Fortress Credit Corporation (Australia) II Pty Limited v William John Fletcher and Katherine Elizabeth Barnet as liquidators of Octaviar Administration Pty Ltd

Supreme Court of NSW|2013-09-05|Before: Robb J

iq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 Re St Gregory's Armenian School (in liq) (2012) 92 ACSR 588 Westpac Banking Corporation v Totterdell (1998) 20 WAR 150; (1998) 29 ACSR 448 Category: Interlocutory applications Parties: Fortress Credit Corporation (Australia) II Pty Limited (Plaintiff) William John Fletcher and Katherine Elizabeth Barnet as Liquidators of Octaviar Administration Pty Limited (In Liquidation) (Joint Defendants) Representation: Counsel: C Bova (Plaintiff) B Coles QC and J Taylor (Joint Defendants) Solicitors: Baker & McKenzie (Plaintiff) Henry Davis York (Joint Defendants) File Number(s): 2013/00174439

Judgment 1The plaintiff, Fortress Credit Corporation (Australia) II Pty Limited ("Fortress"), claims an order under Rule 5.3 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) that the defendants give discovery of all documents that are or have been in the defendants' possession that fall into any one or more of "the Categories", as defined in the amended summons filed on 17 June 2013. 2The defendants, Mr William John Fletcher and Ms Katherine Elizabeth Barnet, are the liquidators of Octaviar Administration Pty Limited (in liquidation) ("Octaviar Administration"). 3The application for preliminary discovery concerns the circumstances in which the defendants caused Octaviar Administration to enter into a funding agreement to fund proceedings in the Supreme Court of Queensland that have been instituted by a related company, Octaviar Limited ("Octaviar"), against Fortress. 4The amended summons includes the following definitions of the terms included in the claim for preliminary discovery: ""Categories" means: 1. In the event that the execution of the funding agreement (by any of the joint defendants) was approved in a proceeding before any court: (a) any originating process filed in the proceeding; (b) any affidavits and exhibits relied on in support of the originating process mentioned in paragraph (a) above; (c) any order(s) made by the court that heard the proceeding; (d) any reasons for judgment in relation to any orders mentioned in paragraph (c) above. 2. In the event that the execution of the funding agreement was approved by the Committee of Inspection formed in relation to the winding up of Octaviar Administration Pty Ltd (in liquidation): (a) any Notice of Meeting convening the relevant Committee of Inspection meeting at which the funding agreement was considered (and approved); (b) any documents provided to the Committee of Inspection in connection with a proposed resolution approving execution of the funding agreement; and (c) any minutes of meeting, which record a resolution by which the funding agreement was approved by the Committee of Inspection. "document" has the meaning given to that term in the Evidence Act 1995 (NSW). "funding agreement" means any agreement made between any of the joint defendants, David John Kerr as special purpose liquidator of Octaviar Limited (receivers and managers appointed) (in liquidation), Octaviar Administration Pty Limited (in liquidation) and Octaviar Limited (receivers and managers appointed) (in liquidation) with respect to the funding of the conduct by Mr Kerr (together with Octaviar Limited (receivers and managers appointed) (in liquidation)) of the Queensland Proceeding. "Queensland Proceeding" means the proceeding in the Supreme Court of Queensland with proceeding number "BS3442/2010" and styled "Fletcher & Ors v Fortress Credit Corporation (Australia) II Pty Limited"." 5Fortress has reason to believe that a funding agreement, as defined in the amended summons, has been entered into between Octaviar Administration and Octaviar. The defendants required approval of the court, or of the committee of inspection, or of a resolution of the creditors of Octaviar Administration, under s 477(2B) of the Corporations Act 2001 (Cth) before they could cause Octaviar Administration to enter into the funding agreement. The alternative definitions of the "Categories" reflect the fact that Fortress knows that consent was not given by the creditors of Octaviar Administration, but it does not know whether consent was given by the court or by the committee of inspection. 6Fortress also claims in its amended summons, "to the extent necessary", an order under to s 471B of the Corporations Act, or alternatively in the inherent jurisdiction of the court, that Fortress have leave to commence the present application against the defendants. It will be convenient to defer consideration of the claim for leave to proceed until after Fortress's claim for preliminary discovery has been dealt with.

Background 7Octaviar and Octaviar Administration are part of the same group of companies. The relationship between the companies in the group is complicated. Octaviar is apparently the ultimate holding company of Octaviar Administration. Octaviar Administration acted as the 'treasury company' for the group. 8The following material facts are taken from an affidavit of Mr David James Walter, the solicitor for Fortress, and also from the amended statement of claim which has been filed in the Queensland Proceeding, as defined in the amended summons. It will be convenient to use that term in these reasons for judgment. 9Evidence was not given by any officer of Fortress who had direct personal knowledge of facts known to Fortress or its intentions. 10On 31 May 2007 Fortress entered into a loan agreement with Young Village Estates Pty Ltd ("Young Village Estates"). Fortress advanced $53,500,000 under that loan agreement. On 25 May 2007 Octaviar gave a written guarantee and indemnity in favour of Fortress of the borrower's obligations under the loan agreement. Octaviar's guarantee and indemnity were not originally secured by any charge in favour of Fortress. 11On 1 June 2007 Fortress entered into a further loan agreement with Octaviar Castle Pty Ltd ("Octaviar Castle"). By about February 2008, the facility limit under this loan agreement was $150 million, and the amount drawn down by Octaviar Castle approximated that limit. Octaviar and another company were parties to this further loan agreement as guarantors. Octaviar executed a deed of charge in favour of Fortress on 1 June 2007. This deed of charge secured Octaviar's obligations to Fortress as guarantor of Octaviar Castle's indebtedness, but not the indebtedness of Young Village Estates to Fortress. 12I will defer further consideration of the transactions involving these two loan agreements, and the charge given by Octaviar, until I outline the relevant allegations made in the amended statement of claim in the Queensland Proceeding. 13On 13 September 2008 Octaviar was placed into voluntary administration. On 15 September 2008 Fortress appointed receivers and managers of Octaviar under the charge given by that company. Octaviar was subject to a deed of company arrangement during the period from 12 January 2009 to 31 July 2009. Octaviar was placed into provisional liquidation by an order of the Supreme Court of Queensland made on 31 July 2009, and it was placed into liquidation by a further order of that Court made on 9 September 2009. The defendants have been the liquidators of Octaviar from that date. 14As at 31 May 2013, the debt that Fortress claims is owed to it by Octaviar was approximately $84,395,090. 15Octaviar Administration was placed into voluntary administration on 3 October 2008. The Supreme Court of Queensland placed it into liquidation on 31 July 2009. The defendants have also been the liquidators of Octaviar Administration from that date. 16On 14 February 2011 the receivers and managers of Octaviar appointed by Fortress lodged a formal proof of debt with the administrator of Octaviar Administration. The amount claimed was $514,685,948.12 for "various" transactions said to arise on an "inter-company loan account". The proof of debt was supported by an extract from the general ledger for the "Octaviar Group of Companies". 17The amount of any dividend payable to Octaviar in the winding up of Octaviar Administration will be an asset which is the subject of the charge granted by Octaviar to Fortress, and will fall within the control of the receivers and managers appointed by Fortress. 18Fortress is not a direct creditor of Octaviar Administration, and does not have any charge or other security over that company's assets. 19Octaviar Administration has not, on the evidence, yet claimed to be a creditor of Octaviar. 20In 2010 the defendants, as liquidators of Octaviar, instituted the Queensland Proceedings against Fortress, as first plaintiffs. Octaviar was made second plaintiff to those proceedings. The current statement of claim in the Queensland Proceedings is an amended statement of claim filed on 1 September 2011.

Barrett J's orders in winding up of Octaviar 21On 8 December 2011 Barrett J (as his Honour then was) made orders in proceedings No 2011/00397200 in this court at the suit of the defendants as first plaintiffs, Octaviar as second plaintiff, and Octaviar Administration as third plaintiff. By order 4 Barrett J ordered that Mr David Kerr be appointed as a special purpose liquidator of Octaviar for the purposes specified in par 7 of the orders. 22In par 7 the court declared pursuant to s 473(8) of the Corporations Act that the special purpose liquidator may do various listed things on behalf of Octaviar including, so far as appears to be material to the present application: "(a) representing the interests of [Octaviar] in pursuing any claims available to [Octaviar] against [Fortress] arising out of the events described in [the amended statement of claim in the Queensland Proceeding] and surrounding events concerning the circumstances of the repayment to Fortress of the facilities made available by Fortress the subject of [the Queensland Proceeding] (Claims), including prosecuting or settling the Claims; (c) representing the interests of [Octaviar] in so far as any claims arise in competition between [Octaviar Administration] and [Octaviar]: (i) to receive some or all of any sum recovered as a result of the prosecution (including by way of judgment or any settlement) of the Proceeding or the Claims; and/or (ii) as to the appropriate allocation of the proceeds of sale arising from a sale of the shares by Stella Holdings Pty Limited to Global Voyager Pty Ltd on or about 29 February 2008... (d) assessing and administering any proof of debt lodged by [Octaviar Administration] in the estate of [Octaviar] in so far as the proof depends on claims arising out of the events referred to in paragraph 7(a) above; (e) representing the interests of [Octaviar] in respect of any proof that may be appropriate for [Octaviar] to lodge in the estate of [Octaviar Administration] in so far as the proof depends on claims arising out of the events referred to in paragraph 7(a) above; (f) negotiating the provision of any necessary funding to the Special Purpose Liquidator and [Octaviar] for the purposes of the Special Purpose Liquidator and [Octaviar] engaging in the steps outlined in paragraphs 7(a) to (e) above; (g) otherwise performing the role as liquidator of [Octaviar] in respect of the matters referred to in paragraphs 7(a) to (f) above." 23Paragraph 8 provided directions to the special purpose liquidator in relation to his notifying the defendants of any steps which he proposed to take under par 7, and for good faith discussions between the special purpose liquidator and the defendants, in any of the events listed in subpars (a) to (d). It is not necessary to set out these events in detail, but they concern the circumstances in which the defendants, as the primary liquidators of both Octaviar and Octaviar Administration, might have views as to the appropriate course for the special purpose liquidator to take in the interests of the estates of both companies and their respective unsecured creditors. The event set out in subpar (a) was: "(a) the [defendants] inform the Special Purpose Liquidator that in their view [Octaviar] and [Octaviar Administration] have a common interest in respect of the proposed step and that it would be appropriate for [Octaviar Administration] and the [defendants] as liquidators of [Octaviar Administration] to have primary carriage for the step" 24It appears from the orders made by Barrett J that his Honour acted on the basis of an affidavit sworn by Ms Barnet on 6 December 2011, and a number of exhibits. Barrett J made orders that the application be conducted in closed court, and that the evidence and record of proceedings be kept confidential until further order of the court. He also ordered that, until further order, the court's reasons in respect of the application be kept confidential, and not be disclosed without the leave of the court. A similar order was made in relation to Ms Barnet's affidavit and her exhibits. Additionally, his Honour made orders that the defendants' outline of submissions, the transcript of the hearing, and an email from his Honour's associate to counsel, be kept confidential and not be disclosed without the leave of the court. 25On the present application the defendants tendered into evidence the orders made by Barrett J. None of the other materials that were made subject to confidentiality orders by his Honour was before the court. 26The application before Barrett J apparently required his Honour to consider the respective rights and obligations of Octaviar and Octaviar Administration in relation to the events the subject of the Queensland Proceeding (as described in par 7(a) of the orders). 27The parties to the application before Barrett J recognised that there was an actual or potential conflict of interest in the defendants, as liquidators of both Octaviar and Octaviar Administration, which was the reason for the appointment of Mr Kerr, as special purpose liquidator, and the creation of a protocol for the resolution of potential disputes between the two companies. 28Paragraph 7(d) of the orders made by Barrett J suggests that the parties to the application contemplated that Octaviar Administration might lodge a proof of debt in the winding up of Octaviar based upon claims arising out of the circumstances the subject of the Queensland Proceeding. The defendants did not tender any evidence on the present application that any such proof of debt had been lodged, or that the defendants proposed to lodge such a proof of debt on behalf of Octaviar Administration. The present application was conducted on the implicit assumption that Octaviar Administration was not a creditor of Octaviar. 29By par 7(f) Barrett J authorised the special purpose liquidator to negotiate the provision of any necessary funding to enable the special purpose liquidator and Octaviar to prosecute the Queensland Proceeding and related matters. Nothing on the face of the orders shows that Barrett J contemplated, or was aware of, any proposal that a funding agreement would be negotiated between Octaviar and Octaviar Administration. 30Barrett J directed that the entirety of the contents of the application, the evidence, the submissions and argument, and the reasons for judgment should be kept confidential, subject to the leave of the court, to protect the interests of all parties concerned in the winding up of Octaviar and Octaviar Administration. Even in the absence of any evidence it is clear that is Honour must have intended his confidentiality orders would prevent Fortress, as the defendant in the Queensland Proceeding, becoming aware of the information which led the court to make the orders that Barrett J made. 31Barrett J made the following additional order: "11. Liberty is reserved to any person claiming to be entitled to be heard to come in and to seek to have set aside any of the orders just made."

Octaviar's claims against Fortress 32It is now appropriate to consider in a little more detail the allegations made by the plaintiffs in the amended statement of claim in the Queensland Proceeding. The analysis of those allegations will be limited to the extent necessary to understand the essential structure of the claims made, and to permit a comparison between those claims and the claims which have been made by Octaviar Administration in separate proceedings which it has commenced in the Supreme Court of Queensland against Fortress and others (the "OA Proceedings"). 33The effect of the allegations in pars 46 to 49 of the amended statement of claim is that the "relation-back day" for the winding up of Octaviar was 4 June 2008, and the winding up of that company is taken to have commenced on 9 September 2009. 34As has been noted above, the loan agreement between Fortress and Young Village Estates was entered into on 31 May 2007, and Octaviar gave the guarantee of the borrower's liability on 25 May 2007. The loan agreement between Fortress and Octaviar Castle, including the guarantee and indemnity by Octaviar, was entered into on 1 June 2007, as was the charge granted by Octaviar. The charge did not secure Octaviar's liability to Fortress in respect of the guarantee and indemnity for the Young Village Estates debt. All of these transactions occurred well before the date that was six months before the "relation- back day" for Octaviar. 35 The crux of the amended statement of claim is the allegation in par 19 that, on or about 29 January 2008, Octaviar, Octaviar Castle and Fortress executed a deed by which the charge granted by Octaviar on 1 June 2007, which originally only secured Octaviar's liability in respect of Octaviar Castle's indebtedness, was extended to secure the guarantee given by Octaviar of the Young Village Estates indebtedness to Fortress. This deed, which is called "the Fortress Charge Extension" in the pleading, was entered into within six months before the "relation-back day", and accordingly was susceptible to challenge under the uncommercial transactions provisions of the Corporations Act. 36The plaintiffs in the Queensland Proceeding plead in par 24 that, on or about 23 December 2008, Octaviar paid the sum of $19,746,713.63 to Fortress, and in par 27 that this amount would not have been transferred to Fortress "but for the Fortress Charge Extension". In pars 28 and 31 the plaintiffs make similar allegations about a payment of $304,331.05 made by Octaviar to Fortress in about February 2009. These two payments are respectively called "the December 2008 Payment" and "the February 2009 Payment". The plaintiffs plead that both sums have been paid into a bank account in the name of Fortress, which is called in the pleading the "Escrow Account". The plaintiffs plead in pars 33 to 40 the material facts necessary to support a claim in par 40A that the Fortress Charge Extension was an unfair preference within s 588FA of the Corporations Act. They plead in par 43 that the Fortress Charge Extension was an uncommercial transaction within s 588FB. The plaintiffs then plead the facts necessary to support a claim in par 52 that the Fortress Charge Extension, the December 2008 Payment and the February 2009 Payment are voidable under s 588FE. 37In pars 53 to 73 the plaintiffs plead a further claim against Fortress in relation to an amount of $15 million that Fortress is alleged to have received on 29 February 2008 as "a participation fee". The basis of the claim is complex, and it is not necessary to analyse this aspect of the amended statement of claim in detail, as Octaviar Administration has not made the same claim against Fortress in the OA proceeding. In short, the plaintiffs plead in par 53 that, by February 2008, the loan agreement between Fortress and Octaviar Castle was drawn down to its limit of $150 million. On 18 February 2008 the parties to the loan agreement entered into a deed, called in par 54, the "Third Deed of Amendment", by which the facility limit was increased to $200 million, and the facility was made repayable no later than the date of completion of a share sale agreement between Octaviar, a related company called MFS Stella Holdings Pty Limited, and the purchaser, Global Voyager Pty Ltd. Paragraphs 55 to 57 plead the manner in which Fortress was to receive $15 million, under a Funded Participation Agreement between Fortress and Octaviar Castle executed on 18 February 2008. On 20 February 2008, Octaviar Castle drew down something in excess of $44 million, $15 million of which was to pay the participation fee: pars 58 and 59. The plaintiffs plead in par 60 that the Stella sale agreement was completed on 29 February 2008 and the sum of $189,897,919.43 was paid to Fortress in discharge of Octaviar Castle's debt to Fortress. Paragraphs 61 to 65 plead how the plaintiffs allege that the effect of these transactions was that the exposure of Fortress under the Young Village Estates loan agreement was reduced by $15 million, which was effectively a payment by Octaviar in reduction of its liability under its guarantee of Young Village Estates' debt to Fortress. 38This simplistic outline of the pleading does not attempt make the basis of the plaintiffs' claim clear. It is sufficient to note that the plaintiffs plead in pars 66 to 69 that, if the Fortress Charge Extension is void, the Third Deed of Amendment and the Funded Participation Agreement and the payments made under them were an unfair preference within s 588FA. The plaintiffs plead in pars 70 to 73 that the same agreements and transactions are voidable under s 588FE. 39The plaintiffs claim in the Queensland Proceeding an entitlement to repayment of the sums of $19,746,713.63, $304,331.05 and $15 million, plus interest.

First Queensland Proceeding funding agreement 40In order to fund Octaviar's costs of prosecuting the Queensland Proceeding against Fortress, the defendants proposed to cause Octaviar Administration, which had available cash of some $120 million, to enter into a funding agreement with Octaviar. As the term of the funding agreement may have ended more than three months after the agreement was entered into, the defendants required approval under s 477(2B) of the Corporations Act before the funding agreement was executed. 41On or about 18 February 2011 the defendants sought the approval of the Federal Court of Australia under s 477(2B). The defendants, Octaviar and Octaviar Administration, were the only parties to those proceedings. Fortress was not given notice of the application. On 23 February 2011 Stone J, in Fletcher and Barnet, in the matter of Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) [2011] FCA 132, made an order under s 477(2B) approving the defendants' entering into the funding agreement, and gave a direction under s 479(3) that the defendants, as liquidators of both Octaviar and Octaviar Administration, would be justified in doing so. Her Honour made an order, pending the further order of the court, that the reasons for judgment not be published, and the transcript not be provided to any non-party to the proceeding. 42Stone J considered evidence by Ms Barnet, and by a Mr Williams, a chartered accountant, who gave expert evidence. She noted at [16] that in considering an application for approval by liquidators to enter into a funding agreement "it is not necessary for the Court to be convinced that the company is likely to succeed in the litigation or to form its own view as to the commercial merits of the agreement". Relying upon the decision of Giles J in Re Spedley Securities Limited (in liq) (1992) 9 ACSR 83 at 86, her Honour held that the court will not interfere "...unless there can be seen to be some lack of good faith, some error of law or principle, or real and substantial grounds for doubting the prudence of the liquidator's conduct". Stone J then at [17] set out the list of factors suggested by Austin J in Leigh re King Bros [2006] NSWSC 315 at [25] that should be taken into account in determining whether there are grounds for doubting the good faith or prudence of the liquidators. 43Her Honour raised at [19] the issue of whether, as Octaviar Administration was itself in liquidation, the joint defendants had power to cause that company to make the loan contemplated by the funding agreement, and set out the observations of Barrett J in Re McGrath (2010) 266 ALR 642; 78 ACSR 405; [2010] NSWSC 404 at [18] - [21]. Stone J concluded: "[20]. In McGrath Barrett J required the liquidators to provide expert evidence in support of their submission that the funding arrangements would be in the interests of the funding companies. In the present application such evidence has been provided by Mr Williams and his report and conclusions are summarised above at [10]-[14]. Evidence presented at the hearing establishes that the committees of inspection for both [Octaviar Administration] and [Octaviar] have been consulted and have approved entry into the Funding Agreement, subject to the Court's approval. [21]. On the basis of the evidence presented at the hearing of the application, much of which must remain confidential for the present, I am satisfied that the Court should approve the entry of the liquidators into the Funding Agreement in the form, or substantially in the form, exhibited to Ms Barnet's second affidavit sworn on 17 February 2011." 44Stone J therefore found, on the basis of the evidence before her, none of which is before the court on the present application, that approval for the defendants to enter into the funding agreement should be granted under s 477(2B), as there were no grounds for doubting the good faith or prudence of the defendants in taking that course, and, by implication, that the defendants had power to take that course. The first part of her Honour's finding may be material when considering the merits of Fortress's application for preliminary discovery. 45On or about 16 March 2011 the defendants, Octaviar and Octaviar Administration, made a further application to the Federal Court of Australia under s 477(2B), for approval of a further funding agreement in relation to investigations to support the proposed proceedings by Octaviar against Fortress. Stone J gave judgment in that application on 7 April 2011 in Fletcher and Barnet, in the matter of Octaviar Limited (Receivers and Managers Appointed) (In Liq) and Octaviar Administration Pty Ltd (In Liq) (No 2) [2011] FCA 315. Her Honour in substance made the same orders as in the earlier proceedings nunc pro tunc. 46Fortress appeared by counsel to oppose the application and to seek leave to appeal from the earlier judgment. Stone J took the view that she should refuse to adjourn the hearing, and leave it to Fortress to seek leave to appeal.

Fortress appeal to Full Court of Federal Court of Australia 47Fortress duly sought leave to appeal from both of Stone J's decisions in the Full Court of the Federal Court of Australia. On 25 July 2011 Emmett, Nicholas and Robertson JJ delivered a joint judgment on the application in Fortress Credit Corporation (Australia) 11 Pty Ltd v Fletcher [2011] FCAFC 89. 48At [31] the Full Court noted that, as Fortress was a non-party, it required leave to appeal. They held at [32]: "A person who was not a party to a cause can obtain leave to appeal from orders made in the cause. A person who, without being a party, is either bound by an order, or is aggrieved by it, or is prejudicially affected by it, or is sufficiently interested in it can appeal, but only with leave." 49The basis of Fortress's claim to be granted leave to appeal was set out at [34] in the following terms: "[34]. Fortress's claim that it was aggrieved or sufficiently interested, for the purposes of the grant of leave, is that Fortress is a creditor of the claimant, for approximately $71 million. The funder is not a creditor of the claimant. A major asset of the claimant is the debt that the funder owes to the claimant. The charge, if it is effective, covers that debt. By approving the funding agreement, and thereby permitting the funder to fund the proposed claims against Fortress, the assets that would otherwise be available for distribution in the liquidation of the funder would be reduced. That reduction would include a reduction in the value of the debt owing to the claimant by the funder, being an asset over which the charge subsists. Thus, Fortress contends, the approval of the funding agreement has the result that the value of Fortress's security would or could be diminished". 50After listing several matters in [35] that are likely to be relevant to the exercise of the discretion to grant leave to appeal, the Full Court responded to three factors which were raised by the present defendants in argument against the grant of leave. It is appropriate to set out these responses in full, because they are relied upon, or relevant, in the present application for preliminary discovery: "[36]. ... First, Fortress does not fall within the limited class of persons who have a statutory right to apply to the court under s 477(6). However, while s 477(6) may be relevant, it is not an exhaustive statement of standing, especially where the issue is the scope of the statutory powers of a liquidator. The grounds that Fortress wishes to agitate involve questions as to the powers of the liquidators under s 477. Although s 477(2B) is triggered in circumstances where an agreement might last for more than three months, in considering an application under that provision, the court should be satisfied that an agreement in question is, as a matter of law, within the liquidator's powers. The position might be different, of course, if Fortress's grounds involved no more than a challenge to the liquidators' commercial decision. [37]. Second, the liquidators point to s 1321 of the Corporations Act, and the limitations on standing to make an application under that provision: see Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434; 1 ACSR 79. However, it is necessary to focus on the particular ground sought to be raised by Fortress, which is a question as to the powers of the liquidators under s 477. The mere fact that Fortress is not a person aggrieved within s 1321 does not mean that the court should exercise its discretion against granting leave. [38]. Third, the liquidators contend that Fortress requires, but has not obtained, leave under s 471B of the Corporations Act. Section 471B relevantly provides that, while a company is being wound up in insolvency or by the court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with a proceeding in a court against the company or in relation to the property of the company, except with the leave of the court and in accordance with such terms (if any) as the court imposes. However, neither of the present proceedings is within s 471B. In substance, they are proceedings against the liquidators in relation to their powers. They are not proceedings against the funder or the claimant or their property. There is no need for leave under s 471B." 51As the first of the matters dealt with by the Full Court shows, in that case Fortress only challenged the power of the defendants to enter into the funding agreement. 52As to the second matter, the defendants in the present case have submitted that the Full Court decided that Fortress was not a person aggrieved for the purposes of s 1321, and that the decision of the Full Court binds Fortress on the present application, in so far as one of the possible claims for relief to which Fortress points for the purposes of UCPR r 5.3(1)(a) is an appeal under s 1321 against the decision of the joint defendants to enter into the funding agreement. That appeal is only available to Fortress if it can show that it is "a person aggrieved" by the act of the joint defendants. I will return to this issue when I deal with the question whether Fortress would be a person aggrieved for the purpose of s 1321. 53There is a live issue on the present application as to whether Fortress requires leave to proceed, because Octaviar Administration is in liquidation, before it can make its application for preliminary discovery. The Full Court's observations concerning the third factor raised by the joint defendants will be material to the consideration by the court of that issue. As noted above, this issue will be considered at the end of these reasons for judgment. 54The Full Court then addressed the question of Fortress's prospects of success in the appeal, as one factor relevant to the granting of leave to appeal. Their Honours observed: "[39]. The main substantive question in the appeal is whether the funding agreement is necessary for winding up the affairs of the funder and distributing its property, within the meaning of s 477(2)(m) of the Corporations Act. The word necessary in s 477(2)(m) is not synonymous with essential or indispensable. That is to say, the power conferred by s 477(2)(m) is not confined to matters without which the winding up of the affairs and distribution of the property of a company cannot proceed. Rather, the test is what may be thought expedient with reference to the assets of the company. Thus, s 477(2)(m) enables a liquidator to do anything expedient with reference to, or conducive to, the beneficial pursuit of completion of the winding up of the affairs of the company and the distribution of its property." 55I have set out this statement of principle by the Full Court in full because, with respect, I accept it as a correct statement of the principle which will be relevant to the present application being made by Fortress, at least in so far as that application is based upon the possibility of an appeal from a decision of a court under s 477(2B), or an appeal under s 1321 against an act of the defendants. The Full Court noted in [41] that it does not necessarily follow from a conclusion that a proposed contract is in the best interests of creditors, or a group of creditors, that the contract is necessary for the winding up of the company. Their Honours observed in [42] that, while Stone J did not determine positively that the funding agreements were authorised by s 477(2)(m), that finding was implicit. 56The Full Court then made the following observations, which are germane to the outcome of the present application by Fortress: "[44]. Section 477(2)(m) would not support the provision of litigation funding by a liquidator to an entirely unrelated litigant, simply on the prospect of obtaining the return that might be generated by the arrangements. Such arrangements would not, without something more, be necessary for the winding up of the affairs of the company and distributing its property. There would need to be something over and above the possibility of a commercial return from arrangements such as are proposed. For example, where the funding company is a creditor of the accommodated company, the possibility of augmenting the distribution from the accommodated company to the funder might well make it expedient for the liquidator of the funding company to enter into a funding arrangement. Further, if the funding company were also a prospective claimant, such that claims by the funding company and the accommodated company would be heard together, it might be expedient, for the purposes of winding up the affairs of the funding company and distributing its property, for funding to be made available to the other company: see Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) (2010) 266 ALR 642; 78 ACSR 405; [2010] NSW SC 404 at Appendix 1, [18] - [21]". 57I will return to this crucial paragraph shortly. It will be convenient to consider first the conclusions reached by the Full Court, and the subsequent history of the litigation. 58The Full Court noted in [45] that the evidence before Stone J established that Octaviar and Octaviar Administration had common creditors in relation to about 71% of the proofs lodged with Octaviar Administration, and 80% of the total proofs lodged with Octaviar. Their Honours observed: "However, the primary judge did not explain how commonality of proofs of debt is relevant or significant. Thus, her Honour did not indicate whether the funder and the claimant are jointly and severally liable or, perhaps more probably, whether one is a surety in respect of the principal liability of the other". Further, at [46], the Full Court observed that there was no basis for concluding that assisting a realisation of an asset of Octaviar would in any way benefit any creditor of Octaviar Administration in that creditor's capacity as a creditor of that company, rather than as a creditor of Octaviar. Finally: "Her Honour made no finding as to how, apart from the commercial return by reason of success in the proposed litigation, the proposed arrangements are in the interests of the creditors of the funder as a whole, as distinct from being in the interests of a particular group of creditors of the funder". 59As Stone J did not make a finding that there was a benefit to the creditors of Octaviar Administration as a whole from entering into the funding agreement, beyond the possible commercial return from that agreement, the Full Court held that she "assumed, rather than determined, that the arrangements contemplated by the funding agreement were within s 477(2)(m)". 60The Full Court granted Fortress leave to appeal, set aside the orders made by Stone J in each proceeding, and remitted the proceedings for further consideration of the question as to whether the entry into and performance of the obligations under the two funding agreements were necessary for the winding up of Octaviar Administration, within the meaning of s 477(2)(m) of the Corporations Act.

Subsequent history of the Federal Court proceedings 61On 10 February 2012 the High Court of Australia refused an application for special leave to appeal from the decision of the Full Court. 62The Federal Court of Australia made consent orders on 9 March 2012, granting leave to the applicants in those proceedings to discontinue the proceedings. 63On 4 April 2012 Emmett J ordered the present defendants to pay Fortress's costs of the further proceedings before Stone J. They had already been ordered to pay the costs of Fortress's appeal.

Decision of Barrett J in Re McGrath 64I will now return to a consideration of material aspects of the decision of Barrett J in Re McGrath, before I deal with the subsequent actions of the defendants in entering into what is apparently a new funding agreement between Octaviar and Octaviar Administration, notwithstanding the outcome of the Federal Court proceedings that have been considered above. 65It may be recalled that, at [44] of their judgment the Full Court observed, in relation to the circumstances that may bring a funding agreement proposed to be executed by a company in liquidation as the funder within s 477 (2)(m), that "for example" it "might well make it expedient" if the funder is a creditor of the accommodated company. That possibility arises because the dividend that might be received by the funder in the winding up of the accommodated company may be increased if the action that is funded is successful. The language used by the Full Court is tentative, in that the use of the expression "might well" shows the court was not expressing a concluded view on the issue. The issue of expedience would depend upon all of the circumstances of the particular case. The Full Court also observed: "Further, if the funding company were also a prospective claimant" then the circumstances may make it expedient for the funder to enter into the funding agreement. The use of the word "further" raises a question as to whether their Honours meant to propose two separate possible bases for expedience, or whether the second was merely an additional feature of the first. Whatever possibility was intended, the Full Court only suggested that it "might be expedient" where the claims of the funder and the accommodated company would be heard together. The court did not say positively that the fact of the two claims being heard together would necessarily make the funding agreement expedient in the winding up of the funder. 66Barrett J in Re McGrath was concerned with an application made by the liquidators of a considerable number of companies in the HIH Insurance group, all of which were in liquidation, for the approval of funding agreements made by companies, which had available cash, in favour of other companies in the group which had insufficient resources to pursue proposed recovery actions. The orders sought included that the court approve the entry into the funding agreements by the funding companies pursuant to s 477(2B) of the Corporations Act. In his Honour's first judgment on the application given on 4 August 2005, which he published as Appendix 1 to his judgment given on 6 May 2010, he declined to grant approval because the evidence before him only tended to establish that the proposed funding agreements were in the interests of the funders and the accommodated companies within the group viewed as a whole. Barrett J observed at [38] of Appendix 1: "Someone qualified to do so needs to come to a fully informed and independent conclusion as to whether and, if so, how the separate interest of the funding companies...will be promoted by having them commit their funds in the ways envisaged..." In short, his Honour required that the expedience of each funding agreement for the purposes of the winding up of each funder be demonstrated separately. The liquidators made a further application, on the basis of additional evidence, which led Barrett J to publish reasons for judgment on 26 October 2005 (which became Appendix 2). The additional evidence satisfied Barrett J that he could make the orders sought, and he did so. 67The aspects of Barrett J's judgment of 4 August 2005, which the Full Court referred to at [44], are set out in part below: "[18]. There is next the question of the powers of the funding companies... The head of power said to be applicable for that purpose here is that conferred by s 477(2)(m)... [19]. It can be said at once that this head of power would not support the provision of litigation funding by a liquidator to some entirely unrelated litigant, purely for the sake of the returns (or prospects of returns) that might be generated by the transaction itself. Such a transaction would be in no sense "necessary for winding up the affairs of the company and distributing its property". The present case is, however, distinguishable from that hypothetical case. Each funding company is, as I have said, a creditor of the claimant company to which it is proposed that it give financial assistance. [20]. Case law shows that the word "necessary" in s 477(2)(m) is not synonymous with "essential" or "indispensable"... The test is, rather, one of what "may be thought expedient with reference to the assets of the company"... [21]. I accept that s 477(2)(m) enables a liquidator to do anything expedient with reference to, or conducive to, the beneficial pursuit towards completion of the winding up of affairs and distribution of property. The question is whether commitment of funds by a particular funding company to the pursuit of a claim by a particular assisted claimant company of which it is a creditor is expedient with reference to, or conducive to, those matters in relation to that funding company." 68These parts of the judgment show that Barrett J was dealing with a case where the funder was a creditor of the claimant. That may not be so in the case of the present application. The judgment suggests that the fact of the funder being a creditor of the claimant is not necessarily sufficient, by itself, to demonstrate that the entry by the funder into the funding agreement will be expedient in the winding up of the funder. That issue depends upon a proper consideration of all of the relevant circumstances.

New funding agreement between Octaviar Administration and Octaviar 69If Fortress thought, following the High Court's refusal of the special leave application, and the discontinuance of the Federal Court proceedings, that it had won the battle concerning the ability of Octaviar Administration to fund Octaviar's prosecution of the Queensland Proceeding against it, it was soon to be disappointed. 70It has come to the attention of Fortress that Octaviar Administration has continued to fund the conduct of the Queensland Proceeding by Octaviar, and that the two companies have entered into a new funding agreement. 71Accounts for Octaviar Administration lodged by the defendants with ASIC for the second half of 2012 show that Octaviar Administration paid some $950,000 (ignoring GST) to RSM Bird Cameron Partners for Supreme Court Queensland Proceedings 3442/10. Similar accounts for most of the first quarter of 2013 show the payment of some $400,000 for purposes whose descriptions include "OL Special Fortress Funding". RSM Bird Cameron Partners is the accounting firm to which Mr Kerr, the special purpose liquidator, belongs. The proceeding number given is the number of the Queensland Proceeding. Accounts lodged for Octaviar with ASIC for most of the second half of 2012 show total "receipt from litigation funder" of about $900,000, which is relatively close to the amount of $950,000 for the same period shown in the Octaviar Administration accounts. 72As the period over which funding payments made by Octaviar Administration to Octaviar exceeded three months, approval for any funding agreement would be required under s 477(2B) of the Corporations Act. Under the terms of that provision the requisite approval might be given by the court, or the committee of inspection or by a resolution of the creditors. As the receivers and managers appointed by Fortress under its charge over the assets of Octaviar should have received notice of any meeting of creditors to consider passing a resolution giving approval under s 477(2B), Fortress has deduced that approval was not given by the creditors, as no notice of a meeting to give such approval was received by the receivers and managers. That left open the possibility that approval was given by a court or by the committee of inspection. 73On 27 March 2013 Baker & McKenzie, the solicitors for Fortress, wrote a letter to the solicitors for the defendants, Henry Davis York. The letter noted that Fortress had recently become aware of the funding arrangement, set out the details of the funding which appear from the ASIC records, and referred to relevant aspects of the judgment of the Full Court of the Federal Court of Australia, which have been considered above. The letter then said: "Our client is concerned that OA's entry into the funding agreement was not necessary for winding up the affairs of OA and distributing its property, within the meaning of section 477(2)(m) of the Corporations Act. This is particularly so in light of your clients' previous attempts to obtain the approval of the Court for a previous funding agreement, the decision of the Full Federal Court in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher & Ors...and your clients' decision to discontinue the Federal Court Proceedings the subject of that decision. So that our client can consider whether or not it is entitled to make a claim for relief from a Court against your clients in respect of OA's entry into the funding agreement, please provide us with the following information and documents within 14 days. 1. Please advise whether the funding agreement was approved by the Court, by the committee of inspection or by resolution of the creditors of OA. 2. In the event that the funding agreement was approved by the Court, please provide us with the following information: (a) the Court which made the order pursuant to section 477(2B) of the Corporations Act; (b) the proceedings number in the Court which made the order pursuant to section 477(2B) of the Corporations Act; (c) the judicial officer who made the order pursuant to section 477(2B) of the Corporations Act; and (d) the date of the order pursuant to section 477(2B) of the Corporations Act; and (e) the reasons for judgment of the Court which made the order pursuant to section 477(2B) of the Corporations Act. 3. In the event that the funding agreement was approved by the committee of inspection, please provide us with a copy of the approval documents. 4. In the event that there is a resolution of the creditors of OA approving the funding agreement, please provide us with a copy of the resolution". 74Henry Davis York replied by letter dated 24 April 2013. They stated that the funding arrangements "are confidential and privileged". They asserted that approval had been obtained under s 477(2B). They said that "In obtaining that approval, regard was had to all of the matters raised in your letter". The solicitors added that in relation to the proposition that Fortress may make a claim for relief "it is not clear to us the basis upon which your client considers itself to have standing to bring such a claim". 75Baker & McKenzie responded to this letter on 13 May 2013. They warned that an unsatisfactory response to their letter would lead to Fortress instituting proceedings. They explained more elaborately the reasons for Fortress's request for information. They listed the claims for relief which Fortress may possibly have, being an appeal under s 1321 of the Corporations Act, proceedings under s 598(2) if ASIC granted Fortress eligible applicant status, proceedings for an inquiry under s 536, and an application for leave to appeal, if approval was given by a court under s 477(2B). These are the same claims upon which Fortress relies on its application for preliminary discovery. The solicitors stated that Fortress assumed that the general body of creditors had not given approval, as no notice of meeting had been received. The solicitors advised of enquiries that had been undertaken by Fortress, including enquiries made with the Supreme Court of New South Wales, the Supreme Court of Queensland and the Federal Court of Australia, searches of the ASIC register, and the request for information that had been made by means of the letter dated 27 March 2013. 76By a further short letter dated 17 May 2013 Henry Davis York responded: "It appears to us that the only purpose of your letter is to distract the Liquidators from the proper performance of their duties, including the advancing of the litigation in the Supreme Court of Queensland in respect of which our respective clients are currently involved. In the circumstances, we see no useful purpose in acceding to the requests in your letter." 77Fortress then commenced these proceedings, by summons filed on 6 June 2013.

Octaviar Administration Proceedings against Fortress 78Before I consider the entitlement of Fortress to the relief that it claims in its amended summons, I should refer to proceedings that Octaviar Administration has instituted against Fortress in the Supreme Court of Queensland, which I have called the OA Proceeding. 79Fortress did not refer to these proceedings in the evidence that it relied upon in support of its amended summons. 80On 3 April 2012 the defendants, as liquidators of Octaviar Administration, commenced proceedings No BS3135/12 in the Supreme Court of Queensland as first plaintiffs. The second plaintiff was Octaviar Administration. Fortress was named as first defendant. Eight other defendants were joined. 81The present version of the statement of claim in the OA Proceeding is a second further amended second statement of claim, apparently filed on 7 May 2013. The plaintiffs in those proceedings make a number of complex claims, including claims against the third and fourth defendants for breaches of directors' duties, and claims against various corporate defendants, who may have received from Fortress monies that the plaintiffs in the OA Proceeding seek to recover from Fortress. The plaintiffs seek tracing remedies against the recipient defendants. It is not necessary to analyse this pleading in detail for the purposes of the present application. The only aspects of the pleading that will be considered are those that overlap with the issues raised by the Queensland Proceeding. 82The main claim made in the proceedings is that the $189,897,919 that Fortress received on 29 February 2008 ought to have been paid to Octaviar Administration. This is the same sum that Octaviar alleges in the Queensland Proceeding was the amount out of which the $15 million participation fee was paid to Fortress. 83Additionally, Octaviar Administration claims that it is entitled to repayment of the amounts of $19,746,713.63 and $304,331.05 that are also claimed by Octaviar in the Queensland Proceeding: see pars 64 to 70. In respect of each sum Octaviar Administration alleges that the then administrators of Octaviar Administration transferred the amounts from the company's funds to the receivers and managers of Octaviar, who then paid the amounts to Fortress. 84This aspect of Octaviar Administration's pleading does not appear to suggest the legal basis upon which it is claimed that Fortress may be obliged to repay both amounts directly to Octaviar Administration. The pleading appears to elide the issue of whether in reality Octaviar Administration may only be entitled to recover the two amounts from Octaviar, if that company in turn recovers them from Fortress. 85For completeness it should be noted that Octaviar Administration also claims an entitlement to recover the amounts paid into the Escrow Account from Fortress on the basis that Fortress received those monies in circumstances which caused it to be involved in breaches of ss 181(1) and 182(2) of the Corporations Act, and on the basis that they were paid under a mistake.

Orders made by the Supreme Court of Queensland 86On 31 July 2009 McMurdo J gave judgment in Public Trustee (Qld) v Octaviar Ltd (subject to a deed of company arrangement) (receivers and managers appointed) (2009) 73 ACSR 139. Fortress was a party to the proceedings. Relevantly, the issues were whether deeds of company arrangement for both Octaviar and Octaviar Administration, which had been promoted by Fortress, ought to be set aside under s 445D of the Corporations Act, and whether Fortress should be given an extension of time under s 266(4) to validate its charge in relation to the Young Village Estates loan. His Honour held at [138] that there was a serious case for avoiding the charge, if it was otherwise valid, on the basis of its being an insolvent transaction for the purposes of s 588FE(2) of the Corporations Act. 87On 8 March 2011 McMurdo J made what is commonly now called a freezing order against Fortress in the Queensland Proceeding. The order applied to the funds in the Escrow Account and to Fortress's other assets up to a limit of $40 million. McMurdo J's reasons for judgment are found in Fletcher & Ors (as liquidators of Octaviar Ltd (receivers and managers appointed) v Fortress Credit Corporation (Australia) II Pty Ltd (2011) 82 ACSR 352. McMurdo J said at [18] that on the facts before the court there was a relatively strong case that the series of events that allowed Fortress to recover the $15 million participation fee may be a voidable transaction. It appears from order 7 that Octaviar Administration provided an indemnity to Octaviar to support the undertaking as to damages that Octaviar was required to give. 88Boddice J made a freezing order against a number of the defendants, including Fortress, in the OA Proceeding on 9 November 2012. This order also applied to the funds in the Escrow Account. The limit of the order in relation to Fortress's assets generally was $80 million. Freezing orders were made against certain other defendants, up to $188,501,779 in the case of the ninth defendant. 89On 22 April 2013 Boddice J ordered that the Queensland and the OA Proceedings be case managed in the Supervised Case List together. 90Fryberg J ordered on 8 August 2013 that the two proceedings be heard together.

Consideration 91Rule 5.3(1) of the UCPR relevantly provides: "If it appears to the court that: (a) the applicant may be entitled to make a claim for relief from the court against a person (the prospective defendant) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and (b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and (c) inspection of such a document would assist the applicant to make the decision concerned. The court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief." 92The parties agreed that the court should be aided in applying this rule by the "key principles" set out by McColl JA in Hatfield v TCN Channel Nine Pty Ltd (2010) 77 NSWLR 506 at [47] - [52] where her Honour said (omitting references to authorities and citations): "[47]. First, "[i]n order for it to 'appear' to the Court that the applicant 'may be entitled' to make a claim for relief, it is not necessary for the applicant to show a prima facie or pleadable case"... [48]. Secondly, while "the mere assertion of the case is insufficient... [i]t will be sufficient if there is reasonable cause to believe that the applicant may have a right of action against the respondent resting on some recognised legal ground"... [49]. Thirdly, "belief requires more than mere assertion and more than suspicion or conjecture. [It] is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question. If there is no reasonable cause to believe that one of the necessary elements of a potential cause of action exists, that would dispose of the application insofar as it is based on that cause of action"... The use of the word "may" indicates the court does not have to reach "a firm view that there is a right to relief"... [50]. Fourthly, the requirement that the matters set out in r 5.3 of the Uniform Civil Procedure Rules "appear[s]" to the court to establish an entitlement to an order under the rule may be wider than the requirement in the Federal Court Rules, O 15A r 6 that there "is reasonable cause to believe"... Nevertheless Hely J's statement in St George Bank... remains apposite, namely that "whilst uncertainty as to only one element of a cause of action might be compatible with the 'reasonable cause to believe' required by subpara (a), uncertainty as to a number of such elements may be sufficient to undermine the reasonableness of the cause to believe". [51]. Fifthly, "the question posed by [r 5.3(1)(a)]... is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent [but]... whether the applicant has sufficient information to make a decision whether to commence proceedings in the court. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences"... Thus application of the rule will not be precluded by the fact that the applicant already has available evidence establishing a prima facie case for the granting of relief, as there might be matters of defence which could defeat a prima facie case... [52]. Sixthly, as Hely J said in St George Bank... "the rule is to be beneficially construed, given the fullest scope that its language will reasonably allow, with the proper break on any excesses lying in the discretion of the court, exercised in the particular circumstances of each case"." 93As I understand the parties' submissions, the defendants do not suggest that Fortress has not made the "reasonable enquiries" required by subpar (a) of the rule. I would find, in any event, that the correspondence sent by Baker & McKenzie to Henry Davis York referred to above, together with the enquiries listed in the 13 May 2013 letter, were reasonably adequate in the circumstances. 94I also understand that the defendants accept that they may have documents that would fall within subpar (c). 95The point at issue in this respect is that the defendants contend that the documents would not relevantly assist Fortress to make the decision to make a claim against them, because Fortress has already decided to do so. The defendants submit that preliminary discovery cannot be used to build up a case which an applicant has already decided to bring, or could decide to bring: St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at [27]; Murray & Anor v Wheeler & Ors [2013] NSWSC 137; Morton v Nylex Ltd [2007] NSWSC 562 at [33]. 96The defendants make the related submission that Fortress has failed to demonstrate that it is unable to obtain sufficient information to decide whether or not to commence proceedings against the defendants. They also submit that, as Fortress did not call any of its employees or officers to explain why further information is required, the defendants have been deprived of the opportunity to test whether Fortress does not have sufficient information to decide whether or not to commence proceedings, or whether Fortress has already made a decision about whether or not to commence proceedings. 97It is correct that Fortress did not call evidence from an employee or other officer who has personal knowledge of the information available to Fortress, or its present intentions in relation to the commencement of proceedings against the defendants. Fortress relied upon the affidavit by its solicitor, Mr Walter, sworn 6 June 2013. Generally speaking, on the objection of the defendants, I rejected those parts of Mr Walter's affidavit in which he purported to give evidence as to Fortress's knowledge or intentions. 98Fortress's position is that its failure to call an employee or other officer is inconclusive; that it was not obliged to do so; and that the court is required to determine whether UCPR r 5.3 is satisfied, on the basis of all of the objective evidence before the court. I agree with this submission. The fact that Fortress did not call a witness with relevant executive authority and knowledge is material but not conclusive. The absence of evidence from such a witness may be a factor that counts against Fortress in the court's consideration of whether it has satisfied the requirements for preliminary discovery, but it is not determinative of the issue. 99It is necessary to consider the evidence that is material to a determination of the state of Fortress's knowledge and intentions. 100First, Fortress has already challenged the entitlement of the defendants to cause Octaviar Administration to enter into a funding agreement with Octaviar in relation to the Queensland Proceeding. That is what occurred in the Federal Court proceeding considered above. Ultimately, Fortress succeeded. Subsequent actions of the defendants have denied Fortress the fruits of its victory. 101Furthermore, Fortress continues to have the incentive to challenge the funding agreement that was stated by the Full Court at [34]. That is, under the funding agreement Octaviar Administration will pay Octaviar's costs of prosecuting the Queensland Proceeding. That will improve Octaviar's prospects of succeeding against Fortress. If the action fails, then the assets of Octaviar Administration that would otherwise have been available to pay a dividend to the receivers and managers of Octaviar under Fortress's charge will be reduced. This gives Fortress a natural commercial incentive to challenge the entitlement of the defendants to enter into the funding agreement. 102However, the defendants absolutely refused to provide the information that was requested by Fortress after it learnt of the apparent existence of the funding agreement. In particular, the defendants declined to advise Fortress whether the approval required by s 477(2B) was granted by a court, or given by the committee of inspection. The defendants provided no information as to the identity of the court that gave approval, if that happened, or the name and file number of the proceedings, or the date of the judgment. Nor did they provide any information concerning the court's reasons for judgment. If approval was given by the committee of inspection, that fact was not given to Fortress, nor was anything said about the terms of any resolution, the date it was made, or the reasons upon which the committee of inspection acted. 103In these circumstances Fortress could not responsibly commence proceedings to appeal against or otherwise challenge any court approval, or any conduct of the defendants based upon the approval of the committee of inspection. The commencement of proceedings would not be practicable without Fortress at least having the essential information necessary to identify the actions against which it sought to appeal or challenge. 104In my view the defendants cannot validly argue that Fortress has a present intention and sufficient information to decide to commence proceedings against them, when the defendants have refused to provide Fortress with the basic and essential information necessary physically to take the steps necessary to commence proceedings in court. That is true even though there is reason to suspect that Fortress may have a passionate desire to rid itself of the consequences of the new funding agreement. 105The history of events leading up to the commencement of Fortress's application for preliminary discovery shows that there have been court findings that there is a serious case to be tried that the Fortress Charge Extension should be set aside (McMurdo J), and a relatively strong case that the receipt by Fortress of the $15 million participation fee should be set aside (McMurdo J). There has been a court finding that the court should not interfere with the defendants' original intention to enter into a funding agreement on commercial grounds (Stone J). There has been a court finding that, on the evidence before the Federal Court, it had not been established that the funding agreement was necessary for the purposes of the winding up of Octaviar Administration (Full Court). Fortress will be aware of the claims that Octaviar Administration has made in its own Queensland Supreme Court proceedings. The claims that the two companies make in relation to the sums of $19,746,713.63 and $304,331.05 overlap. Much of the evidence relevant to both proceedings will be common. The proceedings will be heard together. 106However, when Fortress filed the application now before the court, it did not have any clear information as to the basis of the defendants' belief that the circumstances relevant to the funding agreement that has now been entered into are distinguishable from those which were considered by the Full Court of the Federal Court, so that approval could now properly be given under s 477(2B) of the Corporations Act, on the basis that the defendants have power under s 477(2)(m) to enter into the new funding agreement. 107The defendants maintained their refusal to provide any information to Fortress on this subject until their written submissions on the present application were served the day before the commencement of the hearing of the application for preliminary discovery. 108The defendants submit (at par 5 of their written submissions) that the commencement of the OA Proceeding, and the order that those proceedings would be heard together with the Queensland Proceeding, which is closely related, "is an important fact which distinguishes the current circumstances from those which were considered [by the Full Court]". The defendants elaborate on the overlap between the two proceedings in par 22, and in pars 23 to 25 submit, in essence, that the relevant distinction is that, to use the words of the Full Court, "the funding company [Octaviar Administration] [is] also a prospective claimant, such that the claims by the funding company and the accommodated company [Octaviar] would be heard together"; and "it might be expedient, for the purposes of winding up the affairs of the funding company and distributing its property, for funding to be made available to the other company". The defendants specifically rely upon the observations made by the Full Court at [44] of their judgment. 109Although these submissions were made, the defendants did not submit positively and unequivocally that the court or committee of inspection, which gave approval to the defendants to enter into the funding agreement, acted upon this supposed distinction. Nor did the defendants suggest that there were no other relevant considerations relied upon to support a conclusion that s 477(2)(m) was satisfied. 110The defendants, as I understand it, submit that the Full Court positively decided in [44] of their reasons for judgment that, if the funding company is also a prospective claimant, and that claims by the funding company and the accommodated company will be heard together, that it would be expedient, for the purposes of winding up the affairs of the funding company and distributing its property, for funding to be made available to the other company. 111In my view the Full Court did not intend to lay down any absolute proposition to that effect. Indeed, the Full Court did no more than to make a number of obiter suggestions as to general circumstances that may be sufficient to make it expedient for the funder to enter into the funding agreement. Their Honours used expressions like "might well make it expedient" and "it might be expedient". It is not clear whether the possibility of proceedings by the funder and the accommodated company being heard together was a separate possible basis for expedience, or whether it was thought to be supportive of the situation where the funder was a creditor of the accommodated company. As noticed above, the funder was a creditor in Re McGrath. 112In these circumstances, in my view, the knowledge which Fortress has concerning the existence and relationship between the Queensland Proceeding and the OA Proceeding is not sufficient, of itself, to enable Fortress to make a proper and responsible decision as to whether it has sufficiently good prospects of success to challenge the funding agreement by appropriate court proceedings. That is particularly so in the light of McColl JA's fifth key principle in Hatfield, to the effect that an applicant is entitled to have sufficient information to make a decision whether to commence proceedings in court, which extends to information about defences which are available to the respondent and the possible strength of those defences. 113If the defendants had identified who granted the approval for them to enter into the funding agreement, and given the basic information about the approval process necessary to enable Fortress practically to commence proceedings, and also clearly committed themselves to the proposition that the approval was given on the basis put forward in their submissions, and on no other basis, that may have been sufficient to enable Fortress to make a decision. However, the defendants have not done so. 114I should not ignore the fact that Fortress has not instituted proceedings, and instead has made the present application for preliminary discovery. If Fortress did have the information which it needed to decide that it had reasonable prospects of challenging the new funding agreement, and knew what it should challenge and how it could go about doing so, it would probably have instituted the necessary proceedings rather than subject itself to the diversion of prosecuting the present application. In my view it did not have a choice, given the total absence of essential information given to it by the defendants. I do not have any basis for concluding that Fortress and its legal advisers are not pursuing a genuine application under UCPR r 5.3, and I do not do so. 115The defendants make a submission that "On the evidence, there is no sufficient commercial benefit to Fortress in obtaining the information it seeks or bringing a claim for relief in respect of [Octaviar Administration's] funding arrangements". I reject this submission on the ground that, in my view, the matters set out by the Full Court at [34] show that there may be a significant commercial benefit. 116It is now necessary to consider whether Fortress has established that it "may be entitled to make a claim for relief from the court" as required by subpar r 5.3(1)(a). 117Fortress submits that claims may be available to it under ss 1321, 598(2) and 536 of the Corporations Act, or by application for leave to appeal from any approval given by a court under s 477(2B). Fortress proffers these possibilities, without providing any elaborate submissions as to the detailed structure of any claim that may be available, and precisely how additional information might be relevant to complete Fortress's understanding of the strength of any claim that may be available to it.

Appeal from court approval 118It will be convenient to deal with the potential claims in a different order than that adopted by Fortress. I will begin with a consideration of the possibility that Fortress may succeed in an appeal from any court order granting approval. This possibility assumes that a court gave the approval. 119Fortress would require leave to appeal, as it was not a party to any application to a court for approval under s 477(2B) of the Corporations Act. The decision of the Full Court in the Federal Court proceedings to grant Fortress leave to appeal in comparable circumstances to the present, and then to allow the appeal, establishes that Fortress has a sufficient likelihood of success in being given leave that Fortress has demonstrated that they have satisfied Rule 5.3(1)(a) on this issue. 120Any application for leave to appeal will now be out of time. Taking the Federal Court and the Supreme Court of New South Wales as examples, Part 35 Division 35.2 Federal Court Rules 2011 and UCPR r 51.10 require that the application must be made within 14 and 28 days respectively of the date on which the court's judgment granting approval was delivered. I find that there is a substantial prospect that any appeal court before which Fortress may seek leave to appeal would grant an extension of time, given the evidence that Fortress learned of the existence of the funding agreement shortly before 27 March 2013, and it has been required to seek preliminary discovery from the defendants before it will be able to make an application for leave to appeal. 121In principle Fortress could seek to appeal on the narrow ground that approval should not have been given under s 477(2B) because the defendants, as liquidators, did not have power under s 477(2)(m) to cause Octaviar Administration to enter into the second funding agreement, because that was not necessary for the winding up of the affairs of the company as explained by the Full Court at [39] and by Barrett J in Re McGrath at [20]. Additionally, it could appeal on the wider ground that the defendants' decision to execute the funding agreement was not commercially sound, so that it did not warrant the court's approval. 122In relation to the narrow ground the starting point for Fortress's argument on appeal could be the reasoning of the Full Court in the Federal Court proceedings at [44], in the light of the judgment of Barrett J in Re McGrath, which has been considered briefly above. If Octaviar Administration is not a creditor of Octaviar, it is at least an arguable question as to whether the fact that Octaviar Administration has also commenced the OA Proceeding, and that it will be heard together with the Queensland Proceeding, is sufficient to satisfy s 477(2)(m). That issue would depend upon all of the facts and circumstances, which are not now known to Fortress, or to this court. 123A careful consideration of the orders made by Barrett J when he appointed the special purpose liquidator of Octaviar on 8 December 2011 (see par 22 above) suggests, but does not establish, that Octaviar Administration may in fact have some claim against Octaviar. 124Paragraph 7(c) refers to the possibility of claims arising in competition between Octaviar Administration and Octaviar in relation to any recovery from Fortress in the Queensland Proceeding, or as to the appropriate allocation of the proceeds of sale of the shares by Stella Holdings Pty Limited. Paragraph 8(a) refers to the possibility of Octaviar Administration and Octaviar having common interests in steps which the special purpose liquidator may propose to take on behalf of Octaviar, and provides a protocol for resolving conflicts. 125I have noted above, in relation to pars 64 to 70 of the second further amended statement of claim in the OA Proceeding that it is not made clear how Octaviar Administration may be entitled to recover the amounts of $19,746,713.63 and $304,331.05 directly from Fortress, but may only be able to recover those sums from Octaviar if that company can recover them from Fortress (see par 84 above). This suggestion remains speculative on the present state of the evidence. 126The present position is that, on the one hand, it is not clear as a matter of law that the mere fact that the Queensland Proceeding and the OA Proceeding are being prosecuted against Fortress together is sufficient to make Octaviar Administration's entry into the second funding agreement a matter necessary for its winding up. On the other hand the orders made by Barrett J at the time the special purpose liquidator of Octaviar was appointed hint at the possibility that additional facts may exist which did justify the defendants causing Octaviar administration to enter into the funding agreement. 127This uncertainty tends to justify the making of an appropriate order for preliminary discovery, rather than to militate against it, given the fifth principle enunciated by McColl JA in Hatfield, that the issue is whether Fortress has sufficient information to make a decision whether to commence proceedings in the court, which extends to discovery in order to determine what defences are available to the defendants and the possible strength of those defences. 128Subject to any countervailing discretionary considerations that are relevant, Fortress has established an entitlement to orders under UCPR r 5.3 in relation to what I have described as the narrow ground upon which Fortress may seek to appeal from any court order approving the defendants causing Octaviar Administration to enter into the second funding agreement. 129It is not clear to me whether or not Fortress contends that it has a claim to appeal on what I have described above as the wider ground, being that the decision by the defendants to enter into the second funding agreement was not commercially sound. Fortress's position was not made clear in its written outline of submissions (par 18(d)) or its closing submissions (par 3(c)(ii)). When asked by the court during submissions, counsel for Fortress initially appeared to say that Fortress had a claim on both bases (Tp 10.25). I understood that, when the subject was dealt with again, counsel confined Fortress's claim to the issue of power, although that does not appear clearly from the transcript (Tp 52.45). 130I am not satisfied that Fortress has demonstrated with sufficient strength that it has any claim to appeal from any court approval under s 477(2B) on the separate ground that there was not an adequate commercial basis for the joint defendants to enter into the funding agreement. It must be remembered that Stone J in the Federal Court proceedings at [13] held that the court should not interfere with the defendants' decision to enter into the first funding agreement on commercial grounds, and nothing said by the Full Court disturbed that finding. Fortress did not put a case, and did not lead evidence, to support the existence of such a claim. In view of the finding of Stone J on the issue, and the findings of McMurdo J that I have outlined above, there is nothing before the court that would incline the mind towards assenting to, rather than rejecting, the proposition that Fortress has a basis for challenging the defendants' actions on commercial grounds. 131Accordingly, Fortress is not entitled to preliminary discovery in relation to documents in the possession of the defendants that are not material to the narrow issue, but go only to the commercial justification for the defendants causing Octaviar Administration to enter into the second funding agreement.

Appeal under s 1321 132Section 1321 of the Corporations Act allows a person aggrieved by any act, omission or decision of a liquidator of a company to appeal to the court in respect of the act, omission or decision, and the court may confirm, reverse or modify the act or decision, or remedy the omission, and make such orders and give such directions as it thinks fit. 133If the defendants caused Octaviar Administration to enter into the new funding agreement on the basis of the approval of the committee of inspection, it would be open to Fortress, in principle, to seek to appeal from the defendants' decision to do so. 134The parties did not address any submissions to the issue of whether Fortress could also seek to appeal under s 1321 if the defendants had obtained the approval of a court under s 477(2B). As Fortress was not a party to any such application, if it was made, in principle an appeal by Fortress under s 1321 would be an available alternative to Fortress to the course of seeking leave to appeal from the court's decision. 135Any appeal by Fortress would now be out of time under Rule 14.1(2) of the Federal Court (Corporations) Rules 2000 (Cth) and the Supreme Court (Corporations) Rules 1999, both of which require that the appeal must be filed within 21 days after the date of the act, omission or decision appealed against. 136There is, for the reasons considered above in relation to an appeal by Fortress from the decision of any court, a sufficient prospect that Fortress would be given an extension of time to appeal under s 1321 for the court to decide that Fortress may be entitled to appeal for the purposes of UCPR r 5.3. 137I find that Fortress has demonstrated that it may be entitled to appeal under s 1321 in relation to the narrower issue for the same reasons that I have set out above in relation to an application to appeal from any court approval which may have been given. 138The defendants deny that Fortress could, in the circumstances, satisfy the precondition to an entitlement to appeal under s 1321 that Fortress is "a person aggrieved". 139The defendants submit that the issue has been decided against Fortress by the Full Court at [37], which is set out above at par 50 of these reasons for judgment. 140Fortress's response to this argument is to say that, properly understood, the Full Court did not make a ruling that Fortress was not a person aggrieved, but rather made an observation that, as the application before the court was an application for leave to appeal from orders of the court made under s 477(2B), rather than an appeal under s 1321, it would be irrelevant even if Fortress was not an aggrieved person for the purpose of that section. 141I accept Fortress's argument on this point. The Full Court's reasoning is not couched in terms of a positive finding that Fortress was not an aggrieved person for the purposes of s 1321. It appears to state as a general proposition that the mere fact that a person is not an aggrieved person for that purpose is not determinative of an applicant's standing on an application for leave to appeal from a decision of the court under some other section. The Full Court did not provide any explanation for the observation, which would have been expected had it intended to make a finding that bound Fortress. In any event, as the issue before the Full Court was not whether Fortress had standing to appeal under s 1321, the statement made by the court would not prevent Fortress arguing to the contrary in the present application. 142Accordingly, it is necessary to determine on principle whether Fortress has sufficient prospects of establishing that it is a person aggrieved in order to be permitted to appeal under s 1321. 143In Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 437-438 McLelland J (as his Honour then was) said: "I propose to consider whether Northbourne is, within the meaning of s 538, a "person aggrieved" by Mr Harkness' decision to contract with Dovapa. As Gibbs CJ pointed out in Koowarta v Bjelke-Peterson (1982) 153 CLR 168 at 184 - 185: "... The words 'person aggrieved' have appeared in many statutes, English and Australian, and their meaning has been discussed in many cases. In the end of course the meaning of the words must depend on the context of the particular statue. In the context of the review of decisions made in the administration of insolvency laws alleged to affect private interests, guidance is I think to be derived from the much quoted words of James LJ in Ex parte Sidebotham; Re Sidebotham (1880) 14 Ch D 458 where, in discussing s 71 of the Bankruptcy Act 1869 (UK), his Lordship said (at 465): ... But the words 'person aggrieved' did not really mean a man who is disappointed of a benefit which he might have received if some other order had been made. A 'person aggrieved' must be a man who has suffered a legal grievance, a man against whom the decision has been pronounced which has wrongfully deprived him of something, or wrongfully refused him something, or wrongfully affected his title to something." ... Nevertheless the concept encapsulated in the phrase "legal grievance" is I think sound in principle... ... In particular it has not been shown that any legal right or interest of Northbourne was affected by that decision, or that the decision constituted a breach of any legal duty owed by Mr Harkness to Northbourne..." 144As the present application seeks preliminary discovery, and is not an appeal under s 1321, it is not necessary to survey the many decisions that have followed and applied McLelland J's decision in Northbourne Developments. 145However, the Full Court of the Supreme Court of Western Australia in Westpac Banking Corporation v Totterdell (1998) 20 WAR 150; 29 ACSR 448 at 449, 456, 457 and 460, decided that a creditor is a person aggrieved for the purposes of s 1321, if the creditor claims that the liquidator's decision was wrongly made, and proves that the dividends payable by the company in liquidation will be reduced by the admission of the proof of debt. The court followed McLelland J in Northbourne Developments. In Re Galaxy Media Ltd (recs and mgrs appointed) (2001) 39 ACSR 483 Santow J (as His Honour then was) held at [17] that a creditor who has a security over the assets of a company is a person aggrieved for the purpose of challenging the admission of a proof of debt by the liquidator of the company, where the effect of the admission of the proof would be to decrease the assets available to satisfy the charge. His Honour also decided at [21] that receivers and managers appointed by a secured creditor under a charge over the assets of the same company are persons aggrieved. 146In the present case Fortress is not a creditor of Octaviar Administration. Octaviar is a creditor of Octaviar Administration. Octaviar has granted a charge to Fortress that covers the debt that Octaviar Administration owes to Octaviar. The applicant before the court is the chargee over Octaviar's assets, not the receivers and managers. The ground upon which creditors of a company in liquidation were held to be persons aggrieved by a liquidator's decision to admit a proof lodged by another creditor that was accepted in Totterdell was that the dividends which other creditors would consequently receive in the winding up of the company in relation to their debts would be diminished by the admission of the proof. If Octaviar fails in the Queensland Proceeding against Fortress, the amount invested by the defendants as liquidators of Octaviar Administration under the new funding agreement will be wasted. The amounts expended to date appear to be substantial, and considerable additional funds are likely to be required before the Queensland Proceeding is completed. If the claim fails, then the amount of the dividend that the defendants will be able to declare in favour of the unsecured creditors in the winding up of Octaviar Administration will accordingly be diminished. 147In my view a chargee over debts owed by the company in liquidation in the position of Fortress is in an equivalent position to the chargeor creditor, being Octaviar, as being a person aggrieved by any action by the liquidators that may diminish the funds of the company available to be paid as dividends to unsecured creditors. 148Accordingly, in my view Fortress is likely to be found to be a person aggrieved for the purpose of making an appeal under s 1321 against the decision of the defendants to cause Octaviar Administration to enter into the second funding agreement. 149It is therefore not necessary to consider whether Fortress can properly claim to be a person aggrieved by reason of the fact that the defendants have agreed in the new funding agreement to apply Octaviar Administration's assets to fund the Queensland Proceeding against Fortress, on the assumption that those proceedings may succeed.

Application under section 536 150Section 536(1)(b) Corporations Act empowers the court, where a complaint is made to the court by any person, with respect to the conduct of a liquidator in connection with the performance of his or her duties, to inquire into the matter, and where it so enquires, the court may take such action as it thinks fit. Subsection (1)(a) of the section empowers the court to enter upon an inquiry when it appears to the court "that a liquidator has not faithfully performed or is not faithfully performing his or her duties", or, relevantly, has not observed a requirement of the Corporations Act. 151The Court of Appeal held in Hall v Poolman (2009) 75 NSWLR 99 at [89]- [90] that the preconditions to the exercise of jurisdiction under subsection (1) (a), being the existence of an appearance that the liquidator has not faithfully performed duties or observed requirements, are not to be imported into subsection (1)(b). This subsection contains "wide words which would cover complaints about incompetence or lack of diligence as well as complaints about failure to perform duties faithfully". The majority, being Hodgson JA and Austin J, held at [94] that the statutory language of the subsection "conveys the idea that there must be some form of communication to the court...critical of a liquidator's conduct in connection with performance of his or her duties". Further, at [97]: "All that is needed, on this construction, is that there be criticism expressed to the court, in any context, with respect to the conduct of a liquidator connected to performance of the liquidator's duties". 152The Court of Appeal considered the supervisory nature of the Court's jurisdiction under s 536 at [53], [54], and agreed at [68]: "The characterisation of the basis for intervention as "disciplinary reasons" is, as McLelland J said [in Northbourne Developments], "broadly" apt. Particularly with respect to the unfettered power in s 536(3), it is not appropriate to limit the power to a concept of impropriety. It extends at least to the full range of "duties" referred to in s 536(1)(a). Questions of skill and diligence, as well as questions of improper conduct or improper purpose, can give rise to "disciplinary reasons" in the sense that McLelland J was applying to the concept (see, for example, the duties in ss 180, 181, 182 and 183 of the Corporations Act (Cth)." 153Furthermore, the Court of Appeal held at [69]: "One of the considerations relevant to the exercise of the discretion under each of the powers in s 536 is whether or not there is another appropriate remedy: see Leslie v Hennessy (at [6]". Accordingly, where an issue is raised as to whether a decision made by a liquidator should be reversed or modified, the appropriate procedure is under s 1321: see Belvista Pty Ltd v Murphy (at 630), per McLelland CJ in Eq; Re Glowbind (at 465 [21]), per Burchett AJ. Section 536 should not be used to assist a person engaged in litigation with a liquidator akin to discovery, at any rate where the litigation does not involve the kind of supervisory issues characterised by McLelland CJ as "disciplinary reasons": see Re Bauhaus Pyrmont Pty Ltd (In Liq) [2006] NSWSC 742 per Barrett J." 154In Re Bauhaus Barrett J said at [4]: "I would say several things about the purported resort to s 536 in this instance. That section is not an appropriate basis for action by a person engaged in litigation with a liquidator to achieve some particular objective in that litigation. The threshold question, when s 536 is invoked, is whether it has been shown that an inquiry by the court into conduct of the liquidator is warranted. Only if it appears to the court that some inquiry is necessary does it embark upon an inquiry. The relevant necessity will be seen to exist if the court sees, on the material presented, that "it would be in the public interest to conduct an inquiry": Burns Philp Investments Pty Ltd v Dickens (1993) 10 ACSR 626. It is true that, under s 536(3), the court may require the liquidator to give to it an account of matters related to the winding up. But that power is an aspect of the broader s 536 supervisory jurisdiction. It is not a power intended to be used to assist a particular person engaged in litigation with the liquidator to achieve any particular position in that litigation. Section 536 does not create a means to be employed by a litigant to advance the litigant's own interests in particular litigation. It has regard, rather, to the broader question of due administration of the winding up in the public interest." 155Fortress's claim that it is entitled to preliminary discovery to assist it to decide whether it is entitled to make a claim for relief from the court under s 536 against the defendants must therefore be determined having regard to the fact that s 536 is intended to permit the court to initiate an inquiry into the conduct of liquidators, for disciplinary purposes in the sense discussed above, where there is a sufficient basis for the court to think that the liquidators may have engaged in relevant misconduct. The court in its discretion will not act under s 536 where in reality the applicant wants the court to reverse or modify an act of the liquidator, where an appeal under s 1321 will be the appropriate course. The court will not permit an applicant to enlist its aid under s 536, where a party is engaged in litigation with the liquidator, and wishes to invoke s 536 to achieve some particular objective in the litigation. 156These considerations lead me to conclude that Fortress has not established an entitlement to preliminary discovery by the defendants in so far as the potential claim for relief relied upon is the making of a complaint to the court under s 536(1)(b) for the purpose of persuading the court to conduct an inquiry into the conduct of the defendants. The only basis for the making of a claim for relief on the part of Fortress that is established on the evidence is that the defendants may have acted without power under s 477(2)(m) of the Corporations Act. Nothing suggests that the defendants may have engaged in any form of relevant misconduct. There is no basis for suspicion to that effect, and the evidence does not even rise to the level of there being an assertion or suspicion or conjecture that the defendants have acted improperly in a manner that would justify inquiry under s 536. 157Furthermore, the court would not exercise its discretion to embark upon an enquiry under s 536, where the proper course for Fortress is to appeal under s 1321. 158In these circumstances it is not necessary for me to explore the question, which may be difficult, as to whether, and if so how, UCPR r 5.3 may be used in aid of the proposed complaint under s 536. As the section permits the court after inquiry "to take such action as it thinks fit" the court would have power to make an order that would provide "relief" within rule 5.3. It may not be clear, however, that the making of a complaint to the court under s 536 is the making of "a claim for relief from the court". There may be inhibitions against the court granting preliminary discovery in aid of a proposal to make a complaint that may lead to the institution of disciplinary proceedings.

Application under section 598(2) 159Under s 598(2) the court may, on application by an eligible applicant, make such order as it thinks appropriate if the court is satisfied that: "(a) a person is guilty of fraud, negligence, default, breach of trust or breach of duty in relation to a corporation; and (b) the corporation has suffered, or is likely to suffer, loss or damage as a result..." 160The evidence does not establish even a suspicion that the defendants have engaged in any of the conduct described in par (a) of s 598(2). 161It is not necessary to rely in addition on the circumstance that there is no evidence that Fortress is, or will ever become, an "eligible applicant", which would, under the definition of that term in s 9, require that ASIC authorise Fortress in writing to make an application under the section.

Leave to Proceed against Defendants 162In these proceedings Fortress seeks preliminary discovery against the defendants, in order to determine whether it may be entitled to make a claim for relief in relation to the defendants' causing Octaviar Administration to enter into the new funding agreement. The issue at the heart of any such claim would be whether the defendants had power under s 477(2)(m) of the Corporations Act to cause Octaviar Administration to enter into the agreement. The defendants, Octaviar Administration, and probably, Octaviar, would be proper parties to the proceedings to enforce that claim. However, the defendants alone are parties to the present application. Fortress seeks preliminary discovery of documents in the possession of the defendants, which bear upon the defendants' obtaining approval under s 477(2B) to enter into the agreement. 163Fortress's position is that it does not need any leave from the Court to commence these proceedings. However, it seeks leave "to the extent necessary" to commence the proceedings "against the...defendants in their capacity as court-appointed liquidators of Octaviar Administration" under s 471B, or the inherent jurisdiction of the court. 164It is possible that Fortress has referred to s 471B because the defendants in the Federal Court proceedings claimed that Fortress had not obtained leave under that section. The Full Court rejected that argument at [38] (see par 50 above). The present application is against the defendants as liquidators, and not against Octaviar Administration. Section 471B is essentially designed to regulate the making of claims against companies which are in liquidation, to ensure that claimants do not secure payment of their claims, by resort to the court, which leads to an advantageous outcome relative to the scheme for the distribution of assets of the company during the course of a winding up in accordance with the Corporations Act. 165The defendants submit that Fortress requires leave to proceed against the defendants, but upon a different basis, being the principle in Re Siromath Pty Ltd (1991) 9 ACLC 1580, where McLelland J (as his Honour then was) said at 1582: "It is well established that at least unless the Court's leave has been obtained, the Court "will not allow its officer to be subject to an action in another court with reference to his conduct in the discharge of the duties of his office, whether right or wrong. The proper remedy for anyone aggrieved by his conduct is to apply to the Court in the action in which he was appointed". (See Re Maidstone Palace of Varieties (1909) 2 Ch 283 at 286 applying Aston v Heron (1834) 2 My & K 390; 39 ER 993; cf Re Hutton (1969) 2 Ch 201). An application to the Court to enforce this principle is properly made, as it has been in the present case, by notice of motion in the proceedings in which the relevant officer was appointed, in this case the winding up proceedings..." 166The defendants also rely upon the authority of Re St Gregory's Armenian School (in liq) (2012) 92 ACSR 588 at [111], [112] per Brereton J. 167They submit that leave to proceed against the defendants should be refused, because Fortress's application is being brought in an attempt to deprive the liquidators of Octaviar of funding to pursue properly instituted proceedings against it, and the defendants should be saved from being distracted in the exercise of their duties by having to respond to Fortress's claim, and the assets of Octaviar Administration should be protected from unnecessary depletion, since any costs of the proceedings would be paid as an expense of the liquidation in priority to claims of unsecured creditors. 168The Supreme Court of Queensland made the order for the winding up of Octaviar Administration. Both parties agreed that the requirement in UCPR r 5.3 that "the applicant may be entitled to make a claim for relief from the court" could be satisfied in the present case because references to "the Court" in ss 1321(1), 536(1) and 598(2) of the Corporations Act include the Supreme Court of New South Wales, because of s 58AA: see Condon v Watson (2009) 69 ACSR 350. Neither party suggested that, where McLelland J in Siromath referred to "the Court", he meant to lay down a principle that leave to proceed against a liquidator could only be given by the court which made the winding up order, and by no other court referred to in s 58AA. The parties appear to have accepted that s 58AA has had the consequential effect that any court that falls within the definition of "the Court" can give leave to institute proceedings against a liquidator, even though the court did not make the winding up order. 169Once it is accepted that this court may properly exercise the power to protect a liquidator appointed by the Supreme Court of Queensland the question becomes whether Fortress's application under UCPR 5.3 is "an action in another court with reference to [the defendants'] conduct in the discharge of [their] office". 170A review of the authorities upon which the principle formulated by McLelland J was based, as well as the cases which have applied the principle following Siromath, suggests that its intent is to protect liquidators from suits commenced outside the winding up, in courts other than the winding up court, in which liquidators are sued personally for wrongs that that they are alleged to have committed in the course of their duties. It was claimed in Maidstone that the receiver was personally liable to the claimant because he had used the claimant's equipment for the purpose of conducting the business of which he was receiver. In Aston v Heron it was alleged that the receiver had committed trespass when he undertook a distress for rent. Proceedings were instituted against a trustee in bankruptcy in Re Hutton after he had seized an aircraft claimed by the plaintiff. In Re Siromath itself the plaintiffs had sued a provisional liquidator and a liquidator personally in a foreign court for misapplying money of the company in liquidation. In the St Gregory's Armenian School case the applicants sought leave to sue a liquidator in conversion. Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd (1996) 65 FCR 234 involved a proposed cross claim under which the defendants sought to establish that the liquidator of a company which had sued them was a concurrent tortfeasor, because he had breached a duty of care which he personally owed to the company. The proposed claim in Mamone and Another v Pantzer (2001) 36 ACSR 743 was that the liquidator was personally liable for repudiating a lease for which the company in liquidation was lessee, and for breach of duty of care. Armitage v Gainsborough Properties Pty Ltd [2011] VSC 419 involved a proposed claim against a liquidator personally for conversion and negligence for removing the plaintiff's chattel without its consent. 171This is not an exhaustive consideration of the authorities, but it is sufficient to show that the Re Siromath principle is intended to protect liquidators from being subjected to claims against them in their personal capacity in relation to the performance of their duties, so putting their personal assets at risk, by any application made outside the winding up of the company, unless leave be given by the winding up court. 172The principle is not in my opinion available to the defendants in the present case. The proceedings which Fortress contemplates, whereby it would appeal against the decision of any court which gave approval to the defendants to cause Octaviar Administration to enter into the new funding agreement, as well as any appeal from any act of the defendants under s 1321, will not involve an attempt to make the defendants personally liable for any conduct undertaken by them as liquidators of Octaviar Administration. 173Arguably, proceedings instituted by Fortress under ss 536 or 598(2) could involve some personal liability on the part of the defendants. I have decided that those sections do not provide a proper basis for Fortress's claim for preliminary discovery in this case. However, even if they were available, and even if they gave rise to some possible personal liability on the part of the defendants, they are proceedings in the court, and for this purpose the court stands in the same position as the Supreme Court of Queensland. The very purpose of the sections is to establish a statutory basis whereby the court can exercise proper control over the conduct of liquidators. 174In the case of the possible appeal, as well as the potential actions that Fortress may commence under the three sections of the Corporations Act, the claims fall outside the ambit of the Re Siromath principle. 175The only remaining question is whether an application under UCPR r 5.3, in order to obtain the discovery of documents that may show whether Fortress has a claim in relation to any of these possible proceedings, itself falls within the principle in Siromath. In my opinion it does not, as an application for an order that liquidators disclose documents in their possession arising out of the winding up does not in any relevant sense involve an action against the liquidators with reference to their conduct in office. The rule is essentially a procedural rule that is available to assist potential claimants to determine whether it is proper for them to commence proceedings, and does not involve the potential harm to liquidators for which the principle in Re Siromath was intended to provide them protection. 176If I am wrong, and the principle in Re Siromath is available to the defendants in this context, I would nevertheless grant the leave sought by Fortress. Subject to Fortress being put into a position where it has enough information to gauge whether it has adequate prospects of success, Fortress has a right to challenge the circumstances in which the defendants caused Octaviar Administration to enter into the new funding agreement. That argument is reinforced by the circumstance that Fortress effectively succeeded in the earlier Federal Court litigation, and in principle it is entitled to pursue the issue of whether the circumstances in which the second funding agreement was entered into distinguish that case from the one dealt with by the Full Court. In my view the apparent fact, which is supported by a number of interlocutory decisions of the Supreme Court of Queensland, that the Queensland Proceeding has been properly instituted against Fortress is immaterial to the legitimacy of Fortress seeking to challenge the validity of the new funding agreement. No basis was established in the evidence as to why compliance by the defendants with any order for preliminary discovery that the court might make would in any significant way distract the defendants from their duties as liquidators of Octaviar Administration, or involves inordinate expenditure of costs.

Relief 177Fortress has established that it may be entitled to make a claim for relief from the court against the defendants on the ground that they lacked power under s 477(2)(m) of the Corporations Act to cause Octaviar Administration to enter into the new funding agreement. It has not established on the evidence sufficient prospects that it has any other claim against the defendants. Depending upon the circumstances, Fortress may be able to mount its challenge by way of an application for leave to appeal against any court decision which gave the defendants approval under s 477(2B), or alternatively by way of an appeal to the court under s 1321. 178Fortress does not know whether the defendants received approval from a court or the committee of inspection. If a court gave approval, Fortress does not know which court, at what time and for what reasons. If the committee of inspection gave the approval, Fortress does not know when the approval was given or what the terms of the resolution were, or the basis upon which the committee acted. Further, Fortress does not know the facts upon which the defendants acted, which might overcome the decision of the Full Federal Court. Specifically, given that on this application the defendants have suggested that their position is to be distinguished relying upon what was said at [44] of the Full Court's judgment, Fortress does not know whether Octaviar Administration has a claim against Octaviar, or what circumstances make the funding agreement necessary for the proper winding up of Octaviar Administration. In particular, Fortress does not have any information to permit it to gauge whether it is likely to succeed on any appeal, as it cannot gauge the strength of the defendants' argument that the funding agreement is necessary for the proper winding up of the company. 179Fortress is entitled to an order under UCPR r 5.3 in relation to the "Categories" as defined in the notice of motion, but only on the question of whether the defendants lacked power under s 477(2)(m), unless there are discretionary reasons for limiting that preliminary discovery. 180The defendants correctly point to the fact that the courts routinely make confidentiality orders in relation to applications by liquidators for approval to enter into litigation funding agreements, and often deal with such applications in closed court: see for example Deloughery v Weston (2010) 79 ACSR 180 at [34] and following. The rationale for making confidentiality orders in respect of information and evidence relevant to an application for s 477(2B) approval was clearly set out by Barrett J (as His Honour then was) in McGrath & Anor re HIH Insurance Ltd [2005] NSWSC 731 at [12]-[13]. I respectfully adopt his Honour's reasoning. I note that his Honour made confidentiality orders in the application whereby he appointed the special purpose liquidator of Octaviar, which has been considered above. Stone J also made various confidentiality orders in the initial application by the defendants for approval. 181Additionally, it is highly likely that the defendants will be entitled to legal professional privilege in relation to aspects of the material relevant to the approval that they obtained to enter into the funding agreement. 182It would not be proper for me to make an order for preliminary discovery that had the peremptory effect of exposing any information that is the subject of any confidentiality orders that have been made by a court. As a general principle, if a party in Fortress's position wishes to disturb a confidentiality order made by a court, application should be made to the court that made the order. There may be circumstances in which that general principle cannot be followed. Nor should I compromise the defendants' right to maintain proper claims of legal professional privilege. Further, if approval was given by the committee of inspection the defendants may not have the benefit of existing court orders for confidentiality, but the defendants may have the same right to assert confidentiality in relation to information concerning the giving of approval, as the courts recognise and uphold in the case of applications by approval for the court. 183I am not satisfied that as a generality the defendants' right to maintain confidentiality or to assert legal professional privilege will obviate entirely Fortress's entitlement to the limited preliminary discovery which I have described above. As I have noted, the defendants in submissions raised as a point of distinction, between the present case and that considered by the Full Court, the factors considered by that court at [44] of its judgment, a number of arguments concerning the coexistence of the Queensland Proceeding and the OA Proceeding, and the fact that an order has been made that they be heard together. The defendants may rely upon other factors, such as the possibility that Octaviar Administration may have a claim against Octaviar, or may be able to recover the money in the Escrow Account through Octaviar. It is not clear why a requirement that that information be disclosed to Fortress would undermine any legitimate claim of the defendants to confidentiality. The import of the orders I propose to make is that discovery would be required on the issue of whether the funding agreement is necessary, in the relevant sense, for the winding up of Octaviar Administration, and not on the issue of whether the defendants' decision was commercially sound. 184It cannot be determined as a hypothetical matter whether I am right in my expectation that some useful amount of preliminary discovery can be given by the defendants, without improperly impacting their right to confidentiality, or undermining their entitlement to claim legal professional privilege. The only practical way to go forward is for the court to make orders in appropriate terms for preliminary discovery, but supplement those orders with a proviso that when the defendants comply with the orders they may do so without prejudice to any proper claims they may have to confidentiality and legal professional privilege. In the commonly accepted way, the defendants would be permitted in the first instance to provide redacted documents to Fortress. 185In argument Fortress accepted that an appropriate course may be one in which the defendants are ordered to provide preliminary discovery on a proper basis, which permits them to maintain claims for confidentiality and legal professional privilege, and where appropriate provide redacted documents to Fortress. Any differences of opinion between the parties as to the adequacy of the defendants' response could then be resolved, if necessary, by the court. 186At least at this stage I do not accept Fortress's alternative argument that the defendants should be ordered to furnish unredacted documents to legal representatives of Fortress, who are not instructed to appear in the Queensland Supreme Court proceedings, on the basis of appropriate confidentiality restrictions. In principle the defendants' rights to keep certain documents and information to themselves should be respected. 187I will now set out provisionally the orders which in my view should be made to provide Fortress with the preliminary discovery to which it is entitled, in a manner which does not unduly trespass on the defendants' rights to confidentiality and legal professional privilege. I propose to direct the parties to bring in appropriate short minutes of order, as I recognise that there may be practical reasons, of which I am unaware, which may justify some departure from the orders which I propose to make. 188The provisional orders are: (1) Subject to order 2, order that the defendants give discovery to the plaintiff of all documents that are or have been in the defendants' possession that (a) relate to the power of the defendants to execute the funding agreement under s 477(2)(m) of the Corporations Act, and also (b) fall into any one or more of the Categories. (2) Order 1 (a) is without prejudice to the defendants' right to (i) claim reliance upon any confidentiality order made by any court; (ii) claim confidentiality in relation to any information if the defendants contend that the nature of the information is such that they are entitled to keep that information confidential from Fortress; (iii) maintain any claim for legal professional privilege. (b) may be complied with by the defendants discovering to the plaintiff redacted copies of documents which (i) preserves the defendants' entitlement in subpar (a) in relation to information in documents that falls within order 1(a). (ii) redacts information that does not fall within order 1(a). (3) Order the defendants to serve on the plaintiff at the time discovery is given in accordance with these orders an affidavit which (a) identifies which parts of the documents discovered have been redacted in accordance with subpar (2)(b)(i) or alternatively with subpar (2)(b)(ii). (b) identifies in the case of documents redacted in accordance with subpar (2)(b)(ii) the basis on which the document has been redacted. (4) For convenience and for the avoidance of doubt (a) The affidavit need not explain the basis of each separate redaction if a reasonable explanation can be given by some more general approach. (b) The explanation given in the affidavit need only be sufficient to provide a basis for the plaintiff to assess whether there is a reasonably arguable basis for challenging the defendants' claim to be entitled to redact the information under these orders. (5) [The definitions set out in the amended summons will be included in the orders]. (6) Order the defendants to comply with the preceding orders by [insert date]. (7) Give liberty to the parties to apply on 3 days' notice, including without limitation in respect of any challenge by the plaintiff to any confidentiality claims made by the defendants, by application to Justice Robb by email to his Associate. 189I will hear the parties on costs.

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