Chevron Furnishers Pty Ltd, Re [1993] QSC 195

( l IN THE SUPREME COURT OF QUEENSLAND Application No. 413 of 1992 Brisbane Before Mr. Justice B.W. Ambrose AND: IN THE MATTER of the Corporations Law IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receiver and Manager Appointed) (In Liquidation) ACN 010 157 392 REASONS FOR JUDGMENT - B.W. AMBROSE J. Judgment delivered 20/07/93 Counsel: Solicitors: P.J. Dunning for the Applicant. B. O'Donnell for the Respondent. Tobin & Co. for the Applicant. Morris Fletcher Minter Ellison for the Respondent. Hearing date: 14th July 1993 -- 1 of 18 -- (': IN THE SUPREME COURT OF QUEENSLAND AND: Application No. 413 of 1992 IN THE MATTER of the Corporations Law IN THE MATTER of CHEVRON FURNISHERS PTY. LTD. (Receiver and Manager Appointed) (In Liquidation) ACN 010 157 392 REASONS FOR JUDGMENT - B.W. AMBROSE J. () Judgment delivered 20/07/93 This is an application by Queensland Amalgamated Industries Pty. Ltd, Garry Douglas Ferguson, and Margaret Ann McAlistair Ferguson, for the removal of the liquidators of Chevron Furnishers Pty. Ltd. (Receiver and Manager appointed) (in liquidation) ("Chevron Furnishers") and for the appointment of James Warwick Armstrong as official liquidator in their stead. The basis of the application is that the l respondent/liquidators have demonstrated bias against the applicants ("the Ferguson Interests"). The order for winding-up the company was made on 19th June 1992. It was made upon the application of an unsecured creditor to whom Chevron Furnishers was alleged to be indebted for rent in the sum of approximately $40,000.00. Subsequent to their appointment, the respondent/liquidators gave a statutory notice of meeting to creditors, who had submitted a proof of debt, advising that a meeting of creditors -- 2 of 18 -- 2 would be held on 10th September 1992 to consider and discuss the report as to affairs of Chevron Furnishers and the respondents• report to creditors. In particular the meeting was to consider whether the creditors required the appointment of a committee of inspection, and if so its composition, to approve remuneration of the liquidator and to consider 11 any other business 11 • Each of the applicants submitted a formal proof of debt to the respondent/liquidators as did two other creditors, Millihaven Pty. Ltd. and a firm, Cane Cargo. It is clear from the proofs (~! '--_// of debts that all these creditors can be referred to as part of the Ferguson Interests. A transcript of the discussion at the meeting held on () 10th September 1992, reveals that Mr. Roach, an employee of the respondent/liquidators, outlined the outcome of the respondents• investigations so far conducted into the affairs of Chevron Furnishers. The meeting was chaired by Mr. Bradbury, a solicitor who had been asked to do so by the liquidators. 0 It is unhelpful to analyse the long report given by Mr. Roach orally to the various creditors and other interested C ~) persons attending the meeting. The transcript of the report runs , to about twenty pages and makes reference to various activities of the Ferguson Interests connected with the running of and the carrying on of business by Chevron Furnishers over a period of eighteen months or so prior to the making of the winding-up order. At p. 12 of the transcript, one of the unsecured creditors is recorded as asking the question: 11 Re the expenses - all these amounts you are talking about now would you say they are fraudulent or they are wrong and is there any hope of recovering of any of them for unsecured creditors? 11 -- 3 of 18 -- 3 Mr. Roach answered: "Yes - well it depends on whether there was some justifiable reason why 20 per cent loadings are rated into expenses." Mr. Honey: "Can you justify?" Mr. Roach: "I would have difficulty I believe." Mr. Roach asked Mr. Ferguson attending the meeting whether (': he cared to comment on one of the questions raised by one of the (~\ (_ . i / other creditors concerning a commercial arrangement with Cane Cargo (one of the Ferguson Interests) but he declined to make any comment. At. pp. 13-14 of the transcript, Mr. Roach is recorded as addressing the meeting of creditors in these terms: "Now where we go from here is largely in your handsand what our desire is to do is to conduct what's called a section 597 examination and that is an examination where a range of people including directors, officers and other parties are required togive evidence on oath. They are required to produce records. At that meeting so many of those issues that I have mentioned today can be explored further and indeed further issues might evolve during the course of that examination. The evidence gained from that examination that section 597 examination can be used in future actions court actions either by us as liquidator or by the individual creditors and the aspect I am thinking of particularly there is under section 592 of the Corporations Law. This is the section that deals with the directors being personally liable if the company is insolvent at the time the director continues to incur debts well arguably that director or according to the Act definitely that director is responsible for those debts. Now that is an action that cannot be pursued by the liquidator under the law as it stands at the moment it must be pursued by the creditor .... " -- 4 of 18 -- 4 After that observation, a number of discussions took place involving creditors and Mr. Roach. At p. 20 of the transcript, Mr. Roach is recorded as observing as follows: "Where we go from here is largely in your hands. We have identified quite a number of issues that we would like to have explored under a section 597 examination and could well be that during the course of that examination further issues would come to light. To do a 597 examination and this is not a cheap exercise there is a lot of preparatory work that is required so that when you go to court you have all the information as much as possible at your fingertips so that the proceedings can flow smoothly. We have done a budget of what it would cost to do this examination and the figure is $60,000.00 that is a combination of barrister, solicitor, Coopers and Lybrand, and outlays. It is a function of how much the creditors are prepared to support that as to whether we go on from here .... " Shortly after this observation, one of the unsecured creditors asked: "I feel that there may be a conflict of interest now at this stage of the meeting with the Ferguson Interests being represented here and into what the creditors may wish to discuss in their absence." Not surprisingly Mr. Bradbury, chairing the meeting said: "As a creditor I think Mr. Ferguson being with the company and represents a creditor of the company which has lodged a proof of debt he is entitled .... " Mr. Honey replied: "He is also the subject of the proposed investigation. I think there is a conflict of interest." The evidence is that at this stage Mr. Harris sitting near or beside Mr. Bradbury whispered something to him whereupon Mr. Bradbury said to Mr. Ferguson: "It might be Mr. Ferguson." appropriate for you to leave At that stage Mr. Ferguson declined to leave whereupon Mr. Bradbury said: c~ 0 0 -- 5 of 18 -- 5 "I ask you to leave Mr. Ferguson and any other representatives you have got." At that stage Mr. Tobin who was the solicitor representing Mr. Ferguson and also an unsecured creditor of Chevron Furnishers in his own right, announced his presence and pointed out that he had lodged a proof debt. Mr. Kienzle of a firm of accountants acting for Mr. Ferguson also announced his presence. At that stage Mr. Bradbury ruled that "any representatives from Mr. Ferguson should leave. The minutes of the meeting will be available for inspection in the office of the liquidator of Chevron Furnishers during normal working hours". Not surprisingly, an application was made by the Ferguson Interests to this Court concerning the validity of decisions reached, resolutions made, etc, by the meeting of creditors subsequent to the expulsion of the Ferguson Interests. That application was heard by Ryan J. on 22nd September 1992. The significant result of the challenge mounted by the Ferguson ( Interests was that a resolution that costs and outlays to be '~- / incurred by the respondent/liquidators, not exceeding $60,000.00 for an examination to be conducted under s. 597, was to be paid by way of creditor contribution was ruled invalid. That ruling was made on 2nd October 1992. The respondent/liquidators sent circulars to creditors of Chevron Furnishers dated 12th October 1992. Included in that circular was the following paragraph: "In order to permit a full and frank discussion of some clearly sensitive issues, the chairman of the meeting requested that Mr. Ferguson (a Chevron Furnishers director) and his associates leave the meeting for the discussion of the establishment of the 'fighting fund'. Mr. Ferguson subsequently challenged the right of the chairman to do this and the Supreme Court has ruled (as a result of proceedings instituted by Mr. and Mrs. Ferguson) that Mr. Ferguson and his -- 6 of 18 -- associates should not meeting and as such 'fighting fund' and to were invalid." 6 have been excluded from the the resolutions to create a form a committee of inspection The respondent/liquidators in the circular adverted to the necessity for resolutions to be passed and for a public examination to be conducted to increase the likelihood of a dividend being distributed to unsecured creditors. It was pointed out that they could attend a meeting on 27th October 1992 to deal with this matter, or complete and return an enclosed proxy form for use at that meeting. An explanation was given as to the purpose and procedure contemplated by as. 597 examination an~ it was pointed out that under s. 592, an action could be commenced by a creditor who believes that company officers incurred debts on behalf of the company where there were no reasonable grounds for those persons to expect that the company would be able to pay the debts as and when they fell due. Specific issues then were raised with respect to Millihaven Pty. Ltd. , Campbell Capital Pty. Ltd. , Murtle Glen Pty. Ltd. , Q Marcelbury Pty. Ltd., QAI and other Ferguson Interests. It emerges in the evidence that, unfortunately, the notice ()sent to the creditors, with respect to this second proposed meeting, was defective. When the meeting was convened, this was pointed out by Mr. Tobin, the solicitor for the Ferguson Interests who also attemded the meeting. The meeting was therefore adjourned and it was shortly after that adjournment that Mr. Harris, one of the liquidators, is alleged to have made observations to another creditor of Chevron Furnishers, a Mr. Draper who was at the time standing on a street corner a little distance from where the meeting had been convened and -- 7 of 18 -- () C~ 7 adjourned. According to Mr. Draper, Mr. Harris said to him in the presence of some other people, "Don't worry. We'll get the bastard". It emerges from the material that the solicitors for the Ferguson Interests learnt of the statement made by the respondent Harris in the presence of the man Draper and thereafter correspondence passed between the solicitors for the Ferguson Interests and the solicitors for the respondent/liquidators concerning this matter. As well as that, in the application before Ryan J. to have declared void the resolutions passed at the creditors' meeting from which Mr. Ferguson and people associated with him had been ejected, it was demonstrated that there had been some inaccuracy in recording the events that had occurred during the meeting and in particular as to whether, after the impugned resolutions had been passed, efforts were made to invite Mr. Ferguson and persons with him back into the meeting - presumably to learn about what had happened in his absence. These matters were simply relied upon as background material against which the ejection from the meeting and the statement made by Mr. Harris to Mr. Draper shortly after the second meeting had been adjourned because of deficiencies in the notice sent by the respondent/liquidators to creditors might be viewed. Various other criticisms were made of the behaviour of the respondents insofar as it was perceived to be directed against the Ferguson Interests. In particular, circulars were sent to creditors allegedly blaming the Ferguson Interests for taking "technical points" for the purpose of, or at least having the -- 8 of 18 -- 8 effect of delaying the institution of a public examination under s. 597 of the Corporations Law. The applicants complain that in fact the setting aside of the first resolution made when they were ejected from the creditors' meeting and the complaint made by their solicitor upon attending the second meeting which resulted in its adjournment, justified no criticism of them. It was contended and in my view quite correctly, that they were simply exercising their legal rights with respect to their ejection from the first creditors' meeting and were really acting c=) for the benefit, not merely of themselves but of the general body of creditors, in pointing out that the second meeting might be open to criticism because of deficiencies in the notice sent convening it. However, it is contended on behalf of the applicants that these are matters providing a context in which their ejection from the meeting and most importantly the observations made by Mr. Harris to Mr. Draper shortly after the adjournment of the second meeting, should be viewed. It is contended that viewed in that context both the ejection from the meeting and the observations made to Mr. Draper demonstrate, when tested objectively, that the respondent/liquidators entertain a bias against the Ferguson Interests and public policy requires their removal. It is not contended that in fact the~espondent/liquidators have such a bias in the sense that they have already made up their mind to exercise whatever discretion they may exercise against the applicants without first examining the material available to them to enable them to reach a balanced and impartial decision. It is contended that in particular the () 0 0 -- 9 of 18 -- ci (; 9 statement made by Mr. Harris to Mr. Draper indicates that for whatever reason Mr. Harris has developed and displayed publicly such a personal hostility to the respondent Ferguson that he ought be removed to preserve the confidence of the public generally in the performance by the liquidators of their function in the winding-up of Chevron Furnishers as officers or appointees of the Supreme Court of Queensland. There have been many decisions referred to in support of the applicants' case and they are contained with full references in counsel for the applicants' outline of arguments handed up upon the hearing of the application. The authorities and their analysis have been of assistance in determining this matter. Before embarking upon a consideration of some only of the many cases cited, I will state briefly what I conceive to be the principal functions of the respondents as liquidators. Firstly, they must examine the commercial activities of Chevron Furnishers, and in particular the way in which it was directed and managed prior to its winding-up with a view to determining whether the management and control of the company by the officers l; responsible for it was conducted within accepted constraints of commercial morality and in accordance with the requirements of the Corporations Law. Secondly, they must take what steps are necessary to realise the assets available to satisfy the obligations of Chevron Furnishers. To a significant extent those obligations will be reflected in the debts both secured and unsecured which are enforceable against it. To the extent that the· debts are enforceable at law they may no doubt be described in the formal -- 10 of 18 -- 10 proofs of debt which have been lodged and reflected in the secured debts brought to the attention of the liquidators. It is clear however that the liquidators have power to go behind the formal legal consequences of commercial or contractual arrangements made between Chevron Furnishers and other corporations and the officers, director, etc. of Chevron Furnishers, to determine whether transactions which, on their face, result in a prima facie legal obligation imposed upon Chevron Furnishers, in fact will be given that effect in the distribution of assets between its various creditors. In this respect I refer to the observations of Brennan and Dawson JJ. in Tanning Research Laboratories Inc. v. O'Brien (1990) 169 C.L.R. () 332 at pp. 340-341. In my view on the material it is quite clear that prior to the calling of the first creditors' meeting from which the applicants and people with the same or similar interests were ejected, the respondents had conducted an expensive, detailed and time con~uming investigation into the affairs of Chevron Furnishers with a view to establishing the causes of its insolvency and the part played by the officers of that company in its collapse. This emerges clearly from the report of the respondent/liquidators' investigations given by Mr. Roach to the meeting which was recorded and transpribed. It is clear to my mind that the meeting of creditors from which Mr. Ferguson and persons perceived to represent him or to have similar interests to his were ejected, was called by the respondent/liquidators who as a result of the investigations which they and their staff had made, had concluded that it was 0 u -- 11 of 18 -- 11 desirable for the reasons stated at length at the creditors' meetings that Mr. Ferguson and indeed other officers connected with Chevron Furnishers prior to its eventual demise should be publicly examined pursuant to s. 597 of the Corporations Law. One of the prime objectives of calling the creditors' meeting was to outline the reasons the respondents had for seeking the examination of Mr. Ferguson and other officers, and to inform the creditors generally that if such an examination was to be held (~ it would be necessary for them to put the respondent/liquidators in funds to pay for its cost. There is nothing in the material to suggest that the c\ respondent/liquidators were in any way biased against Mr. Ferguson or his interests prior to their appointment as liquidators of Chevron Furnishers, nor that there was or is the slightest conflict of interest in this case. The most that can be said in my view is that as a consequence of the investigations ( they made over a period of months prior to calling the creditors' '--· meeting on 10th September 1992, they had formed the opinion that the conduct of Mr. Ferguson and other officers of Chevron (_ Furnishers, and perhaps other persons connected with it, ought be subject to public examination. It is clear from what was said to the creditors attending the first meeting that the very object of the public examination was to obtain more material to permit the respondent/liquidators to arrive at a more informed conclusion concerning the commercial morality of persons involved in the management of Chevron Furnishers prior to its liquidation and the prospect of successful action being taken against them for the benefit of creditors. -- 12 of 18 -- 12 In my view it is quite artificial and inappropriate to contend in the circumstances that the liquidators' suspicions or even provisional conclusions concerning the activities of Mr. Ferguson and the Ferguson Interests generally, clearly held at the time the meeting was called and at the time Mr. Roach addressed the creditors, reflect objectively a bias or pre-judgment of such a kind as to warrant their removal. Logically if that were the case there would always be such a constraint upon liquidators obliged to consider carefully () whether, in any particular circumstances, an application for a public examination of directors and officers of a corporation under s. 597 of the Corporations Law ought be pursued as 0 substantially to impede the efficient and proper winding-up of the company in liquidation in accordance with the requirements of that Law. For the applicants, reliance was placed upon what was said in R. v. Armstrong ex parte Watson (1976) 136 C.L.R. 248 at pp. 258-259, 262-263, and 265, concerning "bias by reason of some predetermination arrived at in the course of the case". Reference was also made to Livesey v. New South Wales Bar Q Association (1983) 151 C.L.R. 288 and particularly at p. 294. In the circumstances of the case before me however, the observations of Mason J. in Re J.R.L. ex parte C.J.L. (1986) 161 C.L.R. 343 at p. 352 must be kept in mind: "It seems that the acceptance by this court of the test of reasonable apprehension of bias in such cases as watson 136 C.L.R. 248 and Livesey 151 C.L.R. 288 has led to an increase in the frequency of applications by litigants that judicial officers should disqualify themselves from sitting in particular cases on account of their participation in other proceedings involving one of the litigants or on -- 13 of 18 -- ( 13 account of conduct during the litigation. It needs to be said loudly and clearly that the ground of disqualification is a reasonable apprehension that the judicial officer will not decide the case impartially or without prejudice, rather than that he will decide the case adversely to one party. There may be many situations in which previous decisions of a judicial officer on issues of fact and law may generate an expectation that he is likely to decide issues in a particular case adversely to one of the parties. But this does not mean either that he will approach the issues in that case otherwise than with an impartial and unprejudiced mind in the sense in which that expression is used in the authorities or that his previous decisions provide an acceptable basis for inferring that there is a reasonable apprehension that he will approach the issues in this way. In cases of this kind, disqualification is only made out by showing that there is a reasonable apprehension of bias by reason of pre-judgment and this must be 'firmly established': R. v. Commonwealth Conciliation. and Arbitration Commission; ex parte Angliss Group (1969) 122 C.L.R. 546 at 553-4; Watson (1976) 136 C.L.R. at 262; Re Lusink; ex parte Shaw (1980) 55 A. L. J. R. 1 2 at 1 4 . Although it is important that justice must be seen to be done, it is equally important that judicial officers discharge their duty to sit and do not, by acceding too readily to suggestions of appearance of bias, encourage parties to believe that by seeking th~ disqualification of a judge, they will have their case tried by someone thought to be more likely to decide the case in their favour." The function of the respondent liquidators in this liquidation are principally administrative and investigative. (_ To the extent that when considering the proofs of debt lodged by the Ferguson Interests they will be exercising quasi-judicial powers, I am quite unpersuaded on the evidence that they have exhibited any indication of pre-judgment with respect to the admitting or rejecting of those proofs of debt. Assuming that they harbour some doubt or suspicion as to the commercial integrity of the applicants or some reservations as to the entitlement which legal arrangements, on their face give them, to share in the distribution upon realisation of the assets of -- 14 of 18 -- 14 Chevron Furnishers, those matters result from the performance of their duties as liquidators which they have already undertaken - and which they had undertaken prior to the calling of the first meeting and long prior to the statement made by Mr. Harris to Mr. Draper which is the principal event upon which the applicants rely as evidence of pre-judgment. It is contended that in making that statement, Mr. Harris "has expressed a positive personal interest in harming Mr. Ferguson". In my view having regard to the circumstances in which it C:~ was made, the statement cannot reasonably support such a contention. It is regrettable that Mr. Harris made the statement C) which when reported to the applicants became the springboard for . this application. The use of such language by a liquidator in reference to an offic~r of a company which he is winding-up when talking to creditors of that company considering having that officer publicly examined, leaves something to be desired. However I would attribute the use of that language in the circumstances to: 1. Irritation and frustration at his failure for the second () time to achieve his aim of having Mr. Ferguson publicly Q examined under s. 597 - in spite of the support he had received at the first meeting of creditors. 2. The fact that his first failure~resulted from his decision to ignore the advice of the chairman of the meeting and to persuade him to eject the Ferguson interests from the creditors' meeting. which of course resulted in the resolution passed at that meeting relating to the s. 597 examination of Mr. Ferguson being held to be void. -- 15 of 18 -- 15 3. The fact that his second failure to obtain the resolution he sought failed because of some failure on his part or the part of his office staff to ensure a valid notice was given to creditors of the second meeting. 4. Both failures had been demonstrated to the creditors by Mr. Ferguson - the very man he sought to have examined. No doubt it may be inferred that the liquidator expressed (in the vernacular) an intention to persevere with his efforts ( · to have Mr. Ferguson publicly examined under s. 597 in the belief perhaps that the examination would reveal facts which supported the suspicions and/or provisional decisions he had come to as the c/ result of investigations so far made and revealed at the first creditors' meeting. In my judgment a reasonable person aware of the circumstances would not apprehend bias on the part of the liquidators when they come to consider the admission or rejection ( J '--' of the proofs of debt lodged by the applicants by reason only of the statement made in the presence of Mr. Draper whether that statement be considered alone or in the context of the other matters relied upon by the applicants. In reaching this conclusion I have regard to the observations of Mason J. in Re J.R.L. ex parte C.J.L. (supra) and to observations to similar effect in Re Shaw ex parte Shaw (1981) 55 A.L.J.R. 12 at p. 14 per Gibbs ACJ and at p. 15 per Murphy J. These cases merely reflect the unanimous views expressed in The Queen v. Australian Stevedoring Industry Board ex parte Melbourne Stevedoring Co. Pty. Ltd (1953) 88 C.L.R. 100 at p. 116 where it was observed: -- 16 of 18 -- 16 "But nevertheless the inquiry involves an examination of facts, a conclusion, and inasmuch as his power extends over the full area covered by s. 23, action either in cancelling or suspending the registration of the employer or refusing to do so. He therefore must act judicially in the sense that he must give effect to the general principles of fairness and propriety which are sometimes given the description of natural justice. He may therefore be disqualified by bias from executing the duty arising from his delegation with reference to s. 23. It is not difficult to understand that the employer whose case he must judge should feel alarmed at a statement appearing in the press form which it· might well be inferred that upon some of the contentions he wished to advance his case had been prejudged. 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 expected fairly to discharge his duties. Bias must be 'real' . The officer must so have 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. It has been said that 'preconceived opinions - though it is unfortunate that a judge should have any - do not constitute such a bias, nor even the expression of such opinions, for it does not follow that the evidence will be disregarded', per Charles J., Reg. v. London County Council; Ex parte Empire Theatre. It is unfortunate that the respondent Neil permitted himself to be interviewed by a reporter on the subject in which he was called upon to act quasi- judicially. But, accepting his version of what occurred, it cannot be said that he has so conducted himself as to raise a sufficient case of bias to justify a writ of prohibition." I refer to observations to similar effect in R. v. Commonwealth Conciliation and Arbitration Commission ex parte Angliss Group (1969) 122 C.L.R. 546 at PP• 553-555. The right of appeal against the rejection of a proof of debt is a matter to which I pay some, though not a great deal of, regard keeping in mind the mixture of administrative, - ---- •-------.. -----------·---- (J 0 -- 17 of 18 -- '. 17 investigative and quasi-judicial function involved in the winding-up. I am not persuaded that the conduct of the liquidators examined in great detail upon this application is such as to cause a reasonable man to apprehend bias against the Ferguson Interests when the time arrives for them to consider whether to admit or reject their proofs of debt or when they must exercise any quasi-judicial powers affecting the applicants in the course ~': of the winding-up. I dismiss the application. -- 18 of 18 --