) Ltd (1997) 2 BCLC 579. Phillips LJ at 588 and Morritt LJ at 595 each concluded that recoveries made by a liquidator in preference and similar proceedings constitute assets of the company in the winding up.

[78] It follows, in my view, that recoveries made by a liquidator in proceedings brought pursuant to s 565 of the Law are within the definition of "property" and form part of the property of the company which may be disposed of by the liquidator in accordance with s 477(2)(c) of the Law.

[79] In arriving at the conclusion stated in the preceding paragraph I have not given weight to the provisions now found in Part 5.7B of the Corporations Law which became effective in June 1993. This Part provides the code dealing with the recovery of voidable preferences where the impugned payment was made after the date in June 1993 when the Part became effective. But it is not without significance that s 588FF(1)(a) provides that the court may make "an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction." In other words it is now clear that the judgment in the proceedings brought by the liquidator to recover moneys paid as a voidable preference will be a judgment that money be paid to the company.

[80] Here the disposition is not of the cause of action but of the fruits thereof. It is not necessary for present purposes to consider whether or not the cause of action itself could be assigned. Once the liquidator has recovered the moneys they form part of the property of the company in his hands which may be disposed of pursuant to s 477(2)(c) or used to meet costs and expenses of the winding up or used to pay a dividend to unsecured creditors. Of course, a disposition pursuant to s 477(2)(c) could only be made where it was beneficial to the winding up. In all the circumstances I am satisfied that the proceeds of a successful preference action formed part of the property of the company for the above purposes, but such moneys would not constitute property of the company caught by a mortgage debenture granted over all of its assets for the reasons given by Doyle CJ in Fresjac.

[81] The position is different however with respect to the proceeds of successful proceedings brought by a liquidator pursuant to s 565 of the Code. Relevantly that section provides: "Every director ... who wilfully pays or permits to be paid any dividend out of what he knows is not profits ... is also liable to the creditors of the company for the amount of the debts due by the company to them respectively to the extent by which the dividends so paid have exceeded the profits, and the amount for which a director ... is so liable may be recovered by the creditors or the liquidator suing on behalf of the creditors." That statutory provision makes it clear that the proceeds recovered in such an action are the property of the creditors even though the action may have been commenced by the liquidator on their behalf. In other words those moneys could not be used, for example, in meeting the costs and expenses of the winding up. The property is at all times that of the creditors; it never becomes property of the company. It follows that proceeds of a claim pursuant to s 565 of the Code could not be disposed by the liquidator pursuant to s 477(2)(c).

[82] But, though the main action includes such a claim (claim 1) the property disposed of by the funding arrangement does not include the proceeds of that claim.

[83] That is because, as noted above, "the claim" for purposes of the disposition in the insurance agreement and the deed of charge is defined as "all causes of action which the liquidator and the companies ... have" against the defendants in the main action. A claim pursuant to s 565 of the Code does not come within that definition because that cause of action is one which by the statute the creditors alone have. The validity of that is supported by the specific reference to "any sum recovered by the liquidator under s 565 of the Companies Code" in the provision dealing with the calculation of premium for the insurance. In that clause it is expressly provided that the amount recovered pursuant to a claim under s 565 of the Code is to be included in the calculation of premium. Such an express provision would be unnecessary if the proceeds of the s 565 of the Code action were part of "the claim" as defined. That supports the contention that the proceeds of the claim pursuant to s 565 of the Code do not constitute part of the property of the company the subject of the disposition under s 477(2)(c).

[84] Paragraph 120 of the Consolidated Statement of Claim on which claim 1 is based relies on s 201 of the Law with respect to dividends paid after 1 January 1991. Whilst there is no express reference to any amount recovered pursuant to s 201 of the Law in the insurance document the clear inference is that such moneys are to be treated in exactly the same way as recoveries pursuant to s 565 of the Code.

[85] Paragraph 120 alleges that the defendants are "liable to the liquidator" with respect to the moneys sought to be recovered but in paragraph D of the Prayer for Relief the form of order sought is that the relevant defendants pay money to Emanuel Management Pty Ltd, one of the plaintiff companies. That is clearly an error. The money, in accordance with s 565 of the Code must be paid to the liquidator on behalf of the creditors; an amendment to D should be made. However, in my view, that error in the pleading is not decisive for present purposes.

[86] Claims 2 and 5 are made pursuant to s 542 of the Code and s 598 of the Law. Each section is essentially the same. Pursuant to s 542 proceedings must be brought by a "prescribed person" which is defined in the section as including a liquidator but neither the company itself nor one of its creditors. It is then provided that the court may by its order direct the payment of money or transfer of property "to the corporation". Pursuant to s 598 the proceedings must be brought by an "eligible applicant"; by definition (s 9) that includes a liquidator but not the company itself or one of its creditors. The section expressly provides that, if the action is successful, the court may make an order directing the payment of money or transfer of property "to the corporation". It is not necessary for present purposes to determine whether or not such recoveries would constitute property caught by a mortgage debenture. It is sufficient for present purposes to say that the amounts so recovered form part of the "property of the company" which may be used by the liquidator in the course of the winding up; it may be disposed of pursuant to s 477(2)(c), it may be used to meet the costs and expenses of the winding up, or it may be used to pay a dividend to unsecured creditors.

[87] Claim 4, as already noted, includes in part recovery on the ground that payments made were voidable preferences. But it also seeks, in the name of the relevant plaintiff company, restitution of property on the ground that certain transactions were void on the grounds of duress, unconscionability or undue influence. Any property so recovered would clearly be property of the company for general purposes of the winding up.

[88] Claim 6 is based on s 588M(2) of the Law. Though the statute speaks of the liquidator recovering from a director it also says that the amount recovered is "as a debt due to the company". Again that makes it clear that the amount recovered is property of the company for purposes of the winding up.

[89] Claims 8 and 10 are based on s 588FF of the Law which expressly provides for the court to make an order directing payment "to the company". Again that makes it clear that the amount recovered is property of the company for purposes of the winding up.

[90] Claims 7 and 9 are based on s 1317HD of the Law which provides that in the circumstances specified the person "must account to the corporation" and that the amount for which the person is liable "may be recovered as a debt". That wording establishes that the amount recovered is deemed to be a debt due to the company. Consequently it is clear that the amount recovered constitutes property of the company for purposes of the winding up.

[91] Finally I must deal with claim 11 which is based on s 423 of the Law. That section empowers the court in appropriate circumstances to enquire into conduct of a person in control of a company's property and if it concludes that there was relevant default it may "take such action as it thinks fit." It is the submission of the defendants that in appropriate circumstances pursuant to that section the court may order the person having control of the subject property "to make good any loss" incurred. In other words pursuant to that section the court may make a restitution order with respect to property of the company. Any such order would be in favour of the company and the property, the subject of that order, would constitute property of the company for purposes of the winding up.

[92] That analysis conforms with the approach adopted in a number of the reported cases. Referring to "the expected fruits of an action brought under s 588M or under s 588W" of the Law, Drummond J in Movitor said at 392: "The right of the liquidator to recover damages created by each of those sections is described as a right to recover from the director and the holding company an amount equal to the loss or damages suffered as a result of the company's insolvent trading in which the direction and the holding company were implicated `as a debt due to the company'. That `debt' arises once the conditions of liability have been fulfilled, something that must occur prior to the commencement of any action for recovery under either section. Such a `debt' can properly be regarded as part of the property of the company which the liquidator is empowered to sell." Lindgren J in Tosich said at 235: "The sections relied on by the Liquidator in the proceeding make it clear that recoveries will be property of the company. Paragraphs 588FF(1)(a) and (c) which are the paragraphs within s 588FF that empower the Court to order payment of money, empower it to direct the relevant person "to pay to the company" the amounts in question. Similarly, s 588FJ(6) on which the Liquidator relies in the Proceeding entitles him to recover from a chargee "as a debt due to the company" the amount referred to in that section. I respectfully agree with Drummond J that since the power which the liquidator has to sell or otherwise dispose of future recoveries, by his or her power to sell or otherwise dispose of the company's cause of action itself, is found solely in s 477(2)(c) of the Law, this Court should not follow Lightman J in Grovewood in refusing to extend the statutory exemption applicable to dispositions of their causes of action to dispositions of recoveries." Those passages were cited with approval by Mansfield J at 588 when approving the funding arrangements in this case.

[93] I now turn to the issue of control of the main action. Clearly the funding agreement gives the GIO (and perhaps also the CBA) some control over the liquidator's conduct of it. Where there is an assignment of the fruits of an action the agreement may be champertous if the assignee can direct the proceedings; so much appears clear from the judgments in Glegg v Bromley. But that is irrelevant here because, as already noted, s 477(2)(c) of the Law permits the liquidator to dispose of property on champertous terms. However the issue of control of the proceedings is relevant when the court is determining whether or not its approval should be given to the liquidator's proposal. The Court of Appeal in Oasis Merchandising said at 186: "As a matter of policy we think that there is much to be said for allowing a liquidator to sell the fruits of an action ... provided that it does not give the purchaser the right to influence the course of, or to interfere with, the liquidator's conduct of the proceedings."

[94] In his reasons for approving the funding agreement Mansfield J quoted the relevant clauses from the various documents which affected or qualified the liquidator's right to control the main action and concluded that those provisions did not sufficiently restrict the liquidator's control to warrant the refusal of approval. As already noted he was aware that Charles or a company under his control claimed copyright in the documents, and he was also aware of the involvement of Charles as evidenced by the documents.

[95] In the course of submissions on 19 February 1998 counsel for the liquidator informed the court that the solicitors for the insurer would be providing a member of their staff to work with the liquidator's solicitors "thereby providing the insurer with not only an opportunity to participate on the legal side but no doubt to receive reports from its representative as these proceedings are conducted." (exhibit 11 page 13). It would seem that the reference to the solicitors for the insurer was a reference to Ebsworth and Ebsworth, and the reference to a member of their staff was a reference to Charles.

[96] On 10 March Charles swore an affidavit which was read before Mansfield J on 11 March (exhibit 9 tab 218). That was primarily concerned with the substitution of the firm Charles Fice for Ebsworth and Ebsworth. It contained a statement that LEI, a "company that I control ... owns the intellectual property rights in those documents." That material confirmed the involvement of Charles in the litigation.

[97] However the plaintiffs have placed material before me which was not before Mansfield J. It is this aspect of the case which has caused me greatest concern. It is now clear that in addition to his role as solicitor defined in the Solicitor-Client Agreement and the Agency Agreement, Charles (or some other entity at his direction) is entitled to a share in the premium payable to GIO as the price for his permitting that company to use the documentation he prepared.

[98] The letter of 4 February 1997 from GIO (exhibit 2) makes clear the role of Charles at the time the agreement now in issue was negotiated: "We agree that your role (and that your new firm) will be to promote the product, review proposals, provide advice to GIO on prospects of success, act for the liquidator (providing the liquidator is agreeable) and monitor work done by other firms where your firm is not acting for the liquidator." As at that date no company in which Charles had an interest was involved. At that time a brokerage firm was always involved and Charles received a licence fee out of the brokerage fee paid by GIO to the broker.

[99] I accept that the liquidator was unaware that Charles was to receive such a licence fee until he received the letter of 11 March 1998 (exhibit 26) from Charles. By that date Charles was a director and principal shareholder of Liquidator's Expense Insurance Pty Ltd ("LEI"), which had been acquired in February 1998 (exhibit 18). That company thereafter became entitled to payment of the licence fee out of the brokerage received by the broker. In the letter of 11 March 1998 Charles drew the attention of the liquidator to the fact that there could be a conflict of interest between his role as solicitor pursuant to the Solicitor-Client Agreement and his role as an entrepreneur marketing the scheme for GIO and receiving a percentage of each premium. Of some significance is the statement by Charles in that letter: "Unless you are prepared to waive any conflict, you will need to rely solely on advice from Ward & Partners and Counsel in relation to the settlement." That exhibit (letter from Ward & Partners 17 March 1998) also reveals that the liquidator was advised by senior counsel that there was no major problem created by the late disclosure of those matters. The liquidator was not advised to bring those facts to the notice of the judge.

[100] The records of the Australian Securities and Investment Commission (exhibit 18) disclose that Charles resigned as a director and secretary of LEI on 12 March 1998; his wife took over each of those positions.

[101] The terms of the Licence Agreement were apparently renegotiated between LEI and GIO and the new terms appear in the letter from the latter dated 21 December 1998 (exhibit 2). By that agreement LEI purported to grant licences to GIO and CBA to use the documents over which Charles claimed copyright. Clause 4 provided:

"In consideration of LEI granting the licences, GIO agrees (unless it stipulates to the contrary in particular cases) to pay LEI licence fees equal to 10% of all premiums or other fees (excluding stamp duty) GIO receives from the successful pursuit of claims specified in the product documents."

[102] It is not entirely clear when the new arrangement detailed in exhibit 2 was reached but it would seem it was after the agreements in this case were executed. No evidence was led before me from Charles and neither he nor LEI is a party to these proceedings. It is not possible for me on the evidence to determine whether LEI (or Charles) is entitled to a licence fee pursuant to the arrangement in exhibit 26 or to a percentage of premium pursuant to the arrangement in exhibit 2 with respect to the subject funding agreement. At least it is clear from the cross examination of Fletcher, a senior office of GIO at the relevant time, that Charles received some part of the commission paid to the broker for the Emanuel deal. But having regard to the evidence of Fletcher and Carney (another officer of GIO) it is not clear whether Charles or LEI is to receive anything further if the liquidator is successful in the main action and the "risk premium" becomes payable to GIO.

[103] Both Fletcher and Carney maintained in evidence that once the funding agreement was executed Charles ceased to be solicitor for GIO and thereafter gave no advice to GIO in the capacity of their solicitor. According to their evidence he was a supervising solicitor for the liquidator in the litigation and reported as such to GIO. In the absence of evidence from Charles and the solicitors from Ward and Partners principally acting for the liquidator it is not possible to make definitive findings as to the role Charles has played to date and the role he might play in the course of the future conduct of the main action.

[104] As noted the liquidator did not become aware of the monetary entitlement of Charles until he received the letter dated 11 March by which time Mansfield J had announced his decision to grant approval. But there was still an opportunity for the liquidator to draw the attention of the judge to that new issue, but apparently acting on counsel's advice he did not consider that to be necessary.

[105] As stated above the material which was not before Mansfield J causes me some concern. The litigation must be conducted for the benefit of the winding up (primarily the unsecured creditors) and Charles is in a position where, at least in theory, he could direct the litigation in a way which was for his own personal benefit. That would be more clearly the case if he was entitled to a percentage of the "risk premium". Given all the circumstances it may well be highly unlikely that any decision would be forced on the liquidator with which he was not in full agreement. But in this area of the law perceptions are important and public policy would not support a situation where an entrepreneur was able to benefit at the expense of the unsecured creditors. A solicitor advising the liquidator ought not be in the position where he stands to gain financially from the outcome of the litigation. The insertion of a family company into the equation does not alter the position.

[106] If those issues had been raised initially when the liquidator was seeking approval for the funding arrangement, modifications could have been made to the scheme to allay those fears. Given that a very substantial sum of money has been expended pursuant to the scheme since its approval, and given the fact that the true position of Charles has now been fully exposed, it seems to me that the preferable course is to allow the funding arrangement to continue to operate. The liquidator, Ward & Partners, GIO and CBA are all now fully aware of the possible conflict situation in which Charles is placed and the scrutiny to which the latter will now be subjected will ensure that no decision taken affecting the course of the main action will be tainted by a conflict of interest. If a conflict were to arise then the court would not be powerless to step in and take appropriate remedial action.

[107] It is understandable that, pursuant to a funding arrangement such as this, the fund provider should be consulted as to the course of the litigation and ought to have some rights with respect to decision making. In Movitor Drummond J said at 391: "In my opinion, there is no reason why this statutory authority should not make lawful any other sale of an insolvent company's property by a liquidator, including the sale of a share in the proceeds of an action belonging to the company to a person with no interest in the litigation on terms that the person is to have control of the litigation, although that would involve champerty but for the transaction being made under that authority."

[108] Hodgson CJ in Eq in Buiscex put it this way at 363: "On the matter of control of proceedings pursuing any cause of action on behalf of the company, I do not see these provisions of the agreement as being unreasonable. It is reasonable that the funder have some say in control in relation to settlement; and although a solicitor is nominated by the agreement, I note that the liquidator can replace that solicitor with the consent of the funder, such consent not to be unreasonably withheld." As Mansfield J noted when giving approval in this case, the terms of this agreement primarily leave ultimate control of the main proceeding in the hands of the liquidator. It is also interesting to note that in Guy v Churchill - one of the cases establishing the relevant principle - the trustee in bankruptcy assigned away control of the proceedings. The assignee was given full power to carry on the liquidation.

[109] Lord Mustill alluded to the difficulties confronting a solicitor giving advice to both insured and insurer where there might be a conflict of interest in his judgment in Giles v Thompson at 162-3, but he concluded on the facts of that case that such considerations afforded an "insufficient basis" to render the arrangement there under consideration unlawful. There would clearly be an implied obligation on Charles (and any other solicitor advising or reporting both to the liquidator and the funders) to act reasonably and in good faith (cf. Renard Constructions (NE) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 255 per Priestley JA; Hughes Aircraft Systems International v Airservices Australia [1997] FCA 558; (1997) 146 ALR 1 at 36 per Finn J; and Alcatel Australia Limited v Scarcella [1998] NSWSC 483; (1998) 44 NSWLR 349 at 369 per Sheller JA).

[110] In all those circumstances I have come to the conclusion that it would be inappropriate to set aside the funding arrangement either because of the role which Charles could theoretically play in controlling the main action or because of the provisions giving GIO or the CBA some control at particular stages in the litigation. In the end I have concluded that the new material is not, in all the circumstances, of such significance as to warrant reaching a different conclusion to that reached by Mansfield J.

[111] Another of the grounds on which the plaintiffs seek a declaration that the funding agreement is void is that it was not entered into by the liquidator bona fide in the interests of the Emanuel group of companies or their creditors. The relevant allegations are contained in paragraphs 12 and 13 of the Statement of Claim. In the course of the hearing counsel for the plaintiffs abandoned reliance on paragraph 13(d)(i) and paragraphs 12(a)(iv), 12(b)(vii) and 13(g) were added by way of amendment.

[112] The Statement of Claim alleges the following particulars of want of good faith on the part of the liquidator:

(i) As at the time the funding agreement was entered into the liquidators fees in relation to the liquidations of the Emanuel Companies had amounted to $2.5M of which only $700,000 was covered by successful recoveries, so that the liquidator had a direct personal interest in the litigation to be funded by the agreement;

(ii) The decision to enter the funding agreement was made without assessing the likely benefits of the litigation to the "Emanuel Companies or their creditors, on a company by company basis";

(iii) The decision to enter into the funding agreement was made "without assessing the likely benefits of the Litigation to the Emanuel Companies or their creditors having regard to the fact that the claim in the Liquidation did not affect the recoverability by the EFG Group of the advance of $43M made to Emanuel Management Pty Ltd ... in 1987 and the securities given to secure the repayment of that advance and interest thereon by, inter alia, Emanuel (No 14) Pty Ltd ...";

(iv) The decision to enter into the funding arrangement was made without seeking or obtaining the approval of the creditors of the Emanuel Companies;

(v) The terms of the funding agreement provided that the liquidator should not disclose to any person the existence or terms of the funding agreement;

(vi) The liquidator represented to the Court [Mansfield J] that the judgment of the Supreme Court of Queensland dated 27 February 1995 in Action 2070 of 1994 had been obtained by "consent" which was not factually correct;

(vii) The liquidator did not disclose to the court that he had elected to affirm that judgment of 27 February 1995 by conduct;

(viii) The liquidator did not disclose to the court that it was his intention to pursue the main action without first applying to set aside the judgment of 27 February 1995;

(ix) The liquidator did not disclose to the court that a charge [14771/1] had been given by Emanuel (No 14) Pty Ltd in favour of the EFG Group which was not to be impugned in the litigation and which limited the prospect of successful recovery for the benefit of the liquidation;

(x) The liquidator did not disclose to the court all that he knew about the role of Charles with respect to the funding agreement and the prosecution of the main action.

[113] It is true that the liquidator did not formally seek the approval of the creditors of the Emanuel Companies before entering into the funding agreement. But it is not true to contend, as was the submission on behalf of the plaintiffs, that the creditors were unaware of the liquidator's desire to prosecute the issues raised therein. I am satisfied that over a lengthy period of time the liquidator had discussions with a number of the major creditors with a view to obtaining from them funding to enable him to commence the main action. Proposals were put to a creditors meeting on 29 March 1996 dealing with the possibility of creditors receiving an indemnity under s 564 of the Law in return for funding such litigation. The documents, to be found at tab 42 in vol 4 of exhibit 6, were before a creditors meeting on 29 March 1996. The Fosters Group creditors were represented at that meeting. Those documents refer to the possibility of recovering payments made under a Deed of Forbearance and Release between certain companies in the Emanuel Group and the Fosters Group dated 17 March 1995; that claim is one of the causes of action raised in the main action. Another matter referred to in those documents related to the payment of dividends to preference shareholders and the possibility of recovering such amounts from the Fosters Group. That is a cause of action sued on in the main action. Another proposal referred to therein related to a possible claim by the liquidator against the Fosters Group to recover land or money consequent upon the transfer of land by the Emanuel Group to the Fosters Group at an undervalue; again that is a cause of action sued on in the main action. No creditor at the meeting on 29 March 1996 was prepared to become an indemnifying creditor, but it is clear that all, including the Fosters Group, knew of the liquidator's interest in pursuing such claims.

[114] That was taken up again by the liquidator at creditors meetings in December 1996. A bundle of documents, which appear at tab 49 in vol 4 of exhibit 6, relate to the causes of action sued on in the main action. Those documents were forwarded to all creditors, including the Fosters Group, before that creditors' meeting. It follows that at all material times the companies in the Fosters Group were aware of the broad allegations being made by the liquidator and of his desire, if funded, to prosecute such actions.

[115] Whilst no creditor was prepared to become an indemnifying creditor, or assist in the funding of the litigation, it is equally clear that no creditor sought to dissuade the liquidator from commencing proceedings or seek to convince him that the allegations made in the documents to which reference has been made could not be substantiated.

[116] I am also satisfied, given the evidence of the liquidator, that apart from the documentation to which I have referred he had discussions with a number of major creditors with a view to interesting them in funding the main action. I accept the liquidator's evidence in that regard. The response from the creditors indicated interest in his prosecuting the proceedings but none were prepared to advance the substantial sums necessary to finance the litigation even if s 564 of the Law was invoked.

[117] Not only was the liquidator in possession of opinions from leading Senior Counsel to the effect that he had a good cause of action, there had been judicial findings that a number of the transactions the subject of the main action involved fraud against the unsecured creditors of the Emanuel Group by the directors of the Emanuel Companies and representatives of the Fosters Group.

[118] It appears that Mansfield J was referred to the decisions of Lander J in Addstead Pty Ltd v Simionato Holdings Pty Ltd (unreported, copy at tab 69 of vol 5 of exhibit 9) and the decision on appeal by the South Australian Full Court: Addstead Pty Ltd v Liddan Pty Ltd [1997] SASC 6727; (1997) 70 SASR 21. Addstead is one of the Emanuel Companies. It is not necessary to refer to the detail of that litigation; it is sufficient to say that it also involved the court considering the dealings and transactions between the directors of the Emanuel Companies and the Fosters Group which are the subject of the main action. Of particular relevance for present purposes are the findings of fact made, and comments thereon, with respect to the circumstances surrounding the judgment of the Supreme Court of Queensland of 27 February 1995. Lander J dealt extensively with negotiations between the two sides in the period 1994-95 in relation to the indebtedness of the Emanuel Group to the Fosters Group and the basis on which further finance might be made available by the latter. The judgment needs to be read as a whole in order to appreciate the detail. His Honour specifically dealt with a draft of a Deed of Forbearance and Release submitted under cover of a letter dated 6 February 1995. That draft was the forerunner of the Deed executed 17 March 1995. In recounting the terms of that draft Lander J said it included "a covenant that the Emanuel Group agreed to EFG entering judgment against the Group in the Supreme Court proceedings for the amount of the debt. In return for that release and those covenants the draft Deed provided that EFG would forebear enforcing the judgment in the Supreme Court action". It was shortly after that, namely on 27 February 1995, that EFG obtained judgment against the named defendants for $186.6M.

[119] When the Addstead matter went on appeal those issues raised in the judgment of Lander J were extensively considered, particularly by Perry J. For present purposes the following passage at 43 is of relevance:

"... one wonders at what could properly have prompted a public company, or group of public companies, gratuitously to pay several million dollars at the direction of the managing director of a group of companies indebted to them to the extent of in excess of $186M as a gesture made in recognition of a pre-existing commercial relationship which had ended with litigation and heated and acrimonious settlement negotiations.

The answer emerges from the circumstances to which I have referred at length and which led up to the settlement. In particular, the course of events after the middle of February 1995 can only be explained on the footing that there was a deliberate decision taken to divert most of the settlement monies to Mr Joe Emanuele for his benefit, at the expense of the creditors of the Emanuel Group, and that that diversion be disguised by separating out the elements of the transaction into the 3 deeds to which I have referred.

The transaction was nothing but a transparent fraud on the creditors of the Emanuel Group, and the participation by the directors of the Group amounted to a gross breach of the fiduciary and other duties which they owed."

[120] Two observations need be made on that passage. Firstly, it clearly gave the liquidator reason to be confident that if he had funds to commence litigation substantial recovery could be made against the Fosters Group. Such statements by an appellate court clearly reinforced counsel's opinion to the effect that the liquidator had a good claim against the Fosters Group. Secondly, it indicated that there were grounds for believing that the judgment obtained in the Supreme Court of Queensland formed part of some overall deal between the parties which could be regarded as a fraud on the unsecured creditors of the companies in the Emanuel Group. There is a marked similarity between that passage from the Full Court judgment and the passage quoted above from the judgment of Mansfield J at 586.

[121] One of the principal arguments under this head addressed by counsel for the plaintiffs was that the liquidator deliberately mislead Mansfield J into concluding that the judgment in question was a "consent" judgment - the passage at 586. Having considered the material which was placed before Mansfield J (counsel's opinion and the transcript of argument) I am satisfied that neither the liquidator nor his legal representatives made any positive statement to Mansfield J suggesting that the judgment was a consent one. The opinions (tab 215 in supplementary vol 1 of exhibit 9) generally use the expression that EFG "entered judgment". In opinion 4 the expression "summary judgment without opposition" was used and in opinion 5 it was said that "judgment was allowed to be entered". Each of those expressions was arguably accurate. If, as would appear to be the case, Mansfield J was aware of what was said by the Full Court and Lander J in the decisions just referred to, he may well have in his own mind concluded that the judgment in question was more in the nature of a consent judgment rather than one granted after a fully contested hearing. The fact that he used that expression again in a later associated judgment (exhibit 4 p 5) adds nothing.

[122] Documents in Queensland Supreme Court Action 2070 of 1994 are included in Exhibit 9 (tabs 17-27). The specially endorsed writ was issued 20 December 1994 by three companies in the Fosters Group and claimed in excess of $180M against Guiseppe Emanuele and 27 companies in the Emanuel Group. An appearance was entered on 23 December 1994, On 6 February 1995 the plaintiffs filed a summons seeking summary judgment and also on that date a defence was delivered. The defence amounted to no more than a general denial or non admission of most of the critical facts. An allegation was made that the demands for payment were "invalid and that the defendants had no current obligation or liability to pay the amounts demanded". On the return of the summons on 27 February a solicitor appeared for the defendants and when his application for an adjournment was refused he merely made a submission that the documents sued upon were not properly stamped. It was against that background that summary judgment was immediately given for the plaintiffs.

[123] It is clear that there was no detailed consideration by the Chamber Judge of the background facts, and no findings of fact were then made with respect to the dealings referred to in the South Australian judgments quoted above. It would not be unfair in the circumstances to say that the defendants did not vigorously oppose the granting of judgment, and no consideration was given by the court (indeed it was not called for) to whether there was fraud on the unsecured creditors of the Emanuel Group.

[124] Against all of that background I am satisfied that there was no want of good faith on the part of the liquidator and his legal advisers in dealing with the Queensland judgment at the time of the application for approval of the funding. The material does not establish that either the liquidator or his advisers used the expression "consent judgment" in referring to it. For the reasons given it is understandable that Mansfield J could have loosely used that expression to describe what happened in the Supreme Court of Queensland in February 1995. Certainly in the light of what has been said in the other proceedings in the South Australian Supreme Court there is at least good reason for the liquidator to ask a court to scrutinise carefully the circumstances in which the judgment in question was obtained.

[125] In the consolidated Statement of Claim in the main action no order is sought seeking to have the judgment in Action 2070 of 1994 of 27 February 1995 set aside. That judgment is attacked along the lines I have indicated above but that relief is not formally sought. The liquidator's legal advisers, for a variety of reasons, have considered that it was not strictly necessary to do so. Apparently there was a belief that if there was collusion the liquidator could go behind the judgment without having it formally set aside. Rather belatedly such relief was sought in the reply. In the course of the hearing I expressed views to the effect that it was necessary for an order to be sought in the statement of claim for the setting aside of the judgment and I adhere to them. I accept the submission by counsel for the Fosters Group that it is necessary for the plaintiffs in the main action to seek a formal order that the judgment be set aside before the issues raised in the pleadings can properly be canvassed at a trial. In the light of that intimation counsel for the liquidator and the Emanuel Group indicated that an amendment to the pleadings would be sought. It seems to me that, given the allegations already made in the Statement of Claim, it is likely that leave to make such an amendment would be granted.

[126] But in any event I cannot see that there is any want of good faith in the liquidator based on the premise that he had some intention to pursue the litigation without applying to have the judgment set aside. It is clear that at all times he was acting on legal advice in relation to a technical legal matter, and the lawyers advising him were of the opinion that the pleading was adequate. The facts do not establish any want of good faith on the liquidator's part.

[127] It is true that the liquidator had performed work by the time of approval of the funding to the approximate value of $2.5M and that, absent significant recovery in the main action, it is unlikely that more than a small percentage thereof would be recouped. To that extent the liquidator does have a personal interest in the litigation; but that is not an unusual circumstance. (cf Buiscex at 363). Other creditors are owed much more. The liquidator was subjected to a lengthy and intensive cross examination, and allegations of improper conduct were put to him. He answered all questions in a forthright manner, and I was impressed with his honesty. He is in an extremely difficult situation. He is the liquidator of a number of companies which in total owe many millions of dollars to unsecured creditors. Judges of the Supreme Court of South Australia have in reasoned judgments indicated that in their view creditors have been defrauded by the conduct of the directors of the companies and representatives of the Fosters Group. Because of the economic strength of the Fosters Group the liquidator has been subjected to pressures beyond the norm. Despite those pressures he has maintained a steadfast and reasonable view, backed by the opinion of senior counsel, that the causes of action against the Fosters Group are open and ought to be pursued. If there be reasonable evidence of fraud of the type suggested in the reasons for judgment referred to above then it is in the public interest that the issues raised in the main action be fully and properly litigated.

[128] Having regard to all of the material before me I reject the contention that the funding agreement was entered into to enable the liquidator to profit from trafficking in the litigation.

[129] I have dealt at some length with the alleged failure to obtain the approval of the creditors to the liquidators entering into funding arrangement. As already noted, the creditors were all aware of the liquidator's desire to obtain funding for such a purpose.

[130] This is an issue which was expressly raised before Mansfield J and he dealt with it. As he noted, there is a problem when significant creditors are the defendants to the proposed action. Drummond J in Movitor at 394 considered it a pre-requisite for the court approving such a funding arrangement that the liquidator "fully inform the creditors of the details of the funding arrangement proposed and to obtain their approval to his entering into the arrangement in the manner provided formed by the relevant legislation", but he also at 394-5 recognised the difficulties that created where a creditor was a potential defendant. In many instances it would be desirable or prudent for the liquidator to obtain such approval, but, as a number of other decisions establish, the circumstances of a particular case may not only justify, but indeed require, the liquidator to make the application without seeking such approval. Hansen J in UTSA (1997) 1VR at 696 and 705 considered a situation similar to that which exists here. Speaking firstly of the suggestion that the liquidator should have called a meeting of shareholders to approve of his proposed action, he noted that the shareholders were divided between those who supported and those who opposed the litigation. He went on at 697: "The adverse interests are connected with those who committed the alleged wrong which the proceeding seeks to redress. Where liquidators are conducting litigation in the interests of an insolvent company and its creditors, and a reference to shareholders for approval could be expected to result in those with an adverse interest (and whose own conduct is in question), refusing approval to the act apparently necessary to ensure continuation of the proceeding, consideration of what is fair and proper concerning the shareholders and creditors falls into a more balanced perspective." Later, when specifically dealing with the position of the creditors, he said that the objection relating to the failure of the liquidator to obtain creditors approval should be "similarly dismissed". The question was also considered by Hodgson CJ in Eq in Buiscex at 364. His Honour noted that the substantial basis of the opposition by the creditors "is a concern that an investigation would put them to trouble and expense to no good purpose". He went on to say "I do not think these wishes of the creditors outweigh the interests of the 29% of shareholders who may possibly benefit from the investigation and proceedings or the judgment of the liquidator". Young J in made the pragmatic observation: "In the instant case ... some significant creditors are the defendants in the litigation so that, commercially speaking, it is not feasible to obtain the consent of the creditors".

[131] Here it is plain that if the liquidator had sought the approval of the creditors it would have been opposed for totally selfish reasons by those creditors who constituted the Fosters Group. Further, it would have been wrong for the liquidator to have divulged details of the funding to the Fosters Group because they would have used that to their own advantage.

[132] For similar reasons I see nothing wrong with the secrecy provisions which were included in the order of Mansfield J. Similar confidentiality requirements are found in other orders (cf Terranora Leisure Time Resort). Clearly it would be entirely inappropriate for the defendant creditors to know some of the limitations on the funding to which the liquidator was entitled. As this action now before me amply demonstrates, the plaintiffs are prepared to go to any length to prevent the issues raised in the main action being litigated on their merits.

[133] The liquidator was cross examined on the issue whether he had assessed the likely benefits of the main litigation to the companies in the Emanuel Group "on a company by company basis". I am satisfied that the liquidator had undertaken such an exercise to the extent possible. Given the array of causes of action relied on in the main action, a range of outcomes is theoretically possible. Realistically a liquidator could only make an assessment on the basis of assumptions as to the most likely outcome in the light of the legal advice available to him. I am satisfied that the liquidator did that and reasonably concluded that the companies in the group were likely to benefit on a "company by company basis" from the litigation. The computer generated documents he referred to during cross examination (exhibit 27)established that the exercise in question was performed. That is also confirmed by the documentation in exhibit 23.

[134] It is neither necessary nor appropriate for the court at the stage of granting approval to the liquidator entering into a funding arrangement, or on an application of the type now before me, to conduct a mini trial in order to evaluate the chances of success in the main action. As has already been noted the material available to the liquidator was such as to induce a reasonable belief in his mind that there were good prospects of success. That success, on his analysis, would have benefited each of the companies in the group. That is all that is necessary to make his decision an appropriate one. On the material this particular of want of good faith is not made out.

[135] I have reached a similar conclusion with respect to the contention that there was want of good faith on the part of the liquidator in entering into the funding agreement without assessing the impact of the advance of $43M from the Fosters Group in 1987 (with interest) and the charge or charges given to secure repayment thereof on the financial return to each of the Emanuel Companies from a successful judgment in the main action. Counsel for the Fosters Group contended that if interest was calculated at the higher rate pursuant to the terms of the loan over $500M was now owing. Given the nature of the claims made in the main action there were, on the material available to the liquidator, reasonable prospects of the liquidator and the companies recovering a substantial amount notwithstanding such considerations. The advance of $43M was the starting point for the amount of the judgment in Action 2070 of 1994, and the amount ultimately recoverable by the Fosters Group will undoubtedly be affected by the considerations already discussed in relation to that judgment.

[136] The significance of the charge given by Emanuel (No 14) Pty Ltd will also be affected by findings made with respect to relevant dealings between 1987 and 1995. If a finding was made that a transaction was a fraud on the unsecured creditors of the Emanuel Group that charge could be set aside or its value to the Fosters Group diminished. I do not find that there was any failure by the liquidator to make proper disclosure relating thereto when seeking funding approved from Mansfield J.

[137] But in any event it is sufficient to say that the liquidator directed his mind to those matters and acting reasonably on advice available to him concluded that the main action should proceed. Again, there was no want of good faith on his part in entering into the funding arrangement in the light of those circumstances.

[138] Further, I cannot see that any alleged conduct on the part of the liquidator in electing to affirm the Queensland judgment in the Simionato action in the South Australian Supreme Court affected his bona fides in seeking approval to enter into the funding arrangement. It is by no means clear that the liquidator made an election as alleged. That is a matter to be litigated in other proceedings. If it is found that he made such an election then that may have certain consequences, but it is not possible now to say what those consequences might be so far as the main action is concerned. The evidence before me does not establish any want of good faith on the part of the liquidator in seeking approval of the funding agreement whatever may ultimately be held to be the facts in that regard.

[139] I have already considered the issue of the failure to fully inform Mansfield J of the financial relationship between Charles and GIO. The liquidator only became aware of those matters after substantive argument on the application for funding approval had concluded, but there still opportunity to place that information before the Judge. The failure to do so is deserving of some criticism but I am not persuaded that it constitutes a ground for finding that the liquidator did not act in good faith.

[140] Counsel for the GIO also submitted that it was inappropriate for the plaintiffs to seek to set aside the order of Mansfield J on the basis of misrepresentation and non disclosure. In accordance with observations in G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674 by McLelland J, in Movitor at 383 by Drummond J, and in Re Daniel Efrat Consulting Services Pty Ltd [1999] FCA 412; (1999) 162 ALR 429 at 434-5 by Branson J it was submitted that the only consequence of the order of Mansfield J was to protect the liquidator from liability for any breach of duty as liquidator to a creditor or contributory in respect of anything done in accordance with the direction on the understanding that the liquidator made full and fair disclosure to the court when seeking the direction. The order is not binding on the defendants to any action brought pursuant to it. There is force in that submission but it is not necessary to rest my decision on that consideration.

[141] The funding agreement would appear to have been entered into in Victoria; the only other possibility is that it was entered into in South Australia. The proper law of the contracts constituting that agreement is the law of Victoria. Legislation in each of those States has abolished both the tort and the crime of champerty and maintenance (Wrongs Act 1958 (Vic) s 32 and Criminal Law Consolidation Act 1935 (SA) Schedule 11(3).) In Queensland maintenance and champerty are not recognised as criminal offences in the Criminal Code, but the tort has not been abolished in this State. What has been said previously in these reasons relates primarily to the residual question, relevant in all States, whether or not an agreement should be held to be void as champertous, applying the public policy consideration which supports that common law doctrine.

[142] In this action the plaintiffs allege that the defendants have committed the tort of champerty or maintenance and seek consequential injunctive relief. This gives rise to difficult legal considerations. As already noted the contracts constituting the funding agreement were entered into either in Victoria or South Australia where maintenance and champerty are not torts. The relevant liquidations were being conducted in South Australia, the main action was commenced there, and the approval for the funding arrangement was also obtained there. Up until the time of the cross-vesting of the main action to Queensland no question of the commission of the torts of either maintenance or champerty could have arisen. But it is the contention of counsel for the plaintiffs that the prosecution of the main action in Queensland pursuant to the funding arrangement establishes the commission by the plaintiffs in the main action of the torts of maintenance and champerty. I have real difficulty in seeing how in the circumstances either tort has been committed. To my mind the critical times were when the funding agreement was approved and the main action commenced. Both of those events occurred in South Australia and, as already noted, no question there arose as to the commission of either tort. The matter was cross-vested to this court by an order of the South Australian Supreme Court based on the fact that the litigation, for a variety of reasons, could more conveniently be conducted in this court (see reasons for judgment Debelle J 26 February 1999). That decision was accepted by the plaintiffs in the main action and they proceeded to act in accordance with it, namely to prosecute the action in this court. What did they do which converted previously lawful conduct into the torts of maintenance and champerty? Further, I cannot see that the defendants in the main action were exposed to any greater loss or damage by the prosecution of the action in Queensland than if it had continued in South Australia. In those circumstances what is the special damage which has been suffered by the defendants in the main action which gives rise to the tort of maintenance or champerty being actionable at their instigation? (JC Scott Constructions v Mermaid Waters Tavern Pty Ltd (1984) 2 Qd R 413 at 431, at 269 and

[143] In those circumstances I am not persuaded that the tort of maintenance or champerty has been committed in Queensland such as to enliven the jurisdiction of this court to grant relief consequential thereon.

[144] In this action the plaintiffs also seek an order for the removal of the liquidator. A variety of grounds are raised in paragraph 14 of the Statement of Claim in support of that contention. A number of the issues raised overlap with the submission that there was a want of good faith on the part of the liquidator in seeking approval of the funding agreement; to the extent that matters have already been considered in relation to the liquidator's bona fides they will not be repeated here.

[145] Essentially the allegation is that the liquidator has misconducted himself:

(i) in not acting in good faith in the interests of the Emanuel Companies or their creditors in seeking approval for the funding agreement;

(ii) in breaching an undertaking given to provide the plaintiffs herein with reasonable notice (at least 7 days) of any future applications which may concern the creditors of the Emanuel Companies;

(iii) in breaching an undertaking not to seek the further examination of any officer of "Elders" should he decide to issue proceedings against Elders;

(iv) in acting in bad faith, or not impartially, towards the Fosters Group in seeking the release of charges;

(v) in acting in bad faith, or not impartially, towards the Fosters Group in entering a default judgment in Action 411 of 1998 in the Supreme Court of South Australia.

[146] Submissions with respect to the first particular generally encompassed all the arguments addressed to the court by counsel for the plaintiffs in support of this action. Those issues have been addressed elsewhere in these reasons, and there is no need for repetition. In all the circumstances discussed herein I have come to the conclusion that the liquidator was acting in the interests of the creditors of the Emanuel Companies (other than the plaintiffs) in seeking approval for the funding agreement. The main action is brought against the plaintiffs and the statement in the previous sentence does not mean that presenting the main action is not in the interests of the Emanuel Companies and their creditors regarded overall. No misconduct is established under the first heading.

[147] With respect to allegation (ii) a number of particulars are given and each of the contentions should be addressed.

[148] However, there is a background which should be recognised. Particularly given the advices of senior counsel and, and the observations by judges of the Supreme Court of South Australia in the decisions referred to above, the liquidator, on reasonable grounds, believes that he has significant causes of action against the Fosters Group. Further, understandably, the Fosters Group have taken an aggressive stance with respect to the allegations against them. In those circumstances it is understandable that the liquidator does not treat the companies in the Fosters Group who are creditors of the Emanuel Companies in exactly the same way as he treats other creditors in the liquidations. The disputation between the liquidator and the Fosters Group has now been going on for some years and it is understandable that the liquidator wishes to keep all issues between him and the Fosters Group at arm's length.

[149] There is no doubt that a liquidator must act impartially and when called upon to do so must take a strong stand on issues which involve the contention that the general body of creditors has a cause of action against a particular major creditor.

[150] The first undertaking which it is alleged the liquidator breached is that contained in the letter of 16 January 1997. That letter (exhibit 9 tab 63) dealt with certain specific issues which had arisen at that time and went on:

"We note your request for at least 7 days notice of any future applications that may concern the creditors of the companies in liquidation. We undertake to give you such notice where possible."

[151] It can be assumed for present purposes that the application for funding approval was covered by that undertaking. The liquidator quite properly drew the attention of Mansfield J to the undertaking, and the issue thereby raised was dealt with by the judge in the passage quoted in paragraph 55 of these reasons. In my view the liquidator could do no more than that. He was conscious of the undertaking he had given. He was conscious of the compelling reasons for not giving the Fosters Group notice of the application. He drew the judge's attention to the undertaking and in the circumstances Mansfield J considered it appropriate to determine the matter in the absence of any notice to the Fosters Group. In my view the conduct of the liquidator was entirely appropriate.

[152] I have already drawn attention to, inter alia, the circular of 4 December 1996 which gave the Fosters Group notice of the liquidator's desire to commence recovery actions against companies in that group.

[153] In my view no breach of the undertaking has been made out, and nothing with respect to the alleged particular affords a ground for ordering the removal of the liquidator.

[154] It is then alleged that the undertaking was breached by the liquidator on 19 March 1999 applying for orders for the examination of various persons associated with the Fosters Group. It is doubtful that such an application "concerned the creditors" of the Emanuel Companies. But even if it did, I cannot see that there was a breach of the undertaking in any material sense. The solicitors for the Fosters Group received the summonses in question. At best it could be said that the Fosters Group should have been given some notification before service of the intention to do so, but that would have been futile; it would have achieved nothing. There was no prejudice at all to the Fosters Group flowing from the conduct of the liquidator.

[155] In any event an application for an order for examination is usually made ex parte and the material upon which it is based is confidential as between the liquidator and the court.

[156] In all the circumstances I am not satisfied that a breach of the undertaking has been established in this regard.

[157] The next particular alleged is that in breach of the undertaking at 10.45 a.m. on 6 August 1997 the liquidator gave notice to the Fosters Group of an application to be heard at 2.30 p.m. on 7 August 1997 regarding court proceedings in Canberra. The material establishes that the liquidator had decided to terminate proceedings which had been commenced prior to his appointment. He had reached the view that it was not in the interests of the creditors of the Emanuel Companies to continue prosecution of the actions without any indemnity. He had sought an indemnity and none were forthcoming, certainly none from a company in the Fosters Group.

[158] In the circumstances I am not satisfied that the liquidator's conduct in that regard constituted a breach of the undertaking. It is another example of an endeavour on the part of the Fosters Group to dredge up any possible argument to embarrass the liquidator in the conduct of this complex liquidation.

[159] The next particular alleges that by a telephone call at 9 a.m. on 17 November 1997 the Fosters Group was notified by the liquidator of an application to be heard at 1 p.m. on that day. The application related to a recovery action. Prior to the making of the application in question the liquidator had, by circular to creditors including the Fosters Group, sought an indemnification with respect to the future prosecution of that action and indicated that if none was forthcoming the action would be abandoned "without further reference to creditors" (see circular of 7 November 1997). There was no response from the Fosters Group. In the circumstances the application could not, in my view, be said to have been made in circumstances which breached the undertaking given to the Fosters Group. There was no obligation on the liquidator to "spoon feed" the solicitors acting for the Fosters Group. Notification to creditors generally in my view complied with the requirements of the undertaking.

[160] No breach of the undertaking has been established in this regard.

[161] Finally it is contended that the liquidator gave no notice to the Fosters Group of an application for approval of his remuneration as liquidator of Emanuel No 14 Pty Ltd first heard on 26 May 1998. I agree with the submission on behalf of the liquidator that it is doubtful whether this application was covered by the terms of the undertaking in question. But in any event at creditor's meetings the issue of the liquidator's remuneration had been discussed. A resolution for remuneration was not passed and the creditors, including the Fosters Group, were then told that an application would be made to the court. Those at the meeting were asked to indicate what material they wished the liquidator to place before the court. That, in my view, would be sufficient compliance with the undertaking if it did apply.

[162] Again I am not satisfied that there was any conduct of the liquidator which breached that undertaking in a way which would warrant his removal.

[163] It is then alleged that Mr Douglas Meagher QC gave an undertaking to the court on 1 May 1996 during the public examination of J F O'Grady, the ninth plaintiff, which was subsequently breached.

[164] On that day there had been some objection to the questioning by Mr Meagher of the examinee, and a ruling was given thereon. Shortly thereafter (transcript p 6686, tab 209 exhibit 9) Meagher stated:

"Can I also indicate for the benefit of my learned friends that whilst at the end of it I will be asking for the adjournment of the examinations, if the liquidator should , between now and October, be advised and decide to issue proceedings of the sort my learned friend indicated, there would of course be no attempt to pursue any officer of Elders or their solicitors by further examination."

[165] It is questionable whether that amounted to an undertaking given to the court, as alleged, rather than an intimation of proposed future conduct to the legal representatives of the opposing side for their benefit. In contempt proceedings it would have to be strictly proved that the undertaking was one given to the court, and I doubt on the evidence presently available that such was the case.

[166] The allegation is that the liquidator breached that undertaking given by his counsel by applying for orders for the examination of the tenth plaintiff herein and other persons who were former employees of the Fosters Group. It is sufficient to say that the material does not establish any breach of that undertaking even if it were considered to have been given to the court. Certainly I can find no conduct on the part of the liquidator in that regard which would warrant his removal,

[167] The next particular on which it is submitted the court should make a finding warranting the removal of the liquidator is that in February 1998 the liquidator forwarded to certain companies in the Fosters Group documents requesting the release of securities held by those companies. The actual conduct of the liquidator in that regard is not in dispute.

[168] The letter of 2 February 1998 was in these terms:

"I refer to your formal proof of debt of 9 December 1997.

I request that you complete the enclosed form 312 so that I may update the records of the Australian Securities Commission."

Enclosed with that letter was a form 312 (Notification of Discharge or Release of Property from a Charge) filled out in part by the liquidator.

[169] At the time the liquidator was dealing at arms length with the companies in the Foster's Group and they had solicitors advising them. None of the companies in question executed the release forwarded to them. In consequence no harm resulted from the conduct of the liquidator in making the request which he did. However, given the submissions, it is necessary to consider whether or not the liquidator was guilty of reprehensible conduct in forwarding the letter.

[170] In order to put the liquidator's conduct in full context it is necessary to go back to the proofs of debt lodged by the companies in the Foster's Group on 9 October 1995. For brevity's sake I will concentrate on the conduct of the first plaintiff, Elfic, in relation to the second defendant Emanuel Management ("Management"); all the proofs were in the same form. The proof of debt in question (exhibit 9 tab 31) recited that Management was as at 30 August 1995 indebted to Elfic in the sum of $146,390,078.34 pursuant to a judgment of the Supreme Court of Queensland on 28 February 1995; it utilised Form 535 of the Corporations Law which contained the following paragraph 2:

"To my knowledge or belief the creditor has not, nor has any person by the creditor's order, had or received any satisfaction or security for the sum or any part of it except for the following: ... "

[171] No particulars of any surety were inserted.

[172] Shortly after the lodging of those proofs of debt a creditor's meeting was held on 10 October 1995. The minutes of the meeting of creditors of Management held on that date (exhibit 9 tab 204) contain the following under the heading "Adjustment of voting rights:

"In relation to the proof of debt of Elfic, Lensworth Properties and EFG, the chairman advised that it was his opinion that the Deed of Forbearance and Release signed by the claimants and the company on 17 March 1995 may compromise the claimant's debt.

Accordingly, the Chairman admitted the claim of Elfic, Lensworth Properties and EFG Finance for $1. Mr Thomas requested that his objection to the ruling of the chairman be noted in the minutes of meeting. The chairman agreed and that objection is hereby noted."

[173] The liquidator was chairman of the meeting and Mr S Thomas held the proxy for the companies in the Foster's Group.

[174] Later the minutes record a question and answer initiated by a Mr J Marsden who held the proxy for another creditor, Coopers & Lybrand. The relevant minute is as follows:

"Mr Marsden asked whether EFG ... agreed with the chairman's understanding regarding the securities. Mr Thomas as proxy for EFG advised that EFG were holding no security."

[175] The minutes also record some discussion as to the "shortfall to the Elders Group after the realisation of their securities." Thomas indicated he was "aware of no such estimate".

[176] The next creditors' meeting of Management was on 28 March 1996; the minutes are again found in exhibit 9 tab 204. The liquidator was again in the chair and on this occasion Mr R Byrne held the proxy for the companies in the Foster's Group. The minutes record extensive discussion with respect to the alleged indebtedness of Management to the Foster's Group in the sum of $146,397,078. The minutes record that the chairman asked Mr Byrne "whether the claim was secured or unsecured" and that Byrne responded "that it was unsecured". After some discussion the chairman indicated he intended admitting the proof of debt in the sum of $1 "on the basis that Elders and the company had executed a Deed of Forbearance and Release which had the effect of extinguishing the debt at a date in 1987." The minutes then record further debate on the issue. After a short adjournment the meeting resumed and the minutes record the following:

"The chairman enquired whether the claim lodged takes into account any lands sold by Elders since 17 March 1995. Mr Byrnes stated that he was unsure of the answer and did not believe that Elders held any property in the name of Emanuel Management. The chairman stated that for the purpose of this meeting he was prepared to admit the claim for voting purposes for the sum of $146,390,078."

[177] Later the minutes record the liquidator's report to that meeting with respect to possible recoveries, including recoveries from companies in the Foster's Group. It is not necessary to detail those matters further now.

[178] It is clear from those minutes that the proxy holder for the companies in the Foster's Group exercised voting rights as a creditor for $146,390,078.

[179] Section 554E of the Law deals with the proof of debt by a secured creditor. Such a creditor is not entitled to prove "the whole or a part of the secured debt otherwise than in accordance with this section". If the creditor surrenders the security to the liquidator for the benefit of the creditors generally it may prove for the whole of the amount of the secured debt. The creditor may realise the security and prove for any balance due. Where the creditor has not realised or surrendered the security it may estimate the value of the security and prove for the balance due after deducting the value so estimated. The section specifically provides where the latter course is followed the proof must include the particulars of the security and the creditor's estimate of its value.

[180] That statutory provision reflects the law that had developed over a period of time. As long ago as 1879 it was recognised that a secured creditor cannot both retain the security and prove for the full amount. The following passage from the judgment of Jessel MR in Moor v Anglo-Italian Bank (1879) 10 Ch D 681 at 689-90 is still pertinent:

"In bankruptcy, if a secured creditor wants to prove, he must do one of three things: he may give up his security altogether and prove for the full amount, or he may get his security valued and prove for the difference, or he may sell and realise his security and then prove for the difference. If, without doing either of the latter two things, he proves for the full amount, as he cannot prove for the full amount and receive a dividend except on the theory of giving up the security, he shows by that an intention to give up his security; and, if he so proves and receives a dividend or votes, he shows pretty conclusively that he has finally elected to give up his security and take his dividend; in other words, having two funds to resort to, the bankrupt's general estate, so as to get a dividend on the whole amount of his debt, or his security, he elects to take the bankrupt's estate, and in that way gives up his security."

[181] The present position is no different; there is a recent statement to similar effect by Debelle J in Health and Life Care Ltd v South Australian Asset Management Corporation (1995) 16 ACSR 453 at 458-9. Where there is some deficiency in the proof, for example omitting the estimate of value, the document lodged may not be conclusive (Re Douglas Homes Qld Pty Ltd (1980) Qd R 528), but there would be an onus on the creditor to establish its intention in lodging the proof in the way it did.

[182] Given the terms of the proofs lodged 9 October 1995, the statement at the meeting of 10 October 1995 that the Foster's Group did not hold security for the debt, and given that after pressing the issue the Foster's Group exercised voting rights for the full amount of the alleged indebtedness the liquidator has and had at least an arguable case that the Foster's Group elected to surrender any security.

[183] Subsequently under cover of a letter from its solicitors dated 9 December 1997 the relevant companies in the Foster's Group lodged further formal proofs of debt bearing date 9 December 1997. The Elfic proof with respect to Management alleged an indebtedness of $137,980,723.05 based on a judgment of the Supreme Court of Queensland dated 27 February 1995 and asserted that Elfic held security, being a mortgage debenture given by Emanuel (No.14) Pty Ltd on 12 June 1987. It stated an estimated value of the security as $15,348,000. The proof also contained the following statement:

"Since the relevant date, the creditor has realised certain securities and applied the proceeds of sale of those securities against interest accruing on the account. The total value realised on the sale of the securities during this period is $21,998,116.70. The total amount of interest accruing on the account during this period is $94,546,356.90."

[184] It is not necessary to refer specifically to accompanying calculations.

[185] The legal effect of the proofs lodged in December 1997 was not an issue raised in this litigation. If there had been an election to surrender the security by lodging the original proofs in October 1995 and voting at creditor's meetings in 1995 and 1996 for the full alleged value of the indebtedness, then the proofs of December 1997 may be of no consequence. Those are issues which will have to be decided elsewhere.

[186] It is clear that the liquidator had good reason for believing in February 1998 that the Foster Group had surrendered any security and that the records of the ASC should be brought up to date to reflect that fact. That was important given the Deed of Charge which formed part of the funding arrangement of which approval was then being sought before Mansfield J. Against that background I am satisfied that the conduct of the liquidator was not unreasonable. Macks conceded under cross examination that maybe he was somewhat unwise to forward the documents directly to the companies. But that is not evidence of want of good faith on his part, nor does it afford a ground for his removal.

[187] In the circumstances I am not prepared on the present material to make any finding of misconduct on the part of the liquidator.

[188] The final allegation is that the liquidator acted in bad faith or not impartially in the conduct of the main action in causing judgment in default of appearance to be entered against the Fosters Group.

[189] Certainly the liquidator adopted what would have to be regarded as a "robust tactic" in entering judgment. But it seems clear that at the stage in question the parties were acting at arm's length and each had engaged solicitors. Once the action had commenced the relationship between the Fosters Group and the liquidator was that of opposing sides in major litigation. The Fosters Group creditors were no longer merely in the position of creditors in the winding up whose relationship with the liquidator was the same as any other creditor therein.

[190] The material suggests that the decision to enter judgment was not taken lightly, and others might argue that the liquidator would have been remiss in not taking forensic advantage of the opportunity which presented itself to him. However that may be, the conduct does not amount to a ground necessitating the removal of the liquidator.

[191] There was also a complaint made against the liquidator because the originating process with respect to the main action had remained confidential for a period prior to service. The liquidator did not want the litigation to be made public until he had secured the necessary funding; that attitude was understandable. That situation was alluded to by Mansfield J in his reasons. Apparently the practice in South Australia is that an order extending time for service will be made on terms that the originating process remains confidential until service. The Supreme Court made a number of orders between 24 December 1996 and 28 January 1998 extending time for service including an order that the proceedings "remain confidential". I am not satisfied that there is anything in relation to this which would warrant removal of the liquidator or would amount to want of good faith on his part.

[192] Having considered all of the issues raised by counsel for the Fosters Group in relation to the question of removal, I am not satisfied that circumstances exist such as would now justify an order removing the liquidator. No evidence was led from the plaintiffs that any had been misled or suffered specific damage as a result of some conduct of the liquidator.

[193] Finally I return to the question of jurisdiction of this court to deal with the issues raised in this proceeding. Consequent upon Wakim the decision of Mansfield J is an "ineffective judgment" for purposes of the remedial legislation in both Queensland and South Australia. There was an issue between the parties as to whether or not by operation of the remedial legislation the decision of Mansfield J was to be regarded as a decision of the Supreme Court of South Australia or of this court. In my view it matters not; this court still has jurisdiction to determine the present action.

[194] Some of the Emanuel Companies were registered in Queensland prior to liquidation, and others registered in South Australia. It may be that the Queensland Supreme Court retained primary jurisdiction with respect to the companies registered in Queensland, and that may possibly have the consequence that upon the decision of Mansfield J being rendered ineffective it became a judgment of this court. If that approach was adopted then the decision, insofar as it affected the companies registered in South Australia, became a decision of the Supreme Court of South Australia.

[195] But the Wakim decision has not affected s 42 of both the Corporations (Queensland) Act 1990 and the Corporations (South Australia) Act 1990 which conferred jurisdiction on all other Supreme Courts with respect to civil matters arising under the Law as it applied in each of those States. In consequence, insofar as the decision of Mansfield J is now to be treated as a decision of the South Australian Supreme Court this court has jurisdiction to deal with it unless there was some good reason in comity for this court deferring to the Supreme Court of South Australia. But as the Supreme Court of South Australia has cross vested the main action to this court, and as the funding arrangement specifically relates to the main action, there is no valid reason for this court declining to exercise jurisdiction in favour of the Supreme Court of South Australia.

[196] I therefore hold that this court does have jurisdiction to entertain the present action.

[197] For all the above reasons the action should be dismissed.