Judgment
1The First - Fourth Plaintiffs, Mr Tony Elias and others ("Elias family"), are the beneficial owners of fifty of the one hundred ordinary shares issued by the Third Defendant, Joe & Joe Developments Pty Ltd (subject to a Deed of Company Arrangement) ("Company"). Mr Joseph Kossaifi and his wife, Mrs Dolly Kossaifi, each hold twenty-five of the other fifty ordinary shares issued by the Company. Mr Tony Elias and Mr Joseph Kossaifi were, at relevant times, and currently are the directors of the Company. The First and Second Defendants, Mr Richard Albarran and Mr Blair Pleash, were appointed initially as administrators and subsequently as deed administrators of the Company under a Deed of Company Arrangement dated 31 March 2009 ("DOCA").
2By an Originating Process filed on 17 October 2012, the Plaintiffs seek first, a declaration that Messrs Albarran and Pleash have managed the Company's affairs in a way that is prejudicial to the interests of the Plaintiffs and the Company's creditors and members. The relief sought in the Originating Process relates to allegations that Messrs Albarran and Pleash unreasonably incurred legal costs and failed to have those costs assessed, required a release from the Plaintiffs in a manner which would prejudice their interests and delayed or failed to perform the DOCA. The Plaintiffs further articulated their claim by Amended Points of Claim ("APOC") ordered by Brereton J on 4 November 2013, to which I will refer below in dealing with their particular claims.
3Messrs Albarran and Pleash opened their case on the basis that they were prepared to meet the relief sought in the Originating Process and the case identified by the Plaintiffs in the APOC and that they do not consent to the determination of the present dispute other than on that basis and they submit that the case should therefore be determined on that basis: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 at 286-287. It is not necessary to determine whether that approach is open to Messrs Albarran and Pleash in an application under s 447E of the Corporations Act 2001 (Cth) since the Plaintiffs did not seek to depart in any substantive respect from their case identified in the APOC. I should also note that the Defence contained several claims that aspects of the APOC were embarrassing and were liable to be struck out. Messrs Albarran and Pleash did not seek to pursue a strike-out application prior to the hearing, and they also did not press an interlocutory process that they had sought to file on the first day of the hearing in respect of that matter. I will address substantive issues in respect of several of those claims below.
Principles applicable to an application under s 447E of the Corporations Act
4Section 447E of the Corporations Act relevantly provides that:
"(1) Where the Court is satisfied that the administrator of a company under administration, or of a deed of company arrangement:
(a) has managed, or is managing, the company's business, property or affairs in a way that is prejudicial to the interests of some or all of the company's creditors or members; or
(b) has done an act, or made an omission, or proposes to do an act, or to make an omission, that is or would be prejudicial to such interests;
the Court may make such order as it thinks just."
5That section covers similar territory to, although it is not an exact equivalent of, s 536 of the Corporations Act in respect of liquidators: Kirwan v Cresvale Far East Ltd (in liq) [2002] NSWCA 395; (2002) 44 ACSR 21 at [442]. In Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 at [79], Brereton J observed that the Court's jurisdiction under this section:
"... requires satisfaction of the court that the administrator has managed or is managing the company's business property or affairs in a way that is prejudicial to the interests of some or all of the creditors or members, or has done or proposes to do an act or omission that is or will be prejudicial to such interests. It is insufficient that the conduct might be prejudicial; establishment of the ground for exercise of power under s 447E requires proof of conduct or proposed conduct that is or would be prejudicial - not that might be prejudicial." (emphasis in original)
6Brereton J also noted that a person who brings an application under this section must identify not only the prejudice but also the counterfactual, being the position which would have been achieved had the relevant prejudicial conduct not occurred. His Honour also observed (at [87]) (while noting that observation was not exhaustive) that:
"An order under s 447E must have a sufficient nexus with the administrator's prejudicial behaviour, for example by regulating or remedying or compensating it, or preventing its repetition, or prohibiting conduct of a similar nature."
His Honour noted at [91] that the Court has no inherent jurisdiction over the conduct of a deed administrator, and its powers are the statutory powers conferred on it to the extent that administrations arise under statute. I followed that approach in Correa and the Spanish Club Limited (Subject to Deed of Company Arrangement) v Whittingham (No 3) [2012] NSWSC 526; (2012) 267 FLR 120 (reversed on appeal in respect of another point) at [114]-[115].
7It is important to recognise that this section does not contemplate that the Court will enter into the field of commercial decision-making undertaken by an administrator or remake business and commercial decisions of an administrator, even if those decisions have a legal element or legal context, and the notion of what is or would be prejudicial in that section "must be set against the background of the Act and the sorts of considerations which have time and again been identified by the courts about the care with which interference with business decisions especially of people such as liquidators and administrators should be made": Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) [1998] HCA 30; (1998) 195 CLR 1 at [53]-[54]; Naumoski v Parbery [2002] NSWSC 1097; (2002) 171 FLR 332 at [13]-[15]; Re Pan Pharmaceuticals Ltd (admins apptd); Selim v McGrath [2003] FCA 855; (2003) 47 ACSR 139 at [50]-[51]. I have also been conscious of the desirability of, and indeed the necessity of, "the restraint with which the courts permit actions against liquidators and trustees in bankruptcy": Honest Remark Pty Ltd v Allstate Explorations NL above at [94]; however, Brereton J there noted (at [95]) that s 447E of the Corporations Act was itself an orthodox remedy in respect of inappropriate conduct of an administrator.
The evidence on which the parties rely
8The Plaintiffs relied on the affidavits of the First Plaintiff, Mr Tony Elias, dated 17 October 2012 and 21 October 2013. In his first affidavit, Mr Elias set out the events relating to the administration and the DOCA at considerable length, although it seems to me that, as Mr Marshall (who appeared with Mr Moujalli for the Plaintiffs) pointed out, the Plaintiffs' case in respect of the majority of those events depends on the documentary record. An exception to that matter is certain representations that the Plaintiffs allege were made to them at the commencement of the administration. Mr Elias gave evidence of his understanding as to the circumstances in which Messrs Albarran and Pleash were initially appointed as administrators, which made clear that he did not then or now have an adequate understanding of the role of administrators or their statutory responsibilities under the Corporations Act. It is clear from Mr Elias' affidavit that, shortly after the appointment of the administrators, he came to regret the appointment and was frustrated by the fact that the administrators did not see their role in the narrow way in which he understood it. Mr Elias also appears to have believed that the administrators' services could be dispensed with, if the shareholders were able to resolve or narrow their differences, but that belief also gave too little weight to the statutory structure of an administration under the Corporations Act. I will refer to criticisms raised by Mr Elias in respect of particular conduct of Messrs Albarran and Pleash below.
9Mr Elias' further affidavit dated 21 October 2013 exhibited documents that had been briefed to a solicitor and insolvency practitioner who gave expert evidence in the Plaintiffs' case, and also attached correspondence and documents that appear, on their face, to correspond to correspondence and documents referred to in the time entry reports of the solicitors who then acted for Messrs Albarran and Pleash (or for the Company on their instructions) in the administration and deed administration. I will refer further to those documents below.
10Mr Elias was cross-examined as to the possibility that some parts of his affidavit evidence were based on affidavit evidence previously given by Mr Kossaifi in other proceedings (T67-68). There are similarities in the relevant evidence and, in some circumstances, this would cause difficulty with Mr Elias' evidence. However, the evidence that has similarities with Mr Kossaifi's evidence relates to largely uncontroversial events and it did not seem to me that this matter adversely affected Mr Elias' evidence. Mr Elias had little recollection of many events and conversations in cross-examination, unless prompted with a document. I did not form any impression that his evidence in that regard was evasive, and it seemed to me to reflect a genuine difficulty in recalling many relevant events. Mr Elias was also often unable to answer questions in a direct or clear manner in cross-examination. However, his difficulties in that regard seemed to me largely to reflect issues of comprehension or lack of focus and I draw no adverse inference as to his credit from this matter.
11The Plaintiffs also relied on a report of Mr Woodward, an experienced solicitor, dated 1 August 2013 (Ex P6) and a supplementary report of Mr Woodward dated 6 September 2013 (Ex P7). Mr Woodward's supplementary report supplemented his initial report, to the extent that additional documents had become available in the course of the proceedings by the time of that supplementary report. Mr Woodward's attention was drawn to errors contained in a summary of the solicitors' fees which was annexed to his supplementary report, which appear to have involved calculation errors, including double-counting of GST, which involved material amounts and these matters were properly corrected by that cross-examination. I did not consider, however, that they impugned Mr Woodward's evidence generally, although I will refer to limitations in his approach below.
Messrs Albarran and Pleash did not lead evidence from Mr Albarran in the proceedings, although Mr Pleash's evidence was that Mr Albarran was the lead appointee (T233). Where a party would be expected to, but does not, call a witness who could give evidence on a relevant matter, and the failure to call that evidence is unexplained, an inference may in appropriate circumstances be drawn that the uncalled evidence would not have assisted the party's case: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 at [63]-[64] per Heydon, Crennan and Bell JJ; MSPR Pty Ltd v Advanced Braking Technology Ltd [2013] NSWCA 416 at [53] per Macfarlan JA (with whom Ward and Gleeson JJA agreed). The Plaintiffs also refer to the principle in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970, where Lord Mansfield referred to "a maxim that all evidence is to be weighed according to the proof that it was in the power of one side to have produced and in the power of the other to have contradicted". In Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572, Hodgson JA referred to Jones v Dunkel above as a particular application of the principle in Blatch v Archer and observed at [16]) that:
"A similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case."
In Cook's Constructions Pty Ltd v Brown [2004] NSWCA 105; (2004) 49 ACSR 62 at [42], Hodgson JA similarly observed that:
"[w]here a party has to prove something and prima facie has available evidence that would directly deal with the question, a court will be very hesitant in drawing an inference in that party's favour from indirect and second-hand evidence, when the party doesn't call the direct evidence that prima facie it could have called, at least unless some explanation is given, or the circumstances themselves provide an explanation."
However, in Australian Securities and Investments Commission v Hellicar [2012] HCA 17; (2012) 247 CLR 345 at [250], Heydon J referred to cases which had applied that principle, and noted that many of the applications of the principle were no more than an application of the rule in Jones v Dunkel above and observed (at [253]) that a failure to call certain evidence would not lead to a discounting of other evidence actually called. The Plaintiffs accept that the inference which may be drawn from Mr Albarran's failure to give evidence is that his evidence would not have assisted the Defendants' case. That is, of course, not the same as an inference that Mr Albarran's evidence would have harmed that case.
12Messrs Albarran and Pleash also did not lead evidence from the solicitors who previously acted for them, although it must have been clear to Messrs Albarran and Pleash (and to those former solicitors, since they previously represented Messrs Albarran and Pleash in the proceedings) that their bills would come under close scrutiny in the proceedings.
13Messrs Albarran and Pleash relied on a document titled "Proof of Evidence" of Mr Pleash that was sworn on 14 March 2014 and ultimately adopted as his affidavit evidence in the proceedings. Mr Pleash's proof of evidence refers to the circumstances in which he was approached in respect of, initially, a potential appointment as voluntary liquidator of the Company and deals at length with the retainer and payment of the solicitors formerly retained by Messrs Albarran and Pleash, a matter to which I will refer below. Mr Pleash was cross-examined at some length as to these matters.
14Mr Timothy Cook and Mr Jovan Singh, who also gave evidence in the proceedings, worked on the administration and deed administration of the Company under Messrs Albarran's and Pleash's supervision. Mr Cook, who was the more senior of the two, gave evidence by two affidavits dated 14 March 2014. Mr Cook's first affidavit contains a detailed account of the course of the administration, which indicates it was prepared based on a review of the business records of the relevant firm, including those of the solicitors then acting for Messrs Albarran and Pleash and the different firm now acting for them in the proceedings. It appears, from Mr Cook's evidence, that the Company was placed in voluntary administration rather than liquidation both because of issues raised by the Kossaifi family and the Elias family as to the extent of their respective contributions and in order to seek to avoid any adverse consequences for insurance requirements for builders licences in respect of Messrs Kossaifi and Elias that might have arisen from a liquidation. Mr Cook's second affidavit dated 14 March 2014 annexes voluminous correspondence in respect of the administration and deed administration, documents in relation to the DOCA, creditor's reports and invoices, time entry records and tax invoices issued by Messrs Albarran's and Pleash's former solicitors, valuations of the property and documents in respect of litigation between the Plaintiffs, the Kossaifi family and Messrs Albarran and Pleash in the course of the administration.
15Messrs Albarran and Pleash also relied on the affidavit of Mr Singh dated 14 March 2014. Mr Singh is now a Senior Manager of the accounting firm with which Messrs Albarran and Pleash are associated and, at the relevant time, was a junior accountant who worked under the supervision and direction of Messrs Albarran, Pleash and Cook. Mr Singh's evidence is that he was involved in preparation of documents prior to the appointment of Messrs Albarran and Pleash as administrators and, in particular, that he was asked to prepare documents for the appointment of voluntary administrators on 9 February 2009. He refers to having attended the Company's development property at Narrabeen on 11 February 2009 and that he was then provided with information by Mr Elias, including his account of the disputes between the Elias family and the Kossaifi family. Mr Singh also gives evidence as to the first meeting of creditors on 19 February 2009, a conversation with Mr Elias in March 2009 in which Mr Elias suggested that he and Mr Kossaifi had "sorted it all out", the second meeting of creditors on 10 March 2009, the engagement of Messrs Albarran's and Pleash's then solicitors in early March 2009 and other communications with Mr Elias.
The conduct of the administration and deed administration
16I will now address some of the significant events in issue in the proceedings. In doing so, I will address several specific matters that were referred to in the APOC, but seemed to be relied on as part of the relevant circumstances rather than to support specific claims for relief. The Company purchased land in Narrabeen in late 2005 and constructed commercial and retail units on that land. The purchase and development of that land was initially funded by a secured loan in the amount of $1,025,000 by ING Bank (Australia) Ltd which was then refinanced by a loan from St George Bank (Ex P10, 1/12). The Company granted a fixed and floating charge to St George Bank on 18 January 2006 securing a maximum prospective liability of $8,430,000 (Ex P10, 1/8-33) and also granted registered mortgages over the land as security.
17The development of the commercial and retail units on that land took place between November 2005 and March 2007. Differences between Mr Elias and Mr Kossaifi as to what should be done in respect of the completed development emerged from early 2007 and had grown to a substantial dispute by 2008. It seems to be common ground, and was amply demonstrated by the evidence, that at least Mr Kossaifi and Mr Elias were no longer willing or able to work together by that time. In July 2008, the Kossaifi family filed proceedings seeking orders for the winding up of the Company on the basis of oppression under ss 232-234 of the Corporations Act or on just and equitable grounds under s 461-462 of the Corporations Act and also sought interlocutory orders for the appointment of a provisional liquidator.
18The Company had by that time sold some of the units in the development, although seven units were unsold as at February 2009, and had paid down the amount borrowed from St George to about $114,000 and then had a balance of about $111,000 in its current bank account with St George Bank.
19By email dated 6 February 2009 (Ex P10, 1/155), Messrs Albarran and Pleash were approached by the solicitors for the Kossaifi family to act as liquidators in a creditors' or members' voluntary liquidation of the Company. By that email, Mr Kossaifi's solicitor advised Messrs Albarran and Pleash:
"Gents,
New job for you.
A CVL (or MVL) required arising from a dispute between the two directors of JOE & JOE DEVELOPMENTS PTY LTD ...
The directors want the company shut down and the properties sold. I just need to check the position regarding the extent of creditors so as to determine whether MVL more appropriate.
Has to happen today, as the matter is back in Court on Monday for the purpose of appointing a provisional liquidator..."
I understand the reference to "CVL" to be to a creditors' voluntary winding up and to "MVL" to be to a members' voluntary winding up. The solicitors acting for the Elias family and the Kossaifi family also approached other insolvency practitioners at the same time (Ex P10, 1/144-154). The solicitors for the Kossaifi family wrote to the solicitors for the Elias family on the same day (Ex P10, 156) pressing for the appointment of Mr Pleash as liquidator of the Company, with the relevant documents to be signed by either 4pm that afternoon, 6 February 2009 or on 9 February 2009 at 9:00am on the basis that the Kossaifi family would otherwise press the application for the appointment of a provisional liquidator. The solicitor acting for the Elias family responded confirming their agreement to voluntary liquidation with Mr Pleash to be appointed as liquidator. The Plaintiffs contend that approach was adopted at the suggestion of an accounting adviser to the Company and Messrs Albarran and Pleash contend that correspondence is inconsistent with that submission. I do not consider that such an inconsistency was shown but little turns upon that matter.
20The Plaintiffs plead that, on 9 February 2009, Mr Albarran on behalf of himself and Mr Pleash represented to Mr George Elias that, if the Company's directors resolved to place the Company in administration and Messrs Albarran and Pleash were appointed as administrators, then they could complete the acts necessary to conclude the Company's business within a month and the costs of doing so would be approximately $50,000. The Plaintiffs also contend that Messrs Albarran and Pleash represented, presumably by implication, that they had reasonable grounds for those representations (APOC [20]). Messrs Albarran and Pleash respond to that alleged representation by pleading that Mr Albarran provided general advice at that meeting as to the timing of the voluntary administration process and they accept that he represented that the costs of a voluntary administration process were usually $50,000, subject to events occurring during the voluntary administration and not including the costs of a deed administration. Neither Mr George Elias nor Mr Albarran gave evidence in the proceedings, and I must infer that their evidence would not have assisted the respective parties in this regard. The claimed representation, as distinct from the more limited statement acknowledged by Messrs Pleash and Albarran, cannot be established without evidence of Mr George Elias supporting it. The more limited statement, as to the costs usually incurred in a voluntary administration, excluding a deed of administration, has not been falsified by the evidence.
21On or about 9 February 2009, Mr Joseph Kossaifi and Mr George Elias, who was not a director of the Company, executed a resolution to appoint Messrs Albarran and Pleash as voluntary administrators of the Company. The Plaintiffs accept that Mr George Elias executed that resolution on behalf of Mr Tony Elias, who was a director of the Company, and no point was ultimately taken as to the validity of the appointment of Messrs Albarran and Pleash in this application. The Plaintiffs contend that Mr Tony Elias instructed Mr George Elias to execute that resolution as a result of the representation made by Messrs Albarran and Pleash that they could complete the Company's administration for the sum of approximately $50,000 (APOC [23]). That wider representation has not been established, and the more limited representation has not been falsified, as I noted above.
22The Plaintiffs accept that, at the time of appointment of Messrs Albarran and Pleash as administrators, there were difficulties in communication and cooperation between the directors of the Company but contend that the Company was solvent and there were no delinquent debts (APOC [19]). It appeared from Mr Elias' cross-examination that there were at least significant delays in respect of the sale of the relevant properties and a number of them were then vacant and not generating rental income (T68-69). As at 9 February 2009, the Company also owed significant amounts to shareholders, and at least to the Plaintiffs who later claimed that it was then indebted to them in the amount of $587,567 (Ex P10, 1/183A and see the cross-examination of Mr Elias at T79-80). Mr Elias accepted that, as at 6 February 2009, the Company did not itself have the money to pay its debts as and when they fell due, although he had indicated that he personally had the money to pay those debts and that his family had previously injected a lot of money into the Company (T98). It also appears that, in January 2009, the Company had been issued penalties by the Australian Tax Office in respect of its failure to lodge Business Activity Statements for 31 March 2008, 30 June 2008 and 30 September 2008 (Ex P10, 2/619). Mr Elias ultimately also accepted that, by February 2009, tax liabilities were due to the Australian Tax Office in the order of $260,000 by reference to outstanding Business Activity Statements (T102).
23The proposition that the Company was solvent at that point would not be inconsistent with a valid appointment of an administrator on the basis that the directors believed the Company was likely to become insolvent at some future time. That belief would have been justified by the debt then due, or likely to become due, to the Australian Taxation Office, the delays in the sale of the remaining units and the fact that the directors, Mr Kossaifi and Mr Elias, would plainly not be able to reach agreement as to any other means to realise the Company's assets to pay that debt. That position is consistent with Recital F of the DOCA which recorded that the Company was balance sheet solvent, but did not have the cash resources to pay its debts at the time it was placed into voluntary administration. Messrs Albarran and Pleash plead that the Plaintiffs are bound by a deed estoppel in that regard. I do not find it necessary to determine whether such an estoppel would be available in respect of a statutory precondition to their appointment as deed administrators, since it seems to me the facts to which I have referred and that recital are sufficient to support a finding that the Company was likely to become insolvent as a matter of fact.
24On 10 February 2009, Mr Murray Liston of Hymans Asset Management attended at the Company's development property and subsequently prepared valuations of the unsold units, valuing them at between $1,790,000 on a forced sale basis (as defined in the valuations) and $2,120,000 at market value (as defined in the valuations) (Ex P10, 1/210-294). The valuation observed that:
"We note, given the intrinsic nature of the subject development, selling periods may be lengthy, plus given the background of the current ownership (i.e. Conflict between directors of Joe & Joe Developments, liquidation) purchasers may be "spooked". Thus, Vendors expectation will necessitate flexibility as indicated in our valuation range as per our instructions."
25Messrs Albarran and Pleash sent their first report to creditors on 11 February 2009. That report included a summary of the Company's creditors totaling approximately $294,004, including the Australian Taxation Office in the amount then estimated of $120,000 and St George Bank in the amount of approximately $100,000. Mr Singh was subsequently advised by St George Bank that the Company's liability to it was $114,183.66 and that the balance of its cheque account with St George was approximately $111,602.58. The Company's liability to St George Bank would therefore be substantially extinguished if St George Bank set off the balance of the Company's cheque account against its loan facility, which it later did on 27 February 2009.
26In opening submissions, the Plaintiffs point to that report to creditors as indicating that a surplus of $2.09 million was forecast under the DOCA after payment of creditors and Messrs Albarran's and Pleash's remuneration and expenses (Ex P1, 1/369). The Plaintiffs contend that the Company's financial position as at February 2009 was that the market value of units then held by the Company was estimated as $2,385,000; cash and bank was noted as $111,603, for total assets of $2,496,603; and liabilities were noted as trade creditors of $38,035, a debt to the Australian Tax Office as $258,883, based on a proof of debt subsequently submitted; related creditors of $19,020 and St George Bank as a secured creditor of $114,184, leaving a surplus of $2,066,481. On any view, the estimated value of the Company's assets then substantially exceeded the Company's then estimated liabilities.
27Mr Albarran chaired the first meeting of creditors held on 19 February 2009. The Plaintiffs plead that Mr Albarran "agreed to defer conducting detailed investigations into the affairs" of the Company (APOC [27]) and particularise that allegation by reference to the minutes of that first meeting of creditors and an email dated 24 February 2009 from Mr Cook. The minutes of the meeting (Ex P10, 432) record only a narrower deferral, stating that:
"... in the initial meeting held at [Mr Albarran's] office, there had been various accusations made by Mr Kossaifi and Mr George Elias (on behalf of Mr Tony Elias) in relation to alleged misappropriation of funds and assets of the Company and that the Administrator had a duty to address these issues and investigate other matters relating to the Company. Subsequent to this meeting the directors had advised that they may reach an agreement and accordingly the Chairperson confirmed that he would wait until Monday 23 February 2009 for the directors to reach an agreement prior to concluding these investigations..."
28Mr Cook's email dated 24 February (Ex P10, 2/482-483) advised that the time for deferral of investigations "in relation to alleged misappropriation of funds and assets of the Company" had expired and that:
"As you are aware the Administration is subject to strict timeframes and as such the Administrators must now continue with the required investigations which include the deferred investigations into the accusations previously made by the directors ..."
It does not seem to me that the suggested agreement for such a deferral was established or that Messrs Albarran and Pleash could be criticised for pursuing such an investigation, proportionate to the matter to be investigated and having regard to the interests of creditors and contributories in not incurring unreasonable costs in the administration. The extent of any investigation and the costs incurred in it were ultimately not clear from the evidence led in the proceedings.
29By email dated 24 February 2009, the Kossaifi family's solicitors advised Mr Cook and others (Ex P10, 2/486) that:
"I met with Joe Kossaifi yesterday, and he clearly expressed that in the absence of a written agreement between the parties that could form the basis of a DOCA by today, the Administration was to continue, and if it meant that the company was ultimately placed into Liquidation, then that was the cost of it. Mr Kossaifi talked to what he understood the last exchange of offers to be, which included either party taking one of the residential units, each taking two commercial units, and the last remaining unit being left to sold [sic] or transferred upon determination of the parties' loan accounts, and liabilities to the company."
30By email dated 25 February 2009, an accountant who was advising the Elias family, Mr Georgiou, sent Mr Cook proposed terms of a deed of company arrangement. The initial proposal put by Mr Georgiou was, in substance, that the units not then sold should be divided between the Elias family who would take two commercial units (lots 16 and 18) and a home unit (lot 4) and the Kossaifi family who would take two commercial units (lots 12 and 15) and a home unit (lot 6). Messrs Albarran and Pleash point out that Mr Georgiou's proposal provided for the transfer of all of the remaining lots situated on the property to the Kossaifi family or the Elias family (Ex P10, 2/502) and at least at that point did not provide for the sale of another commercial unit (lot 14, being commercial suite 5) to meet the expenses of the administration. The proposal also provided (Ex P10, 2/503) that the Kossaifi family and Elias family were to have transferred to them or their nominee one unit of their choice "to facilitate ... raising funds and a cash injection into the company of $150,000.00 each". The proposal contemplated that the Company would meet several third party liabilities and also amounts claimed by the shareholders and "that both parties' reasonable legal fees in relation to shareholder discussions and negotiations be paid by the company in the same proportion" and recorded shareholder loan accounts for the Kossaifi and Elias interests as $754,058.34 and $645,982.70 respectively prior to adjustments. That proposal did not identify a legal mechanism for the transfer of the units owned by the Company to its shareholders and would have exposed the Company's creditors to significant risk if such transfers were implemented and the Company was then left with insufficient assets to meet its debts.
31Mr Georgiou's email also stated that:
"... In the meantime, as major creditors, Elias and Kossaifi advised that they do not wish the receiver [sic] to spend any further time investigating the company's affairs as any allegations of fraud or otherwise have been resolved the details of which have been put down purely to miscommunication between the shareholders...
Would you please review the attachment and advise as soon as practicable if [the Elias family's solicitor] can proceed to draft the DOCA and that the contents of the attachment to this email meet with the Receiver's [sic] satisfaction to work towards handing the management of the company back to the Directors."
Messrs Albarran and Pleash submit, and I accept, that they were obliged, by reason of their appointment as administrators, to investigate the Company's business, property, affairs and financial circumstances, by reason of s 438A of the Corporations Act and in order to prepare a report to creditors under s 439A of the Corporations Act.
32By email dated 27 February 2009 (Ex P10, 2/520) to representatives of the Elias family and the Kossaifi family and Mr Oliver Trajcevski (to whom I will refer further below), Mr Cook outlined several unresolved aspects of Mr Georgiou's proposal (Ex P10, 2/520-529). Mr Cook there estimated that the Company's total creditors would be $585,000 including creditors' claims, and fees referable to the administration, DOCA and liquidation fees and associated costs; noted those estimates were subject to verification and finalisation; sensibly suggested that the directors may wish to forego their claims and those of related parties to reduce the funds required to be put into the deed fund; and suggested that the transfer of any title of any of the lots to the shareholders would require a mortgage and charge to be provided to the Company as security. Although the last suggestion was controversial in the proceedings, it does not seem to me to have been unreasonable, where that transfer would involve the Company parting with assets that could ultimately be required to satisfy creditors' claims other than for an arms' length consideration.
33Mr Cook also made the following, plainly sensible, comments:
"Considering my comments above in relation to the difficulties identified in relation to the proposed transfer of title and the alternative available to creditors, being an orderly realisation of the Company's assets, I suggest the following compromise:
● The approximate net funds recoverable from the sale of one residential unit may provide enough funds to satisfy the estimated creditors claims, administration/DOCA/ liquidation fees and associated costs.
● As such an intense marketing program will be commenced in conjunction with the director's efforts to secure finance (as outline above but not yet finalised)...
As advised previously the matters raised above need to be addressed in order for the Administrator to recommend acceptance of the deed proposal. As the report is to be dispatched to creditors on Monday it is clear that these matters will not be finalised prior to Monday.
As such I will be seeking an adjournment of the forthcoming major meeting to allow further time to address the above matters..."
Messrs Albarran and Pleash submit, with substantial force, that the acceptance of that approach by the Plaintiffs may well have had the result that, rather than the Company later entering into a DOCA, it would have been able to meet its obligations and the administration would have ended or the Company would have been placed into a form of liquidation by the shareholders to enable the remaining assets to be realised. That does not, however, provide a full answer to the Plaintiffs' criticisms of subsequent events.
34In their second report to creditors, sent on 2 March 2009 (Ex P10, 2/533), Messrs Albarran and Pleash recommended that creditors adjourn the second meeting of creditors for up to 45 business days. That report recorded, inter alia, that Messrs Albarran and Pleash had been advised that:
"the Company has been marketing the remaining residential units but due to a dispute between the directors and the winding up proceedings initiated by one of the directors, at least two interested parties [had] withdrawn their interest." (Ex P10, 2/537)
That report also noted that:
"It is accordingly difficult to conclude that the Company was insolvent from an analysis of the Profit and Loss as it has been able to meet its expenses and generate a profit in the two most recent financial periods..." (Ex P10, 2/539)
The Plaintiffs place considerable weight on this statement. However, it does not exclude the likelihood of future insolvency arising in the manner to which I referred above. That report stated that the estimated realisation value under a DOCA was nearly $2.1M, excluding the shareholder loan accounts and the legal fees that were to be paid by the Company under Mr Georgiou's proposal. Messrs Albarran and Pleash also point out that, by that time, the Australian Taxation Office had submitted a proof of debt for $258,883 (Ex P10, 2/543, 2/552). That report also noted that investigations into the Company's affairs had identified payments to directors and associates of its directors of approximately $1,682,631. The second report to creditors included a summary of Mr Georgiou's proposal and attached a copy of it and noted that there were:
"a number of issues surrounding the proposal which indicate the proposal in current form is incapable of practical effectuation by way of a deed of company arrangement. I am unable at this time to express an opinion as to whether it is in creditors interests for the company to execute a Deed of Company Arrangement...". (Ex P10, 2/555)
35As early as 4 March 2009, Mr Elias was sufficiently unhappy with the progress of the administration and with the costs incurred by Messrs Albarran and Pleash, including for review of Mr Georgiou's proposal for a deed of company arrangement, that he indicated he would complain to the Australian Securities and Investments Commission about the conduct of Messrs Albarran and Pleash (T103). In the period following the issue of the second report, Mr Elias also had several dealings with Messrs Albarran's and Pleash's staff that could only be characterised as aggressive and inappropriate. The Plaintiffs did not ultimately seek to defend those dealings. However, it seems to me that they are ultimately peripheral to the issues in this application, since the fact that Mr Elias was capable of behaving aggressively and inappropriately is no more than background to the subsequent issues arising in the administration. The Elias family's legal representatives also wrote to the administrators pressing for the Company to be returned to the directors' control at this time in a manner that did not sufficiently recognise the extent to which creditors' interest were now relevant.
36On 6 March 2009, the accounting or taxation advisers to Mr Kossaifi put a proposal to Mr Georgiou (Ex P10, 2/630) expressed as a "final proposal" that:
"To raise the funds to meet creditors 1 & 2 - the following method is proposed:
(a) On the transfer of Unit 4 to Mr Kossaifi or Nominee $250,000.00 is to be deposited in the Company's bank account.
(b) On the transfer of Unit 6 to the Elias Family or nominee $250,000.00 is to be deposited in the Company's Bank Account.
(c) On the transfer of Commercial Unit 3 to Mr Kossaifi or nominee and on transfer of Commercial Unit 7 to the Elias Family or nominee - the shareholders will deposit equally the shortfall of the company's remaining debt (other than Directors Loan Account)."
37By an email dated 9 March 2009, Mr Georgiou in turn advised Mr Cook and others (including Mr Trajcevski) that:
"... the Elias and Kossaifi parties have been instructed and have commenced discussions with their respective banks to obtain a preliminary letter of offer for the raising of $250,000.00 each to meet the expected costs of winding up the company and to continue with the DOCA previously documented and provided.
It is the Elias' intention to postpone the Creditor's Meeting to allow both parties to obtain an indicative letter of offer to allow adequate proof to you as Receivers [sic] that the company and its shareholders/Directors have the capacity to have the company handed back to them.
Would you please contact [Mr Kossaifi's legal adviser] and confirm that this is Mr Kossaifi's intention as it is our contention that if both parties had adequate proof of their ability to raise the funds, we could proceed to have the DOCA drafted and have the Receiver's [sic] consent to hand the company back." (Ex P10, 2/636)
Consistent with Mr Cook's earlier suggestion, an adjournment of the second meeting and the shareholders then raising funds to pay creditors and the costs of the Company's administration might then have avoided the need for a DOCA.
38Mr Elias ultimately took a different view and advised Messrs Cook and Singh (Ex P10, 2/639) that:
"As a major shareholder, director, and creditor of [the Company] I Tony Elias have spoken to all shareholders as well as Dennis Georgioo [sic] and the meeti8ng [sic] is to proceed tomorrow ignoring any previous instructions from Dennis Georgio [sic] to cancel the meeting. The shareholders or their proxies will be in attendance."
39The second meeting of creditors took place on 10 March 2009. The minutes of that meeting (Ex P10, 2/642-650) record that:
"The Chairman noted that a proposal for a Deed of Company Arrangement ("DOCA") had been put forward by the directors with which the Administrators had identified numerous issues to be addressed. The Chairman noted that these issues had been subsequently addressed and an amended proposal had been provided.
The Chairman discussed the proposal and advised that the underlying activity was that all creditors were to be paid out in full. The Chairman noted that these creditors included the Administrators' fees and costs, the Australian Taxation Office ("ATO"), Harrington McNamara, Khoury Taxation Services and various legal fees of the directors/shareholders.
The Chairman noted that these payments would be facilitated through the provision of funds by the directors/shareholders. The Chairman noted that the transfer of properties to the directors/shareholders would allow them to gain access to funds which would satisfy all claims discussed in the proposal. The Chairman advised that the provision of funds were crucial and no transfer of property would take place prior to these funds being made available under the DOCA.
Mr Dennis Georgiou as proxyholder for Tony Elias asked whether it was possible that the properties could be released prior to the provision of funds. The Chairman confirmed that this was possible however any release of property would be done with the Administrators placing a mortgage/fixed and floating charge over the property until the funds were provided to release all liabilities under the DOCA.
The Chairman also advised that a time limit will be placed on the generation of funds, being 2 months, subsequent to which the Administrators will exercise their security and take possession of the property released. The Chairman noted that should one party not be able to raise funds as required by the DOCA, this would not result in the DOCA having failed. The Chairman noted that should one of the directors not provide funds, the Administrators would exercise the charge over the property released to that director.
The Chairman asked whether both parties agreed to this and [the solicitor for the Kossaifi family] advising Mr Joseph Kossaifi and Mr Georgiou [acting for the Elias family] agreed to this...
[The solicitor for the Kossaifi family] asked if the allocation of the properties could be confirmed. It was confirmed that the following allocations would take place...
... 4. Commercial Suite 5 [Lot 14] would be sold to either the Kossaifi group or the Elias Group depending on who wishes to purchase and subject to commercial value, determined by the valuations performed by the Administrators."
40A resolution was then proposed that the Company execute a deed of company arrangement as outlined in the administrators' report to creditors dated 2 March 2009 with amendments "as per the correspondence from Khoury Taxation Services [as advisers to the Kossaifi family] dated 6 March 2009 and as per the amendments discussed above" and was carried unanimously on the voices. The creditors also approved remuneration of Messrs Albarran and Pleash for the period from the date of their appointment to 10 March 2009 capped at an upper limit of $95,227 plus GST and for the period 11 March 2009 to the date of execution of the DOCA capped at $75,000 plus GST. A resolution to approve remuneration capped in the amount of $80,000 plus GST in respect of the deed administration was lost on the voices at that meeting.
41On 11 March 2009, Mr Georgiou sent an email to Mr Cook, Mr Albarran, and the parties' solicitors recording that:
"... Following discussions with the Shareholders and from the ATO's attitude in the meeting yesterday, it has become apparent that the main impediment to having the company handed back to the directors is the ATO debt...
... Whilst the motion to have the company handed back to the Directors was not specifically dealt with yesterday in the meeting it is an important resolution that could and should be considered in light of any impediments that the Receivers [sic] advises remain at this time.
As shareholder disputes are now solved, we would be seeking to have a separate shareholder agreement to document the shareholder's intent to have the company wound up based on their agreements to date however an exhaustive DOCA, administration thereof, tax investigation by Hall Chadwick and all that is supposedly required as discussed yesterday could be alleviated." (Ex P10, 2/657)
42On 13 March 2009, Mr Cook sent a "final" DOCA proposal (Ex P10, 2/666-669) to the legal representatives of the Elias family and the Kossaifi family. The then solicitors for Messrs Albarran and Pleash also raised certain matters in respect of the suggested shareholders agreement. Correspondence between the solicitors as to whether a DOCA should include a shareholders agreement then followed, with Mr Kossaifi and Mr Elias' representatives taking different views. A further draft DOCA was issued by the solicitors then acting for Messrs Albarran and Pleash on 23 March 2009 (Ex P10, 2/700-733) and amendments were proposed by the solicitors for the Kossaifi family and the Elias family, with the final version not being settled until the last day on which it could be executed in order to avoid the Company being placed in liquidation. Mr Cook's evidence is that at least eight versions of the draft DOCA were distributed between 23 March and the end of March 2009, including mark-ups of the draft deed prepared by the solicitors for the Kossaifi family and the solicitors for the Elias family (Cook 14.3.14 [104]).
43The DOCA was executed by the Company, Messrs Albarran and Pleash and the Elias family and the Kossaifi family on 31 March 2009. Recital A recorded the appointment of Messrs Albarran and Pleash as voluntary administrators of the Company (Ex P10, 3/1030). Recital F, to which I referred above, recited that:
"[The Company] is solvent on a balance sheet test but does not have cash resources to pay debts at the time the Company was placed into Administration."
Clause 4 of the DOCA required the Kossaifi family, and the Elias family, together to make payments of $500,000 on or before 56 days after the date of execution of the DOCA (26 May 2009) and the greater of $300,000, or the amount required to be paid to meet the total liabilities set out in Item 8 of the Schedule on or before 84 days after the date of execution of the Deed (23 June 2009). The amount prescribed by Item 8 of the Schedule is that amount which was required to discharge in full the administrators' fees, expenses and trading liabilities, the Deed Administrators' fees and expenses, creditors and subordinated creditors. The term "Subordinated Creditors" was defined to include the accounting and legal advisers to the Kossaifi family and the Elias family respectively (cl 1.2 and Item 7 of the Schedule). Clause 5 and Item 10 of the DOCA defined the property that constitutes the deed fund, including all of the remaining lots of the property (Ex P10, 3/1034 and 1059). Clause 6 and Item 11 prescribed the priority of distribution of the property referred to in cl 5 of the DOCA.
44Clause 8 of the DOCA set out the deed administrators' powers which included to call in, collect or convert into money the Company's property and to take control and possession of the Company's assets and undertaking at any time the company was in breach of any terms of the DOCA. Clause 12 of the DOCA in turn provided that:
"Notwithstanding anything else contained in it, upon the execution of this Deed, the Deed Administrator shall not be personally liable for any debts incurred by the Company in conducting its business or otherwise and the Deed Administrator will be entitled to indemnity out of the funds that would otherwise be available for the creditors of the Company for any costs, expenses and charges whatsoever incurred and this indemnity will operate as a priority over all creditors' claims and entitlements."
45Clause 25 of the DOCA provided that the Elias Family and the Kossaifi family guaranteed the Company's performance of the DOCA. Clause 25.22 in turn acknowledged an agreement between Elias family and the Kossaifi family about the consequences of breach, but each acknowledged that they were "jointly and severally liable to the Company and the Deed Administrator" and that the agreement recorded in cl 25.22 of the DOCA bound them but not Messrs Albarran and Pleash (Ex P10, 3/1050--1051).
46Clause 26 provided for the Plaintiffs, the Kossaifi family and Messrs Albarran and Pleash to effect and execute a share buy-back scheme of the ordinary shares held by the Plaintiffs and the Kossaifi family in the Company in consideration for transfer of identified lots of the Property (Ex P10, 3/1051 - 1057). That provision has been the subject of controversy in the proceedings. Messrs Albarran and Pleash invite the Court to find that the buy-back arrangement was intended to have the result that the value of the units transferred to the Plaintiffs and the Kossaifi family could be treated as a deemed dividend, which would attract the ability to frank dividends, and improve their tax position. That was put as a matter of inference, absent direct evidence of that purpose led by any party. It seems to me that the structure of the buy-back arrangement was at least consistent with that possibility. Clause 26.2 of the DOCA provided that the actions, steps, transfers, sales or conveyances prescribed by cl 26 were conditions precedent to the completion of the parties' obligations under the DOCA. Clauses 26.6-26.7 provided that the lots of the property transferred to the Plaintiffs and/or the Kossaifi family were to be transferred subject to:
"not less than second ranking securities to secure the performance by the Guarantors obligations pursuant to [the DOCA] to pay all amounts owing and payable." (Ex P10, 3/1053 and 3/1058 and Item 6 of the Schedule).
Clause 26.8 provided that an amount of $800,000 was to be paid by shareholders to the Company in two tranches. Clause 26.9 required Messrs Albarran and Pleash, following execution of the DOCA, to list for sale and sell lot 14 and pay the proceeds of sale less expenses into the deed fund (Ex P10, 3/1053).
47As I noted above, the DOCA required the Kossaifi family and the Elias family to make to payments to the deed fund, the first payment to be made no later than 26 May 2009 and the second no later than 23 June 2009. Those payments were not made to the deed fund in that manner and that appears to have been a significant contributor to the complexities and difficulties that followed. The first payment was ultimately made by the Elias family out of the proceeds of the sale of lot 4, in circumstances to which I refer below, although the amount paid significantly exceeded the amount required to be made by them as the first payment. The first payment was made by the Kossaifi family out of a borrowing on lot 6, in circumstances to which I refer below, but not until more than two years after it was due.
48The solicitors then acting for Messrs Albarran and Pleash subsequently prepared a circular to shareholders and notice of intention for the share buy-back contemplated by the DOCA. On 7 April 2009, those solicitors sent a letter to the solicitors acting for the Kossaifi family and the Elias family outlining the steps and actions to be taken by Messrs Albarran and Pleash, the Elias family and the Kossaifi family to effect the share buy-back (Ex P10, 3/1073) and subsequently distributed the proposed circular resolution of directors and ASIC Forms 280 and 281 to those parties' legal representatives (Ex P10, 3/1146). The solicitors for the Kossaifi family provided comments on 5 May 2009 (Ex P10, 3/1170) and the solicitors for the Elias family advised on 7 May 2009 that they should be able to settle agreed changes with the solicitors for the Kossaifi family on that day (Ex P10, 1173-1174). A draft incorporating those changes was then circulated and the share buy-back agreement was agreed in its final form on 12 May and executed on 14 May 2009. It does not seem to me that there is any real basis for the Plaintiffs' criticism of Messrs Albarran and Pleash or their then solicitors in respect of delay in this process.
49The share buy-back agreement contemplated the transfer of lot 4 to the Kossaifi family in consideration for 30% of their shares in the Company and lot 6 to the Elias family in consideration for 30% of their shares in the Company in the period on or before 21 July 2009 (APOC [43]).
Events in respect of lots 4 and 6 from April 2009
50Issues subsequently arose in respect of the circumstances of the sale of lot 6 to a third party and a consequential payment into the deed fund by the Elias family and the sale of lot 14 (commercial suite 5) to the Elias family.
51The issue in respect of lot 6 arose when the Elias family sought to sell that lot to a third party rather than have it transferred to them or their nominee subject to a mortgage as provided by the DOCA. Mr Cook's evidence is that his understanding was that tranche 1 under the DOCA, so far as it concerned the Elias family, required that lot 6 be transferred to the Elias family or a nominee in exchange for the family selling 30% of their shares; that a real property mortgage was to be granted to the Company over that lot to secure payments that the Elias family was required to make under the DOCA, and that the Elias family was to pay $250,000 in clear funds to Messrs Albarran and Pleash (Cook 14.3.14 [114]). Mr Cook also gives evidence of having become aware, by correspondence from Messrs Albarran's and Pleash's former solicitors, in early April 2009, that the Elias family wanted to change the operation of tranche 1 by selling lot 6 to a third party (Cook 14.3.14 [115]).
52On 7 April 2009, Mrs Elias, who is a solicitor and the First Plaintiff's wife, advised Messrs Albarran's and Pleash's then solicitor of a proposed sale of lot 6 to a third party (Ex P10, 1076-1077). Messrs Albarran's and Pleash's then solicitor, fairly, pointed out to the Plaintiffs' solicitor and Mrs Elias that that proposal was not consistent with the terms of the DOCA which provided for transfer of the unit to the Elias family or their nominee subject to a mortgage. That inconsistency was not inconsequential since, if the Elias family retained the proceeds of such a sale as they initially proposed, that proposal would have distributed the value of a significant asset of the Company to them without securing the position of the Company's creditors.
53An email dated 14 April 2009 (Ex P10, 3/1083) from the solicitors for the Elias family to the then solicitors for Messrs Albarran and Pleash enclosed a draft contract for the sale of lot 6, which had not been prepared by that firm but by the firm associated with Mr Elias' wife and noted:
"Please also advise of [Messrs Albarran's and Pleash's] requirements in relation to the conduct of the sale. In this regard my clients have indicated that they now wish for me to act on this sale on the basis that the property is being sold to a nominee of my client under the DOCA.
Please also advise if your client's requirements in relation to the distribution of the proceeds of sale and confirm that your client requires all net proceeds to be paid into the Deed Fund."
54By email dated 16 April 2009, the solicitors for the Elias family referred to cll 26.11 and 26.12 of the DOCA, which they noted had been inserted at the request of the Elias family, and observed that:
"The purpose and intent of those clauses is to allow a commercial sale of a Unit to be undertaken by either Elias or Kossaifi prior to the terms of the deed being satisfied and to prevent a situation where both parties need to wait until the deed is at an end before they call sell the relevant units in the development ... In my client's view, this approach is a sensible one as it allows cash to be injected into the Deed Fund instead of security being held under a mortgage and also provides some flexibility ..." (Ex P10, 3/1100)
55By email dated 15 May 2009 (Ex P10, 4/1337), the solicitors for the Elias family advised the solicitors for the Kossaifi family that the proposed arrangement in respect of lot 6 was that the gross proceeds of the sale of the lot would be paid into the deed fund; the mortgage over lot 6 would be discharged, replacing the security held by the mortgage with security held by cash; and a proposed adjustment would not be between the Elias family and the deed administrator, but between the Elias family and the Kossaifi family once the DOCA ended and the parties received their final entitlements from the Company; and, by email dated the same date, the solicitors for the Kossaifi family advised that they accepted that proposal.
56Messrs Albarran's and Pleash's then solicitor, fairly, pointed out to the Elias family's solicitor the fact that the consequence of that approach would be that the Elias family would have paid $640,000 into the deed fund and the Kossaifi family only $250,000 (implicitly, after the latter complied with their obligation to make a payment into the deed fund) (Ex P10, 4/1475). The Elias family's solicitor responded that that issue had been addressed by arrangements with the Kossaifi family and the Elias family were satisfied with those arrangements (Ex P10, 4/1478). The relevant amount was then paid into the deed fund as the basis on which Messrs Albarran and Pleash permitted the sale of lot 6 to a third party, free of security, as proposed by the Elias family, rather than transferred to the Elias family subject to mortgage as provided under the DOCA.
57An issue then arose in respect of the terms of the transfer of lot 4 to the Kossaifi family. Mr Cook's evidence was that tranche 1 under the DOCA applied similarly in respect of the transfer of lot 4 to the Kossaifi family and corresponding transactions (Cook 14.3.14 [120]). His evidence was that he understood from the creditor's meeting on 10 March and subsequent emails that both shareholder groups required finance to make the $250,000 payment required as part of tranche 1 and that he knew the lender to the Kossaifi family required a first registered mortgage over lot 4, which meant that the deed administrators had to take a second mortgage, which he understood to comply with the DOCA (Cook 14.3.14 [122]-[123]).
58The certificates of title for the remaining lots of the property were not made available for collection from St George Bank until 10 June 2009 and the transfer of lot 4 of the Property to the Kossaifi family did not occur until after that date. On 11 June 2009, the Kossaifi family executed a mortgage in registrable form in favour of Messrs Albarran and Pleash (Ex P10, 4/1449A-1449AM), albeit that mortgage ranked behind that granted to their lender, the ANZ Bank. The DOCA and share buy-back agreement seem to me to have permitted that course, and, in particular, cl 7.3 of the share buy-back agreement provided that:
"If any one of the Mortgages cannot be registered because of a pre-existing mortgage over the title of the unit, then [the Company] will attend to the registration of a Caveat in respect of the Mortgage" (Ex P10, 4/1269).
As contemplated by that clause, Messrs Albarran and Pleash registered a caveat on the title for lot 4 which recorded the nature of their estate or interest in that lot as being as:
"Mortgagee of the land pursuant to a mortgage dated 11 June 2009 granted by the registered proprietors (Caveatees) to the caveators" (Ex P10, 4/1452).
Events in respect of lot 14 from May 2009
59On 12 May 2009, Messrs Albarran and Pleash issued a third report to the Company's creditors and convened a third meeting of creditors on 27 May 2009 (Ex P10, 4/1209-1236, 1398-1403). During the third meeting of creditors, Mr Elias asked if he could purchase lot 14 (commercial suite 5) from the Company (Ex P10, 4/1401) and Mr Albarran advised Mr Elias that:
"the shareholders could purchase the unit given that a Deed of Release is provided from the other shareholders that no action will be taken against the Deed Administrators in relation to the sale".
Mr Albarran advised that the cost of preparing and executing a deed of release would be "$5,000.00 plus GST if there were no problems but could cost up to $10,000.00 plus GST" (Ex P10, 4/1401). Mr Elias noted those costs, asked whether he had to decide right there and was, fairly, advised that he did not need to make a decision at that point. Messrs Albarran and Pleash submit, and I accept that, where that issue was then left open, the Plaintiffs' claim (APOC [57]) that Mr Albarran agreed on that date to sell lot 14 to Mr Elias is not established.
60Mr Cook's evidence (Cook 14.3.14 [127]-[128]) was in turn that:
"In about March 2009/April 2009 I instructed [the former solicitors for Messrs Albarran and Pleash] that the Deed Administrators would only consider selling Suite 5 to the Elias shareholder group if both the Elias and Kossaifi shareholder group executed a Deed of Release in favour of the Deed Administrators.
I considered it was prudent to get a Deed of Release because there was so much trouble in this job and criticism of Albarran, Pleash, Singh and I that I did not want the sale of Suite 5 via a related party transaction to cause any more trouble. It just seemed to make good sense in light of the history of this job."
Presumably, this date referred to should be after May 2009, when Mr Elias raised the possibility of purchasing that suite at the third meeting of creditors. As events had developed by that point, it does not seem to me that a request for a release in respect of an off-market sale was unreasonable.
61From late June 2009, Mr Elias and Mr Kossaifi put competing offers for the purchase of lot 14. By letter dated 26 June 2009, Mr Elias advised Mr Albarran that:
"At the last creditors meeting on the 27 May 2009 - I - Tony Elias the director of [the Company] we discussed to buy the last remaining commercial office and to buy the last remaining commercial unit No 5. You agreed at the valuation (valuation as per Hymans) But you needed indemnity by directors so they would not sue you for not properly marketing the property of sale. (As per meetings of meeting) and will do for $5,000.00 More importantly the commercial unit has been on the market for some years now with several agents and in summary the commercial market is slow and is not due to pick up in the near future It also adds funds to directors and creditors our offer is $200,000. That way there will be saving on agents fees." (Ex P10, 4/1500)
62Mr Elias again wrote to Mr Albarran offering to purchase lot 14 for $200,000 on 3 July 2009 (Ex P10, 4/1537). On 15 July 2009, Mr Georgiou sought Mr Kossaifi's consent to the transfer of lot 14 to the Plaintiffs (Ex P10, 4/1547) and, on 22 July 2009, Mr Kossaifi's solicitor advised Mr Cook that:
"Mr Kossaifi says that if [Mr] Elias is not interested in purchasing [lot 14 (commercial suite 5)] for valuation amount, then he will purchase it" (Ex P10, 4/1561).
63On 3 August 2009, Mr Kossaifi offered to purchase lot 14 for $210,000 (Ex P10, 4/1566). The Elias family was then advised of that offer on 4 August 2009 (Ex P10, 4/1568). At this point, Messrs Albarran and Pleash were faced with two competing offers by the shareholders to purchase lot 14 off market and faced a clear difficulty in accepting one of those offers, particularly if the relevant party then did not comply with the terms of any sale, a possibility that was plainly open given their previous non-compliance with the terms of the DOCA. The Kossaifi family and the Plaintiffs were advised that:
"the Deed Administrators have held of[f] instructing an Estate Agent to list [Lot 14 (Suite 5)] for sale but having regard to the merry-go-round that is developing the property will be listed and the offers then considered. In the meantime if the parties can agree a sale to one of the groups may eventuate." (Ex P10, 4/1588)
On the same day, the Kossaifi family's solicitor repeated their offer to purchase lot 14 for $210,000 (Ex P10, 4/1589). On 10 August 2009, Mr Elias in turn offered to purchase lot 14 for $206,000 (Ex P10, 5/1611).
Further events from August 2009
64On 6 August 2009, Mr Cook sent an email to the solicitors acting for the Kossaifi family, which does not appear to have been copied to the solicitors acting for the Elias family, which set out two scenarios (Ex P10, 4/1591). The first was the current position as at 5 August 2009, in which the Elias family had contributed $640,000 (on the sale of lot 6 as noted above) and the Kossaifi family $250,000 to the deed fund, and there were outstanding payments estimated as $655,139, with an estimated distribution to shareholders of nil. The second scenario was where the parties complied with the DOCA, treating the Elias family as contributing $640,000, the Kossaifi family as contributing $400,000 (including the payment of the second tranche which they had not yet made) with outstanding payments of approximately $655,139, a sale of lot 14 (commercial suite 5) for $210,000 and an adjustment to unbalanced contributions in favour of the Elias family, which would result in a distribution to each shareholder of approximately $28,412. The figure shown for the distribution for shareholders at that point did not, however, take account of the fact that the Company still owned four commercial units at that point and the distribution of those units to shareholders in specie would confer an additional benefit on them.
65By email dated 7 August 2009 (Ex P10, 4/1593), the then solicitors for Messrs Albarran and Pleash advised the solicitors for the Elias family and the Kossaifi family that:
"The time period for compliance with the [DOCA] for payment has not been met in accordance with its terms.
The [Defendants] have exercised their discretion not to require strict compliance with the terms of payment under the [DOCA] prior to now...
Having regard to amongst other things, the fact that the second tranches have not been paid by either shareholder group when attempts to be paid have been made, and the uncertainty regarding the commercial unit being sold to one or other of the shareholder groups or not, the [Defendants] will be issuing a default notice under clause 9 of the [DOCA] requiring strict compliance with the terms of the [DOCA]."
They also referred to complaints as to the costs incurred in the administration and deed administration and indicated that Messrs Albarran and Pleash:
"Advise that the [DOCA] will not be finalised until all issues are resolved and all shareholders and the directors of [the Company] sign a Deed of Release with the Deed Administrators." (Ex P10, 4/1594)
66The solicitors for the Elias family responded denying a breach of the DOCA and, by email dated 12 August 2009 (Ex P10, 5/1635), contended that:
"As such the Deed Administrators are in breach of the DOCA by refusing to complete that buy back in accordance with the terms of the DOCA and are unnecessarily and without basis delaying that matter..."
67By letter dated 18 August 2009 (Ex P10, 5/1654), the then solicitors for Messrs Albarran and Pleash expressed the view that:
"There does not appear to be any particular reason to hold a meeting of creditors at this time. Besides having the same issues which have been agitated in written correspondence being agitated orally, plus the further incursion of costs to convene and hold a meeting of creditors, the [Defendants] cannot see any benefit to be derived by this course of action.
In light of the various allegations laid by the Shareholders Groups about the conduct of the [Defendants], it should come as no surprise that they would seek to exercise their statutory entitlement to seek judicial direction."
68By email dated 19 August 2009, the Elias family's solicitors in turn advised Messrs Albarran's and Pleash's then solicitors that an agreement had been reached between the Elias family and the Kossaifi family for lot 14 of the property to be sold to the Elias family for $211,000 (Ex P10, 5/1660) and a solicitor acting for the Kossaifi family confirmed that position on that day (Ex P10, 5/1662). That agreement also proved to be short-lived.
69By letter dated 24 August 2009, Messrs Albarran's and Pleash's then solicitors advised the Elias family and the Kossaifi family that Messrs Albarran and Pleash would sell lot 14 to one of the shareholder groups provided that the other gave written consent and acknowledged the waiver of their rights to purchase the unit and contracts were exchanged within 10 days (Ex P10, 5/1668).
70On 26 August 2009, the Kossaifi family and the Elias family signed a circular resolution apparently authorising the sale of lot 14 to Mr Elias (Ex P10, 5/1672-1675). It is unclear what occurred for the next two and a half months. On 16 November 2009, the Kossaifi family's solicitor requested a contract for sale of lot 14 to a purchaser, presumably not Mr Elias, for $211,000 (Ex P10, 5/1809) in a manner plainly inconsistent with the previous view expressed by both families and that circular resolution. A dispute then followed in which the Elias family took the position, oddly, not that Mr Elias had already agreed to purchase the property but rather that they had not been provided with details of the purchaser proposed by the Kossaifi family (Ex P10, 5/1824ff). The then solicitors for Messrs Albarran and Pleash responded on 17 November 2009, with substantial justification given the events set out above, that:
"In regards to the confusing and contradictory emails received today in this matter ... We note that this entire matter has been due to the inability of your respective clients to act in a unit [sic] manner. Agreements vanish as soon as they appear to arise. If indeed agreements do in fact arise..." (Ex P10, 5/1834)
71Mr Elias accepted in cross-examination that, by at least August 2009, he had instructed his solicitors to advise the Court, in the earlier proceedings commenced by Mr & Mrs Kossaifi to wind up the Company, that he intended to bring an application to review the fees charged by the voluntary administrators of the Company (T182).
72Mr Elias' evidence is that, in about September 2009, Mr Cook had a conversation with him in which, in effect, Mr Cook advised that completion of the DOCA would require Mr Elias to cease retaining a person who was then an adviser to him, who had previously fallen out with Messrs Albarran's and Pleash's firm in another context, and provide a deed of release and that "if you don't sign we are going to delay this whole thing". I am not satisfied that this conversation took place in the terms to which Mr Elias deposes. In any event, the narrative of events set out above makes clear that the disputes between the Elias family and the Kossaifi family were amply sufficient to delay the completion of the DOCA.
73In November 2009, the Elias family approached the Australian Tax Office which provided a form of requisition for a meeting of the creditors of the Company which proposed amendments to the DOCA (Ex D2). Ultimately, that proposal was not pressed by the Elias family.
74By email dated 24 November 2009, the solicitors acting for the Elias family reconfirmed the position apparently reached several months before, but then departed from by the Kossaifi family's proposal for another purchaser, that the Elias family and the Kossaifi family agreed that Mr Elias could purchase lot 14 for $211,000 plus GST (Ex P10, 5/1856). Also on 24 November 2009, Messrs Albarran's and Pleash's then solicitors sent a draft contract of sale of lot 14, proposed further circulating resolution and draft deed of release to the solicitors for the Plaintiffs, the Kossaifi family and others. Clause 3.1 of the draft deed of release contained a general release of Messrs Albarran and Pleash from liability in broad terms. Mr Pleash did not recall whether he had given instructions to those solicitors to send that draft deed of release (T262). He also could not recall whether he and Mr Albarran were then seeking a general release from the Elias family and the Kossaifi family or whether the Elias family's then position was that they did not wish to sign a general deed of release (T262) and his memory as to that question was not refreshed by being shown an email dated 25 November 2009 from the Plaintiffs' solicitors which sought to narrow the proposed release to deal with the sale of lot 14 rather than all claims against the deed administrators (Ex P11, 149, T263).
75On 27 November 2009, Messrs Albarran and Pleash commenced proceedings ("Earlier Proceedings") seeking relief including a declaration that the Elias family and the Kossaifi family were in breach of the DOCA; directions in respect of the interpretation of the DOCA including whether they would be justified in refusing to transfer titles to the remaining lots while the Elias family and the Kossaifi family remained in breach of the DOCA; an order terminating the DOCA; and orders confirming or approving their remuneration (Ex P10, 5/1871-1875). The Plaintiffs criticise the commencement of the Earlier Proceedings on the basis that a meeting of creditors could have been called under s 445F of the Corporations Act. Mr Smith, who appears for Messrs Albarran and Pleash, submits that a condition to the calling of a meeting of creditors under s 445F of the Corporations Act was that there be a breach of the DOCA, and points to the fact that the Elias family had vigorously denied being in breach of the DOCA and that, where there was a dispute as to that matter, that was properly a matter as to which the deed administrator could approach the Court for directions. It does not seem to me that Messrs Albarran's and Pleash's decision to seek directions from the Court, and potentially an order for termination of the DOCA, was unreasonable given the difficulties that existed by that time.
76The difficulties with lot 14 thereafter continued when, despite the earlier confirmations of agreement reached between the Elias family and the Kossaifi family, on 2 December 2009, the Kossaifi family sent Messrs Albarran's and Pleash's then solicitors an offer and executed first page of a copy of a contract for sale of lot 14 executed by a third party for the purchase of lot 14 (Ex P10, 1888), which was then withdrawn, on conditions, the next day by the Kossaifi family's solicitors by email dated 3 December 2009 (Ex P10, 5/1908). By letter dated 2 December 2009 (Ex P10, 5/1897-1904), Messrs Albarran's and Pleash's then solicitors also advised the solicitors for the Elias family and the Kossaifi family of the amounts that Messrs Albarran and Pleash contended were required to be paid to finalise the DOCA and set out several options to complete the DOCA.
77By email dated 3 December 2009, the solicitors for the Elias family put a proposal for the completion of the DOCA (Ex P10, 5/1928) that was not accepted by letter dated 9 December 2009 from then the solicitors for Messrs Albarran and Pleash (Ex P10, 5/1939). The response on the part of Messrs Albarran and Pleash was put in unfortunate terms, including the statement (italicised below) that:
"As a consequence of the behavior of the Shareholder Groups the [Defendants] are now only prepared to waive strict compliance with DOCA so to speak if full releases are given by the Shareholder Groups.
If the Shareholder Groups are not prepare to provide full releases to the [Defendants], then the [Defendants] are not prepared to waive strict compliance with the terms of the DOCA, and has [sic] the terms of the DOCA have been in default of 168 days now, inter alia, have approached the Court to have the company liquidated due to the parties non-performance to their obligations under the DOCA." (emphasis added)
That position was qualified, to some extent, by the fact that Messrs Albarran and Pleash were prepared to complete tranches 2 and 3 of the DOCA but retain the amount of $390,000 and the mortgages as security until the court application was determined by the Court or settled between the parties (Ex P10, 5/1948).
78Mr Pleash did not recall, in cross-examination, whether the position adopted by his and Mr Albarran's former solicitors in respect of the deed of release was in accordance with his instructions or whether Mr Albarran had given the relevant instructions (T261). He also could not recall whether he had given instructions to his and Mr Albarran's then solicitors to express the position, in the letter dated 9 December 2009, that he and Mr Albarran would only "finalise the deed so to speak" if full releases were given by the shareholder groups (T264); he did not know if anybody else had given those solicitors instructions to take that position; and he could not recall whether it was his position, at 9 December 2009, that he would not allow completion of the sale of lot 14 to the Elias family unless a full deed of release was given (T264). He also could not recall (although it was the fact) that the DOCA did not provide for him and Mr Albarran to obtain full releases (T264). As I will note below, the position expressed by Messrs Albarran and Pleash on 9 December 2009 (Ex P10, 5/1939) that the settlement of lot 14 was contingent upon a deed of release was withdrawn on 16 December 2009 (Ex P10, 5/1966).
79The solicitors for the Kossaifi family and the Elias family then arranged a settlement of the sale of lot 14 and completion of the second tranche of the DOCA on their proposed terms, without the agreement of Messrs Albarran and Pleash. By email dated 9 December 2009, Messrs Albarran's and Pleash's solicitors advised the solicitors for the Elias family and the Kossaifi family that Messrs Albarran and Pleash had not exchanged contracts in respect of lot 14 as the terms of any settlement including the terms of a deed of release had not been settled and for other reasons (Ex P11, 169)
80By 16 December 2009, Messrs Albarran and Pleash retreated from the unfortunate position they had taken in their then solicitor's' letter dated 9 December 2009 and advised the solicitors for the Plaintiffs and the Kossaifi family that:
"The Deed Administrators have now considered the position of the sale of Lot 14 in SP78565. They are now looking to list the property for sale, and if the Elias Group members wish to secure the unit at the same price as previously stated, they are prepared to compromise from their previously stated position and to obtain a release in respect of the sale of Lot 14 only.
... If the Elias Group still wish to proceed with acquisition of Lot 14, kindly arrange for the attached Deed and Resolution to be executed and send us a copy of the executed documents." (Ex P10, 5/1966-1967)
It seems to me that this position was justified, by contrast with the previous demand for a general release. Given the disputes between the shareholders in respect of lot 14, and the multiple changes of position at least by the Kossaifi family, Messrs Albarran and Pleash could reasonably require the shareholders' clear assent to the sale of unit 14, and clarity that no claims were being pursued as a result of the previous steps, before proceeding with a sale to a shareholder that did not take place on market.
81The Plaintiffs' solicitors in turn sent a detailed letter dated 24 December 2009 to Messrs Albarran's and Pleash's then solicitors again denying that they were in breach of the DOCA (Ex P10, 1975-1990). That letter included allegations that Messrs Albarran and Pleash were in breach of their obligations under the share buy-back agreement with respect to the completion of the transfer of the second and third tranches of the unit and took issue with the deed administrators' requirement for a full release, although recognising that the deed administrators had subsequently said they would not require such a full release and criticised the failure to list lot 14 (commercial suite 5) for sale in the period after the DOCA and the subsequent failure to complete the sale of that lot to the Elias family. That letter concluded, in a manner that is of significance to the allegation of estoppel now raised by Messrs Albarran and Pleash, that:
"In this regard I am instructed that my clients intend to vigorously defend the [Earlier Proceedings] commenced by the Deed Administrators; challenge the validity of the fees imposed by the Deed Administrators and their consultants as they consider that those fees; request that the Court make a determination of the validity of the placement of the Company into administration in the first place and whether the Deed Administrators should have accepted their appointment as deed administrators; seek that the Deed Administrators pay the costs incurred by my client in the matter personally; and make appropriate cross claims against the Deed Administrators on account of the conduct in the administration of the DOCA and the Company."
82By email dated 11 February 2010, Messrs Albarran's and Pleash's then solicitors noted the differences between the parties as to the interpretation of the DOCA and raised the possibility of "meeting to discuss the issues to seek a commercial resolution of the impasse" (Ex P10, 6/2010). The Elias family's solicitors responded by email dated 12 February 2010 (Ex P10, 6/2019) reiterating their objection to the earlier suggestion of a full release of Messrs Albarran and Pleash and seeking an indication from Messrs Albarran and Pleash as to their position as to outstanding issues.
83By letter dated 12 February 2010, Messrs Albarran and Pleash responded to various claims by the parties and noted their willingness to settle the outstanding issues, but again on the basis of the general release submitted to the shareholders in November 2009 (Ex P10, 6/2028). By this time, it seems to me that Messrs Albarran and Pleash could arguably and reasonably require a wider release as the basis of settlement of proceedings in which directions would otherwise have been made by the Court that would provide a degree of protection to them in respect of conduct undertaken in accordance with those directions.
84By 22 February 2010, the Kossaifi family and Messrs Albarran and Pleash reached a potential resolution of the disputes arising from the DOCA (Ex P10, 6/2036-2039), conditional on the Elias family's agreement. The Elias family did not accept that proposal and made a counter proposal (6/2056-2058) and no resolution was reached. The Plaintiffs then filed an Interlocutory Process (Ex P10, 6/2080) seeking various orders to which I will refer below.
85Further correspondence followed and, by email dated 11 March 2010 from Messrs Albarran's and Pleash's then solicitors to the solicitors for the Plaintiffs and the Kossaifi family (Ex P10, 6/2080A), Messrs Albarran and Pleash indicated they were prepared to proceed with the sale of lot 14 to the Elias family on the basis of a limited release. The settlement of the sale of lot 14 to the Plaintiffs was completed on 14 April 2010 (Ex P10, 6/2090-2093).
86Orders were made by consent between the Elias family, the Kossaifi family and Messrs Albarran and Pleash in the Earlier Proceedings on 7 May 2010, and subsequently amended. Mr Elias accepts, by his affidavit, that the Earlier Proceedings were resolved by those orders (Elias 17.10.12 [128]). Those orders varied the DOCA under s 447A of the Corporations Act to treat particular matters as compliance with the terms of the DOCA and had the effect that the contributions made by the parties were to be treated as contributions to the deed fund and Mr Kossaifi and Mr Elias were to be treated as presently entitled to share transfers and transfers of property under the DOCA. By those consent orders, the Court also noted:
"the parties' acknowledgement that [Messrs Albarran and Pleash] are entitled to a lien, charge and mortgage over the properties Lot 12 and 16 SP75865 referred to above to secure their remuneration and expenses (subject to paragraphs 5 to 7 below) and that the [Defendants] may, if they so choose, not transfer the properties until after their remuneration is determined." (Ex P10, 6/2189, 2192).
87Those orders also referred Messrs Albarran's and Pleash's application for remuneration to the Registrar for review which was to be conducted on the basis that it would not include allegations of breach of duty or failure to comply with the terms of the DOCA on the part of Messrs Albarran and Pleash, but would not otherwise limit claims in respect of excessive remuneration, overcharging or unnecessary work conducted being made against Messrs Albarran and Pleash. An order was also made, again by consent, that Messrs Albarran's and Pleash's costs be paid out of the Company's assets subject to specified paragraphs, including the referral of their remuneration to the Registrar.
88By letter dated 21 January 2011 (Ex P10, 8/2712), prior to the hearing of Messrs Albarran's and Pleash's applications for determination of their remuneration by Registrar Musgrave on 28 January 2011, their then solicitor advised the solicitors for the Elias family and the Kossaifi family of the fact that, if the matter resolved on that day, there would be a shortfall of $13,000 to pay their costs and fees and pay all creditors of the Company and noted that shortfall would increase as a result of the hearing before the Registrar.
89Registrar Musgrave delivered reasons for his decision in respect of Messrs Albarran's and Pleash's remuneration on 20 September 2011 and allowed a total of $416,247.70 inclusive of GST and all prior amounts paid by way of remuneration (Ex P1, 3/1182). He summarised the history of the administration and deed administration, including noting several of the matters in issue in the proceedings. He noted (at [10]) that Mr Pleash had sworn five affidavits in support of the remuneration application and that:
"the totality of that evidence goes to the circumstances of the appointment of the plaintiffs, the execution of the DOCA, the basis for this application for determination of the remuneration of the Administrators, specific details of the employees of the Administrators (including their hourly rates), the time system of charging maintained by the administrators, timesheets, the circumstances of the non-compliance with the DOCA, the meaning of abbreviations in the timesheets supplied, and the anticipated remuneration to be claimed by the administrators to the completion of the DOCA."
90Registrar Musgrave also noted that Messrs Albarran and Pleash had also relied on an affidavit and report prepared by another official liquidator with extensive experience who provided an expert opinion as to the remuneration sought. He referred to the Kossaifi family's objection to the amount of remuneration claimed and their reliance on an affidavit sworn by Mr Brien, an official liquidator, in respect of that matter and reviewed Mr Brien's evidence in detail. He also reviewed the submissions made by the Elias family, who also relied on Mr Brien's evidence. No appeal was brought against Registrar Musgrave's decision and it is not open to challenge and, as I understand it, was not challenged in these proceedings. The review undertaken by Registrar Musgrave did not extend to the fees charged by Messrs Albarran's and Pleash's then solicitors, because, consistent with the case law, the Registrar accepted that an application under s 449E of the Corporations Act was limited to review of Messrs Albarran's and Pleash's remuneration and did not extend to disbursements and expenses. That review therefore does not give rise to any estoppel in respect of the question of those legal costs.
91The Elias family and the Kossaifi family subsequently sought orders in the Earlier Proceedings that Messrs Albarran and Pleash not be entitled to be indemnified from the deed fund for their costs of prosecuting their application for their remuneration to be confirmed and/or approved. Messrs Albarran and Pleash rely on the decision in Re RMGA Pty Ltd [2012] NSWSC 678 at [15]-[18] as authority that the costs of dealing with a remuneration application are proper costs of the external administration. That matter has in any event already been determined by the judgment of Ball J delivered on 18 October 2011, by which his Honour determined that Messrs Albarran and Pleash should be entitled to indemnity under the DOCA in respect of the costs of the remuneration application heard before Registrar Musgrave. No appeal has been brought against that decision and it is also not open to challenge in these proceedings.
92On 4 October 2011, the Plaintiffs and the Kossaifi family lodged an application by seeking to have the legal fees incurred by Messrs Albarran and Pleash assessed (Ex P10, 8/2790-2800) which raised issues that are also raised in this application and indicated that they would apply to the Court for an extension of time for the assessment to be dealt with after the 12 month period under s 350(5) of the Legal Profession Act 2004 (NSW). Such an extension would have been necessary because a number of the invoices that were the subject of that application were issued more than 12 months before it was brought. The Plaintiffs did not pursue that extension application. Messrs Albarran's and Pleash's then solicitors objected to the competency of the application for assessment by letter dated 28 October 2011 to the Manager, Costs Assessment (Ex P10, 8/2832-2835). The Manager, Costs Assessment referred the assessment application to a costs assessor who advised, by letter dated 5 March 2012 (Ex P10, 8/3023-3028), that:
"I note that no party has responded to any correspondence. ... I therefore require [the Plaintiffs and the Kossaifi family], acting through a single firm or jointly, to advise me whether there has been an application to the Court and if so, with what results. I am minded, without having decided the matter, to issue a "nil" certificate in relation to the invoices issued before 4 October 2010 if no application has been made by this time."
The Plaintiffs did not provide a substantive response and, on 9 May 2012 (Ex P10, 8/3069), the costs assessor referred to his earlier correspondence and advised that:
"In circumstances where there is no indication that an application for extension of time has been made, I now intend to return the papers to the Manager Costs Assessment on the basis that I have no jurisdiction to entertain the matter.
If I thought I was able to do so, to give finality to the matter, I would issue a certificate confirming the bills, but that seems, at present at least, inappropriate lest the Court has in fact (without the parties having the courtesy to inform me) extended time an (sic) made a determination as to the standing of the Applicants to apply for determination."
93Messrs Albarran's and Pleash's then solicitors indicated the matters required to complete the DOCA by letter dated 9 December 2011 (Ex P10, 8/2859) and disputes continued as to the completion of the DOCA after that date.
94By letter dated 9 July 2014 (Ex P2, p 132), Messrs Albarran and Pleash advised the Elias family and the Kossaifi family that the estimated shortfall in the deed administration would be in the range of $552,765-$572,765. Commercial suite 9 was ultimately transferred to the Elias family on 25 November 2011; commercial suite 7 was sold on 12 November 2013; commercial suite 6 was transferred to the Kossaifi family on 29 July 2014, although a transfer had apparently been executed previously but not registered; and commercial suite 3 is presently listed for sale, having been withdrawn from auction for apparently sound commercial reasons after the hearing of these proceedings was completed and judgment reserved.
Alleged failure to transfer properties and give effect to share buy-back
95The Plaintiffs submit that, when Messrs Albarran and Pleash became administrators of the Company in March 2009, the Company had a surplus of assets over liabilities in the order of $2 million, which mostly comprised real property, and that Messrs Albarran and Pleash have recently estimated that there is a deficiency of over $550,000 and that is, by any standards, an extraordinarily adverse outcome of a deed administration. The Plaintiffs contend that outcome came about because of mismanagement and prejudicial conduct of the administration on the part of Messrs Albarran and Pleash.
96The Plaintiffs plead that Messrs Albarran and Pleash were officers of the Company for the purposes of the Corporation Act and rely on the statutory duty of care and diligence under s 180 of the Corporations Act 2001; the duty to act in good faith and for proper purposes under s 181 of the Corporations Act; and their duty not to improperly use their position to gain an advantage for themselves or someone else or cause detriment to the Company in accordance with s 182 of the Corporations Act (APOC [8]). By their Defence, Messrs Albarran and Please accept that they were officers of the Company for the purposes of s 9 of the Corporations Act and that they were subject to the requirements of ss 180-182 of the Corporations Act.
97The Plaintiffs contend that Messrs Albarran and Pleash made certain representations in providing a DOCA ("Deed Representations") and that they accepted the proposed DOCA in reliance on those representations (APOC [34]-[35]). I have set out the chronology of events in respect of the execution of the DOCA above, which disclosed detailed involvement of the Elias family through both Mr Georgiou and their solicitors in the drafting of the DOCA, extending up to the last day of its execution. In the light of that correspondence, the Plaintiffs have not established that they accepted the proposed DOCA in reliance upon the pleaded representations of Messrs Albarran and Pleash (APOC [35(b)]; or that Messrs Albarran and Pleash "[r]ecommended a deed of arrangement which was unclear in its terms and likely to result in uncertainty and dispute" (APOC [44(b)]); or that the DOCA did not, contrary to the alleged Deed Representations, "give substantial effect to the proposal made by the Kossaifi and Elias Families" (APOC [44(c)]). Those claims must fail because of the close involvement of the Elias family's advisers in the final form of the DOCA, which is itself a matter that plainly contributed to the complexity of the final product, and which also seems to me to displace any suggestion that Messrs Albarran and Pleash can be treated as responsible for the form of the DOCA to the exclusion of the Elias family and the Kossaifi family.
98The Plaintiffs also relied on the evidence of Mr Woodward, the solicitor called to give expert evidence in their case, that the preparation of a standard form of a deed of company arrangement that incorporated the provisions in Sch 8A of the Corporations Regulations 2001 (Cth) would have been sufficient and that there was no need for the introduction of a share buy-back scheme. It seems to me that that evidence was of limited relevance, because it had little regard to the circumstances of the particular transaction or to the fact that the legal representatives for the Elias family and the Kossaifi family were closely involved in the documentation of the share buy-back scheme. Even if it were accepted that the approach adopted by the solicitors for all parties were more elaborate than it needed to be, it does not follow from that proposition that Messrs Albarran and Pleash were not entitled to act on the advice of their solicitors in documenting the DOCA, particularly where the solicitors acting for the shareholders had joined in formulating the terms of the DOCA and had not taken objection to the approach adopted by it. It should also be recognised that the DOCA, including the share buy-backs, would have more readily been implemented had the Elias family or the Kossaifi family complied with its terms, rather than departing from them in the significant respects to which I have referred above.
99The Plaintiffs' claim that Messrs Albarran and Pleash insisted on the share buy-back scheme also seem to me to be unsustainable, given the extent of their and their advisers' involvement in the final version of the DOCA. I also do not accept the Plaintiffs' further claim that the DOCA frustrated Mr Georgiou's proposal, because that proposal needed to be amended to identify a means for the transfer of the units to the shareholders and to protect creditors' interests in that regard. Again, I accept that the ultimate version of the DOCA may well have been complex, but that again cannot be attributed to Messrs Albarran and Pleash given the extent of the involvement of the shareholders and their advisers in the final version of the DOCA. The Plaintiffs also complain that the requirement for a registered mortgage and charge on any sale of property, contemplated by Mr Albarran's and Mr Pleash's report to creditors dated 2 March 2009, was excessive in the context of a predicted surplus of over $2 million and the capping of remuneration for future work. There is some force in that criticism, but creditors approved the terms of the DOCA, and it does not seem to me that responsibility for that matter can be attributed to Messrs Albarran and Pleash.
100The Plaintiffs submit that the absence of discussion of a share buy-back at the second meeting of creditors meant that it was introduced as a condition in the DOCA without the sanction of the Company's creditors and "perhaps" Pt 5.3A of the Corporations Act. Messrs Albarran and Pleash respond that, first, that allegation is not raised by the APOC, and should be disregarded on that basis. It seems to me that I should not have regard to a collateral attack on the DOCA in this manner, where no application has been made to seek an order terminating the DOCA, as distinct from replacing Messrs Albarran and Pleash as deed administrators, and significant steps have been taken in reliance upon it. I also accept that, as Messrs Albarran and Pleash point out, that submission would face considerable difficulty arising from the close involvement of the shareholders' representatives in finalising the DOCA which included the provisions for the share buy-back, and the fact that the Plaintiffs had themselves previously sought a declaration that the DOCA was valid from this Court in the Earlier Proceedings that were compromised on the terms to which I have referred above.
101Paragraph 38 of the APOC pleads that the DOCA did not require payment into the deed fund as a condition precedent to giving effect to the share buy-back. Paragraphs 39 and 40 of the APOC plead that Messrs Albarran and Pleash failed to transfer the properties and give effect to the share buy-back in a reasonable time, in breach of the DOCA, and thereby increased legal costs, delayed the performance of the DOCA and caused loss and damage to the Plaintiffs. The failure to transfer the properties is also alleged to be conduct that preferred Messrs Albarran's and Pleash's own interests to that of the Company and such that a reasonably careful and diligent officer of the Company would not have engaged in it in the circumstances, and to have increased legal costs, delayed the performance of the DOCA and caused loss and damage to the Plaintiffs (APOC [40]). Messrs Albarran and Pleash respond that the Plaintiffs failed to comply with their obligations under the share-buy back and that, by reason of orders made by the Court by consent on 7 May 2010, to which the Plaintiffs were party, they were entitled to a lien, charge and mortgage over lots 12 and 16 to secure their remuneration and expenses. I will return to the merits of this claim below.
Res judicata, Anshun estoppel and abuse of process
102Messrs Albarran and Pleash contend that the allegations now sought to be raised by the Plaintiffs in respect of the alleged failure to transfer the properties and give effect to the share buy-back were previously raised in the letter from the Plaintiffs' solicitors dated 24 December 2009 (to which I have referred in paragraph 81 above) and then in the Earlier Proceedings and that the Plaintiffs are barred from relitigating those allegations by the principles of res judicata, Anshun estoppel and abuse of process. Messrs Albarran and Pleash also relied, in the course of submissions, on principles of issue estoppel and the Plaintiffs took no objection to that course, although they contended, as I will note below, that such principles were not applicable to a claim under s 447E of the Corporations Act. I will first address the relevant legal principles and then turn to the factual basis of the claim.
103The principle of res judicata applies where a party attempts to litigate a cause of action in further proceedings which has already merged into judgment in prior proceedings: Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589 at 597; Chamberlain v Deputy Commissioner of Taxation [1988] HCA 21; (1988) 164 CLR 502 at 508. That principle has effect that, upon the making of final orders by a court, the cause of action upon which those orders were made are merged and the independent existence of that cause of action is extinguished while those orders exist, and that principle applies in respect of a judgment by way of consent orders: Chamberlain v Deputy Commissioner of Taxation above at 508, 510. Once it is established that a cause of action has merged into a judgment in the form of final orders, the Court has no residual discretion as to the application of that principle, because the relevant cause of action ceases to exist by operation of law: Chamberlain v Deputy Commissioner of Taxation above at 511. A determination whether a res judicata is established depends on identification of the "cause of action" that is said to have merged into the prior judgment or final orders: Chamberlain v Deputy Commissioner of Taxation above at 508. The concept of "cause of action" was explained by Brennan J in Port of Melbourne Authority v Anshun Pty Ltd above at 610-612, to the effect that:
"If cause of action is taken to mean a right, the rule is stated in terms of the passing of the right into judgment, and the rule precludes a party bound by the judgment from maintaining against another party by it any subsequent proceeding to recover a judgment giving a remedy to enforce or to compensate for an infringement of that right."
104The principle of issue estoppel is in turn summarised in Ritchie's Uniform Civil Procedure NSW at [14.28.17] as follows:
"Proceedings will also be regarded as an abuse of process to the extent that they involve an attempt to relitigate particular issues that were determined, either explicitly or necessarily, in earlier judicial proceedings (including proceedings determined by consent). Such a determination gives rise to "issue estoppel": Blair & Perpetual Trustee Co Ltd v Curran (Adam's Will) (1939) 62 CLR 464; Noall v Middleton [1961] VR 285; Commissioner for Railways v Bielewicz [1963] NSWR 482 at 486; [1963] SR (NSW) 466 at 468; Carl Ziess Stiftung v Rayner (No 3) [1970] Ch 506; [1969] 3 WLR 991 ... The scope of the estoppel is confined to those issues that were directly involved in the actual decision made in the previous proceedings (and does not include every finding that was made): Murphy v Abbi-Saab (1995) 37 NSWLR 280; BC 9505070. Where the basis for "issue estoppel" has been made out, the Court retains an overriding discretion to permit the proceedings to continue, although this discretion is likely to be exercised only in exceptional circumstances: Arnold v National Westminster Bank plc [1991] 2 AC 93; [1991] 3 All ER 41; Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 at 30; [2001] 1 All ER 481 at 498 per Bingham LJ."
105That principle was described by Dixon J in Blair v Curran [1939] HCA 23; (1939) 62 CLR 464 at 531-532 as follows:
"A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon
which the existence of the right was negatived. But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order."
106In Ekes v Commonwealth Bank of Australia [2014] NSWCA 336 - a decision which was delivered after judgment was reserved and as to which I allowed the opportunity for further submissions - Bathurst CJ (with whom Beazley P and Emmett JA agreed) observed (at [110]-[112], omitting citations) that:
"The principles which determine whether an issue estoppel arises are well established although their application can cause difficulty. For an issue estoppel to arise it is necessary that it be established that the same question arises, that the judicial decision said to create the estoppel was final and that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies ...
It was accepted correctly by the parties that a consent judgment could give rise to an issue estoppel ..
An issue estoppel will only arise in respect of those matters which a primary decree, order or judgment necessarily established as the legal foundation for the decision and nothing but that which is legally indispensable to the conclusion is thus finally closed or precluded ... In the case of a judgment by consent this may be productive of some difficulty ... As was pointed out in the latter case [Isaacs v The Ocean Accident and Guarantee Corporation Ltd and Winslett (1958) SR (NSW) 69], a court will examine all evidence that is available and admissible and with the aid of such material ascertain any and what adjudication of matters in dispute was expressly or necessarily involved in the actual decision assented to."
The Chief Justice also noted that in Handley, Spencer Bower and Handley Res Judicata (4th ed 2009, LexisNexis), the learned author points out at 2.16 that the extent to which a consent judgment gives rise to an issue estoppel has not been finally decided. That wider question was not in contest in these proceedings, although a narrower question whether issue estoppel is available in an application under s 447E of the Corporations Act was raised, which I will address below.
107Messrs Albarran and Pleash also rely on the principle of Anshun estoppel, which they submit is wider than the doctrines of res judicata and issue estoppel and can arise. In Ekes v Commonwealth Bank of Australia above at [129], Bathurst CJ noted that species of estoppel derives from the observation of Wigram VC in Henderson v Henderson (1843) 67 ER 313 at 319 approved in Anshun v Port of Melbourne Authority above at 598, that:
"... where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but with was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time."
108That principle was summarised by Gibbs CJ, Mason and Aickin JJ in Anshun v Port of Melbourne Authority above at 598:
"where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject of the contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case".
Their Honours also observed that:
"In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings, e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few."
Whether an Anshun estoppel is established will depend on whether it was unreasonable for a party not to raise a matter in earlier proceedings and that must be determined in all the circumstances, and in the context of expectations as to the manner in which litigation should be conducted.
109In Anshun v Port of Melbourne Authority above, their Honours also noted the importance of the question whether the prosecution of further proceedings may give rise to conflicting judgments, and the significance of that matter has been noted in later decisions: Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [83]; Redowood Pty Ltd v Link Market Services Pty Ltd (formerly known as ASX Perpetual Registrars Ltd) [2007] NSWCA 286 at [48]-[49]. In Ekes v Commonwealth Bank of Australia above at [135], Bathurst CJ gave lesser weight to that matter in respect of a consent judgment, resulting from the agreement of the parties rather than an adjudication of the court, in circumstances that the relevant party was not party to the earlier proceedings. I will return to that question below.
110I turn now to the factual matters relevant to whether res judicata, Anshun estoppel and issue estoppel or abuse of process prevent the Plaintiffs agitating the claims in respect of the transfer of the properties and the share buy-back. The Interlocutory Process filed by the Plaintiffs in the Earlier Proceedings sought orders including that they be joined to the Earlier Proceedings; that Messrs Albarran and Pleash specifically perform obligations under cl 26 of the DOCA, by delivering, inter alia, executed transfers with respect to lots 16 and 18 and mortgages over those lots; that Messrs Albarran and Pleash be removed as deed administrators; and sought a direction that Messrs Albarran's and Pleash's application for remuneration be referred to the Registrar for review and any legal, consultants or professional costs incurred by them be referred for costs assessment.
111The outline of facts and submissions filed by the Elias family in the Earlier Proceedings indicates the range of matters in issue in those proceedings. They submitted in the Earlier Proceedings (para [4]) that an agreement existed between Messrs Albarran and Pleash and the Kossaifi family that any payment by the Elias family from the sale of lot 6 would be a contribution under the DOCA. They submitted (para [9]) that, since 1 July 2009, any escalation in remuneration, fees, charges and costs of Messrs Albarran and Pleash in claiming a breach of the DOCA had been unjustified and such amounts must be removed from the calculation of the amount needed under Item 8 of the Schedule to the DOCA. They contended that Messrs Albarran and Pleash were under an obligation to sell lot 14 immediately upon execution of the DOCA; lot 14 was valued at $210,000; Messrs Albarran and Pleash received an offer to sell the unit from the Elias family in or around July 2009; the sale of the unit was delayed; and the unit was ultimately sold for around $211,000 to one of the Elias family. They submitted (para [38]) that the terms of the DOCA requiring a share buy-back agreement were not part of the DOCA proposal and were added by Messrs Albarran and Pleash, and that that was an example of conduct of Messrs Albarran and Pleash which had complicated the DOCA and increased the professional costs associated with the process. They also submitted (para [43]) that, as at August 2009, the Kossaifi family and the Elias family had agreed for lot 14 to be sold for $211,000. They submitted (para [45]) that Messrs Albarran and Pleash had imposed conditions on the Kossaifi family and the Elias family that were not contained within the DOCA including the requirement for them to provide a release in favour of Messrs Albarran and Pleash. They submitted (para [49]) that it was not a term of the DOCA for the Elias family to provide Messrs Albarran and Pleash with any release. They also referred (para [58]) that "accusations of over-charging remuneration and expenses, failing to act in accordance with duties and improper conduct against the [Defendants] and the firm of Hall Chadwick."
112The statements of issues in the Earlier Proceedings in turn identified issues in respect of Messrs Albarran's and Pleash's failure to exclude, from the extra contributions sought from the Elias family, "the amount of remuneration, legal costs, charges and disbursements of [Messrs Albarran and Pleash] which were not reasonable"; the imposition by Messrs Albarran and Pleash of conditions not contained within the DOCA, including the requirement for the Elias family to provide a release in favour of Messrs Albarran and Pleash; Messrs Albarran's and Pleash's alleged failure to allow the sale of unit 6 in a timely manner and Messrs Albarran's and Pleash's alleged failure to sell lot 14 (commercial suite 5) to Mr Elias in a timely manner; and to realise the Company's assets that were available to meet the claims of creditors under cl 5 of the DOCA.
113As I have noted above, the Plaintiffs' claim in respect of the alleged failure to transfer the properties and give effect to the share buy-back involves the propositions that the DOCA and share buy-back were unduly complex and that Messrs Albarran and Pleash failed to give effect to transfer the relevant properties or give effect to the share buy-back within a reasonable time. These matters were raised by the Elias family in the Earlier Proceedings to which they were party, as the statements of issues and submissions to which I have referred above make clear. They were determined by the orders made by consent modifying the operation of the DOCA, and it seems to me that the Plaintiffs' rights in that regard merged in that determination. It seems to me that both a res judicata and an issue estoppel are established in respect of this claim.
114It also seems to me that an Anshun estoppel would have arisen in respect of those claims, if I were incorrect in my view that they had been raised and determined by the Earlier Proceedings, so far as they had been raised by the letter dated 24 December 2009 and would properly have been raised in the Earlier Proceedings. In oral submissions, Mr Smith also submitted, and I accept, that the making of orders arising out of the conduct of the DOCA, in respect of the matters identified in the submissions and statement of issues in the Earlier Proceedings, would also be in conflict with the orders made by consent by Barrett J in the Earlier Proceedings, so far as they created rights arising from the same claims. I am conscious that lesser weight was given to that matter in Ekes v Commonwealth Bank of Australia above, in respect of a consent order which reflected the parties' agreement and did not involve an adjudication by the Court, and in circumstances that the relevant party was not party to (but arguably in privity with a party to) the previous proceedings in that case. In the present case, the orders made by Barrett J under s 447A of the Corporations Act in the Earlier Proceedings did not involve a full adjudication by the Court, but they also cannot be characterised as merely reflecting the parties' agreement. Section 447A of the Corporations Act confers a statutory discretion on the Court that can only be exercised by reference to the purposes of Pt 5.3A of the Corporations Act. Although the Court could more readily make such orders where the parties to the Earlier Proceedings had consented to them, it would nonetheless have had to be affirmatively satisfied that those orders would in fact advance those purposes so as to fall within the scope of that statutory power before they were made.
115The Plaintiffs submit that policy considerations dictate that the Court should not be limited in a "supervisory jurisdiction" under s 447E of the Corporations Act by principles of estoppel. They refer to Nguyen v Pattison [2005] FCA 650; (2005) 142 FCR 561 at [80], where Weinberg J, in referring to the Court's exercise of supervisory jurisdiction under s 178 of the Bankruptcy Act 1966 (Cth), observed that:
"A bankrupt would almost certainly have to point to significantly changed circumstances, or additional facts, in order to persuade a court to make a different order under that section from the order that was originally made. However, to invoke res judicata, or issue estoppel, as a basis for declining to exercise the supervisory jurisdiction would be to put the interests of finality, important as they are, above the need to ensure that a trustee carries out his duties in a lawful, and proper manner. It would prevent an applicant, who could point to genuine wrongdoing on the part of a trustee that had not previously been disclosed when the initial application was heard and determined, from having his genuine and valid grievances considered." (emphasis added)
His Honour's observation was directed to the position where conduct had not been disclosed at the point of an earlier application, and does not address the position where an earlier application had been brought in respect of the same conduct as a later application. Indeed, his Honour recognised the inappropriateness of reagitation of the same matter in later proceedings (at [84]) as follows:
"Plainly it would [be] contrary to public policy to permit a party to litigate again an issue that has already been finally determined, at least where there are no facts and circumstances that might justify that [sic] adopting that course. Indeed, it might well be an abuse of process to seek to do so."
His Honour's observation as to the limits of res judicata or issue estoppel was directed, as he made clear (at [87]) to a "further application based upon a different set of circumstances", rather than a further application based on the same set of circumstances. Mr Smith in turn submits the Court should not follow the decision of Weinberg J in Nguyen v Pattison above which he submits is obiter and not in the nature of a final decision.
116In the present case, it does not seem to me to be necessary to determine whether the Court could, in an appropriate case, exercise powers under s 447E of the Corporations Act notwithstanding principles of estoppel. It does not seem to me that there is any policy arising from the Court's supervisory powers that requires that the Plaintiffs be given the opportunity to invoke those powers on multiple occasions, or that the Defendants be exposed to scrutiny of their conduct on multiple occasions, or that the Plaintiffs be permitted to seek orders in these proceedings inconsistent with the orders made by consent in the Earlier Proceedings in respect of the same conduct. In the present case, several of the claims now made by the Plaintiffs (with the exception of issues as to legal costs) were in fact raised in the Earlier Proceedings, and the Plaintiffs' then complaint in respect of that conduct was determined by the consent orders made in those proceedings. I can see no policy, in the desirability of the exercise of the Court's supervisory jurisdiction, that would outweigh the interests of finality and consistency where such orders have previously been made in respect of the same matters.
The merits of the allegation
117It is not strictly necessary to determine the merits of this claim where a res judicata and issue estoppel prevents the Plaintiffs relitigating it. However, I should indicate that, had it been necessary for me to determine this matter on its merits, it seems to me that the chronology of events that I have set out above indicates that, whatever the complexities of the DOCA and the share buy-back regime, the substantial cause of the delays in completion of the DOCA included the difficulties arising from the failure to make the payments contemplated by the DOCA in a timely way; the Elias family's wish to sell lot 6 rather than accept a transfer of it subject to a mortgage; the issues that then arose in respect of the terms on which lot 4 was transferred to the Kossaifi family; and the multiple changes of position by the Kossaifi family in respect of the sale of lot 14 to the Elias family. The Plaintiffs' claim on this basis would have failed in any event, because I could not be satisfied that, in the particularly difficult circumstances in which Messrs Albarran and Pleash and their staff found themselves - largely as a result of the approach taken by the Elias family and the Kossaifi family - their conduct in respect of the transfer of the properties and the share buy-back could properly be characterised as prejudicial to the interests of the Company's creditors or members. I therefore could not be satisfied that their conduct or acts was or were prejudicial to the interests of some or all of the creditors or members in the relevant sense, having regard to the background of the Corporations Act and the care which courts should take in interfering with business decisions of administrators and deed administrators, so as to warrant the exercise of the Court's supervisory jurisdiction.
118I should add, for completeness, that Messrs Albarran and Pleash did not place particular reliance on order 7 of the orders made by the Court on 7 May 2010 in the Earlier Proceedings, which provided that Messrs Albarran and Pleash' remuneration application before the Registrar:
"shall be conducted on the basis that it shall not include allegations of breach of duty or failure to comply with the terms of the DOCA on the part of the Plaintiffs, but shall not otherwise limit claims in respek [sic]".
Mr Smith rightly recognised in oral submissions (T361) that the Registrar would in any event have had no power to determine such matters, so that that paragraph reflected the scope of the Registrar's jurisdiction. Mr Smith did not contend that that paragraph limited the Court's ability to grant relief in respect of those matters in this application, although I have held that the basis for such relief is not established for the reasons noted above.
Alleged unequal treatment of security and transfers
119Paragraph 45-54 of the APOC allege unequal treatment of the transfers and security as between the Kossaifi family and the Elias family. Paragraph 45 of the Amended Defence relies on the consent orders made in the Earlier Proceedings as determining that matter and giving rise to a res judicata or Anshun estoppel. Paragraph 51A of the APOC attacks Messrs Albarran's and Pleash's permitting the Kossaifi family to retain $122,000 from the monies advanced by the ANZ Bank to them, secured by the first registered mortgage granted to the ANZ Bank. Paragraph 51A of the Amended Defence repeats, inter alia, the claim of res judicata and Anshun estoppel in respect of that matter. Mr Smith also relied on principles of issue estoppel in submissions, and the Plaintiffs took no objection as to that course.
120These claims are directed to the events in respect of the transfer of lot 6 to the Elias family and lot 4 to the Kossaifi family which I have set out above. The Plaintiffs complain that, when the Elias family sought to transfer lot 6 to a third party purchaser and were unable to grant a mortgage over that property, Messrs Albarran and Pleash consented to that transfer on the proviso that the Elias family pay the entire net sale proceeds to the deed fund; that Messrs Albarran and Pleash represented to the Elias family that those payments would be payments under the DOCA; and, on 1 July 2009, the amount of $640,000 was paid by the Elias family into the deed fund following the sale of lot 6. The Plaintiffs contend that, on the other hand, Messrs Albarran and Pleash allowed a transfer of lot 4 to Mr & Mrs Kossaifi without registering the mortgage over that lot, consented to a mortgage being registered by ANZ Bank in priority to that mortgage; and required the Kossaifi family to pay $250,000 into the deed fund and permitted them to retain $122,000 from the amount advanced by the ANZ Bank to them.
121Messrs Albarran and Pleash submit that these matters were also the subject of the Earlier Proceedings to which the Plaintiffs were party and which were resolved by the making of the consent orders, and that the Plaintiffs are barred from reagitating those matters by operation of res judicata, issue estoppel or Anshun estoppel. The Plaintiffs' Interlocutory Process and Outline of Facts and Submissions in the Earlier Proceedings indicates that they complained of the deed administrators' delay in approving the sale of lot 6 to a third party, not as to the terms on which that was permitted or as to any difference in respect of the approach to the transfer of lot 6 to the Kossaifi family. Neither a res judicata nor an issue estoppel arises in that situation. However, it seems to me that an Anshun estoppel does arise in respect of this claim, so far as those issues would properly have been raised in those Earlier Proceedings, rather than some parts of their challenge to the dealings in respect of lot 6 being addressed in the Earlier Proceedings and other parts raised in these proceedings. I do not consider that the nature of the Court's supervising jurisdiction under s 447E of the Corporations Act requires that a party be given the opportunity to agitate related issues in different proceedings so as to displace the application of that principle in this situation.
122It is not strictly necessary to determine the merits of this claim where an estoppel prevents the Plaintiffs raising it. I will, however, briefly address Messrs Albarran's and Pleash's response to this claim. Messrs Albarran and Pleash respond that:
"What the Court can readily conclude from the above is that:
(a) The genesis of the alleged "unequal treatment" of the Plaintiffs was by reason of the Plaintiffs seeking an indulgence and dispensation from the operation of the strict terms of the DOCA;
(b) The retention of the proceeds of sale from Lot 6 of the Property was proposed by ... the Plaintiffs own lawyer as consideration for the abovementioned indulgence from the strict operation of the DOCA ..."
Messrs Albarran and Pleash also submit, in somewhat colourful terms, that they were not at fault, so far as the difficulties arising from this arrangement later caused further difficulties for the relationship of the parties and the implementation of the DOCA.
123It seems to me that, had this claim not been barred by Anshun estoppel, it would not have succeeded where the DOCA and share buy-back arrangements permitted the course that the Kossaifi family adopted (other, than, possibly, the undisclosed borrowing in excess of $250,000) which could be fairly taken so long as creditors' interests were protected by Messrs Albarran and Pleash taking security over the property as the DOCA contemplated. By contrast, the Elias family did not take advantage of the opportunity that the DOCA contemplated by reason of their wish to sell lot 6 to a third party, free of a mortgage, rather than transfer it to themselves or a nominee subject to a mortgage. The Plaintiffs' complaint that the transfer of lot 4 to the Kossaifi family "was treated differently to the manner in which a similar transaction was handled in relation to lot 6 to the Elias family" (Elias 17.10.12 [83]) has the fundamental difficulty that the transactions were not similar, because the transfer of lot 4 to Mr and Mrs Kossaifi was, at least in broad structure, compliant with the DOCA, whereas the sale of lot 6 to a third party was not undertaken in a manner contemplated by the DOCA. The outcome of which the Plaintiffs complain was not only the result of the approach which they took to the sale of lot 6 to a third party, which was not compliant with the DOCA, but also reflected an offer which their representatives made to Messrs Albarran and Pleash on their instructions to meet the difficulties arising from that non-compliance, and on the basis of their satisfaction with the arrangements they had made with the Kossaifi family to equalise the contributions to the deed fund.
124It is clear that this transaction has, as events have developed, been disadvantageous to the Elias family. However, where this transaction was undertaken at their request and the approach adopted was proposed by their legal representatives, it seems to me that the criticism of Messrs Albarran and Pleash for accepting the Elias family's proposal is unjustified. It does not seem to me that that position changes by reason of the criticism of the approach that Messrs Albarran and Pleash later adopted in respect of the transfer of lot 4 to the Kossaifi family, where that transaction was contemplated by the DOCA. I have not neglected the fact that a further difficulty arose with that transaction, because the ANZ Bank had advanced a sum of $370,000 to the Kossaifi family on the basis of the mortgage that they had given to over lot 4. It appears, however, that this was not done with Messrs Albarran's and Pleash's knowledge or with their consent and it does not seem to me to support the criticism made of them.
Sale of lot 14
125I have referred to the long running difficulties with the sale of this lot in the narrative of events set out above. The Plaintiffs plead that, in effect, Messrs Albarran and Pleash took no steps to market lot 14 (commercial suite 5) between 31 March 2009 and 25 June 2009 (APOC [55]); that Mr Albarran agreed to sell lot 14 to Mr Elias at the third meeting of creditors on 27 May 2009 (APOC [57]); and that the Elias family, the Kossaifi family and Messrs Albarran and Pleash agreed to transfer that lot to Mr Elias for $211,000 on 24 August 2009, which transaction was approved by a circulating resolution of shareholders of the Company dated 26 August 2009 (APOC [59]). The Plaintiffs plead that Messrs Albarran and Pleash, on 24 November 2009, breached their obligations to act reasonably and diligently and perform the DOCA and not prefer their interests to the Company in requiring the Elias family and the Kossaifi family to enter into a deed of release releasing them from obligations and causes of action related to their conduct of the administration, which was not contemplated by the DOCA (APOC [60]-[61]) and delayed the transfer of the sale of lot 14 until 14 April 2010. They also plead that the failure to perform the DOCA by delaying the transfer of lot 14 and the pleaded failure to act reasonably and diligently and the preference of Messrs Albarran and Pleash' interests amounted to conduct prejudicial to the interests of creditors and members and that, as a result of that conduct, substantial fees and legal costs were incurred and performance of the DOCA was delayed (APOC [64]-[65]).
126I have referred to the chronology in respect of the sale of lot 14 above. Messrs Albarran and Pleash submit that:
"Having regard to the evidence of the events which transpired in respect of the sale of Lot 14 (Suite 5) of the Property, and assuming favourably to the Plaintiffs that the Court will conclude that Plaintiffs are not barred from agitating this aspect of their claim, it is submitted that the Court ought not conclude that the First and Second Defendants were the sole cause for the delay in the sale of Lot 14 (Suite 5) and further that their conduct was not prejudicial to the interests of some or of all of the company's creditors or members.
Further, it is submitted that the delay on the part of the Plaintiffs to (re)agitate these issues juxtaposed with the failure by the Plaintiffs to seek relief pursuant to s 1321(1)(ca) Corporations Act 2001 not to sell Lot 14 (Suite 5) militates against the Court attaining the necessary state of satisfaction to make the orders sought by the Plaintiffs in respect of the sale of Lot 14 (Suite 5)."
127Mr Smith also submitted that Messrs Albarran's and Pleash's requirement for a general release was raised on 9 December 2009 in the context that the contributories were then seeking transfer of the remaining properties without mortgages, by contrast with the transfer of those properties subject to a mortgage, and that the proposed release was intended to bring all aspects of the DOCA to an end, in the interests of all parties, and it was in the best interests of the Company that that take place (T366-377). Notwithstanding that Messrs Albarran and Pleash had every reason to be concerned with the continuing non-compliance with the DOCA and were not obliged to waive compliance with it and were entitled to approach the Court, those were decisions which they were obliged to make in the Company's and creditors' interests and not by reference in their personal interests, by reason of their statutory obligations as officers of the Company. It seems to me that a position that conditioned compromise, and the avoidance of a liquidation, on a release so as to protect Messrs Albarran's and Pleash's personal position, had it been maintained for any significant period, might well have resulted in a breach of those obligations.
128Nonetheless, I am not satisfied that conduct of Messrs Albarran and Pleash falling within the scope of s 447E of the Corporations Act has been established in respect of this transaction. The criticism over the delay in the sale of lot 14 over the first three month period neglects the fact that the allocation of administrators' resources and efforts across different activities involves matters of commercial judgment. The intervening and long running dispute as to the terms of the sale between the Elias family and the Kossaifi family, and the multiple changes of position by the latter, caused the subsequent delay. The requirement for a general release was withdrawn within a relatively short time after it was advanced, and only renewed in the context of a suggested settlement of proceedings in which the deed administrators were seeking to have the matters resolved by the Court in a manner that would have afforded them similar protection.
Alleged failure to complete the DOCA
129Paragraphs 66-74 of the APOC pleads a failure on the part of Messrs Albarran and Pleash to complete the DOCA, which is attributed to the fees claimed by them including legal fees. Paragraph 67 of the Amended Defence relies on res judicata or Anshun estoppel in respect of that matter.
130The Plaintiffs contend that, from 15 July 2009, Messrs Albarran and Pleash were aware of the Company's creditors and had sufficient funds in the deed fund to ensure that payment was made in accordance with the DOCA and that the failure to complete the DOCA, from 15 July 2009, resulted from their claim to fees including legal fees, and that the DOCA would have been able to be implemented if Messrs Albarran and Pleash had acted with reasonable care and diligence between July 2009 and April 2010 (APOC [66]-[69]). Messrs Albarran and Pleash deny that they held sufficient funds in the deed fund to ensure that the Company could make payments in accordance with the DOCA. They also plead that these issues were the subject of dispute between the parties in the Earlier Proceedings and rely on a res judicata or Anshun estoppel in respect of those matters, or alternatively claim the pleading of those matters involves an abuse of process. So far as these matters relate to events from 15 July 2009 until the consent orders were made in the Earlier Proceedings on 7 May 2010, it seems to me that a res judicata and issue estoppel both arise from the scope of the issues in the Earlier Proceedings, to which I referred above, and the orders made in them. That is sufficient to exclude this claim in respect of those events.
131The Plaintiffs also contend that Messrs Albarran and Pleash, in failing to pay creditors and bring the administration or the deed administration to an end, after the orders made by the Court on 7 May 2010, improperly preferred their interests to the Company's interests and did not act with due care and diligence and incurred unnecessary administration costs, legal fees and caused the Plaintiffs loss and damage (APOC [74]).
132As I noted above, the consent orders made on 7 May 2010 expressly acknowledged Messrs Albarran's and Pleash's right to defer the transfer of the properties until after their remuneration was determined and the amount of that remuneration was not determined until September 2011 and a further dispute as to their entitlement to indemnity from the Company's assets for the legal costs arising from that determination was not determined until October 2011. The Plaintiffs' claim in this regard does not otherwise rise beyond a generalised assertion of delay. There is no evidence of what a deed administrator acting reasonably would have done in the relevant circumstances and there is also no evidence of the state of the property market, and specifically the market for commercial suites in a mixed use development in Narrabeen, at the relevant time. The proposition that a deed administrator would, could or should have sold the remaining properties more quickly is neither self-evident nor established in the absence of such evidence. The wider claim is also not established where the Plaintiffs have not established what Messrs Albarran and Pleash could or should have done so as to bring the deed administration to an end, after the orders made by the Court on 7 May 2010, in the relevant circumstances, to allow a basis for assessment of what they did.
Failure to assess legal fees
133I now turn to a dispute as to Messrs Albarran's and Pleash's retainer of and payments to their former solicitors. By way of background, their entitlement to indemnity in respect of amounts paid out by legal fees arises, in respect of the administration, under s 443D of the Corporations Act and, in respect of the deed administration, under cl 12 of the DOCA (Ex P10, 3/452) which provides that they are:
"entitled to indemnity out of the funds that would otherwise be available to the creditors of the company for any costs, expenses and charges whatsoever incurred and this indemnity will operate as a priority over all other creditors claims and entitlements."
134Paragraphs 74A-74R of the APOC plead matters relevant to the Company's and Messrs Albarran's and Pleash's retainer of and payments to their former solicitors. The Plaintiffs submit that:
"The evidence establishes that [Mr Albarran and Mr Pleash] paid [their former solicitors'] invoices without checking them and without caring as to whether the amounts claimed by [their former solicitors] for their professional fees were properly and reasonably claimed. In other words, [Mr Albarran and Mr Pleash] have paid an amount of almost $800,000 to [their former solicitors] for its professional fees (this excludes payments for disbursements) without checking and caring as to whether that amount had been properly and reasonably claimed by [their former solicitors]. It is difficult to conceive of conduct which can be more prejudicial to the interests of the Company's creditors and members than the payment of an amount of almost $800,000 without caring as to whether that amount had been properly and reasonably claimed."
135Mr Albarran and Mr Pleash point out, and I accept, that the amount of $800,000 referred to in this submission overstates the amount of legal costs actually incurred, although those legal costs are nonetheless substantial on any view. As will emerge below, there is force in the Plaintiffs' criticisms of Messrs Albarran's and Mr Pleash's approach to the payment of invoices by their former solicitors and as to the form taken by those invoices. However, it does not seem to me that the evidence rises to the level of that submission. Although, as will emerge below, there were failures in the process adopted for checking the former solicitor's invoices, it does not seem to me that suggests that Mr Pleash did not care whether the amounts claimed by the former solicitors for their professional fees were properly and reasonably claimed, because a failure of process is not the same as indifference. The position in respect of Mr Albarran is less clear where he did not give evidence in the proceedings.
136It is common ground (arising from a Notice to Admit Facts, Ex J1) that the hourly rates of the partner and consultant at the firm of solicitors formerly engaged by Messrs Albarran and Pleash, at the rate of $450 - $500 per hour (exclusive of GST) in respect of work they undertook in the relevant period, were fair and reasonable. It should also be recognised that a substantial amount of the costs incurred by Messrs Albarran's and Pleash's former solicitors relate to the Earlier Proceedings and the subsequent dispute as to Messrs Albarran's and Pleash's right to indemnity for the costs of those proceedings. The fees referable to the Earlier Proceedings appear to include those set out in a tax invoice dated 6 January 2010 for $56,115 plus GST together with Counsel's fees of nearly $15,000 for senior and junior counsel, a further tax invoice dated 31 May 2010 for $79,497 plus GST and counsel's fees of $70,626.38, and further invoices in the period to 20 September 2011 totalling $75,388.50 plus GST, Counsel's fees of $5,610 and other disbursements of approximately $7,364. Messrs Albarran's and Pleash's entitlement to those costs (as distinct from their quantum) is already addressed by the orders made by the Court by consent in respect of the Earlier Proceedings and is not open to collateral challenge before me. Messrs Albarran's and Pleash's entitlement to indemnity from the Company's assets for (as distinct from the quantum of) the further costs incurred in respect of the determination of their claim for remuneration is addressed by the judgment of Ball J to which I have referred above and is also not open to collateral challenge before me.
137However, neither the provision for costs in the consent orders made on 7 May 2010 nor the determination by Ball J of the deed administrators' entitlement to indemnity from the Company's assets were directed to the quantum of those costs or the process adopted by Messrs Albarran and Pleash to assess their reasonableness; those costs have not been the subject of any previous assessment under the Legal Profession Act; and the issue as to whether their amount was reasonable was not previously before the Court. It does not seem to me that any question of Anshun estoppel can arise to prevent the Plaintiffs now raising those issues, where Messrs Albarran and Pleash did not seek a determination of the amount of the legal costs that were properly payable in the Earlier Proceedings and the Plaintiffs could not reasonably have been expected then to challenge a quantification that Messrs Albarran and Pleash had not sought to establish.
138I should first refer to the question of an administrator's and deed administrator's responsibilities in respect of the payment of legal costs, before turning to the particular issues raised by the Plaintiffs. It seems to me that the approach which the Courts have taken in respect of the review and payment of legal invoices by receivers and liquidators provides some assistance in this regard, although only by way of an analogy since an administrator is performing a statutory function, a deed administrator is performing functions in accordance with the deed of company arrangement and neither is an officer of the Court, by contrast with a court-appointed liquidator. In Mirror Group Newspapers Plc v Maxwell (No 2) [1998] 1 BCLC 638 at 661-662, Ferris J observed that liquidators bear the onus of justifying their disbursements, and since they can only recoup from the estate if they have acted properly in instructing and paying third parties (such as solicitors), they should subject the bills received from them to critical scrutiny.
139Messrs Albarran and Pleash relied, in oral submissions at the hearing and in supplementary submissions, pursuant to leave, on the decision of the Court of Appeal in Wimborne v Brien (1997) 15 ACLC 793 which addressed, inter alia, a complaint that a liquidator paid solicitors' costs pursuant to one line bills and did not require those solicitors to tax their bills or furnish detailed bills of costs. Dunford AJA (with whom Powell and Handley JJA agreed) referred to the absence of any evidence of any practice on the part of liquidators to require detailed bills of costs, and observed (at 798) that
"a prudent manner of ensuring that he does not pay excessive costs would be to require a detailed bill from the solicitors etc, but there is no evidence here that the amounts he paid were excessive".
I do not understand that decision to establish any proposition of law, by which I would be bound, that the proper performance of an insolvency practitioner's duties cannot require him or her to obtain a detailed invoice for legal work or to undertake a careful or detailed review of such an invoice, and I do not accept Mr Albarran's and Mr Pleash's submission to the contrary in their supplementary submissions. That submission seems to me to have the difficulty that, first, the Court of Appeal accepted rather than rejected the utility of detailed bills and review of them as prudent practice of a liquidator. Second, that decision was squarely founded on the lack of evidence in that case of any professional practice of obtaining detailed bills or of any excessive payments, whereas there is expert evidence in this case (to which I will refer below) of professional standards as to the review and authorisation of legal fees, and the evidence in this case at least indicates that the legal fees invoiced by Messrs Albarran's and Pleash's former solicitors warranted further inquiry by Messrs Albarran and Pleash. As I will find below, that need for further inquiry arose both in respect of the amount charged for particular attendances (as Mr Pleash acknowledged in cross-examination to which I will refer below) and because of a wider pattern in the invoices of very many attendances for periods of at least twelve minutes and very few attendances of less than that time.
140In Re Stockford Ltd; Korda [2004] FCA 1682; (2004) 52 ACSR 279 at [50]-[51], Finkelstein J in turn observed, in respect of voluntary administrators, that:
"The right to be indemnified for properly incurred expenses is covered by ss 443A and 443D. Nevertheless, I wish to make one or two observations about disbursements, particularly legal fees which are often the largest component of an administrator's costs. My observations derive from the comments of Ferris J in Mirror Group Newspapers Plc v Maxwell (No 2) [1998] 1 BCLC 638 and Lightman J in an article entitled "Office Holders' Charges - Costs Control and Transparency" (1998) 11 Insolvency Intelligence 1.
An insolvency practitioner stands in a fiduciary relationship with the creditors. He must act with the same care as a prudent businessman would act in his own affairs at his own cost and risk. A prudent businessman will run litigation as a last resort and when he embarks upon litigation he will keep it under close scrutiny. A prudent businessman will shop around to ensure that he obtains the services of good lawyers (solicitors and counsel) at the best possible rate. Personal relationships should not obscure the practitioner's duty. The sole selection criteria should be the benefit to him as a litigant. So he will avoid cosy relationships with solicitors and counsel. He will negotiate over fees with both solicitors and counsel. He will closely monitor the fees as they are incurred. (In some jurisdictions contingency fees are permitted and where they are they should be exploited.) Overall, this approach is likely to cause disquiet among the profession. Lightman J said that the requirement of adopting the perspective of the insolvency practitioner expending his own money in place of the perspective of spending his client's money is a "sea change". If made it is a change that will restore public confidence in this area of commercial life." (emphasis added)
141Those observations were recently approved by Brereton J in Re AAA Financial Intelligence Ltd (in liq) [2014] NSWSC 1270, a decision delivered after judgment was reserved, as to which I afforded the parties the opportunity for further submissions. I should first recognise that the decision arose in somewhat different circumstances, so far as it involved a liquidator's claim to indemnity and an application for directions in which the liquidator had the onus of supporting the directions sought. However, his Honour also referred to Mirror Group Newspapers and Re Stockford Ltd and made directions as to the responsibilities of insolvency practitioners which are of wider application. His Honour there pointed (at [14]) for the need for critical scrutiny by a liquidator of third party bills in order to support recoupment from the estate and (at [21]-[22]) to the need for "close scrutiny" by a liquidator of such bills and that "something more than the mere incurring and payment of a disbursement is required to justify it".
142In further submissions as to the decision in AAA Financial Intelligence, the Plaintiffs emphasised the passages to which I have referred above, recognising an insolvency practitioner's responsibility to exercise care and closely monitor fees as they are incurred, and otherwise relied on that decision as further support for their criticisms of Messrs Albarran's and Pleash's approach to payment of their former solicitors' invoices. Messrs Albarran and Pleash responded that, as I have noted above, the references to the liquidator bearing the onus of justifying its disbursements should be understood in the context that the liquidator in that case was seeking a direction that it was justified in paying those disbursements. I accept that submission, so far as that decision should not be understood as indicating that a liquidator or administrator bears any legal onus of justifying expenditures in adversarial proceedings in which a third party challenges such expenditures under ss 447E or 536 of the Corporations Act respectively. A liquidator or administrator may, of course, bear an evidential onus to justifying expenditures once an issue is raised about them by other evidence, as occurred in these proceedings. Messrs Albarran and Pleash also submit, in supplementary submissions, that neither Re Stockford nor AAA Financial address the reasons of the Court of Appeal in Winborne v Brien to which I have referred above. While that proposition is strictly true, I do not consider the latter decision to establish any relevant principle of law, as I noted above, and I consider I should give significant weight to those decisions.
Appointment of the solicitors
143The Plaintiffs plead that Messrs Albarran and Pleash retained their former solicitors to act for them and the Company in early March 2009 without documenting the process of that appointment; without receiving a costs agreement from that firm; without receiving a costs disclosure under s 309 of the Legal Profession Act for the legal work to be done; and without signing a costs agreement with that firm for the legal work to be done. Messrs Albarran and Pleash respond that the Company retained those solicitors during its administration and that Messrs Albarran and Pleash retained them on and from the execution of the DOCA. They deny that the process of their appointment was undocumented; deny that their retainer was entered into without a costs agreement or costs disclosure; admit that a costs agreement was not signed but say that costs agreement was accepted by their conduct in providing instructions to their former solicitors; and plead that Messrs Albarran and Pleash were sophisticated clients as that term is defined in s 302 of the Legal Profession Act. They also rely on the express exemption from the requirement for disclosure under ss 309 and 310(1) of the Legal Profession Act where the client is, relevantly, a liquidator, administrator or receiver under s 312(1)(c)(iv) of the Legal Profession Act.
144A document produced by Messrs Albarran and Pleash, purportedly as the terms and conditions of engagement of their former solicitors (Ex P5, pp 8-18) does not assist, since it appears to have been produced in 2013 and, obviously enough, cannot have been issued by way of costs disclosure for a retainer commencing in 2009. That matter could not be explored in cross-examination, at least so far as Mr Albarran and the principal of the solicitors formerly retained by Messrs Albarran and Pleash did not give evidence. Mr Pleash's proof of evidence refers to his knowledge of the solicitors who were then retained and his experience in retaining that solicitor in previous administrations. Mr Cook's evidence was that the firm's general practice in 2009 was that one of the persons appointed as administrator would choose and engage a solicitor and that the firm had no formal system for choosing the solicitor to be briefed but that choice would have regard, inter alia, to the solicitor's experience and expertise (Cook 14.3.14 [60]-[61]). Mr Cook's evidence was also that, not surprisingly, at the time those solicitors were initially engaged, he did not anticipate that the administration would involve a litigated dispute, contested remuneration proceedings, disputes in relation to the interpretation of the DOCA, steps taken which were not contemplated by the DOCA, default under the DOCA or a mediation (Cook 14.3.14 [67]). I have referred to several of these developments above.
145The Plaintiffs also rely on an expert report of Mr David Young, an experienced insolvency practitioner. Mr Young expressed the opinion that procedures and controls for insolvency practitioners to retain lawyers should include documented appointment processes, consideration of a number of firms, documented negotiations prior to engagement, an executed formal costs agreement, documented review and authorisation of invoices and a quality control manual which set out the processes. He expressed the opinion that Messrs Albarran and Pleash had failed to exercise proper consideration when engaging their former solicitors and failed to assess that engagement in terms of the interests of creditors, and that a lack of focussed instructions by Messrs Albarran and Pleash and a failure to adequately monitor the performance and cost of their solicitors by the use of costs agreements and authorisation procedures contributed to the level of fees charged by their former solicitors.
146Mr Young referred to Accounting Professional and Ethical Standard ("APES") 330 applicable to professional accountants in public practice, which required a firm to establish policies and procedures designed to provide it with reasonable assurance that engagements were performed in accordance with professional standards and applicable legal and regulatory requirements. The Plaintiffs also point to cl 3.8 of APES 330 which provides that, when engaging a suitably qualified third party, a professional accountant in public practice should assess the appropriateness and reasonableness of the work performed by the third party and the professional fees charged. Mr Young also referred to the requirement in APES 330 that a professional accountant in public practice, when planning to use the work of a third party, should use his or her commercial judgment, adopting the perspective of, and acting with the same care as, a reasonable person when incurring expenses for the administration.
147Mr Young was cross-examined as to his expression of the view that there had been non-compliance with APES 330 in respect of the appointment of Messrs Albarran's and Pleash's former solicitors, and acknowledged that APES 330 was issued in September 2009 and took effect from 1 April 2010, after those solicitors were appointed. Mr Young accepted that it was not possible for Messrs Albarran and Pleash not to have complied with APES 330 in respect of that appointment, where that standard had not then been issued. There seemed to me to be two difficulties with that cross-examination. The first, which was not identified by the cross-examiner or by Mr Young, was that this proposition would be of little significance if there was non-compliance with any corresponding previous standard; in particular, any potential relevance of APS 7 was not addressed. The second, and more fundamental difficulty, is that the principles expressed in APES 330 reflect steps that an insolvency practitioner would be expected to take, in exercising care and diligence as a company officer in accordance with s 180 of the Corporations Act, irrespective of the standard. To put that proposition another way, it could scarcely be contended that, absent such a professional standard, an insolvency practitioner would not have been required to take steps of the kind it contemplated in the appointment of a legal adviser.
148The Plaintiffs also point to cl 14.10.3 of the Code of Professional Practice for Insolvency Practitioners which provides that, when engaging external professional services, the practitioner should consider issues of reasonable and appropriate cost and should document the decision making process as to why the work was necessary and why the particular firm or professional was engaged and must, before authorising payment of disbursements, ensure that the task has been properly performed and the quantum of the professional services fee is as agreed or is reasonable. Mr Young also referred to that requirement in the IPA Code and also noted that, while approval of creditors for payment of disbursements was not required, creditors were entitled to be informed of and understand the decision process if the issue was raised and required that, before authorising disbursements, the practitioner must ensure that the task had been properly performed and that the quantum of the professional service fee was agreed or was reasonable.
149The Plaintiffs rely on evidence of Messrs Young and Woodward that Messrs Albarran and Pleash should, notwithstanding the exception created by s 312(1)(c)(iv) of the Legal Profession Act in relation to costs disclosure, have obtained written disclosure in relation to costs from the solicitors and a formal costs agreement should have been entered into. They also rely on Mr Woodward's evidence that the circumstances required a precise description of the work to be done, the basis on which legal costs were to be calculated, an estimate of the total cost or range of costs and identification of the major variables that might affect the cost of services provided. Mr Young pointed to the absence of documentation of the process of appointment of Messrs Albarran's and Pleash's then solicitors.
150By a supplementary report dated 9 September 2013, Mr Young addressed additional information that had been provided to him but indicated he continued to hold the opinion that Messrs Albarran and Pleash had failed to exercise proper consideration when engaging their former solicitors. In cross-examination, Mr Young was taken to additional documents that had been subsequently produced by Messrs Albarran and Pleash in the proceedings but not briefed to him, including procedure manuals for their firm, which indicated that the firm had procedures in place of the kind which he contemplated, and an insolvency quality control manual, as contemplated by APES 320. Mr Young conceded in cross-examination that matters which may be relevant to the appointment of a law firm by insolvency practitioners included the firm's experience of previous matters dealing with that law firm; the quality and timeliness of the prior work; and the hourly rates and overall costs that they have previously charged (T291). It has not been established that the appointment of Messrs Albarran's and Pleash's then solicitors in this matter was not justifiable, by reference to those matters. It seems to me that the documentation of the consideration leading to that appointment fell short of the relevant guidelines for insolvency practitioners, but that has not been shown to be causative of any of the issues which have arisen in respect of the costs incurred in the matter.
151The Plaintiffs submit that, had a costs agreement been entered into for each piece of work of matter that the solicitors were acting on, it would have been clear what their instructions were, what the scope of the work was to be and what was to be charged (T339). It seems to me that submission has, first, the difficulty that it would not have been practicable for a costs agreement to have been entered into for each segment of work, although it may have been open to plan or budget segments of the work in a manner that was not done; but, more fundamentally, there is little likelihood that that course would have reduced the costs which arose from the complexity of the administration, the non-compliance by the shareholders with the terms of the DOCA and the numerous disputes which arose as to the respective parties' obligations to which I have referred above.
152For completeness, I should note that Mr Pleash was cross-examined as to the circumstances in which his and Mr Albarran's former solicitors had been engaged by, inter alia, Mr Albarran in respect of the receivership of two other companies; he accepted that receivership did not go well; and he did not recall whether the result was that those solicitors were unable to recover a substantial amount of their fees in respect of that appointment (T266-267). It was ultimately not established that this matter had any significance in respect of the conduct of the administration and deed administration or those solicitors' role in it and I give no weight to it. I should also record that Messrs Albarran and Pleash rely on the fact that the Plaintiffs had filed an application for assessment of those costs with this Court that was referred to a costs assessor and not prosecuted by the Plaintiffs. However, that contention has the difficulty that the substance of the Plaintiffs' claim in this application is not a matter of costs assessment, but is directed to the adequacy or otherwise of the conduct of Messrs Albarran and Pleash in respect of the costs rendered by and paid to their former solicitors.
Claim that charges were excessive for the scope of the retainer
153The Plaintiffs also plead that Messrs Albarran's and Pleash's former solicitors made apparently excessive itemised charges, claiming a total of over $730,000 of work from March 2009, representing over 1,600 hours' worth of work charged at $450-$550 per hour. The Plaintiffs also submit that the invoices for Messrs Albarran's and Pleash's former solicitors reveal "many anomalies, discrepancies and instances of what appear to be overcharging". I do not consider that it is necessary or appropriate to approach this issue on that basis, particularly where Messrs Albarran's and Pleash's former solicitors had not been joined as party to the proceedings; no relief is sought against them; and Messrs Albarran and Pleash have not called a representative of that firm to give evidence in the proceedings. It seems to me to be preferable to approach the matter on the basis that any issues of that kind are to be addressed as matters that potentially warranted further inquiry by Messrs Albarran and Pleash prior to payment of the solicitors' invoices. In other words, the matter at issue in this application is not the conduct of the former solicitors for Messrs Albarran and Pleash, but the conduct of Messrs Albarran and Pleash in respect of payment of their invoices.
154The Plaintiffs also point to the fact that Messrs Albarran's and Pleash's former solicitor charged for 30 hours of work in preparing a tender bundle comprising 145 documents. I do not accept that criticism, without more, since the amount of time which was charged must depend upon the extent of the analysis required to identify the documents to be tendered.
155Mr Pleash's evidence is that he is likely to have noticed that the first invoice rendered by Messrs Albarran's and Pleash's former solicitors charged for 112.5 hours, although he has no specific recollection of doing so, and did not recognise that that amounted to one solicitor working for 3½ weeks (T224-225). I accept Mr Pleash's evidence that that matter would not necessarily have troubled him, because he was aware that a significant amount of work had in fact been done in the period covered by that first invoice (T225). His evidence was also that the first invoice rendered by those solicitors covered a period of three months in which there had been a fair degree of controversy, and the matter was not a simple matter, so that the amount in that invoice would not necessarily have caused him to inquire as to the reasonableness of the fees (T274). It seems to me that that was a reasonable position for the deed administrators to take in the then circumstances.
156The Plaintiffs rely on the evidence of Mr Woodward that the fair and reasonable costs of legal advice and services, had the work been carried out properly, was $127,000 plus GST. Mr Woodward set out the steps which, in his opinion, should have been taken by solicitors retained by administrators of a DOCA in respect of the disclosure of costs, taking instructions, carrying out legal work and billing. It seems to me that Mr Woodward's evidence was of limited relevance to the matters in issue in this application, so far as Messrs Albarran's and Pleash's former solicitor is not party to the proceedings and the question of the adequacy of the work which he performed is not directly in issue in the proceedings, which instead involve issues in respect of Messrs Albarran's and Pleash's conduct. Mr Woodward then made estimates as to the time which should have been required for the taking of the relevant steps, which did not involve any close analysis of the work actually done or the extent of correspondence exchanged between the relevant parties, in order to express the conclusion that the fair and reasonable costs of undertaking the work instructed by Messrs Albarran and Pleash would have been $127,000.
157The approach adopted by Mr Woodward had the difficulty, which was exposed in his cross-examination, that he had made no allowance for steps which Messrs Albarran's and Pleash's former solicitors had in fact undertaken, including matters such as correspondence with the shareholders' legal representatives in respect of the DOCA or review of drafts of the DOCA that had been amended by the shareholders' legal representatives. Mr Woodward responded that the time he had allowed was more than adequate to give advice that the deed administrators might require (T141) but that approach seems to me to have assumed a much simpler process than that which all parties, including the Plaintiffs, in fact adopted in respect of the preparation of the DOCA. Mr Woodward's approach was ultimately, as he accepted in cross-examination, that his personal opinion was that the amount charged was substantially more than any amount he had ever charged in many years of practice in respect of a DOCA. It does not seem to me that the evidence adequately recognises the complexity of the matter.
158Mr Woodward similarly made a global allowance for the costs which he thought reasonable for preparation of a share buy-back agreement, without consideration of the process which the parties, including the Plaintiffs by their solicitors, adopted to prepare that document (T144). Mr Woodward's assessment of the costs properly incurred in respect of the Earlier Proceedings was similarly undermined by the fact that the material he had been provided, as he accepted in cross-examination, did not make clear the applications that had been made to the Court, still less the detail of the matters that had arisen in those applications (T145), and he had made no allowance for the costs of preparing some of the affidavit evidence led by Messrs Albarran and Pleash in the proceedings or for advice provided to Messrs Albarran and Pleash as to the content of expert evidence led by the other parties in the application for remuneration (T150-151). Mr Woodward also appears to have made no allowance, in respect of the costs of the Earlier Proceedings, for the range of relief sought by Messrs Albarran and Pleash or for the filing of an interlocutory application by the Elias family seeking relief in those proceedings (T153).
159With all respect to Mr Woodward and the approach which he adopted, it seems to me that that opinion did not, in my view, have sufficient regard to the complexities of the deed administration or the proceedings with which Messrs Albarran and Pleash were involved. I therefore cannot accept Mr Woodward's evidence as to that amount.
160I should also emphasise that it would not be appropriate for me to find at this point, and I do not find at this point, that the Company was in fact overcharged for the work, where Messrs Albarran's and Pleash's former solicitor is not party to the proceedings. It is, however, necessary to address the further issue whether Messrs Albarran and Pleash and their staff took adequate steps to satisfy themselves as to the correctness of the charges made by their former solicitor. I now turn to that matter.
Adequacy of review of former solicitors' invoices
161The Plaintiffs plead that tax invoices rendered by Messrs Albarran's and Pleash's former solicitors were not checked by Messrs Albarran and Pleash at all, for reasonableness of the charges made in them, as to whether the attendances claimed in them took place and as to whether the charges were excessive and none of those tax invoices were challenged or objected to by them. They submit that there is no evidence that Messrs Albarran and Pleash sought further information or explanation from their then solicitors in relation to the invoiced costs such as information as to the tasks or work carried out, who carried them out, the manner in which they were carried out and why it was necessary to carry them out. They submit that:
"Without such information or explanation, the [Defendants] could not have assessed properly the invoices which were rendered by [the solicitors]. Again, the failure of the [Defendants] to seek this information and clarification from [the solicitors] was prejudicial to the interest of the company's members and creditors."
162Mr Smith put in submissions that there was no duty upon Messrs Albarran and Pleash to undertake a line-by-line checking of their former solicitors' bills (T368). Assuming, without deciding, that that proposition is correct, it seems to me that Messrs Albarran and Pleash would nonetheless need to undertake at least sufficient review of their former solicitors' bills to identify the difficulties to which I will refer below, in particular their lack of ability to assess the utility of legal work done from the information provided by their former solicitors, the lack of information as to who was doing work for which they had been charged at partner or consultant rates, and the multiplicity of charges for a minimum of twelve minutes and, conversely, the fact that very few charges were for less than twelve minutes.
163The Plaintiffs rely on Mr Young's opinion, expressed in his first report dated 2 August 2013, that Messrs Albarran and Pleash had failed to manage the performance and cost of their former solicitors, adequately or at all. Mr Young nonetheless acknowledged, fairly, that a number of issues would have caused the fees charged by Messrs Albarran's and Pleash's former solicitors to be greater than they would otherwise have been, including the volume of correspondence between the shareholders' lawyers and Messrs Albarran's and Pleash's lawyers; multiple briefs to counsel; ongoing disputes concerning the operative provisions of the DOCA; heavily contested remuneration proceedings; and the involvement of Messrs Albarran and Pleash's then solicitors in substantial interaction between the shareholders and the administrators.
164Mr Young's evidence was also that he could find no record of time being spent by the administrators and their staff on, inter alia, reviewing the bills for their former solicitors or considering the task performed for reasonableness in terms of cost, timeliness and proper performance in compliance with any costs agreement, and he could find only one instance of time being recorded for authorisation of an invoice for legal costs on 11 January 2010. The absence of reference or time spent in reviewing invoices in the firm's time records is of some significance, because Mr Pleash indicated that he would have recorded his time if he had spent longer than 5 minutes in reviewing an invoice (T228), at least absent error, and Messrs Cook and Singh indicated that they would have recorded their time for review of an invoice that had taken at least 15 minutes (T305, 326).
165By his supplementary report dated 9 September 2013, Mr Young addressed additional information that had been provided to him but indicated he continued to hold the opinion that Messrs Albarran and Pleash had failed to assess the engagement of those solicitors in terms of the interests of creditors and shareholders and that a lack of focussed instructions and the failure to adequately monitor the performance and costs had contributed to the level of fees charged by those solicitors. The additional material to which he had referred included particularly the documents exhibited to Mr Elias's affidavit dated 21 October 2013 (Ex P4 and P5).
166Mr Pleash's proof of evidence set out his firm's practice as to payment of invoices. His evidence was that he understood that a manager or senior manager would initially review the relevant invoice and would be satisfied about it before requesting a cheque requisition. He accepted in cross-examination that he expected one of his staff to have undertaken a line-by-line review of the solicitors' invoices and that he expected that, between them, Mr Cook and Mr Singh would have conducted that review and been satisfied with it (T221). Mr Pleash accepted that the time taken for such a review would ordinarily be recorded within his firm's time costing system (T222), although there are no records within his firm's system of time undertaken in such checking in this matter. Mr Pleash's reliance on the process by which his staff would review invoices prior to payment was undermined by the fact that those staff understood that they only needed to do so, at least at any level of detail, if requested to do so by Mr Albarran or Mr Pleash. I will refer to their evidence in that regard below.
167Mr Pleash's evidence was also that, before he signed a cheque drawn on the account of an insolvency administration, it was his practice to review the attached tax invoice (Pleash 14.3.14 [43]) and, in particular, to review the tax invoice in respect of legal services by a legal practitioner by considering the legal services that had been provided and were being charged for in the invoice by reference to various matters. Mr Pleash also gave detailed evidence of his personal review of the particular invoices in issue in the proceedings which, it seemed to me, involved a substantial degree of reconstruction given the number of invoices involved and the detail of that account. Mr Pleash fairly accepted in cross-examination that, although he recalled signing some invoices in the matter, at least some of his evidence given in respect of invoices was reconstruction (T220). Mr Pleash accepted that his review of the solicitors' invoices would not be a line-by-line review where an invoice was lengthy, but said that he would read a "random sample of entries" on the basis that the invoice payment process to which he referred had occurred. It is apparent that any such review of a random sample of entries did not lead Mr Pleash to recognise, for example, the fact that the solicitors then retained were very rarely charging for less than two units or 12 minutes for any item of work.
168Mr Pleash also gave evidence as to the process by which he would raise any queries with the senior manager or manager on the particular insolvency administration, or with his joint appointee (Mr Albarran) if the senior manager or manager was not able to address his query, and ultimately with the legal service provider (Pleash 14.3.14 [46]-[48]). Notwithstanding that evidence, it appears that no such queries were raised with the former solicitors for Messrs Albarran and Pleash in this matter.
169Mr Cook also gave evidence of the firm's process for payment of invoices (Cook 14.3.14 [132]ff). His evidence was that all tax invoices from a solicitor in respect of an insolvency matter were escalated to the manager for consideration, and that the manager would consider the invoice but the appointed administrator was "ultimately responsible for authorising payment" by signing the cheque and providing it to the firm's banking team. He noted that an invoice could also be provided directly to the appointed administrator for review. Mr Cook's evidence was that his practice was to look at the amount of the invoice and review GST calculations; consider any breakdown of professional fees and disbursements; review supporting documents such as time sheets or a list of tasks performed and read the description of the legal services which had been provided; and form an opinion whether or not the legal services the subject of the tax invoice were consistent with his understanding of various matters. Had that process been undertaken, it would have involved a comprehensive review of the relevant invoices. Mr Cook's evidence (Cook 14.3.14 [140]) was also that, if he had any doubts, questions or concerns after reviewing a tax invoice from a legal services provider, he would raise it directly with the legal services provider, or with the appointee with the day-to-day carriage of the relevant matter, particularly if it concerned strategic issues or work which he was not aware of, or raise it with the appointee or other partner at the firm who had the professional relationship with the solicitor. He would proceed to authorise the invoice if, after taking those steps, he formed the view that it was reasonable and in order for payment (Cook 14.3.14 [141]). His evidence was that, in this matter, that process was followed and, in particular, he followed his practice in reviewing the relevant invoice and forming the relevant opinion set out in paragraph 139 of his affidavit (Cook 14.3.14 [142]).
170Mr Cook's evidence in cross-examination indicated a significantly less detailed review of invoices than his affidavit evidence. His evidence was that he had not undertaken a line-by-line analysis of the invoices as to which he had signed cheque requisitions and did not know if anyone else had done so (T306). His evidence was that, when an invoice was received, it would either be processed without further detailed review or passed to the appointee if it was out of the ordinary (T307). His evidence was that, to his knowledge, no inquiry was made of Messrs Albarran's and Pleash's former solicitors querying any of their bills on the matter (T310).
171Mr Singh also gave evidence as to the firm's practice in respect of the payment of third party invoices (Singh 14.3.14 [81]ff) to similar effect to Mr Cook's evidence, but noted that, in his role as a junior accountant on the matter, it was his practice to bring any fees or disbursements that appeared to be unreasonable, in the sense that they seemed disproportionate to the work happening in the administration, to the attention of the manager or Mr Albarran when he received an invoice. His evidence is that, from the beginning of the administration in respect of the Company, Mr Elias was complaining about costs, but those complaints did not make Mr Singh "extra sensitive when arranging payment of tax invoices" because of the process that was already in place for review of such invoices (Singh 14.3.14 [87]). Mr Singh's evidence in cross-examination was that he would also not normally undertake a line-by-line review of an invoice and that he believed the partner would review the invoice and, if there was a particular issue, the partner would instruct either the manager or another employee working on the matter to undertake a detailed review, but he otherwise would not undertake such a review (T328) and that his expectation was that Mr Pleash or Mr Albarran would have asked someone if they thought there was a need for a line-by-line review (T328). At this point, it was plain that Mr Pleash and Mr Singh were each relying on the other, or on Mr Cook, to undertake or initiate such a review.
172A further difficulty arises because, even if the system for substantive review of invoices by Messrs Albarran, Pleash and their staff had not failed because each of its participants relied on another to undertake or initiate a detailed review of the invoices, the information provided in the invoices rendered by their former solicitors would have provided little assistance in assessing whether the work done had in fact been directed to and had been proportionate to the performance of relevant functions in the administration and deed administration. The Plaintiffs submitted, in their written opening submissions, that:
"The invoices submitted by [the solicitors] were not in a form that allowed the [Defendants] to fulfil their function of ensuring that the legal services were performed properly and that the amount charged to those services was appropriate and reasonable. [The solicitors'] invoices give no indication as to the identity or seniority of the persons attending to individual tasks. There is no specification as to the charge levied for each task which is expressed merely in units of time. Further, for many entries there is no more than an oblique reference to the task that was undertaken. For example, there are numerous entries that simply refer to 'email correspondence with'. There is no indication as to whether the entry refers to this sending of an email or perusing an incoming email."
173Mr Woodward's further report dated 6 September 2013 addressed additional documents which had become available to him by that time, including costs disclosure letters, terms and conditions of engagement, tax invoices and work in progress reports and documents that had been identified as potentially referable to the work recorded by the solicitors in their work in progress reports. Mr Woodward noted that the material did not assist him in expressing an opinion about the fair and reasonable costs that ought to have been charged by Messrs Albarran's and Pleash's former solicitors to the Company, because the work in progress reports fell well short of what would be required to comprise a bill in assessable form under the Legal Profession Act and, in particular, he noted that they contained no indication as to the identity or seniority of persons attending to individual tasks, or the charge levied for each task, which was expressed only in units of time, and that many of the descriptions of the relevant work made only oblique reference to the task that was undertaken. Mr Woodward pointed to the relevance of that matter observing, plainly correctly, that:
"Two six minute units of time consumed in the composition of a lengthy email including scanning of attachments may be entirely reasonable. The same time recorded for perusing a short two line email would clearly be unreasonable and excessive."
Mr Woodward, not unreasonably (but possibly not admissibly), also expressed surprise as to the fact that, throughout the whole of the engagement of Messrs Albarran's and Pleash's former solicitors, no attendance was charged at less than two units or twelve minutes and the majority of attendances are in multiples of two units. I will address that issue further below.
174The narratives contained in the invoices rendered by the former solicitors demonstrated that much correspondence was sent and received, but largely did not disclose its subject matter or how it progressed the administration or deed administration, even in general terms, or who did the work. At one point, Mr Pleash's evidence was that his and Mr Albarran's former solicitor was a sole practitioner, but he later indicated that the solicitor also employed a consultant, and about that time or later also employed younger solicitors (T272). Mr Pleash acknowledged that, although he had seen his and Mr Albarran's then solicitors' invoices from time to time, when signing cheques in payment of them, it had not occurred to him at the time that those reports did not indicate who did the particular work and he accepted, with the benefit of hindsight, that that information might have been helpful in assessing the charges that were made for that work (T272).
175The significance of the lack of identification of who attended to particular tasks, for which a solicitor's rate was charged, was illustrated by Mr Pleash's cross-examination concerning a time entry for 9 units, or over 50 minutes, for attendance at ASIC to lodge forms. Mr Pleash accepted that it would strike him as odd that a solicitor would charge nearly $400 to attend ASIC to lodge such forms, but observed that he was not sure that it was the solicitor who attended ASIC (T232). However, if it were not, that would raise the difficulty that the charge for the attendance reflected the solicitor's charge-out rate, not that of a junior lawyer or administrative staff. Mr Pleash noted that there was, in the context of share buy-backs, "a degree of getting the thing done right associated with it" (T232), but that does not seem to me to address the difficulty, from the relevant narrative, in determining who had done the work or whether it had been charged at an appropriate rate. A question was also put to Mr Pleash in respect of the solicitor's attendance at the offices of St George Bank to collect certificates of title (T234). His evidence was that, in the context of this matter, he would not necessarily have queried that attendance. It seems to me that Mr Pleash's evidence as to that matter was justified, particularly given the difficulty and which had arisen in in obtaining those certificates that emerged from the evidence. A charge on 13 June for stamping caveat and attending Land and Property Information to lodge a caveat in respect of the mortgage raises an issue of a similar character to the attendance at ASIC and Mr Pleash accepted that he would normally expect a clerk to undertake that task, although he added that it may appropriately be done by someone at a higher level in this matter (T237).
176The Plaintiffs also submit that, inter alia, all invoices rendered by the former solicitors for Messrs Albarran and Pleash charged a minimum charge of 12 minutes for each attendance. Messrs Albarran and Pleash deny that all invoices charged as the minimum charge 12 minutes for each item. That denial was, at best, technically correct since, so far as the evidence goes, any exceptions to that proposition were immaterial. Mr Pleash's evidence was that there may have been "one or two" instances where one unit or 6 minutes was charged for an item of work (T231). The Plaintiffs point out, and I accept, that that qualification is "negligible in the context of a retainer that spanned almost 4 years". It seems to me that the prevalence of charges for attendances for a minimum of two units (12 minutes), and the scarcity of any attendances of less than 12 minutes, plainly warranted further inquiry by Messrs Albarran and Pleash, on the face of the invoices. Had that inquiry been made, and had Messrs Albarran and Pleash, for example, compared the attendances for which the Company had been charged with the correspondence within their own files reflecting those attendances, it is likely that they would also have readily identified a question whether, absent further explanation from their former solicitors, a number of those attendances warranted the amount charged for them. Absent further explanation from their former solicitors, they might well have also questioned whether there were occasions on which they or the Company had been charged for 12 minutes of work for perusing or sending a short email that involved no apparent complexity.
177Mr Pleash was cross-examined by reference to a folder (Ex P11) that identified correspondence and other documents which the Plaintiffs contended were referable to the time entries recorded in time records of Messrs Albarran's and Pleash's former solicitors. Messrs Albarran and Pleash had objected to the tender of that folder, but I admitted it for the reasons indicated in a separate judgment. It seems to me that I can properly draw the inference that the relevant correspondence and documents correspond to the narratives contained in the solicitors' time records, where they are on their face consistent with those narratives, and where Messrs Albarran and Pleash did not seek to identify other correspondence that was consistent with the relevant descriptions or lead evidence of their former solicitor to contest the Plaintiffs' identification of that correspondence and documents. It does not follow, of course, that Mr Pleash or other employees of Messrs Albarran and Pleash should have recognised that the particular entries referred to that particular correspondence and documents when presented with the invoices for payment. However, the significance of that correspondence and documents seems to me that, had Messrs Albarran and Pleash or their staff made further inquiry, by reasons of those matters which could have been observed from the face of the invoices, to which I have referred above, they would readily have identified that the invoices in fact referred to that correspondence and documents.
178There are many examples where Mr Pleash accepted in cross-examination that, if the time entries referred to the correspondence which has been identified in respect of them, he would be concerned by the time charged for them. It is not necessary to multiply examples, but the point can be illustrated by a charge made on 16 March 2009 described as "email correspondence with [solicitor for Kossaifi family]" for which a charge corresponding to two units or 12 minutes was made. There are two further time records for email correspondence with the solicitors for the Kossaifi family on that date, each charged for two units or 12 minutes, and a further entry for email correspondence with the parties charged for three units or 18 minutes. The respective email correspondence with the solicitor for the Kossaifi family on that day involves, first, an email sent by that solicitor to Messrs Albarran's and Pleash's Former Solicitors which reads, in its entirety, as follows:
"[name of solicitor]
Thank you for your email/letter.
Assuming you are drafting the DOCA, I recommend you circulate the draft at an early stage so that the Directors have a period to finesse the terms.
I am happy to assist in the process wherever possible.
Kind regards".
The next email, possibly referable to the description of being sent to the parties, was sent by Messrs Albarran's and Pleash's former solicitors and reads as follows:
"I have been instructed to draft the DOCA and will put together a draft once one issue is answered, will the DOCA incorporate a shareholders agreement? If yes, then who is to prepare that. I can but happy for the shareholders to do their own and I will vet it for consistency with the DOCA."
A further email on the same day was also received from the Kossaifi's solicitors which read, in its entirety, as follows:
"From our view point it is essential that you incorporate the shareholder's agreement in any DOCA.
Thanks."
179A further email on the same day was described as email correspondence with Dennis Georgiou, and a time entry of 4 units or 24 minutes was recorded. That email was sent by Mr Georgiou and reads as follows, in its entirety:
"It is our understanding that there will not be any further agreement other than the details outlined in the DOCA provided to Hall Chadwick.
It is the Elias' intent to not add to the costs and see no additional benefit to a Shareholders' Agreement."
180I will not further multiply examples of time entries and emails of this character, although many were put to Mr Pleash in the course of his cross-examination. Mr Pleash was correct to promptly concede that, had he been aware of the times claimed for these emails, he would be concerned about that matter. It seems to me that he would have become aware of that matter, had inquiry been made either because of the multiplicity of claims for two units or 12 minutes of time in the time records, or because the descriptions correspondence in the time records were not sufficient to allow Messrs Albarran and Pleash to identify the work done without reference to the substance of the correspondence or further inquiry of the solicitors. Mr Pleash's evidence was that he could not recall whether he had made inquiries with the staff or the solicitors in respect of their invoices (T228). I infer that he had not done so, since such inquiries, if made, would likely have indicated the difficulties to which I have referred, and because there are no records of such inquiries in Messrs Albarran's and Pleash's time records.
181Mr Smith submitted that there were just over 1,300 charges of two units or 12 minutes in the bills of the solicitors formerly acting for Mr Albarran and Pleash - a matter which is itself striking where, on Mr Pleash's evidence, there are one or two attendances charged at less than that time - and that, if every one of those instances was double charged, the amount involved would be in the order of $30,000. That amount is, of course, by no means a small amount in absolute terms, and the amount involved would be increased if some of those attendances involved communications which would not have warranted a 6 minute charge. It seems to me that the deed administrators or the Court could not properly be unconcerned if creditors and contributories had improperly been required to bear costs of that amount.
182The Plaintiffs also plead that Messrs Albarran's and Pleash's former solicitors made itemised charges for contact with Messrs Albarran and Pleash or their employees and representatives that did not reflect corresponding attendances recorded by them. There are some significant discrepancies in respect of the attendances recorded by the solicitor and those recorded by Messrs Albarran and Pleash and their staff. Mr Pleash was unable to offer any explanation of the fact that the solicitors charged nearly 50 minutes of time for a telephone conversation with Mr Albarran on 20 June 2009 which was not recorded in Mr Albarran's time sheet (T238). Mr Albarran also did not offer any explanation of that matter since he did not give evidence. The former solicitors also charged for a conference of 1 hour with Mr Pleash on 11 August 2009 (Ex P5, p 44), whereas Mr Pleash does not appear to record a corresponding attendance (Ex P1, 3/947-948). Had further inquiry been made in respect of the invoices, Messrs Albarran and Pleash might well have also recognised the occasions where that they had been charged (for not less than 12 minutes) for telephone calls, conferences or meetings which they have not recorded in their own time records.
183The conclusions that I have reached in respect of this matter are reinforced by the fact that Messrs Albarran and Pleash did not call Mr Albarran or the principal of their former solicitors or any of its employees to address the issues that had been squarely raised by the Plaintiffs in respect of the review of the former solicitor's invoices. In these circumstances, I should infer that no evidence which could have been led by Mr Albarran or the former solicitors would assist them, and I should more readily draw the inference that the former solicitors' invoices called for further inquiry that was not made.
184I am satisfied, for the purposes of s 447E of the Corporations Act, that Messrs Albarran and Pleash have managed the Company's business in a way that is prejudicial to the interests of its creditors or members, or have made an omission that is prejudicial, by reason of their failure to undertake appropriate review of the invoices which they had received from their former solicitors, and thereby to supervise the work undertaken by those former solicitors. I am also satisfied that the matter is of significance, given the extent of the potential issues arising on the face of the former solicitors' invoices and the extent of the deficiency in the deed administration, and that the Court should properly make an order under that section to seek to address the issue. I will return to the relief that may be ordered in respect of this matter below.
Third party payment
185The Plaintiffs also challenge a payment to Shalton Investments Pty Ltd ("Shalton Investments"), a firm associated with Mr Oliver Trajcevski, to provide services in regard to the Company, on the basis that there was no written agreement for the provision of such services; Mr Trajcevski did not give any written advice or other apparent work product; and he rendered a tax invoice for $16,855.91 that was paid from the Company's funds. Messrs Albarran and Pleash admit to retaining Mr Trajcevski on or about 25 February 2009 to provide "services" to them although they do not disclose the substance of those services in their Defence.
186The Company paid an invoice dated 27 May 2009 rendered by Shalton Investments for $16,855.91 inclusive of GST (Ex P3, 692) for services rendered by Shalton Consulting, an entity associated with Mr Trajcevski. The invoice was addressed to Mr Albarran, who, as noted above, did not give evidence, and described work undertaken between 25 February 2009 and 27 May 2009 as follows:
"Professional services with regards to the VA, investigation, Deed of company arrangement and general correspondence (60.5 hours at $250 ph)".
The amount referable to those professional services was $15,125 and there was also a reference to disbursements (not further identified) of $198.55. The description of the services rendered in that invoice was, at best, unilluminating.
187On 24 August 2009, the Kossaifi family's then solicitors wrote to Messrs Albarran's and Pleash's then solicitors requesting information about the payment to Shalton Investments and Messrs Albarran's and Pleash's then solicitors responded by letter dated 9 September 2009 (Ex P3, 3) enclosing the relevant invoice and advising:
"The services provided by Shalton Consulting were in conjunction with and complimentary to the work of the Voluntary Administrators to enable the Voluntary Administrators to comply with their obligation pursuant to Part 5.3A Corporations Act 2001".
That description, on its own or combined with the description in the invoice, seems to me to convey no useful information as to what Shalton Consulting had actually done. A subpoena to produce documents was subsequently issued the request of the Plaintiffs to Shalton Consulting, which produced a substantial quantity of material which had been briefed to that entity by Messrs Albarran and Pleash and no working papers, analysis, report or memorandum of advice prepared by that entity or provided by it to Messrs Albarran and Pleash.
188The Plaintiffs caused the issue of a subpoena to Mr Trajcevski to give evidence in the proceedings but neither party called him to give evidence. Mr Albarran did not give evidence and Mr Pleash did not refer to the retainer of Shalton Consulting in his affidavit evidence. His evidence in cross-examination was that he had signed the cheque to Shalton Investments because he was informed that Mr Albarran was out of the office and had requested that he sign it (T270). Mr Cook gave evidence of a conversation with Mr Albarran, which was the subject of a limiting order under s 136 of the Evidence Act 1995 (NSW) so that it was proof of the conversation and not proof of the asserted facts, in which Mr Cook had advised Mr Albarran that Mr Kossaifi was pressing for Mr Elias' claims to be investigated through the administration and Mr Albarran indicated he would ring Mr Trajcevski and "see if he can help us out on this" (Cook 14.3.14 [143]). He gives evidence of meeting Mr Trajcevski with Mr Albarran on or about 25 February 2009 (in a conversation also subject of a limiting order under s 136 of the Evidence Act, so that it was not proof of the asserted facts) in which Mr Albarran said that Mr Trajcevski had previously done some "tricky financial analysis" for the firm and had experience in relation to property development, asset realisation and distribution and "may be able to assist consider [sic] the implication of the directors' proposal for distribution of the units" (Cook 14.3.14 [146]). Mr Cook's affidavit annexes further correspondence with Mr Trajcevski and materials provided to him for review. He does not, however, give evidence of what Mr Trajcevski did or of having received any substantive advice from him.
189Mr Singh's evidence is that he did not attend any meeting regarding the engagement of Mr Trajcevski and Mr Cook and Messrs Albarran and Pleash would be in charge of any decision to retain an external third party for an administration (Singh 14.3.14 [88]-[89]). His evidence was that he did not question Mr Trajcevski's invoice because it was not uncommon for the appointees or managers to arrange for a third party to provide expert skills and he was not always involved in all decision-making in respect of a matter, and the invoice did not seem unreasonable to him given the volume of documents provided to Mr Trajcevski (Singh 14.3.14 [96]).
190The Plaintiffs submit, and I accept, that the payment to Shalton Consulting was not an insignificant amount. The Plaintiffs point out, with justification, that if services were provided for the Company's benefit, it remains a mystery as to what they were and what benefit was obtained from them. In their opening written submissions, Messrs Albarran and Pleash noted that they accepted that, as the Plaintiffs submitted, the invoice from Shalton Investments was not "petty cash" and otherwise responded that:
"Firstly, in circumstances where there was departure by the Plaintiffs and the Kossaifis from their respective representations to provide a proposal for a DOCA in a timely fashion, it was appropriate for [Mr Albarran] to engage a third party to assist with the administration process, where the already strict time for compliance had been further compacted.
Secondly, the Court is invited to conclude that Trajcevski who received not only correspondence from the [Defendants] but also representatives of the Plaintiffs read and considered the material provided to him."
191Messrs Albarran's and Pleash's submission has the difficulty that, where neither Mr Albarran nor Mr Trajcevski gave evidence, there is no evidence that his role was in fact to "assist the administration process" or that he in fact did so. The premise of this submission as to the services that were commissioned by Mr Albarran or provided by Mr Trajcevski has not been established by evidence of those who would have the relevant knowledge of any work that was in fact done. It seems to me that the Court should infer that no evidence which Mr Albarran could have led as to this matter would have assisted in justifying the relevant payment and more readily draw the inference which the Plaintiffs seek to have drawn that the payment was unjustified.
192In my view, a proper basis has been established for an order that Messrs Albarran and Pleash should repay the amount of the payment to Shalton Investments to the Company, leaving them to any rights that they may in turn have against Shalton Investments.
Application for accounting and compensation
193The Plaintiffs initially sought orders that Messrs Albarran and Pleash pay the creditors identified in the Company's accounts; that there be an account given by Messrs Albarran and Pleash to the Company; damages or equitable damages; or such further order as the Court sees fit in relation to the administration of the Company. The Plaintiffs also sought an order terminating the appointment of Messrs Albarran and Pleash and appointing alternative administrators and an order that Messrs Albarran and Pleash obtain an assessment of the legal costs of their former solicitors. The Plaintiffs refined the relief sought, in their written outline of opening submissions, to seek the removal and replacement of Messrs Albarran and Pleash as deed administrators of the Company; an account by Messrs Albarran and Pleash to the Company; and the payment of compensation by them to the Company. In closing submissions, the Plaintiffs submitted that Messrs Albarran and Pleash should be required to account to the Company on the wilful default basis for all expenses paid (T334) or alternatively should be required to compensate the Company, on the basis that the fees properly charged by their former solicitors were the amount of $127,000 plus GST as estimated by Mr Woodward. Messrs Albarran and Pleash submitted that the only relief claimed by the Plaintiffs, and open to them in these proceedings, was relief directed to the legal fees charged by their former solicitors and the amount paid in the Shalton Consulting invoice, and that it was not open to the Plaintiffs to seek wider orders in respect of all expenses incurred by Messrs Albarran and Pleash. I accept that APOC did not raise any challenge to those wider expenses.
194I consider that relief is warranted in respect of the payments made by Messrs Albarran and Pleash of invoices rendered by their former solicitors. In Honest Remark Pty Ltd v Allstate Explorations NL above, Brereton J found that the jurisdiction under s 447E of the Corporations Act was not established where the applicant did not allege conduct which was prejudicial to creditors or members as a matter of fact, as distinct from a possibility of such conduct. The present case is not of that nature, so far as the Plaintiffs have alleged, and established, that the failure to review the relevant invoices was prejudicial to creditors, at least so far as it deprived the Company, creditors and contributories of proper supervision of legal costs being incurred by the Company, or funded from monies which would otherwise be available for distribution to creditors or contributories. His Honour also noted that a nexus between the order sought and the relevant conduct must be established. In the present case, such a nexus is established, to the extent that any order is directed to address costs which have been paid without such review.
195It seems to me that the breadth of the Court's powers is sufficient, in principle, to make orders tailored to the difficulties that have arisen from the nature of the invoices rendered by Messrs Albarran's and Pleash's former solicitors and the failure of Messrs Albarran and Pleash to review them. However, there is no particularly satisfactory means of achieving the result that the Company, the creditors and contributories are placed in the position they would have been had the deed administrators adequately reviewed their former solicitors' invoices when they were received. Any approach that is now adopted involves a risk the Company, creditors and contributories will not properly be compensated for payments which should not have been made to the former solicitors, or the deed administrators will be left (subject to any recourse to the former solicitors) to repay costs that were properly paid at the relevant time, but which they are unable to justify several years later. However, it must be recognised that the latter risk arises from the deed administrators' failure to adequately review those invoices as they were received, and it seems to me preferable, in that situation, that they should be left to bear that risk rather than the Company, its creditors and its contributories be left uncompensated for amounts which should not properly have been paid out.
196The approach I will adopt has something in common with an accounting by a trustee, on a wilful default basis, in that it seems to me the difficulty which has arisen cannot be addressed unless Messrs Albarran and Pleash are required to justify the charges of their former solicitors which they have approved for payment. In particular, the Plaintiffs cannot fairly be required to falsify those charges, particularly where they do not have access to all of the attendances by reason of claims of legal professional privilege by Messrs Albarran and Pleash. That process of justification, by Messrs Albarran and Pleash, seems to me to be the closest substitute that can now be achieved for a process of adequate review of the invoices by them as they were received and paid. A broadly similar approach has been adopted in cases where liquidators have been found to have paid themselves for work done without adequate justification: for example, Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137 at [189], [624]-[628]; Australian Securities and Investments Commission v Dunner [2013] FCA 872; (2013) 95 ACSR 76 at [239]. Messrs Albarran and Pleash point out that no claim for an accounting on the basis of wilful default was pleaded; however, it seems to me that the Court has power, under s 447E of the Corporations Act, to shape an appropriate remedy, and Messrs Albarran and Pleash have been afforded procedural fairness in respect of that remedy so far as it was addressed in the course of submissions and they will have the opportunity to lead further evidence in order to justify the relevant costs.
197Messrs Albarran and Pleash should therefore be allowed a further opportunity to lead evidence to justify the legal costs that they have paid and, to the extent that such costs are not then justified by evidence, they should be ordered to repay such costs to the Company and be left to such rights as they have as against their former solicitors. I will hear the parties as to the orders that need to be implemented for that process and as to whether it should be referred to a referee. I should add that it seems to me that Messrs Albarran and Pleash would face a significant conflict between the Company's interests and their duty to it on the one hand and their personal interests on the other in respect of any claim to indemnity from the Company's assets in respect of that process, where the need for it arguably results from their failure adequately to review invoices for legal services which they have paid: compare ASIC v Dunner above at [239]. That conflict is relevant to the question whether they should be removed as deed administrators to which I now turn.
Removal of deed administrators
198I have also considered whether this aspect of the Plaintiffs' claim might itself have warranted an order for the removal of Messrs Albarran and Pleash as deed administrators. The Plaintiffs filed a consent to act as joint and several deed administrators, or alternatively as official liquidators or joint and several provisional liquidators, by Messrs Godfrey and Iannuzzi. Mr Marshall properly accepted, in the course of oral submissions, that there would be a difficulty with my appointing liquidators at this stage, so far as the other contributories had not had an opportunity to be heard as to that course.
199Mr Marshall pointed out that no inquiry had been made by Messrs Albarran and Pleash in respect of the costs incurred by their former solicitors, notwithstanding the complaints previously made by the Plaintiffs and referred to the cross-examination of Mr Cook (T310, 321) and Mr Pleash (T228) in that regard. The Plaintiffs point out that, as early as 17 May 2009, the solicitors for the Elias family had raised concerns with the former solicitors for Messrs Albarran and Pleash about the costs being incurred by those solicitors. There is no evidence that Messrs Albarran and Pleash made any adequate attempt, either themselves or by their staff, to assess the validity of those concerns. I also find it troubling that, even when placed on notice of the allegations made in these proceedings, Messrs Albarran and Pleash did not themselves (so far as the evidence goes) consider it necessary to undertake any critical review of their former solicitors' invoices to assess the validity of the complaints about their charges. The Defendants would also now face an actual or potential conflict of interest in investigating this matter, where the difficulties that now exist have at least partly resulted from the failure of their system for ongoing review of their former solicitors' invoices.
200I raised with the parties, in closing submissions, whether the circumstances of this matter were alternatively such as to warrant the replacement of the deed administrators, by reason of the breakdown in their relationship with the contributories, and for the better advantage of the administration. In an appropriate case, the Court may remove a liquidator or administrator and appoint another liquidator or administrator on that basis, notwithstanding that no misconduct on the part of that liquidator or administrator has been established: SingTel Optus Pty Ltd v Weston [2012] NSWSC 674; (2012) 90 ACSR 225 at [155]-[162]; Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) [2012] FCA 615; (2012) 90 ACSR 177 at [26]; Re Metal Storm Ltd (subject to deed of company arrangement) [2014] NSWSC 813 at [91]. The relevant principle is to be applied by reference to whether it would be for the better conduct of the administration, or for the general advantage of those interested in the assets of the relevant company, that the administrator be removed.
201The Plaintiffs submit that the Court at least has power to remove Messrs Albarran and Pleash by reference to those principles, by the exercise of its powers under s 447A of the Corporations Act. In supplementary submissions as to that issue, the Plaintiffs sought to support such a removal by reference to their substantive complaints, in respect of the expenditures incurred in the course of the administration and deed administration, the requirement for a general release, and the failure to finalise the DOCA. I have addressed those matters above. The Plaintiffs submit that, by reason of those matters, it is for the better conduct of the administration and the general advantage of those interested in the Company's assets that the Deed Administrators should be removed.
202Messrs Albarran and Pleash point that the Court's express power to remove a deed administrator under s 449B of the Corporations Act cannot be invoked by a contributory. Messrs Albarran and Pleash raised the possibility that a conferral of standing on specific persons under s 449B of the Corporations Act impliedly confines the Court's power to "make such order as it thinks just" if the criteria in s 447E of the Corporations Act are satisfied. It does not seem to me that the express powers conferred by s 447E of the Corporations Act, and the wider power conferred by s 447A of the Corporations Act, are confined in that manner. There seems to me to be no reason, as a matter of statutory construction or of policy, not to read those sections as operating in parallel, conferring alternative bases of jurisdiction in the Court, rather than to read the wider powers conferred on the Court under s 447A and 447E of the Corporations Act as confined by the narrowest of those powers conferred under s 449B of the Corporations Act. In any event, little turns on that matter, where Messrs Albarran and Pleash accept that Mr Elias is in any event a creditor of the Company and has standing to apply for an order under s 449B of the Corporations Act that they be removed.
203In SingTel Optus Pty Ltd v Weston above at [165], Bergin CJ in Eq referred to the observation of Neuberger J (as his Lordship then was) in AMP Music Box Enterprises v Hoffman [2002] BCC 996 that the replacement of a liquidator (and, by extension, an administrator) will typically have undesirable consequences in terms of costs and delay and her Honour recognised that the length of time that a liquidator had been in office and the nature of his or her obligations were relevant factors to whether he or she should be removed. The Court must also be conscious, as Jessup J observed in Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (in liq) above at [42], that such applications should not be an avenue for persons interested in a liquidation or administration to have, as a matter of reality or as a matter of appearance, persons of their choice appointed as liquidator or administrator. Messrs Albarran and Pleash note that that issue is particularly significant where there is a real risk that the Elias family and the Kossaifi family will be pursued under a guarantee contained in the DOCA for any shortfall in funds in the deed fund, although that may depend upon the outcome of the review of the legal costs incurred by the deed administrators consequential upon my judgment.
204Messrs Albarran and Pleash also put detailed submissions as to the steps which remain to complete the administration, including the payment of an interim dividend of 95¢ in the dollar to creditors which have not been subordinated (the Australian Tax Office, ASIC and Mr Elias, including his claim for amounts previously paid out to trade creditors), funded by monies presently held in the deed fund and the sale proceeds of lot 12, and indicate that they propose partially to waive their entitlement to be paid from the deed fund in priority to creditors to pay that interim distribution. They also submit, with substantial force, that:
"... Having regard to the effluxion of time since the DOCA began, the limited tasks to be completed to finalise the DOCA and the real risk of a newly appointed deed administrator incurring substantial costs in coming to terms with the events that have transpired in the conduct of the DOCA of the [Company] and any future proceedings, the Court ought readily conclude that the removal of [Messrs Albarran and Pleash] as deed administrators of the [Company] will not result in the better conduct of the administration of the [Company] and will not give effect to the purpose of Part 5.3A Corporations Act 2001."
205I have ultimately concluded that, where the deed administration seems close to completion, the preferable course, subject to one qualification, would not be to take the course of removing Messrs Albarran and Pleash as deed administrators. It seems to me that the appointment of replacement deed administrators would impose significant costs on the administration. The qualification to that conclusion is that, if Messrs Albarran and Pleash remain in office, they need to address the conflict of interest and duty which they face in respect of any claim to indemnity from the Company's assets against the costs of the justification process required by paragraphs 196-197 above, the need for which arguably results from their failure adequately to review the invoices of their former solicitors before using the Company's assets to pay them. That issue could potentially be addressed by their undertaking not to exercise such a right of indemnity without first obtaining a direction or order from the Court that they would be justified in doing so. Further steps would need to be taken if that issue is not addressed.
206I also considered whether a special purpose administrator should be appointed to address the question of legal costs. The question whether a special purpose administrator could be appointed to investigate conduct of the existing administrator, in the course of an administration under a deed of company arrangement, was considered in Honest Remark Pty Ltd v Allstate Explorations NL above. Brereton J there held (at [72]) that an order appointing a special purpose administrator was not available, including under s 447A of the Corporations Act to appoint a person to investigate the conduct of a deed administrator, because such an investigation was not part of a voluntary administration or of a deed administration or a matter entrusted to an administrator or deed administrator, and the relevant orders would not vary or modify how Part 5.3A operated in relation to the relevant company. It seems to me that, for that reason, s 447A of the Corporations Act does not here authorise the appointment of a special purpose administrator to investigate the legal costs paid out by Messrs Albarran and Pleash. Even if the power to make such an appointment had been available, it does not seem to me that it would have been warranted in the exercise of the Court's discretion, since the costs of that appointment were likely to be disproportionate in an administration in which the Company's assets may already be less than its liabilities, even if some recovery of the legal costs paid out is made from Messrs Albarran and Pleash.
Orders and costs of these proceedings
207The parties should bring in short minutes of order to give effect to this judgment, which will need to address any steps that Messrs Albarran and Pleash propose to take to address the conflict arising in any exercise of a right of indemnity in respect of the process noted in paragraph 196 above.
208The Plaintiffs sought an order that Messrs Albarran and Pleash not be entitled to an indemnity for their remuneration from the Company for the work done in the defence of these proceedings, or for the costs of instructing solicitors, and also claimed their costs of the proceedings. Mr Smith accepted in oral submissions that it would be difficult to resist the suggestion that the Court's jurisdiction under s 447E of the Corporations Act extended to making orders about the extent of costs orders to be met by an administrator in proceedings and whether the administrator would be entitled to an indemnity out of the estate to meet any costs orders made against them (T350). He submitted, however, that that question should be addressed at the time of determination of the proceedings. I will hear the parties further as to these matters, which will need to be determined in the context of the mixed result in this judgment.