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In the matter of Le Meilleur Pty Ltd (subject to Deed of Company Arrangement); Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) & Ors v Jin Heung Mutual Savings Bank Co Ltd & Anor - [2011] NSWSC 1115 - NSWSC 2011 case summary — Zoe
In the matter of Le Meilleur Pty Ltd (subject to Deed of Company Arrangement); Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) & Ors v Jin Heung Mutual Savings Bank Co Ltd & Anor
City of Swan v Lehman Bros Australia Ltd [2009] FCAFC 130; (2009) 179 FCR 243
Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) [1999] NSWSC 991; (1999) 32 ACSR 701
Commercial & General Acceptance Corporation Ltd v Nixon [1981] HCA 70; (1981) 152 CLR 491
Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738
Debis Financial Services (Aust) Pty Ltd v Allied Bellambi Collieries Pty Ltd [1999] NSWSC 935; (1999) 17 ACLC 1636
Deputy Commissioner of Taxation v Comcorp Australia (1996) 21 ACSR 590
Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43
Ernest v Loma Gold Mines Ltd [1897] 1 Ch 1
Essex Securities Pty Ltd v Lunt [2006] WASC 58
Film Bars Pty Limited v Pacific Film Laboratories Pty Limited (1979) 1 BPR 9251
Forsyth v Blundell (1973) 129 CLR 477
G and M v Armellin [2008] ACTSC 68; (2008) 219 FLR 359
Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd [2001] NSWCA 93; (2001) 38 ACSR 282
Greek Orthodox Community of Oakleigh and District Inc v Pizzey Noble Pty Ltd (admin apptd) (1997) 23 ACSR 274
H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694; 1 All ER 934
Hagenvale Pty Ltd v Depela Pty Ltd & Serrada Holdings Pty Ltd (1995) 17 ACSR 139
Hamilton and Fiorentino as Administrators of Kisoro Pty Ltd v National Australia Bank Ltd (1996) 66 FCR 12
Idoport Pty Limited & anor v National Australia Bank Ltd & 8 ors (15) [2000] NSWSC 1215
Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327
Jiriwa Pty Ltd v Primary Industry Bank of Australia Ltd [2000] NSWSC 1094
Jones v Dunkel (1959) 101 CLR 298
Khouri v National Australia Bank Ltd [2007] NSWSC 987
Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509
Mailman v Challenge Bank Ltd (1991) 5 BPR 11721
Matrix Film Investment One Pty Ltd & ors v Alameda Films LLC and Warner Bros Entertainment and Pictures Inc [2007] NSWSC 523
McFadden v Snow (1952) 69 WN (NSW) 8
McVeigh v Linen House Pty Ltd & Rugs Galore Australia Pty Ltd [2000] VSCA 4; (2001) 1 VR 31
Meadow Springs Fairway Resort Ltd (in liq) (ACN 084 358 592) v Balanced Securities Ltd (ACN 083 512 685) (No 2) [2008] FCA 471; (2008) 65 ACSR 563
Mentha v GE Capital Ltd (1997) 27 ACSR 696
National Commercial Banking Corporation of Australia Ltd v Solanowski (1984) NSW ConvR 55-194
New Beach Apartments Pty Ltd v Epic Hotels [2007] NSWSC 474
No 5 Lorac Avenue Pty Ltd v Brooke (1995) 16 ACSR 247
Nominal Defendant v Gabriel [2007] NSWCA 52; (2007) 71 NSWLR 150
Palk v Mortgage Services Funding Plc [1993] Ch 330; 2 All ER 481
Pioneer Park Pty Limited (in liquidation) v ANZ Banking Group Limited & ors [2005] NSWSC 832
Pitcher v Langford (1991) 23 NSWLR 142
Port of Melbourne Authority v Anshun Pty Limited [1981] HCA 45; (1981) 147 CLR 589
Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376
Re ARV Aviation Ltd [1989] BCLC 664
Re Brashs Pty Ltd (1994) 15 ACSR 477
Re Capitol Films Ltd [2010] EWHC 3223 (Ch)
Re Euco Ltd (in liq); Forrest Nursery Pty Ltd v Lopez (2006) 233 ALR 422
Re Kruger Engineering Pty Ltd [2006] NSWSC 1063; (2006) 60 ACSR 191
Re Ricon Constructions Pty Ltd (in liq) (1997) 43 NSWLR 174; 26 ACSR 655
Re Vanfox Pty Ltd [1995] 2 Qd R 445; (1994) 13 ACSR 209
Re Vouris; EPromotions Australia Pty Ltd v Relectronic - Remech Pty Ltd (in liq) [2003] NSWSC 702; (2003) 47 ACSR 155
Re Universal Distributing Co Ltd (1933) 48 CLR 171
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567; 75 ALR 601
Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477
Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660
Sasson & Partners Pty Ltd v Fahevu Pty Ltd [1999] NSWCA 400
SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816
Spendright Pty Ltd v Classfact Pty Ltd [2009] NSWSC 317
State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146
Westpac Banking Corporation Ltd v Kingsland (1991) 26 NSWLR 700
Woolley v Colman (1882) 21 Ch D 169
Texts Cited: Fisher & Lightwood, Law of Mortgage (13th edn)
Ford's Principles of Corporations Law (online edn)
Heydon, Cross on Evidence (online edn)
Odgers, Uniform Evidence Law (7th edn)
Ritchie's Uniform Civil Procedure Rules
Category: Principal judgment
Parties: Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) (First Plaintiff)
Kenneth Michael Whittingham (Second Plaintiff)
Atle Crowe-Maxwell (Third Plaintiff)
Jin Heung Mutual Savings Bank Co Ltd (First Defendant)
NH Capital Co Ltd (Second Defendant)
Port Stephens Council (Intervening Creditor)
Greg Ramsey (Intervening Creditor)
Chief Commissioner of State Revenue (Intervening Creditor)
Community Association of DP 270021 (Intervening Creditor)
Representation: Counsel
S Golledge (20,21,27 April, 3 May, 17 June 2011)/P Russell (28 April 2011) (Plaintiffs) (and for Port Stephens Council as intervening creditor 17 June 2011)
D Pritchard SC with J King (First Defendant) (and mention for Mr Greg Ramsey as intervening creditor 17 June 2011)
No appearance for second defendant
A Iluniono (Office of State Revenue as intervening creditor - 17 June 2011)
Ms V McWilliam (Community Association as intervening creditor - 17 June 2011)
Solicitors
Blake Dawson (Plaintiffs)
Sojong Lawyers Pty Ltd (First Defendant)
Champion Legal (Chief Commissioner of State Revenue)(Intervening Creditor)
Gadens Lawyers (Community Association of DP 270021)(Intervening Creditor)
File Number(s): 11/033912
[2]
Judgment
1HER HONOUR : These proceedings were commenced by originating process filed on 2 February 2011. The plaintiffs seek relief in relation to the proposed sale of the Horizons Le Meilleur golf course and resort at Salamander Bay, Port Stephens. The first plaintiff (Le Meilleur) is the registered proprietor of the golf course and resort. The second and third plaintiffs are the persons appointed first as the voluntary administrators and then as deed administrators of Le Meilleur, which was placed in voluntary administration by resolution of its directors in late June 2010. A deed of company arrangement was executed by the deed administrators on 18 August 2010. The deed administrators have, since then, entered into contracts for the sale of both the golf course land and the business of Le Meilleur (i.e. the business operating the golf club at the course) to a third party (Brett Lawton Investments Pty Ltd as trustee for the Brett Lawton Super Fund), an entity associated with Mr Brett Lawton, the golf professional who is currently operating the golf course business under licence from the deed administrators.
2The first and second defendants (Jin Heung Mutual Savings Bank Co Ltd and NH Capital Co Ltd, respectively) are banks operating in South Korea. Each holds a registered mortgage over the golf course land (but no security over Le Meilleur itself or its business) to secure borrowings by Le Meilleur's Korean parent company (Le Meilleur Constructions Co Ltd, to which I will refer in these reasons simply as the Korean parent company in order to avoid confusion between the two "Le Meilleur" entities).
3There was no appearance by NH Capital at the hearing or during the course of the proceedings. On 31 March 2011, orders were made granting leave to the plaintiffs to proceed with their claims against NH Capital pursuant to Rule 11.4 of the Uniform Civil Procedure Rules 2005 (NSW).
4Neither Jin Heung nor NH Capital has provided the deed administrators with a discharge of its respective registered mortgage over the land (necessary to permit the sale of the golf course land to proceed). In this regard, it is noted by Counsel for the deed administrators (Mr Golledge) that, as neither defendant holds any security over the other assets of Le Meilleur, if the mortgagees were to be in a position to enforce their security they could sell only the golf course and not the business currently operated at the golf course.
5Broadly, what the plaintiffs seek to do in these proceedings is to compel Jin Heung to comply with the Deed of Company Arrangement dated 18 August 2010 which was executed following a creditors' vote taken at the second meeting of creditors held pursuant to s 439A of the Corporations Act 2001 (Cth) on 24 July 2010. (In the case of NH Capital there is no suggestion that it voted for the Deed of Company Arrangement at the Second Creditors' meeting.)
6In the alternative, an order is sought pursuant to s 442C(2)(c) of the Corporations Act (or in the exercise of the inherent power of the Court to direct a judicial sale of the property, if that inherent power survives or extends beyond that conferred by s 442C) granting the deed administrators leave to dispose of the property of Le Meilleur that is subject to the mortgages to the first and second defendants.
7It is submitted by Mr Golledge that Jin Heung agreed to the sale process and voted (by proxy) in favour of the Deed of Company Arrangement (knowing that by so doing it was consenting to the sale of the golf course land) and that it should not now be permitted to resile from that position where to do so would cause substantial prejudice to unsecured creditors, the deed administrators (who it is said have incurred substantial liabilities in relation to the administration and, in particular, the operation of the golf course up until Mr Lawton took over the operation of the course) and Mr Lawton (the purchaser of the land under the contract for sale). It is submitted by Mr Golledge that adequate arrangements have been made in the interests of the secured creditors (for the purposes of the pre-condition for relief under s 442C) because they will obtain from the sale all that they could expect to receive if they were to appoint a receiver pursuant to their security. (As will be seen, however, in the case of both mortgagees it is likely that they will receive little, if anything, out of the sale. That is certainly the case with NH Capital.)
8Jin Heung's position is that it is not bound by the terms of the Deed of Company Arrangement. First, it says that the Deed is not a deed of company arrangement within the meaning of s 444B(6) of the Corporations Act (on the basis that it is said to encompass a proposal different from that which was put to creditors in the material forwarded prior to the meeting and to which the resolution passed at the meeting, in its terms, refers). Second, and in the alternative, Jin Heung claims it is not a creditor who voted in favour (within the meaning of s 444D(2)) of the resolution pursuant to which the Deed of Company Arrangement was executed. Third, it is said that Jin Heung gave its proxy (for the meeting at which the resolution to enter into a deed of company arrangement was passed) in reliance upon misrepresentations made by or on behalf of the deed administrators and/or Le Meilleur and therefore that it should be relieved of the burden of the Deed of Company Arrangement.
9The submission by the deed administrators that Jin Heung has resiled from a consent given in relation to the sale of the golf course land is disputed. Reliance is placed on the evidence of two of Jin Heung's officers (Messrs Youngdae Ryu and Kwanghee Yoon) and that of a director of both Le Meilleur and the Korean parent company (Mr Jong Shin Kang) to the effect that the position of Jin Heung has always been that the land could not be sold without its consent. This is disputed by the deed administrators who maintain that consent was given, subject at most to the qualification that the sale be at a reasonable price (and here, it is said, that is the case).
10Reference is also made to the evidence of one of the accountants in the administrators' office, Ms Christine Park (with whom most of the contact between the deed administrators and the Le Meilleur entities had taken place), to the effect that, to her knowledge, "Mr Kang never wanted the Australian company to sell anything". (It is said that there was no change of position even by the Korean parent company, in relation to a sale at least until a separate settlement was reached by the Korean parent company with the deed administrators on 3 September 2010, to which I will refer in due course).
11It is submitted by Senior Counsel for Jin Heung (Mr Pritchard SC) that the true characterisation of the position is that Messrs Ryu and Yoon saw the administrators as little more than local agents who were in a position to survey the market for a possible sale subject to their consent .
12Mr Pritchard notes that if Jin Heung is bound by the Deed of Company Arrangement then the application under s 442C does not arise (though I interpose to note that it would still remain for consideration in the case of NH Capital), but goes on to submit that if Jin Heung is held not to be bound by the Deed of Company Arrangement then leave should not be given to permit the disposal of the secured property, on the basis that the Court cannot be satisfied, within the meaning of s 442C(3), that arrangements have been made adequately to protect the interests of Jin Heung as registered mortgagee. In that regard, reference is made to the uncertainty as to what amounts are claimed by the deed administrators in respect of their expenses and fees and as to how any claim for remuneration is to be allocated as between the proceeds of sale of the land and of the business (in effect, as between secured and unsecured creditors); as well as to the complaints made as to the reasonableness of the sale price obtained for the land.
13By an interlocutory process filed on 9 March 2011, Jin Heung has cross-claimed for declaratory relief reflecting the position for which it contends (namely, a declaration that the Deed of Company Arrangement dated 18 August 2010 is not a deed of company arrangement within the meaning of s 444B(6) of the Act or, in the alternative, a declaration that Jin Heung is not bound by the Deed of Company Arrangement); alternatively, for orders that the Deed of Company Arrangement deed be terminated or that there be a declaration that it is wholly void (or that certain provisions of the Deed of Company Arrangement are void) or an order that Part 5.3 A of the Act is to operate in relation to Le Meilleur in such a way that s 444D(2)(a) does not operate in respect of the Deed of Company Arrangement; and, again in the alternative, an order that the deed administrators be restrained from giving effect to the sale.
14At the conclusion of the hearing before me on 3 May 2011, I was informed that notice of the present application had not (as had previously been thought by the parties) been given to creditors of Le Meilleur. An adjournment of the proceedings was granted to permit such notification to be given (it being accepted that parties whose interests might be adversely affected should be given an opportunity to be heard as to the relief now sought by the deed administrators - Re Ansett Australia Ltd and Mentha [2001] FCA 1806; (2001) 115 FCR 376 at [383] - [384] per Goldberg J).
15Such notice was duly given, following which four creditors filed interlocutory processes in the proceedings. Those creditors are, in no particular order, the Office State Revenue (which is both a secured creditor in relation to outstanding land tax and an unsecured creditor in relation to outstanding payroll tax, and which did not attend the meeting or vote in relation to the resolution to enter into the Deed of Company Arrangement), Port Stephens Council (a secured creditor in relation to outstanding Council rates, which did vote in favour of the Deed of Company Arrangement), the local Horizons Community Association (which is a secured creditor in relation to outstanding strata plan levies and which voted in favour of the Deed of Company Arrangement) and Mr Greg Ramsey, an unsecured creditor (who maintains he has at all times been sceptical of any payment being made under the Deed of Company Arrangement). Other than Mr Ramsey, the intervening creditors support the sale of the land and golf course to Mr Lawton and the grant of the relief sought by the deed administrators. Mr Ramsey (the only unsecured creditor, other than the Office of State Revenue to the extent of its payroll debt claim, to make any submissions on this issue) does not.
16At the conclusion of the adjourned hearing, an application was made on behalf of the deed administrators to amend the originating process in order to seek relief (if that be necessary having regard to the determination of the other issues in the proceedings) in relation to a claimed equitable lien or charge over the golf course land to secure their expenses incurred in the administration of Le Meilleur (including costs incurred by them in the operation of the golf course). The late amendment of the originating process (prompted, it would seem, by an observation in closing submissions by Mr Pritchard on 3 May 2011 as to any such claim potentially being the subject of an Anshun estoppel) was opposed by Jin Heung.
Issues
17The following issues arise for determination:
(i) In relation to the Deed of Company Arrangement dated 18 August 2010:
(a) whether it is a binding instrument within the meaning of s 444B(6) of the Corporations Act ;
(b) whether Jin Heung is bound by it (which requires a determination of the issue as to whether it voted by proxy for the Deed of Company Arrangement and whether any such vote was valid as a matter of law); and
(c) whether, if it is a binding instrument and Jin Heung is bound by it, the Deed of Company Arrangement or part thereof should be terminated or Jin Heung should be granted relief against the operation of some or all of its terms.
(ii) Whether orders should be made under s 442C of the Corporations Act or otherwise, compelling the two mortgagees to deliver discharges of mortgage so as to allow the existing contracts for sale to be completed.
(iii) Whether leave should be granted for the amendment of the plaintiffs' originating process in order to permit the deed administrators in these proceedings now to seek declaratory or other relief in relation to a claimed equitable charge over the golf course land.
Summary
18Mr Golledge premised his clients' claim on the following factual propositions, that he invited me to find on the facts before me:
that Jin Heung should be taken to have voted for the deed of company arrangement on 29 July 2010; (for the reasons set out below, even if Jin Heung's proxy responded affirmatively when the vote was called I do not accept that this was a valid vote on behalf of Jin Heung)
that at the 15 July 2010 meeting between the officers of Jin Heung and the Korean parent company's director (Mr Kang), Jin Heung consented to the proposal that the golf course land would be sold by the administrators; (I accept that this is established by the evidence - although, critically, I consider that Mr Ryu gave that consent on the basis of an understanding that the administrators would consult with Jin Heung in relation to the sale and that Jin Heung would retain the ability to refuse to consent to any particular sale if it was not satisfied as to the reasonableness of the price at which the land was to be sold - at T 240, Mr Ryu explained what he understood by a reasonable price in that regard as one to which both the secured creditor and the administrators agreed.)
that the present sale (to Mr Lawton) is at market value (and therefore not at an unreasonable price); (I agree that the present sale price falls within the market range for the golf course land; however, in considering whether the price could reasonably be seen by the first mortgagee, acting in good faith, as acceptable, account must in my view be taken not simply of where the sale price falls within the valuer's range but as to whether the administrators have explored fully the opportunity for a purchaser to be found at a higher price and as to the deductions proposed to be made from the sale price before any receipt by the first mortgagee of proceeds from the sale - in the circumstances I am not satisfied that the condition to which Mr Ryu was told Jin Heung's consent to the sale would be subject has been satisfied)
that Jin Heung was aware from shortly after 15 July 2010 that the administrators were proposing to put the golf course property on the market and that it also knew that the creditors' meeting had approved that course and the administrators were going about the business of selling the golf course land; (I accept that from 15 July 2010, Jin Heung was on notice of the proposal that the administrators would begin to commence the process of finding a purchaser for the golf course land and that, from at least November 2010, it was aware that the administrators were taking steps to undertake that sale process - but I do not accept that Jin Heung was advised of the result of the 29 July 2010 creditors' meeting until receipt of the letter dated 30 July 2010 but posted on 2 August 2010 by the administrators' solicitors or that it was aware until November of the steps, or some of the steps, that had been taken in relation to the sale process).
19For his part, Mr Pritchard submits that central to Jin Heung's case is the proposition that the bank only agreed to a proposal whereby the administrators were effectively acting in the place of Le Meilleur in order to explore a possible sale and that it did so understanding that it would be consulted in relation to any actual sale that the administrators proposed to enter (with an ability to withhold consent at that stage). I consider that the evidence establishes broadly that this was Mr Ryu's understanding, although I do not accept that it should be inferred that the understanding was formed on the basis of representations made on behalf of, or as agent for, the deed administrators.
20Unfortunately, it seems to me that the parties are in their current position on the one hand because of a series of assumptions made by the deed administrators as to the position of the first mortgagee in relation to its rights (largely engendered by what it was told by the Korean parent company) without direct confirmation from Jin Heung as to its understanding of the position and its willingness to forego those rights and, on the other hand, because of the reliance placed by Jin Heung on representations made by the Korean parent company as to the manner in which its position would be protected (that do not accord with the way in which the deed administrators considered they were entitled to proceed). The unfortunate aspect of this is the impact of that situation on the interests of third parties - namely, the other creditors and (to a lesser extent as I consider that his is a case of a knowing assumption of commercial risk) the proposed purchaser of the golf course.
21For the reasons set out below, I am of the view that:
(i)(a) the Deed of Company Arrangement is not a binding instrument within the meaning of s 444B(6) of the Corporations Act as it does not accord with the deed "proposal statement presented" to the meeting (i.e. the written proposal attached to the administrators' report) which was the subject of the resolution voted upon at the second creditors' meeting (notwithstanding that it broadly accords with the explanation of the effect of the deed proposal given by the deed administrator at the meeting) - the critical difference being whether the land was to be included in the proposed sale under the deed proposal.
(b) in any event, Jin Heung is not bound by the Deed of Company Arrangement, since the manner in which a vote was taken at the meeting (whether on the voices, as the minutes record, or by a show of hands, as one of the Community Association members recalled) precludes a finding that the holder of its proxy validly voted that proxy in favour of the Deed of Company Arrangement; and
(c) had I found both that the Deed was a binding instrument and that Jin Heung was bound by it (which on the findings above is not the case), I would have granted relief under s 445D or alternatively 445G of the Act to terminate the Deed on the basis that there was a material omission from the report forwarded to creditors' prior to the second meeting (as to what was to be the subject of the proposed sale and as to whether, or the basis on which, the first registered mortgagee was prepared to consent to a sale of the golf course land) or alternatively that there was sufficient doubt as to whether the Deed of Company Arrangement was entered into in accordance with the Act, so as to enliven a discretion to terminate the Deed (and that, in the circumstances, the discretionary considerations in favour of termination of the Deed outweighed those against its termination).
I consider that the evidence establishes that Jin Heung agreed on 15 July 2010 to give its consent to the proposed sale of the golf course land, and signed a proxy form to enable a vote in favour of the then proposed deed of company arrangement, in reliance on misrepresentations made by Mr Kang to the effect that Jin Heung would retain a right not to consent to a sale at least if that sale was at what Jin Heung considered to be an unreasonably low price in all the circumstances. While I do not accept that such a misrepresentation was made as agent for, or on behalf of, the deed administrators, it does mean (having regard to the deed proposal as explained to the creditors at the second creditors' meeting) that Jin Heung gave its proxy on a mistaken apprehension of the true position and I consider that it should be relieved from the effect thereof.
(ii) Had this second issue arisen, I would not have made orders under s 442C of the Corporations Act (or in the exercise of any inherent jurisdiction remaining in the Court), compelling Jin Heung to deliver a discharge of its mortgage so as to allow the existing contracts for sale to be completed, as I am not satisfied that arrangements have been made adequately to protect its position and I place weight, in this regard and in considering the exercise of any discretion had there been adequate protection for Jin Heung's position, on the sensitivity traditionally shown to the position of secured mortgagees. (NH Capital is, however, in a somewhat different position. I would have been inclined, had it been the only registered mortgagee not bound by the Deed, to have granted the relief sought under s 442C against it, as it seems clear that NH Capital will receive nothing in either event and it has not chosen to resist any such relief - nor is there anything to suggest that it was misled in the manner in which Jin Heung was misled as to the operation of the proposed deed.)
(iii) I refuse the application for leave to amend the originating process at this stage of the proceedings.
Background Facts
22As noted earlier, Le Meilleur is the registered proprietor of the Horizons golf course and resort, from which it has operated a golf course business since 2005.
23In January 2008, the Korean parent company obtained from Jin Heung a loan facility up to a maximum amount of AU$16,000,000 (that amount including the sum of 10,000,000,000 Korean Won, at the time equivalent to AU $11,875,779.35, advanced by the Korean parent company, together with interest due and payable under the facility). The loan agreement is dated 31 January 2008 and Le Meilleur is named therein as a co-borrower.
24Some weight was placed by Mr Golledge on the perceived lack of any direct benefit obtained by Le Meilleur out of the funds drawn down under the loan facility. Mr Kang, however, gave evidence that a sum of $6.5m was used to repay the $6.5m purchase price (T 150) and that the Korean parent company had provided funding of some AU$5m on improvements for the golf course (T 145) (although whether this cash came directly from the Jin Heung loan funds is not clear to me).
25The Jin Heung loan was secured, inter alia, by a personal guarantee from the chairman of the Korean parent company (Mr Kyung Tae Chung) and a first registered mortgage granted by the Korean parent company's wholly owned subsidiary (Le Meilleur) over the Horizons golf course and resort. (Indebtedness secured by the Jin Heung mortgage as at 28 July 2010 was in the order of $12.4 million and it is not suggested that this has been reduced.)
26Reliance is placed by Mr Golledge (as support for the proposition that the present arrangements should be regarded as adequate protection for the interests of Le Meilleur as secured creditor) on the fact that Jin Heung approved the initial loan application and made the loan advance to the Korean parent company after what is said to have been a very rudimentary due diligence process (insofar as it did not undertake any first-hand investigation of the golf course property, nor did it obtain any advice on Australian securities law, notwithstanding that this transaction constituted the first occasion when Jin Heung had advanced money on the basis of security over foreign based assets). The loan approval was based upon a valuation of the golf course that was by then already 10 years old and had not been updated. (Mr Ryu's explanation of this, however, was that the Australian company was not the borrower - it was only offering security - and that as far as the bank was concerned it was sufficient that it be satisfied that the Korean parent company was reasonably run, for it to accept the golf course land as part of the security for the loan - T 245.)
27In that regard, I am not persuaded that the test as to what amounts to adequate protection for the secured creditors' interests for the purposes of s 442C should necessarily be measured by reference to what those creditors may have considered adequate to protect their interests when the security first obtained (not least where, as is presently the case, it seems to be accepted that the secured creditor did not obtain any, or any detailed, legal advice as to its position as secured creditor at the time). A failure by the second creditor to act diligently in the protection of its own interests does not in my view mean that there is a lesser test of adequacy in relation to the protection required to be afforded to the secured creditor on the disposal of the property over which it holds security.
Entering into a Deed of Company Arrangement
Enter into sale of business.
55The minutes state that option 1 (explained on at least one version as allowing Le Meilleur to finalise the administration process should head office complete the sale of the Iraq investments and transfer funds to Le Meilleur) was agreed to be the most beneficial (based on the points listed in the minutes). Option 2 (the sale of business) was said to be not "a desired outcome as proposed company (to buy the business) has to transfer the sale consideration which is expected to [be] significant" (at CB 976 this was put as being "not viable as the head office does not have enough funds").
56A separate item on the minutes was headed "Obtaining Proxy". The minutes record that it was agreed that obtaining a proxy from "Bank in Korea" was very important and that Mr Hyun should obtain the proxy from Jin Heung "as soon as possible". The minutes also recorded that "The power of attorney accords rights to make a number of decisions concerning the administration on behalf of the Savings Bank [Jin Heung]". (Mr Pritchard submits that there can be no doubt that Mr Whittingham appreciated the importance of securing the mortgagees' proxy at that stage.)
57Ms Park says that before those minutes were sent (under cover of her email of 1 July 2010), to Mr Kang she read and agreed with them - T 121. Mr Whittingham, however, disputed the accuracy of the minutes (T 29.50) in that he did not accept that he would have given the advice there attributed to him as to the resignation of directors and he also said that the discussion of the options available would not have been as set out in items 1 and 2 (T 30.3ff).
58Mr Whittingham accepted that the options there identified (and discussed at the meeting) were, first, a deed of company arrangement (involving negotiation with creditors to settle on a discount amount and a "possible" sale of business) and, secondly, a sale of business. However, Mr Whittingham insisted that the reference to "transfer the sale consideration" in the explanation of option 2 meant "the business and the land go together" - T 31.27 (though this is by no means what his lawyers were outlining to the petitioning creditors at that stage - there talking separately about the Business and the Land though not discounting the possibility of a sale of the "Business/Land" in the future).
59Mr Pritchard notes that Mr Whittingham insisted that the business and the land were intermixed (T 41) and that references to "the business" included the land itself (even though he knew by early/mid June that the company (Le Meilleur) had no charge over its assets and business and was otherwise unencumbered (T 32.34) and knew that he needed to obtain the mortgagees' consent to any sale of the land (T 32.45; T 33.23)).
60Remarkably, even by the time of the hearing, Mr Whittingham said he did not distinguish between the land and the business (T33.28) (though forced to concede that there was a conceptual or theoretical difference between the two) and was not prepared to accept that any of the proposals in relation to the sale of the business did not also include the sale of the land.
61As at this point, however, it seems that the proposal under consideration by PKF (or at least that being described by Blake Dawson to creditors) was simply a restructuring proposal with the possibility of a sale of the "Business/Land" at a later time once the business had recovered.
1 July 2010
62By email on 1 July 2010, with which the 25 June meeting minutes were sent, Ms Park summarised the then current situation for Mr Kang and Mr Hyun (CB 974). She emphasised that it was important to obtain a proxy from the bank, which was the largest creditor (noting that creditors might vote against PKF's appointment because of possible conflicts of interest arising from the fact that PKF had been the company's accounting firm).
63The email referred to a "liquidation process called Deed of company arrangement" by which the company could be "recovered" or could be liquidated and its assets disposed of through negotiations with its creditors. It referred to the sale of the business (again, with no specific reference to any sale of the land). Ms Park also expressed the view that the nomination of a receiver by the bank was not a "good option" as "this will pit PKF against another institution appointed by the bank which we are not sure will act in our favour" and noted that the PKF partner "Ken" to whom she had spoken numerous times had "promised to do his best on Le Meilleur's side".
5 July 2010 proposal
64The first specific proposal for a sale of the land, as such, was in a letter dated 5 July 2010 from Blake Dawson to Jin Heung addressed to a Korean address (a separate letter in the same terms being sent addressed to NH Capital again at a Korean address). The letter was copied to a lawyer in Korea (Mr Jong Hyun Park) and, via a post office box address, to Sojong Lawyers, the Sydney solicitors who had acted for the banks in connection with the registration of their mortgages over the golf course) (CB 997). Those letters were received by the Sydney solicitors (on about 8 July 2010) and sent on to the Korean lawyer for the banks. However, Jin Heung denies receipt of the 5 July 2010 letter at or about that time and says it had no knowledge of any proposal for a deed of company arrangement (or a sale of the business including the land) at that time.
65Relevantly, the proposal there put by the administrators (it being expressly noted that Jun Heung's security did not extend to all of the assets of the company but was limited to its registered real property mortgages and hence that the only entity that could sell both the land and the business together as a package was the administrators) was a proposal that the administrators " Take steps to sell the business operated by the Company on the mortgaged lands together with the mortgaged lands and consult regularly with the Bank regarding the sale "; admit the bank for the full amount of its secured debt; and pay the bank its secured debt from the proceeds of sale of the mortgaged lands, in priority to unsecured debts but subject to the ordinary costs and expenses of the sale.
66Mr Whittingham seemed to read this letter as support for his contention that "business" included land. He said that, because he did not need the bank's consent to sell the business, the request for consent meant that "the business must inherently include the land" T 35.21.) Although it is conceivable that consent being sought from the bank at that stage could have related to the concern that the bank not move to appoint a receiver (to which reference had been made by Mr Kang in his earlier emails and was seemingly a matter of concern at that time) and hence a letter referring to consent in relation to the sale of the business would not necessarily require a reference to the land to be read into the letter, I accept that the Deed of Consent there referred to related to the sale of the land. However, the terms of the 5 July letter themselves tell against Mr Whittingham's contention that business included land, since the letter itself clearly distinguishes in terms between the land and the business operated on the land.
67Mr Whittingham accepted that the 5 July letter was written on his instructions (T 34). The letter noted that a Deed of Consent would be prepared if the proposal was accepted and that this would contain the above terms "and preserve the rights of the Bank to deal with its security". The Deed of Consent, it was said, would also provide that the reasonable costs of the administrators would be taken from the proceeds of any sale of the mortgaged property before there was a return to the bank.
68The letter referred to approaches said to have been made to the administrators in relation to a sale of the business and the mortgaged lands and said that the administrators were "poised to commence sale discussions subject to the Bank's approval". It concluded with the statement that the writers would be pleased to meet with the representatives of the bank by telephone conference or in person with local representatives (though no steps seem to have been taken on the part of the deed administrators to facilitate this - at least at this stage).
69As noted earlier, Jin Heung denies receipt of this letter. There was (not surprisingly, therefore) no response to that proposal before the first meeting of creditors the following day (and, indeed, by 26 July 2010, when Blake Dawson emailed Sojong Lawyers prior to the second creditors' meeting, it was clear that there had been no response and they were then trying to find a means of contacting the bank). When asked about this, Mr Whittingham maintained that his solicitors had tried to telephone the bank and that he had caused them "continually [to] chase the bank either directly or through the solicitors" (T 36) but was unable to point to any such communications at that stage (a call for any such communications being later answered by reference to two email communications on 26 and 27 July 2010 respectively - CB 1450/1452, in the first of which Blake Dawson acknowledged the advice received that morning from Mr Kwon that he was not presently instructed on behalf of either of the Korean banks).
If the contract price that our administrator proceeds with is unreasonably low, you may refuse to discharge the mortgage and suffer no loss. Accordingly, we seek your cooperation and provide proxy to let us appoint an administrator and sell the property at a higher price which is better than realizing the property through the Tax Office's procedures
99Mr Pritchard relies on this letter as demonstrating what was said and relied upon by Jin Heung in signing the proxy (and notes that it is consistent with the evidence of the bank's Korean lawyer (Mr Park) as to what Mr Ryu told him had occurred - namely that Le Meilleur had appointed an administrator and had an arrangement not to infringe on Jin Heung's rights).
100Mr Golledge emphasises that the 15 July letter did not say that Jin Heung would have 'control' of the sale nor did it say that Jin Heung could object to any sale that the administrator achieved (rather, it referred to a contract price that is unreasonably low). Mr Golledge further submits that Jin Heung has not been able to point to any documentary evidence (nor is it admitted by either Mr Whittingham or Ms Park) that Mr Kang or the Jin Heung bank officers ever discussed with the deed administrators this proposed caveat over the sale (i.e. that the bank would have a right of veto whether or not that be one limited to the circumstances in which a sale was at an unreasonably low price). It is submitted that this was something put to the bank by Mr Kang entirely at his own initiative. (To the extent that this suggests that other advice may have been conveyed by Mr Kang at the administrators' initiative then this would seemingly be contrary to the administrators' primary position that Mr Kang was not their agent.)
101No little weight is placed on the 15 July meeting by Mr Golledge because it is said (in response to the submissions made for Jin Heung regarding the alleged ambiguity of the final deed proposal), that no submission as to the ambiguity of what was there being proposed can be sustained having regard to the conversations between Mr Kang and Jin Heung's officers in which it was put to Jin Heung that if the deed proposal was approved the property would be sold. (Mr Golledge accepts that there is evidence that suggests there might be some precondition attached to a sale but says there can be no suggestion that there was any misapprehension by Jin Heung that what the bank was being asked as at 15 July to authorise was the sale of the property by the deed administrators. I accept that is the case. However, the imposition of the condition is a critical factor in that regard.)
102Further, as at 15 July 2010, there was no formulated deed proposal (since Mr Whittingham was at that stage still impressing upon Ms Park the urgency of obtaining one). Therefore, to the extent that it is suggested that the bank officers were giving their support for a deed proposal, this must be understood as giving approval to the course of action as then explained by Mr Kang. Mr Golledge submits that Messrs Ryu and Yoon must have appreciated that they were consenting to an arrangement whereby the deed administrators would be able to sell the land even if the amount produced would not pay in full the secured debt, (subject only perhaps to the proviso that the bank could object if that sale was at an unreasonably low price). However, it is not clear that the bank officers appreciated that this was the case. Mr Golledge also notes that in giving that consent the bank officers took no advice from any person with knowledge or experience of Australian insolvency law.
103Mr Kang's position at the relevant times seems to have been one whereby he was seeking to preserve the ability of the Korean parent company to retain the golf course land. I think an inference is open to be drawn that (to some extent at least) he was doing so by presenting to the deed administrators on the one hand and Jin Heung on the other hand whatever he thought would assist in achieving that objective.
104Mr Kang says he was told by Ms Park (and this is consistent with the tenor of the email communications at the outset) that "if the bank got involved in the voluntary administration, once it become aware of it she won't be able to help us any more" (at T 160.22). He also said that "we were concerned about matter of getting bank approval because they were in middle of workout arrangement", something that may explain why Jin Heung was not approached by Mr Kang at an earlier stage (and may be the real explanation for the question as to whether it was possible for the bank to know about the process - i.e., Mr Kang might well have been attempting to find out how much or how little he could assume the bank would actually be told rather than seeking to facilitate full communication with the bank).
105Mr Kang claims that Ms Park told him that the administrator could not sell the golf course unless the bank consented and said that this was important to Le Meilleur. (Mr Golledge pointed to a lack of email communications in which any such issue was raised but the mode of advice in general seems to have been relatively informal and Mr Kang seems to have relied on the immediacy of telephone communication - on the basis that he could not always get an immediate response by email).
106Mr Kang also says that Ms Park told him prior to the second creditors' meeting that the bank's consent was "absolutely necessary" (T 164.31), something that accords with the importance attached by Mr Whittingham to such consent.
107Significantly, when Mr Kang was cross-examined as to what he had told the bank officers at the 15 July meeting, he prefaced his answer (similarly to the manner in which he prefaced the answers he later gave as to the manner in which he says that he misled the deed administrators at the time of the later proceedings to set aside the deed of company arrangement) with the words "It was complicated" - T 165.38.
108What he says he explained is what he had heard from Ms Park - namely that the administrator would sell the property and would be able to do so for a good or market price but that he added that if the bank did not like the sale price then the bank was entitled to refuse the sale. He was adamant that Ms Park had told him that the bank's approval was necessary (T 166.23).
109(I was left with the distinct impression that what was 'complicated' about the answer referred to above was that Mr Kang may well have understood that what was being contemplated by the administrators was a scenario whereby the bank's consent was not necessary but was at the same time assuring the bank that it had the ability to withhold consent to the sale - in other words telling each what he thought they wanted to hear. This was not put to Mr Kang and I make no such finding but the potential for such a scenario (which would be consistent with Mr Kang's admitted misleading conduct towards the deed administrators) to have been the operative scenario highlights the uncertainty surrounding what reliance the deed administrators, not party to the relevant conversations, could place on Mr Kang's account of the bank's position.)
110At T 237.27, Mr Ryu did not dispute that at or after the 15 July meeting he had agreed to consent to the appointment of the liquidator and to the sale of the property but he was adamant that the consent was subject to the condition that "we would be able to exercise out right to discharge the mortgage if we wanted or we could refuse it".
111At T 237.37, he said that it was "totally up to us whether to discharge or not regardless of price". That is not consistent with the 15 July letter (unless that is read as giving the bank the ability to determine in its absolute discretion whether a sale was reasonable or not).
112Mr Ryu accepted that at the 15 July meeting the bank's consent was sought to allow the sale of the golf course by the administrator (T 238.21) but says that his understanding was that it would be sold through the administrators "with discussions with the agreement" of the bank (T 238). He readily conceded that the bank could consent to the sale if the price was reasonable but maintained that the bank had every right to choose what to do (T 239) and that the bank would consider a price reasonable if both the mortgage holder and the bank was satisfied that the administrator had obtained the best price - T 240. He deposed that had he understood that the proxy was to start the process by which the administrator began to sell the property (but does not seem to have understood it as permitting a sale without the bank's consent) - T 240).
16 July 2010 deed proposal
113A deed proposal was prepared by PKF and forwarded by Ms Park to Mr Kang to sign by email on 16 July 2010 (in which email Ms Park repeated that there was a great difference between deciding liquidation at the creditors' meeting and receivership initiated by the bank, the latter being said not to be a good idea). The email (flagged as a 'red' category email) said that if Mr Kang could not send the $1 million or other fund that "I know it is difficult but I believe it is best to ask the bank to release the mortgage documents".
114The deed proposal as signed was attached to the report to creditors for the second creditors' meeting. The proposal (by letter dated 16 July 2010 (CB 1307) provided for contribution by the Korean parent company in amounts that accorded in substance with those appearing by way of the first proposal in Mr Whittingham's 9 July letter (the only change being that the figure of $2.9m had increased to $3,211,462 in the final proposal - the increase being in the six monthly payments now to be of AU$243,578.67 - an increase that Mr Whittingham attributed to hard negotiation on the administrators' part, although there was no evidence of negotiation as such in the documents).
115Relevantly, point 2 of the deed proposal was:
The administrators will sell the Company's business and up until completion of that sale, will also continue to trade the Company's business . (my emphasis)
116Point 3(c) referred to the $100,000 monthly capital expenditure "until completion of the sale of the business". Point 5 provided for unsecured creditors to receive 50 cents in the dollar out of the fund created from "the sale of the business in accordance with paragraph 2 of this letter" and the contributions by the Korean parent company in paragraph 3(a) (i.e. the $3.2m). The fees for the administrator (and payments to the priority creditors) as were the moneys for the unsecured creditors alike were to come out of the Fund (i.e., the fund comprised of the sale of the business and the contributions from the Korean parent company).
117Mr Whittingham accepted that there was no reference to the secured creditors in the final deed proposal of 16 July 2010 but suggested that the mortgagees' entitlement could be inferred from "the sale of the business outlined in point 2 of the proposed deed", which was "a separate fund". However, there was not provision for a separate fund as such. Mr Whittingham agreed that the distribution of funds was dealt with in point 5 of the deed (that fund being comprised both of the proceeds from "the sale of the business referred to in accordance with paragraph 2... and the contributions made by [the Korean parent company] in accordance with paragraph 3(a)"). Mr Whittingham was unable satisfactorily to explain the logic of the construction he sought to place on the proposal. If Mr Whittingham's construction is correct, the 16 July proposal provides no return whatsoever to the mortgagees.
118The administrator's report to creditors (CB 1267) of 20 July 2010 outlined the options to creditors and set out the terms of the deed proposal - again there was no reference in those terms to the sale of the land - simply to a sale of the business . The report recommended execution of the Deed of Company Arrangement. It noted that the deed "will allow the Company to trade in the short term (through funding from the Holding Company) and an orderly sale of the business and assets of the Company to be achieved." Similarly there was a statement that the deed provided for capital expenditure to be used for course improvements in an effort to improve the "realisable value of the business and assets of the Company" (the use of assets potentially convey a sale of the property).
119The only reference to the "property" as such in the explanation of the options to be considered at the meeting was that in a liquidation scenario it was said that the mortgagees could take formal recovery action over the property and therefore that any duly appointed liquidator might not be in a position to continue to trade.
120Mr Pritchard submits that the deed proposal ultimately put forward by the directors in Korea (which as noted above appears to have been prepared by PKF and forwarded to the Korean parent company) did not contemplate a sale of the golf course (and therefore was fundamentally different from the alternative proposal that Mr Whittingham had suggested in his 9 July options letter). I agree. (It was also fundamentally different from the initial 5 July proposal to the bank.)
121Having regard to the previous correspondence (and particularly the 9 July letter) the proposal put forward in the 16 July letter can only sensibly be seen as an amalgam of the initial funding proposal discussed at the first creditors' meeting with a sale of the business alone (i.e., not the alternative combined "DOCA and sale" scenario set out in the 9 July letter). That, indeed, seems to accord with the explanation give by Blake Dawson to the Queensland creditor's solicitors by letter dated 19 July 2010 (CB 1260), (an explanation to which some weight must be give since, as Mr Whittingham accepted, it was to be used to persuade the creditor, and in due course the court, to seek a stay of the winding up petition then on foot).
122Reference was made in the 19 July 2010 letter (a similar version of which was sent to the ATO on that date as well) to the continued funding of the company by the Korean parent company and contribution of significant funding for needed capital funding and infrastructure through the DOCA proposal and the sale of the business "as a going concern" (terms not readily applicable to a sale of land).
123Significantly, the letter noted that there had been negotiations with directors of the company and the parent and that there had been 2 options for terms to be included in a DOCA (those being the two options set out in the 9 July letter). (Pausing there, it is clear that as at 19 July 2010 there had been no negotiations in which Blake Dawson or the administrators had been involved with the mortgagees. Hence, insofar as the proposals referred to matters involving Jin Heung, the administrators can only have been relying on what they had gleaned through Ms Park and Mr Kang.)
124Blake Dawson noted that option 2 (of the 9 July letter) had proposed "a combined sale of the land and business through a DOCA proposal subject to the consent of the mortgagees" along particular lines (including empowering the administrators "to sell as a package both the Company's business and the land on which it conducts that business and up until the completion of that sale, will be empowered to continue to trade the Company's business".
125Contrasted with the proposal that was reported as being the outcome of the negotiations (section 4 of that letter), it is clear in my opinion that what the solicitors for the administrators understood was being proposed at that stage (i.e. under the 16 July deed proposal) was not a combined package of the business and land but a sale of the business alone. That is what they conveyed to the creditors then seeking to wind up the company. (Mr Whittingham was unable to explain the basis on which such a construction had been placed on the proposal by his lawyers or why it was that he had given instructions for the 19 July letters to be sent.)
126Mr Whittingham agreed that he had no doubt that his solicitors had enclosed with their letter of 19 July 2010 to the petitioning creditors his earlier letter of 9 July 2010 (T 187) and that they were there explaining his letter. He accepted that the two options put forward as at 9 July 2010, to which the letter 19 July 2010 referred, were the sale of the business and a combined sale of land and business. He also agreed that in the final proposal, as outlined at paragraph 4.1 of the letter of 19 July 2010, no distinction was drawn between the land and the business, and that paragraph 4.2 involved "a description of the business; not the land". Mr Whittingham agreed that he had approved the letter of 19 July 2010 and had authorised it being sent out but was not able to explain how it was that the characterisation of the proposal was as there set out. The most likely explanation in my view is that either the deed proposal was not intended to include the combined land and business package or (which may be more likely having regard to the attempts that had been made to procure the bank's agreement to a sale of the land) that in preparing the documents the draftsperson simply updated the earlier proposal (which did not include the sale of the land for the reasons earlier explored) and the deed administrators simply proceeded on a mistaken assumption that what was included in the deed proposal was the combined package.
Communications leading up to the second creditors' meeting
127On 26 July 2010, as noted earlier, Blake Dawson communicated with Mr Kwon (of Sojong lawyers) seeking urgently to obtain contact details for the Korean solicitors who had acted for the Korean banks (Mr Kwon having confirmed over the telephone that day that he did not presently act for the banks). Mr Greenberg of Blake Dawson referred in that email to a deed of company arrangement intended to be put to the second creditors' meeting (and which was said to be highly dependent on the co-operation of the banks) but only attached a copy of the original 5 July letter. Mr Kwon's response was to ask for a copy of the Deed of Company Arrangement that had been drafted "and sent to the banks" in response to which, on 27 July 2010, Mr Greenberg sent a copy of the 16 July proposal received from the banks and the administrators' report.
128On 28 July 2010, Messrs Ryu and Yoon executed a proxy appointing Mr Hyun as Jin Heung's proxy for the purpose of attending the second creditors' meeting (CB 1486). Mr Golledge submits that by that document Mr Hyun was directed to vote in favour of the Deed of Company Arrangement proposal. It certainly directed the proxy to vote in favour of the resolution to execute a deed of company arrangement (though it did not identify the deed with any more particularity) and it directed the proxy to vote against all of the remuneration resolutions.
129Even before the meeting, Mr Kang was raising concerns as to the administrators' proposed remuneration (which he continued to do in increasingly emotive terms).
130The second creditors' meeting was to be held on 29 July 2010. It was Mr Whittingham's stated understanding that, by the time of the second creditors' meeting, Jin Heung had received notice of the meeting with the relevant explanatory material (including the final proposal). However, this understanding was apparently derived solely on the basis that, by then, a proxy had been received from Jin Heung and that Mr Whittingham had been told of a conversation between his solicitor (Mr David Greenberg) and a solicitor who had at an earlier stage acted for Jin Heung, Mr Harry Kwon. Mr Whittingham said that Mr Greenberg had told him that the "bank's solicitor had received the explanation". Presumably, this is a reference to the documentation forwarded to Mr Kwon on 27 July 2010 (he having indicated that he had contact details for the banks' Korean lawyers, but not acting for the banks at that stage). There was, however, nothing in writing from the bank and, in relation to any conversations between Mr Greenberg and Mr Kwon, Mr Pritchard submits that the unchallenged evidence of the latter (corroborated by the email from Mr Greenberg of 26 July 2010) was that he had said to Mr Greenberg words to the effect that "We are not presently instructed by either bank."
131In relation to the proxy given by Jin Heung, Mr Whittingham knew that Jin Heung was not in attendance at the second creditors' meeting other than by virtue of a proxy given to Mr Hyun. Mr Whittingham admitted that he "did not know the circumstances in relation to which ... the execution of that proxy was procured" and had taken no steps to find that out. Mr Pritchard submits that it follows from the above that Mr Whittingham was either acting under a misapprehension or was acting on incorrect information provided to him by his solicitors when he assumed that Jin Heung had received the final (16 July) proposal in advance of the second creditors' meeting.
Order that the originating process filed 2 February 2011 be dismissed.
Declare that the document executed by the plaintiffs "Deed of Company Arrangement" and dated 18 August 2010 is not a deed of company arrangement within the meaning of s 444B(6) and s 444D of the Corporations Act 2001 .
Declare that the failure of the company within the period specified in s 444B(2) to execute a deed of company arrangement in conformity with the resolution passed on 29 July 2010 had the effect pursuant to s 4446A(1)(b) of causing the company to enter into a creditors' winding up imposed by s 446A with Messrs Whittingham and Crowe-Maxwell as liquidators as and from 19 August 2010.
Declare that Jin Heung Savings Bank Co Limited did not validly exercise a vote by proxy in favour of the resolution to enter into the said deed of company arrangement on 29 July 2010.
458I will hear submissions from the parties as to the appropriate form of orders and any submissions as to costs at an appropriate time.
[3]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 16 September 2011
Parties
Applicant/Plaintiff:
In the matter of Le Meilleur Pty Ltd (subject to Deed of Company Arrangement); Le Meilleur Pty Ltd (subject to Deed of Company Arrangement) & Ors
2009
28In March 2009, the Korean parent company borrowed a further 3,000,000,000 Korean Won (this time from NH Capital), also on the security of a personal guarantee from Mr Chung (as well as the provision of other guarantees) and a second registered mortgage was granted over the golf course and resort.
29In 2009, the Korean parent company began to experience financial difficulties. It defaulted on its Jin Heung facility in around December 2009 (T 230) and at some stage during 2009 (variously put at June or December (T 230) it entered into a "work out arrangement" with its Korean creditors (some 20 or more banks) to which Jin Heung, as one of the banks, gave its consent. There was cross-examination of both Mr Kang and Mr Ryu as to the effect of that work out arrangement (a copy of which was not in evidence as the only copy produced in Court was in Korean). As I understand it, it had the effect of placing a moratorium on the exercise by Jin Heung (or other creditors) of its rights under the securities held in relation to the Korean parent company's borrowings for a period of one year (subsequently extended for a further year to 30 June 2011 or perhaps the end of this year) at the conclusion of which, if the Korean parent company had not repaid its indebtedness (in the order of some AU$80m), then the secured creditors (including Jin Heung) would be free to exercise their rights to enforce payment by recourse to their securities (see T 246). The work out arrangement apparently did not encompass any provision whereby secured creditors might be required to accept a lesser sum in discharge of their debts (T 248). It seems solely to have effected a moratorium on enforcement of securities for a period of time (T 233), (during which it was said that the chairman would be seeking to realise certain shares or interests in oil company developments in Iraq). (Mr Ryu, in response to a question to that effect, said there was no reference to Mr Chung's guarantee in the workout arrangement.)
30There seemed to be a suggestion in the course of argument that the moratorium imposed by the Korean banks' workout arrangement may have led Jin Heung, in 2010, to consider favourably a proposal for the sale of the golf course by the deed administrators (since it could not otherwise have enforced its security over the golf course land at that stage). However, as I understood Mr Ryu's evidence, it would always have been open to the Korean parent company's secured creditors to sell the golf course property with the borrower's (or Le Meilleur's) consent.
2010 Financial difficulties
31Between March 2009 and June 2010, Le Meilleur was the subject of several winding up petitions. Its only business was the operation of the golf course and resort and, according to its financial statements, it had operated with trading losses in excess of $1,000,000 for each of the 2007, 2008, 2009 and 2010 financial years. One of the largest creditors of Le Meilleur was the Commissioner of Taxation. As at 1 April 2010, the Commissioner claimed that Le Meilleur was indebted to the ATO in the amount of $647,640.67 (though the amount giving rise to that debt is, as I understand it, the subject of an objection). (It was the ATO's statutory demand issued in mid 2010, which seems to have been what ultimately precipitated the entry of Le Meilleur into administration.)
32During the course of 2010, Mr Kang retained the services of Ms Christine Park (a Korean speaking accountant working in Sydney with the deed administrators' firm, PKF) in an attempt to negotiate the deferral of recovery action by the Commissioner of Taxation. (Ms Park had for a number of years undertaken accountancy related advisory work for the Korean parent company and she accepts that she was a trusted adviser of the company.) Ms Park had given advice in relation to disputes with various creditors of the golf course business over the period leading up to the ATO negotiations.
33In the course of those negotiations, a request was made on behalf of Le Meilleur for the ATO to defer recovery action for a period of time in order to enable Mr Chung to sell his shares in the overseas oil projects. The ATO refused that request.
34By at least the end of April 2010, Ms Park had expressed the view to Mr Kang that the situation was very serious (advising that her conclusion was that the ATO "is going to process the repayment of liabilities in their own way" and that "ATO has strong rights more than expected" - see email dated 28 April 2010 at pp 137/138 of the Court Book). (I will henceforth refer to documents in the 7 volume Court Book simply by CB page number.)
35On 31 May 2010, the ATO served its statutory demand on Le Meilleur pursuant to s 459E of the Corporations Act , claiming payment of $673,465.85. Mr Golledge submits that Mr Kang (and also Ms Park, though it is not clear why Ms Park would have had any particular interest in this) became concerned that if the Commissioner of Taxation continued with enforcement action (and, in particular, sought the winding up of the company), this would lead to a sale of the golf course at a very low price. (Mr Kang explained in the witness box that in Korea a property sold at auction in these circumstances would be expected to fetch a very low price - T 158.) Mr Golledge submits (and it seems to be the case) that it was the preference, amongst the directors of Le Meilleur and the Korean parent company, that the golf course should be retained if at all possible.
36At this point, Ms Park (who accepted that she was held out by her employer as someone who specialised in advising and assisting companies involved in business and investment between Australia and Korea (T 101.50) but readily conceded in the witness box that she had no experience in insolvency law or with voluntary administrations (T 102.50)) sought advice from Mr Ken Whittingham, a partner in PKF's corporate recovery team (and a registered liquidator) as to the options available to Le Meilleur in light of the action by the Tax Office.
37Ms Park says that she then conveyed to Mr Kang the effect of the general advice she had obtained from Mr Whittingham, including the possibility of appointing a voluntary administrator.
38I note that Ms Park's evidence was that during the time that she advised Le Meilleur and the Korean parent company she dealt primarily with Mr Jae Soon Hyun (a local employee of Le Meilleur) and Mr Kang; and that her advice was generally given by telephone calls and emails. Ms Park's general practice does not seem to have been to prepare separate file notes of advice given by her (saying that all telephone conversations were covered by emails - T 106). (The one exception to which she referred in her oral evidence was a memorandum that she had prepared of specific points on which she had noted certain advice to give to Mr Kang - on 9 June 2010 - T 108.) Although Ms Park said that she had kept a diary (which she also said she had checked) in which she had noted two or three telephone conversations with Mr Kang in June/July 2010, she then said she had thrown the diary away - T107.
9 June 2010 - advice re voluntary administration
39By email to Mr Kang and Mr Hyun on 9 June 2010 (CB 725), Ms Park reported on "the outcome from the discussion with our expert [Mr Whittingham] in the morning", stating that "It [the outcome] is Voluntary Winding Up" with the appointment of "our company" (PKF) as administrator. The email referred to the need to inform the banks in Korea of the meeting but went on to say that "we may be able to do paper work by appointing an attorney (Power of Attorney)".
40The email noted that the administrator would investigate the creditors "and start the process of disposing of company assets in order to pay off the company's debts" but that if the company's financial status improved during the period of administration they might be able to withdraw the voluntary administration. Alternatively, it was said, "another company may purchase Le Meilleur's assets and business and we may put a condition that they purchase the assets with mortgages". The email noted that generally "it" (presumably the administration process) lasts about 3-4 months "but I think up to 6 months may be sufficient" (the reference to 6 months perhaps responding to the topic that later became contentious - namely, as to whether Ms Park had represented to the Korean parent company that the administration process would in effect give it 6 months to find the funds to meet the debts owing to Le Meilleur's creditors).
41Ms Park said in cross-examination that the reference to a power of attorney in that email was responding to a query from Mr Kang (T 108), though there is no record of such a query and it would seem inconsistent with Mr Kang's response (below) to her 9 June email, in which reference was made as to the Korean bank mortgagee having knowledge of the process.
42Ms Park accepted in cross examination (at T 276) that the gist of what she had advised Mr Kang in the 9 June email was that the assets of the company (presumably by that referring to the land) could be purchased subject to the existing mortgages. She explained that the bank was considering various options, one of which was "if the new company or the transfer of the assets to company and the, the mortgage were to follow with the assets" T 113.31. (She also suggested that the email was just "shorthanded language in Korea" and said she thought "they understood what I am trying to say in Korean" T 112.44). Ms Park went on to comment that "the bank should agree with that" (i.e. the transfer of the land with the mortgages) T 113.40 but Mr Pritchard notes that when asked why the bank should agree, she was unable to give an explanation.)
43Mr Kang responded to the 9 June email with a number of queries, including as to how the golf course would operate if the voluntary winding up took place and asked "Is it possible for the Korean bank, the mortgagee here to know the situation?" (CB 728). He also commented that "According to Mr Hyun we could get around it [presumably the ATO winding up threat] by getting the bank in Korea to appoint a liquidator" [or receiver] and asked how to go about that.
44Pausing there, one odd feature of the process by which the Korean emails were translated was that there were on occasion copies of what seemed to be the same email but with a slightly different translation (albeit both bearing an accreditation stamp) - so, for example, the email at CB 728 was slightly different in translation to the copy appearing at CB 732, except that the latter recorded Ms Park's responses to the questions posed of her by Mr Kang. Nevertheless, the thrust of the varying translations seemed broadly the same.
45Ms Park's response as to the question raised in relation to the Korean bank mortgagee's knowledge or possible knowledge or the process was "You should sort it out with Mr Hyun. I think it is best to appoint a proxy" (CB 732). (Ms Park did not seemingly respond at least at that stage to a query as to the possibility posed by Mr Kang that the Korean banks could appoint either a liquidator (or receiver), though a response to that was later given on 1 July 2011.)
46Ms Park agreed in the witness box that the effect of her response as to the proxy was that she had asked the directors of Le Meilleur to obtain a proxy from the Korean banks for the first creditors' meeting (though I note that ultimately none was in fact obtained for that meeting).
18 June 2010 - recommendation to appoint voluntary administrator
47By 18 June 2010, it was apparently the recommendation of Mr Whittingham's firm (PKF) that the directors of Le Meilleur appoint a voluntary administrator. Ms Park sent an email to Mr Kang, copied to Mr Hyun (CB 737) on that day in which she said it was a "dire situation" and warned that if other creditors took action "before us, none of the actions PKF is proposing will be carried out and the company will have to leave the golf course, which will be then reported to the current bank " (my emphasis) (which rather suggests that it was understood that there had been no contact at that stage with Jin Heung). This is consistent with Ms Park's evidence (at T 109.15) that as at early June 2010 Mr Kang was "worrying about to tell bank". In her 18 June 2010 email, Ms Park said:
Prior to that [the first creditors' meeting then contemplated to be held on 2 July], if the bank which is at the top of the list of the creditors fills out a proxy form, PKF can vote as its proxy on the day. As it is possible that the ATO or other creditors can reject PKF, just the afore-mentioned proxy form is believed to be necessary.
48Ms Park asked Mr Kang to hurry (and she also asked him to pay the amount owed to PKF so that it would be eligible to become the 'liquidator'). (She suggested in the witness box that this should be translated as "please make decision in hurry" - T 116, but then conceded that there was no reference to "decision" in the email). (I interpose to note that I have proceeded on the basis of the translations (by accredited translators) into English of the Korean documents; rather than (as was the case in the above exchange) any differing translations of the documents proffered in oral evidence by Ms Park.)
49Ms Park accepted that she expected Le Meilleur to persuade the bank as to why it was a good idea to give the proxy - T 119.25 - and she agreed in the witness box that the reason she had told Le Meilleur that it was necessary to get a proxy from the bank "was to ensure that [PKF] would be the administrator" and to avoid PKF being removed by the other creditors.
50In the 18 June email, Ms Park told Mr Kang that even if the winding up process commenced it could later be withdrawn "and another company can be created to take over the business and move the mortgage of the current bank", commenting that this would be 'even better' as the current debt would be cancelled.
Appointment of voluntary administrators
51On 23 June 2010, Ms Park sent to Mr Hyun and Mr Kang, by email, documents to be signed and returned in order to effect the appointment of the administrators, including the minute of a directors' meeting to be held for that purpose.
52On 24 June 2010, (the day before a winding up petition of another creditor was returnable before the Supreme Court of Queensland), the directors of Le Meilleur (Mr Kang, Mr Chung and Mr Soo Yeon Kim), at a meeting held in Korea, passed a resolution appointing Mr Ken Whittingham and Mr Atle Crowe-Maxwell as joint and several administrators of the company pursuant to s 436A of the Corporations Act . (By email on 24 June, Mr Kang, forwarding the signed minutes of meeting, asked Ms Park to do her best "to make sure there is no problem with the golf course" and to send "the proxy form from the Korean bank" and said "Today we have to start persuading them" (CB 769).) On the same day, notice was issued by the administrators advising of their appointment and convening a meeting of creditors on 6 July 2010.
53Also on 24 June 2011, Blake Dawson, acting for the administrators, wrote to the lawyers acting for the petitioning creditor in Queensland (CB 775) notifying them of the appointment of administrators to the company and seeking their client's consent to an adjournment of the winding up application on the basis that there was "a viable restructuring proposal offering a potential better return for creditors". That proposal was to restructure Le Meilleur so it could continue to trade "and the Business/Land perhaps sold to a purchaser in the future once the Business has recovered". (A similar letter was to be sent to the ATO which had indicated that it would be a supporting creditor on that winding up application.) Relevantly, the writer of this letter clearly drew a distinction between the land held by the company and the business of the company that was conducted on the land (pointing out in no uncertain terms that the former was subject to registered mortgages and the latter was, in the writer's opinion, "not particularly valuable").
25 June 2010 meeting
54On 25 June 2010, a meeting was held at Le Meilleur (at which Mr Hyun and Mr Sang Yong Chung were in attendance for the company and Ms Park and Mr Whittingham and others from PKF). The minutes (at CB 976 and again at CB 981, the latter with Ms Park's annotations in Korean), which were prepared by staff from the administrator's office and translated by Mr Kevin Kye of that office (T 121), record that there was a discussion as to two options available to Le Meilleur, those being identified as:
6 July 2010 - first meeting of creditors
70The first meeting of creditors (held pursuant to s 436E of the Corporations Act ) was convened on 6 July 2010. Although there had been discussion (referred to above) between the deed administrators, Ms Park and the local representatives of Le Meilleur as to the obtaining of a proxy from the Korean banks for the purposes of voting at the first meeting of creditors, none was obtained. There is no suggestion that either of the Korean banks participated in the first creditors' meeting (whether in person or by proxy).
71Mr Whittingham accepted in the witness box that at the time of the first creditors' meeting it was not contemplated by anyone that anything (i.e. the land or the business) would be sold (T 37). Mr Whittingham advised the meeting in general terms that the company proposed to continue to trade and that there was a financial commitment to improve current conditions of the golf course and facilities. As at the first meeting what was then proposed by the directors was a compromise for creditors that would see full trading operations and full payment out of employees.
72In the witness box, Mr Whittingham accepted that he had told the meeting that it appeared the mortgagees were happy with the administrators being in control of the property (T 38). He says that this was based on the verbal reports received (through Ms Park) from the Korean parent company (T 39.3). As at that stage, however, there seems to have been no factual foundation to support such an assertion to the creditors - since there is no evidence that Jin Heung's officers had been approached at that stage (whether by the Korean parent company or by anyone on behalf of the administrators). Indeed, Mr Kang, prior to the first meeting, was referring to the possibility that the mortgagee bank might seek to appoint a receiver. (I do not suggest that Mr Whittingham was knowingly misleading the creditors in this regard. However, the significance of Mr Whittingham's willingness to make such an assertion, based on no more than what had been conveyed to him through Ms Park by the Korean parent company, it seems to me, is that it marks a tendency by the administrators to proceed on the basis of assumed facts - and is relevant when considering the weight of discretionary factors.)
73The administrators continued to operate the resort following their appointment, initially with some financial support from the Korean parent company. In the present proceedings, the deed administrators have given evidence that throughout the voluntary administration period the resort traded at a weekly loss and that, in continuing to operate the resort, they accrued (unpaid) liabilities of approximately $314,000. Mr Whittingham (who was, as between himself and Mr Crowe-Maxwell, the person principally responsible for the administration) has deposed that the deed administrators took that step because of their view that closure of the resort would significantly reduce the prospects of obtaining the best possible price in any subsequent sale of the company's assets.
9 July 2010 - indicative deed proposal
74Following the first creditors' meeting, Mr Whittingham forwarded a letter dated 9 July 2010 (CB 1044) to the directors of the Korean parent company in which he noted that the current intention of the directors was to continue to own and operate the golf resort through a deed of company arrangement. The letter set out the key elements of an indicative deed proposal and the information that Mr Whittingham said he would need in order to be able to recommend a deed of company arrangement to the creditors. That letter noted that the proposed deed proposal would require contributions from the Korean parent company in the vicinity of $2,978,702, with a proposed time frame for funding to be the payment of $1m within 14 days and monthly payments of $204,783.66 for the six months following. It also required a commitment to a capital expenditure program with a minimum of $750,000 within 12 months (not all of which was earmarked for the golf course land - some being referable, for example, to the proposed marketing activities).
75In the witness box, Mr Whittingham accepted that his letter was a proposal put by him to the directors of Le Meilleur for their consideration as to a possible deed of company arrangement going forward and that the letter was also in the nature of a proposal to be put by the directors to the second creditors' meeting. Relevantly, that letter (sent at a time when there had been no response by Jin Heung to the earlier 5 July proposal involving a sale of the land and a Deed of Consent) set out two alternative proposals.
76Mr Whittingham accepted that the first proposal in this letter involved the Korean parent company putting into a fund a sum in the order of $2.9 million (to be used to pay Mr Whittingham's expenses, the priority creditors in full, and then the unsecured creditors (at 50 cents in the dollar) and then used in the making of improvements to the property). The letter highlighted in bold that if funding payments were not received, as agreed in any deed proposal, then Mr Whittingham would be required immediately to convene a meeting of creditors and the company would likely be placed into liquidation. As Mr Pritchard notes (and Mr Whittingham accepted in the witness box), that first proposal did not involve any consideration of a sale (whether of the business alone or together with the land).
77Mr Whittingham's letter of 9 July also outlined an alternative deed of company arrangement proposal, which was coupled with a combined sale of the "Property and Company", under which there would be a contribution by the Korean parent company of sufficient moneys to cover administrators' fees and expenses, employee entitlements, legal cots, petitioning creditors costs and marketing costs and expenses; the sale of the business and property (out of which remaining priority creditors would be paid on settlement of the sale of the business and property) and under which there would be no distribution to unsecured creditors. This alternative "DOCA and sale scenario" was acknowledged to require consent from the mortgagees but was said to be a better option than a liquidation scenario.
78Pausing there, in the correspondence by this stage a very clear distinction can be seen to be drawn between the business (or, as I read it, of the 'Company' as it is put in the second or alternative proposal in the above letter) and the mortgaged property (since otherwise the reference to the sale of the business " together with the mortgaged lands" in the 5 July letter and the reference to the " combined sale " in the second of the proposals contained in the 9 July letter would make no sense).
79The terms in which this correspondence was couched make the suggestion by Mr Whittingham that later references solely to the "business" also included the land very difficult to sustain. (Also of note is that the proposal that was put to Jin Heung (in the 5 July letter it says it did not receive) required not only the consent of the secured mortgagee but also contemplated that there would be an obligation of regular consultation in relation to the sale of the property (something the lack of which was the source in due course of further complaint by Jin Heung).)
80Mr Whittingham agreed (at T 41) that the alternative deed of company arrangement and sale proposal was very different from the initial funding proposal considered at the first creditors' meeting.
15 July 2010 events
81On 15 July 2010, Mr Whittingham sent an email to Ms Park (CB 1154) pressing for a deed of company arrangement proposal in writing from the Korean parent company that day (failing which he said that they would have to recommend liquidation). The email noted three deed of company arrangement possibilities - the first, being "as per our letter $2.9M over time..no sale"; the second being "as per our letter (alternative doca) Approx $1.1m and sale"; and the third, a "sale with Korean Bank mortgagees receiving no monies from discharging their mortgages..all monies to go towards costs and creditors. Head office to satisfy mortgagees. Mortgagee confirmation required." Mr Whittingham requested an immediate additional advance of approximately $100,000 as a sign of good faith and to allow the business to trade on and/or for there to be a sale.
82In the witness box Mr Whittingham was unsure whether "no sale" under the first option set out in that email meant no sale of the land or no sale of the business or both. However, it seems quite clear (and Mr Whittingham ultimately accepted) that the first option was that corresponding to the initial proposal in the 9 July letter (which had also contained the figure of $2.9m) and did not involve a sale. (Further, Mr Whittingham saw nothing extraordinary in the proposition that the secured mortgagees might give up their mortgages for no share of the sale proceeds at all - which was the effect of the third option - T 42.3).
83Ms Park, presumably in response to the email from Mr Whittingham pressing for a deed proposal from the directors, conveyed to Mr Kang and Mr Hyun by email on the same day (CB 1152) the three options, noting that the first was to "reorganize and start the restart the business"; that the second was for the holding company to pay $1m by August or early September and "to dispose of the golf course afterwards" and the third was immediately to dispose of the golf course, noting that a letter of acceptance by Jin Heung would be needed.
84The response from Mr Kang to that email raised an issue that became a source of contention between the Korean parent company and the deed administrators. Mr Kang maintained that the reason the company had chosen to proceed along the voluntary administration path was that it was told by Ms Park, in effect, that this would give the Korean parent company a 6 month period in which to find the money to meet the Australian company's indebtedness (perhaps along the lines of the workout arrangement apparently then in place with the Korean parent company's creditors).
85Ms Park agreed (at T 122) that Mr Kang had told her that the reason the company had followed the advice to go into voluntary administration was that the holding company needed 6 months to obtain funds from the oil deposit investments and had said that if PKF could give it about 6 months to pay then he would sign the Deed of Company Arrangement. However, she was adamant that she had not promised this - she said that she had instead said she would check with Mr Whittingham - T 123 (although, as pointed out by Mr Pritchard, no such response was contained in her affidavit).
86Relevantly, in this context, by email on 15 July 2010 (CB 1146), Mr Kang advised that "We commenced under the assumption that an adequate period of deferral could be secured if we were to opt for voluntary liquidation through you" noting that if the company had $1m available by early August then it would be more than enough to pay the tax default and other charges such as council rates. He explained that additional funding was difficult and suggested that since the Korean bank held on security the land of the golf resort and the shares that accord it the right to manage Horizon it could initiate the liquidation process. His complaint seemed to be that he had been told that there could be a deferral of up to six months, yet the proposal put to him did not contemplate any such postponement. (Issue was also taken as to the size of the administrators' reported fees.)
87Mr Kang's email, sent at a time before the dispute as to what had been resolved at the second creditors' meeting had arisen, thus provides support for his version of the advice that had led the Korean parent company to enter into voluntary administration.
88As noted, Ms Park confirmed that this issue was raised with her but denied that she had given any such confirmation. Perhaps tellingly, she said in the witness box "6 months time is very challenging one", without it being clear whether she meant by that that it had been difficult to bring about a 6 month moratorium or that it had been challenging in managing the client's expectations in that regard (or something else altogether). She did not deny Mr Kang's account in paragraph [24] of his affidavit in this regard and ultimately conceded that this was because it was correct.
89Mr Kang also deposed to conversations with Ms Park in which he says she told him that the bank could sign a proxy and that if it did the bank would not be bound to go ahead with the sale if the price was unreasonable. (Mr Ryu gave similar evidence as to what he says was conveyed to him by Mr Kang.) Ms Park denies saying that the bank would have no problem exercising its rights as first mortgagee. In this regard, Ms Park gave conflicting accounts of what she understood would be the effect of entry into administration with or without a deed under which the property could be sold.
90At T 125.47, Ms Park confirmed that it was her belief that if the company entered into voluntary administration then the bank could not exercise its power (though it was unclear whether she was referring to a power to sell the land or a power to appoint a receiver or some other power). She later said (at T 126) that "as long as they consent to DOCA administrator will control) but at T 126.88 that she did not have the belief that the appointment of a voluntary administrator would prevent the bank exercising its rights under the mortgage. By T 128, she was back to the understanding initially expressed:
As long as they agree to appoint voluntary administration, voluntary administrator will have the responsibility and power to run the business and sell asset.
91The confusion seemed to be as to whether she considered that the bank would lose the ability to veto a sale simply by reason of the appointment of the voluntary administrator (which she said on more than one occasion) or if that would only occur if a deed of company arrangement was approved. After inconsistent answers, Ms Park eventually confirmed that it was her opinion as at June 2010 that it was the former (T 130).
92(I accept that no criticism can be made of Ms Park as to her inexperience in the area of voluntary administration. However, it seems to me that what the cross-examination did clearly reveal was that Ms Park's ability to convey consistent, reliable and accurate advice to Mr Kang was likely to have been compromised by that lack of understanding of insolvency principles.)
93Ms Park herself said that she had not been as specific in what she said to Mr Kang (T130.12) as she was in the witness box when she confirmed the belief that she had held, namely that "once the bank agrees to do this proposal the bank's rights will be transferred to the administrator", which she later clarified as saying that once the bank voted by proxy to appoint Mr Whittingham as administrator it was "giving up its rights to mortgage" (T 130) (advice that she said Mr Whittingham had told her T 130.41 but he denied). Given the inconsistency in Ms Park's position, the suggestion that "Mr Kang understood the procedure" seems to me to be optimistic (T 131).
94Ms Park considered that the administrator, once appointed, would start selling the land and the business (T 130) and that this would be so whether or not the bank had voted for Mr Whittingham's appointment (if the majority of other creditors voted for it) - T 135. Her explanation as to why any further consent was necessary after an administrator had been appointed (if the appointment had the effect she thought it did) was that the banks could still appoint a receiver (T 131).
Meeting with Jin Huang 15 July 2010
95With that background in mind, and noting Ms Park's advice to Mr Kang that it was important to obtain a proxy to appoint PKF (T 124), I turn to the meeting that took place on 15 July 2010 between Mr Kang and the two officers of Jin Heung (Messrs Ryu and Yoon) at which Mr Kang gave them the proxy form for completion and there was a discussion as to the voluntary administration. Mr Kang says that at that meeting he sought the consent of Jin Heung to the directors' deed proposal and that he told Messrs Ryu and Yoon that the proposal for a deed of company arrangement which was being put forward included provision for the sale of the golf course. Mr Kang says that he explained that a sale by the administrators was preferable to any sale by the Tax Office because it would be at market price.
96Mr Ryu's evidence (at [13] of his affidavit) was that Mr Kang said at that meeting that there could not be a sale without the bank's consent even after the voluntary administration. Mr Yoon (who swore two affidavits the later correcting a mistake as to the date on which the relevant conversation took place) gave similar evidence although he did not contribute it to a conversation in which Ms Park's advice was being conveyed. Mr Kang's evidence accords with that of Mr Ryu.
97Relevantly, there is a contemporaneous record of what was said at that meeting, in that the bank officers asked Mr Kang to send them a letter confirming what he had told them at the meeting about the deed of company arrangement proposal and in compliance with that request on that same day Mr Kang sent a document dated 15 July 2010 (CB 1144) on the letterhead of the Korean parent company addressed to Mr Yoon, team leader of the Yeouido branch of Jin Heung. Mr Pritchard relies on this letter as corroboration for the fact and terms of the conversation alleged by Jin Heung to have occurred on that date.
98Mr Kang's letter requested cooperation regarding the sale of the golf club property "in a way favourable to us and your bank because we have been ordered to sell the security by the Taxation Office due to our tax default" (a perhaps unintentional misstatement of the position). It stated that that there had been an order from the Taxation Office to sell the security and that if it proceedings with the sale process the company and Jin Heung would suffer more financial damage because the security would be disposed of at a significantly diminished value. Consent was sought to sell through the voluntary administration process. The letter then stated:
29 July 2010 - second creditors' meeting
132This brings me to what transpired at the second creditors' meeting. As noted, Jin Heung had signed the proxy form only the day before the meeting.
133The minutes of the meeting (appearing at CB1490 and at CB 1816) record that Mr Whittingham opened the meeting and acted as chairperson in accordance with Regulation 5.6.17(1) of the Corporations Regulations. Recorded as being present were a number of persons, some noted as being observers (such as Mr Rickard from the Community Association, for example, though nothing turns on this). Mr Hyun was recorded as being present in person and as representing 7 creditors (including Jin Heung). There was no proxy or other attendance recorded for NH Capital.
134Relevantly, in light of the submissions now made, Mr Whittingham informed the meeting that all motions were to be resolved "on the voices" unless a poll was demanded (referring to Regulations 5.6.19 and 5.6.20). Mr Whittingham tabled the Administrators' report to creditors dated 20 July 2010 (to which the 16 July letter containing the Korean parent company's deed proposal was attached) and referred to the DOCA as detailed in the report to creditors. The minutes record that Mr Whittingham enquired whether any person wished the DOCA to be outlined (and that he stated his opinion that it was considered to be a good result for creditors). The minutes record that an (unidentified) member observer asked that the terms be outlined. The minutes then record that:
The Chairperson outlined the terms of the proposed DOCA as detailed in the report to creditors as follows:
The Business and property of the Company are to be immediately marketed for sale and sold ... (my emphasis)
135(Significance is placed by Mr Pritchard on the discrepancy between this dot point and point 2 of the written deed proposal - something perhaps generated by the query later raised at the meeting as to the import of point 2, to which I refer below. It seems to me somewhat unlikely that Mr Whittingham, summarising the written proposal, would have drawn the distinction appearing in the bullet point note in the minutes (a distinction that does not appear in the proposal itself) when Mr Whittingham was adamant that at all times "business" included the land. If he had done so, at that stage of the meeting, then the later query raised as to the subject matter of the sale would seem to have been superfluous. Therefore, there is at least an available inference that the words "and property" were included having regard not to what Mr Whittingham outlined to the meeting at first but to what he said in the course of the meeting in response to queries about the proposal.)
136During the course of the discussion at the meeting, as recorded in the minutes, Mr Whittingham advised (in response to a query from the Community Association representative) that he intended to have the DOCA drafted as soon as practicable and envisaged that it would be executed in 7-10 days (an estimate that proved to be inaccurate given that the document was only executed on 18 August 2010, on the last day for execution without leave). In response to a rather prescient query from Mr Rickard as to what would happen if only partial payment under the deed was received, said that "In the event that the terms of the DOCA were not adhered to by the Directors and/or the Holding Company, a meeting of creditors would be re-convened and either the terms of the DOCA would be varied (if agreed by creditors) or the Company would be placed into liquidation". (In the witness box, Mr Whittingham agreed that he had told the creditors at the second meeting that in the event that the terms of the Deed of Company Arrangement were not adhered to by the directors and/or the holding company, then a meeting of creditors would be re-convened and either the terms of the Deed of Company Arrangement would be varied (if agreed by creditors) or the company would be placed into liquidation and that he had not done so ("Not yet").)
137(It is not obvious how Mr Whittingham contemplated that the Deed of Company Arrangement could be varied or the company placed in liquidation at a time when the deed had been partially carried into effect, but nothing turns on this.)
138There was a reference by Mr Whittingham at the meeting to the day to day operations and management of the company remaining under his control "until such time as a sale of the property is achieved" and he responded to a query as to interest in the property by saying that there had been considerable interest and he "would be very surprised if a sale of the business and property could not be achieved".
139Relevantly, a proxy holder for one of the creditors asked whether the reference to selling the Company's Business in paragraph 10.1.2 meant the business and property and Mr Whittingham is recorded in the minutes as confirming that the business and property would be sold.
140Mr Whittingham is noted as having advised that the sale process would commence immediately and that it was his intention to allow any purchaser to take over the running of the business under a licence agreement prior to settlement in an effort to minimise the costs of the administration (something that suggests that the ultimate licence arrangement was not so much a product of the attitude taken by the mortgagees towards the sale, as rather a course of action that had been envisaged at the outset).
141As to the suggestion that there was ambiguity in the description given in both in the s 439A report (and in the earlier 9 July 2010 letter) as to the assets which it was then being proposed would be sold by way of the proposed deed of company arrangement, Mr Whittingham maintained that references to a sale of the 'business' in the report included the sale of the underlying land asset. I consider it difficult for Mr Whittingham seriously to maintain such a proposition having regard to the text of those documents (particularly having regard to the explanation given by the administrators' own solicitors of the deed proposal in their 19 July 2010 letter).
142It seems to me, without suggesting anything more than error on his part, that Mr Whittingham was plainly wrong when he told the meeting that the proposal as contained in the letter of 16 July 2010 (that being what the minutes record him as having outlined) included a sale of both the business and the letter. Properly construed, the deed proposal contained in that letter in my view comprised only a sale of the business.
143Mr Golledge submits that there is no evidence that any creditor (including Jin Heung) was at any time relevantly misled about what was being proposed. (He also notes that on Jin Heung's case it did not receive any of the communications leading up to the second meeting in which the proposal was contained and cannot have been misled by any ambiguity in that material.
144He further submits that it is clear from the terms of the discussion of the proposal for the deed of company arrangement at the second creditors' meeting that the creditors were there considering (and voting upon) a proposal that involved the sale both of Le Meilleur's business and the golf course property, with the proceeds of the respective sales to be apportioned between the secured and unsecured creditors (and for the fund to be created also to have the benefit of contributions from the Korean parent company). Mr Golledge submits that no one at the meeting, including Jin Heung's proxy, could have been in any doubt about that feature of the proposal.
145Pausing there, I agree (having regard to the minutes) that, at least after the issue was clarified on the floor of the meeting, a creditor voting at the meeting would have understood that he or she was voting on a deed proposal under which both the land and the business were to be sold. That, however, begs the question as to what it was that the resolution in fact put to the meeting (and recorded as having been passed by the meeting) encompassed and whether, as is the case put by Jin Heung, there was a disconformity between the resolution actually put to the meeting and that on which the creditors may have thought they were being asked to vote.
146According to the minutes, what was put to the creditors at the second creditors' meeting (and recorded in the minutes as having been declared as carried "on the voices", with Mr Whittingham abstaining from exercising general proxies in his favour) was a resolution in the following terms :
That pursuant to Section 439C of the Corporations Act 2001, the company [Le Meilleur] be required to execute a Deed of Company Arrangement under Part 5.3A of the Corporations Act 2001 in the same form as the proposal statement presented to the meeting (my emphasis)
147The only document presented to the meeting (if that be the meaning of "proposal statement") was the deed proposal of 16 July 2010 attached to the s 439A report. The record kept by the deed administrators of the meeting then noted as follows:
The Chairperson tabled the Administrator's report to creditors dated 20 July 2010.
The Chairperson referred to the DOCA as detailed in the report to creditors and enquired as to whether any creditor wished the DOCA to be outlined. (my emphasis)
148The manner in which Mr Whittingham outlined "the terms of the proposed DOCA" was said to be " as detailed in the report to creditors ". As noted earlier, the report to creditors did not record any reference to the sale of the land as being part of that proposal. The suggestion in the minutes that Mr Whittingham orally outlined a proposal for the sale "of the business and property" is therefore inconsistent with him outlining the terms "as detailed in the report to creditors" (and the later queries raised by a member observer and the Community Association representative as to the import of paragraph 10.1.2 seem to confirm this).
149In any event, even if Mr Whittingham did (mistakenly or otherwise) expand upon the terms of the proposal when outlining it to the meeting, I do not consider that this alters the position if (as I consider is the case) the resolution put to the meeting referred to the written document before the meeting (and not any oral explanation of it).
150The resolution referred in terms to something "in the same form as" the proposal " statement " presented at the meeting; not to the proposal as outlined or amended or expanded upon at the meeting nor to the effect or intent of that document. In this regard I note that what s 439A(4) requires if a deed of company arrangement is proposed is that the administrators' report provide a "statement" of the proposal detailing certain matters. The use of the same terminology, in the resolution is, it seems to me, significant in pointing to the use of 'statement' in the resolution as a reference to the written document presented to the meeting.
151I accept that the creditors could have voted at the meeting on a completely different proposal from that contained in the report to creditors, so as to bind a creditor (such as Jin Heung) who had not attended the meeting but had simply given a general proxy to vote in favour of a deed of company arrangement proposal (subject of course to the possibility that relief of the kind now sought might be able to be obtained by such a creditor). However, the minutes record a resolution passed by reference to the form of a proposal statement presented at the meeting. I read that as a reference not to an orally amended proposal on the floor of the meeting.
152There is also an issue as to whether Jin Heung was one of the creditors voting in favour of that proposal as a matter of fact (and an issue as to whether any such vote would have been valid as a matter of law). The vote was apparently taken on the voices (although the recollection of Mr Rickard, who intervened in the hearing on behalf of the Community Association, was that it was by a show of hands). No deed poll was called. As noted earlier, Mr Hyun was holding 7 proxies at that meeting (one of which was Jin Heung's proxy). The minutes disclose that he exercised another creditor's proxy in order to second the motion in relation to the deed of company arrangement. The minutes do not disclose whether or how he exercised any of the 7 proxies on the vote for the deed of company arrangement resolution itself.
153Ernest v Loma Gold Mines Ltd [1897] 1 Ch 1 is authority for the proposition that if a proxy is empowered to vote on a show of hands, only one vote can be so given even if the proxy represents several members. (There is no suggestion that there is any different position applicable to a vote on the voices.) The rationale for this rule was suggested in Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660) to be that a meeting's progress would be impeded if proxy votes had to be counted on a show of hands. Another rationale is the difficulty arising if a proxy holder may hold proxies requiring it to vote in different ways (see Ford's Principles of Corporations Law ).
154After the resolution in relation to the deed of company arrangement, various resolutions were put in relation to the administrators' fees. Over the objection of the Korean parent company, creditors at the second meeting approved (it not being made clear from the minutes how the motion was so carried) total remuneration for the deed administrators (for both the voluntary administration period and, prospectively, for their work as administrators of the Deed of Company Arrangement) in the total sum of $350,000.
155It seems that in the first instance it was the passage of the resolutions in relation to the fees that caused the immediate problem between the administrators and the Korean parent company - Mr Kang, in his evidence, referring to this in his emails in emotive terms and emphasising the problem this would cause him. He was of the view that the fees were excessive (and appears to have regarded this as akin to a betrayal by the deed administrators). There are references to a loss of trust between Mr Kang and the bank (something that may well have been Mr Kang, in effect, misstating the position of the bank as he did in later attributing particular problems or intentions to the bank when engaging in settlement negotiations of the proceedings commenced by the Korean parent company) and a loss of trust and confidence by Mr Kang in the deed administrators. The Korean parent company appears to have withdrawn its support for the Deed of Company Arrangement shortly after the meeting due to this issue (although a cynical view might be that it had no ability to meet its commitments under the Deed in any event). (Ms Park agreed that, after the second creditors' meeting, she said to Mr Kang that she "didn't know that the Deed of Company Arrangement was progressing in that way".)
156At the conclusion of the meeting, Mr Rickard again enquired as to the ramifications of a default on a DOCA payment and Mr Whittingham advised the meeting that "considering the concerns in relation to the financial position of the Holding Company, there would be little tolerance for missed payments under the terms of the DOCA" and that in the event a payment was missed the Korean parent company would immediately be put on notice and again advised that, if the default could not be rectified, then a further meeting of creditors would be convened either to vary the terms of the Deed of Company Arrangement or to put the company into liquidation.
157Mr Kang says that he did not tell Jin Heung after the meeting what had transpired (and this is supported by the evidence of Mr Ryu and by the lack of any email communications to that effect). By that stage, Mr Kang was clearly agitated at the level of the fees for which the Deed had provided and was seemingly attempting to negotiate a reduction in those fees.
158Mr Ryu confirmed that he was not told what had happened at the meeting and nor was he provided with a draft deed at any stage. It seemed in submissions to be suggested that it was incumbent on Jin Heung to press the administrators for confirmation of what had occurred. As a practical matter, it is difficult to see how that could reasonably have been expected. At no stage had the deed administrators made direct contact with Jin Heung prior to the meeting (although I accept that there had been a letter of 5 July 2010 addressed to the bank, which it did not receive, and communications both around that time and later to lawyers in Sydney and in Korea, though at least the Sydney lawyer, Mr Kwon, was not acting on the matter at that stage). Mr Ryu was quite direct in saying in the witness box that he had no way of contacting the deed administrators.
159By letter dated 30 July (but stamped as posted on 2 August 2010) (CB 1506) Blake Dawson wrote to Jin Heung (addressed to the same address in South Korea as the letter that Jin Heung had not received) and also to NH Capital, confirming that the Deed of Company Arrangement had been executed and that it was binding on Jin Heung. Curiously, the letter to Jin Heung commenced by referring to "your recent correspondence to our clients" (in which it is said that the banks had stated their dissatisfaction with the remuneration approved and intention to appoint receivers). No such correspondence was in evidence. It seems that this can only have been a reference to the email communications between Mr Kang and Ms Park in which references to the bank's position in relation to the level of fees (and reported intention to appoint a receiver) were made. (This suggests a failure to distinguish between the position of the bank and that of the Korean parent company, which seems to me likely to have been the underlying cause of much of the problem in this case.)
160Mr Golledge pointed to the correspondence of 5 July, 26 and 27 July (the receipt of the 5 July letter and on-sending to Korea), the 26/27 July letters and the 30 July letter as evidencing the attempts by the liquidators to make contact with the banks. Nevertheless, the impression conveyed by the material to which I was taken, and the evidence of Mr Whittingham in this regard, was that the administrators had largely left it to the Korean parent company to communicate with Jin Heung (and had assumed both the risk that there might be a miscommunication or no relevant communication between those parties but also, perhaps more relevantly, had proceeded to enter into commitments in the course of the administration without a clear document binding the secured mortgagee to consent to a sale - of the kind that they had apparently considered necessary as at 5 July 2010 - or to provide a discharge of mortgage).
Deed of Company Arrangement - 18 August 2010
161Subsequently, a formal Deed of Company Arrangement instrument was prepared by the deed administrators' solicitors (CB 1592). It was signed on 18 August 2010 by Messrs Whittingham and Crowe-Maxwell in their capacity as deed administrators and also by them on behalf of Le Meilleur. None of the Korean directors of Le Meilleur signed the Deed of Company Arrangement. (The Deed was sent to the bank's lawyers on 19 November 2010, in the circumstances I refer to below.)
162The Deed of Company Arrangement as executed provides for the Land Sale Proceeds (after deduction of priority amounts to which I will refer shortly) to go to the secured creditors and the business sale proceeds to be distributed to the unsecured creditors (along with the contributions from the Korean parent company, if there be any) in accordance with clause 12 of the Deed.
163The terms of the Deed of Company Arrangement (clause 4.4(c)) require the secured creditors (Jin Heung and NH Capital) to provide discharges of mortgage in exchange for payment of the Land Sale Proceeds on the Sale Completion Date of a Sale of the golf course achieved by the deed administrators in accordance with the terms of the deed. (There is no doubt that no such obligation was expressed in the terms of the 16 July deed proposal, though it might be said to have been implied had there been a specific provision in relation to the land in that proposal.)
164The term "Land Sale Proceeds" is defined in clause 1.1 of the Deed as the net proceeds generated by the administrators through the sale of the Land less the Priority Land Costs and the Administrators' Priority Amounts to the extent that any such amounts are still outstanding at the Sale Completion Date. By reference to the definition of the "Administrators' Priority Amounts" the effect of clause 4.4(c) broadly is to give the deed administrators' priority for the costs and expenses of the sale and of the trading of the business in accordance with the Deed and for any debts or obligations incurred by them as, and any remuneration or other fees to which they are entitled as, voluntary administrators of the company.
Administrators' remuneration
165Mr Whittingham accepted in the witness box that (having regard to the sale price for the land) the amount to which Jin Heung would be entitled under the Deed of Company Arrangement (before taking into account any claim for remuneration by the administrators) would be approximately $800,000. He clarified during cross-examination that his total claim for remuneration would also be approximately $800,000. (His evidence was that he intended to make a claim for at least some of that $800,000 but was not able to indicate how much he would claim.) Mr Whittingham conceded first that it was "possibly" and then that it was "probably" the case that under the Deed he would be paid the entirety of his remuneration and there would be "very little" for the secured creditors. Mr Whittingham had sought legal advice about the recoverability of his remuneration as against Jin Heung's $800,000, on the basis of which he asserted an entitlement to be paid at least a portion of his remuneration by the bank. (Mr Pritchard notes that the vagueness of this evidence is contrary to the precision with which he stated the amounts for distribution in his first affidavit.) (Mr Whittingham agreed that he had not disclosed in his affidavit evidence any attribution as between the land contract and the business sale contract with respect to that remuneration. (The significance of this is that, in the absence of any evidence about the extent to which Jin Heung's entitlement would be diminished by Mr Whittingham's remuneration claim, or whether it would be extinguished entirely, Mr Pritchard submits that the court cannot be satisfied that Jin Heung's interests are adequately protected under the Deed of Company Arrangement.)
Proceedings to set aside Deed of Company Arrangement
166In August 2010, the Korean parent company brought proceedings in this Court seeking to have the Deed of Company Arrangement terminated. Those proceedings were discontinued on 13 September 2010, after a settlement agreement was negotiated between Mr Kang and Mr Whittingham.
167The settlement agreement (dated 3 September 2010 (CB 1940) contained an acknowledgement by the Korean parent company that the deed administrators' appointment (both as voluntary administrators and as deed administrators to the company) was valid and as to the validity and binding nature of the Deed of Company Arrangement. It included an undertaking by the Korean parent company to make further payments as required by the Deed of Company Arrangement (which seems to have been breached) and (in clause 10) to procure the delivery of discharges of mortgages from each of the Korean banks (this latter clause being relied upon by Mr Pritchard as being inconsistent with the notion that the Deed of Company Arrangement is binding on the secured creditors). (In that regard, clause 10 might equally be construed as an attempt by the deed administrators to obtain more leverage in seeking to procure the delivery of discharges of mortgage and I place little weight on this in determining whether Jin Heung was in fact bound by the Deed.)
168Ms Park and Mr Whittingham say that Mr Kang represented to them at the time that Jin Heung was aware of the proceedings (and that it had in fact initiated them) and that Jin Heung had to approve any settlement which was negotiated. (Mr Kang agrees that he did so.) The significance of this (other than insofar as it goes to Mr Kang's credit), is not immediately apparent. Jin Heung is not a party to the settlement agreement and it was not suggested (at least in the proceedings before me) that any estoppel had arisen from the circumstances in which it was executed.
169Mr Kang in the witness box explained that he had misrepresented to the deed administrators the bank's position in relation to the proceedings and the settlement because he was under pressure. (I consider shortly the impact of this on his credit generally.) In the witness box he was adamant that Jin Heung had not been aware of the proceedings.
Sale process
170Almost from the outset, the Korean parent company did not comply with its payment obligations under the Deed of Company Arrangement (under which the Korean parent company was obliged to meet operating expenses up to $100,000 per month to keep the golf club trading and make contributions to the deed fund). The deed administrators did not take the matter back to creditors at that point but, rather, commenced a sales process in relation to the marketing of the golf course land and business, inviting marketing programs from two different firms and appointing Ray White real estate to run the marketing campaign. The campaign is said to have included provision for advertising of the golf course both locally and internationally, including in Korea.
171According to the deed administrators, the campaign attracted initial interest but no firm offers and, on advice from the selling agents, the deed administrators changed the campaign from a tender process to an Expression of Interest campaign. All persons who had expressed interest during the tender process were contacted. At the conclusion of the Expression of Interest campaign, on 12 November 2010, the highest offer received for the combined property and business was from Mr Lawton for a price of $3 million (arbitrarily apportioned by him at $2million for the land and $1million for the business). (The deed administrators say that that price was well above the valuation they had obtained for the property of $1 million. It is some $500,000 less than the value placed on the land by the valuer (Mr Greg Rowe) called to give evidence Jin Heung.)
172A copy of the Deed was forwarded to Jin Heung ("for [its] convenience") by letter dated 19 November 2010 from Blake Dawson. Mr Whittingham said that it was not his practice to send signed copies of deeds of company arrangement to secured creditors who had voted in favour of deed proposals but accepted that in this case he had (for a reason he was unable to explain) instructed his solicitors to do so. That letter explained the entitlements and corresponding obligations of the bank under the Deed
173The deed administrators' solicitors first wrote to the Korean banks on 19 November 2010 (CB 2102) advising in relation to the progress of the sale and asked for a discharge of the two mortgages. It made the (somewhat disingenuous) observation that:
We presume that the Bank supported the DOCA because the Bank rightfully perceived that the DOCA was the quickest and most efficient means of releasing its Mortgage
I say 'somewhat disingenuous' because it is hard to see what the advantage for the first mortgagee would be in a quick release of its mortgage if it were not to obtain proceeds from the sale of the secured property yet the administrators' lawyers expressed the view that on the valuation the "Land Sale Proceeds" were likely to be substantially less than the debt (and even less than the bank might then have anticipated when the level of the administrators' as yet unclaimed remuneration and expenses ultimately came to light).
174The letter asserted that it was in the best interests of the bank to co-operate with the administrators for a number of reasons, not least because it was asserted that if the company went into liquidation the bank's mortgage would "be exposed to challenge and may be voidable pursuant to Part 5.7B of Act", and therefore a liquidation would pose the real challenges that the bank would receive no return whatsoever on the mortgage, which risk it was assumed the bank would wish to avoid. Pausing there, this seems a rather heavy-handed approach to pressure or persuade Jin Heung into providing a discharge of mortgage when it is appreciated that before this there had been no notification by the deed administrators of the outcome of the meeting or any previous request for discharge of the mortgage. (The explanation for that may be the understanding of the deed administrators, mistaken though it turns out to have been, that Jin Heung had been the moving party behind the attempt to set aside the Deed of Company Arrangement.) The letter concluded by stating that the solicitors could provide further updates on the sales process if the bank wished (although, as will be seen, the willingness to do so was not evident from later correspondence).
175A letter was also sent to the Korean parent company on that date (CB 2118) advising it of its obligations and the consequence of a failure to obtain discharges of mortgage (including that on a liquidation a liquidator would "no doubt" seek to commence proceedings against the Korean parent company and Messrs Chung and Kang personally for insolvent trading.
176That correspondence to the Korean parent company was followed by advice from the latter that an alternative purchaser had been located (which turned out to be Hae Dong Engineering & Construction Co Ltd) which was prepared to make an "indicative offer" of $5 million. An intention of interest to purchase the golf course with an "indicative" offer in that amount, signed by an entity of that name but not on company letterhead, was in due course received by the deed administrators (CB 2123). Mr Whittingham has given evidence that he was very sceptical about the "offer" from Hae Dong because of the lateness of the offer, its form and content, and the circumstances in which it had emerged. He says that he sought to test the potential purchaser's resolve by requiring the submission of a $500,000 non refundable deposit. (While a lesser non-refundable deposit of $300,000 had been sought from Mr Lawton, the administrators did not insist upon this.)
177Mr Whittingham instructed his lawyers to issue contracts of sale to both Hae Dong and to Mr Lawton, which was done on 27 November 2010 under cover of letters inviting each purchaser to complete an exchange of contract by 6 December 2010. There was no suggestion of any willingness to waive the non-refundable deposit condition vis a vis the Korean entity.
178Lawyers acting for both of the Korean banks wrote on 29 November 2010 (CB 2303) raising concerns as to the propriety of the administrators' actions in demanding payment of an "arbitrary fee set by them as a price for entering into negotiations" (referring to the $500,000 non-refundable payment) and asserting that a refusal to consider negotiations with a proposed purchaser in those circumstances may well be a breach of the administrators' statutory duties. They demanded that the deed administrators immediately stop proceedings with any exchange of contracts for the sale of the land with any proposed purchaser and disclose all information in relation to the offers or expressions of interest regarding the proposed sale of the land. (I note that although the proposal initially put by the administrators in their letter of 5 July 2010 had proffered as a term the regular consultation in relation to a sale of the golf course, it seems that the deed administrators regarded the Deed of Company Arrangement as providing them with far more latitude than what had been proposed, albeit that it was not accepted in the first place.)
179While Mr Whittingham maintained that there had been consultation as to the sale process he was not able to point to anything other than the 19 November communication (and subsequent correspondence addressing the complaints raised on behalf of Jin Heung) in which the sale process was raised.
180Blake Dawson responded to those letters on behalf of the administrators (in what Mr Pritchard evocatively described as a "Churchillian response") by letter dated 29 November 2010 (CB 2311), demanding copies of documents required to prove Le Meilleur's indebtedness to Jin Heung and the validity of its mortgage over the golf course land. That letter also raised issues as to a suspected relationship between Hae Dong and Jin Heung and emphasised the deed administrators' "broad discretion" under the Deed to sell the lands on terms they deem fit. It was suggested that it might be necessary (to protect the commercial confidentiality of the process and their negotiating position) only to provide limited information about the progress of the sale to the secured creditor.
181On 30 November 2010, by email Mr Lawton withdrew from the bidding process. However, it appears that he re-entered the fray not long after that, because on 7 December 2010 the deed administrators notified Hae Dong, as well as the solicitors for both the banks, of the deed administrators' intention to exchange contracts with the alternative purchaser on 9 December 2010.
182Mr Golledge suggested that there was no action taken by the first or second defendant to prevent the administrators moving to conclude a sale as they had indicated they were proposing to do. However, the liquidators were on notice of the mortgagees' objection to the sale as at 29 November 2010 (when the solicitors acting for Jin Heung wrote demanding that the sale process not proceed until information was provided and their queries addressed) yet chose nonetheless to proceed (notwithstanding the opposition thereto) to enter into contracts with Mr Lawton's company predicated on their ability to confer good title on the purchaser. Interestingly, however, the sale contract as exchanged included clause 33 (the 'out' clause if the administrators were unable to obtain discharges of the mortgages) was not included in the first draft of sale contracts issued in relation to the golf course land (suggesting that by the time of exchange there was a clear awareness of the potential difficulty in this regard).
183On 24 December 2010, contracts were exchanged both for the sale of the golf course land and of the business assets of Le Meilleur between the company and nominated entities of Mr Lawton. (Notice of that exchange was given by email at 6pm that day, Christmas Eve, by the deed administrators' solicitors to the solicitors for the banks as well as to the directors of the Korean parent.) Clauses 33.2 of the Deed of Company Arrangement and 4.16 of the business sale contract (permitting the deed administrators to rescind the contract if discharges of the mortgages could not be obtained) were not contained in the first drafts of 27 November 2010 but were included in the executed documents. The sale was due to complete on 22 February 2011. (Settlement has since been extended by agreement with Mr Lawton.)
184As noted earlier, the deed administrators say they have incurred some $314,735.09 in liabilities in relation to the operation of the golf course during the period prior to Mr Lawton taking possession under licence and in the performance of the administration. (In opening submissions it was submitted that, absent the operation of the Deed of Company Arrangement, the deed administrators will be left, in practical terms, without any obvious means of recouping those costs. It is, however, now submitted that the deed administrators may assert a claim for an equitable charge over the company's assets for those liabilities.)
185On 31 January 2011, Sojong Lawyers, acting for Jin Heung, advised the deed administrators' lawyers, Blake Dawson, that Jin Heung would not agree to provide a discharge of its mortgage. That led to the almost immediate commencement of these proceedings.
186Finally, I note that the deed administrators ceased to operate the golf course in about February this year. On 8 March 2011, Mr Lawton, or companies associated with him, took possession of the golf course under licence pending completion of the sale contract. Some remediation work has been undertaken by Mr Lawton to the golf course (which was said to have been in a poor condition at the commencement of the administration) and Mr Lawton has expended some $500,000 in the acquisition of motorised golf buggies for the course. Mr Lawton has given evidence in the proceedings and, not surprisingly, supports the relief claimed by the deed administrators.
Credit of witnesses
187Before turning to the issues for determination, I deal first with the submissions made as to the credit (and conduct) of the respective witnesses.
Plaintiffs' witnesses
Mr Whittingham
188No submission adverse to Mr Whittingham's credit, as such, was made. Indeed, Mr Pritchard expressly disavowed any suggestion that Mr Whittingham was motivated by a desire to gain personal fees from the administration, though I note that some questions to that effect were put to Mr Whittingham. However, there was criticism (unfounded in Mr Golledge's submission) of Mr Whittingham's conduct in relation to the administration.
189That criticism made of Mr Whittingham's conduct in relation to the administration was in three main respects: first, that he left it to Ms Park (and, through her, Mr Kang) to act as the conduit with the Korean banks; second, that he did not take steps to bring matters back before the creditors when there was a default by the Korean parent company in compliance with its obligations under the Deed of Company Arrangement (but, instead, continued to incur expenses in the operation of the golf course and to pursue a sale of the property); and, third, that he did not give the Korean banks sufficient notice of his intention to enter into the contract for sale of the golf course with Mr Lawton. (Criticism was also made of his attempts to explain why it was that the deed proposal as put to, and voted upon by, creditors included both the land and the business.)
Use of Ms Park/Mr Kang as conduit
190As to the first, Mr Whittingham accepted in cross-examination that he had relied on Ms Park as the conduit between himself, Le Meilleur and the Korean parent company; that he knew she had very little knowledge or prior experience as to the operation of Part 5.3A of the Act or voluntary administrations; that he knew that things he said to her and documents would be passed on or translated to the Koreans who controlled Le Meilleur and the Korean parent company; and that he trusted her to record accurately what was said or advised and to pass that on to the Korean parent company. (As it turns out, Mr Whittingham was critical of at least some of the translation work emanating from his firm - such as the document recording the 25 June meeting, but it is not clear that he formed that view until the matter came to trial.)
191Criticism was also made of the fact that, aIthough Mr Whittingham knew that Le Meilleur had an interest in either procuring the consent of Jin Heung to the sale (or persuading it not to appoint a receiver), and knew that Le Meilleur's interests were not necessarily the same as Jin Heung's interests, he did not give any consideration as to whether there might have been a conflict between Le Meilleur's interests and the bank's interests. It was submitted, in effect, that the inference to be drawn therefrom was that Mr Whittingham was content to permit Mr Hyun (or, for that matter, Mr Kang) to say whatever he wished to Jin Heung in order to procure a proxy for the relevant meeting. (This seems to be the basis on which it is submitted that representations by Mr Kang to the Korean banks were made on behalf of, or as agent for, the deed administrators.)
192Mr Golledge submits that it was entirely appropriate for Mr Whittingham to leave it to Mr Kang to speak to Jin Heung (on the basis that it was not within the deed administrators' 'mandate' to lobby individual creditors to support the Korean parent company's deed proposal). (In that regard, such a distinction is somewhat forced when the deed proposal was said to have been one for which Mr Whittingham says he 'negotiated hard' and which was prepared by (and submitted to) the Korean parent company by PKF - and also when the exhortations of Ms Park to Mr Kang to encourage him to proceed with the proposal are read in context.) For Mr Whittingham to disavow any involvement in the formulation of the proposal would be inconsistent with the facts. That said, I accept that the role of the administrators was to assess and make a recommendation as to the deed proposal.
193Whether or not Mr Whittingham thought there was a conflict on the part of the Korean parent company in encouraging Jin Heung to give up its rights in respect of the sale of the property over which it had a first registered security, there clearly was a potential conflict of interest between the Korean parent company and the secured mortgagee in this regard. The consequence of this, it seems to me, is that the administrators must have been on notice of the risk that the secured mortgagee might (unless it had independent legal advice) have an incomplete understanding of the transaction (or one coloured by what the Korean parent company had chosen to tell it). They proceeded to take steps on the basis of what seems to have been little more than an assumption that what Mr Kang (through Ms Park) was telling them as to the position of the registered mortgagee was correct. In so doing, it seems to me that they took a commercial risk (just as they did in proceeding to enter the sale contracts before the obligation of the mortgagees to deliver discharges of mortgage had been tested). That is something to be taken into account when considering the discretionary aspects of the matter.
Failure to bring matter back before creditors
194As to the second basis for criticism of Mr Whittingham's conduct, he concedes that he did not bring the matter back before the creditors (in advance of committing the company to a sale) even though by then the Korean parent company was in breach of its obligations to make monetary contributions under the deed (and even though he had twice assured creditors at the second meeting that this is what he would do).
195Mr Whittingham's position was that he wished to complete the sale and then to consider the option of taking the matter back to creditors. Mr Golledge submits that this was a sensible option (and noted that this is expressly provided for under clause 11.5(b) of the Deed of Company Arrangement). It is submitted that the sale contract offered an opportunity which was time critical (in that there was a limit to how long the resort could continue to be operated by the deed administrators) for the deed administrators to realise an asset of the company for the benefit of the creditors and which, in the deed administrators' professional judgment, would be lost if the course was closed and the sale abandoned.
196(In that regard, Mr Pritchard submits that if the exchange of contracts with Mr Lawton presented no impediment to the Deed of Company Arrangement being varied or the company being liquidated that could only be if the mortgagees were not bound to give the discharges of mortgage, since that was the only basis on which the administrators could invoke the exit clause in the contracts.)
197Whether Mr Whittingham's professional judgment to proceed with the sale (notwithstanding the default by the Korean parent company) may have been reasonable in the circumstances (by preserving a sale opportunity for the benefit of unsecured creditors - who would at least obtain some distribution if the sale of business proceeds in that scenario), does not address the fact that it was a commercial risk to enter into such a sale in the face of opposition by the registered mortgagee. (At the very least, that exposed the company to the costs of the litigation that has now eventuated.)
198Mr Whittingham's position (having taken legal advice) seems to have been that he could rely on the proxy vote as binding Jin Heung to the Deed of Company Arrangement (and that in those circumstances the need for consent from NH Capital was unlikely given the financial scenario that it would not be likely to recover anything from the sale in any event) and that he proceeded on regardless in the hope or expectation that the mortgagees might not ultimately challenge the matter.) Again, that is a commercial risk (or forensic decision) that was taken and that needs to be taken into account in considering the discretionary aspects of the matter.
Failure to give notice of intention to enter into contract
199As to the criticism that Mr Whittingham did not, at any time, make direct contact with Jin Heung to discuss the administration strategy or (following the second meeting) the sale process, Mr Golledge submits that the same criticism can be made of the officers from Jin Heung who were on notice of the appointment of the administrator since July 2010 and were aware (though he concedes they may not fully have understood) that steps were being taken in Australia (including the proposal for a deed of company arrangement) which were likely to have some impact on the secured property and yet took no steps to inform themselves as to the effect of Part 5.3A or of the action taken by it in relation to the second meeting.
200Mr Golledge submits that Mr Whittingham (and his solicitors) did take steps to inform the Korean parent company and Jin Heung as to the sales process. However, I think it is fair to say that those steps were relatively perfunctory. Mr Pritchard submits that any such steps were inadequate: first, because to the knowledge of Mr Whittingham, neither he nor his solicitors had had any contact with Jin Heung prior to the second creditors' meeting (though Mr Whittingham maintained that his instructions were for his solicitors to do so and that they had "continually chased" the bank and its solicitors ; second, because Mr Whittingham was aware that the only way in which Jin Heung was represented at the second creditors' meeting was by an employee of Le Meilleur (and, as noted earlier, it is submitted that Le Meilleur's and/or the Korean parent company's interests necessarily conflicted with that of Jin Heung); and, third, because no evidence was adduced from the deed administrators' solicitors as to what was done (and a Jones v Dunkel (1959) 101 CLR 298 inference is said to be available to permit the more ready inference that such evidence would not have assisted the deed administrators' case). In that regard, suffice it to note that the administrators chose only to rely upon the written communications in this regard.
201Mr Pritchard also notes that the unchallenged evidence of Mr Ryu was that when Jin Heung did become aware of the proposed sale it had no way of contacting the administrators other than through Mr Kang.
202Mr Golledge submits that Jin Heung was represented at the second meeting by its proxy and that Mr Whittingham might reasonably have presumed that the bank was notified by its proxy of what went on at the meeting and what was then proposed to be done. Whether or not he made such an assumption, the evidence of Mr Ryu (which I accept) is that Jin Heung was not informed after the meeting by its proxy as to what had transpired. It was not until 9 November 2010 that Mr Whittingham's solicitors wrote to Jin Heung in Korea to notify it of what had happened at the meeting and of its effect on the bank's security.
203It is submitted that during the following two months (as Mr Whittingham went about the sale process) there was no occasion to report to creditors generally or to Jin Heung in particular. That seems to me to be a difficult position to maintain, particularly in the context of the ultimate refusal of the deed administrators to provide information as to the sale process to Jin Heung (citing confidentiality concerns). In any event, it is submitted that once a 'firm' offer had been procured, the deed administrators reported to the bank and asked for the discharge of mortgage to be prepared (and that what next occurred was that over December 2010 and January 2011 Jin Heung "vacillated" in making a decision and only notified the deed administrators of its final refusal to discharge its mortgage on 31 January 2011). When viewed in context, it is submitted by Mr Golledge that no reasonable criticism can be made of the deed administrators' actions.
204However, what that seems to discount is that Jin Heung had made clear its concerns about the sale process in November 2010 and it seems difficult to suggest that notice of entry into contracts at 6pm on Christmas Eve gave the Korean banks any real opportunity to prevent exchange of contracts at that stage. Insofar as reliance is placed on the delay by Mr Golledge as favouring the exercise of discretion against the relief sought by Jin Heung, I am not persuaded. Conversely, insofar as the failure to consult with Jin Heung is relied upon as a discretionary factor going towards the grant of relief, I place little weight on this.
Evidence of Mr Whittingham generally
205Finally, I think there is force in the criticism of the adoption by Mr Whittingham of confusing and apparently contradictory positions. Reference was made by Mr Pritchard to Mr Whittingham's rejection of the proposition that the land and the business were "all the same thing" (saying that they were "definitely distinct parts"); to his refusal to distinguish between "land" and "business" at T 144 (saying that they were intermixed - T 145); and his rejection of the suggestion that, in this case, the business and the mortgaged land were different or legally distinct (T 146), notwithstanding the use in his letter of 9 July 2010 of the words "combined sale of the Property and Company".
206It seems to me fair to draw the inference from that confusion in the witness box that Mr Whittingham has doggedly clung to the interpretation of the deed proposal that supports his position, even faced with the illogicality of the maintenance of that position in light of documents that only make sense if the use of the term 'business' did not include 'land'.
207When Mr Whittingham was pressed in the witness box as to why he said the final proposal referred to any sale of the property, he said: "The fund is to do with the other unsecured creditors. They get no part of the sale of the business." and that it was the first mortgagee who would get the money out of the sale of the business. Nevertheless, I sought to clarify his understanding of that position, Mr Whittingham agreed that the reference to "business" in paragraph 2 of the final proposal referred to "the business and the land" or to "business including land" and said that "when the business and the land [are] sold, that would all go to the bank".
208Mr Pritchard submits that those answers are irreconcilable both with the terms of paragraphs 2 and 5 of the final proposal (which provide that the proceeds of the sale of the business are to be paid to priority creditors and then to admitted creditors) and with the terms of the executed Deed of Company Arrangement. It is submitted that there is no foundation in the Deed of Company Arrangement for a conclusion that "when the business and the land [are] sold, that would all go to the bank" or that the unsecured creditors would "get no part of the sale of the business" (irrespective of whether "business" means "business" alone or means "the business and the land" together).
209Mr Whittingham agreed that the final deed proposal did not state that the mortgagees must accept the proceeds of the sale of the business and land in full and final satisfaction of all debts owed to them, secured or unsecured and suggested that whether the bank would wind up the company after the completion of the Deed of Company Arrangement in any event was "totally up to the bank". When asked what he thought would happen to the unsecured debt, owing to the mortgagee upon the sale of the land, Mr Whittingham's answer was that he did not know (T 183). Similarly, he was unable to explain what he thought would be the benefit to the parent company of contributing $4 million in circumstances where a secured creditor could still wind up the company shortly thereafter. While I do not suggest that this supports a finding adverse to his credit, I cannot place weight on Mr Whittingham's insistence as to the meaning of the deed proposal and it causes me some concern that there was a disparity between the deed proposal as outlined in the 16 July letter and the record of the manner in which it was outlined in the minute of the meeting.
210The impression I formed was that Mr Whittingham had proceeded on little more than an assumption as to the position in relation to Jin Heung (perhaps having been misled by Mr Kang in that regard) and on a mistaken view of the deed proposal put in writing by the Korean parent company. To the extent that he chose to incur liabilities in the administration on that basis, it seems to me that was a commercial decision he took knowing the potential losses that might ensue.
Ms Park
211Mr Pritchard submits that Ms Park presented as an unimpressive witness. By this, I take him to be referring to the many inconsistencies and contradictions in her oral evidence, some of which (as he concedes) may be due to a language difficulty (although, unlike the witnesses called for Jin Heung, Ms Park does carry on at least part of her practice as an accountant using the English language). For my part, my observation of Ms Park in the witness box was that she had a tendency (particularly when questioned on areas that might be perceived as going to the strength or weakness of the administrators' case) simply to say nothing - indeed, on occasions I intervened in order to ascertain whether the silence was due to a lack of understanding of the question put to her or an unwillingness to answer the question. Ms Park's evidence was marked by hesitation, delayed responses and contradiction. It was, on the whole, confused. While some of this may have been due to language difficulties, I was left in doubt as to how much could be so attributed.
212There is considerable doubt in my mind as to whether any advice conveyed by Ms Park (to Mr Kang or to others associated with the Korean parent company) as to the effect of the administration process would be likely reliably to have reflected either Mr Whittingham's advice (since it was apparent in the witness box that even now she has little understanding of the process, notwithstanding that she had obtained advice from Mr Whittingham in relation thereto) or the effect of the applicable provisions of the corporations legislation.
213Ms Park readily admitted in the witness box that she had no experience with the voluntary administration process and that her understanding of the process was poor. Mr Pritchard nevertheless relies upon Ms Park's misconception about the operation of Part 5.3 A and/or ignorance of the provisions of the Act as going to Ms Park's credit because Ms Park said in the witness box that Mr Whittingham had told her that the above matters represented the position in relation to the administration (T 304). Mr Pritchard submits that any suggestion that advice to the effect set out above might have been given to Ms Park by a professional administrator is not credible (pointing out that Mr Whittingham denied that he had given that advice to Ms Park). Mr Pritchard submits that this demonstrates the low probative value of her evidence, namely that Ms Park was prepared to make obviously incorrect statements to seek to exculpate herself from personal liability or responsibility.
214I do not see this as being the conclusion to be drawn from the above evidence. I think the more likely construction to be placed on Ms Park's evidence is that neither then nor now did she understand whatever advice Mr Whittingham did give her as to the administration process and, hence, her evidence in the witness box represents (at best) her present understanding of what she was told (not what it is likely that she was in fact told).
215While Mr Golledge submits (and I accept) that this case is not a test as to Ms Park's understanding of the corporations law, her lack of familiarity with the administration process and its effect (highlighted by the suggestion that once Mr Whittingham was appointed as administrator he had the power to sell that property without the secured mortgagees' consent and whether or not the mortgagees had voted for his appointment) makes it quite likely in my view that inconsistent and incorrect advice could have been given by her to Mr Kang in relation to the administration process.
216Further, the tenor of Ms Park's communications leading up to the appointment of administrators and then the statutory creditors meetings seemed to be that of seeking to persuade Mr Kang that the appointment of PKF was the best route to follow and discounting other possibilities, which suggests that Ms Park may have been inclined to present the options to Mr Kang in a more partisan light than, say, Mr Whittingham might be expected as an independent liquidator to have done. (In this regard, by way of example, I note that Ms Park at one stage reported that Mr Whittingham had promised to do his best for Le Meilleur, which seems an unlikely stance for Mr Whittingham to have adopted in his position as administrator where he has implied duties of independence and impartiality arising from the scope and objects of Part 5.3A (see Bovis Lend Lease Pty Ltd v Wily (2003) 45 ACSR 612).
217Therefore, while Mr Golledge submits that the lack of any document containing statements of the kind Mr Kang asserts were made to him by Mr Park (as to the ability of the bank to control the sale or to retain the right not to consent to the sale) or confirming that they had been made (notwithstanding the number of email communications that passed between Ms Park and Mr Kang at the time) is telling. (Ms Park, however, was hardly diligent in her note taking practices and the communications did not seem to be expressed in particularly precise terms. Whether or not Ms Park did say this to Mr Kang, I am satisfied that he conveyed to Mr Ryu that that was what she had said.)
218It seems to me that to the extent that Ms Park was unclear as to the import or effect of the transactions the subject of the voluntary administration, there is every possibility that she gave incorrect oral advice to Mr Kang due to her lack of understanding as to what was involved in the administration and that the lack of a document confirming in writing the giving of (what on this hypothesis would be incorrect) advice is not conclusive of the matter in Ms Park's favour.
Mr Lawton
219Mr Pritchard submitted that there were concerns as to Mr Lawton's credibility as a witness on the basis that he was unresponsive and did not accept simple propositions. It was submitted that his evidence was intended to present to the court an impression of a naive purchaser inadvertently caught up in an unmeritorious dispute concerning land he already regarded as his own property. In that regard, Mr Pritchard notes that Mr Lawton had independent solicitors acting for him on the sale and that, prior to the exchange of contracts, his solicitors had raised the issue of the mortgages on title, such that both he and his solicitors were aware that there were "2 Korean mortgagees to satisfy". (Mr Lawton said in the witness box that he was aware that there were "legal issues".)
220Mr Lawton disavowed any knowledge that the agreement of the mortgagees was required for the sale and thought it unlikely that his solicitors had told him about the mortgagee issues described in the email sent to them by Blake Dawson on 23 December 2010. When asked what he would have done if he had been informed by 24 December 2010 about Jin Heung's adverse position to the sale, Mr Lawton's evidence (I must say given in a somewhat dismissive manner - without an attempt to consider the issue) was that he could not now say what he would have done.
221Mr Pritchard also points to the evidence given by him as to the allocation of prices as between the business and the land (something he said was irrelevant to him and to which he had not given "business thought", that the product of "an impulsive 2 second thought" and his statement that he had just "split it somehow").
222Mr Lawton accepted that he was aware prior to signing the contract on 24 December 2010 that the contract included terms that permitted the deed administrators to rescind the contract if they were unable to procure discharges of the mortgages but said that he regarded this as "a standard receiver's clause".
223In the witness box Mr Lawton initially accepted that he was "prepared... to take a commercial risk in relation to going ahead with this deal in those circumstances" but then rejected the suggestion that he was "going to take a risk that the administrator couldn't do the settlement". Mr Lawton's evidence was that the only commercial risk he took was a "commercial risk to maintain the $3 million price" - because as a purchaser he did not want to pay that price for an asset that had diminished in value because of disuse.
224Mr Lawton said that he was asked by "the receivers" to go into possession and that, although they told him that there was a court case on, they did not tell him that if he went into possession "they could still lose the case and [he] wouldn't get the land". Mr Pritchard notes, however, that on his entry into possession, Mr Lawton knew "there were dramas", that "there was a problem" and that there was a court case on foot which "was to do with whether or not this land would be sold" and that the problem in the court case might mean he "couldn't get [his] contract through". It was in that knowledge (T 253) that he went into possession and started incurring liabilities and expenses. He expressed probable confidence in the result as the reason that he did so, though he knew that a potential outcome of the case (that he assessed as a very minimal risk) was that he would not be sold the land.
225It was suggested to Mr Lawton that he had been prepared to incur considerable expense in relation to the course (purchasing motorised golf buggies for $500,000) because he knew he had achieved a bargain price for the course. He denied that this was the case and I do not draw such an inference. It seemed to me that Mr Lawton's explanation was redolent of a balancing of commercial interest and risk in that regard.
226I draw no inference adverse to Mr Lawton's credit. However, he must be taken to have been aware of the risk that the sale would not complete (due to a failure to obtain a discharge of the mortgages) by reference to the terms of the contract and to his own solicitors' enquiries as to the mortgages on title). Insofar as the expenditure by Mr Lawton is relied upon as going to the exercise of discretion, Mr Pritchard submits and I accept that he must be taken to have done so in the context that he was thereby assuming the risk that the contract would not complete. (There is also nothing to suggest that if the contract does not complete, then an incoming liquidator, or receiver appointed by the bank if the bank does then take steps to enforce its security, would not put in place a similar commercial arrangement for the conduct of the golf course pending the winding up of the company.)
Jin Heung's witnesses
Mr Kang
227Mr Pritchard submits that the evidence of Mr Kang (a director of both Le Meilleur and the Korean parent company) was given directly, responsibly, honestly and with candour. Mr Golledge submits otherwise. Where they differ, in large part, is as to what weight should be placed on Mr Kang's evidence that he had misled the deed administrators in relation to the proceedings commenced by Le Meilleur to set aside the Deed of Company Arrangement and in relation to the settlement of those proceedings (in particular, as to the involvement of Jin Heung in those matters).
228Mr Pritchard submits that it was not put to Mr Kang that he told untruths to Jin Heung without first having been told the facts he alleges he was told by Ms Park (although it was certainly put to Mr Kang that he had not said particular things to the bank officers - see at T 321). Reliance is placed on the principle in Browne v Dunn (1893) 6 R 67 (HL) in that regard (it being submitted that there are potentially many answers as to why Mr Kang would not have told untruths to Jin Heung).
229Mr Pritchard also notes that the representation suggested to be untrue in the exchange at T 321 ("Yes, I said that, but I also added if the bank would not like the sale price the bank is entitled to refuse the sale" was expressly made to Jin Heung in writing in Mr Kang's letter of 15 July 2010.
230Mr Pritchard submits that the response to the suggestion put to Mr Kang that he would have ensured that any important matters discussed with Ms Park were put into writing (namely, that he was a financial controller not a lawyer and that in the past Ms Park used to give him advice numerous times over the telephone and had provided him with accurate information so that in relation to these matters he trusted her) was credible.
231It is submitted that Mr Kang gave a very frank explanation as to why the statements (now said by him to be incorrect as to the September settlement) appeared in his emails to Ms Park, namely that:
I didn't have any other option but to pretend that the bank was taking this attitude as I said in the email because if I just use the bank to say what I wanted them to say because the bank was so concerned about the possible receivership I thought that this will get the message across to the administrator. And then after the second creditors' meeting I felt that I couldn't trust Christine Park any longer. I know this was not the right thing to do. The situation simply forced me to take this approach.
232Mr Pritchard submits that it is to Mr Kang's credit that he was so forthright about this matter and made no attempt to evade the question or to mislead or deceive the court. It is submitted that this is, in effect, corroborated by Ms Park's evidence that her relationship of trust and confidence with Mr Kang eventually broke down.
233It seems to me that, no matter how forthright and direct Mr Kang was in the witness box, there is an obvious doubt as to the weight that can be placed on the evidence of a witness who has seemingly been prepared to misrepresent the position (whether because he was under pressure or not) to the deed administrators. It leaves open the question what other aspects of the bank's conduct he has similarly been prepared to misrepresent (such as the bank's concern about the fees and intention to appoint a receiver). (As noted earlier, I consider that there might be an equal inference open that he had been willing to present at least an incomplete picture of events to Jin Heung).
234I treat Mr Kang's evidence with caution. Nevertheless in one critical respect (namely the conditions to which any sale by the administrators were to be subject), Mr Kang's evidence of what he told the bank officers (supported by the bank officers) is corroborated in his letter confirming the matters discussed at the 15 July meeting.
Messrs Youngdae Ryu and Kwanghee Yoon
235Mr Pritchard submits that each of the bank officers has no affiliation with either Le Meilleur or the Korean parent company and no direct financial interest in the outcome of this proceeding. I accept that to be the case, although it may well be that it is in their interests as employees to assist in the bank securing the outcome it desires from these proceedings.
236That said, the evidence of the bank officers (through an interpreter) seemed to me to be straightforward and consistent with the documentary evidence as to the 15 July meeting and the evidence of Mr Jong Hyun Park (the Korean lawyer) (namely that Mr Ryu had expressed to him, in mid July 2010, Mr Ryu's belief that Le Meilleur and its administrator had "arranged not to infringe on Jin Heung's rights").
237I accept their evidence as to the circumstances in which they signed the proxy and reasons why they signed the proxy.
Mr Greg Rowe
238No evidence was led by the deed administrators to dispute the valuations of Mr Rowe and his cross-examination tended to confirm the basis on which he had made certain of the critical assumptions in his valuation (namely his estimate of the cost of the works required to be effected to the golf course irrigation system).
239It is submitted by Mr Pritchard that the deed administrators did not seek otherwise to justify the sale process undertaken by them (and he noted in this regard the conduct of Mr Whittingham in seeking a substantial non-refundable deposit in the context of the $5 million expression of interest by Hae Dong).
240I am of the view that Mr Rowe's evidence was, as Mr Pritchard submits, both balanced and measured. He had not only valuation expertise but actual experience (albeit in a non-professional context) in relation to the operation of golf courses. I accept that his evidence accorded with commonsense.
Issues for determination
(i) Is the Deed of Company Arrangement an instrument falling within s 444D of the Act?
241It is submitted for Jin Heung that there is no valid Deed of Company Arrangement within the meaning of s 444B(6) of the Act (and hence no deed of company arrangement by which it could be bound under s 444D of the Act) because the document executed by the deed administrators was not an instrument setting out (as required by s 444A(3)) the terms of the deed that the company's creditors resolved would be executed.
242This submission turns on the alleged disconformity between the document executed as the Deed of Company Arrangement on 18 August 2010 (which provides for the sale of both the business and the land) and the proposal put to creditors prior to and tabled at the second creditors' meeting (which I have found provided only for the sale of the business). It is submitted (and I agree) that it is to the latter proposal that the resolution referred.
243Section 444D(2) provides that:
Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security, except so far as:
(a) the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b) the Court orders under subsection 444F(2).
244Reliance is placed on what was said by the High Court in Lehman Bros Holdings Inc v City of Swan [2010] HCA 11; (2010) 240 CLR 509 at pp518-525, where the High Court considered the operation of Part 5.3A (noting its application to small and medium enterprises as well as larger or more complex enterprises alike).
Because creditors are bound under s 444D(1) only to the limited extent identified in that provision, the assent of some creditors (even a majority by number and value of those who vote) to giving up claims against another does not bind other creditors to do so. No creditor is bound to give up such claims because the Act does not bind them beyond the limit prescribed by s 444D(1)
245In Lehman , the High Court observed that a deed of company arrangement must be seen as "more than a set of promises between those who are parties to it", effecting a change in the status of the company from that of a company under administration to a company subject to a deed of company arrangement.
246The object of Part 5.3A is set out in s 435A of the Act as being to provide for the business, property and affairs of an insolvent company to be administered in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence or, if it is not possible for the company or its business to continue in existence, that results in a better return for the company's creditors and members than would result from an immediate winding up of the company. The central concern of the Part is regulation of the administration of an insolvent company. It recognises the need for prompt action in the implementation of the administration process.
247Section 444B(6) provides:
When executed by both the company and the deed's proposed administrator, the instrument becomes a deed of company arrangement
248In Lehman , the High Court noted the significance of the execution contemplated by s 444B(6) is that it "requires a visible expression of the company's assent to the terms that are recorded in the instrument".
249It is submitted by Mr Pritchard that the deed which the creditors of Le Meilleur resolved would be executed was a deed which did not affect or make any provision for the position of the company's secured creditors (and therefore that the instrument prepared and signed by the deed administrators did not set out the terms of the deed which the creditors resolved to execute but, rather, set out the terms of a different deed which purported to bind the secured creditors).
250In response, Mr Golledge submits that what s 444A(3) requires is for the deed administrator to prepare an 'instrument' setting out the terms of the deed upon which the creditors voted at the meeting (not any earlier proposal contained in any circular to creditors before the meeting, that being open to change by creditors at the meeting). Mr Golledge notes that the creditors are not bound in their voting by the terms of any 'documents' circulated before the meeting. I agree. However, that does not in my view address the difficulty that the resolution as put to the meeting did not encompass any amendment to the proposal that had been circulated before and tabled at the meeting. In other words, while it was open to the meeting to vote on a different proposal than that which had been circulated, I am not satisfied that the resolution records that they did so.
251It is submitted by Mr Pritchard that the deed required to be prepared by the administrators pursuant to s 444A was one setting out the terms of the 'proposal statement' contained in the administrators' report to creditors dated 20 July 2010. That proposal statement is set out in section 10 of the report as the option in section 10.1 of the report. Mr Pritchard notes that no reference was made in that proposal to secured creditors or to a sale of the land without the consent of the mortgagees. It is submitted that the terms of the proposal were limited to a sale of the company's business for the benefit of the unsecured creditors. I agree.
252Mr Pritchard submits that the deed administrators' position in this regard is to the effect that the words of the resolution ("the proposal statement presented to the meeting") should be read as including the administrators' oral remarks during the meeting (Mr Golledge having noted that creditors are permitted to resolve that any deed be executed even if it differs from a previous proposed deed by reference to sub-s 439C(a)). He submits that the deed administrators' submission implicitly accepts either that the proposal in the report to creditors involved only a sale of the 'business' (whereas the proposal presented orally to the meeting involved both a sale of the business and the land and the creditors resolved, pursuant to s 439C(a), that a deed in terms of the latter be executed); or that both the proposal in the report to creditors and the proposal presented orally at the meeting involved a sale of both the land and the business (and the creditors thus resolved that a deed in terms of the circulated proposal be executed).
253Mr Pritchard accepts that if the first proposition is correct (i.e. that the proposal "presented" to the meeting orally included, contrary to the terms of the proposal in the report, a sale of the land), then though the deed would be valid, Jin Heung could not be regarded as having voted in favour of the proposal as varied or at all. He accepts that if the second proposition is correct (i.e. that both the written document and oral proposal encompassed the sale of land) then Jin Heung must rely on its claims for discretionary relief.
254The correctness of the second proposition turns on the meaning to be given to the word 'business' in the administrators' report to creditors. Jin Heung submits that there is a distinction between the land and the business. As noted earlier, Mr Whittingham's position was that at all times a reference to the business included the land. Mr Pritchard submits (and I accept) that this is inconsistent with the recognition of Mr Whittingham (in his report to creditors when recommending against liquidation) that in a liquidation scenario, all proceeds from the sale of the property would be paid to the mortgagees (less enforceable charges), since (if the business includes the land) that would also have occurred under the proposed deed of company arrangement and there would be no point of distinction in that regard.
255Mr Pritchard also points to a comparison between the words used in the documents created before the second creditors' meeting (and before Mr Hyun delivered a copy of Jin Heung's proxy form to Mr Whittingham) to the words used in the documents created after the second creditors' meeting (to which I have referred earlier). It is said that Mr Whittingham was unable to explain why almost every document created prior to the second creditors meeting (and prior to the receipt of a proxy from Jin Heung) referred only to a sale of the "business" whereas later documents referred separately to the business and the property or the business and the land. I consider that there is force in this submission.
256It is accepted by the deed administrators that no draft deed was circulated at the meeting. The terms of the proposed deed, as outlined orally at the meeting and as reported in the minutes, were substantially similar to the terms as outlined in the report to creditors, with the exception that the word 'business' in the report to creditors is minutes as 'Business and property'.
257Clause 2 of the proposal in the report to creditors stated that "The administrators will sell the Company's business and up until the completion of that sale, will also continue to trade the Company's business"; whereas the first bullet point appearing in the outline minuted at the second meeting states that "The Business and property of the Company are to be immediately marketed for sale and sold".
258Mr Pritchard points out that if the evidence of Mr Whittingham is to be accepted, namely that "business" included the land, then the minutes involve a tautology. That must be the case (although, as noted earlier, I do not accept that the word "business" where used in the documents prior to this meeting can be read as including the land).
259Mr Pritchard submits (and I accept) that both the documents and Mr Whittingham's cross-examination show that, leading up to the second meeting and the delivery of the proxy form, only a sale of the business was contemplated.
260For the reasons I have outlined earlier, I do not accept that Mr Whittingham's explanation at the meeting (or an outline that he there gave of the written document) can be said to be part of the proposal "statement" presented at the meeting. (It might be tested by the proposition that if Mr Whittingham had incorrectly referred to a title reference at the meeting, say, one would not have assumed that this would override the written document on which the meeting had voted, at least unless it was brought within the terms of the resolution formally put to the meeting.)
261Mr Pritchard accepts that unsecured creditors may be bound by a deed proposal approved at the creditors' meeting even if it differs from one circulated prior to the meeting (and, in that sense, that s 439C(a) has the operation contended for by the deed administrators). However, he submits that it would not be correct to suggest that a secured creditor who votes in favour of a resolution that the company execute a particular deed can be bound by the will of unsecured creditors who resolve that the company execute a different deed. (He points to the fact that, unlike the remainder of Part 5.3A where the will of the general body of creditors is paramount, what is paramount in s 444D(2) is the will of the secured creditor.) It seems to me, with respect, that this begs the critical question (namely, whether the secured creditor 'voted in favour' of the resolution because of which the company executed the deed). If a secured creditor arms someone with a proxy to vote in favour of a deed proposal and that proposal is amended on the floor of the meeting then the proxy holder's vote in favour would (absent an argument of the kind here raised as to the manner in which the vote was cast or any other basis for setting aside the resolution) bind the secured creditor. A secured creditor who wished only to vote for the particular proposal and no amended proposal would surely be expected to include such a qualification in the instructions given to the proxy holder (who might then be expected not to vote for the proposal if amended on the floor of the meeting).
262It was in the context of that scenario (a member appointing a proxy to vote for a particular proposal and the meeting voting for a different proposal) that I understood the intent of the submission made in the opening outline submissions served for Jin Heung to the effect that, even assuming the resolution passed at the meeting was one which contemplated a sale of both the business and the land, that resolution was nevertheless different to the resolution "in favour of which Jin Heung voted" (that being a resolution that the company execute a deed in the form of the proposal in the report to creditors). Mr Pritchard noted that that proposal was the only deed in contemplation at the time Jin Heung completed its proxy form, and it did not consider a sale of the land.
263In that sense the submission is drawing a distinction between the proposal the subject of the forthcoming resolution at the time for which Jin Heung signed a proxy and the proposal the subject of discussion at the meeting and that seems to have been the manner in which this submission was read initially by the plaintiffs - since the submission in response (which I accept) is that one does not vote when a proxy is executed; one votes at the time that the proxy holder casts the vote. In due course, however, reliance was sought to be placed on this submission as an admission against interest (which I consider this later in these reasons).
264In summary, Mr Pritchard submits that the position was that a proposed deed of company arrangement had been circulated to unsecured and secured creditors by its inclusion in the administrators' report to creditors; to the knowledge of the administrators, Jin Heung had executed a proxy form (on the faith of that proposal), which was provided to Mr Whittingham prior to the meeting; and, during the meeting, unsecured creditors voted "on the voices" to pass a resolution that the company execute a deed different from the proposed deed in the report to creditors. Mr Pritchard accepts that unsecured creditors could pass that new resolution (s 439C(a)) but says that they could not bind Jin Heung to the terms of the new deed as varied, because Jin Heung had not 'voted in favour' of the new resolution.
265Mr Golledge submits that the test as to whether the 'instrument' contains or sets out the terms of the deed approved by creditors is to be answered by a review of the events at the meeting itself and, in particular, the proper construction of the terms of the resolution which was passed and thus that the contents of any document circulated beforehand are of secondary importance. He submits that the resolution passed at that meeting should be construed in light of the discussion which took place amongst creditors at the time (which it is said made it abundantly clear to all in attendance, including Jin Heung's appointed proxy) that the deed proposal, if approved, would allow for the sale of the property and would oblige the secured creditors, if they voted for the proposal, to co-operate in the process.
266Mr Golledge submits that the resolution at the meeting clearly contemplated a sale by the administrators of the secured property (and the co-operation of the secured creditors in that process) and submits that the instrument as executed gives effect to that resolution. I accept that the discussion at the meeting included the assertion by the deed administrators that the proposal was one that included a sale of the property. However, there was no amendment to the terms of the resolution as put to the meeting to record what I consider would have been an expansion of the proposal from that contained in the 16 July deed proposal.
267The terms of the resolution as put to the meeting and recorded in the minutes have been set out above. Mr Pritchard submits (and I agree) that the reference to the "proposal statement presented to the meeting" must be a reference to the Administrator's report to creditors dated 20 July 2010", that being the only document recorded in the minutes as tabled at the meeting (and I note that the minutes refer to the chairperson having referred to the deed of company arrangement "as detailed in the report", albeit then summarising that by the bullet points listed below that include a reference to the property to which the 16 July letter did not).
268If, as I think there was, there is a disconformity between the resolution put to the meeting and the substance of the arrangement set out in the deed, then the deed cannot be an instrument executed in accordance with the resolution.
269I therefore find that the instrument prepared by the administrators was not an instrument setting out the terms of the proposal statement presented to the meeting and therefore was not an instrument setting out the matters the subject of the resolution passed at the meeting.
270In Re Kruger Engineering Pty Ltd [2006] NSWSC 1063; (2006) 60 ACSR 191 , where the creditors had resolved at the second meeting that the company execute a deed of company arrangement but the terms of the instrument prepared by the administrator differed from the terms as approved by the creditors, Barrett J held that the deed was invalid. His Honour said (at 194 [10]):
.... The meeting convened under [s 439A] had proceeded to business and concluded on 15 March 2006. That meeting had, as envisaged by s 439C(a), resolved that the company execute a deed of company arrangement. But the deed executed on 26 April 2006 was not executed in conformity with the resolution. It was in different terms. Failure of the company to execute, within the period specified in s 444B(2) (that is, in the particular circumstances, the period ending on 26 April 2006), the deed the subject of the resolution of creditors passed on 15 March 2006 caused s 446A(1)(b) to operate at the expiration of that period. The effect of s 446A(1)(b) was to cause the company to enter the particular form of creditors voluntary winding up imposed by s 446A, with Mr Louttit as liquidator. (my emphasis)
271Mr Pritchard submits that if the Deed of Company Arrangement in the present case is invalid, then the consequences adverted to by Barrett J must also follow in this case and that, on and from 19 August 2010, by operation of s 446A(1)(b), Le Meilleur entered into a creditors' voluntary winding up on that date. I agree (though whether the deed administrators should remain as liquidators or a new liquidator should be appointed - as was the case in Bovis Lend Lease , albeit in different circumstances, was not the subject of debate before me).
(ii) Did Jin Heung vote for the Deed of Company Arrangement?
272There is no dispute that Jin Heung executed a proxy form appointing Mr Hyun its proxy to attend and vote at the second creditors' meeting and that Mr Hyun did so attend. (NH Capital did not attend nor did it execute a proxy). Mr Golledge submits that it is clear from the s 439A Report and the minutes of the discussion at the creditors' meeting that the execution of the proxy amounted to consent by Jin Heung to the sale by the deed administrators of the golf course property in conjunction with the sale of the business conducted from that property by Le Meilleur, on terms which would result in that proportion of the sale proceeds attributable to the business assets would be made available to the creditors under the deed, and that the proportion representing the net proceeds of the real property would be made available to the Korean banks. I do not accept that the deed proposal annexed to the s 439A Report encompassed a sale of the land (though I accept that a conditional consent thereto was given by Jin Heung as the 15 July meeting).
273The deed administrators' principal submission is that Jin Heung is bound to provide a discharge of mortgage to allow the sale contract to complete because it voted for the resolution pursuant to which the company signed the Deed of Company Arrangement (and did so knowing, at the very least, that by doing so it was giving its consent to the sale of the property by the deed administrators).
274In support of the submission that Jin Heung voted in favour of the resolution requiring Le Meilleur to execute the deed, reliance was initially placed on the minutes of the second meeting are conclusive evidence of that fact (with reference to Brooke v No 5 Lorac Avenue Pty Ltd (1994) 14 ACSR 717 where Hayne J had accepted a submission that a declaration that the vote had been carried unanimously was conclusive evidence that a particular secured creditor had voted in favour of the resolution within the meaning of s 444D(2), by reference to the procedure under Regulation 5.6.19). Here, there is no suggestion in the minutes that the resolution was carried unanimously - all that was said was that it was carried on the voices. (Moreover, on appeal in No 5 Lorac Avenue Pty Ltd v Brooke (1995) 16 ACSR 247, JD Phillips J, with whom Tadgell and Ormiston JJ agreed, did not accept that regulation 5.6.19 permitted such a conclusion, noting that a declaration that the resolution had been carried unanimously 'on the voices' simply meant that those voting were all of the same opinion and said nothing about who had and who had not voted.)
275Mr Pritchard submits that there is nothing in the minutes of the second meeting which provides conclusive evidence of the vote. The relevant passage from the minutes is in the following terms:
DEED OF COMPANY ARRANGEMENT
It was moved by: Yamaha Motor Finance
Proxy in favour of: Chairperson
Seconded by: Good Annies
Proxy in favour of: Jae Soon Hyun
That pursuant to Section 439C of the Corporations Act 2001, the company be required to execute a Deed of Company Arrangement under Part 5.3A of the Corporations Act 2001 in the same form as the proposal statement presented to the meeting.
The motion was declared carried on the voices with the Chairperson abstaining from exercising general proxies in his favour. (my emphasis)
276What emerges from the above extract is that Mr Whittingham, as the proxy for Yamaha Motor Finance, moved the resolution for entry into the Deed of Company Arrangement and that Mr Hyun, as proxy for a creditor named Good Annie's Cleaning, seconded the resolution. Mr Pritchard submits that nothing in the minutes discloses any exercise of Jin Heung's proxy.
277Further, Mr Hyun held proxies for seven creditors in total, including the Korean parent company (as well as being a creditor personally entitled to vote as an employee of Le Meilleur). Relevantly, in No 5 Lorac Avenue , Ormiston J said (at 258-259):
Moreover, the law is clear that in a vote on a show of hands ( and therefore, I would also conclude, on the voices ) only one proxy per person may vote and be counted : see the judgments, especially that of Lindley LJ, in Ernest v Loma Gold Mines Ltd [1896] 2 Ch 572; [1897] 1 Ch 1. (my emphasis)
It is obvious that this rule, well recognised by all the textbook writers, means that all proxies may well not be employed on such a vote, including those given to the chairman, for all kinds of reasons.(my emphasis)
278In Ernest v Loma Gold Mines , Chitty J said that "to hold on a show of hands a proxy has more than one vote is to introduce a mode of voting never heard of in practice, and not, in our opinion, required by the law", observing that the essence of voting by a show of hands is that "the hands-one hand for every member present-are held up, the number of hands counted for the resolution, and the number of hands counted against, and the one is subtracted from the other ". Mr Pritchard submits that all three members of the Court in No 5 Lorac Avenue held that a vote on the voices is either the modern equivalent of voting by a show of hands or is even less precise. Reference was made to what was said by Tadgell J (at 255):
In my opinion it is exceedingly improbable, as a matter of mere common sense, to suppose that, save perhaps in the case of a meeting of a small number of persons in a small space, any person present at a meeting can know whether, in a vote upon the voices, or even upon a show of hands, every person in the room has voted, much less that every person entitled to vote has voted. Any abstainer may be expected to remain silent or still. It may further be expected that, if a single person out of a mass of those who cast a vote by voice or hand did remain silent or still, no person present would know it without being so informed.
279Similarly, Ormiston J observed (at 259) that:
Even if no persons voted against a motion, and all whose voices could be heard voted in favour thereof, one would still be uncertain as to whether a particular creditor had voted in favour.
... If secured creditors are to be bound in consequence of a declaration, the chairman should be required to state that they have voted in favour of the motion. Nothing less should suffice ...
280As noted, Ernest v Loma Gold Mines was referred to with approval in Lorac Avenue . It is submitted that it is consistent with other decisions in which voting on the voices is said to be a "summary and inaccurate method" which has "regard to head count (as distinct from value)".
281Mr Pritchard submits that the minutes provide evidence that Mr Hyun voted in favour of the resolution as proxy on behalf of Good Annie's Cleaning and that, if so, he could not have voted on behalf of Jin Heung. I do not accept that the minutes show that Mr Hyun exercised his proxy for Good Annie's other than to second the motion (as opposed to voting in favour of it). Theoretically, it might be that Mr Hyun had seconded the motion by using the Good Annie's proxy and voted on the resolution in his capacity as proxy for Jin Heung (although it is hard to see what the logic of such an arbitrary use of proxies would be). In any event, I accept that there is nothing in the minutes to disclose for which one or more of the creditors Mr Hyun might have voted in favour (if any).
282(Perhaps in anticipation of a criticism of undue technicality, Mr Pritchard further notes that, by reason of reg 5.6.19(1)(a), Mr Whittingham had the power to demand a poll (to ensure that Jin Heung had voted in favour of the resolution and would be bound by the proposed deed) but had seemingly elected not to do so.)
283When this issue (in the closing submissions served by Jin Heung), Mr Golledge submitted that it was not open to Jin Heung to rely on that argument as a matter of procedural fairness (having regard to the manner in which the case was outlined in opening submissions). Mr Golledge relies in that regard on paragraph 10.2 of the Outline Submissions served on 15 April 2011 under signature of both Counsel for Jin Heung (which I extract below) and the principle of procedural fairness I had applied in Ying v Song at [82] in not permitting a departure from the basis on which the case had there been opened (but there in a very different factual context - namely, where the plaintiff had been called upon many times in the hearing to articulate the case being advanced and had failed to do so in a consistent manner).
284In circumstances where the proceedings were in any event being adjourned at that stage in order to permit notification of interested parties, I considered that any prejudice likely to be suffered by the late raising of this issue (in terms of the evidence to be adduced on that topic) could be met in the time available (which ultimately proved to be from 3 May 2011 to 17 June 2011 when the hearing resumed) by permitting the deed administrators to adduce further evidence as to what had transpired at the meeting. In the event, no further evidence was relied upon by the deed administrators (other than the formal tender of the opening Outline Submissions, which was met by the tender of the deed administrators' opening submissions by Jin Heung in order to show that the question whether Jin Heung had voted for the resolution was a matter hotly in dispute at that time). Mr Golledge submitted that these should be presumed to have reflected Jin Heung's instructions to its counsel and it was not suggested otherwise. (He also submitted that the question of whatever other evidence might have been available was traversing into an area clouded by speculation.)
285Given the weight sought to be placed on them, I set out the relevant part of those submissions in full:
The vote cast by Jin Heung under s 444D.
For similar reasons, Jin Heung also cannot be regarded as having "voted in favour of the resolution of creditors because of which the company executed the deed" within the meaning of s 444D(2)(a).
The only resolution in favour of which Jin Heung voted : (my emphasis)
(a) was a resolution which provided for the execution of a DOCA which concerned, and only concerned, the sale of Le Meilleur's business, and which did not purport to affect or prejudice Jin Heung's rights as mortgagee or concern the land at all; and
(b) was not the resolution because of which the company executed the DOCA.
Importantly, and to the knowledge of the administrators, Jin Heung completed its proxy form prior to the second creditors' meeting.
On the documents available to Jin Heung at the time the proxy form was completed, the proposal to be considered at the second creditors' meeting did not contemplate any affectation of, or prejudice to, the rights of the mortgagees. The resolution in favour of which Jin Heung authorised Mr Hyun to vote was determined prior to any of the events described in the minutes of the second creditors' meeting.
Neither the administrators' report to creditors under s 439A nor the DOCA proposal attached to that report purported to bind secured creditors and neither of those documents contemplated a sale of the property without the consent of the mortgagees or at all. The documents were concerned only with the sale of the business.
It follows that Jin Heung did not vote in favour of the resolution, s 444D(2)(a) has no application and the DOCA does not prevent Jin Heung from realising or otherwise dealing with its security.
288The submissions in question are relied upon as an admission that Mr Hyun, as Jin Heung's proxy, cast a vote in favour of the subject resolution at the s 439A meeting. It was noted by Mr Golledge that Jin Heung had served but did not read an affidavit from Mr Hyun, the proxy who attended the meeting on its behalf. Mr Golledge submits that I can take into account the fact that the affidavit was served (though he does not suggest that its contents are in evidence) as indicating that Mr Hyun was in the defendant's 'camp'. It is submitted that only Mr Hyun would be in a position to give evidence as to what he did or did not say at the meeting in this regard.
289Insofar as Mr Hyun's affidavit is concerned, it was not formally read by Jin Heung but nor was it tendered by the deed administrators after this issue had arisen. While it is said that Mr Hyun is in the bank's camp, so to speak, he is an employee of Le Meilleur and there is no property in a witness, so that there is nothing that would have precluded the deed administrators from calling Mr Hyun themselves to give evidence as to what happened at the meeting in this regard (whether with his co-operation or by the issue of a subpoena).
290Mr Golledge accepts that the deed administrators bear the onus of establishing on the balance of probabilities that Mr Hyun exercised the proxy he held for Jin Heung in order to vote in favour of the resolution. He submits that there being no other evidence directly on point, and Jin Heung having had available to it Mr Hyun to testify should it have wished, the Court should find, as a matter of fact, that Mr Hyun did cast a vote at the meeting in favour of the resolution as proxy of Jin Heung. (Mr Pritchard points to paragraphs [60]-[64] of Mr Whittingham's affidavit as to what occurred at the second creditors' meeting and says that this fails to amount to evidence that Mr Hyun voted in favour of the resolution but in any event submits that even if Mr Hyun did voice words that amounted to a vote by Jin Heung in favour of the resolution, this would not meet the difficulty occasioned by the fact that he was a multiple proxy holder.)
291It seems to me that (infelicitously drafted as it was suggested on 17 June 2011 at T 28 that the submissions may have been) the extract above must involve an implied admission that Jin Heung voted on a resolution of some kind at the relevant meeting (since there is no vote that takes place at the time of execution of the proxy form). The thrust of the submission is to contrast a resolution on which Jin Heung is accepted to have voted by proxy with the resolution in fact put to the meeting (on which it is contended that Jin Heung did not vote). This seems to me to be a matter adverse to Jin Heung's interest in the outcome of the proceeding and therefore capable of amounting to an implied admission (adopting the definition of an 'admission' in the Dictionary to the Evidence Act 1995 (NSW) (see also the discussion by the ALRC (ALRC 38, Appendix C at [19] as quoted in Odgers, Uniform Evidence Law (7 th edn) at [1.3.4740]).
292What was relied upon, as I understand it, is an admission of fact (i.e., the casting of a vote, in this case by the mouthing of words signifying support by Jin Heung for the resolution, in the exercise of the proxy given by Jin Heung) rather than a mixed admission of fact and law (i.e., the casting of a valid vote - which in turn would seemingly require, by reference to the authorities referred to above, a finding that Mr Hyun did not purport at the time to cast a vote for any other creditor whose proxy he held).
293An admission or acknowledgement as to the state of the parties' rights at the time (as contemplated in Sasson & Partners Pty Ltd v Fahevu [1999] NSWCA 400), may involve an admission as to matters of mixed law and fact. There is a dispute as to whether admissions of matters of mixed law and fact are admissible as evidence. In Pitcher v Langford (1991) 23 NSWLR 142 at 160, Handley JA considered the question whether admissions of law or of mixed facts and law were admissible:
In my opinion these admissions were admissible and entitled to considerable weight. In Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 684, Mahoney JA said: "An admission may provide material from which a court may find a question of law, a question of fact, or a question being a conclusion from a mixture of fact and law." See, also, Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 231. The authorities his Honour referred to as establishing that admissions involving conclusions of mixed fact and law are receivable, and in a proper case may be given considerable weight, included Allen v Roughley (1955) 94 CLR 98 at 142 per Kitto J.
294However, Heydon's Cross on Evidence (online edition) when noting (at [33465]) that admissions of particular kinds (breaches of a duty of care, citing Dovuro Pty Ltd v Wilkins [2003] HCA 51; (2003) 215 CLR 317; Nominal Defendant v Gabriel [2007] NSWCA 52; (2007) 71 NSWLR 150 at [144]; G and M v Armellin [2008] ACTSC 68; (2008) 219 FLR 359 at [110]-[113]; [2008] ACTSC 68); a purpose contravening s 46 of the Trade Practices Act 1974 (Cth) citing Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 at [68]; 106 ALR 297 at [323]), and misleading or deceptive conduct, citing Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1985) 10 FCR 567; 75 ALR 601; affirmed Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 487-8 and 504; 68 ALR 77 at 82 and 99; Baxter v British Airways plc (1988) 82 ALR 298 at 303 ) have not been received, goes on to say:
... It is unsatisfactory to describe, as Mahoney JA did, the admission in Allen v Roughley as an admission that another person had good title; it was an admission in a statutory declaration in support of an application to bring land into Torrens title consisting largely of numerous facts, quoted at 141-2, from which the title could be inferred: see Dovuro's case at [69].
295In Eastern Express , the Full Court of the Federal Court considered whether particular statements constituted an express admission of a proscribed purpose for the application of s 46 of the Trade Practices Act 1974 (Cth). Lockhart and Gummow JJ said (at [68]):
As a general proposition, an informal admission as to a matter of fact, by words or conduct which is made by a party or a privy, is admissible evidence against that party of the truth of its contents. The complexity of the construction given in the case law to the ordinary words of s 46 must mean, at the very least, that in this area what is tendered as an express admission is likely to be a statement as to matters of mixed law and fact, rather than simply of fact. In the case of alleged contraventions of s 52 of the Act, admissions by a trader in the course of cross-examination that his conduct was 'misleading' and 'deceptive' cannot be relied upon to usurp the task of the court to judge the legal quality of that conduct: see Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 487-488 and 504.
It is unsettled whether admissions may be made of matters of mixed law and fact: see Grey v Australian Motorists & General Insurance Co Pty Ltd [1976] 1 NSWLR 669 at 675 and 684-685; Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 231. In the first of these cases, Glass JA described various decisions accepting admissions by a party as to questions of mixed law and fact as having been given with no regard to principle. In his view, when a standard, measure or capacity is fixed by law, a party cannot be asked to admit a conclusion depending upon the legal standard; however, the witness may be asked to admit facts from which the conclusion of law may be drawn by the court.
In our view, that is how the pieces of evidence in issue here should be considered, the question being whether the statements provide material from which his Honour should have drawn a conclusion as to predatory purpose for the purposes of s 46. In any event, the materials with which we are dealing were received into evidence and to that no challenge was made before us.
296In Dovuro , Gummow J (McHugh and Heydon JJ agreeing) held that a statement made on behalf of a corporation that it had 'failed in its duty of care' amounts to an inadmissible admission. His Honour stated (at [68] - [70]):
What did these statements admit? A statement on behalf of a corporation that it has "failed in its duty of care" involves the proposition that the facts demonstrate that the corporation failed a standard fixed by law. In Grey v Australian Motorists & General Insurance Co Pty Ltd , Mahoney JA referred to Allen v Roughley for the proposition that a defendant may admit another person has a good title to particular land. Thereafter, in Jones v Sutherland Shire Council , Mahoney JA observed that "[a] party to litigation may make an admission, not only of a fact, but also a conclusion from facts, a mixture of fact and law, or even of law" (emphasis added). The emphasised portions of that statement state the proposition too widely.
Admissions on the pleadings are one thing. Modern rules of court commonly provide that a party may, by its pleading, raise any point of law. That which is so raised may be admitted. But that is not the present case. Certainly a party may admit the facts from which a conclusion of law may then be drawn. The detailed statement made in support of the primary application under the Real Property Act 1900 (NSW) by the defendant in Allen v Roughley , as to the history of the occupation of the land in question, may be an example. The real significance of the admission made in Allen v Roughley was, as Kitto J pointed out, that, following Lustre Hosiery Ltd v York, it was properly received in evidence notwithstanding that the defendant had no direct knowledge of all of the facts and had relied upon the statements of others.
Different questions arise where, as here, the suggested admission includes a conclusion which depends upon the application of a legal standard. In Grey , Glass JA considered an admission sought from a witness to the effect that he had assigned certain choses in action at law or in equity. His Honour said:
"By extorting from a party an admission that he was negligent, or that he was not provoked, or that his grandfather possessed testamentary capacity, there is added to the record something which is, not merely of dubious value, but by definition valueless, owing to the witness' unfamiliarity with the standard governing his answer."
(my emphasis)
297Here, if the implied admission goes only to the factual issue of whether Mr Hyun voiced his support for the resolution on behalf of Jin Heung, then I do not think as an evidentiary matter that it takes the deed administrators very far (since the validity of the vote so cast would depend on other matters of which there is no evidence - such as whether he also purported to vote for the other 6 proxies he held or in his own capacity as a creditor). I note that in Film Bars Pty Limited v Pacific Film Laboratories Pty Limited (1979) 1 BPR 9251, McLelland J (as his Honour then was), in the context of considering the force of subsequent communications as an admission by conduct (there as an admission of the existence or non-existence of a subsisting contract), observed that:
Admissions by a party of the existence or non-existence of a contract, or of a fact relevant to that issue, will usually vary inversely with the strength of the available direct evidence of the matters in question.
298In that regard, what is the available direct evidence on the issue? On Jin Heung's part (other than calling Mr Hyun himself, who is not an employee of the bank but had apparently been prepared earlier to swear an affidavit for use by it in the proceedings), it cannot adduce direct evidence of what occurred at the meeting because its officers and employees were not present at that meeting. The deed administrators are arguably in a different position (since it might be expected that there was at least one person acting as scrutineer, if nothing else in the form of the minute taker, at the meeting). It seemed to be suggested that the difficulty would be in the deed administrators obtaining relevant evidence if the vote was on the voices - since it would be difficult to say out of a mass of voices who might have said what - but at least it would be possible for evidence to be given as to the procedure adopted where persons held multiple proxies, for example, that might shed light on the validity of any vote that Mr Hyun did cast for the bank. (Ironically, it is the very difficulty of determining such an issue that seems to underlie the rule that a proxy holder cannot vote more than one proxy on a show of hands.)
299Mr Golledge further submitted that the understanding of Jin Heung (and it was suggested of Mr Hyun), seems at all times to have been that Mr Hyun had attended the meeting and voted Jin Heung's proxy (reference being made to the statement in Mr Hyun's email at CB 804 to the effect that Jin Heung "had agreed the DOCA" and to what is submitted to be implicit in the letter from Jin Heung's lawyers to Blake Dawson of 29 November 2010, in which it is said that the only issue raised was the price of the sale rather than whether Jin Heung had voted for the Deed of Company Arrangement. It is thus submitted that the admission contained in the Outline Submissions should not be seen as inadvertent but, rather, as reflective of Jin Heung's understanding at the time the proceedings were commenced. (I am not persuaded that this takes the matter further since any understanding by Jin Heung that its proxy had voted might well have been derived in part from the dogmatic assertions made on behalf of the deed administrators that it was bound by the Deed for that very reason.)
300Mr Golledge accepts that the objection to the entitlement (at the close of the hearing in May 2011) of Jin Heung to raise this argument was based on procedural fairness grounds but submits that its outcome does not depend upon such considerations. He submits that a party seeking to rely on admissions made in the course of the proceedings does not need to show reliance on the admission or demonstrate any prejudice as an argument against its withdrawal; rather, that the admission simply forms part of the evidentiary material before the Court and that, given the absence of any evidence contradicting its effect, the deed administrators' submission is that the admission should have determinative effect on this particular issue.
301I have concluded that although there is an implied admission contained in the submissions (since they are premised on there being a vote of some kind that took place in the exercise of Jin Heung's proxy), I think the weight of that admission is insufficient to establish on the balance of probabilities that there was a valid vote as a matter of law (since Mr Hyun was a multiple proxy holder). Therefore, it is strictly not necessary for me to consider whether it could have been withdrawn. However, for completeness I note that there was debate on this issue also by Mr Golledge.
302In oral submissions, Mr Golledge noted that there had been no evidence put (or sought to be put) for Jin Heung (by its legal representatives) as to the circumstances in which the admission was made or otherwise to demonstrate that it should be given no weight (or to seek its withdrawal). In this regard, Mr Pritchard's submission was that this was not necessary - as I understand it, his submission was that the particular extract in question should not be construed as an admission at all, from which I infer that it was not intentionally drafted as such). Mr Golledge noted that the admission was made by Jin Heung after it had been served with all of the deed administrators' evidence and after Jin Heung had filed an affidavit from Mr Hyun detailing his participation at the meeting (thus, it is said, at a time when Jin Heung had been given a full opportunity to consider, upon the advice of its Counsel, the significance of this issue). It is submitted that the Court should not allow the admission to be withdrawn in such circumstances.
303Mr Golledge also submits that even if an admission was made inadvertently, leave may still be refused if the other party has changed its position in reliance upon an admission or is otherwise prejudiced. In this case it is submitted that the deed administrators are prejudiced by Jin Heung "changing its position" so late in the hearing on the basis that they have lost the opportunity of considering whether to withdraw the proceedings if Jin Heung had raised this point in its opening submissions and in correspondence its solicitors had sent prior to the hearing (a matter as to which there was no evidence); whether to run the proceedings differently, for example by placing emphasis upon different points during the hearing and by asking for additional documents during discovery (though the areas in which such enquiry would have been made were not articulated); whether to have required Mr Hyun's attendance for cross-examination (difficult when the affidavit was not read, though he could have been called by the deed administrators' in their case and examined in chief) or to have put different questions to Messrs Kang, Yoon and Ryu in cross examination (though it was not suggested what those questions might have been).
304It was submitted that the forensic prejudice was not remedied by the fact that Mr Hyun might have been available in June to give evidence if required (since it was said that Mr Hyun had attended almost every day of the hearing and therefore was presumably alive to this issue and its significance to the case and that such knowledge would inevitably colour his evidence). It was thus submitted that the deed administrators have been deprived of an opportunity properly and authentically to test Jin Heung's evidence on this point in its proper forum during the hearing.
305As to the last issue, I am unable to comment on Mr Hyun's attendance in the courtroom as it was not drawn to my attention at the time and I did not have occasion to note who he was (nor do I know how closely he would have followed the exchanges in the courtroom). I do, however, note that since the issue emerged only in closing submissions it is not as if Mr Hyun could have sat through the cross-examination of other witnesses n relation to this issue.
306As to the matters of prejudice, neither of Messrs Ryu or Yoon was in attendance at the second creditors' meeting, so it is difficult to see what they could have added to the debate as to what went on at the meeting - and Mr Ryu gave very clear evidence that he had not been told after the meeting what transpired during the course of the meeting. There was no application to recall Mr Kang and as he does not appear from the minutes to have attended the meeting he also would seem not to have been in a position to assist on this issue.
307As to the question of any withdrawal of the admission (though no such application was made as such), there are said to be two competing policies at least in relation to the withdrawal of formal admissions (first, that an admission should not be permitted easily to be withdrawn, so as to make the procedure for formal admissions meaningless, but, on the other hand, not to discourage parties from making admissions out of fear that once given they cannot be withdrawn - Coopers Brewery Ltd v Panfida Foods Ltd (1992) 26 NSWLR 738 per Rogers CJ).
308In McFadden v Snow (1952) 69 WN (NSW) 8, Kinsella J said:
The question of a party's right to withdraw an admission was discussed in Ell v Hunter District Water Supply & Sewerage Board (1927) 27 SR (NSW) 437; 44 WN (NSW) 140 . Although in that case the court was concerned with admissions of fact made pursuant to the District Courts Act 1912 , and rules thereunder, its decision was based not upon the interpretation of that Act and the rules but on general principles which are to be applied at the discretion of the tribunal according to the facts of each case in order to do substantial justice between the parties. Street CJ, after citing from a number of cases, including the following passage from Bowen LJ in Cropper v Smith (1884) 26 Ch D 700:
"Speaking for myself, and in conformity with what I have heard laid down by the other division of the Court of Appeal and by myself as a member of it, I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendment as a matter of favour or of grace", proceeded at 441 : "We are not told how it was that this admission came to be made, or, if a mistake was made, why it was that this was not discovered sooner, but there can, of course, be no question of bad faith or anything of that kind in the matter ... Is there any reason therefore why it should not be allowed to repair the error which it made? I can see none. The mistake has not brought about any alteration in the position of the plaintiffs, which will prevent them from getting justice done, and any injury that they may have sustained by reason of it can be compensated for by costs. I think therefore that the Board should be allowed to withdraw its admissions ..."
In the present case there is no suggestion of bad faith. The admission was made by mistake, and in accordance with the principles expounded by the late Chief Justice I permitted Mr Seaton to withdraw his admission.
309In Jeans v Commonwealth Bank of Australia Ltd [2003] FCAFC 309; (2003) 204 ALR 327 the Full Court of the Federal Court (Hill, Madgwick and Conti JJ) noted that the question whether to permit withdrawal of an admission was ultimately one of "the attainment of justice" (citing the observations of Dawson, Gaudron and McHugh JJ in State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 at [154]; 141 ALR 353 at [357]) involving a balancing of all relevant circumstances including the prejudice which must attach to one party or the other.
310Here, of course, the admission is not one made formally under the procedure contained in Rule 17.2 of the Uniform Civil Procedure Rules 2005 (NSW). However, some guidance may perhaps be gleaned from the cases that have considered the withdrawal of an admission in that context. In the case of formal admissions (which foreclose proof of facts to the contrary of the admission), leave for withdrawal of the admission is necessary and it is said that what constitute proper grounds for withdrawal will necessarily depend on the nature of the admission and the stage of the proceedings when the application is made. Further, it is said that ordinarily this will require explanation of the circumstances in which the admission was made and those relied on to justify the withdrawal (see Ritchie's Uniform Civil Procedure Rules commentary at [17.2.5] and the cases there cited).
311In Ritchie's it is said that it will not usually be appropriate to grant leave to withdraw an admission where, among other things, the admission has been made after obtaining relevant advice and is deliberate and clear (for example, Panfida Foods at 745 and 748) or the party with the benefit of the admission is likely to be prejudiced by the withdrawal, either as a result of having changed its position in reliance upon the admission ( H Clark (Doncaster) Ltd v Wilkinson [1965] Ch 694; 1 All ER 934; or as a consequence of the unavailability of evidence, or likely significant deterioration in its quality, as a result of the delay ( SLE Worldwide Australia Pty Ltd v Wyatt Gallagher Bassett Pty Ltd [2005] NSWSC 816 at [57]-[59]);or where the application is made at a late stage of the proceedings ( Jeans v CBA ; Essex Securities Pty Ltd v Lunt [2006] WASC 58; at [14], [29], and [34]). Conversely, leave to withdraw an admission may be appropriate where the admission was made inadvertently or without due consideration of material matters ( Khouri v National Australia Bank Ltd [2007] NSWSC 987).
312It is suggested that admissions made otherwise than in the formal course of proceedings have merely an evidentiary significance and that the "admitting" party is entitled to dispute the accuracy of the admission (by evidence that it was influenced by mistake, misunderstanding or ignorance, or that it is otherwise inaccurate or unreliable - Nominal Defendant v Gabriel at [113], [144]).
313In the present case, the admission is one on which there was argument as to whether the submission itself necessarily involved any admission of the kind asserted. That alone demonstrates that it was not in its terms a clear and unambiguous admission. There was also the submission by Mr Pritchard that no intentional admission had been made. In my view, whether or not the admission stands, its evidentiary significance is limited because unless it is construed as an admission that there was a valid vote (and I do not think it can only be construed as such) then it leaves open the question as to what other proxies Mr Hyun may have sought to exercise at the time (and if more than one then as a matter of law the exercise of the multiple proxies would be ineffective).
314As to the suggested prejudice of Mr Whittingham not earlier withdrawing the proceedings, these proceedings were commenced with a view to an expeditious determination (somewhat hampered by the need to adjourn for the purpose of notifying interested parties) but there is no suggestion that Mr Whittingham would have taken a different stance had he appreciated that this issue would be raised (or that, even if that was his position, that the failure to appreciate the potential difficulty occasioned by the voting process adopted should be laid at Jin Heung's door - since Mr Whittingham had the benefit of legal advice throughout.)
315Therefore, had it been necessary I would have given leave to withdraw the admission but, as it is, I consider that its evidentiary weight is not sufficient to satisfy the onus on the deed administrators to establish that Jin Heung cast a valid vote as a matter of law at the second creditors' meeting in favour of the resolution to enter a deed of company arrangement in the form subsequently executed by the deed administrators or at all.
316Ultimately, while I consider that there was an implied admission that Mr Hyun cast a vote in purported exercise of the proxy (and that the assumption that he had done so is likely to have informed the subsequent correspondence and conduct of Jin Heung until such time as focus was directed to the validity of the vote as so exercised - which I surmise is something that occurred during the preparation of closing submissions since otherwise I would have expected the point to be raised at an earlier time), I do not accept that this is an admission that it was a valid vote as a matter of law or that no other proxy was purportedly exercised at the same time. Furthermore, I consider that Mr Whittingham has had the opportunity to adduce evidence as to the manner of exercise of the proxy votes in general (even if he was not in a position to comment on the manner in which Mr Hyun exercised this particular vote). There seems no reason to infer that Mr Hyun exercised Jin Heung's proxy and no other.
317I therefore determine this issue against the deed administrators.
318Finally, Mr Golledge submits that even if it be held that Jin Heung did not vote through its proxy for the Deed of Company Arrangement, it did attend the meeting via its proxy and was thereby aware that the sale had been approved. It is submitted that, with such knowledge, it acquiesced in the continued operation of the Deed of Company Arrangement and the sale of the golf course by the deed administrators. It is further submitted that Jin Heung's attendance at the meeting and its tacit support for the Deed of Company Arrangement is a factor which should be taken into consideration in determining the deed administrators' s 442C application. In this regard it is submitted that Jin Heung's "lethargy and disregard for its own interests" (even after it was notified in November that the deed administrators would sell the golf course in December) is sufficient to deprive Jin Heung of the rights on which it now seeks to rely as a secured creditor by virtue of Part 5.3A of the Act. (I consider those matters in relation to the s 442C issue - in summary, I am not convinced that Jin Heung's conduct since November is sufficient to deprive it of the ability to assert its rights as secured creditor and I consider that the support it gave to the deed is to be balanced against the misapprehension under which that support was given.)
(iii) Did Jin Heung execute its proxy (and/or cast a vote by proxy) in reliance on misrepresentations as to the content of the deed proposal?
319The evidence demonstrates in my view that Jin Heung executed the proxy in the basis of the advice from Mr Kang that Jin Heung's consent would be required at least if the sale was at an unreasonable price in its eyes. There is an issue as to whether that condition would be construed as referable to objective or subjective unreasonableness. I consider it likely in the context in which this condition was proffered that it was intended to refer to subjective unreasonableness (though there may well have been a requirement of good faith in the giving or withholding of consent). Mr Ryu's explanation in the witness box of the circumstances in which consent could be withheld to a sale did not seem to me to be implausible.
320I consider that Jin Heung did execute the proxy in reliance on representations by Mr Kang that were inconsistent with the deed proposal as Mr Whittingham understood it to be. I do not consider that the evidence establishes that those representations were made with the knowledge of the deed administrators, nor do I consider that they were made on his behalf. However, the fact that the proxy was executed on the basis of what transpired to be a misunderstanding as to the basis on which it would be exercised (or of the proposal to be considered by the meeting) would give rise to an argument that it should be set aside.
321In a general context in relation to company meetings (not specifically in relation to creditors' meetings under Part 5.3A of the Act), Ford's makes the following observations (at [7.460]) about the effect on a vote cast by an appointed proxy of a failure by directors fully to inform members to an adequate standard, by reference to what was said in Cleary v Australian Co-operative Foods Ltd (Nos 2 and 3) [1999] NSWSC 991; (1999) 32 ACSR 701:
In the case of proxies, it was held in Cleary, above, that if a proxy is conferred at the time when the member is under a material misapprehension either because of misleading disclosure by a third party or because of failure of the third party to make disclosure of something which it was the third party's duty to disclose, the conferral of authority would be invalid as a matter of construction. The same conclusion would follow in the opinion of the court even in cases where the misapprehension or lack of information of a material matter is not the product of any misrepresentation or omission to disclose by the third party. In these circumstances, the conferral of authority would fail because it is subject to an implied limitation that authority does not exist if the substratum upon which it is based does not exist: Cleary , above at 740. (my emphasis)
322Although not strictly on point, it indicates that the execution of a proxy under a material misrepresentation as to the use to which it would be put or as to the proposal for which it would be voted (as seems to me have been the case having regard to the disconformity between what was put to Jin Heung by Mr Kang and what occurred at the meeting), even though the responsibility for this lies not at the deed administrators' door but at that of a third party would provide a basis on which to exercise a discretion to declare the vote so case as invalid or similar such relief.
323Therefore had this issue arisen I would have answered it in the affirmative in favour of Jin Heung.
(iv) If the Deed is binding on Jin Heung, should there be an exercise of discretion to relieve it from the deed?
324If there is a valid Deed of Company Arrangement by which Jin Heung is bound, Jin Heung seeks a variety of relief against the operation of the deed as a whole or in part. Mr Golledge submits that, whatever its jurisdictional basis (whether under s 445D, s 445G, s 447A or s 447E), Jin Heung's case for relief is predicated on there being some injustice/unfairness involved in holding Jin Heung to the consent which it gave on 28 July 2010 and that there is no such injustice (and, in particular, none at the suit of a party which took a "completely passive" approach to the Australian administration, elsewhere described as a "breathtaking disregard" for its rights). I turn then to the respective bases on which such relief is sought by Jin Heung.
Section 445D - termination of the deed
325Mr Pritchard submits that if there is a valid deed of company arrangement by which Jin Heung is bound (and which is in terms of the instrument executed by the plaintiffs dated 18 August 2010) it should be terminated pursuant to s 445D for the following three reasons.
326First, on the basis that there was a material omission from the report to creditors (s 445D(1)(c)), namely, the failure to advert to the sale of the land without the need for the consent of the mortgagees (noting, in this context, that 'material' means something which was 'relevant' and 'might have affected' the decision of the creditors to adopt the Deed of Company Arrangement.) Jin Heung maintains that it would not have voted in favour of the Deed of Company Arrangement had that been disclosed. (It is submitted that whether the administrators knew this or knew of the omission is irrelevant; as is the fact that steps were taken to bring those documents to the notice of Jin Heung.)
327There is no doubt that administrators have an obligation to provide correct information to the creditors so that they are fully informed prior to voting at the second creditors' meeting. Depending on the gravity of a failure to do so, the resolution passed at the meeting may be held to be invalid (i.e. the jurisdiction to terminate the deed under s 445D(1) will be enlivened and discretion exercised pursuant to that section). In some cases if there is merely a 'procedural irregularity' in the conduct of the meeting, an order curing that irregularity may be made pursuant to s 1322.
328Where a deed of company arrangement is proposed, a statement setting out details of the proposed deed is required to be provided to creditors in advance of the meeting (s 439A(4)), together with such other information known to the administrator as will enable the creditors to make an informed decision about the three options on which the administrator must have formed an opinion under the section). (This supports the view that the use of the word "statement" in the resolution was intended to refer to the statement setting out the proposed deed details required to be provided to creditors in advance of the meeting, not any oral statements made at the meeting in explanation thereof.)
329The rationale for the administrator's obligation to report to and inform creditors was explained in the Harmer Report (Australian Law Reform Commission Report No 45, General Insolvency Inquiry) at volume 11, [110] - [111]:
The meeting of creditors provided for under this voluntary procedure will be preceded by a professional investigation of, and report to creditors on, the financial position of the company and, if it is proposed that the company enter a deed of company arrangement, a statement of particulars of the proposed arrangement. The report to creditors should contain information enabling creditors to make an informed decision whether the best interests of creditors would be served by a deed of company arrangement or a winding up ...
If the creditors are better informed, the meeting should be more productive and its proceedings more intelligible to creditors than is the case with meetings held under the existing procedure for a creditor's voluntary liquidation. Creditors will be able to make a rational decision whether they attend the meeting or not. The Australian Finance Conference particularly favoured this as part of the procedure. The Conference said that the "current system whereby creditors are bombarded with information at the last minute has only served to bring insolvency law into disrepute with the commercial community". (my emphasis)
330Ford's Principles of Corporations Law states at [26.200] that:
If the administrator proposes that the company execute a deed of company arrangement, the administrator must give creditors details of the proposed deed. If the information supplied omits a report or statement and the omission can reasonably be expected to have been material to creditors in reaching their decision, that could be a ground for the court later terminating a deed under s 445D . At their meeting creditors will canvass provisions that should be in the deed. It has been said that there must be a draft deed which can be sighted by creditors of which details are given : Kirwan v Cresvale Far East Ltd (in liq) (2002) 44 ACSR 21; (2003) 21 ACLC 371; [2002] NSWCA 395 at [382]. (my emphasis, noting that there is no suggestion that any draft deed was available at the meeting in the present case)
331In Hagenvale Pty Ltd v Depela Pty Ltd & Serrada Holdings Pty Ltd (1995) 17 ACSR 139 , Cohen J rejected the notion that the only material to be sent to creditors was that specified in s 439A(4). His Honour said that it was reasonable to assume that there would be a number of other significant matters which should be conveyed to the creditors, always providing that they were relevant, noting that if there was something of significance omitted from the report to creditors and it would have assisted creditors in coming to a decision, then that might provide the grounds for a court terminating a deed of company arrangement under s 445D(1)(c). His Honour stated (at [148]):
A complaint is made that the administrator failed to send to the creditors certain documents referred to in his report, namely the cash flow and profit and loss forecasts which had been provided to him and which had been checked by his office. It was upon these that the administrator relied in indicating to the creditors that the company, through its directors, hoped to be able to earn sufficient to pay the proposed dividends. In order to come within s 445d(1)(c) the omission is required to be from the report or statement. It was submitted for the defendants that the only matters to be taken into account are omissions of material required by the statute to be included in the report. I do not agree that this is so since s 439a(4) lists only certain matters which are required to be in the report or statement. It seems reasonable to assume that there must be a number of other basic matters which, if relevant, should be told to the creditors. If there was a matter of significance which should have been included in the report or statement and which would be highly material in the decision to be made by the creditors, then its omission may well come within the paragraph.
332In the Court of Appeal in Victoria, in McVeigh v Linen House Pty Ltd & Rugs Galore Australia Pty Ltd [2000] VSCA 4, Phillips JA (at [34] - [35]) quoted the reasoning of the trial judge in relation to whether the administrator had failed fully to inform the creditors and therefore whether the jurisdiction in s 445D(1) should be enlivened and the deed terminated:
In my opinion the failure to inform the creditors as to the true shareholding in the respondent company, the failure to provide information to the creditors as to the prior history of the business when in the hands of the old company and the acquisition by the respondent, the failure to reveal the Heads of Agreement and its effect, the plan for the take over by Real Enterprises and its allies, the omission to refer to the assumption of liability by the respondent of [Rugs Galore Pty Ltd's] obligation under the previous arrangement, the fact that the respondent always traded at a loss, the fact that there was no reference to Pindos, Real Enterprises, Messrs Bourke and O'Brien's involvement in the business of the respondent, the fact that the administrator had not investigated whether Mr Dowson could provide any compensation if sued as the sole director and the failure to set out clearly the position of the possible de facto directors was all information that in my opinion was reasonably expected to be material to the creditors' decision whether to vote in favour of the resolution that the company execute the deed.
333His Honour concluded that the jurisdiction under s445D was enlivened, saying (in para165):
In my opinion the creditors were deprived of the information which was necessary, they were led to believe in a state of affairs which were incorrect and in my view both the misleading and false information and the information which was omitted were reasonably expected to be material to the creditors' decision."
That conclusion seems to me to be more than justified by the detail preceding it ...
334The relevant omission from the administrators' report in the present case (having regard to the deed as executed, and hence as the administrators submit was propounded to creditors) is said, in effect, to be as to the requirement of the registered mortgagees to provide discharges of their mortgages on a sale of the property by the administrators (in circumstances where their consent was not necessary in relation to the sale). It has been recognised that it does not necessarily follow from the fact that material information has been omitted from the report that if the creditors had had the full and accurate information they would have voted against the deed ( Commissioner of Taxation v Comcorp Australia Ltd; Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510). In Bidald, Campbell J, as his Honour then was, framed the issue as being whether the information was of sufficient importance to justify terminating the deed (referring to Greek Orthodox Community of Oakleigh and District Inc v Pizzey Noble Pty Ltd (admin apptd) (1997) 23 ACSR 274).
335It seems to me difficult to argue that there was no omission of the kind articulated by Mr Pritchard (since the material forwarded to creditors makes no specific reference to the sale of the property at all). The circumstances in which mortgagee consent was or was not required must have been a material matter for creditors to take into account in voting on a deed proposal that (on the administrators' case) involved the sale of the property (not least because if there were to be any uncertainty as to that issue there would be potential for increased costs in having the position of the secured creditors determined). It was clearly material to Jin Heung.
336While it might be said that there was information provided to creditors at the meeting itself in relation to the land being a component of the sale, there was no suggestion to creditors that there might be a doubt as to whether the registered mortgagees had bound themselves to consent to such a sale. This becomes very stark in relation to the position of NH Capital from whom no consent seems ever to have been given, whether subject to a condition as was the case with Jin Heung or otherwise. The relevance of this to the body of creditors is apparent when one considers the position, for example, of the ATO. It was a petitioning creditor with a winding up application on foot. It would surely have been very relevant for it to know whether there was a risk that any sale could be prejudiced by a lack of consent to the discharge of the registered mortgages.
337It follows that the effect of the administrator failing properly to inform creditors prior to the second creditors' meeting would be to enliven the jurisdiction in s 445D(1) and the issue of whether the deed of company arrangement should be terminated is a matter of discretion. Thus it seems to me that there was a material omission for the purposes of s 445D(1)(c) and this was not something that could be treated as a 'procedural irregularity' in the conduct of the meeting curable under s 1322 (having regard to the discussion in Ford's at [26.205]; Re Vanfox Pty Ltd [1995] 2 Qd R 445; (1994) 13 ACSR 209; Re Ricon Constructions Pty Ltd (in liq) (1997) 43 NSWLR 174; 26 ACSR 655; Re Vouris; EPromotions Australia Pty Ltd v Relectronic - Remech Pty Ltd (in liq) [2003] NSWSC 702; (2003) 47 ACSR 155 ) and Deputy Commissioner of Taxation v Comcorp Australia (1996) 21 ACSR 590.)
338Second, it is submitted by Mr Pritchard that effect cannot be given to the deed without injustice (s 445D(l)(e)), and that the provisions which purport to bind Jin Heung are unfairly prejudicial to Jin Heung (s 445D(l)(f)(i)), having regard to the effect of the deed (rather than its purpose or the purpose of the deed administrators).
339In relation to the second of the reasons advanced for termination of the Deed of Company Arrangement, it is submitted that the sole cause of Jin Heung's current position is that it acted in reliance upon clear oral and written misrepresentations to the effect that "if the contract price is unreasonably low, you may refuse to discharge the mortgage" (those misrepresentations said to have been made by Ms Park and Mr Kang as agents of the deed administrators). It is noted that the deed administrators left all dealings with Jin Heung to Ms Park, who left all dealings with Jin Heung to Mr Kang. Further, it is said that where significant changes are made at the meeting to a proposal that has been put to creditors before the deed, this can itself amount to "injustice" (the relevance being that the comment during the second creditors' meeting that the sale of the "business" included the land, though that was not referred to in the proposal itself).
340Third, it is submitted by Mr Pritchard that there is some "other reason" why the deed should be terminated (for the purposes of s 445D(l)(g)) noting that Jin Heung is the single largest creditor of the company with a first-ranking mortgage over the only assets that are of any substance and the major part of the proposed sale is the property mortgaged to it.
341It is submitted that Jin Heung was a foreign company attempting to conduct business in a foreign language; that its only point of contact with the administrators was Mr Kang; that the deed administrators knew that Mr Kang was the bank's only point of contact; and that Mr Kang's dealings were solely with Ms Park. It is submitted that the administrators also knew that Mr Kang's dealings with Ms Park took place in circumstances of a longstanding relationship of trust and confidence involving fundamental misconceptions on the part of Ms Park as to the operation of Pt 5.3A.
342As to the application under s 445D, had I found that the Deed of Company Arrangement was binding on Jin Heung (because it had voted for the Deed by proxy at the meeting and the Deed, as executed, was an instrument incorporating the terms of the deed the subject of the resolution passed at the meeting), I would have been inclined to exercise the discretion under s 445D (enlivened because of the material omission of reference in the report to the sale of the golf course land and the proposition that the registered mortgagees would be bound to consent to, and provide discharges of mortgage for, any such sale) to terminate the Deed. I would have done so because I am satisfied that the evidence establishes that Jin Heung exercised the proxy for the meeting on the faith of assurances given in relation to the sale process which were not encapsulated either in the proposal contained in the report or in the discussion at the meeting of creditors and I am satisfied that, had Mr Ryu been on notice of the position as now contended for by the administrators, either the proxy would not have been given or it would have been subject to conditions on its exercise that would have led to it not being used to vote in favour of the proposal that the administrators say was in fact put to the meeting.
Section 445G - whether deed should be declared void
343Mr Pritchard notes that the power conferred by s 445G(2) gives the court a wide discretion, to be exercised in the interests of creditors as a whole and in the public interest and is available where there is doubt, on a specific ground, whether a deed of company arrangement was entered into in accordance with Pt 5.3A or complies therewith. It is submitted that there is doubt as to whether the deed was entered into in accordance with Pt 5.3A and, accordingly, the power is enlivened and that the court should exercise its discretion to declare the whole of the deed void, or at least clauses 4(a)-(c) of the deed (which deal with the position referable to the secured creditors).
344As to whether those clauses may be severed with no effect on the remainder of the Deed, Mr Pritchard refers to the observations of Perram J in City of Swan v Lehman Bros Australia Ltd [2009] FCAFC 130; (2009) 179 FCR 243 at [287], [154] (with whom Stone J agreed at 253 [41]):
With those provisions excised from the deed it no longer operates, if it operates at all, in a manner resembling its former self. Neither the creditors nor the company could have understood themselves to be putting in place such a stunted instrument. It follows that the deed is invalid. Putting the matter more formally, crucial provisions in the deed are invalid and they are inseverable from its balance. There are, no doubt, elements of the deed which, viewed in isolation, appear to be supportable. However, once it is accepted that they are inextricably bound up with invalid provisions, they fail too - not because of want of power; rather, because they no longer embody that which was intended by their authors.
345It is submitted that if clauses 4(a)-(c) of the deed are not binding on Jin Heung, then no part of the deed can or should be given effect, and the deed as a whole fails. (In the alternative, it is submitted that the words 'and the Administrators' Priority Amounts' appearing in the definition of 'Land Sale Proceeds' should be declared void so as to ensure that Mr Whittingham is unable further to diminish (by his claims for remuneration) any proceeds due to go to Jin Heung. In that regard, had I found that the deed was binding on Jin Heung, I would not have considered that a carve-out for the remuneration provisions was warranted.)
346Mr Golledge submits that if Jin Heung (and, for that matter, NH Capital) is not bound by the Deed, but it would otherwise remain binding on unsecured creditors, the Deed of Company Arrangement should be terminated. It seems to me that this would be warranted in circumstances where a major part of the arrangement proposed under the Deed was for the sale of the property and the inability of the deed administrators to convey that to Mr Lawton would cause the sale of business itself to be incapable of completion.)
347In the event, it is not necessary to address the claim for relief under s 445G(2) given my finding in (i) above. However, the existence of a real doubt as to the entry into the deed in accordance with part 5.3A would of itself have warranted an exercise of discretion to declare the deed void.
Section 447A - orders as to operation of Part 5.3A
348Mr Pritchard also invoked the plenary powers under s 447A(1) conferred upon the court "to do whatever it thinks is just in all the circumstances" and submits that, having regard to the rights of the various groups of people that are affected by voluntary administration and the public interest in the expeditious conduct of voluntary administrations (and that the court is to consider whether the interest of creditors to have some form of administration short of winding up is fulfilled in the circumstances), it would be just in all the circumstances for there to be an order that Part 5.3A of the Act operate in such a way that s 444D(2)(a) has no operation in respect of the Deed of Company Arrangement, with the consequence that Jin Heung is not prevented from realising or otherwise dealing with its security.
349Reference was made to the summary by French J (as his Honour then was) in Re Euco Ltd (in liq); Forrest Nursery Pty Ltd v Lopez (2006) 233 ALR 422 of the relevant principles (at 450-451 [36]-[39]), his Honour noting that the power conferred on the court by s 447A is broad and that the Report of the Australian Law Reform Commission (the ALRC) on the General Insolvency Inquiry (Report No 45, 1988) (which led to the enactment of Pt 5.3 A in July 1993) recommended that the court should have "a broad power to make orders for the effective operation of the [voluntary administration] procedure". His Honour also noted that the section empowers the court to do more than just fill in gaps in the legislative scheme or add to the provisions of Pt 5.3A (referring to Re Brashs Pty Ltd (1994) 15 ACSR 477 at [481] per Hayne J). In Brash Holdings Ltd (admin apptd) v Katile Pty Ltd [1996] 1 VR 24; (1994) 13 ACSR 504, it was said that the section empowers the court "to make orders which alter what would otherwise be the operation of Pt 5.3A in relation to a particular company".
350Further, in Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270, Gleeson CJ, McHugh, Gummow, Hayne and Callinan JJ, acknowledging the width of the powers conferred by s 447A, noted that s 447A is not properly described as a general power standing apart from Pt 5.3A but is an integral part of the legislative scheme for which that Part provides and can apply to alter timetables prescribed by other provisions of Pt 5.3 A (at [24]). Mr Pritchard notes that, in that case, their Honours were of the view (at [26]) that the words of s 447A do not suggest that it cannot be used if, by operation of the provisions of Pt 5.3 A, the administration of the relevant company has come to an end (the section dealing with a "particular company" and the operation of Pt 5.3A in relation to it) and that the section does not preclude the making of orders with future effect but in respect of past matters or events (at [26]).
351It is submitted by Mr Pritchard that the order that is just in all the circumstances of this case is an order that Part 5.3 A of the Act operate in such a way that s 444D(2)(a) has no operation in respect of the deed, with the consequence that Jin Heung is not prevented from realising or otherwise dealing with its security. Again, no such order is necessary having regard to the findings made in (i) and (ii) above. (Furthermore, given that I would have been inclined to grant relief under one or other of the previous sections, it would not be necessary to rely on this power in any event.)
Section 447E - orders restraining proposed acts of administrators
352Reliance is also placed on s 447E(l)(b), which permits the court to make "such order as it thinks just" in circumstances where the deed administrator "proposes to do an act... that is or would be prejudicial" to "the interests of some or all of the company's creditors". It is submitted that the prejudicial act proposed by the deed administrators is the sale of the land without the consent of Jin Heung and that it would be just in all the circumstances for there to be an order that the administrators not dispose of the land without the written consent of Jin Heung. My earlier findings make it unnecessary for this power to be invoked.
Response by deed administrators
353The response by the deed administrators to the various bases on which discretionary relief is sought by Jin Heung, but particularly the last, starts from the proposition that the actions of Mr Kang at the meeting of 15 July 2010 do not establish any case for relief.
354Mr Golledge submits that the 3 persons present at the 15 July meeting gave substantially different versions of what was said or agreed at the time; were all completely ignorant of the detail of Australian insolvency law and of the provisions or potential effect of Part 5.3 A; and that the best evidence of what was said at the meeting is that contained in the letter sent on that same day by Mr Kang and which the bank officers required as confirmation of what they had been told. He notes that this letter does not suggest that the bank would 'control' the sale or that its consent would have to be given for whatever sale was achieved. The only control or veto promised to the bank by Mr Kang, it is said, was that it could object to any sale at an "unreasonably low price".
355Mr Pritchard takes issue with the suggestion that there were substantially different accounts of the meeting (noting that the existence of differences in the respective accounts of Mr Ryu and Mr Yoon is indicative of honesty on their part). I was taken to the respective portions of the affidavits and I think there is force in Mr Pritchard's submission that the accounts given of the meeting and its outcome were broadly consistent (although not consistent with an unimpeded discretion as to the withholding of consent to any sale by the deed administrators).
356In any event, accepting that the 15 July letter was understood by the bank officers as according generally with the outcome of the meeting, it still puts them in a position where they could reasonably have expected that their consent would be sought in relation to any proposed sale and that they would be in a position to withhold that consent if they regarded the price to be unreasonably low. (Whether that was to be determined objectively or subjectively was unclear. It seems to me likely that the bank officers understood it to be the former - and that would be consistent with the manner in which Ms Park seems to have conveyed the position to Mr Kang over the period (which must have formed the basis of the advice he conveyed to Jin Heung).
357It is submitted by Mr Golledge that the terms of the present sale are not at an unreasonably low price and that the court should conclude that the contract price is within the 'market range'. It is submitted that, at most, the evidence of Mr Rowe is that the resort had a value, as at February 2011, of $500,000 more than the administrators had secured. Mr Golledge emphasises that Mr Rowe does not say that the price of $3 million for the assets achieved by the deed administrators in December 2010 is unreasonably low. (Mr Golledge submits that this should be construed as a concept that involves objective considerations not merely the subjective view of Jin Heung.)
358It is noted that Mr Rowe's valuation involves a number of assumptions or estimates which Mr Golledge submits leaves open the possibility that $3 million is within the range of what a "willing" purchaser would pay for the property (noting in particular that Mr Rowe's valuation figure of $3.5 million is based on an estimate of the level of capital expenditure which that prospective purchaser would anticipate as being required to return the course to its optimum use). It is submitted that this was an arbitrary estimate. However, I note that in cross-examination Mr Rowe gave a reasonable basis for the figure that he had adopted in this regard (based on his experience in such rectification works at another golf course).
359As to the provision in the sale contract for the purchaser to honour existing memberships (that Mr Golledge suggested could, depending upon the timing of the contract, also result in an adjustment of any sale price of approximately $150,000), Mr Rowe's explanation (as to why this would simply result in an adjustment and be unlikely to result in an increased price) seemed to me to be logical.
360It is submitted that the 'offers' procured by Jin Heung or by the chairman of the Korean parent company do not support a claim that the present sale is at an unreasonable price on the basis that the communications do not comprise binding offers and appear to be made by entities connected with the Korean parent company. It is suggested that the bona fides of these offers is questionable. It is further noted by Mr Golledge that there is no indication that the parties have been informed of the present state and condition of the golf course or the need for immediate and substantial capital expenditure. Mr Golledge submits that the valuation evidence from the valuer called by Jin Heung does not suggest that a figure of $5 -$7 million is likely to be could be achieved for this property in its present condition.
361As to this aspect of the matter, my concern is twofold. First, the reasonableness of achieving a sale at the present price must be tested in part by what the mortgagee would be likely to achieve from the sale - if the mortgagee is unlikely to receive anything because of the deed administrators' remuneration claims (as Mr Whittingham conceded was probably the case), then the difference of some $500,000 may well be important - since that would fund at least a large portion of the claims that Mr Whittingham has foreshadowed, assuming for present purposes that they can in due course be sustained as reasonable. Secondly, the evidence suggests to me that Mr Whittingham did not seriously explore the bona fides or otherwise of the Hae Dong offer - in circumstances where he may by then have seen himself as 'committed' in a loose sense to the idea of the sale to Mr Lawton. The difference in the manner of treatment of the non-refundable deposit seems to me to highlight that issue.
362Mr Golledge submits that by consenting to the administration process and by reason of the actions of its proxy at the s439A meeting, Jin Heung bound itself to hand over a discharge of mortgage provided the sale achieved by the deed administrators could not be described (objectively) as being at an unreasonably low price. It is submitted that the sale to Mr Lawton was not at an unreasonably low price, having been achieved after a lengthy sales process undertaken by the deed administrators based on professional advice. Hence it is said that the terms of this sale do not justify the grant of discretionary relief relieving the bank, at this time (months after its consent had been originally given) from the consequences of that decision. I accept that the provision of a proxy in relation to a proposed sale of the property may support the inference that Jin Heung accepted it would be bound to provide a discharge of mortgage but the basis on which it provided that consent raises real issues as to whether it should now be bound to the sale achieved by the administrators.
363For the reasons outlined earlier, I do not consider that the matters raised by Mr Golledge would outweigh the factors in support of discretionary relief had the need to make a determination of that issue arisen.
(v) If the Deed is not binding on Jin Heung, should leave be granted under s 442C(2) (or in the inherent jurisdiction of the court) for the disposal of the land?
364If the Deed of Company Arrangement is not binding on Jin Heung, then (absent leave under s 442C(2)(c)) the deed administrators may not dispose of the golf course. (It is not suggested that the proposed sale of Le Meilleur's land is a disposal in the ordinary course of the company's business, nor that the registered mortgagees have consented in writing to the sale. Hence the need for the leave of the court is required for the disposal unless the registered mortgagees are bound by the deed of company arrangement). If leave is given, s 442C(7) operates to extinguish the secured creditors' charge upon disposal of the property.
365Section 442C(3) requires that before any such leave is given the Court must be satisfied that "arrangements have been made to protect adequately the interests of the chargee". The deed administrators bear the onus of establishing on the balance of probabilities that the interests of the mortgagees will be adequately protected. Mr Golledge submits that adequate arrangements have been made in this case because the secured creditors will receive all that they could expect to receive if they were to exercise their rights under their securities to appoint a receiver to sell the property. (That, of course, requires an assumption - not fully if at all tested - that the Korean banks would not be able to procure a higher price for the property if sold through their endeavours and in particular by reference to potential buyers in the Korean market such as Hae Dong.)
366In Mentha v GE Capital Ltd (1997) 27 ACSR 696 at 700-701, Finkelstein J noted that before leave may be granted the Court must be satisfied not only that arrangements have been made adequately to protect the interests of the chargee but also that the disposition will not prejudice or will not be likely to prejudice the interests of other creditors or the interests of the company (though his Honour considered that the occasion for such prejudice "will not often arise in the case of a disposition of charged assets"). I consider below the position of the other creditors who have intervened on the present application.
367In Hamilton and Fiorentino as Administrators of Kisoro Pty Ltd v National Australia Bank Ltd (1996) 66 FCR 12 at [31] - [32], Lehane J was of the view (considering the same requirement appearing in s 444F(3)) that a chargee should be permitted to exercise proprietary rights where to do so would not impede the achievement of the purposes for which the administration was commenced; that, in other cases, the legitimate interests of the chargee must be balanced against the legitimate interests of the other creditors of the company; and that, in carrying out the balancing exercise, great weight must be given to the proprietary interests of the chargee and, so far as possible, the administration procedure should not be used to prejudice those who were secured creditors when administration commenced in lieu of liquidation.
368Mr Pritchard places weight on the statement by Lehane J of the principle that "an administration for the benefit of unsecured creditors should not be conducted at the expense of those who have proprietary rights which they are seeking to exercise, save to the extent that this may be unavoidable and even then this will usually be acceptable only to a strictly limited extent" (at [32]) and to the test as stated by his Honour ([33]-[34]) as being:
... whether I should be satisfied on the evidence that the Bank's proprietary rights under its deed of charge are, in a liquidation, so likely to prove valueless that if the deed of company arrangement takes effect nothing further is needed for the adequate protection of its interests
369He emphasises that the administrators were not able to point to any cases where there had been a grant of leave pursuant to s 442C(2)(c) permitting the sale of property the subject of a first-registered mortgage against the wishes of the first-registered mortgagee.
370As to whether adequate protection of the mortgagees' interests has been achieved, It is submitted by Mr Pritchard that the only arrangement that has been made to protect the interests of the mortgagees is the proposal that the sale proceeds from the land go to Jin Heung. It is submitted that, while this provides a modicum of protection for Jin Heung, it offers no protection at all for NH Capital (whose debt will not be repaid out of the proposed sale proceeds) and does not adequately protect the interests of the mortgagees for a number of two reasons.
371First, it is noted that Jin Heung's mortgage secures a debt of some $12.4 million, whereas the subject arrangement provides for Jin Heung to receive less than $2 million (closer to $1 million when unpaid land tax and other deductions are taken into account) and less an unquantified amount for the priority (referring to the definition in the Deed of Company Arrangement of Land Sale Proceeds) accorded to payment of Mr Whittingham's expenses and claim for unpaid remuneration (estimated by Mr Whittingham as being in the order of $800,000. It is therefore submitted that there is a very real possibility that Jin Heung will receive little or no funds out of the sale of the land.
372Second, as to the interests of other creditors, Mr Pritchard notes that Mr Whittingham admitted that it is 'probably' the case that the unsecured creditors will receive 'very little'. That must be the case if the Korean parent company's contribution to the fund is not received, since the unsecured creditors would then receive a lesser distribution than the contemplated 50c in the dollar (as they will stand behind the propriety creditors).
373In those circumstances, it is said that any submission to the effect that the deed would result 'in a better return for the company's creditors and members than would result from an immediate winding up of the company' can be given little weight. It is submitted that the true position is that the primary beneficiaries of this deed are Mr Whittingham and the other statutory creditors, such as the Office of State Revenue.
374Third, it is said that the value of the property has fluctuated over time and has varied between markets (from $19.1 million in April 2002, according to Colliers Jardine; $6.5 million in December 2004, according to Le Meilleur's purchase price; $1 million in July 2010, according to Colliers International; $5 million in November 2010, according to the indicative offer received from the Korean market (Hae Dong); $2 million in December 2010, according to the deed administrators' sale contract; $6 million in January 2011, according to the Korean market (A4 Group); and $2.5 million in February 2011, according to Preston Rowe Paterson). In that regard, it is submitted that there are reasonable grounds for Jin Heung's belief that a substantially better price for the property can be obtained by a sale at a different time and/or in a different market (Mr Pritchard referring to offers to purchase the property were made by Korean buyers in November 2010 and January 2011 for $5 million and $6 million respectively, that were not been pursued pending the outcome of this proceeding).
375Mr Pritchard notes that it has been recognised that it is the prerogative of the mortgagee to choose when, where, or even if to sell, referring to the summary of the principles made by Austin J in Jiriwa Pty Ltd v Primary Industry Bank of Australia Ltd [2000] NS WSC 1094 at [229], as to the position of mortgagee and the relevant aspects of a mortgagee's duty. Those include the recognition that the power of sale is given to the mortgagee for its own benefit, to enable it to realise its debt ( Forsyth v Blundell (1973) 129 CLR 477 at [483] - [484]); that the mortgagee is not a trustee of the power of the mortgagor ( Commercial & General Acceptance Ltd Corporation v Nixon [1981] HCA 70; (1981) 152 CLR 491); that the mortgagee may consult its own convenience as regards the time of sale subject to its duty to act bona fide in the conduct of the sale ( Westpac Banking Corporation v Kingsland (1991) 26 NSWLR 700); and that, in general, a mortgagee may sell when it considers appropriate ( Mailman v Challenge Bank Ltd (1991) 5 BPR 11721). (His Honour did, however, note the authorities in which the duty of a mortgagee to pay some regard to the interests of the mortgagor was considered - referring to cases such as ANZ Banking Group Ltd v Bangadilly Pastoral Co Ltd (1978) 139 CLR 195; Commercial & General Acceptance Ltd v Nixon (1981) 152 CLR 491; Forsyth v Blundell at [481]; National Commercial Banking Corporation of Australia Ltd v Solanowski (1984) NSW ConvR 55-194; and to the commentary in Fisher & Lightwood's Law of Mortgage, Australian edn, para 20.27.)
376As to the proposition that a mortgagee may sell when it considers appropriate, Mr Pritchard also referred to Bridgecorp Finance Ltd v Corner [2005] NSWSC 225 at [20] per Einstein J and Graeme Webb Investments Pty Ltd v St George Partnership Banking Ltd [2001] NSWCA 93; (2001) 38 ACSR 282 at [92] per Fitzgerald JA with whom Sheller JA and Ipp AJA agreed.
377Mr Pritchard submits that the arrangement proposed by the deed administrators has no regard to the potential exercise of rights held by Jin Heung - such as taking possession of the golf course land, leasing the land, improving the property for sale, development or subdivision of the property, or awaiting a change in market conditions - all of which he submits Jin Heung is entitled to do pursuant to its statutory and contractual rights as mortgagee.
378Mr Golledge points to the commercial unreality of the mortgagee simply being able to sit back and bide its time, having regard to the creditors and the need to maintain the golf course and hence provide ongoing funding. In particular, Mr Golledge submitted that the suggestion by Mr Yoon that it would only cost the bank an additional 1 million Korean Won or approximately AU $1,000 to appoint receivers and realise its security was commercially unrealistic.
379In response to this, Mr Pritchard submits that it will be a matter for Jin Heung to make an appropriate commercial decision in its best interest when and if it has access to the secured property.
380Fourth, it is submitted that there had been an arbitrary apportionment of the sale price as between the property and business, being $2 million to the property (in relation to which ad valorem duty is payable) and $1 million to the business (on which duty is not payable if sold as a going concern). Reliance is placed on the evidence of Mr Lawton in this regard (as to the manner in which the total property and business price of $3 million was apportioned between the land and the business). Mr Pritchard notes that $2 million was allocated to the property (in relation to which ad valorem duty is payable) and $1 million was allocated to the business (on which duty is not payable if sold as a going concern). (In that regard, I accept that Mr Lawton's evidence suggests that there was a wholly arbitrary allocation of price as between the land and the business. Nevertheless, it is a breakdown that broadly accords with the allocation that Mr Rowe suggested when carrying out his walk in walk out valuation and I place little weight on this factor.)
381Fifth, it is said that the arrangement does not provide any protection at all (let alone adequate protection), for the interests of NH Capital as second mortgagee; there being no evidentiary basis to suggest that the significant money owed to NH Capital has been repaid.
382Sixth, Mr Pritchard submits that there is no evidence to suggest that the sole director who gave a personal guarantee in respect of the obligations of the Korean parent company (Mr Chung) has any capacity to pay any of the debt owed by that company (other than references to a possibility that he might be able to realise up to $5.4 million on the sale of an interest in an oil development in Iraq - an asset apparently not able to be realised in order to meet the Korean workout arrangements at least as at the time of the hearing before me) but that even if that were to be the case there would nevertheless be a very substantial shortfall if Jin Heung were left to an unsecured claim against the Korean parent company in the order of $12.4 million.
383What s 4442C requires is a balancing of the interests of the secured creditors and the unsecured creditors. Mr Golledge submits that this is analogous to the exercise of the inherent jurisdiction which the Court has to order a judicial sale over the objections of a mortgagee and has referred to cases in which the balancing exercise between competing interests of secured and unsecured creditors has been undertaken in other jurisdictions. Emphasis was placed on t he overriding objectives of Part 5.3A as expressed in s 435A of the Act in this context.
384It is submitted that the sale which has been achieved by the deed administrators has obtained market value for the property and that the deed proposal will see the maximum realisable value paid to the mortgagees in return for the discharge of their mortgages, thus doing no substantial harm to the secured creditors' real interests in the property in the circumstances. Accordingly, it is submitted that the deed administrators have obtained the best price reasonably available for the property (such that the mortgagees will receive from the sale all that the property can be expected to generate) and hence the Court can and should be satisfied that adequate arrangements have been made as regards the interests of the mortgagees (s 442C(2) referring to the need for "adequate" protection not the replication of the position the secured creditors would be in if they exercised their rights under the mortgages.
385Hamilton J, in Debis Financial Services (Aust) Pty Ltd v Allied Bellambi Collieries Pty Ltd [1999] NSWSC 935; (1999) 17 ACLC 1636 , considered what was meant by the term 'adequate protection' for the interests of the secured creditor in s 441D and noted that there might be adequate protection even if not a complete substitute or replacement for that which was originally enjoyed. There, his Honour considered that there was adequate protection in circumstances where the administrators had offered an undertaking to include in the proposed sale contract a clause requiring the vendor to allow any chargees to repossess their assets upon reasonable notice. (Mr Pritchard points out that no such terms have been offered in this case.)
386Reference was also made to the decision in Re ARV Aviation Ltd [1989] BCLC 664 in the context of an application under s 15(2) of the Insolvency Act 1986 (UK) for an order authorising the administrators to dispose of charged property. There, it was said that the intention of the section was to protect the rights of a secured creditor "to the maximum practicable extent", which could be achieved in that case because there was sufficient security in the remainder of the company's assets to avoid prejudice to the secured creditor in the event there was any shortfall after the secured creditor's entitlement had been determined. Again, that is not the case here.
387In Woolley v Colman (1882) 21 Ch D 169, where an application was made under s 25 of the Conveyancing and Law of Property Act 1881 (UK), and the mortgagor in a redemption suit had sought an order for sale over the opposition of the first and second mortgagees, the court directed a sale but fixed a reserve price sufficient to protect the mortgagees' interests. Mr Pritchard notes that there has been no suggestion that protection of that kind is possible in the present case.
388Mr Pritchard notes that in Re Capitol Films Ltd [2010] EWHC 3223 (Ch), where an application was made under the Insolvency Act 1986 (UK) for permission to dispose of charged property and, after the application was made, the administrators entered into a sale contract that was conditional upon permission to dispose of the property being granted by the court, there was an order made against the administrators for the payment of costs on an indemnity basis (and a declaration that they had no entitlement to recoup funds in priority to unsecured creditors).
389Insofar as reliance is placed by Mr Golledge on Palk v Mortgage Services Funding Plc [1993] Ch 330; 2 All ER 481, Mr Pritchard notes that there (as here) the debt owed far exceeded the value of the property but the secured creditor had in that case commenced the process of realising its security (having sought and obtained an order for possession and the having leased the property) and the position was that it had not proceed to sell or foreclose. In ordering a sale under the Law of Property Act 1925 (UK) the court had noted that there would be a substantial income shortfall (the rental income falling significantly short of the interest accruing on the debt); the only prospect of recoupment of that shortfall lay in the hope of a substantial rise in house prices generally; the likelihood of the mortgagor suffering increased loss if the manner in which the secured creditor proceeded was such as to be oppressive (and the mortgagor's loss) disproportionate to any gain the mortgagee might make; and that directing a sale would not preclude the mortgagee from having the opportunity to wait and see what happened to house prices, because the mortgagee could buy the property itself.
390Mr Pritchard submits that there is nothing to suggest that Jin Heung is proposing to proceed in a manner which might be regarded as oppressive to the mortgagor's interests nor seeking to make a gain disproportionate to a loss likely to be suffered by the mortgagor. He places reliance on what was said in Palk (at 343 F-G):
Whenever a mortgagee can demonstrate a real possibility, let alone a probability, that a refusal or postponement of the sale would be financially beneficial, because of the property's likely increase in value or because of the extent of the revenue which it would generate in the interim, then the mortgagor's request for a sale will no doubt be refused out of hand, even though either of these events would also pro tanto inure to his financial benefit.
391The high point of the deed administrators' position in this regard seems to me to be the submission that no damage is done to a secured creditor who is required by court order to give up its security in return for the monetary equivalent or value which the security represents (since that creditor will have received all that its security was designed to provide). That submission, however, does not necessarily take into account the timing of the transaction or the possibility that Jin Heung could itself achieve a higher price for the property (an opportunity that does not seem to me to have been explored, having regard to the decision of the administrators over the opposition of Jin Heung to proceed with the sale to Mr Lawton).
392To the extent that the notion of adequacy permits reference to be made to what other security Jin Heung can call upon if its security has been realised, Mr Golledge pointed to the evidence of Mr Ryu in cross examination to the effect that the trading position and reputation of the Korean parent company was the main reason why Jin Heung approved the loan. He notes that both Mr Ryu and Mr Yoon have admitted that once the Korean parent company emerges from its workout then Jin Heung will be free to enforce its security over that company for the full amount of its debt. It was submitted that the evidence suggested that if the workout is successful, then Jin Heung will be repaid in full by the Korean parent company (and it is noted that it also has the benefit of the personal guarantee from Mr Chung). In that regard, I do not think the evidence went so far as to suggest the likelihood that the outcome of the Korean work-out process would be a complete discharge of the Korean parent company's debt and I would infer from the extension of the arrangement to date that it has not necessarily been an easy process for the Korean parent company (or the Chairman) to realise assets in order to meet that debt.
393Mr Pritchard further submits that even if the deed administrators are able to satisfy the court that the arrangement proposed by them adequately protects the interests of the mortgagees (and in the case of Jin Heung I am not so satisfied), that merely enlivens the court's power to grant leave under s 442C(2)(c) and that in the exercise of the court's discretion leave should not be granted.
394In relation to the question of discretion, Jin Heung submits, first, that the application for leave proceeds on the assumption that Jin Heung did not vote in favour of the deed and that there is a dearth of precedent for leave to be granted under s 442C for deed administrators to sell property subject to a first-ranking mortgage against the wishes of the first-ranking mortgagee. Secondly, it is submitted that Mr Whittingham has shown by his evidence that he is not prepared to carry out the deed consistently with the representations he made to creditors at the second meeting (having not taken any step to reconvene a meeting of creditors to wind up the company (notwithstanding his promise to do so) in the face of non-compliance by the Korean parent company with its obligations under the Deed of Company Arrangement). Thirdly, Mr Pritchard relies on the matters advanced in support of Jin Heung's cross-claim as going to the question of discretion on the s 442C application.
395Mr Golledge submits that the fact that Jin Heung "readily acceded" to the requests of Le Meilleur to co-operate in the administration process (and expressly rejected approaches by lawyers who had previously acted for it to provide advice) should be inferred as demonstrating the lack of significance of the property mortgage to its original lending decision or to its current attitude towards or dealings with the Korean parent company. Alternatively, it is suggest that it may have opted for that course as a way of realising its interest in the property without being in breach of the moratorium agreement in place in Korea. Whatever the position in that regard, it is submitted by Mr Golledge that its present complaint that it has been misled into voting for the deed or that it has been prejudiced by the outcome of the administration should be rejected. For the reasons set out earlier, I have not reached that conclusion.
396Were I to have been satisfied that there was no prospect of the secured mortgagees obtaining any better recovery out of the secured property than under the proposed Deed of Company Arrangement and the sale now proposed to Mr Lawton, then I think there would have been force in the proposition that their interests had been adequately protected for the purposes of s 442C. However, I am not so satisfied. Apart from the fact that I do not accept that Jin Heung has had an adequate opportunity itself to test the market, it raises issues of commercial negotiation (such as whether, for example, a greater price could have been achieved for the land as opposed to the business if the administrators had been forced to secure the secured mortgagees consent to the former) and timing issues as to when a sale might most favourably be concluded from the perspective of the secured mortgagees. The uncertainty as to the amount to be allocated out of the sale to meet the administrators' expenses is another issue.
397Finally, in relation to discretion, it is submitted by Mr Pritchard that to the extent that a grant of leave under s 442C(2)(c) would involve an acquisition of property from Jin Heung, the court must further be satisfied that the acquisition is on just terms. That statutory provision being a law of the Commonwealth, it is submitted that the court should have due regard to s 51(xxxi) of the Constitution which provides that the Parliament has power with respect to "the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws". Mr Pritchard accepts that no case has considered the application of s 51(xxxi) of the Constitution to Part 5.3A. However, it is submitted that the court cannot be satisfied that the deprivation of the first defendant's proprietary rights would be either just or on just terms.
398It is not necessary for me to consider the constitutional ramifications of such an order in the present case. I am not satisfied that there has been adequate protection for Jin Heung's position as secured creditor and I have real concerns as to whether, in any event, it would be an appropriate exercise of discretion to make an order under s 442C having regard to the circumstances in which Jin Heung's proxy was obtained.
399Had the matter turned on this issue, I would have found against the deed administrators on their s 442C application.
400For completeness, I note that the originating process claimed relief on both statutory grounds (under the Corporations Act ) and by reference to the Court's inherent power to order a discharge of mortgage over objection from a registered mortgagee. The deed administrators' ultimately did not press for an order in reliance upon any inherent jurisdiction of the alleged power inherent in the court, and conceded that if a case for relief were not made out under ss 444D or 442C, then the case for relief under the general law must also fail. It is not therefore necessary to consider the case on the basis of the inherent power of the court.
401For Jin Heung it was submitted that it was appropriate for the relief sought on the basis of the inherent power to be refused in any event for three reasons: first, on the basis that there is no inherent power (and that the line of first instance authority which is said to hold to the contrary should not be followed); second, that even if there once were an inherent power, it did not survive the enactment of s 442C of the Corporations Act 2001, which expressly provides that an administrator 'must not' dispose of charged property unless one of the three criteria in s 442C(2) is satisfied; and, third, that any inherent power that does exist should not be exercised in the manner sought by the deed administrators because this is not one of the 'special and exceptional cases' in which it is appropriate that the power be exercised and, secondly, for the same reasons that leave should not be granted under s 442C of the Act.
402As to the first reason, it is submitted that the Real Property Act 1900 (NSW) creates a system of title by registration and is the sole source of the court's powers with respect to Torrens land; and that ss 90 and 103(7) of the Conveyancing Act 1919 (NSW) are strong indications that the legislature intended that any inherent power existing with respect to old system land would not apply to land under the Real Property Act (the court's powers in relation to land under that Act being as conferred on the court by that Act).
403As to the second, Mr Pritchard contends that the inherent jurisdiction has not survived the provisions of the Corporations Act in this regard. Mr Pritchard notes that no cases were cited by the deed administrators in which an administrator who is subject to s 442C(1) had sought an exercise of the inherent power in the absence of satisfaction of s 442C(2). Insofar as reliance was placed by Mr Golledge on authorities in which the inherent power was or was apparently exercised, Mr Pritchard submits that they are distinguishable or do not support the contention that the inherent power survives.
404Reference was made to the decision in New Beach Apartments Pty Ltd v Epic Hotels [2007] NSWSC 474. There, White J considered the question as to the jurisdiction to compel a mortgagee to discharge its security even though its debt had not been fully repaid (from [14], referring to the powers conferred by s 103 of the Conveyancing Act 1919 (NSW) and the explanation of its legislative history (or that of equivalent provisions) in various cases. His Honour referred to the decision of Young J (as his Honour then was) in Yarrangah Pty Ltd v National Australia Bank Ltd [1999] 9 BPR 17,061 (at [22]-[23] and [29]-[30] in which his Honour had come to the view that the probability was that there was an equitable power to award judicial sale at the suit of a mortgagor where the circumstances showed that there was clear prejudice from the application of the ordinary methods of foreclosure or sale under a power of sale. Such jurisdiction, White J noted, was to be exercised by analogy in the circumstances in which the power under s 103 could be exercised.
405His Honour appears to have accepted that there was such a jurisdiction albeit one reserved for special or exceptional circumstances (referring to Yarrangah and Palk in that regard). Insofar as New Beach involved an apparent exercise of the inherent power, Mr Pritchard notes that the first mortgagee had consented to the sale in question and that only the second mortgagee objected (as to price). It is submitted that as the first mortgagee had also served a s 57(2)(b) notice with the intention of exercising its power of sale if the sale could not otherwise proceed, it had effectively invited the court to exercise its own power of sale. Thus it is said that the case is distinguishable.
406White J affirmed his view that the Court has an inherent jurisdiction to order judicial sale of Real Property Act land by analogy to the circumstances in which the power under s103 of the Conveyancing Act can be exercised in relation to old system land, that jurisdiction being reserved for special or exceptional cases, in Spendright Pty Ltd v Classfact Pty Ltd [2009] NSWSC 317 at [11]. Mr Pritchard, who contends that there is no such inherent jurisdiction and that White J is incorrect in this regard, notes that Spendright involved an application under s 442C, in which the first mortgagee had again consented to the sale ([12]) and it was arguable that the consent of the second mortgagee had been withdrawn its initial consent. In any event, his Honour appears to have granted the leave in question under s 442C(2)(c) ([19]) ('for abundant caution') ([15]).
407Having regard to the concession that there would be no basis for relief in the exercise of the inherent jurisdiction if a claim under s 442C were not made out, and my earlier findings, I do not need to determine this controversy.
Interests of third parties
408The position of third parties is relevant not only to the balancing exercise to be carried out as between the interests of secured and unsecured creditors but generally in the exercise of discretion on the various applications that have been made.
409As to the interests of third parties, Mr Pritchard submits that no contractual liability will be incurred by any of the parties to the existing sale contracts by reason of orders made with respect to the Deed of Company Arrangement, as the administrators have a contractual right to avoid the sale ab initio in the event that the mortgages are not discharged. He further points out that the expenses apparently incurred by the deed administrators and Mr Lawton in relation to the sales contracts were incurred with full knowledge of the present circumstances.
410As to unsecured creditors, Mr Pritchard notes that, in the main, the creditors who did appear and who addressed me in relation to the relief sought in these proceedings were secured not unsecured creditors and submitted that it was telling that there had been little or no evidence from the deed administrators in that regard.
411As to the creditors, as noted earlier, an opportunity was afforded for those who might be adversely affected by the outcome of the proceedings to make submissions. Four such creditors made submissions, the substance of which I summarise below. Those parties were: the Office of State Revenue (in respect of $772,062.00 for unpaid land tax for which it has the benefit of a statutory charge pursuant to the provisions of the Land Tax Management Act 1956 (NSW); Port Stephens Council (in respect of $259,182 in unpaid council rates which have the benefit of a statutory charge pursuant to the Local Government Act 1993 (NSW)); the Horizons Community Association (claiming unpaid strata levies of $47,754); and an unsecured creditor (Mr Greg Ramsey) who is owed moneys for his time as the golf professional at the golf course.
412The deed administrators also note that there are substantial amounts due in respect of their remuneration, costs and expenses associated with preserving and maintaining the secured property, which it is said are secured by an equitable lien in favour of the administrators. (It is further submitted by Mr Golledge that this equitable lien this includes even Mr Lawton (pursuant to the salvage principle) who may take priority over the interests of a fixed charge holder; see Universal Distributing Co Ltd (1933) 48 CLR 171 and Meadow Springs Fairway Resort Ltd (in liq) (ACN 084 358 592) v Balanced Securities Ltd (ACN 083 512 685) (No 2) [2008] FCA 471; (2008) 65 ACSR 563 .)
413As to the suggestion that the administrators (and/or Mr Lawton) are entitled to the benefit of an equitable lien over the secured property which ranks ahead of a legal mortgage, Mr Pritchard noted that it had not (though could have) been raised as an issue in this case (it being this particular submission that prompted the amendment application at the conclusion of the hearing, to which I will shortly turn).
414Turning briefly to the interests of the creditors who intervened in the proceedings, I comment as follows.
Chief Commissioner of State Revenue
415The position of the OSR is that, as at 23 May 2011 the OSR is a creditor of Le Meilleur for the amount of $916,848.66. The OSR's debt is comprised of $806,590.93 in unpaid land tax owing for the land tax years 2009, 2010 and 2011 in respect of land tax assessments which have been levied against the golf course and resort under the Land Tax Management Act and $110,257.73 in unpaid payroll tax owing for the payroll tax years 1 July 2008 to 30 June 2009 and 1 July 2009 to 23 June 2010 in respect of payroll tax assessments which have been levied by the OSR against the Company under the Payroll Tax Act 2007 (NSW). (Mr Pritchard notes that objections have been lodged and are being considered by that office.
416Pursuant to s 47(1) of the Land Tax Management Act , land tax payable by Le Meilleur to the OSR is a first charge on the land, in priority over all other encumbrances, on all of the land owned by the company. Payroll tax is not afforded any such priority.
417The OSR notes that it incurred costs in seeking to become substituted as supporting creditor in the winding up of the company. On 9 August 2010 the OSR consented to the winding up proceedings being discontinued against Le Meilleur. It did so on the basis, first, that the deed administrators would be empowered to sell the golf course and resort as quickly as practicably possible; second, that, given the deed administrators' background knowledge of the golf course and resort since their appointment, it would be more efficient and cost effective for them to effect that sale as opposed to a newly appointed liquidator; and, third, that the OSR would be paid as a priority creditor in full for the outstanding land tax levied against the golf course and resort.
418The OSR submits that it has, as an office of the Crown, been extremely patient in waiting as long as it has for payment of the land tax which it has, along with all other state taxes, a duty to collect as quickly and as efficiently as possible for the benefit of the State's public purse. In that regard it is submitted (and there is no reason to doubt) that the OSR has been very co-operative with the deed administrators in performing their obligations under the Deed of Company Arrangement.
419The sale that has been achieved by the deed administrators is supported by the OSR as one that will result in the OSR being paid within weeks as opposed to being paid in months or years if the application to postpone the sale succeeds, or if the mortgagees choose to exercise their "prerogative" to decide if and when to sell the golf course and resort. It is said that n the event that the application by Jin Heung succeeds the OSR will have to consider taking its own action to enforce its statutory charge which will increase the OSR's costs.
Port Stephens Council
420The Council is a creditor of Le Meilleur for the claimed amount of $297,835.18, relating to unpaid quarterly rates and charges for the years 2008 onwards in respect of Council rates and for $25,243.35 in unpaid licensing fees levied in relation to a driving range operated on the Council's land. The debts will increase over time as they are liable to late payment penalties and interest.
421The Revenue Coordinator of the Council (Mr Craig Barrass) has deposed to his receipt of the July 2010 report to creditors and that he noted that the Council would be treated as a priority creditor and would be paid out in full out of the proceeds of sale of the golf course for the outstanding rates and charges. He further deposes that neither he nor anyone else from the Council attended the second creditors' meeting (though he supported the sale of the land) as a matter of Council policy so as not to compromise any of its rights as a secured creditor under s 550 of the Local Government Act .
422The Council has an interest in being paid in full out of the sale. Mr Barrass contrasts that position with the position in which the Council will be if the relief sought is not given - namely that it cannot recover its debt against the land in the short term as s 713 of the Act provides that the Council cannot apply to sell the land until the rates and charges have been outstanding for 5 years and that there would be significant costs incurred by the Council associated with such a sale which would be avoided if the sale proceeded through the Deed of Company Arrangement. It is thus submitted that the Council will be prejudiced if the Deed does not proceed.
Community Association
423The Community Association of Deposited Plan 270021 also intervened. The Chairman of the Association, and a member of the golf club, Mr Peter Rickard, who attended the second creditors' meeting has deposed that the Association is a creditor in the sum of $79,370.65 in respect of levies outstanding by Le Meilleur.
424Mr Rickard has deposed to the support of the association for the sale of the golf course and resort to Mr Lawton. He has deposed to the need to maintain the golf course and resort in order to maintain the value of the properties that form part of the Community Association. Mr Rickard has also deposed to his personal observation of the maintenance and upkeep of the golf course over the last ten years and to the deterioration of the course and facilities since 2006. Copies of photographs and complaints made about the state of the course were exhibited to his affidavit.
425Mr Rickard says that he has made enquiries of Mr Lawton and the golf courses managed or licensed by entities associated with him and has deposed to his belief as to the successful management of those golf courses. He has also deposed to the improvement since Mr Lawton took over the management of the golf course and the increased membership of the club. Mr Rickard has expressed concerns of owners of condominiums and apartments leased back to the golf club and resort as to their value if the golf course is not properly maintained and run.
426Finally he has deposed to the impact on tourism in the area if the golf course is not properly maintained.
427In summary, the Association points to what it believes to be Mr Lawton's proven record of successful management of golf courses; the improvement in the maintenance and running of the resort since it was licensed by him; the need to maintain the value of the property of the members of the Association for the golf course and resort to be well maintained and run; the need for certainty for members who may wish to sell their property; the financial detriment that the Association will suffer if the resort is not able to make its financial contributions and the lack of a viable alternative plan for proper maintenance of the golf course and resort in the future.
428Mr Rickard's opinion is that the positions of the members of the golf course and Association will be "safeguarded" if Mr Lawton continues to operate and manage the golf course and resort.
Greg Ramsey
429Mr Ramsey was the general manager of the golf club and resort from 13 April 2008 to 7 March 2011. He is an unsecured creditor of the company for the sums of $36,641.14 and $26,284.83 respectively, for which proofs of debt have been accepted by the administrators. He has experience as a golf professional.
430Mr Ramsey also had dealings for some years with Le Meilleur and has expressed familiarity with the operations of the Australian company and its relationship with the head office in Korea to which he deposes in his affidavit. He expresses the view that head office in Korea controlled all payments even on a day to day basis. He formed the view that he debt would have to be written off, having regard to the awful payment history of the Australian company and was sceptical as to the proposal for deed of company arrangement on that basis.
431Mr Ramsey notes that there was no meeting of creditors called when the Korean company defaulted on payment under the Deed. He considered it to be "too good to be true". As far as Mr Ramsey is concerned, he considers it unlikely that he stands to receive anything under the deed and expressed the view that had there been no deed he would have been in no worse position. He expresses support for the relief sought by the Korean bank. He supports the need to keep the club open and has deposed that if the bank needed someone to operate the course on a daily basis he would be prepared to walk back into Horizons. As a professional golfer, he is of the opinion that he would be able to operate Horizons very well.
Conclusion as to position of third parties
432I accept that there is an obvious interest on the part of the priority creditors in the sale proceeding and that no criticism can be attached to them in having chosen (where that has been possible, and in the case of the Council for example it has not yet been in a position to enforce any charge over the land) not to enforce rights to wind up Le Meilleur and enforce payment of their debts (but to await the outcome of the deed of company arrangement process). In the case of the OSR, I accept that it may well have been better off had it proceeded with the winding up application in 2010. That said, each must be said to have taken its decision against the background that challenges to deeds of company arrangement are not unknown (and, at least insofar as the written deed proposal was concerned, on the basis that the proposal did not include a sale of the land in any event). I do not consider that the legitimate interests of the priority creditors warrant a refusal to exercise discretion in favour of Jin Heung or a decision to exercise a discretion under s 442C (had it arisen).
433As to the Community Association, I accept that there is a concern as to the effect of the decision on the value of property in the area and tourism generally (having regard to the possibility that the golf course might close or that it might not be maintained). That, of course, was a risk to which any purchaser of a lot in the strata scheme would be subject. Moreover, Mr Pritchard submits that there cannot be an assumption made as to the course that Jin Heung would adopt (having regard to sensible commercial self-interest) in the short term if the relief it seeks is granted). It is by no means clear that the termination of the Deed will result (as the deed administrators have asserted) in the closure of the course or the termination of the licence arrangements with Mr Lawton. Mr Ramsey seems willing and able to step into the breach in that regard.
434As to Mr Ramsey's perhaps understandable scepticism as to the benefit of the Deed proceeding, I have noted it but ultimately do not consider that it lends weight to the grant or otherwise of relief.
(iv) Application to amend the Originating Process
435On the resumption of the hearing, the deed administrators (by leave) filed an Interlocutory process seeking leave to amend the Originating Process so as to bring a claim for relief against the golf course property by way of an equitable charge and based on principles arising from the High Court decision in Universal Distributing Co Ltd .
436The purpose of the amendment was to seek to preserve a right which the deed administrators say they presently have (regardless of the outcome of the argument about the existing contract for sale of the land), to claim an equitable charge over the golf course property in respect of their remuneration, costs and expenses incurred in preserving and maintaining the mortgaged property. That right is said to be one which is very different to those asserted, on behalf of Le Meilleur in the proceedings to date (although it has been referred to in the evidence and is mentioned in the closing submissions). Mr Golledge quite candidly noted that the application was brought, in part out of abundant caution, but also out of necessity given the views expressed by Mr Pritchard in closing argument to the effect that such a claim, if made subsequently in fresh proceedings, would be the subject of an Anshun estoppel defence (and given the attitude of the solicitors for Jin Heung when the deed administrators solicitors' raised the question in correspondence after argument had finished.)
437Mr Golledge submitted that the overriding purpose of the Civil Procedure Act 2005 (NSW) and Rules (the just, quick and cheap resolution of the issues truly in dispute) favoured the amendment. He conceded that the amendment might necessitate a further hearing in this case but submitted that the disposition of the issue in that way would be more expeditious than if the claim had to be started afresh (potentially to be the subject of an Anshun based strike out application) and then otherwise determined on its merits by a judge who would be coming to the factual background entirely afresh. In those circumstances, it was submitted the public interest in the finality of litigation must give way to the interests of justice in the particular circumstances of this case and this application.
438The deed administrators proposed that, if leave to amend were to be granted, then the determination of any issue raised by the amended claim should await the court's decision on the s 444D and s 442C applications. It was submitted that it would only be if those applications fail (or Jin Heung succeeded in obtaining relief from the Deed of Company Arrangement) that the need for this additional claim would arise (since, if the deed administrators were successful in their original applications, the terms of the deed would provide an adequate substitute for the equitable lien and no further hearing would then be necessary).
439It is submitted that if their present application fails, the deed administrators should not be deprived of the opportunity of establishing an equitable hen over the property in respect of work undertaken and costs and expenses incurred by them in preserving and maintaining the secured property for the benefit of the mortgagee who was well aware that such expenses were being incurred.
440In Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 258 ALR 14, the High Court considered the factors relevant to the exercise by the court of a discretion whether to permit an amendment to pleadings before the court. There, their Honours were critical of what French CJ described as an "unduly permissive approach" to amendment applications. French CJ said (at 17 [6]) in relation to the decision in Queensland v J L Holdings :
However, to the extent that statements about the exercise of the discretion to amend pleadings in that case suggest that case management considerations and questions of proper use of court resources are to be discounted or given little weight, it should not be regarded as authoritative.
441His Honour considered (at 17 [4]) that where an amendment application was "made late in the day, was inadequately explained, necessitated the vacation or adjournment of the dates set down for trial, and raised new claims not previously agitated apparently because of a deliberate tactical decision not to do so", the party making the application bears a heavy burden to show why, under a proper reading of the applicable Rules of Court, leave should be granted.
442The majority (Gummow, Hayne, Crennan and Kiefel JJ) noted at 47 [116] that there may be a point of distinction between their view and that of the Chief Justice as to what J L Holdings holds, their Honours did not understand there to be any difference as to the principles to be applied in amendment applications.
443Here, the application for amendment is made even later than it was in Aon and the explanation for the lateness seems to have been an apprehension arising from the comments of opposing Counsel in closing submissions. I do not think that this warrants the amendment to the pleadings at this stage of the proceedings.
444It was recognised in Aon that there may be cases where it may properly be concluded the parties had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. It was said by the majority at 45 [103]:
Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules.
445It seems to me that it cannot be said that the plaintiffs have not had a sufficient opportunity to plead their case.
446Mr Pritchard submitted that fatal to the application was the suggestion that any hearing of the new claim be deferred until a later point (after my judgment in the main proceedings), referring to the potential for adverse credit findings to be made which might then cause issues for the same trial judge then to hear the balance of the case).
447In Idoport Pty Limited & anor v National Australia Bank Limited & 8 ors (15) [2000] NSWSC 1215 at para 7, Einstein J summarised the applicable principles when considering an application for the separate determination of an issue. In so doing, his Honour noted that the power of the court in this regard is a discretionary power which must be exercised judicially but cannot otherwise be fettered; that the court is enjoined to give effect to the overriding purpose of the Supreme Court Rules 1970 (NSW) (namely to facilitate the just, quick and cheap resolution of the real issues in the proceedings); and that the court begins with the proposition that it is ordinarily appropriate that all issues in the proceedings should be disposed of at the one time and thus that it is for the party who wishes to have a question separately determined to show that it is desirable for this to occur.
448The principles enunciated by Einstein J in relation to the former Pt 31 r 2 of the Supreme Court Rules are equally applicable to the court's exercise of discretion under its successor (r 28.2 of the Uniform Civil Procedure Rules ) (citing Pioneer Park Pty Limited (in liquidation) v ANZ Banking Group Limited & ors [2005] NSWSC 832; Matrix Film Investment One Pty Limited & ors v Alameda Films LLC and Warner Bros Entertainment and Pictures Inc [2007] NSWSC 523).
449Einstein J, in Idoport , said [at 7]:
Without being exhaustive, the separate determination of an issue may prove to be an appropriate procedure in at least the following sets of circumstances:
(a) Where the resolution of that separate issue will have the effect of resolving the entirety of the litigious controversies or of substantially narrowing the field of litigious controversy: CBS Productions Pty Limited v O'Neill [1985] 1 NSWLR 601 at 606 per Kirby P, Dunstan & Simmie & Co Pty Limited [1978] VR 670 at 671 per Young CJ and Jenkinson J;
(b) Where the resolution of that separate issue carries with it a strong prospect that the parties will thereafter be able to resolve their disputes themselves and thus avoid further litigation: Tallglen v Pay TV Holdings Pty Limited (1996) 22 ACSR 130 at 141-142 per Giles CJ in Comm D;
(c) Where there is a clear demarcation between that issue and all other issues in the case, including issues going to the credit of witnesses: CBS Productions Pty Limited v O'Neill (supra at 606 per Kirby P), Tallglen v Pay TV Holdings Pty Limited (supra at 142 at Giles CJ in Comm D), Rajski v Carson (1988) 15 NSWLR 84 at 88 per Kirby P and Hope JA.
450Had the question of separate determination of the issues posed in the hearing of the matter by me do date from the determination of a claim to an equitable charge or lien by the administrators been raised at the outset, it is conceivable that the view could have been taken that the case was one falling within (a) of his Honour's categories - since it would on one view not be necessary for the lien claim to be determined if the administrators' remuneration and fees were to be paid in accordance with the Deed of Company Arrangement (though even there a doubt may arise as to what the position would be as to the allocation of the fees as between the respective proceeds of sale). And it is possible that the determination might quell the litigious controversies between the parties. However, what would clearly not be the case would be that the matter would fall within (c). Mr Pritchard quite candidly indicated that issues of credit as to the administrator might be raised on the lien claim and was not able to indicate that there would not be an objection by his client to me then hearing the balance of the claim in that event.
451Einstein J also set out the circumstances in which he considered that, conversely, the separate determination of an issue would rarely be an appropriate procedure. Those included where there are intertwined issues of fact or law (such that the determination of the separate question would not have any substantial effect on the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation); where there is a commonality of witnesses and issues of credit; and where there is a possibility that the resolution of the separate issue will not finally determine the issue but merely result in an appeal from that decision in relation to that separate issue creating a multiplicity of proceedings, interruptions to the court and undesirable fragmentation of the proceedings.
452It seems to me that it the present is clearly a case within one or more of the above characteristics. Therefore, it would not have been appropriate in my view for there have been an order at the outset for separate determination of the issues which would now remain if leave to amend were to be granted. In those circumstances, I do not consider it appropriate to grant leave for the amendment of the claim. I take heed of the cautionary note sounded by Einstein J in Idoport :
The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings as anticipated, but often has the reverse effect, merely causing added delay and expense to the resolution of the litigation. Thus, before an issue is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings, (citing Tallglen v Pay TV Holdings Pty Limited, Parramatta Stadium Trust v Civil and Civic Pty Ltd (unreported, Supreme Court of NSW, 27 August 1996, per Hunter J) and Century Medical v THLD [2000] NSWSC 5; (unreported, Supreme Court of NSW, 3 February 2000, per Rolfe J). (my emphasis)
453Of course, on one view it might be said that further litigation now seems inevitable in any event (given the ruling I have made on the substantive issues and the likelihood that the deed administrators will wish to recover part or all of their expenses and remuneration). However, the lateness of the time at which the application was raised and the commonality of at least one of the main witnesses makes it not an appropriate case in my view to grant leave to amend where that would necessarily give rise to what is in effect a separate determination of issues in the proceedings.
454The perceived benefit of the application is to preclude the possibility of an estoppel arising under the principles in Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589). For that to be the case, it would have to be established that the claim "was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it". In Anshun at [602] - [603] Gibbs CJ, Mason and Aickin JJ said in this regard:
... Generally speaking it would be unreasonable not plead a [matter] 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 any party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings eg expense, importance of a particular issue, motives extraneous to the actual litigation, to mention but a few.
455Allsop P i n Champerslife Pty Ltd v Manojlovski & anor [2010] NSWCA 33; (2010) 75 NSWLR 245 at [4] emphasised that the mere fact that the matter could have been raised does not mean it should have been raised (for the operation of the Anshun principle. The test remains one of reasonableness having regard to the circumstances.
456I accept that if there were a strong possibility that an Anshun estoppel might lie against the deed administrators to preclude the bringing in later proceedings a claim they now seek to make, this would be a relevant factor in the exercise of discretion as to whether leave to amend should be granted. It is not appropriate that I determine whether, in the present circumstances, an Anshun estoppel would be established, not least because issues such as the reasonableness of not raising this claim at the outset were not debated before me and because it may later fall to be considered by another judge. Suffice to say that I do not consider the possibility of an Anshun estoppel is sufficient at this stage to warrant an amendment which would cause potential difficulties in relation to the hearing of the balance of the proceedings.
Orders
457For the reasons set out above I propose to make the following orders: