Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd [2018] FCA 22 | Case summary

Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd [2018] FCA 22 | Case summary | Zoe

[14]

Liquidation funding 9 In April 2011, Mr Oates wrote to the liquidator concerning the funding of the liquidation. He noted that, at the time of the liquidator's appointment, Matrix had no known assets. Mr Oates also noted that the liquidator had received no funding up to April 2011, and had recovered no assets, but had carried out his duties and incurred fees and expenses. 10 By early 2009, the liquidator had identified matters that he considered warranted investigation. In February 2009, he submitted an application to the Australian Securities and Investments Commission for funding from the Assetless Administration Fund for an amount of up to $135,000 to investigate potential claims and to conduct public examinations under ss 596A and 596B of the Corporations Act 2001 (Cth) ("Act"). That application was refused in March 2010. 11 Despite what Mr Oates wrote in April 2011, referred to above, the liquidator may have received a small amount of funding from Mr Oates himself by that time. In the proposed cross-claim, Mr Oates alleges that he provided funding of $4,500 to the liquidator in June 2010. 12 In March 2011, the liquidator requested an indemnity from the ATO and expressed the view that the ATO was likely to have a significant claim against Matrix. The liquidator stated his belief that Matrix and its directors may have failed to declare income of up to $28.5 million in tax returns lodged by Matrix. The liquidator identified issues and concerns that he considered to be of a public interest and which, in his view, required further investigation. 13 The ATO denied the liquidator's request in about April 2011. 14 In circumstances described in more detail below, in September 2011, Matrix, the liquidator and Mr Oates entered into an agreement by which Mr Oates agreed to provide funding for the liquidator to conduct public examinations ("Oates funding agreement"). By cl 3.1 of the agreement, Mr Oates agreed: … to pay the sum of $300,000, such amount to be paid in the following amounts on the terms and covenants of this Deed: (a) $30,000 (excluding GST) on account of the pre-existing fees of Blake Dawson … (b) the Costs incurred or accruing from time to time in connection with the Examinations up to a maximum amount of $270,000 (excluding GST). 15 "Costs" is defined in the agreement to mean: (a) the reasonable fees and disbursements of the Lawyers including fees and disbursements incurred in connection with the preparation of examination summonses, statements of claim or mediation position papers or the preparation of counsel's written opinion; and (b) the reasonable fees and disbursements of the Insolvency Practitioner. 16 A significant aspect of the Oates funding agreement is the provisions dealing with the "Resolution Sum" and Mr Oates' entitlement to a share of that sum. The "Resolution Sum" is defined in the agreement to mean: [T]he amount or amounts of money or the value, or the value of goods, services or benefits, for which any or all claims comprising the Claims are settled, or for which judgment is given in favour of [Matrix] and/or [the liquidator], including any interest and including any legal costs paid by any respondent or potential respondent. 17 The "Claims" referred to in the definition of "Resolution Sum" are defined in the agreement to mean: [A]ny claims of [Matrix] and/or [the liquidator] in relation to or connected with [Matrix], including, for the avoidance of any doubt, from or in connection with the [Oates/Hawkins proceeding]. 18 In the circumstances set out below, no "Claims" have been made by Matrix or the liquidator and, with the possible exception of costs recoveries following the liquidator's successful defence of applications to set aside his examination summonses, no "Resolution Sum" has ever been received. 19 The Oates funding agreement was approved under s 477(2B) of the Act: Pascoe; re Matrix Group Ltd (in liq) [2011] FCA 1117. 20 Mr Oates paid substantial amounts to the liquidator under the Oates funding agreement, and the liquidator conducted public examinations. 21 Ultimately, the liquidator concluded that he wished to commence proceedings against former directors of Matrix to recover substantial amounts by way of compensation for breaches of fiduciary duty and for misappropriation of funds as well as against known recipients of funds allegedly misappropriated by the directors ("proposed proceedings"). According to Mr Oates, the amounts that the liquidator may be able to recover are $38 million and $31 million. 22 The liquidator has not secured funding for the proposed proceedings. In August 2016, the liquidator entered into a funding agreement with Harbour Fund III, LP ("Harbour funding agreement") but conditions precedent to the operation of the agreement were not satisfied and the agreement lapsed. In Matrix Group Ltd (in liq) (Trustee) v Oates, re Matrix Group Ltd (in liq) (Trustee) [2016] FCA 1487 ("Matrix (No 1)"), I set out matters concerning the Harbour funding agreement. 23 It remains possible that the proposed proceedings will be funded but, currently, there is no potential funder. 24 In particular, there does not appear to be any current likelihood that the proposed proceedings may be funded by the ATO. According to Mr Oates, rather than provide funding to the liquidator, the ATO has pursued Mr Hawkins personally for a substantial amount of unpaid tax. Mr Oates states that, in 2016, Mr Hawkins and the ATO reached an in-principle settlement. 25 For his part, Mr Oates says that "[a]ssuming that Court confirms that the Oates funding agreement is on foot, [he] remains ready, willing and able to fund the Proposed Proceedings". As explained below, there is a dispute between Mr Oates and the liquidator about whether the Oates funding agreement has been validly terminated. At the hearing on 9 August 2017, Mr Oates said that he would not offer any funding "until the Oates Funding Agreement is resolved" and he confirmed that he was not willing to make an offer to fund the proposed proceedings until the validity of the purported termination of the Oates funding agreement has been resolved. 26 Thus, Matrix may have valuable assets in the form of causes of action against former directors but it presently has no means of realising those assets, and it has no other funds. In the meantime, Mr Oates is substantially out of pocket. The liquidator's second report to creditors, dated 21 June 2016, stated that there was no prospect of a dividend to any class of creditor unless some or all of the causes of action outlined in the report were successfully pursued in court proceedings. The report also stated that the liquidator had invested more than $900,000 in unpaid remuneration in investigating Matrix's affairs, examining related parties, formulating recovery claims and seeking litigation funding. Thus, it seems that the liquidator is also substantially out of pocket.

[15]

Complaints surrounding Oates funding agreement 27 In March 2010, Blake Dawson lawyers, who were then acting for the liquidator, wrote to Thompson Eslick, then acting for Mr Oates, saying relevantly that the liquidator had not abandoned certain claims described as "any claim the subject matter of the draft Further Amended Statement of Claim or any other potential claim against any party named in the draft Further Amended Statement of Claim or otherwise associated with Matrix". The "draft Further Amended Statement of Claim" was apparently prepared for the Oates/Hawkins proceeding. 28 On 27 November 2010, the time for bringing any action for relief in respect of a voidable transaction under s 588FE of the Act expired. 29 Mr Oates alleges that, despite the fact that the time had lapsed for bringing such claims, during 2011 the liquidator made representations to him, including in writing, to the effect that the liquidator was likely to be entitled to bring actions with respect to breaches of directors' duties, unreasonable director-relation transactions and uncommercial transactions with a value in the vicinity of $28.8 million. Mr Oates claims that he was induced by these representations to enter into the Oates funding agreement. 30 Mr Oates relies on a letter dated 2 June 2011, by which the liquidator sought funding from Mr Oates of up to $300,000 to pay the costs of conducting public examinations. In the letter, the liquidator expressed his belief that the proposed examinations of nine individuals could be conducted for $300,000, on the basis of an estimate annexed to the letter. In the proposed cross-claim, Mr Oates alleges that, on or about 10 June 2011, the liquidator represented to him that the examinees may seek to file applications to have the examination summons struck out and that Mr Oates's funding would cover the costs for examinations, including such interlocutory hearings. 31 Mr Oates alleges that between 2011 and 2012, the liquidator and Blake Dawson Waldron reiterated to Mr Oates (and Mr Oates accepted) that he was liable for any adverse costs order in connection with proceedings to set aside the examination summonses. In the proposed cross-claim, Mr Oates pleads that he agreed to pay any "Adverse Costs Order" made "in connection with the Examinations" and give any security for costs orders to be given "in connection with the Examinations" pursuant to cll 3.4 and 3.5 of the Oates funding agreement. 32 In early September 2011, the liquidator provided Mr Oates with a draft affidavit in support of the s 477(2B) application to approve the Oates funding agreement. The draft affidavit referred to potential claims to recover substantial funds which were summarised in a document attached to the draft affidavit. The identified potential claims were: (1) against directors or former directors for breaches of directors' duties; (2) with respect to unreasonable director-related transactions; and (3) with respect to uncommercial transactions. 33 The draft affidavit states that the liquidator did not have sufficient funds to properly investigate or pursue any of the potential claims. 34 In a report to creditors dated 7 November 2011, the liquidator recorded that he retained insufficient funds to pay the costs of the petitioning creditor (Mr Oates) or declare a dividend. The report stated that the liquidator's investigations had identified possible unfair preferences and/or uncommercial transactions which may be recoverable by a liquidator. The report stated: 8.3 Unfair Preferences and Uncommercial Transactions My investigations into the affairs of Matrix have identified possible unfair preferences and or uncommercial transactions which may be recoverable by a Liquidator. These transactions include such things: • Write off of loan accounts owing to Matrix; • Write off of investments in related entities for no consideration; and • Transfer of Arts and Antiques to Mr Hawkins for no consideration Generally, a Liquidator is required to commence an action for either an unfair preference or uncommercial transaction within three (3) years of the relation back day. This period may be extended where there are evidences of fraud. As I was without funds in the liquidation, I did not commence recovery proceedings in respect of any of the above transactions. Notwithstanding this point, although three (3) years have expired since my appointment, I will be able to commence either an unfair preference or uncommercial transaction should my further investigations identify areas of fraud.

[16]

Examination summons proceedings 35 In 2012, this Court issued examination summonses on the liquidator's application in proceeding NSD299/2012. As predicted, in March 2012, an interlocutory application was filed to set aside examination summonses and orders for production issued against Mr Hawkins and five others. 36 By letter dated 30 March 2012, the liquidator sought funding from Mr Oates to defend the application to set aside examination summonses and orders for production. In response, Mr Oates (through his then lawyer, Dominic Calabria) argued that the funding "should come from the $300,000 amount that has been set aside". 37 In April 2012, in Sutherland v Pascoe; re Matrix Group Limited as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 [2012] FCA 453, Jacobson J considered an application by some of the proposed examinees for access to the affidavit relied upon by the liquidator in support of the examination summonses. The application was made in aid of the determination of the application to set aside the examination summonses as an abuse of process or otherwise sought for an improper purpose. In his reasons, Jacobson J records the following matters that are set out in Mr Oates' proposed cross-claim concerning the evidence provided in support of the application for approval of the Oates funding agreement: [23] It is now quite apparent that, at least in one important respect, I was misled as to the nature of the proceedings in the Supreme Court. I was told by counsel who then appeared that the claim in the Supreme Court proceeding was brought under s 37A of the Conveyancing Act but I was not informed that the breaches of ss 181 and 182 of the Corporations Act were also alleged in the Supreme Court statement of claim. [24] I do not suggest that counsel deliberately omitted to disclose that information but the non-disclosure is a serious one and is part of the background against which the present application has to be considered. There were several other non-disclosures but I do not need to address them here. 38 The Supreme Court proceeding referred to by Jacobson J is the Oates/Hawkins proceeding. 39 In about June 2012, Kemp Strang lawyers commenced to act for the liquidator in place of Ashurst (formerly Blake Dawson Waldron) ("BDW/Ashurst"). 40 In November 2012, Jacobson J heard and dismissed with costs the application to set aside the examination summonses: Sutherland v Pascoe; re Matrix Group Limited as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 (No 2) [2012] FCA 1361; (2012) 90 ACSR 174. His Honour's judgment demonstrates that, by this time, both the liquidator and Mr Oates were conscious that the time for bringing actions under s 588FE had expired. His Honour rejected a submission that the liquidator's failure to disclose to the registrar the time limits under s 588FF(3) was a material matter from which it should follow that the examination summonses must be set aside. Mr Oates' proposed cross-claim sets out the following passages from Jacobson J's judgment: [58] There was a heavy obligation on a person applying for an examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporation's examinable affairs. The obligation is one of frankness and candour to bring to the court's attention all material including that which might lead the court to refuse the application: Southern Equities Corp Ltd (In Liq); Re Bond & Caboche v England (1997) 25 ACSR 394 at 422 - 423; In the matter of Idoport Pty Limited (In Liq) [2011] NSWSC 322 at [147] [59] The question is whether the matters that were not disclosed were material to the decision of the Registrar to issue the summonses. It is not for the Court to decide whether the summonses would nevertheless have issued if the matters had been disclosed: Idoport at [151]. [60] Mr Aldridge quite properly does not suggest that the nondisclosure of the limitation period affecting the claims under ss 588FB and 588FDA was deliberate. However, he submits that it was a material matter which might have affected the Registrar's decision. [61] The failure to disclose the limitation period was unfortunate and there is some force in Mr Aldridge's submissions. However, I have come to the view, although not without reservations, that the limitation periods were not material. This is because upon the view I have reached, the claims which Mr Pascoe wishes to pursue of breach of duties under ss 181 and 182 and their relationship with the claims made by Mr Oates in the Supreme Court proceedings were fully disclosed so that the nondisclosure of a time limit which may have affected Mr Pascoe's causes of action (rather than those of Matrix) was not material. 41 An application for leave to appeal from Jacobson J's decision was refused with costs in February 2013: Sutherland v Pascoe; re Matrix Group Ltd as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 [2013] FCAFC 15. The appeal was in proceeding NSD2089/2012.

[18]

Alleged wrongful purported termination of Oates funding agreement 45 At some time in 2012, the liquidator and Mr Oates fell into dispute about whether Mr Oates performed his obligations under the Oates funding agreement. 46 In particular, Mr Oates alleges that the liquidator threatened not to defend the appeal in proceeding NSD2089/2012, for which Mr Oates was liable for any "Adverse Costs Order" and/or not to undertake full examinations (to the minimum amount agreed), unless Mr Oates provided further funding. 47 In January 2013, Mr Oates' then lawyers, Bridges Lawyers, wrote to Kemp Strang asserting that, prior to entry into the Oates funding agreement, both parties were well aware that: (1) the proposed examinees were likely to seek to have the examination summonses and orders for production set aside, and generally be extremely obstructionist and difficult; and (2) the amount to be contributed by Mr Oates of $300,000 plus GST "would be our client's contribution for all necessary matters up to and including the conducting of the Examinations, and failing which the costs thereafter were to be the responsibility of your client". 48 Concerning costs recoveries, the letter stated: 2. … Your client now has the benefit of the costs order made by Jacobson J, which our client has consented to your client utilising to meet the legal fees and expenses of his continued progression towards, and the holding of, examinations. … 11. … our client has agreed that a costs order with a value of approximately $200,000.00 to $250,000 may be applied by your client towards the legal costs of further conducting the Examinations. … 14. The fourth bullet point on page 3 of your 20 December 2012 letter provides as follows: "The Liquidator would not have committed the available funds to resisting the set-aside applications if he had known that his fees and disbursements in relation to same would not have been met and funds for the conduct of the examinations would not be subsequently forthcoming." 15. In response, our client finds this difficult to accept in light of the matters set out above and the refusal by our client to provide further funding in respect of the setting aside application in April 2012. In any event, your client has further funding - the costs order against the applicants to the set-aside applications, which we estimate to be between $200,000.00 and $250,000.00. Your letter fails to mention this matter. We are not aware of any application to stay this costs order and if you haven't done so already, we respectfully suggest that you enter this order and take steps to recover such costs. 49 The letter also stated: 19. … We note that your client has accepted that he failed to extend the limitation periods for a number of uncommercial claims and failed to disclose this to the Court. … 21. Please note that our client has relied on your client's representations that your client had available to him various uncommercial claims. In particular, we note the reference to such claims in your client's letter to our client dated 2 June 2011. At all material times, your client failed to disclose to our client that he had failed to extend the limitation period in relation to such claims (including claims under s 588FB and 588FDA of the Corporations Act). 50 Mr Oates makes the serious allegation that any "alleged concessions" in this letter that the costs recoveries could be applied to the legal costs of further conducting the examinations were made in the context that Mr Oates was subject to oppression, duress, coercion and/or threats by the liquidator and Kemp Strang, including that the liquidator would not defend the appeal or carry out the examinations unless more funding was provided. 51 Mr Oates did not offer a clear articulation of why, assuming that the liquidator said that he would not defend the appeal or carry out the examinations unless more funding was provided, the liquidator was not entitled to say this. Section 545 of the Act provides: (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 ASIC 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 ASIC so directs, gives such security to secure the amount of the indemnity as the Court or ASIC thinks reasonable. (3) Nothing in this section is taken to relieve a liquidator of any obligation to lodge a document (including a report) with ASIC under any provision of this Act by reason only that he or she would be required to incur expense in order to perform that obligation. 52 Mr Oates' proposed further amended cross-claim sets out the following passage from the Full Court's judgment: … At the heart of the matter is the question whether his Honour erred in finding, as a matter of fact, that the liquidator's failure to disclose that the two potential liquidator initiated proceedings were time-barred was not material. In our view, that finding was plainly open to the primary judge having regard to the fact that the same transactions and essential facts underpinning the potential claims by the liquidator (i.e. in respect of breaches of ss 588FB and 588FDA) also underpinned the potential cause of action by the company alleging breaches of ss 181 and 182 of the Act. In other words, the basis for the liquidator's desire to examine the relevant persons and compel them to produce relevant documents going to Matrix's examinable affairs was common to all three potential claims. Although we agree that the liquidator ought to have disclosed the limitation bar to the prosecution of two of these potential claims, the third potential claim was unaffected by that non-disclosure. It provided a sufficient basis in its own right for issuing the summonses and orders for production of documents. All the more so in circumstances where the applicants did not contest the primary judge's rejection of their claims of res judicata and Anshun estoppel. In our view, that is what the primary judge intended by his concluding statements in [61] regarding materiality. 53 On 21 March 2013, the liquidator purported to terminate the Oates funding agreement for repudiation. By letter dated 18 April 2013, Pure Legal lawyers (who were retained by Mr Oates to replace Bridges Lawyers) wrote to Kemp Strang enclosing a "draft schedule of various causes of action, the vast majority of which have expired and pursuant to which the liquidator failed to make any application pursuant to Section 588FF(3)(b) of the Corporations Act 2001" (emphasis in original). Pure Legal asked Kemp Strang to respond to a series of questions, saying that on receipt of answers, Mr Oates would be in a position to consider and respond to additional funding requests. 54 Mr Oates contends that the liquidator was not entitled to terminate the Oates funding agreement, and that the agreement remains on foot. In addition, Mr Oates contends that he has incurred legal costs as a result of the liquidator's wrongful purported termination of the Oates funding agreement.

[25]

The requirements for leave to proceed against a company in liquidation and against a liquidator during the conduct of a liquidation 63 The parties were not in dispute about the relevant principles to be applied. 64 Section 471B of the Act prevents proceeding against a company in liquidation without the leave of the Court. In deciding whether to grant leave, relevant questions include (see Oceanic Life Ltd v Insurance & Retirement Planning Services Pty Ltd (in liq) (1993) 11 ACSR 516 at 520): 1. Whether there is a substantial question to be tried. 2. Whether the action would interfere with the orderly winding up of the company. 3. Whether the action would serve any sufficient purpose. 4. Whether the action would have any adverse effect on the company and its shareholders. 65 A similar requirement for leave to proceed applies to claims against a court appointed liquidator during the conduct of a liquidation. In Re St Gregory's Armenian School (in liq) [2012] NSWSC 1215; (2012) 92 ACSR 588 at [111]-[112], Brereton J said: [111] A court-appointed liquidator cannot be sued without the leave of the court [Armitage v Gainsborough Properties Pty Ltd [2011] VSC 419, [34]-[35] (Almond J); Re Siromath Pty Ltd (No 1) (1991) 9 ACLC 1580 (McLelland J)]. This is because the Court, while vigilant to insist that its officers and delegates are held to proper standards, in return protects its officers from spurious or vexatious litigation and preserves the integrity of the winding up process [Armitage, [35]; Mamone v Pantzer [2001] NSWSC 26 ; (2001) 36 ACSR 743, [4] (Santow J)]. [112] The discretionary power of the Court to grant leave must be exercised having regard to all the circumstances of the particular case and bearing in mind the need to protect the integrity of its process [Sydlow Pty ltd (in liq) v T G Kotselas Pty Ltd [1996] FCA 1384 ; (1996) 65 FCR 234, 241 (Tamberlin J)]. An applicant for leave must demonstrate that its claim has sufficient merit. What is "sufficient" is affected by the circumstances and timing in which that leave is sought, and does not necessarily mean a prima facie case [Mamone v Pantzer, [4]]. There is no specific threshold applicable to every case, but there must be more than mere assertion. The Court's discretion may be exercised on many grounds, including, but not limited to, the sufficiency of the evidence adduced as to the prospects of success of the action [Sydlow, 242; Mamone, [5]]. Courts recognize that liquidators often have to make decisions on the run, and that to expect perfection in those circumstances is unrealistic [Mamone v Pantzer, [4]].

[27]

Defensive proceedings? 68 Mr Oates referred to case law in support of the proposition that s 471B does not apply to "defensive proceedings". Mr Oates argued that it is a "defensive step" to ask the court to confirm that the Oates funding agreement is on foot in the light of the liquidator's actions in bringing the proceeding and requesting the separate determination of the issues decided in Matrix (No 1), where that hearing proceeded on an assumption as to the continuing operation of the Oates funding agreement. The liquidator did not dispute that s 471B does not apply to "defensive proceedings" but contended that the proposed cross-claim is not "defensive" in any relevant sense, as a result of the order dismissing the liquidators' further amended originating process in Matrix (No 1). 69 The concept of "defensive proceedings" appears to have its origins in the following passage from the decision of Lord Davey in Humber & Co v John Griffiths Cycle Co (1901) 85 LT 141 at 141: It was the respondents who themselves proceeded with the action after the winding-up order, by prosecuting their appeal in the Court of Appeal, and when once an action by the company itself has been proceeded with, there is no necessity for the defendants in the action to obtain leave for any defensive proceeding on their part. The liquidator was either party or privy to the proceedings in the Court of Appeal, and the respondents, having been successful in that appeal, cannot now object to the appellants defending themselves against the consequences of the judgment by the ordinary means of an appeal to this House. 70 The concept was also invoked by Anderson J in BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 at 859: In my opinion, an application for security for costs is not a proceeding against the company within the meaning of s471B. We were not referred to any authority directly in point but in my view the section is concerned with proceedings initiated against the company, not with procedural applications by defendants in an action initiated by the company. If it was intended that the section should operate to cut down the defensive procedural measures that would otherwise be available to a defendant in an action brought by the company, thereby reducing the defendant's normal right in the litigation whilst leaving the company's rights intact, much clearer language would have been used in the legislation. 71 There is no analogy between the circumstances described as "defensive" in either of these passages. I do not accept that the action which Mr Oates seeks to bring is defensive in any relevant sense or that the action bears any features that would suggest that leave is not required.

[30]

Questions 1A and 1B and Part B question 2 83 Questions 1A and 1B in Part A of the proposed cross-claim are: 1A Whether the Oates Funding Agreement (which included Mr Oates's right to 25% of the Proposed Proceedings to recover $38m and $31m and Mr Oates's security interest (assignment) securing that right) remains on foot and is binding on the parties. 1B If the Oates Funding Agreement remains on foot and is binding on the parties, whether Mr Oates is entitled to recover all or some of his legal costs incurred between the date of wrongful termination (breach) and the start of these Proceedings. 84 Question 2 in Part B is, relevantly: Whether the alleged termination of the Oates Funding Agreement on 15 March 2013 amounted to a breach of duty, a breach of fiduciary trust, a breach of contract, misleading or deceptive conduct, a breach of the rule in Ex parte James, ... 85 The "Oates Funding Agreement" is the Oates funding agreement, first referred to at [14] above. As noted earlier in these reasons, the agreement contains provisions dealing with the eventual recovery of money by the liquidator, being the "Resolution Sum". Clauses 5 and 6.1 are relevant to the "right to 25%" referred to in question 1A. Those clauses provide: 5. RECEIPT OF RESOLUTION SUM 5.1 The Insolvency Practitioner and the Company each hereby direct the Lawyers to receive any Resolution Sum and to immediately pay any Resolution Sum to the Insolvency Practitioner. 5.2 Once the Resolution Sum is received by the Insolvency Practitioner, the Insolvency Practitioner will pay the amount owing to Oates under this Agreement to Oates. 5.3 The obligation in clause 5.2 is a continuing obligation and survives any Termination of this Agreement. 6. COSTS UPON RESOLUTION 6.1 Upon Resolution, the Resolution Sum will be paid in the following order: (a) first, to the Insolvency Practitioner for his fees and disbursements in the winding up of the Company, property and reasonably incurred to date; (b) second, to Oates: (i) an amount equal to the Costs paid under this agreement and any costs in respect of any application to the court for approval of this Funding Agreement by Oates; and (ii) any amount payable ln relation to the CCL UK Claim; (iii) an amount equal to 25% of the balance of the Resolution Sum (excluding the CCL UK Claim), after the payments of the amounts referred to in clause 6.1(a) and 6.1(b)(i); and (c) third, to the Company to be distributed or otherwise dealt with in accordance with the Act. 86 The "Proposed Proceedings", also referred to in questions 1A and 1B, are the proposed proceedings referred to in [21] above. 87 As previously mentioned, there is a dispute between Mr Oates and the liquidator concerning whether the Oates funding agreement was validly terminated. In para 18A of the proposed cross-claim, Mr Oates relevantly seeks a declaration under s 21 of the Federal Court of Australia Act 1976 (Cth) that the Oates funding agreement remains on foot and is binding on the parties. 88 Mr Oates submitted that he has good prospects of demonstrating that the Oates funding agreement was wrongfully terminated, in particular, because the termination was said to be justified by an oral misrepresentation. As he put it: 9. Essentially, the Liquidator and Matrix claim (all of which is denied by Mr Oates): a) that Mr Oates's solicitor gave an oral representation to Kemp Strang that "the position regarding further funding would be reviewed after the conclusion of the set-aside applications" and an oral representation that Mr Oates "would negotiate with the liquidator to provide further funds", b) they relied on these oral representations, c) Mr Oates then didn't provide funding beyond the agreed cap of $330,000, d) that was a repudiation of the Oates Funding Agreement by Mr Oates [notwithstanding the "absolute discretion" clause 8.11], e) they accepted Mr Oates repudiation, thereby terminating the Oates Funding Agreement (without complying with the termination provisions of the agreement). 10. The weaknesses in (or baselessness of) this basis for terminating the Oates Funding Agreement explains why the Liquidator and Matrix chose to have their application to proceed with the Harbour Funding Agreement heard without determining whether or not the Oates Funding Agreement is on foot. 89 Counsel for the liquidator, Mr Scruby, did not concede the strength of Mr Oates's argument but placed emphasis on the contention that there is no utility in determining question 1A and there may never be. Mr Scruby put his argument on the assumption, said to be favourable to Mr Oates, that the Oates funding agreement does remain on foot. In that event, Mr Scruby submitted, Mr Oates would have the following three categories of rights: (1) a right to fund the proposed proceedings in accordance with the terms of the Oates funding agreement; (2) a right to ensure that any funding agreement between the liquidator and another funder contains terms reflecting and not inconsistent with Mr Oates' entitlements under the Oates funding agreement; and (3) a right to payment out of the proceeds of the proposed proceedings, if prosecuted successfully. 90 Mr Scruby did not address Mr Oates' claim that he is entitled to recover legal expenses as a result of the alleged wrongful termination. 91 I accept Mr Scruby's observation that circumstances in which Mr Oates would exercise or enforce the rights in (2) and (3) have not arisen and may never arise. 92 As to the right in (1), Mr Oates was prepared to say that "[a]ssuming that Court confirms that the Oates funding agreement is on foot, [he] remains ready, willing and able to fund the proposed proceedings". However, at the hearing on 9 August 2017, Mr Oates said that he would not offer any funding "until the Oates Funding Agreement is resolved" and he confirmed that he was not willing to make an offer to fund the proposed proceedings until the validity of the Oates funding agreement has been resolved. 93 Mr Oates contended that it is unlikely funding for the proposed proceedings can be secured unless and until the status of the Oates funding agreement is determined. However, apart from the position stated by Mr Oates and set out above, there was no basis for believing that determination of this issue will improve the liquidator's prospects of securing funding. In particular, Mr Oates did not identify any potential third party funder who might be prepared to funding the proposed proceeding if the issue were determined (whether in favour of or against Mr Oates). 94 I am prepared to assume, in Mr Oates' favour, that he has good prospects of demonstrating that the liquidator was not entitled to terminate the Oates funding agreement. But this is not sufficient to warrant a grant of leave. Mr Scruby observed, and I agree, that it is within Mr Oates' power to offer to fund the proposed proceedings on the basis that he will receive the entitlements set out in the Oates funding agreement. In the absence of such an offer, and in the absence of any current prospect of funding by a third party, with one proviso, I accept that there is no utility in determining whether the Oates funding agreement remains on foot and is binding on the parties. 95 The proviso is the possibility raised by question 1B, namely, that Mr Oates is entitled to recover legal costs in the event that the liquidator is found to have acted wrongfully in disputing that the Oates funding agreement continues to bind the parties. However, Mr Oates did not identify the basis on which he claims that entitlement, and it is not obvious. In particular, with one exception, the evidence did not identify the services for which Mr Oates allegedly incurred legal fees of $255,127 in relation to the wrongful termination of the Oates funding agreement. The exception is the letter from Pure Legal to Kemp Strang dated 18 April 2013, referred to at [53] above. On its face, it is far from obvious that Mr Oates may have an entitlement to recover the costs of that letter by reason of the wrongful purported termination of the Oates funding agreement. Although the letter refers to the purported termination, it is principally addressed to whether Mr Oates was misled when he entered into the funding agreement and whether information can be provided that would permit Mr Oates to consider the liquidator's additional funding requests. 96 On the available evidence, I am not satisfied that there is a substantial question to be tried that Mr Oates is entitled to recover legal costs for the wrongful termination of the Oates funding agreement. 97 For these reasons, and in the absence of other reasons warranting a grant of leave, I will not grant leave to proceed in relation to questions 1A and 1B. It follows that leave to proceed should not be given in relation to Part B question 2.

[31]

Questions 1C, 1D and Part B question 7 98 Questions 1C and 1D in Part A of the proposed cross-claim are: 1C Given the "termination on liquidation" clause, whether Mr Pascoe and/or Matrix (in Liq) are entitled to remain as trustee of the Matrix Finance Group Unit Trust and/or bring the Proposed Proceedings (to recover $38m and $31m) as trustee of that trust. 1D If Mr Pascoe and/or Matrix (in Liq) are not entitled to remain as trustee of the Matrix Finance Group Unit Trust and/or bring the Proposed Proceedings as trustee of the trust, whether Mr Oates is entitled to recover all or some of the funding he provided under the Oates Funding Agreement and/or all or some of his legal costs incurred between the date Mr Pascoe became aware of the "termination on liquidation" clause and the start of these Proceedings. 99 Question 7 in Part B is: Whether Mr Pascoe's, Matrix's and Kemp Strang's failure to check, disclose and seek directions in relation to the terms of the trust of the MFGUT (including the 'termination on liquidation' clause) amounted to a breach of fiduciary duties and/or a breach of trust. 100 Clause 19.2 of the MFGUT trust deed provides that the trustee covenants with the unit holders jointly and severally as follows: 19.2 That it will procure the retirement from the Trust by any Trustee in any of the following events, namely: a) If being a Company such Trustee shall go into liquidation (except for the purpose of amalgamation or reconstruction or some similar purpose) or if a receiver shall be appointed over the undertaking of the Trustee or any part thereof or if the Trustee fails or neglects after reasonable notice from the Capital Unit Holders holding not less than 75% of the issued Capital Units to carry out or satisfy any duty imposed upon a Trustee by this Deed, b) If the Trustee receives notice in writing of a resolution of the Capital Unit Holders holding not less than 75% of the issued Capital Units calling for the retirement of that Trustee. 101 At para 17 of the proposed cross-claim, Mr Oates alleges that, upon becoming the liquidator of Matrix, the liquidator also took control of Matrix as trustee for the MFGUT. 102 Mr Scruby submitted that there is no automatic termination of the trustee's appointment under cl 19.2, citing Re Metrobore Australia Pty Ltd [2014] VSC 247 at [10]. Based on the identity of the unit holders identified in the schedule to the deed, being entities connected with the people responsible for the transactions that are the subject of the proposed proceeding, Mr Scruby submitted that their position can be expected to be that the trust was wound up long ago. 103 Mr Scruby argued that there is no utility in agitating questions 1C and 1D where both the liquidator and Mr Oates agree that the trustee remains trustee and no one else is seeking to take a different position. Mr Oates did not offer a response to this argument, which I accept. 104 Paragraphs 211 to 215, 218 and 219 of the proposed cross-claim make allegations including that the liquidator has failed to approach the Court for directions concerning cl 19.2 and/or made non-disclosures to Mr Oates and the Court concerning that clause (para 213 and 218); that Jacobson J would not have approved the Oates funding agreement if he had known of cl 19.2 (para 213A); that the liquidator's non-disclosure of cl 19.2 was a breach of the Oates funding agreement or a breach of fiduciary duty or a breach of trust or misleading or deceptive conduct (para 214); that if the liquidator had disclosed cl 19.2 to Mr Oates, he would not have provided funding of $379,000 and incurred legal fees of $255,127.42 (para 214A); alternatively, if the liquidator had disclosed cl 19.2 to Mr Oates, Mr Oates would have paid less for his rights under the Oates funding agreement (para 214A); and that, if the liquidator failed to become thoroughly acquainted with the terms of the trust deed, then he committed a breach of fiduciary duty or a breach of trust (para 215). 105 Mr Oates did not articulate a basis for the allegation in para 213A that Jacobson J would not have approved the Oates funding agreement if he had known of cl 19.2, and there is no apparent basis upon which a finding to that effect might be made. 106 I do not consider there to be any purpose in permitting the claim that Mr Oates is entitled to recover an amount equivalent to his funding where Mr Oates seeks to maintain rights under the Oates funding agreement. Nor in permitting the claim that Mr Oates is entitled to recover legal fees incurred where there is no apparent basis for the claim that those fees are losses or damage suffered as a result of the alleged non-disclosures. 107 For reasons set out below, I do not accept that there is an arguable basis for the contention that Mr Oates would not have entered into the Oates funding agreement or would have paid less for his rights under the Oates funding agreement. Otherwise, there is no apparent utility in litigating the allegations in paras 213, 214, 214A and 218 of the proposed cross-claim in the absence of any explanation of what difference they make to any aspect of Mr Oates's claims. 108 For these reasons, I will not grant leave to proceed in relation to questions 1C, 1D and Part B question 7.

[32]

Part B question 1: statute barred claims 109 Question 1 is: Whether Mr Pascoe's failure to bring or failure to extend the time limit for bringing the Voidable Transactions Claims and/or the representations (and/or silence) in relation to those claims amounted to negligence, a breach of fiduciary duty, a breach of trust, a breach of contract, a misrepresentation or misstatement of fact, and/or misleading or deceptive conduct. 110 The "Voidable Transactions Claims", referred to earlier in these reasons as the actions that could have been brought under s 588FE, are described in the proposed cross-claim as follows: 1. "Write off of loan accounts to Matrix" $10,627,481 (2001) $11,746,176 (2002) 2. "Write off of investments in relation entities" $^ 3. "Transfer of arts and antiques to Mr Hawkins" $^ Total $22,373,657^^ ^ These amounts will be provided after discovery. ^^ The above amounts do not include interest since 2001/2002 and do not include other possible uncommercial transactions identified by Mr Pascoe. 111 Items 1 to 3 are set out in the November 2011 report to creditors. In addition, the proposed cross-claim sets out the following matters concerning the "Voidable Transactions Claims": (b) The Voidable Transaction Claims do not include or related [sic] to the Proposed Proceedings to recover $38m and $31m, being claims that relate to the assignment of ~$17m in cheques payable to Matrix (the "Assignment of the Matrix Receipts"). (c) The Voidable Transaction Claims relate to transactions other than the Assignment of the Matrix Receipts. They are separate and different to the Proposed Proceedings. (d) The Voidable Transaction Claims were claims of the Liquidator, whereas the Proposed Proceedings are claims of Matrix as trustee of the MFGUT. (e) Further details as to the Voidable Transaction Claims will be provided after discovery. 112 As appears from question 1, Mr Oates seeks to put his claim by reference to alternative causes of action. The first formulation of the claim, at paras 19 to 30 of the proposed cross-claim, is entitled "misrepresentations and misstatements". It may be summarised as follows: (1) between 2010 and 2011, the liquidator represented that certain voidable transactions claims were available to him (paras 19, 20, 23, 24, 25, 29); (2) in "breach" of those representations, the liquidator failed to extend the time for bringing the voidable transactions claims (para 21); (3) the time for bringing the voidable transactions claims lapsed on 27 November 2010 (para 22); (4) there was a fiduciary relationship between the liquidator and Mr Oates which gave rise to a duty of disclosure to Mr Oates (para 26); (5) Mr Oates was induced to enter into and perform the Oates funding agreement by the representations or by the liquidator's silence (paras 27, 30); (6) Mr Oates and Matrix have suffered and will suffer loss as a result of the representations (para 28). The particularised losses are Mr Oates's overpayment by at least $150,000 for his rights under the Oates funding agreement, and legal costs and funding costs. In full, the particulars state: Paying too much (a) Believing the Voidable Transactions Claims were available to Mr Pascoe, Mr Oates paid too much for his rights under the Oates Funding Agreement, namely $300,000 + GST in return for 25% of recoveries, which Mr Oates believed would include recoveries from the Voidable Transaction Claims. Given that the quantum of Voidable Transaction Claims is at least equal to the quantum of the Proposed Proceedings, Mr Oates has paid at least $150,000 (+GST) too much. (b) Mr Oates will have paid $300,000 (+GST) too much for his rights under the Oates Funding Agreement) if Mr Pascoe and/or Matrix (in Liq) are not entitled to bring the Proposed Proceedings as trustee of the trust. Legal costs (c) Mr Oates has incurred legal fees as a result of Mr Pascoe failing to disclose to the Court that the Voidable Transaction Claims had lapsed - ie in misleading the Court by representing that those claims were available to him - as the appeal in NSD 2089/2012 (and Mr Oates's legal costs in connection with that appeal) was based entirely on Mr Pascoe's failure to disclose the fact that the Voidable Transaction Claims had lapsed when seeking examinations summons from the Court. In Sutherland v Pascoe, in the matter of Matrix Group Limited as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 [2013] FCAFC 15, the Full Federal Court held in paragraph [36] that: It is important to note that the applicants only seek leave to appeal in respect of the primary judge's findings concerning non-disclosures to the Registrar. (d) Mr Oates also incurred legal costs in getting legal advice on the Voidable Transaction Claims, the expiry of those claims and Mr Pascoe's representations as to those claims being available to him. Funding (e) Mr Oates funded the appeal in NSD 2089/2012 which appeal arose a [sic] result of Mr Pascoe failing to disclose to the Court that the Voidable Transaction Claims had lapsed - ie in misleading the Court by representing that those claims were available to him - as the appeal in NSD 2089/2012 was based entirely on Mr Pascoe's failure to disclose the fact that the Voidable Transaction Claims had lapsed when seeking examinations summons from the Court.

[33]

Consideration 113 It is appropriate to assess Mr Oates' claims on the basis that he will prove the matters summarised by points (1) to (3) and (5) above. As to (4), there is a fiduciary relationship between the liquidator and Mr Oates as a creditor of Matrix which, I accept, arguably gave rise to a duty to inform Mr Oates, prior to entering into the Oates funding agreement, that the Voidable Transactions Claims had lapsed. 114 Mr Oates submitted that his claims have good prospects of success given that: (1) the liquidator has admitted that he let the claims lapse and that he misled the Court in relation to the claims; and (2) Mr Scruby has previously conceded that his client represented to Mr Oates that the "Voidable Transactions Claims" were available to the liquidator and would be pursued. 115 The liquidator put forward the following three reasons why leave should be refused to bring these claims: (1) the nature of the claims has not been sufficiently identified to enable the Court to form a view about whether they were claims of any substance or why, if they were, any loss that could have been recovered by bringing them could not have been recovered by pursuing other causes of action, particularly based on fraud; (2) the types of losses that Mr Oates has identified are not available; and (3) the legal basis of Mr Oates' claims is misconceived. 116 I accept that there is insufficient evidence to conclude that Mr Oates or Matrix suffered any loss as a result of the expiry of the Voidable Transactions Claims. The liquidator's report to creditors refers to "possible" unfair preferences and/or uncommercial transactions which "may" be recoverable by a liquidator. There is no evidence that the Voidable Transactions Claims would probably have succeeded and led to recoveries, had they not been permitted to lapse. At best, the evidence indicates the loss of a chance to make recoveries pursuant to claims based upon the identified transactions. 117 As to particular (a), there is nothing in the contention that Mr Oates "paid … too much" for his rights under the Oates funding agreement. There is no evidence to suggest that the parties would have entered into the agreement on terms that Mr Oates would provide less funding. Conversely, there is evidence that the liquidator estimated his funding requirements in an amount of over $300,000. In March 2011, the liquidator sought an indemnity from the ATO of up to $336,600 to investigate potential claims. The liquidator's June 2011 request to Mr Oates sought funding of an amount up to $300,000 based on an estimate of the costs of conducting examinations totalling $323,540. 118 Particular (b) is based upon the unsupported hypothesis that the liquidator and Matrix have no entitlement to bring the proposed proceeding. 119 As to particular (d), I am not satisfied that there is a basis for Mr Oates' claim. Accepting for the purposes of the application that Mr Oates can demonstrate that he incurred costs of the kinds specified, I am not satisfied that there is a substantial question to be tried that Mr Oates is entitled to recover those costs by reason of the facts pleaded at paras 19 to 30 of the proposed cross-claim. 120 As to particulars (c) and (e), I accept that Mr Oates may have incurred unnecessary legal fees (particularly the costs of the appeal) as a result of the liquidator's failure to disclose the lapse of the Voidable Transaction Claims to the Court. However, that does not mean that there is a relevant causal connection between those liabilities and the representations made to him. Mr Oates's claim in this part of the proposed cross-claim depends upon establishing that he would not have paid out monies if the representations had not been made. However, as I understand Mr Oates' case, it is that the monies were paid pursuant to the Oates funding agreement. Mr Oates does not say that he would not have entered into the Oates funding agreement and, to the contrary, he seeks relief under that agreement.

[34]

Alternative/additional causes of action 121 Paragraphs 31 to 33 of the proposed cross-claim make a claim for damages for breach of the Oates funding agreement based on the following allegations: (1) by cl 11.1 of the Oates funding agreement, the liquidator or Matrix warranted no material non-disclosure; (2) the liquidator or Matrix breached cl 11.1 by failing to inform Mr Oates that the Voidable Transaction Claims had lapsed; (3) Mr Oates has suffered loss as a result of the breach particularised as Mr Oates' funding of the liquidator in a total amount of $109,340.05 (or $116,371.07) and legal costs incurred by Mr Oates in an amount of $15,644.18. 122 Although the proposed cross-claim is not explicit, the losses claimed are reasonably likely to relate to NSD299/2012 and NSD2089/2012. 123 Clause 11.1 provides: The Insolvency Practitioner warrants that, to the best of the Insolvency Practitioner's knowledge, at the date of this Agreement there is no information in the custody, possession or control of the Insolvency Practitioner materially relevant to the Claims or the outcome of the Proceedings or the potential for any judgment sum to be recovered in respect of the Claims, which has not been disclosed to Oates. 124 I am not satisfied that the expiry of the Voidable Transaction Claims is "materially relevant to the Claims or the outcome of the Proceedings or the potential for any judgment sum to be recovered in respect of the Claims" for the reasons set out at [116] above. 125 However, assuming in Mr Oates' favour that the liquidator breached cl 11.1, and keeping in mind that Mr Oates wishes to enforce the Oates funding agreement, I do not accept that the breach gives rise to a right to recover the amounts claimed. There is no evident causal connection between the breach and the loss claimed. To the extent that the breach gave rise to a "loss of opportunity or chance", the only obvious opportunity is the opportunity to terminate the funding agreement under cl 13.1. But Mr Oates does not complain about the loss of this opportunity. 126 In summary, paras 33A to 40 of the proposed cross-claim plead: (1) section 545 of the Act does not apply to the liquidator's failure to extend the Voidable Transaction Claims by reason of the following matters prior to the expiry of the claims: (a) the liquidator had the benefit of the Oates/Hawkins proceedings and Mr Oates's assistance; (b) the liquidator had the benefit of funding of $4,500 from Mr Oates; and/or (c) the liquidator represented to Mr Oates that he had not abandoned any such claims; (2) the liquidator knew or ought to have known the time limits for bringing the Voidable Transaction Claims; (3) the liquidator was negligent in not bringing or extending the time limit for bringing the Voidable Transaction Claims; and (4) Mr Oates has suffered economic harm as a result of the liquidator's negligence, including "loss of opportunity or chance damages". 127 Mr Oates did not explain how the matters pleaded produce the result that s 545 did not apply to the liquidator. As previously noted, there is no evidence that the liquidator would have made recoveries if the time limits for bringing the claims had been extended. Consequently, on the current evidence it is wholly speculative whether Mr Oates has suffered the loss of a valuable chance. 128 Accordingly, I am again not satisfied that there is a substantial question to be tried that Mr Oates is entitled to recover losses by reason of the facts pleaded in paras 33A to 40 of the proposed cross-claim. 129 The claims pleaded in paras 41 to 44, 45 to 48, 49 to 57 and 58 to 61 of the proposed cross-claim are materially similar to the claim considered immediately above, in that, even assuming the liquidator's conduct was negligent, misleading or deceptive or otherwise wrongful as pleaded, it is wholly speculative whether Mr Oates suffered any harm by reason of that conduct. In particular, there is no evidence that the liquidator's conduct caused Mr Oates to lose a valuable chance because there is no evidence that the Voidable Transaction Claims could have produced recoveries. Mr Oates did not identify any other relevant heads of damage. 130 Accordingly, I am not satisfied that Mr Oates should be given leave to proceed in relation to Part B question 1. 131 In concluding this section of the judgment, I refer to my observation that Mr Oates may have incurred unnecessary legal fees (particularly the costs of the appeal) as a result of the liquidator's failure to disclose the lapse of the Voidable Transaction Claims to the Court. It might have been argued that, had the appeal not occurred, Mr Oates's total costs of funding the liquidator under the Oates funding agreement would have been less than $300,000 (being the amount that Mr Oates was apparently required to contribute). However, I did not understand Mr Oates to seek to bring a claim against the liquidator on this limited basis. No such claim was quantified.

[37]

Breach of contract 137 The first basis is that the liquidator and/or Matrix breached the Oates funding agreement by failing to pay part or all of the costs recoveries to Mr Oates (para 99 of proposed cross-claim). 138 The particulars to para 99 set out terms of the Oates funding agreement relied upon by Mr Oates for his case that he was contractually entitled to part or all of the costs recoveries. Mr Oates refers to cll 5, 6, and 15, as well as the definition of "Agreement" in cl 1.1 of the Oates funding agreement and cll 2.1, 7.5 and 8.5 of the "Lawyers Terms" set out in schedule 1 to the agreement. 139 Clauses 5 and 6 of the Oates funding agreement are set out at [73] and [85] above. The relevant parts of cl 15 are as follows: 15.1 The Insolvency Practitioner and Oates will: (a) act in good faith toward each other and be just and faithful in their dealings with each other in all matters arising out of or connected with this Agreement; and (b) save as provided this Agreement [sic], not do or permit to be done anything likely to deprive any party of the benefit for which the party entered this Agreement. 15.2 The Insolvency Practitioner will use his best endeavours to cause any Resolution Sum to be received or recovered as quickly as practicable and particularly after any settlement or judgment in respect of the Claims. 140 The relevant provisions of the "Lawyers Terms" are as follows : 2.1 Although the Lawyers are not a party to the Agreement, they will: (a) act consistently with the terms of the Agreement; and (b) do all things which the Agreement contemplates the Lawyers will do. … 7.5 Where the fee cap referred to Clause 3 of the Funding Agreement is reached Oates will not be liable to pay any further fees or disbursements of the Lawyers or Insolvency Practitioner in so far as the subject matter of that fee cap is concerned. … 8.1 The Lawyers agree not to seek payment of any amounts outstanding to them in excess of that for which Oates is liable under these Terms in priority to Oates's entitlements pursuant to the Agreement. 141 Mr Oates pleads that the payments made by the liquidator and/or Matrix to Kemp Strang of $177,220.69 (proposed cross-claim paras 128, 129) and to PPB (proposed cross-claim para 136) were in breach of the Oates funding agreement, because they were in excess of the amounts which Mr Oates was obliged by pay under the funding agreement. 142 I do not accept that there is a substantial question to be tried that the non-payment of any part of the costs recoveries to Mr Oates was a breach of the Oates funding agreement. Clause 6.1 operates upon "Resolution". "Resolution" is defined to mean: [W]hen all or any part of the Resolution Sum is received or where the Resolution Sum is received in parts, a "Resolution" occurs each time a part is received. 143 Accordingly, Mr Oates's argument must be predicated upon the proposition that the costs recoveries fall within the meaning of "Resolution Sum" in the funding agreement. As previously noted, "Resolution Sum" is defined to mean: [T]he amount or amounts of money or the value, or the value of goods, services or benefits, for which any or all claims comprising the Claims are settled, or for which judgment is given in favour of [Matrix] and/or [the liquidator], including any interest and including any legal costs paid by any respondent or potential respondent. 144 There is no basis to argue that the costs recoveries are amounts for which any claims comprising the Claims were settled. Nor are they amounts for which judgment was given in favour of Matrix. 145 I accept that it may be argued that the dismissal with costs of the application to set aside the examination summonses, and the subsequent dismissal of the application for leave to appeal with costs fall within the meaning of judgments given in favour of the liquidator. If that argument were to be accepted, it would follow that a "Resolution" occurred on the occasions of the costs recoveries. 146 Accepting that there is an argument that cl 6 applies to the costs recoveries, cl 6.1 provides that a "Resolution Sum" is to be paid first, to the liquidator for his fees and disbursements in the winding up, properly and reasonably incurred to date. Mr Oates does not suggest that the funds were not applied to the liquidator's fees and disbursements in the winding up but disputes whether they were "properly and reasonably incurred". In this regard, it is relevant to note that, in January 2013, Mr Oates' then lawyers Bridges stated that: (1) Mr Oates had agreed that a costs order with a value of approximately $200,000.00 to $250,000 may be applied by the liquidator towards the legal costs of further conducting the public examinations. (2) The liquidator had further funding, in the form of the costs orders, estimated to be between $200,000.00 and $250,000.00. 147 As noted above, Mr Oates alleges that this letter was the product of "oppression, duress, coercion and/or threats by the liquidator". However, even if that allegation were made out, it does not provide a basis to conclude that the disbursements paid from the recoveries were not properly and reasonably incurred where there is no other identified source of funding for the examinations and no suggestion that the examinations should not have been conducted. 148 There is no evidence that the disbursements paid from the costs recoveries were not properly and reasonably incurred. 149 Mr Oates submitted that the liquidator had no approval or authority to pay the disbursements from the costs recoveries, but he did not identify any source of an obligation upon the liquidator to obtain approval or authorisation prior to payment. 150 Mr Oates also submitted that, by reason of cll 7.5 and 8.1 of the "Lawyers Terms", once the funding cap of $300,000.00 was reached, any recoveries such as the costs recoveries were to be used to repay Mr Oates' funding of $300,000.00 rather than to pay Kemp Strang. 151 I do not accept that there is a credible interpretation of the funding agreement, including the "Lawyers Terms", having the effect that the costs recoveries were to be used to repay Mr Oates' funding prior to payment to the liquidator pursuant to cl 6.1(a). It might be argued that cl 8.1 implies an obligation on the liquidator not to pay amounts in respect of which the "Lawyers agree not to seek payment". It might also be arguable that some or all of the amounts paid to Kemp Strang exceeded the amount for which Mr Oates was liable under the Lawyers Terms within the meaning of cl 8.1. However, those matters do not negate what Mr Oates refers to as the "normal operation" of cl 6.1, that is, that the cost recoveries, or any part of them, were not payable to Mr Oates unless there was an excess following the payment of amounts due to the liquidator under cl 6.1(a). 152 In the absence of a credible basis for arguing that there would have been a surplus from the costs recoveries after payment of amounts due to the liquidator under cl 6.1(a), I am not satisfied that there is a real prospect of a conclusion that any part of the costs recoveries was required to be paid to Mr Oates under the Oates funding agreement. 153 Further, Mr Oates' submission is directly contradicted by the statements in the Bridges January 2013 letter. If the funding agreement has the effect contended for by Mr Oates, he appears to have waived any right to repayment of funding by agreeing that the cost recoveries could be applied by the liquidator for other purposes. 154 Accordingly, I do not accept that there is a substantial question to be tried that the liquidator breached the Oates funding agreement by his failure to pay the costs recoveries to Mr Oates.

[38]

Rule in Ex Parte James 155 The rule in Ex parte James (1874) LR 9 Ch App 609 has been said to produce the result that a "Court in Bankruptcy ought not to allow its officer to insist upon a rule of law or equity in the administration of an estate in bankruptcy under the control of the Court, where insistence would produce an unjust and dishonest result": Re Thellusson; Ex parte Abdy [1919] 2 KB 735, 756 per Duke LJ. 156 The proposed cross-claim alleges that it was a breach of the rule in Ex parte James for the liquidator "to invoke his strict legal rights (if they are found to have existed and to have justified his conduct) to retain the Costs Orders Recoveries and/or to pay the Cost Order Recoveries to Kemp Strang rather than Mr Oates" (para 101 of proposed cross-claim). The circumstances upon which Mr Oates relies, in particular, are: [A]fter securing Mr Oates's funding of proceedings NSD 299/2012 … Mr Pascoe then argued that those proceedings were actually outside the Oates Funding Agreement despite telling Mr Oates he was liable for any adverse costs in relation to NSD299/2012 (such that the funding requested and provided did not count toward the $330,000 cap) and unless Mr Oates provided more funding for the appeal (ie NSD2089/2012) and the examinations, Mr Pascoe would not defend the appeal or carry out the examinations. Having successfully defended NSD299/2012 and the appeal (ie NSD2089/2012) with Mr Oates's funding, in the premises, it would be contrary to ethical standards of commercial fairness for Mr Pascoe to retain the Cost Order Recoveries. 157 In considering this claim, it is necessary to note that there is no evidence that the liquidator retained the costs recoveries. To the contrary, the liquidator's evidence is that he used the money to pay disbursements (mainly legal fees) that were costs of the liquidation. Further, the matters raised by Mr Oates do not support the claim that the costs recoveries should be paid to Mr Oates. At most, they might support an argument that the funds should be returned to the liquidator but there is no basis for a conclusion that they might be payable from the liquidator to Mr Oates. 158 Accordingly, the rule in Ex parte James does not support a claim by Mr Oates for damages.

[44]

No creditor or court approved retainer with BDW/Ashurst 166 In the proposed cross-claim (paras 158 to 161), Mr Oates alleges that: (a) BDW/Ashurst acted for the liquidator or Matrix from 2008 to 2012 without its retainer being approved by the court or creditors; (b) during 2011 and 2012, the liquidator made payments totalling $229,621 for legal fees and disbursements invoiced by BDW/Ashurst, which were funded by Mr Oates; (c) the fees charged by BDW/Ashurst were excessive and they were not "fair and reasonable value" for the services provided; and (d) alternatively, BDW/Ashurst did not comply with the "Lawyers Terms" in relation to its fees. 167 Section 477(2B) of the Act provides, relevantly, that: Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a an agreement under which a security interest arises or is created) if: (a) without limiting paragraph (b), the terms of the agreement may end; or (b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance; more than three months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those three months. 168 The only evidence of the retainer of BDW/Ashurst in connection with the liquidation of Matrix is a letter dated 1 July 2008, offering to provide specified legal services with an estimated cost of $5,000 plus GST. The letter is addressed to PPB: it is not expressed to contemplate an agreement on Matrix's behalf. Thus, the evidence does not suggest that there was an agreement between BDW/Ashurst and the liquidator which required compliance with s 477(2B). However, even if such compliance was required, that would not provide a sufficient basis for a conclusion that Mr Oates is entitled to recover any part of the $229,621. 169 The claims that the fees paid by Mr Oates were excessive, not "fair and reasonable value" for the services provided, and not in compliance with the Lawyers Terms do not rise above assertion. 170 Thus, there is presently no sufficient basis to believe that BDW/Ashurst was not entitled to the fees which it was paid.

[50]

Part B questions 8, 9, 11: Claims for relief including declaratory relief and nominal damages 184 Part B questions 8, 9 and 11 are: 8. Whether [the liquidator's] conduct justified an order under section 481 (and/or section 536) of the [Act] ordering [the liquidator] to make good any loss that Matrix has sustained by reason of [the liquidator's] default, negligence, breach of trust or breach of duty (or for not faithfully performing his duties or not observing the requirements of the [Act] or by reason of his misfeasance, neglect or omission). 9. Whether [the liquidator's], Matrix's … conduct justifies exemplary damages. … 11. Whether the [other] orders and declarations sought by Mr Oates ought to be granted, including whether Mr Oates is entitled to damages, or, in the alternative, nominal damages. 185 Section 481 provides: (1) The Court: (a) may cause a report on the accounts of the liquidator to be prepared by the auditor appointed by ASIC under section 70-15 of Schedule 2 (audit of administration books) or by some other registered company auditor appointed by the Court; and (b) on the liquidator complying with all the requirements of the Court--must take into consideration the report and any objection against the release of the liquidator that is made by the auditor or by any creditor, contributory or other person interested; and (c) must either grant or withhold the release accordingly. (2) Where the release of a liquidator is withheld and the Court is satisfied that the liquidator has been guilty of default, negligence, breach of trust or breach of duty, the Court may order the liquidator to make good any loss that the company has sustained by reason of the default, negligence, breach of trust or breach of duty and may make such other order as it thinks fit. 186 Division 90 Subdiv B of Sch 2 to the Act provides for the Court to inquire into the external administration of a company in various circumstances, including on the application of a person with a financial interest in the external administration of the company. This subdivision replaces the old s 536 of the Act. I note also the broad power under Div 45 of Sch 2 to the Act to make orders in relation to registered liquidators. 187 Pursuant to s 90-15(1) of Sch 2, the Court may make such orders as it thinks fit in relation to the external administration of a company. Pursuant to s 90-15(2), the Court may exercise the power under s 90-15(1) on its own initiative or on an application under s 90-20. Under s 90-20, an application may be made, relevantly, by a person with a financial interest in the external administration of the company. Pursuant to s 90-10(1), such a person may also make an application to the Court for an inquiry into the external administration of a company. 188 Section 90-15(4) provides that: (4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account: (a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and (b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and (c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and (d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and (e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group. 189 Section 1618 of the Act provides, for the avoidance of doubt, that s 90-15(4) applies to the exercise of the Court's power whether or not the relevant action or failure to act of the liquidator occurred before, on or after the commencement of Div 90 Subdiv B. 190 I am not satisfied that the matters raised in the proposed cross-claim, and considered above, warrant the exercise of the powers conferred by either s 481 or s 90-15(1) of Div 90 Subdiv B of Sch 2 to the Act. In particular, I am not satisfied that there is a substantial basis for believing that Matrix has sustained any loss by reason of any act or omission of the liquidator. It follows that I am also not satisfied that the matters raised by Mr Oates warrant leave to proceed on his claims for declaratory relief with a view to facilitating his future resistance of the release of the liquidator. 191 The claim for exemplary damages is based upon an allegation that the liquidator's conduct in various respects was "oppressive, wanton, grossly reckless and/or a blatant breach of" fiduciary duties. I see no evidence to support that allegation. I see no basis for this claim. 192 Nor do I see any purpose for any claim for declaratory relief or nominal damages that would warrant the grant of leave. In particular, the complaints made concerning the liquidator's payments to lawyers must be considered in the context that the liquidator evidently obtained substantial services from lawyers, in connection with the process that led to public examinations and the conclusion that the liquidator wished to bring the proposed proceedings, subject to funding. It is possible that the liquidator could have refused to pay the lawyers some amount, in reliance on cl 8.1 of the Lawyers Terms or a term implied by cl 8.1. However, there is no reason to think that any such amount would not otherwise have been payable to the liquidator himself for his own substantial work in the winding up of Matrix. 193 Contrary to Mr Oates' submission, I do not accept that leave to proceed should be granted for claims for declaratory relief which may provide a basis for future negotiations which may lead to funding for the proposed proceeding. This prospect is too speculative. 194 To the extent that Mr Oates suggested that leave is not required in respect of his claims for declaratory relief, the submission was based on the proposition that the claims are defensive. As explained earlier, I do not accept that proposition.

Matrix Group Ltd (in liq) (Trustee) v Oates, in the matter of Matrix Group Ltd

At a glance

Court

Decision date

Before

Source

Judgment (52 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (15)

Cited By (4)