Plaintiff v Defendants

2 Daiwa relies upon a proposed statement of claim that pleads claims by Barokes against the liquidators.[2] The claims concern alleged actions and omissions of the liquidators during their sale of the business and assets of Barokes in 2019.

3 For the reasons I am about to give (Reasons), I will grant Daiwa leave to bring proceedings in the name of Barokes, substantially in the form of the proposed statement of claim (excluding those claims identified in these Reasons), upon certain undertakings and conditions I identify later in these Reasons.[3]

4 By an amended originating motion filed 13 August 2021, Daiwa sought the following relief:

Upon the undertaking of the Plaintiff, given by its legal representatives, to indemnify, following final determination of the proceedings as defined in Prayer 1, the second defendant[4], from any liability for costs ordered against it in the Proceedings:

1. An order pursuant to the inherent jurisdiction of the Court granting leave to the Plaintiff to bring proceedings in the name of the Second Third Defendant against the First and Second Defendants (Proceedings).
2. An order granting leave to the Plaintiff to file, on behalf of the Second Third Defendant, a statement of claim substantially in the form set out at pages 1 to 28 of Exhibit TRP1 of the affidavit of Timothy Randolph Price sworn on 9 July 2021 (Statement of Claim) within seven days of the date of these orders.
3. The Sstatement of Cclaim filed in accordance with Order 2 above be made returnable in the Corporations List for directions on a date convenient to the Court.
4. An order that the Plaintiff's costs of this application be costs in the cause of the Proceedings.

(a) an order pursuant to section 90-15 of the Insolvency Practice Schedule that the First and Second Defendants compensate the Third Defendant for the loss suffered by the Third Defendant by reason of the First and Second Defendants' breaches to the duties they owe to it as pleaded in the Statement of Claim in an amount to be determined by the Court;

(b) in the further alternative, an order pursuant to section 90-10 of the Insolvency Practice Schedule that the Court inquire into the liquidation of the Third Defendant for the purpose of determining the extent of the liability of the First and Second Defendants to compensate the Third Defendant in respect of the matters pleaded in the Statement of Claim and such other matters as the Court deems fit; and

(c) an order that the costs of and associated with the Plaintiff's claim for the relief claimed in prayer 4A be paid by the First and Second Defendants personally without indemnity from the assets of the Third Defendant.

5 At the commencement of the hearing, Daiwa informed the Court that it did not seek the relief in paragraph 4A(b) of its amended originating process.[5]

6 The parties tendered documents in a joint court book (CB).[6] It includes the following affidavits:[7]

(a) affidavit of Mr Timothy Randolph Price, solicitor for Daiwa, sworn 9 July 2021 (Price affidavit);[8]

(b) affidavit of Mr Yoshitaka Ikeda, managing director of Daiwa, affirmed 1 September 2021 (Ikeda affidavit);[9]

(c) affidavit of Mr Shinji Aoki, Japanese lawyer, affirmed 1 September 2021 (Aoki affidavit);[10]

(d) affidavit of Ms Nandi (Landy) Jiang, Chinese lawyer, affirmed 2 September 2021 (Jiang affidavit);[11]

(e) affidavits of Ms Megan Louise Shimoji, Japanese to English translator, affirmed 2 September 2021 and 4 October 2021;[12]

(f) affidavit of Mr Seigo Mabuchi, Japanese to/from English translator, affirmed 1 September 2021;[13]

(g) affidavits of Mr David Coyne, second defendant and liquidator of Barokes, sworn 30 September 2021 (First Coyne affidavit)[14] and 20 October 2021 (Second Coyne affidavit).[15]

7 The parties relied upon written submissions[16] and counsel for the parties made submissions at the hearing.

Parties and other relevant entities and persons

8 Daiwa is a Japanese company.[17] It operates a business of manufacturing and distributing cans. Daiwa acquired a majority shareholding in Barokes by execution of a share purchase agreement on 13 September 2012.[18] It acquired 60.05% of the shares in Barokes.[19] As a result, Barokes' minority interests were, and are currently, held by Knights Quest Pty Ltd (Knights Quest) and SMS Management Pty Ltd (SMS Management) (collectively Barokes Minority Shareholders).[20] The sole director of Knights Quest is Mr Gregory Stokes. The sole director of SMS Management is Mr Steve Barics.

9 In the period from September 2012 to May 2014, Daiwa lent monies to Barokes pursuant to various loan agreements.[21] On 23 April 2019, the liquidators sent a letter to Daiwa advising that its proof of debt dated 25 January 2019 against Barokes in the sum of $10,828,854.22 was admitted in full.[22]

10 The liquidators were appointed as joint and several liquidators of Barokes on 20 September 2018. As a result of a stay of orders of their appointment, their appointment came into effect on 19 December 2018. Mr Koutsoukos resigned his appointment as joint and several liquidator of Barokes effective as at 23 November 2020.[23]

11 Barokes is an Australian company that previously produced and sold wine-in-a-can products globally.[24] Barokes held, or was the applicant for, patents referred to as "Vinsafe" in approximately 17 countries, which included a Japanese patent JP3668240 (Japanese Patent) and a Chinese patent ZL02823823.0 (Chinese Patent).[25]

12 The secretary of Barokes is, and has been since 25 September 2017, Mr Stokes. He has also been a director since 25 September 2017. Mr Barics has also been a director since 25 September 2017. As a result of Daiwa's acquisition of a majority shareholding in Barokes, two directors associated with Daiwa were appointed as directors of Barokes on 13 September 2012, including Mr Ikeda.

13 On 27 August 2012, Barokes entered into an agreement with Mr Stokes to employ him as managing director for a three-year term commencing on 13 September 2012 (Mr Stokes' agreement).[26] It provided for a salary of $475,000 gross per annum (inclusive of superannuation). Mr Price gave evidence that the agreement expired on 26 August 2015 and Daiwa did not consent to its extension.[27]

14 On 8 March 2013, Barokes entered into an agreement with Mrs Irene Stokes to employ her as the Sales and Marketing Director.[28] Mr Price gave evidence that Daiwa did not authorise any increase in the annual salary payable to Mrs Stokes pursuant to the agreement.[29]

15 The directors of Greire Pty Ltd (Greire) are Mr and Mrs Stokes. They were appointed on 22 October 2008.

16 The sole director of Intelligent Packaging Pty Ltd (Intelligent Packaging) is Mrs Stokes. She was appointed on 1 September 2020. She was also a director in the period 26 August 2014 to 24 July 2019. Mr Stokes and Mr Barics were also directors in the period 26 August 2014 to 1 September 2020. On about 30 May 2019, Barokes, the liquidators and Intelligent Packaging entered into an agreement titled 'Sale of Business & Assets Agreement'.[30]

17 Barokes has been involved in a number of intellectual property legal proceedings around the world.[31] This includes proceedings in Japan and China.

18 On 3 August 2015, Barokes commenced a patent infringement proceeding in relation to the Japanese Patent in the Tokyo District Court in Japan against Daiwa and others (Japanese Infringement proceedings).[32] Barokes stated the following matters, inter alia, in its claim:

(a) the 'Object of the Claim', inter alia, as follows: 'The Defendants must jointly and severally pay the Plaintiff the amount of JPY 80,000,000 and, until that (amount) is paid, money at the rate of 5% per year from the day after the day of service of the complaint related to this (amount JPY 80,000,000).'[33]

(b) 'Thus, the profit obtained by the Defendants from the sale of the Defendant Products during the abovementioned period was not less than JPY 570,000,000';[34]

(c) 'The Plaintiff also seeks, from the Defendants jointly and severally, as part of the JPY 570,000,000 in damages in torts for the Patent Infringement, payment of the amount of JPY 80,000,000 and the delay damages related to this at the rate of 5% per year from the day after the day of service of the complaint'.[35]

19 Mr Aoki gave evidence that the maximum quantum sought by Barokes in the Japanese Infringement proceedings was JPY 80 million.[36]

20 Mr Price gave evidence that Mr Stokes caused Barokes to do this without the authority of the Board of Barokes or other valid authority.[37]

21 On 6 April 2016, Daiwa commenced proceedings against Barokes in the Japanese Patent Office seeking to invalidate the Japanese Patent (Japanese Invalidity proceedings). [38]

22 On 1 March 2018, the Japanese Patent Office declared the Japanese Patent invalid.[39]

23 On 20 April 2018, the Tokyo District Court dismissed the Japanese Infringement proceeding.[40]

24 On 2 May 2018, Barokes applied to the Intellectual Property High Court of Japan to appeal the decision of the Tokyo District Court.[41]

25 On 21 June 2018, Barokes applied to the Intellectual Property High Court of Japan to appeal the decision of the Japanese Patent Office.[42]

26 On 29 August 2019, the Intellectual Property High Court of Japan dismissed the appeals.[43]

27 Barokes appealed to the Supreme Court of Japan against the decision of the Intellectual Property High Court of Japan related to the decision of the Japanese Patent Office.[44] At that stage, Barokes did not appeal the decision of the Intellectual Property High Court of Japan related to the decision of the Tokyo District Court.[45] Mr Aoki gave evidence that the last date Barokes was able to appeal the decision of the Intellectual Property High Court of Japan related to the decision of the Tokyo District Court was 16 October 2019.[46]

28 On 6 October 2020, the Supreme Court of Japan dismissed the appeal.[47] Mr Aoki gave evidence that the decision of the Supreme Court of Japan is final.[48]

29 On 7 July 2015, Barokes commenced patent infringement proceedings in the Chengdu Intellectual Property Office against parties engaged in the distribution of beverages in China (Chinese Infringement proceedings).[49] Mr Price gave evidence that Mr Stokes caused Barokes to do this without the authority of the Board of Barokes or other valid authority.[50]

1. I am informed by Shinya Tago, a solicitor for Daiwa Can in Japan, and verily believe that:

31.1 The defendants in the Chinese Infringement Proceedings included Seven-Eleven (Chengdu) Co Ltd, a subsidiary of the Seven&I Group, and Beijing Biaixi Foodstuffs Marketing Co. Ltd (BIX) being companies incorporated in China.

31.2 Seven-Eleven (Chengdu) Co Ltd was, at the time the Chinese Infringement Proceedings were commenced, and at all relevant times, a major distributor and retailer of Daiwa Can group products in China.

31.3 BIX was, at the time the Chinese Infringement Proceedings were commenced, and at all relevant times, a major trading partner of Daiwa Can group products in China.

31 Ms Jiang gave evidence that the Chengdu Intellectual Property Office 'is not empowered to order compensation unless the infringer agrees to compensate the patentee by way of a mediated agreement.'[52]

32 On 24 July 2015, Beijing Biaixi Food Marketing Co Ltd (BIX) commenced proceedings against Barokes in the State Intellectual Property Office of China seeking an examination of the Chinese Patent[53] and then filed a petition in the State Intellectual Property Office of China to suspend the examination on the basis that the Chinese patent was invalid (Chinese Invalidity proceedings).[54]

33 On 4 August 2015, the Chengdu Intellectual Property Office suspended the proceeding pending the outcome of the decision of the State Intellectual Property Office of China.[55]

34 On 4 December 2015, the State Intellectual Property Office of China decided that the Chinese Patent was invalid.[56] Barokes appealed the decision to the Beijing Intellectual Property Rights Court.[57]

35 On 25 October 2018, the Beijing Intellectual Property Rights Court upheld the decision of the State Intellectual Property Office of China.[58] Barokes appealed the decision to Beijing Higher People's Court.[59]

36 On 17 December 2020, the Beijing Higher People's Court dismissed the appeal and upheld the decision of the Beijing Intellectual Property Rights Court.[60] Ms Jiang gave evidence that:

(a) the decision could not be appealed but that Barokes could have applied for a re-trial in a higher court;[61]

(b) the deadline for any such application for re-trial 'should highly likely have expired by end of July 2021'.[62]

37 On 20 January 2021, the Chengdu Intellectual Property Office dismissed the proceeding.[63] Ms Jiang gave evidence that it did so as the Chinese Patent had been invalidated.[64] Barokes did not appeal the decision of the Chengdu Intellectual Property Office.[65] Ms Jiang gave evidence that, absent such an appeal, 'there is no remedy available'.[66]

38 On 8 April 2015, Knights Quest commenced proceeding S CI 2015 01529 against Barokes and Daiwa in which it sought an order that it be granted leave to bring a proceeding in the name of Barokes against Daiwa.[67] The proposed claims concerned, inter alia, alleged representations made by Daiwa.[68] On 30 October 2015, Efthim AsJ, dismissed the proceeding.[69]

39 On 15 March 2016, the Barokes Minority Shareholders commenced proceeding S ECI 2016 00060 against Barokes and Daiwa in which they sought leave, nunc pro tunc, to prosecute the Japanese Infringement proceedings in the name of Barokes (Barokes Minority Shareholder derivative proceeding).[70] On 10 June 2016, Sifris J made orders in the Barokes Minority Shareholder derivative proceeding, granting leave, nunc pro tunc, to the Barokes Minority Shareholders to prosecute the Japanese proceedings in the name of the Barokes upon the giving of a number of undertakings.[71] This included an undertaking by Knights Quest, SMS Management, Mr Stokes and Mr Baric, subject to further order, to fund the prosecution of the Japanese proceedings in the name of Barokes.

40 On 24 August 2015, Daiwa commenced proceeding S ECI 2015 000307 against Barokes in which it sought to wind up Barokes on the just and equitable ground in s 461(1)(k) of the Corporations Act 2001 (Cth) ('Corporations Act') (Daiwa proceeding).[72]

41 On 26 August 2015, the Barokes Minority Shareholders commenced proceeding S ECI 2015 00309 against Barokes and Daiwa in which they alleged oppression by Daiwa (Barokes Minority Shareholder oppression proceeding). The Barokes Minority Shareholders sought, among other relief, an order under s 233(1)(d) of the Corporations Act that Daiwa be required to purchase their shares in Barokes and for leave for Mr Stokes to commence and continue with proceedings in the name of Barokes, including the Japanese Infringement proceedings and the proceedings commenced by BIX against Barokes in the State Intellectual Property Office of China.[73]

42 Sifris J heard the Barokes Minority Shareholder derivative proceeding, the Daiwa proceeding and the Barokes Minority Shareholder oppression proceeding together. On 3 August 2018, Sifris J published reasons.[74] On 20 September 2018, Sifris J made orders in the Daiwa proceeding that Barokes be wound up and that Mr Koutsoukos and Mr Coyne be appointed as joint and several liquidators of Barokes.[75] Sifris J dismissed the Barokes Minority Shareholder oppression proceeding and the Barokes Minority Shareholder derivative proceeding.[76] On 21 September 2021, Sifris J published further reasons in the Daiwa proceeding, the Barokes Minority Shareholder derivative proceeding and the Barokes Minority Shareholder oppression proceeding.[77]

43 The Barokes Minority Shareholders sought leave to appeal the orders made by Sifris J in the Daiwa proceeding and the Barokes Minority Shareholder oppression proceeding.[78] On 28 November 2018, the Court of Appeal further stayed the orders made by Sifris J in the Daiwa proceeding.[79]

44 On 19 December 2018, the Court of Appeal granted the application for leave to appeal and dismissed the appeal.[80]

45 From 19 December 2018, being the effective appointment date of the liquidators, the liquidators traded the business of Barokes until they sold its business and assets.[81]

(a) the Japanese Patent had been declared invalid and the Japanese Infringement proceedings had been dismissed and Barokes' appeals with respect to these matters were pending;[82]

(b) the Chinese Patent had been declared invalid and Barokes' appeal with respect to the this matter was pending and the Chinese Infringement proceedings had been suspended.[83]

47 In the period 20 December 2018 to 31 January 2019:

(a) Mrs Stokes submitted a claim to the liquidators in relation to her employment at Barokes.[84] The claim, inter alia, set out the following:

(i) her position as 'sales and marketing director';

(ii) a claim from 2015 to 21 December 2018 in the total of $269,257.75 based upon a monthly salary of $17,241.17;

(b) Mr Stokes submitted a claim to the liquidators in relation to his employment at Barokes.[85] The claim, inter alia, set out the following:

(iii) his position as 'chairman, managing director, CEO';

(iv) a claim from 1 November 2015 to 14 October 2018 in the total sum of $993,188.55 based upon the Stokes agreement, including monthly payments of $39,583.34, set out in invoices in the name of Greire to Barokes.

48 On 11 January 2019, the liquidators sent their first report to creditors.[86] The report noted, inter alia:

(a) 'We have commenced an urgent assessment of the financial position of the Company and confirm that we are continuing to trade the Company's business with a view to undertake a sale campaign of the business and assets.'[87] (emphasis in original)

(b) 'the Company is currently party to various proceedings in Australian and International jurisdictions (namely, Japan and China) with respect to its registered Intellectual Property ("IP") patents. We have sought legal advice regarding the legal proceedings, licencing agreements and IP on how to proceed.'[88]

(c) 'The following matters remain to be undertaken before completion of the winding up of the Company:' '...Assessing and attending to ongoing litigation with respect to the Company's IP'.[89]

49 On about 16 January 2019, Greire submitted a proof of debt to the liquidators in the total sum of $1,555,859.20.[90] It was constituted by the following:

(a) $920,842: this does not appear to be further explained in the proof of debt. It appears to concern the same subject of the proof of debt submitted by Mr Stokes that I have referred to earlier in these Reasons;[91]

(b) $135,017.20: described as 'Japan Litigation Expenses paid by Greire Pty Ltd under litigation funding agreement with Barokes Pty Ltd'.[92] This was also supported by a loan agreement dated 30 June 2015 between Barokes and Greire[93] and invoices from a Japanese lawyer addressed to 'Knightsquest Pty Ltd' in the period 2016 to 2018.[94]

(c) $100,000: supported by, inter alia, a letter from Barokes to Knights Quest dated 11 June 2014 which stated, in part: 'This letter is to certify that Barokes Pty Ltd received the loan funds of $100,000 on 11th June 2014 from Knights Quest Pty Ltd which were credited to the Barokes account...'.[95]

50 On about 25 January 2019, Daiwa submitted a proof of debt to the liquidators in the sum of $10,828,854.22 with respect to a loan between Barokes and Daiwa.[96]

51 On about 29 January 2019, the liquidators commenced a sale campaign by advertising the sale of Barokes' business and assets and seeking expressions of interest by 5pm on 11 February 2019.[97] The liquidators received 11 expressions of interest, of which nine parties executed confidentiality agreements and paid the $10,000 deposit (Interested Parties).[98] This included Daiwa.

52 On about 18 February 2019, the liquidators issued a 'Business Information Memorandum' (Business Information Memorandum) to the Interested Parties.[99] The Business Information Memorandum, contained, inter alia, the following details:[100]

(a) Section 2 stated, inter alia:[101]

The Liquidators reserve the right to evaluate any offers, to reject any or all offers submitted and to deal with any one party to the exclusion of or not to or cease to deal with a party without giving reasons or prior notice to that interested party. The Liquidators will not be liable to compensate the interested party or any intending acquirer for any costs or expenses incurred in reviewing, investigating or analysing any information in relation to the Company's business and assets, in making an offer or otherwise.

(b) Section 3 stated, inter alia:[102]

We have determined that it is in the interests of the Company's creditors and stakeholders that the Company's business and assets be offered for sale on a going concern basis. As such, it is the Liquidators' intention to continue to operate the business in the short term while the business and assets are marketed and a purchaser sought.

(c) Section 7.3 titled 'Intellectual Property - Patents' (part of section 7 titled 'Assets Offered for Sale') described the patents for sale by reference to information in a data room. This information was not in evidence.

(d) Section 7.4 titled 'Legal Proceedings' described the legal proceedings concerning the challenges to Barokes' intellectual property rights, including with respect to Japan and China, as follows:[103]

7.4.1 Japan

The Company had registered patents in Japan.

In 2014/2015, the Company issued proceedings against various entities for infringement of those patents.

The patents were subsequently held to be invalid by the Tokyo patent office and the infringement claims are held in abeyance.

An appeal against the invalidation of the patents is being heard in the relevant Court in Japan and a decision is expected by mid 2019.

Should the appeal be successful, then it is likely that the infringement proceedings can be re-commenced.

7.4.2 China

The patents in China have experienced similar issues to those described above (Japan).

We are awaiting further advice with respect to the status of these proceedings.

Prospective purchasers of the Business and Assets of the Company are asked to make their own enquiries to verify the information above. Please contact the Liquidators for further details.

We note that any current or future claims the Company is entitled to make with respect to infringements of its patents are specifically excluded from the sale contemplated by this IM.

The Liquidators reserve the Company's rights with respect to all current and future claims which arise up to the date of the Sale of its Business and Assets and assignment of IP rights..

(f) Section 9 titled 'Employees' set out, inter alia, the following estimate of the entitlements owed to employees:[105]

(g) Section 11 titled 'Offers' stated:[106]

Please find a template for a non-binding indicative offer located in the data room ("G-1").

Closure date for the submission of indicative offers is no later than Friday, 8 March 2019 at 4.00pm (AEST).

The Liquidators will only consider offers submitted in the template format.

Contracts should be signed in a timely manner and, in any event, no more than 30 days from acceptance of an indicative offer subject to any extension of time granted by the Liquidators. If no such extension of time is granted by the Liquidators, the refundable deposit and any further monies paid by an offeror to the Liquidators will not be refunded.

(h) Section 12 titled 'Reservation' stated:[107]

The Liquidators reserve the right to deal with offers as they see fit and not necessarily accept the highest offer or any offer received.

The Liquidators reserve the right to alter the sale process, including the assets offered for sale and the timeframes/deadlines.

53 Mr Coyne gave evidence that a decision was made to exclude the infringement claims from the sale to preserve the value of claims arising from intellectual property rights.[108]

54 On 1 March 2019, Daiwa's solicitors sent an email to the liquidators in which they sought an extension to 22 March 2019 to make an indicative offer and, inter alia, stated:[109]

1. Whilst the above qualification to the assets is not entirely clear, it seems possible that the proposal is that prospective purchasers are being asked to make an offer to purchase intellectual property (such as patents) but that it is contemplated that such purchaser will not own or control any proceedings concerning the validity of those patents or any benefit from any claims for infringement (if validity is otherwise established).
2. Without accepting that it is possible to detach rights attaching to patents in the manner which appears to be contemplated (that is a matter of point which our client will investigate as part of its due diligence), we request you clarify your position on this issue and indicate whether, notwithstanding the qualification (if we have interpreted it correctly above) you are prepared to entertain offers which involve the purchase of all of the intellectual property and all rights, interests and claims attaching to it?
3. Can you also please explain and outline the legal mechanism by which you contemplate retaining rights in respect of the patents.

55 On 4 March 2019, the liquidators informed Daiwa that they had extended the deadline to the Interested Parties for indicative offers to 4pm on 15 March 2019.[110]

56 On 6 March 2019, the liquidators responded to queries made by Daiwa's solicitors on 1 March 2019 and stated, inter alia:[111]

Below is a table indicating the jurisdictions and the types of legal proceedings currently on foot:

Pending Patent Registrations and Potential Infringement Claims

As per the Information Memorandum, the Company retains all rights with respect to the Infringement Claims. As the infringements arise before the sale date, it's only right that the Company should receive the benefit of such. The Company will also retain all rights with respect to any infringement claims that may still arise before the day of sale. In these countries the Patent Protection Proceedings are integral to the Infringement claims. Therefore, the Liquidators would only consider a sale of both the Infringement Claim and the Patent Protection Proceedings in the relevant jurisdictions.

The Liquidators may consider offers to purchase the Infringement Claims from Barokes.

57 On 7 March 2019, Mr Ikeda, Mr Yamaguchi and Mr Kuriyama, of Daiwa, stamped their seals on a document prepared by Mr Ikeda that set out the terms on his authority to cause offers to made to the liquidators by Daiwa for the assets of Barokes.[112] At the time, Mr Ikeda was the Director in charge of the Sales & Marketing Centre, Sales Control and Sales & Product Development Department at Daiwa.[113] From 1 April 2019 to 25 June 2020 he held the position of Director in General Affairs and Resources at Daiwa.[114] The document recorded, inter alia, the following under the heading 'Re Participation in the Bidding':[115]

(Closing date 15 March, assuming DD done mainly focusing on checking the content of trading agreements)

(1) It will take time to check the export actuals to 30 countries around the world, we will bid up to a Max of the JPY 1.1 billion (AUD $10,828,854.22) loan as we initially envisaged, on the premise that we can continue selling to Nishuhan, which accounts for at least 80% of sales, and maintain relationships with the bottlers, can manufacturers as well as the raw material wine suppliers, and that our company will be definitely recognized as a creditor and that the majority (around 90%) of the bid price will be returned to our company.

(2) We want to convey the conditions listed in (1) above to the liquidator and enter into coordination and negotiations with a specific liquidator

Issues: Need to check the tax aspects and flow of money

58 Mr Coyne gave evidence that a meeting took place between the liquidators, representatives from Daiwa and Daiwa's legal representatives on 13 March 2019 and during this meeting Mr Coyne said that the liquidators were open to selling the rights attached to the Japanese Infringement proceedings and the Japanese Invalidity proceedings.[116]

59 The liquidators received non-binding indicative offers from five of the Interested Parties in response to the Business Information Memorandum.[117] Mr Coyne gave evidence that the liquidators decided, on a commercial basis, not to pursue two of the Interested Parties and refunded their deposits.[118] He also gave evidence that the liquidators focused on pursuing and improving the offers made by the remaining Interested Parties, being Daiwa, Ball Corporation Inc (Ball Corporation) and Intelligent Packaging.[119]

60 On 15 March 2019, Daiwa's solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa's First Offer).[120] Daiwa's First Offer set out 'key terms', including the following:[121]

This offer includes the acquisition of all the rights attaching to all patent infringement and patent protection claims, causes of action, rights to sue, rights to seek relief of any kind and rights to receive all of the fruits of any such claim in all jurisdictions worldwide involving the Vendor and/or their subsidiaries which have arisen on or before the date of this Offer or may arise after the date of this Offer (for the avoidance of doubt, including, but not limited to, Barokes Limited).

The Purchaser's offer for the Vendor's Business and Assets is AUD$10,828,854.22, to be paid in instalments and subject to a set off against the debt owed to Daiwa Can Company, as agreed in writing between the Parties.

The conditions attached to the offer by the Purchaser which must be satisfied by the Vendor before execution of an Agreement are as follows:

(a) the Liquidator's proofs of debt for priority creditors (including the Liquidator's costs, legal fees and employee arrangements) is an amount no more than $1,000,000;

(b) the Liquidator's proofs of debt for unsecured creditors is an amount no more than AUD$1,000,000 (excluding all unsecured debt owed by the Vendor to Daiwa Can Company);

(c) Daiwa Can Company's unsecured debt owed by the Vendor is proofed by the Liquidator to be approximately AUD$10,828.854.22;

61 On 18 March 2019, the liquidators issued their second report to creditors.[122] The report recorded:

(a) related party creditors were estimated by the liquidators at $12,392,089;[123]

(b) related party creditors were constituted by, in part:

(i) $10,828,854 claimed by Daiwa.[124] The liquidators stated that they have sought legal advice in relation to Daiwa's claim and that 'our preliminary view is that the monies paid by Daiwa to the Company are loans that rank as an unsecured creditor in the Liquidation.';[125]

(ii) $920,842 and $152,864 claimed by Greire. The report described the sum of $920,842 as 'Deferred Wages' and stated, in part, 'We are investigating the relationship between Greg Stokes, Greire and the Company to determine the nature and quantum of this claim as it does not appear that Greire has a contractual relationship with the Company.'[126] The report described the sum of $152,864 as 'Japanese Litigation funding' and stated, in part: 'On 7 June 2016, Justice Sifris granted leave for the Australian shareholders to pursue Daiwa Can Company with the costs to be paid by the Australian shareholders (KQ and SMS Management Pty Ltd) by way of undertaking to indemnify the Company and held the Company "harmless against costs".'[127] Section 2.2.5 of the report titled 'Related Party Creditors' then concluded 'We are reviewing and seeking legal advice with respect to the ESA and the Orders relating to the litigation funding. We are also preparing a letter to Mr Stokes requesting further information regarding the above.';[128]

(iii) $100,000 claimed by Knights Quest. The report stated, in part: 'We have been provided with a proof of debt and supporting documentation with respect to a loan of $100,000 from KQ to the Company for working capital, pursuant to an agreement of the shareholders. We are yet to identify the amount being deposited into the Company bank account and will request KQ for further details.';[129]

(iv) $389,528 in Excluded Employee entitlements, being claims of related parties (i.e. directors and their relatives) in excess of certain amounts, thereby ranking as unsecured claims and included in 'related party creditors'.[130] This was stated to be based upon 'employee claim forms received and the Company's books and records'.[131]

62 On 19 March 2019, the liquidators' solicitors sent an email to Daiwa's solicitors attaching a letter to them also dated 19 March 2019, which stated, in part:[132]

We note the following queries which correspond to the item numbers set out in the NBIO:

Item 6 (Patent Claims): Please advise the amount that is being offered by Daiwa to purchase the patent infringement claims. We note that the Barokes Information Memorandum (IM) has segregated the patent infringement claims from the rest of Barokes' assets. Notwithstanding this, the Liquidators also advised during the meeting on 13 March 2019 that they would entertain offers with respect to the patent infringement claims. It now appears from the NBIO that Daiwa wishes to purchase the patent infringement claims and yet no value or offer has been ascribed to them. Please clarify and advise.

Item 7 (Purchase Price): The NBIO notes that payment of the purchase price will be made in instalments. Please advise the proposed schedule for instalment payments and the security that will be provided with respect to such payments.

- The Liquidators cannot accept any offer that caps the claims of either priority creditors or unsecured creditors, as described under paragraphs (a) and (b).

63 On 25 March 2019, Daiwa's solicitors sent a letter to the liquidators' solicitors to clarify and provide further information in relation to Daiwa's First Offer (25 March 2019 Letter). Daiwa's solicitors stated, inter alia:[133]

1. Specifically, in relation to the patent infringement claims, it is our client's view that it would be commercially unattractive to acquire the patents held by Barokes Pty Ltd (In Liquidation) (ACN 079 714 579) (Barokes) without, to the extent that can be legally achieved, acquiring the rights to all claims. We are of the view that it would be very difficult to separate the patents from the rights to the patent infringement claims and the patent defensive claims and in doing so could potentially dilute the value of the patents. This is partly because, among other reasons, a counter claim for patent invalidity usually follows a claim for patent infringement and the proceedings are often held together. To the extent that can be legally achieved, acquiring control of both sets of proceedings is integral to maintaining the value of the patents.
2. In addition, should Daiwa acquire the patents without the corresponding rights to the patent infringement claims, the patent infringement claims could be settled on commercial terms, which could possibly include provision of a licence or other rights of use to exploit the patents. This in itself could give rise to a derogation of the value of the patents.
3. For these reasons, our clients offer does not seek to separate a value between the patent assets and the patent infringement claims. It is our client's view that it would be commercially unattractive to purchase patent assets that could be potentially devalued by a third party in proceedings. Accordingly, with respect to the patents that are offered as part of the sale, the offer is to acquire the patents and all claims in connection with the patents.

1. The total consideration offered by Daiwa for all the assets and the claims is for an aggregate purchase price of AUD$10,828,854.22.
2. In relation to a set-off of the purchase price, we do not envisage that the purchase price would be a reduced straight set off against the purchase price offered by Daiwa. Any set-off would only occur after all legally required and adjudicated procedures by the Liquidator have occurred.
3. We understand accordingly that Daiwa's debt would need to be adjudicated and proved before any set-off arrangement could occur. We also understand that any payment to Daiwa would need to be considered with and against all other proved priority and unsecured creditors.

1. However, we are open to an alternate approach to set-off and envisage further details of such set out in the full form agreement.

1. Please note that our client's offer does not seek to cap the amount owed by Barokes to priority creditors and unsecured creditors or to curtail the Liquidator's legal obligations. The offer contains conditions precedent that are to either be satisfied following the adjudication of all debts by the Liquidator or agreed to be waived in writing by the parties. This leaves open the possibility that if the amounts adjudicated by the Liquidator for the priority and unsecured creditors are higher than the amounts specified in the conditions precedent, the parties could waive this requirement. The commercial reason behind the inclusion of these conditions precedent is due to Daiwa requiring internal approvals for the offer and for any subsequent increase in cash payment to priority and unsecured creditors before any set-off occurs.
2. To alleviate any concerns, we envisage that the full form agreement could, in the event that the amount adjudicated by the Liquidator for the priority and unsecured creditors increases above that specified in the conditions precedent, contain a clause to effect that Daiwa will use their best endeavours and act in good faith to either waive these conditions precedent or accept an increase if the values adjudicated to be owing to priority or unsecured creditors increases by a commercially acceptable amount.
3. Alternatively, and subject to agreement by the Liquidators', given that the Report to Creditors dated 18 March 2019 provides that trade creditors are projected to be $914,867, we are instructed that Daiwa propose that the amounts specified in the conditions precedent (being Item 9 paragraphs (a) and (b) in relation to the Liquidators' proofs of debt for priority creditors and unsecured creditors unrelated to Daiwa) are in the alternate to be in aggregate no more than $2,000,000.

1. We acknowledge that Daiwa's debts have not been formally adjudicated and request that this is undertaken as soon as possible. We will separately send through the required form.

64 On 28 March 2019, Mrs Stokes sent an email to the liquidators attaching a non-binding joint offer from Intelligent Packaging and Ball Corporation of $2,500,000 (Joint Venture's First Offer).[134]

38. At or around this time, the Liquidators formed the view that:

(a) Barokes' claims in respect of the Japanese Infringement Proceeding and the Japanese Invalidation Proceeding were contingent claims, as they were subject to appeal proceedings in Japan; and

(b) it would be difficult to quantify any claim for loss of profit and damages arising from the Japanese Infringement Proceeding or estimate the costs associated with pursuing the same.

1. Notwithstanding the matters set out at paragraphs 37 and 38 above, the Liquidators requested that both Daiwa, and Ball Corporation and Intelligent Packaging make alternative offers so that their respective offers could be compared more accurately.

66 On 2 April 2019, the liquidators' solicitors sent a letter to Intelligent Packaging and Ball Corporation[136] stating that, inter alia, the Joint Venture's First Offer would be more attractive if it was amended and resubmitted on certain terms, including:[137]

(a) it included the purchase of rights to the various infringement claims available to Barokes;

(b) Intelligent Packaging and Ball Corporation assumed liability for any amounts owed with respect to the claims of Mr Stokes or Greire;

(c) terms of payment of the Purchase Price be 10% payable on the signing of a contract of sale and the full balance payable at settlement to alleviate any risk to the liquidators.

67 The liquidators' solicitors also stated in this letter that any amended offer would, if accepted by the liquidators, form a legally binding agreement subject to only the parties finalising an asset purchase agreement consistent with the amended offer.[138]

68 Mr Coyne gave evidence that the letter of 2 April 2019 requested an alternative offer 'excluding the infringement claims'.[139] The letter, in fact, requested the opposite. That is, it requested them to be included. This is clear from the terms of the letter itself. The liquidators accepted, at the commencement of the hearing, that this evidence was erroneous.[140]

69 On 5 April 2019, Intelligent Packaging and Ball Corporation made a further non-binding offer (Joint Venture's Second Offer).[141] In summary, it set out two options for the purchase price.

70 'Option 1', which included the 'Barokes legal Claims (Japan and China)'[142] contained the following as purchase price:

(a) a cash component of the purchase price of $2,500,000;

(b) Intelligent Packaging and Ball assume liability for the amount owed with respect to Greire's claim in the sum of $1,073,706;

(c) 25% of damages received from claims would be paid to Barokes, including from the Japanese Infringement proceedings (i.e. 25% of approximately $112,000,000 damages available as confirmed by KordaMentha) and the Chinese Infringement proceedings (i.e. 25% of approximately $2,800,000 to $5,600,000).

71 'Option 2', which did not include the 'Barokes legal Claims (Japan and China)', contained the following as purchase price:

(a) a cash component of the purchase price of $2,500,000; and

(b) Intelligent Packaging and Ball assume liability for the amount owed with respect to Greire's claim in the sum of $1,073,706.

72 On 10 April 2019, the liquidators solicitors sent an email to Daiwa's solicitors in which they stated that they were seeking advice with respect to the matters 'raised in Daiwa's offer relating to patents and claims' and in the meantime that they 'would appreciate if Daiwa was also able to make an alternate offer excluding the infringement claims.'[143]

73 On 12 April 2019, the liquidators' solicitors sent an email to Daiwa's solicitors asking for a timeframe for its alternate offer and noted that they 'would like the sale to occur by no later than the first week in May. This means we would need to make a decision next week to allow time for contracts to be agreed and exchanged.'[144] Further, on 16 April 2019, the liquidators solicitors sent an email to Daiwa's solicitors in which they stated, inter alia: 'Are you still tracking for today? I only ask as it is now becoming critical as far as our future trading is concerned. We need to shortly make decisions re production in May 2019 and we would like to be in a position this week to accept an offer for the purchaser to take over May orders/production.'[145]

74 On 16 April 2019, Daiwa' solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa's Second Offer).[146] Daiwa's Second Offer offered the sum of $1,500,000 for the business and assets. It also contained an offer described as 'Additional Consideration' in the following terms:[147]

The Purchaser will also make an additional payment of not less than $500,000 and not more than $8,828,854, to be agreed between the parties and to the extent permitted by law that the Liquidator agrees, among other things, in good faith to sell to the Purchaser all other rights attaching to all patent infringement and patent protection claims, causes of action, rights to sue, rights to seek relief of any kind and rights to receive all of the fruits of any such claim in all jurisdictions worldwide involving the Vendor and/or their subsidiaries which have arisen on or before the date of this offer or may arise after the date of this offer (for the avoidance of doubt, including, but not limited to, Barokes Limited) (the Additional Consideration). The payment by the Purchaser of the Additional Consideration is also subject to the Liquidator providing notice of an interim dividend in respect of the unsecured creditors.

75 It also detailed a key term described as 'Offer Details and Conditions' as follows:[148]

The conditions attached to the offer by the Purchaser which must be satisfied by the Vendor before execution of an Agreement are as follows:

(a) the Vendor and the Liquidator must to the maximum extent permitted by law, consult in good faith with the Purchaser relating to the conduct of any proceedings in connection with any patent infringement claim or patent protection claim involving the Vendor and/or their subsidiaries;

(b) Without limiting the obligations in 8(a) above, the Vendor undertakes and warrants to rely only upon advice from appropriate legal advisors independent of any of the current shareholders (or any related person or party) in the conduct and pursuit of any claims in connection with the patents. Such legal advisors will not include Seiwa Patent & Law; and

(c) the Purchaser confirming ownership in its due diligence enquiries and acquiring as part of the Agreement the ownership with all rights, title and interest in all patents listed in Schedule B.

76 On 17 April 2019, Mrs Stokes sent two emails to the liquidators' solicitors in which she stated, inter alia, that Intelligent Packaging and Ball Corporation would also assume liability for the following 'employee entitlements': Mrs Stokes in the sum of $269,257.75, Mr Stokes $72,398.55 and Mr Barics in the sum of $38,665.34 (Joint Venture's Third offer).[149]

77 Mr Coyne gave evidence that on 17 April 2019 the liquidators and Mr Rose, a solicitor for Daiwa, had a telephone conference and Mr Coyne told Mr Rose the following:[150]

(a) the Liquidators had made the decision to only sell Barokes' business and assets as a going concern;

(b) the Liquidators will separately consider the sale or the settlement of the claims relating to the Japanese Infringement Proceeding and the Japanese Invalidation Proceeding;

(c) the Liquidators considered that the cash component of $1.5 million in the Second Daiwa NBIO was inferior to the Second Joint NBIO;

(d) the Liquidators' decision as to the acceptance of any offer will largely be based on the ultimate return to creditors; and

(e) any revised offer will need to be received by close of business on 17 April 2019, as the Liquidators will be accepting an offer on 18 April 2019.

78 Mr Coyne gave evidence that the liquidators considered that 18 April 2019 was a suitable deadline for offers as:[151]

(a) the deadline for offers had previously been extended twice in March 2019;

(b) the Liquidators' assessed that Barokes could face cashflow difficulties in fulfilling further orders by around the end of May 2019; and

(c) the Liquidators wanted to ensure the sale as a going concern.

79 On 17 April 2019, Daiwa' solicitors sent an email to the liquidators attaching a non-binding indicative offer (Daiwa's Third Offer).[152] Daiwa's Third Offer offered the sum of $6,500,000 comprising a cash payment of $1,500,000 and a waiver and release of an amount of $5,000,000 of the 'Purchaser's debt owing to the Vendor'. It also retained the term titled 'Offer Details and Conditions' from Daiwa's Second Offer.

80 On 17 April 2019, Daiwa's solicitors sent an email to the liquidators' solicitors in which they noted that the term titled 'Offer Details and Conditions' in Daiwa's Third Offer 'will remain - which can of course be waived, if required, at the relevant time'.[153]

81 Mr Coyne gave evidence that the liquidators considered that Daiwa's Third Offer was 'to be an offer conditional on clause 8'.[154] On or about 17 April 2019, Mr Koutsoukos made a file note, which is set out below.[155] The file note sets out a detailed account of the sale process and the reasons for the liquidators' decisions.

• We commenced a campaign for the sale of the Company's business and assets on 29 January 2019 by advertising in the Financial Review and Financial Times.
• We received 11 expressions of interest with 9 parties executing Confidentiality Agreements and paying a $10,000 deposit.
• We received 5 Indicative offers
• We determined it was not worthwhile to pursue two of the offers and their deposits were refunded.
• We have worked with 3 parties to improve offers.
• 2 of the parties, Ball Corporation and Intelligent Packaging indicated a willingness to submit a JV offer and we facilitated same. We have received a JV offer from these parties. The JV offer was for consideration of $2.5m for the business and assets.
• Daiwa submitted an offer of $10.8m for the business and assets of the Company, including legal claims the Company may be entitled to pursue.
• During the process we have investigated the potential Claims available to the Company. We have determined that the Claims are contingent at this stage and subject to a successful appeal in the Japanese Court system. A successful outcome would re-enliven the Japanese and Chinese Infringement proceedings, however, quantification of any claim for loss of profits and damages is too difficult to determine at this stage. Furthermore, the costs associated with pursuing the claims are also difficult to estimate.
• Notwithstanding the above, so we could compare the JV and Daiwa offers more accurately, we invited the JV to submit and Alternate offer which included the Claims. The alternate JV offer did not increase consideration but rather provided an option to continue proceedings under a quasi Litigation Funding arrangement whereby the Company would receive a percentage return on any successful recovery.
• We have also considered the following issues:

○ The impact of the Liquidation on the going concern value of the business:

• To this extent, we note that the Licence Fee division of the business has declined as a result of the liquidation, most likely due to uncertainty.
• Potential Licencees have been reluctant to enter into new Licence Agreements with the Liquidators as we cannot guarantee future supply
• The Chinese distributor is eager to enter into a new distribution agreement which we cannot finalise due to inability to guarantee ongoing supply

The motivation of staff and associated difficulties to continue to "sell" in distressed circumstances.

○ The ongoing costs associated with the Liquidators trading the business (4 months of trade)

○ The ongoing costs associated with the Liquidators delaying a sale and dealing with revised offers

• In its offer, Daiwa indicated that its view was that the claims must be sold with the patents for the patents to retain their value. For example, if the claims we separated, the party with the claims could impact the value of the patents by settling or not pursuing claims. We also sought advice from M&K's patent/IP Partner who indicated that under Australian legislation any infringement claims can only be undertaken by the registered owner of the patents. We then sought advice from the Company's Japanese lawyers acting with respect to the litigation in Japan (Seiwa Patent Attorneys). Seiwa's advice was that in Japan, the Company will still be able to continue or make claims up to the date the Patents are assigned or transferred. In other words, there should be no effect on the ability to pursue claims if the patents are sold.
• We have also considered that any sale will likely involve a licence of the patents and rights instead of an immediate assignment to maintain the status quo. We do not believe the purchasers would have any issues with this approach given that it will likely take months to effect assignments in the various jurisdictions. A licence agreement would seem necessary as opposed to optional.
• We ultimately made the decision that we will only be dealing with the Company's business and assets during this process. The potential claims are contingent and difficult to quantify, therefore it is very difficult to analyse and justify an appropriate commercial amount to accept or settle the claims at this stage as they are unliquidated. Furthermore, the liquidators cannot continue to trade the business indefinitely for the reasons set out above.
• We have advised both the JV parties and Daiwa of the above and that we will be making a decision with respect to accepting an offer by 18 April 2019 and we will endeavor to finalise the sale by mid-May 2019 to enable the new purchaser to take-over the May production run scheduled for late May.
• We advised both parties that they were welcome to improve their offers for our final consideration.
• On 17 April 2019, Irene Stokes on behalf of the JV confirmed that Option 2 in their revised offer dated 5 April 2019 should also include a withdrawal of claims of Greire P/L (circa $1m), Irene Stokes (circa $260k), Greg Stokes (Circa $72k) and Steve Barics (circa $38k). These withdrawals would be offered along with cash consideration of $2.5m ($500k from Ball Corp from its own cash reserves and $2m from investors of which we have sighted letters of intent confirming funds are immediately available).
• On 16 April 2019, Daiwa submitted a revised offer to purchase the business and assets of the Company for $1.5m. The offer also included a separate offer for the Claims for consideration ranging between $500,000 to $8.8m.
• On 17 April 2019, we held a teleconference with Daiwa's lawyers and advised as follows:

○ We will only be selling the business and assets as a going concern at this time

○ We will consider the sale or settlement of claims separately

○ The offer of $1.5m is significantly inferior to the competing offer

○ Our decision will largely be based upon the ultimate return to creditors, ie, cents in the dollar.

• Daiwa's lawyers advised that they would seek instructions to improve the current offer. We advised that we will require any improved revised offer by close of business as we will be making a decision on 18 April 2019.
• We received an improved revised offer from Daiwa's lawyers on 17 April 2019 as follows:

• We sought clarification regarding clause 8 of their offer which related to Conditions surrounding the Claims. By email, their lawyers confirmed that "the conditions will remain - which can of course be waived, if required, at the relevant time."
• It therefore appears that the Daiwa offer is conditional.
• We have set out the offers and likely returns to creditors in the attached table. The Daiwa Offer provides for a return to creditors of approx. 17.78 cents in the dollar. This is after reducing the Daiwa Claim by $5m and includes all other related party creditors in full.
• The JV offer provides for a return of 21.21 cents in the dollar.
• We have also considered the position under the Daiwa offer by excluding the Greire claim as we have been advised that Daiwa dispute this claim. If excluded, the return under the Daiwa offer is 20.04 cents in the dollar.
• Based on the above, the decision has been made to accept the JV offer.

1. At that time, no further offers were made on behalf of Daiwa or Ball Corporation and Intelligent Packaging following their making of the Third Daiwa NBIO or the Second Joint NBIO respectively.
2. On 18 April 2019, the Liquidators analysed the likely return to all of creditors if the Third Daiwa NBIO or the Second Joint NBIO were accepted. The Liquidators formed the view that the Second Joint NBIO would result in a greater likely return to unsecured creditors of 21.21 cents in the dollar compared to the likely return to creditors of 17.78 cents in the dollar likely generated by the Third Daiwa NBIO. As a result, the Liquidators formed the view that the Second Joint NBIO was more attractive than the Third Daiwa NBIO. This was due to the fact that the Second Joint NBIO was more financially beneficial to all of the unsecured creditors. In those circumstances, we decided that it would be a better commercial outcome to accept the Second Joint NBIO compared to the Third Daiwa NBIO.

83 The liquidators' analysis is set out in a Table prepared by them.[157]

84 On 18 April 2019, the liquidators informed Mr and Mrs Stokes that they are progressing with a sale to Intelligent Packaging and Ball Corporation in accordance with 'Option 2'.[158] The liquidators also provided a marked up version of the Joint Venture's Second Offer and stated 'These amendments reflect some of the terms sent to us separately via email...'.[159] The mark-up included, inter alia:[160]

(a) amending 'non-binding' to 'binding';

(b) deleting matters concerning 'Option 1', including deleting the words 'Barokes legal claims (Japan and China) - Option 1 offer' from the 'Schedule A - Assets';

(c) deleting the total figure for the purchase price and adding the following to the purchase price: 'plus stock' and 'plus assumption of other related party claims';

(d) adding to the cash component of $2,500,000 '10% at exchange of contracts'.

85 Not all of the marked-up amendments reflected the terms set out in the emails I have referred to earlier in these Reasons.[161] This included the following:[162]

(a) amending 'non-binding' to 'binding';

(b) adding the words '10% at exchange of contracts' to the cash component of 'Option 2';

(c) adding the words 'This offer is legal binding subject to finalisation of the Sale Agreement which will largely be on the terms of this NBIO';

(d) Adding the words 'Subject to discussion re: German negligence claim' to Schedule A.

86 On 19 April 2019, Mr Coyne told Mr Rose that the liquidators had decided to progress with another offer.[163] Later that day, Mr Rose sent an email to the liquidators attaching a non-binding indicative offer from Daiwa (Daiwa's Fourth Offer).[164] Daiwa's Fourth Offer offered the sum of $6,500,000 comprising a cash payment of $3,000,000 and a waiver and release of an amount of $3,500,000 of the 'Purchaser's debt owing to the Vendor'. It did not contain the term titled 'Offer Details and Conditions' from Daiwa's Second Offer and Daiwa's Third Offer. It described the 'Assets' as 'The Purchaser proposes to acquire all of those assets that the Purchaser considers are necessary for operating the business of the Vendor as outlined in Schedule A'.[165]

1. The Liquidators did not (and I considered, could not) reopen the negotiations to consider the Fourth Daiwa NBIO because the Liquidators had already accepted the Second Joint NBIO made by Intelligent Packaging and communicated the same on 18 April 2019 in the correspondence referred to in paragraph 5255 [sic] above.
2. The Liquidators considered that if they were to purport to accept the Fourth Daiwa NBIO having already agreed to accept the Second Joint NBIO, we and/or Barokes would be exposed to legal proceedings by Ball Corporation and Intelligent Packaging to enforce that agreement and the entire sale process would have been jeopardised.

88 On 19 April 2019, the liquidators sent an email to Daiwa's solicitors informing them they were not prepared to reopen the negotiations at this stage.[167]

89 On 23 April 2019, the liquidators' solicitors sent an email to Mrs Stokes attaching the 'Amended Binding Indicative Offer for execution'.[168]

90 On 23 April 2019, the liquidators sent a letter to Daiwa advising that its proof of debt dated 25 January 2019 against Barokes in the sum of $10,828,854.22 was admitted in full.[169]

91 On 24 April 2019, Mrs Stokes sent an email to the liquidators solicitors attaching the 'Amended Binding Indicative Offer' executed by Intelligent Packaging.[170]

92 On 3 May 2019, Ball Corporation sent an email to, among others, the liquidators' solicitors in which it stated:[171]

I would like to clarify what Ball's role is in this transaction. Given the circumstances, we believe the best way forward is for Ball and Intelligent Packaging to work out the details of the license agreement amongst ourselves and the payment details, and as such, Ball would not be party to any agreements that were submitted in the email below.

I have copied our internal legal counsel (Todd Mikesell) and external local legal counsel (Jonathan Corby) in case you would like further clarification on how we plan to move forward. Please note that we remain interested in moving forward and we believe we can work out the appropriate details with Intelligent Packaging in a timely manner.

93 On 9 May 2019, the liquidators sent a letter to Daiwa's solicitors in which they responded to a number of queries, including about the sale process.[172]

94 On about 30 May 2019, the liquidators and Intelligent Packaging entered into an agreement titled 'Sale of Business & Assets Agreement'.[173]

95 In the period 4 June 2019 to 10 December 2020, Daiwa's solicitors and the liquidators' solicitors exchanged correspondence with respect to the sales process.[174]

96 On 7 June 2019, the sale of Barokes' business and assets completed.[175]

97 On 7 June 2019, the liquidators' solicitors sent a letter to Daiwa's solicitors in which they stated, inter alia:[176]

The claims referred to were excluded from the Transaction. The liquidators' primary focus was to sell Barokes' business in a truncated campaign so as to avoid the ongoing costs of trade and the diminishing value of the business in a distressed situation. There has been considerable time and expense spent on these claims prior to our client's appointment and it made commercial sense to allow these proceedings to continue at minimal cost.

98 On 1 July 2019, the liquidators' solicitors sent an email to Daiwa's solicitors in which they stated; inter alia:[177]

The IM explicitly excluded all legal proceedings as part of the sale. The Liquidators however have always been (and still are) open to negotiating the purchase of these proceedings separately to the sale of the business and assets. Nevertheless, Daiwa Can made its First, Second and Third Offers conditional upon (amongst other things) the sale and or conduct of the proceedings.

99 On 17 September 2019, the liquidators sent their third report to creditors.[178]

100 On 3 October 2019, there was a meeting of the creditors of Barokes.[179]

101 Mr Ikeda gave the following evidence concerning the approach he would have taken to further negotiations with the liquidators for the sale of the assets of Barokes:[180]

1. At the time I caused the offers set out above to be made, I was aware of proceedings brought by the Company against Daiwa Can in Japan (Japanese Infringement Proceedings) and against Seven-Eleven (Chengdu) Co Ltd and Beijing Biaixi Foodstuffs Marketing Co., Ltd. (BIX) in China (Chinese Infringement Proceedings) (together, the Overseas Proceedings).
2. I considered it commercially desirable for Daiwa Can to purchase from the Liquidators the right to pursue the proceedings in Japan as they were proceedings against Daiwa Can.
3. At the time that the proceedings in China were on foot:

17.1 Seven-Eleven (Chengdu) Co Ltd was a subsidiary of the Seven & I Group, which was a major retailer of Daiwa Can group's products and a retailer of the Company's products; and

17.2 BIX was a part of the Itochu Group, which was a distributor of Daiwa Can Group's products.

1. The litigation which the Company commenced against Seven-Eleven (Chengdu) Co Ltd and BIX was also of interest to Daiwa Can because it was my view that the Company should not sue Daiwa Can's retailers or customers.
2. For these reasons, it was my view that any sale of the assets of the Company to Daiwa Can should include the Company's right to bring the Overseas Proceedings. Had those rights been sold to Daiwa Can, I expect that Daiwa Can would have caused the proceedings in Japan and China to come to an end.
3. Had the Liquidators told Daiwa Can that they wished to negotiate or otherwise discuss the offer made by Daiwa Can on 15 March 2019 and then developed in the letter dated 25 March 2019 (together, First Offer) to achieve a sale that included the Overseas Proceedings, I would have been willing to do so.
4. I am aware that the amount that Daiwa Can would have to pay under the First Offer (had it been accepted) depended on how much debt claimed by creditors of the Company was to be admitted. I expected that all of Daiwa Can's debt would be admitted. However, I was not certain how much other debt would be admitted. I did not expect that all of the debts that had been submitted by creditors associated with Mr Stokes would be admitted in full.
5. However, if the result of the negotiations was that Daiwa Can had to pay AUD $1.8 million and sacrificed any right to a distribution for the assets of the Company including the Overseas Proceedings, I would have considered that to be acceptable to Daiwa Can and I would have caused Daiwa Can to agree to a sale on that basis pursuant to the authority documented on 7 March 2019. Had the liquidators wanted to agree a sale of the assets including the Overseas Proceedings that included an identified cash component and set-off component prior to the adjudication of any claims, I would have caused Daiwa Can to agree to a sale by which it paid AUD $3 million and agreed to release the balance of its debt ($7,828,854.22) pursuant to the authority documented on 7 March 2019. Further, if the Liquidators wanted to agree a sale of the assets which incorporated the Japanese Infringement Proceedings but not the Chinese Infringement Proceedings, I would have still caused Daiwa Can to agree to a sale by which it paid AUD $3 million and agreed to release the balance of its debt ($7,828,854.22) pursuant to the authority documented on 7 March 2019 as I considered the Japanese Infringement Proceedings to be more important to Daiwa Can because Daiwa Can was itself the defendant in those proceedings.
6. I considered that the conditions precedent in Daiwa Can's non-binding indicative offer dated 15 March 2019 were open to negotiation or being waived by Daiwa Can. I would have caused Daiwa Can to agree to a transaction whereby the assets (including the Overseas Proceedings) were purchased by Daiwa Can in such a way that did not restrict the ability of the Liquidators to adjudicate proofs of debt or otherwise discharge their duties in the conduct of the liquidation of the Company provided that a sale could be achieved on the commercial terms set out in the preceding paragraph.
7. I was also prepared to instruct Daiwa Can's representatives in Australia to continue to negotiate with the Liquidators in relation to the offer made on behalf of Daiwa Can on 19 April 2019 in the event that the Liquidators had indicated they wished to continue negotiations in relation to it.
8. I believe that it would have been more beneficial to the Company to reach an agreement with Daiwa Can on the basis set out above than to reach the agreement that they struck with the successful bidder. I do not believe that the sale process was carried out properly by the Liquidators and that, if it had been, the net asset position of the Company would be stronger than it is now. In my view, the Liquidators should compensate the Company as a result. I have instructed Daiwa Can's Australian solicitors to request the Court's leave to commence proceedings in the name of the Company to recover that compensation. I have done so in good faith.

102 Mr Price also gave evidence that he is informed by Mr Ikeda and verily believes that:[181]

94.1 At all material times, Mr Ikeda was the relevant decision-maker at Daiwa Can in relation to the potential purchase of the business and assets of the Company;

94.2 Daiwa Can was prepared to pay a maximum of $10,828,854.22 for the assets of the Company including the claims/validity proceedings (including a cash payment of at least $3 million and a set off or forgiveness of the debt to Daiwa Can as to the balance of the purchase price) and was willing to negotiate with the Liquidators at any time in order to agree a transaction by which it acquired those assets at a price up to that amount;

94.3 Daiwa Can was prepared to agree to a transaction that was more attractive from the Company's perspective than any of the First to Fourth Daiwa Can NBIOs and did not include conditions precedent in the terms incorporated in the First Daiwa Can NBIO;

94.4 Daiwa Can considered that the conditions attaching to the First Daiwa Can Non-Binding Indicative Offer were open to being negotiated in the course of negotiating an agreement for the purchase of those assets at the price set out above. In doing so, Daiwa Can would have agreed to a transaction whereby the assets were purchased for the consideration set out above in such a way that did not restrict the ability of the Liquidators to adjudicate proofs of debt or otherwise discharge their duties in the conduct of the liquidation.

103 The parties identified the issues as follows:[182]

1. Should the plaintiff be granted leave, pursuant to the inherent jurisdiction of the Court, to bring proceedings on behalf of the third defendant against the first and second defendants with respect to the claims made in the proposed statement of claim (exhibit TRP-1 of the affidavit of Timothy Randolph Price sworn 9 July 2021) (Statement of Claim) (Derivative Claim)?
2. If the Court refuses to grant leave to bring the Derivative Claim, does the plaintiff require leave to bring proceedings for an order under s 90-15 of Schedule 2 to the Corporations Act (Insolvency Practice Schedule) that the first and second defendants compensate the third defendant for the losses alleged in the Statement of Claim (s 90-15 Claim)?
3. If the plaintiff requires leave to bring the s 90-15 Claim, should it be granted leave?
4. If the Court refuses to grant leave to bring the Derivative Claim and the s 90-15 Claim, should the Court inquire into the external administration of the third defendant pursuant to s 90-10 of the Insolvency Practice Schedule concerning the claims made in the Statement of Claim (s 90-10 Claim)?

104 I will first determine whether Daiwa should be granted leave, pursuant to the inherent jurisdiction of the Court, to bring proceedings on behalf of Barokes against the liquidators.

105 The claims the subject of the application for leave are set out in the proposed statement of claim.[183] Daiwa made a number of amendments to it during the hearing. The final version has tracked amendments in black and red type.

106 The proposed statement of claim is constituted by the following key pleas:

(a) background facts;[184]

(b) knowledge of the liquidator concerning the merits of the amounts claimed by Greire and Mr and Mrs Stokes;[185]

(c) duties owed by the liquidator pursuant to s 180 of the Corporations Act and the general law (pleaded in identical terms) and what the duties required the liquidators to do in the circumstances;[186]

(d) breaches of duty;[187]

(e) causation and loss.[188]

107 The parties submissions on the derivative claim were largely focused on the claims concerning duty, breach, causation and loss. It is convenient to address these claims.

1. The Liquidators owed a duty to Barokes pursuant to s 180(1) of the Corporations Act and at general law to discharge their duties with the degree of care and diligence that a reasonable person would exercise if they were a person in the Liquidators' circumstances and occupied the office held by, and had the same responsibilities as, the Liquidators.
2. The Liquidators were required by that duty to exercise due care and skill in the exercise of their power under s 477(2)(c) of the Corporations Act to sell or otherwise dispose of the business and assets of Barokes, including the rights attaching to the Foreign Patent Proceedings (Assets), including by taking all steps reasonably necessary to obtain the best price reasonably available in the circumstances, which included:

(a) with reasonable care;

(b) so as to provide interested purchasers with the opportunity to submit offers for the entirety of the Assets save to the extent that the Liquidators reasonably concluded that it was in Barokes' interests for those Assets not to be sold; and

(c) so as to provide interested purchasers an equal opportunity to bid and negotiate for the Assets;

111.2 making such inquiries of offerors as may be reasonably required including as to the terms of their offer;

111.3 considering, comparing and, if necessary and appropriate, negotiating the terms of any offers received having regard to all information that the Liquidators knew or ought to have known about the nature and value of the assets of Barokes, including the special value of the assets of Barokes to Daiwa Can.

109 The proposed statement of claim focuses on three claims.

(a) from 25 March 2019, the liquidators knew or ought to have known that Daiwa was willing to acquire the assets of Barokes the subject of Daiwa's First Offer, including the rights attaching to the Foreign Patent proceedings (defined in paragraph [111(a)] of these Reasons) in consideration for $10,828,854 comprised of a cash payment of $1,831,160 and Daiwa's set off of the balance of the debt owed by Barokes to it in the sum of $10,828,854;[190]

(b) from 25 March 2019, the liquidators knew or ought to have known that to the extent that conditions in Daiwa's First Offer remained unacceptable to the liquidators, Daiwa was open to waiving or modifying them;[191]

(c) the liquidators ought, by exercising due care and skill in the conduct of the sale process, to have concluded that Daiwa's First Offer was materially superior to the 'Joint Venture Offer' [i.e. the Joint Venture's Third Offer] and the conditions in Daiwa's First Offer were satisfied or likely to be satisfied;[192]

(d) the liquidators failed to make any inquiry beyond those set out in the letter from the liquidators' solicitors to Daiwa's solicitors on 19 March 2019 in relation to the terms of Daiwa's First Offer (including into the letter from Daiwa's solicitors to the liquidators' solicitors dated 25 March 2019).[193] By failing to take this step the liquidators breached their duty;

(e) the liquidators did not, or alternatively, did not adequately compare the 'Joint Venture Offer' [i.e. the Joint Venture's Third Offer] to Daiwa's First Offer prior to entering into a contract with Intelligent Packaging for the sale of Barokes' assets.[194] By failing to take this step the liquidators breached their duty. Had they done so the liquidators ought to have concluded that Daiwa's First Offer was materially superior to the Joint Venture's Third Offer and that the conditions in Daiwa's First Offer were satisfied or likely to be satisfied;[195]

(f) the liquidators failed to accept Daiwa's First Offer.[196] By failing to take this step the liquidators breached their duty.

111 Secondly, claims based upon the Japanese Infringement proceedings, the Japanese Invalidity proceedings, the Chinese Infringement proceedings and the Chinese Invalidity proceedings (collectively the Foreign Patent proceedings):

(a) from 25 March 2019, the liquidators knew that Daiwa had a special interest in acquiring the rights associated with the Japanese Infringement proceedings and the Chinese Infringement proceedings (in addition to the other assets of Barokes, including the patents);[197]

(b) from 25 March 2019, the liquidators knew or ought to have known that Daiwa was willing to acquire the assets of Barokes the subject of Daiwa's First Offer, including the rights attaching to the Foreign Patent proceedings in consideration of $10,828,854 comprised of a cash payment of $1,831,160 and Daiwa's set off of the balance of the debt owed by Barokes to it in the sum of $10,828,854;[198]

(c) from 16 April 2019, the liquidators knew or ought to have known that Daiwa was willing to offer an additional payment of not less than the 'Additional Consideration' (i.e. not less than $500,000 and not more than $8,828,854, to be agreed between the parties) in respect of the rights associated with the Foreign Patent proceedings as set out in Daiwa's Second Offer;[199]

(d) the liquidators, after 19 March 2019, did not make any proposal to or invite any proposal from Daiwa as to the acquisition by Daiwa of the rights attaching to the Foreign Patent Proceedings.[200] By failing to take this step the liquidators breached their duty;

(e) the liquidators did not, or alternatively, did not adequately compare the Joint Venture's Third Offer to Daiwa's First Offer prior to entering into a contract with Intelligent Packaging for the sale of Barokes' assets.[201] By failing to take this step the liquidators breached their duty. The liquidators ought to have concluded that Daiwa was willing to acquire the business and assets of Barokes including the rights attaching to the Japanese Infringement proceedings (which the liquidators had no reasonable basis to conclude had any substantial value);[202]

(f) the liquidators did not realise any value for the rights associated with the Japanese Infringement proceedings or the Chinese Infringement proceedings.[203] By failing to take this step the liquidators breached their duty.

112 Thirdly, claims based upon Daiwa's Fourth Offer:

(a) from 19 April 2019, the liquidators knew or ought to have known that Daiwa was willing to offer a cash payment of $3M and the release of an additional $3.5M of the debt owed to Daiwa by Barokes for the assets of Barokes the subject of Daiwa's Fourth Offer;[204]

(b) the liquidators did not make any inquiry in relation to Daiwa's Fourth Offer.[205] By failing to take this step the liquidators breached their duty;

(c) the liquidators did not or, alternatively, did not adequately compare the Joint Venture's Third Offer to Daiwa's Fourth Offer prior to entering into a contract with Intelligent Packaging for the sale of Barokes' assets.[206] By failing to take this step the liquidators breached their duty. Had the liquidators done so, they would have concluded that Daiwa's Fourth Offer was materially superior to the Joint Venture's Third Offer;[207]

(d) the liquidators failed to accept Daiwa's Fourth Offer.[208] By failing to take this step the liquidators breached their duty;

113 Causation and loss is alleged as follows:[209]

1. Daiwa Can would, but for the breach of the Sale Process Duties pleaded above, have acquired the assets of Barokes including the Japanese Infringement Proceedings, the Chinese Infringement Proceedings and/or the Chinese Validity Proceedings for consideration of $10,828,854 made up of a cash component of up to $3,000,000 with the balance to be set off against the debt owed by Barokes to Daiwa Can.
2. The Liquidators' breach of the Sale Process Duties has caused loss to Barokes in the amount of:

124.1125.1 $8,328,854 (being the amount of $10,828,854 offered by Daiwa Can in the First Daiwa Can NBIO minus the $2,500,000 paid by IP) less any valid debt assumed by IP;

124.2125.2 alternatively, $4,000,000 (being the amount of $6,500,000 offered by Daiwa Can in the Fourth Daiwa Can NBIO minus the $2,500,000 paid by IP) less any valid debt assumed by IP; and

124.3125.3 the excess costs of the liquidation caused as a result of negligent conduct of the Sale Process including the liquidators' and their legal representative's costs of responding to Daiwa Can's requests for information and explanations as to the Liquidators' conduct and defending these proceedings, which costs were not reasonably incurred and are costs in relation to which the Liquidator is entitled to an indemnity out of the assets of Barokes.

APPLICABLE PRINCIPLES CONCERNING THE GRANT OF LEAVE

114 The parties accept that the Court has inherent jurisdiction to grant leave for an appropriate person to bring proceedings on behalf of a company in liquidation. The applicable principles are well established and were not in dispute between the parties.

115 It is well established that a member of a company has standing to bring a derivative action in the name of a company in liquidation.[210]

116 In Carpenter v Pioneer Park Pty Ltd,[211] Barrett J said:[212]

1. The decided cases thus cause attention to be focused on three main matters when the court is invited to exercise its discretion upon an application such as the present:
   1. The question whether the proceedings proposed to be pursued have some solid foundation, in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and to present reasonable prospects of success.
   2. The attitude of the liquidator to the question whether the proceedings should be pursued.
   3. The question whether "practical considerations support the initiation of the proceedings", with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security.

1. ...In a case such as the present, however, the court is called upon to exercise general equitable jurisdiction which is discretionary.

117 In El-Saafin v Franek (No 2),[213] Lyons J said:[214]

1. It is appropriate to say something about the nature of the Court's inherent jurisdiction in respect of the application. It is clear, as the parties agreed, that the Court has inherent jurisdiction to grant leave for an appropriate person to bring proceedings on behalf of that company in liquidation. Those persons include creditors and contributories of a company, and others in whose interest the winding up is carried out and who are entitled to derive benefits from the assets of the company in the winding up, for example, guarantors.
2. The inherent jurisdiction arises from the Court's supervisory jurisdiction over liquidators and survives the enactment of Part 2F.1A. Because the Court also exercises supervisory jurisdiction over administrators, by analogy, the Court has inherent jurisdiction to order that appropriate persons may use the name of a company in administration.
3. In considering whether the jurisdiction should be exercised, the authorities focus on three principal factors:

(1) whether the proposed claims have some solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospects of success;

(2) the attitude of the liquidator to the proposed proceedings; and

(3) whether practical considerations support the initiation of the proceeding, with particular reference to the financial protection of the liquidator and the assets of the company by means of indemnity and, if indicated, security.

1. As to the third matter, the Court is keen to ensure that the assets of the company in liquidation are not put at risk by the proceeding and that the liquidator is not exposed to personal liability. As a result, the Court may require that the person who conducts the litigation 'gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to litigation'.
2. The three principal factors identified above are not exhaustive: the Court retains a general discretion having regard to all the circumstances of the case.

118 In El-Saafin v Franek (No 4),[215] Lyons J said:[216]

1. From this review, I have ascertained the following principles:

(1) the Court has a discretion to grant leave to pursue proceedings on behalf of a company in liquidation: that jurisdiction is equitable and/or arises from the Court's supervisory jurisdiction over liquidators;

(2) the Court has power as the custodian of the interests of every class affected by the liquidation to ensure that all assets of the company are brought into the winding up;

(3) the exercise of the discretion is based on or analogous to principles upon which a court of equity would allow a beneficiary to sue on behalf of a trust, namely the ordinary rule is that the trustee brings proceedings on behalf of a trust and a beneficiary of trust is only to be allowed to sue on behalf of a trust in 'special circumstances'. Those special circumstances would 'embrace a failure, excusable or inexcusable, by the trustees ... to protect the trust property or to protect the interests of the beneficiary in the trust estate;

(4) it is in this context and in light of his Honour's review of the relevant authorities that Barrett J in Carpenter identified the three principal factors which the Court ought take into account in determining whether to grant leave in its inherent jurisdiction. The fact that in the ordinary case it is a liquidator who will determine whether proceedings should be issued is reflected in Barrett J's second principal factor, namely the attitude of the liquidator. I will address the significance of this factor further below; and

(5) these three principal factors are not exhaustive: the Court will have regard to all of the circumstances of the case.

1. I will now briefly address the principal factors identified in Carpenter. As to the first factor, Barrett J in Carpenter expressed the view that the requirement that a claim had a 'solid foundation' involved 'as a practical matter, that there are reasonable prospects of success and some tangible benefit is genuinely in prospect'. Black J adopted this passage with apparent approval in Sundara. I note that this formulation is in contrast to s 237(2)(c) of the Act which requires the Court to be satisfied that the proposed derivative action is in the best interests of the company.
2. Further, there is no requirement that the Court should base its decision solely on a draft pleading. Rather, the Court must consider whether the cause of action asserted in the pleading and other evidence before the Court relied upon on the application demonstrate some solid foundation.
3. As to the second factor, I consider that the attitude of the liquidator and the basis of that attitude is of great importance to the determination of such applications. This is consistent with the view of Barrett J in Carpenter, who noted that the liquidator's view as to whether a proceeding should be initiated by a company will be an 'important consideration' where the Court is asked to sanction a course by which a creditor or contributory is given carriage of the proceeding on behalf of the company. Barrett J quoted with approval the following passage from the judgment of Cole J in Partnership Pacific Ltd v Aliprandi:

If the liquidator were of the view that the action was soundly based but that because of absence of funds he was unable to prosecute it, one can understand a court exercising a discretion to grant a contributory the right to sue in the company's name (whether pursuant to the statute, or under some inherent jurisdiction).

1. As to the third factor, it appears that the real concern relates to the protection of the company and the liquidator, including by way of security, if there are doubts about the financial capacity of the applicant to provide that protection.

2. As noted above, Austin J in Cadima referred to the possibility that the Court may require that the person who conducts the litigation give an indemnity supported by security for costs to protect the other party to the litigation. He noted that an applicant typically:

... offers to indemnify the company in liquidation and the liquidator in respect of the proceedings, and to conduct the proceedings in such a fashion that liability to pay costs is undertaken by the applicant rather than the company to the extent that it is possible to do so. The Court will wish to be satisfied that the assets of the company in liquidation are not put at risk by the proceedings and that the liquidator is not exposed to personal liability without proper protection, and may also properly have regard to the risks which the litigation poses for the other party, given that the plaintiff is a company in liquidation, the assets of which are to be protected. To these ends, the Court may require that the person who conducts the litigation gives an indemnity supported by security for the benefit of the company and the liquidator, and perhaps also security for costs to protect the other party to the litigation.

1. Barrett J in Carpenter, referred with approval to this passage. However when formulating the principal factors, Barrett J concluded that the third principal factor was whether "practical considerations support the initiation of the proceedings", with particular reference to financial protection of the liquidator and the estate of the company by means of indemnity and, if indicated, security'. I note that no such security for the costs of the opposing party was ordered in Cadima or Carpenter.

1. Based on all these factors, I am satisfied that the circumstances of this case are out of the ordinary and special. Further, if I am wrong and extraordinary or exceptional circumstances are required, based on all these circumstances, I am satisfied that the circumstances of this case are extraordinary and exceptional.

119 In MAG Financial and Investment Ventures Pty Ltd v El-Saafin,[217] the Court of Appeal considered an appeal from the decision of Lyons J in El-Saafin v Franek (No 4). The Court considered whether, inter alia, Lyons J had applied the correct legal principle. The Court held:[218]

1. The first of those arguments concerns the description of the circumstances which must exist before it is open to a judge to consider granting derivative leave to a contributor to bring a proceeding on behalf of a company in liquidation, exercising the inherent jurisdiction of the Court. Whereas the judge in this instance found that the circumstances need to be 'out of the ordinary and special', the applicants insisted that the circumstances must be 'extraordinary or exceptional.
2. In this case, the distinction is of no practical consequence because, as is clear from the summary of the judge's reasons above, the judge found that the circumstances before him satisfied both descriptions. We doubt the Court would be inclined to enter upon this debate when nothing turns on the outcome. We would only observe that it is questionable, in any event, whether there is any material difference in this context between circumstances which can fairly be described as 'out of the ordinary', 'extraordinary', 'special', or 'exceptional'. Different judges have used those different terms to distinguish the ordinary and usual situation in which the liquidator (being the personification of the company) brings proceedings on behalf of the company, from the alternative situation where the courts have accepted that the circumstances justify a departure from that course.
3. We see no real prospect of success on this point.

120 Daiwa submitted that leave is also required as the proposed defendants are Court appointed liquidators.[219] The liquidators did not make any such submissions. The liquidators submitted that leave was required as Daiwa sought to bring proceedings on behalf of Barokes, being a company in liquidation.

121 In Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg,[220] Croft J said:[221]

1. The first question which arises for determination in this present application is whether the Plaintiffs requires leave of the court to bring an action against the Liquidators in their personal capacity for conduct in the performance of their duties as liquidators.
2. It is well established that leave of the court is required to bring an action against a court-appointed liquidator. The rationale behind this requirement derives from two distinct, yet related, aspects of the protective role that a court often must undertake; in this instance, that role is enlivened to ensure that a court appointed liquidator be unencumbered so as to allow them to perform their official functions, as well as providing a means of protecting the court's own processes.
3. This latter aspect focuses on the role which a court-appointed official - in this case, a court appointed liquidator - undertakes as a representative of the court. When acting in such a position, the court takes the view that the actions of the appointed official are to be deemed as actions of the court. This proposition can be traced back to a decision of Lord Chancellor Brougham in Aston v Heron, where his Lordship said:

The present case comes clearly within the later description; for although it is not a case where an illegal or oppressive execution is complained of, it is one where a person admitting the jurisdiction asserts a claim of right which interferes with the rights sought to be exercised by the received as standing in the shoes of the party of whose estate the Court has taken possession. The possession of the receiver is the possession of the Court, and no one can disturb it but through an application to the Court. The acts of the receiver, in the administration of the estate, are the acts of the Court; and the Court may, therefore if it pleases, prevent any other jurisdiction from questioning those acts, because, strictly speaking, that would be to question the Court's administrative proceedings.

1. As an officer of the court, a court-appointed liquidator must also conduct himself or herself in a manner that upholds the reputation of the court. The significance of this duty which is placed upon a liquidator in a compulsory liquidation was discussed in Australian Securities and Investment Commission v Edge, where Dodds-Streeton J said:

A liquidator is an officer of the Court, through whom the Court itself notionally conducts compulsory liquidations. In that context, although a liquidator is not an employee of the Court:

"the nature of the appointment makes him a representative of it ... The winding up is by the Court which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper despatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court or a judge."

1. The rationale behind the first branch of the principle to which I referred earlier - that a court will act to protect its own officers so as to ensure they may perform their official function - was explained by Robb J in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher (as liquidator of Octaviar Administration Pty Ltd) (in liq) (No 2), where his Honour said:

The ... principle is intended to protect liquidators from being subjected to claims against them in their personal capacity in relation to the performance of their duties, so putting their personal assets at risk, by any application made outside the winding up of the company, unless leave be given by the winding up court.

1. As the judicial statements in these cases indicate, there is a close relationship between a court and a court-appointed liquidator; so much so that it will protect the liquidator as one of its officers, through the same processes by which it will protect its own processes. This relationship was discussed by Tamberlin J in Sydlow Pty Ltd (in liq) v T G Kotselas Pty Ltd, where his Honour said:

The court, when administering the Law, is concerned to ensure that the winding-up is implemented in a timely and efficient manner, so as to produce optimum results for all persons interested in the winding-up. In order to achieve this result, the court must protect the integrity of the winding-up under its supervision and control, by taking appropriate steps to prevent any proceedings or conduct which will wrongfully impede that process. One way in which this can be carried out is to require the grant of leave by the court in respect of an action against an official liquidator, so that the court can satisfy itself that there is no wrongful interference with the process. Such interference may arise where, for example, proceedings are initiated or continued without any legal basis or prospect of success or for an improper or collateral purpose. This appears to be the principle which underlies the established requirement that leave is necessary in order to sanction proceedings against an official liquidator.

1. In Re Biposo Pty Ltd; Condon v Rodgers, Young J (as he then was) stated that the court will not enable proceedings to be commenced against a liquidator personally unless it is satisfied that there is a prima facie case:

The court will be very jealous of its delegate exercising the powers that it is given. The court will take every precaution to make sure that those powers are used impartially and for a proper purpose. The corollary of this is that the court will not permit its officers to be sued by a creditor or have an inquiry made under s 536 unless it is satisfied that there is a prima facie case.

1. In Sydlow, Tamberlin J suggested that there was no specific threshold appropriate in all cases when deciding whether to exercise the discretion:

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. It does not necessarily follow that, in order to obtain leave, a prima facie case must be demonstrated. There is no specific threshold appropriate in all cases, however 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 prospect of success of the action on the application for leave.

1. The threshold for when leave should be granted to sue a liquidator was discussed in Mamone v Pantzer, where Santow J said:

To those ends, a prospective litigant must, to obtain the necessary leave, demonstrate its claim has sufficient merit. What is sufficient is affected by circumstances and timing in which that leave is sought.

1. Similar sentiments were stated by Brereton J in Re St Gregory's Armenian School (in liq), where his Honour said:

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) 65 FCR 234 at 241: 144 ALR 159 at 165; 20 ACSR 47 at 54; [1996] FCA 1384 (Sydlow) per 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 at [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 at FCR 242; ALR 166: ACSR 55; Mamone at [5]. Courts recognise that liquidators often have to make decisions on the run, and that to expect perfection in those circumstances in unrealistic: Mamone at [4].

122 The first principal factor is whether the proposed claims have some solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success.

123 I will first set out the key submissions made by the parties on the claims.

124 Daiwa commenced its submissions by withdrawing, relevantly, paragraphs 44 to 48 of its submissions.[222] Daiwa then submitted that there were two aspects of the proposed claims by Barokes concerning:

(a) First, the decision of the liquidators to exclude from the sale process the 'foreign infringement claims'.[223]

(b) Secondly, the decision by the liquidators not to consider Daiwa's Fourth Offer.[224]

(a) Daiwa submitted that a liquidator is an officer of a company and subject to the duties under Pt 2D.1 of the Corporations Act, including the duty of due care and diligence in s 180(1).[225]

(b) To breach s 180 a liquidator need not have behaved in a way that was so unreasonable no reasonable liquidator could have acted in that manner.[226]

(c) There is no free-standing duty upon a liquidator to obtain the best possible price for assets. However, the duty of care and diligence undoubtedly attaches to the conduct of the sale process.[227]

(d) Daiwa also referred to and relied upon the decisions of Pace v Antlers[228], Asden Developments Pty Ltd (in liq) v Dinoris (No 3)[229] and Perpetual Nominees Ltd v McGoldrick (No 3).[230] There was no dispute between the parties as to the relevant authorities.

(a) Daiwa made submissions concerning Daiwa's First Offer in its written submissions as follows:

(i) The liquidators failed to proceed with Daiwa's First Offer (as modified by the 25 March 2019 Letter).[231]

(ii) The liquidators failed to pursue Daiwa's First Offer.[232]

(iii) The liquidators' decision to reject Daiwa's First Offer and instead accept the Joint Venture's Third Offer was commercially irrational. Daiwa submitted that had the liquidators exercised the care and skill required they would have compared Daiwa's First Offer and the Joint Venture's Third Offer and concluded that Daiwa's First Offer would lead to a far better outcome for creditors.[233] They also would have concluded that any desire on the part of the liquidators to exclude the overseas infringement claims from the sales process could not justify their decision to reject Daiwa's First Offer.[234]

(b) At the hearing, Daiwa submitted:

(iv) Daiwa's First Offer was too uncertain to be accepted.[235]

(v) Daiwa's First Offer had 'problematic conditionality'.[236]

(vi) The 25 March 2019 Letter transformed what was a 'fairly cryptic offer' into 'something that had a bit more meat on it'.[237]

(vii) 'And to avoid any doubt about it, I only rely on the first offer in this sense. It is evidence of what at a commercial level Daiwa Can was willing to pay. It permitted the liquidators, had they bothered to do so, to do some arithmetic and work out approximately how much money Daiwa Can was willing to put into the company and how much money it was willing to set off by way of debt.'[238]

(viii) Daiwa referred to Daiwa's First Offer and the 25 March 2019 Letter and then submitted 'That's how I seek to rely on this evidence. And what in fact happened was, rather than pursuing that, Mr Koutsoukos decided as we know from his file note to exclude the claims from the sale. So rather than the process by which the first offer could've been turned into something that could've been accepted and yielded substantial benefit for the creditors, much more than was achieved by the joint venture offer - rather than that occurring, the liquidators shut their eyes to the possibility of selling the claims and instead asked Daiwa Can to bid for the assets excluding the claims'.[239]

(ix) Daiwa provided a further version of the statement of claim, being the proposed statement of claim, that maintained the claims with respect to the First Daiwa Offer.[240]

(x) Daiwa did submit that even if the liquidators had formed the view that the offer or the 25 March 2019 Letter did not address their issues with Daiwa's First Offer, it was incumbent on them to go back and continue to engage and, thereby, potentially, obtain a better return for creditors.[241]

(a) Daiwa had a special interest in acquiring Barokes' claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings 'thereby bringing them to an end'.[242]

(b) Daiwa's First Offer and Daiwa's Second Offer should have indicated to the liquidators that Daiwa would have paid a very substantial sum or consideration for those claims.[243] This was prior to the decision of the liquidators on 18 April 2019 to exclude these claims from the sale.[244]

(c) The Japanese Patent and the Chinese Patent had been invalidated and the success of the Japanese Infringement proceedings and the Chinese Infringement proceedings required both a successful appeal from the decisions invalidating the Japanese Patent and the Chinese Patent followed then by successful prosecution of the Japanese Infringement proceedings and the Chinese Infringement proceedings.[245] There is also nothing in the evidence to suggest that the liquidators had any reason to conclude that even if the Japanese Infringement proceedings and the Chinese Infringement proceedings were successful they would result in a substantial return to Barokes that would justify excluding them from the sale.[246]

(d) The evidence does not disclose any rational basis upon which the liquidators could reasonably have concluded that it was in the interests of Barokes to exclude the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings from the sale.[247]

(e) The liquidators' submission that somehow the damages sought in the Japanese Infringement proceedings could be expanded was made without any evidence as to Japanese law or procedure, much less any evidence that the liquidators obtained advice about Japanese law or procedure, and should be disregarded.[248]

(f) The liquidators made a decision on 18 April 2019 to exclude the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings from the sale. The liquidators do not submit that this view was supported or justified in any way, shape or form because of any advice that was received by the liquidators about the value of the claims, their prospects of success or even their difficulty or otherwise of quantification.[249]

(g) Daiwa's 'ultimate case at final hearing' would be that if the liquidators had obtained advice they would have been told that the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings had no value, or so little value, that they should not be withheld from the sales process while Daiwa was willing to pay a lot of money for them.[250] The liquidators did obtain advice from a Japanese lawyer but this was limited to the question of the effect of the assignment or transfer of the Japanese Patent on the claims in the Japanese Infringement proceedings.[251]

(h) Even if Daiwa received advice that the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings were contingent and the quantification of damages and costs too difficult to determine it was not open to the liquidators to 'shut their eyes to a sale of an asset of that nature, which has totally uncertain value, when there's a substantial amount of money indicated as being available from a bidder'.[252]

(i) Daiwa's Third Offer was not conditional and was comprised of a fixed cash component and a fixed set off component.[253] The liquidators did not seek to ask Daiwa how Daiwa's Third Offer could be improved by including Barokes' claims in the Japanese Patent infringement proceedings and the Chinese Patent infringement proceedings 'which would have been a very straightforward thing for them to do'.[254] Daiwa submitted:[255]

And what never occurred but what should have is that by 18 April the liquidators should've said, great, we've got an offer from you which has a cash component and a set off component and we know that you're willing to pay a lot more than that if we add the claims into the mix.

Please do so. Please make an offer on this basis with the claims. They are for sale. But that didn't happen because Mr Koutsoukos had decided to exclude the claims for some reason that is not disclosed clearly at least in any valid way in the liquidators' evidence.

(j) Daiwa's Third Offer is strong evidence that had those negotiations been continued there would have been an offer of something greater than the amount of Daiwa's Third Offer.[256]

(k) There was no pressing urgency that prevented the liquidators from going back to Daiwa after having received Daiwa's Third Offer about making an offer for the claims in the Japanese Infringement Proceedings or the Chinese Infringement Proceedings:[257]

(i) If there was some need for urgency then it would have been set out in the file note of Mr Koutsoukos.[258] There is nothing about an 'immediate decision to be made'.[259]

(ii) The liquidators were motivated by the decision that was taken without advice to exclude the claims from the sale.[260]

(iii) No evidence of cash flow problems seemed to have emerged.[261]

(iv) There was no suggestion that there was anything happening on or shortly after the Easter long weekend (19-22 April 2019) that required an immediate decision to be made as to the sale of the assets.[262]

(l) The Court should not infer anything about the value of the claims from Daiwa's unwillingness to engage in the purchase of the claims in the Japanese Infringement proceedings or the Chinese Infringement proceedings after, inter alia, Intelligent Packaging had acquired the assets (including the patents).[263]

(m) Mr Ikeda gave evidence that 'Had the liquidators wanted to agree a sale of the assets including the Overseas Proceedings that included an identified cash component and set-off component prior to the adjudication of any claims, I would have caused Daiwa Can to agree to a sale by which it paid AUD $3 million and agreed to release the balance of its debt ($7,828,854.22) pursuant to the authority documented on 7 March 2019.'[264] Daiwa submitted that the 'authority' was not inconsistent with Mr Ikeda's evidence.[265] Daiwa submitted that the word 'premise' (translated from Japanese) in the authority is not a condition upon his authority but a reason for any decision.[266]

(a) The liquidators did not consider Daiwa's Fourth Offer.[267] At the time of Daiwa's Fourth Offer there was no contract between Intelligent Packaging and Barokes and 'the proper characterisation of what occurred in a legal sense is that the liquidators made a counter-offer' to Intelligent Packing and Ball Corporation and this was not accepted until 24 April 2019, being 6 days after Daiwa's Fourth Offer. Daiwa submitted that there is at least an arguable case that in those circumstances reasonable care required the liquidators to accept Daiwa's Fourth Offer.[268] Daiwa submitted:[269]

Now, the way I put this part of the case is that having informed Daiwa Can on the morning of 18 April that they needed to submit an offer that very day, it wasn't open to the liquidators acting reasonably, and with care and skill, to propose what in many respects a new offer to Intelligent Packaging, and then to shut their eyes to the fourth Daiwa Can offer, which was better.

(b) The liquidators engaged in a process of inviting further negotiation with Intelligent Packaging on 18 April 2019 and the process only came to an end at the earliest on 23 April 2019 and, in reality much later. Daiwa submitted that this arbitrary notion that the end of the process of which all terms are agreed forevermore was 18 April 2019 is simply wrong on the facts.[270]

(c) The only explanation for the liquidators failing to consider Daiwa's Fourth Offer is that it was made after 18 April 2019.[271]

(d) The commercial significance of the 18 April 2019 deadline remains largely unexplained other than the conclusionary assertions by Mr Coyne as to unparticularised cashflow issues arising around the end of May 2019.[272]

(e) It was not reasonably open to not even entertain Daiwa's Fourth Offer despite it being objectively superior to the Joint Venture's Third Offer.[273] It was not open to the liquidators acting reasonably, and with care and skill, to propose what in many respects a new offer to Intelligent Packaging, and then to shut their eyes to Daiwa's Fourth Offer, which was better.[274]

(f) The liquidators have not asserted, nor could they validly assert, that a delay of one day in the sale process would have made any practical difference.[275]

(g) An arbitrary adherence to an unexplained deadline in the face of an offer which was objectively superior to the offer preferred by the liquidators is inconsistent with the exercise of due care in the conduct of the sale process and the realisation of the value of Barokes' business and assets.[276]

(h) Daiwa's Fourth Offer would have resulted in an objectively superior return to unsecured creditors when compared with the 'joint venture offer'.[277]

(a) Daiwa submitted that with respect to the claims concerning Daiwa's First Offer the loss is calculated to be between $6,918,484 and $8,328,854, calculated as follows:[278]

$10,828,854 (purchase price under Daiwa's First Offer)

Less $2,500,000 (cash component paid by Intelligent Packaging)

Less any valid debt assumed by Intelligent Packaging, being a maximum of $1,410,370.

(b) Daiwa relied upon the evidence of Mr Ikeda concerning the Foreign Patent proceedings that 'Had the Liquidators wanted to agree a sale of the assets including the Overseas Proceedings that included an identified cash component and set-off component prior to the adjudication of any claims, I would have caused Daiwa Can to agree to a sale by which it paid AUD $3 million and agreed to release the balance of its debt ($7,828,854.22) pursuant to the authority documented on 7 March 2019.'[279] Daiwa did not otherwise make submissions on the calculation of this loss.

(c) Daiwa submitted that with respect to the claims concerning Daiwa's Fourth Offer the loss is calculated to be between $2,589,630 and $4,000,000, calculated as follows:[280]

$6,500,000[281] (purchase price: $3,000,000 cash component and $3,500,000 set off under Daiwa's Fourth Offer)

Less $2,500,000 (cash component paid by Intelligent Packaging)

Less any valid debt assumed by Intelligent Packaging, being a maximum of $1,410,370.

(d) Daiwa submitted with respect to the treatment of the 'set off' that would have been offered (i.e. the release the balance of its debt) as follows:[282]

one knows that when you assess loss, both debt and cash are treated equally in terms of balance sheet effected on the company.

So, the starting point is the loss that Daiwa Can incurs is the balance sheet lost to it. Which in this case is 10.8 million, some of it being cash and some of it being set-off.

(a) Paragraph 11 of their written submission should be corrected by replacing the word 'excluding' with 'including'.[283]

(b) They did not rely upon their written submission at paragraph 39.[284]

131 The liquidators submitted that the most critical factor in the present case was whether the claims in the proposed statement of claim had a 'solid foundation'.[285] The liquidators submitted that the facts present a paradigm case in which the liquidators were required to weigh up the offers made and to come to a commercial decision on which course to follow, exercising their business judgment. They submitted that none of the claims have a solid foundation.[286] The liquidators' submitted that the fact Daiwa's claim was still being 'formulated on the run', in reference to the amendments to Daiwa's pleadings and submissions, 'speaks volumes as to its intrinsic lack of merit'.[287] The liquidators submitted that Daiwa overstates and distorts the extent of liquidator's duty, ignores the obligation that the liquidators have to act with dispatch and their actual time pressure, and seeks to run a case which is infused with hindsight.[288]

(a) The plea of the content of the duty in the proposed statement of claim at [111] does not accurately reflect the content of the duty as the matters pleaded in [111.1(b)] to [111.3] are a gloss not supported by authority.[289] These matters are perhaps alleged as a yard stick by which to measure the breaches of duty.[290] The liquidators accepted that the duty of care and diligence attached to the conduct of the sale process.[291] The liquidators submitted that the plea of the duty should end at [111.1(a)] of the proposed statement of claim.[292]

(b) The liquidators referred to the content of the duty as set out by Vickery J in Perpetual Nominees Ltd v McGoldrick (No 3)[293] at [118]-[119], and submitted that this does not support the gloss put on the duty by Daiwa,[294] and they also referred to the observations made by Gleeson J in Re Kimberley Diamond Company Pty Ltd (in liq).[295] The liquidators withdrew their submission that a liquidator will never be in breach of his duty to exercise care and skill except where his decision is so unreasonable that no reasonable liquidator should have made it.[296] The liquidators submitted that they had a duty to complete the administration of the assets expeditiously[297] and one of the considerations in the present case was that the liquidators were involved in a going concern sale of the business and assets of Barokes with time imperatives.[298]

(c) In exercising the power to sell Barokes' business and assets, the liquidators were not under a duty to obtain the best possible price.[299]

(d) The liquidators submitted that the exercise of the liquidators' power involved business and commercial judgments.[300] The liquidators submitted that the courts have repeatedly held that a court 'rarely interferes' with the exercise by administrators and liquidators of their statutory powers and especially where the decision is one of commercial judgment.[301] The liquidators relied upon a number of decisions,[302] including Naumoski v Parbery[303].

(a) The liquidators submitted that Daiwa did not submit during its oral submissions that the failure to accept Daiwa's First Offer was a breach of duty but it is maintained in the proposed statement of claim.[304] The liquidators submitted that Daiwa's counsel 'in oral submissions jettisoned it as part of his case but there it is still persisting in the Saturday's statement of claim'.[305]

(b) This claim does not have a solid foundation.[306]

(c) Daiwa accepted that Daiwa's First Offer was too uncertain to be accepted.[307]

(d) Daiwa's First Offer included 'Patent Claims' that were not included in the sale process.[308]

(e) The 'Purchase Price' in Daiwa's First Offer did not stipulate a cash component but suggested a set-off.[309] The 25 March 2019 Letter also did not refer to a fixed cash component.[310]

(f) Daiwa's First Offer included 'Conditions', being conditions precedent, and these were not removed by the 25 March 2019 Letter.[311] This included conditions concerning the value of certain proofs of debt. The unsecured creditors (excluding Daiwa) as at 18 March 2019 had a preliminary value as set out in the first creditors' report at $2,338,000.[312] The conditions were unacceptable to the liquidators who had not adjudicated the claims and who were in the process of trying to 'get a going concern sale away while the business is still functioning'.[313] It was impossible for them to accept Daiwa's First Offer.[314] The liquidators had a duty to adjudicate the proofs of debt.[315] Further, even if it was accepted, if the conditions were not met, then this may have resulted in 'no deal'.[316] Also, paragraph 13 of the 25 March 2019 Letter, concerning these conditions, is significantly uncertain and could not satisfy anyone that there was any kind of tangible outcome that could result from the 25 March 2019 Letter.[317]

(g) The liquidators were incapable of accepting Daiwa's First Offer because it did not comply with the tender terms.[318]

(h) Daiwa's First Offer was superseded by Daiwa's Second Offer and Daiwa's Third Offer.[319]

(i) As at 25 March 2019, the Daiwa debt had not even been adjudicated.[320]

(j) There was nothing to make inquiries about as the 25 March 2019 Letter was clear on its terms.[321]

(k) Even if there was a failure to make inquiries about the 25 March 2019 Letter it is a fanciful claim as it does not cause any damage.[322]

(a) The claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings were excluded from the sale and this is set out in the Business Information Memorandum.

(b) On 19 March 2019, the liquidators asked Daiwa to clarify the amount being offered for the claims in the Japanese Infringement Proceedings and the Chinese Infringement Proceedings and Daiwa responded by stating that they were not going to attribute them value.[323] The 25 March 2019 Letter did not identify any value to the claims in the Japanese Infringement proceedings or the Chinese Infringement proceedings and it is fanciful to suggest that the liquidators should have understood that the claims had some special or unique value to Daiwa.[324]

(c) The allegations in paragraph [122.4] of the proposed statement of claim that the liquidators failed after 19 March 2019 to make any proposal to or invite any proposal from Daiwa as to the acquisition by Daiwa of the rights attaching to the Foreign Patent proceedings are 'distinctly skewed rather than being general complaints about the care taken with the sale process. They are distinctly skewed to positions which might've ultimately advantaged Daiwa in its pursuant of the business.'[325] Further, the liquidators did invite a separate proposal, but not as part of the sale process.[326]

(d) The liquidators took steps to have the Joint Venture provide an offer including the claims in the Japanese Infringement proceedings and Chinese Infringement proceedings (as the Joint Venture's First Offer did not include them) and Daiwa to exclude the Japanese Infringement proceedings and Chinese Infringement proceedings (as Daiwa's First Offer included them) so all offers could be compared.[327]

(e) At or around 5 April 2019, the liquidators formed the view that the claims in the Japanese Infringement proceedings were contingent and it would be difficult to quantify any claim for loss of profit and damages and therefore accepted the uncertainty about these claims.[328] The quantum sought in the Japanese Infringement proceedings was 'always capable of being revisited'.[329]

(f) There was conflicting information available to the liquidators,[330] including statements about the damages available in the Japanese Infringement proceedings and the Chinese Infringement proceedings, including a statement that the damages in the Japanese Infringement proceedings had been confirmed by KordaMentha.[331] The liquidators submitted that 'they are dealing with all of this in real time, they've got time pressures, they've got conflicting information and this was part of the fabric of that information.'[332]

(g) The liquidators submitted that this was a going concern sale with time imperatives and that this was a matter driving and influencing the liquidators as well as the projected return in that point in time.[333] The liquidators referred to the matters set out by Mr Koutsoukos in the file note of 17 April 2019 and submitted that the liquidators needed to bring this process to an end.[334]

(h) The liquidators also relied upon the following statement in a letter from their solicitors to Daiwa's solicitors dated 7 June 2019[335] as evidencing the basis for the liquidators' decision to exclude the claims from the sale:[336]

The claims referred to were excluded from the Transaction. The liquidators' primary focus was to sell Barokes' business in a truncated campaign so as to avoid the ongoing costs of trade and the diminishing value of the business in a distressed situation. There has been time and expense spent on these claims prior to our client's appointment and it made commercial sense to allow these proceedings to continue at minimal cost.

(i) The liquidators excluded them from the sale and it is an unnecessarily and unfairly filtered and narrow view of their obligations that it had to be through the sale process that they were to be realised.[337]

(j) Daiwa was able to separately purchase the rights attached to the Foreign Patent proceedings at any point.[338] They were for sale and Daiwa was not interested.[339] Daiwa's lack of interest is not explained.[340] The liquidators were willing to consider separate offers for the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings.[341] The 'special value' of the claims alleged in paragraphs [112.1] and [112.2] remained even after the sale.[342] On 1 July 2019 (after the sale to the Joint Venture) the liquidators' solicitors stated in a letter to Daiwa's solicitors that the liquidators remain open to negotiating the purchase of 'all legal proceedings' [i.e. including the Foreign Patent Proceedings].[343] On 26 September 2019, the liquidators invited a proposal from creditors, including Daiwa, for the purchase of the Japanese Infringement proceedings.[344] There was nothing to stop Daiwa from seeking to buy them or take them over if they had any value.[345]

(k) Even if the liquidators failed after 19 March 2019 to make any proposal to or invite any proposal from Daiwa as to the acquisition by Daiwa of the rights attaching to the Foreign Patent proceedings, this would not have had 'causational consequences' in the face of what Daiwa said and did.[346]

(l) This is a classic hindsight complaint because the failure to realise only occurred after these proceedings had run their course without creditors being interested in them.[347] It is part of Daiwa's case that these proceedings had no value other than what Daiwa was prepared to pay for them.[348]

(m) The exclusion of the Japanese Infringement proceedings and the Chinese Infringement proceedings is not pleaded as a breach of duty.[349]

(n) The alleged failure to obtain advice regarding the Japanese Infringement proceedings and the Chinese Infringement proceedings and their exclusion from the sale process is not pleaded as a breach of duty.[350]

(a) This claim does not have a solid foundation.[351]

(b) On Friday, 12 April 2019, the liquidators put Daiwa on notice that they wanted to make a decision 'next week'.[352]

(c) On 17 April 2019, the liquidators told Daiwa's solicitors that any revised offer will need to be received by close of business on 17 April 2019 as the liquidators will be accepting an offer on 18 April 2019.[353] Daiwa was asked to put their best foot forward but elected to hold back the further consideration the subject of Daiwa's Fourth Offer.[354]

(d) Daiwa's Fourth Offer was made when they knew that another bid had been accepted and they had failed.[355]

(e) Daiwa's Fourth Offer was not considered as it was too late.[356] The liquidators could not have accepted Daiwa's Fourth Offer because it was received after the tender process had closed.[357]

(f) The liquidators submitted 'once in an EOI [expression of interest] campaign you proceed with your preferred bidder, that's it. You proceed with your preferred bidder.'[358] The liquidators had to act impartially and could not have just taken Daiwa's Fourth Offer.[359]

(g) The liquidators submitted that the liquidators were under time pressures as it was a going concern sale.[360] If they reopened negotiations they would have had to have afforded the Joint Venture opportunities and 'it all would've kicked off again.'[361]

(h) The liquidators submitted:[362]

Now, we ask rhetorically, what were these liquidators supposed to do on 19 April? Were they supposed to have reversed position with the joint offer, which they have accepted and progressed with.

Were they supposed to have exposed themselves or the company to claims, whether contractual misleading conduct, favouritism? Were they supposed to have blown up the sale process, which had been regulated and well known - the ground rules had been well known to both parties? Were they supposed to have then reopened the sale process in circumstances were there were time pressures on the, about a going concern sale, which are well documented in the contemporaneous material?

Were they supposed to have risked alienating the JV, leaving Daiwa as the sole bidder with no competition? Where was it all to end, we ask, if ever, with all of these real time pressures on the liquidator? Daiwa's case has no answers to any of that; gestures airily in the direction of this fourth offer and suggests that - the fact that it had - that there was no binding contract at the time it was made, meant that people should have just stopped what they were doing and just grabbed that, instead of there being, in real terms, an obligation on the liquidators, lest they be accused of being partial to Daiwa, to reopen the bidding again and then off it goes.

There has to be an end to these things, whether it's a sale campaign, a liquidation; these things have to be brought to an end. Because, the time, cost of money and the increasing costs on the liquidation both by remuneration, expenses, operating the business, these things all continued to mount up. And you couple those with the liquidators duty of dispatch and it becomes incredibly high handed to suggest that the world should have come screeching to a halt when Daiwa decided to play out a little bit more of its consideration. Oh, we'll throw out a little bit more now because we lost so we may as well show a little bit more.

(i) The liquidators submitted that 'Sale campaigns come to an end and this one had to, at some point, contractually or otherwise, it was over and that was understood by everybody. It was made known to absolutely everybody.'[363]

(j) Daiwa's Fourth Offer would have resulted in a return to creditors of 30.54 cents in the dollar and the Joint Venture's Third Offer would have resulted in a return to creditors of 21.21 cents in the dollar.[364]

(k) Daiwa are a 'disgruntled under bidder'.[365]

(l) Daiwa's Fourth Offer cannot be reconciled with the Daiwa authority document of 7 March 2019 and submitted 'So, clearly, we haven't been told the whole story about his authority.'[366] The liquidators submitted that Mr Ikeda's authority in the sale was limited by the written authority dated 7 March 2019, which included being limited to circumstances in which 90% of the bid price will, in effect, be returned to Daiwa.[367] The liquidators submitted that the statement on the 25 March 2019 Letter that 'the commercial reason behind the inclusion of these conditions precedent is due to Daiwa requiring internal approvals for the offer and for any subsequent increase in cash payment to priority [and] unsecured creditors before any [set-off] occurs' also cannot be reconciled against the evidence of Mr Ikeda about his authority as at 7 March 2022.[368]

(m) The liquidators submitted that Daiwa's participation in the sale process was not carried out properly by Daiwa, in that when Daiwa was asked to put its best foot forward on 17 April 2019, it held back. The liquidators submitted that Daiwa's 'brinkmanship' came back to bite it, and Daiwa has itself to blame.[369]

(a) This is quite a difficult question and neither party can be definitive about how one approaches loss and damage in this scenario.[370]

(b) The liquidators submitted in relation to Daiwa's submission concerning the set-off, that you take into account the amount of the purchase price that is to be set-off against the potential dividend to Daiwa, that:[371]

And we say one should concentrate on the actual monetary inflows to the company which it did not receive and not how it washes out with the creditor position and setoffs and the like where it becomes remote and difficult to understand how loss can be felt when it was to be visited by consideration which you never going to get.

(c) The liquidators used the example of the loss with respect to Daiwa's Fourth Offer and submitted that it should be calculated as being $3,000,000 (cash component of Daiwa's Fourth Offer) less $2,500,000 (cash component paid by Intelligent Packaging).[372] The liquidators submitted:[373]

We are not suggesting it is straightforward to analyse how one assesses the loss to a company in liquidation where it really is the vehicle for dealing with creditor claims. But the most cogent figure to gravitate towards we say, is what was actually going to come in, not the illusory consideration that Daiwa was not going to provide, other than by way of a setoff at the back end. We say that's most unpersuasive.

(d) The liquidators also observed that Daiwa was itself financially better off as a result of Daiwa's Fourth Offer not being accepted, as Daiwa would have received a smaller dividend than it is entitled to under the offer that was accepted.[374]

137 Section 180(1) of the Corporations Act provides:

(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

(a) were a director or officer of a corporation in the corporation's circumstances; and

(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.

138 A liquidator is an 'officer' of a company and subject to the duties under Part 2D.1 of the Corporations Act, including the duty of due care and diligence in s 180(1).[375]

139 Both parties relied upon Pace v Antlers.[376] In that case, Lindgren J said:[377]

The liquidator's duty to exercise reasonable care and skill has been the subject of some debate. The following propositions, however, appear to have gained acceptance in Australia:

• The court should not be quick to condemn a person in the difficult position of a liquidator, and, in particular, should not judge his or her conduct with wisdom born of hindsight: Re Windsor Steam Coal Co (1901) Ltd [1929] 1 Ch 151; Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith [1989] SASC 1928; (1989) 54 SASR 285 (Olsson J) at 287; it is not every error of judgment that will be accounted negligence: Re George A Bond & Co [1932] NSWStRp 27; (1932) 32 SR (NSW) 301 at 306;
• At the same time, a high standard of care and diligence is to be expected of a liquidator as a professional person who is being paid for his or her services: Windsor Steam Coal at 165, per Lawrence LJ; Maelor Jones at 288-289; McPherson, The Law of Company Liquidation, p 218;
• A liquidator is under a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly: Re House Property & Investment Co [1954] Ch 576 at 612; McPherson, The Law of Company Liquidation, p 218; he or she must act with "due despatch": Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669 at 691; Maelor Jones at 288;

Franklyn J noted that in Mineral Securities, Street CJ in Eq had said of this passage: "The concluding portion ... indicates the Court's reluctance to entertain a challenge to a decision on the grounds of prudence and wisdom." Franklyn J then went on to say of these observations (at 14):

"I am of the view that the comments set out above apply equally to the obligations of a liquidator as to the exercise by him of the powers and discretions vested in him by the [Companies] Code and to the circumstances under which a court will give directions or make orders in the exercise of its supervisory powers at the instance of a creditor or contributory. They further in my view correctly indicate the obligations of a liquidator, compliance with which render him safe from liability at the instance of a creditor or contributory."

If his Honour was saying that a liquidator will never be in breach of his duty to exercise care and skill except where his decision is so unreasonable that no reasonable liquidator should have made it, the statement would appear to be in conflict with the decisions referred to earlier, to which he was apparently not referred.

In my view, a liquidator must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. "All the circumstances" will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator's role and function, and that a liquidator is paid for liquidation work. "All the circumstances" will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.

141 In Hausmann v Smith,[379] Barrett J said:[380]

But on no view of matters can the duties be said to include a duty to sell only at "the best possible price". Administrators and liquidators are entitled to take into account a wide range of considerations.

142 In Asden Developments Pty Ltd (in liq) v Dinoris (No 3),[381] Reeves J said:[382]

[82] The High Court illuminated the standard set by s 180(1) in the following terms in Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465; 286 ALR 612; 88 ACSR 126; [2012] HCA 18 at [18]:

The degree of care and diligence that is required by s 180(1) is fixed as an objective standard identified by reference to two relevant elements - the element identified in para (a): "the corporation's circumstances", and the element identified in para (b): the office and the responsibilities within the corporation that the officer in question occupied and had. No doubt, those responsibilities include any responsibility that is imposed on the officer by the applicable corporations legislation. But the responsibilities referred to in s 180(1) are not confined to statutory responsibilities; they include whatever responsibilities the officer concerned had within the corporation, regardless of how or why those responsibilities came to be imposed on that officer. (Emphasis in original)

[83] With respect to the particular role liquidators perform as officers of a company, Middleton J observed in Australian Securities and Investments Commission v Dunner (2013) 303 ALR 98; 95 ACSR 76; [2013] FCA 872 that liquidators were subject to the same statutory duty as directors, but they were also required to meet the high standard of care and diligence expected of persons who were paid to exercise their professional skills. His Honour said:

1. As officers, liquidators and receivers are subject to the same statutory duty of care and diligence as directors under s 180 of the Act.
2. Specifically in relation to liquidators, I note that a liquidator is appointed and paid to exercise a particular professional skill, and a high standard of care and diligence is required in the performance of their duties (Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485 at 497; 26 ACSR 490 at 501 (Pace).
3. In Pace (1998) 80 FCR 485 at 499; 26 ACSR 490 at 503, Lindgren J stated that a liquidator:

... must exhibit care (including diligence) and skill to an extent that is reasonable in all the circumstances. "All the circumstances" will include the facts that a liquidator is a person practising a profession, that a liquidator holds himself or herself out as having special qualifications, training and experience pertinent to the liquidator's role and function, and that a liquidator is paid for liquidation work. 'All the circumstances' will also include the fact that some decisions and courses of action which a liquidator is called upon to consider will be of a business or commercial character, as to which competent liquidators acting with due care, but always without the benefit of hindsight, may have differences of opinion.

[84] Having indirectly mentioned the observations of Lindgren J in Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485; 26 ACSR 490 (Pace), it is convenient at this point to dispose of a submission made on behalf of Mr Dinoris. That submission was to the effect that the relevant test for a liquidator's duty under s 180(1) was whether the liquidator's conduct was so unreasonable that no reasonable liquidator could have acted in that manner. Lindgren J dealt with a similar submission in Pace and rejected it in favour of the test set out above (at FCR 498- 9; ACSR 502-3). I respectfully agree with his Honour's approach and accordingly reject Mr Dinoris' similar contention about that test.

[85] Before leaving Pace, it is also worth noting that, in defining a liquidator's duty under s 180, Lindgren J relied upon authorities dealing with a company officer's liability in tort. In his submissions, Mr Dinoris contended for that approach albeit relying upon Austin J in Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; [2005] NSWSC 738 at [1070] where his Honour observed that "the general law of torts may now be called in aid as a source of guiding principles for the content of the statutory standard of care of company directors and officers". See also Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229 (Rich) at [7231] per Austin J. I agree and therefore accept Mr Dinoris' submission in this respect. That being so, I should also mention a decision on the same question that Asden relied upon: Sydlow Pty Ltd (In Liquidation) v TG Kotselas Pty Ltd (1996) 65 FCR 234, where Tamberlin J outlined the following pertinent common law principles (at 243-4):

• Liquidators can be liable in an action at common law for failure to exercise due care and skill in the performance of their duties and are therefore tortfeasors within the strict sense of the term. This liability is analogous to that of directors.
• Liquidators have a duty to exercise particular professional skill, care and diligence in the performance of duties. See B H McPherson and J O'Donovan, The Law of Company Liquidation (3rd ed, 1987), p 218; Ford and Austin's Principles of Corporations Law (7th ed, 1994), pp 1013-1017; Palmer's Company Law Service, p 15130, par 15.323.
• In Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith [1989] SASC 1928; (1989) 54 SASR 285, Olsson J held that a liquidator was liable in negligence on the basis that he failed to display that degree of care and skill, which by accepting office he held himself out as possessing.
• In Daniels v Anderson (1995) 37 NSWLR 438 at 505, the NSW Court of Appeal (by majority, Clarke and Sheller JJA) confirmed a decision that directors owe a duty of care in tort and could be sued for contribution pursuant to s 5(1)(c) of the LRMPA and that negligent directors are tortfeasors within the meaning of that subsection.
• The principles adopted in Daniel 's [sic] case are relevant and are of even greater force when considering the duties of a liquidator. Directors, unlike liquidators, are not necessarily professionals, and they do not necessarily hold themselves out as possessing any particular skill or experience.

[86] While it will ultimately be unnecessary to consider the "business judgment" rule defence that Mr Dinoris has raised (see at [71] above: III. Defences (a)), I will, for completeness, mention a decision that Mr Dinoris relied upon bearing upon that issue: Viscariello v Macks (2014) 103 ACSR 542; [2014] SASC 189. In that matter, Kourakis CJ made the following observations about the operations of ss 181 and 182:

1. In Yeomans v Walker Hodgson J explained the general approach taken by supervising courts to the statutory duties imposed on liquidators as follows:

In my view, the general approach of the Court in a case like this is that it should not interfere with a decision made by a liquidator unless either there is fraud, or it can be said that the discretion has not been exercised bona fide, or it can be said that the liquidator has acted in a way in which no reasonable liquidator could have acted ... it may be that if a liquidator does take into account entirely irrelevant considerations, then it would be appropriate to intervene, but, in my view, that is not the case here.

1. There is great reluctance on the part of courts to interfere in commercial decisions. There is an analogy between the business judgments of directors and the discretionary decisions of liquidators involving business judgments.
2. I accept that judgments about the liquidator's conduct must be made in the context of the circumstances as they existed at the time, without the benefit of hindsight, and with the distinction between negligence and mistakes of error of judgment firmly in mind.

[87] If I had to consider the availability of this defence, I would have concluded that it would not have been available to Mr Dinoris in the circumstances of this matter. That is so because Asden's complaint against Mr Dinoris concerns the performance of his statutory duty as its liquidator under s 180(1) and particularly his statutory obligation to take custody of, and control, all of the property to which the company is, or appears to be, entitled (s 474(1) of the Corporations Act). It does not concern a decision he made in the conduct of any business or commercial activity of Asden. In this respect, I consider the observations of Keane CJ (with whom Emmett and Finkelstein JJ agreed) in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364; [2011] FCAFC 19 are applicable (at [197]):

This difficulty apart, the decision not to disclose the true effect of the agreements cannot be described as "business judgment" at all. A decision not to make accurate disclosure of the terms of a major contract is not a decision related to the "business operations" of the corporation. Rather it is a decision related to compliance with the requirements of the Act.

For these reasons, I would not have concluded Mr Dinoris' decision not to contact Ms Nichols personally on or after 22 December 2010 was covered by the "business judgment" rule.

[88] Finally, it is appropriate to mention the distinction Mr Dinoris drew between mistakes, or errors of judgment, and a breach of the statutory duty imposed by s 180(1). On this aspect, he relied upon the observations of Austin J in Rich which succinctly made that distinction. His Honour said (at [7242]):

The statutory issue under s 180(1) is not whether the defendants made mistakes in the process of financial forecasting, and a fortiori, it is not whether they formed opinions different from the opinions of ASIC or even of the court. The statutory issue is whether they failed to meet the standard of care and diligence that the statute lays down. The statute requires the court to apply a standard defined in terms of the degree of care and diligence that a reasonable person would exercise, taking into account the corporation's circumstances, the offices occupied by the defendants and their responsibilities within the corporation. That requires the defendants' conduct to be assessed with close regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment firmly in mind. If the impugned conduct is found to be a mere error of judgment, then the statutory standard under s 180(1) is not contravened and it is unnecessary to advert to the special business judgment rule in s 180(2). In the view that I have taken of it, explained below, s 180(2) provides a defence in a case where the impugned conduct goes beyond a mere error of judgment, and would contravene the statutory standard but for the defence (cf ASR [351-2]).

[89] To sum up, the test is an objective one. It requires an assessment as to whether Mr Dinoris' conduct as a professional liquidator demonstrated the requisite degree of care and diligence that was reasonable in all the relevant circumstances. That assessment is to be made at the time of Mr Dinoris' alleged breach and not with the benefit of hindsight. It is to have regard to the degree of care and diligence expected of a skilled and professional accountant performing the role of a liquidator. It also requires care to be taken to distinguish between conduct amounting to a breach of the statutory duty and that amounting to a mistake or error of judgment.

143 In Re Kimberley Diamond Company Pty Ltd (in liq),[383] Gleeson J said:[384]

[47] There is no duty upon a liquidator to obtain the best possible price for the company's assets. In Hausman v Smith [2006] NSWSC 682 at [10], Barrett J said relevantly:

They, as fiduciaries and by statute, owe duties of care, diligence and good faith, among other duties. Administrators and liquidators are both "officers" within the s 9 definition and therefore not only subject to the duties arising under ss 180 and 181 but also entitled to the benefit of the business judgment rule in s 180(2). Proceeding in a prudent way in relation to sale of assets is an incident of those duties. But on no view of matters can the duties be said to include a duty to sell only at "the best possible price". Administrators and liquidators are entitled to take into account a wide range of considerations.

[49] However, as Mr Sulan (counsel for KDL) submitted, the liquidator is not immune from suit if the liquidators have failed to conduct a proper and reasonable sales campaign which has caused loss to KDC.

145 Both parties relied upon the following statement by Vickey J in Perpetual Nominees Ltd v McGoldrick (No 3):[386]

[118] The power to sell the property of the corporation is provided by s 477(2)(c) of the Corporations Act which empowers a liquidator to 'sell or otherwise dispose of, in any manner, all or any part of the property of the company'. In selling or disposing of company assets, there is no reason in principle why the liquidator should not be subject to the duty of care imposed under s 180 of the Corporations Act.

[119] Accordingly for present purposes, the content of the duty of care, if it arises, I find to be a duty on the part of the Liquidators to sell or otherwise dispose of, in any manner, all or any part of the property of the company Racso acting in good faith and with due care and skill to an extent that is reasonable in all the circumstances. The 'circumstances' will include the fact that some decisions, such as the selling of the Properties in this case, and marketing of those properties which the Liquidators were called upon to consider, were of a business or commercial character, and the decisions made in those circumstances must be judged within the range of decisions which were reasonably open to have been made, but without the benefit of hindsight.

[120] The learned authors of the most recent edition of Keay's Insolvency make no mention any duty of a liquidator owed to third parties. However, they observe that:

As with any property, the liquidator must choose the method of sale and price that will give maximum benefit to the creditors. Naturally, the liquidator should seek to obtain as good a price as possible, given the market conditions. Options will include private contract, public auction, tender and clearance or "liquidation" sale. The means of sale is at the liquidator's discretion. The court will only interfere if the liquidator fails to act as a reasonable liquidator would act. ... There is no express equivalent provision for liquidators similar to the duty imposed on receivers exercising the power of sale (s 420A); however, the statutory duty of care imposes a similar requirement to act reasonably - although without the statutory instruction to seek market price under s 420(1)(a).

146 The duty of the liquidators to Barokes is pleaded at paragraph [110] of the proposed statement of claim. It substantially accords with the wording of s 180(1) of the Corporations Act but not precisely. For example, it does not include a plea to 'exercise their powers'. This may be intentional. It also misstates the duty based upon s 180(1)(a) as it alleges 'were a person in the Liquidators' circumstances' rather than 'were a liquidator of a corporation in Barokes' circumstances.' These are errors in drafting and may be attended to. The liquidators accepted that the duty in s 180 of the Corporations Act attached to the sale process.[387] In my opinion, the matters alleged in paragraph [111] of the proposed statement of claim after the word 'Barokes' in the third line are an unnecessary gloss on the duty. Daiwa seeks to set out the content of that duty by reference to contentious facts. For example, in paragraph [111.3] allegations of knowledge are made, including of 'the special value of the assets of Barokes to Daiwa'. This is both unnecessary and not appropriate for the plea of duty. These matters are already pleaded in breach (for example, see paragraphs [112.1] and [112.2]).

147 As a result, in my opinion, the pleas of a duty in paragraph [110], subject to some redrafting, and in paragraph [111] up to and including the word 'Barokes', have a solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success.

148 Daiwa maintained this claim in the proposed statement of claim.

149 I am not satisfied that claims that the liquidators breached their duty, on the basis that they did not, or alternatively, did not adequately, compare the Joint Venture's Third Offer to Daiwa's First Offer prior to entering into the agreement with Intelligent Packaging for the sale of Barokes' assets and did not accept Daiwa's First Offer, have a solid foundation. The claims do not present reasonable prospects of success as:

(a) Daiwa's First Offer included 'Conditions' in section 9, being conditions described as having to be satisfied by Barokes before execution of any agreement.[388] These concerned, inter alia, the amounts of 'Liquidator's proofs of debt' for secured and unsecured creditors (including Daiwa). These conditions were confirmed by the 25 March 2019 Letter (which also added an alternate form of condition). The 25 March 2019 Letter also stated that in some respects 'the parties could waive this requirement' and a clause could be included in the agreement that 'Daiwa will use their best endeavours and act in good faith to either waive these conditions precedent or accept an increase if the values adjudicated to be owing to priority or unsecured creditors increases by a commercially acceptable amount'.[389] The liquidators had not adjudicated upon the proofs of debt by this time. This meant that, pursuant to the terms of Daiwa's First Offer, no agreement could be entered into until that was done. It also meant that, pursuant to the terms of Daiwa's First Offer, if the proofs of debt were adjudicated upon at amounts exceeding the amounts set out in Daiwa's First Offer, Daiwa could have relied upon this and not entered into any agreement.

(b) Daiwa accepted that Daiwa's First Offer was as 'a fairly cryptic offer'[390] and 'too uncertain to be accepted'[391]. It also described the conditions in section 9 of Daiwa's First Offer as constituting 'problematic conditionality'.[392]

(c) Daiwa's First Offer was, in any event, superseded by Daiwa's Second Offer and Daiwa's Third Offer.[393]

150 I am also not satisfied the claim that the liquidators breached their duty, on the basis that they did not make any enquiry beyond those set out in the letter from the liquidators' solicitors to Daiwa's solicitors dated 19 March 2019 on the terms of Daiwa's First Offer or the 25 March 2019 Letter, have a solid foundation. The claims do not present reasonable prospects of success as:

(a) I accept that the evidence establishes that the liquidators did not make any enquiry beyond those set out in the letter from the liquidators' solicitors to Daiwa's solicitors dated 19 March 2019 on the terms of Daiwa's First Offer or the 25 March 2019 Letter.

(b) There was, however, nothing to make inquiries about as the 25 March 2019 Letter answered the liquidators' queries.[394]

(c) I otherwise refer to my Reasons at [149].

151 I am satisfied that the claims concerning the Foreign Patent Proceedings have a solid foundation in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success.

152 I am satisfied that there is a solid foundation for the claim that from 25 March 2019, the liquidators knew that Daiwa had a special interest in acquiring the rights associated with the Japanese Infringement proceedings and the Chinese Infringement proceedings[395] (in addition to the other assets of Barokes, including the Japanese Patent and the Chinese Patent) as:

(a) Daiwa was a respondent to the Japanese Infringement proceedings. The applicant was Barokes.

(b) Daiwa was the applicant in the Japanese Invalidity proceedings.

(c) Sifris J in his reasons in the Barokes Minority Shareholder derivative proceeding, the Daiwa proceeding and the Barokes Minority Shareholder oppression proceeding referred to the Chinese Infringement proceedings and that one of the respondents, namely BIX, was a distributor of Daiwa products in China.[396]

(d) Daiwa included the purchase of the Foreign Patent Proceedings in Daiwa's First Offer.

(e) Daiwa included the purchase of the Foreign Patent Proceedings, and all claims worldwide, in Daiwa's Second Offer identified as 'Additional Consideration'.[397]

(f) Daiwa's solicitors had informed the liquidators' solicitors that 'It is our client's view that it would be commercially unattractive to purchase patent assets that could be potentially devalued by a third party in proceedings. Accordingly, with respect to the patents that are offered as part of the sale, the offer is to acquire the patents and all claims in connection with the patents'.[398] In those circumstances, there is a solid foundation for the claim that the Court should not infer anything from:

(i) Daiwa not advising the liquidators of the amount being offered by Daiwa for the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings separate to the patents. On 19 March 2019, the liquidators' solicitors requested that Daiwa's solicitors advise the amount that was being offered by Daiwa for the purchase of the 'patent infringement claims'.[399] Daiwa's solicitors did not do this and advised the liquidators' solicitors that Daiwa did not seek to separate a value between the 'patent assets and the patent infringement claims'.[400]

(ii) Daiwa's unwillingness to subsequently engage in the potential purchase of the claims in the Japanese Infringement proceedings or the Chinese Infringement proceedings separately from the purchase of Barokes' business and assets.

153 I am satisfied that there is a solid foundation for the claim that the liquidators did not after 19 March 2019 make any proposal to or invite any proposal from Daiwa as to the acquisition by Daiwa of the rights attaching to the Japanese Infringement proceedings and the Chinese Infringement proceedings (in addition to the other assets of Barokes):

(a) The Business Information Memorandum excluded the claims in the Japanese Infringement proceedings and the Chinese Infringement proceedings from the sale.

(b) On 13 March 2019 the liquidators informed Daiwa that they were 'open' to including them.[401] The liquidators also asked the Joint Venture to make an offer including them.[402]

(c) On 10 April 2019, the liquidators requested Daiwa's solicitors to make 'an alternate offer excluding the infringement claims.'[403]

(d) On 17 April 2019, the liquidators informed Daiwa's solicitors that they had made a decision to only sell Barokes' business and assets as a going concern and that they will separately consider the sale or the settlement of the claims relating to the Japanese Infringement proceedings[404] and the Chinese Infringement proceedings.

(e) There is evidence that on or about 17 April 2019 the liquidators finally decided to exclude them from the sale on the basis that they were contingent claims and difficult to quantify.[405]

154 I am satisfied that there is a solid foundation for the claim that by not making any proposal to or inviting any proposal from Daiwa after 19 March 2019 as to the acquisition by Daiwa of the rights attaching to the Japanese Infringement proceedings and the Chinese Infringement proceedings (in addition to the other assets of Barokes) the liquidators breached their duty by failing to act with due care and skill to an extent that is reasonable in all the circumstances.

(a) The liquidators considered that the business and assets had to be sold in the short term and that they wanted a purchaser to take over the business and assets.[406] The liquidators were operating the business as a going concern.

(b) The liquidators had a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly.

156 Secondly, as I have already stated, there is a solid foundation for the claim that the liquidators knew that Daiwa had a special interest in acquiring the rights attaching to the Japanese Infringement proceedings and the Chinese Infringement proceedings (in addition to the business and assets of Barokes, including the Japanese Patent and Chinese Patent).

157 Thirdly, there is a solid foundation for the claims that the liquidators had not obtained any, or alternatively any adequate, independent legal advice that the Japanese Infringement proceeding or the Chinese Infringement proceeding had any reasonable prospects of success or would result in any monetary return to Barokes.[407] I refer to the following evidence:

(a) Mr Coyne did not give evidence that the liquidators obtained any such advice. No advice on the merits or value of the Japanese Infringement proceedings or the Chinese Infringement proceedings is referred to in the file note made by Mr Koutsoukos on 17 April 2019.[408]

(b) There is a reference in the file note of 17 April 2019 to advice being received but this appears to be limited to advice on the impact of selling the patents separately to the claims.[409] A similar reference is contained in an email from the liquidators to Daiwa's solicitors dated 10 April 2019.[410]

(c) There is a reference in the first creditors report by the liquidators to Barokes being party to various proceedings in Australia, Japan and China and legal advice being obtained with respect to 'the legal proceedings, licencing agreements and IP on how to proceed' but no other details of the advice are provided.[411] The Business Information Memorandum also refers to 'awaiting further advice with respect to the status' of the Foreign Patent proceedings but no other details of the advice are provided.[412]

(d) There is reference in minutes of a meeting of creditors on 3 October 2019 to Mr Coyne being 'satisfied with respect to the legal advice provided by the Company's pre-appointment Japanese solicitors and the Liquidators' solicitors' but no other details of the advice are provided.[413]

158 Fourthly, there is a solid foundation for the claim that there was no basis upon which the liquidators could reasonably conclude that the rights associated with the Japanese Infringement proceedings and the Chinese Infringement proceedings had material value to Barokes beyond what Daiwa was willing to pay for them as: [414]

(a) I refer to my Reasons at [157].

(b) The Joint Venture did not attribute any value in the Joint Venture's Second Offer to the claims in the Japanese Infringement proceedings or the Chinese Infringement proceeding as the purchase price offered was the same for Option 1 (which included them) and Option 2 (which did not include them).

(c) As at 17 April 2019, the Japanese Patent and the Chinese Patent had been invalidated and the success of the Japanese Infringement proceedings and the Chinese Infringement proceedings required a successful appeal from the decisions invalidating the Japanese Patent and the Chinese Patent followed then by successful prosecution of the Japanese Infringement proceedings and the Chinese Infringement proceedings.

(d) As at 17 April 2019, Barokes' appeals were pending against the decision that the Japanese Patent was invalid and the decision to dismiss the Japanese Infringement Proceedings.

(e) As at 17 April 2019, Barokes' appeal was pending against the decision that the Chinese Patent was invalid.

(f) The liquidators submitted that there was 'conflicting information. And that feeds into the decision that they ultimately make about how they approach the infringement claims.'[415] The liquidators referred to the Joint Venture's Second Offer that referred to $112M[416] in damages being available 'as confirmed by KordaMentha' with respect to the Japanese Infringement proceedings and between US$2M to US$4M in damages being expected with respect to the Chinese Infringement proceedings. This information is confined to the quantum of the claims. There is a solid foundation for the claim that the liquidators could not reasonably conclude from this information that the claims had any material value to Barokes on the basis that they were 'difficult to quantify' (as set out the liquidators' file note of 17 April 2019, CB, Tab 74) or was 'conflicting information', as submitted, as there is no evidence that they obtained independent legal advice on the quantum of the claims or made any enquiries in relation to this information, including of KordaMentha.

159 In my opinion, there is a solid foundation for the claim that Daiwa would, but for the breaches, have acquired the assets of Barokes, including the claims in the Japanese Infringement proceedings, the Chinese Infringement proceedings and Chinese Invalidity proceedings for a consideration of $10,828,854.22 made up of a cash component of up to $3,000,000 with the balance to be set off against the debt owed by Barokes to Daiwa.[417] This is because:

(a) As I have already stated there is a solid foundation for the claim that Daiwa had a special interest in acquiring the rights associated with the Japanese Infringement proceedings and the Chinese Infringement proceedings in addition to the other assets of Barokes.

(b) Mr Ikeda gave evidence that he considered it commercially desirable for Daiwa to purchase the right to the Japanese Infringement proceedings as they were proceedings against Daiwa.[418]

(c) Mr Ikeda gave evidence that the Chinese Infringement proceedings were also of interest as it was his view that Barokes should not sue Daiwa's retailers or customers.[419]

(d) Mr Ikeda gave evidence that it was his view that the sale of assets of Barokes to Daiwa should include Barokes' rights to bring the Japanese Infringement proceedings and the Chinese Infringement proceedings and that had those rights been sold to Daiwa he expects that Daiwa would have caused the proceedings to come to an end.[420]

(e) Mr Ikeda also gave evidence that had the liquidators wanted to agree a sale of the assets, including the Japanese Infringement proceedings and the Chinese Infringement proceedings, that included a cash component and set-off component prior to the adjudication of any claims, he would have caused Daiwa to agree to a sale by which it paid $3,000,000 and agreed to release the balance of its debt (i.e. $7,828,854.22) 'pursuant to the authority documented on 7 March 2019'.[421]

(f) The liquidators made submissions that Mr Ikeda's evidence is inconsistent with the terms of the authority, including that Mr Ikeda's authority was limited to a deal where 90% of the 'consideration flowed back'.[422] The liquidators submitted that the evidence is 'at best an incomplete picture' and at worst 'inconsistent and unpersuasive.'[423] The liquidators also submitted that the terms of the authority are 'different' to what happens with Daiwa's Third Offer and Daiwa's Fourth Offer[424] and the authority document cannot be reconciled with Daiwa's Fourth Offer.[425]

(g) There is a solid foundation for the claim that the authority document dated 7 March 2019 is not inconsistent with Mr Ikeda's evidence. The authority does not expressly set out that Daiwa would agree to a sale by which it paid $3,000,000 and agreed to release the balance of its debt (i.e. $7,828,854.22), it does, however, refer to a 'bid up to a Max of the JPY 1.1 billion (AUD $10,828,854.22) loan'. The matters, on the evidence before the Court, do not appear to have been treated by Daiwa as a condition or limitation on Mr Ikeda's authority. There is no evidence of Daiwa making enquiries in relation to the matters set in paragraph 3(1) of the authority after the word 'premise' prior to making any of its offers. There is no evidence of Daiwa conveying these matters to the liquidators as set out in paragraph 3(2) of the authority. Daiwa also made offers, including Daiwa's Fourth Offer.

160 In my opinion, the evidence on this application establishes that Daiwa has a solid foundation for the claims that the liquidators' breach of duty caused loss to Barokes in the amount of between $6,874,826.58 to $8,328,854.22 calculated as follows:[426]

(a) $10,828,854.22 (cash component of $3,000,000 and release of $7,828,854.22 in debt) that would have been paid by Daiwa. This is supported by the evidence of Mr Ikeda. In my opinion, there is a solid foundation for the claim that the release of debt should be taken into account. It constitutes part of the purchase price that is alleged would have been paid. The liquidators also accepted that this is quite a difficult question and neither party can be definitive about how one approaches loss and damage in this scenario[427] and did not suggest 'it is straightforward to analyse how one assesses the loss to a company in liquidation where it really is the vehicle for dealing with creditor claims'.[428]

(b) Less $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement).[429]

(c) Less the amount of any valid debt assumed by Intelligent Packaging (i.e. being not more than $1,454,027.64,[430] being the 'Related Party Liabilities' under the sale of business and assets agreement)[431]. There is a solid foundation for the claims that some of debts were not valid. For example:

(i) Greire ($1,073,706): This is the subject of pleas in the proposed statement of claim at [58] and [59]. This alleged debt concerned, in part, the sum of $920,842 as 'deferred wages' of Mr Stokes. There is a solid foundation for the claim that this debt was not valid as there is a solid foundation for the claim that Greire was not a party to Mr Stokes' agreement and that it expired on 26 August 2015. I refer to my Reasons at [13] and [49].

(ii) Mrs Stokes ($269,257.75): This is the subject of pleas in the proposed statement of claim at [27]-[28] and [63]-[64]. There is a solid foundation for the claim that this alleged debt was not valid as there is a solid foundation for the claim that it exceeded the annual salary payable to Mrs Stokes (see CB, Tab 28, as alleged in the proposed statement of claim at [28]) and Daiwa had not authorised any increase in her salary. I refer to my Reasons at [14] and [47(a)].

161 Alternatively, if I am wrong that there is a solid foundation for the claim that the release of debt should be taken into account, there is a solid foundation for the claim that Barokes suffered a loss of $500,000 being the difference between $3,000,000 (cash component that Daiwa would have paid) and $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement). The liquidators submitted that this was the proper calculation of the alleged loss and that it is 'not insignificant'.[432]

162 I am satisfied that there is a solid foundation for the claims in relation to Daiwa's Fourth Offer in that they exhibit such a degree of merit as to be neither vexatious nor oppressive and present a reasonable prospect of success.

163 I am satisfied there is a solid foundation for the claim that by not making any inquiry in relation to Daiwa's Fourth Offer and not comparing it to the Joint Venture's Third Offer, and by not accepting Daiwa's Fourth Offer, the liquidators breached their duty by failing to act with due care and skill to an extent that was reasonable in all the circumstances as:

(a) I accept that the evidence before the Court establishes that:

(i) Daiwa was informed that any revised offer would need to be received by close of business on 17 April 2019 as the liquidators would be accepting an offer on 18 April 2019.

(ii) The liquidators considered 18 April 2019 was a 'suitable deadline' for further non-binding offers.[433] The liquidators considered that the business and assets had to be sold in the short term and that they wanted a purchaser to take over the business and assets.[434] The liquidators were operating the business as a going concern.

(b) I also accept that the liquidators had a duty to complete the administration of the assets within a reasonable time and not to protract the liquidation unduly.

(c) Daiwa's Fourth Offer was made on 19 April 2019, being one day after the 'deadline' for further non-binding offers. As submitted by the liquidators, it was an 'unconditional offer'.[435]

(d) The liquidators did not make any inquiry in relation to Daiwa's Fourth Offer.

(e) The liquidators did not compare the Joint Venture's Third Offer to Daiwa's Fourth Offer prior to entering into a contract with Intelligent Packaging for the sale of Barokes' assets.

(f) There is a solid foundation for the claim that contrary to the evidence of Mr Coyne,[436] the liquidators had not 'accepted' the Joint Venture's Third Offer by 19 April 2019 and the Joint Venture had no basis to enforce any 'agreement' at that time. These are the matters relied upon by Mr Coyne, at least in part, as justifying the liquidators' decision not to consider Daiwa's Fourth Offer and reopen negotiations.[437]

(g) The evidence on this application establishes that on 18 April 2019 the liquidators sent an email to Mr Stokes to inform him that they were 'progressing' with a sale to the Joint Venture in accordance with 'Option 2' and attached a marked up a further version of the Joint Venture's Second Offer[438]. This marked-up version included some new terms that had not been otherwise been the subject of offers by the Joint Venture.[439] On 24 April 2019, Mrs Stokes sent an email to the liquidators solicitors attaching the 'Amended Binding Indicative Offer' executed by Intelligent Packaging.

(h) The Business Information Memorandum also expressly provided that the liquidators reserved the right to, inter alia, deal with any one party to the exclusion of others or not to or to cease to deal with a party without giving reasons or prior notice to that interested party.[440] The Business Information Memorandum also provided that the liquidators reserved their right to alter the timeframes and deadlines.[441] The Business Information Memorandum did not, contrary to the submission of the liquidators, provide, in effect, that once the liquidators proceed with a preferred bidder 'that's it. You proceed with your preferred bidder'.[442]

(i) There is a solid foundation for the claim that it would not have required much time or expense for the liquidators to have considered Daiwa's Fourth Offer and compared it to the Joint Venture's Third Offer and that this would not have unduly delayed the sale of the business and assets of Barokes.

(j) There is also a solid foundation for the claim that Daiwa's Fourth Offer was materially superior to the Joint Venture's Third Offer. Daiwa's Fourth Offer included a cash component that was $500,000 more than the cash component of the Joint Venture's Third Offer. The liquidators submitted that Daiwa's Fourth Offer would have resulted in a return to unsecured creditors of 30.54 cents in the dollar (subject to costs) whereas the Joint Venture's Third Offer would have resulted in a return of 21.21 cents in the dollar (subject to costs).[443]

164 I am satisfied there is a solid foundation for the claim that Daiwa would, but for the breaches, have acquired the assets of Barokes pursuant to an agreement in accordance with the terms of Daiwa's Fourth Offer, being a consideration of $6,500,000 made up of a cash component of up to $3,000,000 with $3,500,000 to be set off against the debt owed by Barokes to Daiwa.[444] I refer to these Reasons at [163(j)].

165 I am satisfied there is a solid foundation for the claim that the liquidators' breach of duty caused loss to Barokes in the range of $2,545,972.36 to $4,000,000 calculated as follows:[445]

(a) $6,500,000 purchase price under Daiwa's Fourth Offer (cash component of $3,000,000 and release of $3,500,000 in debt). I refer to the matters I have earlier addressed in these Reasons on the treatment of the release of debt.[446]

(b) Less $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement).[447]

(c) Less the amount of any valid debt assumed by Intelligent Packaging, being part of the purchase price under the Joint Venture's Third Offer (being not more than $1,454,027.64,[448] being the 'Related Party Liabilities' under the sale of business and assets agreement)[449]. There is a solid foundation for the claims that the debts were not valid. I refer to my Reasons at [160(c)].

166 The proposed statement of claim refers to an amount of $4,000,000[450] but Daiwa's submissions also refer to an amount between $2,589,630 to $4,000,000.[451]

167 Alternatively, if I am wrong that there is a solid foundation for the claim that the release of debt should be taken into account, I am satisfied that there is a solid foundation for the claim that Barokes suffered a loss of $500,000 being the difference between $3,000,000 (cash component of Daiwa's Fourth Offer) and $2,500,000 (cash component paid by Intelligent Packaging under the sale of business and assets agreement). As I have already stated in these Reasons, the liquidators submitted that this was the proper calculation of the alleged loss and that it is 'not insignificant'.[452]

168 As I have said earlier in these Reasons,[453] Daiwa submitted that leave is also required as the proposed defendants are Court appointed liquidators.[454] For the same reasons I have already given,[455] I am also satisfied that the claims based upon:

(a) Daiwa's First Offer do not have sufficient merit or constitute a prima facie case;

(b) the Foreign Patent proceedings and Daiwa's Fourth Offer do have sufficient merit and constitute a prima facie case.[456]

169 The second principal factor is the attitude of the liquidators.

170 Daiwa submitted that the attitude of the liquidators is of no real relevance in circumstances where the claims are made against the liquidator.[457] I agree. The liquidators submitted that this is not a case where the liquidators will pursue claims sought to be made by Daiwa.[458] The liquidators conceded that this factor has been 'satisfied'.[459]

171 The present case may be distinguished from the ordinary and usual situation in which a liquidator brings proceedings on behalf of a company. It is 'out of the ordinary and special.'[460]

172 The third principal factor concerns practical considerations, with particular reference to the financial protection of the liquidator and the assets of the company by means of an indemnity and, if indicated, security.

173 In Carpenter v Pioneer Park Pty Ltd,[461] Barrett J said:[462]

It is proper to look to the capacity of an applicant to provide the company with financial protection when considering whether it is in the interests of the company for the applicant to be allowed to bring proceedings on its behalf.

174 Daiwa submitted in its written submissions that it 'proffers an undertaking to indemnify Barokes from any liability for costs ordered against it in the proceedings.'[463]

175 At the hearing, Daiwa offered to undertake to the Court to:

(a) pay Barokes' the costs of the derivative proceedings;

(b) indemnify Barokes, following final determination of the derivative proceedings, from any liability for costs ordered against it and for any costs properly incurred by it as a result of the proceedings being brought in its name.[464]

176 Daiwa submitted that it should not be required to give security for its indemnity as Daiwa is entitled to receive a substantial dividend from Barokes at the conclusion of the winding-up by reason of its admitted debt. It submitted that this was estimated to be about $2.118M as at 17 September 2019, being the date of the third report to creditors. [465] Daiwa's entitlement to a dividend effectively stands as security.[466] Daiwa submitted that having regard to the matters in the third report to creditors:[467]

The only way Your Honour could conclude that there would be an insufficient entitlement to a distribution at the end of this case to stand a security for the undertaking I've given, would be if Your Honour concluded that the liquidators could reasonably spend something approaching $2 million by way of their own remuneration. And I don't understand Mr Austin to suggest that. And if he did, it would be entirely inappropriate in my respectful submission.

177 In the alternative, Daiwa submitted that if the Court is against this submission and orders security then the security could be paid into court or some other form of security could be provided.[468]

178 The liquidators submitted, in its written submissions, that there would be prejudice to the assets of Barokes and the course of the liquidation should the proceedings be pursued by Daiwa.[469] The liquidators submitted the assets available for the benefit of the creditors would be diminished if the proceedings were pursued.[470] They submitted that this could be cured by an order that Daiwa pay 'security for costs' as a condition on the grant of leave.[471]

179 At the hearing, the liquidators submitted that Daiwa should provide security for Daiwa's proposed indemnity for any costs that are going to incurred by Barokes if it is unsuccessful.[472] The liquidators relied upon the following matters: [473]

(a) Daiwa is a foreign corporation.

(b) Daiwa's shareholding in Barokes is worthless.

(c) It is not suggested that it owns any other assets with this jurisdiction save for its entitlement to an dividend, which is now of uncertain value.

(d) There is no evidence that an undertaking given to the Court would be enforceable in Japan and, if it is, why anybody should have to go there to enforce it.

180 In my opinion, any grant of leave should be on the basis that Daiwa undertakes to the Court to:

(a) pay Barokes' costs of the derivative proceedings; and

(b) indemnify Barokes from any liability for costs ordered against it and for any costs incurred by it in the derivative proceedings.

181 In my opinion, the indemnity should not be limited to 'following a final determination of the derivative proceedings'. In the event that Barokes is ordered to pay the liquidators' costs prior to a final determination of the proceedings, for example of an interlocutory application and those costs are taxed prior to the determination of the proceeding, Daiwa should indemnify Barokes. The indemnity also should not be limited to costs 'properly incurred by Barokes'. The limitation is not appropriate. Daiwa is bringing the claim in the name of Barokes.

182 In my opinion, any grant of leave should also be on condition that Daiwa provides security for its indemnity.

183 First, Daiwa is incorporated in Japan and there is no evidence that it has any assets in this jurisdiction except for a loan to Barokes and the likelihood of receiving a dividend with respect to it as part of the liquidation of Barokes. The loan has no value. Daiwa relied upon the third creditors report, which is dated 17 September 2019. It also submitted that the only expenses to be incurred since that time were the liquidators' costs. The third creditors report also stated, inter alia, 'The final return may change as a result of receiving additional claims or existing claims are substantiated in part or in full.'[474] The third creditors report also stated that there were still a number of acts and dealings to be carried out.[475] This included the following, which was not exhaustive:[476]

• Continuing to facilitate the transfer of the Company's business and assets to the purchaser;

• Continuing investigations into the conduct of the Company's officers; and

• Prepare a declaration and distribution of dividend to creditors (including formal adjudication of claims process).

184 In my opinion, the current likely amount of the dividend is uncertain.

185 There is no evidence of the likely costs of the proposed derivative proceeding, including of any potential adverse costs order, that may be the subject of the indemnity.

186 As a result, I am not satisfied upon the present evidence, especially given the further acts and dealings referred to in the liquidators' report, that the dividend would be sufficient to meet any indemnity.

187 Secondly, if I am wrong and the dividend would be sufficient to meet any indemnity, I am not satisfied that it represents appropriate security. The indemnity may be called upon prior to the conclusion of the winding-up of Barokes and the payment of any dividend. For example, if the derivative proceeding did not succeed Barokes may be ordered to pay the costs and this would be prior to Daiwa receiving any dividend from Barokes at the conclusion of the winding-up. This means that the indemnity may be called upon in circumstances in which the dividend is not liable to be paid to Daiwa.

188 Daiwa submitted that '[t]he claim is prima facie a strong one'.[477] It submitted that there is a public interest in ensuring compliance by the liquidators with the statutory duties and a private interest of creditors of Barokes.[478]

189 The liquidators submitted that the granting of leave would likely produce little, if any, tangible benefit for the creditors.[479] The liquidators submitted that the winding up of Barokes has come to an end (but for the proceeding) and the proceeding will delay the payment to creditors.[480]

190 I do not consider that the public interest is a significant or overwhelming factor. I am not satisfied that the claims are prima facie 'strong claims'. For the reasons I have given I am satisfied that they have a solid foundation.

191 I do not accept the liquidators submissions that the granting of leave would likely produce little, if any, tangible benefit for the creditors. In the event that the claims succeed then Barokes may be entitled to substantial damages.[481]

192 I accept that the proceeding will likely delay the payment to creditors.

193 I am satisfied from my consideration of the relevant factors that the circumstances of this case favour the exercise of the Court's discretion to grant leave. In my opinion, the circumstances can fairly be described as 'out of the ordinary and special'. Upon Daiwa giving undertakings to the Court to:

(a) pay Barokes' costs of the derivative proceedings;

(b) indemnify Barokes from any liability for costs ordered against it and for any costs incurred by it in the derivative proceedings;

I will exercise my discretion to grant leave to Daiwa to bring proceedings in the name of Barokes, substantially in the form of the proposed statement of claim (excluding those claims identified in these Reasons).

(a) the derivative proceedings are commenced in this Court within 28 days from the grant of leave (i.e. the date of the orders); and

(b) Daiwa provide security for its undertaking to indemnify Barokes in a form to be agreed within 14 days of the grant of leave or determined by the Court.

195 I will hear from the parties on the precise form of the undertakings and conditions.

196 As a result of my decision to exercise my discretion to grant leave to Daiwa to bring proceedings in the name of Barokes, it is not necessary for me to consider Daiwa's alternative application concerning section 90-15 of the Insolvency Practice Schedule.

197 I will hear from the parties on the precise form of order, including on the form of the undertakings and conditions and on costs. The parties are requested to confer on the form of orders and to provide a form of order to chambers, or in the absence of agreement, forms of orders, to chambers by 4pm on 5 November 2022. The Court will then list the matter for further hearing.

DAIWA CAN COMPANY v KOUTSOUKOS & ORS

SUPREME COURT OF VICTORIA PROCEEDINGS NO. S ECI 2021 02423

DEFENDANTS' AIDE-MÉMOIRE AS TO OFFER COMPARISON

Daiwa Can Company (subsequent 4th offer on 19 April 2019)

JAMES KOUTSOUKOS AS JOINT AND SEVERAL LIQUIDATOR OF BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)

DAVID COYNE AS JOINT AND SEVERAL LIQUIDATOR OF BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)

BAROKES PTY LTD (IN LIQUIDATION) (ACN 079 714 579)

[1] In Daiwa's amended originating motion, the term 'Insolvency Practice Schedule' refers to sections 90-10, 90-15 and 90-20 of Schedule 2 to the Corporations Act 2001 (Cth).

[2] Daiwa provided a number of versions of the proposed statement of claim. Daiwa relied upon a final version provided to the Court and the parties on 23 October 2021. It is described in the Joint Tender List as 'Further Draft statement of claim dated 23 October 2021'. The document itself is titled 'Statement of Claim', is not dated but shows red and black mark-ups to other versions.

[4] Daiwa clarified that the reference to 'second defendant' is a typographical error and should be a reference to the 'third defendant': Transcript of Proceedings, In the matter of Barokes Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2021 02423, Attiwill J, 22 October 2021) 4.30-5.1 (Mr Bender) ('Transcript of Proceedings 22 October 2021').

[5] Transcript of Proceedings 22 October 2021 (n 4) 8.12-15 (Mr Bender).

[6] The CB is described in a joint tender list dated 24 October 2021. It includes documents identified by Tab numbers. Not all documents from the original tender list are included in the joint tender list dated 24 October 2021 as the parties did not tender all of the documents from the tender list, this includes documents that are exhibits to some of the affidavits. Each of these documents also has page numbers in the bottom right corner. The CB also includes documents not identified by tab numbers, being the further draft statement of claim, documents from Daiwa's Supplementary Tender Bundle (identified by pages 1 to 28) and the Second Coyne affidavit.

[7] The affidavits have been marked up by the parties to identify the pages of the CB which relate to the exhibits insofar as those exhibits were relied upon. The parties adopted the course of separately tendering the affidavits to the exhibits and did not tender all of the exhibits. See Transcript of Proceedings 22 October 2021 (n 4) 3.20-23 (Mr Bender). See also Transcript of Proceedings, In the matter of Barokes Pty Ltd (in liq) (Supreme Court of Victoria, S ECI 2021 02423, Attiwill J, 25 October 2021) 5.14-5.30 (His Honour and Mr Bender) ('Transcript of Proceedings 25 October 2021').

[11] CB, Tab 10. See also Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021, at CB, Tab 118.

[14] The parties accepted that it has an obvious error in paragraph 39(a) as the word 'excluding' should be 'including', see the document at CB, Tab 64. See also Transcript of Proceedings 25 October 2021 (n 7) 54.26-55.1 (Mr Austin QC).

[15] Second Coyne affidavit. Paragraph 7 has an obvious error as the word 'excluding' should be 'including', see the document at CB, Tab 64. See also Transcript of Proceedings 25 October 2021 (n 7) 54.26-55.1 (Mr Austin QC).

[16] Daiwa's submissions filed 8 October 2021 ('Daiwa's submissions'), CB, Tab 3. At the commencement of the hearing, Daiwa withdrew paragraphs 44-48 and 80: Transcript of Proceedings 22 October 2021 (n 4) 10.11-10.12 (Mr Bender). Liquidators' submissions filed 15 October 2021 ('Liquidators' submissions'), CB, Tab 4. The liquidators withdrew paragraph 39, see Transcript of Proceedings 25 October 2021 (n 7) 33.16-33.20 (Mr Austin QC).

[17] Price affidavit: CB, Tab 7, [7].

[18] Ibid [15]. This agreement is dated and expressed to commence on 27 August 2012, see CB, Tab 20.

[20] Price affidavit: CB, Tab 7, [8]. See also First Coyne affidavit: CB, Tab 14, [9].

[21] Price affidavit: CB, Tab 7, [17]-[23]:

[23] First Coyne affidavit: CB, Tab 14, [5].

[25] Ibid [7]; Price affidavit: CB, Tab 7, [9].

[26] Price affidavit: CB, Tab 7, [24]; CB, Tab 22.

[27] Price affidavit: CB, Tab 7, [26].

[29] Price affidavit: CB, Tab 7, [28].

[30] First Coyne affidavit: CB, Tab 14, [61]. See also CB, Tab 82.

[31] First Coyne affidavit: CB, Tab 14, [16].

[32] Price affidavit: CB, Tab 7, [34]; Aoki affidavit: CB, Tab 9, [11]; First Coyne affidavit: CB, Tab 14, [17(b)]. See also Notice to Admit: CB, Tab 5, [2]-[3]; Notice of Dispute: CB, Tab 6, [2]-[3].

[33] Extracts from exhibit 'MLS2' to the affidavit of Megan Louise Shimoji affirmed 4 October 2021: CB, Tab 34, 359 [6].

[36] Aoki affidavit: CB, Tab 9, [12.1].

[37] Price affidavit: CB, Tab 7, [34].

[38] Aoki affidavit: CB, Tab 9, [13]; First Coyne affidavit: CB, Tab 14, [17(c)]. See also Notice to Admit: CB, Tab 5, [3]-[4] and Notice of Dispute: CB, Tab 6, [3]-[4].

[39] Aoki affidavit: CB, Tab 9, [14]; First Coyne affidavit: CB, Tab 14, [17(d)].

[40] Aoki affidavit: CB, Tab 9, [15]; First Coyne affidavit: CB, Tab 14, [17(e)].

[41] Aoki affidavit: CB, Tab 9, [16]. The date of '2019' referred to in the First Coyne affidavit: CB, Tab 14, [17(g)] appears to be incorrect and should be a reference to '2018'.

[42] Aoki affidavit: CB, Tab 9, [17].

[43] Ibid [19]-[20]; First Coyne affidavit: CB, Tab 14, [17(h)]. See also Notice to Admit: CB, Tab 5, [8]-[9]; Notice of Dispute: CB, Tab 6, [8]-[9].

[44] Aoki affidavit: CB, Tab 9, [21]; First Coyne affidavit: CB, Tab 14, [17(i)].

[45] Aoki affidavit: CB, Tab 9, [24]. See also Notice to Admit: CB, Tab 5, [14]; Notice of Dispute: CB, Tab 6, [14].

[46] Aoki affidavit: CB, Tab 9, [24].

[47] Ibid [22]; First Coyne affidavit: CB, Tab 14, [17(j)].

[48] Aoki affidavit: CB, Tab 9, [23].

[49] Price affidavit: CB, Tab 7, [30]. See also Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.3]; First Coyne affidavit: CB, Tab 14, [19(h)].

[50] Price affidavit: CB, Tab 7, [30].

[52] Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.24].

[53] Price affidavit: CB, Tab 7, [32]; First Coyne affidavit: CB, Tab 14, [19(b)].

[54] Price affidavit: CB, Tab 7, [33].

[56] Price affidavit: CB, Tab 7, [39]; Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.4]; First Coyne affidavit: CB, Tab 14, [19(c)].

[57] First Coyne affidavit: CB, Tab 14, [19(d)].

[58] Price affidavit: CB, Tab 7, [44]; Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.5]; First Coyne affidavit: CB, Tab 14, [19(e)].

[59] First Coyne affidavit: CB, Tab 14, [19(f)]. Mr Coyne refers to the Beijing High Court while Ms Jiang refers to the Beijing Higher People's Court.

[60] Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.6]; First Coyne affidavit: CB, Tab 14, [19(g)]. See also Notice to Admit: CB, Tab 5, [18]; Notice of Dispute: CB, Tab 6, [18].

[61] Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.12]-[7.13].

[63] First Coyne affidavit: CB, Tab 14, [19(i)].

[64] Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.8].

[65] Notice to Admit: CB, Tab 5, [22]-[23]; Notice of Dispute: CB, Tab 6, [22]-[23].

[66] Exhibit 'NJ1' to the Jiang affidavit, the report of Ms Jiang dated 2 September 2021: CB, Tab 118, [7.21].

[67] Knights Quest Pty Ltd v Barokes Pty Ltd [2015] VSC 601: CB, Tab 38, [1].

[70] Daiwa Can Company v Barokes Pty Ltd [2016] VSC 296: CB, Tab 39, [1]-[2].

[71] Orders made by The Honourable Justice Sifris on 10 June 2016: CB, Tab 40.

[72] First Coyne affidavit: CB, Tab 14, [10]. See also Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41, [7].

[73] First Coyne affidavit: CB, Tab 14, [11]. See also Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41, [8].

[74] Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41. See also Knights Quest Pty Ltd v Daiwa Can Company (No 2) [2018] VSC 551.

[75] Orders made by The Honourable Justice Sifris on 20 September 2018: CB, Tab 42, 509.

[77] Knights Quest Pty Ltd v Daiwa Can Company (No 2) [2018] VSC 551.

[78] See Knights Quest Pty Ltd v Daiwa Can Company (2018) 133 ACSR 374 [1] (Beach, Kyrou and Hargrave JJA).

[79] Orders made by the Court of Appeal on 28 November 2018: CB, Tab 43.

[80] Orders made by the Court of Appeal on 19 December 2018: CB, Tab 44.

[81] First Coyne affidavit: CB, Tab 14, [21].

[83] See First Coyne affidavit: CB, Tab 14, [30].

[84] Price affidavit: CB, Tab 7, [52.1]; Claim of Employee Form: CB, Tab 45, 520-526.

[85] Price affidavit: CB, Tab 7, [52.2].

[86] Letter from the liquidators to 'the creditor as addressed' dated 11 January 2019: CB, Tab 47, 580. See also First Coyne affidavit: CB, Tab 14, [22]-[23].

[87] Letter from the liquidators to 'the creditor as addressed' dated 11 January 2019: CB, Tab 47, 582. See also First Coyne affidavit: CB, Tab 14, [23].

[88] Letter from the liquidators to 'the creditor as addressed' dated 11 January 2019: CB, Tab 47, 583. See also First Coyne affidavit: CB, Tab 14, [23].

[89] Letter from the liquidators to 'the creditor as addressed' dated 11 January 2019: CB, Tab 47, 584. See also First Coyne affidavit: CB, Tab 14, [23].

[90] Price affidavit: CB, Tab 7, [53]; Formal Proof of Debt or Claim: CB, Tab 48, 615.

[91] Formal Proof of Debt or Claim: CB, Tab 48, 615. See also Reasons, [9].

[96] Price affidavit: CB, Tab 7, [54]; Formal Proof of Debt or Claim: CB, Tab 49, 649.

[97] First Coyne affidavit: CB, Tab 14, [24]. See also a copy of the advertisement at CB, Tab 54, 695.

[98] First Coyne affidavit: CB, Tab 14, [25].

[99] Ibid [26]. See also Business Information Memorandum: CB, Tab 54, 691-709.

[100] Business Information Memorandum: CB, Tab 54, 691-709. See also First Coyne affidavit: CB, Tab 14, [27] which sets out parts of the Business Information Memorandum.

[101] Business Information Memorandum: CB, Tab 54, 696.

[108] First Coyne affidavit: CB, Tab 14, [28].

[109] Price affidavit: CB, Tab 7, [58]; Email from YPOL, solicitors for Daiwa, to the liquidators dated 1 March 2019: CB, Tab 55, 710-711 (emphasis added).

[110] Price affidavit: CB, Tab 7, [59]; Letter from the liquidators to YPOL, solicitors for Daiwa, dated 4 March 2019: CB, Tab 56, 712-713.

[111] First Coyne affidavit: CB, Tab 14, [31]; Email from Mr Koutsoukos to YPOL, solicitors for Daiwa, dated 6 March 2019: CB, Tab 57, 714 (emphasis added).

[112] Ikeda affidavit: CB, Tab 8, [11]-[13]. The document is at CB, Tab 58, 718. A translated version of the document is at CB, Tab 59, 719-721.

[113] Ikeda affidavit: CB, Tab 8, [6].

[116] First Coyne affidavit: CB, Tab 14, [32].

[120] Ibid [33]; Daiwa's First Offer: CB, Tab 60.

[121] Daiwa's First Offer: CB, Tab 60, 725.

[122] First Coyne affidavit: CB, Tab 14, [34]; Report to Creditors dated 18 March 2019: CB, Tab 61.

[123] Report to Creditors dated 18 March 2019: CB, Tab 61, 750 [2].

[130] Ibid 752 [2.2.2], 754 [2.2.5].

[132] First Coyne affidavit: CB, Tab 14, [35]; CB, Tab 62, 779-780.

[133] 25 March 2019 Letter: CB, Tab 63.

[134] Second Coyne affidavit, [6]; Exhibit 'DJC-2' to the Second Coyne affidavit.

[135] First Coyne affidavit: CB, Tab 14, [38]-[39].

[137] Letter from Macpherson Kelley, solicitors for the liquidators, to Intelligent Packaging and Ball Corporation dated 2 April 2019: CB, Tab 64, 786-787.

[139] First Coyne affidavit: CB, Tab 14, [39(a)].

[140] Transcript of Proceedings 22 October 2021 (n 4) 7.6-7.8 (Mr Austin QC).

[141] Joint Venture's Second Offer: CB, Tab 65. See also First Coyne affidavit: CB, Tab 14, [37]. It is described as the 'First Joint NBIO', but it was in fact the second offer, see the Second Coyne affidavit.

[142] Joint Venture's Second Offer: CB, Tab 65, 795, 'Schedule A - Assets'.

[143] Price affidavit: CB, Tab 7, [65]. A copy of the email is at CB, Tab 66, 796.

[144] Price affidavit, CB, Tab 7, [66]. A copy of the email is at CB, Tab 66, 797.

[146] First Coyne affidavit: CB, Tab 14, [41]; CB, Tab 70, 802-826.

[147] Daiwa's Second Offer: CB, Tab 70, 807.

[149] First Coyne affidavit: CB, Tab 14, [42]. The emails are set out at CB, Tab 71, 827.

[150] First Coyne affidavit: CB, Tab 14, [43].

[152] Ibid [46]; Daiwa's Third Offer: CB, Tab 72.

[153] First Coyne affidavit: CB, Tab 14, [49]. A copy of the email is at CB, Tab 73, 849.

[154] First Coyne affidavit: CB, Tab 14, [50].

[155] Ibid [52]. A copy of Mr Koutsoukos' file note is at CB, Tab 74.

[156] First Coyne affidavit: CB, Tab 14, [53]-[54].

[158] First Coyne affidavit: CB, Tab, 14, [55]. A copy of the email is at CB, Tab 76, 855-856.

[159] CB, Tab 76, 855-856 (emphasis added); Daiwa's Supplementary Tender Bundle, 1-2.

[160] Daiwa's Supplementary Tender Bundle, 3-10.

[162] Daiwa's Supplementary Tender Bundle, 3-10.

[163] First Coyne affidavit: CB, Tab 14, [56].

[164] Ibid; Daiwa's Fourth Offer: CB, Tab 77.

[165] Daiwa's Fourth Offer: CB, Tab 77, 858.

[166] First Coyne affidavit: CB, Tab 14, [57]-[58].

[167] Ibid [56]; Price affidavit: CB, Tab 7, [70]. A copy of the email is at CB, Tab 78, 878.

[168] Daiwa's Supplementary Tender Bundle, 11-18.

[169] Price affidavit: CB, Tab 7, [71]. A copy of the letter is at CB, Tab 79, 879.

[170] Daiwa's Supplementary Tender Bundle, 19-27.

[172] Price affidavit: CB, Tab 7, [72]; CB, Tab 81, 883. The letter that it responded to, being a letter from Daiwa's solicitors to the liquidator dated 2 May 2019, was not tendered.

[173] First Coyne affidavit: CB, Tab 14, [61]; CB, Tab 82, 886-972.

[174] First Coyne affidavit: CB, Tab 14, [63].

[175] Ibid [63(d)]; CB, Tab 86, 985.

[178] Third Report to Creditors: CB, Tab 94.

[179] Price affidavit: CB, Tab 7 [84]; CB, Tab 99, 1082.

[180] Ikeda affidavit: CB, Tab 8, [15]-[25].

[181] Price affidavit: CB, Tab 7, [94].

[182] See the parties' joint List of Issues: CB, Tab 2. At the commencement of the hearing, Daiwa informed the Court that issue 4 did not arise as it did not press for the relief in paragraph 4A(b) of the amended originating process concerning an inquiry. See Transcript of Proceedings 22 October 2021 (n 4) 8.11-8.15, 8.18-8.20 (Mr Bender).

[183] Daiwa submitted that the Court is to consider those claims and to the extent that Daiwa's submissions differ from those claims the Court may confine itself to the claims in the proposed statement of claim. See Transcript of Proceedings 22 October 2021 (n 4) 98.4-99.10 (Mr Bender).

[184] Proposed statement of claim, [1]-[59], [61]-[64], [66]-[109].

[195] Ibid [119.8(a)]. This is also based upon [117], see [119.7].

[199] Ibid [113]. See Daiwa's Second Offer: CB, Tab 70, 807.

[200] Proposed statement of claim, [122.4].

[210] Challis v Hoffmann [2017] NSWSC 870; (2017) 121 ACSR 585 sub nom Re DH International Pty Ltd (in liq) [2017] NSWSC 870 [5] (Gleeson JA).

[211] Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577.

[212] Ibid [34], [36] (Barrett J) (emphasis added).

[213] El-Saafin v Franek (No 2) [2018] VSC 683.

[214] Ibid [165]-[169] (Lyons J) (citations omitted).

[215] El-Saafin v Franek (No 4) [2020] VSC 389.

[216] Ibid [144], [159]-[164], [205] (citations omitted). Paragraph [144] was referred to with approval by the Court of Appeal in MAG Financial and Investment Ventures Pty Ltd v El-Saafin [2020] VSCA 322 [39] (Sifris, Osborn JJA and Macaulay AJA).

[217] MAG Financial and Investment Ventures Pty Ltd v El-Saafin [2020] VSCA 322.

[218] Ibid [56]-[58] (Sifris, Osborn JJA and Macaulay AJA) (citations omitted).

[219] Transcript of Proceedings 22 October 2021 (n 4) 93.24-93.27 (Mr Bender). See Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665 [18] (Croft J). See also Mamone v Pantzer [2001] NSWSC 26 [4] (Santow J).

[220] Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665.

[221] Ibid [17]-[22], [32]-[35] (Croft J) (citations omitted). See also Aardwolf Industries LLC v Riad Tayeh [2020] NSWSC 299 [81]-[89] (Rees J).

[222] Transcript of Proceedings 22 October 2021 (n 4) 10.11-10.12 (Mr Bender).

[225] Daiwa's submissions: CB, Tab 3, [72].

[228] Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485.

[229] Asden Developments Pty Ltd (in liq) v Dinoris (No 3) [2016] FCA 788; (2016) 114 ACSR 347.

[230] Perpetual Nominees Ltd v McGoldrick (No 3) [2017] VSC 78; (2017) 120 ACSR 32.

[231] Daiwa's submissions: CB, Tab 3, [6].

[235] Transcript of Proceedings 22 October 2021 (n 4) 42.2-42.3 (Mr Bender).

[238] Ibid 42.23-42.30 (Mr Bender) (emphasis added).

[239] Ibid 43.23-44.2 (Mr Bender) (emphasis added).

[240] Transcript of Proceedings 25 October 2021 (n 7) 4.22-5.13 (Mr Bender).

[241] Transcript of Proceedings 22 October 2021 (n 4) 110.12-110.17 (Mr Bender).

[248] Transcript of Proceedings 25 October 2021 (n 7) 106.25-106.29 (Mr Bender).

[250] Transcript of Proceedings 22 October 2021 (n 4) 25.25-25.30 (Mr Bender).

[255] Ibid 44.6-44.16 (Mr Bender). See also 70.28-70.31 (Mr Bender).

[256] Transcript of Proceedings 25 October 2021 (n 7) 111.24-111.28 (Mr Bender).

[264] Ibid 119.1-119.9 (Mr Bender), referring to Ikeda affidavit: CB, Tab 8, [22].

[265] Transcript of Proceedings 25 October 2021 (n 7) 119.12-120.25 (Mr Bender).

[267] Transcript of Proceedings 22 October 2021 (n 4) 14.20-24 (Mr Bender).

[270] Transcript of Proceedings 25 October 2021 (n 7) 118.7-118.24 (Mr Bender).

[271] Transcript of Proceedings 22 October 2021 (n 4) 14.20-14.24 (Mr Bender). See also Daiwa's submissions: CB, Tab 3, [83].

[272] Daiwa's submissions: CB, Tab 3, [82].

[273] Transcript of Proceedings 22 October 2021 (n 4) 88.25-88.28 (Mr Bender).

[275] Daiwa's submissions: CB, Tab 3, [82].

[279] Transcript of Proceedings 25 October 2021 (n 7) 119.1-119.9 (Mr Bender), referring to Ikeda affidavit: CB, Tab 8, [22].

[280] Daiwa's submissions: CB, Tab 3, [86]. The amount is slightly less than the amount stated in Daiwa's submissions, given the matter set out earlier in these Reasons.

[281] Daiwa incorrectly states this amount as $10,828,854 in its submissions. It is plainly incorrect as the calculation does not work. It should be $6,500,000 (not $10,828,854) which is the total purchase price stated in Daiwa's Fourth Offer. This is also consistent with the allegation in the proposed statement of claim at [125.2] that refers to $6,500,000.

[282] Transcript of Proceedings 25 October 2021 (n 7) 121.2-121.10 (Mr Bender).

[284] Ibid 33.16-33.20 (Mr Austin QC).

[285] Ibid 17.11-17.14 (Mr Austin QC).

[288] Ibid 34.21-34.26 (Mr Austin QC).

[289] Ibid 24.29-25.9 (Mr Austin QC). See also Liquidators' submissions: CB, Tab 4, [32].

[290] Transcript of Proceedings 25 October 2021 (n 7) 25.3-25.6 (Mr Austin QC).

[291] Ibid 27.10-27.12 (Mr Austin QC).

[292] Ibid 24.30-24.31, 25.8-25.9 (Mr Austin QC).

[293] Perpetual Nominees Ltd v McGoldrick (No 3) [2017] VSC 78; (2017) 120 ACSR 32.

[294] Transcript of Proceedings 25 October 2021 (n 7) 28.7-29.1 (Mr Austin QC).

[295] Re Kimberley Diamond Company Pty Ltd (in liq) (2016) 116 ACSR 233. See Transcript of Proceedings 25 October 2021 (n 7) 29.2-30.24 (Mr Austin QC).

[296] At the hearing, the liquidators withdrew paragraph [39] of their written submissions. See Transcript of Proceedings 25 October 2021 (n 7) 33.1-33.7 (Mr Austin QC).

[297] Transcript of Proceedings 25 October 2021 (n 7) 32.2-32.5 (Mr Austin QC).

[299] Liquidators' submissions: CB, Tab 4, [33].

[302] Ibid [34]-[35], [37] and [39] including the footnotes.

[303] Naumoski v Parbery [2002] NSWSC 1097.

[304] Transcript of Proceedings 25 October 2021 (n 7) 20.2-20.7 (Mr Austin QC).

[305] Ibid 45.21-45.23 (Mr Austin QC).

[307] Ibid 44.11-44.13 (Mr Austin QC).

[308] Ibid 44.18-44.28 (Mr Austin QC).

[309] Ibid 44.29-44.30 (Mr Austin QC).

[311] Ibid 44.30-45.23, 49.3-49.18 (Mr Austin QC)

[314] Ibid 46.19-46.23 (Mr Austin QC).

[315] Ibid 47.31-48.12 (Mr Austin QC).

[316] Ibid 49.19-49.20 (Mr Austin QC).

[318] Liquidators' submissions: CB, Tab 4, [38].

[320] Transcript of Proceedings 25 October 2021 (n 7) 50.25-51.3 (Mr Austin QC).

[321] Ibid 70.11-70.13 (Mr Austin QC).

[322] Ibid 70.16-17.20 (Mr Austin QC).

[323] Ibid 70.21-70.30 (Mr Austin QC).

[324] Ibid 48.13-48.27 (Mr Austin QC), referring to the document at CB, Tab 63.

[325] Transcript of Proceedings 25 October 2021 (n 7) 69.11-69.15 (Mr Austin QC).

[326] Ibid 74.14-74.26 (Mr Austin QC).

[329] Ibid 42.17-42.28 (Mr Austin QC).

[330] Ibid 42.25-42.28 (Mr Austin QC).

[331] Ibid 42.29-43.8 (Mr Austin QC), referring to the document at CB, Tab 65.

[332] Transcript of Proceedings 25 October 2021 (n 7) 43.28-43.31 (Mr Austin QC).

[334] Ibid 64.10-65.16 (Mr Austin QC).

[336] Transcript of Proceedings 25 October 2021 (n 7) 72.27-73.1 (Mr Austin QC).

[337] Ibid 77.19-77.26 (Mr Austin QC).

[338] Ibid 25.31-26.2, 74.4-74.7 (Mr Austin QC).

[339] Ibid 74.11-74.13, 77.2-77.3 (Mr Austin QC).

[341] Ibid 38.23-38.26 (Mr Austin QC), referring to the document at CB, Tab 57. See also 74.27-75.23 (Mr Austin QC).

[342] Transcript of Proceedings 25 October 2021 (n 7) 72.21-72.23 (Mr Austin QC).

[343] Ibid 74.19-74.26 (Mr Austin QC), referring to the document at CB, Tab 90.

[344] Transcript of Proceedings 25 October 2021 (n 7) 74.28-75.6 (Mr Austin QC), referring to the document at CB, Tab 97.

[345] Transcript of Proceedings 25 October 2021 (n 7) 76.21-76.25 (Mr Austin QC).

[346] Ibid 75.23.75.30 (Mr Austin QC).

[348] Ibid 76.12-76.14 (Mr Austin QC).

[349] Ibid 68.19-68.21 (Mr Austin QC).

[350] Ibid 68.25-68.30 (Mr Austin QC).

[351] Ibid 86.17-86.20 (Mr Austin QC).

[352] Ibid 55.16-55.30 (Mr Austin QC), referring to the document at CB, Tab 67.

[353] Transcript of Proceedings 25 October 2021 (n 7) 80.27-81.4 (Mr Austin QC).

[354] Ibid 84.24-84.31 (Mr Austin QC).

[355] Ibid 81.27-81.29 (Mr Austin QC).

[357] Liquidators' submissions: CB, Tab 4, [38].

[358] Transcript of Proceedings 25 October 2021 (n 7) 53.2-53.5 (Mr Austin QC).

[364] Liquidators' aide-memoire (attached as Annexure A to these Reasons). See also Transcript of Proceedings 25 October 2021 (n 7) 66.17-67.9 (Mr Austin QC), where the liquidators made submissions by reference to the liquidators' aide-memoire.

[365] Transcript of Proceedings 25 October 2021 (n 7) 68.18 (Mr Austin QC).

[366] Ibid 81.21-81.24 (Mr Austin QC).

[367] Ibid 39.9-39.25, 40.9-40.29 (Mr Austin QC), referring to the document at CB, Tab 59.

[368] Transcript of Proceedings 25 October 2021 (n 7) 49.22-50.3 (Mr Austin QC).

[370] Ibid 86.24-86.28 (Mr Austin QC).

[371] Ibid 87.19-87.25 (Mr Austin QC).

[372] Ibid 88.13-88.20 (Mr Austin QC).

[374] Ibid 83.22-83.26, 83.31-84.23 (Mr Austin QC).

[375] Corporations Act 2001 (Cth) s 9.

[376] Pace v Antlers Pty Ltd (in liq) (1998) 80 FCR 485.

[377] Ibid 497-498 (Lindgren J) (emphasis added).

[378] Ibid 498-499 (Lindgren J) (emphasis added).

[379] Hausmann v Smith [2006] NSWSC 682.

[381] Asden Developments Pty Ltd (in liq) v Dinoris (No 3) [2016] FCA 788; (2016) 114 ACSR 347.

[383] Re Kimberley Diamond Company Pty Ltd (in liq) (2016) 116 ACSR 233.

[386] Perpetual Nominees Ltd v McGoldrick (No 3) [2017] VSC 78; (2017) 120 ACSR 32 [118]-[120] (Vickery J) (citations omitted) (emphasis added).

[387] Transcript of Proceedings 25 October 2021 (n 7) 27.10-27.12, 28.4-28.7 (Mr Austin QC).

[388] First Coyne affidavit: CB, Tab 14, [33]; Daiwa's First Offer: CB, Tab 60, 725.

[389] First Coyne affidavit: CB, Tab 14, [36]; 25 March 2019 Letter: CB, Tab 63, 783-785.

[390] Transcript of Proceedings 22 October 2021 (n 4) 42.15-42.16 (Mr Bender).

[393] Liquidators' submissions: CB, Tab 4, [38].

[394] Transcript of Proceedings 25 October 2021 (n 7) 70.11-70.13 (Mr Austin QC).

[395] Proposed statement of claim, [112.1]-[112.2]. See also [112.3], [113].

[396] Knights Quest Pty Ltd v Daiwa Can Company and Anor [2018] VSC 426: CB, Tab 41, [123].

[397] First Coyne affidavit: CB, Tab 14, [41]; CB, Tab 70, 807.

[398] 25 March 2019 Letter: CB, Tab 63, 783-784 [4].

[399] Letter from liquidators' solicitors to Daiwa's solicitors dated 19 March 2019: CB, Tab 62, 779-781.

[400] 25 March 2019 Letter: CB, Tab, 63, 783-785.

[401] First Coyne affidavit: CB, Tab 14, [32]. See also the letter from the liquidators' solicitors to Daiwa's solicitors dated 19 March 2019: CB, Tab 62, 779.

[403] Email from Mr Koutsoukos to Mr Rose, Daiwa's solicitor, dated 10 April 2019: CB, Tab 66, 796.

[404] First Coyne affidavit: CB, Tab 14, [43].

[405] Mr Koutsoukos' file note: CB, Tab 74, 852.

[407] Proposed statement of claim, [119.5(a)], [119.6(a)].

[408] Mr Koutsoukos' file note: CB, Tab 74, 851-853.

[412] Business Information Memorandum: CB, Tab 54, 705.

[414] Proposed statement of claim, [119.5(a)], [119.6(a)].

[415] Transcript of Proceedings 25 October 2021 (n 7) 43.1-43.16 (Mr Austin QC).

[416] It is unclear whether this is $USD or $AUD.

[417] Proposed statement of claim, [124].

[418] Ikeda affidavit: CB, Tab 8, [16].

[422] Transcript of Proceedings 25 October 2021 (n 7) 39.2-39.7, 40.2-40.5 (Mr Austin QC).

[423] Ibid 40.21-40.25 (Mr Austin QC).

[424] Ibid 39.27-39.30 (Mr Austin QC).

[425] Ibid 81.21-81.22 (Mr Austin QC).

[426] Daiwa's submissions: CB, Tab 3, [86].

[427] Transcript of Proceedings 25 October 2021 (n 7) 86.24-86.28 (Mr Austin QC).

[429] CB, Tab 82, 'Schedule 1 - Items'.

[430] This figure of assumed debt is slightly more than the amount set out in Daiwa's submissions: CB, Tab 3, [85]-[86], which is based upon the amounts in the table at CB, Tab 75 of $920,842, $100,000 and $389,529 which total $1,410,371. See also Transcript of Proceedings 22 October 2021 (n 4) 82.9-82.14 (Mr Bender).

[431] CB, Tab 82, 'Schedule 2 - Definitions'. The figure of $1,454,027.64 is calculated by summing the four amounts set out in the definition 'Related Party Liabilities' in Schedule 2.

[432] Transcript of Proceedings 25 October 2021 (n 7) 88.13-88.20 (Mr Austin QC).

[433] First Coyne affidavit: CB, Tab 14, [44].

[435] Transcript of Proceedings 25 October 2021 (n 7) 81.24-81.29 (Mr Austin QC).

[436] First Coyne affidavit: CB, Tab 14, [57]-[58].

[438] Note that the Joint Venture's Second Offer was amended by email correspondence, see Joint Venture's Third Offer.

[440] Business Information Memorandum: CB, Tab 54, 696 [2]. See Reasons, [52].

[441] Business Information Memorandum: CB, Tab 54, 709 [12]. See Reasons, [52].

[442] Transcript of Proceedings 25 October 2021 (n 7) 53.2-53.5 (Mr Austin QC).

[443] Liquidators' aide-memoire (attached as Annexure A to these Reasons). See also Transcript of Proceedings 25 October 2021 (n 7) 66.17-67.9 (Mr Austin QC) where the liquidators made submissions by reference to the liquidators' aide-memoire.

[444] Proposed statement of claim, [124].

[445] Daiwa's submissions: CB, Tab 3, [86].

[447] CB, Tab 82, 'Schedule 1 - Items'.

[450] Proposed statement of claim, [125.2].

[451] Daiwa's submissions: CB, Tab 3, [86].

[452] Transcript of Proceedings 25 October 2021 (n 7) 88.13-88.20 (Mr Austin QC).

[454] Transcript of Proceedings 22 October 2021 (n 4) 93.23-93.29 (Mr Bender). See Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665 [18] (Croft J). See also Mamone v Pantzer [2001] NSWSC 26 [4] (Santow J).

[456] See Eighty Second Agenda Pty Ltd (in its capacity as trustee of the Rice Family Trust) v Handberg [2014] VSC 665 [32]-[35] (Croft J).

[457] Daiwa's submissions: CB, Tab 3, [106].

[458] Liquidators' submissions: CB, Tab 4, [40].

[460] See El-Saafin v Franek (No 4) [2020] VSC 389 [205] (Lyons J).

[461] Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71 NSWLR 577.

[462] Ibid [57] (Barrett J) (emphasis added).

[463] Daiwa's submissions: CB, Tab 3, [107].

[464] Transcript of Proceedings 25 October 2021 (n 7) 3.3-3.11 (Mr Bender).

[469] Liquidators' submissions: CB, Tab 4, [41].

[472] Transcript of Proceedings 25 October 2021 (n 7) 89.31-90.4 (Mr Austin QC).

[474] Third Report to Creditors: CB, Tab 94, 1049.

[477] Daiwa's submissions: CB, Tab 3, [108].

[479] Liquidators' submissions: CB, Tab 4, [42].

[481] Reasons, [160]-[161], [165]-[167].

[482] Annexure A is a copy of the liquidators' aide-memoire relied upon at the hearing.