- Allandale Blue Metal Pty Ltd v Roads and Maritime Services

Judgment 1By Originating Process filed on 16 December 2013, Mr Adam Shepard as administrator of Metal Storm Ltd and Metal Storm Ltd (subject to deed of company arrangement) ("Company") sought declaratory relief as to the construction of a Convertible Notes Trust Deed dated 11 July 2006 between the Company and the First Defendant, ANZ Trustees Ltd ("ANZ Trustees"). A substantial holder of secured and unsecured convertible notes issued by the Company, the Australian Special Opportunity Fund LP ("ASOF"), was joined in respect of the application. The Plaintiffs also sought an order that, if the construction of the trust deeds for which they contended was not correct, Mr Shepard be appointed as receiver of the assets and undertaking of the Company. 2The proceedings have subsequently been complicated by the filing of further applications by other parties to them. By Interlocutory Process filed on 10 February 2014, and subsequently amended, ANZ Trustees sought a declaration that it was not required to comply with a written resolution of noteholders dated 13 December 2013; that the administration is not an "enforcement" for the purposes of the Security Trust Deed; orders for the appointment of different persons as receivers of the assets and undertaking of the company; several directions under s 283HA of the Corporations Act 2001 (Cth); declarations that it is entitled to an indemnity secured by an equitable lien in respect of certain amounts; and directions that ASOF is obliged to pay certain amounts or indemnify ANZ Trustees against those amounts and orders that the administrators pay certain amounts to ANZ Trustees. ANZ Trustees' Interlocutory Process was further amended, by leave, on 10 March 2014 to include claims for relief under s 283HA of the Corporations Act and the Trustee Act 1925 (NSW). The most recent amendment of that interlocutory process, filed on 14 March 2014 by leave, also seeks a declaration or alternatively a declaration under s 283HA of the Corporations Act or relief from liability under s 85 of the Trustee Act in respect of an additional question arising in respect of the fact that ANZ Trustees did not appoint a controller to the Company at the time it was placed in administration, for reasons addressed in the evidence. 3By Interlocutory Process dated 7 March 2014, ASOF in turn seeks orders as to the admission of its proof of debt by the administrators or, in the alternative, a declaration that ANZ Trustees is obliged to attend and vote at a creditors' meeting in accordance with its instructions. It should be noted that other noteholders whose interests may well be adversely affected by the declarations sought by ASOF have not been joined as parties to the proceedings, and that may be a matter that may cause difficulty in the future. That claim is in turn proceeding by pleadings and ASOF filed its cross-claim in that regard on 9 April 2014, to which ANZ Trustees had last not yet filed a defence. 4By Amended Interlocutory Process filed on 14 April 2014, ASOF in turn seeks, relevantly, an order that a hearing of these matters already set down on 28-29 May 2014 be confined to certain matters, namely, the issues raised by the deed administrator's Originating Process (excluding a claim by ASOF for priority so far as it had advanced funds to the administrators or deed administrators); ASOF's claims in the Interlocutory Process in respect of admission of its proof of debt and ASOF's claim that ANZ Trustees is obliged to attend and vote at creditors' meetings in accordance with ASOF's instructions; issues raised by ANZ Trustees as to whether it was obliged to act in accordance with ASOF's instructions; whether the administration amounted to an enforcement process and whether ANZ Trustees was a creditor entitled to vote at creditors' meetings and certain other relief, but excluding directions or declarations justifying ANZ Trustees' conduct to date or orders relieving it from liability under s 85 of the Trustee Act. It will immediately be noted that the form of separate question sought by this Interlocutory Process, if it is properly characterised as that, involves a detailed and complex dissection of some issues in the proceedings from other issues in the proceedings, involving choosing some but not other paragraphs of various Interlocutory Processes. 5The application is, in effect, an order for the determination of a separate question under Pt 28 of the Uniform Civil Procedure Rules 2005 (NSW) which permits the Court to make orders for the decision of any question separated from any other question, whether before or after any trial or further trial in the proceedings. In determining whether to make such an order, the Court must have regard to the matters referred to in ss 56 to 59 of the Civil Procedure Act 2005 (NSW). The parties addressed the principles applicable to making such an order in their respective submissions. It is common ground that, in the ordinary course, all issues arising in a hearing will be determined together and that care should be taken to avoid fragmentation of proceedings, potentially causing further delay, expense and hardship: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142. Nonetheless, the Court may need to take a more interventionist role in ordering separate questions to reflect the requirements of s 56-59 of the Civil Procedure Act and bring about the just, quick and cheap determination of the real issues in dispute: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2006] NSWSC 1464 at [6]. 6The Court of Appeal has recently summarised the applicable principles in Allandale Blue Metal Pty Ltd v Roads and Maritime Services [2013] NSWCA 103 at [87]-[92]. Ward JA noted that a separate determination of an issue may be appropriate where it will resolve the entirety of the controversies or substantially narrow the field of litigious controversy, and this does not require that the determination of that question will finally dispose of the litigation or one or more issues in it. Her Honour recognised that the cases have emphasised the need for caution in exercising such a power and also recognised that such questions can delay rather than expedite the resolution of proceedings. Ward JA noted that a decision whether to order a separate question required a balancing exercise as to the likely utility of determination of a separate question in the "expeditious and cost-effective case management of the proceedings, having regard to the interests of justice as between the parties". Her Honour also recognised (at [90]-[91], [94]) that a separate determination of an issue may not be appropriate where there are intertwined issues of fact or law, such that the determination of a separate question would not substantially affect the width of the controversy or the prospect of settlement of the balance of the litigation or where there is a possibility that the resolution of the separate issue will not finally determine that issue. 7The extent of overlap between witnesses and evidence to be given in respect of a separate issue and the trial, and any issues as to credit which would arise as to the separate issue, are also relevant: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215 at [7]; Wells v Commonwealth of Australia [2014] NSWSC 148 at [16]. 8Mr Hall, who appears for ASOF, submits that the hearing should be split because of the urgency of the issues. All parties accepted that the matters raised in these proceedings are urgent and the hearing was allocated early hearing dates on that basis; in particular, the deed administrator, for whom Mr Ryckmans appears, seeks to have the issues raised by his Originating Process resolved so as to progress a creditors' meeting to consider a variation to the Deed of Company Arrangement and presently has limited funding. It must be recognised, however, that the urgency of the matter supports the earliest possible hearing that will substantially determine the issues in it, and not a splitting of issues if that split would not substantially determine the issues or narrow the field of controversy or expedite the resolution of the proceedings under the principles noted above. 9Mr Hall also notes that the controversy as to who is entitled to vote at a creditors' meetings and whether ASOF can vote in its own right must be resolved so that a creditors' meeting can be held. Mr Hall points out that ASOF is presently funding the deed administrator and Metal Storm's business and has given notice that it may cease to do so; he rightly accepts that this matter needs to be approached with some caution, where that position is to some extent a matter of ASOF creating its own urgency in the proceedings. Mr Hall contends that issues proposed for determination on 28-29 May rely "almost entirely" on construction of the trust documents and points to the difficulty in hearing ASOF's claims for damages on that date. That difficulty may be mitigated in part by the Court's ability to allocate additional hearing dates in that week, if required by the parties, but there remains a real question whether the parties could be ready for a wider hearing by that date. The position is further complicated because the short time available to the hearing is the product of an earlier application by the deed administrator, supported by ASOF, which vacated hearing dates in late June and moved the hearing forward to late May 2014 because the deed administrator and his solicitor were both to be overseas at the dates then allocated for the hearing. It might be thought that there would be a degree of unfairness to ANZ Trustees in shutting it out of the determination of the issues it seeks to have determined, because of the short time available to prepare them, where the short time available to prepare them was in large part the product of the deed administrator's and his solicitor's holiday plans. 10Mr Hall contends it is desirable that the other issues, excluded from the separate question in ASOF's Interlocutory Process, which raised questions as to the trustees' compliance with its duties, the appointment of a controller and the amount due by ASOF under any indemnity, should be determined together with ASOF's cross claim. 11Mr Katekar, who appears for ANZ Trustees, responds that separating out the issues which ASOF proposes would not promote the just, quick and cheap resolution of the proceedings, would necessitate a further hearing as to the balance of those issues, would raise the risk that ANZ Trustees would then be required to seek interlocutory relief to protect its asserted lien, the validity of which would not have been determined, if any transaction was likely to proceed as a result of the determination of the separate issues; and that ASOF's application was otherwise not consistent with the principles under which separate issues are to be determined under Pt 28 of the Uniform Civil Procedure Rules. In reply, Mr Hall put, in what he acknowledged was somewhat general terms, ASOF's intent to take steps to preserve ANZ Trustees' position if a transaction was approved by creditors. It is difficult to give great weight to that submission, where the nature of the steps which would be taken has not been identified. 12Mr Katekar and other parties initially accepted that ASOF's claim for damages in its cross-claim would not be ready for hearing on the dates presently allocated and there should be a separate determination of that cross-claim. Mr Katekar subsequently recognised that position may raise difficulties, which had also been raised by the Court in the course of submissions, if there would be an overlap of issues involved in ANZ Trustees' claim for relief from liability and ASOF's attempt to establish liability as the basis of its claim for damages. That overlap may be lesser, or may not exist, in respect of issues as to the quantum of damages as distinct from liability, a matter to which I will return below. 13ANZ Trustees accepted that at least the "construction" issues, including whether ANZ Trustees was bound to follow ASOF's instructions, whether ASOF or ANZ Trustees was entitled to vote at a creditors meeting, and whether ANZ Trustees was obliged to follow ASOF's direction in doing so, whether receivers should be appointed and whether ANZ Trustees should hold meetings of different classes of noteholders, should be addressed at the hearing on 28-29 May. ANZ Trustees contended that the issues raised by the lien claimed by it and another lien claimed by ASOF also needed to be determined, and it would be prejudiced if those matters were not determined on those dates. 14All parties accepted that the issues characterised as the "construction" issues were not likely to require cross-examination or to raise credit issues, and this factor, which would otherwise be an obstacle to the determination of a separate issue, does not arise. 15In oral submissions, Mr Katekar somewhat modified ANZ Trustees' position, addressing further complexities arising from the additional issues raised by ASOF's claim for damages and the most recent amendments to ANZ Trustees' Interlocutory Process, which each raise an additional issue as to the fact that a controller was not appointed at the commencement of the administration. Mr Katekar noted in oral submissions that ASOF's damages claim was now based on two claims, first, that ANZ Trustees should have appointed a controller at the commencement of the administration and, second, that ASOF has suffered loss as a result of ANZ Trustees not following its direction. He noted that, as well as the option of not ordering a separate issue and either maintaining or vacating the existing hearing dates, or ordering a separate issue in relation to the "construction" questions as identified above, the Court could also defer the hearing of ASOF's cross-claim and the additional issues raised by ANZ Trustees' most recent amendment to a later date. Mr Hall in turn resisted the latter course, which, as he pointed out, would involve the division of legal issues arising under s 283HA of the Corporations Act and s 85 of the Trustee Act between the determination taking place as a preliminary issue and the balance of the hearing. 16Mr Ryckmans emphasised the importance of maintaining the hearing dates and the risk of loss of value if ASOF ceased to fund the deed administrator or the Company, and submitted that the most sensible course would be a separate determination of the "construction" issues, which may allow the deed administrator to put a proposed variation of the Deed of Company Arrangement to a meeting of creditors, and contended that those points would occupy less than the two days presently allocated. 17This application is by no means straightforward. The matter is urgent, and there is a real question as to whether all issues can be ready for hearing by the dates allocated, but those dates have been brought forward in the manner I have referred to above. There is real complexity in defining the separate issues sought to be determined and extracting them from the various other issues identified by the parties for determination. There seems to me to be at least a potential overlap between questions of construction, and questions of whether ANZ Trustees was justified in proceeding on a particular construction of the trust deed. It might be thought that, the more plausible a construction of the trust deed, the more likely that it might be held that ANZ Trustees was justified in proceeding on it, so that the arguments as to the merits of particular constructions will overlap with ANZ Trustees' application for relief in respect of proceeding on the construction which it adopted. It seems to me that there is at least some risk that any saving of time from any determination of questions of construction would be illusory, either because an appeal would then be brought from the Court's construction determination, or because a creditors' meeting which then took place and approved a variation of the Deed of Company Arrangement would prompt an interlocutory application for an injunction by ANZ Trustees to preserve its asserted lien, which would then delay the transaction, possibly for a longer period than bringing all matters to a final hearing, so that any acceleration by the separation of issues would be illusory. I am not satisfied that the construction questions, as broadly defined, or the wider range of matters identified in ASOF's Interlocutory Process, are sufficiently differentiated from other issues, so that there would be any substantial narrowing of the field of controversy by determining them, and it seems to me there is a substantial risk that an order for a separate question in the form sought would lead to the multiplication of appeals or the fragmentation of the proceedings, where issues as to the lien and indemnity asserted by ANZ Trustees would then have to be determined by further interlocutory applications, in order to allow any commercial transaction to go forward. 18I have concluded that the Interlocutory Process, in its present form, should be dismissed, and I am not convinced that any of the other alternative separation of issues canvassed in the course of submissions are appropriate. I will, however, hear the parties as to whether any more orthodox separation of, for example, issues of liability and quantum in respect of the claim for damages, together with the allocation of additional hearing days in the week in which the matter is presently set down for hearing, might allow the existing hearing dates to be maintained and otherwise promote the just, quick and cheap resolution of the issues in dispute consistent with s 56 of the Civil Procedure Act. My preliminary view is that ASOF should pay the costs of the application, as agreed or as assessed, but I will hear the parties as to that matter. Costs 19Mr Seares, who appears for ASOF when I delivered my judgment, made able submissions as to why an order for costs in the form contemplated above should not be made. In particular, Mr Seares contended that ASOF had not acted unreasonably where it had seen an expansion of the issues in the proceedings and had a concern as to whether the proceedings could be determined within the time available and had taken steps to address that concern. He also pointed to the complexity of the issues and to the changes in ANZ Trustee's position as to whether some parts of the hearing could be separated, a matter to which I have referred in my earlier judgment. 20I accept Mr Seares' submissions in that regard and, in particular, I accept that the application was reasonably made, in the sense that an issue had arisen which needed to be addressed. There is, however, no suggestion that an order for indemnity costs would be made against ASOF, or that any costs order in this regard is intended to be punitive, and there is no suggestion, as Mr Seares contended, that ASOF would be "punished" by an order for costs. An order for costs is compensatory in nature, when made on the ordinary basis, and the usual rule that costs follow the event simply reflects a well-accepted principle that the parties who successfully resist a particular application or, in the deed administrator's case, are drawn into it because their interests are affected by it and they are for that reason properly present for its hearing, ought to be compensated for the costs to which they are put by that application. This does not require any unreasonableness on the part of the party making the relevant application. 21I also accept, as Mr Seares has put, that ASOF could reasonably apprehend that the issues in the proceedings were expanding. However, the expansion of those issues, it seems to me, cannot be laid wholly at the feet of ANZ Trustees, since there was a significant overlap between the relief sought by ASOF and the relief sought by ANZ Trustees and indeed the relief sought by the deed administrator, in respect of the various complexities which arise in the application. 22For these reasons, I continue to take the view that ASOF should pay the costs of the application, as agreed or as assessed, without in any way suggesting it was unreasonable for the application to be brought. I therefore, order that: