Background
9The background to the current application is set out in my reasons for judgment of 2 March 2011. Broadly, what Ms Hu is seeking, by means of the present proceedings, is to recover moneys payable under a judgment obtained on 20 November 2009 in the District Court against a number of parties, including Alphena (the then trustee of the Joseph Family Trust). In those proceedings ( Helena Hu v Kathy Ho and Alphena Pty Ltd (4115/2008)), Alphena was ordered to pay Ms Hu the sum of $419,176.62, together with interest and indemnity costs (the imposition of an indemnity costs order being due to the finding that Alphena, the guiding mind of which was Mr Paul Joseph, had put forward a knowingly false defence and had resisted requests for production of documents).
10At the time of the District Court judgment, Alphena had held various assets as the trustee of the Joseph Family Trust, including a shopping centre in Ryde. Shortly after the District Court judgment was handed down, steps were taken to register PS Securities and to appoint it as co-trustee of the trust. Not long after that, a resolution was passed by the sole member of Alphena to wind up that company and liquidators were appointed to the company, whereupon Alphena ceased to act as a trustee of the Joseph Family Trust and the control of the trust assets (including the shopping centre land) came to repose solely in the hands of PS Securities (of which Mr Joseph and his wife were then the sole directors).
11On 13 January 2010, Ms Hu lodged a proof of debt with the liquidators of Alphena in the amount of $558,912.85 in respect of the District Court judgment. (At the hearing before me in February it was contended that this operated to merge the debt owing to Ms Hu into a claim against whatever fund is held by the liquidator on the winding up of the company for the general body of creditors).
12There seems no doubt that the transfer of the shopping centre land to PS Securities in its new role as trustee of the trust has resulted in Alphena having no immediately available assets with which to satisfy the judgment debt in favour of Ms Hu (and thus it cannot meet the debt without reliance on any right of indemnification it may have out of the trust assets formerly held by it). The liquidators of Alphena have reported to creditors that the company has no assets.
13Relevantly, for the purposes of the present application, in August 2010 Ms Hu became aware that the shopping centre land had been transferred to PS Securities and from then through to late November 2010 Ms Hu's lawyers engaged in correspondence with the liquidators of Alphena in which they urged the liquidators to take certain steps in relation to the recovery from PS Securities of trust assets in order to meet the District Court judgment debt. It should be noted that, at least up until late 2010, Ms Hu's lawyers were urging an investigation into the position (and had offered to provide funding for a course of liquidators' examinations in relation to the examinable affairs of Alphena) rather than the commencement of proceedings of the kind now in issue. (Mr Condon points out that as at September 2010 Ms Hu's position was that she was not pressing for the commencement of the proceedings now sought to be maintained in reliance upon the trustee's right of indemnification in respect of her debt, though it seems to me that there is little doubt that this was what was envisaged might ultimately be necessary.) These proceedings were instituted on 23 December 2010 with the filing of a Statement of Claim by Ms Hu.
14As adverted to above, the liquidators have now commenced proceedings in this Court against PS Securities, seeking to enforce the trustee's right of subrogation in respect not only of Ms Hu's debt but also in respect of various other (and in quantum significantly lesser) debts owing to a range of other creditors, largely (if not all) associated with the Joseph/Lombardo interests. In monetary terms, as noted, Ms Hu's debt represent by far the bulk of Alphena's debts (subject only to any tax liability Alphena may have - that being unable to be assessed given that the last financial year's accounts and annual return have not yet been filed and the ATO, as at 12 January 2010 reserving its position in that regard). Mr Young expressed some scepticism at the circumstances in which this potential tax liability was raised for the first time so close to the present application but the correspondence from the tax office was in court and it seems to me appropriate for the liquidators to note that there may be a potential liability in that regard (though I do not think that alters the position in relation to Ms Hu's application).
15As I noted at [23] of my earlier reasons, while it seems that at least as at August 2010 (when they reported to creditors), the liquidators had relied largely on information provided to them by Mr Joseph as to matters relating to the company (such as a statutory declaration signed by him confirming that PS Securities is the current and only trustee of the trust and a signed report from him that did not disclose any an interest in any real property), there was a suggestion that they had independently tested at least some of Mr Joseph's assertions (such as his advice that Alphena also traded in its own limited capacity) against the documentary evidence and tax returns. I was therefore not prepared to accept that the liquidators had simply accepted at face value Mr Joseph's assertions as to the company.
16Similarly, the fact that the expenses of the liquidators had at least partly been privately funded by directors' contributions (presumably including contributions by Mr Joseph) did not of itself suggest to me any misconduct on the part of the liquidators. (Mr Young had put to me on the last occasion that the liquidators might be seen to have been too 'credulous' of Mr Joseph's assertions.)
17By way of a broad overview, the opposition by both PS Securities and Alphena's liquidators to the grant of the leave sought by Ms Hu is that there are now proceedings on foot by the liquidators against PS Securities seeking to enforce, among others, the very claims that Ms Hu wishes to make in the present proceedings and that the liquidators are the proper persons to conduct those proceedings (and, for PS Securities, it is said that it would be an abuse of process to permit a multiplicity of proceedings against it in relation to the same issues). Mr Young, however, submitted that the liquidators are not the appropriate persons to have the conduct of the litigation in respect of Ms Hu's debt, having regard to various matters including the liquidators' conduct to date, and maintains that Ms Hu should be permitted to run her own proceedings (which are comparatively well advanced), though he appeared to accept that those might be run in tandem (in effect) with the liquidators' proceedings in relation to the lesser debts.
18It was not contended by either Mr Stowe or Mr Condon on this application that there was not a sufficiently arguable case that Ms Hu has a right to seek to be subrogated to Alphena's right of indemnity out of trust assets for liabilities incurred on behalf of the trust ( Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 at 367, 370). Nor was it contended that the debt that Ms Hu seeks to recover was not incurred by Alphena as a trustee. Any issue as to those matters is for another day.
19I turn then to the issues on the present application.
- Leave sought under s 500(2) to join Alphena
20As to the principles pursuant to which leave to proceed against a company in liquidation will be granted, it has been held that the Court's discretion is broad but not absolute, and must be exercised fairly. It can only be exercised if a serious question to be tried is shown ( King v Yurisich [2006] FCA 1369; (2006) 59 ACSR [9 - 15]). There is not an exhaustive list of the circumstances in which it may be appropriate for the Court to grant leave to proceed, but they have been said to include factors such as the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved, and the stage to which the proceedings, if already commenced, may have progressed ( Nommack (No 100) Pty Ltd v FAI Insurances Ltd (in liq) (2003) 45 ACSR 215; Re Gordon Grant and Grant Pty Ltd [1983] 1 Qd R 314 [317]).
21In Re Gordon Grant and Grant at [317], McPherson J said that the test in such a case is whether a departure from the proof of debt proceedings is warranted (see also Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 [555] and Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749 [24]). The requirement for leave (under whatever may be the applicable statutory provision in the relevant case) ensures that a company in liquidation does not face a multiplicity of legal proceedings that are expensive, time consuming and potentially unnecessary ( Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers Appointed) (in liq) [2009] FCA 42 [17 - 19]).
22Mr Young submitted that as Alphena holds no assets out of which to satisfy the debts other than its right of indemnification out of trust assets and had taken no steps to do so after some 11 months, it was necessary for Ms Hu to commence these proceedings against PS Securities. As I understand it, the submission on this issue is to the effect that Alphena is a necessary party to be joined and thus leave should be granted to Ms Hu to proceed against it in liquidation for that purpose. Here, there seems no basis for suggesting that Ms Hu should be left to a proof of debt procedure against Alphena when the purpose of her joinder of the company to the proceedings is to take steps that would not be available to her under that procedure and where the company whose rights she is seeking to enforce is clearly a proper party to be heard on that application.
23I accept that it is appropriate to grant such leave. It seems to me that nothing turns for present purposes on whether that leave is granted nunc pro tunc .
- Leave sought to bring proceedings in name of or on behalf of Alphena
24The more contentious issue is the application by Ms Hu for leave to proceed in Alphena's name against PS Securities. The basis on which that leave is sought is twofold:
(i) first, in reliance on the Court's inherent or equitable jurisdiction (and this itself was put on two bases - namely, that she is a creditor and the Court has an inherent jurisdiction to grant leave to a creditor to bring proceedings on behalf of a company in liquidation (see para [20] of Mr Young's submissions) and, alternatively, in order to give effect to a personal equitable right of subrogation by compelling Alphena to lend its name to proceedings to enforce its right of indemnity (see para [47] of Mr Young's submissions]); and
(ii) secondly (and during the course of submissions this was put as the primary basis), pursuant to s 511 of the Corporations Act .
25Reliance is placed (inter alia) on Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 9 ACLC 1530 and ACT Commissioner for Revenue v Slaven [2009] FCA 744 (in the latter case, Rares J was satisfied that s 511 was the source of "the Court's undoubted jurisdiction and power to permit a person other than the liquidator to commence proceedings in the company's name when it is in voluntary liquidation").
26In Brightwell v RFB Holdings (2003) 44 ACSR 186, Austin J accepted that the inherent jurisdiction survived the commencement of Part 2F.1A of the Corporations Act , noting at [45] that:
Literally s 236(3) abolishes only the right of a person to bring derivative proceedings. Aliprandi and similar cases recognise a discretionary power of the Court which, unlike the true exceptions to the rule in Foss v Harbottle, cannot be said to generate any rights in the applicant creditor or contributory until the discretion is exercised.
27Under s 511, the Court must be satisfied that the determination of the question or exercise of the power (in this case the commencement and conduct of proceedings in the name of Alphena) will be just and beneficial, (and the Court may accede wholly or partially to such an application on such terms and conditions as it thinks fit or make such other order on the application as it thinks just). Although there are some differences, applications made under s 511 in a voluntary winding up are determined in much the same way as applications in a court ordered winding up under s 479(3) of the Corporations Act (Dean-Willcocks v Soluble Solution Hydroponics (1997) 42 NSWLR 209 at [212] ; Crawford v Oswald Park Pty Ltd (in liq) [2006] NSWSC 987 at [10] ; and S & D International v MIG Property Services [2010] VSC 336 at [7]) .
28The requirement that the Court be satisfied that it is "just and beneficial" to determine the question or exercise the power the subject of the application is said to involve a similar concept to that comprised by the expression "just and equitable" (Austin & Black's Annotations to the Corporations Act [5.511]), allowing the Court a discretion whether to make such an order by reference to whether the relief sought by the liquidator is "of advantage in the liquidation" ( Soluble Solution Hydroponics at [212] ; S&D International at [7]). (In the present case, the advantage to the company in liquidation is said to derive from the undertaking that Ms Hu has proffered not to press her proof of debt other than by reference to moneys recovered in the litigation - thus it seems to be said that the company is not exposed in practical terms to the risk that Ms Hu might conduct the proceedings badly. Mr Condon, however, emphasises that the claim Ms Hu seeks to bring is that of the company - not a claim personal to Ms Hu - and that the manner in which that claim is brought may impact on the liquidators' ability to enforce the trustee's right of indemnification in relation to other debts.)
29As to the general equitable or inherent jurisdiction also invoked by Ms Hu, this is a jurisdiction said to be based on the existence of circumstances as would have justified a beneficiary to seek an order to sue to recover trust property in the name of the trustee (Cadima Express v DCT ( 1999) 33 ACSR 527; Aliprandi v Griffith Vintners Pty Ltd (1991) 6 ACSR 250; and Carpenter ).
30In Aliprandi , McLelland J (as his Honour then was), having noted the power of the Court to order that a creditor or contributory of a company in liquidation be authorised to use the company's name as a plaintiff, said (at [252]):
Such a procedure is of respectable antiquity and is sanctioned by high authority. Orders of that kind were made in Re Bank of Gibraltar and Malta (1 865) LR 1 Ch App 69; Re Imperial Bank of China India and Japan (1866) LR 1 Ch App 339; Re Dominion Portland Cement Co Ltd (No 2) [1919] NZLR 478 and Lloyd-Owen v Bull (1936) 4 DLR 273. The legitimacy of the procedure was also recognised in Cape Breton Co v Fenn (1881) 17 Ch D 198 at 207; Ferguson v Wallbrdige (1935) 3 DLR 66 at 83 and Fargo Ltd v Godfroy [1986] 1 WLR 1134 at 1136-8. It was said by Jessel MR in Cape Breton Co v Fenn [ (1881) 17 ChD 198] ( at 207) to be based on " the same principle on which a man could always have filed a bill in the old Court of Chancery against his trustee to be allowed to use his name to recover the trust property."
31I n Carpenter, Barrett J similarly noted those early cases and referred to what had been said by McLelland J in Aliprandi as to the basis of the general equitable jurisdiction in this regard. His Honour noted that it was well established that a beneficiary will be allowed to sue in the name of the trustee only in "special circumstances", referring to the statement by James LJ in Sharpe v San Paulo Railway Co (1873) LR 8 Ch App 597 at [609-610] that:
Is it to be permitted that every one of the persons who has an interest in a thing assigned to a trustee for the benefit of a great number of persons should file a distinct bill in a distinct branch of this Court against the debtors to the estate? I had lately occasion to consider that question, and I came to the conclusion, very clearly, that a person interested in an estate or a trust fund could not sue a debtor to that trust fund, or sue for that trust fund, merely on the allegation that the trustee would not sue; but if there was any difficulty of that kind, if the trustee would not take the proper steps to enforce the claim, the remedy of the cestui que trust was to file his bill against the trustee for the execution of the trust, or for the realisation of the trust fund, and then to obtain the proper order for using the trustee 's name, who would on behalf of the whole estate, institute the proper action, or the proper suit in this court. That view I still adhere to, and I say it would be monstrous to hold that wherever there is a fund payable to trustees for the purpose of distribution amongst a great number of persons, every one of those persons could file a separate bill in equity, merely on the allegation that the trustees would not sue (my emphasis)
and noting at [25] that in Hayim v Citibank NA [1987] AC 730 (at [748]) special circumstances in this context were said to "embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust property or to protect the interests of the beneficiary in the trust estate".
32In Ramage v Waclaw (1988) 12 NSWLR 84 at [93], Powell J quoted with approval an explanation of "special circumstances" for these purposes, in Hilliard v Eiffe (1874) LR 7 HL 39 at [44]:
... The rule [that it was the executor and not a legatee or creditor of the estate that was the proper plaintiff] now appears to be, subject to the exceptions of cases of collusion, of insolvency of the personal representatives, of refusal by them to sue, whether collusively or bona fide, or of the existence of what has been rather vaguely termed 'special circumstances'. The last exception seems to comprehend, and to be confined to, cases in which, from the nature of the assets or the position of the personal representative, it would be either impossible, or, at least, seriously inconvenient, for the representatives to take proceedings. In the present case, I am of opinion that, after what has occurred, there would be very great difficulty in the way of the executor with respect to, at least, that portion of the bill which seeks repayment of the moneys already paid, and that his conduct, though not amounting to an actual refusal, affords evidence of an unwillingness to embark in so serious a litigation, sufficiently to justify the Plaintiff in filing his bill against him and the other Defendants.
33In Cape Breton Company v Fenn (1881) 17 Ch D 198, the disadvantage of the procedure was nevertheless recognised as being that "the conduct of the litigation in the name of the company is taken out of the control and supervision of an officer of the court".
34Mr Stowe submitted that the cases cited by McLelland J in Aliprandi as supportive of the existence of the inherent jurisdiction, themselves support the proposition that a condition for the exercise of the jurisdiction is the liquidator's inability or unwillingness to itself enforce those rights (namely, Cape Breton where Cotton LJ (at [208]) said that "In my opinion the creditors and the contributories [are the only persons who can be authorised to take such steps] ... because they are the persons who, under the terms of the Act can intervene if they are advised that the liquidator does not properly do his duty. They have a right in special cases to ask the court for leave to do that which the liquidator is advised not to do, or which, because he has no funds, he does not do, viz, take proceedings in the name of the company, but in my opinion the power of the Court to give leave to use the name of the company stops there, and is confined to those who are parties to the liquidation"; Ferguson v Wallbridge [1935] 3 DLR 66, Lord Balnesburgh ( quoted with approval in Scurel Pty Ltd v City Loan & Credit Corp Pty Ltd (1988) 17 FCR 344 [350]; Christianos & ors v Aloridge Pty Ltd (1995) 131 ALR 129 [136]); Fagro Ltd v Godfroy [1986] 1 WLR 1134, per Walton J; and Dominion Portland Cement Co Ltd [1919] NZLR 478, per Cooper J).
35The policy underlying this principle (on which both Mr Condon and Mr Stowe place emphasis) is that it is recognised that (as stated in Cape Breton ) prima facie proceedings in the name of the company ought to be conducted by the liquidator, he or she being an officer appointed by the court and subject to the supervision of the court. Thus in Scarel Pty Limited v City Loan & Credit Corporation Pty Limited (1988) 12 ACLR 730, Gummow J (sitting in the Federal Court) said (at [733]):
The general principle is that in an action to redress a wrong due to a company, or to recover money or damages alleged to be due to it, the company is the only proper plaintiff. The company's name should only be used as plaintiff by direction of the company or its directors or, where the company has been placed in liquidation, by the liquidator: Halsbury's "Laws of England" 4th Ed, Vol. 7, paras. 767, 1122, 1124
noting that the scheme of the Act is that it is the liquidator who is the appropriate party to decide whether to continue for the company litigation such as this, subject to the control of the court over the liquidator.
36In Carpenter , at [26] Barrett J noted that the principles applying to action by a beneficiary where the trustee does not act have been held to be applicable in a winding up and referred to what was said by the Privy Council in Lloyd-Owen v Bull [1936] 4 DLR 273 at [276] as to the "judicial attitude towards such an application" being well understood:
A Judge in winding-up is the custodian of the interests of every class affected by the liquidation. It is his duty even if it be in a voluntary liquidation that opportunity offers to see to it that all assets of the company are brought into the winding-up. In authorizing proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where, as in the present case, they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company's name under his authority is not vexatious or merely oppressive"
37Thus, where leave is sought under either the inherent jurisdiction or that under s 511, a relevant (if not, at least in the latter case, an essential) question is the trustee's inability or unwillingness itself to enforce those rights. (In a not dissimilar context, the probability that the company will not itself bring the proceedings or properly take responsibility for them is a necessary requirement to be satisfied before leave will be given to commence derivative proceedings under s 237 of the Act, though that section is not applicable in this case as the company in whose name the proceedings are sought to be brought is in liquidation - Chahwan v Euphoric Pty Ltd trading as Clay & Michel [2008] NSWCA 52 ).
38In Carpenter, Barrett J identified the considerations to be taken into account on an application such as this, at [34] as follows:
The decided cases thus cause attention to be focused on three main matters when the court is invited to exercise its discretion upon an application such as the present:
- The question whether the proceedings proposed to be
pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success .
- The attitude of the liquidator to the question whether the proceedings should be pursued.
- The question whether "practical considerations support the initiation of the proceedings", with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.
39Turning to those matters, as already indicated the first is not in issue, it being accepted by the respective defendants for the purposes of this application that the proceedings meet the test there outlined by his Honour, namely that they have some "solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success".
40As to the second, there is a clear issue raised by reference to the attitude of the liquidator to the proposed proceedings (the liquidators here seeking to maintain their right to conduct the proceedings in question). In essence the complaint made by Mr Young is one going to the liquidator's willingness and ability to conduct the proceedings.
41Both Mr Condon (who speaks directly for the liquidators in this regard) and Mr Stowe submit that there are sound policy reasons why the liquidator should be the person vested with the authority to manage the company in liquidation (including the conduct of litigation) by reference to the fact that there are detailed regimes of control under the Corporations Act that apply in relation to liquidators, but would not be apply to a creditor granted leave to conduct proceedings and that the liquidator is an independent controller of the company, "free from the biases and agendas" of other interested persons (Mr Stowe referring to what was said in Chahwan per Tobias JA and citing Christianos at [137]).
42As to the third matter, although Mr Stowe's client was prepared to accept that the undertaking proffered by Ms Hu would adequately address this, Mr Condon raised a query as to the financial worth of Ms Hu in support of any undertakings now proffered by her (in the absence of evidence thereof), though Mr Young submitted that one can infer from the costs Ms Hu will have already incurred in relation to the commencement of these proceedings that she has the financial ability to meet those undertakings.
43Nevertheless, in the present case the critical issue, it seems to me, of the three matters to which Barrett J referred in Carpenter, is whether, in light of the liquidators' professed willingness to commence and prosecute the proceedings, leave should be granted (either under s 511 on the basis that this would be just and beneficial for the company or in the inherent jurisdiction of the Court).
44Mr Condon noted that it is conceded by Ms Hu that normally the liquidators are the appropriate persons to manage proceedings brought by a company in liquidation (and submitted that there is not sufficient reason shown here to depart from that position). Apart from the fact that a liquidator is qualified by a course of training, is subject to the control of the Court and to the requirements of the Corporations Act, and has available to it statutory rights that a creditor in Ms Hu's position does not have (such as the ability to carry out investigations through examinations), Mr Condon points to the public interest in having persons independent of particular creditors assume responsible for conducting the affairs of the company. The test, Mr Condon emphasises, is not one of convenience.
45It was noted by Mr Condon that Ms Hu had not referred to a single case where a creditor who is desirous of bringing a derivative claim has supplanted a liquidator who is also prepared to prosecute that claim directly (and Mr Stowe for his part informed me that the first defendant's extensive researches had not found such a decision). That, of course, brings into prominence the position of the liquidators and their professed willingness and ability to prosecute these proceedings (notwithstanding what might on one view be seen as a lack of alacrity to do so at an earlier time).
46Mr Young submitted that in the present case there are a number of reasons why Ms Hu is the appropriate person (and not the liquidators) to bring the proceedings: those being, delay on the part of the liquidators in the institution of the proceedings (including the little interest said to have been shown when Ms Hu offered to provide funding for steps to be taken in connection with or preparatory to such a claim); the asserted lack of any real explanation as to why the liquidators have failed previously to act but are now 'keen' to do so; a submission that the delay was due to the detrimental influence of a director of PS Securities (Mr Lombardo), whose involvement in the matter I referred to in my earlier reasons for judgment (and, specifically, his assertions as to a conflict of interest in relation to the offer of funding); the suggestion that the liquidators are acting more in the interests of Mr Joseph and Mr Lombardo than Ms Hu (although it was expressly noted that no allegation of collusion was put); that the liquidators have demonstrated no wherewithal to run the proceedings; and the lack of an undertaking of the kind referred to in paragraph 67 of Mr Young's submissions.
47As to the matters thus raised by Mr Young, Mr Condon was concerned at the outset to ascertain precisely whether any actual collusion was alleged between the liquidators and the Joseph/Lombardo interests. Mr Young confirmed that the allegation being made is that the liquidators had 'identified' Mr Joseph and Mr Lombardo as the persons from whom and for whom they were primarily acting in the liquidation and had conducted the liquidation in a way that would favour their interests over and above those of Ms Hu - an allegation, as I understand it, more of improper conduct than collusion. When pressed on that issue, Mr Young advised that the allegation of improper conduct was confined to the delay in commencement of the proceedings and to any evidentiary matters arising out of the material in or annexed to Mr Barnden's affidavit.
48In his closing submissions, Mr Condon emphasised that there was no basis for any suggestion of collusion (that being expressly disclaimed by Mr Young but having been intimated in the opening submissions) or a refusal on the part of the liquidators to sue. Apart from the actual commencement of proceedings by the liquidators against PS Securities seeking directly to enforce the trustee's right of indemnity, it was noted by Mr Condon that the liquidators had caused a caveat to be lodged over the shopping centre land founded on the proprietary claim that the right of indemnification entails.
49Mr Condon submitted that the assertion that the liquidators are acting more in the interests of Mr Joseph and Mr Lombardo than Ms Hu (based at it seemed to be on no more than inference from four matters) was not sustained. Those matters were identified by Mr Condon as being: first, as to the alleged delay in commencement of the proceedings by the liquidators (the actual period of any such delay being squarely in issue between the parties); the suggestion that undue heed was paid to the views of Mr Lombardo (in relation to the existence of a perceived conflict of interest in relation to the offer of funding by Ms Hu); the late commencement of the claim (seen by Mr Condon as falling under the rubric of the delay but on a discretionary matter perhaps going to the comparatively advanced position of the Hu proceedings); and the fact that the liquidators have opposed the current claim (and, I note, Mr Young suggested that the strength with which PS Securities itself has opposed the current application is a relevant matter to take into account - intimating that this suggests an understanding or belief on PS Securities' part as to the manner in which the proceedings would be conducted by the respective contenders for that role).
50As to the question of delay, Mr Young submitted that the period of delay must be counted from January 2010 (when the liquidators were appointed) in relation to the commencement of any proceedings against PS Securities. Mr Condon submitted that the only relevant period in order to assess the extent of any delay is from late 2010 to the commencement of proceedings by the liquidators in March 2011 and in so doing he relies upon the chronology of events emerging from the affidavit of Mr Barnden. Broadly, it is said that from January 2010 to August 2010 the liquidators had sought to obtain information from a number of sources including Ms Hu (at paras [4]-[21] of his affidavit of 11 March 2011); that on 23 June 2010 Mr Barnden wrote to Ms Hu's solicitor (Mr Jung) advising him that he (Mr Barnden) had not received any documentation from him to support Ms Hu's earlier contentions and suggesting a meeting to discuss the affairs of the company; that as at 12 August 2010 the liquidators still possessed only a few documents concerning the affairs of the company; that Mr Jung had (in his letter of 27 August 2010) offered to provide the transcript of the hearing before the District Court in November 2009 (apparently relevant to the issue as to whether the Hu debt was a debt incurred in Alphena's capacity as trustee) but that this did not occur until 19 October 2010 (and this was something for which Mr Barnden in the witness box said he had been waiting); and that over the period from August 2010 there was correspondence as to the provision of funding by Ms Hu for steps to be taken by the liquidators.
51As no little emphasis was put on the interactions between Ms Hu's representatives and the liquidators, I note briefly that the correspondence disclosed that:
by letter dated 27 August 2010, Mr Jung wrote that his client was prepared to provide funding for his firm and Mr Young "to conduct further investigations to conduct Court examinations of Mr Joseph, Mr Lombardo and Mr Robertson; and possibly the other players involved in the acquisition of the Ryde property and the company PS Securities Pty Limited";
by letter dated 8 September 2010, Mr Barnden responded stating that:
In addition, I am also concerned with using yourself to act in this matter as you also act for a creditor of the Company and it may lead to the examinations not being conducted in an independent way. Accordingly, my preferred option is to engage an independent solicitor and counsel. In this regard, I estimate that the additional costs of such, subject to the number of people to be examined to be in the order of $35,000 to $45,000 plus GST.
(as to which, Mr Condon submitted that this is consistent with the liquidators' duty to act impartially between all individuals whose interests are included in the winding up and notes that while it is now submitted for Ms Hu that the liquidators' stance was without "any sound basis", that claim was not asserted at the time by her solicitor (albeit that he had disagreed with the liquidators' contention),) and the letter went on to state that:
Also I refer to my letter of 23 June 2010 requesting we meet at a mutually convenient time to discuss the affairs of the Company. This offer remains open.
(an offer not apparently taken up until September 2010). At that meeting, Mr Barnden on 27 September 2010, Mr Barnden deposed that he still had concerns about the wisdom of retaining the plaintiff's legal representatives (because of a concern that he would not obtain independent and impartial advice if that were not in Ms Hu's interests) and there was a reference by Mr Jung to the advice he had received from Counsel on the independence issue.
on 29 September 2010, Mr Jung wrote in relation to Ms Hu's offer to fund investigations, stating that:
Any further questions of any potential conflict are dispelled by the fact that the action we propose to take at this stage is of an investigative nature only - ie the gathering of information and documents to establish whether there are causes of action or assets available to the company for recovery and distribution to creditors. We are not proposing to sue anyone at this stage. How could then any conflict of interest arise from such basis of funding? (my emphasis)
52By late October 2010, the liquidators had been provided with transcript of the District Court proceedings and a copy of the judgment. It seems that they had also been provided by Mr Lombardo with documents aimed at convincing them that the Hu debt was not a debt of the trust.
53On 28 October 2010, Ms Hu's lawyers first suggested that Court proceedings be commenced (and that there was no need to pursue the examinations that had previously been contemplated). Mr Barnden explained the delay in commencement of proceedings at that stage by reference to the absence on leave of the person in his office who had the main carriage of the matter (and thereafter the intervening Christmas period).
54It should be noted that as at late October 2010, the offer of funding by Ms Hu (referable to the initial investigations) had been conditional on the retainer of her then legal representatives. Mr Jung in the witness box said that the current offer of funding (first made in his affidavit of 23 December 2011 - T 15 and then contained in a letter of 2 February 2011) does not contain that condition -T13 (it being solely conditional, at least insofar as it relates to the leave application costs, on the liquidators not unreasonably opposing the grant of leave). (In Mr Jung's affidavit he says that the plaintiff never offered funding terms other than those in the letters identified there).
55Mr Jung accepted that as at 28 October the intention remained that the offer of funding was for the conduct of investigations (ie preparatory to the commencement of proceedings). Mr Barnden, in the witness box, said hat he was still of the view that examination summonses should be carried out because only limited books and records had been obtained (T 20.15). He said that he had first formed the view that proceedings should be commenced shortly after he received the transcript from Mr Jung in October 2010.
56Mr Condon submitted that as at 28 November 2010, however, the issue of funding remained a problem. In a letter of that date, Mr Barnden advised that he was seeking his own advice on the issue as to independence of representation for the conduct of examinations (thus clearly still contemplating the process of utilising the coercive powers open to liquidators) and requested Mr Jung's confirmation that the plaintiff had the ability to advance $15,000 to $25,000 plus GST in respect of the liquidators' costs and $20,000 plus GST in respect of external lawyers' costs in respect of such examinations.
57Further, in relation to the allegation of delay it is submitted that the position of the trustee has not at all times been clear to the liquidators (referring to paragraph 8 of Mr Barnden's affidavit of 22 March 2011 in which he referred to a need to investigate the standing of the trustee).
58Mr Condon submitted that there has been no relevant delay on the liquidators' part; rather that the process of obtaining information has been protracted by unexplained delays on Ms Hu's part in supplying documents in her possession; an unexplained failure on Mr Jung's part to meet with Mr Barnden when invited to do so in June 2010; and an inappropriate insistence that funding of any further action be conditioned upon the liquidators retaining her own legal advisers. He also places weight on the fact that it was only in late October 2010 that Ms Hu's advisers suggested that litigation should commence (having as late as 29 September 2010 made clear the view that proceedings at that point were not necessary).
59(As to the above, Mr Young submitted that the reason for the delay in provision of the transcript is explained by Mr Jung's evidence that he thought the directors were supplying it and that, in any event, it would have been open to the liquidators to seek their own copy of the transcript. Mr Young was critical of the suggestion that Mr Barnden needed first to be provided with the transcript in order to progress matters. Be that as it may, it seems to me that over the period in which there were communications as to the position of Alphena as trustee, Mr Barnden was not improperly taking the position that the matter had to be investigated before the liquidator would be in a position to obtain advice as to the matter and take further steps.)
60That said, the suggestion that the liquidators were actively pursuing a claim against PS Securities (or even investigating such a claim) as at 12 August 2010 would seem to me to be belied by the fact that the liquidators' own report to creditors of 12 August 2010 (which made no reference to any potential claim under the trustee's right of indemnity) stated that the investigations were complete. (I must say that in considering the willingness of the liquidators to pursue the proceedings the most troubling matter to me is that they seem to have been ready to close down investigations at a stage when the main creditor's assertions as to the trust assets had not been investigated beyond a request for information from the directors and a request for transcript. Further, in the light of that report, Ms Hu might not unreasonably have thought that the liquidators intended to nothing further to pursue a claim based on the trustee's right of indemnification.)
61However, the fact that the liquidators might not have moved with as much alacrity as the plaintiff and her legal advisers would have liked (or as they have done), does not mean that (having now instituted the proceedings) the liquidators will not now pursue the matter vigorously (and independently of the Joseph/Lombardo interests). In other words, whether or not they were galvanised into action by the prospect that the matter would be taken out of their hands by reason of a grant of leave to Ms Hu to do so in their stead (or perhaps by a concern that they might be said to be in breach of a duty to the company if they did nothing) seems to me irrelevant to the question whether they will now properly act to pursue such a claim in the interests of creditors and the company as a whole.
62I am not satisfied that the delay (if it may be so characterised) in the commencement of the proceedings is such as to warrant a conclusion that the liquidators are not willing to pursue the proceedings or not intending to do so in good faith. As to the concerns raised by Ms Hu, Mr Condon submitted (and I accept the force of this submission) that any legitimate concerns she may have as to the conduct of the proceedings by the liquidators are met by the undertaking that the liquidators are prepared to give to the effect that they will prosecute the proceedings with due despatch; and will not settle the claim against PS Securities without providing creditors at least 14 days written notice of any proposed settlement.
63Mr Condon submitted that the issue of delay is dispelled by the above chronology of events, the fact that there was uncertainty as to the trustee position and the fact that the liquidators have now caused litigation to be commenced.
64As to the ability of the liquidators to fund the proceedings, it was conceded by Mr Barnden that the liquidators are without funds (T 33.27). According to Mr Barnden, the lawyers engaged to act in the matter have "in principle" agreed to run the proceedings on a contingency basis (T 34.2). No retainer agreement was in evidence. (However, there was no suggestion in submissions by Mr Condon that it was not the case that there was an agreement of some kind in place whereby the conduct of the matter would be undertaken by the liquidators' legal representatives.)
65Mr Young suggested that the speculative or contingent nature of the 'in principle' funding arrangements was something that might impact on the conduct of the proceedings and the position the liquidators might take in relation to settlement of the proceedings. In that regard, however, the legal representatives will owe duties both to their clients and to the Court in relation to the conduct of the proceedings (and an undertaking has been proffered in relation to the question of any settlement that might be proposed). Presumably, the legal representatives will have complied with their obligations in relation to fee disclosure and the like. If the only basis for complaint is that the agreement is described as an 'in principle' one (which might perhaps be imprecision on the part of the witness) that would be met by a requirement that the liquidators confirm the existence of an actual agreement in relation to the conduct of the litigation. However, in my opinion that is not warranted in this case. There is nothing to suggest that the liquidators (having proffered the undertakings to the court in relation to the conduct of the proceedings) will not be diligent in ensuring that the proceedings are properly conducted and that arrangements are in place to permit that to happen (and if they have not already done so then they will no doubt have been advised to do so in order to ensure that they are in a position to comply with their undertaking). Therefore I am satisfied that there is nothing to suggest an unwillingness or inability on the part of the liquidators to conduct the proceedings against PS Securities.
66As to the allegation that the liquidators accepted at face value the assertions by Mr Lombardo as to a conflict of interest in the offer of funding being conditional on the retainer of the plaintiff's legal representatives " despite lacking any sound basis" , Mr Condon notes that in Re Leisure Developments (Qld) Pty Ltd (in liq); Ell and Others v Palmer (2002) 41 ACSR 276 Austin J took into account (when assessing whether the examination was an abuse of process) the facts that the liquidator's investigations were being funded by the ATO; that the ATO had claimed an enormous amount of tax from the company in liquidation; and that one of the case officers of the ATO subsequently became the solicitor for the liquidator actively instructing counsel in the examination process and other proceeding (para [45]) as relevant matters (thus submitting that it cannot be said that there was not a sound basis for concern).
67Mr Young submitted that the very fact that PS Securities is keen for the liquidators to bring the proceedings and not Ms Hu is reason itself to exercise the discretion to grant leave. In that regard, it seems to me not unlikely that there is suspicion and distrust on both sides (Ms Hu on the one hand and the Joseph/Lombardo interests on the other). However, it is not for me to speculate as to the motivation underlying the position adopted by PS Securities other than to note that it is by no means unreasonable that the company should wish only to be facing the one set of proceedings so as to avoid duplication of costs.
68I am not satisfied that the liquidators' conduct is such as to warrant a departure from the ordinary position (based on sound policy reasons) that the liquidators should have the conduct of proceedings to enforce the company's claim for indemnification in respect of debts incurred by it as trustee. That is sufficient to dispose of the claims for leave whether brought under the statutory provision or in the Court's inherent or equitable jurisdiction.
69Turning only briefly, then, to the third of the matters set out by Barrett J in Carpenter , Mr Condon notes that his Honour there had regard to the requirement that the Court be satisfied that practical considerations support the initiation of proceedings, referring to what had been said by Austin J in Cadima Express Pty Ltd (In liq) v Deputy Commissioner of Taxation (at 434 [49]; 537 [49]) , to the effect that the Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection (and that the Court may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected). Reference was also made to what was said by Bryson J (as his Honour then was) in Scarel Pty Ltd v City Loan & Credit Corporation Pty Ltd (No 1) (1987) 6 ACLC 213 (at [216-217]):
However, there is no proposal whatever before me for any security for an indemnity protecting either the liquidator or the company against costs to be supported in any concrete way such as by the deposit of moneys or a guarantee furnished by a bank, by security over real estate or otherwise. Any such proposals brought forward would have to be examined carefully for their susceptibility to be set aside in an unfortunate event such as Mr Yates' bankruptcy; but there are no such proposals.
70Mr Condon submitted that here there is no evidence of the financial position of Ms Hu and whether she has the wherewithal to secure the conditional undertaking she has proffered as to costs. However, Ms Hu's offer to conduct the proceedings at her own expense and not to press her proof of debt beyond recovery in any proceedings would go a reasonable way to protecting the company and addressing the practical considerations in this instance.
71Finally, as to discretion, Mr Condon noted that no undertakings had been provided as to how Ms Hu will conduct the litigation or approach its possible settlement; that (unlike the liquidators) she owes no common law or statutory duties to the company or its creditors or members and is not bound to take into account the interests of those persons. It is further submitted by Mr Condon that while any decision of the liquidators may be reviewed by "a person aggrieved" pursuant to section 1321 of the Corporations Act, it is by no means clear that any such facility would apply to a decision reached by Ms Hu in the course of the litigation. Similarly, Mr Condon points to the requirement for approval of settlements provided by s 477(2A) that may well be inapplicable to a settlement proposed to be entered into by Ms Hu.
72I have noted those matters (and the fact that the liquidators' claim goes beyond the claim by Ms Hu in that it invokes the trust deed itself in relation to the indemnity) as matters that support the conclusion I have already reached (which is that leave should be refused and the liquidators ought to be permitted to pursue their proceedings on behalf of the company in accordance with their statutory powers and duties).
73Similarly, I have noted the various matters called in aid by Mr Stowe in relation to the exercise of the Court's discretion (including the assertion that Ms Hu would have a clear conflict of interest in conducting these proceedings in the name of the company where her interests may conflict with other creditors) and in particular the oppression recognised in a company being exposed to multiple proceedings in relation to the same facts. I accept that, as Mr Young contended, the question whether any creditor's debt is a debt incurred by Alphena as trustee is a matter that might require exploration of a number of different sets of circumstances. However, there seem to me likely to be common issues of fact involved in the various claims that would expose PS Securities to the risk of duplication of costs and additional time and expense if there were to be two sets of proceedings brought in relation to the trustee's claim for indemnification.
74Thus, while I have do not consider it unreasonable of Ms Hu to wish to have the conduct through her own legal advisers of proceedings which appear to be the only means of procuring the payment of a not insubstantial debt owing by Alphena (in circumstances where the conduct of Alphena or its director Mr Joseph has already been the subject of unfavourable judicial comment), I am not satisfied that the basis has been established for the grant of leave as sought by Ms Hu. In particular, in circumstances where the liquidators have commenced (perhaps not as diligently as Ms Hu may have wished - although the gap between her demand for proceedings to be instituted and the commencement of those proceedings by the liquidators is not lengthy) proceedings to recover trust assets from which debts owing to creditors including Ms Hu can be paid; have expressed their willingness to do so and proffered undertakings to the Court in that regard; and have apparently reached arrangements with their legal representatives to enable that to be done, I consider that the conduct of the proceedings should be left with them.
75I therefore refuse the application for leave.
(ii) PS Securities' strike out application
76As noted earlier, it is submitted by Mr Stowe that if leave to Ms Hu to conduct these proceedings is refused, then it follows that the proceedings should be dismissed.
77Mr Young submitted that if leave is not granted then the appropriate course nevertheless is not to dismiss or strike out the proceedings but, rather, to stay them until further order for two reasons - first, that this would leave open to Ms Hu the ability to apply to remove the stay if it appeared that the liquidators were not progressing the claims in timely and proper fashion (and would provide an incentive for them in that regard) and, secondly, to preserve the benefit of the freezing order currently in place. Mr Condon reiterated the concern that steps should not be taken which would operate to discharge the freezing orders and at the close of the hearing he informed me that he had instructions, if the Hu proceedings were to be dismissed, to seek such an order in place of the existing order. Mr Stowe informed me that he would wish to make submissions before any further asset preservation order was made.
78Mr Stowe's application for strike out and dismissal of the proceedings is on the basis that if the grant of leave is a precondition for the constitution and prosecution of proceedings and leave is not granted, then there is no reasonable cause of action and therefore Part 14 rule 28(1)(a) applies and the proceedings should be dismissed. (That would have the effect that the foundation for the freezing order would disappear.) Mr Stowe noted that in Carpenter , Barrett J left open the question whether leave to bring a derivative suit in the inherent jurisdiction of the Court can be granted nunc pro tunc (it not being necessary in that case for his Honour to determine the issue). Here, given my finding above, it is also not necessary to determine the question. The relevance would seem to go to the question whether the proceedings are properly constituted and should remain on foot if leave is not granted. Mr Young noted that in Oates v Consolidated Capital Services Pty Ltd [2009] NSWCA 183, it was said that there was no requirement under the general law relating to derivative actions for a plaintiff to obtain the leave of the court before commencing such action.
79It seems to me that in circumstances where the basis on which the grant of leave was refused was as to the liquidators' willingness and ability to prosecute the claims, and but for that fact I would have granted leave to Ms Hu to continue the proceedings, and where the subsistence or otherwise of the freezing order to protect the status quo and preserve the assets of the company is a matter that would properly be taken into account when considering the exercise of discretion to grant leave. What I have there in mind is that if there were to be a risk that the liquidators might not be able to secure such protection - say because of an inability to proffer or secure an undertaking as to damages - then that would be a compelling factor to take into account in permitting Ms Hu to continue the proceedings she has commenced and in which she has the benefit of an order preserving the status quo (which there has been no application to discharge and which is secured by her own undertaking as to damages).
80Therefore, it seems to me is that the appropriate course is to stay the Hu proceedings pending the determination of the liquidators' proceedings or further order (and to direct that the proceedings be listed together as a formal matter so that they may either be dismissed at the conclusion of the liquidators' proceedings or otherwise revived if necessary).