FEDERAL COURT OF AUSTRALIA

Sutherland v Pascoe, in the matter of Matrix Group Limited as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 (No 2) [2012] FCA 1361

in THE MATTER OF THE MATRIX GROUP LIMITED AS TRUSTEE FOR THE MATRIX GROUP UNIT TRUST (IN LIQ) ACN 061 549 371

THE COURT ORDERS THAT:

1.    The applications filed 23 and 28 March 2012 be dismissed.

2.    The applicants pay the costs of the plaintiff/respondent of the applications referred to in Order 1.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE MATTER OF THE MATRIX GROUP LIMITED AS TRUSTEE FOR THE MATRIX GROUP UNIT TRUST (IN LIQ) ACN 061 549 371

REASONS FOR JUDGMENT

Introduction and background

1    Mr Scott Darren Pascoe is the liquidator of Matrix Group Limited (Matrix) which is the trustee of the Matrix Group Unit Trust. He was appointed as liquidator of Matrix on 8 February 2008 on the application of Mr Tom Oates.

2    In 2009, Mr Oates brought proceedings in the Supreme Court of New South Wales against two former directors of Matrix, Mr Garrick Michael Hawkins and Mr Scott Francis Tyne and a number of persons or entities associated with them.

3    The claims in the Supreme Court proceedings included claims that in breach of their duties to Matrix under ss 181 and 182 of the Corporations Act 2001 (Cth) (the Act), Mr Hawkins and Mr Tyne concealed receipts payable to Matrix of about $17.5 million (the Matrix receipts) and diverted them via an offshore company to entities associated with Messrs Hawkins and Tyne.

4    The claims also included allegations of knowing receipt of trust property under the first or second limbs of Barnes v Addy.

5    The orders sought by Mr Oates in the Supreme Court included an order that the defendants described as the active defendants restore the Matrix receipts to Matrix. That relief was sought inter alia by an order under s 1324 of the Act.

6    In May 2010, in Oates v Hawkins [2010] NSWSC 491, Bergin CJ in Eq refused to strike out the claim under s 1324. Her Honour said at [69] that she was not satisfied that Mr Oates was seeking to bring the action on behalf of Matrix but was instead pursuing his personal claims. Her Honour acknowledged that Mr Oates sought an order that the Matrix receipts be restored and:

…in those circumstances, the plaintiff is to review the matter and decide whether Matrix should be joined as a party…

7    Following upon her Honour’s judgment, Matrix was joined as the 10th defendant in the Supreme Court, although it took no active part in the proceedings.

8    The Supreme Court proceedings were listed for hearing before Ball J on 5 September 2011. They were resolved by consent orders made by his Honour on 8 September 2011. I described the background to those proceedings and the orders that were made when I determined two applications in this court: see Pascoe in the matter of Matrix Group Limited (in liq) [2011] FCA 1117 and Sutherland v Pascoe; in the matter of Matrix Group Limited as Trustee for the Matrix Group Unit Trust (in liq) ACN 061 549 371 [2012] FCA 453.

9    The orders made by Ball J on 8 September 2011 provided that the proceedings as against the active defendants be dismissed. The orders also provided that the proceedings as against Matrix be discontinued.

10    In March 2012, Mr Pascoe obtained orders under s 596B of the Act for the examination of Mr Hawkins and Mr Tyne and a number of other persons listed in paragraph 10 of Mr Pascoe’s affidavit of 25 February 2012. Earlier this year I ordered that a copy of Mr Pascoe’s affidavit be made available to the present applicants, subject to a restriction as to the persons who could have access. My description of the contents of the affidavit follows from what was said in open court on the present application and does not disclose material which would otherwise retain its confidentiality.

11    Mr Pascoe stated in paragraph 12 of his affidavit that the purpose of his examination is to investigate the examinable affairs of Matrix including, but not limited to, a number of matters, the last of which is described as what claims are available to Matrix against the directors, former directors and other parties in relation to the affairs of Matrix.

12    The affidavit goes on to describe the difficulties experienced by Mr Pascoe in obtaining the cooperation of former directors as well as his difficulty in obtaining documents. He states in paragraph 42 that given his limited access to the books and records he seeks to examine the former directors and their advisors in relation to a number of identified matters concerning the examinable affairs of Matrix.

13    The identified matters include the extent to which certain entities related to Messrs Hawkins and Tyne utilised and acquired Matrix’s assets.

14    The affidavit then goes on to make disclosure of the Supreme Court proceedings brought by Mr Oates and the orders made by Ball J on 8 September 2011 (apparently entered on 9 September 2011).

15    Mr Pascoe goes on to state that based on his investigations to date including the allegations made in the statement of claim in the Supreme Court, he believes it is likely that Matrix (or Mr Pascoe as liquidator) will be able to pursue claims which, if successful, would raise significant funds in the winding up for the benefit of creditors. He summarises the potential claims in confidential exhibit SDP2.

16    The matters which Mr Pascoe wishes to investigate are stated in paragraph 1 of SDP2. Without specifying the details it is sufficient to say that the matters include the allegations in relation to the Matrix receipts totalling approximately $17.5 million which was the subject of the proceedings in the Supreme Court. They also include the transfer of other moneys comprising approximately $11 million said to have been payable to Matrix but in fact paid to an entity incorporated in the Cayman Islands. That allegation was not part of the subject matter of the statement of claim but was raised by Mr Hawkins apparently as part of his explanation for the way in which the Matrix receipts were treated.

17    Mr Pascoe then identifies the potential claims arising from those transactions which he says may include:

(a) Claims against directors or former directors for breaches of directors’ duties;

(b) Claims with respect to unreasonable director related transactions;

(c) Claims with respect to commercial transactions.

18    The claims referred to in paragraphs (b) and (c) relate to uncommercial transactions under s 588FB of the Act and unreasonable director related transactions under s 588FDA. Mr Pascoe now concedes that any claims he may have had under those provisions are time-barred under s 588FF(3).

19     Mr Pascoe’s confidential exhibit identifies the amount of the potential claims as $28.5 million and states his view that the examinations would enable further information to be obtained so that an informed position can be reached as to the merit of any recovery or other legal proceedings which should be commenced in “my or Matrix’s name”.

20    Mr Pascoe’s affidavit discloses the assertion made by the active defendants in the Supreme Court proceedings that the settlement of those proceedings settled all matters between the parties and they assert that Mr Pascoe cannot inquire in subsequent proceedings about issues that were raised in the Supreme Court.

21    Mr Pascoe goes on to express the view that the Supreme Court orders cannot preclude him from carrying out his duty as liquidator to properly investigate and consider taking action to recover Matrix’s property.

22    The applicants in the present interlocutory application are some of the persons who were the active defendants in the Supreme Court. They seek orders that the summonses for examination issued to them be discharged and for the setting aside of orders for production of documents.

23    The substance of the claims made by the applicants is that the examination orders were issued in furtherance of an abuse of process or otherwise for an improper purpose. This is because the applicants contend that the purpose of the examination, as stated in Mr Pascoe’s affidavit, is to investigate claims that cannot be brought because they are barred by a res judicata or Anshun estoppel arising from the orders. The applicants also raise a number of other questions.

The issues

24    The first issue which arises is the res judicata issue.

25    The second issue is the Anshun question.

26    The third issue is whether Mr Pascoe’s failure to disclose to the Registrar the time limits under s 588FF(3) is a material matter from which it should follow that the examination summonses must be set aside.

27    The fourth issue raised by the applicants involves a number of matters which fall under the heading of non-disclosure to the Federal Court and the Supreme Court about issues which are concerned largely with the funding arrangements made between Mr Oates and Mr Pascoe. The matters are listed in full in paragraph 42 of the written submissions of the applicants.

28    The matters include, in particular, the purpose of Mr Oates and the question of proportionality. This is because Mr Oates is the only person to have proved as a creditor of Matrix and his debt with interest was $188,000. Much of it was recovered by him under the settlement of the Supreme Court proceedings.

29    By contrast the subject matter of the examination is concerned with complex transactions involving many millions of dollars. The relevant events occurred some 10 years ago and the costs of all parties, including the liquidator, of conducting the examinations will be very time consuming and expensive.

Res judicata

30    Res judicata applies where are party to a second proceeding attempts to litigate in that proceeding a cause of action which has merged into judgment in a prior proceeding. It is therefore a critical feature of res judicata that the later proceeding raises the same cause of action. Ordinarily the parties to the two sets of proceedings must be the same: see Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 at 507 to 508 citing the passage from Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597 which refers to a number of well established authorities, see also Wong v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 204 ALR 722 at [43].

31    Mr Aldridge SC, who appeared for the applicants, submitted that this principle is enlivened in the present case because the Supreme Court proceeding was “in the nature of” a derivative proceeding in which Mr Oates claimed against the former directors of Matrix on behalf of the company. He pointed to the claim of breach of ss 181 and 182 which rests upon the fundamental principle that the duties owed under those sections are owed to the company. He also relied upon the claim under s 1324 for restoration of the Matrix receipts to Matrix which was itself a party to those proceedings.

32    I reject Mr Aldridge’s submissions for a number of reasons. First, they are contrary to the observation made by Bergin CJ in Eq in Oates v Hawkins at [69]. Her Honour there stated, in my respectful opinion correctly, that Mr Oates was not seeking to bring the action of behalf of Matrix rather, as her Honour said, Mr Oates made the allegations in the relevant paragraphs of the statement of claim to establish the lengths to which Mr Hawkins and Mr Tyne went in order to conceal the Matrix receipts from him with the consequence that he was denied his share of a joint venture.

33    Contrary to Mr Aldridge’s submissions, I do not consider that it is possible to read her Honour’s remarks in [63], [64] and [69] of her judgment in any other way.

34    Second, in my opinion, Mr Aldridge’s submissions about the claim for relief under s 1324 failed to adequately distinguish between the nature of the power conferred on the Court under that section and the scope and operation of s 236 of the Act which is found in Part 2F.1A.

35    Section 236 is a statutory derivative action which was introduced by the Corporate Law Economic Reform Program Act 1999 (Cth). The nature of the action and its history and purpose are explained in Ford HAJ, Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (LexisNexis) at [10.239]ff (Service 84).

36    In Ehsman v Nutectime International Pty Ltd (2006) 58 ACSR 705 at [26], Austin J observed that it is important to distinguish between personal claims and derivative claims. His Honour considered that nothing in part 2F.1A requires that a derivative action be brought in a separate proceeding in which no personal claims are made. He referred to an earlier authority which leave was given under s 237 to permit the plaintiff to assert rights of the company in a proceeding in which he also asserted his own rights.

37    The Supreme Court proceedings in this matter were clearly not a derivative action under Part 2F.1A. Nevertheless, the effect of Mr Aldridge’s submission was that those proceedings should be treated as if they were such an action because of the allegation of breach of ss 181 and 182 and the claim for relief under s 1324. He pointed to the fact that in some parts of the claim, Mr Oates relied upon personal rights, in particular the breach of a fiduciary duty owed to him personally in relation to a joint venture with Mr Hawkins and Mr Tyne.

38    I do not consider that this is sufficient to convert the nature of the proceeding brought by Mr Oates in the Supreme Court from a personal action to a derivative action. This is because Mr Oates was, as Bergin CJ in Eq said, pursing his personal claims. Moreover, the debate in the authorities as to the nature of the power to award damages under s 1324(10) does not assist.

39    The authorities which have considered the nature of the power conferred by s 1324(10) were considered by Fraser JA McCracken v Phoenix Constructions (Qld) Pty Ltd [2012] QCA 129 at [32]ff. The effect of the authorities is that the power to award damages under s 1324 does not exist independently of an application for injunctive relief: see McCracken at [39] and the authorities cited at footnote 37.

40    The views expressed in other authorities discussed by Fraser JA in McCracken do not, in any event, suggest that s 1324 is a facultative provision which enables a director shareholder to bring an action on behalf of the company for wrongs done to it. The relevant provisions which govern such an action are found in ss 236 and 237.

41    The authorities which were considered by Fraser JA show that what is required for a party to have standing to claim injunctive relief and damages under s 1324 is that the person’s interests are affected by a contravention of the Act. Thus, for example in Allen v Atalay (1993) 12 ACLC 7, the plaintiff was a creditor who alleged that his interests were affected because the director’s actions, in breach of their duty to the company, had led to a diminution in the value of his claim against the company for rent.

42    But in that case, as in the present, it was the plaintiff’s personal claim that was the subject matter of the proceeding and it was his loss rather than the company’s loss which was asserted.

43    It follows, in my opinion, that there can be no res judicata arising from any proceedings brought by Matrix against the active defendants in the Supreme Court proceedings.

44    This is because Mr Oates’ cause of action in those proceedings was not the same as a cause of action which may in the future be brought by Matrix against the active defendants relying upon the subject matter in the Supreme Court proceedings. Nor would such an action result in a double award of damages against Matrix. The dismissal of the Supreme Court proceedings, as against the active defendants, did not dismiss Matrix’s causes of action against them notwithstanding that Mr Pascoe and/or Matrix must be taken to have consented to the dismissal of Mr Oates’ personal action.

Anshun estoppel

45    The principles upon which Anshun estoppel are based were discussed by Allsop P in Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 at [1] to [3]. The test may be stated as whether the matter sought to be raised in the second action was so relevant to the subject matter of the first action that it was unreasonable not to rely upon it.

46    His Honour cited, with approval, the observations made by Lord Bingham, in Johnson v Gore Wood & Co [2002] 2 AC 1 at 31, that the approach involves a broad merits based judgment which takes into account the public and private interests as well as all of the facts of the case.

47    The short answer to the Anshun contention in the present case is that it is not possible now to determine whether future proceedings would be barred by Anshun estoppel when the content of those proceedings is not known and, of course, no pleading is propounded.

Examinations permissible in any event

48    Even if after conducting the examinations, Mr Pascoe were to commence proceedings which might be thought to be barred by Anshun estoppel, I do not consider that this would give rise to a claim that the examinations are necessarily to be conducted for an improper purpose.

49    As Mason CJ observed in Hamilton v Oades [1989] 166 CLR 486 at 496, an examination is designed to serve public and private interests. The approach adopted by the applicants in the present case fails to have regard to the important public purposes the examination is designed to serve.

50    This is supported by the observations as to the duties of a court appointed liquidator stated by Street J in Re Allebart Pty Ltd (In Liq) [1971] 1 NSWLR 24 at 26 in a passage cited with approval by McLelland J in Re Brian Cassidy Electrical Industries Pty Ltd (1984) 2 ACLC 628 at 630.

51    In the present case there are a number of matters relating to the discharge of the duties of the former directors of Matrix which Mr Pascoe considers he has a duty to investigate in accordance with the broad view of his public responsibilities referred to in the above mentioned authorities.

52    These matters include the circumstances in which cheques for approximately $17.5 million, drawn in favour of Matrix by the Western Australian government, were indorsed in favour of a company incorporated in the Cayman Islands. It appears that the cheques were flown out of Australia by Mr Hawkins and deposited in an account of the Cayman Island company in Singapore from where the funds eventually flowed back to the entities associated with Messrs Hawkins and Tyne.

53    I do not consider that it was incumbent upon Mr Pascoe to specify in his affidavit the public interest aspect of his proposed examination of the former directors. It was sufficient for him to refer to the nature of the transactions as he did.

54    Moreover, this gives rise to the possibility that the ATO will be a creditor of Matrix. It is true that the ATO does not at present claim to be a creditor, not having issued an assessment. Nor has it exercised its extensive powers of investigation and audit. But the evidence of Mr Livingstone indicates the ATO’s ongoing interest in the matter.

55    Other public interest considerations were identified in Mr Pascoe’s affidavit including the fact that one of the directors, Mr Scott Macleay, may be a fictitious name used by Mr Tyne. Also, Mr Hawkins failed to provide a report as to the company’s affairs as required by s 475(1).

56    In addition, Mr Pascoe’s counsel identified, in schedule 3 to their written submissions, a number of matters concerning the examinable affairs of Matrix which Mr Pascoe may wish to investigate. The items set out in paragraphs 1.3 to 1.9 raise “new matters” which were not the subject of the Supreme Court proceedings.

57    It is true that those new matters were not referred to in Mr Pascoe’s affidavit. But I do not consider that this is sufficient to preclude him from examination of those matters which appear, on their face, to be part of the examinable affairs of Matrix.

Material non-disclosure to the Registrar

58    There was a heavy obligation on a person applying for an examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporation’s examinable affairs. The obligation is one of frankness and candour to bring to the court’s attention all material including that which might lead the court to refuse the application: Southern Equities Corp Ltd (In Liq); Re Bond & Caboche v England (1997) 25 ACSR 394 at 422 – 423; In the matter of Idoport Pty Limited (In Liq) [2011] NSWSC 322 at [147].

59    The question is whether the matters that were not disclosed were material to the decision of the Registrar to issue the summonses. It is not for the Court to decide whether the summonses would nevertheless have issued if the matters had been disclosed: Idoport at [151].

60    Mr Aldridge quite properly does not suggest that the nondisclosure of the limitation period affecting the claims under ss 588FB and 588FDA was deliberate. However, he submits that it was a material matter which might have affected the Registrar’s decision.

61    The failure to disclose the limitation period was unfortunate and there is some force in Mr Aldridge’s submissions. However, I have come to the view, although not without reservations, that the limitation periods were not material. This is because upon the view I have reached, the claims which Mr Pascoe wishes to pursue of breach of duties under ss 181 and 182 and their relationship with the claims made by Mr Oates in the Supreme Court proceedings were fully disclosed so that the nondisclosure of a time limit which may have affected Mr Pascoe’s causes of action (rather than those of Matrix) was not material.

Non-disclosure to the Courts

62    In my opinion, the failure of Mr Pascoe’s counsel to inform me on the application to approve funding of the overlap with the Supreme Court proceedings (in particular the allegations under ss 181 and 182) is also unfortunate, but I do not consider it is relevant to the present application. This is because no application is made to set aside the funding agreement between Mr Oates and Mr Pascoe.

63    It is not appropriate for me to comment about the failure of Mr Oates or Mr Pascoe to inform the active defendants in the Supreme Court of the approval given by me on 6 September 2011 to the funding agreement. It is sufficient to say that I do not consider that it was incumbent upon Mr Pascoe or his counsel to inform the Supreme Court of the arrangement or of my orders, although I expected that in the ordinary course, my oral judgment of 6 September 2011 would have come directly to the attention of all parties and to the Supreme Court’s attention before orders resolving that matter were made.

64    I do not resile from what I previously said of my concern about the circumstances in which the orders were obtained from this court during the currency of proceedings in the Supreme Court which were expected to last for three weeks. The settlement of those proceedings on the third day, almost immediately after the approval of funding, was a serious matter but it reflects upon the purposes of Mr Oates in funding the examinations. As Ward J said in Accord Pacific Holdings Pty Limited v Accord Pacific Land Pty Limited (in liq) [2011] NSWSC 707 at [116] and [128], it is necessary to distinguish between the purposes of the creditor funding the examination and the purposes of the liquidator.

65    I see nothing in the present matter that bears adversely upon the bona fides or purposes of the liquidator. This is because it is evident that Mr Pascoe has been endeavouring for some time to obtain funding from sources such as ASIC and the ATO to pursue the examination in relation to matters which affect, inter alia, the public interest.

66    I accept that in the circumstances in which Mr Pascoe found himself on 2 September 2011, when he was offered funding by Mr Oates, he was left with a choice of accepting the funding or being left without funds to pursue the examination.

67    In my opinion, that is a complete answer to the remaining matters raised by the applicants in their written submissions.

68    I propose to order that the application be refused with costs.

Associate:

Dated:    28 November 2012