In the matter of Colorado Products Pty Limited (in prov liq) [2013] NSWSC 1613

Judgment 1This judgment deals with the third, fourth and fifth of five interlocutory applications heard in these proceedings in October 2013. The third application is brought by the provisional liquidator of the Fifth Defendant, Colorado Products Pty Limited (in prov liq) ("Company") and seeks approval, retrospectively, for the provisional liquidator's entry into a funding agreement and retainer agreement that have now substantially ceased to have effect and of his subsequent assignment of certain claims of the Company to the Plaintiffs. The fourth application concerns an application by the Plaintiffs to set aside certain subpoenas issued by the First and Second Defendants and a fifth and associated application was brought by the Plaintiffs to strike out certain paragraphs of the First and Second Defendants' Amended Defence which potentially support the relevance of those subpoenas. It has again been necessary to prepare and deliver this judgment within a relatively short time in order to seek to minimise the risk that hearing dates presently allocated to the proceedings, commencing on 19 November 2013, would need to be vacated with the risk that the costs incurred by all parties in respect of the proceedings would be increased. Provisional liquidator's application 2By Interlocutory Application dated 18 October 2013, Mr Blair Pleash (in his capacity as provisional liquidator of the Company) seeks, orders under s 477(2B) and 1322(4) of the Corporations Act 2001 (Cth), nunc pro tunc, approving his entry into, and, further and in the alternative, a direction under s 479(3) of the Act that he was justified in entering into, a Funding Agreement and Deed of Indemnity dated 27 July 2012 ("Funding Agreement") and a Costs Disclosure Statement and Client Services Agreement dated 2 August 2012 ("Costs Agreement") with the firm of Jackson Lalic, who also act for the Plaintiffs in these proceedings, one of which is also a secured creditor of the Company. The provisional liquidator's application in respect of the Funding Agreement and Costs Agreement are largely of historical importance, because only the Funding Agreement has residual effect in one limited aspect, and were not opposed by the First and Second Defendants. The provisional liquidator also seeks orders under s 477(2B) and 1322(4) of the Corporations Act, nunc pro tunc, approving his entry into, and a direction under s 479(3) of the Act that he was justified in entering into, a Deed of Assignment dated 8 April 2013 by which he assigned certain claims by the Company to the Plaintiffs. The First and Second Defendants opposed the provisional liquidator's application for approval for the Deed of Assignment. 3The provisional liquidator's application was initially supported by his affidavits dated 18 October 2013 and 23 October 2013. The provisional liquidator's first affidavit set out the history of his appointment as provisional liquidator of the Company and dealt with the circumstances in which that appointment occurred, in the context of a shareholders' dispute between the Plaintiffs on the one hand and the First Defendant, Ms Huang, on the other. He also refers to other proceedings that had been commenced, shortly before his appointment as provisional liquidator, by the Company against two other parties in the District Court of New South Wales. The provisional liquidator's evidence is that he was approached by the Plaintiffs' legal representatives in October 2011 seeking that the Company become party to these proceedings; he refers to negotiations continuing with the Plaintiffs' solicitor over an extended period and to his entry into the Funding Agreement with the First Plaintiff ("HY International") in July 2012 which provided that the Plaintiffs' solicitor would also act for the Company in the proceedings and also provided for HY International to pay the costs of that solicitor in the proceedings and the provisional liquidator's costs of providing instructions to the solicitor in relation to the conduct of the proceedings on behalf of the Company. In August 2012, the provisional liquidator also entered a Retainer Agreement with the Plaintiffs' solicitors in respect of their acting for the Company in the proceedings. 4The provisional liquidator acknowledges, in his affidavit evidence, that he was at all times aware of the need for Court approval of the Funding Agreement, but refers to legal advice given by the Plaintiffs' solicitors in late August 2012 recommending that he defer making an application for that approval until after an expert accountant's report as to damages was finalised for the purposes of the proceedings. That expert accountant's report had apparently still not been finalised over 8 months later, by April 2013, nor had any such application for approval of the Funding Agreement been made over that extended period. It seems to me that this conduct is not satisfactory, although the provisional liquidator's involvement in it is to some extent mitigated by his having acted upon the legal advice he received. The difficulties with that course include, first, that the provisional liquidator disregarded, albeit on legal advice, the statutory requirement under s 477(2B) of the Act for Court approval of the Funding Agreement prior to his entry into it; second, he permitted the Company to conduct the proceedings without, so far as the evidence goes, knowing whether the damages potentially recoverable in them would justify that course; third, as also emerges from his affidavit, he took that course when his investigations were not sufficient to establish whether he could verify the allegations made by the Company in the proceedings, which were based on matters alleged by the Plaintiffs and denied by Ms Huang; and, fourth, he continued the proceedings on behalf of the Company for several months in circumstances that he had neither approval for the Funding Agreement or the Costs Agreement. 5In early February 2013, the provisional liquidator received a letter from the First and Second Defendants' solicitors objecting to his remuneration, which attached a copy of a letter sent to the Plaintiffs' solicitors dated 30 January 2013 that had raised an allegation of potential conflicts on his part and requested his response to those issues by close of business on 1 February 2013. His evidence is that he had not yet been provided with a copy of the letter dated 30 January by the Plaintiffs' solicitors - who were at that time also retained also to act for the Company in the proceedings on his instructions - prior to the receipt of the further letter from the First and Second Defendants' solicitors. The provisional liquidator then took independent advice in relation, inter alia, to the Company's role as party to the relevant proceedings. 6After taking that independent advice, the provisional liquidator formed the view that it was in the best interests of the Company and its creditors that he negotiate with HY International with a view to assigning the Company's claims in the proceedings to HY International. The provisional liquidator sets out his reasons for forming that view at some length in his affidavit; including that an assignment would have the result that the Plaintiffs would have the conduct of that claim where many of the relevant issues were in dispute between the Company's shareholders and the provisional liquidator did not have personal knowledge of the relevant facts. The provisional liquidator also recognised, in taking that course, that the primary beneficiary of funds flowing to the Company from any success in the proceedings would have been HY International as a secured creditor in the amount of approximately $133,000 and the provisional liquidator's firm, for remuneration and expenses, and that unsecured creditors would not receive a dividend until those claims were paid in full. 7After an issue arose in the course of submissions as to the extent to which the provisional liquidator had taken independent advice in connection with the entry into the Funding Agreement and the Costs Agreement, the delay in seeking Court approval for them and the conduct of the proceedings, I allowed the provisional liquidator the opportunity to file further evidence and make further submissions in respect of that issue. The provisional liquidator filed a further affidavit sworn 28 October 2013, but did not make further submissions as to that matter. His further affidavit indicated that he had retained another firm of lawyers to act for the Company in the proceedings in about 2011; the work done by that firm was mainly acting for the Company in these proceedings; and he had received advice from a solicitor within that firm who remained available to advise him in July 2012. The provisional liquidator's evidence was that a senior associate in his employ had a discussion with that firm about the terms of the draft Funding Agreement and not about the operation of s 477(2B) of the Corporations Act or, implicitly, about the conduct of the proceedings. Approval of the Funding Agreement 8Section 477(2B) of the Corporations Act provides that, except with the Court's approval or the approval of a committee of inspection or a resolution of creditors, a liquidator must not enter into an agreement on a company's behalf if the term of that agreement may end, or obligations of a party to the agreement may be discharged by performance, more than 3 months after entry to the agreement. The Court is not concerned, in granting approval to a Funding Agreement, with matters of commercial judgment but is concerned to be satisfied that the entry into that agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator: Re McGrath & Anor (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405. 9Factors relevant to the approval of such an agreement were identified in Re Leigh; AP & PJ King Pty Ltd (in liq) [2006] NSWSC 315. In that case, Austin J summarised relevant factors as including the liquidator's prospects of success in the liquidation; the interests of creditors other than the proposed defendant; possible oppression in bringing the proceedings; the nature and complexity of the cause of action; the extent to which the liquidator had canvassed other funding options; the level of the funder's premium; the liquidator's consultation with creditors; and the risk involved in the claim, including specified matters. Those factors have been applied in subsequent case law determining whether to approve such agreements: for example, Fortress Credit Corporation (Aust) (II) Pty Ltd v Fletcher [2011] FCAFC 89; (2011) 85 ACSR 38 at [24]; Pascoe; Re Matrix Group Ltd (in liq) [2011] FCA 1117 at [14]; Re Gerard Cassegrain & Co Pty Ltd [2013] NSWSC 257 at [12]ff. 10Mr Marshall, who appears for the provisional liquidator, draws the Court's attention to the principles applicable to approval of an agreement under s 477(2B) of the Corporations Act, to which I have referred above, and rightly points out that the Court does not substitute its own judgment for that of a liquidator or provisional liquidator in approving such an arrangement, but will need to satisfy itself that there is no error of law or bad faith or impropriety involved in the transaction. Mr Marshall also rightly notes that retrospective approval of such an arrangement is possible, either nunc pro tunc or under s 1322(4)(d) of the Corporations Act or on both bases: Hardy Bros (Earthmoving) Pty Ltd [2009] FCA 1531; (2009) 76 ACSR 415 at [24]. It is well established that the Court can give retrospective approval to such an agreement under s 477(2B) of the Act and I agree with, and would follow, the view expressed by White J in Hutchison v Hillcrest Litigation Services Ltd [2010] NSWSC 934 that a further order under s 1322 of the Corporations Act is not necessary where an order approving an agreement is made under s 477(2B) of the Corporations Act with retrospective effect. 11Mr Marshall points to the provisional liquidator's explanation of the circumstances of entry into the Funding Agreement and contends that the Court should accept that explanation as logical and satisfactory. The terms of the Funding Agreement were apparently generous to the Company in that they provided for the Company to receive the gross amount awarded to it by way of settlement, judgment or other finalisation of the proceedings after repayment of the funding amounts, without any premium payable to the funder. However, that generosity may be more apparent than real since, to the extent that HY International was a secured creditor of the Company, it would have had at least the first claim on any amount recovered by the Company in the proceedings. Mr Marshall also contends that the litigation was soundly based on fully pleaded claims; was supported by co-plaintiffs who shared the burden of proof with the Company; that the provisional liquidator acted reasonably in not seeking creditors' approval to the arrangement, where the creditors' were primarily comprised of the opposing parties to the proceedings; that the litigation of the Company's claim was not unfairly oppressive, where they involve serious allegations of breach of duty by the Defendants; and that there was no realistic alternative for funding available to the provisional liquidator other than entry into the Funding Agreement. 12I do not consider that the process adopted by the provisional liquidator, albeit on legal advice obtained from the Plaintiffs' solicitors, was wholly satisfactory for the reasons noted above. Nonetheless, I will, with some hesitation, approve the provisional liquidator's entry into the Funding Agreement on a retrospective basis under s 477(2B) of the Corporations Act. First, judging position from today, where the Plaintiffs' evidence has now been filed, it seems to me that the Company's case is fairly arguable; I accept that the provisional liquidator acted reasonably in not seeking creditors' approval for the reasons he notes; and I also accept that the proceedings could not have been conducted without entry into the Funding Agreement. Importantly, as Mr Marshall points out, the remaining operative provision of the Funding Agreement is an indemnity provided by HY International, which it seems to me should fairly continue in operation in all the circumstances. 13As I noted above, the provisional liquidator also seeks, further and in the alternative, a direction under s 479(3) of the Act that he was justified in entering into the Funding Agreement. The function of a liquidator's application for directions under that section is to give the liquidator advice as to the proper cause of action for him or her to take in the liquidation: Re Ansett Australia Ltd (admins apptd) v Korda [2002] FCA 90; (2002) 115 FCR 409; (2002) 40 ACSR 433 at [46]. The Court may give such a direction, inter alia, where there is a legal issue of substance or procedure such as the propriety or reasonableness of the particular course: Re Addstone Pty Ltd (in liq) (1997) 25 ACSR 357; Pascoe; Re Matrix Group Ltd (in liq) above; Re Gerard Cassegrain & Co Pty Limited (in liquidation) above at [18]. A liquidator is protected against a claim for breach of duty if he or she acts in accordance with a direction given by the Court under s 479(3) and he or she made full disclosure to the Court in the relevant application. The concerns that I have expressed above as to the long delay in seeking the Court's approval of the entry into the Funding Agreement are such that I do not consider that I should give such a direction in this case. Approval of the Costs Agreement 14The provisional liquidator also seeks approval, retrospectively, for his entry into the Costs Agreement and, further or in the alternative, a direction under s 479(3) of the Act in that regard. There may have been no substantial difficulty with such an application had it been brought promptly. There is, on the evidence, no reason to think that the rates contemplated by the Costs Agreement or its other terms are unusual. The Court's role, as I have noted above, is not to second-guess the provisional liquidator's judgment as to the experience and qualification of the solicitors retained. The Court would have given close attention, in such an application to the question how any conflicts of interest arising from the provisional liquidator's retainer in the proceedings of the solicitors who were also retained by the Plaintiffs would be addressed. On the one hand, liquidators and provisional liquidators to remain conscious of the reservations expressed by Byrne J in Re Smarter Way (Aust) Pty Ltd; Smarter Way (Aust) Pty Ltd v D'Aloia (as admin of Smarter Way (Aust) Pty Ltd) [2000] VSC 408; (2000) 35 ACSR 595 at [26] as to the retainer by an insolvency practitioner of solicitors who act for a secured creditor. On the other hand, I accept that in some circumstances it may be appropriate for a liquidator or provisional liquidator to retain solicitors who have previously been engaged by a secured creditor to act for a company in liquidation in proceedings, although considerable care needs to be taken in that regard and the liquidator will need to remain alert both to his obligations as an officer of the Court and to the possible need for independent advice: Re Mustang Marine Australia Services Pty Ltd [2012] NSWSC 620. In principle, the provisional liquidator's retainer of the Plaintiffs' solicitors also to act for the Company in the proceedings would have been justifiable, having regard to the costs that would be incurred had the Company sought to retain separate solicitors. 15As I noted above, I do not consider that the provisional liquidator's delay in seeking approval of the Costs Agreement, albeit on legal advice obtained from the Plaintiffs' solicitors, was satisfactory for the reasons noted above. On the other hand, Mr Marshall submits that the solicitor had carriage of the proceedings for the Company for several months, at the end of which the provisional liquidator was able to sell the cause of action to the Plaintiffs for $68,000, and that would not have been the case had the Costs Agreement not been entered into and the Company's cause of action not been pursued. 16I will, with considerable hesitation, also approve the provisional liquidator's entry into the Costs Agreement on a retrospective basis under s 477(2B) of the Corporations Act. The concerns that I have expressed above as to the delay in seeking the Court's approval of the entry into the Costs Agreement are such that I do not consider that I can give a direction under s 479(3) of the Corporations Act in this regard. Approval of the Deed of Assignment 17The principles to which I referred above are also relevant to the approval of an assignment of a company's cause of action under s 477(2B) of the Corporations Act: Re AT Air Group [2012] NSWSC 1508. 18Under the terms of the Deed of Assignment, the Company assigned to HY International its interest in the rights, obligations and interests of the Company in the proceedings; HY International paid the Company an assignment fee of $68,000 inclusive of GST and paid the provisional liquidator's outstanding costs in relation to providing instructions in the proceedings to that point; the Funding Agreement was terminated; and HY International agreed to distribute, as a first priority, any proceeds of these proceedings and other proceedings in the District Court to pay certain unsecured claims by third party trade creditors of the Company. The provisional liquidator expresses the view, for the reasons set out in his affidavit, that entry into the Deed of Assignment was in the best interests of the Company's creditors and observes that: "The Deed of Assignment ensures that all known creditors, except for related creditors (the shareholders in dispute) are paid as a priority out of the proceeds of the successful prosecution of the Supreme Court proceedings or the District Court proceedings." The provisional liquidator's evidence is that he initially did not consider that limited administrative obligations imposed on HY International under the assignment agreement required approval of that agreement under s 477(2B) of the Corporations Act. 19It seems to me that there was some justification for the provisional liquidator's understanding that the Deed of Assignment was, in substance, a sale of the Company's cause of action against the First and Second Defendants to the Plaintiffs, where the obligations in respect of the distribution of the proceeds of the liquidation were placed upon HY International rather than upon the Company or the provisional liquidator. It seems to me that this provides sufficient explanation of the fact that the provisional liquidator initially did not recognise a need to obtain approval of the Deed of Assignment under s 477(2B) of the Corporations Act. However, as Mr Marshall properly recognises, s 477(2B) of the Corporations Act is, in terms, capable of applying to the Deed of Assignment, because it is sufficient for that section to apply that the obligations of a party to the agreement (relevantly, HY International) are to be discharged by performance more than 3 months after the agreement is entered into. 20The Plaintiffs support the provisional liquidator's application for approval of the Deed of Assignment, pointing to relevant circumstances including the existence of arguable causes of action available to the Company; the fact that the provisional liquidator had insufficient funding to pursue the various claims, at least without entry into the Funding Agreement; and the fact that HY International paid consideration to acquire the right to pursue the various causes of action. 21On the other hand, Mr Neggo, on behalf of the First and Second Defendants, submitted that the Deed of Assignment operated unfairly because it distributed the proceeds of recovery initially to the third party creditors and thereafter to HY International and that distribution did not recognise the First and Second Defendants' interests as creditors and contributories of the Company, if a substantial amount were recovered in respect of the Company's claims. I do not accept that submission. The provisional liquidator could properly have assigned the cause of action to the Plaintiffs for consideration and the sale price received would then have been available as an asset in the liquidation. That transaction would not have been improper or ill-advised in the relevant sense if the liquidator had formed the view that price paid was commercially reasonable and there was no apparent error in that view, merely because the assignee which had purchased the cause of action and would bear the risk and costs of pursuing it was then entitled to its proceeds of successful proceedings. The present arrangement, by which the assignee agrees to pay certain third party creditors in priority out of recoveries is more advantageous to those third party creditors than that position; but it does not have the consequence that an arrangement that would not have been improper or ill-advised, had no benefit being provided to third party creditors, becomes improper or ill-advised where such a benefit is provided to third party creditors and not to the First and Second Defendants. It also does not seem to me that the fact that HY International will retain the balance of the proceeds under such an arrangement, where that is the consequence of its purchase of the rights and its subsequent pursuit of them, has the result that the provisional liquidator's entry into the Deed of Assignment was improper or ill-advised, a fortiori where HY International would have had first claim to such proceeds as a secured creditor of the Company. 22In these circumstances, it does not seem to me that there is any reason to doubt the honesty or prudence of the provisional liquidator's view that the assignment of the Company's rights to HY International was prudent and in the interests of the Company's creditors, on terms providing for payment of third party trade creditors by HY International if it was successful in its claims under the assigned causes of action. The alternative to such an assignment may well have been either the Company's abandonment of the proceedings without receiving such amount or its continuing involvement in complex and costly proceedings. As the provisional liquidator points out, there is little scope for any suggestion by the First and Second Defendants that the amount received for that assignment was too low, where they contend that the Company's claim will be successfully defended in the proceedings. 23I am also satisfied that, although the role of a provisional liquidator is traditionally to preserve the status quo until the determination of a winding up application, the relevant transaction was within the provisional liquidator's powers, where the Company's rights in respect of the claims against the First and Second Defendants were in the nature of a wasting asset which, practically, either needed to be pursued in these proceedings or abandoned: compare Bayswood Pty Ltd and the Companies Act (1981) 6 ACLR 107; Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd (1989) 19 NSWLR 434 at 439; (1989) 1 ACSR 79. 24The First and Second Defendants did not seek to contest approval of the assignment on the basis that the provisional liquidator's failure to seek that approval, when the question whether it was required was previously agitated in the course of the Plaintiffs' earlier application for leave to file a Further Amended Statement of Claim, had caused them any prejudice, for example, by additional costs incurred in preparing a defence which denied the validity of the assignment on the basis that such approval had not been obtained. It is therefore not necessary for me to address that question. 25For these reasons, I consider that I should retrospectively approve the entry into the Deed of Assignment under s 477(2B) of the Corporations Act. I do not consider it necessary to direct that the provisional liquidator was justified in entering into the Deed of Assignment where he has already done so. Liquidators' remuneration 26For completeness, the provisional liquidator also seeks an order, under s 473(2) of the Corporations Act, that he be allowed remuneration in respect of the period 22 October 2011-30 November 2012. The provisional liquidator indicated that he did not seek to have that application determined in this application and was content for it to be referred to a Registrar for determination in the ordinary course. No party opposed an order that that application be referred to a Registrar for determination and I will make such an order. The Plaintiffs' application to set aside subpoenas and strike-out application 27By application filed on 1 October 2013, the Plaintiffs sought orders under Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") r 33.4 and in the Court's inherent jurisdiction setting aside eight subpoenas issued at the request of the First Defendant, Ms Clare Huang (who is not, I should add, related to Ms Helen Huang to whom I will refer below). That application was supported by an affidavit of the Plaintiffs' solicitor, Mr Lalic, dated 1 October 2013, which contended that paragraphs 176-207 of the Defence filed by the First and Second Defendants contained allegations against Ms Helen Huang and Mr Kenneth Tan (who are the principals of the Plaintiffs and are also Cross-Defendants to a Cross-Claim filed by the Second Defendant in the proceedings but are not party to the primary claim in the proceedings) and that the subpoenas sought documents from third parties that had no connection with any issue raised in the pleadings. Mr Lalic's affidavit annexed correspondence between the respective solicitors addressing that issue. Mr Lalic also contended that the subpoenas call for production of a "vast array of documents". In their submissions in support of the application to set aside the subpoenas, the Plaintiffs recognised that the subpoenas required production of documents which, on their face, appeared to be relevant to the allegations made in paragraphs 176-207 of the Defence, and primarily directed their attention to a contention that those paragraphs were improper and should be struck out, although they also contended that the subpoenas were an abuse of process in that they were issued for the purpose of "fishing" to determine whether a claim existed or were alternatively oppressive and onerous. 28By Interlocutory process filed, by leave, on 21 October 2013, the Plaintiffs also bring an application to strike out paragraphs 176-207 of the Defence. That application is supported by a further affidavit of Mr Lalic dated 21 October 2013. In the alternative to that application, the Plaintiffs seek orders that the Defendants provide particulars of the matters alleged in those paragraphs of the Defence as requested in a letter dated 10 September 2013 from the Plaintiffs' solicitors to the First and Second Defendants' solicitors. Mr Neggo has indicated in submissions that the First and Second Defendants would consent to an order that they provide particulars of the relevant allegations. 29It is convenient first to deal with the application to strike out paragraphs 176-207 of the Defence. By way of background to that application, the Plaintiffs plead, in paragraph 20 of the Further Amended Statement of Claim, that, in about early June 2009, Ms Huang made certain representations concerning the Company's business and, inter alia, the value of the shares in the Company to HY International and the Second Defendant, Phoenix Explorer Pty Limited ("Phoenix Explorer"). Paragraph 21 of the Further Amended Statement of Claim pleads that HY International and Phoenix Explorer relied on those representations in agreeing to purchase shares in the Company and enter into a Share Sale Deed. Paragraphs 71-84 of the Further Amended Statement of Claim pleads contravention of ss 1041E, 1041F and 1041H of the Corporations Act, s 42 of the Fair Trading Act 1987 (NSW) and s 18 of the Australian Consumer Law arising from these matters, which are pleaded to have resulted in HY International and Phoenix Explorer suffering loss or damages particularised as: "Entire purchase price of the said shares. Alternatively the difference between the purchase price of the said shares and their actual value." 30Paragraphs 176-207 of the Defence (which was filed in mid-August 2013) in turn plead that, broadly, the claims for misleading and deceptive pleaded are apportionable claims for the purposes of s 1041L of the Corporations Act, s 34 of the Civil Liability Act 2002 (NSW) and s 87CB of the Australian Competition and Consumer Act 2010. It is then alleged (Defence paragraphs 184-186) that, in breach of their duties owed under ss 180-183 of the Corporations Act, Mr Tan directly or thorough entitles associated with him misappropriated the Company's stock and funds and improperly used information which he had obtained as a director of the Company to gain an advantage for himself or his associated interests or cause detriment to the Company and Ms Helen Huang also misappropriated the Company's funds for her own benefit and aided, abetted, counselled or procured or was knowingly concerned in the contraventions pleaded against Mr Tan. 31The First and Second Defendants then plead that the alleged breaches constituted a contravention of the Corporations Act within the meaning of s 1324 of the Corporations Act and, if HY International has suffered the pleaded loss or damage, it has done so by reason of the pleaded breaches of statutory duty by Mr Tan and Ms Helen Huang (Defence paragraph 188) and the Court may order that Mr Tan or Ms Helen Huang are liable to pay damages to HY International under s 1324(10) of the Corporations Act (Defence paragraph 189). The First and Second Defendants then plead that, if Ms Huang is liable to HY International in respect of the relevant claims, then Mr Tan and Ms Helen Huang are concurrent wrongdoers for the purposes of s 1041L of the Corporations Act, s 34 of the Civil Liability Act 2002 (NSW) and s 87CB of the Australian Competition and Consumer Act 2010 and any liability of Ms Huang should be reduced to the amount reflecting the portion of the loss or damage that the Court considers just in accordance with s 1041N of the Corporations Act, s 35 of the Civil Liability Act 2002 (NSW) and s 87CD of the Australian Competition and Consumer Act 2010 (Defence paragraphs 190-192). A similar response is pleaded in respect of the claim by Phoenix Explorer. 32The Plaintiffs contend that a defence under the proportionate liability provisions is not available to the First and Second Defendants because the cause of the Plaintiffs' loss was the allegedly misleading and deceptive conduct of Ms Huang and it cannot be argued that the actions of Ms Helen Huang or Mr Kenneth Tan caused the Plaintiffs to suffer that loss. This contention raises a question as to the scope of the proportionate liability provisions in Part 4 of the Civil Liability Act 2002 (NSW) and the corresponding provisions in the Corporations Act. Broadly, those provisions allow a Court to apportion responsibility in relation to, inter alia, claims of misleading and deceptive conduct among two or more concurrent wrongdoers who caused damage or loss to a plaintiff. 33An "apportionable claim" for the purposes of s 34 of the Civil Liability Act and s 1041L(1) of the Corporations Act includes a claim for economic loss caused by misleading or deceptive conduct. Section 34(2) of the Civil Liability Act and s 1041L(3) of the Corporations Act provides a concurrent wrongdoer is: "a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim". 34Section 35(1) of the Civil Liability Act and s 1041N(1) of the Corporations Act provides that in any proceedings involving an "apportionable claim": "(a) the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the court considers just having regard to the extent of the defendant's responsibility for the damage or loss, and (b) the court may give judgment against the defendant for not more than that amount." 35The scope of these provisions was recently considered by the High Court of Australia in Hunt & Hunt Lawyers v Mitchell Morgan Nominees [2013] HCA 10; (2013) 296 ALR 3. The majority in the High Court (French CJ, Hayne and Kiefel JJ) noted (at [16]) that: "The evident purpose of Pt 4 is to give effect to a legislative policy that, in respect of certain claims such as those for economic loss or property damage, a defendant should be liable only to the extent of his or her responsibility. The court has the task of apportioning that responsibility where the defendant can show that he or she is a "concurrent wrongdoer", which is to say that there are others whose acts or omissions can be said to have caused the damage the plaintiff claims, whether jointly with the defendant's acts or independently of them. If there are other wrongdoers they, together with the defendant, are all concurrent wrongdoers." The majority noted (at [19]) that the definition of "concurrent wrongdoer" in s 34(2) of the Civil Liability Act, to which I referred above: "poses two questions for the court: what is the damage or loss that is the subject of the claim? Is there a person, other than the defendant, whose acts or omissions also caused that damage or loss?" Their Honours also noted (at [24]) that: "In the identification of the damage or loss that is the subject of the claim, it is necessary to bear in mind that damage is not to be equated with what is ultimately awarded by the court, which is to say the "damages" which are claimed by way of compensation and which are assessed and awarded for each aspect of the damage suffered by a plaintiff. Damage, properly understood, is the injury and other foreseeable consequences suffered by a plaintiff. In the context of economic loss, loss or damage may be understood as the harm suffered to a plaintiff's economic interests." 36The majority noted that the damage at issue in that case was the lender's inability to recover the monies it advanced and that both the fraudsters who had misappropriated funds and the solicitors whose conduct had led to the failure of the security taken by the lender had materially contributed to the inability to recover those monies, although the causes of action against the fraudsters and the cause of action against the solicitors would have been different in character. The majority in the High Court also rejected (at [41]) any requirement that one wrongdoer contribute to the wrongful actions of the other in order to cause the damage, focussing instead on whether each wrongdoer materially contributed to the loss or damage suffered. 37The majority's approach focuses attention on the question of what is the loss and damage that is the subject of the claim by the Plaintiffs, which might arguably be characterised as the loss suffered by acquiring their shares in the Company at overvalue and whether there is a person other than Ms Huang whose acts or omissions also "caused" that loss or damage. As I noted above, the Plaintiffs in this case expressly particularise the loss or damage they claim to have suffered as the entire purchase price of the Company's shares or, alternatively the difference between the purchase price of the said shares and their actual value. In submissions on this application, the Plaintiffs placed greater weight on the former, contending that the loss and damage claimed (in respect of the misleading and deceptive conduct claim) was the entirety of the investment in the Company because, but for the alleged misleading representations, the shares in the Company would not have been acquired. Mr Harper also submitted, in oral submissions in reply, that the Plaintiffs: "put [their] case on the basis that [they] wouldn't have made the investment at all but for the misleading conduct, and [they] are entitled to have the money [they] invested returned to [them]." (T97) The Plaintiffs in turn contended in submissions that Ms Huang's allegations against Mr Tan and Ms Helen Huang "have nothing to do with that loss and damage". 38However, it is unclear whether the Plaintiffs also seek to keep open a possible contention that their loss or damage was a deterioration in the value of the Company's shares which occurred in the period after June 2009, or at least that they were exposed to such a deterioration by acquiring the Company's shares. Mr Harper also submitted that, while the Plaintiffs relied on evidence as to subsequent events, that was "primarily" in relation to claims by the Company, implicitly leaving open that it would also be relied upon in respect of their claims. Mr Harper also appeared to submit, at least at one point, that the Plaintiffs' "no transaction" case involved the proposition that the Plaintiffs had acquired shares which subsequently declined in value by reason of Ms Huang's conduct (T103). If the case is put in that way, it may be arguable that any wrongful conduct of Mr Tan and Ms Helen Huang, of the same kind that is alleged against Ms Huang, that led to the alleged decline in the value of the Company's shares after June 2009 may well also have contributed to the Plaintiffs' loss and damage. 39Mr Harper also contended that Mr Tan and Ms Helen Huang could not possibly have been concurrent wrongdoers in misleading and deceptive conduct (T98). However, that submission seems to involve the proposition rejected by the majority in Mitchell Morgan Nominees above, that a person may only be a concurrent wrongdoer if he or she contributes to the particular conduct of the primary wrongdoer, as distinct from contributing to the loss or damage which the Plaintiffs suffered. Mr Harper also contended that there is no real possibility that the First and Second Plaintiffs (which are, I interpolate, companies associated with Mr Tan and Ms Helen Huang) would take such action against them. While I accept that may well be the case, it seems to me that the proportionate liability legislation may have its most obvious application in circumstances where a Plaintiff does not choose to bring proceedings against a wrongdoer, and the fact that it does not choose to bring such proceedings would be no answer to the application of those provisions. 40The Plaintiffs also contend that the claim under s 1324(10) of the Corporations Act is not properly arguable, relying on the decision of the Court of Appeal of the Supreme Court of Queensland in McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129; (2012) 2 Qd R 27; (2012) 289 ALR 710. Mr Harper contended, consistent with the reasoning of the Court of Appeal of the Supreme Court of Queensland in Phoenix, s 1324(10) had no application in the absence of claim for an injunction against Mr Tan and Ms Helen Huang. I accept that the decision in Phoenix Constructions (Qld) Pty Ltd above would be binding upon me, as a Judge sitting at first instance, and is also likely to be followed by a Court of Appeal in this State by reason of the importance given to uniformity of decision-making in respect of the Corporations Act. 41However, I do not consider that the question of the availability of a claim under s 1324(10) of the Corporations Act can be said to be closed beyond argument. The scope of that section and its predecessors has been a matter of considerable controversy in the case law; a wider construction was given to predecessors of s 1324(10) in early case law, before the narrower construction came to prevail; and there is substantial body of academic commentary contending that the wider construction should be given to that section. It seems to me that, at least in the High Court of Australia, the wider construction of that section for which Ms Huang contends would be open to be adopted. If the Court now strikes out a claim which advances that wider construction, that would deny the First and Second Defendants the ability to contend for that wider construction at least at the appellate level, or at least run the risk that, if an appellate Court were to take a wider view of the scope of the section, the matter would then have to be remitted for a further hearing at first instance in the absence of factual findings as to the claim that had been struck out. 42The Plaintiffs also contend that, even if the pleaded allegations were correct (which they deny) the First and Second Plaintiffs have not suffered loss or damage by reason of the matters alleged against Mr Tan and Ms Helen Huang, because the proper plaintiff in respect of such a claim is the Company and not the First and Second Plaintiffs. Mr Neggo relied, in response, on the fact that the provisional liquidator has assigned the Company's claims, including claims against persons who may be but are not yet party to the proceedings, to the Plaintiffs. Mr Neggo pointed out that clause 2.1 of the Deed of Assignment, which assigns the relevant causes of action from the Company to the First and Second Plaintiffs, extends to claims not only against the current defendants in the proceedings but also against other defendants that may be joined in the future (by reason of the definition of "Supreme Court Defendants") and that the Plaintiffs therefore have available to them any claims which the Company had against Mr Tan, Ms Huang and their associated entities. He contended that, if the claims against Mr Tan and Ms Helen Huang were properly available to the Company prior to the assignment, they are now available to the First and Second Plaintiffs, by reason of the assignment. 43Mr Harper in turn responded that there is no allegation that any breach of duty by Mr Tan or Ms Huang resulted in damage to the Company, so a claim against them could not be sustained by reason of the assignment, as distinct from on the basis of proportionate liability. It seems to me that an allegation that Ms Huang and Mr Tan misappropriated funds and stock from the Company may well imply that the Company suffered damage, to the extent of the value of the funds and stock misappropriated, and any amendment to make that clear is unlikely to give rise to prejudice to the First and Second Plaintiffs. In the course of submissions, I also raised the question whether it would be necessary for the First and Second Defendants to have pleaded, in their Defence, the assignment of the Company's cause of action to the Plaintiffs, in order to be able to rely upon it for their proportionate liability claim. It seems to me that, if such a pleading is necessary, there may be no prejudice to the Plaintiffs in the Defence now being amended to include it, since that alleged assignment is fundamental to the Plaintiffs' claim against the First and Second Defendants, so far as it relies on causes of action which could otherwise only be brought by the Company. 44In any event, it does not seem to me that this issue can alter the result in respect of the strike out application, unless the Court treats the claim under s 1324(10) as unarguable at an appellate level so as to strike out that claim. If that claim were open, then the Plaintiffs would arguably have a claim against Mr Tan and Ms Helen Huang in respect of conduct that caused the relevant loss to the Plaintiffs and to the Company, although no doubt they could not recover the same damage twice, and that claim may support a proportionate liability defence. 45It is well-established that the power to dismiss a claim because it discloses no reasonable cause of action will not lightly be exercised: General Steel Industries Inc v Cmr for Railways [1964] HCA 69; (1964) 112 CLR 125 at 128-130; Webster v Lampard (1993) 177 CLR 598 at 602-603. In Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at [57], Gaudron, McHugh, Gummow and Hayne JJ observed: "Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way." (footnote omitted) 46That formulation has been adopted in Batistatos v Roads and Traffic Authority (NSW) [2006] HCA 27; (2006) 226 CLR 256 at [46]; Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 at [24] and Shaw v New South Wales [2012] NSWCA 102. In Spencer v Commonwealth above at [24], French CJ and Gummow J summarised the relevant principles as follows (omitting citations): "The exercise of powers to summarily terminate proceedings must always be attended with caution. That is so whether such disposition is sought on the basis that the pleadings fail to disclose a reasonable cause of action or on the basis that the action is frivolous or vexatious or an abuse of process. The same applies where such a disposition is sought in a summary judgment application supported by evidence. As to the latter, this court in Fancourt v Mercantile Credits Ltd said: The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. More recently, in Batistatos v Roads and Traffic Authority (NSW) Gleeson CJ, Gummow, Hayne and Crennan JJ repeated a statement by Gaudron, McHugh, Gummow and Hayne JJ in Agar v Hyde which included the following: Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way." 47In exercising the Court's power to strike out a Statement of Claim under UCPR r 14.28, the Court must also give effect to the overriding purpose stated in s 56(1) of the Civil Procedure Act 2005 (NSW), namely "to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings". Section 58(1) requires the Court to act in accordance with the dictates of justice, and s 58(2) requires that the overriding purpose specified in s 56(1) be taken into account: Shaw v New South Wales above at [128]ff. 48Having regard to the matters to which I have referred above, I do not have a sufficiently high degree of certainty about the ultimate outcome of the pleaded proportionate liability claim pleaded by the First and Second Defendants defence, if it were allowed to go to trial in the ordinary way, to warrant striking out that defence and depriving them of the opportunity to seek to establish that defence on this basis. I ought therefore to exercise the caution that the authorities have repeatedly emphasised and not strike out that pleading at this stage. 49The Plaintiffs also seek to strike out paragraphs 176-207 of the Defence on the alternative basis that paragraphs 185-186 and 200-201 of the Defence make unparticularised allegations of fraud against Ms Huang and Mr Tan. I accept, as the Plaintiffs point out, that allegations of the kind made against Mr Tan and Ms Helen Huang should be pleaded distinctly and with particularity: Krakowski v Eurolinkx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 at 573; Fortescue Metals Group Ltd v Australian Securities & Investments Commission [2012] HCA 39; (2012) 291 ALR 399; (2012) 91 ACSR 128. I also accept that, as the Plaintiffs submit, the present formulation of the allegations against Mr Tan and Ms Huang falls some way short of a proper pleading of allegations that are of a serious character. In particular, the present pleadings do not clearly identify the material facts that are relied upon in support of the allegations made against Mr Tan and Ms Huang. 50The First and Second Defendants rely, in support of the allegations made in the contested paragraphs of the Defence, on several paragraphs of Ms Huang's substantive affidavit filed in the proceedings and on documents tendered in the application. Ms Huang's evidence is that Mr Tan offered, in July 2009, that the Plaintiffs would pass business to the Company once they became shareholders in the Company, including HY International's bathtub and bathroom accessories business. Ms Huang refers to a payment made by the Company, authorised by Mr Tan, for bathtub mould fees that, she contends, was made in circumstances that that bathtub business had not been passed to the Company. She also refers to correspondence with the Company's customers seeking payment of outstanding invoices, and to information provided by one of those customers, XenXenis Pty Limited, that it had been directed to make the relevant payments to an entity associated with Mr Tan. The First and Second Defendants draw attention, for example, to a letter dated 12 January 2011 from Mr Tan's company, signed by Mr Tan, to XenXenis which stated that: "We have changed the company for the tax invoices. The previously [sic] invoices issued by Colorado were no longer valid, please disregard it. The attachments are the outstanding invoices. The new invoices have been issued to you under new company name. Please send your new order and payment to the new company in the future." Ms Huang's affidavit also annexes copies of invoices issued by the entity associated with Mr Tan to XenXenis and refers to evidence of payments from XenXenis by that entity. Ms Huang also refers to invoices issued by that entity to another of the Company's customers, MMB Services Pty Limited, and to directions allegedly given by Mr Tan to another customer, Kaleva Building Company Pty Limited, that invoices issued by the Company should be paid to the entity associated with him. 51The material facts on which the First and Second Defendants rely in respect of this allegation are in relatively narrow compass and are, as Mr Neggo points out, apparent from Ms Huang's evidence, namely that it is alleged that at least Mr Tan gave directions to certain of the Company's customers that payments due to the Company should be made to entities associated with him rather than to the Company. I accept, of course, that the Plaintiffs should not generally be left to seek to deduce the nature of the material facts relied upon by the First and Second Defendants from the evidence. Nonetheless, the fact that those material facts can readily be deduced from Ms Huang's evidence means that the omission of a specific pleading of those material facts from the Defence could presumably readily be corrected. 52The case law recognises that there will be cases in which the power to strike out pleadings will not be exercised notwithstanding a failure to plead all material facts, and that such restraint may be appropriate where the deficiency causes no confusion and does not raise issues of substantive principle and where deficiencies can be overcome by ordering the provision of particulars or the furnishing of affidavits: HECEC Australia Pty Ltd v Hydro-Electric Corp [1999] FCA 822 at [59]; Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] ATPR 41-691 at 42,828-9; Christou v Stantons International Pty Ltd [2010] FCA 1150 at [3]-[6]. I have concluded that this is a case where any prejudice to the Plaintiffs can be sufficiently addressed, consistent with the authorities to which I referred above, by ordering the provision of particulars of the allegations. In taking that approach, I have had regard to the overriding purpose stated in s 56(1) of the Civil Procedure Act 2005 (NSW), namely "to facilitate the just, quick and cheap resolution of the real issues in the dispute or proceedings" and to the prejudice to all parties if delay occasioned by formal amendment to the Defence were to require that the allocated hearing dates be vacated. Other issues in respect of the subpoenas 53I turn now to other issues raised by the Plaintiffs in seeking to set the subpoenas issued by Ms Huang, additional to the attack on the pleading of paragraphs 176-207 of the Defence. The Plaintiffs contend that those subpoenas involve an abuse of process, by reason that they are "fishing" to discover whether the First and Second Defendants have a case against Mr Tan and Ms Helen Huang (or, more accurately, for a reduction of their liability by reason of proportionate liability arising from the conduct of Mr Tan and Ms Helen Huang) rather than seeking to obtain evidence to support that case. I do not accept that submission. There seems to me to be a proper basis, on the material already exhibited to Ms Huang's affidavit, for the allegations as to diversion of monies that were properly the property of the Company to their associated entities. In that situation, subpoenas that seek further evidence to support that allegation are not, as Mr Neggo points out, seeking to discover whether Ms Huang has a case but rather support the case which Ms Huang already has in that regard. 54The Plaintiffs also contend that the subpoenas are an abuse of process, where the allegations pleaded in the relevant paragraphs of the Statement of Claim are improperly particularised or untenable as a matter of pleading, and where the allegations are irrelevant to issues in the proceedings. I have addressed the substance of the first of those submissions in dealing with the strike-out application above. I do not accept the second submission, because it appears to me that, as Mr Neggo contends, the documents sought to be produced are in any event potentially relevant to the quantification of the Plaintiffs' damages, at least if the Plaintiffs seek to quantify their damages by reference to a deterioration in the value of the Company's shares after their acquisition of shares in the Company in June 2009. 55Mr Neggo also seeks to support the subpoenas on the basis that they are relevant to an application by the First and Second Defendants to wind up the Company on, inter alia, the just and equitable basis, contained in the Originating Process which commenced the proceedings. I would not presently be inclined to treat that matter as supporting the subpoenas, first, because there has not been reference to that application as being an open issue in the proceedings for a substantial period and no reference to it is made in the Defence or Cross Claim, although that relief was sought in the Originating Process by which the First and Second Defendants (who were then the Plaintiffs) commenced the proceedings. Second, it seems to me that any justification for the subpoenas on the basis of the winding up application is displaced by the Plaintiffs' indication, in submissions in reply, that they accept that there is already sufficient evidence to justify a winding up order on the just and equitable basis, if the First and Second Defendants press for that relief. 56Finally, the Plaintiffs criticise the drafting of the subpoenas, and rightly point out that the categories of documents called for are broad and that the subpoenas refer to various entities associated with Mr Tan and Ms Helen Huang. They contend that it would be oppressive to require the subpoenaed parties to produce the relevant documents or to require the Plaintiffs to review them once produced. Mr Neggo points out that all, or at least most, of the subpoenaed parties have already produced the documents required by the subpoenas without any suggestion that the form of the subpoenas or the volume of documents produced caused them any difficulty, and that the volume of documents in fact produced a moderate, at least by reference to the volume of documents likely to be in issue in the proceedings generally. In these circumstances, it does not seem to me that oppression is established. 57I therefore do not consider that I should order that the relevant subpoenas should be set aside. In the ordinary course, access should now be granted to the documents produced on subpoena, particularly where that will allow the parties to advance their preparations for the hearing. Summary and orders 58In summary, I have indicated that I will, with some hesitation, make orders retrospectively approving the provisional liquidator's entry into the Funding Agreement and the Costs Agreement under s 477(2B) of the Corporations Act. I will also make orders retrospectively approving the provisional liquidator's entry into the Deed of Assignment. I will also order that the provisional liquidator's application for remuneration in respect of the period 22 October 2011-30 November 2012 be referred to a Registrar for determination. 59I would not strike out paragraphs 176-207 of the Defence on the basis of the wider legal issues raised by the Plaintiffs, but specific particulars should be provided of the material facts relied upon for the allegations against Mr Tan and Ms Helen Huang pleaded in those paragraphs. I do not consider that I should order that the relevant subpoenas should be set aside and access should now be granted to the documents produced in response to those subpoenas, to allow the parties to advance the preparation of the hearing, subject to any proper claim for privilege. 60The parties should bring in short minutes of order to give effect to this judgment within 7 days including agreed orders as to costs or, if those orders are not agreed, their respective draft orders as to costs and short submissions as to the matters in which they are in dispute.

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