Telstra
135Telstra Corporation Limited (Telstra) was represented on the COI from 24 July 2001 to 31 May 2005. In late July or early August 2009 the defendant contacted Sue Laver, the General Counsel, Dispute Resolution, of Telstra and requested that Telstra consider seeking representation on the COI. The defendant advised Ms Laver that he had "no faith" in the current COI members "acting in the interest of creditors". The defendant advised that he was encouraging the major creditors to consider joining the COI at the AGM on 26 August 2009.
136Ms Laver attended the adjourned AGM on 10 November 2009 at which she was appointed as a member of the COI. It was Telstra's intention, through Ms Laver, to vote against the proposed resolution of no confidence in the defendant. However during the course of the meeting Ms Laver formed the view that it would be extremely difficult and perhaps impossible for the COI to work effectively with the defendant, regardless of whether the composition of the COI was changed. Ms Laver also formed the view that this would effectively result in the overall return to creditors of One.Tel being adversely affected. Ms Laver's affidavit evidence was that the tone used by the defendant in addressing the creditors was "aggressive and antagonistic" and that in her view the language used by him in his presentation to creditors was inflammatory, particularly insofar as it related to the COI. Ms Laver said that she was particularly concerned by the defendant's references to "flip flops" by the COI. Ms Laver also gave affidavit evidence that there were significant differences between the accounts given by the defendant and by the members of the COI in relation to events leading up to the AGM.
137Ms Laver was cross-examined about this evidence and agreed that there was a "lot of history" from 2008 in relation to what had transpired between the defendant and the COI concerning the question of the settlement of the RRI proceedings (tr 83-84). She gave the following evidence (tr 84):
Q. Is this right, that you considered that you were unable to form a view about where the respective merits of the positions lay as to the complaints each was making about the other?
A. At what point in time?
Q. At the time of the general meeting?
A. At the beginning of the general meeting, yes.
138In re-examination Ms Laver gave the following evidence (tr 104-105):
Q. "At the time of the general meeting" and you said, "At the beginning of the general meeting, yes". Do you recall giving that answer?
A. Yes.
Q. Did you have a view at the end of the general meeting?
A. Yes, I did have a view.
Q. What was your view by the end of the general meeting?
A. I thought that the - it was an unworkable relationship between the committee and the special purpose liquidator. I had listened to the presentations from the special purpose liquidator and to some of the members of the committee and I formed the view that they really couldn't work together.
Q. What was the basis for the view that you formed? What was your reasoning?
A. I listened to the presentations from the - a number of people from Optus and that explained a number of the prior issues between the committee and the special purpose liquidator and gave a bit more context than I had heard before. I listened to the special purpose liquidator's presentation. I thought the language was unnecessarily inflammatory and antagonistic and I couldn't see how with that composition for both the liquidator and the committee it could function effectively in the administration of the special purpose liquidation going forward.
Q. So what view did you form as to what you should do in those circumstances?
A. I had gone into the meeting with the view of voting against the resolution to remove the special purpose liquidator. In the middle of the meeting, I - I changed the view that I had formed on the basis of the presentations given.
HER HONOUR:
Q. You mean the no confidence?
A. Yes.
SHEAHAN:
Q. So what conclusion did you reach about that motion?
A. That we would vote - Telstra would vote in favour - sorry, I am getting confused with the negatives. That Telstra would vote in favour of the motion of no confidence in the special purpose liquidator.
139There was a meeting between Ms Laver, a colleague of Ms Laver's from Telstra, the defendant and Mr O'Neill in Sydney on 16 November 2009. The purpose of the meeting was for Ms Laver to explain why Telstra had abandoned its original opposition in relation to the resolution of no confidence in the defendant. Ms Laver informed the defendant that she was concerned that if he did not voluntarily stand down, considerable fees would be spent on an application to remove him. The defendant advised Ms Laver that he would not be standing down and that the recent judgments of the Court vindicated his conduct. The judgments to which the defendant referred in this conversation with Ms Laver probably included the judgment of Barrett J delivered that day in respect of the defendant's renewed application concerning his remuneration: Onefone Australia Pty Limited and Others v One.Tel Ltd (in liq) and Others; Re Appln Weston (2009) 74 ACSR 716; [2009] NSWSC 1231. In that judgment Barrett J referred to his earlier judgment (to which reference has been made earlier: Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 822) at a time that the defendant was contending that the machinery for approval of his remuneration had broken down and proved unworkable. In his earlier judgment Barrett J had not accepted that position and required interaction and debate between the defendant and the COI to take place (at [12]). His Honour had said that if the COI requested further information or explanation, the defendant "ordinarily ought to provide that" (at [8]). It was in this judgment that his Honour made the observations about the COI that are referred to in paragraph [94] above.
140After Ms Laver's appointment to the COI, there were numerous communications between Mr O'Neill and Ms Laver in respect of the appropriate wording of the confidentiality undertaking that the defendant required Ms Laver to sign before she could receive any confidential information. Ms Laver expressed some concern with the wording having regard to her role as General Counsel. The discussions in relation to the confidentiality undertaking had not been concluded by the time of the planned COI meeting on 4 December 2009 at which the defendant was seeking approval of his remuneration. A compromise was reached for the purpose of attending the COI meetings in December 2009 referred to earlier, whereby Ms Laver was able to view the defendant's remuneration but not the legal fees.
141On 11 March 2010 Ms Laver resigned from the COI. In doing so she advised that having attended the COI meetings in December 2009 and having spent considerable time trying unsuccessfully to agree on a sensible confidentiality regime, Telstra did not consider that it could participate meaningfully as a member of the COI.
ASIC Review
142It is apparent that a meeting took place on 4 September 2009 between the defendant and Mr O'Neill and representatives of ASIC. The defendant was advised at that meeting that ASIC wished to review the defendant's remuneration and expenses including legal costs incurred in the special purpose liquidation. On 11 September 2009 ASIC wrote to the defendant confirming these matters and requesting the provision of various documents by 22 September 2009. Between that date and May 2010 the defendant and his lawyers provided the material as requested by ASIC, subject to some documents being held back by reason of claims in respect of privilege and/or confidentiality.
143On 18 January 2010 Mr O'Neill wrote to ASIC in relation to a meeting that took place on 14 December 2009. That letter included the following:
As stated at our meeting held on 14 December 2009, and as previously stated by the SPL in his Supplementary Report to Creditors dated 29 October 2009 (paragraph 13.7) and by the writer at the adjourned AGM held on 10 November 2009, a mere loss of confidence in the liquidator is not of itself a ground for removal. Such a factor must be accompanied by cogent evidence of serious misconduct on the part of the liquidator, breach of duty by a liquidator or conflict of interest on the part of a liquidator, of which there is none.
144On 12 May 2010 ASIC wrote to the defendant advising that its review to that date had highlighted a "number of concerns" in relation to the adequacy of information and/or quality of disclosure made to the COI; whether work performed by the defendant and his staff was reasonable and necessary; and whether legal expenses that he had incurred had been reasonable and necessary. ASIC then gave a number of specific examples in respect of which it sought a response from the defendant. It also referred to the defendant's legal expenses and requested an explanation from the defendant in relation to the steps that he had taken to monitor and satisfy himself as to the reasonableness and necessity of his legal costs.
145On 27 May 2010 the defendant advised ASIC that he had informed the COI of the "project work" being performed in relation to the RRI defendants' claims that they had been "profoundly misled". He informed ASIC that with the "informed support of the COI" he proceeded with his investigations into the anticipated "profoundly misled" defence and advised that before serving the pleading he "needed to be satisfied that the asserted "profoundly misled" defence was unlikely to succeed". The defendant also advised ASIC that the investigations that he carried out to assess the merits of the asserted "profoundly misled" defence were also conducted for the purpose of providing external litigation funders (both in Australia and elsewhere) with a comprehensive brief of materials concerning the merits of the claims in the RRI proceedings. He advised that he was "firmly of the view" that funding would not be available "unless and until" he had "as fully and properly investigated the merits of this asserted defence" as he could on the materials available.
146The defendant also provided a detailed response to each of the examples that ASIC claimed gave it "concern". He advised that he had taken steps to monitor his legal costs and to satisfy himself that the costs were reasonable and necessary. In this regard he said that he had a "close involvement" in the work performed by his "legal team"; that he had "regular strategy meetings and conference telephone calls" with his legal team and that he regularly questioned his legal team as to the necessity of work to be carried out; that he carefully reviewed the detailed monthly tax invoices; and that he required his solicitors to provide him with a bullet point summary of the work performed during the applicable month which he carefully reviewed.
147On 20 July 2010 the defendant wrote to ASIC seeking some indication as to when ASIC expected its review to conclude. On 5 August 2010 ASIC advised the defendant that having regard to the commencement of these proceedings it was not able to advise when its review was likely to conclude. The parties have approached this case on the basis that ASIC will take no further action until the outcome of these proceedings.
148During the course of the correspondence between ASIC and the defendant, Mr O'Neill advised ASIC on 18 January 2010 that the defendant considered that the "no confidence" motion passed at the AGM on 10 November 2009 was misguided. He also advised that the defendant considered that Optus was in a "conflicted position" by reason of its substantial commercial relationship with PBL and News via its contractual relationships in the Foxtel partnership. He also advised that the defendant regarded Telstra as being in a "conflicted position" as the 50% shareholder in the Foxtel partnership. In this regard Mr O'Neill advised that the defendant continued to support the ongoing participation of Optus and Telstra representatives on the COI but was mindful of the need to recognise and manage the allegedly conflicted position of Optus and Telstra and their nominees on the COI.
Applicable Principles
149It is not in dispute in these proceedings that the status of the voluntary winding up was not changed by the fact that the Court appointed the defendant as special purpose liquidator. There is a distinction between a Court ordered winding up where the liquidator acts an officer of the Court, and a voluntary winding up that is "purely a statutory process" where the liquidator is not regarded as an officer of the Court: Clutha Ltd (in liq) v Millar and Others (No 5) (2003) 43 ACSR 295 at 300; [2002] NSWSC 833 at [18]. The distinction is important for reasons including whether costs orders may be made against liquidators: Clutha Ltd (in liq) v Millar and Others (No 5) at [12]-[16].
150In this case the GPLs are gathering in the assets in the voluntary winding up pursuant to the statutory process. The defendant was appointed by the Court in that liquidation to identify whether particular assets existed (that is, rights of action in respect of the RRI), and if so, to gather those assets in by the process of litigation. This was the Court's exercise of a power to appoint an additional liquidator in a voluntary winding up for a specific purpose in the "purely statutory process" rather than in a winding up by the Court: In the matter of Cobar Mines Pty Ltd (in liquidation); Hall as Liquidator of Cobar Mines Pty Ltd (Unreported, Supreme Court of New South Wales, Santow J, 22 June 1998). There is no doubt that the defendant's powers and functions in the voluntary winding up were defined by Court orders. However these orders were necessary to identify the matters in the voluntary liquidation that were to be done only by the defendant, and not the potentially conflicted general purpose liquidator.
151In a court appointed liquidation (or a liquidation by the Court), a liquidator, as an officer of the Court, is a representative of the Court, entrusted with the reputation of the Court. It is expected that the liquidator will discharge the relevant functions and powers with impartiality and proper dispatch: Commissioner for Corporate Affairs v Peter William Harvey [1980] VR 669. Albeit that it may be inappropriate to refer to the defendant as "an officer of the Court" in this particular liquidation, it is expected that he would discharge his relevant functions and powers with impartiality and proper dispatch.
152The defendant has both statutory obligations and obligations to comply with the orders of the Court requiring him to perform certain functions and act in a particular manner, for example, to make recommendations to the COI. It is expected that the defendant will maintain an "even and impartial hand" in his dealings with those interested in the liquidation: In re Contract Corporation (1871-72) LR 7 Ch App 207 ('Gooch's Case') at 211. It is expected that he will be independent in the sense that he will deal impartially and objectively in the interests of the creditors: Tracker Software International Inc v Smith (1997) 24 ACSR 644 at 646.
153The winding up of the company In the matter of Cobar Mines Pty Ltd (in liquidation); Hall as Liquidator of Cobar Mines Pty Ltd sparked deep local community interest. Santow J observed that in those circumstances it was "especially important" for the liquidator to "attain the confidence of the employee creditors and other unsecured creditors and to keep these creditors regularly informed of developments" (at [8]). The liquidation of One.Tel also sparked community interest and the attainment of the confidence of the creditors is also important.
154Section 503 of the Act provides that "The Court may, on cause shown, remove a liquidator and appoint another liquidator". It has not been suggested in these proceedings that s 503 does not apply to the defendant.
155Section 503 confers a broad discretion on the Court. However, it is necessary that there be "some ground for removal, and the ground must be established by evidence": Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2003) 21 ACLC 1330; [2003] NSWSC 496 at [58]. The burden of showing cause for removal rests with the applicant: Re Keypak Homecare Ltd [1987] BCLC 409; (1987) 3 BCC 558. It is not necessary to prove misconduct or unfitness on the part of the liquidator in order to justify removal: In re Marseilles Extension Railway and Land Co (1867) LR 4 Eq 692; Northbuild Construction Pty Ltd v ACN 103 753 484 Pty Ltd (2008) 26 ACLC 893; [2008] QSC 182.
156A liquidator may be removed from office if the Court is satisfied that the removal would be in the best interests of the liquidation: In re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 Ch D 299; Re Giant Resources Ltd [1991] 1 Qd R 107 at 115; City & Suburban Pty Ltd and Others v Smith (as liquidator of Conpac (Aust) Pty Ltd (in liq)) and Another (1998) 28 ACSR 328 at 336 (and the cases cited therein); McAuliffe v Lidia Perin Memorial Hospital Pty Ltd (2006) 58 ACSR 666 at 671-672; [2006] ACTSC 88; Apple Computer Australia Pty Ltd v Wiley (2003) 46 ACSR 729 at 740; [2003] NSWSC 719 at [37]; Independent Cement and Lime Pty Ltd v Brick and Block Co Ltd (in liq) (recs and mgrs apptd) and Others (2010) 267 ALR 613 at 620; [2010] FCA 352 at [47]; Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2003) 21 ACLC 1330; [2003] NSWSC 496 at [58]. In Re Keypak Homecare Ltd Millett J (as his Lordship then was) observed, at 564, that "it may be appropriate to remove a liquidator even though nothing can be said against him, either personally or in his conduct of the liquidation".
157The legislation under consideration in In re Adam Eyton Ltd; Ex parte Charlesworth provided for removal on "due cause shewn" (at 303). In a passage approved by the Full Court of the Supreme Court of Queensland in Re Obie Pty Ltd (in liq) (No 3) (1984) 8 ACLR 774 at 780, Bowen LJ said at 306:
In order to define 'due cause shewn' you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind...the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation.
158Cotton LJ said at 303-304:
[I]f the Court is satisfied on the evidence before them that it is against the interest of the liquidation, by which I mean all those who are interested in the company being liquidated, that a particular person should be made liquidator, then the Court has power to remove the present liquidator, and of course then to appoint some other person in his place.
159Long Innes J, as his Honour was then, was "content to be guided" by the principles expounded in these passages in determining an application to remove a liquidator in In re George A Bond & Co Ltd (1932) 32 SR (NSW) 301 at 310.
160In City & Suburban Pty Ltd v Smith, Merkel J observed at 336 (excluding citations):
Section 503 of the Law provides that the court may "on cause shown" remove a liquidator and appoint another liquidator. It has long been accepted that the section and its predecessors were not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator. Cause is shown for removal whenever the court is satisfied that it is for the better conduct of the liquidation or, put another way, it is for the general advantage of those interested in the assets of the company that a liquidator be removed.
161Similarly in Re Biposo Pty Ltd; Condon v Rodgers (1995) 120 FLR 399 Young J, as his Honour then was, observed (at 403 and 405) that the "end question" is whether it would be "to the general advantage of the persons interested in the winding up to remove the liquidators" and that the Court must determine this issue "by looking at the overall picture". However the Court "must take care that it does not allow itself to become an instrument of those who seek merely for their own purposes to disrupt the due course of the liquidation" Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2000) 18 ACLC 13; [1999] NSWSC 1046 at [22]. The wishes of creditors may be taken into account, but they are not decisive: Re Giant Resources Ltd at 115; see also Adsett v Berlouis and Others (1992) 37 FCR 201 at 213; (1992) 109 ALR 100, in which the position of a trustee in bankruptcy was considered.
162A loss of confidence in the liquidator based on reasonable grounds by the creditors may justify removal: cf Re Edennote Ltd; Tottenham Hotspur plc and others v Ryman and another [1996] 2 BCLC 389, in which the Court held that no adequate grounds had been shown for a reasonable loss of confidence. Similarly, an objectively justifiable loss of confidence by a committee of inspection "is of greater significance and relevance": City & Suburban Pty Ltd v Smith at 338. In City & Suburban, Merkel J observed at 338:
In the present case the acrimony which has arisen between the liquidator and the committee of inspection has not come about as a result of any unreasonable conduct on the part of the committee. Rather, it has come about because the liquidator has carried out his tasks in respect of the liquidation with some insensitivity to the angst of the members of the committee of inspection..."
163In that case, the committee of inspection's loss of confidence was based on the liquidator's "general disregard" for the function of the committee under the Act and failure to consult with the committee on certain issues. Merkel J did not find that the liquidator was under "a legal duty to consult with or seek the approval of the committee". However his Honour concluded that it was "imprudent" for the liquidator not to do so in the circumstances: at 338-339.
164In AMP Music Box Enterprises Ltd v Hoffman [2002] BCC 996, Neuberger J (as his Lordship then was) considered the power under s 180(2) of the Insolvency Act 1986 (UK) to remove a liquidator "on cause shown" and said at 1001-1002:
On the other hand, if a liquidator has been generally effective and honest, the court must think carefully before deciding to remove him and replace him. It should not be seen to be easy to remove a liquidator merely because it can be shown that in one, or possibly more than one, respect his conduct has fallen short of ideal. So to hold would encourage applications under s 108(2) by creditors who have not had their preferred liquidator appointed, or who are for some other reason disgruntled. Once a liquidation has been conducted for a time, no doubt there can almost always be criticism of the conduct, in the sense that one can identify things that could have been done better, or things that could have been done earlier. It is all too easy for an insolvency practitioner, who has not been involved in a particular liquidation, to say, with the benefit of the wisdom of hindsight, how he could have done better. It would plainly be undesirable to encourage an application to remove a liquidator on such grounds. It would mean that any liquidator who was appointed, in circumstances where there was support for another possible liquidator, would spend much of his time looking over his shoulder, and there would be a risk of the court being flooded with applications of this sort. Further, the court has to bear in mind that in almost any case where it orders a liquidator to stand down, and replaces him with another liquidator, there will be undesirable consequences in terms of costs and in terms of delay.
165It has been said that the "onus of proof will not be easy to discharge if the liquidator has become well acquainted with the business and affairs of the company, or the process of winding up has almost reached completion": Asche J in Aboriginal & Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (in liq) (1992) 10 ACSR 121 citing the passage in the 3rd edition of McPherson's Law of Company Liquidation at 227-228. The length of time that a liquidator has been in office and the nature of the liquidator's specific obligations obviously need to be taken into account in determining whether in all the circumstances an order for removal is justified or appropriate.
Grounds for removal
166The plaintiffs contend that there has been a "prolonged and worsening course of conduct" by the defendant that justifies an order for his removal as SPL. The first area of conduct relied upon by the plaintiffs in this regard includes the defendant's remuneration and expenses, both as to the high level generally and the claims for remuneration in respect of work not properly incurred in the liquidation. It also includes the defendant's conduct in seeking approval of his remuneration by circular resolution (Remuneration and Expenses).
167The second area of conduct relied upon by the plaintiffs in support of their application is in respect of the defendant's relationship with the COI. This includes the defendant's conduct in relation to the strategy for settlement of the RRI proceedings (which necessarily includes consideration of the delay in serving the pleading) and his response to the COI's disclosure of its dealings with Mr Lindholm and the settlement offer proffered by Mr Lindholm. It also includes the defendant's refusals of requests by the COI and his subsequent opposition to the COI's applications to the Court for the convening of a meeting of creditors, the variation of confidentiality restrictions and the appointment of an independent person to chair the AGM on 10 November 2009. It also includes the defendant's alleged misleading statements in the Report to Creditors dated 3 August 2009, the Media Release dated 7 August 2009, the presentation to the adjourned AGM on 10 November 2009 and the defendant's attempts to influence the COI's composition (Relationship with the COI).
168The plaintiffs also relied on the COI's loss of confidence and the creditors' loss of confidence in the defendant and the defendant's alleged loss of objectivity as warranting his removal (Loss of Confidence).
Remuneration and Expenses
169It is not in issue that up to 31 May 2011 the defendant incurred more than $14 million in remuneration and expenses, approximately $8 million of which was incurred after the pleading was filed and approximately $5 million of which was incurred in the two-year period 2009 to 2011. The plaintiffs contend that this quantum is "extraordinarily and unjustifiably high" given that the central purpose of the defendant's appointment was to investigate possible causes of action surrounding the cancellation of the RRI and to commence the RRI proceedings. It is not in dispute that the investigation, formulation and funding of the RRI proceedings was complex and that a large amount of work was required to investigate them and commence the proceedings.
170The defendant emphasised that (except for those amounts that were disallowed, referred to below) all of the remuneration and/or expenses have either been approved or not objected to by the COI or approved by the Court. The defendant also emphasised that the plaintiffs have led no evidence, such as from an assessor or liquidator, to suggest that the remuneration and expenses incurred by the defendant are unreasonable or unjustified in their proper context, that is, relative to the scope and complexity of the special purpose liquidation and the RRI proceedings. The defendant submitted that the plaintiffs' complaint that the defendant has led no direct evidence that explains or justifies the ostensibly vast quantum of his fees and legal expenses is disingenuous having regard to the fact that the plaintiffs bear the onus of proof and have called no evidence to prove that the remuneration and expenses are unreasonable or unjustifiable.
171The plaintiffs have not suggested that the defendant's legal fees were inappropriate for the work actually done. That was a concession made in Court on 13 February 2012. That is not to say that the plaintiffs concede that the legal expenses were justified and relevant to the liquidation. Rather the concession should be understood as an acceptance that if the work is justified as work in the course of the liquidation and necessary for the liquidation, it is not suggested that the fees charged were inappropriate. However the plaintiffs maintain that there was work carried out that was not justified in the special purpose liquidation in respect of which legal expenses were incurred and in respect of which there was no justification for those fees being charged in the liquidation.
172The plaintiffs submitted that the amounts that have been charged are so large as to have attracted the scepticism of the COI, the attention of ASIC and Mr Hambrett's opinion that he could not approve the amounts the subject of his high-level review. Certainly an issue has arisen in the ASIC review as to whether the defendant has put in place effective measures to control expenditure. Indeed the COI tried to impose a $50,000 per month restriction on the defendant's incursion of additional fees and expenses in mid-2008. If that level of fees and expenses had been adhered to it could only have amounted to $600,000 per anum. The incursion of $5 million in fees and expenses in two years certainly raises a real issue as to whether there are proper controls on expenditure in place. It is not apt to answer this issue by simply claiming that the Court or the COI have approved the fees and expenses. The more recent exposure of the need for more information about the fees and expenses in this process (referred to below) will no doubt form part of ASIC's review.
173The defendant submitted that no weight should be given to Mr Hambrett's opinion in his 2008 high-level review because at the time that he conducted the review he lacked independence and, in any event, the remuneration and expenses the subject of his review were subsequently approved by the Court. The defendant emphasised that the plaintiffs do not seek to "go behind" the various approvals by the Court or the COI and submitted that in those circumstances the complaint as to the "overall" amount of the remuneration and legal expenses cannot be a ground for removal of the liquidator.
174It must be remembered that the process by which the remuneration and legal costs were approved by the Court (or the COI) was very much dependent upon the claims by the defendant that his fees were for work that was performed in conformity with the Court orders and the certification by the defendant that the legal costs were properly incurred and payable in the special purpose liquidation.
175When the COI failed to approve the defendant's remuneration in late 2009, the defendant approached the Court for the determination of the quantification of his remuneration for the period 1 July 2009 to 31 October 2009 and for the period 1 November 2009 to 28 February 2010. This was the first such application in which ASIC sought, and was granted leave, to intervene: Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 at [4]. Barrett J made observations about the information that had been provided by the defendant in support of his application. In one example, his Honour referred to the material that was provided to the Court in respect of the fees claimed for 6 November 2009 and said:
[59] The understanding one can gain from the 6 November 2009 entries is very limited. On the surface, each entry seems to have something to do with a special purpose liquidator's administration, but there is no way of knowing any of three important things: first, whether the charges, as to time spent and (sic) reasonable charges; second, what was actually done during the recorded time; and third, whether the time spent relates to progressing of the special purpose liquidator's administration or protection of his personal position.
176His Honour was not satisfied that the evidence and explanations placed before the Court by the defendant were such as to permit a "clear view to be formed of the work" the defendant performed in the periods in question and "the relevance of that work to the special purpose liquidator's administration" (at [77]). In those circumstances his Honour required the defendant to "re-present" the material and to "reformulate" his claim in respect of the relevant periods (at [79]).
177There is some force in the defendant's contention that at the time Mr Hambrett expressed his opinion he was not independent. Mr Hambrett provided his opinion on 3 July 2008, within a week of having met with the defendant and Mr O'Neill to disclose the COI's dealings with Mr Lindholm. Mr Hambrett was acting as solicitor for the COI from April 2008 in relation to Mr Lindholm's approach. I am not satisfied that no weight should be attributed to Mr Hambrett's opinion. However I am satisfied that the weight that would have otherwise been placed on his opinion is diminished by these circumstances.
178The fact that the defendant failed to provide sufficient detail to the COI for them to approve his remuneration was recognized by the defendant as a "difficulty" for the COI and was a difficulty with which he said he sympathised. However, the defendant was of the view that the COI had caused this difficulty by dealing with Mr Lindholm without his approval or knowledge, thus destroying his confidence in the COI with the consequence that he refused to publish what he regarded as confidential information to the members of the COI. However, there was no need to withhold from the Court relevant information about the work that he had performed in respect of which he sought approval for his remuneration. Nonetheless that is what occurred. It was not until ASIC intervened in the defendant's application that the Court was taken to the need for more information from the defendant about the work and the remuneration. The fact that the defendant did not provide the detail necessary for the Court to understand the work and/or the relevance of the work to the special purpose liquidation gives credence to the COI's complaint that the defendant failed to provide it with relevant information.
179There is no doubt that the level of the remuneration and expenses is, prima facie, extraordinarily high. It is true that there has been no analysis in this case of the whole of that remuneration and/or expenses. The only detailed analysis that has been performed by the plaintiffs is in respect of the legal expenses for the months of August, September and October 2009 referred to below. It is understandable that the plaintiffs would be deeply concerned at the level of these fees particularly in the light of the dismissal of the RRI proceedings, irrespective of the outcome of the application for special leave to appeal to the High Court. However I agree with the defendant's submission that the fact that the figure is very high is not, on its own, a basis for removal of the defendant. However it is a matter to be taken into account with all the other circumstances of this case.
180The plaintiffs contend that during the course of the special purpose liquidation the defendant has incurred and sought to recover remuneration and legal expenses for tasks and activities that do not fall within the scope of his powers or functions. These tasks and activities include: investigations into the associations of members of the COI; investigations into the relationship between Optus and certain potential defendants to the RRI proceedings, particularly News and PBL; compliance by the defendant with ASIC's investigation into the level of his remuneration and expenses; briefings and attendances by the defendant with his firm's media adviser; and discussions between the defendant and members of the press. All of these charges were disallowed: Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120. The defendant was unsuccessful in his application for leave to appeal from the judgment in which these charges were disallowed: Application of Weston [2011] NSWCA 250.
181The defendant submitted that the disallowance of these claims "is a matter of record and is not in issue in the proceedings". It was submitted that the plaintiffs' claim that the defendant had "incurred and sought to charge" to the liquidation the disallowed items was of "no consequence" because the "disallowed items were subsequently removed from the claim and no payment was made" to the defendant. The only reason that there is "no consequence", as the defendant puts it, is that three members of the COI contended before the Court that certain activities for which the defendant sought remuneration and fees should not properly be regarded as part of his functions: Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 at [32]. Until that time the defendant had maintained his claim that they were properly payable. The submission that it was of "no consequence" was a most unimpressive submission, in particular having regard to the fact that the defendant sought to overturn the disallowance on appeal in which he maintained an entitlement to these fees. It was submitted that it could not be contended that the defendant did not have the "power" to seek leave to appeal. Indeed it was not so contended by the plaintiffs. The point is that the defendant apparently did not understand the inappropriateness of these claims in the first place.
182The plaintiffs contend that the defendant also incurred legal expenses in relation to the very same categories of work in respect of which the defendant's remuneration was disallowed and has not sought to reconcile the legal expenses incurred by him in respect of those activities. The fees in respect of those categories of work were certified by the defendant as having been "properly incurred and payable" in performing his functions required to be performed in conformity with the orders of the Court.
183The plaintiffs also contend that notwithstanding that the remuneration claimed by the defendant was disallowed, he has not taken any steps to quantify or repay the remuneration received by him in relation to such similar categories of activities "in prior periods". Properly understood, the plaintiffs' submission is that the defendant has, on previous occasions, charged to the liquidation fees in respect of activities in the same categories of activities disallowed by the Court. The defendant submitted that the plaintiffs did not particularise any such remuneration or lead any direct evidence on that issue. However, the plaintiffs emphasise that the defendant should have been at pains to ensure that this reconciliation should have occurred promptly; either after Barrett J's judgment at first instance or certainly immediately after the unsuccessful application for leave to appeal.
184I am satisfied that the defendant's submissions demonstrate his failure to recognise the seriousness of the situation in which he has claimed an entitlement to receive fees that he was not entitled to receive and certified that legal expenses were properly incurred and payable when they were not. After the finding that the fees were disallowed, or at the latest, after the application for leave to appeal from that disallowance was dismissed, every effort should have been made by the defendant to review the certifications that had been given to the Court to ensure that any expenses in a similar category were adjusted.
185It is apparent that the defendant has taken legal advice for almost every step in his administration. Notwithstanding his absence from the witness box in these proceedings, I am satisfied that the defendant was concerned to take advice about what he should do in this complex liquidation. However some of the costs that have been incurred have been questioned in these proceedings. The plaintiffs relied upon tax invoices from the defendant's solicitors to the defendant for the periods 1 August 2009 - 31 August 2009; 1 September 2009 - 30 September 2009; and 1 October 2009 - 30 October 2009 (Ex A). In those three months alone $46,410 of costs were incurred by the solicitors on investigations into the associations of the members of the COI.
186One aspect of investigation in this category referred to earlier was the relationships of members of the COI with Mr Ariff, in particular, the relationship between Mr Phillips and Mr Ariff. The solicitors charged for perusing articles in the newspaper in relation to Mr Ariff and Mr Phillips. They also charged fees for attending the Supreme Court to observe the hearing of the proceedings against Mr Ariff. They also charged for obtaining a copy of the judgment and perusing it, making application for access to the documents in the case and for conferring in relation to all of those matters. The amount charged by the solicitors for this investigation alone from 12 August 2009 to 31 August 2009 was $11,069.50.
187In Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 Barrett J made the following observations in relation to the defendant's investigation of the relationship between Mr Phillips and Mr Ariff and the defendant's investigation of the relationship between Optus and the RRI defendants:
[48] In this particular administration, the court has specified certain of the special purpose liquidator's functions in a way that requires him to consult with the committee of inspection. There is thus a non-statutory overlay. In addition, the court has, from time to time, expressed a wish or hope that the special purpose liquidator and the committee of inspection might work constructively together. Such a committee may be a source of advice. On occasion, a liquidator may find it useful to be able to resort to a sounding-board at his or her option.
[49] The wish or hope that there might be a constructive relationship in this case has not been realised. That being so, it is open to the special purpose liquidator, if he chooses to do so, virtually to ignore the committee except in relation to specific matters on which the court has directed consultation (a requirement, it may be noted, that entails nothing more than consultation) and in relation to the matter of remuneration which is something that will certainly arise for consideration from time to time and in which the committee has a clear statutory role to play. That course of minimal contact has, in fact, always been available to the special purpose liquidator.
[50] How was it, then, any part of the function of the special purpose liquidator in this administration to spend time delving into associations of members of the committee of inspection? Let it be assumed that Mr Phillips is or was "a business associate" (whatever that means) of Stuart Ariff (who, in August 2009, was banned for life from acting as a liquidator) and that Singtel Optus, an employee of which is a member of the committee of inspection, has or had "substantial commercial relationships" (whatever that means) with two of the defendants in the proceedings at the suit of One.Tel for which a special purpose liquidator has responsibility. What follows?
[51] The answer, to my mind, is not obviously such as to make it part of the special purpose liquidator's incidental function (it is certainly not part of his specifically conferred functions) to spend remunerated time enquiring into those matters, given that the committee's functions lie within the very limited compass I have mentioned. ... And, bearing in mind that the court has, to a limited extent, required consultation by the special purpose liquidator with the committee, there is no apparent reason why he should see it as within his functions to seek to influence the composition of the body with which the court has required him to consult.
188The defendant's functions are defined in the orders appointing him as special purpose liquidator. He was required to "consider and make recommendations to the creditors" as to whether any rights of action existed in relation to the cancellation of the RRI, the decision to appoint voluntary administrators, and whether any action should be commenced against any person. The orders required him to recommend to the COI whether such an action should be commenced and if the COI, by majority, accepted that recommendation (or did not oppose it) the defendant was required to commence the proceedings on behalf of One.Tel. The orders also required him to perform such work as he considered necessary to advise the COI and make final recommendations to the COI concerning the RRI proceedings. Irrespective of the extent of the defendant's contact and/or engagement with its members, the COI was an entity that was integral to the functions and powers of the defendant in the liquidation. The defendant was to investigate the matters so ordered by the Court and not to investigate the COI to which he was to make recommendations. The investigations that he pursued in this regard and the fees and expenses that he claimed in respect of them demonstrate a serious lack of judgment.
189On 11 December 2009 the defendant emailed the members of the COI and presented alternative circular resolutions in respect of the approval of his remuneration for the period 1 July 2009 to 31 October 2009. Such conduct was described as having "disturbing features", in particular the fixing of a deadline by which the members of the COI were required to submit their votes. Such conduct was described as "no part of the function of a liquidator". Indeed the Court concluded that the defendant had been paid $215,436.10 "to which he has no legal entitlement": Onefone Australia Pty Ltd and Others v One.Tel Limited and Others (2010) 78 ACSR 98; [2010] NSWSC 401 at [37]. The plaintiffs submitted that notwithstanding all of these findings made on 7 May 2010, the defendant did not repay that amount until 28 January 2011. It was submitted that this should have occurred more promptly. I agree.
190There was a further sum of $242,707.40 (excluding GST) in remuneration purportedly fixed by earlier circular resolutions that also had to be adjusted. The plaintiffs contended that the defendant did not make this adjustment of his own accord but did so only after complaint was made. The plaintiffs submitted that it should not have been necessary for the complaint to be made in this regard to prompt the defendant into action. I agree.
Relationship with the COI
191The plaintiffs contend that the defendant adopted a strategy under which he would not attempt to negotiate a settlement of the RRI proceedings with any of the RRI defendants until he had secured litigation funding and served the pleading on the RRI defendants. The plaintiffs contend that this strategy shut the members of the COI out from the exercise of procuring litigation funding and attempting to settle the RRI proceedings, to the detriment of each process. The plaintiffs submitted that when the defendant first initiated settlement discussions with some of the RRI defendants in approximately mid-2008 at the urging of the COI (following receipt of the offer from Mr Lindholm to pay $17million to settle the proceedings), the negotiations were ultimately unfruitful. The plaintiffs contend that the defendant failed to implement any sensible or reasonable settlement discussions with the RRI defendants.
192As I have said earlier the defendant wished to wait until he had secured litigation funding before he proceeded to negotiate a settlement with the RRI defendants. Irrespective of whether that forensic judgment was justifiable, the fact of the matter is that the defendant held a firm view, probably on legal advice, that the most effective time to negotiate a settlement was when the defendants were, as he put it, "at risk". His thinking in relation to that aspect of the matter was that the well resourced RRI defendants would not regard themselves as being "at risk" if the litigation was unfunded. Whereas if the litigation had a funder behind it, the RRI defendants would regard themselves as being at risk of a lengthy and complex trial and would be more amenable to settlement.
193However the focus of the plaintiffs' submissions was that the defendant's position in failing to pursue settlement discussions was unreasonable because of the effluxion of time. It was submitted that the further away in time negotiations are from the relevant events, the more difficult it is to broker a settlement agreement. The plaintiffs also submitted that the defendant's position was unreasonable not only because of the very large amounts of fees and costs incurred to date but also the costs that were likely to be incurred in prosecuting the claim at trial. It was submitted that this combination has adverse implications for creditor recovery because it would now require a multi-million dollar settlement simply to cover costs to date, let alone accommodating any contribution to the funder (whatever that may be).
194The defendant tried to make clear to the COI that he did not wish to pursue settlement discussions either through Mr Rich or through Mr Lindholm. Notwithstanding that the members of the COI were clearly on notice that the defendant was concerned that any settlement discussions should not be pursued through Mr Lindholm, they proceeded to do just that. I have no doubt that the members of the COI were motivated to do what was in the best interest of the creditors, exemplified in part by their retention of a senior lawyer to assist them in this regard. However, by the time this approach occurred, there was obvious tension between the COI and the defendant that could only have been exacerbated by pursuing these discussions without notice to the defendant.
195The period during which the members of the COI conducted themselves in this fashion through their solicitor, Mr Hambrett, was a relatively short period in the life of this special purpose liquidation. The approach by Mr Lindholm was in March 2008. Mr Hambrett's letter to Mr Lindholm was in April 2008 and the meeting with the defendant and his solicitor at which the process was disclosed was in June 2008. Although the period during which this conduct occurred was relatively short, the ramifications of the conduct were to the detriment of not only the relationship between the defendant and the COI, but to the creditors generally. It was after this conduct that the defendant's attitude to the COI became entrenched and it seems to me that his judgment in respect of the way forward was compromised. This is reflected in the language he adopted in his Report to Creditors dated 3 August 2009 and in the Media Release that he published and posted on his firm's website. It is also reflected in the presentation he gave to the AGM on 10 November 2009.
196The defendant attacked the members of the COI in his Report to Creditors dated 3 August 2009. He made broad-brush allegations of "serious leaks of confidential information" without particularising what the confidential information was and to whom it was allegedly leaked. There did not appear to be any reason for sensitivity by this stage because the defendant was impliedly alleging that any confidentiality had been lost when the members of the COI disclosed such information to third parties in breach of their obligations. When the members of the COI sought to defend themselves from his attack by making an application to the Court to be freed from the constraints of confidentiality, the defendant opposed that application. When they then sought to defend themselves by issuing a media release on 6 August 2009, the defendant issued a Media Release on 7 August 2009 in which he again attacked the members of the COI. He maintained the broad-brush allegations, this time claiming that the COI had made attempts to "derail" and to "interfere" with his work and alleging breaches of fiduciary duties without any particularisation. The defendant also claimed in the Media Release that "all work" conducted by him had been "at the direction of the Court". This seems to have been an attempt to justify his conduct by giving it the imprimatur of the Court. The reasonable reader of this Media Release would assume that the defendant intended to convey that all of the members of the COI had conducted themselves in serious breach of their obligations and could not be trusted.
197Further evidence of the compromise of the defendant's judgment is his correspondence with Mr King. Mr King's correspondence was quite professional and very reasonable. However it is apparent that rather than indicate to Mr King that he would not be admitting Optus into the information tent as the parties had discussed, the defendant embarked upon an attack on Mr King for an alleged failure to disclose a relationship between Optus and the RRI defendants. The defendant adopted an inappropriate adversarial approach to Mr King demanding that he produce documents evidencing relationships and discussions over the years.
198The defendant contended that the settlement of the RRI proceedings is a matter for him. It was submitted that the process is highly strategic and highly subjective and that decisions in this regard are attendant with risk. It was further submitted that this is why hindsight is extremely dangerous as a basis for assessing conduct undertaken in a state of uncertainty and where reasonable minds may well differ. This submission has force. It is very important to be very cautious in making judgments with the benefit and luxury of hindsight. There is no doubt that this was a complex process.
199The COI members urged the defendant to serve the pleading years, or certainly many months, before it was served. Had the defendant taken the guidance from the COI at that time he may not have found himself with the outcome of the RRI proceedings being dismissed. However, he believed he had reasonable grounds to resist the guidance of the COI in this regard. He believed that he needed to have funding and insurance cover for an adverse costs order in place before the RRI defendants considered themselves to be "at risk".
200The defendant gave evidence in the proceedings before Ward J in which the RRI proceedings were dismissed. Her Honour outlined the various reasons given by the defendant for the need for the extensions of time within which to serve the pleading: Weston (in his capacity as special purpose liquidator of One.Tel Ltd (in liq)) and Another v Publishing and Broadcasting Ltd (now known as Consolidated Media Holdings Ltd) and Others (2011) 83 ACSR 206; [2011] NSWSC 433 at [279]-[456]. Ward J noted that the defendant accepted that the "sole reason" he was not prepared to serve the pleading in April 2009 was that funding was not "locked in", although he acknowledged that he may have had enough funds to "commence running the proceedings" (at [383]). The defendant's affidavit evidence in those proceedings was that he was of the view, certainly at the time of the application in April 2009, that the "prospects of success" of the proceedings were "high" and that it was in the "best interests of creditors of One.Tel for the litigation to be pursued" (at [376]). The defendant was still of that view in November 2009 (at [403]).
201Ward J concluded that the defendant's "deliberate decision" in September 2009 to pursue a funding option that required awaiting the outcome of the ASIC v Rich proceedings rather than an alternative option that did not require such delay was a "significant factor" that pointed against the granting of the extension in November 2009 (at [417]). Her Honour concluded that this choice meant that the defendant "had made it impossible to progress the proceedings diligently at that point" (at [424]). Her Honour also concluded that the defendant took a "calculated risk" of waiting to see if a more "cost-effective" funding arrangement could be procured after the judgment in ASIC v Rich was handed down (at [444]).
202The defendant apparently claimed that he believed that there was a "measure of acquiescence" from the RRI defendants in delaying the service of the pleading. Ward J did not accept that there was a reasonable basis for that belief (at [446]). Her Honour concluded that any inference that such acquiescence was present could no longer have existed by 2009 and that the defendant paid "little, if any, regard" to the "necessity to prosecute the proceedings with due expedition" (at [447] and [480]). I should say that her Honour observed that this may be explained by the defendant's belief that the RRI defendants were content to await the outcome of the ASIC v Rich proceedings but concluded that such a belief was "unfounded" (at [480]).
203The evidence relating to exactly what the defendant did in respect of a settlement strategy is far from clear. It is obvious that the COI's conduct in dealing with Mr Lindholm caused the defendant a great deal of anxiety. He was very concerned that his administration might be compromised. From the moment he was informed that the COI and Mr Hambrett had been dealing with Mr Lindholm and that an offer had been made, an atmosphere of deep distrust arose not only in respect of the members of the COI but also in respect of the companies they represented. It is true that the defendant instructed Mr Cussen to assess the bona fides of the offer that was made by Mr Lindholm, however once that process was concluded it appears that the defendant decided on a strategy that no further steps would be taken to try to settle the proceedings at least until the pleading was served. That strategy depended upon the defendant's view about the need for funding. The defendant also held the view that he would only have "'one shot'" at settling the RRI proceedings. However it has not been explained in these proceedings with any clarity why the defendant would be so constrained.
204The fact that the RRI proceedings have been dismissed needs to be viewed with caution. It is important to look at the defendant's conduct along the way rather than to work backwards from the dismissal. There is no doubt that the defendant believed that his strategy of not serving the pleading until he had funding and insurance in place was the better one. He believed he was acting in the best interests of the creditors. The fact that his strategy resulted in the dismissal of the RRI proceedings does not affect his belief that he was acting in the best interests of the creditors. The defendant could have served the pleading in the RRI proceedings earlier than he did. His reasons for not serving it earlier based on certain beliefs, including beliefs about the attitudes of the RRI defendants, were found to be unjustified and were errors of judgment with serious consequences, irrespective of the outcome of the application for special leave to appeal to the High Court.
205The plaintiffs allege that the defendant unreasonably opposed and vigorously defended a number of requests and applications by the COI. The first was the application made by the COI in October 2008, seeking orders that a general meeting of creditors be convened. That was the application referred to earlier in this judgment that was ultimately not proceeded with after the COI's legal representatives were given confidential access to the due diligence agreement.
206The second was the application made by the members of the COI in August 2009, to have the confidentiality orders made in October 2008 varied to enable them to respond to the allegations made against them by the defendant in the 3 August 2009 Report to Creditors and the Media Release dated 7 August 2009. The members of the COI were successful in having the confidentiality orders varied so as to enable them to deal with some of the allegations made against them by the defendant. By the time this application was made, it had been over 12 months since the defendant had been advised of the dealings with Mr Lindholm. The COI was represented by solicitors and counsel and it is obvious that the members of the COI were concerned not to breach any confidentiality orders in publishing material to defend themselves against the allegations made by the defendant that they were interfering with his work, trying to derail him in his work and committing breaches of fiduciary duty. It is of real concern that the defendant did not take a more conciliatory approach to this application rather than run up further costs in the liquidation. Notwithstanding the luxury of hindsight, it must have been obvious and if it was not it should have been, that the members of the COI needed to be placed in a position so that they could fairly defend themselves from these most serious allegations.
207The third was an application made by the GPLs in about September 2009 under s 511 of the Act seeking directions, inter alia, in appointing an independent person to chair so much of the adjourned 2009 AGM as related to the special purpose liquidation. This application was successful: Re Walker and Another (in their capacity as joint liquidators of One.Tel Ltd) (2009) 262 ALR 150; [2009] NSWSC 1172, per Barrett J at [39].
208It has been suggested by the plaintiffs that one reason why the defendant opposed this appointment may have been so that he would have the casting vote. That may be so. I do not know. I am satisfied that the defendant's opposition to this appointment demonstrates a lack of appreciation of the seriousness of the situation in which he had been placed, in many respects by reason of his own lack of judgment in publishing the Media Release. The defendant was justified in being upset or even appalled by the conduct of the members of the COI in dealing with Mr Lindholm without his knowledge, in circumstances where he had made it very clear that Mr Lindholm should not be used as an intermediary. I regard the members of the COI's dealings with Mr Lindholm as misguided and lacking in good judgment.
209However this conduct needed to be viewed in circumstances where millions of dollars had been expended, where the events the subject of the proposed litigation had occurred seven years previously (and by the time of the AGM, eight years previously), and where the creditors were hoping to avoid further millions of dollars being expended. However the defendant did not seem capable of putting the lack of judgment in the members of the COI aside in his further dealings with them. This became an impediment to the maintenance of any objectivity, resulting in his serious error of judgment in publishing the Media Release and behaving in an intensely adversarial manner not only to the members of the COI but also to the creditors. This was far from being in the best interests of the liquidation as a whole. Indeed it resulted in an "unworkable" situation.
210Irrespective of his legal entitlement to oppose the application, it would have been far better for the defendant to agree to the appointment of an independent person to chair the adjourned AGM, particularly where he had issued the Media Release, proposed the removal of three members of the COI, and was on notice of a motion of no confidence in relation to his administration.
211The plaintiffs also contend that the defendant adopted an onerous and unreasonable approach toward the members of the COI, with his insistence that much of the material provided by him to them be kept confidential. He required each member of the COI to provide him with a written confidentiality undertaking and has recorded all COI meetings since 2008. It was submitted that despite such undertakings having been executed, the members of the COI continued to receive negligible information relating to matters of the funding and settlement of the RRI proceedings. It is submitted that the paucity of information has hindered the ability of members of the COI to perform their functions in assisting the defendant, in particular, to counsel, warn and advise him in respect of the conduct of the RRI proceedings.
212The defendant has, on several occasions, alleged both privately and publicly that the members of the COI have disclosed confidential information in breach of their confidentiality undertakings. The defendant has maintained these allegations notwithstanding that each member of the COI swore an affidavit denying breaches of confidentiality and fiduciary duties in proceedings before this Court in 2008.
213The defendant has relied upon these alleged breaches to restrict the information available to members of the COI and Mr Salier. His insistence on confidentiality has extended to seeking to preclude Ms Laver, while a member of the COI appointed to represent the interests of Telstra, from discussing any confidential information with Telstra due to its commercial relationship with Foxtel. Similarly, the defendant instructed Mr King of Optus to keep certain matters confidential and has alleged that Mr King's receipt of information disclosed a breach of confidence.
214I am satisfied that the COI's dealings with Mr Lindholm without notice to the defendant, was the catalyst for the ultimate breakdown in the relationship. As I have said, I have no doubt that the members of the COI were motivated to achieve a result and assist the defendant to achieve a result that might be acceptable to all creditors and avoid further costs in the litigation. It was wrong-headed for the COI to have dealt directly with Mr Lindholm. The members of the COI well knew that the defendant had a particular penchant for the maintenance of confidentiality. The COI had no control over Mr Lindholm and it was not possible for them to monitor what representations he was making to the proposed RRI defendants about his role or relationship with either the defendant or the COI. This was a cocktail for potential disaster. As it turned out, with the reasonably prompt disclosure to the defendant, no obvious damage was done. However the defendant harboured doubt about that and was not able to regard the COI's conduct with proportionality. The failure to do so resulted in the intensification of the defendant's distrust of the COI in every aspect of his administration, including the highly inappropriate publication of the Media Release.
Loss of Confidence
215The evidence relied upon by the plaintiffs included the evidence of Mr King (Optus), Gary Alan Phillips (representing a former director of One.Tel), Ms Galloon (Optus), Mr Salier (Optus), Ms Laver (Telstra), Benjamin Kumar Sharma (Roadhound Electronics Pty Ltd) and David Sieu Huy Lam (Cisco Systems Capital (Australia) Pty Ltd). Each of these witnesses claimed inter alia to have lost confidence in the defendant. Each was cross-examined. In circumstances where the defendant decided not to give evidence in these proceedings, the cross-examiner was somewhat constrained. However, the general thrust of the cross-examination was to establish the reasonableness of the defendant's conduct and to challenge the bases of the claims for the witnesses' lack of confidence in the defendant.
216The plaintiffs contend that the defendant's conduct in investigating the relationships between the members of the COI and others and the relationships between some of the creditors and the RRI defendants justifies the loss of confidence in the defendant. The defendant spent time and money researching the relationship between some of the members of the COI and Mr Rich. It is apparent that the defendant had formed the view that Mr Deloughery was effectively doing Mr Rich's bidding, although there was no evidence as to what it was that Mr Deloughery was alleged to be trying to achieve for Mr Rich.
217The members of the COI felt that they had to defend themselves at the AGM against the allegation that they were the "stooges" of Mr Rich. Indeed, in cross-examination Ms Galloon gave evidence that she had no reason to believe that Messrs Roth, Deloughery or Phillips were "stooges" of Mr Rich. She agreed that she accepted as truthful their denials of any "relationship or engagement" by Mr Rich (tr 210-213). The defendant relied upon a number of tax invoices that Mr Deloughery forwarded to Mr Star, an adviser to Mr Rich. Those invoices described Mr Deloughery's services as including "Accounting and Administrative Services" in connection with the liquidation of One.Tel including arranging proxies for the AGM and a "follow up report" to creditors following the AGM. The defendant also relied upon a document apparently prepared by Mr Deloughery that includes references in February and March 2008 to "telephone calls J Rich" (Ex 5). This was, of course, at around the time that the COI was dealing with Mr Lindholm and pursuing the prospect of settlement negotiations.
218The defendant relied upon this material to suggest that his suspicions that there was a relationship between at least one of the members of the COI and Mr Rich were justified. It is obvious that Mr Deloughery was in communication with Mr Rich and was apparently paid for some services that may have included his work on the COI. It appears that he had some relationship with Mr Rich through Mr Star and although his claim at the 2009 AGM that he had not seen Mr Rich for three years might have been accurate, he had certainly spoken to Mr Rich on the telephone a number of times within that period. However that does not establish that Mr Deloughery was infecting the processes of the COI by reason of his communications with Mr Rich, notwithstanding that Mr Rich was attempting to obtain at least $2 million in the proposed settlement.
219Barrett J provided some guidance in relation to the approach the defendant had been adopting in relation to alleged breaches of confidentiality in Onefone Australia Pty Ltd v One.Tel Ltd [2009] NSWSC 865 extracted at paragraph [94] above. Notwithstanding this guidance, the defendant maintained his attack on the members of the COI. Accepting that the defendant was justified in his criticism of the COI for approaching Mr Lindholm without his knowledge and in the face of a request not to do so, the continuation of the defendant's claims against the members of the COI seem to me to be out of all proportion to what had occurred. This lack of proportionality led the defendant into the erroneous course of investigating members of the COI and also investigating the relationship between creditors and the RRI defendants. There was no justification for spending hours on these investigations. The nature of the relationship between Optus and PBL through Foxtel was apparently in the public domain. Mr King described it quite candidly in his correspondence. However it appears that the defendant thought that it was of some relevance to his administration to spend time and money on investigating this relationship. A far better course would have been to accept that the relationship existed, either as disclosed by Mr King or in some other form, and proceed from that premise in whatever steps he took in the liquidation. It may be that if the COI had suggested a particular settlement should occur, the defendant could have taken into account that one or other creditor represented by the members of the COI might be propounding a particular settlement for their own commercial comfort and/or advantage. Ultimately the defendant would have an obligation to achieve a settlement in the best interests of the creditors as a whole. The fact that one or other creditor might have a direct or indirect commercial relationship with one or more of the RRI defendants that they may wish to continue, notwithstanding the RRI proceedings, is but a factor to be taken into account in considering whether any proposed settlement may be in the best interests of the creditors as a whole.
220The language used by the defendant in his presentation at the AGM on 10 November 2009 was insulting to the members of the COI. The use of the term "flip flops" is quite demeaning of professional people attempting to assist as best they could with the process of the special purpose liquidation. By this time the defendant had already besmirched the reputations of the members of the COI by making allegations that they had tried to derail his work and had breached their fiduciary obligations. Obviously a liquidator must perform his duties robustly and with independence. However the defendant's conduct, in particular between August 2009 and November 2009, in his attacks on the COI demonstrates that he wished to damage the standing of the members of the COI to persuade the general body of creditors that some of the members of the COI should be removed. His attacks in this regard seem also to have been made in support of his resistance to the motion of no confidence. These claims failed to persuade the creditors that they should remove the members of the COI. They also failed to convince the creditors not to support the motion of no confidence. In my view the evidence of Ms Laver was very balanced and impressive. The change in approach to the motion of no confidence was as a direct result of the perceived inflammatory language used by the defendant. I am satisfied that such a change was justified in all the circumstances.
221Mr Sharma's memory of the location of a meeting with the defendant and Mr O'Neill seemed to be erroneous and there was some uncertainty in relation to a business arrangement that he had for the delivery of $6 million worth of handsets. It was suggested to him in cross-examination that he informed the defendant and Mr O'Neill that the contract for the handsets came from Optus and that it was just before the 2009 AGM in circumstances where he had not done business with Optus prior to that time. Mr Sharma denied this conversation. He also denied the suggestion that Mr Salier had telephoned him to solicit his vote in support of the no confidence motion at the 2009 AGM. In this regard it should be said that Mr Salier was not cross-examined to suggest that he had sought to solicit Mr Sharma's vote. Neither the defendant nor Mr O'Neill gave evidence and, in these circumstances, irrespective of what Mr Sharma might have said to the defendant or Mr O'Neill, I am not persuaded that Mr Sharma's evidence in relation to his lack of confidence in the defendant should not be accepted. When pressed in cross-examination about his attitude to the Court approving the defendant's remuneration he gave the following evidence (tr 178):
Q. You don't accept that the court is able to assess the proper remuneration of the special purpose liquidator at all?
A. No, it's not that. I was just frustrated that the people that are paying the bill, the creditors are not able to do something like dismiss the special purpose liquidator. That was my frustration. In the commercial world you can hire and fire people. Here, you cannot do that. You just have to live with it. A third party will decide whether you can fire that person or not, in the meantime you just bleed and pay and shut up.
222I am not satisfied that the veracity of the evidence of the plaintiffs' witnesses has been successfully challenged in cross-examination. The irresistible conclusion from the evidence is that the creditors and the members of the COI have lost confidence in the defendant. The manner in which the defendant attacked the members of the COI, when I have no doubt that they were seeking to discharge their obligations honestly and diligently, provides justifiable grounds for them to have no confidence that the defendant can bring a dispassionate mind to bear on matters of importance in the liquidation and the manner in which limited resources should be used.
223The defendant submitted that a mere loss of confidence, without more, does not justify removal of a liquidator. In this regard the defendant relied upon what Warren J (as her Honour then was) said in Multi-Core Aerators Limited v Dye and Rennie [1999] VSC 205 at [48] as follows:
However, in my view it is not sufficient that a court remove a liquidator merely because of levels or feeling and rancour between parties especially where the hostility has at all times emanated from the party seeking the removal of a liquidator. To do so would provide a creditor with an opportunity to manipulate the liquidation of the company.
224I regard those observations as inapt to the circumstances of this case. There were certainly levels of feeling and rancour between these parties. However the "hostility" in this case, evidenced by the defendant's intensely adversarial approach to both the COI and to the creditors, emanated from him.
Failure to give evidence
225The plaintiffs submitted that in contrast to their officers giving evidence and being exposed to cross-examination, the defendant has declined the opportunity to give an account of his stewardship (tr 280). It was submitted on the defendant's behalf that it was "not necessary" for the defendant to give evidence because there was no factual dispute as to the basis of the progress of the administration with which the Court is dealing in this case. It was submitted that when one looks at the factual matrix, it is perfectly uncontroversial (tr 313). However the plaintiffs submitted that there are a number of matters that required explanation from the defendant. For instance, why it was that he framed the Media Release in the way that he did in August 2009; why it was that he used such inflammatory language at the AGM; and why it was that he was opposed to the appointment of an independent chairman of the AGM on 10 November 2009 when the motion of no confidence was to be propounded.
226One matter that I regarded as calling for an explanation was why it is that the defendant wishes to retain his appointment as special purpose liquidator when he has concluded and admitted at the AGM that the relationship between him and the COI is "unworkable" and that it "cannot continue". It is all very well to rely upon the terms of the various judgments that have been published in respect of the various applications that have been made to justify minimal contact with the COI (for instance, Onefone Australia Pty Ltd and Others v One.Tel Ltd and Others (2010) 80 ACSR 11; [2010] NSWSC 1120 at [49]). However when it was conceded on the defendant's behalf during the course of this case that the relationship between the COI and the defendant lacked civility (tr 300), the absence of any explanation from the defendant as to why this should be tolerated in a liquidator tends to support the finding pressed for by the plaintiffs that the defendant has reached the point where he is now unable to dispassionately assess the true interests of the creditors in this administration and how limited resources should be spent (tr 278). Apart from this observation I have not drawn any adverse inference against the defendant by reason of his absence from the witness box. Rather I have reviewed his conduct from the whole of the circumstances disclosed in the evidence.
227That there is a pervasive perception amongst the creditors that the defendant lacks the capacity to dispassionately deal with the interests of the creditors is a significant factor to be taken into account with all the other relevant circumstances. Indeed I am afraid it is more than a perception. The defendant's conduct satisfies me that he has lost objectivity and the capacity to properly and dispassionately focus on the purposes for which he was appointed. That is why he embarked on inappropriate investigations that have cost thousands of dollars that should not have been claimed in this liquidation.
Other matters
228It was submitted on the defendant's behalf that his removal would not be in the best interests of the liquidation because his wealth of knowledge would be lost to the process and additional costs would be incurred in the process: McGrath & Anor re HIH Insurance Ltd & Ors [2006] NSWSC 385 at [11]-[12]. The submission that the wealth of knowledge will be lost to the liquidation seems to me to be somewhat inconsistent with the defendant's explanation as to why it was unnecessary for him to give evidence; that is, that his conduct during his administration can be gleaned from the documentary evidence. There is no doubt that there will be additional cost incurred in replacing the defendant. However most of the purposes of the special purpose liquidator's appointment are no longer extant. Those that presently remain are the prosecution of the RRI equitable claims and the application for special leave to appeal to the High Court in respect of the dismissal of the RRI proceedings. This was another factor relied upon by the defendant as to why he should not be removed. It was submitted that now that there is little or less need for communication with the COI the Court could have confidence that the special purpose liquidation can proceed more efficiently and effectively. I am not satisfied that the absence of the need for such communication assists the defendant at this stage.
229I am conscious that the defendant is a very experienced liquidator and that his removal may have serious professional consequences. Towards the conclusion of the trial and in response to discussions during final submissions, the defendant expressed the view through his Senior Counsel that he had "no objection to working with Mr Parbery, in a joint appointment or something of that nature" (tr 334). This was an alternative outcome that had not been propounded in any of the evidence or written submissions. Nor was it suggested to any of the plaintiffs' witnesses. It was taken no further than a suggested alternative and there was no evidence called to support a finding that it would be cost effective or efficient (let alone workable) or that it would be in the best interests of the liquidation. Indeed the plaintiffs submitted that it would be a "disaster" (tr 335).
230Another alternative that was discussed was the termination of the special purpose liquidation. However in the circumstances that the RRI equitable claims have now been commenced and the application for special leave to appeal to the High Court in respect of the dismissal of the RRI proceedings has been made, it is not appropriate to terminate the special purpose liquidation. However the special purpose orders will require amendment to reflect the circumstances that now pertain.
231The defendant has both prior to and during the proceedings contended that the creditors' loss of confidence in him is not enough to justify his removal. Rather he has contended that there must be some serious misconduct, conflict of interest or lack of independence. The authorities referred to earlier establish that serious misconduct is not a pre-requisite to the exercise of the Court's power under s 503 of the Act. In any event it has certainly been demonstrated that the creditors have lost confidence in the defendant's capacity to bring a dispassionate mind to bear in exercising his powers in the liquidation. I am satisfied that their loss of confidence is justifiable. The vast amounts of money that have been expended, at least $14 million to 2011 and in particular some $5 million in the two year period 2009 to 2011, cause real concern that appropriate mechanisms to control expenditure are not in place. There have been inappropriate investigations into the relationships of the members of the COI with third parties and inappropriate investigations of the creditors' relationships with some of the RRI defendants, with consequential unjustified claims for fees and expenses. The defendant's reaction to the misguided conduct of the COI in dealing with Mr Lindholm was out of all proportion to the conduct of the COI. The publication of the Media Release on 7 August 2009 and the refusal to remove it from his website (other than in the usual course of business) demonstrated a serious lack of judgment and objectivity.
232It is true that the wishes or views of the creditors may be taken into account but they are not decisive. The Court must look at "the overall picture": Re Biposo Pty Ltd; Condon v Rodgers at 405. As Bowen LJ made clear, "fair play to the liquidator himself must not be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation": In re Adam Eyton Ltd; Ex parte Charlesworth at 306.
Conclusion
233I am satisfied that it is in the best interests of this liquidation for the defendant to be removed as special purpose liquidator and for Mr Parbery to be appointed in his place. The defendant is to meet with Mr Parbery and provide him with any advice, documents or other assistance sought by Mr Parbery so that he may be in a position to pursue the remaining purposes of the special purpose liquidation in the most cost efficient manner.
234I am conscious that ASIC's review of the defendant's remuneration and fees has effectively been put on hold pending the outcome of these proceedings. I am satisfied that it is appropriate to defer any ruling in relation to conducting an inquiry under s 536 of the Act until ASIC's review has concluded. It may be that, having regard to the defendant's removal and/or the outcome of ASIC's review, the plaintiffs may no longer wish to press for such an inquiry.
Orders
235The orders are: