Chevron Furnishers Pty Ltd (in liq) (No 2), Re [1993] QCA 568 [1995] 1 Qd R 125

IN THE COURT OF APPEAL [1993] QCA 568 SUPREME COURT OF QUEENSLAND Appeal No. 147 of 1993 Before The President Mr Justice Pincus Mr Justice Williams IN THE MATTER of the Corporations Law and IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receiver Manager Appointed) (In Liquidation) (A.C.N. 010 157 392) BETWEEN: QUEENSLAND AMALGAMATED INDUSTRIES PTY. LTD., GARY DOUGLAS FERGUSON and MARGARET ANNE McALISTER FERGUSON Appellants and ERNEST GEORGE HARRIS and JOHN ROBERT REES Respondents JUDGMENT - THE COURT The appellants, who are all creditors (or at least claim to be) of Chevron Furnishers Pty. Ltd. (in liquidation), appeal against the refusal of a Chamber Judge to order the removal of the respondents, Harris and Rees, from their position as liquidators of Chevron. By their application the appellants also sought an order that some other person or persons be appointed liquidator for purposes of the winding up. Chevron was ordered to be wound up by order of the Supreme Court on l9th June 1992. By 24th June 1993, when the application for removal was brought, the winding up was still in its early stages; the liquidators were still carrying out investigations, -- 1 of 14 -- 2 but they had formed the opinion that certain persons, including the appellant G.D. Ferguson, should be publicly examined. Probably because the time for making final decisions has not yet arrived, the material does not clearly indicate the state of Chevron's affairs. It would appear that the liabilities are in excess of $9 million; there seem to be secured and priority creditors exceeding $4.2 million, unsecured creditors in the sum of at least $4.7 million, and sundry other claimants. The State Bank of South Australia claims to be a secured creditor for at least $2.5 million. The major, if not sole, asset of any value is stock-on-hand said to be worth $3.8 million. The appellant Queensland Amalgamated Industries Pty. Ltd. was a major supplier of goods to Chevron. At all material times it was a company owned and controlled by the appellants Mr and Mrs Ferguson, and one Huntley. G.D. Ferguson became a director of Chevron in August 1990, and from then until March 1992 he worked full time on its business and was, on his own affidavit, its "effective controller". G.D. Ferguson also controlled Millihaven Pty. Ltd., which became involved as the "management company" of Chevron. Some or all of the appellants and Millihaven injected funds into Chevron during the period 1990 to 1992, and the liquidators, inter alia, wish to investigate at what point of time Chevron became insolvent. During the period 1990 to 1992 there is at least some evidence that substantial payments were made to some or all of the appellants and Millihaven. The liquidators have formed the opinion that such transactions need investigation at a public examination. It appears that proofs of debt have been lodged by the -- 2 of 14 -- 3 Ferguson interests as follows: Queensland Amalgamated Industries Pty. Ltd. $877,227 -- 3 of 14 -- 4 Millihaven Pty. Ltd. $414,624 G.D. and M.A.M. Ferguson $192,079 Other material in the record could be taken as indicating that the total indebtedness of Chevron to the Ferguson interests could be as high as $3 million. Against that background the liquidators gave notice on 14th August 1992 that a meeting of creditors would be held on 10th September 1992 at a specified place; the agenda was as follows: (i) to consider and discuss the report as to affairs of the company; (ii) to consider and discuss the liquidator's report to creditors; (iii) to determine whether the creditors require the appointment of a committee of inspection and if so who are to be the members of the committee; (iv) to approve the remuneration of the liquidator up to an amount of $20,000; (v) any other business that may be considered with the aforegoing. In the course of that meeting the chairman, apparently after some discussion with one of the liquidators, asked G.D. Ferguson, and people in his group, to leave. Thereafter resolutions were passed in their absence, including resolutions to the effect that persons, including G.D. Ferguson, be publicly examined. The Ferguson interests then applied to the court for declarations to the effect that the resolutions passed at that meeting were invalid, having been passed after G.D. Ferguson and members of his group had been excluded therefrom. Ryan J. on 2nd -- 4 of 14 -- 5 October 1992 made declarations that the resolutions in question were invalid; his reasons for so doing are reported at 8 A.C.S.R. 726. It is not necessary to delve further into what transpired at the meeting of 10th September or the reasons for declaring that the resolutions were invalid. Subsequently the liquidators convened a second meeting of creditors to be held on 27th October 1992. Apparently the notice convening that meeting purported to impose a restriction on proxies which was inconsistent with the Corporations Regulations. The attention of the meeting was drawn to that irregularity by Mr Tobin, a creditor of Chevron, and also the appellants' solicitor. That led to the second meeting being adjourned. After that meeting adjourned some creditors had a conversation on the footpath outside the building where the meeting had been held. P.D. Draper deposes to what there occurred, but he does not identify the other creditors present or what they were saying. Common sense would suggest that they were speaking about the winding up and the inconvenience occasioned by the second meeting being adjourned. According to Draper, one of the liquidators, Harris, walked up to the group and joined in the conversation; Draper's affidavit is not specific as to what was said. According to his affidavit the following occurred: "Mr Harris commented on the meeting having been unsuccessful and he said that he did not need, however, to call any further meetings of creditors of Chevron and that he only needed one creditor to put in some money to the fighting fund so that an action could be started against Chevron's directors, including Garry Ferguson. It was then I heard Mr Harris say to us in reference to Mr Ferguson, the following words: 'Don't worry, we'll get the bastard'." The account of that incident given by Harris in his affidavit -- 5 of 14 -- 6 is only marginally different. He says that the incident occurred more than half an hour after the conclusion of the second meeting. As he was passing the group of creditors standing on the footpath in conversation, he stopped and spoke to them. His recollection is not precise, but he claims that he used words to the effect that "although the formal meeting had been prevented from proceeding, substantial discussion had taken place which had been valuable, and the Liquidators were well aware of the general attitude of creditors that they wished the Public Examination to be held at which the matters that concerned them would be further investigated." He also said words to the effect that if "contributions were made by the creditors to a fighting fund, the liquidators were in a position to proceed with the examination without any further creditor's meetings." Further, he said that he regretted very much that the formal meeting did not proceed, "apologised for the technical error that had allowed Mr Ferguson and his legal representatives to halt the formal meeting", and stated that he "would not let them [scil. the creditors] down and would do what was necessary to ensure that Mr Ferguson was examined". The only other matter relating to the conversation which needs be recorded here is that Harris said in his affidavit that he could not remember using the words "Don't worry, we'll get the bastard". He says that if he did use those words they were used in the context of the conversation which has already been referred to. He specifically denies that by any words used during the course of that conversation he demonstrated bias or lack of impartiality in the conduct of the winding up. -- 6 of 14 -- 7 Based on the conversation deposed to by Draper the appellants brought an application seeking the order that the liquidators be removed. Harris swore an affidavit in response to that application in the course of which he said: "22. Since the meeting, the value of the time expended in the administration has increased dramatically and currently stands at $156,000 approximately. The vast majority of that time has been expended in dealing with the many matters raised by the representatives of Mr Ferguson including Court applications and objections to proceedings at meetings. ... 25. My firm has no expectation that it will be paid for the investigation carried out into the affairs of the company prior to the creditors' meeting held on 10th September 1992, for the meeting itself, for the subsequent meeting on 27th October 1992 and for all subsequent work which, as I have deposed already, was largely caused by the actions of Mr Ferguson." The argument put by the appellants to the Chamber Judge and repeated in their submissions in this court is that the following propositions are established by the conversation deposed to by Draper, and by the statements quoted above from the affidavit of Harris: (i) The applicants have a reasonable apprehension that the liquidators are biased against them; (ii) The liquidators have expressed animosity towards the appellants, in particular G.D. Ferguson; (iii) The liquidators have formed the view, and publicly expressed it, that what has happened is due to the fault of the appellants, and in particular G.D. Ferguson; (iv) By displaying personal animosity towards G.D. Ferguson in particular, the liquidators have demonstrated that they are not, or not seen to be, -- 7 of 14 -- 8 detached. The learned Chamber Judge did not make a formal finding that the words deposed to by Draper were used by Harris, but his reasons proceed on the assumption that they were used. The issues raised on the appeal must be determined on the basis of that assumption. An essential theme running through the submissions made on behalf of the appellant was the proposition that for present purposes, a liquidator was in the same position as a Judge, and the cases relating to judicial bias were therefore relevant. Because of that reference was made to Re J.R.L.; ex parte C.J.L.(1986) 161 C.L.R. 342, The Queen v. Watson ex parte Armstrong (1976)136 C.L.R. 248 and Livesey v. New South Wales Bar Association (1983) 151 C.L.R. 288. That asserted identity between the position of a judge and that of the liquidator was based, on the observation of Marks J. in Commission for Corporate Affairs v. Harvey (1980) V.R. 669 at 696. There, speaking of the liquidator, his Honour said: "In a compulsory winding up his office stems from appointment by the Court. He is clearly not an employee of the Court but the nature of the appointment makes him a representative of it. ... The winding up is by the Court which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper dispatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court or a Judge." That passage, so the argument went, was approved by a majority of the High Court in Tanning Research Laboratories Inc. v. O'Brien (1990) 169 C.L.R. 332. But a careful reading of the judgments, particularly that of Brennan and Dawson JJ. establishes a significant limitation thereon. At 338-9 their Honours said: "In -- 8 of 14 -- 9 determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi-judicial capacity (Re Britton and Millard Ltd. [1957] 107 L.J. 601) according to standards no less than the standards of a court or judge: Commission for Corporate Affairs v. Harvev (1980) V.R. 669 at 696." But as was pointed out at 341 a liquidator is not always in the course of a winding up acting in a quasi-judicial capacity. The role of a liquidator includes carrying out many administrative and investigative tasks; indeed recent history suggests that when dealing with major corporate crashes the latter task is by far the most important. In his reasons for judgment the learned Chamber Judge in this case recognised that important distinction and concluded, correctly, that in this particular case, given the stage of the liquidation, the liquidators were carrying out administrative and investigative functions. The principles established by the cases dealing with judicial bias might well have application where the liquidator was exercising a quasi-judicial power, but they have no direct relevance when administrative and investigative functions are in issue. When discharging administrative or investigative responsibilities a liquidator could be guilty of conduct calling for his removal; that may follow if it was established, for example, that there had been prejudgment of issues. But in such cases there must be strong grounds for concluding that the liquidator cannot be expected fairly to discharge his responsibilities. Such a situation would be analogous to that considered by the High Court in The Queen v. Australian -- 9 of 14 -- 10 Stevedoring Industry Board ex parte Melbourne Stevedoring Company Pty. Ltd. (1953) 88 C.L.R. 100. In that case the delegate of the Board, who had been appointed to hold an enquiry into certain matters, made a statement to a newspaper reporter prior to the inquiry being held. In broad terms he said that certain facts would suggest "lax supervision and that's why we're holding the inquiry". The learned Chamber Judge in the course of his reasons here quoted most of what appears at 116 of the report; it is sufficient for present purposes to cite the following shorter passage: "But when bias of this kind is in question, as distinguished from a bias through interest, before it amounts to a disqualification it is necessary that there should be strong grounds for supposing that the judicial or quasi-judicial officer has so acted that he cannot be executed fairly to discharge his duties. Bias must be "real". The officer must have so conducted himself that a high probability arises of a bias inconsistent with the fair performance of his duties, with the result that a substantial distrust of the result must exist in the minds of reasonable persons." Much was also said in the course of argument about the necessity for a liquidator not only to be "independent" but also to be "seen to be independent. In that regard reference was made, inter alia, to Re National Safety Council of Australia Victorian Division (1990) V.R. 29 at 34, Re Queensland Stations Pty. Ltd. (1991) 9 A.C.L.C. 1341 at 1344, Re Giant Resources Limited (1991) 1 Qd.R. 107, and Re Club Superstores Australia Pty. Ltd. (1993) 10 A.C.S.R. 730. The principle established by those cases is undoubted. The liquidator must have had no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors so that he could not fairly and impartially carry out his duties as liquidator -- 10 of 14 -- 11 requiring him, in broad terms, to act in the best interests of the general body of creditors. The facts here do not establish any want of independence in that sense. As the learned Chamber Judge found, there was here no suggestion of any bias on the part of the liquidators in forming the initial opinion that the first creditors meeting should be held, and that a recommendation should be put to that meeting that persons, in particular G.D. Ferguson, should be publicly examined. Given the broad picture of the state of Chevron's affairs as outlined above, it seems abundantly clear that G.D. Ferguson, and probably others, should be subjected to a public examination. It can readily be seen that there are matters relating to the conduct of the company's affairs, particularly the during the period 1990 to 1992, which require investigation. The material before the court establishes that a large number of creditors, including the State Bank of South Australia, want that done. Clearly the liquidators and a number of creditors felt frustrated and upset at the adjournment of the second meeting. Both meetings were aborted because of technical points raised by the Ferguson interests. They were, of course, entitled to take those points, but in the eyes of the liquidators and the creditors the Ferguson interests were delaying the inevitable and adding to the costs of the liquidation. As the learned Chamber Judge said, it is "regrettable" that Harris made the statement he did in the presence of Draper; his Honour was also correct in observing that the "use of such language by a liquidator in reference to an officer of a company which he is winding up when talking to creditors of that company -- 11 of 14 -- 12 considering having that officer publicly examined leaves something to be desired." However, the expression used by Harris should be regarded as no more than a statement that he would persevere with his efforts until G.D. Ferguson had been publicly examined under s. 597 of the Corporations Law. That is how the remark was interpreted at first instance, and that is the way it would have been interpreted by any reasonable person hearing the statement made in the context of the conversation. Paragraphs 22 and 25 of the affidavit of Harris do not take the matter any further. The assertions that delays and an increase in costs have been "largely caused by the actions of Mr Ferguson" are no more than comments on what has occurred. Clearly the liquidators made technical errors leading to the annulment of the decisions made at the first meeting and to an adjournment of the second; but in taking the points which brought about those results the Ferguson interests could arguably be said to have been delaying what appears to be a likely and desirable occurrence. Looked at in that light there is nothing in the statement in para. 25 which establishes a ground for removal. The learned Chamber Judge considered the application from the point of view of both "predetermination bias" and "bias by reason of enmity". He concluded, correctly, that no reasonable person aware of all the circumstances would apprehend bias on the part of the liquidators under either head. Assuming the relevance of such considerations, the necessary foundation is not established by the evidence. It is even clearer that the evidence does not establish a proper basis for removing liquidators because of their conduct in carrying out administrative and investigative functions in the -- 12 of 14 -- 13 course of the winding up. For those reasons the appeal should be dismissed with costs. -- 13 of 14 -- IN THE COURT OF APPEAL SUPREME COURT OF QUEENSLAND Appeal No. 147 of 1993 Brisbane [Qld Amalgamated Industries v. Harris & Anor.] IN THE MATTER of the Corporations Law and IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receivers Manager Appointed) (In Liquidation) (A.C.N. 010 157 392) BETWEEN: QUEENSLAND AMALGAMATED INDUSTRIES PTY. LTD., GARY DOUGLAS FERGUSON and MARGARET ANNE McALISTER FERGUSON Appellants and ERNEST GEORGE HARRIS and JOHN ROBERT REES Respondents _____________________________________________________________ The President Mr Justice Pincus Mr Justice Williams ______________________________________________________________ Judgment delivered 21/12/1993 Judgment of the Court ______________________________________________________________ APPEAL DISMISSED WITH COSTS ______________________________________________________________ CATCHWORDS: Companies - liquidators - application for removal - bias - animosity - performing administrative and investigative functions - evidence not sufficient to require removal - authorities considered. Counsel: Dutney QC and Dunning for appellants. O'Donnell for respondents. Solicitors: Tobin & Co. for appellants. Minter Ellison Morris Fletcher for respondents. Hearing Date: 25 November 1993 -- 14 of 14 --