Onefone Australia Pty Ltd v One.Tel Ltd

Onefone Australia Pty Ltd v One.Tel Ltd - [2010] NSWSC 1120 - NSWSC 2010 case summary — Zoe

[14]

The "resolution" of 14 December 2009 - s 1322(2) 5 My first task, at this stage, is to return to the circular "resolution" of 14 December 2009 (and the payment of $215,436.10 to the special purpose liquidator pursuant to it) and to the special purpose liquidator's claim for an order that the "resolution" and the payment were "not invalid by reason of any provision of the Corporations Act 2001 (Cth)": see paragraph [38] of the reasons of 7 May 2010. These matters relate to the special purpose liquidator's remuneration claim for the period 1 July 2009 to 31 October 2009. 6 The contention of the special purpose liquidator, in this respect, is that the "proceeding" which was the meeting (or adjourned meeting) of the committee of inspection of 8 December 2009 was affected by a "procedural irregularity" as referred to in s 1322(2) of the Corporations Act and that, by virtue of that section, the "proceeding" was "not invalidated" by the "procedural irregularity". The "procedural irregularity" is said to consist of the circumstances referred to at paragraphs [26] and [27] of the reasons of 7 May 2010 which entailed actions outside a meeting of the committee in the form of a series of unilateral communications made to the special purpose liquidator by three out of the five committee members, two confirming a particular proposal and the third rejecting it. 7 It cannot be disputed that the meeting (or adjourned meeting) of the committee of inspection on 8 December 2009 was a "proceeding" for the purposes of s 1322. The question is whether the events that followed the conclusion of that meeting when the telephone link among participating members was terminated at 12.55pm on 8 December 2009 amounted to a "procedural irregularity" in relation to that "proceeding". 8 A number of cases elucidate the meaning of "procedural irregularity". The decision of Palmer J in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005; (2005) 194 FLR 322 draws attention to the important distinction between doing the "thing to be done" in a way that departs from the prescribed way and doing something other than the "thing to be done". The former involves procedural irregularity. The latter does not. 9 The special purpose liquidator submits that the irregularity in this case was procedural. The three members of the committee of inspection submit to the contrary. I accept the latter submission. The "thing to be done", to use Palmer J's phrase, was to consider and, if he thought fit, pass a resolution of the committee of inspection. The legislation made a meeting of the committee (which includes the permitted method of telephone conference) the only legitimate forum and context for the passing of such a resolution. The legislation therefore proceeds on the clear footing that no resolution of the committee can be passed except at a time and place (and I include in "place" a means of telephone conference available to all) of which all committee members had notice (and hence an opportunity to participate) and that all who chose to participate at that time and place should be able to consult together, to debate the proposal, to consider one another's expressed opinions and, having done all these things, to indicate acceptance or rejection of the proposal. 10 The course of events that in fact occurred was such that two members of the committee expressed approval of the "Alternative Resolution", one expressed disapproval of the "Alternative Resolution" and the remaining two expressed no opinion on the "Alternative Resolution". The three expressions of opinion (two positive and one negative) were in the form of separate emails to the special purpose liquidator. The "Alternative Resolution" was never put before any meeting of the committee (by which I mean to refer also to the permitted means of telephone conference) and was therefore never subjected to the statutorily required process entailing consultation and discussion followed by decision-making. 11 None of the members of the committee had, in relation to the "Alternative Resolution", any opportunity to participate in the particular form of decision-making made mandatory by the Corporations Act. In short, therefore, the "thing to be done" was not done. The thing that was done - by means of the separately communicated messages sent by the three committee members to the special purpose liquidator - differed in form, substance and effect from the thing that was to be done. 12 Section 1322(2) does not operate in the way for which the special purpose liquidator contends. This is not a case of procedural irregularity

[17]

(c) in every case--that no substantial injustice has been or is likely to be caused to any person." 15 For s 1322(4)(a) to be available, it is first necessary to identify the "act, matter or thing purporting to have been done" or the "proceeding purporting to have been instituted or taken". 16 A "purported" act, matter, thing or proceeding is one that appears to have been done or taken but in truth has not been. The following example is given in Re Broad; Smith v Draeger [1901] 2 Ch 86 at 91: "… one might have an office copy of an affidavit on the Court paper, and yet if it did not bear the official stamp the Court would not admit it; because, although 'purporting' to be an official document, it would not really be one." 17 Section 1322(4) will be available only if there is a "purported" resolution agreed to by a majority of the members of the committee of inspection present at a meeting, that being, by force of s 499(3) (as it stood at the relevant time) and s 549(3), the act or proceeding necessary to fix the remuneration of a liquidator in a creditors voluntary winding up. 18 There exists a document which, on its face, is "minutes" of "adjourned COI meeting reconvened on 8 December 2009" and records, among other things, that contact among the participants ended at 12.55pm on 8 December 2009 and that, on 14 December 2009, the Alternative Resolution was "declared passed by the majority of COI members voting". But there is nothing that "purported" to be a resolution agreed to by a majority of the committee members present at a meeting on 14 December 2009 since, as the document made clear, there was no meeting on that day. 19 I therefore reject the proposition that s 1322(4)(a) is available in this case. 20 I would add that the order sought under that section would, in my opinion, cause "substantial injustice" to the persons who were entitled to be in direct communication with one another for the purposes of discussion and debate on the remuneration question with a view to their then expressing, through votes, their respective decisions on the question. The procedure in fact adopted deprived them of the ability to consult together - to express views to one another and to hear one another's views - on the question whether the Alternative Resolution should be approved. Conclusion on the "resolution" 21 The Alternative Resolution was not a resolution of the committee of inspection. It is not and cannot be saved or validated by resort to s 1322. There was accordingly never any fixing of the special purpose liquidator's remuneration in the terms there set out. The position remains as stated in paragraph [37] of the reasons of 7 May 2010: "The special purpose liquidator has been paid $215,436.10 to which he has no legal entitlement."

[20]

Should the provisional liquidator fall to provide adequate evidentiary material to enable the court to determine whether the amounts claimed are fair and reasonable, no order should be made: Re Solfire Pty Ltd (In liq) (No 2). Thus, for example, the mere listing of the persons who performed the work, the hours worked by each, and the amounts claimed, may well be insufficient material for the court to come to a proper decision: Re Reiter Bros Exploratory Drilling Pty Ltd ." 25 A useful analogy is identified in Re Independent Insurance Co Ltd (No 2) [2003] 1 BCLC 640 at [19] where it is said that the court "is in effect a hypothetical client negotiating the terms after the event". 26 In performing its task, the court should have regard, by analogy, to the principles set out in s 473(10) of the Corporations Act that apply to the fixing or review of the remuneration of a court-appointed liquidator: "In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work performed by the liquidator was reasonably necessary; (b) the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the liquidator; (d) the quality of the work performed, or likely to be performed, by the liquidator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator; (f) the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator; (i) whether the liquidator was, or is likely to be, required to deal with: (i) one or more receivers; or (ii) one or more receivers and managers; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis: (i) the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and (ii) whether the total remuneration payable to the liquidator is capped; (l) any other relevant matters." 27 Elements of this list of factors were identified by Finkelstein J in his Honour's landmark judgment in Re Stockford Ltd; Korda [2004] FCA 1682; (2004) 52 ACSR 279 and its reasonable to assume that that judgment inspired the subsequently adopted legislative provision. 28 A valuable summary of principles relevant to the fixing of remuneration of court-appointed receivers appears in the judgment of Young CJ in Eq in Ide v Ide [2004] NSWSC 751; (2004) 184 FLR 44. It is instructive for present purposes. His Honour said at [37] to [53]: "[37] I have consulted the standard works on receivers, particularly Kerr on Receivers ; Picarda , The Law Relating to Receivers, Managers & Administrators 3rd ed ( Butterworths, London, 2000 ) ; Lightman & Moss , The Law of Receivers and Administrators of Companies ( Sweet & Maxwell, London 2000 ) and O'Donovan, Company Receivers and Managers (LBC, Sydney, 1981).

[66]

57 In addressing the general issue of the form of the material placed before the court by the special purpose liquidator, I take as an illustrative example the information given for 6 November 2009. There are eleven recorded entries for that day, four for Mr Weston (the special purpose liquidator) and seven for Mr Cooksley (a senior employee of Pitcher Partners). The entries reveal the following: 1. Mr Weston spent two hours (at $600 per hour) on "Litigation - Funding", the narration for which is: "At OP Legal from 11.15 - 19.30 (less 15 min lunch brk) to finalise prep for adjourned agm inclng fees review; SPL prsntion; Telecons with Telstra (Sue L) and Roadhound (Ben S); emails and corres incl w/ASIC; COI Lwyrs; RVW & Finalise ext appn for funding." 2. Mr Weston spent half an hour (at a rate of $600 per hour) on "Legal - Fees Reporting/Review & Analysis" with exactly the same narration. 3. Mr Weston spent one hour ($600) on "Creditor-Meetings" with exactly the same narration. 4. Mr Weston spent four and half hours (at $600 per hour) on "COI-General" with exactly the same narration. 5. Mr Cooksley spent 0.58 hour (apparently 34.8 minutes) at a rate of $457 per hour on "Legal - Fees Reporting/Review and Analysis" with a narration "Analysis of October WIP narrative for allocation to task areas". 6. Mr Cooksley spent 0.75 hour at a rate of $457 per hour on "Legal - Fees Reporting/Review & Analysis" with a narration "Complete fee matrix for October 2009". 7. Mr Cooksley spent 0.58 hour at a rate of $457 per hour on "Legal - Fees Reporting/Review & Analysis" with a narration "Finalise July 07 to June 09 analysis". 8. Mr Cooksley spent one hour at $457 on "Creditor - Meetings" with a narration "Discuss fee matrices with PGW. Create file for fee analysis and USB drive". 9. Mr Cooksley spent 0.92 hour at a rate of $457 per hour on "Litigation - Funding" with a narration "Meeting at OP regarding affidavit for extension of time for service of claim. 10. Mr Cooksley spent two hours at a rate of $457 per hour on "Creditor - Reports" with a narration "Telecon with Telstra and debrief. Telecon with Roadhound and debrief". 11. Mr Cooksley spent 5.67 hours at a rate of $457 per hour on "Creditor - Reports" with a narration "Finalise presentation to creditors for AGM". 58 According to these entries, Mr Cooksley was directly involved in the performance of the special purpose liquidator's functions for a total of 11.5 hours on 6 November 2009. 59 The understanding one can gain from the 6 November 2009 entries is very limited. On the surface, each entry seems to have something to do with the special purpose liquidator's administration, but there is no way of knowing any of three important things: first, whether the charges are, as to time spent and reasonable charges; second, what was actually done during the recorded time; and, third, whether the time spent relates to progressing of the special purpose liquidator's administration or protection of his personal position. 60 The inability to understand precisely what the entries cover is illustrated by an example. Item 1 in the above list relates to Mr Weston; item 10 relates to Mr Cooksley. Item 1 is the only two hour entry for Mr Weston; item 10 is the only two hour entry for Mr Cooksley. Each refers to telephone conversations with people at Telstra and Roadhound from which it might be inferred that Mr Weston and Mr Cooksley were together participating in a conference call. Mr Cooksley's entry suggests that the whole of the two hours was spent on the two telephone conversations and "debrief" which, one might infer, involved discussion with Mr Weston (and perhaps others if, as Mr Weston's entry tends to imply, both were at the office of O'Neill Partners) about the telephone conversations and their content. 61 Mr Weston's narration for item 1 refers to "Litigation-Funding". This, one surmises, did not involve the two telephone conversations (and "debrief") on which Mr Cooksley spent two hours since there is no apparent reason why telephone conversations with people at Telstra and Roadhound would be related to litigation funding. Perhaps, if there were conference calls (followed by "debrief") in which both Mr Weston and Mr Cooksley participated for two hours, this is covered, in Mr Weston's recording, as part of the 4.5 hours labelled "COI-General". One simply cannot know, particularly since Mr Cooksley booked the two hours of telephone conversations and "debrief" to "Creditor-Reports". 62 Submissions made by ASIC as amicus curiae refer to an aspect of the material presented to the court that ASIC has chosen to call "narrative duplication". Mr Weston's entry of 6 November 2009 already mentioned is among a significant number of such duplications said by ASIC to be evident from the special purpose liquidator's material. A few other instances chosen at random will illustrate the point ASIC seeks to make:

[69]

On 13 November 2009, there are two entries in respect of Mr Weston each of which relates to "Legal/Strategy". Each is for one hour ($600) and carries the narration "Strategy matters comprising brief with DC and Telecons with MFO and TP". 63 The obvious question in each of these cases is whether one item has been recorded more than once or whether, for example, Mr Weston spent two distinct periods, each of one hour, on the same activity on 13 November 2009. The material as presented raises the question in these and a number of other instances but does not answer it. 64 Other uncertainties arise from the records put into evidence. Mr Weston's narration set out in item 1 at paragraph [57] above refers to emails and correspondence with ASIC. Indeed, "ASIC" appears on a separate category in the records, with a total of $2,852.00 allocated to it in the period 1 November 2009 to 28 February 2010, $2,700.00 (4.5 hours) on the part of Mr Weston and 0.33 hours on the part of Mr Cooksley. The particular entries in the "ASIC" category are: Mr Weston recorded half an hour ($300.00) on 11 November 2009 for "Telecon with John Laird (ASIC) on AGM, Funding and fees review" Mr Weston recorded half an hour ($300.00) on 17 November 2009 for "Review final o/s docs for ASIC review on Fees and Costs" Mr Weston recorded half an hour ($300.00) on 24 November 2009 for "Review final o/s doc's for ASIC review on fees and costs" Mr Weston recorded three hours ($1,800.00) on 27 November 2009 for "ASIC v Rich judgment review in part including discuss with MFO & TP thereon" Mr Cooksley recorded 0.08 hour ($38.08) on 2 December 2009 for "meeting at O/Ps - ASIC review meeting" Mr Cooksley recorded 0.25 hour ($114.25) on 22 December 2009 for "review of AF email regarding ASIC fee review information. Review of Deloitte folder for letter to SC of 09/04. Email to AF" 65 This particular matter raises a question to which attention was devoted in submissions made by counsel for ASIC, Mr D L Cook. Those submissions contain a table assembled from the special purpose liquidator's fee schedules in which time and amounts for the composite period 1 July 2009 to 28 February 2010 are broken down according to the several categories. The table is as follows: Tasks Fees $ Hrs % ASIC 17,985 52 4% COI 217,608 456 48% Creditors 58,387 131 13% Funding 77,492 146 17% GPL 3,373 7 1% Legal/strategy 55,014 100 12% Other 21,388 49 5% Total 451,247 940 100%

[70]

66 As Mr Cook pointed out, this shows that only a relatively small percentage (17%) is directly related to the special purpose liquidator's allotted task of seeking litigation funding. Of the remaining 83%, no less than 65%, totalling some $275,000 relates to the committee of inspection and creditor tasks. 67 It may be acknowledged at once that the period 1 July 2009 to 28 February 2010 included the annual general meeting of the creditors of One.Tel (which was adjourned on several occasions) and that the proper functions of the special purpose liquidator included reporting to creditors in relation to that meeting and actually attending the meeting. There was also a need to participate in proceedings preparatory to the resumption of the adjourned meeting: see Re Walker [2009] NSWSC 1172; (2009) 74 ACSR 616. It may likewise be acknowledged that there were meetings of the committee of inspection during the period in question and that the special purpose liquidator properly spent time at and in relation to such meetings. 68 The difficulty is to obtain an appreciation of precisely what was done under the "COI" and "Creditors" headings to warrant remuneration of, respectively, $217,608 and $58,387. The same comment applies to the composite item "Legal/strategy" that accounts for $55,014 - not to mention the unexplained "Other" of $21,388. And then there is "ASIC" accounting for $17,985 of which the $2,852 attributable to the period 1 November 2009 to 28 February 2010 is dealt with at paragraph [64] above. 69 The special purpose liquidator has sought to deal with these questions or criticisms by including further information in submissions responding to ASIC's submissions. For example, in relation to the $58,387 for "Creditors", those submissions say that $57,471.76 concerned dealing with creditors between 1 July 2009 and 31 October 2009, the period that covered the 2009 annual meeting of creditors and the events related to it, including the preparation of the special purpose liquidator's report. It is explained that $36,200 (or 62%) of the $57,471.76 related to those aspects and that a further $7,696 (or 13%) was for communications with major creditors. There was also a further $20,615 related to applications to the court concerning material to be provided to creditors for the purpose of the meeting. 70 The special purpose liquidator seeks to explain these matters further by reference to a table in his submissions providing a break-down of the $57,471.76 into sub-categories as follows: Sub-category Hours Total 3 August 2009 report 63.83 $ 26,668 . 67 Creditor data capture 7.00 1,284 . 17 Meetings and telecoms with major creditors 14.42 7,696 . 50 Prep for attendance at AGM 18.66 9,531 . 66 Debriefs/transcripts 1.00 333 . 00 Correspondence with GPL 1.42 647 . 42 Other 22.16 11,310 . 34

[71]

71 In this and other areas, the special purpose liquidator takes issue with the ASIC submissions because, it is said, ASIC has not adopted categories corresponding with those used by the special purpose liquidator. That, it seems to me, is a reflection on the special purpose liquidator's presentation. If, as the special purpose liquidator seems to suggest, ASIC has misunderstood the material the special purpose liquidator has placed before the court in support of the present application, one must have strong reservations about the utility of that material - the more so when the special purpose liquidator's answer to one aspect of the ASIC assessment was to seek to place further information of a detailed kind before the court through the medium of submissions in reply. 72 Had the special purpose liquidator provided at an earlier stage the break-down recorded at paragraph [70] above, ASIC's submissions may have been different. In one respect, however, one can be confident that they would have been the same: the sub-category "Other" ($11,310.34) is, of itself, wholly uninformative and remains unexplained. Time charging 73 The special purpose liquidator's approach to quantification of remuneration is wholly time based. Hours spent on tasks are recorded and an hourly rate is applied. 74 This is a recognised and acceptable method of quantification. But it emphasises the particular need to be certain that the time for which claims are made is in truth time that was devoted to performance of relevant functions. 75 Time charging can lead to abuses. This is particularly so if individuals' performance and worth within a firm is judged according to time they record and the same time records are used for client billing. I hasten to say that there is no evidence that that is the case here. I mention the matter merely to emphasise the need to be certain that the time recording system used in a particular case is in truth focussed on performance of relevant functions. 76 Another drawback is that unnecessary duplication may be rewarded. At paragraph [62] above, there is reference to Mr Wohlfiel, a junior employee, having spent time perusing the file and making copies of committee of inspection minutes approving fees. It is not possible to know precisely what this entailed or why it was done. Nor, on the material available, can the matter be the subject of criticism. But it can be said that, since resolutions of the committee of inspection were the means by which Mr Weston was able to obtain payment of remuneration by the general liquidators of One.Tel, it would be surprising if he did not have readily to hand copies of those claims and the resolutions supporting them. One would expect, therefore, that Mr Wohlfiel's efforts were directed to something more than finding those resolutions. But what that was is not made clear. Conclusions 77 I accept, in general terms, the proposition advanced by ASIC that the evidence and explanations placed before the court by the special purpose liquidator on this application are not such as to permit a clear view to be formed of the work the special liquidator performed in the periods in question and the relevance of that work to the special purpose liquidator's administration. 78 Subject to what has been said about the matters referred to in items 1, 3, 4, 5 and 6 at paragraph [36] above, the various narrations provide, as on earlier similar applications, an indication, in a general sense, of connection between time recorded and the special purpose liquidator's administration. But in the light of the detailed assessment carried out by ASIC (something not available on earlier similar applications), I accept ASIC's submission that it is not possible, as things now stand, for the necessary quantification task to be undertaken by the court, bearing in mind that it is the special purpose liquidator who carries the onus of establishing the quantum of reasonable remuneration. The difficulty stems from the method of presentation and the problems it creates for seeing, first, precisely what was done and, second, how what was done forms part of the functions of the special purpose liquidator. 79 Having regard to what was said in Venetian Nominees Pty Ltd v Conlan (above) - which I regard as equally applicable to the present unusual case in which the question of quantification comes before the court under s 511 - the proper course, it seems to me, is to require the special purpose liquidator to re-present the material and to re-formulate his claim in respect of the periods 1 July 2009 to 31 October 2009 and 1 November 2009 to 28 February 2010: compare, in the case of taxation of solicitors' costs, Slingsby v Attorney-General [1918] P 236 where it was said that an itemised bill of costs might be rejected if items are so inextricably mixed up that it is impossible to say what was really chargeable or what should fairly be allowed for the items chargeable. 80 In view of the course the present application took, it will be appropriate, in the first instance, for the re-formulated claim and the materials supporting it to be served on both ASIC and the members of the committee of inspection who participated in the hearing of this application. Then, when any remaining matters of principle that either ASIC or the committee members may wish to raise have been considered and determined by the court constituted by a judge, there will be a referral to the registrar to deal with the details of assessment and quantification on the basis that the registrar will report back to the court constituted by a judge so that such order under s 511 of the Corporations Act as the circumstances require may be made. 81 In specifying this method of proceeding, I have regard to what was said by Young CJ in Eq at paragraph [39] of his judgment in Ide v Ide (above) which is in line with the approach to taxation of costs by the court. His Honour's statement is to the same effect as that of Fullagar J in Magna Alloys and Research Pty Ltd v Coffee (No 2) [1982] VR 97 at 102 - 103 concerning taxation of party and party costs: "The court must distinguish in its approach between, on the one hand, cases where a matter of principle is involved and, on the other hand, cases, "where it is a question whether the master has exercised his discretion properly, or it is only a question as to the amount to be allowed", in which latter cases, "the court is generally unwilling to interfere with the judgment of its officer, whose peculiar province it is to investigate and to judge of such matters, unless there are very strong grounds to show that the officer is wrong in the judgment which he has formed". It has thus been said that "it is only in an extreme case" that the court will interfere with the master's decision on a matter involving nothing but quantum, though it must be remembered that such phrases are not the words of any statute or rule, but a very compendious judicial summary of the general approach to determinations of an officer whose peculiar province it is to investigate and judge of such matters, by judges whose special or particular province or training it certainly is not."

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