Erskine as liquidator of North Shore Property Developments Pty Ltd (in liq) v 72-74 Gordon Crescent Lane Cove Pty Ltd

Appellant's submissions 16 The appellant accepted that the power to make an order extending time is discretionary and the appeal is subject to the principles in House v The King (1936) 55 CLR 499 at pp 504-505. 17 According to the appellant, while the primary judge correctly identified the applicable principles he misapplied them and acted on a wrong principle. The primary judge accepted that the plaintiff had received little information at [9] and, at [10], that her application for an extension of time was based on her recent appointment and inability to properly investigate the affairs of the company in the available time in circumstances where serious allegations had been made against the former liquidator. The appellant said this "placed the application into the category where it did not necessarily call for consideration of the merits of the claim in the same way as where an application is made in circumstances where the liquidator applicant has had the opportunity to investigate the potential claim", as in Green to which the primary judge referred at [14]. Despite adverting to Green, the primary judge held the deed of release and settlement to be "decisive" as any claim was "devoid of any prospects of success": [53]. 18 In the appellant's words: … the difficulty with that line of reasoning is that the very basis for the application was that the liquidator sought to obtain information to enable her to determine whether there were prospects of success and yet the application was refused because she did not presently have that information. Without investigation it was not possible to say that the claim was "devoid of any prospects of success" as a positive finding. 19 The appellant noted that, similarly to Green, in Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 (Woden Constructions) Finn J said: But a merits inquiry, even of a preliminary character, may not always be necessary. Where the liquidator is not in the position to consider the merits but has proper grounds for inquiring into the matter because of suspicion it invites (or that is cast on it) or of the explanation it requires, then provided he can satisfactorily explain his delay in inquiring sufficiently into the matter, he should not be closed out from an extension because he is unable to say he has a meritorious claim. In some instances, as here, it will be sufficient if he can say "I do not know if I do, but there is reason to inquire". 20 According to the appellant the primary judge should have applied the same approach as in Woden Constructions as there was evidence that there were matters requiring investigation in respect of the entry into the deed and the transactions relating to the property. A deed is a contract and can be set aside on the usual bases a contract may be set aside. However, the liquidator could not allege any of those bases as no proper investigation has been carried out. The appellant submitted that the primary judge "incorrectly concluded that the inability of the appellant to point to any ground for the setting aside of the Deed of Settlement at the time of the hearing was determinative of the application and in doing so acted contrary to principle". The deed is unusual. It has an extremely broad release of Mr Eddy Haddad and "Eddy's Group" including his "relatives" and their "Associates". Other matters indicated further investigation was warranted including: (1) the evidence on how the purchase price for the units (three of which were penthouse units) was set was the subject of conflicting evidence by Mr Eddy Haddad which left several questions unresolved; (2) "neither the bank statements of the Company nor Mr Haddad support the notion that the Call Option fee was ever paid"; (3) "At paragraph 27 of his first affidavit Mr Haddad referred to a letter from his solicitors to the former liquidator dated 22 June 2017, and at paragraph 50 of his second affidavit to the enclosures to that letter…although the letter asserted that the claim for $7.5 million relating to the purchase of the units was 'settled', it enclosed "documents in support of our client's assertion in respect of the uncommercial transactions claims". Accordingly, it is unlikely the matter had in fact been settled and it could be reasonably supposed that the former liquidator relied upon those documents in determining to settle the claim"; (4) "The letter asserted that the respondent 'exercised the option', thereby implying that the option fee had been paid. If it had not that potentially provides a basis for the Deed of Settlement to be set aside on the basis of misleading conduct"; (5) "The letter of 22 June 2017 states that it enclosed the 'Deed of Call Option dated 3 May 2012' and a 'Market appraisal from Reston Real Stated dated 6 February 2012'. However, the market appraisal refers to an 'option agreement supplied by Eddy Haddad' notwithstanding that the Heads of Agreement was purportedly entered into on 17 April 2012 following an alleged conversation earlier in April and the Deed of Call Option was not entered into until 3 May 2012, months after the market appraisal. Moreover it appears that the market appraisal was "based upon" this undisclosed call option… if either the Deed of Call Option or the market appraisal were created on different dates than the dates they purported to be, such a misrepresentation could provide a basis to set aside the settlement and the inconsistent dating invites further investigation"; and (6) "Another feature of the settlement arrangements which opened a potential line of investigation was that the former liquidator settled the potential claim against the respondent for $32,500, notwithstanding that a valuation report obtained by the respondent approximately three months after the transfer of the units showed far greater values than he had paid the Company for them". 21 In oral submissions, the appellant expanded on these matters which include matters that, the appellant accepted, had not been put to the primary judge. 22 Further, according to the appellant, the primary judge's conclusion at [53] that the deed was decisive so any proceeding was devoid of prospects of success was not explained. In the appellant's words: No reasons were given why further investigation could not have yielded material which provided a basis to set aside the Deed of Settlement. Instead his Honour appears to have concluded that, because the appellant could not point at the hearing to a basis for that outcome, that investigation could not have changed that position. 23 Finally, it was submitted that the primary judge's reasoning with respect to prejudice and delay was circular in that the "principal reason that his Honour appears to have taken into account was that the former liquidator had entered into the Deed of Settlement and had done so within power and after an investigation" but: it would be highly unlikely that the Court would accept that, even though the circumstances warranted the setting aside of the Deed of Settlement, it was also prejudicial to the respondent that the appellant be able to pursue a cause of action which had otherwise been barred by a voidable agreement. In other words, if there were such prejudice, the respondent would be the author of it by entering into a colourable deed. Thus, to conclude there was unreasonable prejudice to the respondent if the extension was allowed was again to assume that there was no basis to set aside the Deed of Settlement, even though the appellant had not been able to investigate that issue.

Discussion 24 The appellant's submissions are unpersuasive. 25 Green and Woden Constructions do not establish any universal principle. They recognise that in some cases consideration of the merits of the possible claim which has not yet been able to be fully investigated may be inappropriate. If the statement in Woden Constructions that the liquidator "should not be closed out" provided a satisfactory explanation for the delay is understood to establish a universal principle then the effect would be to negate the existence of the discretion. The statement of Finn J cannot be read as meaning that in every case where the liquidator identifies some grounds for inquiry because of a suspicion about a transaction but is not in a position to consider the merits without such inquiry, an extension will necessarily be granted if there is a satisfactory explanation for the delay. This would be inconsistent with the requirement that the discretion be exercised in all of the circumstances of the case, and the immediately subsequent observation of Finn J that "[i]n some instances, as here, it will be sufficient" to say only that there is a reason to inquire. Justice Finn was not suggesting that in all such cases the existence of a reason to inquire would dictate that the merits should not be considered and an extension of time should be granted. 26 Accordingly, the primary judge was correct at [14] to identify the relevant principle as one in which a consideration of the merits of the claim against the disputed transaction may not always be necessary. The appellant's submissions, properly analysed, recognise this to be the case but nevertheless pitch the allegation of error as one of principle in order to justify appellate intervention when, in truth, the complaint is simply that the primary judge should have reached a different conclusion from that which he did. However, without some error of principle being established, there is no justification for an appeal court to consider how it might have exercised the discretion in the same circumstances. 27 As the primary judge must be inferred to have recognised, the present case also involved unusual facts. It was common ground, and necessarily so, that if the compromise could not be set aside as void, then the transactions in relation to the property could not be called into question at all. Any challenge to those transactions was necessarily doomed to fail. Thus, the circumstances called up as a relevant matter the existence of any argument to invalidate the compromise. Neither Green nor Wooden Constructions involved similar facts. The merits which those cases considered were the merits of proceedings to have the voidable transactions set aside. In the present case, the plaintiff was confronted by an anterior hurdle, the binding compromise which, on its face, would preclude the calling into question of the transactions said to warrant investigation. There is no authority suggesting that, in such a case, the prospects of the compromise being set aside should not be considered. Nor that the lack of an existing arguable case to have the compromise set aside may not be a decisive factor weighing against the exercise of the discretion to extend time merely because further investigation of the transactions might appear justifiable and such investigation might enable a ground to invalidate the compromise to be identified. 28 Given these circumstances, it is difficult to accept the existence of any principle which would have had the effect of preventing the primary judge from considering whether there was an extant arguable proposition suggesting the invalidity of the compromise which had been reached. If the primary judge was entitled to consider this matter then he was also necessarily entitled to give the matter determinative weight unless his decision was not reasonably open in the circumstances. Given the lack of any applicable principle, this is what the appellant's case on appeal becomes - an allegation that it was not reasonably open to the primary judge to make the decision he did. As is well-known, allegations of this kind are not tested by what decision the appeal court might have made in the same circumstances. The decision must be one that was not reasonably open to be made at all. 29 Further, there is a difference between giving one matter determinative weight and failing to consider other matters. The appellant's submissions appeared to assume, wrongly, that because the primary judge ultimately gave determinative weight to one factor (the lack of an extant arguable contention for the setting aside of the compromise) his Honour must have failed to have considered the matters which indicated the existence of a basis for further inquiry. Any such assumption would be incorrect. It fails to recognise that the impugned paragraph of the primary judge's reasons said to disclose error, [53], is a conclusion which must be understood as a consequence of the weighing of all the relevant circumstances. If it were otherwise, the primary judge would not have recorded the factor as "decisive" as there would have been no other relevant matters. 30 In any event, a fair reading of his Honour's reasons indicates that the primary judge was fully aware of the plaintiff's concerns. He recorded the relevant facts at [9], [10], and [17] to [39] and the plaintiff's submissions at [40] to [45]. At [10], in particular, he recorded that the plaintiff's application was based on limited information made available in limited time in circumstances where "serious allegations had been made about the conduct of the former liquidator in the liquidation, and where there is some information…which gives rise for concern that voidable transactions have been entered into". It is impossible to accept that, when he came to exercise the discretion, the primary judge failed to appreciate the very principles and circumstances he had identified as relevant. To the contrary, it must be inferred that the primary judge had the relevant principles and circumstances in mind but concluded that in this particular case, the merits of any proceeding should be considered because any proceeding would have to confront the compromise and, as no extant arguable proposition for the compromise to be set aside had been identified, there were no such merits, a factor to which he gave determinative weight. The mere fact that "some information" existed suggesting an inquiry might be justified did not remove the existence of the discretion. Contrary to the effect of the appellant's case, the primary judge was not bound to grant the extension in the circumstances of this case. Yet the alleged error of principle in this case is the equivalent of the proposition that the primary judge was bound to grant the extension because there was material which supported an inquiry into the transactions which had been compromised irrespective of the lack of any apparent argument supporting the invalidity of the compromise. 31 Put another way, the effect of what the appellant contends is that, because there was some information which would justify an inquiry into the transactions, the primary judge was bound to give decisive weight to that factor and prohibited from giving decisive weight to the fact that, as matters stood at the time the primary judge was required to exercise the discretion, there was no extant arguable ground by which it might be said that the binding compromise might be set aside, thereby preventing those transactions from being called into question at all. Instead, despite it being expressly put to the primary judge that it was "inappropriate to speculate" about what grounds might exist to set aside the compromise (see at [43]), it is the thrust of the appellant's case that the primary judge should have disregarded the lack of any extant arguable proposition to support any such action against the compromise and instead found the reasons to inquire decisive. Understood in this way, the untenable nature of the appellant's case seems clear given that it is a challenge to the exercise of a discretion. 32 In summary, in the circumstances of this case the primary judge was entitled to consider the prospects of success in respect of the proposed voidable transactions. As his Honour found, in the face of the compromise and the lack of any extant and arguable reason to set it aside, there were no prospects of success. It was not wrong in principle for the primary judge to consider the lack of prospects of success in the particular circumstances of the case where all claims in respect of the transactions had been compromised after what appeared to be genuine and detailed inquiry by the former liquidator. Indeed, as noted above, there is no principle that the prospects of success must not be considered merely because the liquidator has not yet had sufficient opportunity to investigate. Whether or not the prospects should be considered material depends on all of the circumstances. In the present case, his Honour gave decisive weight to the lack of prospects but was entitled to do so given that the compromise barred recovery and nothing could be said to impugn it. 33 As his Honour said at [43]: In her submissions, the plaintiff identifies the theoretical bases on which a deed of release might be set aside. However, she does not identify a specific basis on which this might be done in the present case. The plaintiff has not commenced proceedings, or even foreshadowed that she will bring proceedings, to set aside the Deed of Release and Settlement. All that she can say is that, after further investigation, such proceedings might be a possibility but that, at the present time, "it is inappropriate to speculate" on what grounds might exist to so move. 34 The primary judge cannot have committed any error by dealing with the case as it was put to him. Before his Honour the appellant was "unable to point to any material fact or matter that would provide an extant and arguable reason to set aside the Deed of Release and Settlement": [53]. Given that the compromise would bar any claim against the transactions it would be strange indeed if the prospects of having the compromise set aside were unable to be considered in the discretionary exercise. And, as noted, once that is accepted it is necessarily the case that the weight to be given to that factor was for the primary judge to determine. Unless it can be said that the decisive weight which the primary judge gave to that factor was simply not reasonably open in all of the circumstances, there can be no error justifying appellate intervention. It is not clear how a conclusion that the decision was not reasonably open could be reached. The primary judge cannot be inferred to have acted on a wrong principle or to have failed to consider relevant matters. There was evidence of genuine consideration by the former liquidator of the propriety of the compromise and he had initially advanced such a claim, then carried out a further investigation and entered into the compromise: [33] and [54]. The plaintiff accepted that it was inappropriate to speculate what grounds might be found to exist to set aside the compromise: [43]. The first defendant's submissions about delay and prejudice were cogent and said by the primary judge to "plainly support" an exercise of discretion against the plaintiff: [54]. 35 The allegation that the primary judge gave inadequate reasons for his decision is also without substance. It is said his Honour gave no reasons for finding the deed to be decisive and appears to have assumed it would remain so despite investigation. This is misconceived. The appellant's own position before his Honour was that it could make no argument and identify no ground upon which the deed might be set aside. It is true that this was said to be because of the need for further investigations. But the primary judge had to exercise the discretion at that time in all of the circumstances. Read in context it must be inferred that [53] is the result of his Honour weighing all relevant matters. The result was to give decisive weight to one factor, but that does not mean that he disregarded all the other circumstances which he had just described at some length. 36 Further, the primary judge was not saying that, if the plaintiff investigated, she could never identify a ground to attempt to vitiate the compromise. His Honour was saying that, as matters presently stood, the lack of any extant arguable ground to set aside the compromise was decisive. It follows that the primary judge's reasons reflected and adequately explained his conclusion. He did not have to give reasons dealing with a hypothesis which formed no part of his reasoning - that following investigation the plaintiff might be able to formulate some argument to set aside the compromise. That is, the primary judge was dealing with the application as it existed before him at that time, as he was bound to do. 37 Nor was the primary judge's reasoning about prejudice and delay circular. There was no extant argument raised, even as a matter of mere speculation that the compromise might be able to be set aside. His Honour was entitled, indeed bound, to weigh the prejudice to the first defendant if the extension of time were granted. He was also entitled to give material weight to the prejudice he found would arise. Having said, properly, before the primary judge that it was inappropriate to speculate on what grounds might exist to set aside the deed, on appeal, the appellant has moved beyond speculation to characterise his Honour's reasoning as circular on the assumed basis that the deed would be set aside, with the consequence that Mr Iannuzzi would be the author of his own prejudice. The distance between this and what was put to the primary judge is obvious. Again, there can be no error by the primary judge in not dealing with arguments which were never put. 38 The cross-appeal is unnecessary and thus need not be considered. If it had been necessary to consider the cross appeal, the appropriate order would have been to allow the appeal, set aside the primary judge's order to the extent necessary and remit the matter to the primary judge for determination. As it is, for the reasons given above, the appeal should be dismissed with costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Jagot, Gleeson and Markovic.

SCHEDULE OF PARTIES NSD 1493 of 2018 Respondents Fourth Respondent: PATRICIA HANNA