It is being reported that – in an extroardinary move – the NSW Supreme Court has today removed Paul Weston as the special purpose liquidation of One-Tel, saying he had lost objectivity and “the capacity to properly and dispassionately focus on the purposes for which he was appointed”. The judgment is not yet on Austlii nor on the NSW Caselaw website as I post this (update: see below), but for now you can read the report on the Age website here.

After racking up at least $14 million in fees since his appointment in 2003, $5 million of which was incurred in the two year period 2009 to 2011, Mr Weston has been replaced by Stephen Parbery, a founding partner and the Chairman of PPB Advisory.

The overall liquidators of One.Tel are Steve Sherman and Peter Walker of Ferrier Hodgson. Mr Weston had been appointed as special purpose liquidator for a sole task: that of pursuing a $250 million damages claim against former directors of One.Tel, including James Packer and Lachlan Murdoch.

After at least six applications by Mr Weston for extensions of time for the serving of the writ upon the defendants, the case against Mr Packer and Mr Murdoch was finally dismissed by the NSW Court of Appeal earlier this year because of an excessive delay in serving it. In May, however, Mr Weston filed an application seeking special leave to appeal to the High Court. He has reportedly also filed fresh proceedings against Mr Packer and Mr Murdoch in the NSW Supreme Court, based in equity law, seeking to circumvent the limitation periods which constrained his previous claims.

The lack of harmony, even acrimony, between  Mr Weston and the Committee of Inspection (“COI”) – which represents the creditors – has been remarkable. It culminated in the application which was today successful, and which had been brought by Optus, One-Tel’s largest creditor, and supported by the second- and third-largest Telstra and Cisco Systems. However the bad blood apparently arose in 2008 when the COI disagreed with Mr Weston’s conduct of the case and held negotiations themselves with PBL and News Ltd to seek to settle the case. Mr Weston responded with a media release condemning the COI for their conduct in doing so, and the trouble acrimony appears to have snowballed from there. It is said that creditors passed a motion of no confidence in Mr Weston at their annual meeting in 2009, and again the following year, asking him to resign.

At an earlier hearing of this application, on 6 March 2012, Bergin CJ in Eq had reportedly referred to her concern that a liquidator held “animosity towards his creditors”. One can only imagine the malcontent engendered by Mr Weston incurring fees in conducting investigations inquiring into dealings between the main creditor, Optus, and PBL.

Her Honour Chief Justice Bergin reportedly said it had “certainly been demonstrated that the creditors have lost confidence in [Mr Weston’s] capacity to bring a dispassionate mind to bear in exercising his powers in the liquidation”, and that their loss of confidence was justifiable. Her Honour also noted concern that appropriate mechanisms had not been put in place to control expenditure.

Optus had also asked the Court for a court inquiry into Mr Weston’s conduct, but because an inquiry into his remuneration and expenses by ASIC is already under way, Bergin CJ reportedly said that this was premature. ASIC’s inquiry had been put on held pending the Court’s decision on this application, but it can be expected that it will now proceed.

On a final note, on 3 May 2012 One.Tel liquidators had obtained orders in the NSW Supreme Court from Hammerschlag J that they were justified in paying to the special purpose liquidator out of the assets of One-Tel his legal costs and disbursements for the period 1 October 2011 to 9 March 2012 in the amount of $981,424.32 plus GST. More accurately, the application was brought by Mr Weston, for an order that Messrs Sherman and Walker would be so justified. However, it is notable that those orders were made on an  undertaking from Mr Weston to repay legal costs if those costs were not properly incurred. You can imagine, then, the potential fall-out that may follow, were ASIC’s inquiry to result in findings adverse to Mr Weston. It is interesting also to note that, as pointed out in his Honour’s reasons, Mr Weston gave a further undertaking that he would provide Messrs Sherman and Walker with unredacted invoices detailing the legal fees and disbursements concerned (other than for privilege)…but only after payment was received. Justice Hammerschlag’s ex tempore judgment can be read here.

We await further developments with interest.

Postscript 21/6/12: The judgment is now available on Austlii – link.