The evidence of statutory office-holders, such as liquidators, receivers and administrators is sui generis. Whilst they step into the shoes of the company upon taking office, they come to the company as strangers and their understanding of events derives largely from the documents available to them. In circumstances where office-holders have a duty to investigate the company’s affairs and the circumstances that precipitated its collapse, evidence from a statutory office-holder which details investigations undertaken, explains the financial position of the company, and describes the contemporaneous evidence has been recognised as serving a useful and important function. Accordingly, the case law demonstrates a greater flexibility toward permitting such evidence in adversarial proceedings.
A recent decision demonstrating this flexible approach is Re Alora Developments 104 Pty Ltd (in liq) [2024] NSWSC 335.
Re Alora Developments 104 Pty Ltd (in liq)
The proceedings alleged claims by the Company (Alora) and its Liquidator (McKenna), against the former de jure and de facto and/or shadow directors and a related entity for insolvent trading, unreasonable-director related transactions and uncommercial transactions, and breaches of directors’ duties.[1]
In support of these claims, the Company and its Liquidator relied on two affidavits of the Liquidator, which gave evidence as to:
The defendants challenged the admissibility of the Liquidator’s affidavit evidence, on the basis that the Liquidator should have complied with Rule 31.23 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) (Code of Conduct) and the Expert Witness Code of Conduct in Schedule 7 of the UCPR, in particular as to the requirement for independence:
“2 General duties to the Court
An expert witness is not an advocate for a party and has a paramount duty, overriding any duty to the party to the proceedings or other person retaining the expert witness, to assist the court impartially on matters relevant to the area of expertise of the witness.”
Relying on the definition of “expert witness” in UCPR 31.18, Justice Black dismissed the challenge in short order on the basis that the Liquidator had not been “engaged or appointed” to give evidence – instead, the Liquidator was simply giving evidence in his own case. Therefore, UCPR 31.23 did not apply. It should be noted that the Federal Court and other State and Territory Supreme Courts use the same definition of “expert witness.”[2]
Alternatively, if UCPR 31.23 had applied, Justice Black held that he would have dispensed with its requirements had he been asked to do so and had it been necessary to do so.
Justice Black acknowledged that whilst he had reached this conclusion as a matter of textual construction, this conclusion was also consistent with previous case law, which had held that:
Ultimately, Justice Black admitted the Liquidator’s affidavit evidence in its entirety as being both (i) expert opinion evidence; and (ii) submission (and not as proof of facts), pursuant to limiting orders in s 136 of the Evidence Act 1995 (NSW).[3]
Other Key Cases
In addition to Alora, a number of other decisions in Australia have recognised the evidential value of liquidator’s evidence and the flexible approach to its receipt in proceedings brought by the company or the liquidator. See for example:
The Court rejected the suggestion that that report was inadmissible on the basis of bias / partiality since the Liquidator had an interest in the outcome of the proceedings. The Court further held that even if bias / partiality was demonstrated, this would go to weight, and not admissibility.
The Court rejected the director’s claim that this evidence was inadmissible, per se, on the grounds of lack of independence. The Court remarked that that it would be undesirable to treat Liquidators’ evidence as inadmissible in matters of this kind, where that decision would impose an undue financial burden on the insolvent administration of companies generally.
The Court further remarked that there was no principle in Australian law which would render the Liquidator’s evidence inadmissible, based merely on alleged independence. That fact went to weight.
The evidence was admitted as expert opinion evidence, or alternatively as a submission as to the facts upon which the Court should find that the company was insolvent. The Court rejected the claims that the Liquidator’s evidence was inadmissible as being based on specialised knowledge and on assumed facts which had not been established.
Looking Ahead
It appears that Australian Courts will continue to afford a degree of flexibility to office-holders giving evidence in support of claims brought by office-holders and/or the company.
Notwithstanding, to protect against challenges to admissibility, it is important keep the ‘basis rule’ front of mind when preparing expert opinion evidence of office-holders. That is, the office-holder must “either prove by admissible means the facts on which the opinion is based, or state explicitly the assumptions as to fact on which the opinion is based.”[4]
Consideration should also be given to adopting the approach taken in England, whereby the Courts have permitted the office-holder to adduce evidence from an independent expert to review the office-holder’s evidence, identify any inadequacies in the methodologies adopted by the office-holder, any errors in any calculations undertaken, or any unreasonable assumptions adopted. Such an approach was recognised by Patten J in Re BCCI (No 14) [2003] BCC 735, [2003] EWHC 1868 (Ch) as being an appropriate way to deal with independence concerns in a liquidation context.[5]
[1] See Alora Davies Developments 104 Pty Ltd (in liq) v Raphael [2024] NSWSC 547.
[2] Court Procedures Rules – Schedule 1 (ACT); Practice Direction No 6 of 2015 (NT); Supreme Court of Tasmania Practice Direction No 1 of 2016 (Tas); Supreme Court of Victoria Form 44A (Vic); Expert Evidence Practice Note (GPN-EXPT) – Annexure A (Cth).
[3] Section 136 gives the Court a discretion to limit the use to be made of any evidence where there is a danger that a particular use of that evidence might be unfairly prejudicial to a party or misleading or confusing to the Court. See also other statutory equivalents: Evidence Act 2011 (ACT), s 136; Evidence (National Uniform Legislation) Act 2011 (NT), s 136; Evidence Act 2001 (Tas), s 136; Evidence Act 2008 (Vic), s 136; Evidence Act 1995 (Cth), s 136.
[4] See Collins Thomson Pty Ltd (in liq) v Clayton [2002] NSWSC 366 at [33]-[34] referring to Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305.
[5] For further English cases on liquidator evidence see Re TMG Brokers Ltd (in liq) [2021] BCC 756, [2021] EWHC 1006 (Ch); Re Mobigo Ltd (in liq) [2022] EWHC 1349 (Ch).
