Magarditch v Australia & New Zealand Banking Group Limited

Ian Lawrence Struthers "the appointed liquidator for Magic Australia Pty Limited"

Introduction 1 On 6 September 1996 Gerier Agop Magarditch, Jake Sourian (together, the applicants) and Magic Australia Pty Limited (Magic) filed a statement of claim in matter No. 3283 of 1996 in the Equity Division of the Supreme Court, New South Wales (the Supreme Court). On 8 July 1997, the applicants filed an amended statement of claim which now forms the basis of later amendments. On 5 December 1997 Justice Young of the Supreme Court ordered that the proceedings be transferred to this Court under the Jurisdiction of Courts (Cross-Vesting) Act: because of the most serious allegations that Mr Sourian has made that this Court is corrupt because a relative of the liquidator is a Judge of this Court. The Court expects that Mr Sourian will either substantiate or withdraw this allegation in the Federal Court. 2 On 19 December 1997 the cross-vested matter, assigned with the present file number, was listed and a timetable was ordered for the filing of evidence. Because of its multi-faceted complexity, the matter was set down for hearing on 9 March 1998. The applicants appeared in person but only Mr Sourian spoke. I challenged him in respect of his absurd assertion that all the Judges of the Supreme Court were corrupt and said that if the allegation was persisted with, I would stand the matter down permanently. He withdrew the assertion. 3 On 2 March 1998 Justice Emmett granted the applicants leave to file a notice of motion seeking leave to amend the amended statement of claim. The applicants filed the motion on 6 March 1998 returnable on 9 March 1998. The further amended statement of claim of 5 March 1998 added a number of new claims which were opposed by the first respondent, the Australia and New Zealand Banking Group Ltd (the ANZ or the bank). In order that all of the applicants' claims be dealt with at a single hearing, I ordered that the amendments be allowed, without prejudice to: (i) all rights of the respondents to challenge the appropriateness of the amendments to the statement of claim or the standing of the applicants to bring these claims including any right of the applicants' to bring these claims in the name of the company; or (ii) any party's right to seek an adjournment in order to meet the amendments; or (iii) the respondent's right to be provided with the particulars of the allegations of conspiracy.

Background 4 The background has been pieced together from the judgments arising from the numerous matters, mainly brought before the Supreme Court, in relation to these parties over the previous ten years, notably the judgment of the Court of Appeal in Magarditch & Anor v Australian and New Zealand Banking Group Limited CA 40318/97 and ED 2181/91, unreported 23 September 1998. 5 The subject matter of these proceedings has a long and tortuous history such that it is almost impossible to pinpoint a place to begin. From about 1987, the first applicant and his wife (Mr & Mrs Magarditch) owned and controlled Magic through which they and their children operated a Caltex Service Station at 607 Pacific Highway, Chatswood (the service station). One of their children is the second respondent, Mr Jake Sourian, who was the manager of the Muffler Shop at the service station. Mr Sourian acted as an intermediary for his parents in business matters and handled the paperwork on behalf of them and Magic. According to some documentation, he was a director of Magic. 6 Up until 1986 Mr and Mrs Magarditch and Magic banked with the Willoughby branch of Westpac Bank. In October 1986 Mr Sourian met Paul Mortimer Kelly, then Manager of the Balgowlah branch of the ANZ. Soon after, Mr and Mrs Magarditch and Magic transferred their home loans and their business banking to the ANZ. 7 Magic had an overdraft facility with the bank to a limit of $20,000 and had obtained a loan of $60,000 to assist in the purchase of land at 252 Pennant Hills Rd, Thornleigh (Thornleigh). The bank required that the overdraft facility be secured by way of a mortgage over Mr Sourian's home unit at 5/1 Jersey Rd, Artarmon (Artarmon) and a guarantee by the directors of Magic. As a result, Mr and Mrs Magarditch signed a guarantee of the payment of Magic's indebtedness to the bank on 28 January 1987 and Mr Sourian gave the bank a mortgage over Artarmon. In the same month Magic gave the bank a mortgage over Thornleigh for, it would appear, the loan of $60,000 to assist in its purchase. This loan was soon repaid leaving Thornleigh unencumbered. 8 In September 1987 Magic funded the purchase of a property at 136-138 Victoria Rd, Gladesville (138 Victoria Rd) with a loan from the bank of $430,000, described as Fully Drawn Advance No. 1 (FDA 1). A muffler and brake business was conducted at these premises. In order to obtain approval for this loan and to further secure Magic's indebtedness, Mr and Mrs Magarditch, on 2 September 1987, gave the bank a mortgage over their home at 2A First Avenue, Willoughby (Willoughby) and Magic gave the bank a mortgage over 138 Victoria Rd. In October 1987, Mr Sourian received a fully drawn advance from the bank totalling $205,000 (FDA 2) to enable him to purchase the property at 140 Victoria Rd, Gladesville (140 Victoria Rd). On 17 October 1987 he gave a mortgage over 140 Victoria Rd in favour of the bank. 9 On 10 March 1989 Mr Sourian agreed to transfer 140 Victoria Rd to Magic for $210,000. However, the contract was never completed and on 7 April 1989, 140 Victoria Rd was sold unencumbered to Wilpine Pty Limited for $400,000 by way of a tripartite Deed in which it was agreed that Wilpine would take a transfer by direction of Magic from Mr Sourian as registered proprietor, the bank having agreed to discharge the mortgage on certain terms. The bank received $325,000 from this sale and applied the money, as to $237,113.52, to discharge FDA 2, as to $59,725.78, to reduce Magic's debt on FDA 1, which had increased with interest, back to $430,000, and as to the balance of $28,160.70. to reduce Magic's overdraft account. 10 In August 1989 the bank made a demand on Magic that it pay the balance of the debt owed on FDA 1 and on the overdraft account. In November, the bank demanded possession of 138 Victoria Rd, and when this did not eventuate, it commenced proceedings to obtain possession of the property. On 20 June 1991 Master Windeyer ordered the winding up of Magic and appointed the second respondent, Mr Ian Struthers, as liquidator. Following directions given by Justice McLelland in the Supreme Court on 18 December 1991, the liquidator chose not to proceed with the defence and cross claim previously filed by Magic in the possession proceedings. On 23 December 1991, judgment giving the bank possession of 138 Victoria Rd was entered. On 12 May 1992 the stock and plant of Magic located on this property was sold on behalf of the liquidator. The next month the property itself was sold on behalf of the bank which received $440,000 from the sale. 11 On 19 March 1990, winding up proceedings against Magic were commenced by the Deputy Commissioner of Taxation in respect of unpaid company tax. Magic paid the tax debt whereupon, on 20 August 1990, the bank made a successful application to be substituted as petitioning creditor in the winding up proceedings. In early 1991 the bank lodged a caveat on Willoughby asserting its right to do so under the mortgage of 2 September 1987. In May 1991 Mr Sourian sold Artarmon. $81,401.50 from the sale was used to discharge the registered mortgage over that unit, and after the payment of fees, the remaining balance of $131,699.72 was paid to the bank with the intention that it be applied to Magic's debts and Mr Sourian's personal guarantee to the bank. For some reason, the bank placed the money in a suspense account and the amount was not credited to Magic's indebtedness until 10 September 1992. The liquidator has been without funds since that time. 12 Following this series of events and further actions taken by the bank and the liquidator to recover and dispose of Magic's assets, was a number of strands of litigation, most commenced by Mr Sourian. One such strand is the subject of these proceedings. 13 A number of other incidents impacted on the course of Magic's liquidation. On 3 February 1988 the service station was damaged by fire. A claim was submitted to VACC Insurance Co Limited (VACC) with whom Magic had an insurance contract. On 12 May 1988 Mr Sourian was charged by the police with offences relating to the fire. On 26 July 1988 the solicitors for VACC wrote to Magic stating that VACC was avoiding the policy from inception because of fraudulent non-disclosure in the application for insurance. They claimed that if Mr Sourian had disclosed his prior convictions, the insurance policy would not have been issued. The final criminal charge against Mr Sourian was dismissed by Judge Nader in the District Court of New South Wales on 2 July 1993. The liquidator chose not to pursue litigation contesting the insurance claim and the limitation period for starting such a cause of action ended in July 1994. In March 1997 Mr Sourian applied by motion to represent Magic in a claim against VACC (Supreme Court matter 50045 of 1997), but Justice Giles, Chief Judge at Common Law, dismissed the motion and struck out the relevant summons. 14 Following the fire, Caltex Oil (Aust) Pty Limited (Caltex) gave notice terminating its franchise agreement with Magic in respect of its service station. Magic sought a declaration that the notice of termination had no effect: Magic Australia Pty Ltd v Caltex Oil (Australia) Pty Ltd Federal Court of Australia No.G1145 of 1988. Caltex lodged a cross claim seeking a declaration of termination and an order for possession. In the proceedings which followed, Caltex was granted possession of the premises. 15 As part of the winding up proceedings, the liquidator sought directions from the Supreme Court in May 1992 as to whether he was justified in auctioning Thornleigh. After Justice Powell held that he was justified, Thornleigh was sold at auction for $152,000 on 26 May 1992. Mr Sourian failed in an attempt in July 1992 to set aside the sale when he applied to have the bank restore possession of the property. 16 I shall return to many of these proceedings and events in more detail later.

The applicants' claims 17 In the present proceedings Mr Sourian seeks to reverse some of these occurrences or to obtain relief for their occurrence. In the further amended statement of claim, the applicants make, in summary, the following claims: 1. The bank was in breach of a range of duties owed by it to the applicants by reason of its:

(b) refusing to accept an offer of $250,000 to remove the caveat and satisfy Magic's debt to the Bank;

(c) incorrectly, negligently and/or fraudulently asserting the amount of debt which it was owed by Magic; and

(d) pursuing the winding up of Magic with careless and/or reckless indifference.

2. The liquidator did not faithfully pursue his duties and was negligent in: (a) failing to take into account the proceeds of the sale of Artarmon held by the bank in a suspense account when administering Magic's assets;

(b) selling Thornleigh for a price much less than that which could and should have been obtained in the circumstances;

(c) selling the stock, plant and equipment of the muffler and brake business conducted at 138 Victoria Rd for an amount well below market value;

(d) failing to sell the business conducted by Magic at 138 Victoria Rd as a going concern;

(e) failing to notify the creditors and shareholders of Magic that he had accepted the claim of the bank's proof of debt;

(f) failing to pursue the insurance claim against VACC;

(g) failing to pursue a damages claim against Caltex for breach of lease;

(h) failing to collect taxation credits from the Australian Taxation Office;

(i) failing to correctly assess the debts of Magic; and

The liquidator breached his duties and was negligent in failing to pursue the cross claim in the proceedings of the bank to gain possession of 138 Victoria Rd. In the alternative, the bank and the liquidator conspired to deprive Mr Sourian and Mr Magarditch of realisable assets in relation to the property at 138 Victoria Rd. 4. Together, the bank and the liquidator were negligent in failing to realise the assets of Magic for the highest possible price by failing to sell the business and property at 138 Victoria Rd as a viable service station. 18 As a consequence of the negligence and/or breach of duty by the bank and the liquidator, the further amended statement of claim alleges that Mr Sourian, Mr Magarditch, and Magic suffered the following loss and damages: 1. Magic was unnecessarily wound up, resulting in all of the applicants incurring costs and expenses.

2. The goodwill of the business owned by Magic at 138 Victoria Rd was destroyed.

3. The unnecessary liquidation of Magic caused Magic the loss of future or potential profits and income and Mr Sourian and Mr Magarditch the loss of income and wages.

The stock, plant and equipment of the business at 138 Victoria Rd was sold under value.

Thornleigh was sold at a price less than that which could and should have been reasonably obtained in the circumstances.

Loss of Magic's reputation with its suppliers and customers.

Loss as a consequence of the liquidator's failure to pursue the insurance claim against VACC.

9. Distress and anxiety. 19 As relief to these claims, the plaintiffs sought: 1. A declaration that the bank wrongfully and without reasonable cause lodged a caveat over Willoughby.

2. A declaration that the bank wrongfully and without reasonable cause refused or failed to withdraw the caveat.

3. An order that the Master take accounts of and to inquire into all dealings and transactions between the applicants and respondents.

4. An order that the bank and/or the liquidator pay the applicants the sum of $325,000 as an interim payment on account of the sum payable in respect of the amount to be determined by the Master.

5. Damages, interest, and costs on an indemnity basis. 20 In this Court, the Registrar would substitute for the Master. To the extent that the damage claimed in this version of the statement of claim was suffered by Magic, the permission of the liquidator is required to pursue claims on its behalf. This and other problems with the further amended statement of claim were identified during the course of the hearing and as a result Mr Sourian gave notice of two motions. On 10 March 1998 he sought leave: for Jake Sourian to act on behalf of Magic Australia Pty Limited in the prosecution of claim (sic) against the Australia and New Zealand Banking Group Limited and Ian Lawrence Struthers. 21 On 11 March 1998 he sought an order: … That the Court inquire into the conduct of Ian Lawrence Struthers in the administration of the affairs in the liquidation of Magic Australia Pty Limited pursuant to section 536(1),(2),(3) of the Corporations Law. 22 When these motions were returned, I determined that the second motion would be treated as an application to further amend the statement of claim to include the request for an inquiry into the liquidator's conduct. 23 As these proceedings were commenced in the Supreme Court, there is no application accompanying the statement of claim. The amended statement of claim will thus be treated in this Court for the time being as an application and a statement of claim. 24 Two threshold issues arise for determination before the matter can proceed to hearing. The first question is whether either Mr Sourian and Mr Magarditch or both should be granted leave to act on behalf of Magic in the prosecution of the claims against the bank and the liquidator. The second question is whether the application to amend the further amended statement of claim to include an inquiry into the conduct of the liquidator should be allowed and if so, whether the Court should order and proceed with the inquiry and defer the determination of the issues raised by the further amended statement of claim until its conclusion. 25 In order to determine these preliminary issues, I heard Mr Sourian in person as if he and his father had been granted leave to bring the proposed claims in the name of Magic, and allowed him considerable latitude in the length and manner of his address to the Court as to why leave should be granted and as to what evidence was proposed to support the claims.

The legal framework 26 Although the winding up order was made after the commencement of the Corporations Law, the order was made pursuant to an application which had been filed under the Companies (New South Wales) Code. Justice McLelland thus determined in his judgment of 23 June 1992 (Re Magic Aust Pty Ltd (In Liquidation) No. 3046 of 1992) that this liquidation fell under the Code and must continue accordingly. 27 The powers of a liquidator were set out in section 377 of the Code which relevantly provided: 377 (1) The liquidator may, with the authority of the Court, of the committee of inspection or of a resolution of the creditors - (a) carry on the business of the company so far as is necessary for the beneficial disposal or winding up of that business. ... (2) The liquidator may - (a) bring or defend any legal proceeding in the name and on behalf of the company; ... (c) sell or otherwise dispose of, in any manner, or all or any part of the property of the company; ... (5) The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers 378 (1) As soon as practicable after making a winding up order, the liquidator - (a) shall settle a list of contributories; (b) may rectify the register of members in all cases where rectification is required pursuant to this Part; and (c) shall cause the property of the company to be collected and applied in discharge of its liabilities … 420 (1) If­ - (a) it appears to the Court or to the Commission that a liquidator has not faithfully performed or is not faithfully performing his duties or has not observed or is not observing - (i) a requirement of the Court; or (ii) a requirement of this Code, of the regulations or of the rules; or (b) a complaint is made to the Court or to the Commission by any person with respect to the conduct of a liquidator in connection with the performance of his duties, the Court or the Commission, as the case may be, may inquire into the matter and, where the Court or the Commission so inquires, the Court may take such action as it thinks fit. (2) The Commission may report to the Court any matter that in its opinion is a misfeasance, neglect or omission on the part of the liquidator and the Court may order the liquidator to make good any loss that the estate of the company has sustained thereby and may make such other order or orders as it thinks fit. (3) The Court may at any time require a liquidator to answer any inquiry in relation to the winding up and may examine him or any other person on oath or affirmation concerning the winding up and may direct an investigation to be made of the books of the liquidator. … 429 (1) Subject to this section, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property. (2) The Court or the Commission may, on the application of a creditor or a contributory, direct a liquidator to incur a particular expense on condition that the creditor or contributory indemnifies the liquidator in respect of the recovery of the amount expended and, if the Court or the Commission so directs, gives such security to secure the amount of the indemnity as the Court or the Commission thinks reasonable. (3) Nothing in this section shall be taken to relieve a liquidator of any obligation to lodge a document (including a report) with the Commission under any provision of this Code by reason only that he would be required to incur expense in order to perform that obligation. … 538 A person aggrieved by any act, omission or decision of - (a) a person administering a compromise, arrangement or scheme referred to in Part VIII; (b) a receiver, or a receiver and manager, of property of a corporation; (c) an official manager or a deputy official manager; or (d) a liquidator or provisional liquidator of a company, may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omissions, as the case may be, and make such orders and give such directions as it thinks fit.

Bringing an action in the name of a company in liquidation 28 The damage claimed in the further amended statement of claim, with the possible exception of costs and expenses incurred by Mr Sourian and Mr Magarditch during the liquidation and their distress and anxiety, was suffered, if at all, by Magic: the unnecessary winding up of Magic, the destruction of the goodwill of the "Magic Muffler and Brakes" business at 138 Victoria Rd, the loss of future and potential profits, the selling of stock, plant and equipment and real estate owned by Magic under value, the loss of Magic's reputation, the loss caused by the failure to pursue the insurance claim, and the loss of Magic's registered name and logo. 29 The general proposition with respect to the right to claim for damages was stated plainly and unequivocally in Prudential Assurance Co. Ltd. v. Newman Industries Ltd. [No. 2] [1982] Ch. 204 at 210: that A cannot, as a general rule, bring an action against B to recover damages or secure other relief on behalf of C for an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore, the person in whom the cause of action is vested. 30 It flows from this rule that only the company can make a claim for wrong done to the company and for the loss suffered by the company. A shareholder or a claimed creditor of the company cannot in their own right bring such a claim. However, shareholders or creditors can bring claims for loss which they personally suffered and which is separate and distinct from the loss suffered by the company: Gould and Anor v Vaggelas and Ors (1983-1985) 157 CLR 215 at 220 per Gibbs CJ. 31 When it is alleged that a company in liquidation has a cause of action for damage and loss suffered, in general the proper person to authorise the institution of proceedings in the name of the company is the liquidator, pursuant to powers under paragraphs (a) and (b) of section 377(2) of the Code. Section 377(5) of the Code provided that the exercise by the liquidator of the powers in section 377 is subject to the control of the Supreme Court, and any creditor or contributory may apply to that Court in respect of any exercise or proposed exercise of any of those powers. 32 It is open to the Court to either direct the liquidator to sue in the name of the company or to authorise a creditor or contributory to sue in the name of the company. The latter course of action has been approved by high authority for many years. Early recognition of the procedure can be found in Cape Breton Co. v Fenn (1881) 17 Ch D 198 at 207, 208 and it has been discussed more recently by Justice McLelland in Wenham v General Credits Limited (16 December 1988, Supreme Court of New South Wales, unreported), Russell & Anor v Westpac Banking Corporation & Ors (1994) 12 ACLC 278 SC (SA); Eros Cinema Pty Limited v Michel Assad Nassar (1996) 14 ACLC 1374 SC (NSW). 33 In Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250 SC (NSW), Justice McLelland expressed the view that where there existed an unfunded liquidation and an apprehension as to adequate indemnity for the liquidator, it might be advisable to adopt the approach of authorising a creditor or contributory to sue in the name of the company. 34 In determining whether to exercise this jurisdiction, the Court must have regard to the quality and strength of the proposed case. In Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550 at 556-7, a Full Court of this Court (Wilcox, Burchett and Beazley JJ) addressed what is required of an applicant in order to be granted leave to proceed against a company in liquidation: Upon a close reading of the relevant authorities, it is apparent to us that the courts have not in fact required applicants for leave to demonstrate a prima facie case against the company in liquidation, in the technical sense of that term. They have required to be affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute. Having regard to the course actually taken by the courts, the term "prima facie case" is misleading. Perhaps it should be avoided in the future. The test which has actually been applied is akin to that now used in considering whether interlocutory relief should be granted: 'a serious question to be tried': See Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148 at 153, where Mason ACJ made it clear, with reference to the very same question which arose in the context of an interlocutory debate, that the test of 'a serious question to be tried' is generally to be preferred to that of 'a prima facie case'. It is appropriate that the same standard of proof of the merits should be required for each of these forms of relief. In a particular case an applicant may need both orders. We would think it anomalous if an applicant had to meet a higher requirement merely to commence an action than that necessary to obtain an order potentially imposing a substantial burden on the respondent. 35 In the following paragraph their Honours identified the requirement as "the existence of a serious claim and a real dispute". I concur with the view of Justice Simos of the Supreme Court in Eros Cinema that these requirements are equally appropriate for an applicant seeking the authority to commence proceedings in the name of a company in liquidation. 36 The proper approach of the Court was expressed in a slightly different fashion by the Privy Council in Lloyd-Owen v Bull (1936) 4 DLR 273 and cited with approval by Justice McLelland in Aliprandi at 252 such that: A judge in winding up is the custodian of the interests of every class affected by the liquidation. It is his duty … to see to it that all assets of the company are brought into the winding up. In authorising proceedings, especially if they may or will involve some drain upon the assets, he must satisfy himself as to their probable success; where ... they involve no possible charge on assets, he will nevertheless be careful to see that any action taken in the company's name under his authority is not vexatious or merely oppressive. 37 On the basis that in the case which he was considering there were no assets which could be diminished or drained by the proposed action, Justice McLelland concluded that the Court should satisfy itself that any action to be taken in the company's name should have "some arguable foundation". 38 There are therefore a variety of ways to describe the standard which an applicant must establish to be granted leave by the Court to bring an action in the name of a company in liquidation: a solid foundation, giving rise to a serious dispute or a serious question to be tried, not vexatious or merely oppressive, having some arguable foundation. In Mr Sourian's application to the Supreme Court for leave to represent Magic in proceedings against VACC, Chief Judge Giles thought that the expression "an arguable claim" was an adequate distillation of these requirements. 39 One final comment on the requirements in this respect was made by Justice Simos in Eros Cinema at 1380: (i)n applying the Vagrand test, I do not consider that it is necessary for an applicant to produce to the Court evidence sufficient to establish affirmatively that the proposed proceedings will necessarily be successful. The Court is entitled, in my opinion, to infer, if appropriate, from the evidence which is before the Court, that additional relevant evidence is likely to be or may be available from other sources for the hearing.

The evidence 40 First, I was provided with an affidavit of Mr Sourian dated 31 December 1997 and submissions filed on 23 December 1997. Second, the applicants sought to rely on four affidavits of Mr Sourian filed in earlier litigation in the Supreme Court: two filed on 13 March 1997 and 8 April 1997 in matter No. 50045 of 1997 in the Commercial Division; one filed on 30 November 1997 in matter No. 3283 of 1996 in the Equity Division; and one filed on 9 December 1997 in matter No. 20124 of 1995 in the Common Law Division. 41 Based on the nature and targets of the allegations, Mr Sourian's claims can be divided into three categories. The first involves allegations against the bank prior to the winding up of Magic. The second category covers allegations of conspiracy between the bank, the liquidator and various other parties. The third category covers alleged negligent conduct of the liquidator during the liquidation process. The further amended statement of claim and its predecessors do not adequately express these allegations as aired during the hearing. Hence, I gave Mr Sourian considerable assistance in re-framing his claims so they at least consisted of valid causes of action. For example, an essential part of the applicants' case against the bank is that a number of judgments can be set aside on the grounds of fraud yet no such claims exist in the statement of claim. I have yet to determine what impact this situation has on the further amended statement of claim. The complex and lengthy history of the disputes between the parties has implications for the content of the "arguable claims" which Mr Sourian must establish to be granted the right to represent Magic in these proceedings. For this reason and to provide some structure to the multitude of claims which must be addressed, each category will be dealt with separately and I will treat the pleading as adequate to make the claims set out.

Re-visiting the liquidation 42 Many of the claims made by the applicants, particularly in relation to events prior to the winding up of Magic, have already been the subject of extensive litigation between the parties in which the normal route of appeal has been exhausted. In such instances res judicata or cause of action or issue estoppel will raise a barrier against the judgment being disturbed unless on the ground of fraud. As was explained by Gibbs CJ, Mason and Aickin JJ in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597: The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding. 43 Issue estoppel was described by Dixon J in Blair v Curran (1939) 62 CLR 464 as: A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or privies; cited by Gibbs CJ, Mason and Aickin JJ in Anshun at 597. 44 Issue estoppel and res judicata or cause of action estoppel are founded on two policy considerations expressed in the following two Latin maxims: "interest reipublicae ut sit finis lititum" and "nemo debet bis vexari pro eadem causa"; Deane and Gaudron JJ, Rogers v The Queen (1994) 181 CLR 251 at 273. Their Honours explained the maxims as follows: The first expresses the need, based on public policy, for judicial determinations to be final, binding and conclusive. The second looks to the position of the individual and reflects the injustice that would occur if he or she were required to litigate afresh matters which have already been determined by the courts. 45 The extended principle in Henderson v Henderson (1843) 3 Hare 100 at 115; 67 E.R. 313 at 319 and the principle in Anshun that a litigant might be estopped from raising in subsequent proceedings an issue which it had unreasonably refrained from raising in earlier proceedings are based on the protection of the same private and public interests. 46 In O'Brien v Tanning Research Labs Inc (1988) 14 NSWLR 601, Justice Kirby, then President of the New South Wales Court of Appeal, described the public and private interests at 610: The private interests include those of protecting litigants from the costs and uncertainties of repetitious litigation; upholding the finality and conclusiveness of formal orders; and preventing persons from being troubled twice by what is, in substance or in fact, the same litigation. The public interests include those in upholding the authority of orders formally disposing of disputes; preventing the prolongation of disputes by continuous litigation of things earlier concluded; and the efficient use of the scarce resources available for the administration of justice by requiring parties to conclude, in one proceeding, matters which might otherwise be brought in a series which would occasion cost, delay, inconvenience and uncertainty. 47 As Hobhouse J said in Dallal v Bank Mellat [1986] QB 441 at 452, cited by the High Court in Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502: There must be an end to litigation. A defendant must be protected against the repeated bringing of actions by the same person in respect of substantially the same matter. Therefore, where this procedural abuse is identified, the courts provide the defendant with the procedural remedy of striking it out. 48 The principles on which an earlier judgment may be impeached on the ground of fraud are established in law. A Full Court of this Court (Spender, Gummow and Lee JJ) in Monroe Schneider v No.1 Raberem (1992) 37 FCR 234 referred at 240-1 to the judgment of Lord Bridges in Owens Bank Ltd v Bracco [1992] 2 AC 443 at 483 for the principles applicable in England, and in their Honours' opinion, the principles applicable in Australia: The common rule [is] that the unsuccessful party who has been sued to judgment is not permitted to challenge that judgment on the ground that it was obtained by fraud unless he is able to prove that fraud by fresh evidence which was not available to him and could not have been discovered with reasonable diligence before the judgment was delivered … This is the rule to be applied in an action brought to set aside an English judgment on the ground that it was obtained by fraud. The rule rests on the principle that there must be finality of litigation which would be defeated if it were open to the unsuccessful party in one action to bring a second action to re-litigate the issue determined against him simply on the ground that the opposing party had obtained judgment in the first action by perjured evidence. Your Lordships were taken, in the course of argument, through the many authorities which this salutary English rule has been developed and applied and which demonstrate the stringency of the criterion which the fresh evidence must satisfy if it is to be admissible to impeach a judgment on the ground of fraud. I do not find it necessary to examine these authorities. The rule they establish is unquestionable and the principles on which they rest is clear. At 489 his Lordship continued: An English judgment, subject to any available appellate procedure, is final and conclusive between the parties as to the issues which it decides. It is in order to preserve this finality that any attempt to reopen litigation, once concluded, even on the ground that judgment was obtained by fraud, has to be confined within very restrictive limits. 49 In his leading judgment in Wentworth v Rogers (1986) 6 NSWLR 534 Justice Kirby, as President of the New South Wales Court of Appeal, referred to the principles applicable to the proceedings sought by the applicants. It is useful to summarise them (from 538-9): 1. The essence of the action is fraud and as such particulars of the fraud claimed must be exactly given and the allegations must be established by the strict proof which such a charge requires. 2. The party asserting that a judgment was procured by fraud must show that there has been a new discovery of something material, in the sense that fresh facts have been found which, by themselves or in combination with previously known facts, would provide a reason for setting aside the judgment. One reason for this strict rule is the public interest in finality of litigation. 3. Mere suspicion of fraud, raised by fresh facts later discovered, will not be sufficient to secure relief. The applicant must establish that the fresh facts are such as to make it reasonably probable that the case will succeed. 4. The mere allegation, or even the proof of perjury by the successful party or a witness or witnesses will not normally be sufficient to warrant the setting aside of a judgment, although there may be exceptional cases where such relief is justified. 5. It must be shown by admissible evidence that the successful party was responsible for the fraud. 6. The burden of establishing the fraud lies on the party impugning the judgment. 50 The applicants do allege fraud in the securing of many previous judgments. Of particular relevance to their case is thus the requirement, identified in paragraph 2, that the action to set aside a judgment on the ground that it had been procured by fraud must be based upon something newly discovered, that is, after the first trial. It must not amount to a challenge to a matter canvassed in that trial. This requirement was established by the House of Lords in Boswell v Coaks (No. 2) (1894) 6 R 167 and has been firmly incorporated into the law of Australia by the High Court: see Cabassi v Vila (1940) 64 CLR 130 at 147; McDonald v McDonald (1965) 113 CLR 529 at 533. 51 In relation to each allegation made against the bank, it is therefore necessary to determine whether the matter was canvassed in a previous trial, the judgment of which is protected by an estoppel, and then whether the applicants have presented an arguable claim that the judgment be set aside for fraud. 52 The fraud alleged by the applicants involves three issues. The first is the refusal of the bank to remove the caveat over Willoughby thus preventing Mr and Mrs Magarditch from using the property to obtain re-financing for Magic. The second is the failure of the bank to reveal to the Court its receipt of approximately $136,000 from the sale of Artarmon. These issues are linked to the third allegation that the bank incorrectly, negligently and fraudulently asserted the amount of the debt it was owed. All of these issues relate to the indebtedness of Magic and its ability to raise finance to avoid liquidation and as such they are issues relevant to the court-ordered winding up of Magic. By proving these allegations in this Court, the applicants propose to establish that Magic was unnecessarily wound up. I think they recognise, however, that as all of Magic's assets have been disposed of, the only remedy they can hope to achieve is damages. 53 In his judgment of 20 June 1991 on the application for the winding up of Magic, Master Windeyer, as his Honour was at that time, determined that Magic was insolvent. Mr Sourian and Mr Magarditch were joined as appellants on the subsequent appeal which was dismissed by Justice Hodgson on 16 April 1992. An appeal from Justice Hodgson's decision was discontinued in December 1992. As such, the judgment for the winding up of Magic created a cause of action estoppel that Magic was liable to be wound up and an issue estoppel that Magic was insolvent at the time the winding up application was made. The allegations made by Mr Sourian against the bank encompassed issues that were contested in a number of other strands of litigation which have subsequently been finalised by judgment. These issues can only be re-litigated if a relevant judgment, probably the initial judgment was obtained by fraud.

The caveat over Willoughby 54 To refresh, Mr and Mrs Magarditch agreed in early 1987 to guarantee to the bank the repayment of moneys lent to Magic. In September 1987 this guarantee was secured by a mortgage over Willoughby, their home. In 1989, in contentious circumstances, Mr and Mrs Magarditch obtained the discharge of the mortgage and on 4 January 1991 the bank lodged a caveat over the property. 55 In the current statement of claim, the applicants state that: (a) The [bank] lodged a caveat upon the title to [Mr Magarditch's] home at 2A First Avenue, Willoughby (registered as Z396708 on 4/1/91) in order to secure the general debts of [Magic]. (b) On 17/7/91 the [bank] through its solicitors sought the payment of $775,240.50 as a condition of of [sic] withdrawing the caveat. (c) The [bank] was careless and/or recklessly indifferent in stating that the net balance of $775,240.50 was owed by [Magic] to the [bank]. (d) The [bank] was careless and/or recklessly indifferent in refusing on 18/6/91 to remove the caveat registered as Z396708 from the title to 2A First Avenue, Willoughby even though [Mr Magarditch] offered to satisfy [Magic's] debts by offering a payment of $250,000 being a sum well in excess of the true debt of the said Company at the time being in the order of $234,495.94. (e) The [bank] was careless and/or recklessly indifferent in pursuing the winding up of [Magic] despite the Company and its officers being able and willing at the material time to discharge the true indebtedness of [Magic]. 56 In submissions lodged in this matter on 23 December 1997, Mr Sourian stated that it is his belief that: Windeyer M erred in failing to find that Magic was willing and able to pay the undisputed debt ($360,000.00) but was thwarted by Culmers (sic) conduct in lodging the caveat against my parents (sic) home. 57 He described the fraud that procured the judgment of Master Windeyer as follows: Culmer embarked to mislead the Court by falsely alleging that the bank had a caveatable interest in my parents home to thwart us from obtaining approved finance to pay the undisputed debt so that Magic could not be placed into liquidation. 58 "Culmer" is a reference to Gary Calmar, the manager at the bank which lodged the caveat, and his parents' home was Willoughby. Mr Sourian submitted that the caveat was lodged after the bank was informed by lawyers representing Mr Magarditch and Magic that Mr Magarditch intended to use Willoughby to raise finance to pay Magic's debts to the bank, and that thereafter the bank deliberately refused to remove the caveat to frustrate Magic's ability to repay the debt because it wanted to put Magic into liquidation. The applicants contended that if they had been able to raise finance using Willoughby they would have been able to pay back the total debt which they accepted as being owed to the bank thereby avoiding the liquidation of Magic. They did not explain what advantage the bank gained by that manoeuvre. 59 The issue of re-financing was dealt with briefly by Master Windeyer who stated at page 9 of his judgment: The company has been seeking loan funds but there is no evidence that these will be available a loan (sic) having been approved on conditions which may not be met and even then the amount approved would not discharge the debt owing to the bank. So even if the applicants had been able to raise finance using Willoughby, Master Windeyer concluded that the amount proposed to be raised would not have discharged the larger but as yet unquantified debt to the Bank. 60 On appeal from Master Windeyer's judgment, it was submitted that the Master erred in his rejection of evidence on the readiness, willingness and ability of Magic to pay the debt that was admitted as being owed to the bank. The amended notice of appeal of Master Windeyer's decision indicates that the Master rejected evidence of an offer by the applicants during the hearing to pay the bank the sum of $250,000 to settle the admitted debt. Justice Hodgson's judgment recorded at page 7 that: Mr Gruzman QC, for the appellant, submitted that this rejected evidence showed a positive course of conduct and a specific means by which the admitted debt could and would have been paid out of a loan which magic could have obtained. The one matter standing in the way of putting that into effect was a caveat lodged by the [bank] on property owned by directors of Magic which the [bank] claimed, and the directors denied, the [bank] had a security over. Mr Gruzman submitted that, leaving aside the disputed part of the debt, the [bank] would have been paid out by the loan which could have been raised on the security inter alia of this property. 61 At pages 17-18 Justice Hodgson concluded: In relation to the rejection of evidence, it seems to me that at best this material may have gone to the question of discretion. 62 It is clear from these excerpts that evidence and argument regarding the caveat were presented during both hearings but that it was not considered material to the issues to be decided. The solicitors representing the applicants were aware that the bank knew of the intention to use the unencumbered property as security for they had told the bank of this fact. 63 In his written submission Mr Sourian identified a handwritten diary note signed by Paul Calvert, Loss Recovery Officer at Esanda, which he said demonstrated the strong desire in the bank to destroy Magic and his family and which he submitted the bank withheld from the Court. Esanda, a finance subsidiary of ANZ, was also owed money by Magic. The document was, in 1996, part of the subpoenaed documents in the hearing before Master McLaughlin to determine the quantum of Magic's debt to the bank. The diary stated: Diary Note Magic Australia Pty Ltd 31/10/90 Contract Nos 249627191 &212122587 Gary Calmar ANZ West Ryde (Retail Manager) phoned, advised Magic Australia P/L owes the bank in excess of $800,000 and they are planning to bankrupt the company. Gary said the taxation dept were about to bankrupt the company but they came up with the funds the taxation dept required to clear the debt. Now the [bank] want to bankrupt the company but there is a dispute over the debt. Solicitors Norton Smith & Co are handling all legal proceedings and this bankruptcy is set for court next week. The debt of $800,000 with the bank is fully secured with a home unit and a service station as security. With the [bank's] debt in dispute, if they are unable to bankrupt the company then they want Esanda to proceed with bankruptcy and the [bank] will fund all costs. West Ryde Gary Calmar Ph 411 0416 Awaiting Managerial advises (sic) Paul Calvert Loss Recovery Officer Manager agreed providing we received letter from ANZ West Ryde advising all costs will be funded Paul Calvert Loss Recovery Officer 64 Mr Sourian was unable to point to any other new evidence suggesting that the bank deliberately lodged the caveat to prevent the raising of funds. 65 There is ample evidence establishing that the facts surrounding the caveat on Willoughby were available and known at the time of the hearings before Master Windeyer and Justice Hodgson. Furthermore, the caveat and the agreement of 6 July 1989 were the subject of Magarditch v Australia and New Zealand Banking Group Limited No. 2181 of 1991 in the Equity Division, commenced by Mr and Mrs Magarditch on 6 May 1991 with the filing of a summons against the bank for the removal of the caveat and for damages. In July the bank filed a cross claim in the proceedings seeking recovery of the money owed by Mr and Mrs Magarditch under the guarantee of 28 January 1987 and possession of Willoughby which had been given as security for the guarantee. The bank alleged that Mr and Mrs Magarditch had acted fraudulently when they procured the registration of the discharge of its mortgage. In their defence to the cross claim filed on 17 October 1991, Mr and Mrs Magarditch addressed the events which led to the registration of the discharge. In his judgment on 28 April 1994, Justice Windeyer concluded that the applicants were acting fraudulently within the meaning of section 42(1) of the Real Property Act when they procured the discharge of the mortgage. His Honour was satisfied that the bank had established the liability of Mr and Mrs Magarditch for the balance of Magic's debt and for whatever other amounts were payable under the guarantee. He directed the Registrar General to reinstate the mortgage thus confirming that the bank held a caveatable interest in the property and ordered the inquiry by Master McLaughlin to determine the amount owing under the guarantee. Thus in these proceedings the applicants were again given the opportunity to establish the fraud allegedly perpetrated by the bank. There was no appeal from this judgment and the proper claimants, Mr and Mrs Magarditch, are consequently estopped from challenging the judgment.

Magic's debt to the bank 66 In the further amended statement of claim, the applicants claim that the bank on a number of occasions falsely or with reckless indifference represented to the courts and to the liquidator, including in the formal proof of debt dated 21 October 1991, that Magic's debts to the bank were $866,928.95 when in truth it owed a sum of $234,495.94. This allegation is central to the applicants' claim that Magic should not have been put into liquidation and the bank should not have been allowed to enforce the secured guarantee over Willoughby. The further amended statement of claim also asserts that: 6. As at the date of liquidation being 20/6/91 the [applicants] allege, and the fact is, that the [bank] was only entitled to prove debts to a sum of $234,495.94 and as such the said Company was at all times solvent. 7. The [applicants] allege and the fact is that the [bank] in full satisfaction of its debts owed by [Magic] realised by way of auction sale in June 1992 property owned by the Company at No. 136-138 Victoria Rd, Gladesville for the sum of $440,000. 8. The representation made by the [bank] in its Formal Proof of Debts dated 21/10/91 that the said Company was indebted to the [bank] in the sum of $866,928.95 was false at the time it was made and the [bank] well knew at the time that representation was or but for there (sic) reckless indifference ought to have known that that representation was false. … 67 The bank claimed the sum of over $300,000 in addition to the admitted debt. The dispute over the additional sum is based on the bank's decision to dispose of the proceeds from the sale of 140 Victoria Rd by applying the bulk of it to reduce Mr Sourian's debt under FDA 2 rather than to reduce Magic's indebtedness. The applicants maintain that the proceeds from the sale should have been applied wholly towards the reduction of the indebtedness of Magic to the Bank in FDA 1. They assert that had the latter occurred, FDA 1 would have been in credit at the time of the winding up proceedings and Magic's indebtedness would have been adequately covered by finance that could have been raised using Thornleigh and then unencumbered Willoughby from which the bank's caveat would have been removed. 68 The composition of Magic's indebtedness to the bank has been a contested and critical issue throughout the series of Supreme Court proceedings between Magic and the bank and was finally resolved by the New South Wales Court of Appeal in its judgment of 23 September 1998 in proceedings CA 40318/97 and ED 2181/91. The history of this particular strand of litigation was summarised in the judgment of Priestley & Sheller JJA at 4: On 28 April 1994 in proceedings 2181/91 Windeyer J declared that Mr and Mrs Magarditch were in default of their obligations under the guarantee [of 28 January 1987] and under the Willoughby mortgage and were liable to the Bank under the guarantee and the mortgage for an amount to be determined by the Master. 69 The proceedings were referred to the Master to inquire into the amount owing by Mr and Mrs Magarditch under the guarantee and the mortgage, and judgment was to be entered against them for that amount. The history related by their Honours continued at 5: Master McLaughlin conducted the inquiry ordered by Windeyer J and gave his decision on 20 March 1996. The Master found that FDA 2 was not Magic's debt but Mr Sourian's and held that no amount was due by Mr and Mrs Magarditch to the Bank under the guarantee. On 17 April Santow J allowed an appeal by the Bank from this decision. His Honour held that under the terms of the mortgage to the Bank over [140 Victoria Rd] the Bank was entitled to apply the proceeds of sale to pay out FDA 2, whether or not FDA 2 was properly regarded as Magic's debt or Mr Sourian's debt, and further, contrary to a finding by the Master, that the Bank so applied part of the proceeds of sale in accordance with an agreement made with Mr and Mrs Magarditch and Mr Sourian. 70 Their Honours took the time, just as I have done, to read all of the judgments submitted by Mr Sourian as background to the proceedings before them and their reasons for judgment provide a useful history of the litigation related to the present proceedings such that I will not unnecessarily repeat it here. 71 The question before the Court of Appeal was whether there was some error in the decision of Justice Santow sufficiently arguable to justify the granting of leave to appeal from his Honour's decision. Their Honours reached the following conclusion: Having read and considered all the material which Mr Sourian has placed before the Court, we are not persuaded that Mr and Mrs Magarditch have shown any arguable error in Santow J's decision. In fact, we agree with Santow J's decision. Accordingly, in our opinion, the application for leave to appeal should be dismissed with costs. The criticisms made of the other judgments or of the liquidator or the Bank or its officers are not shown on the material presented to have any substance. They are irrelevant to the present application. Mr and Mrs Magarditch and Mr Sourian have had every opportunity to challenge in the appropriate way anything done by the Bank or liquidator. With the exception of the decision of Master McLaughlin, which Santow J overruled, in our opinion correctly, these challenges have failed. There is nothing to suggest that they deserved any other fate. We have looked carefully to see whether on acceptable evidence any injustice has been done by the Bank or the liquidator to Mr and Mrs Magarditch or to Mr Sourian or to Magic and have found none. 72 This decision by the Court of Appeal creates an issue estoppel between the bank and Mr and Mrs Magarditch as to the disbursement of the proceeds of sale from 140 Victoria Rd and as to the amount of Magic's indebtedness to the bank to the extent that the bank was within its rights not to use the proceeds from the sale of 140 Victoria Rd to reduce it any further than it actually did. As such, without attempting to quantify the debt, it can be safely stated that Magic's indebtedness to the bank was well above the amount which was admitted by Magic. 73 In answer to the applicants' repeated allegations that the bank made false representations in its formal proof of debt dated 21 October 1991 by failing to acknowledge the receipt of certain funds, it needs only be stated that this proof of debt was rejected by the liquidator. 74 The bank lodged a new proof of debt on 7 December 1992 which reflected the application of the proceeds of the sale of 138 Victoria Rd and the sale of Artarmon. This proof of debt was eventually accepted by the liquidator in February 1993. Moreover, in making the decision to order the winding up of Magic, Master Windeyer addressed himself to the possible alternative situation that the admitted debt was all that was owed to the bank and concluded that even if this were so, Magic was nevertheless insolvent. Thus no possible relief is now available to Magic or the applicants from this allegation.

Proceeds from the sale of Mr Sourian's Artarmon unit. 75 The applicants' allegations as to the amount owed to the bank included claims regarding the proceeds from the sale of Artarmon: (a) The [bank] apart from making the claims which were rejected by the liquidator of [Magic] failed to state to the liquidator that a sum of $136,933.82, being the proceeds of the sale of [Mr Sourian's] unit at Artarmon had already been paid towards the debts of [Magic] in April 1991. (b) The [bank] failed to make any proper or thorough steps to investigate, analyse or inquire into the true financial position of [Magic]. (c) Through its agents or servants failed to heed or respond to the written advice dated 18/6/91 from [Magic's] solicitor that $131,812, being the net sum of the sale of [Mr Sourian's] unit at Artarmon had not been credited to the debts of [Magic]. (d) Failed to credit the accounts of [Magic] until 10/9/92 some 17 months after a cheque being the proceeds of the sale of [Mr Sourian's] home unit had been given to the [bank] and after the Court orders for the winding up of [Magic] on 20/6/91. … 76 Mr Sourian's complaint was that Master Windeyer failed to account for the $136,993 received by the bank when determining the insolvency of Magic. This assertion seems to be true as there was no mention of it in his judgment. However, it is not clear that this sum was brought to the Master's attention. In his judgment on the appeal, Justice Hodgson acknowledged and commented on this omission at pages 1-2: As recorded by Master Windeyer in his judgment … it was admitted by Magic that as at 30th June 1990, it owed [the Bank] a little over $300,000. Master Windeyer went on to say that with interest, the admitted debt would be considerably more at the time of the hearing and the judgment, but that statement left out of account a payment of around $135,000.00 made in May 1991, with the result that as at June 1991, the admitted debt, including interest, was probably of the order of around $250,000.00, or a little less. It is not suggested that anything turns on this discrepancy. 77 Furthermore, as evidenced by correspondence between Norton Smith & Co, solicitors for the bank, and Jennifer E Darin, solicitor then representing the applicants, the applicants were aware as early as March 1991 of the bank's intentions to place the money in a suspense account rather than apply it to Magic's debt. In a letter dated 28 March 1991, identified as relating to "Australia and New Zealand Banking Group Limited -v- Magarditch, Property: 5/1 Jersey Road, Artarmon", Norton Smith & Co wrote: We refer to our telephone conversation today with your Mr Butler. We are instructed that upon settlement of the above property our client shall appropriate the sale proceeds as follows: 1. Firstly in repayment of Mr Sourian's indebtedness to [the bank]. 2. The balance being paid into a suspense account with a full set off of interest pending the outcome of the Court proceedings. 78 Subsequent correspondence from Jennifer E. Darin and her associate Robert Butler acknowledged and questioned the course of action proposed by the bank. 79 Even if the bank's conduct in waiting 17 months to apply the proceeds of the sale to the reduction of debt was in some way questionable - and the bank argued that it was entitled to take this course of action under the mortgage contract - it was acknowledged by Justice Hodgson that the amount went towards reducing Magic's debt. Furthermore, the discrepancy in the calculation of the debt to the bank was known by both parties prior to the hearing before Master Windeyer; the discrepancy was disclosed at the hearing of the appeal before Justice Hodgson; and Justice Hodgson determined that the discrepancy was not material to the decision to order the winding up of Magic. It can thus be safely stated that the discrepancy is not grounds for impeaching the judgment of either Master Windeyer or of Justice Hodgson. 80 The evidence on which Mr Sourian relies to support the allegations of fraud is only a few documents, such as the diary note by Gary Calmar dated 31 October 1990, that he claims are newly discovered and proof of the fraud or conspiracy. I have considered them all ignoring the requirement for fresh discovery, and have been able to detect absolutely nothing to support a case of fraud or conspiracy. The diary note was in fact admitted by Mr Sourian to have been produced in the subpoenaed documents in the proceedings before Master McLaughlin to determine the quantum of debt so it cannot even be said to be newly discovered evidence. 81 Mr Sourian submitted that the bank was "grossly abusing its position as an institution" by embarking on a mission to destroy his family and Magic for the reason that they exposed the corrupt conduct of Paul Kelly, once Manager of the bank's Balgowlah branch. The conduct of Mr Kelly and his handling of the bank accounts of Magic and Mr and Mrs Magarditch were aired in court during the winding up proceedings before Master Windeyer, and while the Master said that Mr Kelly's actions in opening new accounts in Magic's name apparently without seeking fresh authority from Magic "may seem unbelievable", he was of the view that on the evidence it was acceptable. There was no evidence that Mr Kelly's actions were in any way corrupt. The conduct and credibility of Mr Kelly was again called into question during the 1995 inquiry by Master McLaughlin into the amount of the debt owed by Mr & Mrs Magarditch to the bank. The diary note by Gary Calmar was then before the Court but at no time did the applicants point to any evidence that the bank was pursuing the winding up of Magic as revenge for the exposure of Mr Kelly's conduct. Mr Kelly in fact left the bank at some stage prior to September 1988.

B. Claims regarding conspiracy between the bank and the liquidator 82 The bank took possession of 138 Victoria Rd after the liquidator was directed by Justice McLelland that he was justified and entitled to discontinue Magic's cross claim and to cease to rely on its defence in the possession proceedings. The property was subsequently sold by the bank and the plant and equipment was sold separately by the liquidator. In the further amended statement of claim, the applicants added a number of new claims dealing with this property: 23. The [liquidator] breached his duties and is negligent for failing to pursue the cross-claim in proceedings No. 14913 of 1989 in the Common Law Division of the Supreme Court of New South Wales, further in the alternative [the bank and the liquidator] conspired to deprive Mr Magarditch and Mr Sourian of realisable assets. Particulars: (a) The [liquidator] and Ronald Cardwell filed an affidavit and informed the Court that Magic was not earning sufficient income by trading to maintain its operation at 134-138 Victoria Rd, Gladesville when they knew such a statement was false and misleading. (b) further, the [liquidator] and Ronald Cardwell stated that the cost in pursuing the defence and cross-claim in the proceedings to be in the vicinity of ($50,000.00) when he/they knew it would be no greater that ($20,000.00). (c) The [liquidator] and Ronald Cardwell falsely implied/stated to the Court that Magic did not have easily realisable assets to prosecute the defence and cross-claim. (d) The [bank] and the liquidator conspired for the [bank] to mislead the Court to obtain approval for the liquidator to withdraw form the Common Law proceedings and to consent for the [bank] to obtain possession of 134-138 Victoria Rd, Gladesville resulting in the erosion of the sale price of the stock, plant and equipment and the effective destruction of the goodwill of the business. (e) The [liquidator] and Ronald Cardwell filed an affidavit in proceedings No. 1821 of 1990 and stated that Magic's defence and cross-claim lacked merit when they knew their statement was false and misleading. 24. The [bank] and the [liquidator] were negligent in failing to realise the assets of Magic Australia Pty Ltd for the highest possible price. Particulars (a) The [bank] and the [liquidator] failed to properly promote for sale that 134-138 Victoria Rd, Gladesville had "existing use rights" to operate as a service station, thus depriving the [applicants] of the potential of a higher sale price. (b) further the [bank] failed to secure that 134-138 Victoria Rd, Gladesville be marketed as a service station reducing the potential of prospective from [sic] bidding at auction in June 1992. The [bank] sold 134-138 Victoria Rd, Gladesville for ($440,000.00). 83 The references to "134-138 Victoria Rd" must, I believe, be intended as references to what I am calling 138 Victoria Rd. On the allegation in paragraph 24(a), any potential purchaser would have been able to ascertain that there were "existing use rights", that is, that the property could be operated as a service station. Ronald Cardwell was the Chairman of Deloitte Ross Tohmatsu, the liquidator's firm. 84 In Supreme Court proceedings No. 14913 in the Common Law Division, commenced in March 1989, the bank sought judgment for possession of 138 Victoria Rd. In April 1990 solicitors on behalf of Magic filed a defence and a cross claim to the bank's claim. Following the winding up of Magic, the liquidator took over the conduct of the litigation. The bank sought leave to amend its claim to include a claim for the recovery of a debt alleged to be owing by Magic to it. In October 1991 the liquidator wrote to Jennifer E. Darin, then solicitor for the applicants, informing that he was going to make an application for directions to enable him to seek resolution on the legal issues surrounding the bank's proof of debt. Having allowed the business at Victoria Road to remain operating since his appointment, the liquidator on 26 November 1990 applied for the Court's directions as to whether he should discontinue the cross claim and cease to rely on the defence and whether he should consent to the bank's request to add a claim for debt to the possession proceedings. In proceedings No. 1821 of 1990 Mr Sourian and Mr Magarditch were joined as respondents and they sought to compel the liquidator to determine the amount of the debt, if any, owing by Magic to the bank. In his judgment on these issues on 18 December 1991, Justice McLelland determined that it was not proper for him to enter into the issue of the quantum of the debt. On the directions sought by the liquidator, Justice McLelland had the following to say at pages 2-3: The fact is that the liquidator has been advised by counsel that [Magic] has no defence to the claim for possession by the Bank, nor is there any substantial prospect of success in a cross-claim which has been put on in the proceedings commenced by the Bank, and there is nothing before the Court to suggest that that advice is other than well-founded. I should add that the claim for possession by the Bank against [Magic] is not dependent upon whether the whole amount claimed by the Bank is owing to it or only part of it. On any view there has been default under the mortgage to the Bank which entitles the Bank to recover possession of the property. 85 His Honour made it clear that he was aware of the hope of Mr Sourian and Mr Magarditch to explore the possibility of using 138 Victoria Rd as security to borrow money to pay Magic's debts to the bank but he was not provided with any material to suggest that such a scenario had any "substantial prospect of being able to be realised". He concluded that there were no legitimate arguments preventing the liquidator from withdrawing from the possession proceedings. 86 On the bank's proposal to add a claim of debt his Honour stated at 4: … it seems to me that there is no proper basis on which the liquidator should consent to that course. If, as appears likely, the Bank wishes to prove in the winding up on the basis that its security is insufficient, then it will no doubt lodge a proof of debt and that proof of debt will be considered and dealt with by the liquidator, and the liquidator's consideration of that can be the subject of an appeal if any person aggrieved wishes to take that course. 87 His Honour thought it preferable that the issue of the amount of the debt be left open so that it could be ventilated in subsequent proceedings within the winding up. Mr Sourian attempted to argue that these remarks by Justice McLelland were an indication of the conspiracy between the bank and the liquidator. 88 The judgment gave the bank possession of 138 Victoria Rd thus giving it the right to sell the property. If the bank conspired with the liquidator to use this right in a way which impacted adversely on Magic, such as to prevent the sale of the business being conducted on the property as a profitable and going concern thereby significantly reducing the money recovered from the property, there may very well be reason to go behind the judgment and an action against the bank and the liquidator may sound in damages. However, for the Court to allow such an action to proceed, the applicants must establish that the allegations of conspiracy have some arguable foundation. In fact they were unable to point to any evidence in support of this claim. As discussed shortly, the only fact of which I am aware which bears on the subject is that the liquidator made every effort up to December 1991 to maintain and continue the muffler business. In my opinion, the applicants' allegations of a conspiracy between the bank and the liquidator are without any evidential basis. They are in my view founded on Mr Sourian's attempts to explain why the liquidator took a different view of Magic's insolvency and its ability to obtain re-financing.

C. Allegations of negligence against the liquidator

1. Negligence 89 A liquidator owes a duty of care similar in substance to the duty of care owed by other professional persons providing services for reward: Sydlow (In Liq) v T G Kotselas (1996) 65 FCR 234. The issues covered by the applicants' allegations of negligence by the liquidator in the further amended statement of claim were also the basis of their claim that an inquiry should be held into the conduct of the liquidator. It is convenient to discuss whether they disclose grounds for a claim against the conduct of the liquidator, be it a claim of negligence or grounds for an inquiry, under that heading.

2. An Inquiry 90 Pursuant to section 420 of the Code, the Court may order an inquiry into the conduct of the liquidator if its considers that "a liquidator has not faithfully performed or is not faithfully performing his duties". As Justice Young pointed out in Burns Philp Investment v Dickens (1993) 11 ACLC 272 at 273: … it is not in the public interest that anybody who feels that he or she or it has a grievance against the liquidator which they hope might be able to be proved in due course may set in train a full blown inquiry. 91 However, as his Honour observed in Burns Philp Investment v Dickens [No. 2] (1993) 31 NSWLR 280 at 287, the party seeking the inquiry must establish that there is a prima facie case that something needs to be investigated. Furthermore, if the Court is satisfied that there are sufficient grounds for permitting an inquiry, it should ensure that there are proper safeguards as to the scope of the inquiry. 92 At the time this application for an inquiry was lodged during the hearing, it became clear that Mr Sourian would repeat the allegations in paragraphs 12, 22 and 23 of the current statement of claim to support it. I stood over the issue of whether leave should be granted to include this claim and gave Mr Sourian an opportunity to identify the evidence that could reasonably be said to support the allegations he wanted to make. I indicated that if there was credible evidence available, it may even not be appropriate to decide the issue of leave until the end of the inquiry. 93 In addition to determining whether the applicants had made a prima facie case for an inquiry into the liquidator's conduct, it was not clear during the hearing whether as a Judge sitting in the General Division of the Federal Court hearing a case that had originated in the Equity Division of the Supreme Court, I was entitled to allow an application for an inquiry in winding up proceedings which are still on foot in the Supreme Court awaiting the finalisation of extant litigation such as this. If this is not permitted but there are grounds for granting leave to amend the further amended statement of claim, it may be necessary to request the Supreme Court to cross vest the winding up proceedings to this Court. 94 The allegations made against the liquidator in paragraphs 12, 22 and 23 of the further amended statement of claim can be summarised as being that he failed: (a) to make any preliminary or any proper investigation of the affairs and assets (b) to preserve Magic's assets by failing to commence proceedings against VACC before the limitation period expired, and was negligent in not obtaining legal advice in respect of Magic's right to claim insurance from VACC

(c) to preserve Magic's assets by failing to commence proceedings against Caltex alleging breach of lease before the limitation period expired, and was negligent in not obtaining legal advice in respect of Magic's right to claim damages from Caltex. This allegation was not part of the previous amended statement of claim but it was in the original version

(d) to realise Magic's assets for the highest possible price in that

(i) he sold Thornleigh at a price well below what could have been achieved;

(ii) he sold the stock, plant and equipment of the muffler business at 138 Victoria Rd for an amount well below market value (e) to identify and collect the goodwill of the muffler business located at 138 Victoria Rd

(f) to notify Magic's creditors and shareholders that he had accepted in full the bank's proof of debt

(h) to collect taxation credits from the Tax Office

(i) to defend the proceedings for the possession of the 138 Victoria Rd and to cause the muffler business conducted there to be sold as a going concern

(j) to take into consideration, in administering Magic's assets and assessing its debts, a sum of $136,933.82 which was credited to Magic, and incorrectly debited and/or admitted a debt of $205,000 plus interest in the liquidation of Magic that was in fact not a debt of Magic but of Mr Sourian 95 Mr Sourian was unable to identify any evidence to support the allegations made regarding 138 Victoria Rd. I partially addressed these allegations earlier when dealing with the allegation of conspiracy between the bank and the liquidator and there is nothing to suggest that the liquidator did not faithfully perform his duties in this respect. The bank was within its rights to sell the property and there was no evidence of a conspiracy between it and the liquidator. Furthermore, the business was running at a loss. Following the order of possession in favour of the bank, the liquidator did attempt to explore ways in which the business could continue to trade. One of the steps he took was to secure an agreement from the bank that it would refrain from taking possession of the property to give the applicants the opportunity to make an offer to the bank to purchase it. Moreover, to prevent the erosion of Magic's assets while the applicants put together an offer for purchase, the liquidator attempted to reach an agreement with them on the terms under which he could and would keep the business open. As evidenced by correspondence between solicitors for the liquidator and the applicants during the latter part of December 1991, a non-negotiable condition for the business being permitted to continue trading was that the applicants make good by cash or bank cheque any losses incurred by Magic whilst it continued to trade and provide a bank guarantee in the sum of $8,000 to secure this obligation. After the liquidator was informed by both the solicitors representing the applicants and by Mr Sourian personally that the applicants would not provide the bank guarantee, the liquidator took possession of the business to prevent the company's creditors being exposed to the potential of further losses, and it ceased to trade on 23 December 1991. In such circumstances, the liquidator could not be at fault for not continuing to trade. At that time, any remaining goodwill of the business could not have been preserved.

The bank's proof of debt 96 The bank's proof of debt has been a matter of controversy throughout the liquidation process. As I have previously pointed out, central to the dispute is the bank's application of part of the proceeds from the sale of 140 Victoria Rd to discharge FDA 2 ($205,000) taken out by Mr Sourian to purchase the property, rather than to FDA 1. The applicants' contention that if the former course of action had been taken, Magic's debt would have been significantly reduced and the company would not have been wound up, outlined earlier, requires further consideration. 97 The bank lodged with the liquidator on 21 October 1991 a proof of debt in the sum of $866,928.95. In light of the litigation between Magic and the bank as to the sale of 140 Victoria Rd, the liquidator disallowed the proof of debt to the extent of about $90,000 for unsubstantiated legal fees and a further sum of about $374,000 relating to the loan from the bank to purchase 140 Victoria Rd. He also began investigating the contentions of Mr Sourian as to the quantum of the bank's claim. Based on the documents he obtained during his investigation and legal advice he sought on the issue, the liquidator concluded that it did not appear that Magic had an action against the bank which would have any prospect of succeeding. The liquidator therefore determined to admit the bank's proof of debt in the sum of $854,421.47 subject to reductions from the sale of securities held by the bank. In other words he queried a number of claims in the original proof of debt and did not admit the bank's debt until it properly accounted for all sums paid to it. Following the sale of 138 Victoria Rd and the accounting of the proceeds from the sale of Artarmon, the bank submitted a further proof of debt dated 7 December 1992 in the sum of $292,445.85 which the liquidator later admitted. 98 FDA 2 has been the subject of considerable litigation. Most recently was the Court of Appeal's decision to uphold Justice Santow's conclusion that the bank was completely justified in the course of action it took in 1989 with respect to using the proceeds from the sale of 140 Victoria Rd to discharge FDA 2 rather than Magic's debts. The Court of Appeal in fact held that the sale proceeds could properly be used to repay the amount owed in FDA 2, whether it was the debt of Magic or Mr Sourian. The Court also held that section 538 of the Code provided the appropriate procedure for complaint by an aggrieved person against a liquidator's acceptance of a proof of debt and that this was the avenue of appeal which Mr Sourian or Mr Magarditch should have availed themselves of if they felt aggrieved by the decision of the liquidator to accept the bank's revised proof of debt. 99 Master Windeyer in the original winding up proceedings determined that the failure of the bank to account for the $136,933.82 in its original proof of debt was not material to the finding of insolvency. When the amount was eventually applied in the reduction of the amount of owing by Magic, it was backdated as if it had been applied when the money was first received by the bank. The bank's revised proof of debt dated 7 December accepted by the liquidator disclosed the application of the $136,933.82 to reduce Magic's debts. 100 The applicants complained of a failure to notify creditors of acceptance of the proof of debt, but did not offer argument or evidence to substantiate this complaint or to indicate how it could sound in damages even if it could be substantiated. For my part, I have not been able to see anything in the material to suggest grounds for inquiring into the conduct of the liquidator with respect to the debt owed to the bank.

Sale of stock etc from 138 Victoria Rd 101 After the liquidator took possession of the muffler/brake business conducted at 138 Victoria Rd on 23 December 1991, he made arrangements for the stock, plant and equipment to be removed from the premises and to be sold by the auctioneers Mason Gray Strange (NSW) Limited on Tuesday 18 February 1992. On 17 February 1992 Justice Cohen in the Supreme Court granted the applicants an injunction restraining the liquidator from selling the plant and equipment and Thornleigh until the appeal against the winding up order was determined. On 3 April 1992 Justice Hodgson dismissed the appeal against the winding up order. The auction of the plant and equipment was then rescheduled and took place on 12 May 1992. It realised $17,000. Mr Sourian stated in his submissions that the equipment was worth more than $100,000 but he did not identify any evidence that would substantiate this allegation. Without evidence, an arguable case of an undersale of Magic's assets cannot be found.

Thornleigh 102 On 22 May 1992 the liquidator applied to the Supreme Court for a direction that he was entitled to sell Thornleigh owned by Magic at public auction. On the same day Justice Powell ruled that the liquidator was justified in proceeding with the sale. On 26 May 1992 Thornleigh was sold at public auction for $152,000 to the owner of the adjoining property, Ian Creak. Mr Sourian applied for an injunction to restrain the liquidator from dealing with the sale proceeds explaining to the Court that the adjoining owner had made an earlier offer of $250,000 for the property with the intention of amalgamating the two properties thereby increasing their value. The application was rejected by Justice Waddell on 16 July 1992 on the basis that in proceeding with the sale the liquidator had followed the directions of Justice Powell. 103 Considerable evidence was presented to the Court on this issue. Viewing the evidence in the most favourable light, a number of facts affected the ultimate sale of the property. It was vacant commercial land on Pennant Hills Road with the only possibility of vehicular access being from that busy thoroughfare, a development the local Council was apparently unlikely to approve. In fact in 1991 the Council recommended in a rejected development application for the property that the land be developed in conjunction with the adjoining corner property which had vehicular access on a side street. The property was thus thought to be worth a considerable amount to the neighbour who had according to Mr Sourian planned to amalgamate it and four other properties to make a showroom dealership. In August 1990 a valuation of the adjoining property was produced on behalf of Mr Sourian which stated that the amalgamation of the two properties would enhance the value of both properties. 104 In August 1990, through its solicitors at the time, Lees and Givney, Magic made an offer to Mr Creak, to purchase that block. In a letter dated 14 August 1990, Mr Creak replied to this offer with a counter offer of $250,000 for Thornleigh and mentioned the previous offers of lesser value he had made for the property which had apparently gone unanswered by Magic. Magic then made a counter offer of $340,000. Mr Sourian alleges that soon after, towards the end of August 1990, Mr Creak made an offer of $350,000 with $70,000 of it to be in cash and not recorded on the contract. It became obvious during the hearing that Magic rejected this offer not only because they hoped that Mr Creak would make an even larger offer but also because Mr Magarditch refused to have anything to do with the cash payment. It would thus seem that this offer ceased to exist. Between August 1990 and June 1991 when Magic went into liquidation, it would appear that Mr Creak became preoccupied with other business matters and it is not clear whether in June 1991 any offer or even any interest from him was still live. 105 On 17 April 1991 real estate agents Colin Dennis and Associates wrote to Mr Sourian with an offer for Thornleigh. It would appear that their clients, identified in the letter as Crest Constructions, had made a previous offer of $210,000 which Mr Sourian had rejected. The letter contained an increased offer of $225,000. A letter dated 2 August from the same real estate agent advised Mr Magarditch that Crest Constructions were offering $250,000 for the property. On 19 August 1991 this offer was raised to $275,000 "cash in 30 days". 106 In a letter dated 21 August 1991, Mr Sourian wrote a two page letter to the liquidator on various issues relating to the liquidation. The letter stated that Thornleigh was "readily saleable" and that Mr Sourian "would not anticipate any difficulty or delay selling it". Mr Sourian proposed the sale of Thornleigh as a way of raising funds to pay the admitted bank debt and secure the removal of Magic from liquidation. The offer of $275,000 received by Mr Sourian just two days earlier was not mentioned, nor were the offers that had been made by Mr Creak. 107 On 4 October 1991 Magic's solicitor at the time, Jennifer E. Darin, wrote to the liquidator advising of the offer of $275,000 from Colin Dennis & Associates, attaching a copy of the offer. A reply from the liquidator dated 15 October 1991 indicated that it was only through her letter of the 4 October that the liquidator had become aware of the offer. In an affidavit in the bankruptcy proceedings, No. NP 192 of 1996 dated 21 June 1996, Mr Sourian stated that also in response to the letter of 4 October, the liquidator sent out a circular to Magic's customers requesting information of any other offers or expressions of interest received by Mr Magarditch and Mr Sourian relating to the sale of Thornleigh. Mr Sourian then stated in his affidavit that he (sic): telephoned the liquidator and informed him that approximately in August 1990 the neighbour Mr Ian Creak had offered to purchase the property for ($350,000.00) which offer included the sum of ($70,000) in cash. The said amount of ($70,000) in cash was not to be recorded on the sale contract. My father and I rejected this offer which had been originally made by Mr Creak at a meeting at out Gladesville premises at 136 Victoria Rd, Gladesville... Mr Creak had made prior offers of ($175,000.00), ($205,000.00) and ($250,000.00) prior to making this fourth ($4th) final offer of ($350,000.00). 108 At a creditors' meeting on 13 December, Mr Sourian and Mr Cardwell, Chairman of the liquidator's firm, had a discussion on the valuation of Thornleigh obtained by the liquidator from a registered valuer and on the offer Mr Sourian had received for approximately $280,000 which I believe refers to the offer from Colin Dennis and Associates of $275,000. Mr Cardwell stated that "the property had been appraised at $150,000 and that he would stand by that valuation" in the sense that that was the value that was to be included in the report on the financial position of Magic. He indicated that the liquidator would not acknowledge a higher valuation which was not supported by historical information until the offer had progressed to a stage where contracts were exchanged and completed. He stated that "if there was an offer for $150,000 and I had a valuation for $150,000, I would have to sell it for that". 109 It is apparent that throughout 1991 Mr Sourian and Mr Magarditch were attempting to organise finance with a company called Morland Finance to pay out the admitted debt and bring Magic out of liquidation. It was envisaged that Thornleigh could be used as security to obtain such finance, but essential to the plan was the preservation of Magic's assets. As indicated in a letter from Balmain Partners, the mortgage brokers for Morland, this offer of finance lapsed on 1 December 1991 but was capable of being renewed on condition that the dispute with the bank over Magic's debt was settled by its payment or at least by agreement on the amount owing. The letter of 21 August 1991 indicated that the sale of Thornleigh was seen as an option, but was clearly not the preferred course of action. 110 In a file note for a meeting at the liquidator's office between Mr Butler of Jennifer E. Darin's office, Mr Cardwell, Mr Sourian and Mr Magarditch on 22 August 1991, Mr Cardwell is reported to have stated that he believed that Thornleigh was probably worth about $280,000. This statement was made in the same month that the offer of $275,000 was made for the property. The liquidator did not become aware of this offer until October 1991. Mr Sourian made clear during the meeting that he did not wish Magic's properties to be sold. 111 Notes from a meeting on 1 November 1991 in the Chambers of Mr Pembroke of counsel to discuss the defence of the bank's possession proceedings, recorded that Mr Sourian stated that he wished the liquidator to "sit back" and let the common law proceedings "take their course". This was interpreted to mean that the liquidator should maintain Magic's defence of the proceedings and not attempt to realise Magic's assets. 112 On 22 November 1991 the liquidator explained in his report to creditors that since his appointment he had continued to carry on the business at 138 Victoria Rd, but that trading had been minimal and that he was having difficulty meeting the day-to-day running costs of the company. Nevertheless, he had continued to trade because he believed that the contention or unresolved issues, both in the courts and with the directors of Magic, would be resolved, re-financing would be obtained and an application would be made for the setting aside of the winding up order. However, Mr Sourian failed to put forward any concrete proposals for re-financing. A statement in a letter from Hunt and Hunt to Jennifer E. Darin typifies the liquidator's attempts to get details of the re-financing proposals: Please identify the written loan approval to which you refer, and how is it said that our client is aware of that approval. Your client has suggested that he has a facility available, but no details have been provided of it or any specific offer put by you client in the nature suggested by you. 113 As late as 20 December 1991 it was the wish of the applicants that the business at 138 Victoria Rd remain open and that they remain employed in the business. 114 In the correspondence throughout December 1991, there was no mention of the fact that the re-financing option would probably be frustrated by the placement of the caveat on Willoughby. Yet without access to an unencumbered Willoughby and a resolution of at least the quantum of the debt to the bank, Magic's hopes of re-financing remained essentially pipedreams, a fact that the applicants were unwilling to accept. It was their insistence that their plan was feasible which kept the liquidator from selling Thornleigh sooner. 115 A file note of a meeting on 10 January 1992 at the liquidator's office established that in early 1992 the liquidator finally decided to begin the process of realising Magic's assets, including Thornleigh which was to be sold at auction or by private treaty. In a letter dated 13 January to Jennifer E. Darin, the liquidator advised that partially as a result of the closure of the business at 138 Victoria Rd, he was proceeding with the realisation of Magic's assets and asked Mr Magarditch and Mr Sourian to forward details of potential purchasers of Thornleigh. 116 On 24 January 1992, Charles Reid of Raine & Horne Commercial wrote to the liquidator in response to his invitation to make a submission for the sale of Thornleigh. He stated that Raine and Horne had been appointed selling agent by Mr Sourian for a period following December 1988. The price of the property was "fluid" and that when an offer of $350,000 was received at some point prior to July 1991, the vendor increased the asking price to $400,000. In July 1991 the vendor was asking $350,000. The suggested marketing strategy recommended targeting the two adjoining owners using a selective tender system as the potential buyers had previously advised Raine & Horne that they would be "interested to purchase the property subject to the asking price being realistic". On the issue of "Likely Sale Price", Mr Reid stated: In the normal course we would envisage the property's selling price being around say $180,000 - $220,000. The adjoining owner influence might achieve a better price up to say $240,000 - $250,000, but in a distressed sale situation we would envisage that the reverse is likely to occur with the price stopping at around $200,000. 117 On 4 February 1992 Mr Creak wrote to Mr Reid with an offer of $180,000 for the property. This offer was apparently enclosed in a letter by Mr Reid to the liquidators dated 5 February 1992. On 10 February a letter from the liquidator to Mr Reid acknowledged receipt of notification of the offer from Mr Creak and referred to Mr Reid's permission to sell the property. The letter states in part: … we advise that the Official Liquidator has selected an alternative real estate agent to manage the sale. ... … we advise that the liquidator neither accepts the offer or wishes to negotiate further at this stage. Should you deem it appropriate, kindly introduce this interested party to Mr Philip Haberle of Raine & Horne, Thornleigh. 118 Philip Haberle was the agent engaged by the liquidator to sell Thornleigh. As earlier noted, the sale was stayed on 17 February as part of proceedings by Mr Sourian and Mr Magarditch to restrain the sale of Magic's assets. The stay ended on 3 April 1992 when Justice Hodgson dismissed the appeal against the winding up order. 119 On 19 February 1992, Mr Reid communicated to the liquidator an offer by BP Australia of $200,000 for the Thornleigh property. The letter stated: We understand that the site has been withdrawn from sale subsequent to legal action by the vendor - hence our offer to you direct. 120 A letter dated 8 May 1992 from Jennifer E. Darin to Hunt and Hunt claimed that Mr Sourian had only that day become aware of the proposed auction of Thornleigh on 12 May. The letter continued: My Clients are somewhat concerned to note that no prior notice was given to them of the proposed auction sale and that the auction sale is being conducted notwithstanding the position of the Company and the Court proceedings. 121 In light of the liquidator's rejection of a substantial portion of the debt claimed by the bank and the lodging of an appeal against the decision of Justice Hodgson, the letter requested that Hunt and Hunt obtain: urgent instructions from your Client with a view to delaying the auction sale until after at least the hearings of that appeal. 122 The reply from Hunt and Hunt dated 11 May 1992 indicated that this letter was how they became aware of the appeal. 123 Then in a letter dated 15 May 1992, Jennifer E. Darin advised Hunt and Hunt that she had ceased to act for Magic, Mr Magarditch and Mr Sourian. Their new lawyers Caruana Kay & Barry wrote in a letter to the liquidator of 19 May 1992: I am instructed that there is no need to sell the Thornleigh property in order to arrange payment to the balance of the unsecured creditors. In those circumstances, it would be inappropriate to proceed with the sale. There is also the rather more serious question of the liquidator's conduct in this matter to be considered. My clients will be moving the Court for an enquiry into the liquidator's conduct and seeking an order that you be removed. In those circumstances the liquidations should cease until the Court's enquiry is complete. My clients will hold you personally responsible for any damages occasioned by your peremptory action. 124 It has taken 6 more years before anything more was done about the proposed inquiry. But it was this letter that prompted the liquidator to seek directions from the Court on 22 May 1992 as to whether he should proceed with the Thornleigh sale. It is clear from Justice Powell's reasoning on that day that all the information presented to the court by counsel representing Mr Sourian and Mr Magarditch pertained to their continued opposition to the winding up of Magic and their outright opposition to the sale. They did not contest the method of sale chosen by the liquidator's real estate agent nor did they present any evidence to suggest that the chosen method of sale was likely to return a price well below that which could have been achieved. There was no mention that an offer of $275,000 had been received and that the person who had made this offer was not intending to attend the auction. Nor was there any evidence before Justice Powell suggesting that there was a dispute about the valuation of the property. His Honour interpreted Mr Sourian's previous attempts to halt the sale as a "series of manoeuvres, made at the last moment in an attempt to stultify the efforts" of the liquidator to carry out his duties as an officer of the Court. His Honour decided the matter on the basis that Magic had been held to be insolvent by the Court; the efforts of the directors to obtain re-financing would not, he believed, remove Magic from insolvency; and Mr Sourian and Mr Magarditch had not applied for a further stay to prevent the sale of assets despite the filing of an appeal against Justice Hodgson's decision. 125 As the dispute over the value of the property was known by both sides, it is disturbing that neither side brought it to the attention of Justice Powell with the consequence that until the present hearing, the dispute has not been addressed in any proceedings of which I have been made aware. If the applicants believed that the liquidator was wrong in choosing an auction to sell Thornleigh, and that a much better price was achievable through some other method of sale, the hearing before Justice Powell in May 1992, or the previous proceeding before Justice Cohen in February 1992, were the obvious times to raise these issues. Those proceedings may have taken quite different courses if that had been done. 126 A file note by Peter Yates of the liquidator's firm dated 25 May 1992 recorded the details of a meeting or phone conversation with Raine & Horne's Philip Haberle revealing that: (a) there had been 12 enquiries regarding the property and 12 people had taken a copy of the contract;

(c) Mr Haberle was concerned about the capacity of Mr Creak to bid for the property;

(d) Mr Haberle thought that they would be lucky to get $150,000. This file note indicated that Raine & Horne, Thornleigh was aware of Mr Creak's offer. 127 On 16 July 1992, in Sourian & Ors v Australia and New Zealand Banking Group Limited, No. 4027/92, in the proceeding in which Justice Waddell refused to restrain the liquidator from dealing with the proceeds of the Thornleigh sale, his Honour gave Mr Sourian leave to file a summons seeking relief from the bank in respect of the sale of 138 Victoria Rd and stood the matter over to 12 August. Mr Sourian filed a summons on 24 July 1992 which went considerably beyond the leave granted in that it included a claim for judgment that the bank restore Magic and its directors to the possession of Thornleigh. Apart from the impossibility of achieving an order that had been bypassed by events, the bank never had possession of that property. It was unencumbered and was in the possession of the liquidator. His Honour recorded that the property had been sold by the liquidator and that there was no "evidence to support any ground to set that so (sic) aside". As the claim for possession had been made against the wrong party, it was duly dismissed by his Honour on 12 August. At no time during the hearing before me did Mr Sourian explain why, when he appeared before Justice Waddell, he did not seek to join the liquidator as a party for the purpose of recovering the $200,000 for which he believed the liquidator undersold the property. 128 In the context of the allegations of the applicants that the liquidator was negligent in the manner in which he handled the sale of Thornleigh, it is revealing that throughout this series of correspondence and court hearings, the argument was never put by Mr Sourian and Mr Magarditch, or their lawyers, that the property was worth much more than the valuation adopted by the liquidator, or that the sale of Thornleigh by auction was not the preferred method of sale because there was a real possibility that a much larger price would be achieved through private sale to identified persons. After the initial notification of the offers to purchase, the applicants never pressed the liquidator to follow up the offers for the property that had been made in 1991. Furthermore, no evidence was identified which would confirm that the offer made by Crest in August 1991 was genuine or that after January 1992, when the liquidator finally decided to realise Magic's assets, it was still live. 129 The liquidator cannot be criticised for not selling Thornleigh prior to 1992. It was without doubt the intention of the applicants that Magic's assets be preserved and that it be saved or released from liquidation, and the liquidator made every effort to continue Magic's business activities in the belief or hope that the company could be saved. It is not difficult to conclude that litigation would have been commenced by Mr Sourian if steps had been taken to sell Thornleigh in 1991. 130 In these circumstances, the only subject matter for inquiry could be his failure to follow up, or require Raine & Horne to follow up, in 1992 the offers that had been received in and prior to 1991. In 1992 he was aware of these offers, even though they were 9 months old and the offers from Mr Creak no longer appeared to be live. The question for determination is whether these matters represent a prima facie ground for an inquiry. 131 I have given this matter anxious consideration. Obviously even a very belated inquiry should be granted if there is a reasonable chance that the liquidator has failed to carry out his duties in a significant way. However, this case and its extraordinary history must be looked at in the context that the applicants have spent the whole or most of the last decade and more enmeshed in litigation over this amongst other related matters in which every conceivable point and issue have been taken, many of them more than once both at first instance and on appeal. Yet except for a brief reference to the matter before Justice Waddell in July 1992, the question of any default by the liquidator in relation to the Thornleigh sale has only just been raised. Moreover, there being no funds left in the liquidation, any finding adverse to the liquidator could only lead to an application for damages against him personally. Even if such a claim could now be within time, its chances of success must at best be slim.

Caltex and VACC 132 The claims made in the further amended statement against Caltex were not in the previous amended statement of claim but had been part of the original statement of claim. The claims regarding the liquidator's conduct with respect to the Caltex lease and the insurance claim against VACC are intertwined as they both relate to the fire that occurred at the service station on 3 February 1988. 133 In determining whether there exists prima facie grounds for ordering an inquiry into these matters, the evidence identified by Mr Sourian must again be viewed in its most favourable light despite the fact that on this issue the liquidator challenged a number of Mr Sourian's asserted facts - such as for example that Mr Sourian's had given him the documents relating to the insurance claim and the lease. However, this and other similar issues cannot be resolved at this preliminary stage. Counsel for the liquidator accepted that the Court must proceed on the assumption that Mr Sourian did, as he contends, give the liquidator the documents before the end of the limitation period.

(a) VACC 134 The liquidator's investigation upon his appointment revealed, as stated in his affidavit of 5 March 1998, that: the insurer was VACC and that the insurer had denied indemnity to the company in respect of the fire and that Mr Sourian had been charged with a number of offences relating to the fire, the essential allegation being that he had deliberately lit the fire. 135 However, VACC did not deny indemnity on the basis that Mr Sourian set fire to the premises, but that Mr Sourian had failed to disclose material matters in the original insurance proposal form. That is, when he was asked on the form: Is there any other information you know about which may affect our decision to issue insurance to you or the insured? 136 Mr Sourian failed to disclose his criminal record which includes convictions for importation of prohibited goods such as machine guns, bullet proof vests and the like, assault and malicious injury, among others. Depending on the facts, it is at least arguable that this basis for refusing indemnity would not be sustained. Without deciding the matter one way or the other, it is convenient to proceed on that assumption. 137 A committal hearing of the charges against Mr Sourian relating to the fire commenced in 1989 and concluded in January 1990. All the charges, except the charge that Mr Sourian attempted to obtain money by publishing to VACC a declaration of loss knowing it to be false, were dismissed by the committing magistrate. After a trial of that matter on the merits, Judge Nader dismissed it on 2 July 1993. Despite finding Mr Sourian not guilty, his Honour said: I do not want to make unfavourable comments to Mr Sourian, but I should tell him that the result may have been different if it had been simply a matter of deciding the case on a balance of probabilities. He may have had some explaining to do. But he did not have to explain anything in a criminal trial, and he may be the beneficiary of some rules of the criminal law that favour accused persons to a considerable extent. 138 Counsel for the liquidator drew my attention to a paragraph in Judge Nader's judgment on costs for the trial in which his Honour referred to the "grossly disorganised and incompetent" manner in which the stock-take after the fire was conducted, such that it was clear that there was no reliable basis for assessing the stock lost in the fire. I was asked to infer that this statement was an indication to the liquidator of the evidence that would be available in a case against VACC, although it seems to have little relevance to VACC's refusal to indemnify Magic. Counsel also indicated that if the case was pursued against VACC, it was likely that Mr Sourian would be required to give evidence for the liquidator and that his evidence was likely to be quite damaging to his credibility. Whilst Mr Sourian was acquitted by Judge Nader, the liquidator would have to consider very carefully whether, in light of his Honour's remarks, he would be justified in commencing any proceedings with Mr Sourian as a critical witness in the case. 139 On 28 August 1991 the liquidator wrote to Jennifer E. Darin requesting: a brief summary outlining the current position and background in relation to the company's contingent assets: an insurance claim for $1 million and the Caltex Oil Company claim for $4 million. 140 There appears to have been no reply or other correspondence on the issue until after the funds collected by the liquidator had run out in early September 1992. On 24 September 1992 Lees & Givney wrote to the liquidator expressing "grave concern" that there had been no attempt to realise the insurance claim, the only real non-freehold asset or contingent asset that Magic had. The letter continued: 6. ... I have spent many hours in respect of that matter and can not see any justification in you incurring the types of fees that you have incurred in respect of the Supreme Court matters with the ANZ Bank when it appears that no attention has been given by you in respect of proceeding promptly and efficiently with the claim against the insurance company for losses suffered by the company. I would appreciate your detailed explanation as to what steps you have taken and what your view is in that regard. Whilst I can appreciate that your efforts have been hampered by the alleged conduct of the former directors of the company, you will note that as a small legal practitioner in sole practice in the suburbs, I am quite concerned as to the possibility of having to write off the debt in excess of $40,000 which is owed to me if there are not proper endeavours made by the liquidator to recover the insurance monies and the full rights of the company in respect of a claim in respect thereof. I also note that the period of limitations is fast approaching. The letter also notes that the period of limitations was fast running out in respect of the claim. 141 The liquidator replied to Lees & Givney on 6 October 1992. On the issue of the insurance claim, he wrote: … we discussed the matter with Mr J Sourian, Jennifer Darin & Co and the company's accountant, O'Hannessian and Associates. We are of the opinion that the likelihood of recovery, given the information that is available, would appear to be scant. We have requested on a number of occasions that Mr Sourian provide us with specific information of full co-operation in relation to the matter. Additionally, in my correspondence to creditors, particularly the documentation accompanying the notices of meetings of creditors, I sought information which may have assisted me in the administration. To date, other than some brief information relating to plant and machinery which the company was believed to have once owned, nothing has been provided. 142 The liquidator concluded the letter with a request for assistance in relation to the insurance claim. 143 Assuming Mr Sourian did supply the liquidator with the documentation on the insurance claim and the applicants wanted the claim pursued, it is surprising that they or their lawyers made no effort to respond to his requests for information. 144 The liquidator's reasons, as set out in his affidavit, for not commencing proceedings were: · he did not learn of the real reason for VACC's denial of indemnity until early 1997 when Mr Sourian filed affidavits before Justice Giles containing the letter of 26 July 1988 from the solicitors for VACC to Magic outlining why the insurance policy was avoided

· at the time of the expiry of the period of limitation, Mr Sourian was still the subject of criminal charges

· his requests for further information on the insurance claim went unanswered and he had run out of funds

145 His opinion that the chance of success in contesting VACC's decision was scant was not mentioned by the liquidator in his affidavit as a reason why litigation was not pursued. The only reference to this opinion is in the 26 July 1988 letter annexed to the affidavit. The liquidator submitted during the present hearing that the reason the liquidator did not pursue the insurance claim after July 1993 was because the liquidation was unfunded. 146 At least 3 questions arise with respect to the liquidator's decision not to pursue the claim. Firstly, should he have done more to pursue the claims before the liquidation became unfunded in September 1992 even though Mr Sourian was at that stage still the subject of a criminal charge? Secondly, was there sufficient property available in the period after the dismissal of the charge against Mr Sourian and before the expiration of the limitation period to justify the liquidator incurring the expense involved in ensuring that the claim was at least preserved if not pursued? Thirdly, even if the liquidator was not in a position to incur the expense involved in commencing legal proceedings against VACC, was it is his duty to issue a notice to the creditors before the time for the claim expired informing them of the potential claim and seeking a resolution as to whether he should issue proceedings and whether some or all of the creditors would be prepared to fund the proceedings? 147 Section 429 of the Code stated that a liquidator is not liable to incur expenses in relation to the winding up of a company unless there is sufficient property available. "Property" was not defined but identical definitions of "property" appeared in the Companies Act and the Corporations Law, sections 287 and 545 respectively. The Corporations Law defines "property" in the following terms: any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action. 148 In Re Tulloch Ltd (in liq) (1978) 3 ACLR 808 SC (NSW), Justice Needham of the Supreme Court recorded that the only assets of the company in liquidation was a small sum of cash at the bank, a possible claim against the parent company which was also insolvent, and a parcel of land which was the only security for a large debt. In deciding whether the liquidator was justified in taking no action to repair the company's property, Justice Needham concluded at 819: In the present case there are assets but I do not think they are, in the sense of the word in s 287, available to the liquidator...Accordingly, I would think that the liquidator is entitled to a direction in the following form. I direct the liquidator that until he has assets available to enable him to do so, he would be justified in taking no action with respect to the keeping in repair of the company's property at Rhodes and the payment of rates and taxes in respect of the same... 149 In that case a possible claim against an insolvent company was not considered an available asset. Following the sale of Thornleigh and the plant and equipment from 138 Victoria Rd, Magic's only remaining assets were the claims against VACC and Caltex. These claims were contingent assets. They were hardly assets which a liquidator could proceed to acquire by legal action without more. The advice on the insurance matter was that the claim was speculative at best, not because of the absence of documentation but because of Mr Sourian's likely difficulty in persuading a Court of his creditworthiness. It would not be right for me to comment on this view, except to say, as someone who has listened to Mr Sourian at great length and read how other Judges have assessed his evidence and advocacy, that I understand it. If the liquidator had so advised the creditors, it is hardly likely to have attracted creditor funding. I am of the view that a claim against the liquidator on this basis, or an inquiry into these circumstances, would be futile.

(b) Caltex 150 On or about 20 June 1988, after Mr Sourian had been charged with offences related to the fire at the service station premises, Caltex gave notice terminating Magic's lease of the premises. Grounds given for the termination included the commission of certain offences and a felony by Mr Sourian. In July 1988 Magic lodged an application seeking a declaration that the notice of termination had no effect. Caltex lodged a cross claim seeking a declaration of termination and possession. Mr Sourian applied to adjourn the case until the criminal proceedings against him had been completed. On 9 May 1989 Justice Davies of the Federal Court refused this application. Thereafter consent orders signed by counsel for both Magic and Caltex and dated 12 May 1989 granted possession of the premises to Caltex. 151 Given that the proceedings contesting Caltex's termination of the lease were finally determined prior to the appointment of the liquidator, the liquidator could not be found negligent for failing to sue Caltex. In substance Mr Sourian did not seriously attempt to contradict the liquidator's submission to this effect.

Tax credits 152 Mr Sourian contended that as a result of the 1988 fire, Magic suffered a loss and was therefore entitled to a refund of $116,000 of the company tax paid in 1990 to the Australian Taxation Office. The winding up proceedings were commenced by the Tax Office on the basis of unpaid company tax. The liquidator stated in his affidavit that the first time he became aware of a claim against the Tax Office was through the reference to this claim in the original statement of claim filed in this matter on 1 July 1997, and that he had not been provided with any information as to the basis upon which the Tax Office was indebted to Magic. 153 In his affidavit of 31 December 1997 Mr Sourian stated that in August 1991 he had a conference with Magic's accountants and the liquidator. At the conference the refund claimed to be owed by the Tax Office to Magic was discussed and the liquidator is alleged to have said that he would "look into" an amendment to Magic's 1987/88 tax return that would have to be made for Magic to receive the refund. Mr Sourian maintained that the liquidator negligently failed and refused to lodge a claim with the Tax Office requesting a refund. 154 Assuming, as I must in proceedings such as this, that this factual dispute between these two men as to whether liquidator did or did not know of this claim in 1991, or before 1997, is resolved in favour of Mr Sourian, by itself this allegation does not substantiate a contestable claim. The matter is one for expert evidence, not for assertion from the bar table. If the claim had substance, there would have been every reason for the liquidator to pursue it. Without some reasonable evidence that a tax refund was reasonably likely or at least arguable, it could not be negligent not to pursue the Tax Office without funds and an inquiry would therefore be futile.

When to determine the preliminary issues 155 The two preliminary questions to be determined are, first, whether Mr Sourian and Mr Magarditch should be given leave to bring on behalf of Magic all or some of the claims set out in the further amended statement of claim; and second, whether the projected amendment to the further amended statement of claim should be allowed on the basis that there are grounds for an inquiry into the conduct of the liquidator? After considering whether these questions should perhaps be deferred to the end of the hearing, I have determined that it is appropriate to deal with them summarily. My reason is because I have decided that the claims clearly do not raise arguable issues. 156 Although I earlier entertained some doubts in the matter, I have, after exhaustive consideration of the material, eventually come to the inevitable conclusion that there is no basis upon which the claims made could succeed. With regard to the allegations against the bank, all the matters have previously been litigated except the allegations of conspiracy, fraud, and the improper exercise of the power of sale of 138 Victoria Rd. Matters already decided cannot be re-agitated unless the results were procured by fraud. For the reasons I have given, no case of fraud or conspiracy could possibly succeed, and the sale of 138 Victoria Rd carried the imprimatur of a Judge's direction. 157 The claim for negligence against the liquidator and the projected application for an inquiry into his conduct are inexorably intertwined. Although there are individual actions or inactions which if they had occurred in another case and in other circumstances might well have warranted a second look, I have found nothing which in the circumstances of this case could call into question the impugned activities of the liquidator here. 158 There is therefore no point in granting leave to Mr Magarditch and Mr Sourian to represent Magic in the proceedings as I do not believe that any case according with legal principle has been made out for that leave to be granted. 159 The motions are dismissed. I certify that the preceding one hundred and fifty-nine (159) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marcus Einfeld AO.

Associate: Dated: 29 January 1999 The Applicants were represented by Mr Jake Sourian in person.

Counsel for the First Respondent: Mr R. W. White & Ms A. J. Silink

Solicitor for the First Respondent: Norton Smith & Co

Counsel for the Second Respondent Mr M. Oakes SC

Solicitor for the Second Respondent Hunt & Hunt

Date of Hearing: 9, 10, 11, 13 & 20 March 1998

Date of Judgment: 29 January 1999