Oswal, in the matter of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson, McEvoy and Theobald

the statement of relief 11 I deal first with the defendants' application to strike out para 1 and para 2 of the statement of relief because, in my view, the application has some bearing upon that part of the application to strike out the numerous allegations in the statement of facts and contentions that each of the defendants breached his statutory and general common law duties. 12 The defendants contended that these two paragraphs should be struck out on the basis that only ASIC has the standing to apply for the relief foreshadowed in para 1 and para 2 of the statement of relief. It is the case that s 1317J(1) and 1317J(4) of the Corporations Act make it clear that the defendants' contention should be upheld. 13 In his written submissions, Mr Oswal acknowledged the force of the defendants' contention, and said that he would not seek the relief described in para 1 and para 2 at the hearing. I will, therefore, strike out para 1 and para 2 of the statement of relief. 14 In my view, this limitation which the legislature has placed on the standing of a person to apply for the relief described in para 1 and para 2 has consequences in relation to the complaints made by the defendants in relation to inclusion of allegations of breaches of duty in the statement of facts and contentions.

the statement of facts and contentions 15 I deal next with the defendants' objections made to the statement of facts and contentions. 16 In outline, the defendants' objections are founded primarily on a contention that the impugned paragraphs of the statement of facts and contentions travelled beyond the scope of the inquiry as ordered. 17 Although the objections are framed in the interlocutory application, by reference to individual paragraph numbers in the statement of facts and contentions, the objections can be grouped into discrete topics. 18 I deal with these topics below.

pre-appointment fees 19 The paragraphs in the statement of facts and contentions which are relevant to the pre-appointment fees issue and to which objection is taken, are paras 50 to 54 (which are to be found in the "facts" section of the document) and paras 109 to 111 (which are to be found in the "contentions" section of the document). 20 In the impugned paragraphs, Mr Oswal alleges that on 25 January 2011, which was about four weeks after the receivership had commenced, the defendants, in breach of duty to the company, caused the firm of which they were partners, PPB Advisory, to issue the company with PPB invoice 800511 in the sum of $341,800.49 for services described as "Preparation of appointment", and that they caused the company to pay the invoice. Mr Oswal goes on to contend that the defendants were not entitled to charge the company for work which was carried out for the benefit of, and at the instance of, the Australian and New Zealand Banking Group Limited (ANZ bank) and ANZ Fiduciary Services (ANZFS) prior to their appointment as receivers and managers of the company. Mr Oswal contends that PPB invoice 800511 included work which was unrelated to the receivership. 21 In support of that contention, Mr Oswal says that the invoice included charges in respect of meetings which occurred on 1, 2 and 6 December 2010 between one of the defendants, Mr Carson, and officers of the ANZ bank and a member of Freehills law firm. Those meetings occurred more than a year before the appointment of the defendants as receivers and managers of the company, and, according to Mr Oswal, did not relate to the receivership. 22 Mr Oswal also says that the impugned invoice included charges for work which included the time spent by two employees of PPB Advisory in carrying out surveillance of Mr Oswal's home in a Perth suburb. Mr Oswal contends that the charges are objectionable for two reasons. First, said Mr Oswal, engaging in surveillance of his home made no contribution to the receivership and, secondly, the carrying out of surveillance work was not within the ambit of the professional expertise of the two PPB Advisory employees whose time was charged for this work. In this regard, Mr Oswal also contends that the defendants caused the company to pay $63,909.30 to Executive Investigative Services on 18 January 2011 for investigative surveillance services. Mr Oswal said that those services were carried out pursuant to an instruction to the defendants from the ANZ bank to "dig up dirt" on Mr Oswal and that is not a task which could properly be regarded as relating to the receivership. 23 Mr Oswal also points to the fact that the PPB invoice 800511 included work which had been carried out, invoiced and paid for before the date of the appointment of the defendants as receivers and managers of the company. Mr Oswal says that the PPB invoice 800511 was originally in the amount of $421,571.70, but credits were recognised in respect of the work which had previously been carried out by PPB Advisory, invoiced and paid for so as to arrive at the total of $341,800.49. 24 Mr Oswal also complains that the PPB invoice included charges for time recorded by the employees of PPB Advisory at a rate of 7.5 hours per day. Mr Oswal goes on to contend that the defendants permitted that amount of time to be billed to the company without first considering the effectiveness of the work performed by each employee and whether the work billed was necessary and had been properly performed. 25 Mr Oswal conceded that the question of whether the defendants have acted properly in rendering the PPB invoice and causing the company to pay the PPB invoice 800511, was not within the scope of the inquiry as ordered. However, Mr Oswal contended that it was open to the Court, once it had ordered an inquiry, to inquire into matters other than those which comprised the original scope of the inquiry. Mr Oswal relied upon observations to that effect in the case of Ah Toy v Registrar of Companies (1986) 10 FCR 356 at 358, and other cases. 26 The defendants, however, contended that if Mr Oswal wanted to expand the scope of the inquiry, he needed to apply to amend the scope of the inquiry. The defendants said that Mr Oswal would need to satisfy the same requirements in respect of the inclusion of any proposed additional issue, as applied to the issues the subject of his original application. The defendants referred to the case of BL & GY International Co Ltd v Hypec Electronics Pty Ltd (2010) 79 ACSR 558 (BL & GY International) as an example of such an application to amend the scope of an inquiry. 27 In my view, it is incumbent upon Mr Oswal to satisfy the requirements for the making of an order for the holding of an inquiry under s 423 of the Corporations Act in respect of the proposed additional issue of whether the defendants acted properly in charging the company for work carried out before their appointment as receivers and managers. However, in my view, it is not necessary for Mr Oswal to commence a new originating application in order to commence that process. 28 In my view, it is sufficient to treat the filing of the statement of facts and contentions as being an application to that effect. However, it is incumbent upon Mr Oswal to identify more precisely the scope of the expanded inquiry in relation to the pre-appointment fees which he asks the Court to make and to file and serve any further evidence in support of that application. 29 Accordingly, I will make directions for the determination of the issue as to whether the scope of the inquiry should be expanded to deal with the question of pre-appointment fees. Those directions will, of course, incorporate the opportunity for the defendants to oppose the expansion of the scope of the inquiry. In the meantime, I will strike out the impugned paragraphs of the statement of facts and contentions.

the object and purpose of the receivership 30 One of the contentions originally made by Mr Oswal was that the scope of the inquiry should include an examination of the purpose for which the defendants conducted the receivership of the company. In short, Mr Oswal contended that the defendants had conducted the receivership for a purpose extraneous to the proper purpose of discharging the debt due by the company to ANZFS. 31 Much time and energy was devoted to the pursuit of this contention by Mr Oswal during that application. For reasons which I do not intend to repeat, in Oswal (No 4), I rejected Mr Oswal's contention that it was appropriate that an inquiry be conducted into whether the defendants had acted for an improper purpose in conducting the receivership. 32 The defendants complain that notwithstanding that Mr Oswal failed in his initial application to have an inquiry into whether the defendants acted for an improper purpose in conducting the receivership, Mr Oswal has made allegations to that effect in his statement of facts and contentions. The defendants complain that statements made in paras 49, 107 and 108, 110(d), 141 and 142 of the statement of facts and contentions, fall into this impermissible category. The defendants contend that these paragraphs should be struck out. 33 I deal with each of these paragraphs separately.

Paragraph 49 34 In para 49 of the statement of facts and contentions, Mr Oswal states that a large proportion of the fees and expenses incurred in the last six weeks of the receivership related to the carrying out of investigations and to the conduct of litigation. The essence of Mr Oswal's complaint is that these fees and expenses were not properly incurred because there was no legitimate purpose in conducting investigations and litigation during the period which Mr Oswal described as "the death throes of the receivership". 35 The defendants object that this allegation seeks to raise the same allegation in respect of the defendants acting generally for an improper purpose which the Court previously rejected. In my view, that objection is not accepted. Mr Oswal does not here refer to acting for an improper purpose generally, but rather in the context of a complaint about specific conduct, namely, conducting investigative work and litigation during the last six weeks of the receivership. It is a complaint which, in my view, legitimately calls upon the defendants to explain why, so late in the receivership, the defendants would be expending large amounts of money on investigations and litigation. In my view, on the face of it, Mr Oswal raises a legitimate question about the level of fees and expenses incurred in the last six weeks of the receivership, which falls within the scope of the inquiry as ordered. 36 Accordingly, para 49 of the statement of facts and contentions will not be struck out.

Paragraphs 107 and 108 37 In para 107 and para 108 of the statement of facts and contentions, Mr Oswal contends that the defendants were not appointed for the legitimate objective of realising the assets and undertakings of the company, but were appointed with the objective of removing Mr Oswal and his wife from their positions in relation to the ownership and management of the company, securing the assets of the company and using those assets to finance investigations and litigation against Mr and Mrs Oswal. 38 These two paragraphs will be struck out. These paragraphs impugn the purpose for which the defendants were appointed and also for which they acted in the conduct of the receivership as a whole. 39 As mentioned, in Oswal (No 4), I found that the question of whether the defendants conducted the whole of the receivership for an improper purpose, was not an appropriate matter to be the subject of an inquiry under s 423 of the Corporations Act. Albeit that Mr Oswal now contends that the defendants' purpose was improper for a slightly different reason to that which Mr Oswal originally advanced in Oswal (No 4), the rationale for rejecting Mr Oswal's initial application still applies. 40 Accordingly, para 107 and para 108 of the statement of facts and contentions will be struck out.

Paragraph 110(d) 41 The allegation made at para 110(d) is that the defendants had been instructed to "dig up dirt" on Mr Oswal and, therefore, the defendants did not approach the receivership free from bias, conflict of interest, or undue influence and did not take care to ensure that they were not influenced by personal feeling or prejudice. 42 This allegation is simply another way of expressing the same contention as set out in para 107 and para 108. The same reasoning applies in relation to this allegation. 43 Accordingly, para 110(d) forms part of para 110 of the statement of facts and contentions which has already been struck out.

Paragraphs 141 and 142 44 These paragraphs repeat the allegation that the defendants acted for an improper purpose throughout the receivership, namely, the purpose of removing Mr Oswal and his wife from any involvement in the ownership and management of Burrup Holdings Limited (BHL) or the company, gathering information for proposed litigation against Mr and Mrs Oswal and instituting litigation against them, rather than the proper purpose of realising the secured property and paying out the secured creditor's debt. 45 Mr Oswal acknowledges that this issue is not part of the inquiry as ordered. However, for the reasons set out at [38]-[39] above, para 141 and para 142 of the statement of facts and contentions will be struck out.

entry into share sale deed and solicitation 46 The defendants also contend that paras 68 to 74, 121 and 122 of the statement of facts and contentions should be struck out. Those paragraphs have been grouped together under the rubric referred to above. 47 In paras 68 to 74, Mr Oswal alleges that the defendants caused themselves to become parties to the share sale deed and so caused themselves to become obliged to carry out certain functions under that deed, including providing Apache Fertilisers Pty Ltd (Apache Fertilisers), the purchaser of Mr and Mrs Oswals' shares, with access to books, records and management reports of the company. 48 In those paragraphs, Mr Oswal goes on to say that during the last six weeks of the receivership, the defendants met with representatives of Apache Fertilisers on a weekly basis to discuss and provide reports to Apache Fertilisers of the ongoing financial management issues in relation to the company. Mr Oswal contends that during that period the defendants used their regular access to Apache Fertilisers to solicit post-receivership work from Apache Fertilisers. 49 At para 121 of the statement of facts and contentions, Mr Oswal makes two main contentions. First, Mr Oswal contends, in summary, that the entry into the share sale deed and the meetings with Apache Fertilisers were not undertaken for the proper purpose of providing for the repayment of the debt due to the secured creditor and were undertaken for the purpose of assisting in the sale of the BHL shares. 50 Secondly, it is said that the defendants charged the company for the time spent in soliciting post-receivership work from Apache Fertilisers for the benefit of PPB Advisory. 51 In para 122, Mr Oswal in general contends that by reason of the matters referred to in para 121 of the statement of facts and contentions, the defendants breached ss 180, 181 and 183 of the Corporations Act and their general common law duties. 52 The first of the contentions, namely, the allegation of an improper purpose, finds expression in para 121(a), (b) and (c). I have already mentioned that Mr Oswal's complaint that the defendants acted for an improper purpose formed the basis of Mr Oswal's claim for an inquiry which I rejected for the reasons given in Oswal (No 4). Those findings apply to the matters referred to in those paragraphs. 53 However, the second of the contentions, namely, that the defendants caused detriment to the company by charging the company for their time in soliciting post-receivership work from Apache Fertilisers, falls within the ambit of the inquiry. 54 Accordingly, I will strike out paras 121(a), (b) and (c) of the statement of facts and contentions, but not strike out paras 68 to 74 and paras 121(d) and (e). 55 I will also strike out para 122 of the statement of facts and contentions. That paragraph will be struck out because I did not order an inquiry specifically into whether the defendants had breached their general common law duties and/or their statutory duties under the Corporations Act. 56 It is convenient to refer to the description of the process for the conduct of an inquiry under s 536 of the Corporations Act given by Barrett J in BL & GY International. The observations also apply to an inquiry under s 423 of the Corporations Act. At [42]-[46], Barrett J observed as follows: [42] Proceedings under s 536 involve three stages. At the first stage, the court, upon application made, decides whether an inquiry into the liquidator's conduct is warranted. In Hall…, the Court of Appeal pointed out that that there need not be a prima facie evidentiary case of lack of faithful performance or observance of requirements. But the applicant must point to something about the liquidator's conduct that is a sufficient basis for making an order for inquiry; and it is desirable that this be articulated in pleaded form: Re Fox Home Loans Pty Ltd [2005] NSWSC 1050. Once such a basis has been shown, the court has a discretion whether or not to order an inquiry. [43] If the court sees fit to order an inquiry, the proceeding moves to its second stage and the inquiry itself takes place. Despite being an "inquiry", the second stage must be structured so as to be adversarial in nature, with the liquidator enjoying all the usual safeguards and protections: Harvey… [44] The task of the court at the second stage is to make a judgment about the liquidator's conduct, viewed in the light of the whole of the requirements applying to liquidators and taking account, of necessity, of the circumstances of the particular winding-up. What the liquidator ought properly to have done will be conditioned by circumstances. Thus, for example, a liquidator without funds will not be expected to act in the same way as an adequately funded liquidator. In the same way, a liquidator has a degree of freedom in allocating available resources and prioritizing work. Leaving to one side matters of dishonesty, lack of due care and obvious failure to address the decision at hand, it can never be said in the abstract that a liquidator who fails to take a certain step (or, for that matter, one who takes a certain step) thereby engages in misconduct. Context is all-important. [45] If, having heard the competing submissions at the second stage, the court decides that the liquidator's conduct was in some way deficient, it embarks upon the third stage and decides whether or not to make an order. The nature of the order will depend on the nature of the deficiency found. As noted above, the orders at the court's disposal include an order that the liquidator make good loss occasioned by the liquidator's deficient conduct. The predominant consideration, however, is effectuation of the purpose for which s 536 exists and, therefore, what is needed by way of regulation, supervision, discipline and correction for the due administration of the winding-up in the public interest. [46] The power of the court at the third stage is the power to "take such action as it thinks fit". But that power is not exercisable unless and until the second stage has been completed by means of an inquiry. This is the effect of the statutory language: "and where the court…so inquires, the court may take such action as it thinks fit" [emphasis added]. The court cannot take substantive action except as a consequence of an inquiry. It follows that it is not open to the court, as a matter of jurisdiction, to make an order simply on the basis that relevant parties consent to the making of the order. (Original emphasis.) 57 It is apparent from Barrett J's observations that the question of whether a court will make an order pursuant to its power under s 423(1) "to take such action as it sees fit", and if so what kind of order, will be considered at the conclusion of the second stage and as part of the third stage of the inquiry. In other words, at a time after a court has had an opportunity to consider the evidence and submissions of both parties. 58 In this case, the terms of the inquiry do not expressly provide for an inquiry as to whether the defendants breached their statutory or general common law duties. However, the ambit of the inquiry is such that it is conceivable that at the end of the second stage, a submission may be made that it would be appropriate as an incident of "taking action", for the Court to make findings that the defendants have breached their duty in relation to aspects of their conduct which falls within the ambit of the inquiry. If such a situation were to arise, then submissions would need to be made as to whether any such finding could or should be made as part of the exercise of the Court's power under s 423 of the Corporations Act. One question which may then arise is whether findings to that effect could be made in the absence of ASIC being a party to the inquiry, bearing in mind its regulatory function and the statutory intent as manifest by s 1317J of the Corporations Act (see [12] above). Another question may be whether such findings could or should be made at the instance of Mr Oswal in light of the fact that his interest in the inquiry arises essentially from a complaint that the defendants charged excessive fees and expenses which caused him financial loss. 59 Because the terms of the inquiry do not expressly provide for an inquiry as to whether the defendants breached their statutory or common law duties, para 122 of the statement of facts and contentions will be struck out. However, as mentioned, that is not to say that this question may not arise incidentally at the end of the second stage, and beginning of the third stage of the inquiry, in respect of an aspect or aspects of the defendants' conduct which is within the scope of the inquiry.

breaches of statutory and common law duties 60 At paras 111, 116, 118, 120, 125, 127, 129, 131, 133, 134, 136, 138 and 140 of the statement of facts and contentions, Mr Oswal contends that the defendants variously breached ss 180 to 183 of the Corporations Act and their general common law duties. Mr Oswal relates each of these specific breaches to facts Mr Oswal has referred to in those parts of the statement of facts and contentions. Thus, for example, I have already referred to Mr Oswal's contention that the defendants caused the company to pay fees and expenses for the time spent in soliciting post-receivership work from Apache Fertilisers whilst still carrying out work under the receivership. Another example, is that the defendants caused the company to pay for a public relations consultant whose function was to promote the public image of the defendants. 61 The same considerations as referred to in [58] and [59] above, apply to these paragraphs. 62 In those circumstances, paras 111, 116, 118, 120, 125, 127, 129, 131, 133, 134, 136, 138 and 140 of the statement of facts and contentions will be struck out.

time recording 63 The defendants contend that para 126(e) of the statement of facts and contentions should be struck out. That paragraph falls within the contentions section of the statement of facts and contentions, and refers back to facts referred to in paras 79 to 83 which deal with the same topic. 64 In para 126 of the statement of facts and contentions, Mr Oswal contends that the defendants amended the descriptions in the PPB invoices of the work that was carried out in the last six weeks of the receivership which had the effect of disguising the true nature of the work, fees and expenses the defendants were charging the company. Mr Oswal contends that the alterations in the description of the work in the invoices were made in response to statements by ANZFS in January 2011 that it would not authorise the fees and expenses on the basis of the description of the work in the invoices as originally provided to ANZFS. Mr Oswal contends that had the amendments to the description of the work not been made by the defendants, ANZFS would not have authorised the payment of such fees and expenses. 65 In para 126(e), Mr Oswal refers to evidence of instructions been given by Mr Ben Verney in February 2011 to PPB Advisory staff in relation to billing in response to ANZFS' comments, and asserts that the practice sanctioned by Mr Verney was likely to have continued in relation to billing practices throughout the receivership, although the scope of this inquiry does not currently permit such a review. That statement in para 126(e) correctly recognises that the inquiry does not extend to undertaking a review of the level of expenses throughout the whole of the receivership. However, in my view, the scope of the inquiry permits Mr Oswal to refer to evidence of billing practices which, whilst initiated outside of the last six week period, allegedly continued to have an impact upon the level of fees and expenses in the last six weeks of the receivership. 66 I construe para 126(e) of the statement of facts and contentions to recognise this limitation and, therefore, I will not strike that paragraph out.

knowledge of anz bank and anzfs 67 The defendants seek orders striking out para 104 and para 106 of the statement of facts and contentions. 68 In para 104 and para 106, Mr Oswal says that prior to the appointment of the defendants as receivers and managers of the company, the ANZ bank and ANZFS were aware of the contractual arrangements which the company had for the acquisition of gas, its off-take arrangement with Yarra Australia Pty Ltd, that the company was generating substantial profits, that the company could service secured debt and repay it; and that the company could meet whatever the defendants' remuneration, fees and expenses were from its cash flow. 69 It is also alleged that ANZFS was aware of the fact that there was no incentive for the defendants to manage or reduce costs by investigating the availability of staff in Perth, or to undertake travel when it was only strictly necessary; and that it was financially more advantageous for the defendants to maintain all revenue for professional fees within PPB Advisory and pass on the expenses of that travel to the company including the professional fees charged for travelling time. Mr Oswal also alleged that ANZFS knew that the company was solvent and able to generate profits on a monthly basis which meant that it was able to service the secured debt and repay it. 70 The defendants contend that the terms of the inquiry do not extend to consideration of the question of the knowledge of the ANZ bank and ANZFS of the company's affairs at the time of the appointment of the defendants as receiver and managers. For this reason, it is said, para 104 and para 106 should be struck out. 71 It is true that the terms of the inquiry do not specifically refer to the knowledge of the appointor of the defendants at the time of the appointment. However, the ambit of the inquiry does include the question of the propriety of the defendants in accepting an appointment by the ANZ bank and ANZFS apparently on the basis that the defendants would be entitled to pass on to the company the additional travel costs and related expenses inherent in undertaking a receivership in respect of a solvent and profitable company in a remote part of Western Australia using partners and professional staff of PPB Advisory based in Melbourne. 72 In my view, whilst the focus of the inquiry is not upon the knowledge of the ANZ bank and ANZFS before and at the time of the appointment of the defendants, the extent of that knowledge in respect of the matters alleged before and at the time of the appointment is, at least arguably, part of the factual matrix which is encompassed by the scope of that head of the inquiry. 73 Accordingly, I am not able to conclude that the ANZ bank's and ANZFS's knowledge of the matters referred to is so obviously outside the scope of the inquiry as to render para 104 and para 106 liable to be struck out. 74 Accordingly, para 104 and para 106 of the statements of facts and contentions will not be struck out.

inaccuracies in the form 524 75 In para 45 of the statement of facts and contentions, Mr Oswal contends that the amount declared in the third Form 524 (completed in the last six weeks of the receivership) in respect of the defendants' expenses for the 13.5 months of the receivership, was not an accurate representation of their expenses; and far understated the true extent of the expenses incurred by them. It is also alleged that the defendants caused the company to pay their expenses directly (rather than by way of reimbursement), and that the defendants did not record these payments in their expenses when reporting to ASIC. Further, it is alleged that the defendants mischaracterised many items as the company's expenses rather than the receivership's expenses. 76 In para 66 and para 67 of the statement of facts and contentions, Mr Oswal contends that the time spent on preparing the second and third Form 524s was excessive, and, notwithstanding the time spent, there were still a number of inaccuracies in characterisation of the expenses. 77 The defendants complained that the manner in which the defendants recorded their expenses in the second and third Form 524s was outside of the scope of the inquiry. That contention cannot be wholly accepted. The scope of the inquiry is sufficiently wide to cover the manner in which travel expenses and expenses relating to the last six weeks of the receivership, were characterised and/or recorded. Mr Oswal will, therefore, be required to particularise those expenses relating to the last six weeks of the receivership and the travel expenses, if any, which he contends were not properly characterised and/or recorded. However, paras 45, 66 and 67 of the statement of facts and contentions will not be struck out. 78 I will hear the parties in relation to the terms of the orders and directions foreshadowed in these reasons. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.