Coats v Southern Cross Airlines Holdings Limited (in liquidation)
[1998] QCA 125
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- Coats v Southern Cross Airlines Holdings Limited (in liquidation)[1998] QCA 125
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Coats v Southern Cross Airlines Holdings Limited (in liquidation)[1998] QCA 125
Coats v Southern Cross Airlines Holdings Limited (in liquidation)[1998] QCA 125
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4718 of 1998
Brisbane
[Coats & Ors. v. Southern Cross Airlines Holdings Ltd (In Liq.) & Barber]
BETWEEN:
DAVID SAMUEL COATS, DAME MARGARET GEORGINA
CONSTANCE GUILFOYLE, LEONARD THOMAS GEORGE
HEARD, SIR LEO HIELSCHER, LEIGH MASEL, BRIAN HARVEY
BADEN POWELL and JAMES GRAHAM AMBROSE TUCKER
(Respondents) Appellants
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
AND:
RICHARD BARBER
(Applicant) Respondent
Appeal No. 4671 of 1998
[Arthur Andersen & Co. v. Southern Cross Airlines Holdings Ltd (In Liq.)]
BETWEEN:
ARTHUR ANDERSEN & CO. (A FIRM)
(Respondent) Appellant
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
Fitzgerald P.
McPherson JA
Thomas J.
Judgment delivered 12 June 1998
Separate reasons for judgment of each member of the Court, concurring as to the orders made.
IN EACH CASE: APPEAL ALLOWED; ORDER OF 20 MAY 1998 AND PARAGRAPH 1 OF THE ORDERS OF 28 MAY 1998 MADE BELOW, SET ASIDE; AND THE RESPONDENT RICHARD ANTHONY BARBER TO PAY THE APPELLANTS’ COSTS OF AND INCIDENTAL TO THIS APPEAL AND THE RESPONDENT’S APPLICATION BELOW, TO BE TAXED. INDEMNITY CERTIFICATE UNDER S. 15 APPEAL COSTS FUND ACT 1973 REFUSED.
CATCHWORDS: | CORPORATIONS LAW - Liquidation - Application for direction - Direction to liquidator to notify shareholders of possible rights against third parties (directors) - Intended for notification to attract qualified privilege against defamation - Whether liquidator has duty or power to issue notification - Whether Court has power to direct notification - Whether even if power, Court should direct notification - Corporations Law, ss. 447(2), 476, 479(3), 533, 535(1). CORPORATIONS LAW - Liquidation - Direction to liquidator - Whether judgment or order of Court - Whether direction appealable - Corporations Law, s. 479(3) - Supreme Court of Queensland Act 1991, ss. 29 & 69. Driclad Pty Ltd v. Federal Commissioner of Taxation (1968) 121 C.L.R. 45 Legal Practitioners Complaints Committee v. A Practitioner (1987) 46 S.A.S.R. 126 Re G.B. Nathan & Co Pty Ltd (In Liq) (1991) 24 N.S.W.L.R. 674 Re Everything Australian Pty Ltd (1992) 1 A.C.S.R. 75 Brown v. Furzer (1994) 13 A.C.S.R. 184. Excel Finance Corporation Ltd; Worthley v. England (1994) 124 A.L.R. 281 Australian Securities Commission v. Melbourne Asset Nominees Pty Ltd (Receiver & Manager Appointed).(1994) 49 F.C.R. 334 Re GPI Leisure Corp. Ltd (in Liq) (1994) 53 F.C.R. 365 Re Biposo Pty Ltd; Condon v. Rodgers (1995) 120 F.L.R. 399 Farrow Finance Pty Ltd (In Liq) v. ANZ Executive & Trustees Co Ltd (1996) 23 A.C.S.R. 488 Editions Tom Thompson Pty Ltd v. Pilley (1997) 148 A.L.R. 146 |
Counsel: | Mr P. McMurdo Q.C. for the appellant in appeal no. 4671 of 1998 Mr S. Doyle S.C. for the appellants in appeal no. 4718 of 1998 Mr G.A. Thompson for the respondent in each appeal |
Solicitors: | Minter Ellison for the appellant in appeal no. 4671 of 1998 Corrs Chambers Westgarth for the appellants in appeal no. 4718 of 1998 Allen Allen & Hemsley for the respondent in each appeal |
Hearing Date: | 4 June 1998 |
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4718 of 1998
Brisbane
Before Fitzgerald P.
McPherson J.A.
Thomas J.
[Coats & Ors. v. Southern Cross Airlines Holdings Ltd (In Liq.) & Barber]
BETWEEN:
DAVID SAMUEL COATS, DAME MARGARET GEORGINA
CONSTANCE GUILFOYLE, LEONARD THOMAS GEORGE
HEARD, SIR LEO HIELSCHER, LEIGH MASEL, BRIAN HARVEY
BADEN POWELL and JAMES GRAHAM AMBROSE TUCKER
(Respondents) Appellants
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
AND:
RICHARD BARBER
(Applicant) Respondent
Appeal No. 4671 of 1998
[Arthur Andersen & Co. v. Southern Cross Airlines Holdings Ltd (In Liq.)]
BETWEEN:
ARTHUR ANDERSEN & CO. (A FIRM)
(Respondent) Appellant
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
REASONS FOR JUDGMENT - FITZGERALD P.
Judgment delivered 12 June 1998
On 27 April 1993, Southern Cross Airlines Holdings Limited was ordered to be wound up, and the respondent was appointed liquidator. One appellant, Arthur Andersen & Co., was the auditor of Southern Cross. The other appellants were directors of Southern Cross and at least some of them are also contributories. The appellants are defendants in an action commenced by Southern Cross on 18 September 1995 which was transferred to the Federal Court of Australia on 9 September 1996. A statement of claim, which has been amended more than once, has been filed in the Federal Court,[1] and is available for inspection by any person.[2]
On 6 May 1998, the respondent applied in the Trial Division of this Court for directions, relying on sub-s. 479(3) of the Corporations Law. He asked that the Court authorise and direct him to notify the company’s shareholders of potential claims they might have against the appellants and some other information relating thereto. The appellants were notified of the respondent’s application and, apparently without objection, all appeared at the hearing before the Chamber Judge, and, in his Honour’s words “strenuously opposed the liquidator giving the proposed notification”. On 20 May 1998, the Chamber Judge made an order in the following terms:
“Pursuant to s. 479(3) I authorise and direct the liquidator to notify shareholders of the company of the potential claims by posting a notice in the terms attached and marked ‘A’ to each shareholder by prepaid post to the shareholder’s address last known to the liquidators no later than 29 May 1998.”
This expedited appeal is brought from that order.[3]
The respondent questioned whether an appeal lies to this Court from the Chamber Judge’s order on 20 May, but did not dispute that, if an appeal lies, the appellants were entitled to appeal. It is convenient to leave the question whether an appeal lies until later.
The notice referred to in the Chamber Judge’s order of 20 May is in the following terms:
“1.The liquidator of the company has completed extensive investigations into the affairs of the company including the $50 million public float leading to the allotment of 100,000,000 shares on 17 July 1992. Having completed those investigations, the liquidator has formed the view, based on legal advice, that some shareholders may have a claim against the company’s former directors and other third parties involved in the promotion and formation of the company. The claim, if successfully prosecuted, may result in the recovery by shareholders of either:
- where the shareholder was an original subscriber in the float who still holds the shares allotted to him or her, the subscription price of each share (50 cents per share), or
- where the shareholder was an original subscriber in the float who subsequently sold the shares allotted to him or her for an amount less than the subscription price, the difference between the subscription price and the sale price of each share.
- The limitation period for issuing proceedings in respect of the potential claim may expire on 16 July 1998 after which time the claim may become statute barred.
Should any shareholder require further information in respect of the potential claim, you should contact the liquidator’s solicitors, Allen Allen & Hemsley (Contact: Peter Smith (Phone (07) 3334 3263)).
It is recommended that shareholders seek their own legal advice in respect of any potential claim before instituting any proceedings.”
There are approximately 8,300 contributories[4] in Southern Cross, and the total cost of notifying each contributory by post is estimated to be between $6,000-$7,000, which is less than the cost of advertising the notice in major Australian newspapers. The respondent proposes to pay the cost of posting the notice to contributories and all associated costs, including the costs of obtaining legal advice and of these proceedings, from the proceeds of realisation of the assets of Southern Cross. That fund will be insufficient to pay the unsecured creditors of Southern Cross in full, and the amount, if any, available for distribution to unsecured creditors, whose debts total approximately $30 million, will be reduced by the costs referred to. Contributories of Southern Cross will receive no distribution in its winding up.
On 16 June 1993 the respondent had informed the contributories that it was unlikely that they would receive any repayment of capital or other return from their investment, and, by further memorandum to the contributories dated 20 May 1994, he stated that he would “be considering whether shareholders had any claims arising out of the prospectus and public float of shares of the company which I will report to you upon the conclusion of my investigations”. He has now concluded on the basis of legal advice that there is an arguable case that the appellants may be liable for losses suffered by the contributories, and has been advised that he is under a duty to notify contributories that “they have a potential claim”. He has also been advised that there may be a limitation period within which contributories may take proceedings which might expire on 16 July this year, and that, subject to any direction of this Court, “he should notify shareholders in sufficient time prior to that date to enable them if they so desire to take proceedings against the appellants.” The Chamber Judge said:
“Of course if the notices are not given shortly - a month or so before the expiration of the limitation period - it may be difficult for shareholders to pursue whatever rights they may have but of which at the present time they may be unaware. Understandably the liquidator is loath to embark upon a course which may result in his defending defamation proceedings ... .”
The notice directed to be given plainly would not provide sufficient information for a contributory to obtain legal advice and, if so advised, to institute proceedings against the appellants. It is of questionable practical utility if action must be taken by contributories by 16 July.
The order under appeal, like the respondent’s argument in this Court, started from the premise that there is a fiduciary relationship between the contributories in a company in liquidation and the liquidator, who is required to act honestly and impartially between them and the company and its creditors, to whom a liquidator also owes fiduciary duties. The Chamber Judge said:
“I will assume therefore ... that a fiduciary relationship exists between liquidator and shareholders ...
I will assume that some at least of those shareholders may not have adverted to the possibility that facts have emerged in the administration of the winding up conducted by the liquidator which may arguably give those shareholders a right to recover from officers of the company and its auditors the serious losses they suffered as a result of the company failure.
...
The winding up has proceeded over the last four years or so and having regard to the observations made in the report and memorandum to shareholders to which I have already referred it seems to me likely that many shareholders receiving that information would not have taken steps on their own initiative to inquire about facts relevant to their rights to recover their losses but indeed may have decided to wait for a report from the liquidator of the sort he intimated he was contemplating making back in May 1994.”
In the course of that passage, his Honour had said:
“The real question then is whether in those circumstances the extent of the fiduciary duty owed by the liquidator to the shareholders is such as to place him under a duty to make them aware of the facts he believes to exist as a result of his administration, to give them the opportunity of deciding whether or not to seek legal advice to recover damage which they will suffer as a consequence of subscribing for their shares.”
Later, after noting that counsel had informed him that they had discovered no authority which touched directly on the matter before him and referring to a number of cases which seem to me of marginal relevance, his Honour said:
“I find it difficult to distinguish in principle between the obligation on a person under a fiduciary duty to take care in giving advice upon which somebody obviously intends to rely and the obligation upon such a person to give advice to persons he knows may avoid damage if they are given that advice in time to institute proceedings against others whose actions and conduct have been examined and found wanting by the person under that fiduciary obligation to the persons needing that advice.
...
The liquidator in this case as officer of the Court has conducted extensive and expensive inquiries over a period of years. He has discovered facts which have persuaded him to institute proceedings against all the [appellants] in the Federal Court and in my view his relationship with the shareholders of the company in liquidation imposes upon him a duty to inform them of the fact that based on the information at his disposal concerning the actions of persons connected with the promotion and establishment of the company and indeed with the auditing of company accounts they ought seek legal advice as to whether they should also take action against the same persons to recover the damages they have suffered as a consequence of the company failure. He should give them notice not designed to express any view as to the likely outcome upon determination of the issues presently before the Federal Court. Undoubtedly, interested shareholders would take advice on requirements for the successful pursuit of an action for recovery of pure economic loss ...
...
I conclude upon the material that it is strongly arguable that the liquidator is under a duty to advise forthwith shareholders of the company of the possibility that they have a personal cause of action against the [appellants]; if he fails to do so he may arguably be liable to at least some of those shareholders should they fail to consider and receive legal advice upon instituting proceedings prior to 16 July 1998.
In any event even in the absence of any specific provision in the Corporations Law imposing a statutory obligation upon him to give a notice of the kind proposed, I take the view that the giving of such a notice would be a step properly taken by the liquidator in the administration of the company insolvency with a view to enabling shareholders as far as possible to avoid loss as a consequence of their receiving no dividend in respect of the shares they hold.”
It is convenient to leave out of account initially the circumstance that, on 20 May 1994, the respondent informed the contributories in Southern Cross that he would report to them upon the conclusion of his investigations into “whether shareholders have any claims arising out of the prospectus and public float of shares of the company ...”. The first question to be considered, based on the approach adopted in argument, is whether the respondent would be under any fiduciary duty to the contributories to give the notice directed by the Chamber Judge if that statement had not been made.
Generalised references to the broad and elastic concept of fiduciary relationship and fiduciary duties tend to obscure, rather than elucidate, what is in issue.[5] The relationship between the contributories of a company in liquidation and the liquidator is defined by the Corporations Law, which prescribes the liquidator’s functions, powers and duties and provides the foundation for the respective interests, rights and obligations of the contributories and the liquidator, including any fiduciary duties owed by the liquidator to contributories. Functions, powers, duties, interests, rights and obligations are all related to, and controlled by, the purposes of liquidation; which, so far as presently material, are the realisation of the company’s assets and the distribution of the proceeds in due course of administration.[6] It is entirely consistent with this view of the specific, limited nature of a liquidator’s role that his or her powers extend to doing “... all such ... things as are necessary for winding up the affairs of the company and distributing the property”,[7] and that the provision under which the respondent’s application was made[8] permits a liquidator to “apply to the Court for directions in relation to any particular matter arising under the winding up” (emphasis added). Likewise, the qualified privilege given a liquidator in respect of defamatory statements is restricted to statements made “in the course of his duties as a liquidator”.[9] While these statutory phrases are capable of flexible application, none has an unlimited operation.
If it be accepted that a liquidator has a fiduciary duty to contributories, obliging him or her to act in appropriate circumstances in the interests of contributories,[10] and that a liquidator is obliged to provide reports[11] and has, in some circumstances, a duty to provide information to contributories, in the absence of specific statutory provision it is difficult to perceive how or why a liquidator would have a duty to provide information to contributories when it was not only unnecessary to do so for the winding up but the purpose of providing the information was not the winding up but to assist contributories in relation to private claims which are in potential competition with claims against the same persons by the company in liquidation.
Subject to a qualification related to the statement to contributories made by the respondent on 20 May 1994, if a duty in terms of the direction made by the Chamber Judge exists in this liquidation, it must exist in all liquidations. Every liquidator must be under a duty to inform contributories whenever he or she forms the view, based on legal advice, that some contributories “may have a claim against the company’s former directors and other third parties involved in the promotion and formation of the company”. If a liquidator has such a duty, is there also a duty to investigate the material facts and to disclose those facts to the contributories even if the liquidator does not take legal advice? Is there a duty to take such advice? If all or any of those duties exist, then presumably a liquidator who fails in his or her duty is in consequence liable to compensate any contributories who are disadvantaged by the liquidator’s breach. No authority was cited to support any of these propositions, which are not referable to any established legal principle. On the contrary, the general trend of authority is against the existence of the duty contended for by the respondent.[12]
Nor do the potentially material statutory provisions assist the respondent. A contributory is entitled to inspect and obtain a copy of the respondent’s preliminary report made under s. 476 of the Corporations Law but not a report lodged under s. 533.[13] A contributory may also inspect the books kept by the respondent as liquidator,[14] his accounts lodged with the Commission,[15] and the books of Southern Cross but only with this Court’s leave.[16] It is unnecessary on this occasion to consider whether the latter power may be used to permit inspections for private litigation.[17]
Further, if authorised to do so by the Commission,[18] a contributory may apply for an order for an examination of former officers about a corporation’s “examinable affairs”.[19] Such a contributory may take part in the examination and may be legally represented,[20] and may be allowed by the Court to ask questions about the corporation and its examinable affairs.[21] If a written record of the questions and answers is made,[22] it is available to any person, in some instances only on payment of a prescribed fee.[23] Again, it is unnecessary to decide whether a contributory may use such an examination for private purposes.[24]
Whatever their scope, on any view, this concatenation of legislative provisions is difficult to reconcile with a proposition that there is a duty, fiduciary or otherwise, on a liquidator to advise the company’s contributories in relation to their private interests.
A liquidator must act in the interests of contributories only in and for the purposes of the winding up. Even then, the liquidator’s duty to the contributories is circumscribed by the Corporations Law and qualified by his or her duties to others, including creditors. No incident of the relationship between contributories and liquidator which might give rise to such a duty as that contended for by the respondent was, or can be, identified. And clearly the duty to act as the respondent has been directed is not integral to, or inherent in, all fiduciary relationships.
The respondent’s practical difficulty, which underlies his application for the direction given by the Chamber Judge, stems from action which he took in May-June 1994, and his subsequent inactivity so far as is presently material. As earlier stated, he initially reported to contributories by a memorandum dated 16 June 1993. That report, which was not expressly required by statute, noted that the respondent had received a report under s. 475 of the Corporations Law, and that a copy of that report had been filed in this Court and lodged with the Australian Securities Commission. Presumably, the respondent’s preliminary report, including the respondent’s opinions on the causes of the failure of Southern Cross and whether further inquiry was desirable “with respect to a matter relating to the promotion, formation or insolvency of the company, or the conduct of the business of the company”, had also been lodged with the Commission, or was lodged shortly afterwards.[25] As earlier noted, a contributory can inspect and obtain a copy of that report.[26]
The respondent’s next (and apparently last[27]) report to contributories dated 20 May 1994 attached a copy of his “Brief Report to Creditors dated 18 May 1994". The express purposes of the latter report were to provide:
“(a)A brief summary of a lengthy report which will be presented to a meeting of creditors on 10 June 1994 and lodged with the Australian Securities Commission (ASC) detailing the background and conduct of my administration as Liquidator of Southern Cross Airlines Holdings Limited (In Liquidation) (the company).
- An outline based on the information currently available of the indicative financial position of the company and the implications for creditors.”
The “lengthy report” there mentioned was, presumably, the report required to be lodged with the Commission in specified circumstances by sub-s. 533(1) of the Corporations Law. While that report is not available for inspection,[28] the respondent’s reports of 18 and 20 May 1994 made plain to contributories that (i) there was to be a meeting of creditors in Brisbane on 10 June 1994, (ii) the respondent proposed to seek “the appointment of a Committee of Inspection",[29] and (iii) contributories were welcome to attend the meeting “as observers”, when they would no doubt hear what the creditors were told. In his report to contributories dated 20 May 1994, the respondent stated:
“In my report to shareholders of 16 June 1993, I mentioned that I was aware of a number of large transactions which were made in breach of the Corporations Law and the law generally. A significant amount of work has been carried out to fully investigate those transactions and determine whether the company can take legal action to recover losses caused by those transactions. ... Further investigations are continuing ... . ... I will ... be considering whether shareholders have any claims arising out of the prospectus and public float of shares of the company which I will report to you upon the conclusion of my investigations.”
The respondent relied, somewhat nebulously, on this last statement as a basis for the fiduciary duty which he asserted. However, in my opinion, whether or not he thereby assumed an obligation to contributories, and irrespective of whether any such obligation merits description as a fiduciary duty, he could not, and did not, thereby expand his role as liquidator of Southern Cross to encompass powers, involving the expenditure of part of the proceeds of realisation of the company’s assets, which he did not otherwise possess.
The remaining matters concern the purpose and extent of the Court’s power to give directions to a liquidator under sub-s. 497(3) of the Corporations Law.[30]
Whether or not the Court’s power under sub-s. 497(3) extends to directing a liquidator “to commit a breach of trust or to do something which it is arguable he has no power to do”,[31] it is a very wide power. However, it does not follow that the Court can, or if it can that it should, give a direction whenever asked to do so by a liquidator, irrespective of the circumstances.
Various factors are material, many of which are referred to in the cases. A liquidator has, and is expected to exercise, his or her discretion, especially perhaps on commercial or “practical” issues. He or she has access to legal advice, and can ascertain the wishes of creditors and contributories,[32] although, even then, free to make and act on his or her own decisions.[33] Importantly, the primary purpose of the Court’s directions to a liquidator, namely, the protection of the liquidator from allegations that he or she has acted improperly or unreasonably or has caused actionable loss, imports its own inevitable limitation. It is ordinarily inappropriate for a direction to be given which will adversely affect identifiable legal rights or interests of other persons or will entitle the liquidator to do so with impunity.[34]
Also important for present purposes is that the direction sought must relate to “the manner in which the liquidator should act in carrying out his functions as such”;[35] that being the “only proper subject of a liquidator’s application for directions”.[36] Indeed, sub-section 479(3) of the Corporations Law is expressed in terms which admit of no other conclusion.
In my opinion, not only did the liquidator not have power to give the notice directed by the Chamber Judge without that direction, his Honour had no power to give the direction. Further, had the power existed, I am of the opinion that his Honour should not have given the direction which he did. As earlier observed, the notice is of dubious practical utility. More importantly, the direction impermissibly interfered with the appellants’ rights against the respondent if, as the respondent apprehends - rightly or wrongly - the notice is defamatory.
The direction is at least tantamount to a determination that the giving of the notice is a duty of the respondent as liquidator of Southern Cross. As I have indicated, in my opinion that is incorrect. Accordingly, the direction, which not only authorises but directs the respondent to give the notice in his capacity as liquidator, effectively expands his duty in that capacity. By doing so, the direction removes from the appellants any right of action for defamation which they would otherwise have against the respondent by reason of his publication of the notice, by bringing the giving of the notice within the qualified privilege afforded to the respondent by sub-s. 535(1) of the Corporations Law.
At the outset, while referring to the Chamber Judge’s direction as an order, I noted the respondent’s contention that it is not appealable; in effect, that the direction is not an order within the meaning of the Supreme Court Acts of 1991 and 1995 and R.S.C. O. 70. That submission falls for consideration in the context that the direction was not only incorrectly made but outside the power provided by sub-s. 479(3) of the Corporations Law and will, or at the least might, deprive the appellants of rights which they might otherwise have if the respondent published the notice. Two matters to be borne in mind are that the respondent considers that the notice might be defamatory and that its publication without a direction of the Court might be outside the qualified privilege provided to a liquidator acting in the course of his or her duties by sub-s. 535(1) of the Corporations Law. Those were the considerations which influenced the respondent to seek the direction, and, while he denies that the direction is an order from which an appeal lies, he continues to maintain that it will protect him by depriving the appellants of any defamation claims they might otherwise have by reason of the publication of the notice.
There are a number of decisions concerning whether a direction given under sub-s. 479(3) of the Corporations Law is an order. I do not consider it necessary to review those decisions. The issue does not depend on a semantic difference between “order” and “direction”, which in this context are virtually interchangeable.[37] In my opinion, the position was correctly stated by McLelland J. in G.B. Nathan.[38] His Honour said:[39]
“... it does not necessarily follow that there is no appeal from an order of the court made on a liquidator’s application for directions, although there are statements to this effect in some of the Australian cases commencing with the decision of Hanger J in Re Blackbird Pies (Management) Pty Ltd (No. 2) [1970] QWN 14. The availability of an appeal in any particular case must depend upon the legislative provisions and rules regarding appeals in the particular court: cf Re Securitibank Ltd [1978] 2 NZLR 133. The availability of an appeal is primarily a matter for decision by the relevant appellate court, ... cases may arise where the practical consequences of the giving of directions could justify an appeal.”
More recently, the matter was discussed at some length by Northrop J. in Australian Securities Commission v. Melbourne Asset Management Nominees Pty Ltd (Receiver & Manager Appointed).[40] After noting[41] that the “essence of the contention on the part of counsel was that the preponderance of legal authority and practice is to preclude a conclusive determinative power being derived from s. 479(3)”, his Honour, after reference to G.B. Nathan[42] said:[43]
“... There is no logical reason why final orders binding on other persons cannot be made on applications under s 479(3) ... . The second passage from the judgment of McLelland J cited above refers ... to cases where a party ‘will not suffer injustice in consequence of the alteration to the status of the proceedings’. This is the crucial matter. In proceedings brought by a liquidator under s 479(3), I can see no reason why binding orders cannot be made where the parties affected have been given the opportunity to be heard. ...”
Statements by McPherson J. in Re Neander Constructions Pty Ltd[44] support this approach.
The views expressed in those passages are consistent with the established proposition that every operative and conclusive judicial act is an order.[45] This Court’s appellate jurisdiction is provided for in ss. 29 and 69 of the Supreme Court of Queensland Act 1991, and extends to every order made in the Trial Division. Whether or not a judicial decision involves an order depends on its effect. There is no valid policy reason to exempt any judicial decision imposing obligations or otherwise affecting a person’s rights or interests from review on appeal. On the contrary. For example, in the present context it might often be desirable that a liquidator have a right of appeal from a decision directing him to act in a manner he disagreed with, or refusing him a direction to which he was entitled.
Whether or not that is so, the direction made by the Chamber Judge both was beyond power and erroneously expanded the respondent’s duties in a manner which exonerated him from a liability which he might otherwise have to the appellants if he published the notice without a direction from the Court. That advantage to the liquidator and detriment to the appellants was the very purpose of the direction. In my opinion, such a direction after a contested hearing is an appealable order.
There is one final matter. When the time for compliance with the direction given by the Chamber Judge on 20 May was extended to 28 May, the following additional order was made:
“All affidavit material, submissions, reasons for judgment and other documents relating to the present application and the application of 14 May 1998 be sealed in an envelope marked ‘Not to be opened without the Order of the Court or a Judge’.”
The correctness of that order was canvassed before this Court.
The only affidavit before the Chamber Judge was made by the respondent, who did little more than sketch part of the history of the liquidation and refer to his reasons for seeking the direction given, including generalised reference to his legal advice. There was no other testimony. The only exhibits were the reports of 16 June 1993 and 18 and 20 May 1994, all of which have previously been widely published, and two different versions of the Federal Court Statement of Claim in the action against the appellants, which, as earlier noted, can be inspected at the Federal Court Registry. Although the order now under consideration requires the Chamber Judge’s reasons for judgment to be sealed, any suggestion that this Court’s reasons should be similarly dealt with was disavowed. And, of course, this appeal was heard in open court.
In my opinion, there is no justification for the secrecy provided for and the order under consideration was also incorrectly made.[46]
Both the direction given on 20 May and the order that the papers be sealed made on 28 May should be set aside, and the respondent should be ordered to pay the appellants’ costs of and incidental to the application to the Chamber Judge and this appeal. I would refuse a certificate under s. 15 of the Appeal Costs Fund Act 1973.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4718 of 1998
Brisbane
Before Fitzgerald P.
McPherson J.A.
Thomas J.
[Coats & Ors. v. Southern Cross Airlines Holdings Ltd (In Liq.) & Barber]
BETWEEN:
DAVID SAMUEL COATS, DAME MARGARET GEORGINA
CONSTANCE GUILFOYLE, LEONARD THOMAS GEORGE
HEARD, SIR LEO HIELSCHER, LEIGH MASEL, BRIAN HARVEY
BADEN POWELL and JAMES GRAHAM AMBROSE TUCKER
(Respondents) Appellants
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
AND:
RICHARD BARBER
(Applicant) Respondent
Appeal No. 4671 of 1998
[Arthur Andersen & Co. v. Southern Cross Airlines Holdings Ltd (In Liq.)]
BETWEEN:
ARTHUR ANDERSEN & CO. (A FIRM)
(Respondent) Appellant
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
REASONS FOR JUDGMENT - McPHERSON J.A.
Judgment delivered 12 June 1998
I have had the advantage of reading the reasons of Fitzgerald P. I agree with them, and wish only to add the following comments of my own by way of emphasis of some of the matters referred to on appeal.
The first is that underlying the submissions of the liquidator is an assumption that, once someone is shown to be a fiduciary, a duty arises to actively advise beneficiaries on the institution of proceedings against other persons; or, at the very least, to communicate matters that might affect a decision by them whether or not to institute such proceedings.
No authority in support of that assumption was cited to us, and I am not myself aware of any. In some circumstances, trustees and fiduciaries are subject to a duty to communicate information of which they are aware, such as where they have it in mind to deal with trust property in their own interest, or to make use of confidential information that has come to them in the course of discharging their functions. But that is because the informed assent of the beneficiaries is needed to validate what is proposed, and it cannot be had without first making full disclosure of all relevant information in the trustee’s possession. Apart from this, I can find no trace of a general duty in law or equity which requires a trustee or fiduciary to communicate information simply because it would enable a beneficiary to institute proceedings against someone who may have injured the interests of the beneficiary in a way that is not connected with the subject-matter of the trust or fiduciary obligation.
Once that is accepted, it seems to me to be difficult if not impossible to take the next step of holding that the court has jurisdiction to direct the liquidator to do something that is not related to the beneficial winding up of the company in question. Subject, of course, to any specific statutory provision, the beneficial winding up of the company is the general criterion which dictates the ambit of the powers, duties and functions of a liquidator: cf. In re Wreck Recovery & Salvage Co. (1880) 15 Ch.D. 353. The power of a liquidator under s. 479(3) of the Corporations Law to apply for and obtain directions from the Court “in relation to any particular matter arising under the winding up” is necessarily subject to a similar limitation, and it is not within the jurisdiction of the Court to enlarge it by giving extraneous directions.
The power of the Court to give directions has its origin in the analogous jurisdiction to give advice and directions to trustees and, no doubt also, to officers of court, of which an official liquidator is one. The language of s. 479(3) is wide and ought not to be narrowly interpreted; but it is not to be considered as authorising directions to be given in matters that do not arise “under” the winding up, such as, for example, the private affairs of the liquidator or of anyone else. It seems to me to be difficult to regard that requirement of s. 479(3) as satisfied here simply because the information that it is proposed to communicate happened to come to the liquidator while he was carrying out the winding up, or because it might help a contributory to bring a personal action against a former officer of the company for something done in promoting the company. Of its nature, such an action, even if successful, will contribute nothing to the beneficial winding up of the company.
Finally, a word should be said about the liquidator’s attempt to challenge the competency of the appeal. It is to my mind surprising that he should wish to act under a direction of court if, in law, it was not one which it was competent for the court to give. In any event, although directions of a purely administrative character may not ordinarily be susceptible of appeal, the direction given in the present instance has a potential to affect rights and interests of the individuals about whom the communication is concerned. Section 535(1) of the Corporations Law confers on a liquidator a qualified privilege in respect of a statement that he or she makes “in the course of his or her duties as liquidator”. It is difficult to avoid the impression that the application for the direction in the present case was designed to ensure that, in respect of the statement proposed to be made here, the liquidator would gain the benefit of that privilege by imposing a duty to make it that would not exist apart from that direction. Whether or not that is so, two comments are apposite. One is that, before any such a direction is given, it is plainly necessary for the court to be sure that the statement in question is one that it is properly in the course of the liquidator’s duties to make. The other is that, in the proceedings below, the appellants were persons who had been served with the liquidator’s application and who responded to it by appearing and contesting the propriety of the direction sought. In these circumstances, it does not appear to me to lie with the liquidator to challenge the power of this Court to hear an appeal against it.
I agree with the orders (including the order as to costs) proposed by the President for disposing of this appeal.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 4718 of 1998
Brisbane
Before Fitzgerald P.
McPherson J.A.
Thomas J.
[Coats & Ors. v. Southern Cross Airlines Holdings Ltd (In Liq.) & Barber]
BETWEEN:
DAVID SAMUEL COATS, DAME MARGARET GEORGINA
CONSTANCE GUILFOYLE, LEONARD THOMAS GEORGE
HEARD, SIR LEO HIELSCHER, LEIGH MASEL, BRIAN HARVEY
BADEN POWELL and JAMES GRAHAM AMBROSE TUCKER
(Respondents) Appellants
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
AND:
RICHARD BARBER
(Applicant) Respondent
Appeal No. 4671 of 1998
[Arthur Andersen & Co. v. Southern Cross Airlines Holdings Ltd (In Liq.)]
BETWEEN:
ARTHUR ANDERSEN & CO. (A FIRM)
(Respondent) Appellant
AND:
SOUTHERN CROSS AIRLINES HOLDINGS LIMITED
(IN LIQUIDATION) A.C.N. 006 982 387
(Applicant) Respondent
REASONS FOR JUDGMENT - THOMAS J.
Judgment delivered 12 June 1998
A liquidator has enough tasks to perform under the Corporations Law, for which he is well remunerated, usually at the expense of the creditors, without disseminating information to facilitate the making of claims by third parties against the officers of the company. The liquidator in this matter wishes to publicise the existence of potential claims by shareholders against the former auditor, directors and promoters of the company. Such claims, even if successful, have no capacity to swell the fund that the liquidator is authorised to gather and distribute. Indeed, successful claims by third parties would have the capacity to reduce the ability of the target defendants to pay the claims already made against them on behalf of the company.
The activity which the liquidator seeks to immunise by court direction under s. 479(3) of the Corporations Law is busybody activity. It is the gratuitous provision of information apparently aimed at facilitating and proliferating litigation against the appellants. It is hardly a justification for such activity that the liquidator, earlier in the liquidation, voluntarily notified the 8,300 contributories of the company that he would in due course consider whether they had any claims arising out of the prospectus and public float and that he would report to them upon the conclusion of his investigations. Reliance upon his own previous imprudent promise can hardly authorise the giving of the notices which he now seeks to distribute. To justify the proposed direction on this footing, as the liquidator’s counsel sought to do, would be to gain height by lifting one’s own bootstraps.
The distribution of the notice that the liquidator wishes to give to shareholders does not in my view represent a legitimate function of the liquidator in the winding up. The only persons who stand to benefit from doing so are the liquidator and his solicitors who advised him that he had a duty in law to notify the shareholders of the potential claims. It may be observed that the proposed notice includes an allegation that the liquidator has formed a view, based on legal advice, that some shareholders may have a claim, and if successfully prosecuted, original subscriber shareholders might recover the whole of the subscription price of each share, and that those who had sold such shares might recover the difference between the subscription price and sale price. That would seem to present an enticing prospect capable of inducing many shareholders to follow it up. The notice went on to indicate that the limitation date would expire on 16 July 1998 and concluded
“Should any shareholder require further information in respect of the potential claim, you should contact the liquidator’s solicitors, Allen Allen & Hemsley (Contact: Peter Smith (Phone (07) 3334 3263)).
It is recommended that shareholders seek their own legal advice in respect of any potential claim before instituting any proceedings.”
Apart from the indirect protection the solicitors would achieve by securing protection for their client against any claims arising out of any earlier advice, the prospect of the liquidator’s solicitors gaining a number of new clients would seem to be not insubstantial.
An important feature of the present application, and it would seem, the main reason for bringing it, is to destroy any legal right that the target defendants might have to complain if they are damaged, as they might well be by the distribution of such a notice. Indeed it is acknowledged on behalf of the liquidator that the purpose of the application is to protect him from liability to third parties for defamation and from claims of breach of duty of care to shareholders. As to the latter purpose, there is no general duty to supply information or advice to third parties to assist them in the making of claims, and insofar as the liquidator may have inappropriately engendered expectations in such persons, it is for him to disabuse them of such expectations. So far as the former point (the gaining of immunity from liability for defamation) is concerned, the purpose of the application is to destroy third party rights which might be asserted against him in consequence of giving such a notice.
The Court gives its protection to liquidators under s. 479(3) in a wide variety of situations and the utility of the section should not be unduly circumscribed. However when a liquidator seeks a direction for purposes that are in truth extraneous to the proper carrying out of the winding up process, the Court should decline to give directions - either positive or negative. The duties and powers of a liquidator are those defined by the Corporations Law, and, relevantly for present purposes are the realisation of the company’s assets and the distribution of the proceeds in due course of administration. The action proposed by the liquidator would result in the application of company funds for purposes lacking any capacity to recover or enhance the assets of the company.
In my view this was a misconceived forensic exercise and the appropriate response of the Court should have been a refusal to give directions.
Finally, in relation to costs, the attempt to place responsibility for this exercise at the door of the learned Chamber Judge so that an appeal costs fund certificate would indemnify the liquidator for the wasted costs of the exercise is equally misconceived. His Honour was led into error by extensive submissions on behalf of the respondent, many of which were repeated before us.
The appeal should be allowed. I agree with the reasons of the President and of McPherson JA and with the orders proposed by the President.
Footnotes
[1]FCA Rules O. 11 Division 2.
[2]FCA Rules O. 46 r. 6.
[3]Further orders, referred to below, were made on 28 May.
[4]It is not clear whether this number relates to the shareholders at the date of winding up, or includes former shareholders.
[5]See Henderson v. Merrett Syndicates Ltd [1995] 2 A.C. 145, 206.
[6]See Ex parte McDonald; Re Partridge (1960) 61 S.R. (N.S.W.) 622, 629; Ayerst v. C & K (Construction) Ltd [1967] A.C. 176, 176-177; Wimborne v. Brien (1997) 23 A.C.S.R. 576, 582.
[7]Corporations Law, sub-s. 447(2)(m).
[8]Corporations Law, sub-s. 479(3).
[9]Corporations Law, sub-s. 535(1).
[10]See Bristol & West Building Society v. Mothew [1998] Ch 1, 18.
[11]See, for example, Corporations Law, ss. 476, 533.
[12]See, for example, Re Excel Finance Corporation Ltd; Worthley v. England (1994) 124 A.L.R. 281, 304; Re GPI Leisure Corp. Ltd (in Liq) (1994) 53 F.C.R. 365, 373-375; Re Biposo Pty Ltd; Condon v. Rodgers (1995) 120 F.L.R. 399, 404-405; Farrow Finance Pty Ltd (In Liq) v. ANZ Executors & Trustees Co Ltd (1996) 23 A.C.S.R. 488, 515; cf Douglas-Brown v. Furzer (1994) 13 A.C.S.R. 184.
[13]Corporations Law, s. 1274.
[14]Corporations Law, s. 531; Corporations Regulation 5.06; Nut Trading Co (Aust) Pty Ltd v. K.K.L. (Kangaroo Line) Pty Ltd (1997) 25 A.C.S. R. 580.
[15]Corporations Law, s. 539.
[16]Corporations Law, s. 486.
[17]See, for example, Re M.M.C. Pty Ltd (In Liq.) (1992) 6 A.C.S.R. 741; Re B.P.T.C. Ltd (1992) 7 A.C.S.R. 291; Re William Lawrence (Globe Dyeworks) Pty Ltd (In Liq.) (1993) 12 A.C.S.R. 181; cf. I.A.C.S. v. Australian Flower Exports Pty Ltd (1993) 10 A.C.S.R. 769; Re Excel Finance Corporation Ltd; Worthley v. England.
[18]See the definition of “eligible applicant” in s. 9 of the Corporations Law; Re Excel Finance Corporation Ltd; Worthley v. England at pp. 294-295.
[19]Corporations Law, Ch. 5, Part 5.9, Division 1: See also the definitions of “examinable affairs” and “examinable officer” in s. 9. Note that the Court’s power is not limited to “examinable officers”: see s. 596B.
[20]Corporations Law, sub-s. 597(5A).
[21]Corporations Law, sub-s. 597(5B) and (15).
[22]Corporations Law, sub-s. 597(13) and (15).
[23]Corporations Law, sub-s. 597(12A) and (14A). Note also sub-s. 596F; Re Emanuel Investments Pty Ltd (In Liq) (1996) 19 A.C.S.R. 198; Bell Group N.V. v. Woodings (1996) 21 A.C.S.R. 194. See also s. 597A; Re Modern Woodcraft Pty Ltd (In Liq) (1997) 24 A.C.S.R. 390.
[24]A number of the cases referred to above as inconsistent with the duty asserted by the respondent are material to this question.
[25]Corporations Law, s. 476 and definition of “lodge” in s. 9.
[26]Corporations Law, sub-ss. 1274(2)(a) and (c).
[27]He has power to lodge further reports with the Commission (Corporations Law, sub-s. 533(2)) which would not be accessible to contributories (Corporations Law, sub-s. 1274(2)(a)(iv)), and, depending on the outcome of his investigations, might have been obliged to lodge further reports (Ex p. Barnes [1896] A.C. 146; see also Re Tweddle [1910] 2 K.B. 67), but there is no suggestion in his affidavit that the respondent has done so.
[28]Corporations Law, sub-s. 1274(2)(a)(iv).
[29]The appointment of a committee of inspection is provided for by s. 548 of the Corporations Law, which is contained in Chapter 5, Part 5.6, Division 5. It is assumed in s. 552 that a committee of inspection may do things and give directions and permissions to the liquidator: see also s. 547.
[30]Because a liquidator appointed by the Court is an officer of the Court, there is also an inherent jurisdiction to give directions. The respondent accepted that the inherent jurisdiction has no larger operation for present purposes than sub-s. 479(3) of the Corporations Law.
[31]Dean-Willcocks v. Soluble Solution Hydroponics Pty Ltd (1997) 24 A.C.S.R. 79, 81.
[32]Corporations Law, s. 479.
[33]Yeomans v. Walker (1986) 10 A.C.L.R. 753.
[34]Re G.B. Nathan & Co Pty Ltd (In Liq) (1991) 24 N.S.W.L.R. 674, 676-680; Re Everything Australian Pty Ltd (1992) 9 A.C.S.R. 75; Editions Tom Thompson Pty Ltd v. Pilley (1997) 148 A.L.R. 146, 151.
[35]G.B. Nathan, 24 N.S.W.L.R. at p. 679.
[36]Ibid.
[37]Benson v. Benson [1941] P. 90, 97. See also Rome v. Punjab National Bank [1989] 2 Lloyd’s Rep. 424, 428.
[38]24 N.S.W.L.R. 674.
[39]Ibid, at p. 680.
[40](1994) 49 F.C.R. 334, at pp. 346 ff.
[41]Ibid, at p. 349.
[42]24 N.S.W.L.R. 674.
[43]Ibid, at p. 352.
[44](1988) 6 A.C.L.C. 865, 866.
[45]Driclad Pty Ltd v. Federal Commissioner of Taxation (1968) 121 C.L.R. 45, 64; Legal Practitioners Complaints Committee v. A Practitioner (1987) 46 S.A.S.R. 126, at p. 127 per King C.J. and p. 130 per Prior J.
[46]See J. v. L.& A. Services Pty Ltd (No. 2) [1995] 2 Qd.R. 10.