In the matter of Gerard Cassegrain & Co Pty Ltd (in liq) [2016] NSWSC 1502

High Court Appeal costs agreement

1. This aspect of the proceedings originated with a judgment of Barrett J in favour of the Company against Mr Claude Cassegrain, but not against Ms Felicity Cassegrain, in September 2011. Judgment in favour of the Company was given against Ms Felicity Cassegrain on appeal, in proceedings 2012/48288 in the Court of Appeal of the Supreme Court of New South Wales. Ms Felicity Cassegrain brought an appeal against those orders which was in turn heard in the High Court of Australia in proceedings S141/2014. The liquidator and the Company entered into a costs agreement ("High Court Appeal costs agreement") with their solicitors, McCabes Lawyers, dated 24 June 2014, retaining the solicitors to continue to act as their solicitors in relation to the High Court Appeal. The Plaintiffs seek an order that, pursuant to s 477(2B) of the Corporations Act, the liquidator has approval, nunc pro tunc, to enter into and cause the Company to enter into the High Court Appeal costs agreement.
2. Section 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 into the agreement. The court is not concerned, in granting approval to such an 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 is not ill-advised or improper on the part of the liquidator: Re McGrath (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405 at [28].
3. In Re FAI Film Distribution Pty Ltd [2014] NSWSC 1904 at [16]-[17], Brereton J noted that, in an application under s 477(2B) of the Corporations Act: "The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances for the liquidation, but satisfies itself that there is no error of law or grounds for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. Importantly, the court's approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval completes the liquidator's power to enter into the transaction, but does not amount to the court approving the transaction itself …".
4. His Honour also there noted (at [18]) that: "Section 477(2B) is concerned with long term agreements which might protract the liquidation and has the effect that the liquidator cannot enter such agreements without the approval of the committee of inspection, the creditors, or of the court. Its rationale is that the interests and wishes of those affected, particularly creditors, should be highly influential in determining whether the liquidator should assume a contractual obligation which would interfere with the expeditious completion of the winding up [Re GA Listing and Maintenance Pty Ltd (1994) 15 ACSR 308; Re CIC Insurance Ltd (provisional liquidator appointed) [2001] NSWSC 438; Re HIH Insurance Ltd, [15]]. Thus in considering giving approval under s 477(2B), the main consideration is the impact of the agreement on the duration of the liquidation and whether that is in all the circumstances reasonable in the interests of the administration [Re Opel Networks Pty Ltd [2013] NSWSC 1245; in the matter of Re One.Tel Ltd, [30]]."
5. Mr Ashhurst, who appears for the Plaintiffs, also drew attention to my summary of the relevant principles in respect of an application under s 477(2B) of the Corporations Act in Re Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538; (2016) 113 ACSR 277 at [30] as follows: "It was common ground between the parties that the Court should have regard to whether the liquidators' judgment has been "infected by a lack of good faith or error of law or principle, or whether there are real or substantial grounds for doubting the prudence of [their] conduct" in respect of entry into the relevant agreement: Re Spedley Securities Ltd (in liq) (1992) 9 ACSR 83 at 85-86; Re Gerard Cassegrain & Co Pty Ltd (in liq) [2014] NSWSC 1292 at [6]. The Court is not concerned, in granting approval … 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 (in their capacity as liquidators of HIH Insurance Ltd) [2010] NSWSC 404; (2010) 78 ACSR 405."
6. Mr Ashhurst points out that the solicitors who were retained by the liquidator to act in the defence of the High Court Appeal had acted in previous aspects of the proceedings; the High Court Appeal involved the defence of a substantial judgment in favour of the Company, which would likely have been lost had the appeal not been defended; there is evidence of Mr Chamberlain's satisfaction that the rates in each of the agreements were reasonable; and, in respect of the High Court Appeal costs agreement, the hourly rates charged by the solicitors were the same as those contained in a previous retainer that had been approved by the Court. There is nothing in the evidence before me to suggest that those rates are out of the usual range that would be charged by solicitors, particularly in matters of this complexity. There is also nothing in the evidence before me to suggest that the entry into the costs agreement was not a proper exercise of the liquidator's powers or was ill-advised or inappropriate. Accordingly, I will grant the approval that is sought under s 477(2B) of the Corporations Act for entry into the High Court Appeal costs agreement.
7. I note, for completeness, that Mr Chamberlain's evidence is that, at the time of entering into the High Court Appeal costs agreement, he overlooked the requirement to obtain the Court's approval for entry into that costs agreement. That evidence is surprising, given the extensive experience which the liquidator has now had with obtaining such approvals. However, I accept Mr Ashhurst's submission that the delay in seeking such approval is of little relevance to the merit of the application.

High Court Appeal indemnity

1. Second, the Plaintiffs seek an order, pursuant to s 477(2B) of the Corporations Act, that the liquidator has approval nunc pro tunc to enter into and cause the Company to enter into a deed of indemnity dated 2 October 2014 (Confidential Exhibit CC2) with the funders of the proceedings, which addressed the risk of a potential adverse costs order in the High Court Appeal. Mr Chamberlain's evidence was that, at the time of entering into that deed of indemnity, he overlooked the requirement to obtain the Court's approval for entry into the agreement. That evidence is also surprising, for the reason noted above, but the fact that the application is belatedly made is again of little relevance to its merit. It seems to me that an order should properly be made approving the liquidator's entry into that deed of indemnity, which is analogous with an indemnity previously provided to the liquidator in respect of appeals against earlier judgments of Barrett J, which was approved by the Court under s 477(2B) of the Corporations Act by order made on 18 February 2013.

Section 66G Proceedings

1. Third, the Plaintiffs seek a direction, under s 479(3) of the Corporations Act that the liquidator is justified in paying legal fees and causing the Company to pay legal fees in relation to McCabes Lawyers acting and continuing to act as solicitors for the Plaintiffs in relation to proceedings 2015/127156 in the Supreme Court of New South Wales ("Section 66G Proceedings") at rates previously approved by the Court on 8 November 2012 in respect of other proceedings. It appears that the liquidator did not enter into a separate costs agreement with his solicitors in respect of the Section 66G Proceedings. Mr Chamberlain's evidence is that he had formed the view that the Section 66G Proceedings were within the scope of an earlier retainer for the solicitors to act in relation to the enforcement of judgments obtained on behalf of the Company, and the relevant fees had been paid at rates set in 2012, which were lower than those that would have been paid by the liquidator had an agreement been entered into at a later time. He now seeks an order under s 479(3) of the Corporations Act, after the fact, that he is justified in paying legal fees to those solicitors, as if the proceedings were encompassed by an earlier costs agreement with the solicitors approved by the Court on 8 November 2012.
2. Section 479(3) allows a liquidator to apply to the Court for directions in relation to a matter arising in a winding up. The function of a liquidator's application for directions under that section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation; Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 40 ACSR 433 at [44]. The court will typically not give such a direction where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision, but may do so where a legal issue or an attack on the propriety of the decision is raised: Re Ansett Australia Ltd and Korda at [65]. 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.
3. Mr Ashhurst fairly drew attention in oral submissions to the fact that the relevant fees had already been paid, although he also pointed out that the Court had jurisdiction to make a direction under s 479(3) of the Corporations Act, nunc pro tunc. I do not doubt that the Court has jurisdiction to make such a direction and would do so in an appropriate case. In the present case, there does not seem to me to be any issue of legal controversy or any particular matter as to which the liquidator requires the Court's direction in respect of a step which he has already taken in payment of the relevant fees. The only effect of such a direction would be to provide the liquidator with some limited protection, to the extent that relevant matters had been brought to the Court's attention, in respect of the payment of those fees. It seems to me that it is preferable, in these circumstances, not to give such a direction, where the payment has already been made and any controversy as to its propriety is better determined, not in an ex parte application for directions, but in any challenge which is brought by any interested party to that payment, where the party bringing such a challenge will have an opportunity to lead evidence and be heard.

Section 66G Appeal costs agreement

1. Next, the Plaintiffs seek an order pursuant to s 477(2B) of the Corporations Act that the liquidator has approval to enter into and cause the Company to enter into a costs agreement ("Section 66G Appeal costs agreement") with McCabes Lawyers, retaining them to act as solicitors for the liquidator and the Company in relation to Ms Cassegrain's appeal of orders made in the Section 66G Proceedings to the Court of Appeal of the Supreme Court of New South Wales, being proceedings 2015/375916. Mr Ashhurst notes that this appeal was dismissed just over three months after it was commenced, so that the costs agreement falls within the scope of s 477(2B) of the Corporations Act. He points to the liquidator's evidence as to his satisfaction with the terms and rates of the solicitors' retainer. I am satisfied that the order sought should be made for the same reasons that it should be made in respect of the High Court Appeal costs agreement.

Inquiry Appeal costs agreement

1. Further proceedings were brought, initially before Bergin CJ in Eq, who gave judgment in favour of the liquidator and the Company against Mr Claude Cassegrain, Ms Felicity Cassegrain and Mr Anthony Sarks on 24 July 2012. After an appeal from that judgment was dismissed, Bergin CJ in Eq ordered that an inquiry be held for the purpose of making orders for equitable compensation; an issue then arose as to whether the Court should adopt the report of the referee and Bergin CJ in Eq ordered that that report be adopted in full; and an appeal was brought by Ms Felicity Cassegrain against that decision. The liquidator seeks approval, nunc pro tunc, for his entry into a costs agreement dated 9 October 2015 with McCabes Lawyers ("Inquiry Appeal costs agreement") in respect of the defence of that appeal, which the Court of Appeal ultimately dismissed.
2. Mr Ashhurst again points out, in submissions, that the solicitors retained in this appeal had acted in previous aspects of the proceedings; the Inquiry Appeal involved the defence of a substantial judgment in favour of the Company, which would potentially have been lost had the appeal not been defended; and there is evidence of Mr Chamberlain's satisfaction that the rates in each of the costs agreements were reasonable. I am satisfied that such an order should be made for the same reasons that it should be made in respect of the costs agreements in respect of the High Court Appeal and the Section 66G Appeal.

Confidentiality

1. The liquidator sought a confidentiality order in respect of two documents that were tendered in the proceedings. The Court's power to make such an order in an appropriate case is well established; Onefone Australia Pty Ltd v One.Tel Pty Ltd [2010] NSWSC 498; (2010) 78 ACSR 163 at [5]; Re Gerard Cassegrain & Co Pty Ltd (in liq) [2013] NSWSC 257 at [20]. I was satisfied that a confidentiality order should be made in respect of those documents and I made such an order at the hearing. I will, however, now make an order that the exhibits be returned, on condition that they be retained by the First Plaintiff or his solicitors at least until the completion of the liquidation.

Orders

1. Accordingly, I make the following orders:
2. The Plaintiffs' interlocutory application dated and filed 26 September 2016 be returnable instanter.
3. Pursuant to section 477(2B) of the Corporations Act, the First Plaintiff (being liquidator of the Second Plaintiff) has approval nunc pro tunc to enter into and cause the Second Plaintiff to enter into the costs agreement with McCabes dated 24 June 2014, retaining McCabes to act and continue to act as the solicitors for the First Plaintiff and the Second plaintiff in relation to Felicity Cassegrain's appeal of the orders made in proceedings 2012/48288 in the Court of Appeal of the Supreme Court of New South Wales, being proceedings number S141/2014 in the High Court of Australia.
4. Pursuant to section 477(2B) of the Corporations Act, the First Plaintiff (being liquidator of the Second Plaintiff) has approval nunc pro tunc to enter into and cause the Second Plaintiff to enter into the Deed dated 2 October 2014 that is Confidential Exhibit "CC2" to the affidavit of Christopher MeI Chamberlain affirmed 16 September 2016.
5. Pursuant to section 477(2B) of the Corporations Act, the First Plaintiff (being the liquidator of the Second Plaintiff) has approval to enter into and cause the Second Plaintiff to enter into the costs agreement with McCabes dated 12 February 2016, retaining McCabes to act and to continue to act as the solicitors for the First Plaintiff and the Second Plaintiff in relation to the appeal of the orders made in the section 66G proceedings in Supreme Court of NSW proceedings number 2015/127156, being proceedings number 2015/375916 in the Court of Appeal of the Supreme Court of New South Wales.
6. Pursuant to section 477(2B) of the Corporations Act, the First Plaintiff (being the liquidator of the Second Plaintiff) has approval nunc pro tunc to enter into and cause the Second Plaintiff to enter into the costs agreement with McCabes dated 9 October 2015, retaining McCabes to act and to continue to act as the solicitors for the First Plaintiff and the Second Plaintiff in relation to the appeal of the orders made in proceedings NSWSC 2008/281625 on 30 June 2015 and 5 August 2015, being proceedings number 2015/219321 in the Court of Appeal of the Supreme Court of New South Wales.
7. The Exhibits be returned, on condition that they be retained by the First Plaintiff or his solicitors at least until the completion of the liquidation.
8. The First Plaintiff's costs of and incidental to this application be costs in the liquidation.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 October 2016