SingTel Optus Pty Limited & Ors v Weston

Judgment 1On 19 June 2012 Paul Gerard Weston (the defendant) was removed as Special Purpose Liquidator of One.Tel Limited (in liquidation) (One.Tel): SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674 (the Judgment). On 3 August 2012 the General Purpose Liquidators of One.Tel were joined as the second defendants for the purpose of taking part in the costs hearing and/or the making of costs orders. The parties have agreed to orders pursuant to which the defendant is to pay the plaintiffs' costs of the proceedings and his own costs of the proceedings (the agreed costs orders). 2The only remaining issue for determination is whether the defendant is entitled to an indemnity from or out of the assets of One.Tel in respect of the agreed costs orders. Applicable Principles 3In Re Beddoe; Downes v Cottam [1893] 1 Ch 547 at 558, Lindley LJ agreed that a "trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges and expenses properly incurred", meaning "not improperly incurred". Bowen LJ said that "properly incurred" meant "reasonably as well as honestly incurred" and continued at 562: While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. 4In Adsett v Berlouis (1992) 37 FCR 201; 109 ALR 100, an appeal in respect of a finding that a trustee in bankruptcy could not have his costs of a Motion for contempt against the bankrupts that he subsequently withdrew, paid out of a composition fund, the Full Federal Court (Northrop, Wilcox and Cooper JJ) said at 211-212: The critical question, in our view, is whether or not the conduct which gave rise to the burden of costs - whether costs ordered to be paid or costs incurred by the trustee in prosecution of the litigation - was proper in the sense explained in Beddoe; that is, whether the expenditure was reasonably, as well as honestly, incurred. 5After referring to the undesirability of attempting to formulate a "detailed rule covering all circumstances" and the possibly misleading language of some authorities (particularly in relation to gratuitous trustees), their Honours said at 212: Sometimes that language appears to require a degree of personal misconduct or wilful recklessness, as opposed to mere negligence, mistake or breach of the trustee's duty ... We do not think that such a limitation can stand with cases such as Re Beddoe, which in our opinion correctly express the law. If the expense is one prudently and reasonably incurred in the discharge of the trustee's proper duties, there is a right under the general law to be indemnified out of the trust estate. If the expense is not so incurred or is unreasonable or unnecessary, there is no right under the general law to indemnity because the expense is not "properly incurred". The position is no different with a trustee in bankruptcy. Where the line is drawn, between an expense properly incurred and one not properly incurred, is to be determined on the facts of the particular case and in the exercise of judgment. 6Re Biposo Pty Ltd; Condon v Rodgers (No 3) (1995) 17 ACSR 730 was a case in which liquidators were removed in circumstances where it was found that they had not acted "with the same high degree of competence" as they usually did and that it was "in the public interest that they be removed" (at 737). 7In dealing with the question of the costs of the removal proceedings, Young J said (at 739) that, as a "general rule", a liquidator is entitled to indemnification for the liquidator's liability for costs out of the assets of the company unless the liquidator has been removed "on the ground of corruption or maladministration". His Honour concluded that it could not be said that there had been "maladministration" because an order for removal of the liquidators had been made "before any actual damage was caused to the company" (at 739). His Honour said (at 740): However, I do not consider that the conduct was sufficiently "odious", to use Mr Boyd's word, to take it out of the general rule that where a liquidator is removed primarily to protect the administration because of perceived problems with impartiality his costs and the plaintiffs' costs should come out of the assets. 8The three cases referred to by Young J in support of the general rule were Re Shanks Byrne Industries Pty Ltd [1979] 2 NSWLR 880; Re Queensland Stations Pty Limited (1991) 9 ACLC 1341 and Aboriginal and Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liq) (1992) 110 FLR 1; 10 ACSR 121. As Austin J observed in Cresvale Far East Ltd (in liq) v Cresvale Securities Ltd & Others (No 2) [2001] NSWSC 791; (2001) 39 ACSR 622 at 633 [54] (a case involving an administrator of a company), those cases do not support a proposition that costs orders against liquidators are limited to cases of corruption or maladministration. Austin J concluded that the case law (with particular reference to Merkel J's decision in City & Suburban Pty Ltd v Smith (liq of Conpaq (Aust) Pty Ltd (in liq)) (Unreported, Federal Court of Australia, Merkel J, 31 July 1998) indicated that such costs orders could be made where a liquidator's conduct "falls short of corruption or maladministration" and "where the liquidator has behaved unreasonably or improperly" (at 633 [55], [57]). 9Austin J interpreted Young J's use of the expression "sufficiently odious" and its application to the facts in Re Biposo as requiring a judgment about "the level of propriety and reasonableness of the liquidator's conduct" (at 632 [53]). Austin J found that the administrator's conduct amounted to "impropriety, as well as negligence, throughout the course of the administration" in "obvious contrast" to the "lesser findings" in Re Biposo (at 639 [83]). Austin J made an order that the administrator pay the costs personally and was not entitled to indemnity for those costs. 10On the appeal from Austin J, Giles JA came to a different view of the findings of impropriety made against the administrator: Kirwan v Cresvale Far East Ltd (in liq) and Others [2002] NSWCA 395; (2002) 44 ACSR 21. His Honour was satisfied that: (1) it was "reasonable" for the administrator to defend the proceedings brought against the company and against himself as administrator; and (2) the administrator was entitled to indemnity for costs "reasonably and honestly incurred" and that it did not matter that he was, at the same time, "defending his own character" (at 84 [259]). In dealing with some of Austin J's observations, Young CJ in Eq said that "Biposo merely dealt with whether applying a general guideline an order should be made against the administrator/liquidator in that case" and that it was "reading too much into Biposo to say that it was a policy decision that the successful plaintiff must bear its own costs over and above the assets held by the company" (at 108 [421]). His Honour also said that "as a general guideline a liquidator or administrator acting appropriately is entitled if unsuccessful that the costs be paid by the company and not by the liquidator or administrator personally" (at 108 [422]. Finally, his Honour said (at 108 [423]): I have no quarrel with the propositions outlined in the bankruptcy case of Adsett v Berlouis (1992) 37 FCR 201; 109 ALR 100, that to say that only a trustee who has recklessly instituted or precipitated litigation should be deprived of the right to recover costs from the bankrupt's estate is too limited proposition. ... I also agree that (sic) authorities such as Re Beddoe [1893] 1 Ch 547 at 558, that the basal question is whether the costs have been properly incurred or not. 11The defendant submitted that the plaintiffs had not asserted matters that would have been relevant to an application for indemnity costs (which were not sought). It was also submitted that the plaintiffs did not contend that the defendant's defence in the removal proceedings was so plainly unreasonable or undertaken in an "unmeritorious, deliberate or high handed way": Ruhani v Director of Police (2005) 222 CLR 489 at [243]. Similarly it was submitted that the plaintiffs did not contend that the defendant must have known that he had no chance of success in the proceedings: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd and Others (1988) 81 ALR 397. 12The focus on such expressions as "maladministration" and/or "sufficiently odious" may not have provided clear guidance in relation to the circumstances that may warrant a liquidator being denied indemnification in respect of orders for costs in removal proceedings. The use of the expression "appropriately" also has an elastic quality that may not be helpful. One can envisage that a liquidator may make an "inappropriate" judgment about whether to defend a particular part of removal proceedings involving subtle complexities that may amount to no more than an error of forensic judgment, as opposed to unreasonable or improper maintenance of an indefensible position. 13A liquidator who has acted "reasonably" and/or "properly" in defending removal proceedings is usually entitled to indemnity for the costs he is ordered to pay. Caution must be exercised to ensure that such expressions are understood in context: Gatsios Holdings v Kritharas Holdings (in Liquidation) [2002] NSWCA 29 per Spigelman CJ at [7]-[17]. However if the liquidator has acted unreasonably or improperly in defending removal proceedings, indemnity may be denied for the costs of the proceedings that it was unreasonable or improper to defend. It will depend upon the particular circumstances of the case. 14The discretion to deny indemnity should be exercised with great caution and only in exceptional circumstances: In Re Chennell (1878) 8 Ch 492 at 502 per Jessel MR, quoted with approval by Spigelman CJ in Gatsios Holdings v Kritharas Holdings (in Liquidation) [2002] NSWCA 29 at [10]. It has been described as an "unusual and extreme step": Adsett v Berlouis at 214. Plaintiffs' contentions 15The plaintiffs relied upon a number of findings in the Judgment in support of their submission that the defendant ought not be indemnified in respect of the agreed costs orders. The first group of findings relied upon relate to matters of remuneration and control of expenditure (Remuneration Matters): paragraphs [172], [178], [179], [181], [184], [189], [190] and [231]. 16The second group of findings relate to the defendant's investigations of the members of the COI and the relationship between some of the members of the COI (and/or the creditors) and the RRI defendants (Investigations): paragraphs [219], [224] and [231]. 17The third group of findings relate to the defendant's loss of objectivity demonstrated by, inter alia, his public criticisms and attacks on the members of the COI and/or the creditors (Loss of Objectivity): paragraphs [197], [206], [208], [214], [219], [220], [224], [227] and [231]. 18The fourth group of findings relate to the creditors' loss of confidence in the defendant (Loss of Confidence): paragraphs [222], [226] and [231]. 19The plaintiffs also relied on paragraph [204] of the Judgment in relation to the RRI proceedings. That was a finding that the defendant's reasons for not serving the Statement of Claim in the RRI proceedings earlier were found to be "unjustified", referring back to Ward J's findings in dismissing the RRI proceedings in Weston (in his capacity as special purpose liquidator of One.Tel Ltd (in liq)) & Anor v Publishing and Broadcasting Ltd (now known as Consolidated Media Holdings Ltd) & Ors [2011] NSWSC 433; (2011) 83 ACSR 206. The status of the RRI proceedings at the time of trial was that an application for Special Leave to Appeal to the High Court of Australia had been made. Reliance on this paragraph of the Judgment in this application is not apt. I do not intend to consider it any further. Consideration 20The issue of whether the defendant may have conducted himself unreasonably or improperly during the course of the liquidation is not to the point on this application. Rather it is whether the defendant unreasonably or improperly maintained a defence to the application for his removal. Remuneration Matters 21The findings relied upon by the plaintiffs in paragraphs [172], [179] and [231] to the extent that they refer to the "extraordinarily high remuneration" and the "real issue" and "real concern" that proper controls on expenditure were not in place, do not in my view amount to a basis upon which indemnification should be denied. This is particularly so in circumstances where, notwithstanding the contention that the defendant's remuneration was "extraordinarily high", there was no detailed investigation or claims in respect of those amounts in the litigation except to the extent as recorded in the Judgment. The defendant's conduct in the removal proceedings in relation to the general claim that the remuneration was "extraordinarily high" was not unreasonable or improper having regard to this fact. It might have been a very different matter had the plaintiffs decided to establish that the extraordinarily high nature of the remuneration was unjustified or inappropriate. This was not done. 22The plaintiffs also relied upon paragraph [178] of the Judgment in which observations were made that there was "no need to withhold from the Court relevant information about the work" that the liquidator had performed in respect of which he sought approval for his remuneration, but "that is what occurred". That is not a finding of misconduct. Those observations must be understood in the context of the COI's complaint that the defendant failed to provide it with relevant information. The conclusion reached in the last sentence of paragraph [178] was that the defendant's failure to provide the necessary detail to the Court gave credence to the COI's complaint that he had not provided relevant detail to it. There was nothing in the defendant's conduct in the removal proceedings in relation to this aspect of the case that was unreasonable or improper. 23In paragraphs [181] and [184] of the Judgment the conclusion is reached that the defendant's submissions failed to recognise the seriousness of the situation in which the defendant had claimed an entitlement to receive fees to which he was not entitled and where he had certified that legal expenses were properly incurred and payable when they were not. The way in which the submission was couched is extracted in paragraph [181] of the Judgment. It related to the fact that, ultimately, the claims were adjusted to remove the "disallowed items". There was no submission that the defendant was entitled to charge for the items that were disallowed. Rather the way in which counsel characterised it was not accepted. Although it was a submission that did not find favour, it was not one that was improper in the circumstances. 24The plaintiffs also relied upon paragraphs [189] and [190] of the Judgment in respect of the defendant's lack of promptitude in repaying the amounts to which he had no legal entitlement. The defendant did not propound an argument in the removal proceedings that he was entitled to those fees nor did he raise any real resistance to the conclusion that was reached that he should have repaid the amounts more promptly. 25I am not satisfied that the Remuneration Matters upon which the plaintiffs have relied establish that the defendant behaved unreasonably or improperly in defending the removal proceedings. Investigations 26The paragraphs relied upon by the plaintiffs in this regard (paragraphs [219], [224] and [231]) relate to the inappropriate investigations conducted by the defendant during the course of the liquidation. These investigations were unjustified, as were the fees charged and expenses incurred in relation to those investigations. As recorded in the Judgment, these fees and expenses were disallowed. The submissions in the removal proceedings in relation to the inappropriate investigations were made in the context of the plaintiffs' claims relating to the defendant's remuneration and expenses. In written submissions dated 2 March 2012 the defendant accepted that the disallowance of these claims was "a matter of record and not in issue in the proceedings". Accordingly the defendant did not seek to defend the removal proceedings on the basis that such investigations were justified. Loss of Objectivity 27The paragraphs of the Judgment in respect of the defendant's Loss of Objectivity relate to the defendant's inappropriate adversarial approach to Mr King [197]; the defendant's opposition to the members of the COI having access to material to respond to the allegations made against them in the Report to Creditors and the Media Release [206]; the defendant's opposition to the appointment of an independent person to chair the AGM [208]; the defendant's inability to regard the COI's conduct in dealing with Mr Lindholm with proportionality [214]; the continuation of the defendant's claims against the members of the COI out of all proportion to what had occurred [219]; the demeaning of the members of the COI [220]; the hostility emanating from the defendant in an intensely adversarial approach to the COI and the creditors [224]; the defendant's loss of objectivity [227]; and the publication of the Media Release and refusal to remove it from the website demonstrating a serious lack of judgment [231]. 28These were all findings made in the main from a review of the documentary material that went into evidence without objection. The defendant's attitude during the removal proceedings (and partly in explanation for why there was no necessity for him to give evidence) was that the history of the liquidation was in the documentary material from which his conduct could be reviewed and assessed. The defendant did not submit during the removal proceedings that the conduct described in the abovementioned findings was justified. The defendant's contention was that when reviewed and assessed, his conduct could not be described as "misconduct" in the sense understood in the authorities (corruption or maladministration) justifying his removal. That was not an unreasonable or improper contention. The defendant was not removed for misconduct. It was in the best interests of the liquidation for the defendant to be removed. Loss of Confidence 29The plaintiffs called very senior officers of a number of creditors to give evidence in relation to the basis upon which the creditors had lost confidence in the defendant. Each of those witnesses was cross-examined. Although the veracity of the witnesses was not successfully challenged, the defendant was entitled to test the claims made by the creditors. The defendant was also entitled to put the submission, as he did, that a loss of confidence, on its own, might not be decisive in determining whether a liquidator should be removed and in particular whether he should be removed. I do not regard the defendant's conduct in defending the removal proceedings in respect of this matter as unreasonable or improper. Other Matters 30There were submissions made by the plaintiffs that the defendant had failed to obtain directions as to the defence of the proceedings. It is not clear that there was such a failure. In any event I am satisfied that if there was such a failure it does not in the circumstances of this complex matter warrant a denial of indemnity. A further submission was made that the defendant's refusal to resign in the light of the no confidence motion and his concession during the proceedings that the relationship with the COI was unworkable, warrants indemnification being refused. The defendant's response as to why he resisted removal in the face of a loss of confidence by the creditors, an unworkable relationship with the COI and a lack of civility in that relationship was to focus on the length of his time in office and the wealth of knowledge and experience in the liquidation. Although it was found that notwithstanding these matters it was in the best interests of the liquidation that he be removed, that does not mean that the approach adopted by the defendant was unreasonable or improper. There were real and complex issues for decision in the removal proceedings having regard to the defendant's length of time in office and his wealth of knowledge and experience gained during that period. 31The defendant's conduct during the liquidation amounted to serious errors of judgment. However I am not satisfied that the way in which the defendant conducted the defence to the removal proceedings was improper or unreasonable such that he should be refused access to the indemnity in respect of the agreed costs orders. Orders 32The orders as to costs are: 1.By consent, the defendant is to pay the plaintiffs' costs of and incidental to the proceedings. 2.By consent, the defendant is to pay his own costs of and incidental to the proceedings. 3.The defendant is entitled to indemnification from the assets of One.Tel for the payment of the costs in Orders 1 and 2. 4.By consent, the legal costs and disbursements paid or incurred but not yet paid by the defendant in respect of the proceedings, be either agreed between the defendant and the General Purpose Liquidators or, failing such agreement, be assessed. For that purpose the General Purpose Liquidators may apply for an assessment as a non-associated third party payer as defined in s 302A of the Legal Profession Act 2004. 5.By consent, any agreement between the plaintiffs and the defendant as to the quantum of the plaintiffs' costs is conditional upon the consent of the General Purpose Liquidators.