Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd

Applicable principles and their application to the proposed Mastoris Proceedings

1. Mr Withers, who appears with Mr Ball for Mr and Mrs Findlay, submits that Mr and Mrs Mastoris' application for leave to proceed raises "important questions of principle" as to how principles relating to the grant of leave under s 500(2) of the Corporations Act interact with developing principles relating to the existence of overlapping class actions. The position in respect of overlapping class actions has been considered, for example, in Smith v Australian Executor Trustees Ltd [2016] NSWSC 17 at [21], where Ball J distinguished the position in Canadian jurisdictions which contain a requirement for certification of a class proceeding by the Court, before it is commenced, and observed that: "It is not appropriate to apply a fixed rule that no more than one representative proceeding can be permitted to continue and that the Court should determine which one that is." Mr Withers distinguished that decision and submitted that the intersection between overlapping class actions and s 500(2) of the Corporations Act imposes a quasi-certification procedure akin to that which exists in offshore jurisdictions. The question of overlapping class actions was also considered in McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd [2017] FCA 947, where Beach J observed (at [54]), that under Australian class action procedures, both of the proceedings were "presumptively entitled to go forward, absent vexation, oppression or an abuse of power".
2. Mr and Mrs Findlay rely on the leave requirement under s 500(2) of the Corporations Act to seek to avoid the result that both the Findlay Proceedings and the Mastoris Proceedings could go forward in parallel. That section relevantly provides that, after the passage of a resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against a company except by leave of the Court and subject to such terms as the Court imposes. Broadly, the purpose of this section is to prevent a company's assets being dissipated by unnecessary litigation, and an applicant for leave will be required to show why it should not be left to prove its debt in the winding up: Re Gordon Grant & Grant Pty Ltd [1983] 2 Qd R 314; (1983) 7 ACLR 669; (1983) 1 ACLC 742; HFPS Pty Ltd (Trustee) v Tamaya Resources Ltd (in liq) (No 1) [2016] FCA 442 at [18]. The claimant must establish that the claim has a solid foundation and gives rise to a serious question to be tried; factors relevant to the exercise of the court's discretion may include the degree of complexity of legal and factual issues and the prospect that a proof of debt will be rejected; and the power to grant leave is discretionary and other factors may be relevant to its exercise: Re AJ Benjamin Ltd (in liq) [1969] 2 NSWR 374; (1969) 90 WN (Pt 1) (NSW) 107; Swaby v Lift Capital Partners Pty Ltd (in liq) [2009] FCA 749; (2009) 72 ACSR 627 at [29]; Global Partners Fund Ltd v Babcock & Brown (in liq) [2010] NSWSC 270; (2010) 267 ALR 144 at [169] , on appeal [2010] NSWCA 196; (2010) 79 ACSR 383 at [47], [93]; Applied Leasing Centre Australia Pty Ltd v Shepard [2011] FCA 443. Leave under this section will more readily be granted where a claim is likely to be, or is arguably, covered by insurance: Foxcroft v The Ink Group Pty Ltd (1994) 15 ACSR 203 at 204; Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (recs and mgrs apptd) (in liq) (No 2) [2009] FCA 42 at [42]-[45]; Latimer v Cutwood Panels Pty Ltd (in liq) [2012] WASC 408 at [13].
3. Mr Withers also refers to the observation of Foster J in Eopply New Energy Technology Co Ltd v EP Solar Pty Ltd [2013] FCA 356 at [22(b)] that: "In determining whether leave should be granted, the Court considers whether the balance of convenience lies in allowing the applicant to proceed by way of action to judgment, or whether the applicant should be left to pursue his or her claim by lodging a proof of debt with the liquidator. The matter is one of discretion and the onus is on the applicant to demonstrate why it is more appropriate in respect of the particular claim, to proceed by way of action."
4. Mr Withers also relies on the observation of Foster J in Rushleigh Services Pty Ltd v Forge Group Ltd (in liq) (recs and mgrs apptd) [2016] FCA 1471 at [15(c)] that one of the purposes of s 500(2) is to avoid the result that "a corporation in liquidation would be subjected to a multiplicity of actions that would be both expensive and time-consuming, as well as in some cases completely unnecessary".
5. Mr Williams, who appears with Mr Edwards for Mr and Mrs Mastoris, submits that leave should be granted to commence the Mastoris Proceedings because their proposed claim has a solid foundation and gives rise to a serious dispute; there are good reasons to depart from the conventional procedure of lodging proofs of debt in relation to the proposed claim; and there is no oppression to the liquidator of DSH or unfairness to the group members of any existing proceeding by leave being granted. The first and second of those propositions, and the third proposition so far as it related to oppression to the liquidator of DSH, were not in contest in this application, which ultimately turned on the question whether leave should not be granted as to those parts of the Mastoris Proceedings which would overlap with the Findlay Proceedings, because of the impact of the commencement of the proposed Mastoris Proceedings on the Findlay Proceedings.
6. I am satisfied that the proposed Mastoris Proceedings have a solid foundation and give rise to a serious dispute, having regard to the terms of the pleading, the several documents tendered and Mr Williams' submissions, and neither DSH, by its liquidators, or Mr and Mrs Findlay contended to the contrary. I am also satisfied that there are good reasons to depart from the proof of debt process, given the number of claims that would be involved in the proposed Mastoris Proceedings; the likely complexity of calculations of liability and loss, which would depend, inter alia, upon market causation claims and expert evidence; and the likelihood that a judgment would be necessary, in any event, so as to obtain access to DSH's insurance coverage. In principle, those matters would support the grant of leave, in respect of the proposed Mastoris Proceedings, in the same way as they would have supported the grant of leave in respect of the Findlay Proceedings, and any further proceedings that might be brought by individual shareholders or by way of other representative proceedings in respect of the matter. As Mr Williams points out, it is likely that the grant of leave for the commencement of the proposed Mastoris Proceedings as representative proceedings would also reduce the number of claims brought against DSH, by comparison with the position if shareholders who would presently participate in the proposed Mastoris Proceedings sought to bring individual proceedings against DSH.
7. Mr and Mrs Findlay do not oppose the grant of leave for Mr and Mrs Mastoris to commence the Mastoris Proceedings in respect of claims that do not overlap with the Findlay Proceedings. An order refusing leave to proceed against DSH, in respect of the Mastoris Proceedings and as to the overlapping period, would also not prevent Mr and Mrs Mastoris, or members of the relevant class, bringing claims against DSH's directors and officers in respect of the overlapping period. I recognise that they have not yet done so, while reserving the position that they may do so.

Whether the proposed Mastoris proceedings will cause "unnecessary" expenses to be incurred by DSH

1. Mr Withers drew attention in submissions to a high degree of overlap between the Findlay Proceedings and the Mastoris Proceedings in respect of the claims for misleading and deceptive conduct between 16 February 2015 and 3 January 2016, which is the area of overlap between the two proceedings. In oral submissions, Mr Withers took me through the pleadings in the Findlay Proceedings and the Mastoris Proceedings in considerable detail, identifying extensive overlap between those claims (T24ff). I proceed on the basis that there is a substantial overlap, not only in the subject matter of the pleading, and in the facts claimed, but also in the structure of the relevant claims for that period.
2. Mr Williams responds by pointing to the distinctions between the Mastoris Proceedings and the Findlay Proceedings, so far as the Mastoris Proceedings extend to an earlier starting point, on 14 November 2013, and also introduce the prospectus allegations that are not pleaded in the Findlay Proceedings. Mr Williams points out that, so far as both the Findlay Proceedings and the Mastoris Proceedings bring similar claims for misleading and deceptive conduct over a common period, the claimants are not identical, because group members in the Findlay Proceedings are entitled to opt out of those proceedings, and the claim brought in the Mastoris Proceedings is brought on behalf of clients of JWS or the relevant litigation funder who are contractually obliged to opt out of the Findlay Proceedings (Johnston 8.12.17 [7(c)]). That matter is reflected in the definition of Group Members in paragraph 1 of the draft Statement of Claim for the Mastoris Proceedings, which is an open class for the period in which claims are not brought in the Findlay Proceeding, but is a closed class for the period from 15 February 2015 to 3 January 2016, extending only to persons who have signed a funding agreement with the funder that is funding the Mastoris Proceedings, and excluding Mr and Mrs Findlay and persons who are clients of the solicitors acting in the Findlay Proceedings or have signed a litigation funding agreement with the funder of those proceedings. Mr Williams points out that, by reason of the group member definition adopted in the proposed Statement of Claim for the Mastoris Proceedings, there will be no overlap in representation, at least after the date of opt out, between the group members in the Mastoris Proceedings and the Findlay Proceedings.
3. Mr Withers identifies several bases on which Mr and Mrs Findlay oppose the grant of leave to commence the Mastoris Proceedings, to the extent the misleading and deceptive conduct claims brought in them over the relevant period overlap with the Findlay Proceedings. First, Mr and Mrs Findlay oppose the application on the basis that it would cause "unnecessary expense" to be incurred by DSH in defending matters in respect of which three proceedings are already on foot, namely the NAB Proceedings, the Receivers' Proceedings and the Findlay Proceedings for which the same pool of insurance monies is already exposed. As Mr Withers points out, Beach J identified several forms of duplicated costs, in overlapping class actions, in McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd above at [43]-[44], although his Honour also there emphasised the ability to reduce duplication in those costs by case management.
4. I have no doubt that the costs incurred in the defence of the proceedings will be substantial where, as Mr Withers points out, five legal firms and at least seven Counsel are already engaged across the NAB Proceedings, the Receivers' Proceedings and the Findlay Proceedings to represent DSH, the two directors that are party to each of the NAB Proceedings, the Receivers' Proceedings and the Findlay Proceedings, and the other directors who are party only to the Receivers' proceedings. Presumably, the additional costs incurred in the defence of the Mastoris Proceedings will further erode the relevant insurance cover. Those additional costs would likely result even if leave is not granted for the overlapping claims in the two proceedings, where leave to bring the non-overlapping claims is not opposed.
5. Whether the expense of conducting the Mastoris Proceedings in respect of the overlapping claims is "unnecessary" is perhaps a matter of perspective. Plainly, the additional costs of the overlapping claims in the Mastoris Proceedings would be "unnecessary" from the perspective of Mr and Mrs Findlay, class members in their proceedings and their funders, because their interests are represented by the Findlay Proceedings. However, the proposed Mastoris Proceedings, and the additional costs associated with them, would be necessary from the perspective of Mr and Mrs Mastoris and the class members in those proceedings, if they do not wish either to participate in the Findlay Proceedings or to abandon their claims against DSH. It seems to me that the premise of Mr Withers' submission, that any second class action or further proceedings is "unnecessary" because its participants could join a first class action, gives too little weight to the fact that those participants may prefer to be represented by legal representatives of their choice, or possibly enter a different form of funding agreement, or (as here) advance a wider case than would be available to them in the Findlay Proceedings and not split their claims so that part of them were run in that part of the Mastoris Proceedings for which leave is not opposed and part of them could only be run in the Findlay Proceedings.
6. Mr Williams responds that there will be no "dilution" of damages rateably available to group members who remain in the Findlay Proceedings at settlement or judgment by the commencement of the proposed Mastoris Proceedings. I accept that any damages awarded in the Mastoris Proceedings, so far as they relate to the prospectus, may be covered by the Prospectus policy which would otherwise not respond to the claim in the Findlay Proceedings. However, as I have noted above, recoveries against the D&O policy are likely to be diluted, so far as part of DSH's additional costs of the defence of the Mastoris Proceedings would likely be claimed against that policy. I have also noted above that that would occur to some extent, even if leave for the overlapping claims was not granted, so far as leave for the non-overlapping claims is not opposed.
7. Mr Williams also submits that there is little reason to be concerned about the effect of increasing defence costs on the total damages recoverable in the several proceedings. He draws attention to the Court's ability to case manage parallel representative proceedings and, in an appropriate case, to close one or other of parallel class actions so as to avoid overlap between class members. I accept that there is room for the Findlay Proceedings and the Mastoris Proceedings to be case managed, and possibly heard together with each other and the NAB Proceedings and the Receivers' Proceedings, to seek to minimise the duplication in defence costs. It seems to me that there is nonetheless likely to be an increase in total costs, by reason of the commencement of additional proceedings. I cannot conclude, however, that that increase outweighs the interest of Mr and Mrs Mastoris, and class members, in their choice of legal representative, funder, the terms of their funding arrangement and the scope of their claims. I return to that question below.

Whether the proposed Mastoris Proceedings will "intermix" insurance proceeds

1. Second, Mr Withers submits that the commencement of the Mastoris Proceedings would "create a risk that otherwise separate pools of insurance monies will intermix to the detriment of the insurance monies available to meet the three sets of proceedings already on foot". I have recognised above that the additional claim on the D&O policy, arising from the additional costs of the Mastoris Proceedings, will potentially be detrimental to other claimants against that policy, including NAB, the Receivers, Mr and Mrs Findlay and class members in the Findlay Proceedings. The further claim in respect of intermixing of insurance monies depends upon the supposition that insurance monies from the D&O policy would be used in a way that benefits the defence of the prospectus claims brought in the Mastoris Proceedings, diminishing the pool of insurance monies available to the Findlay Proceedings, the Receivers' Proceedings and the NAB Proceedings, where the Mastoris Proceedings will be prosecuted and defended as a single proceeding.
2. It seems to me that this concern could readily be addressed by adequate financial accounting, rather than by declining leave to commence the Mastoris Proceedings. In particular, I can see no reason why the legal representatives acting in the defence of the prospectus claim in the Mastoris Proceedings would not or should not separately account for the costs of defending those claims. That course would substantially, if possibly not entirely, mitigate the risk identified by Mr and Mrs Findlay. In any event, it seems to me that that risk would still exist if, as Mr and Mrs Findlay accept, leave should be granted for the Mastoris Proceedings in respect of the prospectus claims and those claims which relate to a wider period than that which is brought in the Findlay Proceedings, even if it is not granted for the misleading and deceptive conduct claim for the overlapping period.

Whether there is no good reason to bring the proposed Mastoris proceedings

1. Third, Mr Withers submits that there is no "good reason" for Mr and Mrs Mastoris to bring the overlapping claims given that they and any group members are already part of the "open class" in the Findlay Proceedings. This submission involves several issues, which overlap to some extent with Mr Withers' first submission.
2. A first issue is whether it would be premature, in an application for leave under s 500(2) of the Corporations Act, to determine which of two overlapping class actions should be permitted to proceed and on what terms, by declining leave to commence one of them. Mr Williams submits (T13), and I accept, that the Court would ordinarily not have sufficient information in relation to, for example, the number of participants in a class at the leave stage in order to determine whether a particular class action should not be permitted to proceed notwithstanding that, for example, it involved a larger number of participants than an earlier class action for which leave had been granted.
3. A second issue is the weight to be given to Mr and Mrs Mastoris' wish, and that of class members in the Mastoris Proceedings, to bring their own claims. I approach that question in the context that Mr and Mrs Mastoris, and other class members in the proposed Mastoris Proceedings, have a statutory right to opt out of the Findlay Proceedings, which is intended to protect their ability to bring separate proceedings if they wish to do so. It seems to me that the right contemplates the possibility of further proceedings that raise similar issues to earlier proceedings and that the plaintiffs and class members in such further proceedings may wish to bring separate claims or have separate legal representatives. I can see no basis, in the face of the opt-out provisions, for any assumption that the named plaintiffs or class members in a second class action "ought" to participate in a first class action, simply because it was commenced first.
4. A third issue is when the existence of a first class action should prevent the grant of leave for further proceedings under s 500(2) of the Corporations Act. There was a degree of uncertainty, or at least flexibility, in Mr Withers' position as to that issue. In oral submissions, Mr Withers initially indicated that it was "not necessarily" Mr and Mrs Findlay's position that, once the Findlay Proceedings had commenced, no other individual claim could be brought in respect of the same matters, and submitted that the matters that arise from the commencement of the Mastoris Proceedings, as a class action, differ from those which arise from an individual claim (T29). To the extent that such a difference exists, it is plainly a matter of degree. If one, or more than one, individual claim was brought, after the Findlay Proceedings were commenced, then DSH would likely incur additional costs in defending those claims, just as it would likely incur additional costs in defending the Mastoris Proceedings as a class action. It would, however, be a surprising result if the commencement of the Findlay Proceedings were to shut out the possibility of alternative claims brought by individual shareholders, where that would be inconsistent with an opt out regime that preserves shareholders' ability to bring such claims. That concession highlighted the difficulty in identifying a principled basis on which leave should be granted for the commencement of the Findlay Proceedings, and subsequently for individual proceedings by one or more claimants bringing similar claims, but not for all such claims, unless the number of claims required that leave be declined for all of those proceedings (including the Findlay Proceedings) on the basis of the multiplicity of actions.
5. Mr Withers somewhat altered that position, later in submissions, and submitted that: "If leave is being granted to a class and if individuals come along and they are members of that class and the claim they wish to bring is framed in the same way as the claim that is already on foot, then there would not be good reason to grant the first person to come along afterwards leave to proceed." (T31) That submission takes the position that, once a first class action has been filed, all other litigants should be shut out from leave, notwithstanding any merits of their claim. Mr Withers ultimately put that Mr and Mrs Findlay's submission was that, once the first class action had been commenced, there could be no others, because there was no good reason for subsequent plaintiffs to prefer to have their own legal representatives run the case (T31).
6. Mr Withers also submits that, rather than Mr and Mrs Mastoris and class members being left to lodge a proof of debt, or permitted to commence the proposed Mastoris Proceedings in respect of the overlapping claims, it is open to them to join the Findlay Proceedings in respect of those overlapping claims and, implicitly, pursue the Mastoris Proceedings in respect of the non-overlapping claims.
7. Mr Williams submits that the approach for which the Findlay parties contend would create an undesirable incentive to be the first to commence a class action against a company in liquidation, so far as it may allow the first class action to be granted leave under s 500(2) of the Corporations Act (and its legal representatives and funders) to achieve a monopoly, such that the other claimants are left to the choice to join it or be excluded from their claims. Mr Withers responds that the difficulty in this case is not a "race" to bring the first class action, but the unnecessary erosion of insurance monies caused by the duplication of work in defending substantially the same causes of action during the same periods.
8. Mr Williams also submits, with substantial force, that it is not open to one group of creditors to seek to prevent additional creditors from making claims that may compete for access to a pool of assets, relevantly, DSH's insurance cover, and that there would be injustice in the Court granting leave for the commencement of the Findlay Proceedings on the basis that insurance is available and then denying leave to subsequent claimants in a similar position because the Findlay Proceedings had previously been commenced. Mr Williams submits that a leave application should not be used as a means of coercing participants in a second class action, which is not permitted to proceed, to be represented by the legal representatives engaged in the first class action and to enter into a commercial relationship with the litigation funder to that first class action; and that, even if the applications for leave to bring two class actions had been brought simultaneously and the Court was able to assess their respective merits rather than simply permit the first class action and refuse leave to the second, the Court would still not exercise the jurisdiction to grant or withhold leave under s 500(2) of the Corporations Act as a means of determining which of those class actions was to proceed (T13).
9. It seems to me that the approach for which Mr and Mrs Findlay contend would create an undesirable incentive to be the first to commence a class action and shut out competing actions. While I accept that the erosion of insurance proceeds by DSH's costs of defending multiple actions would be undesirable, the solution to that difficulty cannot be to grant leave to the Findlay Proceedings and then decline leave to the Mastoris Proceedings, merely because the Findlay Proceedings came first. It may be that a possible solution would have been to decline leave to both proceedings, where the erosion which Mr Withers identifies was already at least a possibility, at the time leave was granted to commence the Findlay Proceedings, but neither party contends for that course. If that course is not taken, then the principled course is not to decline leave to the second proceedings, simply because they are second, but to leave the relevant issues to be addressed by well-established practices as to the management of class actions.
10. It also seems to me that Mr Withers' submission that Mr and Mrs Mastoris and class members in the proposed Mastoris Proceedings should simply join the Findlay proceedings in respect of the overlapping claims gives too little weight to their choice as to the manner in which their proceedings are to be commenced, their choice of legal representatives and, indeed, as to litigation funder and as to the terms on which litigation funding is to be obtained. It also gives too little recognition to the difficulties arising from the fact that Mr and Mrs Mastoris and class members in the proposed Mastoris Proceedings would then have their claims split between two proceedings conducted by different legal representatives and funded by different funders.
11. Mr Withers also recognised in submissions that, in McKay Super Solutions Pty Ltd (Trustee) v Bellamy's Australia Ltd above, Beach J (at [39]) pointed to the fact that a stay of a second and overlapping class action may have the result that the individual members of that class action commence proceedings, which would be more vexing or oppressive of a defendant than the existence of a second class action. Mr Withers submitted that that issue did not arise here, because dissatisfied group members' ability to institute fresh proceedings was fettered by the requirement to obtain leave under s 500(2) of the Corporations Act, and the balance of convenience more readily favours a limitation on the commencement of an overlapping class action. I do not accept that submission, where it seems to me that either there is a likelihood of a multiplicity of proceedings and leave should be declined for all proceedings, including the Findlay Proceedings (for which it was granted without opposition) or there is not and leave should be granted for all proceedings that otherwise satisfy the requirements for leave. As I have noted above, I cannot see a principled basis on which the first proceeding is granted leave, merely because it was first, and all others are not.
12. I should add that, as I noted above, Mr and Mrs Findlay do not oppose the grant of leave to commence the Mastoris Proceedings in respect of claims that do not overlap with the Findlay Proceedings. It seems to me that that qualification to their position undermines its logic, because it follows that the Mastoris Proceedings will exist in any event, and the costs of defending them will be an additional claim against the insurance policies in any event. The approach for which Mr and Mrs Findlay contend would also have the consequence that Mr and Mrs Mastoris and members of the class they represent would be forced either to participate in two proceedings, and deal with two sets of legal representatives, in respect of their claims, which would be split between the two proceedings, or alternatively abandon the claim that they were not permitted to bring in the Mastoris Proceedings.
13. I should also note, for completeness, that Mr Withers identified one further difficulty which he contended (T33) would arise from the form of the Mastoris Proceedings, namely that Mr and Mrs Mastoris pleaded that the relevant directors knew, or ought to have known, that the relevant statements were misleading, but the Findlay Proceedings pleaded only that the relevant directors ought to have known that matter. Mr Withers submitted that that would cause difficulty because, if DSH's directors knew that matter, then an exclusion to their insurance coverage would be established. I recognise, of course, that it would be a matter of considerable disappointment to Mr and Mrs Findlay, or indeed Mr and Mrs Mastoris, and members of the respective classes if the proceedings were brought, but DSH's or directors' insurance cover did not respond to the relevant claim. However, there is no inconsistency with the interests of justice in a finding to that effect, if that is the true position, or any result that the directors' insurers were not obliged to indemnify them. If that is the consequence of the case that Mr and Mrs Mastoris seek to advance, it does not seem to me that Mr and Mrs Findlay may fairly complain that they are disadvantaged because, on that hypothesis, the fact that DSH or its directors are not entitled to indemnity emerges.
14. Mr Withers also submitted that the allegation of actual knowledge put in the Mastoris Proceedings would leave Mr and Mrs Findlay in the difficult position of both having to prove constructive knowledge and to resist the allegation of actual knowledge made in the Mastoris Proceedings (T37-38). While I accept that there is some complexity in that position, if (as may well be likely) the Findlay Proceedings and the Mastoris Proceedings were heard together, that is no more than the usual consequence of two parties taking different positions in complex litigation and not a reason to decline leave to commence the Mastoris Proceedings.

Orders and costs

1. For these reasons, and notwithstanding Mr and Mrs Findlay's submissions, I am satisfied that I should grant leave for the commencement of the Mastoris Proceedings under s 500 of the Corporations Act, and I order accordingly. All parties accepted that if leave was to be granted, the Mastoris Proceedings should be listed for directions in the Commercial List at the same time as the NAB Proceedings, the Receivers' Proceedings and the Findlay Proceedings are already listed, and that seems to me to be a sensible course. It will be a matter for the Commercial List whether the Mastoris Proceedings are then managed together with, or heard together with the other proceedings. I will hear the parties as to costs.

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