Sanderson v Classic Car Insurances Pty Ltd

REASONS FOR DECISION INTRODUCTION Application for directions under s 479(3) of the Corporations Law ("the Law") made by Peter Ivan Macks ("the liquidator") as liquidator of Emanuel Management Pty Ltd (In Liquidation) ("Management") and of Emanuel Holdings Pty Ltd (In Liquidation) ("Holdings"). Between 9 January 1995 and 30 August 1995 the liquidator was appointed liquidator of sixty four companies known collectively as the Emanuel Group, including Management and Holdings to each of which he was appointed liquidator on 30 August 1995. The directions sought relate to how the liquidator should continue to conduct two separate but related proceedings instituted in the Supreme Court of the Australian Capital Territory, in which Management and Holdings were each plaintiffs with Guiseppe Emanuele ("Mr Emanuele"). Those proceedings were commenced on 4 November 1991 and 16 October 1996 and are numbered Action Nos 796 of 1991 and 994 of 1996 respectively. I shall call them the first Compensation Claim and the second Compensation Claim and together the "Compensations Claims". On 7 March 1997, Higgins J in that court in his discretion dismissed the three plaintiffs' claims in the two actions on the ground that, as pleaded, they had no prospect of success. An appeal against Higgins J's decision in each mater was instituted on 2 April 1997. Those appeals are in proceedings numbered 23 and 24 of 1997 in this Court in its ACT Registry, and hereafter I shall call them "the appeals". As the Compensation Claims now effectively exist only by virtue of the appeals, it will be convenient to include the appeals within the expression Compensation Claims from time to time. The appeals have not yet been heard. It is necessary to refer to the Compensation Claims, and to the background to them, in a little detail. THE COMPENSATION CLAIMS There was no suggestion during submissions that the reasons for decision of Higgins J do not accurately record relevant matters, and the following relatively brief description (the version of the statement of claim in the first Compensation Claim as finally amended on 16 April 1996 was of 128 pages comprising 289 numbered paragraphs and of the second Compensation Claim was of 113 pages comprising 174 numbered paragraphs) is derived largely from his Honour's reasons. In the period of time leading up to November 1985, Mr Emanuele as chairman of directors of the Emanuel Group, and in particular on behalf of holdings, considered tendering for the purchase of a shopping mall complex at Belconnen in the Australian Capital Territory. In the course of so doing, he had dealings with a Mr Hedley, then First Assistant Secretary, Department of Territories, who was chairing the committee set up to oversee the tender process. On 28 November 1985 Mr Emanuele handed Mr Hedley $10,000 to facilitate favourable consideration of Holdings' tender. He was arrested, and charged in the Australian Capital Territory Magistrates Court with offering a bribe to Mr Hedley ("the Magistrates Court prosecution"). The hearing of the Magistrates Court prosecution was prolonged. Ultimately, only on 4 February 1994 was a final decision made. The learned magistrate convicted Mr Emanuele of the charge, and imposed sentence. An appeal against the conviction and sentence was duly instituted to the Supreme Court of the Australian Capital Territory, and on 16 March 1995 Higgins J allowed the appeal, and set aside the conviction and sentence. His Honour did so because the conduct of Mr Hedley amounted to entrapment; his overzealous (to use a neutral word) efforts to procure from Mr Emanuele the bribe went beyond the instructions of the Australian Federal Police officers who had been made aware of earlier discussions between Mr Emanuele and Mr Hedley, and who had arranged for Mr Emanuele to be under visual and audio surveillance on 28 November 1985. An appeal to the Full Court of this Court from the decision and orders of Higgins J was, on 4 December 1995, dismissed. In the meantime, on 4 November 1991, Mr Emanuele, Holdings and Management instituted the first Compensation Claim against Mr Hedley and other officers of the Commonwealth. Those proceedings were then instituted presumably to ensure any claim was brought within six years of the conduct complained of. The substance of the allegations made by the plaintiffs was that Mr Emanuele was deliberately entrapped by Mr Hedley into offering the bribe in order to exclude him and Holdings from the tender process. Subsequent to the overturning of the conviction of Mr Emanuele in the Magistrates Court prosecution, on 16 October 1996 the second Compensation Claim was instituted in which again Mr Emanuele, Holdings and Management were plaintiffs. It raised certain matters which were said not to have arisen when the first Compensation Claim was instituted. The first Compensation Claim as ultimately amended, and the second Compensation Claim, were each against Mr Hedley, six officers of the Australian Federal Police, and the three Directors of Public Prosecutions from time to time whilst the Magistrates Court prosecution was instituted and maintained. The Commonwealth of Australia, as the employer of each of the other defendants, was also a party. None of the defendants, other than Mr Hedley, was alleged to have had the improper purpose of excluding Mr Emanuele and Holdings from the tender process. In particular, the critical allegations that Mr Hedley had fabricated a conversation so as to cast suspicion on Mr Emanuele and then, when he was taped so his conversation with Mr Emanuele was recorded, entrapped Mr Emanuele into making the bribe were not allegations in which the other defendants were alleged to have been knowingly complicit. The only cause of action alleged in the second Compensation Claim was malicious prosecution. Higgins J found that there was no defendant against whom that cause of action could arguably be made out, and gave judgment for the defendants. The history of the first Compensation Claim is a little complicated. It alleged various causes of action against Mr Hedley and others, and by leave granted on 9 April 1996 the Director of Public prosecutions and the Commonwealth of Australia were added as defendants, and later on 1 August 1996 the successors to the Director of Public prosecutions whilst the Magistrates Court prosecution was conducted were also added as defendants. On 16 October 1996, the plaintiffs were granted leave to discontinue the proceedings against all but the eleven defendants referred to, and to amend the endorsement on the Writ. Ultimately that amendment was made on 4 December 1996. It then alleged six causes of action: 1. Damages for abuse of process to attain an improper and collateral purpose actuated by malice. 2. Damages for misfeasance in public office. 3. Damages for negligent/fraudulent representation on 27 and 28 November 1985, apparently by Mr Hedley falsely representing that he was prepared to accept a bribe. 4. Damages for negligence and/or breaches of duties of care, including statutory duties. 5. Damages 'on the case' for directing unlawful acts at the plaintiffs so as to cause them damage, and 6. Damages for the "tort of negligent or intentional infliction of harm" upon the plaintiffs. Only those causes of action numbered 2, 3 and 6 reflected causes of action originally pleaded and then only as against Mr Hedley. Accordingly, the causes of action if separately sued upon would have been statute barred against all defendants but Mr Hedley and the causes of action numbered 1, 4 and 5 would also be statute barred against Mr Hedley: s 11, Limitation Act 1985 (ACT). After referring to the detailed factual allegations underlying the causes of action initially alleged against the defendants other than Mr Hedley, as they were "totally remote" from the presently alleged causes of action, Higgins J considered that each was statute barred and should not be permitted to be relied upon by the plaintiffs, unless the damage completing the causes of action was not sustained until the conviction was recorded in the Magistrates Court prosecution on 4 February 1994. But, as his Honour pointed out, damage was alleged to have occurred by the institution of the original proceeding so that the causes of action were then completed; it was not to the point that further damage may have occurred after the conviction was recorded. Consequently, Higgins J concluded as against each defendant other than Mr Hedley that the causes of action pleaded were out of time when first asserted, and dismissed the claims against those defendants. He did not consider the problem so confronting the plaintiffs was remediable by amendment. In any event, no such application has, on the material before me, been made. His Honour further and separately concluded that any cause of action against those defendants based on negligence was not arguable. As against Mr Hedley, Higgins J concluded that the new causes of action were based upon previously alleged facts and so were not out of time. After considering each of the causes of action separately, and the facts alleged in support of them, his Honour concluded that it was not arguable in respect of any of them that the plaintiffs could succeed, and accordingly dismissed the claim. Thus, in the exercise of his discretion, Higgins J dismissed each action by entering summary judgment for the defendants. It is trite to note that his Honour could do so only in the clearest of cases: General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR 125. Finally, I note that Higgins J independently of other considerations, would have dismissed each action on grounds of public policy alone. The complaint in the proceedings was fundamentally that Mr Hedley did not intend to pervert the tender process in favour of Mr Emanuele and his interests, but to exclude him from it. He regarded it as a 'grotesque result' if the plaintiffs could be permitted recovery of damages because Mr Emanuele's criminal expectations were frustrated. Each of Holdings, Management and Mr Emanuele have appealed from the decisions of Higgins J. The respondents to the appeals sought on motion security for costs. The liquidator agreed by consent orders made on 12 June 1997, on behalf of Holdings and Management, that they would by 31 July 1997 provide security for costs of the appeals as to $21,000 to Mr Hedley and as to $31,000 to the other respondents, and that in the event of failure to pay those amounts by that date, the appeals would each be dismissed. The material before me shows that the arrangement so entered into was in the light of legal advice. To avoid any suggestion that the arrangement so entered into might prejudice Mr Emanuele's capacity to continue to conduct the appeals, those orders were varied by consent on 31 July 1997 to make it plain that it would only be the appeals of Holdings and Management which would be dismissed if the security agreed was not provided by the due date. The two security sums totalling $51,000 were paid by the due date. The conduct of the Compensation Claims up to 7 March 1997 by solicitors for Holdings and Management was on the basis that neither company would have to pay their fees. That arrangement has ceased. If Holdings or Management are to continue to prosecute the Compensation Claims including the appeals, the liquidator will have to enter into a fee agreement with solicitors committing him to pay professional fees hereafter. Moreover, the respondents to the appeals have now applied for orders that the liquidator be personally liable for the costs of the appeals. THE APPLICATION The application for directions originally before the Court, by motion dated 30 July 1997, was for directions as to whether the liquidator should cause Management and Holdings to provide security for costs in the appeals. As is apparent, that application was brought only at the very last moment. On 31 July 1997 O'Loughlin J ordered the Registry to remain open to enable payment of the security sums after normal hours. Those amounts were then paid so that very urgent issue resolved. The liquidator now seeks directions as to whether he should on behalf of Holdings and Emanuel, continue to prosecute the appeals. That will be now an expensive and substantial task. He will need to have available funds to do so. He is faced with the application that he be personally liable for costs of the appeals if they are unsuccessful, and on an indemnity basis. Holdings and Management are in any event, if the appeals are unsuccessful, vulnerable to an order for costs against them. Even if the appeals are successful, the Compensation Claims will each be prolonged and expensive pieces of litigation to conduct. Sensibly, in my view, the liquidator is confronting all those issues at this point. There is little point in prosecuting the appeals successfully if then the Compensation Claims are to be lost, although the prospect of a negotiated settlement might then exist. Both from the point of view of Holdings and Management, and their creditors and members, and from his own point of view, the sooner the final decision is made the better. A decision made later not to prosecute the appeals, or having succeeded on the appeals, not to prosecute the Compensation Claims will at best have involved considerably greater expense and the dilution of whatever funds are otherwise available to the creditors and members of Holdings and Management. It is, of course, a separate question whether the Court should give any, and if so what, directions to the liquidator on those matters. THE RELEVANT PRINCIPLES The background to and history of s 479(3) of the Law, and of earlier legislative expressions of a liquidator's entitlement in appropriate circumstances to seek directions from the Court, is set out in Re G.B. Nathan & Co Pty Ltd (In Liquidation) (1991) 24 NSWLR 674. The circumstances in which such directions have been given are various. Although it was not contended on behalf of any person that no directions at all should be given on this application, I note that the giving of directions may not be appropriate where substantive rights of third parties are at stake, or where important facts are in dispute: Re T.T.C. (S.A.) Pty Ltd (In Liquidation) (1983) 1 ACLC 914. Some judges have observed that the procedure should not be used to excuse a liquidator from taking difficult commercial judgments (eg. Shiraz Nominees Pty Ltd (In Liquidation) v Collinson (1985) 3 ACLC 706) but, even in such circumstances, a liquidator has been given directions when confronted with an accusation of acting unreasonably: Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115, and by way of contrast it has been observed that it is appropriate for a liquidator to seek directions as to whether to institute or continue or to continue to defend proceedings involving questions of law and procedure: Re Lemon Tree Passage & Districts RSL and Citizens Club Co-Operative Ltd (1987) 11 ACLR 796 at 799; Re Atkinson [1971] VR 612. In Re Movitor Pty Ltd (In Liquidation); Ex parte Sims (1996) 136 ALR 643 Drummond J gave directions that the liquidator had power to enter into a litigation insurance agreement for the funding of proposed proceedings against the former directors of the company and its holding company. The suggested dichotomy between a liquidator's commercial judgments on the one hand and a liquidator's decision with respect to the conduct of proceedings on the other is, in my view, not a matter of legal significance but only of practical significance. In Sanderson (above), Young J at 117 noted that the jurisdiction may be exercised to protect a liquidator against accusations of acting unreasonably in instances where, otherwise, the liquidator's judgment as to what was commercially prudent would not properly be the subject of directions from the Court. In Shiraz Nominees (above) Franklyn J was asked to give directions as to whether proceedings against a creditor should be instituted. His Honour (at 711) declined to give directions on an application which he described as one involving asking the Court to exercise the discretion properly to be exercised by the liquidator, being in reality to pronounce on the commercial prudence, viability and wisdom of instituting the proceedings in question. The liquidator had decided that there was a sound cause of action, and the real issue for the liquidator was as to the practical prospects of enforcing any judgment. As is commonplace, the decision to institute or maintain proceedings is frequently guided as much by commercial as by legal considerations. The risk-reward considerations will be relevant to a liquidator, as will those considerations in the context of the particular corporation under administration. Whilst the Court may be reluctant to give directions when purely commercial considerations are relevant to the liquidator's decision, even in relation to the conduct of litigation, there will be circumstances where it is or may be appropriate to do so. One of those circumstances may be where the liquidator's proposed decision is the subject of criticism by a particular creditor or creditors as being unreasonable or mala fides. In such a case however, it seems now to be common for the particular creditor concerned about the liquidator's proposed course of action to be heard. That took place without opposition on the present application. Whether, by reason of that involvement of a particular creditor, the case remains one which is properly the subject of directions depends on the particular circumstances. Although the procedure is not one appropriate for the resolution of disputed significant matters of fact, the mere fact that some creditor or other person appears at the application and opposes it is not per se a reason not to grant directions if they are otherwise appropriate; there are a number of decisions where the application has been pursued with persons other than the liquidator appearing, sometimes adducing material, and presenting opposing submissions: Shiraz Nominees (above); Re North Queensland Brick and Pottery Co Ltd [1902] QSR 286; MacIntosh v Turner Corporation Ltd (In Liquidation) (1995) 13 ACLC 1314; Bayley v National Australia Bank Ltd (1995) 16 ACSR 38. Indeed, in Australian Securities Commission v Melbourne Asset Management Nominees Pty Ltd (Receiver and Manager Appointed) (1994) 49 FCR 334 at 349 - 353 Northrop J made orders in the nature of final binding orders where, in those circumstances, that course seemed appropriate and after a full multi-partite hearing. See also Wallace-Smith and Mansell v Boland (Federal Court, Northrop J, 8 August 1996, unreported). I observe that McLelland CJ in Re J W Murphy and P C Allen; Re BPTC (In Liquidation) (1995-1996) 19 ACSR 569 expressed reservations as to whether the making of final orders is within the scope of s 479(3) of the Law. That question has not arisen in this application. THE PARTIES APPEARING On 7 August 1997, when the liquidator sought orders in the more general way as to the Compensation Claims, a timetable was set for the filing of answering affidavits. At that occasion, apart from the Emanuele interests, an appearance was made on behalf of the EFG Group. It is the largest creditor of the Emanuel Group, and is a creditor of Management for $117,702,874. In part to give its legal advisers the opportunity to consider the legal opinion of counsel to the liquidator, the application was adjourned. That creditor subsequently did not seek to appear further and indicated that it has no present interest "in having any further involvement in relation to the issue of the funding of the Compensation Claims including the appeals". Mr Emanuele and his sons Mr Linton Emanuele and Mr Rocco Emanuele (collectively, "the Emanueles") also appeared by counsel. They did not oppose the Court giving directions to the liquidator, but urged that the appropriate direction should be to require the liquidator to convene meetings of creditors of Holdings and Management, at which meetings the liquidator should fully inform those creditors of matters relating to the Compensation Claims including the prospects of success on those claims and the potential awards of damages in each of them, and that each of those creditors then be given the opportunity to consider whether to provide funds to the liquidator to enable him to continue to conduct the Compensation Claims and as to the terms of doing so. The material shows that the relationship between the Emanueles and the liquidator is an arms length one. The Emanueles' solicitor has recently put the liquidator on notice that any failure on his part to fully prosecute the Compensation Claims including the appeals will result in the Emanueles suing him for breach of duty and negligence. There is other litigation in which the liquidator for one or more of the Emanuel Group of companies is on one side and the Emanueles' interests on the other. At least since April 1997, the Emanueles through their professional advisers have been seeking to have the liquidator support a Scheme of Company Arrangement, the terms of which as identified from time to time are not important save that a linchpin has been the continued prosecution of the Compensation Claims and the manner of application of the proceeds of those claims. As the liquidator in his responding correspondence pointed out, he had authorised the maintenance of those claims in the names of Holdings and Management whilst he completed getting advice as to the 'fundamental' question as to whether those claims have merit. It was in the course of that process that Higgins J decided that, as formulated, they had no merit. THE LIQUIDATOR'S CONSIDERATIONS AND DEALINGS WITH THE EMANUELES The liquidator generally, on the basis of legal advice received, desires not to pursue the Compensation Claims, including the appeals. He is confronted with the decision of Higgins J that the Compensation Claims have no merit. They have a tenuous life, only through the appeals. On 30 July 1997, a lengthy opinion was provided to the liquidator by M F Blue of counsel which expresses the opinion that, for various reasons, each of the causes of action are either unarguable or unlikely to be established. He concludes: "In my opinion the overall prospects of success of the merits of this claim are small and do not justify the expense or risks associated with prosecuting the appeal and subsequent trial." The liquidator had earlier been advised by counsel that the prospects of success on the appeals were sufficient to "justify the filing of a notice of appeal in light of the quantum of costs" which would follow the dismissal of the proceedings. Counsel then indicated that an assessment of the prospects of success at trial was necessary to advise whether it would then be warranted once an appeal were instituted, and he pointed out some of the difficulties which would need to be overcome if the action were to be successful. Counsel's later opinion highlights those difficulties. The initial view as to the prospects of success on the appeals was only on the basis that Higgins J had misconceived the proper role of the Court on such an application, rather than that the Compensation Claims themselves had prospects of success. The liquidator also has concerns that, in any event, it would be difficult to prove that the Magistrates Court prosecution, assuming it to have been brought wrongfully, had caused either Holdings or Management significant losses. On 16 April 1997 the liquidator indicated to the Emanueles that he had already instructed his solicitors to seek to resolve the Compensation Claims on the basis of them being discontinued, so as to minimise the exposure to costs. Thereafter, it would be fair to describe correspondence between the liquidator and the Emanueles through their professional adviser as shadow boxing: the Emanueles speculated that a friend might put up the money necessary to enable the liquidator to continue to conduct the Compensation Claims if otherwise certain other conditions were agreed to by the liquidator (I make no observation as to the reasonableness or otherwise of those terms), and the liquidator declined to further express his views on those suggested terms unless it were made clear that such funds were in fact available. That standoff led to the liquidator being threatened by letter from the Emanueles' solicitors of 9 July 1997 that action would be brought against him by the Emanueles and their interests for substantial damages for consequential losses. Although counsel for the Emanueles was not instructed to, and did not, put anything to the Court as to the prospects of success of the appeals, or of the Compensation Claims, the letter from the Emanueles' solicitors of 9 July 1997 asserted: "we are extremely confident that our clients have an excellent chance of success in the claim for damages" but no more detailed reasoning was provided. I speculate that detailed advice has been given to the Emanueles on the topic. If it has been, no such detailed advice was provided to the Court. It can fairly be observed that the Emanueles, through whatever resources they may have had available to them (as they have asserted), have had both reason and opportunity to put together a proposal for funding the liquidator in the further conduct of the Compensation Claims, including the appeals. They have chosen not to do so. Indeed, they have held out an insubstantial suggestion that they might do so if the liquidator, in other respects, agreed to their proposals. It is described in a little detail below. It is not for me to comment on whether those proposals were or were not appropriate for the liquidator to consider. I can however note that the stalemate with respect to them could have been broken by the Emanueles by confirming the source and availability and amount of funds for that purpose. If, as their advisers suggest, the prospects of the claim were "excellent", they could also have removed the knot which they had tied between the funding of the ongoing conduct of the Compensation Claims and their proposed Scheme of Company Arrangement. It was the inter-solicitor flurry of correspondence on those matters which thereafter led to the application of 30 July 1997. Other than as noted above, and in this paragraph, the Emanueles have not otherwise sought on this application to adduce evidence , or any material, and none which cogently suggests, that Holdings and Management, have prospects of success either on the appeals or upon the merits of the Compensation Claims. The only additional material is a letter dated 19 August 1997 from counsel previously acting in the matter which (other than as to quantum) says simply: "In my opinion, the above actions and appeals have a reasonable prospect of success in that they have merit and are arguable."