THE PARTY DESIRING TO BE HEARD
The consideration of that application involved firstly determining whether the persons seeking the right to be heard did in fact have that right, if so, as to the extent of their access to the material relied upon by the applicant, and thirdly if it was appropriate to allow them full participation on the merits of the application. On that hearing, counsel sought to appear for the defendants in the first Supreme Court action, except for two of the sixteen named individual defendants (Thomsons). Those persons sought the right to be heard on the application in two capacities:
(1) as defendants in the first Supreme Court action, and
(2) as creditors of the Emanuel Group of Companies.
Their participation was opposed by the applicant.
No direct authority was cited in support of the proposition that Thomsons in their capacity as defendants in the first Supreme Court action should have the right to be heard on the application. No illustration was provided to the Court of circumstances in which such a right has been recognised. Nor, in the course of argument, was anything identified which indicated in fairness that such a status warranted the granting of the right to be heard on the application. I do not see any reason why the question as to whether the applicant is entitled to the directions sought as liquidator of the Emanuel Group of Companies, at least where the real issues are whether the applicant as liquidator is proposing to enter into a transaction which falls under s 477(2)(c) and, if so, whether the exercise of that power is bona fide on the part of the applicant, should entitle Thomsons to be heard. In the present circumstances, the relevant assets proposed to be sold or disposed of include the chose in action, represented by the claim to damages against Thomsons. The fact that the asset proposed to be sold or disposed of is a chose in action against Thomsons does not, in my judgment, give them a proper interest in the question before the Court. I therefore declined to permit Thomsons to be heard on this application in that capacity.
The alternative basis of the right to audience claimed was as a creditor of the Emanuel Group of Companies. Evidence indicated that Thomsons had provided legal services to the Emanuel Group of Companies over a period at least from April 1990 to August 1994. On 22 May 1996, a proof of debt with respect to outstanding fees for legal services totalling $117,446.71 was lodged. It has not yet been adjudicated upon. For present purposes, The applicant does not positively assert that there is no such debt. I accordingly accept that Thomsons is a creditor of the Emanuel Group of Companies.
Section 477(6) provides:
ÒThe exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or the Commission, may apply to the Court with respect to any exercise or proposed exercise of any of those powers.Ó
In my view, that provision entitles Thomsons as a creditor to apply to be heard on this application. Ultimately, counsel for the applicant did not contest that standing.
However, it was argued that the purported exercise of that right by Thomsons should not be permitted in the particular circumstances because it was an abuse of process: Williams v Spautz (1992) 174 CLR 509.
The applicant contested that Thomsons genuinely wished to be heard as a creditor, and that in reality they wished to be heard as defendants to the first Supreme Court actions so as to explore frustrating that action, or getting a collateral benefit for use in defending it. It may be the consequence of the proper exercise by a creditor of the right to be heard on such an application as the present is that the direction sought is not given, and a proposed funding arrangement does not proceed. It does not necessarily follow from that possible consequence that the motivation of the creditor in question is not a bona fide one. The fact that Thomsons will, or may, benefit as defendants in the first Supreme Court action if the directions sought are not given is not, in my view, sufficient to conclude by itself that Thomsons do not genuinely wish to exercise their rights as creditors. It was also put that, because Thomsons had on 21 June 1995 voted in support of a proposed deed of company arrangement, the result of which was that each creditor would recover a nominal sum only, which in Thomsons case would be $213.82 only, it had no bona fide interest as a creditor in the proceeding. It was further contended that the submissions themselves indicated that Thomsons in reality wished to be heard as a defendant, but did so under the guise of a creditor. Thomsons did not, by affidavit, identify any particular matter of concern to them in relation to the Funding Arrangement. In circumstances where, at the time, Thomsons had no access to the terms of the Funding Arrangement, that latter point in my view has no real significance.
Counsel for Thomsons identified three matters in respect of which, it was said, Thomsons as creditors might be concerned. The first was to examine the Funding Arrangement to ensure that it does not infringe the rules against champerty and maintenance (presumably, to ensure that it involved the sale or disposition of property within s 477(2)(c)), or is not otherwise contrary to the public interest and therefore illegal, or is not otherwise contrary to public policy. It was indicated that it was not proposed to challenge the correctness of the decisions of Movitor or Tosich or my earlier decision on the matter of principle, namely that a funding agreement disposing of the fruits or part of the fruits of a cause of action may constitute a sale or disposition of property under s 477(2)(c) of the Law. The second was to be satisfied that the Funding Arrangement did not put at risk funds otherwise available to the creditors, that is that the funds available to the applicant were not dissipated on pursuing the Supreme Court actions when they might otherwise be more appropriately applied in the conduct of the winding up to benefit the creditors generally. The third was a concern that there would be a Òmega actionÓ established by consolidating the Supreme Court actions with the two other actions already instituted (the subject of the reasons given on 9 June 1998) and with further proposed actions against other parties. It was said that consolidation of those actions was ÒinexorableÓ, and that the costs and complexity of the mega-proceedings may not be in the interests of the creditors generally.
I ruled that, as a creditor, Thomsons did have the right to participate in the hearing. The question then to be considered was the extent to which they should be permitted to participate, including being given access to material relied upon by the applicant and not necessarily confined to the Funding Arrangement. In the first instance, I indicated that the applicants should make available to Thomsons the affidavit material relied upon on the application, and the exhibits to that affidavit material, but masking or removing therefrom information which was regarded as confidential. Such information would clearly include any opinions of counsel as to the prospects of success in, or as to the tactical considerations relating to, the Supreme Court actions, and other material relating to those topics. It was also in contemplation that it would exclude the precise details of the proposed funding arrangement, to the extent that they might provide to Thomsons some insight into the level of funding or the terms of funding which might be of strategic or tactical significance in the conduct of the defence in the Supreme Court actions. That direction did not involve any decision upon the objection raised by the applicant that Thomsons sought to participate for some purpose ulterior to their legitimate interests as creditors, and so were abusing the process of the Court. It seemed to me that, once standing was established, in order to be heard the creditors were entitled to that material in any event. It is the same sort of material as would be recorded in any judgment of the Court. I anticipated that there might then be an issue as to whether further material should be disclosed in the face of the applicantÕs claims as to confidentiality of certain information, which may have needed to be addressed. I also anticipated that, after Thomsons had reviewed that material, and had indicated their further attitude to the application, it would then be appropriate to address the applicantÕs objections.
In Buiscex Ltd v Panfida Foods Ltd (In Liquidation) (1998) 28 ACSR 357 Hodgson CJ in Equity permitted creditors of a company in liquidation to appear in opposition to a similar application to the present. There was no argument as to their standing. In that case the liquidator had first sought approval of the creditors to entering into the proposed funding arrangement then under consideration, but those creditors had at that point unanimously resolved to object to the proposal. The proposal then put forward involved, initially, the investigation of the possible causes of action, rather than the specific conduct of proceedings in respect of an identified cause of action which had counselÕs advice in relation to it.
Thomsons, having had access to the material to which I have referred, indicated that they did not wish to make any further submissions in opposition to the application. It was not therefore necessary to rule on the applicantÕs objection to them participating in the hearing. In respect of the issue as to the right of Thomsons to be heard on the motion, I then indicated that I would make no order as to costs in favour of Thomsons or in favour of the applicant against Thomsons.
THE CAUSES OF ACTION
As the respective statements of claim in the Supreme Court actions show, the allegations in each are in essentially the same terms. The background to the allegations in the Supreme Court actions is set out in some detail in my reasons of 9 June 1998 in the earlier matter. Thomsons and Johnson Winter & Slattery are alleged to have been variously involved in an arrangement progressively made in the period November 1994 to March 1995, to resolve a dispute which had by then developed between the Emanuel Group of Companies on the one hand and the EFG Group, effectively its financiers, on the other hand. The scheme involved, according to the allegations, an acknowledgment by the Emanuel Group of Companies of indebtedness to the EFG Group, the transfer of its assets to the EFG Group, and in exchange the execution on 17 March 1998 of a Deed of Forebearance and Release and separately on the same date a deed whereunder certain additional payments were made to interests associated with directors of the Emanuel Group of Companies to defeat or interfere with the rights of the creditors of the Emanuel Group of Companies. It is alleged that the arrangement overall effectively put the interests of the EFG Group ahead of the creditors generally of the Emanuel Group of Companies, and at the same time the Emanuele family effectively advanced its own interests improperly. Those issues overlap with, but are more confined than, the causes of action against EFG and others previously the subject of my order of 9 June 1998. It is alleged that the implementation of that overall arrangement included a consent judgment in favour of EFG for about $182,000,000 to reflect an alleged debt, and to the execution of the Deed of Forebearance and Release and other documents on 17 March 1995. On that date, certain monies were paid totalling some $6,000,000. The alleged roles of Thomsons and Johnson Winter and Slattery are detailed in the Supreme Court actions. It is alleged, in particular, that persons associated with the Emanuel Group of Companies committed breaches of fiduciary and statutory duties by their directors with the support of Thomsons and Johnson Winter and Slattery. It is also alleged that those creditors were in breach of their duty of care owed by virtue of their professional relationship with the Emanuel Group of