Onefone Australia Pty Ltd v One.Tel Ltd

CATCHWORDS : CORPORATIONS - winding up - special purpose liquidator appointed by court - application for issue of examination summonses - whether relevant criteria satisfied - application for direction that pursuit of examinations justified

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.9, ss.596A, 596B, 596C Supreme Court (Corporations) Rules 1999, rule 11.3(4)

Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1434 Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447 CASES CITED : Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 69 Re Ansett Australia Ltd (2002) 115 FCR 409 Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 Sent v Andrews (2002) 6 VR 317

Onefone Australia Pty Limited - First Plaintiff DCA Resources Australia Pty Limited - Second Plaintiff Pacific Finance Group Pty Limited - Third Plaintiff PARTIES : Talent2 Works Pty Ltd - Fourth Plaintiff One.Tel Limited - First Defendant Steven Sherman - Second Defendant Peter Walker - Third Defendant Paul Gerard Walker - Special Purpose Liquidator

COUNSEL : Mr M.F. O'Neill - Special Purpose Liquidator

SOLICITORS : NOT Lawyers - Special Purpose Liquidator

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

5291/03 ONEFONE AUSTRALIA PTY LIMITED v ONE.TEL LIMITED JUDGMENT 1 I am dealing with the amended interlocutory process filed on 20 December 2006 by Mr Weston, the special purpose liquidator (or "SPL") of One.Tel Limited. On that day, White J, in closed court, directed that the amended interlocutory process be stood over to 29 January 2007 before the Corporations Judge. His Honour delivered brief reasons which he ordered be kept confidential. When the matter came before me on 29 January 2007, it was adjourned to 8 February 2007, as were two interlocutory processes which were filed in court on 29 January 2007 by certain persons in respect of whom the SPL had made application, by means of the amended interlocutory process, for the issue of examination summonses under Part 5.9 of the Corporations Act 2001 (Cth). 2 The two interlocutory processes filed on 29 January 2007 were heard by me on 8 February 2007 and dismissed on 14 February 2007: see Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 69. On 15 February 2007, I heard in closed court the SPL's amended interlocutory process by which he sought not only the issue of examination summonses under each of ss.596A and 596B but also a direction of the court that he would be justified in undertaking the particular examinations. 3 Since the matter was before White J on 20 December 2006, the SPL has adduced further evidence. In particular, he has tendered a comprehensive joint memorandum of advice given to the SPL by senior and junior counsel. I made a confidentiality order in respect of that document on 15 February 2007. I therefore do not propose to say anything about its content, except that it runs to 53 pages of narrative, supplemented by appendices running to 111 pages consisting of counsel's analysis of particular aspects or issues and a further 36 pages of appendices being copies of supporting or reference materials, including a copy of an earlier opinion of senior counsel (not the senior counsel already mentioned). This substantial body of material supplements the confidential s.596C affidavit sworn and filed by the SPL in support of his s.596B application, which affidavit itself had exhibited to it an earlier legal opinion given to the SPL. 4 In considering the SPL's application, I have taken account of all the material referred to in the preceding paragraph. 5 As I noted in my judgment of 14 February 2007, the SPL seeks the issue of examination summonses under both ss.596A and 596B. As far as s.596A is concerned, the court has no discretion (once the person concerned is seen to be within the relevant class) and must cause the summons to be issued, except in a case where it appears that the summons would be an abuse of process. In the case of s.596B the court does have a discretion and must approach the liquidator's application by reference to not only the criteria in the section but also the purposes for which the examination procedure exists. The abuse of process possibility is relevant also to a s.596B case. Because of the confidentiality regime imposed by s.596C(2) of the Corporations Act and rule 11.3(4) of the Supreme Court (Corporations) Rules 1999, it is only in most exceptional case (of which this became one) that a prospective examinee is aware before service of an examination summons of moves directed towards his or her examination. 6 Upon an application of the kind before me, the court should apply the test and take the approach that have been regarded as appropriate in considering an application for an order discharging an examination summons already issued. It is sufficient, for present purposes, to adopt the statement of the relevant principles in the judgment of Buchanan JA (with whom Vincent JA agreed) in Sent v Andrews (2002) 6 VR 317 at p.320: "Orders for the issue of summonses for examinations will be set aside if they are oppressive, unfair or an abuse of the process of the court. Where an examination relates to proposed or current litigation, in general terms the question is 'whether the examination is genuinely for the information of the liquidator to aid him in considering whether there is a cause of action upon which he will proceed; and the Court will be alive to the possibility of oppression where the application is merely to advance the action, whether actual or proposed' [ Re Narlanda Pty Ltd [1983] 1 QdR 269 at 272]. The strength or weakness of the claim of a company in liquidation against a third party concerns the examinable affairs of the company [ Grosvenor Hill (Qld) Pty Ltd v Baker (1994) 48 FCR 301 at 304]. Gathering information may involve testing and assessing the credibility of the witnesses who provide the information [ Re Hugh J Roberts Pty Ltd [1970] 2 NSWR 582 at 585]. The liquidator is not entitled, however, to conduct a dress rehearsal of the cross-examination in an action or to seek to damage the opposing party's case by attacking the credibility of that party's witnesses [ Re Francis; Ex parte Gittins [1892] 1 QB 646 at 648 and other cases cited] ." 7 Callaway JA, who dissented, did not express any different view regarding the approach to be taken, observing (at p.318) that the examination process is available to a liquidator who "genuinely seeks to use the process … to discover information that will assist him in the performance of his duties as liquidator. 8 The nature of the inquiry on which the SPL has embarked is no secret. In fact, he was appointed for the specific purpose of investigating the availability of causes of action in relation to a particular event or series of events. The general nature of his task appears sufficiently from the judgment of 14 February 2007. Some details of steps taken appear from an earlier judgment of White J (Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1434, 28 November 2006). The evidence to which I have referred and which is now before me on this present application makes it clear that the SPL has, with the assistance of detailed legal advice and on the basis of material obtained from various sources, developed a prima facie cogent hypothesis as to the availability and viability of causes of action (including as to the matter at paragraphs [71] and [72] of my 14 February 2007 judgment) but needs to gather further information in order to come to a concluded view about that hypothesis. It is for that legitimate purpose that he seeks to pursue the several ss.596A and 596B examinations. 9 Furthermore, it is sufficiently shown, I think, that, for reasons canvassed at paragraphs [58] to [70] of my judgment of 14 February 2007, the SPL now faces some measure of urgency to undertake examinations. 10 I should add that each of the persons in respect of whom an examination summons is sought appears to be within the category of persons relevant to the provision under which the application concerning the person is made; also that the evidence shows a basis for thinking that each person included in the s.596B application may be expected to be likely to be able to provide some relevant information. 11 A case for the grant of the relief sought by the SPL by reference to ss.596A and 596B has been established. 12 This leads me to the aspect of the amended interlocutory process filed on 20 December 2006 which entails the SPL's application for the court's direction. The conclusion just expressed in relation to ss.596A and 596B may be taken as indicating, in general, that such a direction should be given. In the usual course of events, a liquidator seeking directions places a statement of facts before the court so as to identify the particular question on which the court's guidance is sought and the factual context in which it arises. Provided that the liquidator is not acting merely out of some feeling of unease giving rise to a desire to obtain a form of insurance against the possibility of error (Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at p.116) and provided also that the question raised is not merely one of business judgment or commercial decision (Re Ansett Australia Ltd (2002) 115 FCR 409 at [46]), the court will be disposed to assist the liquidator by providing appropriate guidance. 13 In the present case, the comprehensive evidence supporting the application for the issue of examination summonses has taken the place of a statement of facts. The question on which guidance is sought by the SPL is a legal question (or, at least, a question related to potential litigation), not a commercial or business question and, in the particular context of the SPL's appointment and his functions which have, in the circumstances, attracted ongoing supervision by the court, a desire merely to obtain insurance is obviously not the SPL's motivation. 14 One particular circumstance contributing to that ongoing supervision causes me to think that, while a direction of the kind the SPL seeks should be given, it should not be in unqualified form. The aspect to which I refer is best described by repeating what I said at the conclusion of the 14 February 2007 judgment: "84 I would make one final comment. The court is conscious of the very large sums of money that have been expended by the SPL, particularly on legal fees. For reasons canvassed in my judgment of 15 August 2006 ( Onefone Australia Pty Ltd v One.Tel Ltd (2006) 58 ACSR 466), it is inappropriate that the principal liquidators have any oversight of expenditure by the SPL. In a judgment of 20 December 2006 ( Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447), White J observed that the SPL, because of his confined and particular responsibilities, does not have the ability a liquidator usually has to prioritise tasks and channel resources accordingly. His Honour said (at [8]): 'He [that is, the SPL] does not have the same perspective of the overall administration of One.Tel as do the general liquidators. He is therefore not in as good a position as would be a liquidator in the usual course of administration to decide whether moneys spent on legal costs and disbursements in investigating potential causes of action relating to the cancellation of the renounceable rights issue would be moneys well spent.'

85 White J then referred to the role that the committee of inspection had been playing and the assistance the court would derive from knowing the committee's attitude to expenditures by the SPL: '10 As a matter of practice, the special purpose liquidator has been providing the members of the Committee of Inspection with at least summaries of the legal expenses incurred, and has provided the members of the Committee with a budget of future expenditure on legal costs. The Committee has de facto assumed a greater role in overseeing such expenditures than would normally be the case.

11 It is not appropriate that the special purpose liquidator be required to make repeated applications to the Court for approval of his funding. Such applications themselves carry costs. Nor is the Court in a position to make an informed assessment as to the appropriateness of the expenses.

12 It appears to me that, by default, the Committee of Inspection should perform the role, in the particular circumstances of this case, of considering the appropriateness of the special purpose liquidator's expenditure on legal costs.'" 15 At the closed court hearing before me on 15 February 2007, Mr O'Neill addressed these matters. It is nevertheless appropriate for the court to indicate in the direction it gives that, in relation the examinations under ss.596A and 596B to be conducted by means of the examination summonses to which this judgment relates, the SPL is not to incur expenditure in excess of 90% of the sum specified at the end of paragraph 2 of White J's confidential reasons of 20 December 2006 without first having sought from the court a direction that he is justified in continuing the program of examinations. 16 The outcome is as follows: 1. The court orders pursuant to s.596A of the Corporations Act 2001 (Cth) that each of the persons named in paragraph 1 of the amended interlocutory process of Paul Gerard Weston filed on 20 December 2006 be summoned for examination about the examinable affairs of One.Tel Limited and that the Registrar issue examination summonses accordingly. 2. The court orders pursuant to s.596B of the Corporations Act 2001 (Cth) that each of the persons named in paragraph 2 of the amended interlocutory process of Paul Gerard Weston filed on 20 December 2006 be summoned for examination about the examinable affairs of One.Tel Limited and that the Registrar issue examination summonses accordingly. 3. The court makes a direction that Paul Gerard Weston, a liquidator of One.Tel Limited, is justified in examining each person summoned for examination under order 1 and order 2, provided that no such examination shall be commenced or continued after the said Paul Gerard Weston has incurred legal expenses in connection with such examinations of an aggregate sum equal to 90% of the sum specified at the end of paragraph 2 of the confidential judgment of White J delivered on 20 December 2006 unless the said Paul Gerard Weston has first obtained the court's separate direction that he is justified in commencing or continuing the examination. 4. The court orders that the proper costs and expenses of Paul Gerard Weston in making the application for these orders be paid out of the assets of One.Tel Limited. 5. The court orders that the said Paul Gerard Weston have liberty to apply in these proceedings for such further or other relief as he requires. 17 I would only add that, consistently with White J's published judgment of 20 December 2006 (Onefone Australia Pty Ltd v One.Tel Ltd [2006] NSWSC 1447) and bearing in mind what is said at paragraph [14] of these reasons, it would be expected that any application for a further direction as mentioned in 3 above would include evidence of the opinion of the committee of inspection, particularly as to expenditure. **********

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