Hypec Electronics Pty Limited (in liq) v Mead & Ors

Hypec Electronics Pty Ltd (in liquidation) (“HE”) is a company which had a husband and wife as its sole shareholders and directors. Various assets were acquired in the name of the husband and wife, using money of HE. As well, some assets were acquired in the name of another company connected with the husband and wife, and in the name of the wife’s parents. The liquidator of HE, Mr Watson, seeks to recover those assets. The assets comprise 11 parcels of real estate, investments in 12 managed funds, a timeshare, and a 41-foot boat.

In large measure, the orders which the liquidator seeks are consented to. There is a dispute, however, about whether two particular blocks of land at Lisarow which were acquired in the name of a company, other than HE, associated with the husband and wife, were acquired using money of HE. There is also a dispute about whether the liquidator is precluded from obtaining an order for the transfer of four other items of real estate (or their proceeds of sale), either by the doctrine of estoppel, or by the principle in Ex parte James; In re Condon (1874) LR 9 Ch App 609 and section 477(6) Corporations Act 2001 . The Factual Background – Mr and Mrs Mead’s Relationship

Mr Colin Mead and Mrs Lucy Mead were married in 1982. For many years HE had Mr and Mrs Mead as its sole shareholders and directors. HE imported computers and computer components from Taiwan, and sold them in Australia. Mrs Mead had come from Taiwan. She was a 44% shareholder in a Taiwanese company called BL & GY International Co Limited (“BL”). Other shareholders in BL were members of her immediate family. Mr and Mrs Mead organised the affairs of HE so that he looked after its selling activities, and she looked after its financial affairs.

In 1996 Mr and Mrs Mead separated. HE has not traded since then.

At the time of separation Mr and Mrs Mead had significant assets in their joint names. In a judgment of the Family Court which was tendered before me without objection, Cohen J found that their jointly owned property was worth, very roughly, $8.5 million net: Mead v Mead Cohen J, 2 November 2001 paragraph [31]. That figure might be a typographical error, as the transcript before Cohen J records (page 4) a submission that there were properties worth about $3.5 million jointly owned by them. An affidavit of Mr Mead’s, also before Cohen J, puts the total value of 10 of the properties as $2.965 million, subject to mortgages of $974,000. The liquidator has identified a little over $4.29 million of funds of HE which was used by Mr and Mrs Mead for their own purposes, largely purchase of investments, over the period 1988 to 1997.

In March 1997 Mr Mead started proceedings in the Family Court for division of matrimonial property. Those proceedings are not yet concluded. The initiation of those proceedings marked the start of a complex series of litigious battles and legal manoeuvres between Mr Mead on one side, and Mrs Mead and companies and family members associated with her on the other. The Factual Background – Previous Court Proceedings

On 17 September 1997 BL filed a Statement of Claim in the Common Law Division of the Supreme Court, and thereby commenced proceedings number 12674 of 1997 (“the Common Law Proceedings”) HE was one defendant; against it BL sought repayment of around $4.8 million of loans said to have been made between 30 June 1992 and 30 June 1996, plus interest. Both Mr and Mrs Mead were also joined as defendants on a number of alternative bases, which included negligence and breach of section 232 of the Corporations Law.

On 1 December 1997 Mr Mead filed a Defence in the Common Law Proceedings, relating to the claim made against him personally. By this time Mr Mead had been completely excluded from participation in the affairs of HE, and Mrs Mead had practical control of it. She did not file a Defence, either on her own behalf or on behalf of HE. In consequence, a default judgment was entered against HE on 4 December 1997, and against Mrs Mead on 6 January 1998. Mr Mead has a theory, the correctness of which it is unnecessary to decide on in these proceedings, that his wife and BL were acting in concert, one of their aims being that Mrs Mead would retain no assets in her own name which were capable of being divided in the proceedings in the Family Court.

On 9 November 1998 Cohen J, in the Family Court, ordered that the Family Court proceedings be stood over generally, with liberty to restore them once the Common Law Proceedings had been concluded.

On 1 March 1999 judgment was entered against Mr Mead in some proceedings which had been brought against him in the Local Court by Lamron Pty Ltd (“Lamron”). Lamron was by then under the control of interests associated with Mrs Mead. It had purchased from Citibank a mortgage debt which Mr and Mrs Mead owed, and sued them on that debt. On 4 March 1999 Mr Mead was served with a bankruptcy notice based on the judgment which had been obtained, three days earlier, in those Local Court proceedings. He was able to borrow some money, and paid that judgment debt in late March 1999.

In July 1999 Mrs Mead’s parents commenced proceedings against Mr and Mrs Mead in the District Court, seeking recovery of a loan alleged to be owed to a company connected with Mr and Mrs Mead, and of which they were guarantors. Those proceedings were struck out on 15 March 2000, when it was demonstrated that the loan had been repaid in 1996.

On 30 August 1999 in the Family Court, Judicial Registrar Johnston made an interim order, on Mrs Mead’s application, prohibiting both Mr and Mrs Mead from selling, transferring, encumbering, alienating or otherwise dealing with any real property in which they currently had an interest. That order also required Mr Mead to take all steps to prevent the Queensland land registry authorities from processing documentation which Mr Mead had lodged with them, seeking to sever the joint tenancy between Mr and Mrs Mead in five parcels of Queensland real estate. On 7 September 1999 Rose J in the Family Court extended those orders until further order.

On 13 February 2001 Mr Mead filed an application in the Family Court which sought variation of the orders of Rose J of 7 September 1999 to the extent necessary to enable some of the property which they jointly owned to be sold, and used by Mr Mead to fund the costs of the Common Law Proceedings and the Family Court proceedings.

Six days later, on 19 February 2001, BL served on HE a statutory demand, requiring payment of the judgment debt which had been entered against HE on 4 December 1997, plus interest. That statutory demand never came to the attention of Mr Mead; Mrs Mead did nothing about it.

On 26 March 2001 BL started winding up proceedings against HE, in proceedings 1933 of 2001 in the Equity Division of this Court. Mrs Mead did nothing to oppose those winding up proceedings, and on 7 May 2001 the Court appointed Mr David Watson as the Liquidator of HE.

On 20 July 2001 Mr Mead amended his application to the Family Court, so that the orders that it sought were variations of the order of Rose J of 7 September 1999 to the extent necessary to enable the carrying through of certain other orders which he sought. Those other orders were in substance: A That Mr and Mrs Mead do everything necessary to sell four particular properties, namely, (i) 102/300 Cortesloe Drive, Mermaid Waters, Queensland (ii) 29 Quoin Island, Gladstone, Queensland (iii) 37/3 Reid Avenue, Wentworthville, NSW, and (iv) 53 and 53A Golden Orchard Drive, Airlie Beach, Queensland B That the proceeds of sale be paid to a controlled money account of Mr Mead’s solicitor, and no more than 50% of it drawn upon for the purpose of paying Mr Mead’s legal costs in the Family Court proceedings, in Equity Division proceedings 1933 of 2001, and in the Common Law Proceedings. C That Mrs Mead, as a director and shareholder of HE, execute a document appointing Mr Mead as agent of HE, for the purpose of defending the Common Law Proceedings, and prosecuting a cross claim by HE in those proceedings. D That Mrs Mead execute a consent to the liquidator of HE authorising and requesting the liquidator to consent to an order of the Supreme Court authorising Mr Mead to defend and cross claim in the Common Law Proceedings. I will refer to the four items of real estate as “the Four Properties” .

That application was listed in the Family Court on 23 July 2001, but was not reached on that day, and was stood over to 25 and 26 October 2001.

On 2 August 2001 Mr Mead started proceedings 3832 of 2001 in the Equity Division. Earlier, he had filed a Notice of Motion in the winding up proceedings, 1933 of 2001. Each sought the same relief, in substance. It was that Mr Mead be permitted: · to act on behalf of HE in the Common Law Proceedings; · to make application to set aside the default judgment entered against HE on 4 December 1997; · to file a defence on behalf of HE if the judgment was set aside, and act on behalf of HE in prosecuting that defence; · to make an application for leave for HE to file a cross claim in those proceedings against BL, Mrs Mead, and Grace Yang; and · if leave was granted, to prosecute that cross claim to judgment. Ms Grace Yang, referred to in these prayers for relief, is the elder sister of Mrs Mead.

By the time of making this application, Mr Mead had embarked upon an exercise of comparing what was shown in the books and records of HE concerning the state of account between HE and BL with information which he had been able to gather from documents obtained from the Customs Department about importations which HE had made from BL. That comparison exercise, though at that stage incomplete, led him to wish to assert that the true state of account was that BL owed money to HE, rather than the other way around. That was the substance of the cross-claim he wanted to file against BL. The intended cross claim against Mrs Mead was one which alleged breach of her fiduciary duties to HE concerning the transactions between BL and HE. The intended cross claim against Ms Yang was one which alleged knowing participation in those breaches of fiduciary duty.

Mr Mead had already filed in the Common Law Proceedings, in his own right, cross claims against Mrs Mead and Ms Yang, making similar allegations.

Mr Mead’s applications in the Equity Division were heard by Einstein J on 17 August 2001. Judgment in them was delivered on 21 August 2001: BL & GY International Co Ltd v Hypec Electronics Pty Ltd; Colin Anthony Mead v David Patrick Watson & Ors [2001] NSWSC 705; (2001) 164 FLR 268. By that time, the Common Law Proceedings had been fixed for hearing between 5 and 9 November 2001.

Einstein J granted Mr Mead the leave he sought, on condition that Mr Mead abandoned the cross claim filed in his own name in the Common Law Proceedings. His Honour noted an undertaking by Mr Mead to the liquidator that Mr Mead would indemnify the liquidator and HE itself in respect of any orders resulting from exercising the leave. On 27 August 2001, at the time of settling Short Minutes of Order to give effect to his reasons for decision, Einstein J stated that Mr Mead was not required to offer any security to support the indemnity, but that this would not prevent an application for security for costs being made.

On 19 September 2001 Mr Mead, exercising the leave which had been granted to him to act on behalf of HE, applied to Sully J in the Common Law Division of the Supreme Court of NSW, to set aside the default judgment against HE, and to file a Defence and Cross Claims on behalf of HE. In reasons for judgment delivered on 25 September 2001, Sully J granted the orders which Mr Mead sought: BL & GY International Co Limited v Hypec Electronics Pty Ltd (in liquidation) & Ors [2001] NSWSC 841.

On 4 October 2001 McClellan J heard motions brought by BL and Ms Yang seeking to strike out the defences of Mr Mead and of HE in the Common Law Proceedings, and to have HE provide security for the costs of its cross claims. On that same day, 4 October 2001, his Honour dismissed those motions.

On 25 and 26 October 2001 Cohen J, in the Family Court, heard Mr Mead’s application referred to at paragraph 16 above. His Honour delivered judgment on 2 November 2001, in substance granting the application, so as to permit $375,000 to become available from the proceeds of sale of the Four Properties to pay costs of Mr Mead.

On 5 November 2001 the hearing of the Common Law Proceedings commenced, before Mathews AJ. Though the matter had been set down for five hearing days, the hearing in fact extended over 15 hearing days, the last of which was 26 November 2001. There was one week-day in the period 5-26 November 2001 when no hearing occurred, but it is likely that the legal representatives of the parties did work on the case out of court on that day.

On 4 December 2001, the liquidator lodged caveats against seven items of real estate held in the joint names of Mr and Mrs Mead. This came to the attention of Mr Mead a few days later. The seven items of real estate included three of the Four Properties. On 11 February 2002 the liquidator lodged a caveat against the title of the fourth of the Four Properties.

Following upon the orders of Cohen J, two of the Four Properties, namely 37/3 Reid Avenue, Wentworthville and 102/300 Cortesloe Drive Mermaid Waters, were submitted to sale by auction, and sold. The liquidator and Mr Mead came to an agreement whereby, notwithstanding lodgement of caveats against the titles to those properties, the sales were completed, in January and February 2002, and the proceeds paid into Court. Those proceeds remain there today. The other two of the Four Properties remain unsold.

On 14 February 2002 Mathews AJ delivered her judgment: BL & GY International Co Ltd v Hypec Electronics Pty Ltd & 2 Ors [2002] NSWSC 38. She dismissed the claim which BL brought against HE and Mr Mead, and set aside the default judgment which BL had obtained against Mrs Mead and in lieu entered verdict for Mrs Mead on BL’s claim. HE failed in its cross claims against BL, Mrs Mead and Ms Yang.

Part of the reason why BL’s claim failed was because her Honour decided that she could not accept the oral evidence of Mrs Mead and Ms Yang (and a younger sister of Mrs Mead, Ms Chen), and the financial records of both BL and HE were unreliable. Her Honour’s judgment said, at [178]: “In my opinion Lucy Mead and her two sisters, particularly Grace Yang, have shown themselves to be entirely lacking in credibility and plausibility. Lucy Mead has admitted falsifying Hypec’s records so as to conceal the misapplication of company funds. There is much to support the conclusion that she and her sisters have similarly falsified BL & GY’s records so as to support a false claim against Hypec. A motive for doing this is easy to find, as Mr Fagan has pointed out. Hypec had no funds to meet BL & GY’s judgment against it. Had the judgment not been set aside, recourse would almost certainly have been sought against Colin and Lucy Mead as directors. If successful, the properties in their joint names, which are now the subject of a property dispute in the Family Court, would presumably have been sold in order to meet BL & GY’s judgment.”

Her Honour dismissed the cross claims essentially because she was not persuaded that Mr Mead’s attempt to re-create the accounts between BL and HE, from customs and shipping documents, was accurate or complete. When HE could not prove that BL owed it money, the allegations that Mrs Mead had breached her fiduciary duty, and that Ms Yang had helped her to do so, also were not made out.

On 30 May 2002 the Commissioner of Taxation issued amended assessments of income tax to HE, relating to the years ended 30 June 1989 to 30 June 1994 inclusive. Those amended assessments together created a tax debt of the order of $1.4 million. The primary tax was $776,000, the balance, penalties and interest. The amended assessments arose from the liquidator having written, on 20 December 2000, to the Australian Taxation Office, informing it that his investigations had shown that the directors had improperly used company funds to acquire assets in their personal names, that in consequence the company’s profits had been understated and losses overstated, and as well each of Mr Mead and Mrs Mead had understated their personal income. Before that letter was sent to the Australian Taxation Office, the information which the liquidator made known to Mr Mead suggested that the taxation liability of HE was of the order of $200.

On 28 June 2002 Mathews AJ delivered a judgment on costs in the Common Law Proceedings: BL & GY International Co Ltd v Hypec Electronics Pty Ltd & 2 Ors [2002] NSWSC 575. She ordered BL and Ms Yang to pay the costs of Mr Mead on an indemnity basis, being the costs incurred for himself and for his conduct of the proceedings in the name of HE, in respect of the entire proceedings, including certain reserved costs.

On 26 May 2003 the Full Family Court dismissed an application by Mrs Mead for an extension of time within which to file an application for leave to appeal from the decision of Cohen J made on 2 November 2001.

On 27 August 2003 the Court of Appeal gave judgment on an appeal which Ms Yang brought against the costs decision of Mathews AJ: Yang v Hypec Electronics Pty Ltd (in liquidation) & 2 Ors [2003] NSWCA 181. While the formal order of the Court was that the appeal was allowed, it was allowed for the purpose of correctly identifying the source of power to make the order - Mathews AJ had proceeded on the basis that Ms Yang was a non-party, and therefore any costs order against her had to be one which could be justified under Part 52A rule 4(5). The Court of Appeal decided that, by virtue of being a defendant to the cross claim, and the trial of the action and the cross claims not having been separated, she was a party to the proceedings, so a costs order did not need to be one which could be justified under Part 52A rule 4(5). The substance of the costs order of Mathews AJ, requiring both BL and Ms Yang to pay the costs of the entire proceedings on an indemnity basis, was not altered by the Court of Appeal. The Disputed Properties at Lisarow

Lamron is a company of which Mr and Mrs Mead became directors in March 1982. Lamron came to be the registered proprietor of a parcel of land located at Lot 3 Woodview Avenue Lisarow, and another property known as Lot 21 Woodview Avenue Lisarow. Lot 3 had a house constructed on it, and then was sold, with the sale settling on October 1996. Lot 21 had two houses constructed on it, and was subdivided into two lots each of which was then sold. Both those sales settled in February 1995.

Lamron is the fifth defendant in these proceedings. It accepts that the money used to pay for the construction of the three houses came from the assets of HE, and that in consequence HE has a proportionate beneficial interest in the proceeds of sale. It does not admit, however, that the purchase price of the land came from assets of HE.

Real Property Act transfers show that Lamron came to be the registered proprietor of Lots 3 and 21 at Lisarow pursuant to transfers each of which was dated 9 November 1992. Those transfers show that the price of each Lot was $68,000. A search of the certificates of title shows no mortgage having existed on either Lot, save for a mortgage on Lot 3 which was discharged on 17 November 1992. There is a real possibility that that was a mortgage of a prior registered proprietor, which was discharged upon registration of the transfer to Lamron.

There is no documentary evidence which shows from what source the purchase money for the two Lots was provided. The liquidator agreed, in cross-examination by the solicitor for Lamron, Mr Ma, that he had made comprehensive investigations in relation to the acquisitions and improvements to the Lisarow properties and the subsequent disposal of those properties. No explanation is put forward as to why he has not presented any documentary confirmation of the source of the money for the purchase of those properties. Concerning some other properties, the liquidator has put on evidence of asking solicitors who were involved in the purchase of the property to let him see their file relating to the purchase, and being told that the file was so old that it had been destroyed.

When the sale by Lamron of Lot 3 settled on 9 October 1996, the net proceeds received were $246,150.16. That amount was deposited into a bank account with the Commonwealth Bank, maintained in the name of “Hypec Technology Group Pty Ltd” (“HTG”). HTG is a different company to HE. HTG was incorporated on 23 July 1992. Mr and Mrs Mead were its directors from 24 July 1992 until 30 June 2002. Mr and Mrs Mead held the shares in it equally.

The sale in February 1995 of the two houses constructed on Lot 21 at Lisarow resulted in balances of $119,947.33, and $122,500 being payable upon settlement. Each of those amounts was deposited into the bank account of Lamron. Immediately following those amounts being deposited into the account of Lamron, cheques, in the amount of $88,000, and $110,000 were drawn on the account of Lamron, and paid into the Commonwealth Bank Account of HTG.

Mr Mead gave evidence, in an affidavit sworn 26 July 2001 and filed in the winding up proceedings, as follows: “On 23 July 1992 we caused Hypec Technology Group Pty Ltd to be incorporated. It was my understanding and expectation that from that date Hypec Technology Group Pty Ltd would take over and conduct business. However after 23 July 1992 Lucy Mead caused the Company [ie HE] to continue to purchase computers and equipment from BL & GY. The products were imported into Australia, consigned by BL & GY to the Company, and invoiced to “Hypec Electronics Pty Ltd T/A Hypec Technology Group”. From 23 July 1992 dealings with Australian purchasers from our business were conducted in the name “Hypec Technology Group Pty Ltd.””

In an affidavit sworn in the Family Court proceedings on 12 February 2001, which was also in evidence before me, Mr Mead gave evidence, “In 1992, we purchased two blocks of land at Lisarow, on the Central Coast, for $140,000. The purchase was in the name of Lamron. All payments were made by Hypec Technology.”

Mr Watson has given evidence, on which he was not cross-examined, that he had through his investigations verified that Hypec Technology was the trading name of HE. At some stage in 1992 the bank account of HE with the Commonwealth Bank of Australia changed its title, so that it came to be called “Hypec Technology Group Pty Ltd” . While there was a company called Hypec Technology Group Pty Ltd, all the transactions entered into by that company were accounted for in the accounts of HE.

Mr Mead gave evidence before me, in answer to cross-examination from Mr Greenwood SC, counsel for the liquidator, as follows: “Q. Some properties were purchased at Lisarow? A. Yes, that’s correct. Q. And they were purchased in the name of Lamron Pty Ltd? A. That’s correct. Q. You were aware that all payments in relation to those properties were made by Hypec Technology? A. Yes that’s correct. That was the way it was set up. Q. The purchase price for those blocks of land actually came from monies of the company? A. Yes, they did. Q. And all the payments in terms of the construction of the properties also came from the monies of Hypec? A. Yes, They did .”

After that evidence had been given, Mr Ma, solicitor for Lamron, further cross-examined Mr Mead. He gave evidence as follows: “Q. And in relation to the answers you gave to Mr Greenwood’s questions with respect to the purchase price of the Lisarow property, how would you be certain that those funds would have come from Hypec given the fact that you said earlier in evidence that you were not involved financially with respect to those companies and Lucy was? A. That’s a very easy one to offer. The Commonwealth Bank called us into a meeting to explain why funds were being used to purchase property, particularly in relation to the funds for that particular acquisition. Q. You also mentioned that there were arrangements with Lamron whereby those funds which you said were paid by Hypec. What arrangements were they? A. The arrangements were when the properties were sold that the funds would go back to Hypec and then any profit generated through the sale of those properties would be then kept in Lamron. Lamron would then accumulate these profits to go on to develop sufficient capital of its own to carry on building additional properties but as it turned out that never eventuated so the arrangement was that Hypec would fund the initial purchase and payment of the properties, funds returned to Hypec and only the profits kept with Lamron. Q. Could you elaborate on the meeting with [which] the Commonwealth Bank was involved with respect to assisting the purchase of the property; could you elaborate on that? A. Lucy and I were called in by the Commonwealth Bank on a please explain what you are doing with the overdraft. Q. How does that have any connection with the funds used by Hypec? A. Because the Commonwealth Bank was aware that the firm overdraft facility was not being used in the manner in which it was granted by the bank. The bank did not grant the facility to be used to purchase property and as such, they called us in on a please explain. Q. Were you a party at that meeting? A. I was at that particular meeting, yes. Q. And at that meeting, were you alerted to the fact that the company’s overdraft was used specifically for the purchase of the Lisarow properties, not any other properties generally? A. From that meeting I found that the bank’s arrangement for the overdraft was for us to trade in our core business which was computer equipment and for the arrangement for a letter of credit and when they called us in and asked us to explain, I found that the overdraft had been utilised to purchase property because up until that point, I wasn’t aware of how the properties were being funded. Q. Properties I would gather would mean generally the properties and would not specifically refer to Lisarow? A. Lisarow, only Lisarow, that’s all it was referring to because that’s where the money was drawn from.”

I approach this evidence of Mr Mead with some caution, as his evidence suggested that he had only fragmentary scraps of knowledge about other real property acquisitions, but quite good knowledge about the source of funds for the Lisarow acquisition. However, it seems to me that his being called in to the Commonwealth Bank provides an explanation for this difference in extent of knowledge. His explanation, that HE would fund the purchase of the properties, and receive back the money it provided, while Lamron would keep the profit, provides an explanation for the way in which the sale proceeds of the Lisarow Lots were distributed. No possible source of the purchase price of the Lisarow properties, other than proceeds of the trading activities of HE, appeared from the evidence. In these circumstances I accept Mr Mead’s evidence concerning the source of funds for the Lisarow land.

In his affidavit, Mr Watson gave an opinion that probably all of the funds used to purchase and improve the two properties at Lisarow were funds of Hypec which were taken from the Company improperly by the creation of false book entries in the company’s accounting records.

The basis of that opinion is, essentially, some extracts from the affidavit of 13 February 2001 which Mr Mead swore in the Family Court proceedings, together with the fact that nothing in his investigation has suggested otherwise. Given the basis of the opinion, I place little weight upon it.

Though Mrs Mead had sworn an affidavit in the proceedings, at the hearing Mr Ma elected not to read it. Because she was the person who looked after the financial affairs of HE, she is a person likely to have personal knowledge of the source of the funds used to purchase the two Lots at Lisarow. While Mrs Mead ceased to be a director of Lamron on 7 February 2003, the present directors are members of her family, and there is no reason to believe that she was not a witness readily available to Lamron. She was in court throughout the hearing. The other evidence which I have set out, warrants an inference that the purchase price of the two Lisarow Lots came from funds of HE. Lamron’s failure to call Mrs Mead enables me to draw that inference more strongly.

I conclude that the purchase price of the two Lots at Lisarow came from the funds of HE. It is not disputed that the cost of constructing improvements on those Lots came from funds of HE, nor is it disputed that, if it were to be established that the purchase price of the land came from funds of HE, then the entire sale price of those Lots should be declared to be held upon trust for HE. To some extent the sale price of those Lots has already been repaid to HE, through the payments set out in paragraphs 40 and 41 above. What the making of the declarations which the liquidator seeks will do, will be to enable the liquidator to collect the part of the sale price not already repaid to HE, and to remove the possibility of a claim that the part of the proceeds of sale already repaid to HE was paid as a loan, rather than by way of a return of HE’s own money. Factual Findings Relevant to the Estoppel/Ex Parte James Submissions

Mr Mead submits that the liquidator’s conduct disentitles him from laying claim to the Four Properties. That submission requires a closer examination of events in the period May to December 2001.

Mr Watson was appointed as liquidator of HE on 7 May 2001. At least by 6 June 2001 he was aware of the Common Law Proceedings – on 6 June 2001 Mr Mead’s solicitors, Etheringtons, wrote to Mr Watson, saying that the requirement that Mr Mead file a Defence in those proceedings meant that he needed extra time in which to supply Mr Watson with a Report As To Affairs.

On 12 June 2001 Etheringtons wrote to Mr Watson, enclosing a draft Notice of Motion and an unsworn copy of a draft affidavit by Mr Mead. Etheringtons told Mr Watson that they alleged that Mrs Mead and BL had been involved in a fraud against Mr Mead and the companies of which he had been a director and shareholder. Etheringtons sought the opportunity to demonstrate to Mr Watson that HE had never been insolvent, and that the debt resulting from the default judgment of 4 December 1997 was based on a fraud. Etheringtons asked that Mr Watson not take any further steps in the winding up of HE. In the course of the letter they said: “The costs thus far incurred by Mr Mead have been enormous and will continue to mount in his attempt to unravel the fraud of Mrs Lucy Mead …”

On 2 July 2001 Etheringtons wrote to Mr Watson, saying that Mr Mead wanted to have HE make an application for BL’s judgment against it to be set aside, for leave to defend the Common Law Proceedings, and for leave to issue a cross-claim against BL. The cross-claim was explained as being, broadly, of the same type as the cross-claim which was eventually actually lodged. The letter enclosed the draft documentation on which that application was proposed to be made. It said that the fact that there was really no debt owing by HE to BL meant that Mr Mead had a basis for setting aside the winding up of the company, but that there would be no point in so doing, because the company would then be in deadlock, as Mr and Mrs Mead were equal shareholders. The letter offered Mr Mead’s indemnity to Mr Watson for any costs in the application to set aside the judgment and prosecute the cross-claim. The letter asked, again, that Mr Watson suspend work on the liquidation pending the hearing of the Notice of Motion.

A trial balance of HE as at 30 June 1998, produced by the external accountants of HE, showed as an asset a loan to Mr and Mrs Mead in the sum of $2,861,844. On 3 July 2001 Mr Watson wrote to Mr Mead, referring to this loan account, and saying that additional funds had been identified that had been used by the directors which did not appear to have been correctly allocated to the Directors’ Loan Account. He continued: “At this stage and based on the source records reviewed, the debt listed in the balance sheet of $2,861,844 is due and payable. Further requests will be made for payment of the additional amounts in due course once confirmed. Therefore it is requested that you contact this office on receipt of this letter to discuss repayment of the loan account.”

On 5 July Mr Mead’s solicitor at Etheringtons, Mr Dominello, spoke to Mr Watson’s solicitor, Mr Conolly. Mr Dominello told Mr Conolly that proceedings had been started in the Family Court seeking to set aside injunctions against matrimonial properties of Mr and Mrs Mead, to enable the sale of those properties for the purpose of Mr Mead funding the Common Law Proceedings. Mr Conolly wrote to Mr Dominello the next day confirming that telephone conversation, and requesting copies of counsel’s opinions which had been obtained by Mr Dominello.

On 12 July 2001 Etheringtons wrote to Mr Conolly, saying, “Our client has an interim property application which is fixed for hearing before the Family Court on 23 and 24 July 2001. It is important to our client’s position in these proceedings that he has the position concerning his foreshadowed application finalised. In light of the impending Family Court proceedings we propose to approach the Duty Judge in Equity next week with a view of hearing our client’s foreshadowed application. We will provide this letter and other correspondence to the court when seeking an order to abridge the time for service of our client’s foreshadowed motion. … the proceedings referred to are the interim property proceedings which are fixed for hearing in the Family Court on 23 and 24 July 2001, which seek to, inter alia, set aside the injunction of Justice Rose. The injunction sought by Lucy Mead (the third defendant) was an attempt to restrain the sale of matrimonial property. Our client wishes to sell the matrimonial property to fund his defence and cross claim in these proceedings. At the hearing on 23 and 24 July 2001 our client will be seeking orders to set aside/vary the injunction to enable the funding of legal representation in the Supreme Court proceedings.”

On 19 July 2001 Etheringtons wrote to Mr Conolly, providing him with an Equity Division court process which was returnable on 30 July 2001. Etheringtons said that they intended to proceed with the hearing on the return date, and asked Mr Conolly to file and serve any material he wanted to rely on prior to the return date. That letter also enclosed an affidavit (of some 133 pages) which Mr Mead had sworn on 12 February 2001 in the Family Court proceedings. This affidavit is the principal affidavit on which Mr Mead relied in his application to Cohen J in October 2001. Etheringtons’ failure to provide that affidavit at an earlier time had excited some suspicion in the liquidator.

On 20 July 2001 Mr Watson wrote to Mr Mead complaining about various matters, and also saying, “In addition to the above it is requested that you contact this office in order to discuss the repayment of the directors’ loan account as detailed to you in my letter dated 3 July 2001.”

On 26 July 2001 Mr Mead swore an affidavit, in the winding up proceedings. It set out the position in the Family Court proceedings by saying: “On 9 September 1997 Justice Rose in the Family Court made orders which had the effect of preventing me from selling any of the property in which I have an interest. A copy of the Orders of Justice Rose are annexed hereto and marked “G”. On 13 February 2001 I commenced an application in the Family Court for an interim property order, to enable me to sell some of the property the subject of the injunctions to enable me to fund the costs of the Common Law proceedings and of the Family Court proceedings. This application was listed for hearing in the Family Court at Sydney on 23 July 2001. Annexed and marked “H” is a copy of the orders sought in an amended application which was served on the wife’s solicitors on 20 July 2001 and which it proposed to litigate on 23 July 2001. On 23 July 2001 my application for interim property orders was one of six matters listed but not reached in the Family Court at Sydney. At 4.30pm on that day, Justice Lawrie directed that it be referred to the Contested Matters List Clerk for allocation of a fresh date, because Judges of the Family Court were all engaged in a Judge’s Conference from Wednesday, 25 July 2001 to Friday, 27 July 2001 and would be unable to reach my matter (or any but one of the other matters listed on 23 July 2001) during that week. My application for an interim property order has now been listed for hearing on 25 and 26 October 2001.”

Annexure H to that affidavit was the document which I have summarised in paragraph 16 above. That affidavit of Mr Mead’s was served on Mr Conolly’s firm under cover of a letter dated 7 August 2001.

On 27 July 2001 Mr Watson swore an affidavit in the winding up proceedings. It gave a general account on the progress of the liquidation, and included the following matters: “4. I have not yet finalised my investigations or report into the financial position of Hypec. However, at the date of swearing this affidavit I have identified funds in the sum of $4,907,725 which at this stage in my opinion were funds properly belonging to Hypec but which were used by the Directors of Hypec for their own personal use during the period 1989 to 1997. Annexed hereto and marked with the letter “B” is a schedule of the funds so identified. Notwithstanding this, further investigations are continuing. 5. My investigations to date reveal that the funds referred to in paragraph 4 above were used by the Directors of Hypec for, inter alia , the following purposes; (a) Payment of deposits on real property purchased in their joint names; (b) Payment of mortgage instalments in respect of property registered in their joint names; (c) Payment of invoices for construction of improvements to real property registered in their joint names; (d) Payment of lease payments in respect of a 40’ boat in their joint names; (e) Purchase of chattels such as furniture and homewares; (f) Payments into an education fund for the benefit of the children of the directors; (g) Payment of contributions to a private superannuation fund; (h) Payments in respect of a personal investment portfolio. 6. It is my opinion as official liquidator of Hypec that the funds referred to in paragraph 4 above were funds properly belonging to Hypec. … 16. I am presently considering the legal avenues open to me as liquidator of Hypec to recover from the directors of Hypec: (a) The amount of $2,861,844 owed to Hypec in respect of the Directors Loan Account; and (b) The amount of $2,045,881 in additional Hypec funds which I have identified as being used by the Directors for their own use, together with any further monies (if any) so identified pending completion of my investigations. 17. My examination of the books and records of Hypec has not disclosed any minute or other record of any resolution authorising the Directors of Hypec to establish a Directors Loan Account or to draw the funds in the sum of $2,861,844 referred to in paragraph 16(a) above against such account. My examination of the books and records of Hypec also has not disclosed any minute or other record authorising the Directors of Hypec to utilise for their own purpose the additional Hypec funds in the sum of $2,045,881 referred to in paragraph 16(b) above.”

Annexure “B” to the affidavit was a document headed “ Reconstruction of Directors’ Loan Account” , which identified various transfers of money from HE totalling $4,907,725.64, stating by reference to each transfer, the date of the transfer, the cheque number (or other means by which the transfer had occurred), the amount, the payee, and an asset related to that transfer. A reader would infer that what the liquidator was setting out was particularisation of assets of Mr and Mrs Mead whose acquisition had been financed by the money of HE, in consequence of which Mr and Mrs Mead owed HE the total amount that had been spent in this way.

The process which had been returnable on 30 July 2001 (paragraph 59 above), and a separate summons filed on 2 August 2001 in separate proceedings (summarised in paragraph 18 above) were the applications which came on for hearing before Einstein J on 17 August 2001.

At the hearing before Einstein J, Mr Mead’s affidavit of 26 July 2001 (paragraph 61 above), and Mr Watson’s affidavit of 27 July 2001 (paragraph 63 above) were read. As well, an affidavit of Mr Watson’s sworn 13 August 2001, was read. In it, Mr Watson explained that he was still seeking information from Mrs Mead, and from an expert who Mr Mead proposed to engage for the common law proceedings, Mr McEwen. Mr Watson said that until he had the benefit of the input from Mrs Mead and Mr McEwen he was not in a position to assess whether he would be prepared to cause HE to take any further part in the Common Law Proceedings. He asked for the court to give him a further week in which to conclude his investigations and consideration. Mr Watson’s affidavit continued: “7. I can inform the Court that, if I am satisfied that there is a fair prospect on the evidence that Hypec will succeed in the defence and cross-claim proposed by Mr Mead or any other defence – and at this time I have not yet formed that view – provided Mr Mead pays all costs of preparation and conduct, and provides an effective indemnity for me as liquidator against any adverse costs order, I would be prepared to file a motion seeking to set aside judgment against Hypec in the Common Law Proceedings. 8. I take the view however that Mr Mead’s proposed provision of an indemnity for costs of the Common Law Proceedings contained in the letter from Etheringtons solicitors to myself dated 2 July 2001 (a true copy of which is annexed hereto and marked “A”) is unsatisfactory, at least in light of the matters contained at numbered paragraph 5 of page 2 of the letter from Etheringtons to my instructing solicitors dated 12 July 2001, a true copy of which is annexed hereto and marked “B”. 9. As set out in paragraphs 4-6 of My First Affidavit, I have an apprehension that the matrimonial property, which Mr Mead is said in Annexure B to be wishing to sell for the purpose of funding of the Common Law Proceedings may, in whole or in part, comprise assets properly belonging to Hypec. Upon this basis, Mr Mead would be offering to indemnify Hypec with its own monies. In any event, my current view is that I cannot accept as a likelihood that the Family Court will order sale of assets to permit Mr Mead to conduct the Common Law Proceedings. 10. I would not be prepared to take responsibility for the Common Law Proceedings on behalf of Hypec without a satisfactory indemnity for costs. If Mr Mead’s position were still as indicated by his solicitors in the letter being annexure B hereto, I would also apply for security for costs to support such indemnity. 11. As a result of the matters raised in My First Affidavit, and upon general principle, my current view is that in the event that I do not conduct the proceedings on behalf of Hypec, it would not be in the interests of Hypec and its members and creditors to allow Mr Mead to bring a defence or cross-claim in the Common Law Proceedings on behalf of Hypec.” “Numbered paragraph 5 of page 2 of the letter from Etheringtons dated 12 July 2001” , referred to in this quotation from Mr Watson’s affidavit, is the final paragraph which I have quoted at paragraph 58 above. Paragraphs 4-6 of “My First Affidavit” are the first three paragraphs which I have quoted at paragraph 63 above.

At the hearing before Einstein J, Mr Fagan SC appeared for Mr Mead. Mr Fagan’s oral submissions (T.46) made clear that Mr Mead had on foot in the Family Court an interim property application to enable him to obtain a distribution of property, so that he could fund the Common Law Proceedings, but that he had not been able to get that application heard. That was one reason why Mr Mead was not able to offer security to the liquidator. Ms Sofroniou appeared at that hearing for the liquidator. The transcript records the following: “FAGAN: I thought that Ms Sofroniou’s position was that the concession that he wasn’t in the position was accepted and that she was proceeding on the basis that that was something that she relied upon as bearing upon his ability to secure any undertaking as to costs in proceeding in the name of the company. Ms Sofroniou confirms that that’s the position. SOFRONIOU: Yes. HIS HONOUR: What was the proposition that I should have the transcript known? FAGAN: That Ms Sofroniou accepts the position that the client is not in such a position as to be able to fund both sets of proceedings. SOFRONIOU: I can confirm that the liquidator’s position is that no security is available to support any indemnity that’s been offered.”

By the time of the hearing before Einstein J, the Common Law Proceedings were already fixed to be heard commencing on 5 November 2001. Einstein J referred to that fact in his judgment. His Honour also recorded, at [26]: “In February 2001, Mr Mead apparently filed an application in the Family Court for an interim property distribution to fund his legal costs of the Family Court and common law proceedings. The application as now amended is said to be for an order for sale of some of the jointly held real property to enable Mr Mead to use up to 50 percent of the proceeds for his costs in the Family Court and in the common law proceedings. That application was listed for hearing on 23 July 2001 but was not reached and was stood over to 25 and 26 October 2001 - only days prior to the hearing of the common law proceedings.” Einstein J referred to the complexity of the Family Court dispute between Mr and Mrs Mead, and continued: “Mr Mead then submits that even if the Family Court should, on 25 October 2001, release some of the restrained matrimonial property to enable Mr Mead to pay his legal costs, funding yet another set of costs (for the liquidator to apply to set aside the default judgment against Hypec Electronics and to institute a cross-claim) would be prohibitive.”

Einstein J records a submission by the liquidator that “The liquidator has an apprehension that the monies proposed to be provided by way of indemnity might be the company’s monies in any event” .

Einstein J set out, at [82] Mr Mead’s financial position – he had income of $100 per week, his only liquid asset was $1,200 in the bank, and he had a debt of at least $350,000 to his lawyers for legal fees in the Family Court proceedings, the Common Law Proceedings, and the proceedings before Einstein J. This meant that Mr Mead was unable to provide the liquidator with a satisfactory indemnity for costs which the liquidator would incur if he were to run the Common Law Proceedings for HE. As the liquidator was not prepared to run those proceeds for HE without a satisfactory indemnity, the likelihood was that the liquidator would not run that litigation. On the material before his Honour, further consideration by Mr Watson of the merits of either the defence or the proposed cross-claim in the Common Law Proceedings was unlikely to change Mr Watson’s mind about being not prepared to run the Common Law Proceedings on behalf of Hypec. This was because it was a sufficient reason for Mr Watson not to undertake the litigation that he could not get a satisfactory indemnity for costs. There was therefore no point in giving Mr Watson further time to evaluate the merits of Mr Mead’s opposition to BL’s claim, or of the proposed cross-claims.

At [93], Einstein J said: “Insofar as the question of the costs of Hypec Electronics in relation to the Common Law proceedings are concerned the fact is that the indemnity offered by Mr Mead ought not necessarily be regarded as worthless. On the evidence, Mr Mead's personal financial position is so tied up with the prospects of success by the company in the Common Law litigation and/or by the net result in the Family Court proceedings that the Court ought not infer that the indemnity is writ in water or worthless.”

Earlier, at [64] Einstein J had quoted from the judgment of Austin J in Cadima Express Pty Ltd (in liquidation) v DCT [1999] NSWSC 1143; (1999) 33 ACSR 527; (1999) 157 FLR 424 a passage which included: “The liquidator may derive some comfort from the observations of McLelland J in [ Aliprandi v Griffith Vintners Pty Ltd (in liq) (1991) 6 ACSR 250] (at 253) to the effect that with a possible exception where the liquidator has been guilty of misconduct, there is no legitimate basis on which a costs order could be made against the liquidator personally in proceedings between the company and a third party to which the liquidator is not a party; and that there is no principle which would justify the making of an order for costs against a liquidator who is not a party where the use of the company's name in the relevant proceedings by some other person was authorised by the Court.”

In other words, Einstein J was permitting Mr Mead to have the standing to run the Common Law Proceedings in the name of HE, knowing that any indemnity for costs which Mr Mead could offer the liquidator was of questionable value (though not necessarily worthless), but also knowing that permitting Mr Mead to bring the action in the name of the company would not result in the liquidator personally being liable for any costs if Mr Mead were to lose. His Honour also made the decision in circumstances where the evidence was that Mr Mead could proceed with the Common Law Proceedings, only if his application to the Family Court for access to some of the matrimonial assets succeeded.

On 7 September 2001, Etheringtons sent to Mr Watson a copy of the Notice of Motion which it had filed seeking to set aside BL’s default judgment. Etheringtons also sent to Mr Watson a copy of the letter which they had sent to the solicitors for BL, which said, inter alia : “… it is imperative that this matter is dealt with on the first return date as this matter has been fixed for a five day hearing commencing 5 November 2001, and any delay associated with our client’s application may result in the hearing dates being vacated.”

This letter to Mr Watson must have gone astray, because on 17 September 2001 he wrote to Mr Dominello complaining about not being kept informed about progress in the application to set aside the judgment obtained against HE. By that time, he had carried out some further investigations of the state of account between HE and BL. Those investigations supported, he said, Mrs Mead’s contentions. His letter continued: “… Contrary to Mr Mead’s claims my current view is that monies were never remitted to BL & GY and instead the funds were used for other purchases and in particular the purchases of real estate by Mr and Mrs Mead … I believe that it is very likely that the proposed cross-claim is without substance. Given the very substantive [sic] legal expense incurred by Mr Mead in qualifying for instance Mr McKewen’s report I find it extraordinary that actual bank statements and cheques have not been examined. In this circumstance and given my attached report if I was now asked to determine whether Hypec should apply to set aside the judgment I would firmly say no.” (At least some of the financing for the liquidator’s ongoing investigations was provided by Ms Grace Yang.)

On 18 September 2001 Mr Watson swore an affidavit, for filing in the Common Law Proceedings. It set out the then state of his investigations into the indebtedness between BL and HE, and concluded: “I now wish to issue subpoenas for bank statements and original cheques, which records will determine whether payments have been made from Hypec to BL & GY at all, as contended for by Mr Mead, or in fact to other parties, in contradiction of his claim in this application. I also wish to complete my investigations as official liquidator, including taking whatever steps necessary to ascertain use of company funds by Mr and Mrs Mead, whether or not using BL & GY as a vehicle, and commencing proceedings if necessary. I accordingly request that this Honourable Court defer the determination of this application pending my examination of Hypec’s bank statements and cheques. Such a course may well shorten the hearing of the current application and provide the Court with objective evidence as to the true situation between Hypec and BL & GY.”

When the application to set aside the default judgment came on for hearing before Sully J on 19 September 2001 Ms Sofroniou, counsel for the liquidator, sought leave to appear for the liquidator. Mr Fagan SC, for HE (and authorised to appear for HE in this particular application by the terms of the order of Einstein J) opposed that application. Sully J refused the liquidator’s application for leave to appear.

On 21 September 2001 Etheringtons wrote to Mr Conolly, saying that the hearing before Sully J had concluded on 19 September 2001, that his Honour had reserved his decision, and stated that he would hand it down on or before Friday, 28 September 2001. The letter continued: “If his Honour does make an order setting aside the default judgment of 4 December 1997, we will instruct counsel immediately to consent to a grant of leave to BL & GY International Co Ltd under s.471B Corporations Act 2001 to proceed with the action against the company. We would expect the final hearing of the plaintiff’s action against the company to go ahead on the dates which are already listed for final hearing of the plaintiff’s claim against Mr Colin Mead.”

On 24 September 2001 Mr Conolly wrote to Etheringtons, saying that the liquidator would also consent to BL bringing an action against HE.

On 11 October 2001 Etheringtons wrote to Mr Conolly, confirming their previous advice that Sully J had set aside the default judgment on 25 September 2001, and reporting on directions given by McClellan J on 4 October 2001 for the further conduct of the Common Law Proceedings. Those directions confirmed that the matter was to be heard on 5 November 2001. The letter sought access, for the purposes of the trial, to documents of HE in possession of the liquidator.

Prior to the hearing of the Common Law Proceedings commencing, BL paid into Court $115,000 as security for the costs of HE and Mr Mead. The Judgment of Cohen J

The judgment of Cohen J delivered on 2 November 2001 shows that the orders which were asked for, were ones contained in an Amended Application, filed on 22 October 2001. While that Amended Application is not in evidence, it appears from the account given in Cohen J’s judgment that it differed from the earlier application, which I have summarised at paragraph 16 above, in seeking an additional order permitting two additional properties to be mortgaged to raise money to meet Mr Mead’s legal costs.

The amount for which Mr Mead sought the ability to deal with matrimonial assets included $537,000 for past legal costs in the Supreme Court and the Family Court. Of that amount, a little under $120,000 related to solicitors costs of the Family Court proceedings, a little over $66,000 for barristers fees in the Family Court (total about $186,000 for the Family Court) a little over $210,000 related to solicitors costs of the Supreme Court and a bit under $133,000 to barristers fees in the Supreme Court (total about $343,000 for the Supreme Court). (These figures do not reconcile, but the general picture is clear enough.) Those figures did not include any interest which might have become payable on the unpaid costs. Nor did they include the fees of a barrister who had appeared in the Family Court on about 15 days, but who had not by that time rendered a memorandum of fees. The future costs were estimated at a little under $84,000 for the Supreme Court proceedings, and a little over $63,000 for the Family Court proceedings.

Cohen J refused to provide access to any assets for the purpose of securing future estimated Family Court costs. His Honour decided that the appropriate basis for arriving at a figure to include in an order was to provide funding for about half of the legal costs already accrued and quantified (in both Family Court and Supreme Court), and the whole of the estimated future Supreme Court costs. After taking into account that the past costs were likely to bear interest, his Honour arrived at the figure of $375,000. It appears that there was no need to mortgage properties, in addition to selling the Four Properties, to raise that $375,000. The substance of the orders made by Cohen J was: (a) The earlier injunctions were discharged to the extent necessary to allow the rest of Cohen J’s orders to be given effect; (b) the husband and wife were to do everything necessary to sell such of the Four Properties as was necessary to raise (after payment of costs incidental to the sale) $375,000; (c) the net proceeds of each sale were to be paid to Mr Dominello to be held by him on trust in a controlled monies account, and applied (i) first, to meet the husband’s future costs in the Common Law Proceedings; (ii) second, to meet that part of the husband’s indebtedness for costs incurred at the date of the orders, including barristers’ fees on accounts not yet rendered, as should with the amount paid pursuant to (i) amount of $375,000. (There was also provision as to what was to happen if any balance remained, but that is not of present relevance.) The Trial Before Mathews AJ

An employee of the liquidator, and Mr Conolly, were present throughout the hearing of the Common Law Proceedings before Mathews AJ. At that trial Mr Mead and HE were represented by senior and junior counsel.

Because the time occupied by the hearing before Mathews AJ so substantially exceeded the time which had been estimated, the costs of Mr Mead of that hearing likewise exceeded the amount which had been estimated. The total costs of the Common Law Proceedings have not yet been assessed, but Mr Dominello estimates that they will be about $900,000. Mr Dominello estimates that the costs exceeded those which had been assumed by Cohen J in his judgment by $650,000 to $700,000. That might involve some overestimation on Mr Dominello’s part, as about $343,000 had been incurred in the Supreme Court by the time of Cohen J’s judgment (which would mean that the costs incurred after the time of Cohen J’s judgment in the Supreme Court were more of the order of $557,000). This topic was not gone into in enough detail for me to make a positive finding that Mr Dominello’s estimate is inaccurate – but even if the correct figure of costs incurred after Cohen J’s judgment is more like $557,000 than $650,000 to $700,000, it still well exceeds the $375,000 which the orders of Cohen J permitted to be applied first to meet future costs in the Common Law Proceedings.

Mr Hodgson, an employee of the liquidator, was called by BL in the hearing of the Common Law Proceedings before Mathews AJ. He gave an account of work he had done in the course of the liquidation, which included finding the loan of $2.861 million owed by Mr and Mrs Mead, contained in the trial balance of 30 June 1998, and of going on to seek to determine what was the true state of the directors’ loan account in relation to HE. He explained how further work led him to the conclusion that the true state of the directors’ loan account should have shown it as being $4,907,725.64. The position was then brought up to the date of questioning (which was 12 November 2001). “Q. Now at this stage, are you satisfied that that is the balance of the indebtedness, or is it your opinion that further investigation may reveal further amounts which need to be added to the directors’ loan account as monies owing to the company? A. Yeah, further investigation may well do that, yes.” The Liquidator’s Knowledge of the Application to Cohen J

The liquidator filed an affidavit in the proceedings before me, which stated: “I was not advised by Mr Mead or his legal representatives of the progress of the Family Court proceedings or of the outcome of Mr Mead’s application to set aside or vary the injunctions restraining the sale of the subject properties. It was my understanding that the property proceedings in the Family Court between Mr and Mrs Mead had been stayed pending determination of the Supreme Court proceedings. It was my belief that the effect of the stay was that the properties held in the names of Colin and Lucy Mead could not be sold. I understood from submissions made by counsel for Mr Mead to Einstein J on 17 August 2001 that Mr Mead had previously applied to the Family Court to have the injunctions varied or set aside but that that application had failed. I did not consider it likely that a further application to the Family Court, based as I thought it was on submissions that had been made previously by Mr Mead and rejected, would be proceeded with. I was not served with copies of the Family Court pleadings or supporting affidavits in relation to those proceedings and I would have expected to have been served if Mr Mead proceeded with his application, given that Mr Mead and his legal representatives had read my Reports, knew that I was investigating the ownership of the matrimonial property, and was aware that I had requested copies of the Family Court documentation. Had I apprehended that Mr Mead would in fact pursue the application to the Family Court, I would have sought to intervene in those proceedings. After the proceedings before Einstein J on 17 August 2001, my mind was not directed at all to any Family Court proceedings until about 14 December 2001 when I read an Affidavit of Victor Dominello sworn on that date. Despite my written requests for copies of the pleadings, affidavits and other documentation in the Family Court proceedings, Mr Mead’s solicitors have failed to provide me with that material. I was not advised of the orders made by Cohen J on 2 November 2001 until I was served with a copy of the Affidavit of Victor Dominello sworn 14 December 2001. I was not informed that any of the subject properties had been listed for sale pursuant to those orders until I was served with a copy of the Affidavit of Victor Dominello sworn 14 December 2001. Had I been aware of the orders, I would have had to consider making an urgent application to the Family Court and/or the Supreme Court to protect the Company’s interests in the properties.”

The liquidator’s statement that he was not provided with documentation in the Family Court proceedings is incorrect. He was provided with the affidavit which Mr Mead swore on 12 February 2001 on 19 July 2001 (paragraph 59 above), and on 7 August 2001 was informed of the date of the application to the Family Court, and provided with the application which was then the current one (paragraphs 61 and 62 above). Cross-examination of the liquidator also caused a different picture to emerge to that presented in his affidavit. At one time he said that from the beginning of October 2001 he “couldn’t be certain” that Mr Mead would make the application to the Family Court. Then he was taken to the last four of the paragraphs from Mr Mead’s affidavit of 26 July 2001 which I have quoted at paragraph 61 above. The following evidence was then given. “Q. You were aware of all of that at the time when this affidavit was read in the proceedings before Justice Einstein, or shortly thereafter? A. Yes. Q. You knew from that, didn’t you, Mr Mead was in fact going to proceed with an application to the Family Court for that purpose which he had commenced in February which had been unable to get heard before the Family Court on 23 July and had been stood over to 25 October, correct? A. That’s correct. Q. Then from that evidence nothing subsequently occurred to make you think that he was not going ahead with that, did it? A. No.”

And at T.16. “Q. You knew properties were the subject of competing claims between Mr and Mrs Mead down there [in the Family Court], didn’t you? A. Yes. Q. You knew in the meantime that the Family Court had them injuncted? A. That’s correct. Q. It was that injunction Mr Mead was trying to get varied to sell all of them to pay the costs of running this Supreme Court case? A. That’s correct. Q. Is it correct you understood Mr Mead could only go ahead with running the litigation against BL & GY in his own name and on behalf of the company if he obtained the funding by getting an order from the Family Court to sell those properties? A. Yes.” Mr Mead’s Understanding of the Liquidator’s Position

Mr Dominello gave evidence, which I accept, as follows: “12. At the conclusion of the hearing before his Honour Mr Justice Einstein I did not understand the Liquidator to be asserting on behalf of Hypec any claim to any interest in any of the properties registered in the names of Lucy and Colin Mead. I did not understand that he asserted or intended to assert or pursue any claim of an interest which would interfere with the sale of such properties (if authorised by the Family Court) or with the application of the proceeds of sale to Mr Mead’s legal costs (including costs of acting in the name of the company, in the event of his Honour Mr Justice Einstein making the orders sought). 13. Although the Liquidator’s Affidavit of 13 August 2001 deposed to “an apprehension that the matrimonial property, which Mr Mead is … wishing to sell for the purpose of the funding of the Common Law Proceedings may, in whole or in part, comprise assets properly belonging to Hypec”, I understood this to be mentioned merely as a possibility by which the Liquidator sought to raise doubt regarding the value of an indemnity from Mr Mead to the Liquidator in respect of the Liquidator’s own costs. 14. In the application before his Honour Mr Justice Einstein the Liquidator did not tender any evidence to establish, even to a prima facie level, any equitable interest in the properties for which Mr Mead had applied to the Family Court for orders for sale. Nor did the Liquidator at that time apply for any declaration or order to prevent Mr Mead from realising the matrimonial properties, if he could obtain an order from the Family Court. Nor did the Liquidator or his solicitor give any indication to me of any intention to lodge caveats or otherwise to restrain dealings with the properties. 15. From those aspects of the position taken by the Liquidator before his Honour Mr Justice Einstein, I understood that he was leaving to the Family Court the decision as to whether the properties ought be sold for the purpose of raising legal funds and that he would abide the outcome of that application. I understood the Liquidator was acquiescing in Mr Mead’s utilisation of the proceeds of sale of the properties to fund the litigation which he would conduct on behalf of Hypec against BL & GY, if he should obtain the orders which he sought from Mr Justice Einstein and from the Family Court. 16. The Liquidator actively opposed Mr Mead’s application on behalf of Hypec before his Honour Mr Justice Einstein. If he intended to claim on behalf of Hypec the matrimonial properties, the sale of which was integral to Mr Mead litigating in the name of Hypec, then I would have expected him either: 16.1 to do so in that hearing or 16.2 to announce a firm intention to enforce such a claim as a reason why Mr Mead should not or could not act in the name of Hypec. 21. After Mr Justice Einstein had made his orders of 27 August 2001 and right through until 12 December 2001, my understanding of the Liquidator’s position in respect of the sale of the matrimonial properties for funding of the litigation against BL & GY remained unchanged from the position which had appeared to me in the hearing on 17 August 2001. Had I been put on notice that the Liquidator would oppose the sale of the matrimonial properties, notwithstanding the making of an order in the Family Court, and/or that he would assert a claim that Hypec had equitable interests which prevented the properties being sold or their proceeds being used for Mr Mead’s costs I would not have continued to perform legal work and/or to brief Counsel. 22. At all times in 2001 I was unaware of any source from which Mr Mead could fund the anticipated legal costs of the proceedings in the name of Hypec against BL & GY, apart from the sale of these matrimonial properties. Notwithstanding my assessment that the Cross Claim in the name of Hypec against BL & GY had good prospects of success, I was not prepared to continue legal work or to brief Counsel upon the expectation of being paid out of that source. 23. I did not know whether a judgment upon the Cross Claim against BL & GY could be satisfied by that company. Nor did I know whether Mr Mead would be able to recover his costs out of such a judgment, even if successful, since the judgement would be obtained for the benefit of Hypec and not for Mr Mead personally. 24. From 27 August 2001 I proceeded to carry out legal work in the Common Law Proceeding and to brief Counsel in that matter in the expectation that: 24.1 Mr Mead’s Family Court application for orders to sell the properties had good prospects of success and 24.2 that there was no competing claim in respect of the properties and no impediment to the proposed realizations if ordered by the Family Court. 29. At the time of undertaking legal work to oppose BL & GY’s applications to Mr Justice McClellan and when briefing Counsel for that purpose, my understanding of the Liquidator’s position remained as stated in paragraphs 12-16 and 21-23 above. I would not have undertaken the work associated with resisting that application of BL & GY, nor would I have briefed Counsel for the purpose, had I understood that the Liquidator intended to pursue a claim which would prevent the utilisation of the proceeds of sale of matrimonial properties for the legal costs incurred, regardless of the Family Court’s decision. 32. On 25 and 26 October 2001 Mr Mead’s application to the Family Court for orders that matrimonial properties be sold and the proceeds used for legal costs was heard. At the conclusion of that hearing, upon the basis of remarks from the Bench in discussion with Counsel, I considered that the application would succeed. The presiding Judge, Mr Justice Cohen, reserved his decision to 2 November 2001. 33. In the expectation that Justice Cohen would make an order favourable to Mr Mead for the sale of properties, and on the understanding that there was no impediment to such sale by reason of any competing claim from the Liquidator or anybody else, I proceeded after 26 October 2001 to brief Counsel to prepare and to carry out my own preparation for the hearing of the Common Law action between BL & GY and Hypec. … 37. I never received any notice that the Liquidator would make a claim in relation to any of the matrimonial properties which would prevent or impede their sale, or the application of the proceeds to legal costs, until the first notifications of the lodging of some of the Liquidator’s caveats were served upon Mr Mead on about 12 December 2001. 38. If I had been informed at an earlier time that the Liquidator claimed on behalf of Hypec an equitable interest in the matrimonial properties which he asserted should prevent them from being sold or their proceeds being applied to legal costs incurred by Mr Mead, then neither I nor my associate, Mr Steven Lamont, who has conduct of the Family Court proceedings for Mr Mead would have undertaken work in relation to the Interim Property Application unless and until the Liquidator’s said claims been determined. Nor would we have briefed Counsel to appear in those proceedings.”

Mr Dominello was aware, from at least the end of June 2001, that monies belonging to HE had probably been used to purchase various properties in the name of Mr and Mrs Mead. He knew, from around the time of the hearing before Einstein J, that the liquidator was investigating the question of whether all or any of those assets in the joint names properly belonged to Hypec. His understanding that there was such an investigation continued to the time that he became aware of the lodgement of the caveats. However his understanding was that the claim which the liquidator was actually making was that the diversion of the company’s money to purchase assets in the name of Mr and Mrs Mead resulted in Mr and Mrs Mead having an obligation to repay the money, not in the liquidator having a proprietary right to assets. He gave evidence as follows: “Q. And you knew as well, did you not, very plainly, that the liquidator was asserting that many of those properties may well have been acquired with company funds and properly belong to the company? A. I knew that the liquidator was asserting he was investigating those assets but I was never aware, I can honestly say I was never aware he actually made a claim on the title of those properties until the caveat was made. Until then I thought this was a decision of Einstein J and I thought if he was going to have that decision reviewed or appealed, nothing happened so I honestly thought he went with the umpire’s decision as it were, allowed to go to the Family Court and sell the properties. Q. [Did you arrange] for anything to be put before the Family Court at all in relation to the liquidator’s assertion that … he had a real concern that assets in the name of Mr and Mrs Mead properly belonged to Hypec? A. No because the liquidator was aware of the proceedings and I would have thought he would have[intervened], if he had a concern. Q. After the proceedings before Einstein J you did not expect any appearance to be made by the liquidator before the Family Court did you? A. Sorry, after the appearance? Can you ask again? Q. After the hearing before Einstein J you did not consider it likely that the liquidator would make any appearance before the Family Court? A. No, because he did not appeal the decision of Justice Einstein, I thought he went with the umpire’s decision. Q. So, knowing that the liquidator would not be before the Family Court, did you not consider it important in accordance with your duty to that Court to be candid to provide that Court with some information about the liquidator’s position? A. No because the liquidator was aware that the proceedings were on foot and if they wanted to intervene to assert a right or to say do not do this, they would have done it. Because they didn’t, I thought they are not intervening; they have been seen Justice Einstein’s decision; we can now go ahead on behalf of the company and sell the assets. I honestly believed that.” Q. … Was it not apparent to you when these proceedings commenced on 5 November 2001 on your instructions that the concerns that the liquidator had expressed about assets properly belonging to Hypec was in fact the case? A. No. Q. Had not Mr Mead told you that company funds had been used to acquire those properties? A. Mr Greenwood, to me there is a distinction between company providing funds to somebody as a loan as opposed to actually asserting a right to a title. I always laboured under the impression they were loans. The only time that I realised that the company is now asserting title is when they placed the caveat and said we have an interest. Up to that time I thought they were trying to refer to loans from Colin and Lucy. Q. What did you understand by the words assets properly belonging to Hypec? A. They had made and were investigating and they were waiting to see what the evidence of Lucy Mead was before Justice Mathews. I don’t know how they went in their investigations but that was something they were investigating.”

When Mr Mead was engaging in both the Common Law Proceedings and the Family Court proceedings, on advice from Mr Dominello, Mr Dominello’s understanding on these matters count as beliefs and understandings of Mr Mead. Mr Mead was personally aware, as well, that the liquidator was apprehensive that the property Mr Mead was seeking to have the Family Court release properly belonged to the company, and he retained that apprehension up to the end of the hearing before Mathews AJ.

Mr Mead has given evidence, which I accept, as follows: “At no time prior to 12 December 2001 did I understand that the liquidator intended to make any claim upon my matrimonial properties, that would prevent me from selling these properties for the purposes of paying my legal costs in the Supreme Court Common Law Division proceedings no 1267 of 1997 that was ultimately heard before her Honour Justice Mathews (“the Supreme Court proceedings”). Had I been told at any earlier date that the Liquidator did intend to make any such claim, which if successful, would prevent me from selling those matrimonial properties for the purposes of paying my legal costs, then I would have followed any advice provided to me by my solicitor, Mr Victor Dominello, concerning the future course of the Supreme Court proceedings. At all times in the year 2001 I have had insufficient income from my business to fund this substantial litigation apart from small contributions to disbursements including a small part of Counsel’s fees. At all times in 2001 the only source from which I was aware, that I could meet the indebtedness to Counsel and my solicitors, was out of the sale of my matrimonial properties.” Estoppel – The Principles

In Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-9 Brennan J stated the requirements for an estoppel as follows: “it is necessary for a plaintiff to prove that (1) the plaintiff assumed or expected that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant's property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff's reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.” That passage is one described, in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies , 4th edition, paragraph 17-050 at 550 as one in which “the current state of authority in Australia as to equitable or promissory estoppel is encapsulated …” . There was no dispute before me about its correctness as a statement of the law. Nor was there any dispute that a liquidator could become bound by an estoppel. Estoppel – Application to the Facts First Element

Mr Mead and Mr Dominello assumed that the liquidator raised no opposition to Mr Mead seeking orders from the Family Court for access to the Four Properties and expected that, if the Family Court saw fit to grant the application, the liquidator would not stand in the way of the orders being implemented. The liquidator was aware of the date when the application was to be made to the Family Court, and of the orders which were proposed to be sought concerning the Four Properties. While the liquidator was not aware of the terms of the Amended Application filed on 22 October 2001, (paragraph 82 above), the amendments made by that Amended Application were not reflected in the orders which Cohen J made. Mr Mead and Mr Dominello expected that, when the liquidator allowed any orders which Cohen J might make to be implemented, the liquidator would not be free to withdraw from that position. Mr Mead, Mr Dominello and the liquidator all knew that the purpose of the application to Cohen J was to enable Mr Mead to have money, which he otherwise did not have, to fight the Common Law Proceedings. While the liquidator had opposed leave being granted to Mr Mead to act in the name of HE in the Common Law Proceedings, the liquidator had not succeeded in that opposition, and had not appealed against the orders of Einstein J. Mr Mead and Mr Dominello can be taken to have known what any litigant involved in heavy litigation knows, namely that it is an expensive business, involving the expenditure of large sums of money each day that a trial is on foot. Second Element

The liquidator induced Mr Mead and Mr Dominello to adopt that assumption and expectation. In the hearing before Einstein J, the liquidator did not take the position that a reason why Einstein J ought not grant Mr Mead the leave he was seeking, was that Mr Mead could only run the Common Law Proceedings if he sold the properties, and the liquidator wanted to preserve the position so that he could recover the properties if his investigations showed that there was a constructive trust or resulting trust in favour of HE. The liquidator did not appeal against the decision of Einstein J, nor intervene in the proceedings before Cohen J. The liquidator was represented in court every day of the hearing before Mathews AJ, when it would have been obvious to anyone who thought about it that Mr Mead was spending money at a significant daily rate in conducting those proceedings, yet said nothing to bring into question that Mr Mead would have access to the Four Properties as a source of funding. The way in which the liquidator had framed the claim which he had made, up to that date, against Mr Mead was that it was a claim for repayment of a directors’ loan account. The evidence which Mr Hodgson gave in the course of the Common Law Proceedings continued to characterise the obligation which Mr Mead had to HE, as a result of HE’s money having been used to purchase the jointly owned assets, as an obligation of loan (paragraph 87 above).

The liquidator submits that there was nothing in the actions of the liquidator in the period May to December 2001 which could properly give rise to a belief that the liquidator would not act in accordance with his duties as an officer of the Court. Expressed in those very general terms, that proposition is correct. However, as things appeared to Mr Mead and Mr Dominello, the liquidator was not claiming that part of his duty required him to recover, in specie, the assets which had been purchased with the money of HE. It was perfectly consistent with the liquidator performing his duty that he continue to seek to recover the amount of the directors’ loan account. And there was no reason to believe that the liquidator would not see it as consistent with his duty to let Mr Mead challenge, on HE’s behalf, the debt claimed by BL, with part of the cost of that challenge coming from sale of assets which might, if the liquidator’s enquiries turned out that way, prove to be assets of HE. Third Element

It is, in my view, clear that Mr Mead and Mr Dominello acted in reliance on the assumption and expectation which they had. Mr Mead simply could not have afforded to run the Common Law Proceedings without access to the Four Properties, and Mr Dominello would not have been prepared to extend credit to Mr Mead if Mr Dominello had not believed that the Four Properties would be available to fund the legal costs. Fourth Element

In light of the liquidator’s admission in cross-examination that he understood that Mr Mead could only go ahead with running the Common Law Proceedings if he obtained the funding by getting an order from the Family Court to sell the properties, I infer that the liquidator knew, as the trial before Mathews AJ went on, that Mr Mead and Mr Dominello were acting on that assumption and expectation. I also infer that the liquidator knew, prior to the date of the trial commencing, that, if Mr Mead ran the Common Law Proceedings, he would be doing so on the basis that he had obtained funding through the Family Court order, and that he expected that he would not have to hand back to the liquidator the proceeds of sale of those properties. Fifth Element

The failure of the liquidator to make clear, prior to the hearing in front of Mathews AJ concluding, that he would be claiming, or at least that he reserved the right to claim, that the Four Properties were assets of HE, caused Mr Mead and Mr Dominello to continue to run the Common Law Proceedings, and incur very large expense, when they otherwise would not have done so. If the liquidator is now permitted to depart from the assumption which Mr Mead and Mr Dominello were making, they will suffer a detriment. While Mr Mead and Mr Dominello will be able to apply towards their costs the $115,000 paid by BL as security for costs, that $115,000 is nowhere near adequate to pay for all the costs. While it is true that they have the benefit of an indemnity costs order against BL and Ms Yang, there is no assurance of recovery from those sources. The practicalities of enforcing a costs order against BL in Taiwan have not been explored in the evidence before me. Nor have the means of either BL or Ms Yang been explored. There was evidence that Mareva orders had been obtained against Ms Yang, restraining disposition of property pending payment of the costs, and that Mr Dominello had received information tending to suggest that the Mareva orders had been breached. The overall history of the matrimonial dispute between Mr and Mrs Mead lends some support to the conclusion that, even if BL and Ms Yang had the assets to pay the costs order, enforcement would be by no means easy. At the least, departure from the assumption and expectation would result in Mr Mead not having a sure and readily available source of funds from which to pay costs of the Common Law Proceedings. Sixth Element

By the liquidator taking these proceedings to recover the four identified properties, and actively seeking to prevent Mr Mead and Mr Dominello’s assumption and expectation from continuing to apply, the sixth element is fulfilled.

Thus the elements of the estoppel are made out. Liquidator’s Defences to Estoppel

The liquidator submits that Mr Mead’s claim of an estoppel relates to funds which will be used, in part, for Mr Mead’s own purposes. The first way in which the funds are said to be used for Mr Mead’s own purposes is that they are available for the costs of his own Family Court proceedings. While the reasoning which led Cohen J to make the orders included contemplation that half of Mr Mead’s past Family Court costs would be funded from the Four Properties, in fact the blow-out of costs in the Common Law Proceedings, resulting from the hearing being protracted so much beyond its original estimate, means that no part of the amount which has become available under Cohen J’s order will be used (at least in the first instance) in payment of the costs of Mr Mead’s Family Court proceedings. It would only be if Mr Mead had substantial recovery from BL and Ms Yang under the costs order in the Common Law Proceedings that this result would follow.

The liquidator also points out that the funding provided under the order of Cohen J was for Mr Mead’s own defence of the claim against him in the Common Law Proceedings, as well as for defending BL’s claim against HE. Mr Dominello readily agreed to the proposition (which I would infer from other evidence about Mr Mead’s financial circumstances in any event), that , “he needed to defend these proceedings because otherwise the judgment that could be obtained by BL & GY against him would wipe him out completely” . Even accepting that fact, it does not detract from the correctness of findings that each of the six elements of the estoppel is made out. Neither does it provide a basis for any recognised equitable defence to an equitable estoppel which is otherwise found to exist. The same can be said of the possibility that, in future, funds might become available from the Four Properties which can be used to fund Mr Mead’s past Family Court costs.

The liquidator points out that, as well as funding Mr Mead and HE’s defence of the Common Law Proceedings, if Mr Mead were permitted to retain the funds made available to him under the order of Cohen J, that would result in the running of the cross-claim in the Common Law Proceedings also being financed by the Four Properties – and that cross-claim is one which Mr Mead lost. Mathews AJ regarded the fact that Mr Mead was unable to satisfy her about the correctness of HE’s cross-claim as a matter of such little importance that it did not justify any qualification on the order that BL and Ms Yang pay the whole of the costs of the Common Law Proceedings on an indemnity basis. That gives some indication of the relative importance of the cross-claim in the overall running of the proceedings. Further, the fact that Mr Mead lost the cross-claim does not undermine the existence of any of the elements of the estoppel, nor does it provide a recognised basis for refusing to give effect to an estoppel which would otherwise exist.

The liquidator submits that the relief which Mr Mead seeks would result in Mr Mead’s creditor’s being preferred over the company’s creditors. I am not satisfied that this is so as a matter of fact. Now that it has been judicially determined that no money is owing by HE to BL, the only creditors of substance of HE will be the Australian Taxation Office, and the costs and expenses of the liquidation. It is not clear that the assets of the company, even if the estoppel were given effect to, would be insufficient to pay all creditors of HE in full.

As well, however, even if it were correct that giving effect to the estoppel would result in Mr Mead’s creditors being paid, when the company’s creditors were not paid, that would not in itself be a reason for not giving effect to the estoppel. Again, such a fact neither detracts from the existence of any of the elements of the estoppel, nor provides a recognised reason why an estoppel which otherwise exists ought be held not to exist.

The liquidator says that Mr Mead lacks clean hands, in that, while a director of HE, he committed continuous and serious breach of his duties as director by leaving the financial affairs of the company to be looked after completely by his wife, and that it is his dereliction of duty in this respect which has led to the situation where assets which belong beneficially to the company are in the hands of himself and his wife.

Before a defence of unclean hands is made out, the bad conduct must have “an immediate and necessary relation to the equity sued for” : Dering v Earl of Winchelsea (1787) 1 Cox 318; 29 ER 1184. In Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 at [157] ff I examined what that means. I will not repeat that analysis here. Here, Mr Mead does not need to prove anything to do with his own conduct as a director of HE to make out the elements of the estoppel – and it is the estoppel which is “the equity sued for” . The defence of unclean hands is not made out in this respect.

The liquidator also points to the fact that, after the liquidation began, Mr Mead was uncooperative with the liquidator, and failed to submit a Report As To Affairs. While Mr Mead’s conduct in this respect has nothing to recommend it, it does not have an immediate and necessary relation to the equity, of estoppel, which is sued for.

Another type of unclean hands which the liquidator relies on is an alleged failure to make full and frank disclosure to the Family Court of the liquidator’s position, concerning the Four Properties, at the time of the hearing before Cohen J.

I do not accept that there was any failure to make proper disclosure to the Family Court. The fact that the Four Properties were ones which had been purchased with assets of HE was clearly placed before Cohen J.

In opening to Cohen J, Mr Fagan said that Mr Mead’s case in the Supreme Court included that: “… it was during this whole period of March ’82 to November ’96 that profits from the trading and computers of these successive companies were applied to the purchase of real estate and there is detail in the affidavits about what properties were brought - - - “

As well as matters which appear expressly from the judgment of Cohen J, his Honour had before him paragraph 6.3 of an affidavit of Mr Mead sworn 12 February 2001, which said: “I verily believe that, throughout the course of my marriage significant amounts of income have been derived by Lamron, Hypec Electronics and Hypec Technology as a direct result of my contributions to these companies. I verily believe that some proportion of the income generated by these companies was then used by my wife to purchase, or assist in the purchase, some of the various properties described earlier in this affidavit.” Those “various properties described earlier in this affidavit” included the Four Properties.

Cohen J was well aware that HE was in liquidation. The judgment of Einstein J was provided to his Honour, as part of a folder of materials relating to the Common Law Proceedings (though the particular paragraphs of it which recorded the liquidator’s “apprehension” that the Four Properties might be HE’s property, were not specifically drawn to Cohen J’s attention.) Precisely because Mr Mead had the assumption and expectation that I have found constitutes the first element of the estoppel, there was no occasion for him to have his legal advisors inform Cohen J of anything more, about the possibility of the liquidator making a claim that HE had the entire beneficial interest in the Four Properties.

It follows that all the defences to the estoppel fail. The estoppel will be upheld. I consider the appropriate remedy in further detail at paragraph 199 below. The Principle in Ex Parte James

An alternative basis upon which Mr Mead makes his claim to the Four Properties is that the liquidator ought be precluded, under the principle in Ex parte James and section 447(6) Corporations Act 2001 , from now laying claim to the Four Properties.

Ex Parte James; In Re Condon (1874) LR 9 Ch App 609 arose when Bradshaw obtained a judgment debt against Condon. The Sheriff seized some of Condon’s goods under a writ fieri facias , sold them, and paid the proceeds to Bradshaw. Two days after that payment, a petition for Condon’s bankruptcy was filed, which resulted in a bankruptcy adjudication. Mr James, the trustee of the bankrupt estate, pressed Bradshaw to pay to him the amount which Bradshaw had received as fruits of the execution. Bradshaw did so, after receiving advice that he was legally obliged to do so. A decision of the Court of Appeal in Chancery ( Ex parte Villars; In Re Rogers (1874) LR 9 Ch App 432) was then given, which stated the law in such a way that Bradshaw had not had an obligation to hand over the execution proceeds. Bradshaw applied to the trustee to refund the execution proceeds. The Court of Appeal in Chancery held that the refund should be made. There was some argument before that Court about the proper construction of the section of the Bankruptcy Act 1869 upon which the question of whether Bradshaw had been obliged to hand over the execution proceeds depended. As well, counsel for the trustee in bankruptcy argued, at 612: “We also contend that, even if the Court should be against us on the construction of the Act, that the money having been paid to the trustee voluntarily, under a mistake of law, cannot now be recovered from him. The trustee is not an officer of the Court, but the representative of the general body of the creditors, and he did not receive the money from the execution creditor virtute officii , but simply as such representative: Brisbane v Dacres 5 Taunt 143, 151; Steele v Williams 8 Ex 625.

Counsel for Bradshaw argued, at 613. “Then with respect to the second point, we contend that the trustee is an officer of the Court, and is bound to administer the money in his hands according to the principles of the law of bankruptcy. By the 20th section of the Bankruptcy Act, 1869, he is placed in the same position as a receiver of the Court of Chancery. But independently of the nature of the office of the trustee, the rule that relief cannot be given for a mistake of law has never been considered by the Court of Chancery an inflexible rule, and has been departed from in cases where manifest injustice would result from it: Re Saxon Life Assurance Society 2 J & H 408; Stone v Godfrey 5 D M & G 76.

Sir W M James LJ gave judgment on this point at 614: “With regard to the other point, that the money was voluntarily paid to the trustee under a mistake of law, and not of fact, I think that the principle that money paid under a mistake of law cannot be recovered must not be pressed too far, and there are several cases in which the Court of Chancery has held itself not bound strictly by it. I am of opinion that a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to someone else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people. Sir G Mellish LJ agreed, at 616, with those observations.

In Ex parte Simmonds; In Re Carnac (1885) 16 QBD 308 the trustees of a marriage settlement had paid certain income to the trustees of the insolvent estate of the husband of the marriage. Those payments resulted from the trustees of the marriage settlement mistakenly concluding that the monies so paid belonged beneficially to the husband of the marriage, not to the children of the marriage. The monies so paid had been distributed to the creditors of the insolvent estate. The trustees of the marriage settlement obtained from the Court of Bankruptcy an order that the trustee of the insolvent estate should, out of any assets then in his hands, or out of the first assets thereafter to come into his hands, repay the sum mistakenly paid. That order was upheld in the Court of Appeal. Lord Esher MR said, at 312: “The question is, what ought the Court to do when the mistake is discovered? When I find that a proposition has been laid down by a Court of Equity or by the Court of Bankruptcy which strikes me as a good, a righteous, and a wholesome one, I eagerly desire to adopt it. Such a proposition was laid down by James, LJ, in Ex parte James LawRep 9 Ch 609. A rule has been adopted by Courts of law for the purpose of putting an end to litigation, that, if one litigant party has obtained money from the other erroneously, under a mistake of law, the party who has paid it cannot afterwards recover it. But the Court has never intimated that it is a high-minded thing to keep the money obtained in this way; the Court allows the party who has obtained it to do a shabby thing in order to avoid a greater evil, in order that is, to put an end to litigation. But James, LJ laid it down in Ex parte James LawRep 9 Ch 609 that, although the Court will not prevent a litigant party from acting in this way, it will not act so itself, and it will not allow its own officer to act so. It will direct its officer to do that which any high-minded man would do, viz , not to take advantage of the mistake of law. This rule is not confined to the Court of Bankruptcy. If money had by a mistake of law come into the hands of an officer of a Court of Common Law the Court would order him to repay it so soon as the mistake was discovered.” This order was made even though there were no monies in the hands of the trustee of the insolvent estate, into which the mistaken payments could be traced, or over which a lien could be claimed.

In In re Tyler; Ex parte The Official Receiver [1907] 1 KB 865 a man had life policies mortgaged to bankers to secure an overdraft. Upon becoming bankrupt, he requested his wife to continue to pay the interest on the overdraft, and premiums on the policies. The wife did so until her husband died, paying out £481. The trustees in bankruptcy knew she was doing so. At the time of the husband's death, the amount payable under the policies exceeded the amount owed to the bankers by £514. The bankers paid the £514 to the official receiver. The widow claimed to be entitled to be reimbursed £481 by the official receiver.

The Court of Appeal upheld her claim. Vaughan Williams LJ held that the statement of James LJ, which I have quoted at paragraph 121 above, was not limited to the particular case of money paid under a mistake of law, but amounted to a general principle as to the duty of the Court. At 869: "when James LJ says that the trustee has in his hands money which in equity belongs to somebody else, he is not referring to an equity which is capable of forensic enforcement in a suit or action, but he is referring to a moral principle which he describes when he says that the Court of Bankruptcy ought to be as honest as other people.". He was of the view that the widow would in any event have had "… such an interest in the policies as entitled her to prevent the trustee or other representative getting the benefit of those policies without recouping the premiums which she had paid. "(870) (The widow’s interest in the policies would be an equitable lien analogous to a “ fruits of the action” lien: Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451.) As well, though, Vaughan Williams LJ decided that the widow’s claim could be upheld on the principle in Ex parte James : "I know it is said that it opens the door dangerously wide when you allow the Court or its officers to order money to be repaid in a case where there is no legal right of recovery; but it must be remembered that, although these decisions allow those who are acting judicially in bankruptcy to exercise this discretion, the discretion which is given must be acted on on judicial principles."

Farwell LJ explains how it can be that the Court requires its officer to act in a way which does not involve enforcement of legal rights. "Our Courts have two functions, one to decide rights between the parties and the other to administer estates. In administering estates, whether in Chancery, bankruptcy, or the winding up of companies, the Court itself by its officer often finds itself in the position of a quasi-litigant. As I understand the principle laid down in the cases to which my Lord has referred, it comes to this, that the officer of the Court is bound to be even more straightforward and honest than an ordinary person in the affairs of every-day life. “ (871).

He also was of the view that the widow would have had a legal right of recoupment of the premiums and interest paid, but said that even if she had not had such a right he would still have allowed her to recover, because the Court ought not allow its officer to say "I knew the wife was paying, and I let her go on paying, and said nothing to her to lead her to believe that I was going to claim the policy monies at the end without repaying the premiums which she had paid. " -- taking their attitude would involve, he said, a "dirty trick" (at 872).

Buckley LJ said that the reference of James LJ, in Ex parte James to “money which in equity belongs to someone else” means "money which in point of moral justice and honest dealing belongs to someone else. He was using the words in a popular sense, and not in the sense of money which in a Court of Equity would belong to someone else.“ (873). As to the facts of the case, he said that (at 874): "She may not have an enforceable claim, but as a matter of justice it cannot be right, when the time comes for the payment of the monies due on the policy, to allow the trustee to turn round and say "I knew you were keeping down the premiums, but I shall take the policy monies, and you shall go without the money you have paid." That is not consistent with justice, and no high-minded man would do it."

In In re Tyler at 872 Farwell LJ drew an analogy with Else v Else (1871) LR 13 Eq 196. There, a deceased estate was being administered by the Court. A contract was entered for the sale of an item of the deceased's realty, with (as described by the headnote) special conditions “which precluded the purchaser from objecting to the title prior to the document chosen as root of title, and made recitals in deeds more than 20 years old conclusive. A recital covered by this condition was so framed as to conceal a defect of title prior to the date fixed for commencement of title. The purchaser inquired into the prior title, and refused to complete on the ground that the prior title was bad".

The Court held that the prior title was indeed defective. Lord Romilly MR refused to order specific performance of the contract, saying (at 201): "A buyer, no doubt, knows that unusual conditions of sale are framed to meet peculiar difficulties; and these are quite fair, even where framed by the Court, if they will still, in the opinion of the Court, leave the purchaser in the complete possession of the thing he has bought, even though he does not get what is called a marketable title; but if not, the Court has no right to enter into such contests, and try to fence with and outwit purchasers, and sell on the chance of the purchaser being able to resist a suit for the recovery of the possession of the lands on a defect not disclosed to him. I am of opinion that such a condition would be bad as a fraudulent misleading condition in any sale, for it professes, or induces the buyer to believe, that the recital accurately represents the will, which it does not. But in a sale under the authority of the Court of Chancery, which, above all things, ought to teach others and set them the example of straightforward dealing, and telling the truth, and the whole truth, such a condition under the circumstances of this case, is, in my opinion, binding on no one."

Farwell LJ in In Re Tyler at 872 also drew an analogy with In Re Banister; Broad v Munton (1879) 12 Ch D 131.

That case involved another deceased estate, where real estate had been sold under an order of the Court, and the purchaser found the title was defective. Fry J said, at 136: “It is also perfectly plain that, where the sale is under the direction of the Court, the Court will lean, if possible, to a more exact requirement of good faith and honesty on the part of the vendor; it will endeavour to insist upon that fair, straightforward, honest, open dealing which ought to characterise transactions between vendor and purchaser.”

Jessel MR said, at 141: “… in sales by the Court there should be at least as much good faith shewn towards the purchaser as, and perhaps a little more than, is required by ordinary vendors out of Court. The old Court of Chancery – and this Court is its successor – has always felt bound to see that purchasers are fairly and honestly dealt with in every respect; and if there is any difference – I do not say there is – the difference must surely be in favour of a purchaser who buys under the decree and order of the Chancery Division.”

Cotton LJ said, at 150: “… but I think in a case of this sort, where the sale is by the Court, the Court is bound to take more especial care, if possible, that there shall be nothing in the conditions, or in the representations therein contained, which by possibility can mislead a vendor, because the purchaser has a right to assume that the Court will take very good care that there shall be nothing that can in any way mislead him as to the title he is getting. “

In In Re Craig & Sons; Ex Parte Hinchcliffe [1916] 2 KB 497 Hinchcliffe was a judgment creditor of “A”. The sheriff seized goods under a writ of execution from “A”. The sheriff was then given notice, by “A”’s landlord, requiring him not to remove or sell any of the goods until six months arrears of rent had been paid to the landlord. Under a Statute of Anne, the landlord had a right to make such a claim, by way of lien or distress. Hinchcliffe paid the arrears to the landlord, rather than withdraw his writ. The sheriff sold the goods. “A” became bankrupt. The sheriff handed to the trustee in bankruptcy the net proceeds of sale. Hinchcliffe applied for an order for the trustee to pay him the amount which Hinchcliffe had paid to the landlord. Horridge J dealt with the interrelationship between the Statute of Anne, and the provision of the Bankruptcy Act 1914 which required the sheriff to pay certain proceeds of execution to the official receiver or trustee in bankruptcy, and held that the sheriff was obliged to pay to the trustee only an amount which had deducted from it whatever was payable under the Statute of Anne. He said, at 503: “In this case I think the strict right of the applicant would be to take proceedings against the sheriff and say his payment to the trustee was wrong, but in that case the payment by the sheriff to the trustee would be a payment made in mistake of law and the principle of Ex parte James; In Re Condon (LR 9 Ch 609) would have applied, and the Court would order the trustee to repay the sheriff. I am not going to do that. I think I have the right to say that, inasmuch as I am satisfied the trustee has got something that he ought not to have, I can order him in conscience to pay it directly to the person who is entitled to receive it. “ This is a further illustration of how Ex parte James can result in a liquidator being directed to do something it is not his strict legal duty to do.

In Re Thellusson; Ex parte Abdy [1919] 2 KB 735 arose from Mr Abdy lending £1,000 to Thellusson, to enable Thellusson to pay a pressing debt. Of this £1,000, £900 was paid to Thellusson’s bankers, part of which was used to discharge an overdraft, leaving a credit balance of £764. Unknown to Abdy, a receiving order had been made against Thellusson the day before the final £900 of the £1,000 was paid over. The bankers paid the £764 to the Official Receiver. The Court of Appeal held that the Official Receiver should repay that £764 to Mr Abdy. Warrington LJ at 746 said, of the judgment of James LJ in Ex Parte James : “In saying that the trustee had money in his hands which “in equity” belonged to someone else, the learned Lord Justice did not mean that a Court of equity would, as between litigants, hold that the money belonged to the supposed claimant, but was using the word “equity” in a wider and more popular sense.”

Warrington LJ’s conclusion, at 750-751, was: “We have here a trustee in bankruptcy in possession of money of the bankrupt which he knows was lent to him by Mr Abdy in ignorance of the fact that on the day before the payment a receiving order had been made and which would not have been so lent if the facts had been known to the lender. I think under such circumstances an honest man would on ascertaining the facts at once repay the money, and, in my opinion, the trustee must be ordered to pay the [£764] accordingly.”

Duke LJ at 754-755 agrees that “belonging in equity” does not refer to an equity capable of forensic enforcement. He said, at 756: “A broad principle of general application was laid down in the three leading cases; its generality cannot be diminished by reason that other cases upon their facts were held not to fall within the principle. The principle to be applied is that the Court in Bankruptcy ought not to allow its officer to insist upon a rule of law or equity in the administration of an estate in bankruptcy under the control of the Court where such insistence would produce an unjust and dishonest result. The trustee in the present case claims to be entitled as of legal right to retain a sum of money which would not have been paid by the appellant to the bankrupt’s account if he had known of the receiving order. In my opinion the bankrupt could not honestly have received this sum and the trustee ought to be directed to refund it.”

Atkin LJ, at 757 referred to the principle as one, “that in administering estates in bankruptcy the Court can look beyond the legal rights of the parties, and will direct its officers to act as an honourable and right minded man would act in dealing with his own affairs.” Atkin LJ also said at 757: “It is undisputed that neither the applicant nor his solicitor at any material time had any notice of any act of bankruptcy petition or receiving order, and this case must be determined on the footing that the debtor when he received the £900 did not know that the receiving order had been made. … The result of the receiving order was undoubtedly to defeat the object of the loan transaction – namely, to relieve the debtor from pressure by a creditor. Its existence placed the £900 in the custody of the Official Receiver as receiver of the debtor’s property. … Moreover, if, … the loan transaction created an obligation upon the debtor for the first time on January 3, the applicant had no right of proof against the assets of the debtor, for the right of proof by section 30 is limited to debts and liabilities to which the debtor is subject at the date of the receiving order. His remedy as the learned judge no doubt ironically observed is to present another petition. “

He pointed out that in Ex parte James the trustee had acted in a way which was morally unimpeachable in demanding the money – the trustee had acted on the basis that he had a right to the money, and that view of the law had only very recently been held correct by a single judge. It was only after the trustee had received the money that that decision of the single judge was reversed. Hence Atkin LJ said, at 760: “In truth the only act or omission by the trustee capable of complaint was holding the money after the rights of the parties were ascertained.”

Likewise he pointed out that the decision in Ex parte Simmonds was one where there was no moral fault in the trustees receiving the money in the first place. At 760, Atkin LJ said: “It appears to me that the principle as stated in these two decisions is not limited in its application to cases of money paid under a mistake of law. The two cases however were both of this description.” At 764: “It can make no difference whether the trustee himself has acquired the property by unworthy means, or whether there is vested in him by operation of law property which has been acquired by the debtor by unworthy means. If it would be dishonourable of the debtor to use the property to pay his creditors, it is equally dishonourable for the officer of the Court, knowing the full facts, to use the money to pay his creditors.” “We were pressed in argument with the contention put before the Court in In Re Tyler [1907] 1 KB 865, 868, that “great difficulties will arise in the administration of bankruptcy if the court is to decide according to what it considers high minded without regard to law or equity.” I think that these difficulties are exaggerated. But while one may agree that opinions as to rules of honesty differ, the difficulty of recognising honesty when she appears, affords no inadequate reason for discarding her altogether. The advantages of maintaining a high standard of commercial morality in my judgment far outweigh the suggested inconveniences of administration. If I may repeat the words of Lord Esher the proposition strikes me as a good, a righteous and a wholesome one, and I eagerly desire to adopt it.”

In Re Wigzell; Ex parte Hart [1921] 2 KB 835 after a receiving order had been made, a bankrupt paid into his bank account £165, and drew out £199. The bank acted in good faith and without notice of the receiving order in both receiving the deposit, and allowing the withdrawal. The bank could not have known of the receiving order, because advertisement of it had not occurred, as a consequence of a stay of the receiving order granted pending an appeal. That appeal subsequently failed. The bank asked the court to hold that the trustee in bankruptcy was precluded, by the rule in Ex parte James , from claiming the £165, when the trustee knew that the bank had paid out the £199.

Salter J at 845 described the relevant principle as being: “… that where a bankrupt’s estate is being administered by the trustee under the supervision of a Court, that Court has a discretionary jurisdiction to disregard legal right, and that such jurisdiction should be exercised wherever the enforcement of legal right would, in the opinion of the Court, be contrary to natural justice. … The question to be decided is … one of ethics, not of law. Legal rights can be determined with precision by authority, but questions of ethical propriety have always been, and will always be, the subject of honest difference amongst honest men. The effect of exercising the jurisdiction which these decisions have asserted and defined is to deprive the creditors of money which is divisible among them by law. I feel sure that such a power should not be used unless the result of enforcing the law is such that, in the opinion of the Court, it would be pronounced to be obviously unjust by all right-minded men. “ The result was that the bank failed.

An appeal to the Court of Appeal was dismissed. Lord Sterndale MR quoted with approval the remarks of Salter J, qualifying them only by saying: “I do not know that I go quite so far as the learned judge in saying that legal rights can always be determined with precision by authority. There are no doubt rules to which you can resort, but in practice we have seen that absolute unanimity is not always obtained, even when you are dealing with legal or equitable rights. But when you once enter on the field in which there is no standard to be applied except that which each person thinks is the one of honesty and right the difficulty of course becomes enormously increased.” (at 852)

Lord Sterndale MR accepted that authority required that the rule in Ex parte James be applied in bankruptcies, notwithstanding that the regime for collection and distribution of assets in bankruptcy was governed by a statute which states which assets are distributable in the bankruptcy, and to what extent bona fide dealing by someone with a bankrupt should result in that dealing retaining validity notwithstanding the bankruptcy. He said, at 851, concerning the effect of Ex parte James : “It seems to me to have been established practically that there must be read into section 45 of the Bankruptcy Act 1914 , after the second proviso, a third proviso: “provided that the transaction whenever it takes place is one which it would not be honourable or high minded for a trustee to impeach.” ”

Scrutton LJ, at 857 said: “… owing to the decisions of this Court judges sworn to administer the law and endeavouring to apply the law find themselves brought into a region which is not law, but ethics; a matter on which individual minds may easily differ.”

At 858, Scrutton LJ expressed his common lawyer’s disapproval of the whole enterprise of giving legal effect to ethical principles: “Now the decisions of this Court have established that though in law the money is the money of the trustee for the creditors, yet he may be restrained from enforcing his claim to it or retaining it if (and a series of phrases none of which are very definite have been used) it were not honourable – if it were not high minded – if it would be contrary to natural justice – if it would be shabby – if it would be a dirty trick for him to retain it – or to take perhaps the most temperate statement of the principle, which I find given by Buckley LJ in In Re Tyler (1907) 1 KB 865, 873 and cited with approval by Atkin LJ in Thellusson’s case [1919] 2 KB 735, 762: Assuming that he (the officer of the Court) has a right enforceable in a Court of justice, the Court of Bankruptcy or the court for the administration of estates in Chancery will not take advantage of that right if to do so would be inconsistent with natural justice and that which an honest man would do. I desire to say very respectfully that it seems to me that when we have got into this atmosphere we have reached a region of uncertainty.”

Younger LJ at 866 described himself as “not one of those prepared to be unduly critical of the principle laid down in Ex parte James when properly applied .” He continued: “But I agree fully in thinking that as a matter of prudence the Court is well advised to exercise this power only in clear cases, and, although I should be the last to seek to fetter its exercise by any words of limitation, I think, avoiding the language of metaphor, that it may not be unwise to say that whether or not it may be exercised in other cases the Court should certainly be slow to refrain from exercising it in a case, in which … good sense would be shocked if the Court were not empowered to do so.” He pointed out, at 866 that, with one exception, the circumstances in which Ex parte James had previously been applied: “have been that the trustee in bankruptcy either of his own motion or acting under the direction of the Court, and, in each instance, having in view the benefit of the general body of creditors has entered upon a transaction which it is considered it would in the event be unconscionable for him to insist should be carried out strictly in accordance with the legal rights which the trustee under it possesses. Except in one case it has always been a feature that the transaction in question has in its origin been one initiated or approved in the interest of the general body of creditors.”

That one exception he identified, at 868, as In Re Thellusson . He recognised the extreme unfairness of the situation of Mr Abdy, in that case, who could not even prove as a creditor in the bankruptcy because he had lent the money after the bankruptcy had started, and who, if an order were not made, would see the other creditors who could prove in the bankruptcy paid with his money. Younger LJ continued, at 869 that there was an “essential difference between applying this principle to a transaction initiated by the bankrupt himself, not presumably in every case a person of the highest commercial morality, and a transaction initiated either by the trustee or the Court. In my view in considering the extent of this particular jurisdiction it is quite vital to distinguish between a trustee not insisting or the Court not permitting him to insist on all the legal consequences of, on the one hand, a transaction initiated by himself or by the Court in the interests of the general body of creditors and on the other hand a transaction initiated by the bankrupt. In the first case the creditors are the constituents of the trustee throughout, and as they are entitled to benefit by the transaction, so it does not seem to be wrong to say that they shall take it as it honourably is no more and no less. But in the second case the bankrupt has no constituents – that is to say, the transaction is initiated by him presumably in his own interests alone – and it is not obvious that a creditor with whom that transaction has been carried out and is complete, even one who in relation to it may have been tricked by the bankrupt, has any equity at all as against the other creditors of the same bankrupt, who may all have been equally tricked, merely because in his case the proceeds of the transaction can be traced amongst the bankrupt’s assets, and in the other cases they cannot. Accordingly it does appear to me that while In Re Thellusson is a decision binding upon us the general extension of this principle to transactions initiated by the bankrupt as distinct from transactions initiated by the trustee is one which in future cases will have to be very jealously guarded … “

Scranton’s Trustee v Pearse [1922] 2 Ch 87 involved a bankrupt who had paid to the defendant, a bookmaker, various cheques for bets lost on horseracing. The trustee in bankruptcy began an action against the defendant to recover the amounts so paid. The House of Lords had held, in Sutters v Briggs [1922] 1 AC 1, that when the loser of a bet paid the amount of his losses by a cheque, he had a statutory right under the Gaming Act 1835 to recover the amount paid. Scranton’s Trustee v Pearse proceeded on the basis that if Mr Scranton had not become bankrupt, he would have had an unarguable right to recover the amount he had paid for his losses. Astbury J, at first instance, held that a trustee in bankruptcy was in a different position. He said, at 110: “In the administration of estates in Chancery and in bankruptcy, in the liquidation of companies, and in cases relating to wards, infants, and lunatics, the Courts are regularly and constantly called upon, in the interests of the community, to exercise a judicial discretion, and the administration of justice in these cases would soon become impossible if such a course were not permissible, and would be seriously hampered if lines too hard and fast were laid down for its exercise, having regard to the complex and often novel circumstances which from time to time call for its assistance.”

Astbury J decided, at 111, that it would not be an honest or honourable thing for the plaintiff to prosecute this claim, if he were an ordinary individual suing on his own behalf. In effect, his view was: how could it be honourable to sue to recover a payment of a debt of honour?

An appeal to the Court of Appeal was unanimously allowed. Lord Sterndale MR said that the correct way to apply Ex parte James was not to ask whether, if the bankrupt had remained solvent, it would have been dishonourable for him to have taken action to recover the gambling debts. He said, at 120: “If the [bankrupt] had remained solvent, he would have been seeking to recover money which he had paid as a debt of honour, in order to put it back into his own pocket. The trustee, on the other hand, is bound as a trustee to administer the bankrupt’s estate for the benefit of the bankrupt’s creditors in general, and I am by no means sure that the same standard is to be applied to him, so that if it be said it would be a dishonourable thing on the part of the bankrupt if he had remained solvent to bring the action, therefore it must be a dishonourable thing on the part of the trustee.”

Further, the present fact situation was distinguishable from previous cases. Lord Sterndale MR said at 120: “… there was here an unquestioned right in the trustee to recover this money from the defendant both at the time the receiving order was made and at the time the adjudication was made. That right was a chose in action which was part of the property of the bankrupt. By the express provisions of the Bankruptcy Act 1914 , that chose in action is vested in the trustee, and, therefore, what he is doing is realizing an asset which comes to him as a statutory debt and is vested in him expressly by statute as such …” By contrast, in Ex parte James , “the trustee had received money of which he ought not to have received payment, and which by no right could be called his money or the money of the bankrupt, but which if he had been a private individual, although it could not have been contended that it was his money, there would have been a technical difficulty in recovering from him, because it had been voluntarily paid under a mistake of law. The difference is that there the trustee was seeking to enlarge the assets of the bankruptcy by money that even he himself would have had to admit was not his money and never vested in him at all, but was simply money which could not be recovered from him in consequence of some technical rule of judge made law. It is not the difference between a statutory debt and any other debt; it is the difference between money which was never rightly the trustee’s at all and which would not have been rightfully the property of an individual under the same circumstances, and money which could not have been recovered from an individual because of this technical rule as to voluntary payment. In that case the Court said that the trustee should not be allowed to set up such a technical objection to doing right; he had got another person’s money and must give it back again … There is another class of case, where there is an asset which vested in the trustee and was an asset in the bankruptcy – namely, a policy, but an asset which would have come to an end and ceased to have had any value at all or to be an asset but for the fact that it was kept alive to the knowledge of the trustee through the payment of the premiums by a person who was under the impression that she would get the benefit of the policy. There again the trustee was seeking to increase the assets of the bankrupt’s estate by something that would have had no value at all if another person had not been allowed by the trustee to keep it alive under a wrong impression: see In Re Tyler [1907] 1 KB 865.”

Warrington LJ likewise explained the difference between the present case and Ex parte James by saying that in Ex parte James the money in question belonged to Bradshaw even though the trustee in bankruptcy had a technical legal defence which would have enabled him to resist an action seeking its repayment, while in Scranton’s case the trustee in bankruptcy had vested in him the chose in action which entitled him to recover the amounts paid for the gambling debts.

Younger LJ relied on two factors. The first was (page 133) that “… this is not one of those perfectly plain and clear cases in which alone, as I think, the authorities show that this principle may be applied by the Court.” The second was that the trustee had an express statutory right to recover the money, which was vested in him.

In Re Regent Finance and Guarantee Corporation Ltd (1930) WN 84 was an application by the intending purchaser of an omnibus. The applicant, having found a suitable bus in the possession of “U” was told it could be delivered to the applicant if the applicant came to terms with Regent. A contract was entered between the applicant and Regent to dispatch the bus on payment of £600. The applicant drew a cheque for £600 and sent it to Regent’s office. Regent paid that cheque into an account which was £49 in credit. The cheque was cleared, and Regent handed to “U” a banker’s draft for £400 in part payment for the omnibus. The omnibus was never delivered. On the day that the applicant’s cheque was cleared, an order for the winding up of Regent was made. “U” paid to the liquidator the £400 it had received. The applicants asked for an order that the liquidator should pay the £400 to them, as it formed part of the £600 paid by them to the company. Maughan J made an order for return of the £400, less the £49. He referred, at 85 to Ex parte James , In Re Tyler , and In Re Hall [1907] 1 KB 875, and continued: “… the position of the applicants … was at least as good as, if not better than, that of the applicant in In Re Thellusson … who had loaned the debtor a sum of money. In the present case there was no intention to lend anything. There was merely an intention to carry out a bargain of contract and sale on the agreed terms that on payment of the sum in question the chattel should immediately be forwarded to the applicants. In his (his Lordship’s) opinion it would be dishonest for the company to keep the 400 l , and, having regard to the fact that the sum would go without consideration to increase the company’s assets, it would be dishonest of the liquidator to retain it.” It is to be noted that the applicant in this case would have been entitled to prove as a creditor in the liquidation, for the full £600 which it paid. Further, the amount for which recovery was allowed, the £400 minus the £49, was the amount for which the applicant would have been entitled to trace, if this had been a situation where tracing of the type recognised in In Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 ChD 696 was possible (which it was probably not, as there was no fiduciary relationship between the applicant and Regent.) Even so, by reasoning like that applied in the tracing cases, the £400 minus £49 could be identified as the property of the applicant, which the liquidator had received.

In Government of India v Taylor [1955] AC 491 a question arose about the ability of the government of India to prove, for unpaid Indian tax, in the voluntary liquidation of an English company. Counsel for the government of India submitted that, notwithstanding the usual rule that foreign revenue debts were not enforceable in a compulsory winding up, a liquidator could pay them in accordance with the principle in Ex parte James , and even though a liquidator in a voluntary winding up was not an officer of the court, a different result could not be arrived at in a voluntary winding up to that which was arrived at in a compulsory winding up. That argument failed. Lord Keith of Avonholm said of the rule, at 513: “The rule … which at best is exercised as a discretionary power by the court, appears to have been exercised only in cases where there has been some form of enrichment of the assets of a bankrupt or insolvent company at the expense of the person seeking recoupment. No case has been brought to our notice of the application of the rule where there has been no enrichment of one party with corresponding loss to the other.”

Re Redman; Ex parte Official Receiver (1948) 16 ABC 90 concerned a bankrupt estate which had only four creditors. One of those creditors was the Deputy Commissioner of Taxation. There were no assets in the estate to pay the costs of litigation. The official receiver asked the creditors to indemnify him against the costs of litigation to recover a particular asset. Two of the creditors gave an indemnity, and also paid money towards costs of the litigation. The litigation was settled, with money flowing into the estate. The official receiver’s application to distribute the amount recovered amongst the two creditors who had provided the indemnity failed, because the Deputy Commissioner of Taxation had a statutory priority under section 221 Income Tax Assessment Act 1936 . Concerning the costs incurred in recovering the sum, Paine J held that the principle in Ex parte James applied. He said, at 95, “I do not need to traverse the line of subsequent cases which applied that principle, but it seems to me that In Re Tyler (1907) 1 KB 865, presents a very close parallel with the facts of the case at Bar.”

He made an order whereby the first amount to be paid from the available funds was the taxed costs incurred by the official receiver as trustee in recovering the sum in question. The effect, I take it, was that the creditors who had paid money towards costs would have been repaid the amount of their advance from that first charge on the funds.

In Re Associated Dominions Assurance Society Pty Ltd and the Life Insurance Act (1962) 109 CLR 516 concerned the winding up of an insurance company. The winding up order was made in 1953. The liquidator continued the employment of the General Manager of the company until 1959. In 1955 the Long Service Leave Act 1955 came into operation, which conferred on employees a right to long service leave, including with respect to service which had occurred prior to the commencement of that Act. The total period of service of the General Manager was such as would entitle him to long service leave. The structure of the Act was that a worker only became entitled to a money payment in lieu of long service leave when his employment was terminated. Thus, if the General Manager had any entitlement, it arose when his employment was terminated in September 1959, and so any such payment would constitute part of the expenses of the winding up. Section 12 of the Act conferred the function of deciding whether a worker has become entitled to a sum of money in lieu of long service leave was committed exclusively to certain tribunals, and there was a two year limitation period on making any such application to those tribunals. The General Manager had claimed a payment in lieu of long service leave from the liquidators immediately upon termination of his services in 1959. Taylor J said, at 519-520: “… in reliance upon the liquidators’ then announced intention to seek the directions of this Court upon the matter, he accepted their implicit requests to forbear to make any application in the ordinary way. But the liquidators did not make their application to this Court until 8 May 1962, that is to say a little over a month before this application came on for hearing and at that time more than two years had elapsed since the termination of his employment. In those circumstances I do not think it would be proper to allow [the General Manager’s] claim to be defeated by the limitation which it is suggested is imposed by section 12 and, upon the principles enunciated in Ex parte James; In Re Condon and later cases, I propose to disregard the suggested limitation.” His Honour went on to instruct the liquidators that they would be justified in meeting the General Manager’s claim.

Re Chemical Plastics Ltd (in liquidation) [1959] VR 570 was a liquidator’s application for directions concerning whether or not he should admit proofs of debt of companies which had lent money to the company in liquidation, but where the loans did not comply with the formalities of the moneylending legislation. The effect of non-compliance was that the loans were unenforceable, provided the defence of non-compliance was specifically raised. They were not, however, illegal. At the hearing before Pape J, the companies which had lodged the proofs were represented, as was the general body of creditors. Counsel for the general body of creditors took the point that the moneylending legislation had not been complied with. Pape J held that the liquidator should reject the proofs of debt, and that he had no discretion to do otherwise. His Honour declined to say that, as a matter of principle, Ex parte James was incapable of applying to transactions which occurred before the liquidation (574-575). He reached his conclusion on two different bases. The first was that it was not “one of those perfectly plain and clear cases” which justified the application of the rule. The second was that the Companies Act 1938 , section 203, laid down that it was the duty of the liquidator to settle a list of contributories and to “cause the assets of the company to be collected and applied in discharge of its liabilities” . He held that, in that section, “liabilities” meant “enforceable liabilities” and that, just as a liquidator should not admit a proof of debt in relation to a debt which has become statute barred before the commencement of the winding up, so the liquidator would be acting contrary to his statutory duty in admitting a proof of debt relating to a loan which was unenforceable by reason of non-compliance with the moneylending legislation.

In Re Clark (a bankrupt); Ex parte the Trustee of the property of the bankrupt v Texaco Ltd [1975] 1 All ER 453; [1975] 1 WLR 559 concerned a bankrupt who operated a service station. In the days after the receiving order was made Texaco made two deliveries of fuel to the bankrupt, on the basis of being paid a cheque at the time of delivery. Those cheques were met upon presentation. The trustee in bankruptcy sought to recover from Texaco the amount of those two cheques, in that they were dispositions of property after the commencement of the bankruptcy. It was accepted that the only basis on which Texaco could not be liable to reimburse the money it had received would be if the rule in Ex parte James operated to prevent the trustee from seeking to recover the money. At 563-4 Walton J identified four conditions for the rule to operate: “(1) … that there must be some form of enrichment of the assets of the bankrupt by the person seeking to have the rule applied … (2) … except in the most unusual cases the claimant must not be in a position to submit an ordinary proof of debt. I think that this is exemplified by the decisions in Ex parte Whittaker, in Re Shackleton (1875) 10 Ch App 446, which was admitted by Sir James Bacon CJ to be an exceedingly hard case, and In Re Gozzett , Ex parte Messenger & Co Ltd v The Trustee [1936] 1 All ER 79. Although the basis for this has never been expressly formulated, I think that the underlying reason is obviously that to give effect to the rule would conflict with the mandatory rateable division of the estate between all the bankrupt’s creditors. The rule is not to be used merely to confer a preference on an otherwise unsecured creditor, but to provide relief for a person who would otherwise be without any … (3) … If, in all the circumstances of the case, an honest man who would be personally affected by the result would nevertheless be bound to admit “its not fair that I should keep the money; my claim has no merits,” then the rule applies so as to nullify the claim which he would otherwise have. (4) … when the rule does apply, it applies only to the extent necessary to nullify the enrichment of the estate: it by no means necessarily restores the claimant to the status quo ante.” Those conditions being satisfied, he directed the liquidator to take no steps to recover the amount of the two cheques or any part of it from Texaco.

In Re Roberts; Official Receiver v Lincoln Investments Ltd (1976) 26 FLR 330 at 335 Reilly J referred with apparent approval to the Texaco judgment, but held the case before him was not one for the application of Ex parte James . Re Sabri; Ex parte Brien v Sabri (1997) 137 FLR 165 at 184 applied the tests of Walton J in the Texaco case. Other applications of that test are in Re Ayoub; Ex parte Silvia (1983) 67 FLR 144 at 148 (in modified form) per Morling J; Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557; (1992) 109 ALR 117; (1992) 8 ACSR 277 (in modified form) at 293 per Gummow J; Depela Pty Ltd (in liq) v Lynch (1996) 19 ACSR 751 at 778 (in modified form) per Santow J; Re Modern Terrazzo Ltd (in liquidation) [1998] 1 NZLR 160 at 188 (in modified form) per Fisher J; Re Ebner; Ebner v Official Trustee in Bankruptcy [2003] FCA 73; (2003) 196 ALR 533 at 546 per Finklestein J.

Morling J’s modified form of the “conditions” in Re Ayoub at 148 states the third condition as “it must be shown that it would be unfair for the trustee to rely upon his strict legal rights.” The modified form of the “conditions” given by Gummow J in Hartogen 8 ACSR at 293-4 (and adopted by Santow J in Depela at 778) stated the third condition as: “The rule applies so as to nullify the claim the liquidator or trustee otherwise would have if in all the circumstances of the case, as an honest man he would nevertheless be bound to admit that it would not be fair “that I should keep the money; my claim has no merits” .” Fisher J in Re Modern Terrazzo at 188 stated the third condition as being “that insistence upon the strict legal position would be inequitable” .

In my view, the formulation of the third condition by Walton J might lead someone seeking to apply it to apply the standard of whether an ordinary individual suing on his own behalf would regard the result as unfair. Scranton’s Trustee v Pearse [1922] 2 Ch 87 makes clear that that is not the appropriate test. When an individual is dealing with his or her own affairs, it is his or her own rights which he or she gives up by deciding to act in a fair way rather than squeezing out the last drop of legal entitlement. A liquidator who decides in accordance with Ex parte James not to enforce the full extent of his or her legal entitlements might well, in the result, be affecting the interests of someone besides himself or herself. The fact that the decision-maker is a liquidator, or a trustee in bankruptcy as the case may be, is an essential one to take into account in deciding whether, in any particular situation, Ex parte James should be applied. Morling J’s formulation of the condition does not capture the need for it to be a clear case before Ex parte James is applied – mere unfairness on balance is not enough. This need for it to be a clear case is captured by Walton J’s inclusion in the third condition of the elements “bound to admit” , and “has no merits” – elements which Gummow J’s formulation has retained. Fisher J’s restatement of the third condition might possibly lead into error, by not making clear that “inequitable” refers to ethical standards, not to the type of rights capable of enforcement in a court of equity. For these reasons the formulation of the third condition by Gummow J in Hartogen is preferable.

Re Walsh; Ex parte Waters [1978] QdR 134 concerned a “trusting, foolish elderly man” who handed over money to a confidence man, who was also a bankrupt, on the basis that he would acquire shares in a mining company. Stable J held that the official receiver should pay the money to the elderly man. One basis was because the bankrupt received the money in circumstances where he was a trustee of it for the purpose of buying shares. Though not explicitly stated by Stable J, this would be one of those situations where money was paid for a purpose and, in circumstances where that purpose was not achieved, was held on a resulting trust for the payer. As well, Stable J held that the elderly man’s claim was justified under Ex parte James .

Re Paddington Town Hall Centre Ltd (in liquidation) (1979) 41 FLR 239 concerned a company which had bank accounts in credit in an amount exceeding $8,000, and accounts with the same bank in debit more than $70,000. The liquidator requested the bank to pay the amount in credit in the bank account to him, and the bank complied. It was common ground that in so doing it had acted under a mistake of law, as it had not realised it had an entitlement to set off the accounts in credit against the accounts in debit under section 86 Bankruptcy Act 1966 . Needham J advised the liquidator, on the basis of Ex parte James , that he would be justified in repaying the $8,000 to the bank.

In Re Ayoub; Ex parte Silvia (1983) 67 FLR 144 a bankrupt continued to operate a business after a sequestration order was made against him, and obtained goods on credit for the purpose of that business. The companies which supplied those goods were unaware of the bankruptcy. The trustee in bankruptcy sought directions as to whether he should pay those creditors from the assets of the bankrupt estate, and in priority to unsecured creditors of that estate. Morling J held that because the debts were incurred after the date of the bankruptcy, they were not provable in the bankruptcy, and because they were not incurred by the trustee or with his authority the trustee was not personally liable to repay them. Nor did the principle in Ex parte James require a different conclusion. Morling J applied the modified version of the conditions stated by Walton J in Re Clark (a bankrupt); Ex parte the Trustee of the property of the bankrupt v Texaco Ltd [1975] 1 All ER 453; [1975] 1 WLR 559 at 563-564. His Honour held that it would not be unfair for the trustee to rely upon his strict legal rights, because the creditors must have taken inadequate steps to check on the credit worthiness of the bankrupt, and subsequent supplies of goods to the liquidator (which were important to enable the liquidator to sell the business as a going concern) had not been made on the basis that the creditors would continue to supply only if their debts were met.

Hartogen Energy Ltd (in liq) v Australian Gas Light Co (1992) 36 FCR 557; (1992) 109 ALR 177; 8 ACSR 277 was an application by litigants to inspect documents which the respondents to the motion asserted were the subject of legal professional privilege. The respondents were two companies, and the liquidators of those companies. The applicant sought a direction under section 377(5) of the Companies (NSW) Code (a provision in similar terms to section 477(6) of the Corporations Act 2001 ) that the liquidators waive any claim to legal professional privilege and consent to inspection of the documents. Gummow J declined to give the direction, holding that there was nothing to indicate that in asserting a privilege which the law gave them, the liquidators were abusing their legal rights, or acting “unfairly” . His Honour considered, but rejected, the possibility that the doctrinal basis of the rule in Ex parte James lay in the law as to recovery of mistaken payments. He concluded, at 8 ACSR 293 that: “… many of the cases applying in England and Australasia the so called rule in Ex parte James in company liquidations are better understood as outlining the manner in which the court controls the exercise by liquidators of their powers conferred by the relevant legislation. In the present case, control of the court is provided for by section 377(2) of the Code . Young J agreed with this passage in Star v Silvia (No.1) (1994) 12 ACLC 600, at 603. (I mention also that there is a typographical error at the top of 8 ACSR 295, which records Gummow J as saying “counsel for the respondents also put the rule in Ex parte James on an even wiser footing by, in effect, stating Walton J’s third condition as if it were, by itself, a statement of the rule.” Given how the sense of his Honour’s judgment flows, it is clear that the word “wiser” is a misprint for “wider” . The misprint does not appear in the report at (1992) 36 FCR at 575.)

Cadorange Pty Ltd (in liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 arose when Cadorange contracted to sell certain land to Tanga. The contract was entered into between the date of filing of a summons for the winding up of Cadorange, and the date the winding up order was made. The liquidator of Cadorange succeeded in obtaining a declaration that the contract was void. Tanga had spent money in improving the land. It sought a declaration that it had an equitable charge over the proceeds of sale of the land, for the amount it had expended. Part of the expenditure had been made before the contract was entered. At that time, there was another contract on foot for the sale of the land by Cadorange to Tanga, but that contract was unstamped (and hence, pursuant to section 27 of the Stamp Duties Act 1920 , of no effect whatever), and in any event, even if it had effect, it had been consensually brought to an end as a result of the entering into of the new contract. His Honour held that Tanga made the improvements because it believed that, under the contract, it would eventually get the interest in the land. As Cadorange was controlled by the same people, Cadorange must have had the same belief. His Honour concluded, at 40: “It seems to me that as the matter really is one of conscionability and as there are some precedents on which the claimant can rely, I am justified in holding that it is in this case unconscionable for the liquidator to hold on to the proceeds of sale, including the increment caused by the claimant’s efforts, without compensating the claimant. … In my view, in at least some cases, if there is an inter-company transaction which engenders an expectation that a contract will in due course be completed, and pursuant to that expectation a company in the group expends money on land belonging to another company in the group and then that other company goes into liquidation and the liquidator sells the land with the benefit of those improvements, it would be against the conscience of the company in liquidation to take advantage of the windfall without compensating the company which expended the money. Accordingly, in my view, an equitable lien exists.”

That case was described by Young J in Starr v Silvia (No.1) (1994) 12 ACLC 600, at 604 as “a case where what has been called the Ex parte James principle was applied, though that case was not actually referred to in the judgment.” Young J there said: “… illustrations of the Ex parte James principle in recent days have included situations where the Court has seen that a claimant against the company has, even in an unorthodox way, acted to benefit the company, in which case the Court will direct the liquidator that he should give cognisance to the fact that the company has been benefited by the work and not permit him to take the whole of the property without recognising that obligation.” and cited Cadorange as the relevant example.

Discussion of Ex parte James in appellate decisions of the High Court of Australia has not resulted in any principle being stated which governs the present case. There are only two such decisions. The first is The Official Assignee of the Estate of Turnbull v Goldstein (1921) 29 CLR 377. It concerned a moneylender who had lent money to a bankrupt before sequestration, and taken a security which did not comply with the moneylending legislation. After sequestration the moneylender seized and sold some of the secured property. The official assignee sought, and obtained from the court at first instance, an order that the moneylender pay to the official assignee the value of the property seized and sold. The Court imposed a condition that the moneylender should be admitted to prove as a creditor in the estate of the bankrupt in respect of the sum of money lent. The High Court held that no such condition should be imposed. It held that when the moneylending legislation made the taking of security by the moneylender in a way which did not comply with the requirements of the Act an offence, the money lent was not recoverable. Knox CJ and Rich J, at 386, referred to the long line of cases which had been expounded in In Re Wigzell , and said, at 386: “It is sufficient to say that is difficult to extract from these cases any definite guide as to the circumstances in which the rule is applicable. But it is clear that the rule has never been applied to give effect to a transaction which is positively forbidden by law on pain of fine or imprisonment. It is, indeed, difficult to conceive how it can be the duty of the Court of Bankruptcy or of any Court to compel its officer to give effect to a transaction which the law declares to be wholly illegal and void.”

Higgins J, at 393-4 stated the principle as being: “… that the trustee in bankruptcy is an officer of the Court, and that the Court ought to set an example to the world by paying back money to the person who is in justice entitled to it although it is not recoverable by any form of action.”

Higgins J said that the facts in Ex parte James, did not involve “… a case of proof against the estate: it was just the same as if the trustee had treated another man’s hat as belonging to the bankrupt, and refused to return it. The trustee was compelled to return the money. The subsequent developments of James’ case have rather startled me, but I do not feel justified in saying, in the face of such high authority, that they are wrong.”

The second High Court appellate decision is Downs Distributing Company Pty Ltd v Associated Blue Star Stores Pty Ltd (in liquidation) (1948) 76 CLR 463. It involved an action to recover a preferential payment. The defendant had extended credit to the plaintiff after a representative of the plaintiff had said there would be no difficulty about payment in seven days. The trial judge held that the defendant did not come within the protective provision in section 95 Bankruptcy Act 1924 , which protected the rights of a payee in good faith and for valuable consideration and in the ordinary course of business. The trial judge held that this protective provision did not apply because the defendant at least had reason to suspect that the plaintiff was insolvent and that the challenged transaction had the effect of giving preference over other creditors. The defendant argued that Ex parte James prevented the liquidator from recovering the preference, because the original purchase of goods by the plaintiff was fraudulent, as the plaintiff’s representative who said there would be no difficulty in paying for the goods in seven days knew the plaintiff had financial difficulties, and that if the liquidator were to succeed he would be obtaining an advantage from that fraud. Latham CJ dismissed the argument, at 476, on the basis that fraud had not been alleged and proved at the trial. Williams J discussed the rule at 481-483, and held that it was not applicable in that case because (at 482), “… the cases as a whole appear to show that it is only in exceptional cases that the rule would be applied where the officer or his predecessor in office has not been personally concerned in the transaction.” In that case, any trickery was carried out on the part of the plaintiff while it was a going concern, and the liquidator was in no sense involved.

To recapitulate, the rule in Ex parte James has been applied many times to allow recovery from a liquidator or trustee in bankruptcy of money paid under a mistake of law: Ex parte James itself; In re Brown; Dixon v Brown (1886) 32 Ch D 597; Ex parte Simmonds; In re Carnac (1885) 16 QBD 308; In Re Rhodes; Ex parte Rhodes [1899] 2 QB 347; In re Craig & Sons; Ex parte Hinchliffe [1916] 2 KB 497; Re Paddington Town Hall Centre Limited (in liquidation) (1979) 41 FLR 239;

The mistake which triggered the application of Ex parte James in these cases has not always be in the mistake of the person who seeks recovery of the money. For example, in In re Craig & Sons; ex parte Hinchliffe [1916] 2 KB 497 the mistake was made by the sheriff, not by Hinchcliffe. And in In re Thellusson; Ex parte Abdy [1919] 2 KB 735 the mistake which was made by the payer was not a mistake of law but a mistake of fact, that the loan would actually achieve its intended purpose -- which, while it would give rise to a quasi-contractual right of recovery, would be one which would only be provable in a second bankruptcy.

As well, though, the rule in Ex parte James has also been applied in many circumstances outside the recovery of monies paid under mistake. · The evidence in In re Tyler; Ex parte The Official Receiver [1907] 1 KB 865 did not go so far as to establish that the widow was making a mistake when she paid the premiums of life policy and interest on the loan -- it was the fact of her paying the premiums and interest, with the Trustee’s knowledge, and that the making of those payments enabled the policy monies eventually to be received, which made it inequitable for the trustee to refuse to pay her back the money she had spent. · In Re Redmond; Ex parte Official Receiver (1948) 16 ABC 90 the creditors who had advanced money for paying the costs of the litigation which eventually swelled the bankrupt estate received back the costs they had paid, even though they were under no mistake in having advanced those costs -- at best, it could be said that they had a hope of receiving a preferential dividend in consequence of advancing the costs. · In In Re Associated Dominions Assurance Society Pty Ltd and the Life Insurance Act (1962) 109 CLR 516 the liquidators had encouraged the general manager not to make application to the ordinary tribunals, and then themselves delayed in seeking the court's directions, and hence were precluded from relying on a limitation statute which might otherwise be available to them. · In Re Securitibank Ltd (in liquidation) [1978] 1 NZLR 97, at 209-210 Barker J applied Ex parte James to direct a liquidator, faced with claims under bills of exchange where the holders of the bills had failed to give timely notice of dishonour, to waive failure to give that notice or any irregularity (in certain circumstances, and subject to a proviso not presently relevant). · In Re Ebner; Ebner v Official Trustee in Bankruptcy [2003] FCA 73; (2003) 196 ALR 533 Finklestein J used the rule in Ex parte James as the basis for making a judicial estimate of the proportion of the household goods in the house where a bankrupt lived which had been purchased with funds contributed by the bankrupt’s wife, in circumstances where the evidence was extremely sparse.

Insofar as In Re T H Knitwear (Wholesale) Ltd [1987] 1 WLR 371 was decided, at 377, on the basis that Ex parte James could be applied only when there had been a mistake either of fact or law by reason of which the company's assets available for distribution had been increased, it is, in my respectful view, mistaken. The appeal ( In Re R T Knitwear (Wholesale) Ltd [1988] 1 Ch 275 did not consider this point. (It turned on whether Ex parte James applied to a voluntary liquidation, and on whether there was in fact dishonourable conduct.)

Some assistance in understanding the principle in Ex parte James can be derived from seeing where it fits in a broader context of the law. When the Court had the function of winding up companies it was exercising a function which was in some respects not the function nowadays most readily seen as the function of courts, namely of determining the legal rights of parties. In some respects, the functions it was carrying out were administrative ones. The Chancery Court had a long history of carrying out such administrative functions. Some of those administrative functions arose from the delegation to the Chancery Court of aspects of the Royal prerogative. This gave the Court its parens patriae jurisdiction, which enabled it to decide everyday practical matters concerning the affairs of infants and lunatics who came under its care, such as deciding how the property of such people should be invested. One of the remedies which the Chancery Court granted was an order for the administration of an estate. There is no misnomer in the name of that remedy. The tasks which are carried out in the course of administering an estate can include ascertaining legal rights (as, for instance, when a will or trust instrument needs to be construed) but many of the tasks which the Chancery Court carried out when it made a decree for general administration of an estate were, rather, the sort of administrative tasks which are involved in managing any business enterprise. The Court had officers who assisted in carrying out those administrative tasks. For example, it had conveyancing counsel, who would investigate the title of lands to be sold by the Court, and draw the terms of the contract under which it was to be sold: Else v Else (1871) LR 13 Eq 196; In Re Banister; Broad v Munton (1879) 12 ChD 131. In Star v Silvia (No.1) (1994) 12 ACLC 600, at 604 Young J said: “In theory, and probably as a matter of law, the official liquidator in a court winding up is the agent of the court. He has vested in him many of the powers of the court, including the power, at least in the first instance, to adjudicate upon the admissibility of proofs of debt. Many of the things that he does are what last century would have been done by officers of the court. Theoretically one still has the situation where the Master is carrying out the winding up by his agent the liquidator. As Marks J said, in CCA v Harvey (liquidator of Timberlands Ltd (in liq) and Equitable Forestry Services Pty Ltd (in liq)) (1979) CLC ¶ 40-564, 32,322-32,323; (1979) 4 ACLR 259, 286 [[1980] VR 669, 696] the liquidator is not an employee of the court, but a representative of it.”

In other situations where a public official exercises a power, it is common to find a duty that that power will be exercised fairly – examples are the principles of natural justice applicable to administrative decision-makers, the responsibilities of fairness of a Crown prosecutor ( R v Rugari [2001] NSWCCA 64, at [43]-[52]; (2001) 122 A Crim R 1) and the expectation that the Crown will act as a model litigant. Concerning this latter matter, the authorities are collected by Spender, Finn and Weinberg JJ in Scott v Handley [1999] FCA 404; (1999) 58 ALD 373 at [43]-[44]: “… The spirit of this “model litigant” responsibility, now long enshrined in a policy document of the Commonwealth, is perhaps best captured in the observations of Griffiths CJ in Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333 at 342: “I am sometimes inclined to think that in some parts – not all – of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.” Insistence upon that standard is a recurrent theme in judicial decisions in this country in relation to the conduct of litigation by all three tiers of government: see eg Yong v Minister for Immigration and Multicultural Affairs (1997) 75 FCR 155 at 166; 144 ALR 695; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 at 196-7; 146 ALR 1; SCI Operations Pty Ltd v Commonwealth of Australia (1996) 69 FCR 346 at 368; 139 ALR 595; Director of Public Prosecutions (Cth) v Saxon (1992) 28 NSWLR 263 at 267; Kenny v State of South Australia (1987) 46 SASR 268 at 273; Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 558-9 ; P & C Cantarella Pty Ltd v Egg Marketing Board (NSW) [1973] 2 NSWLR 366 at 383-4 see also R v Tower Hamlets London Borough Council, Ex parte Chetnik Developments Ltd [1988] 1 AC 858 at 876-7.” See also ACCC v George Weston Foods Limited (2003) 198 ALR 592; [2003] FCA 601 at [60].

It is no surprise that the Chancery Court regarded itself as under similar obligations to act, not just in accordance with the letter of the law, but fairly, in the way in which administrations conducted under its control were supervised. The connection between these general duties of public officials to act fairly and the rule in Ex parte James has been recognised in R v Tower Hamlets London Borough Council; Ex parte Chetnik Developments Ltd [1988] 1 AC 858, at 876, where Lord Bridge of Harwich said that the type of “equity” referred to by James LJ in Ex parte James was: “… referring not to an equity enforceable in a suit or action, but to a moral principle which the court could expect to be observed by a public body such as a rating authority.”

The limits within which a court may exercise the principle in Ex parte James are influenced by the provisions of the Corporations Act 2001 . Of particular relevance to Mr Mead’s claim in the present case, that the liquidator ought not collect the Four Properties even if he has a legal entitlement to them is the fact that section 478(1) provides: “As soon as practicable after the Court orders that a company be wound up, the liquidator must: (a) cause the company’s property to be collected and applied in discharging the company’s liabilities …” But that mandatory requirement is one which needs to be considered in the context of the rest of the Corporations Act . If someone who held property of the company proved uncooperative about handing it over, the liquidator would need to sue that person. Section 477(2) provides: “Subject to this section, a liquidator of a company may: (a) bring or defend any legal proceeding in the name and on behalf of the company …” Section 477(6) provides: “The exercise by the liquidator of the powers conferred by this section is subject to the control of the Court, and any creditor or contributory, or ASIC, may apply to the Court with respect to any exercise or proposed exercise of any of those powers.”

In the present case, Mr Mead seeks to have the Court direct the liquidator, under 477(6) that he ought not continue with proceedings against Mr Mead to recover the Four Properties. Section 477(6) is incorporated by reference (“Subject to this section …” ) in section 477(2). And section 477(2) is the present equivalent of section 377(2) of the Code , identified by Gummow J in Hartogen , and Young J in Star v Silvia (No.1) as the means by which Ex parte James now operates.

That the Court should have a power, which when exercised on the basis on which Ex parte James has in the past been applied by the courts, might result in certain property which is in truth the property of the company, not being recovered by it is not out of keeping with the structure of the Corporations Act 2001 .

In addition to the extensive powers of the liquidator, in section 477, all being subject to the control of the Court, under section 477(6), the provisions of the Corporations Act 2001 which govern winding up by the Court contain many provisions which confer discretions on the Court which will have a significant effect on the assets which are divisible in a liquidation, and the creditors amongst whom the assets are divisible. Section 466(2) and (4) confers on the Court a power to order that the costs involved in obtaining the winding up order not be paid out of the assets of the company. Section 468(1) and (3) confers on the Court a power to decide that a disposition of property of the company after the commencement of the winding up is valid. Section 471B enables the Court to grant leave, on such terms as it thinks fit, for litigation to be brought against the company. The Court controls the remuneration of the liquidator, under section 473. Section 477(2B) enables the Court to approve a liquidator entering an agreement which might take more than three months to perform: Re G A Listing & Maintenance Pty Ltd (1994) 15 ACSR 308.

Under section 479(3) the Court can give directions to a liquidator concerning any particular matter arising in the winding up. Under section 480, the Court can release a liquidator even if not all of the property of the company has been realised, if realisation would needlessly protract the winding up. The Court has power, under section 482, to stay or terminate the winding up. Section 484 enables the Court to appoint a special manager, with such powers as the Court thinks fit – a power which if exercised can affect the costs of the liquidation significantly. Section 485 enables the Court to ignore claims by creditors who have not proved their debts or claims by a date which the Court fixes. Section 562A gives the Court discretionary power to decide how proceeds of reinsurance contracts should be applied, when an insurer is in liquidation. Section 564 enables the Court to give preferential treatment, in distribution of assets, to creditors who have provided certain kinds of financial support to the liquidator. Under section 568-568F the Court has significant discretionary powers concerning whether or not disclaimer of onerous property is permitted, and if so on what terms. Further, section 1318 and 1322(4)(c) have the effect that the Court can relieve a liquidator from a liability which he would otherwise have for not performing his duties correctly.

The proper scope of the considerations which a court can take into account in deciding that a liquidator ought not pursue certain litigation to recover a corporate asset, can be illustrated by the analogy of the scope of the court’s power to validate dispositions of company property made after the commencement of the liquidation. The analogy is a fairly close one, because not pursuing litigation to recover a corporate asset, and validating a disposition of company property made after the commencement of the liquidation each results in an asset which would otherwise be available for distribution amongst creditors not being available for that purpose. In Re Clifton Place Garage Ltd [1970] 1 Ch 477 involved a company which was placed into receivership after a petition to wind it up had been presented. The receivers, after being misled by the director of the company about its profitability, decided to keep trading. In fact the income which the receiver received was less than the expenses which he paid. The company was placed into liquidation, and the liquidator claimed from the receiver the amount of income which the receiver had received, and spent. The receiver sought to have his spending of the money (which was admittedly a disposition of the property of the company made after the commencement of the winding up) validated. Megarry J refused to validate it, because he thought the receiver had been unreasonable in making inadequate enquiries before resuming trading. That decision was overturned in the Court of Appeal. Harman LJ referred to the way the relevant section provided no criteria for the court to decide whether or not it would “otherwise order” . Megarry J had relied, at 482, on remarks of Vaisey J in In Re Steane’s (Bournemouth) Ltd [1950] 1 All ER 21, 25, concerning the criteria to apply in deciding whether to “otherwise order” , and validate a disposition of the company’s property made after commencement of the winding up: “that each case must be dealt with on its own facts and particular circumstances (special regard being had to the question of the good faith and honest intention of the persons concerned), and that the court is free to act according to the judge’s opinion of what would be just and fair in each case.”

Harman LJ recorded, at 491, a submission that the principle in Ex parte James could provide guidance in exercise of the discretion to validate dispositions, but did not expressly rule on it. However, the judgment shows that a very broad approach was taken. Harman LJ said, at 491: “What is the fair thing to do in a case like this, looking at it from the broadest point of view, as Vaisey J rightly said you must? In my judgment, the court ought “otherwise” to order, because that gives the receiver, who has paid the money, at least part of what he has paid away back again. He is not better off; in fact he is £800 or so worse off; and if the evidence results in a certain speculation at least it cannot be said that he has it to pay twice over. Application of Ex Parte James to the Facts

In the present case, there is an important factor which is relevant to the application of Ex parte James , which is not taken into account by the factors which lead to an estoppel. It is that, by bearing the expenses of running the Common Law Proceedings, Mr Mead has conferred a very substantial benefit on the company in liquidation. He has established that it is not liable for the debt of BL. By the time of the hearing before Mathews AJ, the claim which BL made against HE, inclusive of interest, was of the order of $11 million. If BL’s claim had not been held to be without substance, the liquidation of HE would have resulted in a nil return to the shareholders. If, contrary to the judgment which he made at the time of the hearing before Einstein J and in the weeks thereafter, the liquidator had decided that he would run the Common Law Proceedings, he would have paid in legal costs not only the value of the Four Properties, but considerably more. Further, his costs in so doing would have been a first charge on the assets of HE. It is, it seems to me, not a proper exercise of the liquidator’s discretion to accept the benefit of the judgment which Mr Mead has obtained in HE’s name, while not accepting the burden of that part of the costs which Mr Mead claims in these proceedings. His attempt to do so, in the present proceedings, is, in my view, a clear case of pressing a claim which has no merit.

Counsel for the liquidator submits that the incurring of those expenses by Mr Mead was not necessary for HE to become freed of BL’s claim. He submits that, while the liquidator would have needed to take action to set aside the default judgment which BL had obtained, once that had been done it would have been open to the liquidator to call for proofs of debt, and reject BL’s proof. While that way of proceeding was theoretically open to the liquidator, I do not accept that there is any real likelihood that it is a course which he would have followed. As at 17 September 2001 his view was that “if I was now asked to determine whether Hypec should apply to set aside the judgment I would firmly say no.” (paragraph 75 above) His approach to the liquidation had, prior to the running of the Common Law Proceedings, been to tend to accept what Mrs Mead told him. His investigations were being funded by Ms Yang. One can readily infer that that funding was not likely to be continued if the liquidator took a stance contrary to the interests of BL. The liquidator had formed a view (which ultimately proved right) that Mr Mead’s proposed cross-claim lacked substance, and his scepticism extended to Mr Mead’s opposition to BL’s claim. In any event, the relevant question is, when the liquidator has in fact obtained the benefit of HE being freed from the BL claim, at Mr Mead’s expense, he ought be permitted to decline to have the company bear the expense, to the extent to which Mr Mead seeks it.

One way of checking whether a liquidator’s proposed action would contravene Ex parte James is to see whether the situation in which he is proposing to act is one which is, or is close to, a situation where an equity court would recognise a proprietary right, which the liquidator would infringe by his proposed course of action. Trustees, liquidators, and receivers were recognised by the equity court as being entitled to be paid their reasonable expenses from the fund, and as a first charge on the fund: Shirlaw v Taylor (1991) 31 FCR 222 at 228-231. The first charge of trustees, liquidators and receivers is for all their expenses and costs – and this could extend to the costs of seeking (including seeking unsuccessfully) to protect the fund from adverse claims, and thereby preserve it, as well as the cost of getting in assets which swelled the fund; In Re Trent and Humber Ship-Building Company (1869) LR 8 Eq 94; In Re Wenborn & Co [1905] 1 Ch 413; Re Application of Central Commodities Services Pty Ltd [1984] 1 NSWLR 25; Nationwide News Pty Ltd v Samalot Enterprises Pty Ltd (No.2) (1986) 5 NSWLR 227 at 230-231 ; 13 Coromandel Place Pty Ltd v CL Custodians Pty Ltd (in liq) (1999) 30 ACSR 377 at 385. A solicitor who acted in proceedings which resulted in the setting aside of a security over a company’s assets and a person who funded such litigation, were accorded priority over all other expenses of a liquidation “since without the advances … and the services of [the solicitors] there would have been no assets available for distribution” : Re Allied Glass Manufacturers Ltd (1936) 36 SR (NSW) 409 at 424-425, 427; In Re Universal Distributing Company Limited (in liquidation) (1933) 48 CLR 171 Dixon J held that when a liquidator incurred expenses in realising assets which were the subject of a security, the liquidator’s expenses of realising those assets should be a charge upon the assets which he realised, notwithstanding the rights of the security-holder. In Sinclair v Brougham [1914] AC 398 at 445 Lord Parker of Waddington said that if an inquiry into the affairs of a building society in liquidation, which had made ultra vires borrowings, had been conducted, and it was “shewn that the debts due to the ordinary creditors had really been incurred, in preserving the bulk of assets in which the shareholders and lenders were alike interested, … it might be equitable that these debts should be paid first out of the fund.” In In Re Berkeley Applegate (Investment Consultants) Ltd (in liquidation), Re; Harris v Conway [1989] 1 Ch 32, Edward Nugee QC held that where work of a liquidator had been necessary for the administration of assets, legal title to which was invested in the company in liquidation, on trust for certain investors, the court could require the cost of that administration to be borne by the assets. This could happen even though the liquidator’s work had not added to the assets in any way. He pointed out, at 50 that: “… the investors still need the assistance of a court of equity to secure their rights. In this respect their position is different from that of the claimant in Falcke v Scottish Imperial Insurance Co 34 ChD 234, where Bowen LJ said, at p251: “It is not even a case where the owner of the saved property requires the assistance of a court of equity … to get the property back.” As a condition of giving effect to their equitable rights, the court has in my judgment a discretion to ensure that a proper allowance is made to the liquidator. His skill and labour may not have added directly to the value of the underlying assets in which the investors have equitable interests; but he has added to the estate in the sense of carrying out work which was necessary before the estate could be realised for the benefit of the investors. … if the liquidator had not done this work, it is inevitable that the work, or at all events a great deal of it, would have had to be done by someone else, and on an application to the court a receiver would have been appointed whose expenses and fees would necessarily have had to be borne by the trust assets. On the evidence before me, the beneficial interests of the investors could not have been established without some such investigation as has been carried out by the liquidator. The allowance of fair compensation to the liquidator is in my judgment a proper application of the rule that he who seeks equity must do equity … The authorities establish, in my judgment, a general principle that where a person seeks to enforce a claim to an equitable interest in property, the court has a discretion to require as a condition of giving effect to that equitable interest that an allowance be made for costs incurred and for skill and labour expended in connection with the administration of the property. It is a discretion which will be sparingly exercised; but factors which will operate in favour of its being exercised include the fact that, if the work had not been done by the person to whom the allowance is sought to be made, it would have had to be done either by the person entitled to the equitable interest … or by a receiver appointed by the court whose fees would have been borne by the trust property … and the fact that the work has been of substantial benefit to the trust property and to the persons interested in it in equity …”

On the ability of a liquidator to be paid, from assets held by the company on trust, for expenses involved in administering those assets see also Re Suco Gold Pty Ltd (in liq) (1983) 33 SASR 99; 7 ACLR 873; Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674; 5 ACSR 673; 13 Coromandel Place Pty Ltd v C L Custodians Pty Ltd (in liq) (1999) 30 ACSR 377.

In conducting the Common Law Proceedings, Mr Mead was, of course, not actually a liquidator, but he was carrying out a task which would otherwise have been part of the liquidator’s responsibilities, in circumstances where the liquidator was unwilling to carry it out, and where Mr Mead had the Court’s permission to carry that task out in the name of the company. The analogy to the circumstances in which a lien for expenses incurred in protecting a fund has been recognised is extremely close.

Another way of checking whether the liquidator’s actions contravene Ex parte James is to look for analogies in the caselaw on Ex parte James itself. An analogy to the present case can be found in In Re Tyler , where the official receiver was not permitted to take the benefit of the insurance policy which he knew the widow had been keeping alive without reimbursing the widow for her expenses. Another analogy is in Re Redmond , where the creditors who had paid money towards costs were repaid their advance from the fund recovered. Another is Cadorange , where the account which Young J gave of it in Star v Silvia (No.1) (set out at paragraph 169 above) fits this case very well.

If the applicability of the principle in Ex parte James were to be tested by reference to the four “conditions” identified by Walton J in In Re Clarke (a bankrupt); Ex parte the Trustee of the property of the bankrupt v Texaco Ltd [1975] 1 WLR 559, as modified by Gummow J in Hartogen , the rule is applicable. There has been a form of enrichment of the assets of the company by Mr Mead. It has happened by Mr Mead being incidental in freeing the company from an enormous liability. Nor is Mr Mead in a position to submit an ordinary proof of debt for the expenses he has incurred in running the Common Law Proceedings. A sufficient reason for reaching this conclusion is that those expenses were incurred after the winding up of HE had commenced. The third “condition” is also satisfied, because it is, it seems to me, unfair that the liquidator should recover the proceeds of sale of the four identified properties when he has not only encouraged Mr Mead, by his inaction, to spend money in the belief that he (Mr Mead) would be able to have access to the Four Properties, but as well the liquidator has achieved significant benefits as a result of Mr Mead making that expenditure. I would reach that conclusion even if I were wrong in having concluded that the liquidator knew that Mr Mead and Mr Dominello were running the Common Law Proceedings in the belief that he would not object to them retaining the proceeds of the Four Properties to pay for the costs. The liquidator still knew that, by some means, the Common Law Proceedings were being paid for, and he has now received the benefit of their success in those proceedings, yet resists bearing the price at which that success was achieved.

Walton J’s fourth “condition” is not infringed by permitting Mr Mead to retain the Four Properties: the enrichment of the estate exceeds $375,000.

The exercise of the Ex parte James power in the present circumstances is also, in my view, supported by considering the power which the Court has under section 564 Corporations Act 2001 . That section provides: “Where in any winding up: (a) property … has been protected or preserved by the payment of monies … by creditors … the Court may make such orders as it deems just with respect to the distribution of that property … with a view to giving those creditors an advantage over others in consideration of the risk assumed by them.” That section is not directly applicable in the present case, as Mr Mead is not a creditor of HE. However, if a creditor of HE had financed the Common Law Proceedings, section 564 would confer jurisdiction on the Court to make a preferential order, in favour of that creditor, concerning the distribution of the whole of the property of the company – for it is the whole of the property of the company which has been protected or preserved by the running of the Common Law Proceedings. Giving such a creditor the right to recover, from the fund preserved, a part of the costs which that creditor had actually incurred in running the Common Law Proceedings would be an exercise of discretion well within the proper range of the power under section 564. If it would be appropriate under section 564 to give such a creditor a partial indemnity for his costs, this is consistent, in my view, with it being an appropriate exercise of the power in Ex parte James to provide Mr Mead with the, in effect, partial indemnity for his costs which he seeks by being able to retain access to the Four Properties.

For these reasons, the principle in Ex parte James prevents the liquidator from laying claim to the Four Properties. Conditions on Relief

The relief which is appropriate to give effect to an estoppel is the minimum relief which would prevent the injustice arising by the person estopped departing from the assumption or expectation. The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 413, 429, 442-3, 487 and 501; Giumelli v Giumelli (1999) 196 CLR 101 at 113-14 [10] and 119 [31]; Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475 at 516-518. The detriment on which Mr Mead relies to make out his estoppel is incurring the costs of the Common Law Proceedings. If, at some time in the future, through the combined operation of the $115,000 security for costs, and the order for indemnity costs, he were to recover the actual costs incurred in running the Common Law Proceedings, the injustice arising from the liquidator’s disputing that the order of Cohen J entitles him to the Four Properties would be at an end. As I said earlier (paragraph 101 above) the likelihood of Mr Mead effecting that full recovery cannot at present be predicted with any accuracy. This is one of the situations where the Court is not able, at present, to make an order which will finally dispose of the rights of the parties. The estoppel which has been established entitles Mr Mead, in the first instance, to carry out the orders of Cohen J, by selling the Four Properties, and applying the proceeds of sale in payment of the costs of the Common Law Proceedings. I would grant that relief conditionally upon Mr Mead undertaking to the Court to inform the liquidator from time to time of the steps he is taking to enforce the costs order in the Common Law Proceedings, and the results of those steps, and undertaking to abide by any further order of the Court concerning refund of all or part of the proceeds of sale of the Four Properties. I would also reserve to the parties liberty to apply on 14 days notice in writing and reserve further consideration.

The considerations which give rise to application of the rule in Ex parte James leads to the same result. If, in exercise of rights of enforcement Mr Mead comes to have the whole of the costs of the Common Law Proceedings paid, the consideration underlying the exercise of the principle in Ex parte James in the present case – that the liquidator has received the benefit of the Common Law Proceedings, without paying the price which Mr Mead sustained in obtaining that benefit – will no longer apply. That situation can be catered for by the same undertakings as are appropriate to the estoppel remedy, coupled with liberty to apply and reserving further consideration. Form of Orders

Generally, orders of the type claimed by the plaintiff in the Further Amended Statement of Claim should be made, except insofar as those orders relate to the Four Properties. However, as the orders claimed in the Further Amended Statement of Claim are drafted using terms which are defined in the body of the Statement of Claim, the drafting will need to be modified, so that the orders are self-contained. If the undertakings which I have identified in paragraph 67 above are forthcoming, the appropriate way to deal with the Four Properties would be by directing the liquidator to take no further action to recover the Four Properties or their proceeds of sale without further order of the Court. If this Court were to make an order of that kind, the order of Cohen J in the Family Court relating to the Four Properties would then operate unimpeded.

I direct the parties to bring in Short Minutes of Order to give effect to these reasons for judgment. At the time those Short Minutes of Order are brought in, any argument about costs can occur.