I accept that evidence.
132 The advice which Mr Conolly gave to Mr Watson was not written. The advice which Mr Connolly sought when the estoppel defence was first pleaded, was from Mr Morahan of counsel. Mr Hughes QC gave advice in conference. Mr Conolly had at least two conferences with Mr Hughes QC, and maybe three, in early to mid 2002. No notes of the advice in conference from Mr Hughes QC and Mr Morahan were tendered, nor was any backsheet, or observations, or brief of documents which might have been provided to either of them. In these respects, the evidence about the advice given by Mr Hughes QC, Mr Morahan and Mr Conolly, is not fully satisfactory. Even so, I am satisfied that the liquidator sought advice from both Mr Conolly and Mr Hughes QC, concerning both the estoppel defence and the Ex parte James claim, and from Mr Morahan concerning the estoppel defence, and that the nub of the advice was that the liquidator should persist with the litigation, notwithstanding those matters.
133 Mr Watson submits that liquidators who seek independent legal advice, receive legal advice that they have no reason to believe is incorrect, and thereafter act in accordance with that advice, cannot be acting unreasonably or improperly. I do not accept that proposition. The passage from the judgment of Bowen LJ in In re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 562, quoted at para [97], is against it. Even so, the fact that advice has been sought, that the advice came from several legal practitioners, and that there was no dissenting voice in the advice, are all significant factors tending towards a conclusion that the liability to pay Mr Mead's costs was one which was reasonably incurred for the benefit of HE.
Reasonableness of Testing the Factual Basis of the Estoppel Case?
134 Mr Mead submits that the estoppel and Ex parte James allegations in this case have an important difference from the issues in most litigation where a liquidator seeks to get in company assets. In the usual case, all the relevant events have occurred before the liquidator is appointed, and for that reason it is often appropriate for the liquidator to put allegations to the test, through the litigious process. The present case is different, Mr Mead submits, because the events out of which the dispute arose were entirely ones relating to the liquidator's own conduct, in the course of his administration. For that reason, it is submitted that the relevant facts have, at all times, been fully within the liquidator's knowledge.
135 From the time that Mr Mead received notice that caveats had been lodged against some of the Four Properties, he made the liquidator aware of his contention that there was an estoppel with respect to those properties, and the basis of the estoppel. That argument had been articulated by the time of the hearing before Hamilton J on 14 December 2001. The affidavits of Mr Mead and Mr Dominello, which set out their case concerning reliance, were sworn on 29 and 24 January 2002 respectively, and served shortly after those dates. In my reasons for judgment of 3 November 2003 I set out at length, and accepted, large parts of Mr Dominello's affidavit. In that judgment, at para [94], I set out, and accepted, evidence of Mr Mead from his affidavit of 29 January 2002. Mr Mead submits, correctly, that in cross-examination of Mr Mead and Mr Dominello, it was never put to them that they knew that the Four Properties would be claimed by the liquidator.
136 It is incorrect to say that the totality of the facts relating to the estoppel defence was in the knowledge of the liquidator. Of the six elements of an estoppel, quoted at para [95] of my earlier judgment, the assumption or expectation of Mr Mead is an essential part of each of the six elements. It could not be said that the existence of that assumption or expectation was within the liquidator's knowledge.
137 Further, whether Mr Mead had acted or abstained from acting in reliance on his assumption or expectation is a matter which was not within the liquidator's knowledge. Mr Mead had refused to attend any meetings with the liquidator during 2001, so the liquidator did not have the most elementary means of ascertaining Mr Mead's assumptions, expectations, and reasons for acting, namely by asking him, available to him. During 2001, even though the claim which the liquidator predominantly made against Mr Mead was that, as a result of HE's money being used to buy the properties Mr Mead owed HE a large debt, the liquidator was not altogether consistent and unequivocal in that respect. An affidavit of Mr Watson of 13 August 2001 (set out at para [66] of my previous reasons), referred to him having "an apprehension that the matrimonial property, which Mr Mead is said … to be wishing to sell for the purpose of funding of the Common Law Proceedings may, in whole or in part, comprise assets properly belonging to Hypec."
138 There were two occasions in July 2001 when Mr Conolly said to Mr Fagan SC words to the effect of "the real estate of your client probably isn't his", and another occasion in July 2001 when Mr Conolly said to Mr Fagan "it is absurd to suggest that you can ask the Family Court to provide your client with property of the company to fund the cross claim and the application to set aside judgment", to which Mr Fagan did not respond. The fact that the liquidator and his solicitor were showing to Mr Mead and his legal advisers some equivocation about their preferred position, that the monies had been lent, provided them with some basis for wondering whether Mr Mead had indeed relied on the representation he claims to have relied on - when they had been playing two different tunes to Mr Mead, was it right that he had heard only one of them?
139 The state of relations between Mr and Mrs Mead was also relevant to whether it was reasonable for the liquidator to test the estoppel defence. If the liquidator were to simply give up on that defence, he was highly likely to have been the subject of criticism by Mrs Mead. That factor would not be enough to justify him in taking a course which was otherwise not a reasonable one, however.
140 On 6 February 2002 Barrett J heard an application which Mr Mead made in proceedings number 1268 of 2002 for a separate determination of the estoppel issue. His Honour dismissed that application: Hypec Electronics v Mead [2002] NSWSC 36. An important factor in his Honour's reasoning was that the proceedings involved both a trust strand and an estoppel strand, that Mr Mead was a potential witness in both strands of the case, that his credit would be a relevant matter, and that it was therefore inappropriate to try the two strands separately. That decision is one that proceeds on the basis that there really is a question to be tried, to which Mr Mead's credit would be relevant, so far as the estoppel defence went. No reason has been shown why the liquidator ought to have taken a different view to that which Barrett J took.
141 It is also relevant to the reasonableness of the liquidator contesting the estoppel defence that, until the commencement of the hearing, it was put on a wider basis than the estoppel defence which was actually run at the hearing. That the pleaded defence contained elements which Mr Mead ultimately chose not to press, leads inevitably to a conclusion that, at least so far as those elements which were not pressed are concerned, the liquidator was reasonable in opposing them.
142 In all these circumstances, the liquidator was, in my view, acting reasonably in opposing the estoppel claim.
Practical Effect of not making Personal Costs Order Against Liquidator
143 Mr Fagan SC points to the fact that if there is a surplus at the end of the winding up of HE, it will be distributable to Mr and Mrs Mead in equal portions. While the evidence about the likely outcome of the liquidation is very sketchy, it can at least be said, at present, that it does not seem impossible that there might be a surplus. If there were to be a surplus, and the liquidator were free to have any costs order which was made in Mr Mead's favour paid from the assets of the company, Mr Mead would in effect be paying half of that costs order himself. For that reason, Mr Fagan submits, the liquidator should, at the least, pay half of Mr Mead's costs personally. As well, Mr Mead still has on foot a property settlement dispute with Mrs Mead. Mr Fagan submits that, to the extent to which Mrs Mead's share in any surplus is eroded, there will be fewer assets for Mr Mead to claim in the Family Court. For that reason, the liquidator should pay all Mr Mead's costs.
144 I do not find that argument persuasive. It does not give enough weight to the separate existence of the corporation from its shareholders. By becoming shareholders in a corporation, any rights which Mr and Mrs Mead have in relation to assets of the corporation can be ascertained only by a working through and application of the law concerning corporations. That includes the law concerning winding up of corporations, and the law concerning the circumstances in which the costs of litigation which a liquidator causes a corporation to engage in can be paid from the assets of that corporation. Whether or not a liquidator can cause such costs to fall on the assets of the corporation depends upon a characterisation of the conduct of the liquidator in running the litigation. It does not depend upon how it will affect the contributories.
Liquidator's Incorrect Evidence About Knowledge of Family Court Proceedings
145 At paragraphs [88] - [90] of my reasons of 3 November 2003 I made findings that the liquidator's affidavit evidence, on the topic of the knowledge he had of Mr Mead's application to the Family Court, was incorrect. The extent of knowledge which the liquidator had of the Family Court proceedings was a very important matter in the litigation. Evidence tendered on this costs application by the liquidator has confirmed the correctness of the finding I made in that respect. The letter from Mr Mitchell to the liquidator's firm, dated 24 July 2001 informed him:
"Colin Mead's interim property application was not heard yesterday. Apparently it was allocated a "not reached" status and has been re-listed for October 2001. It appears that the matter will not be dealt with until shortly before the Supreme Court trial date of 5 November 2001."
146 As well, the transcript of the hearing before Einstein J on 17 August 2001 was tendered. At a time when the liquidator's counsel was present, his Honour said to Mr Fagan:
"… your client says that he should be accepted as being in an invidious position, because his hands are tied in that the Family Court has fixed for hearing this interim distribution application just a number of days before the fixture of the common law proceedings …"