Liquidators' submissions
134 The liquidators referred to Weinstock v Beck [2013] HCA 14; (2013) 251 CLR 396 at [39] as follows:
Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form.
135 The liquidators referred also to Re Compaction Systems Pty Ltd (1976) 2 NSWLR 477 at 493 that:
In my view, the word 'injustice' in this provision requires the Court to consider any real, and not merely insubstantial or theoretical, prejudice which will be suffered by, for example, a member by the making of an order, and to weigh this in the scales against the prejudice to the company, other members and creditors, if an order be not made. In other words, it is insufficient to show that there may be some prejudice to a member if, on a consideration of the whole matter, the overwhelming weight of justice, as it were, is in favour of making the order.
136 Further, the liquidators referred to Re Great Southern Ltd (in liq), Ex parte Jones [2016] WASC 234; (2016) ACLC 16-032 which concerned an application for an order that the acts of committees of inspection were not invalid by reason of a failure to comply with the requirements of s 548 of the Act. The liquidators had not understood that it was necessary to convene a meeting of contributories of the companies in order to validly appoint a committee of inspection (at [13]). The liquidators emphasised three aspects of Pritchard J's conclusions, being that:
(1) it was "clearly desirable that a committee of inspection be appointed in the winding up of each of the Companies", having regard to the complexity of the winding up, so as to avoid the need to convene a creditors' meeting or to approach the Court whenever the liquidators required a direction in the winding up: [36];
(2) the liquidators had acted honestly in relation to the appointment of the committees of inspection: [38]; and
(3) "the fact that significant costs would need to be incurred to seek retrospective validation of the decisions made by the Committees of Inspection, were the orders sought not made by the Court, also strongly supports the conclusion that it is just and equitable to make those orders": [42].
137 The liquidators submitted that the same three factors applied in the present case, compounded by the fact that the liquidation has been in progress for six years before the Commonwealth raised any issue about the validity of the appointments to the COI. The liquidators also referred to the evidence of Mr Solomons to the following effect:
(1) if the Court does not make orders validating the resolutions the liquidators will be required to seek a determination of the remuneration by resolution of the creditors: s 60-10(1)(a) of the ISPC;
(2) this will be a time consuming and costly exercise as it will include preparing notices of the meeting and information to be provided to creditors;
(3) if a determination is not made by the creditors the liquidators will have to bring an application to the Court for a determination of the remuneration which will involve further time and cost;
(4) the estimate of costs for resubmitting remuneration reports is $36,030.50 which does not take into account the time required to compile the relevant invoices and to resubmit reports for work before April 2016 when the software system was changed;
(5) there are 1270 creditors each of whom will have to be notified and given the remuneration reports which will be at least 130 pages; and
(6) at least 1,106 creditors will need to be posted the relevant material.
138 The liquidators submitted that the effect of not making validation orders would be to substantially delay the completion of the winding up. They submitted that the Commonwealth had not identified any, let alone substantial, prejudice to it or any creditor if validation orders were made. There is evidence that the Commonwealth intended to challenge the reasonableness of the liquidators' remuneration and expenses before it decided to contest the relief sought by the liquidators in this proceeding. According to the liquidators:
The Commonwealth's current and late-breaking opposition to the relief sought by the plaintiff bespeaks an attempt to seize some perceived strategic or tactical advantage in the context of a broader dispute with the Liquidators over the Quantum Complaint. There may be nothing sinister in such conduct, but being deprived of that advantage does not, on any view, answer the description of a substantial injustice.
139 The liquidators also submitted that it should be noted that at all times the Deputy Commissioner has been a member of the COI. The Deputy Commissioner was claiming for tax-related liabilities and under s 255-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) such liabilities are due and payable to the Commonwealth. As the liquidators would have it the Deputy Commissioner was the Commonwealth's agent for the purpose of recovering the tax debts. They submitted further:
(1) beginning in December 2012, the Commonwealth, through its agent the Deputy Commissioner, participated in the conduct of the COI's business, and for much of that time, did not indicate concern with, or take steps to clarify, the validity of the appointment of the COI;
(2) the Deputy Commissioner did not merely participate, through his representatives, in meetings of the COI;
(3) those representatives voted in favour of almost all of the resolutions passed by the COI;
(4) it is entirely artificial for the Commonwealth now to insist that because its current standing as a creditor is attributable to its administration of the Fair Entitlements Guarantee Act 2012 (Cth) through the Attorney-General's Department, it should be regarded as separate from, and unaffected by the conduct of, its agent the Deputy Commissioner. The Commonwealth is a single polity and single juridical person, and it does not detract from this that the existence of Departments of State is recognised in ss 64 and 69 of the Constitution;
(5) given the above, it is difficult to see how the Commonwealth might be said to be likely to suffer any substantial injustice if the Court were to make orders as sought; and
(6) the Commonwealth cannot be heard to say that it was disenfranchised as a result of some contravention of the Act as its agent voted in favour of the resolutions.
140 The liquidators referred to the statement in James v Deputy Commissioner of Taxation [1957] HCA 36; (1957) 97 CLR 23 at 35 that:
We think that the commissioner or deputy commissioner is empowered to take proceedings in bankruptcy for the recovery of the tax as a Crown debt. The officer may proceed in his own name but he sues for the Crown and as plaintiff or actor it is not in his own right but that of the Crown that he proceeds … His is but an official name, but it is the correct name in which the Crown sues.
141 The liquidators submitted that Kalis Nominees Pty Ltd v Deputy Commissioner of Taxation (1995) 95 ATC 4519 (in which it was held that the Deputy Commissioner had standing to serve a statutory demand in respect of a liability for unpaid income tax) did not mean that the Deputy Commissioner was not the Commonwealth's agent.
142 The liquidators submitted further that although they did not assert that the Commonwealth was estopped from resisting the relief sought, there was:
a real question as to whether the Deputy Commissioner, as the agent of the Commonwealth, impliedly represented to other members of the COI and to the Liquidators, or at least acquiesced in the notion, that he, and therefore the Commonwealth, accepted that the COI was validly constituted and its business validly conducted.
143 In response to the Commonwealth's submissions the liquidators noted that its allegations of dishonesty were made without prior notice and thus the evidence of the liquidators did not specifically address the issue. The Commonwealth consented to the application being decided on the papers and thus gave the liquidators no opportunity to meet the allegations of dishonesty. Given the unfairness the Court should not entertain the Commonwealth's allegations of dishonesty. The Commonwealth's allegations and supporting submissions are without merit. The Commonwealth relied on the observations of Palmer J in Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 (Hall v Poolman) at [325] that:
the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, i.e., whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the Corporations Act or the general law.
144 The liquidators submitted that, however, there is a question whether these observations apply to s 1322(6). If they apply then the level of carelessness required to constitute dishonesty is a complete and total delinquency in the discharge of one's duties. The evidence of Mr Solomons explains how he and to his understanding Mr Tayeh genuinely understood that:
a. Mr Scott had been appointed to the COI and was represented by the individuals who purported to be his representatives; and
b. AustralianSuper had been appointed to the COI and was represented by the IFCC employees who purported to be its representatives.
145 According to the liquidators, the Commonwealth's assertion that there was no genuine attempt by the liquidators to ensure that persons attending the COI had the requisite authority to do so can mean only either that Mr Solomons was not being truthful in his affidavit or that his genuine understanding was not based on a sufficient interrogation of the facts. The first proposition cannot be made without having been put to Mr Solomons. The second proposition is not consistent with the delinquency required to amount to dishonesty. At best, it establishes an insufficiently exacting attempt at investigating the authority of those in attendance at meetings of the COI.
146 The Commonwealth's assertions of dishonesty against the representatives of IFCC and the TWU also cannot be put in circumstances where no notice was given of those assertions and thus no evidence from them was filed. The liquidators said:
In any event, the Court cannot safely accept the Commonwealth's submissions. Given the nature of the issues to be determined during this phase of the proceeding, and given the absence of prior notice of any allegation of dishonesty, the Court does not have before it the entirety of the evidence that could be led on whether those who attended meetings of the COI honestly and reasonably considered the remuneration sought by the Liquidators. To this may be added that representatives of the Deputy Commissioner voted in favour of all but one of the resolutions approving the Liquidators' remuneration and either proposed or seconded many of the others. Is the Commonwealth now accusing its own officers or employees of acting dishonestly? That this question has to be asked at all serves to expose the extent to which the Commonwealth's argument approaches the outer limits of what can reasonably be put. What is said [in the Commonwealth's submissions] at … [236]-[238] should consequently be rejected.
…
The same fate should await the suggestion [in the Commonwealth's submissions] at … [239] that if the relevant IFCC and TWU personnel had acted honestly, they would have resigned from, or refrained from participating in the business of, the COI.
147 The liquidators submitted that given the following factors (relied on in Great Southern) the Court should conclude that it is just and equitable that validation orders should be made:
(1) the cost of the winding up of the 1st Fleet Pooled Group has been significant;
(2) the winding up has been complex and protracted; and
(3) it is important the winding up be brought to an expeditious conclusion and that future expenses be minimised.
148 In response to the Commonwealth's submissions as to substantial injustice the liquidators submitted:
(1) the issue under s 1322(6)(c) is whether the Court is satisfied that no substantial injustice has been or is likely to be caused to any person;
(2) the issue is not whether refusing relief would or would not cause substantial injustice to the liquidators; and
(3) the Commonwealth's assertion of substantial injustice to the creditors (to the effect that COI resolutions were made by unauthorised persons) is a mere restatement of the contraventions.
149 The liquidators submitted that:
Tellingly, the Commonwealth does not suggest that there is even the possibility that had there been no contraventions of the Act, a different result might have transpired, in the sense that the Liquidators' remuneration might not have been approved or, if approved, might have been approved in different amounts. That possibility is thus not an issue in the proceeding, and the Commonwealth cannot now say that plaintiffs' omission to lead any evidence for the purpose of disproving that such an outcome might have been possible should suffice to found a conclusion of substantial injustice.
150 The liquidators acknowledged that they bore the onus of proving that no substantial injustice would be caused to any person by the making of the orders sought but submitted that the Commonwealth bore an evidential onus of identifying the potential injustice and substantiating it to the point where the plaintiffs must then prove, on the balance of probabilities, that the injustice does not arise. The Commonwealth had not identified any injustice other than to restate the existence of the contraventions. According to the liquidators:
The Commonwealth's attempted rejoinder to this is to say that the relevant question is not the substantial injustice suffered by the Commonwealth, but the substantial injustice suffered by all creditors …. However, if, as the Commonwealth asserts throughout its submissions, the only parties with a real financial interest in the outcome of the winding up are the Commonwealth and the Deputy Commissioner, then there is no respect in which any other creditor can be said to have suffered a substantial injustice. There is, to that extent, a lack of coherence in the Commonwealth's case.
151 The liquidators said that even if the Deputy Commissioner's acts on the COI cannot be attributed to the Commonwealth it remains the fact that there is no suggestion that there might have been a different outcome. Mr Busby, who has given an affidavit for the Deputy Commissioner, does not suggest his will was overborne by the other representatives at the COI meetings.
152 The liquidators said further:
The important point is that the Commonwealth has not led evidence to prove that it had no concerns in relation to the constitution and proceedings of the COI until shortly before those concerns were first expressed by its solicitors in August 2018 …. And if it did hold those concerns at an earlier stage in the winding up, but did nothing to express them or ensure that they were addressed or otherwise acted on by the Liquidators, then to the extent that the Commonwealth has suffered any prejudice following the contraventions in respect of which relief is sought (which, for the reasons already given, is denied), it is, in truth, the author of its own misfortune.
153 Further, the liquidators said that in circumstances where, in any event, the Commonwealth was considering applying for a review of the liquidators' remuneration and expenses, it necessarily follows that the Commonwealth (at that time) was prepared to act on the basis that the resolutions of the COI were valid. Having been so willing, the Commonwealth cannot now say that it and other creditors will suffer substantial injustice merely by the making of a validation order.