Summary Dismissal
3 The summary dismissal of proceedings is authorised by Uniform Civil Procedure Rules, r 13.4, where proceedings are frivolous or vexatious, and/or disclose no reasonable cause of action, and/or constitute an abuse of the process of the court. The power summarily to dismiss proceedings is attracted if, inter alia, they can clearly be seen to be "foredoomed to fail" [Walton v Gardiner (1993) 17 CLR 378, 393]. A high degree of certainty is required before a party is deprived of the opportunity to have its claim determined at trial [Agar v Hyde (2000) 201 CLR 552, 576], as is illustrated by the various expressions which have been used to describe the test, such as "so obviously untenable that it cannot possibly succeed", "manifestly groundless", "so manifestly faulty that it does not admit of argument", "cannot succeed", or "under no possibility can there be a good cause of action" [General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, 129; Pannizutti v Trask (1987) 10 NSWLR 531, 536; Rajski v Powell (1987) 11 NSWLR 522, 524; Wentworth v Rogers (No. 5) (1986) 6 NSWLR 534; Brimson v Rocla Concrete Pipes Limited [1982] 2 NSWLR 937, 942; Ritchie's Uniform Civil Procedure, [13.1.5]]. Thus the power summarily to dismiss proceedings is exercised only where the defect in the plaintiff's claim is clearly established [General Steel, 129].
4 Although they have tendered a substantial quantity of evidentiary material, the defendants have not sought to establish that they have incontrovertible defences of fact. Although not quite exclusively, the arguments which they advance depend essentially on examination of the pleadings. An order for summary dismissal will be made on the examination of the pleadings only if it is apparent that the case is absolutely hopeless, or that there is no possibility of the facts pleaded giving rise to a good cause of action [Dey v Victorian Railway Commissioner (1949) 78 CLR 62, 90; Tampion v Anderson [1973] VR 321, 325], and that the pleading is beyond saving by legitimate amendment [Mutual Life & Citizens Assurance Co Limited v Evatt (1970) 122 CLR 628, 639; Penthouse Publications Limited v McWilliam (NSWCA, 14 March 1991, unreported), BC9102223; Brimson v Rocla Concrete Pipes, 942]. In such a case, the applicant for summary dismissal must accept the truth of all allegations in the opposing pleading, including the ranges of meaning that the assertions of fact in it are reasonably capable of bearing [Penthouse Publications Limited v McWilliam]. In other words, the application must be determined on the footing that the truth of the allegations of fact in the statement of claim, taken at their highest, is assumed.
5 Where the substantive proceeding is for discretionary relief, it is inappropriate to embark on an application for summary dismissal that requires an examination of the whole of the merits to determine whether a discretion could possibly be exercised in favour of the plaintiff [Commercial Banking Co of Sydney Limited v Pollard [1983] 1 NSWLR 74]. However, a court is not precluded from making an order for summary dismissal where, taking the plaintiff's case at its highest, it is apparent that the plaintiff must fail. Thus if it can be shown that any exercise of discretion in favour of granting the relief sought by the plaintiff would involve error of the kind described in House v the King (1936) 56 CLR 499, 505, then the case is one in which summary dismissal may be granted, notwithstanding that discretionary relief is involved. Such a conclusion may be reached either because, on the plaintiff's case taken at its highest, some essential pre-condition to jurisdiction or power to grant the relief sought is absent, or because, even though there is power to grant the relief, the court's discretion could only reasonably be exercised by declining it.
6 Accordingly, the present application is to be approached by considering whether, taking Honest Remark's case as pleaded at its highest, there is no power to grant the relief that it seeks, or whether, if there were such power, it would be manifestly unreasonable to grant it, and bearing in mind the caution that a first instance court should be careful not to risk stifling the development of the law by summarily rejecting a claim where there is a reasonable possibility that, as the law develops, it will be found that a cause will lie [Hospitals Contribution Fund of Australia v Hunt (1982) 44 ALR 365; Edwards Karwacki Smith & Co Pty Ltd v Jacka Nominees Pty Ltd (in liq) (1994) 15 ACSR 502, 507-508].
The Plaintiff's Case
7 What follows is a summary of the facts that Honest Remark asserts and which I assume for the purposes of this application. Given that they involve potentially serious imputations against the Administrators, it is important to appreciate that they are not findings of fact, but assumptions for the purposes of this application.
8 Allstate has two wholly owned subsidiaries ("the Allstate Subsidiaries"): ACN 070 164 653 Pty Ltd ("ACN"), and Allstate Prospecting Pty Ltd ("APL"). The shares in Allstate are held approximately as to 26% by Beaconsfield Gold NL ("BCD"), as to 17% by the public (including Honest Remark), and as to 57% by Otter Gold Mines Limited ("Otter"), which in turn is controlled by Normandy NFM Limited ("Normandy") and ultimately by Newmont Limited ("Newmont").
9 On 19 October 1992, the Allstate Subsidiaries (as to 51.5%) and BCD (as to 48.5%) became participants in a joint venture to mine the Beaconsfield gold mine near the Tamar River, north of Launceston, in Tasmania ("the Joint Venture"). Under the Joint Venture agreement, Allstate was the manager of the Joint Venture, and as manager, was entitled to a lien over the Joint Venture assets, which in early June 2001 were valued at $6.689 million.
10 On 19 September 2000, Allstate renegotiated its $19.5 million loan facility with Macquarie Bank Limited ("Macquarie"), as a result of which no principal was repayable until June 2001, when a quarterly repayment of $1.25 million became due, and all moneys owing were repayable on 31 December 2004. The facility was secured by a fixed and floating charge over the assets of Allstate, fixed and floating charges over the assets of the Allstate Subsidiaries, fixed charges over the interests of the Allstate Subsidiaries in the Joint Venture property, and mortgages by the Allstate Subsidiaries over mining tenements. Allstate had on-lent the $19.5 million that it had borrowed from Macquarie, to the Allstate Subsidiaries.
11 As at about 1 June 2001, Allstate also had a contingent exposure of approximately $12 million to Macquarie under a gold hedged contract.
12 In early June 2001, Macquarie initiated contact with the Administrators, to ascertain their availability to act as voluntary administrators of Allstate. On 7 June 2001, Macquarie conferred with the Administrators for that purpose, and proposed to Allstate's directors that the Administrators be appointed. Macquarie provided to the Administrators an indemnity in respect of claims that might be made against them for acting in that capacity. On the afternoon of 7 June 2001, Macquarie informed Allstate's directors that its continued support of Allstate was conditional upon Allstate going into administration, and that it would not otherwise roll over the loan facility after 30 June 2001.
13 As a result, on 8 June 2001 Allstate's directors resolved (pursuant to Corporations Act 2001, s 436A) to go into voluntary administration, and appointed the Administrators jointly and severally as administrators of Allstate. The first meeting of creditors, convened pursuant to s 436E, was held on 18 June 2001.
14 On 25 June 2001, BCD's secured creditor, BankWest, appointed Garry Trevor of Ferrier Hodgson's Perth office as receiver and manager of BCD.
15 On 24 September 2001, the Administrators reported to creditors, expressing an opinion that creditors should accept a deed of company arrangement proposed by them. On 4 October 2001, at the second meeting of creditors, convened pursuant to s 439A, the creditors resolved, pursuant to s 439C, that Allstate execute the proposed deed of company arrangement, and the Administrators thereupon became deed administrators. Allstate executed the deed on 12 November 2001.
16 The deed provided that the deed administrators might continue to trade for so long as in their absolute discretion it was in the best interests of the creditors to do so, and the deed administrators were authorised to realise assets of Allstate. The Administrators and Mr Trevor had originally decided to continue to operate the mine until a purchaser could be found, but by mid-November 2001 they had decided instead to continue to operate the mine under the Joint Venture agreement. By that time, cash flow from the Joint Venture had significantly improved, and its profitability thereafter continued to grow steadily and significantly.
17 By about September 2001, the Administrators had received legal advice, from Mallesons Stephen Jaques, that the secured creditors of the joint venture (Macquarie and BankWest) ranked behind unsecured creditors to the extent of the manager's lien for unpaid calls. The mine was and remained cash flow positive, with a quarterly positive net cash flow of $2.713 million for the September quarter and with neither secured creditor having to provide any funding for the mine to operate. The cost of gold mined was decreasing, and the price of gold was increasing, which had a detrimental effect on Macquarie's hedge book, unless gold continued to be produced by the mine. The secured creditors' mine sale process was tending to show that the sale price would not be suitable to Macquarie or BankWest, even if any purchaser assumed environmental liabilities associated with the mine. The choice for the secured creditors was between selling or trading on: closure of the mine was not a commercial or practical option due to the terms of the joint venture agreement, environmental liabilities, the terms of the mining licence, and the fact that any money from a sale would be better than nothing, as on closure the mining tenement would revert to the State. At least so long as it was cash positive, it was in the secured creditors' interests to permit the mine to continue operating, at least until it was sold or a further call was necessary to be made by the manager.
18 By 25 September 2001, the Administrators had surrendered, or "sold", the manager's lien, secured by assets valued at $6.689 million - which would have been sufficient to satisfy in full the claims of Allstate's unsecured creditors - to Macquarie and BankWest, for a deferred payment of $500,000, to be made as a contribution to the unsecured creditors ("the lien sale").
19 On 5 March 2002, the Administrators reported to creditors recommending further variations to the deed; on 19 March 2002 a meeting of creditors resolved to vary the deed again, and (with Macquarie abstaining) resolved to assign, to Macquarie, the intercompany debts owed to Allstate by the Allstate Subsidiaries - which then amounted to $77.458 million, and included the $19.5 million which Allstate had originally borrowed from Macquarie and on-lent to its subsidiaries, plus interest - for a price of $300,000. At the time of this transaction ("the loan assignment"), Allstate's exposure to Macquarie under the loan facility was already secured by a fixed and floating charge over the assets of the Allstate Group. The loan assignment had the effect of converting an internal debt owed to Allstate by its subsidiaries, into an external debt owed to Macquarie not only by the Allstate subsidiaries but also by Allstate itself, to increase significantly the debt that Macquarie was entitled to recover from Allstate, and to give Macquarie priority over Allstate's shareholders and unsecured creditors for the first $77 million of distributions that Allstate might receive from the Joint Venture. The further varied deed was executed on 28 March 2002.
20 Following completion of capital raisings by BCD and the restructure of its debt facilities with BankWest, Mr Trevor retired as its receiver on 12 March 2004.
21 Honest Remark contends that the practical consequence of the lien sale and the loan assignment was to pass effective commercial control of Allstate's interest in the mine, including its right to manage the mine, to Macquarie, so that Macquarie's control now continues in circumstances where, but for the lien sale and the loan assignment, Allstate would now be out of external control, and Allstate's debt to Macquarie would have been repaid in full.
22 The lien sale is said to have been apparently uncommercial, as it involved surrender of the manager's lien for $500,000, paid effectively by the secured creditors of the Joint Venture for the benefit of unsecured creditors of Allstate out of cash flow of the mine, when the lien could have been enforced against assets then available and valued at $6.689 million, in which event unsecured creditors could have been paid in full, without further delay. It is said that by surrendering the lien to the secured creditors, the Administrators forestalled the possible appointment of a receiver by Macquarie which if made would have jeopardised the loan assignment transaction, as a receiver appointed by Macquarie could not have sold Allstate's intercompany debts to Macquarie. Honest Remark contends Allstate (and in particular unsecured creditors and contributories) were prejudiced by the Administrators' failure to make calls upon BCD for its share of Allstate's indebtedness to unsecured creditors, and/or to enforce such calls by reliance upon the manager's lien.
23 The loan assignment is said to have been without apparent reasonable commercial justification, as it was effected at a time when public statements of BCD demonstrate that the Joint Venture was cash flow positive and profitable and steadily and increasingly so. A significant effect of the loan assignment is said to have been to prolong the administration of Allstate, to the advantage of the Administrators - particularly when compared to the experience of BCD in extracting itself from the BankWest receivership.
24 The Administrators commended the lien sale and the loan assignment transactions to Allstate's creditors on the basis that they were necessary to secure the continued financial support from Macquarie to enable the mine to remain open. This was an important consideration for unsecured creditors, and for employees, who lived in the local community. The Administrators appear not to have disclosed to creditors, or at least to have clearly brought home to them, that the commercial imperatives for the secured creditors were such that it was in Macquarie's interests to ensure that the mine did not close, and that even if neither of the lien sale or the loan assignment proceeded, Macquarie was likely to continue the financial support necessary for the mine to remain open, at least while the joint venture remained cash flow positive.
25 At the times of the lien sale and the loan assignment (between June 2001 and about March 2002), the Administrators had, or upon proper investigation should have had, information that the Joint Venture was cash-flow positive, and was or would within a short time become profitable; that there was a commercial imperative for each of Macquarie and BankWest to allow the Joint Venture to continue to trade, so long as it was cash flow positive; that the lien sale - for $500,000 or at all - was neither necessary for the continued operation of the joint venture nor commercially prudent; and that the loan assignment was neither necessary for the continued operation of the joint venture nor commercially prudent. Statements made by the Administrators in their report to creditors dated 24 September 2001, and at the second meeting of creditors held on 4 October 2001, in respect of the lien sale, are said to have been apparently factually incorrect in suggesting that, if Allstate sought to enforce its lien, the mine would have to be closed; that enforcement of the lien was procedurally impracticable; and that the lien had a maximum value of $2.5 million. Likewise, statements and assumptions conveyed by the Administrators to creditors in a circular to creditors in a circular to creditors dated 5 March 2002 and at a meeting of creditors on 19 March 2002, in relation to the loan assignment, are said to have been incorrect, particularly in suggesting or conveying that there was a real risk that the mine would close.
26 Honest Remark contends that these apparent inaccuracies in the statements made in respect of both the lien sale and the loan assignment cast doubt on whether the Administrators properly performed their duties, or engaged in misleading and deceptive conduct, and that in commending the lien sale and loan assignment to creditors, the Administrators made representations to creditors and Allstate about future matters - particularly, the future performance of the joint venture and whether Macquarie would continue financial support for the mine to remain operational - in respect of which doubt attends whether there was a reasonable foundation, it being said that the increasing profitability of the mine following September 2001, and the experience of BCD in extracting itself from receivership, suggests that there was no such foundation.
27 Further, Honest Remark contends that the lien sale and loan assignment cast doubt upon whether the Administrators have properly discharged their duties under Corporations Act, s 438A, to conduct an investigation and to form opinions, in light of the circumstances that it was under pressure from Macquarie that on 8 June 2001 the Allstate directors resolved to appoint the Administrators as such; it was by Macquarie that the Administrators were nominated for that role; it was at the request of and upon an indemnity from Macquarie that the Administrators accepted their appointment; there was no apparent reason for Macquarie to promote a voluntary administration process, in preference to enforcing its existing securities, if it wished to recover its indebtedness; in the result, Macquarie obtained significant commercial advantages from the lien sale and the loan assignment; the speed with which the lien sale and the loan assignment were effected; and the failure of the Administrators to bring home to creditors that it was a commercial imperative for Macquarie to continue financial support for the mine to remain operational.
28 In that context, Honest Remark contends that it entertains a bona fide concern that the Administrators, in their dealings with Macquarie, might have acted (and, insofar as they are unwilling or unable to investigate the possibility that they are liable to compensate Allstate for negligent or misleading conduct, might be continuing to act) in a manner prejudicial to the interests of members and unsecured creditors of Allstate, by preferring their own interests (in prolonging the administration of Allstate) and those of Macquarie to the interests of members and unsecured creditors of Allstate, and may have been negligent in their performance of the duties owed by them to Allstate (in contravention of Corporations Act, ss 180 and/or 181, their common law duty of care, or their fiduciary obligations), and may have engaged in misleading conduct, in promoting the lien sale and the loan assignment to creditors of Allstate (in contravention of Trade Practices Act, 1974 (Cth), s 52 and equivalent provisions).
29 Further, Honest Remark contends that the personal interests of the Administrators in avoiding any liability to Allstate are in conflict with their duty as officers of Allstate to investigate whether for any of those reasons they have caused compensable damage to Allstate, and accordingly that it is necessary for an independent person to be appointed as special purpose administrator to conduct such investigation - the object being to ascertain:
· whether there are reasonable grounds for the institution of proceedings by Allstate against the Administrators to recover compensation;
· whether there are reasonable grounds for an application to be made (under, at least, Corporations Act ss 445D, 447A or 449B) for an order that the deed be terminated or that the Administrators be removed as deed administrators; and
· whether there are reasonable grounds for the making by Allstate of any (and if so what) claims for relief against parties other than the Administrators (presumably, Macquarie).
30 Thus the essential elements of Honest Remark's case are, first, that the information presently available raises issues about whether Allstate has entitlements to relief against the Administrators (and, incidentally, against Macquarie) which might constitute an asset available to members and unsecured creditors of Allstate, and which therefore ought to be investigated; secondly, that the Administrators' are inappropriate investigators due to conflict of interest and duty; and thirdly, that the Court can and should appoint a special purpose administrator to investigate those issues on behalf of Allstate, under the supervision of the court.
31 Although an enormous amount of documentary evidence has been tendered on this application, in part by Honest Remark (no doubt to show that its contentions were reasonably arguable), and in part on behalf of the Administrators, I did not understand Mr Pembroke SC, who appeared for the Administrators, to contend that the allegations made by Honest Remark, as summarised above, which found the first of the three elements just summarised, were not sufficiently arguable to survive an application of the type presently under consideration. In any event, consistent with the approach to applications for summary dismissal explained above, for the purposes of this application I assume them to be correct. In particular, taking Honest Remark's case at its highest, I proceed on the basis that it will be able to establish at the final hearing of its application for appointment of a special purpose administrator that there are issues pertaining to the conduct of the Administrators in their capacity as such, by reason of which they might be liable to compensate Allstate, and that those issues are such as reasonably to warrant investigation.
32 It is essentially on the second and third element that, for the purposes of this application, issue is joined. The defendants submit (1) that there is no true conflict, because the Administrators have no duty to investigate the conduct of their administration, particularly where all that is alleged is a possibility of potential liability; (2) that in the circumstances, there is no power to appoint a special purpose administrator for the purpose of conducting the proposed investigation; or alternatively (3) that to do so would be manifestly unreasonable.
33 Before considering those submissions, it is necessary to address whether the application for summary dismissal should be entertained at all.
Should the Court Decline to Entertain the Application?
34 Mr Lindsay SC, who appears for Honest Remark, has submitted, in effect if not in terms, that the court should not entertain the application for summary dismissal, particularly having regard to what is said to be the "adjectival" character of the application for final relief, namely the appointment of a special purpose administrator to conduct an investigation and to report to the court. He submits that pursuit of the present interlocutory application is inimical to the just and quick resolution of the real issues in the proceedings, contrary to Civil Procedure Act, s 56(3), and that the summary dismissal application is unnecessary, as the same issues will need to be or at the very least can be reviewed in the different curial context of a final hearing.
35 The Administrators say that if the matter goes to final hearing, they will seek to adduce evidence on four main topics. The first topic is the commercial prudence and necessity of the impugned transactions, and the propriety of their conduct seen in the contemporaneous circumstances, rather than in hindsight. The purpose of such evidence would be to demonstrate the absence as a matter of fact of any grounds for criticism of them, so as to show by affirmative defence that an investigation would be futile. The second topic is the impact of the transactions in their contemporaneous circumstances, including the actual expectations and motives of Macquarie, the creditors and the Administrators, so as to show whether Allstate's position would have been better or worse had the Administrators not entered into the lien sale and loan assignment. The purpose of this evidence would be to demonstrate that Allstate would probably have been in an inferior position, with the result that there was not a reasonable basis for anticipating that an action against the Administrators or Macquarie would result in the award of any damages; again, ultimately, that goes to showing that an investigation would be futile.
36 The third topic would be the disruptive and invasive consequences of a parallel investigation into the Administrators' conduct (including the undermining of their authority), while they are continuing to conduct the business of a functioning deep underground gold mine employing 130 people in a small community that is highly reliant on its efficient and on-going successful operation, from which they would be distracted by the investigation. The fourth topic would be the scope and extent of the ASIC investigation, presumably in order to show that the matters had already been thoroughly investigated. The third and fourth topics would potentially be relevant to the exercise of the court's discretion to grant or refuse the relief that Honest Remark seeks.
37 There is no reason to doubt that the Administrators would seek to adduce evidence on these issues as it has said, and it cannot be said that they would not be entitled to do so. Particularly for the purposes of demonstrating that an investigation would futile, whether by reason of the Administrators' conduct being within the legitimate ambit of their commercial judgment, or by reason of no loss being demonstrable, a substantial evidentiary contest can be anticipated. The final hearing of Honest Remark's application for appointment of a special purpose liquidator is likely to be a substantial one. If, taking Honest Remark's case at its highest, the relief it seeks could not be granted, or as a matter of discretion no court acting reasonably would grant it, then it would be an unnecessary and unjustifiable use of the resources of the parties and the court to embark on such a hearing. For that reason, there is in my opinion utility in the application for summary dismissal, and I would not decline to entertain it.
38 However, it would be inappropriate to embark on this application on a review of the whole of the merits and all the discretionary considerations, to determine whether a discretion could possibly be exercised in favour of the plaintiff [Commercial Banking Co of Sydney Limited v Pollard]. The distinction is that, if what is involved is a question of power, or a fatal discretionary factor, summary dismissal may be appropriate; but if a complete review and weighing of all the discretionary factors is required, the exercise is not appropriate. That enables at least three of the Administrators' arguments to be set aside at this point.
39 The first arises from the circumstance that the issues which Honest Remark seeks to agitate against the Administrators have already been the subject of an investigation by ASIC, which over a period of twelve months examined witnesses, required production of relevant documents, and obtained the advice of senior counsel, before deciding to take no further action in relation to the matters investigated. The Administrators seek to characterise ASIC's decision as an exoneration, and contend that what is sought is another investigation of the matters already investigated by ASIC, in the absence of proof of error in ASIC's investigation. Honest Remark, on the other hand, puts that there has been no exoneration, nor even an investigation of the matters the proposed special purpose administrator would be charged with investigating.
40 It was not ASIC's function to determine whether Allstate had a cause of action against the Administrators sounding in damages, or whether an application should be made for an order terminating the deed of company arrangement, or that the Administrators be removed as deed administrators. ASIC itself has said that "it would be a mistake for anyone to draw any conclusions of guilt, liability, exoneration, vindication or otherwise from the mere fact of the investigation's conclusion" [letter from ASIC to Piper Alderman dated 11 August 2005].
41 Now is not the time to resolve conclusively whether the circumstance that related issues have been investigated by ASIC is ultimately relevant to Honest Remark's claim for the appointment of a special purpose administrator. It may be, but it is at least arguable that, if Honest Remark were otherwise entitled to have its concerns investigated by a special purpose administrator, the circumstance that ASIC has already investigated those concerns should not deprive it of that remedy. On this application, and without determining whether or not the ASIC investigation would be a relevant consideration on any ultimate hearing of Honest Remark's claim for appointment of a special purpose administrator, I do not consider that the fact and outcome of the ASIC investigation shows or tends to show that Honest Remark's claim is untenable. Accordingly, for the purposes of this application, I disregard it.
42 The second matter which may be set aside is the Administrators' submission that Honest Remark's Statement of Claim does not allege facts that demonstrate that the appointment of a special purpose administrator would be for the general advantage of persons interested in the administration of Allstate - not only because, so it is said, there is no basis for supposing that a special purpose administrator would likely reach a conclusion different to that at which ASIC arrived, but also because facts are not alleged which might demonstrate that Allstate would have been any better off but for the loan assignment and the continuing financial support of Macquarie, nor that the commercial judgment of the Administrators might reasonably be impugned.
43 Both of these issues are, I think, premature. One of the purposes of the proposed investigation is to ascertain whether there is a viable cause of action, which in turn will involve examination of whether or not the Administrators' conduct falls within the legitimate ambit of commercial judgment or not, and whether it has been productive of loss or not. On Honest Remark's application in these proceedings, it will not be necessary for it to prove that the Administrators' conduct falls outside the legitimate ambit of commercial judgment, nor that there has been loss: if it could already do so, any such investigation would be unnecessary. It may well be that if the Administrators can show in their defence that the investigation would be futile, because there was no loss and because the Administrators acted within the legitimate ambit of commercial judgment, Honest Remark's application would fail. But that is another step down the track from the present application, and on the material presently before the court it cannot be said that, on that account, Honest Remark's application is doomed to fail.
44 The third matter which may be set aside is the minority nature of Honest Remark's interest. While the extent of support for the application amongst the contributories and unsecured creditors might be relevant on the final hearing, Honest Remark's claim would not be doomed to fail just because it had a small minority interest, even if it was unsupported by any other contributory or creditor, and I disregard this factor for the purpose of this application.
No true conflict?
45 The Administrators have submitted that the second element in Honest Remark's case - that their position as potential investigators is compromised - cannot be established, because there is no true conflict of interest and duty, they having no duty to investigate allegations against them in respect of their conduct of the administration, especially when those allegations do not reach the level of asserting a serious question to be tried:
The alleged conflict is constructed on the basis that the administrators " might" have breached their duty. But not only does the plaintiff refrain from alleging a prima facie case of breach of duty, it expressly states that the court need not determine whether [Allstate] "might" have a cause of action against the administrators. It is obvious that any shareholder in the plaintiff's position, genuinely convinced of the correctness of his contentions, may "create" a conflict by asserting that there may possibly have been a breach of duty by an officer of the company in relation to a past transaction. This could not be sufficient to justify the relief sought.
46 Elaborating on this, the Administrators submit that for an administrator to be removed for want of impartiality or conflict of interest, there must be an apprehension on the part of a creditor that the administrator would be impeded or inhibited by such matter, and that any such apprehension must be reasonably held [Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, 232-233 (Santow J); Dallinger v Halcha Holdings Pty Ltd (1995) 60 FCR 594, 600 (Sundberg J); Onefone Australia Pty Ltd v One.Tel Limited (in liq) (2003) 48 ACSR 562] and must be such that the removal of the administrator would be conducive to the better conduct of the administration [Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544, 550-551 (Hayne J)], and for the general advantage of the persons interested in the administration of the company [Advance Housing v Newcastle Classic Developments, 232]. The Administrators submit that for the plaintiff to establish a real possibility of conflict, Honest Remark must at least assert that there is a serious question to be tried that the Administrators are liable to Allstate, which it expressly refrains from doing.
47 In Re George A Bond & Company Limited (1932) 32 SR (NSW) 301, relied on by the Administrators, the entire undertaking and assets of the company in voluntary liquidation had been transferred to a new company formed for their acquisition. Contributories alleged that the sale was at an undervalue, and applied for the removal of the liquidator. The liquidation had been entirely completed, except in regard to the prosecution of the claims against the liquidator (and the executors of a deceased co-liquidator) relating to the allegedly negligent sale of the company's undertaking and assets at an undervalue. Long Innes J held that while actual proof of misconduct by a liquidator as such would always justify removal, because it was evidence of personal unfitness, a prima facie case of misconduct might require removal in some, though not necessarily all, cases: if, for example, there were reason for thinking that the interests of the creditors or contributories would be imperilled if the liquidator were to remain in office, removal might be justified, not because of personal unfitness, but as a method of insurance to protect the interests of those interested in the liquidation against possible and not necessarily probable loss. His Honour observed that where the claim was against the liquidator himself for alleged misconduct in the discharge of his office - particularly where he was practically a bare trustee, and neither believed or ought to believe that the claim had any reasonable prospect of success, or that any useful purpose would be served by its prosecution - his duty as liquidator did not exceed a passive duty to take no advantage of his position as such to impede the prosecution of the claim, and an active duty to take such action as would permit of such prosecution.
48 Re Bond therefore supports the proposition that a liquidator (or administrator) does not have a duty to investigate allegations against himself or herself of alleged misconduct in the discharge of the office of liquidator. In that sense, it supports the Administrators' submission that there is no true conflict of duty and interest, because they have no duty to conduct the proposed investigation, a matter not without relevance to other issues to which I shall in due course come. But as I apprehend Honest Remark's case, it does not depend upon a "true" conflict of duty and interest. In distinction to the position in Re Bond, the present plaintiff does not apply for the removal of the Administrators. It alleges that there is a matter calling for investigation, and that the Administrators' capacity to investigate it is compromised, because it concerns their own potential liability. The gravamen of the second element in Honest Remark's case is the unsurprising proposition that the Administrators are not the appropriate persons to conduct the proposed investigation, because they are to be the subject of the investigation. It is self-evident that in investigating the possibility that their own conduct might have occasioned loss to Allstate, and that there might be a cause of action against them, the position of the Administrators would be compromised by their own interest in the outcome. That is most definitely not to say that a case for their removal has been made. Nor that they have a duty to investigate the matter. But it does show that, if the matter is to be investigated, they are inappropriate persons to perform the investigation.
49 Accordingly, and consistent with the approach which I have outlined above, taking Honest Remark's case at its highest, I proceed on the basis that it will be able to establish at the final hearing of its application for appointment of a special purpose administrator that because the matters calling for investigation pertain to the conduct of the Administrators and their potential liability, they are not appropriate persons to conduct any such investigation. It will be appreciated that what I have just expressed does not involve acceptance that the Administrators themselves have a duty to conduct any such investigation.